Draft:Armstead v Royal & Sun Alliance Insurance Company Ltd

Armstead v Royal and Sun Alliance Insurance Company Limited [2024] UKSC 6 is a judicial decision of the Supreme Court of the United Kingdom that addresses fundamental questions in applying the tort of negligence that has the potential to affect a significant number of other cases. The decision concerns pure economic loss, remoteness and the burden of proof in English tort law.

= Facts= A car driver, Ms Armstead, was involved in a road traffic accident for which she was not at fault. While Ms Armstead’s car was being repaired, a car hire company, Helphire, hired a Mini to her on credit hire terms. Helphire and Ms Armstead contracted on Helphire’s standard terms. A term in their contract, clause 16, provided that, if the hired Mini was damaged, the hirer (Ms Armstead) was to pay the daily credit hire rate, up to a maximum of 30 days, to the hire company (Helphire) to compensate for their loss of use while the hired Mini was out of use [4].

While Ms Armstead was driving the hired Mini, it was hit by a negligently driven van. Ms Armstead brought a claim against the van driver’s insurers, Royal & Sun Alliance Insurance Company Ltd (“RSA”) [6]. By her claim, which was funded and pursued in her name by Helphire [9], Ms Armstead sought not only damages for the cost of repair of the Mini but also for a sum under clause 16 that she was contractually liable to pay Helphire for Helphire’s loss of use. It was common ground that the daily rental hire rate that Ms Armstead sought to recover (the “credit-hire” rate) was significantly higher than the standard (or “basic”) car hire rate of a vehicle hire company that was not operating its business on credit hire terms.

= Judgment = Lord Leggatt and Lord Burrows gave the lead judgment, with which Lord Richards and Lady Simler agreed. Lord Briggs gave a brief concurring judgment.

Burden of proof in tort

The Supreme Court held that that a defendant to a claim in tort bears the burden of proof that, once it has been proved that a tort was committed and the loss claimed was in fact caused by the defendant’s breach of duty, the defendant bears the burden of proof in respect of the five principles that are capable of limiting recoverable damages by a claimant in tort (namely (i) the scope of the duty; (ii) remoteness; (iii) intervening cause; (iv) failure to mitigate; and (v) contributory negligence) [59].

With respect to remoteness in particular, there was a surprising absence of authority, but the Supreme Court held that the legal burden of proof lies “[62] …on the defendant to plead and prove that loss, which was in fact caused by the defendant’s tort, is nevertheless irrecoverable because it is too remote”.

Recovering contractual liabilities in tort

Armstead decides that, under UK law, a claimant in the tort of negligence can recover, as damages, the amount of a contractual liability that the claimant owes to a third party, when that contractual liability is incurred as a result of the defendant’s wrongful act in negligently damaging the claimant’s property (including property in the claimant’s possession), unless recovery is excluded or reduced by the general principles limiting the recovery of damages in tort namely (i) the scope of the duty; (ii) remoteness; (iii) intervening cause; (iv) failure to mitigate; and (v) contributory negligence [22]–[23].

The Federal Court of Australia, in the case of Millar v Candy (1981) 58 FLR 145, came to a different conclusion in respect of amounts due under a car hire-purchase agreement, finding that the relevant hire-purchase cost was not recoverable as damages in tort, as that was not loss flowing from the tortious act but was, rather, a sum payable because of the hire-purchase contract. McGregor J, saying at page 168: “''The respondent's claim is for more than damages flowing from the accident; but for a sum which is referrable to a collateral matter, viz. a contract between the respondent and the Hire Purchase Agreement company. That the appellant knew of the Hire Purchase Agreement does not seem to me to be determinative of the matter''.”

In Armstead, the UK Supreme Court adopted the approach taken in Network Rail Infrastructure Ltd v Conarken Group Ltd [2011] EWCA Civ 644; [2012] 1 All ER (Comm) 692, holding that “[36] Where physical damage is negligently caused to revenue-generating property, the loss recoverable by the owner of the property from the person who caused the damage includes a sum payable by the owner, under an agreement with another party to compensate that party for its loss of revenue resulting from the damage, provided the sum agreed is a reasonable estimate of the likely amount of that loss”.

Applying Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co, The Wagon Mound [1961] AC 388 and Hughes v Lord Advocate [1963] AC 837, the Supreme Court found that in UK tort law “[47(i)] …''loss is too remote to be recoverable as damages if the type of loss suffered was not reasonably foreseeable at the time of the breach of duty. But if the type of loss was reasonably foreseeable, it does not matter that the precise manner in which it was incurred was not reasonably foreseeable” however, the Court found that “[47(iii)]... to fall within this reasonably foreseeable type of loss, it is necessary for the claimant’s contractual liability to reflect the loss of use of the hire company''”.

While saying that it was not necessary to decide the point, the Supreme Court noted that it would not follow that no damages at all are recoverable. The Supreme Court referred to principles arising in claims for breach of contract, saying that a Claimant could recover “[72]... such part of the loss actually resulting as was … reasonably foreseeable as liable to result from the breach” referring to Cory v Thames Ironworks and Shipbuilding Co Ltd (1868) LR 3 QB 181 and Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528, 539.

Bailment

The Supreme Court also addressed and reconfirmed aspects of the law of bailment, namely that a bailee in possession of property can claim damages from a stranger whose negligence results in the loss of, or physical damage to, the property (applying The Winkfield [1902] P 42) [21]) and that bailor and bailee are not to be treated as having one set of rights when claiming damages, each may be entitled to sue for loss or damage to bailed chattels, subject to avoiding double recovery [40].

Relational economic loss

The Court mentioned the concept of “relational economic loss”, noting its use in leading texts but saying that the term may confuse matters, and is best avoided, because its precise meaning is unclear and the important underlying point is that, in general, pure economic loss is irrecoverable in the tort of negligence [27].