Sink the Liesbosch!

The credit hire industry apparently rests lightly on the foundations of a 3 to 2 majority decision of the House of Lords in the case of Lagden v O’Connor [2004] 1 AC 1067 for this reason: that case established the principle of impecuniousity and the ability of an impecunious litigant to recover the full cost of the credit hire charges.

This is so, even though a pecunious litigant would be limited to the  equivalent basic hiring rate of a replacement car, stripping out elements of the damages for credit hire which, per the earlier decision of the House of Lords in Dimond v Lovell [2002] 1 AC 384 were decided to be irrecoverable as damages.

3 to 2 appears to be a very  slender basis for an entire industry to rest upon, and the question has surely been considered by the insurance industry in the years since the decision, whether the time is ripe to consider that the decision was perhaps wrongly made, and should be departed from although it would require the running of a test case all the way to the Supreme Court to do so. I think such an outcome or such a course is unlikely. But the reasons for thinking so are complex.

In fact the foundation may be rather more substantial than it might first appear, because it represents a decision a-long-time-a-coming to overturn a much earlier decision of the House of Lords, The Liesbosch [1933] AC 449  made in the 1930s, which had been increasingly hard to justify as the state of the law since the 1970s onwards.

In a sense the decision in Lagden, was simply a convenient vehicle for the majority of their Lordships to sink The Liesbosch, and the consequences for the credit hire industry can be regarded as a fortuitous byblow.

The leading speech in the House of Lords, with which Lords Slynn and Hope agreed, was given by Lord Nicholls, who noted this:

5.  In Dimond v Lovell Mrs Dimond could have found the money needed to hire a replacement car until she was reimbursed by Mr Lovell or his insurers. The case proceeded on this basis. Understandably enough, she preferred to take advantage of the services of an accident hire firm. But what if the innocent motorist, like many people, is unable to afford the cost of hiring a replacement car from a car hire company? Unlike Mrs Dimond, he cannot find the necessary money. So, unless he can use the services of a credit hire company, he will be unable to obtain a replacement car. While his car is being repaired he will have to make do as best he can without a car of his own. If this happens, he will be without his own car and in practice will receive little or no recompense for the inconvenience involved.

6.  My Lords, the law would be seriously defective if in this type of case the innocent motorist were, in practice, unable to obtain the use of a replacement car. The law does not assess damages payable to an innocent plaintiff on the basis that he is expected to perform the impossible. The common law prides itself on being sensible and reasonable. It has regard to practical realities. As Lord Reid said in Cartledge v E Jopling & Sons Ltd [1963] AC 758 , 772, the common law ought never to produce a wholly unreasonable result. Here, as elsewhere, a negligent driver must take his victim as he finds him. Common fairness requires that if an innocent plaintiff cannot afford to pay car hire charges, so that left to himself he would be unable to obtain a replacement car to meet the need created by the negligent driver, then the damages payable under this head of loss should include the reasonable costs of a credit hire company. Credit hire companies provide a reasonable means whereby innocent motorists may obtain use of a replacement vehicle when otherwise they would be unable to do so. Unless the recoverable damages in such a case include the reasonable costs of a credit hire company the negligent driver’s insurers will be able to shuffle away from their insured’s responsibility to pay the cost of providing a replacement car. A financially well placed plaintiff will be able to hire a replacement car, and in the fullness of time obtain reimbursement from the *1073 negligent driver’s insurers, but an impecunious plaintiff will not. This cannot be an acceptable result.
7.  The conclusion I have stated does not mean that, if impecunious, an innocent motorist can recover damages beyond losses for which he is properly compensatable. What it means is that in measuring the loss suffered by an impecunious plaintiff by loss of use of his own car the law will recognise that, because of his lack of financial means, the timely provision of a replacement vehicle for him costs more than it does in the case of his more affluent neighbour. In the case of the impecunious plaintiff someone has to provide him with credit, by incurring the expense of providing a car without receiving immediate payment, and then incur the administrative expense involved in pursuing the defendant’s insurers for payment.
8.  In your Lordships’ House the appellant sought to derive assistance from Owners of Liesbosch Dredger v Owners of SS Edison (The Liesbosch) [1933] AC 449 and Lord Wright’s much discussed observations, at pp 460-461, regarding not taking into account a claimant’s want of means when assessing the amount of his loss. For the reasons given by my noble and learned friends, Lord Hope of Craighead and Lord Walker of Gestingthorpe, these observations, despite the eminence of their source, can no longer be regarded as authoritative. They must now be regarded as overtaken by subsequent developments in the law.
The actual reasoning as to why The Liesbosch should be departed from was principally contained in the speech of Lord Hope, who set out his decision in the following terms:
29.  As Lord Hoffmann said, at p 402a, the leading case on this subject is British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673 . In that case the turbines which were purchased in place of the defective turbines were more efficient than the defective turbines supplied by British Westinghouse, even if those turbines had been in accordance with the specification in their contract with the railway company. In the result the railway company obtained benefits over and above their contractual entitlement. That was their choice, and it was a reasonable and prudent choice to make in the circumstances. But it was held that it was nevertheless necessary to balance loss against gain when the amount of the damages was being calculated.
30.  So far so good. But what if the injured party has no choice? What if the only way that is open to him to minimise his loss is by expending money which results in an incidental and additional benefit which he did not seek but the value of which can nevertheless be identified? Does the law require gain to be balanced against loss in these circumstances? If it does, he will be unable to recover all the money that he had to spend in mitigation. So he will be at risk of being worse off than he was before the accident. That would be contrary to the elementary rule that the purpose of an award of damages is to place the injured party in the same position as he was before the accident as nearly as possible.
He traced a line of earlier authority:

