|Judgments - Dimond (Original Appellant and Cross-Respondent) v. Lovell (Original Respondent and Cross-Appellant)
The real difficulty, as it seems to me, is that to treat Mrs. Dimond as having been unjustly enriched would be inconsistent with the purpose of section 61(1). Parliament intended that if a consumer credit agreement was improperly executed, then subject to the enforcement powers of the court, the debtor should not have to pay. This meant that Parliament contemplated that he might be enriched and I do not see how it is open to the court to say that this consequence is unjust and should be reversed by a remedy at common law: compare Orakpo v. Manson Investments Ltd.  A.C. 95.
6. Res inter alios acta
1st Automotive's next point was that it did not matter whether Mrs. Dimond was liable to pay for the hire of the Ford Mondeo. The fact was that Mr. Lovell had negligently deprived her of 8 days use of her Suzuki. This was her loss and the fact that she had been lucky enough to obtain the use of another car for nothing was, as one used to say, res inter alios acta. It should not affect Mr. Lovell's liability, any more than if a friendly neighbour who happened to be going on holiday had put his car at her disposal. The neighbour would be surprised to learn that his generosity had been for the benefit of Mr. Lovell.
This argument has very respectable support in the authorities. Mr. Wingate-Saul began with the decision of this House in Parry v. Cleaver  A.C.1. Lord Reid there said, at p. 14, that it would be unjust for damages to be reduced to take into account benefits that the plaintiff received "from the benevolence of his friends or relations or of the public at large" so that "the only gainer would be the wrongdoer." Lord Reid also said that benefits from insurance taken out by or for the plaintiff should be disregarded because "the plaintiff has bought them" and it would be unjust that "the money which he prudently spent on premiums...should enure for the benefit of the tortfeasor." He applied this reasoning to hold that benefits from a contributory disability pension fund should also be disregarded.
In Donnelly v. Joyce  Q.B. 454 Megaw L.J. derived from these decisions a general theory that benefits received from third parties were res inter alios acta. A boy of six sustained bad injuries to his leg in a road accident. For six months he required daily attention. His mother gave up her job to look after him. The claim for damages on behalf of he boy included the mother's loss of earnings. This was objected to on the grounds that the boy had incurred no obligation to repay his mother for her services. Megaw L.J. said, at p. 462, that the fact that the boy had obtained the necessary care without payment was irrelevant to his claim:
A general principle that benefits provided by third parties are res inter alios acta is obviously strongly supportive of 1st Automotive's argument. And that principle was applied by the Court of Appeal in McAll v. Brooks  R.T.R 99 on facts very similar to the present case. The plaintiff reasonably required a replacement car after his own had been damaged in an accident. His insurance brokers provided the car under an arrangement that was alleged to be illegal insurance business and would have prevented them from being subrogated to the plaintiff's claim for damages in respect of the loss of the use of his car. Lawton L.J. said, at p. 103, that the principle in Donnelly v. Joyce  Q.B. 454 made the relationship between the plaintiff and his insurance company irrelevant:
That is the high water mark of authority in favour of 1st Automotive. But since high water the tide has retreated. The courts have realised that a general principle of res inter alios acta which assumes that damages will be paid by "the wrongdoer" out of his own pocket is not in accordance with reality. The truth is that virtually all compensation is paid directly out of public or insurance funds and that through these channels the burden of compensation is spread across the whole community through an intricate series of economic links. Often, therefore, the sources of "third party benefits" will not in reality be third parties at all. Their cost will also be borne by the community through taxation or increased prices for goods and services.
So in Hunt v. Severs  2 A.C. 350 the House of Lords rejected the broad res inter alios acta principle of Donnelly v. Joyce  Q.B. 454. Lord Bridge of Harwich cited, at p. 360, the passage from the judgment of Megaw L.J. which I have quoted and said:
The House treated the two cases mentioned by Lord Reid in Parry v. Cleaver  A.C.1, 14 ("the fruits of insurance which the plaintiff himself has provided" and "the fruits of the benevolence of third parties") as "apparent exceptions to the rule against double recovery" founded on the special considerations of policy which Lord Reid had explained: see Lord Bridge of Harwich, at p. 358. The House declined to create another exception for the case in which, as in Donnelly v. Joyce  Q.B. 454, the plaintiff claims compensation for the reasonable cost of necessary services which have in fact been provided voluntarily by a third party. It decided that in such a case damages cannot be recovered for the plaintiff's own benefit. He can sue only if he claims as trustee for the person who provided the services: see p. 363.
