Queensland Ice Supplies Pty Ltd v Anco Australasia Pty Ltd
[2000] QSC 72
•31 March 2000
SUPREME COURT OF QUEENSLAND
CITATION: Queensland Ice Supplies Pty Ltd v Anco Australasia Pty Ltd [2000] QSC 072 PARTIES: QUEENSLAND ICE SUPPLIES PTY LTD
ACN 010 201 180
(Plaintiff)
v
ANCO AUSTRALASIA PTY LTD
ACN 003 346 978
(Defendant)FILE NO/S: No. 5060 of 1998 DIVISION: Trial Division DELIVERED ON: 31 March 2000 DELIVERED AT: Brisbane HEARING DATE: 13, 14, 15 March 2000 JUDGES: Chesterman J ORDER: Judgment for the plaintiff against the defendant in the sum of $365,006.00 CATCHWORDS: CONTRACTS – DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH – PERFORMANCE - Whether defendant breached contract by failing to clean strainer in ice making plant – whether plaintiff’s failure to identify problem was the cause of the subsequent loss – whether defendant’s breach was “a” cause of the plaintiff’s loss –
DAMGAES – MEASURE AND REMOTENESS OF DAMAGES IN ACTIONS FOR BREACH OF CONTRACT – GENERAL - whether an impossibility of precise calculation of loss excludes an award of damages – whether intervening causes necessitating adjustment to damages for loss of profits – damages assessed
Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310
Astley v Austrust Ltd (1999) 161 ALR 155
Commonwealth v Amann Aviation (1991) 174 CLR 64
Howe v Teefy (1927) 27 SR (NSW) 301
March v Stramare Pty Ltd (1990 – 1991) 171 CLR 506
McRae v Commonwealth Disposals Commission (1950 – 1951) 84 CLR 377
Norton Australia Pty Ltd v Streets Icecream Pty Ltd (1968) 120 CLR 635
Sellers v Adelaide Petroleum NL (1993 – 1994) 179 CLR 332COUNSEL: Mr D R Murphy for the plaintiff
Mr P E Hack for the defendantSOLICITORS: Hogan Besley Boyd for the plaintiff
Dunhill Madden Butler for the defendant
CHESTERMAN J: The nature of the plaintiff’s business is indicated by its name. It manufactures and sells ice products mostly as bagged party ice but also in bulk form. Part of the plaintiff’s plant consists of a condenser, a structure about 30 feet high the purpose of which is to cool refrigerant from a gaseous to a liquid form. The purpose is achieved by passing the refrigerant through a pipe which coils down the condenser tower. Water emitted from jets at the top falls in a fine spray over the coils. At the same time a draft of air is forced upwards by fans. The draft evaporates the water from the surface of the coils thereby cooling the refrigerant inside. Water that does not evaporate falls into a tank or sump at the bottom of the condenser from which it is recirculated by means of a pump and pipe work which takes the water from the sump to the jets. To prevent the pipe and/or the jets from becoming clogged the water is mechanically strained before it enters the pump. The strainer located in the sump is a cylinder about half a metre long and 9 centimetres in diameter. Half of the surface of the cylinder is steel plate. The other half, also steel, is densely perforated to allow water through but prevent the ingress of impurities. One end of the cylinder is sealed by a rectangular steel plate which fits into a supporting bracket in the sump. A handle is welded to the solid part of the cylinder which is uppermost. The open end fits around the pipe which is the inlet to the pump.
The defendant’s business is to treat water used in industrial applications. From about the beginning of 1996 the defendant had periodically treated the water in the plaintiff’s condenser but did not regularly clean the condenser structure itself. That task was performed by one of the plaintiff’s employees but that man left the plaintiff late in 1997. The tower was last cleaned by the plaintiff in November 1996. As the summer of 1997 approached Mr Bradley, the plaintiff’s managing director, was concerned to ensure that its plant would be in good working order to cope with the demands of the season. He accordingly requested the defendant to clean the condenser as well as to treat the water in it.
The task was performed by a casual employee, Peter Rennie, on 26 November 1997.
