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Personal Injury Judgements - Dimond vs Lovell

LORD BROWNE-WILKINSON

My Lords,

I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Hoffmann. I agree with it and for the reasons which he gives would dismiss the appeal. I further agree with his view that, even if the claim for damages for loss of the use of the car had been sound, the damages recoverable would have been limited to the sum required to provide an alternative vehicle i.e. the spot rate quoted by hirers other than accident hire companies.

LORD NICHOLLS OF BIRKENHEAD

My Lords,

I have had the advantage of reading a draft of the speech of my noble and learned friend Lord Hoffmann. For the reasons he gives I would dismiss this appeal. The only point on which I differ from Lord Hoffmann concerns the measure of damages which would have been recoverable had the claim not been dismissed. The point is of general importance to accident car hire companies and to insurance companies operating in this field.

These proceedings arise out of an everyday occurrence. Momentary inattention by a driver results in his car running into and damaging another vehicle. The damaged car needs repair and is off the road for some days while being repaired. The owner of the damaged car requires a replacement vehicle. Many car insurance policies make no provision for a replacement if the insured car is damaged in an accident. So the victim of a no fault accident has to make his own arrangements to tide himself over the days he is without his car.

Under an ordinary car hiring arrangement, the hirer has to produce the hire charge up front. Usually the amount of money involved is not large, but for many people it is still a considerable sum to have to find. Further, there is no certainty the money will ever be recovered from the insurers of the car whose driver was at fault. The innocent motorist has no clout when it comes to seeking payment from someone else's insurers. And no one would wish to become involved in court proceedings to recover the money from the insurers. So there are many cases where innocent motorists make do as best they can. They manage somehow without a car, or borrow one from a relation, or get lifts from friends. Either that, or they hire a car and write off the hire charge as just one of those things.

So it comes about that accident car hire companies are fulfilling a real need. They provide replacement cars and additional services as well. The hirer does not have to produce any money, either at the time of the hiring or at all. The hire company pursues the allegedly negligent driver's insurers. The hire company is not deterred by having to bring court proceedings should this become necessary. If the claim is unsuccessful, in practice the hire company does not pursue the hirer.

These are valuable additional services. At first sight there seems to be no reason why the negligent driver's insurers should have to pay for these additional services. If a car owner wishes to have these services he should pay for them himself. I consider this would be to take too narrow a view of the position in which the no-fault driver finds himself. The position in law is that the negligent driver, backed by his insurers, is liable to pay reasonable charges incurred in hiring a replacement car if this is reasonably necessary. For many motorists the existence of this liability of the other motorist can be more theoretical than real. In practice this source of recompense frequently does not yield money, or even an acceptance of liability, in time to be of use. In Giles v. Thompson [1994] 1 A.C. 142, 155A, Lord Mustill observed that:

' . . . there exists in practical terms a gap in the remedies available to the motorist, from which the errant driver, and hence his insurers, frequently profit'.

The additional services provided by accident car hire companies bridge this gap. They redress the imbalance between the individual car owner and the insurance companies. They enable car owners to shift from themselves to the insurance companies a loss which properly belongs to the insurers but which, in practice, owners of cars often have to bear themselves. So long as the charge for the additional services is reasonable, this charge should be part of the recoverable damages.

This House was told by counsel of a scheme or proposed scheme, the 'A.B.I. Initiative', whereby insurance companies and car hire companies will provide hire vehicles to victims of no fault accidents. Depending on its terms, a scheme of this nature may meet the need which has given rise to the accident car hire business. Until that happens, the accident car hire arrangements provide a reasonable basis by which no-fault victims can in fact obtain the benefit of the right which the common law and compulsory third party insurance seek to give them against careless drivers.

A measure of damages which does not achieve this result would be sadly deficient. The law on the measure of damages should reflect the practicalities of the situation in which a wronged person finds himself. Otherwise it would mean that the law's response to a wrong is a right to damages which will often be illusory in practice. I do not believe this can be the present state of the law in a situation which affects thousands of people every year.

LORD HOFFMANN

My Lords,

1. The Facts

On 30 December 1996 Mrs. Vanessa Dimond was driving her Suzuki Vitara home from work when a car driven by Mr. Lovell ran into her from behind. Her vehicle was damaged but still drivable. Her husband made an appointment for a garage to do the repairs two or three weeks later. While it was in the garage, she needed a replacement vehicle to get to work. On the advice of her insurance broker, she hired a Ford Mondeo from a car hire company called 1st Automotive Ltd. The charge was £30 a day for the 8 days during which her vehicle was off the road, together with £5 a day collision damage waiver and a £15 delivery charge. The total charge including VAT was £346.63.

2. The Issues

The Co-operative Insurance Society ("C.I.S."), which insured Mr. Lovell, accepted that he had been negligent and was liable for the loss caused to Mrs. Dimond by the accident. They paid for the cost of repair. But they refused to pay for the hire of the replacement car. They did not say that it was unreasonable for Mrs. Dimond to have hired a car. But they raised two defences. The first was that the form of agreement under which Mrs. Dimond hired the car was technically defective. It was a "regulated agreement" within the meaning of the Consumer Credit Act 1974 and did not contain the particulars that the Act required. As a result, it was unenforceable.

Mrs. Dimond could not be required to pay for the hired car and therefore had suffered no loss. The second was that the sum claimed was excessive. Mrs. Dimond could have hired a suitable car from another company for less. She had therefore either failed to take reasonable steps to mitigate her loss or the hire agreement had given her benefits additional to the use of the car which she should bring into account in calculating her loss. The Court of Appeal [1999] 3 W.L.R. 561 held (reversing the judge) that the defendant succeeded on the first point.

