West Midlands Travel Limited -v- Aviva Insurance [2013] EWCA Civ 887

Claims for damages for loss of use by profit-making companies

Jane Bennett

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Commercial enterprises providing public transport services using buses have for years been pursuing claims

for general damages for loss of use in circumstances where one of their buses has been taken out of service

due to damage sustained by it in a collision caused by the negligent driving of a third party. Many of these

claims have been strongly contested on the basis that the bus company in question has suffered no such

loss as it operates a fleet of buses greater in number than the number of buses actually required to be on

the road at any such time and it can therefore draw immediately upon its existing resources to mitigate in

full the temporary loss of the damaged bus.

Commercial loss of use claims of this type have met with varying degrees of success in the county courts.

The lack of consistency of approach taken by District and Circuit Judges to these cases can largely be

explained by the lack, until very recently, of any clear authority on the point.

For my own part, I have enjoyed a 100% success rate arguing these types of claim for one of the three leading

UK bus companies. My success has largely been due to a heavy reliance placed upon the highly persuasive

judgment of His Honour Judge O’Rorke in the case of Stagecoach (South) Limited v East Midlands Electricity PLC

(unreported) which was handed down in the Nottingham County Court on 13 September 1994.

1. Stagecoach v East Midlands Electricity

In this case Stagecoach claimed damages for loss of use of their bus for the period during which it was out

of commission undergoing repairs, a period agreed at 106 days. The company used as the measure of the

value of the vehicle lost to them the standing charge value adopted as the appropriate basis of assessment

by the judge in the well-known case of Birmingham Corporation v Sowsbery [1970] RTR 84; which for some

time has been accepted as the most convenient method of assessing loss of use to undertakings such as

Stagecoach. By this method the cost of maintaining and operating the damaged vehicle (excluding running

charges) is taken as representing approximately the value of the vehicle to the operators. EME argued that

this method is only appropriate in cases where the claimant is a non-profit making enterprise; and even if

Stagecoach was entitled in principle to damages on the basis claimed it had failed to adduce sufficient

evidence of actual loss.

Stagecoach relied upon a schedule of loss which purported to arrive at the value to the company of each

bus operated by the subsidiary in question on a daily basis. On the schedule the total running costs of the

fleet of 279 buses operated by the subsidiary at the time was taken as £14,070,411.43. By deducting certain

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savings whilst vehicles were not in use the reduced figure of £6,461,996.53 was arrived at. A simple division

of this figure by the number of buses in the fleet (279) and the number of days in the year provided the

appropriate figure for the daily loss of use of the damaged bus. This figure was then multiplied by the

number of days for which the bus was out of service being repaired (106).

In relation to the operation of the fleet, Stagecoach’s evidence was that at any one time approximately 18%

of the fleet would be off the road. A number of buses were available as a stand-by fleet, so that if a bus was

damaged or broke down, a relief bus would be available to take its place. Accordingly, it was accepted by

Stagecoach that the standing charge was in principle paid from revenue generated by all of the buses on

the road at any one time; the route in question was able to be serviced by another bus from the stand-by

fleet; and there was no loss of any contribution to overheads in respect of the removal of the damaged bus

from service. It was on this basis that EME sought to argue that if Stagecoach was to be compensated for

loss of use for the damaged bus by an award equal to the standing charge of the bus for the period of 106

days, it would in fact be making a profit.

Following an analysis of the old shipping cases concerning loss of use, Judge O’Rorke reminded himself that

“the fundamental principle is that a party whose valuable chattel has been damaged by the tortious act of another

can claim damages for loss of use” and that “he is entitled to recover damages even though he cannot prove

‘tangible pecuniary loss’”. Accordingly, Stagecoach was held not to be precluded from claiming general

damages merely because it is a profit-making enterprise.

However, in terms of deciding the correct method by which the amount of general damages recoverable

should be calculated, the judge went on to distinguish the operation of a profit-earning vessel from the

situation of a bus company running a fleet of vehicles. It is the provision of the bus service as a whole that

is to be regarded as operating at a profit, not the individual bus operated on a specific route. It was held

that the appropriate measure of loss is therefore the standing charge, not on the basis that Stagecoach was

entitled to re-imbursement of the standing charge but because such a calculation “is simply a rough and

ready, if expedient, way of assessing the approximate loss of use of the bus”.

In my experience the District and Circuit bench have been keen to adopt Judge O’Rorke’s fully reasoned

approach, not least I suspect because it has saved them the task of analysing this quite complex point for

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themselves. However, what that case did not do (as the matter had been agreed between the parties in

advance) was to determine what the component parts of the standing charge should be.

2. West Midlands Travel v Aviva: A test case

At the end of last year the issue was tackled in a test case at High Court level. His Honour Judge Keith

Armitage QC, sitting as a judge of the High Court, handed down judgment in West Midlands Travel Limited v

Aviva Insurance UK Limited (unreported) on 20 December 2012 at the Manchester Civil Justice Centre. In this

case WMT claimed the sum of £3,310.80, calculated at the daily rate of £106.80, for 31 days for loss of use.

The calculation had been made on the same standing charge basis advanced successfully by Stagecoach in

the action before Judge O’Rorke.

Aviva admitted that WMT were entitled to damages for loss of use of the bus, as unusable until repaired, for

31 days. However, the use of the standard charge method, the constituent parts of it and the calculation of

the value of those parts were all put in issue. Aviva did not accept that the standing charge method of

quantification, a method frequently used by members of The Confederation of Passenger Transport UK

[‘CPT’], a trade association for bus, coach and light rail operators, is a realistic assessment of the value of the

loss of use of such vehicles. Aviva proposed the following alternatives: (1) that the appropriate measure for

loss of use of the damaged bus was the loss of income or profit that would have been generated by that

bus in the period; or (2) that it was interest on the capital value of the bus for the period; or (3) that if the

court held that a standing charge method was appropriate, then such charge should exclude “cost of

administration, operator’s licence, staff, repair, insurance against third party risks, office, canteen, repair

facilities or any part of the bus depot save for the cost of the parking space in the depot yard where the bus

was ordinarily parked”.

Aviva argued that the standing charge is excessively generous to undertakings such as WMT, in particular

because it includes items of cost and methods of calculation which have the effect of allowing the claimants

to recover a proportion of their commercial overhead expenses which they have chosen to incur in order to

run their business and which, in the event that no bus was damaged by a tortfeasor, they would have to

bear themselves.

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The method of calculation

In support of their financial contentions the parties each called an accountant as expert witness in that

discipline.

Upon considering the two possible approaches of either the cost of maintaining and operating the vehicle

or interest on the capital tied up in the vehicle and depreciation of it, Judge Armitage QC did not hold the

two methods to be exclusive. Provided there was no duplication, he saw no reason in principle why the

capital aspect is not to be admitted as a component of the cost of maintaining and operating the vehicle.

Accordingly, he concluded that both the cost of capital and the cost of daily upkeep are recoverable as parts

of the value of loss of use and that the proper method of calculation in cases such as this is the standing

cost of a vehicle available to be used immediately as a substitute. Where there are no identifiable stand-bys,

that is to say held back for use only when the supply of buses allocated for day to day operation is exhausted,

it is reasonable to take the average unit cost of the fleet as a whole.

He went on expressly to agree with the observations of Judge O’Rorke in the Stagecoach case that firstly,

buses operating a route generate revenue, but the profit of the company is that generated by the fleet, to

which the particular bus may or may not have contributed as a profitable individual or even as a loss maker;

and secondly, that the claim was not for re-imbursement of the standing charge but the value of the loss of

use of the bus, with the standing charge being used as a rough, ready and expedient method of assessing

that approximate value.

Accordingly, Judge Armitage QC concluded that a standing charge/cost approach to fleet operators’ loss of

use claims is appropriate in circumstances where the evidence shows a reasonably homogenous fleet.

The component parts of the standing charge calculation

In relation to Aviva’s argument that the mere adoption of a fleet approach to costing does not lead to the

conclusion that all the costs of the business should be included in the unit cost of having a bus, the judge

concluded that a standing charge for the purpose of calculating the value of loss of use, absent loss of

turnover/profit, should be limited (ironically) to the cost of having the vehicle ready for immediate use, not

using the vehicle. In relation to a fleet, some fraction of almost every overhead cost, save those that can be

shown to be related to staffing and administering the road operation of buses and the getting of business

for them, will be expended on simply having each bus.

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The judge determined that fixed costs including vehicle excise licences, MoT testing costs and operators’ “O”

licence cost are ‘having’ costs and should be included in the standing charge calculation. Further, as the cost

of insurance is incurred in providing for the ‘fleet-risk’ and the self-insured element borne by the claimants

is provided against both ‘on-road’ and garaged risks and does not vary with mileage, it too is a ‘having’ not

‘running’ cost and should be included.

Maintenance costs, the single greatest cost to the company, is made up of both running and having costs.

Planned maintenance, in addition to work and materials for planned preventative maintenance, will pick up

normal and abnormal wear and tear, that is to say usage related items, requiring service or even

replacement. Judge Armitage QC determined that a reasonable proportion of overall maintenance costs

should be included.

Property costs were also found to be rightly included as they are part of the cost of having a fleet of buses.

The cost of capital tied up in an average bus should be included as a proper element of a loss of use claim.

The cost of capital should be the net book value (NBV) of the fleet multiplied by the appropriate weighted

cost of capital (WACC). Similarly, depreciation is a ‘having’ cost and should be included in a loss of use

calculation. The judge went on to reason that the depreciation of the excess buses over the peak vehicle

requirement is part of the cost of mitigation and would be recoverable whether the substitute bus was part

of an indivisible fleet, or a true stand-by.

Finally, given that a number of WMT’s buses are leased, operating lease charges arise. The judge concluded

that this charge is part of the cost of having the relevant vehicles as part of the fleet and accordingly allowed

it as part of the standing charge calculation.

