OVERVIEW
The “Egg Shell Hull”: Lagden v. O’Connor [2004] 1 AC 1067 revisited
In what circumstances can the owner of damaged property, whose impecuniosity has increased the cost and/or period of repairs, claim in respect of any enhanced loss and damage arising from such impecuniosity?
This question was raised in the damages trial earlier this year in Nautical Challenge Ltd, v. Evergreen Marine (UK) Ltd. [2019] 1 Ll.R. 543 in relation to a claim for extended loss of use (beyond the period of reasonable repairs) but could equally affect any claim increased by impecuniosity. This case is better known as the first collision liability appeal in the Court of Appeal this decade. Further, permission to appeal having been granted by the Supreme Court, this will be the first collision appeal to reach the highest level for over forty years. However the interesting and potentially far reaching question set out above arose in the separate trial on damages although, on the factual findings of Mr Justice Andrew Baker, the question did not have to be resolved.
In order to contextualise the question it is necessary briefly to revisit the House of Lords decision in Lagden v. O’Connor. This case concerned a collision between two cars. The claimant was unemployed at the time and could not personally afford to hire another car whilst his own vehicle was repaired. As a result, he entered into a credit agreement for another car and incurred additional costs (on top of hire costs). These costs were held to be recoverable even though they were incurred as a result of the claimant’s impecuniosity.
The House of Lords had to resolve two conflicting lines of authority. On the one hand, under the “egg-shell” skull principle, a wrongdoer takes the victim as found, at least in a physical sense. On the other hand, in Liesbosch Dredger v. S.S. Edison [1933] AC 449 the House of Lords held that loss caused by impecuniosity was not recoverable: the impecuniosity was “a separate and concurrent cause, extraneous and distinct in character from the tort” (per Lord Wright at 460).
In Lagden, however, the House of Lords considered that the law had moved on since Liesbosch. Lord Hope stated at [61]
“ …. As it was a decision of the House of Lords, it was for the House and not the Board to decide whether the rule that was laid down in that case should now be departed from. The opportunity for the House to take that step has now come. It is not necessary for us to say that The Liesbosch was wrongly decided. But it is clear that the law has moved on, and that the correct test of remoteness today is whether the loss was reasonably foreseeable. The wrongdoer must take his victim as he finds him: talem qualem, as Lord Collins said in the Clippens Oil case [1907] AC 291 , 303. This rule applies to the economic state of the victim in the same way as it applies to his physical and mental vulnerability. It requires the wrongdoer to bear the consequences if it was reasonably foreseeable that the injured party would have to borrow money or incur some other kind of expenditure to mitigate his damages… ”(added emphasis)
On this basis the “egg shell” skull principle applied to financial limitations, just as it did to pre-existing physical attributes. The view stated in McGregor on Damages (20th Ed) at 8-113 is that the principle now applied “equally to the claimant with the egg-shell bank balance.”
There is surprisingly little discussion as to the scope or limitations of the “egg-shell” skull principle in the textbooks or authorities. For example, what if the “egg-shell” condition is, to some extent, self-induced by, for example, a profligate or speculative business decision so that the claimant is unable to respond to the post-accident situation? Alternatively, in the context of personal injury claim, what if the victim’s recovery (and loss of earnings) is prolonged as a result of smoking or alcoholism or drug abuse or obesity or by a religious decision to refuse a blood transfusion and might thus be regarded by some people as self-induced?
In The Environmental Agency v. Ellis [2008] EWCA 1117 at [36], May LJ drew a distinction between pre-existing conditions and events for which a person (including the victim) might or might not be responsible. This highlights the importance of causation issues (as in the present case) but does not throw much light on what might be described as self-induced conditions or matters for which the victim has or should assume responsibility. The editors of Clerk & Lindsell on Torts (22nd Ed) (at para 2-173 & 2-176) appear to take a different view from McGregor and note that the risk that the application of the “egg-shell” skull rule to property damage could effectively destroy the distinction drawn by the Privy Council in the Wagon Mound (No.1) [1961] AC 388: if a ship with a hold full of petrol vapour could be regarded as sensitive property having a “predisposition” to explode when it sustained an impact, and impact damage was a foreseeable consequence of the defendant’s negligence, a decision that the defendant was liable for the full extent of the resulting damage by explosion would seem to conflict with the Wagon Mound and resurrect Re Polemis.”
Alexandra 1’s claim for “Extended Loss”
In The “Ever Smart” Baker J. held that the repairs to the Alexandra 1 ought reasonably to have been completed in 220 days. Having considered the expert evidence on market rates, this period gave rise to a claim for loss of use in the order of US $1.7m.
However Alexandra 1 did not leave her repair yard in Dubai until 534 days after the collision and her Owners claimed for this extended period together with subsequent periods when the vessel was under arrest in Malta and Singapore (leading to her eventual sale). As the Judge pointed out at paragraph 14 Alexandra I’s claim was “infected by a basic misapprehension that anything and everything of which it might plausibly be said that it would not have happened to Alexandra 1 but for the collision, could be claimed.” Alexandra 1’s claim for loss of use for this extended period was in the order of US $20m.
