Judgments - Lagden (Respondent) v. O'Connor (Appellant)

(back to preceding text)

    31.  Some guidance as to the approach which should be taken to this problem is provided by The Gazelle (1844) 2 W Rob 279. That was a case where a vessel was damaged by collision. The question was as to the amount that was to be paid to the owners of the damaged vessel for its repair. At p 281 Dr Lushington said that the measure of the indemnification to which the owner of the damaged vessel was entitled was co-extensive with the amount of the damage:

    "The right against the wrongdoer is for a restitutio in integrum, and this restitution he is bound to make without calling upon the party injured to assist him in any way whatsoever. If the settlement of the indemnification be attended with any difficulty (and in those cases difficulties must and will frequently occur), the party in fault must bear the inconvenience. He has no right to fix this inconvenience upon the injured party; and if that party derives incidentally a greater benefit than mere indemnification, it arises only from the impossibility of otherwise effecting such indemnification without exposing him to some loss or burden, which the law will not place upon him."

    The principle which emerges from this passage is that it is not open to the wrongdoer to require the injured party to bear any part of the cost of obtaining such indemnification for his loss as will place him in the same position as he was before the accident.

    32.  In Harbutt's "Plasticine" Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447 the plaintiffs' factory, which was in an old mill, was destroyed by fire as a result of defects in the design of equipment supplied by the defendants and its having been switched on and the plant left unattended. A new factory had to be built. The plaintiffs had no other option if they were to continue their business of making plasticine. They were not allowed to rebuild the old mill, so they had to put up a new factory. A question was raised as to the measure of damages. The defendants said that it should be limited to the difference in the value of the old mill before and after the fire and that the plaintiffs should not be allowed the cost of replacing it with a new building. This argument was rejected. Lord Denning MR said, at p 468A-C:

    "If a second-hand car is destroyed, the owner only gets its value; because he can go into the market and get another second-hand car to replace it. He cannot charge the other party with the cost of replacing it with a new car. But when this mill was destroyed, the plasticine company had no choice. They were bound to replace it as soon as they could, not only to keep their business going, but also to mitigate the loss of profit (for which they would be able to charge to defendants). They replaced it in the only possible way, without adding any extras. I think they should be allowed the cost of replacement. True it is that they got new for old; but I do not think the wrongdoer can diminish the claim on that account. If they had added extra accommodation or made extra improvements, they would have to give credit. But that is not this case."

    33.  Widgery LJ in the same case dealt with the question of betterment in this way, at p 473B-C:

    "It was clear in the present case that it was reasonable for the plaintiffs to rebuild their factory, because there was no other way in which they could carry on their business and retain their labour force. The plaintiffs rebuilt their factory to a substantially different design, and if this had involved expenditure beyond the cost of replacing the old, the difference might not have been recoverable, but there is no suggestion of this here. Nor do I accept that the plaintiffs must give credit under the heading of 'betterment' for the fact that their new factory is modern in design and materials. To do so would be the equivalent of forcing the plaintiffs to invest their money in the modernising of their plant which might be highly inconvenient for them. Accordingly I agree with the sum allowed by the trial judge as the cost of replacement"

Cross LJ too rejected the proposition that the defendants were entitled to claim a deduction from the actual cost of rebuilding and re-equipping on the ground that the plaintiffs had got new for old, adding at p 476B-C:

    "I can well understand that if the plaintiffs in rebuilding the factory with a different and more convenient lay-out had spent more money than they would have spent had they rebuilt it according to the old plan, the defendants would have been entitled to claim that the excess should be deducted in calculating the damages. But the defendants did not call any evidence to make out a case of betterment on these lines and we were told that in fact the planning authorities would not have allowed the factory to be rebuilt on the old lines. Accordingly, in my judgment, the capital sum awarded by the judge was right."

    34.  Of course, the facts in these two cases were quite different from those in this case. But I think that the principles on which they were decided are of general application, and it is possible to extract this guidance from them. It is for the defendant who seeks a deduction from expenditure in mitigation on the ground of betterment to make out his case for doing so. It is not enough that an element of betterment can be identified. It has to be shown that the claimant had a choice, and that he would have been able to mitigate his loss at less cost. The wrongdoer is not entitled to demand of the injured party that he incur a loss, bear a burden or make unreasonable sacrifices in the mitigation of his damages. He is entitled to demand that, where there are choices to be made, the least expensive route which will achieve mitigation must be selected. So if the evidence shows that the claimant had a choice, and that the route to mitigation which he chose was more costly than an alternative that was open to him, then a case will have been made out for a deduction. But if it shows that the claimant had no other choice available to him, the betterment must be seen as incidental to the step which he was entitled to take in the mitigation of his loss and there will be no ground for it to be deducted.

