In the recent case of Thandi v AA Underwriting Insurance Company Limited in which DAC Beachcroft CSG acted on behalf of the defendant, the court considered issues of the applicable basic hire rate and the principles surrounding intervention offers. At trial, Christine Rutkowski, barrister, of Halcyon Chambers was instructed to appear on behalf of the defendant, the judge, Recorder Kohli, gave a judgment which will be of interest to credit hire practitioners.
Background
Following a road traffic accident, the claimant, Mr. Thandi hired a Volvo XC90 (F4) from Enterprise Rent-A-Car (ERAC) under a credit hire agreement for 46 days at a daily rate of £324.51 plus VAT, while his own vehicle, a Land Rover Discovery (F3), was undergoing repairs. The total credit hire claim amounted to £17,912.95. Liability was not in dispute and the repair costs were settled pre-issue, leaving only the credit hire claim to be determined.
The trial
The trial focussed on four key issues, with the claimant conceding that has was not impecunious:
- Enforceability of the credit hire agreement;
- Intervention and mitigation;
- Applicable basic hire rate; and
- Hire period.
Each of these issues was considered.
- Enforceability of the credit hire agreement
The central issue was whether the credit hire agreement was enforceable or voidable due to misrepresentation.
The claimant testified that the individual who delivered the hire vehicle assured him he would not be personally liable and that the documentation was standard for post-accident repairs. The claimant stated that had he known it was a credit hire arrangement, he would have conducted further research.
The judge found that this representation induced the claimant to enter into the agreement and that the statement was at least careless regarding the true nature of contingent liability. However, while the contract was deemed voidable, the claimant had not taken steps to avoid it and as the contract had been fully performed and not rescinded, it remained enforceable.
- Intervention and mitigation
The defendant's case was that the intervention rate was £41.59 per day as opposed to the credit hire rate which was £324.51 plus VAT per day and it, therefore, fell to the judge to consider whether the claimant had unreasonably refused a suitable replacement vehicle offered by the defendant at a lower rate and, therefore, failed to mitigate his loss. In assessing this issue the judge considered:
- The involvement of insurers on both sides;
- The necessity for the defendant's offer to include sufficient information for the claimant and his representatives to assess its reasonableness including the cost to the defendant; and
- The importance of allowing the claimant a fair opportunity to make a realistic comparison.
The judge reaffirmed the decision in Copley v Lawn to the effect that it is not unreasonable to reject an offer lacking clarity on hire costs. The claimant had received an intervention offer from the defendant via e-mail with a follow up some four days later. The claimant stated that he disregarded the email due to a subsequent message stating it had been sent in error, with the defendant stating that the latter and the apology it contained relating only to a request for details and not the offer itself.
The judge concluded that the intervention letter contained sufficient detail for a reasonable comparison and held that the claimant should have transitioned to the defendant's vehicle within seven days of receiving the offer.
- Applicable basic hire rate
The defendant's basic hire rate evidence relied on direct evidence from the Birmingham Airport branch of ERAC, the same company that provided the credit hire vehicle to the claimant submitting this as the most reliable source for establishing the basic hire rate (BHR). The claimant contended that the rates from an airport location were not applicable due to potential pricing discrepancies.
The judge rejected the claimant's argument noting that since the claimant had hired the vehicle from ERAC at Birmingham Airport, it was reasonable to consider BHR evidence from suppliers at the same location. While acknowledging the difference in excess amounts, £1,600 under the credit hire agreement and £2,000 under the BHR, the judge found this distinction immaterial to the overall assessment. The judge also emphasised that full terms and conditions were not necessary for a valid comparison, and a common-sense approach could be applied.
Based on the nature of the repairs, the judge found it reasonable to assess the hire on a 7-day basis and accepted the defendant's proposed rate of £80 per day.
- Hire period
The final issue for the judge was whether the appropriate hire period should be the full 46 days claimed, a shorter period based on the repair estimate, or reduced by two days due to the timing of vehicle return.
The defendant's position was that the claimant had failed to chase the return of his vehicle, suggesting this contributed to an unnecessarily extended hire period. The judge found that this lack of follow-up did not constitute an independent cause of loss and, therefore, did not justify a reduction. Although the repairs were completed two days prior to the end of the hire period, the judge held it was reasonable for the claimant to wait for the vehicle to be returned to his home before off-hiring the replacement.
The award
The judge awarded seven days at £80 per day and applied the intervention rate of £41.59 to the remaining 46 day hire period totalling £2,182.01. Costs were also awarded to the defendant in the sum of £9,910.80.
Practical implications for credit hire practitioners
Intervention letters and mitigation
- Clarity and detail are essential: The judgment emphasises the importance of a clear and comprehensive intervention letter. Such communication must provide sufficient detail, particularly regarding cost, to enable the claimant and their representatives to make an informed comparison.
- Duty to mitigate: Even where a claimant is already in a credit hire vehicle, the presence of a cancellation clause (as in this case) may impose a duty to mitigate by accepting a reasonable intervention offer. This aligns with the principle established in Powell v Palani.
- Avoiding miscommunication: The case highlights the risks of unclear or contradictory messaging. An email suggesting a previous offer was sent in error could have undermined the defendant’s position, emphasising the need for precise and consistent communication.
Basic hire rate (BHR) evidence
- Direct source evidence is persuasive: The defendant's use of direct evidence from the actual credit hire provider proved effective in establishing the BHR. This approach may provide an appropriate method of establishing BHR in future claims.
- Locality considerations: The judgment acknowledged the relevance of locality in assessing BHR, suggesting that rates should reflect the claimant's geographical context.
- Excess charges are not dispositive: The court reaffirmed the position in McBride, stating that differences in excess charges do not invalidate BHR evidence. Arguments based solely on the absence of a nil excess were described in McBride as a “smokescreen” for inflating credit hire charges.
- Judicial discretion in imperfect evidence: The judgment confirms that courts may apply reasonable adjustments when faced with incomplete or imperfect evidence, which is so often the case with BHR evidence allowing for pragmatic decision-making in determining BHR.
As well as demonstrating that the courts are prepared to take a pragmatic approach to basic hire rates, the decision provides a pleasing example of the court supporting the principle of intervention in reducing the level of hire charges claims and the benefits that insurers can gain from taking a proactive approach to claims handling.
For more information of advice, please contact a member of our Vehicle Hire and Damage Team.
