PROVING THINGS 16: IF YOU DON’T PROVE IT YOU DON’T GET IT

In Undre & Down to Earth (London) Limited -v- the London Barrow of Harrow [2016] EWHC 931 a claimant failed, totally, to prove any loss.   The judge found that there was a total failure by the claimant to prove any loss incurred and that any losses were caused by the defendant.  Although this related to a claim in a defamation case the issues relating to the need to prove damages and causation are of wider interest.

“Where special damage is alleged in a defamation case the issue of causation is often fraught with difficulty, and this case is by no means an exception. There are invariably competing candidates for causative factors, and confounding factors. It can be very difficult to prove that the alleged libel was the cause of any loss of profit or other financial loss that is established. Here, there are many factors that serve, in combination, to defeat any such conclusion.”

THE CASE

The second claimant, a restaurant, brought a claim for libel alleging that a report of court proceedings by the defendant had damaged its business.  The previous owner of the restaurant had been convicted of offences in relation to the keeping of cows. A press report put out by the defendant report mentioned the restaurant (which the convicted person no longer owned). The judge found that a reasonable reader would not have construed the report as referring to the restaurant being involved with the welfare of the animals.

The case provides stark warnings of the need to quantify and prove damages and causation.

THE CLAIM FOR DAMAGES

A claimant in these circumstances has to prove “serious financial loss”.

