On 10 November 2016 the Court gave judgment in favour of the plaintiff in the sum of $39.45. The plaintiff's claim was for an amount of $1,596.80 for loss of use of its motor vehicle while it was being repaired as a consequence of a collision caused by the defendant. The claim was calculated by reference to a market rate for hiring a replacement motor vehicle while repairs were being carried out. The Court assessed damages for loss of use of the plaintiff's vehicle in the sum of $39.45. This amount was determined by reference to interest calculated on the capital value of the plaintiff's vehicle during the period of loss. The Court reserved the reasons for its decision so that they could be reduced to writing. Those reasons now follow.
The plaintiff is a corporation which operates a business hiring motor vehicles to the public. The plaintiff was the owner and registered operator of a 2009 Toyota Camry. The motor vehicle was used for business purposes by the company. Mr Pillay, the director of the plaintiff, gives evidence that the motor vehicle was used by him primarily for work purposes. He also used the motor vehicle for personal purposes. The vehicle was also used by other employees of the company for business duties including travelling between the companies two branches to deliver and recover hire vehicles. The motor vehicle was not part of the plaintiff's fleet of vehicles available for hire by the public.
The plaintiff's motor vehicle was damaged in a collision caused by the defendant on 24 August 2015. The plaintiff's motor vehicle remained with the smash repairer between 24 August and 5 September 2015. During that time Mr Pillay, on behalf of the plaintiff company, hired a replacement motor vehicle through Not at Fault Car Hire Pty Ltd, a credit hire company.
Mr Pillay gives evidence to the effect that the plaintiff was unable to replace the damaged motor vehicle from its fleet of hire vehicles as the plaintiff as 100% of the large auto fleet was being utilised at that time. Mr Pillay attaches an email that refers to the utilization rates of the plaintiff of hire vehicles during the period of loss between 24 August and 5 September 2015.
The basis of the claim by the plaintiff is for general damages for loss of use of its motor vehicle. The plaintiff has not paid for the hire of the replacement vehicle. The credit hire company has not charged any up-front fee for the provision of a replacement vehicle.
The defendant disputes that the plaintiff is entitled to have damages for loss of use of a motor vehicle assessed by reference to the market rate for the cost of providing a replacement motor vehicle. The defendant acknowledges that the plaintiff is entitled to an award of damages, however, the defendant submits that in relation to a plaintiff who is a business entity, general damages may only be assessed by reference to interest calculated on the capital value of the motor vehicle during the period of loss, together perhaps with any running costs associated with maintaining the motor vehicle.
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Submissions by the Parties
The primary submission by the defendant is a purely legal argument regarding the proper basis for assessing loss of use of a motor vehicle by a business entity. The defendant seeks to draw a distinction between the approach for assessment of loss of use of a non-income producing chattel owned a private individual, where the court is compensating non pecuniary loss of inconvenience, and a business entity whose losses are ordinarily assessed by way of loss of profits, or, in the absence of such a loss being established, by way of assessment of the loss on the capital value of the company asset.
In response, the plaintiff submits that this case is not distinguishable from the many cases which come before the Local Court in respect to claims for loss of use by private individuals who obtain a replacement motor vehicle while their vehicle is being repaired. The plaintiff states that the damaged vehicle was a non-income producing asset and that damages should be assessed in accordance with the market rate for the hire of a replacement vehicle.
The defendant has provided written submissions on the law as it relates to assessing damages for loss of use of income producing chattels. The defendant submits that there is a difference between the measure of damages for non-income producing chattels and income producing chattels. The defendant characterises the plaintiff's motor vehicle as an income producing chattel as its only purpose is to support the plaintiff's income producing business enterprise.
The defendant relies on a number of authorities to support its position. In Woodman v Rasmussen [1953] St R Qd 202 the plaintiff operated a sawmill. The defendant negligently damaged a planning machine. As a result the machine was unable to be used for three months. The plaintiff sought damages for loss of profits, however, it was ultimately unable to prove that loss. On appeal Macrossan CJ said in respect to damages:
In my opinion the judgment so far as it gave the respondents damages for loss of profits cannot be sustained. It would, however, be in accord with authority to give the respondents damages by way of interest at the rate of five per centum per annum on the capital value of the machine for the period of three months during which they would have been deprived of the use of it whilst the necessary repairs were being made.
