Medway Oil and Storage Company Ltd v Continental Contractors Ltd
| Jurisdiction | UK Non-devolved |
| Judge | Viscount Sumner,Lord Warrington of Clyffe,Lord Atkin,Lord Blanesburgh,Lord Carson,Viscount Dunedin,Lord Shaw of Dunfermline,Viscount Haldane,. |
| Judgment Date | 30 October 1928 |
| Judgment citation (vLex) | [1928] UKHL J1030-1 |
| Date | 30 October 1928 |
| Court | House of Lords |
[1928] UKHL J0309-3
Viscount Sumner.
Lord Warrington of Clyffe.
Lord Atkin.
House of Lords
After hearing Counsel for the Appellants, as well on Monday the 20th, as on Tuesday the 21st, Thursday the 23d and Friday the 24th, days of February last, upon the Petition and Appeal of the Medway Oil and Storage Company, Limited, whose registered office is at Grain Halt, Isle of Grain, in the County of Kent, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of His Majesty's Court of Appeal, of the 12th of April 1927, might be reviewed before His Majesty the King, in His Court of Parliament, and that the said Order might be reversed, varied, or altered, or that the Petitioners might have such other relief in the premises as to His Majesty the King, in His Court of Parliament, might seem meet; as also upon the printed Case of the Silica Gel Corporation, lodged in answer to the said Appeal; and Counsel appearing for the Respondents, but not being called upon; and due consideration being had this day of what was offered for the said Appellants:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of His Majesty the King assembled, That the said Order of His Majesty's Court of Appeal, of the 12th day of April 1927, complained of in the said Appeal, be, and the same is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellants do pay, or cause to be paid, to the said Respondents the Costs incurred by them in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.
My Lords,
This action was brought to recover damages for breach of the warranty implied under Section 14 (1) of the Sale of Goods Act. An alternative cause of action was put forward at your Lordships' bar, to which I will return, but both Courts below dealt with the former exclusively. Rowlatt J, entered judgment for the plaintiffs for £17,448 but the Court of Appeal reversed this, holding that the conditions, on which the statutory warranty depends, had not been satisfied. Hence the plaintiffs now appeal.
They are a Company, whose business is that of refining petroleum, and they have, both on their board of directors and in their employment persons, whose scientific knowledge and practical experience make them highly competent both to advise and to decide on questions connected with oil and its treatment.
Before starting their factory at the Isle of Grain, Kent, the Appellants decided to acquire a licence for the Cross patent cracking process, which they proposed to apply to Russian petroleum as the raw material. Their contract and licence for the Cross patent was signed in August, 1923, but their investigations had begun some months before, and Mr. Heron Rogers, their consulting engineer and adviser, who was also a member of their Board, had visited the United States to see the Cross process in operation in the previous April and May. So far the Appellants' policy seems to have been to exercise their own skill and judgment, and no doubt they were fully justified in relying on them.