31.  Some guidance as to the approach which should be taken to this problem is provided by The Gazelle (1844) 2 W Rob 279 . That was a case where a vessel was damaged by collision. The question was as to the amount that was to be paid to the owners of the damaged vessel for its repair. At p 281, Dr Lushington said that the measure of the indemnification to which *1079 the owner of the damaged vessel was entitled was co-extensive with the amount of the damage:

“The right against the wrongdoer is for a restitutio in integrum, and this restitution he is bound to make without calling upon the party injured to assist him in any way whatsoever. If the settlement of the indemnification be attended with any difficulty (and in those cases difficulties must and will frequently occur), the party in fault must bear the inconvenience. He has no right to fix this inconvenience upon the injured party; and if that party derives incidentally a greater benefit than mere indemnification, it arises only from the impossibility of otherwise effecting such indemnification without exposing him to some loss or burden, which the law will not place upon him.”

The principle which emerges from this passage is that it is not open to the wrongdoer to require the injured party to bear any part of the cost of obtaining such indemnification for his loss as will place him in the same position as he was before the accident.

32.  In Harbutt’s “Plasticine” Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447 the plaintiffs’ factory, which was in an old mill, was destroyed by fire as a result of defects in the design of equipment supplied by the defendants and its having been switched on and the plant left unattended. A new factory had to be built. The plaintiffs had no other option if they were to continue their business of making plasticine. They were not allowed to rebuild the old mill, so they had to put up a new factory. A question was raised as to the measure of damages. The defendants said that it should be limited to the difference in the value of the old mill before and after the fire and that the plaintiffs should not be allowed the cost of replacing it with a new building. This argument was rejected. Lord Denning MR said, at p 468:

“If a second-hand car is destroyed, the owner only gets its value; because he can go into the market and get another second-hand car to replace it. He cannot charge the other party with the cost of replacing it with a new car. But when this mill was destroyed, the plasticine company had no choice. They were bound to replace it as soon as they could, not only to keep their business going, but also to mitigate the loss of profit (for which they would be able to charge to defendants). They replaced it in the only possible way, without adding any extras. I think they should be allowed the cost of replacement. True it is that they got new for old; but I do not think the wrongdoer can diminish the claim on that account. If they had added extra accommodation or made extra improvements, they would have to give credit. But that is not this case.”

