I think the decision may be correct but that the negligence rule on scope of liability is poorly suited to explaining why. I don’t think the outcome turns on the validity of the clause fixing the loss of use value of the car that the lessee must pay the lessor (the hirer) for damaging the car.  Consider this hypothetical:

There is a purchase agreement for a painting Seller and Buyer believe to be valuable. The price is $1 million. Under the agreement, seller is responsible for delivering the painting to Buyer and the price is payable on delivery. Seller employs Carrier to deliver painting.  Defendant collides with Carrier’s truck, destroying the painting. However, it turns out the painting is a forgery and is worthless. Defendant is not liable for $1 million even though this is the loss to Seller from the destruction of the painting. On the other hand, Carrier might well be liable for $1 million under its contract with Seller.  And, of course, if Carrier (or Seller) insured the painting for $1 million, the insurer would be liable for this amount even though the painting was a forgery.

Returning to Armstead, it seems to me a key point is that either the bailor or the bailee can sue for the lost use value of the car resulting from the accident. If the bailor sued for the lost use value, it would be obvious that the contract with the bailee setting the lost use value is only of evidentiary value in determining the lost use value. I think the same is true if the bailee sues for lost use value. I think this is basically where the court comes out while shifting the burden on the defendant to establish that the contractually stipulated use value was inaccurate. (I think this is defensible. In my hypothetical case, if the actual value of the destroyed painting was unknown, then I would put the burden on the defendant to establish the agreed price was not the actual value.)

On Feb 14, 2024, at 11:44 PM, Varun Srinivasan <varun@varunsrinivasan.co.in> wrote:

 

Dear all,

 

I am very intrigued by the connection between the law of penalties and the damages that would be considered recoverable from the negligent defendant. 

 

In my view, there is excessive focus on “contractual validity” to determine remoteness in [48]—[52] of the judgment.

 

The principle in [52] appears to suggest that anything payable on a “valid” contractual clause between the Claimant and Helphire would have been recoverable from the negligent defendant as reasonably foreseeable damages. That is probably oversimplified. As Prof. Stevens suggests below — if under the Makdessi test, a clause could be “valid” but not a genuine pre-estimate of loss, then the “validity” of the contractual clause is an irrelevant inquiry, or at least, an incomplete inquiry.

 

Another reason comes to mind from Cavendish. What if the clause triggered in the contract between the Claimant and Helphire was not structured as a secondary obligation, but a conditional primary obligation/price adjustment? Suppose the credit-hire agreement was to say that “the period during which the car cannot be used due to repairs, upon its return, should be construed to be an extension of the hire period at a special rate of 200% of the original hire rate” (Curiously, that is precisely how the contract even in this case is analyzed to justify the rate at [70]). 

 

On Cavendish’s terms, this would be a conditional primary obligation which would not even engage the penalty doctrine and enforceable as-is. Surely that would not mean that any such price is recoverable from the negligent defendant. 

 

It seems, despite Cavendish’s best efforts, the “genuine pre-estimate” standard lives on for some reason or another. There is perhaps more to wonder on why the “genuine pre-estimate” is good enough to measure third-party foreseeability but not good enough for the law of penalties. 

 

In all, a fascinating judgment to discuss for a (very) new ODG member. I hope I have not overstepped any bounds in joining in.

 

Best regards,

Varun

 

 

From: Neil Foster <neil.foster@newcastle.edu.au>
Date: Thursday, 15 February 2024 at 6:54 AM
To: Robert Stevens <robert.stevens@law.ox.ac.uk>, Stéphane Sérafin <Stephane.Serafin@uottawa.ca>, Jason W Neyers <jneyers@uwo.ca>, obligations <obligations@uwo.ca>
Subject: Re: Unforeseen Damage in the Supreme Court

Dear Colleagues;

Thanks for an interesting discussion! I note that similar, though not the same, issues were discussed by the High Court of Australia in Arsalan v Rixon; Nguyen v Cassim[2021] HCA 40. That case involved the question whether damages following a car accident included, not just the cost of a functional replacement vehicle while repairs were being carried, but also extended to a replacement vehicle of similar “prestige” to the damaged car. The answer was yes.

At [3]:

 

Recovery of damages under these heads of damage will usually be necessary to restore the plaintiff to the position they would have been in but for the defendant's actions that caused the accident. Once the plaintiff acts to mitigate that loss by hiring a substitute vehicle, the onus of proof will lie upon the defendant to show that the costs incurred in mitigation were unreasonable.

 

But the court did not comment on other issues, including the one raised in Armstead. They said at [4] issues they were not discussing included:

 

the extent to which particular hire expenses, such as credit hire charges, can be said to have been incurred in mitigation of the losses; and the extent to which the quantum of hire costs is otherwise shown to be unreasonable.

 

I think the Armstead decision seems right. However, I note that the analysis includes reference to a doctrine which is part of UK law but no longer part of the common law of Australia. Lord Leggatt and Lord Burrows say at [20]:

 

someone who negligently causes physical damage to another person’s property is not liable to pay compensation to a third party claimant who suffers financial loss as a result of the damage. (See also [27]).

 

In Australia this (as a general exclusionary rule) has not been the law since Caltex v The Dredge Willmstad (1976) 136 CLR 529 and in particular more recently sincePerre v Apand (1999) 198 CLR 180. But the difference in approach on this point makes no difference here, since clearly we have a case of property damage (not “pure” economic loss) of an item possessed by the claimant, and the debate is about the limits of the damages award that can be given. I am pretty sure the same result would follow in Australia as in Armstead here.

 

I also appreciated the comments at [39]-[40] distinguishing The Winkfield and noting why the decision in that case did not answer the question here. In a way the case here was the opposite of The Winkfield. There, the bailee (the PMG) could recover full damages from the tortfeasor for conversion of the property he possessed, and those damages were not limited by the fact that his relationship with the bailors (those who had despatched the mail) limited his liability to account to them. Here we have a bailee entitled to recover damages for (in effect) conversion of the chattel she possessed, and the question is whether the damages she can recover extend to the contractual obligation she has to pay an extra amount to her bailor. Subject to legitimate concerns about remoteness (which I agree here can be analysed as whether the obligation to pay stems from “a genuine and reasonable attempt to assess the likely losses”), that seems fair.

 

Regards

Neil

 

 

NEIL FOSTER

Associate Professor, Newcastle School of Law and Justice

College of Human and Social Futures

 

T: +61 2 49217430

E: neil.foster@newcastle.edu.au

 

Further details: http://www.newcastle.edu.au/profile/neil-foster

My publications: http://works.bepress.com/neil_foster/ , http://ssrn.com/author=504828 

Blog: https://lawandreligionaustralia.blog

 

 

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From: Robert Stevens <robert.stevens@law.ox.ac.uk>
Date: Thursday, 15 February 2024 at 7:06 am
To: Stéphane Sérafin <Stephane.Serafin@uottawa.ca>, "jneyers@uwo.ca" <jneyers@uwo.ca>, "obligations@uwo.ca" <obligations@uwo.ca>
Subject: RE: Unforeseen Damage in the Supreme Court

 

Sorry

 

“that the *claimant* was the author of his own misfortune in going down stairs without a handrail”

 

As a reviewer noted, I always muddle up my claimants and defendants.

 

From: Robert Stevens 
Sent: Wednesday, February 14, 2024 8:02 PM
To: Stéphane Sérafin <Stephane.Serafin@uottawa.ca>; Jason W Neyers <jneyers@uwo.ca>; obligations <obligations@uwo.ca>
Subject: RE: Unforeseen Damage in the Supreme Court

 

Answer to Stéphane: it is just, so long as the damages don’t exceed the ordinary loss that you can reasonably foresee, which in turn can be answered by asking whether the clause was a reasonable pre-estimate of the loss of use an owner will incur while the vehicle is being repaired.

 

If the clause were not a reasonable pre-estimate of loss but were still enforceable under the new Makdessi “legitimate interest” rule, I don’t think such extra loss should be recoverable. Contra Jason, I don’t think drivers can reasonably foresee that such contractual loss will be incurred.

 

FWIIW, I agree with Jason that some of what is said about burden of proof is doubtful. I don’t think, for example, that in McKew v Holland the claimant had any prima facie claim for his broken ankle. It shouldn’t have been for the defendant to have pleaded and proved that although the tort they had committed was a necessary cause of the broken ankle, that the defendant was the author of his own misfortune in going down stairs without a handrail. The claim should fail in relation to the ankle without the defendant pleading and proving anything.

 

From: Stéphane Sérafin <Stephane.Serafin@uottawa.ca> 
Sent: Wednesday, February 14, 2024 7:46 PM
To: Jason W Neyers <jneyers@uwo.ca>; Robert Stevens <robert.stevens@law.ox.ac.uk>; obligations <obligations@uwo.ca>
Subject: Re: Unforeseen Damage in the Supreme Court

 

I think the special difficulty in this case is that the contract between, effectively, the bailor and the bailee altered the extent of the claim that the bailor would normally have against the bailee. Under those circumstances, is it really just to impose further liability on a third party, who was not bound by or even had knowledge of the special arrangements?

