Waratah Smash Repairs Pty Limited v Sonenco

Supreme Court of NSW|2005-07-27|Before: Newman AJ, Mr P, Dredger Handley JA

CITATION : Waratah Smash Repairs Pty Limited v Sonenco (No.92) Pty Limited & 3 Ors [2005] NSWSC 1283

HEARING DATE(S) : 25, 26, 27 July 2005; 21, 22, 23 September 2005; 25 November 2005

CATCHWORDS : Negligence - damages - remoteness of damage - foreseeable loss - loss of profits - loss of goodwill

Benward Pty Ltd & Ors v Metal Deck Roofing Pty Ltd & Ors [2001] NSWSC 1053 Lagden v O'Connor [2004] 1 AC 1067 CASES CITED : Owners of the Liesbosch Dredger v Owners of Steamship Edison [1933] AC 449 Tyco Australia Pty Ltd v Optus Networks Pty Ltd & Ors [2004] NSWCA 333 Wyong Shire Council v Shirt (1980) 146 CLR 40

Waratah Smash Repairs Pty Limited PARTIES : Sonenco (No 92.) Pty Limited & 3 Ors

Mr B Toomey QC & Mr D Pritchard (plaintiff) COUNSEL : Mr D Fagan SC & Mr P Bolster (defendants')

Ebsworth & Ebsworth Solicitors (plaintiff) SOLICITORS : Colin Biggers & Paisley Solicitors (defendants')

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION NEWMAN AJ

20343/03 Waratah Smash Repairs Pty Limited v Sonenco (No 92) Pty Limited & Ors

JUDGMENT 1 NEWMAN AJ: On 6 November 2001 a crane collapsed onto the plaintiff company's premises from adjoining premises. The impact of the crane upon the plaintiff company's building caused extensive damage. The plaintiff company commenced action against a number of defendants' who had responsibility for the operation of the subject crane. However, agreement was reached between the defendants' as to liability and liability for the damage caused by the collapse of the crane has been admitted. Thus the only issue for determination by the court is the amount of damage suffered by the plaintiff company. 2 Overshadowing the plaintiff company's claim for damages is the fact that, at the time when the subject incident occurred, the plaintiff company was under-insured. While a certain amount of restoration was made to the damaged building, that restoration is by no means complete. The reason why the building restoration was not fully completed was that the funds for restoration available through the plaintiff company's property insurer were exhausted. There was no issue in the case that the works which had been completed by way of restoration were anything but proper. Accordingly, the defendants' concede that the amount of $324,053 spent on restoring the building is properly claimable in this action. 3 Once the available insurance funds were exhausted the plaintiff company was not in a financial position to complete the restoration. 4 Fortunately for the plaintiff company the decision of the House of Lords in the Owners Of The Liesbosch Dredger v Owners of Steamship Edison [1933] AC 449 has now been overruled by the House of Lords in Lagden v O'Connor [2004] 1AC 1067. In the Liesbosch Dredger the House of Lords, principally in the speech of Lord Wright, held that losses which had been aggravated or contributed to by a plaintiff's impecuniosity could not be recovered on the basis that such damage was too remote. In Lagden v O'Connor (supra) Lord Hope emphatically overruled the decision in the Liesbosch Dredger, receiving sufficient support from a number of other members of the House to change the law. In Tyco Australia Pty Ltd v Optus Networks Pty Ltd & Ors [2004] NSWCA 333 at 192 the Court of Appeal accepted the overruling of the Liesbosch Dredger in Lagden v O'Connor. Referring to the Liesbosch Dredger Handley JA at 192 observed as follows:- "That much distinguished decision was effectively overruled in Lagden v O'Connor [2004] 1 AC 1067. As a result it is now clear that an injured party that can afford to take steps to mitigate its damage because it has business interruption insurance will recover less than an insured party in the same position who cannot afford to take such steps. Insurance has now become indirectly relevant where it facilitates mitigation." 5 While, as I have said, the defendants' concede material damage representing the monies expended in the works carried out to partially restore the plaintiff company's premises there are a number of issues which were the subject of dispute in these proceedings. 6 The items in dispute include further items of material damage, damage to stock and customer's vehicles and economic loss. 7 The further items of material damage claimed by the plaintiff company are as follows:-

(i) Rooftop exhaust fan $9,048.00 (ii) Alignment rails $46,488.75 (iii) Concrete slab $15,812.50 (iv) Mezzanine office/staff lunch room $24,566.30 (v) Workshop racks and shelving $29,348.00 (vi) Paint mixing room $21,441.75 (vii) Electrical and alarm $47,564.00

