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

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    58.  The same approach has been adopted in Scotland. In Chanthall Investments Ltd v F G Minter Ltd, 22 January 1976 (reported on another point in 1976 SC 73) Lord Keith, sitting in the Outer House of the Court of Session, said:

    "I am of opinion that in each case where the matter arises it is a question of fact, in the particular circumstances, whether loss associated with the impecuniosity of the party claiming to have suffered loss was within the contemplation of the parties. Authority for this proposition is to be found in Trans Trust SPRL v Danubian Trading Co [1952] 1 KB 285."

This statement was approved by the Inner House in Margrie Holdings Ltd v City of Edinburgh District Council, 1994 SLT 971, 976-977, where the Lord President (Hope), delivering the opinion of the court said that the proper approach, consistent with the modern authorities, was to ask whether the loss was or was not foreseeable and that this was ultimately a question of fact in each case.

    59.  So too in New Zealand. In Attorney General v Geothermal Produce NZ Ltd [1987] 2 NZLR 348, 355 Cooke P said:

    "it seems to me that Liesbosch is certainly not to be extended as far as logic could be said to carry it. The difficulties so generally experienced in accommodating the decision with principle and justice, as commonly understood at the present day, suggest that any continuing effect given to it as a precedent should at least be strictly confined to damages for the loss of a profit-earning chattel, in use for performing a contract, for which a replacement is available by purchase on the market. That is not the present case, which is much more complicated… On the judge's findings, fully supported by evidence, the company acted reasonably to mitigate its losses, and that is enough to exclude any defence based on impecuniosity."

    60.  In Alcoa Minerals of Jamaica Inc v Broderick [2002] 1 AC 371 the plaintiff was unable to afford repairs to his roof and deferred carrying them out while the issue of liability was being disputed. The Judicial Committee rejected the argument that the damages should be assessed as at the date of the physical damage and that the fact that the plaintiff could not afford to pay for the repairs should be ignored. Delivering the judgment of the Board, my noble and learned friend Lord Slynn of Hadley said that the case was clearly to be distinguished from the position in The Liesbosch, as the need to repair the roof was a direct consequence of the tort and the real question was whether Mr Broderick was in breach of his duty to mitigate his damages. He went on to say this with regard to the issue of impecuniosity, at pp 382H-383A:

    "Lord Wright in The Liesbosch thought in the alternative that the owners of the dredger's financial embarrassment was too remote. In the present case it seems to their Lordships to have been obviously foreseeable that if the house of a person in the position of Mr Broderick was seriously damaged he would not or might not have the wherewithal to repair it and that his ability to do so would depend on his establishing the liability of, and recovering damages from, the defendant."

Here again the test which was applied as the measure of damages was the modern test of whether the loss was reasonably foreseeable.

    61.  The Judicial Committee did not go so far in Alcoa Minerals as to say that The Liesbosch was wrongly decided. As it was a decision of the House of Lords, it was for the House and not the Board to decide whether the rule that was laid down in that case should now be departed from. The opportunity for the House to take that step has now come. It is not necessary for us to say that The Liesbosch was wrongly decided. But it is clear that the law has moved on, and that the correct test of remoteness today is whether the loss was reasonably foreseeable. The wrongdoer must take his victim as he finds him: talem qualem, as Lord Collins said in the Clippens Oil case [1907] AC 291, 303. This rule applies to the economic state of the victim in the same way as it applies to his physical and mental vulnerability. It requires the wrongdoer to bear the consequences if it was reasonably foreseeable that the injured party would have to borrow money or incur some other kind of expenditure to mitigate his damages.

    62.  For these reasons I would reject the appellant's argument that we should apply the rule that was laid down in The Liesbosch that loss due to the claimant's pre-existing impecuniosity is too remote and cannot be recovered as damages. I would hold that this rule should now be departed from.


    63.  I consider that the decision of the Court of Appeal should be affirmed. I would dismiss the appeal.


My Lords,

    64.  The facts of this case are not in dispute and can be very shortly stated. On 29 November 1999 Mr Lagden's car, while unoccupied and parked at the roadside, was run into and damaged by a vehicle driven by Mrs O'Connor. It needed to be repaired. Mr Lagden took it to a garage for the necessary repairs to be carried out. By 16 December 1999 the repairs had been completed and Mr Lagden recovered his car from the repairers. So he was without the use of his car from 29 November to 16 December.

