MILLER -v- MCKNIGHT [2023] WASCA 182 (14 December 2023)

1. This appeal arises from a claim made by the respondent against the appellant in the Magistrates Court. On 13 May 2019 the respondent was driving her car when it was damaged in a crash with a car driven by the appellant. At trial no issue arose about the appellant being liable for any reasonable damages arising from the collision. The respondent obtained a temporary replacement vehicle from an accident replacement vehicle 'credit hire' company called Compass Corp Pty Ltd.[1] Compass operates a credit hire business providing replacement vehicles to persons involved in motor vehicle accidents. The replacement vehicle is provided on a credit basis while the damaged car is being repaired. The hirer does not pay for the replacement vehicle up front. Instead the hire charges are recovered directly from the other party's insurer with the credit hire business acting as recovery agent for the hirer.
2. The respondent's claim in the Magistrates Court was for car rental charges relating to the temporary replacement vehicle hired from Compass.
3. There is an unchallenged finding that the agreement between the respondent and Compass included 'credit hire charges' or 'credit hire benefits' for additional benefits that were not quantified.[2] For example, the respondent was provided with a car on credit until money was recovered as a result of the collision. Other benefits included that Compass would engage and instruct a lawyer to pursue legal proceedings on the respondent's behalf to recover her damages as a result of the car crash.
4. The appellant's car was insured by RAC Insurance Pty Ltd.[3] The respondent incurred hire charges totalling $3,832.66 with Compass. Compass's charges were on‑charged to RAC as the appellant's insurer. As the appellant's insurer, RAC paid Compass $1,901.85 for a delivery fee and the hire charges - the amount paid was based on RAC's assessment of the mainstream market vehicle hire charges. The claim of $1,930.81 in the Magistrates Court represented the difference between the amount charged by Compass and the amount paid by RAC.
5. The magistrate observed, and the primary judge reiterated, that while on its face the proceedings appeared to be a dispute between two individuals, in reality the claim involved a dispute between Compass (through the respondent) and RAC (through the appellant).[4]
6. The dispute in the Magistrates Court concerned whether the amount charged by Compass for the provision of the replacement vehicle - which included the various unquantified benefits - was unreasonable.[5] There was considerable evidence before the magistrate relating to mainstream market vehicle hire charges[6] (sometimes referred to as a 'basic hire rate'[7]). Ultimately the magistrate concluded that the amount paid by RAC (on behalf of the appellant) to Compass was the median hire rate and there was nothing further to be claimed by the respondent. In the magistrate's view, the respondent failed to mitigate her loss by hiring a vehicle that included credit hire charges which took it outside the market for similar vehicles. The respondent's claim was dismissed.[8]
7. The respondent pursued nine grounds of appeal on an appeal to the District Court of Western Australia against the order of the Magistrates Court dismissing the claim. It may fairly be said that the respondent's approach to the appeal in the District Court was extremely thorough. The nine grounds of appeal extend over four pages and 19 paragraphs. The respondent even went as far as to raise a dispute, by ground 4, as to a $5.50 differential on the delivery charge.
8. The primary judge upheld grounds 1, 2 and 7. Critically, his Honour was satisfied that the magistrate erred in finding that the respondent failed to mitigate her loss by hiring a vehicle that included credit hire charges (the hire charges thereby being outside the market for similar hire vehicles).[9] The primary judge summarised his reasons as follows:

[T]he learned Magistrate was of the view that since the amount paid by RAC to Compass was the median rate, it was therefore reasonable.

However, the issue is not what is a reasonable amount, but rather whether what was claimed by [the respondent] was unreasonable.

The fact that the amount paid by RAC to [the respondent] was a reasonable amount does not mean that the amount actually charged by Compass and claimed by [the respondent] was outside the proper range of rental rates and therefore unreasonable.

...

When the learned Magistrate's full reasons are read as a whole, bearing in mind:

(a) the need to take account of [the respondent's] objective circumstances, including considering [the respondent's] full personal circumstances ...; and

(b) that the learned Magistrate acknowledged the difficulty with ascertaining the acceptable range of reasonable rates,

there was no proper basis for the learned Magistrate to conclude that [the appellant] had proved on the balance of probabilities that [the respondent], by hiring a vehicle the costs of which included credit hire charges, she had therefore breached her duty to mitigate her damages.

