Neutral Citation No:  IEHC 23
THE HIGH COURT
Record No. 1985/272P
BAKER PERKINS LIMITED
C.J. O'DOWD LIMITED
Judgment of Mr. Justice Blayney delivered the 13th day of April, 1989.
This case involves a claim and counterclaim arising out of two contracts for the supply of bakery equipment entered into on the 13th September, 1982.
The Plaintiffs are an English Company specialising in the manufacture of plant for bakeries. The Defendant is a Company carrying on a bakery business in Kinsale, County Cork. In March 1982 the Defendant ordered orally from the Plaintiffs certain plant of which the main item was a convectoradiant (CVR) oven. The price was £250,000 sterling. The plant was to be manufactured and ready for dispatch in October 1982. The terms of the contract were formalised on the 13th September 1982 when both parties signed a document entitled an "Order Confirmation" which was the standard form of contract used by the Plaintiffs. The substantive part of this document provided as follows:
"This contract is subject to the seller's general conditions of sale which are printed overleaf. The seller shall sell and the customer shall purchase the goods described in this Order Confirmation on the terms and conditions stated therein".
The plant was ready for dispatch in October 1982 but was not sent as the Defendant had not been able to arrange finance. This continued to be the position in the following year. At a meeting between representatives of the parties in Peterborough on the 17th February, 1984 the price of £250,000 was by agreement increased to £300,000 to compensate the Plaintiffs for interest and storage charges which had been incurred, and on the 26th March, 1984 the Plaintiffs wrote to the Defendant suggesting inter alia that they should agree to the contract being subject to cancellation if the £300,000 sterling was not received by the 9th April. The Defendant agreed to this. The money was not received by the date mentioned, and finally by letter dated the 10th July, 1984 the Plaintiffs wrote saying they had to accept that the contract was cancelled. Their Solicitor then wrote claiming cancellation charges and on the 10th January, 1985 these proceedings were issued.
The Defendant claimed in its defence that the contract had been conditional on its being able to obtain finance and that, as this condition had not been satisfied, the contract automatically came to an end. In the course of the hearing, however, Counsel for the Defendant abandoned this defence so that insofar as the Plaintiffs' claim is concerned the sole issue is what damages, if any; the Plaintiffs are entitled to recover. As this issue is wholly separate from the Defendant's counterclaim I propose to deal with it before taking up the latter.
In their Statement of Claim the Plaintiffs claimed damages under four main headings:-
1. Interest charges pursuant to Clause 10 of the General Conditions of Sale which form part of the contract.
2. Loss of profits.
3. Storage charges.
4. Refurbishing costs and costs of resale.
No evidence was given that any refurbishing costs or costs of resale had been incurred, so this heading can be left out of account. The Plaintiffs' claim is confined accordingly to the first three items and in order to see whether these items are recoverable it is necessary to look at the contract.
The relevant terms of the contract are to be found in Clauses 10 and 11 of the General Conditions. Clause 10 has five subclauses.- The first and fifth are not relevant. The other three are as follows:-
"10 (ii) If buyer fails to make any payment due under the contract or any other payment due to seller, seller shall be entitled to withhold dispatch of goods and suspend all further work under the contract until such payments are made or secured to seller's satisfaction.
(iii) If manufacture, dispatch or transport of goods is delayed for such reason or as a result of any other act or omission or request to buyer, he shall pay to seller a proportion of the contract price appropriate to the work done by seller up to the date such payment is requested together with any expenses or additional costs incurred seller as a result of such delay. In the event of such delay continuing beyond a reasonable time, or buyer fails to take possession of the goods within a reasonable time, seller may treat the contract as terminated and claim damages.
(iv) The measure of damages shall be any loss or expense of any nature incurred by seller arising out of disposal of the goods.
11. Terms of Payment.
Terms of payment are subject to agreement in each case. If no other terms are stated in the contract, goods shall be paid for on dispatch. Where extended terms of payment are agreed interest shall be charged from the date of the Bill of Lading upon the diminishing balances outstanding from time to time. Where any payment is not made on the due date, interest thereon at the rate of two per cent per month shall be payable by the buyer on written demand of the seller."
