Case No. DMC/SandT/07/01
Southampton Container Terminals Ltd. v. Schiffahrtsgesellschaft "Hansa Australia" MGH & Co. – the "Maersk Colombo"
As yet unreported: May 2001: Decision of the English Court of Appeal
MEASURE OF DAMAGES FOR TORTIOUS DESTRUCTION OF CHATTELS: REPLACEMENT VALUE OR MARKET VALUE: REQUIREMENTS OF REASONABLENESS: RELEVANCE OF INTENTION TO REINSTATE
Summary
This case is an important example of the tendency of the English courts to apply the same principles to the measure of damages in tort as in breach of contract. The issue in the ‘Maersk Colombo’ was the measure of damages to be paid by the ship interests for a crane that the ship had hit and destroyed whilst berthing at the Southampton Container Terminal in February 1995. The resale value of the crane had been agreed at £665,000 whereas the Terminal claimed damages of £2,359,000. This figure had been based on the costs of acquiring an equivalent crane from the United States, of transporting it to the terminal and modifying it to fit the crane rails. These costs were not in fact incurred as, within a few months of the accident, the Terminal would have the use of two new cranes that had been ordered before the accident.
The judge at first instance found that the terminal had been operated satisfactorily in the period between the accident and the arrival of the new cranes and that, although "one less crane may have caused some inconvenience..…. it was not suggested that any material expense, such as overtime, was incurred or any other consequential losses were sustained. Accordingly, there was no loss of flexibility measurable in financial terms, nor was there any loss in capacity given the imminent arrival of the two new cranes. It would have been unreasonable to replace the crane because the expenditure would have been out of all proportion to the benefit obtained…… In my judgment, the cost of reinstatement by reference to transportation and modification costs that will never be incurred is not recoverable in these circumstances".
The appeal court upheld the decision at first instance, stating the following propositions as relevant to a case of this type:
On proof of the tortious destruction of a chattel, the owner is prima facie entitled to damages reflecting the market value of the chattel ‘as is’;
He is so entitled whether or not he intends to obtain a replacement;
The market or resale value is to be assessed on the evidence, there being no standard measure applicable to all circumstances;
If the claimant intends to replace the chattel, and if the market or resale value as assessed is inadequate for that purpose, then the higher replacement value may , in the event, be the appropriate measure of damages;
When and if replacement value is claimed, the claimant can only succeed to the extent that the claim is reasonable………..
The claim will ordinarily be reasonable if it is reasonable to replace the chattel and the cost of replacement is reasonable.
In the court’s opinion, the Terminal was not entitled to recover the replacement value of the crane in circumstances where the Terminal had no intention of replacing it and it would not have been reasonable to do so.
DMC Rating Category Developed
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Facts
Whilst berthing at the Southampton Container Terminal in February 1995, the ‘Maersk Colombo hit and destroyed a crane on the terminal. Subject to contributory negligence on the part of the Terminal, in not moving the crane to the recommended position on the berth prior to the ship’s arrival – subsequently assessed at 15% by the trial court, the ship admitted liability for the accident. The resale value of the crane was agreed at £665,000 whereas the Terminal claimed damages of £2,359,000. This figure was based on the costs of acquiring an equivalent crane from the United States, of transporting it to the terminal and modifying it to fit the crane rails. These costs were not in fact incurred as, within a few months of the accident, the Terminal had the use of two new cranes that had been ordered before the accident.
The judge at first instance found that the terminal had been operated satisfactorily in the period between the accident and the arrival of the new cranes and that, although "one less crane may have caused some inconvenience..…. it was not suggested that any material expense, such as overtime, was incurred or any other consequential losses were sustained. Accordingly, there was no loss of flexibility measurable in financial terms, nor was there any loss in capacity given the imminent arrival of the two new cranes."
Evidence established that, even before the accident, the Terminal regarded the crane as probably surplus to requirements once the new cranes were operational.
The Arguments
The Terminal claimed that where a chattel is held for use - as was the case here (the Terminal would have continued to use the crane, had it been available for use) – and is then destroyed by a tort, the victim is entitled to the value of the chattel as a going concern at the time and place of the loss, and there is no room for any requirement of reasonableness.
