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

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

		BIRMINGHAM CIVIL JUSTICE CENTRE 33 BULL STREET BIRMINGHAM B4 6DS
		Date : 22 September 2006

 

1. I am obliged to Mr Taylor and Mr Wilkinson for their help with this matter.
2. This case concerns the manufacture of a sealed door closer unit known as a "Gib Closer". A Gib Closer ensures the controlled closure of a door by means of a hydraulic piston and spring mechanism located within a plastic cylinder filled with liquid silicone.
3. The Gib Closer was designed and developed by the first defendant, and launched on the market in 1986. It was essentially a successful and trouble-free product from then on, with few changes from the original design. By 1996 the first defendant was selling 12,000 -15,000 Gib Closers a year, with few returns.
4. Between approximately April 1997 and November 2000 the first defendant ceased the manufacture of Gib Closers and outsourced this to the claimant. The first defendant supplied the claimant with the necessary tooling and know-how. It required the claimant to purchase materials from suppliers identified by the first defendant and to purchase the first defendant's stock. The arrangement worked well initially. There were no significant problems with the claimant's production in 1997 or 1998. But by mid to late 1999 a number of complaints were received from the first defendant's customers that the Gib Closers did not have the desired damping effect following installation. That prompted a product recall towards the end of 1999 and an investigation into what, if anything, was going wrong with the manufacturing process.
5. It is now common ground that the Gib Closers which were assembled prior to August 2000 were assembled pursuant to an assembly contract between the claimant and the first defendant. That contract was novated, so that closers assembled after that date were assembled pursuant to a contract on the same terms between the claimant and the second defendant. In November 2000, the second defendant terminated the contract with the claimant.
6. This dispute concerns the liability for faulty products returned by the customers in 1999, which led to the product recall and to the defendants treating closers as non-conforming; the attempts made by the claimant to sort out the problems; and liability for the allegedly faulty product that was produced and supplied to the defendants for sale to their customers in 2000.
7. The claimant began proceedings to claim monies in respect of assembled Gib Closers and of other goods, outstanding under the contracts with first and second defendants and to claim the value of stock left in their hands when the second defendant terminated the assembly contract. The defendants admit that they have not paid these sums. Their case is that the sums claimed are not due by reason of defects in the Gib Closer. Further, the defendants deny that there was any express or implied agreement which entitles the claimant to recover from the second defendant the value of stock left in its hands after termination of the assembly contract.
8. The defendants assert that the claimant has breached express terms of the contract (a) to manufacture Gib Closers in accordance with instructions and (b) to prolong the useful life of the first defendant's tooling. Their case is that a substantial number of closers which the claimant assembled were faulty. The fault is said to be that the end cap became loose or detached from the plastic cylinder leading to a loss of hydraulic pressure, with the result that a large number of the Gib Closers supplied by the claimant are of no commercial value. The defendants' complaint relates specifically to an alleged defect in the assembly process which, they say, has resulted in the end cap being inadequately crimped on to the plastic cylinder. They claim to be entitled to be credited with the value of each batch of Gib Closers which was supplied to them and which has been found to contain any defective Gib Closers. On this basis the defendants say that they are entitled to be credited with the sum of £26,347.57.
9. So far as the alleged defects are concerned, the central issues between the parties are (1) did Gib Closers fail (2) if so, what was the cause of failure and (3) is the claimant responsible for their failure. It is necessary to consider these issues for the following periods: (a) before late 1999 (b) between early 2000 and about August 2000 and (c) after August 2000.
10. The defendants have not overtly attempted to identify which of them is entitled to the claimed credit. They have not detailed the particular batches which have been rejected, nor the number of Gib Closers in each batch which have been found to be defective in the manner alleged. There are, therefore, issues as to which defendant is entitled to exercise any right of set off.
11. The defendants also assert that, during the period 1 January to 21 December 2000, they lost profit amounting to £18,320 as a result of the claimant's failure to fulfil orders for completed Gib Closers. The defendants have confirmed that this loss is the loss and thus the counterclaim of the first defendant only.
12. I have heard evidence from a number of witnesses for each party. Mr Reid (who was Chairman of the Reilor group of companies from 1976 until 2003) and Mr Sinclair (at material times employed by the first defendant as Warehouse Supervisor, then as Production Manager and, during 2000, as Head of Logistics) both gave evidence for the defendants. For the claimant, I heard evidence from Mr Rose (whose role I describe later) Mr Sinnott (who began the claimant company in October 1998 and is its General Manager), Mr Whittingham (the claimant's Commercial Manager), Mr Marsh (the claimant's Production Manager) and Mr Folland (a general operative employed by the claimant and who assembled the Gib Closer.)
13. There are substantial differences between the witnesses' accounts. I deal in due course with those which are relevant to the dispute, but make the general observation that the matters in dispute go back many years, and it is entirely understandable that witnesses' memories of some events are poor. I gained the impression that Mr Reid gave evidence as to what he now considers should have happened during the parties' relationship, rather than what did happen. It seemed to me that Mr Sinnott did not have a strong recollection of some matters but his memory was stronger when it came to technical matters. My impression was that Mr Marsh and Mr Folland recalled clearly some of the technical issues. I found Mr Sinclair not to have a detailed recollection of events (entirely understandable given the length of time). Mr Whittingham was candid in his evidence, acknowledging when he was unable to recall matters. I gained the impression that he, as Commercial Manager, did recollect some of the commercial issues discussed with the first defendant in late 1996.
14. The parties each instructed expert engineers to assist, namely Mr Gibson for the claimant and Mr Rennie for the defendants. Some information was not made available to the experts until the last minute. Indeed, when the trial began, the experts had not yet finalised their joint statement.

Assembly of the Gib Closer.

15. The main component of the Gib Closer is a coiled compression spring, which constantly pulls the door closed. A silicone fluid piston mechanism operates as a damper to control the compression spring. The motion of the door pulls the damper piston through a plastic cylinder. Silicone fluid in the cylinder is thus forced through the small gap between the piston and the tube. This acts to damp and control the rate of closure. As the door approaches the closed position, the piston/tube gap widens allowing the motion of the door to speed up and close with some force, so that the door snaps closed, overcoming the resistance of the latch. The cylinder is sealed by a metal end cap crimped on to the end of the cylinder.
16. Assembly of the Gib Closer was carried out by the first defendant prior to April 1997 and by the claimant from then until November 2000 in substantially the same way. A piston rod and piston tube were assembled. The piston rod sub assembly was inserted into the piston tube sub assembly. A steel end cap was crimped on to the large end of the plastic cylinder containing the silicone fluid. Once some further steps in the assembly had been undertaken, the closer was placed in the final assembly test rig. That rig's control system sensed the time of travel to a point near the door-closed position. If the time was longer or shorter than a predetermined period, a red light showed on the rig; in both cases the closer failed the test and this was supposed to prevent the end nut being crimped on as part of the process of completing the assembly. If the time taken was within the prescribed period, a green light showed on the rig and the rig permitted the operator to crimp on the end nut and complete assembly of the component.
17. It would appear that the defendants continue to manufacture the Gib Closer. One of the steps previously taken - a test of the piston sub-assembly, and controversially called by the claimant the "explosion test" - is no longer part of the defendant's process.

