Ali v HSF - another battle waged in the credit hire “secular war”

Ali v HSF - another battle waged in the credit hire “secular war”

On 20 February 2021, the defendant’s lorry negligently drove into the claimant’s car causing damage to the car and rendering it undriveable. While the claimant’s vehicle was being repaired, the claimant hired a replacement vehicle on credit hire terms for a period of 36 days. He subsequently claimed the hire charges from the defendant in the sum of £21,588.72, as well as damages for recovery and repair.

The MOT for the claimant’s car had expired 4.5 months prior to the accident. At first instance, the Recorder took the view that the claimant had been “careless” but did not find that he had been positively aware of the MOT’s expiry. Furthermore, there was no evidence that the claimant intended to obtain a new MOT certificate within a short period of time.

Proceedings

The defendant admitted negligence but disputed quantum. At first instance, the Recorder found that the claimant had needed a replacement for his car and that it had been reasonable for him to have hired a replacement vehicle in mitigation of his loss.

The main dispute, therefore, related to the fact that the claimant’s car had not had a valid MOT certificate at the time the accident took place. The defendant made the following arguments:

1. the claim for hire charges was barred by illegality; and
2. the “causation defence” applied.

The “causation defence” was argued on the basis that, since the claimant’s vehicle had not had a valid MOT certificate at the time of the accident, the claimant could not have legally used the car. If the car could not have been used legally, the claimant could not have a loss of use claim. Hiring a replacement vehicle to mitigate any loss of use claim would therefore be unreasonable as the claimant had not sustained a loss.

At first instance, the Recorder held that the illegality defence did not bar the claimant’s recovery of damages. However, he accepted the “causation defence” argument, holding that the claimant could not recover the hire charges relating to his loss of use of the car, but that he could recover the costs of recovery and repair.

On appeal, Spencer J upheld the Recorder’s decision. However, the judge stated that there were two different types of illegality. He described ex turpi causa as “an all-encompassing form of illegality which deprives the Claimant of all claims arising from the accident”.  This could be distinguished from a second form of illegality which was “more targeted” and could be “directed towards a particular aspect of the claim being made”. This second type of illegality allowed for a distinction to be drawn between “meritorious” and “unmeritorious” claimants and did not require a public policy or a proportionality assessment.

The claimant subsequently appealed to the Court of Appeal. Stuart-Smith LJ, Davies LJ and Macur LJ found in the claimant’s favour, both in relation to the ex turpi argument and to the “causation defence”.

Judgment

Illegality

The Court of Appeal noted the “adaptive flexibility” of common law remedies, which need to mirror the harmony of the law and the division of responsibility between criminal and civil law. A balancing act is required between the defendant’s duty of care to the claimant and the principle that a claimant cannot profit from their own illegal act.

Stuart-Smith LJ distinguished between “less culpable” criminal offences (such as using, or causing or permitting to be used, on the road a motor vehicle without an MOT) and the offence of driving while uninsured. He noted that the former offence attracts a maximum penalty of £1,000 and is non-endorsable. In contrast, the latter offence would render a defendant liable to an unlimited fine, discretionary disqualification and obligatory endorsement with penalty points. The car could also be seized and impounded.

The Court further noted that failing to obtain an MOT certificate constitutes a relatively minor offence, which does not carry very great weight in a proportionality assessment. Any harm to the integrity of the legal system as a result of allowing the claim for credit hire charges would be “strictly limited”. On this basis, the Court held that it was disproportionate to deny the claimant recovery of the hire charges.

The Court further considered that allowing recovery of hire charges in such a situation does not undermine the criminal law’s effectiveness. However, there is a real risk that denying recovery may amount to “an additional penalty disproportionate to the nature and seriousness of any wrongdoing”. Denying the claimant’s claim of just over £21,000 on the grounds of a criminal offence exposing the claimant to a potential fine of £1,000 raised “immediate and troubling questions of proportionality”.

The “causation defence”

The Court considered that the defendant had fallen into error by asserting that the claimant had suffered no loss as result of the defendant’s negligence. Following the case of Lagden, a “loss of use” claim compensates for inconvenience. In such cases, the defendant’s tort causes inconvenience as the claimant is deprived of his use of the vehicle and cannot use the vehicle for private transport.

The Court took the view that the “causation defence” would have to logically apply to more serious offences than those involving the lack of an MOT certificate, such as driving without insurance. It would also apply to “relatively trivial defects” such as where a vehicle has a defective light, defective windscreen wipers or a non-conforming numberplate. In the words of Stuart-Smith LJ, the “absurdity of such an outcome itself suggests that the causation defence is misconceived”.

The Court held that the “causation defence” was effectively ex turpi causa but that it lacked the essential proportionality requirement. The “causation defence” could not, therefore, be a proportionate response to credit hire claimants who have committed minor offences relating to their damaged vehicle.

Interestingly, Stuart-Smith LJ noted obiter that arguments could be made in favour of reducing a claimant’s damages to reflect the chance of criminal prosecution and/or a fine. However, Stuart-Smith LJ did not elaborate further as this issue had not been raised or argued.

Conclusion

Ali v HSF is a thought-provoking judgment that emphasises the importance of proportionality assessments in illegality cases. The case further provides important clarity on the nature of the “causation defence”.

While Ali puts paid to the idea that defendants can successfully argue ex turpi in relation to “less culpable” criminal offences, Stuart-Smith LJ’s judgment stresses the flexibility of the illegality doctrine. Any proportionality assessment will, somewhat inevitably, require a fact-sensitive approach to ensure harmony within the law.

It will be particularly interesting to see how the courts will go on to decide cases that, in terms of seriousness, fall at the boundary between imprisonable offences and the “less culpable” types of offences identified in Ali. The comparison made between the £21,000 claim for credit hire charges on the one hand and the £1,000 fine on the other further suggests that the value of the claim and the value of any potential criminal penalty are of importance to the balancing exercise.

How these principles would apply to a case that had to balance a claim of much lower value against a more culpable (but non-imprisonable) criminal offence remains to be seen. The logical implication from Ali is that an ex turpi argument might well succeed in such a case.

Stuart Smith LJ’s obiter comment that claimants could potentially face a reduction in their damages to reflect the chance of criminal prosecution and/or a fine will be of particular interest to defendants. It would be interesting to see how the courts might determine the extent of any such reduction and the circumstances in which this could be applied. In any case, claimants should expect to see this argument advanced more often in credit hire cases where ex turpi is raised as a defence.

Ali is clear in its message that there can be a tendency for defendants to lose sight of proportionality in credit hire claims by focusing on “relatively trivial defects” in a “febrile atmosphere”. The judgment may constitute a small victory for credit hire claimants, but the “secular war” remains far from being won.