The Hon Mr. Justice Holland: Introduction
- The Defendants are and were water undertakers for the purposes of the Water Industry Act 1991. On the 3rd July 2001 their mains water pipe situate at the junction of Goldhawk Road and Brackenbury Road (respectively in Hammersmith, London W6) burst. In the result, by virtue of Section 209 of the 1991 Act, they were liable for any loss and damage occasioned by the resultant escape of water.
- In the event a considerable quantity of the escaped water entered the premises at 3A Brackenbury Road then occupied by the Claimants, Aerospace Publishing Ltd ("Aerospace") and Midsummer Books Ltd ("Midsummer") and caused loss and damage. Liability for such pursuant to Section 209 has been admitted; the outstanding issue and the subject of the trial before me, is quantum, that is, as to the extent and nature of the loss and damage.
- Continuing this introduction, the two Claimant companies were incorporated in 1977, respectively to further the publishing ambitions of Mr. Stanley Morse. The latter (now aged 62) has an 80% shareholding in each company and they have traded pursuant to his control as the respective managing director. Albeit closely associated, sharing the same premises and subject to the same overall control, these companies have maintained separate corporate identities, covering differing areas of commercial activity and accounting separately. Thus, at all material times up to the escape of water ("the flood") Aerospace furthered Mr. Morse's personal interest in, and enthusiasm for all matters aeronautic by bringing about the publication at intervals of high quality, lavishly illustrated, formidably researched works on all aspects of aviation and its history. Midsummer brought similar qualities to publications relating to military history and to a variety of other topics. Adverting to the pre-flood period, 1977 – 2001, these companies became well established, acquiring assets and, at least in surges, producing profits.
- The assets of Aerospace included an archive of photographs, artwork and reference material all relating to aviation that was by 2001 remarkable for its size, such reflecting a truly comprehensive nature arguably unique in private hands. Midsummer also had its archive reflecting its more diverse interests: this was substantial but it did not match that of Aerospace. As at the 3rd July 2001 these archives were in filing cabinets at the Brackenbury Road premises. In the event the flood caused extensive damage to these archives, particularly that of Aerospace. In the result the issues for me are as to the quantum of the Section 209 loss and damage to these archives and consequential loss. Before identifying and ruling upon the precise issues, it is essential to make detailed findings of fact. I turn to such forthwith.
Aerospace Archive
- 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 research embraced visits to, and acquisition of 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 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; perusal of the financial statements serves to identify sustained expenditure on this asset:
Year ending 31st December 1998 £24,970
Year ending 31st December 1999 £17,396
Year ending 31st December 2000 £14,203
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 wherewith to illustrate a given topic – pictures notable for their technical precision, essentially bringing the draughtsman's drawing to life. In the overall result the book value of the archive as at the end of 2000 was £562,298.
- The overall expenditure on and for the archive was not limited to acquisitions. From 1995 a semi-retired aviation expert, Mr. Douglas Stroud, was engaged on a freelance basis to 'integrate' the archive by arranging and cataloguing it. Confronted with the then newly acquired separate collections, his task was to fashion one 'collection' out of the now available material, that is, to form the Aerospace archive. The task was monumental given the amount of this material and the steady accretion of more material, but by May 2001 he had accomplished part of his task: the photographs were then integrated and indexed by subject on an A to Z basis. Other cataloguing work continued and in the event he was on the premises when the flood occurred.
- Granted that Mr. Stroud's efforts were directed towards integration into one collection for the benefit of Aerospace, the provenance of the contributing collections served to raise the external prestige of the whole. Thus, by way of example, the fact that the Pilot Press Collection (as put together by a legendary figure in the compilation of aviation history, Mr. William Green) accounted for a significant part of the content of the archive undoubtedly contributed to the reputation and thus the market value of the whole – I write 'undoubtedly' although there is an issue between the valuation experts as to the extent of such contribution to which I return subsequently. Before parting from this point, there is exhibited a poignant and informative letter to Mr. Morse from Mr. Green dated the 14th July 2001 penning his appalled reaction to the damage and destruction caused by the flood to the archive and in particular, to so much of it as was constituted by his own lovingly compiled Collection.
- I turn to the physical dimensions of the archive at the 3rd July 2001. As to this, I find the following:
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: I write 'at least' in deference to further evidence to the effect that there were over 3,600 – I am satisfied that the difference does not call for resolution. The files were in alphabetical order with each file referable to a specific topic, typically an aircraft type. As to the distribution of topics, I was told in evidence that on a broad-brush basis they 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. These covered the full spectrum between the historically valuable rarity and the relatively commonplace. Again there was a spectrum as to quality. Yet further, the Claimants' own postflood investigations have revealed a level of duplication: their assessment of 15.8% is not challenged. What can be claimed for this part of the archive is that the scope for illustration of aviation and its history by way of photographs was exceptional and arguably unique. Yet further, a significant proportion 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 this field. I have used the term 'images': the total 218,262 includes 198,262 photographs – the balance is made of up of other forms of images, for example transparencies.
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 the artwork. In the course of its trading Aerospace commissioned or otherwise acquired artwork images: paintings of aircraft executed by specialists with an exactitude in terms of detail to satisfy the purist. By July 2001 there was in the archive over 5,000 items of such artwork, such covering a great range of aviation subjects.
Midsummer's Archive
- 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. That said, 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.
Partworks and Journals
- A key component of the Claimants' 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 work the partwork publication runs for a pre-determined prolonged period, typically for 200 or more issues. A Claimant company engaged in this activity formulates an idea for a new partwork and then causes it to be subjected to market research. Thus far the work is 'in house' and at the expense of the Claimant company. Thereafter the enterprise proceeds in partnership with a publisher. The Claimant company prepares the editorial and illustrative content of each issue (retaining copyright); the publisher publishes and markets 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.
- Aerospace had spawned partworks as follows:
1980 Illustrated Encyclopaedia of Aircraft;
1984 Warplane;
1987 Take Off (re-launched in 1992);
1989 Airplane;
1997/8 World Aircraft Information Files ("WAIF").
- Midsummer has spawned similar partworks on military and other topics.
- For the purposes of the trial much attention was naturally focussed upon WAIF. Started in 1997/8 this partwork issue was still in progress as at the flood: Issue 180 had been published; Issue 181 was in the course of editorial preparation; and as at that time it was contemplated that the full work would be complete as at the publication of Issue 210 (or thereabouts). As was normal, Aerospace employees (for administrative convenience then on the Midsummer payroll) were preparing each issue for the printers, that is, they were compiling the editorial content and deciding upon the numerous illustrations. Publishing had been contracted to Bright Star Publishing PLC, a company then jointly owned by Mr. Morse and a company independent of him, Eaglemoss Publications Ltd, in equal shares. Adverting to the Aerospace editorial team, it then consisted of Paul Eden (Editor), John Heathcott (Deputy Editor) and two designers. Such team brought to the enterprise a dedication to, and a real expertise in aviation matters – as perusal of the sample issues put before me graphically demonstrates. The income to Aerospace pre-flood was substantial. The precise nett return is a matter of some controversy (see later in this judgment) but it is accepted that the pre-flood income nett after allocated overheads (but subject to some possible offset against unallocated overheads) totalled at least £512,836.
