Fallows v Harkers Transport (A Firm) [2011] EW Misc 16 (02 September 2011) [2011] EW Misc 16

EWMISC
Fallows v Harkers Transport (A Firm) [2011] EW Misc 16 (02 September 2011)
[2011] EW Misc 16 · 2011-09-02
[1]Morris Orman Hearle Solicitors) appeared on behalf of the Defendant. HTML VERSION OF RESERVED JUDGMENT His Honour Judge Platt: The facts At about 9.20 a.m. on 14 th April 2010 the claimant's car was lawfully parked in Bedale Rd Romford when a vehicle driven by a servant of the defendant negligently collided with it causing damage which has been repaired.[2]Liability has never been in issue and on those facts it is quite amazing that the matter has ever needed to come anywhere near a county court. The reason is that the claimant was comprehensively insured with Royal & Sun Alliance Group ("RSA") who have paid £1825.53 for the cost of repairs to the vehicle and now seek to recover those costs from the defendant's insurer by way of subrogation.[3]Behind this simple story lies a giant struggle which has been going on for many months between RSA on the one hand and a number of defendant insurers over a method of business which is seen on the part of RSA as perfectly legitimate and by a number of defendant insurers as involving methods of business which fall somewhere between very sharp practise and outright fraud. While the sums in each individual case are very modest it is clear that across the industry millions of pounds are at stake. The real parties to and drivers of this litigation are on the one hand RSA and on the other defendants' insurers who in this case are Equity Red Star. The insurance industry standard method of business[4]Over many years motor insurers have developed ways of resolving simple claims with the minimum of formality and expense. The damaged car is taken to a repairer chosen by the owner's insurer. The repairer inspects the vehicle and prepares an estimate of the cost which is made up of £x for labour, £y for paint and materials and £z for parts which have to be replaced. That process may or may not be subject to checking by an engineer for the owner's insurer. Because the repairer relies upon a regular flow of work from the insurer to remain in business the insurer quite legitimately relies upon its financial muscle in a very competitive marketplace to ensure that the estimated price will enable the necessary repairs to be done at the lowest price reasonably obtainable.[5]Depending on the amount of the estimated cost of repairs. insurers may be prepared to take each others' figures for repair on trust, as I am sure has happened in very many cases. Otherwise the defendant's insurer, having seen a copy of the estimate may decide that is it commercially viable to instruct its own engineer to inspect the vehicle. The purpose of this inspection is essentially to determine first if there is any pre-accident damage included in the estimate for which the defendant ought not to pay, and then either to agree or negotiate a reduction in the estimated price for the repairs to damage caused by the accident.[6]The owner's insurers then contract directly with the repairer to carry out the work and, usually, having paid the invoice although that is not strictly necessary, make a subrogated claim against the defendant's insurers for the amount of the invoice. That in outline is the way in which vehicle accident repair claims have been dealt with across the industry for decades. Policy holders as a general body ultimately have to pay the cost of repairs through their premiums and insurance companies have to run an efficient business for the benefit of their shareholders. Both share a common interest in devising and implementing systems which drive down any necessary costs to a minimum. If there were a more efficient way of doing business I have no doubt it would have been discovered by now.[7]There are two key points to note from this summary The first is that the precise level at which insurers will take each others' figures on trust is not a matter of any concern to the court but it is common knowledge that such agreements exist across the industry and are strongly to be encouraged as a cost effective way of resolving small disputes without resort to litigation. The second is that each insurer has contracted directly with the repairer and consequently what the defendant's insurers are being asked to pay is neither more nor less than the actual cost of the repairs. The RSA method[8]As I made clear to Counsel for the claimant at the hearing, from experience of a considerable number of these cases I have derived judicial knowledge of both industry standard and RSA procedures which goes some way beyond the actual evidence which I have received in this case. I put to Counsel for the claimant that I am entitled to make use of that knowledge in deciding this case and she did not seek to challenge this.[9]For reasons which are of no concern to the court, RSA have chosen to set up a separate company which is a wholly owned subsidiary of the parent company, called RSA Accident Repairs Limited ("RSAARL") to undertake repairs of vehicles insured by RSA. It does so either by performing the repairs at its own repair centres or by using sub-contractors.