Introduction
In arguably the most important decision on the calculation of the basic
hire rate (BHR) in credit hire litigation since Bent v Highways and Utilities
Construction (No. 2) [2011] EWCA Civ 1384, the Court of Appeal has provided a
new, simple and Defendant-friendly method for the calculation of BHR. The
decision is likely to change fundamentally the way in which credit hire claims
are fought.
The Facts
On 10 February 2011, the Claimant’s Audi A4 S Line Tdi 140 was struck by
the Defendant’s insured. Liability was admitted. The Claimant entered into a
credit hire agreement with Accident Exchange Ltd (‘AEL’) for a period of 28
days. The rate was £140 per day in addition to an excess waiver fee of £22.50
per day and windscreen cover of £3.00 per day. The total rate was therefore
£162.50, exclusive of VAT.
At first instance, the Recorder awarded a hire rate based on an average
of the rates quoted by four mainstream hire companies for vehicles in the
relevant group.
The First Appeal
The First Appeal in this case was heard by Burnett J (as he then was),
and was reported as [2014] EWHC 689 (QB), [2014] RTR 34.
Much of the Judge’s reasoning was based upon the following passage from
Lord Hoffman’s speech in Dimond v Lovell [2002] 1 AC 384 at 403G:
“How does one estimate the value of these
additional benefits that Mrs Dimond obtains? It seems to me that prima facie
their value is represented by the difference between what she was willing to
pay 1st Automotive and what she would have been willing to pay an ordinary car
hire company for the use of a car. As the judge said, 1st Automotive charged
more because they offered more. The difference represents the value of the
additional services which they provided.”
Referring to that test, Burnett J provided practical advice on identifying
the BHR(at [29]):
“… the search must be for the figure which the
claimant was willing to pay [to use Lord Hoffmann's formulation] on the basis
that he had in fact gone into the ordinary car hire market to find a temporary
replacement for his vehicle. In doing that the evidence of a claimant that he
would be disinclined to spend more than necessary on a car would be relevant. There
might be evidence of how the claimant has sourced hire cars in different
contexts. Some might be fortunate to have access to discounted rates through
membership of motoring or professional bodies. As was recognised in Burdis a
claimant hiring a vehicle to replace one damaged by a tortfeasor would be under
a duty to take reasonable steps to mitigate his loss. That does not mean that a
claimant would be expected to telephone every last car hire provider in the
locality to seek details of various deals that might be available. But the
reality today is that almost anybody seeking to hire a vehicle in any
particular locality would be likely to investigate the market by doing a simple
comparative search on the internet. The full panoply of different hire rates
available to the credit hire industry through specialist websites (and
regularly produced in credit hire litigation) would not be available to an
ordinary driver, but one way or another it is not difficult for anyone wishing
to hire a car to discover the rates offered by the major hire companies.
Cheapest is not necessarily best and for all sorts of reasons anyone may
reasonably choose to hire from a company that is not the cheapest available.”
(emphasis added)
The test was based on an assessment of what a particular claimant would
have been willing to pay. In practice, this required counsel to ask
hypothetical questions to a usually mystified Claimant on what he would have
done had he gone into the ordinary hire market. The Court of Appeal’s new
approach indicates a shift from a subjective to an objective approach, and will
remove the need for such counterfactual questioning by Counsel.
The Second Appeal
The Claimant appealed the judgment of Burnett J, raising the following
arguments:
(a) The exercise of finding a basic hire rate is an objective one and
cannot depend on what a particular claimant would have been willing to pay;
(b) The law has moved on since Lord Hoffman’s speech in Dimond v Lovell,
and Burnett J paid too little attention to Burdis v Livsey [2002] EWCA Civ 510,
and Bent (No. 2);
(c) As the burden of proving a difference between the credit hire rate
and BHR rests on the defendant, and as some of the basic rates in evidence were
higher than the credit hire rate, the Judge was incorrect to find that the
credit hire company charged an additional amount in respect of irrecoverable
benefits.
Giving the only reasoned judgment (with which Floyd and Jackson LJJ
agreed), Kitchen LJ set out the legal background in detail and gave the
following judgment:
“[34] … I do not understand Lord Hoffman to have
been saying that it was necessary to consider what Mrs Dimond would herself have
been prepared to pay. The attitude of the driver who is not at fault must be
irrelevant to the analysis. For example, it may be that, as in the present
case, the person would never have hired at all. The analysis it, as Aikens LJ
said in Pattni, an objective one and it is to determine what the BHR would have
been for a reasonable person in the position of the claimant to hire a car of
the kind actually hired on credit.
[35] Here I think one finds the answer to the
questions I have posed. The rates quoted by companies for the basic hire of a
vehicle of the kind actually hired by the claimant on credit hire terms may
vary. No doubt some are offered on very favourable terms. So also those at the
top of the range may reflect particular market conditions which allow some
companies to charge more than others. But it seems to me 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
to the BHR. This is likely to be a fair market rate for the basic hire of a
vehicle of that kind without any of the additional services provided to the
claimant under the terms of the credit hire agreement.
[36] It follows that a judge faced with a range of
hire rates should try to identify the rate or rates for the hire, in the
claimant’s geographical area, of the type of car actually hired by the claimant
on credit hire terms. If that exercise yields a single rate then that rate is
likely to be a reasonable approximation for the BHR. If, on the other hand, it
yields a range of rates then a reasonable estimate of the BHR may be obtained
by identifying the lowest reasonable rate quoted by a mainstream supplier or,
if there is no mainstream supplier, by a local reputable supplier.” (emphasis
added)
Therefore, the Court of Appeal found that although Burnett J erred in
his reasoning (by failing to apply an objective approach), the result on the
facts of the case was sound. The appeal was dismissed.
Comment
The approach set out by Kitchen LJ is new and highly favourable for
defendants. It provides sensible and straightforward guidance on the issue of
the determination of the BHR. It appears that all defendants need do is survey
evidence from mainstream suppliers (or if there are none, local reputable
suppliers) for the type of care hired and in the claimant’s geographical area.
The applicable rate will then automatically be the lowest reasonable rate.
What this means for defendants is that so long as they source well-prepared
rates reports, containing all the relevant terms and conditions, excess waiver
cover, and where appropriate, daily rates from major hire companies for cars of
the appropriate type, then such evidence is likely to ensure that the Court
awards only the lowest reasonable rate. Likewise, in cases such as Equity,
where AEL attempts to rely on a report generated by a large database of rates,
the evidence may well prove to be extremely helpful to defendants.
This article has just been published on the PI Brief Update Law Journal.
