BAILII is celebrating 24 years of free online access to the law! Would you consider making a contribution?
No donation is too small. If every visitor before 31 December gives just Β£1, it will have a significant impact on BAILII's ability to continue providing free access to the law.
Thank you very much for your support!
 |
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] | |
England and Wales Court of Appeal (Civil Division) Decisions |
||
|
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Aerospace Publishing Ltd & Anor v Thames Water Utilities Ltd [2007] EWCA Civ 3 (11 January 2007) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2007/3.html Cite as: [2007] EWCA Civ 3, 110 Con LR 1, [2007] 3 Costs LR 389, [2007] Bus LR 726, [2007] CILL 2429, [2007] NPC 5 |
||
[New search] [Printable RTF version] [Buy ICLR report: [2007] Bus LR 726] [Help]
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Hon Mr Justice Holland
Strand, London, WC2A 2LL |
||
B e f o r e :
LORD JUSTICE LONGMORE
and
LORD JUSTICE WILSON
____________________
| AEROSPACE PUBLISHING Ltd & anr |
Respondents/ Claimants |
|
| - and - |
||
| THAMES WATER UTILITIES Ltd |
Appellants/ Defendants |
____________________
WordWave International Ltd
A Merrill Communications Company
190 Fleet Street, London EC4A 2AG
Tel No: 020 7421 4040 Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
(instructed by Lane & Partners Llp, London WC1A 2LS) for the Appellants
TIMOTHY YOUNG Esq QC and HENRY BYAM-COOK Esq
(instructed by Collyer Bristow, London WC1R 4DF) for the Respondents
____________________
Crown Copyright ©
Lord Justice Longmore:
Introduction
(1) there was a considerable body of evidence about the recent history of the claimants' business, in the light of which the judge ought to have concluded that the aviation side of the business was being run down so that it was clear that Aerospace would not reinstate the aviation archive and even if reinstatement did occur, Aerospace would not themselves be able to use it. The judge scarcely referred to this evidence and gave no or no adequate reason for refusing to accept it;
(2) there had also at trial been comprehensive expert evidence about changes in the market for publications relating to aircraft which should have led the judge to conclude that the claimants' plans for further publications (especially a proposal called "WAIF 2") were so misguided that reinstatement of the archive would be unreasonable. Again the judge had given no or no adequate reason for rejecting this expert evidence; nor had the judge critically evaluated the claimants' loss of profit claim;
(3) the judge had failed to address an argument that, since publication had been able to continue after the flood, reinstatement of the archive was unnecessary.
"8 In essence, Thames Water had run a case that Mr Morse [Aerospace's managing director] had wanted to sell the Aerospace company and its archive because he was more interested in pressing ahead with other parts of his business and could not do both, that the market had changed and that there was not the room, at any rate in the business and in the profitable sense, for a further publication such as WAIF 2, and they also relied upon other changes in the market and, indeed, in Aerospace's own modus operandi: for instance, in planning to move the site of the archive from its then current position immediately under the hands of the publishers to a different site in Islington, where there was an aim to reposition it as a library, not so much for use by Aerospace as publishers themselves but for the use of third parties upon payment.
9 I can, for instance, illustrate the judge's technique by reference to paragraph 71 where he refers, as a point supporting Aerospace's case, to the efforts by Mr Morse in the months preceding the flood to sell the Aerospace business or its archive. The value put upon the archive was some US$3 million or nearly £2 million. The judge referred to this at paragraph 71 as a plus point and perhaps, on one view of the matter, it was. Thames Water's approach to that episode was, however, to point to the fact that Mr Morse was willing to sell his company and its archive and was yet unable to obtain any bids, for either the company or the archive, at all.
10. There is no discussion of that counterpoint in that context . . . ."
"the likely result is either a nil return or a danger of ex post facto rationalisation."
He recorded that the claimants accepted that, in the light of their position about the judge's reasons, the appeal would have to be conducted on the basis that it was a full re-hearing.
Facts in Detail
From its incorporation Aerospace, under Mr Morse's direction, had built up an archive. The material came from various sources. All the products of editorial research as demanded by a publishing venture went into the archive, which included material from military archives in this country, in France, in Germany and, more particularly, in the USA. Systematic attendance at major international air shows led to the acquisition of photographs and vital reference material. In 1986 a photograph library was purchased for £25,000. In 1993 a large and exceptional photograph and artwork collection, the Pilot Press Collection (put together by a legendary figure in the compilation of aviation history, Mr William Green) was similarly purchased, this time for £105,000. At about the same time another collection, the John W.R. Taylor Collection, was purchased for £75,000. The accounts reveal that investment in this archive had been ongoing; financial statements identified continuing expenditure on this asset in the sums of £24,970 in 1998, £17,396 in 1999 and £14,203 in 2000. Some of this ongoing expenditure is explained by the commissioning of artwork, that is, the commissioning from a few specialist artists of pictures of aircraft in flight in order to illustrate a given topic pictures notable for their technical precision, essentially bringing the draughtsman's drawing to life. The judge recorded that the book value of the archive as at the end of 2000 was £562,298.
