Balmoral Group Ltd v Borealis (UK) Ltd
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE CHRISTOPHER CLARKE |
| Judgment Date | 25 July 2006 |
| Neutral Citation | [2006] EWHC 1900 (Comm) |
| Docket Number | Case No: 2005 FOLIO 130 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 25 July 2006 |
[2005] EWHC 1900 (Comm)
Mr Justice Christopher Clarke
Case No: 2005 FOLIO 130
IN THE HIGH COURT OF JUSTICE
COMMERICAL COURT
Mr Richard Mawrey QC & Mr Ross Fentem (instructed by Moon Beever) for the Claimant
Mr David Allen & Mr Charles Holroyd (instructed by Kennedys) for the Defendants
Hearing dates: 26 th Jan – 29 th Mar 2006
————————————————————-
Approved Judgment
This judgment is divided into the following sections:
Paragraphs
Subject matter
Pages
—16
Introduction
The Issues
—138
The history
—152
Sections 14 (2) and (3) of the Sale of Goods Act
—167
Mechanism and characteristics of failure
—294
The expert evidence
—220
Rapra
-251
Professor Pethrick
—273
Capcis
—293
Professor Crawford
—332
Conclusions on fitness for purpose
Misrepresentation
—392
The Contractual dispute
—573
Damages
—579
Postscript
Introduction
Balmoral
Balmoral Group Limited ("Balmoral") is a privately owned company, registered in Scotland. It was founded in the 1970s by Dr James Milne, its Chairman, Managing Director and controlling shareholder. Its head quarters are in Aberdeen. In the year to 31st March 2005 it had a turnover of over £31,000,000. Much of its business involves supply to the oil, gas and marine industries. It has a wide range of products, including sectional tanks, modular buildings and pipes. The Group has a transport business. Balmoral Marine Ltd, originally an associate and now a subsidiary company, provides specialist services for the offshore oil industry through the hire and manufacture of items such as navigational and buoyancy aids and wire rope. The Group has subsidiary companies in Norway, Houston and Holland.
Balmoral manufactures, amongst other things, storage tanks by a process known as rotational moulding ("rotomoulding"). Balmoral entered the rotomoulding business in 1992, when it began to design tanks for oils and other liquids, such as water or wastewater, which it began to manufacture towards the end of that year 1. If used as oil tanks, they usually contain kerosene; less often, diesel. Balmoral's designs although similar, in some respects, to those of other tank manufacturers, are unique to it. Balmoral's staff includes engineers, designers, and technical support staff. Most of
Balmoral's tanks are sold to distributors (building supplies companies, heating companies and oil suppliers) rather than direct to the public, and mainly, but not exclusively, within the UK. There are about 10 – 15 distributors who store tanks at their premises. The end users tend to be householders in areas without mains gas, commercial users and farmers. Until 2004 Balmoral's tanks came with a 10 year replacement warranty subject to proof of purchase and correct installation and use.
Rotational moulding
Rotational moulding works in this way. A quantity of polyethylene in powdered form (the charge) is placed into one of the two halves of a steel mould, which are then clamped together. The mould, which is mounted on the arm of a machine, is introduced into an oven and continuously rotated on two axes at a low speed (typically 4—8 revs/min), so that all parts of the interior surface of the mould pass through the pool. The charge becomes tacky and then melts in the heat (of up to around 300° C), forming a molten pool. As the powder becomes tacky it starts to stick to the mould. More powder sticks to particles that have become tacky before. As a result a layer of viscous, largely immobile 2, liquid forms over the entirety of the mould. The wall thickness distribution of the melt is largely determined at this stage. The product has, however, to remain in the oven in order to eliminate the bubbles (trapped pockets of gas) in the melt. After about 20 minutes the mould is removed from the oven and cooled. At this stage crystallization of the melt will occur. The crystallizing melt will shrink away from the mould, the rate of crystallization being dependent, in part, on the rate of cooling. When the polyethylene is sufficiently cool, the tank, as it has now become, is removed from the mould. A very high proportion of rotomoulding production is of tanks of one form or another.