The defendants' concede the plaintiff company's claim for the paint mixing room. This then leaves the total sum of $172,780.03 as the area of dispute between the parties in respect of material damage. 8 In respect of damage to stock and customer's vehicles the sum of $34, 066.95 remains in dispute between the parties. 9 In relation to the economic loss there is a vast difference in the calculations relating to loss of profits and goodwill between the experts qualified on behalf of the parties. In relation to both of these items the difference in calculation between the experts amounts to hundreds of thousands of dollars. 10 In relation to all the matters in dispute there is of course, as a matter of pure mathematical calculation, a vast difference between the amounts allowed by the parties in relation to interest payable on all items in dispute. The amount of interest, which the court will allow of course, will follow the courts ultimate findings as to the damage the plaintiff company is entitled to recover. 11 In order to put into relief the nature of the dispute between the parties it is necessary to refer to the background history of the plaintiff company and its Chief Executive Officer, Mr Robert Tony Rimac. 12 Mr Rimac completed an apprenticeship as a panel beater in 1985 and was duly licensed as a panel beater in that year. He is now 41, having been born on 14 January 1964. Having worked in various jobs in the motor repair industry he commenced employment for a business known as Waratah Smash Repairs, which was conducted by a Mr Robert Simpson, in 1991. His original employment with Waratah Smash Repairs was as a foreman. 13 Eventually in 1993 Mr Rimac and his brother-in-law, Peter Ivanovic, bought out the business of Waratah Smash Repairs from Mr Simpson, paying $100,000 for that business. At the time, Mr Rimac obtained a repairer's licence which enabled him to carry out work not only as a panel beater but as a motor repairer. He still holds that licence. 14 After the business was purchased Mr Rimac acted as Chief Executive Officer and Mr Ivanovic performed the duties as foreman. In 1994 Messrs Rimac and Ivanovic bought the land upon which the premises of Waratah Smash Repairs were carried out for the sum of $485,000. Finance for this purchase was obtained by way of mortgages over real property owned by Mr Ivanovic and his father. 15 In 1998 the business was incorporated and has been known as Waratah Smash Repairs Pty Limited ever since. There was no real dispute in the matter that the business operated successfully until the time of the subject accident. At the time of the accident the evidence before me indicates, and I so find, that the business, in terms of size, was at least in the mid range of smash repair businesses in Sydney, and probably at the upper end of the mid range of such businesses. 16 Unfortunately differences arose between Mr Ivanovic and Mr Rimac. Not only was Mr Ivanovic working in the business but so was his son. Ultimately Mr Rimac, in mid 2001, bought out Mr Ivanovic's interest in the business for the sum of $200,000. Mr Ivanovic and his son then left the business - Mr Rimac deposed that he replaced both of them with just one tradesman. The sum of $200,000 paid by Mr Rimac to buy out Mr Ivanovic was the subject of criticism in the defendants' case. It was argued that this was not a proper figure to use as a basis for calculating the value of the goodwill of the business. I shall turn to that dispute later in these reasons. In any event, as of 6 November 2001, the company employed five tradesmen, an apprentice panel beater, a secretary, Mr Rimac and his wife. 17 An issue arose in the case as to the amount of work which the plaintiff company did on vehicles insured by NRMA Insurance. There had been in the past disputes between that insurer and the smash repair industry in which Mr Rimac himself had played a part. However, what is in my view important is that as at the date of the accident, and for almost a year preceding the accident, Waratah Smash Repairs Pty Limited had been doing work for the NRMA and there was every prospect that they would continue so to do. The reason why the issue of work done for NRMA Insurance Ltd arose in the proceedings is because of the dominant position that insurer holds in the third party property insurance industry. In determining the plaintiff company's claim for loss of profits I have thus made the assumption that the plaintiff company would have received work from NRMA Insurance Ltd in the same volume as it did at the date of the accident. 18 One issue which arose in relation to the calculation of loss of profits was the effect on the motor repair industry of the devastating hailstorm which struck Sydney, and in particular the Eastern and Southern suburbs of Sydney, in Easter of 1999. There was really no issue that the volume of business done by panel beating businesses in Sydney, and indeed beyond, was substantially enhanced as a result of damage inflicted by that storm. However, by the commencement of the year 2001, the evidence before me indicated that the enhanced volume of business created by the storm had all but vanished. It seems to me that the appropriate year in which to base any calculation of future losses by the business is 2001 - also of course taking into account the fact that as of 6 November 2001 the business was now being solely run by Mr Rimac. 19 Another issue which arose as a consequence of Mr Rimac being in total control of the business of the plaintiff company from mid 2001 onwards was Mr Rimac's plans to expand the business. His evidence was that he had plans to not only refurbish the premises generally but also to eventually add a mezzanine floor within the factory to create more working space. 20 As of the date of the accident Mr Rimac's evidence (which was not challenged on this point) was that as the premises then existed the business had a capacity to deal with repairs to 30 cars at any one given time. I should add that it was argued by counsel for the plaintiff company that while this may have been so as of 6 November 2001, during the time when the volume of business was enhanced as a consequence of damage inflicted by the Easter 1999 hailstorm, the business had demonstrated a greater capacity for dealing with more than 30 cars at any one given time. Be that as it may, it seems to me that it is appropriate to use the capacity of the business to deal with 30 cars at any one given time as a basis for calculating loss of profits in the two or three years following the incident. I say two or three years because one area of dispute between the parties is that the plaintiff company claims loss of profits for three years following the incident whereas the defendants' contend that only two years loss of profits should be allowed. I shall deal with this dispute later in these reasons. 21 The damage caused to the plaintiff company's premises by the collapsed crane was very extensive. Indeed, Workcover declared the premises unsafe immediately and forbade the plaintiff company from utilising them. The degree of damage caused by the cranes collapse is indicated by a report, prepared by DW Knox & Partners Consulting Engineers and Managers, to the builder's, appointed by the insurer's, Munters of Kirrawee, as to what had to be done to make the buildings safe before restorative work could be carried out. Photographs taken at the time demonstrate that the roof damage was particularly extensive. One problem which immediately occurred was that Sydney proceeded to have a wet week following the accident. Rainfall figures tendered indicate that just over 20 mm of rail fell in the six days following the accident. It is obvious that rainwater would have entered the building through the damaged roof. This fact is of importance in considering the plaintiff company's claim for corrosion which is part of the damage claimed in relation to the rail system on the floor of the shop. I should add that the plaintiff company was not able to re-enter the premises for six days following the accident, due to the Workcover prohibition. 22 It being obvious that the business could not be re-opened for a considerable time, Mr Rimac sought alternative premises. He found premises in the suburb of Kirrawee (where the business was located) in a street known as Marshall Road, which was about three blocks from the damaged premises. It was Mr Rimac's evidence that these were the only premises that he could obtain and I accept his evidence in this regard. The premises at Marshall Road were much smaller than the damaged premises and, not only that, contained no spray painting booth. Needless to say, this affected the capacity of the plaintiff company to perform smash repairs with the same expertise as they had before. For instance, it was necessary for vehicles being repaired by the plaintiff company to be sent out to others for spray painting to be effected. Not only that, the NRMA was not satisfied with the work which the plaintiff company was able to do and accordingly stopped referring business to it. The plaintiff company's evidence in this regard was not challenged. The upshot of the removal of the plaintiff company's business to Marshall Road was that the business began to run at a loss. Again, this evidence was not the subject of any challenge by the defendants'. The business continued to operate in this manner until December 2002. It was then shut down, and has not re-opened. I shall deal with the ramifications of the shutting down of the business when dealing with the dispute between the experts as to the period for which loss of profits can be claimed. 23 Before I turn to matters which are in dispute between the parties with respect to physical damage there is an observation which I believe I should make at this stage. In dealing with a number of the plaintiff company's claims for physical damage for which a claim is made for reinstatement , an argument has been advanced in relation to a number of the matters that any damage which has occurred is not the direct result of the crane falling on the building but as a consequence of the actions of the builders carrying out such reinstatement as has been made. In Lagden v O'Connor Lord Hope carried out a review of the authorities which led to the decision of the House of Lords in the Liesbosch Dredger case. At p1085 [54] he observed:- "The Liesbosch case was decided not long after the decision in Re Polemis and Furness, Withy & Co Ltd [1921] 3 KB 560, [1921] All ER Rep 40 in a climate when directness of causation was the test for remoteness of damage in tort, as Coote has pointed out (see [2001] CLJ 511 at 535). That rule was finally departed from in Overseas Tankship ( UK ) Ltd v Morts Dock & Engineering Co Ltd [1961] 1 All ER 404 , [1961] AC 388. But there were earlier signs that a broader test, approaching the test whether the loss was foreseeable which was established by that case, was becoming recognised. In Monarch Steamship Co Ltd v A/B Karlshamns Oljefabriker [1949] 1 All ER 1 , [1949] AC 196, in which damages had been sought for breach of contract, Lord Wright reviewed the cases on remoteness of damage. He started his review by reaffirming the broad general rule that a party injured by the other's breach of contract is entitled to such money compensation as will put him in the position in which he would have been but for the breach. He ended it with the propositions that the matters did not depend on the differences (if any) between contract and tort in that connection, that the reasonable contemplation as to damages was what the court attributed to the parties and that the question in such a case must always be what reasonable businessmen must be taken to have contemplated as the natural or probable result if the contract was broken. The change in terminology is significant. It might have led to a different conclusion if it had been used to guide the result in the Liesbosch case ."

