The cost of a replacement vehicle is considerably higher when provided on credit;

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1 Credit hire claims 1 The increased cost of a credit hire claim It is estimated that in 2006, at least one in five innocent motorists took advantage of credit hire and the involvement of CHOs increased the aggregate claim cost by 12% [Post Magazine, 10 April 2008]. There are several reasons for this: The cost of a replacement vehicle is considerably higher when provided on credit; The repayment period is open-ended; The CHO has additional administration expenses and has to allow for the risk of not being paid; The claimant has no interest in the hire rate and has no incentive to shop around for a better deal it is a seller s market; There is little incentive to minimise the hire period; If a solicitor is involved, the credit hire service arrangements are likely to increase legal costs and they will tend to make the total claim more complex and it will take longer to settle; The cost of a credit hire claim will also raise the overall value of the claim, possibly taking it out of the small claims track; 2 Major battles in the credit hire war a. Round 1: Giles v Thompson [1994] 1 AC 142, HL This first major challenge by insurers was based on the ancient common law principle of champerty. It was alleged that CHOs were instigating the litigation, had a financial interest in it and (often) funded it. This practice was said to be champertous, therefore such agreements were illegal and unenforceable against the claimant. The principle of champerty concerns the wrongful interference (or meddling) in the disputes of others and was originally intended to stop powerful interests from oppressing private individuals. The crime and tort of champerty were abolished by the Criminal Law Act 1967 but s.14(2) of the Act provides an exception that the abolition did not apply to cases where a contract is contrary to public policy or is otherwise illegal. The House of Lords said that credit hire agreements were not champertous as they did not endanger the administration of justice. [This was important as in effect it legitimised the credit hire industry and caused CHOs to have confidence in their arrangements.] The judgment also established that where the claimant can prove need and liability to pay, he can recover the hire costs. The onus of proving need is primarily on the claimant and Lord Mustill said: this need is not self-proving. Motor claims update_mgb, PNG, PEN_(RAW, ACH) 11/08 27

2 b. Round 2: Dimond v Lovell [2000] 2 All ER 897, HL This case was concerned with two main issues: The enforceability of a credit hire agreement; and The recoverable rate of hire But before summarising these issues it is relevant to consider the attitude adopted by the superior courts to credit hire in general as this helps to explain the rationale behind their decisions. i. Available remedies In Giles v Thompson, Lord Mustill said: there exists a gap in the remedies available to the motorist, from which the errant driver, and hence his insurers, frequently profit. In Dimond, Lord Nicholls said: The additional services provided by accident car hire companies bridge this gap. They redress the balance between the individual car owner and the insurance companies. They enable car owners to shift from themselves to the insurance companies a loss which properly belongs to the insurers but which, in practice, the owners of cars often have to bear themselves. Although a majority of the House of Lords were clearly critical of the insurers attitude to credit hire claims, they believed that recovery of the full cost of credit hire was perhaps a bridge too far ii. Enforceability of a credit hire agreement The Consumer Credit Act 1974 (now amended by the Consumer Credit Act 2006) regulates consumer credit and consumer hire agreements. The aim is to protect consumers (mainly individuals and small businesses, not limited companies). The Act applies only to regulated agreements and certain agreements are exempt. The House of Lords held that credit hire agreements involved an extension of credit to the hirer and were therefore regulated agreements under the Act unless they satisfied the conditions for exemption. If they were regulated they were improperly executed [s.61(1)(a) of the Act] because they did not (and obviously could not) contain a term stating the total cash price for the services (i.e. the total charge for the hire as at that stage, the extent of the required hire period was unknown). It was conceded that this particular agreement was not exempt, although Lord Hoffman said that it could have been exempt if the number of payments to be made did not exceed four and if the repayment period did not exceed 12 months. [Was he dropping a hint to the CHOs as to how to redraft any future agreements?] However this agreement was improperly executed and was completely unenforceable as between the CHO and the hirer, consequently the claimant vehicle owner had no loss to claim from the defendant driver. iii. Loss of use of a vehicle The fall back position adopted by the CHO was that it did not really matter whether Mrs Dimond was liable to pay for the hire, Mr Lovell had negligently deprived her of its use. This was her loss and the fact that she was provided with a free replacement car was irrelevant. The House of Lords accepted this argument, having considered it in the light of the principle of res inter alios acta (a man ought not to be prejudiced by what has taken place between other persons). Motor claims update_mgb, PNG, PEN_(RAW, ACH) 11/08 28