(a) The great bulk of the archive was stored in 57 filing cabinets. Large sized artworks were predominately stored in 4 plan chests;
(b) Within the filing cabinets the bulk of the archive was distributed amongst files. There were at least 3,220 such files: the files were in alphabetical order with each file referable to a specific topic, typically an aircraft type. The distribution of topics, on a broad-brush basis, could be apportioned as follows:
| (1) World War 1 and Earlier: | 4½% |
| (2) Between the Wars: | 20% |
| (3) World War 2: | 11% |
| (4) Post World War 2: | 60% |
| (5) Unclassifiable: | 4½%; |
(c) Within the files were 218,262 photographic images, a figure which includes a number of transparencies. These covered the full spectrum between the historically valuable rarity and the relatively commonplace. There was also a spectrum as to quality. The judge found that the scope for illustration of aviation and its history by way of photographs made the archive exceptional and arguably unique. Yet further, a significant number of the images were valuable in their own right, either because of the historic value of their content or because they were the work of photographers famed in the field;
(d) Further, within the archive, was a mass of reference material available for editorial research: press cuttings; manufacturers' publicity material; letters; publications and plans;
(e) An additional and important component was artwork. In the course of its trading Aerospace commissioned or otherwise acquired artwork images viz: drawings and paintings of aircraft executed by specialists with an exactitude in terms of detail to satisfy the purist. By July 2001 there were in the archive over 5,000 items of such artwork, such covering a great range of aviation subjects.
This separate archive featured less in evidence: although substantial it was less in size than that of Aerospace: it could not aspire to the same prestige and, significantly for present purposes, it suffered far less from the flood. It too had been steadily built up, similarly inspired by Mr Morse's overall direction, and its content was impressive:-
(a) Car section: 60,000 images and 500 artwork items;
(b) Motor cycle section: 40,000 images and 250 artwork items;
(c) Military and Naval section: 35,000 images and 3,500 artwork items.
Additionally there was material relating to British and European wildlife.
A key component of the companies' respective trading activities was the creation of partworks, so called because an ultimate 'work' can be compiled by the consumer through the regular acquisition (whether by subscription or purchase from the newsagent) of magazine style parts. Each such publication can be dismantled into sections the appropriate filing of each section serves to add to the envisaged final reference work. To provide material to complete the partwork, publication would run for a pre-determined prolonged period, typically for 200 or more issues. A claimant company engaged in this activity would formulate an idea for a new partwork and then cause it to be subjected to market research. Thus far the work would be 'in house' and at the expense of the company. Thereafter the enterprise would proceed in partnership with a publisher. The company would prepare the editorial and illustrative content of each issue (retaining copyright); the publisher would then publish and market it, typically setting the whole in motion with a television marketing campaign. The contractual agreement with the publisher would provide for payment by the publisher of a creation fee and a royalty (say, 4%) on cover price sales. This joint venture would be aimed at a worldwide market.
1980: Illustrated Encyclopaedia of Aircraft;
1984: Warplane;
1987: Take Off (re-launched in 1992);
1989: Airplane;
1997/8: World Aircraft Information Files ("WAIF").
Midsummer had produced similar partworks on military and other topics, such as wildlife and the Star Trek saga.
It is beyond dispute that prior to the flood, use of the Aerospace archive had been crucial to the preparation of Aerospace publications. Perusal of the partwork issues and of the journals readily serves to highlight the imperative need for ready access during preparation to in-depth reference material and to a wide-ranging sophisticated photographic library. It is not just the perusal of one issue or one journal it is perusal in the context of ongoing commitments to repeat these publication at specified intervals, each covering different but (in the case of partworks) integrated topics, each demanding the same standards in editorial input. Absent a readily available comprehensive archive no such enterprise could have been contemplated, let alone achieved.
"Because the Aerospace archive was beautifully organised, our editors were able to research and compile pictorial 'packages' for articles immediately and quickly. The richness, quality and comprehensiveness of each aircraft file provided nearly everything any article called for, whether it was about an individual aircraft, an airline, a war operation or a line of historic development. With the Aerospace archive, compiling an article was a single job conducted within a short while (from minutes to within an hour or two).
By contrast, when photographs had to come from outside the Aerospace archive, there would be dozens of telephone calls to dozens of collectors spread over dozens of days. Many photographs were in overseas collections and owners would take days to research, package and despatch consignments to us. Many packages would come by Fed Ex with attendant costs. Others would come in by various postal systems, with consequent delays and losses.
When asked for a shortlist of, say, 10 aircraft photographs, a photographer or collection would often research and submit around 100. Because we had to take extreme care over submitted photographs and because there was usually a loss fee of up to £500 per photograph, each picture had to be individually and clerically logged in and out a massive task that would inevitably become delayed and cause further problems and costs. There were also penalising insurance costs involved in having agency photographs in our offices. Without the Aerospace archive, the numbers of agency photographs required on site would have been a huge insurance liability.