At p1088 in paragraph 61 he said:- " It is not necessary for us to say that the Liesbosch case was wrongly decided. But it is clear that the law has moved on, and that the correct test of remoteness today is whether the loss was reasonably foreseeable. The wrongdoer must take his victim as he finds him: talem qualem, as Lord Collins said in Clippens Oil Co Ltd v Edinburgh and District Water Trustees [1907] AC 291 at 303. This rule applies to the economic state of the victim in the same way as it applies to his physical and mental vulnerability. It requires the wrongdoer to bear the consequences if it was reasonably foreseeable that the injured party would have to borrow money or incur some other kind of expenditure to mitigate his damages." Foreseeability in the common law of Australia is to be applied by what fell from the High Court in Wyong Shire Council v Shirt (1980) 146 CLR 40. In my view it is entirely foreseeable that, in carrying out restoration works, builders will, of necessity, do further damage to parts of a structure which were not directly damaged by the original cause of the damage to premises. For instance, in relation to that part of the claim which involves restoration of the concrete slab which constitutes the floor of the premises, it is argued that the cause of the damage was not the crane striking the roof but the movement of bobcats across the floor during the course of reconstruction. In my view, even if this is the case the plaintiff company is entitled to have the premises restored to the condition in which they were immediately before the accident occurred. If in so doing it is necessary to repair damage of the kind I have just mentioned then in my view, applying what fell from Lord Hope at paragraph 61 in Lagden v O'Connor, it is entirely foreseeable that such damage could occur during the course of the construction and it falls to the defendants' to bear the consequences of it. 24 I turn then to the matters of physical damage which are in dispute between the parties.

