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How to calculate damages for loss of use of a chattel

Following on from the decision of Beechwood Birmingham Ltd v Hoyer Group UK Ltd [2010] EWCA Civ 647, [2011] Q.B. 357

(Claimant company hiring replacement vehicle on credit when it had spare vehicles at its disposal), the question of how to calculate damages for loss of use of a chattel has once again been considered by the Court of Appeal in West Midlands Travel Ltd v Aviva Insurance UK Ltd [2013] EWCA Civ 887.The following principles were identified:

  • The owner of a chattel damaged by a third party who is unable to establish a claim for special damages is entitled to recover general damages for loss of use.
  • There is no all-embracing principle governing the assessment of general damages in this situation, other than that an award must be of such amount as will fairly compensate the claimant for the loss of use of his chattel. There may be more than one way of assessing this loss.
  • Where the owner keeps no permanent stand-by, an award calculated by reference to interest on capital, an allowance for depreciation, and any expenses thrown away will normally provide a fair reflection of the loss (the “interest on capital” approach).
  • Where, however, the owner has substituted for the damaged chattel another kept on stand-by for that purpose, the court is entitled to have regard to the cost of providing a stand-by vehicle (the “standing charge” approach).

Where the loss of use of the vehicle caused no loss of revenue, the Court considered that the loss “can best be assessed” by the interest on capital approach. Relevant wasted expenditure could include road tax and insurance for the period. The Court accepted, however, that the trial judge had been entitled to base his award on the marginal cost of providing a replacement bus where the company maintained spare capacity in its fleet (using all vehicles on a rotating basis) rather than having a dedicated spare. The case was remitted to the trial judge as the award based on the Claimant’s figures had failed to distinguish between the cost of maintaining spare capacity and the more general costs of running a business.

Philippa Seal and Richard Menzies / 22nd Aug 2013


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