Assessment of damages–Damage caused to garage premises by works carried out in construction of adjoining multi-storey car park–Claims by owners and lessees of garage premises against city council, main building contractors and subcontractors–Main issue date as at which damages should be assessed–Whether date at which cause of action arose or date when repairs could reasonably have begun–If later date correct in principle, should it be taken to be a date in 1970, as Cantley J held, or the date in 1978 when the plaintiffs’ action was heard?–Held by Court of Appeal that the later date was correct–It was reasonable to defer repairs until the defendants’ liability had been established–Judge wrong in considering that the Liesbosch decision compelled him to select the earlier date–Criticism of Philips v Ward–Appeal allowed–Large difference in amount of damages
This was an
appeal and a cross appeal from a decision of Cantley J, reported at (1978) 248
EG 229, [1978] 2 EGLR 25, in an action brought by Dodd Properties (Kent) Ltd,
the owners, and Marlowe Garage (Canterbury) Ltd, the lessees, of a building in
Rose Lane, Canterbury, known as Marlowe Garage. The first defendants were
Canterbury City Council; the second defendants, Truscon Ltd, were the main
contractors; and the third defendants, Frankipile Ltd, were the subcontractors.
The respondents to the appeal were the third defendants, who had undertaken to
indemnify the other two defendants.
Roger
Titheridge QC and Michael McMullan (instructed by Lewis & Dick) appeared on
behalf of the appellants; Oliver Popplewell QC, Stephen Desch and Antony
Edwards-Stuart (instructed by Ponsford & Devenish, Tivendale & Munday)
represented the respondents (third defendants).
Giving judgment,
MEGAW LJ said: This is an appeal from a judgment of Cantley J.
The first
plaintiffs, Dodd Properties (Kent) Ltd, are the owners of a building in Rose
Lane, Canterbury, known as Marlowe Garage. The second plaintiffs, Marlowe
Garage (Canterbury) Ltd, have been the occupiers of Marlowe Garage as lessees
of the first plaintiffs. They carry on their business there as motor-car
dealers and they sell petrol, oil and car accessories.
In 1968 the
first defendants, the mayor, aldermen and citizens of the City of Canterbury,
erected a large multi-storey car park close to Marlowe Garage. The second
defendants, Truscon Ltd, were the main contractors, the third defendants,
Frankipile Ltd, were their subcontractors for the foundations of the car park.
As a result of their operations, damage was caused to the plaintiffs’ building.
Liability was for long denied, but shortly before the action came on for
hearing before Cantley J in 1978 liability was admitted in nuisance by the
second and third defendants, though the extent of the damage was in issue, and
also the basis of assessment of the amount of the damages to which the
plaintiffs were entitled. The first defendants did not formally admit
liability. But they took no part in the proceedings, having received an undertaking
of indemnity from the other defendants.
The judge held
that the first defendants also were liable. They are not parties to the appeal.
There is no dispute as to liability. The issues are as to damages. No question
of fact is now in dispute, the judge’s findings of fact are accepted as to the
extent of the physical damage and as to other matters.
On the
question of the extent of the damage, the judge to a large degree accepted the
evidence of the defendants’ experts. On their evidence, the necessary repairs
would, at the prices prevailing at the time of the hearing in 1978, cost about
£30,000. On the evidence of the plaintiffs’ expert, the repairs required were
much greater and the cost much higher. The question which remained, and which
is the primary issue before us, is this: by reference to which of two dates is
the cost of the repairs to be ascertained, for purposes of arriving at the
amount of the defendants’ liability for their tort? The plaintiffs say that the relevant date for
this purpose is the date of the hearing, or of the judgment: that is, that the
1978 prices are relevant and decisive. The defendants say that the relevant
date is 1970 and the relevant prices are the 1970 prices. As a result of
inflation, the difference between the computations at those respective dates is
very large. The 1978 figure, for the repairs which the judge held to be
required, is £30,327. The 1970 figure, for the same work, is approximately
£11,375.
The second
plaintiffs also have a claim. It gives rise to the same issue as to the proper
date of assessment. The second plaintiffs’ claim arises out of prospective
interruption of their business during the time that would be required for the
carrying out of the appropriate repairs, if and when that work is done. The figure,
if the repairs were to be carried out in 1978, would be £11,951. In 1970 the
corresponding amount would have been £4,108.
Taking the
first and second plaintiffs’ potential entitlements together, the sums payable
by the defendants as damages (apart from any question of interest) would be: on
the 1970 assessment, £15,483; on the 1978 assessment, £42,278.
Cantley J held
that in law, in the circumstances, judgment had to be given on the 1970 basis.