Although the terms of the contract by which the defendant agreed to clean the condenser were not distinctly proved it appears that the task should have been performed in accordance with the terms of Australian Standards 3666, Clause 2.3.4 of which requires the water strainers in evaporative air coolers to be cleaned where necessary as part of their maintenance. The defendant concedes that part of Mr Rennie’s job was to clean the strainer.
The plaintiff operated two ice making machines both of which were serviced by the one condenser. Each machine is connected to a compressor which regulates its ice making capacity. The volume of ice made during each cycle of production is fixed, but by increasing the work load of the compressors the duration of the cycle is shortened, so that more ice is produced per hour of operation.
The plaintiff operated its equipment on two basic modes: winter and summer. For most of the year its customers’ demand for ice could be met by running the ice makers on winter mode but at times of peak demand it was necessary to change to the higher producing summer mode. In that mode the compressors force greater volumes of hot gas through the condenser coils than during winter mode. The temperature of the gas correlates directly to its pressure. The system is equipped with control switches which operate when the pressure exceeds a set limit. When this occurs the compressors are turned off and ice making ceases.
The days became unusually hot about ten days prior to Christmas 1997. Until then both had been operating satisfactorily on winter mode. On 15 December Mr Bradley turned one of his ice makers on to summer mode. That day, or the next, the ice maker ceased operating because of excessive pressure in the gas lines. Mr Bradley reset the pressure control valve and restarted the machine. It stopped again. Excessive gas pressure can be caused by a number of factors one of which is a dirty strainer. If the dirt is sufficient to reduce the flow of water the volume of spray, which falls on the coils, will diminish and the evaporative cooling effect will be reduced. Another factor is a blockage in the spray jets themselves. Other causes are to be found in the compressors or gas lines. Mr Bradley himself checked possible causes of the high pressure without finding anything amiss. He did not look at the strainer probably because the tower had been cleaned three weeks earlier.
Mr Bradley called in a technician from Scantec Refrigeration Technologies, a company specialising in the maintenance and repair of refrigeration plant. The technician, Mr Ivan Brown, attended on 18 December 1997. Mr Bradley asked him to set the control valves to allow the compressors to operate at a higher pressure. Mr Brown set them as high as he could. The next day the problem recurred and the ice makers stopped. Mr Bradley had himself checked all possible causes except the condenser. He turned his attention to this possibility and inspected the tower with the help of two employees, Mr Kriedemann and Mr Wakefield. They checked the pump and found it to be sound. They drained the sump and removed one of its sides. This revealed the strainer which appeared to be blocked. Mr Bradley tried to remove it but without success. Ordinarily the strainer can be detached from the pipe and taken from the sump without difficulty using one hand on the handle attached to it. Mr Wakefield, who was of small build, climbed into the sump and tried to dislodge the strainer. He could not do so even with the aid of a hammer and screwdriver. Mr Bradley assisted by using a steel bar and hammer to dislodge the strainer from where it fitted around the steel inlet pipe.
When the strainer was removed it was seen to be blocked by dirt, leaves and a calcium scale. The leaves and dirt were removed by hand and wire brush and high pressure water hose. The scale proved resistant and the perforations were restored to their proper dimension by using an electric drill. When the strainer had been cleaned it was replaced in the sump, the pump was reassembled, the sump was filled with water and the plant was restarted. Initially it ran on winter mode but it worked throughout the night of Sunday 21 December without mishap and on the Monday Mr Bradley put both machines on to summer mode. The plant then worked at full capacity without difficulty.
The plaintiff’s case against the defendant is that Mr Rennie did not clean the strainer on 26 November 1997 and that this constitutes a breach of the contract between the two companies. The interruption to the ice making plant is said to have been caused by the reduced flow of water spray which was insufficient to keep the refrigerant gas at an acceptable temperature and pressure. Because it could not manufacture ice in sufficient quantities to satisfy the demands of its customers it lost sales and, indeed, the continued business of established customers. Damages are claimed in respect of the lost sales.
The structure of the plaintiff’s case balances upon a single question of fact, which is whether Mr Rennie cleaned the strainer on 26 November 1997. The plaintiff’s case is that he did not. The defendant asserts he did.