    65.  In order that he should not be without the use of a car while his own car was being repaired Mr Lagden decided to hire a car. Having seen an advertisement by Helphire Group plc ("Helphire") advertising their services to those whose cars had been damaged in a car accident and were off the road through no fault of the owner but solely due to the fault of the driver of the other vehicle, Mr Lagden contacted Helphire. Having done so, he entered into a number of agreements, four in all, each with a Helphire subsidiary. One was a vehicle hire agreement; another was a 26 week credit hire agreement; another was a credit repair agreement. Each of these three agreements was dated 6 December 1999. So it seems that Mr Lagden had some seven days without the use of a car. The credit agreements were framed so as to avoid unenforceability under the provisions of the Consumer Credit Act 1974. Challenges to the enforceability of the agreements, based upon alleged infringements of the 1974 Act, were raised in the courts below. But these challenges failed and, in the appeal to this House the enforceability of the agreements was no longer in issue.

    66.  The purpose of the credit hire agreement was to relieve Mr Lagden of the need to find the money to pay for the hire of the substitute car. It was assumed that the hire charges would be covered by the damages payable by Mrs O'Connor, or, in practice, Mrs O'Connor's insurers. The credit period of 26 weeks allowed, it was hoped, time for liability to be accepted and payment to be made by the insurers. This was, after all, as simple a case as there could be. But, in case for some reason payment should be delayed, Mr Lagden entered into an insurance agreement with Angel Assistance Ltd (another subsidiary of Helphire) in order to provide for the payment of the hire charges in the event that recovery from Mrs O'Connor (or her insurers) had not been obtained by the end of the 26 week credit period. The credit hire agreement provided for the prosecution of the damages claim to be dealt with by Helphire. So, once the agreements had been signed and the hired car had been made available to Mr Lagden there was nothing he need do save await the recovery of his own car from the repairers, upon which he would return the hired car, all within the 26 weeks. He would pay nothing. Helphire would recover its charges by prosecuting Mr Lagden's claim against Mrs O'Connor.

    67.  Helphire's charges for its services in relation to the car hire were £659.76. This sum, therefore, was included in Mr Lagden's damages claim. But the £659.76 represented not simply a charge for the car hire. Included within that sum was recompense to Helphire for allowing credit to Mr Lagden for the 26 weeks and recompense to Helphire for their services in prosecuting the claim. The "spot" rate for hire of a similar car to that provided to Mr Lagden would have been a good deal less than £659. But, of course, Mr Lagden would have had to pay the spot rate up front. And if he had hired a car under an ordinary car hire contract either he, or lawyers on his behalf, would have had to undertake the task of recovering the car hire charge as damages from Mrs O'Connor or her insurers. So Mrs O'Connor's insurers declined to pay the £659.76. They accepted liability for a reasonable car hire charge, based upon the spot rates in the area, but contended that Mr Lagden was not entitled to recover as damages the part of the £659.76 that reflected the two additional benefits that Mr Lagden had obtained under the Helphire agreements, namely, the 26 weeks credit facility and the services of Helphire in prosecuting the claim. The amount involved is trivial. But the principle is important, both to car hire firms such as Helphire and to car insurers.

    68.  At first sight the principle would appear to have been settled by the majority opinions expressed in the House in Dimond v Lovell [2002] 1 AC 384. As in the present case the litigation arose out of a trivial accident in which the claimant's car was damaged by the negligent driving of the defendant. There was no dispute about the defendant's liability. The claimant, like Mr Lagden, wanted a replacement vehicle while her car was being repaired. So she entered into a car-hire agreement with a company called 1st Automotive Ltd. The agreement had credit provisions that postponed the time at which the claimant would have to pay the car-hire charges. It also had provisions that allowed 1st Automotive to handle the damages claim. So, as in the present case, the car-hire charges were significantly higher than the spot rate charges for car-hire in the area. The defendant's insurers refused to pay the sum claimed and litigation resulted. In the event the agreement the claimant had entered into with 1st Automotive was held to be unenforceable on account of provisions of the Consumer Credit Act 1974. But Lord Hoffmann (with whose opinion Lord Browne-Wilkinson expressed agreement), Lord Hobhouse of Woodborough and Lord Nicholls of Birkenhead expressed opinions as to whether, if the agreement had not fallen foul of the 1974 Act, the full car-hire charge would have been recoverable as damages.

    69.  Lord Nicholls of Birkenhead, in agreement with the view that had been expressed on the point by the majority in the Court of Appeal, would have allowed recovery of the full car-hire charge. The 1st Automotive agreement, under which the claimant obtained not only a hired car but the other benefits as well, was, he held, a reasonable one for claimants, whose cars had been put off the road by the negligence of someone else, to enter into. He held, at p 391, that :

    "So long as the charge for the additional services is reasonable, this charge should be part of the recoverable damages."

