Dana UK Axle Ltd v Freudenberg FST GmbH
Jurisdiction | England & Wales |
Judge | Mrs Justice Joanna Smith |
Judgment Date | 28 June 2021 |
Neutral Citation | [2021] EWHC 1751 (TCC) |
Docket Number | Case No: HT-2018-000046 |
Court | Queen's Bench Division (Technology and Construction Court) |
Mrs Justice Joanna Smith
Case No: HT-2018-000046
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Geraint Webb QC and Harrison Denner (instructed by Crowell & Moring) for the Claimant
Luke Wygas (instructed by Fladgate LLP) for the Defendant
Hearing dates: 5, 6, 10, 11, 12, 13, 14, 19, 26 May 2021
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.
Introduction
This claim arises out of the alleged premature failure of pinion seals (the “ Seals”) manufactured by the Defendant (“ FST”) and supplied to the Claimant (“ Dana”) during a period between about September 2013 to February 2016 (the “ Relevant Period”). The Seals were fitted by Dana, a manufacturer and supplier of automotive parts, onto vehicle rear axles which Dana then supplied to Jaguar Land Rover (“ JLR”) for installation into various different vehicle models.
Pursuant to an order made at the Pre Trial Review on 26 March 2021, the trial was conducted remotely over 8 days with all witnesses giving evidence via video-link in accordance with an agreed protocol.
Background Facts
Dana was incorporated in England in 2007 and took over operations that had previously been carried out by Dana Spicer (Europe) Axles, also known as Dana Traction Technologies Europe (“ Dana Spicer”). Dana Spicer had been involved in the manufacture of axles since 1995 when it acquired GKN Axles Limited and its relationship with FST dates back to that time.
FST is the supplier of several types of seals to sectors including automotive, heavy industry, agriculture and aerospace. It claims to be a market leader in sealing technologies.
In 2003, Dana Spicer contracted with Land Rover (now JLR) to supply front and rear drive axles for JLR's T5 programme, a new programme of vehicles developed by JLR (the “ T5 Programme”). Front and rear drive axles connect the engine to the wheels of the vehicle and both require seals in their construction. In the context of this case, I am concerned only with seals that were supplied for installation in rear axles.
The Seals (which have a Dana part number E55551) are composed of an acrylic based polymer (ACM rubber), a metal insert and a metal garter spring (both typically steel). They encircle the pinion shaft (the “Shaft”) as it exits the front of the differential in a rear drive unit (“RDU”). Their function is (i) to prevent lubricant fluid in the form of oil from leaking out of the vehicle differential (which is made up of several gears which require lubrication in order to function correctly) and (ii) to prevent, or at least (on FST's case) to minimise, ingress of external contaminants such as dirt, water and other debris. Dana's claim concerns the manufacture of the polymer component of the Seals.
Dana contracted the design and manufacture of Seals to FST; Dana was then responsible for the assembly of axle components, including fitting the Seals onto the Shafts.
The Seals are formed at FST's factory in Kecskemet, Hungary, by injection moulding. The polymer compound is created by FST in Weinheim, Germany, by mixing a base ACM polymer with other components in a large mixer. The mixed components are then made into strips to feed into an injection moulding machine, which applies high pressure to the strips in order to force them through a feed system (a flat disc through which the compound flows, referred to in this case as a “Cap”) and then out, via a runner, into the mould (or cavity) in which the Seals are formed. Absent issues with mixing or design, the compound will fill the cavity uniformly and remain under the pressure applied by the injection moulding machine, taking heat from its surroundings until it vulcanises (or cures) such that the independent strips of polymer stitch together in a process called “cross-linking” and the compound becomes stiffer. Finally, the moulded compound is removed from the mould and placed into a purpose-built oven where it undergoes further heat treatment in a process called post-curing, designed to ensure that the cross-linking is complete. During the Relevant Period, FST was using two moulds (“Cavity 1” and “Cavity 2”) to form the Seals.
