Benward Pty Ltd & Ors v Metal Deck Roofing Pty Ltd & Ors

Supreme Court of NSW|2001-11-22|Before: Palmer J

Introduction 1 The Plaintiffs are a group of companies together carrying on a substantial business as printers. The First Defendant is a roofing contractor and the Second Defendant is a demolition contractor.

2 The Plaintiffs sue the First Defendant in contract and in tort for damages arising from the collapse of part of the roof of its factory premises at Marrickville, the First Defendant having been engaged by the Plaintiffs to replace that roof. The Plaintiffs also sue the Second Defendant in tort for damages arising from the collapse, the Second Defendant having been sub-contracted by the First Defendant to carry out demolition and removal of the existing roof.

4 The First Defendant cross claims against the Second Defendant, seeking contribution or indemnity in respect of any damages for which it may be held liable to the Plaintiffs; by its Cross Claim, the Second Defendant makes the same claim for contribution or indemnity against the First Defendant.

5 At the commencement of the trial Mr Rofe QC, who appears with Mr Hull for the First Defendant, conceded that the First Defendant had been negligent in failing to ensure that the roof replacement was carried out without damage to the Plaintiffs. However, he said that the larger part of the fault for the roof collapse lay with the Second Defendant so that it should bear most of the burden of a judgment in the Plaintiffs' favour. Mr Stevens QC, who appears with Mr McManus for the Second Defendant, did not admit that the Second Defendant had been negligent. He said that the roof collapse was entirely the fault of the First Defendant. Both Defendants have conceded that, if they are found to have been negligent, they are liable for a number of heads of damage claimed by the Plaintiffs, namely, the costs of repair and replacement of equipment, the costs of additional work and administration, and the additional cost of repair work to the roof resulting from its collapse. They dispute that the Plaintiffs are entitled to damages for loss of profits and general damages.

6 The issues for determination are: - What was the cause of the roof collapse? - Was negligence on the part of the Second Defendant a contributing cause? - If so, how should liability as between the First and Second Defendants be apportioned? - Are the Plaintiffs entitled to damages for loss of profits and general damages?

Background 7 The undisputed facts may be shortly stated.

8 On 14 April 1999, during a severe storm in Sydney, the roof of the Plaintiffs' premises at 114--118 Victoria Road, Marrickville suffered considerable hail damage. The Plaintiffs' insurer arranged for a loss assessor to inspect the premises. The loss assessor advised that because the existing roof was comprised of asbestos sheeting, the entire roof would need to be replaced.

9 The roof on the Plaintiffs' premises comprises three major sections: a saw-tooth section, a lower gabled roof adjoining the saw-tooth section, and a flat section. All sections were to be replaced. Specifications for the work to be done were prepared and quotes were sought. On 19 May 1999 the First Defendant's quote was accepted on behalf of all Plaintiffs. Shortly thereafter the First Defendant sub-contracted the removal of the existing asbestos roof to the Second Defendant.

10 On 9 June 1999 the First Defendant delivered a quantity of Colorbond roofing material to the premises. A crane was used to place eight packs of roofing, comprising a total of 166 Colorbond sheets and some guttering and flashing, at various places on the gabled roof of the factory premises so that they could be installed progressively as asbestos sheeting was removed. The precise location on the roof of the packs of Colorbond sheets is a matter strenuously in dispute between the First and Second Defendants. The Colorbond material remained on the roof of the Plaintiffs' premises until Friday, 11 June 1999, when work on replacement of the roof commenced.

11 The saw-tooth section of the roof was to be replaced first. The work plan of the First and Second Defendants was that the asbestos sheets would be taken off the saw-tooth roof and "walked" across the lower gable roof to the eastern wall of the building where they would be placed directly onto a forklift which would lower them into a specially sealed bin placed at the base of the wall. The forklift and the bin were adjacent to the south-eastern corner of the wall and the loading operation was to be conducted on a section of the gabled roof bounded on the north by the roof ridge line, on the south by the saw-tooth roof, on the east by the eastern wall of the factory, and on the west by the first roof truss. For convenience, I will call this section of the roof "the south-east section".

12 When the Second Defendant's workers arrived on the site early on the morning of 11 June they found that the asbestos bin had been left in the street outside the premises and had to be moved into the factory yard and into its required position. The forklift, which was to lower the asbestos sheets from the roof, was then used to move the bin into position. Unfortunately, one of the tines on the forklift broke in the attempt.