[10]I say no more about repairs which may have been carried out at RSAARL repair centres since this case, and indeed every case of which I am so far aware, has involved the use by RSAARL of sub-contractors.[11]When the work has been carried out by the sub-contractor RSAARL pays the subcontractor and then invoices RSA a higher figure. No mention is made in the RSAARL invoice that the work has been subcontracted or that additional unspecified charges have been added to the subcontractor's invoice. RSA uses the RSAARL invoice figure as the amount of its claim for "the cost of repairs" against the defendant's insurer. It is apparent that many defendant insurers have in the past taken these figures on trust and settled claims on that basis.[12]It is the manner in which these "extra" charges have been allegedly concealed and the nature of these charges which gives rise to this litigation. To this must be added very serious complaints about failure on the part of RSA to comply with pre-action protocols and orders for disclosure which I will examine in more detail later and which are properly to be taken into account when considering the issue of costs.[13]The manner in which the subcontractor's invoice to RSAARL differs from the RSAARL invoice to RSA requires detailed examination. I have no reason to doubt that the bordereau spreadsheets which I have been provided with in this case offer a typical example of standard procedures. In this case the subcontractor was DWS Bodyworks of Unit 1 Magnet Road West Thurrock Essex ("DWS").[14]I note that these documents have been put in evidence before me without any supporting witness statements verifying the truth of their contents. While I accept that a degree of informality is appropriate in small claims cases the fact that I have accepted them as evidence should not be taken as any guarantee that all judges will be similarly indulgent.[15]The first difference is in the hourly labour rate. In their invoice to RSAARL DWS have charged an hourly labour rate of £36. In their invoice to RSA RSAARL have charged an hourly labour rate of £39.50 although they themselves have not incurred any labour charges at all. The figure for subcontractor costs is stated to be 0.00. This is significant because it gives the impression to anyone who is not in possession of both documents, and contrary to the truth, that the repairs have actually been carried out by RSAARL.[16]The second difference is that there is a column in the bordereau invoice from RSAARL to RSA headed "Sundry Allowance" which bears a figure of £118.50. That column is simply absent from the bordereau invoice from DWS to RSAARL. It is therefore a cost which has been added on to the DWS figure by RSAARL. I will return to this point later.[17]The third difference is that there is a column in the bordereau invoice from RSAARL to RSA headed "Collection/Recovery costs" which bears a figure of £110.00. That column is simply absent from the bordereau invoice from DWS to RSAARL although there is a column headed "Roadside collection by Repairer" in which the word "No" appears. There is also in the DWS invoice a column headed "Vehicle delivered to customer by repairer" in which the word "Yes" appears. Again I will return to this point later.[18]The fourth matter, which may well have been the first in time to come to light and arouse suspicion in the minds of defendants' insurers, is the question of VAT. The DWS bordereau invoice which is also the VAT invoice to RSAARL amounts in total to £1313.00 plus VAT at 17.5% of £229.78 which gives a mathematically correct final figure of £1542.78. The RSAARL invoice to RSA is for a total of £1595.75 plus VAT of exactly the same amount of £229.78. In other words no VAT has been charged to RSA on the increase in the hourly labour rate, or the sundry allowance, or the collection/recovery costs. Since RSAARL has a VAT number which appears on its bordereau invoice to RSA it is clearly registered for VAT but appears to have supplied chargeable services to RSA without charging VAT.[19]The only evidence filed by the RSA was a witness statement from Mr Little which deals admirably with the details of payment made by RSA to RSAARL, a matter which has never been in dispute, but gives no information or explanation of the VAT discrepancy. It is the absence of such evidence together with the absence in some cases of the subcontractor bordereau invoice, which has led a number of Judges to conclude that no reliance whatever can be placed upon the RSAARL documents and consequently to dismiss the entire claim for the cost of repairs with costs for unreasonable conduct against the claimant. Evidence of three such decisions has been put forward by the Defendant and I am aware of at least six cases in which this has occurred. These are all decisions on the facts and evidence put forward in each case. None of these judgments have to my knowledge been appealed.[20]However I believe there is a possible and legitimate explanation for this VAT discrepancy but it involves some assumptions as to the complex VAT regulations governing inter-group transactions which is certainly not within the experience of most judges in the county court. It also involves arriving at a conclusion as to the true relationship between RSAARL and RSA which is wholly at odds with the position which has been argued by the claimant's solicitors in relation to the vexed issue of discovery which I will come to later.