The hire agreement was unenforceable under the Act of 1974 and Mrs. Dimond had suffered no loss. She had been lucky enough to have a replacement car for nothing. It was therefore not necessary for the Court of Appeal to consider whether, if it had been enforceable, the full amount of the hire could have been recovered. But they said that they agreed with the judge that it could. Mrs. Dimond appeals to your Lordships' House against the decision that she was under no liability to 1st Automotive and Mr. Lovell invites your Lordships to express a different view on the quantum of damages. Of course the real parties in interest are 1st Automotive and the C.I.S. and I shall therefore refer to them as appellant and respondent respectively.

3. Accident hire

My Lords, I should explain why this dispute over £346.63 comes before your Lordships' House. 1st Automotive is an accident hire company. It specialises in hiring cars to people like Mrs. Dimond whose cars have been damaged in road accidents caused by the fault of someone else. I shall in a moment invite your Lordships' attention to some of the terms of its standard form of hiring agreement. But the effect of the agreement is that, in the normal course of events, the hirer will not have to pay. The company pursues the hirer's claim at its own expense and satisfies its claim for hire out of the damages recovered on the hirer's behalf. Thus the hirer is spared the need to lay out the cost of the hire in advance of recovery from the defendant or his insurers, the trouble and anxiety of pursuing a claim and the risk that the claim may fail.

The services thus offered by an accident hire company, in providing the car on credit and assuming the burden and risk of pursuing the claim, have filled a gap in the market. Many comprehensive motor insurance policies cover damage to the vehicle but not the cost of hiring a replacement. The owner of a damaged car can arrange for his car to be repaired in the knowledge that the bill will be sent to the insurance company. Whether his company meets the cost itself or recovers it from the other driver's insurer is (apart from the question of a no-claim bonus) not a matter which need concern him. If, however, he wants to hire a replacement vehicle, he will have to make the arrangements at his own expense and claim the cost from the other driver himself. Faced with such a prospect, many drivers will make do without a car while their vehicle is off the road. Accident hire companies enable them to have a replacement car without cost, trouble or risk.

The accident hire business has increased the cost of third party claims against motor insurance companies such as C.I.S. Motorists not only hire replacement cars when they would not previously have done so but also, since they are not themselves paying, do not necessarily exercise the closest scrutiny over the rate that is being charged. Partly for this reason and partly because the companies have to be compensated for the credit and additional services that they provide, claims by accident hire companies are generally at rates substantially above the market or "spot" rates that an ordinary hire company would have been willing to offer for ready money. Motor insurance companies have therefore tried to resist such claims.

The first attempt was based upon the theory that the arrangements between motorist and accident hire company were champertous. It was rejected by your Lordships in Giles v. Thompson [1994] 1 A.C. 142. The present case is a return to the charge by other means. Your Lordships were told that many other cases, both at first instance and in the Court of Appeal, wait upon the result.

The Consumer Credit Act 1974.

Section 65(1) of the Act provides as follows: "An improperly-executed regulated agreement is enforceable against the debtor or hirer on an order of the court only."

There has been no court order for the enforcement of Mrs. Dimond's hiring agreement and, for reasons which I shall briefly touch upon later, it is accepted on both sides that on the facts of the present case the court would not have jurisdiction to make one. It is also accepted that, for reasons which I shall explain, the agreement was improperly executed. So the only question for your Lordships' decision on this part of the case is whether the hiring agreement was a "regulated agreement" within the meaning of the Act.

(a) "Regulated agreement"

The Act has a definition of a "regulated agreement" in section 189(1). It means - "a consumer credit agreement, or consumer hire agreement, other than an exempt agreement."

The C.I.S. says that the hiring agreement was a consumer credit agreement and that it was not exempt. A "consumer credit agreement" is defined in section 8(2):

"A consumer credit agreement is a personal credit agreement by which the creditor provides the debtor with credit not exceeding [a sum specified by regulation, which at the time of the hiring agreement was £15,000: see the Consumer Credit (Increase of Monetary Limits) Order (S.I. 1983 No. 1878)]."

This definition sends one to the definition of a "personal credit agreement", which is to be found in section 8(1):

"A personal credit agreement is an agreement between an individual ('the debtor') and any other person ('the creditor') by which the creditor provides the debtor with credit of any amount."

The definition chase ends with the meaning given to "credit" by section 9(1): "In this Act 'credit' includes a cash loan, and any other form of financial accommodation."

My Lords, it seems to me that one emerges from these statutory thickets holding onto a very simple question. Did 1st Automotive provide Mrs. Dimond with credit? If so, the hiring agreement was a personal credit agreement and, since it was for a good deal less than £15,000, a consumer credit agreement and thus (subject to the question of exemption) a regulated agreement. 1st Automotive contends, as it did in the Court of Appeal, that it did not provide any credit at all. To consider the merits of this argument, one must examine the terms of the hiring agreement.

Clauses 5 and 6 provides as follows:

"5. Where the hire is consequent upon the hirer's own vehicle being unroadworthy as a result of a road traffic accident:

"6. If, and only if, the hirer is in default of condition 5(iii) then the credit allowed by the lessor to the hirer shall be terminated and the hire charges will be due from the hirer to the lessor 28 days from the lessor giving notice thereof to the hirer by reference to this condition (6)."

So, according to the terms of the contract, 1st Automotive "allow[s] the hirer credit on the hire charges," this arrangement is described as a "credit facility" and if there is a breach of condition 5(iii) the "credit allowed" may be terminated. This is unpromising material for an argument that 1st Automotive does not give credit. C.I.S. adopts Professor Goode's definition of credit (Goode, Consumer Credit Legislation, looseleaf ed., vol 1, para. 443) which was approved by the Court of Appeal ([1999] 3 W.L.R. 561, 572):

"credit [is] extended whenever the contract provides for the debtor to pay, or gives him the option to pay, later than the time at which payment would otherwise have been earned under the express or implied terms of the contract."