History

18. Mr Rose was employed by the first defendant from October 1995 until February 1998. He was initially employed as a Quality Manager and subsequently as Health & Safety Manager. Mr Rose had met Mr Sinnott of the claimant when he had worked with the claimant in 1993 in connection with their obtaining the BS 5750 quality assurance mark. Mr Reid wished to outsource the assembly of Gib Closers. He enquired whether Mr Rose knew of a company which could manufacture Gib Closers. Mr Rose recommended the claimant. Contact was made.
19. In about the autumn of 1996 Mr Sinnott, Mr Whittingham and Mr Marsh visited the first defendant's premises near Preston. They were shown the area in which the first defendant was assembling the Gib Closers. This was being undertaken by an operator called Brian (no one has recalled Brian's surname). Mr Warburton (at material times the first defendant's works foreman) was present on that occasion. The evidence of Mr Sinnott, Mr Whittingham, Mr Marsh and Mr Rose is that they saw Brian carrying out the final assembly testing on the final assembly test rig. To their surprise, they observed that Brian repeatedly obtained a red fail light, yet he was able to continue and complete the assembly. They say that, when questioned, Brian said that he had been doing the job for six years and could tell that the units would be okay. The evidence of Messrs Rose, Sinnott, Whittingham and Marsh is consistent as to what they saw. There is no evidence from the first defendant directly to contradict this, as I have not heard evidence from Brian or from Mr Warburton. Mr Reid gave evidence on this point, but he had not been present when the claimant's team inspected in the autumn of 1996. He said he had never seen the final assembly test rig overridden as the claimant's witnesses describe. Mr Reid's evidence is that it would simply not be possible to override the rig in that way. He describes the suggestion as "simply too absurd for words".
20. The final assembly test rig was intended to act as a fail safe: unless the assembled component passed the tests on that rig, the operator should not have been able to proceed to the next stage of the assembly process. Mr Reid's evidence is that the rig did not in any way test the adequacy of the crimping of the end cap on to the inner tube. It was therefore not the case that a green light and pass from the rig somehow confirmed that the manufacture and assembly work prior to that point had been carried out properly or carefully. However, it is clear that, for the claimant, the conclusiveness of the red/green light arrangement was important. The claimant would be using the first defendant's tools, buying from the first defendant's suppliers and assembling a product which the claimant had not designed or developed. It is clear that their understanding was that, unless the rig showed the green light, the operator should not have been able to proceed to the final stage, and if the assembly did not fail the final assembly test rig red/green test, the product was satisfactory. That was the only indicator they had.
21. I accept the evidence of Mr Sinnott and Mr Whittingham that they were not prepared to enter into the proposed assembly contract with the first defendant if it remained possible to override the test rig. This was because they would have limited control over the quality of the final product: they were to use the first defendant's tools, obtain materials from suppliers identified by the first defendant, purchase the first defendant's stock and assemble a product for whose design they had had no responsibility. Further, once the closer had been assembled, it could not normally be dismantled. The claimant was looking for a way to be confident that it would be producing a good-quality product. It was clear from the evidence given by the claimant's witnesses that they took a pride in their work. For the claimant, therefore, the apparent fail/safe approach of the red/green light arrangement on the final assembly test rig was very important because, as the claimant understood it, the red/green light on the rig was the only way the claimant could know whether or not a Gib Closer would be defective.
22. A company called Air Power carried out work for the defendants, including work to the final assembly test rig. In their letter to the second defendant dated 15 November 2000, Air Power referred to work which they had carried out to the test rig in August 2000. That work included modification of the electrical control system "to ensure that crimping could only be effected on a 'Test Pass'". No-one has given evidence which explains that part of the Air Power letter. However, Mr Sinclair accepted that the wording suggests that it was possible for the rig to be overridden, so that the claimant's account as to Brian's overriding the rig was not as implausible as he had suggested.
23. I accept that, on the claimant's first visit, Brian was overriding the fail/safe mechanism of the final assembly test rig. The claimant was not prepared to take on the work until they were confident that the machine could not be overridden. The claimant's team insisted that the rig be checked and the interlocks adjusted so that the machine could not be overridden. Mr Rose recalls that Mr Warburton arranged to send the rig for calibration and modification so that it could not be overridden.
24. By letter dated 25 November 1996 Mr Whittingham of the claimant suggested a price for assembly of the closers and referred to the proposal that the claimant purchase the first defendant's stock. Mr Reid replied to say that the claimant's price was unacceptable, and suggested that the claimant reconsider its proposed price and that they meet in Preston. Mr Sinnott, Mr Whittingham and Mr Marsh then visited the first defendant's premises in Preston. They met Mr Reid and Mr Rose and discussed the terms on which the claimant would take on the work. Following the meeting Mr Reid wrote (on 9 December 1996) to confirm the agreement reached as to price and to say that Mr Warburton would be in touch in the new year to help set up the tooling.
25. The parties agreed a price for the assembly. By letter of 5 January 1997, Ms Lewtas (the first defendant's buyer) sent out the first defendant's conditions of supply. These included a provision that payment terms were 60 days from the end of the month following the date of invoice.
26. On 15 January 1997 Mr Whittingham wrote to say that they had begun preparation of the manufacturing area. He contacted the first defendant's suppliers to set up arrangements for the claimant to buy appropriate components and materials.
27. By letter dated 22 April 1997, Mr Reid sent out the first defendant's "standard agreement for subcontracting product manufacture". Both the claimant and the defendant signed that agreement.
28. Nowhere in the documents to which I have referred is there mention of either of the two commercial matters which the claimant contends were agreed, namely (1) that the first defendant would take the claimant's stock if the arrangement terminated, and (2) that the first defendant agreed to guarantee the product. In the absence of any contemporaneous record and given the length of time which has elapsed between these events and trial, I approach the oral evidence cautiously. I gained the impression that Mr Sinnott did not have a good recollection of these matters, and that Mr Rose did not remember this aspect of the negotiations at all. Mr Reid denies emphatically that these matters were discussed. He makes the point that, at the beginning of a relationship one does not usually discuss what is to happen on a break up, and stated baldly that he expected sub contractors to take responsibility for their products. I gained the impression that Mr Whittingham probably did recall some of the discussion of these two matters. He was responsible for the commercial side of the transaction.
29. In my judgment it is probable that Mr Whittingham did say to Mr Reid that, if the arrangement terminated, he expected a reciprocal arrangement so far as stock was concerned i.e. that the first defendant would buy it back from the claimant at cost. I accept that, in probability, Mr Reid agreed this. A passage in Mr Reid's letter dated 22 May 2000 tends to support this.
30. So far as the question of the first defendant's "guarantee" of the product is concerned, from the claimant's point of view, given the risks they perceived with the relative lack of control over the quality of the completed closer, it was understandable that they should have asked the first defendant to bear responsibility for returns. Mr Reid, however, was adamant that he would not have agreed such a term. I gained the impression that Mr Reid took a robust approach to the arrangements with the claimant. It seems to me unlikely that the parties reached agreement that the first defendant would "guarantee" the closer and take responsibility for returns, and I am not persuaded that such agreement was reached.
