Court of Appeal determines how to calculate the base hire rate for a car where the credit hire company provided a nil excess

This Court of Appeal decision is the latest in the long-running saga between the motor insurance market and credit hire companies. 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 of 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. In Stevens v Equity Syndicate Management, the Court of Appeal held that a reasonable approximation of the basic hire rate will be 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.

In this case, the credit hire company provided a nil excess to the claimant (who, on the evidence, had a low excess on his own car insurance and always reduced the excess to nil when he hired a car), at a cost of £10 per day. However, none of the mainstream suppliers used to find the basic hire rate provided a nil excess (and those with the lowest daily hire rate had excesses of £2,000). The appellants argued that the judge ought to have allowed the claimant to recover the credit hire rate in full in such circumstances. That argument was rejected by the Court of Appeal.

The Court of Appeal rejected an argument that Stevens had been wrongly decided and held that it was correct to take the lowest reasonable rate of a mainstream supplier. It also rejected the argument that the full credit hire rate should have been recoverable here: "in my judgment, where a nil excess is not available from car hire companies, the correct approach is to treat the nil excess separately from the comparison exercise between the default credit hire rate and the basic hire rate with an excess. It will almost invariably be the case that it was reasonable for the claimant to seek a nil excess … and, on that hypothesis, the only question for the Court will be how much should be recoverable as the cost of purchasing a nil excess". On the facts of the case, the only viable nil excess cover on offer was that provided by the credit hire company and the Court of Appeal allowed an upwards adjustment of the damages recoverable to reflect the cost of the nil excess ie £10 per day plus VAT.