THE KOWLOON MOTOR BUS CO (1933) LTD v. ATTORNEY GENERAL

No. 791 of 1984

                Bus written off in road accident. Special damages - including value of bus and loss of profit on day of accident - agreed. Dispute on general damages for Loss of use. No Loss of profit suffered or hiring charges incurred because bus replaced from standby fleet. Large number of buses on order at date of accident: But no specific order placed for actual replacement bus.

                Held: -

No. 791 of 1984

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

______

BETWEEN

___________

JUDGMENT

____________

1. This matter has come before me on an assessment of damages. Since the point raised is one of principle which may have some bearing upon subsequent cases, I have been invited to give judgment in open court.

2. On 23rd August 1981 a motor bus, the property of the Kowloon Motor Bus Company collided with an ambulance on the Tsuen Mun Highway. It was an accident which had tragic consequences with which I am not concerned. I am only concerned with the loss to KMB of this particular bus which was written off in the accident. Liability is admitted by the Attorney General.

3. Now as I say the bus was written off and the particulars of special damage in the case have been agreed. That agreement is in the sum of $511,168.20. It includes over $500,000 for the value of the bus; and then sums for lost tax, lost insurance premiums, a towing fee, loss of income on the day of the accident and a loss adjuster's fee that was paid. The loss of income figure on the day of the accident is $1,690. Any issues about that were resolved before the hearing opened before me.

4. What has occupied the time of the court is the claim for loss of use. It is a claim I am minded to think is somewhat euphemistically described in the authorities as a claim for general damages. I am bound by those observations. I can only comment that they seem to me rather special general damages, because a lot of learning has been built up about the circumstances in which they should be given and the method of assessment.

5. Now this bus was plainly a profit earning chattel expected to produce income in the form of fares each day. A bus operates in that way regardness of the identity of the operator. Some, like the plaintiff have shareholders and operate for profit in the sense that profit will be distributed. Others like the Birmingham Corporation, (I have taken that name for reasons which will appear obvious at the moment) do not operate as a profit in the sense that any profit is distributed amongst the rate payers of Birmingham; but they operate at a commercial level intended to show a return and intended to cover at least the costs of the operation. If a bus is written off what the bus operator loses is the opportunity of earning that return. It does not matter what sort of bus business the operator is in fact running. There is, therefore, in my judgment no fundamental distinction to be drawn between the Birmingham Corporation as a bus operator and the Kowloon Motor Bus Company as a bus operator in this context. This has been very sensibly and properly conceded by Mr. Osborne on behalf of the Crown. Because although there are dicta in the authorities which draw an apparent distinction between profit and non-profit making operators, there are equally dicta not least of Lord Halsbury in the Mediana (1900) A.C. 113 at page 117; and of Devlin L.J. in the Hebridean Coast (1961) A.C. 545 at page 562, to the effect that the identify of the operation the plaintiff is carrying out is immaterial.

6. Now if a bus is written off, as I have said, its operator suffers a loss of gross profit, a loss of gross return. If he hires a bus until such time as he can find a replacement is obvious that he mitigates this head of loss. If he suffers the loss of profit prima facie that is recoverable; if he mitigates the loss of profit by hiring a bus he recovers the cost of the hiring, the cost of that mitigation.

7. Now in this particular case no loss of profit was suffered and no hiring fee was incurred because the plaintiffs used one of their standby buses to fill the gap created when the bus in question was written off. In August 1981, on the figures which were put in evidence before me this morning, the plaintiff was in the process of enlarging and modernising its fleet. In particular it was in the process of increasing the numbers of Leyland Victory Buses of the same type as the bus that was destroyed. In that month there were in fact then 340 such buses in service; by July of this year the number had risen to 537. A number of these buses were coming on stream for the first time during 1981 and 1982. This is because substantial orders were placed for them in 1980; 65 were ordered on 24th July 1980 and 200 on 21st November of that year. The minimum delivery period has been agreed to 273 days for the purposes of this case. It is apparent that delivery period over which these particular buses arrived from England, as I understand it in chassis form and then were reconstructed here, extended over a much longer period. At the same time the number of buses operating on the services on the Tsuen Mun Highway, with one of which this bus had been concerned, were on the increase. In August 1981 there were 57 operating 4 services; in May of 1982 there were 86 operating 5 services; and in July of this year there were 161 operating 9 services.

