Trebor Bassett Holdings Ltd & Anor v ADT Fire and Security Plc (No 2) [2012] EWHC 3365 (TCC)

Case No HT-09-267

[2012] EWHC 3365 (TCC)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

TECHNOLOGY AND CONSTRUCTION COURT

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 28 th November 2012

Before

THE HONOURABLE MR JUSTICE COULSON

Between

TREBOR BASSETT HOLDINGS LIMITED (in liquidation)Claimants

KRAFT FOODS UK CONFECTIONARY PRODUCTION LIMITEDClaimant

ADT FIRE AND SECURITY PLCDefendant

Mr. Roger ter Haar QC and Mr. Ben Quiney

(instructed by DAC Beachcroft LLP) for Claimants

Mr. Nicholas Dennys QC and Ms. Dominique Rawley QC

(instructed by Eversheds LLP) for Defendant

Hearing Hearing date: 16 th November 2012

Judgment

The Hon. Mr Justice Coulson:

[1]INTRODUCTION By an application dated 25 October 2012, the claimants seek an interim payment of £15 million, pursuant to CPR Part 25.7(1). The application is resisted. The application took the entirety of the day set aside for the hearing and, because there were two volumes of authorities and numerous lever arch files of allegedly relevant material, I was obliged to reserve judgment.

[2]BACKGROUND The claimants owned and/or operated a large confectionary manufacturing site at Monkhill, Ferrybridge Road, Pontefract, West Yorkshire. On 8th June 2005, the new manufacturing unit at the Monkhill site (“the NMU”) was entirely destroyed by fire. The fire had originated in a part of the NMU given over to popcorn production. It is likely that the fire was caused by the ignition of just one piece of popcorn.

[3]Notwithstanding the potentially dangerous nature of the popcorn operation, and the safety advice that they had received over a lengthy period, the claimants had failed properly to protect the NMU against the risk of fire. However, one part of the popcorn operation, namely the popcorn conveyor, did have a fire detection system, designed and installed by the defendant in 2003. On the night of 8th June 2005, that fire detection system failed to operate.

[4]There was a lengthy trial on liability and causation in 2011. In my judgment of 22nd July 2011 (

[2011] EWHC 1936 (TCC)

;

[2011] BLR 661

), I found that the defendant was liable to the claimants, but that the value of the claim should be reduced by 75% to reflect the claimants’ contributory negligence. The claimants appealed, in particular against the finding of contributory negligence. The Court of Appeal dismissed the appeal on 23rd August 2012 at

[2012] EWCA Civ. 1158

[5]The remaining issues between the parties are principally concerned with quantum, although there is a residual issue concerned with the claimants’ title to sue, which the parties expressly agreed to keep back from the liability trial last year. The claim was originally pleaded in the sum of around £120 million, together with interest. Thus, even taking into account the 75% reduction for contributory negligence, the claimants’ claim could still be worth as much as £30 million, plus interest. That is the background to this application for an interim payment.

[3]THE PROPER APPROACH TO CPR PART 25.

[6]There was a dispute between the parties as to the proper approach to CPR Part 25. The claimants maintained that I could adopt a broad brush approach to the application, given the earlier judgment in their favour, now upheld by the Court of Appeal. The defendant maintained that, since there was no part of the claim which could be said to be inevitably due – no “irreducible minimum” that the court could identify – I should decline to order any interim payment at all.

[7]The relevant parts of CPR Part 25.7 read as follows:

“25.7 (1) The court may only make an order for an interim payment where any of the following conditions are satisfied – … (b) the claimant has obtained judgment against that defendant for damages to be assessed or for a sum of money (other than costs) to be assessed; (c) it is satisfied that, if the claim went to trial, the claimant would obtain judgment for a substantial amount of money (other than costs) against the defendant from whom he is seeking an order for an interim payment…” (b) the claimant has obtained judgment against that defendant for damages to be assessed or for a sum of money (other than costs) to be assessed; (c) it is satisfied that, if the claim went to trial, the claimant would obtain judgment for a substantial amount of money (other than costs) against the defendant from whom he is seeking an order for an interim payment…”

