And just like that, another month has rolled around. In the next few months, I shall be expanding the topics on this blog to include some thoughts on legal skills, the use and abuse of expert evidence, and the some of the interesting works out there which deal with psychology, strategy and the art of negotiation. But the topic that I shall cover in this blog is one of black letter law, namely the recent decision of the Supreme Court in the case of Armstead v Royal and Sun Alliance Insurance Company Ltd [2024] UKSC 6.

The facts of the case are extremely simple. The claimant, was unlucky enough to be involved in two road traffic collisions within a short space of time, neither of which was her fault. After the first collision, while her car was being repaired, she hired a car, a Mini Cooper, from  Helphire Limited on credit hire terms.  The hire agreement between Helphire and Ms Armstead was on Helphire’s standard terms, which included an obligation on the hirer to return the car in the same condition as it was at the start of the hire and to pay Helphire for any damage to the car. Most significantly there was a term in the agreement, clause 16, under which, if the hire car was damaged, the hirer was required to pay the daily hire rate, up to a maximum of 30 days, for Helphire’s loss of use while the car was being repaired, or awaiting repair, and was therefore out of use.

While she was driving the hire car, Ms Armstead was involved in the second accident when she was hit by a van that was being negligently driven. She brought a claim against the van driver’s insurers (Royal & Sun Alliance Insurance Company Ltd, “RSA”). She sought damages for the cost of repair of the Mini but also for the sum under clause 16 (“the clause 16 sum”) that she was contractually liable to pay Helphire for its loss of use. The issue on the appeal was whether she was entitled to damages for the clause 16 sum (which is agreed to be £1,560). Notwithstanding the simplicity of the point, the case went through numerous appellate levels all the way up the Supreme Court, being doggedly pursued by the credit hire company and doggedly defended by the insurance company. The actual factual scenario involved is peripheral to the usual run of credit hire claims but must happen with some regularity.

The judgment is interesting as it is fairly short, but provides a practical example of the way tropes familiar from the textbooks are applied in the rough and tumble of county court litigation. The Supreme Court noted by way of background some underlying principles of tort law:

19. First, a person owes a duty of care not to cause physical damage to another person’s property (such as a car) and, if in breach of that duty, is liable to pay damages to compensate that person for the diminution in value of the property and any other financial loss consequent on the damage: see eg SCM (United Kingdom) Ltd v WJ Whittall & Son Ltd [1971] 1 QB 337; Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] QB 27. This is subject to the general principles which limit the recovery of damages in tort, including the limitation that loss is not recoverable if it is too remote a consequence of the wrong.

20. Second, by contrast, someone who negligently causes physical damage to another person’s property is not liable to pay compensation to a third party claimant who suffers financial loss as a result of the damage: see eg Cattle v Stockton Waterworks Co (1875) LR 10 QB 453; Candlewood Navigation Corpn Ltd v Mitsui OSK Lines Ltd [1986] AC 1; Leigh and Sillavan Ltd v Aliakmon Shipping Co Ltd (The “Aliakmon”) [1986] AC 785, 809-810. It is not enough that the claimant had contractual rights which were rendered less valuable by the damage if the property in question was not the claimant’s. For example, in Cattle v Stockton Waterworks the claimant contractor was engaged by a landowner to make a tunnel under a road. A water pipe running under the road which the defendant water company was responsible for maintaining leaked, causing flooding which hindered and delayed the construction work. The Court of Queen’s Bench held that, even if (as alleged) the leak resulted from the defendant’s negligent failure to keep the pipe in proper repair, the contractor had no claim against the water company for the economic loss which it suffered by reason of its contract with the landowner being less profitable as a result of the damage to the land. The economic loss suffered in cases of this kind, which cannot be recovered, is usually referred to as “pure economic loss”, meaning economic loss that is not consequent on damage to, or loss of, the claimant’s property (or on personal injury to the claimant).

21. Third, to count as the claimant’s property for this purpose it is sufficient that the claimant has a right to possession of the property. At common law a person in possession of property has a right to possession of it as against a stranger. Thus, a bailee in possession of property can claim damages from a stranger whose negligence results in the loss of, or physical damage to, the property: see eg The Winkfield [1902] P 42.

