Swing back to defendants in recent credit hire case: Stevens v Equity Syndicate Management Limited [2015] EWCA Civ 93.

A recent decision from the Court of Appeal has caused a sea-change in the ways in which courts will assess the likely cost of basic hire rates (BHRs) when assessing the recoverable damages to be paid under a credit-hire agreement. From now on, the courts will be entitled to calculate BHRs with reference to the lowest reasonable rate charged by a local (to the claimant) main hire company.

The case

The trial was decided by Mr Recorder Tolson QC on 24th May 2013, following a road traffic accident in which the Audi A4 of the claimant, Mr Stevens, was negligently struck by the defendant’s insured. The claimant was put in touch with Accident Exchange Limited. Accident Exchange provided a replacement Audi and also paid the cost of the repairs to the claimant’s own Audi, expecting that this outlay would be recovered from the defendant.

The claimant was in hire for 28 days, at a daily rate of £140.00 per day (excluding VAT). An additional £22.50 per day (excluding VAT) was also added, which reduced the insurance excess from £1,500.00 to nil. A further £3.00 (excluding VAT) was added to remove the liability for accidental windscreen damage. The total hire was thus £165.50 (excl VAT) per day.

Liability and repairs were compromised before the trial, and so the Recorder had to decide 3 issues:

1. Was the claimant impecunious?
2. If he was not impecunious, what sum was attributable to the BHR of the replacement vehicle that the claimant actually hired?
3. Was the period of hire reasonable?

It was found as a fact that the claimant was not impecunious. This issue was subject to appeal to Burnett J, but was upheld and not appealed to the Court of Appeal.

The period of hire was reduced by the Recorder. Burnett J reversed that finding, on the basis that the repairers were awaiting parts and that it would have been unreasonable to re-assemble the claimant’s Audi whilst awaiting delivery of the parts.

Previous court decisions

Before looking at the Recorder’s approach to assessing the BHR, it is probably useful to précis the previous decisions of the court in relation how this has, hitherto, been assessed. A number of decisions made over the last 20 years or so have moulded the way in which the courts assess BHR and the manner in which they are recoverable:

• Giles v Thompson [1994] 1 AC 142
• Dimond v Lovell [2002] 1 AC 384
• Burdis v Livsey [2002] EWCA Civ 510, [2003] QB 36
• Lagden v O’Connor [2001] UKHL 64, [2004] 1 AC 1067
• Pattni v First Leicester Buses Ltd
• Bent v Highways and Utilities Construction Ltd and anor [2011] EWCA Civ 1384, [2012] Lloyd’s Rep IR 577.

Aitkens LJ in Pattni provided a useful review of the above authorities:

The loss of use of a vehicle is a loss for which, in appropriate circumstances, an innocent party can recover damages. The innocent party has a duty to mitigate that loss, and the hire of a replacement vehicle can be one way of doing so. The cost of that replacement vehicle will be the measure of damages recoverable.

Further (and alternatively), an innocent party who hires a replacement vehicle on a credit-hire basis suffers a loss which is also recoverable as damages, provided he has acted reasonably.

If the innocent party was not, at the time of hire, impecunious and was thus able to pay for the hire of a replacement vehicle in advance, he will only be able to recover the BHR of the replacement vehicle. This is because a credit-hire agreement also provides additional benefits (such as not having to pay for repairs and not having to manage one’s own claim) which, in the circumstances of a non-impecunious party, are irrecoverable.

It is for the defendant to demonstrate, by evidence, that there is a difference between the credit hire charge and the BHR.

The courts have thus battled with how to strip down a credit-hire agreement to remove the implied costs of the additional benefits and to come to a sensible figure for basic hire.

Lord Hoffman in Dimond proposed that the value of the BHR was represented by the difference between what Mrs Dimond was willing to pay the hire company and what she would have been willing to pay an ordinary hire company.

In Burdis, three potential ways of calculating the BHR were discussed:

• Break down the charges made by the credit hire company into the component parts and strip out those which were additional and/ or irrecoverable
• Apply an arbitrary discount of a reasonable amount
• Look at locally sourced BHR figures.