13 A director of the First Defendant who was supervising work on the site, Mr Bruce Fenwick, rang the forklift hire company to obtain a replacement forklift. Without a replacement forklift, it would be impossible to remove the asbestos sheets from the factory roof as planned. A decision was made that, in the meantime, the Second Defendant's workmen would commence removing asbestos from the south-western section of the saw-tooth roof, walk the asbestos sheets across to the south-east section of the gable roof and stack them there to await removal from the roof when the replacement forklift arrived.

14 Work commenced at about 6.30 a.m. The Second Defendant's workmen removed a considerable quantity of asbestos sheets from the saw-tooth roof and stacked them in the south-east section. The exact location of the stack is in dispute.

15 At about 8.30 a.m. the south-east section of the roof collapsed completely and a section to the north of the ridge line collapsed partially. Extensive damage was caused to the Plaintiffs' plant and equipment, to its office premises and to work in progress. The Plaintiffs were unable to reoccupy the premises until 31 August 1999 and their business was totally disrupted. The Defendants do not dispute some of the losses claimed but dispute the Plaintiffs' claim for loss of profits and general damages.

The competing contentions 16 There is no dispute that 166 sheets of Colorbond material were placed on the gable roof on 9 June and that their total weight was between 5.5 and 5.6 tonnes. Likewise, it is clear from the evidence that by 8.30 a.m. on 11 June a substantial number of asbestos sheets had been removed from the saw-tooth section of the roof by the Second Defendant and stacked somewhere in the south-east section of the roof, awaiting removal by the forklift.

17 There is no dispute that stacking of the Colorbond material on the gable roof on 9 June and leaving it there until replacement work commenced on 11 June placed an extremely heavy load on the roof; nor that the collapse of the roof began when the purlins at the south-eastern corner of the roof gave way and that the collapse progressed very rapidly in a northerly direction as other purlins gave way, until the whole of the south-east section and part of the north-east section of the roof had collapsed.

18 The First Defendant says that it did not position any packs of Colorbond in the south-east section of the roof; it says that the only material in the south-east section was the stack of removed asbestos sheets placed there by the Second Defendant, very close to the south-east corner of the roof where the purlins first gave way. Therefore, says the First Defendant, the weight of the asbestos stack alone must have caused the roof to collapse. Primary responsibility for the collapse should be attributed to the Second Defendant, it says, because the Second Defendant was negligent in stacking so many asbestos sheets in the south-east section.

19 The Second Defendant says that the First Defendant placed two packs of Colorbond in the south-east section and that the stack of asbestos sheets, although also placed in the south-east section, was some distance away from the south-east corner where the purlins first gave way. The Second Defendant says that the collapse must have been caused by the weight of the two Colorbond packs placed in the south-east section by the First Defendant, so that the First Defendant alone is responsible for the collapse.

Why the roof collapsed 20 Mr Ramsay was the employee of the First Defendant who had supervised the placing of the Colorbond material on the roof on 9 June. He and Mr Fenwick in conjunction prepared a plan (Ex.1D10) showing where they say the packs of Colorbond material were placed on the roof. The plan shows no packs of Colorbond in the south-east section.

21 I can have no confidence in this evidence. Mr Ramsay admitted that he has no independent recollection of where on the gable roof he placed the eight packs of Colorbond sheeting, the packs of flashing and the guttering. His first witness statement placed the packs of material in accordance with a faulty recollection as to how far the crane loading the material could reach. His location of the packs at various positions around the gable roof was almost entirely reconstruction, in accordance with what he thought would be good practice. His revised evidence as to the location of the Colorbond packs was, likewise, a reconstruction. It was prepared from WorkCover photographs taken shortly after the accident but made available much later. He said that those photographs enabled him to identify with certainty where packs numbered 5, 6, 7 and 8 and the flashing and guttering had been placed, because that material was shown to be located on that part of the gabled roof which had not collapsed.

22 However, the WorkCover photographs did not assist in showing where packs numbered 1, 2, 3 and 4 of the Colorbond material had been located because those packs had fallen to the ground when the roof collapsed. The Second Defendant says that packs numbered 1 and 2 had been placed in the south-east section, not far from the stack of asbestos sheets. Mr Ramsay and Mr Fenwick say that the packs numbered 1 and 2 were not placed in the south-east section at all.

