Court of Appeal Victory for Keoghs and AXA: Credit Hire Organisations Now Routinely Liable for Costs

Keoghs has secured a landmark victory for its client, AXA Insurance, in the Court of Appeal case of AXA v Spectra Drive Limited. The judgment provides definitive guidance that credit hire organisations (CHOs) can, and generally should, be made to pay the defendant’s costs when a credit hire claim fails.

This outcome represents the successful culmination of a long-running strategic initiative by Keoghs to address one of the fundamental imbalances in credit hire litigation. Historically CHOs have been able to fund and control credit hire claims for their own commercial benefit, while shielding themselves from the costs of unsuccessful litigation due to the Qualified One-Way Costs Shifting (QOCS) protection of the claimant. This often left insurers facing irrecoverable costs, even when successfully defending exaggerated or unfounded claims.

The Court of Appeal has now corrected this position, establishing a clear framework that holds CHOs accountable as the “real party” to the litigation.

The Court of Appeal’s Decision

In a detailed judgment, Lord Justice Birss provided clear guidance for judges in future cases. He systematically dismantled the arguments previously used by CHOs to evade costs liability and established a new set of principles.

The key findings of the court include:

• The CHO is the “Real Beneficiary”: The court held that, as a matter of “practical and economic” reality, the CHO is the real beneficiary of litigation for credit hire charges. The fact that a successful claim also benefits the claimant by extinguishing their debt to the CHO does not alter this fundamental truth.
• Specific Proof of Causation is Unnecessary: The court recognised that the structure of credit hire agreements makes litigation (or settlement) the “only realistic means” by which a CHO can get paid. The agreement itself is therefore a “fundamental cause of the legal costs incurred by the defendant”. This establishes the necessary causative link for a non-party costs order (NPCO).
• “Effective Control” is Sufficient: The court found that CHOs have “effective control in practice” over the litigation. This control arises from the financial realities of the credit hire agreement, which puts “all the risk” on the claimant if they choose to settle or discontinue against the CHO’s wishes. The control does not need to be absolute or overtly exercised.
• QOCS is No Shield for CHOs: The judgment confirms that while QOCS protects claimants in personal injury cases, it was not designed to protect commercial non-parties like CHOs. A claim for credit hire is a claim made for the financial benefit of the CHO, falling squarely within the exceptions to QOCS.
• A New Presumption of Liability: The court concluded that when a QOCS-protected claim fails, an NPCO against the CHO is now “likely”, absent some special circumstances. Where the credit hire element is significantly larger than the personal injury claim, the CHO is likely to be ordered to pay all of the defendant’s costs.

Implications and Comment

The judgment clearly establishes that where a claim for credit hire fails, an NPCO against the CHO will now be the norm, rather than the exception. Applications for NPCOs against CHOs should therefore now become a routine step for insurers whenever a credit hire claim is discontinued or fails at trial.

Gary Herring, Partner and Head of Credit Hire, said:

“This is a transformative result for the insurance industry. It finally brings the legal recourse for costs into line with the economic and commercial realities of modern credit hire litigation, namely that the CHO is clearly the financial beneficiary and the controlling influence in any normal claim for credit hire charges. This judgment makes abundantly clear that it is the CHO who is now squarely on the hook for the costs of unsuccessful litigation, which we hope will finally instil a ‘healthy discipline’ and act as a strong deterrent to the presentation of unmeritorious or exaggerated claims.”

Deb Talbot, Senior Operational Manager, said:

“At AXA, our priority is the protection of our customers in an ever-evolving insurance landscape. This judgement represents a significant step forward for both AXA and the insurance industry, bringing legal recourse for costs in line with the economic realities of credit hire litigation. By recognising that Credit Hire Organisations (CHOs) are the primary beneficiaries in these claims, we are reinforcing our commitment to fairness and transparency. This ruling places the responsibility for unsuccessful litigation costs on the CHOs, which we believe will foster a healthier environment and deter unmeritorious or exaggerated claims. Ultimately, this not only safeguards our customers' interests but also ensures a more sustainable and responsible insurance framework.”

AXA were represented in both appeals by Jenny Milburn, Associate Solicitor, of Keoghs’ tactical credit hire team.

Contact:

Gary Herring – Partner, Head of Credit Hire

Jenny Milburn – Associate, Technical Manager