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OUTER HOUSE, COURT OF SESSION
[2007] CSOH 209
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CA151/04
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OPINION OF
LORD DRUMMOND YOUNG
in the cause
WYMAN-GORDON
LIMITED
Pursuers;
against
PROCLAD
INTERNATIONAL LIMITED
Defenders:
(No. 2)
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Pursuers: Paterson, Solicitor-advocate; Tods Murray W.S.
Defenders: Robertson; HBJ Gateley
Wareing (Scotland) L.L.P.
(for Young & Partners)
31 December 2007
[1] The
pursuers specialize in the design and manufacture of complex metal components;
in particular they have expertise in the extrusion of pipes. The defenders specialize in the design of
pipeline components and the manufacture and supply of pipes for such pipelines.
They have developed a patented process
for the manufacture of clad co-extruded pipe; such pipe is known as Proclad Wex
pipe (weld extruded pipe). The process
for manufacturing such pipe involves the extrusion of metallurgically bonded
clad billet in order to produce fully metallurgically bonded pipe. What happens in practice is that the outside
of a Wex pipe is manufactured from carbon steel, as in an ordinary extruded
pipe, but a cladding material known as Inconel is bonded to the inside surface
of the carbon steel. Pipes used in oil and gas pipelines are liable
to suffer from corrosion, and the advantage of the Wex process is that it
enables an extruded pipe to be produced with cladding on the inside surface to
protect against such corrosion. The
carbon steel is also important, however, in that it gives strength to the pipe.
Other forms of clad pipe can be
manufactured, but an extruded pipe is substantially cheaper than these. The pursuers also manufacture ordinary
extruded pipe, generally known as Ex pipe. Ex pipe is manufactured from carbon steel, and
does not have any cladding on the inside surface.
[2] Wex
pipes were manufactured in the following manner. First, the pursuers obtained rounded steel
bars, known as blockers, from a steel manufacturer. The pursuers compressed each blocker into an
appropriate shape and pierced it through the middle; the size of the blocker at
this stage was calculated to suit the extrusion process and to produce a pipe
of particular dimensions. The pierced
blockers were machined by the pursuers and were then delivered to the defenders.
The defenders applied Inconel cladding to the inside surface of each blocker,
using their patented process, and returned them to the pursuers for extrusion. The pursuers heated each blocker to a very
high temperature and then fed it into an extrusion press, which compressed the
blocker laterally and extended it longitudinally to form the pipe. Both the carbon steel and the Inconel
cladding were extruded, in such a way as to produce a pipe with carbon steel on
the outside and Inconel cladding on the inside. Thereafter the pipes were subjected to a
number of treatments, after which they were delivered to the defenders and in
due course supplied to the defenders' customer.
[3] In
early February 2002 the defenders approached the pursuers in connection with an
order that they had obtained from an American company known as FMC for the
supply of pipes for an oil installation in the Gulf of Mexico; the project was known,
ultimately, as Project Thunderhorse. The
defenders' intention was to supply Wex and Ex pipes of four different
diameters; these were referred to as 5", 8", 10" and 12". The last three of these referred to the
approximate outside diameter of the pipe; the first of them had an outside
diameter of 7", and was referred to by its approximate inside diameter (actually
5.125"). A total of 87 5" Wex
pipes, 18 8" Wex pipes, seven 10" Wex pipes and 13 12" Wex pipes
were manufactured; some of these were suitable for supply to FMC but others
were not. In addition significant
quantities of Ex pipes were manufactured. From about January 2003 onwards a number of
problems were identified with the pipes that were being produced using the Wex
process. For present purposes the most
significant of these was a variation in the thickness of the cladding on the
inside of the pipes. It became possible
to identify that because improved methods were used to measure the clad
thickness. Matters came to a head at a meeting between
representatives of the parties held on 28 October 2003, at which the defenders
indicated that the considered that the pipes had failed in a number of
respects; as a result they asked for a contribution from the pursuers to the
costs that they had incurred in consequence. The pursuers refused to make any contribution.