New Ceiling Fan 25 It is undisputed that at the time when the incident occurred there was a 900mm to 1 metre fan located close to the South West corner of the building ie: within the Southern third of the roof. At the time of the incident again there is no dispute that the fan was both in good condition and no more than two years old. 26 Again there is no dispute that a fan of this type is necessary to assist in the proper ventilation of a panel beating workshop where fumes and dust and the like are prevalent. It is also the fact, as the defendants' contend, that the fan itself was not damaged by the impact of the crane upon the roof. Furthermore there is no dispute that the fan has vanished. 27 The defendants' contend that the fan was removed at the time of the dismantling of the Southern section of the roof (which is obvious) and could have been safely stored until it could be re-installed. The defendants' also point to plans prepared by DW Knox & Partners for repairs to the building. It is true, as the defendants' contend, that those plans do not make provision for the fan. Accordingly, the defendants' submit that the failure to re-instate the fan was a deliberate choice for those acting for Waratah in the re-instatement process. The defendants' then go on to contend that the failure of the builders engaged by Waratah and its insurers to preserve and or re-install the fan can not be attributed to the defendants'. 28 I disagree. It was not put to Mr Rimac that the plaintiff company had no need for the fan. It was not suggested to Mr Rimac that he took part in any decision not to include the fan in the restoration of the premises. Additionally, it was not suggested in cross-examination that Mr Rimac, or any body else to do with the plaintiff company, had secreted the fan away somewhere. I find that the inclusion of the fan as part of the restoration of the plaintiff company's premises is appropriate. The defendants' contention, in my view, is an allegation that the loss of the fan is not a direct result of the damage inflicted upon the building by the crane. In this regard I am of the view that it was foreseeable that during the course of reconstruction certain items might be lost as a result of the builders actions. I repeat what I said about Lord Hope's speech in Lagden v O'Connor. Accordingly, I find that the price of the re-installation of a ceiling fan is a proper subject of claim by the plaintiff company. As there is no issue as to the amount it would cost so to do I allow the sum of $9,048.00 under this head. 29 The next item in dispute is the floor alignment rail system. There were no issues that rails of the type laid in the plaintiff company's premises were an essential part of the panel beating shop. They are used to stretch damaged motor cars, and for other purposes. There was no challenge to the evidence of Mr Rimac or Mr Franco in this regard. 30 The two issues raised by the defendants' were:- (i) that the rails were still useable and (ii) even if they were damaged they were damaged principally by the operation of bobcats by the builders during reconstruction work. 31 Mr Rimac deposed that the rails were both corroded and out of alignment and needed to be dug up and replaced. The plaintiff company's expert, Mr Bournelis, deposed that there were areas in the rail system where the brackets used to hold motor vehicles being repaired simply did not fit. 32 Both Mr Rimac and Mr Franco deposed that the misalignment of the rails had been undoubtedly caused by being struck by a bobcat used by the builders during restoration works. 33 In relation to the damage to the rails the defendants' relied heavily upon part of Mr Costin's report, which was in evidence. That part of the report reads as follows:- "We refute the claim that there is significant corrosion or misalignment that the condition of the alignment rails either immediately after the incident or now after the building reinstatement is such that the alignment rails cannot be used for their intended purpose. We agree that the alignment rails are "bent or misaligned" but there is no evidence of impact damage to the rails or the surrounding concrete that contains the rails to support the claim. There is evidence that the alignment rails were, in fact, installed in the original concrete in this condition. There is no evidence that the "specially made brackets" referred to can no longer fit into the rails. We note that a 1m by 2m section of concrete together with new steel cross rails welded between longitudinal rails appears to be newly constructed, we assume, as part of reinstatement by the Builder. We see no evidence of the corrosion claimed due to exposure to the elements. We do agree that builder's debris may be present within the recess between the rails that may affect the rise of the alignment rails. We are of the opinion though that the building debris could be removed to facilitate use of the rails without the need for demolition and reconstruction of the floor slab and the alignment rails." 34 The defendants' contend that Mr Costin's observations recorded above are a complete answer to the plaintiff company's claim in this regard. 35 Again I disagree. Firstly, because Mr Costin's evidence seems to me to be contrary to the damage revealed in the photographic evidence tendered. Second, I found the evidence of Mr Franco to be compelling. I found him to be a witness of truth and a man experienced in the workings of a panel beating shop. Additionally, I accept Mr Rimac's evidence as to what he observed as to the condition of the rails following the accident and restorative works. 36 As far as damage being caused to the rails by the use of bobcats by the builders during restoration, I repeat what I have said earlier in these reasons when dealing with the law as adumbrated by Lord Hope in his speech in Lagden v O'Connor. 37 I thus find that damage had occurred as deposed to by Mr Rimac and that such damage was foreseeable. There being no challenge to the cost of repairs as claimed by the plaintiff company I would award the sum as claimed, namely $46,488.75 under this head. 38 The next item of claim is the concrete slab which constitutes the floor of the plaintiff company's premises. Here there is no dispute between the parties that the floor is damaged and requires restoration. 39 However, the defendants' contend :- (a) that the condition of the floor, as deposed to by Mr Costin, is consistent with its age, and not consistent with impact damage and, as I understand the submission, (b) if impact damage, is caused by the operation of equipment by the builders during restoration and is thus not claimable. 40 On the other hand the plaintiff company's expert, Mr Bournelis, deposed that the damage to the surface of the slab was in fact impact damage. The plaintiff's expert does not suggest, I should add, that the damage to the floor was caused by the impact of the crane on the premises. 41 Again, I am of the view that, on balance, the most likely cause of the damage to the slab was in fact the operation of equipment such as bobcats by the builders carrying out the restoration work. In so finding, I am relying particularly upon my acceptance of Mr Rimac's evidence as to the condition of the floor prior to the accident and its condition at present. 