On the available evidence, a conclusion that what RAC had paid represented the median rate, could not of itself lead to the conclusion that the amount charged by Compass, albeit it may have been high or even the highest rates evidenced, was nonetheless unreasonable.[10]

1. In short, by primarily focusing on trying to determine what a reasonable rate of hire was in the circumstances, the magistrate failed to properly determine the real issue - namely, whether the amount actually claimed by the respondent was unreasonable.[11]
2. Separately, as to ground 2, the primary judge upheld a contention that there was no proper basis in the evidence for the magistrate to have applied a discount of 15% to the mainstream market 28‑day rates.[12] This, in effect, revealed error in the magistrate's factual determination of the median rate.
3. The primary judge set aside the judgment entered in the Magistrates Court. In substitution thereof his Honour ordered that there be judgment for the respondent in the amount of $1,930.81. The question of interest and costs was stood over to be determined on the papers.

1. The appellant lodged an appeal notice against the decision of the District Court on 3 October 2023. The appellant is yet to file an appellant's case. However, to facilitate the determination of the issue under s 43(3) of the Act the appellant has provided a minute of draft grounds of appeal.
2. The appellant intends to appeal on a single ground:

The primary judge erred in law by applying the wrong legal principle in determining, at reasons [73] - [74] and [173] - [176], that the respondent was entitled to recover the costs of hiring a replacement vehicle on credit.

1. At the hearing, senior counsel for the appellant explained the alleged error in this way. Senior counsel noted, first, that in Arsalan v Rixon[13] the High Court of Australia had left undecided the extent to which credit hire charges can be said to have been incurred in mitigation of losses. Senior counsel then referred to the speech of Lord Hoffmann (Lord Browne-Wilkinson & Lord Hobhouse of Woodborough agreeing) in Dimond v Lovell.[14] Senior counsel for the appellant asserted that the primary judge erred in principle by not considering the extent to which the credit hire charges were properly compensable as loss suffered by the respondent. The contention, in substance, was that the additional benefits obtained by the respondent had to be brought into account.
2. Senior counsel for the appellant asserted that the magistrate had made factual findings as to the available mainstream market rates. These were all lower than the credit hire charges incurred by the respondent with Compass. It would be the appellant's contention, at the hearing of the appeal, that the difference between the mainstream market rates as found by the magistrate and the credit hire charges was not recoverable as a matter of law. Senior counsel for the appellant contended that the primary judge thus erred in law in allowing the full amount of the credit hire charges.

1. The question before the court is whether the appeal should be struck out pursuant to s 43(3) of the Magistrates Court (Civil Proceedings) Act.
2. Section 43 is found in pt 7 of the Act dealing with appeals. Provision is made for an appeal from an order or judgment of the Magistrates Court to the District Court (s 40). However, where the proceeding in the Magistrates Court concerns a 'minor case', the appeal may only be made on limited grounds (s 32(1) - (3), s 40(2)). A party to an appeal to the District Court may, without leave, appeal to the Court of Appeal against the District Court's judgment on the appeal (s 42). Section 43 provides for the appeal court's powers. Importantly, an appeal court may make a strike-out order under s 43(3) on its own initiative (s 43(5)).
3. The terms of s 43(3) were set out at the outset of these reasons. It is apparent that there are two separate and distinct limbs to s 43(3). An appeal court may strike out an appeal of the present kind if one or both of the following are satisfied:
   1. The likely costs of the appeal to the parties would be disproportionate to the amount of the claim in the case which is the subject of the appeal.
   2. The likely costs of the appeal to the parties would be disproportionate to the nature of the case which is the subject of the appeal.
4. The discretion is enlivened once either limb is made out.[15]
5. The 'case' refers to the relevant proceedings in the Magistrates Court.[16] Accordingly, the 'amount of the claim' refers to the amount of the substantive relief for which the claim was brought in the Magistrates Court.[17] The expression 'the nature of the case' in the second limb does not relate to the strength or merits of the appeal.[18] But nor is the nature of the case confined to the nature of the substantive proceedings in the Magistrates Court - it might, for example, be that the appeal is brought against an interlocutory order.[19] The term 'disproportionate' means out of proportion.[20] Whether the likely costs are disproportionate is an evaluative question of fact and degree. The only relevant costs are the costs of the appeal to this court; the costs incurred at first instance and in the appeal to the District Court are irrelevant.[21]
6. Two main issues arise in relation to the potential application of s 43(3) of the Act. First, the appeal court must determine whether its power to strike-out the appeal is enlivened - are one or both of the limbs under s 43(3) satisfied? Second, assuming the power to strike-out is enlivened, should the power be exercised? This second issue involves the exercise of a judicial discretion.
7. The exercise of the discretion is informed by the statutory purpose that underpins s 43(3). That purpose was described by Newnes & Murphy JJA in Cristovao v John Horton & Associates:

Section 43(3) is concerned to prevent disproportionate costs being incurred by the parties on appeals from proceedings in the Magistrates Court. It is not concerned with proportionality in any other respect, such as the court resources required for the determination of the appeal. It is evident that the requirement of proportionality under s 43(3) is intended to enable a party to litigate a modest claim in the Magistrates Court without the risk that an opponent who (for whatever reason) is unconcerned with costs might pursue appeals of disproportionate and even crippling expense.[22]

1. Accordingly, s 43(3) is not concerned with proportionality in the sense of the application of scarce public resources in terms of the use of the limited judicial resources of the court - the provision is only concerned with the resources of the parties.[23]
2. Two more things may be said about the exercise of the discretion. First, in considering whether an appeal should be struck out based on the first limb it is not necessary to consider whether the second limb has also been made out. Second, in the exercise of the discretion this court is not required to consider the merits of the decision below. Otherwise the discretion is an unfettered discretion to be exercised judicially according to the justice of the case.[24]

The evidence and submissions on whether the appeal should be struck-out The evidence before the court

1. The appellant relied on two affidavits sworn by Adam Twomey. Mr Twomey is a recoveries and settlement manager employed by RAC. Mr Twomey's evidence was described by the respondent as being 'pitched at a remarkably high level of generality'.[25] There is force in that criticism. Mr Twomey's evidence did not go to the present appeal. Rather, it sought to summarise the scope of litigious disputation between insurers and credit hire providers in Western Australia.
2. According to Mr Twomey, RAC insures more than 50% of the 1.67 million motor vehicles registered in Western Australia. The insurance policies indemnify policyholders for claims by a not‑at‑fault party (such as the respondent) for a temporary replacement vehicle. In that respect RAC paid some $11 million to credit hire providers in the financial year ended 30 June 2023 based on demands received of about $20 million for some 3,525 claims. RAC was instructing solicitors to defend approximately 620 cases brought by a credit hire provider against an RAC policyholder in the Magistrates Court. Mr Twomey said, without explication, that the issues arising in the appeal are relevant to most demands RAC has received from credit hire providers.
3. In his affidavit sworn on 30 November 2023 Mr Twomey explained how RAC processed each demand from a credit hire provider for a replacement vehicle. An example was referred to and the claim was attached. Mr Twomey asserted that the cost of hiring a replacement car from a credit hire provider was typically higher than the cost of hiring a car from a mainstream rental company.

1. The appellant says that, although the appeal presents as a dispute between two individuals, it is really a dispute between RAC and Compass. On behalf of the appellant - or perhaps in actuality reflecting the position of RAC - it is said that while the individual credit hire claims are for relatively small sums their aggregate quantum is significant. In this respect the appellant relies on Mr Twomey's evidence.
2. The appellant says that the issues to be determined in the appeal will have consequences for the resolution of the various credit hire claims received by insurers across Australia. It is asserted that:

The primary issue raised in this appeal is the extent to which particular hire expenses beyond the cost of the substitute vehicle itself, such as credit hire charges, are recoverable. That issue was expressly left open in [Arsalan v Rixon [2021] HCA 40; (2021) 274 CLR 606 [4], [33]]. Both the magistrate at first instance and the primary judge below noted the absence of binding authority governing the issue in Australia. The issue has been considered by the House of Lords [referring to [Dimond v Lovell [2002] 1 AC 384].[26]

1. The appellant argues that, for this reason, the nature of the case is proportionate to the likely costs of the appeal. Having regard to the nature of the case, and its significance not only to the parties but to other insurers and credit hire businesses, the appellant says that the appeal should not be struck out.

1. The respondent relies on both limbs of s 43(3) of the Magistrates Court (Civil Proceedings) Act. In answer to Mr Twomey's evidence the respondent says that the appellant does not establish what effect this appeal would have on the current state of litigation between insurers and credit hire providers. It is not clear, according to the respondent, that the maximum benefit of the litigation will transcend the minor amount claimed. It is said to be unlikely that the appeal will result in any lengthy disquisition of the law of credit hire generally.
2. So far as the appellant failed in the District Court, the respondent focuses on the primary judge's identification of the substantive issue for determination as being:

Did [the appellant] prove that the amount charged by Compass for the hire of the replacement vehicle was unreasonable?[27]

