England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
HON MR JUSTICE MORISON
[2006] EWHC 3359 (Comm)

		Royal Courts of Justice Strand, London, WC2A 2LL
		13th September 2007

Lord Justice Longmore:

Introduction

1. This is an appeal about the cost of hire of a replacement car for a period during which a claimant's car is being repaired after the occurrence of an accident for the consequences of which a defendant is legally liable. It is said to raise an important point of principle for both claimants' and defendants' insurers but arises from facts which are extremely commonplace.

The facts

2. On 8 March 2004 Mr Bee, a family man who had retired from his job as an insulator and was aged 71, was sitting in his stationary car on Frederick Way in Grimsby when a car driven by Mr Jenson ran into the back of his car. Mr Jenson has admitted that he was solely responsible for the accident. Mr Bee's rear bumper, hatch tail-gate, rear under-carriage and rear lights were damaged and the car was undriveable. A Grimsby garage owned by Messrs. Wilson & Co. repaired the car, the repairs were finished by 1 April 2004 and Mr Jenson's insurers paid for those repairs.
3. Meanwhile Mr Bee needed a car. He seems in every way to have been a model grandfather. Each weekday he drove his daughters to work and, during term time, he drove his grandchildren to school. Twice a week he drove to Louth to help his elderly step-mother with her shopping and other errands. No doubt he used his car for his personal purposes as well. Wilson & Co. did not (for whatever reason) provide a courtesy car but Section H of Mr Bee's motor insurance policy with Cooperative Insurance Society provided that an insurance company called DAS Legal Expenses Insurance Co. Ltd. ("DAS") would arrange for a hire car to be supplied by a nominated supplier. Mr Bee was able to take advantage of this section of the policy and DAS duly arranged the supply of a hire car from Helphire Group PLC. An agreement was then made dated 12 March 2004 between Helphire (UK) Ltd. and Mr Bee whereby Helphire provided a replacement car and charged DAS the sum of £610.46 being 21 days hire at £24.74 per day together with VAT. DAS originally had an arrangement with a different hire company, but in return for DAS making a new overall agreement with Helphire, Helphire made (1) a contribution to the cost of DAS extricating itself from that previous agreement and (2) a payment to an affiliate of DAS, Counselline Ltd. a company which later, on 31 May 2006, changed its name to DAS Legal Services Ltd. Mr Jenson's insurers now submit that Mr Bee and his insurers, DAS, should give credit for this second payment against their claim for the hire charges of £610.46. The amount of the payment to Counselline is commercially sensitive and it has been decided that DAS will only be ordered to disclose it if they are, in principle, bound to give such credit. Morison J. has held that they are not so bound. Hence this appeal.
4. Mr Jenson and his insurers have always accepted that it was reasonable for Mr Bee to hire a replacement car and that the car which he hired was a reasonable replacement for his own car. It was in issue before the judge whether the actual rate charged by Helphire was a reasonable rate but the judge held that the rate was good value for money compared with other spot rates (para. 15) and there is no appeal against that finding. One might thus expect that such reasonable rate should, at any rate prima facie, be recoverable from the tortfeasor.

Some Background

5. Before I record counsel's arguments, it may be helpful to have some legal background. Historically comprehensive motor insurance policies offered cover for damage to an insured's vehicle but did not cover the cost of hiring a replacement for the period of repair. The cost of such hire would of course normally be recoverable from a defendant tortfeasor but a claimant would initially have to meet the cost of hiring a replacement himself and many people involved in accidents did not wish to bear that cost or the risk that that cost would not be recovered in any ensuing litigation. To meet the potential gap in the market accident hire companies have come into existence who offer, for a consideration, to arrange the temporary replacement of a car without immediate cost, trouble or risk to the insured. One of the features of such agreements was that liability to pay the hire charge was postponed until any claim against a defendant was successfully concluded. In many cases claims against tortfeasors to recover sums paid to such companies were for sums higher than spot rates which ordinary hire companies would have been willing to offer for ready money; this was not appreciated by defendants' insurers who tried to find ways to resist payment of such sums charged by the accident hire companies. They first sought to say that the agreements made with the insured persons by the hire companies were champertous. This argument was rejected by the House of Lords in Giles v Thompson [1994] 1 AC 142.
6. The second idea was to challenge the agreements by saying that they were regulated consumer credit agreements which were unenforceable because they did not comply with the requirements of the Consumer Credit Act 1974. On this occasion defendants' insurers won a resounding victory since in Dimond v Lovell [2002] 1 AC 384 the House of Lords held first that such agreements did indeed fall foul of the 1974 Act and were thus unenforceable. That meant that the claimant could not recover any sum payable for car hire. The House held, secondly, that even if the claimant could have recovered he could have recovered no more than the "spot" charge and not the charges made for an agreement that entitled the claimant to more benefit than the cost of hire itself (e.g. by way of financing the cost of replacement pending resolution of a claim or the cost of fighting the claim itself). In a yet further case, in which the arrangement for car hire did not constitute an regulated consumer credit agreement, the House of Lords held that the position was different as to the second holding in Dimond v Lovell, if the claimant was impecunious and could not afford to pay the cost of hire upfront, but could only get a replacement by entering into a more expensive credit agreement, see Lagden v O'Connor [2004] 1 AC 1067.
7. The way in which the problems of the 1974 Act have been avoided in the present case is for the claimants' insurance policy to have a term that a second insurance company would cover legal expenses and arrange the hire of a replacement vehicle (all as a provision of the original insurance to which the 1974 Act would not apply). This is profitable business for which companies experienced in hiring out cars will compete and they will sometimes offer inducements to such insurers to take advantage of their services. Tortfeasors' insurers now seek to say that they should have the benefit of such inducement since if one looks at the overall picture, the inducement should be set off against the individual hire charge which the claimants' insurers have been charged and that the claimants or their insurers can only recover what they must be deemed to have "truly" paid.

