Credit Hire Claims & Illegality: Causation is Key

The recent High Court judgment in Majid Ali v HSF Logistics Polska Sp Zoo [2023] EWHC 2159 (KB) has provided significant clarity on the complex interplay between illegality and credit hire claims. Gary Herring reviews the decision, focusing on how the principle of causation led to the dismissal of hire charges, and explores the practical ramifications for those involved in such disputes. This ruling is a crucial development for insurers seeking to avoid paying for claims where a claimant has acted unlawfully, and for claimants navigating the intricacies of recoverability.

Background to the Case

The claimant, Mr Ali, was involved in an incident on 20 February 2021, where his Volvo XC60 was struck while parked. This led to him incurring credit hire charges amounting to £21,588.72. However, a critical issue emerged: the Volvo did not possess a valid MOT certificate at the time of the accident. The previous certificate had expired some 4.5 months earlier. Furthermore, the vehicle's insurance had been taken out in the name of Mr Ali's cousin. It was alleged that Mr Ali, having been previously disqualified from driving, had obtained this insurance without disclosing his conviction, a practice known as 'fronting', to secure lower premiums.

The First Instance Decision

At the initial trial, the judge excluded the 'fronting' issue from consideration, deeming it to be a point not properly pleaded by the defence. Regarding the missing MOT, the judge heard Mr Ali's oral evidence and concluded that the omission was "careless" and that Mr Ali was "not greatly concerned" about it. Crucially, while there was no evidence that the vehicle was in an unroadworthy condition, there was also no indication that Mr Ali intended to obtain a new MOT certificate in the immediate future.

Arguments for Dismissal

The defendant put forward two primary arguments for why the hire charges should be irrecoverable:

• 'Ex turpi causa' (from a disallowed cause): This argument posited that the claim originated from an illegal act – driving a vehicle without a valid MOT. Consequently, as a matter of public policy, the entire claim should be disallowed.
• Causation: This argument contended that because the vehicle was not legally permitted to be on the public highway, the accident did not cause the loss of use of a road legal vehicle. Therefore, the costs associated with a replacement road-legal vehicle could not be recovered.

The Judge's Reasoning

The 'ex turpi causa' argument might have succeeded had the defendant been permitted to introduce the 'fronting' aspect as a further element of illegality. However, the judge found the grounds for this to be finely balanced. Ultimately, the judge decided that imposing an absolute bar on recovering any damages solely due to the lack of an MOT would be disproportionate. Factors influencing this decision included the fact that the vehicle was parked at the time and was otherwise in a roadworthy condition.

However, the hire charges themselves were dismissed on the grounds of causation. Mr Recorder Charman stated:

"Mr Ali's credit hire claim fails because he has no loss of use claim, by reason of not having a vehicle which he was entitled to use on the public highway at the time of the accident by reason of the absence of an MOT certificate, and he has not established that he could and would [have] obtained a valid certificate at any time during the hire period. He therefore has no claim for loss of use, so cannot have reasonably occurred hire charges to avoid or mitigate such a claim."

The Appeal to the High Court

Mr Ali appealed this decision to the High Court, essentially arguing that the judge had erred by separating what was, in reality, a single illegality argument into two distinct components. Having already determined that the illegality did not trigger the 'ex turpi causa' doctrine, Mr Ali contended that the court should not then have used the same illegality to disallow the hire charges on separate grounds of causation.

The High Court's Ruling

Mr Justice Martin Spencer dismissed the appeal. He upheld the first instance judge's decision, confirming that disallowing the credit hire charges on the separate ground of causation was correct. Justice Spencer drew a significant distinction between:

• The 'meritorious claimant': This describes a situation with a more innocent lapse, perhaps a few days without a valid MOT.
• The 'unmeritorious claimant': This refers to cases like Mr Ali's, involving a prolonged period of 'careless' illegal driving with no evidence of an intention to rectify the MOT status.

Justice Spencer framed the core issue as one of causation, asking:

"for how long would, but for the accident, the car has remained without a valid MOT and therefore could not lawfully have been driven on the road?"

He elaborated that this "delimits the period of compensation and distinguishes between the meritorious Claimant (perhaps deprived of only a few days of car hire charges) and the unmeritorious Claimant (who fails to recover his credit hire charges at all)".