42 As I have already indicated, I am of the view that damage caused by building restoration work is properly claimable by the plaintiff company for the reasons I have already given. 43 The defendants' contend that repairs to the slab and repairs to the floor alignment rail system would be carried out at the one time - indeed Mr Bournelis suggested that very thing. While the costing of the repairs to the slab in the sum of $15,812.50 was not challenged by the defendants' they rightly submit that as the repairs to the floor alignment rail system and the slab would be carried out at the one time a deduction of $800.00 for the hiring of a concrete pump for the purposes of performing these works should be deducted from the amount claimed for repairs to the slab. I agree. Accordingly, making that adjustment, I allow the sum of $15,012.50 under this head. 44 The next area of dispute is damage alleged to have been caused by the defendants' action to the mezzanine office / lunch room. Here the dispute revolves around both the questions of causation and the amount of damage which actually occurred to this area. 45 Mr Rimac deposed that in the week following the incident the office resembled a waterfall. As I have already noted, during that week more than 20mm of rain were recorded by the weather bureau. Mr Rimac did however concede in cross-examination that a box gutter in the area of the roof above the office had been replaced shortly before the subject incident. 46 The defendants' contention, as supported by Mr Costin, is that the roof damage occasioned by the impact of the crane on the building was so remote in terms of distance from the office area that the entry of water into the office area could not have been occasioned by the incident. In my view, this submission must succeed. In this instance I do not find Mr Bournelis' evidence as to how water entered the office area to be persuasive - particularly in view of the distance between the roof damage and the office area. Additionally, the defendants' contention that the recently renewed box gutter could have been the cause of the accident adds weight to the submission that the damage occasioned to the roof of the building by the crane could not have caused water to enter an area of the building where the roof still remained intact. Not only that, I accept Mr Costin's evidence that the damage which had occurred to the office could also have been related to a past water ingress problem. I find this evidence reinforced by Mr Rimac's concession that it was necessary prior to the incident to have repairs carried out to the box gutter. 47 In short, I am of the view that the plaintiff company has not satisfied me on a balance of probabilities that any damage to the mezzanine office and the staff lunch room area by virtue of water access was related in any way to the damage occasioned to the building by the impact of the crane upon it. Accordingly, I disallow this head of claim. 48 Also, the plaintiff company claims the cost of the replacement of workshop racks and shelving. That shelving, as Messrs Franco and Rimac deposed, was on the Western wall of the building. The defendants' contend that I would not be satisfied that the shelving in fact existed. In support of this contention the defendants' point to the fact there is no photographic evidence that the shelving existed. 49 As I have already found, I am of the view that Messrs Rimac and Franco are witnesses of truth. Accordingly, despite the absence of photographic evidence to support their evidence, I am of the view that I should accept their evidence that the shelving was in place as they have stated. 50 There is no issue that the shelving is no longer there. Again, there is no suggestion made that Mr Rimac has secreted the shelving away. To me the most probable explanation of the disappearance of the shelving is that it was removed by the builders during the course of the restorative works which were carried out. Once more, I refer to the fact that such removal by a builder during restorative works is a matter which is foreseeable as a consequence of the damage caused by the collapse of the crane onto the subject building. This being so, I am of the view that the defendants' contention must in this case fail and that I should allow the unchallenged costs of the replacement of the shelving in the sum of $29,348.00. 51 The next item of the plaintiff company's claim involves damage to airlines and a compressor. Here the plaintiff company relies upon the evidence of Mr Rimac that water has entered both the steel and rubber airlines. As far as the steel airlines are concerned they were rusted and as far as the rubber airlines are concerned the presence of water within the lines could contaminate paint in such a way as to prevent a proper spray-painting job being affected. The defendants' point to the fact that Mr Bournelis deposed that the airlines that contain the spray paint for vehicles were not cleaned, thus causing the paint within them to congeal and clog the lines. 52 Despite this contradiction, I am of the view that I should accept Mr Rimac's evidence as to the rusting of the steel airlines and the contamination of the rubber airlines by water. Water which had entered those lines because of the damage to the roof caused by the collapse of the crane onto it. 53 Mr Rimac also deposed that the compressor used to operate the airlines was unuseable because it had become rusted, again because of water entering it. The defendants' contend that there is no evidence of when it was that the water entered the compressor. 54 In my view there can be no doubt that water entered the compressor during the period when rain fell through the open roof during the time when the plaintiff company was not allowed to be on the premises. On the balance of probabilities, I find that that is when the damage occurred to the compressor and accordingly I would allow the claim in full. There being no issue that the cost of the replacement for the airlines and compressor is $7,500.00 I would allow the plaintiff company's claim under this head. 55 The next head of damage claimed by the plaintiff company is the reconnection of the power supply and the alarm system. 56 Essentially, the plaintiff company's claim is that during the course of the restoration works the builders removed the electrical cabling and the alarm system. On the plaintiff company's case this was a necessary part of the works being carried out by the builders for restoration. It is no part of the plaintiff company's claim that this removal of the cabling and alarm system was the direct result of damage occasioned to the building by the collapse of the crane. The fact that cabling was removed by the builders during restoration works is hardly a surprising matter. Accordingly, I am of the view that this removal was entirely foreseeable and that the plaintiff company's claim succeeds under this head. I would thus allow the sum of $47,564.00, which was the unchallenged amount costed in the report tendered by the plaintiff company in relation to this matter. 