The plaintiff relies upon evidence which is both direct and circumstantial. It called as a witness Mr Rennie who said that he did not clean the strainer. As well it relies upon the observed condition of the strainer on 21 December 1997 as indicating that it could not have been cleaned a month earlier. The defendant argues that Mr Rennie cannot be believed and that proof of the strainer’s condition in December depends upon evidence which likewise is unreliable. Consequently it says there is insufficient evidence to identify the strainer as the cause of the disruptions to the plaintiff’s operations.
There are substantial difficulties in accepting Mr Rennie’s evidence. He said, essentially, that cleaning the condenser was a routine task and he had no clear recollection of whether or not he had removed and cleaned the strainer. However he kept a diary of his work engagements in which he would occasionally comment on a particular job. For some time his diary was mislaid, but when he came across it in November 1999 he noticed that the entry for 26 November 1997 said, in reference to the plaintiff’s condenser, that it was “very dirty and full of leaves and rocks. Couldn’t get filter off – cleaned it from above”. The entry finished with the pious hope that what had been done would be “good enough”. Mr Rennie says that the entry in his diary would be an accurate record of what he did and did not do. In May of 1998 Mr Rennie spoke to an insurance loss adjuster engaged on behalf of the defendant and told him that he had removed and cleaned the strainer. He said in evidence this account was not true. In a written statement dated 25 May 1998 and signed by Mr Rennie he also said that he removed the filter (strainer) and cleaned it with a high pressure hose. Mr Rennie asserts that that statement, too, is untrue. On 20 October 1999 Mr Rennie was interviewed by the defendant’s solicitor whom he told that he had a clear recollection of removing and cleaning the filter. According to his testimony that assurance was similarly false. It was shortly after this conversation that Mr Rennie found his diary and recalled, or learned, that he had not cleaned the strainer. He did not, however, notify the loss adjuster or solicitor of the erroneous information he had earlier given them. Instead he rang Mr Bradley to tell him that the strainer had not been cleaned. Mr Rennie’s wife also worked for the defendant. At about the time he contacted Mr Bradley Mrs Rennie was encountering serious difficulties at work and in November 1999 she was dismissed. Both Mr and Mrs Rennie appeared to have considered her dismissal as unfair and unsuccessfully sought redress from the Industrial Relations Commission.
The terms of the diary entry do not inspire confidence that it was an accurate contemporaneous record of Mr Rennie’s activity on 26 November 1997. It appears plainly to be exaggerated. Mr Rennie’s dismissal provides a motive for Mr Rennie to desire to harm the defendant. Mr Rennie has given three versions of the relevant event: (a) that he cleaned the strainer
(b) that he did not clean the strainer
(c) that he cannot remember whether he cleaned the strainer.
In these circumstances I am not prepared to accept Mr Rennie’s evidence unless it is corroborated.
The defendant’s criticisms of Mr Bradley’s evidence are less justified. It is submitted that his testimony is discredited because he said one of his daughters took photographs of the strainer when it was removed from the sump on 21 December. Three photographs were put into evidence but Mr Brown, the Scantec technician, said that he saw photographs taken of the strainer on a subsequent occasion, 28 January 1998. He confirms that the photographer was one of Mr Bradley’s daughters. It is argued that Mr Brown should be accepted in preference to Mr Bradley. He was not cross-examined on this point. The photographer did not give evidence. Mr Kriedemann, who was a witness, and who assisted to remove and clean the strainer in December, made no reference to its being photographed.
I accept Mr Brown’s evidence and conclude that the strainer was photographed on 28 January 1998 not 21 December 1997. The photographs show a strainer which is quite clean apart from a large number of leaves adhering to its surface. In particular the metal is bright and the holes are clear and uniform in size. The photographs do not show a strainer in the condition described by Mr Bradley and Mr Kriedemann on the occasion they cleaned it. Mr Bradley said that the photographs were taken after Mr Kriedemann had commenced to clean the strainer at one end and before he removed the leaves, but I cannot believe this is right. I think it much more likely that the photographs show leaves adhering to the strainer which had been cleaned not long before.
