PROVING THINGS 17: HEADS OF DAMAGE THAT WERE “ENTIRELY BOGUS”

The case of Perma-Soil UK Limited -v- Williams & Flintshire County Council [2016] EWHC 1087 (QB) was an unusual one. The claimant (unsuccessfully) brought a claim for damages for misfeasance in public office. However I want to look at the brief part of the judgment (admittedly obiter) which deals with the claim for damages.  This is an example of another case where many heads of damages are claimed which are simply unsupported by the evidence.

THE CASE

The claimant brought an action for misfeasance in public office. It alleged that the defendant council employee had conspired to assist a competitor. These allegations were roundly rejected by the judge.  However the judge went on to consider the claimant’s claims for damages. The case highlights the need to adduce firm evidence to prove any claim for damages.

THE JUDGMENT ON DAMAGES

His Honour Judge Keyser Q.C., sitting as a High Court judge:

Loss and damage
  1. In view of my earlier conclusions, the issue of quantum of damages does not fall for determination. I shall therefore deal with the point relatively shortly.
  2. Paragraph 27 of the particulars of claim identifies four heads of loss said to have been suffered by the Company by reason of Mr Williams’ wrongful conduct: (1) the loss of its contract with Welch; (2) the loss of (a) its status as the sole approved supplier of soil stabiliser within Flintshire and (b) the opportunity to obtain Appendix 9 approval via the Interconnector Project; (3) the loss of contracts with other customers; (4) the loss of reputation in the industry. Paragraph 28 indicated an intention to prove the losses by means of expert accountancy evidence, but in the event none was adduced.
(1) The loss of the contract with Welch
  1. The particulars of claim state (paragraph 8) that the agreement between the Company and Welch was that the Company would continue to provide Perma-soil to Welch “for the duration of the Interconnector Project”. That is naturally read as meaning that there was an obligation on the Company to supply Welch’s requirements of Perma-soil for the entire duration of the Interconnector Project and an obligation on Welch to purchase all its requirements from the Company. That reading is confirmed by paragraph 9, which states that on 8 October 2010 “the contract was terminated by Welch Civils”, and by the allegation in paragraph 23 that Mr Williams secured “the breach of the contract with Welch Civils”. Nevertheless, the case advanced at trial, consistently with the evidence, was that there was no ongoing contract that obliged the Company to sell and Welch to buy Perma-soil; rather there was an ongoing business relationship, whereby discrete contracts were made from time to time by the placing of regular orders and the supply for Perma-soil pursuant to those orders.
  2. Although Mr Stagg suggested the contrary, I do not think that this different way of putting the case raises any genuine pleading point. If I had taken a different view, I would have had no difficulty in permitting an amendment for the purpose of making the particulars of claim accord with the weaker basis on which the case is now put. The difficulty for the Company is that the diversion of Welch’s business to SMRec cannot be seen in terms of positive legal rights but is rather a matter of the loss of anticipated trade in a free market where (as the evidence goes) there was no good reason why Welch should be refused the ability to use SMRec’s product in place of Perma-soil if it wanted to do so. This is the causation point already dealt with.
  3. If, however, the loss of the business with Welch were a loss caused by a tortious wrong and sounded in damages, the question of quantification would arise. The pleaded case is that the Company lost profits of £9380 a month for the remaining 14-month term of the contract: £131,320. A schedule produced by Mr Holloway shows the analysis behind these figures: the Company sold 472 tonnes of Perma-soil to Welch; the price was £280 a tonne; the cost price of Perma-soil was £140 a tonne—exactly 50% of the sale price; the average amount sold in a month was 67 tonnes; therefore the loss of profit over 14 months was (14 x 67 x 140 = ) £131,320. In submissions Mr Spackman put the case on a slightly different basis: according to a case study produced by Stablearth in about 2014 the total amount of soil stabiliser used by Stablearth (SMRec) was 960 tonnes, which at a profit of £140 a tonne would indicate a total profit of £134,400. The two questions that arise are, first, the amount of soil stabiliser that the Company would have sold to Welch and, second, the profit margin.
  4. I do not think it reasonable to take the mention of 960 tonnes in the case study as referring only to SMRec’s product. The relevance of the data concerned the benefits of the technology, not the niceties of the particular supplier. If the Company supplied 472 tonnes, the amount unaccounted for is 488 tonnes. That seems to me to be the best available evidence as to the amount of soil stabiliser that the Company would have provided during the remainder of the Interconnector Project. The average supply until October 2010 does not appear to me to be a reliable basis on which to proceed. On the other hand, I was not persuaded by Mr Jones’ suggestion that the figures in the case study were wrong because they failed to take account of areas on which soil stabiliser could not be used; the information in the document is quite clear as to the quantities used. Mr Jones could do no more than guess at the total amounts of product used and the proportion of product that was provided by SMRec. I do not think that I can rely on his evidence. Similarly, Mr Williams’ evidence that the quantities of soil stabiliser required for the Project reduced after October 2010 may be right—a figure of 488 tonnes for the remainder of the Project suggests that it is right—but I do not believe that he had real knowledge of the quantities involved. To the extent that his evidence about quantities relied on his understanding of the Appendix 9 trials of SMRec’s product, it did not seem to me to be directly in point.
