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Credit Hire

Update on the law, tips and tactics

24 September 2012

Rowan Pennington-Benton and Alexander Halban

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Speaker profiles

Alexander Halban (2009)

Alexander acts in a wide range of civil and commercial matters. He has

experience of appearing in trials and applications in the High Court and county

courts, including in commercial contract, negligence, property, insolvency travel

claims and road traffic accidents (including on an appeal in a credit hire case).

He has been led in commercial trials in the High Court.

Alexander is happy to accept instructions to act and advise in all areas of

Chambers’ practice. He has a particular interest in civil liberties and human

rights. Before pupillage, he worked at the European Human Rights Advocacy

Centre, an NGO representing applicants from Russia at the European Court of

Human Rights. He also worked as a research assistant to Professor Philip Leach

on the third edition of his book, Taking a Case to the European Court of Human

Rights. He is assisting other members of chambers in writing a book on travel

law, including a chapter on direct rights of action against insurers.

Rowan Pennington-Benton (2008)

Rowan is happy to accept instructions in all areas of civil and commercial

practice within Chambers including chancery / insolvency, commercial contracts,

property / landlord & tenant, personal injury and travel law. Rowan deals with

cases with an international element and has a working understanding of the

Package Travel Regulations, Rome I and II, the Brussels and Lugano

Conventions and the general rules relating to the conflict of laws.

He is assisting other members of chambers in writing a book on travel law. He is

currently on secondment to the Supreme Court / Judicial Committee of the Privy

Council as judicial assistant to Baroness Hale of Richmond. He returns to

Chambers in July 2012.

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Credit Hire

Update on the law, tips and tactics

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Basic principles

If the claimant’s car is put out of action due to the negligence of the defendant

then the cost to the claimant of obtaining an alternative vehicle is a loss properly

recoverable from the defendant. There is no need for the car itself to have been

used for profit prior to the accident.

The guiding principles in this area are sometimes lost sight of. They are (a) that

the claimant can only claim for losses actually incurred as a result of the accident

and (b) only those losses that he could not reasonably have avoided – often

referred to as the ‘duty’ to mitigate loss. All of the case law in this area can be

explained by reference to these guiding principles.

Often the hiring of a replacement vehicle is referred to as an act of mitigation of

loss in itself. Further losses flowing from being without a car have been avoided

(for example being unable to go to work). However, loss of use of the claimant’s

own car is also a quantifiable loss in its own right. The claimant is entitled to

have access to a car for his or her sole use as was the case prior to the accident.

If a hire car is arranged and actually paid for by the claimant then the loss is

claimed as special damages as normal. The only questions for the court are (a)

whether a hire car was actually needed and for the full period claimed (there

may be some debate for example if the damaged car was part of a fleet of

vehicles and another could have been used instead); (b) whether the car hired

was a similar model and design to that damaged (the replacement need not be

like-for-like); and (c) whether the price paid was reasonable (this will usually be

assessed by spot hire / basic hire rate evidence – i.e. evidence of what other car

hire providers charge for a similar vehicle).

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If a hire car is arranged on credit – that is to say the claimant does not need to

pay for the hire until judgment or other triggering event – then the hire cost is

treated as being part of the claimant’s loss at the date of trial and therefore

recoverable. The car hire is not free, payment for it (by the claimant or his

insurer) is merely being deferred.

If there is no additional charge for hiring on credit then there is no difficulty. The

claimant can claim the full cost of hire as normal. If the cost of hiring on credit is

the same as it would be to pay up front then the claimant does not need to show

that it was reasonable to hire on credit. It may simply have been more

convenient.

More commonly, the cost of hiring a vehicle on credit is more than it would be if

paying in advance. The additional charge for credit is often hidden in the quoted

price. It can be arrived at by looking at the difference between the credit hire

price and spot hire / basic hire rates from other suppliers. The claimant can only

claim the credit hire cost (i.e. the basic hire rate plus the charge for credit) if he or

she can show that it was reasonable to hire on credit. It will usually only be

reasonable to do so if the claimant is impecunious. A claimant is impecunious if

he or she could not have afforded to pay in advance for car hire without making

unreasonable sacrifices.