Commentary and Implications

This judgment by Mr Justice Spencer is particularly noteworthy as it represents the first time the High Court has considered the issue of illegality within the credit hire context at a binding level. The decision will undoubtedly be a source of considerable reassurance for insurers who are rightly concerned about compensating claimants who knowingly or "carelessly" operate vehicles illegally. As the judge pointed out, the MOT requirement is intrinsically linked, in many instances, to the maintenance of valid insurance coverage.

Broader Application of the Reasoning

While the illegality in this specific case concerned the lack of an MOT, the principle established appears to have broader applicability. There seems to be no fundamental reason why the same causal reasoning would not extend to vehicles driven illegally for other reasons, such as being in an unroadworthy condition. Indeed, it is plausible that more severe forms of illegality could not only restrict the recovery of credit hire charges through causation but might also invoke 'ex turpi causa', thereby barring the recovery of any damages whatsoever.

The first instance judgment explicitly noted that the 'fronting' issue, had it been properly pleaded, would likely have triggered 'ex turpi causa'. It is also implied that this doctrine might have been invoked had the vehicle been actively driven (rather than parked) or if it had otherwise been unroadworthy.

Navigating the Nuances

While this judgment is a welcome development for insurers, it underscores that the lack of an MOT remains a nuanced issue rather than a simple black and white matter. In scenarios devoid of additional or more serious illegality, a key distinction will need to be drawn between:

• Innocent or short-term MOT lapses (the 'meritorious claimant'): In these instances, it is highly unlikely that there will be any impact on the recoverability of hire charges.
• Careless or deliberate longer-term lapses (the 'unmeritorious claimant'): Even in these cases, the judgment leaves open the possibility for claimants to present evidence of their intention to have the vehicle tested for an MOT in the short term, had the accident not intervened.

On the face of it, this could mean that only the period up to the claimant's alleged intended MOT date is irrecoverable. Insurers should approach such claims with a degree of healthy scepticism, actively seeking objective corroborating evidence from other sources or documentation that might either support or cast doubt upon the claimant's assertions.

Frequently Asked Questions

What is credit hire?

Credit hire is a service where a replacement vehicle is provided to a claimant following an accident, with the cost of hire being deferred until the claim is settled, often paid by the at-fault party's insurer.

What is 'ex turpi causa'?

'Ex turpi causa non oritur actio' is a legal Latin maxim meaning 'from a disallowed cause an action does not arise'. In essence, it's a defence that prevents a claimant from recovering damages if their claim arises from their own illegal or immoral act.

Why was the MOT crucial in this case?

The absence of a valid MOT certificate meant the vehicle was not legally permitted to be on the road. This illegality formed the basis of the defence's arguments regarding the irrecoverability of hire charges.

Does this judgment mean all claims with a lack of MOT will fail?

Not necessarily. The judgment distinguishes between 'meritorious' claimants (e.g., a brief, inadvertent lapse) and 'unmeritorious' claimants (e.g., a prolonged, careless period without an MOT). For minor, innocent lapses, recovery of hire charges is unlikely to be affected. However, for more significant breaches, the principle of causation could limit or completely bar recovery.

What is 'fronting' in insurance?

'Fronting' occurs when a driver provides false information on a proposal form to obtain cheaper insurance, typically by naming a more experienced driver (often a parent or older relative) as the main policyholder when they are not. This is a form of insurance fraud.

What practical advice is there for insurers?

Insurers should carefully scrutinise claims where there are any potential issues of illegality, such as a lack of MOT or registration issues. They should be prepared to investigate the claimant's actions and intentions regarding rectifying any legal deficiencies and gather evidence to support their defence, particularly concerning the claimant's degree of culpability and intent.

What practical advice is there for claimants?

Claimants should ensure their vehicles are legally compliant at all times, including having a valid MOT and being properly insured. If an accident occurs while a vehicle is non-compliant, claimants should be prepared to provide clear evidence of any steps taken to rectify the situation and demonstrate that any lapse was minor, innocent, and unintended, to maximise the chances of recovering hire charges.

Conclusion

The Majid Ali case serves as a significant judicial pronouncement on the consequences of illegality in credit hire claims. By focusing on the principle of causation, the High Court has provided a framework for assessing recoverability that differentiates between minor transgressions and more serious, prolonged periods of illegal operation. This ruling empowers insurers to challenge claims where claimants have not acted diligently and reinforces the importance of legal compliance for all road users seeking to recover damages.