The Terms of the Policy

8. The terms of Section H of Mr Bee's policy so far as may be relevant are as follows;-

(a) Under "What is insured", Clause 1 provides;

[DAS] will negotiate to recover the Insured Persons' uninsured losses and costs in respect of an event which causes (i) damage to the Insured Vehicle or personal effects in or on it or (ii) death or injury to the Insured Person.

(b) Clause 2 provides as follows;

[DAS] will pay Vehicle Hire Costs following an accident involving a collision between the Insured Vehicle and another vehicle where

(i) the Insured Vehicle cannot be driven and

(ii) the accident was entirely the fault of an identified driver of another vehicle on which there is a valid motor insurance.

provided that

(i) [DAS accepts] that it is always more likely than not that the Insured Person will recover damages (or other legal remedy) or make a successful defence and

(ii) any legal proceedings will be dealt with by a court or other body to which [DAS agrees]

In the definition section at the start of the CIS policy, the term "Vehicle Hire Costs" is defined as "the cost of hiring a replacement motor car or standard commercial vehicle for one continuous period".

(c) There follows a series of notes including the following;

(6) Where [DAS agrees] to pay Vehicle Hire Costs the Insured Person must

(a) accept [DAS's] choice of vehicle hire company, the type of vehicle and the period of hire

(b) comply with any conditions of the vehicle hire company

(c) Agree to [DAS] attempting to recover Vehicle Hire Costs in the name of the Person and refund to [DAS] any Vehicle hire Costs recovered.

(d) Under "What is Not Insured", the following two exclusions are material;

(b) Legal Costs of Vehicle Hire Costs incurred before [DAS agrees] to pay them

(e) Vehicle hire costs where the Insured Person is claiming

against a person who cannot be traced.

The Proceedings

9. So far in deference to the appellant's skeleton argument, I have referred to Mr Bee and his insurers interchangeably as if they were both making the claim for the recovery of the hire charges. In fact this is inaccurate. In English law the claim is only made and can only be made by Mr Bee, see MacGillivray, Insurance Law 10^th Edition paras. 22-44 to 22-47. His insurance arrangements would normally be said to be irrelevant to the tortfeasor's liability. They are as is sometimes said "behind the curtain". The reality is nevertheless that the claim for the hire charges is a subrogated claim brought by Mr Bee for the benefit of his insurers. The insured himself, although the actual claimant, has not himself paid the repair bill for his car nor has he paid the hire charges; nor indeed has he paid the cost of litigating against Mr Jenson but it is no defence for Mr Jenson (or his insurers) to say that Mr Bee, because he has been compensated by his insurers, has himself suffered no loss. Ever since Bradburn v Great Western Railway (1874) LR 10 Ex. 1 defendants have had to accept that a claimant's insurance arrangements are irrelevant and cannot be prayed in aid to reduce their liabilities. A corollary of the rule that only the insured can sue in respect of the loss is that a defendant can only discharge his liability by paying the insured. If, however, the insured has already been indemnified by his insurers, he will hold his recovery on trust for his insurers. These provisions of common law are all reflected in Note 6 to Section H of Mr Bee's policy.
10. It follows from this that the correct issue in the present appeal is whether Mr Bee can recover the reasonable hire of a replacement car even though the cost of that hire has been paid directly to the hire company by his insurers rather than by Mr Bee himself.

