A NSW Local Court has rejected the suggestion that the method of assessing damages for loss of use depends on whether the chattel is income producing or non-income producing.

The plaintiff operated a hire car business and owned a 2009 Toyota Camry. The vehicle was not part of the plaintiff’s fleet of vehicles available for hire. Rather, the vehicle was used primarily by the director and other employees for business purposes, such as travelling between branches to deliver and collect hire vehicles.

On 24 August 2015, the vehicle was damaged in a collision caused by the defendant. While the vehicle was being repaired during a period of almost two weeks, the plaintiff entered a credit hire arrangement for a replacement vehicle. The director gave evidence that the plaintiff was unable to replace the vehicle from its fleet because 100% of its fleet of large vehicles was being utilised.

The plaintiff claimed damages in the amount of $1,596.80 for loss of use of its vehicle, based on the market rate for hiring a replacement.

The defendant argued that the damages should be assessed by reference to the interest calculated on the capital value of the vehicle during the period of loss. The defendant submitted that a distinction should be drawn between the measure of damages for loss of use of an ‘income producing chattel’ and a ‘non-income producing chattel’. The defendant characterised the plaintiff’s vehicle as an ‘income producing chattel’, in which case he said the loss is usually assessed by way of loss of profits or, in the absence of such losses, the loss on the capital value of the chattel.

The Court disagreed with the defendant’s attempt to differentiate between income and non-income producing chattels for the purpose of assessing damages. The Court noted that, although the nature of the damaged chattel is a relevant consideration, the application of the principles relating to the assessment of damages is not materially different and will ultimately depend on the facts. Accordingly, the Court declined to categorise the plaintiff’s vehicle as either income or non-income producing. It found that to do so would erroneously link loss of profits with the loss of use, which are two separate (albeit related) heads of damage.

The Court decided that a plaintiff who takes steps to reduce a loss of profits by obtaining a temporary replacement may recover the cost of the replacement under the head of damages for loss of use. The Court adopted Ipp AJA’s comments in Athanasopoulos v Moseley that the underlying measure of damages is the ‘need’ to replace the damaged vehicle. In the context of a business, the ‘need’ was that the vehicle was necessary to support the operations of the business.

The Court was satisfied that the plaintiff failed to establish the requisite ‘need’ because, although 100% of its large vehicle fleet was being utilised, less than 100% of the plaintiff’s other types of vehicles were being utilised. The plaintiff had hire vehicles available in the ‘mid size auto’, ‘medium auto’ and ‘economy auto’ categories, but failed to explain why those vehicles were not used as a replacement. The Court further held that the plaintiff was wrong to think that it was limited to a replacement that was similar to the damaged vehicle. The issue of comparative vehicles only becomes relevant when ‘need’ is established and the court must consider the cost of hiring a comparative vehicle.

Because it was not reasonable for the plaintiff to hire a replacement, the Court limited damages to interest on the capital value of the damaged vehicle while it was being repaired, being $39.45.

A2B Car Rentals Pty Ltd v Terkmas

A plaintiff who obtains a temporary replacement vehicle to maintain business operations may recover the market cost of the replacement, despite an absence of actual financial loss. But that entitlement depends upon the plaintiff proving a need to replace the damaged vehicle which was reasonably met by hiring a substitute.