Background
Car-Wizard Limited purchased a vertical diamond cutting lathe from Vixen Surface Treatments Limited for use in its car wheel repair business. The lathe proved defective and failed to operate properly, preventing the claimant from offering diamond-cut wheel repair services. The claimant sued for damages. In a prior judgment dated 26 March 2026, HHJ Paul Matthews found that the claim succeeded on liability but deferred the damages calculation pending written submissions on methodology. This judgment addresses the assessment of those damages.
The key dispute at the assessment stage concerned two issues: (1) whether damages should be calculated by assessing lost profits over the mitigation period (nine months from September 2020 to May 2021), or alternatively by capitalizing the value of a hypothetical business that would have been established, and (2) whether certain factual findings regarding operator costs and the number of operators required should be revisited or subject to a discount for uncertainty.
The Court’s Holding
The court rejected the defendant’s threshold argument that damages must be measured by assigning a capital value to the hypothetical business, as established in Crehan v Inntrepreneur Pub Company CPC [2004] EWCA Civ 637 and UYB Ltd v British Railways Board. The judge distinguished those cases on the grounds that they involved highly speculative, long-term business ventures (10 and 25 years respectively) with significant uncertainties, whereas the present case involved only a nine-month mitigation period, an established existing business with an existing customer base, and evidence that was less speculative in character. The court held that where lost business can be accurately assessed on evidence without excessive speculation, there is no need to resort to capital valuation.
The court also upheld its earlier findings of fact regarding operator costs (£31,500 per annum, with 1.5 operators required to repair 15 wheels per day) and rejected the defendant’s alternative submission that employee costs should be expressed as a percentage of turnover based on historical company accounts. The court found that the costs of a new specialized service could not be assumed to match the cost structure of the claimant’s prior diversified work. The court further rejected a proposed 50% discount to trade and retail revenue figures, reaffirming its acceptance of customer evidence regarding lost business opportunities.
The judgment proceeds to recalculate damages based on lost revenue from three heads: trade customers (six of eight customers who gave evidence), retail customers (based on turned-away enquiries), and lost alternative hand-sanding revenue. The calculation deducts operator costs, maintenance costs, and consumables from gross revenue to arrive at lost profit over the nine-month period.
Key Takeaways
- Courts need not adopt a hypothetical business valuation approach in all lost-business cases; where loss can be calculated from evidence with modest speculation over a short period, direct calculation of lost profits is appropriate.
- The relevance of Crehan and UYB is limited to highly speculative, long-term ventures; those precedents do not apply to shorter-term losses from established businesses adding a new service.
- Factual findings made at trial, including those challenged only after draft judgment, generally cannot be reopened at a damages assessment hearing absent clear error.
- In calculating employee costs for a new specialized service, historical cost-of-sales percentages from a diverse business may be an inappropriate comparator.
Why It Matters
This judgment provides important clarity on the methodology for assessing damages in commercial breach-of-contract cases involving defective goods or services. It demonstrates that courts will apply the principles from Crehan and UYB flexibly, tailoring the approach to the specific facts: where a business loss is relatively certain and short-term, supported by good evidence, the traditional lost-profits method remains appropriate. The decision helps businesses understand that even hypothetical losses—losses that “would have been” but never occurred—can be recovered if grounded in credible evidence, without needing to resort to the more restrictive approach of valuing what a third party would have paid for the business.
The judgment also clarifies the limits of challenges at a damages assessment hearing: points that could have been raised at trial but were not will not ordinarily be revisited, and mere theoretical disagreement with factual findings (such as how many workers would be needed for a task) will not suffice to warrant reopening those findings.