Win for insurers short-lived: NSW Court of Appeal overturns approach for addressing claims for luxury replacement vehicles

On 27 September 2019, we provided an update on the developments in the law relating to the vehicle hire industry, particularly exorbitant claims by plaintiffs for prestige (or luxury) replacement vehicles following vehicle accidents negligently caused by others.  A very recent NSW Court of Appeal decision has altered this position and we discuss the implications of the decision for the vehicle hire industry and insurers, below.

Key Points:
  • Mere damage to a vehicle does not automatically entitle a plaintiff to a hire vehicle of similar size, functionality or status.
  • The need for a replacement vehicle is not self-proving – a plaintiff must adduce evidence supporting the requisite need.
  • Once a need has been established, however, a plaintiff is likely to be awarded damages by reference to the loss suffered by reason of being deprived of the use of the damaged vehicle, rather than the market rate for a vehicle that would merely satisfy the plaintiff’s need for transportation.

On 18 June 2020, the NSW Court of Appeal (Meagher JA, White JA and Emmett AJA) delivered Judgment in respect of four applications for leave to appeal (heard concurrently) in Lee v Strelnicks; Souaid v Nahas; Cassim v Nguyen; Rixon v Arsalan [2020] NSWCA 115 (Judgments).
The Judgments concern the Court’s approach to determining the measure of damages for hiring a replacement vehicle where the plaintiff’s damaged vehicle was a ‘prestige’ (or luxury) vehicle.
Of the four NSW Supreme Court (NSWSC) decisions the subject of the appeals, 3 had been heard together by Basten J, while Lee v Strelnicks [2019] NSWSC 526 had been decided by Wilson J.
By way of brief background, Basten J had found against 3 of the plaintiffs on the need to hire prestige vehicles whilst their own (prestige) vehicles were being repaired, on the basis that an inexpensive hire vehicle such as a Toyota Corolla would have satisfied each plaintiff’s need for transportation.
In Lee v Strelnicks, however, the plaintiff failed to establish a need for a replacement vehicle, let alone a prestige one, and was therefore only entitled to nominal damages for the period that it was unavailable.
The cases concerned the purpose of compensatory damages in tort law – to place a plaintiff as far as possible in the position in which they would have been, had the wrong not occurred – balanced with a plaintiff’s obligation to mitigate their loss, and taking into account the disruption and inconvenience resulting from the loss of use of the vehicle.
The NSW Court of Appeal (Meagher JA dissenting) has resisted the NSWSC approach, preferring an approach that (subject to a plaintiff establishing a need – that the damaged vehicle would have been used but for the damage) the plaintiff’s ‘need’ extends to the type of replacement vehicle and not the mere functionality of any vehicle in facilitating transportation.
White JA summarised the relevant principles (at [69]) as follows:
  1. The overarching principle is that damages in tort are intended to compensate the plaintiff for loss actually suffered to put the plaintiff in the same position as he or she would have been in had the tort not been committed.
  2. Although the plaintiff has the onus of establishing a reasonable need for a replacement vehicle, once that onus is discharged, the onus of establishing that the hire of the particular replacement vehicle was unreasonable lies on the defendant.”
  3. This is because the loss suffered by a plaintiff who has lost the use of a prestigious vehicle is not merely the inconvenience of not having a vehicle to transport the plaintiff and his or her family, friends and associates, from A to B, but the loss of his or her ability to do so in a vehicle which has the safety, luxury and prestige of the damaged vehicle.
  4. Prima facie, it can be inferred that the plaintiff will have a reasonable need for a “commensurate” vehicle, or a “reasonably equivalent” vehicle, or a “reasonable substitute”, or a “broadly comparable” replacement vehicle.
  5. A reasonable need for the replacement vehicle is not to be assessed by only considering what vehicle would be adequate to meet the inconvenience to the plaintiff of his or her vehicle being off the road.
  6. The plaintiff will be entitled to recover as special damages for the loss of use of the vehicle while it is under repair the reasonable cost of hiring a replacement vehicle, if the plaintiff reasonably needs to hire the replacement vehicle.  If the plaintiff does not need a replacement vehicle, he or she does not suffer a loss from being temporarily deprived of the use of the vehicle for which special damages for the cost of hire of a replacement vehicle are payable.  General damages for any inconvenience suffered may still be recoverable.
  7. The plaintiff is entitled to recover as special damages expenses reasonably incurred to mitigate the loss of use of the damaged vehicle.
  8. The plaintiff has the onus of establishing that he or she suffered some loss by reason of being deprived of use of the vehicle for a period.
In applying the above principles to the four appeals, the NSW Court of Appeal found as follows:
  1. Lee v Strelnicks – no need for a replacement vehicle was established and, therefore, the appeal was dismissed;
  2. Souaid v Nahas – Mr Souaid conceded in evidence that he was ‘content’ with any type of vehicle, so long as he had a vehicle “for my wife, for the kids and stuff” and, therefore, the appeal was dismissed;
  3. Nguyen v Cassim [2019] NSWSC 1130 – Mr Cassim established a need for a replacement vehicle for business and domestic purposes and the rate charged did not exceed the market rate for the vehicle he chose to hire (the only contention being that he should have hired a vehicle of lesser value) and, therefore, the appeal was allowed; and
  4. Rixon v Arsalan [2019] NSWSC 1136 – Mr Rixon established a need for a replacement vehicle and there was no suggestion that the rate charged was unreasonable or excessive (again, the only contention being that he should have hired a vehicle of lesser value) and, therefore, the appeal was allowed.
Implications for insurers
These decisions are expected to increase costs for motor property insurers. 

Where a replacement prestige hire vehicle is claimed, evidence should be obtained as to the reasonableness of the rates claimed for the hire vehicle, and the period for repair, and insurers should remain alive to whether the plaintiff has proven a necessity.

Post by Hicksons Special Counsel, Todd Porman, and Solicitor, Sam Hudson.

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