The High Court of Australia has delivered its much-awaited decision in the matter of Arsalan v Rixon; Nguyen v Cassim  HCA 40.
What was the case about?
The case involved two Appeals from decisions of the NSW Court of Appeal handed down in 2020. In those decisions, the Court found the third parties were entitled to recover the cost of hiring prestige vehicles from negligent drivers to replace their own prestige vehicles which had been damaged in collisions.
The negligent parties appealed the decisions, and argued that a third party is only entitled to recover the cost of hiring a vehicle that satisfies his or her needs. This would mean, if accepted, that owners of prestige vehicles could only recover the cost of hiring prestige vehicles if they could evidence a need for such a vehicle based on how they had previously used their own vehicle. If a need for a prestige vehicle did not exist, a third party might only be entitled to recover the cost of an ‘ordinary’ vehicle. Typically, such vehicles cost considerably less to hire.
What did the Court decide?
In essence, the Court found third parties are generally entitled to hire like-for-like vehicles. The Court said that a third party is entitled to be compensated for both the physical inconvenience of having lost the use of their vehicle (i.e. being able to travel from A to B), as well as their “loss of amenity” (i.e. their loss of the pleasure and enjoyment) through not having access to their vehicle. As a consequence, owners of prestige vehicles can usually hire a vehicle that is similar to their own. This both alleviates their physical inconvenience and replicates the pleasure they would enjoy through using their own prestige vehicle. Furthermore, the Court indicated it will not usually be difficult for a third party to prove the physical inconvenience/loss of amenity they have suffered, and that they can do so by demonstrating a past “suite of purposes” for which their vehicle was used.
Does this mean third parties who own prestige vehicles can hire (and claim for) like-for-like prestige vehicles?
Generally, yes, but not always. The Court pointed out there would be some scenarios where a third party could not recover such costs. These include when a third party is hospitalised or abroad when their vehicle was being repaired, or when the third party’s vehicle could have been replaced “from idle stock” within a third party’s fleet of vehicles. Presumably, this would extend to a situation where a third party simply owned another vehicle (as opposed to a fleet) that was being unused during the rental period.
It is also important to note that determining an “equivalent” replacement vehicle is not always easy. The Court identified this could be an area of dispute. In some scenarios, there are likely to be different views as to what constitutes a reasonably equivalent vehicle. For instance, how does a Court decide what range of vehicles might fairly be regarded as “equivalent” to, say, a 2014 Mercedes sedan? And does that range of vehicles change for a 2017 Mercedes sedan? From a practical perspective, such assessments are usually difficult given most rental fleets contain vehicles manufactured during the last two years.
Can insurers still dispute the rate of hire?
Yes. The Court made clear that it was not required to determine the principles for assessing whether the quantum of hire costs is unreasonable.
The Court found that if a third party hires an equivalent vehicle, they will not be entitled to recover those costs if a defendant can prove the amount of the hire costs is unreasonable. The Court did not expand on how to determine what is reasonable, however the Court of Appeal had found that the cost of hiring an equivalent vehicle in the “market” is the measure of damages. As such, it appears the market rate test remains the appropriate measure of damages. If a third party’s claimed rate of hire exceeds the market rate (which might be determined by weekly rates of hire), there would seem to be strong grounds to assert the rate claimed is “unreasonable”. As such, the quantum of the claim can be disputed.
Can insurers still dispute the duration of a credit hire claim?
Yes. The Court explicitly stated this could remain a ground of dispute. Interestingly, the Court’s comments on this might be interpreted as being more favourable to insurers than has traditionally been the case. The Court stated that a period of hire could be challenged “having regard to the reasonable period of time for repairs…” This statement is interesting, and arguably differs from the approach previously taken, being that a third party is entitled to the period of hire for which they were deprived of the use of their vehicle. On one interpretation, these comments could be construed as meaning that an insurer can challenge the duration of a rental claim where it exceeds the “reasonable period of time for repairs”, which in many cases is regarded by insurers as being much shorter than the claimed rental period.
What should insurers do to respond to the decision?
The decision largely ends the debate around whether a third party can recover charges for a “like for like” vehicle. But in practical terms, the legal issues arising in the vast majority of credit hire disputes are unlikely to be impacted by the ruling. Prior to the decision, Courts in all Australian jurisdictions found third parties were generally entitled to hire equivalent vehicles, and this issue was rarely litigated since the Court of Appeal’s decision of 2020.
Most disputes in this area pertain to rate of hire, and duration of hire. The Court did not lay down detailed principles for assessing either of these issues, as it was not required to do so, but did note they remained potentially valid grounds of defence. The implications of the Court’s comments in relation to duration will not doubt be debated in lower Courts in the coming months.
For motor insurers responding to these claims, we suggest proceeding on the basis the principles relating to rate and duration remain largely the same. It is likely the decision will be interpreted by some in the industry to support a more aggressive approach to recovering hire car charges, but in practical terms the decision is unlikely to affect the prospects of responding to credit hire demands in the overwhelming majority of claims.
As always, Ligeti Partners is at the forefront in formulating strategies for insurers to respond to credit hire demands and other issues arising in motor insurance. To discuss further, please contact James Mulcahy, Spencer Pascal or any member of our team.