    35.  Applying those principles to the present case, I would hold that the defendant's insurers have not made out a case for the deduction which they seek. The evidence showed that Mr Lagden had no choice but to use the services of the credit hire company and that, if he was to make use of these services, he had no way of avoiding the additional benefits that were provided to him. The principles which I would apply are of general application. But it by no means follows that the same result must follow in every case where the innocent motorist uses the services of a credit hire company. The criterion that must be applied is whether he had a choice - whether it would have been open to him to go into the market and hire a car at the ordinary rates from an ordinary car hire company.

    36.  In practice, for reasons that are obvious, companies which offer cars for hire in the open market insist on payment of the rental up front before the car is collected, together with a sum to cover the risk of damage to the car while it is on hire. Payment is usually made by means of a credit card or a debit card. Some companies may accept cash, but if they do the sum that will have to be paid up front will not be small. Many car owners are, of course, well able to provide what is needed to satisfy the hirer that the money which is needed to pay for the hire is available. If they choose to use the services of a credit hire company they must accept as a deduction from their expenditure the extra cost of doing so. The full cost of obtaining the services of a credit hire company cannot be claimed by the motorist who is able to pay the cost of the hire up front without exposing himself or his family to a loss or burden which is unreasonable.

    37.  But it is reasonably foreseeable that there will be some car owners who will be unable to produce an acceptable credit or debit card and will not have the money in hand to pay for the hire in cash before collection. In their case the cost of paying for the provision of additional services by a credit hire company must be attributed in law not to the choice of the motorist but to the act or omission of the wrongdoer. That is Mr Lagden's case. In law the money which he spent to obtain the services of the credit hire company is recoverable.

Policy

    38.  The background to the litigation which culminated in the decision in Dimond v Lovell [2002] 1 AC 384 was the increase in the cost of third party claims against motor insurance companies. This was due to the fact that motorists were hiring replacement cars when they would not previously have done so. It was also due to the fact that, as they were protected against the cost of paying the hire charges, they did not exercise the same scrutiny over those charges as they would have done if they themselves were having to meet the cost of paying them. In Mrs Dimond's case, for example, the daily spot rate for car hire in her area varied between £27.42 and £23.89, whereas the sum which she was charged by the credit hire company was £43.33 inclusive of everything. In the present case the judge held that the spot car hire rates were about 70 per cent of the sums charged by Helpline: [2002] Lloyd's Rep IR 138, 163, para 137.

    39.  The view of the majority in Dimond v Lovell was based on their analysis of the law, not on consideration of issues of policy. But Mr Flaux sought to invoke policy considerations in this case in order to support his argument that claims handing charges should not be recoverable under any circumstances. He submitted that, if there were to be a relaxation of the rule that claims handling charges were irrecoverable in the case of the cost of car hire, this would increase the burden of insurance premium payments on the whole community. There was also the prospect of claims handling charges being built into damages claims in other fields as well as that relating to car hire. He pointed out how important it was to distinguish between costs and damages in cases brought in the county court in view of the costs limits that are applied to cases under the small claims track. He submitted that, if the claimant were to be allowed to recover the full cost of the Helphire scheme, that would be tantamount to awarding him costs to which he would not otherwise be entitled. To allow the impecunious to recover claims handling charges as part of their claim of damages would encourage accident management companies to market and direct their services at those of limited means with results that would be undesirable.

    40.  On the other hand there is the point to which Lord Nicholls drew attention in Dimond v Lovell [2002] 1 AC 384, p 391A-B that for many motorists the liability of the negligent motorist in no-fault cases to pay the cost of the hire charges is more theoretical than real, as they do not have the means to enter into a car hire contract. This may be because they lack the cash in hand to pay in advance for the car hire, or it may because they are unable to produce an acceptable credit or debit card. Recompense from the insurer of the wrongdoer, or even an acceptance of liability, will in practice come too late to be of use to them. Impecuniosity, in that sense, is a fact of life for them. The importance of the service that is provided, in those cases, by the credit hire company was not further explored in that case. But I consider that it cannot be left out of account if regard is to be had to considerations of policy. Where the law shows that the lack of choice should be taken into account in the assessment of damages, the policy of the law ought to be to provide the innocent party with that remedy.