    70.  Lord Hoffmann and Lord Hobhouse of Woodborough agreed that the claimant had acted reasonably in availing herself of 1st Automotive's services and that the sum she had agreed to pay for the services was a reasonable one (pp 401E and 407B) but took the view that she was obtaining benefits for which the negligent defendant could not be required to pay. Lord Hoffmann said, at pp 401-402:

    "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."

And per Lord Hobhouse, at p 407:

    "But [the claimant] cannot claim the whole cost as the cost of mitigating the loss of the use of her car. The cost of that was, on the evidence, only about £24 per day. The remainder of what she paid was attributable to other matters and therefore should not be included in the cost of mitigation".

Both Lord Hoffmann and Lord Hobhouse referred to British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673 in support of their approach.

    71.  Lord Hoffmann and Lord Hobhouse approached the issue in slightly different ways but the principle underlying their conclusions is the same. First, where an injured party as a consequence of the negligence has made payments that are recoverable as special damages, the costs to the injured party of financing the payment does not become an additional item of special damage. Compensation for the financing costs can be obtained by an award of interest on the damages running from the date the payments were made. Second, compensation for payments that have been made by an injured party for the services of those who have prosecuted the damages claim can be recovered only by an order for costs. Payment for those services does not constitute an item of special damage. It is important to notice that Lord Hoffmann's and Lord Hobhouse's conclusions did not depend on the absence of reasonable forseeability. Reasonable forseeability is the criterion that generally governs the recoverability of items of special damage. It was not applied in Dimond v Lovell because payment for the additional benefits in question could not be claimed as special damage. Reasonable forseeability was irrelevant.

    72.  If the approach of the majority in Dimond v Lovell is adopted in the present case, this appeal must succeed. But, it is argued, Dimond v Lovell is distinguishable. Although the decision of Mrs Dimond to contract with 1st Automotive and agree to pay their charges for the bundle of services that they were offering — car-hire, a credit line and handling of the damages claim — was a reasonable decision, Mrs Dimond did have a choice. She could have obtained a substitute car by paying the spot rate on offer from a number of local car-hire firms. By contrast, in the present case Mr Lagden, it is said, had no choice. He was seriously impecunious. He could not afford to pay a spot rate up-front car hire charge. His only means of obtaining a substitute car was to enter into an agreement or agreements under which, by a combination of credit facility and insurance cover, he was assured of having a substitute car without having to find the money to pay the charges.

    73.  The trial judge, Judge Harris, and the Court of Appeal accepted this argument. The Dimond v Lovell principle should not, they held, be applied to an impecunious claimant who had no alternative but to use the services of a credit hire company. In the Court of Appeal [2003] QB 36, 83, para 127 the point was put thus:

    "Of course, additional benefits obtained as a result of taking reasonable steps to mitigate loss need to be brought into account in the calculation of damages: see Lord Hoffmann in Dimond v Lovell [2002] 1 AC 384, 401-402. But nobody suggests that there were any steps that were reasonable which would have mitigated Mr Lagden's loss which did not involve paying the full cost of the scheme. It was not suggested he could have obtained a loan or that there was any cheaper way of obtaining a replacement car. It seems that the Helphire charge was, to him, the cheapest way to remedy the loss. He was therefore entitled to recover the full cost of the scheme".

    74.  My Lords, I do not regard the factual basis on which Dimond v Lovell has been distinguished as very persuasive. The relevant findings are in the judgment of Judge Harris [2002] Lloyd's Rep IR 138, mainly at pp 148-149, paras 34 and 35: "[Mr Lagden] had very little money, he was indeed … subject to an administration order" and "Mr Lagden was not a wholly convincing witness … His answers about why he felt the hire charges were reasonable were curious and he seemed for no very obvious reason anxious to assist Helphire if he could". Then, at p 164, para 142, under the heading "The impecunious hirer", the judge says this:

    "There will be some motorists who are too poor to be able to afford to hire a replacement car at commercial rates. Mr Lagden was such a person. For such people hiring on the spot market is not an option. Mr Lagden had no other choice and could not obtain a Helphire packet without extra benefits … If an impecunious claimant can only get himself a replacement car as part of a credit hire package then he reasonably needs in my judgment to expend the sum which that package costs".

