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Keoghs Insight

We keep you up-to-date on emerging market issues and their impact on the insurance sector, through a variety of publications, events and our leading market initiatives.

Author

Melanie Mooney

Melanie Mooney

Partner

T: 01204 677290

Client Alert: Beware the Ides of March

Client Alerts||15/03/2017

McBride v UK Insurance Ltd & Clayton v EUI Ltd trading as Admiral Insurance
Court of Appeal, 15th March 2017
Before Lord Justice Flaux, Sir Timothy Lloyd, Sir Stanley Burnton

Counsel: Steven Turner and Edward Ramsay - instructed by Mel Mooney and Mark Sanderson of Keoghs.

“It belies common sense that a reasonable person in the position of the claimant, confronted with a range of rates, would normally do anything other than pick the lowest rate from a reputable hire company”
Paragraph 37 – Lord Justice Flaux

In one of the most eagerly awaited decisions in the credit hire arena, the Court of Appeal has today handed down Judgment in the conjoined appeals of McBride and Clayton.

A resounding victory for those who defend credit hire claims, it is a cautionary tale for the credit hire industry albeit there is a question surrounding whether the story ends here or whether the question of Stevens v Equity being inconsistent with previous authority (or indeed any other ground which was dismissed) will be taken further with a petition to the Supreme Court. That remains to be seen.

The Facts – McBride

The claimant’s Jaguar XJ Supersport v8 5 litre car was damaged in an accident with the defendant’s insured. The negligence of the defendant’s insured was not in dispute.

Over a period of 77 days the claimant hired a replacement vehicle from Accident Exchange at a total cost of £40,215.11.

Both parties produced rates evidence and at a trial, which took place in the immediate aftermath of the Court of Appeal decision in Stevens v Equity, the Judge awarded the sum of £19,980 for 74 days hire.

The claimant appealed that decision to the Court of Appeal.

The Grounds of Appeal

The appellant initially progressed three grounds, with a ground 3A being added at the permission hearing before Lord Justice Underhill in January 2016.  These were:

1.    Stevens v Equity is inconsistent with earlier authority

2.    The judge erred in law in his approach because there was no evidence that the rate awarded was from a mainstream provider

3.    The judge erred in awarding the rate he did because it did not come with a nil excess

3A.  The judge erred in failing to make a reasonable adjustment to the rate to allow for the cost of an excess waiver to reduce the excess to nil

With permission having initially been refused on paper by Lord Justice Kitchen, in January 2016 Lord Justice Underhill granted permission on Ground 3 but held over permission on Grounds 1,2 and 3A to be considered by a full bench.

The Facts – Clayton

The claimant was the owner of a 1972 Ford Mustang which was damaged whilst parked in 2011. The negligence of the defendant’s insured was not in dispute.

The claimant hired a series of vehicles from Accident Exchange at a total cost of £24,823.20 inclusive of VAT.

Again, both parties served evidence of alternative rates of hire.  Unfortunately the claimant’s was for the wrong locality and the defendant’s was not for the correct period of hire, namely only evidence for a hire of 28 days was adduced rather than for a hire of seven days.

Although the claimant applied for permission to rely upon evidence for the correct locality, permission was not granted.

In what can only be said to be an unusual judgment, the judge made a percentage adjustment to reflect the inadequacy of the defendant’s evidence to reflect that a seven day hire would be more expensive than a 28 day hire and the lack of a nil excess. He arrived at a 15% increase for the hire and 10% for the provision of a nil excess.

The claimant was awarded the sum of £13,131.66.

Following an initial failed appeal, the claimant sought permission to bring a second appeal to the Court of Appeal.

The Grounds

  1. It was irrational and wrong in law to accord at the first appeal that the “margin of appreciation” was appropriate for a fair and unbiased tribunal
  2. It was wrong to affirm the decision when the district judge had disavowed any “experience and knowledge” and that he had made a “guess”
  3. Having accepted that it was a “guess” the defendant had failed to discharge the burden of proving that the credit hire charges were unreasonable
  4. If it was open to the judge to “guess” there should have been a greater allowance to no less than 100% of the hire charges
  5. The appeal judge had erred in law in stating that the authorities showed the Court will only allow the hire charges in full where a defendant serves no evidence. It is for the defendant to prove by evidence that the credit hire charges exceed the basic hire rate and if so, by how much.

The Appeal Hearing, 22nd February 2017

The primary submission for the appellant was that Stevens was inconsistent with the earlier Court of Appeal decisions in Burdis v Livsey and Pattni/Bent (No 2) and that the long term viability of the credit hire industry was at stake.

It was submitted that prior to Stevens no defendant had ever argued for the lowest rate. Finally, it was submitted that Stevens was decided per incuriam (i.e. without proper regard to the law or the facts) as it had failed to consider the decision in Dickinson v Tesco.

In light of Lord Justice Underhill’s comments at the permission hearing it was accepted that the appellant faced an uphill struggle but that in order to give the industry the opportunity to ventilate the arguments before the Supreme Court it was suggested that permission should be granted, but then if the Court were not with them, to dismiss the appeal - that is the course of action the Court took.

The Court expressed the view that choosing a rate to apply is always dependent upon it being reasonable and that the reasoning expressed in Stevens is entirely consistent with the analysis in Dimond v Lovell and Burdis v Livsey.

It was noted that the case of Dickinson was not about how the basic hire rate should be calculated and it was also incorrect to say that the lowest reasonable rate suggestion had not been advanced in Stevens as Mr Turner had expressly advocated that argument.

It was held that Stevens was correctly decided and in any event, it was binding on the Court of Appeal.

