The respondent in this case, West Midlands Travel Ltd (“the company”), provides public transport services using buses which operate from eleven depots situated in various locations around the west midlands. The present proceedings arise out of damage caused in a road traffic accident to one of the buses which operate out of its depot at Wolverhampton. The accident was caused by the negligence of a driver insured by the appellant, Aviva Insurance UK Ltd (“the insurer”), against whom the company made a claim under the European Communities (Rights against Insurers) Regulations 2002. The bus was off the road for 31 days undergoing repairs and the company duly made a claim for the cost of the repairs. Like most bus operators, however, it maintained a certain amount of spare capacity and was able to cover the loss of the bus from its existing resources. It could not therefore make a claim for special damages in the form of lost profits and instead made a claim for general damages for loss of use, using for that purpose a formula produced by the Confederation of Passenger Transport UK (“CPT”), which, broadly speaking, ascribes to each bus in the operator’s fleet a proportion of the total overheads incurred in operating the whole fleet. This has become known as the “standing charge” approach and led in the present case to a claim for £106.80 a day, totalling £3,310.80.

The insurer admitted liability for the accident and settled the cost of repairs, but it disputed the company’s claim for general damages, both as a matter of principle and because it considered it to be substantially over-stated in the form in which it was put forward. It submitted that if general damages for loss of use are recoverable (a proposition which it reserves the right to challenge if the case goes further), they should not be assessed by reference to the standing charge, but by reference to interest on capital together with an allowance for depreciation and other fixed charges referable to the damaged vehicle and that an appropriate sum in this case is something in the order of £1,000. The issues raised by the insurer concern questions of principle which are of relevance to other claims of a similar kind. We were told that the company’s buses alone were involved in about 3,000 road traffic accidents each year, of which about half were caused by the fault of third parties. If one multiplies that figure by the number of bus operators across the country, it is clear that the questions raised on this appeal are of some importance both to bus operators and motor insurers generally.

The claim started life as a small claim in the Liverpool county court. However, once it became clear that it raised points of principle of general application it was transferred to the multi-track. Later still, it was transferred to the District Registry of the High Court and in due course it came on for hearing before His Honour Judge Armitage Q.C. sitting as a judge of the High Court. In a detailed and careful judgment he held that the company was entitled to recover general damages for 31 days’ loss of use assessed by reference to the standing charge and awarded it £3,317. The insurer has appealed against that decision with the permission of the judge.

Before turning to the authorities it is necessary to say a little more about the factual background. At the time of the accident in December 2006 the company required at peak times 205 vehicles operating from the Wolverhampton depot in order to provide all the services for which it was responsible. In order to provide spare capacity to cover for routine maintenance, accidents and other contingencies the company operated 228 buses out of the depot, all of which were used in providing public services on a rotating basis. There were sound operational reasons for running all the vehicles in rotation rather than retaining a dedicated fleet of buses in reserve, but however the fleet was managed, the company maintained spare capacity to cover routine maintenance and emergencies. Similar arrangements were in place at the company’s other depots. The standing charge which formed the basis of the claim was calculated by reference to the overheads incurred across the whole of the company’s fleet, rather than just the Wolverhampton depot itself. It included, for example, the cost of corporate services, the provision of canteen and medical facilities, fire prevention expenses, rent, rates and the cost of electricity and thus reflected the average unit cost per bus incurred by the company in running its business.

Since the decision of the House of Lords in The Owners of No. 7 Steam Sand Pump Dredger v The Owners of S.S. ‘Greta Holme’ (The ‘Greta Holme’) [1897] A.C. 596 it has been accepted that the owner of a chattel damaged by a third party who is unable to establish a claim for special damages is entitled to recover general damages for loss of use. In the ‘Greta Holme’ the vessel in question was a sand dredger owned by the Mersey Docks and Harbour Board which was being used to deepen the river near the landing stage. It was damaged in a collision with the ‘Greta Holme’, for which the latter was solely responsible. The dredger was out of action for fifteen weeks undergoing repairs and was available only for use as a hopper barge for a further period of sixteen days while repairs to her machinery were completed. Since the owners were not an ordinary trading organisation and had not obtained a temporary replacement, they were unable to show that they were out of pocket and were thus unable to make a conventional claim for special damages in respect of the period during which the dredger was unavailable for use. The House of Lords held that although they could not show that they had suffered any specific loss, the owners were entitled to recover damages for loss of use of the dredger. Lord Halsbury regarded it as axiomatic that the owner of property could recover damages for loss of use in such a situation, even though he could not show that he had suffered any specific loss. The other members of the House, apart from Lord Morris who dissented, were of the same opinion and the principle has since been applied in a variety of cases in which the owners of property (mainly ships) have been deprived of its use. In those circumstances, while wishing to keep open the right to argue that the decision in the present case was wrong in principle, the insurer accepted that as the law currently stands general damages may be awarded for loss of use of a chattel in cases where no special damage can be proved.

