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Phillips v Willis: Credit Hire and the MoJ Protocol

April, 26, 2016

A recent judgment from the Court of Appeal overturned a District Judge’s decision to remove a credit hire claim from the MoJ Portal process, describing the decision as “irrational”.

The judgment sheds light on the circumstances in which a court cannot validly remove a claim for hire charges from the MoJ process and contains some important points of note for insurers.

Background

The claimant brought a low value claim for personal injury, credit hire charges and other losses which commenced within the MoJ protocol. All heads of claim had settled at Stage 2, save for the claim for credit hire charges, which were sought in the sum of £3,486.

The claimant had disclosed a witness statement at Stage 2 dealing with basic hire rates. No evidence in relation to the hire claim was submitted at Stage 2 by the defendant, but an offer was made in the sum of £2,334.

Driving man inside car with beautiful forest view

The claimant issued Part 8 proceedings and the claim proceeded to an oral Stage 3 hearing. At the commencement of the hearing, it was indicated by Counsel that the only issue was as to the rate of hire. The claimant was not alleging impecuniosity, there was no dispute on need and the period was agreed.

Nonetheless, the District Judge took the view that the credit hire claim was unsuitable for a Stage 3 hearing and gave directions for the claim to proceed as a Part 7 claim on the small claims track.

The claimant appealed the decision to remove the claim from Stage 3 on a number of grounds. The decision was upheld by a Circuit Judge at the first appeal, before the claimant lodged a further appeal to the Court of Appeal.

Judgment of CoA

The crucial issue identified by Lord Justice Jackson in the leading judgment was whether the District Judge had power under paragraph 7.2 of CPR Practice Direction 8B to order that the claim should continue under Part 7. Paragraph 7.2 states:

7.2. Where the court considers that –

(1) further evidence must be provided by any party; and

(2) the claim is not suitable to continue under the Stage 3 procedure,

the court will order that the claim will continue under Part 7, allocate the claim to a track and give directions.”

The CoA accepted the claimant’s submissions that neither of these two criteria had been met.

The only issue for the court to determine at the Stage 3 hearing had been the recoverable basic hire. On that issue, the court had a report from the claimant which exhibited BHRs from mainstream hire companies on a daily and weekly basis. The defendant had failed to disclose its own BHR evidence at Stage 2, and the defendant accepted at the Stage 3 hearing that it was content to use the claimant’s figures.

Against that background, the defendant’s Counsel conceded at the hearing before the CoA that the only further evidence that may have been required, was oral evidence from the claimant to determine whether it would have been reasonable to hire on a one-day or seven-day basis. The difference between the two was just £462.

Unsurprisingly, proportionality was a key factor in LJ Jackson’s reasoning. The significant further costs that the parties would be put to as a result of having to comply with directions and attend a further hearing was referred to; the hearing fee alone being £335. These additional costs were described as totally disproportionate to the sum at stake”.

The appeal was therefore allowed. However, whilst making it abundantly clear that the District Judge was wrong to remove the claim from Stage 3 on the circumstances of this case, LJ Jackson refused to adjudicate on the circumstances in which a Stage 3 claim could validly be removed; save for an observation that that very high credit hire claims might involve complex issues of law or fact, which may render them unsuitable for Stage 3.

Commentary and Implications

Whilst the decision might appear to be a sensible one on the facts, Phillips has the potential to considerably restrict the amount of ‘run of the mill’ credit hire claims which can be transferred out of the Portal process into Part 7.

This presents a wider problem for insurers where credit hire is not adequately addressed at Stage 2. The rules governing the Portal make clear that any evidence not filed and served at Stage 2 cannot be relied upon at Stage 3. Further, the decision of HHJ Freeman in Mulholland v Hughes suggests that any credit hire issue not raised in the Stage 2 response (in that case, need) equally cannot be argued at Stage 3.

Therefore in cases where the credit hire claim is not properly (or at all) defended at Stage 2, the defendant is now far more likely to be denied a second chance at pleading a defence and serving evidence by having the claim removed to Part 7; with the likely consequence being that the defendant is left liable for the entire claim at the Stage 3 hearing.

Legal negotiations

Accordingly, it is now of critical importance that processes are in place to ensure that credit hire claims are fully defended at Stage 2.

However, the decision in Phillips is certainly capable of being distinguished on the facts. Subject to proportionality, it remains open to the court to transfer a claim to Part 7 where further evidence is reasonably required to determine the issues in dispute; particularly where the decision is made by the court ‘on the papers’, well in advance of hearing stage. In these circumstances the issue of wasted costs of an adjourned hearing would not arise.

It also may arguably not apply where there is a substantial dispute in relation to a matter which reasonably requires the oral evidence of the claimant; for instance need, period or impecuniosity. An assessment of proportionality will therefore be required on a case by case basis and any attempts to apply the decision ‘blanket’ to all credit hire claims in the portal should be resisted.

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