John Kosev v Gio General Limited [1997] ACTSC 78 (8 October 1997)

SUPREME COURT OF THE ACT

JOHN KOSEV v. GIO GENERAL LIMITED
No. SC 553 of 1996
Number of
pages - 11
Insurance - Evidence

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

COOPER J

CATCHWORDS

Insurance - Loss of nett takings in business - construction of indemnity - onus of proof as to elements in calculation of quantum recoverable.

Evidence - Survey evidence - expertise of person conducting survey necessary for admissibility.

Arnotts Ltd v Trade Practices Commission (1990) 24 FCR 313 (FC)

Interlego AG v Croner Trading Pty Limited [1992] FCA 624; (1992) 39 FCR 348

HEARING

CANBERRA, 2-4 June 1997 (hearing), 8 October 1997 (decision)

8:10:1997

Counsel for the Plaintiff: Mr Whitelaw

Solicitors for the Plaintiff: Romano & Co

Counsel for the Defendant: Mr Purnell

Solicitors for the Defendant: Mallesons Stephen Jaques

ORDER

THE COURT ORDERS THAT:

1. Judgment be entered for the plaintiff against the defendant in the sum of $2,720 together with interest thereon at the rate of 10 per cent per annum from 9 July 1996 until the date of this judgment.

2. The defendant pay the plaintiff's costs of and incidental to the action to be taxed, as if the action was an action for recovery of $2,720 in the Magistrates Court of the Australian Capital Territory, if not agreed.

DECISION

COOPER J

At all material times the plaintiff was the owner of a small business conducted from leasehold shop premises in Ainslie Shopping Centre. The business was purchased by the plaintiff as a going concern and he commenced to operate it on and from 1 December 1993.

The business was carried on under the style or business name of "Ainslie Take Away". As the name implies, the business was a convenience food outlet which sold items such as hamburgers, fish and chips, sandwiches, soup, soft drinks, dairy products, tea and coffee. Additionally there were amusement machines on the premises.

The business was operated each day of the week other than Christmas Day and Boxing Day between the hours of 8.00 am and 8.00 pm, although in summer the hours would be extended to 9.00 pm or 10.00 pm depending upon custom.

The defendant is a general insurer. As and from 30 November 1993 the defendant agreed to indemnify the plaintiff against loss under a business insurance policy. The period of insurance was from 30 November 1993 to 30 November 1994. The policy covered a number of risks including loss from fire and loss of nett takings up to a sum insured of $100,000 caused by business interruption consequent upon a fire. The policy provided cover for loss from fire and other specified perils for a sum insured of $92,000, being stock of $12,000 and business contents of $80,000.

On 2 October 1994 a fire occurred in the premises in which the plaintiff carried on his business. The fire started underneath the shop premises. There was damage to the electrical wiring and the floor and some stock damage was also suffered when the compressor for the refrigerators failed. The defendant was notified of the fire and damage on 3 October 1994. As a consequence of the fire the business ceased trading on 3 October 1994.

The business re-opened on 9 November 1994 after a closure of five weeks.

The plaintiff made a written claim under the policy of insurance on 24 November 1994. That claim was for $2,652.75 in relation to stock losses and $1,397.86 in respect of equipment damage. The plaintiff advised the defendant that details of a claim for business interruption would follow at a later date. The defendant paid the sum of $1,147.86 direct to Perfect Air, the supplier of the replacement compressor, and paid $2,006.24 to the plaintiff on 2 February 1995, being $250 for the balance claimed in respect of equipment damage and $1,756.29 for the adjusted claim for stock loss less the $100 general excess deductible under the policy.

On 29 March 1995 the plaintiff made an interim claim of $49,123.06 for loss of nett takings due to business interruption for the period 3 October 1994 to 28 February 1995. The letter accompanying the claim stated in part:-

"Please note that this is not a final claim as I wish to periodically review and submit further figures to you for the period 1.3.95 to 2.10.95".

On 11 May 1995 the defendant paid to the plaintiff $10,000 for his business interruption claim.

The defendant sold the business in or about July 1993 to Mr and Mrs Van Gerwan. The sale price was $21,500 and the sale was completed on 23 August 1995.