- Additional to its output of partworks Aerospace had published lavishly illustrated 'glossy' journals on aviation topics: World Air Power, Wings of Fame and Aircraft of the World. These offered an in depth approach to their respective topics, with content prepared by enthusiasts for enthusiasts, and knowledgeable ones at that. World Air Power focussed on current military aircraft and was published quarterly. In the event there were 43 issues. Wings of Fame focussed on historic aircraft and there were 20 issues.
Use of the Aerospace Archive
- It is beyond dispute that prior to the flood use of the Aerospace archive had been crucial to the preparation of its publications. As to this, perusal of the partwork issues and of the journals serves readily to highlight the imperative need for ready access during preparation to in-depth reference material and to a wide-ranging sophisticated photographic library. I emphasise: it is not just the perusal of one issue or one journal as such – 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.
- By way of his witness statement the Managing editor, Mr. David Donald says:
"With the three collections under one roof it was essential to combine them in to one large archive. Mike Stroud was contracted to perform this massive undertaking, and after about 7 years he had amalgamated the three collections into one, precisely classified archive.
The benefits to the editorial staff of this work were enormous, saving a great deal of time that had hitherto been spent searching through three disparate collections. Having the reorganised Aerospace archive in a user-friendly arrangement and in a room downstairs from the editorial office allowed the easy compilation of articles for our publications. Despite several of the titles being highly detailed in-depth publications for which no expense would be spared in presenting a comprehensive illustrative selection, on many occasions the Aerospace archive provided all the photographs necessary to complete the article. Where this was not the case, in many instances the photographs that were acquired to complete the article were then added to the collection."
Mr. Morse expresses his own standpoint:
"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."
The Pre-Flood History
- It is necessary to trace Mr. Morse's business activities over the year preceding the flood: it is submitted that such bear upon a fair computation of quantum.
- Offer to sell Aerospace. As to this, I start with Mr. Morse's witness statement:
"From time to time all businesses have to look at themselves and consider their future strategies. These considerations are often prompted by outside agencies: accountant, lawyers, banks. At any one time, the two companies might have been creating and publishing around 12 major partworks and journals, with a further dozen developments underway in research.
We employed 110 staff, housed in four separate buildings, and had a large financial exposure for a personally-owned, privately-funded company. In such circumstances, we had to consider:
(a) to grow with further exposure;
(b) to consolidate at the current size; or
(c) reduce the scale of the business.
Despite its continuing successes, growing the business was not a valid option. We had no capital base and had as many staff and overheads as we could manage without a major injection of middle management (which would have pushed up our capital requirement and demanded yet further growth). Almost certainly we would have had to compromise our private shareholding and introduce new conflicts.
Consolidating the size of the business was attractive. We had diversified our product and market areas and had met with great success with Star Trek. Wildlife of Britain, Hot Cars and Inside the Human Body (essentially Midsummer products).
We seemed to have the opportunity and talent to create ever wider opportunities. The scale of the business demanded around four new partwork launches every year to sustain it against a background of previous products coming to the end of their runs. Certainly aircraft partworks could play their part in this equation, but because our aircraft partworks lasted for at least four years and exploited a highly defined single market, we could only launch a "new" aircraft product every four to five years.
So in a five-year period, aircraft could only provide one title in a requirement of 20 partwork launches. World Aircraft Information Files, a major and successful aviation partwork, was underway and so a further aviation partwork would at that time not be required for several more years.
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."
- The consequent chronology can be traced:
a. 22nd August 2000. Mr. Morse wrote to Motorbooks, a U.S. company, inviting purchase of the Aerospace archive and the journals, World Air Power and Wings of Fame: "We have two sides to our business. The technical side …. And our mass market consumer publication. They don't really mix and I need to concentrate on one. The consumer side uses cash and trying to do both means that we run short of cash and fail to develop and care for the technical side."
b. 12th September 2000. Mr. Morse wrote to a U.K. company, Chrysalis Books offering "most of Aerospace and our archive including aviation, Military, Naval, motorcar and motorbike archive and resources" for £5 million. He added: "…. we have considerable presence in the partwork business and Aerospace no longer fits." Mr. Soph Moeng, a senior editor and rights manager put together a prospectus for Chrysalis which, inter alia, valued the Aerospace archive at £1,932,500.
c. 15th September 2000. On Mr. Morse's behalf Mr. Moeng quoted values to Motorbooks in dollars: 3 million for the Journals and 5 million for the archive.
- These proposals elicited no interest. A similar proposal was made in January 2001 to Marshall Cavendish, the well known publishers, to sell the Aerospace archive for £1,932,500: again, nothing came of it. Finally in early 2001 Mr. Moeng again sought to solicit interest from Motorbooks for the purchase of the archive but to no avail.
- Summertime. On the 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 the 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 ….".
- Associated with the agreement of the 8th December 2000 is a contract for the provision by Midsummer and Mr. Morse to Summertime of their respective services as defined. Particular attention is drawn by the Defendants to the following Clauses:
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.
- Aerospace was not in terms party to any of the foregoing but on the 8th January 2001 it was party to an agreement, the practical effect of which was to assign to Summertime the rights hitherto assigned to Bright Star in the copyright of WAIF. In the event there is no evidence of any impact upon the conduct of Aerospace before the flood arising out of these contractual arrangements with Summertime.
- Art Tech. 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 Aerospace and Midsummer in the course of which he had become knowledgeable about and very impressed with the Aerospace and Midsummer archives. In his then opinion there was hitherto unexploited commercial potential in using such as picture libraries, that is, so 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 Aerospace and Midsummer 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.
- This enterprise was getting underway as at the flood – as recently as the 1st July Mr. Gnych had personally conducted a final viewing and assessment at the Hammersmith premises.
- In evidence, Mr. Morse offered an explanation of his then attitude. He had neither the skills nor the inclination to run a picture library ("a clerical business"); removal of the archives would serve to provide more space and the housing in Islington would be rent free to him; further, he could envisage future editorial work utilising the archive being conducted in space available at Islington without overmuch inconvenience.
- AIRtime. By way of an agreement in writing of the 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.
- It is to be noted that this development led to AIRtime recruiting from Aerospace two members of the expert editorial staff: David Donald and Dan March.
The Flood
- I am now in a position to make findings under this head. The flood occurred suddenly and without prior warning in the course of a weekday afternoon. The crucial feature was the rapid uncontrollable invasion of water into the lower floor and thus into the library. The ultimate depth of the floodwater was a metre or thereabouts so that water entered the lower three drawers of each four drawer filing cabinet. Frantic efforts were made by the Aerospace staff to save material but inevitably to modest effect. In the days and months that followed considerable efforts were necessarily expended to ascertain the precise impact of the flood upon the archives, and to mitigate the resultant damage. By trial the following was apparent as relevant to the present issues. 30 Aerospace Archive. Of the original 218,262 images, 65,174 (28.9%) were unaffected, in the main because they had been in upper drawers. Of the balance, 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.