The Plaintiffs' claim for interest was based on Clause 11. Interest amounting to £68,850 was claimed on £250,000 at two per cent per month from the 24th of December 1982 to the 17th of February 1984, and on £300,000 at two percent per month from the 17th of February 1984 to the 10th July 1984. In my opinion this claim is not sustainable. I consider that clause 11 applies only where a contract is being completed by the purchaser. It enables the Plaintiffs, where there has been delay on the part of the purchaser, to demand interest on the purchase money between the date it became due and the date on which it was ultimately paid. It ensures that, where a contract is being completed, the Plaintiffs will not be at any loss by reason of delay on the part of the purchaser in paying the purchase price. But it has no application on the facts here. The purchase price was never paid. So the Plaintiffs are not seeking compensation for loss resulting from a delay in payment. They are seeking damages for the Defendant's failure to accept delivery of the plant and pay for it. That is a wholly different type of claim and comes under a different clause in the General Conditions. It does not in my opinion come within Clause 11.
The clause which is applicable in assessing the Plaintiffs' damages is in my opinion subclause (iv) of Clause 10 .-
"The measure of damages shall be any loss or expense of any nature incurred by seller arising out of disposal of the goods."
I accept the submission of Counsel for the Defendant that it is the measure of damages specified in the contract that is to be applied rather than that set out in Section 50 of the English Sale of Goods Act, 1979 - this being the relevant Act, as the General Conditions provide in Clause 15 that "the contract shall in all respects operate and be construed in accordance with English law." There was no real dispute in regard to this. Counsel for the Plaintiffs accepted that where the parties had agreed on the measure of damages he could not contend for a different measure.
Damages may only be given, accordingly, in respect of any loss or expense of which it can be said that it arose "out of the disposal of the goods." The question is whether the loss of profits and the storage charges up to the date of the termination of the contract fall into this category.
In my opinion they do not. The loss of profit claimed is the profit that the Plaintiffs would have made if the Defendant had completed the contract. It seems to me that this loss resulted from the Defendant's refusal to pay for the goods and did not arise out of the disposal of the goods. In refusing to pay for the goods, the Defendant deprived the Plaintiffs of their profit. So the Plaintiffs' loss was suffered at that stage which at the latest occurred on the 10th July, 1984 when the Plaintiffs terminated the contract by reason of the Defendant's breach. And it was only then that the question of the disposal of the goods arose. But the loss of profit, having already been suffered, could not have arisen out of that disposal. It preceded it and was caused by the Plaintiffs' breach of contract.
As regards the storage charges, what are in question here are the charges up to the 10th July, 1984, when the contract was terminated. I will deal later with charges which arose after that date. It seems to me that those which arose before it were incurred in connection with the performance of the contract by the Plaintiffs and did not arise out of the disposal of the plant. The plant had to be stored by the Plaintiffs so that it would be available to be dispatched to the Defendant when the latter had procured the necessary finance to pay for it. So the storage was necessitated by the Plaintiffs' obligation to perform its part of the contract. The charges arose out of this obligation and were unconnected with the disposal of the plant after the contract had come to an end. Accordingly they did not arise out of that disposal.
Counsel for the Defendant submitted that the Plaintiffs had suffered no loss or expense whatsoever arising out of the disposal of the plant. In particular he submitted that on the resale to East Midlands Co-Op the Plaintiffs had made a profit and so there was no question of their having suffered a loss in respect of which they would be entitled to damages. It seems to me that this latter submission is correct. The evidence in regard to the disposal of the plant which was the subject matter of the contract was that it was sold to the East Midlands Co-Op together with other plant on the 5th October 1984 for a total consideration of £585,900 sterling. The part of the consideration referable to the Defendant's plant exceeded by £60,359 the original purchase price of £250,000 which the Defendant had agreed to pay. Whether or not there was a loss on the resale hinges on what the Defendant would have had to pay to complete the purchase in July 1984, in other words, on what the price would have been at that time. This is the figure which has to be compared with what the Plaintiffs obtained from the East Midlands Co-Op.
While the original purchase price was £250,000, this was, by agreement, increased to £300,000 at a meeting in Peterborough between Mr. Harold Jackson, the Plaintiffs' Sales Manager, and Mr. Charles O'Dowd, the Defendant's Managing Director. This agreement was referred to by Mr. Jackson in a letter to the Defendant of the 26th March, 1984 and was confirmed by a telex of the 4th April, 1984 from Mr. O'Dowd to Mr. Jackson. In that letter Mr. Jackson suggested "that we agree to regard this contract as being subject to cancellation should we not receive the £300,000 sterling payment by 9th April 1984 - in other words should your current financing investigations prove to be unsuccessful". It is clear from this that had Mr. O'Dowd been able to obtain the finance in time, the amount he would have needed to complete the contract before the 9th April, 1984 would have been £300,000. So the figure for the purchase price would have been the same then as was agreed on the 17th February, 1984. Would this still have been the position in July? This depends upon whether the Plaintiffs would have claimed interest on the purchase money between April and July.
