Credit hire and company cars

As has been observed elsewhere, the role of credit hire cars in the late twentieth century and early twenty first century caselaw, has been analogous to the role of ships in the nineteenth century, driving forward the law of damages through the development of legal principle.

An interesting case which emerges from time to time in argument, is that of Beechwood Birmingham v Hoyer Group UK Limited [2011] QB 357 where the claimant was a substantial company of motor dealers with many vehicles at its disposal. A car belonging to the claimant, which had been allocated to one of its employees for his personal use, was damaged as a result of the negligence of the defendant’s employee.

Rather than reallocating to himself a similar car from the claimant’s stock, the employee hired a replacement vehicle. The judge held that, in the circumstances, the resort to outside hire had been unreasonable, and he therefore declined to make any award of special damages for vehicle hire charges.

However, by way of general damages for loss of use of the damaged vehicle while it was being repaired, the judge made an award based on the spot hire rate for a comparable vehicle. The defendant complained about this award and won in the Court of Appeal.

The decision in Beechwood concerned the valuation of the loss of a corporate car for an employee’s use, where the claim was brought by the true owner, rather than by the bailee driver. It followed that the car was the asset of a corporate business, the use of which has been wrongfully taken away by the defendant. How then should the company’s damages be calculated?

Dealing with the reasoning, the Court noted after a review of the nineteenth century shipping cases the following:

45 Thus the net result of the shipping cases can be stated as follows. Where a substitute vessel is hired in to fulfil the role of the damaged vessel, the costs of hiring in are recoverable. Where the claimant’s fleet is sufficient to provide a standby, then an award may be made based upon the expenses of keeping that standby, which means not only the expenses of daily upkeep but something representing the amount of capital employed in having another ship available. Where there is no substitute ship hired and no standby ship kept available the damages awarded are generally to be calculated on the basis of interest on the capital value of the damaged ship at the time of the collision.

46 Accordingly, as it seems to me, Lord Scott’s dictum (in Lagden v O’Connor [2004] 1 AC 1067 , para 76) in which he referred to The Susquehanna [1926] AC 655 as justifying his observation that, for loss of use of a damaged motor vehicle, the fair approach to quantum is to award a sum based upon the spot rate hire charge for a comparable vehicle, requires to be read in and limited to the context in which it was uttered, namely that of a private motorist claiming in respect of a substitute vehicle hired by him during the period of repair.

47 That said, in my view, the common law principles which have been developed and elaborated in cases of collisions at sea are in appropriate cases applicable to corporate claims for loss of use in respect of motor vehicles damaged in collisions on land.

The Court went on to observe the following:

48 In this respect it is important at once to recognise, as submitted by Mr Turner (see para 20 above), that the claim by a corporation for loss of use *373 of a car as a chattel employed in the course of the claimant’s business, constitutes a separate class of case from that in which an individual claims in respect of a private vehicle used for convenience rather than profit. I reject Mr Edis’s submission that such cases should simply be treated without distinction in relation to loss of use. In the former class, an award falls to be made to compensate for financial damage in respect of which the court (which no longer acts with a jury) must do its best to quantify, albeit only by approximation, the loss actually suffered by the business. In the latter class, albeit the court may be concerned with a degree of compensation for fares etc by way of special damage in a case where the owner has been obliged to use public transport rather than his damaged vehicle, the primary element of the award is that of compensation for non-pecuniary loss, i e, the lack of advantage and inconvenience caused by not having the use of a car ready at hand and at all hours for personal and/or family use: see Lagden v O’Connor [2004] 1 AC 1067 , para 27, per Lord Hope, and Alexander v Rolls Royce Motor Cars Ltd [1996] RTR 95 , 102, per Beldam LJ.