3 iv. What rate is recoverable? But the House of Lords was not prepared to regard the claimant s loss in the same way as gratuitous services provided by a friend or relative where the claimant is said to hold the money on trust for the gratuitous provider (see Donnelly v Joyce [1974] 1 QB 454). Whilst it was quite reasonable for the claimant to have chosen the credit hire services offered to her, she obtained not only the use of the car but the following additional benefits: She was relieved of the necessity of paying up front for the hire car She was relieved of the trouble and anxiety of pursuing a claim against the defendant She was relieved of the risk of paying any irrecoverable costs of successful litigation and possible further expense if it failed It is a well-established principle that damages for the worry and inconvenience of having to deal with the consequences of an accident are not recoverable. So in essence she received additional benefits by choosing the credit hire package in order to mitigate her loss. Quantifying the value of those benefits was not easy as the contract did not distinguish them from the basic hire cost, so the House of Lords decided that the way to look at it was the difference between what she would be willing to pay for credit hire and what she would have paid to an ordinary car hire company. This means that the net loss under this head of claim should be the spot rate. v. Who won round 2? In some respects Dimond was a victory for CHOs because it established that notwithstanding arguments about the enforceability of agreements there was a residual liability for the claimant s loss of use of the vehicle. CHOs also took the hint and redrafted their agreements to try to obtain exemption from regulation under the 1974 Act. The opportunities for technical challenges to credit hire agreements was beginning to dwindle but if the CHOs recovered only the spot hire rate they would soon go out of business. But the issue of spot rates was reconsidered in rounds 3 and 4 and insurers found another way to challenge agreements in round 3. c. Round 3: Clark v Tull (t/as Ardington Electrical Services) [2002] EWCA Civ 510 In four of these appeals insurers attempted to challenge the whole scheme for credit hire and credit repair, which they claimed was a pretence (or sham) to avoid restrictions imposed by the 1974 Act and/or that the agreements were unenforceable. These four cases concerned subsidiaries of the Helphire Group and are sometimes referred to as the Helphire cases. i. Pretence The Helphire scheme was clearly designed so that the agreements were exempt from regulation under the 1974 Act. There was also a legal expenses scheme ( Angel ) where claims could be made if credit hire charges were not recovered but claims were seldom made under the scheme and the CHO simply bore the loss themselves. But the Court of Appeal said that just because the scheme may have been sloppily enforced does not mean that it was a sham. The customers got exactly what they bargained for: car repair and hire at little or no cost. There Motor claims update_mgb, PNG, PEN_(RAW, ACH) 11/08 29

4 was no pretence. [This decision was made solely on the facts of the Helphire scheme. It does not mean that other schemes cannot be challenged on this issue] ii. Terms of the Helphire agreement The Court of Appeal made some specific findings about the terms in relation to the 1974 Act, including the following: Where an agreement restricts the period of hire to 12 weeks, the fact that the liability to pay may be for a longer period does not bring it into the regulated category An agreement which requires payment to be made in one go but permits the debtor to make more payments if he wishes may be exempt under the Act The requirement for prescribed terms to be included in the agreement is not satisfied if the terms are in another document, such as the hirer s tariff iii. Impecuniosity One of the appellants, Mr Lagden, had very little money to hire a replacement car and was therefore reliant on the services of a credit hire company. This issue was not considered in Dimond as it was never suggested that she was impecunious. The Court of Appeal said that a tortfeasor must take his victim as he finds him, so an impecunious claimant should be entitled to recover the credit hire rates, not just the spot rates as in Dimond. However this issue was appealed to the House of Lords (see below). iv. Different vehicle Another appellant, Mr Dennard, drove a sports car but he was supplied with a Vauxhall Vectra as a replacement vehicle. Helphire submitted that his loss was the cost of hiring a replacement sports car and the fact that he accepted a Vectra was irrelevant. The Court of Appeal said that a person who does not incur the cost of hiring a sports car cannot recover more than the cost actually incurred. However if the need for a particular replacement vehicle is established, that cost is recoverable. v. The hire rate Dimond had established that the spot rate should be the measure of damages (ignoring for the moment any issue about impecuniosity). But there is no one spot rate as such hire charges vary considerably and change frequently. In principle, the claimant can go to the nearest hire company and recover the amount charged, even if this rate is at the top of the range for spot hire in the locality. Of course the claimant should mitigate his loss but the onus of proving a failure to do so rests with the defendant. So the insurers would have to show that it would be reasonable for the claimant to have hired from another company who charged another rate. It was suggested that the ABI scheme figures could be used but the Court of Appeal said that these were a compromise between some insurers and CHOs and were not an appropriate measure in hostile litigation. vi. Repair costs In the four Helphire cases, the Court of Appeal decided that these credit agreements were enforceable but the fifth appeal, Burdis v Livesey, concerned an agreement with Accident Assistance Ltd. Unlike the sophisticated Helphire agreements, this one did not avoid regulation Motor claims update_mgb, PNG, PEN_(RAW, ACH) 11/08 30