If the claimant has secured credit hire and is held to have been impecunious then

the remaining questions for the court are: (a) whether a hire car was actually

needed and for the full period claimed; (b) whether the car hired was a similar

model and design to that damaged; (c) whether the price paid was reasonable

(this will usually be assessed by reference to credit hire rate quotes from other

suppliers).

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The first question, whether the car hire was in fact needed, is an important one

and sometimes overlooked. It may for example be that the claimant was driving

a company car and there was a spare vehicle in the fleet that could have been

used. One of the authors recently had a case where the claimant’s own insurance

policy provided a replacement car free of charge. The claimant’s barrister was

adamant that the policy was irrelevant and cited several Court of Appeal cases

as authority. In our opinion (and thankfully also the judge’s) the availability of a

replacement car free of charge will very often make the cost of hiring a car

unrecoverable. This proposition must not be confused with that which applies

where the defendant offers a car to the claimant supposedly free of charge, but

in reality at cost to itself, in order to avoid the claimant securing a hire car. This

is addressed below.

If the claimant secured credit hire but is subsequently held not to have been

impecunious then he or she is not entitled to claim the full credit hire rate, only

the basic hire rate. The burden is on the defendant to show that there is a

difference between the credit hire rate and the basic hire rate (also called the

‘spot’ hire rate). The defendant must adduce evidence in order to do so. This will

usually be in the form of quotations from other car hire providers for similar

vehicles for the same period.

Defendants have often defended credit hire claims by attacking the validity of

the credit hire agreement itself. Credit hire agreements are regulated under the

Consumer Credit Act 1974 and more recently by the Consumer Credit Act 2006.

Under the 2006 Act, there is no financial limit to credit agreements and all are

now regulated. Under the Acts, credit agreements must state the amount of

credit being provided, the total charge for credit, the duration of the agreement

and other essential terms, as well as being signed by the parties. If the final

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charge for credit is not known then the daily rate of other description of how it

will be calculated must be provided.

Under the 1974 Act, if a credit agreement fell foul of the above requirements it

was only enforceable against the hirer by order of the court. Further, the court

was required not to order its enforcement unless the agreement at least

contained all of the core terms and was signed by the hirer. Under the 2006 Act

the court has an open discretion whether to order enforcement and must decide

whether or not to do so by reference to (a) the degree of prejudice caused to the

hirer and (b) the degree of culpability of the supplier. The court may now also

reduce the amount payable under the credit agreement rather than having to

either leave it fully intact or to extinguish it entirely.

Where a contract is rendered unenforceable by virtue of the Consumer Credit

Acts, the obligations in the credit hire agreement have been treated by the courts

as inseparable and the whole contract fails. In other words, despite various

ingenious arguments to the contrary, where the credit hire agreement is

unenforceable the claimant will effectively have had entirely free use of the hire

vehicle. The supplier of car hire will have no remedy against the claimant. The

defendant will not have to pay any damages for hire.

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Discrete issues and updates

Interest

In Pattni v First Leicester Buses Ltd [2011] EWCA Civ 1384, [2012] PIQR Q1 the

Court of Appeal considered a claim for interest on credit hire charges. Three

questions arose. First, can interest be charged on the credit car hire cost in the

same way that interest is awarded on other damages (i.e. by the exercise of the

court’s discretion under the County Courts Act 1984 or the Senior Courts Act

1981)? Where the claimant is impecunious and properly secures credit hire then

he has not actually incurred any loss as he or she will not have paid out any

money for car hire. There is no loss in respect of which interest can be charged.

The court will not exercise its discretion to award interest on a loss unless it has

actually been incurred prior to the trial. If the claimant pays out for car hire in

advance then he or she can claim interest on that loss in the normal way.

Secondly, can interest be claimed as damages? Take the position where the

claimant arranges credit hire and it is subsequently determined that he or she

was not impecunious and hence not entitled to claim the full credit hire rate, but

only the basic hire rate. It was argued in Pattni that in this scenario the claimant

should be awarded interest on the sums that he or she would have paid for car

hire had they of secured it in advance. This argument was rejected on the same

basis as above: that the claimant cannot claim interest on losses that have not

actually been incurred.

Thirdly, can interest be claimed if the car hire agreement includes an obligation

on the claimant / hirer to pay interest? Hire contracts might contain clauses

requiring the claimant to pay interest on the deferred hire charges themselves or

interest on the sum owed at the end of the hire period (i.e. interest for the period

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between the end of hire and the date of judgment). It was held that a claim for

interest of this nature will generally be considered to be part of the additional

benefits that come with securing car hire on credit. In other words, the interest

charges are just part of the additional cost of providing credit. As such, if the

claimant has secured credit hire but is subsequently held not to have been

impecunious then he or she cannot claim these interest payments. The claimant

is restricted to claiming the basic hire rate only which excludes any cost of

providing credit.

By implication, where the claimant is impecunious then it seems that he or she

may well be able to claim contractual interest if it forms a reasonable part of the

cost of credit.

Evidence of basic hire rate

It was suggested in Burdis v Livsey [2003] QB 36 and confirmed in Pattni that it

will generally not be sufficient to try to arrive at the basic hire rate by dissecting

the credit hire rate charged into its component elements or making a rough and

ready reduction of that figure. The defendant ought to serve evidence in advance

of the trial on local basic hire rates from the claimant’s hire provider or from

other local providers. If the defendant fails to adduce evidence of hire rates, the

claimant’s hire figures will simply be accepted by the court and the defendant

will lose.

The claimant need only show that the rate claimed (basic rate or credit hire rate)

is reasonable. The claimant is not merely entitled to claim the average rate for

the area. He or she can claim the actual rate incurred, even if it is above average,

so long as it falls broadly within the range of local hire rates. Furthermore, the

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rate comparison can be performed by reference to broadly similar cars (i.e.

similar size, quality and performance) and need not be for exactly the same

vehicle.

In Bent v Alliance Insurance plc [2010] EWCA Civ 292 the Court of Appeal

considered a case where the claimant had hired an Aston Martin DB9 worth

about £105k in replacement of his damaged Mercedes V12 (worth about £72k).

That was accepted to have been a reasonably equivalent vehicle. The trial judge

had before him evidence only of similar sports cars and only for previous years.

He held that this was insufficient to form a view as to the basic hire rate for the

specific vehicle damaged and that accordingly the claimant succeeded in his

claim in full. The Court of Appeal overturned the decision holding that

“working with comparables and making adjustments is the daily diet of judges”.

The judge had enough information to determine the approximate basic hire rate.

Cancellation of Contracts Regulations 2008

The Cancellation of Contracts made in a Consumer’s Home or Place of Work etc.

Regulations 2008 are aimed at protecting consumers against door-step

(mis)selling. They apply to contracts entered into between consumers and

traders (i.e. people acting in the course of business) in the former’s home or work

or during an excursion organised by the trader. They have, however, been used

by defendants as a further weapon in credit hire cases.

Regulation 7 provides that the consumer has the right to cancel the contract

within seven days. The trader must give the consumer a notice of this right. The

notice must be clear, dated, contain the name of the trader, a statement of the

right to cancel and how to do so and the option to cancel by return of an

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enclosed form. The notice must also be incorporated into the contract and sent

together with it (although not necessarily on the same page). If these matters are

not complied with, the credit agreement is unenforceable against the consumer.

In W v Veolia Environment Services (UK) plc [2011] EWHC 2020 (QB) the

defendant argued that the Regulations applied as the credit hire agreement was

signed and therefore concluded at the claimant’s house when the car was

dropped off. This was so irrespective of the fact that pre-contractual negotiations

including discussion of the cost took place by telephone previously. Since the

hirer had failed to give notice in the prescribed form of the right to cancel, the

agreement was unenforceable. This argument was accepted by HHJ Mackie QC,

who approved an earlier county court decision in Wei v Cambridge Power and

Light Ltd, Cambridge County Court, 10 September 2010, per HHJ Moloney QC.

In common with unenforceable agreements under the Consumer Credit Acts, the

entire contract fell away.