The Argument

11. Miss Dohmann Q.C. for Mr Jenson accepted, of course, that in general a tortfeasor cannot rely on the insurance arrangements made by a claimant. She submitted however that the true cost of the hire of the replacement car was not £610.46 but only that sum as reduced by the payment made by Helphire to Counselline. She supported that argument by contending that Mr Bee was never himself liable to pay the hire charges since it was DAS, not Mr Bee, who had rendered themselves liable to pay for the hire charges and that Mr Bee could not recover for sums which he was himself never liable to pay. Any evaluation of this contention will necessitate a detailed analysis of the hire contract which Mr Bee has signed with Helphire.
12. Mr Butcher Q.C. for Mr Bee submitted that it was irrelevant to undertake that detailed analysis since Mr Bee was entitled to recover the reasonable cost of hiring a replacement car even if that cost was payable (and paid) by his insurers rather than personally by him. It had been agreed between the parties that it was reasonable for Mr Bee to hire a replacement while his own car was being repaired. It had been found by the judge that £24.74 per day plus VAT was a reasonable sum for a hire car and that was the end of the matter.

Relevance of Liability for Hire Charges

13. There is as it seems to me a fatal fallacy in Miss Dohmann's reliance on the argument (if correct) that Mr Bee was not himself liable for hire charges. If the argument were correct, the next step in the argument ought logically to be that Mr Bee could make no recovery at all or perhaps that he might only be allowed some notional sum for the inconvenience of not having his car for the period of repair. But the defence to the claim has never been that Mr Jenson is not liable for the hire charges at all or only liable for some such notional sum. It is that Mr Jenson is only liable for £610.46 less the amount paid by Helphire to Counselline. This amount (whatever it might be) has no connection with Mr Bee's liability or otherwise for the hire charges and it is a remarkable proposition that if Mr Bee is liable to Helphire for the hire charges he can recover the whole of £610.46 but that, if he is not liable for such charges, he can recover that amount subject only to an arbitrary reduction agreed between Helphire and DAS/Counselline in an arrangement with which Mr Bee himself has had nothing to do.
14. I would for my part decline to engage in what is at best a technical (and not entirely easy) analysis of the question whether Mr Bee was himself liable for the hire charges under the agreement he has signed with Helphire. Such an argument might well depend on the significance of clause 10 of the hire agreement signed by Mr Bee committing him to make various specific payments (not including the hire charges) and the fact that the relevant box relating to charges caters for extras which are to be payable by Mr Bee without making clear whether Mr Bee is to be liable for the hire charges themselves. Such an argument is only going to be important in the real world in the unlikely event of DAS becoming insolvent, in which case Mr Bee would, no doubt, be somewhat surprised to be told that he must pay the hire charges although he had paid a premium to secure the benefit of a hire car. It would be much better for any such argument to be resolved in a case where it really mattered especially since the relevant authorities are not easily reconcilable, see e.g. Charnock v Liverpool Corporation [1968] 1 WLR 1498, 1505, in which Salmon LJ. thought the general position might well be that the insured was indeed liable, whereas this court seems to have come to the opposite conclusion in Brown v Davis & Galbraith [1972] 2 Lloyds Reports 1, both decisions emphasising, however, that the facts would be important in every case. Moreover Mr Butcher pointed out that neither court had been referred to Adams v London Motor Builders [1921] 1 KB 495 where it was held in terms that a claimant whose claim was being supported and paid for by a trade union was nevertheless liable to the solicitor instructed by the Union for that solicitor's costs.
15. It is, in any event, necessary to say that it does not follow from the fact that Mr Bee was not liable for the hire charges of the replacement car, that he cannot recover damages for the deprivation of his use of his car. It may be a question of what the appropriate amount of such damages will be but, if he has in fact reasonably made arrangements for a hire car, there is no reason why he should not recover the cost of hire, whether or not he has rendered himself liable for the hire charges and whether or not the actual cost has been paid by him or somebody else such as an insurer (or indeed any other third party). In so doing he may in legal jargon be recovering general damages rather than special damages but there is no significance in that.
16. This approach is not novel and ought not to be controversial. It was expounded in The Mediana [1900] AC 113, 117 in the famous extract from the speech of Lord Halsbury relating to his chair;

"Supposing a person took away a chair out of my room and kept it for twelve months, could anybody say you had a right to diminish the damages by showing I did not usually sit in that chair, or that there were plenty of other chairs in the room? The proposition so nakedly stated appears to me to be absurd… what an arbitrator or jury very often do is to take a perfectly artificial hypothesis and say "well if you wanted a chair, what would you have to give for it for the period"; and in that way they come to a rough sort of conclusion as to what damages ought to be paid for the unjust and unlawful withdrawal of it from the owner. Here, as I say, the broad principle seems to me to be quite independent of the particular use the plaintiffs were going to make of the thing that was taken, except… when you are endeavouring to establish the specific loss of profit, or of something that you would otherwise have got which the law recognises as special damages. In that case you must show it and by precise evidence… But when we are speaking of general damages no such principle applies at all, and the jury might give whatever they thought would be the proper equivalent for the unlawful withdrawal of the subject matter then in question."