He also awarded interest, making the total payable by the defendants to the
first and second plaintiffs £22,974.20. Against that judgment the plaintiffs
appeal and the defendants cross-appeal. The plaintiffs say that the judge was
wrong in law to make his assessment of damages on the basis of the cost of the
repairs in 1970. They say that he should have taken the 1978 computation. They
say, in the alternative, that, if they should be wrong on this, which is their
first and main contention, then the judge ought to have awarded interest from
an earlier date and at a higher rate. They accept that, if they are right on
their first contention–that is, the acceptance of 1978 as the date by reference
to which the cost of the repairs is to be assessed–then they could not claim
interest.
The
defendants’ cross-appeal raises an issue affecting the damages of the second
plaintiffs only. The defendants say that, since the judge held that it was only
‘just about established’ that it was probable that the repairs would in fact be
carried out after his judgment, he ought not to have awarded to the second
plaintiffs the full amount of the prospective loss to them arising from the
interruption of their business which would be caused by those potential
repairs. The judge, say the defendants, should have awarded the second
plaintiffs only, say, 60 per cent of the total prospective loss by
interruption, because the chance that the loss would in fact occur was no
greater than a chance of that order.
On the first,
and main, issue raised by the plaintiffs, it is necessary to see what the learned
judge found were the reasons why the repairs for this damage to the Marlowe
Garage, caused in 1968, had still not been carried out when the action was
heard in 1978. Because I think it is important to see precisely what the judge
held in this respect, I shall quote the judge’s own words from the transcript
of his judgment:
I find that
the first plaintiffs could probably have raised the money for repairs but this
would have increased their annual losses and their financial stringency. As a
commercial decision, judged exclusively from the point of view of the immediate
and short-term welfare of the companies, it was reasonable to postpone
incurring the very considerable expense of these repairs while no harm was
being done to the building by the delay in repairing it and while these three
rich defendants with apparent if not genuine belief in the validity of their
defences were firmly denying liability to make even a contribution.
The learned
judge then referred to the well-known, much-discussed, case, Liesbosch (Dredger)
v SS Edison [1933] AC 449. He said, at page 11-B: ‘In the case of
destruction of a chattel, the normal measure of the damage is the market value
at the time of the loss. That was the measure of damage applied in Liesbosch.’
The learned judge then cited from
the judgment of Denning LJ in Philips v Ward [1956] 1 WLR 471 at
p 474: ‘The general principle of English law is that damages must be assessed
as at the date when the damage occurs, which is usually the same day as the
cause of action arises. . . . A fall thereafter in the value of money does not
in law affect the figure, for the simple reason that sterling is taken to be
constant in value’. Although this may not affect the statement of ‘the general
principle,’ I think that the reasoning as to sterling having to be taken to be
constant in value is unfortunately no longer good law, having regard to the
facts of life and the recent authoritative decisions, including Miliangos
v George Frank (Textiles) Ltd [1976] AC 443.
Cantley J then
said:
No authority
has been cited to me and in my very limited opportunity lately I have
discovered none for myself where a court has considered the time at which
damages are to be assessed in the cases of buildings damaged and put in need of
repair by a tortious act. If there is no authority on that precise point, it
may be because no-one has ever before thought to contend that the general
principle did not apply to it. The general principle is that damages must be
assessed as at the date when the damage occurs. In my view, that general
principle applies here. It is not, of course, to be rigidly applied as a rule
of thumb, fixing the time rigidly by the calendar and the clock. The damage may
be concealed by some fault of the wrongdoer or not reasonably discoverable by
the victim until some time after it has first appeared, see eg East Ham
Corporation v Bernard Sunley & Sons Ltd [1966] AC 406 and Applegate
v Moss; Archer v Moss [1971] 1 QB 406.
Moreover,
repairs cannot usually be put in hand at once and at prices ruling at the very
date of damage. There may have to be inspections and specifications and tenders
and an available contractor may have to be found before the work can be
started.
Furthermore,
the nature and circumstances of the damage may be such that it would be
imprudent and possibly wasteful to begin the work before waiting longer to
ensure that no further damage is going to develop from the same cause. This is
particularly true when the foundations of a building have been disturbed by
vibrations.
I would put it
in this way. The appropriate damages are the cost of repairs at the time when
it was reasonable to begin repairs. Whether the time is reasonable must be
judged objectively and not taking into account such matters as impecuniosity or
financial stringency which, in the words of Lord Wright in the Liesbosch
case, are extrinsic.