C.I.S. says that in the absence of credit terms, hire would have been payable per diem in diem during the hiring period or, at the latest, when it ended. Allowing the hirer to defer payment until the claim for damages had been concluded was providing credit.

Against this straightforward argument 1st Automotive say that while it might be true that, under an ordinary hiring agreement, the hire would, in the absence of credit, be payable during or at the end of the hire, this agreement was far more complex. The services provided to Mrs. Dimond were not only the use of the car but also the pursuit of her claim. If one treats these obligations as forming part of an entire contract, 1st Automotive could not recover any part of the consideration until it has not only allowed Mrs. Dimond the use of the car but also brought the claim for damages to a conclusion. Only at this point would 1st Automotive become entitled to payment and therefore the provision for "credit" was not really credit at all. Payment was not postponed beyond the date at which it would in any event have first become payable.

This argument depends upon construing the contract as imposing upon 1st Automotive a duty to Mrs. Dimond to pursue the claim and treating the performance of that duty as forming part of an entire contract which also included the provision of the vehicle. I do not think that this contract is susceptible of so artificial a construction. I draw attention to the fact that nowhere does the contract impose any duty upon 1st Automotive to pursue the claim. Under clauses 5(ii) and (iii) it has a right to pursue the claim in Mrs. Dimond's name and she has a duty to co-operate, but that is all.

1st Automotive say that such a duty must be implied. But there seems to me no basis for such an implication. I can see the argument for implying a term that 1st Automotive should not be entitled to recover the hire unless it had made all reasonable efforts at its own expense to pursue the claim. It might even be possible, with the aid of some unguarded statements in the brochure, to imply a term that 1st Automotive should not be entitled to recover the hire unless the claim had been successful, although this seems to me far more difficult and contrary to the view expressed by Lord Mustill in Giles v. Thompson [1994] 1 A.C. 142, 160.

But I do not think it is possible to read the words "shall have the right" in clauses 5(ii) and (iii) to mean "shall have the duty." Mrs. Dimond would not be in the least concerned with whether 1st Automotive pursued her claim or not, as long as she did not have to pay. It therefore seems to me that any implications about pursuing the claim can relate only to the conditions upon which the hire will be recoverable and cannot take the form of a positive duty.

In my opinion there was no misuse of language when the contract described clause 5(i) as a credit facility. The only obligation of 1st Automotive under the agreement was to provide the vehicle. In the absence of credit, it would have been entitled to payment during or at the end of the hire. All the provisions about the pursuit of the claim were express or implied conditions that deferred the right to recover the hire and therefore constituted a granting of credit. In addition, of course, the pursuit of the claim by 1st Automotive on behalf of Mrs. Dimond may have given rise to further obligations to her, such as the obligation to indemnify her against a liability for costs which Lord Mustill mentions in Giles v. Thompson [1994] 1 A.C. 142, 163.

Mr. Wingate-Saul Q.C., who appeared for 1st Automotive, advanced a further argument based on section 18 of the Act. The first four subsections read as follows:

"18.-(1) This section applies to an agreement (a 'multiple agreement') if its terms are such as-

I fear that I may not be able to do justice to the argument based upon this section, because I am not sure that I fully understood it. But I think Mr. Wingate-Saul submitted that if his first argument was rejected and the hiring agreement not construed as an entire contract, then it became a multiple agreement within section 18. One part was the hiring of the car and the other the provisions for pursuit of the claim. If the former were construed as a separate agreement, it would not include any provision for credit and not be a regulated agreement. The credit provisions, if any, would belong the part that dealt with the pursuit of the claim.

The difficulty I have with this argument is that it seems to sever the provisions that create the debt (hiring the car) from the provisions that allow credit for payment of the debt. Whatever a multiple agreement may be, one cannot divide up a contract in that way. The creation of the debt and the terms on which it is payable must form parts of the same agreement. The truth of the matter is that I accept that the hiring agreement was a single contract. But I do not accept Mr. Wingate-Saul's submission as to what that contract was. He argues that it involved multiple obligations on the part of 1st Automotive that had to be performed over a period starting when the car was hired and ending when the damages were recovered. I consider, on the contrary, that the only primary obligation of 1st Automotive was to provide the car. The rest of the agreement dealt with the conditions upon which it would be entitled to recover the hire. To such an agreement section 18 has, of course, no relevance.

Finally on this issue I should mention that it was submitted to the Court of Appeal that a contract for the bailment of a goods to a hirer (such as the bailment of the car to Mrs. Dimond) could not be a consumer credit agreement. It was either a consumer hire agreement if it satisfied the requirements of section 15(1) of the Act or it was altogether unregulated. The argument, based upon a passage by Professor Goode (Consumer Credit Legislation, vol. 1, para. 456.6), was rejected by the Court of Appeal [1999] 3 W.L.R. 561, 573 and not pursued before your Lordships.

It is conceded that the agreement was not an exempt agreement. It is however worth noticing that article 3(1)(a) of the Consumer Credit (Exempt Agreements) Order 1989 (S.I. 1989 No. 869) exempts consumer credit agreements such as this one if the total number of payments to be made by the debtor does not exceed four and -"those payments are required to be made within a period not exceeding 12 months beginning with the date of the agreement."

1st Automotive can therefore obtain exemption from the Consumer Credit Act 1974 if they include a clause that requires that the hire should in any event be paid (if at all) within 12 months. But the hiring agreement executed by Mrs. Dimond was a regulated agreement within the meaning of section 65(1).

(b) Improperly executed.

