Enforceability and measure of loss

The issue of the recoverability of credit hire charges returned to the House of Lords in the case of Dimond.v.Lovell in the House of Lords [2002] 1 AC 384 some years later.

Pursuing the appeal to the House of Lords was a mistake on the parts of the credit hire companies: although they had lost on the issue of the enforceability of a particular tranche of credit hire agreements, they had won on the far more important issue of mitigation of loss in the Court of Appeal, albeit with a dissenting judgment from Judge LJ.

The appeal to the House, permitted the insurers to mount a cross appeal on the issue of mitigation. Hindsight, is a wonderful thing.

The first point was that the credit hire agreements in the case, were regulated by the Consumer Credit Act 1974, and were unenforceable having been drafted in breach of requirements imposed by the Act and secondary legislation made under it. Applying the rule against “double recovery” the motorist who was then under no liability to pay the credit hire company could not recover damages to discharge a debt she did not have to pay.

The second point which has proved far more significant and long lasting, is the ruling by the House of Lords on how the rate of credit hire charges should be calculated by the courts in order to reach a result which the common law regards as a reasonable and just result. The focus by the House of Lords was on the concept that there was nothing wrong in an insurer having to pay a market rate, referred to as a “spot rate” for the credit hire car, which was the same rate a motorist who had gone to a normal hire company would have paid.

The House of Lords in drawing up an objective standard, did not at this stage, save for the dissenting speech of Lord Nicholls draw a distinction between the financial circumstances of a motorist, who had the cash to pay hire charges up front and an impecunious motorist, who could not do so, but whose loss was in any event fixed according to the same objective standard.

Lord Hoffman set out the principles he judged should be applied at 392 to 393. First of all he reiterated the clear social utility provided by credit hire companies when it came:

The services thus offered by an accident hire company, in providing the car on credit and assuming the burden and risk of pursuing the claim, have filled a gap in the market. Many comprehensive motor insurance policies cover damage to the vehicle but not the cost of hiring a replacement. The owner of a damaged car can arrange for his car to be repaired in the knowledge that the bill will be sent to the insurance company. Whether his company meets the cost itself or recovers it from the other driver’s insurer is (apart from the question of a no-claim bonus) not a matter which need concern him. If, however, he wants to hire a replacement vehicle, he will have to make the arrangements at his own expense and claim the cost from the other driver himself. Faced with such a prospect, many drivers will make do without a car while their vehicle is off the road. Accident hire companies enable them to have a replacement car without cost, trouble or risk.

The accident hire business has increased the cost of third party claims against motor insurance companies such as CIS. Motorists not only hire replacement cars when they would not previously have done so but also, since they are not themselves paying, do not necessarily exercise the closest scrutiny over the rate that is being charged. Partly for this reason and partly because the companies have to be compensated for the credit and additional services that they provide, claims by accident hire companies are generally at rates substantially above the market or “spot” rates that an ordinary hire company would have been willing to offer for ready money. Motor insurance companies have therefore tried to resist such claims. The first attempt was based upon the theory that the arrangements between motorist and accident hire company were champertous. It was rejected by your Lordships in Giles v Thompson [1994] 1 AC 142 . The present case is a return to the charge by other means. Your Lordships were told that many other cases, both at first instance and in the Court of Appeal, wait upon the result.

On the calculation of rates he observed as follows:

How does one calculate the additional benefits that Mrs Dimond received by choosing the 1st Automotive package to mitigate the loss caused by the accident to her car? The hiring contract does not distinguish between what is attributable simply to the hire of the car and what is attributable to the other benefits. But I do not think that a court can ignore the fact that, one way or another, the other benefits have to be paid for. 1st Automotive have to bear the irrecoverable costs of conducting the claim, providing credit to the hirers, paying commission to brokers, checking that the accident was not the hirer’s fault and so on. A charge for all of this is built into the hire.

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. I quite accept that a determination of the value of the benefits which must be brought into account will depend upon the facts of each case. But the principle to be applied is that in the *403 British Westinghouse case [1912] AC 673 and this seems to me to lead to the conclusion that in the case of a hiring from an accident hire company, the equivalent spot rate will ordinarily be the net loss after allowance has been made for the additional benefits which the accident hire company has provided.