“SERIOUS HARM TO REPUTATION
  1. Section 1 of the 2013 Act provides:
“(1) A statement is not defamatory unless its publication has caused or is likely to cause serious harm to the reputation of the claimant.
(2) For the purposes of this section, harm to the reputation of a body that trades for profit is not “serious harm” unless it has caused or is likely to cause the body serious financial loss.”
  1. If a body that trades for profit is to satisfy the requirements of s 1(1), proof that a statement has caused serious financial loss is necessary, but it is not sufficient. Parliament clearly did not intend to change the rule that B cannot recover damages for loss suffered as a result of a libel of A. This is a general rule which applies as much to spouses, or those in commercial partnership with one another, as it does to companies and their directors. The issue is therefore whether the claimant company can show serious financial loss consequent on serious harm to its reputation caused by a defamatory imputation about the company, contained in the publication complained of.
  2. It follows from what I have said that the second claimant cannot show that the publication complained of has caused serious harm to its reputation, because it has not shown that the publication conveyed any imputation defamatory of the company. But its evidence would in any event have fallen a long way short of satisfying s 1. Even if, contrary to my findings, there was such a defamatory imputation, I would not have been satisfied that the imputation caused serious financial loss.
Has financial loss been proved?
Loss of restaurant sales
  1. There are three main strands to the company’s claim that this is what happened. The first and main contention is that the damaging gist of the news release was republished in the news media and on social media, leading to “cancellations and the restaurant [being] noticeably less busy”, with an associated “very marked decrease” in “net sales” at the time of publication in January 2014 “with recovery thereafter”.
  2. The evidence establishes to my satisfaction, and it is indeed conceded, that the defendant’s news release caused or contributed to the publication of articles in the Evening Standard (hard copy and online) and in the online version of the Daily Mail. Those articles repeated the substance of what was said in the news release. The articles or their gist were in turn repeated in other, online, locations, via Twitter and Facebook, among other places. It is not disputed that republication of the gist of the news release was a reasonably foreseeable consequence of placing it on the website (regardless of whether the other document to which I have referred was issued by the defendant).
  3. I have also been persuaded that one consequence of the newspaper publications and their repetition was that some people decided to cancel reservations at the restaurant, and some spoke of boycotting it. But it is not shown that this caused any, or any serious loss of profit, or that any loss of profit flowed from the single paragraph complained of, or the defamatory sting that this is alleged to have conveyed about DTE London.
  4. There are two aspects to this inquiry: has the company proved that (a) it suffered serious financial loss which was (b) caused by the imputation?
Serious financial loss?
  1. A good starting point is to ask whether the company has proved that its financial position worsened in January 2014, after the publication complained of, compared with its previous position. The company rests this aspect of its case on a “Net sales summary” prepared by its accountants, covering the period from January 2013 to December 2015. This is said to be based on the credit card receipts and cash banked by the restaurant. It is not clear what the sales are “net” of. It may be that the reference is to VAT. The document is inherently unhelpful, however, because it shows only revenues and tells me nothing at all about costs, or profits. Worse, for the critical month of January 2014 the figures in the summary do not purport to represent actual receipts for that month.
  2. The first claimant explained in his evidence that the liquidation of DTE Kensington meant that the restaurant’s credit card and other payment facilities needed replacement. This took some time. As a result, when the net sales summary was prepared the receipts for four months (September 2013 to January 2014) were totted up and divided by four, arriving at an average monthly figure of £15,220.10. Because the figure given for January 2014 is arrived at in this way it is impossible to carry out any meaningful comparison with the corresponding month in 2013. It is also impossible to compare it with any of the previous three months.
  3. Faced with this point, Mr Mason directed my attention to some underlying documentation disclosed by the claimant, which includes a monthly “sales analysis” for January 2014 and similar documents for later months. These are stated on their face to be “extracted from VAT returns and bank.” The January 2014 total is £14,612, on which Mr Mason invited me to rely. However, not only is this approach in conflict with the first claimant’s oral evidence, the “sales analysis” figures for the following months do not agree with the figures for those months that are given in the “Net sales summary”. Some of the monthly totals are higher, some are lower. None are the same. The discrepancies are not vast, but they are unexplained. This undermines confidence in both documents.
  4. Moreover, a claimant can only recover damages for loss of profit (or increased losses). As Mr Wolanski has pointed out, it does not necessarily follow that a reduction in “net sales” translates into an equivalent, or any, loss of profit or increased loss. Not all costs are fixed. In the restaurant business many costs may be highly variable according to turnover. I cannot derive profit figures from the company’s accounts. It has yet to file accounts, and the first claimant’s evidence was that it “cannot” do so until 9 months after its financial year end. If draft accounts exist, I have not been shown them. The evidence suggests, unsurprisingly, that the company does do some P&L calculations. Mr de Souza told me that although he had not seen tax returns he had seen spreadsheets which contained some form of “primitive profit and loss calculations”. But no such documents were produced in evidence, or even disclosed.
