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    Company Loss of Use & Surplus of Vehicles

    Azeem Ali
    Post by Azeem Ali
    June 21, 2024
    Company Loss of Use & Surplus of Vehicles

    There is a very common situation for companies up and down the country. In a road traffic accident, a company vehicle is damaged and needs to be repaired. The company however has a surplus of vehicles? If there is a surplus of vehicles, there may not be a loss of profit.

    In those circumstances is a company entitled to credit hire rates, or basic hire rates? Or is there some other way of calculating loss in those circumstances? To be clear, this article does not intend to deal with those cases in which there is a loss of profit, which may be the subject of another article.

    This article deals with the topic in the following way:

    (1) some basic introductory principles on loss of use;

    (2) summary of some relevant cases;

    (3) general principles to be derived from those cases;

    (4) practical application of those general principles and

    (5) conclusion.

    Some basic introductory principles on loss of use

    Whenever there is an accident which causes damage to a vehicle, if the vehicle cannot be used, then there is potentially a loss of use claim. Loss of use represents consequential loss as opposed to direct loss (best example of direct loss would be repair).

    Claiming hire is just one way to quantify that loss of use. For loss of use, there are several other ways to quantify it.

    The 19th century case of The Mediana [1900] AC 113 ,117 assists in understanding what loss of use is. Lord Halsbury gave an example of using his own chair: “Supposing a person took away a chair out of my room and kept it for twelve months, could anybody say you had a right to diminish the damages by showing I did not usually sit in that chair, or that there were plenty of other chairs in the room? The proposition so nakedly stated appears to me to be absurd ... what an arbitrator or jury very often do is to take a perfectly artificial hypothesis and say ‘well if you wanted a chair, what would you have to give for it for the period’; and in that way they come to a rough sort of conclusion as to what damages ought to be paid for the unjust and unlawful withdrawal of it from the owner. Here, as I say, the broad principle seems to me to be quite independent of the particular use the plaintiffs were going to make of the thing that was taken, except ... when you are endeavouring to establish the specific loss of profit, or of something that you would otherwise have got which the law recognises as special damages. In that case you must show it and by precise evidence ... But when we are speaking of general damages no such principle applies at all, and the jury might give whatever they thought would be the proper equivalent for the unlawful withdrawal of the subject matter then in question.”

    So, it is potentially arguable that in the case of a company which has lost use of a vehicle, it should not matter that there is a surplus of vehicles, as the company has lost use of a vehicle, and the real issue is therefore one of quantification of that loss.

    Summary of some relevant cases

    There are some cases worth mentioning here.

    Lagden v Connor [2004]

    In Lagden v Connor ([2004] 1 All E.R. 277), the position was established that a claimant was entitled to credit hire if he was impecunious, otherwise they were only entitled to “spot rates” (later to be known as “basic hire rates”). It's important to remember that this was a private motorist case, not a company case.

    Beechwood Birmingham Ltd v Hoyer Group UK Ltd [2010]

    Nevertheless, there was an attempt to use the case of Lagden v O Connor to suggest that in a corporate loss of use case where there was a surplus of vehicles, the claimant was entitled to claim for the hire of a vehicle.

    This approach was rejected in Beechwood Birmingham Ltd v Hoyer Group UK Ltd [2010] EWCA Civ 647. The Claimant did not require a hire vehicle to fulfil its business needs. However, a vehicle was hired. There was, however, a surplus of vehicles which the company had at its disposal. In the county court, the judge had allowed damages based on the spot rates (later to be known as basic hire rates), even though the judge had concluded that there was no need for “outside” hire. The Court of Appeal however recognised that there was a distinction between a private motorist loss of use claim (which does not concern this article) and a corporate loss of use claim. The Court of Appeal categorically rejected that it was appropriate to award “spot rates” in corporate loss of use cases where there was a surplus of vehicles.

    The Court of Appeal took the view that “the common law principles which have been developed and elaborated in cases of collisions at sea are in appropriate cases applicable to corporate claims for loss of use in respect of motor vehicles damaged in collisions on land.” - paragraph 47 of the judgment).

    The Court of Appeal stated (paragraph 52 of the judgment) that the appropriate way to calculate damages in the case was “an award based on the interest and capital employed and any depreciation sustained over the period of repairs, allowed in respect of the vehicle of the type damaged in the accident...

    The case in the lower court had been fought on an “all or nothing” basis i.e. hire or nothing. There were therefore no such alternative figures for interest on capital and depreciation for the Court of Appeal to consider. Whilst the Court of Appeal did not dismiss the claim as the volume of authorities had not been referred to the judge in the lower court, it also did not remit the matter for further argument before the judge. Instead, it expected the parties upon receiving the draft judgment to be able to agree a suitable figure for loss of use.

    Birmingham Corporation v Sowsbery [1970]

    In the earlier case of Birmingham Corporation v Sowsbery ([1970] R.T.R. 84): The plaintiffs, a non-profit-making corporation operating buses, maintained a spare fleet for emergencies. The defendant's van collided with one of the plaintiffs' buses, and the plaintiff's claimed damages for loss of use of the bus while it was being repaired; during this period one of the spare fleet was employed. It was held that the plaintiffs (now known as “claimants”) were entitled for each day of loss of use, to the "daily standing charge cost" for one of their buses, an amount calculated by including expenses on capital but not running charges.

    In this case the court preferred to use the “daily standing charges” for the operation of one of their buses, as the method to compensate. The court also considered the method of interest on capital along with deprecation, but considered that this was too unpredictable an approach. Of course, in the later case of Beechwood Birmingham Ltd, the Court of Appeal preferred interest on capital together with depreciation as the method of compensation.