33.  Widgery LJ in the same case dealt with the question of betterment in this way, at p 473:

“It was clear in the present case that it was reasonable for the plaintiffs to rebuild their factory, because there was no other way in which they could carry on their business and retain their labour force. The plaintiffs rebuilt their factory to a substantially different design, and if this had involved expenditure beyond the cost of replacing the old, the difference might not have been recoverable, but there is no suggestion of this here. *1080 Nor do I accept that the plaintiffs must give credit under the heading of ‘betterment’ for the fact that their new factory is modern in design and materials. To do so would be the equivalent of forcing the plaintiffs to invest their money in the modernising of their plant which might be highly inconvenient for them. Accordingly I agree with the sum allowed by the trial judge as the cost of replacement.”

Cross LJ, too, rejected the proposition that the defendants were entitled to claim a deduction from the actual cost of rebuilding and re-equipping on the ground that the plaintiffs had got new for old, adding at p 476:

“I can well understand that if the plaintiffs in rebuilding the factory with a different and more convenient lay-out had spent more money than they would have spent had they rebuilt it according to the old plan, the defendants would have been entitled to claim that the excess should be deducted in calculating the damages. But the defendants did not call any evidence to make out a case of betterment on these lines and we were told that in fact the planning authorities would not have allowed the factory to be rebuilt on the old lines. Accordingly, in my judgment, the capital sum awarded by the judge was right.”
From the earlier cases he drew principles which he declared were of general application:
34.  Of course, the facts in these two cases were quite different from those in this case. But I think that the principles on which they were decided are of general application, and it is possible to extract this guidance from them. It is for the defendant who seeks a deduction from expenditure in mitigation on the ground of betterment to make out his case for doing so. It is not enough that an element of betterment can be identified. It has to be shown that the claimant had a choice, and that he would have been able to mitigate his loss at less cost. The wrongdoer is not entitled to demand of the injured party that he incur a loss, bear a burden or make unreasonable sacrifices in the mitigation of his damages. He is entitled to demand that, where there are choices to be made, the least expensive route which will achieve mitigation must be selected. So if the evidence shows that the claimant had a choice, and that the route to mitigation which he chose was more costly than an alternative that was open to him, then a case will have been made out for a deduction. But if it shows that the claimant had no other choice available to him, the betterment must be seen as incidental to the step which he was entitled to take in the mitigation of his loss and there will be no ground for it to be deducted.
He then turned his guns (mines and torpedoes too) on the shivering hulk of the Liesbosch:
45.  The appellant points out that this case cannot be distinguished from the facts which were before the House in Owners of Liesbosch Dredger v Owners of SS Edison (The Liesbosch) [1933] AC 449 . He seeks, as a last resort, to rely on the rule that was established by that case about the consequences of the claimant’s pre-existing impecuniosity.
46.  As everyone knows, the claim in that case arose as a result of the fouling of the moorings of the Liesbosch by the Edison when she was proceeding to sea from the Greek port of Patras, as a result of which the dredger sank and was a total loss. The dredger was engaged on work in the harbour under contract with the harbour board at the time of the accident. All the owners’ liquid resources were engaged in the contract undertaking, and matters were made worse by the fact that their deposit under the contract was liable to forfeiture if the work was delayed. They were unable to raise the funds that were needed to buy another dredger, so they decided to hire one called the Adria from Italy. The cost of the hire was high, and the other dredger was more expensive to work than the original. The result was that, due entirely to their lack of means, the owners incurred much more expense in the provision of an alternative dredger than they would have done if they had been able to purchase an equivalent. The monthly rate of hire became so burdensome that the harbour board purchased the Adria from her Italian owners and sold her to the owners of the Liesbosch for a sum to be paid by instalments over four years.
47.  The owners of the Liesbosch claimed their actual loss, on the basis that all the circumstances should be taken into account and they had acted reasonably in hiring the Italian vessel in view of their financial embarrassment. But the sum that they were awarded as damages was restricted to the market price of a comparable dredger at the time of the loss, together with the cost of transporting her and insuring her to Patras.
48.  The registrar and the judge had disallowed the objection that the damages claimed by the owners were too remote. They were awarded the value of the Liesbosch , which was taken to be the amount for which the Adria had been purchased by the harbour board. They were also awarded the cost of hiring the Adria until she was purchased, the extra cost of working her and their loss of profit on the contract while the work was stopped for want of a dredger. This approach was rejected by the Court of Appeal, which held that any loss due to the fact that the owners were impeded in the performance of their contract was too remote and not recoverable. It was the decision of the Court of Appeal that prevailed in the*1084 House of Lords, where it was held that anything beyond the cost of a replacement vessel had been properly disallowed. The House of Lords differed from the Court of Appeal as to the amount to be awarded as the value of the dredger. The Court of Appeal had awarded the sum which had been paid for the Adria when it been purchased from the harbour board. The case was referred back to the registrar so that he could ascertain the market value of the dredger when she was lost.
49.  The owners’ principal argument in the House of Lords was that the hiring of the Adriawas a reasonable and natural result of the loss of the Liesbosch . They referred, at p 452, in support of their argument to an observation by Lord Collins in Clippens Oil Co Ltd v Edinburgh and District Water Trustees [1907] AC 291 , 303 that the wrongdoer must take his victim talem qualem (as he finds him), adding that: “if the position of the latter is aggravated because he is without the means of mitigating it, so much the worse for the wrongdoer, who has got to be answerable for the consequences flowing from his tortious act.”

