Law of Compulsory Motor Vehicle, The
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CHAPTER 9
Credit hire agreements
General principles of claiming damages when a vehicle is damaged
Cost of repair
9.1 When a property is damaged by the negligence of another, the diminution in value that the property has suffered represents the direct loss that is measured as a result of such wrongdoing.1 This is also expressed as “a capital account loss.”2 This loss is suffered as soon as the motor vehicle is damaged.3 The claimant is not obliged to, but he is entitled to, where the property can be economically repaired, have it repaired at the cost of the wrongdoer. 9.2 The measure of loss is assessed as a matter of fact that the expenditure required to put the vehicle back into the same state as it was in before the accident.4 Where a vehicle is damaged beyond economic repair the claim is properly made for the money equivalent of its pre-accident value which can be assessed on the basis of tables and guides to the second-hand value of vehicles.5 9.3 In calculating the diminution in value, events occurring after the infliction of the damage are irrelevant.6 If the property is subsequently destroyed or the repairs were carried out under an unenforceable credit agreement, the claimant is not prevented from recovering the diminution in value from the wrongdoer.7 Moreover, in respect of a loss that is covered by insurance, the benefits obtained under the insurance are irrelevant in assessing the correct measure of damages recoverable.8 The assured has bought the benefits by paying the premium demanded which the tortfeasor should not inure.9 9.4 If the claimant’s insurer has arranged the repair, the reasonableness of the repair charge is to be judged by reference to what a person in the position of the claimant couldPage 179
Cost of hire
9.6 A victim whose vehicle was damaged by a negligent driver is entitled to recover the cost of repair and the damages for the loss of use of his vehicle.13 The cost of hiring a replacement vehicle substitutes the claimant’s claim for loss of use by way of general damages.14 Diminution in value of the property, which is a direct loss, is not regarded as subject to the duty to mitigate.15 However, the loss of use of the vehicle is regarded as a consequential loss the recovery of which is subject to the duty to mitigate.16 Similar to contract law principles, in tort also, this is not a duty in the sense breach of which does not render the claimant liable for non-compliance with the duty; however, the claimant cannot recover damages for any part of his loss consequent upon the defendant’s breach of duty of care where the claimant could have avoided such losses by taking reasonable steps.17 What was reasonable for a person to do in mitigation of damage is a question of fact to decide in the circumstances of each particular case.18 9.7 The reason for the defendant’s liability for the loss of use of the damaged vehicle is that his wrongdoing deprived the claimant from the use of the vehicle. The claimant’s loss crystallises in the form of the cost of hiring a more or less equivalent19 replacement vehicle while his own car is off the road.20 The burden of proof of need for a replacement vehicle is on the claimant motorist.21 The defendant bears the burden of proof that the hire charge paid was unreasonable.22Page 180
Car hire
9.8 A claimant may hire a vehicle from a car hirer or he may enter into a credit hire agreement. A claimant may choose the latter option especially when the loss of use is not recoverable under a comprehensive policy.23 In some other cases the policy may provide cover but the assured motorist may not wish to jeopardise his own no claims discount on his own policy.24 Additionally, where there is no personal injury claim and where the damage to the motorist’s vehicle is dealt with as between insurers there are few motorists who would have the time, energy and resources to go to law solely to recover the cost of a substitute vehicle. Furthermore, under an ordinary car hiring arrangement, the hirer has to produce the hire charge up front. Credit hire companies on the other hand do not require an upfront payment and undertake to seek the cost from the defendant motorist in the name of the hirer motorist. Also, the motorist does not need to claim the loss of the use of the car against the party who caused the damage; the company does it at its own expense, in the name of the motorist. The nature of accident hire is, therefore, to provide the victim with the use of a vehicle, and also to relieve him from the concern that the costs of hire will have to be met by him if they prove to be irrecoverable from the negligent driver (in practice, the negligent driver’s motor vehicle liability insurers). The hiring company is, therefore, providing not just a car but also the security of the cost being met. In Lord Nicholls’ words,25 “Accident car hire companies are fulfilling a real need.” 9.9 When a motorist seeks a replacement car for the period while his own car is off the road, the credit hire company checks whether the motorist seems to have an answerable claim against the other driver. Having satisfied itself on this score, the company provides the car sought and then seeks to recover its charges from the negligent driver’s insurers. In this claim the company’s aim is to recover the charges for the loan of the replacement car. Given the risk that there may be no recovery, and also the costs of operating the business, it is scarcely surprising that the rates charged by accident hire companies are somewhat greater than the rates on offer from ordinary hire car operators who seek payment from the victim himself and have no concern with the success or otherwise of any action against the wrongdoing driver and his insurers. The credit hire company’s gain then is seen here that such charges include not only the actual cost of the replacement car but also the profit that the company is expecting to gain. When there is a recovery from the party who caused the loss the company receives the charges for the hire of the vehicle. 