PROVING THINGS 146: NO EVIDENCE AT ALL TO PROVE A LOSS, OR THAT THE DEFENDANT CAUSED ANY “LOSS” (THIS IS BECOMING A FAMILIAR STORY)

The number of people who are willing to commit to large scale, and expensive, litigation without having the basic evidence to prove their case on damages has proven to be a staple fare for this series.  Another example is the claim for damages set out  in the judgment today by Mr Justice Arnold in Freshasia Foods Ltd v Lu [2019] EWHC 638 (Ch).  There was no adequate evidence to prove the claimant had suffered a loss, let alone any such loss was caused by the actions of the defendant.

 “Freshasia has not established that it has suffered any overall loss in sales since Mr Jing left. Still less has it established that any loss which it may have suffered is likely to be attributable to misuse of customer goodwill or confidential information by Mr Jing. It is worth reiterating that Freshasia has not established that Mr Jing has solicited a single Freshasia customer on behalf of Kung Fu. Nor has it shown that Kung Fu has taken business from it by use of any confidential information, for example concerning prices or margins”

 

THE CASE

The claimant brought an action claiming that the defendant had breached restrictive covenants in his employment contract where he sold Chinese food, particularly dumplings .  Part of the claimant’s case was that it had, therefore, suffered financial loss due loss sales following the defendant leaving its employment and working for a competitor.

THE JUDGMENT ON THE CLAIM FOR DAMAGES

“Alleged loss of sales
  1. Freshasia alleges that it has lost sales to Kung Fu since Mr Jing joined Kung Fu as a result of Mr Jing using Freshasia’s confidential information to benefit Kung Fu. Mr Lan’s evidence in support of this allegation was very unsatisfactory, however.
  2. In his first statement Mr Lan described confidential exhibit JL11 as “sales figures of our dumplings in October 2017 as compared to October 2018 showing loss of sales”, and said that he believed that this was due to Mr Jing’s misuse of confidential information. This gave the plain impression that he was comparing total dumpling sales in October 2017 with total dumpling sales in October 2018. As Mr Jing spotted, however, the sales total for October 2017 recorded in document 19 of the Protected Documents was much higher than the total set out in JL11. This led Mr Lan to say in his fourth statement that JL11 only recorded sales to “selected stores who started dealing with Kung Fu after the Defendant joined Kung Fu”. He did not explain how Freshasia could know this, and he was not directly challenged on this point in cross-examination. When I queried it subsequently, counsel for Freshasia told me on instructions that Freshasia’s account managers had made notes of which stores stocked Kung Fu products when they visited them; but that pre-supposes that the stores had not previously been selling Kung Fu products when, as noted above, it was Mr Lan’s own evidence that there was a 60-70% overlap in customers. In any event, Mr Lan admitted in cross-examination that JL11 only included sales to stores which had purchased less from Freshasia in October 2018 than in October 2017. Mr Lan also agreed that he had not produced any evidence which would allow the Court to compare sales to all stores in October 2017 and October 2018. For all the Court knows, total sales may have increased. As Mr Jing pointed out, because Freshasia’s customers compete against each other in an area, naturally some customers will purchase more in a month and some less, as they perform better or worse.
  3. In his second statement Mr Lan claimed that “[m]y company was always able to meet its sales targets while the defendant worked for Freshasia”, yet exhibit JL31 to which he referred showed that Freshasia had failed to reach its targets in August and September 2018. It was put to Mr Jing in cross-examination that this was because Mr Jing had stopped working hard for Freshasia after receiving the job offer from Kung Fu, an allegation that had not been made by Mr Lan in any of his statements. Mr Jing denied this, and I accept his denial.
  4. Mr Lan went on in his second statement to describe exhibit JL32 as “a spreadsheet showing the sales figures of our dumplings in November 2017 compared to 2018. This … shows the total number of cases sold in November 2017 was 1,862, compared to just 882 in November 2018 [emphasis added].” Again, he said in his fourth statement that it only showed sales to “selected stores who started dealing with Kung Fu after the Defendant joined Kung Fu”, and again he admitted in cross-examination it only included sales to stores which had purchased less from Freshasia in November 2018 than in November 2017. Moreover, he accepted that it was definitely possible that there had been other stores which purchased more Freshasia products in November 2018 than in November 2017. When asked what the total dumpling sales were in November 2017 and November 2018, Mr Lan could not remember. It follows that Mr Lan’s evidence on this point in his second statement was seriously misleading.
  5. Mr Lan also claimed in his second statement that, if the Court did not uphold the non-compete clause in the Employee Handbook, he expected that Freshasia would suffer a total loss of sales of at least £2 million. No attempt was made by Freshasia to substantiate this claim at trial.
  6. The only comparison of total sales before and after Mr Jing’s departure produced by Freshasia is a disclosure document which compares sales of FA dumplings in December 2017 and December 2018. This data is still problematic: it only covers a short time period (one month); it does not include all dumpling sales; and it does not include sales of other products. In any event, it only shows a 2% decline in sales.
  7. In these circumstances I do not accept Mr Lan’s evidence in his second statement that Freshasia had “lost 55 customers” by December 2018 or his oral evidence that similar numbers of customers had been “lost” in subsequent months. Even if it is correct that some customers are not currently purchasing from Freshasia, it may well be the case that other customers are purchasing more and/or that Freshasia has attracted new customers to replace those it has “lost“.
  8. Even if the 2% figure is representative, there may well be reasons other than Mr Jing’s abuse of customer goodwill or misuse of confidential information which explain this decline in sales. First, it is common ground that Freshasia switched from handmade to machine-made dumplings in September 2018, which slowed production. Mr Lan could not remember whether he had asked his sales manager to limit sales as a consequence (as Mr Jing said he did), but accepted that this was a “common procedure”.
  9. Secondly, as a result of the departures of Ms Poon, Mr Jing and Mr Liu in July-October 2018, Freshasia had to recruit an entirely new UK marketing team. Mr Lan’s own evidence was that he hired a replacement for Mr Jing on 29 October 2018 who proved unsatisfactory and therefore was dismissed on 7 November 2018, and that it took him several months to find a satisfactory replacement.
  10. In conclusion, Freshasia has not established that it has suffered any overall loss in sales since Mr Jing left. Still less has it established that any loss which it may have suffered is likely to be attributable to misuse of customer goodwill or confidential information by Mr Jing. It is worth reiterating that Freshasia has not established that Mr Jing has solicited a single Freshasia customer on behalf of Kung Fu. Nor has it shown that Kung Fu has taken business from it by use of any confidential information, for example concerning prices or margins.”