    41.  There is another consideration which must be mentioned. We cannot ignore the fact that accidents of the kind that befell Mr Lagden's motor car happen every day. There are thousands of such claims, most of which are of very small value and not worth the cost of litigating. It is in nobody's interest that these cases should be forced into court where there is no issue about liability. Everything points to reducing the opportunity for dispute to a minimum so that they can be settled out of court at minimum cost as soon as possible. It was largely with a view to achieving this object that this series of test cases was brought before the courts by the motor insurance companies. It is suggested that the benefits that were achieved by the decision in Dimond v Lovell will be set aside if an exception were to be made in favour of the impecunious. The adjective is incapable of precise definition. Case after case, it is said, will have to come to court in order to resolve the issue whether the claimant had no choice but to use the services of a credit hire company.

    42.  The Court of Appeal [2003] QB 36 was alive to this issue. In its judgment, at p 83, para 128, the court said:

    "We realise that in some cases it will be necessary to consider the financial ability of a claimant to pay car hire charges. However we do not anticipate that district and county court judges will not be able to arrive at a just result without putting the parties to great expense."

That seems to me to be a fair assessment. In practice the dividing line is likely to lie between those who have, and those who do not have, the benefit of a recognised credit or debit card. It ought to be possible to identify those cases where the selection has been made on grounds of convenience only without much difficulty.

    43.  I recognise that, if an exception is to be made in favour of the car owner who is impecunious, there may be some cases where motor insurers will feel that they have no alternative but to take the case to court in order to resolve the question of fact as to whether the claimant had no choice but to use the services of a credit hire company. This may lead to an increase in contested small claims. I do not think that we are in a position to assess the scale of that increase. But motor insurers will be as anxious as anybody to keep these cases out of court with a view to keeping costs to a minimum. This suggests that the better course is to leave it to the insurance market to find its own solution to this problem. We must bear in mind, too, that the object of the law of damages is to put the injured party into the same position as he was before the accident. It would defeat this object if we were to arrive at a decision on policy grounds that would deprive the impecunious motorist of the opportunity of minimising his loss of use while his car is being repaired by obtaining the hire of an alternative vehicle.

    44.  For these reasons I would hold that the policy objections do not justify a departure from what I take to be the law as to the assessment of the damages that are recoverable.

The Liesbosch

    45.  The appellant points out that this case cannot be distinguished from the facts which were before the House in Liesbosch Dredger (Owners of) v Owners of SS Edison (The Liesbosch) [1933] AC 449. He seeks, as a last resort, to rely on the rule that was established by that case about the consequences of the claimant's pre-existing impecuniosity.

    46.  As everyone knows, the claim in that case arose as a result of the fouling of the moorings of the Liesbosch by the Edison when she was proceeding to sea from the Greek port of Patras, as a result of which the dredger sank and was a total loss. The dredger was engaged on work in the harbour under contract with the harbour board at the time of the accident. All the owners' liquid resources were engaged in the contract undertaking, and matters were made worse by the fact that their deposit under the contract was liable to forfeiture if the work was delayed. They were unable to raise the funds that were needed to buy another dredger, so they decided to hire one called the Adria from Italy. The cost of the hire was high, and the other dredger was more expensive to work than the original. The result was that, due entirely to their lack of means, the owners incurred much more expense in the provision of an alternative dredger than they would have done if they had been able to purchase an equivalent. The monthly rate of hire became so burdensome that the harbour board purchased the Adria from her Italian owners and sold her to the owners of the Liesbosch for a sum to be paid by instalments over four years.

    47.  The owners of the Liesbosch claimed their actual loss, on the basis that all the circumstances should be taken into account and they had acted reasonably in hiring the Italian vessel in view of their financial embarrassment. But the sum that they were awarded as damages was restricted to the market price of a comparable dredger at the time of the loss, together with the cost of transporting her and insuring her to Patras.

