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Question of appropriate rate in credit hire is answered

During the course of 2013, there were two favourable Court of Appeal decisions for insurers; in Opoku and Umerji, but the joy was short lived as the CMA decided not to regulate the credit hire industry. Gavin Perry looks at a recent Court of Appeal decision in Stevens v Equity Syndicate Management Ltd (2015), which is likely to have a huge impact on the industry.

Might the Court of Appeal have succeeded in stemming the cost of credit hire claims where the CMA failed to act?


The Claimant was involved in a road traffic accident on 10 February 2011 when one of the Defendants’ policy holders drove into his Audi A4, causing damage. Liability for the accident was not in dispute. The damage to the Claimant’s vehicle required repairing and not wanting to jeopardise his no claims discount, the Claimant decided to engage the services of Accident Exchange Limited (AEX), who arranged for the Claimant’s vehicle to be repaired and arranged for the Claimant to be placed in a replacement vehicle whilst those repairs were taking place.

The Claimant hired an Audi A4 for 28 days, for which AEX charged £140, per day plus VAT, together with collision damage waiver in the sum of £22.50 per day, plus VAT and a further charge of £3 plus VAT to reduce his liability for any accidental damages to the windscreen, the tyres and the underbody of the vehicle. The total daily hire rate was £165.50, plus VAT.

The issues before the court were:

  • Was the claimant impecunious; and, if he was not
  • What was the appropriate basic hire rate that he should be allowed to recover; and
  • Was the hire period reasonable

The Claimant relied upon a rates report from APU – one of the Accident Exchange group of companies, showing a range of basic hire rates (BHR) from £33.83 to £136.76, but there were also a number of hirers near to the Claimant’s home, who quoted rates from £60 to £66 (plus VAT) with a nil excess.

At first instance, held that the Claimant was not impecunious and that the correct way to calculate the appropriate BHR was to take the average of the rates quoted by four mainstream spot hirers, producing a BHR of £63.02 (plus VAT) and that the reasonable hire period was 19 days, with the court deducting 9 days to allow for the fact that the vehicle sat at the repairing garage for that length of time before repairs commenced.

At the first appeal Burnett J (now Burnett LJ) upheld the Recorder’s decision at first instance in respect of the BHR, but did so by applying a different method (both parties having accepted in the light of Bent that the use of an average was incorrect); he calculated the BHR by asking what rate the Claimant would have been prepared to pay had he gone to the spot hire market he also held that the appropriate period was actually 28 days.


Held by Jackson LJ, Kitchin LJ and Floyd LJ:

  • The correct rate that should be applied in the case was the lowest reasonable rate quoted by a “mainstream” supplier.

  • Whilst Burnett J had reached the correct answer, he had done so by applying the wrong criteria. In considering what was the appropriate rate was, a judge should simply look to arrive at a figure that strips out the irrecoverable costs (as per Dimond v Lovell), rather than ask what rate a claimant might have been prepared to pay.

  • It is reasonable to suppose that the lowest reasonable rate quoted by a mainstream supplier is a reasonable approximation to the BHR and a fair market rate for the hire of a vehicle, without the additional services provided by a credit hirer.

  • It would be “manifestly unjust” if the rate to be recovered was to be calculated by looking at the highest rate in the range of available rates and, if that rate were higher or equal to the rate charged, concluding that the defendant had not demonstrated that the BHR should be any less.


The CMA having validated the credit hire model, and accepted that it was costing the industry too much, had emboldened the CHOs to the frustration of insurers, who were on the back foot once again.

Whilst Opoku and Umerji had given clarity that was helpful to defendants on issues such as need, period and the burden of impecuniosity, the high watermark case in relation to rates remained that of Darren Bent whose financial circumstances hardly represented those of the “man on the Clapham omnibus” or, possibly of more modern application, “Mondeo man”.

It appears that the excessive rates charged by the credit hire industry, possibly fuelled by the CMA’s decision not to take action to regulate, had gotten the better of the industry. An average local rate from a national provider had seemed like a sensible compromise, but the CHOs wanted more, and therefore (however they try and spin it) this decision will be a huge body blow.

In all cases going forward, where the Claimant is pecunious (or debarred from alleging that they are impecunious), Stevens will be binding and the Claimant will only be entitled to recover the lowest local BHR. It is important to note that in cases involving the impecunious Claimant, then credit rates will still be recoverable, if the hiring of a vehicle was necessary and was the best way of mitigating loss.

The decision could be fatal for some CHOs. Applying the maths in this case, the £1m book debt of a CHO pre Stevens, would now be worth just over £360k. Perhaps some CHOs will suffer the same fate as Driveassist.

Following the CMA’s decision not to intervene, many insurers had been questioning the worth of the GTA – the fact that in many instances the lowest BHR is likely to be less than the GTA figure could serve to hasten the demise of the GTA, and lessen the attraction of subscriber models or bi laterals (or at the very least mean a reassessment of the rates).

We recommend a thorough review of all outstanding credit hire claims and that a strategic decision is taken as to whether to maintain those offers that have not been accepted. In some instances decisions will need to be made as to whether to allow GTA claims to fall into commercial rates. We are more than happy to offer any support that might be required in identifying those cases that might be affected by this decision.


For further details please contact Gavin Perry, Partner on 0151 907 3493.

By Gavin Perry

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.