Damages


Measure of damages - reinstatement - water - private archive of historic aviation material damaged by flooding - staff time and costs - interest

(1) Aerospace Publishing Ltd (2) Midsummer Books Ltd v Thames Water Utilities Ltd: CA (Civ Div) (Lords Justice Pill, Longmore, Wilson): 11 January 2007

Water company (T) appealed against the decision ([2005] EWHC 2987 (QB)) that the diminution in value of an archive that had been partly lost and damaged by flooding should be measured by reference to the cost of reinstatement of the archive rather than its sale value. The respondent publishing company (P) cross-appealed on the judge's award of interest.



P had an archive of historical material, including photographs and artwork, relating to aviation. P used material and images from the archive in publishing partworks and journals about aviation.



The archive had been damaged by water escaping from T's water main. T was liable for loss and damage occasioned by the escape of water.



P claimed some £3 million in damages as the cost of replacing the archive in so far as it could be reinstated. T contended that P had no intention of replacing the archive, that it would be unreasonable to do so, and that P could only recover some £300,000 as the difference in value between the archive in a damaged and an undamaged state.



The judge held that P did intend to reinstate the archive and that it would be reasonable to do so, and awarded damages on the basis of the cost of reinstatement. He declined to award interest on the cost of reinstatement, on the basis that no remedial costs had yet been incurred.



T submitted that the judge had given insufficient reasons for coming to his conclusions, for ignoring evidence that the archive would not be reinstated, and that it would be unreasonable to reinstate it.



Held, it was difficult to regard the resale value of the archive as being its sole value. Its value to the owner was greater than the sum that could be obtained by selling it piecemeal at auction. The fact that not every item could be precisely replaced did not mean that the cost of reinstatement was not the correct measure of damages.



However, if P were about to go out of business or there was no prospect of future publications for which the archive would have a use, or if it would have been able to continue to make the same sort of income without reference to the archive, then it would not be right to award the reinstatement cost (Southampton Container Terminals Ltd v Hansa Schiffahrtsgesellschaft MBH [2001] EWCA Civ 717, [2001] 2 Lloyd's Rep 275 considered).



On the evidence, it could not be concluded that the aviation publishing business had come to a stop or was in run-off. Therefore, there would probably have been future aircraft publications. At the relevant time, there was a reasonable prospect of profitably issuing one or more aviation publications. The successful preparation of any such publication would have depended on the undamaged archive. P was therefore entitled to recover damages on a reinstatement basis as the judge had found. The fact that his reasoning could have been fuller made no difference to the ultimate outcome.



P had been entitled to recover for the cost of staff time spent dealing with the aftermath of the flood. The extent of the diversion of staff time had to be properly established, and it also had to be established that the diversion caused significant disruption to the business (Standard Chartered Bank v Pakistan National Shipping Corp [2001] EWCA Civ 55, [2001] CLC 825 applied; R+V Versicherung AG v Risk Insurance and Reinsurance Solutions SA [2006] EWHC 42 (Comm) approved). Those matters had been satisfactorily established in this case. The costs of two freelancers relating to the inspection and assessment of damage were referable to preparation of the claim and were not recoverable as damages but were costs of the action to be assessed. The appeal was dismissed, save in relation to the sum incurred in respect of the two freelancers.



The judge had been wrong in principle to decline to award interest on his award of reinstatement costs from the date of the flood, which was when the loss had occurred. The cross-appeal was allowed to that extent.



Judgment accordingly.



Simon Rainey QC, Peter McMaster (instructed by Lane & Partners) for the appellants; Timothy Young QC, Henry Byam-Cook (instructed by Collyer-Bristow) for the respondents.





Insurance



Road traffic - contracts of hire - motor insurance - reasonableness - road traffic accidents - subrogation - liability for cost of hiring replacement motor vehicle - reasonableness of hire rates - car repairs - vehicle damage

Douglas Bee v Carl Jenson: QBD (Comm) (Mr Justice Morison): 21 December 2006
The claimant insured (B) sought to recover from the defendant (J) the cost of hiring a replacement vehicle following a road traffic accident in which a vehicle negligently driven by J collided with B's vehicle.



