EVIDENCE: PROVING DAMAGES AND INTEREST ON DAMAGES: YOU CAN'T SUGAR THE PILL AND HAVE TO PROVE THE LOSS
The final paragraphs of the judgment of Mr Justice Eder in Sugar Hut Group -v- AJ Insurance  EWHC 3352 (Comm) has some important lessons on the need to adduce evidence to prove losses. It also contains a discussion of whether interest should be reduced because of alleged delay.
The action was a claim for damages against an insurance broking company. The claimant alleged that the company had been negligent in failing to ensure effective insurance was in force to cover one of its nightclubs burning down. The parties agreed liability on a 65% basis. The judge was considering issues relating to damages. Some losses were agreed. The judge considered the claim for loss of profits. He then went on to consider individual heads of claim for damages. Most of these were disallowed because of the absence of evidence.
THE HEADS OF DAMAGE AND EVIDENCE IN SUPPORT (OR NOT)
Staff wages/mobile phone costs
- Under this head, the staff wages as claimed by the claimants amount to £122,266 and related mobile phone costs of £5,500. It was common ground between the parties that these items stood or fell together. Relying upon Mr Norcross’ evidence, Mr Slade submitted that these items were recoverable on the basis that Mr Norcross continued to pay some of his staff following the fire because he did not wish to lose their skills from the business. However, Mr Piper submitted that, as Mr Norcross confirmed in evidence, all of the named staff continued to work for the group both before and after the fire. After the fire, they were not at home on gardening leave but continued to add benefit to the group business at all times. On that basis, Mr Piper submitted that the claimants should recover nothing under this head. In theory, I can well understand that such claim might be recoverable if there were evidence to show what these staff members actually did even in general terms both before and after the fire. I had originally thought that it might be appropriate to make some apportionment of some kind. However, the evidence with regard to what these staff members did both before and after the fire is severely lacking and in such circumstances it is my conclusion that the sums claimed are irrecoverable.
Alternative accommodation for Ms Cuny
- This item concerns a claim for £6,000 (£600 per month for 10 months) in respect of alternative accommodation provided to Ms Cuny who was a member of the Claimants’ staff. Prior to the fire, she was apparently provided with living accommodation within the Club premises although the precise terms of such arrangement are unclear. Following the fire, this accommodation became uninhabitable and she was therefore provided with alternative accommodation at, it is said, a cost of £6,000. In principle, I accept that such cost might be recoverable. However, the evidence in support of this claim is tenuous in the extreme. In support of the claim, the claimants produced two Assured Shorthold Tenancy Agreements in respect of two properties, one showing Mr Norcross as the tenant and the second showing Ms Cuny as the tenant. However, there is no other cogent evidence as to the nature of the arrangements and no evidence whatsoever that the rents payable in respect of these properties were additional costs incurred by any of these claimants as a result of the fire. In such circumstances, I reject this claim.
- The claim under this head is for £5,700 as a redundancy payment to one staff member i.e. Darren Fisher following the fire. The only evidence in support of this claim is an email from Emma Craven (Personal Assistant of Sugar Hut Group) which refers to the fact that Mr Fisher had received £3,000 cash from “Mick” (i.e. Mr Norcross) but that he is still due £2,700. However, there is no evidence that any of the claimants paid the sum of £3,000; nor is there any evidence that the balance of £2,700 was ever paid; nor, if it was, by whom. In these circumstances, it is my conclusion that these claimants are not entitled to recover any sum under this head.
Hertford & Fulham Venues
- Under this head, the claimants claim loss of profits at the Fulham and Hertford Sugar Huts following the fire. In summary, the claimants claim loss of profit in the sum of £62,993 in relation to the Hertford Sugar Hut Club and £108,684 in respect of the Fulham Sugar Hut Club. Both experts agree that after the fire both Fulham and Hertford Sugar Hut suffered a significant drop in average daily takings. However, the experts disagree as to the reasons for such loss of profits.
- In principle, it is common ground that the claimants are entitled to recover loss of profits suffered at these venues if, indeed, this was caused by the fire at the Sugar Hut Club in Brentwood.
