Bence Graphics International Ltd v Fasson UK Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE OTTON,LORD JUSTICE AULD,LORD JUSTICE THORPE |
| Judgment Date | 17 October 1996 |
| Judgment citation (vLex) | [1996] EWCA Civ J1017-7 |
| Docket Number | QBENF 95/0033/C |
| Court | Court of Appeal (Civil Division) |
| Date | 17 October 1996 |
[1996] EWCA Civ J1017-7
Lord Justice Otton
Lord Justice Auld
Lord Justice Thorpe
QBENF 95/0033/C
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
(MR JUSTICE MORLAND)
Royal Courts of Justice
Strand
London W2A 2LL
MR ANDREW MORAN QC and MR ANTHONY EDWARDS (instructed by Messrs Hill Dickinson Davis Campbell, Liverpool) appeared on behalf of the Appellant (Defendant).
MR STEPHEN GRIME QC and MR DAVID HEATON (instructed by Messrs Lace Mawer, Manchester) appeared on behalf of the Respondent (Plaintiff).
The defendants appeal against a judgment of Morland J whereby he ordered that there be judgment for the plaintiff for £564,328.54 together with interest. The appellants seek to set aside the judgment and assert that in substitution there be judgment for the plaintiff for the sum of £22,000 (being the admitted value of returned goods) together with interest or alternatively that there be a new trial or that an assessment of damages according to the correct measure (being that contended for by the appellant) be directed in any event.
The sole issue raised on this appeal is whether the correct measure of damages was (as the judge found) the difference in market value or the actual losses (if any) suffered by the respondents under or arising from a breach of contract for onward sales.
Background
The appellants (defendants) were one of a small number of suppliers of cast vinyl film, one of the uses for which is to manufacture decals which are used to identify bulk containers, this being the only end use intended in the case of film sold by them to the respondents (plaintiffs). The plaintiffs' manufacturing process involved screen printing words, numbers or symbols on the film and cutting it to size. The decals were then attached to the containers by reason of the self-adhesive character of the vinyl. Between 1981 and 1985 the defendants supplied to the plaintiffs film to the value of £564,328. This was to produce in excess of 100,000 decals. Of the decals manufactured from the defendants' film, 93% went for use on Sea Containers Limited (SCL) who were an important customer of the plaintiffs and who imposed their own specifications for containers and decals on manufacturers. SCL owned the containers and leased them to shipping lines and others so that the containers passed out of physical possession of the owners for the vast majority of their life and were used all over the world.
It was common ground that the standard requirement in the container industry for such decals was that they should have a "guaranteed minimum five year life". The defendants know this to be so. Moreover it was a term of the contract between the parties that the film would be of such a nature as to survive in use in good legible condition for a period of five years at least.
The plaintiffs alleged that the film did not fulfil the warranties with which it was sold, was not reasonably fit for its intended purpose and was not of merchantable quality. The reason for the defective condition was that the polymer constituting the film had insufficient stabiliser against the effects of ultra violet light and became degraded upon such exposure. The defendants were at pains in their promotional literature to assure customers that their film would be of such a nature as to survive in use in good legible condition for a period of five years at least. The Dutch manufacturing associate of the defendants incorrectly formulated the film sold to the plaintiffs by putting insufficient UV stabiliser in the film so that, in use, it tended to degrade over a period eventually making some decals illegible. There were extensive complaints from customers of SCL about the poor performance of the film. However, only one claim relating to 349 Tsujii Containers was met by the plaintiffs who applied new decals at their expense and the defendants paid an agreed amount to the plaintiffs in compensation. There was also an intimation of a claim from SCL which was has so far not been pursued. The plaintiffs retained about £22,000 worth of unused and defective material.
By the statement of claim served in August 1988 the plaintiffs claimed for the difference in value (ie the recovery of the whole purchase price). By an amendment served three years later the claim was enlarged to include an alternative claim for indemnity against "all claims" by customers of the plaintiff. The appellants sought to rely on exclusion clauses contained in their standard trading terms. However, on the penultimate and final days of the trial the appellants made several admissions including that their terms did not operate so as to exclude or limit their liability for any breach and that they were in breach of their warranty that their product was durable for five years. Thus in the concluding stages of the trial the only issue left to the judge was the proper measure of damage. The defendants conceded that at least the plaintiffs were entitled to be reimbursed in the sum of £22,000 in respect of the stock returned to them. The judge accurately summarised the position thus:
"In the present case the plaintiffs have not suffered a loss in the shape of a claim for damages from their customers in respect of the decals processed by them from the defective Fasson 940 sold to them by the defendants to whom they have paid the contract price. Although they have suffered no such loss, they have been exposed and remain exposed to claims from their customers and they have been put to the expense of investigating and answering complaints. Also their commercial reputation may have suffered."
The judge found applying a section 53(3) Sale of Goods Act 1979 that the plaintiffs were entitled to the difference between the value of the goods at the time of delivery and the value they would have had if they had fulfilled the warranties.
At the heart of this appeal is the appellants' assertion that the judge mis-directed himself in defining the issue as to the proper measure of damages which fell for determination.
Section 53 Sale of Goods Act 1979 is headed "Remedy for Breach of Contract":
"(1) Where there is a breach of warranty by the seller, or where the buyer elects (or is compelled) to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods; but he may —
(a) set up against the seller the breach of warranty in diminution or extinction of the price, or
(b) maintain an action against the seller for damages for the breach of warranty.
(2) The measure of damages for breach of warranty is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty.
(3) In the case of breach of warranty of quality such loss is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had fulfilled the warranty.
(4) The fact that the buyer has set up the breach of warranty in diminution or extinction of the price does not prevent him from maintaining an action for the same breach of warranty if he has suffered further damage."
Section 54 provides:
"Interest
Nothing in this Act affects the right of the buyer or the seller to recover interest or special damages in any case where by law interest or special damages may be recoverable, or to recover money paid where the consideration for the payment of it has failed."
The Sale of Goods Act 1979 lays down the basic principles for remoteness of damage in language derived from the leading case of Hadley v Baxendale (1854) 9 EXCH 341 where the main proposition was:
"Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may be fairly and reasonably be considered either as arising naturally, ie according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it." Per Alderson B. at page 354."
The principles in Hadley v Baxendale have been interpreted and restated by the Court of Appeal (see Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 K.B. 528 and in the House of Lords in Koufos v C. Czarnikow Ltd [1969] 1 A.C. 350—" The Heron II"). In the latter case the word "directly" is eliminated and more emphasis is placed on the "reasonable contemplation" of the parties. Such moderately differing formulations of the Common Law principles for remoteness of damage in contract are still based on Hadley v Baxendale. Lord Reid in the latter case stated:
"The crucial question is whether, on the information available to the defendant when the contract was made, he should or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation." (At page 385)
Lord Upjohn at page 424 stated:
"A broad rule as follows: what was in the assumed contemplation of both parties acting as reasonable men in the light of the general or special facts (as the case may be) known to both parties in regard to damages as the result of a breach of contract."
The so-called second rule in Hadley v Baxendale applies when the loss...
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