Facts

Although this is a consumer case, the reasoning of the Supreme Court majority could potentially have far-reaching implications in the commercial context. The claimant hired a car from a hire company (“the Company”) under “credit hire” terms. Under the hire contract, if the car was damaged during the hire period, the Claimant would be liable to the Company for (i) the costs of repairs and (ii) the value of the Company’s loss of use of the car (“Clause 16 Liability”).

A driver insured by the defendant insurers negligently crashed his van into the hired car. The claimant was able to use the car until the end of the hire period and therefore did not personally suffer any loss of use. The question was whether the claimant could recover her Clause 16 Liability and, more specifically, whether this loss was too remote.

Judgment

The Supreme Court held that the claimant could recover damages for her Clause 16 Liability. The majority (Lords Leggatt and Burrows, with whom Lord Richards and Lady Simler agreed) held that such a loss was recoverable insofar it represented a reasonable pre-estimate of the value of the Company’s loss of use ([47]).

The majority reasoned as follows: (i) just as loss of use suffered by the claimant herself was a reasonably foreseeable type of loss, so was her contractual liability to the Company for the Company’s loss of use ([47](ii)). (ii) However, this liability would only amount to loss of a reasonably foreseeable type if it represented the actual value of the loss of use suffered by the Company ([47](iii)). (iii) Therefore, for the claimant to recover her Clause 16 Liability, it had to represent a reasonable pre-estimate of the value of the Company’s loss of use ([47](iii)). It was further held that the defendant bore the burden of showing that the Clause 16 Liability was not such a reasonable pre-estimate ([62]-[64]). Since the defendant had not made such an argument, it was not open for the court to reject the claim on the ground that the Clause 16 Liability was too remote ([74]). The appeal was allowed.

Implications

This decision may in two ways impact how principles of remoteness are applied. The first concerns what needs to be reasonably foreseeable at the time of the defendant’s negligent act or omission. By restrictively defining the type of loss that was reasonably foreseeable in this case as a contractual liability representing a reasonable pre-estimate of the Company’s loss of use, the practical effect of the decision is arguably to require the extent of loss to also be reasonably foreseeable. In other words, the mere fact that the type of loss suffered by the claimant (better characterised in this case as a contractual liability to the Company for its loss of use) was reasonably foreseeable may not be sufficient (note also that the type/extent distinction is not always a stable one).

The second implication of this case arises from the way in which the majority rationalised the purpose of remoteness rules, namely as a policy-based device to prevent excessive liability from being imposed upon defendants ([47](iv)). In this case, their concern was that the defendant could potentially be exposed to significant liabilities despite not being a party to the contract between the claimant and the Company. Following this judgment, one may therefore expect the courts to apply the remoteness test more strictly (ie. in a less claimant-friendly manner) where the loss takes the form of a contractual liability to a third party. This is especially so where the contract between the claimant and the third party is made in the commercial context, and where the parties are properly advised and are of comparable bargaining power. Here, the courts have been reluctant to hold clauses to be unenforceable for amounting to a penalty clause (see Cavendish Square Holdings BV v Makdessi [2015] UKSC 67 per Lords Sumption and Neuberger at [35]).