Comparators considered part 1

Last month saw the handing down of judgment in the conjoined appeals of McBride v UK Insurance and Clayton v EUI Limited [2017] EWCA Civ 144 the most recent credit hire cases to reach the Court of Appeal.

The cases represented an attempt by the credit hire industry to salvage or at least improve their position after the disastrous decision in the Court of Appeal of Stevens v Equity Syndicate Management Limited [2015] EWCA Civ 93 in 2015.

It is worth recapping what the effect of that decision was before considering the two recent appeal decisions in the next two posts on this blog.

Iin essence, in the closing years of the twentieth century, credit hire companies would usually recover an average of spot hire rates of the cost of hiring a comparable car. In the aftermath of Burdis v Livsey [2003] 2 QB 36 the credit hire companies would recover the top spot rate, if it fell within a range of options which all occupied the spectrum of reasonableness.

The highpoint of the credit hire industry’s position in the authorities was reached in the seminal decision of Lagden v O’Connor [2004] 1 AC 1067 where by a majority of 3 to 2, the House of Lords created the impecuniousity exception to the quantification of credit hire damages whereby a claimant who was impecunious could recover the full credit hire rate and not be confined to spot hire rates.

The first commandment of credit hire then became: Thou shalt do nothing which might imperil the ratio of the Court of Appeal in Burdis v Livsey. Unfortunately, like most commandments, this one proved impossible to keep, and a chain of appeal cases over the next decade ended badly for the credit hire companies.

The reason why Stevens v Equity Syndicate Management Limited [2015] EWCA Civ 93 has proved so disastrous for credit hire, is because it apparently represented a departure from the conjoined decisions a decade earlier. It is worth recapping what the decision established.

Mr Stevens was unlucky enough be involved in an accident, which was not his fault:

2. On 10 February 2011 Mr Stevens was driving his Audi A4 S Line Tdi 140 when an insured of the defendant, Equity Syndicate Management Ltd (“ESM”), reversed into him. As Burnett J explained, Mr Stevens had comprehensive insurance but did not wish to jeopardise his own no claims discount by claiming for repairs on his own policy. Accordingly his insurers put him in touch with a credit hire company called Accident Exchange Limited (“AEL”) which provided him with two services. First, it hired him a replacement Audi A4 whilst his own vehicle was being repaired. Second, it made arrangements for those repairs and funded the costs of carrying them out pending the recovery of those costs from ESM as the insurer of the driver at fault.

3. The total hire period was 28 days, running from 24 February 2011 to 23 March 2011. The hire rate was £140 per day (exclusive of VAT). But hire at this rate was subject to a £1500 excess. So Mr Stevens agreed to pay an additional charge of £22.50 per day (excluding VAT) to reduce the excess to nil, and a further £3.00 per day (excluding VAT) to reduce his liability for accidental damage to the windscreen, tyres and underbody to nil. The total daily hire rate agreed by Mr Stevens was therefore £165.50 (excluding VAT).

It is interesting to note, that in these paragraphs the Court of Appeal regarded the cost of hire as being the car hire, plus the additional charges.

32. So that leaves the third approach which is to look at locally available BHR rates for vehicles in the same group as that of the innocent party. That is the approach which was followed in this case but it produced a wide range of figures. That, we are told, is very commonly the case, for such hire rates often vary considerably. How then is a judge in a fast track claim for a small sum to proceed? Should the judge take a figure from the top or the middle or the bottom of the range? Or should he take an average? Or should he conclude, as Mr Butcher urges us to conclude in this case, that, if one of the figures at the top of the range is close to or exceeds the credit hire rate, then the defendant has simply failed to prove that the BHR is less than the claimed credit hire rate and so not apply a discount at all?

33. In answering these questions it seems to me to be important to keep well in mind the nature of the exercise. As Lord Hoffmann explained in Dimond, it is to strip out irrecoverable costs of the additional services which the injured party has received. If Mrs Dimond had borrowed the hire money, paid someone else to conduct the claim on her behalf and insured herself against the cost of losing and any irrecoverable costs, her expenses would not have been recoverable. These were therefore additional benefits which had to be brought into account.

34. The difficulty arises because credit hire companies do not routinely value such additional benefits. They quote and charge a single credit hire rate. It follows that any attempt to value the benefits at a later stage in a proportionate way must necessarily involve a degree of imprecision. The best that can be hoped for, absent a very expensive exercise of disclosure and analysis, is a reasonable approximation. Nevertheless, as Lord Hoffmann went on to explain in Dimond, a reasonable estimate could be arrived at by considering what Mrs Dimond would have been willing to pay an ordinary hire company for the use of a car. I do not understand Lord Hoffmann 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, that person would never have hired a car at all. The analysis is, 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. I would reject Mr Butcher’s submission that in circumstances such as these it is permissible simply to look at the highest figure in the range and, if it is greater than or equal to the claimed credit hire rate, conclude that the defendant has failed to prove that the BHR is less than that rate. That, it seems to me, would be manifestly unjust particularly since the credit hire company is in the best position to elaborate upon and give disclosure relating to its charging structures but has not been required to do so in light of the modest size of the claim.

37. I believe that this approach is not only consistent with the observations of Lord Hoffmann in Dimond but also with those of Lord Hobhouse. It will be recalled he thought there were other ways of reaching the same answer, one of which was that preferred by Judge LJ in the Court of Appeal. He had taken the view that the excess cost was not reasonably incurred as the cost of hiring the substitute car. The right of recovery was limited to the reasonable cost, that is to say the lesser sum.

The effect of Stevens was thus to alter the approach to establishing a reasonable rate of basic hire: in the years after 2000, the credit hire companies had usually recovered an average basic hire rates. After the appeal decisions in 2003, they recovered a rate at the top of a range of rates, as that was part of a spectrum of reasonable rates. Now after Stevens the pendulum swung so that the lowest reasonable rate was to be recovered.

But to be a reasonable rate, the rate put forward by the defendant to displace the credit hire rate, had to be a comparable one. In which case the last few years have seen furious arguments as to whether alternative rates put forward were indeed proper ones for comparative  purposes or whether they were not, so the defendant failed evidentially to demonstrate that there was in fact, a lower basic hire rate.

In the midst of those arguments was the question as to how excesses and other charges should be treated: put simply was the correct focus one of comparing the daily credit hire charge costed with a nil insurance excess, with a basic hire rate where a claimant also faced a nil excess, to notionally hire a car for cash ?

If so, there would be fewer comparators or comparators with a higher aggregate daily charge. Such a view would reflect the concept that what mattered for comparison purposes was the overall package of charges or contractual terms. Or, conversely, should one simply compare the headline rates of credit hire cars, with the headline rate for cars hired at basic hiring rates, with the excess being treated as a separate head of loss, added on to a notional basic hire rate through a CDW charge of some description to produce an overall figure for compensation purposes?

Although passages in the case suggested that a nil excess was a pre-requisite for a true comparator, this argument did not find favour with the County Court judiciary and hence became a very important part of the two cases forming the latest authorities from the Court of Appeal.

Leave a Reply

Your email address will not be published. Required fields are marked *