A Reasonable Rate of Return

9 Mar 2015 | Comment


A Reasonable Rate of Return

Paul Spiteri looks at the test case of Stevens v Equity Syndicate Management (2015), regarding clarification of the judicial approach for dealing with credit hire rate issues;

In what is being seen as a major victory for the insurance industry, last week the Court of Appeal (CA) handed down their decision following the second appeal in the case of Stevens v Equity Syndicate Management. Contrary to the former position, where the Courts tended to focus on and award in line with the highest basic hire rate (BHR), the CA ruled that when assessing credit hire claims involving pecunious claimants (those with financial means) the judiciary should adopt the “lowest reasonable rate”. Feasibly then, a Court is now at liberty to award less than an average daily rate, if the evidence adduced warrants this and commentators are already speculating that credit hire rates could be reduced by the order of 50%.

Facts of the case

In brief, the Claimant was involved in a road traffic accident in 2011, which caused damage to his Audi A4.  He was referred to Accident Exchange Ltd (AE) who arranged for the repair of his car and provided him with a replacement vehicle. The hire charges totalled £5764.80, comprised of a daily rate of £198.60 (inclusive of VAT and excess waivers), for a period of 28 days (due to delays with the garage starting repairs 9 days after the hire began). The defendant disputed the hire charges and called into question whether the claimant was in fact impecunious as was claimed.

Decision at first instance

The claimant was not found to be impecunious and as such could have afforded to hire a replacement vehicle at basic hire rates, which were determined to be £75.62 per day, inclusive of VAT.  Taking into account the aforementioned delays, a reasonable hire period was deemed to have been 19 days and as the claimant’s car was adjudged driveable, it was unnecessary to leave it with the garage before they repairs started. The claimant appealed.

Decision at the First Appeal

On the facts, although the claimant was not impecunious, he was not well off and therefore he had not failed to mitigate his loss by using AE as his agent. Regarding the hire period, upon arrival at the garage, the claimant’s car had been stripped to determine the parts required and then left that way until they arrived. The Court ruled that it was not a practical consideration to have to re-assemble the vehicle so that the claimant could resume driving his car for the 9 days that had been deducted, thus the full term was allowed.  The daily hire rate though was not revised and the claimant appealed.

Decision at Second Appeal

AE appealed on the basis that the Court’s approach was contrary to that in Pattni v First Leicester Buses Ltd (2011), where an objective, rather than subjective assessment of the BHR was required.  On 26th February 2015, the Court of Appeal wholly rejected AE’s arguments and held that it would be “manifestly unjust” to consider only the highest rate within the range adduced and to award the credit hire rate sought, were it not to exceed this highest BHR.

Crucially, the CA has provided judicial guidance that where a range of rates is available, then the lowest reasonable rate charged by a mainstream provider in the claimant’s local area should be identified to obtain a reasonable estimate of the BHR.  The CA advised that a proper analysis by judges should “strip out” the irrecoverable costs from the basic hire rate on an objective basis. This would essentially mean that the credit hire organisation (CHO), such as AE, would have to disclose the composition of their charges. In the absence of this, the courts were to ascertain the part of the charge that related to the basic hire of the vehicle.

In response to this decision, AE filed an application seeking permission to appeal the decision to the Supreme Court, though this was rejected. However, it is anticipated that AE will petition the Supreme Court directly, specifically to take issue with the requirement to “strip out” the irrecoverable costs as above, and to contend that a hirer on a credit basis is entitled to compensation which covers any additional benefits encompassed within the overall credit hire rate.

For my part, I consider the decision in Stevens to be a victory for common sense –something which has been historically sadly lacking when it comes to credit hire.  Consider please, the conventional scenario, where a pecunious hirer is pre-supposed to have made enquiries about the reasonableness of incurred charges… When faced with competing hire charges for the same service, is it not more likely that the cheapest option would be accepted?  It certainly strikes me that this would be the case and the fact that this decision falls into line with the claimant’s duty to mitigate their losses following an accident is another welcome aspect. Notwithstanding AE’s appeal to the Supreme Court, in the meantime it is to be hoped that this decision will give some much needed judicial guidance and consistency when ascertaining the reasonable rate of hire.

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