I do not conclude from this that Mr Bradley’s evidence is worthless. Although he is mistaken on this point my impression was that he tried, and mostly succeeded, to give accurate evidence. The loss of business which the plaintiff undoubtedly suffered has, I think, made Mr Bradley anxious and he was on occasions more argumentative than responsive in his answers. These reservations mean his evidence should be looked at carefully but I thought that generally what he said could be relied upon. On the critical issue his evidence is supported by Mr Kriedemann’s.
That witness confirms that the strainer was difficult to remove and that Mr Wakefield climbed into the sump to dislodge it. He recounts that Mr Bradley and Mr Wakefield together took about twenty minutes to remove the strainer. Once removed he saw that it was covered with “leaves and black gunk and … scale”. He also corroborates Mr Bradley’s evidence that the strainer was cleaned with a wire brush and a drill.
I can see no reason not to accept Mr Kriedemann’s evidence. He was unsure of the date on which the strainer had been cleaned but he signed a statement dated 13 January 1998 which sets out the essentials of his testimony and which dates the events as being “on or about 21 December 1997”. The defendant contests the accuracy of the statement and its date and argues that the statement was composed by Mr Bradley or his daughter without reference to Mr Kriedemann who has no knowledge of anything but what is in the statement.
Mr Bradley does not deserve such an excess of suspicion. Mr Kriedemann explained that he could remember the occasion though not its date. He confirmed that the statement correctly set out his account. There is no reason to doubt that it was compiled on the date it bears. No challenge to this date was made in evidence. The date is fixed by exhibit 27, a letter which Mr Bradley sent to the defendant on or about 22 December 1997, but before 29 December, to complain about Mr Rennie not cleaning the strainer which had been found blocked a day or so earlier.
I accept Mr Kriedemann’s evidence which makes me confident to accept Mr Bradley’s evidence of the condition of the strainer. The evidence of Mr Sword, the defendant’s state manager and an engineer, establishes that a strainer in the condition described would not have been cleaned for several months. The reason it was difficult to remove is that immersion in water causes corrosion on the surfaces of the pipe and strainer where they contact, and this binds them together. If cleaned regularly this process does not have time to occur and the strainer can be removed easily. Mr Kapitzke, a mechanical engineer called by the defendant, gave evidence that if the operating pressures of the refrigerant fell to acceptable levels once the strainer was cleaned the obvious conclusion would be that it was the restricted water flow through the strainer that was responsible for the excessive pressure.
I therefore conclude that, despite his discreditable conduct, that Mr Rennie’s sworn evidence is correct and that he did not clean the strainer in November 1997. The plaintiff has proved a breach of contract by the defendant.
The defendant argues that the observed state of the strainer on 28 January 1998 precludes the deduction from its observed condition on 21 December 1997 that it had not been cleaned on 26 November. The logic is that the strainer had become so dirty in the month preceding at 28 January 1998 that its similar condition on 21 December provides no proof that it had not been cleaned a month earlier. The argument is not convincing because the condition of the strainer on the two occasions was different. It was certainly covered in leaves on the second occasion but, as the photograph shows, the surface of the strainer itself was clean. Moreover the equipment was working without difficulty. Mr Brown was able to remove the strainer in a matter of minutes. By contrast in December the strainer resisted removal and was covered in scale and corrosion. I have already mentioned Mr Sword’s evidence about the significance of these factors.
Counsel for the defendant points to some discrepancies between the accounts by Mr Bradley of relevant events given in evidence, to the loss adjuster and in contemporaneous correspondence. The discrepancies do not alter my opinion that Mr Bradley generally got his evidence right though he was mistaken on some occasions so that care has to be exercised in finding facts based only on his testimony.
Causation and Contributory Negligence:
Problems with the condenser reduced the plaintiff’s ice production for seven days. The difficulty was first encountered on 15 December and the blocked strainer was detected and cleaned on 21 December. In that time one of the ice makers was shut down completely and the other operated on reduced, winter, mode. The plaintiff suffered critical shortages of ice. A blocked strainer is a known cause of high gas pressure but that possibility was not investigated for a week. Mr Bradley checked and eliminated all other causes of excessive pressure.