8. During the same time there was some scrapping of older, smaller obsolete vehicles. But the general trend over these years was of increases in the number of buses and increases in capacity. But at the same time the Crown properly point out there was in fact no order put in specifically to replace this bus and nothing to show the bus was replaced by reason of this accident. Now the result of this policy was that the plaintiffs always had capacity in hand. This was in hand for a number of reasons. One was emergencies of all sorts from act of God to domestic negligence to the third party negligence. No bus operator can possibly operate with just enough buses to maintain his scheduled services. He has got to have buses in hand for all sorts of reasons: regular maintenance, casualties, lightening, typhoon whatever. That was one of the reasons why this was in hand. The other reason why there was capacity in hand was to cover the future expansion required for example, to service the Tsuen Mun services.

9. From the operator's point of view, a write off is a write off howsoever caused. If he is taking precautions to cover himself in the future against write off that means a write offs howsoever arising. The number on standby varied on the figures I have given from naught to 40 over this period. Now at one time in the argument it was being suggested that I should sit in judgment on the management of Kowloon Motor Bus Company and say whether or not they were extravagant or otherwise in the provision of buses. I say straight away I cannot think of a more unsatisfactory tribunal to sit in judgment on anybody running a bus company. But I do not believe that the court is ever required to put itself in this totally unsuitable and false position. Because if one concentrates here upon the cost of the individual replacement it does not matter whether there was one possible replacement or 50 possible replacements available, or whether the motor bus company had been very cautious or very extravagant.

10. Now in those circumstances if this bus had simply been damaged and had in fact been repaired, and replaced on the road by a standby bus during the period of time those repairs took place, there would be doubt on the authorities; first that the plaintiffs would be entitled to a sum by way of general damages, measured by the cost of the facility and secondly that that cost would be measured over the period actually taken by the repairs. That principle was Laid down by the House of Lords in two cases at the turn of the century. The first is the Greta Holme (1897) A.C. 596 and the second, the Mediana (1900) A.C. 113. In both cases the injured party was the Mersey Docks and Harbour Board. The first case concerned a dredger and the second a lightship.

11. Now what was being suggested initially in those cases by the defendant when something Like this. The Mersey Docks and Harbour Board have not lost a penny. They maintained this standby facility for their own purposes in any event. That is a standing charge in their budget. They have not done anything extra arising out of this casualty or our negligence. If they choose to establish such a standby facility then they do it for their advantage, and for ours too because they cannot point to any loss. That was quite an attractive argument which had in fact carried weight up till 1897; but it was rejected by the House of Lords who in effect were saying as against the wrong doer: "You cannot take advantage of the precautions taken by this Harbour Board without making some contributions to the cost and the least contribution you could make is the Loss of interest on the capital sum tied up in the dredger during the period it was out of commission." In effect what these decisions show is that a plaintiff who provides a standby facility in this way is entitled to debit the wrong doer with the cost of this facility so long as it is brought into operation by reason of his negligence during the period in which his negligence triggers off its use.

12. It seems to me that this principle bears a striking resemblance to the principle of mitigation. Mr. Osborne strenuously resisted this suggestion upon the premise that mitigation must start after the event and not before. I am bound to say I do not see any reason in principle why this should be the case. If to avoid 10 "X" damages a party spends "Y" then it is not in issue that by way of damages he recovers the lesser sum "Y", or it is certainly not in issue if he makes the decision to spend "Y" after the accident. For my part I cannot see any conceivable reason for drawing a distinction between a decision made after the accident and expenditure after the accident; and a decision made in advance to guard this against this and other contingencies, and expenditure made in advance, or after the accident, or some before and some after.

