English Court of Appeal provides response to illegality in credit hire claims

On 4 December 2024, judgment was handed down in Ali v HSF Logistics Polska SP. Zo.o

In Ali v HSF Logistics Polska SP. Zo.o [2024] EWCA Civ 1479, the Court of Appeal was asked to determine whether a claim for credit hire made against a UK insurer – acting as claims handler for a Polish insurer – should have been dismissed because the hire customer’s own vehicle had not had a valid MOT at the time it was damaged in contravention of s. 47(1) of the Road Traffic Act 1988.

If this were an oversight, the point may not have been advanced, however, the vehicle’s MOT had expired four and a half months before the road traffic accident that prompted the customer to enter into the credit hire agreement(s). Moreover, evidence before the court(s) below demonstrated that, whilst the hire customer’s vehicle had otherwise not been at fault for the accident, the customer had not intended to obtain a new MOT certificate imminently, yet continued using the vehicle irrespective.

The issue on appeal was whether the court(s) below were right to disallow this head of loss, founded in the principle of mitigation, based on a failure to establish legal causation: Where, but for the road traffic accident, the customer’s vehicle would have remained without a valid MOT for the entire period of hire, were the court(s) right to have decided that no loss of use claim for credit hire charges could be sustained because the customer’s own vehicle could not lawfully have been driven on the road, per Agbalaya v London Ambulance Service [2022] 2 WLUK 545 and Hewison v Meridian Shipping [2002] EWCA Civ 1821.

The result of these findings – if upheld – would be that the hire customer could not establish that the road traffic accident had, as a matter of law, caused any loss because s/he had lost the ability to drive a non-roadworthy vehicle only, which s/he was not legally permitted to use (rather than drive) on the road. Whereas s/he had naturally enriched the position by hiring a roadworthy replacement.

The Court of Appeal’s judgment

The insurer had argued that it had not been necessary to rely upon the doctrine of ex turpi causa non oritur actio (where illegality would bar the entire claim) but only ex turpi causa non oritur damnum (where illegality would bar recovery of one or more heads of damage only), per Hewison v Meridian Shipping Services PTE Ltd [2002] EWCA Civ 1821.

The rationale for the doctrine(s) is that “it is unacceptable that any court of law should aid or lend its authority to a party seeking to pursue or enforce an object or agreement which the law prohibits… The court[s] [should] not thereby promote or countenance a nefarious object or bargain which it is bound to condemn.”¹

However, the Court, in finding for the hire customer – and credit hire organisation – revisited and applied Hewison at [43], which held “… An English court should not deprive a claimant of part of the damages to which he would otherwise be entitled because of the defendant’s negligence or breach of duty by reason only of some collateral [insignificant] illegality or unlawful act”.

On the basis that the customer committed a summary criminal offence of using, or causing or permitting to be used, on a road a motor vehicle without an MOT, they were liable for a maximum penalty of £1,000². Similar offences exist for using a vehicle on the road with a defective lamp, or having a defective windscreen wiper, or non-conforming number plate³. 

The Court was, therefore, satisfied that the criminal offence of failing to obtain an MOT certificate is regarded as a relatively minor offence. The result was that these less culpable road traffic offences comprised collateral [insignificant] illegality that were insufficient to bar the hire claim. In so finding, the Court appeared to be troubled by how far the doctrine could extend.

Additionally, the Court criticised the assertion that the hire customer had suffered no loss as a result of the defendant’s insured’s negligence. Instead, it was satisfied that the tort, causing the accident, had caused the customer to be deprived of the use of an item of property. That had caused inconvenience in the form of inability to use it for private transport, per Beechwood Birmingham Ltd v Hoyer Group UK Ltd [2010] EWCA Civ 647 at [48]. The fact that the vehicle did not have a valid MOT certificate was not capable of altering that fact.

What this means for you

There are (at least) two significant points of note:

1. The Court regarded the criminal offence of failing to maintain an MOT certificate as a relatively minor traffic offence. However, it recognised that there will be other forms of illegality that cannot properly be classified as “some collateral [insignificant] illegality”, per Hewison and gave two examples:

• Driving without insurance, which was in an entirely separate class of offence rendering the offender liable to an unlimited fine, obligatory endorsement of driving licence, discretionary disqualification, and the vehicle may also be seized and impounded⁴;
• Driving with a bald tyre or tyres, with its obvious safety implications, for which the maximum penalty is a level 4 fine (£2,500), obligatory endorsement with three penalty points and discretionary disqualification per tyre.

2. Note that, even in the case of relatively minor offences – which would be insufficient to bar recovery of one or more heads of damage – the Court accepted at [58] that “there may be relevant arguments to be had in other cases… in relation to the issue of reduction of damages to reflect the chance of criminal prosecution and/or fine and disqualification”.

It appears that, for perfectly understandable reasons, a reduction had not been argued for in this case.

For now, it seems that what was described at [9] as “yet another skirmish-cum-battle in the overall “secular war” between the credit hire industry and defendants’ insurers” continues.

Please do not hesitate to contact a member of our casualty practice should you wish to explore any issues arising.

1. Saunders v Edwards [1987] 1 W.L.R. 1116 at [1134]
2. Schedule 2 of the Road Traffic Offenders Act 1988
3. s. 41(2)(h) of the Road Traffic Act 1988, the Road Vehicle Lighting Regulations 1989, Road Vehicles (Construction and Use) Regulations 1986 and Vehicles Excise and Registration Act 1994 respectively
4. S. 165A(3) Road Traffic Act 1988