B's car had been damaged in the accident and could not be driven. J had admitted sole liability for the accident.



B's insurer had arranged for B to be provided with a replacement vehicle while his car was being repaired. The replacement had been supplied through a company (H) nominated by B's insurer.



B signed the hire agreement with H but this provided for the insurer to pay the hire charges. The agreement between B's insurer and H provided for hire rates to be set by reference to the Association of British Insurers' general terms of agreement - a protocol for settlement of credit-hire claims.



B's insurer had paid the hire charges and then brought a subrogated claim in B's name to recover the hire charges from J. J's insurer defended the claim on the basis that B's insurer could have provided a replacement vehicle more cheaply than it had done through H, and that B's insurer had to give credit for any introduction fee which H had paid to the insurer, since otherwise the latter would have made a profit from the transaction at the expense of J's insurer.



J's insurer submitted that, under the terms of the hire agreement, B was never under an obligation to pay the hire, and the only entity obliged to pay the hire was B's insurer; since an insurer could not recover by way of subrogation more than its true outlay, B's claim had to be limited to the reasonable cost to B's insurer of hiring a car, namely a corporate rate of hire, and B's insurer had to be given credit for any commission payment made by H.



Held, whether or not B was liable to pay the hire under the car-hire contract, an action could be brought in his name to recover it, and it did not matter whether the insurer paid the charges because it was liable to do so or made the insured pay and then indemnified him. What mattered was that but for the insurance arrangements, B would have been entitled to hire a car and recover the cost of doing so from J.



The insurance contract made the arrangements for the replacement car more convenient. Once it was accepted that B was entitled to hire a replacement car at a reasonable rate and for a reasonable period, he was entitled to recover those hire costs from J, who was solely concerned with the reasonableness of the charges, assuming a need for a replacement vehicle. If they were reasonable, he had to pay them, whatever insurance arrangements B might have made and whatever arrangements B's insurer might have made. In any event, under the hire agreement B was liable to pay the hire charges and H would have been entitled to recover them from him had the occasion arisen.



There was an implied obligation arising from the hire relationship that the hirer, B, would pay for the hire and there was nothing in the hire agreement that was contrary to that conclusion.



B was entitled to recover hire charges for a reasonable replacement vehicle, at a reasonable market rate, for a reasonable period of time. In relation to any commission payment made by H, there was no reason in law why any profit made by B's insurer should be transferred to J or his insurer. B could not be expected to give credit for a payment to which he was not himself entitled. It was clear on the evidence that the rate charged by H, with a nil excess, was good value for money in comparison with other spot rates.



It would have been reasonable for the replacement vehicle to have been provided with a nil excess regardless of the excess which applied to B's own car (Marcic v Davies, unreported, 20 February 1985, CA, considered). The reasonableness of the hire rate was to be judged from B's perspective ignoring the insurance arrangements; if B had gone into his local market to hire a car, he would have paid H's rate or more. B was therefore entitled to recover the full cost of the hire.



Judgment for the claimant.



Christopher Butcher QC, Benjamin Williams (instructed by Burges Salmon) for the claimant; Julian Flaux QC, Jonathan Hough (instructed by Badhams Law) for the defendant.





Tax



VAT & input tax - supply of goods - supply of services - reward schemes - indivisible single supply of marketing services - promotional schemes - loyalty programmes

Baxi Group Ltd v Revenue & Customs Commissioners: ChD (Mr Justice Lindsay): 21 December 2006
A company (B) appealed against a decision of the VAT and duties tribunal, relating to the deductibility as input tax of VAT paid by B to the operator (R) of a reward scheme.