1. The respondent says that this issue - and other issues on which the respondent succeeded before the District Court - were fact specific to this case. Accordingly, the nature of the issues for determination in the appeal mean that the resolution of the appeal will not have consequences that extend far beyond the case.
2. It is accepted that there is a finding that the replacement car hire charges included collateral benefits described as 'credit hire charges'.[28] However, there was no quantification of those charges.[29] The respondent accepts (with respect correctly) that there is a legal controversy as to whether credit hires include some non-compensable benefits - so too there is legal debate as to whether and, if so how, any non-compensable benefits ought to be stripped out from the credit hire charges as claimed by the not-at-fault party.[30] But, in the respondent's submission, this appeal would be a poor vehicle to consider that issue. First, there was no finding by the primary judge that the magistrate was in error in concluding that the credit hire costs included such a benefit.[31] Second, an unusual feature of the case is that there was a finding by the magistrate that on the evidence 'it made good sense' for the claimant to avail herself of the credit hire option.[32]
3. The respondent characterises the nature of the case in the Magistrates Court as being no more than the simple factual issue of whether hire car charges were unreasonably incurred by the respondent.

1. It is convenient to consider whether the discretion under s 43(3) of the Magistrates Court (Civil Proceedings) Act is enlivened on the basis of the first limb.
2. In this appeal the amount of the claim in the case which is the subject of the appeal is the amount of $1,930.81 sought by the respondent in the Magistrates Court. There is no direct evidence before the court as to the likely costs of the appeal to the parties. However, on a number of occasions the court has observed that its experience where one of the parties is legally represented is that costs are highly likely to exceed $15,000 in even a simple appeal.[33] In the present appeal both parties are legally represented. Both have retained senior counsel. There is likely to be some legal complexity which will impact on the parties' preparation for the appeal. Ignoring filings fees - which themselves will exceed $1,930.81 - we consider that the likely costs of the appeal to the parties will exceed $30,000 by a considerable margin.
3. It is plain, in the circumstances, that the likely costs of the appeal to the parties would be disproportionate to the amount of the claim in the case which is the subject of the appeal. The likely costs will be many multiples of the value of the claim in the Magistrates Court. The power to strike-out the appeal under s 43(3) of the Act is enlivened. There is no need to consider whether the second limb in s 43(3) of the Act is also engaged.
4. The circumstance that the likely costs of the appeal will be disproportionate to the amount of the claim will ordinarily be a factor of considerable weight in the exercise of the discretion under s 43(3). Often it will be the determinative factor in the exercise of the discretion. There are, however, a number of countervailing factors in the present appeal.
5. First, while - as the named parties - the appellant and the respondent will incur costs of the appeal that are likely to be disproportionate to the amount of the claim, the practical reality is that the appellant and the respondent will not be meeting the costs. The costs will be met by the insurer (RAC) and the credit hire provider (Compass).
6. It may be inferred that RAC is willing to meet the appellant's costs of the appeal and any potential liability for adverse costs. While, before this court, Compass - through the respondent - seeks to avoid the costs of a further appeal by supporting an order that the appeal be struck out under s 43(3), Compass was willing to meet the respondent's costs of the appeal and any potential liability for adverse costs in the District Court appeal. The prosecution of the appeal in the District Court on the respondent's behalf involved advancing numerous grounds and the pressing of some matters that were minor and, in one case, trifling. The respondent's approach to the appeal in the District Court was antithetical to being then concerned about the likely costs of the appeal being disproportionate to the amount of the claim.
7. Second, following on from the first point, in the unusual circumstances of the present case proceeding with the hearing and determination of the appeal will not prevent or hinder the fulfilment of the statutory purpose of s 43(3). The risk of the disproportionate and even crippling expense of an appeal is not objectively likely to deter a person in the position of the respondent from litigating a modest claim of this kind in the Magistrates Court.
8. Third, the appeal raises a question of legal principle of general application.
9. Fourth, while the question of legal principle arises in the context of a modest claim, that is likely to nearly always be the position in a case of this kind. Moreover, while the appeal itself concerns a modest claim, the evidence establishes that there are many such claims between insurers and credit hire providers on an annual basis and that the aggregate value of those claims is sizable. A number of those claims result in proceedings in the Magistrates Court. The magistrate recorded that '[a]t last count there were almost 1000 cases involving credit hire claims' before the Magistrates Court. His Honour went on to state that these claims occupy a good deal of the court's resources including those of registrars conducting pre-trial conferences.[34]
10. The extent to which this court's determination of the appeal will assist in resolving the various disputes arising between insurers and credit hire providers is uncertain.
11. We acknowledge, in this respect, two points well made by senior counsel for the respondent. First, that Mr Twomey's evidence does not go as far as to assert that the determination of the appeal will resolve the issues commonly arising as between insurers and credit hire providers. Second, that it may turn out that the appeal is not a suitable vehicle in which to fully ventilate and determine the issue raised by the appellant. At the trial before the magistrate there was a lack of evidentiary exploration of the component parts of the credit hire charges incurred by the respondent. But in part that was because of the forensic difficulties of the exercise and the disproportionate costs it would involve. As a matter of impression that is likely to be a common feature of cases of this kind. A decision of this court in the present appeal is therefore likely to be of some value in resolving the disputes arising between insurers and credit hire providers and to have a greater bearing than simply resolving the dispute on appeal as between the appellant and the respondent.
12. On balance, weighing the factors we have referred to, and having regard to the statutory purpose that informs the discretion under s 43(3) of the Magistrates Court (Civil Proceedings) Act, we are not persuaded that the court should strike out the appeal. In the ordinary case this court might usually be expected to exercise the power under s 43(3) to strike out an appeal concerning a Magistrates Court's claim for $1,930.81. This is not an ordinary case. There are wider benefits that may accrue to the benefit of the administration of justice in the court hearing and determining the appeal. The principles applying to the recovery of credit hire charges ought to be the subject of a considered decision by this court.
13. For these reasons the appeal should proceed despite the circumstance that the likely costs of the appeal to the parties would be disproportionate to the amount of the $1,930.81 claim in the Magistrates Court.