On 30 October 1995 the plaintiff made a further claim under the policy for loss of nett takings due to business interruption for the period 28 February to 23 August 1995 in the sum of $59,581.75. This brought the total claim for the period 3 October 1994 to 23 August 1995 to $108,704.81.

The risk insured was contained in section 2 of the terms and conditions of the policy. The insuring clause stated:-

"The Agreement

SUBJECT TO the terms of this Section and of the Policy, GIO General agrees to indemnify the Insured, in accordance with the Basis of Settlement, for loss of Nett Takings due to: (a) REDUCTION IN TAKINGS; and (b) INCREASE IN COST OF WORKING,

where such loss results from interruption or interference to the Business consequent upon destruction or damage to The Premises for which the Insured is entitled to indemnity under Section 1 of this Policy (loss arising out of destruction or damage by Boiler and/or Economiser explosion excepted). Such destruction or damage hereinafter termed 'Damage'."

Liability under the clause was limited to the amount in the Schedule ($100,000) and subject to a $100 excess.

The policy included the following definitions:-

"For the purposes of Section 2 -

'NETT TAKINGS' shall mean: The Takings less the nett cost of goods or materials or services relative thereto.

'TAKINGS' shall mean: The money paid or payable to the Insured for goods sold and delivered, work done and services rendered in course of the Business at The Premises. (NOTE: if during the Indemnity Period goods shall be sold or work done or services be rendered elsewhere than at The Premises for the benefit of the Business either by the Insured or by others on his behalf, the money paid or payable in respect thereof shall be brought into account in arriving at the takings during the Indemnity Period.)

'INDEMNITY PERIOD' - The period beginning with the occurrence of the Damage and ending not later than twelve months thereafter during which the results of the business shall be affected in consequence of the Damage.

' RATE OF NETT TAKINGS' - The rate of Nett Takings earned on the Takings during the financial year immediately before the date of the Damage. 'ANNUAL TAKINGS' - The Takings during the 12 months immediately before the date of Damage. 'STANDARD TAKINGS' - The Takings during the period in the 12 months immediately before the date of the Damage which corresponds with the Indemnity Period.

) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

Adjusted as may be necessary to provide for variations in or special circumstances affecting the business, so that the adjusted figures shall represent as far as possible the results which but for the Damage would have been obtained during the relative period after the Damage. In the event of Damage occurring before the expiry of the first financial year of the business, the results of the business to the date of the Damage shall be used as a basis upon which to assess any loss subject otherwise to the Conditions of this Section and of the Policy."

The sum payable under the policy was to be determined in accordance with a Basis of Settlement clause which provided:-

"Basis of Settlement

The amount payable by GIO General under this Section shall be: (a) In respect of REDUCTION IN TAKINGS - the sum produced by applying the Rate of Nett Takings to the amount by which the Takings during the Indemnity Period shall, in consequence of the Damage, fall short of the Standard Takings; (b) in respect of INCREASE IN COST OF WORKING - the additional expenditure necessarily and reasonably incurred for the sole purpose of avoiding or diminishing the reduction in Takings which but for that expenditure would have taken place during the Indemnity Period in consequence of the Damage, but not exceeding the sum produced by applying the Rate of Nett Takings to the amount of the reduction thereby avoided;

LESS any sum saved during the Indemnity Period in respect of such of the charges and expenses of the Business payable out of Nett Takings as may cease or be reduced in consequence of the Damage; PROVIDED THAT if the Sum Insured on Nett Takings be less than the sum produced by applying the Rate of Nett Takings to 90% of the Annual Takings the amount payable shall be proportionately reduced."

The defendant by its defence denies that the plaintiff suffered loss and damage from business interruption for the period 3 October 1994 to 23 August 1995. It further denies that the plaintiff's claim has been calculated in accordance with the terms of the policy for any period of business interruption which the plaintiff may have incurred.

The first issue to be determined is whether or not the takings of the business fell in the period after recommencement of the business on 9 November 1994, and if so, whether that fall was attributable to closure consequent upon the fire on 2 October 1994.

Mr Peter Irving, a chartered accountant, prepared four financial statements for the business covering the period 1 December 1993 to 30 June 1994; 1 July 1994 to 2 October 1994; 3 October 1994 to 28 February 1995, and 28 February 1995 to 23 August 1995. All expert accountants have used these accounts to supply the raw figures used in their calculations.