In Zappulla v Perkins [1978] Qd R 92 a legal practitioner used a motor vehicle on a lease hire basis for the purposes of earning an income. When the motor vehicle was damaged by the defendant he purchased a replacement which he subsequently sold at a loss of $198, however, he was required to make further payments in respect to the lease on the damaged motor vehicle for six months while it was not in use. The plaintiff was successful at first instance in recovering the sum of $198 together with the lease expenditures of $2,890.14. On appeal the Court held that the plaintiff was only entitled to recover $198 which represented the additional out of pocket expense that the plaintiff would not have incurred had it not been for the negligence of the defendant.
In BHP Coal Pty Ltd and Ors v O & K Orenstein & Koppel AG and Ors [2008] QSC 141 the plaintiff operated a large mine. Machinery known as a bucket wheel operator which excavates material was damaged by the negligence of the defendant. The plaintiff used its fleet of trucks and shovels to remove material in a different part of the mine during the period that the bucket wheel operator was unavailable. The plaintiff was unable to establish a particular cost incurred for a claim of special damages for loss of use. McMurdo J held that the plaintiff was still entitled to recover general damages based on interest on the capital value of the bucket wheel operator system.
The plaintiff states that these Australian cases consistently show unless the plaintiff is able to show a pecuniary loss suffered as a result of being deprived of an income producing chattel then general damages are limited to interest on the capital value of the chattel during the period of loss.
The plaintiff also relies on authorities in the United Kingdom to support a similar contention. In West Midlands Travel Ltd v Aviva Insurance UK Ltd [2013] EWCA Civ 887 the plaintiff owned a fleet of buses. One of those buses was damaged by the negligence of a driver insured by the defendant. In considering damages for loss of use, the Court found that the plaintiff maintained standby buses to cover contingencies such as maintenance and repairs from which the plaintiff could cover its operations. The plaintiff's standby bus was able to replace the bus damaged by the defendant and, accordingly, it was unable to establish loss of profits. On appeal Lord Justice Moore-Bick (with whom Rimer and Underhill LJJ agreed) at [23] noted that in order to fairly compensate the claimant for loss of use the appropriate method of assessment of general damages will vary according to the circumstances:
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'.
The defendant submits that by extracting the underlying principles in these authorities the Court may formulate a checklist to determine the proper basis for assessment of damages in respect to income producing chattels. Firstly, the Court should consider whether the plaintiff earns an income directly linked to the use of the damaged motor vehicle. If the response to that question is yes, then the plaintiff may be able to recover damages for loss of profits, unless the plaintiff is capable of replacing the motor vehicle from its own resources, in which case the plaintiff may recover interest on the capital value of the damaged vehicle and wasted expenditure on both the damaged and standby vehicle. If the response to the question is no, then the plaintiff is limited to recovering interest on the capital value of the damaged motor vehicle and any wasted expenditure on maintaining the damaged motor vehicle.
The defendant states that when applying this checklist to the plaintiff's claim the plaintiff cannot establish an income directly linked to the use of the damaged motor vehicle and accordingly, the plaintiff is entitled to general damages calculated by interest on the capital value of the damaged vehicle. As there is no evidence of other wasted expenditure on the damaged motor vehicle the plaintiff's damages claim for loss of use is limited to an award that represents interest on the capital value.
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Consideration
The proper basis for assessment of damages for loss of use of a motor vehicle in New South Wales is an area of law which suffers from a sparsity of superior court authority. During the past decade the Local Court has attempted to flesh out the tapestry of decisions to provide litigants with a clearer picture of how such damages are to be assessed. This case presents a further opportunity for the Court to apply more detail to the canvas.
The issue squarely raised by the defendant for consideration is that there is a fundamental distinction to be drawn between the assessment of damages for loss of use of an "income producing chattel" and a "non-income producing chattel". While the Court accepts that the nature of the chattel damaged will be relevant in the context of assessing the particular claim, the Court does not accept the defendant's proposition that the application of the principles relating to assessment of damages is materially different. In The Hebridean Coast [1961] AC 545, the House of Lords dealt with a claim for general damages for the loss of use of a cargo vessel. Lord Reid stated at 577-578:
I do not proceed on any supposed distinction in principle between a profit-earning ship and a non-profit ship. The task for assessing damages is easier with a profit-earning ship and depends on the probability that she would have earned so much money if her owner could have used her. With a non-profit earning ship there is no direct financial loss and one must ask what harm was done to the owner by his being deprived of the use of his ship. Then comes what may be a very difficult task, to put a value in money on the harm which the owner has suffered. But you must first prove the harm.