23 Mr Fenwick says that shortly before the roof collapsed he observed that the Second Defendant's workmen were stacking asbestos sheets on the gable roof in one stack close to the brick wall on the south-eastern side of the building, i.e. in the south-east section. He says that he thought that the weight of the stack would be too heavy for the roof and told an employee of the Second Defendant not to stack any more asbestos sheets in that position. He says that he then saw another employee of the Second Defendant place one or two further asbestos sheets on the same pile and called out to the Second Defendant's supervisor, Mr Afualo, to instruct his staff to spread the stacking of the sheets out over the roof and not in one position. A short time later Mr Fenwick heard, but did not see, the roof collapsing and he does not know whether the Second Defendant's workmen placed any further sheets of asbestos on the stack in the south-east section.

24 Shortly after the roof collapsed Mr Fenwick had a conversation on site with Mr Breunis, who had prepared the specifications for the roof replacement. Mr Breunis' evidence was admitted without objection and was not contradicted. Mr Breunis said that he asked Mr Fenwick what had happened. Mr Fenwick said: "The metal roofing [i.e. Colorbond] was delivered and stacked on the roof. The asbestos was stacked in the same area " . Mr Breunis asked: "Why was it not stacked over a structural beam?" Mr Fenwick responded: "I know, it should have been." [Emphasis added.] On one view of the matter, those statements of Mr Fenwick explain in a nutshell what happened and why it happened.

25 Mr Afualo agrees that Mr Fenwick spoke to him about the stacking of the asbestos sheets. He says that Mr Fenwick said to him to tell the Second Defendant's employees not to stack any more asbestos sheets in the position near the eastern wall. He says that he responded that they were not going to stack any further sheets there and were going to stack elsewhere. He says that by that time fifteen or sixteen sheets of asbestos had been placed on that stack. Photographs taken shortly after the roof collapse confirm that there were at least thirteen sheets of asbestos in that stack, and probably more.

26 The most graphic and reliable evidence as to how the roof collapsed was given by Mr Grantley Clarke, a carpenter employed by the First Defendant, who was working on the roof at the time. He was standing on the first truss, to the north of the ridge line, facing in a northerly direction. The south-east section of the roof was just behind him. He recalls seeing a stack of asbestos sheets there.

27 Mr Clarke heard Mr Fenwick say to Mr Afualo: "Don't place any more asbestos sheets in the one place, you must spread the load out. No more sheets there until the forklift is fixed." Shortly afterwards, Mr Clarke saw an employee of the Second Defendant walking towards the stack, carrying two more sheets of asbestos. Mr Clarke could feel the roof shaking and vibrating as the man walked by. The man passed behind Mr Clarke in the direction of the stack. There was no one else behind Mr Clarke on the south-east section of the roof. Just as Mr Clarke bent down to pick up a Colorbond sheet, he heard a crash. He said: "I turned around and there he was. He was already going down with the roof. He just placed [the asbestos] on the pile because he had nothing in his hands and I saw him going down … the [asbestos] sheet's down, he went. The straw that broke the camel's back."

28 Mr Clarke was standing about six metres away from the man and had a clear view of what was happening. His evidence as to what he saw was not challenged in cross examination; it had the vividness of clear recollection and I accept it.

29 Each of the First and Second Defendants has called an expert engineer who has advanced theories as to what caused the roof to collapse based upon the various competing hypotheses as to where the Colorbond material and the asbestos sheets were placed and as to how much the material weighed. Theories have been developed and expanded which would support the First Defendant's contention that there was no Colorbond material positioned in the south-east section, explaining away the fact that packs of Colorbond material were found on the factory floor under the collapsed south-east section of the roof by postulating that Colorbond packs which had been placed on the north-east section of the roof had slid down into the south-east section as the roof progressively collapsed, starting with the south-east section and collapsing in a northerly direction.

30 The First Defendant's expert concludes that a stack of 93 asbestos sheets placed in the south-east section in a certain position would have been sufficient to cause the collapse. There is no direct evidence that a stack of anything like 93 sheets of asbestos was located in the south-east section. The figure of 93 sheets is arrived at by Messrs Ramsay and Fenwick by a process of reconstruction long after the event. On the day of the collapse Mr Fenwick spoke to an engineer who had been called to the site, Mr Fakhoury. Mr Fenwick told Mr Fakhoury about the stacking of asbestos sheets in the south-east section prior to their removal by the forklift. Mr Fakhoury asked: "How many sheets do you think were lowered [from the saw-tooth roof] onto the [gable] roof just before the collapse?" Mr Fenwick replied: "I am not exactly sure but I think that up to 22 sheets could have been stacked. The sheets are about 3m long by 1m wide and I expect them to be very heavy."