The learned
judge then held that it was reasonable for the plaintiffs not to begin repairs
until 1970 even though the damage had all occurred, and was known, in 1968. On
that basis he adopted ‘as the measure of damage . . . the cost of repairs on
the prices ruling in 1970’; that is, £11,375. There is no dispute in this case
but that the appropriate measure of damages on this claim of the first
plaintiffs is by reference to the cost of the repairs required. The defendants
do not challenge the judge’s acceptance of the 1970 figures. That means that
they do not now contend that the judge should have taken the lower prices for
the repair work prevailing in 1968 when the tort was committed.
It is
important to bear in mind that we are not concerned with any suggestion that
the plaintiffs were under a duty towards the defendants to repair the premises
damaged by the defendants’ wrongdoing. The plaintiffs did not lose their right
to recover damages from the defendants because they did not effect the repairs.
True, in certain circumstances with which we are not concerned here, such as
the building being destroyed by fire before the repairs were carried out, the
amount of the plaintiffs’ entitlement to damages might have become nil. But
what we are concerned with here is: by reference to what date is the amount of
the recoverable loss to be calculated, during a period when the cost of the
necessary work is rising as time goes on?
Since the defendants do not suggest that the judge was wrong in taking
the 1970 prices instead of the 1968 prices, it is accepted, and I think
necessarily and rightly accepted, by the defendants that there are
circumstances in which the proper amount of damages, where, as here, the
damages are to be computed by reference to the cost of repairs, have to be
computed by reference to that cost at a date later than the date of the
wrongdoing which caused the damage.
The general
principle, referred to in many authorities, has recently been recognised by
Lord Wilberforce in Miliangos v George Frank (Textiles) Ltd
[1976] AC 443 at p 468E: namely, that ‘as a general rule in English law
damages for tort or for breach of contract are assessed as at the date of the
breach’. But in the very passage in which this ‘general rule’ is there stated,
it is stressed that it is not a universal rule. That it is subject to many
exceptions and qualifications is clear. Cantley J in the present case rightly
recognised that that was so, in the passage from his judgment which I have
recently read. Indeed, where, as in the present case, there is serious
structural damage to a building, it would be patently absurd, and contrary to the
general principle on which damages fall to be assessed, that a plaintiff, in a
time of rising prices, should be limited to recovery on the basis of the prices
of repair at the time of the wrongdoing, on the facts here, being two years, at
least, before the time when, acting with all reasonable speed, he could first
have been able to put the repairs in hand. Once that is accepted, as it must
be, little of practical reality remains in postulating that, in a tort such as
this, the ‘general rule’ is applicable. The damages are not required by English
law to be assessed as at the date of breach.
The true rule
is that, where there is a material difference between the cost of repair at the
date of the wrongful act and the cost of repair when the repairs can, having
regard to all the relevant circumstances, first reasonably be undertaken, it is
the latter time by reference to which the cost of repairs is to be taken in
assessing the damages. That rule conforms with the broad and fundamental
principle as to damages, as stated in Lord Blackburn’s speech in Livingstone
v Rawyards Coal Co (1880) 5 App Cas 25, at p 39, where he said that the
measure of damages is ‘that sum of money which will put the party who has been
injured, or who has suffered, in the same position as he would have been in if
he had not sustained the wrong for which he is now getting his compensation or
reparation.’
In any case of
doubt, it is desirable that the judge, having decided provisionally as to the
amount of damages, should, before finally deciding, consider whether the amount
conforms with the requirement of Lord Blackburn’s fundamental principle. If it
appears not to conform, the judge should examine the question again to see
whether the particular case falls within one of the exceptions of which Lord
Blackburn gave examples, or whether he is obliged by some binding authority to
arrive at a result which is inconsistent with the fundamental principle. I
propose to carry out that exercise later in this judgment.
The judge has
held, in a passage which I have already read, that as a commercial decision,
judged exclusively from the plaintiffs’ point of view, it was reasonable to
postpone incurring expense of the repairs up to–for so I understand what the
judge says–the time when the action had been heard and liability decided,
resulting in a judgment which, when complied with, would have put the
plaintiffs in funds. The reasons why that deferment of repairs was reasonable
from the plaintiffs’ point of view included the fact, not that they were ‘impecunious,’
meaning poverty-stricken or unable to raise the necessary money, but that the
provision of the money for repairs would have involved for them a measure of
‘financial stringency.’ Other reasons,
consistent with commercial good sense, why the repairs should be deferred
include those mentioned in evidence by a director of the plaintiff companies,
whose evidence was accepted by the judge as truthful and reliable. If there had
been no money problem, he said, he would still not have spent money on the
building before he was sure of recovering the cost from the defendants. It
would not have made commercial sense to spend this money on a property which
would not produce corresponding additional income. So long as there was a
dispute, either as to liability or amount of compensation, he would have done
no more than to keep the building weather-proof and ‘in working order.’