57 Finally, under the head of physical damage, I turn to the plaintiff company's claim for damage and missing chattels. This part of the plaintiff company's claim results from a number of items of personal property being removed from the building and placed in a pile outside it following the incident. These items of personal property principally involved motor vehicle parts such as bumpers, bonnets and gearboxes. Additionally, there were many other motor vehicle parts together with paint and tools. It was Mr Rimac's evidence that these items were all damaged and had been removed from the building for inspection by an insurance assessor. Once the materials were placed in a pile Ms Gibbs, who was Mr Rimac's secretary, wrote down the items identified to her by Mr Rimac. She deposed :- "When we wrote them down they were in the front of the workshop area, like where we parked all the cars, but they had been moved from out from inside the workshop, they weren't always scattered out there, they were on the premises, but we had to try to bring them to the front and keep them out of the way of the building collapsing." Mr Rimac valued the damaged items in the sum of $62,902.00, excluding GST. Of that sum Mr Rimac attributed some $28,835.00 worth of goods as being owned by him personally. Accordingly, senior counsel for the plaintiff excluded that sum from the claim, making the claim $34,067.00. 58 The defendants' contended that Mr Rimac failed to identify which of the damaged parts were his personal property as against the property of the company. However, he did depose that the parts as itemised in the invoice prepared by Ms Gibbs and himself, which became exhibit G in the proceedings, were the items which were placed outside and had been itemised and valued. The fact that no specific identification was made of the $28,835.00 worth of goods belonging to Mr Rimac personally can not be used to defeat the claim. In short, as far as this contention is concerned I accept Mr Rimac's evidence that, of the goods itemised in exhibit G, $28, 835.00 worth of the goods were his. Accordingly, ex facie, the plaintiff company is entitled to have the sum of $34,067.00 allowed under this head of claim. 59 However, the defendants' contention does not end there. Once more, the defendants' contend that water damage to mechanical components such as gearboxes was caused by the failure of the builders to take adequate steps to protect what was inside. Again, I am of the view that it was foreseeable that, in the course of building operations, builders would not take care of mechanical parts which, of course, played no part in the building operations which they were carrying out. Accordingly, such damage in my view is foreseeable and I would not accept the defendants' contention in that regard. 60 The defendants' also contend that there was no evidence of damage to paint, which is part of the claim made under this head. Again, it was Mr Rimac's evidence that all items contained in exhibit G had been damaged. I see no reason why I should not accept his evidence in this regard. Accordingly, I am of the view that I should allow the sum of $34,067.00 as claimed by the plaintiff company under this head. 61 Finally I turn to the plaintiff company's claim for economic loss. This claim has two components, first, the plaintiff company's claim for loss of profits and second, the plaintiff company's claim for loss of goodwill, ie: loss of value of the business. 62 In relation to past loss of profits the plaintiff company's claim is for a sum of $778,889.00 plus interest. In respect of loss of goodwill the plaintiff company claims a sum of $444,185.00 plus interest. This claim was based upon calculations made by a chartered accountant, Mr Arnold Shields. 63 On the other hand the defendants' contend, relying upon the expert evidence of another chartered accountant, Mr Dorfan, that the plaintiff company's past loss of profits is $438,019.00 and that the allowance made for loss of goodwill is $202,843.00. 64 In determining future economic loss I believe that Palmer J accurately stated the law in Benward Pty Ltd & Ors v Metal Deck Roofing Pty Ltd & Ors [2001] NSWSC1053 where he said :- "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." 65 Why then is there such a vast difference between the calculations made by the experts called by the parties? I note that in fact there is some measure of agreement upon the manner in which these calculations should be made. In a joint statement of the experts dated 14 July 2005 both Messrs Shields and Dorfan agree on the methodology used to assess the loss of profits claim. Second, they agree on the manner in which the gross profit ratio is to be calculated. They also agree on the level of all overhead expenses with the exception of what they believe is an appropriate calculation of the salary to be paid to Mr Rimac. Furthermore, they also agree that the calculation of loss of goodwill crystallises in the date when it is appropriate to bring an end to the loss of profits claimed. Indeed, they also agree that the value capitalising the future maintainable earnings of a business is at a rate of return commensurate with the risk involved in its operation. 66 They differ on three means of calculation in relation to the claim for loss of profits and on the calculation to be applied in assessing the loss of goodwill. 67 The three points of difference in relation to the plaintiff company's claim for loss of profits are as follows :- (1) the level of the plaintiff company's sales between the years 2002-2004; (2) the allowance to be made for the salary paid to Mr Rimac as a business expense and (3) the duration of the plaintiff company's claim for loss of profits. 68 As to the issue relating to the level of the plaintiff company's sales in the years 2002-2004 Mr Shields calculates that they would have been $1,165,695.00 whereas Mr Dorfan arrives at a figure of $962,000.00. As to Mr Rimac's salary Mr Shields allows the sum of $59,142.00 per annum whereas Mr Dorfan uses a figure of $85,800.00. Mr Shields, in determining his figure, uses a commercial calculation whereas Mr Dorfan uses the actual wages paid to Mr Rimac at the time of the subject incident. I should add that the actual salary paid to Mr Rimac was half the amount used by Mr Dorfan in his calculation but the fact was that the same amount was paid to his wife, who did not do any work for the company. What Mr Dorfan has done is to treat the payment of a salary to Mr Rimac and his wife as an income splitting device and has merely put them both together to come up with Mr Rimac's salary. I should immediately state that I believe Mr Dorfan's approach in calculating Mr Rimac's salary on this basis in the past is correct, in that it seems to me to be obvious that the payment of a salary to Mr Rimac and his wife of the same amount is plainly an income splitting device and Mr Rimac's actual salary must be taken as the combined salary of his wife and himself. Whether or not this is an appropriate means of bringing Mr Rimac's salary into account in determining loss of profits is a matter I shall deal with later in these reasons. 69 Finally, the two experts differ as to the duration of the plaintiff company's claim for loss of profits. Mr Shields makes his calculations up to 30 June 2004 whereas Mr Dorfan terminates the losses as of 30 June 2003. 70 I shall deal with these differences in turn.