Although it is conceded that the agreement was not properly executed, I think I should briefly explain why. By section 61(1), a regulated agreement is not properly executed unless, among other things:

"a document in the prescribed form itself containing all the prescribed terms and conforming to regulations under section 60(1) is signed in the prescribed manner both by the debtor or hirer and by or on behalf of the creditor or owner."

Section 60(1) gives the Secretary of State power to make "regulations as to the form and content of documents embodying regulated agreements" to ensure that the debtor or hirer is made aware of, among other things, "the amount and rate of the total charge for credit (in the case of a consumer credit agreement." By the Consumer Credit (Agreements) Regulations 1983 (S.I. 1983 No. 1553), the Secretary of State prescribed the form and contents of regulated consumer credit agreements.

Schedule 6 provided that certain terms were to be "prescribed terms" which the document had to contain for the purposes of section 61(1). These were, in the case of a consumer credit agreement to finance the acquisition of services by the debtor (such as the provision of the car to Mrs. Dimond) , "a term stating the amount of the credit, which may be expressed as the total cash price of the . . . services." It is conceded that no such term appeared in the agreement signed by Mrs. Dimond. The agreement was therefore improperly executed.

(c) Order of the court

Section 65(1) provides that an improperly executed agreement shall be enforceable only "on an order of the court." Section 127 gives the court power to make orders for the enforcement of agreements that are, for various reasons, improperly executed. But subsection (3) provides that a court shall not make an enforcement order for an agreement that does not comply with section 61(1)(a) unless the debtor signed a document containing "all the prescribed terms." The hiring agreement in this case did not and is therefore irredeemably unenforceable.

5. Unjust enrichment

Mr. Wingate-Saul says next that that if the hiring agreement is unenforceable, Mrs. Dimond has been unjustly enriched. She has had 8 days use of a Ford Mondeo for nothing. She has certainly been enriched at the expense of 1st Automotive. The fact that she only needed a car from 1st Automotive because Mr. Lovell had damaged her Suzuki and was therefore on balance no better off seems to me irrelevant. It is no reason why 1st Automotive should have provided her with a free car. Mr. McLaren Q.C., who appeared for the C.I.S., said that that was exactly what the parties intended. The attraction of the transaction to Mrs. Dimond was that she would not have to pay.

But that seems to me an oversimplified analysis. The agreement was that Mrs. Dimond would pay. The damages recovered from the C.I.S. would have been Mrs. Dimond's money. They would not have been subject to any assignment or charge to 1st Automotive. When they were recovered, the debt that she incurred by hiring the car would fall due. But the effect of section 61(1) of the Act is that she no longer has to pay.

The real difficulty, as it seems to me, is that to treat Mrs. Dimond as having been unjustly enriched would be inconsistent with the purpose of section 61(1). Parliament intended that if a consumer credit agreement was improperly executed, then subject to the enforcement powers of the court, the debtor should not have to pay. This meant that Parliament contemplated that he might be enriched and I do not see how it is open to the court to say that this consequence is unjust and should be reversed by a remedy at common law: compare Orakpo v. Manson Investments Ltd. [1978] A.C. 95.

6. Res inter alios acta

1st Automotive's next point was that it did not matter whether Mrs. Dimond was liable to pay for the hire of the Ford Mondeo. The fact was that Mr. Lovell had negligently deprived her of 8 days use of her Suzuki. This was her loss and the fact that she had been lucky enough to obtain the use of another car for nothing was, as one used to say, res inter alios acta. It should not affect Mr. Lovell's liability, any more than if a friendly neighbour who happened to be going on holiday had put his car at her disposal. The neighbour would be surprised to learn that his generosity had been for the benefit of Mr. Lovell.

This argument has very respectable support in the authorities. Mr. Wingate-Saul began with the decision of this House in Parry v. Cleaver [1970] A.C.1. Lord Reid there said, at p. 14, that it would be unjust for damages to be reduced to take into account benefits that the plaintiff received "from the benevolence of his friends or relations or of the public at large" so that "the only gainer would be the wrongdoer." Lord Reid also said that benefits from insurance taken out by or for the plaintiff should be disregarded because "the plaintiff has bought them" and it would be unjust that "the money which he prudently spent on premiums...should enure for the benefit of the tortfeasor." He applied this reasoning to hold that benefits from a contributory disability pension fund should also be disregarded.

In Donnelly v. Joyce [1974] Q.B. 454 Megaw L.J. derived from these decisions a general theory that benefits received from third parties were res inter alios acta. A boy of six sustained bad injuries to his leg in a road accident. For six months he required daily attention. His mother gave up her job to look after him. The claim for damages on behalf of he boy included the mother's loss of earnings. This was objected to on the grounds that the boy had incurred no obligation to repay his mother for her services. Megaw L.J. said, at p. 462, that the fact that the boy had obtained the necessary care without payment was irrelevant to his claim:

"The question from what source the plaintiff's needs have been met, the question who has paid the money or given the services, the question whether or not the plaintiff is or is not under a legal or moral liability to repay, are, so far as the defendant and his liability are concerned, all irrelevant. The plaintiff's loss, to take this present case, is not the expenditure of money to buy the special boots or to pay for the nursing attention. His loss is the existence of the need for those special boots or for those nursing services, the value of which for purposes of damages - for the purpose of the ascertainment of the amount of his loss - is the proper and reasonable cost of supplying those needs. That, in our judgment, is the key to the problem. So far as the defendant is concerned, the loss is not someone else's loss. It is the plaintiff's loss."

