Neutral Citation Number: [2012] EWHC 1599 (Comm)
Case No: 2011 FOLIO 873, 1071, 1072 & 1073
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Rolls Building
Fetter Lane, London, EC4A 1NL
Date: 15/06/2012
Before :
THE HON MR JUSTICE COOKE
--------------------Between :
(1) ADRIANNE COLES
(2) NATALIE WOODHEAD
(3) KIM CROWTHER
And the Claimants listed in the Schedule to the Order
dated 22 September 2011
- and (1) ROSEMARY HETHERTON
(2) MAHALA GUY
(3) OLIVER THOMAS
And the Defendants listed in the Schedule to the
Order dated 22 September 2011
Claimants
Defendants
----------------------------------------Mr Christopher Butcher QC and Mr Jonathan Hough (instructed by Herbert Smith LLP)
for the RSAI Policyholders
Mr Michael Curtis QC and Mr Justin Davis (instructed by DAC Beachcroft LLP) for the
Provident and Allianz Policyholders
Hearing dates: 29th & 30th May 2012
---------------------
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this
Judgment and that copies of this version as handed down may be treated as authentic.
.............................
THE HONOURABLE MR JUSTICE COOKE
THE HONOURABLE MR JUSTICE AKENHEAD
Approved Judgment
Coles v Heatherton
Mr JUSTICE COOKE :
Introduction
1.
There are three preliminary questions for the Court to determine in thirteen actions
which have been the subject of combined case management orders in this Court
because of the issues of principle involved. Each of the managed cases arises out of a
minor road traffic accident in which the vehicle of a person insured by Royal & Sun
Alliance Insurance plc (RSAI) was damaged by the admitted negligence of a driver
insured by either Provident Insurance plc (Provident) or Allianz Insurance plc
(Allianz). In each case RSAI indemnified its policy holder by having the vehicle
repaired. The claims are therefore subrogated claims brought in the name of the
policyholders. Throughout this judgement, I will refer to the RSAI insureds as the
claimants, even though some claims in the actions are brought by Provident
policyholders seeking declarations as to their liability.
2.
The claimants are insured by RSAI under a variety of policies. However the wording
of the policies, although not identical, shares a common feature – an option for
reinstatement. Each policy contained the option, where the car was repairable for less
than its market value, whereby the policyholder could choose a repairer or elect to use
RSAI’s system for repairing cars. In each of the managed cases the option exercised
was for utilisation of the RSAI system which also entitled the policyholder to the use
of a courtesy car, if the policyholder so desired. The RSAI system is the subject of
challenge by Provident and Allianz (supported from the sidelines by other Insurers)
essentially because, it is said, the system has the effect of inflating claims for repairs
which fall to be paid by the insurer of the tortfeasor.
The RSAI Scheme.
3.
RSAI’s case is that it engaged MRNM, which is the trading name of RSA Accident
Repairs Limited, a member of the RSA Group, to undertake repairs to the claimants’
vehicles. MRNM owns and operates 6 repair garages which are staffed by its own
employees. These are known as Quality Repair Centres (QRCs) and are located in
Birmingham, Bristol, Glasgow, Leeds, Luton and Stockport. RSAI maintains that
around 15% of repairs of its policyholders’ vehicles take place at QRCs. It is unclear
what proportion of the repairs undertaken at QRCs relates to cases where RSAI’s own
insured was at fault. 2 of the 13 managed cases involve repairs undertaken at QRCs.
RSAI says that MRNM subcontracts other repair jobs to independent garages outside
of the RSA Group, which then do the repair work. 11 of the 13 managed cases involve
repairs undertaken at such independent garages.
4.
RSAI maintains that MRNM undertakes the repairs under the terms of a Services
Agreement which lays down rates and charges for repair services. Those rates and
charges have been periodically varied under documents called “Retail Adjustment
Criteria”. Clause 3.1 of the Services Agreement provides that MRNM is required to
provide services as detailed in schedule 1. Clause 3.2 permits RSAI to require MRNM
to obtain specified products, goods and materials from designated suppliers. Under
THE HONOURABLE MR JUSTICE AKENHEAD
Approved Judgment
Coles v Heatherton
clause 4.1, MRNM gives a series of warranties, representations and undertakings as to
the quality of the repairs to be carried out while clause 4.2 provides that any failure to
perform or procure the performance of these services in accordance with the
agreement should be remedied as soon as possible, without prejudice to other rights of
RSAI. Clause 7 provides that contract charges should be as set out in schedule 3
whilst clause 7.4 requires MRNM to raise invoices in an agreed manner and to
provide such information as RSAI reasonably requires to substantiate the charges
made. Clause 28 makes it plain that nothing in the agreement is to give rise to any
agency between MRNM and RSAI.
5.
Schedule 1 itself (headed “Services”) contains a series of service standards which are
required to be met by repairers in MRNM’s Priority Repair Network (PRN repairers).
There is a requirement to provide a delivery/collection service, if sought, and an
obligation to provide estimates of repair work in a particular format (the Audatex
form) and the requirement to provide courtesy cars where the customer requires it.
6.
Schedule 3 provides for labour and other charges to follow a set formula, (revised in
various amendments to the Services Agreement) which allows for MRNM to make a
profit over and above the charges paid by it to PRN repairers. The amounts charged
by MRNM are designed not to exceed that which would be payable by an individual
who went out into the market to get the repairs done, whilst RSAI/MRNM is able to
negotiate substantial discounts with its PRN repairers by reason of its bargaining
power and the volume of work that it can supply to them. MRNM charged the same
rates when the work was done by its QRCs, though documentation shows the QRCs
providing lower figures to MRNM. It is said by RSAI that the QRCs , as a separate
division of MRNM invoice the procuring division of MRNM at the lower rate, whilst
the procuring division charge the commercial cost to RSAI.
7.
QRCs and PRNs are utilised by RSAI according to the geographical convenience or
other preference of the policyholder. Where neither a QRC nor a PRN is used, RSAI
will engage a non-recommended garage (NRG) outside the terms of the system on a
one-off basis, usually or perhaps only where the option is exercised by the
policyholder to utilise that other garage.
8.
Schedule 3, in the form which applied to most of the managed cases, provided for
labour to be charged according to agreed hourly rates and on three different scales.
The standard hourly rate was £29.50 with parts and paint charged at normal prices.
Under the New Repairer Costs Model (NRCM) the hourly rate was £39.50 but with a
discount on parts and paints, said to be between about 15% and 40%. A rate of £49.50
per hour was used for high value prestige vehicles.
9.
In cases where the net invoice total exceeded £300.00 and the labour involved in the
repair exceeded 4 hours, the Schedule provided for additional charges to be made for
“Sundry Services” provided. The Sundry Services charge was a flat rate charge which
RSAI and MRNM agreed to cover a range of services for which repairers could
charge retail customers on an individual service basis. RSAI’s case is that some of the
services were provided in all cases though other services might not be, depending
upon the particular nature of the work involved. The flat rate charge, whatever the
services provided under this head, amounted to three times the hourly labour rate
utilised. In addition the provision of a courtesy car to the customer was subject to a
THE HONOURABLE MR JUSTICE AKENHEAD
Approved Judgment
Coles v Heatherton
charge of £11 per day and where the customer’s vehicle or a courtesy car had been
delivered and/or collected, a charge of £110 could be added.
10.