While there was some argument between the plaintiff and the defendant as to whether the plaintiff's motor vehicle was either an "income producing chattel" or a "non-income producing chattel" I find it unnecessary to categorise the plaintiff's property within either of these terms for the purpose of assessing the plaintiff's damages. As stated by Coole P in Gardiner v Metcalf [1994] 2 NZLR 8 at [12]:
In truth damages are in the end always a question of fact dependent on the particular circumstances.
While the defendant has attempted to distil legal principles into a structured check list, the Court is of the view that assessment of damages for loss of use does not lend itself to such an approach. As noted by Moore-Bick LJ in West Midlands Travel at [23]:
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.
The authorities relied upon by the defendant do not stand for the proposition that a plaintiff who obtains a temporary replacement of an asset from a third party to maintain business operations cannot, in the absence of an actual cost being incurred, recover the market cost for that replacement.
In both the Woodman and BHP cases the Court was dealing with circumstances where the plaintiff did not obtain a temporary replacement for the chattels that were damaged. Accordingly, there was no basis to allow either special or general damages for loss of use based on the cost of the replacement. In Zapulla the Court allowed special damages for loss of use based on the amount lost by the plaintiff in purchasing and then selling a temporary replacement. No doubt, had the plaintiff hired a temporary replacement instead of purchasing a temporary replacement, the Court would have allowed the cost of hire as special damages.
In the decision of West Midlands the Court was dealing with a case where the plaintiff again did not arrange for a replacement bus from a third party provider. Instead the replacement came from within the plaintiff's own resources. In those circumstances, the plaintiff was entitled to recover an amount that represented the cost of maintaining the stand-by vehicle. Again, it seems clear that if the plaintiff did not have a stand-by bus available and hired a temporary replacement the Court would have allowed special damages for loss of use based on the cost of that hire.
A business entity may recover the cost of a substitute chattel as damages for loss of use even in circumstances where the chattel does not derive a direct ascertainable income.
In Consort Express Lines Limited v J-Mac Pty Ltd (No 2) [2006] FCA 833 Rares J dealt with a claim for hire of a replacement vessel which was damaged. Consort owned a fleet of five vessels, however, it did not have spare vessels or capacity that would have enabled it to maintain its usual schedules where a particular vessel became unavailable. If it did not maintain its services it would potentially be in breach of its contractual obligations to clients. Consort hired a substitute vessel while its vessel was undergoing repairs. Rares J was satisfied that the substitute vessel was needed to carrying out the trade and functions in Consort's liner service which the damaged vessel would have otherwise performed. Rares J referred to the principles relating to the hire of a substitute vessel stated by Viscount Sumner in SS Strathfillan v SS Ikala [1929] AC 196 at 205:
If… the [plaintiff's] case is to be that the delay upset the general current of their trade, which had to be maintained in spite of it, I think that the extent and cost of this upset must be proved and must be causally connected with the collision in accordance with the ordinary rules of law as to damage. A ship's day is not like a unit of currency, always good for so many shillings. It has to be proved that, in doing the shipowner the wrong of laying his ship idle at the time in question, work, which she would otherwise have done during the time, went undone to his measurable loss or was only done by resorting to other expedients at a measurable outlay.
A case which more closely resembles the circumstances of the present case is Beechwood Birmingham Ltd v Hoyer Group UK Ltd [2010] EWCA Civ 647. In that case the plaintiff was a motor vehicle dealer with a large fleet of stock of motor vehicles for sale. One of the claimant's vehicles which was allocated for use by a service manager was damaged in a collision caused by the defendant. The day following the collision the service manager, rather than simply reallocating to himself another car from the claimant's stock, hired an equivalent substitute vehicle from a credit hire company. The trial judge allowed loss of use on the basis of the cost of a replacement vehicle notwithstanding findings made that the claimant had failed to mitigate his loss. The trial Judge noted:
The evidence makes it plain that this claimant neither had a need of outside hire, nor was it reasonable for them to resort to it. They did so for reasons which were remote from the defendant's wrongdoing. Does that then mean, as the defendant submits, that the claimant is entitled to no compensation at all for the loss of use of their motor vehicle?
