Impecuniosity & Credit Hire

One of the key issues in almost any credit hire case is the issue of impecuniosity. There were many early challenges to credit hire on the basis that the agreement was unenforceable, in that the agreement itself fell foul of the Consumer Credit Act 1974.

With time, most arguments have become about mitigation and often about impecuniosity. It may well be arguable that impecuniosity is indeed the single most important issue in credit hire cases at court. It’s not an issue that can be overlooked and in a high-volume credit hire case, it can make a vast difference to damages.

In this article I will examine:

(1) the basis of impecuniosity;
(2) how the hire rate is assessed in the context of impecuniosity;
(3) how the hire period is assessed in the context of impecuniosity;
(4) summary and conclusion.

The basis of impecuniosity 

Contrary to what is commonly thought, impecuniosity is not an exception to the duty to act reasonably. It actually has its roots in the duty to act reasonably and mitigate one’s loss. It is not an exception to the rule, rather it explains the basis of the rule in cases where the claimant is trying to recover credit hire on the basis that they are unable to afford hire up front.

So going to the roots of impecuniosity, it would be wise to recap on the duty to mitigate itself from a leading textbook on Tort [Chapter 27-09, Clerk and Lindsell, 23rd edition]: 

“The claimant is under a duty to mitigate the losses resulting from the defendant’s tort. Damages are not recoverable for such losses as the claimant has avoided by taking action subsequent to the tort: the general principle of compensation implies that he can claim only for losses actually sustained. So, if the claimant has lost his employment as the result of an actionable injury, damages for loss of earnings must take account of any earnings in an alternative employment. Further, he will not be allowed to recover for any losses which, though he did sustain, he might reasonably have avoided.” - underline is my emphasis. Under the underlined words you can actually see the “roots” of impecuniosity. Namely where impecuniosity is established, it is because the claimant could not have “reasonably avoided” credit hire, as they did not have the means to pay upfront for hire charges.

Indeed, well before impecuniosity entered the common dictionary of credit hire, in Mattocks v Mann ([1993] R.T.R. 13,p19) Bedlam LJ referred to his judgement in the 1989 case of Bolton v Price, [(unreported) Court of Appeal (Civil Division) Transcript No 1159 of 1989] in which he had stated, “...it is only in an exceptional case that it is possible or correct to isolate impecuniosity as it is sometimes called.” In other words, and in simple terms he was stating impecuniosity is connected to the recoverability of the hire charges. 

In Dimond v Lovell [2000] 2 All ER 897, there was no mention of impecuniosity. In that case the hire agreement was held to be an irredeemably unenforceable agreement and therefore no hire charges were allowed. It was however stated that if there had been a valid loss of use claim, the damages recoverable would have been limited to the sum required to provide an alternative vehicle i.e., the “spot rate” quoted by hirers other than accident hire companies. As is well known, the “spot rate” later became known as basic hire rates (“BHR”). 

In Dimond, the focus was really on the hire agreement being “irredeemably” unenforceable. This is because there was no issue arising that Mrs Dimond was impecunious. The court did not specifically consider what happens when a claimant could not have avoided incurring credit hire charges. Or in other words, what happens when the claimant is impecunious and therefore is unable to pay for the hire charges “upfront”. In Dimond v Lovell, the House of Lords recognised that credit hire involved additional services such as not having to pay upfront and the hire company assisting in the pursuit of the claim. The defendant should not have to pay for these services, as they should only have to pay for the “spot rate”. 

In the House of Lords case of Lagden v O’Connor [(2004) 1 AC 1067] there was reference to an “impecunious” claimant. This case referred to nothing new, as impecuniosity had for example previously been mentioned in Bolton v Price in 1989 and Mattocks v Mann in 1993. It was however Langden v O’Connor which put the phrase of impecuniosity into the everyday language of credit hire, posing the following question (page 1073, paragraph 9): “But what if the innocent motorist, like many people, is unable to afford the cost of hiring a replacement car from a car hire company? It was stated in this regards that “Lack of financial means is, almost always, a question of priorities. In the present context what it signifies is inability to pay car hire charges without making sacrifices the plaintiff could not reasonably be expected to make. I am fully conscious of the open-ended nature of this test”.

The litmus test appears to be that impecuniosity is an inability to pay car hire charges without making unreasonable sacrifices - though the courts recognise the open-ended nature of the test.

In reality impecuniosity is just an offshoot of the test of reasonableness in the duty to mitigate. In my view the question posed as to what reasonable or unreasonable sacrifices are, essentially boil down to this: did the claimant act reasonably or not in hiring on credit? In deciding this question as to whether the claimant acted reasonably or not, the test is whether the claimant is impecunious. If he is impecunious, then he acted reasonably in hiring on credit. If he is not impecunious, then he did not act reasonably in hiring on credit to the extent that he is asking for the defendant to pay for the additional services. 