On RSAI’s case, MRNM was engaged to repair or procure repairs and subcontracted
the repair obligations to PRN repairers or NRG repairers where its QRCs did not do
the work. Bordereaux moved from the garage to MRNM and from MRNM to RSAI,
with its mark up, and payment proceeded down the chain in the same fashion. The
bordereaux contained very limited information about the repair work done. In
consequence, when RSAI presented a claim to the insurance company of a tortfeasor,
a Breakdown of Invoice Charges (BIC) was put forward as the basis of claim. This set
out the figures payable by RSAI to MRNM which, in most cases, exceeded the sums
paid by MRNM to a subcontractor, as the rates agreed with PRN repairers were, on
RSAI’s evidence, lower than those which could have been obtained by any individual
obtaining repairs from the same garage because of the discount which MRNM could
obtain from the garage by reason of its bargaining power and the bulk volume of work
produced to the garage by it. RSAI maintains that the figures charged by MRNM to it
were no more than any individual policyholder would have had to pay a garage and in
most cases were somewhat less. Provident and Allianz calculate that the overall effect
of the interposition of MRNM between RSAI and the repairing garage was to increase
the cost of the work done by approximately 25% on bills which, in the managed
cases, were generally of the order of hundreds, rather than thousands of pounds. RSAI
says that the charging scheme is the same whether or not the RSAI policyholder is at
fault or a claim is presented to the insurers of another driver.
11.
RSAI’s case is that the claim presented on the BIC properly represents the loss
sustained by the policyholder which he or she is entitled to claim from the tortfeasor
insured by Provident or Allianz, as the case may be, because it reflects what the
policyholder would have to pay individually for such repairs. It accepts that it is a
question of fact in each case whether the amount claimed does or does not exceed the
reasonable cost of repairs to the claimant but is confident that the sums claimed do not
exceed that reasonable cost because the scale of rates agreed with MRNM produces
total costs for repairs which are at, or lower than, what the insured motorist would
himself have to pay. It prays in aid the Retail Charge Guide published by the Auto
Body Professionals Club, which is a motor repairer trade body, which gives a guide as
to the recommended retail price for repairs. The £39.50 hourly rate is about the same
level as the ABP guide but the effect of the discount for parts/paint is that the overall
repair bill is below that which would be paid by the individual policyholder. The ABP
guide rate specifies a minimum charge of £110 for recovery, collection and delivery
services whilst the RSAI/MRNM charging formula provides for £110 to be charged
for any one of those services or for all of them together. As to the Sundry Services
charge, RSAI’s case is that the flat rate charged is less than would be charged for the
Sundry Services in a given case, if provided to a retail customer by a garage.
12.
RSAI accept that the model described generates income for MRNM which is a
company in the same group as itself, though not a subsidiary. It points however to a
number of other models of repair of policyholder’s vehicles used by other insurers
which have the effect of generating income or savings for the insurer or associated
companies. The evidence of Mr Currie sets out some of these other models, including
repairing subsidiaries or related repair companies, related claims management
companies, recommended repairing garages which pay referral fees, arrangements
THE HONOURABLE MR JUSTICE AKENHEAD
Approved Judgment
Coles v Heatherton
with the suppliers of parts, with credit repair companies, credit hire companies or
accident claims organisations all of which similarly pay referral fees. The effect is that
other insurers, when presenting claims to the tortfeasor’s insurers make claims for
sums invoiced gross to them without taking account of profits earned by related
companies or rebates or referral fees whereby the insurer recoups some of what has
been paid out but do not account to the tortfeasor or the tortfeasor’s insurers for those
benefits. The difference in RSAI’s model, according to Provident and Allianz, is that
MRNM charges higher rates than those charged by the subcontracting repairers,
where used, and charges flat rate fees for collection and delivery, courtesy cars and
Sundry Charges even where the garage charges nothing when providing those
services. It is also suggested that in some cases MRNM imposed such charges, even
where no service was provided by the garage at all, an allegation which is hotly
disputed. Whereas insurers have, as between themselves, plainly tacitly accepted a
level of rebate or referral inuring to the benefit of the claiming insurer, without any
credit accruing to the paying insurer (or the extent of it being disclosed) the RSAI
model is one to which other insurers have taken objection, because of the mark up on
repair charges. If an insurer had a repairing subsidiary however, it would presumably
charge repair costs to its parent at a level which provided for some profit, rather than
simply charging at cost. I understand that the OFT is currently looking into some or
all of these practices.
13.
I have described the RSAI model as RSAI put it forward. It is not accepted by
Provident or Allianz that the model does work in this way nor that it applied to the
repair arrangements in some of the managed cases. Issues of fact are said to arise in
relation to the identity of the party contracting with the repairing garage, it being said
in some cases that it was RSAI and in other cases that it was the policyholder
individually.
The preliminary questions
14.
The three preliminary issues are set out in the order of Teare J: “(1) Measure of loss: Where a vehicle is negligently damaged
and is reasonably repaired (rather than written off), is the
measure of the claimant’s loss taken as the reasonable
cost of repair?
(2)
Test of ‘reasonable repair charge’: If a claimant’s insurer
has arranged repair, is the reasonableness of the repair
charge to be judged by reference to (a) what a person in
the position of the claimant could obtain on the open
market; or (b) what his or her insurer could obtain on the
open market?
(3)
Recoverable amount: Where a vehicle is not a write-off
and an insurer indemnifies the insured by having repairs
performed and paying charges for those repairs, and
where the amount claimed is no more than the reasonable
cost of repair (on the correct legal test determined under
(2) above), is that amount recoverable?
THE HONOURABLE MR JUSTICE AKENHEAD
Approved Judgment
Coles v Heatherton
The principles of law applicable to the first issue
15.
It is clear in law that where a person’s chattel is damaged by the negligence of
another, the loss suffered by the victim is the diminution in value of the asset resulting
from the physical damaged caused. It is also clear that the loss is suffered
immediately upon the damage occurring, whether or not any repairs are effected.
These principles apply across the board to all types of chattels, including ships and
cars, This is direct loss. In addition to the claim for physical damage to the asset, there
may also be a consequential loss claim for the loss of use of the asset. If it is a profit
earning chattel, that loss can be measured by reference to the profit which would have
been made during the period of repair, but if it is not a profit earning chattel, special
damage can be recovered if a substitute is hired in for the relevant period or general
damages may be recoverable for the inconvenience of not having the asset available.
The law distinguishes between claims for physical damage on the one hand and loss
of use on the other.
16.
The usual way in which diminution of value of an asset is measured in consequence
of physical damage is by reference to the repair cost. This can be described as “the
normal measure”, “the ordinary rule” or “the prima facie” measure. The authorities
make it plain however that the victim of the negligence does not have to repair his
asset nor does he have to pay for repairs if they are done. He can choose to leave the
asset unrepaired; an intervening event destroying the asset may occur before repairs
are done; the victim may become insolvent before paying the repairer. The principle is
that the victim can recover because, from the moment the physical damage has
occurred, the value of the asset is diminished. The cost of repair is the ordinary way of
measuring that loss. If repair has taken place, production of the invoices showing the
cost of repair would be the ordinary way of establishing the loss. If repair does not
take place then estimates for repair or expert evidence as to the cost of repair could
equally establish the extent of the recoverable loss. In small claims of the kind with
which the managed cases are concerned, a County Court will usually be faced with
invoices in respect of repairs carried out and insurers, when dealing with other
insurers, may accept summaries or spreadsheets setting out costs without reference to
the underlying invoices or documentary evidence establishing such cost. The RIPE
scheme (“Reduction in Paper Exchange”) which operated between insurers was
designed to minimise the need for documentary evidence to be produced to
substantiate claims between insurers who would pay on the basis of a summary of
costs incurred, insurers having the requisite experience to judge whether the repair
costs for the type of damage suffered appeared acceptable. Some County Courts have,
I was told, rejected claims made by RSAI policyholders because of the production of
a BIC but no invoices from the garage showing the cost of repair.
17.
In The Endeavour [1890] 6 Asp MC 511, repairs were effected by the owner of a
vessel damaged in a collision but not paid for because the owners became insolvent.
