COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN’S BENCH DIVISION,
(Mr Justice Colman)
London, WC2A 2LL
B e f o r e :
LADY JUSTICE HALE
LORD JUSTICE RIX
- and -
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Jervis Kay QC and Rachel Toney (instructed by Messrs Donne Mileham & Haddock for the Defendant/Respondent)
AS APPROVED BY THE COURT
Crown Copyright ©
Lord Justice Rix:
(1) The value of Baltic Surveyor: £82,000
(2) The loss of the pontoon: £16,000
(3) Reinstatement of the mooring: £24,000
(4) Pilotage: £ 900
No further issues arise on items (3) and (4) above: but items (1) and (2) are the subject of this appeal.
The first issue: the value of Baltic Surveyor
“12. BS was an unusual boat. It was 29.5 metres long and had been built in 1943-4 in the Kroger Yard at Hamburg as a gunboat for the German Navy. The hull was designed for high speeds and torpedo warfare…
“13. The vessel had been acquired by Mr Watkiss, the partner of Ms Voaden, in about February/March 1976…Mr Watkiss then intended that the vessel should be converted, refurbished and fitted out for high class chartering. In the late 1970s and early 1980s, Mr Watkiss, therefore,…further converted BS. This involved replacing the entire superstructure. All the internal bulkheads were replaced with steel watertight bulkheads with watertight doors. The existing sole was replaced so as to give greater headroom in the accommodation which was itself reconstructed to provide four double cabins and those bathrooms furnished with high quality woodwork. Central heating and air-conditioning was installed. A new gallery was fitted. The two 300 hp engines were rebuilt and many parts replaced. The vessel was also rewired and various fire safety devices and anti-pollution equipment was installed. Modern navigation equipment was installed.
“14. The conversion of the vessel to a high-class chartering vehicle was interrupted when Mr Watkiss’s companies collapsed and during this period maintenance was inadequate. Mr Watkiss re-acquired BS from the bank in 1987 and then set about making good the lapses in maintenance while in the bank’s hands and preparing her for chartering out. Thereafter the work was completed by December, 1987.
“15. In the course of that year Mr Watkiss had met Ms Voaden and a close relationship began...
“16. The evidence strongly suggests that the vessel was well maintained, both before it was taken over by the bank and after Mr Watkiss re-acquired it…
“22. In 1996, according to the evidence of Ms Voaden and Mr Watkiss, a substantial programme of refurbishment was completed. This included anti-fouling the hull, replacement of the sacrificial anodes, repainting of the boot topping and cove line, application to the hull [above] the cove line of very hard wearing paint acquired from the motor industry at substantial expense, repainting of the main deck, superstructure and mast and the interior paint work, stripping and restoring of varnished surfaces and brass-work. The interior furnishings were also cleaned or replaced. It was intended that the vessel would be in good condition for chartering when the summer began…”
“31. …[Mr Ayers] also referred to Bluebird, originally owned by Sir Malcolm Campbell. This was of steel construction and, at 103 feet, very slightly longer than BS. She had been built in 1938 and restored at Falmouth to her original condition. She had five double cabins and could do 12½ knots. She was originally put on the market in 1991 at £250,000, but, although she was successfully chartered out, she was not sold until 1996 and then only for £127,800.
“38. …He was not surprised that “Bluebird” had sold for half the asking price. In his view prices for such vessels had remained static since 1985 and there was a very small market for “classic” boats…
“40. In this connection, I attach some weight to the fate of the comparables, in particular Bluebird. On the evidence before me, notwithstanding its less impressive appearance than BS, it would have been materially easier to sell because it did not have a wooden hull and therefore maintenance outgoings would have been significantly lower. Although it was a lower speed boat than BS, it had more accommodation. It also had some historical interest. Furthermore, it was under continuous charter and, therefore, I infer properly certificated. Although BS had been refurbished to a highly attractive standard, which would make it more marketable, this would have been unlikely to have affected the price by more than £10,000.”
“43. Moreover, I found Mr Berwick’s attempt to explain the increased valuation from an asking price of £150,000 in 1993 to £250,000 in 1996 very unconvincing. The basis for this increase was said to be the “refitting” of the vessel and her being marketed in the Mediterranean, yet Mr Berwick had never seen the vessel as refurbished and he did not appear to have experience of selling vessels such as this in the Mediterranean. Nor did he give evidence of sales of comparables in the Mediterranean. By contrast, I found Mr Ayres’s evidence on value to be somewhat more cogent and convincing than that of Mr Berwick. It has convinced me that, even having regard to the amount of time which wooden hull vessels could be expected to take to sell, Ms Voaden would have been extremely lucky to sell this vessel in 1996 subject to survey for more than £125,000. It is more probable that it would have attracted offers at £120,000 subject to survey, that is to say rather less than Bluebird, but very substantially more than the more expensive harbour defence motor launch. I, therefore, conclude that £120,000 was its subject to survey value at the time of the loss.”
