Court of Appeal determines how to calculate the basic hire rate under credit hire agreement for a replacement car

The claimant’s car was damaged by a negligent driver insured by the defendant. The claimant’s insurers put him in touch with a credit hire company which  hired him a replacement car and carried out the repairs on his own car. The issue in this case was  the extent to which the credit  hire charge incurred by the claimant is recoverable from the  defendant.

This is an issue which the courts have tackled in a number of recent cases. Those earlier cases  have established the following principles: (1) An innocent party must mitigate his loss eg by  hiring a replacement vehicle; (2) He will be able to recover the cost of a replacement vehicle as  damages; (3) In general, he can recover the cost or hiring the replacement vehicle on credit hire  terms; (4) However, if his financial circumstances are such that he did not need to use credit, his  damages will be only the basic hire rate of the vehicle; (5) If he is impecunious though, he will  be able to recover the whole of the credit hire rate (provided it was a reasonable rate to pay in  all the circumstances).

In this case, the claimant could have afforded to hire a replacement car without the need to use  credit. The issue was therefore how to calculate the basic hire rate. That  can be a difficult  exercise for the courts because credit hire companies routinely provide additional services (such  as conducting a claim on the injured party’s behalf) which are irrecoverable as costs but difficult to  quantify. Accordingly, the Court of Appeal held that the lowest reasonable rate quoted by a  mainstream supplier for the hire of a vehicle of the kind actually hired by the claimant to a  person such as the claimant will be a reasonable approximation of the basic hire rate: “It follows  that a judge faced with a range of hire rates should try to identify the rate or rates for the  hire, in the claimant’s geographical area, of the type of car actually hired by the claimant on  credit hire terms. If that exercise yields a single rate then that rate is likely to be a  reasonable approximation for the BHR [basic hire rate]. If, on the other hand, it yields a range of  rates then a reasonable estimate of the BHR may be obtained by identifying the lowest reasonable rate quoted by a mainstream  supplier or, if there is no mainstream supplier, by a local reputable supplier”.