The accounts disclose that in the period when the business traded before the fire (1 December 1993 to 2 October 1994), gross sales were $201,325 (all figures in these reasons are rounded to the last dollar). This covered a forty-four week period. After the business re-opened on 9 November 1994, gross sales until completion of sale of the business on 23 August 1995, a period of forty weeks, was $71,851. The average weekly sales figures prior to the fire was $4,575 compared with a post-fire figure of $1,796; a decline of 60.74 per cent.

The cost of goods prior to the fire was $63,267, or an average weekly figure of $1,437. The comparable post-fire figures were $38,380 or $959 average per week. As a percentage of gross sales, the pre-fire purchases rose from 31.42 per cent to a post-fire figure of 53.41 per cent.

The gross profit figure pre-fire was $138,058 or an average of $3,137 per week. The comparable post-fire figure was $33,471 or average per week of $836. As a percentage of sales, gross profit fell from 68.57 per cent to 46.58 per cent.

The plaintiff's case is that the fall in average weekly sales by almost 61 per cent is due to customers failing to return after the business re-opened and continuing to purchase their requirements from his competitors in the shopping centres in adjacent suburbs. The plaintiff and Mr Irving also contend that trading in Canberra is seasonal, with high sales in summer and a fall-off in the winter. In support of this contention Mr Irving produced a graph which plots the weekly sales of the business from its commencement under the ownership of the plaintiff until its sale in August 1995. That graph shows takings both before and after the fire peaking in the summer months and declining in the winter months. The pre and post-fire graphs roughly replicate each other save that the second graph peaks at weekly sales of $2,000 per week in the January/February 1995 period against a peak of $5,750 in the January/February 1994 period. Mr Irving also re-calculated the plaintiff's claim to a total sum of $63,912.

The defendant called Mr Gregory McLeay, a chartered accountant, who provided a report dated 18 June 1996 and a supplementary report dated 26 May 1997. Mr McLeay expressed the opinion that the business was in decline before the fire and that its post-fire trading was indicative of the apparent downward trend before the fire. The defendant also called Mr Gregory Kerr, a chartered accountant and loss adjustor who specialises in business interruption claims. Mr Kerr gave evidence that the fall in gross profits of about 20 per cent and the increase in the cost of sales by about 20 per cent was an unusual feature of the trading of the business. Such a situation reflected either inflation in the cost of goods of 20 per cent over six months which he described as "ridiculous" or the revenue was being understated by 20 per cent.

Mr Irving could not explain this feature of the accounts other than to suggest inflation as the cause. He acknowledged that he had to rely totally on the sales and purchase figures supplied by the plaintiff. As his calculations as to the plaintiff's loss were based solely on those figures, if they fell, so did his calculations.

Evidence as to the recording of the business figures was given by Ms Elizabeth Hart. Ms Hart is the defacto wife of the plaintiff. She spent, on average, ten to fifteen minutes bookkeeping each night maintaining a cash receipts book and a cash payments book. She swore that no wages book was kept and all wages were paid in cash and entered in the cash payments book. The cash receipts of the business were advised to her orally by the plaintiff and she would write the amount on a writing pad. Later she would enter the amount in the cash book. When the cash register till rolls ran out and were brought home, Ms Hart said she would reconcile the till rolls with the cash receipts book. Her evidence was that the books as originally written up by her were accurate when checked against the till rolls.

The plaintiff denied that he was understating the takings of the business in the post-fire period. He also denied that in the post-fire period he allowed the business to run down.

Mrs Van Gerwan gave evidence as to the state of the business when she and her husband acquired it on 23 August 1995 and as to its trading results for the months of September and October 1995. I accept the evidence of Mrs Van Gerwan. She was told by the plaintiff that the reason he was selling the business was because of a bad back. The plaintiff admitted that after the fire and prior to selling the business he slipped and fell in the TAB in the Ainslie Shopping Centre and injured his back. The injury was apparently significant because he has initiated proceedings against the TAB for damages for personal injury to his back. Mrs Van Gerwan described the premises as dirty and greasy when she went into possession and she and her husband took two full weeks to clean up and open for business.

