Supreme Court considers principles relating to remoteness in the tort of negligence

A recent Supreme Court decision sheds light on a number of issues relating to the requirements for establishing that a loss is too remote to be recoverable as damages for the tort of negligence: Armstead v Royal & Sun Alliance Insurance Company Ltd [2024] UKSC 6.

Perhaps the most interesting point, from a general litigator's point of view, is the Supreme Court's finding that the defendant to a tort claim has the burden of proving that a loss is too remote to be recoverable, applying the well-established test that it is not a type of loss that was reasonably foreseeable at the time of the breach of duty. The court noted that there is a surprising absence of authority as to where the burden of proof lies in relation to remoteness, but said that considerations of both fairness and efficiency justified requiring the defendant to show a good reason why the claimant should not be compensated for the full extent of its loss. This conclusion is also reflected in current pleading practice, as claimants are not ordinarily expected to allege that losses claimed were of a reasonably foreseeable type.

The decision arises in a context we do not normally address on this blog, namely negligence claims relating to road traffic accidents. The specific point decided by the Supreme Court was that a claimant could recover as damages her contractual liability to a credit hire company to pay a daily hire rate for the company's loss of use of its hire vehicle while the damage caused by the accident was being repaired. In that context, the court held that the claimant had properly conceded that, to withstand a plea of remoteness, her liability to the credit hire company had to be a reasonable estimate of that company's loss. That will not necessarily apply in all cases where a claimant's loss comprises a contractual liability to a third party - there may be cases where such losses were reasonably foreseeable on some other basis. Here, however, the basis on which the loss was said to be reasonably foreseeable was that it was loss resulting from loss of use of the damaged car. Accordingly, it would only be reasonably foreseeable as resulting from the loss of use if it was, in fact, a reasonable estimate of that loss.

Finally, it is often said that "pure economic loss" is not recoverable in the tort of negligence - though there are exceptions to that rule, including (as is common in the professional negligence context) where it is said that the defendant has assumed responsibility to the claimant to take care to avoid causing such loss. The present decision is a reminder that loss will not be treated as pure economic loss where it is consequent on damage to the claimant’s property (including property in the claimant's possession such as the hire car in this case).

Background

The claimant (Ms Armstead) was involved in a car accident in which the hire car she was driving was damaged through the fault of a van driver. Ms Armstead was hiring the car on "credit hire" terms, following a previous car accident in which her own car had been damaged.

Under this business model, a credit hire company will rent out a substitute car on credit to an accident victim while their car is repaired. It will then seek to recover the hire cost from the other driver’s insurers and will only look to the victim for payment if the claim fails.

In this case the credit hire company's standard terms included an obligation on the hirer to indemnify the company for any damage to the hire car and (as is common in such agreements) to pay the daily hire rate, up to a maximum of 30 days, for the company's loss of use of the vehicle while any such damage was being repaired.

Ms Armstead brought a claim against the van driver's insurers (RSA) seeking damages for the cost of repairing the hire car and also for the sum she was contractually liable to pay the hire company for loss of use (the "loss of use sum"). It was agreed that the loss of use sum was £1,560, based on the "credit hire rate", which was significantly higher than the standard rate charged by a hire company that was not operating on credit hire terms.

The claim to the loss of use sum was rejected by a Deputy District Judge, a Recorder and the Court of Appeal. Ms Armstead appealed to the Supreme Court.

Decision

The Supreme Court unanimously allowed the appeal. Lord Leggatt and Lord Burrows gave the leading judgment, with which Lord Richards and Lady Simler agreed. Lord Briggs gave a short concurring judgment.

The court noted that the claim had been rejected in all three courts below, but for inconsistent reasons, most of which were clearly inconsistent with the basic legal principles that apply to claims in negligence arising out of damage to tangible property.

