PROVING THINGS 82: ITS NO GOOD FISHING – THE JUDGE WON’T BITE

It is surprising how often litigants get to trial and find that they have not got even the most basic evidence to prove their claim for damages. This happened to the claimant today  in One Fish Company Ltd v Iceland Foods Ltd [2017] EWHC 3366 (Comm).

“The inadequate state of the Claimant’s evidence in this regard was demonstrated when Mr. Fennell, in his closing submissions, invited me to give directions for a separate determination of this issue presumably with further evidence to be provided. I agree with Mr. Latimer’s response that it is far too late in the day for such an approach. The burden was on the Claimant to prove its claim at trial and it has failed to do so. Accordingly, even if I had found for the Claimant on the claim I would not have accepted that the alleged loss of £136,459 had been proved.”

THE CASE

The claimant brought an action alleging that the defendant was in breach of contract in the delivery of salmon fillets. The claimant claimed damages for breach and the defendant counterclaimed. As it happens the claimant’s claim failed and the defendant succeeded on the counterclaim.   However the judge made telling observations about the claimant’s evidence in relation to its claim for damages. A large part of the claim, £136,459, was not supported by any evidence at all.

THE CLAIMANT’S CLAIM FOR DAMAGES

His Honour Judge Eyre, sitting as a judge of the High Court, considered the evidence in support of the claimant’s claim for damages.

1. The conclusions set out above means that the Claim fails. In those circumstances I will set out my findings as the disputed questions in terms of the quantification of the claim briefly.

2. The parties were agreed that if there had been repudiation or renunciation by the Defendant then the Claimant would have been entitled to damages to compensate it for the loss caused by such repudiation or renunciation. Reference was made in the skeleton arguments to various authorities to some of which I was referred in the oral submissions of counsel but ultimately the law was not in dispute. The relevant principles can be stated shortly and I will avoid unnecessary and potentially misleading terms such as gross and net profit. If there had been repudiation or renunciation the damages due to the Claimant would have been those required to compensate it for its loss. That loss is to be seen as the amount which would have been received if the contract had been performed but deducting therefrom expenditure which the Claimant would have had to incur in performing the contract and which it has not in fact had to incur. The loss suffered is to be reduced by any sums which have been or which should have received by way of actions in reasonable mitigation of the Claimant’s loss but taking account of expenditure incurred in mitigation of loss. The difference between the parties lay not in the formulation of those principles but in their application to the facts of the case.

3. I have concluded that the contract was for the Claimant to supply 25% of the Defendant’s requirement for the calendar year 2014 and not for a minimum quantity of 200 tonnes. The Defendant’s requirement for that year turned out to be 436 tonnes and so the sum which the Defendant would have had to pay the Claimant if the contract had proceeded would have been £972,280 (being 109 tonnes @ £8.92/kg).

4. The Claimant did not buy any fillets from Hofseth. The Claimant accordingly deducted from the sum of £972,280 the sum of £751,004 which would have been paid to Hofseth. It also deducted shipping costs of £15,647; storage and transportation costs in the United Kingdom of £11,959; and invoice factoring charges of £5,931 resulting in a sum of £187,739. In addition it contends that it is liable to pay the sum of £136,459 to Hofseth by way of compensation for the Claimant’s failure to take from Hofseth the salmon fillets which it had contracted to buy from that company.

5. There appeared to be dispute between the parties as to the recoverability in principle of the sum payable to Hofseth. However, in my judgment that dispute was largely due to a failure properly to consider the nature of the payment to Hofseth. If the contract had proceeded the Claimant would have obtained salmon fillets from Hofseth and would have paid that company £751,004. That sum would have been recoverable from the Defendant subject to questions of mitigation of loss and in particular of whether the Claimant could and should have sold that fish elsewhere. The Claimant mitigated its loss by obtaining its release from its commitment to make that payment to Hofseth. The price of obtaining that release is properly recoverable as an element in the damages by reason of being an expense of mitigation. As a matter of principle it is immaterial whether the release comes from an agreed variation of the contract between the Claimant and Hofseth or by way of settlement of a potential legal claim from Hofseth (although that difference may be relevant to questions of reasonableness and quantification). The issue in reality is not whether such a payment can or cannot form part of the damages (in my judgment it can as a matter of principle) but whether the Claimant has established that it is in fact liable to make a payment to Hofseth and in what sum.

6. The sum of £187,739 was calculated by Mr. Mark Fairhurst, the forensic accountant instructed on behalf of the Claimant. Mr. Fairhurst received instructions as to the expenditure which would have been incurred by the Claimant if the contract had proceeded and as to that which would not have been incurred. The exercise which he undertook was to apply those instructions to the raw figures and calculate the outcome based on the propositions set out in his instructions. Mr. Fairhurst took account of the financial records provided to him but his calculation was ultimately dependent on the propositions in his instructions as to the expenditure which would have had to be borne if the contract had proceeded and as to whether that would have been borne by the Claimant. In cross-examination Mr. Latimer criticised Mr. Fairhurst for not investigating further but in my judgment this criticism was misplaced. Mr. Fairhurst was entirely open about the basis on which he proceeded and it was not incumbent on him to carry out his own enquiries to establish the accuracy or otherwise of the factual basis on which he had been instructed to report. As Simon Paley, the Defendant’s forensic accountant, said the experts were engaged as accountants and not detectives.