The trial Judge found the answer in the decision of Lord Scott in Lagden v O'Connor [2004] 1 All ER 277 who in turn referred to Lord Herschell in The Greta Holme [1897] AC 596 at 604:
I take it to be clear law that in general a person who has been deprived of the use of a chattel through the wrongful act of another is entitled to recover damages in respect thereof, even though he cannot prove what has been called "tangible pecuniary loss," by which I understand is meant that he is a definite sum of money out of pocket owing to the wrong he has sustained. This was not disputed.
While the trial Judge correctly answered the question in the affirmative, the trial Judge incorrectly assessed damages by way of the market cost for the hire of a replacement.
On appeal Sir Mark Potter (Dyson and Maurice Kay LJJ agreeing) held that having found that the plaintiff failed to mitigate its loss, the trial Judge could not assess damages according to the market rate for the replacement vehicle. Sir Mark Potter referred to the Court of Appeal decision in Burdis v Livsey [2003] QB 36 at [147]:
The fundamental principle is that a person whose car has been damaged is entitled to compensation for the loss caused. In a case where such loss includes loss of use and he establishes a need for a replacement, he is entitled to the cost of hiring a replacement car. … However the basic principle is qualified by the duty to take reasonable steps to mitigate the loss. What is reasonable will depend on the particular circumstances. [Emphasis added]
As the claimant did not demonstrate a need for a replacement vehicle special damages were not allowed for loss of use. The Court allowed for the award to be substituted with a more modest amount based on the capital value of the damaged vehicle and any depreciation over the period allowed for repairs.
In the United Kingdom, claims for damages for loss of use of a motor vehicle have been predominantly dealt with as claims for special damages. In Beechwood Birmingham the Court of Appeal would have allowed the trial Judge's assessment of damages for loss of use based on the market rate for the hire of a replacement vehicle in accordance with the principles in Dimond v Lovell [2002] 1 AC 384 if the claimant had demonstrated a need for a replacement vehicle. The case demonstrates that principles in Dimond v Lovell are capable of applying to both private motor vehicle and business motor vehicles.
In Australia, claims for damages for loss of use of a motor vehicle have been predominantly dealt with as claims for general damages. The explanation of the basis for awarding general damages for loss of use was provided by Ipp AJA in Anthanasopoulos v Moseley [2001] NSWCA 266; (2001) 52 NSWLR 262 in the following terms:
78 In the course of argument on appeal there was much discussion as to whether there was a relevant similarity between the respondents' claims for damages for loss of use of their vehicles and Griffiths v Kerkemeyer (1977) 139 CLR 161 claims by injured plaintiffs in personal injury actions.
79 It is now well-established that the true basis of claims that fall into the latter category is the need of the plaintiff for such services, not the actual financial loss suffered by the plaintiff: Van Gervan v Fenton (1992) 175 CLR 327; Grincelis v House (2001) 201 CLR 321 at 327 per Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ. The fact that the services are provided gratuitously does not affect the characterisation of the damages in question. The gratuitous nature of the services merely points up the fact that damages in respect thereof are based on need and not on actual financial loss, and also raises the question whether such services are to be regarded as res inter alios acta.
80 In my opinion, the true basis of claims for damages for injury to a non-income producing chattel is also based on need. In the Greta Holme line of cases, the plaintiffs were held, generally, to be entitled to damages based on the cost (including the capital cost) of keeping and maintaining the damaged vessels while they were being repaired. Underlying the measure of damages so adopted is the owner's need to keep (or replace) the damaged chattel during the period while it is being repaired and cannot be used.
While Ipp AJA was referring to general damages in the context of a privately owned motor vehicle there is no reason why those principles do not equally apply to "income producing chattels". Ipp AJA indicates that the essential element to give rise to a right to recover damages for obtaining a replacement is the plaintiff's "need" for the replacement. The issue of "need" was critical to determining the right to recover the cost of hiring a replacement in both Consort (where need was established) and Beechwood Birmingham (where need was not established). Both cases involved chattels that were used in business enterprises. In my view the comments of Ipp AJA have general application to assessing damages for loss of use of chattels.