    Lord Citrine (Owners) Appellants; v Hebridean Coast (Owners) Respondents [1961]

    In Lord Citrine (Owners) Appellants; v Hebridean Coast (Owners) Respondents [1961] A.C. 545, 551 it was stated that interest on capital was a matter of “discretion” for the court. This was a shipping case. However, Beechwood Birmingham Ltd established that in appropriate cases the principles of shipping cases apply to corporate loss of use.

    General principles to be derived from those cases

    The general principles can be neatly summarised as follows:

    (1) Where a company has a surplus of vehicles that can be used following an accident, they will not be entitled to claim on the basis of outside hire whether credit hire or basic hire rates;

    (2) The principle for compensation in these circumstances go back to basic tortious principles, namely the claimant is entitled to be put back into the position they would have been if the tort had not been committed;

    (3) in the writer's view how this loss is assessed is largely an artificial exercise. However, from my experience this does not mean that a court will not make an award and if it is sufficiently pleaded and evidenced, then a court will strive to make an award;

    (4) In appropriate cases the principles of shipping cases are applicable to company loss of use where there is a surplus of vehicles;

    (5) The method of "daily standing charge cost" of a vehicle is not the preferred method;

    (6) The preferred approach appears to be this: interest on the capital together with deprecation. Whilst the standing daily charges were initially preferred by the High Court, the Court of Appeal has made it clear that this is not the preferred approach;

    (7) The interest on capital is a matter of “discretion” for the courts;

    (8) It is crucial for the company to plead adequately, including the applicable figures for interest on the capital together with the depreciation. Whilst in Beechwood Birmingham Ltd, the parties were given a chance to try to agree alternative figures for loss of use, this was the Court of Appeal! I doubt that a county court would offer the same indulgence.

    Practical application of those general principles

    What does this all mean in practical terms?

    (1) In Birmingham v Sowsbery the “daily standing charge cost” approach was preferred. In Birmingham v Sowesby itself the daily standing charges were £4 11s, which amounted to a total of £313 19s for a period of 69 days. This was in 1969!

    (2) To give a more modern example on daily standing charges, let's say that the standing charge for a vehicle was £75 per day and the company lost use of their vehicle for 90 days, this would be a potential claim of £6750.

    (3) But the “daily standing charge” does not seem to be the preferred way, so let me now concentrate on interest on the capital value together with depreciation. This needs to be broken down into two elements, firstly interest on the capital value and secondly depreciation.

    (4) Dealing with interest on capital and depreciation. In Hebridean Coast (Owners), interest at the rate of 7 per cent on the agreed depreciated value of £207,500 for 11½ days was allowed, with interest at over 30% decided by the registrar considered to be too high and “inordinate”. In this case the parties agreed that the annual rate of depreciation was £6,820, of which the proportionate part attributable to 11½ days amounts to £214 17s. 2d. In Admiralty Commissioners v Chekiang (Owners) [1926] AC 637 five per cent of the estimated capital value of the ship was used as the basis. In Birmingham Corporation v Sowsbery interest at 7% on the capital value of £6,341 was £1 4s 11d a day. It was decided that £1 5s a day would be the daily depreciation rate after taking into account that there would be no wear and tear to the vehicle whilst it was in for repair. This amounted to interest rate on the capital value and depreciation at the daily rate of £2 9s 11d for the period of 69 days, which was calculated as a total of £172 4s 3d.

    (5) Giving a more modern example. Let's say that a company has a brand-new vehicle worth £100,000 that is damaged in a road traffic accident and put out of use for a period of 90 days. Interest rate is a matter of discretion for the court. In Birmingham v Beechwood the bank interest rate was 6%, and an interest rate of 7% was deemed reasonable in that case. In the contemporary hypothetical case of the £100,000 vehicle in 2024, a 7% interest rate may therefore also be considered reasonable - the current interest rate in 2024 is 5.25%. For the 90 days that the vehicle was not in use, at 7%, the interest figure on the £100,000 vehicle amounts to £1726.02. Now let's deal with depreciation. Let's say that the vehicle depreciates at 20% per year. So, for the year the vehicle would have deprecated by £20,000 – for 90 days this amounts to £4931.51. So, this is a total claim for £6657.53 (£1726.02 interest on capital value + £4931.51 on the depreciation = £6657.53).


    (1) where a company vehicle is damaged in an accident and there is a surplus of vehicles, then neither credit hire nor basic hire rates are likely to be recoverable;

    (2) whilst the courts have analysed daily standard charges as the possible basis for compensation in this situation, it has ultimately found this not to be the preferable basis of calculating loss;

    (3) the courts have preferred (a) interest on the capital value for the period the vehicle is out of use along with (b) depreciation for the period that the vehicle is out of use;

    (4) interest rate on the capital value of the vehicle is a matter of discretion for the court. It is however unlikely that the court would allow a high interest rate such as 30%. Courts have in the past awarded 5% and 7%. With the current interest rate at 5.25%, interest rates of 5% or 7% may be reasonable, but I stress interest rates are a matter of discretion for the courts, so nothing is set in stone;

    (5) depreciation is fairly straightforward, and it would be a case of producing expert evidence at court of how much depreciation a vehicle has sustained over a year and whilst the vehicle was not in use;

    (6) it is crucial that the case is adequately pleaded to cover interest on the capital value and depreciation of the vehicle whilst it is out of use, and it is essential that evidence is provided in relation to this. Otherwise, a court may dismiss any such claim.

    It is very much hoped that this article provides some clarity around the situation where a company loses use of its vehicle, yet still has a surplus of vehicles at its disposal.

    Azeem Ali
    Post by Azeem Ali
    June 21, 2024