This UK Supreme Court judgment https://www.supremecourt.uk/cases/docs/uksc-2022-0100-judgment.pdf has implications on the recoverability of economic loss resulting from physical damage to property.  On appeal, the Supreme Court overturned the decision of three lower courts through which the claim had meandered. 

The claim arose from a road traffic collision in which the hired car was damaged through the fault of the other driver.  The principal issue was whether the damage that was recoverable by the hirer from the other driver’s insurer included, in addition to the cost of repair, a sum which the hirer had agreed to pay to the hire company for the company’s loss of use of the car while it was unavailable for hire because it was off the road for repairs. 

The terms under which the claimant hired the vehicle included a clause stating that: “You will on demand pay to [the hire company] an amount equal to the daily rental rate specified overleaf, up to a maximum of 30 days in respect of damages for loss of use for each calendar day or part of a calendar day when the vehicle is unavailable to Helphire for hire because … the Hire Vehicle has been damaged.”

Central to the determination was whether in tort (delict) a right of recovery existed where economic loss, comprising a contractual liability to pay a sum of money, had resulted from physical damage to property caused by the negligent driving of the other driver. 

It was argued that the loss was not recoverable because it was either “pure economic loss” or because it was too remote. 

The Supreme Court allowed the claimant to recover the sum that she was liable to pay to the hire company under clause 16 of her vehicle hire agreement as damages for its loss of use of the vehicle.  The loss was consequential to the physical damage to the car.  There was no reason why a recoverable loss should not include a contractual liability to a third party provided the liability is consequential on the damage to the claimant’s property. 

The financial loss caused by the inability to use the hire car that had been damaged was reasonably foreseeable.  The precise manner in which the loss of use of the vehicle became financial loss to the claimant did not have to be foreseeable. 

The court said that of the various reasons given by the lower courts for rejecting the claim only one was in principle a legally valid reason.  That is that the loss was too remote to be recoverable because the relevant clause 16 sum was not a reasonable estimate of the hire company’s likely loss of revenue while the car was off the road for repairs.  The burden of proof lay with the defendant insurer which did not plead or produce any evidence to show that the sum was not a reasonable estimate. 

The judgment contains a useful discussion on general principles of tortious (delictual) liability and recoverability of damages and claims based on contractual liabilities which will be of persuasive value to South African courts. 

It is worth a close read in particular by liability insurers in considering their risk appetite for such an exposure.