  5. The company has not put forward any profit and loss calculations of any kind. The first claimant told me that the annual rental for the property is £30,000, which he understandably suggested was very modest for the location. Otherwise, however, there are no figures for overheads, or labour costs, or the costs of raw materials, or services, from which one might have been able to work out or deduce the levels of profitability that are likely to have been achieved by the second claimant. A further point that it might be necessary to take into account is the impact of corporation tax (British Transport Commission v Gourley [1956] AC 185; McGregor on Damages 19th ed, Ch 17 Section I). None of this has been considered in the preparation of the company’s case on this preliminary issue.
  6. Nor do I have the benefit of any expert evidence. The (qualified) right to rely on such evidence was reserved in the original Particulars of Claim, but not exercised. Expert evidence might, for instance, have provided at least general information about profit margins in the restaurant trade, seasonal fluctuations, and the like, and might have attempted to apply these to the business of Down to Earth.
  7. Nor do I have any documentary evidence or calculations of the financial results for the restaurant when it was operated by DTE Kensington, to enable me to compare the before and after positions. DTE Kensington seems never to have filed accounts. I have the “net sales” figures for January to August 2013, which are followed by the average figures to which I have referred. Otherwise, such accounting information as I have for that company is contained in the liquidator’s reports. These show that the company built up a deficit of over £0.5m over less than a year. But the evidence is that the majority of that deficit is accounted for by capital injections made by the first claimant. It might be reasonable to assume that the business was placed in liquidation because it was making operating losses. Otherwise, one might think, the first claimant might not have written off his investment but waited for it to be recouped. There is other evidence, to which I shall come, that supports the view that there were operating losses under DTE Kensington. But the issue of precisely what losses were incurred when was not really explored in the claimant company’s evidence.
  8. The first claimant and Mr de Souza were both confident that there had been losses, Mr de Souza speaking memorably of the “scars” that he could see the business had suffered. But he took over as General Manager over a year later, neither witness attempted precision, and in any event neither was giving me expert evidence. As Mr Mason conceded, whatever their expertise might be, their evidence was called as evidence of fact. This leaves the court in a difficult position. It is the task of a libel claimant which trades for profit to persuade the court of the probability of serious financial loss. Evidence of this kind is not at all satisfactory.
  9. In the end, despite all the deficiencies in the evidence that I have outlined, my conclusion is that there is, just, enough evidence to allow the conclusion that the business probably did experience a significant reduction in profitability in late 2013. By my calculations, average monthly revenues for the first eight months of 2013 were running at about £24,800. On the first claimant’s own figures, the average for the next four months was £15,220.10. The difference is significant. But this does not support the pleaded case of a “very marked decrease” in net sales in January 2014. Still less does it follow that there was a “very marked” reduction in profitability at that point, or at all. Doing the best I can, I think it likely that profits fell during the four month period identified. But the drop in profitability is likely to have been less than the fall in revenue, due to cost reductions and cost cutting. I simply do not have the necessary evidential basis to find that there was a “serious” financial loss over that period.
  10. The pleaded case is that there was a “recovery” after January 2014. The evidential picture is of increased net sales in February, compared to January, and of a progressive though not smooth increase after that. The case advanced at trial has been, however, that the figures show a loss because the monthly net sales figures for this period in 2014 are below those for the corresponding months in 2013, and that losses continued into 2015 and beyond. The picture presented by the figures is however patchy and inconsistent. In the result the evidence falls short of providing serious financial loss for this period also.
Causation
  1. Nor has the company made out its case on causation. Where special damage is alleged in a defamation case the issue of causation is often fraught with difficulty, and this case is by no means an exception. There are invariably competing candidates for causative factors, and confounding factors. It can be very difficult to prove that the alleged libel was the cause of any loss of profit or other financial loss that is established. Here, there are many factors that serve, in combination, to defeat any such conclusion.
  2. The first is that the business was loss-making from the outset, under DTE Kensington. This, as a general proposition, is clearly established. The details are obscure. But a reasonable inference is that there was a continuing operating loss at the time that DTE Kensington was placed in liquidation in September/October 2013. A strong possibility, at the least, is that this was a struggling business in any event. Secondly, there is the impact of the prosecution and conviction of the first claimant. This had been embarked on before the time that DTE went into liquidation. It was current when that decision was made. Such matters are inherently likely to become known to members of the public. Thirdly, the trial and the public judgment of the District Judge were plainly liable to lead to the circulation of damaging information about the first claimant, with whom the restaurant was associated. Fourth, I accept the evidence of Mr Coke-Smyth as to what was said to the District Judge by Mr Morrison, Counsel for the first claimant, in mitigation on 20 December 2013; and I find that what Counsel told the Judge is likely to have been substantially true.