The ship interests agreed that the relevant principle of damages in the law of tort is ‘restitutio in integrum’, namely that the victim should be put back, so nearly as a monetary award will allow, in exactly the same position as he was in prior to the accident. They asserted, however, that damages are only recoverable if reasonable, particularly in a case such as this one, where replacement costs exceeded market value. Whether or not a claimant intends to replace the item is relevant to the question of reasonableness. In this case, it would be unreasonable to award the cost of reinstatement because the loss sustained did not extend to the need to reinstate. It would have been unreasonable to replace the crane because the expenditure would have been out of all proportion to the benefit obtained.
The Judgment
The appeal court upheld the decision at first instance, stating the following propositions as relevant to a case of this type:
On proof of the tortious destruction of a chattel, the owner is prima facie entitled to damages reflecting the market value of the chattel ‘as is’;
He is so entitled whether or not he intends to obtain a replacement;
The market or resale value is to be assessed on the evidence, there being no standard measure applicable to all circumstances;
If the claimant intends to replace the chattel, and if the market or resale value as assessed is inadequate for that purpose, then the higher replacement value may , in the event, be the appropriate measure of damages;
When and if replacement value is claimed, the claimant can only succeed to the extent that the claim is reasonable………..
The claim will ordinarily be reasonable if it is reasonable to replace the chattel and the cost of replacement is reasonable.
In the court’s opinion, the Terminal was not entitled to recover the replacement value of the crane in circumstances where the Terminal had no intention of replacing it and it would not have been reasonable to do so.
The court quoted with approval the following passage from McGregor on Damages:
‘The test which appears to be the appropriate one is the reasonableness of the claimant’s desire to reinstate the property; this will be judged in part by the advantages to him of reinstatement in relation to the extra cost to the defendant in having to pay damages for reinstatement rather than damages calculated by the diminution in value of the land.’
The court also relied on its unreported decision in January 2000 in Scutt v. Lomax. In this case, which related to the measure of damages for trespass, where the trespasser had uprooted some established trees, the court said:
"In assessing what steps it is reasonable to take by way of reinstatement, the court will take account of the cost of the reinstatement. Thus it may not be reasonable fully to reinstate the property because the cost of doing so may not be justified. All will depend on the circumstances of the particular case."
The court added: "Scutt v. Lomax was concerned with trespass to land, but I see no reason why the approach of reasonableness should not be adopted in a case such as the present, where what was destroyed by the defendants’ tort was not a tree but a crane."
In considering other previous cases, the court found that "where reinstatement is the appropriate basis for the assessment of damages, it must both be reasonable to reinstate and the amount awarded must be objectively fair as between the claimants and the defendants." The court relied also on the decision of the House of Lords in Ruxley Electronics Ltd. v. Forsyth, a case concerning the measure of damages for breach of a contract to build a swimming pool to the precise specifications agreed. In that case, the House of Lords had approved the principles established in the case of Taylor (Wholesale) Ltd. v. Hepworths Ltd. – a tort case concerning the destruction by fire of a building, principally comprising a billiards hall, which the claimants did not reinstate.
The court concluded that "it is clear that the House of Lords treated the principles identified … in Taylor v. Hepworths as applicable to the approach to damages for breach of contract and vice versa. In my opinion, a similar approach applies to the measure of damages for the tortious destruction of chattels as applies to the measure of damages for both the tortious destruction of real property and for breach of contract in circumstances such as those in Ruxley." In particular, the court referred to the judgment of Lord Mustill in the Ruxley case, where he said: …. the test of reasonableness plays a central part in determining the basis of recovery, and will indeed be decisive in a case such as the present when the cost of reinstatement would be wholly disproportionate to the non-monetary loss suffered by the (claimant)."
Cases followed: Scutt v. Lomax, January 2000, unreported: Ruxley Electronics Ltd. v. Forsyth [1996] 1 AC 344: Taylor (Wholesale) Ltd. v. Hepworths Ltd. [1977] 1 WLR 659: