Smith &c v Honda Motor Europe Ltd (t/a Honda (UK)) [2007] ScotCS CSOH

In the meantime the following dealers are the nearest Authorised Honda Franchise alternatives for your Sales, Service and Warranty requirements and will be only too pleased to assist you until the new dealership opens. We are pleased to inform you that we have made arrangements for a collection and delivery service by ATM Honda and Grierson & Graham.

ATM Honda Grierson & Graham

104 Boglemart Street 365 Annan Road

Stevenston Dumfries

Ayrshire DG1 3JX

KA20 3JL

Tel: 01294 468881 Tel: 01387 253405

Service Manager: Billy Scott Service Manager: Derek Wright

We should like to apologise for any inconvenience caused by this change in your local Honda dealership but feel sure that ATM Honda and Grierson & Graham will be able to assist you with all your needs.

In the meantime, we look forward to advising you of a replacement dealer in the near future.

Yours sincerely,

HONDA (UK)

Claire Sutherland

Customer Relations Manager"

It refers to franchise and dealers.

[17 ] Next is 6/2 the "so called" offending letter. It reads:

"18 November 1999

Private and Confidential

Mr Ronald Smith

90-92 Doonfoot Road

KA7 4DP

Dear Mr Smith

Re: Arnold Clark

We wrote to you some time ago advising that your local Honda dealer, Doonfoot Garage, had closed and offered alternative dealerships to visit in the meantime.

We can now confirm that we have successfully completed negotiations with a new dealership and are pleased to announce that a new Honda approved dealership will be opening in your area. Details of the new dealership can be found below.

Arnold Clark

196 Prestwick Road

Ayr

KA8 8NP Telephone: 01292 288 866

Whilst you are free to visit your preferred dealer, Arnold Clark will also be more than happy to assist you with all your sales and servicing needs. However, if you already have an existing relationship with another dealership for your servicing requirements, please continue with this arrangement.

Once again, we would like to thank you for your patience prior to the appointment of your new local Honda dealership.

Yours sincerely

Honda (UK)

Ruth Brown

Manager - Customer Operations"

Within a month, the pursuers' solicitors had written to Honda to complain and their letter is 6/3. I need not set it out. On 2 August 2000 Honda wrote a third letter No. 6/4 which states:

"02 August 2000

Private and Confidential

Mr L C Alexander

6 Savoy Park

Ayr

KA7 2XA

Dear Mr Alexander

Re: Doonfoot Garage

We wrote to you some months ago regarding the opening of a new Arnold Clark facility for Honda on the Prestwick Road. This is some two years after our previous franchise holder ceased to represent us.

Unfortunately, we indicated in that letter that the previous franchise, Doonfoot Garage, had closed. This is not the case. Doonfoot Garage are still trading and continue to operate in the local community.

We apologise for any confusion our initial letter may have caused.

Yours faithfully

Honda (UK)

Ruth Brown

Manager - Customer Operations"

The question to be answered is whether these letters amount to a negligent misrepresentation and a breach of a duty of care. In my opinion, in law and on the evidence, the letters are not a negligent misrepresentation. It is accepted that there is sufficient proximity between the parties to create a duty of care. However, the words used must be given their natural meaning. No. 6/1 of Process clearly relates to the "franchise" and, later, the "dealership". It is very clear in its terms and is factually accurate. Next is No. 6/2. It refers in many places only to "dealerships". It is accurate where it states that as a dealership Doonfoot had closed. The statement is made in the context of the letter 6/1 where it says "... we wrote to you some time ago ...". Since these letters are true statements there is accordingly no misrepresentation and no ground of action. Thereafter the letter No. 6/4 does not matter.

[18 ] However, the claim also fails on the facts proved. There is simply no proper body of evidence that customers, who, it is conceded, received the letters, considered them to be a statement that the pursuers had ceased trading and went elsewhere. Had that been the evidence, then it is possible that different arguments might apply. In fact, most of the pursuers' customers remained with them.