31 The best available direct evidence, being the evidence of Messrs Fenwick and Afualo as confirmed by photographs taken after the collapse, is that there were between 13 and 22 asbestos sheets in a stack in the south-east section of the roof at the time of collapse. There is no expert evidence to suggest that a stack of between 13 and 22 asbestos sheets on its own in the south-east section would have caused the collapse. Mr Holden, the engineering expert called by the Plaintiffs, has concluded that the collapse can reasonably be attributed to the combined loads of the stack of asbestos sheets, numbering between 13 and 22, the packs of Colorbond material and the weight of men on that section of the roof.

32 In my opinion, this conclusion accords both with the evidence and with common sense, for the following reasons.

33 First, Mr Fenwick's statement to Mr Breunis on site shortly after the collapse clearly indicated that the asbestos was stacked "in the same area" as the Colorbond material: see para.24. I take this to mean that packs of Colorbond material as well as the asbestos stack were located in the south-east section, as Mr Afualo also says.

34 Second, it accords with common sense that the Colorbond material alone did not cause the south-east section to collapse. That material had been located there since 9 June. The roof did not collapse before 11 June. It did not collapse as soon as men began to work on it at 6.30 a.m. on that day, so that the additional weight of the men alone could not have been the cause. It did not collapse until 8.30 a.m., when Mr Clarke saw a workman place another two asbestos sheets on the stack in the south-east section. It entirely accords with common sense and the evidence that those two sheets placed on the asbestos stack, coupled with the weight of the Colorbond and the weight of the man standing next to the pile, were "the straw that broke the camel's back", as Mr Clarke said.

35 For those reasons, I hold that the cause of the roof collapse was the combined weight of Colorbond material and of asbestos sheeting stacked in the south-east section of the roof.

Apportionment of liability 36 Both the First and Second Defendants were professedly experts in roof replacement. Both should have realised that it was dangerous to overload the roof. Both should have realised that continuing to stack asbestos in the south-east section while there was a delay in removing the material due to the breakdown of the forklift truck would add considerable and increasing weight to a section of roof already bearing an unusually heavy load by reason of Colorbond material having been placed there. Both should have realised that removal of asbestos from the saw-tooth section of the roof should have been suspended until the new forklift was obtained, so that the risk of collapse would not be increased.

37 Mr Fenwick of the First Defendant actually realised the danger and ordered the Second Defendant's workmen to cease stacking. Mr Brown, the Second Defendant's officer responsible for the job, had been warned by an employee of the Plaintiffs on 10 June, a day before the work was due to commence, that the roof was sagging and making creaking sounds when the Colorbond material was deposited there by a crane on the previous day. The Second Defendant should have realised the danger of collapse without the necessity of a warning. As soon as the breakdown of the forklift became evident all work on the removal of asbestos sheeting from the roof should have ceased. This was ultimately the responsibility of both the First and the Second Defendant.

38 It is not to the point to say that the Second Defendant was the First Defendant's sub-contractor. The Second Defendant was expert in its own area of activity, i.e. roof demolition. It had its own direct responsibility to the Plaintiffs not to carry out the work dangerously and negligently. As Mr Brown said in cross examination, he would have thought that Mr Afualo ought to have known, from his own experience in the industry, not to stack more asbestos sheets in the south-east section. He would have expected Mr Afualo himself to have made a decision not to do any more stacking in that section.

39 In my view the First and the Second Defendants are equally at fault in allowing work to proceed in conditions which they ought to have known were highly dangerous. Liability should be apportioned equally between them.

40 The consequence is: the Plaintiffs succeed on their claims in negligence against both the First Defendant and the Second Defendant; as between the First and Second Defendants, each succeeds in its Cross Claim against the other to the extent that each is liable to contribute one half of the damages recoverable by the Plaintiffs.

The competing approaches to quantifying damages 41 The Plaintiffs' losses are claimed and calculated on a consolidated basis, that is, no distinction is drawn between the various companies in the group and the group is treated as a single entity. The First and Second Defendants take no objection to this basis of calculation.

42 There are seven categories of loss for which the Plaintiffs claim: damage to the building, damage to stock, plant and machinery, extra staff costs, relocation costs, certain additional costs, loss of profits, and additional costs of working. The First and Second Defendants do not dispute liability for, and the quantum of losses claimed in, the first five of these categories. These losses total $632,772.87.

43 The dispute between the parties has focussed upon whether the Plaintiffs are entitled to any sum in respect of loss of profits and for additional costs of working.