[8]It is not desirable for an interim payment application (or an application for summary judgment, for that matter) to become a mini-trial: see Swain v Hillman

[2001] 1 All ER 91

and, in a construction context, Bovis Lend Lease Limited v Braehead Glasgow Limited (2000) 71 Con. LR 208. But at the same time, the court should not decline to entertain an application merely because the parties have chosen to put in a good deal of material; that is almost inevitable in high value or complex TCC cases (see Jacobs v Skidmore Owings Merrill

[2008] EWHC 2847 (TCC)

[9]In my view, the right approach to an interim payment application is that expressed by Robert Walker J (as he then was) in Chiron Corporation v Murex Diagnostics Limited [1996] F.S.R. 578 where he said:

“But I do not read Neil LJ’s general observation [in Scott Thame v Bentley [1991] 1 QB 61] as excluding an application for an interim payment in relation to part (I might say, an irreducible minimum part) of a claim which may be capable of being established without venturing far into disputed areas of fact or law – provided that the irreducible minimum part is substantial enough to justify the trouble and expense of an interlocutory application. Here the plaintiffs say the irreducible minimum is £7 million out of a total claim, on their calculations, well in excess of £100 million…”

[10]Very recent guidance from the Court of Appeal as to the operation of the test under r.25.7(1)(c) can be found in Test Claimants in the FII Group Litigation v Revenue and Customs Commissioners

[2012] EWCA Civ. 57

[2012] 1 WLR 2375

(c) at paragraph 38 of his judgment:

“The second point is what precisely is meant by the court being satisfied that, if the claim went to trial, the claimant “would obtain judgment for a substantial amount of money”? In my view this means that the court must be satisfied that if the claim were to go to trial then, on the material before the judge at the time of the application for an interim payment, the claimant would actually succeed in his claim and furthermore that, as a result, he would actually obtain a substantial amount of money. The court has to be so satisfied on a balance of probabilities. The only difference between the exercise on the application for an interim payment and the actual trial is that the judge considering the application is looking at what would happen if there were to be a trial on the material he has before him, whereas a trial judge will have heard all the evidence that has been led at the trial, then will have decided what facts have been proved and so whether the claimant has, in fact, succeeded…The court must be satisfied (to the standard of a balance of probabilities) that the claimant would in fact succeed on his claim and that he would in fact obtain a substantial amount of money. It is not enough if the court were to be satisfied (to the standard of a balance of probabilities) that it was “likely” that the claimant would obtain judgment or that it was “likely” that he would obtain a substantial amount of money.”

[4]THE CLAIMANTS’ APPLICATION 4.1. The Parties’ Different Approaches

[11]The claimants’ approach to the application for an interim payment is straight-forward. They say that the pleaded value of the claim is about £120 million. Taking into account the deduction for contributory negligence of 75%, that reduces the maximum that the claimants could recover to about £30 million. The claimants then halve that sum to reflect the risks of litigation and say that, on any view, the court can be satisfied that they will recover £15 million at the conclusion of the quantum trial; hence the application in that amount.

[12]The defendant maintains that this is the wrong approach. It argues that each aspect of the claimants’ claim has to be considered and that, given the points that have been raised, the court cannot be satisfied at this stage that there is any irreducible minimum to which the claimants are entitled. 4.2. The Proper Approach

[13]I am in now doubt that the defendant is right to say that, certainly in this case, it is not appropriate to adopt a broad brush approach. I consider that such an approach is contrary to the guidance set out in the judgment of Aikens LJ in FII Litigation (paragraph 10 above) The claimants’ approach does no more than suggest that, in the round, they are likely to recover half their claim; the very approach which Aikens LJ said was incorrect. In my view, I have to be satisfied that, on the material before me, the claimants would actually succeed in their claim. That means looking at the issues individually and deciding, in accordance with the approach of Robert Walker J in Chiron, whether there is an irreducible amount due to the claimants in any event.

[14]I undertake that task by looking at the two areas of debate that were raised before me at the hearing on 16th November 2012. The first set of issues concerns the claimants’ title to sue; the second centres around the proper measure of loss to be applied in this case.