7. Mr. Paley had considered the Claimant’s accounts for 2013 and thereafter. He contrasted the overall profitability shown in those accounts with the level of profitability which would appear to have been made on the contract with the Defendant if Mr. Fairhurst’s calculations were correct. There was a marked contrast with an overall net profit margin of 2.1% and an asserted profit margin on this contract of 19.3%. Mr. Paley said that this contrast called for enquiry and that in the absence of explanation as to why this contract was much more profitable than the rest of the Claimant’s business one should conclude that there was expenditure which would have been borne by the Claimant but which had not been taken into account in Mr. Fairhurst’s calculations. On that footing Mr. Paley said that reliance could not be placed on the figures provided to Mr. Fairhurst and a calculation undertaken applying to this contract the level of profitability applicable to the Claimant’s overall trading. On that footing he calculated the loss at £52,406.

8. The experts were agreed that if Mr. Fairhurst’s exercise had identified all the costs which would have been borne by the Claimant then the loss was of the order identified by Mr. Fairhurst. Conversely Mr. Fairhurst accepted that if there was other expenditure which the Claimant would have had to bear then that should be deducted from his totals and he did not disagree that if the particular figures could not be accepted then Mr. Paley’s approach was one legitimate way of identifying the general level of the costs which would have been incurred.

9. A very large part of the difference between the calculations of Mr. Fairhurst and Mr. Paley came down to the question of whether the cost of packaging the salmon fillets was to be borne by the Claimant or by Hofseth. Mr. Fairhurst accepted that the cost of packaging of 200 tonnes of fillets would be of the order of £69,576. If that cost was to be borne by the Claimant rather than by Hofseth then the Claimant’s loss would have to be reduced accordingly. Mr. Fairhurst accepted that the Claimant’s accounts showed the Claimant paying the cost of packaging on other occasions. Mr. Paley agreed that if the cost of packaging was to be borne by Hofseth rather than by the Claimant then that would go a considerable way to explaining why this contract was more profitable than the general run of the Claimant’s business. In addition account was to be taken of the value of the pound sterling and of the Norwegian krone at the relevant times and Mr. Paley accepted that the fluctuation in the exchange rate could have been a factor contributing to the profitability of this contract.

10. The Claimant relied on three matters in support of the assertion that Hofseth would have borne the packaging costs. There was the oral evidence of Mr. Lag in which he asserted that the price per kilo agreed with Hofseth included packaging. In addition a one page “Purchase Contract” was provided. This stated that “[Hofseth] will arrange production and sales of the agreed quality and volume as per request from [the Claimant]”. The Claimant says that production should be seen as including packaging. Finally, a “to whom it may concern” letter from Hofseth was provided. This said that the agreement between Hofseth and the Claimant was for the former to produce salmon portions adhering to “the full specification on the product, packaging material, and standards required… the agreement was to produce and pack the ready to distribute and sell Iceland Foods branded salmon products with no further changes, amendments or transformations required.”

11. The Defendant says that this material is sketchy in the extreme and that the Claimant has simply failed to demonstrate that the packaging costs were to be have been borne by Hofseth on this contract in apparent contrast to the normal practice appearing from the Claimant’s accounts. The Defendant says that if the packaging costs were to have been borne by Hofseth one would have expected the Claimant to have been able to produce considerably more detail including clear evidence from Hofseth and/or financial records.

12. I agree with the Defendant’s submission in this regard. The burden of proving its loss lies on the Claimant. The Claimant’s accounts indicate that it generally bears the cost of packaging its products. The material which it has produced to support the assertion that there was something different in this arrangement is considerably less than that which might have been expected if the Claimant’s assertion is correct. In that regard I have already explained why I cannot accept the reliability of Mr. Lag’s evidence in the absence of support. In those circumstances if I had had to make an award of damages on the claim I would have concluded that on the balance of probabilities the Claimant would have borne the cost of packaging in respect of 109 tonnes of salmon fillets. Scaling down the figure of £69,576 applicable to 200 tonnes that would give the sum of £37,918 to be deducted from the Claimant’s loss. However, I would have accepted that once account had been taken of that sum the expenditure which would have been borne by the Claimant had been identified with the otherwise exceptional level of profitability being in part at least due to currency fluctuations. That would give a sum of £149,821 (£187,739 – £37,918).

13. I can deal shortly with the sum of £136,459 which is said to be payable to Hofseth. The Claimant’s case in this regard depends wholly on the evidence of Mr. Lag. I was not told how this sum was calculated nor whether it related to 239 tonnes (the quantity said to have been ordered from Hofseth), 200 tonnes or 109 tonnes. During cross-examination Mr. Lag said that he had received a letter from the Chief Executive of Hofseth giving notice of a claim but no such letter has been put before me. The inadequate state of the Claimant’s evidence in this regard was demonstrated when Mr. Fennell, in his closing submissions, invited me to give directions for a separate determination of this issue presumably with further evidence to be provided. I agree with Mr. Latimer’s response that it is far too late in the day for such an approach. The burden was on the Claimant to prove its claim at trial and it has failed to do so. Accordingly, even if I had found for the Claimant on the claim I would not have accepted that the alleged loss of £136,459 had been proved.