If that was,
as the judge held, reasonable from the point of view of the plaintiffs as being
grounds for deferring the carrying out of repairs, and if the time at which the
cost of the repairs falls to be completed in order to ascertain the amount of
damages is the time when it has become reasonable to do the repairs, why did
the judge reject 1978, for which the plaintiffs contended, and accept 1970 for
which the defendants contended?
There are, as
I see it, two possible answers to that question. The first answer is that what
is reasonable has to be looked at from the point of view of both parties and a
balance struck. The judge’s findings of reasonableness of the deferment from
the point of view of the plaintiffs does not, therefore, conclude the matter.
But I do not think that that was the answer intended to be given by Cantley J.
He nowhere refers to the question in any such form and there is no indication
of any attempt by him to strike a balance. If a balance had to be struck,
surely it would be right, even in a climate of indulgence to contract-breakers
or tortfeasors, that the scales should move heavily in the favour of the
innocent party as against the wrongdoer in any comparison of respective
disadvantages or unfairnesses? It has to
be borne in mind that these were defendants who were wrongly maintaining a
denial of any liability and thereby leaving the plaintiffs faced with all the
potentially heavy expenditure of money required for the mere purpose of
establishing by litigation what we now know to have been their rights.
Moreover, as the plaintiffs concede, they could not claim interest on the
amount of their compensation starting to run before the date when the money was
expended on repairs. So the defendants, being liable, as we now know, to
recompense the plaintiffs for the tort which the defendants committed in 1968,
will have enjoyed the free use for their own account of the money which would
have been the appropriate compensation at the date, with the opportunity of
earning compound interest thereon, from 1968 until the date of judgment. If
that were the ground on which the judge held in favour of the defendants on
this issue, I would respectfully hold that it was a wrong ground. But I do not
think that the judge did so hold.
The second
possible answer is that which I believe to have influenced the learned judge.
He thought that the decision in Liesbosch [1933] AC 449 precluded him
from taking into account, in considering the reasonableness of the deferment of
repairs, any part of the deferment which was caused by ‘financial stringency.’
Liesbosch has been the subject of much debate and much speculation, and a
considerable measure of disagreement, as to its ratio decidendi and the
scope of its application, particularly in the light of later House of Lords
decisions. See, for example, the discussion of the case by the learned author
of the article on ‘Damages’ in Halsbury’s Laws of England (4th ed) vol
12, para 1144, footnote 4. (I agree with the analysis of Liesbosch and
the comments thereon in the judgment which Donaldson LJ will deliver
hereafter.) I do not think that, on any
fair view of the ratio decidendi of Liesbosch, it applies to the issue
with which we are concerned. Amongst other reasons, there are these two. First,
it was not ‘financial stringency,’ let alone ‘impecuniousness’ as in Liesbosch,
which on any fair view, on the judge’s findings, was the cause, or even, I think,
an effective cause, of the decision to postpone repairs. The ‘financial
stringency’ which would have been created by carrying out the repairs was
merely one factor among a number of factors which together produced the result
that commercial good sense pointed towards deferment of the repairs. The second
reason which I would mention is that, once it is accepted that the plaintiff
was not in any breach of any duty owed by him to the defendants in failing to
carry out repairs earlier than the time when it was reasonable for the repairs
to be put in hand, this becomes, for all practical purposes, if not in theory,
equated with a plaintiff’s ordinary duty to mitigate his damages. Lord Wright
in his speech in Liesbosch [1933] AC 449 at p 461 accepted Lord Collins’s
dictum in Clippens Oil Co Ltd v Edinburgh & District Water
Trustees [1907] AC 291 at p 303: ‘. . . in my opinion the wrongdoer must
take his victim talem qualem, and if the position of the latter is
aggravated because he is without the means of mitigating it, so much the worse
for the wrongdoer. . . .’ I agree with
the observations of Oliver J in Radford v de Froberville [1977] 1
WLR 1262, at p 1268, as to the relationship between the duty to mitigate and
the measure, or amount, of damages in relation to a question such as the
question with which we are here concerned. A plaintiff who is under a duty to
mitigate is not obliged, in order to reduce the damages, to do that which he
cannot afford to do: particularly where, as here, the plaintiffs’ ‘financial
stringency,’ so far as it was relevant at all, arose, as a matter of common
sense, if not as a matter of law, solely as a consequence of the defendants’
wrongdoing.
