Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2013] CSOH 106
A439/12	OPINION OF LORD ARMSTRONG in the cause MEDICINA LIMITED Pursuers; against MIDLOTHIAN COUNCIL Defenders: ________________

Act: Lake Q.C., Sellar, Solicitor Advocate; Thompsons

Act: Sheldon; Ledingham Chalmers LLP

2 July 2013

Introduction

[1] In this action, the pursuers seek reparation in respect of certain hire charges claimed to have been incurred as a consequence of fault on the part of the defenders' employee in the context of a road traffic accident. The action came before me for debate on the procedure roll. Having heard counsel at the outset, I allowed a supplementary Note of Argument for the defenders to be received at the bar on the basis that, for the pursuers, it was conceded that no prejudice arose by reason of the fact that it was being tendered at such a late stage. In the event, the defenders' submissions were restricted to the arguments set out in the supplementary Note.

The pursuers' averments

[2] The pursuers aver that they were contractually bound to provide Mr Thompson, their employee, with an Audi A5 motor car. That car was damaged and rendered unroadworthy by the accident. The car was necessary to allow Mr Thompson to carry out his business and the pursuers required to replace it with a vehicle of equivalent type and specification. The pursuers entered into a hire arrangement with Accident Exchange Ltd, a car hire company. Between 10 October 2011 and 1 February 2012, they hired three separate Audi vehicles, over three separate periods, as replacements for the damaged vehicle, pending its repair. The sum sought, allowing for VAT reclaimed, is £31,602.19. The pursuers entered into the hire agreement with Accident Exchange Limited because it was the only car hire company which would hire such a car for use by Mr Thompson because of his age and occupation.

[3] The pursuers also aver that any delay in the carrying out of the necessary repairs to the damaged vehicle is the fault of the defenders. The defenders' employee driver admitted liability, apologised and confirmed that he would make the position known to the defenders. Mr Thompson was led to believe that there would be no delay in resolving matters and informed the pursuers and Accident Exchange Limited accordingly. Accident Exchange Limited informed the defenders' insurers of the relevant details and confirmed that a replacement vehicle had been hired. The repairers of the car made contact with the defenders' insurers for the purposes of an inspection. Although called upon by the pursuers to accept liability, the defenders and their insurers did not do so, despite being informed that a replacement vehicle had been hired. In about mid-January 2012, some three months after the date of the accident, the defenders accepted liability and the necessary repair work was then carried out.

The issues

[4] Before me, it was argued that the sum sought, which comprised credit hire charges, was not recoverable in the absence of relevant averments of impecuniosity and that in the absence of such averments the action should be dismissed.

[5] Separately, it was argued that, in circumstances where the pursuers were bound to mitigate their loss, their averments relating to the length of the period of hire and the delay in effecting repair were irrelevant and should not be remitted to probation.

The submissions for the defenders

[6] The three vehicle rental agreements lodged by the pursuers were clearly credit hire agreements, each containing express references to credit periods and granting exclusive rights to Accident Exchange Limited to pursue the claim, including compensation for the hire charges, on the pursuers' behalf. It was recognised that such agreements generated charges which were higher than the normal market rates for hiring a car because they provided an additional element of benefit to the hirer, beyond the cost of a replacement vehicle, in the shape of claims handling. All that the pursuers were entitled to recover, however, was the basic cost of the replacement vehicle in relation to which there were no averments on record.

[7] The facts of the instant case were similar to those considered in Dimond v Lovell [2002] 1 AC (HL (E)) 384. As it was put by Lord Hoffman, in the leading opinion, at 392F:

"...the effect of the agreement is that, in the normal course of events, the hirer will not have to pay. The company pursues the hirer's claim at its own expense and satisfies its claim for hire out of the damages recovered on the hirer's behalf. Thus the hirer is spared the need to lay out the cost of the hire in advance of recovery from the defendant or his insurers, the trouble and anxiety of pursuing a claim and the risk that the claim may fail."

[8] The decision in that case was to the effect that where a credit hire agreement with a specialist accident hire company is enforceable, the injured party will not be able to recover the full amount charged since although it is reasonable for an injured party to use the services of such a company, he obtains more from the agreement than the cost of a replacement car and the additional benefits are not recoverable against the wrongdoer. The recoverable loss, after allowance has been made for the additional benefits which a specialist accident hire company provides, will normally be the market rate for hiring a car from an ordinary car hire company. Lord Hoffman laid emphasis on 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 (401D-402A, 402F - 403B). Lord Browne‑Wilkinson and Lord Hobhouse agreed.