- The damage to artwork was higher in incidence. The state of the flood soaked material is such that some of the impact has to be estimated. The Claimants contend that there were originally 5,110 items and that only a modest proportion have any residual value as being substantially intact or susceptible to restoration.
- Midsummer Archive. In the event the damage was markedly less extensive – it was the artwork that bore the brunt. The schedule put before me predicates 341 items: 176 damaged beyond restoration; 92 susceptible to restoration; and 73 largely intact.
Post Flood
- WAIF. Aerospace – in effect Mr. Eden and his team – maintained production of this partwork initially up to issue 200. It is beyond doubt 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. Mr. Eden protests – and I accept- that despite all that was done the post-flood issues were sub-standard, judging them by the normal exacting requirements. Having stopped at 200, Aerospace received protests from readers who found the resultant 'work' was as to part incomplete and in response the team produced another 18 issues so as to respond to these complaints. This activity apart, Aerospace has been in subsequent limbo save for activities directed at identifying and quantifying loss.
- Art Tech. By reason of the flood it was not until September 2002 that any effect could be given to the oral agreement reached in March 2001. Thereafter what remained of the Midsummer and Aerospace archives was moved in stages to Art Tech's Islington premises there to be assessed 'marketable or no'. In March 2003 Art Tech started active marketing of that which it now has: the Midsummer archive less its artwork and the undamaged rump of the Aerospace archive. It is to be noted that even on this limited basis the enterprise has proved worthwhile.
- By way of a belated written agreement of the 2 March 2004 the Claimant companies agreed terms for the housing continuing cataloguing and insurance of the transferred archives. The continuing ownership remains vested in Aerospace and Midsummer and their employees retain full and unrestricted access during normal business hours. The agreement concludes with an intimation of an intention to make a further agreement, this time for the commercial exploitation of the archives.
- A passage in the oral evidence of Mr. Gnych merits citation:
"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. As early as the 10th July 2001 AIRtime put itself firmly behind Aerospace in the pursuit of compensation by means of an open letter:
"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 the 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 appears from a subsequent letter of 22nd July 2004. The Respective Cases
- Central to both cases are the propositions of law propounded by the Court of' Appeal in The Maersk Columbo (2001) 2 Lloyd's Rep 275 at 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."
- In the event whilst there is a measure of common ground, there is a substantial issue between the parties as to the appropriate approach to the assessment of damages.
- The Claimants' Case. Central to their case is the proposition that they intend to reinstate the archives and that, given that the market or resale value is unlikely to be adequate for that purpose then the computation should begin with the assessment and award of a sum representing the cost of replacement. Their alternative case relates to the market value if their primary case be rejected. As will become apparent the market valuations differ widely: they invite me to adopt the market valuation propounded by their expert Mr. Jeremy Collins.
- Turning to consequential loss, central to the Claimants' case is the proposition that had the Aerospace archive been maintained intact then there would have been created at least one further aviation based partwork, if not more. They invite adoption of Mr. Morse's careful computation of the likely return from a notional future aviation partwork christened WAIF2; in the event that has been wholly foregone or at the least the flow of income from such has been put back for several years.
- The Defendants' Case. Central to their case is the proposition that, whether or no the Claimants really intend to restore the Aerospace archive (as to which, they have doubts), the cost involved bears no adequate relationship with the prospective resultant financial return. Viewed objectively, it would be wholly unreasonable to seek to restore the archive and accordingly damages are to be assessed by reference to market value. As to the latter I should be guided, not by Mr. Collins but by Mr. Dominic Winter.
- As to consequential loss – and flowing on from the foregoing – I should find that either there would never have been a further aviation partwork compiled by Aerospace, further or alternatively any such further partwork could be satisfactorily compiled by outsourcing photographic images so far as necessary to supplement those remaining on the archive. An additional point is forcefully taken: let it be supposed that there would have been a further aviation partwork but for the damage to the archive, the contractual terms meant that any loss would be occasioned to Summertime rather than to Aerospace.
Cost of Replacement or Market Value
- The debate is meaningless without an exposition of the respective cases in terms of figures.
- Cost of Replacement – Claimants' Case
The Claimants' assessment of the loss is as follows:
a. Aerospace
| (1) Total number of photographic images |
218,262 |
| |
|
| less those unaffected by flood |
65,174 |
| |
|
| less an allowance for incidence of duplicates at 15.8% |
24,188 |
| |
|
| |
128,900 |
| This latter total falls to be apportioned by reference to sample testing, thus 32.1% are capable of restoration |
41,377 |
| |
|
| 67.9% are so damaged or destroyed as to be beyond restoration |
87,523 |
| |
|
| (2) Total number of artworks damaged |
5,110 |
b. Midsummer
| Total number of military artworks damaged or affected |
341 |
| |
|
| Other artworks damaged |
6 |
- The Claimants quantify replacement and restoration as follows:
| a. Restoration of 41,377 Aerospace photographic images |
£135,303 |
| |
|
| b. Replacement of 87,523 Aerospace photographic images |
£1,842,077 |
| |
|
| c. Replacement (and some restoration) of Aerospace artworks 901,335 less salvage 3,000 |
£898,335 |
| |
|
| d. Replacement of Midsummer Artwork |
£116,335 |
| |
|
| e. Restoration of Midsummer Artwork |
£3,650 |
| |
|
| f. Replacing Aerospace Reference Material (including staff cost) |
£48,930 |
| |
|
| g. Re-cataloguing Aerospace archive |
£140,818 |
| |
|
| h. Overheads of replacement of Midsummer Artwork |
£11,999 |
| |
|
| i. Project manager to oversee and direct foregoing |
£67,680 |
| |
|
| |
£3,265,127 |
- Cost of Replacement – Defendants' Case The preface is obvious: the Defendants do not accept that this approach to quantum of loss and damage is appropriate. However if that stance is rejected they respond to the Claimants" case as follows.
- As to the dimensions of the damage as computed in paragraph 45 above, the Defendants offer no significant dissent. It is their case that if replacement is an appropriate and reasonable option then such can only be justified so as to restore the Aerospace archive to the extent of the deficient 50%. It is submitted that, making allowance for so much as is unaffected (30%) and for the lack of a practical need for an archive of its erstwhile dimensions there is no reasonable justification for restoration so as to re-construct the archive as was. Arguing that the Claimants' figures aim to restore the Aerospace archive to 85% of its former size (viz nett of duplicates), they contend for reduction to a level 50/85 of that claimed. The same point is not taken with respect to the further heads of the Claimants' computation. That said, it is pointed out that were the replacement of the Aerospace archive to be much reduced in scope then that should impact upon the sums claimed for re-cataloguing and for the project manager.