At least one full-time member of staff was deployed to "traffic" these outside photographs, but it very often became the work of many. And this was when the Aerospace archive provided at least two thirds of the pictorial material we published. Had we relied on outside photographs and artworks, we would have needed several staff members permanently employed on administering and trafficking these items.
Had Aerospace relied on outside sources for licensed photographs or artwork, it would also have had to pay reproduction fees for each use. For instance, all photo agencies (such as the Flight Collection, TRH Picture, Austin Brown etc) charge for each use of a photograph. The larger the picture used, the greater the fee. There would be further fees to pay if the picture was used in later-derived books or new partwork. A single agency photograph used on a cover could end up costing thousands of pounds, whereas repeated uses of our archive material were at effectively zero cost.
In addition licences from picture agencies were always for one-time use. Subsequent publications such as derived books could never have been published with these "extra costs".
Finally only Aerospace archive contained the high-quality technical artworks that were a hallmark of Aerospace's products and there are only an inadequate number of other sources of these illustrations in the world: no artwork agencies nor private collectors. This is because, although it is possible to commission artists to create such artworks from new, the costs are great and there is a need for considerable editorial research support and only restricted numbers due to the few artists available and the time it takes them to create these artworks."
In the light of Thames Water's arguments it is necessary to trace Mr Morse's business activities over the years preceding the flood.
In his evidence Mr Morse explained in detail how he came to the decision that he would dispose of the Aerospace business, if a suitable buyer at the right price could be found. As he put it:-
"Aerospace continued to be a profitable and vibrant business, as it had been since 1977 and as it would remain until the day of the Flood. Looked at in isolation as the Midsummer group's aviation publishing wing, Aerospace was a success. However, given the decision to cut back on growth and dispose of some of the group's assets, Aerospace was the obvious choice.
Therefore, we considered selling Aerospace as a separate business, something that was always a built-in option since I started the business in 1977. We considered the sale of Aerospace precisely because it had valuable assets that would be clearly attractive to the right buyer the intellectual property asset of the Aerospace archive and the intellectual property asset of the journals, together with the promise of future growth."
On 5th October 2000 Summertime Publishing Ltd ("Summertime") was incorporated. It had an authorised capital of £100 divided as to 1,000 shares at 10p each. In the event 501 shares were issued at par to Midsummer, that is, in effect, to Mr Morse. On 8th December 2000 a number of consequential agreements were made. By the principal agreement International Masters Publishers Ltd ("IMP") acquired for £736,000 the remaining 499 shares and consequential provisions were made to secure the future conduct of Summertime as a joint venture of Midsummer and IMP. By Clause 15 Midsummer "covenants with IMP that Midsummer . shall not (and will procure that none of the other members of its group shall) at any time . without the prior written consent of IMP . carry on . any business which is the same as or competitive .". It is accepted that "its group" would include Aerospace.
"3.2. (Midsummer) shall provide its services in relation to the origination of ideas for continuity series or projects exclusively to (Summertime) and will convey to (Summertime) all ideas and concepts it originates for continuity series during the term of this agreement and shall not undertake any other business that competes with the business of (Summertime) during the life of this Agreement.
. . .
4.1. (Midsummer) agrees not during the life of this Agreement whether by its officers, employees or agents or otherwise howsoever and whether as a consultant, principal, partner, director, employee or otherwise directly or indirectly . to provide or procure the provision of any consultancy services or to carry out or procure the carrying out of any other business activity work or services for a third party if the services activity or work relate to or are concerned with the development . of any product which is either the same as or substantially similar to and, in any case, competitive with any of the products of (Summertime) which are the subject of the service."
"In consideration of you today entering into the agreements listed in the Schedule hereto, we hereby jointly and severally undertake to you that we will respectively use our best endeavours to procure that in [sic] any sale of the rights to the Midsummer Archive and/or the Aerospace Archive or any part thereof will exclude the right to exploit the material contained in the Midsummer archive and the Aerospace Archive as continuity series in any format (including, without limitation, part works).
We further jointly and severally undertake to you that in the event that either: (a) we secure the exclusion of continuity series rights in any sale of the Midsummer Archive and/or the Aerospace Archive or any part thereof or (b) a sale of the Midsummer Archive and/or the Aerospace Archive or any part thereof is not completed by us by 30th June 2001 we will negotiate with you in good faith with you the grant of a licence to you to exploit such rights in the Midsummer Archive and/or the Aerospace Archive."
