Credit Hire

Supply of Replacement Cars by Defendants, Claimants Obligations to Mitigate Loss: Copley v Lawn and Madden v Haller – Court of Appeal (2009)

The Court of Appeal considered whether a claimant who refuses a defendant's offer of a replacement vehicle fails to mitigate their loss and if so whether they should then forfeit their rights to recover even the sum that it would have cost a defendant or his insurers to provide the replacement.

At first instance and at the first appeal (see January 2009 TCB), it was held that the claimants, by ignoring the defendants' insurer's offers of replacement vehicles at no cost to themselves, had failed to mitigate their losses and were not entitled to recover anything in respect of the cost of the replacement vehicles not even the amount that they would have cost the defendants' insurer. The claimants appealed. 

The Court of Appeal upheld the appeals finding that the claimants had no knowledge of the cost of the replacement vehicles to the defendants' insurers and could not therefore have made any comparison with the cost of credit hire. A claimant could only be said to have failed to mitigate if they could have made such a comparison and still opted for the more expensive option.

The insurer's standard letter making the offer of a replacement car was criticized as having "an unpleasant threatening tone" and for failing to suggest that the claimant should seek advice on it from their own insurer or solicitor. The insurers practice of "cold calling" claimants to offer replacement vehicles was also attacked as "inappropriate".

If a claimant does unreasonably reject a defendant's offer of a replacement vehicle then their claim should be limited to the cost that the defendant or their insurers would have incurred in supplying it. Unless a defendant can show that they could have supplied a car more cheaply than at normal market rates then "spot" rates would apply.

Comment: whilst this judgment does not completely prevent defendants from seeking to reduce credit hire charges by offering replacement vehicles, it does make it much more difficult. A defendant or their insurer will now either have to make a specific written offer detailing the cost of the replacement vehicle or provide their drivers with booklets to hand to third parties with details of the replacement cost of a number of vehicles in the hope that it will cover the vehicle damaged.

The insurers in both cases (KGM) have been reported in the press as saying that they expect to appeal.

Fraud

Fictitious Accidents, Credit Hire, Non-Party Costs Order: Farrell and Short v Birmingham City Council- Court of Appeal (2009)

The claimants alleged that their car had been damaged by one of the defendant's dust carts. They made use of a credit hire car supplied by Direct Accident Management Services who referred the case to solicitors to recover the hire charges, the pre-accident value of the car and damages for minor personal injuries. The defendants settled the vehicle damage claim promptly but declined further payments after evidence of fraud came to light.

The claim was discontinued in the face of detailed fraud allegations and a costs order made against the claimants. The After the Event insurers refused to fund the costs order by reason of the claimants' fraud so the defendants applied for an order for costs against the credit hire company DAMS on the basis that they were instigators and potential beneficiaries of the action. After a contested hearing DAMS were ordered to pay 80% of the defendant's costs (see January 2009 TCB).

DAMS appealed against the costs order arguing, amongst other things, that 80% was excessive and not reflective of their commercial interests in the case, that they had not funded or controlled the claim and that any costs liability should not exceed 10%.

Dismissing the appeal the court held that the credit hire agreement and the authority signed by the claimants were the basis of the claim for hire and was the catalyst for the litigation. The claim had not been funded by DAMS but only because a CCFA with the solicitors which they referred the case to made that unnecessary. The Judge at first instance's finding that DAMS had been instigators of the litigation was justified and he would have been entitled to make an order that DAMS pay 100% of the costs.