The real dispute in the present case, therefore, is not whether general damages are recoverable, but how they are to be assessed. In one sense the question can be answered by saying that the assessment of such damages is a matter of fact for the jury (whose function is now, of course, discharged in nearly all cases by the judge), whose task it is to award such an amount as will fairly compensate the claimant for his loss. However, as Viscount Sumner observed in Admiralty Commissioners v Owners of Steamship ‘Chekiang’ (The ‘Chekiang’) [1926] A.C. 637 at page 643, it is not good enough to hide behind the fact that the assessment of general damages is a matter of fact for the jury. Damages must be assessed in accordance with a proper direction from the judge as to what the law requires and that involves the application of principle. It is necessary, therefore, to examine the authorities to see what has been said about the principles on which the judge must direct himself when making an award of general damages.

In the ‘Greta Holme’ only Lord Herschell dealt with this aspect of the case in any detail. He said at page 605:

The owners were claiming £1,500 in respect of the fifteen weeks during which the dredger was out of use altogether, based on what they would have had to pay to hire an equivalent, and £91 8s. 6d. in respect of the days during which it could be used only as a hopper barge. Their Lordships awarded them £500, though it is unclear on what basis they arrived at that figure.

In The Owners of the Steamship ‘Mediana’ v The Owners, Master and Crew of the Lightship ‘Comet’ (The ‘Mediana’) [1900] A.C. 113 the ‘Comet’, a lightship operated by the Mersey Docks and Harbour Board, was damaged in a collision with the ‘Mediana’, for which the latter was solely to blame. At the time of the collision the Board owned six lightships, of which four were on station, one was kept to replace lightships as they were brought in for overhaul and one, the ‘Orion’, was kept permanently on standby ready to provide cover in case of an emergency. Following the collision the ‘Orion’ replaced the ‘Comet’ while it was undergoing repairs. The Board sought to recover from the owners of the ‘Mediana’ damages for loss of use of the ‘Comet’ or in respect of the cost of making available the ‘Orion’. Lord Halsbury L.C. considered that the case was governed by the principle in the ‘Greta Holme’, a conclusion with which the other members of the House agreed, and since the amount of damages was agreed, there was no need for their Lordships to discuss the principles on which they should be assessed. However, Lord Shand expressed the view that the Board could recover a proportion of the cost of keeping the ‘Orion’ on standby and Lord James of Hereford also appears to have considered that the owners’ damages could properly be measured by reference to the cost of providing the substitute vessel. In a similar vein Lord Brampton said at page 123:

The ‘Marpessa’ [1906] P. 14 was another case concerning a collision with a dredger owned by the Mersey Docks and Harbour Board. Following a collision between the dredger ‘G. B. Crow’ and the ‘Marpessa’ the Board sought to recover from the owners of the ‘Marpessa’ damages in the sum of £102 9s. 5d. a day for nine days’ loss of use. That sum was based on the average daily cost, calculated over the previous nine years, of insurance, repairs, wages, supplies, depreciation, expenses of the engineer’s department and a charge to represent owners’ profits. The Admiralty registrar awarded the Board standing expenses (i.e. costs of insurance, repairs, depreciation, wages and supplies) and 7% interest on the depreciated value of the vessel to cover establishment charges, owners’ profits and general damage. The total came to £35 a day. The owners challenged the registrar’s report. When giving judgment the President, Sir Gorell Barnes, observed that following a collision some expenses continue and others do not. Having made that point he said (at page 28):

The decision was upheld on appeal both by the Court of Appeal and the House of Lords, although Lord Loreburn considered that the Board could have claimed damages by reference to the daily cost of running the dredger as being a fair measure of the value of its service. In fact, however, the Board had also made a claim for loss of profit. In the view of the House the registrar had erred in favour of the Board in allowing an amount for profit, but had also erred in favour of the defendant in allowing only supplies required when in dock rather than supplies required when working at sea. In those circumstances the House declined to interfere with the award.