[9] In the present case, the pursuers had no averments relating to the spot rates or market rates for the basic car hire which might have been incurred. The case advanced by the pursuers was in relation to the cost of credit hire only.

[10] In Lagden v O'Connor [2004] 1 AC (HL (E)) 1067, an unemployed and impecunious claimant, who could not afford to pay the hire costs of replacing his damaged vehicle entered into a credit hire agreement which provided a hire car to him at no cost and allowed the hire company to recover his charges from the negligent driver's insurers. In these circumstances, the House of Lords held that although only an amount equivalent to the spot rate of hiring an alternative vehicle would normally be recoverable by a claimant who, deprived of the use of his car by the negligence of the defendant, had used the services of a credit hire company, and not the cost or the additional benefits obtained by the use of such a company, if it was shown that the claimant's impecuniosity was such that he would have been unable to obtain a replacement car had he not used a credit hire company, the reasonable additional charges of that company would be recoverable as damages, it being reasonably foreseeable that there would be some car owners who would be unable to obtain a replacement car other than by use of a credit hire company (see Lord Nicholls at paragraphs 4-6 and Lord Hope at paragraphs 28-37).

In particular, Lord Hope stated:

"28. ..... Another principle, as was made clear in Dimond... must be given effect to in the calculation of the amount of the damages. This is the principle that requires additional benefits which are obtained as a result of taking reasonable steps to mitigate loss to be brought into account when the damages are being calculated. The question which has been raised in this case is whether this principle is subject to modification where, if he is to minimise his loss, the claimant has no choice but to accept these additional benefits.

30. ...But what if the injured party has no choice? What if the only way that is open to him to minimise his loss is by expending money which results in an incidental and additional benefit which he did not seek but the value of which can nevertheless be identified? Does the law require gain to be balanced against loss in these circumstances? If it does, he will be unable to recover all the money that he had to spend in mitigation. So he will be at risk of being worse off than he was before the accident. That would be contrary to the elementary rule that the purpose of an award of damages is to place the injured party in the same position as he was before the accident as nearly as possible."

[11] For the defenders, considerable emphasis was placed on the fact that the ratio decidendi of Lagden was confined to the issue of the impact of impecuniosity. It was said that the case provided a limited exception to the principle enunciated in Dimond but did not go further. There was no warrant for wider development of the exception. Although Lord Hope had placed some emphasis on the significance of an absence of choice, that was qualified by his recognition (at paragraph 37) that underlying the issue was the concept of what was reasonably foreseeable in the context of what some car owners might not be able to afford. So far as reasonable foreseeability was concerned, it might be thought that the driver of an expensive car, such as that damaged in the instant case, might well have the means necessary to meet the cost of basic car hire. But in any event, in the instant case, the stated reasons for entering into the credit hire agreement were the particularities of the employee's age and occupation. Impecuniosity was not a factor in the present case and accordingly the pursuers' case could not fall within the Lagden exception.

[12] On the subsidiary argument, relating to delay and the duration of the hire agreements, it was submitted that the position of the pursuers appeared to be that it was legitimate to delay effecting the necessary repairs on the basis that the defenders would eventually admit liability and assume responsibility for the whole hire costs, thereby assuming payment for the hire costs up until that point. That analysis was flawed, otherwise a pursuer's costs would always be met regardless of the extent of any delay. There were many reasons which might result in a delay in the admission of liability, not least the need to investigate the circumstances of the accident. The fact that liability had not yet been admitted was not a relevant basis on which to extend the period of hire. Reference was made to the case of Whitehead v Johnston 2006 Rep.L.R. 25 in which, at page 30, it was said:

"But there will be cases where, for perfectly proper reasons, liability is disputed. Then there may be no guarantee of early settlement of repair costs; although the insurance industry has sensible arrangements between companies (knock-for-knock agreements) which make that unlikely where both drivers are comprehensively insured. But if a driver is not comprehensively insured and if there is no early acceptance of liability, as in the present case, or, as again in the present case, the pursuer does not take reasonable steps to establish whether the claim is likely to be met, it cannot, in my opinion, be reasonable to continue to hire a replacement vehicle at a cost which far outweighs that of the repair."

[13] Since delay on the part of the defenders provided no relevant basis for prolonging the period of hire, the offending averments ought not to be remitted to probation.