Sir James Hannen found for the liquidator of the insolvent company holding that the
ship had been injured and that the owners were entitled to be paid in respect of that
injury. The cost of repairs had been established and that was the measure of the
damages recoverable. It made no difference if “somebody out of kindness were to
repair the injury and make no charge for it”. The wrongdoer would still be bound to
THE HONOURABLE MR JUSTICE AKENHEAD
Approved Judgment
Coles v Heatherton
pay the cost of repairs to the owner as the measure of loss suffered from diminution in
the value of the asset.
18.
In The Glenfinlas [1918] P 363 temporary repairs were made to a vessel following a
collision but permanent repairs were postponed on the basis that they would be done
at the end of the First World War. However in 1917 the vessel struck a mine and
sank. The cost of the permanent repairs was accepted, the Registrar stating that it was
clear law that the owner of a vessel was entitled to the cost of repairs though they had
not been effected, by reference to the decision in The Endeavour. “Such estimated
cost was in fact the measure of an actual injury resulting in actual damage to the
plaintiff’s property and was part of the cost of repairs”. It was therefore allowed.
Damages for detention were not recoverable however since there never was any loss
of use by reason of the repairs, because such repairs did not take place.
19.
The Court of Appeal in The Kingsway [1918] P344 was concerned with permanent
repairs and loss of use in circumstances where those permanent repairs had not yet
taken place at the time of the assessment of damages. Temporary repairs had been
done but once again, it was improbable that the permanent repairs would be effected
before the end of the war. The Court of Appeal had no difficulty in finding that the
owners of the damaged ship were able to recover both for prospective permanent
repairs and prospective loss of time on the basis of evidence as to what the cost would
be and how much time would be lost in effecting those repairs. It was proved to the
Court’s satisfaction that repairs would be done so that there would be loss of time, as
opposed to the position in The Glenfinlas where, since the ship had been lost, the
repairs would never actually be done and no loss of time would be suffered.
20.
In 1934, the Court of Appeal once again returned to the same theme in The London
Corporation [1935] P70. After a vessel was damaged in a collision, it was sold for
break up before the repairs were actually done. At first instance, Bateson J held that it
was “beyond controversy” that the owner of a chattel was entitled to damages for
injury to it when physical damage was done, by reference to previous authority. If the
owners of the vessel chose to give her away after the incident, it would not be any
ground for saying that the wrongdoer was not bound to pay for the damage he had
done. The only way of getting out of paying for the damages would be to show that
there was no diminution in the value of the ship. In the Court of Appeal, Greer LJ at
page 77 stated that, prima facie, the damage occasioned to the vessel is the cost of
repair - the cost of putting the vessel in the same condition as she was in before the
collision and to restore her in the hands of the owner to the same value as she would
have had if the damage had never been done. “Prima facie, the value of a damaged
vessel is less by the cost of repairs than the value it would have if undamaged, though
it is true that evidence may establish that the value of the vessel undamaged is exactly
the same as her value after she had been damaged”. It mattered not that the vessel had
been sold for break up before repairs had been done. It was possible that the vessel
might not have been sold had she not been damaged in any event. He went on in the
following way:
“Quite apart from that, however, I agree with the learned judge
that in cases of this sort, the prima facie damage is the cost of
repair, and circumstances which are peculiar to the plaintiffs namely, that they have, before the damage has been
determined, sold the vessel to be broken up, is an accidental
THE HONOURABLE MR JUSTICE AKENHEAD
Approved Judgment
Coles v Heatherton
circumstance which ought not to be taken into account in the
way of diminution of damages, any more than it is in a case of
the sale of goods, where the difference in market price and
contract price is always allowed, regardless of the fact that
having regard to what the purchaser has done, no such damages
are in fact suffered by him. It is desirable that there should be a
measure of damage which can be easily and definitely found.
In this case, circumstances which are accidental to the plaintiffs
of which the defendants have no knowledge, or circumstances
applicable to the defendants of which the plaintiffs have no
knowledge, need not be taken into account.
A number of cases have been cited, and I think it is clearly
established now that where damage is done to a vessel, then
some damages are recoverable. I think that is the result of cases
like The Mediana (1) and The Marpessa (2) and the other cases
that have been cited, such as The York (3); The Kingsway (4);
and The Endeavour. (5) I need not go into the details of those
cases It is now clear that the shipowner who claims damages in
respect of injuries to his ship, if it turns out that before he has in
fact repaired her he has suffered the loss of the ship by
something other than the act of the defendant, can still recover
the estimated amount of the costs of repairing the ship, which
he would have had to incur if she had not been lost. It seems to
me that the principles that apply in those cases apply equally in
this: that the owners of the Benguela are entitled to recover
what has been agreed to be the amount they would have had to
expend for repairing their vessel, even though it has turned out,
by reason of a subsequent transaction, namely, the sale to
shipbreakers, that they never would have to repair her at all.
Further, it does not by any means follow that the price paid by
the shipbreakers would have been the same if the vessel had
been fully repaired, as it was in her unrepaired condition.”
21.
These principles are of long standing and have more recently been reaffirmed by the
Court of Appeal in 1986 and by the House of Lords in 2000. In Jones v Stroud
District Council [1986] 1 WLR 1141, a claim for negligence against a local authority
for failing properly to inspect the foundations of a house gave rise to recovery of cost
of repair though it was not established that such costs had ever been paid. A scheme
of work which involved both repairs for the damage caused by the defendant’s
negligence and improvements to the house in question was carried out by a company
controlled by the first plaintiff. There was no evidence that the plaintiffs had paid or
were liable to pay any sum to the company in respect of that work. The submission
was advanced on the basis of The Endeavour that, if someone out of kindness was to
repair the injury and to make no charge for it, the wrongdoer would not be entitled to
refuse to pay as part of the damages the cost of the repairs. That submission was
accepted by the court. (Although Neill LJ at page 1150H stated that, if the court was
satisfied that the property had been or would be repaired, it was not necessary for the
court to be concerned with the question of whether the owner paid for it or whether
the funds came from another source, it is clear from the previous authorities that there
is no need for the repair to be done, let alone paid for).
THE HONOURABLE MR JUSTICE AKENHEAD
Approved Judgment
22.
Coles v Heatherton
In Dimond v Lovell [2002] 1 AC 384, a case concerned with loss of use and credit
hire arrangements, Lord Hobhouse at page 406B set out the general position thus:“Mrs Dimond was at the time of the accident the owner and
person in possession of her car. It was damaged. Its value was
reduced. This can be expressed as a capital account loss. This
loss can be measured as being the cost of making good the
damage plus the value of the loss of its use for a week. Since
her car was not unrepairable and was not commercially not
worth repairing, she was entitled to have her car repaired at the
cost of the wrongdoer. Thus the measure of loss is the
expenditure required to put it back into the same state as it was
in before the accident. This loss is suffered as soon as the car is
damaged. If it were destroyed by fire the next day by the
negligence of another, the second tortfeasor would only have to
pay the damages equal to the reduced value of the car and the
original tortfeasor would still have to pay damages
corresponding to the cost of putting right the damage which he
caused to the car. These questions are liable to arise in relation
to any damaged chattel and have long ago received
authoritative answers in cases concerning ships: The Glenfinlas
(Note) [1918] P 363; The Kingsway [1918] P 344; The London
Corporation [1935] P70. These cases also distinguish between
the cost of the damage to the chattel and consequential losses to
the owner of the chattel such as loss of revenue. However even
where the chattel is non profit earning (as was Mrs Dimond’s
car) there may still be scope for awarding general damages for
loss of use: The Mediana [1900] AC 113; Admiralty Comrs v
SS Chekiang [1926] AC 627; Admiralty Comrs v SS
Susquehanna [1926] AC 655.