The ‘Chekiang’ concerned a collision at sea in which the defendant’s vessel caused damage to H.M.S. Cairo. The importance of the decision for present purposes lies in the fact that two members of the House of Lords, Viscount Dunedin and Lord Sumner, emphasised that there is no absolute rule requiring general damages to be calculated by reference to interest on capital and for the insistence on the part of Lord Sumner that even general damages must be assessed in accordance with appropriate principles. The question for decision in that case was whether in the case of a warship the registrar had been entitled to award by way of general damages interest on the capital value of the vessel. Their Lordships held that he had, but in terms that warned against treating the calculation as routine.

On the same day their Lordships delivered their speeches in Admiralty Commissioners v Owners of the Steamship Susquehanna (The ‘Susquehanna’) [1926] A.C. 655. In that case an Admiralty oiler, the ‘Prestol’, was damaged in a collision with the defendants’ vessel in the Baltic. Her place was taken by another oiler, the ‘Belgol’, which was withdrawn from service on the Clyde. In effect, the Admiralty was able to make do with the resources at its disposal, making it unnecessary to charter in a substitute vessel. The Admiralty claimed general damages at the rate of £225 a day in respect of the period during which the ‘Prestol’ was out of service while undergoing repairs, that being the rate at which she could have been chartered out. The registrar awarded damages at the rate of £200 a day.

Viscount Dunedin held that the Admiralty was not entitled to recover general damages assessed by reference to the rate at which the vessel could be chartered out and on that point their Lordships were agreed. They do not all appear to have regarded the ‘Belgol’ as a true stand-by, however. Viscount Dunedin may have done so, since he said (at page 662):

Lord Sumner, on the other hand, thought that the ‘Belgol’ was not to be viewed as a stand-by, because he said (at page 663):

However, he appears to have accepted that if a stand-by had been used it would have been acceptable to assess damages by reference to the cost of maintaining it. As it was, he accepted that damages for loss of use were recoverable calculated by reference to interest on the vessel’s capital value. In that respect he said, in a passage in which Lord Phillimore specifically concurred and with which Lord Blanesburgh agreed:

The last of the Admiralty cases to which it is necessary to refer is Owners of The ‘Lord Citrine’ v Owners of The ‘Hebridean Coast’ (The ‘Hebridean Coast’) [1961] A.C. 545. The plaintiffs, the Central Electricity Generating Board, required substantial quantities of coal for use in power stations. It owned a number of vessels, including the ‘Lord Citrine’, which it used for the carriage of coal, together with a number of other vessels which it chartered for the purpose. The ‘Lord Citrine’ was damaged in a collision with the defendants’ vessel ‘Hebridean Coast’, for which the latter was responsible, and was out of service for 11½ days while undergoing repairs. A dispute arose over the way in which damages should be assessed: the plaintiffs could not identify any specific vessel as having been chartered to replace the ‘Lord Citrine’, but maintained that since the total amount of coal required during the year had been carried, damages should be assessed by reference to the cost of chartering in replacement tonnage. The defendants said that they should be assessed by reference to interest on capital. The House of Lords applied the ‘Greta Holme’ and held that in the absence of a claim for special damages interest on capital, together with expenses thrown away, provided the appropriate measure of damages.

In due course similar questions began to arise in relation to damage caused to public service vehicles in road traffic accidents. In Birmingham Corporation v Sowsbery [1970] RTR 84 the plaintiff’s bus was damaged in a collision with the defendant’s van. As a result it was off the road for 69 days. The Corporation did not need to hire a replacement because it maintained enough buses to cover emergencies. It therefore made a claim for general damages in respect of loss of use based on the daily cost of maintaining a reserve vehicle. The attention of the judge, Geoffrey Lane J., was drawn to the line of authority from the ‘Greta Holme’ to the ‘Hebridean Coast’, to which I have referred. In his view it indicated that there were two possible methods of arriving at a figure that would fairly compensate the plaintiff: (a) to base an award on the cost of maintaining and operating the damaged vehicle on the assumption that that represented the value to the operator (the approach which he understood had been adopted in the ‘Marpessa’); or (b) to base it on interest on capital and depreciation (as in the ‘Chekiang’ and the ‘Hebridean Coast’). He preferred the former, what he called the “standing charge” cost basis derived from the ‘Marpessa’, on the grounds that it was more likely to provide greater consistency between awards. In the case before him the standing charge had been agreed at £4 11s. a day, whereas the daily rate based on interest on capital, depreciation and expenses thrown away would have come to only £2 9s. 11d. It is not clear what elements of cost had been included in the standing charge.