In the autumn of 2000 Mr Stanislaw Gnych, a 'book packager' trading as Amber Books Ltd heard that Mr Morse was seeking a buyer for the Aerospace archive. He had had earlier business dealings with the companies in the course of which he had become knowledgeable about and very impressed with the companies' archives. In his then opinion there was hitherto unexploited commercial potential in using these archives as picture libraries, with the result that the content would not just be exploited 'in house'. Accordingly he conceived the idea of establishing a picture library business based on these and other like archives and to that end he approached Mr Morse. Discussions proved fruitful and by March 2001 there was an oral agreement to the effect that the archives would be moved in stages from the Hammersmith premises to those that were to be leased by Art Tech for this enterprise in Islington. Once in place in the autumn of 2001, Art Tech would conduct a picture library with the pictures coming from these archives. The contracts, yet to be drafted, were to maintain ownership of the material in the hands of the companies and their employees were to have continuing free access to the material. A percentage of Art Tech's fee income amounting to 50% would be the consideration.
By way of an agreement in writing of 24th April 2001 Aerospace sold to AIRtime Publishing Inc., a U.S. company, its journals, World Air Power and Wings of Fame, for $15,000. The agreement gave to AIRtime access to the Aerospace archive to sustain continuing publication of AIRtime's own publication, International Air Power Review, subject to a royalty agreement. In so far as archive material was published in this journal Aerospace were to receive 4% of the nett sale price on sales up to a total of $85,000.
Aerospace Archive.
Of the original 218,262 images, 65,174 (28.9%) were unaffected, in the main because they had been in upper drawers. It is estimated that 32.1% can be restored. The rest, effectively 50% of the archive, cannot be restored. The reference material was wholly destroyed. In terms of files, the schedule of 3,220 files identifies 867 that are undamaged, this time 26.9%. Fundamental to the incidence of damage is the arbitrary nature inevitably arising from the chance impact of the floodwater.
In the event the damage was markedly less extensive it was the artwork that bore the brunt. The schedule put before the judge identified 341 items: 176 damaged beyond restoration; 92 susceptible to restoration; and 73 largely intact.
WAIF. Aerospace in effect Mr Eden and his team maintained production of this partwork initially up to issue 200. The judge's finding was that in the absence of the archive this was a difficult and expensive exercise. The picture painted by Mr Eden is of time consuming and costly efforts to produce the required weekly issues utilising such material as was still available and relying upon their extensive knowledge of aviation sources to acquire sufficient additional images to allow publication. The judge accepted that, despite all that was done, the post-flood issues were sub-standard, judging them by the normal exacting requirements. Having stopped at issue 200, Aerospace received protests from readers who found the resultant 'work' was as to part incomplete and the team produced another 18 issues so as to respond to these complaints. This activity apart, Aerospace has since been in limbo save for activities directed at identifying and quantifying loss.
"Mr Justice Holland: my impression, and it is no more than this, is that even with the much-reduced archive that you received, this whole enterprise has been, really, quite successful?
A. It has been successful because it is a novel idea. There is not another archive of this sort anywhere in the world that I am aware of. My hopes, aspirations, were that it would be far more successful than it has been. I am not sure whether my lord has seen the first year's figures; we had a profit, which is, for a start-up operation, pretty impressive. But I expected that profit to be much, much higher, frankly. I am reasonably happy with where it is, but, I would have expected more than that.
The idea of setting up an archive, photographs and artwork, which is so novel, which is so unusual, which is such high quality, was bound to be a success. I am just staggered that nobody had ever done it before, frankly.
Mr Justice Holland: I take it the lack of the Aerospace archive, or most of it, is deep frustration?
A. Very frustrating, given that this has been dragging on for four years now."
"AIRtime Publishing Inc. has an ongoing agreement with Aerospace Publishing Ltd, whereby AIRtime has access to the Aerospace photograph and artwork archive. Material from the archive is used in the recently launched International Air Power Review.
This archive is an invaluable and irreplaceable source of images for AIRtime, which draws a large proportion of the material for its publications from the picture/artwork library.
By tying up the greater majority of the library images for some considerable time during restoration, the flood damage to the archive has seriously affected our ability to produce the publications we are working on at present, and those in planning for the immediate future. This will result in our publications being delivered later than scheduled which, in turn, has serious ramifications for the financial side of our business.
While the effect on our publishing programme in the near term is disastrous, any delay in restoring the library will also have grave consequences on our programme in the longer term."
By way of a letter of 18th December 2001 AIRtime spelled out the serious impact upon the continuing production of International Air Power Review of the damage to the Aerospace archive and confirmed that which had been orally agreed, namely that there should be a revision of the royalty terms so as to reduce payments to Aerospace. The ultimate financial significance of that revision appeared from a subsequent letter of 22nd July 2004.
We have not been troubled by detailed figures and the parties' cases can be summarised fairly briefly. The claim was for £3,265,127 on a reinstatement basis, including £1,842,077 for replacement of 87,523 unrepairable photographic images, £135,303 for restoration of repairable photographic images and £898,335 for replacement and some restoration of artwork. Thames Water contend that, on a reinstatement basis, the claim should be only £2,447,911. If the claim were properly to be assessed on the basis of diminution of value, the claimants would then claim £1,058,513 while Thames Water put forward a figure of £274,460.
