Case note: Mitchell Ogilvie Menswear Pty Ltd v Rapid Edge Pty Ltd [2019] QSC 136
Mitchell Ogilvie Menswear Pty Ltd (the Plaintiff) stocks luxury Italian suits and business shirts, made-to-measure suits, everyday business attire, casual wear and high-end accessories. On 31 May 2019, the Supreme Court of Queensland awarded the Plaintiff the sum of $1,278,708 in damages and interest of $795,799, for amounts recoverable against the Defendant following a fire in 2010.
Background
The Plaintiff’s stock was damaged in a fire on 29 September 2010 which originated from a vacuum cleaner, in the basement tenancy of a jewellery business, close to the Plaintiff’s store. The fire caused soot and smoke to enter the Plaintiff’s premises. The Plaintiff’s store was located at 190 Edward Street and the fire caused a fine layer of soot to cover most, if not all, of the clothing stock in-store, the store fit out, floor coverings, horizontal surfaces and inside drawers.
At the date of the fire, the Plaintiff had in place a Commercial Special Risks Policy (Policy) of insurance with Allianz Australia Insurance Ltd (Allianz). The Plaintiff made a claim against its Policy, which was accepted.
Attempts were made by Commercial Industrial Restoration Insurance Services to clean and decontaminate the stock, which included:
- pre-vacuuming all stock, contents, fixtures and fittings throughout the property;
- chemical dry sponging fabric based items;
- removing contaminants from fixtures and fittings by way of wet wipe, alkaline treatment and then neutralise;
- arranging for a commercial carpet cleaner to attend and clean all carpets and affected upholstery, clean, scrub and re-seal parquet floors;
- after-hours ozone treatment of the premises as an odour control measure.
The results of the cleaning and decontamination were variable. Some items looked worse than before they were cleaned.
Under the terms of the Plaintiff’s Policy, Allianz was entitled to retain the damaged stock when it made a payout under it and to recoup the salvage value of that damaged stock.
Allianz proposed two options as to how to deal with the salvage of the damaged stock and these were:
- an assessment of the damaged stock with a payment to the Plaintiff equivalent to its wholesale costs, or value net of GST, where the property would become the property of Allianz and later sold on behalf of Allianz for salvage value; or
- for the Plaintiff to offer to retain the damaged stock at its agreed value, following which the Plaintiff would then be responsible for dealing with the damaged stock, for example by holding a fire sale and bearing the risks of the outcome of that process.
Mr Ogilvie had a number of concerns about handing over the damaged stock to Allianz and offered to pay $150,000 to $200,000 to Allianz in exchange for the damaged stock. This represented 10% to 15% of the wholesale value of the stock.
Allianz’s appointed loss adjuster, Cunningham & Lindsay, did not consider that the Plaintiff’s offer represented the true salvage value for the damaged stock and engaged, Mr Webber, Managing Director of Lloyds Auctioneers & Valuers, to prepare a salvage valuation and a proposal for the sale of the damaged stock by public auction.
Mr Webber produced a report to Allianz advising that his estimate of realisation of the damaged stock was between $220,000 and $450,000, with net guaranteed proceeds of sale of $195,000.
Further to Mr Webber’s valuation, the Plaintiff increased its offer to Allianz to $225,000 for the damaged stock.
The Plaintiff then proceeded to sell the stock in-store in a fire sale and by late 2011, almost all of the damaged stock was sold. The business’ records in relation to the sale of salvaged stock did not accurately identify the sale price of the salvaged goods, in part due to the sku system used with the sale stock.
The wholesale value of the stock within the Plaintiff’s tenancy at around the time of the fire was almost $1.7M.
Issues at trial
The issues for consideration by the Court were:
- whether the Plaintiff’s proposed measure of the property damage it suffered, namely the diminution in value of the stock that came to be damaged was appropriate. The Plaintiff sought the difference between the wholesale value of the stock just before the fire and its salvage value shortly after the fire;
- the salvage value of the damaged stock after it was cleaned and treated;
- the value of the undamaged stock.
Findings of the Court
The Defendant admitted liability in full for property damage and economic loss caused to the Plaintiff as a result of the fire. The Defendant abandoned or did not press a defence of “avoided loss” at trial.
The Court observed that where a Defendant’s tort has caused damage to a Plaintiff’s existing property, the general compensatory principle is that the Plaintiff should be put into as good a position as if its property had not been damaged. To do so, there was a choice between:
- awarding the diminution in value of the property; and
- the cost of cure, comprising the cost of replacement or, if possible, repairing the goods.
From the judgment, it would appear that the Defendant had a theory to the effect that the Plaintiff had sold the damaged stock for significantly more than the salvage value which he paid Allianz. However, the Court ultimately preferred the opinion of Mr Webber as to the stock’s value; over the Defendant’s theory and its forensic evidence (about which the Court expressed a number of concerns).
The Court concluded that the appropriate measure of loss for the Plaintiff’s property damage loss was to be determined by deducting from the wholesale value of the goods ($1,683,974), the following amounts:
- salvage value of the stock being $225,000;
- value of undamaged stock $184,376;
- purchase price of new stock $34,231.
The Plaintiff was also allowed the costs incurred in carrying out the decontamination and cleaning of the stock ($22,085.28), forensic examiner report costs ($10,061.24) and loss adjuster costs ($6,195), by way of damages – not costs.
This brought the total of the damages judgment in favour of the Plaintiff to $1,278,708.
The Court also ordered to pay interest from September 2010 to 31 May 2019 in the sum of $795,799.
Considerations and costs
The published judgment does not deal with the question of costs. However, with the litigation running from 2014 to 2019, it seems likely that the costs and interest on the claim shall exceed the total value of damages awarded.
This decision will be of interest to insurers in respect of their recovery actions. An unfavourable finding for the Plaintiff in this case could have had industry wide implications for how insurers pay out claims to insureds.
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For a consultation with us regarding your business insurance claim call (07) 3067 3025.
