Webster Thompson Ltd v J G Pears (Newark) Ltd and Others
| Jurisdiction | England & Wales |
| Judgment Date | 18 May 2009 |
| Neutral Citation | [2009] EWHC 1070 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | 2007 Folio 966 |
| Date | 18 May 2009 |
[2009] EWHC 1070 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT
His Honour Judge Mackie QC
Sitting as a Judge of the High Court
2007 Folio 966
Mr Simon Picken QC and Mr Benjamin Parker (instructed by Plexus Law) appeared for the Defendant
Mr Jeremy Stuart-Smith QC and Mr James Purchas (instructed by Dewey & LeBoeuf) appeared for the Third Party
These are claims for damages for breach of contract against the background of the European legislation enacted to regulate the handling and classification of animal by-products following the BSE/CJD crisis of the late 1990s. The parties are all involved in the trade of animal by-products, referred to as 'materials', and in some respects are in a chain. The Claimant (“Webster Thompson”) obtained summary judgment against the Defendant (“Pears”) in this court on 13 May 2008. Pears contracted to purchase Category 3 materials, which may be rendered into animal fats and bone meal, from the Third Party (“Omega”) who in turn purchased these from the Fourth Party (“NCML”). Pears claims that Category 1 material, which has very restricted commercial uses, was supplied instead. The court is concerned with Pears' claim against Omega but also, if it succeeds, with Omega's claim against NCML, a company which is in liquidation but whose liabilities may be enforceable against insurers.
A trial that was due to last four days finished in two days on 23 and 24 March 2009 because the issues narrowed at the time of the Pre-Trial Review and the parties recognised that there was little if any dispute between them about the primary facts before the Court, although much disagreement about their evidential significance.
Background-Legislation
These claims arise out of the supply of animal by-products immediately after the lifting of the EU ban on the export of beef in May 2006. The legislative position at that time is helpfully summarised by Mr Stuart-Smith QC and Mr Purchas in their skeleton argument, in terms which Mr Simon Picken QC and Mr Parker for Pears adopt, as follows:-
“As part of the price for the lifting of the export ban on beef, the UK agreed that its definition of Category 1 materials should become more rigorous and fall in line with other EU Member States so that it now included materials from the vertebral columns of bovine animals that were more than 24 months old rather than over 30 months old as had obtained previously. The relevant statutory provisions are as follows:
a) EC Reg. 1774/2002 provides that Category 1 material includes animal by-products which are specified risk material or mixtures of Category 1 material with either Category 2 material or Category 3 material or both;
b) Specified risk material is defined at Article 2 (1) (o) as having the meaning given to it in Annex V of EC Reg. 999/2001; s
sc) In May 2006 the transitional provisions at Annex XI to EC Reg. 999/2001 remained in force. They provided that specified risk material included materials from the vertebral columns of bovine animals that were more than 24 months old;
d) Before EC Reg. 657/2006 came into force the UK enjoyed a derogation from this provision which allowed the use of vertebral column derived from bovine animals under the age of 30 months;
e) EC Reg. 657/2006 amended Annex XI to EC Reg. 999/2001 such that there was no derogation from the limit to 24 months applicable in other Member States;
f) On 3 May 2006 the Transmissible Spongiform Encephalopathies (No. 2) Regulations 2006 (2006/1228) (“the TSE (No. 2) Regs”.) came in to force. These established the regulatory regime within the United Kingdom.
The Category into which animal by-products fell was defined by the relevant statutory provisions and was not susceptible to re-categorisation or re-definition by the minister, DEFRA or anyone else either pursuant to an exercise of discretion or otherwise.”
EU Regulation 1774/2002 lays down detailed rules for the collection, transport, storage, handling, processing, use and disposal of animal by-products that are not intended for human consumption. By Article 2(1) materials are divided into three categories.
Category 1 is the most stringently regulated, Category 3 the least. In outline:
- Category 1 material includes all specified risk material (“SRM”). It must be labelled “for disposal only”, and must be indelibly colour-stained bright blue or green in order to assist its identification and tracing through a supply chain. It has only limited commercial use: unless incinerated and burnt as fuel, it must be buried in landfill. It is not permitted to enter any food chain, whether human or animal.