Submissions for the pursuers

[14] Under reference to Jamieson v Jamieson 1952 SC (HL) 44 at 50, the test to be borne in mind was that the action should not be dismissed as irrelevant unless it must necessarily fail even if all of the pursuers' averments are proved.

[15] It was submitted that the pursuers' case did not fall within the ambit of the decision in Dimond and therefore there was no need for any averment designed to bring it within the Lagden exception.

[16] The effect of the decision in Dimond was that where a defender establishes that charges incurred to a hire company were for more than basic hire and covered additional benefits, these benefits were to be brought into account in the calculation of damages (Lord Hoffman at 401H-402A).

[17] In Dimond, where the plaintiff was seeking to recover more than the spot rate for car hire, there had been evidence that the local spot rate was less than the rate charged by the hire company in question. In the instant case, however, neither party, on the pleadings, was offering to prove that the spot rate would have produced a claim less than the sum sought. The defenders' averments were silent on the matter and accordingly there was no averment to the effect that the pursuers had derived any additional benefit. On that basis, the correct approach was not that the pursuers were entitled only to recover the appropriate spot rate, but rather that any additional benefit should be taken into account in quantifying damages. Here, if it was being maintained that the pursuers should not recover all the charges incurred, it was for the defenders to identify what any additional benefits were and to quantify them. The defenders' pleadings did not encompass such a case, and so the issue was not live between the parties. The issue now raised by the defenders was not engaged and would not arise after proof. It could not be said under reference to Jamieson that the pursuers' case would necessarily fail.

[18] Alternatively, it was submitted that what the pursuers offered to prove did bring the case within the Lagden exception.

[19] Although it was accepted that the ratio of Lagden was limited to the issue of impecuniosity, the underlying reasoning of the decision was that the exception to the principle in Dimond arose where the innocent driver, in mitigating his loss, had no choice but to do what he did. In that regard, Lagden should be viewed as being highly persuasive.

[20] In Lagden, the importance of impecuniosity was that it was the factor that led to the claimant having no choice but to enter into a credit hire agreement. Where it was demonstrated that there was no choice, the correct approach was not to follow Dimond and not to exclude recovery of the additional benefits attaching to such an arrangement.

[21] The emphasis on choice in the decision in Lagden was apparent from the opinions of the judges. Reference was made to the opinion of Lord Hope at paragraph 28. (See paragraph [10] ante). It was not the case that only spot rates should be recoverable. The correct approach was that the whole circumstances of the benefits obtained should be brought into account. Part of that process required consideration of the extent of choice, if any, available. At paragraph 30, Lord Hope had referred to money that an injured party "had to spend" in mitigation. Such language clearly suggested an absence of choice. Lord Hope had developed the theme at paragraph 31. Under reference to a passage in The Gazelle (1844) 2 W Rob 279 and 281, he noted the principle that it is not open to a wrongdoer to require an injured party to bear any part of the cost of obtaining indemnification where that cost arises only from the impossibility of otherwise effecting such indemnification. At paragraph 32, under reference to Harbutt's ("Plasticine") Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447, he cited the example that "The plaintiffs had no other option if they were to continue their business...". In circumstances where, in that case, the plaintiffs' mill had been destroyed they "replaced it in the only possible way...". Thus, if mitigation of loss could not have been achieved differently, the whole amount should be recoverable (paragraph 33).

[22] At paragraph 34, Lord Hope had placed further emphasis on the concept of choice:

"34. ...It is for the defendant who seeks a reduction 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."

Lord Nicholls, at paragraph 6, stated:

"6. ...the law would be seriously defective if, in this type of case, the innocent motorist were, in practice, unable to obtain the use of a replacement car."

Lord Scott, at paragraph 72, also placed importance on the lack of choice brought about by the facts that the plaintiff was seriously impecunious.

[23] It was to be noted that in Dimond the plaintiff did have a choice and could have elected to incur only a standard market hire rate. In Lagden, on the other hand, the claimant's impecuniosity was significant but only because it was the factor which denied him any choice. In the circumstances of his case, he had no other means to obtain a replacement car. That was the position of the pursuers in the present case, albeit for different reasons. The pursuers in the present case were offering to prove that they had no choice other than to incur the charges now sought to be recovered.