[19 ] I want now to turn to the matter of damages. In this Record, Articles 3 and 5 are linked in this way. The pursuer alleges and specifies that a number of his customers left him because of the letter. Eleven are named and four of them gave evidence for the pursuer. The defenders led one of them. It is averred that this caused the pursuer lost business and he goes on to quantify this by taking number of "jobs done" over a two-year period and then by using an average, then a discounted figure arriving at a yearly loss. The loss is projected for five years using decreasing percentages on the year 2 figure. It is contained in and based entirely on the BDO Stoy Hayward Report of 1 November 2002 (No. 6/5 of Process).

[20 ] This report and method of calculation raises a number of important issues and there was at the proof a dispute between expert accountants as to how to calculate any loss where the customer base is known, can be identified and named. The alternative ways were described as "top down" or "bottom up". The pursuer's approach was to favour the former approach, the defenders the latter. I shall explain later what the witnesses meant by these expressions.

[21 ] However, before dealing with that, there is a more fundamental point about No. 6/5 of Process. The Report is the work of an Accountant who is now retired and lives abroad. He was not a witness. His name is Mr McAldowie. Mr Kerr who is an experienced Chartered Accountant spoke to the Document. He said that the framework of it was the work of Mr McAldowie but that he had retrieved the job numbers and made the necessary calculations. He accepted that he and McAldowie had only looked at job falls for two years, and not beyond, and that they had not looked at actual customer losses. Mr Kerr was aware that the pursuer had a database of customers with some 3,000 names and agreed that it would have been possible, though expensive, to identify a range of "lost" customers. He agreed that if a customer left because they wanted servicing done by a dealer that would not be attributable to any action of the defenders. He accepted that a business like Doonfoot with good "retention statistics" (see 6/57) would take customer with them to their new premises and did so. They might acquire new customers while others could drop off for no apparent reason. He said that no account was taken of the "Arnold Clark" factor after 6 months in making his calculations.

[22 ] Many of these matters are plainly variables and there could be a range of opinion as to what allowances to make for them. The problem, however, with Mr Kerr's evidence is that the theory behind the report is not his, albeit he said he agreed with the theory. There are two critical, and in my view fatal features within the report which make me reject it even if the theory behind it is correct (to which I will return). There are basic failings, one relating to the gathering of evidence and the other the law of evidence. Dealing with that in turn; the report has only taken actual figures for two years. Figures for years 3 to 5 were available, would have been the best evidence and could have been used. It would have been interesting to see whether the high figure in year 2 could have been maintained. None of that was done and I am critical of that. The second point is more basic. The formula for years 3 to 5 is simply the application of a decreasing percentage figure (75% down to 25%) to the cash loss in year 2. Mr Kerr said that formula was selected by Mr McAldowie but he was unable to explain why these figures were used. I cannot accept this evidence without the author to speak to it and it must be regarded as mere speculation without any clear basis in proper accounting. No doubt Mr McAldowie could have explained it but he did not give evidence.

[23 ] In case a different view is taken about this report, I now return to look more closely at the methodology. It is of course still arguable that losses could be proved on actual figures for two years. To decide about this, it is necessary to test the theoretical basis in principle for this way of proving loss. It cannot be done in the abstract but only against the case actually made against the defenders and which they have come to court to meet. The pursuer seemed to criticise the defenders for not having a separate report on how they would have computed his losses but that criticism is misconceived. "Top down" or "bottom up" that is the choice. Both experts, Mr Kerr and Mr Graham, agreed what was meant. Top down looks at generalities, work done in different years, pricing for jobs and discounts for costs and overheads. It makes the assumption, in this case, that any downturn in business was caused by the letter 6/2, and that the loss of job means loss of customers who would have taken their Honda to the new Doonfoot for servicing and other work but who have gone elsewhere because they believed the garage was closed. The whole downturn in jobs is ascribed to that set of facts. It does not make any continuing allowance in the two years for the Arnold Clark factor or the vicissitudes of the motor trade. There was no great dispute as a matter of arithmetic as to how the average job prices were calculated or that correct discounts were made and that the actual totals were correct. "Bottom up" looks at individual customers who have left and calculates up from that. That is the case on Record. Here it is necessary to deal with the evidence of the defenders' forensic accountant, Mr Graham. He did not set out to quantify a loss and indeed on the assumption (which he did not accept as correct) that a "top down" approach was right did not seriously disagree with Mr Kerr's arithmetic. I found Mr Graham to be an impressive witness who was both reliable and accurate. The opinions in his report No. 7/1 of Process were his own (paragraph 1.4).