The point next surfaced in West Midlands Passenger Transport Executive v AJS Pressings (11^th November 1988, unreported), another case involving damage to a bus. As in the present case, the plaintiff’s fleet of buses was large enough to provide spare capacity for emergencies. The plaintiff claimed general damages based on allocating to each vehicle a proportion of the total cost of running the whole fleet. That was agreed at £44.50 a day, but although it is not clear exactly what costs went into calculating that figure, it is clear that it did not include wear and tear, the cost of routine maintenance or the cost of advertising and administration. The defendant contended that the plaintiff was entitled to recover no more than interest on capital and expenses thrown away, which it calculated at £17.55 a day. His Honour Judge Jowitt Q.C., sitting as a judge of the High Court, held that the plaintiff was entitled to general damages calculated at £44.50 a day, since that would provide fair compensation for its loss.

There have been a number of other cases in the county courts since then, but the only other case that it is necessary to mention is the decision of this court in Beechwood Birmingham Ltd v Hoyer Group UK Ltd [2010] EWCA Civ 647, [2011] Q.B. 357. The claimant in that case was a substantial car dealer. One of its cars, which had been allocated to an employee for his own use, was damaged in a collision with one of the defendant’s vehicles. Instead of allocating to himself another vehicle from stock the employee hired a replacement from a credit hire company at a cost of £30,000. The court held that since the claimant had spare vehicles at its disposal making it unnecessary to hire a replacement it could not recover the cost of doing so and could recover no more than general damages for loss of use. Sir Mark Potter P., with whom Dyson and Maurice Kay L.JJ. agreed, summarised the effect of the shipping cases as follows:

In cases where the owner has not been put to inconvenience by the loss of use of the vehicle and is concerned only with financial loss the President concluded that

In that case the court considered that an award based on interest on capital value was appropriate.

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. I agree with Mr. Bartley Jones Q.C. for the insurer, therefore, that as a matter of principle that is the point from which the exercise must proceed. 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’.

In Birmingham Corporation v Sowsbery the judge preferred the “standing charge” basis of assessing damages to the “interest on capital” approach, but, since the amount of the standing charge was agreed, it is not clear from the report what items of expenditure were included. In the ‘Marpessa’, which the judge thought exemplified that approach, the plaintiffs argued that the value of the ‘G. B. Crow’ to them at the time in question was the amount which they considered it worth spending on her in order to keep her working. On that basis they argued that general damages should be awarded at the rate of £102 9s. 5d. a day, taking into account for that purpose the various expenses identified in paragraph 10 above. The registrar rejected that calculation, principally, it seems, because he considered that the original cost of building the vessel should not be taken as her value at the time of the casualty and because he considered the claim for owners’ profit, calculated at 25% of the vessel’s original cost, to be extravagant. He allowed only £35 a day, comprising insurance, wages, supplies and depreciation, together with interest at 4% on current value to cover owners’ profit and a further 3% in respect of general damages and establishment charges. In the High Court Sir Gorell Barnes P. rejected the principle that the vessel’s services were worth whatever the plaintiffs considered it appropriate to spend on her. He concluded (page 28) that in a case of that kind :

Later he said (page 31):

The court was not satisfied that the amount of damages awarded by the registrar was insufficient and dismissed the appeal.

With all due respect to Geoffrey Lane J., I do not think that the ‘Marpessa’ is authority for the proposition that the cost of maintaining and operating the damaged vessel can be taken to represent the value to the operator, but when adopting the so-called “standing charge” approach much may depend on what elements of cost are brought into the calculation. Certainly there is nothing in the ‘Marpessa’ to support the suggestion that in a case such as the present the plaintiffs 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. It is said, as it was in West Midlands Passenger Transport Executive v AJS Pressings, that the whole fleet was run as one and that it is artificial to separate out one vehicle, but in my view that is to miss the point. 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 one bus out of action (or “neutered”, to adopt the expression used by Sir Mark Potter P. in Beechwood Birmingham v Hoyer) for a limited period.

Since no loss of revenue can be attributed to the unavailability of the damaged vehicle, the operator’s loss can in my view best be assessed by reference to the capital tied up in it, wasted expenses and depreciation. Although the individual items going into the calculation will not be entirely the same in the case of a bus as in the case of a ship (since, for example, a bus does not require a crew while being repaired), the exercise is essentially the same as that which has been adopted in the Admiralty cases. It is also consistent with that adopted in Beechwood Birmingham v Hoyer. It is true, as was noted in Birmingham Corporation v Sowsbery, that capital value will vary depending on the age and type of vehicle involved and that as a result awards of damages may vary, but I do not regard that as a significant disadvantage. It should not be a matter of surprise that the loss of use of a new bus should cause greater damage to the operator than the loss of use of an old one and there should be no real difficulty in ascertaining current net book value which can fairly be taken to represent the vehicle’s value for this purpose.