My provisional
answer to the question raised in the first issue would, thus, be that the
damages in this case are to be assessed by reference to the 1978 cost of
repairs. I now carry out that exercise which I mentioned earlier. Once it is
accepted, as it is accepted by the parties, that the damages fall to be
computed by the cost of repairs to the building, and once Liesbosch and Philips
v Ward are out of the reckoning, there is no exception of which I am
aware which
principle. On the relevant facts as found by the judge, the 1978 cost of the
repairs gives the answer which accords with that principle. The calculation of
damages by reference to the 1970 cost of repairs would not so accord.
On that issue,
I would allow the appeal.
The result is
that the plaintiffs’ alternative ground of appeal, as to the appropriate
calculation of interest, does not arise. For it is a necessary part of their
submission on the first issue that, damages being referable to the deferment of
repairs, interest is not payable up to the date of the hearing. In the
circumstances, I think it better to say nothing, on that point, on which the
argument on either side was commendably brief.
If I am right
on my conclusion on the main issue in the appeal, I think that the
cross-appeal, whatever its merits in law might otherwise have been, ceases to
have validity. Early in this judgment, I summarised the issue raised by the
cross-appeal. I need not repeat it. I find difficulty in reconciling two
passages in the judgment as to the probability of repairs being carried out.
The learned judge, referring to the evidence of Mr Smith, a director of the
plaintiff companies, said: ‘However, Mr Smith, who I think was being careful to
say no more than the truth and no more than he knew, said that in all
probability the repairs will be done.’
The acceptance of the truthfulness and the reliability of that evidence
by the man who was in the best position to give the best evidence on that
question would appear to be conclusive. How then can the judge’s acceptance of
it be reconciled with what he says a few lines later: ‘Having regard to what Mr
Smith said, I think the probability . . . is just about established’? If Mr Smith was truthful and reliable in
saying ‘in all probability,’ that results in much more than probability being
‘just about established.’
However,
fortunately, it is not necessary to resolve that difficulty, since the learned
judge went on to say: ‘although I would be more confident of the extent of the
second plaintiffs’ loss if the first plaintiffs were recovering the present-day
costs of the repairs, so that they could, with a light heart, carry out the
full repairs.’ As in my judgment the
plaintiffs are entitled to recover the 1978 cost of the repairs, this court
should not remit this Methuselah of an action for a further hearing by the
judge on that issue. We should make our own assessment what the discount, if
any, should be. In my opinion, the discount, if the law requires any discount–I
do not find it necessary to decide this–would be de minimis. As the law
requires us to disregard the trivial, I propose to disregard it, as I think
Cantley J would have disregarded it, if he had reached the same conclusion as I
have reached on the main issue.
So I would
allow the appeal, and direct that judgment be entered for the first plaintiffs
for £30,327, without interest up to the date of Cantley J’s judgment, and for
the second plaintiffs for £11,951, also without interest up to that date. I
would dismiss the cross-appeal.
Agreeing,
BROWNE LJ said: I agree that this appeal should be allowed and the cross-appeal
dismissed, for the reasons given by Megaw LJ and the reasons which will be
given by Donaldson LJ in the judgment he will deliver very soon. I can
summarise my own reasons fairly shortly, because they are in substance the same
as theirs.
The first
principle for the assessment of damages is that the injured person should, so
far as money can do it, be put in the same position as if the wrong–in this
case the tort–had not been committed against him: (see Halsbury’s Laws
(4th ed) vol 12, title ‘Damages’ para 1129, and, for example, the authority
cited by Megaw LJ, Livingstone v Rawyards Coal Co (1880) 5 App
Cas 25, Lord Blackburn at p 39). This the damages of £11,375 awarded to the
first plaintiffs, for the cost of repairs in 1970, glaringly fail to do. By the
time of the hearing in 1978 the cost had risen to £30,327. In fact, the repairs
had not been done by that time, and the cost will probably have risen still
further by the time they are done, but the plaintiffs do not make any further
claim beyond the cost at the date of the hearing.
It is not
disputed that in this case the measure of the first plaintiffs’ damages is the
cost of repair, as opposed to the other possible measure in a case of this
sort, ie the diminution in the value of the building. The only question is the
time as at which that cost shall be taken.