“Q. Would there have been any difficulty about getting the specifications for Bluebird and appending it to your report?
A. Well, there were difficulties at the time. I attempted to get them from Ancaster in Falmouth. Ancaster brokers in Falmouth changed hands around the time I was producing this report – it is too late to offer as any sort of evidence – I do now [have] with me here a copy of these brokerage details of the boat.
Q. You have got a copy?
A. I managed to get them on Friday morning because the new owner of Ancaster at Falmouth – it is very recent – allowed another Ancaster broker I know to give me a copy.
Q. When did you ask for that?
A. I have been asking for them ever since I started on this case.”
“If I had been advised that Bluebird had sold for £142,000 and not £127,800, and that she had been sold in December 1994 and not 1996, my conclusion as to the value of the Baltic Surveyor would not have altered.”
“…as far as we know Cpn Maestenbroek the Dutchman is still interested but he is having a problem selling his own boat and raising the money.”
“…The market has generally been quiet since, although it has been on an upturn more recently. Were the market to continue improving, ... it is quite possible Baltic Surveyor would be worth more than the £150,000 being asked for her now.
“Despite our best efforts, and advertising Baltic Surveyor on an irregular basis, but in prominent magazines, we haven’t produced a potential purchaser who really was likely to make an offer and buy the boat. On a normal assumption, this would mean that the boat was priced too high and that the likelihood of a buyer being found will have increased with the price reduction, but as Baltic Surveyor is very much a unique boat, this may very well not have been the case.
“When I last saw Baltic Surveyor earlier this year, apart from some cosmetic paintwork, she was in good condition, with an allowance being made for repainting in the price. All looked well mechanically and structurally as far as I could see…
“On the basis of this information, and the market being what it is, I would put her value on the market at the moment she went down, assuming she was in the condition as when I last saw her, to be £150,000…
“Were Baltic Surveyor to have been refitted, moved to a more prominent market area, for example the Med, and put back on the market then I’m sure an asking price in excess of £150,000 and probably £250,000 would have been attainable.”
“I am informed that in 1996 she was put in the same excellent condition in which I first saw her in 1991. On that assumption, I have every confidence in estimating her value in the open market, selling on “as is where is” basis would have been approximately £250,000 as between a willing buyer and seller.”
The second issue: loss of the pontoon
“There can, however, be no question of the recoverable damages being the full cost of such a replacement…Her loss is not the cost of replacing the lost property by a substantially more valuable pontoon, but the capital value of that which has been lost at the time and place of the loss. In a case where there is no market for similar old pontoons, as here, the relevant notional value may have to be arrived at by inference and extrapolation from the value of similar new pontoons simply by asking the question, If one would pay £x for a brand new pontoon with a life expectancy of possibly as much as 50 years, what would one pay for an old and well-worn pontoon in the last few years of its life? This approach is not inconsistent with the principle that there should not be a new for old deduction in collision cases where ships have been damaged and can be repaired, as in The Gazelle (1844) 2 W Rob (Adm) 279, for the basis of indemnity is quite different: in the case of a total loss the starting point is the capital value of that which has been lost, whereas in the case of damage to property, subject to acting reasonably to mitigate loss, the starting point is reinstatement.”
“The right against the wrongdoer is for restitutio in integrum, and this restitution he is bound to make without calling upon the party injured to assist him in any way whatsoever. If the settlement of the indemnification is attended with any difficulty (and in those cases difficulties must and will frequently occur), the party at fault must bear the inconvenience. He has no right to fix this inconvenience upon the injured party; and if that party incidentally derives a greater benefit than mere indemnification, it arises only from the impossibility of otherwise effecting such indemnification without exposing him to some loss or burden, which the law will not place on him.”
