Recently, some motor vehicle repair shops have partnered with third party recovery agents to offer customers, who appear to be not at fault in a motor vehicle collision, “free” repairs on the basis that the customer does not have to pay for the cost of repairs and instead, authorises the recovery agent to recover and receive the cost of repair from the other party and/or other party’s insurer.

The plaintiff in Aisha Lopez -v- Sang Woo Kwak (UnreportedNSWLC, 2015(“Lopez”) took up on such an offer.

Unbeknown to the plaintiff however, the alleged cost of repair (which was calculated on the basis that the hourly labour rate was $130) included what the court ultimately found to be non-compensable benefits, such as:

  1. 10% fee payable to the third party recovery agent;
  2. an increase in the hourly labour rate to take into account the risk of carrying out repairs on credit; and
  3. an increase of about 2 to 3% to fact in some “room” to negotiate.

As such, the labour rate did not represent the true cost of repair. In Lopez the defendant argued that this was not the case.

The court found that the $130 per hour rate was excessive and reduced the rate to $81.67. In doing so, the court held that the additional fees and charges were not damages which were foreseeable or which flowed from the defendant’s negligence.

The court further noted that with respect to the ‘market rate’ there is ultimately not necessarily one ‘market rate’ that should be accepted by all insurers and repairers, but rather, there is a range that will be considered to be within the market rate, which would constitute being fair and reasonable. That range, as was accepted in Lopez is identified by taking into consideration things such as the number of employees working for the repairer, the equipment and the repair shop’s size.

This decision reaffirms the principle in Stocavaz v Fung [2007] NSWCA 199 that “Defendant is only required to pay the fair and reasonable cost of repairs to the Plaintiff’s car, not an extravagant or unreasonable cost” and follows the decision in Masrour v Danzey that non-compensable benefits (such as third party recover agent fees or credit hirer’s fees) are not recoverable.