- The Defendants' resultant counter schedule becomes:
| a. Restoration of Aerospace photographic images £135,303 ÷ 85 x 50 |
£79,589 |
| |
|
| b. Replacement of Aerospace photographic images £1,842,077 ÷ 85 x 50 |
£1, 083,575 |
| |
|
| c. Replacement (and some restoration) of Aerospace Artworks less salvage |
£898,335 |
| |
|
| d. Replacement of Midsummer Artwork |
£116,335 |
| |
|
| e. Restoration of Midsummer Artwork |
£3,650 |
| |
|
| f. Replacement of Aerospace Reference Material |
£48,930 |
| |
|
| g. Re-cataloguing Aerospace archive |
£140,818 |
| |
|
| h. Overheads of replacement of Midsummer Artwork |
£11,999 |
| |
|
| i. Project Manager to oversee and direct foregoing |
£67,680 |
| |
|
| Total |
£2,447,911 |
- Market Valuation. I turn to the alternative key to quantification: diminution in value ("DIV") as identified by market valuation. As to this, the parties respectively relied upon experts, each giving evidence before me. The Claimants called Mr. Jeremy Collins. He had served in the RAF for 21 years and in course of his service career he developed an interest in aviation history. On leaving the RAF he had developed skills in valuation and auctioneering, working for Christie's from 1984 to 2001. On retiring from this employment he then joined specialist auctioneers, Dominic Winter Book Auctions, as an aviation consultant. In the event the Defendants relied for expertise upon his new employer, Mr. Dominic Winter. His career has been wholly or substantially in auctioneering, setting up his own successful business in 1988. As will be seen, he and his employee have produced strikingly different valuations, albeit amiably (so far as I could judge) and with continuing mutual respect.
- The starting point for both has to be the premises underpinning any valuation and as to such, views seemed uniform. They can be summarised:
a. Whereas at the 3rd July 2001 these archives were maintained and utilised as business assets, there was no identifiable market for them as such. No aviation enthusiast who would wish to buy the Aerospace archive in its totality could afford to do so. In so far as there were commercial organisations that might be interested in a purchase such had been sounded out by Mr. Morse to no avail. No such archive had, to the knowledge of the experts ever been sold as such in one lot at auction and it was unrealistic to postulate this as a guide to market valuation.
b. Both experts could however envisage staged sales, lot by lot, over a period of time (3 years, per Mr. Winter; 4 to 6 years per Mr. Collins) and took such as a guide to market valuation.
c. Even then, the vagaries of sales by auction and the relative dearth of comparable sales served to render any valuation by reference to staged disposal by auction necessarily somewhat speculative.
d. That said, both have sought some guidance with respect to photograph valuation from the results of two sales, that of the Gautier Collection and that of the Kruger Collection. The former, a 30,000 image collection made by a Frenchman that included much historic aviation material first came on the market by way of a Christie's auction (with Mr. Collins as auctioneer) in March 2001. It was the first sale of its type and the lots then went for prices reflecting an unprecedented average rate of £6 per image. Subsequent lots were sold by Mr. Winter in and after October 2001 at prices reflecting an average of £3.40 per image. The Kruger Collection had been compiled by a German and amounted to 70,000 photographic aviation images. In and between May 2003 and November 2004 Mr. Winter sold 26,050 of these images at prices reflecting an average rate of 91p per image. The experts are jointly of the opinion that the anticipated quality of the Aerospace images would be better than those of the Kruger Collection but not on average as good as the top quality Gautier images. Each seeks to pitch a value based on an average rate per image within the range thus identified.
e. With respect to artwork, there is (it is agreed) no precedent at all in terms of like auction sales.
f. In valuing photographic images the experts agree that 'epoch' matters: broadly speaking, the older the image the more valuable. Again, the valuer looks for originality, for aesthetic appeal and for provenance.
- The Defendants' case as to valuation. I start with this – it is advanced as the basis for quantification as appropriate legally and factually. Mr. Winter propounds the following based upon, inter alia, inspection in 2004 of some material from the archives over 4 days.
a. The Aerospace photographic images are in his judgment two thirds less valuable than those that he auctioned as part of the Gautier Collection. He then achieved an average price per image of £3.40 and accordingly he values the Aerospace images on this line of reasoning at £1.13 per image. Throughout he attributes 200,000 images to the Aerospace archive and his apparent starting point is 200,000 x £1.13 = £226,000.
b. By way of an alternative approach he adopts a method advocated by Mr. Collins, that is, that the anticipated initial price would be relatively high reflecting careful priming of the market by early offerings of the best material, a tactic successfully adopted with respect to the Gautier Collection. He further gears this valuation to the return he secured for the Kruger Collection, 91p per image. Thus, he postulates
| Best 10,000 images |
£60,000 |
| |
|
| Next 10,000 images |
£30,000 |
| |
|
| Remaining 180,000 images at 91p £163,800 |
£253,800 |
c. He then introduces caution. £253,800 for 200,000 images reflects an overall rate of £1.27 per image. The mid point between £1.13 and £1.27 is £1.20 and he now reverts to computation a., substituting this latter figure so as to secure an overall valuation of £200,000 x £1.20 = £240,000.
d. Mr. Winter adopts Mr. Collins' valuation of affected but not badly damaged images at 12p per image.
e. Turning to diminution in value I can do no better than quote paragraph 28 of his report: "If the archive was worth £240,000 before the flood, its post-flood value using the same figure of £1.20 per undamaged photograph and £0.12 for an affected photograph is £71,400 (55,000 x 1.2 = £66,000 and 45,000 x .12 = £5,400) as opposed to £80,402.50. The diminution in value is therefore £168,600."
f. With respect to artwork, for pragmatic reasons (he had not checked the data) he would accept a diminution in value of £90,000. Thus the total becomes £258,600.
g. Finally, he had more recently given thought to two matters advanced for his consideration: the impact on the auction market and the prices secured by '9/11', and the presence within the Aerospace archive of material with a respected provenance, typically that from the Pilot Press Collection as graphically evidenced by the post-flood letter from Mr. Green. In the overall result he is prepared to increase his assessment of diminution in value by 10%, that is, so as to increase £258,600 to £284,460.
- The Claimants' case as to quantification. I turn to the approach of Mr. Collins. In 2004 he assessed so much of the material from the archives as he could inspect over a 9 day period. In March 2005 "I made a random analysis of a broad cross section of the files in an attempt to get an across the board sampling of the archive valuation prior to the flood. I deliberately refrained from just choosing the best examples …. This resulted in 44 files, selected at random being examined. 3,183 images were studied in total in the second sample." In the overall result:
a. In 2004 he had valued the contents of 9 drawers at a total current value of £18,315. These drawers contained 8,730 images, or thereabouts, so that the average rate per image was £2.10.
b. In his opinion the impact of '9/11' on the auction markets was such as to halve returns, which impact was continuing in 2004. Accordingly, he puts the rate per image as at July 2001 at £2.10 x 2, £4.20.
c. The second sampling of March 2005 served to support this approach to valuation with the then perceived average per item as at 2001 being £4.17. Applying that rate to 200,000 items he arrives at £834,000.
d. Turning to diminution in value he applies £2.10 to each undamaged photograph and 21p to affected photographs. His present value becomes £116,445 and the diminution in value with respect to photographs £717,555.
e. His DIV figures with respect to artwork (£89,686) and other items (£7,000) are not in dispute.
f. Finally, he advises that reflection upon the impact of the provenance of some of the photographs seen in March 2005 (graphically sustained by Mr. Green's postflood letter) together with the '9/11' impact has led him to regard his valuations as potentially 30% too low.
g. Pending any such increase he assesses DIV at £717,555 + £89,686 + £7,000, £814,211. Seemingly that figure could increase by 30% to £1,058,513.
