Transafrik International Ltd v Venus Corporation Ltd

On 1^st May 2008 Mr Justice Ramsay in this court gave judgment in favour of the claimant in this action with damages to be assessed. The reason why such judgment was entered was that the defendant had failed to comply with an unless order made on 29^th February 2008 for the provision of further information requested by the claimant on 13^th November 2007. There had been two earlier orders against the defendant relating to the provision of this information which had not been complied with. The defendant does not appear today.

So far as general practice is concerned in relation to assessments of damages, the following should be of assistance to practitioners:

So far as this particular case is concerned, the claim is set out in the Particulars of Claim which I will summarise. The claimant was at all material times engaged in the business of freight carriage in Africa, primarily on behalf of non-governmental organisations. It is and was the lessee and operator of a Lockheed Martin Hercules (L382-44K-30) aircraft manufactured in the United States of America, of which the owner is the claimant's holding company. The aircraft is registered in Sao Tomé and is accordingly obliged to comply with the rules and regulations relating to the flight and manoeuvre of aircraft in force in Sao Tomé and subject to the control of the Civil Aviation Authority of Sao Tomé, including its aircraft certification rules.

The defendant was at all material times an aviation technical consultancy which held itself out as a specialist in the repair of damaged aircraft, a specialist in Lockheed Martin provenance and having particular experience in L382 Hercules aircraft. The defendant's managing director at all material times was one Andrew Villis, who is a gentleman who has had communication with this court in the past, and indeed I believe on one occasion appeared before it.

On 10^th June 2005 the Hercules aircraft landed heavily at the remote airfield of Lokichoggio in Northern Kenya sustaining serious damage. The defendant was called in, inspected the aircraft and prepared a damage assessment report thereof in about November 2005. The defendant advised the claimant that the aircraft could be economically repaired and identified what the remedial works required were. The defendant offered its own services to carry out those remedial works.

The parties entered into a written agreement dated 3^rd January 2006 by which the defendant undertook to carry out repairs to the aircraft as defined in Appendix A to that repair agreement. There were certain relevant express terms of the repair agreement: first, in article 2.1, that the defendant would furnish the services of its technical specialists and engineers to accomplish field repair of the aircraft at the airfield at Lokichoggio in Northern Kenya.

By article 2.2 the defendant undertook to provide all necessary parts and materials to accomplish the repair as determined by the defendant, and to undertake the repair to the damaged aircraft systems and structures in accordance with the aircraft's structural repairs manual, Lockheed maintenance manual and FAA/JA approved data. They undertook the work with appropriately qualified and experienced personnel approved under the defendant's aircraft maintenance organisation certification. They undertook also to obtain organisational repair site approval from the Civil Aviation Authority at Sao Tomé, from the Kenya Civil Aviation Authority and from any other regulatory authorities applicable. They undertook to certify the replacement of damaged parts to the original aircraft design certificate and to carry out repairs in accordance with the requirements of the Sao Tomé Civil Aviation Authority, the approved design organisation and/or the manufacturer.

By article 3 the defendant undertook to certify the aircraft to the procedures and processes defined by Lockheed Martin, to issue a certificate of conformity for the work carried out on the aircraft by its personnel and to certify the certificate of conformity using appropriately experienced and licensed engineers under its aircraft and maintenance organisation certification process.

By article 4 the defendant undertook, following receipt of the advanced payment (to which I will turn next), to begin construction of the concrete hardstanding which was required to facilitate the repair works within seven days, to enable the repair works to commence on or about 19^th February 2006 and to exert reasonable efforts to complete the repair works on or before 31^st May.

By articles 5 and 6 the consideration for this repair programme was $3 million payable in three instalments: $1.5 million by or on 3^rd January 2006; the second payment of $750,000 upon invoice on achievement of what was known as "the power-on stage"; and, thirdly, the final payment of $750,000 upon receipt of an invoice on completion of the contractual works.

Various implied terms were also relied upon by the claimants, as were various implied representations. It is clear, and indeed was admitted, that the claimant had paid the defendant the first two payments totalling $2.25 million. The pleaded claim in terms of liability is that the claimant had failed to complete the contractual works and, by the time that the Particulars of Claim were served (which was in June 2007), had ceased work altogether.

The breaches, briefly, were that the defendant had failed to exert reasonable efforts to complete the repair works on or before 31^st May 2006 and failed to carry out the work within a reasonable time. It was pleaded that the contractual works should have been completed by the end of June, or certainly no later than July 2006.

