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Appeal court sets ‘lowest reasonable rate’ test for credit hire charges

Replacement vehicle cost: ruling introduces uncertainty [1]

Replacement vehicle cost: ruling introduces uncertainty

The insurance industry today claimed they had achieved a major success after the Court of Appeal ruled that judges evaluating credit hire claims involving pecunious claimants should adopt the “lowest reasonable rate”.

But the case is likely to trigger a period of uncertainty in the market, the claimant’s solicitor has warned.

The successful defendant in Stevens v Equity Syndicate Management [2015] EWCA Civ 93 [2] said that the judgment “brings to an end the ability of the credit hire companies to recover the inflated rates that have been allowed in recent years and in those cases where there has been a failure to prove that the claimant was impecunious, credit hire charges could be reduced by in excess of 50%”.

The case involved a credit hire vehicle provided by Accident Exchange at a cost of £194 (including VAT) per day, with a total cost of over £5,000 for a 28-day period. The appeal concerned the sum attributable to the basic hire rate (BHR) of the replacement vehicle that the claimant hired.

Giving the court’s judgment, Lord Justice Kitchin said a judge’s analysis must be directed to stripping out the irrecoverable costs from the basic hire rate the claimant has agreed to pay or, conversely, ascertaining the part of the charge which is attributable to the basic hire of the particular vehicle the claimant has chosen.

He said: “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…

“This is an objective exercise and the evidence of the claimant about what he would have done had he gone into the market to hire a vehicle on standard hire terms is likely to be of little assistance to the judge seeking to carry it out.”

The Court of Appeal refused permission to appeal, but Accident Exchange will now petition the Supreme Court.

Peter Smith, claims director of ESM, said: “We are delighted with the result not only for this particular case, but moreover in the clarity that it provides for future claims. This judgment leaves absolutely no room for ambiguity in determining the correct sum payable for hire to the pecunious claimant, and that sum should be the lowest rate quoted by a mainstream provider.

“It is a true common sense approach that represents what a reasonable person in the position of the claimant would do. The judgment is therefore a much-welcomed step in the control of claim and frictional costs between insurers and credit hire organisations.”

He suggested that all insurers will now review and in certain circumstances withdraw existing offers in similar cases, “placing significant stress on the cash flow and very business model of the credit hire organisations. The CHOs may now be required to investigate the claimant’s financial circumstances before the provision of a credit hire vehicle in far greater detail.”

Kieran Magee, partner at the claimant’s solicitors, True, said the judgment conflicted with established case law “and so we are surprised by the result and thus a petition to appeal to the Supreme Court is being drafted”.

He continued: “Rather than clarifying credit hire, this ruling has effectively opened the door to the potential of an awful lot of litigation. Specifically, the argument will be about the rates available to the specific claimant, for the specific car hired and in the claimant’s geographical area.

“If you think of checking for cars on hire in a 10 mile radius of the claimant’s home address then there will not be that many. When you tie this in with claimants who might have points on their licence or be of a certain age, then a mainstream hire provider may well charge more than a credit hire company and the latter being the cheapest rate.

“This is especially true when the judgment talks about ‘the type of car actually hired by the claimant on credit hire terms, meaning that any rate the defendant seeks to rely upon must be of similar terms hired to the claimant. As an example, hired to with no excess charge. So if a defendant can’t prove there is a cheaper rate, on the same terms, then the rate charged will be the rate recoverable.

“However, whilst this has the potential to cause disruption and increase litigation, the likelihood is that insurers and credit hire organisations will continue to work together through the General Terms Agreement, that already sees 500,000 claims a year settle amicably, to ensure some certainty remains on both sides.”