The general
rule, both in contract and tort, is that damages should be assessed as at the
date when the cause of action arises, but they may be assessed as at some later
date. In my view, Cantley J was plainly right in saying ‘The appropriate
damages are the cost of repairs at the time when it was reasonable to begin
repairs.’ In Johnson v Agnew
[1979] 2 WLR 487 Lord Wilberforce said (at p 499 E-H):
The general
principle for the assessment of damages is compensatory, ie that the innocent
party is to be placed, so far as money can do so, in the same position as if
the contract had been performed. Where the contract is one of sale, this
principle normally leads to assessment of damages as at the date of the
breach–a principle recognised and embodied in section 51 of the Sale of Goods
Act 1893. But this is not an absolute rule: if to follow it would give rise to
injustice, the court has power to fix such other date as may be appropriate in
the circumstances. In cases where a breach of a contract for sale has occurred,
and the innocent party reasonably continues to try to have the contract
completed, it would to me appear more logical and just rather than tie him to
the date of the original breach, to assess damages as at the date when
(otherwise than by his default) the contract is lost. Support for this approach
is to be found in the cases. In Ogle v Earl Vane the date was
fixed by reference to the time when the innocent party, acting reasonably, went
into the market; in Hickman v Haynes at a reasonable time after
the last request of the defendants (buyers) to withhold delivery. In Radford
v de Froberville, where the defendant had covenanted to build a wall,
damages were held measurable as at the date of the hearing rather than at the
date of the defendant’s breach, unless the plaintiff ought reasonably to have
mitigated the breach at an earlier date.
Lord Wilberforce,
of course, was there speaking of damages for breach of contract, but I have no
doubt that the same principle applies to this case, where it is common ground
that the measure of damages is the cost of repairs. I think this view is
supported by analogy by the decision of the House of Lords in Birmingham
Corporation v West Midland Baptist (Trust) Association [1970] AC
874.
In this case,
it was common ground, and the judge accepted, that it was reasonable to
postpone the doing of the repairs from 1968, when damage was first discovered,
until 1970, and that 1970 was the earliest date as at which the cost of repairs
should be assessed. The defendants/respondents contended that the assessment
should not be any further postponed; Cantley J accepted this contention, and
assessed the damages on the cost of repairs in 1970.
In the course
of the passage of the judgment which Megaw LJ has already read, and I will not
read it in full again, the judge held that ‘As a commercial decision, judged
exclusively from the point of view of the immediate and short-term welfare of
the companies, it was reasonable to postpone incurring the very considerable
expense of these repairs . . .’ Like
Megaw LJ, I understand this to mean that it was in this sense reasonable to
postpone doing the repairs until after the hearing. This finding was based on
the evidence of Mr Smith, a director of both the plaintiff companies and a
chartered accountant, which is set out in the judgment and has been summarised
already by Megaw LJ. He gave a number of reasons for the decision. Only one of
what he said were the relevant factors was financial, and I think that the
judge’s finding on this point falls far short of ‘impecuniosity’ or ‘financial
embarrassment’ in the Liesbosch sense.
The judge said:
‘Whether the time is reasonable must be judged objectively and not taking into
account such matters as impecuniosity or financial stringency which, in the
words of Lord Wright in the Liesbosch case, are extrinsic.’ I am afraid I do not clearly understand what
the judge meant by ‘objectively’ in that sentence. If he meant that the
decision to postpone, although reasonable from the point of view of the
plaintiff companies, was not reasonable from the point of view of a
hypothetical reasonable commercial man, I cannot agree; it seems to me that any
commercial man in the circumstances with which Mr Smith was faced could
reasonably, and probably would, have come to the same decision.
The judge
relied on Philips v Ward [1956] 1 WLR 471 and Clark v Wood
[1965] 2 All ER 353, in which Lawton J (as he then was) simply followed and
applied Philips v Ward. I agree with Megaw LJ that the reasoning
of the Master of the Rolls (Lord Denning) in Philips at p 474 can no
longer be regarded as good law.
That leaves only
Liesbosch [1933] AC 449. I do not propose to analyse that difficult
case, because I entirely agree with Megaw LJ and Donaldson LJ that, for the
reasons they give, it did not compel Cantley J to take the 1970 cost of
repairs. I will only say that, like Megaw LJ, I agree with the observations of
Oliver J in Radford v de Froberville [1977] 1 WLR 1262 at p 1272
as to the relationship between the duty to mitigate and the measure of damages
in a case such as this.
I would,
therefore, allow the first plaintiffs’ appeal and vary the judgment by
substituting £30,327 for £11,375. I think it necessarily follows that the
appeal of the second plaintiffs should also be allowed, and their damages
increased from £4,108 to £11,951. The plaintiffs’ alternative ground of appeal
as to interest therefore does not arise, and, like Megaw LJ, I think it better
to say nothing on that point.
I agree that
the cross-appeal should be dismissed, for the reasons given by Megaw LJ.