44 The Plaintiffs' Joint Managing Director, Mr Magafas, gave evidence that the disruption to the Plaintiffs' operations caused the loss of a number of clients, the major clients being Nokia South-east Asia ("Nokia SEA"), Optus and Stenmark. At the time of the roof collapse, the Plaintiffs had established successful business relations with these clients and were engaged in fulfilling substantial orders for each of them. The roof collapse and the consequent disruption to the Plaintiffs' operations prevented the Plaintiffs from meeting critical deadlines for delivery of the orders.

45 Mr Magafas said that the Plaintiffs' failure to meet delivery deadlines for these three clients caused a total breakdown in the Plaintiffs' business relationship with them. The printing industry, he said, is highly competitive. The breakdown in the Plaintiffs' relationship with these clients caused them to take their business elsewhere, with no realistic hope of the Plaintiffs being able to recover that business.

46 The First and Second Defendants did not challenge Mr Magafas' evidence that by the time of the roof collapse the Plaintiffs had established a valuable business relationship with these three major clients. Rather, they challenged Mr Magafas' assertion that the loss of the relationship was entirely due to the roof collapse and that it was permanent. They sought to attribute responsibility to Mr Magafas for the loss of the clients, in that he did not tell them as soon as possible that the Plaintiffs were in severe difficulty in meeting delivery deadlines because of the accident which had occurred in their factory premises.

47 It is arguable whether there was an error of judgment on the part of Mr Magafas in not telling these clients of the reason for the Plaintiffs' inability to meet delivery deadlines. But the position in which Mr Magafas was placed was not of the Plaintiffs' making. It was brought about by reason of the wrongful acts of the First and Second Defendants. Further, Mr Magafas was in the best position to know the quality of the business relations between the Plaintiffs and these clients; as a matter of business judgment, it may have been the better course not to have told the clients that delivery deadlines would not be met but, rather, to have made strenuous efforts to extend those deadlines and to make alternative arrangements to meet them. I am not persuaded that Mr Magafas' commercial judgment in this respect was fundamentally flawed and that error in his judgment was the reason for the Plaintiffs' loss of these customers.

48 Mr Neilson, the Plaintiffs' expert accountant, has approached the quantification of economic loss by accepting Mr Magafas' evidence that the printing industry is very competitive, that the Plaintiffs lost the business of major clients as a result of the roof collapse and that, although the Plaintiffs have regained some business from other clients and will obtain business from new clients in the future, the loss of business from the major clients is permanent.

49 For these reasons, Mr Neilson believes that it is not appropriate to quantify the economic loss suffered by the Plaintiffs by reference to some defined period of time during which, it is said, the business failed to earn as much profit as it would have earned had the accident not occurred. Mr Neilson believes that the correct approach is to accept that, by reason of the loss of major customers, the Plaintiffs have suffered and will suffer a permanent loss in turn-over and, consequently, have suffered and will suffer a permanent loss in the value of their business. He says that the capitalisation of future profits method is the most appropriate way to quantify the Plaintiffs' loss. This method involves estimating the net after-tax profit which, but for the roof collapse, the Plaintiffs' business was likely to earn in the future, after adjusting for abnormal items. The estimate is based upon a review of past financial information. The estimate is called "future maintainable profit". A rate of capitalisation is then applied to the future maintainable profit to arrive at the value which the Plaintiffs' business would have had but for the roof collapse.

50 The same exercise is performed in relation to the net after-tax profit which the Plaintiffs actually earned in the financial year immediately following the roof collapse. Mr Neilson determines the "future maintainable profit" based on these actual figures and applies the same capitalisation rate to arrive at the present actual value of the Plaintiffs' business. The present value of the Plaintiffs' business is then deducted from the value it would have had but for the roof collapse and the difference is the Plaintiffs' compensable loss.

51 The First and Second Defendants' expert, Mr Jugmans, rejects this approach. He says that the Plaintiffs' loss should be measured simply by reference to the loss of gross profit during the period from 15 June 1999 to 31 August 1999 - that being the time that the Plaintiffs' premises remained unoccupied while restoration and repair work was carried out - and by reference to additional expenses incurred in the Plaintiffs' business during that period and in the period up to 30 June 2000. By this means, Mr Jugmans seeks to establish the actual trading loss occasioned by the roof collapse.