I have already observed that Thames Water found it necessary to file a skeleton argument of 177 paragraphs; they then served a supplementary skeleton argument of 149 paragraphs. Such lengthy documents invariably make it difficult to distinguish the wood from the trees and we quite understand why the judge did not feel it necessary or even sensible to do a point by point rebuttal of all matters raised in Thames Water's concluding written submissions which themselves constituted a lengthy document. Fortunately Mr Rainey was able to distil four separate steps in the argument in the course of his oral submissions:-
(a) Aerospace and its aviation publishing business were, before the flood, shelved in favour of non-aviation publishing and Aerospace was effectively in run-off;
(b) Aerospace would not have published a further partwork once the current WAIF publication had come to its natural end, nor could they identify any other aviation publication which would have been issued. The expert evidence was that the market for WAIF-style publications had come to an end; the claimants had produced no credible evidence to set against that and could say no more than that they would research the market in some nebulous way and arrange fresh publications in the light of that research; that was not sufficient to enable to claimants to show that there was a viable future in aviation publishing, even if step (a) above were rejected;
(c) the evidence was that publication of WAIF continued despite the flood; that showed that the archive was not essential; with repair of such damaged photographs as could be repaired at a cost of £135,000, the claimants would be fully compensated;
(d) there was no evidence to show that any future publication (especially if it was a WAIF style publication) would have generated any profit; moreover in the light of (a) above any such loss of profit would have been suffered not by Aerospace (or Midsummer) but by Summertime.
Before dealing with those arguments, I should say a little about the law and the correct approach to the distinction between the cost of reinstatement on the one hand and diminution in sale value on the other.
The judge set out the principles as stated in the Maersk Colombo [2001] EWCA Civ 717, [2001] 2 Lloyds Rep 275, 286:-
(1) On proof of the tortious destruction of a chattel, the owner is prima facie entitled to damages reflecting the market value of the chattel "as is".
(2) He is so entitled whether or not he intends to obtain a replacement.
(3) The market or resale value is to be assessed on the evidence, there being no standard measure applicable to all circumstances.
(4) If the claimant intends to replace the chattel, and if the market or resale value as assessed is inadequate for that purpose, then the higher replacement value may, in the event, be the appropriate measure of damages.
(5) When and if replacement value is claimed, the claimant can only succeed to the extent that the claim is reasonable; that is, that it reflects reasonable mitigation of its loss.
(6) The claim will ordinarily be reasonable if it is reasonable to replace the chattel and the cost of replacement is reasonable.
The salient facts relating to this argument are set out in paragraphs 22-33 above and need not be repeated.
(1) the Aerospace business was not actually sold, despite overtures being made to Motorbooks and Chrysalis;
(2) Aerospace was not actually a party to the Summertime arrangement, although it is fair to say that the restrictive covenant given by Midsummer covered any companies in its group, so that if Aerospace did compete with Summertime by causing a new magazine to be published, Midsummer would find itself in breach of that contract;
(c) the archive was never sold to Art Tech, the arrangement being that, as from the time of its removal to Islington, it would be managed by Art Tech on a commercial basis; thus not only would free access continue to be offered to Aerospace as owners of the archive but other companies or individuals would be offered access for a fee.
Mr Rainey attempted, at trial, to tie Mr Morse down to a prediction that Aerospace would publish a further partwork similar to WAIF 1 (to be called WAIF 2 for the purposes of argument) and then to demonstrate that there was no market for any such publication so that such publication (and any decision to reinstate the archive for that purpose) was a commercially unreasonable decision for which Thames Water could not be expected to pay. This attempt failed at trial and its renewal must likewise fail before this court. In the first place Mr Morse made it plain on several occasions in his evidence that he did intend to reinstate the archive, that he did intend at the date of the flood to continue with further publications once a decent interval had elapsed from the natural end of WAIF 1 and that Aerospace could expect to make a decent profit out of such further publications (see Day 2 pages 96, 20, 43-46,137 and 158). On the basis (which I have already said cannot be controverted) that Mr Morse was a credible and reliable witness, it is very difficult for Mr Rainey to satisfy the court that this evidence is not to be accepted. It is, moreover, wrong to categorise the evidence as being confined to a "WAIF 2 publication". Mr Morse made clear that, although he primarily had another partwork in mind, it would be premature to come to any definite conclusion before doing some research at the appropriate time (Day 2, pages 23-7). That then led Mr Rainey to submit that, since nothing firm could be shown to be in Mr Morse's mind, he had failed to discharge the burden of showing that on the balance of probabilities any future work would be published at all. That is mere casuistry on Mr Rainey's part. Any sensible business man may intend to publish but be unsure what form the publication will take until the market is tested. That does not make it in the least improbable that future publication will occur.
