Grocutt v Khan

An informal social arrangement may create contractual obligations once acted upon in a way that would lead reasonable people to expect legal obligations. Where one participant retains a jointly valuable insurance document, the arrangement may also be analysed as a bailment. The bailee must take reasonable care of the document and, when necessary, take reasonable steps to recover and produce it so that the other participant can obtain the benefit of the insurance. If the bailee’s conduct makes the document unavailable, the evidential burden may fall on the bailee to show that the insurance would not normally have protected against the claimed loss.

Dr Grocutt and Dr Khan agreed during a conference in Turkey to hire a car with their companions. They jointly signed the hire and insurance documentation, and Dr Khan retained the documents. Following an accident while Dr Grocutt was driving, Mrs Khan brought a negligence claim against Dr Grocutt. Dr Grocutt sought an indemnity under the insurance but could not obtain the policy.

In Part 20 proceedings, the Birmingham County Court found that the parties had entered into legal relations, that Dr Khan was obliged to preserve and produce the insurance documents, and that the obligation had been breached. The judge awarded liability in respect of Dr Grocutt’s unrecovered costs. Dr Khan appealed, challenging the contractual analysis, the scope of the document-related obligation and the finding on loss.

1. Appeal dismissed. The judge’s conclusions were upheld, although the Court of Appeal did not adopt the whole of his reasoning. The appellant was ordered to pay 50 per cent of the respondent’s costs, subject to detailed assessment.
2. The intention to create legal relations is assessed objectively: whether, in all the circumstances, reasonable people would expect the agreement to create legal obligations. The initial agreement to take an excursion was a social arrangement and, viewed alone, did not create contractual obligations. Once the parties acted on it by entering binding hire and insurance contracts with third parties, however, contractual obligations arose between them. Dr Grocutt was therefore obliged to pay his share of the relevant expenditure.
3. The insurance transaction was more readily analysed through bailment than through a contractual bailment. The policy was a valuable document in which both doctors had an interest. Dr Khan, as bailee, owed a duty to take reasonable care of it and, subject to that duty, to produce it when required so that Dr Grocutt could obtain the benefit for which it had been created. The duty was less extensive than the absolute obligation pleaded and found below.
4. Reasonable care had to reflect the value of the property bailed. After the accident the policy had substantial potential value. Handing it to the Turkish police did not automatically end the duty. Dr Khan had at least to inform Dr Grocutt where it was and, on the facts, had a duty to take reasonable steps to recover it.
5. Once Dr Khan was responsible for the policy’s unavailability, the burden fell on him to show that the consequences would not normally have followed from comprehensive motor insurance. He failed to discharge that burden. The unrecovered costs were therefore recoverable as loss flowing from the breach.

• Court of Appeal (Civil Division): dismissed Dr Khan’s appeal from the decision of His Honour Judge McKenna in the Birmingham County Court, delivered on 25 October 2002.