Irving v Morgan Sindall Plc

This month marks the silver anniversary of the decision of the House of Lords in Giles v Thompson [1994] 1 AC 142. This landmark case represented the first major battle in the continuing war of attrition between credit hire companies and motor insurers. The present appeal demonstrates that neither side has lost its appetite for combat over the last twenty five years.

Two central points arise for resolution on this appeal:

On 18 November 2015, the claimant had an accident in which her Ford Ka was written off. The defendant was entirely to blame. In addition, she had suffered a whiplash injury from which she had made a full recovery within four weeks.

On the face of it, one might not expect that this would provide fertile ground for appellate litigation. But one would be wrong. The Defence, despite admitting liability, runs to no fewer than 79 paragraphs and cites 16 authorities. How can such a straightforward case have prompted such an encyclopaedic response?

The central problem was that the claimant had hired a replacement vehicle on credit whilst awaiting a cheque from the insurers with which to buy a replacement for her Ford Ka. As it happened, the defendant’s insurers took a long time to make the necessary interim payment and the hire period extended to over four months. Over this time, the hire charges had risen to the sum of £20,109.60.

The matter came on for trial before His Honour Judge Saffman on 25 September 2017. General damages had already been agreed in the sum of £700 but the credit hire charges remained in contention.

The hiring arrangement between the claimant and the credit hire company was evidenced in three written contracts the broad effect of which was to defer the time when the claimant would have to pay the charges arising thereunder until her claim for damages had been concluded. Subject to this, however, she was to remain liable herself to pay off the debt regardless of the outcome of the claim.

During the course of cross examination at trial, counsel acting on behalf of the defendant elicited responses from the claimant relating to what she had been told about her liability under the agreement:

“Q. What about payment? What did you understand you were liable for in terms of payment in this agreement?

A. I believed at the time that of course there would of course be like charges but those charges would be recovered from the third party insurer with like the accident not being my fault.

Q. So, when you signed this agreement, was it your understanding that the charges would be covered by the third party insurer?

A. Yes

Q. Were you told that by this credit hire company when you signed the agreements?

A. I was, yes…”

“Q. Now, you say you were told that the charges would be covered by the third party insurer and that may be the case. What would you do, however, if the court were to say well, those charges aren’t going to be paid by the third party insurer? Would you be able to pay the charges yourself?

A. Absolutely not.

Q. Absolutely not. The total charges finished, it went on for quite a significant period of time, didn’t it? The total charges come to over £20,000. Yes? There’s no prospect of you being able to pay that, is there?

A. No, but I thought that obviously, I wouldn’t be in a hire car for that long, I felt because he’d admitted liability, it was a minor accident, it was a minor injury, I thought when I got my cheque for my car within, I don’t know, a few weeks and I would be able to purchase my own and then everyone’s sorted. At the most, honestly, I thought it would be like two months. Maybe that sounds a bit naïve but I’d never been in a road accident before and I thought because he’d admitted liability, I didn’t know I would be in a hire vehicle for 132 days.

Q. Yes. So, if this court today were to say the defendant’s insurance company is not liable to pay those charges, you would be presented with that bill for £20,000. You wouldn’t be able to pay that, would you?

A. Absolutely not.

Q. Absolutely not. So, you say that you were told that the charges would be covered by the insurer. Were you also told that if the claims didn’t succeed against the insurer, those charges would be written off?

A. I was always told that it was a no win, no fee. That, I didn’t honestly, I don’t remember being told what would happen if I didn’t win, what would happen with the charges to be honest.

Q. You mention no win, no fee. Are you saying the hire company mentioned the no win, no fee arrangement?

A. It was the lawyers, Armstrong’s Solicitors, who said that”.

The transcript goes on to reveal an intervention on the part of the judge:

“Questioned by Judge Saffman

Q. So, let me ask you this. So, if, as regards the hire charges, you did not think you were going to have to pay for these?

A. I didn’t, no.

Q. At all?

A. No.

Q. No. Whether you won or lost this case?

A. No. If I lost, I was told there’d be no fees at all like, nothing to pay.

Q. So, you did not, understandably, you did not really care if it was £150 a day or, sorry, whether it was, what was it again? I cannot remember.

