Director Chris Wood considers the recent case of Armstead v Royal and Sun Alliance Insurance Company Ltd [2024] UKSC 6

This recent case, heard by the Supreme Court, clarified that it is for a Defendant to plead and to prove that a loss claimed by a Claimant is too remote to recover and approved the recovery of a contractual pre-estimate of loss, overturning the Court of Appeal’s decision in the same case.

Facts of the Case

Lorna Armstead was most unfortunate, in that she was involved in a no-fault road traffic accident and then she suffered a further accident, which was also not her fault, whilst driving a replacement hire car. The claim, which reached the Supreme Court, was for just £1,560 but the principles behind it affect many more cases being heard in the County Courts.

The £1560 in dispute related to a clause in the Claimant’s contract with the hire company, which effectively said that she was liable to pay the hire company an amount equivalent to the daily rental rate of the car for up to 30 days whilst the vehicle was unavailable for rental because of damage suffered whilst on hire to her.

The full judgment can be read here

The claim was defended on the grounds that the disputed term was an unfair term under Sections 62 and 63 of the Consumer Rights Act 2015 an/or a penalty so unenforceable, they also alleged that the Claimant had a duty to mitigate her loss by refusing to pay the £1560 to the hire company.

Lower Court Decisions

The Claim was allocated to the Small Claims Track and was dismissed on the basis of the Claimant not having any proprietary interest in the hire car so had no right to recover economic loss suffered as a result, i.e. it was pure economic loss, a head of claim unrecoverable in English law. Unsurprisingly, the Claimant appealed that decision, given that she was clearly the bailee in possession of the vehicle and entitled to bring a claim. The Recorder who heard the appeal accepted that fact but still dismissed the appeal, finding that the Claimant was not entitled to recover a more money than the hire company would have been entitled to recover direct from the Defendant (and finding that the hire company would have recovered damages on the basis of interest on the capital value of the damaged car and any depreciation in value during the period of repair, following the previous case of Beechwood Birmingham Ltd v Hoyer Group UK Ltd [2010] EWCA Civ 647; [2011] QB 357) and therefore was no a reasonably foreseeable consequence of the collision, that the amount related to “relational economic loss” which was not recoverable and that the Defendant did not owe a duty of care to the Claimant to prevent her incurring a contractual liability to pay the hire company the sum.

The Claimant then appealed to the Court of Appeal. The Court of Appeal found against the Claimant for a number of reasons,.

In summary, these were: (i) that clause 16 of the hire agreement was an “internal arrangement” between a bailee and the bailor and, as such, could not be a basis for recovering losses from a third party; (ii) that clause 16 was not negotiated at arm’s length and was not a “true independent agreement” between Helphire and Ms Armstead; (iii) that clause 16 did not represent a genuine and reasonable attempt to assess the likely losses to be incurred by Helphire as a result of loss of use of the hire car; (iv) that the clause 16 liability was a form of irrecoverable pure economic loss because it arose from the internal agreement between Helphire and Ms Armstead; and (v) that because clause 16 did not represent a genuine and reasonable attempt to assess the likely losses to be incurred as a result of loss of use of the hire car, the loss claimed was not reasonably foreseeable and was too remote to be recoverable.

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.

The Case comes to the Supreme Court

Finally, the Claimant appealed to the Supreme Court. The Supreme Court at paras 19-21 set out what it described as 3 well established principles:

1) 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 (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)

2) 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. 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).

3) 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.

At paragraph 23 of the judgment, the Supreme Court went on to say, 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 and noted that the real issue in this case concerned remoteness.

They concluded that [para 47] 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

A reasonably foreseeable type of loss flowing from damage to a hire car is financial loss resulting from inability to use the car. 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.

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. The Supreme court also noted that the underlying policy reason for the remoteness rule is to ensure that an excessive burden of liability does not fall upon the Defendant. They noted that “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.” And they held that a loss would be too remote if it was not a reasonable pre-estimate of the actual loss of use to the hire company of its vehicle.

As to the burden of proof on whether a loss is too remote, the court held at paragraph 59 that it is for a Defendant to assert and prove that one or more of the principles outlined in paragraph 23 of the judgment applies to limit the Claimant’s damages.

And at paragraph 62 “..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.”

Finally, at paragraph 72, the court considered what the position would be if the court found that the pre-estimate was not a reasonable sum. They asked themselves “Would that mean that Ms Armstead would recover no damages at all in respect of loss of use?” The answer was no, “The claimant would be entitled in this situation to recover the amount of damages which would present the hire company’s reasonably foreseeable loss of use.

Ultimately, the Claimant was awarded her £1560 loss by the Supreme Court and some clarity has been brought to cases where there is a contractual liability based upon a reasonable pre-estimate of loss.

Chris Wood is a solicitor with over 20 years of experience dealing with personal injury claim arising from road traffic collisions, accidents at work, trips/slips and other accidents in public places. His views are his own and do not constitute legal advice. If you have been injured in an accident which was not your fault, call us on 01772 203303 or get in touch via our website to see if we can help. We can act on a Conditional Fee Agreement (no-win, no-fee) and are happy to discuss your case on a no-obligation basis.