Last call for prestige credit hire: another nail in an ever-closing coffin?

The long awaited judgments in the cases of McBride v UKI and Clayton v EUI were handed down today, delivering the latest blow to the credit hire industry which is still feeling the effects of the seismic judgment in Stevens in February 2015.

Let’s remind ourselves, Stevens provided that the reasonable approximation of the BHR would be the “lowest reasonable rate quoted by a mainstream...or…local reputable supplier”. At the time, this was a significant windfall for defendant insurers, some of whom had been content to offer the highest or “mid table” daily rates procured through formal BHR evidence. Settlement rates generally proceeded to come down as amended litigation strategies were implemented to streamline the negotiation process.

Unsurprisingly, the CHO market reacted strongly to the unexpected purse-string-tightening of the decision and, over the intermediate two years, satellite litigation has ensued to limit the effects of Stevens, with this often being fought within the arena of prestige / luxury hire. There have been a number of first instance and first appeal decisions that have been in the defendants’ favour, but none with any significant binding authority. That was, at least, until today.

McBride formed the main part of the conjoined appeal, with four grounds of appeal:

  1. The decision in Stevens was wrong and inconsistent with the earlier authorities
  2. In the event that judge was right to apply the test in Stevens, the judge was wrong to take account of the rates evidence on the basis that there were no mainstream suppliers
  3. In any event, the trial judge was incorrect in his assessment of the BHR as none of the comparators provided had the benefit of a nil-rate excess
  4. Alternatively, the trial judge had erred by failing to make a reasonable adjustment to allow for a “nil rate” excess.

Point 4 had a significant cross over with the grounds of appeal with Clayton, in which it was argued that the trial judge had erred in applying an “uplift” to the 28 day rates obtained to estimate the 7 day cost of hiring and for a nil-rate excess.

No doubt you will have read publications from other sources and the judgment, so we will not rehash the contents here. We would, however, offer the following commentary based on the submissions made at the appeal hearing and the judgment of Lord Justice Flaux.

The position of Stevens and ground (1)

Whilst the appeal was dismissed, permission to appeal was initially granted which paves the way for a petition to appeal to the Supreme Court. Whether Accident Exchange have the appetite for a further appeal remains to be seen. However, the commentary of Ben Williams QC at the appeal was that this was precisely the reason for requesting the court grant permission and subsequently dismiss the appeal, rather than not granting permission at all, and it appears that this plan of action is at least within the consideration of Accident Exchange et all.

Further, one can see the attraction in this course of action. Being in the position that the lowest reasonable rate is routinely awarded in county courts up and down the country, one would question what the CHOs have to lose. After all, they are unlikely to be awarded lower than the lowest rate, unless the tide turns again in relation to the need for hire v loss of use argument. Whether the reward is sufficient to outweigh the risks to tip them down this path remains to be seen. In the interim however, Stevens remains good law and insurers should continue to maintain their position in this regard.

Ground 2 was dismissed in short order, with Counsel for both the respondents not having to provide submissions at all, and in this regard “mainstream” remains a fact-specific objective exercise.

Ground 3 was, by far, the most contentious issue of the day and represents a further windfall for defendant insurers.

In the appeal hearing significant time was spent by both sides arguing vehemently for their respective positions. However, it was clear from the observers at court that the judiciary were not endorsing of the overtly prescriptive and subjective method proposed by Mr Spearman. Indeed, it was even conceded by Mr Williams that in certain circumstances it was not reasonable to insist upon the credit hire rate with a nil excess.

The appeal judges seemed to endorse the simplicity of Mr Turner’s submissions, insofar as the availability of a CDW provided by the CHO was an additional benefit to be stripped out, and that the starting point was to consider whether it was necessary for the claimant to have availed himself of a collision damage waiver at all. Once this is established, at it is conceded that more often than not will be reasonable for the claimant to do so, it is for the trial judge to objectively consider what the reasonable cost for such a product should be, which was the crux of point 4 above.