Diminution in Value or Replacement – Quantum
- In the course of preparing this judgment (and trying to discern judicial daylight) I realised that the key to progress was to quantify the alternative cases so as, inter alia, to discern those issues that really sounded in damages. It is therefore first necessary to make findings as to the value of a key element in the Claimants' case, the cost of replacement as propounded in paragraph 46 above. As to this, I am satisfied on the evidence put before me that, subject to one important objection, the Claimants' computation does reflect cost of restoration – if that be the appropriate measure of damage. The objection relates to artwork. Perusal of the computation shows that with respect to artwork there are claims for, respectively, £898,335 (Aerospace), £116,335 (Midsummer), £3,650 (Midsummer) and £11,999 (Midsummer). I have no difficulty in accepting that with funds available those items of Midsummer artwork that are said to be largely intact and capable of restoration will be repaired so that there is ample justification for the small head of claim in the sum of £3,650. However no such argument can sustain replacement with respect to the remaining artwork claims. I can discern no basis upon which it can be reasonably maintained that replacement of the artwork collections represents a viable alternative to a diminution in value claim. The pieces of artwork had been accumulated (and for that matter, damaged) on an ad hoc basis. The scenes can only be replicated by commissioning fresh paintings of the same subject by appropriate skilled artists – who may well not be those responsible for the original work. A key artist, Mr. Fretwell, has since died. The original commissions were to fulfil specific, immediate requirements – it would be absurd to commission replacements without any immediate specific requirement. The photographs were systematically filed so as to provide an accessible historic archive; at best, the artwork did no more than add skilled colour and illumination to a certain, inevitably modest number of topics. In my judgment in so far as there is a claim with respect to damage to artwork then, leaving aside the modest Midsummer claim for funds for repairs, the claim sounds in diminution in value as to which the experts jointly put forward the sum of £89,686.
- So much for one objection to the Claimants' computation. The Defendants raise others over and above their objection in principle to this form of quantification. In particular as noted above, they submit that having regard to some evidence to the effect that in practice the Aerospace archive is still serving to furnish 50% of its former 'output' then the claimed figures should be reduced by 50/85, that is 50% of the whole less duplicates. I reject this submission: its nicety does not match the reality. In particular, as I note, it serves to reduce the claim for the cost of restoring affected photographs from £135,303 to £79,589 – in reality the true concern is whether the former figure is anywhere near adequate having regard to its age as an estimate.
- I therefore assess the quantum of the Claimants' case so far as relates to restoration and diminution in value:
| Restoration of 41,377 Aerospace photographic images |
£135,303 |
| |
|
| Artwork – Diminution in value |
£89,686 |
| |
|
| Replacement of 87,523 Aerospace photographic images |
£1,842,077 |
| |
|
| Restoration of Midsummer artwork |
£3,650 |
| |
|
| Replacing Aerospace Reference Material |
£48,930 |
| |
|
| Re-cataloguing Aerospace archive |
£140,818 |
| |
|
| Project Manager |
£67,680 |
| |
|
| Total |
£2,328,144 |
- I now turn to the alternative mode of quantification: diminution in value. What is my assessment of such, on the evidence put before me? I start by recording the difficulty of this task, given the admirable qualities of the respective experts and the yawning gap between their assessments. Approaching the task as a jury (as is appropriate) I have to start by finding Mr. Winter's assessment as too low, indeed far too low. There are explanations: he cannot bring to the assessment the eye of an aviation enthusiast and what he does bring to bear is a very cautious approach, perhaps instinctive in a profession that thrives on realistic reserves. That caution is well illustrated by his computation b. as set out in paragraph 52 above. Having, at the behest of Mr. Collins, postulated selling 20,000 images at £4.50 each, he then postulates just 91p per image for the remaining 180,000 images. Yet further, having by this means identified a rate of £1.27 per image that too is reduced, unaccountably save through caution, to £1.20. It is not surprising that, standing back from the final figure, £282,460, it looks far too low – it is not a sum that any jury would adopt to compensate Aerospace on the premise that cost of restoration was to be rejected as a measure of damage.
- Mr. Collins is an aviation enthusiast and it shows – not least in his reaction to what he saw in March 2005. A jury listening to him would be better able to form a view as to the real potential in terms of value of the Aerospace archive as at July 2001 and thus what the company lost through the flood. That said, there is an impression that this time caution is being thrown to the winds: I cite a valuation bracket as extensive as £1.1 million to £1.5 million and a potential for a 30% uplift on his figures. Yet further, analysis of his approach to valuation of the archive as is suggests contrasting caution.
- A decision has to be made. I think that I am fair to both sides if I find the July 2001 market value of the photographic archive to be £750,000 and the residual value to be £125,000. The resultant DIV becomes £625,000 plus £7,000 (miscellaneous), plus £89,686 (artwork), £721,686.
- I return to the Claimants' claim. Deliberately leaving aside the claim for consequential financial loss, the total claim as adjusted for the foregoing findings becomes:
| Claim as set out in paragraph 56 |
|
£2,328,144 |
| |
|
|
| Flood expenses Aerospace |
£12,032 |
|
| |
|
|
| Midsummer |
£78,254 |
£90,286 |
| |
|
|
| Plans Chests |
|
£1,792 |
| |
|
|
| Harwell Costs |
|
£1,152 |
| |
|
|
| Staff Costs |
|
£31,250 |
| |
|
|
| Balcombes' fees |
|
£14,777 |
| |
|
|
| Increased picture costs |
|
£17,602 |
| |
|
|
| Art Tech – income loss : |
|
|
| |
|
|
| Aerospace |
£11,678 |
|
| |
|
|
| Midsummer |
£23,290 |
£34,968 |
| |
|
|
| AIRtime – income loss |
|
£44,407 |
| |
|
|
| |
Total |
£2,564,378 |
- Of this computation three items are in dispute as to principle: the cost of restoration and replacement, staff costs and Balcombes' fees. The first such dispute must await subsequent resolution; I can conveniently rule now on the other two matters. 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 may add that one of the features of the claim readily apparent from perusal of the papers is the exceptional care taken by the Claimants in identifying and quantifying post-flood expenditure and loss – I can adopt the resultant figures with some confidence. The third matter in dispute relates to the fees of Messrs Balcombes, loss assessors engaged to advise as to post-flood losses. I never found it easy to understand the Defendants' objections: I think that they contend that these fees related to the Claimants' claim on their insurers or that they properly should feature in any costs computation. Neither objection impresses and I reject them.