[21]RSAARL advertises itself on its website as a member of the RSA group of companies. I have no reason to doubt the truth of that assertion. It is as I have said a wholly owned subsidiary of RSA. Evidence of the degree of involvement of RSA in the affairs of RSAARL is vividly illustrated in this case by the witness statement of Mr Little, an employee not of RSAARL but of RSA, which exhibits a page of the bank statement of the account of RSAARL with HSBC. Incidentally the figures on that bank statement which show a credit balance of £1.9 million on 3 rd June 2010 rising to £2.4 million on 4 th June 2010 give some indication of the sums at stake in this litigation. RSA itself is of course an exempt supplier of insurance services for VAT purposes.[22]With some hesitation I accept that it is possible that within the RSA group, supplies of services by one group member to another which are ancillary to the business of RSA enjoy a similar exemption and that is the explanation why no VAT has been charged on the supply of services by RSAARL to RSA. The alternative logical conclusion from the documents, if they are genuine, is that RSA is deliberately a party to a VAT fraud on the Revenue. This is a conclusion I prefer to reject simply on the basis that no public company of the reputation of RSA would ordinarily be likely to become involved in such an enterprise.[23]It follows that even without a formal explanation and with some hesitation, I am prepared to accept the RSAARL bordereau invoice as a genuine document which shows the actual amount charged by RSAARL to RSA. I have no such problems with the DWS bordereau invoice from DWS ro RSAARL. This properly shows the amount for repairs to the claimant's vehicle charged by DWS to RSAARL.. I do not accept that these are the only relevant documents in the possession custody or control of the claimant but that is a matter to which I will return when I deal with discovery and costs.[24]I would be very much happier to have reached that conclusion by direct evidence from RSA of the facts as to the VAT position rather than by inference and the happy coincidence of somewhat rusty judicial knowledge, but the fact that I have arrived at that conclusion in this case should give no comfort at all to RSA.[25]The discrepancy in the VAT figures is so obvious that it cries out for explanation by a proper witness statement. This is an issue which has been ongoing in the courts for at least two months and the fact that no steps have been taken by RSA to provide an explanation in cases now coming before the courts could quite properly provide the basis for another judge to conclude that there is in truth no explanation and consequently no credibility can be attached to the RSAARL invoice. Since the claimant himself has no knowledge of what has been charged or paid the judge would be bound to dismiss the claim for lack of credible evidence of the cost of repairs unless he also has sight of the subcontractors invoice to RSAARL.[26]It is however a necessary consequence of my conclusion that RSA controls not only RSAARL but also has control of its business records. Conclusions[27]These facts lead me to the following conclusions. RSA has through its subsidiary RSAARL arranged for the repairs to the claimant's car at a direct cost of £1542.78. It now wishes to claim from the defendant's insurer not just the DWS invoice of that figure but also the costs which have been added on by RSAARL. Whether it is entitled to do so is in this case a mixed matter of fact and law and in particular the claimant's duty to mitigate. These are the matters which I now have to consider.[28]I start with the law. The law of damages has never required the victim of an accident to adopt any particular course in order to restore his damaged goods to their original state. But it does not permit him to recover whatever costs he chooses to incur. The classic statement is in the speech of Viscount Haldane LC in British Westinghouse Co v Underground Ry [1912] AC 673 at 689:
"The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach but this first principle is qualifed by a second which imposes on a claimant the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps. "
[29]A further statement of this fundamental principle is to be found in the judgment of Pearson L.J. in Darbishire v Warran [1963] 1 WLR 1067 . "It is important to appreciate the true nature of the so-called 'duty to mitigate the loss'.or duty to minimise the damage. The 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 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 the loss. In short he is entitled to be as extravagant as he pleases but not at the expense of the defendant."[30]Applying these principles to the facts of this case the best evidence of the reasonable cost of repairs is the price which RSAARL was able to negotiate with DWS. It was certainly reasonable and indeed sensible for RSA as the agent of the claimant, to make use of its financial muscle in order to achieve his and their objective which was to ensure that the cost of repair was no greater than reasonably needed to be expended. But there is no evidence put forward to explain why it is reasonable for RSA to impose an intermediary company into the chain of transactions.