It was at this point that the applicability of third party excess reduction/elimination products came under review and one can see the unequivocal endorsement of such products at paragraph 105 of the judgment. The tone of the judicial responses seemed to favour the simplicity of internet research, suggesting that the decision in Stevens and now these two cases, has brought the issue of credit hire into modern times. The comments of the judiciary were such that it seems almost nonsensical that anyone looking for a replacement vehicle would do anything but browse their way to their search engine of choice and type in “car hire” and suffix the search with their location.

Further, and this will perhaps convey the uphill struggle faced by the appellants, when it was suggested that no-one was really aware of the likes of “questor”, two of the three judges confirmed that they had previously used questor and the third was more than aware of it. It will naturally come as no surprise, therefore, that the judgment is not with the claimant’s on this point.

Comment

Perhaps what was unexpected were the comments at paragraph 77 of the judgment which suggests that in some cases it will be more reasonable for a claimant to utilise a third party excess product instead of the CDW offered by the hire company. This potentially represents a significant blow to CHOs whose own waivers are often in excess of £10.00 per day, when contrasted with minimal sums of £3 or £4 per day in the normal motor market. On a case-by-case basis this may seem minimal, the savings are likely to add up over the course of time.

Clayton provides further useful guidance in respect of the applicability of non-contemporaneous rates, and rates evidence that is not for the specific period of hire (such as 7 day rates or 28 day rates). The Clayton decision forms only a small part of the judgment but it has far reaching implications for the admissibility of certain rates reports. The Court were not with Mr Spearman in his attempts to impose a “rigorous and exacting” approach to assessing the basic hire rate, which remains an objective exercise to be carried out by trial judges on the evidence that is before them. In Clayton the trial judge was entitled to make the adjustments based on his experience.

The landscape before us: practical advice for insurers

As always, the devil remains in the details and insurers would be well advised to ensure any evidence they obtain or collate is specific to the case in issue. In relation to rates evidence, cautious review of terms and conditions of hire is necessary. Common examples of deficiencies in evidence are old/young drivers, endorsements or driving history exclusions. With reference to excess elimination products, care must be given to ensuring that the comparative product would have covered a vehicle of the value of the type hired for the period of hire incurred (or awarded, one could argue, where there are reductions to be made on the period).

As to where to source rates evidence come from, it remains to be seen how the decision will filter down into the lower courts. However, in a pre-litigation state, internet searches from the claimant’s local area for comparators and evidence of available excess elimination products should be obtained at the earliest opportunity and offers (where appropriate) made accordingly. Whilst non-contemporaneous rates evidence is permissible, rates evidence from the time of hire has always been the gold standard since Bent (no2). It is likely that first instance decisions regarding the admissibility of “internet rates” will come shortly and, as always, there will be variation in judicial attitude and interpretation.

The key message to take home is one of reasonableness and objectivity; in both of these areas, the internet remains a powerful resource for fact based evidence as to the reasonable approximation of the BHR to be applied when dealing with the pecunious claimant.

On a larger scale, the decision closes another door to CHOs in their attempts to stifle the applicability of Stevens, and insurers will find themselves in a stronger position to negotiate, whether this be on a case-by-case basis or any ‘bulk deal’ arrangement. It may be the case that CHOs, in an attempt to limit the fall out of this decision, will make moves to agree bilateral arrangements to ensure a steady, albeit reduced, income flow and in this regard insurers should maintain a robust stance.

Notwithstanding that these judgments may now, at great cost, be taken further and to the Supreme Court. From our perspective, the fight may in any event move on and turn on the issue of “need for type” (of hire) and its application to the concept of mitigation of loss. It would appear from the comments of the judiciary during submissions, that the concept of “reasonableness” is attractive and all pervasive within this contested area of litigation.

Insurers who are still subscribed to the GTA may need to again review that strategy in the longer term, subject to a further appeal to the Supreme Court. Insurers who have in place or are negotiating bilateral agreements with CHOs will no doubt appreciate that their relative bargaining position can now only be strengthened by these two judgments – particularly in relation to upper-tier and prestige hire vehicles and any rates they may be seeking to agree in bilaterals.