This case is of course far away from the gratuitous provision of services (usually by a relative) which was considered suitable for recovery as trustee in Hunt v. Severs  2 A.C. 350. If Mrs. Dimond is allowed to sue Mr. Lovell as trustee for 1st Automotive, the effect will be to confer legal rights upon 1st Automotive by virtue of an agreement which the Act of 1974 has declared to be unenforceable. This would be contrary to the intention of the Act. The only way, therefore, in which Mrs. Dimond could recover damages for the notional cost of hiring a car which she has actually had for free is if your Lordships were willing to create another exception to the rule against double recovery. I can see no basis for doing so. The policy of the Act of 1974 is to penalise 1st Automotive for not entering into a properly executed agreement. A consequence is often to confer a benefit upon the debtor, but that is a consequence rather than the primary purpose. There is no reason of policy why the law should insist that Mrs. Dimond should be able to retain that benefit and make a double recovery rather than that it should reduce the liability of Mr. Lovell's insurers.
My Lords, for the reasons I have given and in agreement with the Court of Appeal, I consider that the claim for damages for loss of the use of the car failed and should have been dismissed. But the Court of Appeal, in addition to dismissing the claim, expressed a firm view on the principles by which damages should have been calculated if the hiring agreement had been enforceable. Although not necessary for the decision, it can be said to be the most important point on which your Lordships heard argument. The unenforceability of the agreement is a technical defect which more sophisticated drafting can easily correct. But the principles upon which damages are calculated are vital to the future profitability of the accident hire business. I would therefore invite your Lordships, like the Court of Appeal, to express your opinions on the matter.
Prima facie the £346.63 which Mrs. Dimond contracted to pay 1st Automotive for the car represents her loss. The judge accepted evidence on behalf of C.I.S. that the local "spot rate" for hiring a car similar to the Ford Mondeo was a good deal less than that charged by 1st Automotive. But he said that Mrs. Dimond had acted reasonably. She acted on the recommendation of her broker and it was reasonable of her to accept the specialist services which 1st Automotive offered:
The judge accepted the evidence given on behalf of the C.I.S. that 1st Automotive's rates were considerably higher than the "spot rate" for which a car could have been obtained for cash from an ordinary car hire company. He said that "the rates of hire from 1st Automotive and companies offering a similar service to faultless victims will always be higher than local spot rates." But Mrs. Dimond was entitled to recover the higher rate because:
In the Court of Appeal  3 W.L.R. 561 Sir Richard Scott V.-C., with whom Thorpe L.J. agreed, said that Mrs. Dimond could not be said to have failed to take reasonable steps to mitigate her damage. He said that whether the plaintiff acted reasonably was a question of fact on which the judge had found in Mrs. Dimond's favour. In any case, he agreed, at p. 580:
Judge L.J. was unhappy with this conclusion but, if I may say so with respect, did not find it easy to articulate the principle upon which he differed from the majority. He said that it was all a question of reasonableness which depended upon the particular facts.
My Lords, I would accept the judge's finding that Mrs. Dimond acted reasonably in going to 1st Automotive and availing herself of its services. I am sure that any of your Lordships in her position would have done the same. She cannot therefore be said not to have taken reasonable steps to mitigate her damage.
But that does not necessarily mean that she can recover the full amount charged by 1st Automotive. By virtue of her contract, she obtained not only the use of the car but additional benefits as well. She was relieved of the necessity of laying out the money to pay for the car. She was relieved of the trouble and anxiety of pursuing a claim against Mr. Lovell or the C.I.S. She was relieved of the risk of having to bear the irrecoverable costs of successful litigation and the risk, small though it might be, of having to bear the expense of unsuccessful litigation. Depending upon the view one takes of the terms of agreement, she may have been relieved of the possibility of having to pay for the car at all.
My Lords, English law does not regard the need for any of these additional services as compensatable loss. As Sir Richard Scott V.-C. said (at  3 W.L.R. 561, 580) "damages for worry and for the nuisance caused by having to deal with the consequences of an accident are not recoverable." If Mrs. Dimond had borrowed the hire money, paid someone else to conduct the claim on her behalf and insured herself against the risk of losing and any irrecoverable costs, her expenses would not have been recoverable. But the effect of the award of damages is that Mrs. Dimond has obtained compensation for them indirectly because they were offered as part of a package by 1st Automotive. There is in my opinion something wrong with this conclusion.
I think that what has gone wrong is that the Court of Appeal did not consider the rule that requires additional benefits obtained as a result of taking reasonable steps to mitigate loss to be brought into account in the calculation of damages. The leading case is British Westinghouse Electric and Manufacturing Co. Ltd. v. Underground Electric Railways Co. of London Ltd  A.C. 673. Between 1904 and 1906 British Westinghouse supplied 8 steam turbines to the railway company. They were defective in design and used excessive quantities of steam. The railway company did not reject them but reserved its claim to damages for breach of contract. In 1907 the railway company replaced them with more efficient turbines made by Parsons. The railway company claimed damages for the excessive fuel used while they were operating the British Westinghouse turbines and the whole cost of replacing them with Parsons turbines. The arbitrator found that the railway company had acted reasonably and prudently in acquiring the Parsons turbines to mitigate their continuing loss in using excessive fuel. But he also found that the Parsons turbines were so efficient that it would have been to the advantage of the railway company to replace the British Westinghouse turbines when they did, even if the latter had been in accordance with the contract specification.