9.10 The general principles demand that where there is an available market in which the innocent party can obtain what he has been deprived of, he is normally expected to go into that market to obtain it.26 As a result, the fact that there are two different ways of hiring a replacement vehicle, an ordinary hire and hire through credit, leads the two different variations of cost of hire to compete in respect of the quantum of damages for loss of use: the claim may be based on the spot hire charge27 for a comparable vehiclePage 181
Legal statutes of credit hire agreements
Champerty and public policy considerations
9.11 As appears, the credit hire agreements are costly businesses. This is to a disadvantage of both the insurers and the defendants who caused the loss. The insurers’ argument that such hiring agreements are champertous and accordingly unlawful, or otherwise contrary to public policy, were rejected by the House of Lords in Giles v Thompson.29 The House of Lords explained that champerty, which had been treated as both criminal and tortious, had allowed the exploitation of worthless claims which the defendant lacked the resources and influence to withstand. The purchase of a share in litigation presented an obvious temptation to the suborning of justices. As the centuries passed the Courts’ mechanisms became more consistent, their participants more self-reliant and abuses could be more easily detected. Parliament abolished the crimes and torts of maintenance and champerty when it was believed that litigations were more easily determined in accordance with the demands of justice.30 9.12 Maintenance involves wanton and officious intermeddling with the disputes of others when the maintainer has no interest and where the assistance he renders to the one or the other party is without justification or excuse.31 A division of the spoils is added to maintenance to describe champerty. In other words, champerty has been defined as “an aggravated form of maintenance”32 9.13 Comparing all of these elements with the operation of the credit hire agreements the House of Lords held that there is no element of maintenance or champerty in the latter.33 Their Lordships found that the company does not meddle but allows the motorist to get on with the claim, and merely awaits a favourable result. It is true that the company incurs such activities for a profit, but the important point is that the profit comes from the hiring, not from the litigation.34 Further, the House of Lords explained that credit hire agreements do not create a charge over the proceeds of the claim, either as regards the hiring charges, or the damages for personal injuries, or any other item. Motorists are asked to co-operate with the company to pursue the claim against the defendant. There is usually no assignment of the proceeds of the action or of the cause of action itself. It is no more than a mechanism designed to ensure that, once the motorist was put in funds by the successful actions, the appropriate part of them reached the company. As a result, their Lordships found such agreements not against public policy.Page 182
Contingent liability
9.14 It was further questioned whether a claimant can recover credit hire charges against a defendant even when the claimant has been assured by the credit hire company that they will never have to pay the outstanding sums out of her own pocket. The Courts accepted that “a liability owing from A to B can exist notwithstanding that B has agreed not to enforce it directly against A. A non-recourse loan is a good example of that.”35 This is described as contingent liability; liability to pay charges to a third party is contingent on the success of the claim against the defendant. It was further held recently that neither an overcompensation nor a double recovery is in question in credit hire arrangements.36Mitigation point
9.15 Is the cost of hiring a vehicle itself the cost of mitigating the claimant motorist’s loss or is it the loss which is itself subject to the duty to mitigate? Lord Hope said in Lagden v O’Connor 37 that hiring a replacement car is the means for the claimant motorist to avoid or mitigate the loss of deprivation of the use of the vehicle and the expense of doing so will then become the measure of the loss which he has sustained under this head of his claim.38 9.16 With respect, this point of Lord Hope is not immune from doubts.39 The start ing point is the accident. If the victim’s vehicle can be repaired, as explained above, the cost of repair is the direct loss that can be claimed from the defendant motorist. The cost of hire appears as a consequence of the need for the repair. The object of the awarding damages is to put the injured party into the same position as he was before the accident. The loss is the deprivation and it materialises in the form of the cost of hiring a replacement vehicle to remedy the inconvenience that such deprivation might otherwise cause. Identifying such costs as “mitigation” therefore becomes a misdescription.40 9.17 As expressed by Dillon LJ in McAll v Brooks,41The plaintiff… has suffered an injury which deprived him of his car for several weeks and put him in a position in which it was reasonably necessary that he should have the use of a hired car while his own was not there. That is the injury for which he is compensated by the award of damages and it is an injury to him.