In this context, it should have been no surprise when in Zurich Insurance Plc v Umerji [2014] EWCA Civ 357, the Court of Appeal confirmed that impecuniosity applies not just to rates, it is also relevant to the period of hire. This is because mitigation is a question of reasonableness, and whether and when a claimant can go off hire is often dependent on the claimant’s financial resources. In simple terms, the question on the period of hire is this: when is the hirer able to afford replacing or repairing the damaged vehicle, which will effectively end the hire period for all intents and purposes (subject to some further brief time in finalising a purchase of another vehicle or completing repairs). 

As far as the burden of proof is concerned, the legal burden is on the claimant to prove impecuniosity [para 37 of Zurich Insurance Plc v Umerji]. Once sufficient evidence is produced, then the evidential burden shifts to the defendant [para 37 of Zurich Insurance Plc v Umerji]. 

How is the hire rate assessed in the context of impecuniosity?

This section can be neatly divided into the following situations: (a) where the claimant is impecunious; and (b) where the claimant is not impecunious. 

(a) where the claimant is impecunious?

The position is relatively simple. If the claimant is impecunious, then with all other things being equal, they will be awarded the credit hire rate. 

(b) where the claimant is not impecunious? 

So, what happens when the Claimant is not impecunious and there are no basic hire rates available? In that case, it is highly likely from my experience that the credit hire rates will be awarded, as long as there are no other complicating factors. The reason for this is purely evidential. The only evidence of rates is the credit hire rates and therefore by default these will normally be allowed. 

Where basic hire rates are available, the criteria are relatively straightforward. The basic hire rate will be the lowest rate from a mainstream supplier or if none is available, then hire rates from a local reputable supplier (Stevens v Equity Syndicate Management Ltd [2015] EWCA Civ 93, paragraph 36).

From my experience where the claimant is not impecunious and basic hirer rates are provided, then the court will strive to do their best to award a rate from those provided. The court is not interested in “nit picking challenges”. In the Court of Appeal case of Darren Bent v (1) Highways & Utilities Construction Ltd (2) Allianz Insurance Plc [2010] EWCA Civ 292, it was stated that (paragraph 9): “Working with comparables and making adjustments is the daily diet of judges”. As was recognised in this case trying to argue that hire rates a year later from the date of the hire are not relevant, are likely to fall on deaf ears.

The courts do not expect too much of an “exacting” standard in the basic hire rates - Neil McBride v UK Insurance Ltd: Peter Clayton v Eui Ltd (T/A Admiral Insurance) [2017 EWCA Civ 144, paragraph 96]. Indeed, I am surprised when an such an exacting approach is taken by a party (whether claimant or defendant) at court on the hire rates. Of course, if there is a fundamental point to be raised, such as the BHR evidence not covering a young claimant driver under 25 years, then challenges to rates can be effective. Similarly, where for example, the defence in the case of a taxi driver produce BHR rates which do not cover licensed vehicles, then this is obviously an extremely strong point for the claimant. Indeed, from my experience in taxi credit hire cases, often these rates are produced and rightly rejected by the court. The law is not saying there are no standards for BHR, rather the standards are not too exacting. Indeed, the challenge to the basic hire rates in Bunting v Zurich [2020] EWHC 1807 (QB) were considered to be a “nit-picking challenge” (paragraph 19), where the BHR rate was subject to a 30-day maximum hire limit, there was no evidence of deposits payable and there was no specific evidence of availability. 

From my experience, for basic hire rates to be rejected, there needs a material flaw in the rates.

How the hire period is assessed in the context of impecuniosity 

The case of Zurich Insurance Plc v Umerji established that impecuniosity did not just apply to the hire rates, it also applied to the hire period. In that case there had been an order providing that financial documents had to be filed and served by a certain period, otherwise, the claimant would be debarred from asserting impecuniosity. In Zurich Insurance Plc v Umerji, as the debarring order had not been complied with, the claimant was debarred from asserting that he could not afford to buy a replacement vehicle and it was stated that it “...follows that he should only have been entitled to recover hire charges up to the date when he should reasonably have done so” (paragraph 39) - underline is my emphasis. 

So, in a case where the claimant is not impecunious, it cannot be argued that they were unable to afford the repair or a replacement vehicle. The question is however still of one reasonableness. 

The rest of this section can also be conveniently divided into the following sections;

(a) where the claimant is impecunious;
(b) where the claimant is not impecunious – in the event the vehicle is replaced;
(c) where the claimant is not impecunious - in the event the vehicle is repaired. 