50.  Lord Wright, whose speech was concurred in by all the other members of the House, rejected this argument, at p 460:

“The respondents’ tortious act involved the physical loss of the dredger; that loss must somehow be reduced to terms of money. But the appellants’ actual loss in so far as it was due to their impecuniosity arose from that impecuniosity as a separate and concurrent cause, extraneous to and distinct in character from the tort; the impecuniosity was not traceable to the respondents’ acts, and in my opinion was outside the legal purview of the consequences of those acts … In the varied web of affairs, the law must abstract some consequences as relevant, not perhaps on grounds of pure logic but simply for practical reasons. In the present case if the appellants’ financial embarrassment is to be regarded as a consequence of the respondents’ tort, I think it is too remote, but I prefer to regard it as an independent cause, though its operative effect was conditioned by the loss of the dredger.”

At p 462, he said that the damages must be assessed as if the appellants had been able to go into the market at the time of the loss and buy a dredger to replace the Liesbosch .

51.  The rule which was established by that decision is generally understood to be that the damages for which the defendant is liable cannot be increased by reason of the claimant’s impecuniosity. But, as the editors of Halsbury’s Laws of England, 4th ed, vol 12(1) (reissue, 1998), pp 322-323, para 858, note 4 have observed, this rule is difficult to reconcile with the principle to which Lord Collins referred in the Clippens Oil case [1907] AC 291 , 303, that the defendant must take his victim as he finds him. Lord Wright said [1933] AC 449 , 461 that that principle was not in point, as Lord Collins was dealing not with measure of damage but with mitigation. But this seems to be a distinction without a difference. And the rules for mitigation, both in tort and in contract, do not require the injured party to do what he cannot afford to do when he is seeking to reduce the damages payable by the wrongdoer.
52.  The decision has frequently been criticised: see, for example, McGregor on Damages, 17th ed (2003) , para 332 and, for a helpful and detailed review of its defects, Coote, “Damages, The Liesbosch , and *1085 Impecuniosity” [2001] CLJ 511 . Burrows, Remedies for Torts and Breach of Contract, 2nd ed (1994), p 88 observes that the rule seems unjustified in terms of policy; Salmond & Heuston on the Law of Torts, 21st ed (1996) , p 515 state that it is hard to reconcile with the principle that it is the claimant’s duty to mitigate his loss, which should allow him to borrow money to do so; and Winfield & Jolowicz on Tort, 16th ed (2002) , p 238 do not find it possible to give any logical reason for regarding the claimant’s impecuniosity as extrinsic but taking into account his physical disability. It has been doubted whether Lord Wright was laying down a rule of law or was simply saying that the loss claimed was too remote in that case. If he was laying down a rule of law, the decision has scarcely ever been followed. It has frequently been distinguished or confined to its own facts. As time has gone by the rule has been more and more attenuated, to such an extent that it is on the verge of extinction. The respondents submit that it should not be followed in this case. They say that the time has now come for the House to depart from it.
