Factual and Procedural Background
The Appellant, previously the Defendant at trial, appeals a judgment from His Honour Judge Mitchell in the Telford County Court dated 6 April 2009. The judgment awarded damages to the Claimant arising from a road accident involving two vehicles driven by employees of the respective parties. The appeal concerns the correct calculation of damages for loss of use of the Claimant's vehicle while it was under repair.
The Claimant is a large motor dealer company operating multiple locations and holding a substantial stock of vehicles. One of its vehicles, an Audi A6, was damaged in an accident while driven by the Claimant's employee. The vehicle was allocated to the Claimant's service manager, who was entitled to use a company car for personal use outside office hours.
Following the accident, instead of reallocating a similar vehicle from its own stock, the Claimant hired a substitute vehicle under a credit hire agreement with a third party. This was unusual, as the Claimant's usual practice was to supply replacement vehicles from its own large pool of cars, which included courtesy cars and used vehicles, without additional cost or loss of profit.
The damaged vehicle was repaired over a period complicated by insurer delays, resulting in 120 days of hire charged under the credit hire agreement and claimed from the Defendant.
The Claimant's claim was framed as special damages based on the actual costs of the credit hire, with no alternative claim for general damages for loss of use pleaded. The Defendant denied the claim, alleging failure to mitigate loss by unnecessary credit hire when substitute vehicles were available. The Claimant replied asserting entitlement to damages for loss of use based on reasonable cost of alternative transport.
The trial judge awarded general damages for loss of use for a period of 48 days at a daily rate equivalent to the credit hire spot rate, despite finding the credit hire was unreasonable and unnecessary.
Legal Issues Presented
- Whether the trial judge was correct to award damages based on the spot rate for a substitute vehicle hired under a credit hire agreement, despite finding that it was unreasonable for the Claimant to hire such a vehicle.
- What is the appropriate measure of damages for loss of use of a vehicle where the Claimant has available substitute vehicles within its own stock and does not incur hire costs.
- The application of mitigation principles to claims for loss of use damages, particularly in distinguishing between individual and corporate claimants.
Arguments of the Parties
Appellant's Arguments
- The Claimant had no need to hire an outside vehicle as it had sufficient substitute vehicles in its own stock, making the credit hire unnecessary and unreasonable.
- Accordingly, no damages or only nominal damages should be awarded for loss of use since no actual loss or cost was incurred.
- The trial judge erred in awarding damages based on the credit hire spot rate despite finding no reasonable need for outside hire.
- The proper measure of damages for a corporate claimant in these circumstances is the cost of maintaining and operating the substitute vehicle supplied from stock, not the notional hire cost.
- The principle applied by Lord Scott in Lagden v O’Connor was inapplicable here because it related to an individual motorist, not a corporate claimant with available substitutes.
- An award based on notional hire costs including profit and overheads of a hire company would result in an unfair windfall to the Claimant and is not a fair measure of compensation.
- Where no actual hire costs are incurred, damages should be calculated by an appropriate accounting exercise reflecting the business costs fairly attributable to the loss of use.
Respondent's Arguments
- The trial judge was correct to award damages based on the spot hire rate by applying Lord Scott’s observations at face value without distinguishing between individual and corporate claimants.