- Having thus dealt with the relatively minor issues, it is now convenient to turn to the consequential loss claim, that is, to the remaining element of the Claimants' claim. This important head of claim requires careful exposition and consideration.
Consequential Loss
- On my understanding the Claimants (essentially, Mr. Morse) advance a claim on the basis of the following:
a. As at the 3rd July 2001 Aerospace had four prospective sources of income: the returns from the outstanding balance of WAIF; the royalty returns from the agreement with AIRtime; the fee income from Art Tech; and the returns from a future partwork 'WAIF2'.
b. As to the returns from the outstanding balance of WAIF, no point now arises. True, the profit was diminished by reason of increased picture costs but that head of claim is conceded.
c. As to royalty returns from AIRtime, the Claimants contend that by reason of the effective loss of much of the Aerospace archive it became far less useful to AIRtime as a source of material for their journal publications. In the result the agreement had to be so revised as significantly to reduce the royalty income for Aerospace. So much is supported by AIRtime and the consequent calculation of loss of income to June 2004 accounted for the agreed sum of £44,407. The Claimants' computation did not include any specific claim for further losses from this source whether to date or in the future but it is apparent from the documentation that as at June 2004 a further loss to Aerospace of $25,689.78 was anticipated – say, £14,125 or thereabouts. Again, a passage from a letter from Mr. Williams of AIRtime dated 18th December 2001 merits citation:
"It had been my hope to extend IAPR agreement once the initial term ended. Obviously, this won't now be feasible on a royalty basis. The same is true for Flightdeck, our new aviation quarterly planned for release next summer. When this publication was conceived and editorially planned, we assumed your archive would be the primary source for photos and art. However, with your civil material similarly (possibly worse) affected, an IAPR-style royalty deal won't be possible. From what we have learned, we could probably source from you less than half the number of images we had hoped for."
d. As to fee income from Art Tech, Mr. Gnych has identified lost fee income to date sustained by both Aerospace and Midsummer respectively by reason of flood induced damage to their archives. It is his evidence which underpins the conceded claim in the total sum of £34,968 as representing loss to date. Again, there is nothing in the Claimants' schedule with respect to prospective loss under this head but it would seem incontrovertible that there must be such, only to be stayed as and when (and if at all) the archives are restored.
e. As to the returns from a future partwork, this raises a vexed and substantial issue calling for careful separate consideration.
- As to the Claimants' case, Mr. Morse points, first, to the production of aviation partworks by Aerospace at intervals from 1980 and continuing as at July 2001. For this activity there was a team of highly skilled and experienced editors with ready access to the archive as a source of images and information. As at the flood there was no reason to anticipate early termination of this activity: it was what Aerospace did and providing that publications were staged at intervals (as in the past) and given the benefit (through agreement with appropriate publishers) of market research and TV advertising, it could and would be done again – and successfully. It was indeed because this was an ongoing activity that the archive was as at July 2001 still being supplemented and catalogued. It is his contention that there was always a potential market for this type of publication, that WAIF and the earlier partworks had not satiated demand. In this he has the support of Messrs Eden, Williams (see the letter cited above) and Gnych. It is also pointed out that more recently the publishers, Marshall Cavendish have evinced interest in their own aviation partwork, Legends of Flight.
- Condescending to practicalities, Mr. Morse contends that but for the flood a succeeding aviation partwork as prepared by Aerospace would have been launched through agreement with a publisher in September 2003. He goes further: he has carefully computed the income that would have arisen from this enterprise after offset for allocated overheads at £1,612,934. It is his case that no such partwork can be forthcoming unless and until the Aerospace archive is substantially restored. It is with a readily accessible archive that preparation of such a partwork is reasonably practicable: editorial standards cannot be readily or economically achieved unless there is an immediately available store of images, photographic and artwork, and of reference material. Thus, on my understanding, absent restoration of the archive the loss is at least the sum as computed – 'at least' because Aerospace is logically foregoing not just WAIF2 but presumably WAIF3 et. seq. By contrast, if there is an award sufficient for the restoration of the archive in the relatively near future then WAIF2 becomes feasible, to be launched at the earliest in January 2008. On this alternative premise the loss is not £1,612,934 but some unspecified sum reflecting the impact of delayed receipt.
- How do the Defendants respond? As is apparent no material issues arise with respect to the Claimants' case save – and then very strongly – with respect to the lost partwork claim. It is convenient to address forthwith a submission forcefully advanced in this context by Mr. Rainey QC: having regard to the provisions of the Summertime contracts no loss of partwork could be sustained by Aerospace. Per his helpful final closing submission: "Midsummer bound itself and its employees (necessarily including each and every member of its staff co-opted to Aerospace, which meant the whole of Aerospace's staff) not to work on the services save for and through Summertime …. Mr. Morse bound himself by an 'inducement letter' to Summertime to provide his services in relation to new partworks only to Summertime. The net effect of these arrangements was that all future partwork activity for new projects and new titles was to be developed through Summertime." It is further strenuously submitted that it is against the balance of probabilities that Summertime would release back to Aerospace any new aviation partwork once 'offered' pursuant to the agreements.
- Whilst I recognise the force and skill with which these submissions are advanced, I have to reject them. Two points arise. First, the submission as to contractual obligation depends upon the proposition that because Aerospace employees were for administrative reasons 'on the books' of Midsummer then the clauses set out in paragraph 22 above have the effect of binding not just Midsummer but also Aerospace. I cannot so construe the agreement – to the contrary, Aerospace was not included because its projects, being specialist and dependant upon its archive, could not be usefully conveyed to Summertime; yet further, such were not "the same as or substantially similar to and in any case competitive with any of the products of (Summertime)." Second, were a project for a further aviation partwork to be offered to Summertime a release back to Aerospace would be inevitable: Summertime as advised by Mr. Morse would be bound to accept that lacking an archive it could not undertake the project.
- I turn to the other points taken by the Defendants. In essence they contend that on the balance of probabilities WAIF was the last aviation partwork to be prepared by Aerospace. As to this, Mr. Rainey QC points forcefully to the events as traced in and between paragraphs 19 and 28 above. Taken as a whole the events there described point to a change of commercial direction on the part of Mr. Morse, that is, away from aviation products to potentially more popular and profitable alternative fields with the archive having no role save as the foundation for the Art Tech picture library. In effect the market for the in-depth, lavishly illustrated partwork typified by pre-flood WAIF is satisfied – what is now conceived as a modern partwork is, per Mr. Byrne the Defendants' expert, a 'mixed medium publication' combining the partwork with a DVD. This concept makes less use of photographs and is less dependent upon an available archive. In any event, point out the Defendants, there is still a part archive and with relatively modest expenditure on restoring the photographic images that are susceptible to restoration it would have 50% of its former size in terms of images. Indeed without that expenditure, it has retained some value for AIRtime and Art Tech and, in any event, using all the sources known to it, Aerospace did complete WAIF.
- The Defendants' concluding submission related to Mr. Morse's costing. They agree such as a calculation as far as it goes. They contend that it should have gone further so as to offset potentially substantial unallocated overheads.