The end result was that Judge Armitage QC’s total sum was only slightly different from WMT’s schedule

drafted using the CPT formula, which, broadly speaking, ascribes to each bus in the operator’s fleet a

proportion of the total overheads incurred in operating the whole fleet. Allowing for imprecision, the Judge

then rounded down to the nearest pound the daily sum making £107.00. The value of 31 days’ loss of use

at this rate was awarded at £3,317.00.

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Aviva appealed the decision to the Court of Appeal with the permission of the judge.

3. The Court of Appeal – A fair and accurate assessment or an abandonment of commercial reality?

Lord Justices Moore-Bick, Rimer and Underhill heard the appeal on 6 June 2013. The neutral citation number

for the approved judgment on appeal is [2013] EWCA Civ 887.

In reaching their unanimous decision the Court of Appeal referred to the line of authority in the Admiralty

cases from the ‘Greta Holme’ [1897] AC 596 to the ‘Hebridean Coast’ [1961] AC 545. At paragraph 23 of his

judgment, Moore-Bick LJ said as follows:

“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…….. In a case where the owner keeps no permanent stand-by but is unable to

show that he suffered an 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 that stand-by. The

underlying principle appears to be that, since the owner can make do with his existing resources, this

principle does not apply.”

He went on to confirm that there was nothing in the Admiralty authorities to support the suggestion that in

a case such as this the claimants 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”.

At paragraph 27 of his judgment, Moore-Bick LJ determined that “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

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one bus out of action for a limited period”. Accordingly, the Court of Appeal took the view that the operator’s

loss was best assessed by reference to the capital tied up in it, wasted expenses and depreciation.

Wasted expenses directly attributable to the damaged vehicle may include a proportion of the cost of

mandatory testing, vehicle excise licence, insurance etc., but not the cost of an ‘O’ licence, no part of which

is directly referable to the damaged vehicle.

Further, 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 wear and tear and degeneration

over time, the wasted costs are likely to be minimal, but that is a matter for evidence.

As regards insurance costs, they mostly relate to liabilities and losses incurred in the course of operations

and are 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 daily insurance cost for

the year.

Depreciation is a function of both age and wear and tear in the course of service. It cannot be assumed that

all depreciation is related to age and it is for the claimant company to establish the daily rate of age-related

depreciation if it is to make a successful claim under this head of loss.

In respect of WMT’s case that the cost of owning and maintaining property should be included in the loss of

use calculation, the Court of Appeal took the view that 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.

The marginal cost of providing a replacement bus could also properly be awarded. It is to be calculated by

reference to the loss of productive use of the capital tied up in the replacement and the additional

expenditure incurred in making it available. Since there is no identifiable replacement, it would be necessary

to use an average figure, which, once calculated, might have some practical advantage.

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Further, as the bus damaged in the collision was leased by WMT rather than owned outright, the loss to

WMT as a result of being deprived of its services is best assessed by reference to the daily amount payable

under the lease, together with expenses thrown away, rather than by reference to interest on capital value.

In relation to the approach adopted by the trial judge, the Court of Appeal found that he was wrong not to

make an award beyond the marginal cost of having an additional bus available on grounds that the company

did not maintain a separate stand-by fleet. That was irrelevant. At paragraph 32 of his judgment Moore-Bick

LJ said:

“What matters is that there was spare capacity which could be called on when necessary. The fallacy in the

company’s argument lies in a failure to distinguish between the cost of having a bus available and the cost

of running the business. Of course it is possible to express the total overheads of the business in terms of

the daily cost of operating an individual bus, but in reality that represents much more than the cost to the

operator of losing the services of one vehicle for a day”.

Accordingly, as the law now stands, bus companies pursuing a loss of use claim should expect to receive an

award of general damages assessed by reference to interest on capital value (if it is owned) or the daily hire

rate (if it is leased) together with depreciation and expenses thrown away.

WMT v Aviva has been remitted to the High Court to assess damages in accordance with the principles laid

down by the Court of Appeal.

4. Consequences

Whilst the precise figure to be awarded to WMT is still awaited, what is clear is that awards for loss of use in

these cases will now be significantly lower than those known to have been achieved on a regular basis in

the county courts over the past 20 years or more. It is estimated that the Court of Appeal’s decision will

represent a saving to the motor insurance industry in the order of £25m. Conversely, the decision is a real

blow to bus operators whose buses are involved in an average 28,000 collisions every year.

Jane Bennett

November 2013

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Jane Bennett

Jane Bennett was called to the Bar in 2000.

She graduated from Cambridge University in 1999 and was called to The Middle Temple in 2000

whereupon she was awarded the prestigious Middle Temple Queen Mother's Scholarship. She has

practised primarily in the specialist fields of personal injury and equine law throughout her career. She

was appointed as a Deputy District Judge on the Midlands Circuit in 2010 at the relatively young age of 32.

She acts regularly for one of the leading profit-making public transport service companies in their claims

for general damages for loss of use.

Jane also has an interest in cases related to animals, particularly equine matters.

janebennett@ropewalk.co.uk

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