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20 Mar 2024

Two collisions, three appeals and a change in the common law


It is, to say the least, unusual for a £1,560 claim to reach the Supreme Court but it did so in Armstead v Royal & Sun Alliance Insurance Company Ltd [2024] UKSC 6. The case raises a fundamental question in applying the tort of negligence, where economic loss arising from a contractual liability to pay a sum of money, results from physical damage to property.

The factual background

The claimant, Ms Armistead was involved in two separate road collisions within a short period of time, neither of which were her fault. After the first collision, and while her car was being repaired, she hired a car from a company called Helphire on terms that it would seek to recover the cost from the other driver's insurers and would only look to her for payment if that claim failed (the "Hire Car").

The hire agreement between Helphire and Ms Armistead was on Helphire's standard terms and included an obligation to return the Hire Car in the same condition as it was as at the start of the hire and to indemnify Helphire for any damage to the Hire Car. Clause 16 of the hire agreement stated:

"You will on demand pay to [Helphire] an amount equal to the daily rental rate specified overleaf, up to a maximum of 30 days in respect of damages for loss of use for each calendar day or part of a calendar day when the vehicle is unavailable to Helphire for hire business because … the Hire Vehicle has been damaged".

Less than two weeks later, another vehicle, a Ford transit van, collided with the Hire Car. Although the Hire Car was damaged, Ms Armistead was able to carry on driving it. She returned it when the repairs to her own car had been completed. It then took 12 days to complete the repairs to the Hire Car. Helphire made a demand on Ms Armistead under clause 16 of the hire agreement for the rental charge for this period, amounting to £1,560 (the "Clause 16 Sum").

Ms Armistead brought proceedings against the van driver's insurers, Royal & Sun Alliance Insurance Company plc ("RSA"). The remedy claimed was the cost of the repairs and the Clause 16 Sum. RSA defended the proceedings on a number of bases including that clause 16 was an unfair term and/or unenforceable and/or a penalty and that Ms Armistead had failed to mitigate her loss by refusing to pay the Clause 16 Sum to Helphire.

At trial, the Judge dismissed Ms Armistead's claim for the Clause 16 Sum on the basis that it was irrecoverable economic loss. He did not express a view on whether clause 16 was unfair, unenforceable or a penalty. Ms Armistead appealed but that appeal before Recorder John Benson QC was dismissed on the same (and different) grounds.

Ms Armistead appealed to the Court of Appeal. Again, her appeal was dismissed for several reasons, again including that the Clause 16 Sum was irrecoverable economic loss.

The Supreme Court's decision

The matter came before the Supreme Court. It approached the case by applying three established principles:

  1. A person owes a duty of care not to cause physical damage to another person's property and, if in breach, is liable to pay damages to compensate that person for the diminution in value of the property and other financial loss consequent on the damage;
  2. By contrast, 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; and
  3. To count as the claimant's property for this purpose it is sufficient that the claimant has a right to possession of the property.

The Supreme Court held that there was 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 a claimant's property.

The key issue was one of remoteness. As to that, the Supreme Court stated the following:

  1. The test for remoteness in the tort of negligence as laid down in The Wagon Mound [1961] AC 388 is that loss is too remote to be recoverable as damages if the type of loss was not reasonably foreseeable at the time of the breach of duty;
  2. A reasonably foreseeable type of loss flowing from damage to a hire car is financial loss resulting from inability to use the car. In this case, Ms Armistead did not suffer a loss of use herself because she carried on using the Hire Car after the collision. The type of loss that she suffered in respect of loss of use of the car was a contractual liability under clause 16 to pay the hire company for its loss of use. Nevertheless, just as loss of use to Ms Armistead was reasonably foreseeable and not too remote, so was her liability to pay damages for loss of use to the hire company;
  3. However, to fall within this reasonably foreseeable type of loss, it is necessary for a claimant's contractual liability to reflect the loss of use of the hire company. There is nothing wrong in principle in using an amount estimated in advance as the basis of the contractual liability. But it must be a reasonable pre-estimate of the hire company's loss of use. If it is not, it does not fall within the type of loss that is reasonably foreseeable; and
  4. In this case, therefore, the Clause 16 Sum would be too remote if clause 16 was not a reasonable pre-estimate of Helphire's loss of use of its vehicle.

The Supreme Court determined that once the claimant has proved that a tort has been committed and that the loss claimed was in fact caused by the defendant's breach of duty, it is for the defendant to assert and prove that the damages claimed should be limited in some way. In the case before it, RSA had not pleaded a case that the Clause 16 Sum was not a reasonable pre-estimate of Helphire's loss of use and had consequently adduced no evidence on the point.

In the circumstances, Ms Armistead's appeal succeeded and RSA was found liable to pay damages in respect of the Clause 16 Sum.

As it had been raised in submissions, the Supreme Court went on to consider what the position would be if the pre-estimate of loss was found not to be a reasonable sum. Drawing from authorities involving claims for breach of contract, the Supreme Court stated its view, obiter, that Ms Armistead would, in this situation, be entitled to recover as damages such lesser sum as would represent Helphire's reasonably foreseeable loss of use.

Key takeaways

  • The Supreme Court has widened the circumstances in which claimants can recover damages for what was previously considered to be irrecoverable economic loss;
  • In doing so, it has reframed the question of what constitutes irrecoverable economic loss as one of remoteness;
  • In order to be recoverable, loss arising as a consequence of physical damage to property but giving rise to a contractual liability to a third party, must not only be reasonably foreseeable, but it must also be a reasonable pre-estimate of that third party's loss;
  • Once the claimant has proved a breach of a tortious duty has occurred and that the loss comprising a liability to a third party is reasonably foreseeable, the burden falls on the defendant to plead, and prove, that any such liability is too remote because it does not represent a reasonable pre-estimate of the third party's loss. Even where the defendant does so, it may be open to the Court to substitute its own award in damages in respect of what it determines is the third party's reasonably foreseeable loss.


Rebecca Garrick

Rebecca Garrick
Senior knowledge lawyer

T:  +44 20 7809 2548 M:  Email Rebecca | Vcard Office:  London