(a) where the claimant is impecunious? 

So, what is the position if the claimant is impecunious? The position on this is very simple. The party is generally entitled to wait until the defendant provides the monies for the pre-accident value/repair of the vehicle. In Mattocks v Mann ([1993] R.T.R. 13,20) it was stated: “In these days when everybody looks to one or other of the insurers of vehicles involved in an accident, it is clearly contemplated that where the cost of repairs is of the substantial kind involved in this case, the source of payment of that cost will be the insurers. Looking here at the whole history of events, one cannot isolate the plaintiff’s inability to meet the cost of those repairs and say that that brought an end to the period for which it was reasonable that the second defendant’s insurers should be liable.” 

(b) where the claimant is not impecunious - in the event the vehicle is replaced?

So how is it decided as to what the reasonable period is in the case of a pecunious claimant? How long is a piece of string? 

The case of Zurich Insurance Plc Umerji (paragraph 40) does however provide some guidance by stating: “It was plainly reasonable for the Claimant to wait until an assessment had been made of whether it was economic to repair the damaged vehicle. But in my view it was also reasonable for him to wait until the Appellants had had the opportunity to inspect it and say whether they agreed. The engineer’s report that the car was a write-off was received by M&S Legal on 3 November 2010. For reasons which are unclear they did not send it to the Appellants until 11 January 2011; but the Appellants were on notice of the claim from 30 November and themselves took no steps to seek inspection or to chase a report. Even when the report had been sent they did not respond, although they were written to by M&S Legal on 28 January and 15 February chasing the question of a without prejudice payment of the pre-accident value. The car was, as I have said, eventually disposed of, presumably for scrap, on 22 February. In my view it was reasonable for the Claimant to wait until that date before deciding to go ahead and buy a replacement. He could have bought a replacement vehicle within a fortnight thereafter – that is, by 8 March 2011.”

Whilst not specifically stated, in my view the claimant must be reasonably prompt in arranging an engineer’s report. This would seem to be the inevitable effect of the claimant’s duty to act reasonably. If for examples sake, the claimant waited for 6 months after the accident to arrange an inspection, this may be an unreasonable period of time. Thereafter it is reasonable for the claimant to wait for the defendant to be given an opportunity to inspect the vehicle and see whether they agreed with their engineer’s report. How long it would be reasonable for a claimant to wait to give the defendant an opportunity to inspect the vehicle? This would appear to be a question of fact dependent on all the circumstances of the case. In Zurich Insurance Plc v Umerji, there had been a delay of over 2 months before claimant provided the defence with the engineer’s report. However, it was noted that despite being on notice of the claim, the defence did not seek an inspection or chase a report. It was also noted that the claimant had chased for the payment of the pre-accident value of the vehicle. Over 1 month after the engineer’s report was sent to the defence, the vehicle was disposed of for presumably scrap, and it was considered reasonable that a period of 2 weeks thereafter should be allowed for the purchase of a replacement vehicle. 

It seems to me that the case of Zurich Insurance Plc v Umerji was decided on its own particular facts, however a number of salient points can be deduced or inferred namely that:

(1) it is reasonable for a claimant to wait until an engineer has inspected the vehicle;
(2) the claimant has to be reasonably prompt in arranging an engineer’s report, and this is because a claimant’s actions in mitigation are always subject to reasonableness;
(3) the claimant is entitled to wait for the defendant to be given an opportunity to inspect the vehicle to see if they agree or disagree with the claimant’s engineers report;
(4) the period a claimant is entitled to wait is a question of fact of reasonableness in all the circumstances. In the case of Zurich Insurance Plc v Umerji, whilst there was an delay of over 2 months (for unclear reasons) in providing the engineers report, it was taken into consideration that the defendant did nothing to seek an inspection or chase any report;
(5) following on from (4), it is clearly relevant to look at whether the defendant has made any efforts to arrange their own inspection or chase for any engineer’s report;
(6) it is relevant to see what efforts the claimant made to chase payment for the pre-accident valuation of the vehicle;
(7) from the time the vehicle is disposed of, Zurich Insurance Plc v Umerji suggested that for a pecunious claimant it was reasonable to allow another two weeks for a vehicle to be purchased. 

(c) where the claimant is not impecunious – in the event the vehicle is repaired? 

The case of Zurich Insurance Plc v Umerji was dealing with a situation whereby the vehicle was disposed of, not a situation where the vehicle was repaired. 

