PROVING THINGS 210: HAVE EVIDENCE OF VALUE AT TRIAL TO AVOID THAT SINKING FEELING

Famously a brand new car loses a substantial amount of its value once it is driven from the showroom.  A similar principle may well apply to motor yachts. This issue was considered by Mr Simon Salzedo QC (sitting as a High Court Judge) in Robertson & Anor v Bembridge Harbour Improvements Company Ltd (MY ‘Tangent’) [2021] EWHC 1025 (Comm). It is another example of a claimant very nearly coming to grief because of a failure to consider how damages should properly be calculated and then to have evidence of loss available at trial.

“The evidence before me does demonstrate that the Vessel was in good condition, but it does not give me any assistance on the extent to which market value might be reduced merely because a yacht of this sort is second hand rather than new, which seems to me to be an important question.“

THE CASE

The claimant established that their yacht had been sunk as a result of the defendant’s negligence.  The court then had to consider the value of the yacht. The vessel was relatively new, however the claimant did not adduce any evidence of its market value at the time it was sunk. The claimant (wrongly) asserted that the yacht’s insured value provided such evidence.  It did not and the claimant caused a few difficulties for itself.

THE JUDGMENT ON DAMAGES

The judge dealt with the issue of damages. The claimant had asserted that the yacht’s insured value was “evidence” as to its actual value. The claimant then attempted to amend its pleadings to put the case in a different way. Neither formulation was satisfactory.

1. 1. At the start of the trial, the Claimants’ pleaded claim in their Amended Particulars of Claim was that the Defendant’s breach of contract had caused “the damage” to the Vessel. No particulars were given of what “the damage” consisted of. It was then alleged as follows at paragraph 14:

14. By reason of the matters aforesaid, the Vessel had to be recovered and was then sold on an as is basis. In the premises, the Claimants have suffered loss and damage in the sum of £165,964.40 as follows:

PARTICULARS

a) Insured value of the Vessel and engines £185,000

b) Salvage Agent fees and expenses £21,145.22

c) AP Marine invoice 129 £1,231.02

d) AP Marine invoice 141 £634.36

e) Peter Hewitt Skipper and Yacht Management services fees £877.50

f) Loss of use of mooring (169 days) £2076.30

Total £210,964.40

Less figure for salved value £45,000

Total claimed £165, 964.40

1. 1. The response to this in the Amended Defence and Counterclaim was a denial that the Defendant was the cause of any loss and damage and “the Claimant is required to prove the loss and damage alleged”.

1. 1. Following a dispute in the statements of case as to whether the costs of the salvage operation were reasonable, the following plea was included in the Defendant’s Reply to Defence to Counterclaim dated 30 January 2019:

Further, since the Claimants contend that the Vessel was capable of preservation and repair, the basis on which they allege that their loss in relation to the Vessel is not the cost of repairs, but the insured value of the Vessel and engines less a figure for her salved value, is not understood. In any event and if relevant, it is also unclear why the insured value has been used in this calculation instead of her actual market value immediately before the incident. The Defendant will plead further if necessary once the Claimants have explained their case in this regard.

1. 1. The witness statements for the trial were dated 28 September 2020. Mr Greenwood stated:

I am aware that the boat was bought from the underwriters by a buyer who owns a boatyard in the Solent, where it was essentially resuscitated and it is now floating in the Solent; as such the water of integrity of the boat cannot be questioned.

We made a claim against out [sic] insurance for the loss of the Tangent and we were indemnified in the sum of GBP163,888.10.

1. 1. Mr Robertson’s witness statement stated:

Unfortunately, Tangent was deemed to be a constructive total loss as a result of the water ingress. We made an insurance claim for the loss of Tangent and we were duly indemnified in the sum of GBP163,888.10.

1. 1. In her opening skeleton argument for the trial, Ms Paruk contended that:

The insured value of the Vessel was a proper reflection of her actual market value as (as appears to be common ground) she was almost brand new at the time of the incident.

1. 1. In his opening skeleton argument, Mr Leung argued that the premise of the Claimants’ quantum – that the Vessel was a constructive total loss – was not made good and that, even if it was, the measure of loss would be the market value pre-incident, not the insured value and that no evidence of market value had been relied upon. “In the premises, there is no basis for awarding the damages claimed in respect of the alleged loss of the Vessel.“

1. 1. I raised this issue with Ms Paruk in oral openings and she informed me that the Claimants’ position was that the Vessel was brand new when insured and that the incident was only around 2 months after the date of the policy so that the insured value was as good evidence as could be got at proportionate cost to demonstrate the market value of the Vessel.

1. 1. In his opening submissions, Mr Leung made the point that there was no evidence of market value, nor indeed of the purchase price of the Vessel, nor of how much use she had received and he also made the point that the Vessel was not in truth a constructive total loss so there was no basis for claiming her entire value.