In W v Veolia, the High Court rejected various arguments put forward by the

claimant. First, that the claimant had waived his right to cancel the agreement by

continuing with the hire. This was held to be contrary to the policy of the

Regulations and would frustrate its obvious purpose. Secondly, that questions

relating to the contract are collateral to the defendant’s tort and so irrelevant to

the case. This was rejected as contrary to Dimond v Lovell [2002] 1 AC 384, for

contracts unenforceable under the Consumer Credit Act. Thirdly, that the

Regulations ought not apply to cases where the initial agreement is reached over

the telephone, and only confirmed upon delivery of the goods (i.e. that the

agreement is not strictly speaking entered into at the home or place of work).

This was rejected on the basis that it was contrary to the clear words of the

Regulations and that the hirer could easily comply with what were, in reaity, not

onerous requirements.

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In W v Veolia, the claimant actually recovered the charges in full under a second,

valid agreement. The credit hire insurers employed a litigation tactic of paying

out the charges in full prior to trial. This required the defendant’s insurers to

compensate them in full (subject to mitigation). If credit hire insurers start using

this tactic regularly, it could undermine the restrictions on credit hire and

achieve full recovery of hire charges. It remains to be seen if this re-occurs.

Defendant’s offer of a free car

Another tactic sometimes employed is for the defendant’s insurer to offer the

claimant apparently free use of a car in order to prevent him or her from

incurring hire charge fees. In Copley v Lawn [2009] EWCA Civ 580, [2010] Bus LR

83, the Court of Appeal heard two appeals where this had taken place. In both

cases the claimant failed to respond to the offer and hired a car on credit. The

defendants argued that the claimants had failed to mitigate their loss and ought

not therefore be allowed to recover the credit hire costs.

The Court of Appeal rejected this argument, holding that the claimants had

acted reasonably in not responding. The letters had a threatening tone and the

claimants reasonably passed them to their solicitors or brokers for advice.

Unusually, the Court distinguished between the claimants and their insurers. As

for the claimants’ insurers, if the rate that the defendant had secured for the car

hire was cheaper than the credit hire rate actually paid, then arguably the

insurers had failed to mitigate. However, without that information being

supplied by the defendant, the insurers would have been unable to make the

assessment and acted reasonably in ignoring the offers.

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The Court indicated that, had it of found otherwise, then the claimants would

still have been entitled to claim a sum equivalent to the basic hire rate. They

would have lost the right to claim for credit hire as self-evidently there would

have been no need to enter into a credit agreement given that the defendant was

offering a car at no cost to the claimants. However, the claim would not have

been extinguished altogether: the claimants had still suffered loss of use of their

car and their rejection of the offer did not disentitle them from claiming damages

for their loss of use, essentially a basic hire rate.

The decision is somewhat contentious and was not followed by HHJ Harris QC

in Sayce v TNT (UK) Ltd, Oxford County Court, 25 January 2010, on the basis that

it conflicted with earlier decisions and dicta of the House of Lords. That decision

was then itself appealed to the Court of Appeal: [2011] EWCA Civ 1583, [2012] 1

WLR 1261. In Sayce, the Court of Appeal held that, as a matter of precedent, the

circuit judge had to follow the decision in Copley (and assume that any

apparently conflicting decisions of the House of Lords had been distinguished in

it). Copley had been intended to clarify the law in that area and should be

followed. Permission to appeal to the Supreme Court was denied in both Copley

and Sayce. At present Copley still applies, despite receiving some judicial

criticism.

Therefore, where a defendant insurer offers a ‘free’ car to a claimant, they have

to provide evidence that the cost to the insurer is less than the cost to the

claimant of hiring a car himself, or they at least need to provide a breakdown of

the costs so that the claimant or his insurers can conduct a market comparison.

Only then can the court consider whether there was a failure to mitigate. If the

defendant can obtain replacement cars at cheaper rates than even the local basic

hire rate, then this argument could possibly be successful at reducing the

claimant’s hire charges claim to the insurer’s rates (although not extinguishing

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the damages claim altogether). As noted above, the position in these cases must

be distinguished from the position where the claimant has access to an

alternative car at no or very much less cost than hiring one.

Tips and tactics

Evidence

Evidence of basic hire rates can be easily obtained from the Internet or by

telephoning local hire companies. It should be presented in a witness statement,

describing the steps taken to obtain the evidence and exhibiting print-outs of

quotations.

