Is it possible to have your cake and eat it? It would appear that the answer is “yes” if you are claiming “diminution of value” for damage to your vessel, and subsequently obtain a windfall when selling or repairing it.
In Waterdance Ltd v Kingston Marine Services Ltd1, the claimant (Waterdance) owned and operated a commercial fishing vessel. In 2007, the vessel suffered damage to its engine, which Waterdance argued had been caused by negligence or breach of contract by Kingston Marine. The value of the vessel was no more than £680,000, but repairing her would have cost £435,000. However, without carrying out repairs, Waterdance decommissioned the vessel under a government scheme in return for a grant payment of £1,119,000.
Waterdance subsequently claimed damages from Kingston Marine for diminution in the value of the vessel and for loss of use. Kingston Marine resisted the claim, arguing that Waterdance had not suffered any loss because they had decommissioned the vessel, and the Court was asked to consider this question as a preliminary issue.
The Court ruled that Waterdance had suffered an immediate and direct loss at the time the damage had occurred. The measure of that loss was the reasonable cost of the repairs required to put the vessel back into the condition in which it had been before the damage had occurred. This was so, even though the vessel had never been repaired. Neither had Waterdance’s loss been avoided or mitigated by the receipt of the grant payment.
The judge made clear that events which took place after the damage had occurred were irrelevant when calculating the diminution in value in order to assess damages. As a result, the subsequent scrapping of a vessel, or a decision to delay repairs, or even the opportunity to perform the repairs at a reduced price, will not prevent a claimant recovering the diminution in value to his vessel caused by another party’s negligence.
The Court made clear that diminution in a vessel’s value does not have to be assessed by reference to her open market value. Moreover, the cost of repairs was only evidence of the extent of any diminution in value itself, not the loss actually suffered. In short, the key principle was that the diminution in value had been caused by the damage, not what the un-damaged value may have been.
The Court recognised that there could be circumstances in existence at the time of the damage which would mean that, even though the vessel had suffered physical damage, there was in fact no diminution in value.
However, the burden of proof was on the defendant to show this, and the defendant had failed to do so here. This was because whilst the decommissioning scheme was well known by the time the damage occurred, there was no certainty at that time that the vessel would be accepted under the scheme or, if so, what would be offered under it.
Importantly, the level of the decommissioning grant was assessed by reference to the value of the vessel in its undamaged state. Because of this, it could not be said that a damaged vessel would necessarily have the same value to its owner before and after the damage occurred.
This case will clearly be of great interest to any shipowner whose vessel is damaged and who wishes to claim damages equivalent to the reduction in her value. The judgment demonstrates that the owner should be entitled to damages at this level even if he subsequently manages to sell the vessel at a higher value (due to, for instance, a rising market), and that a defendant will not ordinarily be able to persuade the court that any such windfall should be taken into account when assessing damages.