Plaintiff company's likely level of sales but for the accident.

71 Mr Shield's calculation of $1,165,695.00 as the likely annual sales of the plaintiff company is set out in his report of 29 April 2005. It is convenient to reproduce that calculation which I do:-

"7.2 Sales if not for the Accident Dolman Bateman has based the sales if not for the accident for the 2002 financial year on the following: (a) Actual sales for the four months from July 2001 to October 2001; and (b) Actual sales for the period from November 2000 to June 2001 plus a growth factor of 41% as discussed above. Sales for the 2002 financial year if not for the accident are made up as follows: July 2001 81,837 August 2001 51,700 September 2001 99,534 Actual adjusted sales October 2001 90,655 November 2001 80,599 December 2001 80,638 January 2002 65,087 February 2002 103,977 March 2002 142,580 Corresponding month April 2002 146,280 prior year + 41% May 2002 112,047 June 2002 110,762

It is noted that the business had the capacity to generate this level of sales in the past and productivity gains have occurred since which make the business more profitable." 72 It may be seen that Mr Sheild's, in determining the first 4 months of the 2002 financial year, namely July to October 2001, makes his calculation by utilising the actual trading results of the plaintiff company for those months. In this instance Mr Dorfan agrees that this is a proper approach. 73 It may then be seen that in determining the sales from November 2001 to January 2002 Mr Shield's utilises the plaintiff company's actual sales for the corresponding months in the financial year ending June 2001 and adds 41%. The reason why Mr Shield's added 41% is that in the months November 2000 to January 2001 the plaintiff company was not, as I indicated earlier in these reasons, receiving work from NRMA Insurance. Mr Dorfan agreed with Mr Shield's approach to making loss of profit calculations for those months. 74 However, for the final 5 months of the 2002 financial year a difference of opinion as to calculation occurs between the experts. For those months Mr Shield's again applied the 41% increase, representing of course the work flowing from NRMA Insurance. However, and he in my view conceded this in cross-examination, the fact is that during the same months in 2001 work from NRMA Insurance had been done by the plaintiff company. Whereas it was appropriate to add the increase for those when using months when NRMA Insurance work was not available to the plaintiff company in the preceding financial year it seems to me totally inappropriate to add the increase when utilising months when NRMA work was available to the plaintiff company. To do so in my view would involve an element of double counting. In short, I would accept Mr Dorfan's calculations for the year 2001-2002 as against Mr Shield's calculations for this reason. 75 When giving his evidence in chief, Mr Shield's adopted an alternative approach to the calculation of the plaintiff company's trading loss for the financial year 2001-2002 and onwards. That alternative involved the adding of a figure representing CPI increase during the period. Mr Dorfan disagreed with this approach. 76 I agree with the submission made by counsel for the plaintiff company that Mr Dorfan's reason for not taking into account CPI increase was unconvincing. However, one feature which was absent from both experts calculation was an allowance for vicissitudes. I can well understand why, as accountants, they would not make such an allowance. Having regard to the nature of the business conducted by the plaintiff company I am of the view that it is appropriate in this case to discount in total the CPI increases which occurred over the period as an allowance for vicissitudes. This I have done. Accordingly, I find that Mr Dorfan's calculation of the plaintiff company's loss of trading is the one which I should accept. 77 I should add that reliance was placed upon industry figures in the IBS World Report by Mr Dorfan. In my view, to make an estimate of the gross of an individual business on the basis of overall growth of businesses globally is not a reliable yardstick to utilise. In this regard I have followed the approach taken by Palmer J in Benwood's case in the extract of his judgment which I have set out above. Accordingly, I adopt the figure of $30,523.00, as calculated by Mr Dorfan, as being the appropriate amount to allow for net income for 2002. I would utilise that figure for the ensuing years. I will return to the question of the duration of the plaintiff company's claim for loss of profits later in these reasons.