B was the representative of a VAT group that included a boiler manufacturer. R operated a reward scheme under which the installers of B's boilers earned points that they could redeem with R for goods and services chosen from a catalogue. The chosen rewards were then provided to installers by R.



R then invoiced B for the retail price of the reward plus VAT. B had completed its VAT returns on the basis that it was not entitled to deduct as input tax the VAT charged to it by R. However, B then made a voluntary disclosure, claiming to deduct that tax.



The respondent commissioners did not accept the voluntary disclosure but were willing to allow the deduction of such part of the overall sums paid to R as represented not the provision of the goods and services to the installers but only the associated marketing services that R provided to B.



The tribunal dismissed B's appeal against that decision, holding that B was entitled to recover as input tax the VAT included in R's invoices, but had to account for output tax on the value of such individual distributed rewards as had acquisition costs exceeding £50. B submitted that the reward scheme consisted of an indivisible single supply of marketing services to it by R, albeit that that supply included the provision of goods and services to the installers.



The commissioners argued that there were separate supplies of goods to installers, and advertising and marketing services provided by R to B, and that those separate supplies were not subsumed within a single supply of marketing services.



Held, the tribunal had erred in holding that there was for VAT purposes a supply of the rewards by R to B, and then another supply by B to installers. On the facts found, there had been a supply of goods by R, but that supply was to the installers rather than to B. The goods were business assets of R, and property and possession moved directly from R to the installers without ever being in B's possession. That supply was for a consideration provided by B as a third party. There could not be a supply of goods by R that was both a VAT supply of them to the installer and a VAT supply of them to B.



In this case, B wanted not a mere provision of goods to installers and a separate provision of some advertising or marketing service to it but, as a predominant feature, a supply of goods to installers in such a way that the supply would ultimately generate or at least tend to generate loyalty to and sales by B.



The advertising and marketing service, which included the devising and formulation of the rewards scheme and the operation of it, was not economically dissociable from the provision of goods, but a mechanism without which the provision of goods to installers could not achieve its purpose.



The scheme consisted, for VAT purposes, of a single indivisible service from R to B, albeit a service that included the provision of goods to installers (Customs and Excise Commissioners v British Telecommunications Plc [1999] 1 WLR 1376 applied). Therefore, B was entitled to have all its VAT paid to R under the reward scheme during the relevant periods treated as input tax for those periods.



Appeal allowed.



D Scorey (instructed by PricewaterhouseCoopers Legal) for the appellant; Mr Baldry (instructed by the Revenue & Customs Solicitor) for the respondent.





Crime



Procedure - employment - health and safety at work - Crown Prosecution Service - decisions to prosecute - fatal accidents - manslaughter by gross negligence - consideration of evidence supporting a prosecution

R (on the application of Peter Dennis) v Director of Public Prosecutions: QBD (Admin) (Lord Justice Waller, Mr Justice Lloyd Jones): 29 December 2006
The claimant (P) applied for judicial review of a decision by the Crown Prosecution Service (CPS) not to bring prosecutions for gross negligence manslaughter, arising out of the death of his son (D) in an industrial accident.



D, who was 17 years old, had fallen through a roof-light to his death in his second week of work as a labourer with his employer (C). P maintained that C had instructed D to go onto the roof even though he had had no previous experience of working at heights or on roofs. At the time of the accident, D had offered to climb onto the roof in search of timber. One of D's colleagues (J) had told D not to bother but D had continued and had fallen to his death.



At an inquest, the jury returned a unanimous verdict of unlawful killing. The CPS considered whether various individuals should be prosecuted for gross negligence manslaughter, but concluded that although individuals, including C, were in breach of their duty of care to D, the degree of negligence exhibited was not such as to amount to criminal negligence. The CPS had relied on various factors, including the suggestion that D had some experience in the building trade; that D's colleagues had told D not to go near skylights; that there was no reason for D to have gone onto the roof; and that D had been specifically told by J not to go onto the roof.