Also agreeing,
DONALDSON LJ said: The general object underlying the rules for the assessment
of damages is, so far as is possible by means of a monetary award, to place the
plaintiff in the position which he would have occupied if he had not suffered
the wrong complained of, be that wrong a tort or a breach of contract. In the
case of a tort causing damage to real property, this object is achieved by the
application of one or other of two quite different measures of damage, or,
occasionally, a combination of the two. The first is to take the capital value
of the property in an undamaged state and to compare it with its value in a
damaged state. The second is to take the cost of repair or reinstatement. Which
is appropriate will depend upon a number of factors, such as the plaintiffs’
future intentions as to the use of the property and the reasonableness of those
intentions. If he reasonably intends to sell the property in its damaged state,
clearly the diminution in capital value is the true measure of damage. If he
reasonably intends to continue to occupy it and to repair the damage, clearly
the cost of repairs is the true measure. And there may be in-between
situations. Happily there is no issue in the present case as to which measure
of damage falls to be applied. It is the cost of reinstatement. The primary issue
is as to how and, more particularly, on what date those costs are to be
assessed. This is a very significant issue in the light of the increase in
costs over the period between the occurrence of the damage in 1968 and the
trial in 1978.
Mr Popplewell,
for the respondents, submits, and I for my part would readily accept, that the
general rule is that damages fall to be assessed as at the date when the cause
of action arose. The rule is so stated by Lord Wilberforce in Miliangos
v George Frank (Textiles) Ltd [1976] AC 443 at p 468. And
I am inclined to think that in normal circumstances this would be applicable
where the relevant measure of damage was diminution in the capital value of the
property. But it is only a general or basic rule and is subject to many
exceptions. Thus damages for personal injury, excluding consequential loss to
which other principles apply, are assessed in the light of the value of money
at the date of the hearing. The issue here is whether the assessment of damages
based upon the cost of repair or reinstatement is another exception as Mr
Titheridge for the appellants contends. I think that it is.
In Birmingham
Corporation v West Midland Baptist (Trust) Association
[1970] AC 874 the House of Lords was faced with the problem of whether the
reasonable cost of equivalent reinstatement, which was the basis of
compensation under the Land Compensation Act 1961, involved taking costs which
prevailed at the date of the notice to treat or those which prevailed at the
earliest date when the claimants might reasonably have begun rebuilding. The
decision was in favour of the latter. Lord Reid, at p 894, cites with approval
various statements on the measure of compensation which assume that the
assessed cost of reinstatement would be sufficient to enable the owner to
undertake the work if he acted reasonably. In an era of rising costs, this
could only happen if compensation was assessed on the basis of costs applicable
at the time at which reinstatement would in fact occur, on the assumption that
the owner acted reasonably. Again Lord Morris of Borth-y-Gest at p 903 said
that ‘The reasonable cost, depending upon the facts of particular cases, will
be the actual reasonable cost which a claimant has incurred or can be expected
to incur; it will be such cost at the time when equivalent reinstatement
reasonably does or should take place.’
While this is
not a decision on the measure of damages in tort, I think that the reasoning is
directly applicable to the present problem. It is also only commonsense, for,
as Mr Titheridge pointed out, it would be wholly unfair to the defendant to
charge him with the costs applicable to reinstatement in 1968 when the damage
occurred, if the actual reinstatement took place at a later date when improved
technology had reduced the cost. That this happy situation has not in fact
arisen does not affect the point of principle.
In the absence
of special and extraneous factors, there is no divergence between the interest
of a plaintiff and a defendant on the choice of the most propitious moment at
which to effect reinstatement. Both wish to achieve the maximum economy, at
least so long as the plaintiff is in doubt whether he will be entitled to a
full indemnity from the defendant. It follows that in a case in which a
plaintiff has reinstated his property before the hearing, the costs prevailing
at the date of that operation which were reasonably incurred by him are prima
facie those which are relevant. Equally in a case in which a plaintiff has not
effected reinstatement by the time of the hearing, there is a prima facie
presumption that the costs then prevailing are those which should be adopted in
ascertaining the cost of reinstatement. There may indeed be cases in which the
court has to estimate costs at some future time as being the reasonable time at
which to reinstate, but that is not this case. This is, however, only a prima
facie approach. It may appear on the evidence that the plaintiff, acting
reasonably, should have undertaken the reinstatement at some date earlier than
that in fact adopted or, as the case may be, earlier than the hearing. If so,
the relevant costs are those ruling at that earlier date. Whether this is
regarded as arising out of the primary measure of damage, ie that the relevant
time is when the property should have been reinstated or whether it is regarded
as being a reflection of a plaintiff’s duty to mitigate his loss, may not
matter.