52 I am unable to accept Mr Jugmans' approach. In my view, it is unrealistic to assume that the total and unexpected disruption to the Plaintiffs' business for a period two and half months did not have an effect on the value of the Plaintiffs' business going beyond mere loss of profits from work which could have been performed during that period and additional expenses incurred. I accept Mr Magafas' evidence that the printing industry is highly competitive, that the Plaintiffs had built up successful relationships with three major clients, and that those relationships, even though subject to the vagaries of competition and shifting allegiances, had a significant long term value to the Plaintiffs' business. I accept that those relationships have now been lost.

53 If the relationships had been retained, even if only for a number of years, it is highly probable that the net profits of the Plaintiffs' business would have increased more substantially than they have without those relationships and that the Plaintiffs' business would, consequently, have had a greater value than it does today.

54 Likewise, it is unrealistic to assume that the Plaintiffs lost no other customers besides Nokia SEA, Optus and Stenmark. The Plaintiffs have not identified such customers but they say that the difference between sales budgeted and sales actually achieved for the financial year ended 30 June 2000 demonstrates that other customers must have been lost. This is inherently probable, given the competitiveness of the printing industry and the severity and length of the disruption to the Plaintiffs' business.

55 Mr Jugmans conceded that such disruption would have had an effect on the goodwill of the Plaintiffs' business for a period of twelve to eighteen months but said that he had made no allowance for this effect because it was "not permanent". I do not think that it is reasonable to eliminate from the category of compensable economic loss proven substantial damage to goodwill of a business simply on the basis that it is "not permanent", in the sense that, sooner or later, the Plaintiffs will probably get their business back to the position it was in before the damage to goodwill was inflicted. The reality is that if damage to the goodwill had not been inflicted the Plaintiffs would not have had to spend time, money and effort simply to get back to the position they were in immediately before the damage; the Plaintiffs would have forged ahead without interruption in building up the value of the goodwill of their business. Today, they would very probably have had a business more valuable than it is.

56 For these reasons, I accept that Mr Neilson's approach to assessment of the Plaintiffs' loss is the correct one.

Diminution in value of goodwill 57 Mr Jugmans agrees that, if Mr Neilson's approach to quantifying the Plaintiffs' loss is the appropriate one, then Mr Neilson has correctly applied the methodology of calculation, save for two exceptions to which I will come. Mr Jugmans agrees that the range of capitalisation rates adopted by Mr Neilson is appropriate and that the gross profit percentage of the Plaintiffs' business, but for the accident, would have been 60%.

58 Mr Neilson uses the budget prepared for the Plaintiffs' business for the financial year ended 30 June 2000 ("the 2000 Budget") to calculate future maintainable profit for the Plaintiffs' business and to calculate the loss to the value of that business by reference to sales and profits actually derived for the 2000 financial year. The 2000 Budget was prepared well prior to the roof collapse.

59 The first point of difference between the experts as to the application of Mr Neilson's methodology is that Mr Jugmans does not accept that the turn-over appearing in the 2000 Budget was realistic and achievable. To calculate what he regards as appropriate, he uses an average of the preceding five years' sales figures for the business, after making relevant adjustments.

60 I accept that it is reasonable to use the Plaintiffs' 2000 Budget as the basis for calculating future maintainable profit, for the following reasons.

61 First, no fundamental flaw in the 2000 Budget was demonstrated in cross examination. It was suggested to Mr Magafas and to Ms Sutton, the Plaintiffs' financial controller, that the projected sales in the 2000 Budget were very high in comparison with sales for the 1998 and 1999 financial years. Mr Magafas and Ms Sutton agreed that the 2000 Budget sales figures were higher than the two preceding years but they explained the difference in terms of their expectations of substantially increased business from the improving relationship with Nokia SEA and with other clients in Singapore arising from the fact that the Plaintiffs' had recently opened an office there. Mr Magafas said that he also expected increased business from local customers. This evidence was not challenged further.

62 Second, I take into account that there would have been no point in the Plaintiffs budgeting for an unrealistically high turn-over in 2000 at the time when the 2000 Budget was prepared. Budgets are not usually prepared by responsible trading corporations as an exercise in self-delusion; they are prepared to be as realistic as possible.

63 Third, Mr Neilson has, in his calculations, discounted turn-over projected in the 2000 Budget by $1M as a guard against undue optimism.

64 Finally, the turn-over arrived at by Mr Neilson using the 2000 Budget, namely $10.1M, is reasonably close to the figure for sales projected in the financial year 2000 which Mr Jugmans calculates by reference to sales figures for the preceding five years. Mr Jugmans calculates projected sales for the year 2000 at $9.54M. If Mr Jugmans had taken average sales over the preceding three years instead of the preceding five years he would have arrived at an average sales figure of $9.7M. Further, if sales to Nokia for the work which would have been done in June 1999 but for the roof collapse had been included in the June 1999 sales figures, Mr Jugmans would have reached an average sales figure projected for 2000 very close to the figure derived by Mr Neilson.