Pure economic loss

To the extent that the decisions below were based on the view that the loss of use sum was irrecoverable as pure economic loss, that was not correct. It was not pure economic loss, but rather loss arising out of physical damage to property (which Ms Armstead did not own, but it was sufficient that she had a right to possession of it as bailee). As the court explained, there is no reason in principle why recoverable loss should not include a contractual liability to a third party provided that the liability is consequential on physical damage to the claimant’s property.

Remoteness - genuine and reasonable attempt to assess likely losses

The real issue in the case was whether the loss of use sum was too remote to be recoverable. Ms Armstead had conceded that she could not recover the loss of use sum unless it represented a genuine and reasonable attempt to assess the likely losses incurred by the hire company as a result of its loss of use of the hire car. However, the court noted that it was not bound by a concession on a point of law and said it would be inappropriate to decide the appeal in reliance on a concession the court did not think was legally correct.

In fact, however, the court considered the concession to have been rightly made as a matter of law. As the court explained, this was an aspect of the normal rules on remoteness of loss:

• Loss is too remote to be recoverable as damages in the tort of negligence if the type of loss suffered was not reasonably foreseeable at the time of the breach of duty. But if the type of loss was reasonably foreseeable, it does not matter that the precise manner in which it was incurred was not reasonably foreseeable.
• A reasonably foreseeable type of loss flowing from damage to a hire car is financial loss resulting from inability to use the car, eg while it is being repaired. In this case the claimant did not suffer a loss of use herself because she carried on using the hire car after the accident, but she did incur a contractual liability to pay the hire company for its loss of use. This contractual liability was also reasonably foreseeable, but in any event the precise manner by which the loss of use was incurred need not have been reasonably foreseeable.
• To fall within this reasonably foreseeable type of loss, the claimant’s contractual liability actually had to reflect the hire company's loss of use, eg by being a reasonable pre-estimate of that loss.
• The underlying policy reason for the remoteness rule was to ensure that an excessive burden of liability did not fall on the defendant. If the contractual liability did not have to be a reasonable pre-estimate of the hire company’s loss of use, there was a danger that a credit hire arrangement would be open to abuse and would inappropriately burden the defendant with a liability that did not reflect any actual loss.

There was another line of reasoning that led to the same conclusion, namely that loss arising from a contractual liability is only reasonably foreseeable if there is a valid contractual liability. To be a valid contractual liability rather than an unfair term or penalty, the court said, the clause had to comprise a reasonable pre-estimate of the hire company's loss of use. (The court recognised that, under the modern law on penalties, the test is no longer whether the clause constitutes a genuine pre-estimate of loss, but rather whether the liability to pay damages is out of all proportion to the innocent party's legitimate interest. It stated, however, that in facts similar to the present case, the two tests were very unlikely to produce different results.)

Remoteness - burden of proof

The court noted that there is a surprising absence of authority as to who has the legal burden of proof as to whether a particular loss is irrecoverable on the ground that it is too remote.

It held that the burden is on the defendant to assert and prove remoteness, similar to the position for mitigation of loss, contributory negligence and (as the court said was the better view) legal causation in the sense of whether an intervening event has broken the chain of causation. As these principles cut back the right to recover damages for loss that has been factually caused by a tort, logically the legal burden of proof must lie on the defendant.

This was justified by considerations of both fairness and efficiency. Once the claimant has proved that it suffered loss due to the defendant's wrong, it is fair that the defendant should have to show a good reason why it should not be liable to compensate the victim for the full extent of the loss caused. Further, it would be unduly burdensome to require the claimant to have to anticipate and rebut ways in which it might be said that the defendant should not be held legally responsible for the loss. That was reflected in pleading practice, as claimants are not ordinarily expected to allege that losses claimed were of a reasonably foreseeable type.

In the present case, RSA did not plead or adduce any evidence to show that the loss of use sum was not a reasonable pre-estimate of the hire company's loss. It was therefore not open to the Court of Appeal to reject the claim on that ground, and therefore the appeal was allowed.