On the buses

From time to time, a large vehicle such as a PSV, a bus or coach, may be damaged or destroyed in a road traffic accident, and in turn give rise to a claim for compensation, sometimes in circumstances where a replacement has been hired in, in other contexts where a replacement vehicle is “taken off the shelf” by the injured party and deployed to carry out the duties of the damaged vehicle.

Perhaps the leading modern case on the proper measure of loss for damages for loss of use in such circumstances is that of West Midlands Travel v Aviva Insurance UK Limited [2013] EWCA Civ 887, the facts of which were summarised by the Court of Appeal as follows:

The respondent in this case, West Midlands Travel Ltd (“the company”), provides public transport services using buses which operate from eleven depots situated in various locations around the west midlands. The present proceedings arise out of damage caused in a road traffic accident to one of the buses which operate out of its depot at Wolverhampton. The accident was caused by the negligence of a driver insured by the appellant, Aviva Insurance UK Ltd (“the insurer”), against whom the company made a claim under the European Communities (Rights against Insurers) Regulations 2002. The bus was off the road for 31 days undergoing repairs and the company duly made a claim for the cost of the repairs. Like most bus operators, however, it maintained a certain amount of spare capacity and was able to cover the loss of the bus from its existing resources. It could not therefore make a claim for special damages in the form of lost profits and instead made a claim for general damages for loss of use, using for that purpose a formula produced by the Confederation of Passenger Transport UK (“CPT”), which, broadly speaking, ascribes to each bus in the operator’s fleet a proportion of the total overheads incurred in operating the whole fleet. This has become known as the “standing charge” approach and led in the present case to a claim for £106.80 a day, totalling £3,310.80.

The issue which caused the case to go to the Court of Appeal was summarised in these terms:

The insurer admitted liability for the accident and settled the cost of repairs, but it disputed the company’s claim for general damages, both as a matter of principle and because it considered it to be substantially over-stated in the form in which it was put forward. It submitted that if general damages for loss of use are recoverable (a proposition which it reserves the right to challenge if the case goes further), they should not be assessed by reference to the standing charge, but by reference to interest on capital together with an allowance for depreciation and other fixed charges referable to the damaged vehicle and that an appropriate sum in this case is something in the order of £1,000. The issues raised by the insurer concern questions of principle which are of relevance to other claims of a similar kind. We were told that the company’s buses alone were involved in about 3,000 road traffic accidents each year, of which about half were caused by the fault of third parties. If one multiplies that figure by the number of bus operators across the country, it is clear that the questions raised on this appeal are of some importance both to bus operators and motor insurers generally.

Although noting that the issue was one of fact, the methodology of assessment involved ascertaining a point of law:

The real dispute in the present case, therefore, is not whether general damages are recoverable, but how they are to be assessed. In one sense the question can be answered by saying that the assessment of such damages is a matter of fact for the jury (whose function is now, of course, discharged in nearly all cases by the judge), whose task it is to award such an amount as will fairly compensate the claimant for his loss. However, as Viscount Sumner observed in Admiralty Commissioners v Owners of Steamship ‘Chekiang’ (The ‘Chekiang’) [1926] A.C. 637 at page 643, it is not good enough to hide behind the fact that the assessment of general damages is a matter of fact for the jury. Damages must be assessed in accordance with a proper direction from the judge as to what the law requires and that involves the application of principle. It is necessary, therefore, to examine the authorities to see what has been said about the principles on which the judge must direct himself when making an award of general damages.

After reviewing the Admiralty cases, the Court of Appeal looked at more modern authority:

In due course similar questions began to arise in relation to damage caused to public service vehicles in road traffic accidents. In Birmingham Corporation v Sowsbery [1970] RTR 84 the plaintiff’s bus was damaged in a collision with the defendant’s van. As a result it was off the road for 69 days. The Corporation did not need to hire a replacement because it maintained enough buses to cover emergencies. It therefore made a claim for general damages in respect of loss of use based on the daily cost of maintaining a reserve vehicle. The attention of the judge, Geoffrey Lane J., was drawn to the line of authority from the ‘Greta Holme’ to the ‘Hebridean Coast’, to which I have referred. In his view it indicated that there were two possible methods of arriving at a figure that would fairly compensate the plaintiff: (a) to base an award on the cost of maintaining and operating the damaged vehicle on the assumption that that represented the value to the operator (the approach which he understood had been adopted in the ‘Marpessa’); or (b) to base it on interest on capital and depreciation (as in the ‘Chekiang’ and the ‘Hebridean Coast’). He preferred the former, what he called the “standing charge” cost basis derived from the ‘Marpessa’, on the grounds that it was more likely to provide greater consistency between awards. In the case before him the standing charge had been agreed at £4 11s. a day, whereas the daily rate based on interest on capital, depreciation and expenses thrown away would have come to only £2 9s. 11d. It is not clear what elements of cost had been included in the standing charge.