1. 1. Mr Leung asked Mr Greenwood about the paragraph of his statement that dealt with the sale of the Vessel. Mr Greenwood said that he had no awareness of any repair quotes or the name of the party who had bought the Vessel, saying “We left the matter to our insurers”.

1. 1. Mr Leung also asked Mr Robertson about the relevant parts of his evidence. Mr Robertson confirmed that it had been left to insurers to obtain quotes as to repairs and explained that from the Claimants’ perspective it was a better deal to take the insured value of the Vessel than to carry out repairs. Mr Leung put to him that there was no evidence that the Vessel had been abandoned as a constructive total loss and Mr Robertson responded:

No, I took the offer made by our insurers, which was of the cost of the Vessel as being, you know, what I needed to recover. It was slightly less than the insured value.

1. 1. After the conclusion of the evidence on the second day of the three day trial, at about 19:42 in the evening, the Claimants sent to the Defendant a draft Re-Re-Amended Particulars of Claim. (There had been an uncontroversial re-amendment on Day 1). This proposed the following changes to paragraph 14 of the Particulars of Claim:

14. By reason of the matters aforesaid, the Vessel had to be recovered and was then sold on an as is basis. In the premises, the Claimants have suffered loss and damage in the sum of £165,964.40 as follows:

PARTICULARS

a) Insured value of the Vessel and engines £185,000

Cost of repairs £140,000

b) Salvage Agent fees and expenses £21,145.22

c) AP Marine invoice 129 £1,231.02

d) AP Marine invoice 141 £634.36

e) Peter Hewitt Skipper and Yacht Management services fees £877.50

f) Loss of use of mooring (169 days) £2076.30

Total £210,964.40

Less figure for salved value £45,000

Total claimed £165, 964.40

1. 1. It will be seen that the effect of the draft amendment was to commence the calculation from alleged cost of repairs of £140,000, which replaced the previous allegation of insured value of £185,000 less salved value of £45,000, to end up at the same total.

1. 1. In her written closing submissions, Ms Paruk told me that:

The amendment has come so late as a result of the matter having been dealt with by different underwriters and different claims handlers within those different underwriters.

1. 1. The Defendant’s position was that the proposed amendment came far too late and was unfair on them because it would require different evidence.

1. 1. In oral closing submissions I put to Ms Paruk that as I understood the evidence I had heard, the Claimants had not incurred any cost of repairs, because they had handed over the Vessel to their insurers in return for a particular payment, without carrying out any repairs. I indicated that my provisional view was that the Claimants’ vessel, having been damaged, was worth less than it was before the damage, and that difference in value would represent their loss.

1. 1. It was at this point that Ms Paruk showed me the letter agreement dated 31 January 2018 to which I have made brief reference above whereby Mr Ingram of Osmotech agreed to purchase the Vessel for the sum of £30,000. That document had not been referred to in the evidence, but Mr Leung did not object to it being relied upon as authentic. It is a curious document, on a single page of the headed notepaper of the loss adjusters acting for the Claimants’ insurers. It was addressed to Mr Ingram and signed by him, stating that he agreed to purchase the Vessel on an “as is where is” basis and upon transferring the £30,000 to a bank account in the name of “Amethyst”, he would “become responsible for the vessel thereafter”. Curiously, the document does not state who was selling the boat.

1. 1. Returning to the oral closing submissions, Ms Paruk then told me that her team had discovered only on the previous day that the bank account to which the £30,000 was paid was an account of the Claimants themselves and not the insurers. I comment that this is consistent with the name of the account being “Amethyst”, the name of the previous vessel jointly owned by the Claimants.

1. 1. On the basis of this material, the facts about what happened appear to be, and I find that they were, as follows. The Claimants sold the Vessel in her damaged state to Mr Ingram for the sum of £30,000. The Claimants then accepted a settlement from their insurers which was quantified as a sum “in lieu of repairs” of £140,000 and a sum for salvage and recovery of £23,888.10.

1. 1. After further exchanges, Ms Paruk agreed that she could not pursue a claim for the cost of repairs and her pleading remained unamended. She made it clear in the end that her claim was for the difference between the Vessel’s market value before and after the incident.

1. 1. In his closing submissions, Mr Leung contended that the claim as pleaded did not make out a proper claim for loss of market value and that even if, contrary to his contention, I permitted such a claim to be argued, it could not succeed because there was no evidence of what the market value was prior to the incident. Indeed, Mr Leung told me on instructions that his client had disclosed documents tending to show that the market value was less than the insured value, but had chosen not to refer me to them because they had understood the claim to be brought on the basis of insured value rather than market value.

1. 1. Both counsel made it clear that they did not wish to apply to adduce any further evidence in the light of the unsatisfactory position in relation to quantum, but wished me to decide the matter on the evidence adduced already.

1. 1. I find on the evidence that the Claimants have shown that there was damage to the Vessel as a result, at least, of the destruction of her engines, which would have been replaced in any repair. There was other damage too, but for present purpose that suffices. Accordingly, the Court passes from causation of damage to quantification of loss.