I mention these cases and the principles they illustrate to
demonstrate that persons such as Mrs Dimond do not have to
survive in an environment where the law does not recognise the
losses which they may have suffered and that the law is not
without principles covering the provision of compensation and
its assessment. Each case depends upon its own facts but loss of
use of the chattel in question is, in principle, a loss for which
compensation should be paid. However one of the relevant
principles is that compensation is not paid for an avoided loss.
So, if the plaintiff has been able to avoid suffering a particular
head of loss by a process which is not too remote (as is
insurance), the plaintiff will not be entitled to recover in respect
of that avoided loss. If the loss has only been avoided by
incurring a substituted expense, it is that substituted expense
which becomes the measure of that head of loss. Under the
doctrine of mitigation, it may be duty of the injured party to
take reasonable steps to avoid his loss by incurring that
expense. ”
THE HONOURABLE MR JUSTICE AKENHEAD
Approved Judgment
Coles v Heatherton
23.
Since the loss suffered from the physical damage is the loss in value of the chattel in
question and that loss is suffered immediately upon the occurrence of the collision, it
is hard to see how questions of mitigation can arise. The diminution in value is
ordinarily measured by the cost of repair and self evidently that must be the
reasonable costs of the repairs rendered necessary by the damage. As has frequently
been said, the notion of “the duty to mitigate” can be seen as a reflection of the issue
of causation. Here however the issue which the Court has to decide is one stage
removed from that, since it is only concerned with the diminution in the value of the
asset which can be measured by the reasonable cost of repair, if repair is done. There
is therefore a simple question of fact for the Court in assessing a loss in respect of the
physical damage because the Court must arrive at a figure which reflects that
diminution of loss, whether it is by reference to a repair estimate, a repair invoice or
expert evidence as to what repairs would cost.
24.
In Burdis v Livsey [2003] QB 36 the Court of Appeal was concerned with a Credit
Repair Agreement where the cost of repair was funded by a commercial arrangement
which was unenforceable by reason of the Consumer Credit Act. Aldous LJ, in the
judgment of the court, at paragraph 84 referred to the fundamental distinction which
had to be drawn between repair costs and hire charges. “When a vehicle is damaged
by the negligence of a third party, the owner suffers an immediate loss representing
the diminution in value of the vehicle. As a general rule, the measure of that damage
is the cost of carrying out the repairs necessary to restore the vehicle to its pre
accident condition”, referring to Lord Hobhouse in Dimond (ibid). He went on to say
that it was common ground in Burdis that the repairs restored the car to its pre
accident value and there was no issue as to the reasonableness of the garages charges.
At the moment when the accident occurred the owner suffered a direct and immediate
loss, the measure of which was the cost of repairs which were in fact carried out, but
it was not a condition precedent to recovery of compensation for that loss, that the car
be repaired. The cause of action for recovery of damages representing the diminution
in the value of the car caused by the tortfeasor’s negligence was complete when the
accident occurred. Nor did it matter whether the repairs were carried out at no cost, by
contrast with the hire charges which were sought to be recovered in Dimond, since
they represented a potential future loss consequent upon the defendant’s tort, which
was recoverable as damages only if and when it was in fact suffered. The hire charges
for the substitute car for the period of repair constituted special damage so that, if the
Credit Hire Agreement was unenforceable, as in Dimond, the hire charges were
irrecoverable from the defendant because the claimant had never suffered that loss.
25.
At paragraphs 87 onwards, the Lord Justice explored the issue of mitigation in the
context of damages for tort which are “purely compensatory”. He said that the process
of determining what loss the claimant has actually suffered differs according to
whether the loss was suffered when the tort was committed (direct loss) or whether it
was suffered subsequently (consequential loss). In a case of direct loss, subsequent
events can only operate to reduce or extinguish the loss in so far as the events are
referable to the claimant’s duty to mitigate and therefore operate in a causative sense
in relation to the commission of the tort. He quoted Robert Goff J (as he then was) in
Koch Marine Inc v D’Amica Societa di Navigazione ARL [1980] 1 Lloyds Rep 75 at
page 88: “What is alleged to constitute mitigation in law can only have that effect if
there is a causative link between the wrong in respect of which damages are claimed
and the action or inaction of the plaintiff ”
THE HONOURABLE MR JUSTICE AKENHEAD
Approved Judgment
26.
Coles v Heatherton
At paragraph 91 Aldous LJ held that the authorities established that subsequent events
which were not referable in a causative sense to the commission of the tort, that is to
say events which, on a true analysis, were collateral to the commission of the tort or
res inter alios acta, or were too remote, do not affect the measure of a direct loss
suffered when the tort was committed. For potential future losses however the general
rule was that, to the extent that such a loss was in fact avoided, for whatever reason, it
was a loss which was never suffered and was therefore irrecoverable. He pointed out
that there were two well established exceptions to the general rule that potential future
losses were irrecoverable if and to the extent that they were in fact avoided, those
being the recovery of money under an insurance policy and the receipt of money from
the benevolence of third parties prompted by sympathy. The point was however that
repair costs were merely the measure of a direct loss suffered when the tort was
committed so that it was hard to see how any issue of mitigation could arise and the
claimant was entitled to recover even though she had paid nothing for the repairs
because they had been funded by a finance company whose loan was unenforceable
against her.
Question 1
Measure of loss: Where a vehicle is negligently damaged and is reasonably repaired (rather
than written off), is the measure of the claimant’s loss taken as the reasonable cost of repair?
27.
Both the claimant and the defendants give an affirmative answer to this question as a
matter of language but advance contradictory submissions as to what is meant by “the
reasonable cost of repair” and how the amount in question is to be ascertained. The
claimants submit that the basis of the claimants’ loss is the diminution in value of the
asset which is measured by the reasonable cost of repair which can be established by
different kinds of evidence. If the car is repaired, then the conventional way of
establishing the loss is by reference to the costs incurred but, in reliance upon the
authorities, the claimants also say the loss could be established by reference to
estimates of repair costs or expert evidence about that cost of repair, whether by
reference to photographs of the damage or standard rates for repairing charges,
regardless of any actual repair invoice, since the latter might or might not reflect the
reasonable cost of repair. The defendants on the other hand put forward the
proposition that, since the principle underlying damage is restitution, a claimant
cannot recover more than the cost of the repairs which are actually effected and that
this figure may be subject to some discount if there has been a failure to mitigate by
not acting reasonably in obtaining a lower price for the repairs. The defendants
effectively argue for a rule of law that the actual cost of repairs is the measure of
damages and presents a cap upon it but the claimants submit, this confuses the
measure of loss with the evidence which is adduced to support a claim.
28.
The defendants put forward a two stage test: Stage 1 is a factual enquiry. What were
the actual repairs and other services that were carried out to repair the damage to the
claimant’s car? What was the cost of the various entries on the repair bill? The
defendants submit that the actual repairs and other services that were provided and the
cost charged for each item are the starting point for the assessment of the claimant’s
damages. If, for example, the repair bill contains entries for items that were not in fact
provided and/or were provided at no cost, the claimant will not be entitled to recover
the cost of those entries. Stage 2 concerns reasonableness. Were the repairs
reasonable? Was the cost of the repairs reasonable? Did the claimant act reasonably to
THE HONOURABLE MR JUSTICE AKENHEAD
Approved Judgment
Coles v Heatherton
mitigate his damages? If the answer to any of these questions is “no”, the claimant
will not be entitled to the actual cost of the actual repairs – the actual cost will fall to
be reduced by deducting the unreasonable portion. Thus the cost charged for the
actual repairs necessary to repair the damage caused in the accident operates as a
‘cap’ on the amount the claimant can recover as damages, but the damages he
recovers may fall to be reduced to take account of the unreasonableness of the repairs,
the unreasonableness of their cost or the unreasonable conduct of the claimant.