13. It seems to me that precisely the same principle should apply. That this principle applies to carriers on land as well as by sea and particularly to bus companies was recognised by Geoffrey Lane J. (as he then was) in a decision in Birmingham Corporation v. Sowbery (1970) R.T.R. 84. So much for repair.

14. Secondly it is not contested that if a vehicle is written off and then replaced specifically, and during the period of its replacement the route is filled by a bus drawn from a standby facility, that during the time it took to obtain a replacement damages would be recoverable by the bus operator under this principle. The relevant time for this purpose, can be extracted from the decision in the Liesbosch (1933) A.C. 449. You get it from the day of the loss until a new bus and I am quoting from Liesbosch "could reasonably have been in use". In practice that means that the loss goes on, if it is a case for replacement by a pew vehicle, during the period of time it takes to order and take delivery of the replacement.

15. But it is said this principle has no application here because the bus was not damaged; it was written off and there was no specific replacement. The first reason advanced is that the matter comes within the dictum of Devlin L.J. (as he then was) in the Hebridean Coast at page 564 where he says this: -

"The facts may show that before the casualty occurred the owner was already saddled with the liability to maintain an idle vessel from which he could get no profit or pleasure or other form of service. In such a case which as Bowen L.J. said in The Argentino 'must necessarily be exceptional', the owner cannot recover more than nominal damages. "

16. Now it seems to me that that proposition does not apply here on the facts. It might apply if you had a bus operator with a declining business on some country service who has already got too many buses, and was quite happy to see one of them culled in this way by an accident. This was the way in which Mr. Osborne was really seeking to put it. But this does not work on the figures that have been put before me in respect of plaintiff which showed expanding demand and increasing size of the fleet during this period of time.

17. Alternatively and secondly Mr. Osborne submits that this bus was never replaced either generally or specifically. They were in fact over-provided with buses at this particular time. They have already committed themselves to this long before the accident. This was in part to cover emergencies in part to allow for expansion. They cannot start really to relate this particular loss to any of their orders at all at any time. I agree that there is in fact no specific association, because the orders were all placed before the accident and there was always a substantial number of buses on order or on standby. But from my part I cannot see what difference this makes. Let me test it by reference to a much smaller bus company.

18. Supposing you had an accident in May of a particular year. There can be no doubt that if an immediate order was put in for a replacement, one would be within the accepted principle. But instead of the order being put in May, let us just assume that in the course of April, the proprietor is somewhat foreseeing and says; "I think I am running this a bit tight. I really need five new buses, let us make it six, so that I then got one in hand". When the following month the one is written off, he needs do nothing more because his order is already in. I cannot see that that make any difference at all as to whether he can recover or not under this principle. If the whole purpose of the standby is to guard against the sort of eventuality which has arisen and that standby facility is used it seems to me that the principle applies.

19. In my judgment at least it is immaterial whether the ordering is general or specific; or whether it is before or after the accident; so long as during the period in question the level of operation and the number of buses in use is constant or increasing, and when the time comes a standby vehicle is in fact employed. That seems to me the principle that applies to the facts here.

20. Secondly I look at the question of time. Here Mr. Osborne by way of alternative to his primary submission says, look at the figures, these show that this bus was replaced in fact very quickly. Therefore I should not be taking this notional delivery period at 273 days or anything like it. My first observation here is that any figure one takes must be notional; because there is no way in which you can actually appropriate any particular order to the replacement of this particular bus. The Crown is asking me to take a notional appropriation of an early order to effect early delivery. The plaintiffs are asking me to make a notional appropriation of a notional order on the day following the accident. So that one is not really dealing with realities here at all. So I ask myself this; what am I seeking, and what is it Liesbosch tells me to look for? The answer is a reasonable time, a reasonable time for which to debit the defendants with the cost of the standby facility.

21. This standby facility is not without value, and indeed it is of a considerable value to this defendant. It ensured that there was no actual loss of profit, and the actual loss of profit could have been substantial having regard to the figure I have already mentioned for the day's loss on the day of the accident. Secondly it ensured that there is no hiring charge to be taken into account.

