With the news that Boris Johnson has returned to Number 10 Downing Street to take care of all the things he forgot to take care of whilst he was busy asking people to bung £5 into the kitty so that Big Ben could Bong for Brexit on January 31st to mark our planned departure from the European Union, we can at least breathe a sigh of relief that Dominic Raab can go back into the cupboard. Shame really because he had almost mastered the skill of looking people in the eye, had gotten beyond the dribbling phase and had almost got the nervous shaking under control at the 5 pm COVID press conferences. Now in the front line is Alok Sharma. Who, I hear you ask? He’s just another politician (pictured below), devoid of any real experience of doing stuff in the real world but no doubt enriched by his earlier career as a chartered accountant in the corporate and private-equity sector where he worked on cross-border mergers and acquisitions, listings and restructurings. However, it is good to see that Boris has told him to hold seven ‘sector by sector’ meetings with businesses and trade unions to determine the plan for how to start to re-open the economy again.
A little research highlights that he may have started those talks earlier than claimed. In the week that the implementation of the Civil Liability Act was delayed again, it has also been revealed that Mr Sharma had meetings with insurers about a week ago to talk about a backstop for trade credit insurance to support business supply chains hit by the coronavirus pandemic, or so an insurance industry source claims. It never ceases to amaze me how insurers can have different strategic objectives but can still manage to unite behind a common message where it suits their collective ambition. There is a lesson there for the Credit Hire community. As regards insurers, in this case, they are now asking for help to stem a crisis in the market for credit insurance, a form of insurance that many companies have to buy to ensure that, in the event of their customer ceasing to trade, they will be paid the value of any outstanding invoices. Those CHOs that cross-hire from large rental companies may be unaware, but those international or national rental companies usually buy credit insurance equal to their outstanding credit risk with each CHO in case of a terminal event. Often that is the basis on which a CHOs credit limit with Europcar or Avis or others is agreed and set; it is not by the company supplying the goods or services but by the insurer that underwrites the trade credit insurance that covers the risk of non-payment if a firm’s customers become insolvent. They set the limit based on how much they think that customer is good for, having reviewed the accounts and other information relative to their business sector.
Of course, in the current Coronavirus epidemic, most credit insurers are not issuing new policies and some are wriggling, or attempting to wriggle off the hook in respect of those existing policies issued before anyone worked out that COVID was a word that could earn you 25 points in a game of Scrabble. Today, if credit hire litigation was considered a scandal, the number of pending claims against insurers underwriting credit and business interruption policies, seeking to hide behind an exemption, exclusion or other claims that COVID 19 was an act of God, merits more than a double-page spread in the Mail on Sunday. Insurers, however, have the Government over a barrel. In countries like France, Germany and the Netherlands, governments have already agreed to give guarantees to credit insurers in an attempt not only to keep coronavirus-hit companies afloat at a time when some insurance firms want to cut cover, but also to underpin the economic mechanism necessary for restarting the economy. In a quote to Sky News, someone at the ABI reported that it had proposed a reinsurance scheme to the UK government which “would see insurers continuing to offer cover, with limited reduction in credit limits to customers, with the government acting as a reinsurer of last resort.” The astute readers amongst you will have figured that what they really meant to say in that last sentence was “the taxpayer would act as the insurer of last resort”. So why is the story about the insurance industry asking for taxpayer support news? I think that there are two reasons.
The first is that it highlights, yet again, the extent to which the economic or financial fabric of every company has been laid bare by the Coronavirus epidemic. There are no winners, only losers, and what will define commercial entities is how they behave in a socially appropriate manner. Where they choose not to, that adds further weight to arguments that might be articulated about impecuniosity when we canvass the opportunity for a change of approach in arguing those points a bit later next month. More importantly, perhaps, the extent to which the insurance industry avails itself of government guarantees, or any other forms of financial support which funded by the taxpayer, will not play out well when those insurers seek to defend claims where they choose to argue about the reasonable conduct of an impecunious Claimant needing to credit hire a vehicle.
As an aside, it seems that the extent to which defendant law firms take advantage of the same forms of financial support, like furloughing employees for example, as a means to support their balance sheet will, if such data becomes publicly available, also be useful in the years ahead. The difference between the haves and the have nots is laid bare in this economic crisis and those big organisations that seize the outstretched hand of government as a cover to ferret in the pockets of taxpayers may need to be careful about the media coverage they receive later when they decline to pay legitimate credit hire claims and argue against impecunious claimants.