29.
The defendants submit, that, if the claimants are right in the arguments they put
forward, the principle of “restitution” is jettisoned, since it could result in the
claimants recovering for costs of repairs not incurred by them. They draw attention to
the judgment of HHJ Platt in the Romford County Court in Fallows v Harkers
Transport and the usual method by which small accident claims have been historically
proved in actions in the county court. It is said that the effect of allowing recovery on
a MRNM BIC will be to allow recovery of costs which have not in reality been
incurred by RSAI, let alone reasonably incurred.
30.
I hope I do not do injustice to the defendants’ case but, as I see it, their case turns
upon the submission that, where repairs are carried out to a damaged car, that is in
itself the measure of damages and the Court is then concerned to see whether or not
the repair cost is reasonable. It was submitted that the claim for diminution in value
crystallises in the cost of repair, once done, so that the cost of repair represents the
loss in question and, in such circumstances the insurer which organises the repairs is
bound to mitigate the loss suffered by the car owner, as the car owner’s agent, by
using its bargaining power to achieve the lowest repair cost possible, whether or not
that would be a price obtainable by the policyholder himself. The policyholder is
bound to mitigate through its agent whom it had authorised to procure or effect the
repairs when entrusting the damaged car to it.
31.
In my judgment these arguments fall at the first hurdle. The authorities make it plain
that the loss suffered from physical damage is the diminution in value of the asset
which is ordinarily to be measured by the cost of remedying the damage. Where
however, for whatever reason, the claimant does not pay the repair cost in question,
he is still entitled to recover. If he himself repairs the car or a friend does so without
charge, the claimant is still entitled to recover the amount it would have cost him to
have the car repaired had he gone out into the market for that purpose. If he can get a
knock-down price for repairs by virtue of a particular relationship that he has, it is still
open to him to claim the diminution in value of the car by reference to the market cost
of repair. This is because the cost of repair is merely a way of measuring the loss in
value. If no repairs are done, as I have already mentioned, the loss can be established
by reference to estimates or expert evidence as to the reasonable cost of repair.
32.
In my judgment, the propositions established by the authorities are fatal to the
fundamental premise upon which the defendants’ case proceeds. Issues of mitigation
may arise in relation to the hire of a substitute car or the use of a courtesy car and
conceivably to the cost of collection or delivery of a vehicle for repair (if the latter
type of costs are not part of the repair cost itself) but cannot apply to the Court’s
assessment of the direct loss where it uses the reasonable cost of repair as a way of
assessing the diminution in market value of the car.
THE HONOURABLE MR JUSTICE AKENHEAD
Approved Judgment
Coles v Heatherton
33.
I was referred by the defendants to a number of authorities which state that the Court
should use all information available at the time of assessment of damages, regardless
of its availability at the time of the tort or breach of contract or duty. Where repairs
have been effected, it was said by the defendants that self evidently, the starting point
must be the costs actually incurred in carrying out the repairs and that this must set a
cap on the recoverable loss before considering the reasonableness of those costs and
the question whether the claimant had mitigated or was claiming for avoidable loss.
The Court should not look at matters hypothetically but on the basis of actuality when
considering repairing cost.
34.
Reliance was placed upon the decision of the Court of Appeal in Darbishire v Warran
[1963] 1 WLR 1067. There the claimant owned a well maintained second hand car
which had been damaged in an accident due to the defendant’s negligence. The
claimant chose to repair the car at a cost which exceeded its market value. Harman LJ,
at page 1071 referred to the principle of restitutio in integrum and said that it had
come to be settled that “in general the measure of damage is the cost of repairing the
damaged article”. He went on to say that there was an exception if it could be shown
that the cost of repairs greatly exceeded the value in the market of the damaged article
and that this exception arose out of the duty to mitigate. The question to be asked was
whether the claimant had acted reasonably as between himself and the defendant in
the light of this duty. It was held that he had not. Pearson LJ also referred to the
principles of mitigation as set out in British Westinghouse Electric Manufacturing Co
Ltd v Underground Electric Railways Company of London Ltd [1912] AC 673 and
the true meaning of the duty to mitigate as being that the claimant could not charge
the defendant by way of damages with any greater sum than that which he reasonably
needed to expend for the purpose of making good the loss. He agreed that the
claimant had not done so, as did Pennycuick J. The defendants submitted that the
approach of the Court of Appeal in this case was the correct approach to adopt when
considering the cost of repairs which, when repairs had been carried out, had the
effect of crystallising the loss suffered.
35.
The problem with this decision and with the defendants approach is that it flies in the
face of all the authorities to which I have already made reference. There was no
citation to the court in Darbishire of The Endeavour, The Glenfinlas, The Kingsway
or The London Corporation. Moreover, since that decision, the principles set out in
the earlier authorities have been restated in Jones v Stroud DC, Dimond v Lovell and
Burdis v Livsey. The reasoning there cannot stand in the light of these decisions,
including later decisions of the Court of Appeal and House of Lords.
36.
The defendants further relied upon the decision of the Court of Appeal in Payton v
Brooks [1974] 1 Lloyds Rep 241 where a car was involved in an accident and was
repaired at a specified cost but the claimant sought a further sum for loss of market
value even after the repairs had been done. The Court of Appeal upheld the first
instance decision that the claimant had failed to prove any diminution in value over
and above the cost of repair but each member of the Court agreed, that in addition to
the prima facie measure of damages provided by the cost of repair, there was scope
for recovery of any additional loss in market value after the repairs had been
completed. The defendants submitted that, if the appropriate measure of damage was
the diminution in the value of the car, there would have been no need to refer to the
cost of repairs at all but, in my judgment that argument is not made good. The
THE HONOURABLE MR JUSTICE AKENHEAD
Approved Judgment
Coles v Heatherton
authorities establish that the normal measure of damages or the prima facie measure is
the cost of repair which is, often, easier to establish than a loss in market value based
upon expert evidence where there is room for argument. With a repair invoice, the
cost is ascertained, even though it remains open to argument as to its reasonableness.
It is noteworthy that, in Payton the claimant failed to establish the additional loss and
had to be content with the repair cost that he had shown. Contrary to the defendant’s
submissions, Payton along with the other authorities shows that the damage suffered
by the victim is the loss in value of the asset which can be shown evidentially by
reference to the cost of repair in the ordinary way.
37.
Although the defendant also relied upon authorities which referred to mitigation of a
loss which had already crystallised in the context of a conventional measure of
damage for the purchase of land or goods, none of these impact upon the position
where damage is caused to a chattel by a tortfeasor. In Pagnan & Fratelli v Corbisa
Industrial Agropacuaria ltda [1970] 1 WLR 1306 (CA), the prima facie rule for
ascertaining the measure of damage provided by section 51(3) of the Sale of Goods
Act 1893 was not applied because the buyers had in fact been able to go out into the
market and purchase a substitute cargo at a lesser price than the contract price or the
market value at the relevant time. In Hussey v Eels [1990] 2 QB 227 and Gardner v
Marsh & Parsons [1997] 1 WLR 489, the Court did not rule out the possibility in law
of a mitigation argument on a purchase of land which could have resulted in a
different measure of loss from the conventional difference between the price paid and
the market price of the property in its defective condition. In each case the argument
failed on the facts in any event but, in the latter case, Hirst LJ, with whom Pill LJ
agreed, accepted the submission that, where as a result of a defendant’s negligence a
claimant suffered loss in the form of diminution of value of the property, that loss was
not avoided by the subsequent conduct of the claimant unless the conduct flowed
inexorably from the original transaction and could properly be seen as part of a
continuous course of dealing with the situation in which the claimant originally found
himself.