Since 2004, FST has supplied approximately 10 million seals to Dana (including more than three million Seals) for use in RDUs, and continues to supply Seals today. It is FST's case that the terms of this continuing supply are governed by a contract (the “ 2003 Contract”) formed on the basis of its standard terms and conditions (the “ FST Terms”) in 2003, which (it asserts) continued to apply throughout the Relevant Period. The FST Terms provide that the applicable law is the law of the Federal Republic of Germany and include a one-year limitation period.
Dana, on the other hand, asserts that, whilst a contract was indeed formed in 2003 for the supply of the Seals, the 2003 Contract was formed on Dana Spicer's standard terms and conditions (the “ 2003 Dana Terms”) and was in any event superseded on 17 July 2012 by a “Rev A” Purchase Order for Seals (the “ 2012 PO”) to be supplied in the context of a new JLR Premium Lightweight Architecture (“ PLA”) programme which was launched late in that year. The introduction of the PLA programme represented a change in certain vehicle models, specifically the incorporation of aluminium components into certain JLR vehicles to reduce their weight and improve their efficiency, and a significant increase in axle volumes (and, therefore, in the number of Seals needed). It is common ground that the Seals were fitted into a total of nine different JLR vehicle models during the Relevant Period.
It is Dana's case that, during the Relevant Period, the supply of Seals by FST was governed by the 2012 PO, incorporating a 2011 version of Dana's standard terms and conditions (the “ 2011 Dana Terms”) which was then superseded by a “Rev B” Purchase Order dated 27 June 2013 (the “ 2013 PO”), also incorporating the 2011 Dana Terms. If Dana is right as to this contractual analysis, FST does not advance any alternative case as to the applicable terms and conditions, although it does assert that there was no authority on the part of the individual at FST to whom the 2012 PO was sent (namely Mr Kristek) to bind FST in relation to new and different contract terms.
Dana began to experience a high rate of warranty claims from JLR in respect of the Seals at the outset of the Relevant Period due (it says) to their premature failure, which caused oil to leak from the differential in the RDUs. The failure rate for Seals climbed in this period from about 0.1% (the generally accepted failure rate for this type of product in the industry, judged over an extended period of 36 or 48 months) to up to approximately 5% over 48 months, or 50 times higher than the normal, acceptable failure rate. Additionally, during the Relevant Period there were three “spikes” when the failure rate increased even further, up to as high as 17%.
The parties undertook various investigations into the root cause of the problem, which Dana now identifies as defects in the Seals themselves, caused by FST. Dana alleges that the failing Seals were supplied by FST in breach of contract in that they were not of adequate or appropriate quality, not of satisfactory quality and not fit for the purpose for which they were used. I shall return to the detailed particulars of breach later in this judgment but observe for present purposes that those particulars have narrowed to a certain extent during the course of the trial.
Essentially, Dana's case is that FST failed to control the viscosity of the polymer feedstock that was introduced into the moulds to create the Seals. This failure, together with a design change to the mould itself which occurred in late 2013 and involved a reduction in the thickness of the Cap from 1mm to 0.3mm, led to non-uniform dimensions of the main sealing lip to the Seal (the “ Sealing Lip”) and thus to premature wearing of the Sealing Lip, a reduction in radial pressure exerted on the Shaft and a consequent leakage of oil from the differential. Dana's polymer expert identifies a statistically significant correlation (with a Pearson Product Correlation Coefficient greater than 0. 75 or 75%) between high viscosity levels and the failure rate of the Seals following the design change to the mould.
The failure rate did not return to pre-September 2013 levels until in or about February 2016 following the introduction of a new mixer body into the machine used to mix the polymer. At or around this time there was also a change from the use of wax as an initial Seal lubricant to the use of grease.
FST denies any breach of contract but does not advance a positive case as to the cause of the premature failure of the Seals. Essentially, FST contends that Dana cannot prove breach, causation and loss. It points out that not all of the Seals failed, that there was more than one possible cause for the oil leak to the RDU (including causes for which FST is not responsible) and furthermore that the Seals were used by Dana on nine different vehicles across six different platforms (“platform” is a term used in the automotive industry to refer to the overall architecture of a vehicle) with two different axle variants, such that each combination posed differing stresses and forces on the sealing system. It says that...
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