Failing to Bring Benefits to Account?
114 Another criticism the Appellant has is that the judge erred in that she "failed to bring to account the additional benefits obtained by the provision of the entirely new fitout."
115 There have been cases where a primary legal decision-maker has been held to have been mistaken in failing to deduct, from the costs incurred in seeking to make good the consequences of some particular wrong, the value of incidental benefits that the plaintiff has received. British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co Ltd [1912] AC 673 was such a case. Westinghouse had supplied the Railways Company with turbines that failed to perform to the contractually required standard. Eventually, the Railways Company replaced the turbines with machines of a different design and manufacture, called Parsons machines, that had a greater capacity and a smaller steam consumption than had been called for by the contractual standard applicable to the Westinghouse turbines. An arbitrator found that the Parsons machines were so superior that, even if Westinghouse had delivered turbines that had complied in all respects with the contract, it would have been in the financial interest of the Railways Company to replace the Westinghouse turbines with Parsons machines (at 676). He found that the purchase of the Parsons machines was a reasonable and prudent course to mitigate or prevent the damage arising from the breach of contract (at 684). It would have been possible for the Railways Company to purchase turbines that had the same capacity as that for which Westinghouse had contracted, but it chose to purchase the larger capacity replacement model.
116 The contention of Westinghouse before the arbitrator was that, having regard to the facts he should
"… draw the inference that the 'commercial life' of the [Westinghouse] machines had expired at the date of the purchase by the [Railway Company] of the Parsons machines, and that the said facts were therefore relevant to the question of the amount of damages recoverable [by the Railway Company] and that accordingly no further damages of any kind were recoverable … after the date when Parsons machines were procurable by the [Railway Company]; and further that the cost of procuring and installing Parsons machines was not recoverable by the [Railway Company] from [Westinghouse]." (676)
117 Viscount Haldane LC (with whom Lords Ashbourne, Macnaghten and Atkinson agreed) held, at 692, that the contention of Westinghouse on that question was correct "so far, but only so far, as they contended that the several facts relied upon by them were relevant matter to be considered by the arbitrator in assessing the damages". The case was remitted for further hearing, without their Lordships identifying the precise way in which that matter should be "considered" by the arbitrator.
118 A qualification on this principle is that it is not necessary to bring to account, in assessing damages, the extent to which benefits are derived from making good the damage, if the only practicable way of making good the damage involves conferring those benefits. In Harbutt's "Plasticine" Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447, the plaintiff's factory was destroyed as a consequence of a breach of contract by the defendant. Reinstatement of the old factory was not legally permissible, so a new factory was built. The Court of Appeal rejected an argument that the measure of damages should be the difference in value of the land before and after the fire. Lord Denning MR said, at 468:
"The destruction of a building is different from the destruction of a chattel. If a second-hand car is destroyed, the owner only gets its value; because he can go into the market and get another second-hand car to replace it. He cannot charge the other party with the cost of replacing it with a new car. But when this mill was destroyed, the plasticine company had no choice. They were bound to replace it as soon as they could, not only to keep their business going, but also to mitigate the loss of profit (for which they would be able to charge the defendants). They replaced it in the only possible way, without adding any extras. I think they should be allowed the cost of replacement. True it is that they got new for old; but I do not think the wrongdoer can diminish the claim on that account. If they had added extra accommodation or made extra improvements, they would have to give credit. But that is not this case. I think the judge was right on this point."
119 Widgery LJ reached the same conclusion, saying at 473:
"Nor do I accept that the plaintiffs must give credit under the heading of 'betterment' for the fact that their new factory is modern in design and materials. To do so would be the equivalent of forcing the plaintiffs to invest their money in the modernising of their plant which might be highly inconvenient for them."
120 Similarly, Cross LJ at 476 said:
"Further, I do not think that the defendants are entitled to claim any deduction from the actual cost of rebuilding and re-equipping simply on the ground that the plaintiffs have got new for old. It is not in practice possible to rebuild and re-equip a factory with old and worn materials and plant corresponding to what was there before, and such benefit as the plaintiffs may get by having a new building and new plant in place of an old building and old plant is something in respect of which the defendants are not, as I see it, entitled to any allowance. I can well understand that if the plaintiffs in rebuilding the factory with a different and more convenient lay-out had spent more money than they would have spent had they rebuilt it according to the old plan, the defendants would have been entitled to claim that the excess should be deducted in calculating the damages. But the defendants did not call any evidence to make out a case of betterment on these lines and we were told that in fact the planning authorities would not have allowed the factory to be rebuilt on the old lines."
121 Even in circumstances where there is no practicable way of making good damage than by replacing damaged property with something superior to the damaged item, it can in some circumstances be appropriate to take the superiority of the replacement item into account in assessing the quantum of the damages. Hoad v Scone Motors Pty Ltd [1977] 1 NSWLR 88 arose when the plaintiffs' tractor and mower, used by them in their farming business, was destroyed by a fire caused by the defendants' negligence. They purchased new replacement equipment, an action held to be a reasonable mitigation of their loss. This was because no second-hand replacement equipment was available locally, and there was a practical need for the plaintiffs to be able to obtain service for the equipment from its vendor. However, the majority (Moffitt P and Hutley JA) held that the plaintiffs were not entitled to damages equal to the purchase cost of the replacement equipment. Consistently with British Westinghouse, the plaintiffs were required to bring to account any benefits that accrued to them in consequence of their mitigation. At the time of the fire the plaintiffs were intending to give up their property in 18 months time, and if the fire had not occurred would not have replaced their existing tractor. The new tractor, when sold at the time the farm was given up, was likely to bring more money than the old tractor would have brought, and the court held that that difference was one that the plaintiffs were required to bring to account in assessment of damages.