31. In early 1997, the first defendant's tooling and stock were transferred to the claimant. Mr Warburton and Brian visited the claimant's premises to demonstrate how the equipment worked and to train Mr Folland. They took instruction sheets, which were pinned up beside the tools. There is no surviving instruction sheet which deals with crimping the end caps, but one of the sheets makes it clear that the top of the end cap had to be examined visually following pressure testing. Mr Folland was the only person of the claimant who assembled the closer. It was clear from his evidence that he worked methodically and followed carefully the instructions he was given, whether by Brian or Mr Warburton, or by those within the claimant to whom he reported. Mr Folland confirmed in evidence that he had indeed made such a visual examination of the crimped end cap, and I accept his evidence on that point.
32. By fax dated 15 January 1998, Mr Whittingham referred to a recent letter from Ms Lewtas concerning payment terms. He asks that the first defendant review these. However, there is no evidence to suggest that the parties agreed to vary the first defendant's payment terms, which Ms Lewtas had dealt with in January 1997.
33. Until November 1999 there were no significant problems. The first defendant then notified the claimant that some closers had failed. The claimant stopped production. They investigated their procedures but could not locate a problem. Mr Sinclair wrote to Mr Marsh on 9 December 1999 to say that the first defendant had tried to find the problem. The first defendant believed that the problem was caused by the damping unit, the item at fault appearing to be the end cap. Mr Sinclair could not know whether any of the stock held by the first defendant was faulty, so he would be issuing a non-conformance note in respect of all the stock which the first defendant held. A total of 3,039 closers were returned to the claimant by about the end of January.
34. By letter dated 21 December 1999, Mr Sinclair asked the claimant to improve its quality inspection and testing procedures. The first defendant, he said, would begin random testing batches of closes delivered in the New Year. He asked for deliveries to continue. I observe that the claimant could do no more than assemble precisely as the first defendant had instructed them. The only test apparatus with which it had been provided was the final assembly test rig: all closers which the claimant assembled necessarily passed that test. They had no test rig other than those which were part of the assembly process. They could not, for example, do repeat cycle tests of completed closers. The claimant had no means of discovering that the product might be faulty.
35. Throughout, the claimant has involved the first defendant in investigation and discussion of the problem. It was in the interests of both companies that problems be resolved. Mr Warburton and Brian, and later Mr Sinclair, visited the claimant's premises on a number of occasions to deal with various problems. For example, in January 2000, Mr Warburton visited the claimant's premises to deal with a problem with the hydraulic fluid dispenser.
36. Mr Warburton and Brian visited in early 2000 to check the claimant's manufacturing processes. They could not locate a problem.
37. After a while Mr Sinnott investigated. He considered that what he describes as the explosion test damaged the components. (The defendants do not recognise this description of the intermediate test on the component.) The consequence, Mr Sinnott concluded, was that the end cap became loose so that it could be rotated on the plastic cylinder. This supposed diagnosis appears to be a red herring (neither expert has given it any significance) but it remains a puzzle (which the experts have not considered, and which I cannot solve) that the test is apparently now not part of the assembly process.
38. Mr Sinnott decided that use of a washer within the crimp tool would, as he described it, achieve a tighter crimp. Mr Folland did indeed use a washer as instructed. I accept that he used a new washer for assembly of every other closer. Mr Sinnott suggests that use of the washer was introduced during about October 1999, but it seems to me more likely that this began in early 2000. Production resumed in February 2000 and it is likely therefore that a washer was used for assembly of closers in the production run from February 2000 onwards.
39. The claimant's case is that the first defendant knew of and authorised the use of a washer within the tool. The defendants deny this. The first mention in correspondence of the use of a washer is not found until the end of October 2000. In his letter to the first defendant dated 22 May 2000 Mr Sinnott referred to unspecified "modifications" to the crimping tool. He says that this was a reference to the use of the washer in the crimp tool, but this is not stated in precise terms in that letter. Mr Reid's evidence is that use of a washer in the crimp tool was wholly unacceptable.
40. As I have explained, the claimant's immediate response whenever a problem arose was to involve the first defendant. Mr Warburton was a major point of contact for the defendant. He and Brian seem to have had technical knowledge. Mr Sinnott had devised a short-term solution to the problem. It is, in my judgment, likely that the claimant did discuss with Mr Warburton and Brian the short-term technical solution they had devised. At some point during 2000, Mr Warburton gave Mr Whittingham a handwritten note setting out his recommendations with regard to the assembly process. Part of this concerned the correct silicone mix: Mr Warburton suggested use of a mix which Mr Reid considered to be wholly inappropriate. In that note Mr Warburton suggested that the claimant might hammer the end cap before crimping it. It is not suggested by anyone that the claimant followed the advice to hammer the end cap. But the note reveals Mr Warburton's approach: it indicates that he was prepared to authorise or suggest procedures of which Mr Reid thoroughly disapproves. I conclude that Mr Warburton and Brian probably did know about the use of a washer in the crimp tool, and I accept that Mr Warburton approved that approach. In my judgment the claimant was entitled to rely on Mr Warburton's authorisation of the use of the washer as a stop gap measure.
41. In January or February 2000 Mr Sinclair asked Mr Marsh to arrange for a new lower crimp tool to be made. Mr Marsh did so. However, the claimant found that that new tool left a mark in the end cap. When Mr Sinclair next visited, Mr Marsh told him that the new tool was unsuitable. Mr Sinclair measured the lower tool and said he would arrange for a new tool to be made. Several weeks passed while that was being done and, in the meantime, the claimant continued to crimp with the aid of a washer. Mr Sinclair accepts that Mr Marsh discussed with him the use of a washer. Mr Sinclair says that he rejected that as an acceptable solution. It seems to me, however, likely that Mr Sinclair agreed that the claimant could continue to use the washer as a stop gap measure while new tooling was made. I accept Mr Marsh's evidence that Mr Sinclair brought a second replacement lower crimp tool to the claimant's premises in about August 2000, and that Mr Sinclair was present when Mr Marsh fitted that tool, tried it and found that it was also unsatisfactory: it did not crimp centrally. Mr Sinclair continued to order closers from the claimant. He did so knowing that the claimant would revert to using the washer with the crimp tool. The claimant resumed production in August 2000.
42. At some point during 2000 (Mr Sinclair could not recall the dates) a customer of the first defendant, Franchi International (Chelsea Harbour) Limited, complained about closers which had been supplied to them in late 1999 or early 2000. Franchi claimed to have installed about 200 closers on a particular project. They complained to the first defendant that the closers were faulty. Mr Sinclair and a colleague visited the project and changed about 200 closers on doors on that project. Franchi then complained a few weeks later that those closers had failed. Mr Sinclair recovered some of those closers and inspected these. He says that he found that end caps were becoming dislodged. He informed the claimant, who immediately ceased production. That, Mr Sinclair says, prompted his suggestion that he arrange for a replacement crimp tool to be made.