1. We decline to exercise the power to strike out the appeal under s 43(3) of the Magistrates Court (Civil Proceedings) Act. In the unusual circumstances of the appeal it should proceed to hearing and determination. There is no formal application before the court. There is thus no need for any orders to give effect to these reasons. The parties' costs of and incidental to the question of whether the appeal should be struck out under s 43(3) should be reserved.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

[2] McKnight v Miller [2023] WADC 107 (primary reasons) [32]. See also [56], [73], [148], [171], [183] - [185], [187] - [189], [191]. The magistrate also found that there were credit hire charges: McKnight v Miller (Unreported, MCWA, 1 July 2022) (Magistrates' reasons) [170].

[5] Primary reasons [8], [55.1], [70], [170].

[7] Pattni v First Leicester Buses Ltd; Bent v Highways and Utilities Construction Ltd [2011] EWCA Civ 1384; [2012] RTR 17 [34].

[10] Primary reasons [69] - [74]. See also [173] - [176].

[13] Arsalan v Rixon [2021] HCA 40; (2021) 274 CLR 606 [4], [33].

[14] Dimond v Lovell [2002] 1 AC 384, 401.

[15] Tey v Optima Financial Group Pty Ltd [2010] WASCA 219 [26].

[16] See Magistrates Court (Civil Proceedings) Act s 3(1) (definition of 'case').

[17] O'Bree v Collier [2012] WASCA 88 [22].

[18] Defendi v Eden Hill Plasterers [2008] WASCA 269 [16].

[19] Cristovao v John Horton & Associates [2012] WASCA 12 [21].

[20] Defendi v Eden Hill Plasterers [15].

[21] Defendi v Eden Hill Plasterers [4], [14], [40].

[22] Cristovao v John Horton & Associates [22].

[23] Defendi v Eden Hill Plasterers [49].

[24] Tey v Optima Financial Group Pty Ltd [25] - [26].

[25] Respondent's submissions dated 16 October 2023 par 5.

[26] Appellant's submissions dated 13 October 2023 par 8.

[28] Primary reasons [73], [183]. See also [32].

[30] The High Court of Australia adverted to the issue, but was not required to determine it, in the recent decision of Arsalan v Rixon [4], [33], [36]. The issues surrounding this aspect of credit hires has been much litigated in the United Kingdom. See eg Dimond v Lovell (390), (401 - 403), (407); but compare (391); Lagden v O'Connor [2003] UKHL 64; [2004] 1 AC 1067 [4], [6] - [7], [11], [34] - [37], [76], [82] - [88], [103] - [106]; Pattni v First Leicester Buses Ltd; Bent v Highways and Utilities Construction Ltd [30] - [41], [73]; Stevens v Equity Syndicate Management Ltd [2015] EWCA Civ 93; [2015] 4 All ER 458 [9] - [21], [33] - [37], [39]; McBride v UK Insurance Ltd; Clayton v EUI Ltd [2017] EWCA Civ 144; [2017] RTR 27 [5], [68], [95] - [96]. See also Edelman J, McGregor on Damages (21st ed, 2021) [9-069].

[33] Rankilor v Etihad Airways PJSC [2019] WASCA 36 [20]; Triplett v Busselton City FC Inc [2019] WASCA 98 [17].