The business was operated by the Van Gerwans initially for seven days per week from 9.00 am until at least 7.00 pm. After Christmas 1995 they changed to a six day a week operation. In the first week of trading in September 1995 the Van Gerwans took $2,457 and $11,237 in the first month, being an average during the first month of $2,800 per week. Mrs Van Gerwan's experience of trading in winter 1996 was that trade increased and did not decrease. In addition to cleaning the inside of the shop, the Van Gerwans removed a large amount of signage and placed a new front on the shop to open it up and allow people to see inside. It was submitted on behalf of the plaintiff that it was this circumstance and that the business was under new management which explained the lift in gross sales. Comparing the average weekly takings of the plaintiff in his last month of trading in August 1995 with the takings of the Van Gerwans, the turnaround of the business in the hands of the Van Gerwans was an 88 per cent increase in sales in the first week and an increase of 114 per cent in the first month of trading in September 1995.

Mr Irving's figures disclose the plaintiff's cost of goods in the period 1 July 1994 to 2 October 1994 was 27 per cent of sales receipts. If one assumes that the cost of goods was constant in the period after the fire, average weekly purchases of $959, with the cost of purchases being 27 per cent of the gross sales, should have produced average weekly gross sales of $3,551 and gross profits of around $2,592 per week on average. Those figures, when compared with the weekly sales in the two months before the fire which ranged from a high of $4,075 to a low of $3,725, show a fall in sales ranging from 12.85 per cent to 4.67 per cent over the range.

There was further evidence which cast serious doubt on the accuracy of the cash receipts in the period after the fire. Evidence was given by Mr Gerald Wiltshire, a loss adjustor, of observations made by him on 3 May 1995, 14 June 1995 and 14 July 1995 from a location outside the business premises at Ainslie Shopping Centre. From a position of fifteen to twenty metres from the front door of the Ainslie Take Away he was able to observe persons entering and leaving the shop. On 3 May Mr Wiltshire had the premises under observation from 11.51 am to 2.01 pm. On 14 June he had the premises under observation from 11.57 am to 2.03 pm and on 14 July he carried out observations between 4.50 pm and 7.02 pm.

Mr Wiltshire recorded his observations on running sheets (Exhibit 34) which recorded the time, the number of persons entering the premises and whether in his view a purchase had been made. The decision as to whether a purchase had been made was dependent upon whether the person left the shop eating or drinking when they had not been engaged in that activity when they entered or whether the person emerged carrying an item in a paper wrapping which had not been carried into the premises.

On 3 May Mr Wiltshire observed forty-eight adults enter the shop in the two hour period at the times indicated on the running sheet, and applying his criteria, make purchases in the shop. On 14 June he observed forty-two adults enter the shop and make purchases. On 14 July he observed forty adults and five accompanied children enter the shop and make purchases.

The till roll in the cash register used in the plaintiff's business recorded the date, time of sale and amount recorded as a sale. Mr Wiltshire compared the till rolls for 3 May, 14 June and 14 July (Exhibit 35) against his running sheets. The till roll for 3 May records twenty-four sales being made between 11.51 am and 2.01 pm. Those purchases are readily identifiable against the times recorded in Mr Wiltshire's running sheet. In the period 11.51 am to 12.58 pm Mr Wiltshire has identified eighteen transactions having occurred in the store of which seven involved two adults entering and leaving the shop together. The till roll for that period identifies fourteen sales. Mr Wiltshire's sheets for the period 1.01 pm to 2.01 pm identifies nineteen transactions of which four involved two adults. The till roll identifies ten transactions. Importantly, it records a "No Sale" entry at 1.03 pm and the next sale entry at 1.31 pm. Mr Wiltshire's sheets record nine transactions, two of which involved two adults between 1.03 pm and 1.31 pm.

The running sheet for 14 June shows twenty-one transactions between 11.57 am and 12.59 pm of which seven involved two persons. The till roll showed seven sales. There are no cash sales recorded on the till roll between the last sale at 12.29 pm and the next recorded sale at 1.07 pm, whereas, Mr Wiltshire's record shows thirteen transactions, four of which involved two adults. Similarly in the period 1.07 pm to 2.03 pm Mr Wiltshire's records show thirteen transactions whereas the till roll shows seven.

