Azzurri Communications Ltd v International Telecommunications Equipment Ltd T/A Sos Communications
| Jurisdiction | England & Wales |
| Judge | His Honour Judge Birss,Judge Birss |
| Judgment Date | 28 March 2013 |
| Neutral Citation | [2013] EWPCC 17 |
| Docket Number | Case No: CC12P1739 |
| Court | Patents County Court |
| Date | 28 March 2013 |
[2013] EWPCC 17
IN THE PATENTS COUNTY COURT
Rolls Building
7 Rolls Buildings
Fetter Lane
London EC4A 1NL
His Honour Judge Birss QC
Case No: CC12P1739
Geoffrey Pritchard (instructed by Shakespeares) for the Claimant
Douglas Campbell (instructed by Healys) for the Defendant
The Part 20 Defendant did not appear and was not represented
Hearing dates: 14th, 15th February 2013
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
His Honour Judge Birss QC
| Topic | Paragraphs |
| Introduction | 1 |
| The claim | 24 |
| The witnesses | 35 |
| Issues to be decided | 40 |
| The applicable law | 42 |
| The contract terms | 43 |
| Mitigation | 52 |
| Delivery up | 53 |
| Findings of primary fact — the operating failures | 64 |
| Apply the law to the facts | 70 |
| The first stage — up to "midday" on 14 th July 2010 | |
| 71 | |
| The second stage — after the trade mark problem was revealed | 75 |
| Head 3 — other losses | 85 |
| The sums claimed | 89 |
| Interest | 94 |
| Conclusion | 95 |
Introduction
This is a case about telephones. In 2009 the claimant (Azzurri) entered into a contract with the Automobile Association Limited (the "AA") to supply the AA with a large number of telephones for its call centres in the UK. It was a major, high profile contract. About 1100 handsets were required. They were to be Avaya 2420 handsets. The Avaya 2420 handset was well known to be a robust and reliable product. Azzurri acquired the handsets required from a supplier called Westcon. Westcon is an "Approved Distribution partner" of Avaya. The handsets from Westcon were purchased in April 2009. The AA then ordered a further 1077 Avaya 2420 handsets from Azzurri. Azzurri acquired these handsets from a different supplier, the defendant. Although the defendant company is called International Telecommunications Equipment Ltd, it is known as SOS Communications and it is convenient to refer to the defendant as SOS. Although SOS has in the past been an approved Avaya reseller, at this stage it was not.
Discussions between Azzurri and SOS began in an email in October 2009. Azzurri's purchase order to SOS for 1077 Avaya 2420 handsets is dated 26 th October 2009. The price for the handsets is £118,470.00. The SOS invoice for the handsets is dated 18 th November 2009. SOS supplied the handsets to Azzurri in November 2009. The handsets supplied by SOS had been bought by SOS from the third party, Fonesys Communications Inc. (Fonesys) of New York. They were supplied from the United States.
Both the Westcon supplied handsets and the SOS supplied handsets were stored together in Azzurri's warehouse.
The handsets are not like ordinary domestic telephones. They cannot simply be plugged into a telephone socket. They only work as part of an overall telephone system run by the customer (in this case the AA). At the centre of the system is a server running Avaya's software called Communication Manager (CM) which has call processing capabilities, messaging and call centre functions. To install a handset it needs to be connected into the network and the Avaya firmware is uploaded. To function the handset communicates with the server.
The installation of the handsets at the AA started in 2010. Azzurri started delivering the Avaya handsets from its warehouse to the various AA call centres. Over a period from April to July 2010 about a third of the handsets from Azzurri's warehouse had been installed in five AA call centres. By July 2010 all the handsets had been allocated and delivered to the call centres but they had not all been installed on site.
The handsets started to be used by AA staff in about April or May. Shortly after the handsets were installed the users started complaining. Azzurri says the problems were unusual and became a cause of concern. Normally Azzurri would expect less than 0.5% of new Avaya handsets to fail within the 1 st year and, Azzurri says, the problems were much more frequent than this. The problem was described in a later report as "Intermittently users are experiencing phone screens going blank and some call cut off".