MR MADDISON: £152.

JUDGE SAFFMAN: £152 a day or £1,052 a day, it made no difference to you.

MISS IRVING: Well, I did care. I didn’t think I would have the car for that long so like, I thought the charges wouldn’t be as high as they were.

Q. But it does not make, but it did not matter to you anyway.

A. To be fair, if I wasn’t paying for it-

Q. No.

A. -no.

Q. And you did not think you were paying for it.

A.

Well, no. I thought it was paid by the third party insurer”.

In his judgment, HHJ Saffman concluded:

“In order for these hire charges to be recoverable from the defendant I have to be satisfied that the claimant is obliged to pay them. But her evidence, her evidence I emphasise, is that she is not and that is the only evidence I have on this issue… As a result I am satisfied that this credit hire charge falls at the first hurdle…”

The learned judge did not identify the jurisprudential basis upon which he had concluded that the evidence of the claimant had impacted on the terms of the written contract which it appeared to contradict. As a result, there is some degree of speculation in the claimant’s skeleton argument on this appeal as to what the potential legal effect (if any) of the assurance given to the claimant might be.

Against this background, I propose, without further analysing or adjudicating upon the issue, to proceed on the basis that the claimant’s liability to pay the charges accruing under the credit hire agreement was, whether by the operation of a collateral agreement or otherwise, contingent upon her recovering damages in respect thereof in her claim against the defendant. If the claimant were to fail to recover then she would have no personal liability to pay the charges.

I do not accept that there was any evidential basis upon which the judge could have concluded that the provision of the hire car was to be “free”. The claimant’s evidence was clearly to the effect that it was expected that the charges would be paid by the insurer because there was no issue on liability but they would not be paid by her if she were to lose. For ease of reference, I will refer to this as a “contingent liability”.

I was informed by counsel that the question as to whether or not the claimant is entitled to recover hire charges when her own liability to the credit hirer is found to be contingent is the subject matter of a number of outstanding cases and that the significance of this issue is not confined to the facts of this case.

The defendant draws my attention to the following passage from the speech of Lord Mustill in Giles at p166:

“I now turn to the wholly distinct question whether the motorists have proved that they have suffered a recoverable loss through the unavailability of their own cars pending repairs. The defendants say that they have not, because the cars were replaced by substitute vehicles which the motorists were able to use free of charge. In essence, it is said that the motorists have mitigated what would otherwise have been a valid claim for general damages reflecting their loss of the opportunity to make use of their own vehicles.

On the opinion which I have formed of the obligations created by the obscure and incomplete terms of the two agreements this contention admits of a very short answer. In my judgment the motorists do not obtain the replacing vehicle free of charge. If the motorist had simply persuaded a garage to hire her a substitute on credit, without any of the superstructure of the present transaction, it would be no answer to a claim for damages equivalent to the sums due to the garage that these sums would not in practice be paid until a judgment in the motorist's favour had provided the necessary funds: for the amount of the outstanding liability represents the loss suffered by the motorist, and the question whether the motorist intends to apply the damages recovered in satisfaction of the debt, or in some wholly different way, cannot affect his right of recovery.

To distinguish that case from the present the defendants are forced to contend that the consideration for the provision of the cars consisted solely of a right to recoup themselves from the damages for loss of use. As will have appeared, I do not accept this interpretation. The hiring company has no direct right to the damages. The company is not an assignee or chargee of the cause of action or its fruits, although it expects that the damages for loss of use will form part of the assets from which the motorist will in due course pay for the substitute. The liability for the car hire, although suspended as regards enforcement, rests upon the motorist throughout. It is a real liability, the incurring of which constitutes a real loss to the motorist. Whatever the publicity material may have conveyed, the provision of the substitute cars was not “free”.