38.
There is nothing unusual in a Court assessing the diminution in value of an asset by
whatever evidence is available although, as a matter of ordinary course, in a small
claim, the production of a repair invoice is frequently the best way of doing that since
the cost of repair is the prima facie measure of that loss. Where only part of an item is
repaired or where the work does not restore the asset to its pre accident value or the
claimant does not repair at all or merely effects temporary repairs, the diminution in
value must be assessed by reference to other materials. Nor can it be said that there is
a rule of law that where repairs are effected, the cost of repair has to be taken subject
to mitigation arguments. None of the authorities suggest such a rule and indeed such a
rule would run counter to the principles that have been set out from the time of the
decision in The Endeavour through until Burdis. The recovery for damage done to a
chattel is not dependant upon repairs being done or costs of repair being paid by the
claimant since the compensation is for loss in value, not the cost of the repair as such.
39.
The decision in Jones v Stroud BC (ibid) demonstrates the fallacy in the defendants
position. There was no evidence before the Court that the claimant was liable to the
company, in which he had an interest, to pay for the costs of repairs done to rectify
the damage to his house. He failed to disclose any documents that showed any
payment by him or any liability to make such payment. The Court had therefore to
THE HONOURABLE MR JUSTICE AKENHEAD
Approved Judgment
Coles v Heatherton
proceed on the basis that he had incurred no expense at all. Although no argument
seems to have been raised about mitigation as such, the Court of Appeal held that the
claimant was entitled to recover on the basis of expert evidence relating to an estimate
for the cost of repair that had been obtained from a third party contractor who had
been asked to quote but did not do the work. Repairs had been done, but the actual
cost to the claimant had to be taken as nil. He nonetheless made a substantial recovery
on the basis of the Court’s assessment as to the reasonable costs of repairs. Mitigation
did not feature in the argument because, in the context, that was rightly considered an
irrelevant consideration where the damage had already been suffered in the shape of
the diminution in value of the house.
40.
The decision in Darbishire v Warran, in relation to mitigation, must be seen as an
aberration. The same result would have been arrived at more readily by an application
of the test of diminution in value. If the cost of repair exceeds the value of the
damaged chattel, it is self evident that the value of the asset in its damaged condition
is nil or scrap value. The diminution in value is assessed by reference to its market
value at the time of the damage which represents the total loss of the claimant.
41.
Burdis also exemplifies the point. The judgment of the Court, given by Aldous LJ
held that, in accordance with Jones, the claimant could recover though she had paid
nothing for the cost of repairs and was not liable to pay such cost because the Credit
Repair Agreement, under which the finance company paid the cost of repair, was
unenforceable against her. That agreement was held to be collateral to the tort and had
to be left out of account in assessing her loss. It could not be said that the agreement
flowed from any act of mitigation on her part because there was no relevant causal
connection. The reason she entered into that agreement was the failure of the
defendant’s insurers to settle the claim and the fact that payment for the repairs was
made by someone else was irrelevant in the context of assessing damages. (“Repair
costs are merely the measure of a direct loss, suffered when the tort was committed,
and are not to be regarded as falling within the category of potential future losses
claimable as special damage” – paragraph 95).
42.
I conclude therefore that, where a vehicle is negligently damaged and is reasonably
repaired, rather than written off, the measure of the claimant’s loss can be taken as the
reasonable cost of repair. That reasonable cost is not necessarily the repair cost
actually incurred, whether by the claimant or its insurer or indeed by anyone else who
pays a repairer since the reasonable cost of repair is only a way of ascertaining the
diminution in the value of the chattel by reason of the physical damage, though it is
the normal and conventional way. Moreover it is clear that recovery is possible
regardless of repair or payment for repair. Thus, a Court can assess “the reasonable
cost of repair” by reference to any evidence which is sufficient to discharge the
burden of proof upon the claimant to establish the amount in question. Whilst this
would, in the ordinary case be achieved by producing invoices for repair costs, this
need not necessarily be the case since estimates for future repairs might be sufficient
as might be surveyors/engineers or other experts’ reports, whether by reference to
photographs, reports of damage and tables of rates for labour charges parts and paint
or otherwise. In each case it will be a matter for the Court to determine whether the
claimant has made out its case, whether or not repairs have been done and whether or
not an invoice is produced for the repair costs.
THE HONOURABLE MR JUSTICE AKENHEAD
Approved Judgment
Coles v Heatherton
Question 2:
Test of ‘reasonable repair charge’: If a claimant’s insurer has arranged repair, is the
reasonableness of the repair charge to be judged by reference to (a) what a person in the
position of the claimant could obtain on the open market; or (b) what his or her insurer could
obtain on the open market?
43.
The RSAI Policyholders say that the answer is (a), whereas Provident / Allianz submit
(b), with some qualification. The defendants do not say that the insurer can be
substituted for the policyholder in determining this issue, but do say that, on the facts
of the managed cases, the claimants’ position must be considered in the round with
that of their insurers, so that the options available to the insurers fall to be treated as
available to them in establishing the reasonable costs of repair.
44.
The defendants say that in each of the Managed Cases RSAI indemnified the claimant
by reinstating the damage to his property. The amount claimed is the amount charged
by MRNM which is higher than the amount RSAI could negotiate in the open market
because, for example, of the uplift in the labour rate and because of the sundry
services charge, as compared with the PRN repairers’ charges.
45.
The RSAI Scheme assumes that the higher amounts charged by MRNM are
equivalent to the amounts the claimants would have pay to have their cars repaired if
the claimants arranged the repairs themselves in the open market. Although it is not an
issue to be determined at this hearing, the defendants dispute this assumption.
46.
The claimants say that when assessing their damages it is not permissible to ‘look
behind the curtain’ at the arrangements made between the claimants and their insurer
RSAI or at the arrangements made between RSAI and third parties, including
MRNM, which, they say, are res inter alios acta. Thus, the claimants say, it is
irrelevant that RSAI could have arranged for the claimants’ cars to be repaired more
cheaply than the claimants could themselves and irrelevant that RSAI chose to have
the cars repaired more expensively by MRNM.
47.
The defendants submit that the reasonableness of the repair charge is to be judged by
reference to the lower cost RSAI could obtain in the open market for three separate
reasons.
i)
RSAI reinstated the claimants’ cars with their authority. In each case RSAI
could have had the repairs carried out by instructing an independent garage to
carry them out but (according to RSAI) chose not to do so and to instruct
MRNM instead. The defendants submit that in these circumstances the
reasonableness of the repair charge is to be judged by reference to the options
available to RSAI as well as those available to an individual insured.
ii)
The claimants delegated authority to RSAI to decide where to have their cars
repaired. In each case RSAI with the claimant’s authority unreasonably
instructed MRNM to carry out the repairs at unnecessary expense under the
RSAI Scheme instead of instructing an independent garage to carry out the
repairs at the lower price RSAI could obtain on the open market. RSAI’s acts
THE HONOURABLE MR JUSTICE AKENHEAD
Approved Judgment
Coles v Heatherton
are attributable to the claimants who thereby failed to mitigate their damages.
The claimants are entitled to recover only the reasonable cost of repairing their
cars, which is the cost RSAI could have obtained in the open market if it had
instructed an independent garage to carry out the repairs.
iii)
The increased cost of repair resulted from RSAI’s decision in each case to
instruct MRNM to repair the claimant’s car, not from the accident. That
decision (which is attributed to the claimants) was a new and intervening cause
and was the cause of the increased cost of repair. The claimants are confined to
claiming the cost of repair that RSAI could have obtained on the open market
48.
These three reasons are said to reflect the three different ways of putting the case- by
reference first to diminution of loss, secondly to mitigation and thirdly to causation.
