The decision sets ‘a framework to prevent sums that are not a reasonable pre-estimate of loss from being recovered’, explains law firm

Insurer RSA may have to shell out £1,560 to credit hire company Helphire after The Supreme Court supported an appeal made by claimant Lorna Armstead following two non-fault road traffic accidents in 2015.

The case, Armstead v Royal and Sun Alliance Insurance Company, follows Armstead experiencing two road traffic accidents – one in her own vehicle and the second in a hired Mini Cooper, leased from Helphire, while her normal car was being repaired.

The hire agreement between Armstead and Helphire included clause 16, which specified that if the hire car was damaged, the hirer was required to pay Helphire’s daily hire rate – up to a maximum of 30 days – for the company’s loss of use while the car was being repaired or awaiting repair.

Armstead was hit by a van while driving the hired Mini Cooper, therefore she sought to recover the costs specified within clause 16 from the van driver’s insurer – RSA. Helphire identified this amount as £1,560.

When Armstead was pressed by Helphire for this amount in March 2018, she undertook legal action. Her claim to gain the clause 16 sum from RSA, however, was rejected by a County Court, County Court appeal before a Recorder and at the Court of Appeal.

She subsequently turned to the Supreme Court, which passed its judgement on 14 February 2024. The appeal was originally heard on 23 November 2023.

The burden of proof

The Supreme Court disagreed with the prior judgements made by the lower courts to instead allow Armstead’s appeal and deem her entitled to damages for the clause 16 sum.

Explaining this decision in a 24-page court document, Lord Leggatt and Lord Burrows noted: “Of the various reasons given for rejecting the claim, only one was in principle a legally valid reason. This was that the loss was too remote to be recoverable because the clause 16 sum was not a reasonable estimate of the hire company’s likely loss of revenue while the car was off the road for repairs.

“However, RSA, on whom the burden of proof lay, did not plead or adduce any evidence to show that the clause 16 sum was not a reasonable estimate of the hire company’s likely loss.”

The judgement continued: “A person may bring a claim against the wrongdoer in respect of the damage if they are entitled to possession of the property damaged.

“Armstead, as the hirer of the car, was entitled to possession of it when it was damaged. Therefore, Armstead was entitled to recover the clause 16 sum unless excluded or reduced by the general principles limiting the recovery of damages. Such loss was not ‘pure economic loss’ because it arose from damage to property that was in Armstead’s possession.”

Industry impact

In an article published on 14 February 2024, DAC Beachcroft partner Emma Fuller and associate Ieuan Poole, note that The Supreme Court’s decision “represents a hard and long fought matter that has spanned many cases, many appeals and many years”.

They continued: “This decision provides some finality, that a hire company cannot use a contractual demand against their hirer to recover more than it would be entitled to recover for its loss of use.

“It has been rightly decided that placing an excessive burden onto defendants and insurers for sums beyond the actual loss suffered cannot be correct and that sum cannot simply be recovered without any basis for challenge or limitation.

“The existence of the contract between the parties does have one important practical consequence, which is that the hire company does not first need to prove its loss of use, as would be expected if it brought the claim itself or if its clause represented a genuine attempt to estimate its loss of use.

“Instead, it becomes the defendant’s burden to plead and prove that the loss would be less.

“Whilst the order on this appeal will be that Armstead will recover her claim, the goal has been achieved in setting a framework to prevent sums that are not a reasonable pre-estimate of loss from being recovered.

“Ultimately, this decision gives defendants and their insurers the tools to defend cases properly where sums are sought that are significantly over and above the actual loss to the hire company.”

Anthony Hughes, chair and chief executive of the Credit Hire Organisation, the trade body for the credit hire industry, added: “We welcome the Supreme Court decision, which in our view establishes an appropriate principle of ‘good law’ in the event of a loss, rather than the economics, which are of minimal importance because there is not a lot of revenue associated with these claims.

“The ruling is a fair outcome for the recovery of reasonable losses resulting from a loss that, as with credit hire overall, contributes very little to the overall cost of insurance.”