[31]RSA's case is simply that by using RSAARL it has acted reasonably but what is wholly absent is any evidence 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 is no evidence to support the argument, and no reason to conclude, that DWS would have refused to do the work at that same price. Both customers were from DWS's standpoint equally reputable and creditworthy. It is I hope trite law to say that the subrogated claimant cannot put himself in a better position than the original claimant. He simply stands in the shoes of the original claimant with the same rights and the same obligations.[32]It is equally trite law to say that where a benefit has been obtained by the claimant in having repairs carried out at the best price it is the defendant who is entitled to the benefit - see McGregor on Damages para 7-006. Put another way if the repairs have actually been carried out for £x it is not open to the claimant to say that the reasonable cost is a greater sum £y, and consequently the damages awarded should be £y.[33]The effect of the arrangement which RSA has sought to implement is at best to pass on to the defendant's insurers some part of the administration expenses incurred by RSA in dealing with the claim thereby inflating the total repair costs. Other and less innocent explanations are not necessarily to be rejected out of hand. Work which would otherwise fall to be done by RSA in arranging repairs negotiating prices and dealing with payment are delegated to RSAARL which are reflected not in an invoice for administration charges but in a larger "repair invoice". But there are a number of objections to that course of action. The first is that there is not a single reported case in which what is in truth the cost incurred by the insurers of administering the claim has been allowed as part of the claimant's damages.[34]It is true that there are number of reported cases which appear in McGregor in which administration costs have been allowed. One example is London Transport v Foy Morgan [1955] CLY 743. However these have all been cases where for various good reasons the repairs have been carried out by the claimant itself. None of these cases involved a subrogated claim by a claimant 's insurer.[35]Secondly the defendants rely on a decision of District Judge Moran in O'Brien-King v Phillips [1997] CLY 1814. This was a case involving administration costs incurred by the claimant himself in the course of the claim which were disallowed. It does provide some support for the defendant's argument.[36]However more support for the defendant's argument can be derived from another county court case London Transport v Court [1954] CLY 888 in which it was said that there cannot be recovery for overhead expenses which would have existed in any event. Since it is part of the business of RSA to deal with claims for damage to motor vehicles it is certainly strongly arguable that these are expenses which would have existed in any event.[37]There are also in my judgment sound public policy reasons for rejecting the claimant's arguments. In simple terms what is sauce for the goose is sauce for the gander. If RSA is correct in its argument there is nothing to stop every insurer adopting the same procedures which, if this case is a typical example, will lead to an overall increase of some 25% in the cost of minor motor repair claims. That cannot be in the public interest.[38]It is also worth noting that this scheme could only be effective and profitable to RSA so long as RSA were able to conceal from other insurers what they were doing. This would seem to explain the quite extraordinary lengths to which RSA through its solicitors and RSAARL have been prepared to go in order to conceal the true position vis a vis RSAAL and its subcontractors in answer to proper requests for disclosure from defendant insurers.[39]In this case there is in any event a separate objection taken by the defendant that the sundry allowance charge of £118.50 relates to items which are either insufficiently particularised or not related to the accident. This is an issue of fact. The only evidence for this charge comes in a breakdown document supplied by RSAARL to the defendant's insurers which again is not evidenced by a witness statement bearing a statement of truth, and reads as follows: "Allowances for sundry services to include as applicable (my emphasis): estimating; environmental charge; washing/cleaning; de-nibbing, final inspection; road test etc.[40]The first and obvious objection to this breakdown is that it does not specify which if any of these items were actually incurred in this case. The second is that these repairs were actually carried out by DWS and there is no evidence that the vehicle actually went through the hands of RSAARL for repair. Indeed the fact that RSAARL have charged exactly the same number of hours as DWS must lead to the conclusion that such items as environmental charge, washing cleaning, de-nibbing final inspection and road test cannot have been done or incurred by RSAARL and this item is simply a fiction invented by RSAARL.