It was next pleaded that the claimant had failed to undertake the work with appropriately qualified and experienced personnel approved under the defendant's aircraft maintenance organisation certification process.

Thirdly, it was said that the defendant failed to carry out the repairs in accordance with the requirements of the Sao Tomé Aviation Authority, the approved design organisation and the manufacturer.

Fourthly, it was said that the defendant had failed to certify the replacement of all damaged parts to the aircraft.

It was then said that the defendant had failed to carry out the contractual works with reasonable skill and care, and the particulars of that were that the defendant had failed to take reasonable and/or adequate measures to procure timeously all parts required to carry out the contractual works, including wing frames, schedule for delivery to the site in or around August 2006 (which were never supplied), and upper longerons which were delayed by approximately six months, arriving in about January 2007. It was said that the defendant failed to ensure the contractual works were documented in accordance with the applicable regulations.

Another breach was that the defendant did not hold all the licences, qualifications and certification reasonably necessary to enable it to fulfil its obligations under the repair agreement. There was reliance placed on the assertion that there were representations which were false.

The quantum said to have flowed from this was based upon the fact that the claimant was unable to make any commercial use of the aircraft. The particulars of that are these:

"22.1

loss of use of the Aircraft: US$150,000 per month in net lost revenue from July 2006 to the date hereof, being US$1,800,000 to date and continuing at the said rate.

22.2

diminution in value of the Aircraft by reason of the said Breaches: The Aircraft is unable to achieve a certificate of airworthiness and/or certificate of release for service and has no commercial value beyond its salvage value. Under the terms of the lease between the Claimant and Transafrik Worldwide Limited ('TWL') in respect of the aircraft the Claimant is required, upon termination of the lease, to deliver the aircraft to TWL in the same working order, condition and appearance as when received pursuant to the lease. The Claimant is accordingly itself liable to TWL for diminution in value of the aircraft consequent upon the Defendant's aforesaid breaches of contract and has suffered loss and damage in such sum. The Claimant is unable to give full particulars of such loss at the rate thereof, but estimates the figure at approximately US$5,000,000 and will give particulars when available."

(As I will be giving judgment in dollars, it is unnecessary to review the exchange rate.)

Pursuant to the orders of Mr Justice Ramsay, first of all, a witness statement of Rebecca Mary Bedford Samuel was served fractionally but immaterially late, pursuant to that order, which set out in detail the factual basis on which the assessment of damages was sought. Her witness statement was based on instructions from the directors of Transafrik - in particular Mr Rodrigues and Mr Koch. Since then a witness statement of Mr Rodrigues has been served which is, to all intents and purposes, a repetition of what Ms Samuels says in her witness statement she had been told by Mr Rodrigues and Mr Koch. Mr Rodrigues is a director of Transafrik and clearly has had a long and relevant experience in this field of work.

I now turn to the assessment of damages. I must assume, judgment having been entered as a matter of fact in terms of liability, that the claimed heads of breach have been establish, and I proceed on that basis.

I now turn to the two heads of loss: first of all, the loss of use of the aircraft - $150,000 a month. Mr Rodrigues explains in his witness statement from paragraphs 11 through to paragraph 20 why and how that rate of $150,000 a month is calculated and justified. It is clear from what he says and documents attached to his witness statement that the figure was initially based on a budget which he and his company had prepared for the use of the relevant aircraft for 2006.

That budget prepared by the chief executive officer of Transafrik showed (and I speak in very broad terms in terms of the figures) a gross revenue of $420,000 a month and direct costs of $268,000 a month, which left a contribution - a gross operating profit - of about $151,000 a month. But from that were deducted indirect costs of $42,500, leaving a net operating profit of $109,000 per month. Indeed, it was on that figure that the letter before claim, or the pre-action protocol letter, was based.

Mr Rodrigues seeks to justify the higher figure of $150,000 per month in this way. He says (and I accept) that the aircraft was contracted under a United Nations World Food Programme and the job of the aircraft and its crew was to take food and other supplies and drop them in needy parts of the world - Somalia, Southern Sudan and Darfur. He has said that there was a minimum flying time guaranteed of 150 flight hours per month. He says that that would produce, as a minimum, $404,000 per month and that it is probable that more than the minimum would have been worked. He says that it is unlikely that there would be any major or significant time taken out for maintenance and he says that it would not have been possible for Transafrik to use any alternative aircraft to fulfil or accept carriage contracts since 1^st July: all the other aircraft had been fully engaged. He says (and indeed I accept) that it would not have been possible to charter an alternative aircraft to complete the obligations of the particular aircraft.

