CREDIT HIRE: AN OVERVIEW
Introduction
1. This talk will address the following:
(a) Basic principles of credit hire.
(b) Enforceability issues.
(c) Mitigation issues.
(d) Gathering evidence.
Basic principles
2. Claimants who are the innocent victim of an RTA are entitled to be put back into the position they were in before the RTA.
3. If the Claimant’s vehicle is damaged then a replacement vehicle may be hired. Such a vehicle may be hired on credit, and a credit hire company will then seek the cost from the insurer of the person at fault for the accident. In most cases the person who has the benefit of the hire vehicle does not pay the bill.
4. The daily hire rates charged by credit hire companies are higher than standard hire companies. This is because a claimant receives a number of ‘additional benefits’ by hiring on credit as they are relieved of:
(a) The necessity of laying out the money to pay for the car.
(b) The risk of having the bear the irrecoverable costs of successful litigation and
the risk of having to bear the costs of unsuccessful litigation.
(c) Avoiding residual liability.
(d) The anxiety of the claim.
5. The difference between the basic hire rate and the credit hire rate has been the subject of intense litigation. The law in relation to credit hire changes rapidly. At present credit hire claims can be attacked on a number of grounds, as listed below.
Enforceability
6. The starting point is the agreement itself and contract terms should be subject to subject to close scrutiny. If it can be shown the credit hire itself is unenforceable then the contract fails and the Defendant will not have to pay out any damages for hire.
Unregulated agreements
7. In the past arguments about whether a credit hire agreement was regulated under the Consumer Credit Act 1974 could lead to the agreement being found unenforceable by the hire company against the Claimant, and thus against the Defendant.
8. These arguments focused on s.61 of the Act and whether the Agreement contained all the prescribed terms and was signed by both hirer and creditor.
9. Under Article 3(1)(a) of the Consumer Credit (Exempt Agreements) Order 1989 (SI 1989 No.869) credit hire agreements are exempt from regulation if the total number of payments to be made by a debtor did not exceed 4 and those payments were required to be made in a period not exceeding 12 months beginning with the date of the agreement. If an agreement does not contain such a term it may be unenforceable.
Terms and conditions
10. A claimant should be made aware of all terms and conditions at the time of commencement of hire. A failure to provide the terms and conditions of hire at any stage arguably results in the consideration for the agreement being past consideration and the agreement being unenforceable.
11. Often agreements come in 2 parts. One is made over the telephone/when the car is delivered, and one is sent through the post to be signed. There is nothing wrong in principle with this practice provided the hirer is made aware of the terms and conditions before the hire has commenced.
‘The Doorstep Regulations’
12. The Cancellation of Contracts Made in a Consumer’s Home or Place of Work 2008 (‘the Doorstep Regulations’) apply to credit hire agreements signed by a hirer at his home or place of work upon delivery of the hire vehicle.
13. Paragraph 5 of the 2008 Regulations provides: “These Regulations apply to a contract, including a consumer credit agreement, between a consumer and a trader which is for the supply of goods or services to the consumer by a trader and which is made—
(a) during a visit by the trader to the consumer’s home or place of work, or to the home of another individual;
(b) during an excursion organised by the trader away from his business premises; or
(c) after an offer made by the consumer during such a visit or excursion”.
14. The contract can be formed over a number of visits to the consumer’s home or business under paragraph 5(a) above.
There is no need to conclude negotiations in just one visit (Robertson v Swift [2012] EWCA Civ 1794, [2013] WLR (D) 1).
15. However if the agreement was sent by post or signed at the offices of the hire company or insurance broker/claims handler, the Regulations do not apply.
16. Paragraph 7(6) of the Regulations reads “a contract to which these Regulations apply shall not be enforceable against the trader has given the consumer a notice of the right to cancel and the information required in accordance with this Regulation.”
17. If the hirer is not provided with the right to cancel the agreement he signs at his home, place of business, or during an excursion organised by the trader away from his business premises, then arguably the agreement is unenforceable.
18. However hire charges for agreements unenforceable at the time the proceedings are issued will be recoverable if they are paid by the Claimant or his insurer prior to the case being heard. A Claimant who has paid for goods or services he has enjoyed can not be criticised for a failure to mitigate, even if it is likely he will not have to pay if he takes the case to court (Page v Scottish Insurance Corporation [1929] 140 LT 571).
Mitigation
19. The Claimant can only claim for losses actually incurred as a result of the accident. Of those losses, the claimant can only claim losses which could not have been reasonably avoided.
20. The Claimant therefore has a duty to reasonably mitigate his loss, or a duty to minimise damages. A Claimant may be as extravagant as he pleases but not at the expense of the Defendant.
21. The burden of showing a failure to mitigate rests with the Defendant. The most common arguments advanced by Defendants are listed below.