A general principle that benefits provided by third parties are res inter alios acta is obviously strongly supportive of 1st Automotive's argument. And that principle was applied by the Court of Appeal in McAll v. Brooks [1984] R.T.R 99 on facts very similar to the present case. The plaintiff reasonably required a replacement car after his own had been damaged in an accident. His insurance brokers provided the car under an arrangement that was alleged to be illegal insurance business and would have prevented them from being subrogated to the plaintiff's claim for damages in respect of the loss of the use of his car. Lawton L.J. said, at p. 103, that the principle in Donnelly v. Joyce [1974] Q.B. 454 made the relationship between the plaintiff and his insurance company irrelevant:

"It is admitted by the defendant that the plaintiff had a need for a replacement car. Lords Insurance Brokers Ltd. satisfied that need. It is accepted that the charge of £328 was a reasonable charge having regard to all the circumstances. On the authority of Donnelly's case that need had to be paid for by the defendant as the wrongdoer."

That is the high water mark of authority in favour of 1st Automotive. But since high water the tide has retreated. The courts have realised that a general principle of res inter alios acta which assumes that damages will be paid by "the wrongdoer" out of his own pocket is not in accordance with reality. The truth is that virtually all compensation is paid directly out of public or insurance funds and that through these channels the burden of compensation is spread across the whole community through an intricate series of economic links. Often, therefore, the sources of "third party benefits" will not in reality be third parties at all. Their cost will also be borne by the community through taxation or increased prices for goods and services.

So in Hunt v. Severs [1994] 2 A.C. 350 the House of Lords rejected the broad res inter alios acta principle of Donnelly v. Joyce [1974] Q.B. 454. Lord Bridge of Harwich cited, at p. 360, the passage from the judgment of Megaw L.J. which I have quoted and said:

"With respect, I do not find this reasoning convincing. I accept that the basis of a plaintiff's claim for damages may consist in his need for services but I cannot accept that the question from what source that need has been met is irrelevant. If an injured plaintiff is treated in hospital as a private patient he is entitled to recover the cost of that treatment. But if he receives free treatment under the National Health Service, his need has been met without cost to him and he cannot claim the cost of the treatment from the tortfeasor. So it cannot, I think, be right to say that in all cases the plaintiff's loss is 'for the purpose of damages . . . the proper and reasonable cost of supplying [his] needs.'"

The House treated the two cases mentioned by Lord Reid in Parry v. Cleaver [1970] A.C.1, 14 ("the fruits of insurance which the plaintiff himself has provided" and "the fruits of the benevolence of third parties") as "apparent exceptions to the rule against double recovery" founded on the special considerations of policy which Lord Reid had explained: see Lord Bridge of Harwich, at p. 358. The House declined to create another exception for the case in which, as in Donnelly v. Joyce [1974] Q.B. 454, the plaintiff claims compensation for the reasonable cost of necessary services which have in fact been provided voluntarily by a third party. It decided that in such a case damages cannot be recovered for the plaintiff's own benefit. He can sue only if he claims as trustee for the person who provided the services: see p. 363.

This case is of course far away from the gratuitous provision of services (usually by a relative) which was considered suitable for recovery as trustee in Hunt v. Severs [1994] 2 A.C. 350. If Mrs. Dimond is allowed to sue Mr. Lovell as trustee for 1st Automotive, the effect will be to confer legal rights upon 1st Automotive by virtue of an agreement which the Act of 1974 has declared to be unenforceable. This would be contrary to the intention of the Act. The only way, therefore, in which Mrs. Dimond could recover damages for the notional cost of hiring a car which she has actually had for free is if your Lordships were willing to create another exception to the rule against double recovery. I can see no basis for doing so.

The policy of the Act of 1974 is to penalise 1st Automotive for not entering into a properly executed agreement. A consequence is often to confer a benefit upon the debtor, but that is a consequence rather than the primary purpose. There is no reason of policy why the law should insist that Mrs. Dimond should be able to retain that benefit and make a double recovery rather than that it should reduce the liability of Mr. Lovell's insurers.

7. Damages

My Lords, for the reasons I have given and in agreement with the Court of Appeal, I consider that the claim for damages for loss of the use of the car failed and should have been dismissed. But the Court of Appeal, in addition to dismissing the claim, expressed a firm view on the principles by which damages should have been calculated if the hiring agreement had been enforceable. Although not necessary for the decision, it can be said to be the most important point on which your Lordships heard argument. The unenforceability of the agreement is a technical defect which more sophisticated drafting can easily correct. But the principles upon which damages are calculated are vital to the future profitability of the accident hire business. I would therefore invite your Lordships, like the Court of Appeal, to express your opinions on the matter.

Prima facie the £346.63 which Mrs. Dimond contracted to pay 1st Automotive for the car represents her loss. The judge accepted evidence on behalf of C.I.S. that the local "spot rate" for hiring a car similar to the Ford Mondeo was a good deal less than that charged by 1st Automotive. But he said that Mrs. Dimond had acted reasonably. She acted on the recommendation of her broker and it was reasonable of her to accept the specialist services which 1st Automotive offered:

"I do not find that it was unreasonable of the plaintiff to hire a replacement vehicle on the understanding that she in all probability would not be required to pay the hire charges. She was in my judgment entitled to use to her advantage the fact that she was the victim without fault."

The judge accepted the evidence given on behalf of the C.I.S. that 1st Automotive's rates were considerably higher than the "spot rate" for which a car could have been obtained for cash from an ordinary car hire company. He said that "the rates of hire from 1st Automotive and companies offering a similar service to faultless victims will always be higher than local spot rates." But Mrs. Dimond was entitled to recover the higher rate because:

"I have already held that the plaintiff acted reasonably in hiring from 1st Automotive. This finding leads me to the conclusion that I should not judge the reasonableness of the rates solely against local spot hire rates. 1st Automotive offered more which the plaintiff was entitled to take."

