The Implications of Humayum Hussain v Eui Ltd
Claims for credit hire for taxi drivers has always been a contentious issue between claimant solicitors and insurance companies.
Whilst the case of Hussain v Eui Ltd involved a relatively small taxi credit hire claim, this is not always the case as taxi credit hire is usually a far more expensive proposition than general credit hire. With the case of Hussain v Eui Ltd being a High Court decision, the implications of this case may be far reaching.
As usual this case will be examined exhaustively by claimant solicitors and defendant insurers. This article is not meant to be a definitive statement or interpretation of the law. I only offer my take of what appears to be significant in this case.
I will address this article as follows: (1) summary of the case; (2) any significant findings as far as the law is concerned; and (3) the practical implications of this case.
Summary of case
The claimant was a self-employed taxi driver involved in a road traffic accident. Hire charges of £6,596.50 were claimed. However, the lower instance judge limited the claim for hire charges to £423, which represented the loss of profit that he had avoided by hiring. It was found by the lower instance judge that the claimant had not acted reasonably in incurring hire charges for 18 days that almost amounted to a full year’s profit.
Justice Pepperall referred to the following principles in claims for financial losses suffered by self employed drivers when their vehicles were off the road pending repair or replacement:
(a) The starting point was that the professional driver’s vehicle was a profit-earning chattel and that the true loss was the loss of profit suffered while the damaged vehicle was reasonably off the road pending its repair or replacement.
(b) A claimant might choose to hire a replacement vehicle in order to be able to continue trading. This was a claim for expenditure incurred in mitigation of the primary loss. Such hire costs were prima facie recoverable. Where, for example, the claimant hired a replacement vehicle at a cost lower than the hypothetical loss of profit, the court would award the lower hire charges.
(c) A claimant could not recover any additional loss suffered by reason of a claimant’s failure to take reasonable steps to mitigate their loss.
(d) Claimants could not be expected to weigh their losses precisely. Where a claimant acted reasonably in hiring a replacement vehicle at about the same cost as the avoided loss of profit, the court would not hold the claimant to the hypothetical loss of profit if it turned out to be a little lower. However, where the cost of hire significantly exceeded the avoided loss of profit, the court would ordinarily limit damages to the lost profit.
(e) Even where the cost of hire significantly exceeded the avoided loss of profit, the claimant might still succeed in establishing that they acted reasonably. First, any business sometimes had to provide a service at a loss in order to retain important customers or contracts. But for the hiring of a replacement vehicle, the true loss of profit would not be limited simply to the pro rata loss calculated on the basis of the period of closure because future trading would itself be compromised. A claimant who reasonably incurred what might at first appear to be disproportionate hire costs in order to avoid a real risk of greater loss would usually be entitled to recover such hire costs from the tortfeasor. Second, many professional drivers used their vehicles for both business and private purposes. Where such a claimant proved that they needed a replacement vehicle for private and family use, a claim for reasonable hire charges, even if in excess of the loss of profit that was avoided by hiring the replacement vehicle, would ordinarily be recoverable if a private motorist would have been entitled to recover such costs. Third, it might be reasonable for a professional driver to hire a replacement vehicle even though the cost of doing so was significantly more than the loss of profit because he simply could not afford not to work. Impecunious self-employed claimants could not be expected to be left without any income and forced to look to the state to provide for their families on the basis that they might eventually recover their loss of profit some months or years later. Any claimant wishing to justify hire costs on the basis would have to comply with the directions given by the court in respect of the disclosure of documents as to their income, outgoings, liabilities and access to credit.
The claimant had conceded that he could not rely on an impecuniosity argument. The judge had been right to conclude that he had not acted reasonably in incurring hire charges over a period of 18 days that equated to almost a full year’s profit. She had therefore been right to limit damages under that head to the avoided loss of profit.
Significant findings as far as the law is concerned
In my view this case is significant in clarifying the law.
It is now very clear that the general position is that the loss of profit is the true measure of loss in the case of a taxi damaged as a result of an accident. The hire is expenditure for the purpose of mitigation in avoiding that loss of profit and can be recoverable if it does not exceed the loss of profits. However, the court will not count the pennies or weigh matters to a nicety if the hire charges are slightly higher than the loss of profit, and in those cases reasonable hire charges should still generally be recoverable.