    75.  The proposition that Mr Lagden "had no other choice" does not seem to me satisfactorily based given the rather sparse facts set out in paragraphs 34 and 35. It is very rare indeed for there to be "no other choice". There are nearly always choices. Mr Lagden might have chosen to forgo the use of a car during the short repair period. The purposes for which he needed a car for daily use, or was accustomed to use his car daily, are not known. The practicalities of use by Mr Lagden of public transport during that short period are not known. It may very well have been reasonable for Mr Lagden to want to have a substitute car available for his use during the repair period but to say that he had "no other choice" seems to me somewhat implausible. It is to be noticed also that Judge Harris based his conclusion on the reasonableness of Mr Lagden's decision to accept Helphire's car hire package. This is the approach that Lord Nicholls of Birkenhead adopted in Dimond v Lovell. It is the approach that I had adopted in the Court of Appeal in that case. But it was not accepted by the majority in Dimond v Lovell, Lord Hoffmann, Lord Browne-Wilkinson and Lord Hobhouse, as being the right approach.

    76.  On the basis of the impecuniosity, "no other choice", finding relating to Mr Lagden it is correct that there is a factual difference between the present case and Dimond v Lovell. The issue is whether that factual difference justifies a departure from the principle expressed by the majority in Dimond v Lovell. In trying to resolve that issue I find it helpful to start with first principles. The damage to Mr Lagden's car, or for that matter to Mrs Dimond's, led to two heads of recoverable loss. First, there was the physical damage to the car. The car was not a write-off. It was repairable and the measure of the recoverable damages for this head of loss was the reasonable cost of the repairs. There is no issue about this. Second, there was the loss of use of the car. Mr Lagden had been deprived of the use of his car for the 17 day period between the date of the accident and the completion of the repairs. He was entitled to damages as compensation for that deprivation. If he had not hired a substitute vehicle, he would still have been entitled to general damages. His entitlement to general damages would not have depended on the degree of use to which he would, if his car had not been damaged, have been likely to put it. He had been deprived of the benefit of having his car available for whatever use he might from time to time decide upon. The measure of damages for this deprivation would, prima facie, have been the spot rate charge for a comparable vehicle over the repair period. In The Greta Holme [1897] AC 596, 604 Lord Herschell said:

    "I take it to be clear law that in general a person who has been deprived of the use of a chattel through the wrongful act of another is entitled to recover damages in respect thereof, even though he cannot prove what has been called 'tangible pecuniary loss', by which I understand is meant that he is a definite sum of money out of pocket owing to the wrong he has sustained. This was not disputed."

And in The Mediana [1900] AC 113, 117, Lord Halsbury LC said:

    "What right has a wrongdoer to consider what use you are going to make of your vessel? … Here, as I say, the broad principle seems to me to be quite independent of the particular use the plaintiffs were going to make of the thing that was taken."

In both these cases the issue was as to the damages to be paid to the plaintiffs for their loss of use of a ship while the damage caused by the defendants' negligence was being repaired. In the Susquehanna [1926] AC 655, 661, another ship collision case, Viscount Dunedin made clear that:

    "There is no difference in this matter between the position in Admiralty law and that of the common law …. "

So, in car accident cases as in ship accident cases, the negligent driver must compensate the owner of the other car for his loss of use of the car while it is undergoing repair. If there is no more to the loss of use claim than that, the claim will be for general damages and a fair approach to quantum would be to award a sum based upon the spot rate hire charge for a comparable vehicle.

    77.  However if the owner of the damaged car - or the damaged ship, as the case may be - hires a replacement vehicle for use during the repair period, the general damages claim becomes a special damages claim based upon the cost of hire. In Prehn v Royal Bank of Liverpool (1870) LR 5 Ex 92, 100 Martin B explained:

    "Special damages are given in respect of any consequences reasonably or probably arising from the breach complained of."

    78.  In hiring a replacement vehicle and incurring the hire charges, the injured party is not, in cases like the present and Dimond v Lovell, mitigating his loss. In the Court of Appeal in Dimond v Lovell [2000] 1 QB 216, 238 I referred to the issue as one of mitigation. In this House [2002] 1 AC 384 the issue was similarly referred to by Lord Hoffmann (at p 401E) and Lord Hobhouse (at p 406B). But I think this was a misdescription. Mitigation is the process whereby the injured party attempts by some course of action to reduce the consequential loss he has suffered or will suffer if nothing is done. If he succeeds in reducing his loss, the guilty party will have the benefit of the reduction. If the mitigating steps do not succeed in reducing the loss but were, nonetheless, reasonable steps in all the circumstances for the injured party to take for the purpose of mitigation, the injured party can add to his damages claim the cost of taking the steps in question. All of this is well established law (see McGregor on Damages 16th ed (1997), pp 216-217 paras 333 and 334). Unsuccessful attempts at mitigation may, therefore, increase the damages payable by the guilty party.

