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Credit hire update

On 25 November 2011, the Court of Appeal’s judgment in Pattni v First Leicester Buses Limited and Darren Bent v (1) Highways and Utilities Constructions (2) Allianz Insurance1 was published.

In this update Sarah Venn reviews the decision, which summarises the principles to be applied when determining the rate recoverable by a claimant who could afford to hire without credit but did not.

Background

Mr Pattni hired a replacement vehicle on credit hire terms, although he could have afforded to hire by paying in advance. The hire agreement provided that Mr Pattni was obliged to pay interest on the credit hire charges, for the period between the end of the hire of the replacement vehicle and the date when the claim against the defendant driver was finalised. HHJ O’Rorke and Mrs Justice Swift had both concluded that no sum representing interest could be recovered (HHJ O’Rorke also held that Mr Pattni could only recover at a basic hire rate).

Mr Bent (the well-known England footballer) hired an Aston Martin DB 9 on credit hire terms as a replacement for his Mercedes Benz CLS 63 AMG Coupé. Mr Bent did not need to credit hire and the issue on appeal was how the hire rate should have been calculated.

Decision

Lord Justice Aikens (with whom the other Lord Justices of Appeal agreed) held that the principles to be extracted from the leading House of Lords and Court of Appeal decisions2 were:

  1. The loss of use of a vehicle is a compensatable loss in appropriate circumstances. The claimant has a duty to mitigate that loss.
  2. A claimant who hires on credit terms suffers a recoverable loss, even though payment is deferred until after judgment. If the claimant has the use of a replacement vehicle and has to pay for it, the claim may more aptly be described as one for special damages; if he does not have to pay for it, it may be that he can only recover general damages.
  3. A claimant cannot claim reimbursement for expenditure that is unreasonable; if the defendant can show that the cost incurred was more than reasonable, either by proving that the claimant had no use for a replacement vehicle, or because the vehicle hired was bigger or better than was reasonable, the amount expended on hire must be reduced to the amount that would have been needed to hire the equivalent to the damaged vehicle. The need for a replacement vehicle is not self-proving.
  4. Even if it was reasonable to hire a replacement vehicle, the measure of damages will not necessarily be the amount the claimant agrees to pay the credit hire company; it will depend on the financial circumstances of the claimant. If a claimant could afford to pay in advance, then the damages recoverable will be that which is attributable to the basic hire rate. The term “spot rate” is a misnomer and should not be used in future; the term “basic hire rate” or “BHR” should be used instead.
  5. The difference between the BHR and the credit hire rate takes account of the additional services a credit hire company provides; those elements are not part of the recoverable loss of a claimant who has hired on credit terms but could have afforded to pay in advance. It is for the defendant to demonstrate, by evidence, that there is a difference between the credit hire rate and the BHR.
  6. An impecunious claimant is, on the face of it, entitled to recover the whole of the credit hire rate paid, provided that it was otherwise a reasonable rate to pay. An impecunious claimant will have had “no choice” but to hire on credit.
  7. If payment is deferred until after judgment, and there are no express terms in the hire agreement about the payment of interest, none should be awarded under the terms of section 35A of the Senior Courts Act 1981 or section 69 of the County Courts Act 1984; the hirer has not been kept out of money.
  8. If there is direct evidence from the credit hire company on its credit hire rates and BHRs, it might be the best evidence on the difference between the credit hire rate charged and the BHR for the type of vehicle in question when the replacement vehicle was hired. If there is not such direct evidence, then it is unlikely that indirect evidence from the hire company on what they would have charged if they had a BHR will be useful.
  9. An interest charge constitutes the cost of an “additional benefit” – the benefit of delayed payment until the claim against the defendant has been finalised. That is not a recoverable loss in the case of a claimant who is not impecunious.
  10. The judge must calculate the BHR for the vehicle actually hired; that does not mean taking the average cost for vehicles of a similar standard. Direct evidence on the cost of hiring a vehicle of the same make and model as the hire vehicle, at the time of hire and in the local area, will be compelling. 

1  LTL 24/11/2011
Giles v Thompson [1994] 1 AC 142, Dimond v Lovell [2002] 1 AC 384, Burdis v Livsey [2003] QB 36 and Lagden v O’Connor [2004] 1 AC 1067.