---

From: Jason W Neyers <jneyers@uwo.ca>
Sent: February 14, 2024 2:43 PM
To: robert.stevens <robert.stevens@law.ox.ac.uk>; obligations <obligations@uwo.ca>
Subject: RE: Unforeseen Damage in the Supreme Court

 

Attention : courriel externe | external email

Having just skimmed over the decision, isn’t the answer, that in a world in which rights to use property can be sub-divided (through leases and bailments and contracts), one of the reasons why it is negligent to damage property is that this might cause the owner to lose out on a valuable opportunity to let another use the property or might cause a bailee/leasee (sub-user) owe damages to the owner?

So I’m not sure why we have to rely on concepts such as “unforeseeable loses”  being “recoverable so long as no higher than the ordinary loss that would be foreseeable”.  But perhaps I am missing something?

 

 

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Jason Neyers
Professor of Law
Faculty of Law
Western University
Law Building Rm 26
e. jneyers@uwo.ca
t. 519.661.2111 (x88435)

 

From: Robert Stevens <robert.stevens@law.ox.ac.uk> 
Sent: Wednesday, February 14, 2024 1:42 PM
To: obligations <obligations@uwo.ca>
Subject: Unforeseen Damage in the Supreme Court

 

An interesting case on remoteness of loss decided by the UK Supreme Court today: Armstead v RSI [2024] UKSC 6, rightly overturning a decision of the Court of Appeal. Lords Leggatt and Burrows give the lead judgment, with which Lord Richards and Lady Simler concur, with a brief concurrence by Lord Briggs.

 

https://www.supremecourt.uk/cases/uksc-2022-0100.html

 

A car was hired by the claimant, and negligently damaged by the defendant. Under the terms of the agreement between the claimant and the hire company, the claimant is liable for costs of repairs, and to pay a daily hire rate up to a maximum of 30 days for every day the vehicle is being repaired. The claimant herself never incurred any costs of repairs nor did she ever suffer any loss of use during the period of hire. Could the claimant recover as damages her contractual liability to the hire company for its costs of repairs and loss of use?

 

The court correctly concluded that the claimant had title to the car by virtue of her possession and could therefore recover for any loss she suffered as a result of the defendant’s negligent damage of the vehicle (disapproving of statements in the Court of Appeal to the contrary). Such consequential loss included her contractual liability to the hire company.

 

The more difficult remaining question was whether the consequential loss that she suffered, by virtue of her contractual liability to the hire company for the loss of daily use during repairs, was too remote. Lord Leggatt and Burrows state (at [47](ii)]

“just as loss of use to the claimant is reasonably foreseeable and not too remote, so is the contractual liability of the claimant to pay damages for loss of use to the hire company.”

 

However, this must be doubtful. If I damage a car, it is reasonably foreseeable by me that the owner will repair it and that they will be unable to use it while it is repaired. One would have to be very perspicacious indeed to be able to reasonably foresee that the car was being hired, and that the terms of the hire would have a clause requiring the hirer to pay a sum for loss of use on a daily rate.

 

But, although the claimant’s unusual actual loss was not foreseeable, it should still be recoverable so long as no higher than the ordinary loss that would be foreseeable, that she did not herself personally incur (under Cory v Thames Trains), so long as not ruled out for any other reason such as the rules on mitigation. Such (ordinary) foreseeable loss is the cost of repairs and the loss of use whilst they’re being carried out.

 

If therefore the liability under the contract with the hire company is a genuine pre-estimate of the loss following from not having a car for that number of days, it should be recoverable. This is because it would be no more than the reasonably foreseeable loss in the ordinary case.

 

But, what if the clause were unenforceable, perhaps because a penalty or for any other reason? Could damages for loss of use of the vehicle still be recovered by the hirer? Lord Leggatt and Lord Burrows state (in obiter dicta) that it could be (at [72]) but here their reasoning is obscure.

 

If the clause is unenforceable, the claimant will suffer no consequential loss from the loss of use during repair. The hire company will, but they are not the claimant.

 

The better answer is that if someone negligently damages a car I have title to, I am entitled to general damages. If it is destroyed, that is measured by its market value, but here that is best calculated as being the reasonable costs of repairs plus a sum reflecting the loss of use during such repairs. Both should be recoverable regardless of whether the claimant actually suffers any consequential loss themselves (The Mediana, Burdis v Livsey). 

 

Alternatively, it may be that in some cases the hire company could recover for loss of use of the car from the hirer independently of the offending clause, because the hirer was in breach of another valid obligation, so that consequential loss is still suffered by her.

 

Rob

 

 

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