However, in my view some useful guidance can be inferred from Zurich Insurance Plc v Umerji for this situation as well. In the case of a pecunious claimant where a vehicle is repaired it would seem:

(1) it is reasonable for a claimant to wait until an engineer has inspected the vehicle;
(2) the claimant would be expected arrange an inspection reasonably promptly, due to the duty to mitigate;
(3) the claimant is entitled to wait for the defendant to be given an opportunity to inspect the vehicle to see if they agree with their engineer’s report;
(4) the period a claimant is entitled to wait for the defendant is a question of fact of reasonableness in all the circumstances. In the case of Zurich Insurance Plc v Umerji, whilst there was a delay of over 2 months (for unclear reasons) in providing the engineers report, it was taken into consideration that the defendant did nothing to seek an inspection or chase any report;
(5) following on from (4), it is clearly relevant to look at whether the defendant has made any efforts to arrange their own inspection or chase for any engineer’s report;
(6) it is relevant to see what efforts the claimant made to chase payment for the pre-accident valuation of the vehicle;
(7) it seems that after an opportunity is given to the defendant to inspect the vehicle and to see if they agree, then the repair should be arranged reasonably promptly – what is reasonably prompt will be question of fact, though it cannot be argued that the claimant was unable to afford repair of the vehicle. This stems from the duty to mitigate;
(8) the period of hire should be a reasonable period, though any delays by the repair company are unlikely to be held against the claimant. 

The usual way for the defendant insurers to attempt to get redress for any unjustified delays to the repairs appears to be a contribution from the repairers. In Mattocks v Mann, Lord Justice Bedlam in paragraph 18 stated as follows:

“For a supervening cause or a failure to mitigate to relieve a defendant of a period of hire there must, in my judgment, be a finding of some conduct on her part or on the part of someone for whom she is in law responsible, or indeed of a third party, which can truly be said to be an independent cause of loss of use of her car for that period.”

In Clark v Ardington Electrical Services [2002] EWCA Civ 510, para 121, the Court of Appeal stated as follows:

“We believe that the approach of the Court of Appeal in Mattocks v Mann [1993] RTR 13 applies to this case. The defendants’ actions damaged the cars of Mrs Clark and Mr Dennard. They should pay the loss caused by their actions. The actual loss incurred involved hire of replacement cars for ten days in the case of Mrs Clark and 12 days in the case of Mr Dennard. They both appear to have acted reasonably in placing the cars in the hands of respectable repairers and there were no supervening events. Further, delays of that order were foreseeable. The extra loss caused by the delay in the repair must fall on the tortfeasor as there was no failure to mitigate. On the findings of fact in those cases the cost of hire should not have been reduced. The insurers of the defendants should seek a contribution from the repairers for any unjustified length of repair.”

Conclusion

In conclusion and summary:

(1) impecuniosity is just an offshoot of the duty to act reasonably. When claimants are impecunious, their lack of finances are clearly relevant to the duty to mitigate. It is not an exception to the duty to act reasonably;

(2) The litmus test appears to be that impecuniosity is an inability to pay car hire charges without making unreasonable sacrifices - though the courts recognise the open-ended nature of this test;

(3) impecuniosity was relevant well before the case of Langden v Connor. For example, it was mentioned in the 1989 case of Bolton v Price and the 1993 case of Mattocks v Mann. After Langden v Connor, the term “impecuniosity” came into more common usage in credit hire cases;

(4) impecuniosity applies to the period of hire as well as rates;

(5) generally speaking, if the claimant is not impecunious and basic hire rates are available, then the courts will seek to do their best in using those rates and “nit-picking” is not welcomed;

(6) from my experience for the courts to shy away from using BHR in pecunious cases, there has to be a fundamental flaw in the hire rates;

(7) if the claimant is not impecunious, then the period of hire is subject to reasonableness. The guidance is not as clear as in cases where there is impecuniosity. However, the claimant is entitled to wait to arrange an engineer’s inspection. It can be inferred that the claimant should arrange that inspection with reasonable promptness. They are also entitled to wait for the defendant to be given an opportunity to inspect the vehicle – the reasonableness of the length of this waiting period depends on the facts of the case, though the court should take account of whether the defendant chased the report or sought their own inspection once they had notice of the claim;

(8) in deciding the allowable hire period where impecuniosity is not established, it is also relevant to see what efforts were made by the claimant to chase payment for the pre-accident valuation of the vehicle;

(9) if the claimant is impecunious, then generally they are entitled to rely upon the credit hire rates;

(10) if the claimant is impecunious, then generally they are entitled to wait and hire until the defendant provides the monies for the valuation of the vehicle or for the repair;

(11) each case is dependent on its own facts.

I hope this article assists the reader in understanding the potential issues. 

Please note this article does not constitute legal advice for any specific case or cases.

© Mohammed Azeem Ali June 2022