The latter course was preferred. But how then to apply the BHR evidence?

The final decision in Pattni was that the difference in credit-hire rates and BHR will be calculated by using an objective test, which has regard to what prices the claimant could have reasonably obtained had he simply gone to a local hire company. In doing so, the court was often provided with a differing number of local BHRs, some of which might be close to, if not equalling, the credit-hire rate. In essence, this left the door open to a claimant to argue that even the highest of those quoted BHR’s was recoverable, so long as it was reasonable to have incurred it.

In relation to BHR, the Recorder Tolson QC took an average of the rates quoted by 4 mainstream vehicle hire companies for vehicles of the relevant group, and calculated a rate of £63.02 (excl VAT) (although other companies and rates were before him).

It was this decision which the claimant sought to challenge most vigorously, because it was decided contrary to the decision in Pattni.

Burnett J upheld the Recorder’s decision. In doing so, he referred back to Lord Hoffman in Dimond, and stressed that the court should look at the difference between what the claimant had agreed to pay to the credit hire company and what “the claimant was willing to pay”. He referenced the ease with which different companies can be compared on the internet.

The result of this decision was that Burnett J had introduced a subjective element to the assessment of an appropriate BHR. What was the claimant willing to pay?

The appeal

The appeal was heard by Jackson LJ, Kitchin LJ and Floyd LJ and the judgment delivered by Kitchin LJ.

The Defendant appealed by relying on the decision in Pattni which concluded that the assessment of the BHR was an objective test The Defendant argued that the introduction of a subjective element by Burnett J was incorrect. Further, that where there was evidence that a BHR was equal to the credit hire rate charged, that the Court could and should award that rate.

Kithcin LJ did agree that Burnett J had fallen into error when introducing a subjective element but dismissed the appeal on the basis that Burnett J had arrived at the correct outcome.

39. “In my judgment Burnett J has fallen into error in the way he approached the exercise but not in the answer to which he came. As I have sought to explain, the analysis must be directed to stripping out the irrecoverable costs from the basic hire rate the claimant has agreed to pay or, conversely, ascertaining the part of the charge which is attributable to the basic hire of the particular vehicle the claimant has chosen. This is an objective exercise and the evidence of the claimant about what he would have done had he gone into the market to hire a vehicle on standard hire terms is likely to be of little assistance to the judge seeking to carry it out. The search must rather be for the lowest reasonable rate quoted by a mainstream supplier for the basic hire of a vehicle of the kind in issue to a reasonable person in the position of the claimant. This, it seems to me, is a proportionate way to arrive at a reasonable approximation to the BHR.

“Nevertheless, application of the correct approach in the context of this case seems to me to yield a figure for the BHR which is very close to but a little less than that at which the Recorder arrived. The Recorder properly focused on four mainstream suppliers offering for basic hire with a nil excess in Mr Stevens’ locality a vehicle of the kind actually hired by him on credit hire terms. However, and as the parties agreed before the judge, the Recorder then fell into error in taking an average. In my judgment he ought rather to have taken what he considered to be the lowest reasonable rate from within the range he had identified. I entirely agree with Burnett J that had he done so he would have arrived at a figure a little less than that which he actually chose.”

Conclusion

BHR would previously have been calculated by looking at prices which the claimant could reasonably have obtained locally. Such prices could, if they were available to the claimant, have been as high as the credit hire claimed. There was little attempt to look past a quoted BHR which matched the credit-hire rate and so the highest BHR was often used and awarded.

This decision provides the lower courts with the discretion to allot a BHR based on the lowest reasonable local quote. It does not necessarily have to be the lowest quote available, if such low quotes carry unreasonable burdens such as unaffordable excesses or the like. Such finding of fact will ultimately be at the discretion of the judge on the day. Cases should therefore be decided with reference to local evidence of BHR and to how high those quotes are compared to each other. The lowest reasonable quote should be used.

This case represents another small move towards a sensible middle ground in an area of law which has often flown in the face of common sense.

Andrew Wilson

Andrew Wilson has a broad-ranging practice including commercial law and road traffic matters (from low-velocity impacts and phantom passengers to multi-accident fraud rings). See Andrew’s profile.