65 The second respect in which Mr Neilson and Mr Jugmans disagree in the calculations based on the 2000 Budget figures is as to what is the proper allowance to be made for an increase in overhead costs as a result of the projected increase in turn-over for that budget year. Mr Neilson originally assumed that there would be no increase in overhead (i.e. fixed) costs; Mr Jugmans assumed that there would be an increase in such costs directly proportionate to the increase in turn-over.

66 The Plaintiffs' financial controller, Ms Sutton, gave evidence that, in fact, those items within the overhead expenses of the Plaintiffs' business which are variable with turn-over amount to 7% of turn-over. She identified the particular expenses concerned. Ms Sutton was an impressive witness. She clearly had an intimate and exact knowledge of the Plaintiffs' business. She was not shaken in her evidence that the way in which the Plaintiffs' business actually operated meant that fixed costs would change only very marginally as the volume of sales changed.

67 Mr Jugmans assumed that the Plaintiffs' overhead expenses generally were variable and could be expressed as a percentage of turn-over, so that the projected increase in turn-over in the 2000 Budget would have produced a proportionate increase in overhead expenses. Mr Jugmans was not able to make good his assumption by extrapolation from and analysis of the financial records of the business for the previous years because the Plaintiffs had been acquiring new businesses during those years. The result was that one would expect the costs of, and incidental to, the acquisitions of those businesses to produce higher figures for overheads than would be the case once the acquisitions had been absorbed and costs and expenses had been stabilised.

68 In short, no satisfactory evidentiary basis could be produced for Mr Jugmans' assumption that the Plaintiffs' overhead expenses generally were variable and that they should be taken as 56% of turn-over for the purposes of calculating projected profit for the 2000 financial year, as Mr Jugmans proposed.

Quantification of loss of goodwill 69 Mr Neilson has produced three sets of calculations, adjusted to reflect Ms Sutton's evidence as to the variable percentage of overhead expenses. Each set of calculations shows the result of applying a different capitalisation rate to future maintainable earnings. The capitalisation rates, which are all within a range which Mr Jugmans agrees is reasonable, are 19% (high), 22% (median), and 25% (low). In my opinion, it is reasonable to apply the median capitalisation rate.

70 No exactness can be achieved in the task of awarding compensation for future economic loss - to a considerable degree, it depends upon impression and a sense of balance. One tries to avoid a munificence inspired by sympathy for a plaintiff's misfortune without succumbing, on the other hand, to a niggardliness born of the gloomy conviction that all of life's bright hopes are bound to end in disappointment. One bears in mind that although many commercial enterprises which started with vision and energy fail, many others which are, in addition, well managed, competitive and adequately supported by working capital have achieved great success. Track record, quality of management, competitiveness and the financial ability of the business to ride out the vicissitudes of economic life are all indicators assisting in the assessment of business prospects when future economic loss is claimed.

71 In the present case, I take into account that Mr Neilson's maintainable turn-over figure of $10.1M but for the accident has been produced by discounting the 2000 Budget turn-over figure by $1M to guard against over-optimism, despite the fact that the evidence suggests that the budgeted sales figure was quite realistic. I take into account that although the Plaintiffs operate in a highly competitive industry, all the evidence suggests that the Plaintiffs are competently managed, competitive and have a sound capital base. Mr Magafas and Ms Sutton are, obviously, highly professional, experienced and enthusiastic for the development of the Plaintiffs' business.

72 In those circumstances I think it unwarranted to apply a further heavy discount in calculating the compensation payable to the Plaintiffs by selecting a capitalisation rate in the low range. In my opinion, a capitalisation rate of 22% in the median range produces a fair and reasonable calculation of the Plaintiffs' loss. The figure produced by utilising this capitalisation rate is $3,412,400.

Additional costs of working 73 As I have noted, Mr Jugmans' approach to quantification of damage was to try to determine the actual trading loss suffered by the Plaintiffs from 15 June to 31 August 1999. For the purpose of that exercise Mr Jugmans calculated that, during that period, the Plaintiffs incurred additional costs and expenses as a result of the roof collapse in a total sum of $506,336. Further, Mr Jugmans found that, in order to regain lost customers, the Plaintiffs had expended an additional $74,493 in advertising in the financial year ended 30 June 2000. Mr Jugmans assumed that the additional advertising was incurred in order to counteract loss or potential loss to the Plaintiffs' business from three sources: interruption to the business from hail damage suffered prior to the roof collapse, interruption to the business from the roof collapse, and decline in sales over a period of some years prior to the roof collapse. Accordingly, Mr Jugmans allowed one-third of the additional advertising costs as losses occasioned by the roof collapse.

