horwich farrelly

Is it right to hire when the cost of a replacement taxi exceeds a claimant’s profits: Hussain v EUI Limited

October, 16, 2019

Background

In a familiar scenario for insurers, the defendant was presented with an 18 day hire period for a replacement Mercedes E220 from a specialist provider of plated vehicles. The claimant taxi driver sought to recover hire charges in the sum of £6,596.50. By comparison, had he not gone into hire and simply claimed a loss of net profit (based on his declared earnings) the claim would have been for a mere £423.

At the original trial HH Judge Carmel Wall limited the claimant’s claim to loss of profit. It was decided that ‘’where the loss is of a profit-earning chattel, then the measure of damages is kept at the loss of profits and it is unreasonable mitigation to expend more in attempting to make a profit than the profit itself’’. Therefore, the claimant was awarded £423 in relation to his losses.

The claimant sought to appeal the decision to the High Court on two grounds:

  1. The judge was wrong to find that, as the claimant’s vehicle was a profit earning chattel, that claimant’s claim for the loss of use of that vehicle as a results of the defendant’s negligence was referable the claimant’s lost profits rather that the cost of hiring an alternative vehicle.
  2. The judge was wrong to find that the defendant had discharged the burden of proof in relation to the availability of a hire vehicle at a basic hire rate when the evidence relied upon by the defendant:
  1. failed to show that the hire company whose rates were quoted were able to supply the claimant with a vehicle plated for use in applicable area;
  2. failed to show that such hire company actually had any vehicles available for the claimant’s use at the time of hire;
  3. failed to show that they were willing to hire a vehicle to the claimant for the 18 day period he was without the use of his own vehicle following the accident.

In a commendably concise judgment, Mr Justice Pepperall rejected the claimant’s appeal.

Need For a Replacement Vehicle

Mr Justice Pepperall firstly addressed the challenges raised by the claimant in relation to the judge’s approach to ‘need’ being too exacting and that the judge should have found that the claimant reasonably needed a second car for social and domestic purposes.  He held that that there was no evidence that the claimant needed a second vehicle for private use and that the only evidence of need was for a replacement taxi.

Mr Justice Pepperall highlighted that ‘’Need for social and domestic purposes is not self-proving and, in this case, cannot simply be inferred from [the Claimant’s] actions in acquiring, insuring, taxing and maintaining his BMW since the car was primarily required for business use.’’

Correct Measure of Loss

Mr Justice Pepperall went on to explain that the following principles apply to claims for financial losses suffered by self-employed drivers when their vehicles are off the road pending repair or replacement:

  • The presumed starting point is that, professional driver’s vehicle is a profit-earning chattel and that the true loss is the loss of profit suffered while the damaged vehicle is reasonably of the road.
  • Where, the claimant successfully mitigates his or her loss by hiring a replacement vehicle at a cost lower than the hypothetical loss of profit, the court will award the lower hire charges.
  • A claimant cannot recover any additional loss suffered by reason of a failure to take reasonable steps to mitigate his or her loss.
  • Claimants cannot, however, be expected to weigh precisely their losses.

Accordingly Mr Justice Pepperall foundthat:

  1. where a claimant acts reasonably in hiring a replacement vehicle at about the same cost as the avoided loss of profit, the court will not count the pennies and hold the claimant to the hypothetical loss of profit if it turns out to be a little lower; but
  2. ’where the cost of hire significantly exceeds the avoided loss of profit, the court will ordinarily limit damages to the lost profit.’’

Lastly, Mr Justice Pepperall accepted the defendant’s submissions in relation to the application of the debarring principles of Umerji v Khan [2014] EWCA Civ 357. As explained in Umerji, such debarring orders are not restricted in their effect: they preclude the claimant from reliance on limited means on any issue at all. The defendant highlighted that it would have been wrong to allow the claimant to justify his uneconomic decision to hire a car based on short-term need for money when he had not disclosed the bank statements that would have allowed the Defendant to test his evidence on the point.  The judge held that:

‘’Any claimant wishing to justify hire costs on this basis will therefore have to comply with the directions given by the court in respect of the disclosure of documents as to his or her income, outgoings, assets, liabilities and access to credit. Even where the claimant’s income is low, the court will not simply accept an assertion that he or she could not afford not to work without proper evidence of impecuniosity.’’

Three exceptions

Guidance was provided in relation to three exceptions, where the court could deem it reasonable for a claimant to exceed their loss of profits. Those exception are as follows:

1. ‘’Future trading would itself have been compromised’’

The judge accepted (quite rightly) that any business must sometimes provide a service at a loss in order to retain important customer or contracts, ‘’For example, a chauffeur might not want to let down a regular client for fear of losing her. Equally, a self-employed taxi driver might risk being dropped by the taxi company that provides him with most of his work.’’

In these instances it would be for the claimant to evidence that but for his or her actions in hiring a replacement vehicle, the true loss of profit would not have been limited simply to the pro rata loss calculated on the basis of the period of closure but that future trading would itself have been compromised.

2. Need for a replacement vehicle for social and domestic use

Where such a claimant proves that he or she needed a replacement vehicle for private and family use, a claim for reasonable hire charges, even if in excess of the loss of profit that was avoided by hiring the replacement vehicle, will ordinarily be recoverable in the event that a private motorist would have been entitled to recover such costs.

3. Impecunious

It might be reasonable for a professional driver to hire a replacement vehicle even though the cost of doing so was significantly more than the loss of profit because he simply could not afford not to work. The tortfeasor takes his victim as he finds him and impecunious self-employed claimants cannot be expected to be left without any income and forced to look to the state to provide for their families on the basis that they might eventually recover their loss of profit some months or years later.

What does this mean for insurers?

This is both a welcome and sensible decision with a well-principled judgment, which provides a common -sense approach to the issue of loss of profit.  Too often insurers have found themselves on the back foot when attempting to dispute a claimant’s attempts to mitigate their losses. This judgment finally sees the baton being handed firmly back to the claimant to evidence/explain their actions for hiring a replacement taxi vehicle, which so often grossly exceeds what their declared loss of profits would be.

This judgment should give insurers more confidence in fighting credit hire claims presented by taxi drivers under the new presumed starting point of loss of profit and the court no longer simply accepting an assertion that the claimant could not afford not to work without proper evidence. However, it is important to note that the exceptions provided by Mr Justice Pepperall do give scope to claimants to recover credit hire charges, in excess of their losses, where evidence has been provided to justify the same. As the default position is, however, now loss of profit the claimant has the burden of proving that an exception applies and such assertions can be investigated and challenged by defendants.

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