[5]THE CLAIMANTS’ TITLE TO SUE 5.1. Overview

[15]Some years ago, there were a number of cases in which defendants to construction claims sought to take advantage of the endless assignments, changes of company name and other labyrinthine inter-company dealings that are such a feature of English commercial life, in order to argue that claimant X had the benefit of the cause of action but had not suffered the loss and that, whilst claimant Y had suffered the loss, it had no cause of action. Perhaps the best-known of such cases were Linden Gardens Trust Ltd v Lenesta Sludge Disposal Ltd and Others

[1994] 1 AC 85

and Alfred McAlpine Construction Ltd v Panatown Ltd

[2001] 1 AC 518

. They were sometimes known as the “black hole” cases, because the defendants were essentially arguing that the claimants’ causes of action had completely disappeared, with the result that there was no ensuing liability.

[16]In the present case, the defendant seeks to run similar arguments. The defendant maintains that, because of various events that have occurred since the fire, the claimants are now left without a remedy at all. In order to analyse the issues that arise, it is first necessary to identify the basis of each head of claim, and see what the defendant says has happened to the causes of action that may have arisen in respect of each head. 5.2. The Heads of Claim (a) Costs of Rebuilding (£10.4 million)

[17]The claimants say that it cost £10.4 million to rebuild the NMU. They say that the first claimant, Trebor Bassett Holdings Limited (“TBHL”), owned the land and the NMU and therefore has a claim in tort against the defendant for these costs. Although TBHL did not incur the costs themselves, the claim appears to be advanced on the basis of a beneficial interest (see Linden Gardens and Shell UK Ltd v Total UK Ltd

[2011] 1 QB 86

). The second claimant, whom I shall call “the partnership”, claims the rebuilding cost as damages for breach of contract against the defendant, and also has a mirror claim for breach of duty. It was the partnership that entered into the contract with Bovis, the remedial work contractors for the rebuilding of the NMU, and paid out the monies thereunder. The claimants now argue that the partnership’s claims have been validly assigned to the third claimant, Kraft.

[18]The defendant acknowledges TBHL’s claim in tort as a matter of principle, but argues that TBHL have suffered no loss as a result of the fire and the need to rebuild the NMU, because it was the partnership that entered into the remedial work contract and incurred the relevant costs. They also argue that, although the land was owned by TBHL, the NMU itself may not have been. I agree with Mr ter Haar that that is a thoroughly bad point: Billing v Pill

[1954] 1 QB 70

is authority for the proposition that an owner owns the building that sits on or in his land.

[19]In relation to the partnership’s claim under this head, the defendant argues that the partnership sold its cause of action in January 2008 to a separate and unrelated company, Tangerine Confectionary, and now no longer has a maintainable claim against the defendant. If the defendant is wrong about that, it argues that the partnership retained its claim in 2008 and did not transfer or otherwise assign it to Kraft in 2011. Therefore they say that, since the partnership has now been dissolved, the partnership has no continuing claims against the defendant. (b) The Re-Equipping Costs (£61.194 million)

[20]The claimants claim over £60 million as the cost of putting in new equipment in the new NMU. The claimants say that the equipment in the NMU was owned by the partnership (and/or the three companies that made up the partnership, who are not separately parties in the litigation) and that it was the partnership that bought the replacement equipment. The defendant says that those claims could have only accrued to the partnership, not TBHL: they were therefore either sold to Tangerine in 2008, or remained with the partnership up to dissolution, without being assigned to Kraft, for the same reasons noted above.

(c) Loss of Profit (£34 million)

[21]The claimants say that this claim is made up some £6.6 million (being the value of the lost sales caused by the loss of the stock), and £28 million odd, said to be the increased costs of working. Again, it appears that this claim is made on behalf of the partnership. Again, the defendant points to the sale to Tangerine and/or the dissolution of the partnership to say that these claims can no longer be pursued. (d) Miscellaneous Claims (£1.45 million)

[22]The miscellaneous claims include a claim for professional fees (£952,000 odd) and a claim for the value of the destroyed stock (£506,000 odd). These are again claims which seem to have accrued to the partnership only, and the same points apply again. 5.3.