In the Court of Appeal [1999] 3 W.L.R. 561 Sir Richard Scott V.-C., with whom Thorpe L.J. agreed, said that Mrs. Dimond could not be said to have failed to take reasonable steps to mitigate her damage. He said that whether the plaintiff acted reasonably was a question of fact on which the judge had found in Mrs. Dimond's favour. In any case, he agreed, at p. 580:

"I do not think it was obligatory for the plaintiff to shop around or to go to an ordinary car hire company. It was reasonable to choose the special niche service on offer from 1st Automotive."

Judge L.J. was unhappy with this conclusion but, if I may say so with respect, did not find it easy to articulate the principle upon which he differed from the majority. He said that it was all a question of reasonableness which depended upon the particular facts.

My Lords, I would accept the judge's finding that Mrs. Dimond acted reasonably in going to 1st Automotive and availing herself of its services. I am sure that any of your Lordships in her position would have done the same. She cannot therefore be said not to have taken reasonable steps to mitigate her damage.

But that does not necessarily mean that she can recover the full amount charged by 1st Automotive. By virtue of her contract, she obtained not only the use of the car but additional benefits as well. She was relieved of the necessity of laying out the money to pay for the car. She was relieved of the trouble and anxiety of pursuing a claim against Mr. Lovell or the C.I.S. She was relieved of the risk of having to bear the irrecoverable costs of successful litigation and the risk, small though it might be, of having to bear the expense of unsuccessful litigation. Depending upon the view one takes of the terms of agreement, she may have been relieved of the possibility of having to pay for the car at all.

My Lords, English law does not regard the need for any of these additional services as compensatable loss. As Sir Richard Scott V.-C. said (at [1999] 3 W.L.R. 561, 580) "damages for worry and for the nuisance caused by having to deal with the consequences of an accident are not recoverable." If Mrs. Dimond had borrowed the hire money, paid someone else to conduct the claim on her behalf and insured herself against the risk of losing and any irrecoverable costs, her expenses would not have been recoverable. But the effect of the award of damages is that Mrs. Dimond has obtained compensation for them indirectly because they were offered as part of a package by 1st Automotive. There is in my opinion something wrong with this conclusion.

I think that what has gone wrong is that the Court of Appeal did not consider the rule that requires additional benefits obtained as a result of taking reasonable steps to mitigate loss to be brought into account in the calculation of damages. The leading case is British Westinghouse Electric and Manufacturing Co. Ltd. v. Underground Electric Railways Co. of London Ltd [1912] A.C. 673. Between 1904 and 1906 British Westinghouse supplied 8 steam turbines to the railway company. They were defective in design and used excessive quantities of steam. The railway company did not reject them but reserved its claim to damages for breach of contract.

In 1907 the railway company replaced them with more efficient turbines made by Parsons. The railway company claimed damages for the excessive fuel used while they were operating the British Westinghouse turbines and the whole cost of replacing them with Parsons turbines. The arbitrator found that the railway company had acted reasonably and prudently in acquiring the Parsons turbines to mitigate their continuing loss in using excessive fuel. But he also found that the Parsons turbines were so efficient that it would have been to the advantage of the railway company to replace the British Westinghouse turbines when they did, even if the latter had been in accordance with the contract specification.

The House of Lords held that the additional benefits gained by the railway company from acquiring the Parsons turbines, over and above what would have been their contractual entitlement as against British Westinghouse, had to be brought into account in calculating the damages. Viscount Haldane L.C. distinguished, at p. 691, cases in which the plaintiff had received benefits which "did not arise out of the transactions the subject-matter of the contract." These were res inter alios acta. But where -"the person whose contract was broken took a reasonable and prudent course quite naturally arising out of the circumstances in which he was placed by the breach" it was necessary to look at any additional benefits which he thereby acquired and to "balance loss and gain."

In Bellingham v. Dhillon [1973] Q.B. 304 Forbes J. applied the same principle to an action for damages for personal injuries in which steps taken by the plaintiff to mitigate the loss to his business had produced additional gains. In principle this seems to me to be right: there can be no difference here between contract and tort.

How does one calculate the additional benefits that Mrs. Dimond received by choosing the 1st Automotive package to mitigate the loss caused by the accident to her car? The hiring contract does not distinguish between what is attributable simply to the hire of the car and what is attributable to the other benefits. But I do not think that a court can ignore the fact that, one way or another, the other benefits have to be paid for. 1st Automotive have to bear the irrecoverable costs of conducting the claim, providing credit to the hirers, paying commission to brokers, checking that the accident was not the hirer's fault and so on. A charge for all of this is built into the hire.

How does one estimate the value of these additional benefits that Mrs. Dimond obtains? It seems to me that prima facie their value is represented by the difference between what she was willing to pay 1st Automotive and what she would have been willing to pay an ordinary car hire company for the use of a car. As the judge said, 1st Automotive charged more because they offered more. The difference represents the value of the additional services which they provided. I quite accept that a determination of the value of the benefits which must be brought into account will depend upon the facts of each case. But the principle to be applied is that in the British Westinghouse case [1912] A.C. 673 and this seems to me to lead to the conclusion that in the case of a hiring from an accident hire company, the equivalent spot rate will ordinarily be the net loss after allowance has been made for the additional benefits which the accident hire company has provided.

I would dismiss the appeal.

LORD SAVILLE OF NEWDIGATE

My Lords,

I too would dismiss this appeal for the reasons given by my noble and learned friend Lord Hoffmann, whose speech I have had the advantage of reading in draft. However, I express no view on the question of the principles by which damages should have been calculated had the agreement been enforceable, which does not arise for decision in the present case. This is a question of great importance and difficulty, the answer to which may well have widespread ramifications. It is accordingly a question that I would prefer to consider in a case where it does arise for decision.
LORD HOBHOUSE OF WOODBOROUGH

My Lords,

This appeal nominally concerns only a few hundred pounds yet it arises out of an everyday situation which has an impact on the motor insurance market running to millions of pounds a year. It represents a competition between different insurance interests. The factual situation is typically a collision between two privately owned motor vehicles. Only one driver is at fault. The other's car is damaged and needs to be repaired. It will have to be off the road for a matter of days or weeks while it is repaired. In Mrs. Dimond's case, her car was not rendered unroadworthy but was at the garage for 7 days whilst being repaired and so was not available to her for use during that time.