The Ever Smart Interests advanced a number of arguments to challenge the claim for the “Extended Loss”. What is relevant for present purposes is the argument that, as a matter of principle, the relevant impecuniosity must itself be reasonably foreseeable. This was primarily based upon Lord Hope’s speech [61] that the wrongdoer must “bear the consequences if it was reasonably foreseeable that the injured party would have to borrow money or incur some other kind of expenditure to mitigate his damages.” It was also argued that this was not a case in which Alexandra 1 Interests had “no choice” but to so act.
The Ever Smart Interests argued that the inability to pay for the collision repairs was not reasonably foreseeable: it would not have been foreseen that her Hull & Machinery Underwriters would not pay for the cost of repairing Alexandra 1 because, for a number of reasons, her Owners may have compromised the H & M cover. The Ever Smart Interests contended at the trial that the Alexandra 1 Interests had prejudiced their cover by trading to Iran and/or failing to respond properly to requests for information from H & M Underwriters (or their solicitors).
Baker J. held that the period of “Extended Loss” was not recoverable as a matter of causation: see paragraphs 56-8. The Owners of Alexandra 1 eventually concluded a credit agreement with the yard secured against the ship so as to facilitate the release of the vessel. The Judge considered that there was “simply no reason why its need for credit from the yard should have delayed the vessel at the yard beyond the reasonable time required to complete the repairs, let alone 10 months beyond that time”. Accordingly, the Ever Smart Interests were not liable for the consequences of the unreasonably extended stay.
This meant that the Judge did not have to deal with Ever Smart’s argument that the relevant impecuniosity was unforeseeable. However one of the difficulties with this argument was a passage in McGregor on Damages (20th Ed) at 8-113 to the effect that there was no requirement for the claimant’s impecuniosity to “have been reasonably foreseen.” Baker J. addressed this passage at paragraph 53 of his Judgment and considered that it was still necessary “for a finding that relevant impecuniosity must be foreseeable, only that so long as relevant impecuniosity is foreseeable there is no call for an enquiry into precisely how or why the particular claimant came to be materially impecunious”. This appears to have been a gloss on the McGregor analysis. Thus, in Lagden itself the Judge noted that the House of Lords did not suggest that there was any “need for an enquiry into how and why Mr Lagden came to be impecunious for the purpose of rendering recoverable the charges he agreed with a credit card company for a replacement car since he could not afford to hire a replacement car at normal hire rates available to someone who had immediate means to pay”. However the relevance of this observation is limited since there does not appear to be any suggestion that Mr Lagden’s impecuniosity was self-induced.
Accordingly Baker J. appears to have considered that the impecuniosity itself must be foreseeable but that there would be no need to embark upon any further inquiry as to the reasons for the impecuniosity if this was itself foreseeable.
On the facts the Judge tentatively suggested that it was reasonably foreseeable that a shipowner may not be able to achieve a prompt payment or settlement from H & M Underwriters to fund the repairs. On the Judge’s analysis, this meant that it would not have been necessary to inquire as to why the H & M Underwriters had declined to fund the repairs. However the Judge acknowledged that he would have wanted more time to consider this issue if the extended loss claims would otherwise have succeeded (see para 54). Accordingly the Judge’s obiter comments were somewhat provisional and open to challenge.
Conclusion
There is as yet no definitive answer to the question raised at the outset of this Note. The Judge appears to have considered that (subject to issues of causation) the full extent of the loss could be recovered provided that the relevant impecuniosity was reasonably foreseeable.One problem with this approach is that it is difficult to envisage impecuniosity which is not foreseeable, especially if (as the Judge thought) it is foreseeable that the owner of a trading tanker (such as Alexandra 1) might be unable to pay for repairs whether directly or through insurance. If Lord Hope’s speech is to be given any meaning, this suggests that there must be some limitation upon the foreseeability.
The boundaries of the “egg-shell” skull principle are thus somewhat unclear. It is submitted that a wrongdoer should not assume responsibility for a pre-existing physical or financial condition the risks of which have been assumed by the victim. This might cover conduct which affects the ability to pay for repairs (by breaching the terms of the property insurance) or, in the case of a personal injury, a religious conviction which prevents a blood transfusion. The Judge’s answer was to deal with this question in terms of causation. If the Alexandra 1 Interests did not have the liquidity to pau for the repairs (and may have compromised their insurance cover), they could and should have obtained alternative financing from the yard who were carrying out the repairs, as her owners eventually and belatedly did.
Nigel acted on behalf of Evergreen Marine leading Paul Henton, instructed by Faz Peermohamed, Sophie Henniker-Major and Lida Logotheti, Ince Gordon Dadds, with Patrick Ryan also part of the team.
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