Scottish Court of Session Decisions

Euro Pools Plc v. Clydeside Steel Fabrications [2003] ScotCS 7 (17 January 2003)

OUTER HOUSE, COURT OF SESSION
166/00	OPINION OF LORD DRUMMOND YOUNG in the cause EURO POOLS PLC Pursuers; against CLYDESIDE STEEL FABRICATIONS LIMITED Defenders:   ________________

 

Pursuers: Buchanan; Semple Fraser

Defenders: Bell; Bennett & Robertson

17 January 2003

1. The pursuers have raised an action against the defenders in which they claim damages for breach of contract. The defenders have tabled a plea to the relevancy of the pursuers' averments, and seek to have that plea upheld in respect of certain of the pursuers' averments relating to computation of loss.
2. The pursuers are suppliers and installers of swimming pool water management systems for large public swimming pools. They make the following general averments. They design and install machinery and pipework for the circulation, pumping, heating, filtering, dosing and treating of water in such pools. They do so as a specialist sub-contractor in construction contracts for the building of large public leisure centres and swimming pools. An invariable part of such a pool system since Victorian times has been the filters, of which each system often has more than one. These are apparatus designed to remove from the water used in the swimming pool the detritus that falls into it during use. As such, they are essential to the proper safe and hygienic operation of any public swimming pool. The filters almost invariably take the form of large steel tanks shaped like upright cylinders, rounded at top and bottom. These are often over two metres in height and are almost as broad as they are tall. They are consequently very bulky, and frequently have to be installed before the plant room at a new leisure centre has been built, the plant room and pool system pipework then being constructed around them. Their removal once the pool is in operation is a very major task, and consequently they are normally expected to have a working life in everyday use of about forty years. Nevertheless, the non-corrosive lining of the cylinder is renewed approximately every fifteen years. Inside the tank thick layers of gravel and sand are placed as filter media. In ordinary use, water from the swimming pool is pumped into the tank from the top and passes through the filter media in order to remove impurities. The tank is pressurised in use. From time to time the filter media themselves become saturated with trapped matter and require to be cleaned. This is done by use of a "backwash" facility, whereby water from the swimming pool is shut off from the filter tank and an alternative supply of water is injected into the tank from the bottom, allowing waste matter to be washed out of the media and disposed of through a backwash drain. Thereafter normal use is restarted. Consequently the filter tanks are almost constantly full of pressurised water once the pool has been commissioned. That water is almost invariably warm and chlorinated. Moreover, during the backwash procedure, the filter media are washed against the internal walls. Because the filter tanks are made of steel, it is vital that they should be protected internally from the corrosive effects of the warm chlorinated water and the backwash procedure. If that is not done, the steel will quickly corrode and will fail completely.
3. In relation to the events that gave rise to the present action, the pursuers make the following averments. In June 1995 and March 1996 they entered into sub-contracts for the installation of filtration systems for swimming pools being constructed at leisure centres at Burntisland and at East Molesey, Surrey. In each case, the sub-contract provided that the pursuers were obliged to rectify any defects in their installation, including the filter tanks, arising during the period of twelve months from commissioning of the swimming pool systems. In the case of the Burntisland contract, the pursuers further undertook to indemnify the main contractor against any claim arising from any default or omission attributable to them. In the case of the East Molesey contract, they gave collateral warranties that the works that they carried out, including the filters, were fit for the purposes set out in the subcontract and for normal purposes, and that all workmanship, manufacture and fabrication would be to the highest standards available. In connection with each of these contracts, it was agreed between the pursuers and the defenders that the defenders should supply the filter tanks for the filtration systems. These were to be shot-blasted and lined internally with high build epoxy as an anti-corrosive lining. Thereafter the defenders manufactured the tanks, which were in due course delivered and installed. The pursuers aver that the contracts were contracts of sale, and are accordingly subject to sections 14 (2) and 14 (3) of the Sale of Goods Act. They further aver that in each of the contracts between them and the defenders they left the details of the design and application of the linings of the tanks to the defenders, as experts in the manufacture and supply of steel fabrications, and that the defenders selected the materials to be applied to form the linings and the method of application.