53.  In Ramwade Ltd v W J Emson & Co Ltd [1987] RTR 72 the plaintiffs had been obliged to hire vehicles to perform the work carried out by their skip lorry which had been damaged beyond repair in a road accident. Their insurance brokers had, contrary to instructions, failed to procure a comprehensive insurance policy, and the claimants could not afford to replace it by buying another skip lorry. Parker LJ, at pp 75-76, rejected the plaintiffs’ argument that the damage consisting in the hire of the vehicles flowed from the defendants’ failure to provide them with a comprehensive insurance policy. One of the reasons which he gave for reaching this conclusion was that it flowed from the impecuniosity of the plaintiffs which rendered them unable to afford a substitute vehicle, adding that “if that is the true cause the hire charges are irrecoverable on the principles laid down in The Liesbosch [1933] AC 449 “. But that is an isolated instance, and it is hard to find any other examples. The trend of the authorities has been almost always in the contrary direction.
54.  The Liesbosch was decided not long after the decision in In re Polemis & Furness, Withy & Co [1921] 3 KB 560 in a climate when directness of causation was the test for remoteness of damage in tort, as Coote [2001] CLJ 511 , 535 has pointed out. That rule was finally departed from in Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (The Wagon Mound) [1961] AC 388 . But there were earlier signs that a broader test, approaching the test whether the loss was foreseeable which was established by that case, was becoming recognised. In Monarch Steamship Co Ltd v Karlshamns Oljefabriker (A/B) [1949] AC 196 , in which damages had been sought for breach of contract, Lord Wright reviewed the cases on remoteness of damage. He started his review by reaffirming the broad general rule that a party injured by the other’s breach of contract is entitled to such money compensation as will put him in the position in which he would have been but for the breach. He ended it with the propositions that the matters did not depend on the differences (if any) between contract and tort in that connection, that the reasonable contemplation as to damages was what the court attributed to the parties and that the question in such a case must always be what reasonable business men must be taken to have contemplated as the natural or probable result if the contract was broken. *1086 The change in terminology is significant. It might have led to a different conclusion if it had been used to guide the result in The Liesbosch .

55.  In Trans Trust SPRL v Danubian Trading Co Ltd [1952] 2 QB 297 , 306 Denning LJ set the modern trend when he said:

“It was also said that the damages were the result of the impecuniosity of the sellers and that it was a rule of law that such damages are too remote. I do not think there is any such rule. In the case of a breach of contract, it depends on whether the damages were reasonably foreseeable or not.”

In Dodd Properties (Kent) Ltd v Canterbury City Council [1980] 1 WLR 433 , 458 Donaldson LJ came as close as he could to saying that the rule laid down by the House in The Liesboschwas wrong. He said that it was not at once apparent why a tortfeasor must take his victim as he finds him in terms of exceptionally high or low earning capacity, but not in terms of pecuniosity or impecuniosity which may be their manifestation. At p 459, having examined the decision, he said:

“As I understand Lord Wright’s speech, he took the view that, in so far as the plaintiffs had in fact suffered more than the loss assessed on a market basis, the excess flowed directly from their lack of means and not from the tortious act, or alternatively it was too remote in law. In modern terms, I think that he would have said that it was not foreseeable.”

56.  In Perry v Sidney Phillips & Son [1982] 1 WLR 1297 , 1302 Lord Denning MR said that Lord Wright’s statement must be restricted to the facts of The Liesbosch and was not of general application. At p 1307, Kerr LJ adopted the same approach. He said:

“If it is reasonably foreseeable that the plaintiff may be unable to mitigate or remedy the consequence of the other party’s breach as soon as he would have done if he had been provided with the necessary means to do so from the other party, then it seems to me that the principle of The Liesbosch [1933] AC 449 no longer applies in its full rigour.”

