FREE CHAPTER from ‘Ellis on Credit Hire – Sixth Edition’ by Aidan Ellis



It is perhaps helpful to start by stating the general rule again. In Dimond v Lovell,1 after emerging from the thicket of consumer credit issues to address the issue of rates, Lord Hoffmann (with whom Lord Browne-Wilkinson agreed) stated that:-

in the case of a hiring from an accident hire company, the equivalent spot rate will ordinarily be the net loss after allowance has been made for the additional benefits which the accident hire company has provided.”

It should be acknowledged at the outset that this part of the speech was obiter dicta. The ratio of Dimond v Lovell related to the enforceability of the hire agreement under the Consumer Credit Act 1974. This led Lord Saville to abstain from deciding the rates issue on the basis that it:-

“does not arise for decision in the present case. This is a question of great importance and difficulty, the answer to which may well have widespread ramifications. It is accordingly a question that I would prefer to consider in a case where it does arise for decision.”

Although the other four Judges did address the issue, Lord Nicholls dissented on the basis that the full credit hire rate should be recoverable and Lord Hobhouse agreed that the credit hire rate should not be recoverable, but proposed a different way of ascertaining the recoverable damages. Only Lord Browne-Wilkinson agreed entirely with Lord Hoffmann.

Nevertheless it would, in practice, be very difficult to argue that lower courts should not follow Lord Hoffmann’s approach. As the Court of Appeal explained in Sayce v TNT:

There are circumstances in which, although not technically bound by a decision of a higher court, a lower court should follow and apply that decision, even though it may disagree with it. There may be room for legitimate disagreement between judges of co-ordinate jurisdiction and in those circumstances reasoned difference of opinion may provide a useful springboard for an appeal. That is not the case, however, where a higher court has decided a question of principle, albeit obiter, for the purpose of clarifying the law for the profession at large. It would not be right, for example, for this court to disregard those parts of their Lordships’ speeches in Dimond v Lovell that deal with the recovery of that part of the credit hire costs that relate to additional benefits on the grounds that they are obiter2

Moreover, many subsequent cases confirm that Lord Hoffmann’s dicta have become firmly entrenched in the jurisprudence. They have been repeatedly confirmed in subsequent cases. Thus in Burdis v Livsey, the Court of Appeal endeavoured to follow the House of Lords’ “guidance as to the principles to be applied in arriving at the correct measure of damages for loss of use”.3

In a similar vein in Bee v Jenson, the Court of Appeal noted that “the House held, secondly, that even if the claimant could have recovered he could have recovered no more than the spot charge and not the charges made for an agreement that entitled the claimant to more benefit than the cost of hire itself”.4

In Copley v Lawn, the Court of Appeal “regarded it as well settled that, although a claimant can recover the cost of hiring a replacement car, he can only recover the reasonable rate of such hire; that has been held in Dimond v Lovell to be the market or spot rate”.5

In Bent v (1) Highways and Utilities Construction Ltd (2) Allianz Insurance6 (“Bent no1”), the Court of Appeal summarised the authorities thus “The authorities establish that in the case of “pecunious” (as the Judge described Mr Bent) claimants, the damages to be awarded are normally to be assessed at “spot hire” rates – the rate at which a broadly similar car could be had on the market.”

In Bent v (1) Highways and Utilities Construction Ltd (2) Allianz Insurance no2 (“Bent no2”), the Court of Appeal repeated “If the claimant could afford to hire a replacement car in the normal way, ie. without credit terms and by paying in advance,7 then the damages recoverable for loss of use of the damaged car will be that sum which is attributable to the basic hire rate of the replacement car”.8

Similarly, in Stevens v Equity Syndicate Management Ltd, the Court of Appeal summarised the general principle in these terms: “If he [the claimant] could have afforded to hire a replacement vehicle in the normal way, that is to say without credit hire terms and by paying in advance, then the damages recoverable will be that sum which is attributable to the basic hire rate (or BHR) of the replacement vehicle”.9

The result is that, although it was strictly obiter, the general rule established by Lord Hoffmann in Dimond is now deeply entrenched in the jurisprudence. Unless the issue returns to the Supreme Court (and unless the claimant is impecunious) the general rule is therefore that the claimant is restricted to recovering “the equivalent spot hire rate”.

The Reason for the General Rule

Before going on to consider how the Court should determine the basic hire rate, it is necessary to explain the reason for this general rule. Understanding the reason for the rule, should guide the application of the rule to the evidence.

In Dimond, Lord Hoffmann, with whom Lord Browne Wilkinson agreed, stated:

“My Lords, I would accept the judge’s finding that Mrs. Dimond acted reasonably in going to 1st Automotive and availing herself of its services . . . She cannot therefore be said not to have taken reasonable steps to mitigate her damage.