4. The pursuers then aver that, some two or three months after commissioning of the pool filter installations at Burntisland, it was discovered that the protective linings of the tank had failed and that the walls of the tank were subject to widespread corrosion. The pursuers were instructed to make good those faults. Representatives of the pursuers and the defenders inspected the filters. The defenders disputed that there was any corrosion, and consequently the pursuers' managing director examined the filters himself. He found that the tank walls were subject to widespread corrosion. The pursuers further instructed a company known as Fenwick Inspection Services Limited to inspect the tanks with a view to obtaining their advice on the remedial works required. Ultimately the pursuers required to rectify the defects. At about the same time it was discovered that the tanks installed at the swimming pool in East Molesey were also subject to corrosion, as the protective linings had failed. Once again the pursuers were instructed to make good the defects. Once again the pursuers inspected the filters and instructed Fenwick Inspection Services Limited to inspect the tanks with a view to obtaining advice on remedial works. The pursuers aver that they suffered loss in consequence of the tanks' being defective, and that such loss was caused by the defenders' breach of contract.
5. The pursuers then make averments of loss. They state that in due course they arranged for the necessary remedial works to be carried out, principally by specialist contractors, Tyneside Filtration and Engineering Services Limited. The pursuers aver, however, that some of the work involved in investigating, decommissioning and recommissioning the filters was carried out by their own employees, who were diverted from other contracts for the purpose. The pursuers aver that they had a very small staff, amounting to about six or seven employees in total, and that they required to take members of staff off their normal duties on other remunerative contracts and cause them to travel to the respective sites to carry out the remedial work in stages. They then required to pay overtime to the staff so that they could complete their normal duties outside normal working hours.
6. Subsequently, the pursuers make more specific averments relating to the losses claimed. They state that, on 7 January 1998, their site engineer, Mr Neil McClure, attended at the Burntisland leisure centre to investigate the complaint about the tanks there; six hours of his time were used in doing so and 108 miles were travelled by him. In respect of that visit, the pursuers claim £33 per hour and 45p per mile travelled, a total of £246. On 14 January 1998, the pursuers aver, their managing director attended a meeting in Burntisland to discuss the complaints; that occupied five hours of his time and he travelled 108 miles. The pursuers claim £55 per hour and 60p per mile travelled in respect of that visit, a total of £339.80. The steel filters were inspected by Fenwick Inspection Services Limited, at a cost of £576.40. The steel filters were rectified by Tyneside Filtration and Engineering Services Limited at a cost of £5,610. Another of the pursuers' engineers, Mr Alan Murphy, was engaged for six hours in recommissioning the steel filters, and travelled 108 miles for that purpose; the pursuers claim £33 per hour and 45p per mile, a total of £246.60. They further aver that their managing director required to deal with numerous telephone calls and substantial correspondence in organising and co-ordinating the repairs; they estimate that that took 20 hours of his time, which is claimed at £55 per hour, a total of £1,100. The total claimed in respect of the Burntisland leisure centre is accordingly £8,119.40.
7. In respect of the swimming pool at East Molesey, the pursuers aver that their managing director attended a meeting on 5 June 1998 to discuss the complaints received; that took 20 hours of his time, and he travelled 808 miles. That is claimed at £55 per hour and 60p per mile travelled, a total of £1,584.80. An independent inspection of the steel filters was carried out by Fenwick Inspection Services Limited, at a cost of £350. The steel filters were rectified by Tyneside Filtration and Engineering Services Limited at a cost of £5,610. To allow part of the swimming pool to remain operational during remedial works, one of the pursuers' engineers, Mr Alan Murphy, required to modify pipework; that took 32 hours of his time, and he travelled 808 miles. That is claimed at £33 per hour and 45p per mile, a total of £1,419.60. Materials for that task cost £930.97. The same engineer recommissioned the filters; that took 16 hours of his time and he travelled 808 miles. That is claimed at £33 per hour and 45p per mile, a total of £891.60. As at Burntisland, the pursuers aver that their managing director required to make numerous telephone calls and conduct substantial correspondence in organising and co-ordinating the remedial works. That is said to have taken 24 hours of his time, which is charged a £55 per hour, a total of £1,320. The total claimed in respect of the East Molesey swimming pool is accordingly £12,106.97.