In the light of this conclusion I find it unnecessary to discuss the question, by no means easy, what the position would have been if the use of the substitute car really had been free; as, for example, if it had been lent by a kindly friend. To do so would require a reconciliation of cases such as Harlow & Jones Ltd. v. Panex (International) Ltd. [1967] 2 Lloyd's Rep. 509 , Donnelly v. Joyce [1974] Q.B. 454 , McAll v. Brooks [1984] R.T.R. 99 and Cosemar S.A. v. Marimarna Shipping Co. Ltd. [1990] 2 Lloyd's Rep. 323 . This question, which is of much general importance, is in my view far better left for decision when it actually arises, rather than as a by-product of two schemes which have not, as I suggest, been fully worked out.”

However, a consideration of the four cases referred to by Lord Mustill does not reveal that the decisions in any of them would have precluded the recovery of a contingent debt as opposed to a free gift. Indeed, the contrary would appear to be the case.

In Harlow & Jones Roskill J found at p 531:

“Mr. Dunn correctly summarised the final position by saying that the bargain was that the Russian sellers would only claim against the plaintiffs if the plaintiffs could recover those charges from the defendants in this action. Mr. Dunn argued that an arrangement of that kind barred the plaintiffs recovering in this action. For my part I am unable to see why. The plaintiffs have – and this was not contested - apart from any agreement with the Russian sellers, a perfectly good claim for these storage charges. Why the plaintiffs should not make an arrangement with their own sellers, “We will claim these and hand the proceeds over to you if we recover provided you let us off if we do not”, I am unable to see. Nor do I see why the existence of such an arrangement should afford the defendants a defence which they would not otherwise possess. It seems to me an eminently sensible commercial arrangement. I think the storage charges are recoverable.”

In Donnelly (Footnote: ¹) the issue arose as to whether an infant plaintiff could recover against the tortfeasor monies expended and lost by his mother as a consequence of the injuries he had sustained. The court concluded:

“Mr. Hamilton's first proposition is that a plaintiff cannot succeed in a claim in relation to someone else's loss unless the plaintiff is under a legal liability to reimburse that other person. The plaintiff, he says, was not under a legal liability to reimburse his mother. A moral obligation is not enough. Mr. Hamilton's second proposition is that if, contrary to his submission, the existence of a moral, as distinct from a legal, obligation to reimburse the benefactor is sufficient, nevertheless there is no moral obligation on the part of a child of six years of age to repay its parents for money spent by them, as in this case.

We do not agree with the proposition, inherent in Mr. Hamilton's submission, that the plaintiff's claim, in circumstances such as the present. is properly to be regarded as being, to use his phrase, "in relation to someone else's loss," merely because someone else has provided to, or for the benefit of, the plaintiff - the injured person - the money, or the services to be valued as money, to provide for needs of the plaintiff directly caused by the defendant's wrongdoing. The loss is the plaintiff's loss.”

In McAll, the plaintiff owned a motor car covered by comprehensive insurance subject to a £50 policy excess. He entered into an agreement with insurance brokers under the terms of which a payment of £5 a year guaranteed that, if his car were off the road following an incident covered by his insurance policy, a replacement car would be made available to him for a time. The defendant, who was admittedly liable for damage to the plaintiff's car, accepted that while it was off the road the plaintiff required a replacement car and that a reasonable charge for its hiring was £328. The plaintiff claimed damages against the defendant and was awarded £50 for the policy excess by the county court judge, who rejected the further claim for £328. On appeal by the plaintiff, the Court of Appeal held that since the defendant admitted the plaintiff's need for a replacement car, which had been satisfied by the insurance brokers and the charge of £328 was reasonable, the full amount had to be paid by the defendant as the wrongdoer.

In Cosemar, Steyn J (as he then was) cited Harlow and Jones with approval concluding at page 328:

“The third party’s funding in payment of the expenses is irrelevant in law. To rule otherwise would be to discourage settlements and encourage a multiplicity of suits.”

