Why Lagden v O’Connor is important
In Lagden v O’Connor, the House of Lords overturned its earlier decision in Liesbosch Dredger v SS Edison, holding that a claimant can recover their actual loss where this loss is increased due to their personal impecuniosity.
Mr Lagden’s car was negligently damaged by Mrs O’Connor, and had to be sent to a garage for repairs. Ordinarily a person would pay for an equivalent replacement hire car during the repairs, and recover his from the defendant. However, Mr Lagden was unemployed and unable to pay the cost of a replacement hire.
To get around this, Mr Lagden entered into an agreement with a credit-hire company, whereby he received a hire car without having to pay any costs upfront. In return, the credit-hire company took over Mr Lagden’s claim and sought to recover the losses from Mrs O’Connor’s insurer. If the company can recover all the costs, this means the hirer would not need to pay anything at all for the hire. Within the cost of hire, the credit-hire company added an additional charge of £659 for their services.
The credit-hire company brought a claim on behalf of Mr Lagden against Mrs O’Connor, including for the additional £659 charge. The defendants disputed this additional charge, and the case eventually reached the House of Lords. They argued that this additional cost was caused by the claimant’s impecuniosity and was therefore not recoverable.
Overturning Liesbosch Dredger v SS Edison, a majority of the House of Lords held that the claimant was entitled to their full, actual loss including the additional £659 charge.
A majority of the House of Lords held that a claimant can recover increased losses caused by their impecuniosity. This conclusion, they said, rested on the principle that a defendant must take his victim as he finds him. Lord Hope concluded this was in line with the principle that damages must “place the injured party in the same position as he was before the accident as nearly as possible.” Lord Nicholls highlighted that this avoided punishing impecunious claimants for their lacking means.
In doing so, the majority held that the decision in Liesbosch Dredger v SS Edison should no longer be followed. The majority noted that the decision has frequently been distinguished and restricted to its facts. They also noted it was irreconcilable with the principle that a defendant takes his victim as he finds him.
Nevertheless, the majority did say that the claimant must still show that these increased costs were reasonable. Similarly, the Court clarified the claimant must mitigate their loss. This is a question of fact, based on whether the claimant had any reasonable alternative.
Finally, Lord Nicholls considered the meaning of impecuniosity. He concluded that the risk of increased litigation in small claims was exaggerated. In his view, in this context the test was whether the claimant would have been able to pay for the cost of hire without making reasonable sacrifices to his life.
Applying this to the current facts, the majority of the House of Lords concluded the claimant did not have any reasonable alternative, and therefore awarded them their full loss including the £659.
Lords Walker and Scott dissented, instead concluding the claimant should only recover the cost of purchasing a replacement car. Therefore, the claimant should not be able to recover any additional costs related to a credit-hire agreement. In their view, the majority approach introduces too many value judgements into the law (eg, the meaning of impecuniosity and what is reasonable for a claimant to spend). Their concern is that this makes the law uncertain, and increases the potential for lengthy legal disputes.