District Judge Pal Sanghera discusses a House of Lords ruling that sets out the ground rules on credit hire

Just when you thought that all the questions about credit hire had been settled, along comes a decision of the House of Lords that changes the ground rules.

Credit hire involves the provision of a vehicle to the victim of a road traffic accident while he is without the use of his own.

Payment of the hire charges is deferred to enable recovery from the defendant.

In addition to credit, the hire company provides facilities to enable recovery.

The cost of hire, as a consequence, is generally more than the equivalent spot hire rate.

Defendants' insurers have contested the liability for hire charges and, in particular, the cost of these additional benefits.

Several cases and various legal arguments have come before the courts.

In particular, the case of Dimond v Lovell [2002] 1 AC 384, decided that the appropriate figure for recovery is what the hirer would have had to pay in the open market, in other words the spot hire rate.

This followed the established principle that any additional benefits should be brought into account in the calculation of damages.

The House in Dimond came to the view that the cost of these additional benefits was not reasonably incurred as part of the hire costs.

This is all very well when, as in Dimond, the claimant is able to hire in the open market.

But what about a claimant who, owing to lack of means, has no choice? There will always be the person who simply cannot afford to pay the hire charges until such time as the defendant has made his loss good.

This individual has the choice of either being without a vehicle or suffering, out of his own innocent, pocket the additional expenses involved in credit hire.

The principle that that a claimant's own impecuniosity was not something that could be taken into account when assessing the amount of his loss was decided as long ago as 1933 in Liesbosch Dredger (Owners of) v Owners of SS Edison [1933] AC 449.

In that case, the claimants incurred much more expense in hiring a replacement than if they had purchased straightaway.

This was caused entirely by their lack of means.

They did not recover this sum but the market price of purchase.

This decision, while followed, has been much criticised.

Whenever possible, cases have been distinguished from it.

In the recent case of Lagden v O'Connor [2003] UKHL 64, the House of Lords unanimously holed the dredger Liesbosch (Liesbosch Dredger (Owners of) v Owners of SS Edison (The Liesbosch) [1933] AC 449) below the waterline.

The test of remoteness of damage is one of whether the damage is reasonably foreseeable.

The judges, by a majority of three to two, went on to expound an exception to the principles established by the previous decision in the Dimond case.

The view of the majority, consisting of Lords Nicholls, Slynn and Hope is succinctly set out in the words of Lord Nicholls (who gave a dissenting judgment in the Dimond case).

He said: '...in measuring the loss suffered by an impecunious plaintiff by loss of use of his own car the law will recognise that, because of his lack of financial means, the timely provision of a replacement vehicle for him costs more than it does in the case of his more affluent neighbour.'

Lord Hope carried out a review of previous cases and came to the conclusion: 'The full cost of obtaining the services of a credit hire company cannot be claimed by the motorist who is able to pay the cost of the hire up front without exposing himself or his family to a loss or burden which is unreasonable...

[In the case of the impecunious claimant] the cost of paying for the provision of additional services by a credit hire company must be attributed in law not to the choice of the motorist but to the act or omission of the wrongdoer.'

It was recognised that the meaning of impecunious was difficult to set out.

Lack of finances always depends on one's own priorities.

Lord Nicholls attempted to help in this definition by saying it signified an inability to pay without making sacrifices that it would be unreasonable to ask a claimant to make.

That this was still an open-ended test was accepted, but the law had now moved on.

Thus, it is not spot hire rates that the impecunious hirer can recover but the actual rate charged.

What does this mean for the other charges that Dimond had said could not be laid at the door of the defendant? If the claimant has no choice but to go to the credit hire company, he equally has no choice about the additional charges.

Dimond had clearly said that they should be deducted.

Lord Slynn, equally clearly, has now said that they should not.

This means that all of the charges incurred by a claimant by credit hire fall to be paid by the defendant if the claimant is impecunious.

In all other respects, Dimond remains good law.

What this means is that where someone has a choice but still uses a credit hire company, that person will only get spot hire rates.

Where someone has no choice, the claimant can recover from the defendant the total costs including the cost of the additional benefit when that is part of the package that cannot be split up.

The majority argued that the facts before the Lords in Dimond were distinguishable from the instant case.

Lord Foscote was not convinced that the factual difference (no other choice as a result of impecuniosity) justified a departure from the principles expressed in Dimond.

He took the strong view that the exception being put forward could not be reconciled and was 'conceptually imprecise'.

Lord Walker, also in the minority, said the modification was 'dangerously open-ended'.

The result is that the lords by a slim majority has set out an exception to the principle in Dimond.

Nevertheless, it remains one that is difficult to reconcile with that previous decision.

It is likely to have resonance beyond car hire charges.

One still needs to show that the claimant had a reasonable need to hire.

This will require brief evidence and a finding of fact.

There will have to be consideration of the question of whether the claimant had any choice other than to use a credit hire company.

What is his financial position? Will he have to produce payslips and bank statements? How else is any contested finding of fact to be made? The concerns expressed in the dissenting judgments will form parts of continuing arguments.

District Judge Pal Sanghera sits at Coventry and Nuneaton County Courts