    48.  The Registrar and the judge had disallowed the objection that the damages claimed by the owners were too remote. They were awarded the value of the Liesbosch, which was taken to be the amount for which the Adria had been purchased by the Harbour Board. They were also awarded the cost of hiring the Adria until she was purchased, the extra cost of working her and their loss of profit on the contract while the work was stopped for want of a dredger. This approach was rejected by the Court of Appeal, which held that any loss due to the fact that the owners were impeded in the performance of their contract was too remote and not recoverable. It was the decision of the Court of Appeal that prevailed in the House of Lords, where it was held that anything beyond the cost of a replacement vessel had been properly disallowed. The House of Lords differed from the Court of Appeal as to the amount to be awarded as the value of the dredger. The Court of Appeal had awarded the sum which had been paid for the Adria when it been purchased from the Harbour Board. The case was referred back to the Registrar so that he could ascertain the market value of the dredger when she was lost.

    49.  The owners' principal argument in the House of Lords was that the hiring of the Adria was a reasonable and natural result of the loss of the Liesbosch. They referred, at p 452, in support of their argument to an observation by Lord Collins in Clippens Oil Co v Edinburgh and District Water Trustees [1907] AC 291, 303 that the wrongdoer must take his victim talem qualem (as he finds him), adding that:

    "if the position of the latter is aggravated because he is without the means of mitigating it, so much the worse for the wrongdoer, who has got to be answerable for the consequences flowing from his tortious act."

    50.  Lord Wright, whose speech was concurred in by all the other members of the House, rejected this argument, at p 460:

    "The respondents' tortious act involved the physical loss of the dredger; that loss must somehow be reduced to terms of money. But the appellants' actual loss in so far as it was due to their impecuniosity arose from that impecuniosity as a separate and concurrent cause, extraneous to and distinct in character from the tort; the impecuniosity was not traceable to the respondents' acts, and in my opinion was outside the legal purview of the consequences of those acts…In the varied web of affairs, the law must abstract some consequences as relevant, not perhaps on grounds of pure logic but simply for practical reasons. In the present case if the appellants' financial embarrassment is to be regarded as a consequence of the respondents' tort, I think it is too remote, but I prefer to regard it as an independent cause, though its operative effect was conditioned by the loss of the dredger."

At p 462, he said that the damages must be assessed as if the appellants had been able to go into the market at the time of the loss and buy a dredger to replace the Liesbosch.

    51.  The rule which was established by that decision is generally understood to be that the damages for which the defendant is liable cannot be increased by reason of the claimant's impecuniosity. But, as the editors of Halsbury's Laws of England, 4th ed, vol 12(1) (reissue, 1998), pp 322-323, para 858, note 4 have observed, this rule is difficult to reconcile with the principle to which Lord Collins referred in the Clippens Oil case [1907] AC 291, 303, that the defendant must take his victim as he finds him. Lord Wright said [1933] AC 449, 461 that that principle was not in point, as Lord Collins was dealing not with measure of damage but with mitigation. But this seems to be a distinction without a difference. And the rules for mitigation, both in tort and in contract, do not require the injured party to do what he cannot afford to do when he is seeking to reduce the damages payable by the wrongdoer.

    52.  The decision has frequently been criticised: see, for example, McGregor on Damages, 17th ed (2003), para 332 and, for a helpful and detailed review of its defects, Coote, "Damages, The Liesbosch, and Impecuniosity" [2001] CLJ 511. Burrows, Remedies for Torts and Breach of Contract, 2nd ed (1994), p 88 observes that the rule seems unjustified in terms of policy; Salmond and Heuston on the Law of Torts, 21st ed (1996), p 515 state that it is hard to reconcile with the principle that it is the claimant's duty to mitigate his loss, which should allow him to borrow money to do so; and Winfield and Jolowicz on Tort, 16th ed (2002), p 238 do not find it possible to give any logical reason for regarding the claimant's impecuniosity as extrinsic but taking into account his physical disability. It has been doubted whether Lord Wright was laying down a rule of law or was simply saying that the loss claimed was too remote in that case. If he was laying down a rule of law, the decision has scarcely ever been followed. It has frequently been distinguished or confined to its own facts. As time has gone by the rule has been more and more attenuated, to such an extent that it is on the verge of extinction. The respondents submit that it should not be followed in this case. They say that the time has now come for the House to depart from it.

