Mr Mahmood hired a replacement taxi from Paloma Car Hire Ltd for 124 days at the rate of £258 per day. The total cost of hire was £31,992.
The evidence showed that the profit for the most recent tax year was £8,062, equating to £155 per week, or just £6.72 per hour.
Our defence was founded on Hussain v EUI, arguing that given the obvious disproportion between the profits generated during the hire period and the hire cost incurred by the claimant to enable him to do so, the claimant had plainly failed to mitigate his loss and therefore damages should be limited to the profit sum.
Unsurprisingly, the claimant (or rather the CHO stood behind him) sought to rely on all three potential exceptions to the loss of profit rule.
A letter was produced from a director of the claimant’s taxi company, asserting that the claimant had regular contracts, including transporting the children of key workers to and from school and transporting vulnerable adults with wheelchair needs. It was suggested that these contracts might have been lost had a hire vehicle not been sourced. On this basis, the claimant argued that it was reasonable to have hired a replacement vehicle to continue to service these contracts.
In a detailed judgment, HHJ Malek observed the potential exception set out by Pepperall J in Hussain, namely where a claimant “reasonably incurs what at first might appear to be disproportionate hire costs in order to avoid a real risk of greater loss”, and gave some useful guidance on its practical application:
Against that background, HHJ Malek rejected the claimant’s reliance on the risk of losing contracts as justification for incurring disproportionate hire charges. There had been no disclosure of the contracts themselves, any evidence of the inability of the claimant to have replaced the work elsewhere, or about the impact the loss of the contracts would have had on the business.
More importantly, given that the profit earned by the claimant was substantially less than the National Living Wage, it was held that incurring disproportionate costs in hire charges was not a true attempt to mitigate loss and under the circumstances could never be justified. HHJ Malek framed the issue as follows:
One way to look at this is that if Mr Mahmood paid himself the equivalent of the National Living Wage for his work his business would be loss making and, accordingly, no amount of expenditure incurred in mitigating a loss can be justified because there is no loss of profit. Another way of looking at it is that the contract that might be lost is, in reality, unprofitable and therefore not worth saving. Yet another way of looking at matters is that the business is marginally profitable, but only if Mr Mahmood provides his labour to the business at an unreasonably low level of pay (or return) given the National Living Wage. Whichever way one chooses to look at the issue, it seems clear to me that attempting to save his "contracts" (if that is what Mr Mahmood was attempting to do) which generated little or no (true) profit (at best around £155 per week) by hiring another van (at a cost of £258 per day) was not a reasonable (or even a true) attempt to mitigate his loss.
Dismissing the claimant’s argument that the credit hire charges were recoverable on the basis that he also needed the vehicle for personal as well as business use, HHJ Malek firmly reiterated that the decision in Hussain v EUI only permitted recovery of credit hire charges to the extent that they would be recoverable by a private motorist.
As a need for the vehicle for personal use had been established, it was therefore concluded that in addition to the sum for loss of profit, the claimant was entitled to recover the basic hire rate for a standard vehicle for the purposes of social domestic and pleasure.
Finally, the claimant argued that he was not able to mitigate his loss by giving up work and claiming loss of profit instead, because he was impecunious and needed to maintain an ongoing income. This argument was similarly rejected by HHJ Malek, for two reasons:
In accordance with the finding that the claimant could recover the BHR for a standard vehicle, the rate of hire was assessed at £44 per day in line with the BHR evidence.
In terms of the recoverable period, this was substantially reduced to 22 days. The full 127-day period had been argued by the claimant to be recoverable on the basis that it was caused by the defendant’s delay in making a vehicle damage payment. HHJ Malek rejected this argument and held that the claimant ought to have taken his own action to repair his vehicle a short time after the opportunity had been given for the defendant to inspect.
Accordingly, the claimant was awarded hire charges of £1,123 plus loss of profit of £682.
HHJ Malek’s judgment is a welcome reminder that the availability of the potential exceptions to the general rule which were discussed in Hussain v EUI ought to be just that – exceptional.
While the judgment is not technically binding, it is likely to have significant ramifications, particularly given that the vast majority of credit hire claims pursued in the name of self-employed taxi driver claimants concern profit figures which are strikingly similar to the £8,062 showing in the tax return of Mr Mahmood. As such many, if not most, taxi driver claimants will similarly be hiring for the purpose of continuing work that “yields income which is less than the equivalent National Living Wage”.
Applying this judgment, it appears that in practical terms neither exception one nor three of Hussain is open to such a claimant. Therefore, it would rarely ever be reasonable to incur disproportionate sums in hire charges where the claimant’s taxi business is not sufficiently profitable. The damages will instead be limited to the loss of profit, along with basic hire rates for SD&P use in the event that the need for personal use is made out.
There is also a welcome reiteration of the fact that a claimant must, where they have the availability of funds or credit to do so, take their own action to repair or replace their vehicle very shortly after giving the defendant an opportunity to inspect. A similar conclusion was reached here to the decision of the High Court in Putta v Royal Sun Alliance Insurance plc  EWHC 117 (QB).
For more information, please contact:
Gary Herring - Partner
Kirsty Hunt - Case Handler
Email - email@example.com
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