If you've heard the term "demurrage law" in the context of a not-at-fault accident, you might be wondering what it actually means and how it applies to you. Here's a plain-English explanation.
What is demurrage law?
Demurrage law is a legal principle — rooted in Australian and English common law — that establishes a duty to compensate a person for the loss of use of their property when it has been damaged by another party's negligence.
Applied to car accidents, this means: if another driver damages your vehicle and renders it unavailable, you are entitled to be compensated for your loss of use during the period your car is off the road. The most practical form of that compensation is a replacement vehicle.
This is not a policy benefit. It is not something your insurer provides as a favour. It is a legal entitlement that exists independently of any insurance policy you hold.
Where does the law come from?
The principle has its roots in English common law and has been applied by Australian courts across multiple cases. The core idea is the principle of restitutio in integrum — the duty to restore the injured party to the position they would have been in had the wrong not occurred.
In the context of car accidents, this means you should be put back in the same practical position — including having access to transport — as if the accident had not happened. A comparable replacement vehicle is the most direct way to achieve this.
What does it mean practically?
For Victorian drivers, demurrage law means:
- You are entitled to a replacement vehicle while your own car is unavailable due to another driver's negligence
- The cost of that vehicle is recoverable from the at-fault driver or their insurer
- You do not need to pay the hire cost upfront — the cost is recovered after the hire through a credit arrangement with the hire company
- You can choose your own hire company — the at-fault insurer cannot force you to use their preferred provider
- The entitlement exists even without your own insurance — it derives from the other driver's liability, not your own coverage
Does this apply if my car is a total loss?
Yes — with qualifications. The entitlement to a replacement vehicle does not automatically end when a car is declared a total loss. The hire continues for the period during which you are without a vehicle: from the accident until a settlement offer is received and accepted, or until a reasonable period to source a replacement has elapsed.
What are the limits?
Demurrage law entitles you to reasonable compensation for loss of use. This means:
- The replacement vehicle should be comparable to your own — similar in type and purpose
- The hire rate should be reasonable — excessive rates may be challenged
- The hire duration should reflect the genuine period of loss
- You are still responsible for running costs during the hire — fuel, tolls and parking remain your expense
How credit hire works
Most not-at-fault hire arrangements operate as credit hire. The hire company provides the vehicle immediately, without requiring upfront payment, and then seeks recovery of the reasonable hire charges from the at-fault driver's insurer after the vehicle is returned.
At 888 Car Hire, we operate on this basis for eligible not-at-fault claims. We arrange your vehicle, deal with the at-fault insurer, and seek recovery of the hire costs. You deal with us — not with the insurer.
Read: Your full legal rights as a not-at-fault driver in Victoria →