What Are Non-Party Costs Orders?
A non-party costs order, also known as a third-party costs order, requires an individual or entity not directly involved in the litigation to bear some or all of the costs. The authority for these orders originates from section 51 of the Senior Courts Act 1981.
The authorities, in particular Aiden Shipping Co Ltd v Interbulk Ltd (The Vimeira) (No 2) [1986] AC 965 and Dymoc Franchise Systems v Todd [2004] 1 WLR 2807, teach us that although such orders are exceptional, they are not confined to rare circumstances; whilst there is a distinction to be made between those funding litigation to benefit from its outcome (the "real party") and "pure funders" (those facilitating access to justice without direct financial interest).
In recent years, insurance companies have sought non-party costs orders against credit hire companies, especially in cases where claimants benefit from Qualified One Way Costs Shifting (QOCS) protection.
Background to case
In Smith, the claimant's vehicle was damaged in an accident, prompting her to engage Legal Assist, a claims management company, which arranged for a hire vehicle from Spectra. The claimant sought damages, including hire charges amounting to £11,809.94.
During proceedings, the defendant discovered that the claimant had insured another vehicle within ten days of the accident, and argued that this was good evidence that she had no need for a hire car. Subsequently, the claimant discontinued her case on the advice of her solicitors, resulting in adverse costs consequences.
The defendant then applied to:
1. Disapply the claimant's QOCS protection, on the ground of fundamental dishonesty.
2. Obtain a non-party costs order against Spectra, claiming it facilitated the hire arrangement and actively participated in the litigation.
At first instance, the court found the claimant fundamentally dishonest and determined that Spectra had exercised substantial control over the proceedings, warranting a non-party costs order for 65% of the claim's costs.
The Appeal
On appeal, HHJ Gargan rejected the allegation of fundamental dishonesty. The court found that while the claimant insured another car shortly after the accident, it was not available for use until the total loss claim had been resolved. Thus, her use of the hire vehicle was justified for the period of loss, preserving her QOCS protection.
The appeal also examined Spectra's role. HHJ Gargan concluded that:
- Spectra was not a funder of the litigation. It had no retainer with the claimant’s solicitors and did not control the day-to-day progress of the case.
- While Spectra stood to benefit financially from a successful outcome, this alone did not justify a non-party costs order.
- Had the case gone to trial, the claimant would have been partially successful, leaving the defendant responsible for its own costs and potentially liable for the claimant’s costs.
These factors undermined the basis for the non-party costs order. The court emphasised that the exceptional nature of such orders requires clear evidence of control, funding, or impropriety.
Conclusion
The judgment serves to reinforce the principle that non-party costs orders remain an exceptional measure, not to be imposed lightly. Spectra's role, while significant, did not meet the threshold for such an order.