Some time after the meeting the pursuers
were supplied with non-compliance reports, which indicated the defects that the
defenders claimed to have identified in the pipes. The pursuers disputed these. Negotiations to resolve matters broke down in
March 2004. Reject notices were issued
by the defenders, who notified FMC of what was happening. As a result FMC cancelled their contract with
the defenders. On 22 March 2004 Mr David
Neill, the defenders' group technical director, e-mailed the pursuers to advise
them of the cancellation and to state that any outstanding invoices would not
be paid pending the formulation of a claim by the defenders.
[4] Thereafter
the pursuers raised the present action, in which they claim payment of
г199,827.59 as the unpaid price of goods sold and supplied by them to the
defenders. The pursuers further claim
payment of the sum of г332,183 as damages for breach of contract. In their defences the defenders claim that the
pursuers supplied goods to them in breach of the pursuers' contractual
obligations and are accordingly not entitled to payment for such goods. The defenders further claim that, to the
extent that they are liable to pay any sums to the pursuers for goods supplied,
they are entitled to retain and set off against such sums their own claim for
breach of contract. The defenders
counterclaim for payment of the sum of г1,394,000; that amount is claimed by
way of damages for breach of contract by the pursuers. The defenders claim that a significant amount
of the pipe supplied by the pursuers for use in Project Thunderhorse did not
conform to the contractual requirements as agreed between the parties, and the
amount sued for in the counterclaim includes sums paid to the pursuers in
respect of pipe that was said to be disconform to contract and payments made
for batches of pipe that failed, it is said, to produce any usable pipe. In respect of the counterclaim, the pursuers
assert that the defenders waived any right to claim that such goods were in
breach of contract.
[5] After
adjustment of the parties' pleadings, on the joint motion of the parties, I
ordered that the action should proceed to a preliminary proof on two matters: (i) the terms and conditions applicable to the
parties' contract, and in particular whether the defenders' standard terms and
conditions formed part of the contract; and (ii) whether or not the defenders'
conduct in accepting and making payment for extruded pipes that did not conform
to the tolerances agreed on 30 September 2002 precluded the defenders from
relying on those tolerances. Following
the leading of evidence at that proof, at which all of the individuals who were
involved with the parties' contract at management level gave evidence, I was
invited to make certain findings as to the terms of the parties' contract, and
to express a concluded view on the question of whether the defenders had waived
any right to rely on one of the contractual terms that were in dispute; in
particular, I was invited to find that, if the pursuers agreed to tolerance (or
warrant) the clad thickness of the pipe, the defenders waived the right to rely
on such a term for any pipe ordered after approximately January 2003. I will
deal with these issues in turn.
Contractual
terms
[6] The critical issue was the terms agreed
between the parties as to the dimensions of the pipe produced for use in the
Thunderhorse project. The pursuers'
contention was as follows: they contracted with the defenders to extrude four
different sizes of Wex pipe; in so doing they agreed to tolerance, or warrant,
two dimensions, namely the inner diameter of the pipes and the overall wall
thickness of the pipes; they did not agree to tolerance or warrant the
thickness of the clad within the pipes. The pursuers accordingly accepted that they
were contractually bound to produce pipe which met the prescribed dimensions
for inner diameter and overall wall thickness, subject to certain tolerances
that had been agreed between the parties.
In terms of the lateral dimensions of the pipes, however, the pursuers
contended that that is all that they warranted.
The defenders' contention, by contrast, was that the pursuers agreed to
tolerance the inner diameter, the overall wall thickness and the thickness of
the cladding within the pipe. At one
stage of the action the defenders contended that it was a term of the contract
that the extrusion process would yield a particular percentage of usable pipe,
and that the pipes would be free from scoring in the bore. The pursuers disputed that those were terms
of the parties' contract. Ultimately,
however, it was agreed that the parties' contract did not contain any such
terms, and it is accordingly unnecessary to consider those matters further. The defenders' contention that the pursuers
agreed to warrant the clad thickness as well as the inside diameter and the
overall wall thickness proceeded on two separate bases: an implied term of the
parties' contract and section 14(2) and (3) of the Sale of Goods Act 1979.
