Keoghs secures test case victory against credit hire organisation

In a group action brought by Keoghs on behalf of three leading UK insurers, Keoghs tactical credit hire team has secured a significant judgment against Direct Accident Management Limited (DAML) on the issue of non-party costs orders.

The case, Pereira and others v Direct Accident Management Limited, is the culmination of the latest Keoghs strategic initiative designed to ensure that credit hire organisations are recognised as the ‘real party’ to claims for credit hire charges and are required to meet a defendant insurer’s legal costs in the event that the claim is unsuccessful.

Background

The case, handled by Jenny Milburn, Associate, concerned four separate claims where substantial sums in credit hire charges were sought, incurred under credit hire agreements with DAML. Each claimant was represented by Bond Turner Limited. Both Bond Turner Limited and DAML are part of the Anexo Group PLC.

In each of the four cases, the claimant was ordered to pay Keoghs client’s costs. In one case this was following dismissal of the claim at trial, another claim was struck out, and in the remaining two cases the costs order followed the late acceptance of an ‘out of time’ Part 36 offer for substantially less than the amounts claimed. Of the combined total of £131,616 claimed for hire charges across the four cases, just £13,052 was paid.

In partnership with three leading insurers, Keoghs brought applications to join DAML to the proceedings and for a non-party costs order to be made, forcing DAML to meet the costs of each claim instead of the claimants. We then sought to join the applications to proceed as a group action, given the common factors in the claim and the significance of the issues.

Evidence

A considerable amount of evidence was collated to demonstrate that DAML, and the Anexo group as a whole, were the true drivers and beneficiaries of the claim. The evidence focused on the business practices adopted by Anexo, highlighting how they seek to maximise the value of claims and demonstrating that they exert a substantial degree of control over the entire process. In summary, the evidence showed the following:

• That Anexo, in the words of its Chairman: “…controls the litigation in-house through our in-house legal team, which is Bond Turner”
• Anexo management makes decisions for the benefit of the overall group, maximising recovery from both legal fees and hire charges
• The business specifically targets impecunious customers, which allows it to charge rates typically 2–3 times higher than GTA rates
• Bikes are targeted in order to drive hire periods, which reflects a business model to increase the value of credit hire claims
• Anexo considers that it is able to settle any existing claims in progress
• Anexo treats any claim for personal injury as merely a by-product of the credit hire claim, rather than the focus of the business, and typically litigates PI claims only as part of the hire and repair claim
• Anexo operates a highly litigious business model, yet they purport to avoid a costs liability in 98–99% of claims

DAML vehemently opposed the applications, arguing that their role was limited to merely providing the customer with a replacement vehicle following the accident. They served witness evidence giving details as to the process adopted by DAML when on-boarding a customer, firmly maintaining that they had no involvement in the subsequent proceedings and were not consulted on tactics, strategy, content of witness statements, or rejection or acceptance of offers.

Judgment

HHJ Saunders allowed the applications and made orders for costs against DAML in each of the four cases. In doing so, he made the following findings:

• The initiation and prosecution of the case is directly linked to the hire of a vehicle on credit hire terms
• The funding of the vehicle by the credit hire company is the “essential catalyst” for the claim for credit hire charges
• The real instigator of the proceedings is the credit hire company because, often impecunious, a claimant will simply not consider or launch such a claim without the CHC’s assistance
• They are, therefore, the “real party”
• While instructions in an individual claim may come from the claimant, there must be some semblance of control established by the credit hire company that is set up by the business model
• The terms and conditions of hire are strict and mean that the claimant is obliged to pursue a claim for credit hire charges or face adverse financial consequences
• There is no requirement to prove that the existence of the credit hire claim caused all of the costs incurred
• “It cannot be avoided that the respondent conducts its business (and operates its business model) knowing full well that it charges much higher rates of hire (than say the usual hire spot rates) and does so, intending to make substantial profit”
• “It must follow, therefore, that [DAML] should bear the risk – and that is an order for costs against them. To do otherwise, would be unjust in this overall scenario”

DAML elected not to appeal and is now out of time, thereby declining the opportunity to challenge the judgment at a binding level.

Implications and Comment

Gary Herring, partner and head of credit hire at Keoghs said:

“It may be considered as very surprising that a commercial entity that describes itself as “highly litigious” and which derives significant revenue from the business of litigating credit hire charges, would not consider themselves to be squarely ‘on the hook’ for an adverse costs order in the event that a claim is unsuccessful.

To that extent, the judgment of HHJ Saunders is a ‘common sense’ decision which reflects the reality of most modern-day credit hire litigation: namely that the credit hire company is ordinarily the primary beneficiary of and controlling influence over the claim, with the individual claimant usually having little real choice about, or influence over, the proceedings being pursued in their name.

The judgment is highly persuasive and should go a long way to ensuring that credit hire companies who pursue litigation, which is ultimately unsuccessful, are no longer able to escape liability for an adverse costs order. Going forward, we would expect DAML and other similar credit hire companies to voluntarily agree to meet a defendant insurer’s costs wherever a liability arises.”

James Driscoll, Senior Claims Manager – Motor Damage and Credit Hire, Aviva

“This ruling is significant in that it will hold CHOs to account for driving unnecessary cost and litigation into the motor claims process and should ensure that the customer is the primary beneficiary of services provided. Enabling insurers to recover legal costs from CHOs for bringing spurious cases should cut the number of such cases, while reducing pressure on insurance premiums.

Mark O’Donnell, Third Party Indemnity Lead, esure:

“This is a fantastic result, which gives much needed clarity on cost liabilities, especially when litigation is driven strategically.  More importantly it does show that a collaborative approach between insurers, facilitated by Keoghs, can help deliver excellent results and adapt claimant behaviour accordingly, in line with esure’s overall goal of fixing insurance for good.”

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