43. Meanwhile, Mr Reid had written to Mr Sinnott on 1 February 2000. The parties had agreed that the claimant would rework the 3,039 closers the subject of the recall at the end of 1999. Mr Reid confirmed in his letter that the first defendant would contribute to the cost of the reworking. As he explained, that would not cost his company a great deal and he wanted the claimant to be willing to continue to assemble the closers. The claimant reworked the 3,039 closers returned to it in early 2000. They recorded that 10 were found to have loose end caps and 3 showed some silicone leak. However, 130 of these closers had straightened leaf springs. Indeed it appears that, during material periods, the first defendant was trying different compression coil spring configurations.
44. In early May Mr Reid wrote to the claimant threatening to take production back to Preston.
45. On 19 May 2000 Mr Sinclair told the claimant that he had tested 20 closers, but only one had passed. However, he gave no detail to explain what he meant by a "pass".
46. Mr Whittingham wrote a long letter to Mr Reid dated 22 May 2000, summarising the position. Mr Whittingham noted that the first defendant had complained that caps were loose on failed items, and that the claimant had checked its processes and had been unable to find a fault. He recorded that the claimant had invited Mr Warburton and Brian to assist. They had not identified any problem with the claimant's process. The claimant had identified a problem with the "explosion test" and had then made modifications to the crimping tool (this was in fact the inclusion of the washer). Mr Whittingham then went on to ask that the first defendant pay outstanding sums.
47. The first defendant acquired a test rig - in effect a replica door and frame, which simulated closing action. They wanted to be able to put the closers through a number of cycles. Mr Reid wrote to Mr Sinnott on 22 May to say that the first defendant would begin testing door closers that week. He complained of the absence of production by the claimant and asked that deliveries resume. Mr Reid threatened to cancel the assembly contract. He asked the claimant to confirm when it would be convenient for the first defendant to collect the tooling, and added "All raw materials and work in progress will be purchased from you as you may require". (That last sentence supports the claimant's case that Mr Reid had agreed that, if the arrangement was terminated, the first defendant would purchase the claimant's stock.)
48. The claimant delivered about 2000 closers by about the end of May 2000. The first defendant says it tested those 2,000 closers on its new test rig. In his letter dated 5 June, Mr Reid noted that the units "tended to have very little damping action." He recorded that Mr Warburton had visited the claimant's premises and found that the silicone mix was incorrect. However, the first defendant decided to accept closers from that batch unless tests showed a complete absence of damping.
49. Between June and August 2000 the claimant experimented with different silicone mixers. The first defendant had never provided the claimant with a precise specification for the silicone mix: the claimant had been obliged to sort that out for itself. During that period, the claimant sorted out issues concerning the silicone mix.
50. It would appear that production stopped after the end of May 2000, because the first defendant reported further complaints. During June and July 2000 - during the halt in production - the claimant reworked some of the pre-2000 closers which had been returned to the claimant. Some 1,280 reworked closers were sent back to the first defendant in late June and early July 2000. As part of the reworking process the claimant shortened the cylinder by 5mm. The defendants now criticise that. The claimant was open with the defendants about the steps they took at various times, so it is possible that the first defendant knew that cylinders had been shortened. However, there is no complaint about reworked closers with shortened cylinders and the experts have not dealt with this matter, so the issue is not of direct relevance.
51. During August 2000, the final assembly test rig was sent to Air Power Centre for some faulty pneumatic components to be replaced and for control panel wiring to be modified to provide a new test sequence. The second defendant asked that the rig be re-calibrated to its pre-1997 settings. The rig was then returned to the claimant. The claimant found that it could not complete assembly of any closers. Mr Sinclair was called in. He visited the claimant. I accept Mr Whittingham's evidence that Mr Sinclair moved a sensor on the final assembly test rig. Thereafter, the rig did not reject every assembly and it became possible once again to complete assembly. By early September 2000, the claimant had resumed production. Mr Reid wrote on 4 September 2000 to say that he would postpone taking a decision as to whether production should be transferred back to Preston.
52. During Mr Sinclair's visit to deal with the problems encountered with the final assembly test rig, the claimant assembled four closers which Mr Sinclair took away. Mr Reid wrote to Mr Whittingham by letter dated 6 September 2000 to say that those four closers had been tested and had failed. He said that the seal had broken and that fluid was leaking out where the piston rod comes through the metal end cap. The metal end cap remained intact.
53. All supplies from about the end of August 2000 were labelled with their date of assembly. Mr Sinclair said that, as virtually all the stock which the claimant had supplied to the first defendant had been returned to the claimant, the first defendant was by then very keen to obtain closers which it could sell to its customers.
54. In October 2000, the defendants learned that closers were still failing in the field. Mr Sinclair says that he cut open some of the closers returned to them and found that the end cap was coming away from the cylinder.
55. By letter dated 30 October 2000, Mr Whittingham wrote at length summarising the position as the claimant saw it. He noted the initial fault had been found to be "down to failure of the tooling (probably through wear) correctly to crimp the cap." He noted that the "initial fix" had been to use a washer to increase the crimping action. He recorded the two unsuccessful attempts to obtain a replacement tool. Mr Whittingham explained that the initial fix (ie use of a washer) was still the approach being taken by the claimant. He asked for detail of the failure said to have been found in a closer from a recent batch, but the second defendant did not provide that information. Instead, when Mr Reid wrote to the claimant on 2 November 2000, he referred to the failure of closers which the claimant had assembled in August 2000, and informed the claimant that they would be making alternative arrangements to assemble the closers. All outstanding orders would be cancelled and the claimant's account was on stop, pending the return of all faulty products from customers.
56. Following termination of the contract, the first defendant sent back to the claimant, on 29 November 2000, a total of 4,986 closers.
57. The defendants conducted some tests on closers on 13 March 2006. They prepared a schedule recording test results. This schedule indicates that the defendants tested 50 closers from 16 different boxes. That schedule does not give detail of the results obtained (it simply records "passed" "failed" or "jammed") nor does it show the date of manufacture of the closers. Mr Rennie visited the defendants on 22 March, so did not witness any of the testing which the defendants had carried out, but some samples were cut open in his presence. No one on behalf of the claimant witnessed the testing or the cutting open of closers in March 2006.
58. Very shortly before trial, Mr Gibson and Mr Rennie visited the defendants' premises. They were handed an amended version of the defendants' March 2006 test schedule. The amended version gives results for 65 closers tested. It shows the date of manufacture of most of the samples tested. These are recorded as August, September or October 2000; in respect of some of the samples, the date of manufacture is unknown. The amended schedule also includes expanded comment on the result of the tests.
59. The defendants' case on failure
60. The defendant issued non-conformance notes in relation to about 5,500 closers. The defendants claim in respect of these, though they do not contend that all were faulty. Their case is that the fault in the Gib Closer was that the end cap became loose or detached from the inner plastic cylinder. That assertion was made in correspondence in May 2001 and is set out in the defence and counterclaim. At paragraph 17 of their defence and counterclaim the defendants plead breach of contract by the claimant in a number of respects. They claim that the claimant

i. failed to maintain the first defendants' tooling in good condition and failed to make good damage to the tool head;

ii. failed to observe or heed that the tool had worn;

iii. failed to bring to the first defendant's notice the existence of the problem so that remedial action could be taken promptly;

iv. failed to comply with the instruction to replace the tool head;

v. used the washer as a running repair, a measure which failed to ensure a proper crimp;

vi. failed to use the replacement tool head which the first defendant supplied;

vii. failed to ensure that the final assembly test rig was maintained in good condition and proper working order so that faulty closers could be identified before despatch;

viii. failed to advise the first defendant that the final assembly test rig was not in good working order.

61. The defendants also allege breach of an implied term to exercise reasonable care and skill in assembling the closers.
62. During the trial, Mr Taylor for the claimant sought confirmation that this remained the defendant's case. Mr Wilkinson, Counsel for the defendants, confirmed that was so. However, in his closing submission he seeks permission, if necessary, to amend paragraph 17(5) of the defence to read "using a washer placed over the tool head as a running repair that did not ensure that the end cap was properly crimped on to the plastic cylinder allowing the end cap to become loose or detached and the silicon [sic] inside to escape and/or allowing the silicon [sic] to leak around the sides of the crimped cap." The conclusions I reach indicate that such amendment is not necessary.
63. The defendant's case is that there was a recurrent fault, identified in late 1999, namely that doors were slamming shut. Assuming that closers had been assembled correctly, the most probable cause was loss of silicone from the large damper tube. The most probable cause of the absence of silicone was the failure of the end caps to provide a seal. The defendants rely on the fact that a replacement crimp tool has been in use since termination of the contract with the claimant, and that a full and correct crimp has been achieved since then. The claimant's case is that the defendants have failed to prove how or why the closers failed.

The experts' evidence

64. In his report dated 28 March 2006, Mr Rennie concluded that the end caps had been inadequately crimped and so were able to become detached. Such defect was attributable to the wear and tear in the crimp tool. If the end cap is displaced, it fails to retain the required seal and thus allows silicone fluid to leak out. If that happens, the door closer will no longer perform its intended and designed function. He assumed that the claimant had failed to change the crimp tool, despite the first defendant's request that they do so, and so attributes to the claimant responsibility for the tool wear.
65. During the course of the trial, Mr Rennie produced a supplementary report dated 1 August 2006, the significant part of which reads as follows: "A successful crimp will maintain the end cap fully and securely against the rim of the plastic tube for a full 360° of its rim. The intermediate plastic and steel spacers then retain the seal sufficiently within the bore of the tube to retain the silicon (sic) fluid and prevent it leaking out. However if the crimp is not successfully made, then there exists the opportunity for the spacers, and hence the seal to move, even minutely, towards the end of the tube and allow the silicon (sic) to escape around the seal lip." Mr Rennie's opinion as to the mechanism of failure has, therefore, developed from that contained in his original report.
66. At trial, during re-examination, it was suggested to Mr Rennie that the use of a washer might deform the end cap so as to push the spacers into the plastic tube thereby enlarging it and permitting leakage. That was not a theory which Mr Rennie had himself advanced; he did not agree that suggestion. The question tended to suggest that the defendants were still exploring the mechanism of failure.
67. In his report, Mr Gibson noted that there was little evidence of large-scale failure of closers. Some of the faulty closers had in fact been assembled by the first defendant before the claimant took over the assembly. He expressed the opinion that the 130 closers found by the claimant to have straightened leaf springs indicated that the closers had been incorrectly installed by customers of the defendants. Mr Gibson expressed the view that the crimp tool was not a high wear rate component; even high wear should be considered to be normal wear and tear.
68. Mr Gibson and Mr Rennie were asked to consider the reasons why end caps had become detached and the failures in the manufacturing process (if any) which led to the end caps becoming detached. They completed their joint statement of matters agreed only during the course of the trial. This records agreement as follows:

i. the integrity of the damping function is dependent largely upon the security of the end cap;

ii. once the press has been set to crimp the end cap on to the cylinder, there is no scope for human error: the operator simply pulls the lever to effect the crimp;

iii. Mr Gibson and Mr Rennie had both seen samples where the closers had failed because the end cap had become detached. That detachment came about because the end cap had been inadequately crimped;

iv. the failure to achieve a full and correct crimp resulted from wear of the tool. Although the parties attributed this to wear of the bottom tool, it was in fact wear of the top crimp tool which produced a larger gap between the two faces, which prevented a full crimping action;

v. on samples of end caps which had been crimped using a washer the crimping was unsatisfactory;

vi. it is foreseeable that press tools will ultimately suffer as a result of wear and tear and this will have an effect upon components produced by the press. The experts did not know what the tool life was in this matter.

69. The joint note records that Mr Gibson considered that use of a washer was expedient as a stop gap until a new tool was available. Mr Rennie, however, considered that the washers used were incorrect in diameter and did not produce the crimping action and form of finish to the end cap satisfactorily. This was because the washer prevented the end cap sitting concentrically within the press tool and bearing upon the full face of the cap. But Mr Rennie did not give a detailed explanation as to how it is said the use of a washer caused a faulty crimp.
70. Mr Gibson had taken the trouble to cut open a closer, made with use of a washer. The photograph of the dissected sample and Mr Gibson's explanation of this, and in answer to the theory advanced by Mr Rennie in his supplemental report (namely that, as a result of unsuccessful crimps, there exists the opportunity for spacers, and hence the seal, to move, even minutely, towards the end of the tube and allow the silicone to escape around the seal lip) are most helpful. I am persuaded that displacement of the end cap by 5mm would be necessary before the seal could move outwards sufficiently to permit leakage of silicone fluid could occur. Displacement of this magnitude could not be seen in the closer produced by the defendants (as exhibit 2) in support of their case. As Mr Gibson explained, the washer will tend to push the metal end cap out, around the edges of the rim of the cylinder, and not downwards into the cylinder. Exhibit 2 is a closer which is listed in the amended schedule of test results of March 2006 as a failed closer. The cause of failure of that closer must be something other than outward movement of the end cap and consequent silicone leakage.
71. On the available evidence, I am not persuaded that use of the washer necessarily resulted in the end cap being crimped in such a way that silicone fluid leaked out.
72. I accept Mr Gibson's evidence that it was acceptable to use a washer in the crimp tool as a stop-gap measure. As I have found that Mr Warburton and Mr Sinclair knew about use of the washer, and approved it, the claimant cannot therefore be criticised for using a washer as a temporary measure.
73. Mr Sinclair knew that the claimant was not using either the new tool it had acquired or the replacement tool which Mr Sinclair had arranged. The claimant cannot be criticised for failure to comply with an instruction to use the replacement tool which Mr Sinclair arranged, and which – as was demonstrated to him- was unsuitable.
74. The defendants rely on a memo from Mr Warburton dated 10 January 2000 which refers to tests on 20 closers. These closers must have been assembled without the assistance of a washer in the crimp tool. The memo records that of the first ten items tested, six were "faulty" and of the second ten items tested, seven were "faulty". The memo records that the samples tested had been cut open and it had been found that "the end cap had been forced from the plastic cylinder. In some cases the end cap had been partially forced, thus increasing the cylinder volume and in turn reducing the damping action." The memo records that Brian had recommended testing a closer which had passed to 50 cycles and then to cut this open. The memo suggests that this was done, and it was found that the end cap was beginning to separate from the cylinder. I find this memo of little assistance. Neither Mr Warburton nor Brian has given evidence to explain his findings. One of the faults Mr Warburton describes is something other than detachment of the end cap: he refers to the cap having been forced from the cylinder and to the cylinder volume having increased. Increase in cylinder volume is not the complaint now made by the defendants and the experts have not addressed this fault.
75. By a fax dated 19 May 2000, Mr Sinclair referred to about 3,000 samples at the first defendant's premises. He informed Mr Whittingham that the first defendant had tested twenty closers, of which only one had passed. Mr Sinclair was unable to say whether those 3,000 closers had been assembled before or after the end of 1999. Accordingly, he could not say whether the samples tested had been from pre 2000 stock or closers made during that year.
76. So far as the period after August 2000 is concerned, the evidence of failure is found first in Mr Sinclair's assertion that, in about October 2000, the defendants were told that closers were still failing in the market place, and closers were returned. Secondly, there is the evidence of the tests which the defendants carried out in March 2006. Mr Rennie annexed to his report the defendants' March 2006 test result schedule. As I have explained, the defendants subsequently added more detail to that schedule. The first time Mr Rennie and Mr Gibson saw that amended schedule was when they made a joint inspection at the defendant's premises very shortly before trial. No explanation has been given as to why this updated schedule was produced so late or how it was possible to add the detail as to dates of manufacture and nature of fault found. No contemporary document recording the test procedures or results has been disclosed. The original schedule had apparently been amended by Ms Val Martin Warren. The amended schedule shows the date of manufacture of the closers tested. It records more detail about both the contents of the 16 boxes from which closers were taken for testing and the results of tests on the 65 closers tested. In the amended schedule, the entries in the column headed "Results" lists, in respect of each sample, one of the following, namely: "failed", "failed, cut open ok", "passed", "jammed", "failed, cut open, end cap off". Out of the total of 65 samples said to have been tested, 32 are recorded as "failed", four as "jammed", 14 as "failed cut open, ok", four as "failed, cut open, end cap off "and two as "failed, cut open, bad crimp". Two were shown as not having being tested but as having been cut open in the presence of Mr Rennie and found to have end caps off. Thus the total number of closers recorded as having end caps detached is six. Of these six, one is said to have been assembled in September 2000, two in October 2000 and the remainder on unknown dates.
77. Miss Martin Warren has not given evidence. Mr Rennie was not present at the March tests. He explained that, as he understood matters, Ms Martin Warren had been looking to see whether there was sufficient damping action when the test rig door closed. He said she had been asked to decide whether the closing door had displayed a "nice" action or possibly a "smooth", "controlled" or "slow" action: Mr Rennie could not recall precisely the description which Ms Warren Martin had used. There is no evidence to explain what mechanism of failure caused closers not to display "a nice action". Mr Rennie did not know how many cycles each closer had undergone. It is clear that no objective or measured test had been carried out. The only results available are Ms Martin Warren's subjective assessment as to whether or not a closer "passed". There is no objective measure as to whether a closer can be said to have passed or failed.
78. The claimant does not dispute that the first defendant received some complaints concerning the Gib Closers during late 1999. Nor does the claimant dispute that recent experimental evidence appears to demonstrate failure of closers after August 2000. What is in issue is (1) the extent to which closers have failed and (2) the dates of assembly of closers which have failed.
79. The defendants contend that the claimant's liability for closers which were considered by the first defendant to be failures in late 1999 and early 2000 (a total of 3,269 closers) depends on whether the claimant should have known, and done something about, the wearing of the tool heads. In this regard the defendants rely on four matters. The first is that there is no evidence that the claimant took steps to prolong the life of the tool. It is of course for the defendants to prove their case. They have adduced no evidence as to what steps the claimant should have taken but failed to take. Secondly, they say that, although the wear itself may not have been evident, the effects of it should have been evident; a failure to crimp properly should have been visible to the naked eye. I reject that submission. I accept that Mr Folland did inspect components visually, and rejected any which looked wrong. If the crimp had not been made satisfactorily, the assembly could not have been completed, because the final assembly test rig would not have permitted this. The defendants have not explained what the claimant could have seen but failed to see.
80. The defendants also rely on the proposition that the "explosion" test could not have loosened an otherwise satisfactory crimp, because that would not explain how - before and after these events - many thousands of closers were successfully produced using the same test facility. It appears to me that the so called explosion test is a red herring. Neither of the experts has given it any consideration. It is clear that any failure to effect a satisfactory crimp was caused by wear in the crimp tool.
81. Finally, the defendants rely on the tooling agreement dated 24 April 1997. Clause 3 (i) of the agreement provides:

"3(i) Whilst it is in the Supplier's [ie the claimant's] possession custody or control the Supplier shall take all reasonable steps in order to prolong the useful life of the [first defendant's] Property and to maintain the first defendant's Property in good condition and the Supplier shall make good all and any damage to the first defendant's Property (excepting fair wear and tear) and the Supplier shall restore or replace any of the [first defendant's] Property in the event of its loss by theft or destruction by fire."

(The definition of Property includes the crimp tool.) The defendants do not say that the claimant is liable for damage to the tooling. Their case is that the claimant failed to maintain the tooling in good condition and failed to heed that the tool had worn.

82. Mr Rennie commented that "all tools wear" but gives no detail of wear in this case. The fact that the tooling was worn does not, without more, lead to a conclusion that the claimant is responsible for that wear. There is no evidence to support such a conclusion. There is, for example, no evidence as to the condition of the tool when delivered to the claimant or as to the extent of wear during the period when the tool was in the claimant's possession. The defendant has adduced no evidence as to any failure on the claimant's part to maintain the tooling as the agreement required. I accept Mr Gibson's evidence that the crimp tool was not a high wear rate component and that even high wear should be considered to be normal wear and tear.

Conclusions on breaches alleged by the defendants

83. In my judgment, the claimant is not liable for the consequences of wear to the tooling. Clause 3(i) of the tooling agreement contains an exception in the case of fair wear and tear. I accept Mr Taylor's submission that, on a true construction of that clause, the fair wear and tear exception qualifies all the obligations within the clause and not simply the obligation to make good any damage to the tooling. To the extent that there is any ambiguity, that should be construed against the defendants and in favour of the claimant.
84. In practice, whenever the claimant became aware of any difficulty with assembly of closers, it called on the first defendant to assist. That happened, for example, in November 1997 (when Mr Rose assisted with a problem associated with springs). It happened again when Mr Warburton was called to deal with problems with the hydraulic fluid dispenser. And when the first defendant notified the claimant of failure in late 1999, the claimant involved Mr Warburton, Mr Sinclair and Brian. Accordingly, the parties' actions support the claimant's interpretation of clause 3(i). The defendants say that the claimant should have drawn to their attention any need to replace worn parts. However, the tooling belonged to the first defendant and it is likely that knowledge about the properties and life of the tool lay with the first defendant. When problems were reported, the claimant immediately sought the first defendant's advice and assistance in resolving these. There is nothing to suggest that the claimant had knowledge or experience about the wear of tools and the consequences of wear which was any greater than, or even similar to, that of the first defendant. I am not persuaded that the claimant was at fault in not identifying wear of the tooling as the cause of crimping problems. In any event, it is noteworthy that the wear problem was eventually identified by Mr Rennie and Mr Gibson to exist in the upper crimp tool, whereas the first defendant and claimant had both proceeded on the assumption that the lower crimp tool should be replaced: neither the first defendant nor the claimant identified the true problem.
85. Even if the defendants had proved that failures were caused by inadequate crimping of the end cap, the crimping problems were caused by tool wear. As I have concluded that the claimant was not responsible for the wear of the tooling, the claimant could not be said to have been in breach of its obligations to the first defendant in that regard.
86. I reject the defendants' suggestion that the claimant failed to draw problems to the first defendant's attention. It is clear that the defendants notified the claimant of problems when customers complained.
87. The first defendant also alleges that the claimant failed to check sufficiently the crimping of the end caps. I reject that allegation. Mr Folland confirmed that he visually checked the end caps. It is not clear to me that there was a way in which one could have checked visually that the crimp had been properly made. Mr Gibson commented that one of the closers produced as an exhibit had a crimp which was cosmetically unsatisfactory, but it may not follow that the crimp had not been properly made. In any event, the first defendant had arranged matters in such a way that the claimant believed that, if the component passed the final assembly test rig, then the crimp had been satisfactorily made, and the first defendant did not supply the claimant with a rig to test the completed closer (the first defendant did not obtain such a rig until well into 2000, and then retained that rig itself). In those circumstances, it is difficult to see what check the first defendant expected the claimant to carry out. I am not persuaded that there was an obligation on the claimant to carry out any checks other than the operator's visual check and the final assembly test rig test. It follows that the first defendant has not proved breach by the claimant of any obligation to maintain the crimp tool or to check crimps.
88. There is no evidence to support the defendants' criticism that the claimant failed to ensure that the final assembly test rig was maintained in good condition. There was no reason why the claimant should have supposed it not to be in good working order.
89. In all the circumstances I am not persuaded that the claimant is in breach of any obligation to maintain the defendants' tooling or test rig in good condition.
90. I am not persuaded that the claimant failed to follow the first defendant's instructions as to how to assemble the closers. It seems to me that the claimant followed the first defendant's instructions carefully. Mr Warburton, Brian and Mr Sinclair all observed the claimant assembling closers. None has suggested any deficiency in the way in which the claimant approached the task.
91. Mr Wilkinson submits that, if it is the case that the claimant advised the first defendant that use of a washer was a satisfactory solution and on that basis the first defendant instructed the claimant to continue, then the claimant was wrong in that advice and that makes them responsible for any resultant faulty product. That is not the defendants' pleaded case and there is no application to amend their claim to include such a head of claim.

Did closers fail before late 1999?

92. Yes. There is evidence of reports of failures from May or June 1999. Indeed, the claimant accepts that there is evidence of failure of closers. I accept that some Gib Closers failed to permit controlled closure of doors, and in that sense should be considered to have failed. However, there remains some doubt as to the type of failure found. Mr Reid referred to a problem with the snap shut action. Mr Warburton's memorandum dated 10 January 2000 refers to the cylinder volume having increased - this, of course, is not the fault now complained of.

If so, what was the cause of failure?

93. The defendants have not proved the cause of failure.

Is the claimant responsible for their failure?

94. No. As the defendants have not proved the probable mechanism of failure, they are unable to prove that failure was the claimant's fault.

Did closers fail between early 2000 and about August 2000?

95. It appears that there were some failures. The evidence of failure is found in (1) Mr Sinclair's evidence of failure of closers supplied to Franchi International and (2) evidence of the failure of 2000 units supplied by the claimant to the first defendant in May 2000.

If so, what was the cause of failure?

96. So far as (1) is concerned, it is not clear when the closers supplied to Franchi International had been assembled or whether they had been assembled with or without the washer in the crimp tool. The defendants have not proved the cause of failure of these closers. So far as (2) is concerned, Mr Reid was emphatic that the mechanism of failure of those 2000 units was incorrect silicone mix, i.e. unrelated to the end cap problem on which the defendants rely.

Is the claimant responsible for their failure?

97. No. So far as (1) is concerned, as the defendants have not proved the probable mechanism of failure, they are unable to prove that failure was the claimant's fault. So far as (2) is concerned, on the defendants' case there can be no liability on the part of the claimant.

Did closers fail after August 2000

98. The only evidence of failures of closers assembled after August 2000 in which I have confidence is found in the defendants' schedule of results of tests carried out in March 2006. The amended schedule records that, of the six closers said to have failed and have end cap detachment, three had been assembled after August 2000. Three had been assembled on unknown dates. In circumstances where the defendants cannot say when 50% of those with end cap detachment had been assembled, I cannot be confident that all had been assembled after August 2000. There is therefore evidence of three end cap failures only in this period.

If so, what was the cause of failure?

99. As I have set out earlier, there is no evidence of an objective standard by reference to which it could be said that a closer had passed or failed the March 2006 test. The amended schedule of results shows that the overwhelming majority of failed closers did not have detached end caps. It follows that the mechanism of failure of the majority of closers tested was something other than detachment of end caps. The defendants have not proved, on balance, that failure was detachment of end caps.

Is the claimant responsible for their failure?

100. No. As the defendants have not proved the probable mechanism of failure, they are unable to prove that failure was the claimant's fault.

Have the defendants proved any loss?