“If one goes to the root of the matter, it is obvious that what the ship-owners lose if a vessel like this is run into and sunk is what it would cost to replace them in the position they were in before the accident. But where a ship like this has gone to the bottom you cannot, speaking from a business point of view, replace them in the position they were in before, because you cannot replace the vessel which is at the bottom of the sea; you cannot buy another like her in the market; you cannot get another made immediately, and if you bought another ship she would be new, and consequently more valuable, because she would start as a new ship from that day, and, therefore, you would have to discount her value down. So that the real test, where there is no market, is, as counsel on both sides agree, what is the value to the owners, as a going concern, at the time the vessel was sunk? You cannot get at this with any great certainty, for you cannot get at it from the market value. Possibly, for such a ship at such a time there would be no buyers and she would have to be sold for old iron. You cannot deal with it like an ordinary commodity being sold every day. You must look at it and see what is the loss to the owners. It has been pointed out that you may look at the original cost, plus the money expended on her, and so forth. That is of assistance, but it is not complete assistance, because it is a rough, and ready method. You may look and see also how the ship is paying. That, however, is not a complete test, because you cannot be sure that the way she has been paying will continue. But one thing is absolutely certain – you cannot say the test is her market value.”
“The destruction of a building is different from the destruction of a chattel. If a second-hand car is destroyed, the owner only gets its value; because he can go into the market and get another second-hand car to replace it. He cannot charge the other party with the cost of replacing it with a new car. But when this mill was destroyed, the plasticine company had no choice. They were bound to replace it as soon as they could, not only to keep their business going, but also to mitigate the loss of profit (for which they would be able to charge the defendant). They replaced it in the only possible way, without adding any extras. I think they should be allowed the cost of replacement. True it is that they got new for old; but I do not think the wrongdoer can diminish the claim on that account. If they had added extra accommodation or made extra improvements, they would have to give credit. But that is not this case.”
“The plaintiffs rebuilt their factory to a substantially different design, and if this had involved expenditure beyond the cost of replacing the old, the difference might not have been recoverable, but there is no suggestion of this here. Nor do I accept that the plaintiffs must give credit under the heading of “betterment” for the fact that their new factory is modern in design and materials. To do so would be the equivalent of forcing the plaintiffs to invest their money in the modernising of their plant which might be highly inconvenient to them.”
Cross LJ reasoned to similar effect (at 476).
“The various decided cases on each side of the line to which my attention has been drawn and to some of which I have referred in this judgment, reflect in my opinion merely the application in them of two basic principles of law to the facts of those various cases. These two basic principles are, first, that whatever damages are to be awarded against a tortfeasor or against a man who has broken a contract, then those damages shall be such as will, so far as money can, put the plaintiff in the same position as he would have been had the tort or breach of contract not occurred. But secondly, the damages to be awarded are to be reasonable, that is as between the plaintiff on the one hand and the defendant on the other.”
“In the case of a tort causing damage to real property, this object [the principle of restitutio in integrum] is achieved by the application of one or other of two quite different measures of damage, or, occasionally, a combination of the two. The first is to take the capital value of the property in an undamaged state and to compare it with its value in a damaged state. The second is to take the cost of repair or reinstatement. Which is appropriate will depend upon a number of factors, such as the plaintiff’s future intentions as to the use of the property and the reasonableness of those intentions. If he reasonably intends to sell the property in its damaged state, clearly the diminution in capital value is the true measure of damage. If he reasonably intends to continue to occupy it and to repair the damage, clearly the cost of repairs is the true measure. And there may be in-between situations.”
“In my view the law will not place this burden on the plaintiff to relieve the defendant from some of the unavoidable consequences of their wrong. I consider the plaintiff is entitled to recover the whole cost of the replacement rotor.”
“Although the ground area was somewhat greater at Waterden Road than their original premises, I consider that it falls within the sort of betterment for which no reduction should be made. It is not as case, as this court instanced in the Harbutt’s Plasticine case, of a rebuilding deliberately incorporating enlargement, improvement or added facilities.”
“Counsel’s arguments both before the judge and before us were based solely on the alternative awards of £13,500 or £65,000. No intermediate was canvassed. It was not suggested by the appellants, either in evidence or by submission, that there was any second-hand source of paternoster machines. The respondent’s evidence was that no such source existed to his knowledge. Where this is the case and the only way the owner of destroyed chattels can replace them is by buying new ones, the measure of damages is the cost of doing that, unless the result would be absurd…
“Had it been argued that in fairness to the appellants some discount from the £65,000 should have been allowed to reflect the depreciation of the machines in their few months of service, the point would have merited consideration. But no such submission was made nor was there any evidence on which to base an assessment of an appropriate discount. In these circumstances I consider that, of the two alternatives contended for, £65,000 was the proper sum.”