From these circumstances the defendant submits that the plaintiff’s own failure to investigate the strainer as a possible cause of the problem, or to engage a technician to find the fault, was the cause of the plaintiff’s inability to make and supply ice. It is submitted that the plaintiff’s carelessness in this regard supplanted the defendant’s failure to clean the strainer as the cause of the plaintiff’s commercial difficulties.
The plaintiff’s claim is pleaded in breach of contract as well as negligence. With respect to the former the plaintiff’s contributory negligence is not relevant to the contractual claim. See Astley v Austrust Ltd (1999) 161 ALR 155. The plaintiff may assert the cause of action which is most advantageous to it notwithstanding that it deprives the defendant of a defence that would be available if the plaintiff had chosen a different cause of action. See Astley at p 168 para 44.
It is for this reason that the defendant puts its argument not on the basis of contributory negligence but on the basis that the plaintiff’s failure to identify the cause of the problem when it first occurred was the cause of its loss.
It is no doubt right that had Mr Bradley looked for the cause of the high pressure in the operation of the condenser or, more particularly, at the strainer he would have discovered it was blocked and cleaned it in time to avoid the severe disruption to its production which the plaintiff suffered in the week 15 to 21 December. Applying the “but for” test it may be said that Mr Bradley’s failure to look at and clean the strainer was the cause of the disruption and subsequent loss. It remains equally true that “but for” the defendant’s failure to clean the strainer in November there would have been no disruption and loss. There are two concurrent causes of the loss. In these circumstances I do not apprehend that the law requires a plaintiff to prove that the breach of contract was the “dominant” or the “effective” cause. It is enough if it was a cause of the loss or, put differently, that the breach of contract causally contributed to the loss. See Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 at 315B and 357F-358B, and Norton Australia Pty Ltd v Streets Icecream Pty Ltd (1968) 120 CLR 635 at 643. The law on this point does not appear to have been disturbed by March v Stramare Pty Ltd (1990-1991) 171 CLR 506 which was concerned with formulating a test for causation in actions in negligence.
It is clear that the defendant’s breach of contract was, at the very least, a cause of the plaintiff’s reduced ice production.
Damages
The plaintiff claims damages under six heads:
i Loss of production
ii Loss of profits
iii Cost of importing ice
iv Cost of recovering freezers from customers who cancelled supply contracts
v Expenses incurred in attempting to mitigate loss.
vi Costs of mitigation
The defendant is critical of much of the evidence advanced by the plaintiff in support of its heads of damage. There is some force in the defendant’s criticisms and a precise calculation of loss is impossible. The problem is particularly acute with respect to the claim for ongoing losses but here the problem lies not so much with the calibre of the plaintiff’s evidence but with the difficulty in ascertaining what would have happened had the plaintiff’s ice production not been disturbed. Before turning to the particular problems it is apposite to recall the appropriate principles. Street CJ said in Howe v Teefy (1927) 27 SR (NSW) 301 at 305-306
“What the question in every case is has there been any assessable loss resulting from the breach of contract …? There may be cases where it would be impossible to say that any assessable loss had resulted … but, short of that, if a plaintiff has been deprived of something which has a monetary value, a jury is not relieved from the duty of assessing the loss merely because the calculation is a difficult one or because the circumstances do not admit of the damages being assessed with certainty”.
The passage was quoted with approval by Dixon and Fullager JJ in McRae v Commonwealth Disposals Commission (1950-1951) 84 CLR 377 at 411-412. In Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 Mason CJ and Dawson J said at 83:
“The settled rule, both here and in England, is that mere difficulty in estimating damage does not relieve a court from the responsibility of estimating them as best it can. Indeed, in Jones v Schiffmann Menzies J went so far as to say that the “assessment of damages … does sometimes, of necessity, involve what is guess work rather than estimation.” Where precise evidence is not available the court must do the best it can. An uncertainty as to the profits to be derived from a business by reason of contingencies is not a reason for a court refusing to assess damages.”
