20/03/2024
The claim relates to an invoice for £1,560 which was sent by a credit hire firm, H, to the Claimant. The Claimant was involved in a collision, caused by an at-fault third party driver, whilst driving a car which she had hired from H on credit hire terms. The vehicle was returned to H and repaired over a 12 day period. H demanded that the Claimant pay the daily rental charge of the vehicle (£130) whilst the vehicle was out of use, in accordance with an indemnity clause in the hire contract.
The question posed to the Supreme Court was whether the third party driver was liable to pay the loss of use charges arising out of the contract which the Claimant had signed with H?
The Court examined whether the sum was irrecoverable “either because it is “pure economic loss” or because it is too remote?”
RSA, the insurers of the third party driver, submitted that the contractual clause requiring the Claimant to indemnify H for loss of use was an unfair term under the Consumer Rights Act 2015, and/or a penalty, and was therefore unenforceable. They also asserted that the Claimant had a duty to mitigate her loss by refusing to pay the sum to H.
First instance decision:
At first instance the Court dismissed the claim on the basis that the Claimant did not have any proprietary interest in the car – it belonged to H - and had no right to recover any economic loss from the other driver.
First appeal
At appeal, the Judge concluded that the sum claimed by H (ie its daily hire rate) was not a reasonable estimate of H’s loss of use of the vehicle, and the Claimant’s liability to pay this sum to H was not a reasonably foreseeable consequence of the collision. He also held that the contractual indemnity clause amounted to “relational economic loss” which was not recoverable. The appeal was rejected.
The Court of Appeal
At this appeal stage the Claimant conceded that she could not pursue recovery of H’s charges if it did not represent a genuine and reasonable attempt to assess the likely loss incurred by H as a result of loss of use of the car. However the Court of Appeal held that the indemnity clause was a form of pure economic loss and did not represent a genuine and reasonable attempt to assess H’s likely losses. Again, the appeal was rejected.
The Supreme Court
The Claimant appealed to the Supreme Court.
In giving the leading judgment, Lord Justice Dingemans, gave a helpful summary of the principles to be considered in this case. Firstly, the judgment concludes that the question of whether a bailee can recover this kind of loss is a red herring; it is the person who has proprietary right over the vehicle at the relevant time that is key.
Secondly, it was concluded that H’s indemnity charge did not represent a pure economic loss. The loss flowed from damage to the vehicle. The real question was one of foreseeability. The Court concluded that loss of use of the vehicle in principle was foreseeable; it flowed from the damage to the car and, even though the Claimant could use the car after the incident, it was foreseeable that a loss would be incurred whilst the vehicle was being repaired.
Thirdly, the judgment considered the extent of the charge itself, and ruled that, in order to be recoverable, a charge resulting from an indemnity clause of this type has to equate to a reasonable pre-estimate of the losses that were actually suffered by the hire company.
In the current case, the loss pleaded was limited to a period of 30 days, and claimed at the same rate at which H had hired the vehicle to the Claimant. It was held that this was a fair representation of the loss incurred by H.
The Court placed the burden of proof on Defendants to show that a loss arising under a car hire contract is not foreseeable and/or not a fair representation of the actual losses sustained by the hirers.
Comment
This case highlights the importance to Defendants of properly evidencing their submissions. Defendants may still be able to escape liability for these types of contractual clauses if they can show that a contractual amount claimed for loss of use is unfairly high.
