In the recent decision of Stevens -v- Equity Syndicate Management Limited, the Court of Appeal clarified the approach to be adopted when dealing with credit hire rates issues. Stratos Gatzouris takes a look at the decision and considers why this is welcome news for defendants.

Background

On 10 February 2011, the claimant was driving his Audi A4 when the defendant’s insured reversed into his vehicle. The claimant pursued a claim for credit hire and repair. Liability was not in issue and repair was settled, leaving the credit hire in issue at trial. Hire was claimed for a 28 day period at a rate of £140 per day exclusive of VAT. However, hire at this rate was subject to a £1500 excess. The claimant took various additional products to reduce the excess to nil, bringing the total daily rate to £165.60 plus VAT.

In evidence before the court was a voluminous rates report demonstrating a range of available rates from £33.83 per day to £136.76 per day plus VAT.

The judge had to identify three issues. Firstly, was the claimant impecunious? Evidence showed that the claimant had sufficient funds to pay for hire and he was therefore deemed pecunious. As a result, the rate that the claimant was entitled to was the basic, as opposed to credit hire rate. The second issue to decide was period, which was cut to 19 days.

The final issue to decide was the appropriate basic hire rate. The judge at first instance took an average of the rates quoted by four mainstream vehicle hire companies for comparable vehicles and awarded the claimant a daily basic hire rate of £63.02 plus VAT.

The first appeal

The claimant appealed against the first instance decision to the High Court. The appeal judge upheld the decision on impecuniosity and reversed the decision in respect of period – allowing the full 28 days. However, in respect of the basic hire rate, both parties accepted that the first instance approach of awarding an average was wrong. The claimant argued that, as some of the comparable rates evidenced in the rates report were the same as the credit hire rate charged, then the claimant ought to be awarded the full credit hire rate.

The judge rejected the claimant’s arguments and with reference to the decision in Dimond -v- Lovell concluded that the relevant figure to consider was what the claimant would have been willing to pay. On the facts, this amounted to marginally less than the amount awarded at first instance.

The second appeal

This decision was then taken to the Court of Appeal. The leading judgment was given by Lord Justice Kitchin who concluded that the first instance judge had erred in approach but not in conclusion. The appropriate approach for determining the basic hire rate is an objective, not subjective one. What the claimant would have been willing to pay is irrelevant. What should be considered is what the rate would have been for a reasonable person in the claimant’s position and geographical location to hire a car of the kind actually hired on credit. If a range of rates are identified, then the lowest reasonable rate should be adopted.

Impact

This approach sits in stark contrast with earlier approaches adopted by the courts in which the highest, second highest or average rates have been used. In this case, the Court of Appeal has made it clear that to look at the highest figure would be ‘manifestly unjust’ and, instead, the lowest reasonable rate should be used. This is likely to significantly reduce the amounts that defendants will have to pay in terms of basic hire rates, which may now be assessed at below the local average and even GTA rates.

As a result of this decision, it is imperative that defendants take the time to collate rates evidence, ideally from established mainstream providers. In addition, as the use of the basic hire rate will turn on impecuniosity, defendants should take care to scrutinise this component of the claim as claimants will have more incentive to assert lack of funds to justify a higher credit hire rate.

A word of caution

It must be noted that the judgment was quite specific as to locality, mainstream supplier, like for like vehicles and reasonableness of rates. There were some specific issues that arose in that the claimant had indicated that he would not have hired at all had he understood the ramifications and also the rates quoted in the case showed zero excess vehicles at about half of the cost of vehicles with higher excess. Most importantly, it should be noted that this decision only applies to cases where the claimant is pecunious. Likewise, it is highly unlikely that taxi hire will come into consideration let alone young drivers.

We can therefore expect considerable work to be done by those presenting evidence on behalf of claimants to show that the claimant was indeed impecunious or alternatively that all hire agreements will reflect zero excess and will be at competitive prices with mainstream suppliers. Will this drive hire prices down? That is debatable given the laws of supply and demand!

It remains open to the claimants to apply to the Supreme Court for permission to appeal. However, for the time being, the Court of Appeal decision is very welcome, providing some much needed pragmatic guidance on the correct approach to basic hire rates.