Lorna Armstead v Royal Sun Alliance Insurance Company Limited

The Court of Appeal dismissed the appellant's challenge to the dismissal of her claim for sums payable under clause 16 of her vehicle credit hire agreement with Helphire. The court accepted that as bailee the appellant could recover the cost of repairing the hired car and, in principle, damages for loss of use, but concluded that the contractual provision (clause 16) was an internal allocation of loss between bailor and bailee and did not establish a recoverable head of damage against the negligent third party. The court applied principles on pure economic loss, loss consequential on physical damage, bailment (including the proprietary fiction), and the limits of the tortfeasor's duty, and distinguished authorities such as Network Rail and Beechwood on the facts.

Background and parties: The appellant, Ms Lorna Armstead, was driving a credit-hired Mini Cooper supplied by Helphire Limited while her own car was being repaired. Following a collision caused by the respondent's insured (Mr Galewski), the Mini Cooper was repaired. Helphire later demanded hire charges for the period the car was repaired pursuant to clause 16 of the hire agreement, which provided for payment of the daily rental rate for loss of use up to a maximum period.

Procedural history: The claim under the European Communities (Rights Against Insurers) Regulations 2002 was first heard before Deputy District Judge Fawcett (County Court, Walsall) where the part of the claim for repairs was initially disallowed but later conceded on appeal. The Recorder (John Benson QC) dismissed the appellant's appeal in respect of the clause 16 hire charge. The appellant appealed to the Court of Appeal.

Nature of the claim / relief sought: The appellant sought to recover, from the negligent driver's insurer (RSA), (i) the cost of repairs to the hired Mini Cooper and (ii) sums claimed under clause 16 of the Helphire agreement representing loss of use (a daily credit-hire rate) for the period the car was under repair.

Issues framed:

• Whether a bailee may recover contractual sums payable by her to a bailor under an internal hire agreement as damages from a negligent third party.
• Whether the clause 16 claim represented recoverable economic loss consequential on physical damage or an irrecoverable form of pure/relational economic loss.
• Whether clause 16 represented a reasonable genuine pre-estimate of loss (or otherwise enforceable) such that the tortfeasor should be liable for it.
• Scope of the negligent driver's duty of care and foreseeability/remoteness of the loss claimed.

Court’s reasoning and disposition: The Court of Appeal held that the appellant, as bailee, had title to sue for the repair costs and could in principle recover loss of use, but that clause 16 was an internal contractual mechanism between bailor and bailee and did not themselves constitute a recoverable measure of damages against the tortfeasor. The court found clause 16 did not represent a genuine and reasonable pre-estimate of Helphire's likely loss in this case, contained credit-hire elements not necessarily arising from the tort, and was effectively an internal allocation of loss. Applying the tests for recoverability (including the sixfold questions in Manchester Building Society v Grant Thornton / Meadows v Khan), the court concluded the clause 16 claim was an irrecoverable economic loss, too remote and not within the scope of the tortfeasor's duty. The appeal was dismissed.

Appeal dismissed. The Court held that although a bailee can sue for repair costs and, in principle, loss of use consequential on physical damage, the contractual obligation under clause 16 was an internal allocation of loss between bailor and bailee and did not establish a recoverable head of damage against the negligent driver. Clause 16 did not represent a genuine and reasonable assessment of Helphire's likely loss, included credit-hire elements not necessarily attributable to the tort, and therefore the sums claimed under clause 16 were irrecoverable economic loss, remote and not within the defendant's duty of care.

Appeal to the Court of Appeal from the County Court at Walsall. First instance hearing before Deputy District Judge Fawcett (County Court at Walsall). Appeal to Recorder John Benson QC (County Court at Walsall), judgment dated 13 April 2021 (Recorder dismissed appellant’s appeal in respect of clause 16). Further appeal to the Court of Appeal which delivered judgment on 28 April 2022 (Neutral Citation: [2022] EWCA Civ 497).