To calculate the net operating profit he then, in paragraph 15 of his statement, sets out what he says are the running costs of similar aircraft. If to that one adds the monthly rent, one comes to a figure of $254,000 - at least approximately - so far as the monthly cost to operate the aircraft is concerned. He therefore takes the minimum monthly gross revenue of $404,250 and he takes from that the figure of $254,000 to come to a figure rounded fractionally down to $150,000 per month.

Reviewing this evidence, whilst I can see that a reasonable minimum net operating profit of $109,000 per month can be justified, I had no explanation from Mr Rodrigues as to why the indirect costs which are referred to in his budget should not be deducted from the minimum monthly gross revenue of $404,250 which is put forward. He has only given evidence in his witness statement about the direct running costs and the rental of the aircraft. Given that important lacuna in his evidence, I am satisfied only on the balance of probabilities that he has established - and thus the claimant has established - that it has lost every month only $109,000 per month, and that is the basis on which I will give judgment in respect of the loss of the use of the aircraft from July 2006 to today's date.

I now turn to the diminution in value of the aircraft. Mr Rodrigues says (and I accept) that the aircraft is a write-off. By reason of the delay associated with the repair, the aircraft is now unable to comply with other routine service bulletins and other routine maintenance work. To start the repair again and in effect re-certify the work carried out by the defendant and comply with the various maintenance requirements of the aircraft would be completely uneconomic and would cost well in excess of the $5 million loss of value claimed.

Mr Rodrigues then goes into some detail in providing his evidence as to what the current value of the aircraft duly repaired and certified would have been as at today's date. He says that it is his estimate that the open market value of the aircraft duly repaired and certified in full working order would be between $6 million and $8 million. He bases that on the fact that the insured value of the aircraft is $6 million. In fact in his statement he refers to it being $5 million, but it is clear from the insurance policy which he exhibits that that must be simply a transposition error, because the insurance policy shows that it is valued at $6 million. He refers to negotiations with a company called First Air in May 2006 in which an offer was made from First Air to purchase a similar Hercules aircraft for $7.5 million. Again, his witness statement refers to an offer of $9 million, but in fact the documentation reveals that there was an offer of $7.5 million and a clear indication in the set of negotiation emails that First Air were actively considering increasing that offer significantly above $7.5 million.

The third piece of evidence upon which he relies is the fact that Transafrik sold to their only competitor, SAFAIR, in October 2004 five similar Hercules aircraft for $6.1 million each. He averts to the fact that these aircraft, although fairly old, have a scarcity in the market place. Their particular usefulness for the United Nations food and medical supply drop activities is clearly a specialist one but one for which the aircraft is apparently highly suited.

Mr Rodrigues says, and I accept, that the probability is that the value of the aircraft, in its fully repaired and certified state, would have been between $6 million and $8 million and that the figure of $7 million represents a reasonably conservative figure for what its value would have been if the defendant had not acted in breach of contract.

Against that figure, he accepts that it is likely that there would be a salvage value of the parts. In particular, the engines and propellers of the aircraft, he said, would be worth some $800,000, whilst other components, including the instruments, radios and other technical equipment, would be worth approximately $700,000. It is his view that the hull's value is almost zero and will be disposed of as scrap metal material on site by way of tender, with the successful tenderer being responsible for the removal of the hull from the site.

He is of the view that the diminution in value, that is, the difference between the value in its repaired and certified state of $7 million and the salvage and scrap value is $2 million, leaving a diminution in value of $5 million. It seems to me, in all the circumstances, that this head of claim has been established on a balance of probabilities and therefore there will be judgment also in respect of the capital diminution in the sum of US$5 million.

So far as interest is concerned, there will be no interest on the diminution in value of the aircraft because it seems to me that Mr Rodrigues has produced a value which is current in July 2008, and therefore it would be wrong to apply interest to that. So far as the loss of income is concerned, there should be interest from, and including, July 2006 to July 2008 on the monthly sum of $109,000. I will leave to counsel and solicitors how to work out arithmetically what that is, and I will ask them to produce the draft order which should have the calculation attached to it as well as the total.

Interest will be at the rate of 8%, simple, per annum, and that seems to me to be an appropriate rate in all the circumstances.