Need
22. The Claimant must prove his need to hire a replacement vehicle since the need for a hire car is not self proving (Giles v Thompson [1994] 1 AC 142 per Lord Mustill at 167).
23. Effectively hire charges are damages for loss of use. The Claimant must actually use the vehicle and the failure to do so will be unreasonable eg when hiring a car when the Claimant was /went abroad on a holiday, or in hospital, or when a family members car was available.
‘Like for like’
24. The Claimant is entitled to be put in the same position after the accident as he was before it so there is a strong assumption that he acts reasonably in both hiring a replacement vehicle and doing so like for like.
25. If a Claimant is driving a prestige vehicle and only requires a replacement vehicle for a short period then may be wiser to hire a less expensive model if there is no specific need for a like for like replacement.
26. The argument that a prestige vehicle is needed to keep up business appearances is not met with much sympathy by the courts. In Hardip Singh v Rashed Yaqubi [2013] EWCA Civ 23 the appellant’s vehicle, valued at around £250,000, required repairs after a collision. The vehicle was owned by a business partnership and formed part of a fleet of luxury cars covered on the same insurance policy. During the repair period the appellant hired a Bentley and then a Rolls Royce, with hire charges totalling £92,953.90. The daily rate of hire for the Rolls Royce was approximately £2,000. The hire claim was dismissed at first instance on the basis that the appellant had failed to prove need for the replacement vehicle.
27. The Court of Appeal dismissed the appeal on all grounds. The appellant argued that there was the appearance of bias against affluent claimants, with the Judge referring to the appellant as “ordering riches for himself at another’s expense”. The Judge went on to describe the need for a prestigious vehicle to maintain the image of a business as superficial and warped. The Court of Appeal found that although the Judge’s comments were not to be encouraged, he had expressed his views openly and frankly, merely repeating the appellant’s own comments that “it is materialistic but that is how these people [his clients] see it”. There was no appearance of bias. For business claims where the business operates a fleet of prestigious vehicles on the same insurance, the Judge was entitled to require specific evidence of need, including the nature of the use of the vehicle for business purposes before the collision and during the hire period.
Impecuniosity
28. Impecuniosity means “an inability to pay for car hire charges without making unreasonable sacrifices” (Lagden v O’Connor (2003 UKHL 64) per Lord Hope).29. The wrongdoer must take the victim as he finds him; this applies to a victim’s
economical state as well as his physical state.
30. An impecunious Claimant may recover the full credit hire rate, which makes it an attractive argument for Claimants. The burden of proof however rests with the Claimant to show that he is impecunious.
31. The absence of a credit card is not sufficient evidence of impecuniosity in itself. A Claimant’s ability to pay for a hire vehicle depends on many factors, such as how much credit was available on the card at the time of hire and whether the Claimant
could afford to pay it off at the end of the month.
Period
32. The duration of hire often does not correspond with the time taken to repair the vehicle. Arguably any discrepancy represents a failure to mitigate.
Delays
33. Delays are often caused by the repairing garage where a Claimant’s vehicle takes an unexpectedly long time to repair.
34. The Defendant will remain liable unless it can prove either that the delay results from the failure of the Claimant to mitigate loss, or there is some supervening cause sufficient to break the chain of causation.35. The courts are likely to imply a term between the Claimant and garage that the repairs are to be completed within a reasonable time in accordance with the standard of the average competent repairer.
36. Action the Claimant may take in mitigation includes chasing the repairer often for updates or transferring the vehicle to an alternative garage.
37. The Defendant can claim a contribution from the garage under section 1(1) of the Civil Liability (Contribution) Act 1978 where the garage has unreasonably delayed carrying out repairs.
Courtesy Car
38. In the case of Martindale v Duncan [1973] 1 WLR 547 it was held that it is not a failure to mitigate for the Claimant to seek to recover damages from the Defendant in the first instance instead of his own insurer.
39. Any offers of a courtesy vehicle made by Defendant themselves should specify the rate and period offered so as to make a precise offer. If enough information is provided for the Claimant to make an informed decision, and such information
suggests the cost to the Defendant is less than the cost to the Claimant and his insurers of hiring from a credit hire company, then the court is likely to consider the Claimant to have acted unreasonably [Copley v Lawn (2009) EWCA Civ 580].
Rates
40. The definitive case is Pattni v First Leicester Buses Limited; Bent v Highways and Utilities Construction [2011] EWCA Civ 1384.
41. In the case of Bent, the former England footballer Darren Bent was the innocent victim of an RTA who could have afforded to hire a replacement vehicle without credit hire terms.
42. The case was appealed on the basis that the ‘spot rate’ had been miscalculated. The appeal sought to clarify what method of calculating the spot hire rate should be used. The case replaced the old term “spot rate’ with the more appropriate ‘basic hire rate.
43. Aikens LJ provides a useful summary of the principles involved in credit hire litigation at paragraphs [29]-[41] of the Judgment.
