June 24, 2020 | 530 ViewsFord v Ferrari: at-fault insurers must pay for equivalent luxury in replacement vehicle hire

The NSW Court of Appeal has ruled in four test cases what hire charges are payable by at-fault drivers for a “free” replacement vehicle provided to the person whose vehicle they damage in traffic accidents.

In separate and unrelated circumstances, four owners suffered damage requiring repairs that meant their cars were temporarily unavailable. Each owner hired a replacement vehicle and claimed the full cost as damages against the at-fault driver’s insurer.

All four arrangements were “credit hires” where the car hirer delivered a temporary replacement vehicle “on credit” for a fixed period. The company claims its hire charges from the at-fault driver’s insurer but is entitled to recover any shortfall from the user.

At issue was whether the costs of the replacement vehicle should be confined to one that performs the same function as that which was damaged as opposed to the charges for the hire of an equivalent vehicle in terms of luxury and prestige.

Notwithstanding that the hires were “on credit” – from which it might be inferred that the hire fees would be greater than those in the conventional hire car market – the charges were noted by the court to have been no greater or at least similar, to rates payable in the conventional market.

Justice Arthur Emmett in delivering judgement for the majority confirmed the entitlement to damages for the cost of a replacement vehicle did not depend on the damaged car being used for an income producing purpose but rather was referable to the owner’s “need” for the vehicle.

“The object of an award for damages in an action in tort is to put the claimant, so far as money can, in the position that the claimant would have been but for the loss,” he observed.

He went on to explain that the determination of “need” is not an objective test related to the damaged vehicle’s function. The “need” – much like that in relation to voluntary care received by an injury victim – is that of the claimant and should therefore be determined subjectively.

Thus where a property damage victim’s luxury vehicle is undrivable, the wrongdoer must compensate for the replacement hire of an equivalent rather than a vehicle that might adequately perform the same functions.

“The loss that the claimant suffers which gives rise to the relevant need is a deprivation of use of the damage vehicle, not simply deprivation of the use of a means of transportation”.

If the same model vehicle speced up to the same standard is available for hire, the damages can be easily determined by reckoning the cost of hiring that vehicle as the replacement.

If an identical vehicle is not available the damages are determined by reckoning the cost of replacement of something near to equivalent, provided that cost is reasonable.

So in the case of Azad Cassim’s damaged BMW 535i – where the owner’s evidence was that he required in the temporary replacement, an equivalent level of comfort – his hire was of a Nissan Infiniti Q 50 at a cost $17k over an 11 week period.

The at-fault party’s insurer contended that he should have been content with a Toyota Corolla at less than half that sum. The appeal court rejected that submission and said that his need had been made out for his own vehicle and hence the cost of the hire of an equivalent should be paid up in property damage compensation.

Similarly in relation to Alex Rixon’s Audi Q3, the appeal court accepted that a Toyota Corolla would not have been a sufficient replacement for the two-month period over which repairs were performed. The magistrate’s decision of the adequacy of any four-door sedan “of considerably less impressive specifications”, was overruled.

But its not always the case of comparing apples with apples or should I say Audis with Audis.

After Bilal Souaid’s Lexus IF 250 F Sport Prestige was damaged, he gave evidence that was content with any vehicle “just as long as I have a car therefore my wife, for the kids and stuff. I wasn’t fussed at all”. In those circumstances, the court refused to order payment of the hire cost for the BMW 735i provided by the hire company on the basis that a Toyota Camry would have met his actual needs.

Consider also the case of Seung Lee who took up the use of the temporary replacement only “because the hiring company delivered the vehicle to her home address” and she did not have to pay for it. Given her evidence that she had no real need to use a vehicle while her Toyota Camry was under repair, the court ruled there was no relevant “need” and hence no replacement vehicle hire charges were recoverable from the at-fault party.

It can be seen therefore that the costs of hire of a luxury vehicle to replace one of a similar marque under repair is recoverable when the owner confirms that they would have made use of that vehicle during the repair period and they desire the same level of comfort, luxury or even prestige, in the interim.

Lee v Strelnicks; Souaid v Nahas; Cassim v Nguyen; Rixon v Arsalan [2020] NSWCA 115 Meagher JA,White JA, Emmett AJA, 18 June 2020 Read case

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