The UK Supreme Court considers remoteness in Armstead v Royal & Sun Alliance Insurance Company Ltd [2024] UKSC 6

One of the longstanding traditions of English Law is that many of the legal decisions issued by the highest Court in the land involve very important legal principles, but very small amounts of money.

The Supreme Court will rule on important decisions which help develop our law, even if there is not much at stake in the case in question. However, the ramifications of a decision on a small amount of money can have very wide-ranging impacts.

The decision in Armstead v Royal & Sun Alliance Insurance Company Ltd [2024] UKSC 6, handed down on 14 February 2024, is one such case. As the Supreme Court stated, the case “raises some fundamental questions in applying the tort of negligence in a situation where economic loss, comprising a contractual liability to pay a sum of money, has resulted from physical damage to property”.

Most people involved in a car accident will be familiar with credit hire insurance.  This is the insurance which provides for you to have a hire car whilst your car is being fixed. On behalf of the credit hire company, the innocent driver will bring claim for the hire car cost. They only have to pay the credit hire company if their claim fails.

Credit hire has been a contentious matter for many years.  For example, some people only need a hire car for a short time; some need a car for a long time. Some people are used to driving a Ford Fiesta, others a Rolls Royce. And so on.

Lorna Armstead’s car was involved in an accident. She hired a car to drive whilst her car was being fixed from Helphire. She signed an agreement that she would pay for any damage to the vehicle and agreed a daily rate for any loss of use of the vehicle if it was unavailable to Helphire because it was damaged. She was unfortunately involved in a further car accident whilst driving the hire car. RSA were the insurers for the other driver, who had been negligent. Ms Armstead brought a claim for the repairs to the hire car and £1,560 for the loss of use of the hire car while it was being repaired.

In all three courts below her claim for £1,560 for loss of use was dismissed. This was the contractually agreed amount payable to Helphire.

However, the Supreme Court unanimously allowed the appeal for two reasons.

Firstly, a claimant in the tort of negligence can recover, as damages, the amount of a contractual liability owed to a third party, provided that it was consequential on physical damage to the claimant’s property. The Supreme Court’s view was that this was not pure economic loss because it arose from damage to property that was in Ms Armstead’s possession.

Secondly, it was not too remote. If the contractual liability to Helphire did not represent a reasonable pre-estimate of their loss of use, it would be too remote to be recoverable because it would not be the type of loss that could be reasonably foreseen. It is for the defendant to prove if a loss is too remote. RSA had pleaded no case and provided no evidence to prove the £1,560 was not a reasonable pre-estimate of Helphire’s loss of use, and had therefore failed to discharge the burden of proof. (The Court of Appeal, on the other hand, had made a factual assumption, unsupported by any evidence, that the £1,560 claimed was not a reasonable pre-estimate of Helphire’s loss of use.)

This is an important decision that will apply, going forward, to more than just car accident disputes. One can see how the principles in this decision can be readily applied to the shipping context. It also shows how vital evidence is, and being clear as to who has the burden of proving what.