It is important to emphasise that this is not (and should not be) expert or opinion

evidence. The witness is not stating his or her opinion or relying on experience

of what hire companies normally do. If it is expressed as opinion evidence, the

court may refuse to consider it – since that party must seek permission to adduce

expert evidence beforehand, and this is rarely given in credit hire cases.

The witness statement should set out clearly all relevant steps taken, including:

(a) what steps were taken to find out the hire rates; (b) which sources were used

to locate hire companies (internet, Yellow Pages etc); (c) what make and model

cars were asked for; (d) what rates were available for each, at the time of the

accident; (e) over what period; (f) whether there would be discounts for

extended hire normally available; and (g) whether these rates would be normally

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available or only special offers. In obtaining rates, it is important to be flexible.

Please do not waste money engaging outside contractors to search internet sites

and provide reports. It is something that is very easily done in-house.

Very importantly, make sure that you include weekly rates and not just day

rates. We have had numerous cases where it was obvious from the beginning

that the car was going to be out of action for a matter of weeks rather than days.

The weekly rates are far less than the daily rates and proper evidence can make a

very significant dent in the damages payable.

A reasonably broad geographical area should be taken, but not too far from the

claimant’s home. Claimants often include rates from hire companies near

airports, since these offer higher rates than normal and this can skew the results.

The rates should be for an equivalent car to the claimant’s, but it need not be an

exact match where this is cannot be obtained. It should not be for too much of an

upgrade or downgrade.

The burden of showing that the hire rate claimed is unreasonable (i.e.

significantly higher than what was available if the claimant had made some

effort to shop around) is on the defendant. However, if the defendant obtains

evidence of a number of quotations for considerably less than the cost claimed,

then the claimant will have to counter this with his own spot hire evidence.

Usually, the court is faced with conflicting hire rates and has to choose what

seems reasonable for the claimant’s circumstances.

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Directions

Some county courts have developed special directions in credit hire cases

requiring standard evidence disclosure, primarily financial evidence of

impecuniosity and alternative spot hire evidence. Some even automatically

provide for strike-out or debarring for failure to serve pieces of evidence. Some

provide for requirements for the parties to engage in mediation and explain why

they have not managed to settle. There has even been litigation generated by

these directions, with some held to exceed the court’s powers.

Not all courts do this, instead simply sending out standard directions. If so, it

would be better to be proactive and seek to agree directions with the claimant’s

solicitors or ask the court in the allocation questionnaire to add further special

directions. Such directions should require: (a) the claimant to provide the

cancellation notice for the contract, where applicable and not already provided;

(b) disclosure of the claimant’s impecuniosity evidence, if this is claimed; and (c)

disclosure of the defendant’s (or both parties’) spot hire evidence.

Disclosure of the cancelation notice will indicate whether or not the point is in

issue. Tactically, defendants could wait and hope that the claimant’s solicitors

forget to serve a copy of the notice, which will trap them at trial. But this can

obviously not be relied on in all cases.

It may also be the case that the claimant is clearly not impecunious or does not

serve adequate evidence of it, then the question shifts to the spot hire evidence.

If both parties have served their spot hire evidence early, they are far more likely

to agree a rate and settle the case (or agree quantum subject to liability). Late

service either requires counsel to seek to settle at court, causing delays before the

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hearing, or forces the judge to take time choosing between a series of only

slightly different rates.

Settlement

County courts repeatedly emphasise the need to settle credit hire cases, or at

least agree the credit hire element subject to liability. Where there are issues of

principle, or factual findings to make (e.g. on impecuniosity), it is

understandable if the parties cannot agree. But judges find it less acceptable

where the parties are a few hundred pounds apart on spot hire rates; such a case

could certainly be settled (or quantum agreed at least). The absence of a costs

regime in small claims means parties are not pushed to settle, as they would be

on the fast track. But settlement is clearly desirable in any case.

Delay

A common argument is that the claimant has delayed in getting the car repaired

and therefore kept the hire car for an unreasonable length of time. This

argument is hard to make out for two reasons: (a) the duty to mitigate on

claimants is not a particularly heavy burden, so there will have to be a

considerable delay before the court finds unreasonable conduct; (b) the delay

will normally be the fault of the garage, for whose actions the claimant is rarely

responsible.

