The Court of Appeal has backed rulings that slashed credit hire damages in a decision being hailed as a major boost for the insurance industry.

Lord Justice Flaux upheld judgments in two joined-up cases which dealt with the disputed issue of credit hire rates.

In Clayton v EUI and McBride v UKI, the court reduced damages from around £64,000 claimed in total to around £33,000.

In Clayton, claimant lawyers argued the High Court had been ‘irrational and wrong’ to give the district judge a ‘margin of appreciation’ when the approach taken was or appeared to be biased.

They claimed the district judge had failed to discharge the burden of proving that credit hire charges were unreasonable, and then argued the High Court had erred in ignoring the principle that defendants must show evidence that charges exceeded the basic hire rate.

In McBride, four grounds of appeal included arguing the judge was mistaken in applying the test of the ‘lowest reasonable rate quoted by a mainstream supplier’. The claimant again argued the defendant had not proved the credit hire rate exceeded the basic hire rate.

But the Court of Appeal upheld the approach advocated in Stevens v Equity: namely that the basic hire rate was to be calculated by reference to the lowest reasonable rate.

The court said the exception to the rule, where a claimant is impecunious, was a narrow one. As a matter of principle, a credit hire company cannot recover the full rate just because was is not possible to obtain a basic hire rate with a nil excess.

LJ Flaux held that in Clayton – although the analysis of the law in the High Court was wrong – the appeal should be dismissed overall. In McBride, the judge allowed one minor ground of appeal and increased damages awarded to the claimant by £888.

Defendant firm Horwich Farrelly, which acted for the insurer in Clayton, said the decision is expected to significantly reduce credit hire claims and encourage more claims to settle before reaching litigation.

The firm said the Court of Appeal had held, as a matter of principle, that the inability to obtain basic hire rate evidence does not lead to the credit hire company recovering the credit rate in full.

Instead, the cost of the excess is to be dealt with separately from the cost of the hire, and a defendant succeeds in showing a difference between the credit rate and the basic hire rate solely by comparing the daily rates of hire, irrespective of the excess position.

Max Withington, head of credit hire at Horwich Farrelly, said: ‘We would now expect to see CHOs and those acting for claimants immediately cease the practice of insisting on a forensic analysis of the minutiae of the terms of any given BHR quote.

‘And this should hopefully lead to a more pragmatic and sensible approach to pre-litigation settlement going forward.’

Parklane Plowden barrister Steven Turner, who was counsel for the defendant in McBride, added: ‘The decision represents a firm endorsement of the "lowest reasonable rate" approach advocated in Stevens v Equity.

‘It also provides welcome clarity in relation to the vexed question of whether a claimant is entitled to recover the full credit hire rate where a defendant fails to adduce nil-excess basic hire rate evidence.’