8. The pursuers go on to make certain averments regarding the employment and remuneration of their engineers and managing director. They state that, if they had been employed by a third party to perform the remedial works, the services of their engineers and managing director would have been charged out at rates much higher than those sought in the present action, namely £45 per hour for an engineer and £160 per hour for the managing director. Any third party employed to carry out such works would have been likely to make charges comparable to those higher rates. The pursuers then aver that, had their employees not been engaged in the rectification works, they would have been able to earn income for the pursuers at the higher charge-out rates. As it was, they were deflected from their normal duties to carry out the remedial works. In the result, the pursuers sustained costs in terms of overtime pay for work outwith normal hours to fulfil their other contractual obligations, with no means of recovering that from their clients in those other contracts. The lower hourly rate of remuneration for an engineer in their employment is £7.35. In a contract based on dayworks an overhead percentage of 350% is added, producing an hourly rate of £33. That was the rate claimed in the present action. The pursuers' managing director received an annual salary of £52,000 based on a year of 45 working weeks of 35 hours per week. His hourly rate of remuneration was accordingly £33.01. If National Insurance and an overhead percentage of 350% are added, his charge-out rate would be £165 per hour. In fact the pursuers' claim for his time was for £55 per hour. In these circumstances, the pursuers aver that £33 per hour is a reasonable estimate of their loss occasioned by the time expended by engineers in rectifying defects, and £55 per hour is a reasonable estimate of their loss occasioned by the time expended by their managing director. The mileage rates claimed for travel are said to reflect the cost of purchase, wear and tear, maintenance, insurance, fuel and road tax incurred in respect of the vehicles used by employees. It is averred by the pursuers that the whole of the losses claimed arise directly and naturally from the breaches of the contracts in question, and are such as to be in the reasonable contemplation of the parties as liable to arise from such breaches as the time when the respective contracts were made.
9. The defenders challenged the relevancy and specification of the pursuers' averments of loss, on three separate grounds. First, their counsel contended that the manner in which the pursuers calculated their losses was incorrect in law. He pointed out that the losses claimed were essentially charges for completing the rectification work under the contract between the parties, and not additional costs in completing other contracts. That approach was said to be misconceived. Counsel submitted that any disruption of the pursuers' business must be traced through to identifiable financial loss, such as the additional cost of completing contracts with third parties. The averments summarised in paragraph [8] above made reference to costs incurred in completing other contracts, but that did not in fact form the basis of the claim. The pursuers did not, for example, claim the cost of paying overtime to their employees in order to complete both the remedial work and the other contracts which the pursuers were performing at the time. Similarly, in relation to the managing director, there was no suggestion that he had been deflected from other remunerative activity. Indeed, in relation to the managing director, counsel submitted that the pursuers had sustained no loss as a result of the remedial work performed by him; that was because his salary would be paid by the company whatever work he did, with the result that the company incurred no extra costs simply because he had to work harder. Reference was made to Johnston v W. H. Brown Construction (Dundee) Limited, 2000 S.L.T. to 23, and Lomond Assured Properties Limited v McGrigor Donald, 2000 S.L.T. 797. Likewise, it was said that the claims for mileage travelled were unconnected with any actual loss; a claim for fuel costs would be acceptable, but it was not obvious why the defenders should contribute to the purchase and general running costs of a car. Secondly, counsel submitted that the averments regarding remoteness of damage, which are summarised at the end of paragraph [8] above, were irrelevant. The contracts between the parties were contracts for the sale of goods. In such cases, section 53A of the Sale of Goods Act 1979 provided that the measure of damages for breach of contract was the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach. It was accepted that section 54 of the Act, which preserved the existing law relating to interest and special damages, permitted a claim to be based on the second rule in Hadley v Baxendale, (1854) 9 Ex 341, namely that the losses claimed were such as might reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach of it. Reference was made to Bence Graphics International Limited v Fasson UK Limited, [1997] 1 All E.R. 979. In the present case, however, it was difficult to see how a claim for disruption of the pursuers' business could be said to arise in the ordinary course of things from the defenders' breach of contract, in view of the type of contract concluded between the parties. The disruption to the pursuers' business had been occasioned by contractual obligations undertaken to the main contractors in the two contracts. That could not be said to be an ordinary incident of a contract of sale of goods. Consequently the pursuers' claim must be based on the second rule in Hadley v Baxendale. The crucial question was accordingly whether the loss claimed was within the reasonable contemplation of the parties at the time when the contract was concluded. While the pursuers averred that the defenders were aware that it was proposed to install the tanks in the two swimming pools, they did not aver that the defenders were privy to any details of the contracts. In particular, the pursuers did not aver that the defenders were aware of the pursuers' obligation in each case to rectify defects. It was that obligation that gave rise to the claim for disruption. Thirdly, the pursuers challenged the relevancy of certain specific elements in the pursuers' claim. I deal with those in paragraphs [17] to [22] below.