[41]I find these arguments wholly compelling and on any basis I reject this item as completely unsupported by credible evidence.[42]The final item which has been added by RSAARL is the collection and delivery/charge. If RSA wish to provide that service to their customers as an added attraction to insure their cars with RSA that is their business, but it does not follow that they are entitled to recover that cost from the defendant.[43]According to his witness statement the claimant lives in Bedale Road Romford. The repairs were carried out at DWS in West Thurrock which is only about a 20 minutes drive round the M25. There is no evidence to suggest that the vehicle was undriveable after the accident. Taking these matters into account I cannot accept that the claimant has acted reasonably in having the vehicle collected and returned when he could with minimal inconvenience have done this himself. This item is therefore disallowed.[44]In my judgment the effect of inserting RSAARL as an intermediary simply inflates the ultimate cost by increasing the hourly rate and adding extra charges, one of which I have disallowed in any event as a fabrication, and another as not reasonably incurred. If RSA chooses to carry on its business in that way it is entitled to do so but it is not entitled to allow RSAARL to add on what it pleases and then expect defendants to pay a sum which is not the true cost of repairs..[45]Since RSAARL is wholly owned by RSA the effect of these extra charges if they are paid by defendants is simply to boost RSA Group's profits beyond the actual cost of repair by the margins inserted by RSAARL. I can find no basis in law for saying that this is a course of action which a claimant insurer is entitled to take and I do not need to repeat the public policy arguments set out at paragraph 37. On the evidence the defendant has clearly established a failure to mitigate on the part of the claimant.[46]There is in addition another way of arriving at the same conclusion. It is clear on the authorities that questions of mitigation can also be approached in terms of causation. The classic statement on this point is the judgment Robert Goff J in The Elena D'Amico [1980] 1 Lloyd's Rep. 75 "Now, in my judgment, these three aspects of mitigation are all really aspects of a wider principle which is that, subject to the rules of remoteness, the plaintiff can recover, but can only recover, in respect of damage suffered by him which has been caused by the defendant's legal wrong. In other words, they are aspects of the principle of causation.[47]In Standard Chartered Bank v Pakistan National Shipping Corp [2001] EWCA Civ 55 Pottler LJ set out the law in these terms:
"The orthodox view is that the rule as to avoidable loss is merely an aspect of the fundamental principle of causation that a plaintiff can recover only in respect of damage caused by the defendant's wrong. The rule is … that the plaintiff … cannot recover for a loss avoidable by reasonable action on his own part, because, if he could reasonably have avoided it, it would not be regarded as caused by the wrongdoer."
[48]Applying the causation analysis these extra charges are not caused by the accident. They are caused by the decision of RSA to delegate to its subsidiary RSAARL the task of arranging for the repairs to be carried out. The collection and delivery charges are caused by the decision of RSA to offer that service to its insured motorists.[49]The significance of this analysis is that questions of causation are matters on which the claimant bears the burden of proof. RSA has simply failed to prove that these additional charges are caused by the defendant's negligence and not by its own commercial decision to employ RSAARL as an intermediary. Disclosure[50]A hall mark of all these cases has been the reluctance by RSA's solicitors, whom I must presume to have been acting on instructions, to comply with the pre-action protocol on disclosure. The arguments put forward by RSA in the various cases have been ingenious but they are all in my judgment entirely spurious. I need to deal with them here as they bear on the issue of costs.[51]. The first argument advanced is that the claimant is only obliged to disclose to defendant insurers the RSAARL invoice to RSA even though on its face it contains a VAT anomaly which is only explicable by reference to the actual repairers invoice to RSAARL It is claimed that other documents are irrelevant. That argument is based upon a fundamental misconception of the principles of mitigation.[52], In my judgment once the defendant has challenged the invoice from RSAARL to RSA all documents which go to explain how the figures which appear in that invoice is arrived at are directly relevant and must be disclosed, not just reluctantly once ordered by the court, but as part of the pre-action disclosure under the relevant protocol.[53]The next argument put forward is that the documents are not in the control of the claimant but in the control of a wholly independent party RSAARL. Having established that the true claimant is RSA and that RSA effectively controls RSAARL I see absolutely no merit in that argument. The duty of disclosure is not to be avoided simply by the device of interposing an intermediary company into the equation.