Date:  16 January 2012

CREDIT HIRE CHARGES – RECENT CASE LAW UPDATE

WHAT IS RECOVERABLE?

On 24 November 2011 the Court of Appeal handed down a single judgment in two cases: Pattni v First Leicester Buses and Bent v Highways and Utilities Construction. The decisions reached are of considerable interest to those involved in credit hire litigation.

Pattni: The First Appeal

The Claimant (“C”) was involved in a car accident caused by the Defendant (“D”). C had his Porsche 911 repaired but during the period of repair he hired a replacement vehicle on credit hire terms for 40 days at a cost of over £25,000. Under the terms of the hire agreement, interest was payable on hire charges outstanding from the end of the hire period, referred to as “contractual interest”. At first instance as C was not impecunious the Judge held that C was entitled to recover hire charges by reference to the “spot rate” and reduced the period for which C was entitled to recover hire charges from 40 to 29 days. He also rejected C’s claim for interest.

In the Court of Appeal it was argued by C that he was entitled to recover interest on the sum found to be recoverable by the trial Judge. The Court of Appeal held that:-

Contractual Interest:-

If it is proved that any element of the credit hire charges represents the cost of providing credit facilities to the hirer, this is not recoverable as part of C's damages for loss of use. It is simply an additional benefit. The interest charge within the agreement comes under this heading and therefore cannot be recovered by the C who has money (ie who could have paid the charges and therefore would not have needed to delay payment and incur interest).

Interest as Damages:-

The relevant question is whether C can prove he suffered a loss for which he had to pay out money which could have been used for other purposes. It is immaterial that C might have suffered loss of use of his money by hiring without the benefit of credit facilities. There must be actual loss.

Statutory Interest:-

As this is discretionary in the absence of payment by C there is no loss and therefore interest was not payable to C.

Bent: The Second Appeal

The Claimant (“C”) was involved in a car accident caused by the Defendant (“D”). C was current Aston Villa and England footballer Darren Bent. C hired an Aston Martin DB9 in 2007 as a replacement for his Mercedes Benz CLS 63 AMG which was damaged in an accident for which D was liable. The hire period lasted 94 days and the daily rate of hire was £573.28 plus VAT. C could afford to hire a replacement vehicle in advance and so did not need to use credit hire facilities.

At first Instance HHJ Yelton found that the Aston Martin DB9 was a reasonable replacement for C’s own vehicle, that the period of hire was reasonable but, in the absence of evidence of the “spot hire” rate for an Aston Martin of the type C hired or of C’s own Mercedes, the Judge could not speculate as to the appropriate spot rate and C recovered the entire credit hire sum. This was appealed and a different ruling was given by HHJ Plumstead.

However the Court of Appeal held that the approaches taken by HHJ Yelton and HHJ Plumstead were wrong. The case was remitted to the Court of Appeal again to determine the spot rate of hire of a reasonably equivalent replacement vehicle at the time of hire.

Notably, in assessing the spot rate, whether the Judge has evidence of spot rates for the type of car actually hired on credit, or has evidence for spot rates for types of car which are within a bracket that is comparable, the aim of the exercise is to make a calculation of what the spot rate was for the car actually hired and to compare it with the credit rate paid. The proper approach in that case was to find the spot rate for the actual car hired on credit. What is reasonable will depend on the circumstances. So long as C was reasonable in hiring that car and the credit hire rate is reasonable, the spot rate will be the rate charged by an equivalent non-credit hire company C might have gone to. This may be at the top end of the range.

Comments

Pattni has ended the arguments over contractual interest where the C is not impecunious, though for the impecunious C forced to hire on credit hire terms it remains possible to recover interest using this route. Other routes of interest recovery are effectively closed where C has not paid hire charges.

Bent emphasises that once C satisfies the court that the model of car hired is reasonable, that model should be the focus of evidence for spot rates and not the vehicle damaged. This may lead to odd results. Further, it appears that in practice when assessing the spot rates parties should expect Judges to prefer submissions based on specific rates rather than broad brush reasonable averages. 

James Neale