No Get Around Clause For Credit Hire Companies!

The Background

The claimant, Ms Armstead, was involved in a non-fault accident in 2015 and as a result hired a Mini on credit terms from Helphire Limited (now trading as Auxillis). When driving in Helphire’s vehicle, Ms Armstead was involved in a further accident with RSA’s insured. Liability was subsequently admitted by RSA.

The rental agreement between Helphire Limited and Ms Armstead, included a clause which stated that Ms Armstead would pay on demand the full contractual rate, for up to a maximum of 30 days, in respect of Helphire’s loss of use for each calendar day the vehicle was unavailable to be hired (Clause 16).

In March 2018, Ms Armstead received a purported demand for this loss of use. Subsequently proceedings were issued by Principia Law for Ms 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. He decided that Ms Armstead 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.

That decision was appealed and in a judgment handed down on the 15^th April 2021 Recorder Benson QC accurately termed the dispute ‘a long litigious contest’. As directed, the parties to the appeal had agreed a list of disputed issues. These included:

1. 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.
2. 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.
3. 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 found for the defendant on all three 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.

Being alive to the wider issues is the case, the Recorder stated when dismissing the appeal:

[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 […].

[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.

The 2nd Appeal to the Court of Appeal

The claimant/appellant bought their 2^nd appeal on 6 grounds which can be summarised as:

1. The Recorder was wrong in law to find that the claim for special damages was precluded by the principle concerning ‘relational economic loss’, a form of economic loss irrecoverable in tort.
2. That the Recorder was wrong in law to find that the loss was not reasonably foreseeable.
3. That the Recorder was wrong in law to find that the tortfeasor did not owe a duty of care to the claimant for the type of loss sought from the defendant.
4. That the Recorder was wrong in law to find that the claim for special damages constituted an ‘unacceptable extension of the proprietary fiction in bailment’.
5. That the Recorder was wrong in law to find that the loss sought by the claimant exceeded that which might have been bought directly against the defendant directly by Helphire.
6. The Recorder was also wrong to hold that the losses arising from Clause 16 were unreasonable as between Ms Armstead and RSA’s insured driver.

It was the appellant’s case in the appeal, advanced by Mr Ben Williams QC, that this was not a case which involved the established principles of bailment but simply about applying the established principles of negligence. He went on to state that Clause 16 merely represented a liquidated damages clause and that in negligence this was recoverable from RSA’s insured .

Mr Tannock on behalf of RSA, advanced the Respondent’s case that; the loss sought was not consequential on the physical damage to Helphire’s vehicle (as it only arose by virtue of the contract between Helphire and Ms Armstead), that the scope of the duty of care did not extend to the kind of loss claimed under Clause 16, and even if it was within the scope, it was unreasonable as between Ms Armstead and RSA’s insured as it included irrecoverable benefits such as providing for credit and pursing the recovery for Ms Armstead. It was also submitted that the “proprietary fiction” in bailment did not extend to permitting the type of loss claimed.

Lord Justice Dingemans in his leading judgment concluded that Ms Armstead was not entitled to recover against RSA the sums payable by her under Clause 16.

The first reason for this was based upon the fact that the loss sought was an internal arrangement between the bailee (Ms Armstead) and bailor (Helphire). It is not for the bailor to value its own loss without reference to the actual loss incurred if the bailor was to sue the defendant directly:

[51] [...] In my judgment, however, the fact that Helphire should not be entitled to value its own loss by reference to clause 16 of the Helphire agreement so that it can be recovered by Ms Armstead, accords with both principle and common sense in this case.

[52] As far as principle is concerned, the internal contractual arrangements between the bailor and bailee cannot be a basis for recovering losses. This is because the law of bailment treats the bailor and bailee as having one set of rights to claim for the damage and loss of use of the motor car. […] The invoiced sum might or might not accord with the losses which might be proved in an action by the company, but such an internal arrangement can hardly form the basis for proving the loss and bind the third party to pay the invoiced sum.

The second reason is that this case differed from other authorities as this was not a liquidated damage clause arrived at by two parties negotiating an independent agreement as to what the actual loss would be. Ms Armstead was not in a position to negotiate the contractual sum with Helphire.

The third reason following from the second was the fact that Clause 16 did not represent a genuine attempt to assess the likely losses incurred due to the loss of use of the damaged vehicle. Had Ms Armstead personally suffered a loss of use, she would have been entitled to hire and claim for those losses. If Helphire had lost a rental due to losing the vehicle, without having another vehicle available in the fleet, they would be entitled to claim for an average rate of what they achieve for that particular vehicle. If, as is likely, Helphire had spare vehicles within the fleet this would also lead to an outcome where there is a reduction in the sum claimed on the credit rate sought.

The fourth reason was that the loss claimed under Clause 16 was an economic loss, which was too remote and not foreseeable to the defendant driver, as it only arose from the contract between Helphire and Ms Armstead.

The fifth reason was that due to the fact that the sum due under the clause was not a reasonable attempt to assess the likely loss incurred as a result of the loss of the vehicle, it was not foreseeable to the defendant driver and too remote.

Finally, in applying the test set down by the Supreme Court in Manchester Building Society v Grant Thornton [2021] UKSC 20 and Khan v Meadows [2021] UKSC 21 applying the 6 questions of the ‘duty nexus’ for negligence, Lord Justice Dingemans stated:

[59] As to the first question, although Ms Armstead could bring a claim for loss of use of the Mini Cooper motor car, the damages payable under clause 16 are not actionable in negligence because clause 16 is an internal agreement between bailor and bailee. As to the second question, the loss of use of the Mini Cooper motor car as it was being repaired fell within the risks of harm which RSA’s insured driver had a duty to take care, but the quantification of that loss in clause 16 of the Helphire agreement was not within the scope of that duty. As to the third question, RSA’s insured driver drove without reasonable care and skill and therefore became liable for a claim for loss of use of the motor car, but did not become liable to a claim under clause 16 of the Helphire agreement. As to the fourth question, the reason why the Mini Cooper motor car was not available for hire was because it had been negligently damaged by RSA’s insured driver, but Ms Armstead’s liability under clause 16 arose because of the terms of the Helphire agreement. As to the fifth question, there was not a sufficient nexus between the claims under clause 16 of the Helphire agreement and the duty on the part of RSA’s insured driver to drive with the skill and care of a reasonable, prudent and competent driver. As to the sixth question, the element of harm, the damages claimed under clause 16 of the Helphire agreement are an irrecoverable economic loss, remote and not reasonably foreseeable.

The appeal was dismissed as the losses sought under ‘Clause 16’ fell foul of the principles of bailment, economic loss and negligence.