- In the absence of evidence from the Defendant that the cost of using a substitute vehicle from the Claimant’s own stock was less than the spot hire rate, the judge was entitled to accept the spot rate as the appropriate measure of damages.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Dimond v Lovell [2002] 1 AC 384 |
Credit hire rate not recoverable unless claimant is impecunious; only spot hire rate awarded. |
Confirmed that credit hire rates are usually not recoverable; relevant to assessing damages here. |
| Lagden v O'Connor [2004] 1 AC 1067 |
Spot hire rate is the usual measure for loss of use; credit hire rate recoverable only if claimant impecunious. |
Guided the trial judge’s approach to awarding damages based on spot hire rate. |
| Owners of No 7 Steam Sand Pump Dredger v Owners of SS Greta Holme [1897] AC 596 |
Damages for loss of use of non-profit earning chattel are recoverable even without proving tangible pecuniary loss. |
Supported principle that loss of use damages are payable irrespective of actual financial loss. |
| Owners of the Steamship Mediana v Owners, Master and Crew of the Lightship Comet (The Mediana) [1900] AC 113 |
Damages for loss of use may be calculated by reference to expenses of maintaining standby vessels. |
Applied analogy to corporate motor vehicle loss of use claims. |
| Admiralty Comrs v Owners of SS Susquehanna (The Susquehanna) [1926] AC 655 |
No difference between Admiralty and Common law on damages for loss of use; calculation based on capital value and upkeep. |
Used to limit measure of damages when no substitute vessel is hired. |
| Birmingham Corporation v Sowersby [1970] RTR 84 |
Damages for loss of use of corporate vehicles should be based on cost of maintaining and operating substitute vehicles. |
Identified as appropriate measure for corporate claims where substitute vehicles are supplied from own stock. |
| Burdis v Livsey [2003] QB 36 |
Claimant entitled to cost of hiring replacement vehicle if need established; duty to mitigate loss applies. |
Confirmed mitigation principles relevant to credit hire claims. |
| Giles v Thompson [1994] 1 AC 142 |
Need for replacement vehicle is not self-proving; defendant may displace inference of need. |
Supported finding that Claimant failed to establish a reasonable need for outside hire. |
| Bee v Jenson [2007] EWCA CIV 923 |
Assessment of damages for loss of use to individuals may consider inconvenience and disruption. |
Distinguished individual claims from corporate claims in loss of use context. |
| Zubair v Younis [1995] CLY para. 1625 and others |
Conventional weekly sums awarded for personal inconvenience in loss of use cases without substitute vehicle. |
Referenced as examples of awards to individuals, not corporate entities. |
| The Hebridean Coast [1961] AC 545 |
Rejected use of charter costs for assessing damages where fleet can redistribute cargo; damages based on proof of harm. |
Supported limiting damages to actual loss where substitute is available within fleet. |
| The Marpessa [1987] AC 241 |
Damages measured by cost of maintaining and operating the damaged vessel during repair period. |
Supported use of running costs rather than hire costs for loss of use damages. |
| The Chekiang [1926] AC 637 |
Damages based on interest on capital value of the vessel during repair period. |
Referenced as alternative to hire cost method for loss of use damages. |
| Alexander v Rolls Royce Motor Cars Limited [1996] RTR 95 |
Distinction between personal inconvenience claims and corporate financial loss claims for loss of use. |
Supported differentiation between individual and corporate claimants. |
| Copley v Lawn; Maden v Haller [2009] EWCACIV 580 |
Mitigation is a question of fact and evaluation; appellate court may interfere if findings are wrong. |
Distinguished from instant case where primary facts were not challenged. |
Court's Reasoning and Analysis
The court examined the issue of mitigation and the proper measure of damages for loss of use in the context of a corporate claimant with available substitute vehicles. It accepted the trial judge's finding that the Claimant failed to mitigate by hiring an outside vehicle when it had sufficient substitutes in stock. The court emphasized the fundamental principle that a claimant must take reasonable steps to mitigate loss and cannot recover damages for losses avoidable by reasonable action.
The court reviewed established authorities, including maritime cases, which differentiate between damages recoverable when a substitute is hired and when the claimant’s own fleet provides a standby. It noted that where no substitute is hired and no standby kept, damages are generally calculated based on interest on the capital value and depreciation of the damaged chattel.
The court distinguished claims by individuals from those by corporate entities. For individuals, damages often compensate for inconvenience and disruption, sometimes assessed by reference to hire rates or conventional sums. For corporate claimants, damages represent financial loss and require accounting for actual costs incurred or capital value affected.
Applying these principles, the court held that the trial judge erred in awarding damages based on the spot hire rate because the Claimant had no reasonable need for outside hire. Instead, the appropriate measure would be an award reflecting the cost of maintaining and operating a substitute vehicle supplied from the Claimant’s own stock, or alternatively, an award based on interest and depreciation on the capital value of the damaged vehicle.
Since no evidence or figures for such an alternative calculation were before the trial judge or the appellate court, the court could not make a precise award and invited the parties to agree on a suitable figure for loss of use damages. The court indicated that if no agreement is reached, further argument would be heard.
Holding and Implications
The court ALLOWED THE APPEAL and set aside the trial judge’s award of £12,000 for general damages for loss of use. The decision emphasizes that a corporate claimant must mitigate loss by using available substitute vehicles before claiming damages based on hire costs. Where no actual hire costs are incurred, damages should be calculated by reference to the cost of maintaining and operating substitute assets or by an appropriate valuation of the capital value lost during repair.
The ruling clarifies the distinction between individual and corporate claims for loss of use and refines the application of mitigation principles and damage assessment methods in corporate contexts. No new precedent was established beyond the application of existing principles to these facts. The parties are expected to agree or further argue an appropriate damages figure consistent with this judgment.