Farrell & Anor v Direct Accident Management Services Ltd & Anor

Prompt notice of a possible third-party costs application is not a condition of an order under section 51 of the Supreme Court Act. It is a material discretionary consideration, but may carry no weight where the proposed payer identifies no prejudice or reason why earlier notice would have changed its conduct.

A third party may properly bear costs where it instigated, controlled and financially supported litigation for its commercial benefit, even though it did not participate in the claimant’s fraud. The appropriate proportion depends on the costs of the claim for which liability is sought and the third party’s actual commercial interest in that claim.

Mr Farrell and Mr Short pursued a negligence claim against Birmingham City Council after an alleged road traffic accident. The Council had already paid the claimed write-off value of their car. The claim was discontinued at trial, while the Council’s counterclaim succeeded on findings that payment had been induced by fraudulent misrepresentations.

The Council then sought a third-party costs order against Direct Accident Management Services Ltd (DAMS), which had supplied a replacement vehicle on credit terms and had contractual rights concerning the pursuit of the claim. HHJ McKenna ordered DAMS to pay 80% of the Council’s costs of defending the claim, excluding the counterclaim costs. DAMS appealed, accepting a sufficient nexus for jurisdiction but challenging the exercise of discretion under section 51 of the Supreme Court Act.

1. Appeal dismissed. Sir Andrew Morritt held, with Keene and Elias LJJ agreeing, that the judge’s award of 80% of the Council’s defence costs was within the permissible range of discretion.
2. Early notice of a possible third-party costs order is not a condition of relief under section 51 of the Supreme Court Act, although it is ordinarily material to discretion. DAMS had not complained of the absence of notice below, had not alleged prejudice, and had not shown that earlier notice would have altered either the conduct of the substantive claim or its response to the costs application. The absence of earlier warning was therefore insignificant on these facts.
3. DAMS was not a participant in the fraud. That did not prevent an order against it. The hire agreement made the initiation and prosecution of the claim a direct consequence of DAMS’s credit hire arrangement. DAMS was therefore, in a real sense, the instigator of the litigation. Its contractual rights, its role in managing and pursuing claims, and its joint and several potential liability for solicitors’ fees and disbursements justified the findings that it controlled and funded the litigation.
4. The costs sought related only to the discontinued claim, not to the counterclaim for recovery of the car’s value. Of the pleaded special damage, almost £2,000 of approximately £2,600 was hire cost, being DAMS’s principal commercial interest. The judge could have awarded all the claim costs; an award of 80% was justified. The Council was not required to pursue the solicitors or after-the-event insurers before seeking an order against DAMS.

• Court of Appeal (Civil Division): dismissed DAMS’s appeal and upheld the third-party costs order.
• Birmingham County Court (HHJ McKenna): on 17 November 2008 ordered DAMS to pay 80% of Birmingham City Council’s costs of defending the claim, excluding the counterclaim costs.