Court of Appeal rules award for loss of use by car dealer be calculated on basis of interest, capital employed and depreciation of vehicle, not spot hire rates.
The Hoyer Group Ltd had allocated a vehicle to one of their managers, who was entitled to use it for personal use outside office hours. As a motor dealer, they had a large pool of vehicles in stock both for sale and as courtesy cars for customers whose vehicles were being repaired. The manager’s vehicle sustained damage in a collision with a vehicle owned by Beechwood Birmingham Ltd. He hired a replacement vehicle under a credit hire agreement, allowing deferment of hire charges which were substantially higher than spot hire rates.
The motor dealership sought to recover special damages for the cost of hire. The Trial Judge held that the dealership had failed to mitigate its loss and should have used a vehicle from its own pool of cars available as courtesy cars, rather than resorting to outside hire. However, relying upon Lagdon v O’Connor , the correct approach was to award general damages based upon spot hire rates for a comparable vehicle. The Defendant appealed, arguing that if the dealer was entitled to general damages then the award ought to be based upon the cost of maintenance and operation of the alternative vehicle.
Where a claimant had suffered loss of use of a vehicle and needed to hire a replacement, reasonable steps had to be taken to mitigate the loss, Giles v Thompson  and Lagdon followed. Resorting to outside hire rather than taking the less costly approach and using a vehicle from stock, was a failure to mitigate loss. The Trial Judge had however erred in relying upon Lagdon and adopting spot hire rates as a measure of assessing damages. That case involved a private motorist requiring a replacement vehicle for convenience rather than for profit during the period of hire. The instant case concerned a corporate claim for loss of use of a vehicle used in the course of business. That loss could be absorbed by supplying a replacement from stock, without any loss of profit. Accordingly, the appropriate award for damages should be based upon the interest and capital employed and any depreciation sustained over the period of repairs in respect of the vehicle of the type damaged in the accident. The appeal was therefore allowed.
This case is of limited application in a credit hire situation in that it specifically relates to corporate claimants. However, when facing such a claimant, insurers should consider whether they do have a real need for a replacement vehicle. Enquiries should be made as to their resources in particular whether they run a fleet of vehicles. In relation to individuals the threshold to show reasonable need will be a lot lower.
This decision is refreshing in that the Claimant’s failure to mitigate their losses by sourcing a vehicle from stock defeated the credit hire claim. The Claimant fell at one of the basic hurdles in that they could not show that they had either a need or entitlement to a replacement vehicle.
The appropriate question then is 'what is a suitable means of compensating the Claimant for the inconvenience of being without that vehicle?’. The Judges in this case make an important distinction between what is required to put an individual back into the position he would have been in but for the accident and what is required for a corporate body.
For an individual, general damages need to cover the personal inconvenience and as such spot hire rates may be of assistance as a guide or starting point. However, for a corporate body, the Judges in this case found that the loss can be absorbed by the back up fleet and so it makes sense that the loss is calculated by reference to the actual costs to the business.