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Fallows v Harkers Transport (A Firm), Romford County Court, 2 September 2011

14 September 2011
The issues

Road traffic – repair costs – RSA Accident Repairs Ltd – insurer arranging for repairs to insured’s vehicle through subsidiary company – whether additional costs can be recovered.

The facts

The defendant’s vehicle hit the claimant’s car when it was stationary in April 2010. Liability was never in issue. The claimant was comprehensively insured with the Royal & Sun Alliance (RSA), who paid £1,825.53 for the costs of repairs to the vehicle and now sought, by means of subrogation, to recover those costs from the defendant’s insurers. The RSA maintained a separate company, RSA Accident Repairs Ltd (RSAARL) to undertake the repairs of vehicles which they insured. RSAARL either performed the repairs at its own repair centres or used sub-contractors. When the work was carried out by a sub-contractor, RSAARL paid the sub-contractor and then invoiced RSA a higher figure. The manner in which the sub-contractors invoiced to RSAARL differed from RSAARL was as follows:

Firstly, as to the hourly rate. In the invoice to RSAARL the sub-contractor charged an hourly labour rate of £36. In the invoice to RSA from RSAARL, the labour rate was £39.50 per hour.

Secondly, there was a column in the bordereau invoice from RSAARL to RSA headed ‘sundry allowance’ which bore a figure of £118.50.

Thirdly, there was a column in the bordereau invoice headed ‘collection / recovery costs’ which bore a figure of £110.00.

Fourthly, there was a difference as to VAT. The invoice to RSAARL showed £1,313.00, plus VAT at 17.5% of £229.78, giving a final figure of £1,542.78. The RSAARL invoice to RSA was for a total of £1,595.75 plus VAT of exactly the same amount of £229.78. In other words, it appeared that no VAT was charged to RSA on the increase in the hourly labour rate or on the sundry allowance or the collection / recovery costs.

An explanation of the latter point was that it was possible that within the RSA Group, suppliers of services by one group member to another which were ancillary to the business of RSA enjoyed a similar exemption to that enjoyed by the RSA as an exempt supplier of insurance services for VAT purposes. The necessary consequence of this conclusion was that the RSA controlled not only RSAARL, but also had control of its business records.

The decision

It was an accepted principle of the law of damages that the victim of an accident was obliged to take all reasonable steps to mitigate his loss. The fundamental principle had been clarified in Darbishire v Warran by Lord Justice Pearson, when he stated:

“A Claimant is not under any contractual obligation to adopt the cheaper method: if he wishes to adopt the more expensive method he is at liberty to do so and by doing so he commits no wrong against the Defendant or anyone else. The true meaning [of the duty to mitigate the loss] is that the Claimant is not entitled to charge the Defendant by way of damages with any greater sum than that which he reasonably needs to expend for the purpose of making good his loss.”

It was reasonable for the RSA to make use of its financial muscle to ensure that the cost of repairs to its vehicles was no greater than reasonably needed to be expended. No evidence had been put forward as to why it was reasonable for the RSA to impose an intermediary company into the chain of transactions. The RSA asserted that the price achieved by RSAARL was lower than the price which RSA could itself have achieved if RSA had negotiated direct with DWS. There was however no evidence to support this argument.

In any event, it was trite law to say that where a benefit had been obtained by the claimant in having repairs carried out at the best price, it was the defendant who was entitled to the benefit. See McGregor on damages paragraph 7-006.

Whilst it was true that there were a number of reported cases in which administration costs had been allowed, all of these had been cases where for various good reasons the repairs had been carried out by the claimant itself and none involved a subrogated claim by a claimant’s insurer. Support for the defendant’s argument could be derived from London Transport v Court, a County Court case from 1954 in which it was that there could not be recovery for overhead expenses which would have existed in any event. Since it was part of the business of RSA to deal with claims for damages to motor vehicles, it was strongly arguable that these were expenses which would have occurred in any event.

There were also sound policy reasons for rejecting the claimant’s argument. If the RSA was correct in its argument, there was nothing to stop every insurer adopting the same procedure, which, if this was a typical example, would lead to an overall increase of some 25% in the cost of minor motor repair claims. That could not be in the public interest.

Separate objection was taken to the sundry allowance charge of £118.15. It had not been specified whether any of the items claimed were actually incurred in the case. The repairs were actually carried out by DWS and there was no evidence that the vehicle went through the hands of RSAARL for repair. The fact that RSAARL had charged exactly the same number of hours as DWS had to lead to the conclusion that the items were never incurred by RSAARL and that the item was a fiction. As to the collection and delivery charge, if the RSA wished to provide that service to their customers as an added attraction to insure their cars with RSA, that was their business, but it did not follow that they were entitled to recover costs from the defendant. There was no evidence to suggest that the vehicle was undrivable after the accident. Taking these matters into account, the court could not accept that the claimant had acted reasonably in having the vehicle collected and returned when he could have done this himself. The effect of inserting RSSARL as an intermediary simply inflated the ultimate costs by increasing the hourly rate and added extra charges, one which had been disallowed as a fabrication and one as not reasonably incurred. The effect of the extra charges was to boost RSA Group’s profits beyond the actual cost of repairs by the margins inserted by RSAARL. There was another way of arriving at the same conclusion, by means of analysing the claim in terms of causation. Mr Justice Robert Goff in the Elena D’Amico [1980] had noted that mitigation was an aspect of a wider principle, namely that the plaintiff could only recover in respect of damage suffered by him what had been caused by the defendant’s legal wrong. Using that analysis, these extra charges were not caused by the accident, but were caused by the decision of RSA to delegate repairs to its subsidiary company.

Claim dismissed.

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