Cause the crash, pay the price (of a courtesy car)

Court of Appeal upholds High Court decision on liability for cost of hiring replacement car
Frucor Beverages Limited and Ors v Blumberg and Ors [2019] NZCA 547

The Court of Appeal recently upheld the High Court decision of Blumberg v Frucor Beverages Ltd, finding that an at-fault driver (or their insurer) is liable for the cost of a not-at-fault driver’s replacement hire vehicle following a collision. 

For a summary of the High Court decision see our previous In Brief article:  Court confirms at-fault driver liable for cost of hiring replacement car

Background 

Right2Drive (R2D) is a credit car hire company that provides replacement cars to drivers, who were not-at-fault in a collision, to drive while their damaged vehicles are being repaired.  When hiring a replacement car, each driver is required to sign documentation accepting liability for the hire charges, payable only when and to the extent that they are not recoverable from the at-fault driver (or their insurer).  In practice, the invoice for the hire car is passed to the insurer of the at-fault driver for payment.  Here, the insurers of the at-fault drivers refused to pay these charges.  The not-at-fault drivers issued proceedings against the at-fault drivers seeking recovery of the hire costs.

In the High Court, Jagose J found that the at-fault drivers (or their insurers) were liable for the cost of hiring replacement vehicles.  This is because the not-at-fault drivers had suffered the loss of use of their cars for the period of the repair, and by hiring replacement cars they mitigated this loss.  In the circumstances, it was reasonable for them to do so, therefore the at-fault drivers were liable to pay the associated expenses.  The at-fault drivers appealed the decision. 

Court of Appeal Decision

On appeal, the facts were restricted to those of the first respondent not-at-fault driver, Mr Blumberg.  Mr Blumberg’s car was damaged in a collision caused by an employee of the first appellant, Frucor Beverages Ltd (Frucor).  While his car was being repaired, Mr Blumberg hired a replacement car from R2D.  Frucor’s insurer refused to pay R2D’s invoice. 

Liability  

Frucor argued that Mr Blumberg could not recover the hire costs because he was not liable to pay them.  The Court disagreed, finding that pursuant to the hire agreement, Mr Blumberg was liable to pay any hire charges which R2D had not recovered from Frucor “after expiry of the credit period”.  The fact that R2D had a policy of not seeking to recover those charges from Mr Blumberg did not affect his liability at law to make payment.

The Court also rejected Frucor’s argument that the hire agreement assigned Mr Blumberg’s cause of action to R2D and Mr Blumberg therefore could not enforce it himself.  The agreement gave R2D the authority to act as Mr Blumberg’s agent to recover the hire charges. The Court found that this was the “antithesis of a transfer away of a right to recover”.  On this basis, the assertion that RD2 had no genuine commercial interest and the agreement was champertous was squarely rejected.  Even if the agreement did assign Mr Blumberg’s cause of action to R2D, there was nothing objectionable about this, as R2D unarguably had a genuine commercial interest in the recovery action. 

Quantum 

Frucor challenged the quantum of hire charges on the basis that they were unreasonable. It also argued that the car could have been fixed within a shorter timeframe, and Mr Blumberg was not entitled to recover the charges incurred from hiring the car throughout the entire extended repair period. 

The Court found that hiring a car from R2D was a reasonable option for Mr Blumberg after he was told that no courtesy cars were available.  The Court found this to be highly relevant, as even if Mr Blumberg had not been provided with a replacement car, he would have been awarded general damages for the inconvenience of being deprived of his vehicle.  

Frucor further argued that the hire rates were unreasonable, as the vehicle provided was not equivalent to Mr Blumberg’s vehicle and, as a result, the daily hire rate was not a reasonable mitigation expense.  The Court rejected this argument, finding that it was not necessary to find an exact equivalent car. Furthermore, the alternative hire rates provided by Frucor did not reflect the options available to Mr Blumberg at the time.  The Court noted that a driver whose vehicle has just been damaged in a car accident cannot benefit from the lower hire rates which may be obtained by booking well in advance.  

The Court also held that any delay in the repairs did not affect the sole cause of the loss, being the collision caused by Frucor.  To prove that the delays constituted an intervening cause, Frucor would have to prove that they were a “material and substantial cause” of the loss.  Here, there was no evidence that the delays were the repairer’s fault, and in any event it was foreseeable that delays might arise from the need to obtain car parts. 

Interest 

Frucor argued that Mr Blumberg was not entitled to interest, as it was R2D and not Mr Blumberg who was out of pocket.  The Court distinguished this hire agreement from those seen in previous cases, finding that the hire agreement clearly made Mr Blumberg liable for interest if hire charges were not paid by the end of the credit period.  Frucor’s insurer should have paid the R2D invoice when it was first received. It did not do so, therefore interest accrued. To rule otherwise would mean “the wrongdoer here, will be permitted to take advantage of its own default”.

Comment (Craig Langstone)

This decision is a significant set-back  for the NZ insurance industry, albeit one that is not wholly unexpected after the High Court decision.  The appellants’ insurers, Vero, AMI and AA, had refused to pay approximately $4.9 million invoiced to them by R2D.  This judgment has ruled, in remarkably direct terms, that the insurers are liable to pay these costs. 

Companies such as R2D have been unpopular with insurers because of the view that they enable drivers who would not ordinarily hire a substitute car to hire one and make a claim for it as “mitigation” costs.  Coupled with the perception that these cars are often better than the ones being repaired, this raises questions about recovery for inflated loss as opposed to actual loss. But now insurers have to pay – plus interest – unless the decision is appealed successfully to the Supreme Court.  

Craig Langstone is a Partner at Fee Langstone