No get around clause for credit hire companies! DAC Beachcroft successfully defend appeal as Court makes finding that demand made under a contractual term amounts to a relational economic loss.  On the 15th April 2021 the Judgment of Recorder Benson QC was handed down in the case of Lorna Armstead v Royal and Sun Alliance Insurance Company Limited [2021]. DAC Beachcroft together with Quentin Tannock of 4 Pump Court Chambers, successfully defended the appeal on behalf of Royal and Sun Alliance, in what is hopefully the final episode in what Recorder Benson QC accurately termed ‘a long litigious contest’.The appeal was to decide the recoverability of consequential losses suffered by a claimant driver of a hire car against the negligent third-party driver’s insurers. Or to put more simply, whether a credit hire company, presenting a claim on behalf of the Claimant under the guise of a contractual term called ‘Clause 16’, could recover the full commercial rate claimed within the hire agreement, when one of their vehicles was damaged whilst out on hire. The Background The Claimant, Miss Armstead was involved in a non-fault accident in 2015 and as a result hired a Mini vehicle on credit hire from Helphire Limited (now trading as Auxillis). When driving in Helphire’s credit hire vehicle, Miss Armstead was involved in a further accident with Royal and Sun Alliance (RSA)’s insured.  Liability was subsequently admitted by the Defendant insurer.Within the rental agreement between Helphire Limited and Miss Armstead, Clause 16 stated that Miss Armstead would pay on demand, the full contractual rate, for up to a maximum of 30 days, in respect of the credit hire companies loss of use for each calendar day the vehicle was unavailable to be hired.In March 2018, Miss Armstead received a purported demand for this loss of use and subsequently proceedings were issued for Miss Armstead, seeking to recover consequential loss arising under the contract, by virtue of her position as bailee of the hired vehicle and under contract.This claim was dismissed by DDJ Fawcett in which he arrived at the conclusion that Claimant had suffered no loss. In his Judgment he stated that it would be a surprising position for the court to find that the sum demanded of the Claimant was a contractual indemnity, behind which the court could not go. The AppealThe Claimant appealed the decision on the basis that the Judge at the first instance had erred in law in dismissing the Claimant’s claim, on the basis that she had suffered no loss and that claimant’s losses constituted a relational economic loss.The Defendant filed a respondent’s notice and ultimately the parties, as directed, agreed a list of disputed issues. These included:Whether the claimant is entitled to recover the disputed element of the claim under the law of bailment or whether the disputed claim amounts to an unacceptable extension of the proprietary fiction in bailment.Whether the disputed element of the claim is a relational economic loss. If so, is the claimant permitted to recover the sums sought from the defendant.Whether the defendant’s driver had a duty of care to prevent liabilities in contracts agreed by the claimant with third parties; if not, whether it is fair just and reasonable for the court to impose such a duty of care on the defendant’s driver.Recorder Benson QC in his Judgment found for the Defendant on all three of the above issues in the appeal, also concluding that the Claimant’s claim for her liability arising under her contract with Helphire was not reasonably foreseeable by the Defendant’s insured.The law of bailment - an unacceptable extension of the proprietary fiction in bailmentAs to the first issue in the appeal, the general proposition is that in the law of bailment, a bailee is entitled to bring a claim for all those losses that the true owner suffered in consequence of the third party’s wrongdoing, at least where these were directly recoverable by the owner from the third party. To allow a bailee to be permitted to recover more than the owner of the vehicle, would constitute an unacceptable expansion of the common law proprietary fiction.It is clear therefore when applying the well-known Judgment of Sir Mark Potter in Beechwood v Hoyer [2010], Helphire’s true loss would be that of their lost profits; assessed as capital interest, depreciation and wasted expenses. As such, the Claimant’s claim for the full contractual rate significantly surpasses the loss obtainable if Helphire were to bring this loss as the owner of the vehicle.It was the Defendant’s positon throughout, that Clause 16 was merely a way of circumventing the established law in Beechwood, which was subsequently reaffirmed by the Court of Appeal again in West Midlands Travel v Aviva [2013].Recorder Benson QC was very much alive to this, commenting on the same in his Judgment:[28] However it is of course convenient for Helphire to pursue its claim for loss of use through the bailee. This is because, through the claimant, it stands to recover a greater sum for loss of use than it would have had it sued the defendant’s insured directly. This makes for an uncomfortable analysis […].[44]  […] Mr Tannock argues that the effect of the claim is to attempt to circumvent Beechwood and should not be allowed. [45] I am left in little doubt that the use of a hire contract containing Clause 16 and the fact that the hirer is deployed as claimant (I understand that she and Helphire have the same solicitors) is a means to an end. […] Clause 16 does not disguise the fact that this is in reality a claim for and on behalf of Helphire to recover a liquidated sum for its loss of use of a profit earning chattel.Relational economic lossAs to the issue of relational economic loss, it is defined as a ‘financial loss that occurs only because of the relationship between the immediate, physical, victim of a wrong and the claimant’. This is subject to the usual exclusionary rules that apply to all forms of pure economic loss, save for the exceptions set out by the House of Lords in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964].Whilst the Claimant argued that she herself was the ‘immediate physical victim of the wrong’, this ignored the fact that the hire car belonged to a third party, namely Helphire. This is not to say that she is not a victim, as indeed it is possible for there to be many victims of the same accident, but this then begs the question of how far does this extend and to how many classes of victims? The simple application of the facts are that immediately upon the vehicle being damaged Helphire was the physical victim of the negligence as owner of the vehicle. Her enjoyment of the of the proprietary fiction over the hire vehicle does not change this fact.Miss Armstead’s liability arises only out of her relationship with Helphire, is purely a financial loss and thus not fitting into one of the exceptions in Hedley Byrne, is precluded by the rule against the recovery of pure economic loss.Foreseeability and the imposition of a duty of care A further important consideration within this appeal was whether it was right to impose a duty of care on all drivers to avoid contractual liabilities arising between other road users and third parties, over which they had no control. It immediately becomes unclear where the control mechanism lies to prevent indeterminate liabilities. This would have practical applications far beyond the immediate case should it have been found to be correct. Again however the Recorder was alive to this issue:[57] In my judgment the scope of the defendant’s duty of care did not extend to avoiding the claimant’s liability to Helphire under the contract. [58] Furthermore I do not consider that in the circumstances it is fair just and reasonable to impose a duty of care of a nature and extent which will avoid the claimant from the contractual liability to a third-party.  Helphire is not without remedy: it could have chosen to sue the defendant directly and brought a claim for loss of the revenue-earning chattel and damages would be awarded subject to proof and established principle of recoverability.[59] In my judgment therefore Mr Tannock is correct when he says that it is one thing to impose on drivers a duty of care to avoid causing foreseeable consequential loss of revenue to owners of a revenue generating asset (as in Conarken) but quite another to impose, or extend, a driver’s duty of care to avoid causing other road users to incur contractual liabilities to third parties. Negligent drivers who caused damage to a hired vehicle would be exposed to considerable liabilities based purely on what the innocent driver had previously agreed with the hire company – agreements over which the tortfeasor had no input or control. Impact of the DecisionIt is hoped that this Judgment will prevent credit hire companies adopting a position of using hirers in an attempt to seek damages above and beyond those that they are entitled to in law, by making them liable for losses where they themselves are victims of non-fault accidents in their vehicles.  Recorder Benson QC was right to call this ‘an episode in in an increasingly long litigious contest’, however we believe that this is the final episode and if we may say so, a fitting end to the series."},"dtdGuid":"f99a89af-92a2-4618-9d83-5ba3cd7215d5"}