Even if the hire charges are significantly higher than the loss of profit, there are three defined exceptions as follows: (a) there may be cases whereby the claimant had to continue trading in order to avoid a risk of a future greater loss – this however is not a true exception to the general rule (as was recognised by the High Court), as it loss of profit in the long term that is being considered here; (b) cases where taxi drivers use the vehicle for social and domestic use in addition to use as a taxi - in those circumstances reasonable hire charges are recoverable if a “private motorist” would be entitled to it and (c) where the claimant can show impecuniosity – the claimant cannot afford to have no income, whilst he/she waits for the eventual recovery of loss of profit.
I would summarise the three exceptions as follows: (1) the “greater loss” exception; (2) the “social and domestic use” exception and (3) the “impecuniosity” exception.
Practical implications of Hussain v Eui Ltd
It seems to me that this case represents a clear shift in the defendants’ favour, by clarifying the law. It has done this by making it clear that the “starting” point is looking at the loss of profit. It has also made it clear that the burden of bringing it within the defined exceptions are firmly on the claimant’s shoulders. It would therefore not be remiss of defendant insurers to feel optimism about this case.
It is however also important for defendant insurers not to get carried away with the implications of this case. The reality is that the loss of profit argument has always been a feature of taxi credit hire cases. It has become standard for the passage from Clerk & Lindsell regarding loss of profit to be quoted in court and for it to be met with an array of different responses by judges (which will require a separate article in itself!). The difference now is that the judicial response in taxi credit hire cases to the passage in Clerk v Lindsell should become more consistent and therefore clearer to all parties concerned.
However, one must not forget the ground realities involved in any case whether before or after Hussain v Eui Ltd. When the court is faced with for example a £50,000 hire claim from a taxi driver who has net profits of only £5,000 a year, it is understandable that a court may well be tempted to be cynical. In those circumstances, the loss of profit submission was sometimes very appealing to judges, even before Hussain v Eui Ltd.
It is however important to note that the combined three “exceptions” are wide. Indeed, I anticipate that in the vast majority of contested taxi credit hire cases, one or more of the exceptions will be argued.
The “greater loss” exception will clearly require cogent evidence in the form of financial documents and also a detailed witness statement explaining how a short-term loss is incurred in order to avoid a greater future loss. As the High court rightly recognised, it is arguable that this is not an exception at all.
I am not however clear that the “social and domestic use” exception will necessarily be an attractive proposition for claimants in many cases – the exception is very much caveated as it is stated that reasonable hire charges higher than loss of profit will be recoverable if a “private motorist” would be entitled to it. Of course, almost always taxi credit hire rates are considerably higher than normal credit hire rates involving a “private motorist”. This therefore suggests that whilst damages higher than loss of
profit may be recoverable in “social and domestic use” cases, the recoverable hire charges will not be at taxi credit hire rates under this exception. So, I am not clear how helpful this exception will be in taxi credit hire claims and indeed how the court would assess this loss. I anticipate much legal debate over this exception in the future.
It seems to me that “impecuniosity” appears to be the widest exception for taxi drivers and is likely to be the most argued before the courts. The courts are of course very familiar with impecuniosity.
It does not seem likely that this case will abate the litigation surrounding taxi credit hire. Defendant insurers will be even more encouraged than before to challenge cases involving taxi credit hire, particularly as it is now clear that loss of profit is the starting point in all the cases. However, claimants’ solicitors will seek encouragement from the very wide exceptions recognised, particularly the “impecuniosity” exception.
Conclusion & summary
In summary it seems to me: (1) the case is significant as it clarifies the law on taxi credit hire; (2) the clarification appears to shift the balance in the defendant insurers favour in that: (a) the starting point for a taxi driver is his/her loss of profit; (b) it is for the claimant to bring the case within one of the three defined exceptions; (3) one must however be careful not to overestimate the implications of the case; loss of profit has always a common argument put forward by the defence, which some judges found appealing especially with very large taxi hire claims; (4) further it is important to note that there are very wide exceptions to the loss of profit rule; (5) it is very important that sufficient evidence is collated to successfully bring any case within the very wide exceptions referred to; (6) the “impecuniosity” exception is clearly the widest one and is likely to be the most argued. The courts are very familiar with impecuniosity and this is therefore likely to be a “popular” line to pursue; (7) the “greater loss” exception will require considerable evidence to show long term loss and (8) the “social and domestic use” exception is questionable as to how useful it is, as the High Court appears to limit this to circumstances in which a “private” driver would be entitled to the hire charges. Bearing in mind the usual vast difference between charges for taxi credit hire cases and hire for private drivers, perhaps claimants should not get too excited over this particular exception.
I suspect the “turf” battle will continue in taxi credit hire cases...
Please note this article does not constitute legal advice for any specific case or cases