Credit hire and bailees in possession

One of the issues that frequently arises in credit hire claims, is the accident which takes place when a vehicle is being driven by someone other than the true owner, either with his permission or by reason of the vehicle having been hired out. In such circumstances, the ancient English principles of title come into play, in particular the doctrine of bailment.

The law of bailment is an ancient doctrine, which may have its origins in the cattle raids of medieval times, when the possessor of cattle could bring an action to recover them, when stolen, even though he was simply looking after them for the true owner.

The modern law of bailment can be traced to the decision of the Court of Appeal in The Winkfield (1902) P42 which was an action in respect of damage caused to a ship where the Court of Appeal established that a bailee in possession can recover the value of goods damaged in his possession by the negligence of a third party, although he has a liability to account to the bailor for damages for the loss of the thing bailed.

It follows therefore that the Winkfield establishes if it ever needed to be established beyond doubt that a bailee in possession is entitled to recover full damages for the chattel which has been destroyed. Credit hire charges are only incurred and claimed as special damages in circumstances where cars are reasonably hired in order to mitigate a claim for loss of use.

The claim for loss of use is undoubtedly part and parcel of the damage which is caused to someone who is deprived a vehicle by reason of its negligent damage or destruction by the Defendant. If authority is needed for the broad proposition then reference can be made to the decision in another case involving a ship The Mediana (1900) AC 113 at page 117.

The matter is put beyond doubt by more modern authority in the case of H. L. Motorworks (Willesden) Limited -v- Alwahbi (1977) RTR 276. Leaving aside the considerations of liability and focusing on the issue of quantum, in that case a bailee in possession of a customer’s Rolls Royce was struck by a negligent third party driver.

The repairs to the Rolls Royce took eleven days to carry out and during that time the true owner hired another Rolls Royce at a charge of £467, which the bailee reimbursed. The company brought an action for damages for negligence against the Defendant, including a claim for the vehicle damage and the cost of hire which the bailee had reimbursed to the true owner. The Court of Appeal found that the owner of the Rolls Royce was entitled to hire a substitute Rolls Royce during the period when his own was being repaired in the absence of evidence brought by the Defendant that the amount of its use would be small or a cheaper equally suitable car should have been hired. Accordingly, in that case the bailees paid for a substitute Rolls Royce which had been hired by the owner, incurring a liability they sought to claim from the tortfeasor.

The final authority that needs to be looked at is the case of O’Sullivan and Another -v- Williams (Court of Appeal Transcript, 6th March 1992). That case concerned an action by two Claimants where the First Claimant was the owner of a vehicle, the Second Claimant was his partner and at the time of the appeal his wife and in the action which the Court of Appeal were concerned with, the First Claimant had claimed £1,300 as the value of his car and damages for loss of use of the car since the accident at £25 per week.

The Second Claimant had claimed damages for nervous shock and other distress and for inconvenience. The alleged inconvenience was pleaded as follows.

The First and Second Plaintiffs are boyfriend and girlfriend. The motor car represented a joint form of transport, being regularly used by the Second Plaintiff.  The First and Second Plaintiffs lived several miles apart and relied on the motorcar not only to get to work but also to see each other and for their social life.  All of these have been curtailed since the accident and the First and Second Plaintiffs have suffered continuing inconvenience as well as additional out of pocket expenses caused by the absence of the motor car.  Full details will be supplied on the discovery of documents.” 

This case went on to cite the Winkfield and regard the law as plain and as set out a series of binding propositions:

“So the bailee can sue a wrong doer simply by reason of the bailee’s possession. Such possession is, as against the wrong doer, full and complete ownership.  It enables the bailee to recover the full value of the chattel.  He must, however, account to the bailor for the amount recovered.  As between the bailor and the bailee their respective rights and the amounts recovered would depend upon the values of their enforceable interest respectively in the chattel.  There is a further aspect of the matter.  The bailee having recovered damages against the wrong doer in respect of the tortious damage to the chattel, the wrong doer has an answer to any action by the Bailor (see the Winkfield per Collins MR at page 63).  The same principle must apply to bailee if the bailor has sued and recovered damages.”

