Court considers how diminution in value damages should be calculated

In a recent decision of England's Technology and Construction Court (Queen's Bench Division), Waterdance Ltd v Kingston Marine Services Ltd [2014] EWHC 224, the court looked at how damages for diminution of value should be calculated.

The case involved a fishing boat which suffered serious damage, caused by the Defendant, Kingston Marine Services Ltd (“Kingston”). Immediately before the damage occurred, the vessel had a value of between £647,000 and £680,000 and it was agreed that the cost of repairing the damage would have been £435,000. However, the Claimant, Waterdance, decommissioned the vessel under a Government scheme, without having it repaired. Under that scheme (the purpose of which was to reduce the number of such vessels fishing in a particular area) Waterdance decommissioned the vessel in return for a £1,119,000 grant.

Waterdance brought proceedings against Kingston for repair costs of £435,000, even though the vessel had not in fact been repaired. Kingston defended on the basis that Waterdance had suffered no loss because under the Government scheme a fair price had been paid for the vessel, without regard to the damage in question.

The court held as follows:-

1. Waterdance had suffered a direct loss when the damage occurred.
2. The reasonable cost of repairing a damaged chattel is prima facie evidence of the diminution in value caused by the damage, whether or not it is in fact repaired.
3. Events occurring after infliction of the damage are irrelevant to calculating the diminution in value measure of damages. Therefore, subsequent destruction of the chattel or a decision to delay the repairs, or an ability to have the repairs done at less than the cost or for nothing, will not prevent the claimant from recovering the diminution in value of the chattel that has been caused by the tortfeasor.
4. The burden was on Kingston to show that circumstances existed at the time when the damage occurred as a result of which the damage to the vessel caused no diminution in its value to Waterdance on that date. As Kingston had failed to show such, the measure of damages was the reasonable cost of repairs. No alternative figure had been advanced by Kingston and no reasons, based on either fact or principle, for adopting a different figure.
5. Accordingly, the claimant had suffered a direct loss at the time of the damage, the correct measure for which was the reasonable cost of repairs, namely £435,000.

The above decision is at odds with the well known judgment of the House of Lords in Ruxley Electronics and Construction Limited v Forsyth [1996] A.C. 344. Mr. Forsyth engaged Ruxley to build a swimming pool. The maximum depth of the pool built was 9 inches less than that specified in the contract. In order to rectify this, the whole swimming pool would have to be re-built. The court confirmed that in the normal case, it is not concerned with the use to which a plaintiff puts an award of damages for a loss which has been established. However, the absence of a desire to reinstate the swimming pool to the specified depth may undermine the reasonableness of having it reinstated and in that case is not the proper measure of damages. The expert evidence in that case was that the difference in the value between the swimming pool that was built and the one contracted for, was nil. Consequently, the court only awarded GBP2,500 damages to Mr. Forsyth for loss of amenity.

One might think that Waterdance was about the measure of damages in tort, which is different from that for breach of contract. However, the judgment made it clear that it was assumed for the trial that the damage was caused by negligence or breach of contract. It seems that the different conclusion reached in Ruxley Electronics is mainly due to the insignificance of the breach and the excessive reinstatement cost of the swimming pool.

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