Written by James Mulcahy
In December 2021, the High Court delivered its judgment in what was the highest profile Australian litigation involving credit hire vehicles. In the months that followed the decision, litigants in various State-based lower Courts scrambled to establish what the decision meant and its ramifications for the vast volumes of disputes that continued to proceed to litigation.
The period since the High Court’s decision has also seen other trends. Insurers have been confronted with a litany of unsavoury practices designed to create or inflate claims, placing further strain on motor settlements teams.
In this article, I outline how the Arsalan decision has impacted credit hire claims and the issues that continue to challenge insurers.
The Lowest Market Rate Should be Used to Determine Whether a Rate is Fair
The most common ground of dispute in credit hire claims continues to be rate. Unfortunately, the High Court’s decision provided only minimal guidance as to the process to be followed in determining whether a rate of hire claimed is allowable or not. The starting point is that a third party can recover the reasonable costs of hiring a vehicle that is broadly equivalent to their own1. The Court noted there may be cases where the quantum is unreasonable, but did not provide guidance on the principles to be used in considering that issue2.
Around the country, mixed approaches have been taken. In New South Wales, the Small Claims Division of the Local Court has consistently awarded rates at the bottom of the range both prior to and since the Arsalan decision. In Victoria and Queensland there has been less consistency, which is somewhat expected given the greater number of judicial officers deciding these disputes in comparison to Sydney-based claims. In South Australia, the Magistrates Court held in 2023 (and took the same approach in 2024) that the lowest market rate should be used3, whilst in Western Australia a decision by the Court of Appeal on the issue is pending4.
Overall, insurers should continue to insist upon a rate at the bottom end of the range being utilised in calculating reasonable damages. As outlined above, that position is accepted in some jurisdictions as well as in the UK, and whilst there is more variance in others, in our view represents the correct legal approach.
Has the Third Party Hired a ‘Broadly Equivalent’ Vehicle?
The High Court held that third parties will usually be able to recover the cost of hiring (at a reasonable price) a broadly equivalent vehicle. The Court did not, however, provide guidance on what constitutes a ‘broadly equivalent’ vehicle.
Since the decision, many credit hire providers have continued to supply vehicles based on the make and model of the third party’s damaged vehicle, with seemingly little or no regard to its age or value. In determining whether a vehicle is ‘equivalent’, the comparative values of the rental vehicle, and the damaged vehicle, must be seen as one of the key factors, in our view. An oft-cited statistic is that vehicles typically depreciate by 58% in their first three years5. Consequently, in claims brought in 2025, vehicles manufactured before 2023 are likely to have lost significant value.
If a third party’s 2021 Mercedes C-class is damaged in a collision, is a third party hiring a ‘broadly equivalent vehicle’ if they hire a Mercedes C-class from a rental company fleet? Given most rental companies carry late model fleets, we would say ‘no’. A more equivalent vehicle is likely to be a mid-range rental, which will often carry a much cheaper rate of hire.
Through focussing on the age of manufacture of replacement vehicles, we have seen substantial discounts possible on the claimed rates of hire.
Misrepresentation by Credit Hire Providers Becoming Increasingly Problematic
In the wake of Covid, a trend began to emerge in Australia whereby some claims management businesses induced accident victims into believing they were affiliated with, or actually were, the victim’s motor vehicle insurer. This ruse has primarily been achieved through:
- making arrangements, through the likes of Google ads, to ensure that claims management businesses appear prominently when people search for the names of various insurers. Accident victims, having searched for their insurer, inadvertently click on a link for a claims management business unrelated to their insurer; and
- deliberately failing to correct the misapprehension when the accident victim phones in.
We have seen numerous claims where this outrageous practice has resulted in motor accident victims unwittingly entering into contracts for credit hire vehicles with the claims management company. The result? Accident victims being misled and subject to various contractual obligations for which they often did not understand, and insurers of the other parties involved in the collisions facing inflated claims for credit hire costs.
In part, the response to these issues needs to be at the regulatory level, with the misleading practices being examined by consumer protection authorities. At an individual claim level, where these practices are identified insurers can respond through:
- challenging the validity of the rental contract;
- challenging the validity of any legal proceeding commenced, including on the grounds that the proceeding is an abuse of process and/or the acting lawyer has not complied with their obligations to the Court; and/or
- where permissible and appropriate, providing support to accident victims who have been adversely affected by these schemes.
In Most Cases, ‘Need’ Will Not be Relevant
In Arsalan, the High Court commented that “the loose concept of ‘need’ should be eschewed”6. The effect has been that, since the High Court’s decision, arguments surrounding ‘need’ are far less frequent.
In the years preceding the decision, ‘need’ arguments were, in any event, fairly rare, and often only emerged in situations where there was a gap in a claimant’s evidence (for example, where one spouse had a ‘need’ for a vehicle, but the other spouse, who happened to be the Plaintiff, did not). These days, ‘technical’ disputes about which family member had the actual ‘need’ for a hire vehicle have largely fallen away.
However, it is important to remember the High Court did identify circumstances in which a traditional need-type argument could be used where the loss will be ‘non-existent or so slight’ that the hiring of a replacement vehicle will not be a reasonable step in mitigation of a loss. The Court described what it considered to be exceptional circumstances, including where a claimant was hospitalised or abroad when their car was being repaired, or where the damaged car ‘could have been replaced from idle stock within the plaintiff’s fleet of vehicles’7.
It is this latter example which we have seen being most relevant. Interestingly, this situation was also, historically, the most fertile ground for establishing a lack of ‘need’ on a claimant’s part. Since the High Court’s decision, we have seen a continued readiness from Courts around the country to carefully examine circumstances where a third party owns multiple vehicles to ascertain whether there actually was a loss. If there was not, typically only nominal damages would be awarded that are substantially less than the claimed hire charges.
Summary
Credit hire claims continue to represent a major challenge for insurers. The rise in illegitimate practices in this context has only exacerbated the issues that have arisen in the last decade through the proliferation of these claims generally. However, there is hope for insurers, and through effective strategic management of these demands, claim costs can be mitigated.
Should you wish to discuss any of the above, please contact James Mulcahy on 03 9947 4530 or any member of the Ligeti Partners team on 03 9947 4500.
- Arsalan v Rixon [2021] HCA 40 at 2. ↩︎
- Ibid at 4. ↩︎
- Kerin & Anor v Zadow [2023] SAMC 113. ↩︎
- The District Court decision currently under appeal is McKnight v Miller [2023] WADC 107. An appeal decision is expected in the first half of 2025. ↩︎
- Car Depreciation Explained, CarChase, Car Depreciation Explained – CarChase Insights How Depreciation Works | CarChase, accessed 19 February 2025. ↩︎
- Arsalan v Rixon [2021] HCA 40 at 17. ↩︎
- Ibid at 34. ↩︎