(a) Approach

[23]I am not able at this stage to resolve all of the issues that arise in relation to the claimants’ title to sue. Some of them may require oral evidence. For example, whilst it is unclear what the inclusion of TBHL as a party actually adds, given that they did not have the benefit of a contract with the defendant and did not pay out any of the remedial or replacement costs, I could not dismiss their claims without full consideration. However, I am confident that I can resolve a number of other issues at this stage. I do that by referring, first, to my analysis of the sale to Tangerine and then my analysis of the subsequent transfer to Kraft.

(b) The Sale to Tangerine

[24]The sale to Tangerine took place on 17 January 2008. The relevant parts of the Business Purchase Agreement (“BPA”) were as follows: "1. Interpretation 1.1 In this Agreement and the schedules and the attachments to it; … “Assumed Contracts” means all the contracts (which include (amongst other things) all agreements, arrangements and commitments and contracts relating to domain names) which relate exclusively to the Business current at Completion to which any member of the Seller’s Group is a party or the benefit of which is held in trust for or has been assigned to it together with the Assumed Group Contracts but excluding (in each case whether or not the same relate exclusively to the Business):(a) Contracts with Assumed Employees;

(b) Contracts relating to the ownership and occupation of the Business Properties (but not, for the avoidance of doubt, service or maintenance contracts relating to the Business Properties); and

(c) Contracts of insurance;… “Business” means all the business of manufacturing, producing and supplying popcorn and certain branded and unbranded confectionary currently carried on by the Seller and certain members of the Seller’s Group, at the Business Properties as at (and immediately prior to) the date of this Agreement and known as Monkhill Confectionary to the extent agreed to be sold under t his Agreement; “Business Assets” means all the assets relating exclusively to the Business agreed to be purchased under this Agreement as set out in clause

2.1 which includes all of the assets including as such in the Working Capital Statement; … “Settlement Agreement” means the settlement agreement in respect of the CPU dated 20 November 2007 between Cadbury Schweppes and the Insurers; 2. Sale and Purchase 2.1 The Seller agrees to sell, or procure the sale of, and the Purchaser agrees to purchase the Business as a going concern and the Business Assets listed below as at and with effect from Completion in accordance with the terms hereof: … (G) the benefit (subject to the burden) of the Assumed Contracts; … (J) all other property, assets and rights of the Seller used exclusively in or for the purpose of the Business in or on the Business Properties at Completion, …

2.2 The Seller confirms that on Completion it will transfer by telegraphic transfer the Settlement Amount to such account of the Purchaser notified in advance to the Seller by the Purchaser.

2.3 The Seller confirms that it has the right to transfer or to procure the transfer of legal and beneficial title to the Business Assets and, except as otherwise disclosed pursuant to schedule 6 (Properties) in the case of the Business Properties, sells or procures the sale of the Business Assets free from all liens, charges and encumbrances and from all other rights exercisable by or claims by third parties… … 4. Consideration

4.1 Subject to clause 5, the Initial Cash Consideration shall be £58 million, being the aggregate of the amounts payable for the Business Assets under sub-clause 4.2.

4.2 The amount payable for each of the Business Assets shall be as follows: (B) the Working Capital - £6,800,000; (C) the Business Properties - £15,475,000;

(d) (D) the Business Plant and Machinery - £24,474,995; … (F) the benefit of the Assumed Contracts - £1; 12. Insurance 12.1 Risk in the Business and the Business Assets shall pass to the Purchaser on Completion. … 12.3 Subject to the provisions of this clause 12, the Seller, or another member of the Seller’s Group (as the case may be), will manage in good faith the handling of an will account to the Purchaser for the proceeds of claims after Completion: (A) that have arisen in respect of the Business and which have been notified to insurers at Completion; or… to the extent that such claims are covered by the Seller’s (or another member of the Seller’s Group’s) existing insurance policies. It is acknowledged and agreed by each of the Seller and Purchaser that this clause 12.3 is without prejudice to the terms of the Settlement Agreement and shall not apply to any claims arising out of the fire at the CPU.”