The second and more positive point is that the start of these meetings between government and industry means that there is a likelihood that, in the second week of May, the government may announce how they will begin to relax some of the lockdown regulations to try to engineer a gradual return to normal. I use the word 'may' but leaks to the media seem to suggest such an announcement will appear in the next few days. The most important element of that development is using it as a stimulus to think about the new normal and what it might mean for business as usual for CHOs. Looking forward, the Credit Hire industry faces a series of opportunities and challenges associated with those changes. Inevitably, where employees have been working from home and providing remote support, or where employees have been furloughed and waiting for a recall, the potential for a slight increase in the number of driven miles and a potential increase in accidents, aligned with the slow return to work of the repair industry is positive news. Work in progress - claims awaiting hire, will probably have been depleted over the lockdown period and hires will probably still have a longer average duration irrespective of the labour hours. In addition, insurers will still try to intervene and there will be tension as those insurers that have been behaving aggressively will probably try to prevent a resurgence in credit hire activities by continuing to argue what are truly baseless points around need and reasonableness.
The more important issue, however, is addressing the volume of claims currently on hire or those that have been recently invoiced and sent to insurers and, more importantly, the significant volume of claims that have been litigated and, effectively, stayed and left in some kind of Twilight Zone. I read an article from an eminent QC over the weekend suggesting the only way he thought it would be possible to re-boot the Criminal Justice system was to give the accused the opportunity not to be tried by a jury but to agree to accept the decision of the trial judge as to their guilt or innocence. I can’t see many criminals thinking that’s a good idea. But then I heard an interview with Lord Neuberger on Radio 4. He expressed some doubt about the capacity of the Civil Justice System to cope with the volumes of litigation currently in the system following years of cuts and closures, especially with the increased lockdown pressures. Credit Hire Barrister, Andrew Hogan, posted something on LinkedIn last week highlighting how Credit Hire cases have already proved the law of gravity and fallen to the bottom of the court's list of priorities.
Lord Neuberger's suggestion was for more ADR; something which probably won’t satisfy insurers who traditionally use litigation as a blunt instrument to beat the claimant into submission or to procure some other tactical or commercial advantage. Whether ADR might find favour with CHOs is something the Credit Hire industry and their solicitors should now be contemplating because, once the GTA has failed, litigation is the only remaining option. Moreover, if the impact of constipation caused by an increasing volume of litigated cases means that it will take a year or two for a small claim to be litigated then that sounds like a horrendous outcome. I made some informal enquiries before the lockdown and I think there may be as many as 50 to 75 thousand credit hire claims that are currently in litigation including a number where litigation is just being started. I can’t guess what the average claim value is now but, on the basis that these include claims that fell out of the GTA and so may be of longer duration or for more expensive hires now billed at a commercial rate, there is probably upwards of £250 million in value, 25% of estimated annual industry turnover, that the Coronavirus lockdown may well make harder to unlock. There was never a more important time to get ahead of the curve and think about what this all means for future medium-term cash collections.
Less than a week after it was launched, I am delighted to report that The Credit Hire Forum now has support from 12 firms of claimant credit hire solicitors, 6 independent counsel, 2 firms of associated professionals and over half-a-dozen CHOs. Subscribing to the forum is easy (www.credithire.org.uk) and the basic subscription is free.
Our focus over the next month of lockdown is to think about the most effective means to unlock that £250 million of debt by working collaboratively and intelligently to give our solicitor and barrister partners, the strategy and tactical advantage to more effectively address the challenges posed by the defendant insurer and their solicitor and the incremental obstacles that will be introduced by the civil justice system. By the end of May, we intend to have devised and implemented a mechanism that does for our credit hire members what FOIL does for insurers.
Absent a better idea from anyone else, our view is that the only way to deliver a better outcome from litigation is to do something about it. As the Government starts to engage with industry and trade unions, the combined forces of capital and labour, to build the plan to try to turn Britain back on, we’re working with solicitors and counsel and some CHOs to do the same. The message for today, if there was one, is that we’re going to be in the same position for at least a month and so it is now time to start looking forward and thinking about what comes next, how best to engage with each other to face the challenge and to recognise why standing alone makes as much commercial sense as Dominic Raab on a bad day.