Salary allowance for Mr Rimac. 78 As I indicated earlier, Mr Rimac and his wife were both paid $42,900.00 by the plaintiff company during the financial year 2000-2001. Mrs Rimac, as I have already mentioned, did no work at all for the company. Mr Dorfan takes the view that it is appropriate in the circumstances to add the salaries together and by so doing Mr Rimac's real remuneration from the company is achieved. 79 Mr Shield's, on the other hand, assesses Mr Rimac's prospective salary on a commercial basis, having regard to the volume of business generated by the company. However, past events are regarded as a proper guide in determining future probabilities. There is no reason to suppose that had the plaintiff company continued to trade as before the accident the income splitting device to which I made reference earlier in these reasons would not have continued. For this reason I accept Mr Dorfan's calculation of $85,800.00 as being appropriate.

Duration of Plaintiff company's claim for loss of profits

80 As I have already indicated, there is a difference of 1 year in the allowance made by the experts. The business closed down as of December 2002. Mr Dorfan allows a further period until the end of the financial year 2003 as being a reasonable period in which to make an allowance for future loss of profits. On the other hand, Mr Shield's believes that it would have taken at least another year for the business to have returned to its previous profitability. If the Liesbosch Dredger was still the law, I would have found that Mr Dorfan's allowance is preferable. However, in my view, it is reasonable to assume that the business, if it were not for the plaintiff company's impecuniosity, would probably have continued and have reached its previous capacity by June 30 2004 - the date on which Mr Shield's arrived. Accordingly, I am of the view that it is reasonable to allow a period until 30 June 2004 as a period for the plaintiff company's loss of profits. 81 The upshot of these calculations is that I find the plaintiff company's loss of net income for the years 2002-2004 to be $91,596.00. To this figure I add the sum of $377,312.00, representing the actual loss agreed by the parties. The figure of $468,881.00 thus emerges as my finding for past loss of profits.

Goodwill 82 Here, the experts agree that the proper method of calculating the value of the business is to multiply the figure for future maintainable earnings by 2.5. 83 In making this calculation I am of the view that the payment made by Mr Rimac to Mr Ivanovic of $200,000 is not a proper basis for making any calculation under this head. I say this because Mr Rimac's statement that he thought the amount was appropriate because it enabled him to "get out of jail" is indicative that one component part of the payment was a payment to rid himself of Mr Ivanovic. That, in my view, is hardly an appropriate yardstick to take into account in calculating goodwill. 84 As I have said, I accept Mr Dorfan's calculations of loss of profits. Accordingly, I accept his calculation that the future maintainable earnings are $70,000.00. Multiplying that figure by 2.5, and adding the sum of $27,843.00 for tangible assets, I find that $202,843.00 represents the plaintiff company's loss of goodwill. 85 I tabulate my findings on damages seriatim :-

Material Damage $324,053.22 Interest on material damage from 6/11/01 to 14/11/05 $118,390.40 Total damage for past losses $442,443.62 Additional material damage (i) Ceiling fan $9048.00 (ii) Alignment rails $46,488.75 (iii) Concrete slab $15,012.50 (iv) Workshop racks and shelving $29,348.00 (v) Paint mixing room $21,441.75 (vi) Electrical replacement and alarm $47,564.00 __________ $168,855.48 Damage to stock and customers vehicles $34,066.95 Interest thereon from 6/11/01 to 14/11/05 $12,446.10 Economic Loss Past loss of profits $468,881.00 Interest on past loss from 6/11/01 to 14/11/05 (10% from 6/11/01 to 28/2/02 9% from 1/3/02 to 14/11/05) $171,186.00 Loss of goodwill $202,843.00 Interest on loss of goodwill from 30/6/04 to 14/11/05 @ 9% $24,908.00 __________ 1,525,630.10

86 Accordingly, there will be judgment for the plaintiff company for $1,525,630.10 plus costs. **********

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At a glance

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Before

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Source

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Judgment (25 paragraphs)

Parties

Cases Cited (3)