Lagden v O’Connor [2003] UKHL 64

Mr Lagden's parked car was damaged by Mrs O'Connor's negligent driving. Being impecunious, he could not afford spot rate car hire and used a credit hire company instead. The House of Lords held that impecunious claimants can recover the full cost of credit hire services, departing from The Liesbosch principle that impecuniosity cannot increase recoverable damages.

Facts

On 29 November 1999, Mr Lagden’s Ford Granada was damaged whilst parked when Mrs O’Connor negligently drove her vehicle into it. Mr Lagden was unemployed, in poor health, and had very little money. He was subject to an administration order. While his car was being repaired, he needed a replacement vehicle but could not afford to pay the spot hire rate charged by conventional car hire companies. He therefore entered into agreements with Helphire Group Plc, a credit hire company, which provided him with a replacement car without requiring upfront payment. The total cost of the Helphire scheme was £659.76, which included charges for credit facilities and claims handling services beyond the simple car hire cost.

The Credit Hire Scheme

Credit hire companies provide services beyond simple car hire. They do not require upfront payment or a credit/debit card. Instead, they extend credit to the motorist and pursue recovery of their charges from the negligent driver’s insurers. For these additional services, they charge fees beyond the ordinary spot hire rate.

Issues

The principal legal issues were:

• Whether an impecunious claimant who has no choice but to use a credit hire company can recover the full cost of that hire, including charges for credit facilities and claims handling, or whether recovery is limited to the spot hire rate as established in Dimond v Lovell
• Whether the principle in Liesbosch Dredger (Owners of) v Owners of SS Edison (The Liesbosch) [1933] AC 449, that a claimant’s impecuniosity cannot increase recoverable damages, should continue to apply

Judgment

The House of Lords dismissed the appeal by a majority (Lord Scott of Foscote and Lord Walker of Gestingthorpe dissenting).

The Majority View

Lord Nicholls of Birkenhead held that where an impecunious motorist cannot afford to pay car hire charges and would otherwise be unable to obtain a replacement car, the damages payable should include the reasonable costs of a credit hire company. He stated that the law would be seriously defective if innocent motorists were in practice unable to obtain replacement cars, and that a negligent driver must take his victim as he finds him.

Lord Hope of Craighead conducted a detailed analysis of the law. He held that it is for the defendant seeking a deduction on grounds of betterment to show that the claimant had a choice and could have mitigated loss at less cost. Where the claimant had no other choice available, any betterment must be seen as incidental to the mitigation step and cannot be deducted. Lord Hope further held that The Liesbosch should now be departed from, as the correct test of remoteness is whether loss was reasonably foreseeable, and the wrongdoer must take his victim as he finds him, including his economic state.

The Liesbosch Departed From

The House unanimously agreed that the rule from The Liesbosch regarding impecuniosity should no longer be followed. Lord Hope traced the development of the law and noted that the decision had been frequently criticised and distinguished. He concluded that the law had moved on and the correct test was reasonable foreseeability.

The Dissenting View

Lord Scott of Foscote would have allowed the appeal. He considered that creating an exception for impecunious claimants would introduce an imprecise and open-ended test that would prove an obstacle to swift settlement of claims. Lord Walker of Gestingthorpe agreed, expressing concern that the proposed modification was dangerously open-ended and contrary to the public interest.

Implications

This decision establishes that:

• Impecunious claimants who have no practical choice but to use credit hire services can recover the full reasonable cost of those services as damages
• The test is whether the claimant was unable to pay car hire charges without making sacrifices he could not reasonably be expected to make
• The principle from The Liesbosch that impecuniosity cannot increase recoverable damages is no longer good law
• The correct test for remoteness is reasonable foreseeability, and a wrongdoer must take his victim as he finds him, including his financial circumstances

The decision has significant implications for motor insurers and credit hire companies in the handling of claims involving impecunious motorists, whilst maintaining the principle from Dimond v Lovell that more affluent claimants can only recover the spot hire rate.

Verdict: Appeal dismissed. The impecunious claimant was entitled to recover the full cost of the credit hire scheme as damages. The House of Lords departed from The Liesbosch principle that impecuniosity cannot increase recoverable damages.

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