P submitted that the CPS had failed to appreciate that C had exposed D to the risk of death by instructing him to work on the roof without any training, particularly without training in relation to the danger of roof-lights, and had also totally failed to assess the seriousness of that risk.



Held, the CPS had not dealt with the real thrust of any case that might be brought against C. There was evidence of a reason why D might have gone onto the roof; he had been instructed to do so as part of his duties as an employee, without any training or induction course, or any serious warning about roof-lights, and had not been told not to do so prior to receiving that course.



There was force in the point that by focusing on the particular moment before the accident, the CPS had failed to take account of the seriousness of a failure to give proper instruction not to go on the roof prior to induction, or proper instruction in relation to working on a roof, and particularly a roof with roof-lights. It could not be said that the CPS had provided clear reasons as to why the verdict of the inquest jury should not have led to a prosecution. Consequently, it was appropriate to refer the matter back to the CPS.



Application granted.



Richard Hermer (instructed by Thompsons) for the claimant; Milwyn Jarman QC (instructed by CPS (Gwent)) for the defendant.





Landlord and Tenant



Damages - equitable remedies - leases - mitigation - rent arrears - repudiation

(1) Robert Reichman (2) Monica Dunn v (1) Sarah Beveridge (2) Matthew Gauntlett: CA (Civ Div) (Lords Justice Auld, Rix, Lloyd): 13 December 2006
A tenant (T) appealed against a decision that his landlords (L) were under no duty to mitigate their loss when seeking to recover arrears of rent.



T had failed to pay rent due under a lease, and had abandoned the premises. L sued for the arrears, seeking only a money judgment for the sums due. T served a defence, alleging that L had failed to mitigate their loss by failing to instruct agents to market the premises, had failed to accept the offer of a prospective tenant who wanted to take an assignment or new lease, and had failed to accept an offer to negotiate payment of a consideration for a surrender of the lease. T submitted that the contractual rules relating to mitigation of loss applied even though L had not terminated the lease for breach of T's covenants but had merely sued for each instalment of rent as it had fallen due.



Held, T's argument had failed to take into account the consequences of the premature termination of a tenancy or the limited scope for the intervention of equity. There was a limited category of cases where, having elected not to accept a repudiation of contract, an innocent party to a contract was prevented from enforcing his contractual right to maintain a contract in force and sue for the contract price, namely cases where damages would be an adequate remedy, and where an election to keep the contract alive would be wholly unreasonable (White and Carter (Councils) Ltd v McGregor [1962] AC 413 considered). A tenant could not successfully invoke equity in that way (Gator Shipping Corporation v Trans-Asiatic Oil SA and Occidental Shipping Etablissement SA (The Odenfeld) [1978] 2 Lloyd's Rep 357 considered). In this case, it was far from clear that L were acting wholly unreasonably in not taking their own steps to find a new tenant, rather than leaving it to T to propose one, or in rejecting a proposal made by T.



Furthermore, if market rent had been lower than that reserved by the lease, damages would not be an adequate remedy for L if they had terminated the lease by way of forfeiture and then re-let at a lower rent, because they could not recover damages to compensate for the loss of rent. If, on the other hand, the market rent had been the same or higher, it should have been possible for T to have taken his own steps to find an assignee. If T had found an assignee or subtenant that the landlords refused to accept on reasonable terms, then T would have had a statutory remedy under the Landlord and Tenant Act 1985.



Furthermore, there was no authority to show that a landlord could recover damages from a former tenant in respect of loss of future rent after termination. In those circumstances, either damages were not an adequate remedy for the landlord, or the landlord would be acting reasonably in taking the view that he should not terminate the lease because he may well not be able to recover such damages.



In principle, if the landlord chose to regard it as up to the tenant to propose an assignee, sub-tenant or substitute tenant, that was not unreasonable, still less wholly unreasonable.



Appeal dismissed.



The appellant appeared in person; no appearance or representation by the respondents; advocate to the court: Amanda Tipples (instructed by the Treasury Solicitor).