In the present
case Cantley J accepted that the relevant date was when it was reasonable to
begin repairs. However, in deciding what was reasonable, he considered himself
bound by the decision of the House of Lords in the Liesbosch case to
disregard such factors as impecuniosity or financial stringency experienced by
the plaintiffs. Accordingly, although he considered that the plaintiffs had
acted reasonably in deferring reinstatement until after the hearing, he felt
constrained to adopt September 1970 costs, the delay until then being justified
exclusively on other grounds, namely, the need to make sure that no further damage
would occur before repairs were started. Dealing with the latter delay he said:
I find that
the first plaintiffs could probably have raised the money for repairs but this
would have increased their annual losses and their financial stringency. As a
commercial decision, judged exclusively from the point of view of the immediate
and short-term welfare of the companies, it was reasonable to postpone
incurring the very considerable expense of these repairs while no harm was
being done to the building by the delay in repairing it and while these three
rich defendants with apparent if not genuine belief in the validity of their
defences were firmly denying liability to make even a contribution.
Whatever the
difficulties inherent in the Liesbosch decision–and it is not at once
apparent why a tortfeasor must take his victim as he finds him in terms of
exceptionally high or low profit-earning capacity, but not in terms of
pecuniosity or impecuniosity which may be their manifestations–it binds this
court as much as it bound Cantley J unless and until it is reviewed by the
House of Lords. However, it is important to see precisely what it did decide.
The Edison
fouled the Liesbosch’s moorings, carried her out to sea and sank her.
The ordinary measure of damage was the cost of buying another similar vessel,
the cost of getting her to the Liesbosch’s old moorings and any loss of
profit consequent upon the disruption of commercial operations while the
substitute vessel was being obtained and delivered. However, the plaintiffs
contended for a different and special measure of damage. Substitute dredgers
were available for purchase but the plaintiffs could not afford to buy them.
Instead they hired another dredger, the Adria, which was larger than the
Liesbosch, more expensive to operate and for which they had to pay a
very high rate of hire. Eventually the port authority, for whom the plaintiffs
were working, bought the Adria and resold her to the plaintiffs under a
credit sale contract. The plaintiffs claimed the cost of hiring the Adria
until the port authority bought and resold her to them, the cost of purchasing
the Adria and the excess cost of working her as compared with the Liesbosch
together with unrecovered overhead charges and lost profit while they were
without any dredger. The ordinary measure of damage is based upon market rates.
The measure of damage claimed by the plaintiffs was quite different, namely,
one based upon their actual loss and expenditure.
As I
understand Lord Wright’s speech, he took the view that in so far as the
plaintiffs in fact suffered more than the loss assessed on a market basis, the
excess loss flowed directly from their lack of means and not from the tortious
act, or alternatively it was too remote in law. In modern terms, I think that
he would have said that it was not foreseeable. The position of the plaintiffs
in the present case seems to me to be quite different. They were not
impecunious in the Liesbosch sense of one who could not go out into the
market. On the contrary, they were financially able to carry out the work of
reinstatement in 1970. However, on the learned judge’s findings, they were
commercially prudent in not incurring the cash flow deficiency which would have
resulted from their undertaking the work in the autumn of 1970 and waiting for
reimbursement until after the hearing, particularly when the defendants were
denying liability and there was a dispute as to what works could and should be
done by way of reinstatement. In my judgment, the decision in the Liesbosch
has no application to such a situation which is distinguishable.
If the
decision whether to adopt 1970 or 1978 costs turns upon whether, bearing in
mind the likelihood that prices would rise, the plaintiffs should have
undertaken the work in 1970 in pursuance of their duty to mitigate their
damage, there is another ground for distinguishing the Liesbosch and for
taking full account of the plaintiffs’ financial position. This is that Lord
Wright’s explanation of the decision in Clippens Oil Co Ltd v Edinburgh
and District Water Trustees [1907] AC 291, where Lord Collins at p 303 said
that the tortfeasor must take his victim as he found him, including any lack of
means, was that that decision represented the rule in relation to the duty to
minimise damage.
I would therefore
allow the appeal by the plaintiffs and, for the reasons stated by my Lord, Lord
Justice Megaw, would dismiss the defendants’ cross-appeal.
The order was
made as stated at the end of Megaw LJ’s judgment. The appellants (plaintiffs)
were awarded the costs below and the costs of the appeal and cross-appeal.
Leave was refused to the respondents to appeal to the House of Lords.