The point next surfaced in West Midlands Passenger Transport Executive v AJS Pressings (11th November 1988, unreported), another case involving damage to a bus. As in the present case, the plaintiff’s fleet of buses was large enough to provide spare capacity for emergencies. The plaintiff claimed general damages based on allocating to each vehicle a proportion of the total cost of running the whole fleet. That was agreed at £44.50 a day, but although it is not clear exactly what costs went into calculating that figure, it is clear that it did not include wear and tear, the cost of routine maintenance or the cost of advertising and administration. The defendant contended that the plaintiff was entitled to recover no more than interest on capital and expenses thrown away, which it calculated at £17.55 a day. His Honour Judge Jowitt Q.C., sitting as a judge of the High Court, held that the plaintiff was entitled to general damages calculated at £44.50 a day, since that would provide fair compensation for its loss.

They then turned to consider the Beechwood case noting:

In that case the court considered that an award based on interest on capital value was appropriate.

In summary the Court expressed the view:

The authorities make it clear that there is no all-embracing principle governing the assessment of general damages other than that an award must be of such amount as will fairly compensate the claimant for his loss. Circumstances may differ and each case has to be approached on its own facts, but it is necessary to bear in mind that the fundamental purpose of an award is to compensate the claimant for the loss of use of the chattel in question. I agree with Mr. Bartley Jones Q.C. for the insurer, therefore, that as a matter of principle that is the point from which the exercise must proceed. However, as the cases also demonstrate, there may be more than one way of assessing the loss caused to the owner. In a case where the owner keeps no permanent stand-by but is unable to show that he suffered any specific loss in financial terms an award calculated by reference to interest on capital, expenses thrown away and an allowance for depreciation will normally provide a fair reflection of his loss because it represents the value to him of the money tied up in the chattel. It has been approved and applied in many cases and has the advantage of being relatively easy to calculate. Despite that, it appears to have been accepted that where the owner has in fact substituted for the damaged chattel another kept as a stand-by for that purpose the court is entitled to have regard to the cost of providing the stand-by: see the ‘Mediana’ and the ‘Susquehanna’. The underlying principle appears to be that, since the owner was required to employ the stand-by in place of the damaged chattel, he has been obliged to bear the cost of making it available. If, on the other hand, the owner can make do with his existing resources, this principle does not apply: see Lord Sumner in the ‘Susquehanna’.

In Birmingham Corporation v Sowsbery the judge preferred the “standing charge” basis of assessing damages to the “interest on capital” approach, but, since the amount of the standing charge was agreed, it is not clear from the report what items of expenditure were included. In the ‘Marpessa’, which the judge thought exemplified that approach, the plaintiffs argued that the value of the ‘G. B. Crow’ to them at the time in question was the amount which they considered it worth spending on her in order to keep her working. On that basis they argued that general damages should be awarded at the rate of £102 9s. 5d. a day, taking into account for that purpose the various expenses identified in paragraph 10 above. The registrar rejected that calculation, principally, it seems, because he considered that the original cost of building the vessel should not be taken as her value at the time of the casualty and because he considered the claim for owners’ profit, calculated at 25% of the vessel’s original cost, to be extravagant. He allowed only £35 a day, comprising insurance, wages, supplies and depreciation, together with interest at 4% on current value to cover owners’ profit and a further 3% in respect of general damages and establishment charges. In the High Court Sir Gorell Barnes P. rejected the principle that the vessel’s services were worth whatever the plaintiffs considered it appropriate to spend on her. He concluded (page 28) that in a case of that kind :

“ . . . the out-of-pocket expenses which the owner is compelled to incur, notwithstanding the stoppage, and the depreciation and loss of interest on capital, measure his loss by the delay, assuming of course that the benefit derived by working is only to be treated as equivalent to the expenditure.”

Later he said (page 31):

“ . . . it seems to me, on the whole, reasonable to consider that where the damages are not really proved, the Court is at liberty to assess them by awarding to the plaintiffs sufficient to compensate them for their actual out-of-pocket expenses, depreciation upon the vessel, and loss of interest upon the capital.”

The court was not satisfied that the amount of damages awarded by the registrar was insufficient and dismissed the appeal.