10. In reply, counsel for the pursuers submitted that the pursuers were entitled to base their claim for damages on the cost of time rather than the loss of profit. The disruption to their business was measured by the cost of time; losses should not be equated solely with loss of profit, but could be measured in a variety of ways. Reference was made to Stair, Institutions, I.xvii.16, Duke of Portland v Wood's Trustees, 1926 S.C. 640; 1927 S.C. (H.L.) 1, Kvaerner Construction (Regions) Limited v Kirkpatrick & Partners Consulting Engineers Limited, 1999 SLT 1120; Johnston v W. H. Brown Construction (Dundee) Limited, supra, and Lomond Assured Properties Limited v McGregor Donald, 2000 S.L.T. 797. It appeared, in particular, from Kvaerner Construction (Regions) Limited v Kirkpatrick & Partners Consulting Engineers Limited, that the cost of time spent curing defects under contracts with third parties was in principle recoverable. In GUS Property Management Limited v Littlewoods Mail Order Stores Limited, 1982 S.C. (H.L.) 157, it had been accepted (at 178) that the cost of time of the pursuers' employees in arranging remedial works was in principle recoverable. The same point had been accepted in Tate and Lyle Food and Distribution Limited v Greater London Council, [1982] 1 W.L.R. 149, at 151-152. Moreover damages were recoverable for the trouble and inconvenience caused to a person's business by a breach of contract: Webster v Cramond Iron Company, 1875,4 R. 752, at 754, and Aarons & Company v Fraser, 1934 S.C. 137, at 143. Counsel pointed out that the defenders did not sue for profits lost on other contracts, nor for overtime costs. The references to these matters were part of the general narrative of events, and they indicated disruption to the business.

Recovery of damages for disruption of business

11. The first submission made by counsel for the defenders was in essence that, if the pursuers were to recover damages for disruption of their business, such disruption must take the form of additional costs in completing other contracts; the mere performance of remedial work under contracts between the pursuers and third parties was not sufficient to establish any loss, unless it resulted in additional costs that would not have been incurred but for the defenders' breach of contract. In my opinion that proposition is incorrect, for two reasons. In the first place, it confuses two matters that are conceptually quite distinct, the loss sustained in consequence of a breach of contract and the quantification of that loss. The loss is the physical or economic damage sustained in consequence of the breach of contract. That loss must be quantified, in the sense that a monetary equivalent must be ascertained, but that exercise is not the same as the identification of the loss. In the second place, it ignores the fact that, if employees are required to perform additional work in consequence of a breach of contract, that work in itself represents a loss to their employer. These points can perhaps be seen most clearly in the case of a managing director. A managing director will typically be paid a fixed salary, perhaps with profit related bonuses. If he requires to spend part of his time organising rectification work following a breach of contract, he will not be paid any more, and there is thus no direct cost to his employer as a result of the need to perform the rectification work. In reality, however, there is still a loss to his employer as a result of the rectification work. A managing director will normally be expected to devote the whole of his working time and effort to the affairs of his employer; a term of that nature is commonly found in managing directors' service contracts, and in many cases would be implied even if it were not expressed. The tasks performed by a managing director are obviously very variable, but they will almost invariably include the strategic planning of the company's business and, at a strategic level, the search for new markets and the development of new products. Those tasks are critical to the development of the business; indeed, in modern conditions, they are usually critical to its very survival. In a smaller company such as the present pursuers, the managing director may perform much more varied tasks, including sales, the supervision of employees and general administration; those tasks too are vital to the survival of the company's business. If one of the company's suppliers commits a breach of contract, and in consequence the managing director requires to spend a significant amount of time supervising remedial measures, that time is lost to the other tasks that the managing director is obliged to perform. That in my opinion clearly represents a loss to the company. It may not leave the company out of pocket, in the sense of having to pay more to the managing director; nevertheless, the company will inevitably be deprived of part of the services that it would normally expect from the managing director. That might mean, for example, that the managing director was unable to devote as much time as would otherwise have been possible to the planning of an important marketing initiative, or the development of a new product, or to general administration of the company's affairs and the supervision of its employees. In any of these cases, the loss of time inevitably represents a loss of services provided by the managing director to the company. Thus in any such case the existence of a loss is established. Thereafter it is necessary to consider how that loss is quantified.
