Lagden v O’Connor [2003] UKHL 64

An impecunious claimant, Mr Lagden, hired a car on credit at a higher rate following a non-fault accident. The House of Lords held he could recover the full cost, as his lack of funds made the more expensive credit hire a reasonable step.

Facts

The respondent, Mr Lagden, had his car damaged due to the negligence of the appellant, Mr O’Connor. Mr Lagden required a replacement vehicle whilst his was being repaired. Due to his poor financial circumstances (being unemployed and on benefits), he was unable to afford the ‘spot rate’ for a hire car from a standard rental company. Consequently, he entered into an agreement with a credit hire company, Helphire. This company provided him with a replacement car and deferred payment until the conclusion of his claim against the appellant. The total cost of the credit hire was £953.51, which was significantly higher than the basic hire rate of £691.20 that an individual with available funds could have obtained. The appellant’s insurers argued that their liability should be limited to the lower basic hire rate.

Issues

The central legal issue before the House of Lords was whether a claimant is entitled to recover the full, higher cost of a credit hire agreement when their impecuniosity prevents them from taking the cheaper option of paying for a car at the ‘spot rate’. This question engaged the fundamental tort principles of mitigation of loss and remoteness of damage, specifically testing the long-standing authority of Liesbosch Dredger v SS Edison [1933] AC 449, which held that loss suffered due to a party’s poverty was generally too remote to be recoverable.

Judgment

By a 3-2 majority, the House of Lords allowed the appeal in favour of Mr Lagden, holding that the full cost of the credit hire was recoverable. The majority distinguished the precedent set in The Liesbosch.

Lord Nicholls of Birkenhead, delivering one of the leading speeches, explained that the duty to mitigate loss must be assessed based on the claimant’s particular circumstances, including their financial standing. He reasoned:

But a claimant’s impecuniosity may have a crucial bearing on the options open to him. In order to hire a replacement car he may have no alternative save to have recourse to the services offered by a credit hire company.

He clarified that the test is one of reasonableness. If a claimant with available funds chose the more expensive option, the extra cost would be irrecoverable. However, for an impecunious claimant, the situation is different:

If the claimant had the choice, and he unreasonably chose the more expensive course, he is debarred from recovering the additional expense. But he is not debarred from recovering the additional expense if he had no choice.

Lord Hope of Craighead provided a key analysis, extending the ‘take your victim as you find him’ or ‘thin skull’ rule from physical to financial vulnerability. He stated:

The wrongdoer must take his victim as he finds him…This principle applies to the economic state of the victim in the same way as it applies to his physical and mental vulnerability. It requires the wrongdoer to bear the consequences of the fact that the victim is short of money, if the victim’s shortage of money is a reason why he is unable to take steps to mitigate his loss.

The dissenting judges, Lord Scott and Lord Walker, were concerned that this decision departed from established authority and would create practical difficulties in litigation, requiring courts to conduct intrusive inquiries into claimants’ financial means.

Implications

The decision in Lagden v O’Connor is of major significance in the law of damages. It establishes that the additional cost reasonably incurred by an impecunious claimant in mitigating their loss is recoverable from the defendant. The case effectively confines the rule in The Liesbosch to its own facts and confirms that a claimant’s financial weakness is a relevant factor in assessing the reasonableness of their actions post-tort. This judgment cemented the legal basis for the credit hire industry, which serves claimants who cannot afford the upfront cost of a replacement vehicle. It marks a clear application of the ‘thin skull’ rule to a victim’s economic circumstances.

Verdict: The appeal was allowed. The order of the trial judge awarding the claimant the full cost of the credit hire was restored.

Source: Lagden v O'Connor [2003] UKHL 64