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This case involves a useful examination of the amount of damages
to be awarded on damage or destruction of a chattel and in particular,
whether it was necessary for a Claimant to prove that he actually intended
to reinstate the chattel in order to recover the costs of replacement.
The unfortunate circumstances of the case involved a water pipe, owned
by the Defendant, Thames Water, which burst and flooded the Claimant,
Aerospace Publishing's unique archive of photographs and artwork. Liability
was admitted and the parties agreed that the measure of the loss was
a reduction in the value of the archives. However, Thames asserted that
the reduction was the difference between its sales values before and
after the flood whilst Aerospace argued that it was the cost of replacing
the archives. If there was a finding on the former basis, damages would
be around £300,000. If there was a finding on the latter basis,
damages would be around £2.3m.
Aerospace won at first instance but received only limited interest.
The Judge had in fact calculated them from a mid-point date between
the date of the flood and the date of the Judgment and had ordered them
to be paid at lower rate.
Thames Water appealed on the basis that the Judge's findings were arguably
inadequately supported and unusually the Court of Appeal reheard the
matter on the available written evidence. Aerospace cross appealed on
interest and reimbursement of staff costs.
The principles governing an award of costs of reinstatement were originally
stated in the Maersk Colombo [2001] EWCA Civ 717, as follows:-
(i) On proof of the tortious destruction of a chattel, the owner is
prima facie entitled to damages reflecting the market value of the chattel
as is;
(ii) He is so entitled whether or not he intends to obtain a replacement;
(iii) The market or re-sale value is to be assessed on the evidence;
(iv) If the Claimant intends to replace the chattel and if the market
value is inadequate for this purpose, then the higher replacement value
may be the appropriate measure;
(v) If the replacement value is claimed, it must be "reasonable";
and
(vi) It will ordinarily be reasonable if it is "reasonable"
to replace it and the costs of the replacement is reasonable.
It is these last three principles that were explored in this case.
In summary, Longmore LJ in the leading Judgment, felt it would be very
rare for the costs of reinstatement to be awarded to someone who did
not intend to reinstate in fact.
In addition, he commented that it would not be right to award the reinstatement
cost if the claimant 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 the owner of the archive were able to make the same kind of income
without it.
That said, the Judge made it explicit that a businessman does not have
to prove that his plans are bound to be sound before he can recover
the costs of reinstatement. Once he is shown to be honest and not unreasonable,
he is not bound to go any further and show that his business plans will
make a profit before he is able to recover.
Helpfully, Pill LJ also commented that although it would be tempting
to hold that the rarity and interest of the collection in itself gave
it a value in damages greater than its market value or created a right
to damage on a reinstatement basis, this would be incorrect. He said
that:-
"The question is whether reinstatement would make sense commercially".
If it were uneconomic, reinstatement could not form a proper basis for
assessment.
Finally, and providing a ruling on the two side issues to the claim,
Wilson LJ confirmed first, that Aerospace's staff costs caused by the
diversion of the time of a significant number of their employees such
that their business was disrupted, were recoverable. Whilst strictly,
that claim should be cast in terms of a loss of revenue attributable
to the diversion of staff time, in the absence of evidence to the contrary,
Wilson LJ found that it was reasonable for the Court to infer from the
disruption that, if they had not been diverted, staff would have undertaken
their normal roles which would have, directly or indirectly, generated
revenue in an amount at least equal to the costs of employing them during
that time. The Judge helpfully analysed the leading five authorities
in this area.
Secondly, we noted earlier that Aerospace argued that the Judge's award
of interest was deficient, both in the rate awarded (1% rather than
2.5% above based rate) and in the overall sum. Of course awards of interest
are discretionary - but on being asked to make a ruling, Wilson LJ considered
the rate awarded was within the bounds of the Judge's discretion. As
to amount, it was accepted that there was "an appealable flaw in
the Judge's discretionary refusal to award interest on the entire figure".
Interest was awarded on the whole amount, therefore, although the date
remained the same.
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