5 and did not comply with the 1974 Act. The first instance judge held that it was unenforceable and this decision was not appealed. However the Court of Appeal distinguished between the claim for hire charges and that for car repairs. The hire charges represented a potential future loss, which was recoverable only if and when they were suffered. As the agreement was unenforceable, the claimant s loss did not arise. On the other hand Miss Burdis suffered an immediate and direct loss in the diminution of value in her car. In negligence losses are treated differently depending upon whether they are suffered when the tort was committed (direct loss) or whether suffered consequently (consequential loss) see Hunt v Severs [1994] 2 All ER 385. [Another way of looking at the different kinds of loss is that an immediate and direct loss is one arising out of necessity, whereas a consequential loss may be regarded as one of expediency - see McGregor on Damages, chapter 32.] Miss Burdis car was repaired by a garage and she had paid for the repairs (albeit through Accident Assistance). The Court of Appeal s decision in Jones v Stroud District Council [1986] 1 WLR 1141 was relevant to this case. The principle in Jones v Stroud was that although generally a claimant must prove that he has suffered a loss, if the extent of the damage is proved and if the property has been or will be repaired, the court should not be concerned whether the claimant pays for the repairs out of his own pocket or whether funds have come from another source. In Burdis, the garage was prepared to discount the repair cost to a factoring agent who effectively purchased the claimant s debt. But the Court of Appeal said that the claimant should still recover 100% of the repair costs. vii. Delay in repair In two of the Helphire cases the repair work was delayed through no fault of the claimants and the hire period had to be extended. In an earlier case of Mattocks v Mann [1973] RTR 13, the Court of Appeal held that for the cost of the hire period to be reduced there must be some finding of an independent cause of loss of her car for that period. In that case, the claimant had taken her car to a reputable repairer but it took twice the estimated time to complete the work and there was a further long delay waiting for the defendants to pay for the repairs, during which time the car was held by the garage. It was held that the claimant was entitled to recover the cost of hiring a replacement car for the full period. In the present cases, the Court of Appeal suggested that the defendant s insurers should seek a contribution from the repairers for any unjustified length of repair. viii. Delivery and collection charges The Court of Appeal said that establishing need applied not only to a replacement car but also to delivery and collection charges. What is reasonable depends on the facts of each case. The proximity of the repairer to the claimant s home and the suitability of public transport may be relevant. ix. Engineers charges One of the additional benefits of the Helphire scheme was the services of an inspecting engineer. The report of an engineer may be good evidence that the claimant had done his best to mitigate the loss. But this is irrelevant to the assessment of damages. The real purpose of the inspection was to protect Helphire from inflated repair costs and as such they are not recoverable. Motor claims update_mgb, PNG, PEN_(RAW, ACH) 11/08 31

6 x. Interest On the basis of the arguments considered above, interest should be allowed on 100% of the repair costs but not on the hire charges as the claimant has not been kept out of his money for these. xi. Who won round 3? On the whole this judgment was a victory for CHOs in general and Helphire in particular. Notable successes were: The Helphire scheme was not a sham; The onus was on the insurers to show that a spot rate was unreasonable; Most challenges to credit repair were removed; and (most importantly); It was possible to recover the full credit hire rate if the claimant did not have the means to pay up front The last issue opened up a huge potential for recovering the full credit hire rate, thereby making the industry profitable again. It is therefore not surprising that insurers sought to appeal the impecuniosity point to the House of Lords. d. Round 4: Lagden v O Connor [2003] UKHL 64 The House of Lords treated this appeal as a sequel to Dimond as it was generally accepted that Mrs Dimond had sufficient means to pay for spot hire if she had chosen to do so. But Mr Lagden was different he was an innocent motorist who, like many, was unable to pay up front for a hire car. In other words, he was impecunious. By a 3 to 2 majority, it was decided that in such circumstances the claimant should be entitled to recover the reasonable costs of a credit hire company. Lord Nicholls of Birkenhead explained the reasoning behind this decision. He said that the law would be seriously defective if in practice, the innocent motorist who was unable to pay up front was unable to have a replacement car. He said that the common law should never produce a wholly unreasonable result and a negligent driver must take his victim as he finds him. In so doing this judgment overturned a long-established principle that a claimant s lack of means should not be taken into account in assessing his loss. Lord Nicholls dealt with the difficult point of what is meant by impecunious as follows: Lack of financial means is, almost always, a question of priorities. In the present context what it signifies is inability to pay car hire charges without making sacrifices the [claimant] could not be reasonably expected to make. I am fully conscious of the open-ended nature of this test. But fears that this will lead to increased litigation in the small claims courts seem to me exaggerated. The notion that a tortfeasor must take his victim as he finds him derives from the common law principle of foreseeability of damage (often referred to as the eggshell skull principle in relation to injury). Not all the House of Lords agreed with its application to credit hire cases. In a minority judgment, Lord Scott said the majority in Dimond did not bar recovery on this basis. It Motor claims update_mgb, PNG, PEN_(RAW, ACH) 11/08 32