  3. Mr Coke-Smyth made an attendance note within the hours after the hearing, which he sent to the defendant shortly before 6pm. It is that attendance note which the defendant relied on in responding to the letter before action: see paragraph [10] above. The words of the letter which I have quoted there are not a precise quotation from the attendance note, but they are substantially so. The attendance note records that the £500,000 loss was said to be a loss “to Mr Undre”. Key features of Mr Coke-Smyth’s attendance note are supported by the recollection of Mr Morrison, recorded in recent email correspondence. He could not recall the figure being mentioned, but believed “it was said in mitigation that he had declared himself insolvent and that his house was at risk because his social media pages had been trolled and business suffered”. Later Mr Morrison made clear that he could not recall whether it was the first claimant personally or the business that had been said to be insolvent.
  4. The second claimant’s case is, as I understand it, that there has been some confusion here. The first claimant’s evidence is that it was not true at this stage that there had been negative publicity causing a huge loss, and he could not recall anything of that kind being said. I find, however, that it was said.
  5. The clear evidence from both Counsel is that the District Judge was told in the course of mitigation that the matter before the court had resulted in negative publicity causing serious financial loss. It does not matter a great deal for present purposes whether the court was told that the loss had been suffered by the business or by the first claimant personally. I am however confident that it was said that the first claimant had suffered such a loss. He, after all, was the defendant. The probability is that the court was also told that the business had suffered a large financial loss.
  6. I find that the figure of £500,000 was mentioned. It is likely that a figure was mentioned, and most unlikely that Counsel recorded the wrong figure. Mr Coke-Smyth was a good witness, and I find his evidence convincing. He told me that he recalled writing down the figure of £500,000 because it was a striking figure, and because it was striking that this point was being made when the submission was that the matter should be dealt with by way of a financial penalty.
  7. There may have been some misunderstanding between client and Counsel, Mr Morrison, on this point. The figure of £500,000 is the total deficit accumulated by DTE Kensington over its lifetime. That could not have all been attributable to negative publicity about the criminal proceedings. But was it true that negative publicity had caused a huge, or a substantial or serious loss, to the restaurant business by 20 December 2013? I find that it was substantially true. The first claimant denied this, and pointed out that there is no documentary evidence of any social media trolling or similar. That is true. But the absence of evidence is not evidence of absence. The claimants’ disclosure has been less than perfect. I resolve this difficult issue by concluding that what was said was probably true in substance. I rely on two factors in particular. First, it seems improbable that Counsel made such a suggestion in mitigation without instructions to that effect; and nobody has suggested that the first claimant lied to his Counsel. Secondly, there is the fact that the second claimant’s “net sales summary” shows the drop in revenues in September 2013 onwards to which I have already referred.
  8. As to the period after publication of the news release, I would have rejected the claimant’s case on causation grounds even if I had been satisfied that there was financial loss. There is undoubtedly a considerable body of evidence that news of the first claimant’s conviction caused anger, hostility and resentment amongst customers, potential customers and others. It is clear that a boycott of the restaurant was proposed as a result. Whether it was implemented is less clear. But in any case the overwhelming effect of the evidence is that all of this was prompted by revulsion at the conduct attributed to the first claimant. There is scarcely any evidence that anybody thought badly of the restaurant on any basis other than its association with an individual convicted of neglecting animals.
  9. Remarkably, much of this evidence comes from a print out from the second claimant’s own Twitter page, showing that it retweeted a series of hostile messages on and after 9 January 2014, the date when the Evening Standard picked up the story from the defendant’s news release. One tweet reads “Owner of vegetarian @downtoearthKen was convicted of animal cruelty on his smallholding”. Another reads “Down to Earth Cafe … is owned by Khalid Undre. He allowed 3 cows to freeze and starve to death on his farm.” A third suggests “I hope everyone boycotts the Down to Earth café … Animal cruelty from a twat peddling veggie/vegan food.” This language represents the whole thrust of the tweets. It is directed at the first claimant, not the second claimant. The proposed boycott is not based on guilt by association so much as punishment for association.