Wasted expenses directly attributable to the damaged vehicle may include a proportion of the cost of mandatory testing, vehicle excise licence, insurance and certain other costs to which I refer below, but not the cost of an ‘O’ licence, no part of which is directly referable to the damaged vehicle. 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 both wear and tear and degeneration over time, the wasted costs are likely to be minimal, but that is a matter for evidence. Likewise, most of the cost of insurance is related to liabilities and losses incurred in the course of operations and is 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 total daily insurance cost for the year. Depreciation is a function of both age and wear and tear in the course of service. The average figure calculated by the experts was £18.50 a day, but, as became clear in the course of the trial, that was on the assumption that all depreciation was related to age, which was accepted not to be the case. It is for the claimant to establish the daily rate of age-related depreciation, if it can. The company also sought to include the cost of owning and maintaining property. 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.

In the present case, as in Birmingham Corporation v Sowsbery, the company did not maintain a dedicated stand-by of the kind contemplated in the Admiralty cases, but it did maintain spare capacity for the specific purpose of ensuring that if one of its buses were damaged or suffered a breakdown, there was always another available to take its place. The case therefore bears some similarity to that which obtained in the ‘Mediana’ and I would accept that an award could properly be made by reference to the marginal cost of providing a replacement bus. However, that would involve a similar calculation 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.

The present case also bears some similarity to the ‘Susquehanna’ and the ‘Hebridean Coast’ in that the claimant was able to carry on its business without any specific loss of revenue using other assets at its disposal. In each of those cases damages were awarded in the form of interest on capital and expenses thrown away. In the present case the value of the bus damaged in the collision was apparently £92,044, but although it was apparently shown on the company’s books as an asset with that value, it was in fact leased rather than owned outright. The loss to the claimant as a result of being deprived of its services can therefore best be 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 paragraph 21 of his judgment Judge Armitage concluded that the appropriate method of assessing general damages in a case such as this was by reference to the standing cost of a vehicle to be available for immediate use as a substitute. By “standing cost” he had in mind the proportion of the claimant’s general overheads attributable to the substitute multiplied by the number of days during which the damaged bus was out of service. That was a proper basis of assessment, in his view, because it represented the total cost to the operator of having the vehicle ready to be put into service at a moment’s notice. He recognised the attraction of limiting the award to the marginal cost of having an additional bus available, but seems to have rejected it on the grounds that the company did not maintain a separate stand-by fleet. In my view, however, that is not relevant; 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.

The claim in the present case was supported by the evidence of an expert accountant, Mr. Morris, who calculated what was said to be the average daily cost to the claimant of running one of its buses. In fact, as his report makes clear, he based his calculation on the CPT formula, so that the figure put forward as the daily “standing charge” represents the total daily overheads allocated pro rata among all the vehicles. For the reasons I have given I think that the proper basis on which to assess general damages for the loss of use of a public service vehicle is normally interest on capital value (if it is owned) or the daily hire rate (if it is leased) together with depreciation and expenses thrown away. Nonetheless, for the reasons I have indicated I do not think that this court could properly have interfered with the judge’s award if he had assessed damages by reference to interest on the average capital value of the buses employed by the claimant, together with expenses thrown away, as representing the marginal cost of being forced to use another bus from the fleet in place of the one that had been damaged.

For these reasons I would allow the appeal and remit the case to the High Court to assess damages in accordance with the principles set out above.

After the case had been transferred to the High Court the company sought to protect itself against an adverse order for costs by making an offer under CPR Part 36. In the event the judgment it obtained was significantly more advantageous to it than its offer, but the judge declined to make an order in accordance with CPR 36.14(3) because he considered that it would be unjust to do so. The company has challenged that decision on the grounds that the circumstances did not justify a departure from the usual rule.

If, as I propose, the matter is remitted for damages to be re-assessed, the question of costs will have to be reconsidered in the light of the court’s decision. We have not been told how much the company offered to accept in satisfaction of its claim and we cannot be sure whether CPR 36.14(3) will or will not be engaged once a fresh award of damages has been made, though it seems unlikely that it will. In those circumstances I think it is better to say nothing about the judge’s order for costs at this stage other than that it should be set aside.

I agree.

I also agree.