12. Similar principles apply to the remedial work performed by employees other than a managing director. If, for example, an engineer is obliged to spend time recommissioning a filtration system, that means that he is unable to perform other work for his employer. The employer thus loses the benefit of part of the employee's time. In some cases the employer may be short of work for its employees, with the result that rectification work following a breach of contract may be performed during time when the employee would not have been profitably employed. Even in such a case, however, work has been necessitated by the defender's breach of contract, and that work, otherwise unnecessary, can in my opinion properly be regarded as a loss to the employer. That can be seen in a case where the lack of other work is sufficiently serious for the employer to be contemplating the redundancy of one or more of its employees. In such a case, the need to perform remedial work may compel the employer to keep employees on rather than save the cost of their wages, and that undoubtedly represents a financial cost. The somewhat heartless nature of this example perhaps illuminates the fallacy at the heart of the defenders' submission; that fallacy is to ignore the fact that extra work, unnecessary but for a breach of contract, is itself a loss. In the present case, however, it is unnecessary to consider any such example in detail, because the pursuers expressly aver that, if their employees had not been engaged in the rectification works, they would have been able to earn income for the pursuers at higher rates than those claimed in the present action. The pursuers also aver that overtime was necessary to fulfil other contractual obligations. In these circumstances it seems quite clear that the pursuers have averred a loss. That leads on to the quantification of such loss, which is a separate exercise. The foregoing analysis is in my opinion supported by a number of the authorities cited by the pursuers, in particular Duke of Portland v Wood's Trustees and Kvaerner Construction (Regions) Limited v Kirkpatrick & Partners Consulting Engineers Limited. Those cases make it clear that there is no single method of assessing the loss sustained in consequence of a breach of contract; the loss must be determined pragmatically, having regard to the particular circumstances of the case. So far as the pursuers' claim for management time is concerned, claims of that nature were accepted by Lord Johnston in Lomond Assured Properties Limited v McGregor Donald and by Forbes J in Tate & Lyle Food and Distribution Limited v Greater London Council.
13. In relation to quantification, the overriding principle is that the loss must be quantified in a manner that is objectively reasonable. What is reasonable in any particular case will, however, depend on the facts and circumstances of that case. Where employees are required to spend time on rectification works following a breach of contract, the employer will normally be entitled to recover the cost of the salary or wages paid to those employees for the time taken to perform the remedial work. In addition, the employer will normally be entitled in my opinion to recover some contribution to the general overheads of its business. When a person agrees to provide services under a contract, he will normally set the price at a level that enables him to pay the employees who carry out the specific work under the contract and also to recover a contribution to general overheads, such as the cost of maintaining business premises, computer systems, head office and accounting staff, salesmen and estimators, and general technical support. Those costs, which cannot be charged for separately, are thus spread across the totality of the remunerated work carried out by the person in question. When a breach of contract is committed, the same approach should in my opinion be taken in quantifying the loss sustained by the innocent party. In this way that party is able to recover his overheads from the whole of the remunerated work that he carries out. It follows that the losses sustained by an employer will not be limited to the actual wages or salary paid to employees in performing rectification work. Instead, the employer will be entitled to make a charge that reflects both employment costs and overheads. Two standard methods exist for achieving such a result, although these should not be regarded as the only possible methods. The first is to make an hourly charge for employees' time that reflects standard commercial charge-out rates for such time. It is, of course, possible for various such charge-out rates to exist. In the present case the pursuers appear to indicate that their standard charge-out rates for engineers' time would be different from, and greater than, dayworks charges under a contract, although both of those can be regarded as forms of charge-out rate. The alternative is to charge employees' time at a rate comparable to that used in calculating the tender for the contract under which the claim is made. That approach will normally produce a lower figure, because the process of competitive tendering will usually bring rates down. Sometimes, as in the JCT standard forms of contract, express provision is made for performing rectification work at tender rates (although that relates to contractual rectification work rather than the calculation of damages). Use of tender calculations, however, is only possible where the tender sum has been calculated on the basis of rates for employees' time with a mark-up for overheads. In other cases some form of standard charge for employees' time will be inevitable. Breaches of contract typically have to be dealt with by the innocent party on an unplanned, piecemeal basis, and they commonly involve a substantial degree of disruption of that party's activities. In these circumstances dayworks rates, or an equivalent form of contractual charge-out rate designed to deal with unpredictable or unforeseen work, will normally be an appropriate basis for a claim.
