Armstead v Royal & Sun Alliance Insurance Company Ltd

A bailee in possession of property may recover financial loss consequential on negligent physical damage to that property. Such loss is not pure economic loss merely because it consists of a contractual liability to the bailor.

A contractual liability for loss of use is recoverable where it reasonably pre-estimates the bailor’s loss. Otherwise, the excess is too remote, although the claimant may recover the lesser amount representing reasonably foreseeable loss. Once the claimant proves the tort and factual causation, the defendant must plead and prove that remoteness or another limiting principle restricts recovery.

The appellant hired a replacement car from Helphire Ltd on credit-hire terms. The agreement required her to pay the daily rental rate, for up to 30 days, while the car was unavailable for hire because of damage. A negligent driver damaged the car, which was subsequently repaired over 12 days. Helphire demanded £1,560 under the agreement.

The County Court dismissed the claim as irrecoverable pure economic loss. A first appeal was dismissed, although the claimant’s possessory title as bailee was accepted. The Court of Appeal dismissed her further appeal in [2022] EWCA Civ 497, holding that the contractual sum was pure economic loss or too remote because it was not a genuine and reasonable estimate of Helphire’s loss.

The central issues were whether the contractual liability was recoverable loss consequent on physical property damage, whether it was too remote, and which party bore the burden of proof.

1. Appeal allowed unanimously. Lord Leggatt and Lord Burrows gave the joint judgment, with which Lord Richards and Lady Simler agreed. Lord Briggs concurred in the result. Judgment was entered for the appellant for £1,560.

2. A person in possession of property has sufficient title against a stranger to recover for its negligent loss or damage. The appellant was therefore entitled, as bailee, to recover financial loss consequential on physical damage to the hire car. Her liability to Helphire was not pure economic loss merely because it arose under a contract with the bailor. Nor was there any rule preventing contractual arrangements between bailor and bailee from producing recoverable loss. The restriction against double recovery remained applicable.

3. A contractual liability to compensate a third party for loss caused by physical damage may in principle be recovered. Loss of use is a reasonably foreseeable type of loss following damage to a revenue-generating vehicle. The particular contractual mechanism by which that loss reaches the claimant need not itself have been foreseeable.

4. The contractual liability must, however, constitute a reasonable pre-estimate of the hire company’s loss of use. To the extent that it does not, it falls outside the reasonably foreseeable type of loss and is too remote. This restriction prevents private contractual terms from imposing an excessive burden on a tortfeasor. If the agreed amount is excessive, the claimant may still recover the lesser sum representing the reasonably foreseeable loss.

5. Once a claimant proves a completed tort and that the claimed loss was factually caused by the breach, the defendant bears the burden of pleading and proving that remoteness, mitigation, contributory negligence or an intervening cause limits recovery. RSA neither pleaded nor proved that the agreed daily rate was an unreasonable estimate. The lower appellate courts could not replace absent evidence with speculation about Helphire’s fleet, utilisation or alternative vehicles.

6. The scope-of-duty principle concerning professional assumptions of responsibility had no application to the ordinary duty to avoid physical damage to property. Nor could the pre-existing hire agreement break the chain of causation. Lord Briggs reserved his position on endorsing the reasonable-pre-estimate requirement as a proposition of law because it had not received adversarial argument, but agreed that the appeal should be allowed.

1. United Kingdom Supreme Court: The appeal was allowed unanimously. The decision of the Court of Appeal was reversed and judgment was entered for the appellant for £1,560.
2. Court of Appeal: In [2022] EWCA Civ 497; [2022] RTR 23, the appeal was dismissed. The court treated the contractual liability as pure economic loss or as too remote because the clause was not a genuine and reasonable estimate of the hire company’s loss.
3. First appeal: Recorder John Benson QC dismissed the appeal in [2022] Lloyd’s Rep IR 574, although RSA conceded that the claimant’s possessory title entitled her to recover the repair costs.
4. County Court at Walsall: Deputy District Judge Fawcett dismissed the claim on the mistaken basis that the claimant lacked the proprietary interest required to recover economic loss resulting from damage to the hire car.