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Keoghs Insight

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Gary Herring

Taxi Hire and Loss of Profit

Client Alerts17/10/2019

Hussain v EUI– Taxi Hire and Loss of Profit

The High Court recently handed down judgment in the case of Hussain v EUI [2019] EWHC 2647 (QB), an appeal concerning the correct measure of damage in the circumstances where a self-employed taxi driver hired a replacement vehicle on a credit hire basis.

Insurers will be all too familiar with high value taxi hire claims where the need for hire is inevitably argued to be justified because of an alleged need for the driver to continue to earn an income, despite the hire charges being vastly disproportionate to the profit which could have been generated by the taxi during the period of hire. Hussain gives general guidance on the approach courts should take in such cases and provides some points for insurers to be aware of.

Facts

The claimant’s vehicle, a BMW 320D, suffered damage in an accident in which liability was admitted. Repairs were carried out at a cost of £1527.74, during which time the claimant hired a Mercedes E220 plated taxi on a credit hire basis for a period of 18 days. The total hire charges incurred by the claimant and invoiced to the defendant were £6596.50.

At trial, the claimant’s evidence was that there was another vehicle in the household owned by his wife, which was used for normal SD&P use. The claimant’s taxi was therefore a purely ‘profit earning chattel’, with the sole need to hire a replacement being to continue to earn a living as a taxi driver.

The profit which would have been generated in the 18 day hire period contrasted starkly with the claimed hire charges, at just £423.

Judgment at First Instance

Her Honour Judge Wall found that the claimant had failed to mitigate his loss in hiring at a cost vastly in excess of his profit. She said:

“I not satisfied on the evidence before me that the claimant has discharged the burden of showing that he had a need for a second car for domestic and social use during the hire period. The need was for a taxi for business use and, where the loss is of a profit-earning chattel, then the measure of damages is kept at the loss of profits and it is unreasonable mitigation to expend more in attempting to make a profit than the profit itself. So here the damages claimed grossly exceed the loss of profit which would have followed for 18 days and so I cap the level of damages at the loss of profits level.”

Importantly, the claimant had been debarred from reliance on impecuniosity by virtue of the case management directions because he did not comply with the order to provide financial disclosure. As such, the judge went on to make a further finding that even in the event that the hire charges had been recoverable, the claimant would have been limited to the basic hire rates as shown in the evidence supplied by the defendant.

On Appeal

The claimant appealed to the High Court on two grounds: firstly, that the judge was wrong to limit the damages to what the profit would have been, and secondly, that the judge was wrong to accept the defendant’s evidence of basic hire rates.

In his judgment, Mr Justice Pepperell summarised the relevant authorities and gave guidance as to the correct principles to be applied to recoverability of hire charges in taxi cases.

The starting point, as set out at paragraph 16.5 of the judgment, is that:

“where the cost of hire significantly exceeds the avoided loss of profit, the court will ordinarily limit damages to the lost profit.”

This general rule is however subject to three potential exceptions, whereby the claimant may still be held to have acted reasonably in hiring even if the hire charges significantly exceed the loss of profit. The potential exceptions are as follows:

  1. Where there is a “real risk of a greater loss” by not continuing to work; for instance where the claimant would lose important customers, or lose their place at a taxi company who provides most of their work
  2. Where the claimant proves that the replacement vehicle was needed not only for taxi purposes, but also for family and private use
  3. In the event that the claimant could not afford not to work until the loss of profit was recovered.

In Hussain, none of these exceptions applied; there was no evidence of any risk of any “greater loss” in not continuing to drive a taxi for a short time, the vehicle was not needed for provide or family use during the hire period and the claimant had already been debarred from relying on impecuniosity. Accordingly, the High Court upheld the decision of HHJ Wall to restrict the recovery to loss of profit and dismissed the claimant’s appeal.

Given that the first ground of appeal was rejected, the Court did not go on to consider the second element in relation to basic hire rates.

Keoghs Comment and Implications

Hussain provides useful clarification as to the approach a court should take to taxi credit hire claims and confirmation that, ordinarily, the damages recoverable are limited to the loss of profit where hire charges significantly exceed that profit. The judgment in our view places the onus on a claimant who seeks to recover hire charges as opposed to loss of profit to prove, with evidence, that one or more of the three exceptions applies.

Nonetheless, we would envisage that at least one of the exceptions is likely to transpire to apply in a large proportion of taxi hire cases; therefore in practical terms any positive impact on overall spend may be minimal.

Further, given that the existence of many specialist taxi credit hire operators rely on the recovery of hire charges in these circumstances, insurers should be alive to the prospect that evidence may be ‘manicured’ to neatly fall within one or more of the exceptions, even in cases where the reality is that the claimant’s circumstances do not.

It is also important to note that the concept of impecuniosity in the Lagden v O’Connor case now applies equally to claimants who seek to recover taxi hire charges as opposed to loss of earnings. If a claimant relies on a lack of funds to avoid being restricted to recovering loss of profit, then full financial disclosure must be provided in the usual way. Taxi CHOs who elect not to rely on impecuniosity because of the unlikelihood of the defendant being able to secure basic hire rate evidence, may be caught unawares by this.

Keoghs have developed an end to end taxi strategy which incorporates the above. In particular, there are a number of specific strategy points that we would recommend should be built into taxi claim best practice as a result of this judgment.

If any further information is required please contact Gary Herring