The figures for 14 July 1995 are of particular concern. The till roll records five sales between 4.50 pm and 5.56 pm. Mr Wiltshire's records show twenty transactions. In the period 6.00 pm to 7.02 pm, the till roll shows five sales. The running sheet shows seventeen transactions in the same period including two with two adults and three with accompanied children.

Although an attempt was made in cross-examination to question the validity of the observations and to raise a question as to whether the persons who entered and left the premises did so for reasons other than to make a purchase, I accept the evidence of this witness.

The failure to explain an apparent increase of 20 per cent in the cost of purchases after the fire, the failure to explain the apparent inconsistency between the till rolls and the recorded observations of Mr Wiltshire, and the trading results of Mr and Mrs Van Gerwan in the first month of their conduct of the business, satisfy me that the sales receipts records for the period after the fire are not a reliable record of the true receipts of the business during this period.

For the purpose of proving an entitlement to an indemnity, the plaintiff has the onus of proof to establish each of the factual circumstances required under the policy to establish an entitlement to, and to calculate the quantum of, the indemnity.

To prove causation, that is, loss of nett takings (as defined) from interruption to business consequent upon the fire, the plaintiff relies upon the fact of the fire, the closure of the business for five weeks, the alleged fall in takings thereafter, the results of a survey conducted by Mr Irving and the evidence of a Mr Kabadanis of the effect a closure due to fire had on his business in Canberra.

Mr Irving surveyed thirty-five persons in the vicinity of his office in Mitchell, a Canberra suburb. The area of the survey is a semi-industrial suburb to the north of the city. It is not comparable with Ainslie, which is a residential area. The questions asked were:-

"If a suburban Canberra takeaway that you patronised regularly was forced to close down would you go back after its reopening if you had found a satisfactory alternative?

What percentage of prior patrons do you believe would return after its reopening?"

I reserved my decision on the admissibility of the evidence until the giving of these reasons. The questions and answers cannot be tendered in evidence as proof of the facts asserted by the interviewee through Mr Irving. The evidence is hearsay: Arnotts Ltd v Trade Practices Commission (1990) 24 FCR 313 (FC) at 360. If it is sought to tender the questions and answers as evidence of the impressions or opinions of the interviewees, those impressions or opinions are irrelevant to the issues on this trial. Where a court has a discretion to admit survey evidence, although hearsay, that discretion ought only be exercised where the report is one of a professionally conducted survey upon proof that it has been satisfactorily conducted using relevant and unambiguous questions: Arnotts at 360 - 362.

In Interlego AG v Croner Trading Pty Limited [1992] FCA 624; (1992) 39 FCR 348, Gummow J (with whom Black CJ and Lockhart J agreed) said at 389 - 390:-

"Following the decision in Arnotts Ltd v Trade Practices Commission (supra), it is clear that survey evidence may be admissible under the Rules of this Court without calling the persons surveyed, notwithstanding what otherwise might be the strength of objections as to hearsay. However, this does not permit to be achieved by indirect means what could not be achieved directly. Survey evidence as to an issue will only be admissible if testimonial evidence by the persons surveyed as to the same effect would be admissible. So, for example, opinion evidence which would be inadmissible if directly tendered, would not be admissible by virtue of the fact that it was expressed in terms of responses to a survey.

Survey evidence might be used to establish the habits of consumers in buying toy building bricks in supermarkets. However, that does not readily appear as a substantial purpose for tender of the evidence in this case. The survey evidence would have been admissible if it revealed cases of actual deception of consumers: Royal Warrant Holder's Association v Edward Deane & Beal Ltd (supra), per Warrington J. However, the evidence here was not so confined.

Rather, the purpose of the evidence was to show that potential consumers would have been deceived. Evidence to that effect is inadmissible, since that question is the very issue which the court has to determine. Moreover, as Farwell J said in Bourne v Swan & Edgar Ltd, Re Borne's Trade Marks [1903] 1 Ch 223 at 224, one cannot call:

'... any individual to give what is in truth expert evidence as to human nature, because what they are asked in this form of question is, not what would happen to them individually, but what they think the rest of the world would be likely to suppose or believe. They are not experts in human nature, nor can they be called to give such evidence, and, apart from admissibility, one cannot help feeling that there is a certain proneness in the human mind to think that other people are perhaps more foolish than they really are. I do not think that Carlisle is alone in his estimate of the intelligence of the majority of the inhabitants of these islands. Therefore that is ruled out as a matter of evidence.'"