[25]It is the defendant’s case that the benefit of the contract between the partnership and ADT, which formed the basis of the defendant’s liability in the litigation, was sold by the partnership to Tangerine. They say that it was one of the contracts that were sold to Tangerine as an Assumed Contract, or was otherwise an asset or right relating to the Business, as defined. They therefore say that it was caught by clause 2.1(G) or clause 2.1(J) of the BPA.

[26]On the basis of the material before me, I reject that argument. As a matter of construction of the BPA that it was only the benefit of the Assumed Contracts (clause 2.1(G)) or the assets and rights used exclusively in or for the manufacturing of confectionary currently carried on by the partnership (clause 2.1(J)), which were sold to Tangerine. Those were contracts, assets and rights which related exclusively to that manufacture of confectionary and were “current at [the date of] completion”. They were those contracts that were still being operated - that were still ‘current’ - at the time of the sale to Tangerine in January 2008. That cannot have included the contract between the claimants and ADT, which had been completed as long ago as 2003 and could not on any view be described as ‘current’. As Mr ter Haar put it, this was not a current contract; it was a dead contract, and therefore outside the express terms of the BPA. Neither was the partnership’s cause of action against the defendant a right or asset used in or for the manufacture of confectionary in January 2008; indeed, that cause of action had nothing to do with the partnership’s current business.

[27]This construction is also supported by a different approach to the language of the BPA. At the date of the BPA, the partnership had an accrued cause of action against ADT which was then valued at £120 million and which, even now, might be worth £30 million. In my view, unless it could be shown that this cause of action was expressly sold or transferred to Tangerine pursuant to the terms of the BPA, then there can be no basis for saying that the partnership had divested itself of its cause of action against the defendant. There is no such express provision. I therefore conclude that the completed contract with ADT, whose only value lay in the accrued cause of action thereunder, was not expressly sold or assigned as a current contract to Tangerine, and neither was any cause of action in negligence.

[28]In all of those circumstances, therefore, I find on the material before me that the cause of action which the partnership had against the defendant in contract and/or in tort was not sold or otherwise assigned to Tangerine pursuant to the BPA in January 2008. It therefore remained with the partnership.

(c) The PBSDA

[29]As part of the worldwide takeover of Cadbury’s by Kraft in 2010, the partnership transferred its assets to Kraft pursuant to an agreement dated 26 June 2011 (the “PBSDA”).

[30]The relevant terms of the PBSDA were: “(L) The Partners have each agreed to sell and the Purchaser has agreed to purchase(1) the Partners’ collective legal and beneficial interest in the Partnership Business comprising of the Partnership Assets and the Assumed Liabilities;

(2) to the extent that the legal interest of each or any of the Partners in the Beneficial Property and/or the Partnership Assets is not considered to have been transferred to the Partnership, the legal interest of the Partners (or any one of them) in the Beneficial Property and/or the Partnership Assets but excluding the legal interest in the Non Transferring Properties and the Non Transferring Fixtures and Fittings; and

(3) the legal interest in the Transferring Properties and the Transferring Fixtures and Fittings, on the terms set out in this Agreement. … 2. SALE AND PURCHASE OF THE PARTNERSHIP BUSINESS 2.1 The Partners shall collectively sell and the Purchaser shall purchase with effect from the Effective Time the Partnership Business as a going concern comprising of the following assets, subject to any Encumbrances existing at the Effective Time: (a) Accounts Receivable; (b) the beneficial interest in the Non Transferring Fixtures and Fittings; (c) the beneficial interest in the Non Transferring Properties; (d) the beneficial interest in the Transferring Fixtures and Fittings; (e) the beneficial interest in the Transferring Properties; (f) Cash; (g) Going Concern Value; (h) Inventory; (i) Machinery and Equipment; (j) the benefit of the Purchased Contracts; (k) Records; and (l) Sales Documentation, provided that the Excluded Assets and the Excluded Liabilities shall be excluded from the sale and transfer to the Purchaser. … (3) PARTNERSHIP DISSOLUTION 3.1 The Partners agree that, following the completion of the sale to the Purchaser of the Partnership Business and the Partnership Assets, the Partnership shall terminate and shall be dissolved immediately following the Effective Time (the “Dissolution”).” (a) Accounts Receivable; (b) the beneficial interest in the Non Transferring Fixtures and Fittings; (c) the beneficial interest in the Non Transferring Properties; (d) the beneficial interest in the Transferring Fixtures and Fittings; (e) the beneficial interest in the Transferring Properties; (f) Cash; (g) Going Concern Value; (h) Inventory; (i) Machinery and Equipment; (j) the benefit of the Purchased Contracts; (k) Records; and (l) Sales Documentation, provided that the Excluded Assets and the Excluded Liabilities shall be excluded from the sale and transfer to the Purchaser.