(i) Loss of Production
The plaintiff claims that it operated one ice maker at reduced capacity from 15 to 21 December and that the other machine did not operate at all between 15 and 23 December. The capacity of both machines to produce ice on both summer and winter modes is known (I accept Mr Bradley’s evidence to that effect) so that a calculation of the lost tonnages of production can be calculated from which the value of loss sales and therefore loss profits can be ascertained. The defendant criticises the basis of the assessment arguing that the figure for lost production is largely speculative. Mr Bradley’s evidence vacillated on the point whether or not the plaintiff maintained records of actual production but none was produced. The defendant contends that both machines should have been running on summer mode on and from 22 December, the day after the strainer was cleaned. The plaintiff’s calculations allows for a short fall in production on 22 December of 19,584 kilograms.
The defendant also criticises the assumption that the plaintiff would have sold all the ice that could have been produced had the machines worked at full capacity. Given the evidence of the unusually heavy demands for ice I think the assumption is justified. The defendant next complains that the plaintiff has under estimated the cost of producing ice. It allows 9 cents per bag. The defendant’s analysis of the plaintiff’s accounts suggest that 21 cents is more realistic. I think this is right. I will therefore assess damages under this head using attachment 1 to exhibit 5 (the plaintiff’s accountant’s calculation) and adjust by deleting lost production for 22 December and increasing the cost of goods sold to 21 cents per bag. The shortfall in production becomes 298,088 kilograms. Adjusting for the loss avoided by importing ice the net lost production becomes 170,883 kilograms. This amount sold in five kilogram bags at 90 cents per bag yields a loss of $30,759.00. From this the cost of producing each bag at 21 cents ($7,177.00) is subtracted producing a loss of $23,582.00. I allow interest on this sum at 8 per cent per annum for 2¼ years. The amount is $4,244.00.
(ii) Cost of Importing Ice
These amounts are admitted in the sums of $17,590.00 and $17,900.00. What is not admitted is a claim for $660.00 representing the cost of sending the plaintiff’s own trucks twice to Byron Bay to collect loads of ice from an ice works there. Mr Bradley unsuccessfully attempted to prove the cost of that transport. No other witness supplied the deficiency. The amount is small and there is no doubt that there would have been costs both in labour and vehicle use. I allow the amount claimed. The defendant submitted the plaintiff should not be allowed the cost of importing ice on 28 December, after the strainer was cleaned. I cannot believe the plaintiff would have bought in ice if it could have made enough itself. Its capacity to stockpile ice had been destroyed for a week. The total under this head is therefore $36,150.00 from which savings of $5,495.00 ( at 21 cents per bag) must be taken leaving a net claim of $30,655.00. Interest of 8 per cent for 2¼ years is $5,518.00.
(iii) Lost Profits
What is claimed is the amount of loss suffered by the plaintiff after it resumed full production on 22 December 1997. The plaintiff can identify two substantial customers who reduced the level of their purchases because of frustration experienced in the supply of ice leading up to Christmas and one large customer which stopped buying altogether. As well a large number of small customers ceased to deal with the plaintiff. It managed, however, to win new customers. The task of ascertaining what is the overall loss in sales suffered is not easy. Mr Rink, the plaintiff’s accountant, has estimated the annual value of lost sales to the three major customers at $156,579.00. He has allowed this loss over a period of seven years reducing it by the cost of production to ascertain the profit figure and further reducing that amount by 10 per cent each year to allow for the chance that custom would have been lost for other reasons or replacement customers found. The sums representing losses to be incurred after December 1999 (ie future losses) are discounted at 6 per cent to reflect an accelerated payment. The resulting figure is just over $477,000.00.
The defendant disputes most aspects of this assessment. First it challenges the assumption that the customers stopped buying ice because the plaintiff could not supply their needs, ie because of the defendant’s breach of contract. It is necessary to consider the submission separately with respect to the three major customers. It is said of one of them, Morgan’s Seafoods, that its custom was not lost because of production difficulties but because the plaintiff refused to supply it. This is superficially true, as the correspondence shows, but the reality is more complex. Mr Bradley’s skills appear to lie in mechanics rather than marketing. He did not understand that the customer is always right and was less than conciliatory when the plaintiff’s failure to deliver ice was a subject of criticism. Mr Morgan was equally irascible and the business relationship between him and Mr Bradley quickly soured to the point where it dissolved. However it would not have been put under stress but for the defendant’s breach of contract which caused the plaintiff’s inability to manufacture sufficient ice to satisfy its customers. Moreover the plaintiff had to spread its available supplies among a number of customers all of whose demands could not be met. Mr Morgan had bought ice elsewhere when the plaintiff’s deliveries fell short, and had not clearly indicated that he would accept further deliveries of ice from the plaintiff who thereupon decided to redirect its meagre resources elsewhere. The plaintiff’s conduct in what used to be called “the agony of the moment”, a moment of the defendant’s making, does not shift the cause of the loss from the breach of contract.