[54]The final argument is that in a small claim the court is limited to making the orders for disclosure which are set out at Appendix B of PD 27 and has no power to order the disclosure of other documents. That argument is equally untenable.[55]The duty of the court when giving case management directions is to concentrate the minds of the parties and the court on the real issues in dispute as they appear from the pleadings. Once the defendant has filed a properly pleaded defence identifying the issues which are in dispute it is the duty of the court to tailor its directions accordingly. The heading to PD27 Appendix B makes it crystal clear that the court has power to make other directions and Appendix C makes specific reference to the claimant clarifying his case either by giving further particulars or by specific disclosure of documents.[56]The final item of special damage claimed in this case is the sum of £30 for incidental expenses. The evidence of the claimant is that he had arrived at that figure by looking at his telephone bills but no documents were disclosed in support of this head of damage. This item was not accepted by the defendant and in the absence of any supporting documentation I do not find this item to have been proved.[57]It follows that by a most unnecessarily convoluted trail I have arrived at the conclusion that the recoverable cost of repairs to the claimant's vehicle is £1542.78 and he is entitled to judgment for that sum. Costs[58]I have already found that there has been an almost complete failure by the claimants to comply with the pre-action protocol and a failure to comply with the order for specific discovery made in this case. Apart from the RSAARL invoice to RSA and despite numerous requests the claimants have only disclosed pre-action a breakdown of charges prepared by RSAARL which by reason of the unexplained VAT discrepancy could not reasonably be accepted at face value.[59]During the hearing the claimant admitted that there was in existence a proper invoice from DWS to RSAARL which presumably formed the basis for the RSAARL breakdown and which had not been disclosed. I offered Counsel for the claimant a short adjournment to have this document faxed to the court but she declined my invitation saying that she knew what the answer from her solicitors would be.[60]There has never been any dispute over liability in this case. I have no doubt that if the claimants had complied with their pre-action disclosure obligations this case would have been settled on the terms which I have found to be the true extent of the defendant's liability. The court is left with the clear and unhappy impression that the provisions of CPR r 1.3 have simply passed by RSA and its solicitors unheeded both in this case as in others, and they remain in a mindset where the obligation to make proper disclosure is some kind of optional extra.[61]Such an attitude stands in sharp contrast to the lofty statement of principle which appears on the RSA website:
"RSA Business principles Integrity We will act with openness, fairness, integrity, and diligence. We will always adhere to the applicable laws, regulations and standards in the places that we do business."
[62]The court can only express its disapproval of the behaviour of RSA in terms of costs. This case is on all fours with the recent decision of the Court of Appeal in Abbott v Long [2011] EWCA Civ 874 . It is the defendant who has been unnecessarily dragged to court in order to discover the truth without which it was not in a position to make any meaningful offer of settlement. RSA is the true claimant in this case. It has behaved wholly unreasonably in its conduct of this litigation. Accordingly the claimant must pay the Defendant's costs summarily assessed at £672.60.[63]Judgment will formally be pronounced on Friday September 2 nd 2011. Neither party is required to attend.[64]In view of the importance of this issue to the motor insurance industry generally I give the claimant permission to appeal. Any appeal will be to a High Court judge and must be lodged within 21 days of the judgment. This reserved judgment will stand as the approved judgment without any requirement to obtain a formal transcript.[65]In the event that there is no appeal I would remind the solicitors for the claimant that forum shopping of the kind that has been going on in the county courts in a number of different instances of which this only one example, is contrary both to CPR rule 1.1.(2)(e) and rule 1.3. RSA is quite entitled to disagree with my conclusions in which case the proper course is to appeal. Although this is not a binding judgement in terms of the rules of precedent it carries a degree of authority which requires claimant's solicitors and advocates to carry out their professional duty to the court by bringing the judgement to the attention of any judge before whom they appear in any subsequent case in which these issues are litigated. Failure to do so may lead to costs orders under CPR 44.14. In the Romford County Court Case Number 1UC62538 2 nd September 2011 Between: Before His Honour Judge Platt sitting at Romford Upon hearing Counsel for the parties IT IS ORDERED THAT 2 nd September 2011.