History of parties' dealings
[7] The parties' dealings were the subject of
lengthy evidence. The elements that are
material in relation to the dimensions of the pipes are as follows. First, the parties entered into negotiations
against a background of the apparently successful use of the Wex process in
another contract. The Wex process was an
invention of the defenders, and had been patented by them. One of the purposes of the process, as
disclosed in the patent, was to control the clad thickness during the extrusion
process, thus avoiding migration of the clad material into the base material by
disproportionate amounts. The defenders
believed that the process would produce a uniform coating of the clad material. The process had previously been used for one
project, for a company called Saudi Aramco. In that case 8" Wex pipes had
successfully been extruded by the pursuers for the defenders. The clad thickness had not been a contractual
requirement, however, and the measurements that were carried out on the pipes
did not include the clad thickness; the overall wall thickness had been
checked, and a dye penetrant test had been carried out, but these did not
involve any proper measurement of the clad thickness. Witnesses for both parties agreed that
variations in the clad thickness could have occurred without being discovered. Indeed, at the start of the Thunderhorse
extrusions, the testing equipment that was available was of an elementary
nature and could not measure clad thickness accurately.
[8] The
initial negotiations between the parties over project Thunderhorse began in February
2002. The pursuers provided an initial
quotation for the supply of blockers and their extrusion in a fax dated 6 February 2002; in that fax they pointed out that they had not
previously extruded a clad combination in such a small size and they urged that
a trial should be run. A further
quotation with lower prices was sent the following day, and the price was
amended again on 7 March. In the initial
quotations dimensions were given: 7.5" outside diameter with a wall
thickness of 27.2 mm carbon steel and 3 mm of nickel alloy (Inconel). No tolerances were given, however, and it was
not suggested that there was any obligation to work to these dimensions. On 3 May the defenders accepted the pursuers'
offer in respect of five pipes. It was
agreed that these were trial pipes; two were delivered on 29 September 2002 and the other three on 10
January 2003. When these pipes
were manufactured no process or dimensions had been agreed, and in particular
no tolerances had been agreed.
[9] A
further 15 5" pipes were ordered by the defenders on or shortly before 16 July 2002. These were
also trial pipes. The pursuers confirmed
the order and the price in a fax dated 16 July
2002.
Initially no tolerances were agreed, but
these were discussed subsequently. On 29
July it was agreed to tolerance the inside diameter, and on 30 September it was
agreed that the overall wall thickness could be toleranced (see below at
paragraph []); the tolerances were specified in each case. Prior to July FMC had provided drawings to the
defenders (Nos 7/1-4 of process), and these were passed on to the pursuers. The drawings indicated tolerances for the
inside and outside diameters, the wall thickness and the clad thickness. The versions of the drawings that were
available as productions had been amended in manuscript. Shortly after the order was placed, however,
on 18 July, Mr Douglas Armet, the pursuers' sales manager, expressed concerns
about the dimensions in the drawings and stated that it might involve a serious
problem for the engineering of the pipes.
He took matters further in an e-mail of 25 July; this related to other
qualification pipes, but one of the matters mentioned in the e-mail is of
general importance. Mr Armet
stated:
"With regard to drawing
dimensions and tolerances we cannot work to the tolerances on the drawing,
these are for machined pipe. We can work to the following:
OD: -.032" / +
0.095"
ID: +
/ - 0.0 80"".
On 29 July Mr Armet sent a further e-mail, in which he
stated:
"In preparing tooling
for extrusion -- an FE Punch (ID mandrel and extrusion throat -- we can design
a pipe to be either OD or ID controlled.
However it is not possible to
tolerance the ID, OD and wall so we need to agree what dimensions will be
toleranced.... W-G believe they can accept the tolerances
mentioned in the e-mail for pipe in the as extruded condition with the
exception of the 5 1/8" ID pipe where we would propose the same as the
8" size i.e. + / - 0.060"... If we
can agree on the above then the next step is to agree a tolerance on either the
OD (allowing the wall to float) or the wall (allowing the OD to float). As the
wall thickness is important we would suggest tolerancing this dimension as a
minimum wall with a plus tolerance.... After
the tolerance is agreed we will design the extrusion throat which then has to
be manufactured. Can FMC advise us urgently what tolerance they
would like on the wall, assuming the foregoing is acceptable".
