Credit Hire Companies -v- the Motor Insurance Market

Introduction

When someone is an innocent victim in a motor accident, they are generally entitled to a replacement vehicle whilst their damaged vehicle is being repaired and to recover the costs from the other driver’s insurer. To avoid the upfront hire charges, some people choose to hire the replacement vehicle on credit terms from a credit hire company and leave it to them to recover the hire costs from the other driver’s insurer through the Court if necessary. The extent to which hire companies are able to recover these costs, including interest, was recently tested by the Court of Appeal in the decisions of Vasant Pattni v First Leicester Buses Ltd: Darren Bent v (1) Highways & Utilities Construction (2) Allianz Insurance (2011).  This marks the culmination of a long running dispute between the credit hire and insurance industries over the reasonableness of credit hire companies’ charges.

The parties

Although the drivers involved in the motor accident are theoretically the parties to the Court proceedings, the litigation is, in reality, brought in their names by, on the Claimant’s side, a credit hire company which is seeking to recover the hire costs involved; and, on the Defendant’s side, the negligent driver’s motor insurance company.

The appeals

In both cases, the Claimants were victims of motor accidents caused by the negligence of the Defendants; both victims hired a replacement car on credit terms even though they could have afforded to hire a vehicle without entering into a credit hire agreement.   In one case, the Claimant was Darren Bent, a premiership footballer currently signed for Aston Villa. The judge decided that he could have afforded the hire costs of an Aston Martin DB 9 (£63,000 for 94 days) whilst his Mercedes Benz CLS 63 AMG Coupé was repaired.   Although the vehicle was hired for 94 days, the hire charges were calculated at a daily rate payable for a much shorter period (7 days).

The Claimant in the other case, Mr Pattni,  had originally claimed hire charges of approximately £25,000 (Audi R8 for 40 days), which the judge noted was almost one third of the value of his Porsche 911 Coupé which had been damaged in the collision.  He was also claiming payment of interest (for over three years at 3% above the Nat West bank base rate) payable under his credit hire agreement.

The Court was asked to decide two main issues:

1. The hire rate that Darren Bent / his credit hire company was entitled to recover from the Defendant insurer.
2. Could Mr Pattni/his credit hire company claim interest on the hire charges from the end of the hire period until the date of the judgment?

Hire Charges

The Court provided some useful guidance on calculating the hire charges that are recoverable by the innocent victim of a motor accident.

The test to be applied is as follows:

1. Was it necessary to hire a replacement car at all?
2. If so, was it reasonable to hire the particular car hired at the rate charged?
3. If it was, could the individual involved have afforded to pay for the hire without credit?  If not, that individual (or at least the hire company) may be able to recover the full hire costs from the defendant insurer.
4. If the individual could have afforded to pay, their claim is limited to the basic hire rate (i.e. the rate payable to hire the vehicle without the benefit of a credit hire agreement) for an equivalent vehicle in the same geographical area. 

The Court also agreed that the replacement car should have been hired at a rate payable for a 28 day hire (i.e. not the 7 day basis claimed), given what was known of the likely repair works

Interest

The Defendant insurance company objected to paying interest on the hire charges mainly because the Claimant, Mr Pattni, had not actually been required to pay any interest under his arrangement with the credit hire company.  The Court of Appeal agreed with the insurers and held that interest was not payable either as a matter of law or by the Court exercising its discretionary powers.

How will this affect things in practice?

These cases bring some much needed clarity to the law in this area, mainly in favour of the insurance companies.  Credit Hire Companies can no longer expect to be able to recover interest on their charges from the end of the hire period until trial. Also, the hire rates they can recover (save where the individual is impecunious) are limited to the basic hire rate payable for an equivalent vehicle in the same geographical area.   Insurance companies, faced with a claim, will still want to try and offer hire vehicles to Claimants where this can be arranged more cheaply than the basic hire charges in that area.  Where this is not possible, insurers will want to obtain evidence at the time of the typical basic hire charges, in case the level of charges needs to be disputed later on.