London and Thames Haven Oil Wharves Ltd v Attwooll
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE WILLMER,LORD JUSTICE HARMAN,LORD JUSTICE DIPLOCK |
| Judgment Date | 16 December 1966 |
| Judgment citation (vLex) | [1966] EWCA Civ J1216-1 |
| Date | 16 December 1966 |
| Court | Court of Appeal |
[1966] EWCA Civ J1216-1
Lord Justice Willmer,
Lord Justice Harman and
Lord Justice Diplock
T 169.
In The Supreme Court of Judicature
Court of Appeal
Civil Division
Appeal from Order of Buckley J. dated 27th April, 1966.
Revised
Mr W. ARTHUR BAGNALL, Q.C., and Mr J. RAYMOND PHILLIPS (instructed by The Solicitor of Inland Revenue) appeared on behalf of the Crown (Appellant).
Mr HUBERT H. MONROE, Q.C., and Mr J.E. HOLROYD PEARCE (instructed by Messrs Slaughter & May) appeared on behalf of the Respondent Company.
In the course of the argument this has been made to appear to be a difficult and complicated case, but it is in fact a very simple case, and in my judgment a very plain case. It comes before us on appeal from a judgment of Mr Justice Buckley given on the 27th April 1966 on a Case Stated by the Special Commissioners in relation to an assessment to income tax made against the respondent company under Case I of Schedule D. for the year 1955-56 in the sum of 521,404. This sum represented damages which had been recovered from a wrongdoer in respect of loss of profits in connection with the respondent company's business as a wharf-owner.
The Special Commissioners decided that this sum, recovered in respect of loss of profits, was taxable as a trading receipt. Mr Justice Buckley came to the opposite conclusion, holding that the sum recovered was in respect of a capital loss so that it constituted-a capital receipt, and as such was not taxable. The Crown has now appealed to this court.
The essential facts of the case are extremely simple. The respondent company owns a number of jetties at its Thames Haven oil installation, where tankers bringing oil can berth for purposes of discharge. On the 22nd April 1953 a tanker, while comingalongside one of these jetties, was so negligently navigated that she struck the jetty in such a way as to cause serious damage thereto. The physical damage to the jetty necessitated repairs at a cost of £85,168. But in addition, it is said, the company sustained consequential damage through loss of use of their jetty during the period while it was under repair, a period which amounted in all to 380 days. That loss was quantified at the figure of £52,450. That figure was the result of a quite arbitrary calculation based on a percentage of the capital cost of the jetty. But no question has been raised in this appeal with regard to the method of quantifying this damage; it may well be that it was adopted for the reason that the jetty had been only newly built, so that no figures were available to show what rate of profit would ordinarily be expected to accrue from the use of the jetty. It will be seen from the figures I have given that the respondent company's total loss was £115.618.
The owners of the tanker admitted liability; but they ware able to limit their liability in pursuance of the Merchant Shipping Acts to a sum of £77,876, which sum they duly paid, together with the appropriate interest thereon.
The respondents were insured against physical damage to their property, but were not insured against consequential damage. In these circumstances they reached an agreement with their underwriters to the effect that the sum recovered from the owners of the tanker should be apportioned rateably as between the physical damage and the consequential damage, and that the underwriters should pay to them the unrecovered balance in respect of the physical damage.
The final result of it all was as follows. The respondents recovered in full the physical damage to their jetty, amounting to £83,168. They recovered by way of contribution towards their consequential loss the sum of £21,404, and they also recovered the sum of £2,325 by way of interest, making a grand total of £106,897. The question is whether that sum of £21,404 recovered from the tanker owners in part satisfaction of the claim for loss of use is taxable as a trading receipt in the hands of the respondent company.
In the course of the argument we have been referred to a considerable number of authorities, to some of which I shall have to refer in the course of this judgment. But it does seem be me that the question which we have to decide is eminently a question of fact, which depends on the answer to the question: What did the sum of £21,404 represent? To adopt a phrase used in one of the authorities to which we were referred, what place in the economy of the respondents' business does this payment take?
