Landmark Ruling Clarifies Limits of Credit Hire Recovery – Miller v McKnight [No 2]

The implications of this decision are significant for insurers, legal practitioners, and credit hire providers alike. Key takeaways include:

• The decision reinforces the notion that “additional benefits” often included in credit hire agreements — such as legal assistance, premium roadside services, or deferred payments — are not recoverable as compensable loss.
• Plaintiffs should take reasonable steps to mitigate loss, including shopping around for alternative hire options and reviewing contract terms carefully.
• This decision is likely to be of assistance to insurers, providing clarity around the assessment of reasonable damages and curbing inflated credit hire claims
• Although a decision in Western Australia, it may influence courts nationally, particularly in jurisdictions still navigating the “post-Arsalan” legal landscape.

In May 2019, a collision occurred between a motor vehicle driven by Ms Miller and a motor vehicle owned by Ms McKnight (‘the Collision’). The Collision was caused by Ms Miller’s negligence, and caused damage to Ms McKnight’s vehicle, a 2013 Opel Astra (hatchback), which was required to be taken off the road for repairs.

Following the Collision, a tow truck driver recommended that Ms McKnight hire a vehicle from Compass Corp Pty Ltd (‘Compass’) on a credit-hire basis. Ms McKnight, who was pregnant at the time of the Collision, conceded that she did not make enquiries with any other hire car companies and “skimmed over” the rental agreements before signing and accepting the vehicle. Under the terms of the rental agreement, Compass was entitled to seek recovery of this sum directly from Ms Miller.

Ms McKnight was initially provided with a Toyota Camry, which was subsequently replaced with a Toyota Corolla, for a total hire period of 40 days. Compass charged a daily rental fee of $95.88 per day (for both vehicles), with the final invoice totalling $3,928.53 (for a period of 40 days). Prior to being heard, however, the duration was amended to reflect 39 days with a total of $3,832.66.

Following receipt of Compass’ demands, Ms Miller’s insurer, RAC Insurance Pty Ltd (‘RAC’), assessed the reasonable cost of Ms McKnight’s hire at $1,901.85 (being a daily rate of $45.33, based on comparative rates). RAC then raised a payment of this sum to Compass in an attempt to settle its demands.

However, Compass regarded this payment to be insufficient and issued proceedings in the Magistrates’ Court of Western Australia at Perth, to recover the additional balance of $1,930.81.

The issue to be determined by the Magistrate was “the extent of Ms McKnight’s entitlement to recover Compass’ charges from Ms Miller.” Following evidence and submissions, His Honour, Magistrate Darge, held that Ms McKnight’s entitlement was limited to “the reasonable cost of hiring an equivalent vehicle” and that Compass’ charges were recoverable only to the extent that they corresponded with this criteria. His Honour distinguished a portion of Compass’ charges from this reasonable cost, suggesting that “Compass charges that were attributable to the provision of the range of benefits and services (the credit hire charges) were not recoverable.” [1]

In essence, the Magistrate concluded that the Compass charges included a number of additional benefits that were not strictly necessary to compensate Ms McKnight for her loss. These included:

• The benefit of having the cost of hiring a car provide on credit;
• The benefit of having Compass acting as a ‘duly appointed agent to manage this claim’;
• The benefit of a premium roadside assistance; and
• The benefit of having Compass bringing legal proceedings by the appointing of ‘..legal advisers.. and also meeting her reasonable out-of-pocket expenses… of doing so’. [2]

Due to the inherent difficulty in quantifying the cost of these additional benefits (which could have required complete discovery of Compass’ financial model – an impractical and costly approach), the Magistrate concluded that “the only practical method” for distinguishing these costs is “by comparison with the mainstream market, to try to determine what amount represents the credit hire component of the invoice.” [3] In considering same, the Magistrate discounted the 1 and 7 day rates supplied and gave weight to the 28, 35 and 40 day rates sourced from a ‘consistent group of hire car providers at various locations’. He also gave weight to Ms Miller’s evidence, who produced an actual hire document to substantiate her evidence.

Interestingly, the Magistrate noted that ‘in theory’ a median price between both parties ‘rates’ evidence was a ‘fair way of determining the reasonable costs of hire [4]’. However, practically, that would culminate considerable difficulties given the variance that would occur between the rates evidence supplied. In considering the variance, the Magistrate applied a 15% discount to ‘reflect the decrease in daily rates for a longer period’ [5].

In respect of the charges claimed by Compass as to roadside assistance, Ms McKnight was only entitled to claim that, if it was an existing benefit Ms McKnight had previously held.

Upon this analysis, the Magistrate concluded that Ms McKnight had “failed to mitigate her loss by hiring a vehicle that included credit hire charges which took it outside the market for similar hire vehicles.” The Magistrate therefore dismissed Ms McKnight’s claim with no order as to costs.

