23rd Feb 2024

On the 14th of February 2024, the Supreme Court handed down its judgment in the case of Lorna Armstead v Royal and Sun Alliance Insurance Company Limited [2024] UKSC 6. In the leading judgment delivered by Lord Leggatt and Lord Burrows, the Supreme Court found that a contractual pre-estimate of loss agreed between parties was recoverable from a negligent third party, providing the pre-estimate was reasonable. As part of its analysis of the issues, the Court also determined that the burden of proving that a loss is too remote rests upon the shoulders of a defendant.

Case Background

Lorna Armstead, the appellant, found herself involved in two road traffic collisions in quick succession, neither of which was her fault. Following the first collision, and whilst her car was undergoing repairs, she opted to hire a replacement vehicle from Helphire Limited on credit hire terms. The hire agreement between Helphire and Ms. Armstead was governed by Helphire’s standard terms, which included clauses obliging Ms. Armstead to return the car in its original condition and to compensate Helphire for any damage incurred. Crucially, clause 16 of the agreement stipulated that if the hire car sustained damage, Ms. Armstead was liable to pay Helphire the daily hire rate, up to a maximum of 30 days, for Helphire’s loss of use while the car was being repaired.

Whilst driving the hire car, Ms. Armstead was involved in a second accident and she subsequently brought a claim against the van driver’s insurers, RSA, seeking damages for the repair of the hire vehicle together with the clause 16 sum that she was contractually obligated to pay Helphire. RSA admitted primary breach of duty but defended the claim on various grounds including the assertions that clause 16 was an unfair term and therefore unenforceable; that the sum sought was too remote; that the liability to pay the sum was outside of the negligent third party’s scope of duty; and that the clause 16 sum represented pure economic loss, and was therefore unrecoverable.

Ms. Armstead’s claim for the clause 16 sum was initially rejected by a Deputy District Judge, a Recorder, and ultimately by the Court of Appeal.

Dingemans LJ gave the leading judgment in the Court of Appeal and its reasons for finding against Ms. Armstead can be summarised as follows [16]: –

  1. The clause 16 sum was part of an internal arrangement between Helphire and Ms. Armstead (as bailor and bailee) and, as such was not a basis for recovering losses from a negligent third party;
  2. Clause 16 was not negotiated at arm’s lengths and therefore it was not a true independent agreement between Helphire and Ms. Armstead;
  3. Clause 16 did not represent a genuine and reasonable attempt to assess the likely losses of Helphire as a result of the loss of use of the hire company;
  4. Clause 16 represented a form of irrecoverable pure economic loss as it arose from the agreement between Ms. Armstead and Helphire; and
  5. Because clause 16 did not represent a genuine and reasonable attempt to assess the likely losses of Helphire, the loss claimed was not reasonably foreseeable and therefore too remote to be recoverable.

The Supreme Court Decision

The Court considered in detail the reasons set out by Dingemans LJ together reasoning of the lower courts and concluded that much of it was inconsistent with trite principles of bailment and negligence.
Applying Network Rail Infrastructure Ltd v Conarken Group Ltd [2011] EWCA Civ 644 in respect of reasons 1 and 2 the Court held that: –
“Where physical damage is negligently caused to revenue-generating property, the loss recoverable by the owner of the property from the person who caused the damage includes a sum payable by the owner, under an agreement with another party to compensate that party for its loss of revenue resulting from the damage, provided the sum agreed is a reasonable estimate of the likely amount of that loss” [36]
And in respect of the Court of Appeal’s finding that the clause 16 sum amounted to pure economic loss:-
“…here it is indisputable that Ms. Armstead’s liability to pay the clause 16 sum was a factual consequence of physical damage to the car in her possession. The loss in question was not pure economic loss.” [44]

The relevant question was, in the view of the Court, whether the clause 16 sum was too remote. For the loss to not be too remote it must be reasonably foreseeable and, in the case of a contractual liability for loss of use, it must reflect a reasonable pre-estimate of the loss of use.[47]

The Court concluded that “a reasonably foreseeable type of loss flowing from damage to a hire car is financial loss resulting from an inability to use the car” [47] and, therefore, the only matter which fell to be determined was whether the daily rate of hire was a reasonable pre-estimate of Helphire’s loss of use. This Court did not consider this point in detail as it was not a point that RSA raised, however, they did accept that, on the face of it, “…agreeing the damages for Helphire’s loss of use, by taking the contractual rate that Ms Armstead had already agreed, was a reasonable way of pre-estimating that loss”.[70]

As part of its analysis of the central issues, the Court also examined the question of upon whose shoulders the burden of proving that damages sought were too remote. Despite a surprising sparsity of decisions in the area the Court concluded, by drawing a parallel with assertions of contributory negligence or a failure to mitigate, that the burden of proving that damages sought by a claimant, where primary breach is admitted, fell upon a defendant.

Practical implications

Whether you are bringing claims which include pre-contractual estimates of loss or defending them, this judgment should influence your approach.

From a claimant’s perspective, the judgment confirms that secondary proceedings in the name of the hire company (or having the hire company as a second claimant) can be dispensed with, which is sure to reduce costs and streamline processes. However, ensuring that the pre-contractual losses claimed are reasonable is likely to be the real battleground in these types of cases going forward.

For claimants this means making sure the calculations of the losses are clear, the contractual terms underpinning the claim are clear and fair, and the documentation is correctly evidenced. For defendants it will mean approaching these cases methodically to allow a positive argument that the pre-estimate is not reasonable, and therefore too remote, to be asserted. This might involve something similar to what we have seen with comparable hire rates compiled into basic hire rate reports. Defendants would also be wise to look at the period of repair and whether this could have been limited in any way, thereby opening up a failure to mitigate argument.


This is an interesting case which is relevant to both those specialising in credit hire claims and those in the wider community dealing with claims to recover consequential pre-contractual estimates of loss from a negligent third party.

Whilst the judgment did lack firm guidance on what would be classed as a reasonable pre-estimate of loss, the agreement that a daily rate of hire appears to be a sensible and straightforward calculation will be welcome news hire companies. The judgment may also help to streamline the recovery process for those seeking to recover pre-contractual estimates of loss through subrogated means and raises some interesting tactical considerations for those on both sides of the fight.

Aside from the main issues in the case, practitioners will surely welcome the confirmation that the burden of proving remoteness falls upon the shoulders of a Defendant; hopefully, this goes some way to rectifying the “surprising absence” of authority on the question.