Tue 20 Aug 2013

Loss of use of vehicle: what can a company operating a fleet claim?

The recent decision of West Midlands Travel Ltd -v- Aviva Insurance UK Ltd brings some good news for insurers but bad news for fleet operators. The case clarified the position in England regarding what damages companies are entitled to recover when one of their vehicles is off the road following an accident. It is well established that damages should fairly compensate the claimant for his loss. In this case, the Court of Appeal considered how they should be calculated, in order to provide fair compensation for the loss.


West Midlands Travel Ltd run fleets of buses, providing public transport services. One of their buses was involved in a collision. As a result, it was off the road for 31 days. The accident was caused by the negligence of a driver who was insured by Aviva, the defendants in this case. As well as other heads of claim, West Midlands Transport sought damages for the "loss of use" of the vehicle while it was being repaired. They had surplus vehicles in their fleet available for occasions like this. The loss of use claim was based on a well established formula called the "standing charge", which divides the costs of operating the whole fleet between all vehicles in the fleet. The "standing charge" formula is produced by the Confederation of Passenger Transport UK, and has been used as a basis to settle many similar cases for a number of years.

Aviva disputed this, arguing that the true loss to West Midlands Travel Ltd was the interest on capital together with an allowance for depreciation and other fixed charges referable to the damaged vehicle.


The court considered the history of cases where recoveries of a similar nature were made, from 19th Century shipping cases to the well known case of Birmingham -v- Sowsbery, where the "standing charge" formula was preferred. They determined that the authorities do not illustrate that there is one principle for calculating such losses. They only demonstrate that the award should be fair compensation for the losses incurred.

Lord Justice Moore-Bick concluded: "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". He accepted that this means that damages would vary depending on whether the bus which was out of use was a brand new bus or an older bus. However, given it should be easy to calculate the current net book value of any individual vehicle, the calculation should be easy to make. Wasted expenses, such as the share of vehicle testing, licensing and insurance, of an amount attributable to that vehicle, should also be recoverable.

So it was decided that the proper basis to calculate damages is interest on capital value (if the bus is owned) or daily hire rate (if it is leased), together with depreciation, and expenses wasted.

What is the position in Scotland?

This is an English case. How much would a company recover in Scotland? Here, the same principle applies that the damages should fully compensate the claimant for his loss; no more, no less.

There are very few Scottish authorities on how to calculate such loss of use claims. In 1996, in Eastern Scottish Omnibuses Ltd -v- Leslie Temporary Sheriff Morrison QC considered a similar claim brought by a bus company, though in this case there were not extra vehicles in the fleet to be used at times when a vehicle was out of service. In his opinion, he reiterated the basic law on damages, saying "What is important is that the pursuers are fairly compensated for their loss." Decree was pronounced on the basis of a standing cost per day. The case is useful insofar as it reiterates the theory behind awards of damages, but the Sheriff was rather restricted in what he could do. While the defenders did object to the sums sought, they did not present any figures to substantiate their own argument that the alternative approach of interest on capital and depreciation calculation should be considered. However, without any evidence, it is not surprising that argument did not succeed.

As there is no authority in Scotland on how the loss might be calculated in a case such as the West Midlands Transport one, we can be certain that the courts will be interested in the approach taken there.

What's the practical effect of West Midlands Travel Ltd -v- Aviva?

With recovery rates likely to be lower, this should be good news for insurers, but bad news for fleet operators. Not only will they recover lower amounts, the calculation of loss will inevitably require input from their accountants, or independent accountants instructed by them to give expert evidence, therefore increasing the cost of recovery, even in low value cases.

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