Strategic Update: Credit Repair – reversing the trend

One of the main difficulties in challenging credit repair inflation is presented by the Court of Appeal decision in Coles v Hetherton. Coles establishes the position that a claim for diminution in value of a vehicle following an accident (represented, usually, by the reasonable cost of repairs) cannot be mitigated; for instance by way of an intervention offer to repair the vehicle in a cheaper network garage. In other words, a claim for repairs ‘is what it is’, regardless of whether repairs could have been carried out cheaper somewhere else, or the claimant carried them out himself, or not at all, etc.

Another significant difficulty is that the Court of Appeal in Coles set a very high bar for a Defendant who seeks to argue that a claim for repairs is excessive:

“(5) Generally, the practical way that the courts have calculated this diminution in value is to ask how much would be the reasonable cost of repair so as to put the chattel back in the state it was in before it was damaged. In general this is a convenient practice which we think the courts should continue to follow. Only if the sum claimed appears to be clearly excessive will he court be justified in investigating whether that sum exceeds the cost that the claimant would have incurred in having the repairs carried out by a reputable repairer.” [emphasis added]

To demonstrate that a claim for repairs is “clearly excessive” will usually in practical terms require evidence of the ordinary cost of the same repair by a reputable repairer to a person in the position of the claimant. The evidence would have to show a clear disproportion between the amount sought and the ‘market norm’.

This could be by way of evidence of fact – for instance a survey of labour rates in the local area – or by way of evidence of an expert engineer. Both of these approaches have pros and cons; for instance evidence of fact could give a broad survey of labour rates in the local area which might show the labour rates claimed are clearly out of kilter; whereas engineering evidence could speak of any anomalies in the invoice presented and whether replacement of certain parts etc was necessary or reasonable, etc. Obviously a mere labour rates survey could not comment on the latter.

In either case, the costs of the evidence, the risk of litigation and the fact that the Coles sets the bar so high – not to mention the possible implications of further delays that may be caused to ongoing hire claims by engineer inspections – often combine to weigh against taking the decision to challenge in run of the mill cases.

As a starting point in terms of strategy, we would advocate a targeted approach focussing on opponents where a common pattern of inflation can be identified and evidenced, and where a clear financial incentive to inflate can be identified.

Case Study – Credit Repair Model X

The following entities are all part of the same group of companies:

• CHO A
• Insurer B
• Repair intermediary C

In claims for either credit repair from CHO A, or where Insurer B repaired the vehicle as the claimant’s insurer, a document will be presented by Intermediary C showing basic details of what are purported to be the repair costs. C are merely an intermediary company, they are not in the business of repairing vehicles.

Evidence has been obtained in a number of cases that the document from intermediary C is uplifted from the actual costs of repairs. The repair invoice from the garage who repaired the vehicle is never disclosed voluntarily, but has been obtained where applications have been made. The uplifts have been significant; sometimes up to 70%!

There are three significant factors which differentiate this particular credit repair model from the ‘Coles model’ which mean that, in our view, the uplift is not recoverable:

1. There has never been any evidence that the repair charges have in fact been subrogated
2. Coles effectively calibrates the recoverable repair amount to the ordinary cost a walk up customer would pay at a reputable repairer. A genuine Coles model uses economies of scale to secure a discount to the recoverable repair amount. In this case the difference is recoverable. This particular credit repair model takes the recoverable repair amount then adds an uplift. An uplift is distinct from a discount and is not recoverable.
3. In Coles the court had the benefit of the actual repair invoice and commented that this would usually be the best evidence of the recoverable amount.

A strategy has been run challenging repair claims brought by these entities since March 2020, which evidences the company links – thereby illustrating a clear incentive to inflate – and places before the court the evidence obtained in other cases as to the uplifts routinely being applied.

The outcomes so far have been extremely encouraging. Of 13 outcomes:

• Repair claim has been dismissed by the court entirely in 5
• Repair claim awarded at 50% of intermediary C’s invoice in 1
• 2 repair claims have been discontinued
• 75% offers on repairs have been accepted in 2
• Three have been losses – repairs awarded in full or at more than 90% of intermediary C’s invoice

Whilst therefore only being part of the picture, the success of this initiative does show that successful challenge to credit repair is possible in appropriate cases where backed by cogent evidence.

Other opportunities for strategic challenge may present themselves in terms of similar credit repair models; most notably in relation to ‘one stop shop’ type structures. We will engage with our clients and strategic partners further in relation to this in due course.