Right2Drive (New Zealand) Limited (R2D) is a rental car company that hires replacement cars to “not-at-fault” drivers while their collision damaged vehicles are being repaired. The driver is required to sign hire documentation and is liable for the hire charges, payable only when the costs are not recovered from the at-fault driver (or their insurer).  In practice, R2D waives any unrecovered charges. The R2D vehicle is therefore marketed as “free” or “no cost” to the not-at-fault driver. However, this has substantially increased the cost of claims to motor vehicle insurers.

In 2005, Mr Blumberg’s vehicle was damaged in a collision which was not his fault. Mr Blumberg was provided with a R2D replacement vehicle and R2D issued an invoice in Mr Blumberg’s name to Vero, the at-fault driver’s insurer.1 The insurer of Frucor Beverages Ltd (Frucor), the at-fault driver, refused to cover the costs. R2D brought High Court proceedings in Mr Blumberg’s name to recover its hire charges from Frucor.

The litigation therefore, was in the appellant’s and respondent’s names but was in reality, a dispute between R2D and various motor vehicle insurers.

Court of Appeal Decision

The appeal was dismissed, and the High Court decision upheld. All issues were determined in favour of the not-at-fault driver.  The Court of Appeal considered whether the hire charges were recoverable from Frucor, whether the hire agreement was unenforceable and champertous, and the amount R2D could recover.  The key issues of interest in the judgment relate to the legal basis on which R2D could recover the hire charges from Frucor, and therefore from its insurer.

1: Did Mr Blumberg have a legal liability to pay the hire charges to R2D?

Frucor argued that Mr Blumberg had not incurred any legal liability to R2D because R2D never intended to recover its charges from him and his liability to pay the charges was conditional.  He therefore suffered no loss.

The Court of Appeal held Mr Blumberg had incurred a compensatable loss or expense recoverable from Frucor as special damages.  The hire agreement imposed a legal liability on Mr Blumberg.  It was not a gratuitous service.  The fact that R2D did not intend to enforce the obligation against Mr Blumberg to pay the hire charges did not affect their recoverability from Frucor in tort.  Nor did the fact that R2D had to take certain steps under the hire agreement to enforce Mr Blumberg’s liability.

2: Was R2D’s hire agreement unenforceable, in that it assigned a bare cause of action and was champertous?

R2D argued that the hire agreement was an assignment of a bare cause of action because it gave R2D the right to bring an action against Frucor and retain all recovered charges and costs.  Further, it was champertous because it gave R2D exclusive control over the litigation and its proceeds, and because the whole purpose of the agreement was the recovery action.  The replacement vehicle was irrelevant.  That meant R2D had no genuine commercial interest in the assignment or enforcing Mr Blumberg’s cause of action.

The Court of Appeal rejected these arguments and upheld the High Court’s view. The hire had not assigned a bare cause of action to R2D.  Mr Blumberg had not transferred his rights to R2D under the hire agreement.  Instead, he had appointed R2D as his agent to recover the hire charges.  Even if it had been an assignment of his cause of action, R2D had an unarguable genuine commercial interest in Mr Blumberg’s recovery of hire charges from Frucor, which was not objectionable.

Our Comments

Credit hire car companies are commonplace in the UK and Australia.  The Court of Appeal relied on the well-established UK and Australian decisions in coming to its decision which will have significant ramifications for insurers. To date, New Zealand insurers have refused to pay over $4.9 million invoiced to them by R2D for providing replacement vehicles to not-at-fault drivers. The Court’s approach to the legal liability for the hire charges may also be applied more widely in tort claims where the plaintiff claims damages for losses it may not ultimately have to pay.  Please contact us if you would like to discuss these issues further.

  1. Appeals relating to two other accidents were decided at the same time for the same reasons.

This publication is intended as a general overview and discussion of the content dealt with. It should not be used in any specific situation, in which case you should seek specific legal advice.