- Thus far I have summarised the opposing contentions briefly and in a broad-brush fashion. I am acutely conscious that in origin these submissions are extensive and detailed, reflecting considerable forensic skills brought to bear on evidence that includes so far unacknowledged expert advice from Mr. Byrne (partwork publishing), Mr. Paul (accounting), Mr. Mainz (accounting) and Mr. Gregory (partwork publishing). My dilemma: how much presently to reiterate in any detail in an inevitably long and arguably by now over long judgment. In the event I think it preferable to proceed immediately to findings on the issue of consequential loss without adding in terms of summary of evidence and submissions to what has already appeared, and trusting that an assurance that I have sought to take everything into consideration is itself taken at face value.
- 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.
- Following on from the foregoing, I find that the probable launch date would not have been September 2003 but September 2005. As to this, I am persuaded that a longer 'rest' period would have ensued following WAIF having regard to Mr. Rainey's analysis of the earlier history. 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'. That leads on to my next finding: if the true measure of damages for the damage to the archive is diminution in value so that restoration of the archive is not for the purposes of quantification in contemplation then, as I see it, the measure of damages for consequential loss is the loss of income from partworks. That said, if the alternative case prevails and damages are awarded so as to achieve restoration then, given Mr. Morse's avowed intent to restore, damages can only reflect delay in receipt of a return from WAIF2.
- Let me put financial flesh on these findings. First, I find that starting with diminution in value (that is, without substantial restoration), the loss is the figure computed by Mr. Morse, £1,612,934. As to this I accept Mr. Mainz's point that this estimate should be discounted to make at least some allowance for unallocated overheads but as a pragmatic juryman I am assuming that any such discount is in turn to be offset by the further and continuing losses, not quantified before me, arising from respectively AIRtime and Art Tech sources. On the alternative basis, starting with substantial restoration and thereafter encompassing the belated production of an aviation partwork, I have again to assume the mantle of the pragmatic juryman. My solution in the absence of a particularised case is simply to project a notional 4% return from £1,612,934 over 2 years, that is to 2008; the arithmetic produces £129,035. If anything, this seems potentially unfair to the Claimants as a measure of total consequential loss on the premise of restoration but in this area there was much vagueness – I commented upon the failure to invite Mr. Paul to advise on the case as advanced by the Claimants – and I am reluctant to go further and risk being unfair to the Defendants.
- I am now in a position to compare alternative computations, as follows:
| A. Cost of restoration and replacement of photographic images |
£2,328,144 |
| |
|
| Other heads of claim as specified in paragraph 60 above and agreed or proven |
£236,234 |
| |
|
| Consequential loss |
£129,035 |
| |
|
| Total |
£2,693,413 |
| |
|
| B. Diminution in value |
£721,686 |
| |
|
| Restoration of Midsummer Artwork |
£3,650 |
| |
|
| Other heads of claim, as above |
£236,234 |
| |
|
| Consequential loss |
£1,612,934 |
| |
|
| Total |
£2,574,504 |
In Conclusion
- Whereas the fact of two figures in the same broad 'ball park' has come as pleasant surprise, the potential for it has been with me so soon as it became apparent that the Claimants must have alternative cases as to consequential loss. It is tempting to split the difference but, alas, I am obliged to make a finding as to which computation is to be preferred on the evidence – although in the circumstances I need not be discursive.
- 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. In the overall result I find that the damages to which the Claimants are entitled is constituted by computation A less £64,750, moneys already received. The total becomes £2,693,413 - £64,750, £2,628,663. Before me the Claimants' claims have been presented jointly and it may be that a joint judgment will suffice. If I am wrong, it should not be difficult to apportion the total appropriately between Claimants.
- I am acutely conscious that I have passed judgment on what was at trial a central issue, briefly indeed ostensibly cursorily. As to this, I intend no discourtesy and no disparagement. I hope that upon reflection it will be appreciated that earlier in the body of this judgment there are all the supporting facts and findings and that by paragraph 76 repetition is increasingly unattractive. Suffice it for me to emphasise my finding as to current intention, my finding as to reasonableness of cost and my finding as to commercial efficacy (at the least serving to decimate a potential consequential loss of £1,612,934 to £129,035). I can only add that which is arguably makeweight but is not, as I think, wholly irrelevant. As at the flood, the Aerospace archive was a prestigious chattel with a hard earned importance in the field of the history of aviation: as to whether restoration is a reasonable measure of damages, I would hold that this feature must add some independent weight to simple commercial efficacy.
- May I express my sincere gratitude for all the help received whether from witnesses or counsel (including junior counsel!).
- By way of a letter the Defendants ask for further findings so as to respond to points raised in their closing submissions and they invite me to revisit certain calculations. In response, I decline to add to my judgment. As to this, an inevitably lengthy judgment is quite long enough and, crucially, in the end I am expected to act – and can only act – as a jury wielding a broad-brush with an eye, not necessarily to the minutiae of some of the evidence but to arriving at a result that appears fair to both sides. It follows that I am unwilling to add paragraphs, each setting out a closing submission and my comment on such when the judgment as is indicates with reasonable clarity my overall approach to quantification. Further, I am similarly not going to get further enmeshed in those figures that cover a full page of Mr. McMaster's letter. 80 Mr. McMaster additionally draws attention to paragraph 59 and my finding that the July 2001 market value of the photographic archive was £750,000 and that the subsequent residual value was £125,000. On what basis were these figures arrived at? As to '£750,000', I had rather hoped that this was apparent from the preceding paragraphs. I prefer Mr. Collins to Mr. Winter as an expert, but with reservations. Mr. Collins advised me that the pre-flood value was £717,555 (paragraph 53) with a potential for a 30% uplift to £932,831. I felt that it would be unfair and against the probabilities to adopt this advice in its entirety, given reservations as to excess of enthusiasm: as a juryman, I simply increased £717,555 to the round sum, £750,000. Turning to £125,000, his present valuation came to £116,445 – I felt that overall fairness would be promoted if I rounded this figure upwards somewhat, not least because, again as a juryman, I liked the look of £625,000 as a potentially fair final figure DIV. There, as elsewhere, it was a broad-brush approach to a result that reflected my view as to what the evidence suggested as being fair.
Post Script
- On about the 11th November 2005 I made available to the parties my foregoing judgment then in draft and for practical purposes terminating at paragraph 78. I sought notification of typographical errors and assistance towards the drafting of an order to give effect to the judgment. In the event I received notification of typographical errors (for which help, I am grateful) and the letter from Mr. McMaster to which I have responded in paragraphs 79 and 80. Help with respect to the order could not be forthcoming without a further hearing – and one such became additionally necessary to rule upon an application on the part of the Defendants. In the event that further hearing was conducted by way of video-link (I was sitting in Preston) on the 21st December 2005. Having regard to the number and nature of the issues, I decided (without opposition) that I would append further paragraphs to the draft judgment specifying and ruling upon these issues and that I would hand down the whole and make the appropriate order on the 13th January 2006 – doing so at Newcastle and in the absence of the parties.