The House of Lords held that the additional benefits gained by the railway company from acquiring the Parsons turbines, over and above what would have been their contractual entitlement as against British Westinghouse, had to be brought into account in calculating the damages. Viscount Haldane L.C. distinguished, at p. 691, cases in which the plaintiff had received benefits which "did not arise out of the transactions the subject-matter of the contract." These were res inter alios acta. But where -"the person whose contract was broken took a reasonable and prudent course quite naturally arising out of the circumstances in which he was placed by the breach" it was necessary to look at any additional benefits which he thereby acquired and to "balance loss and gain."
In Bellingham v. Dhillon  Q.B. 304 Forbes J. applied the same principle to an action for damages for personal injuries in which steps taken by the plaintiff to mitigate the loss to his business had produced additional gains. In principle this seems to me to be right: there can be no difference here between contract and tort.
How does one calculate the additional benefits that Mrs. Dimond received by choosing the 1st Automotive package to mitigate the loss caused by the accident to her car? The hiring contract does not distinguish between what is attributable simply to the hire of the car and what is attributable to the other benefits. But I do not think that a court can ignore the fact that, one way or another, the other benefits have to be paid for. 1st Automotive have to bear the irrecoverable costs of conducting the claim, providing credit to the hirers, paying commission to brokers, checking that the accident was not the hirer's fault and so on. A charge for all of this is built into the hire.
How does one estimate the value of these additional benefits that Mrs. Dimond obtains? It seems to me that prima facie their value is represented by the difference between what she was willing to pay 1st Automotive and what she would have been willing to pay an ordinary car hire company for the use of a car. As the judge said, 1st Automotive charged more because they offered more. The difference represents the value of the additional services which they provided. I quite accept that a determination of the value of the benefits which must be brought into account will depend upon the facts of each case. But the principle to be applied is that in the British Westinghouse case  A.C. 673 and this seems to me to lead to the conclusion that in the case of a hiring from an accident hire company, the equivalent spot rate will ordinarily be the net loss after allowance has been made for the additional benefits which the accident hire company has provided.
I would dismiss the appeal.
LORD SAVILLE OF NEWDIGATE
My Lords,I too would dismiss this appeal for the reasons given by my noble and learned friend Lord Hoffmann, whose speech I have had the advantage of reading in draft. However, I express no view on the question of the principles by which damages should have been calculated had the agreement been enforceable, which does not arise for decision in the present case. This is a question of great importance and difficulty, the answer to which may well have widespread ramifications. It is accordingly a question that I would prefer to consider in a case where it does arise for decision.
LORD HOBHOUSE OF WOODBOROUGH
This appeal nominally concerns only a few hundred pounds yet it arises out of an everyday situation which has an impact on the motor insurance market running to millions of pounds a year. It represents a competition between different insurance interests. The factual situation is typically a collision between two privately owned motor vehicles. Only one driver is at fault. The other's car is damaged and needs to be repaired. It will have to be off the road for a matter of days or weeks while it is repaired. In Mrs. Dimond's case, her car was not rendered unroadworthy but was at the garage for 7 days whilst being repaired and so was not available to her for use during that time.
The driver not at fault would like to hire a substitute car so that he is not without one. But he does not want to have to bear the cost. His own insurance does not cover this expenditure. He appreciates that he should be able to recover from the driver at fault the cost of hiring the substitute but is reluctant to get involved in the hassle and expense of going to court to recover the money. He therefore engages the services of an accident hire company. There are quite a number of such companies. They are in a profitable line of business. Their customers are people such as Mrs. Dimond. As explained in their promotional literature they provide a substitute car to a party not at fault and see to the recovery of the cost from the other party. The result is designed to be that the customer does not have to go without a car, does not have to find any money and is saved the hassle of himself pursuing the guilty party. It is a good arrangement and understandably popular.
However it is much more expensive than simply hiring a car from an ordinary car hire company. The evidence was that it cost Mrs. Dimond £41.37 per day to hire from the accident hire company First Automotive; a similar car could have been got from an ordinary car hire company for under £24 per day. The reason for this discrepancy is not hard to seek. The accident hire company is doing more than just hiring out a car. It is financing the transaction until the expected recovery is made from the other party; it is bearing a commercial (though normally not the legal) risk that there may be a failure to make that recovery; it is bearing the cost of handling the claim and effecting the recovery. The £17 per day covers this and a margin of profit.