If there is a duty on the claimant or his insurer, it is probably only to inform the

garage that the car should be repaired quickly because a replacement car has

been hired in the intervening period. It is unlikely that the garage would be

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regarded as the claimant’s agent, and so the claimant is not responsible for its

actions. Moreover, the garage does not owe any duty to the defendant’s insurer,

so that the insurer cannot complain directly about the garage’s actions, e.g. for

breaches of the GTA protocol or incorrect time estimates.

Instead, the only option is to join the garage as a party and seek a contribution

against it for its part in causing the claimant loss. This is on the basis that the

garage owes the claimant a duty of care to repair the car within a reasonable

time. By delaying excessively, the garage is liable for part of the claimant’s

damage, and must contribute to it under the Civil Liability (Contribution) Act

1978. This duty was accepted by the Court of Appeal in Charnock v Liverpool Corp

[1968] 1 WLR 1498. The question of whether this duty is owed and whether it

was breached will turn on the facts of the case. There may be foreseeability of

loss difficulties. In our opinion the best claims will be those where the garage has

been told by the claimant or otherwise made aware that the claimant is hiring a

vehicle whilst it is being repaired.

Procedurally, the defendant would issue a CPR Part 20 claim for a contribution

against the garage. This is best done at the same time as filing the defence, since

it can be done then without the court’s permission. Thereafter it can be done

only with permission: CPR 20.6. Clearly, this is only going to be a realistic option

in a case of severe delay, or in a high-value case (and there would be costs

consequences to failing against the garage). However, in an appropriate case, it

is the best way to reduce the defendant’s liability for excessively long hire

charges.

Recoverable and non-recoverable items

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Credit hire cases often include other miscellaneous items, which claimants seek

to recover. They are recoverable if they are losses consequent on the tort but not

if they are additional benefits conferred by the credit hire contract. Many of these

charges are not recoverable in law, but given the small amounts involved they

are sometimes agreed just to settle a case.

Engineer’s fees: These are not an item of damage. The fact that insurers use them

to negotiate settlement or as evidence for court shows means that they are

irrelevant to the assessment of damages: Burdis v Livsey [2003] QB 36 at para. 156.

If anything, they could be an item of costs (a disbursement), which might be

recoverable in larger cases, but not normally in small claims.

Delivery and collection charges: These can be recoverable in certain

circumstances, and is a question of fact. It is for the claimant must prove that it

was reasonable for the car to be delivered to his house (e.g. where there is a lack

of public transport) and the charges cannot be recovered without such proof:

Burdis v Livsey at para. 153.

Storage charges: These are recoverable in principle, but it depends on the terms

of the contract between the storage company and the claimant. If the agreement

is not written and the charges are deferred, the agreement may be unenforceable

under the Consumer Credit Acts.

Collision damage waiver: a claimant is entitled to a car with the excess reduced

to nil, whatever was the excess applicable to own car: Marcic v Davies [1985] CLY

12u, 20 February 1985, Court of Appeal. This does not represent betterment, but

is a reasonable arrangement consequent on the tort. If the claimant had paid the

excess himself, that would have been a head of loss caused by the tort, for which

the defendant would have had to compensate him.

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Miscellaneous expenses: Inconvenience, worry and nuisance caused by dealing

with the consequences of an accident are all irrecoverable, approved by the

Court of Appeal in Dimond v Lovell [2000] QB 216 at para. 94. Other expenses

such as telephone calls are generally seen as an item of costs and not a loss

suffered (e.g. Taylor v Browne [1995] CLY 1842, Guildford County Court). Some

cases have found differently that inconvenience connected with actual damage

to the car could be recoverable, such as having to use public transport (O’Brien v

King-Phillips [1997] 1814, Bury County Court) and some have even awarded

damages for general inconvenience (Marley v Novak [1996] CLY 2112, Bolton

County Court). These last two cases appear hard to reconcile with the general

principle. In any case, a court should properly require a claimant to prove these

items if them are claimed and not permit a claim for unspecified ‘expenses’.

Rowan Pennington-Benton

Alexander Halban

September 2012