The survey evidence in the instant case is sought to establish the likely conduct of Canberra consumers; it is the collection of the opinions of the interviewees as to human nature without any obvious expertise to give those opinions. Nor does Mr Irving have any expertise to give evidence as to the characteristics of Canberra consumers or to draw any conclusions from the answers given. Even if admissible, question 1 is too general to be of any value as to likely consumer reaction to the closure of the Ainslie Take Away. Question 2 invites mere speculation.

The survey material is not admitted into evidence. Even if it had been admitted, I would have given it no weight.

The evidence of Mr Kabadanis was to the effect that he owned and operated a take away business in Lyneham. The business operated seven days per week from 9.00 am to 9.00 pm. The business sold hot take away convenience food similar to that sold at the Ainslie Take Away. However the business also included a home delivery pizza business which accounted for about 30 per cent of his takings. The business was promoted by regular television advertising and pamphlet drops. In June 1990 a fire gutted the premises where the business was operated. It was closed for between four to six months. Upon re-opening this business Mr Kabadanis said that the home delivery business had reduced by 60 per cent to 70 per cent and that the people coming into the shop had dropped. For a six month period after the fire takings had dropped by about 40 per cent. He opined that even after seven years the business has never regained its pre-fire takings.

In my view the two businesses are not comparable. Mr Kabadanis refused to give any detailed evidence of the extent to which the home delivery portion of his business contributed to takings before or after the fire. Nor was there any detailed evidence as to the extent to which television advertising was undertaken after the fire in comparison to television advertising before the fire. Further, the period of interruption is substantially longer than the five week closure of the Ainslie Take Away. On the evidence it is not possible to draw any conclusions as to the reasons for the reduction in trade of Mr Kabadanis' business, let alone apply those to the business operated by the plaintiff.

The plaintiff is left with the evidence of the fire, which is not disputed, and the five week interruption, which is not disputed, together with the alleged takings from 9 November 1994 to the sale of the business in August 1995. The post fire figures do not show any identifiable period of interruption in terms of a loss in takings with an obvious return to pre-fire activity. It was for this reason that Mr Irving contended that the indemnity period, being defined as the period during which the results of the business were affected by the consequence of the fire, ran from the date of the fire until sale of the business in August 1995. Once the figures of the post-fire takings are found to be unreliable, it becomes unsafe to use them for any purpose. In that situation the only proven period of business interruption is the five week period from 3 October to 9 November 1994. Mr Kerr was however prepared to admit of the possibility of some interruption for a further four weeks after re-opening which would take the period of indemnity up to the week ending 13 December 1994.

There was disagreement between Mr Irving and Mr McLeay as to the meaning of "nett cost of goods" in the definition of "Nett Takings" in the policy. In my opinion, in context, the nett cost is to be construed by reference to the takings ("relative thereto") and is the final direct cost of the goods which generates the receipt. It is clear, in my view, that the basis of settlement clause, when it refers to savings of costs and expenses of the business payable out of nett takings, is referring to indirect costs which are not brought to account in determining nett takings. The direct costs should, in my view, be limited to the costs of goods and wages.

Insofar as the definition of rate of nett takings refers to the takings "earned during the financial year immediately before the date of damage" it is referring to the financial year of the insured under the policy. The plaintiff conducted the business and filed tax returns for conventional financial years 1 July to 30 June. The definition does not require that the insured trade for the entire financial year; it is sufficient that a financial year shall have expired prior to the date of the damage. Accordingly I do not accept the approach taken by Mr Irving to adopt the period immediately prior to the date of the fire as the relevant period.

The calculation of the "Annual Takings" needs some adjustment because the plaintiff had not traded the business for a full twelve months at the date of the fire. Mr McLeay was of the view that the takings for the period 2 October to and including 1 December 1993 ought to be fixed by reference to the takings in the three weeks prior to the fire. If Mr McLeay is correct in his analysis that the business was in decline at this time, then the preferable course is to attempt to adjust the figures excluding such decline. The figures for the first three weeks trading before the Christmas week 1993 in my view give a better guide. The average daily rate for that period was $592 ($12,435 ~ 21). The takings for that period should be treated as $36,120. The adjusted annual takings for the twelve months prior to the fire is $237,445.