But that does not necessarily mean that she can recover the full amount charged by 1st Automotive. By virtue of her contract, she obtained not only the use of the car but additional benefits as well.”

This finding is significant because by accepting that Mrs Dimond acted reasonably in going to the credit hire company, as the Court of Appeal and the trial Judge had already held below, Lord Hoffmann made it clear that the reason for not allowing the claimant to recover the credit hire rate is nothing to do with mitigation or reasonableness. Rather it is a matter of betterment.

The point is that a credit hire company typically provides a range of accident management services to a claimant, which go beyond the simple provision of a replacement vehicle. Lord Hoffmann identified the additional benefits inherent in the credit hire contract at page 401 as:

  1. the credit charge itself

    She was relieved of the necessity of laying out the money to pay for the car.”

  2. the costs of the action

    She was relieved of the risk of having to bear the irrecoverable costs of successful litigation and the risk, small though it might be, of having to bear the expense of unsuccessful litigation”. Lord Hoffmann also referred to other associated costs: “Paying commission to brokers”; “checking that the accident was not the hirer’s fault.”

  3. possibly avoiding a residual liability

    Depending upon the view one takes of the terms of agreement, she may have been relieved of the possibility of having to pay for the car at all.”

  4. relieving the anxiety of the claim

    She was relieved of the trouble and anxiety of pursuing a claim against Mr. Lovell or the C.I.S.”

Lord Hoffmann continued:-

My Lords, English law does not regard the need for any of these additional services as compensatable loss. As Sir Richard Scott V.-C. said (at [1999] 3 W.L.R. 561, 580) “damages for worry and for the nuisance caused by having to deal with the consequences of an accident are not recoverable.” If Mrs. Dimond had borrowed the hire money, paid someone else to conduct the claim on her behalf and insured herself against the risk of losing and any irrecoverable costs, her expenses would not have been recoverable. But the effect of the award of damages is that Mrs. Dimond has obtained compensation for them indirectly because they were offered as part of a package by 1st Automotive. There is in my opinion something wrong with this conclusion.”

He then referred to the cases of British Westinghouse Electric and Manufacturing Co. Ltd. v. Underground Electric Railways Co. of London Ltd [1912] A.C. 673 and Bellingham v. Dhillon [1973] Q.B. 304 which emphasised that only compensatory damages were recoverable. In other words, additional benefits received whilst mitigating loss should not be taken into account in quantifying the claim. But how does this impact on the assessment of damages? Lord Hoffmann explained:-

How does one calculate the additional benefits that Mrs. Dimond received by choosing the 1st Automotive package to mitigate the loss caused by the accident to her car? . . . I do not think that a court can ignore the fact that, one way or another, the other benefits have to be paid for . . . How does one estimate the value of these additional benefits that Mrs. Dimond obtains? It seems to me that prima facie their value is represented by the difference between what she was willing to pay 1st Automotive and what she would have been willing to pay an ordinary car hire company for the use of a car . . . I quite accept that a determination of the value of the benefits which must be brought into account will depend upon the facts of each case. But the principle to be applied is that in the British Westinghouse case [1912] A.C. 673 and this seems to me to lead to the conclusion that in the case of hiring from an accident hire company the equivalent spot rate will ordinarily be the net loss…”

Thus, the only way to strip out the additional and irrecoverable benefits from the credit hire charges is by reference to the “equivalent spot rate”.

On the face of it, Lord Hobhouse adopted a similar analysis. He expressly said that he agreed with Lord Hoffmann that the judge and the majority of the Court of Appeal had approached the issue in the wrong way. He also decided that Mrs Dimond had acted reasonably and went on to emphasise the additional benefits contained in the credit hire contract. He described these at pages 406 – 407 as:

  1. the credit charge itself

    It is financing the transaction until the expected recovery is made from the other party”.

  2. the costs of the action

    it is bearing the cost of handling the claim and effecting that recovery”; “something in respect of costs”.

  3. possibly avoiding a residual liability

    it is bearing a commercial (though not normally the legal) risk that there may be a failure to make that recovery”.

Thus aside from one (removing the anxiety of litigation), Lord Hobhouse identified the same additional benefits as Lord Hoffmann.

However, his analysis of how the recoverable damages should be calculated differed from that of Lord Hoffmann. Lord Hobhouse favoured “the approach of making a commercial apportionment between the cost of hiring a car and the cost of the other benefits included in the scheme.”

He explained that Mrs Dimond would not have been able to recover the whole cost of the credit hire charges “as the cost of mitigating the loss of use of her car”. He said later, “The elements to which the uplift in the charges of the accident hire company was attributable were (and inevitably must be) elements which were not properly included in the claim for damages for loss of use.”