7 was on the basis that the additional benefits were not reasonably incurred. If reasonable foreseeability were the sole criterion then Mrs Dimond would have recovered all the credit hire charges. Lord Walker also dissented from the majority view and said that the exception would lead to an increase in contested small claims, contrary to the public interest. He was quite right to be concerned. What was reasonably foreseeable is that many claimants would in future allege impecuniosity so as to recover the full credit hire rate, subject to it being reasonable. This judgment was the kiss of life to the credit hire industry but the vague nature of the test opened up a whole new series of challenges in county courts throughout the country. Lord Nicholls hoped that insurers and CHOs would be able to agree on standard enquiries, or some other means, to give effect to the test of impecuniosity but this has not happened. Courts are now dealing with requests for detailed disclosure and Part 18 requests regarding a claimant s means and there has been a lack of consistency in the way they have been dealt with. e. Round 5: Bee v Jenson [2007] EWCA Civ 923 Notwithstanding previous successes for CHOs there were still some potential problems in securing exemption from the 1974 Act and difficulty in securing the full credit hire rate if the claimant had sufficient funds to pay up front. Alive to the prospect of new challenges, some CHOs entered into partnerships with some insurers in what has been called credit hire with the credit taken out. This is how it works: The claimant s motor policy includes legal expenses cover (many of them do nowadays); The legal expenses insurer will pay for a replacement car and in return, the policyholder agrees to make a subrogated claim against the negligent motorist; That insurer has an arrangement with a CHO whereby the vehicle is supplied to the claimant at spot hire rates and the cost is borne initially by the legal expenses insurer In this instance the CHO gets a steady stream of new business from the legal expenses insurer and the insurer will no doubt obtain beneficial spot hire rates for bulk purchases. The claimant however is probably unaware of this arrangement and signs a normal hire agreement (not credit hire) showing the standard spot hire rate. But the insurer of the at fault motorist has sought to challenge why they should pay damages to the claimant for a replacement vehicle which has been provided free by his insurers. In the case before the Court of Appeal, Mr Bee, who was an innocent party in a motor accident caused by Mr Jenson, had a motor policy with CIS (who, by the way, were the insurers challenging Mrs Dimond s claim!). His repairers did not provide a courtesy car so, under the terms of his policy, CIS arranged for legal expenses insurer, DAS, to supply a replacement vehicle from Helphire. Mr Jenson s insurers disputed that Mr Bee should recover the cost of the hire car because he had paid nothing himself (it was paid for by DAS) and it was DAS who were liable to pay the hire charges to Helphire. [This is different from a credit hire situation where the agreement is Motor claims update_mgb, PNG, PEN_(RAW, ACH) 11/08 33

8 between the claimant and the CHO and where, in theory, the claimant is liable to pay the hire charges.] The Court of Appeal said that the claimant had made reasonable arrangements for a hire car and there was no reason why he should not recover damages. It was irrelevant whether the cost was paid by him or someone else. It may be that the damages are tantamount to general damages (i.e. a jury award) rather than special damages but that is not significant in this context. Assuming that they are general damages, there is every reason why they should be assessed by reference to the spot hire charge for a comparable vehicle (per Dimond). It was established in Bradburn v Great Western Railway (1874) that a claimant s own insurance arrangements cannot be taken into account in reducing the defendant s liabilities. Therefore Mr Bee was entitled to the reasonable hire cost but, having been fully indemnified by DAS, holds that sum in trust for them and should repay it to them. 3 Other credit hire issues a. Mitigation The principle of mitigation of loss underpins many of the ongoing challenges in credit hire cases, in particular: The need for a hire vehicle; The provision of a courtesy car; The type of vehicle hired (like for like); The period of hire; and The hire rates claimed It is often said that the claimant is under a duty to mitigate his loss but this is not strictly correct. In Darbishire v Warran [1963] 1 WLR 1067, CA, Pearson LJ said: The true meaning is that the [claimant] is not entitled to charge the defendant by means of damages by any greater sum than that which he reasonably needs to expend for the purpose of making good the loss. In short, he is fully entitled to be as extravagant as he pleases but not at the expense of the defendant. The procedural aspects surrounding mitigation of loss may also appear to mislead. Para. 8.2(8) of the PD to Part 16 of the CPR (Statements of Case) says that the claimant must specifically set out in his particulars of claim any facts relating to mitigation of loss or damage where he wishes to rely on them. Strangely, there is no corresponding requirement for the defence in section 12 of that PD. It is strange because the burden of proof in establishing a failure to mitigate his loss is on the defendant (see Garnac Grain Co. v HMF Faure and Fairclough [1968] AC 1130). Defendants should also produce evidence to show that the claimant had not acted reasonably by demonstrating alternative courses of action (see Froggatt v LEP International [2002] EWCA Civ 600). Motor claims update_mgb, PNG, PEN_(RAW, ACH) 11/08 34

