R & M Stansfield Enterprises Ltd v Axa Insurance UK Plc

When damages are assessed for breach of contract, a benefit obtained by the claimant as a consequence of the breach must be brought into account. The court must assess the actual benefit, rather than assume that the claimant may retain it without credit. The assessment may take account of circumstances caused by the breach which reduced the benefit’s value, including excessive storage periods. Where a compromise fixes the basis of damages, parties may be precluded from relying on an earlier disputed agreement when valuing the benefit.

RMS brought proceedings arising from AXA’s termination of a salvage contract. AXA admitted liability for six months’ loss of profits and the parties agreed an order for an assessment of damages. The first-instance judge assessed damages but treated it as common ground that no deduction was required for vehicles transferred to RMS without payment.

AXA appealed. The central issue was whether the value of those vehicles, including vehicles on a second list, had to be credited against the damages assessed under the compromise.

1. Appeal allowed in part. The Court of Appeal held that the September 2002 compromise required an assessment of damages for six months’ loss of profits. It was highly unlikely that the parties intended to leave further litigation about the vehicles and related charges.
2. In an assessment of damages for breach of contract, benefits flowing from the termination must be included in the calculation. RMS had benefited from retaining vehicles without paying for them. The value of that benefit therefore had to be brought into account. The principle was consistent with British Westinghouse Electric and Manufacturing Co v Underground Electric Railways Co London Ltd [1912] AC 673.
3. Neither party could rely on the disputed July 2000 agreement. AXA could not contend that it constituted a full compromise while RMS could not rely on an alleged narrower bargain. Valuation had to proceed by reference to the benefit actually obtained.
4. The benefit need not equal the vehicles’ full nominal value. The assessment could take account of excessive storage periods caused by the termination, where those circumstances reduced the vehicles’ value. Whether the contractual provision contemplating discussions about reduced salvage value was enforceable was irrelevant to the assessment of the actual benefit.
5. The value of 534 vehicles was agreed at £93,750. The Court assessed the value of the vehicles on the second list at £50,000. £143,750 was therefore deducted from the damages awarded below.

• Court of Appeal (Civil Division): [2006] EWCA Civ 881. Appeal allowed to the extent that £143,750 was deducted from the damages assessed.
• Queen’s Bench Division, Manchester District Registry: His Honour Judge Kershaw QC assessed damages for six months’ loss of profits but made no deduction for the retained vehicles.