"Thus, I start by finding that as at say, the 1st July 2001 WAIF was not the last Aerospace publication of its time: as a matter of probability there would in due course have been a successor. I so find notwithstanding the point made as to the immediately preceding history because of an overwhelming impression of Aerospace as an ongoing aviation oriented organisation with a reputation and a pride. Mr Morse was and is an aviation enthusiast as is his effective No 2, Mr Moeng. The editorial staff then in place and working on WAIF were similarly skilled and dedicated. There was intense and understandable pride in the partworks and in the archive and it is not without significance that on the very day of the flood Mr Stroud was working at cataloguing. Even the efforts to sell the archive during the preceding months do not gainsay this impression once one takes into account the asking price, £1,932,500. This may have been of no assistance in establishing market value; it was of great assistance in signalling the significance to Aerospace of the archive and it served to counter the proposition that the only perceived future role of the archive was a generator of picture library fees. The notion that the flood was coincidental with a change of corporate heart so that the damage to the archive was happily of less significance than hitherto would have been the case, and so that WAIF was to be the last Aerospace publication does not accord with my view of the reality of the situation and I reject submissions that are to that effect."
It is true that these conclusions were made without detailed reference to the evidence and, in particular, to the detail of Aerospace's recent history just before the flood and that they could have engaged more closely with Mr Rainey's arguments. But once those arguments have been tested against the documentary and oral evidence, I can only say that not only were they conclusions demonstrably open to the judge but that I would, so far, have been minded to come to the same conclusions as the learned judge has done.
I can deal with this more briefly. The judge's finding was in paragraph 72:-
"Next I find that a condition precedent to the preparation of any such successor partwork would have been ready access to an archive substantially 'as was'. I so find because, as I see it, Aerospace could not have lent itself to any work of less 'scholastic' depth compatible with obtaining materials wholly or substantially from external sources and because the extra costs involved would militate against the enterprise. Yet further, I cannot regard an uncatalogued rump as any significant substitute for the catalogued archive 'as was'."
There was ample evidence to justify this finding, since both Mr Morse and Mr Eden had explained in evidence how difficult it was to continue WAIF 1, how (against the odds) they had succeeded to the extent that few (if any) customers complained about the fall in quality resulting from the flood and how they had hoped to finish the run with issue 200 in November 2001, although they had not in fact been allowed by the public to do so. In the light of this evidence the conclusions of the judge are eminently justifiable. It is, indeed, inherently unattractive for Thames Water (who caused the flood in the first place) to be arguing that the valiant continuation of WAIF 1 shows that in truth there was little need for the archive at all and that once £135,000 had been spent in repairing damaged photographs, Aerospace would be able to carry on just as before.
The substance of this particular branch of the subject has already been covered. No doubt if subsequent publications were to be just like WAIF 1 the likely profit would be small. But once it is accepted (a) that Mr Morse intends to reinstate and (b) that he is not intending to confine himself to a WAIF 1 style publication and (c) that he is an honest and not an unreasonable business man, he is not bound to go further and show that his business plans are bound to make a profit. Debate about profitability does not detract from his intention to reinstate, if it is found that his intention is genuine. Many reasonable business men make decisions which do not turn out as well as they had hoped; he does not have to prove that his plans are bound to be sound before he can recover the cost of reinstatement. As far as the question of the consequential loss claim is concerned, it is only the cost of the delay in earning the anticipated profit which can form a proper head of recovery if reinstatement is otherwise allowable. The argument that it is only a Summertime loss and not an Aerospace loss has been already dealt with above.
I would, therefore, conclude that Aerospace are entitled to recover damages on a reinstatement basis as the judge has found. The fact that his reasoning could have been fuller makes no difference to the ultimate outcome.
In a complex factual case such as the present it will often be comparatively easy for an appellant to allege that a judgment is imperfectly or inadequately reasoned on one aspect or another and even to persuade this court, on an unopposed permission application, that that is arguably so. Appellants must, however, be aware that there is no obligation on a judge to give a particular response to every submission made (judgments in this country are quite long enough already) and that, unless it becomes apparent in the course of the appeal that a serious injustice has been done, appeals on the ground of inadequacy of reasons in complex factual disputes are likely to fail. One shudders to think what the costs of this appeal have been and it is important to emphasise that the fact that one division of this court gave permission to appeal is very far indeed from being any guarantee of success.
Lord Justice Wilson:
As part of their claim for special damage, the claimants included what initially was a very large sum allegedly referable to payments made to staff for work necessarily done by them in relation to, and consequent upon, the flood. In due course this head of claim was reduced to £31,520. In the event the judge upheld this part of the claim although in his judgment the digits were so transposed as to read £31,250. Recognising that, in the absence of their appeal on matters of far greater financial consequence, it would have been inappropriate for them to appeal against this small proportion of the award, Thames Water nevertheless added objection to it to their other grounds of appeal.
