Waterdance Ltd v Kingston Marine Services Ltd

Damage to a chattel causes an immediate direct loss, measured by the diminution in value caused by the damage. Where the chattel can be economically repaired, the reasonable cost of repair is prima facie evidence of that diminution, even if the claimant does not repair it.

Subsequent events, including the claimant’s later sale, destruction or disposal of the chattel, will generally not reduce the damages. The defendant bears the burden of showing that the physical damage caused no diminution in value. The relevant value is the value to the claimant, which need not always be the open-market value. A prospective governmental compensation scheme will displace the prima facie repair-cost measure only if the evidence shows that it fixed the chattel’s value so that the damage caused no loss.

The claimant owned a licensed beam trawler whose engine was damaged, assumed to have resulted from the defendant’s negligence or breach of contract. The agreed reasonable repair cost was £435,000. The claimant later decommissioned the vessel under a governmental scheme and received a grant of £1,119,000.

The defendant initially argued that the grant avoided or mitigated any diminution-in-value loss, and also disputed any entitlement to loss-of-use damages because the vessel had been loss-making. Ramsey J ordered those issues to be tried as preliminary issues. The mitigation argument was abandoned shortly before the hearing, and the claimant stated that it would not pursue the loss-of-use issue if it succeeded on the first issue.

The central question was whether the prospective decommissioning scheme meant that the engine damage caused no diminution in the vessel’s value.

1. Direct loss. The claimant suffered an immediate and direct loss when the vessel was damaged. The authorities established that the reasonable cost of repairing a damaged chattel is prima facie evidence of the diminution in value, whether or not repairs are carried out.
2. Subsequent events. The relevant loss was assessed when the damage occurred. The later availability and receipt of the decommissioning grant did not avoid or mitigate the loss. The defendant therefore had to show that circumstances existing on the date of damage meant that the physical damage caused no diminution in value.
3. Value to the claimant. The assessment was not necessarily confined to open-market value. The critical question was the loss of value to the claimant. A governmental scheme could theoretically fix a chattel’s value, but that would require evidence showing that the claimant had an established and sufficiently certain right to recover the relevant sum.
4. Application. At the date of damage the scheme was prospective, competitive and uncertain. The final terms were unknown, acceptance was not guaranteed, the grant depended on the bid and ranking process, and it was uncertain whether a damaged vessel would qualify. The evidence also showed that the scheme had not displaced ordinary market activity or market prices. The defendant therefore failed to establish that the damage caused no diminution in value.
5. The proper measure of loss was the reasonable repair cost of £435,000. The loss-of-use issue no longer arose and was not determined.

The judgment was a first-instance determination of preliminary issues. In December 2013, Ramsey J ordered the issues to be tried. No lower-court judgment is otherwise stated.