In reality they reflect much the same arguments which centre on the question whether
RSAI’s choice of MRNM / QRC, or of MRNM / PRN repairer, or of a NRG falls to
be treated as attributable in some way to the policyholder claimant.
49.
Various authorities were relied on to establish that RSAI would be committing a
trespass to the goods of the policyholders if the latter had not authorised RSAI to
arrange for repairs to be done. It is not alleged that RSAI had authority to commit the
policyholder to a contract with MRNM or a garage, but it is said that limited authority
was given to RSAI to choose the means of repair of the vehicle. It is said that there is
no infringement of the principle that insurance is res inter alios acta, and that the court
should not look behind the curtain when assessing the loss suffered by the claimant
without reference to his insurance arrangements, as the only issue here is authority to
procure repairs.
50.
The problem for the defendants is however that RSAI procure the repairs as part of
their obligation to indemnify the policy-holders under the insurances. The authority
that they have to effect repairs arises from the insurance policy terms themselves and
the options exercised under those terms. RSAI is acting qua insurer when making
arrangements for the repair of the vehicles. Despite the defendants’ protestations to
the contrary, the submission requires the tortfeasor to have access to the claimant’s
insurance arrangements in order to pray in aid the options available to RSAI to reduce
the costs of repair.
51.
As a matter of principle, the loss is suffered by the policyholder. It is his asset that is
diminished in value and that loss is suffered at the outset when the collision occurs,
before any decision is made about repair, whether by the claimant or by RSAI or
MRNM. The defendants’ argument conflates the insurer and the insured long before
the insurer is involved, so that there is a chronological problem about examining the
insurer’s options in respect of a loss which is incurred before its involvement.
Moreover, since the defendants recognise that they cannot say that RSAI is authorised
to contract on behalf of the policyholders with the repairer, they are unable to say that
the cost of repair which RSAI incurs is an obligation owing by the policyholders.
Those costs do not therefore reflect any loss suffered by the claimant himself. The
repair costs incurred are simply part and parcel of the arrangements made by RSAI as
insurer, to fulfil its obligation to indemnify its insurers by reinstatement of the
vehicles.
THE HONOURABLE MR JUSTICE AKENHEAD
Approved Judgment
Coles v Heatherton
52.
The defendants’ argument also falls foul of the decision of the Court of Appeal in Bee
v Jenson (No 2) [2008] Lloyds’ Rep IR 221 where Mr Bee had insurance cover which
provided that if he was involved in an accident for which the other driver was 100%
to blame, the insurer would pay for the cost of a replacement vehicle for the duration
of the repairs, but, under the terms of the insurance, he had to use the car hire
company nominated by the insurers. It was argued by the tortfeasor that the claimant
could not recover the hire rate charged because the insurers could have negotiated a
lower rate of hire as a bulk user, as opposed to the rate available to a retail customer
and because the insurer received a referral fee, which meant that in practice it paid a
lesser net fee than that claimed. Initially the defendant argued that the claimant had
failed to mitigate its loss because he had delegated to the insurers, as his agent, the
task of sourcing a hired car and the insurers could have utilised a different scheme at
less or no cost. The claimant denied any agency and the allegation was struck out as
being without substance. The claimant had no choice as to the source of the
replacement vehicle and was, on making a claim under his insurance, obliged to use
the company nominated by the insurers.
53.
At first instance, Morison J held, at paragraph 11 that, but for the insurance
arrangements, the claimant would have been able to hire a car and recover the cost
from the tortfeasor. His insurance contract (for which he paid a premium) made it
easier for him to do that, but he was entitled, without reference to that contract to
claim for a replacement car, at a reasonable rate of hire for a reasonable period. That
was the only issue with which the tortfeasor was entitled to grapple, since the
insurance arrangements of the claimant were irrelevant and not the tortfeasor’s
concern. At paragraph 14 the Judge held that the court was not concerned to know
whether the insurer made a profit or not on the insurance arrangements and there was
no reason in law why any such profit should accrue to the benefit of the tortfeasor or
his insurers. The claimant could not on any view be bound to give credit for some
benefit which he had not received. The only issue was whether what was paid for the
hire of the car was a reasonable rate for the claimant himself to pay. The insurer’s
position was not to be conflated with the claimant’s as the law remained blind to the
insurance (paragraph 17).
54.
This decision was upheld by the Court of Appeal where Longmore LJ at paragraph 9
stressed the irrelevance of the insurance in assessing the claimant’s loss and at
paragraph 15 stated that the absence of any liability on the part of the claimant to pay
for the hire of the car, because of that insurance, made no difference to his entitlement
to claim the reasonable cost of a hired car as general, as opposed to special damages.
As set out in paragraph 18 onwards, the claimant could recover the reasonable cost to
him of a replacement as general damages, though he had paid nothing. What the
insurer might have paid, was nothing to the point.
55.
Thus, in that case, it was held that there was no room for the argument that the
insurer’s options fell to be taken into account in relation to the insured and any
obligation he might be under to mitigate. It was his position alone which was relevant
for the purpose of mitigation of consequential loss. It was argued on behalf of
Provident and Allianz that there was a distinction to be drawn between Bee and the
facts in the present case, because the agency argument was struck out in that case and
because the insured had a choice under the RSAI policies whether or not to use the
RSAI scheme or to get the car repaired at the garage of his choice. However
THE HONOURABLE MR JUSTICE AKENHEAD
Approved Judgment
Coles v Heatherton
Longmore LJ’s statements of principle as to the irrelevance of the insurance
arrangements were not dependent on any question of agency and, for the reasons
already given, agency cannot arise here, where the insurer is acting as insurer.
Moreover, it cannot be said that it was unreasonable of the claimants to opt for the
RSAI scheme with the offer of a replacement car, and once that choice had been
made, the repair arrangements were out of the hands of the claimants and were solely
a matter for RSAI, MRNM and the PRN repairers. RSAI could choose whether to use
MRNM and it would choose whether to use a QRC or a PRN repairer. That choice
cannot be attributed to the claimants because it is all part of the insurance
arrangements which are “behind the curtain”.
56.
The defendants relied on Copley v Lawn [2009] 1 Lloyd’s Rep IR 496, where the
Court of Appeal upheld a decision of a Mercantile Court Judge whom the court
treated as conflating the position of insurers with their solicitors, brokers or insurers in
two cases where advice was sought by the insured from such persons as to his future
course of action in relation to the offer of a replacement vehicle in place of that which
he had obtained on a credit hire scheme. In that context Longmore LJ, with whom the
other members of the court agreed, was prepared, in paragraph 16 to look at the
combined position of the insured and insurer in the second case on the basis that such
advice had been sought so that mitigation by the insured fell to be judged by reference
to the position where the insurers were involved in the decision. That is a far cry from
the present case where the issue is whether to attribute decisions about repairers and
cost of repair made by the insurer, without reference to, or the knowledge of, the
insured. The decision is how the indemnity is to be provided to the insured by way of
reinstatement. It is also, to my mind, clear, as it was to HHJ Mackie in W v Veolia
Environmental Services (UK) plc [2012]1 AER (Comm) 667 at paragraph 39, that
Longmore LJ was not introducing some radical change to the law relating to
mitigation by an insured, as it had been set out by himself at paragraph 9 of Bee, to
which I have referred above. The result in Veolia (where the defence was that the
victim’s insurer had paid too much on the credit hire agreements, where one such
agreement was unenforceable against the victim) was that full recovery was made
because the victim had reasonably mitigated in entering into the credit hire agreement
and the insurance in question. The insurer’s decision to pay was not attributed to him,
and because sums had already been paid (attributable to him as hirer), they were
recoverable from the tortfeasor, where, by reference to Dimond, had they not been
paid, they would not have been recoverable, since the consequential loss would not
have been incurred. There is a limited analogy with the present case and the defence
arguments here.
