Sent: Tuesday, December 14, 2021 12:56:47 AM
To: Andrew Tettenborn <a.m.tettenborn@swansea.ac.uk>; William Swadling <william.swadling@law.ox.ac.uk>; Neil Foster <neil.foster@newcastle.edu.au>; obligations@uwo.ca <obligations@uwo.ca>
Subject: [Spam?] Re: HCA on loss of amenity damages for damage to chattel
As always, I’m indebted to my colleague Neil Foster for his succinct summary of the High Court torts decisions. I am particularly grateful to him on this occasion for coupling the summary of the High Court’s decision with Andrew Burrows’ Lionel Cohen lecture, which I hadn’t previously seen. That lecture reminds us of the Patron’s Address by Kiefel CJ to the Australian Academy of Law, subsequently published in the Melbourne University Law Review for 2020, in which she compares the respective roles of judge and academic. As she and Andrew Burrows point out, the academic has the opportunity – and, I would add, responsibility – to look at the broader picture.
The broader picture in the present context includes the truth recognised by Lennie Hoffmann in Dimond v Lovell, which is cited by the High Court without adverting to the passage that reads: ‘The truth is that virtually all compensation is paid directly out of public or insurance funds and that through these channels the burden of compensation is spread across the whole community through an intricate series of economic links. Often, therefore, the sources of “third party benefits” will not in reality be third parties at all. Their cost will also be borne by the community through taxation or increased prices for goods and services.’ The High Court did not openly express any consciousness that its judgment would affect the ‘intricate series of economic links’ reached between first-party and third-party motor vehicle insurers. No doubt, it can be left to these insurers to make the appropriate adjustments. As the Nobel Laureate Ronald Coase observed in his seminal paper, when parties are free to bargain with each other, the legal rule is irrelevant and, in the absence of transaction costs, the least economically wasteful solution will be adopted. By laying down a clear rule in a comparatively short unanimous judgment, the High Court has reduced the scope for significant transaction costs benefiting only lawyers.
But the broader picture reveals two further points:
- the nominal parties to the cases which came before the High Court were not free to bargain with each other. The contest before the High Court was a clash of titans, each able, unlike ordinary individuals, to engage the services of the beast lawyers. The dispute was between two groups of insurers, first-party and third-party motor vehicle insurers;
- transaction costs have not been eliminated altogether and shifting the loss from one party, the possessor of a luxury vehicle for whom the first-party insurer stands proxy, to the driver of the other vehicle involved in the collision, for whom the third-party insurer stands proxy, does incur transaction costs.
Without a knock-for-knock agreement, a dinosaur that seems to have vanished from the legal landscape, significantly wasteful transaction costs will be incurred in litigation over fault in order to determine who is to bear the cost of repairs. Compared to this waste of community resources – which would not be wasteful only if it reduced the number and cost of collisions, a most unlikely premise – the additional cost of shifting the cost of hiring a prestige vehicle is probably small.
But the broader picture shows another facet: the loss is being shifted in the wrong direction. It has been acknowledged (by, among others, the former New Zealand Prime Minister, Geoffrey Palmer) that paying earnings-related compensation for personal injury from premiums collected from third-party insurers or government funds is a shift in the wrong direction. The same can be said of shifting the cost of hiring a prestige vehicle from the hirer’s insurer to the third-party property damage liability insurer. The person who can afford to possess a prestige vehicle ought to insure himself or herself against that loss and pay an appropriate premium. The loss should not be shifted to those who pay third-party premiums, who come from all levels of income and whose premiums cannot be differentiated because one cannot say in advance whether the negligent driver will collide with an expensive or a cheap vehicle.
From this broader picture, it is obvious that, unlike Neil, I am not disturbed by the ‘wrong‘ decision in Ms Lee’s case. I would certainly not want further costs to be incurred by reopening the litigation, including an appeal to the High Court. The decision in the New South Wales Supreme Court shows that Ms Lee was the beneficiary of an insurance arrangement with a company called ‘I’m In The Right’, which funded and pursued the litigation in her name. She may not even have been aware of the later proceedings.
There are other points about the decision that clearly require attention. My colleague Sirko Harder has raised the question of whether corporations can suffer a loss of amenity. After all, ‘Did you ever expect a corporation to have a conscience, when it has no soul to be damned, and no body to be kicked?’ Does a corporation running a fleet of prestige vehicles enjoy an ‘amenity’ that it loses if one of them is damaged?
The rule now entrenched by the High Court that the onus lies on defendants to show that costs incurred in mitigation of the new loss that they recognise are unreasonable leaves room for argument as to what is reasonable and what is not. We all know that reasonable minds may differ as to what is reasonable in the circumstances.
Finally, I hope that it will not be seen as sour grapes that I believe that the abandonment by the High Court of the ‘needs’ basis of liability is mistaken. Most of my career I have spent in trying to integrate damages with social insurance and have long stressed that the award of damages should be based on need, as difficult as that is to define, not on loss.
Harold.
