Lorna Armstead v Royal Sun Alliance Insurance Company Limited

A bailee of a damaged chattel has possessory title to claim the cost of repair and consequential loss of use, even where the claim reflects the owner's loss and recovery is held on trust. That entitlement does not permit recovery of an internal contractual liability owed by the bailee to the bailor. Such liability is pure economic loss arising from the bailment agreement, rather than directly from physical damage. It is outside the tortfeasor's duty where the agreement is not a genuine, independently negotiated and reasonable assessment of likely loss. A full credit-hire rate may include credit and recovery costs and may overstate the owner's actual loss. The appeal was dismissed.

Ms Armstead hired a Mini Cooper from Helphire while her own car was being repaired. A negligent driver insured by Royal Sun Alliance Insurance Company Limited damaged the hired car. Ms Armstead, as bailee, claimed the repair cost and a sum representing 12 days' hire charges under clause 16 of the agreement with Helphire, pursuant to the European Communities (Rights Against Insurers) Regulations 2002.

The District Judge dismissed the claim. On appeal, the Recorder accepted that Ms Armstead could claim the repair cost but dismissed the claim based on clause 16, treating it as relational economic loss and outside the scope of the driver's duty. The central issue before the Court of Appeal was whether the bailee could recover her contractual liability to Helphire, rather than the owner's properly assessed loss of use.

Lord Justice Dingemans gave the leading judgment. Lord Justice Singh agreed and added that the claim under clause 16 was pure economic loss. Lord Justice Bean agreed with both judgments.

1. Disposition. The appeal was dismissed. Ms Armstead could recover the repair cost as bailee, but the claim for sums payable under clause 16 was not recoverable. She could in principle have claimed Helphire's properly assessed loss of use during the period of repair, but no remittal was sought.
2. Bailee's title and loss of use. A person with legal or possessory title may claim for physical damage to a chattel and consequential economic loss. A bailee therefore has title to sue for repair costs and loss of use, even though the bailor owns the chattel. The principle in The Winkfield [1902] P 42 treats bailor and bailee as having one set of rights against the wrongdoer. Any recovery exceeding the bailee's personal loss is held on trust for the bailor. This approach was consistent with O'Sullivan v Williams [1992] RTR 309 and the authorities on loss of use.
3. Clause 16. Clause 16 was an internal arrangement between Helphire and Ms Armstead. It could not determine the damages payable by the negligent driver. Unlike the arm's-length contractual arrangements considered in Network Rail Infrastructure Limited v Conarken Group Limited [2011] EWCA Civ 644 and Ehmler v Hall [1993] 1 EGLR 137, there was no genuine independent agreement assessing Helphire's likely loss. The clause also claimed a full credit-hire rate, including credit and recovery costs, without establishing impecuniosity, average utilisation or the absence of substitute vehicles. It was therefore not a genuine and reasonable assessment of loss.
4. Economic loss and duty. Loss under clause 16 arose from the internal contract, not directly from the physical damage. It was pure economic loss, remote and not reasonably foreseeable, and fell outside the scope of the driver's duty. The court treated the six-fold analysis in Manchester Building Society v Grant Thornton [2021] UKSC 20 and Meadows v Khan [2021] UKSC 21 as a cross-check. The risk of damage to the car was within the duty, but the contractual quantification, nexus and claimed economic loss were not.

• Court of Appeal (Civil Division): On 28 April 2022, dismissed the appeal. It held that a bailee could claim repair costs and properly assessed loss of use, but not her internal contractual liability to the bailor under clause 16.
• County Court at Walsall, Recorder John Benson QC: On 13 April 2021, dismissed Ms Armstead's appeal from the District Judge insofar as it concerned the clause 16 claim.
• County Court at Walsall, Deputy District Judge Fawcett: On 1 July 2019, dismissed the claim.