As the Supreme Court went onto define the issues in the case, it readily became apparent there was only one-remoteness-which would prove contentious:

23. Where it is shown that loss has (factually) been caused by the defendant’s breach of a duty of care, five principles are capable of limiting the damages recoverable by the claimant. They are: (i) the scope of the duty; (ii) remoteness; (iii) intervening cause; (iv) failure to mitigate; and (v) contributory negligence. Although RSA has raised the first four of these principles as further reasons (ie over and above no duty of care being owed in respect of pure economic loss) why the clause 16 sum cannot be recovered, as we shall explain below the real issue concerns remoteness.

On remoteness the Supreme Court found the law to be:

46. We mentioned earlier the concession made on behalf of Ms Armstead (recorded at para 49 of Dingemans LJ’s judgment) in the Court of Appeal that she could not claim the clause 16 sum as damages if it did not represent a genuine and reasonable attempt to assess the likely losses to be incurred by Helphire as a result of its loss of use of the hire car. Mr Williams KC did not seek to withdraw that concession in this court. The point is central to the decision in this case. A concession on a point of law, however, does not bind the court: see eg Bahamas International Trust Co Ltd v Threadgold [1974] 1 WLR 1514, 1525 (Lord Diplock). It would be inappropriate to decide this appeal in reliance on a concession that we did not think was legally correct.

47. In our view, the concession was rightly made as a matter of law. Certainly, it was central to the decision in the Network Rail case that the losses for which Network Rail were contractually liable to the TOCs were a reasonable pre-estimate of the losses that would be suffered by the TOCs consequent on not being able to use the tracks. There is room for argument as to the appropriate legal analysis of this requirement. But, in our view, consistently with the judgment of Moore-Bick LJ in Network Rail, the best explanation is that this is an aspect of the normal rules on remoteness of loss. We can articulate the explanation in the following five points.

(i) The test for remoteness in the tort of negligence, as laid down in Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co, The Wagon Mound [1961] AC 388, is that loss is too remote to be recoverable as damages if the type of loss suffered was not reasonably foreseeable at the time of the breach of duty. But if the type of loss was reasonably foreseeable, it does not matter that the precise manner in which it was incurred was not reasonably foreseeable: Hughes v Lord Advocate [1963] AC 837.

(ii) A reasonably foreseeable type of loss flowing from damage to a hire car is financial loss resulting from inability to use the car (for example, while it is being repaired). In this case the claimant did not suffer a loss of use herself because she carried on using the hire car after the accident. The type of loss that she suffered in respect of loss of use of the car was a contractual liability (under clause 16) to pay the hire company for its loss of use. Nevertheless, just as loss of use to the claimant is reasonably foreseeable and not too remote, so is the contractual liability of the claimant to pay damages for loss of use to the hire company. It can also be said that the precise manner by which the loss of use became a loss to the claimant need not have been reasonably foreseeable.

(iii) However, to fall within this reasonably foreseeable type of loss, it is necessary for the claimant’s contractual liability to reflect the loss of use of the hire company. As the Network Rail case confirms, there is nothing wrong in principle, in a case where the actual loss may be difficult to calculate, in using an amount estimated in advance as the basis of the contractual liability. But to serve this purpose the contractual liability must constitute a reasonable pre-estimate of the hire company’s loss of use. If, or in so far as, the contractual liability is not a reasonable pre-estimate of the hire company’s loss of use, it does not fall within the type of loss that is reasonably foreseeable.

(iv) One might add that the underlying policy reason for the remoteness rule is to ensure that an excessive burden of liability does not fall on the defendant. A line must be drawn to ensure that the defendant is not held liable for all loss factually caused by the tort, however far removed in time and space. At paras 29-30 above, we have noted the danger that in a case of this kind, without an insistence that the contractual liability is a reasonable pre-estimate of the hire company’s loss of use, the contractual clause might specify a sum to be paid by the claimant (even if expressed as being for loss of use of the car) that would impose an excessive liability on the defendant. Put another way, without that restriction there is a danger that this sort of contractual arrangement would be open to abuse and would inappropriately burden the defendant with a liability that does not reflect any actual loss.

