by Lisa Cowan, PhD candidate, University of Edinburgh
In Armstead v Royal & Sun Alliance Insurance Co.[1] the appellant, Lorna Armstead, was involved in a road collision. While her own car was out of action, she hired a rental car, a Mini Cooper, from Helphire. By a terrible coincidence, she was then involved in a second accident in the rental car. A third party, insured by the respondent Royal & Sun Alliance (RSA), was at fault. Under the terms of rental agreement with Helphire, Armstead became liable for an amount equivalent to the daily rental rate of the car. This represented the value of Helphire’s loss of use of the car while it underwent repairs. (This was referred to in the case as the ‘Clause 16 sum’).
When Armstead’s appeal eventually reached the Supreme Court, the issue turned on the interaction between the law of tort and contract. In addition to the cost of repairing the rental vehicle, could the value of Armstead’s contractual liability to Helphire be recovered from RSA, the insurer of a third party who was at fault? At stake was the princely sum of £1,560.
This head of recovery had been rejected by three lower courts. They variously considered it as an irrecoverable kind of pure economic loss which was too remote, not reasonably foreseeable, and not a genuine and reasonable attempt to assess Helphire’s likely losses. The Supreme Court disagreed. In a unanimous decision, it held that Armstead’s contractual liability as a bailee to compensate Helphire, its bailor, could be recovered from the insurer of the party at fault. The court ruled that the loss was reasonably foreseeable.
This blog entry examines the Supreme Court’s decision, and speculates how Scottish courts might have approached the same facts. It considers the decision from two angles. The first is in terms of a possessor’s title to sue for damage to property they do not own. English law gets around this issue quite easily. The hirer is treated as having a possessory title, which is itself a sufficient interest to sue for damage to the property. Scots law not does not follow the same analysis. The pursuer must therefore seek elsewhere for a foundation upon which to ground its claim. The second is recovery of the Clause 16 sum, specifically, how and why such a sum might be recovered. In this respect, the Scots law tracks the English law much more closely. The issue is important. It forms part of disputes which have been ongoing for some thirty years between car hire companies and the insurance industry.
Decision and Ratio
The Supreme Court began by noting some of the basic principles applicable to negligence claims in English law:[2]
- First, a defendant owes a general duty of care not to damage the property of others, and to make appropriate compensation if he or she is in breach of that duty;
- Secondly, in considering what is appropriate compensation, the defendant is not generally liable to compensate for financial losses incurred by the claimant, unless they are foreseeable consequences of the damage done to the property;
- Thirdly, a bailee who is in possession of property has sufficient title to sue for damage done to it. This applies to a bailee holding under a contract of hire.
Applying these principles, the court reasoned that Armstead, as bailee, was entitled to sue for damages arising out of the collision in which RSA’s insured was at fault. As bailee, Armstead was in possession of the car. In one sense, her contractual liability to compensate the car hire company for their loss of use of the car was economic in nature. But it was not pure economic loss because it flowed from damage to property in which the claimant had a proprietary interest. It followed that the clause 16 damages were recoverable as consequential economic loss, provided they were not too remote.
The court reasoned that they were not. The Wagon Mound holds that loss is only too remote to be recoverable if it is of a type that was not reasonably foreseeable at the time of the breach of duty.[3] The defendant is not required to foresee the precise manner in which the loss occurs.[4] Applying this test, the court found that the hire company’s financial loss arising from their inability to hire out the car was foreseeable. Both loss of use and the contractual liability to compensate the hire company were foreseeable types of loss. The precise manner in which Armstead’s contractual liability was incurred did not need to be foreseeable. The court also noted that clauses such as clause 16 are reasonably standard in vehicle hire agreements.
Inherent in the court’s analysis was its assumption that the damages recovered had to be a genuine and reasonable attempt to assess the hire company’s likely losses arising from the car being put out of use. The respondents had previously conceded this, and the court agreed. It considered that stipulating an amount estimated in advance, based on the contractual rate as a simple basis of calculation, and limited to 30 days’ hire, was not objectionable. It was a reasonable means of estimating loss in this instance.[5] Further, RSA led no evidence to prove that the Clause 16 sum was not a reasonable pre-estimate of Helphire’s damages. For those reasons, the court allowed the appeal.
A Scottish Perspective
So, what if Armstead’s collision had happened in Scotland, and the case was governed by Scots law? English and Scots law are largely aligned on the issues of remoteness and foreseeability, to which the Supreme Court dedicated much of its judgment. An important point of difference, however, would be in establishing the pursuer’s title to sue for damage to the hired property. In English law a bailor can sue for damage to property which they do not own because their possession of the property is treated giving them a sufficient proprietary title to it. In Scotland, possession does not of itself generate an enforceable title. Accordingly, in cases such as Blackburn v Sinclair[6] and the landmark Nacap Ltd v Moffat Plant Ltd,[7] courts refused to recognise the existence of a right to sue for damage to a rented vehicle in the pursuers’ possession.
