Lagden v. O'Connor
Julian Flaux QC and Jonathan Hough, instructed by Hugh James, for O’Connor
CAR ACCIDENT: MEASURE OF DAMAGES: REPLACEMENT CAR: WHETHER CREDIT HIRE COMPANY FEE RECOVERABLE: IMPECUNIOSITY OF VICTIM: FORSEEABILITY: THE RULE IN THE LIESBOSCH DREDGER CASE  AC 449 RE-CONSIDERED
A claimant has a duty to take reasonable steps to mitigate his loss. But what if his own pre-existing impecuniosity (lack of financial resources) means that he has no choice in the way in which he mitigates and, as a result, gains an additional benefit and/or incurs additional cost? The traditional view has been that any benefit has to be set against the damages awarded and any additional cost is not recoverable. But, in this case, the majority of the House of Lords decided that the defendant must take the claimant as he finds him. Where the claimant's lack of financial means leaves him with no choice as to how to mitigate his loss, any related additional cost is recoverable, and any related benefit will not be set against his damages.
DMC Rating Category: Developed
This case note is based on an Article in the April 2004 Edition of the ‘Bulletin’, published by the Marine and Insurance teams at the international firm of lawyers, DLA. DLA is an International Contributor to this website
Credit hire companies (also known as accident hire companies) provide an additional service to normal car hire because they do not require the motorist, who has lost the use of his car, to make any payment or produce an acceptable debit or credit card in advance. Instead, they look at the merits of the claim against the other driver and, if satisfied, provide the replacement car and wait to recover their charges from the defendant's insurers. For this they charge an additional fee. In Dimond v Lovell  1AC 384, the majority of the House of Lords held that a car owner could not recover this additional fee element from the defendant or his insurers. The damages recoverable were limited to the hire rate quoted by normal hire companies.
In this case, however, the House of Lords looked at the situation where the innocent motorist was unable to afford the cost of hiring a replacement car from a car hire company. Unless he had used the services of a credit hire company, he would have been unable to obtain a replacement car. There was no evidence that he would have suffered financial loss as a result of being deprived of the use of a car, but inconvenience is a form of loss for which damages are recoverable.
Duty to mitigate
In some instances, a claimant has no choice in how he mitigates his loss. In Harbutt's "Plasticine" Ltd v Wayne Tank & Pump Co Ltd  QB 447, the claimant's factory, an old mill, was destroyed by fire due to the defendant's faulty design of equipment. The planning authority would not allow the claimant to rebuild the old mill so, in order to carry on the business, it had to build a new factory. The defendants argued that the measure of damages should be limited to the difference in the value of the old mill before and after the fire and not cover the cost of replacing it with a new building. The court rejected this on the basis that there was no other way in which the claimant could carry on its business.
But what if the reason the claimant has no choice in how to mitigate is his own, pre-existing impecuniosity?
The old-fashioned and much-criticised approach was that taken by the court in Liesbosch Dredger (Owners of) v Owners of SS Edison (The Liesbosch)  AC 449. The claim arose out of the total loss of a dredger in the Greek port of Patras. The dredger was working under contract with the Harbour Board at the time. Unfortunately, the owners did not have the resources available to buy a replacement, so they had to hire one at high cost, and the replacement proved more expensive to run than the original. They claimed their actual loss, but the court awarded damages equivalent to the market price of a comparable dredger, on the basis that the additional losses had not been caused by the defendant's tort, but by the owners' impecuniosity.
This decision was hard to reconcile with a claimant's general duty to mitigate, or with the principle (applied in cases of physical disability) that the defendant must take his victim as he finds him. As a result, it has often been distinguished on its facts, and more recent decisions have been based on the grounds of reasonable foreseeability.
So what of the impecunious motorist? The majority of the House of Lords took the view that it was reasonably foreseeable that some car owners would not have a suitable debit or credit card or the money available to pay in advance for hire and, therefore, would have no choice but to go to a credit hire company. In such cases, common fairness required that they should be able to recover the additional fee. Otherwise, in mitigating his loss, an impecunious claimant would end up worse off than he was before the accident - and worse off than a financially well-placed claimant able to hire a replacement. That would be contrary to the fundamental purpose of an award of damages - to place the injured in the same position as he was before the accident, as far as possible.
Lords Scott and Walker, dissenting, thought the test dangerously open-ended and likely to lead to a host of disputes about the claimant's financial situation. In effect, the court was allowing the cost of financing a payment recoverable as special damages to be, itself, recoverable as special damages.
The decision raises a number of issues. What, for instance, is meant by impecunious? Was this claimant really faced with no other choice? He did not require the car for any commercial or business purpose and would not have suffered a financial loss if he had gone without one. It was merely inconvenient.
These Case Notes have been prepared with care, but neither the Editor nor the International and other Contributors can guarantee that they are free from error, nor that they contain every pertinent point. Reliance should not therefore be placed upon them without independent verification. The Editor and the International and other Contributors disclaim all liability for any loss of whatsoever nature and howsoever arising as a result of others acting or refraining from acting in reliance on the contents of this website and the information to which it gives access. The Editor claims copyright in the content of the website.