Pigmentation
Natural polyethylene is white or yellow in colour. A very large percentage, of the oil tanks in the British Isles 3 are "oil tank green" 4. The standard pigment used in almost all cases, including by Balmoral, is a green phthalocyanine based pigment. There are several different brands of such pigment. The addition of a pigment has a deleterious effect on the properties of the natural product. Further, pigment particles affect the way in which the polymer crystallizes as it cools and hence the crystalline structure. Some pigments, of which phthalocyanine green is one, are nucleating agents i.e. they encourage early initiation of the process of crystallisation.
Polymer can be mixed with a pigment in a number of different ways. The two can be dry-blended. In this process polyethylene in powder form is mixed with the pigment either in a blender before being added to the mould or in the mould itself.
An alternative process is grind blending whereby polymer pellets are mixed with pigment and the mixture is ground into a powder. Another option is to use a masterbatch. A masterbatch is created by taking a high concentration of pigment and grind blending or compounding it with a base polymer. The resulting masterbatch is then mixed either in a blender or in the mould with virgin polymer. A further process is compounding. In this case polyethylene powder is mixed with a pigment under heat in an extruder. The resulting pellet is then ground to powder. The blending process is sometimes carried out by the product manufacturer and sometimes by a third party.In broad terms the evenness of the spread and distribution of the pigment and the homogeneity of the resulting structure are increased, according to which option on a scale from dry blending to compounding is selected. So is the expense. Dry blending involves no grinding. Grind blending a masterbatch involves grinding only a fraction of the material which will form the charge. Compounding is the most expensive of all because it involves an additional process. But it provides the best method of mixing and dispersion of the pigment in the product, and the least reduction in the properties of the base resin.
Balmoral ordered its first machine, a Ferry/Rotospeed 330, in July 1992. During 1993 Balmoral acquired three further machines – a 430, 280 and 220. Machines 430 and 330, which were used for the production of fuel tanks, work on a carousel basis with a fourfold cycle of (i) loading/demoulding; (ii) heating in the oven; (iii) pre-cooling and (iv) cooling 5, so that at any one time there is a mould at each of the four stages. In 2003 or 2004, when it entered the chemical tank market, Balmoral purchased a "rock-and-roll" machine in which, as its name implies, the product being moulded is rocked back and forward about a perpendicular axis, whilst being rotated continuously through 360°. Balmoral built up their production of tanks from 8 original moulds on the 330 to a complete range of tanks with a production of over 10,000 tanks a year, some 10% of the available market, within 2 or 3 years.
The change from ZN polymers to borecene
Until 1997 the polyethylene used by Balmoral had been manufactured by manufacturers (largely other than Borealis) using a type of catalyst known as Ziegler-Natta ("ZN"), the names of its inventors. For the most part 6 Balmoral used a blended grade of powder supplied by DSM United Kingdom Ltd ("DSM") comprising two Stamylex materials one of which was a fully compounded green masterbatch and the other a natural grade polyethylene, with a melt flow rate ("MFR") of 3. A melt flow rate is a measurement of the melt viscosity i.e. resistance to flow, of a polymer. It is a measure of the mass in grams extruded through a standard die in ten minutes under standard temperature conditions (usually 190° C) and with a standard applied load (2.16 kg) 7. Viscosity decreases
in inverse proportion to melt flow: the higher the MFR number the lower the viscosity.Between the spring of 1997 and July 2002 Balmoral purchased from one or more of the Borealis defendants large quantities of polyethylene which had been manufactured from polyethylene, the monomer, and hexene, the comonomer, using a metallocene catalyst. This polymer was known as borecene. A metallocene catalyst is one that contains organometallic components. Balmoral purchased borecene in three grades with different melt flow rates – MFR 3, MFR 6, and MFR 4. Metallocenes now represent about 20% of the European and American rotomoulding market. There are now over 100 rotational moulders using borecene in the UK.
Balmoral used borecene to manufacture many thousands of tanks, including many thousands of oil tanks for both industrial and domestic use, which it sold to customers in the British Isles and abroad. Oil tanks manufactured by Balmoral using borecene suffered a high failure rate, much higher than what was to be expected from rotomoulded tanks. Within a short period of service tanks produced from borecene were splitting, leading to customer dissatisfaction, oil spillage, and claims. Such failure was particularly prevalent in certain designs. Products manufactured from MFR 6 material showed a much higher failure rate than those manufactured from MFR 3 or MFR 4 material.
It is common ground that the mode of failure was environmental stress cracking ("ESC"). This type of failure occurs...
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