57.  In Mattocks v Mann [1993] RTR 13 , 19 Beldam LJ, with whom Nourse and Stocker LJJ agreed, referring to his observations in Bolton v Price (unreported) 24 November 1989; Court of Appeal (Civil Division) Transcript No 1159 of 1989 , said:

“I there said that at the present day it is generally accepted that, in what Lord Wright termed ‘the varied web of affairs’ that follows a sequence of events after an accident of this kind, it is only in an exceptional case that it is possible or correct to isolate impecuniosity, as it is sometimes called, or the plaintiff’s inability to pay for the cost of repairs from his own resources as a separate cause and as terminating the consequences of a defendant’s wrong. It seems to me necessary today to consider whether, having regard to all the circumstances of the case and the resources available to a plaintiff, resources known by the defendant or her representatives to be of a kind that will not be able to provide for the repairs themselves, in all the circumstances, the plaintiff has acted reasonably and with commercial prudence.”
He then started to review authority in other jurisdictions:

58.  The same approach has been adopted in Scotland. In Chanthall Investments Ltd v F G Minter Ltd , 22 January 1976 (reported on another point in 1976 SC 73 ) Lord Keith, sitting in the Outer House of the Court of Session, said:

“I am of opinion that in each case where the matter arises it is a question of fact, in the particular circumstances, whether loss associated with the impecuniosity of the party claiming to have suffered loss was within the contemplation of the parties. Authority for this proposition is to be found in Trans Trust SPRL v Danubian Trading Co Ltd [1952] 1 KB 285 .”

This statement was approved by the Inner House in Margrie Holdings Ltd v City of Edinburgh District Council 1994 SLT 971 , 976-977, where the Lord President (Hope), delivering the opinion of the court said that the proper approach, consistent with the modern authorities, was to ask whether the loss was or was not foreseeable and that this was ultimately a question of fact in each case.

59.  So too in New Zealand. In Attorney General v Geothermal Produce NZ Ltd [1987] 2 NZLR 348 , 355 Cooke P said:

“it seems to me that Liesbosch is certainly not to be extended as far as logic could be said to carry it. The difficulties so generally experienced in accommodating the decision with principle and justice, as commonly understood at the present day, suggest that any continuing effect given to it as a precedent should at least be strictly confined to damages for the loss of a profit-earning chattel, in use for performing a contract, for which a replacement is available by purchase on the market. That is not the present case, which is much more complicated … On the judge’s findings, fully supported by evidence, the company acted reasonably to mitigate its losses, and that is enough to exclude any defence based on impecuniosity.”

60.  In Alcoa Minerals of Jamaica Inc v Broderick [2002] 1 AC 371 the plaintiff was unable to afford repairs to his roof and deferred carrying them out while the issue of liability was being disputed. The Judicial Committee rejected the argument that the damages should be assessed as at the date of the physical damage and that the fact that the plaintiff could not afford to pay for the repairs should be ignored. Delivering the judgment of the Board, my noble and learned friend, Lord Slynn of Hadley, said that the case was clearly to be distinguished from the position in The Liesbosch , as the need to repair the roof was a direct consequence of the tort and the real question was whether Mr Broderick was in breach of his duty to mitigate his damages. He went on to say this with regard to the issue of impecuniosity, at pp 382-383:

“Lord Wright in The Liesbosch thought in the alternative that the owners of the dredger’s financial embarrassment was too remote. In the present case it seems to their Lordships to have been obviously foreseeable that if the house of a person in the position of Mr Broderick was seriously damaged he would not or might not have the wherewithal to repair it and that his ability to do so would depend on his establishing the liability of, and recovering damages from, the defendant.

Here again the test which was applied as the measure of damages was the modern test of whether the loss was reasonably foreseeable.