[24 ] Importantly, he criticised, in my opinion correctly, the failure by the pursuers to take account properly of relevant factors in their "top down" approach for example the Arnold Clark factor; the failure to take available figures in years 3 to 5 and the other matters he mentions from 3.9 to 3.20.

[25 ] I also agree with him that a "bottom up" approach could have been adopted (3.24). Elsewhere in this opinion I have shown that no proper evidence to support this was led. Thus Mr Graham has correctly analysed and shown up the flaws in the pursuers' approach to quantification on the evidence. In my view his evidence also accords with the principles enunciated in Ratcliffe and John Doyle.

[26 ] However, in my opinion, in principle and on the facts of this case, the theoretical basis of No. 6/5 is simply wrong. Both sides, as I have said, referred me to Ratcliffe v Evans.

[27 ] Some care is necessary when relying on English authorities concerning damages because of the rules concerning general and special damages which have no place in Scots law. Also Ratcliffe was a case of malicious falsehood i.e. published intentionally to cause harm to a business and in such a case general damage would be implied. The case before me lacks that element, as the pursuers rightly conceded at the outset. The matter was an appeal for a new trial by the defendant. He published a weekly newspaper in Flintshire and adjoining areas and in it was written words importing that the plaintiff had ceased to carry on business as an engineer and boilermaker and that his firm did not exist. The plaintiff proved a general loss of business but gave no specific evidence of the loss of any particular customers or orders by reason of the publication. A jury, sitting with a Commissioner at Chester assizes, awarded damages.

[28 ] Before looking further at the case, it should be noticed that it is cited with unqualified approval in the seventeenth edition (2003) of McGregor on Damages at various places. For present purposes, its importance is this. It seeks to demonstrate the range of possibilities where, at one end damages can be calculated almost to a certainty and with some precision, to the other where it is clear that there has been a loss but certainty is almost impossible of proof. In the latter cases, the Court must do the best it can. I quote from what Bowen LJ said at 532:

"... In all actions accordingly on the case where the damage actually done is the gist of the action, the character of the acts themselves which produce the damage, and the circumstances under which these acts are done, must regulate the degree of certainty and particularity with which the damage done ought to be stated and proved. As much certainty and particularity must be insisted on, both in pleading and proof of damage, as is reasonable, having regard to the circumstances and the nature of the acts themselves by which the damage is done. To insist upon less would be to relax old and intelligible principles. To insist upon more would be vainest pedantry ..."

[29 ] Many cases were referred to and discussed and the judge gave a number of illustrations. If guests or customers were a floating and transitory class (580/31) then general evidence of losses may do. At 533 an example is given of an auction when it could never be proved who would be bidders or purchasers. Some businesses have customers whose names are unknown to them. In the result, the Court of Appeal allowed the verdict to stand. Other similar examples are seen in McGregor at pages 309 and 1425/27.