9 b. The need for a replacement vehicle Defendants often rely on Lord Mustill s comments in Giles v Thompson that the need for a replacement vehicle is not self-proving. But these words should be considered in the context of his following remarks: it is not hard to infer that a motorist who incurs the considerable expense of running a private car does so because he has a need for it, and consequently has a need to replace it if, as a result of a wrongful act, it is put out of commission. He went on to say that it was for the defendant to displace that inference. So in practical terms, it is usually self-proving and the defendant has to prove otherwise. However there may be circumstances where the need for a replacement vehicle might be challenged, as indicated below. Suggestions: The claimant may have been in hospital throughout or he may have been planning to go abroad leaving his car behind (per Lord Mustill) Even if the claimant was not in hospital, was he otherwise unfit to drive at the time? (Refer to the medical evidence if he was injured) Does the claimant have another vehicle registered in his name? (DVLA search?) Are there other vehicles within the family that could have been used? If a fleet vehicle, were there others available? Try to establish the mileage covered in the hire vehicle. If it was very low would taxis have been a reasonable alternative? Was there a period before the hire commenced when the claimant was actually without a vehicle? If he was able to manage then, what happened to change the situation? (The same situation may arise if the claimant was without a vehicle after the hire ended) c. Provision of a courtesy vehicle by the claimant s insurer The case of Bradburn established that a claimant s own insurance arrangements cannot be taken into account and this is supported by Parry v Cleaver [1970] 1 All ER 449. In Martindale v Duncan [1973] 1 WLR 574, the claimant was trying to recover damages from the defendants insurers but the second string to his bow would be that if this went wrong, he would claim from his own insurers although he would prefer not to do so as this would prejudice his no claims bonus. The Court of Appeal held that in this instance it was not a failure to mitigate to try and recover in the first instance from the defendant s insurers. In Mattocks v Mann the defendant argued that the claimant could have mitigated her loss by claiming for the repairs from her own insurers. It was contended that had she done so, the repairs would have been authorised more speedily and the hire period reduced. The Court of Appeal did not criticise the claimant for failing to seek the repair cost from her own insurers and allowed the hire cost in full. Motor claims update_mgb, PNG, PEN_(RAW, ACH) 11/08 35

10 Notwithstanding this line of cases there are grounds for supposing that the courts might take a different view today. Most of the recent cases on credit hire have proceeded on the basis that the claimant had no alternative but to hire a replacement vehicle. That is not the case for the claimant who is offered a suitable replacement vehicle by his own insurer. The courtesy car option is a sensible option for such a claimant and, bearing in mind the objective of reducing litigation, a claimant who ignores that option does so at his own peril d. Provision of a replacement vehicle by the defendant There are two recent cases, both involving TNT, which assist here. In Evans v TNT Logistics Ltd & Admiral Insurance Services Ltd [2007] CC Pontypridd the claimant hired a vehicle from Albany Loss Recovery at 50 per day whilst his own vehicle was undergoing repair. However the defendant TNT had previously offered a similar replacement vehicle at 29 per day. The court held that it was unreasonable for the claimant to bring a claim for damages for the cost of hire at 50 per day, and that that claim should be limited to the cost which would have been incurred had the claimant accepted the defendant s offer of a replacement vehicle at 29 per day In Steadman v TNT Express Ltd [2008] CC Dudley the court went a stage further and held that the defendant s offer of restitution in relation to a vehicle damaged beyond economic repair extinguished the claimant s right to sue for damages in its entirety. In that case the TNT driver had handed over to the claimant a card at the scene of the accident stating, inter alia, that TNT would accept costs incurred for hire. The Judge concluded that this was sufficient to extinguish the claimant s loss and that no hire charges were recoverable. He went on to say:- I have previously expressed the view that much of the so-called credit-hire litigation may have been avoided, and might still be avoidable, if the defendants or their insurers institute schemes to provide the innocent victims of vehicle damage with suitable alternative means of transport. Such schemes would, if properly formatted, result in claimants being able to avoid loss and thus reduce the volume of litigation in road traffic cases even though this reduction may be seen as limited to those cases where liability is clear. I have no doubt that such schemes would be very attractive to the victims of such accidents. e. Like for like vehicles This is often an issue where the claimant normally drives a prestige vehicle (e.g. a BMW or a Mercedes). As with mitigation in general there may be misunderstanding as to the correct legal position. In Dennard the House of Lords made it clear that the claimant has to establish a need for a particular vehicle before he can recover the cost of hiring that vehicle. In other words there is no automatic right to hire a strictly like for like vehicle. However in practice, the claimant is likely to recover the full hire charges for a similar vehicle unless the defendant can show that the choice of like for like was unreasonable. Defendants may try to rely on an old case quoted in Bingham s: Watson-Norrie Ltd. v Shaw [1967] 111 SJ 117, CA. The claimant company supplied its managing director with a prestige Jenson car. When it was damaged, they hired for him a Rover and then a Jaguar (at a cost of 40 a week) whilst his own car was being repaired. It was held that the full cost of hire should not be recovered and that a Ford Zephyr (probably the equivalent of a Ford Mondeo 2.5 nowadays) at 25 a week would have been a reasonable substitute. The Court of Appeal said it was only necessary to hire a replacement car for a short period and it was not necessarily right to recover the cost of hiring a car equal in value and prestige to the damaged car. Although the Motor claims update_mgb, PNG, PEN_(RAW, ACH) 11/08 36