“The cases cited seem to me clearly to point the distinction between a situation in which the proper and reasonable compensation for the plaintiff is diminution of the value of the building destroyed as damages on the one hand or reinstatement on the other, a distinction which, in most cases, will depend on whether or not the building destroyed is a profit-making asset. Since in almost any other case if the plaintiff recovers as damages the diminution in value he will have been restored to his original position, reinstatement, or its equivalent, is only appropriate where such is the only reasonable method of compensating a plaintiff for future loss of profits derived from the asset destroyed.”
“Damages are designed to compensate for an established loss and not to provide a gratuitous benefit to the aggrieved party from which it follows that the reasonableness of an award of damages is to be linked directly to the loss sustained. If it is unreasonable in a particular case to award the cost of reinstatement it must be because the loss sustained does not extend to the need to reinstate.”
“Cardozo J.’s judgment is important because it establishes two principles, which I believe to be correct, and which are directly relevant to the present case; first, the cost of reinstatement is not the appropriate measure of damages if the expenditure would be out of all proportion to the benefit to be obtained, and, secondly, the appropriate measure of damages in such a case is the difference in value even though it would result in a nominal award.”
“It seems to me that in the light of these authorities…Mr McGuire was right when he submitted, and Dillon L.J. was right when he held, that mitigation is not the only area in which the concept of reasonableness has an impact on the law of damages.
“If the court takes the view that it would be unreasonable for the plaintiff to insist on reinstatement, as where, for example, the expense of the work involved would be out of all proportion to the benefit to be obtained, then the plaintiff will be confined to the difference in value. If the judge had assessed the difference in value in the present case at, say, £5,000, I have little doubt that the Court of Appeal would have taken that figure rather than the £21,560. The difficulty arises because the judge has, in the light of the expert evidence, assessed the difference in value as nil. But that cannot make reasonable what he has found to be unreasonable.”
“I have confined my citation of authority to building cases, since that is the subject matter of the present dispute. But the principle that a plaintiff cannot always insist on being placed in the same physical position as if the contract had been performed, where to do so would be unreasonable, is not confined to building cases. In Sealace Shipping Co. Ltd. V. Oceanvoice Ltd.  1 Lloyd’s Rep. 120, there was a contract for the sale of a ship, including a spare propeller. When the ship was delivered there was no spare propeller. It was common ground that there was no market for second-hand propellers. So the only way of providing a spare propeller would have been to commission the manufacture of a new propeller at great expense. The arbitrator held that this would be unreasonable. Instead, he awarded the scrap value of the propeller, since that was all the buyer had actually lost by reason of the seller's breach. The arbitrator's decision was upheld in the Court of Appeal. Neill L.J. said, at p. 125:
“I can only read his award as meaning that he asked the question: what did these buyers really suffer as a result of the non-delivery of this spare propeller with this vessel? And he gave the answer: they lost its scrap value which in circumstances was the only value which it had for them.””
“Intention, or the lack of it, to reinstate can have relevance only to reasonableness and hence to the extent of the loss which has been sustained.”
And Lord Lloyd also said that intention was relevant to reasonableness, at any rate where the claimant does not intend to reinstate (at 372).
“it was for the plaintiff to judge what performance he required in exchange for the price. The court should honour that choice. Pacta sunt servanda. If the appellant’s argument leads to the conclusion that in all cases like the present the employer is entitled to no more than nominal damages, the average householder would say that there must be something wrong with the law.”
“that sum of money which will put the party who has been injured, or has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation.”
“Note that Lord Haldane does not say that the plaintiff is always to be placed in the same situation physically as if the contract had been performed, but in as good a position financially, so far as money can do it. This necessarily involves measuring the pecuniary loss which the plaintiff has in fact sustained.”
The third issue: loss of personal use.
“She was currently in a position analogous to Lord Wright’s seeking ship and, as such, her potential as a profit-earning engine in future chartering seasons would be reflected in her replacement value. If interest were to run on that sum from the date of the loss, the owner would be sufficiently compensated for loss of use during the period to the date on which the vessel could reasonably have been notionally replaced. There can, in principle, be no additional compensation for loss of personal use.”
“…The true rule seems to be that the measure of damages in such cases is the value of the ship to her owner as a going concern at the time and place of her loss…”
“When I say deprived of their vessel, I will not use the phrase “the use of their vessel”. What right has a wrongdoer to consider what use you are going to make of your vessel? More than one case has been put to illustrate this: for example the owner of a horse, or of a chair. Supposing a person took away a chair out of my room and kept it for twelve months, could anyone say you had the right to diminish the damages by shewing that I did not usually sit in that chair, or that there were plenty of other chairs in the room?”
Lady Justice Hale:
Lord Justice Schiemann: