England and Wales High Court (Technology and Construction Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		20 April 2005

 


HH Judge Thornton QC

INDEX

SECTIONN	TITLE	PARAGRAGHS
1	Introduction	1 - 19
2	Procedural Matters	20
3	Issue 1 – Identification of the Contract or Contracts	21 - 56
4	Issue 2 - Incorporation of Terms	57 - 71
5	Issue 3 - The Contract's Intended Purpose	72 - 122
6	Issue 4 - Duty of Care	123 - 165
7	Outline of Evidence and Summary of Background Facts	166 - 250
8	Issue 5 – The Problems	151 - 334
9	Issue 6 - Gregg's Defaults	335 - 359
10	Issue 7 - Gregg's Knowledge of Scanner's Limitations at Time of Contract	360 - 363
11	Issue 8 - Causes of the Problems Identified in Issue 5	364 - 366
12	Issue 9 - Breach of Contract	367 - 372
13	Issue 10 - Rejection	373 - 377
14	Issue 11 - Negligence and Breach of Duty	378 - 385
15	Issue 12 – Assignment and Estoppel	386 - 397
16	Issue 13 – Limitation of Liability	398 - 400
17	Overall Conclusion	401 - 402

1. Introduction

1.1 Background

1. The manufacture of glass receptacles has, for generations, involved a production line comprising a hot and cold end. The hot end is where the glass components, mainly sand and silica, are mixed, liquefied in a furnace and moulded at high temperatures into the required shapes. The cold end is where the glass receptacles are then cooled and cured. The glass receptacles are then carefully inspected and all the damaged or deformed receptacles which will inevitably arise in a moulding process are removed from the line and the glass is recycled. The cold end process until recently was undertaken both visually and manually by individuals but the advent of computerised inspection machines, assisted by digital cameras, has transformed the cold end process. This process is now automated and the cold end of a bottling plant consists of a conveyor along which inspection machines are located which detect and then reject imperfections in the newly formed receptacles as they pass down the line.
2. The dispute concerns two such machines positioned in pairs on three identical cold end inspection lines at the Allied Glass Containers bottling plant located at Knottingley, West Yorkshire. These six machines, being three Prism 5000 prisms and three Scanner 8200 scanners, were sold by Emhart Glass Limited ("Emhart") having been developed and manufactured by its USA-based associated company, Elmira Glass Inc ("Elmira Glass") and were bought by Gregg & Co (Knottingley) Ltd ("Gregg") in 1999. I will refer to each type of machine in this judgment as, respectively, the "prism" and the "scanner". Gregg, and their successors in title Allied Glass Containers Limited ("Allied Glass"), contend that all six machines were defective in material respects in both their design and manufacture and, in consequence never functioned or performed satisfactorily. Gregg assigned its business to Allied Glass in 2000 and it is for this reason that both Gregg and Allied Glass are parties to the claim against Emhart. There is an issue as to whether that assignment gives Allied Glass any title to sue Emhart or to assert any cause of action against Emhart. It is convenient if I resolve that issue at the end of this judgment and resolve all other issues on the basis that Gregg and Allied Glass are one party that I shall refer to throughout this judgment as "Gregg" even though, after September 2000, the party involved in operating the machines and incurring the loss now claimed was Allied Glass.
3. Gregg contends that it used the machines for an extended period, from October 1999 until 28 May 2002, whilst repeated attempts were made by Emhart to modify the machines and correct what Gregg contends were their inherent and manufactured defects. There were repeated shutdowns of the lines in this period and Gregg contends that it suffered significant loss of production and additional inspection costs. Gregg also contends that it was entitled to reject the machines on 28 May 2002 which it purported to do by its solicitor's letter to Emhart. Overall, Gregg contends that the defects were separately and cumulatively such that each machine was both unfit for purpose and of unsatisfactory quality. In consequence, the machines were sold in breach of the terms implied into the sale contracts by sections 14(2) and 14(3) of the Sale of Goods Act 1979 as amended by the Sale and Supply of Goods Act 1994.
4. Emhart responds to these claims by alleging that the machines were both fit for their purpose and of satisfactory quality. It seeks to show that that was so by contending that many of the problems, shut downs and errors in glassware inspection alleged by Gregg as evidencing the breaches of contract contended for are exaggerated and that most of the events complained of that did occur were caused by Gregg's deficiencies and not by any defect in the machines. Emhart in short contends that Gregg was responsible for the mechanical problems that occurred. This was for three general reasons. Firstly, Gregg failed to operate the machines correctly. This failure occurred, in part, because Gregg did not provide adequate training to its operatives in how to programme, operate and maintain the machines. Secondly, Gregg's operatives failed to maintain and clean the machines satisfactorily. Thirdly, Gregg kept and operated the machines in an excessively hot and dirty environment without protecting them or keeping them clear of the airborne dirt and grease that they were continuously subjected to.
5. The action was started by Emhart who issued proceedings claiming the balance of the contract price for the sale of the machines that had been supplied to Gregg. Gregg joined in Allied and both responded with a Part 20 claim in which they claim damages for breach of contract and duty. This Part 20 claim is being tried first and its trial is being held in two parts. This judgment relates to the first trial which, following an order made by Judge Havery QC on 23 January 2004, has been confined to all questions of liability with questions of causation and quantum being held over to a second trial if this proves to be necessary. These questions of liability have helpfully been defined by the parties in a list of agreed issues, numbering 13 in all, which I must answer^[1]. The issues fall into several groups, being those concerned with the terms of the contracts of sale; with the existence and scope of the duty owed by Emhart; with the nature, cause and extent of the problems experienced with the six machines that Emhart supplied; with the extent to which Emhart was in breach of contract or duty and with the recoverability of Gregg's claimed loss if both breach and damage are established. This last group of issues includes those as to Gregg's entitlement to reject the machines; as to the effects of Gregg's assignment of the benefit its' on-going contracts to Gregg and as to the applicability of certain exclusion clauses alleged to have been incorporated into the contracts of sale.

1.2. The Parties

6. Gregg. The company was started by three glass blowers and a blacksmith in 1874. Following its sale in 1875 to Andrew Mooney and its subsequent sale in 1893 to Samuel Addingly, the Gregg family became involved in the company in 1900 and acquired a controlling interest in it soon afterwards. The family then ran Gregg as a family company for nearly one hundred years until 1992. The company has always been a small glass bottling manufacturer, specialising in complex bottles and jars manufactured to order for long term relatively small customers. Such manufacture to order constituted, both in the 1990s and currently, about 60% of Gregg's sales. The company was set up and continues to be based in Knottingley, a village located close to Leeds, and the bottling plant was built on the canal running through the village which forms part of the extensive West Yorkshire canal system. This provided an economical and efficient way of bringing in the raw materials used for the glass manufacturing process. The number of glass manufacturers reduced significantly in the latter part of the twentieth Century and, by 1990, only about eight were left. Gregg, with its niche market in high quality, low volume, complex shaped glass products, was one of these surviving manufacturers. However, by 1992, the Gregg family wished to give up their interest in glass and, in June 1993, they sold the company to a local rival, Lax & Shaw Ltd., which had been manufacturing glass receptacles for many years. Gregg and Lax & Shaw Ltd remained separate subsidiaries of Associated British Foods plc until 2000 when they merged and were acquired from their parent company by means of a management buyout. The resulting company was and remains Allied Glass and this company acquired the benefit of all of Gregg's on-going contracts including, so it alleges, the benefit of the contracts of sale of the six machines in question.
7. Gregg, and its successor Allied Glass, have been engaged in a continuous process of re-investment, replacement and modernisation of it glass manufacturing process since 1993. In the initial phase, from 1993 until 1999, Gregg concentrated on ensuring that it developed modern operating systems to internationally recognised standards and detailed training and quality improvement programmes for its operatives. It also undertook the first of two major plant replacement programmes. This involved replacing one of the existing two main furnaces and four manufacturing lines at a total cost of £9m. This phase was completed in 1994. The second phase involved the replacement of two small furnaces and five production lines with one single energy furnace and, initially, three production lines. Each production line consists of both a hot and a cold end, being the parts of the process where the glass is moulded and is then cooled and subjected to intense quality control procedures which identify and then reject any imperfect receptacles. This phase was project managed internally by Gregg personnel and was intended to provide the plant with much greater capacity. The replacement plant of both the hot and cold ends was largely supplied by Emhart and it was intended to incorporate the latest technology. The six relevant Emhart machines, being the three scanners and the three prisms, were to be used on the three cold end lines created by this second phase. The Emhart moulding machines installed at the hot end were the subject of a second unrelated dispute which was referred to arbitration and which remained outstanding at the time of the trial with which this judgment is concerned.
8. Emhart. Emhart is one of a group of companies engaged in the business of manufacturing machinery for use in the industrial production of glass products. It is registered in England and, having been formed in 1958, moved to Doncaster so as to be close to the centre of the Yorkshire, Lancashire and Midlands-based glass industry. It is essentially a sales and service company concerned with Emhart Group products. Emhart's parent company, and that of other Emhart Group members, is Bucher Industries, based in Niedevenignen, Switzerland. Other members of the Emhart Group are based in the United States, Sweden, France, Germany, Singapore, Japan and Italy. The Group's manufacturing process and its research and development facilities are principally provided to the Group by Elmira Glass Inc which is located in Elmira, New York, USA. This company is part of the Emhart Powers Group, all of which are based in Elmira. The six machines were manufactured in Elmira and were then supplied to Gregg by Emhart. During the extended period following Gregg's taking delivery of the machines and whilst it was attempting to operate them in the intended manner, maintenance and support services were provided by both Emhart and Elmira Glass Inc, the later supplying technical know-how at a distance and from site visits by Elmira-based technicians.

1.3. Thumb-nail Sketch of the Chronology of Events

9. The relationship between Gregg and Emhart goes back many years. Emhart had supplied check detector machines used in the cold end which were replaced by the second phase of Gregg's equipment replacement programme and also supplied an IS T600 controlled machine for installation in the hot end in 1997. When the second phase of equipment replacement was being planned, Emhart won the order to provide the necessary IS Forming Machines which mould the glass using either a 'blow and blow' or a 'press and blow' technique, both of which were available from Emhart's machines. Four IS machines were supplied but only three went into immediate use on three lines, G-1, G-2 and G1-4. The fourth IS machine was mothballed ready for use on line G1-3 as and when that line came into service in the future. These machines were delivered and installed in October 1999.
10. The glass production is undertaken in four discrete stages. Initially, the raw materials are batched and mixed. Then the mix is melted in the furnace to form molten glass. Then the molten glass is formed into glass containers in an Individual Section or IS machine in which blank moulds are used to form the container. The formation occurs either by blowing and blowing or by pressing and blowing the molten glass into the mould. Blow and blow is primarily used for narrow necked containers such as bottles and press and blow for wide mouthed containers such as jars. From the IS machine, the formed containers are passed through a lehr which is a long tunnel kept at a temperature above the annealing temperature at is entrance. The receptacles pass slowly through the tunnel and exit at a temperature below the annealing temperature. The lehr is at the transition between the hot and cold ends of the production line and it provides a controlled cooling environment for the glass containers once they have been shaped. Following their exit from the lehr, the glass containers are passed along a conveyor through the cold end inspection and rejection line in which are located a number of different types of inspection equipment and are then stacked and palletised before being removed for storage or transport to the customer. The production process is a continuous 24/7 operation with only minimal stoppages of short duration to enable a new replacement run to be inserted into the line or to accommodate breakdown maintenance and repair. This latter type of stoppage is not intended.
11. The second phase of Gregg's modernisation programme involved the G1 lines and involved the rebuilding of 65% of the Knottingley plant including a new batch plant, furnace, three new production or IS machines and associated inspection machines. The project was valued at £17m and was planned to take 18 months from mid-1998 until late 1999. The necessary layout drawings were prepared in-house by Gregg by its project engineer, Mr Graham Johnson. Gregg formed a management team for the project led by Mr McMillan. The conveyor manufacturer was an Italian company called Tecnores, Emhart supplied the IS machines at the hot end and the prism, scanner and squeeze testers at the cold end and other equipment was supplied by other suppliers.
12. The order placed by Gregg for the six cold end inspection machines arose out of the discussions, negotiations and supply contract for the IS machines. The process started in October 1996 with quotations for four inspection machines. This was followed by a visit to the Knottingley plant in October 1997 by Mr Roberts, Emhart's managing director, and Mr Tupman, also of Emhart, where they met Mr McMillan and Mr Dixon of Gregg and they discussed the possible involvement of Emhart in the whole of the second phase project. This led to a further proposal being provided by Emhart for cold end equipment in May 1998. However, the second phase planning did not start in earnest until late 1998 and, initially, was focused on the hot end. This led to an order for hot end equipment being placed on Emhart in February 1999, an order that it obtained against the stiff competition of two other suppliers. One reason for Gregg's decision to use Emhart equipment was because it provided the flexibility of both blow and blow and press and blow production techniques in the forming process.
13. Once the hot end supply had been sorted out and the contract for its supply had been entered into, Gregg turned its attention in earnest to the cold end. Since Emhart had supplied the hot end equipment, Gregg decided to negotiate for the supply of inspection equipment by Emhart for the three cold end lines that would be going into immediate production. The project was managed by Gregg's technical Director, Mr Brian McMillan. He initially approached a French company, MSC but the desired MCAL inspection machine Mr McMillan was interested in was not quite ready. At the same time, Mr McMillan had discussions with Mr Roberts of Emhart. This led to a quotation from Emhart dated 3 March 1999 followed by a visit to Emhart Glass Inc in Elmira, New York, USA in early May by Mr McMillan accompanied by Mr Roberts and Mr Perry to inspect and be introduced to the prism and scanner equipment that Gregg was particularly interested in. This led to Emhart's proposal dated 26 May 1999 for two prisms and scanners and three squeeze testers and triple inspection machines.
14. The prism was to inspect the sidewall and dimensions of the glass containers. It used a camera and light technology to perform these functions. The sidewall was to be checked for surface defects and the dimensions were to be checked against a pre-programmed specification. The Scanner was to check the base and ring of the receptacle against a pre-programmed specification. It used a camera and computerised image processor which took an image from the top of the glass containers using a light source from the bottom.
15. A particular feature of the scanner was its ability to read alpha-numeric code, being the reference code embossed on the base of each glass container when moulded. One purpose of this code was to allow the inspection machines to be programmed to recognise, and if necessary reject, all glass containers emanating from a particular faulty mould. For this purpose, the scanner was supplied with a software-based tracking machine, a Vision Mould Number Reader ("VMNR") which could be programmed so as to ensure that all glass containers with pre-programmed characteristics, including particular codes, would be rejected as they passed through the scanner. One of the scanners was additionally provided with recently issued Genie software to enable it to undertake large diameter container reading on line G1-4. Each pair of scanners and prisms was to be close-coupled so as to work as a combined vision inspection system.
16. Only two prisms and scanners were provided for in Emhart's original May proposal because Gregg had decided that, initially, it would bring two of the three new G1 inspection lines into use. In June 1999, Gregg sent container samples to Emhart Powers Inc at Elmira to enable Emhart to check that the inspection machines would work as intended with the various types of glass containers that Gregg would be passing through them.
17. Emhart's May proposal was followed by a quotation dated 16 June 1999 and a meeting at Knottingley between Mr McMillan and Mr Roberts on 2 July 1999 at which Gregg agreed in principle to purchase equipment for all three of the intended G-1 lines. Two purchase orders were then issued by Gregg, on 2 July 1999 for a prism, scanner and other equipment for the G-1 and G-4 lines and on 6 August 1999 for one further prism and scanner for the G1-2 line. A third purchase order was issued on 9 August 1999 for the installation and commissioning of all this equipment. These orders were acknowledged by Emhart's order acknowledgement documents, one dated 6 July 1999 and two dated 11 August 1999.
18. Mr Ian Beach, Gregg's Head of cold end engineering, went to Elmira in the company of Emhart's engineer Mr Colin Rice so as to be trained in the method of setting up, operating and maintaining the prism and scanner. The intention was that Mr Beach would return and use the training and knowledge he had acquired to train Gregg's personnel in these matters. The training was provided over two weeks in late July and early August 1999. One reason for this training, as for Gregg's decision to purchase the Emhart prisms and scanners, was that both had recently been developed by Emhart. Indeed, as later transpired, the prism was still in the process of development and refinement at the time of the delivery of the three provided to Gregg. This training was primarily focused on the scanner because the version of the prism being delivered to Gregg, particularly its software, was still in its final stages of being developed.
19. The machines were delivered to the Knottingley plant in mid-October 1999 and were then installed and set up by Emhart personnel. The three G-1 lines started up on 24, 27 and 29 October 1999. Gregg experienced problems with the machines from the start. In the first three weeks Gregg experienced problems with all six inspection machines and with the IS machines. A letter of complaint was faxed by Mr Whitehead, Gregg's Operations Director, to Mr Roberts on 25 November 1999 which merely referred, in very general terms, to problems with both the hot and cold end equipment. Problems continued through 2000 with many visits and call outs from Emhart's engineers based in Emhart's Doncaster offices. In September 2000, Allied acquired the Gregg business and a business transfer agreement was entered into dated 17 September 2000. The internal operations within the Knottingley plant continued with the same personnel as previously. The problems and the repeated attempts to remedy them by both Gregg and Emhart personnel continued until, in May 2002, Gregg purported to accept Emhart's alleged repudiation of the contracts concerned with the supply and installation of the six machines and to reject the three prisms and three scanners by its solicitors' letter dated 28 May 2002.

2. Procedural Matters

20. The parties agreed a list of issues for determination by the court at the first trial. These issues and the answers given in this judgment to those issues are annexed to this judgment. The parties considered whether a further issue concerned with mitigation should be added but decided not to agree to this expansion of the issues. This was an understandable position for the parties to adopt since they would not have had a full opportunity to prepare for this issue. I have not therefore attempted to deal with that issue in this judgment.

3. Issue 1 – Identification of the Contract or Contracts

3.1. The Issue

21. Issue 1 reads:

"1. Was there one sale/supply contract or where there three such contracts?"

3.2. The Issue Explained

22. This issue, on the basis of the parties' respective pleaded cases before the trial, was largely bound up with the issue as to whether Emhart's standard terms were incorporated into the contract or contracts for the supply of the six machines because, if these terms were incorporated, Emhart pleaded reliance on clause 5 of these terms which contained an exclusion clause phrased in very general terms. However, Emhart has, in its closing submissions, expressly abandoned all reliance on the limitations and exclusions contained in clause 5, even if that clause was incorporated into the supply contracts. In Emhart's closing written submissions, it is stated:
23. "If Emhart's standard terms were incorporated into the contract(s), Emhart was seeking to rely upon clauses 5.1 and 5.2. It no longer does so and, accordingly, the issue of whether these two particular clauses were incorporated or whether they satisfy UCTA no longer arises."
24. However, the issue still requires resolution since the precise ambit of the contract or contracts of sale must be identified as a prelude to an identification of the precise contractual terms and scope of duty under which Emhart supplied the six machines and performed the various services related to that supply.

3.3. Findings of Fact

25. The contract or contracts were only entered into after a lengthy negotiation. The contractual relationship between Gregg and Emhart can, in consequence, only be analysed in terms of a traditional offer and acceptance-type analysis. The negotiations were protracted and involved a series of different proposals to provide for Gregg's cold end inspection needs. The starting point was Emhart's first involvement with Gregg in 1995 when it supplied check detector machines for the cold end being redeveloped in the first phase of Gregg's redevelopment programme. This was the first inspection machine that Gregg had ever used since, previously, it had relied entirely on manual inspection procedures.
26. Planning for the cold end work in the second phase of redevelopment started a proposal that Mr Roberts sent to Mr Whitehead of Gregg on 16 October 1996. This provided for 4 combined and 2 triple inspection machines. This proposal was not initially acted upon since Gregg first concentrated on replacing the IS machine at the hot end of line G1-4. Gregg bought this machine from Emhart and also arranged for Emhart to install and commission it. On 1 October 1997, Mr McMillan had a meeting with Mr Roberts at Knottingley to discuss the installation work. During the meeting, Mr McMillan outlined Gregg's phase two plans and Mr Roberts responded by outlining details of Emhart's newly developed cold end inspection machines, particularly its scanners. This led Mr McMillan to suggest that Emhart submit a one-off proposal for a set of cold end inspection machines that could be used on the G1-4 line to include these newly developed scanners. This proposal was intended to identify the type and cost of a cold end inspection machinery package to assist Gregg in its phase two planning.
27. This proposal was not taken up but it led to Emhart being invited to submit proposals for, initially, the hot end IS machines to be installed in the phase two programme and, following Emhart's success in securing the contract to supply these machines, to Gregg inviting a proposal for Emhart to supply the associated cold end inspection machines. This proposal was submitted in May 1998 and was for a package based on scanners and on combined, triple and total inspection machines. Gregg also considered other possible suppliers but rejected these because they were not then as advanced and Gregg was looking to acquire the latest technology for its cold end inspections.
28. Following its review of the available technology, Mr McMillan again met with Mr Roberts at a trade fair in Lyons in May 1999 and he also visited Elmira with Mr Perry and was shown the then current versions of both the prism and Scanners and learnt at first hand from Emhart's engineers about their recently developed new and upgraded features which would be included in any such machine purchased subsequently by Gregg. There was a detailed discussion during this visit of the proposed layout of the hot line and the proposed cold lines and their interrelationship, based on layout drawings of Gregg's current thoughts on these matters that Gregg had produced and brought with them to Elmira. Emhart was then asked to provide a quotation for the phase two cold end inspection machines. This quotation included provision for a Total Inspection Machine incorporating a prism, scanner, check detector and thin wall detector which was unsuitable for Gregg's needs since it was both too complex and too difficult to set up at a job change.
29. By now, Gregg had learnt much about Emhart's inspection machinery. Mr McMillan had had several meetings with Mr Roberts, had been on an extended visit to Elmira and had examined with some care Emhart's promotional literature which described both the prism and the scanner in detail. He had also examined earlier versions of both the prism and scanner and had had a detailed explanation of how these machines had been improved and adapted in the current version then available to be purchased by Gregg. Thus, Emhart's inspection machinery, and in particular its scanner and prism, remained an attractive proposition to Gregg because it was flexible and provided the means to inspect non-round containers and the engraving on the base of all containers. Gregg was particularly attracted by Emhart's recently introduced facility for mould number reading and the new prism for dimension and sidewall inspections that was still being developed. A further attraction was the software that was currently being upgraded and was to include a Genie package that Emhart put forward as a facility that would enable the satisfactory inspection of jars and other containers with a large opening. Gregg also learnt that the prism and scanner could be coupled so as to function as a combined inspection unit with enhanced functions and reliability.
30. In consequence, Gregg sent some sample engraved containers to Elmira for testing on the scanner and was informed by Emhart that these could be satisfactorily read by the Scanner being considered by Gregg. Following this intense round of meetings and proposals, Gregg asked Emhart to supply a revised quotation which incorporated Emhart's current standard Prism 5000 3-camera machine providing for 360... coverage of virtually any container shape, its Scanner 8000 Mould Number Reader prism and a squeeze tester. Two sets of Genie software were also provided for. A proposal dated 16 June 1999 and a quotation was then submitted, based on the supply of two close coupled prisms and scanners and with an option for Genie software. The number of machines was based on Gregg's intention to bring two cold end lines into production immediately and to bring a third into production at a later date as soon as the volume of glass containers being manufactured warranted this.
31. This quotation led to a meeting between Mr McMillan and Mr Roberts at Knottingley on 2 July 1999 at which Gregg agreed to purchase 2 prisms for lines G1-1 and 1-4; 1 scanner with its associated VMNR for line G1-1 and 1 scanner with both its associated VMNR and Genie software for line G1-4 and 3 squeeze testers for lines G1-1, G1-2 and G1-4. Both principals gave evidence about this meeting. Mr McMillan stated that he had been given authority from the Board to commit Gregg to purchasing the equipment contained in Emhart's quotation without further reference to them. The final decision to buy or not to buy was left to him. He had little recollection of the meeting itself. He accepted that a full contemporary note made of the meeting by Mr Roberts appeared to be accurate. This stated that:

"Contract awarded [emphasis added] for supply of HST [squeezer] and Vision Inspection Machines generally in accordance with final quote [dated 16 June 1999]. Customer PO 14346 issued to cover the following items:

[the items that were set out with the prices at which Gregg was buying them being the prices quoted in Emhart's June quotation that had been reduced slightly by agreement during the 2 July 1999 meeting].

1. Specification Requirements

Deciding factors for awarding contract to Emhart were:

Handling capability for N R [non-round] containers.

'Genie' software for inspection of large ring dias up to 90 mm (considered well in advance of anything on market).

Promise of Alpha-Numeric mould ID reading capability.

Local service support.

Order, therefore, conditional on providing following features:

2.1 Alpha-Numeric MNR at no extra charge on both Scanner 8000s for production start-up on 15 October 1999.

2.2. 'Genie' software on one Scanner (G1-4) for production start-up on 15 October 1999.

2.3. Each Prism 5000 to be close-coupled to Scanner 8000.

2.4. Handling same for all three lines (To be confirmed)."

Mr Roberts accepted that the contents of his contemporary note were accurate. He, like Mr McMillan, had little separate recollection of what was said at that meeting.

32. It is clear from the evidence, therefore, that Mr McMillan and Mr Roberts agreed that Gregg would buy two paired or close coupled inspection machines and three squeeze testers from Emhart and also agreed the purchase price for each item of equipment. These prices were slightly trimmed prices from those that Emhart had proffered in its revised June 1999 offer. The two principals also agreed that the overall contract price would be payable in instalments and agreed on the size and time for payment of each instalment. These had been set out in Emhart's June quotation. The last matter that they agreed upon was that, if a third close coupled prism and Scanners was ordered by Gregg for delivery before the end of 1999, these further machines would be supplied by Emhart at the same price and on the same terms as the first two close coupled machines were being supplied. Gregg was keen to acquire this third set of inspection machines but Mr McMillan did not have authority to buy them in the current financial year that would end on 15 September 1999 but he was sure that he would obtain the authority to buy them in the next Gregg financial year so that, as Mr Roberts put it in his covering letter to Gregg dated 6 July 1999:

"It is agreed that the potential order for a third Prism/Scanner combined machine proposed for installation on line G1-4 as part of your 1999/2000 capital plan, will be supplied at the same package price level as offered for the current project. [Provided order can be placed for delivery before end-1999]"

33. This agreement was followed by Mr McMillan, later that day, sending to Emhart a purchase order dated 2 July 1999 on Gregg's standard purchase order form. This document set out in writing Gregg's order for the inspection machines that Mr McMillan had just ordered for the G1-1 and G1-4 lines at the prices that he had just agreed with Mr Roberts at their meeting held earlier that day. This purchase order, numbered 014346, had printed on its reverse a set of the printed conditions of sale of Gregg's then parent company Associated British Foods Plc. There was no reference to these conditions on the face of the order and Mr McMillan stated in evidence that he had no recollection of these having been discussed at the preceding meeting with Mr Roberts.
34. The purchase order was responded to by Emhart in a letter from Mr Roberts to Mr McMillan dated 6 July 1999. The letter confirmed that the two principals had met on 2 July 1999 and thanked Gregg for its valued order. The letter then confirmed the outline features of that order and concluded:

"I hope that the above covers the immediate points for discussion. Our official order acknowledgement will follow, once final specifications are confirmed with [Emhart Glass Inc]. Meantime, I enclose a pro-forma invoice to cover the scope of supply, together with our proposed payment schedule, in accordance with our previous quotation."

35. The enclosed documents were a pro-forma invoice for the sum identified in the purchase order and a payment schedule providing for the four stage payments that the two principals had agreed to at the 2 July 1999 meeting, the first of which was stated to be for a 25% down payment "with order".
36. On the face of this acknowledgement, it would appear that Emhart's acceptance of Gregg's order was conditional upon obtaining confirmation from Emhart Glass Inc of the machines' final specification. However, there had been no previous mention by Emhart of the need to finalise any specification with Emhart Glass Inc nor that any agreement from that source was a precondition to Emhart's agreement to supply the machines and to accept Gregg's order. Mr Roberts accepted in evidence that there was in fact nothing left to confirm with Powers and that, in consequence, Emhart's acknowledgement was sent off on the same day as this letter without any attempt to contact Emhart Glass Inc. Mr Roberts also accepted that the deal had been done on 2 July 1999 so that, by 6 July 1999, the 25% down payment due with order was required straight away.
37. It is clear, therefore, that Mr Roberts and Mr McMillan agreed at the meeting on 2 July 1999 that as part of the agreement for the delivery of two combined prisms and scanners for the G1-1 and G1-4 lines, Gregg would also be entitled to be supplied with a third combined pair of these machines for the same price (£218,375.00) so long as Gregg's order for them was received by Emhart in time to allow for delivery of them by 31 December 1999.
38. This confirmation was followed by Emhart sending Gregg an acknowledgement of order dated 6 July 1999 on one of its standard acknowledgement of order forms which acknowledged the supply of cold end inspection equipment by reference to Gregg's order numbered 014346. The acknowledgement stated on the foot of its face:

"Subject to our general conditions of sale, a copy of which is available on request".

At no time did Gregg ask Emhart for, nor did it inspect a copy of these conditions nor did Emhart ever supply a copy of them to Gregg.

39. Following the submission of the first purchase order, Mr McMillan and Mr Roberts met again at Knottingley on 5 August 1999. The meeting had been called by Mr McMillan because he had obtained authority to confirm the purchase of the third pair of coupled machines and to instruct Emhart to install and commission all the machines and to provide training for the operatives and an after-sales service if this proved to be necessary.
40. According to Mr McMillan and Mr Roberts, they discussed and reached agreement on these two matters. Firstly, they agreed that Emhart would indeed supply and Gregg would buy the third pair of close coupled prism/Scanners. Secondly, they agreed that Emhart would install and commission all six inspection machines. Included in this agreed package of additional services was an agreed obligation for Emhart to provide all necessary reasonably required after-sales services such as trouble shooting, defect detection and fault rectification where the fault arose from a design or manufacturing defect. The agreed price for this additional work was £14,100. Following this further agreement, Mr McMillan concluded the meeting by telling Mr Roberts: "now you've got everything, don't let me down".
41. Gregg then sent Emhart another purchase order in its standard form with a different set of standard terms and conditions printed on the back which was dated 6 August 1999. These conditions were Gregg's own standard conditions albeit that they were similar to those previously sent on the back of its first purchase order. This second purchase order amounted to an order for a close coupled prism and scanner for line G1-2 for £218,375.00. Emhart responded with an acknowledgement of order on its standard acknowledgement of order form dated 11 August 1999 for this sum, with a cross-reference to Gregg's order number for this sale and with the same reference to it being subject to Emhart's general conditions of sale as had been contained on its first acknowledgment dated 6 July 1999.
42. Finally, on 9 August 1999, Gregg sent Emhart a third purchase order in the same form which ordered the installation and commissioning of the supplied cold end equipment on all three G1 lines for £14,100. This was replied to by Emhart with an acknowledgement of order in the same form as its previous two acknowledgements and which was dated 11 August 1999.
43. The subsequent installation and follow-up was undertaken for all six machines as if the supply and follow-up services were part of one contract. Emhart, in a press release dated 18 August 1999, informed the world that:

"Two major contracts awarded for the supply of:

IS Forming Machine systems; and

lines of Vision Inspection equipment."

44. This press release was, therefore, a statement by Emhart that it had entered into two separate contracts, one for the hot end equipment and a second for the entirety of the cold end inspection equipment being bought by Gregg. This is in sharp contrast to Emhart's current contention that there were three separate contracts for the cold end equipment in addition to the fourth hot end contract.

3.4. Parties' Submissions

45. Gregg submitted that the contract for the supply of all six machines was finalised at the meeting on 2 July 1999 and that that agreement was confirmed in writing by a combination of Gregg's purchase order dated 2 July 1999 and Emhart's reply letter dated 6 July 1999. The contract order for the installation work was so closely related to the supply of the machines that it was, by necessary implication, issued as part of the principal contract and subject to the same terms. Gregg submitted, in the alternative, that the first contract was for four machines which contained, as an additional term, an option to purchase two further machines on the same terms as the first four machines. This option was exercised by its second purchase order.
46. Emhart submitted that the first purchase order was responded to by its acknowledgement of order dated 6 July 1999 which amounted to a counter offer since it was stated to be dependent on Emhart obtaining Elmira Glass Inc.'s confirmation of the specification. This counter offer, which incorporated Emhart's general conditions, was accepted by Gregg's conduct in allowing Emhart to manufacture and deliver the machines. The second and third contracts, for one paired couple and for the installation of all six machines, was formed by Emhart's counter offer contained in its acknowledgment of order and by Gregg's conduct in allowing each contract to proceed.

3.5. Answer – Issue 1

47. The starting point in determing when and with what incorporated terms any contract came into being is to consider what if any agreement was reached on 2 July 1999. It is necessary to set the meeting between Mr McMillan and Mr Roberts in context. Given the long history of negotiations, including testing of the machines, an extended visit to Elmira to inspect and get to know them, detailed discussions and a full knowledge of the relevant trade literature, Mr McMillan was clear in his mind what he wanted to order. He was, essentially, intending to order specific machines using their model numbers, basing that order on the quotation received a few days earlier. He had full authority to commit Gregg for two paired couplings and to order a third in the next financial year which was to start in mid-September. He wanted confirmation that the machines could be delivered for installation in October 1999. He had, in reality, little left to discuss. Mr Roberts, for his part, was very keen to obtain an order he had been negotiating for a number of years and Gregg was regarded as a prime and valued customer. There was, in principle, nothing to prevent an immediate order taking effect at the meeting.
48. It is clear, therefore, given the background to that meeting and the agreement that was reached at it, that a concluded contractual agreement was reached whereby Gregg would buy two close coupled machines and would be allowed to buy one further closed couple if it placed its order for these two further inspection machines in time for them to be delivered to Gregg before the end of 1999. This concluded contract for the sale of all six machines was therefore already in existence when the purchase order was sent out and that document amounted to no more than a confirmation of the agreement already reached.
49. The conclusion that a contract for the sale of all six machines was finalised at the meeting on 2 July 1999 is confirmed by the terms of Gregg's document which was entitled "purchase order". This was a purely confirmatory document which did no more than list each machine which it had been agreed at the meeting would be sold to Gregg with the price for each machine that had also been agreed upon at the meeting.
50. There was no reference on the face of this document to the printed terms on its rear. These had not previously been referred to by Gregg. It follows that the purchase order sent by Gregg was no more than, and was not intended to be any more than, a written confirmation of the contract for sale that had already been concluded orally at the meeting on 2 July 1999. The terms on the reverse of the document were extra-contractual and of no effect.
51. The fact that an oral contract had been concluded at the meeting was also confirmed by Emhart's letter dated 6 July 1999 since that letter contained all the material terms of the contract that had been agreed at the meeting and also contained Emhart's confirmation to those terms. Moreover, Mr Roberts' notes of the meeting referred to the contract as having been awarded at that meeting, thereby confirming his contemporary view that the parties had entered into a contractual relationship at the meeting. Since the contract had already come into being by the time that that letter was written, the reference in it to obtaining Emhart Glass's confirmation to the specification, whatever that exercise involved, was not sufficient to prevent the finalisation of the contract of sale since that contract was already in being and, moreover, was not an exercise which Gregg and Emhart had previously agreed would precede the conclusion of the contract.
52. It follows that the first four machines were bought with neither Gregg nor Emhart's standard terms being incorporated into it. It is also clear that the parties agreed that Gregg could buy the further two coupled machines for the same agreed price that governed the sale of the first two close coupled machines so long as Gregg gave Emhart notice of its wish to buy these machines in time to enable them to be delivered before the end of 1999. In notifying Emhart of its wish to purchase these two additional machines in its purchase order dated 6 August 1999, Gregg was taking up this agreed contractual entitlement. Gregg contended that it had agreed at the meeting on 2 July 1999 to an option to buy two further machines which it had it exercised in sending out its purchase order on 6 August 1999. However, the agreement concerning these two machines was concluded at the meeting. The agreement provided a condition requiring Gregg to notify Emhart of its intention to take delivery of the machines so that the parties agreed to a conditional contract of sale rather than to an option for their purchase.
53. My conclusion is, therefore, that the third pair of coupled machines for line G1-2 were supplied pursuant to the same oral contract, entered into on 2 July 1999, that governed the first four inspection machines albeit that the agreement to supply these machines only became unconditional when Mr McMillan and Mr Roberts orally agreed to implement the conditional sale of them to Gregg.
54. It remains to consider the contractual basis upon which the installation, commissioning and after-sales work instructed by Gregg for all six machines was carried out. I have found that an oral agreement for this work was reached at the meeting held on 5 August 1999. Given the context of this agreement, coming so close after the agreement for the sale and supply of the machines, it is a reasonable and necessary inference that Mr McMillan and Mr Roberts intended this installation and commissioning work to be carried out as part of, and as an addition to, the contract of sale by which Gregg was buying the six machines to be installed and commissioned by the vendor with any necessary additional after-sales service. It follows that Gregg's third purchase order relating to this work amounted, in the same way as its first two purchase orders, to written confirmation of an already concluded oral agreement.
55. My overall conclusion is that all six machines were supplied and the installation and commissioning work was undertaken pursuant to a single contract which was made orally at the meeting held on 2 July and then subsequently confirmed in writing by Gregg's purchase order dated 6 July 1999 and Emhart's letter dated 6 July 1999. This contract was extended in its scope by the terms agreed at a meeting held on 5 August 1999. This agreement to extend the scope of the contract was confirmed by Gregg's two purchase orders dated 6 August 1999 and 9 August 1999 and by Emhart's two acknowledgements of order which were both dated 11 August 1999.
56. The answer to Issue 1 is:

"1. There was one contract for the sale of all six prism and Scanners and for their installation and commissioning."

4. Issue 2 - Incorporation of Terms

4.1. The Issue

57. Issue 2 reads:

"2. What were the express and implied terms of such contract(s)? In particular, whose standard terms (if any) were incorporated into the contract(s)?

4.2. The Issue Explained

58. The significance of this issue was, before trial, that Emhart's conditions contained wide-ranging exclusion clauses which, subject to the possible application of the Unfair Contract Terms Act 1977, were alleged by Emhart to have been incorporated into each of the contracts relating to the supply and installation of the six machines. However, Emhart no longer rely on these clauses, even if they formed part of any contract it entered into with Gregg.

4.3. Answer – Gregg's Conditions

59. Gregg contended that since the first governing purchase order had printed on its reverse ABF's conditions, the contract or contracts brought into being by that order incorporated these printed conditions. Of particular significance, and of potentially onerous nature from Emhart's point of view, were the following terms: that Gregg could require Emhart to rectify the goods or supply replacement goods or to treat the contract as being discharged by any breach of the conditions and require re-payment of the purchase price and that Emhart indemnified Gregg in respect of any damage suffered or any liability incurred arising directly or indirectly as a consequence of any breach or negligent act by Emhart, its servants or agents
60. However, as Emhart contended, all terms had been agreed at the meeting held on 2 July 1999 and nothing further remained for agreement by the time that the first purchase order was sent out. That agreement had not mentioned the Gregg standard terms and there was no reference to them on the face of the order. Thus, as a matter of construction, the terms on the reverse of the document were not, in the context of this contractual negotiation, incorporated into the contract. Moreover, those terms were onerous so far as the seller in Emhart's position was concerned and, not having been brought to Emhart's express attention, were not incorporated on that additional ground too (see AEG (UK) Ltd v Logic Resource Ltd [1996] CLC 265, CA)).
61. Since the subsequent two purchase orders did not bring any additional contract into being, the printed conditions on their reverse could not have had contractual effect. However, any possible contractual effect they might otherwise have had was obviated by these conditions not having been discussed by the parties at any time; by the absence of any reference to them on the face of the purchase orders and by Gregg's failure to draw expressly to Emhart's attention the onerous nature of the terms.

4.4. Answer – Emhart's Conditions

62. Emhart contended that its terms were incorporated into each of the three contracts it also contended for by virtue of these being referred to on the face of each of the three acknowledgements of order, each of which was the document which was instrumental in bringing the contract it referred to into being.
63. I cannot accept Emhart's contention for a number of reasons. Firstly, as I have already found, there was only one contract which came into being before any acknowledgement of order was sent out by Emhart. Secondly, the relevant terms are particularly onerous and therefore had to be expressly drawn to Gregg's attention and a copy of the wording of each onerous clause also had to be provided to it. Thirdly, the extension of the contract to include the delivery of the third pair of machines and the installation and commissioning of all six machines had been agreed to prior to Emhart sending out either of the two later acknowledgement of orders. Fourthly, the onerous terms and nature of the relevant clauses had to be expressly brought to Gregg's attention but the terms were not provided to Gregg nor was Gregg given a clear warning of their existence.

4.5. Issue 2 – Conclusion, Express Terms

64. I conclude that no terms, whether Gregg's, ABF's or Emhart's, were incorporated into any part of the contractual relationship relating to the supply and installation of all six inspection machines provided by Emhart.
65. It is also the case that even if I am wrong in concluding that the parties concluded a contractually binding agreement at the meetings held on 2 July 1999 and 5 August 1999, nonetheless no set of printed terms were incorporated into the contract. If the contract or contracts governing the Gregg/Emhart relationship for cold end equipment were concluded in writing, the contractual relationship could only have been effected by Gregg's purchase order or purchase orders or by Emhart's acknowledgement of order or acknowledgement of orders. Whatever combination of documents gave rise to the contract or contracts for this equipment, the relevant set of conditions printed on the rear of the relevant document was not incorporated into the contract that document helped to create. This is because none of these sets of conditions was ever discussed by the parties and, as a matter of construction of the relevant purchase order or acknowledgement in its contractual setting, none of these conditions were incorporated into any contract. Furthermore, none of them were intended by the parties to have contractual effect. Finally, given their potentially onerous consequences to the opposing party, none of them was ever brought to the attention of the opposing party with sufficient clarity to enable the relevant set to take contractual effect.

4.6. Issue 2 – Implied Terms

66. Given the simple nature of the contract entered into by Gregg and Emhart which was confined to a description of the goods to be supplied and their price, the parties did not contract out of sections 14(2) and 14(3) of the Sale of Goods Act 1979 as amended by the Sale and Supply of Goods Act 1994 ("SGA"). Thus, subject to my findings as to whether or not Gregg made sufficiently known to Emhart the particular purpose for which the machines were being bought, the implied terms provided for by these sections were implied into the contract. Whether Emhart had sufficient knowledge of that purpose to bring section 14(3) into play is dealt with in Issue 3.
67. Emhart was also providing installation and commissioning services and an after-sales service as a result of the agreed extension to the contract reached at the meeting held on 5 August 1999. This latter was not spelt out in any detail but was fairly and accurately described in Emhart's promotional press release put out to announce the contract to the world. This stated that:

"PLANNED MAINTENANCE & TECHNICAL SERVICE SUPPORT

The two companies are working together on a pro-active planned maintenance programme to support the new installation, and ensure that:-

Its performance is maintained at the highest level

Unplanned downtime is reduced to a minimum."

68. These services were supplied as an adjunct to the supply and delivery of complex machinery which was sold as specific goods. The services were, additionally, supplied under a contract Emhart agreed to carry out a service of installation, commissioning and after-sales servicing and maintenance as separate and discrete services from the sale of specific goods in the course of Emhart's business. In consequence, the statutory implied term was applicable that is provided for by section 13 of the Supply of Goods and Services Act 1982. This provides that where the contract is one for the supply of professional services, the services should be supplied with reasonable skill and care. An alternative approach is that the services were supplied as an adjunct to the sale of specific goods and, in consequence, the installation services were subject to the same implied terms as were applicable to that sale. Thus, the installation work should be of satisfactory quality and fit for its purpose. It is also necessary to consider whether a separate common law duty of care was taken on by Emhart in relation to these services, which is the issue to be decided as Issue 4.2 below. If such a duty arose, the statutory duty imposed on Emhart by this statutory implied term would, in the context of this case, be the same as that common law duty.
69. It follows that, unless this term was excluded from the contract by an agreement or by necessary implication as a result of the dealings or agreement of the party, there was an implied term that Emhart would exercise all reasonable skill and care in undertaking such installation, commissioning and after-sales services as were required of it under the cold end supply contract. This term was not so excluded.
70. I will also have to consider whether Gregg has sufficiently pleaded a case based on breaches of this implied term and on a breach of its alleged common law duty of care to allow it to proceed with claims for breaches of these duties and, if it has not, whether I should at this late stage allow it to amend to plead expressly breaches of these duties. Furthermore, Gregg did not expressly refer to the SGSA so any claim based on that Act need only proceed if a claim based on alleged negligence has not been pleaded. This pleading issue is considered in Issue 4(2), paragraphs 127 - 134 below. In the light of my conclusion that such a claim has been pleaded and is being pursued, it is not necessary to consider whether a separate claim based on the SGSA implied terms is pleaded or may be pursued.

4.7. Issue 2 – Overall Conclusion

71. The answer to Issue 2 is:

"2(1) No express terms, save as to a general description of the prism and Scanners and as to the price to be paid for each machine, were incorporated into the contract for the supply, installation and commissioning of the six inspection machines.

(2) In consequence, the implied terms imposed into a contract for the sale of goods or for the provision of services by virtue, respectively, of:

(a) sections 14(2) and 14(3) of the Sale of Goods Act 1979 ("SGA") as amended by the Sale and Supply of Goods Act 1994; and

(b) section 13 of the Supply of Goods and Services Act ("SGSA") 19 82

were incorporated into the contract concerned with the sale and supply of all the G1 cold end equipment and with associated installation, commissioning and after-sales' services.

(3) The incorporation of the implied term provided for by section 14(3) of the SGA in relation to the cold end equipment and by section 13 of the SGSA in relation to the supply of installation, commissioning and after-sales maintenance and related services is subject to, respectively, Issue 3 and Issue 4."

5. Issue 3 – The Contract's Intended Purpose

5.1. The Issue

72. Issue 3 reads:

"3. What was the intended purpose or use for the cold end equipment? Was this known to Emhart before entering into such contract(s)?

5.2. The Issue Explained

73. Section 14(3) of the SGA provides that where goods are sold in the course of a business and the buyer expressly or by implication makes known to the seller any particular purpose for which the goods are being bought, there is an implied term that the goods supplied are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the skill or judgment of the seller.
74. In this case, Gregg contends that it made known to Emhart or that it was or should reasonably been known to Emhart that Gregg intended to install the G1 cold end equipment in the same building as the hot end and located close to the hot end and the lehrs with no dividing wall in coiled lines so that the cold end equipment would be exposed to higher ambient temperatures and atmospheric dust and dirt than might otherwise be the case. This layout was necessitated by the limited space available at the Knottingley plant for the new cold end lines. Emhart denies that Gregg drew these intentions to its attention or that it knew that Gregg had these intentions. It also denies that Gregg relied on its skill and judgment or that it was reasonable for it to rely on Emhart's skill and judgment in relation to the suitability of the inspection machines to function in the particular hot, dirty and dusty environment that these conditions would create.

5.3. Findings of Fact

5.3.1. Gregg and Emhart's Organisation

75. The managing director of Gregg in 1999 was Mr Andrew Spencer and the other directors were Mr Tony Whitehead, the operations director, Mr Colin Walker, the financial director and Mr Ian Flockhart, the sales director. Mr Brian McMillan was the general manager and he also was a director. As general manger, he was responsible for the full operation of the business from raw material deliveries to finished product delivery. The decisions as to which hot and cold end equipment would be purchased were taken by the triumvirate comprising Mr Spencer, Mr Whitehead and Mr McMillan. The groundwork and liaison with potential suppliers was undertaken by Mr McMillan and he assumed the role of project manager for Gregg in relation to the installation, commissioning and start-up of both the hot end and cold end installations. In appraising the options for cold end equipment, Mr McMillan consulted Mr Ian Beach, the head cold end engineer. On the fact-finding trip to Elmira, Mr McMillan took with him Mr John Perry, who was a single line engineering fitter that Mr McMillan wanted to gain experience of the sort of inspection equipment Gregg was intending to install into the Knottingley plant. Mr Roberts accompanied them on the three day visit.
76. It follows that Mr McMillan was the principal who had most to do with Emhart and who conducted most of the discussions and negotiations with them on Gregg's behalf. He had, in 1999, been working in the glass container production industry for about twenty years. Initially, he worked in the technical laboratory assessing technical matters associated with the bottling operations for Distillers Co Ltd. He then worked for United Glass in various departments in the manufacturing process. He finally joined Lax & Shaw Ltd and for many years worked as a quality manager until becoming Gregg's general manager in 1995. He had acquired, in consequence, a detailed knowledge of the glass container production process.
77. Emhart's organisation was, in 1999, a small one. Mr Roberts was, at that time, its general manager and sales director. Since 1990, he had been employed by Emhart as its sales manager and, in 1994, had been promoted to general manager. During his time with Emhart, Mr Roberts had acquired an extensive understanding of Emhart equipment and its operation and of the processes, practices and operations practiced by its customers. Emhart's operation in the United Kingdom was principally that of a sales organisation with a number of engineers who were used to service, install and trouble shoot the Emhart Powers machines which were manufactured in Elmira and distributed around the world to customers of any of the Emhart Group of companies.

5.3.2. Gregg's Glass Manufacturing Line

78. The plant at Knottingley is located on a small constricted site in the middle of the village. The factory is divided into sections, each being fed from one of the two furnaces that produce the molten glass. There were, therefore two sections in operation in the late 1990s. Each section consisted of a hot end comprising IS Forming Machines and a cold end. Each IS machine was linked to its own inspection line located in the cold end. The factory containing these hot and cold ends was rectangular in shape with a triangular additional section at one side which housed the warehouse into which the pallets loaded with formed glass containers were moved once they had been stacked onto pallets on their arrival at the end of a cold end line.
79. The area into which the new hot and cold end lines were to be located was, therefore fixed, defined and confined. These overall limitations were obvious and known to Mr Roberts who had been involved with Gregg's planning of its new G1 lines from at least 1995. He had also negotiated the contract for the supply and installation of the three G1 hot end IS machines which Emhart installed in September and October 1999 and had visited the factory on a number of occasions. The contract for the hot end machines was entered into in February 1999 before any significant negotiations started for the supply of the associated cold end equipment.
80. The cold end equipment had a number of functions to perform. Essentially, it had initially to provide for the gradual reduction in temperature of the solid but very hot containers following their exit from the IS Forming machines. This process also involved the containers being annealed. This involved passing the containers on a conveyor through a long tunnel slowly with a temperature drop down the tunnel. The machine through which the containers were passed is called a lehr after the principal manufacturer of such machines. Once the containers leave the lehr, they had to be inspected in a number of ways. This process was undertaken by passing them down a moving conveyor through separate machines which could reject those failing to pass the appropriate standard being checked before they were stacked onto pallets. Emhart supplied and installed three of these machines, the squeezer, the scanner and the prism. These machines, and the order in which they were located on the line, were decided upon by Gregg and the three proposed G1 lines as planned or installed were not identical. However, the three lines, as initially installed, each contained one of the three inspection machines supplied and installed by Emhart. The other principal machine that was installed on each line was an M machine which checked for bore diameter and surface sealing integrity. Emhart also supplied a bottle spacer to space the containers at appropriate intervals prior to their entry into the inspection machines. Various other machines of less importance were also located on the line including a viewing screen at which a mirror man has to undertake a final visual inspection. The containers were then stacked by a Scharberger stacking machine at which a final inspection is also carried out.
81. The whole process as envisaged by Gregg at the planning stage involved certain obvious and understood features. I need only consider those that are potentially relevant for determining what purposes if any the cold end machines were supplied for.
82. The first and most obvious features of the process were the considerable heat and energy build up in and around the hot end machines and, to a lesser extent, around the lehrs.
83. The second feature of the Gregg plant was the inevitable close proximity of the cold end and each inspection machine to the hot end and to at least one lehr. The factory was laid out so that the top half of the rectangular area housed the hot end of both sections and the bottom half housed all the cold end lines. However, there was only a very short distance between the two ends and the available space was such that the cold end line would need to be coiled to accommodate all the inspection machines in series or, as an alternative, split down line into two parallel lines.
84. The third obvious feature of the glass container making process at Gregg was the inevitable build up in the atmosphere of grease and dirt. This problem arose because each mould was regularly coated with dope which helps to lubricate the interface between glass and mould but which evaporated in high temperatures. This will, therefore, be airborne in its evaporated state and will alight on cooler surfaces in the proximity of the hot end. Furthermore, the rapid temperature drop from hot to cold ends will allow airborne dirt inevitably generated by the IS Forming process to be transmitted towards and to alight on the cold end machines. It inevitably followed that machines close to the hot end would be subject to an amount of grease and dirt alighting on their outer surfaces and on inner surfaces to which airborne particles could gain access.
85. The fourth obvious feature of the cold end machinery being supplied for the G1 lines was that the containers that would be passing through the machinery for inspection purposes would have been formed either by the blow and blow or by the press and blow techniques since both types of IS machinery had been supplied by Emhart. This was recognised by Mr Roberts who noted in his notes of his meeting and inspection at Knottingley on 2 July 1999 when the cold end contract was finalised that the scanners were to be provided for each type of glass formation. His notes read:

(1) "Scanner 8000 … (for installation on p/b line G1.4)

(1) Scanner 8000 … (for installation on b/b line G1.1)."

"p/b" is a reference to press and blow and "b/b" to blow and blow.

5.3.3. Alpha-numeric readability tests

86. Gregg had in use on its inspection line an alpha-numeric code reader, the MSC Multi-Station. It was made clear to Mr Roberts by Mr McMillan that Gregg was looking for an alpha-numeric reading function on the scanner it was considering buying from Emhart. Thus, in an email he sent on 11 June 1999, he informed Mr Roberts that:

"We need to be able to read the MSC alpha code."

Mr Roberts confirmed that the alpha numeric reading capability of the Emhart equipment had to be at least as good as the old MSC multistation capability since otherwise there would be no point in buying the Emhart replacement equipment. In other words, the MSC alpha numeric reading function provided a benchmark for the standard required from the Emhart equipment.^[2]

87. Later in June 1999, Gregg sent Emhart samples of containers showing a wide range of quality and clarity of code-engraving. It was generally known in the glass-container making business that there was a variation in quality of such engraving on containers emerging from the IS machines, both in the blow and blow and in the press and blow processes. This was stated to be the case by Mr Henderson and accepted as a fact by Mr Roberts. ^[3] The purpose of this submission of samples was to ascertain whether engraving of the kind found in the range of qualities produced by Gregg could all be satisfactorily read. Gregg chose a range of glassware at random from the line and sent it to Emhart for testing.
88. The containers that were sent to Emhart were, as it happened, all ones that had been formed by the press and blow process but no-one at Emhart had ever suggested that the quality of such glassware was better, in its engraving, than glassware produced from the blow and blow technique and Emhart's suggestion during the trial that it was to be expected that blow and blow engraving was inevitably less readable than press and blow engraving was not something, even if correct, which affected Gregg's reliance on the test results returned by Emhart or on the suggestion in Emhart's test report that alpha numeric engraving within the range of qualities provided by Gregg was readable. Gregg assumed, and was reasonable in assuming, that there was no noticeable difference in the quality of the engraving found on either type of glassware.
89. The test report stated:

"Test summary: The containers were of various shapes and sizes. The Mould Number could be seen on ALL containers. Some of the Mould Numbers were a little faint but with the use of a filter, they could be seen with no problems. When using the filter, the inspection of the base is not compromised in any way."

The report did contain a warning that the production results were simulated and that actual results could vary depending on the actual ware being produced, the condition of the inspection equipment and the job setup quality.

90. Emhart contended that Gregg was aware, largely as a result of the test report, that a filter would be needed to ensure satisfactory results, that even with a filter, the results from ware produced in a manufacturing situation might not be read satisfactorily since very different results were possible from those obtained in test simulated conditions and that, in any case, the test results had no bearing on the blow and blow produced glassware.
91. There is no warrant for any of these conclusions. So far as Gregg was aware, Emhart was to supply inspection machinery which could provide an alpha numeric reading function for all glassware, from both forming techniques, so long as the glassware was of similar quality to that provided for testing purposes in June 1999. Although some of the glassware provided a better quality read if a filter was added, the quality of the read produced for all glassware, even that capable of being enhanced by a filter, was satisfactory.
92. In the light of these tests, Emhart was aware that one of the purposes that the inspection machines would be used for was to provide an alpha-numeric code reading capability for all glassware produced under normal manufacturing conditions from the IS machines supplied by Emhart, whether from the press and blow or from the blow and blow techniques.

5.3.4. Heat Conditions

93. Gregg contended that the inevitable consequence of the fixed parameters of the Knottingley factory layout was that the cold end equipment would potentially be exposed to higher ambient temperatures and higher levels of atmospheric dirt and grease than might otherwise be the case. Emhart denied that it had that knowledge but asserted that the premise was correct. Indeed, Emhart's case was that the ambient temperatures to which the cold end equipment it supplied would be exposed were both unusually high and outside the temperature range in which its inspection machines could satisfactorily and reliably operate.
94. In considering what knowledge Emhart had or could be considered to have had about the proposed working environment into which its inspection machines would be installed and be expected to operate, it is first necessary to consider the relationship between Emhart and Emhart Glass Inc. These are, in corporate terms, two separate entities, one based in England and the other in New York state, USA, and they are only related in as much as each is owned or controlled by a third company which is based in Switzerland. However, the machines are sold as Emhart-Powers' machines, this being the trading name of Emhart Glass Inc. Moreover, the trade literature describes them as such. Emhart ordered the machines from Emhart Glass Inc and these were no doubt supplied from the manufacturer to the English distributor under an inter-group accounting system and pursuant to a licence or other authority provided by Emhart Glass Inc. Finally, Mr McMillan visited Emhart Glass Inc and supplied samples for testing on the machines in Elmira. Moreover, throughout his discussions and negotiations with Gregg, Mr Roberts always made it clear that the machines and any after sales service would be supported by engineering, technical and other know-how provided by Emhart Glass Inc and would be able to benefit from any improved or upgraded software issued by that company in the future.
95. It follows that, for the purposes of ascertaining what knowledge the seller of these inspection machines had or is to be taken to have had as to the purpose or purposes for which they were being acquired, any knowledge gleaned by Mr Roberts in England and by those in Elmira who met Mr McMillan during his visit in May 1999 and who considered the draft proposals brought over by Mr McMillan at that time is to be taken to form part of the knowledge base acquired by the seller of the six machines in question. In purely technical terms, the knowledge was that of Emhart as the contractual seller but Emhart's knowledge included that acquired by Emhart Glass Inc who acquired its knowledge as Emhart's agent.
96. The design of the layout of the cold end lines and the selection of the machines that would be installed on the lines was in the hands of Mr McMillan and he took most of the necessary decisions that that design process involved. A brief chronology of this design process starts with Mr McMillan carrying out research into available machines over a lengthy period of time in 1997 to early 1999. This process intensified once the decision had been taken by Gregg's Board to implement phase 2 of the plant refurbishment programme, a decision taken in December 1998 when the decision was taken as to what hot end equipment would be bought.
97. Mr McMillan spent much time trying to find ways of expanding the useable space at the factory including building a second storey over the factory, building over the adjacent canal or converting the adjacent warehouse into part of the cold end. He also experimented on paper with various layouts. This feasibility work enabled him to conclude that it would not in fact be feasible for any solution to be adopted that increased the useable space. In particular, he concluded that the cold end line could not be constructed so as to run in a straight line into the existing warehouse space. The only solution was to use coiled or coiled and split cold end lines where the existing cold end inspection facilities were located. This was because of the constraints on the available space imposed by the restricted site.
98. Emhart suggested at the trial that it was very unusual for a cold end to be coiled rather than running away in a straight line from the hot end and the intervening lehr. The evidence suggested that the common approach was to adopt a straight line layout. This would be the natural and obvious way of laying out such a line in most locations where space would not be at such a premium. However, although a coiled layout may be unusual or uncommon, it is certainly adopted in some locations and Emhart never suggested, either before entering into the contract to supply the machines or subsequently, that a coiled layout was not suitable or was one that should not be adopted for a cold end line incorporating its inspection machines. I conclude that Emhart accepted in 1999 that a cold end line could, if space constraints so dictated, be coiled so that the inspection machines were in reasonable proximity to heat sources such as the IS and Lehr machines.
99. At a very early stage in this feasibility work, Gregg's Project Engineer suggested that a dividing wall could be placed between the hot and cold ends. This suggestion was discarded at a very early stage in Gregg's planning work but the proposal had been identified on early drawings with a dotted line where the wall might be located and with the notation:

"Possible dividing wall hot/cold end"

100. However, as Mr McMillan explained:

"The area concerned did not have, from about 12 feet-ish from the floor to 12 feet up, did not have a solid wall. It was the draftsman that suggested that there might be a possible dividing wall to close it down. These have been left on the drawings but very, very early in our thought process it was not going to be practical, because it was going to close even more space down, putting that wall to the floor."^[4]

101. It was suggested to Mr McMillan that Emhart were not informed of this decision to abandon the possible introduction of a wall or other heat barrier dividing the hot from the cold end. Mr McMillan emphatically rejected that suggestion. He stated:

"I had no intention of building that wall, so therefore I – I am sure I would have said that there is no intention of building the wall, even though it is on the drawing. I had absolutely no intention of doing that. As I say, it was a draftsman that in his own scope was making a suggestion."^[5]

102. I accept Mr McMillan's evidence and I find that from an early stage Gregg had abandoned any idea of building a heat barrier or wall to separate the hot from the cold end, that that intention was made known to Emhart either in discussion with Mr Roberts or at the meeting at Elmira and that Emhart accepted that decision and never sought to query it or to suggest that such a heat barrier was desirable. This conclusion is supported by the absence of any suggestion in any document emanating from Emhart that a heat barrier was suggested or that it thought that such a barrier was to be provided and the absence of any evidence to this effect from any witness it called.
103. Mr McMillan then looked at various suppliers who might supply inspection machines including MSC, Krones, St Gobain, Inex and Emhart. At an early stage in this selection process, in March 1999, he instructed an in-house draughtsman, Mr Graham Johnson, a Project Engineer. The initial layout was devised by Mr McMillan in discussion with other members of the management team and assisted technically by Mr Johnson.
104. Initially, Mr McMillan favoured the acquisition of inspection machines called multi-stations or combined inspection machines. The earliest layout drawings produced, in March 1999, showed such machines as opposed to a prism or scanner. However, Mr Roberts' efforts in salesmanship persuaded Mr McMillan to give consideration as well to Emhart's combined inspection machine and a pro-scanner. This interest led to Emhart's quotation in March 1999 which provided for both machines. There were then further discussions and it was probably during these that Mr McMillan decided, or was persuaded by Mr Roberts, to make an extended visit to Elmira to enable him to familiarise himself with and to discuss both the Emhart scanner and prism. A further Emhart machine, the TRIM machine, was also being considered since Mr Roberts was keen to promote it. This was a combined machine which included the prism, scanner, check detector and thin wall detector. The potential attraction for Mr McMillan of the scanner and prism, particularly in their paired arrangement, was their apparent flexibility, their facility for VMNR reading of alpha-numeric codes impressed on the base of glass containers and their camera dependant reading facility linked to readily programmable software which would fit in with Gregg's regular need to reprogramme the cold end lines when changing from one customer specified order to another.
105. Mr Roberts was instrumental in setting up the visit to Elmira made by both Mr McMillan and Mr Perry in the company of Mr Roberts. At Mr Roberts' suggestion, Mr McMillan took with him copies of the current proposed layout of the new cold end lines with various inspection equipment shown on it. The lehrs were also shown. Mr McMillan met a number of Emhart personnel including, in particular, Mr Beiswenger. He was Emhart's Manager of Group Communications with particular responsibility with inter-company communications and marketing within the Emhart Group. This responsibility extended to all Group promotional material, manuals and other methods of promoting Emhart products. At his meetings with Mr McMillan and Mr Roberts, much time was spent discussing the constricted space and also the problems that might arise due to the possible lack of accumulation space, being waiting areas for glass containers at various stages in the line where bottlenecks might build up. Mr Beiswenger recalls expressing concern at the possible location of the Emhart machines close to the Lehrs. Neither Mr McMillan nor Mr Roberts remembered hearing these concerns. I conclude that Mr Beiswenger did mention heat but in the context of being something which all concerned with the machines should keep in mind and in the further context of something which, notwithstanding the proposed layout at Knottingley, would not rule out use of the Emhart inspection machines.
106. The relaxed attitude that Emhart had to the proposed use of its inspection machines at Knottingley in a coiled line in a constrained space is confirmed by it sending back to Gregg after the meeting further versions of the layout drawing Gregg has supplied it with but revised to include its own machines in place of the depicted machines. These revised proposals were added to the layout of the hot and cold end lines shown on Gregg's original drawings. In one of these revised drawings, the prism on one line was shown located at the point on the line nearest to the hot end. At the trial, the Emhart witnesses suggested that Emhart has used the drawings as a footprint on which it could merely depict the machines it was offering. Mr Roberts suggested that the revised drawing amounted to no more than a substitution of Emhart machines for those originally depicted on it. However, he continued:

"It was not meant to be a final proposal in any shape or form. It was a basis of saying these would be – this is what you would buy – if you wanted to do that, what have you drawn, with Emhart equipment these would be the pieces of kit."^[6]

107. In other words, Emhart was conveying the clear message that its equipment could be used on the proposed coiled line and, subject to being subject to an unusual heat build up in a particular location that was not then identified, heat considerations did not preclude any particular location within the broad parameters shown on Gregg's feasibility footprint drawings.
108. It follows, that I am clear that Emhart were fully aware of the proposed location of any machine it was to supply, being somewhere on a coiled inspection line starting close to the accumulation area downstream of the IS Inspection machines and in close proximity to the Lehr. The precise geometry of the line and the precise location of any particular machine remained to be settled and thought needed to be given once these had been finalised as to whether heat in general or as radiated from the IS and Lehr machines would create potential problems. However, in principle, the Emhart personnel saw no difficulty in Gregg acquiring and installing Emhart inspection machines and in operating them satisfactorily wherever these were placed on the line and whatever precise location and configuration was alighted upon.
109. Following the Elmira meeting, Emhart and Gregg continued and finalised their negotiations as has already been seen. The finalised proposals for the layout of each single coiled cold end line was decided upon by Gregg without further input from Emhart. These detailed proposals included Gregg adopting a single coiled line instead of partially double coiled lines for each cold end inspection process but that alteration was one of detail and it did not affect to any significant extent how close to heat sources any particular item of Emhart inspection equipment would be located. The final location of each of the six items of plant was no nearer nor further away from potential sources of heat, including the lehrs, than the range of possible locations envisaged by Emhart as being acceptable during the May 1999 discussions that were held with Mr McMillan in Elmira.
110. Following the conclusion of the combined supply and installation contract, Emhart appointed Mr Gray to be its project leader with the job of liaising with Gregg and the supplier of the automated conveyor lines, Tecnores, to coordinate installation plans and requirements. When he arrived on site to project manage the installation and commissioning, he discovered that the layout of line G1-2 was such that the prisms and scanners were located in positions immediately adjacent to the side of the lehr. Mr Gray contended in evidence that he suggested that these machines be moved. However, this advice was given because the machines were so close to the lehr that it would have been difficult to gain access to the rear of each machine, a necessity if proper cleaning and maintenance was to be undertaken. These machines were moved to a different location on the line albeit that Mr McMillan's evidence was that this move was necessitated because the proposed location was not achievable because of the position of a structural RSJ whose position had been miscalculated when the final layout drawing was prepared.
111. Whatever the reason for the relocation of the machines, it had nothing to do with possible unacceptable heat that they would be subjected to from their being too close to the lehr. It did not strike Mr Gray, at the time that he was involved in the process of installing the machines, that their positioning was such that they would be unduly affected by heat from either the hot end or the lehrs. There was discussion at that time about the possibility of moving the machines but only in terms of moving them nearer to the lehr cold end so as to provide the rear of the machines with greater access to enable the inside of the machines to be more readily accessible for cleaning purposes. It was only in that context, and not in the context of their being affected by excessive heat from the lehrs that a possible relocation of the machines was discussed. ^[7]
112. It is clear from this factual background that Emhart was aware of the purpose for which the machines were being supplied, that that purpose was to take their place in the inspection lines proposed for installation at Gregg, being coiled lines located close to the hot end and the lehrs and that whatever working environment would result from normal usage in that location was one that is to be regarded as a purpose for which the machines were supplied. That environment included such air borne grease and dirt as would arise naturally from normal use of the hot end forming machines and normal working conditions so far as clean and tidy operations were concerned.

5.3.5. Temperature limits

113. There was never, during the pre-contract discussions, any mention of specific temperatures that should not be exceeded within or adjacent to the machines or in the external environment outside the factory. In other words, there was no mention of maximum working ambient, internal or external climatic temperatures. Indeed, the only reference to maximum temperatures was found to be on one drawing in the manual provided for the prism once the sale had been concluded. This states:

"Environmental requirements: 40(C MAX OPERATING TEMP"^[8]

114. There was, however, in existence in 1999 an European Standard, dating from 1997, which provided that:

"Ambient air temperature

Electrical equipment should be capable of operating correctly in the intended ambient air temperature. The minimum requirement for all electrical equipment is correct operation between air temperatures of +5 (C and +40 (C. For very hot environments (e.g. hot climates, steel mills, paper mills) … extra requirements may be necessary …".^[9]

115. Although these materials were neither discussed nor drawn to Gregg's attention, they appear to represent the maximum external temperature at which the Emhart machines were designed to work in and at which they should be regarded as being capable of working in. Such a maximum working environment temperature would reasonably have been expected to accord with standard European design practice. Since nothing was stated by either party about a maximum working temperature, it is to be assumed that the purpose for which the machines were supplied was one which included working in an environment where the temperature did not exceed that stipulated by the applicable design standard. It would appear that this was one which, in any case, the machines were actually designed for.

5.3.6. Conclusion – purpose of supply of inspection machines

116. Thus, the purpose for which the machines were supplied was for working in coiled cold end lines located close to the hot end and the lehrs at temperatures immediately adjacent to the machines where the air temperature around the machines did not exceed 40... C. The purpose for which the machines were supplied included the need to be able to work in the enhanced dirt and grease contaminated atmosphere adjacent to the machines resulting from the hot end and to be able to undertake alpha-numeric reading functions for bottles produced by the IS machines from both the blow and blow and push and blow techniques. These purposes were known to Emhart at the time that the contract for the sale of the machines was entered into.

5.4. Reliance

5.4.1. The Issue

117. As drafted, issue 3 does not seek an answer to a crucial question arising from Gregg's reliance on section 14(3) of the SGA. This is whether or not Gregg relied on Emhart's skill and judgment in deciding to buy the inspection equipment and, if it did, whether it was reasonable for Gregg to rely on that skill and judgment. Emhart contends both that Gregg did not rely on Emhart's skill and judgment and that, if Gregg did rely on Emhart's skill and judgment, such reliance was unreasonable. Gregg must prove that it relied on Emhart but, if it does, Emhart has the burden of proof on the second reliance issue and must show, on the balance of probabilities, that Gregg was unreasonable in relying on Emhart in relation to Gregg's expectation that the equipment would be fit for its purpose.

5.4.2. Evidence of Reliance

118. The best evidence that Gregg was relying on Emhart's skill and judgment in its selection of Emhart's inspection equipment and in its decision to enter into a contract for its acquisition is to be found in Mr Roberts' Visit Report made during and immediately following his visit to Gregg on 2 July 1999 and his meeting with Mr McMillan on that day. The Report includes this passage:

"2. Specification Requirements

Deciding factors for awarding the contract to Emhart-Powers were:

a) Handling capability for NR (non-round) containers.

b) 'Genie' software for inspection of large ring dias up to 90 mm (considered will in advance of anything else on the market).

c) Promise of Alpha-Numeric mould ID reading capacity.

d) Package price attractive, (but not lowest).

e) Local service support."

119. This minute, which was accepted as being a contemporaneous writing up of Mr Roberts' recollection of the meeting, shows that Mr McMillan had outlined reasons for selecting Emhart's equipment which were all based on his having relied on Emhart's assurances that the five qualities outlined were available in, or would be found as an adjunct to, a contract for the supply of the Emhart equipment that Emhart had been recommending and providing a quotation for. When cross examined, Mr Roberts accepted that, certainly in so far as Emhart's after sales service was concerned, Gregg relied extensively on Emhart both to provide that service and on the type of service provided and its results.^[10]
120. Emhart contended that Gregg did not rely on its expertise in deciding to buy its equipment. It pointed to the many decisions Gregg had taken as to the layout and siting of the Emhart inspection equipment, on its project management of its installation and on the use of Emhart to install and commission the equipment. Although these decisions were ones that were taken by Gregg, it still clearly relied on Emhart's expertise in the sense that it relied on Emhart's assurances that the inspection equipment could function and provide satisfactory inspection services if operated within general parameters which had been made known to it by Gregg. The particular decisions taken by Gregg as to the use and installation of the equipment were all taken within the framework of those general agreed parameters.

5.4.3. Reasonableness of Gregg's Reliance

121. Emhart asserted that it was not reasonable for Gregg to rely on it in deciding that the equipment was suitable for use within the broad and general parameters that were discussed between Mr Roberts and Mr McMillan. However, no specific reason or contention was put forward to support this assertion. The evidence was, in fact, to the contrary. Emhart, was a leading manufacturer of highly specialised equipment for use in a highly specialised niche market. Before the contract was finalised, it had played a significant role in the selection process by providing detailed literature, by providing detailed information and advice at many pre-contract meetings at the customer's premises, by providing inspection facilities of the equipment in question during a detailed visit to its manufacturing plant in Elmira, NY and to a customer's plant and by testing the proposed equipment's inspection capabilities using samples provided by the customer. All this made it both reasonable and inevitable that Gregg would rely on its skill and judgment when making the final decision to buy this equipment.

5.5. Issue 3 – Overall Conclusion

122. The answer to issue 3 is:

"3. The purpose and use for the cold end equipment was for use in conjunction with the IS machines previously supplied by Emhart for the hot end at Gregg's Knottingley plant in a layout involving a coiled cold end line located near the hot end and the lehrs without a heat or dirt insulating barrier positioned between the hot end and the cold end and where the air temperature adjacent to the equipment would be up to 40... C and where the glass containers could have been formed by either the blow and blow or the press and blow processes.

These purposes were known to Emhart before it entered into the contact for the supply of the equipment to Gregg or before any variation or amendment of that contract.

Gregg relied on Emhart's skill and judgment in deciding to buy the cold end inspection equipment from Emhart and it was reasonable for Gregg to rely on Emhart in this way."

6. Issue 4 – Duty of Care

6.1. The Issue

123. Issue 4 reads:

"4. Did Emhart assume a duty of care at common law towards Gregg & Co. and/or GAC to exercise reasonable skill and care to investigate and/or diagnose and/or remedy any defects or problems with the Cold End Equipment? If yes, is the scope of the duty such as to embrace damage of the kind which Gregg & Co and/or GAC claim to have suffered?"

6.2. The Significance of the Issue

124. The claim advanced by Gregg includes, or at least is asserted by Gregg to include, a common law claim for damages for breach of an alleged duty of care assumed by Emhart in relation to the installation and commissioning of the equipment and in the subsequent investigations, repairs, maintenance and after sales services it undertook after the inspection equipment went on line. This claim gives rise to five threshold issues which are, in the events that have occurred during the trial, covered by issue 4. These are:

(1) What is the scope of the duty and what is the nature of the breaches now alleged by Gregg?

(2) Is a claim based on the currently asserted scope of duty and its currently asserted breach pleaded?

(3) If not, may Gregg now have permission to amend so as to advance its currently asserted claim?

(4) If the currently asserted claim is, whether by original pleading or by the proposed amendment, being advanced, what duty of care, if any, was owed by Emhart to Gregg?

(5) Are the losses that are claimed of the kind that are recoverable, given the scope of the duty that was assumed?

6.3. The Scope of Duty and the Nature of the Breaches Alleged

125. Gregg asserts that Emhart assumed a duty of care to Gregg and, subsequent to an assignment to AGC of Gregg's on-going business, to AGC, to exercise reasonable skill and care in undertaking diagnostic and remedial services in connection with the cold end equipment. This duty of care is additional to that arising from section 15 of the Supply of Goods and Services Act in relation to the installation and commissioning work.^[11]The proposed amended pleading describes the alleged scope of Emhart's duty as follows:

"[Emhart], acting by its servants or agents, was negligent in and about the investigation and/or diagnosis and/or repair of the defects in the cold end equipment, as summarised under paragraph 20 above."

126. Emhart sought from Gregg particulars of the alleged negligence. In answer, Gregg pleaded that:

"Emhart committed systematic negligence in and about its attempts to respond to the problems experienced with the cold end equipment throughout the relevant period identified in paragraph 20 [of the claim]."

The particulars then provide further detail of the alleged breaches of duty. These particulars included the general allegation that Emhart failed to identify the real cause or causes of the problems and malfunctions. There was a lack of any coherent fault finding or diagnosis and a repeated response to the continuing and repeated failures on a trial and error basis amounting to a failure to exercise skill and care in attempting to deal with the obvious shortfall of the equipment in terms of its efficiency, accuracy, durability, reliability and low-maintainability. In short, the pleading alleges that Emhart voluntarily assumed a duty of care towards Gregg and Allied to exercise reasonable skill and care in undertaking repair, diagnostic and maintenance services and in advising Gregg and Allied what was wrong with the inspection equipment and what was needed to rectify it.

6.4. Whether the Claim Based on the Alleged Assumed Duty is Pleaded

127. Emhart contends that this pleading, in context, is not one which alleges a general duty of care assumed by Emhart in connection with the repair and maintenance services carried out to the cold end equipment once it had gone on-line. Emhart's contention is grounded in its assertion that the pleaded claim is not a "freestanding" claim for negligence but is a claim for an indemnity for loss incurred by Gregg from Emhart's negligence arising out of the indemnity provision Gregg contends was incorporated into the parties' contractual relationship. Emhart seeks to confine Gregg's claims in negligence in this way for two reasons. Firstly, if, as I have found, Gregg's indemnity clause was not incorporated into the contract, Gregg's negligence claim falls away altogether. Secondly, as a fall back position, Emhart had intended to contend that the indemnity clause, even if incorporated, did not on its true construction extend to acts of negligence by Emhart, its servants or agents.
128. Emhart's contentions may be summarised thus:

(1) The pleading that I have summarised is linked to the prayer for relief which merely seeks:

"(i) Damages for breach of the Cold End Supply Agreement; and/or

(ii) An Indemnity".

(2) An indemnity can only be claimed as an adjunct to a contractual indemnity clause and a claim for damages for breach of contract is intrinsically one which is based on a contractual provision.

(3) The wording of the prayer therefore excludes a common law claim for damages for negligence based on a tort or breach of a non-contractual duty even if that duty is parallel to a contractual duty provided for by the contract. By not claiming, as a third limb of its claim, a claim for damages for common law negligence, Allied has excluded such a claim from its overall claim in these proceedings.

129. Emhart supports its argument by referring to the terms of the proposed amendment now sought by Gregg. This reads:

"… at common law and/or by reason of [Gregg's clauses 2 and 12, Gregg] are entitled to damages and/or an indemnity … For the avoidance of doubt, [Gregg] aver that [Emhart] assumed responsibility to them in connection with the above steps and thereby owed a duty of care at common law. … [Gregg] claim … (2) Damages for breach of the Cold End Supply Agreement and/or negligence …".

The proposed amended additional pleading is underlined. These new passages show that the original version of the pleading did not incorporate a claim for negligence in the circumstances now found to apply, namely those where there was an underlying contract but one which did not incorporate Gregg's conditions which themselves included an indemnity clause.

130. Emhart's argument would have some merit if the debate as to the scope of Allied pleadings was being discussed in a Court of Common Pleas before the Judicature Act 1875 at a time when actions on the case were still capable of being pleaded in isolation from claims in assumpsit. However, some 200 years on, it is no longer necessary to plead the precise cause of action being relied on. A pleader must set out the primary facts contended for and then describe the nature of the relief sought. These requirements have been complied with. It is true that the relief is described as being for "an indemnity" but it is no longer true to contend that such a claim is always a contractually-based claim. A common lawyer, although not perhaps a Chancery lawyer, will frequently refer to a complete recovery or to a claim for full compensation as being an indemnity or a claim for an indemnity regardless of whether or not the claim is contractually based.
131. Furthermore, the context of the pleading is such that it is clear that the pleader was intending to extend the pleaded claim to all types of negligence, whether based on an indemnity clause, or on a wider contractually based claim based on a contractual term imposing a duty of care or on a claim based on a common law tortious duty.
132. It is clear from the terms of issue 4 of the list of issues which the parties had agreed upon as the list of contentious issues arising at the trial that for many months before the trial, both parties were preparing for trial on the basis that Gregg's claims included one based on an alleged common law duty that Emhart was in breach of. The agreed list of issues had been finalised by agreement in early June 2004, some months before trial. Emhart did not object that issue 4, which had been proposed for inclusion in the list by Gregg, did not arise for determination at all since it had not been pleaded.
133. Issue 4 included within its scope the question: "Did Emhart owe Gregg a duty at common law?" This is a question that clearly envisaged that the court would determine whether or not Emhart owed Gregg a common law duty of care so that, if it did, Gregg could base a claim on its alleged breach. This question could not have arisen at all had the common law claim not been pleaded by Gregg. It was only at the outset of the trial, that Miss Doerries on behalf of Emhart objected to the issue being dealt because a common law claim had not been pleaded. This objection was only first notified to Gregg in Emhart's counsel's written skeleton served a few days before trial. Miss Doerries had to concede that, on the basis of her submission, all that issue 4 covered was the pleading question as to whether a common law claim had been advanced on the pleadings at all.
134. It is clear that Emhart only first decided that the scope of Gregg's claim did not encompass a common law claim for damages a few days before trial having previously agreed that such a claim was being advanced and required determination.

6.5. Permission to Amend

135. Gregg's application for permission to amend was only advanced in case I was to find that its common law claim had not been pleaded. If such a claim had in fact not been pleaded, Gregg would have an overwhelming case for being granted permission to amend. Both parties had inevitably to prepare for such a claim since it clearly had been pleaded in the context of the indemnity clause relied on by Gregg, a claim which remained in issue throughout the trial. Emhart could point to no prejudice nor any cost consequences of the amendment if allowed and could only rely on the normal principle that a party will not ordinarily be allowed permission to amend its claim to add a new cause of action during the trial. However, where the amendment is solely intended to clarify a pleading which on analysis fails to plead a cause of action both parties have prepared for and have had to deal with at trial in any event, the amendment is clearly one which should be allowed and, indeed, any refusal of permission would amount to a denial of justice and an abuse of process.
136. I propose to grant Gregg permission to amend in the terms annexed to its counsel's closing submissions so as to ensure that it may advance its claim and in case my interpretation of its pleading, being that it already incorporates the proposed claim, is incorrect. The cost consequences, if any, of allowing the amendment will be dealt with in the costs order at the end of the trial if a special order is sought and granted.

6.6. What Duty of Care was Owed by Emhart to Gregg and Allied?

6.6.1. Introduction

137. In determining whether someone owed another a duty of care, it is necessary to determine whether their relationship was sufficiently proximate for a legally recognised relationship of that type to have arisen. Where it arises, that a relationship is one which is enforceable by a liability in damages if loss is caused for its breach. In order to determine whether liability can arise, the law requires, in a case of the kind alleged by Gregg, that the relationship is one in which the potential defendant, such as Emhart, voluntarily assumed a responsibility to perform that relationship with reasonable skill and care and did so in the knowledge or expectation that the other party, such as Gregg, would rely on that satisfactory performance.
138. Where a duty has been assumed and satisfactory performance of that duty has been relied upon, the relying party who alleges that it has been caused loss by mis-performance or non-performance of an assumed duty must then show, in order for it to recover damages, that its claim passes a number of separate but closely interlinked tests set by the common law. These tests are, in summary, that the defendant, in performing or omitting to perform the assumed duty in question, failed to act with reasonable skill and care; that it is fair, just and reasonable for the law to impose liability in the circumstances that occurred; that the loss in question fell within the scope of the assumed duty or responsibility and was of a type that is recoverable for the breach of duty that occurred; that the loss was caused by the relevant breach of duty and that it was reasonably foreseeable that the loss would be caused by that breach.
139. This summary of the present law is a distillation of a large number of recent authorities. It is not necessary to set them out or to cite from passages in any of the relevant judgments since there was no discernable difference between the parties in relation to the overall nature of the tests to be applied when determining whether a party such as Gregg was entitled to recover damages from a party such as Emhart. The relevant context of this claim is that it is the claim of a purchaser of complex specialist commercial equipment from a specialist manufacturer who claims that it was entitled to rely on the satisfactory performance of obligations in the form of after sales services that it alleges were voluntarily assumed by the vendor and whose mis-performance or non-performance caused it loss.
140. The parties have agreed that I should determine this common law claim in two parts. At this stage, I am to determine whether a duty was assumed and what the scope and content of that duty was. If I find for Gregg on this issue, I must then determine, as part of issue 11, whether Emhart is liable to pay damages to Gregg. That determination must include whether, in general terms, the loss that is claimed was caused by breaches of duty by Emhart and, if so, was foreseeable, recoverable in principle, within the scope of the assumed duty and caused by the breaches in question. The only questions left over for subsequent determination if they arise are as to any contributory negligence by Gregg and as to the quantification of the loss that arose and is recoverable.
141. When the issues were drafted, the claim had not been amended in the manner in which I have given permission to amend in this judgment. The terms of issue 4 does, but that of issue 11 does not, in terms cover a common law claim for damages for negligence. I shall have to address what the scope of issue 11 is in the light of the amendment when I come to that issue later in this judgment.

6.6.3. The Parties' Contentions – Existence and Scope of Duty

142. Gregg contended that Emhart assumed a duty of care as a result of the close proximity of the parties in a complex and closely inter-related contractual relationship involving the selection by Gregg of complex commercial equipment that had been designed, developed and marketed by Emhart. Gregg made its selection in reliance on Emhart's skill and judgment. Emhart then manufactured, supplied, installed and commissioned this equipment. This supply and these services were then immediately followed by Emhart assuming extensive obligations to Gregg under what Emhart chose to call a warranty. This warranty was provided voluntarily and was subsequently extended by three further successive extensions which were also voluntarily provided. The warranty period thus ran from the date the installation was completed in November 1999 until Allied brought the contractual relationship to an end in May 2002. Pursuant to the warranty or warranties Emhart provided, it undertook extensive call out, repair, replacement and fault diagnostic services. The nature of both the parties' respective roles in the selection, supply and installation of the equipment and of the services that Emhart provided under the warranty were such that the warranty services were provided under a relationship that was akin to, or was actually, contractual in nature. Furthermore, it was just and reasonable that this relationship should give rise to a duty of care.
143. The scope of the duty assumed by Emhart was extensive. It involved the provision of a call out service whereby a suitably qualified and experienced engineer would attend on site whenever one of the prisms or scanners malfunctioned, froze or could not be started up, would check to see what the immediate cause of the problem was and would replace any malfunctioning part and restart the machine. These services were not confined to malfunctioning parts supplied by Emhart but extended to any malfunction. Underlying these immediate services, Emhart also assumed a responsibility to diagnose any underlying fault or problem giving rise to an immediate fault or to a series of similar faults and to correct any inherent fault or defect in the equipment and advise Gregg on any step it should take to correct any inherent or underlying problem that was causing or had caused or contributed to any immediate or underlying fault. The scope of the services were, in summary to supply such labour, parts and advice as were needed to put the equipment into a condition in which each item could function so as to be fit for the purposes for which it was supplied and would be readily capable of being operated efficiently, reliably and regularly over its natural lifespan.
144. Emhart disputed each of these contentions. Emhart's case was that Gregg at no stage relied on it, either in relation to the selection of the particular cold end equipment Emhart supplied or in relation to any decision that that equipment was suitable or in relation to the repair and after care service it provided. The only reason that Emhart provided any after sales service was to ensure that the equipment worked satisfactorily and as a means of encouraging Gregg to make the final outstanding payment. This did not amount to an assumption of a duty to investigate or diagnose faults nor to advise on those matters. It would not be fair or reasonable to impose a duty of care on Emhart. Finally, the losses claimed are entirely economic and are hence irrecoverable since such loses can only be recovered if they flowed from negligent advice. However, Gregg do not rely on any advice, such a cause of action is not pleaded, or supported by the evidence since Emhart never gave any advice about the equipment breakdowns or about their causes or about the necessary remedial work that would be required to eliminate any inherent faults in the equipment.

6.6.4. The Evidence

145. I have already dealt with and made findings as to the reliance that Gregg placed on Emhart when Emhart was using its expertise in recommending to Gregg what prism and scanner models Gregg should acquire.^[12] That reliance was particularly shown by what was said by Gregg's representative, Mr McMillan, at the meeting with Mr Roberts that immediately preceded the contract, being the meeting that was held on 2 July 1999. The particular feature of Emhart's customer care service that was mentioned by Gregg's representative at that meeting as being both attractive to Gregg and determinative of Emhart being awarded the contract was the fact that Emhart would be providing local service support once the inspection equipment went on line.
146. Gregg also drew attention to the terms of brochures that it had been shown by Emhart before the contract was entered into that extolled the benefits of both the equipment and the related services that Emhart would supply with the equipment. For example, the Scanner brochure concluded its exposition of the virtues of that equipment with this statement:

"All Scanner systems integrate with the Emhart Glass Total Inspection Machines (TIM), and are backed by a one year warranty and Emhart Glass' renowned customer service and operator training."

Gregg had been particularly impressed by Emhart's promotional literature which stressed the particular qualities of Emhart's inspection machines and by the promise of being able to call on Emhart's engineers if necessary. Emhart's English operation was based in Doncaster which was only a 20-minute drive away from Knottingley and the prospect of a swift on-site service was particularly attractive for Mr McMillan. Emhart was itself aware of its attractions to customers such as Gregg since it issued a press release after winning the Gregg orders which described itself as the "World's leading supplier of glass container forming and inspection equipment" and as the "World's leading supplier of machinery, parts and services to the glass industry".

147. Once the equipment went on line and started to malfunction, Gregg would telephone Emhart who would send down an engineer to see what was wrong. If a part needed replacing, this would be done free of charge. This service was provided as part of Emhart's warranty service already referred to. This service extended to failures which were not normal warranty failures. The number of callouts was so great that it often swamped Emhart's resources for appreciable periods of time. The callouts, which were often on an almost daily or weekly basis, were made by Gregg on the basis that: "this machinery is new, it is not working, come and fix it." Gregg was continually asking Emhart to find the cause of the repeated breakdowns and Emhart kept on attempting to do so, even though evidence emerged during the extended period of the warranty that this after sales service was being provided although the problems being encountered were not principally related to component failure and replacement, the usual service provided by the warranty service offered by Emhart.
148. Emhart continued to supply replacement parts free of charge after the extended warranty period had expired. Emhart did not charge for these visits and Emhart felt it its duty to continue to send engineers free of charge and to replace free of charge in an effort to try and get the equipment to work.
149. The original warranty was never issued in any formal document and its wording was never provided to Gregg. Indeed, there did not appear to be any such document or wording. Emhart appears to have offered an after sales service which it referred to as a warranty. This it clearly provided, not as part of a legally binding commitment but as a commercial add on to the sales of its equipment. The service consisted of the services of an engineer who was qualified and experienced in the prism and scanner, both in terms of how these items were put together and in fault trouble shooting, detection and eradication. Although this service was clearly intended principally to provide a parts replacement service when parts malfunctioned, it was never confined to this, and in Gregg's case from the outset extended to diagnostic, remedial and replacement services for all faults, stoppages and breakdowns, even those which were obviously the result of operator error.
150. The warranty was extended twice. It was initially extended on 15 November 2000 when Mr Roberts wrote to Mr Whitehead and stated:

"Warranty Extension

In view of the reliability problems you have experienced over the past 12 months, we agree to extend the warranty period for a further six months (minimum); the situation to be reviewed end-May 2001."

This extension was provided unilaterally in view of the continuing problems that the inspection equipment was experiencing.

151. The warranty was further extended for a period of 6 months in May 2001. There was no formal statement to that effect but the parties acted on that basis following Mr Roberts' letter to Mr Spencer on 17 May 2001 which stated:

"As you are aware, I wrote to Mr A Whitehead on 15 November 2000 with a set of proposals to try and resolve the outstanding issues between the two companies.

Whilst we have had a number of discussions and meetings since that date, and we have unilaterally extended the warranty on the installed equipment for a further six months, unfortunately we have never received a formal response to these proposals.

The extension to the warranty period is now coming to a close as of 31 May 2001, and it is, therefore, essential that we draw a line under this project as quickly as possible. Other than routine maintenance and training issues, it is our understanding that all the equipment is now running reliably and efficiently, and has been for many months. Nevertheless, to ensure that there are no problems still festering, it is our intention to carry out a final audit of the equipment prior to expiry of the warranty agreement. We will arrange this separately with the co-operation of the factory, in the coming days.

Of most immediate concern, however, is the fact that Allied Glass are still with-holding payment of £256,590.63, being the amount owed for the two last-supplied inspection machines … This equipment has been installed and running since the new shop was commissioned in November 1999, and irrespective of any other claims which you may have, we can see no reason for with-holding payment of these two machines.

… Our commitment to supporting the installed equipment at Knottingley (and now Leeds), is undiminished, and we want to work with you to ensure the success of the operations."

152. The extension of the warranty for a further six months that resulted from that letter was explained by Mr Roberts as having been unilaterally offered because he wanted to try and resolve the outstanding dispute between Gregg and Emhart. Although Emhart had been visiting Gregg's premises on a regular basis for 18 months since November 1999, and considered that it had dealt with all the recurring problems concerning the reliable and continuous functioning of the cold end inspection equipment, Gregg remained dissatisfied with the performance of these machines and was still withholding a large sum of money from their purchase price. Mr Roberts stated that he adopted a conciliatory approach and that involved attempting to come to a mutually acceptable solution for both parties. This approach was dictated by the fact that there were undoubtedly problems with the operation and functioning of the machines, regardless of who was right or wrong.
153. Mr Roberts summarised Emhart's position at that time as follows:

"… I think right through that period we had maybe wrongly given the benefit of the doubt to the customer right the way through, that we were reacting to failures of parts without really knowing what the – or getting to the bottom of what the root cause was. As I say, given the benefit of the doubt and hoping to come to a commercial solution which was acceptable to both sides.

Q. Yes. The reason why you extended the warranty unilaterally for a further six months was because you knew that problems had emerged in respect of the cold end equipment right from the beginning and had not been solved within 12 months?

A. There were recurring problems.

Q. A part of the complaint of Allied Glass to you was that you could not find the root cause of them and they kept recurring?

A. Yes, but I think by this time evidence was emerging, or had emerged, that there were other than straight component reliability problems. There was the evidence by that time of things getting filthy; there was evidence that the electronics had been cut and, you know, by this time we are saying: "enough is enough, we are not giving you any more."^[13]

154. Mr Roberts accepted that, although he considered that, by May 2001, "enough is enough", Emhart continued to send in engineers free of charge and to replace parts free of charge in an effort to try and get the equipment to work as it was supposed to. This was a unilateral decision taken by Emhart knowing that Gregg was relying on Emhart to provide this continuing service.
155. A more limited warranty was provided at the end of the second extended period. This warranty, provided in an email from Mr Roberts to Mr Spencer dated 3 January 2002, offered to extend the warranty on the electronics of the machines for a further period of 12 months. This was offered in part because the outstanding balance of the purchase price remained unpaid. The email stated:

"The challenge now, of course, is to make sure that the machines keep running reliably, and we offer to assist in whatever way we can to maintain the momentum, be it in the way of a maintenance contract, additional training or combination of both. If you are interested, we will be pleased to discuss the terms of the content of a working agreement at your earliest convenience."

No formal contract for maintenance or training materialised but Emhart continued to provide the services of its engineers on a call out basis for some months until the contractual relationship was terminated by Allied in May 2002.

6.6.5. Conclusion – Existence of Duty

156. In the light of that history, it is clear that Emhart did assume a duty to provide repair and diagnostic services to Gregg, that it was reasonable for it to be held liable if those services were not supplied with due skill and care and that the scope of those services extended to providing a trouble shooting, fault detection and repair service. The terms of the brochure and the warranty extension notifications are sufficient evidence of that assumption of the duty and the background to the contract and of the warranty service advertised by Emhart make the imposition of legal liability if there is a breach of the duty fair. The warranty service is as near to a contractual relationship as it is possible to get and, given the linkage between the continued and wide ranging nature of that service and Emhart's attempts to obtain its outstanding payment, the service was probably contractually based.
157. Emhart contended that such service as it provided was limited to a parts replacement service and did not include the provision of advice. However, the evidence and the documents belie both parts of that submission. Mr Roberts freely admitted that Emhart was providing a diagnostic service and was not limiting its activities to the replacement of malfunctioning parts. The purpose of diagnosing the cause of a fault or stoppage was to enable Emhart to advise Gregg what was causing particular types of malfunction, such as locking up or screen freezing, and also to advise what could be done to reduce or eliminate that type of defect. For example, Emhart advised that those who were being used to set up the software at the beginning of a particular run should obtain further training from Emhart. That suggestion amounted to advice of the kind, which if negligently erroneous, could clearly give rise to a claim for damages.
158. I conclude that Emhart assumed a duty of care to provide diagnostic, maintenance, part replacement and repair services. Such services included a duty to advise Gregg as to any fault, whether resulting from design, manufacture or operating and on any appropriate measures needed to rectify that fault. If the underlying fault of a particular recurring defect was the excessively hot environment in which the equipment had been located, it would undoubtedly have been Emhart's duty to bring that to Gregg's attention and to suggest remedies or palliatives which could reduce the thermal impact on the equipment to tolerable levels.

6.6.7. Allied Glass's Position

159. It is necessary to consider Allied Glass's position since it would not necessarily follow that it was owed the same duty as Gregg was owed merely because it became a successor to Gregg in contractual terms or in terms of taking over Gregg's business. The management buyout and assignment of Gregg's business occurred by virtue of a business transfer agreement dated 18 September 2000 between Gregg and Allied. Mr Roberts was aware from March 2000 that Gregg was going to merge with a new company, being Allied, that Gregg would cease to trade independently and that the operation and business would be taken over by Allied. These proposed changes made no difference to Emhart and Mr Roberts acknowledged that Allied was Emhart's customer who had stepped into Gregg's shoes.^[14]After the merger and transfer, Emhart looked to Allied for the payment of the long outstanding and overdue balance of the contract sum that was still being withheld, as Gregg and Allied saw it, as a set-off against the claims that first Gregg and then Allied had against Emhart.
160. It follows that Emhart redirected its services to Allied Glass in September 2000 and from that date regarded its obligations as surviving but in favour of Allied. Emhart has not pleaded that any common law damages that would have been recoverably by Gregg may now not be recovered by Allied but since both companies are parties to these proceedings, it makes no difference save that only one of them may recover the losses that were incurred before the business transfer.
161. 6.8. Losses recoverable
162. Gregg has identified its losses as being largely economic in nature. The consequence of the defects complained of was that the equipment, or particular parts of it were either not functioning when glassware was coming down the cold end line or were malfunctioning so that defects and other qualities being inspected were not detected. This allegedly lead to Gregg losing orders and profits on sales and incurring the costs of manually inspecting glassware during periods when the cold end line inspection equipment was not working or working properly; of manually re-sorting quarantined ware which had passed down the line but whose quality could not be ensured given the unreliable inspection equipment; and of lost managerial time and other costs incurred in mitigation of greater losses that would otherwise occur.
163. Two objections in principle are raised by Emhart in relation to these claims. Firstly, it is contended that these losses were outside the scope of Emhart's voluntarily adopted duty and were unforeseeable and secondly that the loss is purely economic and is, therefore not recoverable since, on ordinary principles, such loss can only be recovered when the duty broken was in the nature of an advice-giving duty. Other duties, when broken, it was asserted could only give rise to a claim for damages when physical damage had been caused by the relevant breaches.
164. None of these objections are sustainable. This is for these reasons:

(1) The scope of the duty clearly included the provision of engineering services to diagnose the causes of faults and the reason why particular types of fault were reoccurring; to replace faulty parts; to service and clean the equipment during any repair work; to repair any part requiring repair; to advise Gregg on any errors it was committing or of any step it could take so that Gregg could take avoiding action for the future and to give such additional advice as to training, operation, maintenance, care or location as would assist in such future avoiding action. The types of loss, flowing directly from equipment down time and malfunctioning, are therefore within the scope of Emhart's assumed duty.

(2) Since Emhart was well aware of the purpose of the machines and the consequences to Gregg of repeated malfunction, namely the need to find alternative means of inspection and quality control whilst the inspection equipment was down, the types of loss that were incurred were reasonably foreseeable.

(3) The loss is, in part, loss flowing from the repair of defects, which is physical loss, or is allegedly loss flowing from a failure to provide appropriate diagnostic services which inevitably means services of an advice-giving nature. Gregg expressly plead that Emhart owed duties related to the diagnosis of faults which, in context, means advice-giving services. Thus, in principle, all heads of loss appear to be recoverable.

165. It follows that, subject to proof of breach, causation, mitigation and loss, the heads of loss that are claimed are in principle recoverable.

6.7. Overall Conclusions – Issue 4

166. The answer to issue 4 is:

"1. Emhart voluntarily assumed a duty of care owed to both Gregg and Allied that it would, with reasonable skill and care, provide diagnostic, remedial, part replacement and repair services in relation to the faults in the equipment and in its operation that were brought to its attention irrespective of the cause or responsibility for those faults and would bring to Gregg's attention both the cause of any fault and any measure or training that Gregg could take so as to eliminate or reduce the further incidents of that fault or of faults of the relevant type.

167. The relevant duty of care and its alleged breach are sufficiently pleaded but Gregg and Allied have permission to amend the particulars of claim in the form annexed to their closing written submission so as to clarify and confirm that this duty of care is being relied upon.
168. The heads of loss claimed by Gregg and Allied are both reasonably foreseeable and within the scope of Emhart's assumed duty."

7. Outline of Evidence and Summary of Background Facts

7.1. Introduction

169. The parties introduced a considerable volume of both written and oral evidence in order to enable the court to decide on the primary facts. The dispute requires the court to determine the following matters in order to determine what, if any, breaches of contract and duty occurred:

(1) What problems were experienced and when and over what period of time did these occur?

(2) What deficiencies in the machines caused the identified problems?

(3) What caused these deficiencies and which of those deficiencies and their causes was Gregg responsible for?

(4) In the light of the answers to each of these three series of questions, was Emhart in breach of (a) contractual implied terms imposed by the Sale of Goods Act; and (b) duty?

170. These questions list out what must be ascertained before any relevant breaches of contract or duty can be identified. The starting point is to identify what problems the operators of the machines experienced. These problems included such matters as screen freezing and loss of dimensional functions. Once these problems have been identified, it is necessary to determine what default or deficiency in the machine or in its operation or setting up caused each problem. Suggested deficiencies included such matters as inadequate ventilation into the cabinets of the machinery or into the factory, inadequate light sources, component failure or ill-defined engraved alpha-numeric characters onto the base of glassware. It is then necessary to decide what caused these deficiencies and who was responsible for them. Suggested causes were excessive temperature build-up within the cabinets, for which Emhart was responsible, and in the factory, for which Gregg was responsible. Finally, it is necessary to decide whether the problems complained of were matters constituting deficient quality or unfitness that had arisen due to deficiencies in the machinery for which Emhart was responsible.
171. It is not immediately obvious why all these questions need to be answered since the causes of action that Gregg relies on are concerned with the fitness for purpose, quality and merchantability of the machines when they were delivered and on the quality of the call out service provided by Emhart once they had been commissioned. The contractual questions involve a consideration of the machines' functionality, reliability and usability and of whether the machines were able to provide these qualities in the particular circumstances that applied to Gregg's glassware and manufacturing process. For industrial plant, these questions would normally be answered by evidence obtained from inspections and tests of the machines undertaken at the time of delivery without considering their subsequent operating history over an extended period of time. However, in this case, the machines were effectively being operated on a trial and error basis for over two years after they had been commissioned and Gregg relies on this extensive operational history as evidence of their poor quality and unfitness. In turn, Emhart, as the supplier, challenges all the evidence relied on by Gregg on a variety of grounds, namely that it is greatly exaggerated; that it is not evidence of either poor quality or unfitness but is instead evidence of operator and operational errors; and that the machine deficiencies that it identifies were not significant enough to constitute breaches of the Sale of Goods Act implied terms that Gregg relies on.
172. It is for these reasons that so much evidence about the problems experienced in operating the machines and as to the causes and responsibility for these problems became relevant. Furthermore, the machines' operational history had to be examined in order to determine whether Gregg had made out its alternative case based on alleged breaches of Emhart's duty of care in providing an extensive after sales service.
173. Before addressing each of these questions in turn, it is helpful to summarise how the Knottingley factory worked; to describe in detail the two relevant pieces of equipment, the prism and the scanner and how they were operated, particularly the history of their installation and commissioning; to provide a summary of the history of the Emhart equipment between 1999 and 2002; and to summarise the evidence of the witnesses who gave evidence at the trial.

7.2. The Knottingley Factory

171. The Knottingley workforce is a small but dedicated team and, in the main, long serving one. This has the effect that the work that has to be undertaken is efficiently undertaken with a small but dedicated team working in shifts. The production of glassware is undertaken on a 24/7 basis and the hot end and cold end shifts are kept separate. Each operative is allocated to a shift and remains with that shift so that a team spirit is built up. There are therefore a number of dedicated shifts and the shifts are rotated so that an individual works a 12-hour shift, sometimes a night and sometimes a day shift. An advantage of this system to the operatives is that they work a series of shifts in quick succession and then get a relatively lengthy break. It also means that no-one regularly works nights or weekends. In addition to the shifts, a separate engineering team work on a regular dayshift.

174. Each shift will have a Shift Leader who is responsible for monitoring and supervising production during a shift and for drafting shift reports stating what has happened during a shift and enabling the production run to be passed over to whoever took over from him as Shift Leader of the succeeding shift. Each shift will include in the team at least one shift fitter whose primary role was to keep the equipment, including the scanners and prisms, running, particularly if they got jammed or otherwise ceased to function as well as doing routine on the job maintenance and cleaning work on the machines. The court heard evidence from Mr Henderson and his Process Manager, Mr Edwards at managerial level, Mr Bain a shift manager at shop floor managerial level and from two engineering fitters who had some experience of shift work.
175. The shop floor is and was from April 2000, under the direct control of Mr Alan Henderson. He graduated in 1996 with a degree in Industrial Studies and joined Gregg on completion of his degree as a graduate trainee. His industry and ability to lead inspection and manufacturing teams led to his rapid promotion, first to Batch and Furnace Manager, then as a member of the rebuilding team and then, in early 2000, working under Mr Whitehead, the Operations Director, on production. Soon afterwards, he was promoted again to Head of Operations. He remains in this post although he was further promoted to the Board on becoming a Director of Allied in December 2002.
176. Every day, on a twice daily basis, Mr Henderson or whoever was on duty as Head of Operations, chaired a production meeting on the shop floor to discuss products, production targets, efficiency data and inspection and quality control issues and downtime for the forthcoming shifts. This meeting is intended to monitor production and other targets and to sort out any existing or foreseeable problems in the production process. It is attended by the available and current shift leaders who bring to the meeting up to the minute information about production rates from each line and about any contemporary problems. The meeting is also attended by the Head of Engineering. At the meeting, any immediately intended changes in the product currently being produced through the hot and cold ends are notified and any changeover requirements are discussed.
177. The factory produces a large number of different glassware, whether bottles or jars. Some of the products are produced in large quantities on a regular basis for repeat orders and some are smaller in quantity and even consist of a one-off order. Thus, on a regular but intermittent basis, the set up of each IS Forming machine and its associated cold end line has to be changed, including the moulds, to allow for the next run to be started. This involves the production run ceasing and for the various machines to be reset and reprogrammed. Whilst this is undertaken, routine maintenance and cleaning is also undertaken. The complete change over from the termination of one run to the start up of the next is achieved in a matter of four to six hours if undertaken without a break or breakdown.
178. If the cold end is running smoothly, very little regular manual intervention is required. The glassware is moved by conveyor from the IS forming machine and is then stacked into the annealing lehr. It then travels through this lehr and exits to the accumulation table before being passed along the cold end through the various inspection machines until it reaches the palletiser and is stacked on pallets before being trucked to the dispatch area. On the three cold end lines that I am concerned with, the principal inspection machines were, in the order in which the glassware passed through them, the Emhart squeeze tester with an Emhart spacer to ensure that the required distance is kept between individual glass containers, the dual head gauger, the SGCC M Machine, the Emhart Scanner with its associated Qualitrac Monitor, the Emhart Prism paired to the Scanner, the Cintex Metal Detector, the viewing screen and the Scharberger Palletiser with Stacker. The sequence is not identical and this one is the current set up for line G1-1.
179. The inspection machines are programmed to reject any glass container whose particular feature being inspected falls outside pre-programmed parameters. The rejection is achieved by the particular piece being pushed or blown off the line into bins. However, following the difficulties experienced once the new inspection machines had been installed, as an additional check, a visual check is undertaken by a mirror man sitting in front of the viewing screen who carefully watches each glass container as it passes across the screen and who picks out any container which looks suspect in any way. When the line is set up, the built in computer for the Qualitrac monitor and the scanner and prism have to be reset with the data for the next glassware to be produced. This data is then programmed by the software and the machine will then accordingly accept or reject each glass container passing through it. The only manual intervention required on a regular basis is when the glassware is being hand packed but operatives regularly watch each stage of the line and are ready to intervene to sort out any batching or disconformities in the line, to clear any jams that occur, to watch for any irregularity in the rates of rejection and to be on hand to clear any breakdown, down time or setting difficulty.
180. Each shift has operatives who have been trained and are experienced in the operation, setting up and cleaning of, and the routine maintenance operations needed for, Emhart's scanner and prism. Whenever the line product is changed, these particular operatives will change the set up and undertake the routine cleaning and maintenance of these machines. One experienced operative can usually undertake all necessary tasks and set up changes on the scanner and a separate operative similarly on the prism in the four-hour gap between a line ceasing production and starting up again with the next product.
181. The Knottingley plant has a fully functioning and trained engineering department. The Head of Engineering has been, since April 2000, Mr James Davenport. Currently, he reports directly to the Managing Director, Mr Andrew Spencer. Beneath him is Mr Tony Pawinski, who is responsible for the cold end projects. Until she left for an unrelated career in Local Government after the dispute had crystallised, was Ms Helen Pool who was also a Cold End Project Engineer and Head of Cold End Single Line Maintenance. Beneath Ms Pool were a team of Engineering supervisors and fitters. Detailed evidence was given by Mr Davenport and Mr Pawinski at a managerial level, Ms Pool at an on-site managerial level, Mr Baugh at charge hand level and Mr Perry and Mr Wood at fitter level. The function of the Engineering Department was to provide engineering and technical support to the equipment, to change parts, order spares, attend to breakdowns and undertake the regular and routine maintenance that was needed on every piece of equipment.
182. These two sources, the shift team and the engineering department, provided two separate sources of documents. The shift reports were produced by the shift leader at the end of his shift. The purpose of the shift report was primarily to hand on to the next shift any information about the closing shift and any event or occurrence during the shift which the next shift needed to know. The report would particularly focus on the performance of the equipment to assist the next shift in optimising its production output and minimising interruptions and production shortfalls during the next shift. The engineers maintained logs of the work they had done during the day. These were not systematically maintained and included much information not directly relevant to the defects and shortcomings in the machines or to the causes of stoppages and breakdowns.
183. Thus, these documents provided only a partial account of breakdowns and stoppages and an even sparser analysis of the underlying causes of those events. Many stoppages and freezes were not recorded at all in the shift reports and those breakdowns that were recorded in the engineers' logs were not all recorded in any detail. However, these two sources of data, particularly when taken with production records and other contemporary documentation, complaint reports and other reports, provided a full record of the performance of the scanners and prisms.

7.3. Emhart

184. The English Emhart company was a small operation. Mr Roberts was its General Manager and Sales Director and he was always the point of contact between Gregg and Emhart. Working directly under him and reporting to him were a number of engineers who provided the after sales support to Emhart's English customers although they were often called to attend overseas to assist in Emhart's world-wide operations. Two engineers in particular were involved with the cold end plant at Knottingley. The first was Mr Tim Gray whose roles of installing and commissioning the cold end machinery, troubleshooting and training Gregg personnel initially extended to both the Scanner and the Prism but, from January 2001, the work on the Prism was undertaken by a second engineer, Mr Gavin Clarke. Mr Clarke was made redundant in early 2002 and Mr Gray resumed the dual role he had initially fulfilled.
185. From time to time, the Emhart personnel contacted individual personnel in Elmira to obtain information or advice with regard to particular problems and to arrange for particular parts to be sent over to Doncaster for installation into the cold end machinery. These approaches were made, in particular, when software, camera or lighting problems reoccurred. These approaches to Elmira personnel were also made when an apparently generic problem arose, such as the difficulty that Gregg continuously had with the VMNR Reader function until a Fresnel lens was developed in late 2000. When the situation deteriorated and in order to undertake a much more detailed inspection, testing or audit of the cold end machinery, an individual from Elmira would visit the Knottingley plant. These visitors included Mr Autieri in November 1999 and March 2000, Mr Shultz in September 2000 and Mr Nasakaitis in December 2001. Training of Gregg Engineers was undertaken, on occasion on site at Knottingley, at Doncaster and in Elmira.
186. The overall conclusion is that Emhart Glass in Elmira operated in practice as the holding company of a Group which included Emhart based in Doncaster and that the operations, technical know-how and support services on offer were provided by the Group using whoever was best suited or most conveniently located at the time a particular problem or piece of troubleshooting was required.

7.4. The Scanner and Prism

7.4.1. The Production Process

187. The glassware manufacturing process occurs in five stages. The raw materials are batched and mixed; these materials are then heated in a furnace and the molten glass is then formed in IS Forming machines into glassware shapes. These are then annealed and inspected in the cold end before being palletised and dispatched.
188. The IS or Individual Section machines are comprised of a number of individual sections holding the blank moulds. Gobs of molten glass are dropped into these moulds. The faces of the moulds are regularly coated with swab dope to provide a lubricated glass to metal interface. The dope is an oily substance which is regularly vaporised and results in oily vapour being conducted by thermal conductivity towards and into the cold end of the plant. The two processes, blow and blow and press and blow, are two different methods of placing the molten glass into the mould so as to form a parison or molten glass article about 2/3 of the length of the formed article and, from that formation, to form the article. In this process, the engraved cavities in the mould are filled with molten glass to form the engravings on the bottom of the glassware.
189. Because the blow and blow technique has a tendency to create a colder and more viscous outer skin of the parison where it interfaces with the engraved cavities, there is a tendency for glassware produced from the blow and blow process to have less well defined alpha numeric codes engraved on the bottom of the glassware than result from the press and blow process. However, the inspection equipment that had been installed previously and which was being replaced by the Emhart scanners had no difficulty reading alpha numeric coding on glassware produced from both processes and at no stage did Emhart suggest, until preparing for this litigation, that there might be a difficulty reading blow and blow formed glassware. The only reference to readability problems that Emhart ever made in anything sent to Gregg had been included in the July 1999 test report which stated that some of the mould numbers (without specifying which) were a little faint but that, with the use of a filter, these faint specimens could be seen with no problems. The samples that Gregg had sent for testing contained a range of qualities of alpha numeric numbers that ranged from those with sharply defined and well formed numbers to those with poor quality numbers. As it happened, and by coincidence, all the samples that had been sent had been taken from the G1-4 line and were, therefore, those formed by the potentially clearer press and blow process, in terms of alpha numeric code definition.
190. However, Emhart did not specify limits or minimum standards for the quality of the engraving of the alpha numeric numbers that Gregg had to meet if the scanner was to be able to read them during the inspection process. Moreover, Emhart did not warn Gregg that blow and blow formed glassware would or could give rise to a scanning difficulty because the alpha numeric code engraved on the glassware formed by that process was, or might be, less easy to read than its press and blow counterpart. Finally, Emhart did not indicate in the July 1999 test report or elsewhere that the filter which the report referred to as having assisted in the scanning process during the tests was not a built-in feature of the scanner but was, if it was to be used at all, a piece of dark paper that was to be sellotaped into the scanner by the user in a Heath Robinson manner. Mr McMillan, on reading the test report, and being unaware of the potential difference in readability of alpha numeric codes formed by the blow and blow process compared with the push and blow formations, thought that the report's reference to a filter was to a built-in feature of the scanner supplied by Emhart.

7.4.2. The Lehr

191. The hot but solid glassware, having passed out of the IS Forming machine, moves into the cold end and is passed into the lehr. The glassware is, at its point of entry into this annealing facility, at a temperature of about 500... C and it passes through the lehr tunnel in rows, leaving at about 100( C. The lehr is shaped like a tunnel with burners within it providing the necessary thermal input. The lehr walls are thermally insulated so that although the air temperature outside but immediately adjacent to the lehr is raised from other parts of the cold end line, that increased temperature is not more than a few degrees (C, that increased temperature is very localised and was not sufficiently marked that anyone has measured it or ascertained the area around the lehrs affected by enhanced temperatures or the increased effects of radiant or conducted heat.

7.4.3. Cold End Lines

192. The glass containers were set to pass down the conveyor inspection lines at a rate within the range of 150 – to 300 containers per minute. This compares with the stated upper limit for the scanner referred to in the 1998 Emhart brochure "Scanner TM Series Base & Sealing Surface Inspectors (TW1574/98)" as being designed to make glass container inspection accurate and easy at speeds up to 800 containers per minute so that the Knottingley speeds were well within the stated design capability of the scanner and, by inference, the prisms with which each scanner was paired.
193. The scanner and prism were sold as a paired or closed coupled set of machines and these were located side by side on the inspection line. The sequence was immaterial but the scanner and Qualitrac machine was installed upside of the prism. The close coupled pair of machines, the scanner and the prism, required the spacing of the containers passing through them on the conveyor line to be carefully spaced. This was achieved by use of a bottle spacer located upstream of the scanner which ensured, by mechanical means using appropriately sized preselected spacer wheels, that the preset spacing between containers was achieved. Each of the two machines was also provided with a bypass conveyor or line which could be activated if its associated machine broke down or started to malfunction. In such circumstances, the bypass line could be activated and the containers rerouted around the machine. This ensured that a breakdown within the machine did not cause the line to stop and production on that line to cease. The encoder is mounted to the conveyor and is the timing device which regulates the timing of the various functions performed by the machine such as when to reject a container that has been shown to be faulty.

7.4.4. Scanners

194. This machine combined the Qualitrac console and the Scanner 8000 Base and Sealing Surface Inspector. These were supplied as two conjoined pieces of equipment. The scanner was sold as being a multifunction vision based inspection machine using carefully directed light sources that were directed through or across relevant surfaces of the glassware, a camera to capture the resulting light intensity. The image was scanned using a pre-programmed Genie software package and the defects were identified by darker patterns on the image identified. Similarly, the alpha-numeric code was read and the readings passed to the Qualitrac system which could be programmed to reject glassware produced from particular moulds or other user-entered criteria. The Qualitrac system was located in the adjacent console which houses the computer electronics, hard drive and floppy disc drive.
195. The scanner therefore consisted of a closely intertwined set of light sources, cameras, image readers and a computer with its associated hardware and software. Since the machine is very light-sensitive, all optical or light-touched surfaces must be made and kept scrupulously clean since any dirt or other source of light interference will interfere with the scanning functions of the machine. Similarly, since the heat generated by the light sources is intense and the machine is tightly encased, it is necessary to find ways of keeping the electronics, particularly those directly associated with the computer functions, cool since these are heat sensitive. This requirement is particularly so given the intended use of the machines on a shop floor where the associated manufacturing process is generating so much heat and energy.
196. The scanner had three functions: to inspect the base and sealing surface of each container for defects and to read the mould number engraved in alpha-numeric or dot code on its base. The base inspection and VMNR ("Vision Mould Number Reader") functions were designed to be undertaken using a single light source and camera. The strobed high intensity light source was directed through the base of the container and the resulting image is captured by the camera. The image that was captured detected faults and enabled the number reading function to be carried out because it identified transitions from light to dark areas which were created by imperfections in the base or by the engraved numbers on the base. Dirt on the base surface created an image of an apparent defect. The camera was adjustable for height with a zoom lens so as to accommodate different sized and shaped containers. The image was captured and was then analysed using software algorithms provided for in the Genie software package. These algorithms had already recorded the pass and fail parameters which had been set by the operator using the touch screen. If the alpha-numeric or dot image or the base image was indistinct or distorted by dirt on the surface of the lens or light source, the programmed software could not distinguish between normal bottle features and faults nor could it analyse and read the code.
197. The complaints about the scanner were that the use of a single light source and camera for the dual base inspection and base code reading functions was a design fault because the light source was insufficiently intense to be able to fulfil both functions. Two light sources and cameras were said to be needed. The other defects, in broad terms, were defects in various components, such as the motorized lens control, the host CPU and various electrical components; screen freezing and locking up; and speed control problems affecting the speed of the conveyor belts.
198. The Emhart Scanner brochure described the base inspection facility of that machine to be "highly specialized" and as using "advanced algorithms". The emphasis was on the machine's simple set up, versatility and ease of use. The VMNR was described as featuring user-friendly screens and keyboard functions that helped monitoring and data entry that gave operators the capability quickly and accurately to identify and correct problem moulds.
199. The Qualitrac console housed the Qualitrac System. This was a new electronics package that the Emhart brochure stated could be set up speedily and which provided a high level of flexibility in inspection setup. This System could be programmed to reject groups of glassware linked by a common code or number engraved on the bottom of glassware containers. These symbols identified the particular mould from which a container was formed. A defective mould could create a series of failures of each container it had been used to form in a particular time period.
200. 4.5. Prisms
201. The Prism 5000 performed non-contact dimensional and sidewall inspections. The dimensional inspection measured height, body, diameter, lean and bent neck imperfections according to pre-set criteria. The sidewall inspection detected flaws of the kind programmed into the software by the user. The machine consisted of three programmable light sources and three periscopes or mirror arrangements used to redirect the light that was transmitted through a container being inspected to the camera located beneath the conveyor. The light sources were positioned at a 60... angle relative to each other to ensure coverage on both round and non-round containers. These systems of light generation and capture were for the sidewall and dimensional inspections of the glassware containers.
202. The sidewall inspection function checked for surface defects. This was done by dividing the container into zones such as the neck, body and base. An image was captured for each container and then compared against pre-set parameters for light intensity. Dark patches, as for the scanners, were detected as dark patches which the prism was programmed to reject. The method of inspecting and rejecting the dark patches or defects was the same as for the scanner. These dark patches could be caused by dirt build-up on any of the mirrors, lenses, light sources or screens located within scanner. The scanner was fitted with a device for spraying air over critical optical and screen surfaces, using a connection to the plant's air lines, to provide a means of cleaning these surfaces. One of the defects was that the prisms frequently lost zones. This meant that the image from one or more zones would be missed and much glassware passed through the prism without the relevant zone being inspected since it had been temporarily lost. Other defects were the frequent locking-up and freezing of the computer screens; loss of communication from the camera whereby the camera and the computer did not communicate with each other; electronic and component failures; and a failure to inspect the dimensions of the container because the images were not being properly compared with the pre-programmed data in the machines.