"As to staff costs, this represents a calculation of the cost allegedly occasioned to Midsummer by the post-flood need to divert employees from their normal duties to countering and mitigating the impact of the flood. The Defendants object to this head of claim: flood or no flood, the Claimants would have expended the same sum, given that the individuals concerned were in their full-time employment. I reject this objection. Had the Claimants engaged temporary workers, there could have been no objection to the cost. As I see it, there can be no objection in principle to essentially the same claim because they took the easier and possibly cheaper course of diverting their existing workforce from profit-earning activities to those arising from the flood."
"I have no doubt that the expenditure of managerial time in remedying an actionable wrong done to a trading concern can properly form the subject matter of a head of special damage. In a case such as this it would be wholly unrealistic to assume that no such additional managerial time was in fact expended. I would also accept that it must be extremely difficult to quantify. But modern office arrangements permit of the recording of the time spent by managerial staff on particular projects. I do not believe that it would have been impossible for the plaintiffs in this case to have kept some record to show the extent to which their trading routine was disturbed by the necessity for continual dredging sessions."
It is thus important to note that the claim was rejected not because of a failure specifically to establish that, had it not been diverted to the remedial measures, the managerial time would have been productive of revenue for the claimants but only because they had not properly demonstrated the amount of time thus diverted and, more generally, the extent to which their trading routine had been disturbed by it.
"49 It does not seem to me that either the passage quoted or the circumstances relating to the claim in Tate and Lyle justify the recovery of the proportion of Mr Griffiths' salary claimed in this case. No doubt it was true, as the judge stated, that, in visiting Vietnam, Mr Griffiths was engaged in an unusual task. However it is not suggested that his trip abroad, as an employee engaged in the business of [the bank] and in respect of whose responsibilities his salary was in any event payable, led to any significant disruption in [the bank's] business or any loss of profit or increased expenditure on [the bank's] part In certain situations, involving particular types of trading concern, such a claim may be appropriate. In particular, building contractors who, by reason of delay, suffer increased costs attributable to a particular job which costs are irrecovable elsewhere, may claim for a proportion of their fixed overheads (including head office salaries) as part of their claim for consequential loss. However, that is not this case. There is no suggestion that the business of [the bank], or the system of charging upon which its profits depend, were in any way adversely affected by the diversion of Mr Griffiths to Vietnam."
This, then, was a case of the diversion of one employee in a large organisation away from his normal duties; and it had not even been 'suggested', let alone established, that his diversion had led to any significant disruption of, or indeed any adverse effect at all upon, the bank's business. Although this court was there identifying a low threshold, the bank had nevertheless failed to cross it.
"I cannot and do not say, in the absence of records there is to be no recovery."
Then, in paragraphs 75 to 78, the judge rejected the suggestion of the defendants that, in this regard, there were relevant distinctions between an income-producing employee and what was described as a "back office" employee or indeed between short periods and long periods of diverted time. "In all cases," he said, "the claimants were paying for time which was to be a benefit to them and they lost the benefit of that time". Earlier the judge had accepted the observation of the claimants' forensic accountant that "every employer values each employee at more than the employee is paid, otherwise there is no point in employing him." Although it does not seem that the decision of this court in Standard Chartered Bank, decided nine months earlier, was cited to him, I do not consider that its citation would have led the judge to a different conclusion. If the kernel of the decision in Standard Chartered Bank was the requirement to demonstrate significant disruption of business as well as the alleged diversion of time, both had been well demonstrated before Judge Bowsher.
"87. Of course, it may be difficult to quantify any loss of revenue or business consequential on the diversion of employee time to dealing with the tort or breach of contract suffered by an employer. It may be that the cost of employee time may be taken as an approximation for the loss of revenue involved; but, if so, the claim remains a claim for loss of revenue rather than a claim for expenditure occasioned by the tort or breach of contract."
Then the judge concluded that, insofar as it existed at all, the necessary evidence of loss of revenue was extremely vague and not confirmed by other evidence which, had the loss existed, might have been expected to confirm it. He therefore concluded that, while in theory a claim for damages for loss of revenue might be available to the claimants in this regard, there was no evidence to justify it.
"77. In my judgment, as a matter of principle, such head of loss (i.e. the cost of wasted staff time spent on the investigation and/or mitigation of the tort) is recoverable, notwithstanding that no additional expenditure "loss", or loss of revenue or profit can be shown. However, this is subject to the proviso that it has to be demonstrated with sufficient certainty that the wasted time was indeed spent on investigating and/or mitigating the relevant tort; i.e. that the expenditure was directly attributable to the tort This is perhaps simply another way of putting what Potter L.J. said in Standard Chartered, namely that to be able to recover one has to show some significant disruption to the business; in other words that staff have been significantly diverted from their usual activities. Otherwise the alleged wasted expenditure on wages cannot be said to be "directly attributable" to the tort."
(a) The fact and, if so, the extent of the diversion of staff time have to be properly established and, if in that regard evidence which it would have been reasonable for the claimant to adduce is not adduced, he is at risk of a finding that they have not been established.
(b) The claimant also has to establish that the diversion caused significant disruption to its business.