[24] In answer to the defenders' second argument, it was submitted that the onus of proving that a pursuer had failed to mitigate his loss lay firmly on the defender. Reference was made to McBryde on Contract, third edition, at paragraph 22-45 and to McGregor on Damages at paragraph 7-019. Here, the defenders had no plea in law to the effect that the pursuers had failed to mitigate their loss and no supporting averments.

[25] To the extent that the issue was raised in the pleadings, it had been raised by the defenders in their answers. The averments in the pursuers' pleadings which were now the subject of challenge were simply a response to what the defenders had averred in relation to the progress of the repair works and the period of hire.

[26] The defenders' position was that a failure to admit liability could never be relevant to the issue of recovery. For the pursuers, it was submitted that the issue was not one of pure relevancy. Its resolution would depend on the facts brought out at proof. Reference was made to Whitehead at page 30, where it was said:

"The principles set out by Lord Hope in Lagden v O'Connor are of general application (paragraph 35). They must... apply equally to what length of period of hire is necessary and reasonable in the circumstances of the case, ...";

And later:

"...The circumstance of paying for the damage, if that is a reasonable choice, must be taken into account in assessing whether a wronged party acted reasonably in mitigating his loss."

The issue was one which should be determined on the evidence.

Discussion

[27] As to whether the pursuers' case falls within the ambit of the decisions in Dimond and Lagden, while it is true that neither party appears to offer evidence of the relevant spot rates for car hire, I consider that the issues at large in these cases have been foreshadowed by the pursuers' averment that:

"Accident Exchange Ltd were the only car hire company who (sic) would hire such a car to the pursuers for use by Mr Thompson due to his age and occupation."

[28] That averment could be interpreted simply as an intended basis on which to refute any suggestion of failure to mitigate loss, but its presence does, in my view, open up the issues which were under scrutiny in Dimond and Lagden.

[29] In relation to the application of the decisions in these cases to the matter before me, I am persuaded by the submissions for the pursuers to the effect that the underlying rationale of the decision in Lagden must be taken to be a consideration of whether any choice in the manner of mitigation of loss was available to the injured party.

[30] Although it was urged on me for the defenders that the ratio in Lagden was limited to the concept of impecuniosity, I agree with the proposition for the pursuers that, in that case, the claimant's financial situation was simply the factual circumstance which brought about the lack of choice which rendered the costs incurred recoverable. The equivalent of the factual circumstance of impecuniosity in Lagden in the present case is the joint combination of Mr Thompson's age and occupation.

[31] Although it may be said that such an analysis is beyond the ratio of Lagden, I do not regard it as an extension of the principle which underlies that decision. I do not accept that impecuniosity should be regarded as the only limited exception to the principle in Dimond. That being so, I consider that the pursuers' averments are sufficiently relevant in that regard and that the test in Jamieson is not satisfied. The extent to which the factors of age and occupation did preclude any choice is a matter for proof.

[32] Whether the effect of the combination of the factors of age and occupation on the availability of basic car hire was reasonably foreseeable is ultimately a question of fact and therefore also a matter for proof. Whilst I have some sympathy for the argument that, if it is reasonably foreseeable that some drivers may not be able to afford basic car hire, as in Lagden, it may also be reasonably foreseeable that basic car hire may not be available to others for reasons of age or status, whether that can in fact be said to be the case is a matter which, in my view, must be determined by a decision informed by relevant evidence.

[33] As to the defenders' second point, I agree with the proposition that the onus of proving a failure to mitigate loss must lie on them. In that context, I note that the defenders do aver in answer that "the hire period was excessive" and that "any period of hire beyond 3^rd November 2011 was unnecessary and excessive." The issue as to whether the period of hire was reasonable is therefore a live one.

[34] In the event, the argument on this point was in short compass. Having derived some assistance from the approach set out in Whitehead, I have come to the view that the issue surrounding the delay in effecting the necessary repairs, in the context of the defenders' position on liability, but also against the background of the the operation of the credit hire agreement, cannot be determined as a matter of relevancy at this stage, but, rather, must be determined on a consideration of the whole facts and circumstances of that aspect of the case, after evidence.

[35] The pursuers' averments appear to me to be apt for proof before answer. On the facts averred, I have come to the view that the relevancy of the pursuers' case on the points raised before me cannot be assessed in isolation from the precise circumstances of the events at the time. These matters should be resolved by taking all necessary factors into account once the evidence is known.

Decision

[36] For these reasons, I conclude that the relevancy of the pursuers' case falls to be determined after inquiry. That being so, I shall allow a proof before answer with all pleas left standing.