I find nothing in any of these authorities which provides any comfort to the defendant in this case. Furthermore, the issue had been specifically addressed by the Master of the Rolls in the Court of Appeal in Giles [1993] All E.R. p349:

“As a general principle it is of course true that a plaintiff's claim for special damage can only succeed to the extent of losses he has actually sustained and liabilities he has actually incurred. But the rule is not absolute: the proceeds of private insurance and charitable benevolence are, for differing reasons, disregarded. Nor, in my view, does it relieve the defendant of liability if the plaintiff's liability to pay charges to a third party is contingent on his recovery against the defendant: that is the effect of Harlow & Jones Ltd. v. Panex (International) Ltd. [1967] 2 Ll.Rep. 509 at 531 and The Mathew [1990] 2 L1. Rep. 323 at 327-8. I further understand Donnelly v. Joyce [1974] Q.B. 454 and McAll v. Brooks [1984] R.T.R. 99 to concentrate attention on the question whether the plaintiff has suffered a loss and away from the question what he will do with any money he may recover. The issue may be tested by asking whether, if these plaintiffs recover reasonable charges reasonably incurred, they will be over-compensated. They will not. Nor will the car hire companies. Neither will enjoy double recovery, or any windfall. The only windfall would be enjoyed by the insurance companies if the plaintiffs did not recover. I regard the insurance companies' submission on this point as unsound.”

There can be no suggestion of double recovery on the facts of the present appeal. On no interpretation of the assurances given to the claimant on behalf of the credit hire company could she have been under the impression that she would be entitled to keep any sums recovered in respect of hire charges to herself. In this context, I take the reticence of Lord Mustill to have been in respect of cases in which there is no legal obligation whatsoever upon the claimant to make any payment to the third party providing assistance and the benefit from which is thus truly “free” and not where there is a debt, albeit contingent.

More recently, in Wakeling v Harrington [2007] EWCH 1184 (Ch) Mann J observed:

“A liability owing from A to B can exist notwithstanding that B has agreed not to enforce it directly against A. A non-recourse loan is a good example of that. As Prof Goode observes in his book on Consumer Credit Law and Practice (at para 11.73):

“Whilst an obligation to repay is an essential characteristic of a loan, the manner in which the obligation is to be discharged may be restricted. In particular, it is not necessary that the borrower should incur a personal obligation to repay out of his own monies. It suffices that payment is to be made from a designated fund or from the proceeds of a specified asset. So an undertaking by B to repay an advance with such money (if any) as has come into his hands from T makes B a borrower despite the fact that his repayment liability is limited to the sums received from T.”

Again, this approach is entirely consistent with all the authorities which precede it.

It follows that I am satisfied that the judge was wrong to conclude that the assurances given to the claimant, even taken at their highest, were such as to compromise her claim for credit hire charges against the defendant and so the appeal on this ground is allowed. I ought, however, to note in passing that the judge at first instance was giving an ex tempore judgment and those appearing before him had not thought fit to burden him with reference to any authority on the point.

The judge made it clear in his judgment that he had entertained the hope that his finding on contingent liability would render it unnecessary to go on to consider the other issues arising in the case before him. In this he was to be disappointed.

The judge went on to find that the claimant had established a need to hire a replacement vehicle. She used it to commute to work and it would have taken her about three times as long to go by public transport. The question arose, however, whether the claimant was impecunious so as to entitle her to claim in respect of credit hire rather than the basic hire rate which would have required payment “up front”.

The judge held that the claimant was not impecunious and so the credit hire rate was not recoverable.

There has been some debate between the parties as to the proper approach to the burden of proof in cases in which the issue of impecuniosity falls to be determined. This was an issue considered by the Court of Appeal in Umerji v Khan in which Underhill LJ observed at paragraph 37:

“The correct analysis would appear to be as follows. A claim for the cost of hire of a replacement vehicle is, strictly, a claim for expenditure incurred in mitigation of the primary loss, namely the loss of use of the damaged vehicle: see the speech of Lord Hope in Lagden v O’Connor at [27]. The burden is thus on the claimant to prove (and therefore plead) that such expenditure was reasonably incurred: see the authorities reviewed by Sir Mark Potter P. in Beechwood Birmingham Ltd v Hoyer Group UK Ltd [2010] R.T.R. 33 at [25]–[28]. There is no doubt a grey area about how much needs to be pleaded and proved to establish reasonableness before the evidential burden shifts to the defendant to show that the expenditure was unreasonable. But in this kind of case it is clearly right that a claimant who needs to rely on his impecuniousness in order to justify the amount of his claim should plead and prove it.”