Clause 11 of the General Conditions in the contract, which I have already cited, provides that interest at the rate of two per cent per month shall be payable by the buyer on the written demand of the seller where any payment is not made on the due date. On the 11th May, 1984, Mr. J.M. Hicks, the Plaintiffs' Bakery Division Accountant, wrote to Mr. Kidney, who was the Defendant's Financial Adviser at the time, and amongst other things he pointed out "that further storage and interest costs are accruing since our meeting in Peterborough when we agreed that the sterling payment should be made on the 9th April 1984". That put the Defendant on notice that the Plaintiffs might exercise their right to demand interest if the Defendant succeeded in getting the necessary finance to complete. But it is still an open question as to whether they would have exercised their right in this respect. There was no evidence that further interest would in fact have been demanded so there is nothing to support a finding that it is probable that this would have been done. Furthermore, since the Plaintiffs had been waiting since December 1982 for payment I think it very likely that if the Defendant had been able to come up with £300,000 at any time between May and July 1984 the Plaintiffs would have been prepared to accept that sum in full discharge and would not have insisted on interest. And in that case the deal would have been concluded at the figure of £300,000. It follows that since the Plaintiffs were able to dispose of the plant to East Midlands Co-Op at a figure in excess of this they did not, in so far as the resale price was concerned, suffer any loss arising out of the disposal of the plant.
The position in regard to the storage charges is different. The plant clearly had to be stored pending its disposal. So the storage charges after the 10th July, 1984 did arise out of the disposal. But in my opinion such charges must be confined to the warehousing charges. They could not include the hire of the six trailers on which the plant had been loaded in July 1983 in expectation of its being delivered to the Defendant and on which it had remained up to July 1984. It was not necessary to keep it loaded on trailers while awaiting resale. All that was required was that it should be warehoused. The evidence was that the cost of warehousing was £16 per trailer per week. There were six trailers, so the weekly cost was £96 sterling. The sale to East Midlands Co-Op was on the 5th October, 1984, so the plant would have had to be warehoused for approximately thirteen weeks. This gives a total charge of £.1,248.00 sterling. To this must be added interest at eleven per cent from the middle of October 1984 to the 21st January, 1989 and at eight per cent from that date to the 10th of March 1989 which I calculate comes to £597.00. So the total due for principal and interest is £1,845.00 sterling.
To this must be added the cost of the circulating table which was delivered to the Defendant and not paid for. It cost £5,234 sterling. And interest under the Courts Act up to the 7th March, 1989 comes to £2,660.84 giving a total of £7,894.84.
When this is added to the amount due for the storage charges, the final figure to which the Plaintiffs are entitled on their claim is £9,739.84 and there will be judgment for them for this amount.
I now come to the Defendant's counterclaim. This arises out of a contract which preceded that which was the subject of the Plaintiffs' claim. It was for the sale of four pieces of equipment:-
1. A Biplex mixer with three bowls and bowl hoist. 2. A five pocket accurist roll plant.
3. A 672 accurist divider with drive parts, including motor. 4. A bread and roll depanner.
The counterclaim is concerned solely with the first item to which I shall refer as "the Biplex mixer". The order for this item was placed originally in August 1981. The other items were ordered subsequently. A formal contract in respect of the first three items was signed by the Plaintiffs on the 29th January 1982 and by the Defendant on the 12th February 1982, and a similar contract in respect of all four items was signed by both Plaintiffs and Defendant on the 13th September 1982.
The Defendant's counterclaim is for damages for the Plaintiffs' failure to install and commission the Biplex mixer. It is not disputed by the Plaintiffs that they did not install or commission it. Their case is that at the time they were asked to commission it there was no obligation on them to do so and so their failure in this respect did not constitute a breach of contract.
