Appeal in property damage claim successful: damages should not be reduced by deducting the VAT element of the repair costs

The High Court in Northern Ireland has allowed an appeal and confirmed that a claimant's (or plaintiff's in NI) damages should not be reduced on account of it being VAT registered so able to recoup the VAT element of repair costs from HMRC.

Background

The Claimant's skip lorry was damaged when it was driven into by a vehicle insured by the Defendant insurer.  The cost of the repairs was £8,739.50 including VAT.

The VAT arguments 

The defendant argued that the true cost of the repair is the repair invoice less VAT.  Alternatively, it argued that it would be unreasonable in this case to recover the VAT on repair costs because if the claimant had the repairs carried out, the plaintiff can reclaim the VAT.  It would be wrong in principle, it was argued, to allow the claimant to claim the costs of repairs plus VAT, and then to reclaim the VAT from the HMRC.

It was the claimant’s case that the defendant tortfeasor was obliged to pay the claimant's direct losses which were incurred as a result of the negligence of the defendant’s insured, and that those direct losses include the amount of VAT.

Outcome

The appeal succeeded.  The Court held:

"In the particular circumstances of this case, the plaintiff may on one view have the benefit of a windfall in that it can recover damages including VAT from the defendant and then reclaim that VAT from HMRC. On the other hand, the defendant may have a windfall by being saved the payment of VAT if the repair costs are to be paid without VAT because this specific plaintiff is VAT registered.

As between these two choices, I find the latter to be less attractive. The defendant, in effect, would be saved from paying the full amount of general damages by reason of the plaintiff’s VAT registration. That seems to me to be contrary to the principles which have been established in the case law cited above. In particular it fails to recognise or deal with the possibility that a plaintiff might not repair the vehicle at all but rather sell it at some later point for a lower value. And as Mr Lyttle reminded me, it is not for the court to be drawn into any supervisory role in monitoring how damages are spent."

A recovery of the repair charges and the VAT thereon was allowed in full.