    53.  In Ramwade Ltd v W J Emson & Co Ltd [1987] RTR 72 the plaintiffs had been obliged to hire vehicles to perform the work carried out by their skip lorry which had been damaged beyond repair in a road accident. Their insurance brokers had, contrary to instructions, failed to procure a comprehensive insurance policy, and the claimants could not afford to replace it by buying another skip lorry. Parker LJ, at pp 75-76, rejected the plaintiffs' argument that the damage consisting in the hire of the vehicles flowed from the defendants' failure to provide them with a comprehensive insurance policy. One of the reasons which he gave for reaching this conclusion was that it flowed from the impecuniosity of the plaintiffs which rendered them unable to afford a substitute vehicle, adding that "if that is the true cause the hire charges are irrecoverable on the principles laid down in The Liesbosch [1933] AC 449." But that is an isolated instance, and it is hard to find any other examples. The trend of the authorities has been almost always in the contrary direction.

    54.  The Liesbosch was decided not long after the decision in In re Polemis & Furness, Withy & Co [1921] 3 KB 560 in a climate when directness of causation was the test for remoteness of damage in tort, as Coote [2001] CLJ 511, 535 has pointed out. That rule was finally departed from in Overseas Tankship (UK) Ltd v Morts Dock and Engineering Co Ltd (The Wagon Mound) [1961] AC 388. But there were earlier signs that a broader test, approaching the test whether the loss was foreseeable which was established by that case, was becoming recognised. In Monarch Steamship Co Ltd v Karlshamns Oljefabriker A/B [1949] AC 196, in which damages had been sought for breach of contract, Lord Wright reviewed the cases on remoteness of damage. He started his review by reaffirming the broad general rule that a party injured by the other's breach of contract is entitled to such money compensation as will put him in the position in which he would have been but for the breach. He ended it with the propositions that the matters did not depend on the differences (if any) between contract and tort in that connection, that the reasonable contemplation as to damages was what the court attributed to the parties and that the question in such a case must always be what reasonable business men must be taken to have contemplated as the natural or probable result if the contract was broken. The change in terminology is significant. It might have led to a different conclusion if it had been used to guide the result in The Liesbosch.

    55.  In Trans Trust SPRL v Danubian Trading Co Ltd [1952] 2 QB 297, 306 Denning LJ set the modern trend when he said:

    "It was also said that the damages were the result of the impecuniosity of the sellers and that it was a rule of law that such damages are too remote. I do not think there is any such rule. In the case of a breach of contract, it depends on whether the damages were reasonably foreseeable or not."

In Dodd Properties Ltd v Canterbury City Council [1980] 1 WLR 433, 458 Donaldson LJ came as close as he could to saying that the rule laid down by the House in The Liesbosch was wrong. He said that it was not at once apparent why a tortfeasor must take his victim as he finds him in terms of exceptionally high or low earning capacity, but not in terms of pecuniosity or impecuniosity which may be their manifestation. At p 459, having examined the decision, he said:

    "As I understand Lord Wright's speech, he took the view that, in so far as the plaintiffs had in fact suffered more than the loss assessed on a market basis, the excess flowed directly from their lack of means and not from the tortious act, or alternatively it was too remote in law. In modern terms, I think that he would have said that it was not foreseeable."

    56.  In Perry v Sidney Phillips & Son [1982] 1 WLR 1297, 1302 Lord Denning MR said that Lord Wright's statement must be restricted to the facts of The Liesbosch and was not of general application. At p 1307 Kerr LJ adopted the same approach. He said:

    "If it is reasonably foreseeable that the plaintiff may be unable to mitigate or remedy the consequence of the other party's breach as soon as he would have done if he had been provided with the necessary means to do so from the other party, then it seems to me that the principle of The Liesbosch [1933] AC 449 no longer applies in its full rigour."

    57.  In Mattocks v Mann [1993] RTR 13, 19 Beldam LJ, with whom Nourse and Stocker LJJ agreed, referring to his observations in Bolton v Price (unreported), 24 November 1989; Court of Appeal (Civil Division) Transcript No 1159 of 1989, said:

    "I there said that at the present day it is generally accepted that, in what Lord Wright termed 'the varied web of affairs' that follows a sequence of events after an accident of this kind, it is only in an exceptional case that it is possible or correct to isolate impecuniosity, as it is sometimes called, or the plaintiff's inability to pay for the cost of repairs from his own resources as a separate cause and as terminating the consequences of a defendant's wrong. It seems to me necessary today to consider whether, having regard to all the circumstances of the case and the resources available to a plaintiff, resources known by the defendant or her representatives to be of a kind that will not be able to provide for the repairs themselves, in all the circumstances, the plaintiff has acted reasonably and with commercial prudence."

 
continue previous