[30 ] In the present case, the pursuer claims a diminution of his business and lists a number of customers who went elsewhere. Eleven people are mentioned by name. Indeed it was clear from the proof that the customer base was known and an extensive list was lodged (No. 7/5 of Process). This distinguishes the present case from some of the examples in Ratcliffe. Indeed it was clear from the pursuers' own evidence that they kept in direct touch with customers and would phone or write to them to remind them when cars needed servicing. They also went to collect cars for this purpose and supply courtesy cars. In my view, proof to some degree of loss of specific customers would be necessary in a case pleaded in this way. Obviously not every customer would need to be called but once a pattern emerged, general losses could competently be proved making proper allowance for other relevant factors e.g. the loss of the franchise, the Arnold Clark factor etc.

[31 ] The problem is, that is not what happened in the evidence.

[32 ] I move now to consider what was the evidence from the customers who were led. The pursuers led four and the defenders did not argue that customers did not receive No. 6/2 of Process. It was intended for them. No dispute about the credibility of these or indeed any witnesses arises. Mrs Morgan a lady of 81 years came from Ayr to testify. She had been a customer for over 25 years. She got a letter from the defenders No. 6/1 of Process. It had been her impression that the defenders' business was closed but having met Mr Smith in a shop, she continued to have her Honda serviced at Green Street. She remembered a letter telling her he was at the new address. Her car is collected for her as Mr Smith sends a driver. The witness did not receive No. 6/2 of Process and could not remember No. 6/28 (Mr Smith's promotion letter to his customers (undated)).

[33 ] Mrs Harrigan aged 41 lived in Mauchline. She had a racing green Honda Civic which she bought from Doonfoot Garage at its old premises in 1996. She remembers receiving what she described as the "closed" letter and thereafter dealt with a garage in Cumnock. She could not say whether she received Nos. 6/2 and 6/4 of Process. However, in August 1999 she traded in her Honda for a white Rover which she purchased from a dealer in Cumnock. All of this, of course, predates No. 6/2 of Process. Mr Wales, aged 36, lived in Kilmarnock and had bought three cars from the pursuers. He used the Green Street premises when the pursuers moved. He remembered getting No. 6/2 of Process but no further letters. He did think that the pursuers had ceased business and went to Arnold Clark. He was not satisfied with them. He then moved to live elsewhere and bought a Subaru model. He returned to buy Honda from Arnold Clark in Kilmarnock. This was the only witness led by the pursuer who might be considered to be a "lost" customer during the relevant period. However, by 2002 even he had bought a different make of car.

[34 ] The final customer led was Mr Reginald Timlett aged 81, a former RAF fighter pilot. He had been a customer since 1973, liked Hondas and was happy with the servicing and repairs he had from the pursuers. He followed them to Green Street. He had no memory of getting any of the relevant letters but said that he had heard from "a source" that the pursuers "had ceased to be a dealer". He then bought a Mitsubishi because, as he put it, the "fascia on the new Honda was white metal" and he did not like that. His new car was bought in Irvine. The witness emphasised that he thought it was "as a dealer" that the Smiths closed down. It is difficult to consider that this witness would qualify as a lost customer.

[35 ] The defenders led Mrs Nesta Sheddon aged 70. She lived in Seamill and said she kept careful files on her car. She received no letter from Honda. She was a customer of Doonfoot. The only reason she stopped using Mr Smith was when she tried to arrange a service. As she still drove Honda she used ATM and Arnold Clark. Recently she has used the pursuer at Green Street and a Honda dealer in Glasgow. The reason she used Mr Smith again was because he telephoned her in 2005. She was asked to look at Nos. 6/1, 6/2 and 6/4 and said that she had "definitely not" seen them. It is impossible to conclude that she was a lost customer due to any letter sent by the defenders.

[36 ] Let me conclude by looking briefly at some of the other cases mentioned to me with one other example which I mentioned in passing in the debate as it was seen as a footnote in McGregor.