The popularity of this scheme with the public is matched by its unpopularity with the main line motor insurance companies who are covering the negligent motorists against third party claims and find themselves faced with these increased claims. They also have an increased incidence of loss of use claims because the scheme enables drivers, who otherwise would not go to the expense of hiring a substitute car, to hire one and make a claim for it.
These conflicting commercial interests between the insurance companies and the accident hire companies have led to much litigation in which they are the real entities interested. In Giles v. Thompson  1 A.C. 142, the insurance companies challenged the validity of the scheme on the ground that it was champertous. The attack failed: the validity of the scheme was upheld. But as the nominal parties to the dispute were the two motorists, the defendant motorist was able to contend that the plaintiff motorist had lost nothing since she had not had to pay for the hire car. Lord Mustill delivered the leading speech with which the other members of the House agreed. He said (at p.166) that there had been no assignment of the damages to the accident hire company nor were they entitled to be paid only out of the damages recovered.
The terms of the agreement in that case were effectively the same as those with which the present case is concerned. It is not necessary that I should set them out again. The agreement is in the form of a car hire agreement, the parties being described respectively as the "lessor" and the "hirer". The clauses most relevant to payment are conditions 5 to 8. Condition 7, by reference to the lessor's rental tariff fixes the rate to be charged for "the hire of the vehicle". Condition 8 provides that, except where condition 5 applies, the charges due are payable on demand. Condition 5 deals with the situation where the hirer's car is unroadworthy (an expression which was treated as wide enough to cover Mrs. Dimond's position). It contains a number of paragraphs. The first provides that "the lessor will allow the hirer credit on the hire charges until such time as a claim for damages has been concluded against [the third party] that the hirer alleges is liable for damages arising out of the said accident, subject only to condition 6". The second and third paragraphs give the lessor the right to use the hirer's name to sue the third party and require the hirer to co-operate (but no more). The fourth paragraph refers to the "credit facility" provided by the first paragraph and requires the hirer to take advantage of any opportunities to obtain an earlier payment from the third party so as to enable the hire charges to be paid off before the conclusion of the legal proceedings. Finally, condition 6 provides that "if, and only if", the hirer is in breach of his obligation to co-operate under the third paragraph of condition 5, "the credit allowed by the lessor to the hirer shall be terminated" and the hire charges become due.
In the present case, the insurance companies have taken advantage of a further opportunity to challenge the validity of this form of agreement. The Consumer Credit Act 1974 makes formal requirements for what agreements involving the provision of credit must contain. It is not in dispute that if this agreement is such an agreement it did not comply with the statutory requirements as to form and content. I agree with your Lordships that this agreement did involve the provision of credit. The answer to that question is not provided by the application of some formula but rather by looking at the terms of the agreement in the context of the relevant transaction as a whole. Here the terms of the agreement are explicit. The lessor is extending credit to the hirer. It is described as a "credit facility" and the allowance of credit and its termination are specifically referred to. Under these circumstances there can be no escape from the answer which your Lordships have given.
I would add only one further comment. The test formulated by Professor Goode adopted by the Vice Chancellor in the Court of Appeal  3 W.L.R. 561, 572 will not always be a satisfactory one to apply. Many commercial agreements contain provisions which could be said to postpone (or advance) the time at which payment has to be made. Frequently, there will be reasons for this other than the provision of credit. Payment may be postponed as security for the performance of some other obligation by the creditor. Payments may be made in advance of performance in order to tie the paying party into the commercial venture. Payment provisions may like any other aspect of the transaction be part of its commercial structure for the division of risk, for the provision of security or simply the distribution of the commercial interest in the outcome of the transaction.
Where the transaction is a relatively simple consumer transaction little sophistication is required. The car has been hired, used and returned. No payment of the hire charges is stipulated for at that time. Payment is postponed until the hirer has been put in funds: "the lessor will allow the hirer credit on the hire charges". But neither the lessor nor the hirer is under an obligation to procure that the hirer is put in funds. The lessor has no obligation; the hirer's obligation is simply to co-operate. As is illustrated by the present case, the accident hire company itself in the contractual document characterised what it was doing as the providing a credit facility. It was clearly right to do so.
The consequence of the failure to comply with the statutory requirements is clearly spelt out in the statute. The contract cannot be legally enforced by the creditor against the debtor: sections 65 and 127. It may be thought that this may sometimes produce a harsh result and an unmerited windfall for the debtor. But this is what Parliament has provided no doubt in accordance with a broader policy. Again I agree with your Lordships that there is no basis for implying an obligation of the hirer to pay contrary to the statute. Nor is there any basis for the application of some restitutionary principle. The contemplation of the parties was that the hirer should not in fact pay out of her own pocket for the hiring of the car. In the present case she has not been unjustly enriched; her position is precisely that which was intended.