61.  The Judicial Committee did not go so far in Alcoa Minerals as to say that The Liesboschwas wrongly decided. As it was a decision of the House of Lords, it was for the House and not the Board to decide whether the rule that was laid down in that case should now be departed from. The opportunity for the House to take that step has now come. It is not necessary for us to say that The Liesbosch was wrongly decided. But it is clear that the law has moved on, and that the correct test of remoteness today is whether the loss was reasonably foreseeable. The wrongdoer must take his victim as he finds him: talem qualem, as Lord Collins said in the Clippens Oil case [1907] AC 291 , 303. This rule applies to the economic state of the victim in the same way as it applies to his physical and mental vulnerability. It requires the wrongdoer to bear the consequences if it was reasonably foreseeable that the injured party would have to borrow money or incur some other kind of expenditure to mitigate his damages.
62.  For these reasons I would reject the appellant’s argument that we should apply the rule that was laid down in The Liesbosch [1933] AC 449 that loss due to the claimant’s pre-existing impecuniosity is too remote and cannot be recovered as damages. I would hold that this rule should now be departed from.
This could be noted to be all well and good, as an impeccable analysis of the evolution of legal doctrine, but the analysis pre-supposes, almost as a given, that the litigant who has hired a car on credit hire terms and incurred a greater liability, has done so by hiring a replacement car at a market rate.
The speech presupposes in fact there is a competitive market, for renting out replacement cars on these terms, which will act as a dampener or control mechanism on the level of damages recoverable.
In fact, the credit hire market is a good example of an area (like recoverable success fees in litigation) where the actual rate of charges levied is not limited by free market pressures, but rather by the level of recovery that a court will permit.
A litigant seeking to hire a car on credit hire terms, will not shop around for a deal, as the cost of the car will not usually come out of the litigant’s own resources, but will be sought from the insurers of the at fault motorist and neither will the litigant have to front the charges.
Thus a credit hire company’s rates will not face the full rigour of free market competition, with a canny consumer checking the internet for the best deal, on the basis that  initially at least, he has to pay the charges in cold hard cash upfront.
Thus Lord Scott’s assessment, can 15 years on be seen to have been prescient:
88.  A criterion of reasonableness as a test for recovery of the full credit hire charges would be easy and simple to apply. It was the test proposed by the majority in the Court of Appeal and by Lord Nicholls in the House of Lords in Dimond v Lovell . But that criterion is barred by the majority opinion in Dimond v Lovell . The Dimond v Lovell principle, if applied to all cases, too would provide a simple and uncomplicated yardstick. The injured party would recover the spot rate charge but no more. But the impecuniosity, no other choice, exception that your Lordships are introducing is not based on any principle that can be reconciled with Dimond v Lovell and is conceptually imprecise. It will, I believe, prove an obstacle to the swift and economical settlement of a very large number of simple cases. I think it will be a disservice to the development of the law.
Lord Walker went further as he expressly noted the potential for dislocation of normal market based damages and the potential for open ended recovery:
104.  Should your Lordships reach a different conclusion in a case where the additional benefits were obtained by a course of action which was not *1100 merely reasonable, but was (as the judge in the county court held) the only course of action by which the claimant could obtain a replacement car? I would answer that question in the negative, both as a matter of principle and for reasons of policy. As a matter of principle, it would not in my view be right to permit a claimant’s impecuniosity, however much it may attract sympathy, to enable him to obtain compensation under a head which English law does not regard as part of his compensatable loss. This claimant’s choice was restricted by his extreme impecuniosity. The freedom of choice open to other claimants might be restricted by all sorts of other circumstances, such as the remote geographical location in which an accident occurred, the specialised character of the claimant’s vehicle, or a dislocation of the normal market caused by exceptional demand. The proposed modification of the principle in Dimond v Lovell seems dangerously open-ended.
So having noted the potential problem of open ended damages, but also noting that the problem is a by blow of the particular nature of this industry; where can the insurance industry go from here?
I am afraid that The Liesbosch lies sunk in legal waters far to deep to be raised again and sent into battle.
The decision in Lagden, is wholly in concurrence with academic opinion and modern authority, and indeed The Liesbosch was fatally holed below the water line by the Privy Council case in 2002, only a few years before the decision in Lagden.
The common law will not supply an answer to this problem: if in fact, there is a problem, given that the flow of funds between credit hire claimants and insurance companies, is often largely circular.
Instead any reform to reduce or control the level of damages, would almost certainly have to be legislative.
It is that intriguing possibility I will cover in the next post.

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