The authority of Amann Aviation, especially at 93 per Mason CJ and Dawson J, and 118 per Deane J, and Sellers v Adelaide Petroleum NL (1993-1994) 179 CLR 332 at 349 show that a simplistic approach to causation is inappropriate. The court is obliged to assess, as best it can, the chance that a commercial advantage would have accrued to the plaintiff had the defendant not broken its contract, and to assess the value of the advantage. The judgment of Deane J in Amann shows that this approach is to be adopted even where the chance to be evaluated depends upon a course of action determined by a third party. Mr Morgan’s bad temper and Mr Bradley’s pride, as they affected the conduct of supplier and customer, are consequences of the breach of contract, not intervening causes exonerating the defendant from responsibility. The court’s task is to assess the degree of likelihood that Morgan’s Seafoods would have continued to deal with the plaintiff had the defendant’s breach of contract not brought about the circumstances which led to the cessation of trade.
The same considerations apply with respect to the other major customers who were Mistearl Pty Ltd and 7-Eleven Stores Pty Ltd. The first was the licensee or lessee of a number of BP service stations around Brisbane and the Sunshine Coast, all of which sold ice to motorists. The second was the franchisee of a number of convenience stores which also sold ice. In January and February 1998 they respectively notified the plaintiff that they would reduce the number of their outlets to which the plaintiff was to supply ice. In the case of Mistearl Pty Ltd the points of sale taken from the plaintiff were on the Sunshine Coast. 7-Eleven Stores Pty Ltd decided to diversify the suppliers of ice to its stores and divided its outlets in Brisbane between the plaintiff and its major competitor. The intimation from that customer was that the decision was taken “as a direct result of ice supply shortages experienced by Queensland stores in December 1997”. The decision made by Mistearl Pty Ltd was influenced by a lack of candour in the plaintiff’s handling of the short supplies.
The defendant concedes that the plaintiff is entitled to the loss of these customers on the basis of the value of the chance that they would have continued to buy all their ice from the plaintiff. However it argues that both customers had legitimate commercial reasons other than the disrupted supply for limiting their dependence on the plaintiff as a supplier and that these reasons would have led eventually to the same decision had there been no disruptions. The events of Christmas 1997 merely precipitated the decision.
The defendant’s accountant has analysed the plaintiff’s accounts for the years 1996 to 1999. Sales have been analysed by category of customer and by reference to each year. The analysis suggests to Mr Smith that factors other than the lost production in 1997 are influencing the plaintiff’s trading results so that it is not possible to identify what loss has resulted from disturbance to production as opposed to any other factor affecting sales. Mr Smith thinks that a line should notionally be drawn at the end of June 1999 after which no loss should be attributed to the defendant’s conduct. This allows eighteen months of reduced sales.
Mr Smith estimates the loss of gross profit suffered by the plaintiff from the loss of the three major customers at just over $120,000.00 for the year 1998/1999. He is strongly critical of Mr Rink’s choice of seven years as the period over which loss should be assessed. The selection, he says, is arbitrary. So, however, is Mr Smith’s preference for eighteen months. It is impossible to know what would have happened had the plaintiff been able to make full deliveries of ice. It is noteworthy that it had no long term contracts in place. It dealt on the basis of an expectation of continuity but its customers were free to buy as much or as little from the plaintiff as they chose. The fragility of its arrangements may be seen in what happened. If not this event then something else may have persuaded Mistearl and/or 7-Eleven stores to diversify their supplies or Mr Morgan to buy elsewhere. On the other hand the plaintiff had satisfied those customers for a considerable time and had it not disappointed them the plaintiff may well have continued to enjoy their custom for years.