7.4.6. Setting Up and Operating

203. The machines, if functioning correctly, were relatively easy to set up, start up, keep running, clean and maintain. Essentially, each machine and the Qualitrac had to be programmed by loading the essential parameters of a particular product and other data into the software using relatively easy, albeit somewhat dated, keyboards and screens. The Genie software required significant amounts of material to be fed into the software at each change and much of this could be loaded using the screen touch facility. The mechanical functions, essentially those needed to start and stop the conveyor and the flow of glassware through each machine, were again relatively simple to operate. Some setting up and adjusting was necessary, for example the wheels that facilitated the spacing and direction of the glass containers as they entered or bypassed the machine.
204. Each machine was fully encased within tight fitting cabinets with access doors and panels which were not easy to remove and work through because of the space constraints and the adjacent machinery. These had to be accessed at regular intervals, particularly during a line-change, so as to enable the screens, lenses, mirrors and other surfaces susceptible to dirt capable of affecting the light and camera functions of the machines to be cleaned. The cleaning operation was a purely mechanical one which required a thorough, patient and methodical routine using cleaning materials, cloths and dusters of a domestic kind. The operator also had carefully to dismantle particular components to obtain access to some of the surfaces and then carefully to replace them before restarting the machine. During the inspection cycle, which could run for many shifts in succession, the machines had to be carefully watched to ensure that bottles and broken glass did not jam any of the parts and that the inspection and rejection facilities were operating correctly. When necessary, the machine had to be temporarily stopped, bypassed, cleaned or unjammed, reset and restarted. Regular maintenance of a routine nature was also required. Each machine was provided with very detailed manuals containing explanations for operation, cleaning and maintenance and diagrams, drawings and part lists. These were used to provide check lists for the operators which were pasted onto each machine to remind them of the necessary start up and stopping procedures and provided a definitive guide to all simple and complex engineering tasks. Part changes, more difficult maintenance and any running repairs were undertaken by the engineering team during the daytime shifts they worked to.
205. It followed that the machines were, or should have been, simple to keep running on a 24/7 basis since they required experienced, trained and dedicated operators undertaking regular and routine tasks which could be mastered relatively quickly and simply by such operators during on the job training and supervision. Once the necessary training and experience had been acquired, any reliable operative could keep the machines running. Gregg's working method of developing a shift system, which retained the same small nucleus of operatives working on a shift cycle which gave long breaks in return for long shifts which did not leave anyone regularly working nights, weekends or holidays, clearly enabled the necessary bonding and morale development needed to enable the necessary reliable machine working patterns to be maintained.
206. These working and personnel development methods were introduced when the hot and cold ends were transformed in the 1990s and Mr Henderson was responsible for establishing them on a long term basis when he took over the overall management of production in 2000. It was assisted by Gregg being able to call on a highly localised workforce who lived as well as worked in the same community and many of whom had worked for Gregg and with each other for many years. The working pattern and relations were particularly welcomed by female employees and the shop floor staff consisted of a harmonious blend of male and female staff at both managerial and fitter levels.
207. Emhart's case to the effect that the problems encountered by Gregg in running the inspection machines were the result of poor training, inexperienced operatives, low morale, a shortage of spares, uncomfortable, dirty and hot working conditions or poor working and cleaning practices must be tested against the actual working practices of Gregg's workforce and the simple, routine and consistent working methods required to keep Emhart's inspection machines running. As a general conclusion, based on both the evidence from many Gregg witnesses and the observation during two lengthy views on the shop floor that I conducted, there was no obvious evidence of any of these potential causes of machine malfunctioning and downtime.

7.5. Brief History

7.5.1. Introduction

208. The history of the operation and malfunctioning of the paired inspection equipment breaks down into 4 phases: (1) installation and commissioning; (2) during most of 2000; (3) during most of 2001; and (4) the testing carried out in the last quarter of 2001.

7.5.2. Phase 1: Installation, Commissioning and Start Up

209. Installation. The Emhart personnel who were present during the installation and commissioning process who gave evidence were Mr Roberts, Mr Gray and Mr Nasakaitis. They and Mr McMillan gave evidence as to what the Emhart personnel said about the fact that the cold end lines were located close to the hot end and the lehrs. This was of particular significance in relation to line G1-2, since that cold end line was coiled so that the rear of the scanner-prism coupling was located very close to the side of the lehr. Mr Roberts stated that he noticed how unsatisfactory the layout of the cold end lines was but this concern was largely dictated by the concern that maintenance and cleaning would be very difficult since this was undertaken from doors located at the rear of the cabinets encasing the inspection machinery and this access was impeded by the proximity of the bypass lines and the lehrs. However, he did not advise that the machines were located too close to the lehrs and that they would have to be relocated further away since, otherwise, they would be damaged by the heat. When asked why he did not give this advice, given his current view that the close proximity of the lehrs to the machines was a significant contributory cause of their malfunctioning, he stated:

"I do not think we could do that because we did not know to what extent that was the problem."^[15]

210. Mr Gray was Emhart's project leader, albeit that he and the two other Emhart engineers on site were of equivalent status in the Emhart organisation. His evidence was that he did recommend that one of the lines be re-arranged, line G1-2, because the rear of the inspection machines were so close to the lehr that access to the interior of the cabinets was well nigh impossible. G1-2 was relocated although Mr McMillan's more plausible explanation for this relocation was that the original line layout was fouled by stanchions and other structural members. What is of significance, however, is that Mr Gray did not state that the reason, or even a reason, to move the inspection machines was because the adjacent lehr made the working temperature around the lehr dangerously or even unacceptably high. Mr Nasakaitis also noticed how access to, and working alongside the rear of, the inspection machines was made difficult by the adjacent lehrs but, again, this difficulty related to physical access to the inside of the inspection consoles and not because of an expectation of heat damage if the machines were not moved.
211. Finally, Mr Roberts' evidence was to the effect that at no time did Emhart's personnel raise any concerns about the adverse impact of the lehrs on the production lines and their products. The concerns were all related to the greater difficulty that would be caused to both internal cleaning and maintenance operations.
212. Commissioning. The factory rebuilding operations and furnace renovation work was completed in October 1999. There was a delay in delivering the Emhart machines to site because there had been delays in their manufacture and dispatch in the United States. These machines were shipped direct to Knottingley because there was no time for them to be given a dry run and testing at Emhart's Doncaster premises first, as had originally been intended by Emhart. The IS Forming machines were delivered first and the cold end equipment in mid-October 1999. Emhart sent over three engineers to supervise the installation, Mr Bob Shultz, Mr Frank Nasakaitis, who gave evidence, and Mr Thomas Oestreicher. They were assisted by two Gregg fitters, Mr John Green and Mr Brian Wood. These two learnt how to set up and use both the Scanner and the Prism by watching Mr Shultz undertake these functions. Mr Shultz showed them how to set up the machines and also watched them undertaking these functions and he checked their set ups to ensure that these had been performed correctly. The machines on line G1-4 went under glass on 24 October 1999 and those on lines G1-1 and G1-2 on 27 and 29 October 1999. Emhart's engineers set the machines up and got them running by making all necessary adjustments. These engineers left site soon afterwards.
213. Start up. The cold end inspection machinery started to give Gregg trouble almost as soon as the Emhart engineers had left site. There were also problems in the functioning of the IS Forming machines and, to some extent, these problems initially masked the malfunctioning problems being experienced on the cold end inspection machinery. From the start, there were regular telephone conversations between Mr McMillan and Mr Roberts and as early as 25 November 1999, Gregg had written a letter of complaint to Mr Roberts. Although this letter dealt mainly with the hot end problems, it referred to the cold end problems as well. These included speed control, electronic and other problems.
214. Emhart maintained that there were few references to the cold end in the contemporary reports in the early weeks. This showed that the problems that were experienced were largely teething problems. Mr Roberts accepted that the installation had gone smoothly. The Scanner achieved VMNR reading rates of 99.9% although there were problems with the engraving, caused Emhart suggested by contamination of reading functions by swab dope.
215. More convincingly, Gregg maintained that there were significant problems in the early weeks with the reading functions of the equipment. These were masked to some extent by the problems also being experienced in the hot end. Both Mr Spencer and Mr McMillan recalled problems in the cold end from the start. Mr Whitehead and Mr Spencer had had to take the unusual course of writing to Emhart's senior management to complain about the machines as early as November 1999 and January 2000 respectively. Mr Henderson stated that the problems had started from day one as did Mr Bain, Mr Wood, Mr McMillan and Mr Perry. Emhart was sufficiently concerned that it arranged for Mr Shultz to return to site from Elmira in December 1999 following Mr McMillan's letter to Mr Beat Mettler, his opposite number in Elmira dated 7 December in which Mr McMillan had stated:

"… I must insist that we have the right engineer here in our factory and he must be concerned with the problems at Gregg's and not pulled to other jobs. The inability to remove defective ware from our production is creating large numbers of quarantined pallets adding to our costs and putting our ability to supply our customers under a great deal of pressure."

216. Emhart's explanation for the problems in this period was that such down time as occurred was no more than inevitable teething problems. That explanation is not supported by the events that occurred and by the universal view of all Gregg's witnesses that the inspection equipment gave trouble from day one.

7.5.3. Phase 2: November 1999 – September 2000

217. The first year of operation is one where the parties disagreed as to the primary evidence and the conclusions to be drawn from this evidence. Gregg contended that throughout the period the inspection machines were not performing satisfactorily. The principle problems were an inability of the scanners to provide reliable and consistent reading of the alpha-numeric code and inspection of the bases and rings of the containers or for the cameras in the prisms to communicate with the computers. Thus, many poor quality articles were not rejected when they should have been and vice versa. These problems were compounded by all the screens locking up and freezing with the need constantly to reboot the computers. There were also problems with the conveyor function and with a variety of different components. The result was many unplanned stoppages and difficulties in restarting the machines and a large number of unnecessary rejections and erroneous acceptances of glassware.
218. Emhart, basing its case on the documentary records of incidents, maintained that the amount of down time and erroneous rejections and acceptances was not unduly significant in this period. This is borne out by the infrequent references to cold end equipment down time and Emhart engineers' visits in the available documentation, being the shift reports, pre-sort reports, company status reports and Emhart's engineers' records. Such problems as occurred had resulted from poorly trained operatives, particularly resulting in poor programming and start up routines and the unduly warm and dirty environment. A further problem was caused by the operatives' repeated failure to keep the lenses and inner surfaces of the machines clean. This had resulted in the optical surfaces being fouled and the lighting and scanning processes being disrupted. In summary, Emhart maintained that there were few problems apart from inevitable teething problems. Such problems as there were had been caused by inadequate training, an absence of available spares, a general malaise caused by redundancies and low morale on the shop floor caused by the introduction of new working practices.
219. In the early part of this period, Mr Pawinski travelled to Elmira with Emhart's Mr Rice and received training on the Prism 5000. The trainer was Mr Autieri who was very knowledgeable and provided training in its operation to a good standard. No training was given in fault finding or maintenance. In the first few months, Gregg was intimating both dissatisfaction and a claim for the costs it was continuing to incur as a result of inspection equipment downtime, operator difficulties and unreliable and inaccurate quality control of the glassware. Complaints of electrical circuitry and component malfunctioning were made on a number of occasions by Gregg. A report on the Emhart prism, by way of an unfavourable comparison between it and two alternative comparable inspection machines, was prepared by Mr Pawinski in February. The scanners' VMNR functionality caused particular problems. Initially, these were inadequately dealt with by a somewhat impractical masking arrangement but, later, by a newly developed Fresnel lens which was installed by Emhart early in 2001. The VMNR problems were reciprocated in similar equipment in another Emhart-supplied facility at Rockwell's factory in Scotland. In the later part of 2001, in September, three reports were produced which analysed the continuing problems being experienced by Gregg. The number of callouts of, and inspections by, Emhart personnel increased in intensity.

7.5.4. Phase 3: October 2000 – September 2001

220. The third phase, during the greater part of 2001, consisted of continuing difficulties, particularly with the software, the touch screens, and the contact between the cameras and the images. Emhart provided additional training on three occasions. Ms Pool prepared a 6-month downtime audit report in September. The summer months created hotter and less comfortable operating conditions in the factory because an outside door, previously left open in hot weather, was required to be closed on health grounds and alternative cooling arrangements were not in place. In October, the paired machines on line G1-4 were replaced by a new Mcal and an existing multi-station machine and the Emhart machines from G1-4 were used on line G1-2 and, later, by Emhart for experimental purposes and as a source of spare parts.

7.5.5. Phase 4: December 2001 Tests

221. The fourth phase, in the last quarter of 2001, was spent by Emhart attempting to prove their inspection machines and provide a rectification plan. This was coupled with a 10-day trial in December 2001. New consoles and up-graded software for the scanners were also provided in November 2001. Following the trials and an Emhart Visit Report, the machines continue to display problems and, in May 2002, Gregg gave notice of termination of the contract and of its claims.

7.6. Summary of Evidence

7.6.1. Gregg's Factual Evidence

222. Gregg called twelve witnesses of fact. This body of evidence, adduced with remarkable efficiency and commendably focused cross-examination from Ms Doerries over only eight working days, was extremely cogent. Not only did each witness give his or her evidence with restraint and authority but it was remarkably consistent and corroborative of the other Gregg factual witnesses' evidence. The overall picture that was presented was of a two-year period of continuous difficulty in starting up, programming, cleaning, maintaining and operating the close-coupled machines and the growing frustration of all concerned at these difficulties. The witnesses all conveyed a picture of determined efficiency within the Gregg staff in which knowledgeable and experienced engineers had attempted, with efficiency and a good working knowledge of the machines, patiently to correct their faults so as to achieve a continuously working fault-free set of cold end inspection lines. Overall, I found their evidence, both collectively and individually, to be reliable and consistent.
223. Mr Henderson. Mr Henderson was on the shop floor on a daily basis. He started from almost the day the machines were first installed and he was appointed Head of Production Operations in April 2000. He was still relatively young, was and is extremely conscientious and enthusiastic about the production line and its successful operation and demonstrated himself to be a very good manager of people. He gave a detailed account of all the problems encountered with the prisms and scanners and his consistent evidence was to the effect that these problems were recurring, on a daily basis, "day after day for month after month".
224. Mr Henderson withstood a sustained cross-examination with restraint and was a most impressive witness. Emhart's attack on his evidence amounted to a challenge to its accuracy and reliability on the basis that the shift reports did not provide a day by day record of down time and unreliability, of continuously frustrating attempts to boot and reboot the software, of repeated rejection of sound glassware and repeated acceptance of unsound glassware and of the difficulties of maintaining operations with components which repeatedly required replacement.
225. Mr Henderson's impressive and acceptable response to this challenge was three-fold: firstly, the function of shift reports, as a means of providing a smooth handover from one shift to its successor shift meant that many of the problems about which Gregg is now complaining are problems which would not be recorded; secondly, the complaints were so wide-spread that only additional and unusual one off additional complaints would tend to get recorded and, thirdly, that many complaints which should have been recorded were not. Mr Henderson concluded his explanation of why the shift reports were not an accurate or sufficient guide to the nature and extent of the problems with an explanation with which many an historian, conscious of the shortcomings of an undue reliance on surviving contemporary written sources, would agree:

"I think if there is one thing that I regret through this whole thing it is not putting everything in writing from day one … Never having been in such a position as this ever, never expecting, to be fair, to be sat here four years down the line, then I do actually regret not documenting more and more of the problems that we had."^[16]

226. Mr Spencer. Mr Spencer, as Managing Director, became involved at an early stage because he started writing to senior personnel at Emhart as early as December 1999 complaining about the shortcomings in Emhart's inspection equipment and the problems and losses this was causing Gregg. These complaints, from the outset, were about the cold end inspection equipment although, in the early stages, they were combined with complaints about the hot end equipment as well. These complaints, which Mr Spencer had made sure he had personal knowledge and familiarity of, were serious and recurring. Gregg is a small plant in which the entire work force knew each other and mixed freely and without ceremony. All senior management appeared frequently, and at all hours, on the shop floor so that both Mr Spencer and Mr McMillan's evidence was based on extensive first hand knowledge of the problems the cold end encountered from the Emhart inspection machines.
227. Mr McMillan. Mr McMillan also gave extensive evidence about the problems. He became Technical Director in April 2000 having previously acted in a role tantamount to that of Project Manager of the upgrade scheme. From December 1999 onwards, he raised a host of technical queries and complaints with Emhart and he was able to verify and explain in detail how his initial list of complaints in December 1999, which included all the major complaints now made, were present throughout the subsequent two year period of operations.
228. Mr Pawinski. Mr Pawinski has considerable experience of cold end inspection equipment. He was responsible for the cold end projects, had received training in Elmira in January 2000 and further software training in Doncaster in June 2001 and conducted two separate reviews of the Emhart inspection equipment. His evidence particularly dealt with, at length, the failure of the scanners' VMNR function to read alpha-numeric code of a better quality than its predecessor MSC multistation had been able to read; the incompatibility of having one light source and one camera for both base inspection and VMNR; the impairment of the base inspection when using diffuser paper as a mask or filter or the Fresnel lens; the failure of the dimensional function on the prism; and the unreliability of the prisms during his testing of them as part of his review and comparison of the prism with other makes of comparable inspection machines.
229. Ms Helen Pool. Ms Pool became the Cold End Manager in December 2000. Her primary involvement in the events with which the trial was concerned was in the preparation of a report in September 2001 which investigated the downtime of the inspection equipment over a six-month period between April and September 2001. The contents of the report were not significantly challenged and the conclusions reached were that the prisms had frequently crashed and had suffered from component breakdowns. The zoom and focus facility on the scanners were giving continuous problems. Furthermore, the pre-sort sheets, or shift reports, were unreliable in that the information they contained was vague, incomplete and inaccurate and therefore significantly understated the scale and extent of the problems that had been encountered in that six-month period. Ms Pool was able to confirm in general terms the contents of Mr Henderson's evidence.
230. Mr Bain. Mr Bain was a shift leader on the cold end lines throughout the relevant period. He had worked at Gregg since 1980 after completing a 4-year apprenticeship and college courses in glasswork engineering. He also had acquired a knowledge of IT and computer operations, in part from his wife who teaches IT at a local college. He was able to give detailed evidence about the training given to fitters using the Emhart inspection equipment, the maintenance and cleaning they were provided with and the problems of the equipment compared to similar but problem-free equipment also used by Gregg such as the MSC equipment. He was also able to demonstrate how imperfect the shift reports were as a full or complete guide to the problems Gregg had experienced with the machines. Overall, the thrust of his evidence was that the problems of screen freezing, repeated re-booting and software glitches were enormous and continuous. The problems, indeed, escalated out of all proportion and Emhart must have used electronic cards on a trial and error basis worth many thousands of pounds in their unsuccessful efforts to remedy these problems. He also remembered a conversation with either Mr Gray or Mr Rice of Emhart at Knottingley in early 2000 when it was suggested to him that the equipment or its software might have been "a bad batch" from the United States. I accept that some conversational aside of that kind was made to Mr Bain by an Emhart representative which, whatever its precise content, clearly conveyed Emhart's internal view that the equipment supplied was inherently defective.
231. Mr Baugh. Mr Baugh was a Cold End Engineer, a post he was appointed to in 2000 following a 5-year apprenticeship as a cold end engineer for one of Gregg's principal commercial competitors. He confirmed the evidence that Mr Henderson had given as coinciding with his experience of the Emhart inspection equipment during his period of working with it from December 2000. He was sent on a 2-week training programme at Elmira in February 2001 which he found somewhat basic in content, particularly as it did not contain any training in troubleshooting. He also gave evidence as to the inaccessibility of the inner surfaces of the equipment once access had been obtained within the consoles. This made their cleaning very difficult, a problem caused by the layout of the parts within the equipment and their consequent inaccessibility.
232. Mr Perry. Mr Perry was a shift fitter with over 30 years experience working in the glass industry. He explained that although he had had some training when attending at Elmira as a member of Mr McMillan's visiting team in May 1999, he did not learn much but had learnt sufficient to operate the machines whilst working on the job and from picking up the necessary know-how from watching and being spoken to by colleagues. He stated that the setting up of the machines was invariably done by the day engineer fitters who had great experience in this task. He confirmed that there were countless problems with the machines from the time of their installation. The machines were the worst he had seen in 30 years. He also gave evidence describing the VMNR, screen freezing and prisms' dimensional malfunctioning.
233. Mr Wood. Mr Wood was a single line engineering fitter, a role he had held since 1996. He had received on the job training from Mr Schultz whilst the machines had been installed and about the difficulties in keeping the internal surfaces of the machines clean. He also confirmed Mr Henderson's evidence about machine malfunctioning. He had been given an envelope containing diffuser paper by an Emhart engineer after about three months of VMNR malfunctioning and was told to use it to increase the light intensity to enable mould number readings to take place. He also explained that dimensional problems occurred once a run had started since it was usually possible to obtain dimensional functioning at the start of a run so long as the relevant surfaces had been carefully cleaned whilst the machine was between runs.
234. Mr Pugh. Gregg also called an independent factual witness, Mr Pugh who is the European Sales Director for SGCC, a French company which manufactures and supplies cold end inspection equipment performing the same function as that manufactured and supplied by Emhart. He had had 32 years experience in the glass technology business. He gave significant evidence on two matters. Firstly, he was able to give evidence about Gregg's factory and working practices in general terms, having visited it on a number of occasions over the years. It was, he believed well run and there was nothing which took it outside the range of glassware factories. Secondly, he gave evidence about the VMNR function provided for in SGCC's equipment. This was provided by two cameras and two light sources and a dual camera/light source was also provided in all similar equipment produced by other manufacturers except by Emhart in its scanner. The SGCC VMNR machine also uses more flexible algorithms to enable it to perform VMNR reading and base inspection functions simultaneously and the resulting technology is reliably able to read the full quality range of code-engraving that is to be expected in the production of glass containers.
235. Although Mr Pugh was a senior executive in a commercial supplier to Gregg who is a trade rival to Emhart, his evidence was authoritative and I found no reason to doubt any of it.

7.6.2. Emhart's Factual Evidence

236. Mr Gray. Mr Gray was a significant witness since he was the only factual witness called by Emhart who had any detailed knowledge of the working period of the cold end equipment at Knottingley since he had been one of the two call out engineers who regularly had visited the factory. He also attended during the installation of the machines. His witness statement concluded that most of the problems were simple enough to deal with and had been caused by problems in the hot end, which created insufficiently well defined engraved alpha-numeric codes, a lack of routine maintenance, inadequately trained operating personnel and a failure by Gregg to stock spare replacement parts.
237. During his cross-examination, Mr Gray accepted a number of points suggested to him to the effect that particular problems were not caused by Gregg. Thus, he accepted that the original VMNR function was unsatisfactory since it could not have read the code even if this was perfectly formed. Emhart's suggested use of a mask fixed into position with sellotape was also unsatisfactory. This solution was merely adopted in an attempt to assist Gregg to get that function to work. It was only a temporary solution. He also accepted that two light sources should have been installed in the scanners but had not been because, as he understood it, copyright problems prevented this. He also accepted that Gregg was not responsible for the problems experienced by the software including lock out problems. He agreed that there had been a long history of failures with the machines and that Emhart had been unable to solve these over a two-year period. The constant need to reboot the machines was also unsatisfactory and not down to Gregg. He did not attribute problems in the prism to dirt and that the equipment could not be got going properly because it had fundamental defects. He accepted that the dimensional problems with the prism were never solved properly. There would, moreover, be problems resulting from dirt because it would not be possible to eradicate this, given the machines' sensitivity to dirt and rust particles and the likelihood of these resulting from use of the air lines. The need to replace the IO processor on a number of occasions was unsatisfactory. He did not regard the standards of cleanliness as being lower than in other glass factories he had been in. Mr Gray did not depart from these cogent and obviously truthful pieces of evidence in re-examination.
238. Mr Gray's evidence, when considered in the round, was consistent. His witness statement had obviously been prepared by his being asked about specific items and he dealt with these piecemeal. This gave an unintended impression that he was blaming Gregg for every difficulty experienced with the machines. When, in cross-examination, he was asked about matters in more general terms, his view as to the imperfections of the machines emerged with clarity.
239. Mr Roberts. Mr Roberts had a great deal to do with Gregg, its complaints and the two-year history of difficulties. He is not technically qualified but has considerable experience of inspection machines. He also gave honest and fair evidence which acknowledged that the equipment had not functioned as the customer was entitled to expect. That was, after all, why he had been instrumental in unilaterally extending the period of the warranty on three successive occasions. This was because, as he saw it, Emhart had a duty to put right for the customer the shortcomings that had emerged.
240. Mr Autieri. Mr Autieri was a senior systems engineer employed by Emhart Glass Inc in Elmira. He visited the Knottingley plant in March 2000 during which he noted what, if it occurred at all, was a minor example of tampering with one of the machines. Of greater moment was his observation that a particular water trap was full. This condition indicated that the air flow passing through it was not functioning as it should have done. This is because the trap was intended to trap moisture and dirt in the air flow that had been set up for cleaning purposes. This flow was blown across internal surfaces of the prism as an air curtain so as to clean them. If the trap was full, it could not have been trapping moisture and dirt so that the air flow would have been impregnated with moisture and dirt. Such an air curtain would exacerbate the dirty condition of the internal surfaces rather than cleaning them.
241. The reason that Emhart had flown Mr Autieri in for an inspection of the machines was because of the many problems that these had experienced which the local engineers could not fix. Unfortunately, two of the deficiencies in the machines noted by Mr Autieri, being the air trap filled with water and the need to provide a means of cooling the back of the prisms by installing a fan within the cabinet, were not brought to Gregg's attention. Nothing in Mr Autieri's evidence suggested that the machines were relatively problem-free.
242. Mr Nasakatis. Mr Nasakatis trained Mr Baugh and Mr Batty in Elmira in February 2001 in the use of the prism although he had had very little experience of this machine. He ran the trials that took place in December 2001 and he also attended the site visit at which I was shown a cleaning operation of the prism. Mr Nasakatis's evidence was to the effect that the trials had left the machines trouble-free and that many of the so-called problems were caused by ill-trained operator errors. However, it appeared that the trials had not attempted to identify and eradicate the root cause of the problems, particularly VMNR and base inspection difficulties, scanner lock ups, prism communications failures and dimensional function failures and certainly Mr Nasakatis was unable to show, either at the post-trial meeting or in his evidence that these problems had been eradicated during the trials.

7.6.3. Expert Evidence

243. Each party instructed an independent expert in glass inspection machine engineering. Neither was English, neither had ever given evidence in an English trial before and both were, or were arguably, insufficiently independent to qualify as an independent expert for the purposes of giving expert evidence in an English civil trial. Gregg instructed Mr Franke who had previously worked for Emhart as a service engineer but had more recently set up his own consultancy which manufactured Emhart spares and was, or was apparently, still in competition with Emhart in relation to the provision of after-sales and component supply services. Emhart instructed Mr Liska who is an American engineer who had been employed by Emhart for 21 years before retiring and starting his own consultancy in January 2004. He also had had little or no experience of cold end equipment.
244. Each party invited me to ignore the other party's expert on grounds of a lack of independence, relevant experience and lack of objectivity. I would have had to consider these objections long and hard in relation to both experts since they all struck a chord in each case. However, the trial did not need, or need to any substantial extent, expert opinion evidence. The trial was not about whether the design of the machines was faulty but about whether there had been down time or quality control troubles which had been caused by the unmerchantability and unfitness of the machines. The only area of the case where expert evidence was of assistance was in relation to Emhart's contentions that the defects and deficiencies that occurred were caused by Gregg's deficiencies. I believe that, since each expert gave only marginal help or assistance on that topic, it is not necessary to shut out either of their respective evidence.
245. It is worth recording that a very good indication of the unhelpfulness of the evidence of both of them was given by their CPR 35.12 statement ordered to be provided by the court once their reports had been served. This was a remarkable statement since it merely recorded that they had been unable to agree about anything including, as it emerged, what it was that they disagreed about.
246. 6.4. Documentary Evidence and Analyses
247. The documentary evidence consisted of much detailed inter-party correspondence and emails in the two-year period that the parties were in communication about the machines and their deficiencies. Within this material were a number of apologies from Emhart and actions plans to deal with the perceived deficiencies in the machines emanating from Emhart. The material also comprised Gregg's shift, engineering, production and management reports and records including its shift, SLMD and Pre-Sort Reports; Emhart's inspection reports and complaints records, including its Complaint, Service and Site Visit Reports; and internal communications passing between Emhart and Emhart Glass Inc and reports compiled by various individuals within both Gregg and Emhart relating to specific machines, tests or inspections both at Gregg's Knottingley plant, including Ms Pool's report covering a 6-month period in 2000, and Emhart internal documentation covering the similar scanners at Rockware's plant and the similar prisms at Longhorn, Texas.
248. Much of this documentation was incomplete and different parts of it were subjected to analysis by the respective parties' legal teams or experts. This material provided invaluable guidance and evidence of the qualities of the machines, their deficiencies and the causes of those deficiencies. However, this evidence was sometimes treated as if this case is concerned with a long list of individual items of complaint, in the form of downtime, call outs or repairs and an exhaustive examination of the minutiae of many of these matters was undertaken. I do not propose to undertake a similar exercise since the evidence, although voluminous, is only material to three issues: were the machines satisfactory and fit for purpose and was Emhart in breach of duty? The respects in which any such breach of contract or duty occurred must also be identified. Otherwise, the evidence is only material to questions of causation and damage with which I am not currently concerned.

7.6.5. Views

249. I undertook two separate views of the Knottingley factory and inspected and watched the operation of the cold end lines and the inspection machines. Each view took several hours. The first view took place between the opening statements and the start of evidence. The second took place a few days later when it had emerged that there was considerable dispute as to whether the prism was capable of being cleaned internally and, if it was, how accessible the surfaces to be cleaned and how easy the cleaning process was. I suggested that Gregg should demonstrate the cleaning process in the presence of both experts and myself and the demonstration should be videoed. Both views took place in the presence of representatives of both parties.
250. I learnt a great deal from these two views and what I observed forms part of the evidence in the case. The relevant parts of my observations have been used by me, along with the contents of the oral, written and documentary evidence, to make my findings of fact. I should record that I did not receive on each view any oral or written evidence, apart from a list of what I should look out for that was provided by each party for each view.
251. 7. Credibility
252. 7.1. Gregg's Witnesses
253. Emhart submitted in counsel's closing written submissions^[17] that much of Gregg's factual evidence adduced by its factual witnesses was unreliable. This was for two reasons. Firstly, the evidence was said to be general in character and did not address the specific incidents, problems, deficiencies and complaints but sought to provide evidence of these matters in the form of generalised summaries. Secondly, it was contended that these generalised complaints were not borne out by the detail and events recorded in the shift reports and other contemporaneous logged materials.
254. I do not accept that Gregg's factual evidence should be approached in this way. Each of their many witnesses gave detailed written and factual evidence which was all, demonstrably, their own evidence and was not evidence that had been influenced by the exigencies of litigation. Each witness gave evidence in a restrained and thoughtful way but each was able to convey with feeling the nature and extent of the problems that had been encountered from October 1999 until May 2002 with the scanners and prisms. This evidence was wholly credible and it lost nothing for not being tied, on a day by day basis, to the contemporaneous daily logs and reports. These records were incomplete and had not been compiled for any purpose connected with complaints to or claims against Emhart. Moreover, the evidence had been prepared with the intention of dealing with the complaints of unmerchantability and unfitness, complaints which are in their nature generalised. It followed that their credibility and the reliability of their evidence was not shaken because it was not tied to a minute analysis of specific events or directly linked to the contemporary records.

7.8. Emhart's Defence

7.8.1. Generality of Gregg's Case

255. Emhart's defence was also generalised. Emhart placed particular reliance on three matters: (1) that Gregg's complaints were exaggerated because they were not linked on a day by day basis with specific incidents; (2) that much of the difficulty that occurred was caused by Gregg's failure to obtain sufficient training from Emhart, to obtain sufficient spares or to undertake sufficient maintenance and cleaning; and (3) that any deficiency not linked to Gregg's defaults was caused by Gregg's use of the machines in an excessively hot, dirty working environment. However, there was little evidence adduced which attempted to link each of these lines of defence with specific problems encountered by Gregg. For example, in relation to the alleged failure to obtain sufficient training from Emhart, no individual who was poorly trained was identified and no linkage between lack of training and any particular problem was proved. These difficulties in Emhart's case were inevitably taken into account by me when assessing the evidence of both parties.

7.8.2. Emhart's Engineers' Visits to Knottingley

256. The call out visits to Knottingley were made by Mr Gray and additionally, between January 2001 and early 2002, by Mr Clarke. Mr Roberts made a number of visits and various engineers visited from Emhart Glass Inc on occasion to inspect, troubleshoot, test or assist in diagnosing faults. During these visits and in correspondence and emails sent to Gregg in this period, Emhart did not inform Gregg or advise it that any of the problems being encountered were caused or contributed to by excessive temperatures in the cold end, whether generated by the hot end, the lehrs or the outside ambient temperature; by a lack of training by its fitters or engineers; by a failure to take up its offer to provide training; by a failure to buy or acquire spares; or by a failure to operate, clean or maintain the equipment. On occasion, during a visit, one of the engineers pointed out specific operating faults but did not advise that systematic or wholesale changes should be made to the cleaning, maintenance, training or setting up and operating practices. Thus, the case now being advanced by Emhart was not advanced, by way of advice and clear cut warnings, during the critical period whilst Gregg was experiencing so many difficulties. This is a significant factor which I have had in mind when weighing up the evidence as to what problems the machines encountered and what were the causes of those problems.

8. Issue 5 - The Problems

8.1. The Issue

257. Issue 5 reads:

"5. During the period October 1999 to December 2001 ("the Relevant Period"):

(a) What problems were experienced by or with each item of the Cold End Equipment?

(b) When did such problems occur and for how long?"

8.2. The Issue in Context

258. In order to determine whether the machinery was sold in a condition that entailed it being either unsatisfactory or unfit, it is first necessary to determine what was wrong with the machinery. This can be done in terms of its outcomes, namely what was wrong with the way the machines were running or not running, or in the way they were rejecting or accepting glassware or were able to be set and operated. Once the suggested failures to produce the necessary outcomes have been established, it is then necessary to determine what it was about the machines that led to these failures. Having done that, it is finally necessary to determine what caused those deficiencies. This three-part exercise is necessary because the parties are in such fundamental disagreement as to the causes of the deficiencies that led to the failures in question.
259. The further difficulty in this case, unlike most sale of goods cases, is that the machines were operated under conditions of considerable difficulty for two years before Gregg attempted to reject them. It is therefore necessary to examine the deficiencies, the machine failures that caused those deficiencies and the causes of those failures over the entire two-year period. This is because, although Gregg consistently complained about the same deficiencies throughout the relevant two-year period, it is conceivable that the machine failures and the causes of those failures leading to those deficiencies altered over time.

8.3. The Problems with or Associated with the Scanners and Prisms

8.3.1. Deficiencies

260. I have already summarised the problems in the glassware manufacturing and inspection processes that Gregg complained of. These were that the inspection machines were unreliable, difficult to set and start up and frequently malfunctioned and were subject to slowdowns or breakdowns. These problems caused Gregg to have to resort to manual methods of inspection, to recheck glassware passed by the inspection machines and to suffer the unnecessary loss of much good glassware that had been wrongly rejected by the machines. The overall result was a significant loss of production, loss of commercial goodwill and turnover and greatly increased labour costs over a 30-month period.

8.3.2. Deficiencies Causing Problems - Summary

261. These problems that Gregg complains of were caused by a series of machine deficiencies and malfunctioning. The principle categories relied on by Gregg are these:

(1) The scanners failed to read, accurately or reliably, the alpha-numeric code engraved on the bottom of the glassware.

(2) The scanners failed to read, simultaneously, the alpha-numeric code and to inspect the bases of the glassware.

(3) The scanners and the prisms, whilst in operation or whilst being started up, kept being subject to lock ups and screen freezing. When this happened, the machine in question could not be used until the machine had been re-booted. On many occasions, this re-booting had to be undertaken many times before the lock up or the freeze was removed.

(4) The scanners suffered from an unacceptably high volume of electrical and component failures. Examples of these failures are the motorized lens control, the host CPU, the Power Supply Units and the zoom lens.

(5) The bottle spacers regulating the glassware on the conveyor belts feeding the scanners were not suitable for non-round glassware.

(6) The dimensional inspection function of the prisms could not be used reliably or consistently.

(7) There were frequent occasions when there was a loss of communication between the cameras and the computer in the prisms.

(8) The prisms suffered from an unacceptably high volume of electrical and component failures. An example of these failures was the input/output processor.

(9) The encoder and cables of the prisms repeatedly became loose and damaged.

8.4. Machine Deficiencies Causing the Problems

8.4.1. VMNR - Scanners

1. The Problem

262. The scanners were set up so that a light source was shone onto the underside of the glassware container's base and up onto a screen. The strobe light was designed to pick out both the alphanumeric code and the dot code engraved on the underside of the glassware and also any imperfections in the base. The image formed by this light source was captured by the camera and was compared with pre-programmed algorithms produced by the Genie software. The scanner and its associated Qualitrac was then programmed so that any number programmed into the scanner could be recognised when it was identified on the base of the glassware and the glassware thus identified rejected or counted as desired.
263. The process required three matters for successful recognition: a light source of sufficient intensity to pick out as a shadow the engraved numbers on the base of the glassware; sufficiently sharp numbers to create a sharp enough image that could be recognised; and appropriate algorithms and a software programme to enable the matching of numbers and the necessary rejection or identification to take place. This process had been developed by Emhart in two respects. Firstly, it had produced a VMNR function which shared a single light source and single camera with the base inspection function. This was a potentially hazardous design decision since the lighting conditions for the VMNR function are very different from those required for base inspection. The former requires a smaller, less bright light to enable the edges of the code to have a good contrast whereas the latter requires a large, bright source capable of illuminating the entire base of the glassware. All other known inspection machines had previously used a dual light source and camera for the separate functions of reading and inspecting.
264. The second problem, being the sharpness and definition of the engraved numbers arose because there was, at that time, no specification identifying the limits within which the engraving should be produced. Thus the minimum angle size and the minimum dimensions of each figure were not defined. The production process was bound to produce variations both between moulds and from one mould over time. These variations could be caused by differing thermal conditions, wear in the mould, differing surface conditions caused by different or differing quantities of lubricant or dope and differing amounts of dirt on the surface of the mould/glass interface.
265. The third problem, being inaccurate recognition, could arise from ill-programmed software and algorithms which were insufficiently sensitive to the lighting conditions and the definition of the image formed by the particular engraving setting out the relevant alphanumeric code.
266. The inability of the scanners' VMNR function to recognise accurately on a consistent basis the engraved alphanumeric code being produced by the IS Forming machines at the hot end was recognised immediately the machines went on-line. The reason for this difficulty was undoubtedly two-fold: the light source was neither small enough nor did it provide enough contrast and the alphanumeric code was not sharp enough. A further way of defining the problem would be to say that the algorithms were not able to recognise the images formed from the combination of light and engraving being produced at Knottingley in the Emhart Scanner 8200 that Gregg had bought in reliance on Emhart's recommendation as to suitability.
267. The tests carried out on samples provided by Gregg in June 1999 are very important to this particular complaint. It was clearly Gregg's intention to supply a range of alphanumeric engravings at each end of the range of quality that the IS machines at Knottingley would produce. The samples came from the earlier IS machines and were from the more definite push and blow process. However, it was Gregg's belief that the quality of the engraving of the samples fairly represented the range of qualities produced by both processes and by the intended new IS machines to be bought from Emhart. As Gregg reasonably read the test report produced by Emhart, it concluded that Emhart was stating that glassware with the range of engraving standards exhibited by the samples sent over by Gregg for testing was capable of being read by the Emhart Scanner 8200. However, although all the samples could be read, some of the engraved alphanumeric code in the samples that Gregg had submitted could only be consistently and reliably read with a filter which was needed to better direct the light source. Gregg reasonably read that recommendation as meaning that there was a filter facility within the scanner which would need to be called on to ensure wide-ranging reading capability across the quality range produced by Gregg. As I have already found, the contract contained an implied term that the scanners would be fit for that purpose, that is could read all alphanumeric code of a type falling within the range of qualities produced for testing by Gregg with a filter device built into the machines.

2. Gregg's Case

268. Gregg contended that the cause of the problem was the use of a single source light which meant that the strobe was insufficiently intense for alphanumeric reading. This was shown to be the cause of the difficulty because it proved possible to improve the success rate of alphanumeric readings by using masks cut from diffuser paper which were sellotaped onto the light source, thereby better defining the light source. The fact that this process improved the recognition success rate when no improvement in the definition of the quality of the engraving or of the algorithms shows that the problem was essentially cause by the use of a single light source for two quite separate functions. This cause of the problem had been recognised by one of the designers of the scanner, Mr Mark Claypool who emailed Mr Carl Holden of Emhart Glass Inc in November 2000 that:

"We have exactly the same complaint from Rockware, who want to order two more m/c with VMNR, but conditional on getting the 'pilot# systems working OK.

Seems to be a mutually exclusive conflict between getting optimum light setting for MNR v base inspection, which our competitor MSC does not have (separate camera for VMNR)."

3. Emhart's Case

269. Emhart contended that the problem of non-recognition had been caused by poor engraving by Gregg's hot end process. When the machines had first come on line, a success rate of 99.9% was recorded as occurring. Subsequently, the records show that there were real problems with the engraving quality being produced, particularly on the two blow and blow lines. Gregg have never carried out any tests to identify the quality of engraving that was produced at different times nor has it ever attempted to show whether the engraving standards being produced once the machines came on line differed from, or fell outside the range of, the samples tested in June 1999. In summary, in the absence of any test results or standards which could be used to quantify the quality of the engraving, Gregg has not established that the lighting and not the engraving quality was the cause of this complaint. Indeed, the evidence points the other way given the initial success of the scanner and also given the evidence that the worst consistency was obtained from the two lines using the inferior blow and blow technique.

4. Conclusion – VMNR Complaint

270. The suggestion that the VMNR alphanumeric code reading problem was caused by or could have been remedied by the production of sharper and clearer engraved numbers is not one that is supported by the evidence. Three pieces of evidence are relevant.
271. Firstly, there was no readily applicable standard produced by Emhart against which to test the quality and definition of the engravings. At the time that the contract was made and in the months afterwards during which the apparent problem of the light source was investigated, the only way of ascertaining whether the engravings were sharp enough was by a visual inspection of these engravings. Emhart disclosed a specification, dated August 2000, showing mould tolerances for the shape of the sides and bases of the recesses in the mould that would be used to form the alphanumeric numbers that should be used in the forming process of base engravings for containers that would be subject to VMNR recognition by the Scanner. This specification had never been referred to by Emhart prior to the trial and no-one could explain how it had come to be produced. Emhart did not, however, design the scanner or conduct its troubleshooting exercises for Gregg using this or any other specification.
272. It is not now open to Emhart to seek to explain away the recognition difficulties that the VMNR function experienced by reference to this specification or to any other hypothetical specification. The standard set by Emhart in developing the Scanner single light source for VMNR alphanumeric reading and adopted by it in determining whether Gregg's glassware could be recognised was a purely empirical one. Emhart tested Gregg's glassware in June 1999 and declared that it could be recognised, albeit using a facility that it was to provide, being a filter or mask. Emhart did not provide that facility until after delivery and then only by way of a suggestion for the use of the crude device of sellotaping diffuser paper onto the light source. Furthermore, Gregg's evidence was to the effect that the quality of the engravings that were offered up to the scanners in the months after they went on line, whether from the press and blow or blow and blow processes, were all within the quality range, so far as definition was concerned, as had been satisfactorily tested by Emhart in June 1999. Emhart was not able to challenge that evidence.
273. Mr Liska in his evidence accepted that the only way in which Emhart could have set the parameters within which acceptable engravings from the IS Forming machines should fall in order to be capable of recognition by the scanner could be set, measured or tested was by use of a purely empirical method, that is by putting engraved bases through the scanner and seeing whether the alphanumeric code would be recognised by the algorithms. That test proved to be a negative one since the scanners were not able to recognise many of the engravings offered up before the diffuser paper solution was adopted. However, that proved nothing since the test would have proved negative whether the problem was the light source or the engraving. What was needed, but never provided, was a means of eliminating the light source as a potential cause of the non-recognition of the code. Such a means was never provided by Emhart and could only have been provided in the form of an objective specification relating to acceptable parameters for the shape of either the mould or the finished engraving.
274. It follows that Emhart has not provided any means of showing that the engraving was unsatisfactory. Furthermore, it delivered the scanners to Gregg on the basis that their purpose, for which the VMNR function had to be suitable, was to recognise all engravings offered up by the Gregg hot end lines that fell within the tolerance or quality range initially tested in June 1999. The engravings that were offered up in the early months of their use on line, and which could not be recognised, were all within that notional or somewhat empirically devised tolerance range.
275. A second piece of evidence that has significance is that Emhart suggested that the blow and blow process should be modified by the use of different angles cut into the mould so as to provide a more defined image. The suggested modification and the dimensions of the adapted cuttings came from Mr Holden who was based in Elmira and who had considered the VMNR problems in detail. This suggestion followed his inspection of samples sent to him in October 2000 by Mr Clarke who had failed to come up with a solution to the recognition problem. Gregg adopted Mr Holden's suggestion only to find that the angles were so sharp that the moulds made with them produced unsatisfactory glassware containing cracks and crizzles. This solution was abandoned since it had the effect of producing unsatisfactory glassware, even though it appeared to be the only means of producing recognisable engravings.
276. A third piece of evidence also had significance. That was that the Rockware scanners supplied to that facility in Scotland after Gregg had taken delivery of the Scanners, were discovered to be prone to the same recognition difficulties even though the scanner was a later model. Emhart discovered that this difficulty was caused by the use of a single light source. Mr Gray and Mr Todd Bailey of Applied Vision, the designers of the VMNR software for use in the Scanner, carried out tests at Knottingley in January 2001 and discovered that the light source was insufficient to recognise engravings produced by the hot end which were clearly of sufficient quality. These discoveries led Emhart to develop and provide the Fresnel lens.
277. For all these reasons, therefore, the source of the recognition difficulties was the single light source and not the quality of the engravings.

5. The Diffuser Paper Mask or Filter

278. The use of diffuser paper to mask the light source so as to enhance the source sufficiently to enable the alphanumeric code to be recognised was only intended to be a short term palliative, as Mr Gray explained in his evidence. It proved to be unsatisfactory, for two reasons. Firstly, it did not enable all engraved bases to be recognised, it merely improved the recognition rate which remained unsatisfactory. Secondly, it eliminated the base inspection function of the prism since the filter impaired the light source needed for this purpose to the extent that that function was no longer useable.

6. The Fresnel Lens

279. Emhart provided a newly developed lens in about November 2000, the so-called Fresnel lens. This lens was adopted by Gregg and its case at the trial was that this lens further improved the recognition function of the scanner but not sufficiently to make it acceptable. Moreover, the base inspection function remained unusable since the light rays emanating from the light source were straightened by the lens to an extent that prevented them inspecting the bases of the same glassware.
280. Emhart disputed the suggestion that the Fresnel lens still failed to eradicate completely the recognition difficulties experienced with the use of the Scanners. In particular, it pointed to the Company Status Report produced by Gregg in January 2001 which stated that the Fresnel lens, then only recently installed, had improved the read rate dramatically. However, the Report also referred to the need for the lens to be proved over an extended period of time. Emhart contended that the lens was proved in this way and pointed to the success rate achieved during the December 2001 trials which, over a short period of time, established a read rate in excess of 99%.
281. However, as Mr Pawinski made clear, the Fresnel lens was still only a partial solution to the single light source system for providing VMNR and base inspection uses. He explained that:

"… what Emhart tried to do – and to some degree a success, but still incorrect and still unacceptable – is they put a fresnel lens – which I believe is a circular prism system, but to all intents and purposes it is a light-deflecting optical unit … even today, if we want to read good Alpha Numeric we have to close this [shutter] and if we want to read more base inspection we have to open it. We cannot have good inspection at the same time."^[18]

282. A further difficulty is that the Fresnel lens is not able to provide good and reliable alphanumeric recognition for all types of glass. Mr Gray explained that the Rockware factory in Scotland, that was also having recognition problems with its Scanner at that time, did not find the read rates satisfactory with the Fresnel lens because that factory used predominantly green glass, unlike Knottingley's predominant use of flint glass. The green glass evidently gave an entirely different, and less satisfactory, effect.
283. It follows that the Fresnel lens was not a complete answer to the problems created by the single light source. Its use eliminated base inspections or, alternatively, ensured a compromise whereby both uses could be called on but at the expense of a reduction in reliability for both uses. Furthermore, the lens was not able to provide reliable recognition for all glass types.

7. Dot Code

284. Emhart suggested, for the first time, in closing submissions, that Gregg should have relied on the dot code recognition function since that was always available even if the alphanumeric function was not available. This function would have given Gregg the same benefits as the alphanumeric recognition function provided. This suggestion had never been raised previously and was based on this brief exchange towards the end of Mr Pawinski's cross-examination:

"Q. You could use the dot code to carry out the rejection control that you were talking about?

A. Yes.

Q. And with that you could still use the base as well, could you not?

A. If you used dot code, yes."^[19]

285. This suggestion met with an anguished response from Gregg who pointed out that the allegation was unpleaded and had not been raised as a mitigation issue before trial. Moreover, it could not be said that Gregg was unreasonable in not using the dot code recognition facility in substitution for alphanumeric recognition. A principle purpose of Gregg buying the Scanner was because it provided good alphanumeric recognition, so Gregg had been led to believe. There would be no basis for suggesting that, subsequently, Gregg behaved unreasonably in continuing to seek an adequate alphanumeric readability function, particularly when Emhart never suggested a switch to dot readings during the extended period that the VMNR function was being subject to detailed troubleshooting.

8. Conclusion – VMNR

286. The VMNR function was inherently defective, was only very imperfectly remedied by use of a patch or mask sellotaped onto the light source and was finally rectified by use of a Fresnel lens but at the expense of the removal of the base inspection facility and by use of a method which was not reliable for all possible uses and was not completely tried and proved. Gregg could not be faulted for not switching to a reliance on dot coding. This was so even if indeed Gregg had failed to switch to dot coding and even if, which was never established, such a reliance would have provided a completely acceptable alternative method of product recognition to that provided by a fully working and reliable VMNR function.

8.4.2. Base Inspection – Scanners

287. Emhart contended that since no Gregg witness had referred expressly in their witness statements to the fact that it was never able to use a base inspection function if it used any of the three different types of VMNR function (being an untreated single light source, the use of diffuser paper and the Fresnel lens), there could not have been a loss, or more accurately a non-provision of base inspection capability. Such a capability was offered by Emhart as one of those provided by the Scanner so that, at the very least, there was a breach of the requirement that the goods as sold should match their description.
288. Emhart also referred to evidence where Gregg or their witnesses expressed satisfaction with the base inspection capability of the Scanner once the Fresnel lens had been provided and installed. However, this evidence never once referred to the base inspection facility achieved with the Fresnel lens as being achieved simultaneously with the VMNR function. Gregg's complaint was not that base inspection was not achievable but was, as stated by Mr Pawinski directly and at length in oral evidence, that it could not be achieved simultaneously with the VMNR function being used. In reality, if both functions were used together, neither function gave satisfactory results whereas the Scanner could be set so as to achieve reasonable reliability for one or the other function, at least if flint glass was used.
289. It follows that the absence of a base inspection function when the alphanumeric VMNR function was being used was a deficiency which was never remedied.

8.4.3. Lock Ups and Freezing – Scanners and Prisms

1. Introduction

284. The computers associated with the scanners and associated Qualitracs and the prisms were subject to frequent and an abnormal amount of locking up and screen freezing. The necessitated the machines to be rebooted and, on many occasions, the rebooting had to be attempted several times by the machine being turned on and off. The cause of this problem, and the associated problem of repeated component failures, is accepted as being excessive temperature in the vicinity of the software and electronics associated with the computers.

290. Gregg adduced extensive evidence from many of its witnesses of this phenomenon. This evidence, which I accept, may be summarised as follows:

(1) The screens were all touch sensitive. When the screen froze, new runs could not be programmed into the machines and existing instructions could not be altered, as was often necessary, during a run. The machine subject to freezing had to be stopped and the computer rebooted, often several times. Mr Henderson's evidence, supported by all other Gregg witnesses who had personal experience of the cold end lines, was that this problem occurred on a regular and frequent basis throughout the two-year period. Gregg calculated, on the basis of the material analysed for the trial, that a screen freeze occurred on average once every 8 days throughout the period.

(2) Mr Gray accepted that there were many occasions when screen freezing was reported to him. Mr Liska undertook an analysis of the shift reports and concluded that these recorded one event of screen freezing on average every 13 days but it is clear that many screen freezing events were never recorded in the shift logs so that this analysis greatly underestimates the size of the problem. The likelihood is that Gregg's figure, largely based on similar documentary records, also significantly underestimates the extent of the problem.

(3) The scanners and the prisms, whilst in operation or whilst being started up, kept being subject to lock ups and screen freezing. When this happened, the machine in question could not be used until the machine had been re-booted. On many occasions, this re-booting had to be undertaken many times before the lock up or the freeze was removed.

(4) The freezing problem started from the outset and was still with Gregg at the end of the period under investigation at this trial. Thus, during the December 2001 tests, the scanner froze on two separate occasions, in the middle of winter.

2. Parties' Contentions

291. Gregg's contentions. Gregg contended that the problem was caused exclusively by heat build up within the electronics cabinets or consoles of the scanners and Qualitracs and within the upper electronics cabinet of the prisms.
292. Emhart's Contentions. Emhart contended that there was no problem with lockups apart from during the summer months of 2001, that the problem then was caused by a change in the method of ventilating the factory which led to excessive heat build up within the factory and the machines and that this phenomenon had caused other machines to freeze as well.

3. Analysis of Evidence

293. Overheating within cabinets and consoles. Gregg's case focused on its explanation for the screen freezing. This was that overheating within the machines' cabinets and consoles had occurred because these enclosed spaces, which would have been subject to intense thermal build up from the lights, and other electrics within them, were inadequately ventilated and the resulting heat build up led to software and electrical malfunctioning exemplified by the screen freezing.
294. This conclusion is supported by a consideration of the changes that Emhart made to the scanners. In late 2001, Applied Vision supplied new scanner consoles and the software was upgraded at that time as well. The number of screen freezing incidents dropped thereafter for the scanners. Since the new consoles improved air circulation and, hence the ability to keep the internal temperature lowered and since the software glitches previously reported were heat related, the conclusion to be drawn is that the freezing was the result of heat trapped within the consoles that was released by the new consoles which were properly ventilated.
295. A similar conclusion arises for the prisms. Mr Franke explained with cogency that the electronics cabinet of the prisms contains neither fans nor ventilation grilles. Further heat build up was caused by the design of the adjacent sub-units was such that hot air expelled from these sub-units by fans within them sub-units was expelled into the electronics cabinet. In reality, the entire set of cabinets and sub-units could be considered as one complete enclosure with only two small filters. The two small fans within this enclosure would have no effect of reducing the temperature within it.
296. Gregg also pointed to the high incidence of component failure in the upper electronics cabinet. This was demonstrated by Mr Liska's analysis or Emhart's returned parts data. These failures had all the hallmarks of being caused by heat build up or similar thermal causes. Gregg also pointed out that the facility at Longhorn, Texas, suffered from a high incidence of lockouts. This was the only other customer of the Prism 5000 at that time. These prisms were locking up due to excessive temperature. This led to desk fans being placed at the back of the electronics cabinet. This pointed to overheating within the cabinet as opposed to excessive external temperature as the cause since the Longhorn factory was air conditioned and the prisms were not potentially susceptible to the external influence of a lehr.
297. Evidence of Freezing Greatly Exaggerated. Emhart contended that there were no significant incidents of, or problems with, lockups apart from during the summer months of 2001. Emhart bases this case on the suggested lack of reported incidents within the shift reports. The evidence was, it was suggested impressionistic. Moreover, other equipment was subject to freezing.
298. The absence of many recorded incidents of freezing in the shift reports is not surprising. Freezing, once the machine had been successfully rebooted, did not affect the succeeding shift and the incidents of freezing were, as I have found, so numerous as often not sufficiently significant to warrant a mention in the shift reports. In other words, the Gregg evidence was to the effect that the shift reports presented a misleading under recording of the relevant incidents. The overall thrust of the Gregg witness's evidence was that these incidents were continuous, frequent and disruptive. Mr Gray was aware of Gregg's complaints and also of the repeated replacement of components that had suffered from what appeared to be excessive heat. In contending that there was no evidence of freezing and rebooting, save in the summer months, Emhart was in truth contending that there were few contemporaneously logged incidents. However, unless many of the Gregg witnesses were lying, since their recollection of these incidents was either real or made up, there was in reality much evidence of incidents of screen freezing.
299. Other Equipment was Subject to Freezing. Emhart also pointed to evidence which suggested that other equipment was susceptible to freezing. Mr Henderson accepted that freezing occurred on other equipment just as one's PC at home does from time to time. What Gregg was complaining of was the much greater frequency of freezing, taken in conjunction with the rebooting problems and the high incidence of heat-induced component failures. The evidence supported both conclusions of Mr Henderson, namely that the incidence of freezing was abnormal for the Emhart inspection machinery and abnormally disruptive and that some, but not significantly many, freezing incidents occurred with other equipment.
300. Summer 2001. It had been the custom on the shop floor for two doors opening off the shop floor to a strip of land running alongside the canal to be opened to allow access for operatives to have a break and a smoke and to provide a means of circulating cooler air and ventilating the shop floor. In the early part of 2001, a Health and Safety audit resulted in a direction being given for these doors to remain permanently closed on health grounds, particularly to prevent the ingress of flies. Fly screens and insectecutors were put up. In early summer, there were complaints from operatives that they had lost the facility for cooling and fresh air that the open doors had provided. In about June, or early July, two fans were introduced into the compressor house wall. Four further fans were introduced into the wall overlooking the canal in August but these were soon permanently shut down due to complaints from neighbouring houses about the around the clock noise they created.
301. Emhart suggested that these events had led to an unacceptable heat build up in the summer of 2001 for the period, up to sometime in July, when the ventilation doors were shut and before the fans were introduced. Mr Edwards and Mr Davenport gave evidence about these doors. The effect of their evidence was that the effect on the shop floor environment resulting from the door closures was two-fold: it reduced the circulation of fresh air and it had some, albeit not significant, effect on the temperature within the factory.
302. The door closures would not adversely affect the equipment within the factory unless the effect had been to raise the air temperature above 40 (C since the relevant design standard set that as the maximum permitted external temperature for equipment containing electrical components. The evidence all points to the conclusion that that temperature was not reached or exceeded in the summer months of 2001. Firstly, the external ambient temperature never reached anything like 40(C. Gregg obtained the external air temperatures for the Leeds area, near to Knottingley. These showed that the monthly average temperatures for May, June and July 2001 were, respectively, 15°C, 16°C and 20°C with a highest temperature of 25°C. The evidence also suggested that within the factory, even if all doors and windows were closed, the temperature adjacent to the inspection machines would not have been more than 15°C even allowing for the influence of the hot end and the lehrs. Secondly, had the temperature near the inspection equipment risen much above 40°C, there would have been significant complaints from the operatives since such temperatures would have been very difficult to tolerate. Thirdly, the effect of the door closure could not have run beyond July, yet Emhart would have had it run into the autumn of that year.

4. Conclusion – Lock Ups and Freezing, Scanners and Prisms

303. The conclusion is that the scanners and prisms were subject to repeated and unduly frequent lockouts and screen freezing and that these events had even more of an adverse impact on Gregg's production because of the need on many occasions to reboot the machines several times before they could be restarted.
304. The Emhart inspection equipment was susceptible to heat as a result of heat build up within the cabinets caused by the electronics housed within the cabinets which could not escape because there was no adequate circulation system or ventilation system within or affecting the cabinets. There was no evidence that the shop floor temperatures immediately adjacent to the cabinets ever exceeded 40°C. Moreover, the external ambient temperature never exceeded 25°C in the only period in which it is contended that there had been a temperature build up within the cabinets as a result of excessive temperatures within or outside the factory.

8.4.4. Scanner Component Failures

1. Introduction

305. Gregg contended that there had been an inordinate number of component failures during the two-year period of its operating the scanners, caused by their having been subjected to undue and excessive thermal conditions within the cabinets and consoles as a result of inadequate ventilation into and air flow through the cabinets. There were some failures caused by defective parts supplied by Emhart.
306. The evidence of component failures may be summarised thus:

(1) Motorized lens control assembly. June 2001. The seal camera's motorized control assembly failed to respond to focus controls. This part was accepted by Emhart as being subject to quality deficiencies. The replacement part took over 3 months to arrive from Emhart Glass.

(2) CPU. August 2001. The host CPU was discovered to be failing to pass mould numbers to the Qualitrac. Again, Emhart acknowledged this part as being subject to quality deficiencies.