Lord Nicholls dissented on the question of the measure of damages at 390 to 391 He noted the basic problem that victims of no-fault accidents were left without redress:

These proceedings arise out of an everyday occurrence. Momentary inattention by a driver results in his car running into and damaging another vehicle. The damaged car needs repair and is off the road for some days while being repaired. The owner of the damaged car requires a replacement vehicle. Many car insurance policies make no provision for a replacement if the insured car is damaged in an accident. So the victim of a no fault accident has to make his own arrangements to tide himself over the days he is without his car.

He also emphasised the practical difficulties, facing motorists of modest means, who could not afford to hire a replacement vehicle:

Under an ordinary car hiring arrangement, the hirer has to produce the hire charge up front. Usually the amount of money involved is not large, but for many people it is still a considerable sum to have to find. Further, there is no certainty the money will ever be recovered from the insurers of the car whose driver was at fault. The innocent motorist has no clout when it comes to seeking payment from someone else’s insurers. And no one would wish to become involved in court proceedings to recover the money from the insurers. So there are many cases where innocent motorists make do as best they can. They manage somehow without a car, or borrow one from a relation, or get lifts from friends. Either that, or they hire a car and write off the hire charge as just one of those things.

His conclusion was that the role played by credit hire companies was of real practical utility when dealing with the aftermath of an accident:

So it comes about that accident car hire companies are fulfilling a real need. They provide replacement cars and additional services as well. The hirer does not have to produce any money, either at the time of the hiring or at all. The hire company pursues the allegedly negligent driver’s insurers. The hire company is not deterred by having to bring court proceedings should this become necessary. If the claim is unsuccessful, in practice the hire company does not pursue the hirer.

He would also have developed the common law to enable the no fault driver to recover the full cost of the credit hire charges:

These are valuable additional services. At first sight there seems to be no reason why the negligent driver’s insurers should have to pay for these additional services. If a car owner wishes to have these services he should pay for them himself. I consider this would be to take too narrow a view of the position in which the no-fault driver finds himself. The position in law is that the negligent driver, backed by his insurers, is liable to pay reasonable charges incurred in hiring a replacement car if this is reasonably necessary. For many motorists the existence of this liability of the other motorist can be more theoretical than real. In practice this source of recompense frequently does not yield money, or even an acceptance of liability, in time to be of use. In Giles v Thompson [1994] 1 AC 142, 155a , Lord Mustill observed that: “there exists in practical terms a gap in the remedies available to the motorist, from which the errant driver, and hence his insurers, frequently profit.”

Lord Nicholls concluded:

The additional services provided by accident car hire companies bridge this gap. They redress the imbalance 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, owners of cars often have to bear themselves. So long as the charge for the additional services is reasonable, this charge should be part of the recoverable damages.

Some 14 years ago, the ABI, proposed to extend no fault hire more generally. This initiative has found fruit in the last few years, with a number of insurers being willing to offer hire. But it is worth noting what was contemplated many years ago as an economically efficient way of dealing with the needs for replacement vehicles. The ABI initiative as proposed in 2000 was noted in these terms at page 391 by Lord Nicholls:

This House was told by counsel of a scheme or proposed scheme, the “ABI Initiative”, whereby insurance companies and car hire companies will provide hire vehicles to victims of no fault accidents. Depending on its terms, a scheme of this nature may meet the need which has given rise to the accident car hire business. Until that happens, the accident car hire arrangements provide a reasonable basis by which no-fault victims can in fact obtain the benefit of the right which the common law and compulsory third party insurance seek to give them against careless drivers. A measure of damages which does not achieve this result would be sadly deficient. The law on the measure of damages should reflect the practicalities of the situation in which a wronged person finds himself. Otherwise it would mean that the law’s response to a wrong is a right to damages which will often be illusory in practice. I do not believe this can be the present state of the law in a situation which affects thousands of people every year.                                                                      

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