I agree that seven years is too long but I prefer Mr Rink’s method of allowing a diminishing loss over years to take account of the fact that the plaintiff will replace the lost customers over time and that there was volatility in the customer base, to Mr Smith’s method of fixing a discrete sum for a limited period. The plaintiff lost more than its three major customers, but it actively sought to replace its lost custom and has been partially successful. The authorities I mentioned indicate that there is neither science or art in an assessment of damages made in circumstances like the present. I propose to allow a loss of $100,000.00 over four years but diminish it by 25 per cent for each year. The loss is therefore $250,000.00 (year one: $100,000.00 year two: $75,000.00 year three: $50,000.00 year four: $25,000.00). I will allow interest for the first two years’ loss at four per cent for two years. I have halved the rate because the loss was not incurred at the beginning of the period but over the time between January 1998 and January 2000. I will not discount the component in respect of future loss to allow for its immediate receipt. The assessment of $100,000.00 is itself discounted to take such factors into account. The total amount allowed under this head, including interest is $264,000.00.
(iv) Recovery Cost
The plaintiff lent freezer units to the retail outlets it supplied with ice. When customers decided to change suppliers they did not need or want the plaintiff’s freezers. The plaintiff was obliged to collect the freezers and store those it could not immediately relocate. It claims the cost of recovering and storing them. This claim is not contested as an item of loss but the plaintiff wants more. Some of the returned freezers were in need of restoration. The plaintiff had them repaired, refurbished and repainted and it claims the cost of doing so. The defendant argues that these costs were part of the ordinary expense of the plaintiff’s business and were not occasioned by its breach of contract. It points out that the plaintiff’s expenditure on repairs and maintenance in each of the years 1998 and 1999 are of the same magnitude as in previous years. Moreover there was a saving to the plaintiff from the refurbishment. The cost of a new freezer is about $5,000.00. The plaintiff supplied freezers to new customers. By utilising the refurbished freezers it saved that capital expenditure.
I think the defendant’s point is good. The cost of restoring the freezers was not occasioned by the defendant’s breach of contract but by ordinary wear and tear to the cabinets from their daily use in the plaintiff’s business. Their return which was occasioned by the defendant’s breach, might have presented the plaintiff with the opportunity to refurbish them but their condition which required refurbishment was not a consequence of the breach. Accordingly I will allow under this head:
$1,239.00.00 for towing
$14,700.00 cost of storing the returned freezers
$432.52 electricity at the storage site
$373.75 for the cost of lifting and relocating freezers
$350.00 for returning freezers.
As well some work was necessary to repaint or redecorate freezers because it is customary for them to be painted in the colours of the business from which the ice is sold. The amount for repainting etcetera is $1,461.45. The total under this head is therefore $18.556.72. Interest is allowed at 5 per cent for 2¼ years in the sum of $2,087.64. I have chosen 5 per cent because the largest component of loss in this category is the cost of storage which was incurred over the period between Christmas 1997 and trial. A rate of 4 per cent would be appropriate for that item and 5 per cent overall.
Costs of mitigation
The plaintiff employed a salesman, James Eckersley, to boost its sales after the loss of contracts in January 1998. It seems his efforts were substantially successful and the extent to which the plaintiff reduced its losses is reflected in the damages I have assessed. Mr Eckersley’s employment was a reasonable attempt to mitigate its loss and the plaintiff is entitled to the additional costs of engaging him. The amount is accepted in the sum of $15,093.00. I will allow interest at 8 per cent for one year, $1,207.00.
The plaintiff also claims just under $15,000.00 on a similar basis for the employment of Miss Vicki Bradley who was taken on by the plaintiff in about April 1998 in a similar capacity to Mr Eckersley. I do not think it reasonable to allow the cost of employing Miss Bradley. No doubt she has proved to be a valuable servant to the plaintiff but I infer that the decision to employ her was affected by family considerations and her parents’ desire to give her secure employment.
I allow the sum of $63.00 invoiced by Scantec on the occasion it attended the plaintiff’s premises on 18 December 1997. The visit was of no benefit to the plaintiff and was an attempt to overcome the problem of interrupted production.
There will be judgment for the plaintiff against the defendant in the sum of $365,006.00.
3
0