Accident Claims News

Watch What You Sign! – A Credit Hire Warning

Jan 23, 2013

In the recent case of Jacqueline Gee v AXA Corporate Solutions Assurance SA UK Ltd ( - Edinburgh Sheriff Court – 27 August 2012), Sheriff Principal Mhairi Stephen issued an opinion regarding the recoverability of credit hire costs in road traffic accident claims.  I think that is raises some interesting practical questions for pursuers regarding liability under these contracts.

By way of background, it is a commonly accepted principal in Scots law that you are able to claim damages for any losses that you sustain due to the negligence of another driver following a road traffic crash.  Similarly, it is well established that the claiming party must mitigate his or her losses, and that they will only recover that which is reasonable (see paragraphs 24-26 of the judgement).

Following a road traffic crash, your car may be off the road due to the damage incurred.  You may be without the use of your car until it is repaired, or until it is written off and the value of your vehicle reimbursed to you. You can seek a payment to reflect the period that you are without your car, or, where it is necessary and reasonable, you can hire an equivalent vehicle for the appropriate period.  Frequently, your insurers (or indeed other organisations) may offer to arrange the hire of a vehicle on your behalf.  You will not be asked to pay for the hire, but, on the basis that the accident was not your fault, the “cost” of this hire will be sought from the negligent party’s insurers.  This is known as credit hire.  Invariably, the cost of credit hire will be higher than the basic or “spot hire” rate to reflect the added advantage of the credit facility.

This is where a problem arises. You may not recover the full cost of the credit hire vehicle.  The leading case on this issue is Dimond v Lovell ([2002] 1 AC 384) where the House of Lords decided that only the spot hire rate could be recovered and that the additional premium in credit hire rate could not.  The Lords confirmed that view in Lagden v O’Connor ([2004] 1 AC 1067), but indicated an exception to that rule.  Credit hire rates would be recoverable where the claimant could not afford to hire a vehicle by payment of spot hire rates in advance. The Lords called the claimant’s financial position impecunious, on which Lord Nicholls comments

"There remains the difficult point of what is meant by 'impecunious' in the context of the present type of case. Lack of financial means is, almost always, a question of priorities. In the present context what it signifies is inability to pay car hire charges without making sacrifices the plaintiff could not reasonably be expected to make." 

Lord Hope advised that

In practice the dividing line is likely to lie between those who have, and those who do not have, the benefit of a recognised credit or debit card.”

While the definition of impecunious remains somewhat unclear, Sheriff Principal Stephen in Gee summarises the effect of the two House of Lords cases.

“Lagden opened the way for an impecunious claimant or pursuer to avail herself of the exception to the rule laid down in Dimond v Lovell and stated that the court could consider the injured party's lack of means when approaching the issue of damages. The impecunious pursuer is, of course, an exception to the general rule and it is for the pursuer who asserts lack of means to put that in issue and to bring evidence to support the assertion.”

Gee confirms that the onus is on the pursuer or claimant to prove his or her financial position, effectively to prove that they cannot afford to hire a vehicle other than on credit hire terms.  Failure to do so will mean that credit hire terms are inappropriate, and the exception to the rule from Lagden will not be applied. The spot hire rate would apply, and difference between that and the credit hire rate would not be recoverable. As an addendum, to add salt to the wound, the pursuer in Gee also failed to establish what the spot rate would be, and the Sheriff Principal had no alternative but to dismiss the case and make not award at all.

This begs the question - who remains responsible for the difference between the credit hire charges and the spot hire rates, or for the credit hire charges in the event of a failure to recovery any funds from the negligent party?  As the hirer of the vehicle, you will have signed an agreement with the hire company which makes you responsible for these charges.  It may be that your liability will not crystallise until liability is conceded by the third party or a decree is awarded in your favour.  In England, it is essential that liability be real.  If there is no actual liability on the claimant to pay the cost of the hire, then there cannot be recovery from a third party insurer.  The matter has not been tested in Scotland, but it would seem reasonable to assume that the position would be the same.  In practice however, the hire companies do not tend to ask for the contracted sums in the event that they do not make a full recovery from the third party insurer.   

On a separate point, Gee did not require to address the issue of whether the hire was necessary and reasonable, as the matter was not disputed.  You should bear in mind that it will be for you as the hirer of the vehicle, whether under spot hire rates or credit hire rates, to establish that it is required, and that it was reasonable for you to have hired a vehicle.  Failure to do so would mean that the cost was not recoverable.

Remember, you may be left with a liability to the hire company for any moneys that they have been unable to recover. So, if presented with a credit hire agreement, read it carefully, and ask what will happen in the event that there is partial or no recovery.