Ali Reza contended that these amounts were recoverable either as the cost of replacing the damaged equipment or as its market value at the time of its loss. UASC contended that it was not reasonable for the claimants’ loss to be measured on the basis of replacement cost, in the absence of evidence that the claimants had actually replaced the equipment or had any intention of doing so, and relied on the authority of ‘The Maersk Colombo’ [2001] 2 Lloyd’s Rep 275. UASC agreed that they should pay the market value, but placed this at US$100,000 for the straddle carrier and US$15,000 for the tug.

At first instance, the judge, Brian Knight QC, had held that, in the absence of evidence that the claimants had replaced or would replace the equipment, damages should be limited to its market value, which he determined to be US$115.800, as calculated by UASC.

The claimants appealed. They maintained that they were entitled to recover the replacement cost of the equipment but, if market value was to be the measure of their loss, then they were entitled to the value of the equipment in Saudi Arabia, namely US$227,400. The sums that the judge had awarded were based on what it would cost to buy the equipment second-hand in Europe. There was no market for the equipment in Saudi Arabia. Therefore the market value of the equipment in Saudi Arabia equated to the replacement cost, because it had to take account of the cost of transporting the equipment there from Europe and adapting it to operate in the high temperatures prevailing in the region.

Argument before the court of appeal was limited to the issue of market value.

Judgment
Lord Justice Tuckey, with whom the other two judges agreed, gave the leading judgment in the court of appeal.

He quoted with approval the following propositions approved by the Court of Appeal in the case of The Maersk Colombo, namely:

1. On proof of the tortious destruction of a chattel, the owner is prima facie [on first impression] entitled to damages reflecting the market value of the chattel ‘as is’.
2. He is so entitled whether or not he intends to obtain a replacement
3. The market or re-sale value is to be assessed on the evidence, there being no standard measure applicable to all circumstances.

The question was, therefore, how to assess the market or re-sale value of the equipment at the time and place (Saudi Arabia) where it was destroyed. In answering this, the judge relied on the evidence from the claimants’ expert, Mr. John Gibbons, to the effect that the amounts claimed for the straddle carrier and the tug of US$200,000 and US$26,600 respectively were "fair and reasonable". In reaching this conclusion, the expert had said that it would cost US$100,000 to buy a second-hand machine in Europe. This machine would then have to be dismantled, shipped and reassembled, which would double the cost. Further unspecified costs would then have to be incurred to adapt the machine for use in high temperatures, which could not be done cheaply. Insurance and freight would add to the cost. "What Mr. Gibbons is saying", said the judge, "is that it would cost substantially more than US$200,000 to replace the carrier."

The judge interpreted this to mean that the market or re-sale value of the machine in Saudi Arabia was US$200,000. The same applied to the figure of US$26,600 that Mr. Gibbons had placed on the value of the tug. "The market value of working equipment such as this," said the judge, "must reflect the increased costs of getting it to Saudi Arabia and adapting it for use there, however old it may be."

On this basis, the figure of US$115,800 (for the combined costs of straddle carrier, tug and trailer) awarded by the trial judge could not be correct since that figure had been based upon the value of the equipment in Europe. The judgment at first instance was therefore overruled and the claimants were accordingly awarded their full claim of US$227,400.