101. In summary, the defendants have failed to prove the number of end cap failures or indeed that closers were defective by reason of any breach of duty or of contract on the part of the claimant. The first defendant's counterclaim for loss of profits, and therefore its defence of set-off, fails. Even if the first defendant's case had been advanced on the alternative basis that some of the claimant's product was defective due to inadequate crimping, it cannot prove the extent to which its alleged losses of profit were caused by the inadequate crimping of those few closers as opposed to the unexplained 'failure of the majority.
102. The first defendant's claim to be entitled to be credited in respect of the value of non-conformed closers fails. It has not proved that closers were defective by reason of any breach of contract or duty on the part of the claimant. In any event the claim in respect of non-conformed closers includes a claim in respect of the full value of closers returned to the claimant in January or May 2000 notwithstanding that Mr Reid accepted that he had agreed with Mr Sinnott that the claimant and the first defendant would share the costs of the re-working. That re-working was carried out and the first defendant did not, in fact, contribute anything to the cost of that work. Further, the defendants' claim includes a claim in respect of 1,065 closers which were non-conformed on 14 July 2000 and which probably included or comprised the unacceptable part of the batch of 2,000 items which had apparently failed due to an improper silicone mix rather than end cap failure.
103. As the defendants have failed to prove liability on the part of the claimant, it is not necessary to deal with their loss of profit claim in detail, but I make some observations in case this assists. As early as 2002, the claimant's solicitors requested documentary or accounting evidence of the first defendant's losses. However, the defendants failed to provide the information requested. During the week before the trial the defendants sought to disclose documents including documents relevant to the losses they claim to have suffered. For the reasons I gave at the time, I refused the defendants permission to rely on those documents.
104. The defendants claim that they suffered loss of profit totalling £18,320 on sales of closers. In their pleading, they claim that average annual sales in the 24 months to 1 January 2000 were 15,265. In 2000, 11,601 closers were sold, i.e. a shortfall of 3,664 over the average for the previous two years. Loss of profit of £5 per closer is claimed, a total of £18,320.
105. The defendants rely on evidence from Mr Reid as to loss of profit. He has produced spreadsheets which summarise the defendants' sales figures on a month by month basis going back to October 1997. These suggest that, during the year of 2000, when supplies were interrupted and faulty product was being returned by customers, sales fell from 15,380 in the previous calendar year to 11,601. Sales had increased from 1998 to 1999 by approximately 4%. The defendants' case is that, if that trend had continued, sales of 15,995 could have been expected for the year 2000, so that the downturn in sales, which the defendants attribute to the problems with the closers is £4,394. Mr Reid puts the average loss of profit per closer at £5, resulting in an estimated loss of profit, on a balance of probabilities, of £21,970. Mr Reid suggests that, but for the problems, sales in 2000 should have increased by 4% over the 1999 figures and thus been 15,995. This results in a shortfall of 4,394 items. He says that, on average, the defendant made a profit of £5 per item, and this puts the defendant's claim at "approaching £22,000". His evidence is that, in the year to July 2005, sales totalled 21,624.
106. The first defendant asserts that there had been 6000 lost sales between November 1999 and May 2000. However, a comparison of sales during the periods (a) November 1998 to May 1999 and (b) November 1999 to May 2000 shows a difference of only about 1000. Contemporaneous documentation suggests that sales were below forecast during early 1999, even before any problem with the closers was discovered.
107. In his letter to the claimant dated 23 May 2000, Mr Reid claimed that the first defendant had lost approximately 6,000 product sales at a gross contribution of between £3.50 and £5; he estimated their continuing weekly losses to be £1,500. In correspondence, the defendants' solicitors have, variously, claimed that the first defendant's losses of profits were in the order of £100,000 and in the range of £30,000 to £67,200; both assertions were unsubstantiated.
108. In summary, the first defendant has provided insufficient and inconsistent information relating to its alleged loss and has substantially overstated its case. The first defendant has asserted that profit per closer was in the range £3.50 - £5.50. Mr Reid now puts the profit at £5. There is no documentary evidence to support these figures. The consequence is that I have no confidence in the figures quoted by Mr Reid. The defendants have simply failed to prove the loss they claim.

Set off

109. The approach of the defendants has been to treat the defendants as a single legal person and to attempt to ascertain the final accounting position as between the claimant on one hand and the defendants collectively, on the other. The defendants rely on the proposition that the claimant used a running account for all goods supplied to the defendants. The account number was SREILO and no distinction was made on this account between the closers and other goods. Their case is that there is, therefore, a perfectly good equitable set-off if either defendant is able to make good its counterclaim for non-conformance items or loss of profit.
110. It seems to me that that approach is incorrect. The defendants are distinct legal persons. Different claims are made against each of them. Had the defendants proved an entitlement to defend the claimant's claims or recover losses, the correct approach, in my judgement, would have been to ascertain the position of each separate legal person. As Mr Taylor submits, this might be relevant in the context of enforcement of any judgment. A proper analysis would necessarily involve considering the different positions of each defendant. However, as I have concluded that the defendants have failed in their defences and that the first defendant has not proved loss, it is not necessary for me to deal with Mr Wilkinson's ambitious submission as to how the defendants' losses might be apportioned between them or indeed with the defendants' respective entitlement to set off.

The claimant's claims

111. The claimant's primary claim against the defendants is for the sum due under invoices raised in respect of Gib Closers supplied to each of them. The sums which the claimant claims total £83,328.67. Of that sum £48,682.37 is claimed from the first defendant, and £34,646.30 from the second defendant. The claimant has, however, received unallocated payments from the first defendant which total £25,627.13 for which it gives the first defendant credit. The effect is to reduce the total value of the claim against the first defendant to £23,055.24.
112. The first and second defendants are liable to pay the claimant's invoices for closers which the claimant assembled and supplied to to the first defendant, to a total value of £44,460.54, and to the second defendant under the novated contract to a total value of £17,776.75. In addition, as well as assembling Gib Closers the claimant manufactured various other goods for the first defendant. The first defendant has wrongfully failed to pay invoices raised in respect of those items; the total due in respect of those unpaid invoices is £4,221.83.
113. I accept that the second defendant is obliged to purchase from the claimant, alternatively to compensate the claimant for the value of unused Gib Closer components which remained in the hands of the claimant after termination by the second defendant of the assembly contract. The value of the stock (which is the same as the cost at which the claimant purchased it) is £13,157.93. The claimant is entitled to recover that sum from the second defendant.
114. At the time of the second defendant's termination of the contract, the claimant had completed assembly of 790 closers pursuant to orders placed by the second defendant. The second defendant has failed to purchase those completed closers. The claimant claims the price, namely £3,711.62. The claimant's claim is pursued as a debt on the ground that the claimant has substantially performed its obligations by assembling them alternatively as a claim for damages for breach by the defendants of the agreement that the defendants would purchase stock on termination. The claimant is entitled to recover this sum on either basis.
115. There is no dispute that the sum of £4,221.83 which is claimed by the claimant is prima facie due from the first defendant. The only defence which is raised by the first defendant is a defence of set-off by which the first defendant seeks to set off its counterclaim for loss of profits. That counterclaim fails.
116. Neither defendant has proved an entitlement to set off any sums against the sums claimed by the claimant. In their defence, the defendants put the claimant to proof of the sums they claim. However, in closing submissions. Mr Wilkinson indicated that the defendants made no submissions in respect of the claimant's claim, save in relation to interest, which I deal with below.
117. I conclude that the claimant is entitled to judgment against the first defendant for the principal sum of £23,055.24 and against the second defendant for the principal sum of £34,646.30.
118. So far as interest is concerned, I conclude that the parties agreed payment terms as set out in Ms Lewtas' letter of 5 January 1997, namely 60 days from the end of the month following the date of invoice. It would appear that the claimant is not entitled to claim interest pursuant to the Late Payment of Commercial Debts Act 1998, but I invite submissions from the parties on the question of interest, if the parties are unable to reach agreement on the interest to be paid.

Frances Kirkham

22 September 2006