horwich farrelly

Landmark Court of Appeal judgment hailed as victory for insurers

March, 15, 2017

The Court of Appeal has today handed down judgment today in the landmark cases of Clayton v EUI (handled by Horwich Farrelly) and McBride v UKI.

As predicted here, the decision is an important win for insurers which not only firmly reinforces the earlier decision in Stevens v Equity, but will also widen the number of cases to which the Stevens ‘lowest BHR’ rule applies.

Below we provide a summary of the key points of today’s judgment followed by comprehensive analysis of the ruling and what it means for insurers.

In Brief

Accident Exchange Limited’s (AEL) appeals in both cases were dismissed.

The judgment provides welcome clarification and should go a long way to resolving – in favour of insurers – some of the most contentious disputes that have raged around the assessment of the ‘spot’ or ‘basic hire’ rate (BHR) since the decision of the House of Lords in Dimond v Lovell (2002).

The key headline points arising from the judgment are as follows:

  • The decision in Stevens v Equity – that the recoverable rate in credit hire cases is assessed by reference to the lowest reasonable basic hire rate – is correct. The Court of Appeal in McBride robustly rejected AEL’s arguments that the Stevens decision was inconsistent with earlier authority.
  • The exception to the rule that the lowest BHR is recoverable – where a claimant is impecunious – is a narrow one. The fact that BHR evidence may in some respect not replicate the terms of credit hire does not justify the CHO receiving the full rate of hire, which would be an “unwarranted windfall”.
  • Instead, reasonable adjustments should be made to BHR evidence to account for any perceived deficiencies: in Clayton an upwards adjustment of 15% to account for the rates being for 28 days instead of seven, and a 10% upwards adjustment to account for the BHR not including a nil excess, were both upheld as correct.
  • As a matter of principle, a credit hire company cannot recover the full rate just because it is not possible to obtain a BHR quote with a nil excess.
  • Even if it is reasonable for the claimant to hire with a nil excess,  a defendant succeeds in demonstrating a difference between the credit rate and the BHR solely by comparing the daily rates of hire, irrespective of the excess position.
  • Standalone excess waiver products – for instance Questor or dailyexcess.com – are readily available over the internet, and should be used as evidence of the reasonable cost of obtaining a nil excess; regardless of whether an individual claimant or judge in any given case has heard of them.
  • Where there are no BHR rates available with a nil excess, nor is a standalone waiver product available, then the court should make a reasonable adjustment to the BHRs. In McBride the cost of AEL’s own excess waiver under the hire agreement of £10 per day was added to the BHR quote.

Horwich Farrelly expects the decision to significantly reduce credit hire claim spend on litigated cases and moreover, to encourage more claims to settle before reaching litigation.

Our in depth analysis of both appeals is set out below, along with an assessment of the practical implications for insurers and our strategy recommendations to assist insurers in capitalising on the decision going forward.


In Depth



Clayton – Facts and Background

Mr Clayton’s 1973 Ford Mustang was damaged in an accident with the defendant’s insured in August 2011. After the inspection had been carried out and the repairs were authorised, due to the specialist nature of the vehicle a number of parts had to be back ordered from the United States, so the total period for which the claimant was without a vehicle turned out to be 52 days.

During that period the claimant hired a number of vehicles under credit hire agreements from Accident Exchange Limited (‘AEL’); first a BMW M3, then a Mercedes E350, then a BMW M3 convertible.

The daily hire charge was £355 per day, plus £12.50 per day to reduce the excess from £3,500 to £1,750, and a further £17.50 to reduce the remaining excess to nil. The total hire charges, including VAT, were £24,823.20.

During the course of the proceedings at first instance the defendant adduced evidence of the BHR in the form of a witness statement from Andrew Gadd, which exhibited four rates collected from companies in the claimant’s local area. The rates were those applicable to hires of 28 days or more.

