‘Lowest reasonable rate’ – recoverability of credit hire charges

02 MARCH 2015

‘Lowest reasonable rate’ – recoverability of credit hire charges.

In Stevens v Equity Syndicate Management Limited [2015] EWCA Civ 93 the Court of Appeal considered how the basic hire element of the total charge incurred under a credit hire agreement is to be ascertained and the extent to which such a charge is recoverable. 

The Claimant hired a replacement vehicle while his was being repaired, following a road traffic accident in 2011. He paid additional charges to reduce the vehicle excess and his liability for accidental damage. The vehicle was hired for a period of 28 days at a cost of £194 (including VAT), per day. The additional charges amounted to £30.60 (including VAT), per day. The excess, if paid, would have been £1,500. The total cost to the Claimant over the 28 day period was approximately £6,000. The Defendant disputed the extent to which the additional credit hire charges were recoverable. 

The Recorder at first instance found that the Claimant was not impecunious and in calculating the sum attributable to the basic hire rate, took an average of the rates quoted by four mainstream vehicle hire companies for vehicles in the relevant group and arrived at a basic hire rate (the calculation was towards the bottom of the range). The Recorder’s decision was upheld by Burnett J. 

The Court of Appeal judgment of Kitchin LJ, with whom Floyd LJ and Jackson LJ agreed, indicated that a judge when faced with a range of hire rates should try and 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 there is a range of differing rates in a geographical area (as is likely to be the case), then a reasonable estimate of the basic hire rate may be obtained by identifying the lowest reasonable rate quoted by a mainstream supplier or local reputable supplier [para 36]. 

The Court of Appeal concluded the Recorder had fallen into error in the way he approached this exercise. A judge, when approaching such a decision, must conduct an analysis by stripping out the irrecoverable costs from the basic hire rate the claimant has agreed to pay or, conversely, ascertain the part of the charge which is attributable to the basic hire of the particular vehicle the claimant has chosen. This is an objective exercise and the evidence of the claimant about what he would have done had he gone into the market to hire a vehicle on standard hire terms is likely to be of little assistance [para 39]. Kitchin LJ concluded that an application of the correct approach, in the instant case, would have resulted in a basic hire rate figure which was very close but a little less than that which the Recorder at first instance reached, the appeal was therefore dismissed.  

This judgment will inevitably result in a reduction in awards received by claimants found not to be impecunious and will likely cause difficulties for defendant insurers if they cannot show there is a cheaper rate on the same terms, as the charged rate will therefore be the recoverable rate. Unfortunately the court did not expand upon certain ambiguous terminology used such as the claimant’s geographical area and type of car actually hired by the Claimant.  

Judges considering credit hire claims will now have to ponder arguments about whether a particular rate was or was not available to a particular claimant (no doubt when considering his or her geographical area). 

The Claimant is seeking leave to appeal to the Supreme Court.   

Rhys Davies

This article is intended as interest and information only.  It should not be considered legal advice and the reader is encouraged to undertake their own research and study of the matters discussed here before relying on the same.