Certain basic facts are not in dispute and I start with began to construct a new bakery other three items were paid for in January financed by Allied Irish Leasing equipment to the Defendant. The equipment was delivered to the Defendant in early February 1983. On arrival it was discovered that the Biplex mixer had suffered damage in transit. The damage was to the electrical circuitry. Replacement parts were supplied by the Plaintiffs at no charge to the Defendant. These parts were delivered in March 1984.
Production began at the Plaintiffs' new bakery in June 1983. The 672 accurist divider had been installed and commissioned in May 1983 and formed part of the plant in the new bakery. The mixer used was not the Biplex mixer but a Supertex mixer which the Defendant had had transported from his former premises.
In March 1982 the Defendant ordered the equipment which formed the subject matter of the contract for the breach of which the Plaintiffs instituted this action. The principal item in this contract was the CVR oven. By the middle of November 1982 this oven and the other items included in this contract had been manufactured and were ready for dispatch. If the Defendant had been able to arrange the necessary finance, the equipment in both contracts could have been sent at the same time, which was what the Plaintiffs were anxious should be done. Ultimately the Defendant's inability to pay resulted in the second contract being terminated, and when this happened the Biplex mixer still had not been installed or commissioned.
On the 12th September 1984, and again on the 26th September, Mr. Charles O'Dowd rang Mr. Robert Browne, the Plaintiffs' Contract Controllor, and asked him when the Plaintiffs were going to commission the Biplex mixer.
Mr. Browne said he could not be precise but it could be in the week ending the 10th October. Mr. O'Dowd rang again in October. The Plaintiffs took no steps to commission the mixer and there the matter rested until the Defendant, when sued for damages for breach of the second contract, brought the present counterclaim.
The basis of the Defendant's claim is the provision in the contract signed on the 13th September 1982 which provides as follows in regard to erection and commissioning:
"By BP Engineers during ordinary working hours by arrangement."
The Defendant claims that the Plaintiffs, by failing to install and commission the Biplex mixer, when called upon to do so, are in breach of this term.
The Plaintiffs made three submissions in answer to this claim. Firstly, that they did not contract to commission the mixer to work with the Defendant's former plant but with the CVR oven which the Defendant had ordered in March 1982 and which was never delivered because the Defendant failed to pay for it.
Secondly, that they were not bound to do the commissioning when they were asked in September 1984 as it was an implied term of the contract that they would be asked to do it within a reasonable time and the Defendant was outside that time since it was nineteen months after the mixer had been delivered.
Finally, the Plaintiffs claimed that what the Defendant was seeking was damages for consequential loss and that this was excluded by Clause 9 of the General Conditions.
I propose to deal in order with each of these submissions. I reject the Plaintiffs' first submission. I am not satisfied that the Biplex mixer was designed to work with the CVR oven. This submission, in my opinion, is not consistent with the evidence of Mr. Kenneth Coulson, whose evidence was taken on commission in London. Mr. Coulson had been the plaintiff's Sales Manager in Ireland from prior to 1981 and up to his retirement in December 1983. At page 5 of the transcript of his evidence he describes the connection between the public's mixer and the next piece of equipment in the preparation of the dough for baking. He said the mixture from the mixer "has to drip into a tub hoist which feeds to a dividers or a divider and it has to be set and the tub hoist manufactured to feed to a divider or dividers." He was then asked whether the 350 Biplex mixer and the tub hoist were designed, manufactured and supplied to work with the new equipment or the old equipment, and he replied:-
"The idea was to use them with the existing plant but when the new plant came up the tub hoist had to be designed to work with new equipment."
It seems to have been assumed that in speaking of the "new plant" Mr. Coulson was referring to the CVR oven. But this could not be correct. What the tub hoist had to be designed to work with was a divider. And a divider did form part of the new equipment, namely, the 672 divider which was the third item in the first contract. It is shown on plan E41357D as being beside and being fed by the Biplex mixer. Furthermore, while the Biplex mixer was ordered on the 13th August, 1981, the 672 divider was not ordered until almost four months later, on the 3rd December, 1981, which fits in with what Mr. Coulson said in regard to the tub hoist having been designed initially to fit in with the old equipment and then having been designed to work with the new equipment. This new equipment could only have been the 672 divider. So the fact that the Defendant did not complete the purchase of the CVR oven did not mean that the mixer would have to be commissioned to work to the old equipment for which it had not been designed. It would have been commissioned to work to the 672 divider for which it was designed, and which had been installed and commissioned in May 1983.