14. In the present case the pursuers claim £55 per hour for their managing director's time and £33 per hour for their engineers' time. Those figures are explained in the averments summarised in paragraph [8] above. The hourly charge for engineers is based on the remuneration of the employee in question with the addition of an overhead percentage of 350%. That percentage is said to be derived from contractual dayworks charges. The hourly charge for the managing director is based on the hourly equivalent of his salary and National Insurance, to which is added a mark-up at a rate (in fact 50%) well below the percentage used in dayworks rates. The pursuers further aver that, if they had been employed by a third party to perform the necessary rectification works, their normal charge-out rates would have been at the higher rates of £45 per hour for an engineer and £160 per hour for the managing director. The latter amounts are obviously designed to indicate the reasonableness of the lower rates that have in fact been charged. In my opinion the approach taken by the pursuers is relevant. They are charging for their employees' time at either dayworks rates or a rate substantially below dayworks rates, thus recovering both salary costs and a contribution towards overheads. For the reasons discussed in the last paragraph, I consider that approach to be entirely appropriate. The choice of figures is clearly not a matter that can be commented on at the stage of debate; it must await proof.
15. The pursuers further claim sums of 45p per mile and 60p per mile for the use of vehicles by their employees in performing rectification work. Those figures are said to reflect the whole purchase and running costs of the vehicle, and not merely the cost of fuel used in making the journeys in question. The defenders criticised this approach, on the basis that only the cost of fuel could be said to be caused by their breach of contract. In my opinion this criticism is misconceived. The approach to the cost of vehicles and other plant should be essentially similar to that adopted in relation to employees' time. When a charge is made for plant, it will reflect not only consumables such as fuel but the total costs of providing and running the plant in question. If extra use of plant is required in consequence of a breach of contract, the damages for the breach should reflect the appropriate share of the whole costs of that plant. That will cover not only fuel, but also depreciation (which covers the cost of providing the plant), maintenance and repair, and any relevant taxes. In the case of road vehicles a mileage charge is the standard means of recovering those elements; in other cases some sort of time charge will probably the appropriate. The total amount claimed must obviously be reasonable, but that is a matter for proof, not debate. In the present case I cannot say that the pursuers' approach is irrelevant.

Remoteness of damage

16. The defenders' second argument was that the pursuers' averments regarding remoteness of damage were irrelevant. Three propositions were central to the defenders' argument. First, the pursuers' claim was based on obligations arising under the main contracts for installation of filtration equipment to rectify defects; those obligations were owed to the main contractor in each case, and the disruption of the pursuers' business arose out of the fulfilment of those obligations. Secondly, disruption of business caused through the fulfilment of obligations to a third party was not an ordinary incident of breach of a contract for the sale of goods. Thus the first rule in Hadley v Baxendale was excluded. Thirdly, the pursuers did not aver that the defenders were aware of the existence of any contractual obligations owed to third parties under the main contracts. That excluded the second rule in Hadley v Baxendale. The first of these propositions is clearly correct. The pursuers' claim clearly arises from remedial work that they required to perform under the contracts for the supply and installation of filtration equipment at the two swimming pools. The second proposition, however, is in my opinion plainly incorrect. The pursuers aver that the defenders were asked to provide quotations for the supply of filter tanks for the purposes of the pursuers' contracts to install filtration systems at each of the pools. The pursuers further aver that, under section 14 (3) of the Sale of Goods Act 1979, it was an implied term of the parties' contracts that the tanks would be a reasonably fit for the purpose for which they were to be supplied, namely as filter tanks for a