It was during this investigation of the Cross cracking plant that the plaintiffs first heard of Silica Gel, a compound devised for use in refining petroleum and newly introduced to the notice of oil refiners. The patents connected with this process belonged to the Defendants. Dr. Cross had heard of it in 1922 and had visited Baltimore, where it was being tried on a small scale. From what he was told and what he saw he satisfied himself that it was suitable for use upon the product—a synthetic crude distillate—of his own cracking process and he, accordingly, brought it to the notice of the Appellants. On 25th May, 1923, he telegraphed "the more we investigate Silicagel the better we think of it for Grain purposes; construction cost very high but beautiful product; will fit our plans admirably" and on the following day Mr. Heron Rogers or his firm wrote to the Respondents' London agents asking for "some particulars of the Silica Gel process, as applied to sulphur elimination and clarifying of petrol." Thereupon, the agents called upon them and exhibited samples of petrol produced by the process, which they explained, and also left two 'Bulletins', Nos. 3 and 4, which contained an elaborate description of the substance itself and the machinery and process for applying it. In July, further information was placed before a Mr. Drake, who was connected with the Appellants, and before Mr. Carl de Ganahl, who had just completed a course of chemical engineering at a Technological Institute in Massachusetts, and was a son of the Appellants' managing director. They were then making general inquiries in the United States in connection with the equipment of the proposed factory at Grain, and the latter, shortly afterwards, became its works manager. Both were qualified to form opinions on the different plants and processes, which they examined, and in August Mr. Carl de Ganahl went, with two assistants, to Baltimore and saw the experimental Silica Gel process, then being worked by the Respondents. This was no casual inspection, and when he returned again in September he spent some days there and made many inquiries. At the time of the first visit the process, which the Appellants intended to adopt at Grain, was to be carried out in its first stage with a Cross cracking unit, equipped with a spiral tower fractionator. The product from this unit would be treated with an acid and steam in order to rid it of impurities, especially sulphur, and a second and final distillation would be introduced in order to bring the product to the desired end point. It was suggested to Mr. Carl de Ganahl by Mr. Miller, the representative of the Respondent Company, that the Silica Gel process might simply be substituted for the intended acid process, and so dispense with this redistillation. Mr. Carl de Ganahl knew better. He saw that, as the Cross unit did not make end point petrol, it would be necessary, in order to make the suggested substitution effective, to select a tower, which would give a determinate end point spirit and be the best fractionating tower available. Before he returned to Baltimore in September he had made his own inquiries and his Company had determined to replace the other dephlegmators with bubble towers, which, as he told Mr. Miller, would enable the Silica Gel process to be used at Grain. This meant that, when he had got in the bubble tower, which was then a novel contrivance, a tower which would be satisfactory to make an end point gasolene direct, the Silica Gel process could then be applied to refine the gasolene without being followed up by any second distillation. Mr. Miller raised no objection and bubble towers were eventually installed at Grain.
Stress has been laid on the fact that samples of the Silica Gel were asked for and were refused. I think the reasons given for the refusal were sensible and they were certainly honest. The fact, that the buyers did not get the samples that they asked for, supports the view that they acted on their own judgment notwithstanding: otherwise, men of business would have regarded this refusal as a ground for trusting the sellers no further and would have dropped the negotiation.
The contract between the Appellants and the Respondents for the supply and installation at Grain of the appropriate apparatus and a sufficient supply of silica Gel was, after long negotiation, concluded on 14th January 1924. The process was set to work in July, 1924, but it was finally stopped on 8th August. The petrol obtained by its use was found to contain an excessive quantity of a gummy substance, which, when the petrol was used in an internal combustion engine, clogged the valves and was so deleterious that it was admitted by the defendants to be a commercial failure. No further use was made of the plant or of the buildings, in which it was installed.
When first this disappointing and even disastrous result was traced to its real cause I do not know; it may not have been till the lengthy trial before Rowlatt J. had come to an end. The cause, however, was this. The silica Gel process had not the same effect on the synthetic crude, distilled by the Cross cracking plant, which it would have had on a straight run petroleum, and, although the bubble towers produced from that distillate a petrol cut to an end point, the silica Gel process merely removed the sulphur, the smell, and the discolouration, but, as to the unsaturated hydrocarbons carried over from the cracking plant, its result was to act on them as a catalyst and cause them to be polymerised. Accordingly, the second distillation having been dispensed with as above explained, the petrol produced contained more gum than before it entered upon the treatment by the silica Gel process.
There is no doubt that neither on the sellers' nor on the buyers' side had this result been foreseen or even suspected. The sellers had stated that, as the silica Gel could remove the sulphur, it would also cause the petrol to issue from the plant free from any material amount of gum, and the buyers had seen no reason to doubt the statement. The question is, who has to bear the unfortunate consequence of this common error.
My Lords, I think that it is not necessary to deal with the question whether this case is covered by the proviso to Section 14, Sub-section (1), of the Sale of Goods Act, as I have come to the conclusion that the buyers cannot succeed on Sub-section (1) itself, and that the judgment of the Court of Appeal ought to be affirmed on this ground. On a scrutiny of Section 14 (1) of the Sale of Goods Act I think these propositions may be stated upon...
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