The appeal brought by the Second Claimant or (Second Plaintiff as the report calls her) was dismissed on the basis that the settlement of the First Claimant’s claim as bailor extinguished the possibility of a claim by the bailee.

But the decision did not criticise the bringing of a claim for inconvenience (or loss of use as it might have been called) by reason of the destruction of the chattel. What brought the claim to an end was the fact that there had been satisfaction of the interest of the bailor barring any claim by the bailee.

In summary the authorities illustrate the following propositions:

  • That as against a wrong doer a bailee in possession has all the rights of an owner of the chattel.
  • That the measure of damages is full damages arising from the destruction of the chattel as against the wrong doer
  • That full damages includes not only the value of the chattel but also claims for loss or use or inconvenience which are reduced to claims for special damage by a credit hire replacement;
  • That it is not open to the wrong doer to plead the superior title of the bailor in defence of an action brought by the bailee.
  • That the two qualifications are that damages cannot exceed the total amount arising from the destruction of the chattel and that a settlement by a bailor or bailee will serve to bar a second claim brought by the bailor or bailee as the case may be.

7 comments

  1. Hi Andrew,

    What is your view on a leaseholder (PCP contract) bringing a claim for diminution in value? Ordinarily, I understand that a leaseholder would struggle to show locus standi to bring a claim as the vehicle is not owned by them and thus they do not have a loss from a diminished future resale value. However, where the ‘final payment option’ is conditional upon the condition of the car, and the value has been reduced despite full and high standard repairs, does the leaseholder therefore have a claim to rectify their loss?

  2. Hi Andrew,

    Scrub that, I have my finance options mixed up (as the future resale value would be lower, the final payment option would be lower and the PCP leaseholder would actually benefit not lose.) I meant a Hire Purchase where the leaseholder is not the owner until the final payment. As their vehicle would have a loss of value at the end of the finance agreement, do they have a claim for diminution despite not being the owner at the time of the loss?

    Cheers,

    Lee

    1. The diminution in value of the chattel is an immediate loss. Therefore it can be recovered from the tortfeasor by the bailee. As it is the true owner’s car at that point, the bailee is under an obligation to account to him for it. However, under the leasing agreement or HP agreement, or whatever contract is in play, I would have thought there would be an obligation, may be express, possibly implied to provide a car of a certain quality and breach of that obligation would be measured by the sum awarded for diminution in loss. But as far as the tortfeasor is concerned, he just pays the bailee to get a release.

  3. Hi Andrew
    I deal with a lot of taxi claims whereby the wife owns the taxi (just the one vehicle) but is not insured to drive, however the plate is in her name but her husband drives and maybe a second driver.
    Some of the rental agreements are placed in the driver’s name yet insurers refuse to pay even when presented with the bailee in possession argument.
    In other cases the wife is placed on the rental agreement with 2 named drivers.
    The wife is unable to provide profit and loss accounts as she does not declare the income and there is no transaction to show payment by the driver due to being paid cash.
    I have argued loss of use under general damages terms and submitted contract between the driver and the owner, however still refusal to pay hire on the grounds of arguing profit and loss, even though the husband will lose income.
    Other than drawing up a detailed witness statement and issuing court proceedings do you have any other suggestions?
    Kind Regards

  4. Hi Andrew,
    Understanding the above case law with regards Bailee, C is a self-employed delivery driver who has leased the vehicle from the delivery company whereby the vehicle has logo of the company he works for. Baillee in possession is applicable, does the C require to provide evidence of the same by way of lease agreement etc to the D or can D take C on face value?

    1. It depends if bailment is put in issue. If the Particulars of Claim allege the driver was a bailee, and the Defence admits he was, fine. If however, the Claimant is put to proof of his bailment, then evidence must be obtained to prove his case.

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