Harold Luntz AO
Professor Emeritus
Law School
University of Melbourne
Home address:
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Depends whether you regard the cost of hiring as consequential loss or as direct loss. The cases are all over the place. But were I dictator for a day, I'd say that the cost of hiring was more like consequential loss, that had to be proved, and that if you didn't hire (e.g. because you were away in Bermuda at the time and while on vacation had no use for the Ferrari you kept for use in England) you should get only direct loss such as interest on the value sunk in the temporarily infructuous asset. Some support for this could be extracted from the Hoyer case [2011] Q.B. 357, though this did concern a commercial claimant.
Andrew
On 09/12/2021 12:33, William Swadling wrote:
I’m not a torts lawyer, so a complete ignoramus on these sorts of matters, but I wonder what the result would have been in each of these cases had the plaintiff not hired a replacement car at all. My thinking is that this should make no difference, that the cost of hiring an equivalent should be awarded whether or not the plaintiff actually did so. But is this a crazy thought?
Bill
From: Neil Foster <neil.foster@newcastle.edu.au>
Sent: 08 December 2021 10:49
To: obligations@uwo.ca
Subject: ODG: HCA on loss of amenity damages for damage to chattel
Dear Colleagues;
In its unanimous decision today in Arsalan v Rixon, Nguyen v Cassim [2021] HCA 40 (8 Dec 2021) http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/HCA//2021/40.html the High Court of Australia (Kiefel CJ, Gageler, Keane, Edelman & Steward JJ) ruled that damages can be awarded for “loss of amenity or enjoyment of the use” of a chattel ([3]) which has been damaged and is being repaired. Hence, where a “luxury” vehicle is damaged due to a tort committed by the defendant and is unavailable, and damages for a replacement vehicle are appropriate, the appropriate level of damages is that covering an “equivalent” standard of luxury vehicle, and is not limited to covering the actual “needs” being met by the vehicle. Where such a vehicle is obtained, “the onus of proof will lie upon the defendant to show that the costs incurred in mitigation were unreasonable” ([3] again).
Four separate cases were discussed, though only the 2 noted in the case name were being appealed. To illustrate, Mr Rixon’s Audi A3 was damaged by Mr Arsalan, and while it was being repaired he spent $12,829.91 on a replacement. The Local Court only allowed recovery of $4,226.25, which was the market rate of hiring a Toyota Corolla which it was said would meet his “needs” to travel to work, to drop off and collect a child at school, and for general errands. While this decision was upheld on a first appeal to the NSW Supreme Court (Basten J sitting alone as a member of the NSW Supreme Court at “trial” level), on appeal the NSWCA overturned the decision and awarded the higher amount.
The core of the reasoning can be found in para [17]:
The essence of this division of opinion reflects the lack of any clear recognition in Australian law of loss of amenity, in the sense of loss of pleasure or enjoyment, in the use of a chattel, as a recoverable head of damage for a tort that involves negligent damage to a chattel. Further uncertainty has been created by authorities that have required that, before hire costs can be recovered as damages, the plaintiff must have a "need" for the substitute vehicle. For the reasons below, the head of damage of loss of amenity of use of a chattel should be recognised and the loose concept of "need" should be eschewed. The conclusion of the majority of the Court of Appeal should be upheld on the basis that Mr Rixon and Mr Cassim suffered heads of damage of physical inconvenience and loss of amenity and it was not unreasonable for them to take steps to mitigate both aspects of their loss by the hire, at a reasonable rate, of an equivalent car for a reasonable period of repair. (emphasis added)
The court does consider some UK authority, and it also cites 2 ODG colleagues: at n 15 to para [22] a quote from Tettenborn, The Law of Damages, 2nd ed (2010) at 351 [14.86] is accepted as a correct statement of the law, and there is a citation at n 19 to para [25] to Descheemaeker, "The Standardisation of Tort Damages" (2021) 84 Modern Law Review 2. It is good to see the court being clear about what academic work it has found helpful, as I see Lord Burrows urged in his remarks linked by Jamie Lee on Twitter today (see https://www.supremecourt.uk/docs/lionel-cohen-lecture-2021-lord-burrows.pdf .)
There is one disturbing feature of the HCA decision, though. The two cases which were not appealed turn out to have been wrong! The case of Ms Lee, denied the cost of any replacement vehicle, seems particularly concerning- as the court says at [43]:
As to Ms Lee's case, an inference that Ms Lee suffered the head of damage of physical inconvenience should have been readily established by her general evidence that she used her damaged car to visit family and friends and to take her children to and from school. More detailed particulars should not have been required to establish her head of damage of physical inconvenience. And there was no basis upon which the defendant could have established that it was unreasonable for Ms Lee to mitigate that loss by the hire of an equivalent replacement car for use for her suite of purposes.
I hope that the relevant insurer will take the hint and make the payment they should have made now. Not sure if the case can be re-opened now- or perhaps, given this strong “hint”, the HCA has signalled that they would be willing to grant special leave if now applied for.
Regards
Neil
NEIL FOSTER
Associate Professor, Newcastle Law School
College of Human and Social Futures
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