(3) Zoom lens. August 2001. The zoom lens had to be replaced. Again, Emhart acknowledged this part as being subject to quality deficiencies.

(4) PSU. August 2000. The PSU was not sufficiently accessible for maintenance purposes or to be replaced when it failed in August 2000. The layout was changed to make the PSU more accessible.

(5) Dual output strobe board. The dual output strobe board was replaced by an upgraded board. The modifications were primarily to the grounding of the voltage regulators. Further, the modified surface area for the grounding of the capacitors was considerably increased.

(6) Electronic part failures. On 23 March 2000, Mr Roberts wrote to Mr McMillan and expressed his concern and disappointment at the high level of electronic failures that had occurred. A list of components needing replacement was attached to the letter. This list included the replacement of a camera.

(7) Call outs. Included in the long list of call outs adduced in evidence and in a second list of scanner problems not recorded in the shift logs were a variety of components giving trouble and requiring replacement.

2. Gregg's Contentions

307. Gregg, relying on Mr Franke's evidence, submitted that the extent of the component failures was unduly high and that their cause was their having been exposed to excessive temperature in the closed environment within the cabinets.

3. Emhart's Contentions

308. Emhart contended that Gregg's complaints were hopelessly vague, did not reveal any abnormal volume of failures, save for the summer of 2001 where the significant number of failures were attributable to excessive environmental temperature build up within the factory. Emhart's contentions were based on the assumption that Gregg was claiming that each component failure created a separate breach of contract and claim for damages. On that basis, the particulars of this complaint were insufficient to found claims.
309. Gregg is only using these failures as further evidence of its contention that the machines were unfit for their purpose because they were unduly susceptible, and succumbed, to excessive heat that was allowed to build up within the cabinets rather than being dispersed. Thus, Emhart's complaint about inadequate particulars is unfounded.

4. Scanner Components Failures – Conclusion

310. I accept the evidence that the volume and nature of component failures was greatly in excess of what might reasonably be regarded as normal. Furthermore, the great majority of them were caused by excessive heat conditions and the only source of such conditions, being temperatures in excess of 40 (C, was the sources of heat within the cabinets, which heat was not allowed to dissipate.

8.4.5. Bottle Spacers – Scanner Conveyor Belts

1. Introduction

311. The bottle spacer supplied by Emhart to regulate the flow of containers into the scanners did not operate satisfactorily with non round containers. The bottle spacer failed to locate these containers correctly and it led to false rejection of good ware, non-detection of poor ware and to containers being rejected in a way that caused them to fall into the scanner and to cause the scanner to be stopped whilst the glass was cleared out.
312. During the tests conducted in December 2001, there were repeated failures when non-round ware was being tested. These were explained by Mr Nasakaitis in his first witness statement as resulting from the use of the SBS 1000 Bottle Spacer which was unable to align the straight edges of the container parallel to the conveyor rail or to space the bottles correctly. These placements of non-round containers were necessary for satisfactory inspection. The SBS 1000 uses a star wheel to align and space the glassware whereas a non-round bottle is more satisfactorily aligned and spaced with a wheel to wheel arrangement. This is provided by a different bottle spacer using an 8086D wheel spacer.

2. Emhart's Contentions

313. Emhart's position changed during the trial. Initially, its position had been that the wrong type of bottle spacer had been supplied because Gregg had not provided details of the non-round bottles it intended to put through the scanner so that Emhart had reasonably provided a facility which only catered for round containers. This position relied on Mr Nasakaitis's first statement. However, by the time Mr Nasakaitis came to give evidence, Emhart was contending that the bottle spacer that was supplied was suitable for both round and non-round containers and, by inference, the problems associated with non-round containers were caused by operator error.

. 3. The Evidence

314. Mr Nasakaitis changed his evidence in a witness statement served just before he started to give evidence. This suggested that the SBS 1000 bottle spacer was suitable after all. He was unable to explain how he came to his original view or why he was mistaken in that view. The obvious conclusion, which I find occurred, was that he was made aware of Mr Gray's evidence given two days earlier in which Mr Gray expressed the view that Mr Nasakaitis was wrong to state that the SBS 1000 was unsuitable for non round containers. Mr Gray did state, however, that the wheel to wheel arrangement is more satisfactory even if the star wheel arrangement can work.
315. It follows that Emhart's evidence is relatively consistent. The bottle spacer supplied was either unsuitable or less suitable than the spacer that is reliant on a wheel to wheel arrangement. In the case of the use of the supplied spacer at Knottingley, it proved to be unsuitable for non-round ware. Gregg had chosen the Emhart equipment, in part, because the recommended equipment, including the SBS 1000, was stated to be suitable for both round and non-round ware.

4. Conclusion

316. I conclude that there were problems with non-round bottles caused by the way that these were aligned and spaced before entry into the scanners as a result of the use of a star wheel rather than a wheel to wheel arrangement in the spacer. There is no evidence of operator error and Mr Nasakaitis's original evidence, which supports this view, is preferable to his recanted evidence which was clearly shaped by the less satisfactory, and less experienced, evidence of Mr Gray which had preceded his evidence. It was for Emhart to select and recommend the appropriate bottle spacer for non-round containers which it was aware, from Mr Roberts' discussions with Mr McMillan, would be fed on occasion into the scanner. An incorrect selection of spacer was made. This error only came to light during the December 2001 tests.

8.4.6. Dimensional Inspection Function – Prisms

1. Introduction

317. The dimensional function of the prisms never functioned reliably or consistently. This function checks the containers for defects in the surface of the glass. At best it would work for a short time and then would start to reject good ware and would have to be turned off. The problems arose from two related factors. Firstly, the prisms were over-sensitive to dirt and dust on the mirrors and lenses since any such extrusion would be read as a defect in the surface. Secondly, there was a zone losing problem. The container would be divided into zones such as the neck, body and base. The image of each zone was separately captured and compared with the parameters previously set by the operator. However, zones were lost so that much of the container surface would not be inspected. These losses of zones again occurred because dirt particles on optical surfaces caused the prism to malfunction.

2. Gregg's Contentions

318. Gregg contends that the prism design made it unduly sensitive to dirt and grease. This was, or might have been, in part a software problem. The prism was intended to be used in an environment where air-borne material would inevitably arise and the inspection machines should be designed so that they were not particularly sensitive to such dirt, were able to protect sensitive surfaces so that the prism could resist the entry of dirt onto them and were also designed so that the machine could clean itself and so that critical surfaces could be readily accessed and easily cleaned. In fact, the prisms were over-sensitive to dirt and were further compromised by the relatively hot and dirty environment that Emhart knew that they had to accommodate. Moreover, a built-in cleansing air curtain was designed in a way that ensured that the air curtain exacerbated rather than reduced the dirty surfaces. Finally, these surfaces were not capable of being fully cleaned by Gregg's fitters due to their inaccessibility.

3. Emhart's Contentions

319. Emhart contended that Gregg's complaints were not properly particularised and were hopelessly vague. Firstly, there is no sufficient evidence that there were significant or repeated loss of dimensional functions or zones. Secondly, the zone losses were caused by inexperienced and incompetent setting by Gregg's fitters. Thirdly, Gregg could, but failed, to clean the relevant surfaces sufficiently or at all. The relevant parts were sufficiently accessible as was shown during a cleaning demonstration put on during one of the two views that I attended at Gregg's factory. Fourthly, such problems as occurred were caused by inadequate cleaning, both as to its frequency and as to the way that cleaning was carried out. Fifthly, the malfunctioning of the air curtain was caused by Gregg's failure to empty out the water traps.

4. The Facts

320. Dimensional problems. The inability to inspect container surfaces occurred from the beginning of the period of the use of Emhart's equipment. An example of this problem, which occurred some months after commissioning, was provided by the list of problems that were being encountered at that time that were set out in Ms Pool's email that she sent to Mr Clarke on 25 May 2001. Included in that list was the following entry: "Prism 5000, keeps losing zones". Mr Clarke emailed Mr Schultz soon afterwards and informed him that Gregg was experiencing this problem which: "is another problem which they have had from the beginning". The Gregg witnesses confirmed that dimensional and zone loss problems were persistent. For example, Mr Henderson stated:

"Since [the problem occurred] we do not actually use the dimensional function at all. We actually just open up the parameters that wide that it is academic. … our engineers then learnt basically to open up the parameters to such an extent that the dimensional image was no longer inspected and as such would no longer give us any problem."^[20]

Mr Wood confirmed that problems with dimensional function had started "from day one". Moreover, the dimensional function of the G1-1 prism failed during Emhart's trial in December 2001 and increasing the dimensional tolerances failed to solve the problem. The problem of loss of dimensional function and, to a lesser extent, loss of zones, was clearly a persistent and unresolved one.

321. Software problems. Mr Clarke clearly thought that there was a software problem which was causing the loss of dimensional function. He expressed that view in May 2001. This followed on from a view that had been expressed to Mr Wood that, during the installation, he had been informed by Mr Shultz and Mr Gray that dimensional problems were due to software problems. Furthermore, the Longhorn Prism 5000s also experienced loss of dimensional function, again suggesting that software problems were at least a contributory cause of the problem. The problem was caused because the prism unit was failing to store and to properly compare the pre-programmed dimensional data to the dimensional images produced by the camera. The inability of Emhart to explain and provide a remedy for dimensional loss suggests that software problems had much to do with the overall problem.
322. Oversensitivity to dirt. At the survey carried out in December 2000, the prism was thoroughly cleaned but it only functioned for a few weeks and then at a wide tolerance of +/- 4mm. Mr Diehr had informed Gregg that improvements would be made but none ever eventuated.
323. Air curtain. The prisms were supplied with an air curtain which was intended to blow air over the critical surfaces and, thereby, blow away any dust and dirt particles. This air curtain was supplied from the factory's air lines and the air was passed through a water trap to remove any surplus moisture. The air was found to contain rusty moisture and was turned off in December 2000 as being a creator and not a remover of dirt. This step was taken on the advice of Mr Gray. It emerged during the trial why rusty moisture was being blown onto surfaces within the prism. This was because the design of the line placed an air tank between the water filter and the prism surfaces to be cleaned. The tank was not made of stainless steel and moisture would inevitably enter it with time. That moisture would cause the inner surfaces to rust, as indeed happened. This was discovered when one of these tanks was cut open during the trial to reveal very rusty inner surfaces. The tank was not protected with a filter so that air passing out of the tank could, and obviously did, carry rusty particles onto the prisms' inner surfaces. The rust problem was further exacerbated by the water trap not being provided, as recommended by the manufacturer, with an automatic draining facility so that the trap could fill with water and provide a reservoir for moisture which could be picked up by the air flow.
324. Cleaning routine. Much time was spent in evidence considering what cleaning of surfaces was undertaken and how accessible those surfaces were. It was clear from the demonstration that all surfaces were accessible, but only with the greatest difficulty and in a way which would ensure that some surfaces would not be capable of proper cleaning. Thus, if airborne particles lodged in these barely accessible locations, they would not be able to be removed until the inner surfaces were completely stripped down. It was clear from the evidence that Gregg fitters had a detailed cleaning routine which they put into effect whenever they could obtain access to the inside of the prisms. There is no reason why the surfaces would not have been kept clean had these surfaces been properly accessible and not subject to additional dirt and airborne particles.
325. Lack of training. Emhart made much of the supposed lack of training of Gregg's fitters. There is some evidence that the fitters did lack experience in making the necessary calibrations and in positioning the side locator. However, these difficulties do not appear to have been frequent or recurring and, in any case, it is difficult to see how they affected the occurrence of losing zones. This was not a significant problem in the light of the overriding loss of dimensional function, a problem which was not caused by ill-trained fitters.

5. Conclusion – Dimensional Inspection Function

326. I conclude that there were significant problems arising from the prisms' susceptibility to lose dimensional inspection functions. This problem was caused by three inter-related problems: the software was not sufficiently developed to enable the inspection process to identify and ignore inevitable dirt particles located on screens and other surfaces within the prisms; the inaccessibility of vital dirt-affected surfaces; and the provision of an air screening function which was susceptible to moisture and rust particle inclusion thereby rendering the air curtain a provider of further uncleanliness on critical surfaces rather than a creator of reduced dirtiness on those surfaces. There is no evidence of any failure by Gregg to undertake necessary cleaning routines or to carry out those routines in an inefficient or unsatisfactory manner.

8.4.7. Communication Loss Between Cameras and Computer – Prisms

1. Introduction

327. In January 2001, Mr Clarke recorded that there was a problem in communication between the cameras and the computer. This communication relates to the image of the container which is fed to the computer and is used to enable the image to be compared with information stored there so as to enable the prism to accept or reject the container. Without any communication, the prism cannot perform its inspection function. Mr Clarke reported that he thought the problem was caused by the MAC1. Emhart did not produce a response to this problem and twelve months later Mr Clarke thought that he had identified the problem as occurring because of a defect in one of the light boards. This problem then remained unsolved. During the December 2001 tests, the loss of communication occurred twice in one day and it re-occurred in January 2002. The result was that Gregg had to reboot the prism whenever the problem occurred. Mr Nasakaitis expected Gregg to live with this rebooting problem.

2. Emhart's Contentions

328. Emhart contended that the problem referred to is, in fact, a series of different problems and overall, there was little of substance in the complaint.

3. Conclusion – Communication Loss Between Cameras and Computer – Prisms

329. This complaint did not feature prominently in the communications before the trial and clearly, to some extent, overlaps with other complaints about the prism. There is nothing additional of substance.

8.4.8. Component Failures - Prisms

330. This complaint is similar to that already dealt with in relation to the scanners. The cause of these failures was excessive heat within the electrical cabinets and inadequate components. The particular components about which complaint is made include the IOP or input/output processor on the G1-1 line. This took over 5 months to replace. Mr Bain described how card after card was replaced, often using cards from Gregg's own stores although the replacement was being undertaken under warranty. Other parts, such as the VGA adapters, were also replaced.
331. Emhart's response is similar to its response to the complaints about the scanner component replacement complaint, that the complaint is not particularised, overstated save for the summer of 2001 where the factory was allowed to get overheated and that affected the equipment's electrical components.
332. My conclusion is that there was an unacceptable number of replacements compounded, in the case of the IOP, by an unacceptable delay in obtaining a replacement. There was no appreciable increase in temperature in the factory in the summer of 2001, the complaints were caused by inadequate ventilation in the prism cabinets and software complaints which Emhart never succeeded in remedying.

8.4.9. Encoder and Cables – Prisms

333. The encoder mounting was damaged by falling glass and often became loose. Falling glass also damaged cables untidily left hanging under the prisms. The encoder was fixed with only two screws on an insecure mounting and often became loose.
334. Emhart disputed that there was any problem with encoders or cables.
335. I conclude that the design of the encoder fixing and the layout of the cable runs could have been better but the design shortcomings were not such as to give rise to particulars of a breach of contract. The design could have been better throughout but nothing serious resulted from an imperfect design.

8.5. When the Problems and Deficiencies Occurred

336. The problems of which Gregg complained can be listed as follows:

(1) Screen freezing, and lock outs and rebooting problems on a regular but intermittent basis on both scanners and prisms;

(2) VMNR and base inspection functionality unobtainable or intermittently unreliable on the scanners;

(3) Dimensional inspection functionality, including zoning, intermittently unreliable on the prisms;

(4) Operational difficulties such as loss of communication between the prism cameras and their associated computer, encoder malfunctioning and damaged cabling;

(5) Repeated component failures; and

(6) Particular difficulty achieving prism inspection of non-round glassware.

337. These problems gave rise to repeated stoppages, start-up difficulties, glassware being rejected when it should have been accepted and vice versa, non-inspection by the machines of particular features which were intended to be inspected by the machines and machine jamming and damage to cables. In short, the machines were not reliable and were difficult to operate, required additional labour and manual inspection facilities to be operated alongside them and they caused Gregg loss of production, revenue and goodwill.
338. These problems occurred throughout the period from October 1999 to December 2001. In particular, the machines were unreliable throughout that period, caused loss of production and were difficult to operate. The majority of the deficiencies giving rise to these problems were in play for the whole of that period. In particular, there was no part of that period when Gregg could rely on the machines being free of the following difficulties: random but regular screen freezing and lock outs; loss of or unreliable scanner base and VMNR and prism dimensional inspection functionality; interference with prism non-round inspection functions; abnormally high numbers of component failures; and general unreliability of the machines.

8.6. Conclusion – Issue 5

339. The answer to Issue 5 is:

"(a) The problems experienced by or with each item of Cold End Equipment included the following:

(1) Screen freezing, and lock outs and rebooting problems on a regular but intermittent basis on both scanners and prisms;

(2) VMNR and base inspection functionality unobtainable or intermittently unreliable on the scanners;

(3) Dimensional inspection functionality, including zoning, intermittently unreliable on the prisms;

(4) Operational difficulties such as loss of communication between the prism cameras and their associated computer, encoder malfunctioning and damaged cabling;

(5) Repeated component failures; and

(6) Particular difficulty achieving prism inspection of non-round glassware.

(b) These problems occurred throughout the period from October 1999 to December 2001. The problems were not all occurring at all times but at no time in that period was Gregg able to rely on any one of these problems as having been solved or eradicated since none of them was ever clearly and obviously eliminated.

The issue was defined by the parties as relating to the Relevant Period which was also defined by them in the issues as ending in December 2001. The definition of the Relevant Period was extended by the parties by agreement to cover the period up to May 2002 and my findings and conclusions relating to the problems experienced by the machines in the period up to December 2001 also relate to that extended period between January and May 2002 since similar problems were still being encountered by the machines in that period."

9. Issue 6 – Gregg's Defaults

9.1. Maintenance and Cleaning of Equipment

340. The issue is:

"During the Relevant Period, did Gregg & Co. and/or AGC carry out adequate maintenance of the Cold End Equipment?"

341. This issue is concerned with both cleaning of the internal parts of the machines, particularly of dirt, dust, oil or grease on surfaces where its presence in minute quantities could affect the functioning and integrity of the inspection process, and routine and protective maintenance. Emhart contended that Gregg regularly failed to undertake either function or to undertake it with all necessary workmanship and dedication so as to cause, or make worse, many of the problems that are now complained of.
342. Emhart's contentions are based in part on two assertions. Firstly, it was contended that Gregg's difficulties in properly cleaning and maintaining the machines were in part the result of its siting the machines in a way that placed their access doors so close to other machines and the by-pass lines as to preclude adequate access. However, Gregg's case, which was fully demonstrated to me during my two views, was that access was possible, albeit with difficulty, and that when the machines were off line careful and patient access was possible to all surfaces which were accessible. Moreover, Emhart had installed the machines and had not, during installation or subsequently, advised on a relocation or re-ordering of the cold end line layouts because the present arrangements precluded adequate maintenance or cleaning.
343. Emhart also contended that all surfaces within the prism, which was more susceptible to interference from airborne dirt than the scanner, were readily accessible but that Gregg failed to clean them regularly and, when it did, used inappropriate methods to clean them. Emhart pointed, in particular, to the full water trap it had discovered on occasion leading to a dirty moist air curtain and, in turn, dirtier and not cleaner surfaces and to the suggested use of a vinegar-based liquid as shown during the demonstration. However, the air curtain proved to be unreliable and unsatisfactory for two reasons. Firstly, it proved to be the means of adding rust particles to optical surfaces due to the design of the air tank. Secondly, its design and method of operation was inadequate for the task of blowing clean surfaces impregnated with dirt, particularly dirt which was adhering to a greasy surface.
344. The demonstration showed that inappropriate vinegar-based cleaning fluid was not being used, this was only used for external metal surfaces. More significantly, the demonstration showed that it was quite impractical to attempt to clean internal mirror surfaces except when the machine was stripped down, an occasional but not regular occurrence. These surfaces were readily accessible to the dirty oily airborne particles emanating from the hot end yet regular and thorough cleaning of them, even during line shut downs at product change over, was not feasible. This proved to be a significant deficiency because it was obviously these surfaces that were causing many of the functionality malfunctions within the prism over the whole period with which I am concerned.
345. The evidence showed that Gregg did train and instruct its operatives to carry out such appropriate and continuous cleaning tasks whilst the inspection lines were running and that these tasks were regularly carried out. However, most critical surfaces were only accessible, if at all, when the lines or machines went off-line. Even so, there were particularly critical surfaces which could not then be thoroughly accessed and such surfaces could only be cleaned during the infrequent machine stripping down operations. Although the layout of the cold end lines made access more difficult, sufficient access could be obtained to the inside of the machines to clean all accessible surfaces. It follows that the way that the lines were laid out did not contribute to the problems of cleaning and that, in any case, Emhart never clearly and unequivocally advised Gregg, whether during the installation or subsequently that the layout should be adapted because the current layout was compromising the cleaning and maintenance process. The real problem was that airborne dirt could access internal critical surfaces and these were laid out so as to prevent their being thoroughly and regularly cleaned. Undoubtedly, the adjacent position of the hot end made this problem of airborne dirt greater than for many plants but Emhart had contracted on the basis that their inspection machines were to be fit for use with such an arrangement. Had the surfaces been readily accessible whilst the machines were working or had the surfaces been insulated from airborne dirt, there would not have been a problem with cleaning notwithstanding the layout of the hot and cold end lines adopted at Knottingley.
346. As for maintenance, there is no evidence that Gregg failed to carry out regular maintenance and maintenance inspections. It had a well-trained team of engineers and, tellingly, Mr Gray acknowledged during his evidence that the various problems affecting the prisms and scanners would not have been avoided or solved by further maintenance. Emhart had offered Gregg a maintenance contract in late 2001 which Gregg did not take up because it seemed, at the time, to be being offered by way of excuse. Emhart never demonstrated, during their investigations or during the trial, what maintenance was not performed which should have been performed or how the lack of such maintenance caused or exacerbated the problems that Gregg encountered.
347. A final aspect of this complaint is the suggestion that Emhart regularly made that Gregg failed to acquire any stock of spare parts so that when a component failed, there was a delay whilst a replacement was obtained from either Emhart or from Emhart Glass Inc in Elmira. Emhart never demonstrated why Gregg should have obtained any large stock of spare parts whilst the extended warranty was in operation and being worked or how down time could have been avoided by obtaining such a stock, given the regular and rapid response Emhart's engineers provided to each call out and its continuous replacement, at no cost, of any component that failed. Gregg's attitude, which I find to have been a wholly reasonable one, was that it would only invest in obtaining spare parts, a complete kit of which would have cost many thousands of pounds, once the machines had fully proved themselves and had finally come out of warranty.
348. The answer to Issue 6(a) is:

"Gregg carried out adequate and regular maintenance, including all necessary cleaning that could be carried out, of the cold end equipment. Such maintenance included, in the particular circumstances in which it found itself, the decision not to purchase or acquire any stock of spare parts until the machines had proved themselves and had come out of warranty. During the Relevant Period, that never happened."

9.2. Operation of the Equipment

349. Issue 6(b) and (c) reads:

"During the Relevant Period

a. Did Gregg & Co. and/or AGC (b) set up and operate the Cold End Equipment properly; and (c) provide adequately trained staff to operate it?"

350. This issue is largely as to whether, as Emhart contends, Gregg failed to take up Emhart's offers to provide training to all its personnel and whether that failure caused or contributed to the problems that occurred. Emhart contends that had Gregg taken up its offers to provide training to those responsible for operating and maintaining the machines, Gregg would have experienced fewer, or even no, problems. As a corollary to this contention, Emhart contends that such training as was given to the operators and engineers by Gregg was inadequate and that the machines were not set up, operated, maintained or repaired satisfactorily.
351. These contentions face a number of insurmountable difficulties. The first is that they involve the contention that Emhart's Scanner and Prism 5000 machines were so complex that only an Emhart-trained engineer or fitter could set them up and operate and maintain them. However, these machines were sold as being particularly user-friendly and as being easy to operate, reliable and consistent. It is inherent in that approach, therefore, that one of the qualities of these machines was that they could be used by those who had had basic but readily available training. The machines were also supplied with very detailed manuals and there was no evidence adduced to the effect that a competent and experienced engineer in the field of glassware cold end inspection machines could not train himself or herself into the necessary operational procedures with the assistance of someone already well versed in their operation and with the help and guidance of the manuals.
352. This approach, in which initially personnel would be trained by Emhart and such personnel would then form the nucleus of Gregg's trainers, a "train the trainers" approach, was adopted by Gregg. Different Gregg personnel were trained on three separate occasions at Elmira and on a further two occasions at Doncaster. Furthermore, Mr Shultz provided detailed training to a number of Gregg personnel during the installation and commissioning process. Assistance, advice and further training was given on an ad hoc basis by Mr Clarke and Mr Gray during their many troubleshooting visits to the factory and during more extended visits for testing and investigations. The personnel who had been trained in this way then passed on their knowledge and experience to others in "on the job" training. Emhart pointed to an occasion when Ms Pool wrote an internal report which pointed out that there were too few engineers who had been trained in using Emhart inspection equipment. However, all that report demonstrates is that Gregg continued to monitor its own capabilities so far as the Emhart machines were concerned and when it was pointed out that their existing stock of trained engineers was too low, Gregg took steps to increase the number of its engineers who could work with the scanners and prisms.
353. A further difficulty with Emhart's contentions is that no evidence was adduced to show what difference the suggested lack of training made or how any of the problems that occurred would have been obviated by there being a larger number of Emhart-trained engineers available to work, and actually working, on the Emhart machines. Such evidence would also have needed to show how Gregg's operatives were operating the machines in an unsatisfactory manner, what difference that made to their output and performance and how training would have assisted. Again, no such evidence was adduced. In fact, such evidence as there was about Emhart's training and training methods suggested that its training was not entirely satisfactory. None of the Gregg employees who were trained by Emhart was provided with any training in how to troubleshoot, a serious deficiency with complex machinery, particularly machinery so heavily dependent on computer run optical and light-based equipment. Furthermore, little training was provided for the prism or for the Scanner as opposed to an earlier version of the scanner.
354. A final difficulty is that, although a lack of training might have explained difficulties in the first few months of the Emhart machines' operation, it could not explain why similar difficulties continued to re-occur for over two years thereafter. The methods adopted by the experienced engineers to set up the machines, using the user-friendly touch screens to input the necessary data and settings were, on the basis of the evidence adduced at trial, wholly appropriate. Indeed, some of the witnesses who gave evidence, particularly but not only Mr Pawinski, showed themselves to be of the highest quality when it came to the techniques of operating the Emhart machines. Mr Pawinski both could and did, when required, provide a master class in Emhart inspection machine operating methods to less experienced engineers in relation to their relatively straightforward setting, operating and maintenance procedures.
355. It follows that Gregg was not deficient in either the training it provided to those operating the Emhart machines or in the setting up, operating and maintenance that these personnel provided. Much of the training that was provided was of the practical on the job variety, again wholly appropriate for the machines and the setting at Knottingley in which they were being operated.
356. The answer to Issue 6(b) and (c) is:

"Gregg both set up and operated and provided adequate staff training for the Emhart scanners and prisms."

9.3. Issue 6(d) – Working Environment

357. Issue 6(d) reads:

"During the Relevant Period:

(d) Did Gregg & Co. and/or AGC maintain a normal and adequate environment for the operation of the Cold End Equipment?"

358. Emhart suggested that many of the problems arose because Gregg had incorrectly sited the cold end unduly close to the hot end so as to make it more susceptible to heat, dirt and grease. Furthermore, these problems were exacerbated by locating the inspection machines too close to the lehrs and by not providing sufficient ventilation in the summer months, thereby subjecting the machines to undue heat and dirt. A further problem, Emhart suggested, was that the inspection machines were placed in too confined a space to enable satisfactory access to their inner working for cleaning purposes.
359. I have already dealt with these contentions in earlier passages in this judgment. I can summarise my reasons for rejecting them:

(1) The operating methods adopted by Gregg, in particular the hot end/cold end inter-relationship, the line layout in general terms and the precise location of the machines on the line and in relation to other machines, were all agreed to by, and known to Emhart before, during and after, their installation. Nothing was said with sufficient clarity to register Emhart's advice, if this was its view, that the machines were poorly sited.

(2) The hot, relatively dirty and greasy airborne conditions were known to Emhart who contracted on the basis that the machines would be fit for working in such conditions.

(3) The ambient temperature outside the factory never rose above 25°C and the temperature outside the machines but adjacent to them never rose above the permitted 40°C. The excessive temperatures to which the electrical components were subjected occurred because the inside of the cabinets housing such equipment were not properly or sufficiently ventilated.

(4) The conditions in the factory were kept sufficiently clean and appropriate cleaning and maintenance procedures were in operation. Both Mr Franke and Mr Pugh, who were independent of Gregg but who each had considerable experience of other glassware cold end lines, were of the view that Gregg maintained a satisfactory factory with appropriate standards of cleanliness and temperature on the shop floor and in the factory. This view was supported by Mr Baugh, Mr Gray, Mr Davenport and Mr Edwards.

360. The answer to Issue 6(d) is:

"Gregg & Co and/or AGC maintained a normal and adequate environment for the operation of the cold end equipment."

9.4. Issue 6(e) – VMNR Function

361. Issue 6 (e) reads:

"During the Relevant Period, did Gregg & Co. and/or AGC control the glass forming process sufficiently to ensure a properly defined mould number?"

362. I have already dealt with this issue at length. In summary, my findings are:

(1) The only standard for the parameters within which the definition of acceptable alpha-numeric code for the purposes of recognition by the VMNR function of the scanner provided by Emhart was the statement that the specimens provided for testing in June 1999, which comprised a wide range of quality, were all recognisable.

(2) There was no evidence that the quality of alpha-numeric code produced by Gregg fell below that standard or that the IS Forming machines feeding all three cold end lines were producing, at any time, sub-standard alpha-numeric engravings.

(3) In any case, Emhart contracted to supply the scanners on the basis that they would be fit for VMNR alpha-numeric recognition for all glassware produced to the standards achievable by one of the IS Forming machines it had supplied to Gregg so long as that machine was functioning and operated in a reasonable manner. There was no evidence to suggest that any glassware offered up for alpha-numeric recognition in the Relevant Period fell outside that defined purpose.

363. It follows that Gregg controlled the glass forming process sufficiently to ensure a properly defined mould number.
364. The answer to Issue 6(e) is:

"Gregg & Co. and/or AGC did control the glass forming process sufficiently to ensure a properly defined mould number."

10. Issue 7 – Gregg's Knowledge of the Scanner's Limitations at the Time of Contract

365. Issue 7 reads:

"At the time of entering into the contract or contracts referred to in Issue 1 above; was the Genie Vision Mould Number Reading software new and relatively untested and not yet released commercially by Emhart? Was Gregg & Co aware that the Scanner would require additional testing and further final development on site during operation?"

366. Although this was an issue that was defined on the pleadings, it was not addressed separately during the trial. However, there was evidence adduced which enables these findings to be made:

(1) At the time the contract was entered into, the Genie software, which provided the VMNR functionality, was new and still in the course of development.