The appellant submitted that none of the companies before the judge were mainstream providers and operated more in the “event” side of the market.

The Court of Appeal agreed with Mr Turner for the respondents that there was “nothing in this ground”. The ground of appeal sought to challenge the Judge’s findings of fact and he was entitled to conclude that each of the companies was a mainstream supplier or at the very least a local reputable supplier.

Here, the appellant’s submissions took a surprising turn in that they diverged, despite it being Accident Exchange sitting behind both claimants.

Mr Williams QC, for the appellant in McBride, accepted that were there a modest excess then that would not mean that the defendant had failed in overcoming the burden of showing there was a difference between the basic hire rate (BHR) and the credit hire rate.

He did however, contend that as there were no rates with a nil excess in McBride and the stand-alone insurance product would not have covered the vehicle(s) in question then the full rate should be awarded.

Mr Spearman QC argued for a more stringent test, namely that if there were no nil excess then the burden could not have been discharged and the claimant should be awarded the credit hire rate in full.

Mr Williams QC argued that even if the Court were against him on the substantive Ground 3, then some reasonable adjustment to reflect a nil excess should be made. However, he submitted that the true charge to Accident Exchange Limited (AEL) of providing a nil excess was not really reflected in the £10 plus VAT per day and that a more appropriate adjustment would be £50 per day.

Mr Turner for the respondents reminded the Court that the object of the exercise is to strip out the irrecoverable benefits and that such an exercise could be carried out on these facts. The Accident Exchange terms were not to provide a vehicle with a nil excess at the outset, but a £2,500 excess and there were rates, much less than those charged by Accident Exchange, which had the same excess. The burden on the defendant had therefore been discharged.

He submitted that the “core” rate for the car and the charges for the collision damage waiver (CDW) could and should be treated separately. To do anything other than that would have the effect of extending the “Lagden” exception and this would be wrong in principle.

The Court found that the absence of a nil excess should not lead as a matter of principle to the credit hire company recovering the rate in full; that would erode Dimond:

“...it should not allow the fact that the credit hire company offers a nil excess on prestige vehicles which car hire companies are not prepared to offer to be used as a smokescreen to enable credit hire companies to recover their charges in full, notwithstanding that a comparison of rates ignoring the nil excess demonstrates that there are such irrecoverable elements.”

In Clayton, Mr Hough QC noted that conventional hire companies do not provide a nil excess because they want their hirers to “have some skin in the game”.

It was considered a more principled and simplistic approach to treat the availability of a nil excess and the reasonableness of the sum claimed separately, perhaps by reference to a stand-alone product and the assessment using that cost should “certainly not depend on the happenstance of whether the judge has heard of the product”.

In McBride, as the only evidence of the cost of reducing the excess is that charged by Accident Exchange, that was the rate which should be awarded.

In Clayton, Mr Spearman contended that the percentage increase had come “out of the blue” and was not given as a result of the Judge’s expertise and experience.

Mr Spearman QC urged the Court to give clarity and provide for a more rigorous approach to the assessment of the applicable rate.

Mr Turner and Mr Hough QC both submitted that such an approach was too prescriptive and would actually increase Court time and use of resource.

Mr Hough QC‘s submissions were along the lines that regardless of how the percentage was arrived at, the sums awarded were not unfavourable to the claimant and that even were the appeal allowed, the proper course of action would be to remit for a second trial, one in which the rate would now be assessed by reference to Stevens v Equity and therefore the claimant may achieve a lesser award.

The Court held that the judge had 20 years’ experience and was no doubt drawing on that experience and that in the circumstances he could not be criticised for making the adjustment which he did.

Where there is evidence of a standalone product such as Questor or Insurance4carhire.com,  the Courts should admit and accept such evidence as evidence of the reasonable cost of obtaining a nil excess.

What does this mean for insurers?

The dismissal of the appeal in McBride is of course pleasing in that the clarity for all parties in the assessment of the recoverable rate that was given in Stevens v Equity remains in place.

The indication that the “industry” wants the opportunity to air argument in the Supreme Court is an interesting one as one wonders what appetite the Supreme Court would have to hear such arguments.

The timescale for requesting permission is 28 days and must initially be submitted to the Court of Appeal.

Should permission be granted then it will be an interesting time for both insurers and the credit hire market as there will inevitably be thousands of cases in the Courts stayed pending any decision.
For Keoghs, the acceptance of the position that the “core” rate for the vehicle should be treated separately from the “add ons” is particularly pleasing as it is a position we have been advocating for several years now.

Further the comment that “the admission and acceptance of evidence of these stand-alone products should be the norm” is again further assistance for the Courts and the parties as to how rates are to be assessed.

In terms of risk for the insurers, the CHO may choose to increase the cost of their CDW significantly therefore the allowance of the stand-alone product cost will mitigate that loss.

We would therefore strongly advocate that any rates evidence submitted on behalf of defendants includes the cost of such products and that any “Copley” letter draws the claimant’s attention to the availability of such products.

Although the appellant was awarded a nominal sum for Ground 3A it does seem rather a pyrrhic victory, particularly as the award failed to beat a Part 36 offer which had been in place for some time. 

*Update*

On 24 March 2017 we received the court order in the above matter which confirms that there will be no appeal to the Supreme Court in an attempt to overturn Stevens v Equity. The assessment of basic hire rates therefore remains as per Stevens v Equity and the further guidance now given in McBride v UKI.

For more information please contact:

Mel Mooney
Partner, Technical Director of Credit Hire
T: 01204 677290
E: mmooney@keoghs.co.uk

Mark Sanderson
Associate
T: 01204 678782
E: msanderson@keoghs.co.uk