Zaker Ali v Spirit Motor Transport Limited

There has been a flurry of discussions in the market about this decision so we thought it useful to set out the facts and what the decision really means. Does it change anything or is it merely going to fuel the fire in the handling of taxi claims?

The Facts

Mr Ali, a taxi driver, had an accident with the defendant’s driver on 30 November 2011. Negligence was not in dispute however the quantum of damages was strongly disputed. The claimant’s vehicle was written off in the accident and it was assessed as having a pre-accident value in the sum of £3,900.

Rather than purchase a replacement vehicle, he hired a replacement plated taxi for 113 days at a daily rate of £293.58 per day amassing a total hire claim in the sum of £33,211.75. Hire only ceased when the hire provider indicated they were no longer prepared to continue with the hire albeit the reason they came to this decision is unknown.

Around the same time the claimant had repairs carried out to his vehicle at a cost of £2,000 for which it appeared he paid cash. Although he contended that these were temporary repairs there was nothing to suggest this from the invoice produced. When questioned as to why he did not have his vehicle repaired earlier his response was that he had to borrow the money from two friends who were not in a position to lend it to him earlier. Although witness statements were produced they did not disclose when they were asked to lend the claimant the money.

The defendant argued that the contract fell within the ambit of the Cancellation of Contracts Made in a Consumer’s Home or Place of Work etc. Regulations 2008. It was not disputed that the hire agreements, of which there were two, were entered into at the claimant’s home. Whilst one of the agreements included a right to cancel it did not strictly comply with the regulations and the other agreement had no right to cancel at all. Furthermore, the defence argued that the claimant was a consumer for the purpose of the regulations as he did not only use the vehicle for earning a living but for social domestic and pleasure purposes too.

In addition to the above, it was submitted that the claimant may only recover the lesser of either the cost of hiring a replacement or the loss of profit which would have been generated. A passage from Clark and Linsell (20th edition) was relied upon, namely :

“It is generally reasonable for the owner of a damaged chattel to avoid any loss of profit by hiring a substitute for the period during which his own is under repair, in which case he is entitled to recover the cost of hiring as damages for loss of use, subject to two qualifications, namely, that the actual hiring of a substitute must be strictly pleaded and proved as special damage, and that the hiring must be reasonable.

“The principle is that the claimant may recover what his chattel would have earned if it had not been damaged – not that he may recover such out-of-pocket expenses as he may actually have incurred ; and if, for example, the cost of hiring exceeds the profit which could have been earner, only the latter may be recovered.”

Finally, the period of hire was disputed on the basis that the claimant had failed to mitigate his loss and that only a ‘reasonable’ time for the claimant to source a replacement vehicle could be allowed.

The Judgment

The matter came before Judge Saffman in the Leeds Combined Court Centre on 24 January 2014.

The court was of the view that in order to ascertain whether the claimant was entering into the contract as a consumer rather than for business purposes one must look at the proportion of use of the vehicle. Only if the business use were ‘negligible’ could the claimant be said to be a consumer. Extensive financial accounts had been disclosed which showed that the claimant’s use of the vehicle as a taxi accounted for 75% of the time. Additionally the court looked at the definition of ‘consumer’ contained in the regulations themselves: “a natural person who, in making a contract to which the Regulations apply, is acting for purposes which can be regarded as outside his trade or profession.”

The judge therefore found that the regulations did not apply to the contracts for hire as the claimant was not a consumer for the purpose of this transaction.

As regards the recoverable amounts, the judge formed the view that the claimant could only recover the loss of profit for the vehicle whilst it was off the road (calculated at £52.20 per day) plus an additional £15 per day for the loss of use of the vehicle for social, domestic and pleasure purposes.

In respect of the period of hire the judge expressed some cynicism as to the timing of the ability of the claimant’s friends to lend him the funds to enable him to repair his vehicle. He found that the claimant could have sourced the funds earlier and that the vehicle was only repaired as hire had ended. As such, the judge held that the period of loss ceased one month after it was known that the vehicle was a total loss, a period of 42 days.

In addition to this award, the claimant’s loss of the vehicle was limited to the £2,000 spent on repairing the vehicle. Damages were therefore awarded in the total sum of £4,822.40.

Additionally the court awarded small claims track fixed costs as the judge felt that had the claim been presented in its proper form the matter would have been allocated to the smalls claims track.

What does this mean for insurers?

Whilst this does seem a dramatic judgment we suspect in reality the effect may be rather less forceful and we suggest proceeding with caution. The judge was perplexed as to why the point as to whether the claimant was a consumer in the transaction had not, to his knowledge, been raised before. However, this is probably because many defendants did not see the point as being one with significant merit as the majority of taxi drivers have a minimal social domestic and pleasure use of the vehicle - if indeed they have any at all.

As previously mentioned in our other taxi articles however, we are seeing more part-time taxi drivers supplement their other income in the current economic climate so it may be that judges will be persuaded to follow these lines where the facts are similar. The judge followed the reasoning in Singh v Aqua De-scaling Ltd and it should be remembered that Mr Singh operated a number of taxis. It is not clear whether the claimant here was in a similar position. If he was, then the application of this case may be more limited than might first appear.

It is not clear how the court would view an argument that the claimant had no option but to hire a replacement in order to maintain cash flow and/or fulfil contracts.

The point with regards to small claims track costs only being awarded is not a new one and is in fact one which we have raised for many years. It reaffirms our stance that in the event the claimant only recovers damages which are less than the small claims track limit despite the original claim being over that limit, then the claim must have been overstated.

In summary

• Where the accident damaged vehicle has a dual purpose seek disclosure of the split between work/business and social/domestic/pleasure purpose. This can be in the form of work diaries, mileage records etc.
• Consider whether the claimant operates a number or fleet of taxis. If they do, then the argument for loss of profit rather than hire of a replacement vehicle has better prospects.
• If the amount recovered is below the small claims track limit by however much, then argue that small claims track costs only will be recoverable.

The claimant’s application for permission to appeal was granted by the Court of Appeal however reports suggest that the appeal has been conceded by the respondents and settlement agreed. Unfortunately therefore, we do not know on what exact basis the appeal may have been conceded therefore we do not have any definitive answer to the questions posed by this decision.