[31]The defendant says that the partnership’s cause of action was not transferred to Kraft as part of this sale. They say there is nothing in clause 2.1 noted above which suggests that the cause of action against the defendant had been assigned to Kraft.

[32]On the face of it, there seems greater force in that submission. It is difficult to see how, from the words used, the cause of action which had accrued to the partnership was transferred to Kraft in 2011. Indeed, it seems as if the partnership itself was aware of this difficulty because, on 26th January 2012, the three parties that made up the partnership entered into a Supplementary Deed of Assignment with Kraft which confirmed that the effect of the PBSDA had been to assign to Kraft the cause of action against the defendant. Obviously, if the PBSDA had been clear, there would have been no need for this Supplementary Deed at all.

[33]The difficulty does not stop there, because the Supplementary Deed of Assignment could be said not to be a deed of assignment at all; arguably it is, as Mr Dennys maintained, merely a retrospective document which seeks to suggest that the assignment arose out of an agreed construction of the PBSDA the previous year. I would respectfully venture the observation that this is an extremely odd way of protecting a claim which, at the time of the PBSDA, was said to be worth £120 million.

[34]Accordingly, it seems to me at least arguable that the partnership’s cause of action was not transferred to Kraft as part of the PBSDA, although I consider I would need much more evidence about the background to the PBSDA before I could reach a concluded view on that point. For now, it is enough to say that it is arguable that the cause of action was not assigned to Kraft and remained with the partnership. Whilst obviously that might create its own difficulties, because the partnership has now been dissolved, I accept Mr ter Haar’s submission that the three legal entities making up the partnership Cadburys Ltd, Trebor Bassett Ltd and Old Leo Confectionary Ltd remain in existence, and therefore retain the cause of action against the defendant. On that basis, it could not be said that the cause of action had disappeared into a black hole.

(d) Summary in Respect of Each Claim

[35]In respect of the claim for the rebuilding costs, it seems plain that TBHL retain a cause of action in tort against the defendant, although the value of that cause of action must remain uncertain in circumstances where TBHL did not incur any cost in respect of the rebuilding. It may be that it will be a case where TBHL can recover on behalf of those who did pay the costs of rebuilding (as per Linden Gardens), but I cannot resolve that without further evidence. The partnership had both a contractual and a tortious claim against the defendant and they did incur the cost of reinstatement. Their claim was not sold or transferred to Tangerine in January 2008. On the evidence, their claim for the rebuilding costs has either been transferred to Kraft or remains with the three companies that made up the dissolved partnership. The claims have not disappeared.

[36]In respect of the claims for re-equipping the NMU, the loss of profits, and the other minor claims, the position is the same each time: the cause of action was vested in the partnership; it was not transferred or sold to Tangerine; it may have been transferred to Kraft or it may remain with the three partners of the now dissolved partnership.

