A restatement of principle

There is one case that invariably accompanies me to court, when I conduct a credit hire trial: Pattni v First Leicester Buses [2011] EWCA Civ 1384.

A copy of the judgment can be downloaded here: Pattni v First Leicester Buses [2011] EWCA Civ 1384

Perhaps the most important case of recent years, it was the opportunity taken by the Court of Appeal to restate or codify the principles governing the calculation of damages for credit hire after the confusion following the travails of Darren Bent.

This leading judgment of the Court of Appeal restating the principles summarised them as follows:

29 Three House of Lords and one Court of Appeal decision have established certain principles concerning (a) the basis on which a claimant can recover damages for car hire costs when he is the innocent victim of an RTA and he has hired a replacement car on credit hire terms and (b) what sums can be recovered as damages or otherwise. The authorities have all been concerned with cases where the claimant car driver was entirely without fault, had entered into a credit hire agreement with a credit hire company for a replacement car and that agreement provided that the hirer will not have to pay the hire charges until the successful prosecution of a claim for damages against the negligent driver. The cases are Giles v Thompson , 15 Dimond v Lovell , Burdis v Livsey  and Lagden v O’Connor.

The Court then proceeded to state the principles in a methodical fashion:

(1) The loss of use of a car as a result of the car being damaged by the negligence of another driver is a loss for which, in appropriate circumstances, the innocent claimant can recover damages, even where the car is “non-profit earning”. It is the duty of the innocent claimant to mitigate his loss. If the loss of use of a car can be mitigated or avoided by the hire of a replacement car, the cost of that replacement car will be the measure of damages recoverable for the loss of use of the car.

(2) A claimant who hires a car on credit terms as a replacement vehicle suffers a loss which is recoverable as damages, even though, by the terms of the credit hire agreement, the hirer is not liable to pay the hire until there has been a judgment in the hirer’s favour against the negligent driver. In that circumstance there is, generally, a “real liability, the incurring of which constitutes a real loss to the motorist. Whatever the publicity material may have conveyed, the provision of the substitute car was not free” . If a claimant has had the use of a replacement car and he has had to pay for it, then the claim may more aptly be characterised as one for special damages; however, if he does not have to pay for it Longmore LJ has stated that: “..it may be difficult to say that he can recover special damages at all. It may be that he can only recover general damages”.

In the next principle, the Court of Appeal took as its starting point that a motorist is entitled to hire a like for like replacement for his damaged vehicle, it being open to the insurance company to argue he has in fact hired a better quality one.

(3) The injured party cannot claim reimbursement for expenditure that is unreasonable. If the defendant can show that the cost that was incurred was more than was reasonable, either by proving that the claimant had no use for a replacement car in part or at all, or because the car hired was bigger or better than was reasonable in the circumstances, the amount expended on the hire must be reduced to the amount that would have been needed to hire the equivalent to the damaged car. As Lord Mustill put it in Giles v Thompson , “…The need for a replacement car is not self-proving”.

They re-emphasised that the law would compensate innocent motorists for additional costs they had incurred which would not be recoverable by affluent motorists.

(4) Even if it was reasonable for the innocent claimant to hire a replacement car on credit hire terms, the measure of damages recoverable will not necessarily be the amount of the credit hire that the claimant agrees to pay the credit hire company. It will depend on the financial circumstances of the claimant. If the claimant could afford to hire a replacement car in the normal way, ie. without credit terms and by paying in advance, then the damages recoverable for loss of use of the damaged car will be that sum which is attributable to the basic hire rate of the replacement car.

This basic hire rate has often been referred to as the “spot rate”, but that is, with respect, a misnomer. The term “spot rate” is more appropriately applied to rates of freight or charter hire, or the price of a commodity in open, often international markets, where the service or commodity is bought for delivery today, as opposed to some time in the future. I think it would be better if, in the context of credit hire cases, the term “spot rate” were not used in future and the term “basic hire rate” or “BHR” were used instead. That term more accurately describes what is the basic measure of damages recoverable in cases where the claimant could afford to have hired a car by paying in advance, ie. not hiring the car on credit.

(5) The difference between the BHR and the credit hire rate (assuming there is one) takes account of the additional services that a credit hire company provides to the hirer, viz. credit, handling the claim and effecting the recovery from the negligent driver, taking the risk of not recovering from the latter and an element of profit. Those elements are not part of the recoverable loss of a claimant who has hired a replacement car on credit hire terms but who could have afforded to do so by paying in advance. However, it is for a defendant to demonstrate, by evidence, that there is a difference between the credit hire charge agreed between the claimant and the credit hire company and the BHR.

(6) If it was reasonable for the claimant to hire a replacement car but he could not afford to hire a replacement car by paying in advance, (in the word used in the cases, that he is “impecunious”) then, prima facie , he is entitled to recover the whole of the credit hire rate he has paid, provided that it was otherwise a reasonable rate to pay in the circumstances. If the claimant is “impecunious” then, on the assumption it is reasonable for him to hire a replacement car and it was a reasonable type of car that he hired, he is said to have had “no choice” but to hire on credit terms. In Lagden v O’Connor Lord Hope of Craighead suggested that a rule of thumb test on whether a claimant hirer is “impecunious” might be whether he has the use of a recognised credit or debit card. In practice whether someone is “impecunious” will depend on the facts of a particular case and Lord Hope’s rule of thumb test is not necessarily determinative of the issue of whether a claimant can afford to pay hire charges day by day, which is the key question.

(7) If the credit hire agreement provides that the hire will not be due and payable until judgment has been obtained against the negligent driver and there are no express terms in the hire agreement about the payment of interest on the hire charges then interest should not be awarded, at least under the terms of section 35A of the Senior Courts Act 1981 or section 69 of the County Courts Act 1984 . This is because, in such circumstances the hirer has not been “kept out of his money”; he was not contractually obliged to pay the hire charges to the credit hire company whilst the claim against the negligent driver was being assessed and (if necessary) litigated. No hire charges were then owed to the credit hire company.

(8) In the judgment of the Court of Appeal in Burdis v Livsey , the court considered the method by which judges could calculate the BHR and so the measure of damages for loss of use in circumstances where the claimant was not “impecunious”. The court canvassed three possible methods. The first was to break down the charge made by credit hire companies so as to enable the additional elements (for credit, claim handling etc) to be stripped out. That method was rejected because it was said it would entail detailed disclosure and analysis which would be cumbersome in small cases and the costs would be disproportionate to the sums claimed in most of this type of case. I agree that may well be so in most cases. But I do not understand this court to be saying, at [137] of Burdis v Livsey , that it is wrong as a matter of law to consider direct evidence on this issue from the actual credit hire company that hired the replacement car to the claimant, eg. in the form of the company’s published credit hire rates and BHRs. If there is such direct evidence it might be the best evidence of any difference between the credit hire rate charged and the BHR for that type of car in that area at the time the replacement car was hired. But if there is not such direct evidence, then it is unlikely that indirect evidence from the car hire company (such as its assertion of what its BHR would have been had they had one) will be useful. It would also probably entail disproportionately costly disclosure.

This restatement, forms the principal resource which county court judges draw upon when deciding credit hire claims, as it forms a code for applying all the law decided in earlier cases, to the particular case before them.

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