Tuesday, Tuesday

One of the hardy old chestnuts of credit hire practice, is the case that comes around, every few years concerning the application of the principle of illegality to a credit hire claim. I argue this point every two years or so. The seasons come and go. The authorities are refreshed, but the usual factual circumstances, involve a claimant in a credit hire case, who immediately before accident which gives rise to her claim, has some legal irregularity concerning her vehicle.

Perhaps she neglected to have it MOT’d.

Perhaps she forgot to pay her road tax.

Perhaps she regarded road traffic liability insurance for her own car, as an optional extra, and was driving without insurance when she had her accident.

In short, she will have likely committed a criminal offence, probably a minor one in the hierarchy of criminal law, possibly summary only in disposal, for which she cannot be sentenced to imprisonment but the fact of this offence will be used by the compensating party to argue that her claim, or at least her claim for credit hire, should be barred by the application of the doctrine of illegality, or as it would be called in the old language, ex turpi causa non oritur damnum.

There are few topics in the commonlaw which are so vexed as as the doctrine of illegality. The authorities are numerous, and do not speak with one voice, and there have been a number of significant decisions in the Supreme Court, including the seminal decision of Patel v Mirza [2016] UKSC 42. The thought of Lord Burrows, are always worth reading and I came across a paper that he had written in an extra-judicial capacity: you can read a copy of it here: The Illegality Defence after Patel v Mirza by Lord Burrows

But the basic problem was outlined most succinctly by Lord Justice Bingham (as then was) in the case of Saunders v Edwards [1987] 1 WLR 1116 where he observed:

I agree with what both Kerr and Nicholls L.JJ. have said. I add some observations on two aspects of this matter only. First, illegality. Where issues of illegality are raised, the courts have (as it seems to me) to steer a middle course between two unacceptable positions. On the one hand it is unacceptable that any court of law should aid or lend its authority to a party seeking to pursue or enforce an object or agreement which the law prohibits. On the other hand, it is unacceptable that the court should, on the first indication of unlawfulness affecting any aspect of a transaction, draw up its skirts and refuse all assistance to the plaintiff, no matter how serious his loss nor how disproportionate his loss to the unlawfulness of his conduct.

An interesting decision in the credit hire context, is now possibly the first port of call for arguments on this topic. It is the decision of Majid Ali v HSF Logistics Polska SP Zoo [2023] EWHC 2159 (KB) with the judgment being given by Mr Justice Martin Spencer. As the court stated:

2. The Volvo, although used by the Claimant on an almost daily basis, did not enjoy the benefit of a valid MOT Certificate. The single issue arising on this appeal is whether the Judge was right to disallow the claim for credit hire charges, not on the basis of illegality but on the basis that the lack of an MOT Certificate together with evidence of any intention to obtain one meant that the claim failed for lack of causation. In so deciding, the Judge followed the decision of HHJ Lethem in Agbalaya v London Ambulance Service, a decision of 17 February 2022, although, in that case, Judge Lethem also decided that the claim failed on the ground of illegality. This appeal therefore raises the question whether the two grounds are truly independent of each other, or whether a finding of lack of illegality is fatal to a finding of lack of causation on the basis that there was no valid MOT Certificate and no intention to obtain one during the period of car hire, had the accident not happened.

The judge then found that there was a “form” of illegality intertwined with causation which provided a tempered or partial illegality defence:

17. What has been decided in this case, however, is that even if there is not this allembracing form of illegality which deprives the Claimant of all claims arising from the accident, there is a second, more targeted, form of illegality which can be directed towards a particular aspect of the claim being made. This form of illegality does not involve considerations of public policy or proportionality because, by its nature, it allows the courts to distinguish between the “meritorious” Claimant – the Jaguar owner in my example in the preceding paragraph – and the “unmeritorious” Claimant who has no intention to obtain an MOT in the near future, or at any rate during the period of hire of an alternative vehicle. Thus, the court can do two things: first, it can look at the claim that is being made and ask whether that claim is affected at all by the fact that the car’s MOT had expired and could not lawfully be driven on the road. If the claim is not affected by this consideration, then the lack of a valid MOT is irrelevant and the Claimant will recover in full – for example, for the recovery and repair costs. Secondly, in respect of a claim which is affected by the lack of a valid MOT, and this includes a claim for hire charges arising from the loss of the ability to drive the car on the public roads, the court can ask itself the questions raised by the law of causation: for how long would, but for the accident, the car have remained without a valid MOT and therefore could not lawfully have been driven on the road. This then delimits the period of compensation and distinguishes between the meritorious Claimant (perhaps deprived of only a few days of car hire charges) and the unmeritorious Claimant (who fails to recover his credit hire charges at all). This alternative form of illegality is thus flexible and enables justice to be done by balancing the interests of the Claimant in receiving compensation for a loss reasonably incurred and the interests of the Defendant in not being required to compensate a driver for the period of use of a vehicle which was or would have been (but for the accident) unlawful, and it does this through the wellrehearsed application of the doctrine of causation. In my judgment, this is not ex turpi causa in disguise, but a different entity altogether.

The judgment was handed down on 29th August 2023. It is always encouraging when a judge feels able to make new law on a Tuesday: I await with interest, to see whether this reasoning is endorsed by the Court of Appeal.

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