Two of the companies who provided quotes – Thifty and Europcar – had additional charges to reduce the excess to nil. The other two rates – from Avis Prestige and Hertz – were not capable of being hired with a nil excess from the hire companies, but Mr Gadd also provided evidence of a standalone waiver product, Questor, which was available from the internet and insured against a hirer having to pay a hire car excess at a cost of £3.22 per day.


The Trial

The trial was notable for a number of ‘colourful’ interjections from the District Judge, who made his strong views well known at various stages of the trial in respect of both the credit hire and insurance industries.

The rates evidence of the defendant was on the basis of hire of a 28 day period, because the repair period would in reality exceed that due to the shipping of foreign parts. The claimant’s oral evidence, however, was that he did not initially expect the repairs to have lasted more than seven days.

This point had only arisen for the first time at trial, and had not been pleaded or argued previously, but the claimant’s counsel seized on the point and submitted that the appropriate comparator was seven day rates and not the 28 day rates exhibited by Mr Gadd. The DJ accepted this submission and referred to the defendant being “sunk” without seven day rates, because he was not prepared to “guess” at what the seven day rate might have been.

In addition, the DJ took the view that the rates evidence was also not comparable due to the lack of nil excess available from the company who provided the highest BHR quote, which was Hertz [1]. He dismissed the Questor product as a means of obtaining a nil excess on the basis that he had not heard of it and neither would the claimant have.

In giving judgment, the DJ referred to the difference between the top BHR of £10,500 and the credit rate of over £24,000 and stated that, even though he had found that the BHRs were not like for like, it would “stick in his craw” to award the full rate.

He therefore stated that he would have to take “a rather rough and ready approach” to the two elements. On the nil excess, he allowed an additional 10%. In respect of the 28 day point, stating that he “would just have to take a guess at it”, he added a further 15% onto the BHR.

The total sum awarded was therefore £13,131.66.

[1] The trial took place in 2013, two years prior to the judgment in Stevens v Equity, so it was taken that the highest quote would be the rate that was recoverable.


The First Appeals

The claimant’s first appeal came before HHJ Staite in October 2014. The defendant cross appealed on the basis that the DJ was wrong to disregard the Questor product as a means of reducing the excess.

Permission to appeal was granted to the claimant, on the basis that HHJ considered that the DJ had displayed apparent bias in stating that it would “stick in my craw” to award the full rate. However the appeal itself was dismissed. HHJ Staite held that irrespective of the use of inflammatory and inappropriate language, the judge had considerable experience of the law and did his best on the evidence available to meet the justice of the case.

The claimant appealed again to the Court of Appeal. Permission was initially refused on the papers by Kitchen LJ, but then allowed following an oral hearing in January 2016. As permission to cross appeal on the Questor point had been refused by HHJ Staite, the defendant was prevented from renewing the cross appeal in the Court of Appeal.


Clayton – Decision of the Court of Appeal

The thrust of the claimant’s arguments in the Court of Appeal focussed on the DJ’s approach in making adjustments being wrong in law and unfair, given that by the DJ’s own admission, they were no more than guess work. Further the decision of HHJ Staite that the decision was within the DJ’s margin of discretion, was irrational since HHJ Staite had also found that the DJ had displayed apparent bias.

The defendant argued that despite the use of inappropriate language, the DJ had reached a fair conclusion which he was entitled to come to. As is clear from Bent (no 1), “working with comparable and making adjustments is the daily diet of judges concerned with valuation in all sorts of fields”, and the judge had ample evidence of the BHR which he used as the foundation for his reasonable adjustments. Reference was made to a number of authorities supporting a court’s entitlement to make adjustments when faced with imperfect evidence in a number of wide ranging scenarios. It was further argued that the assessment of the BHR was necessarily an artificial one and that all was required, as per Stevens, was a “reasonable approximation”.