11 principle established is sound, the way it was interpreted in this case is perhaps a little stringent in today s climate and defendants should be careful about adopting a similar interpretation. It is also worth noting that in two subsequent cases, the cost of hiring a replacement prestige car was allowed: Moore v DER Ltd. [1971] 1 WLR 1476, CA; and Daily Office Cleaning Contractors v Sheffard [1977] RTR 361 Claimants may try to rely on HL Motorworks v Alwabi [1977] RTR 276, where the car involved in the accident was a Rolls Royce and a claim was made for a substitute vehicle of the same make. The Court of Appeal said that if it was shown that the use of this car during the hire period was very small or that some other car would be equally suitable, then the claim may have been reduced. But this is something that the defendant must establish. In this case the cost of a replacement Rolls Royce was allowed. However this case was unusual as the claimant was a repairing garage test-driving a customer s car when it was damaged by the defendant. The customer (who was not a party to the action) would obviously expect a like for like replacement from the garage. The Court of Appeal distinguished the circumstances of this case from those in Watson-Norrie. f. The period of hire i. Delay by the repairer This was considered by the Court of Appeal in Clark. Where the claimant s car takes longer to repair than expected, the defendant will normally remain liable for the full hire period unless delay was due to a failure to mitigate by the claimant. ii. Seeking contribution from the repairer In theory this is possible and may be done by proceedings under s.1(1) of the Civil Liability (Contribution) Act Those bringing such claims should appreciate that there is a strict twoyear time limit which runs from the date of judgment or settlement when damages were awarded or agreed in the action by the claimant. But this will need consideration of the contractual relationship between the claimant and the garage and breach of duty by the garage may not be easy to establish. Foreseeability and remoteness of damage may be relevant and one should also consider the Court of Appeal s decision in Charnock v Liverpool Corporation [1968] 1 WLR 1498 in relation to what is considered to be a reasonable time in the circumstances of the case. An example of how complicated this issue can become is in Heap-Hammond v TNT UK, Yeovil County Court, 15 June 2007 (unreported but judgment available on Lawtel). The claimant s Porsche Boxster was damaged by the negligent driving of the defendant s employee. All aspects of the claim had been resolved save for the credit hire charges, which totalled 12,028 for a period of 35 days ( 248 a day). The main issue in this case was whether the duration of hire was excessive. The defendant joined the repairing garage and the claimant s own insurer (Norwich Union) as Part 20 defendants. After the accident, the claimant contacted Porsche, who recommended the garage as it seems they were experienced in repairing this make. The garage did not provide him with a courtesy car and recommended that he contact a CHO, Accident Exchange. There was quite serious Motor claims update_mgb, PNG, PEN_(RAW, ACH) 11/08 37