The conclusion I have come to on the evidence is that the tub hoist, which was part of the mixer, was designed to feed the 672 divider, which was installed and commissioned in May 1983 and that what the Plaintiffs undertook to do in the contract was to erect and commission the Biplex mixer to work to this divider, which it would have been possible to do without any modification of the tub hoist. I find on the facts that the Plaintiffs in September 1984 were not being asked to commission the mixer to work with the old equipment, but to work with the new 672 divider which was what they had undertaken to do in the contract. So the Plaintiffs' first submission fails.
In considering the Plaintiffs' second submission it is necessary to start by deciding a disputed issue of fact, namely, when did Mr. O'Dowd first ask to have the Biplex mixer commissioned? Mr. Browne said that the first time he can recall was when Mr. O'Dowd 'phoned him on the 6th September 1984. Mr. O'Dowd said that he believes he had referred to it earlier than this. I accept Mr. Browne's evidence on this point. The facts seem to bear out that Mr. O'Dowd was in no hurry to have the mixer commissioned. Although the mixer was delivered early in February 1983, the replacement parts which were required to repair the damage which had been suffered in transit were not sent until March 1984, and Mr. O'Dowd's evidence was that he did not even know they had arrived. If he had been asking before September 1984 to have the mixer commissioned, he would obviously have been concerned about the delivery of the replacement parts without which the work could not be done, but it is clear that he was not.
On these facts the legal issue to be considered is whether the Plaintiffs, under the terms of their contract with the Defendant, were bound to install and commission the mixer when requested to do so by Mr. O'Dowd on the 6th September 1984.
There is no doubt that the Plaintiffs, in the contract signed on the 13th September, 1982 undertook to erect and commission the mixer. But should that obligation be construed as continuing to be binding on them irrespective of what might occur between the date of the delivery of the machine and the date of the request to install it? It seems to me that it should not. I think the obligation must be construed as being one to install and commission the mixer provided it was in the same condition as when delivered to the Defendant. Quite clearly, if the mixer had suffered accidental damage after being delivered to the Defendant, so that it could not be installed and commissioned until the damage had been repaired, the Plaintiffs would not have been obliged to repair the machine as part of the commissioning. They would have been entitled to insist on the Defendant first paying to have the repairs carried out.
When the Plaintiffs were asked to commission the mixer, it seems to me that the probable position on the evidence was that it was not in the same condition as when delivered.
Mr. Robert Bestley, the Plaintiffs' Commissioning Manager and a Chartered Engineer, whose evidence I accept, said in his direct evidence that deterioration in the electronics of the mixer would take place within eighteen months if the machine was not working, which it was not. Under cross-examination he qualified this slightly saying that you could not say categorically that there would be damage after eighteen months.
Inspection by an expert would be required. The micro-processor would have to be sent back to their quality control laboratory in Peterborough. He estimated that the cost would be between £20,000 and £.30,000. In my opinion the Plaintiffs had no obligation to embark on a commissioning which would have involved this additional cost.
The position might have been different if the Plaintiffs had been responsible for the delay. But in my opinion they were not. I am satisfied that the delay was due to the Defendant's failure to obtain finance to complete the purchase of the CVR oven. Mr. Bestley said that his understanding was that the mixer would be commissioned with the new plant which included the oven. I have no doubt that this was the case. It was obviously the sensible course as it would cause less disruption to the work of the bakery. It would not have made sense to commission the oven and the mixer separately when both could have been commissioned at the same time. And it was this that caused the delay, so it was the Defendant that was responsible for it and not the Plaintiffs.
It was suggested by the Defendant that the Plaintiffs ought to have warned Mr. O'Dowd of the risk of deterioration. It is possible that they should have, but I do not think they can be blamed for not doing so. Mr. O'Dowd kept assuring them that finance for the second contract was about to materialise. All the equipment the subject of this contract had been on trailers ready to be dispatched since July 1983 so it was ready to be delivered immediately that the finance was arranged. In these circumstances the Plaintiffs cannot be faulted for not having foreseen that the Defendant's efforts to obtain finance would take so long and would ultimately fail, and it is only if they could have foreseen this that they could be blamed for not warning the Defendant of the risk of deterioration.
Having come to the conclusion that I should accede to the Plaintiffs' second submission for the reasons I have given, it is not necessary to consider whether the Defendant's claim is precluded by Clause 9 of the General Conditions and I express no view on that issue.
The Defendant's counterclaim is therefore dismissed.