Mitchell reaches hire?

Eleven years on from the House of Lords’ decision in Lagden v O’Connor [2003] UKHL 64 “impecuniosity” remains a hot topic in the world of credit hire.  The Court of Appeal case of Zurich v Umerji [2014] EWCA Civ 357 handed down on 25 March 2014 is an important case on credit hire for both Claimants and Defendants.  Its impact is likely to resound further in light of the Jackson reforms as clarified by Mitchell v News Group Newspapers [2013] EWCA Civ 1537.  

The two main highlights of the judgment are that:

• Impecuniosity goes to the duration of hire, as well as to rate, if the Claimant says that he had to hire a replacement car for as long as he did because he did not have the money to buy a replacement.
• The Claimant has to plead and prove his case as to reasonableness of hire, including any assertion of impecuniosity, in his Particulars of Claim.

Zurich v Umerji – The facts

In Zurich v Umerji, Mr Umerji hired a car for about a year and a half, running up a credit hire bill of £95,130.14, after his car was damaged in an accident. The pre-accident value of his damaged car was only £8,000.  Mr Umerji said that he was unable to find the funds to replace his damaged car until he was paid its pre-accident value, which was about 2 years after the accident.  Because of a failure to comply with previous orders for disclosure, Mr Umerji was debarred from pleading impecuniosity.

At trial Zurich sought to argue that the effect of the debarring Order meant that Mr Umerji could not argue impecuniosity as a reason why he could not afford to replace his car sooner.  The Judge at first instance was not persuaded by this argument and allowed the credit hire in full.  

Court of Appeal decision – Relevance of impecuniosity

The Court of Appeal found that the Judge was wrong to limit the debarring order to rate only.  Underhill LJ at paragraph 34:

An averment by a claimant that he had to hire a replacement car for as long as he did because he did not have the money to buy one is a claim of impecuniosity just as much as a claim that he had to pay credit hire rates because he did not have the money to hire on the ordinary market, and it operates in the same way as a matter of law.

Therefore the effect of the debarring Order also meant that Mr Umerji was debarred from asserting that he could not afford to buy a replacement vehicle.  Consequently, the Court of Appeal allowed credit hire charges to a date almost 5 months post-accident, which was two weeks after the car was disposed of and gave sufficient time for it to be inspected by both parties.

The consequence of this decision is that compliance by claimants with orders for disclosure relating to impecuniosity is paramount as it can relate to duration of hire as well as rate.  This is all the more important in the post-Jackson/Mitchell world where a tougher approach is now being taken to non-compliance and relief from sanctions is not being granted easily.

Pleading impecuniosity

A claim for recovery of credit hire charges is mitigation of a claim for loss of use of a vehicle.   The burden is on the defendant to prove that a claimant has failed to reasonably mitigate his loss. Unless he can prove that basic hire rates provided a cheaper option, the claimant’s impecuniosity may never become relevant.

However the one reference to mitigation of loss in the Civil Procedure Rules is PD16.8(2)(8) which requires a claimant to specifically set out facts relating to mitigation of loss or damage in the Particulars of Claim if he wishes to rely on such matters in support of his claim.   There is no reference to the defendant setting out matters relating to mitigation of loss. 

Therefore the question is whether a claimant should plead matters relating to impecuniosity in the Particulars of Claim or wait and see whether the defendant takes a failure to mitigate point and plead impecuniosity in the Reply.
The Court of Appeal commented on this apparent dichotomy, Underhill LJ stating in the footnote to paragraph 12 of the judgment:  

I can see that it is hard on a claimant to expect him to anticipate and rebut points made about avoidable loss: it seems obviously preferable that he should plead his primary loss, wait and see what criticisms are made, and then if necessary plead to those criticisms by way of Reply. But the position is different in the case of a claim for expenditure reasonably incurred in mitigation of the primary loss. In such a case the claimant should plead his case as to reasonableness, including any assertion of impecuniosity.

Consequently the Court of Appeal made it clear that a claimant wishing to rely on impecuniosity has to plead it in their Particulars of Claim. Underhill LJ at paragraph 37 of the judgment:

The correct analysis would appear to be as follows. A claim for the cost of hire of a replacement vehicle is, strictly, a claim for expenditure incurred in mitigation of the primary loss, namely the loss of use of the damaged vehicle: see the speech of Lord Hope in Lagden v O’Connor at para. 27 (p. 1077H). The burden is thus on the claimant to prove (and therefore plead) that such expenditure was reasonably incurred: see the authorities reviewed by Sir Mark Potter P in Beechwood Birmingham Ltd v Hoyer Group UK Ltd [2011] QB 357, at paras. 25-28 (pp. 367-8). There is no doubt a grey area about how much needs to be pleaded and proved to establish reasonableness before the evidential burden shifts to the defendant to show that the expenditure was unreasonable. But in this kind of case it is clearly right that a claimant who needs to rely on his impecuniousness in order to justify the amount of his claim should plead and prove it.

Following this very clear guidance from the Court of Appeal, if a claimant fails to plead impecuniosity in his Particulars of Claim, he will be in breach of a Practice Direction and a rule if he wishes to rely on it later (CPR 16.4(1)(e) provides that Particulars of Claim must include such matters as may be set out in a practice direction).  

The amended overriding objective includes enforcing compliance with rules and practice directions. Consequently it is open to defendants to argue that failure to comply with the rule and practice direction means that the Particulars of Claim should be struck out under CPR 3.4(2)(c), alternatively the claimant be debarred from relying on impecuniosity. In the brave new Jackson/Mitchell world this kind of argument is likely to carry some weight.