For the purposes of this judgment I adopt this analysis but note that, on the facts of the instant case, the issue of the burden of proof is of little, if any, significance. The claimant made full disclosure of the documentary evidence relevant to her financial position and no suggestion is made that her evidence on the primary facts of her financial position is disputed. Indeed, in the course of his judgment the judge described her as “an honest claimant who was doing her best”. The central issue must be whether, on the undisputed primary facts, the conclusion which the judge drew that the claimant was pecunious was correct.

The test of impecuniosity is derived from Lagden v O'Connor [2004] 1 A.C. 1067 in which Lord Nicholls observed:

“9 There remains the difficult point of what is meant by "impecunious" in the context of the present type of case. Lack of financial means is, almost always, a question of priorities. In the present context what it signifies is inability to pay car hire charges without making sacrifices the plaintiff could not reasonably be expected to make. I am fully conscious of the open-ended nature of this test. But fears that this will lead to increased litigation in small claims courts seem to me exaggerated. It is in the interests of all concerned to avoid litigation with its attendant costs and delay. Motor insurers and credit hire companies should be able to agree on standard enquiries, or some other means, which in practice can most readily give effect to this test of impecuniosity.”

The material before the judge on the issue of impecuniosity was relatively straightforward. The claimant was employed at a modest basic wage of £472 per month. She was able to improve on this figure by working overtime the extent of which fluctuated but which could raise her total income to about £700 per month. Her current account statements reveal a cyclic pattern reflecting monthly peaks upon the crediting of wage payments which are gradually eroded by expenditure over the course of the month which follows. The troughs are marked by a balance in the region of £250. She had an ISA savings account containing about £250. However, the claimant also had a Graduate Bank Account which, although not accumulating interest charges, was overdrawn to the extent of a little over £700 at the material time. She had a credit card with a limit of £500.

The pre–accident value of the claimant’s car was £775.

The judge concluded that the claimant could have raised about £900 by depleting those of her accounts which were in credit and spending up to her credit card limit. Thus she would be able to buy a replacement car of the value of that written off.

What the judge failed to appreciate, however, was that his calculations were based on the assumption that the claimant could be expected to have bought a replacement car immediately after the accident. Such an assumption was untenable. A fortnight had elapsed before her car had been written off. At the very least, the claimant would have needed a further fortnight thereafter within which to buy a replacement. Over this period of four weeks, the claimant would have been entitled, even if pecunious, to have hired a car at the basic hire rate. Such evidence as was before the court revealed that the cost of hiring a replacement vehicle on this basis would have been about £700 over this period. Accordingly, when the hire charges and the capital cost of a replacement vehicle are added together, the sum which the claimant would have needed to raise was far in excess of that upon which the judge based his calculations.

I take into account the fact that the judge had suggested that further sums could have been raised if the claimant had applied to extend the limit on her credit card or had made importunate approaches to her family for loans. Neither option in the circumstances of this case was sufficient to bring the claimant outside the parameters of impecuniosity. Furthermore, I cannot ignore the fact that by reducing her capital to the bare minimum and increasing her debt, the claimant would have been exposing herself to the risk of a serious financial challenge in the event that even a modest but unexpected financial reverse might have afflicted her before her claim was satisfied. Impecuniosity need not amount to penury.

It will only be in rare cases in which an appellate court will interfere with a judgment on the issue of impecuniosity reached at first instance. Nevertheless, in the very particular circumstances of this case, I am satisfied that the judge below, experienced as he is, was wrong.

Of course, it would still have been open to the defendant to challenge the rates charged by the credit hire company but no evidence was adduced to this end. Accordingly, the claimant having surmounted the twin hurdles of recoverability of a contingent debt and impecuniosity, it must follow that this appeal is allowed and the judgment sum is increased by £20,109.60 in respect of credit hire charges. I am well aware that this is, on the face of it, an eye watering sum but console myself with the thought that it would have been a good deal lower if, there being no defence on liability, the claimant had been put in funds much earlier.