57.
For the reasons I have already given in coming to an answer on Question 1, the actual
cost of repair is only evidence of the extent of the claimants’ loss, so that choices
about the way in which repairs are to be done would be evidence of the reasonable
costs of repair which are said to reflect that diminution of the value of the vehicle.
Yet, the claimants’ position cannot be conflated with that of RSAI, whether the court
is considering the position in the context of diminution of the value of the asset and
reasonable costs reflecting that loss or in the context of mitigation, which, for the
reasons given earlier, does not, in my judgment arise. The consequences of the
defendants’ argument, would indeed, as the claimants submitted, be far-reaching
because, if correct, it would be open to the tortfeasor in every reinstatement case, to
THE HONOURABLE MR JUSTICE AKENHEAD
Approved Judgment
Coles v Heatherton
investigate whether the insurer could have come to some arrangement which was less
damaging to the tortfeasor. That is not, in my judgment, the law.
58.
The third reason advanced – the third way in which the defendants put this point - is
also doomed to fail because there cannot be said to be any break in the chain of
causation between the negligence of the defendants and the damage. For the same
reason that mitigation cannot apply to a loss suffered at the time of collision, because
the issue being considered is the diminution in the value of the damaged asset and the
reflection of that in the reasonable cost of repair, decisions made about the actual
repair cannot affect the loss suffered. It will always be the diminution in value of the
asset with which the court is concerned, as measured by the reasonable costs of repair,
whatever that may be and whatever the actual cost of repairs done, which may or may
not reflect such reasonable cost. There can be no intervening cause constituted by any
decision of the RSAI to utilise MRNM under the scheme, which had, in any event,
already been set up prior to the collisions in question.
59.
If foreseeability is relevant, the diminution in value and the need for repair to restore
that value are obviously foreseeable, whatever the extent of the cost of the repairs
carried out. The court is not concerned with the arrangements made by the insurers
for repair, save insofar as there is reliance thereon as evidence of the reasonable costs
of repair. The profitability or otherwise of the insurance is not a matter for the court,
and whether or not a car owner could foresee the RSAI scheme, or any of the other
schemes apparently operated by other insurers is nothing to the point.
60.
In my judgment therefore, the answer to the second question is (a). The
reasonableness of the repair charge, as a measure of the diminution in the value of the
damaged car, is to be assessed by reference to the position of the individual claimant,
without reference to his insurers or to any benefits which he obtains under his
insurance policy, for which he has paid premium. The well known and well
established principles of insurance, as set out in the authorities to which I have
referred, mean that the claimants’ dealings with their insurers and the insurers’ actions
in relation to the indemnity granted are res inter alios acta, in the context of
assessment of diminution in market value or costs of repair and behind the curtain for
any tortfeasor who seeks to argue about mitigation of loss in payment of repair costs.
61.
I have not formed a judgment on any disputed issue of fact, whether relating to the
contractual parties to the arrangements with garages which actually carried out repairs
or otherwise. These issues matter not if the correct approach is to assess an
objectively reasonable cost of repair from the perspective of the individual claimant.
If the insurers’ arrangements for repair are beside the point, unless the insurers, in the
name of the claimant, pursuing their subrogated rights, choose to rely upon them, it is
neither here nor there whether the insurers put in place a repair company such as
MRNM, which subcontracts to repair garages, or whether they subcontract further to
other specialist repairers, or whether RSAI contracts directly with a garage or repairs
the cars itself. The only issue is the reasonable cost of repair to the individual
claimant, which can be established by any form of admissible evidence in a court.
There is no more reason for the defendants to say that the garage invoices represent
the recoverable costs of repair than any other invoice from any further subcontractor
further down the line or any invoice from MRNM, whether subcontracted or not. It is
an objectively reasonable cost of repair with which the court is concerned, however
that may be proved.
THE HONOURABLE MR JUSTICE AKENHEAD
Approved Judgment
Coles v Heatherton
Question 3
Recoverable amount: Where a vehicle is not a write-off and an insurer indemnifies the
insured by having repairs performed and paying charges for those repairs, and where the
amount claimed is no more than the reasonable cost of repair (on the correct legal test
determined under (2) above), is that amount recoverable?
62.
I was asked to refrain from answering this question, because it is interconnected with
an application by the claimants to strike out various paragraphs of the statement of
case of the defendants and /or an application for summary judgment in relation to
issues raised in them. Those issues await a further hearing for which it appears, a full
day is likely to be required.
63.
I do not wish to pre-empt any argument at that hearing and it will be open to the
parties to make submissions on all that follows, but it may be of help to direct
attention to the points which, it seems to me, flow from what I have so far held. It
seems to me that there is a material distinction, as drawn in the authorities, between a
claim for diminution in value of the asset as reflected in the reasonable costs of repair
payable by the individual claimant on the one hand and a claim for loss of use of the
vehicle as reflected in a claim for a replacement car on the other. An overall figure for
the reasonable costs of repair of damage to a vehicle may be justified, even if
individual items in the repair costs paid are not reasonable, since the cost of repairing
the damage must be treated in the round, because it is to be taken as the measure of
the loss suffered which is diminution in value of the car. Moreover, if a package deal
for repair was agreed, then it would be the reasonableness of the package as a whole
which was relevant, if any issue of mitigation could arise.
64.
In this connection I mention a point taken by Provident /Allianz in relation to the way
in which RSAI pleaded its cases in the county court. In each case to which my
attention was drawn, the claimant sought “damages arising out of a road accident” in
the brief details of the claim, going on to give particulars of financial losses specified
as “vehicle repairs” and “incidental expenses.(eg tel.post). The claims were not
framed as claims for diminution in value of the cars, by reference to the commercial
cost of repair, but as claims for damages in respect of financial losses, represented by
vehicle repairs. The sums claimed for vehicle repairs are those said to be paid by
RSAI to MRNM. This does not affect the answers to Questions 1 and 2, and is
unlikely to be of significance at the end of the day, since amendment of the claim
forms would be hard to resist, in the absence of any prejudice to the defendants. The
formulation of the individual claim forms does not sit happily with the thrust of
RSAI’s arguments however. I understand that the BIC was served with the claim
form, but the claim form may well have given the appearance that all that was claimed
by way of damages was the actual cost of repair paid to an arms length repairer,
whilst included amongst the costs claimed, were “sundry charges”, delivery charges
and courtesy car charges, where it is suggested by Provident/Allianz that some of
these items for which charges were made by MRNM to RSAI were not provided or
charged for by the repairing garages.
65.
It is accepted by the claimants that if no courtesy car was provided, then there is no
room for a claim for a replacement vehicle. It is accepted also, I think, unless I have
THE HONOURABLE MR JUSTICE AKENHEAD
Approved Judgment
Coles v Heatherton
misunderstood the position, that if there was no collection or delivery of the damaged
car, there is no room for a claim for that. However it may be that the item in the BIC
referred to as “collection/delivery” of the car may cover, in some cases, the collection
or delivery of a replacement vehicle, which would be a consequential loss claim along
with the claim for the replacement vehicle. There may also be room for argument as
to the characterisation of the cost of the collection or delivery of the damaged car,
since, if it was driveable, it might not be a claim for a cost of repair, as opposed to a
claim for lost use of the car, for which general damages might run.
66.
I anticipate that there may be an application for permission to appeal on the issues I
have decided, but, to my mind, it would make more sense to determine the balance of
the outstanding issues first, in order to see the practical effect of the decisions so far
made. I would be willing to extend the time for an appeal to allow for this. On the
issues which I have decided, the claimants have succeeded and to that extent, it seems
that they should have their costs. I will await submissions on that also before making
any order however. All other matters will have to await another day