The driver not at fault would like to hire a substitute car so that he is not without one. But he does not want to have to bear the cost. His own insurance does not cover this expenditure. He appreciates that he should be able to recover from the driver at fault the cost of hiring the substitute but is reluctant to get involved in the hassle and expense of going to court to recover the money. He therefore engages the services of an accident hire company. There are quite a number of such companies. They are in a profitable line of business. Their customers are people such as Mrs. Dimond. As explained in their promotional literature they provide a substitute car to a party not at fault and see to the recovery of the cost from the other party. The result is designed to be that the customer does not have to go without a car, does not have to find any money and is saved the hassle of himself pursuing the guilty party. It is a good arrangement and understandably popular.

However it is much more expensive than simply hiring a car from an ordinary car hire company. The evidence was that it cost Mrs. Dimond £41.37 per day to hire from the accident hire company First Automotive; a similar car could have been got from an ordinary car hire company for under £24 per day. The reason for this discrepancy is not hard to seek. The accident hire company is doing more than just hiring out a car. It is financing the transaction until the expected recovery is made from the other party; it is bearing a commercial (though normally not the legal) risk that there may be a failure to make that recovery; it is bearing the cost of handling the claim and effecting the recovery. The £17 per day covers this and a margin of profit.

The popularity of this scheme with the public is matched by its unpopularity with the main line motor insurance companies who are covering the negligent motorists against third party claims and find themselves faced with these increased claims. They also have an increased incidence of loss of use claims because the scheme enables drivers, who otherwise would not go to the expense of hiring a substitute car, to hire one and make a claim for it.

These conflicting commercial interests between the insurance companies and the accident hire companies have led to much litigation in which they are the real entities interested. In Giles v. Thompson [1994] 1 A.C. 142, the insurance companies challenged the validity of the scheme on the ground that it was champertous. The attack failed: the validity of the scheme was upheld. But as the nominal parties to the dispute were the two motorists, the defendant motorist was able to contend that the plaintiff motorist had lost nothing since she had not had to pay for the hire car. Lord Mustill delivered the leading speech with which the other members of the House agreed. He said (at p.166) that there had been no assignment of the damages to the accident hire company nor were they entitled to be paid only out of the damages recovered.

"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 car was not 'free'."

The accident hire companies won.
The terms of the agreement in that case were effectively the same as those with which the present case is concerned. It is not necessary that I should set them out again. The agreement is in the form of a car hire agreement, the parties being described respectively as the "lessor" and the "hirer". The clauses most relevant to payment are conditions 5 to 8. Condition 7, by reference to the lessor's rental tariff fixes the rate to be charged for "the hire of the vehicle".

Condition 8 provides that, except where condition 5 applies, the charges due are payable on demand. Condition 5 deals with the situation where the hirer's car is unroadworthy (an expression which was treated as wide enough to cover Mrs. Dimond's position). It contains a number of paragraphs. The first provides that "the lessor will allow the hirer credit on the hire charges until such time as a claim for damages has been concluded against [the third party] that the hirer alleges is liable for damages arising out of the said accident, subject only to condition 6".

The second and third paragraphs give the lessor the right to use the hirer's name to sue the third party and require the hirer to co-operate (but no more). The fourth paragraph refers to the "credit facility" provided by the first paragraph and requires the hirer to take advantage of any opportunities to obtain an earlier payment from the third party so as to enable the hire charges to be paid off before the conclusion of the legal proceedings. Finally, condition 6 provides that "if, and only if", the hirer is in breach of his obligation to co-operate under the third paragraph of condition 5, "the credit allowed by the lessor to the hirer shall be terminated" and the hire charges become due.

In the present case, the insurance companies have taken advantage of a further opportunity to challenge the validity of this form of agreement. The Consumer Credit Act 1974 makes formal requirements for what agreements involving the provision of credit must contain. It is not in dispute that if this agreement is such an agreement it did not comply with the statutory requirements as to form and content. I agree with your Lordships that this agreement did involve the provision of credit. The answer to that question is not provided by the application of some formula but rather by looking at the terms of the agreement in the context of the relevant transaction as a whole. Here the terms of the agreement are explicit. The lessor is extending credit to the hirer. It is described as a "credit facility" and the allowance of credit and its termination are specifically referred to. Under these circumstances there can be no escape from the answer which your Lordships have given.

I would add only one further comment. The test formulated by Professor Goode adopted by the Vice Chancellor in the Court of Appeal [1999] 3 W.L.R. 561, 572 will not always be a satisfactory one to apply. Many commercial agreements contain provisions which could be said to postpone (or advance) the time at which payment has to be made. Frequently, there will be reasons for this other than the provision of credit. Payment may be postponed as security for the performance of some other obligation by the creditor. Payments may be made in advance of performance in order to tie the paying party into the commercial venture. Payment provisions may like any other aspect of the transaction be part of its commercial structure for the division of risk, for the provision of security or simply the distribution of the commercial interest in the outcome of the transaction.

Where the transaction is a relatively simple consumer transaction little sophistication is required. The car has been hired, used and returned. No payment of the hire charges is stipulated for at that time. Payment is postponed until the hirer has been put in funds: "the lessor will allow the hirer credit on the hire charges". But neither the lessor nor the hirer is under an obligation to procure that the hirer is put in funds. The lessor has no obligation; the hirer's obligation is simply to co-operate. As is illustrated by the present case, the accident hire company itself in the contractual document characterised what it was doing as the providing a credit facility. It was clearly right to do so.