1. 1. I hold that the proper measure of the Claimants’ principal loss (I’ll return later to salvage and other costs) is the difference between the market value of the Vessel prior to the incident and her market value afterwards. Cost of repairs could in principle have evidential relevance to what that difference is, but it cannot be claimed as such in circumstances where the Claimants did not carry out any repairs.

1. 1. I hold that the Claimants’ pleading is sufficient to make such a claim for loss of value. The statement of case is unsatisfactory and I have considerable sympathy for the pleading point that Mr Leung took upon it. However, I think construing the statements of case objectively, including the reasonable averment in the Reply to Defence to Counterclaim that “it is also unclear why the insured value has been used instead of her actual market value immediately before the incident”, I ought to conclude that the Defendant understood that the true measure of the Claimants’ loss was a difference in market value and that that was likely to be the case which it would have to meet.

1. 1. The Defendant chose not to rely upon documents which it had identified going to market value on the basis, so I was told, that it did not understand the claim to be made in that way. It seems to me that a Defendant who thus stands on a pleading point of that nature takes the risk as to whether the Court will ultimately accept it, which I have not done.

1. 1. Since I am now engaged in the quantification stage of the inquiry, I must do my best on the available material to estimate the Claimants’ loss. The first component of the calculation is the value of the Vessel immediately before the incident. As to that, the Claimants have failed to adduce any evidence, other than inviting me to infer that the insured value must approximate to the market value because the Vessel was so new.

1. 1. The evidence before me does demonstrate that the Vessel was in good condition, but it does not give me any assistance on the extent to which market value might be reduced merely because a yacht of this sort is second hand rather than new, which seems to me to be an important question.

1. 1. Ms Paruk relied (following a suggestion of my own in opening) upon paragraphs 116 to 118 of Involnert Management v Aprilgrange [2015] EWHC 2225 (Comm) in which Leggatt J pointed out that it is normal for a brand new yacht to be insured for the cost of purchase, which is likely to be the best available evidence of the yacht’s market value if sold and that the nearest obtainable equivalent if the yacht is lost is likely to be a new yacht of the same specification. Leggatt J said that he had heard evidence that it was common for yachts to remain insured at their purchase price for a number of years.

1. 1. This authority does not assist the Claimants in the present case. As Leggatt J explained at paragraph 120, the basis for the continued insurance valuation at the purchase price would not be that this necessarily reflected the market value at the time, but that no practical alternative would be available and moral hazard would be minimised by the knowledge that actual market value would have to be proved upon a loss.

1. 1. One piece of evidence which I do have is that insurers were prepared to pay £140,000 on account of the value of the Vessel and that the Claimants were prepared to accept this sum together with the purchase price paid by Mr Ingram of £30,000, viz, a total of £170,000 (as well as the salvage costs they had incurred). The insurers described their payment as being “in lieu of repairs” (and if I have assessed the VAT correctly, it was in fact very close indeed to the sum that the Claimants would have had to pay Osmotech for repairs), but that does not alter the fact that insurers were prepared to pay this sum and if a comparable boat to replace the Tangent could have been had for less, I can assume they would have offered that instead.

1. 1. I have no reason to doubt that this was an arm’s length transaction between parties looking to their own interests. Accordingly, I conclude that the true value of the Vessel prior to the incident lies between £140,000 which insurers were willing to pay and £170,000 which the Claimants were willing to accept. In circumstances where this evidence was not relied upon by the Claimants in this form, I think it would be unfair to the Defendant for me to take anything other than the bottom of this range as having been established. I therefore find that the market value of the Vessel before the incident was £140,000.

1. 1. The value of the Vessel after the incident must have been at least £30,000, which is the price that Mr Ingram was prepared to pay for her. However, the Claimants’ statements of case conceded that figure to be £45,000. I think it would be unfair to the Defendant to permit the Claimants to rely on the figure of £30,000 which was only raised in this connection after the evidence had been heard. However, there is no unfairness in holding the Claimants to have proved a damaged value of £45,000 because this figure was plainly in issue on the statements of case and was not challenged by the Defendant. Accordingly, I take £45,000 as the value of the Vessel after the incident.

1. 1. On this basis, the value of the damage to the Vessel was £140,000 less £45,000, namely £95,000.

1. 1. I must now consider the salvage and other costs claimed by the Claimants.

1. 1. I do not allow the pleaded claim for loss of use of mooring both because there was no evidence to support it and because it was a sunk cost not caused by the Defendant’s breach of contract.

1. 1. In relation to the other costs incurred in a total sum of £23,888.10, I have carefully considered the submissions made by counsel, but I am not prepared to find that they were incurred so unreasonably that such unreasonable conduct was their cause rather than the Defendant’s breach of contract and the resulting accident. Accordingly, I award this sum in full.

Conclusion

1. I allow the claim and dismiss the counterclaim. I will award damages in the sum of £118,888.10 (£95,000 + £23,888.10).