(v) In this case, therefore, the loss comprising the claimant’s contractual liability under clause 16 would be too remote if clause 16 was not a reasonable pre-estimate of Helphire’s loss of use of its vehicle.

Perhaps unsurprisingly the loss was found to be not too remote: the daily rate was an obvious measure of loss to use in calculating the measure of damage. Perhaps more interestingly, and of wider application are the statements of the Supreme Court on the burden of proof: 

59. In our view, the correct analysis is that once the claimant has proved that a tort has been committed and that the loss claimed was in fact caused by the defendant’s breach of duty, it is for the defendant to assert and prove that one, or more, of the principles mentioned at para 23 above applies to limit the damages recoverable by the claimant.

60. We can leave aside for present purposes the scope of the defendant’s duty, where it has been suggested that a different analysis applies: see Hughes-Holland v BPE Solicitors [2017] UKSC 21; [2018] AC 599, para 53. This is not the occasion to discuss that view. Looking at the other limiting principles, the law is clear that the defendant bears the legal burden of pleading and proving a failure to mitigate loss caused by a tort (and the same applies in relation to breach of contract): see, eg, Standard Chartered Bank v Pakistan National Shipping Corpn [2001] EWCA Civ 55; [2001] 1 All ER (Comm) 822, paras 33-41; Geest plc v Lansiquot [2002] UKPC 48; [2002] 1 WLR 3111; LE Jones (Insurance Brokers) Ltd v Portsmouth City Council [2002] EWCA Civ 1723; [2003] 1 WLR 427, para 26. It is equally clear that the legal burden is on the defendant to assert and prove contributory negligence: see, eg, Owners of SS Heranger v Owners of SS Diamond [1939] AC 94, 104.

61. As regards legal causation (by which we mean the question whether an intervening event subsequent to the tort has broken the chain of causation between the tort and a particular loss), the authorities do not speak with one voice. But the weight of authority supports the view that here too the burden is on the defendant. This was clearly stated by Lord Haldane and Lord Dunedin in The Metagama (1927) 29 Ll L Rep 253, 254, 256. An opposite view was expressed by Lord Sumner in Owners of SS Singleton Abbey v Owners of SS Paludina [1927] AC 16, 25-26, which was followed by Lord Merriman P in The Guildford [1956] P 364, 370, without attempting to resolve the divergence of opinion in the House of Lords. However, in subsequent ship collision cases courts have consistently preferred the view taken in The Metagama that, once it is shown that loss was in fact caused by the defendant’s tort, the burden is on the defendant to establish that a subsequent event operated as a new intervening cause: see eg The Fritz Thyssen [1967] 2 Lloyd’s Rep 199, 202-203; The Lucile Bloomfield [1967] 2 Lloyd’s Rep 308, 313; The Zaglebie Dabrowskie (No 2) [1978] 1 Lloyd’s Rep 573, 574. This view is also supported by the decision of the Court of Appeal in Philco Radio and Television Corpn of Great Britain Ltd v J Spurling Ltd [1949] 2 All ER 882.

62. There is a surprising absence of authority on the question of who has the legal burden of proof in relation to remoteness. But, as a principle which cuts back the right to recover damages for loss that has been factually caused by a tort, remoteness plays an analogous role to the duty to mitigate, contributory negligence and, on what we think is the better view, the concept of an intervening cause. Logically, therefore, the legal burden of proof must likewise lie on the defendant to plead and prove that loss which was in fact caused by the defendant’s tort is nevertheless irrecoverable because it is too remote. As discussed above, in relation to the tort of negligence, this requires showing that the loss suffered was not of a type that was reasonably foreseeable.

Of course these statements probably don’t affect the status of Practice Direction 16 and the well known case of Umerji: credit hire damages are a species of expenditure to avoid loss, rather than a loss themselves, and so where expenditure takes place, there is a burden on the claimant to justify the expenditure. Nonetheless, I predict that these passages will be used in county court trials, to underline that whatever a defendant’s pleaded case, where the burden lies on the defendant, if the defendant does not adduce evidence to back up its allegations, the pleaded case will fall away.

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