- Category 2 products include those which would have been fit for human consumption but for some reason no longer are, for example because they became soiled in a cutting plant. They are not relevant to this case.
- Category 3 material is defined in Article 6. It should be labelled “not for human consumption” but can be used to manufacture other products, including tallow and pet food. Category 3 material is not stained.
Features of EU Regulation 1774/2002 relied on by the parties include the following:
- Article 1(1)(a) emphasises the breadth, scope and application of the Regulation, which governs “the collection, transport, storage, handling, processing and use or disposal of animal by-products, to prevent these products from presenting a risk to animal or public health”.
- Article 3(1) lays down the general requirement that “Animal by-products, and products derived therefrom, shall be collected, transported, stored, handled, processed, disposed of, placed on the market, exported, carried in transit and used in accordance with this Regulation”.
- The Regulation applies not merely to the animal by-products themselves but also to the places concerned in their handling and storage, which must be appropriately licensed. Article 6(3) provides that the intermediate handling and storage of Category 3 material shall take place only in Category 3 intermediate plants approved in accordance with Article 10. Article 17(1) provides that a Category 3 processing plant (such as Pears' Market Harborough facility) “shall be subject to approval by the competent authority”, such approval only being given if the plant satisfies the conditions stipulated in Article 17(2). Accordingly, all material originating from a Category 3 approved plant must lawfully be Category 3 and not anything else.
- Article 17(3) provides that “Approval shall be suspended immediately if the conditions under which it was granted are no longer fulfilled”.
- Paragraph 4 of Chapter 1 provides that “Only Category 3 material … that has been handled, stored and transported in accordance with Articles 7, 8 and 9 may be used for the production of processed animal proteins and other feed material”.
Article 20(1)(i) of the Regulation states that the “competent authority” in each Member State shall be responsible for ensuring compliance with the requirements of the Regulation. In the United Kingdom this was the State Veterinary Service (“SVS”), which was then an executive agency of the Department for Environment, Food and Rural Affairs (“DEFRA”). In this case SVS and DEFRA traced the allegedly defective material from NCML through to Pears and downgraded the product from Category 3 to Category 1.
There is no means of distinguishing between Category 1 and Category 3 material except through the documentation provided down the chain and the colour staining which should be applied at the cutting plant if it is Category 1. Unsurprisingly failure to comply with the Regulation constitutes a criminal offence.
Background—the facts
NCML processed animal carcasses at its cutting plant in Sunderland which were consigned as Category 3 material to Alba, a sister company of Omega. Alba was licensed to process Category 3 material only and consigned it to Pears at its plant in Penistone near Sheffield. Material was transferred within Pears from Penistone to the rendering plant in Market Harborough which is licensed for Category 3 only. Once processed it was sold as bone meal to pet food manufacturers and as tallow to Webster Thompson and others.
This case concerns 28 deliveries totalling just over 220 metric tonnes of material certified as Category 3 which took place between 3 May and 8 July 2006. As 3 May was the date on which EC Regulation 657/2006 came into force, material containing vertebral column from animals aged over 24 months was thenceforth in Category 1. It seems that NCML did not act promptly to put the change into effect. A picture of how this came to light emerges from material obtained by Omega's solicitors under the Freedom of Information Act 2000. Some of these documents have been redacted but when set in context and combined with material available from the parties the relevant facts emerge.
On 8 June 2006 the Meat Hygiene Service apparently “identified a problem” at NCML and dealt with it by giving a verbal warning. On 19 June 2006 the SVS inspected Alba's premises and concluded that material consigned as Category 3 from NCML may have contained vertebral column from animals aged over 24 months. Further enquiries by the SVS concluded that NCML had not made arrangements to segregate vertebral column as required by the new legislation. Following the visit by SVS to Alba and Omega, Mr Pickup of the SVS wrote to companies on 21 June about a considerable number of issues including, as regards Omega “Blue stain...
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