[10] The
e-mails of 25 and 29 July are important because they indicate that the pursuers
were unable, because of the inherent limitations of their extrusion process, to
tolerance more than two of the three basic lateral dimensions in a pipe, that
is to say the inside diameter, the outside diameter and the wall thickness. That
was the consistent position taken by the witnesses for the pursuers, and I
accept that such a limitation existed and that it was made known to the
defenders in the foregoing e-mails. The tolerances that were to be provided by the
pursuers were the subject of further discussion and agreement. In
e-mails of 30 September 2002 and 17 October 2002 (discussed below at paragraphs [12]
and [14]) wall thicknesses were agreed, with minimum and maximum tolerances;
in respect of the 5" pipe the wall thickness was agreed at 1.000 -0.046/+
0.154". The formal purchase order for the 15 5"
pipes ordered on or before 16 July 2002 was received on 17 January 2003. The pipes were delivered in December and paid
for on 17 February 2003.
[11] In
their e-mail of 25 July 2002 the pursuers offered to
supply a further 15 blockers for 5" pipes and to extrude the pipes. The formal purchase order for those items was
received on 17 January 2003 (see e-mail from the
defenders' Iain Bickett of that date). The
order was, however, accepted on or about 31 July 2002; that appears from the
terms of the purchase order, which bears the latter date, and appears to have
been faxed to the pursuers at that time. The pipes were designated as production pipes.
No reference was made in the purchase
order to any drawing; nor was any reference made to a Manufacturing Procedure
Specification ("MPS"). Indeed,
at the time of the order, no production MPS had been agreed for the 5"
pipes, and the pipes had not been the subject of testing. The 15
pipes in question were delivered in December 2002 and January 2003 and paid for
on 17 February and 18 March 2003.
[12] In the
same e-mail of 25 July 2002 the pursuers offered to
supply machined blockers for 8" and 12" qualification pipes and to
extrude those pipes in due course. Five
8" and, ultimately, three 12" pipes were ordered; once again the
formal purchase order was sent on 17 January
2003. The actual orders appear, however, to have
been placed by the defenders on 31 July 2002 in respect of the 8"
pipes and on 10 October 2002 in respect of the 12"
pipes. The pursuers' offer of 25 July
2002 referred, in respect of these pipes, to certain drawings provided by FMC
(earlier versions of the drawings Nos 7/3 and 7/2 of process respectively);
those drawings were not, however, the drawings that were ultimately used. In any
event, as mentioned above at paragraph [9], the e-mail indicated that the
pursuers could not work to the tolerances shown in the FMC drawings. The tolerances that the pursuers were prepared
to accept for all sizes of pipe were set out in an e-mail from Mr Armet to the
defenders' Mr Bickett dated 30 September 2002. For the 8" pipes the wall thickness
specified was 1.181 - 0.046 / + 0.154"; for the 12" it was 1.375 -
0.056 / + 0.144". All of these
pipes were delivered in December and paid for on 17
February 2003. In the e-mail of 25 July 2002 the pipes were described as "qualification"
pipes. That means that they were to be
treated as trial pipes; the intention was that they should be subject to
testing and analysis to ensure that the manufacturing process was properly set
up and that it was possible to produce pipes that were satisfactory for the
defenders' purposes.
[13] It is
clear from the e-mails of 25 and 29 July 2003 that the pursuers could not
work to the tolerances shown on the FMC drawings. At the same time, FMC had made it clear that
they could not work to a standard set of tolerances used in the oil industry,
API (American Petroleum Institute) 5 L. These were discussed at meetings among the
pursuers, the defenders and FMC, but the pursuers did not change their basic
position, that they could not tolerance more than two of the three dimensions,
inside diameter, outside diameter and wall thickness. A project meeting took place on 12 and 13 August 2002. In the
minutes prepared by FMC it is recorded that pipe tolerances were discussed
(paragraphs 1898-1902). It was stated
that there had been confusion on pipe tolerances, but that the latest 5"
pipe drawing at revision D should be used (No 7/1 of process). The outside diameter was to be a reference
dimension, and the controlled sizes were the inside diameter and wall. All pipe was to meet API 5 L tolerances. The pursuers indicated that pipe wall
variation would be difficult to maintain, although they could hold the inside
diameter and outside diameter of the pipe. The 8" pipe would be measured to
determine what was achieved on wall thickness tolerances. Following the meeting it appears that copies
of the then current drawings (Nos 7/1-4 of process) were supplied to the
pursuers on 22 August 2002. Mr Armet was cross-examined about these
drawings (day 3, 10.45-10.57), and stated that the figures in them were not
agreed and (11.07) that the pursuers could not work to the tolerances on the
drawings.