The "Standard Takings" calculation requires that the indemnity period be identified. If the period is limited to 3 October 1994 to 9 November 1994, the standard takings are the takings for the period 3 October 1993 to 9 November 1993. As the business did not trade during that period it is necessary to go to the adjusted annual takings. The amount is $22,496 ($592 x 38 days).

The "Rate of Nett Takings" calculated in accordance with the above reasons is the gross takings from 2 December 1993 to 30 June 1994 ($147,095) less the cost of goods and labour ($78,759) which as a percentage of takings is 53.54 per cent.

The formula then is [RNT (ST - TI)] - (S) = L, where:-

RNT = Rate of nett takings ST = Standard takings TI = Takings during indemnity period S = Savings, if any, in indirect costs L = Loss to be indemnified subject to adjustment under the proviso to the Basis of Settlement and the application of the $100 excess

The calculation is 53.54% x ($22,496 - 0) = $12,044.

Rent in the sum of $2,590 was saved during the period of closure. Therefore the loss prior to adjustment is $9,454.

The proviso requires that where application of the rate of nett takings (53.54 per cent) to 90 per cent of the annual takings ($237,445) exceeds the sum insured ($100,000) the amount payable under the indemnity is to be proportionately reduced. That calculation is as follows:-

90% x $237,445 = $213,700 53.54% of $213,700 = $114,414

As this figure exceeds the sum insured the proportional reduction is:-

$14,414 x $9,454 = $1,191 $114,414

The final adjusted loss is:-

$9,454 - $1,191 - $100 = $8,163

Other than the evidence of the plaintiff, which I do not accept as reliable, the only evidence which supports a finding of an indemnity period longer than one ending on 9 November 1994 is that of Mr Kerr. His concession that the earnings of the business could have been affected for up to four weeks after the re-opening accords with common sense. It will obviously take some period for users of the shopping centre to realise that the take away was open again and doing business. I am, on the basis of this evidence, prepared to find that to some degree the business was affected until the week ending 13 December 1994.

The difficulty of establishing the takings during that period again emerges. In the three months prior to the fire the cost of goods as a percentage of sales was 27 per cent. In the three months after re-opening the cost of goods had risen to 46.3 per cent. For the reasons stated earlier, I do not accept that the increase in the cost of goods is explicable by inflation. The likelihood is that the figure for takings is unreliable.

There has been no suggestion that the figures recorded for purchases are not reliable. Allowing an increase in costs of say 3 per cent (Canberra inflation was 3.3 per cent 1994/1995 ABS Cat 6401.0) over the period to 30 per cent, purchases of $12,808 in the period 9 November 1994 to 28 February 1995 should have generated sales of $42,693 for a period of one hundred and twelve days on an average of $381 received each day. For the period 9 November to 13 December 1994 receipts at $381 per day would result in earnings of $13,335.

The Standard Takings for the purpose of the calculation are the earnings for the period 3 October 1993 to 13 December 1993. On the basis of the adjustments made earlier, that figure is sixty-one days at $592 until the commencement of the business on 2 December 1993 and then $8,110 for the first two weeks of trading. This totals $44,222.

Doing the Basis of Settlement calculation:-

[53.54% ($44,222 - $13,335)] - [$2,590] = $13,946

The proviso calculation is:-

$14,414 x $13,946 = $1,756 $114,414

The indemnity is therefore $13,946 - $1,756 - $100 excess = $12,090

The policy also provided for recovery of accountant's fees reasonably incurred up to a limit of $1,500. Mr Irving charged the plaintiff $630.

The plaintiff, if the indemnity period is limited to 3 October 1994 to 9 November 1994, was entitled to $8,163 + $630 = $8,793. Having found that the indemnity period should be extended to 13 December 1994 the plaintiff was entitled to $12,090 + $630 = $12,720.

The defendant has paid $10,000 on account of loss for business interruption.

There will be judgment entered for the plaintiff in the sum of $2,720 together with interest at the rate of 10 per cent per annum from the date of commencement of proceedings until judgment. The plaintiff should not have his costs on the Supreme Court Scale. The costs should be calculated by reference to recovery of a sum of $2,720 in the Magistrates Court.