74 The Plaintiffs say that the whole of the additional costs of working should be included in their compensable loss. The First and Second Defendants say that to compensate the Plaintiffs for loss of profits as well as for additional working expenses would be "double counting".

75 In my view, the Plaintiffs are entitled to the additional costs of working. As Mr Jugmans agreed in cross examination, those additional working costs were incurred in producing the profits from those sales which the Plaintiffs actually made between 15 June and 31 August 1999. The additional working costs did not have anything to do with the calculation of the value of the Plaintiffs' business as diminished by projected losses of sales to customers presumed lost to the Plaintiffs' business not only during the limited period 15 June to 31 August 1999, but indefinitely thereafter.

76 There is no evidentiary basis upon which any part of the costs of additional advertising can be attributed to an attempt to recover customers after the hail damage or to an attempt to reverse alleged decline in sales. As to the last point, the 2000 Budget, which the evidence indicates was realistic, showed increased sales for the year ended 30 June 2000 without additional advertising.

77 For these reasons, I am of the view that the Plaintiffs are entitled to compensation for additional costs of working in the sum of $506,366 and $74,493, a total of $580,859.

Damages for corporate pain and suffering 78 The Plaintiffs submitted that, in addition to damages compensating them for the financial losses which they had suffered, as manifested in the costs and expenses referred to in para.42, and in the diminution of the value of their business and additional working expenses referred to in paras.69 to 77, they should receive damages to compensate for the physical and emotional distress which their staff suffered while they endeavoured to retrieve and stabilise the Plaintiffs' business. Mr Rein SC, who appears with Mr Braham for the Plaintiffs, says that this claim is "rather like a sort of pain and suffering claim" for a corporation.

79 No authority was cited to me which directly supports the proposition that a corporation is entitled to damages for the emotional or physical distress inflicted on its staff by a wrongful act as a head of damage separate from and independent of damage for losses to its assets or business flowing from such distress. In my view, that proposition is wrong in principle.

80 The only injury for which a corporation is entitled to sue is injury to its own interests. If a wrongful act causes distress to a corporation's staff and that distress can be shown to have caused, for example, a higher rate of staff turn-over resulting in loss of productivity, additional costs of advertising for and engaging new staff and disruption to relations with customers, all resulting in financial loss to the corporation itself, then that is an injury to the corporation's own interests and the corporation will have standing to sue for compensation. But if no loss of this character to the corporation's interests is shown, the only persons who can sue for distress caused to employees by a wrongful act are the employees themselves.

81 Mr Rein conceded that damages for loss under the heading of "corporate pain and suffering" would not compensate the Plaintiffs themselves for a financial loss which they had suffered. When I asked how a corporation receiving an award of damages under this heading should account for it, Mr Rein suggested that it would be appropriate for the corporation to make a bonus distribution to the staff. I think that this answer reveals that this head of damage really seeks to recover a loss which the corporation has not suffered.

82 In my opinion, the Plaintiffs are not entitled to any additional damages in respect of distress which may have been caused to employees by reason of their efforts to restore the Plaintiffs' business after the roof collapse.

Orders 83 The Plaintiffs are entitled to judgment on their Statement of Claim against each of First and Second Defendants for $632,772.87, being the agreed amount for damage to stock, plant and machinery, staff costs and other incidental and associated costs, together with $3,412,400 for diminution in the value of their business, and $580,859 for additional costs of working - a total of $4,626,031.87.

84 Each of the First and Second Defendants is entitled, on its Cross Claim, to an order that the other Defendant indemnify it, pursuant to the Law Reform (Miscellaneous Provisions) Act, 1946 , in respect of one-half of the judgment debt for which it is liable to the Plaintiff.

85 I will stand the proceedings over to a date to be fixed to enable the Plaintiffs to bring in Short Minutes of Order reflecting these reasons. On that date, I will hear argument, if any, as to the final form of the orders and as to costs.

Last Modified: 11/23/2001 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

Reported Decision : [2001] NSWSC 1053 [2001] ACL Rep 300 NSW 104

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Judgment (86 paragraphs)

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