Armstead v Royal & Sun Alliance Insurance Company Ltd [2024] UKSC 6

Ms Armstead hired a car which was damaged in an accident caused by another driver. The hire agreement required her to pay the hire company for its loss of use during repairs. The Supreme Court held she could recover this sum from the negligent driver's insurer, clarifying that such contractual liabilities are recoverable if they reasonably estimate the hire company's loss.

Facts

Lorna Armstead hired a Mini Cooper from Helphire Ltd on credit hire terms while her own car was being repaired after an accident. During this hire period, a van driven negligently by a person insured by Royal & Sun Alliance Insurance Company Ltd (RSA) collided with and damaged the hire car. Clause 16 of the hire agreement required Ms Armstead to pay Helphire an amount equal to the daily rental rate for each day the vehicle was unavailable due to damage, up to a maximum of 30 days. The hire car was off the road for repairs for 12 days, resulting in a clause 16 liability of £1,560. Ms Armstead claimed this sum, along with repair costs, from RSA.

The Hire Agreement

Clause 16 stated:

“You will on demand pay to [Helphire] an amount equal to the daily rental rate specified overleaf, up to a maximum of 30 days in respect of damages for loss of use for each calendar day or part of a calendar day when the vehicle is unavailable to Helphire for hire because … the Hire Vehicle has been damaged.”

Issues

The central issues before the Supreme Court were:

• Whether the clause 16 sum was irrecoverable as ‘pure economic loss’;
• Whether the loss was too remote to be recoverable;
• Whether a bailee can recover damages for a contractual liability to the bailor arising from damage to bailed property;
• Who bears the burden of proof regarding remoteness of loss.

Judgment

Pure Economic Loss

The Court held that the loss was not pure economic loss. Lords Leggatt and Burrows explained:

“The loss in this case is not pure economic loss because it is common ground that Ms Armstead had a possessory title to the hire car.”

A bailee in possession of property has sufficient proprietary interest to sue for damage to that property and recover consequential losses.

Remoteness

The Court confirmed that contractual liabilities consequent on physical damage to property are recoverable, provided they constitute a reasonable pre-estimate of loss. Lords Leggatt and Burrows stated:

“To fall within this reasonably foreseeable type of loss, it is necessary for the claimant’s contractual liability to reflect the loss of use of the hire company. As the Network Rail case confirms, there is nothing wrong in principle, in a case where the actual loss may be difficult to calculate, in using an amount estimated in advance as the basis of the contractual liability.”

Burden of Proof

The Court clarified that once a claimant proves that loss was factually caused by the defendant’s breach of duty, the burden shifts to the defendant to prove that the loss is too remote:

“Once the claimant has proved that a tort has been committed and that the loss claimed was in fact caused by the defendant’s breach of duty, it is for the defendant to assert and prove that one, or more, of the principles mentioned… applies to limit the damages recoverable by the claimant.”

Application to the Facts

RSA had not pleaded or adduced evidence that clause 16 was not a reasonable pre-estimate of Helphire’s loss of use. The Court held it was not open to the Court of Appeal to reject the claim based on unsupported factual assumptions.

Lord Briggs’ Concurrence

Lord Briggs agreed with the outcome but expressed reservation about endorsing, without adversarial argument, the concession that contractual liability must be a reasonable pre-estimate of loss. He noted the evolution of penalty clause law since the Network Rail case.

Implications

This case clarifies several important principles:

• A bailee in possession can recover consequential losses arising from damage to bailed property, including contractual liabilities to the bailor;
• Contractual liabilities for loss of use are recoverable provided they reasonably pre-estimate the loss;
• The defendant bears the burden of proving that loss is too remote;
• Courts should not make unsupported factual assumptions to deny recovery.

The decision has significant implications for credit hire companies and insurers in road traffic accident claims, confirming that loss of use clauses in hire agreements can form the basis of recoverable damages against negligent third parties.

Verdict: Appeal allowed. Judgment entered in favour of Ms Armstead for the clause 16 sum of £1,560. The Supreme Court held that the clause 16 liability was recoverable as damages from RSA, as the defendant had failed to plead or prove that it was not a reasonable pre-estimate of Helphire’s loss of use.

Source: Armstead v Royal & Sun Alliance Insurance Company Ltd [2024] UKSC 6