Credit hire decision favours paying parties and insurers

03 Mar 2015

A significant credit hire decision by the Court of Appeal has found in favour of paying parties and their insurers, requiring judges to recognise the inherent unfairness of always awarding the highest basic hire rate available when a claimant is not impecunious and insisting upon application of an objective test at all times.

Executive summary

  • Where a claimant is not impecunious, the court is required to establish the recoverable basic hire rate (BHR). Impecuniosity remains a key differentiator.
  • The analysis is an objective one only - what rate would be paid by a reasonable (pecunious) person in the claimant’s location hiring a car of the kind hired?
  • The lowest reasonable rate quoted by a mainstream supplier is therefore a reasonable BHR.
  • If no mainstream supplier is available in the area, rates quoted by reputable local hire companies will be sufficient.
  • Adopting the highest figure in any identified group of rates is manifestly unjust.

Immediate impact and actions

  • To date courts have tended to prefer the highest identified rate as the appropriate BHR, making this a significantly pro-defendant decision of general application.
  • Quantification of protective offers by defendants has – subject to other issues - tended to anticipate this approach.
  • The inherent ambiguity of the courts’ approach to date is now removed – offers can be made with more certainty.
  • Existing CPR Part 36 offers that have not been accepted should be reviewed and considered for withdrawal if the cost/benefit analysis supports such a step. Higher value claims and those approaching a trial should be prioritised while in lower value claims it may be more cost effective to allow late acceptance by a claimant provided the associated cost penalty is taken.
  • Pre-litigation offers should likewise be reviewed and any rates based offer re-assessed.
  • A proportion of cases may fall into a lower track than previously, mitigating legal costs too.

Practical consequences

  • Credit-hire companies will pursue impecuniosity more strongly, to avoid the impact of this decision. Insurers must be prepared to contest such cases.
  • Credit hire companies are likely to stop serving their own rate evidence and will move back to the old position of criticising the rate evidence served by the defendant.
  • Pre-litigation internet enquiries of mainstream hirers will acquire greater value (subject to individual circumstances) for pre-issue offers.
  • It will be important to ensure that internet rate evidence provides quotes for the vehicle hire including all the extras on the hire vehicle and an equivalent excess and that the quote is provided for a hirer of the same age/licence restrictions/geographical location as the claimant.
  • Where the hire car is prestige/has a low excess or the claimant is young/old or has points on their licence, then internet quotes alone will be inadequate unless identically matching the claimant in these respects.
  • The issue of whether a BHR can be constructed using a quote from a mainstream company and then adding on an additional charge for reducing the excess charge based on either the purchase of an excess reduction policy or the charge applied by the credit hire company, is likely to be argued. The emphasis that finding a BHR is an objective exercise is a positive step and would suggest that it is not misconceived to reach the BHR this way.

The facts of the case and the reasoning of the court

Before Jackson LJ, Kitchin LJ and Floyd LJ; 26 February 2015.

The claimant (Mr Stevens) was involved in a non-fault collision whilst driving his Audi A4. Whilst he was without his damaged vehicle he obtained a replacement by hiring on credit terms from Accident Exchange. He hired for 28 days at a total cost of £5,764.80. The daily charge for the hire vehicle was £165.50 including collision damage waiver and windscreen, tyre and underbody waiver.

At the first instance trial, the recorder was required to consider, amongst other things, what the recoverable daily rate was (the basic hire rate: BHR). The BHR evidence before him was a single report which had been disclosed by the claimant. The recorder focused on rates where the excess on the vehicle was £0.00, as this was the same as the hired car. The evidence included a cluster of mainstream hire companies whose rate included a £0.00 excess and were all charging between £60-£66 + VAT. He therefore took the average of those rates and found the BHR to be £63.16.

The claimant appealed the decision and prior to the appeal it was agreed by the parties that the recorder was incorrect to take an average figure. On appeal Burnett J confirmed that to identify the irrecoverable benefits included in credit hire you should look at the difference between what was charged on credit hire and what the claimant would have paid if he had gone into the local hire market. He said that claimants should be cross-examined on what they would have done had they had to pay themselves (a subjective approach). In this case he suggested that the claimant would have paid as little as possible (his evidence being that if he had a choice he would have used a free courtesy car from the garage). Burnett J therefore suggested that the recorder should have used one of the lower rates of hire. As there was no detriment to the claimant in the finding, the appeal was dismissed.

The claimant appealed the matter once more, with the case coming before the Court of Appeal on 28 January 2015. The appellant argued that exercise of finding a BHR and identifying the charge included for the additional benefits was an objective exercise and what a claimant would have paid is irrelevant. The appellant contended that it is for the defendant to prove the BHR and where there was evidence which showed companies charging more than the credit hire company, then the credit hire rate was recoverable as it could not be said it included a charge for the additional benefits.

HELD: The nature of the court’s exercise in considering BHR evidence is to strip out the irrecoverable costs of the additional services received. The difficulty is created as the credit hire companies do not value these benefits. Attempts to value them at a later stage will involve some imprecision. The best to be hoped for is a reasonable approximation. A reasonable estimate is the charge of the use of a car from an ordinary hire company.

This does not mean considering what the claimant would be prepared to pay. The analysis is an objective one as confirmed in Pattni v First Leicester Buses Ltd; Bent v Highways and Utilities Construction Ltd. The task is to determine what the charge would be for a reasonable person in the claimant’s position hiring a car of the kind hired. Where the rates vary, it is reasonable to suppose that the lowest reasonable rate quoted by a mainstream supplier for the hire of such a vehicle to a person such as the claimant is a reasonable approximation of the BHR. When faced with many rates the judge should identify a rate for the hire in the claimant’s geographical area, of a car of the type hired by the claimant. If this results in one rate, that is the BHR. Where there are several rates then the lowest reasonable rate quoted by a mainstream supplier or a local reputable supplier will be the basic hire rate. The suggestion that the highest figure in the group of rates should be considered would be manifestly unjust particularly considering that the credit hire companies are in the best position to confirm the cost of the additional services but are not required to do so due to the size of the task. Burnett J erred in this methodology but not in the answer that he came to. The exercise is objective and not subjective as suggested. However if he had followed the correct approach the rate awarded would have been a little less. The appeal was therefore dismissed.


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Disclaimer: This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to customers of BLM. Specialist legal advice should always be sought in any particular case.

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