[14] After
the meeting the pursuers gave further consideration to the question of
tolerances, and decided that they could tighten up on certain of the tolerances
in API 5 L. The result was Mr Armet's e-mail of 30 September 2002 which suggested tolerances for all four sizes of pipe.
It concluded:
"Please advise if we
can proceed on the above dimensions; we can immediately start machining the
8" Qualification blockers and proposed forging the 12" [blockers]
this week".
Those were references to the 8" and 12"
pipes referred to in paragraph [12] above.
That e-mail was further qualified
by an e-mail from Mr Iain Bickett dated 17 October
2002,
in which the wall thickness for the 5" pipe was revised. Thereafter, in November 2002, a set of
drawings (Nos 7/5-8 of process) was made available; the dimensions on these
relating to overall wall thickness reflected the terms of the e-mails of 30
September and 17 October. Those drawings
also specified certain further dimensions. The inside diameter was specified, with
tolerances that were acceptable to the pursuers. The outside diameter was also specified, with
tolerances, but in this case the figures were placed in brackets; this
indicated that this dimension was for reference only and was not binding. In addition to those dimensions, however, a
dimension with tolerances was also given for the clad thickness. In every case the dimension specified was
0.12 + 0.040/- 0.000". This was not
shown as a reference dimension. There
was no suggestion that this dimension had been discussed previously or was
discussed subsequently. Nevertheless it
appeared quite clearly in the set of drawings issued in November and had in
fact appeared in the earlier set of drawings (Nos 7/1-4 of process), of which
the November drawings were a revised version.
[15] A
further order for pipe appears to have been placed verbally by the defenders on
10 October 2002; it was confirmed by a purchase order received by the
pursuers on 17 January 2003.
In relation to inside diameter and wall thickness, this order was
subject to the provisions found in the e-mails of 29 July
2002 as
regards inside diameter and 30 September 2002 as regards inside diameter (see
paragraphs [9] and [12] above). Seven
10" Wex pipes were ordered; these were production rather than
qualification pipes, and in fact no qualification 10" pipes were ordered
at any time. Of the seven pipes ordered,
five were delivered on 30 July 2003 and a further two on 26 October
2003; payment was made in September 2003 and February 2004. In the same order of 10
October 2002
20 12" Wex production pipes were ordered. Of these pipes, six were delivered in March
and four in June 2003, and payment was received in May and September 2003. The remaining 10 pipes had not been
manufactured when the relationship between the parties broke down. Yet a further order for production pipes was
placed by the defenders on 12 November 2002 and accepted by the pursuers on 13
November, with the price being quoted in the pursuers' e-mail of the latter
date. This related to 17 8" Wex
production pipes. The formal purchase order for these pipes was
issued on 17 January 2003. The tolerances applicable to the inside
diameter and wall thickness were once again as in the e-mails of 29
July 2002
and 30 September 2002.
It should be noted that all of the foregoing orders except for that of
12 November were placed prior to the issue of drawings in November 2002. The formal purchase orders in respect of the
pipes ordered on 10 October and 12 November made reference to manufacturing
procedure specifications, although the first of the orders placed on 10 October
made reference to the wrong specification.
The specifications made reference to drawings; in the case of the
12" pipe ordered on 10 October the wrong drawing number was used. The
drawings referred to were those found at Nos 7/5-8 of process, which include
tolerances for the clad thickness. At
this time, however, the equipment that was available to the pursuers did not
include any device for measuring clad thickness. I will return to this matter at paragraph [33]
below.
[16] Further
orders for 5" Wex pipes were placed in January and July 2003. By e-mail dated 13
January 2003 the pursuers offered to supply the blockers for and to
extrude 30 such pipes; this was accepted by a purchase order from the defenders
dated 16 January. The purchase order
made reference to a drawing, with a number corresponding to No 7/5 of process;
it was in fact the only purchase order to do so; this is discussed further at
paragraph [32] below.