[37 ] Three of the cases enunciate principles and, of course, are wholly different on their facts. Donoghue v Stevenson was merely mentioned as was Anns and I need not here discuss them. Caparo is the leading modern authority about proximity and what is fair, just and reasonable. The defenders have rightly conceded here that the necessary degree of proximity exists and in any event it is clearly proved in evidence. I want to take note of Ashcroft v Curtin [1971] 3 All ER 1208 which was noted as the hearing proceeded. It is only an example. The case had a number of specialities and it was plain that the basis of proving any losses depended upon accounts the resolution of which was a "task ... impossible of performance by any accountant ..." (1212 C). The Court would have found that there had been a loss but was driven to the unsatisfactory conclusion that it was impossible to quantify. As Edmund Davies LJ said (1213 H): "'arithmetic has failed to provide the answer which common sense demands'". The facts of the case are wholly different from the present but it does show that, before assuming losses, the Court must have reliable information on which to base an award. That has proved to be a problem in this case too.

[38 ] The case of John Doyle Construction Ltd v Laing Management (Scotland) Ltd 2004 SC 713 was referred to by the defenders. It is important. The facts were very different from the present case and before answer a proof was allowed. The importance of the case lies in the discussion of when and in what circumstances a global claim for loss is appropriate, when a "jury award" might be appropriate and how and in what circumstances apportionment can take place. It has to be remembered that in Scotland in all cases there has to be evidence which has a basis in the pleadings.

[39] What had occurred was this. A major insurance company was constructing a new corporate headquarters in Edinburgh. The project was divided into distinct works packages. The pursuers who were contractors on two of the packages claimed an extension of time on the superstructure contract, a revised completion date and some four million pounds for costs of delay and disruption. They alleged this was due to events for which the management contractors (Laing) were responsible. The delay was alleged to have been caused by an overrun on the earlier package causing a ten‑week delay on the start to the superstructure. They also averred that the delay was caused by late issue of drawings, design changes and a heavy February snowfall when no work was possible for a week. It is obvious that these facts allowed argument that the defenders may have been responsible for some things, the pursuers for others and neither party for the bad weather.

[40 ] The pleadings showed in some detail (and by reference to reports) how the losses were made up. It was relevant to consider extra hours spent, hours wasted, the need for staff to attend for the extended period, maintenance of the site all as can be seen from paragraphs 24 onwards with the added need to avoid double counting. It was alleged that the pursuers were making a global claim. That could only succeed where there was no material causative factor for which the defender was not liable. If there was one, the global claim was undermined. That, however, might still leave causative factors leading to individual losses or apportionment within the global loss (paragraph 7 and 31).

[41 ] The relevance of all this for present purposes is that in the delictual claim before me, the pursuers sought to make what really was a global claim for their losses and yet one where the Record offered to prove that named customers had stayed away on receipt of the letter. There is the expert report showing the calculations (as in John Doyle). Some kind of apportionment is made for years 3 to 5 although the percentages are unexplained. The named customers have either not given evidence or not said what was expected of them. The vagaries of the motor trade are not the fault of the defenders. The defenders appointed Arnold Clark. That was no breach of any duty owed to the pursuer. All of these things undermine the general global claim for five years and without any evidence of discrete losses based on the pleadings , there is no room to award lesser detailed sums or to take a "broad brush" jury approach. The fact that proving such losses may be difficult is nothing to the point (Doyle paragraph 17). Accordingly, in the present case, had a number of customers given evidence that the letter had made them go elsewhere, and had the percentages been explained, then there might have been room to make a jury award. That, however, was not the evidence.

[42 ] For these reasons, the case ably presented by Mr Smith cannot succeed. The defenders are entitled to absolvitor and I will sustain their second and third pleas‑in‑law, and repel all five of the pursuers' pleas.

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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Smith &c v Honda Motor Europe Ltd (t/a Honda (UK)) [2007] ScotCS CSOH_74 (19 April 2007) URL: http://www.bailii.org/scot/cases/ScotCS/2007/CSOH_74.html Cite as: [2007] CSOH 74, [2007] ScotCS CSOH_74

Scottish Court of Session Decisions