They went on to note the inapplicability of what might be called the county court tariff for general damages for loss of use, in the context of a corporately owned chattel:

49 In that respect, perusal of the Current Law Year Books yields references to awards in county courts up and down the country of conventional weekly sums based not upon car hire rates but on a modest rising scale from £40 or £50 per week in 1995 to £100 per week in 2005 in respect of disruption and inconvenience caused to individual claimants for loss of use of their private motor car during periods of repair in cases where, for reasons of impecuniosity or otherwise, no substitute vehicle has been hired by, or otherwise made available to, the claimant: see for instance Zubair v Younis [1995] CLY 1625 ; Ballard v Digital Equipment Corpn [1995] CLY 1626 ; Houghton v Meares [1995] CLY 1622 and Mullins v Phillips [2005] CLY 963 ; Brown v FE Thorpe & Sons [2005] CLY 964 . As I have indicated, I do not consider these cases to be relevant to the instant case which concerns recovery for corporate financial loss. In such cases general damages are in principle recoverable for loss of use but should be the subject of an award of such sum as reasonably compensates for the nature and extent of the financial loss suffered as a result of the neutering of the damaged vehicle as an asset employed in the claimant’s business and the redeployment of any other such asset. In the instant case, by reason of the judge’s findings and the nature of the claimant’s business it was able to “make do” out of stock. The judge found that is what it should have done and as a result the award should be limited to an appropriate sum by way of general damages. That being so, what is the most appropriate basis for assessment of the loss of use claim?

The method of calculating loss of use elected upon by the Court of Appeal was as follows:

50 Whatever the appropriate method of approximating and fairly compensating for the loss in this case, it cannot be that adopted by the judge. The issue of mitigation argued before him and his findings made in relation to it were predicated on the basis that to hire in a vehicle to replace the manager’s car was to incur an excessive and unreasonable expense which could and should have been contained by the less costly course of simply using a substitute from the ample pool of cars available as courtesy cars while awaiting sale. Having so held, the judge was wrong both in logic and in law to adopt the “spot” hire rate as the “fair approach” to the measure of *374 damage as adumbrated by Lord Scott in Lagden’s case [2004] 1 AC 1067 , para 76, and I accept Mr Turner’s submissions set out at paras 18–22 above.

51 It seems to me that, on the basis of the judge’s earlier findings, the matter fell to be dealt with under the principles identified by Geoffrey Lane J in Sowsbery’s case [1970] RTR 84 , a case in which the claimant corporation specifically maintained a standby pool of buses available for emergencies out of which it supplied a substitute for one of its buses during a period of repairs following an accident. Geoffrey Lane J stated, at p 86:

“Such authority as exists upon the subject is confined to shipping cases. It indicates that there are two possible methods of arriving at the figure which will fairly compensate the plaintiffs for the loss they have sustained. The first method is to take the cost of maintaining and operating the vehicle as the basis of calculation, on the assumption that this figure must represent approximately the value [to] the operators where the concern is non-profit making. An example of this method is to be found in The Marpessa [1907] AC 241 . The second method is based on interest on capital and depreciation. This method is exemplified by Admiralty Comrs v Owners of the Chekiang [1926] AC 637 where 5% of the estimated capital value of the ship at the time of the collision was used as the basis, and by The Hebridean Coast [1961] AC 545 where an award was based on 7% of the depreciated value of the vessel for the appropriate period.”

52 Having discussed the advantages and disadvantages of this approach in the circumstances of a case where a standby fleet was maintained for the specific purpose for which the substitute bus was used, Geoffrey Lane J opted for the first method, i e, an award based on the standby charges as the assumed accurate estimate of the running costs, i e, the costs of maintaining and operating the substitute bus. However, in my view, it is the second method identified in the passage which I have quoted which is the appropriate basis for any award in respect of damages for loss of use in this case, i e, an award based on the interest and capital employed and any depreciation sustained over the period of repairs, allowed in respect of the vehicle of the type damaged in the accident. Given that the course adopted by the claimant could have been, and presumably was, simply to supply a similar vehicle to its manager from its available stock during the period of repairs, it is unnecessary to consider whether the figures fall to be calculated in relation to the vehicle damaged or the vehicle substituted. The position was that over the period reasonably allowed for repairs the claimant was deprived of deployment and use in the course of its business of one of its Audi A6 vehicles with the result that the capital value of such a vehicle was neutered/infructuous over that period, thus meriting not an award of the costs of outside hire but an award of interest at an appropriate rate upon the capital value involved over the period together with a modest, if not minimal, sum in respect of depreciation over the period allowed for repairs.

In summary, then the approach taken by the Court of Appeal was to award interest on the capital value of the car, and an element for depreciation, noting later in the judgment that the parties had not troubled to actually put evidence of this nature before the court at first instance or on appeal, raising the spectre that the claim might have been dismissed for want of proof.

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