I do not consider that Lord Halsbury's description of an arbitrator's or jury's hypothesis as "perfectly artificial" indicates any reservation as to the correctness of that hypothesis. On the contrary the whole tenor of the above passage is that he would endorse it in an appropriate case.

17. For these reasons Miss Dohmann's contentions that Mr Bee was never liable for the hire charges and that, for this reason, the payment to Counselline should be brought into account by him in his claim necessarily fall away.

The Correct Question

18. Once the question whether Mr Bee was personally liable for the hire charges is put on one side, the only question is whether Mr Bee can recover from Mr Jenson what is accepted to be a reasonable hire charge reasonably incurred or whether Mr Jenson is entitled to submit that he is only liable for the true cost to Mr Bee's insurers
19. Mr Bee's primary loss was, doubtless, the cost of repair to his damaged car. As to that there is no issue because that is a cost which Mr Jenson has paid. But there is also the fact that Mr Bee needed the use of a car for the period of repair. He is, therefore, entitled in principle to damages for loss of use of his car for that period. As Lord Hobhouse of Woodborough put the matter in Dimond v Lovell [2002] 1 AC 384,406B-F:-

"Mrs. Dimond was at the time of the accident the owner and the person in possession of her car. It was damaged. Its value was reduced. This can be expressed as a capital account loss. This loss can be measured as being the cost of making good the damage plus the value of the loss of its use for [the period of repair]… Each case depends on its own facts, but loss of use of the chattel in question is, in principle, a loss for which compensation should be paid."

20. In Lagden v O'Connor [2003] UKHL 64, [2004] AC 1067 Lord Scott of Foscote considered it useful to return to first principles and, in so doing said (in para. 78) that a claim for the cost of having a replacement vehicle could be regarded as either a claim for general damages in relation to which

"a fair approach to quantum would be to award a sum based upon the spot hire charge for a comparable vehicle" (para. 76)

or a "special damages claim based upon the cost of hire" (para.77). The fact that the claim can be framed as a claim for either general damages based on the spot hire charge for a comparable vehicle or special damages based on the cost of hire echoes The Mediana and shows that it is not a prerequisite of a claimant's claim that the claimant should himself have incurred the liability to pay the hire charges. If it is reasonable to have a replacement, the reasonable cost of that replacement will, therefore, normally be recoverable. Although Lord Scott dissented in the result, there is no reason to suppose that his analysis of principle was incorrect.

21. As Lord Mustill pointed out in Giles v Thompson [1994] 1 AC 142 at 167 a claimant's loss is not self-proving. But if (as here) a claimant needs a car while his own car is being repaired and that is due to negligence of the defendant and the cost of hiring such a car is reasonably incurred, there is, in my judgment, no reason why the tortfeasor should not pay the reasonable cost of that hire. It would not follow that a claimant who never hired a replacement car (e.g. because he was out of the country at the time or already had a spare) would be entitled to the cost of so doing. His damage would, no doubt, have to be assessed on some other basis, see e.g. the observations of Beldam LJ in Alexander v Rolls Royce Ltd. [1996] RTR 95. But that is not this case.
22. One may further observe that if a claimant has the use of a hire car but does not have to pay for it, it may be difficult to say that he can recover special damages at all. It may be that he can only recover general damages. That does not, however, mean that such general damages should not be assessed by reference to the reasonable cost of hire. In this case where Mr Bee did actually make use of a hire car, there is every reason why his general damages should be assessed by reference to what Lord Scott referred to as the spot hire charge for a comparable vehicle.
23. That is particularly so where the only reason why Mr Bee has not himself paid for the use of the hire car is that he has paid a premium to his insurers to cover precisely the events that have happened viz. that his own car has been negligently damaged and that he needs to have his car repaired and to hire another car while such repair is being effected. The fact that he is insured should be irrelevant to his claim. His insurance may have the effect that, because he has not himself paid any hire charges, he is entitled to recover "general damages" rather than any amount he has himself paid out. But the tortfeasor is always protected by the requirement that the claimant can recover no more than the reasonable cost of hiring the necessary replacement.
24. It follows therefore (and is indeed the logical result of Bradburn's case) that Mr Bee is entitled to recover the reasonable cost of hire even though, having been fully indemnified, he will hold that sum for the benefit of DAS. It is unnecessary for this judgment to address the question whether, if a third party (other than an insurer) had paid the hire charges Mr Jenson could say that he should only be liable for what the third party had actually paid rather than a reasonable sum in abstract terms. The resolution of that question might depend on the reasons why the third party made the payment and would certainly depend on facts which would inevitably be different from the present case.

Conclusion

25. For these reasons, I consider that Morison J. reached the correct conclusion and I would dismiss this appeal.

Sir Paul Kennedy:

26. I agree.

Lord Justice Tuckey:

27. I also agree.