Barkin Construction Ltd v Re-Source America International Ltd

This is an appeal with the permission of Carnwath L.J. from part of a judgment on quantum given by His Honour Judge Thornton Q.C. in the Technology and Construction Court.

Spools in a warehouse on Deeside occupied by the claimant, Re-Source America International Ltd., were destroyed by a fire caused by the negligence of Barkin Construction Ltd., the defendant to the Part 20 claim. The judge awarded Re-Source the cost of buying new replacement spools. However the spools which were destroyed had been used and were with Re-Source awaiting refurbishment so that they could be used again and on its appeal Barkin contend that it should have been given credit for the saved cost of refurbishment. By its respondent’s notice Re-Source say that no such credit need be given because but for the fire they would have refurbished the spools and been paid the amount in question for doing so.

The spools belonged to Corning Inc. They were used to carry fibre optic cable manufactured by Corning who had a plant on Deeside as well as others in the United States and other parts of the world. Re-Source was the English subsidiary of a U.S. company whose core business was the refurbishment of Corning’s Spools. Hence its location close to Corning’s plant on Deeside. There were other Re-Source companies similarly located in other parts of the world. The contract between Corning and Re-Source required Re-Source to refurbish used spools returned to Corning by its customers for fixed prices and to exacting specifications. The work involved cleaning, re-labelling and adjusting the spools to ensure that when re-used the cable wound onto to them would not be damaged.

Re-Source started trading in December 2000 at much the same time as Corning’s nearby plant started production. Until the end of April 2001 it was engaged in achieving quality qualification from Corning. The fire occurred on 15 May 2001 by which time Re-Source was refurbishing about 10,000 spools per month. The judge found that it had to achieve 5,000 spools per week in order to break even.

About 130,000 spools awaiting refurbishment were destroyed in the fire. There was no available supply of used spools and so the judge found that as a consequence of the fire Corning had to and did purchase over 100,000 new spools at a cost of over $1.28m. which is the amount he awarded on this part of the claim.

After the fire Re-Source relocated its operation in nearby premises. The evidence from its manager was that it kept on its workforce and was up and running again by the end of June 2001. However, quite unexpectedly, in the following month the bottom dropped out of the market for fibre optics. This caused Corning to stop production at its Deeside plant in October 2001. The evidence from Mr Grey, the Chief Executive Officer and founder of Re-Source’s parent company, was that:

The company’s plant in the United Kingdom … got closed on December 31 2001 following a down-turn in demand for optical fibres.

Re-source never traded at a profit. Its accounts for 2001 show that its cost of sales exceeded its turn-over by about £20,000 although it had been refurbishing used spools throughout the latter part of the year during which time its productivity had improved slightly.

Re-Source claimed the cost of replacing the destroyed spools as bailees in possession. That was a claim it was entitled to make in its own right. We heard some argument about a bailee’s liability to account to his bailor for what he recovers in such circumstances, but it was accepted by Mr Hickey for Re-Source that in this case Re-Source was liable to account to Corning for anything recovered from Barkin in respect of Corning’s loss.

But Re-Source also claimed for its own loss. This loss, it said, was subsumed in the cost of purchasing new spools. Thus Corning’s loss was that cost less what it saved by not having to refurbish the destroyed spools and Re-Source’s loss was its loss of the revenue which it would have earned from refurbishing the destroyed spools. It is Barkin’s contention that Corning’s saving was just over $½m..

Barkin accepted that Re-Source could recover any loss of profit which it had suffered as a result of not refurbishing the destroyed spools, but contended that no such loss had been proved. Before the judge Mr Cannon for Barkin also made the point that loss of revenue was not the same as loss of profit. Re-Source had given no credit for what it would have cost to carry out the re-refurbishment and had not attempted to formulate its claim in this way. Moreover it had not established that between the time of the fire and when the plant closed at the end of the year it had been short of work. At the rate of production it was achieving it would have taken the best part of a year to refurbish the destroyed spools so in any event it would not have done this work before its plant closed. There was no basis therefore for claiming that it had been deprived of any revenue by the fire.