The "need" referred to by Ipp AJA in the context of privately owned vehicles was the "daily transport needs" of individuals attending to their domestic and personal activities. In the context of business enterprises the identifiable "need" requires some modification. In my view, the "need" to be established is that the motor vehicle is necessary to support the operations of the business albeit that the motor vehicle may not directly derive ascertainable income for the plaintiff. The decision to obtain a replacement should be based on prudent commercial considerations which weigh up the cost of the hiring a replacement against the option of managing business operations without a replacement.
There have been a number of decisions of the Local Court which have applied the principles referred to in Anthanasopoulos in the context of motor vehicles used for business purposes. See, for example, the decision of Pierce LCM in WR Building & Maintenance Pty Ltd v Jones [2016] NSWLC 13. No distinction was drawn in the assessment of general damages on the ground that the motor vehicle was an "income producing chattel" as opposed to a private motor vehicle or "non-income producing chattel".
The distinction between general and special damages for loss of use is largely procedural rather than substantive. The decision in Beechwood Birmingham demonstrates that the UK approach in Dimond v Lovell for assessing special damages for loss of use of a motor vehicle is capable of applying in a business context. The Australian approach in Anthanasopoulos for assessing general damages for loss of use of a motor vehicle is equally capable of applying in a business context. The two roads lead to the same destination.
The defendant's submission falls into error by linking the right to claim for loss of profits with the right to claim for damages for loss of use of chattels. While the two concepts are related they remain separate heads of damages.
A plaintiff whose business assets are wrongfully interfered with can potentially claim for both loss of profits while the asset is not in operation as well as the loss of use of the asset itself. If a plaintiff takes steps to mitigate against a loss of profits by obtaining a replacement either from within its own resources or from a third party the plaintiff may recover the cost of that replacement. The cost of the replacement will fall within the head of damages for loss of use. If the asset does not directly derive an ascertainable income that could give rise to a claim for loss of profit then a plaintiff may still recover the cost of a replacement vehicle if it can demonstrate that the replacement vehicle was needed to maintain its business operations.
If the actual cost of obtaining the replacement from a third party is not able to be ascertained (for example, it includes non-compensable benefits from a credit hirer) the Court will assess the loss of the substitute according to the market rate of an equivalent replacement.
While the defendant has failed in its primary argument, it does succeed on an alternative ground that the plaintiff in this case has failed to establish the requisite "need" for a replacement motor vehicle.
The plaintiff contends that, despite having a fleet of motor vehicles which it hires out to the public, it needed to hire a replacement vehicle from a third party hire company. The Court rejects that contention for the following reasons.
Firstly, the email provided by Mr Pillay does not disclose the business documents from which the utilization rates are sourced from.
Secondly, the utilization rates do not indicate the size of the fleet, other than in the "large auto" category and what vehicles might have been available for the plaintiff to use in other categories other than "large auto" motor vehicles. The utilisation rate show that there was less than 100% full utilization in a number of other categories of motor vehicle within the plaintiff's fleet yet the plaintiff fails to explain why none of these vehicles could have been used as a standby vehicle for the company's use while its vehicle was being repaired. The plaintiff had vehicles available in a number of hire categories including "mid size auto", "medium auto" and "economy auto".
Thirdly, it is wrong for the plaintiff to consider that it was limited to using a standby vehicle that is of a similar size, make and model of the damaged vehicle. Nothing has been said by the plaintiff as to why a smaller or larger vehicle that was available to it could not have met the needs of the plaintiff company. The issue of comparative vehicles is relevant only once a plaintiff has established a need for a replacement vehicle. Once need is established the Court will assess damages on the cost of hiring a comparative vehicle. In this case the plaintiff has not demonstrated that the vehicles that it had at its disposal were unsuitable and that therefore it had a "need" to obtain a replacement.
The right of the plaintiff to recover damages is tempered by the qualification that plaintiff's claim is reasonable. It was not a reasonable course of conduct for a hire car company that had other vehicles at its disposal to hire a replacement from a credit hire company. It did not need to hire a substitute. In the circumstances, the plaintiff's damages for loss of use should be limited to interest on the capital value of the damaged motor vehicle while that vehicle was repaired. That has been calculated in the sum of $39.45 and judgment is given for the plaintiff in accordance with these reasons.
Assessor S Olischlager
Small Claims Division
30 November 2016
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Decision last updated: 02 February 2017