That is not to say that no conflicting authority exists. In North Scottish Helicopters Ltd v United Technologies Corp Inc., a long-term hirer of a helicopter with exclusive possession and responsibility for maintenance and repairs was held to have “possessory title” to it, entitling the hirer to sue for damage done to the helicopter.[8] However, the facts of North Scottish Helicopters are probably distinguishable from most other disputes where hired property is damaged. More recently, in McGarrigle v UK Insurance, the Sheriff Appeal Court recognised the right of a private hire driver to sue a party who negligently collided with his vehicle, rendering it undriveable. The court reasoned that the appellant:
was … a party to some legal relation (the original hire contract) which gave rise to some right (the right to use the vehicle for the purposes of trade) which the respondent’s insured had infringed by his negligence.[9]
This bar seems rather low. Indeed, in a Scots Law Times discussion of McGarrigle, Dr Craig Anderson questioned the extent to which the court’s reasoning justifies its conclusion.[10] Nevertheless, at present, it remains good law. If then a Scottish court were to apply a similar analysis to the facts of the Armstead case, the reasoning in McGarrigle suggests that recovery would be warranted. However, such an approach is not readily compatible with Scots property law. It seems to conflate economic delicts like inducing breach of contract and causing loss by unlawful means with liability for damage to property.
Hypothetically, what might a scenario be where a contract of hire conferred a sufficient title on a hirer to sue a third party for negligent damage to the vehicle? Dr Anderson concedes that he does not know precisely but that such a scenario would require a major restructuring of certain elements of Scots law. I will not pretend otherwise. But I would note that the Roman law recognised many instances where a non-owner who held property under a real contract had sufficient title to sue for damage done to the property (for example, where a depositary or a borrower for use could sue for theft of the property). Given Scots law’s historic reception of civil law principles of property and contract, perhaps it would not be too far a stretch to develop a similar approach to cases of damage done to hired property.
It is uncertain, therefore, which line of cases a Scottish court might follow on facts like those in Armstead. There is a distinct possibility that the pursuer’s claim may simply fall at the first hurdle, and that the pursuer would not have any title at all to sue for damages. If the case went as far as discussion of the scope of recoverable damages, the analysis might proceed along the same lines as the Supreme Court explained the law in England. The Scots law of negligence recognises the principle that recoverable damages must flow “naturally and directly” from the negligent act; that these consequences must be reasonably foreseeable; and that the defender must take the pursuer as they find.[11] A brief investigation of leading car hire company rental terms shows that clauses similar to Clause 16 are standard in agreements governed by Scots law. Arguably, they are common enough to make the kind of contractual liability incurred by Armstead reasonably foreseeable.
In future, of course, pursuers like Armstead will have the weight of a Supreme Court decision behind them. However, what the Supreme Court does not discuss in any detail is the decades-long context of such disputes between car hire organisations and insurance companies. Such cases have been argued from almost every conceivable angle: disputing the period of replacement car hire; the need for a replacement vehicle at all; the proper rate to be charged; whether or not the pursuer was impecunious; and many others.[12] Though none of the cases litigated in Scotland is on all fours with Armstead, even if this particular battleground does become settled law in Scotland, ingenious lawyers will simply seek out the next.
In sum, the case perhaps raises more questions than answers for those concerned with the Scots law of obligations.
[1] Armstead v Royal & Sun Alliance Insurance Co. [2024] UKSC 6, [2024] 2 WLR 632.
[2] ibid.
[3] The Wagon Mound [1961] AC 388.
[4] Hughes v Lord Advocate [1963] AC 837.
[5] See Network Rail Infrastructure Ltd v Conarken Group Ltd [2011] EWCA Civ 644; [2012] 1 All ER (Comm) 692.
[6] Blackburn v Sinclair 1984 SLT 368.
[7] Nacap Ltd v Moffat Plant Ltd 1987 SLT 221.
[8] North Scottish Helicopters Ltd v United Technologies Corp Inc 1988 SLT 77.
[9] McGarrigle v UK Insurance [2023] SAC (Civ) 7.
[10] McGarrigle v UK Insurance [2023] SLT 104.
[11] Simmons v British Steel plc [2004] UKHL 20, 2004 SC (HL) 94.
[12] See, for example, Allardice v Direct Line Insurance [2010] Scot SC 138; Clelland v Quinn Direct [2010] Scot SC 12; Coxson v Fife Council, Kirkcaldy Sheriff Court, 4 July 2011 (unreported).
In sum, the case perhaps raises more questions than answers for those concerned with the Scots law of obligations.