large swimming pool development, to be used according to the standard filtration system. It is clear from those averments that the pursuers offer to prove that the defenders were aware that the tanks manufactured by them were to be installed as part of the filtration system at a public swimming pool. If that were so, the defenders must have been aware that the pursuers had entered into contracts for the installation of the filtration systems with the main contractors constructing the swimming pools. In that event, it is in my opinion obvious that the defenders must have been aware that the pursuers would be under contractual obligations to those main contractors in relation to the quality of the filtration systems supplied by them. It is equally obvious in my opinion that those contractual obligations would have extended to the quality and fitness for purpose of the tanks enclosing the filtration media. In modern commercial conditions it is virtually inconceivable that such obligations would not be undertaken by a subcontractor. In contracts for the sale of goods, sections 14 (2) and 14 (3) of the Sale of Goods Act 1979 imply terms that the goods supplied will be of satisfactory quality and reasonably fit for the purpose for which they are to be supplied. In cases where the contract is more complex, and involves the provision of services as well as goods, broadly similar terms will almost invariably be incorporated in the contract; indeed, in many cases the terms will be rather more stringent than section 14 of the Sale of Goods Act. In these circumstances I am of opinion that, in a contract for the sale of goods where it is known that the purchaser will use those goods to perform a contract with a third party, the fact that the purchaser may require to perform remedial works under the latter contract is a matter arising "according to the usual course of things", to use the words of Alderson B. in Hadley v Baxendale. For this reason I am of opinion that the first rule in Hadley v Baxendale is clearly satisfied in cases such as the present, at least on the assumption that the pursuers' averments are established at proof. It is accordingly unnecessary to consider the second rule in that case. I should add that I do not consider it necessary that the defenders should be aware of the details of the pursuers' contract with the main contractors. All that is required to satisfy the first rule in Hadley v Baxendale is that the loss claimed by the pursuer should be such as typically arises from breach of the kind of contract under consideration, in the present case a contract for the sale of goods. In my opinion the possibility that remedial works will be necessary under a further contract in which those goods are to be used is plainly loss that may typically arise in such a situation.

Other criticisms of pursuers' averments of loss

17. The defenders made a number of other criticisms of the pursuers' averments of loss. These related to the specific heads of loss claimed, as set out in paragraphs [6] and [7] above. In the first place, counsel for the defenders submitted that the charges made for the time of site engineers did not provide intelligible detail as to the hours claimed. Thus in the case of the first engineer referred to, Mr Neil McClure, the claim made on record related to a site visit on 7 January 1998, but the time sheet lodged in support of this part of the claim related to the week ended 28 December 1997. In the case of the second engineer referred to, Mr Alan Murphy, the dates of his visits to Burntisland were not given on record , and it was difficult to reconcile the time sheets lodged with the claims for his time. In relation to his visits to East Molesey, it was again difficult to reconcile the time sheets lodged with the claims for his time. The same applied to the mileage claimed; the distances appearing on the time sheets and the distances claimed on record were different. Counsel for the defenders pointed out that, by interlocutor dated 11 October 2001 the pursuers had been ordained to lodge in process by 21 November 2001 a statement of calculation of their claims for damages together with all vouchers necessary to support those claims. That had not been done adequately in the present case. In response, counsel for the pursuers stated that he was concerned that the pursuers' case should not be deemed irrelevant for want of specification because of the lack of vouchers. He pointed out that the detailed criticisms of the pursuers' vouching had not been mentioned in the defenders' note of arguments prepared for the purposes of the present debate.
