Article by Simon Villau
In the ongoing battle between Defendant insurers and credit-hire companies, the Court of Appeal has handed down judgment in Ali v HSF Logistics Polska SP. Zo.o [2024] EWCA Civ 1479 landing a blow to Defendant insurers by curtailing a burgeoning line of defence.
A routine pleading in defences to credit-hire actions puts the Claimant to proof on the “legality and/or roadworthiness” of their vehicle, contending that a failing on either count gives rise to a defence by reason of illegality.
This engages the ex turpi defences, which are of general application to tortious claims; ex turpi oritur actio (which is a potential defence to the entire claim) or ex turpi oritur damnum (for specific heads of loss), per Hewison v Meridian Shipping Services PTE Ltd [2002] EWCA Civ 1821.
The doctrine concerns the circumstances in which the court will, for reasons of public policy, decline to assist those Claimants whose causes of action are tainted by an illegal or immoral act. However, it is not a binary system whereby the mere fact of an illegal act precludes a Claimant’s otherwise legitimate claim for damages.
The criminal offence must be sufficiently connected to the cause of action and proportionate to the decision to accede to the ex turpi defence. Therefore, a qualitative assessment of the Claimant’s illegal conduct is required.
The leading authority on the modern law of ex turpi is Patel v Mirza [2016] UKSC 42, [2017] AC 467. Lord Toulson JSC said at paragraph 101:
“I would say that one cannot judge whether allowing a claim which is in some way tainted by illegality would be contrary to the public interest, because it would be harmful to the integrity of the legal system, without (a) considering the underlying purpose of the prohibition which has been transgressed, (b) considering conversely any other relevant public policies which may be rendered ineffective or less effective by denial of the claim, and (c) keeping in mind the possibility of overkill unless the law is applied with a due sense of proportionality. We are, after all, in the area of public policy.”
Defendant insurers often rely upon the unreported decision of HHJ Dean in the case of Agheampong v Allied Manufacturing (London) Ltd [2009] Lloyd’s Rep IR 379, where the claim failed where the Claimant did not have motor insurance.
However, in the hotly contested arena of credit hire, a further line of defence has emerged from the debate centred on the illegality argument, the so-called “causation defence”, a label reluctantly adopted by Stuart-Smith LJ in Ali v HSF Logistics.
In short, the premise of the defence is that the Claimant has not suffered a compensable loss because they are not entitled to be put in the position of having a car which they could legally use while their car was being repaired, because they could not legally use their own car at the time.
In Agbalaya v London Ambulance Service (Central London County Court, 17 February 2022) before HHJ Lethem, the causation defence was successful. The argument was simply that the Claimant was seeking compensation for a vehicle she was not permitted to use, “[h]ence there is nothing to compensate.” HHJ Lethem drew a distinction between a car that could be driven (“a driveable car”) and a car that could be lawfully used on the highway (“a useable car”).
This represented the advent of sub-species of the illegality defence unique to credit hire, given the nature of such claims. Credit hire is, of course, an issue of mitigation of loss of use of a vehicle. It is the “loss of use” which is significant, because a Claimant driving illegally has obviously not suffered the loss of lawful use of a vehicle.
In Ali v HSF Logistics, this matter came to a head, and Stuart-Smith LJ gave the leading judgment, which appears to have closed down this avenue for Defendant insurers.
The decision below
In Ali v HSF Logistics, the vehicle did not have a valid MOT at the time it was damaged in contravention of section 47(1) of the Road Traffic Act 1988.
Recorder Charman maintained the distinct line of defence, undoubtedly to the joy of Defendant insurers at the time. At paragraph 50, he said:
“[The Claimant’s] main submission in response was that the causation defence was in substance the illegality defence in another form. I disagree. The causation defence is, in my judgment, a distinct defence which is capable of applying only to the credit hire element of the claim because it is based on the distinct nature of the credit hire claim.
The diminution in value claim and the recovery claim are claims for losses caused directly by the accident itself in the case of the former, and an expense necessarily incurred in the case of the latter, because unless the car was recovered, it could not be repaired. The credit hire claim is different. It is a claim founded in the principle of mitigation of loss. If it succeeds, it does so because it is an expense reasonably incurred by a claimant in mitigation or avoidance of a claim for loss of use of their vehicle. The question of whether a claimant acts reasonably in hiring a replacement vehicle is separate from any issue of illegality.”
And at paragraph 58, he explained that the credit hire claim failed:
“because he had no loss of use claim, by reason of not having a vehicle which he was entitled to use on the public highway at the time of the accident, by reason of the absence of an MOT certificate, and he has not established that he could and would [have] obtained a valid certificate at any time during the hire period.
Before the Court of Appeal
The matter came to a head before the Court of Appeal when Stuart-Smith LJ rejected this new line of defence on the basis that the underlying premise of the causation defence involves a fundamental misconception of a claim for loss of use. At paragraph 47:
“In my judgment, there is a fatal flaw at the heart of the Defendant’s submissions on the causation defence, which is the assertion that the Claimant has suffered no loss as a result of the Defendant’s tort. The error stems from a failure to appreciate the nature of a claim for “loss of use”. As explained by Lagden at [27], the loss which falls to be compensated in such a case is inconvenience: … The defendant’s tort causes the claimant to be deprived of the use of an item of property, which causes inconvenience in the form of inability to use it for private transport. The fact that a claimant does not have a valid MOT certificate for the car does not alter the fact that they have been deprived of its use or the fact that this deprivation would have caused inconvenience but for the hiring.”
Stuart-Smith LJ highlighted that the causation defence would see any technical or minor criminal offence, such as a “non-conforming number plate”, defeat a claim for credit hire. He clarified that it is the loss of use of the convenience of a private vehicle, rather than the loss of use of a lawfully drivable vehicle, which is the true loss in a credit hire claim.
He considered that the causation defence would create a binary system which could potentially see Defendant insurers relying on such minor criminal infractions to avoid paying damages. However, he highlighted that the ex turpi defence is a creature of public policy, whereby the court may decline to assist a Claimant who has engaged in criminal behaviour where it would be repugnant and/or an affront to public decency to do so. He recognised that not every type of minor criminal offence is likely to engage public policy in such a way, and therefore, the causation defence was seen as a mechanism of circumventing the crucial ingredient of proportionality.
At paragraph 55, he stated:
“I am quite unable to accept that the causation defence is a proportionate response to the problem of claimants who have claims based on inconvenience and the need for suitable transport but who have, in one way or another, committed minor offences in relation to their damaged vehicle. In my judgment, the causation defence is ex turpi causa by another name but without the essential requirement of proportionality.”
Consequently, Stuart-Smith LJ has effectively shut down this offshoot of ex-turpi defence, and for the time being, a line has been drawn under the causation defence.