Ms McKnight then appealed the Magistrate’s decision to the District Court. There were 9 grounds of appeal, three of which were ultimately upheld:

• Ground 1 alleged, in essence, that the Magistrate erred in identifying a ‘reasonable’ day rate from the rates evidence provided by the parties.
• Ground 2 alleged that the Magistrate had erred in discounting the daily rate by 15% to reflect a notional decrease in daily rates from 28 days and a premium surcharge for airport or Perth CBD delivery and pickup.
• Ground 7 alleged that the Magistrate had erred in finding that Ms McKnight was not entitled to recover the entirety of Compass’ charges, because His Honour had failed to take into account Ms McKnight’s personal circumstances and had unfairly scrutinised her conduct in attempting to mitigate her loss.

Ultimately, the District Court adopted the view that the Magistrate had placed inordinate emphasis on attempting to determine the reasonable rate of hire. In doing this, the Magistrate had “failed to take into account Ms McKnight’s personal circumstances.” The primary judge further observed that, whilst the Magistrate had accepted that the sum paid by RAC to Compass represented the median rate, the question was not whether this was a reasonable amount, but whether what Ms McKnight claimed was unreasonable. [6]

Upon further consideration of the factual circumstances of the case, such as Ms McKnight’s location of residence, place of work, and pregnancy, the primary appeal Judge’s view was that Ms Miller had failed to discharge the onus of proving that Ms McKnight’s actions were unreasonable. The appeal was therefore allowed and an order for judgement in the sum of $1930.81 (the claimed sum).

The Supreme Court of Appeal overturned the District Court’s decision, upholding the Magistrate’s original conclusion that Ms McKnight’s claim should be dismissed. The Court’s decision was based on two primary reasons:

• First, the amount of Compass’ total charges “substantially exceeded” the amount that would have been payable to a mainstream motor vehicle rental companies for comparable vehicles.
• Second, the Court viewed the proper inference from this price disparity to be that Compass’ total charges included amounts for the provision of benefits to Ms McKnight that were in addition to the provision of the replacement vehicles.

These additional benefits were not claimable from Ms McKnight. Notably, the Court further described these additional benefits [7], namely that the replacement vehicle was hired on credit, without the need for upfront payment, and that Compass would act on Ms McKnight’s behalf in bringing legal proceedings, saved her significant effort and expense.

The Court observed that “the value of the benefits to which we have referred… …must be brought to account in determining the amount of the consequential damages payable by Ms Miller to Ms McKnight [8]” and that, even if Ms Miller was entitled to the benefits, she bore the onus of establishing their value.

In consideration of the above, the Court referenced a number of English authorities which contemplated these very issues. These were given particular credence as they were topics that were not expressly canvassed in the High Court decision of Asralan v Rixon and Nguyen v Cassim [2021] HCA 40

The Court accepted the Magistrate’s comments in determining to find the appropriate measure of compensable loss. Specifically, that Compass’ charges included a number of additional benefits which were not necessary to compensate Ms McKnight for her loss and that it was not practical to seek complete provision Compass’ financial operations to determine those costs. As such, the appropriate estimate of the value of these relevant benefits is the difference between:

1. the total charges sought by Compass; and
2. the cost that would have been incurred by Ms McKnight had she hired a vehicle from a mainstream provider at the ‘median’ of the market rates in the Perth metropolitan area (which excluded the CBD and the airport) for a 39 or 40 day hire.

The Court did not dispute the delivery fee charged by Compass, however, did not allow for the roadside assistance package as no evidence was led in support of that benefit.

On this approach, the Court concluded that the amount already paid by RAC exceeded the amount properly claimable by Ms McKnight in the Magistrates Court proceedings, upholding Ms Miller’s appeal.

Although this decision is not binding outside of Western Australia, it remains significant and is likely to be considered in all jurisdictions, as it provides clarity and commentary on a number of commonly litigated areas of dispute in the credit hire industry and expands upon the High Court’s analysis in Arsalan.

First, the observation that Compass is providing “additional benefits” that are not strictly claimable from the at fault driver suggests that it will be more difficult for credit hire providers to recover fees if they are demonstrated to be significantly beyond the market rate. As credit hire companies routinely charge rates above the market averages, the Court’s application of a “median market rate” test represents a fundamental threat to their business model, as it suggests these additional charges may not be legally recoverable.

The decision further provides useful commentary on the reasonableness of the actions of Ms McKnight in accepting a rental vehicle from Compass. In deciding that Ms McKnight had acted unreasonably, some weight was given to the fact that she had only “skimmed” the rental agreement and had made no additional enquiries regarding alternative rental providers. If adopted by other jurisdictions, this approach could see Courts being more critical of motorists advancing credit hire claims without conducting their own due diligence.

This decision represents a favourable outcome for insurers who are perpetually engaged in litigating disputes of this kind. Whilst the overall quantum is indeed small, the litigation to the Court of Appeal is reflective of the value to the industry of the issues involved.

If the Court of Appeal’s approach is adopted by other jurisdictions, it will significantly change the treatment of credit hire claims throughout Australia, making it more difficult for companies like Compass to recover fees in circumstances where they are demonstrably excessive.

However, the decision has also left space for further appeal. Given the fundamental financial impact posed to the business models utilised in the credit hire industry there remains a strong probability that it will be challenged, particularly in relation to the Court’s conception of “additional benefits” and application of a “median rate.”

This article was co-authored with contributions from Sean Collier, Associate.