In other words, the claim for the uplift was not recoverable in the claim for loss of use. This may have left open the possibility that it may be recoverable in other ways. Indeed, this is supported by his further statement that “As appears from what I have said, some might be recovered from the wrongdoer in another form”. In practice, however, it is difficult to see how the Claimant could recover for these additional benefits via any other route. First, the Claimant would not be able to recover for the same thing twice:

The necessity to make some apportionment or other reduction in the claim is demonstrated by the need to avoid double counting. Prima facie, the court should award statutory interest on the claim; but here the claim already included some element of interest. Similarly the claim included something in respect of costs; to award costs as well would involve some duplication.”

Second, Lord Hobhouse stated that, “it is unlikely that any scheme could be devised which would enable the insurance element to be recovered”. This appears to refer to the additional benefit which comprised the possibility of avoiding a residual liability.

The heart of the difference between Lord Hoffmann and Lord Hobhouse is this: Lord Hoffmann thought that the measure of the Claimant’s recoverable loss could safely be approximated by looking to the equivalent spot hire rate while Lord Hobhouse seemed to prefer an approach based on stripping out the unrecoverable additional benefits from the credit hire charges.

As the caselaw set out above and below illustrates, it is Lord Hoffmann’s approach – searching for the basic hire rate – which is most often adopted in practice. However, that does not mean that the Courts have not expressed certain reservations. From time to time, the Court of Appeal has flirted with the idea that the credit hire company could disclose details of its charging structure in order to allow the charge for credit to be stripped out in a manner reminiscent of Lord Hobhouse’s approach. Most recently, in Stevens v Equity Syndicate Management Ltd the Court of Appeal canvassed “whether credit hire companies could, as a matter of course, disclose their estimate of the BHR alongside every quoted credit hire rate”.10 It later suggested that the selection of the lowest reasonable rate was justified because “the credit hire company is in the best position to elaborate upon and give disclosure relating to its charging structures”.11

On the whole, however, the Courts have retreated from the disclosure and costs implications of any attempt to strip out the elements of the credit rate.12 Nevertheless, in theory it remains open to credit hire companies to seek to avoid the analysis of basic hire rates altogether by providing appropriate disclosure of their charging structures and an analysis breaking down the credit hire charges into their constituent elements.

For completeness, in dissent in Dimond Lord Nicholls accepted that the credit hire contract incorporated additional benefits but argued that the uplift should be recoverable. He identified the same “additional services” as Lord Hobhouse:

  1. the credit charge itself

    The hirer does not have to produce any money . . . at the time of the hiring”.

  2. the costs of the action

    The hire company pursues the allegedly negligent driver’s insurers”; “The hire company is not deterred by having to bring court proceedings should this become necessary”.

  3. possibly avoiding a residual liability

    The hirer does not have to produce any money, either at the time of the hiring or at all”; “If the claim is unsuccessful, in practice the hire company does not pursue the hirer”.

Lord Nicholls then went on to explain why these additional benefits ought, in his view, to be recoverable:-

The additional services . . . redress the imbalance between the individual car owner and the insurance companies. They enable car owners to shift from themselves to the insurance companies a loss which properly belongs to the insurers but which, in practice, owners of cars often have to bear themselves. So long as the charge for the additional services is reasonable, this charge should be part of the recoverable damages.

A measure of damages which does not achieve this result would be sadly deficient. The law on the measure of damages should reflect the practicalities of the situation in which a wronged person finds himself. Otherwise it would mean that the law’s response to a wrong is a right to damages which will often be illusory in practice. I do not believe this can be the present state of the law in a situation which affects thousands of people every year.”

However, Lord Nicholls’ was a lone voice in dissent. As set out above, the majority approach in Dimond is now firmly entrenched in the jurisprudence. His dissent is now mainly interesting from a historical perspective.


1 Dimond v Lovell [2002] 1 AC 384.

2 Sayce v TNT [2011] EWCA Civ 1583 paragraph 24.

3 Burdis v Livsey [2003] QB 36 paragraph 136.

4 Bee v Jenson (2007) 4 All ER 791 para. 6.

5 Copley v Lawn para. 3.

6 [2010] EWCA Civ 292, see para. 6 in particular.

7 Note that this does not exactly encapsulate the definition of impecuniosity offered by the House of Lords in Lagden v O’Connor, which will be explored in more detail in the next chapter.

8 [2011] EWCA Civ 1384.

9 [2015] EWCA Civ 93 para. 11.

10 Para. 30.

11 Para. 36.

12 Para. 30.