Investigations were carried out. It was not easy to work out what was wrong. The fault occurred on an intermittent basis. On 10 th June 2010 Azzurri sought the assistance of Avaya to fix the problem. It was still not easy to work out what was wrong. By 15 th June Avaya had agreed with Azzurri to the "escalate" the problem from one tier of Avaya's support specialists to a higher tier. On 16 th June a test bed was set up by Azzurri engineers to try and investigate the problem in a systematic fashion in a controlled environment. This ran for two weeks. By the end of June Azzurri concluded that the problem was most probably linked to the CPU or alternatively the Avaya 2420 handsets themselves. On 30 th June an idea was tried of turning off the maintenance routine in Avaya's CM software. The failures still happened but they were no longer intermittent. Now when a handset failed it did not reset itself. The screen remained blank and could be easily identified. This led to Azzurri identifying that the failing handsets all had a serial number on the casing which began 081636. The first two digits represent the year of manufacture. The second two represent the factory and the last two are the week of manufacture. There is an email on 5 th July 2010 between the individuals involved in the investigation which indicates that by this time the team had "largely determined" that it was handsets with serial number prefix 0816 that had the problem.
Azzurri began to audit the stock of handsets and replace handsets with ones which did not have a serial number associated with the problem.
From what Azzurri had been able to determine the relevant handsets were all or mostly the ones from SOS. At this stage (5 th July) the manufacturer, Avaya, was indicating that it was going to issue a Product Correction Notice (PCN) covering Avaya 2420 handsets with the serial number prefix 0816. A PCN is a global notice that Avaya would issue to the whole of its reseller/distributor base.
On 6 th July six SOS handsets with the 081636 serial numbers were sent to Avaya for testing. This was part of Avaya's standard process for issuing a PCN notice.
0n 8 th July Neil Berwick of SOS sent an email to Azzurri which set out the serial numbers for the handsets SOS had supplied to Azzurri. The vast majority have the prefix 081636.
On 14 th July 2010 an email from Ian Cashmore of Azzurri to Nigel Powell of Avaya records a discussion between them about the problem. Avaya will be seeking to recall all 0816 handsets. From the total number of 2177 handsets for the AA project, about 900 have 0816 serial numbers and Azzurri's team are working to locate and remove them back from the AA's sites to Azzurri. The email states that so far 627 have been found and of those 505 came from SOS and 82 came from Westcon. Mr Cashmore asks for Avaya's confirmation that it will acknowledge there has been a product manufacturing defect and for Avaya's assistance in returning and replacing/repairing all 900 handsets.
At this point therefore, from Azzurri's point of view, the problem was due to faulty Avaya goods which the manufacturer, Avaya, was sorting out. It was normal practice for an authorised reseller like Azzurri to deal directly with Avaya for support problems rather than deal with the distributor SOS.
However 14 th July 2010 was also the day the complexion of the problem changed.
Also on that day some initial results of Avaya's testing on the handsets emerged. An internal Avaya email, forwarded to Azzurri, states that the external serial numbers printed on the handsets did not match the serial number which was electronically stored on the circuit boards inside. One consequence of this mismatch was that whereas up to that point Azzurri had been using the serial numbers generated by the CM system to identify handsets which were thought to be the faulty kind, these electronically generated serial numbers could not be safely reconciled with the list of serial numbers provided by SOS, since that list was based on the external serial numbers on the handsets. Azzurri says that although the email of 14 th July from Ian Cashmore to Nigel Powell attributes 82 of the relevant handsets to Westcon, that attribution was caused by the mismatch and in fact all relevant handsets came from SOS.
However a much more significant element arising from Avaya's testing reported on 14 th July was that the mismatch of the serial numbers indicated to Avaya that the handsets were either refurbished or as they put it "grey market" products. At this point Avaya's attitude changed dramatically. On 15 th July Mr Powell emailed Mr Cashmore. Mr Powell states that the first pass tests indicate that the handsets are "either refurbished or grey market (counterfeit)" and that if this is confirmed then Avaya will not support the products in any way. He suggests Azzurri seek recompense from SOS, which was not an Avaya "Approved Distribution partner", and points out that Avaya has spent weeks tracking a handset fault that may not be one of Avaya's making. He points out that replacement sets are available for purchase from Westcon and states that "Given the gravity of the situation the Avaya UK leadership and legal teams have been briefed and are acting...
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