In relation to the bias ground, the court rejected the suggestion that the DJ displayed either actual or apparent bias against the claimant, describing his conduct as “even headedly offensive” to both parties. In relation to the comment that awarding the full rate would “stick in his craw”, the court said:

“It seems to me that… the comment about it sticking in his craw when read in context is really the judge saying, albeit in an intemperate fashion, that he does not regard it as just or appropriate for the claimant to recover the credit hire rate in full in this case, a view which he would have been entitled to express.”

The court went on to uphold the decision of the DJ on both the seven / 28 day and excess uplifts. In relation to the seven / 28 day issue the court said:

“It seems to me that despite his colourful comments about guesswork, in arriving at the 15% upward adjustment, he must in reality have been drawing on his considerable experience of such cases and the judicial knowledge to which he had referred in the previous paragraph of his judgment that you pay more for a seven day hire than for a long term hire. Accordingly, whilst the judge can be legitimately criticised for his conduct of the hearing, I do not consider that he can be criticised for making the 15% adjustment which he did.”

On the excess point, the court accepted the defendant’s point that there was ample evidence before the DJ of the cost of achieving a nil excess; namely the £12 per day charge in the Thifty BHR quote, and the £17.50 per day charged by AEL under the credit hire agreement, the latter of which the 10% adjustment was broadly in line with.

In addition, whilst the point was not a live one in the Court of Appeal due to permission on the cross appeal having being denied by HHJ Staite, the Court of Appeal made some significant general comments in relation to the relevance of the Questor product to achieve a nil excess. The Court stated:

“I consider that where there is evidence of the availability of an excess elimination insurance as a stand-alone product from Questor or other providers such as Insurance4carhire.com, the Courts should admit and accept such evidence as evidence of the reasonable cost of obtaining a nil excess…. The admission and acceptance of evidence of these stand-alone products should be the norm.”

The Appeal was therefore dismissed.


McBride – Decision of the Court of Appeal

As set out in our bulletin published on 24 February, the Court of Appeal granted permission but then immediately dismissed the first ground of appeal in McBride at the hearing, with the full reasons to follow in the written judgment.

Following an analysis of the relevant authorities, the suggestion that the Stevens decision was inconsistent with earlier authority was firmly rejected in the written judgment. It was noted that in Dimond v Lovell the House of Lords referred to the recoverable rate as “about £24”, in the circumstances where the BHRs ranged from £23.89 to £27.42, suggesting that it was always in their contemplation that the lowest rate was to be taken.

The court also rejected the notion that there was any apparent conflict between Stevens and Pattni/Bent (no 2); it being highlighted that taking a basic hire rate at the top end of the range is always subject to the claimant having acted reasonably, and that given the emergence of the internet, a person acting reasonably will have instant access to a multitude of different rates and in those circumstances will clearly not want to pay more than the lowest reasonable rate.

As we predicted, ground two in McBride – that the BHRs were not from ‘mainstream’ suppliers – was dismissed in succinct terms. The Court of Appeal held that the decision of the lower court was a finding of fact based on an evaluation of the evidence, which could not be disturbed on appeal.

Ground three in McBride was that the judge was wrong to award the BHR from the claimant’s evidence because it did not include a nil excess, particularly as the judge had rejected the defendant’s BHRs for the same reason. The court should therefore have found that the defendant had failed to prove that the BHR was less than the credit rate claimed. Alternatively, in Ground 3A, the claimant argued that even if it was right to award the BHR, a reasonable adjustment should have been made to the BHR.

The substantive ground of appeal was rejected, with the court holding that as a matter of principle the inability to obtain BHR evidence including a nil excess 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 demonstrating a difference between the credit rate and the BHR solely by comparing the daily rates of hire, irrespective of the excess position.

However, the claimant did succeed to a very limited degree on ground 3A. The court accepted that a reasonable adjustment should have been made to uplift the BHRs, as it was in the Clayton appeal: the adjustments being to add the £10 per day excess waiver from the credit hire agreement, to the BHR quotes.