18. In my opinion the pursuers' response is correct. The present debate is concerned with the relevancy and specification of the pursuers' pleadings; that is the usual function of a debate, and is in any event clear from the note of arguments lodged on behalf of the defenders, which deals solely with the relevancy and specification of the pleadings. The present criticisms, by contrast, are concerned with the extent to which the pleadings are vouched by documentary productions. In commercial procedure the latter question will frequently arise for consideration before proof. In particular, it is common for the vouching of the claim to be raised in the course of preliminary or procedural hearings. If the case is sent to debate, however, and one party wishes to raise the issue of the adequacy of vouching rather than straightforward issues of relevancy and specification, he should in my opinion mention the matter in his note of written arguments prepared for the purposes of the debate. Otherwise it will normally be presumed, in the absence of pleas to jurisdiction, competency, title and interest to sue and the like, that the debate is concerned solely with the relevancy and specification of the pleadings, in accordance with normal practice. In the present case that was not done. Counsel for the defenders pointed out that an earlier note of arguments had raised the issue of vouching, but in my view that was superseded by the note prepared specifically for the purposes of the debate. The general rule that a debate will be confined to matters of relevancy and specification is subject to one exception, however. This arises where specification of the claim is given not in the pleadings themselves but in documentary productions. In such a case the documentary productions must be treated as the equivalent of pleadings, and will be subject to scrutiny in the usual way to discover whether they disclose a relevant case that is adequately specified. That was the situation considered by Lord Hamilton in Johnston v W. H. Brown Construction (Dundee) Ltd, 2000 SLT 223, at 226-227, where he pointed out that, while it was acceptable in commercial actions to give particulars of claims otherwise than by formal pleading, material adequate for the purpose must be provided, both as a matter of fair notice and so that the court might determine whether the claim justified inquiry. The present case is different from that, however, as adequate specification of the claim is in my opinion given on record. It may well be the case that some of the vouching does not support the claims made on record; the site visits made by Mr Neil McClure are perhaps an obvious example. Nevertheless, there may be explanations for the discrepancies. That is especially so in cases where the hours claimed on record are less than those mentioned in the relevant time sheet; in that event it may readily be assumed that not all of the hours recorded in the sheet are attributed to the remedial work. Another possible explanation is that there is simply an error in the document. The possibility of such explanations indicates why it is not generally desirable to treat the adequacy of vouching as an aspect of relevancy and specification; issues may arise that go beyond the documentation lodged and enter the realm of evidence. In the present case I am of opinion that sufficient detail is provided in the pleadings to hold that the pursuers' claim in relation to engineers' time and mileage is both relevant and sufficiently specific.
19. Counsel for the defenders further criticised both the specification and the lack of vouching of the pursuers' claim for their managing director's time, and for the mileage travelled by him. He described the claim in respect of the Burntisland swimming pool for twenty hours of the managing director's time as "prima facie extravagant and unsupportable"; it amounted to approximately 2 1/2 days writing letters or on the telephone. He further pointed out that no vouching of any kind had been lodged in respect of the managing director's activities. The response to the argument on lack of vouching is in my opinion that set out in the previous paragraph. The lack of documentation may cause problems for the pursuers at proof. Indeed, it may be raised specifically by the defenders in advance of the proof. Nevertheless, it is not in my opinion an appropriate subject for the present debate. Once again, there may be explanations for the lack of documentation. A managing director will not usually keep time sheets. On the other hand, documents such as a diary, or records of telephone calls, or correspondence, may be available and may go a long way to support oral evidence about the involvement of the managing director. So far as specification is concerned, I consider that sufficient has been given for proof. So far as the claim for twenty hours of the managing director's time is concerned, it cannot properly be assessed without evidence.
20. The third specific criticism made by counsel for the defenders related to the pursuers' claims for the cost of employing Fenwick Inspection Services Ltd. The pursuers avers that that company was employed to inspect the tanks with a view to advising on the remedial works required. The defenders contended that the cost of employing Fenwick was an extrajudicial expense, involving either investigation of the pursuers' claim or at least the apportionment of blame among the parties involved. In my opinion this argument is incorrect. In order to carry out remedial works it is clearly likely that the pursuers first had to discover what was wrong with the filtration tanks. That is what the pursuers aver. If that averment is correct, the employment of Fenwick would properly be regarded as part of the rectification procedure. No doubt Fenwick's report is relevant to the question of whether the pursuers have a claim against the defenders. Nevertheless, if its primary purpose was to discover what was wrong with the filtration tanks in order that remedial works might be carried out, it is in principle recoverable, and the use of the report in making out a claim is merely an incidental benefit. The position might well be otherwise if the report were designed primarily to establish whether a claim existed, but that is not what the pursuers aver.
21. Finally, counsel for the defenders submitted that the vouching for materials used at East Molesey did not match the figure of £930.97 on record. That is correct, but once again the inadequacy of the vouching does not seem to be a proper subject for the present debate.
22. In the all the circumstances I will repel the and defenders' motions for dismissal of the action, which failing the exclusion from probation of the averments discussed in paragraphs [17] to [22] above, and allow a proof before answer on the whole of the pursuers' averments.