The consequence of the failure to comply with the statutory requirements is clearly spelt out in the statute. The contract cannot be legally enforced by the creditor against the debtor: sections 65 and 127. It may be thought that this may sometimes produce a harsh result and an unmerited windfall for the debtor. But this is what Parliament has provided no doubt in accordance with a broader policy. Again I agree with your Lordships that there is no basis for implying an obligation of the hirer to pay contrary to the statute. Nor is there any basis for the application of some restitutionary principle. The contemplation of the parties was that the hirer should not in fact pay out of her own pocket for the hiring of the car. In the present case she has not been unjustly enriched; her position is precisely that which was intended.

The position is therefore that she did in fact lose the use of her car during the period of repair but has not paid and is not going to have to pay for the hiring of the substitute car. Her claim in the action was confined to the charge for hiring the substitute car for a week. There was a division of opinion in the Court of Appeal whether, assuming that she was entitled to recover the hire charges she had failed to mitigate her loss. This also raised the question what was her loss.

Mrs. Dimond was at the time of the accident the owner and person in possession of her car. It was damaged. Its value was reduced. This can be expressed as a capital account loss. This loss can be measured as being the cost of making good the damage plus the value of the loss of its use for a week. Since her car was not unrepairable and was not commercially not worth repairing, she was entitled to have her car repaired at the cost of the wrongdoer. Thus the measure of loss is the expenditure required to put it back into the same state as it was in before the accident. This loss is suffered as soon as the car is damaged.

If it were destroyed by fire the next day by the negligence of another, the second tortfeasor would only have to pay damages equal to the reduced value of the car and the original tortfeasor would still have to pay damages corresponding to the cost of putting right the damage which he caused to the car. These questions are liable to arise in relation to any damaged chattel and have long ago received authoritative answers in cases concerning ships: The Glenfinlas [1919] P. 363n; The Kingsway [1919] P. 344; The London Corporation [1935] P. 70. These cases also distinguish between the cost of the damage to the chattel and consequential losses to the owner of the chattel such as loss of revenue. However even where the chattel is non profit earning (as was Mrs. Dimond's car) there may still be scope for awarding general damages for loss of use: The Mediana [1900] A.C. 113; Admiralty Commissioners v. S.S. Chekiang [1926] A.C. 637; Admiralty Commissioners v. Susquehanna [1926] A.C. 655.

I mention these cases and the principles they illustrate to demonstrate that persons such as Mrs. Dimond do not have to survive in an environment where the law does not recognise the losses which they may have suffered and that the law is not without principles covering the provision of compensation and its assessment. Each case depends upon its own facts but loss of use of the chattel in question is, in principle, a loss for which compensation should be paid. However one of the relevant principles is that compensation is not paid for an avoided loss.

So, if the plaintiff has been able to avoid suffering a particular head of loss by a process which is not too remote (as is insurance), the plaintiff will not be entitled to recover in respect of that avoided loss. If the loss has only been avoided by incurring a substituted expense, it is that substituted expense which becomes the measure of that head of loss. Under the doctrine of mitigation, it may be the duty of the injured party to take reasonable steps to avoid his loss by incurring that expense.

The problem in the present context is that in individual cases the individual loss is only small and the process of litigating to recover it disproportionate. This is the underlying problem here and was the problem which the scheme was designed to address, albeit at a cost.

This leads on to the question of mitigation. I agree with my noble and learned Lord Hoffmann that the judge and the majority of the Court of Appeal approached this question in the wrong manner. What Mrs. Dimond was paying for here was more than the cost of hiring a car for a week. It was reasonable for her to pay the additional sum in order to obtain the additional benefits enjoyable under the scheme even though the accident hire company were under no legal obligation to do more than provide her with a car on credit. The sum which she paid, having regard to what she was to get was, on the evidence, reasonable. But she cannot claim the whole cost as the cost of mitigating the loss of the use of her car. The cost of that was, on the evidence, only about £24 per day. The remainder of what she paid was attributable to other matters and therefore should not be included in the cost of mitigation.

This is the preferred way of looking at this aspect of the dispute between the parties on this point but there are other ways which lead to the same conclusion. One is that preferred by Judge L.J. in the Court of Appeal. The excess cost was not reasonably incurred as the cost of hiring the substitute car. Mrs. Dimond's right of recovery is limited to the reasonable cost, that is to say the lesser sum. Another way of looking at the matter is to say, as does my noble and learned friend, that, if the whole cost is to be brought into account, then the benefits must be brought into account as well. This raises the question discussed in British Westinghouse Electric and Manufacturing Co. Ltd. v. Underground Electric Railways Co. of London Ltd. [1912] A.C. 673 and the distinction between what is and is not collateral.

But as I have said, in the present context, I prefer the approach of making a commercial apportionment between the cost of hiring a car and the cost of the other benefits included in the scheme. The necessity to make some apportionment or other reduction in the claim is demonstrated by the need to avoid double counting. Prima facie, the court should award statutory interest on the claim; but here the claim already included some element of interest. Similarly the claim included something in respect of costs; to award costs as well would involve some duplication. The elements to which the uplift in the charges of the accident hire company was attributable were (and inevitably must be) elements which were not properly included in the claim for damages for loss of use. As appears from what I have said, some might be recovered from the wrongdoer in another form but it is unlikely that any scheme could be devised which would enable the insurance element to be recovered.

Finally, I agree with my noble and learned friend Lord Hoffmann that there is no basis on which Mrs. Dimond could recover the charges claimed as a trustee or otherwise for the accident hire company. This follows from what I have already said and from the speech of Lord Mustill in Giles v. Thompson.

I agree that the appeal should be dismissed.

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