- For the purposes of this hearing two further matters were disclosed to me: first, that the interim payment of £64,750 (see paragraph 76 above) had been made on the 5th June 2003; and second, that there had been a further interim payment, this time in the sum of £750,000, which had been made on the 13th January 2004.
- The Application. Seemingly since receiving my draft judgment the Defendants have been minded to appeal and with this course in hand their solicitors had made enquiries as to the Claimants' financial position: were an appeal to be successful what were the prospects for recouping costs and securing the repayment of damages then found to be in excess of entitlement? In the result their enquiries and researches had served to suggest that notwithstanding the Claimants' avowed intent, as hitherto accepted by me, to restore the archive they would not be able to do so in that a substantial portion of the damages as assessed by me would of necessity be utilised to pay off debts and borrowing. Their application thus became: "The trial of this action be resumed on (a date to be specified) with an estimate of half a day in order to determine whether the First Claimant has an intention to restore its photographic archive …." Their further application was for a further witness statement from Mr. Morse and for further disclosure.
- This application was strongly opposed by Mr. Young QC on behalf of the Claimants. I had the benefit of respective skeleton arguments supplemented by oral submissions at the video-link hearing. In the result I thereupon dismissed the application, with reasons to follow. I now set them out.
- First, leaving aside my own inclination and the merits, I am satisfied that the exercise of discretion sought by the Defendants could not be reconciled with the guidance given by the Court of Appeal. In Robinson v. Fernsby (2003) EWCA Civ 1820 the circumstances in which a trial judge can reasonably be expected to revise a draft judgment were considered; for present purposes I need only cite from the judgment of May L.J. at paragraph 94:
"Once a judgment has been handed down or given, there are obvious reasons why the court should hesitate long and hard before making a material alteration to it. These reasons have been rehearsed in the cases to which I have referred and I need not elaborate them further. The cases also acknowledge that there may very occasionally be circumstances in which a judge not only can, but should make a material alteration in the interests of justice. There may for instance be a palpable error in the judgment and an alteration would save the parties the expense of an appeal. On the other hand, reopening contentious matters or permitting one or more of the parties to add to their case or make a new case should rarely be allowed. Any attempt to do this is likely to receive summary rejection in most cases. It will only very rarely be appropriate for parties to attempt to do so. This necessarily means that the court would only be persuaded to do so in exceptional circumstances, but that expression by itself is no more that a relatively uninformative label. It is not profitable to debate what it means in isolation from the facts of a particular case."
It is apparent that the Defendants are seeking to reopen a contentious matter by way of an addition to their case, if not by way of a new case. Summary rejection of any such attempt is advised and this has to be my response.
- I may add that the merits of the application are singularly unimpressive. This point could readily have been raised in the course of the trial, not least when there had been extensive financial disclosure and the Defendants had expert accountancy advice. Mr. Young QC may well be right when he points out that to take any such point at trial would of necessity involved an enquiry into the Claimants' use of the £750,000 interim payment and for reasons that seemed good to them the Defendants did not want me to know of this payment. He may further be right when he suggests that at least in part any current financial problems flow from the flood so as to militate against citation by the tortfeasor.
- The Order. The application having been dismissed the remainder of the video-link hearing was devoted to issues to be resolved by the order.
- Permission to Appeal. The Defendants seek permission to appeal. They accept that my decision was as to fact but they contend that they could and should submit to the Court of Appeal, that I am demonstrably wrong in finding that there is a reasonable intention to restore the archive; yet further, that my alternative assessment on a DIV basis is flawed so as to lead to an excessive assessment of damages. I remind myself of CPR 52.3(6): I can only give permission to appeal if I consider that the potential appeal would have a 'real prospect of success'. I do not regard that requirement as modest (the Defendants' contention). It would be surprising and disappointing if I could categorise my findings as to fact as so readily open to serious attack that the Defendants' proposed appeal had 'real prospects of success': as it seems to me, such prospects as there are can be no more then speculative and I refuse to give permission to appeal.
- Stay of Execution. Presently the Defendants are minded to seek permission to appeal from the Court of Appeal and accordingly will have to file the appropriate notice within 14 days of the handing down of the final judgment. They seek a stay of execution as to part of the damages for 14 days, or if a notice be filed until adjudication by the single member. I think that they must be entitled to this relief on the balance in excess of £1,000,000.
- Costs. A costs order in favour of the Claimants is inevitable – they seek a payment on account. I think that it is reasonable to order such in the sum of £350,000.
- Interest. The Claimants claim interest upon the damages as assessed. By way of skeleton arguments the parties respectively submitted calculations. Each sought to calculate interest by reference to each head of damage – addressing each in turn as to entitlement, rate and period. The resulting totals were substantially apart. Being reluctant to undertake the same approach and conscious of some affinity between the assessment in this case and that in a personal injury case, I suggested to the parties at the hearing that I should heed the guidance given by the Court of Appeal as to the calculation of interest on special damage in a personal injury assessment: to avoid the minutiae and to award one half the interest accruing on the whole sum from the date of the accident to the date of judgment at base rate plus 1%. Understandably Counsel were hesitant in response but conceded that this was a possible approach, providing that 'special damage' was carefully distinguished from heads reflecting prospective loss. It was agreed that the relevant base rate for such purpose was 4%.
- The Defendants strongest submission was directed at what should constitute 'special damage' for these purposes. It is common ground that from the grand total, £2,693,413 there should be deducted consequential (that is, prospective) loss, £129,035. Submits Mr. Rainey QC, the total prospective cost of restoration of the archive (£2,328,144 – see paragraph 56) should similarly be deducted. After some thought I am satisfied that he is correct in principle but that by way of an exercise in discretion I am going to include "Restoration of 41,377 aerospace photographic images, £135,303" within the special damages. But for post-flood impecuniosity this sum should have been part of the special damage and I agree with Mr. Young QC that unless it is supplemented with interest it is likely to prove to be an unrealistic estimate given its age and provenance.
- The interest bearing special damage becomes:
| |
£2,693,413 |
| |
|
| Less |
£2,328,144 |
| |
|
| |
£365,269 |
| |
|
| Plus |
£135,303 |
| |
|
| Total |
£500,716 |
- It is agreed that the interest computation should be to the 21st December 2005 (1,632 days), the erstwhile date for handing down; thereafter the whole award (nett of interim payments) bears interest at the judgment date (8%) to the 13th January 2006.
- The interest computation becomes:
| |
£500,716 @ 5% ÷ 365 x 1,632 ÷ 2 = |
£55,970 |
| |
|
|
| Less |
£64,750 @ 5% ÷ 365 x 930 ÷ 2 = |
£4,124 |
| |
|
|
| |
Total |
£51,846 |
| |
|
|
| Less |
£750,000 @ 5% ÷ 365 x 708 ÷2 |
£36,370 |
| |
|
|
| |
Total |
£15,476 |
| |
|
|
| Plus |
(£2,693,413 - £814,750), £1,878,663 @ 8% ÷ 365 x 23 |
£9,471 |
| |
|
|
| |
Total |
£24,947 |