- The evidence in support of this claim was limited to two short paragraphs in the fourth witness statement of Mr Norcross. In summary, it was his evidence that the fire at the Brentwood premises destroyed the office including most of their equipment and files and consequently the majority of their data. According to Mr Norcross, this was the biggest cause of loss to the other venues because, without the extensive mailing list and contact numbers compiled over years of business, they were unable to market the other venues as they had previously done. He explained that marketing is usually done 3 to 4 weeks in advance; and it is for this reason that the effect of losing the data may not have been immediately evident. However, Mr Norcross’ evidence was that without the ability to contact their customer base directly, the other venues suffered massively. In addition, Mr Norcross’ evidence was that once the flagship club at Brentwood was taken out of the equation, the other venues were not high profile enough on their own to attract big name DJs and the loss of these DJs resulted in loss of customers at the other venues. It is for these two main reasons that the claimants say that they are entitled to recover their losses under this head.
- As stated above, it is common ground between the experts that there was indeed a fall off in turnover at the other two clubs following the fire. However, I remain unpersuaded that this was the result of the fire at Brentwood. As to the reasons advanced by Mr Norcross, he was unable to identify a single DJ or to produce a single email or other document to demonstrate any unwillingness by any DJ to work at Fulham or Hertford. As submitted by Mr Piper, Mr Norcross accepted that DJs are paid by the hour, such that on the face of it there is no reason for them to turn down work. Equally, Mr Norcross accepted that DJs try to work at more than one venue per night; and given that Fulham of course is central London, I can see no sound reason why DJs would not be prepared to work at that club.
- As to the suggested loss of customer data, I found it extremely surprising that the claimants did not see fit to call direct evidence from any member of staff at the Hertford or Fulham clubs who were involved in promotions and who would, no doubt, have been able to set out with proper detail the difficulties which are alleged to have occurred. As submitted by Mr Piper, it does seem somewhat incredible that in this electronic age and with computers existing at both Fulham and Hertford (as Mr Norcross was obliged to concede) as well as staff having Blackberrys and there being back up from Brentwood computers that customer data would still not have been available. I recognise that Mr Norcross denied that the back-ups included customer lists; but even if that is right, it would appear that some information was readily obtainable from the website membership.
- In considering this claim I also bear in mind the other evidence that the recession was biting at this time and further evidence which emerged in the course of the trial with regard to both Fulham and Hertford which would suggest that there were possible other reasons for the decline in turnover at these clubs during this period.
- Be all this as it may, I remain unpersuaded that the evidence before me is sufficient to justify a conclusion that the loss of profit at these clubs can properly be attributed to the fire at Brentwood. For these reasons I reject the claims for loss of profits under this head.
- The claimants claim the sum of £19,275 in respect of monies paid to Marriotts who were accountants instructed on behalf of the claimants to investigate and present the claim to the original insurers. The claim is advanced by the claimants on the basis that these sums are recoverable under the PAC. However, in order to make good this claim under that clause the claimants would have to show that the monies would have been incurred pursuant to a requirement of some kind by the insurers. Here, there is absolutely no evidence whatsoever to that effect; and for that reason alone, it follows that this claim must be rejected.
THE COURT WAS NOT SYMPATHETIC TO A LAST MINUTE ARGUMENT FROM THE DEFENDANT THAT DEPRECIATION SHOULD BE TAKEN INTO ACCOUNT
The defendant attempted to argue that depreciation should be taken into account , without pleading the issue or having it considered by the experts. This approach did not find favour with the judge.
- Under this head, the defendants say that any loss of profits should be reduced by a figure for depreciation. The difficulty is that this point was only raised by the defendants shortly before the trial commenced – and even then without any real specificity. It was never pleaded by the defendants; nor was it considered by the experts in their reports; nor is there any reference to depreciation in the Joint Statement. Nevertheless, Mr Piper submitted that it is obvious that there should be a deduction made in respect of depreciation; and that the failure to focus on this point was due to an oversight by all parties and the experts. Mr Piper may well be right in those submissions. However, for various reasons which it is unnecessary to consider in detail, it seems to me that there is very great difficulty at this late stage of these proceedings in seeking to perform the necessary calculations to work out what, if any, depreciation should be included in any calculation. In order to carry out a proper calculation, one would need to know, for example, the estimated residual value of any particular items which might involve an element of depreciation. In addition, it would be necessary to identify the appropriate rate of depreciation. None of this is straightforward. In his last throes, Mr Piper submitted that I should take a broad brush and, in effect, include a notional minimum amount of depreciation against the claim for loss of profit. I have much sympathy with that suggestion. However, in the circumstances, it seems to me that this is a stab too far.
INTEREST ON DAMAGES
The judge awarded interest on damages at a commercial rate of 5% and rejected an argument that interest should be reduced because of alleged delay.
- The claimants claim interest at a commercial rate from various dates. So far as the costs paid in relation to the insurance claim and their own solicitors, the claimants claim interest from the date of payment. In respect of the claims relating to the property damage, the interest is claimed from 5 March 2010. So far as business interruption losses are claimed, the claimants claim interest from 24 June 2010. Mr Slade explained the reasons why different dates applied for the commencement of the claimants’ claim for interest. However, it is unnecessary to explain such reasons because Mr Piper did not, as I understand, take issue on any of these dates.
- The two remaining issues under this head concern (i) the rate of interest to be applied and (ii) whether the period for which interest is claimed should be reduced.
- As to the first point, the claimants seek interest at a rate of 6%. In support of that claim, the claimants adduced in evidence the fourth statement of Mr Norcross which deals with 3 aspects of interest viz: (i) that Sugar Hut Group Ltd is bound to pay 5% on its loans to Barclays; (ii) that an equivalent of 6% per annum will be charged on Mr Norcross’s loans to the Sugar Hut companies once the companies can afford to pay; and (iii) that Mr Norcross himself is presently liable to pay interest on borrowing from NatWest at 6.5% plus a risk fee of 0.5%. However, in my view, the actual amount of interest payable either by the Sugar Hut Group Ltd or Mr Norcross is of little, if any, relevance. Consistent with the authorities, the real question is not what rate of interest is actually payable by the Sugar Hut Group Ltd, but rather what rate of interest would generally be payable by a company like the Sugar Hut Group Ltd. having regard to the general nature of its business operations. As to that, there was some evidence before me in the form of reports from the Bank of England. Initially, it was Mr Piper’s case that the interest to be awarded by the court should be no more than 3.25%. However, in the light of the material from the Bank of England, it seems to me that the appropriate rate of interest is 5% p.a. simple.
- As to the second point, Mr Piper submitted that there have been substantial delays in bringing this claim to trial which have been compounded in part by the failure of the claimants to provide adequate disclosure on a speedy basis. Mr Piper is no doubt right to say that this is a relatively old claim which relates to a fire in September 2009 (i.e. over 5 years ago) and a claim for loss of profits in the following year. However, it seems to me that the delay here is mainly due to three factors viz: (i) the fact that the claimants originally sued the insurers under the insurance policy; (ii) the decision to have a split trial; and (iii) the inevitable (albeit most regrettable) delay in obtaining a hearing in this court. As to the first point, it seems to me that it is difficult, if not impossible, for these defendants properly to criticise the claimants for pursuing the insurers in the first instance. Similarly, it seems to me that it is difficult for these defendants to criticise the claimants for proceeding by way of a split trial. I know nothing at all about the background that led to the eventual settlement of the claim by these claimants against these defendants of liability. As to the third point, the delay in getting a trial date is, as I say, most regrettable but it is certainly not the fault of these claimants.
- Having regard to all the above and in the exercise of my discretion, it is my conclusion that the claimants be awarded interest on the sums recoverable as reflected by the terms of this judgment from the dates specified above without interruption until the final order is drawn at the rate of 5% p.a. simple.
THE NEED TO ADDUCE EVIDENCE TO PROVE THE LOSS
The key point here relates to the need to adduce evidence of a kind that will persuade the trial judge that there has been a loss and that this loss was caused by the defendant’s breach.