West Midlands Travel Ltd v Aviva Insurance UK Ltd

General damages for loss of use of a chattel must fairly compensate the owner for the loss caused by its temporary unavailability. Where no special loss is proved and no actual stand-by is used, the normal measure is the loss of productive use of the capital tied up in the asset, together with age-related depreciation and directly attributable wasted expenses. For a leased asset, the daily lease payment is the appropriate counterpart to interest on capital.

A claimant cannot assess its loss by allocating a proportion of the general overheads of its whole business to the unavailable vehicle. Where spare capacity supplies a replacement, the court may instead consider the marginal cost of making that replacement available.

The claimant bus operator recovered repair costs after one of its buses was damaged through the negligence of a driver insured by the defendant. It had sufficient spare buses to maintain its services during the 31-day repair period. It therefore did not claim lost profits, but sought general damages calculated under an industry "standing charge" formula which allocated general fleet overheads to each bus.

His Honour Judge Armitage Q.C., sitting in the High Court, awarded £3,317 on that basis. The insurer appealed, accepting for present purposes that general damages for loss of use were available, but challenging their assessment. The central issue was whether the standing-charge formula fairly measured the loss caused by the temporary loss of one bus.

Appeal allowed. Moore-Bick LJ, with whom Rimer and Underhill LJJ agreed, held that the judge had adopted the wrong measure of general damages and remitted the assessment to the High Court.

1. The established principle in The Greta Holme permits general damages for loss of use where an owner cannot prove special loss. The assessment nevertheless must be directed by legal principle. Its purpose is to compensate the loss caused by being deprived of the particular chattel, not to compensate the cost of operating the claimant’s business generally.

2. There is no universal calculation. Where an owner has no permanent stand-by and cannot prove specific financial loss, interest on the asset’s capital value, directly attributable wasted expenses and age-related depreciation will normally provide fair compensation. For a leased bus, the equivalent starting point is the daily lease payment, rather than interest on a capital value recorded in the claimant’s accounts.

3. The CPT standing-charge calculation was impermissible because it allocated general fleet overheads, most of which were unaffected by the temporary absence of one bus. It confused the cost of having a bus available with the average cost of running the whole undertaking. Only expenses directly attributable to the unavailable vehicle may be included, such as appropriate elements of insurance, testing and vehicle excise licence. Operational wear-and-tear maintenance and general overheads are excluded unless evidence establishes a time-related wasted cost.

4. Spare capacity used to replace a damaged vehicle may justify an award based on the marginal cost of making a replacement available. A separately identified stand-by fleet is unnecessary. That calculation must still reflect the replacement asset’s capital or lease cost and additional availability costs, rather than allocated business overheads.

5. The Part 36 costs order was set aside. Since damages were to be reassessed, the costs consequences under Civil Procedure Rules 1998 could be reconsidered after the fresh award.

• Court of Appeal (Civil Division): allowed the insurer’s appeal in [2013] EWCA Civ 887, remitted damages for reassessment, and set aside the costs order.
• High Court, Queen’s Bench Division, Liverpool District Registry: His Honour Judge Armitage Q.C. awarded the bus operator £3,317 for 31 days’ loss of use, assessed by reference to a standing-charge formula.