12 damage to the car and repairs would take some time but the garage made no promise as to the completion date. The court s findings were as follows: The claimant had not demonstrated any conscious step to mitigate his loss; He was a business development manager and was far from being impecunious, therefore he was entitled only to the spot hire rate ( 213 per day); The garage had carried out the repairs within a reasonable time and the defendant s Part 20 claim against them failed; There was no implied contractual term to suggest that Norwich Union was obliged to ensure that repairs were carried out within a reasonable period they were not a guarantor of the garage s performance. The Part 20 claim against the claimant s insurer also failed iii. Total loss claims A total loss claim is most likely to arise when a low-value vehicle sustains moderate damage. It is usually more economical to deal with the loss as a write off rather than have it repaired. If the claimant is impecunious he will not be able to purchase a suitable replacement until he is provided with the funds. If there is delay, the hire charges may well exceed the total loss value. If the vehicle is covered for accidental damage to his vehicle, he may make a claim against his own insurer. But there is often much haggling about the pre-accident value and the defendant s insurer might wish to settle with the claimant directly to avoid extending the hire period. If this is not done, the claimant s insurer will make a subrogated claim in any event. If a low-value car is involved there may not be any accidental damage cover anyway. g. Impecuniosity This issue was decided by the House of Lords in Lagden. The position is that a claimant who is impecunious may be able to recover the full reasonable credit hire rate whereas those with available funds may be able to recover only the reasonable spot rate (per Dimond). Therefore it is not surprising that most claimants allege that they are impecunious. There seem to be differing opinions about the evidential burden of proving (or disproving) impecuniosity. The matter is settled by the speech of Lord Hope in Lagden [para. 34]: It is for the defendant who seeks a deduction from expenditure in mitigation on the ground of betterment to make out his case for doing so It has to be shown that the claimant had a choice, and that he would be able to mitigate his loss at less cost. The wrongdoer is not entitled to demand of the injured party that he incur a loss at less cost, bear a burden or make unreasonable sacrifices in the mitigation of his damages. The key to the issue of impecuniosity is whether or not the claimant had a choice at the material time. Lord Hope said in Lagden [at para. 42]: In practice the dividing line is likely to be between those who have, and those who do not have, the benefit of a recognised credit or debit card. It ought to be possible to identify those cases where the selection has been made on grounds of convenience only without much difficulty. In Thompson v Vincent Haulage Ltd [2008] CC ( Preston) the claimant was a self employed electrician with earnings of around 13,000 pa, savings of 2,000, and with a credit card facility Motor claims update_mgb, PNG, PEN_(RAW, ACH) 11/08 38

13 up to 1,000. The Judge held that the claimant was not impecunious and that it would not have placed an undue burden on him to have hired at ordinary rates from an ordinary hire company. His claim was therefore limited to spot rates h. Evidence of comparable rates Notwithstanding the issue of impecuniosity, there may still be a mitigation argument about whether or not it would have been reasonable for the claimant to have obtained a suitable replacement vehicle at a significantly lower rate in his locality. If the defendant seeks to argue that the claimant was able to make a choice between spot hire and credit hire and simply chose the latter for convenience, the defendant will need to produce evidence of the spot hire rates that were reasonably available. In Burdis, the judge at first instance had adopted an average rate based on expert opinion in what was called the Mainz report. The Court of Appeal rejected this approach, saying that a claimant should be entitled to the actual cost of hire, not an average. He can go round to the nearest hire company and is prima facie entitled to recover the amount charged whether or not the charge is at the top of the range of car hire rates. The claim will be based on evidence of the rate charged in the relevant area. Thereafter the evidential burden passes to insurers to show that this rate is unreasonable and that the reasonable course would be to use another company which charged a lower rate. The words in the relevant area are important. Rates will fluctuate with areas (the London area will be usually the most expensive) and it is the rates that are local to the claimant that are relevant. Rates also fluctuate seasonally so it is the rate that would have been available to the claimant at the time he needed to hire a replacement that is also relevant. There may also be an issue about whether that particular type of vehicle would have been available for hire at that time. In fact there are so many variables that it may not be difficult for a claimant to challenge the defendant s evidence on comparable rates. Another possible challenge is whether the individual claimant could have hired the vehicle allegedly available at those spot rates. For example, he may be under 21 or have driving convictions which made him ineligible for spot hire. Comparison must be on a like for like basis. The basic rate is often subject to extras such as CDW, insurance, delivery, VAT etc. Credit hire rates are sometimes deceptively low but are boosted by what may appear to be excessive extra charges. Evidence of comparable rates may be obtained by either: Lay evidence supported by documents (including internet downloads); or Expert evidence Expert evidence may not be appropriate in cases allocated to the small claims track in view of the restriction on recoverable fees i. Sham agreements In Snook v West Riding Investments [1967] 2 QB 786, the Court of Appeal said that for all acts or documents to be a sham the parties must have a common intention that they do not create the legal rights or obligations that they appear to do. The Court of Appeal in Clark decided that on the facts of the Helphire scheme concerned in those cases, the agreements were not a Motor claims update_mgb, PNG, PEN_(RAW, ACH) 11/08 39