[37]Accordingly, on the basis of the material before me, I find that the title to sue arguments do not give rise to a complete defence to these claims. I acknowledge that there is some doubt as to which of the claimant entities might ultimately be able to recover, and that difficulty is compounded by the fact that the claims may actually vest with the three partners of the partnership, who are not (yet) parties to the proceedings. But it is does not seem to me that, for the purposes of the interim payment application, any of this matters. I am entitled to treat the claimants as a single entity for this purpose, in the absence of any evidence adduced by the defendant to demonstrate that, if the money was paid to Kraft (the third claimant), there was a risk that it would not be repaid It would not be appropriate to order payment either to TBHL, because they are in liquidation, or the partnership, because it has been dissolved. . Putting the point another way, it would be wrong in principle if an otherwise clear entitlement to an interim payment was frustrated because of an absence of clarity as to which claimant entity might be the ultimate beneficiary, in circumstances where there is no evidence that repayment, if necessary, might not be made.

[38]Having rejected the defendant’s argument that the claimants’ title to sue is too incoherent to justify an interim payment, I then turn to the other argument raised by the defendant, concerned with the measure of loss.

[6]MEASURE OF LOSS 6.1. The Competing Arguments

[39]The claimant’s claim for damages is based on the proposition that they are entitled to the cost of reinstatement. That is usually taken to be the correct measure of loss in such cases: see Harbutt’s ‘Plasticine’ Limited v Wayne Tank and Pump Co. Limited

[1970] 1 QB 447

. In Dominion Mosaics and Tile Co. Limited v Trafalgar Trucking Co. Limited

[1990] 2 All ER 246

, the cost of moving to new premises after the fire was allowed because the evidence showed that the cost of rebuilding would have been much higher. In addition, the claimants say that, because they have carried out the remedial work, the defendant’s ability to argue about the reasonableness or otherwise of the costs of reinstatement or the new equipment is limited: see The Board of Governors of the Hospitals for Sick Children and Another v McLaughlin & Harvey PLC and Others (1990) 19 Con LR 25.

[40]The defendants, however, say that the authorities show that it is a more difficult question, where an asset is destroyed by fire, as to whether the right measure of loss is the cost of restitution or diminution in value: see, for example, CR Taylor (Wholesale) Limited v Hepworth’s Limited

[1977] 1 WLR 659

. They say that, in this case, the right measure of loss is diminution in value. Furthermore, if they are wrong about that, and the right measure of loss is the cost of restitution, they maintain that they are entitled to argue that the claimants’ figures are unreasonably high.

[41]The novel element of the defendant’s case is the suggestion that the measure of loss in this case is not the diminution in value of the asset itself, but rather the diminution in value of the partnership’s Monkhill business at the time of the fire. As noted below, this argument is put, at least in the alternative, as a matter of mitigation. At first sight, it does not look straightforward; as far as I can tell, it has not been advanced in quite this way in any of the reported cases.

[42]But I am not willing at this stage to dismiss it out of hand, in circumstances where the facts lend some support to the defendant’s stance. The particular point is this. The claimants spent some £70 million reinstating the NMU and putting back all the equipment. They then allege that they sold the entirety of their business, including other sites, other equipment, and the value of the brands themselves, as well as the Monkhill site and the new equipment there, for just £55 million. As Mr Dennys put it, it is arguable that the claimants did not ask themselves whether the value of the business after the reinstatement justified the huge expenditure involved in that reinstatement; at the very least, it raises the issue as to why the claimant spent so much on a business which, on the face of it, was not worth that level of financial support. The issue arises even more starkly in circumstances where, as it appears on the evidence, the proposal to sell the business was being actively considered some time before the fire.

[43]One possible answer to that puzzle emerged during the course of argument. It became apparent that the claimants were prepared to rebuild the NMU and re-equip it because, even though they knew that they were likely to sell the business at the completion of the reinstatement and re-equipping works (if not before), those works were being paid for by their insurers. In other words, the claimants may have decided that they were better off having the NMU and its equipment reinstated at their insurers’ expense, and then selling the business for the best price, rather than looking at the matters on a strict balance-sheet basis in 2005. Accordingly, on that analysis, the fact that there was an insurer who was paying for the reinstatement and the re-equipment becomes a critical factor in the claimants’ commercial approach.