122 While Moffitt P and Hutley JA both did not follow the decision in Wayne Tank, they had different reasons for doing so. Moffitt P distinguished it, on a basis he described at 94:
"To replace the destroyed building [in Wayne Tank ], capital had to be laid out to erect a like building in the only way it could be, namely with new materials. The plaintiffs were not in the business of buying and selling factories. They needed the replacement factory for indefinite use. There was no question of it being sold. Prior to its destruction there was no contemplation of reconstructing it in the foreseeable future. The facts in the present case are quite different. Farm equipment deteriorates rapidly, and it is either written off or is replaced at short intervals. Planned replacement at short intervals was in fact the business practice of the plaintiffs. If this practice would have continued, then the consequence of the fire was merely to accelerate the inevitable capital expense of acquiring a new tractor and mower. If, as the plaintiffs claimed, but for the fire they would not have purchased another tractor or mower, because they were giving up the farm in eighteen months, presumably meaning they would not then need such equipment, then the total consequence of the fire, ie their total acts of mitigation to avoid crop losses over the eighteen months of farming, would be that capital expense was incurred, which would not otherwise have been incurred, in purchasing the new equipment and that, on resale after eighteen months, substantially less than the capital outlaid would be recovered. The loss of resale value of new equipment in that time would be greater than of old equipment. The entire practice, intention and ensuing events are connected with the loss, or with the connected acts of mitigation and are not res inter alios acta. Damages for the loss must have regard to all of such facts and hence bring to account any gain so connected with the acts of mitigation."
123 The reason of Hutley JA at 97 for declining to follow Wayne Tank was that:
"… it cannot stand with the judgment of the House of Lords in British Westinghouse … a case which does not seem to have been referred to in argument in the former case."
124 He was of the view that this Court should follow a decision of the House of Lords when there was no contrary decision of the High Court or the Privy Council. In Hyder Consulting at [47], Sheller JA disagreed with Hutley JA's view that Wayne Tank was inconsistent with British Westinghouse. Sheller JA said:
"The facts were different. The factory owner had no choice but to build the replacement factory which it did. On the other had the railway company chose, albeit for good commercial reasons, not merely to replace the turbines but to purchase a superior version."
125 I agree with Sheller JA in this respect.
126 Diamond v Lovell [2002] 1 AC 384 also concerned requiring a plaintiff to bring to account benefits it had received beyond mere compensation. It arose from an English commercial institution whereby there were specialist vehicle hire companies that made motor cars available to persons whose vehicles had been damaged through the negligence of another driver. The hire company would charge a rate of hire, and would also provide the hirer with credit for the hire charges, and would conduct any debt recovery, including litigation, that might be necessary to recover the hire charges from the negligent person. The rates of hire charged by such companies were greater than the rates of hire charged by ordinary car hire companies. The litigation in the House of Lords concerned the recoverability, from the negligent driver, of such hire charges. While the ratio of the case was that the charges were not recoverable because the hire contract was a particular type of regulated consumer credit transaction, and the statutory requirements governing such a contract had not been complied with, Lord Hoffmann considered what the situation would be if the statutory requirements had been complied with. He upheld the finding of the trial judge and the majority in the Court of Appeal that it was reasonable for a motorist in the plaintiff's position to use the service offered by the specialist hire company, but denied that the full rate of hire was recoverable as damages. At 401-2, he pointed out that under the contract the plaintiff received not only car hire, but additional benefits in the form of credit, being saved the trouble of pursuing the recovery claim, being saved the obligation to pay the difference between recoverable costs and actual costs of a successful claim, and not having to bear the risk of paying the costs of an unsuccessful claim. To the extent that the package of benefits with which she was provided under the contract included more than hire, it was necessary to quantify the value of the non-hire benefits. At 402-3, his Lordship expressed the view that, while it will depend upon the facts of each particular case, it would ordinarily be the difference between the rates of hire charged by the specialist car hire company, and the rates of hire charged by an ordinary car hire company.
127 The principles in those cases do not find application in the facts of the present case. There is nothing analogous, in the present case, to the benefit over and above compliance with the standard of performance that had been contractually required from the Westinghouse turbines that the Railway Company in British Westinghouse obtained by purchasing the Parsons machines. Nor is there any benefit, in the present case, analogous to the extra sale price that the plaintiffs in Hoad would be likely to obtain by having a newer tractor to sell when they carried through the intention that they already had, at the time of the tort, of giving up their farm. There is nothing analogous, in the present case, to the benefit beyond being provided with a replacement vehicle that the plaintiff in Diamond v Lovell acquired from the terms of her contract with the vehicle hire company. No attempt was made in the present case to prove that the shop, with its totally new fitout, was more profitable or in any other way more valuable than it would have been if the damage had never occurred. The judge specifically rejected the submission that, before the damage, the plaintiff's fitout was nearing the end of its working life. While there was some evidence from Mr Canturi that he was sceptical about it being possible for the store to be restored to exactly its pre-flood condition without it being obvious that there had been a patch job, the Respondent did not put its case on a basis that Mr Canturi's scepticism was well-founded and reasonable and thus that a total refit was called for. Nor did the judge find that Mr Canturi's scepticism was well founded or reasonable. Rather, the judge's finding is in substance that there were several contributing causes to the eventual total refit - the need to rectify the flooding damage, Mr Canturi's recognition of desirability of a total refit, and the need to close the shop for building works only once and during a less busy period of the year. Of course, to the extent that the installation of the new fitout was more than the Respondent needed to do to make good the damage caused by the flooding, it cannot recover the full cost of the fitout, but it has not claimed the full cost of the fitout, and the judge has endeavoured to find the means of measuring the extent to which the Respondent has suffered damage caused only by the flooding.