(c) Even though it may well be that strictly the claim should be cast in terms of a loss of revenue attributable to the diversion of staff time, nevertheless in the ordinary case, and unless the defendant can establish the contrary, it is reasonable for the court to infer from the disruption that, had their time not been thus diverted, staff would have applied it to activities which would, directly or indirectly, have generated revenue for the claimant in an amount at least equal to the costs of employing them during that time.
The subsidiary part of the claimants' cross-appeal was compromised in the dying moments of the oral argument before us. It had related firstly to two awards in relation to continuing losses calculated by the judge to the date of his judgment, which the claimants contended should be so varied as to include losses for the further year reflected by the pendency of this appeal. But it had related in particular to the award of £129,035 reflective of loss of profits consequent upon the delay in the publication of WAIF 2 from September 2005 to January 2008 (rounded down by the judge to a period of two years), which, again, the claimants contended should be so varied as to include loss of profit for a further year of delay until January 2009 consequent upon the appeal. The compromise is that Thames Water concede the validity of the latter contention and will submit to a 50% increase in the award of £129,035, i.e. to £193,553, and that the claimants will abandon the other contentions.
(a) The judge correctly noted Mr Young's concession that no interest should accrue on the award of £129,035 referable to the delay in the receipt of profits from September 2005 to January 2008. Unfortunately, however, the judge overlooked the concession when shortly thereafter he turned to make his calculations. This error, which of course favoured the claimants rather than vice versa, should be corrected by counsel when they kindly make the fresh calculations consequent upon our judgments.
(b) The judge ruled that, with one exception set out at (c) below, no part of the award of £2,328,144 referable to restoration of the archive and to the diminution in value of the artwork should bear interest. In this regard he purported to uphold the submissions of Mr Rainey. But such was not an entirely accurate representation of Mr Rainey's submissions for he had conceded that the award of £89,686 referable to the diminution in value of the artwork should bear interest.
(c) The judge's exception to the ruling set out at (b) above related to the component of £135,303 within the figure of £2,328,144. This component related to the cost of restoration of such of the affected photographs as were susceptible of restoration. The judge ruled that:
"But for post-flood impecuniosity this sum should have been part of the special damage and I agree with Mr Young Q.C. that unless it is supplemented with interest it is likely to prove to be an unrealistic estimate given its age and provenance."
(d) Next, making a trivial arithmetical error, the judge calculated the total part of the award which in his opinion should bear interest.
(e) In light of the fact that the losses within the interest-bearing part of the award had accrued at different times between the dates of the flood and of the judgment, the judge decided to calculate interest on all of them from a mid-point between those two dates.
(f) The judge also decided to award interest for that period at a rate of 5% p.a., being 1% above the base rate which, by averaging, the parties had agreed at 4%.
(g) Then, uncontroversially, the judge made allowance for Thames Water's two interim payments to the claimants with effect from their respective dates.
(a) in declining to award interest on the whole sum of £2,328,144 referred to at 90(b) above;
(b) in calculating all interest from the mid-point between the dates of the flood and of the judgment, rather than from more precise dates when the respective losses were incurred; and
(c) in calculating interest at 1% p.a. above base rate, rather than at 2.5% p.a. above base rate.
"in the case of archival restoration no loss has been incurred: the award gives to the Claimants a fund which does not represent the chattel (as DIV would) for a specific future exercise. No interest is therefore recoverable."
a) that in his written submissions to the judge for the hearing on 20 December 2005 Mr Young conceded that different components of the loss had been sustained over different periods and that, for all such components, mid-points within those different periods should be taken as the starting-points of individual calculations of interest;
b) that in the course of the hearing the judge invited counsel's submissions on a broader approach, namely to effect one composite calculation in relation to all such components from the mid-point between the dates of the flood and of the judgment; and
c) that, like Mr Rainey, Mr Young did as he accepted before us concede that the broader approach was permissible.
In such circumstances, as in effect Mr Young now recognises, the claimants can scarcely press this area of their cross-appeal. Even absent his concession, I would on balance have categorised the judge's approach as permissibly simple rather than impermissibly crude.
Lord Justice Pill:
"It is vital, for the purpose of assessing damages fairly between the plaintiff and the defendant, to consider whether the plaintiff's course of action was economic or uneconomic, and if it was uneconomic it cannot (at any rate in the absence of special circumstances, of which there is no evidence in this case) form a proper basis for assessment of damages. The question has to be considered form the point of view of a business man."
"I find on balance of probability that Mr. Morse does have a present intention to restore so much of the archive as is constituted by photographic images and reference material, funds permitting. I find that any award reflecting diminution in value would be inadequate for that purpose. I find that the cost of the restoration as intended by Mr. Morse is reasonable in itself and that viewed objectively it is reasonable to expend such on that restoration."
Note 1 Essay on Curiosity: see Philemon Hollands (1603) translation as printed in the Everyman (1911 ed) page 145 and that of Professor Donald Russell in World Classics (1993) page 201. [Back]