  10. There is another, related problem with the claimant’s case. As Mr Wolanski pointed out in cross-examination, the complaint in this case relates only to paragraph [1] of the news release, alleging that neglect caused the death of cows. To succeed in its case that the release and its republication caused serious financial loss to its restaurant business it would have been necessary for the second claimant to show that it was the imputation of causing death that was causative. But the words complained of contain a series of other serious criticisms of the first claimant, of which no complaint is made. Mr Wolanski identified five, each of which the first claimant accepted was present: the animals were exposed in a field in sub-zero conditions; a cow was found dead in heavy snow having given birth unattended; the sentence and costs order; the comment of Susan Hall that the behaviour was “appalling”; and the further comment that the matter was “grotesque” because of its contrast with the ethical claims made.
  11. The first claimant accepted that these other matters were damaging and were likely to have caused some loss by deterring customers. But he was adamant that the allegation of causing death was of a different and much more serious order. It was that which will have caused the greatest loss. I do not accept that the evidence or an objective assessment of the position supports that view.
The squatter
  1. The second limb of the case on serious financial loss is that one consequence of the alleged libel was the occupation of the first claimant’s farmland by a squatter. This defeated a plan to grow organic crops for supply to the restaurant, which therefore had to buy in organic produce from outside at much higher cost. In support of this part of the case I was shown a posting by the squatter, which boasted of his intention to occupy the claimant’s land, and some court papers establishing the claim that possession proceedings had been necessary.
  2. Mr Lennon also gave evidence in support of this part of the claim, explaining that he estimated he could have grown a minimum of 10,000 lbs of food annually on the land. He told me bought-in produce would cost as much as 10 times as much. The evidence is that the squatter also encouraged neighbours to join him in stealing farm machinery. I would have needed more detail to justify a finding on that issue.
  3. This evidence is enough, however, to show that there was a squatter, and that his actions caused the company loss in the form of extra purchase costs for food. I have no evidence as to what those costs were. I refused to allow evidence about these alleged losses to be led from the first claimant by way of supplemental questions in chief, when no warning of an intention to give such evidence had been given, and Counsel told me he did not know what the answers to his questions would be. The justice of that approach was reinforced later, when it became apparent that there are documents relating to these issues, including Mr Lennon’s estimates, which have not been disclosed.
  4. On the basis of Mr Lennon’s oral evidence, the restaurant’s alleged turnover figures, and an impressionistic assessment of the proportion of that turnover that is likely to be represented by raw material costs, it is possible to guesstimate the scale of the extra expense. That is not a very satisfactory approach. Nonetheless, I might have been persuaded that this represented a serious financial loss to the company. I could not have found that it was a loss caused by any libel of the second claimant, however, for two reasons.
  5. First, there is no evidence that the squatter was motivated by the alleged libel on the company. Put another way, he does not appear to have been impelled by a belief that the restaurant business was to blame for the fate of the cattle. The evidence powerfully suggests the contrary: that his motivation was hostility towards the first claimant, as an individual. The posting I have referred to, made by the squatter on the website of “Convicted Animal Abusers and Neglecters” on 26 March 2014, said this: “I’m squatting his land anyone want to join me? I’m going to court to make sure he gets what’s coming to him.” Secondly, I do not accept that such behaviour and its consequences represent harm of a reasonably foreseeable kind. The squatter’s behaviour seems to me wholly unreasonable and unforeseeable.
Exhibitions
  1. The third limb of the claimant’s case on serious financial loss is an assertion that it suffered due to the loss of a business opportunity involving someone described by Mr Mason as “the exhibitionist”. This proved to be an infelicitous term for a photographer who had proposed some kind of joint venture involving the use of the basement at the restaurant as an exhibition space. It is clear that the person concerned withdrew from further dealings over such a scheme because of concern over what came up on Google searches. I am sure the search results featured coverage resulting from the news release, and the consequent media coverage. But there is no evidence to enable me to disentangle in the claimant company’s favour the complex causation issues to which that gives rise.
  2. In the email to the first claimant dated 19 February 2014 that is relied on to prove this element of the company’s case the photographer explains her decision on this basis: “After the recent events in the press regarding the herd of cows I won’t feel comfortable to exhibit in your lovely café as this is the first link I get referred to when putting ‘downtoearth’ on google.” This is not evidence that the venture fell apart because she took the words complained of or their republication to mean that the claimant company had been guilty of causing the death of cows by neglect.
  3. I have not been presented, either, with any evidence as to how exactly such a venture might have yielded a profit for the claimant company, what that profit might have been, how any profit figure is calculated or arrived at, or why I should conclude that it would probably have been achieved. Some attempt was made to elicit some evidence of this kind in supplemental questions in chief, but I refused to allow it. This was for the same reasons as I refused to permit additional evidence about the losses due to the squatter. It is unfair to seek to bounce an opponent with evidence of this kind at the last minute.”

 

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