44. The approach to calculating the BHR is now as follows:
(a) The starting point is to ask whether the claimant needed to hire a replacement vehicle at all? If not, no claim for credit hire charges can be sustained.
(b) If so, was it reasonable for the Claimant to hire that particular vehicle at the
rate agreed?
(c) If they did, was the claimant impecunious? An impecunious claimant is
entitled to recover the whole of the credit hire rate paid, provided that it was
otherwise a reasonable rate to pay.
(d) If not, has the defendant proved a difference between the credit hire rate
actually paid for the car hired and what, in the same broad geographical area,
would have been the BHR for the model of car actually hired?
(e) If there is a such a difference, the claimant can only recover the BHR.
(f) The best evidence of the relevant BHR is that relating to the actual type of
vehicle hired at the time, but the court is entitled to take into account indirect
evidence of the BHR of similar vehicles at different times, in appropriate
cases.
45. Very large hire claims will always attract attention. In the aforementioned case of Hardip Singh v Rashed Yaqubi [2013] EWCA Civ 23, the Court of Appeal stated that very large hire claims should be carefully scrutinised by the court.
Storage Charges
46. There is nothing wrong in principle, but the Claimant may have been able to store the vehicle at their house or nearby.
47. The value of the vehicle is relevant in that it may be unreasonable to incur storage charges which approach or exceed the value of a vehicle.
Delivery and collection charges
48. The Claimant may not have required the vehicle to be collected. If the Claimant lives next door to a garage and can collect the replacement vehicle the charge is not part of his loss.
49. Similarly if there is suitable public transport it would be reasonable to expect the car could be collected by the Claimant.
Collision Damage Waiver (CDW)
50. A CDW represents a charge paid by the Claimant to reduce or eliminate excess when making an insurance claim because of the damage to or loss of the hire vehicle.
51. This is a recoverable item of loss. It is the cost of covering the Claimant against a contractual liability he is bound to enter into as a result of the accident.
Engineer’s fees
52. Such reports are not consequential loss flowing from D’s negligence but instead are obtained purely for purposes of litigation. As a result they are costs, not damages, and are irrecoverable (Burdis v Livsey (2003) QB 36).
Interest
53. If hire charges remain unpaid at the date of trial then no award of interest is made.
54. If the Claimant/Claimant’s insurers have already re-imbursed the credit hire company then they may potentially be entitled to interest, provided that the Claimant can prove he has suffered a loss of money by reason of the Defendant’s actions,subject to the principle of remoteness.
Costs
55. The recent case of Abbott v Long [2011] EWCA Civ 874 invites caution where there is a risk the Claimant may not recover close to the amount claimed.
56. The Judge found that the claim had been “grossly exaggerated” and that the litigation had been run as a commercial enterprise by the hire company, who were driving the claim. They had failed to properly scrutinise the claim and had not taken a
responsible attitude towards the conduct of the litigation, particularly with regard to the duty to mitigate. She took the view this was a very significant issue of conduct, and was heavily to be discouraged.
Evidence
57. The following information should be obtained from the Claimant:
(a) What the Claimant needed a replacement vehicle for?
(b) Whether he/she was entitled to a courtesy vehicle form either his insurer or the Defendant?
(c) Whether another vehicle was available to the Claimant?
(d) Whether the Claimant could have afforded to hire/purchase a vehicle without hiring on credit?
(e) If he could not, evidence of impecuniosity in the form of bank/credit card
statements.
(f) The location the credit hire agreement was signed? Was it at his home or place of business?
(g) Whether the Claimant hired a like for like replacement vehicle?
(h) Whether the Claimant could have stored his damaged vehicle himself?
(i) The location of the repairing garage and whether the Claimant could have picked up a replacement vehicle himself?
(j) Whether the Claimant was in regular contact with the garage about the time taken to repair the damaged vehicle?
(k) Whether the replacement vehicle was returned promptly after repair?
(l) Whether the Claimant or the Claimant’s insurer has paid any hire charges before trial?
58. Evidence regarding the Basic Hire Rate for vehicles of the actual type of vehicle hired at the time of the accident should be prepared in advance of trial and preferably attached to pleadings in the form of a witness statement. The more surveys completed the better. Internet printouts are fine in small claims track cases. Both daily, weekly and monthly hire rates should be provided. An expert report will be more appropriate in high value cases.
59. If the Defendant fails to serve evidence in advance of the trial on local basic hire rates from the claimants hire provider or from other local providers the Claimant’s hire figures will be accepted by the court and the Defendant will lose.
60. The Association of British Insurers (‘ABI’) rates are not helpful. These are not rates at which the Claimant would have been able to hire but discounted rates at which sometimes hire companies and insurers agree to settle rates. They are of no use to the Court as they are an agreement between insurers and not the appropriate measure of loss.
61. Each credit hire case will be viewed on its own merits and the watchword is
“reasonable.”