  5. The claimed profit margin of 50% on the sale price of Perma-soil is in my judgment clearly wrong. Mr Holloway said that he had done the calculation with the help of Mark Davies of the Company. There was no document to show how the profit margin had been calculated. The Company did not produce its accounts for 2010 and 2011. The profit and loss accounts for 2012 and 2013 show that gross profit was 32% of sales in 2012 and 36% of sales in 2013. After administrative expenses, operating profit was 20% of sales in 2012 and 20% of sales in 2013.
  6. I do not have the benefit of reliable accountancy evidence. If I were awarding damages, I would have to do the best I could, having regard to three matters: first, on the assumed basis, there was clearly a loss; second, the Company bears the burden of proving the amount of the loss; third, any assessment must not be purely speculative but must have some evidential basis. In the circumstances, and where accounts for 2010 and 2011 were not produced, I would allow a profit margin of 25%; this reflects the probability that administrative costs would include a significant proportion of fixed costs. This would result in a loss of profit calculated as follows: 488 tonnes at £280 a tonne—£136,640; profit equivalent to 25% of sale cost; therefore total lost profit of £34,160.
(2) The loss of sole-approved-supplier status and Appendix 9 potential
  1. This head of damage does not seem to be anything more than a statement of a factor that is said to underlie the other pleaded heads of damage. It cannot operate as a free-standing head of damage. The claim for damages for loss of the Company’s status as sole approved supplier is untenable, because that status was not a property right and the Company had no right to its protection. The claim for damages for loss of the opportunity to obtain Appendix 9 approval under the Code is untenable, because the Company never initiated an agreed trial under Appendix 9.
(3) The loss of other contracts
  1. Paragraph 28 of the particulars of claim identifies three other customers whose business was lost: Alternative Recycled Materials Ltd (“ARM”); Conroy Developments Ltd (“CD”); and Forefront Utilities Ltd (“FUL”).
  2. The Company traded with ARM from December 2010 until April 2011, and with CD from June 2010 until March 2011. In neither case was there an obligation on the customer to buy Perma-soil on a regular basis; orders were placed and received on an individual basis. In paragraph 19 of his statement Mr Holloway says that these companies stopped trading with the Company because SMRec’s product had Appendix 9 approval and Perma-soil did not. That cannot be right, in any relevant sense. SMRec’s product did not obtain Appendix 9 approval until November 2012. Before then, it was subject of an agreed trial under Appendix 9. The Company never applied for or obtained agreement to such a trial of Perma-soil. It was entirely a matter for the customers to decide with whom they dealt; if their reasons included the existence of Appendix 9 trials, they were entitled to act accordingly. In fact, however, the Company’s case does not even get that far in the case of ARM, because Mr Holloway’s evidence of the reason why ARM stopped doing business with the Company was hearsay and was unconvincing and Mr Breandan Flynn, the former proprietor of ARM, gave evidence to the effect that he had experienced a disagreement with the Company and preferred to do business with Mr Thomas, whom he knew, rather than with the Company.
  3. The Company’s business relationship with FUL extended only through April and May 2013. Mr Holloway’s evidence was that FUL put an end to the relationship because the Company did not have Appendix 9 approval; this was told to one of the Company’s employees. In fact, FUL placed only two trial orders with the Company. The evidence is that FUL did not thereafter deal with SMRec. If the lack of Appendix 9 approval was the reason why the relationship did not thrive, that was a matter for the customer. Moreover, FUL is based in Essex, not in Flintshire, and approval of alternative specifications under the Code is a matter for the particular highway authority, not a national matter.
  4. I regard the claim in respect of the loss of other customers as entirely bogus.
(4) The loss of reputation
  1. The Company made no attempt to quantify this head of loss. It appears in fact to be just a different way of putting the second and third heads of loss and is untenable for the same reasons as they are. Insofar as the additional contention were made, that the loss of Welch’s business itself caused reputational damage, this would not advance matters: first, it is implausible that the loss of one customer will cause reputational harm; second, such harm would be too remote to sound in damages; third, there was no evidence of general reputational damage. As to the last point, the Company relied on Mr Holloway’s evidence that its turnover had reduced after 2011. I do not regard that as evidence of reputational damage. Deteriorating financial performance has all manner of causes. The cause in this case is unidentified. If the cause is competition in the marketplace, it provides no legitimate ground of complaint, despite Mr Holloway’s apparent belief and Mr Spackman’s submissions to the contrary.”

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