I have said that the respondent company is the owner of these wharves and jetties, and in the ordinary way earns profits by the use of the jetties for the purpose of berthing tankers. In my judgment the same principle must apply to a jetty constructed for commercial use as applies to a ship which is engaged in commercial trading. In this connection I venture to read the oft-quoted words of Lord Justice Bowen in the case of ( THE ARGENTINO 13 Probate Division, page 191, at page 201), where he said; "A ship is a thing by the use of which money may be ordinarily earned, and the only question in case of a collision seems to me to be, what is the use which the shipowner would, but for the accident, have had of his ship, and what (excluding the element of uncertain and speculative and special profits) the shipowner, but for the accident, would have earned by the use of her".
In this case, if there had been no collision, the respondents would have had the use of their jetty, and by the use of their jetty they would ordinarily have earned profits. Having lost those profits, they were entitled to recover from the wrongdoer such asum of money as would, so far as possible, put them back in the same position as that in which they would have been but for the collision. Owing to the tanker owners' right to limitation of liability, the amount actually recovered did not in fact provide full indemnity, but so far as it went it gave back to the respondents part of what they could have expected to earn by the use of their Jetty. If there had been no collision, the profits which the respondent company would have earned by the use of the jetty would plainly have been taxable as a trading receipt. Why, it may be asked, should not the same apply to the sum of money recovered from the wrongdoer in partial replacement of those profits?
In that connection we were referred to the report of THE ARGENTINO in the House of Lords, reported in 14 Appeal Cases at page 519. I should explain that that was a case where the owners of a ship damaged in collision were hold to be entitled to recover the loss of profit which they would have made out of a charter party which had been fixed, and which was lost in consequence of the collision. But in the House of Lords, Lord Herschell pointed out that, if the owners got back their ship from the repairers, before the date when the charterparty voyage (if it had taken place) would have been completed, they would have to give credit for any profits that they could have earned during the unexpired period. Any such profits would clearly, I think, have constituted a revenue receipt; and it might be thought to follow from that that the damages for loss of the charterparty, against which any such actual earnings would have to be set off, should also be regarded as a revenue receipt.
In the present case, however, the learned judge came to the conclusion in the event that it was not possible to separate the damages recovered in respect of loss of use of the jetty from those recovered in respect of the physical injury. He treated the whole as damages for physical injury to a capital asset, and therefore as a capital receipt. I am bound to say, however, that I have felt some difficulty in following the reasoning of the learned judge, and it does seem to me that in the course of delivering his judgment he rather contradicted himself.
On page 5 of the transcript of the judgment the learned judge is recorded as saying this; "The damage to the appellants' jetty was undoubtedly damage to a capital asset. That damage occasioned not only the need to incur expense in repairing the physical damage, but also an interruption in the profitable use of the jetty. Both those consequences of the physical damage were natural and direct results of that physical damage, The appellants had but one cause of action against the owners of the ship which caused the damage, but the damages recoverable in respect of that cause of action involved two distinct elements requiring two distinct inquiries and calculations".
Then a little later, at the foot of that page, the learned judge went on; "If, in the present case, the jetty, instead of being damaged, had been entirely destroyed by an explosion, the amount recoverable as damages would have included an element related to the profitability of the jetty, but no part of such damage would, in my opinion, have fallen to be treated as a mattsr of sound accountancy or for fiscal purposes as profit of the appellants' business". So far I wholly agree with everything that the learned judge said.
But then he continued; "Can It makes any difference in this respect that, instead of being wholly destroyed, the jetty was only partially damaged, and that, instead of losing all future profit from the jetty, the appellant lost the profitable use of the jetty for only 380 days? In my judgment, none. The damage which the appellant suffered all flowed directly from physical Injury to a capital asset of their business, the jetty, inflicted by the negligent handling of a ship. The amount of damages which theappellant might have recovered constitutes the relief, whole and indivisible, to which the appellant became entitled in consequence of that injury, subject only to...
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