As we previously reported, the claimant gave a strong indication that they intended to petition the Supreme Court in relation to ground one. Whether they will do so remains to be seen. The bar to obtaining permission is in any event a high one; the Supreme Court would have to be satisfied that there was a point of law of general public importance at stake.


Horwich Farrelly Commentary

The judgment in our view places insurers in the best position on rates in credit hire cases since the decision in Dimond v Lovell. Ever since that decision, credit hire organisations (CHOs) have systematically attempted – arguably with some success – to confine its effects to those cases in which it is possible to exactly replicate the BHR evidence to the terms of the credit hire.

It is therefore extremely welcome to see that the Court of Appeal has advocated in such clear terms Horwich Farrelly’s “reasonable adjustment” approach where an exact comparison is not possible, and in doing so firmly reiterated that the assessment of the BHR is, by nature, an imprecise exercise in approximation of the part of the charge which relates to the basic costs of hire, against the costs that relate to irrecoverable credit hire benefits and services.

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, which will hopefully lead to a more pragmatic and sensible approach to pre-litigation settlement going forward.

Similarly, it is extremely welcome to finally have clarity at binding level on the previously controversial question of whether a claimant is entitled to recover the full amount of credit hire in the event that BHR evidence does not contain a nil excess.

This is again a point on which CHOs have had some success previously (see Dhami v Amlin and Ash v AXA). It is now clear that readily available add on products such as Questor should be accepted by the court as a valid means to achieve a nil excess, and even in the event that these products are not available, the court should still make an adjustment to the BHR as opposed to awarding the claimant the “windfall” of the full rate of hire.

In relation to the excess point, following the permission hearing in McBride we previously recommended insurers consider lodging an appeal then seeking a stay in any case where BHR evidence was dismissed solely because it did not contain a nil excess. Any insurers that adopted this strategy over during the intervening 12 months will therefore now reap the benefits of the judgment not only in future cases, but also historic ones.


Implications and Strategy

  • We expect that some CHOs may adjust their charging structures so as to increase the costs of the excess waiver, particularly in prestige and high value vehicle hires. To counter this, evidence as to the previous charging structure should be adduced, so as to demonstrate the true reasonable cost of obtaining a nil excess prior to the charges being artificially inflated for tactical reasons.
  • Where there is no Questor type product and no nil excess available from the BHR companies (i.e. high value vehicles), insurers and defendant lawyers will need to anticipate any reasonable adjustments that the court are likely to make to BHR evidence, and to account for those adjustments in any Part 36 offers.
  • The collection and use in negotiation of internet BHR by insurer handlers pre-litigation should now be heavily focussed on. Following the firm endorsement in this judgment of a ‘rough and ready approach’ based on internet BHRs, CHOs may be on precarious ground in terms of costs in the event that they refused an offer based on internet BHRs with excess cover included, if this was collected via a transparent and methodologically cogent process which replicates what a reasonable claimant would do when looking to hire a vehicle.
  • CHOs may in some cases argue that some other BHR should apply and not the lowest. Provided that the BHRs are all reasonably equivalent in terms of specification etc, insurers should rely on paragraph 53 of Clayton/McBride in which Flaux LJ stated that it would be “extremely unlikely ever to be the case” that the claimant would be able to demonstrate that it was appropriate to take a rate other than the lowest.
  • Hire companies can be expected to rely on impecuniosity more readily and to actively seek out impecunious claimants. Insurers should counter this by making cogent requests for early pre-action disclosure of financial documentation and following up with applications where appropriate. Please contact us for details of our PAD strategy and templates package.
  • CHOs will probably attempt to recoup lost revenue elsewhere. Hire durations and credit repair invoices should be monitored for inflation and robustly challenged where appropriate.


To discuss any of the these issues further please contact

Gary Herring, Associate
02921 676027 | gary.herring@h-f.co.uk

Max Withington, Partner & Head of Credit Hire     
0161 413 1518 | max.withington@h-f.co.uk

Darren Mendel, Partner
03330 881601 | darren.mendel@h-f.co.uk

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