The judge had to resolve a number of issues about the claim for the cost of replacing the spools which do not arise on this appeal. On the issue which does arise all he said was:

…I am clear that no allowance should be made for betterment or saved refurbishment costs. The bottom line, from Corning’s point of view, was that it had to buy over 100,000 new … spools to replace the destroyed … spools much earlier than it would otherwise have done in circumstances where the destroyed chattels had a long and remunerative remaining commercial life left to them and where they could only be replaced by new chattels since second-hand or used chattels … were not readily available when the spools required to be replaced.

As I understand it, Barkin had taken a point about betterment but it now accepts that it cannot rely on any new for old argument for the reasons given by the judge (see Harbutt’s Plastircine v Wayne Tank & Pump Co. [1970] 1 QB 447, 468, 472/3 and 476 where it was held that in such circumstances a claimant does not have to give credit for an unwanted and unavoidable benefit).

Mr Hickey conceded that in assessing Corning’s loss as a result of the fire credit had to be given for what they saved for not having to pay Re-Source the cost of refurbishing the used spools which were destroyed. Put another way the measure of Corning’s loss for the fact that its spools were destroyed was what it had to pay to replace them with new spools less what is saved by not having to pay to make them useable.

I think Mr Hickey was right to make this concession and the judge’s reason for awarding the full cost of replacement without deduction was wrong. There is no issue of principle involved in this conclusion or in any of the other issues which arise on this appeal.

If Re-Source suffered financial loss as a result of not refurbishing the destroyed spools which was attributable to the fire it was recoverable. The issues before us boiled down to whether we could be satisfied that Re-Source had established at trial that it had suffered a loss equal to the full cost of refurbishment as Mr Hickey contended; or whether, as Mr Cannon contended, Re-Source had not established that it had suffered any loss; and finally if we could not be satisfied that either party was right whether we should remit the question of Re-Source’s loss if any to be decided by the judge.

On the evidence before the judge there can be little doubt that Re-Source failed to establish that it was entitled to the full cost of refurbishment. It did not adduce evidence to show that it was short of work between the end of June and when its plant closed at the end of the year. The clear inference from the evidence of Mr Grey was that Re-Source’s Deeside plant closed because of what had happened to the fibre optics market and the fact that Corning’s plant nearby ceased production. It could not possibly therefore have refurbished anything like 100,000 spools during this time given that its productivity did not increase to much more than 10,000 spools per month. Furthermore Re-Source was not trading profitably and it is not possible to see how, if it was to process substantially increased numbers of spools, its operating costs would not also have increased. A claim for the full amount which it would have received from Corning for this work could never have been justified.

Mr Hickey submitted that Re-Source’s claim had to be judged as at the date of the fire or when the replacement spools were purchased. Subsequent events such as the fall in the market for fibre optics and the closure of Re-Source’s plant were irrelevant. This submission is untenable. At the date of the fire Re-Source had suffered no financial loss of the kind it claimed. The only way in which its claim could be judged was by looking at what actually happened after the fire during the period when it is said that the loss was suffered.

I am inclined to think for the reasons I have already given that Re-Source failed to establish any loss of its own. On the other hand there must have been a loss of production in the six weeks or so after the fire and it may be that there was some further loss in the months which followed. On any view however Re-Source would have to give some credit for what they saved in operating costs. All in all I think the most that can be said is that Re-Source might have established some modest loss of its own if that is how it had chosen to present its case.

But that is not how it chose to present its case and this, I think, is relevant to the final issue we have to decide as to whether we should send this case back to the judge. In the course of his submissions to us Mr Hickey asserted that Re-Source would say that but for the fire it would not have closed its Deeside plant and would have been able to refurbish all the destroyed spools profitably. This opens up a whole vista of new and complicated issues which were never before the judge at the first hearing. The issue of liability in this case has already been before this court so the costs of the proceedings are substantial. I think it would be quite disproportionate for us now to order that there should be a further hearing on quantum to enable Re-Source to make a case which it chose not to make before (particularly if the issues are to be expanded) – a case which, I think, is of doubtful merit and unlikely to result in anything other than a modest award.

For these reasons I would allow this appeal. Re-Source’s claim falls to be reduced by the saved cost of refurbishment. The precise consequences of this in money terms can no doubt be agreed. The agreed amount should be substituted for the sum awarded by the judge.