22. If there had been a post-accident order, the figure (it does not matter whether you call it maximum or minimum) would have been 273 days. Certainly the bus company could have not got any more than that if it is delayed in the ordering. And it seems to me that if one is trying to arrive at a notional time, a reasonable time, that there is no very obvious reason for cutting that down in the defendant's favour, or for penalizing a plaintiff who operates the standby facility and advance ordering when that self-same facility operates so much to a defendant's advantage. I think that the actual figure which would have arisen had no actual order existed is in fact the best guide as to what is a reasonable period to take. So I adopt the period of 273 days.

23. So much for the multiplier, what is the multiplicand? There are three suggested measures which I seem to extract from the books. The first is the total of interest on capital sum employed plus depreciation. That has been applied in a number of the shipping cases. The relevant figures for the purpose are here agreed. The interest on capital value is agreed at $208.24 and the daily depreciation at $85.114. These two figures total $293.35. That is the first.

24. The second method is what I think I extract from the speech of Lord Loreburn in the Marpessa (1907) A.C. 241 at page 244 where he says this:

"They (that is the plaintiff) might say 'the cost to us of maintaining and working this dredger, while it is working, amounts to so much per day, and its depreciation daily amounts to so much more'". (My emphasis)

Now that seems to me to be plainly a working cost computation: the sum of working costs plus depreciation. But there is some doubt as to how far in the subsequent shipping cases that earned the unanimous approval of their lordships.

25. The third method is that enunciated by Lord Lane in the Birmingham Corporation case which was a standing charge cost basis which he said "includes no running charges but does include a sum for expenses on capital".

26. Now these methods seem to me to have one thing in common and that is that they area means of assessing the cost of a facility. If I have to choose between method 2 and 3, between Lord Loreburn and Lord Lane, I would be minded to choose Lord Lane. First because this is much more in Line with the cost assessment approved in other decisions i.e. interest plus depreciation: Secondly if one is looking for a loss of profit calculation one starts with the estimated return on fares and deducts from that the daily working cost described by Lord Loreburn. But it seems to me that we are not looking for that here, we are not taking half a loss of profit calculation. One is looking for basic cost and certainly in relation to a bus operation, for that purpose the standing charge basis seems to me to be preferable. This is why I would prefer Lord Lane to Lord Loreburn.

27. Now I have got certain figures here which are said to constitute the basic cost. They total $415,124. Now in two respects they are clearly not standing cost figures, because the items for depreciation and maintenance are averages over the whole fleet of which a very small percentage is at any time off the road on standby. The bulk of the fleet is operating and thereby incurring, it seems to me, possibly greater depreciation and certainly greater maintenance charges. It would seem on the figures that I have given that it is almost impossible to apportion these totals notionally to buses that are off the road, when they are based on a fleet revolving in this way. If you are making a strict standing charge calculation I would have thought that you should include a sum for depreciation, and possibly the sum here, but a much reduced sum for maintenance. I do not know what those sums are. If they cannot be arrived at by the bus company itself by apportionment all I can do is little more than a blind guess. However much this is described as a jury question, that is not a very attractive start.

28. It comes down to this. Either I take the figure of $293 on agreed figures for interest and depreciation; or I start with $415 and have a stab at some discount. Now each of these two methods of computation has its advantages and disadvantages, which Lord Lane very conveniently set out in his judgment. But that was given in July 1969. A great deal has happened to interest rates since that year which outdate much of what he said about these and the disadvantages of an interest calculation. The rise in those rates has also almost certainly served to close the gap which then existed with these two methods of computation. I very much doubt if either now produces a very different figure from the other which might be seen if I had the material to feed in more accurate maintenance figure into the cost calculation.

29. In these circumstances I think my proper course is to stick to what I know, stick to an interest and depreciation calculation; and take as appropriate the figure of $293.35. I multiply that by 273, and I arrive at a figure which I sincerely hope some one will check of $80,084.55. So in my judgment that is the figure which has to be added to the agreed figure of $511,752, and judgment enter accordingly for that total.