SOUTHAMPTON CONTAINER TERMINALS LTD. v. SCHIFFAHRTSGESELLSCHAFT “HANSA AUSTRALIA” M.b.H. & CO. (THE “MAERSK COLOMBO”) [2001] EWCA Civ 717

When a chattel is destroyed by a tort, its owner is prima facie entitled to its market value in its existing condition, whether or not a replacement is intended. A higher replacement cost is recoverable only where replacement and its cost are reasonable.

Reasonableness forms part of the primary assessment of loss as well as mitigation. The court must consider the claimant’s intention, the benefit of replacement and whether its cost is proportionate and objectively fair to both parties. Expenditure which will never be incurred and is wholly disproportionate to any benefit does not represent loss caused by the tort.

A court retains a wide costs discretion in relation to a settlement offer which does not comply with Part 36, although a written offer should not automatically be treated as equivalent to a payment into court.

The defendants’ negligently handled container vessel struck and destroyed a crane operated at the claimants’ Southampton terminal. Liability was admitted, subject to 15 per cent contributory negligence. The claimants did not replace the crane. Two larger cranes had already been ordered, and the absence of the destroyed crane caused no measurable loss of capacity, expense or profit.

David Steel J, whose decision is reported at [1999] 2 Lloyd's Rep 491, awarded the crane’s agreed resale value of £665,000 rather than its agreed reinstatement value of £2,359,484. He also made a split costs order after the claimants failed to accept a written settlement offer which exceeded their eventual recovery.

The appeal concerned whether tort damages had to reflect replacement cost despite the unreasonableness of replacement, and whether the costs order was wrong in principle because the offer had not initially been supported by a payment into court.

1. Appeal dismissed unanimously. Clarke LJ delivered the leading judgment. Holland J and Thorpe LJ agreed.

2. The governing principle was restitutio in integrum. Damages compensate the claimant’s true loss. Causation, mitigation and reasonableness therefore control the recoverable measure. Reasonableness forms part of the primary assessment of damages and is not confined to mitigation.

3. On the tortious destruction of a chattel, the owner is prima facie entitled to its market value in its existing condition, irrespective of an intention to replace it. Market value depends on the evidence and is not governed by a universal formula. Where that value is inadequate to fund an intended replacement, replacement cost may be appropriate only to the extent that the claim reflects reasonable mitigation. Ordinarily, both the decision to replace and the cost of replacement must be reasonable.

4. The approach to disproportionate reinstatement adopted in Ruxley Electronics Ltd v Forsyth [1996] 1 AC 344 applied to tortious destruction of chattels. A claimant’s intention to reinstate is relevant, though not conclusive. The court must consider whether the award is objectively fair to both parties and whether the expense is proportionate to the resulting benefit.

5. The claimants had never intended to purchase, modify and transport a replacement crane. Replacement would have cost almost £2.36 million while producing only unquantified convenience or flexibility. It would not have increased capacity, reduced costs or increased profit. The expenditure was therefore unreasonable and could not fairly be regarded as caused by the tort. The award based on the agreed £665,000 resale value was upheld.

6. The authorities concerning general damages for loss of use did not justify awarding an economic reinstatement cost which would never be incurred. No separate claim for loss of use, inconvenience, flexibility or amenity had been advanced.

7. The costs appeal was also dismissed. Rules 36.1(2) and 44.3 preserved a wide discretion to reflect a non-compliant settlement offer in costs. Written offers are not precise equivalents of payments into court, but the judge could make the same order where the particular circumstances justified it. The defendants’ offer was genuine, would have been honoured and exceeded the eventual recovery. The split costs order was therefore within the judge’s discretion.

1. Court of Appeal (Civil Division): The appeal was dismissed unanimously. The damages award and split costs order were upheld. Leave to appeal to the House of Lords was refused: [2001] EWCA Civ 717.

2. High Court: David Steel J awarded the claimants £774,990 plus interest, including £665,000 as the value of the destroyed crane, subject to contributory negligence. He ordered the defendants to pay costs through 17 June 1999 and the claimants to pay the defendants’ later costs: [1999] 2 Lloyd's Rep 491.