Credit hire: a tug of war?

Since the late 1990s, insurance companies and credit hire organisations have been involved in a tug of war over what hire charges can be recovered by a pursuer whose vehicle has been damaged in a collision and who resorts to hiring a car on credit terms. The courts have provided plenty of guidance on this complicated area of the law, and this article is written to provide a basic guide to the main issues that arise, taking account of recent Scottish decisions.

A driver involved in a collision which is not their fault, is provided with a replacement car at no cost to them whilst the damage to their car is being resolved and a claim pursued to recover their losses, including the hire charges incurred. Under the credit hire agreement, payment of the hire charges is postponed until they are recovered from the third party at fault.
Arguments that are used in pursuing and defending such claims tend to arise from the competing principles that you take your victim as you find them, versus the duty on a pursuer to mitigate their loss.

Impecuniosity

In Dimond v Lovell [2002] 1 AC 384 the Court of Appeal held that the damages recoverable were restricted to spot hire rates quoted by hire companies, rather than credit hire charges. This did not address the position of an injured party who, through lack of means, had no choice but to hire on credit.

This issue came before the House of Lords in the case of Lagden v O’Connor [2003] UKHL 64. In Lagden, the House of Lords held that the principle of taking your victim as you find them applied, and an impecunious pursuer was entitled to recover credit hire charges in full.

In terms of the judgments of Lord Nicholls and Lord Hope in Lagden, impecuniosity signifies an inability to make payment of spot hire charges upfront without exposing the pursuer and his/her family to an unreasonable financial burden or sacrifice. As finances are a matter of priorities and savings may be set aside for family commitments and emergencies, there is plenty of scope for arguing whether paying for a hire upfront would result in an unreasonable financial sacrifice.

Recent decisions

Macdonald v AXA Corporate Solutions Assurance, Elgin Sheriff Court, 17 June 2009, unreported
The pursuer’s earnings were modest and covered his expenditure. He had access to credit and had savings in a bank account earmarked for planned bathroom refurbishment which had not yet taken place at the time of proof. He was deemed not to be impecunious.

Tkachuk v Stevenson, Glasgow Sheriff Court, 2010 SLT (Sh Ct) 238
A professional rugby player with a salary of £55,000 and savings of approximately £9,000 earmarked for planned investment in an ISA, which took place during the period of hire, was held not to be impecunious and far removed from Mr Lagden.

These decisions suggest that if a pursuer has savings then he will not be deemed to be impecunious. However, would it be an unreasonable sacrifice if the pursuer had ISA savings and had to cash these in, thereby losing tax free interest over a number of years? It is often the case that it is difficult to decide whether a pursuer is truly impecunious, and for the pursuer’s agent, the approach best taken may be to present the impecuniosity argument for the court to decide. For the defender’s agent, this presents a problem as, should it appear likely that the pursuer is found to be pecunious, the onus is on the defender to provide evidence as to what a spot hire rate should be.

Type of vehicle hired – a suitable replacement?

The fundamental principle that applies when measuring damages is that of restitutio in integrum, namely to compensate a pursuer as best as money can do so, to the position they would have been in had the negligence not occurred. In keeping with this principle, a pursuer will argue they are entitled to “like for like” transport pending reinstatement.
Accordingly, the question of whether the hire car is “like for like” for the pursuer’s own vehicle often arises.

In Clark v City of Edinburgh Council [2010] CSOH 144 (29 October 2010) the pursuer hired a Honda Civic two litre GT motor car in place of his 14-year-old Toyota Celica. The court held that the vehicle hired was far superior and it was not reasonable to describe a 14-year-old vehicle with a value of a little over £1,000 as being in the same broad range of quality and nature as the vehicle hired. However, in Greenlees v Allianz Insurance plc [2011] CSOH 173 (18 October 2011), spot hire rates evidence based on a hire which was “like for like” was considered.

Unfortunately, the writer is of the view that the Clark case raises as many questions as it answers. If it was accepted that Mr Clark had the need for a car, and the decision was that it should be “like for like” based on age and value, how could the court expect Mr Clark to hire an equivalent 14-year-old vehicle?

This does raise questions of choice and mitigation, particularly where a pursuer may not be able to obtain a prestige car or one suitable for a particular need without recourse to credit hire. This may occur where, for example, a pursuer requires a plated taxi, or is under 23 years of age which is usually the minimum age to hire.

In Duncan v City of Edinburgh Council, Sheriff O’Grady QC, Edinburgh Sheriff Court, 6 November 2009, unreported, the pursuer needed a specialist vehicle with a tow hook which could not easily be sourced. The defenders claimed that it was for the pursuer to show that resorting to credit hire facilities was justified. It was held that Lagden made it clear that when in such a case a deduction in expenditure is sought, it is for the defender to show that the pursuer had a choice and they could have mitigated their loss more cheaply. It was for the defenders to show that in his conduct the pursuer acted unreasonably. In this case, the pursuer had acted reasonably and was not obliged to engage in a wide ranging search to find an alternative hire car. Furthermore, the cost of an engineer’s report was recoverable as incidental to the cost of repairs and the means of ensuring they were reasonably charged.

Need for a hire car

It is inferred that a motorist who finances a car for their use, or indeed use by other members of their family, needs it and should be entitled to replace it where they are deprived of its use by a negligent driver through no fault of their own. For this reason, the threshold for need is low.

In Giles v Thompson [1994] AC 142 Lord Mustill gave guidance regarding proof of need of a hire car, and mentioned that in situations where a pursuer was hospitalised or going abroad, the need for a car is not self proving. However, this would not apply where a pursuer is not the sole user of the vehicle. From a defender’s perspective there remains the possibility of challenging need on limited grounds, depending on the type of use advised. In Tkachuk the court considered it reasonable to reduce the period of hire in respect of the period when the pursuer was abroad.

Rate of hire

Defenders will claim that the pursuer is not impecunious and has failed to act reasonably in mitigating their loss in relation to the credit hire charges incurred.

It is trite law that mitigation of loss is a question of fact and the onus is on the defender. It follows that in cases where the pursuer is unlikely to be deemed impecunious, defenders will produce evidence in the form of spot hire rate reports.

Their purpose is to demonstrate that the pursuer could have hired the same type of vehicle as that damaged, on the spot hire market in the pursuer’s vicinity at the relevant time, for less than the costs incurred through hiring from a credit hire company. It is then open to the pursuer to challenge this evidence by lodging their own report to demonstrate that the credit hire rate is within the market range. In doing so, a pursuer can also challenge defenders’ spot rate reports by disputing the range of rates and the dates for which they are provided, the suitability of the vehicles quoted by the defenders, and the fact that additional costs such as insurance, collision damage waiver and any excess payable need to be factored in over and above a basic rate of hire.

In Greenlees v Allianz Insurance plc [2011] CSOH 173 Lord Matthews considered the spot hire rates evidence led by both pursuer and defender to be complimentary and took a balanced average approach, which he considered the fairest way to deal with all the variables. The Court of Appeal decision of Burdis v Livsey [2002] EWCA Civ 510 had provided guidance regarding the basis on which spot hire rates should be quantified. This was recently reaffirmed in Bent v Highways and Utilities Construction [2011] EWCA Civ 1384, where it was held that it was incorrect to base the spot hire rate (which it was claimed should now be replaced with the term “basic hire rate”) on an average cost, the test being whether the credit hire rate is in the market range. It was also considered that the best evidence was contemporaneous rates from the time of the accident. It remains to be seen whether this will be appealed to the Supreme Court.

It will also be interesting to see what will be made of it by the Scottish courts, as the balanced average approach to spot hire rates was favoured in Clark and Greenlees above.

The period of hire

A pursuer will need to hire a vehicle whilst his vehicle is being repaired or a total loss settlement is awaited. Defenders will scrutinise the duration of the hire period and may argue for a reduction, claiming it was excessive. Once again, mitigation of loss is a question of fact and the onus is on the defender to show that the pursuer has in the circumstances failed to mitigate their loss.

The case of Allardice v Direct Line Insurance plc, Paisley Sheriff Court, August 2010 involved a hire period of 91 days. Liability was disputed and the pursuer’s car, which was deemed undriveable, was inspected and deemed beyond economic repair. The problem rendering it undriveable was later fixed at no cost by a friend. Sheriff Hammond deemed the period of hire to be unreasonable and awarded the pursuer hire charges for 35 days. The sheriff followed the reasoning of Sheriff Ross in Whitehead v Johnston 2006 Rep LR 25 in applying a test of proportionality as between the damage, cost of repair and period of hire.

In Clelland v Quinn Direct, Arbroath Sheriff Court, 22 October 2010 the pursuer opted to send his expensive sports car to a specialist paint shop in England to be resprayed. The defenders argued that the period of hire of 41 days was excessive, claiming that the pursuer’s vehicle could have been partially resprayed at a local garage in a fraction of the time. Sheriff Stein held that the defenders had failed to show that the pursuer had acted unreasonably and the time taken for repainting/repair was reasonable in the circumstances.

In Coxson v Fife Council, Kirkcaldy Sheriff Court, 4 July 2011, unreported, the pursuer was seeking hire charges for a 21 day hire period whilst her vehicle was being repaired. The defenders argued that the repairs could have been done in two days. The sheriff held that in such cases, the onus is on the defenders. Delays are foreseeable and defenders have to show delays which are inordinate or unforeseeable and which amount to a novus actus interveniens to break the chain of causation and justify a reduction in the period of hire.

Scope for dispute

This article has attempted to summarise the main issues that arise in credit hire cases. Many more issues can arise, such as contractual issues, and those that arise from the application of the Consumer Credit Act 1974 and the Cancellation of Contracts made in the Consumer’s Home or Place of Work Etc Regulations 2008, which would merit a separate commentary. It is these issues and the recent decisions that demonstrate that the tug of war is likely to continue for some time yet. There is plenty of mileage left in developing arguments.