    79.  However, in cases where the damaged car was not used for any commercial or business purpose and where the absence of a car available for the injured party's use will not lead to any special damages claim for financial loss, the hiring of a substitute car cannot be regarded as a step taken in mitigation of loss. It has nothing to do with mitigation. Mrs Dimond hired a substitute car in order to have the convenience of a car available for daily use, not in order to avoid some financial loss that she might otherwise have incurred for want of the use of a car. Similarly Mr Lagden did not enter into the credit hire agreement in order to mitigate some loss and avoid some special damage that he might otherwise have suffered. He entered into the agreement in order to have a car available for his ordinary domestic purposes while his own car was being repaired. I am not for a moment suggesting that it was not reasonable for each of them to have decided to hire a substitute vehicle. But their respective decisions did not represent mitigation of loss. The principle that allows the costs of mitigation reasonably undertaken to be added to the damages bill has no application to cases like the present.

    80.  There are two ways, in cases like the present, in which the hiring of the substitute car may be relevant to the quantum of the injured party's damages claim. One the one hand, the hire charges may be viewed as, in effect, quantifying what would have been a general damages claim for loss of use of the damaged car. A special damages claim to recover the hire-charges becomes substituted for the general damages claim but without broadening the scope of the claim. If that is how the claim should be regarded then, plainly, for the reasons given by Lord Hoffmann and Lord Hobhouse in Dimond v Lovell, the part of the hire charges attributable to benefits other than the car-hire should be eliminated.

    81.  Alternatively, and more accurately, the claim to recover the car- hire charges can be viewed simply as a claim to recover an item of special damages representing expenditure incurred as a result of the defendant's negligence. On that approach, however, recovery cannot be claimed simply on the basis that the expenditure was reasonably incurred by the injured party. It would, in principle, be necessary also to show that the expenditure reasonably or probably arose out of the defendant's negligence (see Martin B in Prehn v Royal Bank of Liverpool); in other words, the expenditure must have been reasonably foreseeable.

    82.  The criterion of reasonable forseeability, where the impecuniosity of a claimant has led to his incurring expenditure that he would not otherwise have incurred and recovery of which as special damage is sought has, I think, overtaken the principles about impecuniosity expressed in The Liesbosch [1933] AC 449. I agree with and have nothing useful to add to what has been said about this by my noble and learned friends, Lord Hope of Craighead and Lord Walker of Gestingthorpe. So it might be thought that Mr Lagden's ability to recover the whole of the credit hire charges that, on account of his impecuniosity, it was found that he had no choice but to incur would depend on whether the criterion of reasonable forseeability could be satisfied. But that would be to ignore Dimond v Lovell.

    83.  The majority decision in Dimond v Lovell did not bar recovery on the ground that the incurring of the higher car-hire charges was not reasonably foreseeable. It barred recovery on the ground that, in law, the cost of financing payment of the repairs bill and payment of the car hire charges and the cost of services in handling the damages claim could not, as a matter of law, constitute special damages claims. If reasonable forseeability had been the criterion, Mrs Dimond would have recovered the whole of the credit hire charges. Everyone, in the Court of Appeal and in this House, agreed that it had been reasonable for her to enter into the credit hire agreement. None of your Lordships on this appeal has suggested that the majority view in Dimond v Lovell was wrong.

    84.  It must follow, first, that reasonable forseeability may be a necessary but is not a sufficient criterion for the recovery of the full car hire charges, and, secondly, that your Lordships must approach this appeal on the footing, confirmed by Dimond v Lovell, that, in principle, the law will not permit the cost of financing a payment recoverable as special damages to be itself recoverable as special damages nor the cost of services in handling a damages claim to be recoverable as special damages.

    85.  The issue in this case is, therefore, whether your Lordships should construct an exception to the principle to which I have referred, and for which Dimond v Lovell stands as a very recent authority, in order to allow those who, like Mr Lagden, are sufficiently impecunious as to be unable to afford to pay spot rates for a substitute car, to claim as special damages the full charge made by credit hire companies such as Helphire. In favour of creating such an exception would be that otherwise the individuals in question would be unable to obtain replacement vehicles while their own vehicles were undergoing repair. I can see the force of this but there are, in my opinion, countervailing considerations that need to be taken into account.

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