Damages Ain’t Damages

Damages Ain’t Damages - A motor vehicle owner need not have suffered an actual loss in order to claim damages - Tehan v Saric [2010] VSC 175

By Paul Angus | May 2010 Area of Expertise | General Insurance

Summary In Tehan v Saric [2010] VSC 175 the Supreme Court of Victoria on 23 April 2010, in the single Judge decision of Justice Bell, held that property damage arising from a motor vehicle collision crystallises at the time of the accident and that damages for that loss are recoverable no matter what choice the owner makes in respect of the vehicle or what happens to the vehicle following the accident.

Who Does This Impact?

Motor vehicle insurers and self insureds

What Action Should Be Taken?

Insurers should ensure that the cost of repairs claimed by a third party in circumstances where the vehicle has not actually been repaired, are assessed properly and fully, including where possible a physical inspection to ensure that any claim for damages is legitimate and properly quantified.

The Facts Shane Tehan’s motor vehicle was damaged in an accident caused by Peter Saric. Mr Tehan sued Mr Saric in the Magistrates Court of Victoria for damages totalling $29,091.67 which was made up of $24,493.67 for the quoted cost of repairing the vehicle and $4,598.00 for hire car costs. Mr Saric admitted liability but disputed a liability to pay the damages.

As a result of the Victorian legislation in the form of the Accident Towing Services Act 2007 (which prohibits a repairer recovering the cost of repairs from a vehicle owner where the authorisation to commence repairs has not been provided in writing) Mr Tehan did not actually pay for repairing the vehicle but had the vehicle repaired nonetheless.

At First Instance At first instance, Mr Tehan was awarded damages for the hire car but was refused damages in relation to the costs of the repair of the vehicle on the basis that he had suffered no loss. The Magistrate’s decision was appealed.

On Appeal Justice Bell in the Supreme Court of Victoria commented that the legislation in the form of the Accident Towing Services Act 2007 regulated the relationship between towing and repair service providers on the one hand and the owners of damaged vehicles on the other but did not affect the separate common law obligation of drivers to pay damages for losses caused by their negligence.

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Damages Ain’t Damages - Tehan v Saric [2010] VSC 175

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His Honour noted that the established rules governing what losses can be recovered by the owner of a vehicle of a negligent driver was set out in the UK House of Lords decision of Dimond v Lovell which found that where a vehicle is commercially repairable the owner is entitled to recover the reasonable costs of repairing it on the basis that the measure of loss is the expenditure required to put the vehicle back in the same state as it was before the accident.

His Honour revisited a number of circumstances in which the vehicle might not actually be repaired including: •

where the vehicle may be destroyed by some later unrelated act;

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where the vehicle was repaired without cost by the owner, a friend or a relative;

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where the vehicle may simply lie in waste and never be repaired at all; or

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where a vehicle was given away, traded in, or sold off for its post accident value.

The underlying point made by His Honour was that the law of damages does not interfere with the owner’s freedom of choice in relation to what they do with the vehicle after the damage has been suffered, but that the law’s assessment of the damage caused by the negligence of the driver is the reasonable costs of repairing the vehicle and this is the sum that is recoverable.

The Court found that the effect of the legislation was irrelevant and that the repairer could not recover the charges from the owner of the vehicle (which he then effectively got for free). This did not affect Mr Tehan’s right to recover a sum of damages from Mr Saric.

In defence of the claim, the defendant raised an issue of public policy and claimed that the plaintiff had not in fact suffered an actual loss.

The Court found that despite Mr Tehan getting his vehicle repaired without paying for it, he was still entitled to obtain damages represented by the cost of the repairs. The Court found that as the significant windfall was brought about by the legislation, it did not affect the Plaintiff’s rights under the law of damages.

In relation to the public policy defence, the Court found that the obligation for drivers to pay damages for loss caused by their negligence outweighed the other considerations.

In reversing the Magistrate’s decision, the Court gave judgment in Mr Tehan’s favour for the full quoted cost of repairs and hire car costs.

It is unknown whether the defendant intends to appeal the decision to the Court of Appeal.

Implications This short decision of a single Judge in the Victorian Supreme Court has significant implications for motor vehicle insurers.

It has always been a defence available to and relied on by insurers of liable drivers that a third party in certain circumstances has not suffered a loss. The decision of Justice Bell appears to remove this as a valid defence and make irrelevant to the measure of damages any alteration to the state of the vehicle following the incident.

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Damages Ain’t Damages - Tehan v Saric [2010] VSC 175

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Of particular relevance are the findings that: 1.

It is not relevant to the measure of damages whether the owner repaired the vehicle themselves or had it repaired by a friend or relative; and

2.

It is not relevant whether the vehicle was subsequently traded in or sold off in a damaged state for a particular sum.

The significance of these findings is of particular relevance in relation to the well known companies who recover damages by way of association with repairers. Insurers will need to be vigilant to ensure that the cost of repairs claimed by a third party is legitimate and that there are no other factors which might affect the measure of damages likely to be claimed by such parties (and who are likely to refer to the decision in Tehan v Saric with regularity).

Whilst the decision of a single Judge of the Victorian Supreme Court will be binding on all lower Courts in Victoria, there is a possibility that a different proposition may be argued in New South Wales.

The underlying law and overall reasoning in the decision is not unreasonable on the facts. However, the decision of Justice Bell is arguably incorrect in relation to the issue of whether a loss is suffered when a vehicle is traded in or sold off for a post-accident value equal to or higher than its pre-accident value.

It has long been the position that if a party sells a damaged vehicle prior to having that vehicle repaired then the measure of damages is considered to be the difference between the pre-accident value and the post-accident damaged value (which may or may not be more or less than the costs of repairs). Where it is less than the costs of repairs, insurers have traditionally argued that this is the true measure of damages and where it is more than the cost of repairs the cost of repairs is argued as the true measure of damages suffered by an owner.

The decision in Tehan v Saric appears to counter this argument and will no doubt be raised by claiming parties in response to any argument by insurers that they have effectively suffered no loss.

However, each matter will need to be considered on its particular facts.

Insurers should be aware of the decision and take steps to ensure that the cost of repairs claimed by a third party in circumstances where the vehicle has not actually been repaired, are assessed properly and fully (including where possible a physical inspection) to ensure that any claim for damages is legitimate and properly quantified.

Equally, when an insurer is seeking to make a subrogated recovery for damages to an insured vehicle, the decision in Tehan v Saric should entitle an insurer to make a recovery for damages which has been cash settled to the insured (without the vehicle actually being repaired by the insurer) with greater ease than may have been the case in the past.

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Damages Ain’t Damages - Tehan v Saric [2010] VSC 175

by Paul Angus

For more information, please contact: Paul Angus Partner T: 02 8257 5780 paul.angus@turkslegal.com.au

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