On 25 March 2014 the Court of Appeal (CoA) handed down their judgment in the latest credit hire case to be drawn to their attention. The decision reaffirms that given in the Keoghs’ CoA decision in Opoku v Tintas, namely that impecuniosity relates not just to the rate of hire but also to the period of hire and the need to hire at all.
Mr Umerji, a train guard, was the owner of a 2007 plate Mercedes which was involved in a road traffic accident with Mr Khan on 19 October 2010. The Mercedes was not roadworthy and was subsequently deemed a total loss with a pre-accident value (PAV) of approx. £7,100.
The day after the accident, Mr Umerji entered into a credit hire contract with Elite Rentals (Bolton) Ltd., alleging that he was unable to replace the vehicle from his own funds. Over a number of agreements he continued to hire until 2 June 2012, a massive 591 days, amassing a total credit hire bill of £95,130.14. The daily rate of hire was approx. £161.
The appellant made a payment to Mr Umerji for the PAV of his vehicle on 16 November 2012, five months after he had ceased hiring. In addition to the claim for hire, there was also a claim for recovery and storage (£3,420.74) over a period of four months until February 2012.
Proceedings were issued by the claimant to recover his losses on 24 August 2011. Unfortunately, no defence was filed on behalf of Zurich’s insured, Mr Khan, and judgment was entered in default. The appellants joined proceedings due to the failure of Mr Khan to notify them of them. Despite this however, the judgment stood as an application to set it aside failed due to timescales set by the court.
Within the course of the proceedings a direction was given that: “The claimant shall confirm by 4pm on 30 October 2012 whether he intends to allege that he was impecunious at the time of the hire.”
Mr Umerji did not make any statement in accordance with this direction and an application was made to debar him from relying upon any arguments in relation to impecuniosity. This application was successful.
The matter came before Mr Recorder Alldis on 14 June 2013 wherein judgment was granted to the claimant in the sum of £101,559.36. Save for a period when he was on holiday, the period of hire was awarded in full. As no rates evidence was adduced by the defendants, the rate of hire was also allowed in full - leaving a judgment for hire at £92,386.54 and for recovery and storage at £2,540 + VAT.
The recorder made his decision based on his view that impecuniosity, and therefore the debarring order, related only to the recoverable rate of hire and not any other issue in the claim. The defendants argued against this point on the basis that the order was clear, the claimant was debarred and therefore impecuniosity should relate to ALL issues.
The recorder felt that the claimant had been ambushed by the defendant’s argument, as the discussion at the debarring application had related only to the rate of hire. He also felt that the issue of impecuniosity was a sword, not a shield: i.e. whilst Mr Umerji could not use any alleged impecuniosity as a sword in relation to recovering credit rates, he was not precluded from using it as a shield to assert that he could not afford to replace his vehicle earlier than he actually did.
He was firmly of the view that the correct way for the defendants to advance a positive case was to seek specific disclosure and/or raise a Part 18 request for further information.
Leave to appeal was granted and the matter came before Lord Justice Moses, Lord Justice Underhill and Sir Robin Jacob on 10 January 2014. The appellants originally advanced three grounds of appeal. However, at the hearing only two were actually pursued.The grounds of appeal covered the following issues:
The appellant argued that the effect of the order was to debar the claimant from advancing an argument that he was impecunious for any purpose and that it would be wrong of the recorder to read a limitation which is not apparent from the terms of the wording. There should also not be any distinction of impecuniosity being a shield and a sword, as the burden of proof in each is the same regarding both elements of period and rate. As the claimant had been put on notice of the defendant’s position as to the effect of the order, there could also be no question of ambushing the claimant as a result.
The respondents argued that at the time the direction and the debarring order were made, it was clear that both judges were under the impression that they were considering it only in relation to the rate of hire. As such, their case represented an opportunistic attempt to give the debarring order an effect which nobody had intended at the time.
The court held that the recorder was wrong and the appeal was allowed. The starting point here must be the language of the order. When the claimant is said to be debarred from relying upon impecuniosity he is debarred for relying on it for any purpose: “If impecuniosity is to be off the table it must be for all purposes.” In addition, if the claimant wishes to maintain a plea of impecuniosity then it is for them to plead it and then prove it. There was no question of an ambush of the claimant as a revised counter-schedule of special damage made the appellant’s case adequately clear. If the claimant’s advisers felt they were entitled to plead impecuniosity in relation to the period of hire then they should have given appropriate disclosure - whether pressed for it or not.
As such, it follows that the claimant should only be entitled to recover the hire charges up to the date when he should reasonably have purchased a replacement vehicle. The court felt that it was reasonable for Mr Umerji to wait until an assessment had been made as to whether it was economical to repair his damaged vehicle, and until the appellants had had the opportunity to inspect and indicate whether they agreed. It was then reasonable for Mr Umerji to wait until the car was disposed of before purchasing a replacement (which took a couple of weeks). A period of 140 days was allowed.
In respect of whether the claimant’s failure to use his comprehensive policy of insurance represented a failure to mitigate, the court felt that it was an interesting point and plainly one of importance. However, they declined to comment upon it as it had not been pleaded or raised in any way until the trial at first instance.
Before commenting, it would also be necessary to consider the full circumstances, including the terms of the policy, the excess and any no claims bonus. Finally, in respect of the storage charges, the appeal was also dismissed. It was reasonable for the claimant to continue to store the car whilst it was ascertained whether the apellants wished to inspect it. The court encourages claimant advisors to put the defendant’s insurers on notice that storage charges are being incurred and to impose a clear deadline after which the vehicle will be disposed of.
Importantly, the CoA followed the same line as the judgment in Opoku v Tintas. It is now abundantly clear that impecuniosity has an all-encompassing applicability. This will mean that full and frank financial disclosure must be provided for a claimant to rely upon any alleged impecuniosity. This will of course flush out those cases whether the hirer is no longer available or co-operating.
It is crucial that handlers understand how to assess this financial documentation and translate the information into the right offers. Keoghs are more than happy to provide guidance as to how to assess the evidence. It is now also incumbent upon claimants to properly plead if they intend to argue they are impecunious - whether that be in the particulars of claim or a reply to the defence.
From the defendant’s perspective it is equally important to fully plead any argument it is intended will be raised or may become relevant. In short - if in doubt, plead it! The court also commented on the disproportionality between the PAV of the vehicle and the final hire bill. This is still obviously something the court is prepared to consider.
However, the court did not comment on how the claimant managed to cease hire five months before he received payment for his vehicle. It is also not known what vehicle the claimant purchased, how much he paid for it, nor how it was funded. This could assist in any assessment of the relevance of impecuniosity to the period and need to hire.
The decision also confirms that there could be an argument that the claimant hired an unnecessarily expensive vehicle. This endorses Keoghs’ strategy on betterment of older vehicles and we continue to have success in this area. It is disappointing that the court did not comment upon the comprehensive policy point. However, it is still an argument - following implementation of our strategy on this several years ago - that continues to have success (see Crowther v Direct Line).
In respect of the storage and recovery, it is important for insurers to make an early decision as to whether they wish to inspect the claimant’s vehicle and communicate that to the claimant and their representatives.
It is likely that claimant solicitors will react quickly to this judgment and send appropriate letters in order to protect the recoverability of any storage charges. These letters need to be identified at an early stage and prioritised accordingly.
Melanie Mooney
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