Loss of use

"Don’t grieve. Anything you lose comes round in another form." - Rumi. So why does the law permit hire as a damage? Mark Sanderson discusses.

The earliest recorded allowance for hire was, as one may expect, a shipping case. It is perhaps the easiest decision to understand. The ship was damaged having been chartered. A replacement was sought to carry out the charter. The hire of that replacement vessel was allowed. Simple, and logical, the contract could not have been performed due to someone else’s negligence, therefore it seems just and reasonable that the tortfeasor pays for the additional cost incurred in completing the charter.

So step forward a few hundred years, and following the invention of motor transport, credit hire is a recoverable head of damage for cars, trucks, motor scooters and seemingly pushbikes. How did a luxury item such as a car for private use, entitle the owner to put forward a claim for damages for the hire of an alternative vehicle?

After all there is no apparent commercial loss to the private individual. If they do not have their car, in most cases there is unlikely to be a measurable commercial loss, no frustrated contract, and I would suggest, no apparent reason for the court to award this indirect consequential loss as damages to the private individual.

What is the loss? The only seeming loss is one which sounds in general damages. The case law follows again the development of shipping law. It is now trite law that a tortfeasor who interferes with another’s chattel and deprives the owner (who is the owner ignites another limb of the argument which I will not address here) of the use of said chattel will at first blush have to make good that loss.

So, we now have the position whereby hire becomes recoverable as a mitigation of that loss of use. When there are claims for a private vehicle, of which the hire costs hundreds of pounds a day, how can hire be said to be a mitigation of the loss of use? That question leads us down the difficult path of how does the court put a value on the general damages claim for loss of use?

As a general damage, the issue has historically been one for a jury. When juries formed part of the legal make up of civil cases, then it would not be beyond a jury to ask the question “how much is it to hire a replacement?” Hire has long been used as a template for claims for loss of use, indeed within the last decade such a simplistic approach has been suggested by the Court of Appeal as having some weight in the assessment of loss of use. In my view, such a simplistic method ignores the complexities of the simple phrase “loss of use”.

To use the analogy of a chair, which has often been quoted by the bench, if it is a decorative antique chair which sits on the landing of a house for no better reason than to appease the eye; how can that have a higher value (which it undoubtedly would have) than its workhorse cousin at the kitchen table, or the sofa in the family room of the house? The loss and the use must require a definition in order to be understood. While they are both simple terms and easily understood, they are perhaps too general to be of any guidance to the legal practitioner or the bench. The question remains, how is a loss of use calculated?

As part of my research I came across several different variants. Some are mathematical and some appear to depend on the way the wind is blowing. In short, as civil law has developed and the role of the jury has been devolved to the judiciary, the method of assessment has (probably due to the nature of those hearing, assessing and determining the actions) become more scientific in approach and calculation. There are presently many different ways to calculate loss of use, but they do appear to be specific to the loss and the use of the chattel.

The modern assessment appears to be based on the value of the chattel which has been damaged (e.g. Beechwood Audi Birmingham v Hoyer Group). This in turn raises the question whether, in the modern legal world, the historic and simplistic method of substituting the cost of hire to a loss of use is the correct approach and whether the legal process has simply moved on, with the mathematical approach having won the day. Any practitioner within the credit hire sphere will be all too aware as to the lengthy and unresolved arguments in relation to how to assess the rate of hire. There appears to be a lot less argument where pre-accident values are concerned. So while the current approach may appear more daunting to the arithmetic-phobes, it is undoubtedly (at present at least) a more proportionate measure of assessment, than the historic “hire cost” based approach.

There is however a tension, where there is a “need to hire”; damages claimed and awarded are much, much higher than the court’s modern approach to loss of use. This is partly due to the success of the credit hire companies cornering of a market and coupled with the potential recovery of a commercial rate as allowed in Lagden.

It must be accepted that a claimant in mitigation, can incur losses that are higher than the loss actually suffered if the mitigation is successful in avoiding the loss, but equally that mitigation cannot be without limit. Mitigation is moderated by reasonableness and part of that test is economics. If hire is a mitigation of a loss, then by its own rules, it ultimately cannot be in itself uneconomic and unreasonable.

We return then to what is loss of use. Perhaps we should reflect that the court, in quantifying a loss of use, has managed to do so for a pleasure boat, and fleet vehicles where a replacement could be sourced from the fleet, (direct and indirect profit earning chattels). However the particular sticky problem of the luxury of a family car has so far (as far as I am aware) escaped the court’s modern approach. Historically the court has applied a nominal figure of £10-15 for such a loss of use. By and large this figure is not wide of the mark for the modest value vehicles of the kind usually held by large companies for their representatives’ use on the companies’ behalf.

They are after all in the main leased and used by families. However, where a family has the latest 5 series BMW or Porsche Panamera, the hire costs increase almost exponentially when compared to the ‘loss of use’ value which could be attributed.

Perhaps this is where the “ill reported” Watson-Norrie v Shaw fits in. This Court of Appeal decision based on a poorly reported first instance decision, suggests that a claimant cannot expect to incur the cost of a vehicle of equivalent prestige or status, as such a need has to be proven. The case is a reminder for the current crop of litigators, most of whom would not have been born when the case was decided, that the principle of restitutio ad integrum, is the final position, not the immediate path. If it were correct for a director to be able to only recover the cost of hire of a less costly motor in the 60’s surely the position will not have changed in an age of austerity? The decision in Watson-Norrie resonates in modern judicial comments; one only has to look at the comments by Lord Hope in Lagden. A tortfeasor can demand that the least expensive route to mitigation is taken.

It is perhaps interesting to note at this present time when some are abandoning the GTA, the common law position is perhaps not as welcoming as it would first seem to those who seek to protect their profits through the mechanism of accident hire.

While I did not discover how hire came to be recoverable as damage outside the confines of performance of a contract, we again, for the last time in this article, pose the question – what is the loss of use? The answer, it seems, is not yet known.