Written by Brooke Caulfield
Have you heard a third party say ‘need is irrelevant now’?
While a third party will often be able to establish they “needed a hire car”, the concept is far from irrelevant and insurers should be aware of the exceptions to this rule.
In this article, we will discuss some recent cases on this issue. But first, let’s start with the law.
The High Court in Arsalan v Rixon, Nguyen v Cassim [2021] HCA 40 (‘Arsalan’) rejected the concept of need and replaced it with heads of loss referred to as ‘physical inconvenience and loss of amenity of use’. The High Court stated that it will not usually be difficult for a plaintiff to prove those heads of loss1. Having established physical inconvenience and loss of amenity of use, the onus then shifts to the Defendant to show that acts taken by the Plaintiff were unreasonable acts of mitigation2. In most cases, the hiring of a replacement vehicle is a reasonable act of mitigation where a plaintiff’s vehicle has been damaged.
The High Court went on to state that “there are exceptional cases where such loss to the Plaintiff will be non-existent or so slight that the hire of a replacement vehicle will not be accepted to be a step in mitigation”3. The Court listed specific exceptions, including circumstances where a plaintiff is hospitalised or travelling abroad during the relevant period, and where the damaged vehicle could have been replaced from idle stock within the plaintiff’s fleet of vehicles4. It is the latter of these exceptions that has been a focus of litigation we have been involved in recently.
We are seeing an increase in cases where the Plaintiff company operates a hire car business. After a vehicle in their fleet is damaged, they seek to replace it by hiring a vehicle. This is often without to regard whether they have in fact suffered a physical inconvenience and loss of amenity of use.
Magistrates Court Proceeding One
In this case, the Defendant caused a collision with the Plaintiff’s vehicle. As a result, the vehicle was declared a total loss. The Plaintiff company then hired a replacement vehicle on an ongoing basis. A part payment was raised by our insurer client to the Plaintiff which was ultimately not passed on to them for three months.
The Plaintiff provided a fleet utilisation report which stated they had no vehicles available during the hire period. The Director of the Plaintiff company gave evidence that he drove the damaged vehicle during the hire period. He stated that he usually drove a vehicle from the fleet for his personal use. As he could not rent the damaged vehicle out, he drove this and rented the hire vehicle out to customers. Although the Plaintiff had produced a fleet utilisation report, the Director could not identify the hirer of each of the vehicles nor produce any rental agreements for the alleged hires. Documents obtained from the Department of Transport, as well as the Plaintiff’s own bank statements, suggested the Plaintiff owned further vehicles that were not included in the fleet utilisation report.
In giving its decision, the Court referred to Arsalan and its discussion on physical inconvenience and loss of amenity of use. The Court noted that these heads of loss were usually easily made out. However, the Court also noted that Arsalan refers to a specific exception where the Plaintiff could have used an idle vehicle from their fleet. Based on the Director’s own evidence, and the evidence provided by the Department of Transport under Subpoena, the Court was not satisfied that the Plaintiff had established a lack of idle vehicles in the Plaintiff’s fleet. As a result, the Court made a finding that the Plaintiff had not suffered a physical inconvenience or loss of amenity of use and dismissed the Plaintiff’s hire car claim. This underscores that even though physical inconvenience and loss of amenity of use are not usually difficult for a plaintiff to prove, the Plaintiff still bore an evidentiary onus of proving its loss and in this case was unable to do so.
As a result of the outcome, our insurer client was awarded approximately $26,000 in costs together with an order for the return of a portion of their part payment.
Magistrates Court Proceeding Two
In this case, the Defendant collided with the rear of the Plaintiff’s vehicle. Liability for the collision was admitted by the Defendant. The Plaintiff had their vehicle repaired and, during the course of repairs, hired a replacement vehicle from a credit hire company. The Plaintiff’s primary business was truck repairs. However, the Plaintiff also owned a fleet of vehicles that it leased out to companies, such as the credit hire provider.
The Plaintiff provided a fleet utilisation report in support of their claim that they did not have any idle vehicles available. Of the 20 vehicles included within the utilisation report, 18 were reportedly “on rent” with the remaining two used for “breakdown services”. Subpoena documents obtained from the Department of Transport indicated that the Plaintiff owned further vehicles that were not included in the utilisation report.
The repairs and assessment fee were agreed between the parties prior to the hearing. The matter proceeded to hearing on the issue of the hire car claim.
On the first day of hearing, an employee of the Plaintiff company gave evidence that some vehicles were not included in the fleet utilisation report as they could not be utilised, for example, if they were undergoing repairs. The Plaintiff also provided a second fleet utilisation report which included the names of each person renting their vehicles. We called for the production of the relevant rental agreements evidencing the hire of the vehicles. This was opposed by the Plaintiff. At the conclusion of the first day of hearing, the Court made an order for further discovery of the rental agreements. Prior to the second day of hearing, four rental agreements from the credit hire provider were discovered, despite the fleet containing 22 vehicles.
On the second day of hearing, the Director of the Plaintiff company gave evidence. His evidence was that the Plaintiff rents their vehicles to the credit hire provider who then ‘on-rent’ them. The Director stated there was an agreement between the Plaintiff and the credit hire provider whereby the Plaintiff supplied them with 13-14 cars and, in exchange, received $70-$90 per day. The Director further stated that, if the Plaintiff did not supply enough vehicles, they would be in breach of the agreement. The Plaintiff therefore rented an alternate vehicle from the credit hire provider to fulfil their agreement.
In a reserved judgment, the Court determined that the Defendant had discharged their onus in proving that the Plaintiff had failed to mitigate their loss, and that the Plaintiff had not established they suffered a physical inconvenience or loss of amenity of use. In the reasons for the decision, the Court referred to Arsalan and its discussion on physical inconvenience and loss of amenity of use. It was noted that these heads of loss will not usually be difficult to establish. However, the Court went on to say that there were exceptional cases where the loss to the Plaintiff will be non-existent or so slight that the hire of a replacement vehicle will not be accepted to be a step in mitigation. Such exceptional cases include where the Plaintiff could have used an idle vehicle from their fleet. The Court was not satisfied that the Plaintiff did not have idle vehicles in the fleet and found that the Plaintiff had not suffered a physical inconvenience or loss of amenity of use. The Plaintiff’s claim for hire car charges was therefore dismissed.
This outcome resulted in the Plaintiff suffering a cost penalty after not accepting an Offer of Compromise and our insurer client making savings in excess of $40,000 on the claim.
Key Takeaways
Insurers and claims officers should be mindful that whilst “need” as we used to know it is no longer the relevant consideration, it does still have a place in hire car disputes. Whilst the test of physical inconvenience or loss of amenity of use, articulated in Arsalan, is often easily made out, there are exceptions to this. The Court in the above cases was prepared to find that there were exceptions where a third party would not be found to have suffered a physical inconvenience. In circumstances where you can establish an exception, the Court is prepared to find that the third party did not mitigate their loss in hiring a replacement vehicle. This is important to note especially when faced with demands from a hire car company seeking replacement vehicles charges.
It will be interesting to explore the exceptions further and whether the Court is prepared to find exceptions beyond those specifically articulated in Arsalan. This space will almost certainly to be the subject of further litigation.
If you would like to discuss further please reach out to Brooke Caulfield on 03 9947 4511 or any member of the Ligeti Partners team on 03 9947 4500.