[44]On one view, that immediately creates a difficulty for the defendant because, conventionally, the nature, scope and extent of any insurance arrangements are irrelevant to the court’s evaluation of quantum. How, therefore, does the court address a situation where, on the one hand, the claimants took an uneconomic and therefore unreasonable decision but where, on the other, if one factors into the equation the reality that the reinstatement and the re-equipment was going to be free of charge from their point of view, the decision looks rather more understandable? Furthermore, even if regard can be had to the argument, is it relevant to the measure of loss, or does it more properly go to mitigation?

[45]These are just some of the points that will arise which, in the absence of any evidence or detailed submissions, I am unable to resolve now. However, for the purposes of the interim payment application, I am not prepared to say that the defendant’s argument is fanciful or bound to fail. I consider that it is arguable. 6.2. Diminution in Value

[46]Because I am unable to reach a concluded view as to the arguments concerned with the measure of loss, I need to take, as the irreducible minimum for the purposes of CPR Part 25, the figures put forward by the defendant by way of diminution in value. The report dated 7th November 2012 of Mr Haberman, the defendant’s accountant expert, puts the value of the Monkhill business at the time of the fire at between £8 million and £18 million (depending on precisely which approach is taken). A half-way point is therefore £13 million. Making the necessary reduction for contributory negligence, 25% of £13 million is £3,250,000. Accordingly, on the basis that the diminution in value case is at least arguable, it seems to me that, for the purposes of an interim payment, and on the defendant’s own figures, the sum of £3,250,000 would be inevitably due by way of an interim payment.

[47]Then there are the claims for loss of profit and the like. Mr Dennys argued that, if the diminution in value approach is correct, there would be no loss of profit. Whilst I can see that the diminution argument could have a significant effect on any claim for loss of profit, I do not accept that the loss of the NMU and the loss of the stock would, even on a diminution in value basis, mean that there was no claim for loss of profit at all. There is also the value of the destroyed stock itself, put at just over £500,000, which would appear to be recoverable in any event.

[48]Mr Dennys also pointed out that the principal reason why this head of loss is so large is because of the lengthy delays to the reinstatement works, a matter which was the subject of an adjudication between the claimants and Bovis. The adjudicator, Mr Tony Bingham, blamed the claimants for at least some of the delay which saw the original contract period of 12 months extend to 29 months. He noted that the claimants’ requirements were continually evolving and that it was difficult to “nail down” the workscope. There is therefore a major debate on the facts about the recoverability of the £34 million odd claimed by way of loss of profit which I cannot begin to resolve at this stage.

[49]In the circumstances, I consider that I can adopt a broad-brush approach to the loss of profit claim because, whatever the ultimate outcome, I am confident on the material before me that the claimants would recover at trial a substantial sum by way of loss of profit, albeit probably much less than they claim. Even taking into account the 75% contribution, I would not put that figure at less than £750,000.

[50]Accordingly, I consider that, as an irreducible minimum, even on the defendant’s analysis of quantum, I can be confident that the sum of £4 million would be recovered by the claimants in this litigation. I would therefore identify that as the sum to be paid on account by way of an interim payment. 6.3. Cost of Reinstatement

[51]I should also note that, even if I was wrong to conclude that the defendants’ diminution in value case was arguable, it would make very little difference to the amount of an interim payment. That is because the defendant’s figures for the cost of reinstatement and re-equipment (which, in order to find the irreducible minimum, I would be bound to use in any calculation, rather than the claimants’ higher figures) are, respectively, £6.5 million odd (Mr Walmsley’s report of 7th November) and £10-£11 million odd (Mr Lumley’s report of 8th November). 25% of the total of those two figures would be just over £4 million. Whilst there would also be a further payment for loss of profit, it will immediately be seen that the figures produced by this analysis are broadly similar to the figures that I have used in the calculation of the diminution in value claim. Putting the point another way, even if I had adopted the claimants’ basis of quantification, the amount of the interim payment would not have been significantly higher.

CONCLUSION

[52]For the reasons set out above I order an interim payment in the sum of £4 million. That is to be paid to Kraft and can, of course, be repaid after the quantum trial if necessary. This judgment expressly excludes any question of costs.