The Court of Appeal then proceeded to a closer analysis of the issue:

With all due respect to Geoffrey Lane J., I do not think that the ‘Marpessa’ is authority for the proposition that the cost of maintaining and operating the damaged vessel can be taken to represent the value to the operator, but when adopting the so called “standing charge” approach much may depend on what elements of cost are brought into the calculation. Certainly there is nothing in the ‘Marpessa’ to support the suggestion that in a case such as the present the plaintiffs are entitled to damages based on a proportionate share of their business overheads generally, most of which will be unaffected by the fact that one of their buses has been off the road for a few weeks. It is said, as it was in West Midlands Passenger Transport Executive v AJS Pressings, that the whole fleet was run as one and that it is artificial to separate out one vehicle, but in my view that is to miss the point. The claimant’s loss in this case is not represented by the average cost per bus of running its business, but by the loss it has suffered as a result of having one bus out of action (or “neutered”, to adopt the expression used by Sir Mark Potter P. in Beechwood Birmingham v Hoyer) for a limited period.

Since no loss of revenue can be attributed to the unavailability of the damaged vehicle, the operator’s loss can in my view best be assessed by reference to the capital tied up in it, wasted expenses and depreciation. Although the individual items going into the calculation will not be entirely the same in the case of a bus as in the case of a ship (since, for example, a bus does not require a crew while being repaired), the exercise is essentially the same as that which has been adopted in the Admiralty cases. It is also consistent with that adopted in Beechwood Birmingham v Hoyer. It is true, as was noted in Birmingham Corporation v Sowsbery, that capital value will vary depending on the age and type of vehicle involved and that as a result awards of damages may vary, but I do not regard that as a significant disadvantage. It should not be a matter of surprise that the loss of use of a new bus should cause greater damage to the operator than the loss of use of an old one and there should be no real difficulty in ascertaining current net book value which can fairly be taken to represent the vehicle’s value for this purpose.

Wasted expenses directly attributable to the damaged vehicle may include a proportion of the cost of mandatory testing, vehicle excise licence, insurance and certain other costs to which I refer below, but not the cost of an ‘O’ licence, no part of which is directly referable to the damaged vehicle. Since the need for routine maintenance is mainly generated by the wear and tear involved in operations, only that part which is generated by the simple passage of time can properly count as wasted cost. If, as in this case, there was a regular maintenance cycle to deal with both wear and tear and degeneration over time, the wasted costs are likely to be minimal, but that is a matter for evidence. Likewise, most of the cost of insurance is related to liabilities and losses incurred in the course of operations and is really an element of running costs. The daily cost of insuring the bus while in the depot should be included, but in the nature of things it is likely to represent a very small part of the total daily insurance cost for the year. Depreciation is a function of both age and wear and tear in the course of service. The average figure calculated by the experts was £18.50 a day, but, as became clear in the course of the trial, that was on the assumption that all depreciation was related to age, which was accepted not to be the case. It is for the claimant to establish the daily rate of age-related depreciation, if it can. The company also sought to include the cost of owning and maintaining property. It is conceivable that something should be allowed under this head in respect of the marginal cost of providing parking space, but some satisfactory basis for assessing the amount would have to be provided.

They then noted a flaw in the evidence:

The claim in the present case was supported by the evidence of an expert accountant, Mr. Morris, who calculated what was said to be the average daily cost to the claimant of running one of its buses. In fact, as his report makes clear, he based his calculation on the CPT formula, so that the figure put forward as the daily “standing charge” represents the total daily overheads allocated pro rata among all the vehicles. For the reasons I have given I think that the proper basis on which to assess general damages for the loss of use of a public service vehicle is normally interest on capital value (if it is owned) or the daily hire rate (if it is leased) together with depreciation and expenses thrown away. Nonetheless, for the reasons I have indicated I do not think that this court could properly have interfered with the judge’s award if he had assessed damages by reference to interest on the average capital value of the buses employed by the claimant, together with expenses thrown away, as representing the marginal cost of being forced to use another bus from the fleet in place of the one that had been damaged.

The principles that I draw from these cases is that the correct measure of damages for loss of use of a vehicle such as a PSV, will be made up of a daily rate calculated by inclusion of the following elements: first, an award of interest on capital calculated on a daily basis if the vehicle is actually owned by the victim. Alternatively, an award of the daily leasing rate, if in fact the vehicle is not owned by the victim but  leased through a finance company. Further any wasted expenses which would include the annual cost of insuring the vehicle pro rata, the cost of annual road tax pro rata , and annual depreciation on the vehicle pro rata.

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