14 sham or pretence. It was quite clear that none of the parties in those cases had any improper motive. But this does not necessarily mean that the issue of sham or pretence is dead in relation to other credit hire schemes. Also, there may be other schemes which may not come within the narrow definition in Snook but which may have some doubtful features. The scheme operated by one particular CHO, Accident Exchange, was scrutinised by the court in Corbett v Gaskin, Oxford County Court, 31 August 2007 (unreported). Accident Exchange is a significant operator in the credit hire market, with a turnover of 117m. and pre-tax profits of 13.6m. in the 2007 financial year. The company specialises in the credit hire of luxury cars with rates of up to 400 a day. Like many CHOs after Clark, they set up a network of associated companies to ensure exemption from the 1974 Act. There is nothing wrong in principle with this arrangement but there were two significant differences in the Accident Exchange scheme: The legal expenses insurance premium was extraordinarily cheap (75p a day) and no claims appear to have been made on the policy; and The associated companies referred to in the contract either did not exist or were dormant Corbett was heard by HHJ Harris QC, a judge who has considerable experience of credit hire cases and who was complimented by the Court of Appeal in Clark. He criticized the Accident Exchange agreements as complex and misleading but declined to accept that the contract was a sham because the main object of the agreement (the provision of a replacement car to the claimant) was achieved. A subsequent case of Barker v First West Yorkshire, Leeds County Court, 13 September 2007, was decided along similar lines. However, as Accident Exchange customers are often drivers of luxury vehicles, one assumes that they are affluent and may be open to challenge if they claim to be impecunious. If so, damages should be limited to reasonable spot hire rates. There may also be arguments about the need for an absolute like for like vehicle in cases where the normal car is a top of the range model. j. MIB cases If a claim is made against an offending motorist who has no insurance, the claim may be directed to the Motor Insurers Bureau ( Alternatively, the motorist may be insured but in some cases, the policy may not be effective (e.g. it is purported to have been cancelled during the period of insurance). In certain limited circumstances, the insurer has to deal with that claim under what is known as Article 75 and in this situation, the insurer stands in the shoes of MIB and operates the MIB Uninsured Drivers Agreement. The Uninsured Drivers Agreement 1999 is a complex document containing some important conditions and exceptions to MIB s liability. Exceptions relevant to credit hire cases are: Clause 6.1(c): claims for the benefit of someone other than the claimant where the cause of action has been assigned to that beneficiary or pursuant to the beneficiary s contractual or subrogation rights; and Clause 17.1: where the claimant has received compensation under an insurance arrangement Motor claims update_mgb, PNG, PEN_(RAW, ACH) 11/08 40

15 The subrogation exclusion makes sense when an insurer is seeking to recover payments made under a policy for damage to a vehicle. Motor insurers fund the MIB so they would in effect be claiming against their own fund. This is not the case where a CHO is claiming under subrogated rights but MIB s present policy is to refuse to pay credit hire rates and to offer spot rates only. [This is being challenged in a case of McCall v Poulton to be heard shortly by the Court of Appeal.] k. Uninsured driver In Smyly Agheampong v Allied Manufacturing (London) [2008] CC London the claimant was seeking damages from the defendant following a road traffic accident. The claimant's vehicle had been hit, whilst parked and unoccupied, by a lorry driven by the defendant's employee. The claimant did not have compulsory third party motor insurance. Although liability was admitted and damages paid to the claimant representing the pre-accident value of the vehicle, the claimant sought to recover credit hire charges totalling 34,067 together with storage and recovery charges of 765. The court was asked to determine whether the claim for damages was a claim founded on illegality in which case the principle ex turpi causa non oritur actio (the law ought not to compensate people who have suffered loss in the course of their own wrongful actions, even where the primary cause is attributable to someone else) applied. The claimant argued that the lack of insurance was not a causative factor. However, the court found that the claimant was an unsatisfactory witness who had intended to drive without insurance throughout the 341-day hire period. Accordingly the claimant's claim failed as it fell squarely within the ambit of the ex turpi causa principle. Comment Although this is a first instance decision, this case has brought a certain amount of clarity to an uncertain area of law. It is clear a failure to insure will not trigger the ex turpi causa principle, ie. defeat a claim altogether. It does, however, highlight a change in the court's attitude towards claims involving uninsured drivers and their willingness to adopt the principle so as to prevent an uninsured claimant receiving damages in full on the grounds of public policy. This is undoubtedly a step in the right direction and one which could ultimately result in insurers making significant savings. Ó Berrymans Lace Mawer 2008 C:\DOCUMENTS AND SETTINGS\RAW\LOCAL SETTINGS\TEMPORARY INTERNET FILES\OLK3E7\MOTOR CLAIMS UPDATE_RODNEY WILSON_ANDREW HIBBERT (3) (2).DOC Motor claims update_mgb, PNG, PEN_(RAW, ACH) 11/08 41