(2) Apart from the order for the supply of a Scanner or Scanners to Rockware Glass's factory at about the time that Gregg bought three such machines, there was no evidence that the software had previously been released commercially by Emhart and there was no evidence as to when Emhart contracted with Rockware.

(3) Gregg was unaware of the fact that the Genie software was new, still in the course of development, not previously commercially released and requiring additional testing and final development on site during operation or elsewhere.

(4) There was no evidence adduced at the trial as to whether, and if so, what, further testing was required or further site development was needed or intended at the time Gregg contracted with Emhart.

367. What was clear from the subsequent history and performance of the Scanners, both in relation to the VMNR function and in relation to its repeated freezing and locking up, its regular and repeated series of component failures and the general unreliability the Scanner demonstrated during its two year history of operation at Knottingley during the Relevant Period is that the Genie software was in need of further testing and development and that without that further upgrading, the Scanners could not perform to the contractual standards of merchantability or fitness for purpose.
368. The answer to Issue 7 is:

"Gregg was unaware of the fact, which was a fact, that the VMNR Genie software was new and relatively untried, had not yet released commercially and would require additional testing and further final on-site development during operation."

11. Issue 8 – Causes of the Problems Identified In Issue 5

369. The causes of the problems identified in Issue 5 were seven-fold:

(1) The software for both machines, particularly but not confined to the Genie software, was not sufficiently sensitive or responsive to the inspection functions it had to perform under the conditions prevailing at Knottingley.

(2) The VMNR and base inspection functions to be performed by the Scanner could not be undertaken, as they were manufactured to undertake them, using the same light source and camera. A dual light source and camera were required.

(3) The electrical components in both machines were enclosed in cabinets in a way that would ensure undue build up of heat and no sufficient means of reducing temperature build up and maintaining air circulation or ventilation within the cabinets was provided. In consequence, many of the components malfunctioned and required to be prematurely replaced and the screens were subject to repeated and intermittent freezing and lock outs.

(4) The surfaces within the machines, particularly the prisms, were very susceptible to heat-induced dirt and grease contamination and the machines were, in consequence, prone to malfunction and to wrongly identify good glassware as bad and vice versa. This problem arose because the relevant surfaces were not sufficiently protected to prevent such ingress and were not sufficiently accessible at all times to enable them to be cleaned properly on a regular basis. This particularly led to dimensional inspection malfunction and loss of zones and camera/computer communication.

(5) The prisms were not able to provide regular and reliable inspection functionality for non-round glassware containers.

(6) Many components suffered from manufacturing defects, resulting in undue replacement of such components.

(7) The water trap for the FD filter and the air tank located between the filter and the surfaces to be cleaned were not suitable as installed and allowed rust, dirt and moisture to be blown across and to be lodged onto the surface of the screens that were to be cleaned whilst the air curtain was attempting to clean them.

370. In summary, therefore, the machines contained design deficiencies, inadequate software and materials and components which were unfit for their intended purpose and defectively manufactured. These complaints related particularly to the software, the ventilation of the electronic cabinets, the air curtain, the light/camera arrangement for the VMNR and base inspection facilities of the prism, the prism bottle spacers encoder and access facilities and a variety of other components.
371. The answer to Issue 8 is:

"The cause of the problems suffered by Gregg was that the Scanner 8200 and the Prism 5000 machines contained design deficiencies, inadequate software and materials and components which were unfit for their intended purpose and defectively manufactured. These complaints related particularly to the software, the ventilation of the electronic cabinets, the air curtain, the light/camera arrangement for the VMNR and base inspection facilities of the prism, the prism bottle spacers encoder and access facilities and a variety of other components."

Issue 9 – Breach of Contract

12.1. The Issue

372. Issue 9 reads:

"9. In the light of the answers to Issues 5 to 8 above:

(a) Was the Cold End Equipment of satisfactory quality at the time of its supply and/or installation and/or commissioning?

(b) Was the Cold End Equipment fit for its known purpose (as identified in Issue 3 above) at the time of its supply and/or installation and/or commissioning?

(c) In so far as some of all the matters identified in Issue 6 and 7 above are established by Emhart, to what extent (if at all) do they affect Emhart's liability (if any) in respect of breach of contract referred to in (a) and/or (b) above (if established)?

12.2. Suitability and Fitness for Purpose

373. In the circumstances of this case, the appropriate test for suitability and fitness for purpose imposed by section 14 of the SOGA is as follows:

(1) It is first necessary to determine whether, at the time of sale and commissioning, the machines were able to perform all of the functions for which they were designed and whether they were free from defects and both durable and reliable (section 14(2B) of SOGA).

(2) The functions referred to are those for which the machines were marketed generally. These included the provision of the functionality they were intended to provide in a reliable, durable and user-friendly manner.

(3) The necessary functionality and durability required may be demonstrated to be absent by a detailed consideration of what functionality was provided, and with what consistency and over what period of time. This demonstration period may be, on the unusual facts of this case where the machines remained under warranty for over 2 years, for the whole of the Relevant Period.

(4) It is then necessary to determine whether the machines were fit for the purpose of being used in conjunction with the Knottingley IS machines in the cold end lines so as to be situated close to sources of heat from the hot end and the lehrs (section 14(2C) of SOGA).

374. In the light of my findings in sections 5, 7 and 8 above, there can be no question but that the three Scanner 8200s and their associated Qualitrac and the three Prism 5000s were neither satisfactory nor fit for their intended purposes.

12.3. Gregg's Defaults

375. In the light of my findings in Issues 6 and 7 above, Emhart's liability is not affected, diminished or removed by any default or knowledge by Gregg of the Genie software. Gregg was not in default in any relevant respect and had no relevant knowledge at the time of the contract of any shortcoming, further design development or novelty of commercial release of the Genie software.

12.4. Conclusion – Issue 9

376. The answer to Issue 9 is:

"(a) and (b) The cold end equipment was not of satisfactory quality nor was it fit for its known purposes identified in Issue 3 at the time of its supply, installation or commissioning.

(c) Emhart's liability is not affected by any default of, or knowledge possessed by, Gregg."

13. Issue 10 – Rejection

377. Issue 10 reads:

"10. Were Gregg & Co and/or AGC entitled to reject any of the Cold End Equipment? Have Gregg & Co. and/or AGC lawfully rejected any of the Cold End Equipment? If not, are they entitled to reject it now?"

378. There was some confusion as to what remedy Gregg was claiming as a result of the breaches of contract that have occurred. Two possible remedies were in play. The first, a particular remedy provided by SOGA, allows a buyer to reject goods on delivery and to return them and recover the price if, on inspection, those goods are not satisfactory, fit for purpose or do not conform to their description. That remedy is lost, however, once the buyer has inspected the goods or has had a reasonable opportunity to do so but failed to take it. The second remedy is the conventional remedy open to a party where the other party has so seriously breached the contract that he has evinced an intention not to be bound by its terms and has, in consequence, repudiated it. When that occurs, the innocent party may accept that repudiation and no longer be bound by the contract. That remedy is sometimes called rescission or rejection.
379. In this case, it is no longer open to Gregg to reject in the first SOGA sense. The machinery had been operated commercially for nearly 30 months, had been built into the factory, had largely been paid for and is still, to some extent, in use. The machinery had been subject to the warranty offered by Emhart after delivery and commissioning and had been so subject for over 2 years. Although the machinery was defective from the outset, and known to Gregg to be defective, Gregg opted to keep the machinery and rely on its warranty rights to seek to remedy those defects. Finally, a claim for over £2m for the direct consequences of working for over two years with defective machinery does not fit easily with a return of the goods and an entitlement to the repayment of the paid portion of the purchase price.
380. Thus, what Gregg was doing, in May 2002 when rejecting the equipment was treating the continued non-functioning of the machinery after the extended 10-day tests in December 2001 despite Emhart's best efforts to remedy the machinery under the auspices of its warranties, as a repudiation by Emhart of the whole contractual relationship and to be accepting that repudiation. Thus, Gregg are confined to a remedy in damages which may not include a claim for the repayment of the purchase price but may include any direct loss incurred including, if it be the case, the purchase or premature purchase of replacement machines.
381. The answer to Issue 10 is:

"Gregg & Co. and/or AGC were entitled to treat Emhart as having repudiated the contract for sale and for the supply of after sales services as having been repudiated by Emhart so as to allow it to accept that repudiation in May 2002. That is what Gregg did. Gregg is now entitled to damages for all directly incurred losses recoverable at law for that repudiation.

Gregg & Co and/or AGC were not entitled to reject the machinery in the sense of being entitled to exercise their rights under the SOGA to return the goods and recover the paid portion of the purchase price."

14. Issue 11 – Negligence and Breach of Duty

14.1. The Issue

382. Issue 11 reads:

"11. In the light of the answers to Issues 5 to 8 above:

(a) Were Emhart, its servants or agents, negligent in and about the steps taken (or not taken) to investigate and/or diagnose and/or remedy such problems experienced by or with the Cold End Equipment?

(b) Is Emhart liable to indemnify Gregg & Co. and/or AGC for the consequences of such negligence?

(c) In so far as the matters identified in Issues 6 and 7 above are established by Emhart, to what extent (if at all) do they affect Emhart's liability (if any) in respect of negligence referred to in (a) and (b) above (if established)?"

383. Clearly, in the light of my finding that there is no applicable indemnity clause, issue 11(b) no longer arises. Furthermore, issue 11(c) is no longer relevant since I have already resolved, in issues 6 and 7, that these issues do not arise. Thus, only issue 11 (a) remains a live issue.
384. The only remaining issue under Issue 11 is, therefore, whether or not Emhart was negligent in the steps it took to investigate, diagnose and remedy the various serious defects from which the machines suffered during the Relevant Period. Gregg contends that Emhart was negligent in the following respects:

(1) Emhart provided inexperienced and poorly trained trouble shooters in Mr Gray and Mr Clarke who were supported by Mr Roberts who was insufficiently informed about the problems with the prism and scanner. Thus, the real deficiencies giving rise to the problems confronting Gregg were not identified at any stage or remedied.

(2) Mr Autieri and Mr Shultz spotted that there was an excessive build up of heat in the upper electronics cabinets of the Prism 5000 as a result of their troubleshooting work at Longhorn and Knottingley as early as March 2000 yet nothing was done at Knottingley. Fans were installed in the Longhorn cabinets but a similar facility was not suggested for the Knottingley prism cabinets.

(3) The machines were plagued by so many fundamental design and manufacturing problems, all of which could and should have been identified and eradicated at an early stage. Instead, Emhart devoted its energies to low level troubleshooting using inexperienced engineers.

385. Emhart contends that there is no evidence of any breach of duty and, generally that since there were no deficiencies in the machines, there could not have been any negligent trouble shooting.
386. It is necessary first to consider what the duty is that it is alleged was broken. That duty was to provide diagnostic and troubleshooting services in a situation where the machines were subject to a recurring series of problems which made them both unreliable and prone to repeated breakdown. This had led Gregg to submit claims as early as 25 November 1999 and to make further serious complaints in February 2000. These complaints led not only to the visits by Emhart's engineers but to visits and diagnostic investigations of the machines by Mr Shultz from Elmira in December 1999 and September 2000. Thus, at the heart of Gregg's complaint is the suggestion that Emhart, with its inside knowledge of both machine types and of the problems they were obviously prone to, should have undertaken sufficient investigations of the problems at an early stage so that, within a few months of the machines being commissioned, Emhart had diagnosed and listed the causes of the problems, have advised Gregg about their existence and proposed remedial solutions. The self evident nature of these problems is such that Emhart, exercising the reasonable skill and care of a competent designer and manufacturer of specialist equipment could and should have identified and eradicated the problems in question.
387. This general case is overwhelming. The overall problems were ones associated with software, heat build up in the cabinets, dirt and grease entering the machines as a result of the close proximity of the hot end, non-existent dual functionality in relation to the VMNR and base inspection scanner functions, loss of inspection functionality in the prism and scanner, inadequate air curtain functionality and poorly performing non-round functionality in the prisms. These problems were largely known about by Emhart in early 2000 yet nothing was done to eradicate them. In this general respect, Emhart failed to exercise reasonable skill and care and was in breach of duty in not providing a clear cut and comprehensive diagnosis and remedial action plan within six months of the machines being commissioned.
388. It will remain for decision at a later stage what loss and damages are recoverable. It is by no means certain that Emhart could have done anything significant about these machines so as to save Gregg the costs now being claimed. On analysis, Gregg may be shown to have lost the chance of rejecting the machines and reclaiming the purchase price or of successfully persuading Emhart to replace the scanners and prisms with more reliable better developed successor machines. It is by no means obvious that the entire current claim for damages can be shown to have been caused by the negligent failure to provide appropriate advice to Gregg within about 6 months of commissioning. These problems, however, remain for solution when causation and damages are considered at the second trial.
389. The answer to Issue 11(a) is:

"Emhart, its servants and agents were negligent in not sufficiently investigating and diagnosing the causes of the problems besetting the machines and in not providing Gregg with a detailed, full and definitive analysis of those problems and of proposed solutions to them within a few months of the machines being installed and commissioned."

15. Issue 12 – Assignment and Estoppel

15.1. The Issue

390. Issue 12 is:

"12. Did AGC become a party to the relevant supply contract(s) by reason of: (a) assignment; (b) novation; (c) variation; and(d) estoppel?"

15.2. Assignment

391. Allied Glass's entitlement to sue Emhart for both its losses since 18 September 2000 and Gregg's losses prior to that date are alleged to derive from a business transfer agreement of that date which was part of an internal business transfer and merger. This agreement assigned to Allied Glass "all current trade contracts". Allied and Gregg contend that the contract for the sale of the machinery and the provision of after sales services was both a trade contract and a current trade contract. Emhart contends to the contrary.
392. Trade contract. Emhart contended that, in the context of the assignment of Gregg's business from Gregg to Emhart, a "trade contract" was one for the sale of glassware and, possibly, for the purchase of the necessary raw materials. This phrase would not cover, for example, contracts for the refashioning or refurbishment of the plant.
393. I cannot accept this contention. If the expression "trade contracts" has the limited meaning contended for, the appropriate expression that should have been used would have been "trading contracts". What was clearly intended to be transferred was any contract which involved or related to the manufacture, inspection and sale of glassware. The new company was acquiring the entire business of the old company, not just its goodwill and customer base. It was, therefore, acquiring the means of manufacturing the glassware as well as the stock, on-going contracts for the sale of glassware and current orders. Any contract which related to that trade, including those for the refurbishment of the machinery involved in the manufacture of the glassware, was, in context, a "trade contract".
394. Current. Emhart contended that the contract for the sale of the machinery was no longer current since the machinery had been delivered, installed and commissioned in October 1999 and the contract was, therefore, no longer current thirteen months later. That contention is not one that is consistent with the facts. A contract is "current" if its performance is still being undertaken or if claims for damages for non-performance or breach are still outstanding.
395. In this case, Gregg had asserted that the machines were not performing correctly during the early days of their coming on-line and Emhart had started to attempt to remedy these deficiencies. This work was undertaken as part of the contract services whereby an after sales service was contracted for, being the provision of a "pre-active planned maintenance programme". Moreover, Emhart had provided a warranty for the machinery supplied which had been extended, was still active and under which regular and frequent engineer's visits were being made and troubleshooting services were being supplied. Gregg, throughout the period from November 1999 until September 2000 and beyond was asserting claims against Emhart and the continuing engineering services being supplied and extensive replacement parts being provided free of charge were all being provided by Emhart as part of the contact services, the warrant and the attempts to meet and resolve the claims and disputes that had arisen.
396. For all those reasons, the Emhart contract was still current on 18 September 2000. As a result, the contract of that date successfully assigned all the benefits of Gregg's contract with Emhart to Allied Glass.

15.3. Estoppel

397. Had it been necessary, Gregg and Allied would have contended that Emhart was now estopped from arguing that Gregg had not assigned to Allied Glass the benefits that had accrued to Gregg under its contract with Emhart. Gregg pointed to the following facts as showing that Emhart knew that there had been a business transfer of the contract to Allied Glass and continued to do business with Allied Glass in relation to the machines. It had therefore acquiesced in, and impliedly represented that it accepted, the assignment to Allied Glass of the benefits of the contract.
398. Mr Roberts accepted that, from March 2000, he knew that Gregg was going to merge with a new company, being Allied Glass. He also knew that Gregg was going to cease to trade as an independent company. None of this made any difference to Emhart. He also accepted that, from September 2000, Allied was Emhart's customer and that it had "stepped into the shoes" of Gregg.
399. Emhart contended that no clear and unequivocal representation had been made that it accepted that Allied Glass had stepped into Gregg's shoes and no convention had been established because there was no shared or common understanding that Allied Glass had replaced Gregg for all purposes under the contract with Emhart.
400. I cannot accept Emhart's contentions. Throughout the subsequent course of dealing following the 18 September 2000 business transfer contract, Gregg and Allied Glass acted as if they were the contracting parties for all purposes. Emhart was looking to Allied Glass to settle the outstanding invoice originally rendered to Gregg, Allied Glass was the only party dealing with Emhart and Mr Roberts accepted that Allied Glass had stepped into Gregg's shoes, had inherited Gregg's position under the contract and was now the only on-going party to its contract for the supply of machinery and related services to the Knottingley factory.
401. For all those reasons, had there been no contractual assignment, Emhart would now be estopped by both representation and convention from denying that Gregg had assigned to Allied Glass all its benefits under the contract with Emhart and that Allied Glass was the contracting party for all benefits and liabilities whether these had arisen before or after the 18 September 2000.

15.4. Negligence Claims

402. For reasons already given, I have held that Allied Glass was owed a duty of care by Emhart from 18 September 2000 and that Gregg may sue for pre-September 2000 losses and Allied Glass for post-September 2000 losses. The pre-September 2000 losses and any cause of action accruing to Gregg in connection with such losses have now been assigned to Allied Glass since they are part of, or are so closely connected with, the services and rights assigned as a "current trade contract" that they must be taken to have also been assigned by the contract assigning such contracts.

15.5. Conclusion – Issue 12

403. The answer to issue 12 is:

"(a) AGC became a party to the relevant supply contract by reason of assignment.

AGC became a party to the relevant supply contract, if there was no enforceable assignment, by virtue of Emhart being estopped from asserting that AGC had not become such a party."

16. Issue 13 – Limitation of Liability

404. Issue 13 reads:

"13. Is any liability on the part of Emhart excluded by clause 5.1 and 5.2 of their conditions (if incorporated into the contract(s))?"

405. In view of my finding that clauses 5.1 and 5.2 were not incorporated into the contract between Gregg and Emhart, this issue no longer arises. Had these clauses been incorporated into the contract, I would have been unlikely to have found that the wording of these clauses made them applicable to the losses and claims that have now been brought by Gregg and that, even if applicable, they were enforceable by virtue of the disapplying provisions of the Unfair Contract Terms Act.
406. The answer to issue 13 is:

"This issue does not arise in the light of the answer to issues 1 and 2 since clauses 5.1 and 5.2 were not incorporated into the contract."

17. Overall Conclusion

407. Allied Glass is entitled to judgment with damages to be assessed on the basis of this judgment for all claims and recoverable losses arising out of or in connection with the contract with Emhart from October 1999. My findings are set out in my answers to the list of issues which are appended to this judgment.
408. I conclude by expressing my gratitude to the three counsel involved in the presentation of this case, Mr Henry Carr QC, Mr Stephen Houseman and Ms Chantal-Aimée Doerries and their instructing solicitors for the assistance that I have been provided with and for the economy and clarity of their written and oral submissions and cross-examination and re-examination. As a result of those efforts, a trial which would have taken many working days to complete was readily completed within 16 working days.

HH Judge Anthony Thornton QC

Technology and Construction Court

April 2005

Allied Glass and Gregg v Emhart

Issues and Answers

Question

1. Was there one sale/supply contract or were there three such contracts?

Answer

1. There was one contract for the sale of all six prism and Scanners and for their installation and commissioning.

Question

2. What were the express and implied terms of such contract(s)? In particular, whose standard terms (if any) were incorporated into the contract(s)?

Answer

2. (1) No express terms, save as to a general description of the prism and Scanners and as to the price to be paid for each machine, were incorporated into the contract for the supply, installation and commissioning of the six inspection machines.

(2) In consequence, the implied terms imposed into a contract for the sale of goods or for the provision of services by virtue, respectively, of:

(a) sections 14(2) and 14(3) of the Sale of Goods Act 1979 ("SGA") as amended by the Sale and Supply of Goods Act 1994; and

(b) section 13 of the Supply of Goods and Services Act ("SGSA") 19 82were incorporated into the contract concerned with the sale and supply of all the G1 cold end equipment and with associated installation, commissioning and after-sales' services.

(3) The incorporation of the implied term provided for by section 14(3) of the SGA in relation to the cold end equipment and by section 13 of the SGSA in relation to the supply of installation, commissioning and after-sales maintenance and related services is subject to, respectively, Issue 3 and Issue 4.

Question

3. What was the intended purpose or use of the Cold End Equipment? Was this known to Emhart before entering into such contract(s)?

Answer

3. The purpose and use for the cold end equipment was for use in conjunction with the IS machines previously supplied by Emhart for the hot end at Gregg's Knottingley plant in a layout involving a coiled cold end line located near the hot end and the lehrs without a heat or dirt insulating barrier positioned between the hot end and the cold end and where the air temperature adjacent to the equipment would be up to 40... C and where the glass containers could have been formed by either the blow and blow or the blow and push processes.

These purposes were known to Emhart before it entered into the contact for the supply of the equipment to Gregg or before any variation or amendment of that contract.

Gregg relied on Emhart's skill and judgment in deciding to buy the cold end inspection equipment from Emhart and it was reasonable for Gregg to rely on Emhart in this way.

Question

4. Did Emhart assume a duty of care at common law towards Gregg & Co. and/or AGC to exercise reasonable skill and care investigate and/or diagnose and/or remedy any defects or problems with the Cold End Equipment? If yes, is the scope of the duty such as to embrace damage of the kind which Gregg & Co. and/or AGC claim to have suffered?

Answer

4(1) Emhart voluntarily assumed a duty of care owed to both Gregg and Allied that it would, with reasonable skill and care, provide diagnostic, remedial, part replacement and repair services in relation to the faults in the equipment and in its operation that were brought to its attention irrespective of the cause or responsibility for those faults and would bring to Gregg's attention both the cause of any fault and any measure or training that Gregg could take so as to eliminate or reduce the further incidents of that fault or of faults of the relevant type.

4(2) The relevant duty of care and its alleged breach are sufficiently pleaded but Gregg and Allied have permission to amend the particulars of claim in the form annexed to their closing written submission so as to clarify and confirm that this duty of care is being relied upon.

4(3) The heads of loss claimed by Gregg and Allied are both reasonably foreseeable and within the scope of Emhart's assumed duty.

Question

5. During the period October 1999 to December 2001 ("the Relevant Period"):

(a) What problems were experienced by or with each item of the Cold End Equipment?

(b) When did such problems occur and for how long?

Answer

5(a). The problems experienced by or with each item of Cold End Equipment included the following:

(1) Screen freezing, and lock outs and rebooting problems on a regular but intermittent basis on both scanners and prisms;

(2) VMNR and base inspection functionality unobtainable or intermittently unreliable on the scanners;

(3) Dimensional inspection functionality, including zoning, intermittently unreliable on the prisms;

(4) Operational difficulties such as loss of communication between the prism cameras and their associated computer, encoder malfunctioning and damaged cabling;

(5) Repeated component failures; and

(6) Particular difficulty achieving prism inspection of non-round glassware.

5(b) These problems occurred throughout the period from October 1999 to December 2001. The problems were not all occurring at all times but at no time in that period was Gregg able to rely on any one of these problems as having been solved or eradicated since none of them was ever clearly and obviously eliminated.

The issue was defined by the parties as relating to the Relevant Period which was also defined by them in the issues as ending in December 2001. The definition of the Relevant Period was extended by the parties by agreement to cover the period up to May 2002 and my findings and conclusions relating to the problems experienced by the machines in the period up to December 2001 also relate to that extended period between January and May 2002 since similar problems were still being encountered by the machines in that period.

Question

6(a). During the Relevant Period did Gregg & Co. and/or AGC carry out adequate maintenance of the Cold End Equipment?

Answer

6(a). Gregg carried out adequate and regular maintenance, including all necessary cleaning that could be carried out, of the cold end equipment. Such maintenance included, in the particular circumstances in which it found itself, the decision not to purchase or acquire any stock of spare parts until the machines had proved themselves and had come out of warranty. During the Relevant Period, that never happened.

Question

6(b) and (c). During the Relevant Period, did Gregg & Co. and/or AGC set up and operate and provide adequately trained staff for the Cold End Equipment properly?"

Answer

6(b) and (c). Gregg both set up and operated and provided adequate staff training for the Emhart scanners and prisms.

Question

6(d). During the Relevant Period, did Gregg & Co. and/or AGC maintain a normal and adequate environment for the operation of the Cold End Equipment?

Answer

6(d). Gregg & Co and/or AGC maintained a normal and adequate environment for the operation of the cold end equipment.

Question

6(e). During the Relevant Period, did Gregg & Co. and/or AGC control the glass forming process sufficiently to ensure a properly defined mould number?

Answer

6(e). Gregg & Co. and/or AGC did control the glass forming process sufficiently to ensure a properly defined mould number.

Question

7. At the time of entering into the contract or contracts referred to in Issue 1 above; was the Genie Vision Mould Number Reading software new and relatively untested and not yet released commercially by Emhart? Was Gregg & Co aware that the Scanner would require additional testing and further final development on site during operation?

Answer

7. Gregg was unaware of the fact, which was a fact, that the VMNR Genie software was new and relatively untried, had not yet released commercially and would require additional testing and further final on-site development during operation.

Question

8. What was/were the cause or causes of each problem identified in Issue 5 above?

Answer

8. The cause of the problems suffered by Gregg was that the Scanner 8200 and the Prism 5000 machines contained design deficiencies, inadequate software and materials and components which were unfit for their intended purpose and defectively manufactured. These complaints related particularly to the software, the ventilation of the electronic cabinets, the air curtain, the light/camera arrangement for the VMNR and base inspection facilities of the prism, the prism bottle spacers encoder and access facilities and a variety of other components.

Question

9. In the light of the answers to Issues 5 to 8 above:

(a) Was the Cold End Equipment of satisfactory quality at the time of its supply and/or installation and/or commissioning?

(b) Was the Cold End Equipment fit for its known purpose (as identified in Issue 3 above) at the time of its supply and/or installation and/or commissioning?

(c) In so far as some of all the matters identified in Issue 6 and 7 above are established by Emhart, to what extent (if at all) do they affect Emhart's liability (if any) in respect of breach of contract referred to in (a) and/or (b) above (if established)?

Answer

9(a) and (b). The cold end equipment was not of satisfactory quality nor was it fit for its known purposes identified in Issue 3 at the time of its supply, installation or commissioning.

9(c). Emhart's liability is not affected by any default of, or knowledge possessed by, Gregg.

Question

10. Were Gregg & Co and/or AGC entitled to reject any of the Cold End Equipment? Have Gregg & Co. and/or AGC lawfully rejected any of the Cold End Equipment? If not, are they entitled to reject it now?

Answer

10. Gregg & Co. and/or AGC were entitled to treat Emhart as having repudiated the contract for sale and for the supply of after sales services as having been repudiated by Emhart so as to allow it to accept that repudiation in May 2002. That is what Gregg did. Gregg is now entitled to damages for all directly incurred losses recoverable at law for that repudiation.

Gregg & Co and/or AGC were not entitled to reject the machinery in the sense of being entitled to exercise their rights under the SOGA to return the goods and recover the paid portion of the purchase price.

Question

11. In the light of the answers to Issues 5 to 8 above:

(a) Were Emhart, its servants or agents, negligent in and about the steps taken (or not taken) to investigate and/or diagnose and/or remedy such problems experienced by or with the Cold End Equipment?

(b) Is Emhart liable to indemnify Gregg & Co. and/or AGC for the consequences of such negligence?

(c) In so far as the matters identified in Issues 6 and 7 above are established by Emhart, to what extent (if at all) do they affect Emhart's liability (if any) in respect of negligence referred to in (a) and (b) above (if established)?

Answer

11(a). Emhart, its servants and agents were negligent in not sufficiently investigating and diagnosing the causes of the problems besetting the machines and in not providing Gregg with a detailed, full and definitive analysis of those problems and of proposed solutions to them within a few months of the machines being installed and commissioned.

11(b) and 11(c). Issues no longer arise.

Question

12. Did AGC become a party to the relevant supply contract(s) by reason of:

(a) assignment?

(b) novation?

(c) variation?

(d) estoppel?

Answer

12(a). AGC became a party to the relevant supply contract by reason of assignment.

12(b). Does not arise.

12(c). AGC became a party to the relevant supply contract, if there was no enforceable assignment, by virtue of Emhart being estopped from asserting that AGC had not become such a party.

12(d). Does not arise.

Question

13. Is any liability on the part of Emhart excluded by clause 5.1 and 5.2 of their conditions (if incorporated into the contract(s))?

Answer

13. This issue does not arise in the light of the answer to issues 1 and 2 since clauses 5.1 and 5.2 were not incorporated into the contract.

Note 1   Set out in Annex 1.    [Back]

Note 2   Roberts xx D 10/117/8 – 118/1; xxx D12/247/17 - /248/9.    [Back]

Note 3    Henderson xx D2/129/21 - /130/4. Mr Henderson referred to “natural process variation.”    [Back]

Note 4    McMillan XX D6/68/7 - 14    [Back]

Note 5    ibid. D6/68/30 - 25    [Back]

Note 6   Roberts XX D10/119/15 – 19    [Back]

Note 7    Gray XX D9/41/12 - /42/24    [Back]

Note 8    Prism 5000 Installation Drawing     [Back]

Note 9    EN 60204-1 Safety of machinery – Electrical equipment of machine – paragraph 4.4.3. The British Standard is identical with this Standard.     [Back]

Note 10   Roberts xx D11/676/24 - /68/7; xx D12/227/16 - .19.    [Back]

Note 11   See section [], paragraphs [68] above.    [Back]

Note 12   See section 5.4, paragraphs 117 – 121 above.     [Back]

Note 13    Roberts xx D11/90/24 - /91/22.    [Back]

Note 14    Roberts xx D12/224/15 – 227/15.    [Back]

Note 15    Roberts xx D11/115/6 – 7.    [Back]

Note 16    Henderson xx D2/57/19 – 25.    [Back]

Note 17   The parties agreed to dispense with oral closing submissions and, instead, prepared and exchanged two rounds of closing written submissions. These documents were prepared with great care and they summarised each party’s submissions as to the facts and the law and their respective contentions as to the opposing party’s case with particular skill.    [Back]

Note 18   Pawinski xx D5/63/12 - /64/2.    [Back]

Note 19   Pawinski xx D5/126/8 – 13.    [Back]

Note 20    Henderson xx D3/56/23 - /57/7.    [Back]