[17] The
final order that was placed for pipes was for 60 5" Wex pipes. The pursuers offered to supply such pipes by
an e-mail of 26 July 2003. That offer was accepted by an e-mail from Mr
Bickett dated 26 July 2003. A purchase order was sent in due course; it
was dated 28 July 2003, but it was probably not
received until the end of 2003 or beginning of 2004 (evidence of Mr Armet, day
6, 12.55). Neither the acceptance nor
the purchase order said anything regarding tolerances or wall thickness. 10 pipes were delivered on 22 January 2004, but they were neither accepted by the defenders nor
paid for. This was in fact the first
occasion on which the defenders rejected any pipes. A
further 11 pipes were delivered on 20
February 2004. These have not been
paid for. Finally, I should record that
a number of orders were placed for Ex pipe.
These were fulfilled, and no complaints were made about the quality of
the pipe delivered.
Contractual analysis: terms agreed by parties
[18] Counsel for the defenders founded his main
argument on the terms of the drawings received in November 2002. He submitted that the new details on the
drawings produced in November would vary anything previously produced; the
details of the Wex pipes were finalized by those drawings. The significance of the drawings had to be
considered against the nature of the Wex process. In applying that process, it was the pursuers
who supplied the Wex pipe, and they indicated what was and was not possible in
extruding that pipe; the method of extrusion was the pursuers' own proprietary
process. Moreover, both parties
understood the importance of the layers of carbon steel and Inconel cladding;
the carbon steel gave strength and the Inconel provided resistance to corrosion. Consequently it was important that proper
thicknesses of both carbon steel and cladding should be maintained. Counsel submitted that it was the pursuers who
were responsible for the volumetric calculation that would produce the required
dimensions shown on the drawings. In
view of the critical importance of the clad thickness, the pursuers ought to
have known that it was important that the two layers making up the wall should
be in the respective proportions shown on the drawings. For example, it would be absurd to claim that
pipes with very thin cladding and very thick carbon steel were conform to
contract, and the same was true of pipes with very thick cladding and very thin
carbon steel. Ultimately some agreement
had to be reached on the proportions of carbon steel and cladding. It was accordingly a term of the contract that
the pipes should conform to all of the tolerances shown in the November
drawings produced by FMC. In addition,
counsel submitted that it was an express term of the contract that the pipes
should be suitable for use by FMC in the Gulf of Mexico, and that the pipes should
have the chemical properties specified by FMC.
[19] In
relation to these submissions, it was not I think seriously in dispute that the
method of extrusion was the pursuers' own process, and that they indicated what
was and was not possible in that process.
Nor was it in dispute that the carbon steel was essential for the
strength of the pipe and that the Inconel was essential to provide resistance
against corrosion; that was clearly understood by the parties. Counsel for the defenders relied on certain
passages in the evidence. Mr David
Neill, the defenders' group technical director, gave evidence (day 12, 2.46)
that if sufficient amounts of carbon steel and cladding were used and the
extrusion was done correctly there should be no defect in the pipe. Mr Neill further stated in re-examination (day 13,
12.52 onwards) that the pursuers' calculations would have an effect on the
drawings; it would be necessary to review the drawings as to the carbon steel
and the clad section to determine the final pipe size. If the extrusion was done properly the clad
thickness should conform to the drawings. The clad thickness was important, and had to
be determined before the blockers were made.
On that basis Mr Neill stated that the definition of the clad thickness
was as per the drawing details.
[20] Counsel
further referred to the evidence of certain of the pursuers' witnesses. Mr Armet accepted (day 1, 3.32, in relation
to the manufacturing procedure specification for 5" pipes, revision 1,
dated 13 August 2002) that it was crucial to the qualification process that the
pipes should meet the dimensions of the drawings, including the tolerances for
those dimensions; if it were found that the qualification pipes were outwith
the tolerances, the qualification process would not be approved. In cross-examination Mr Armet was asked about
the drawings Nos 7/5-8 of process (day 3, 11.14), and stated that the drawings
were to reflect the offer contained in the e-mails of 30 September and 17
October. He stated that the pursuers had
offered those tolerances, which were based on their knowledge of their
extrusion process and the confidence that the defenders had in the Wex process
and its previous use in the Saudi Aramco contract. Moreover, Mr Armet further stated (day 2,
3.51) that the use of drawings made it easier to dimension and tolerance the
product; the drawings disclosed the diameter, the thickness and the cladding. Consequently, counsel submitted, the pursuers
were aware that the cladding had to be taken into account in producing pipes;
that was common sense in view of its function.
Reference was also made to the evidence of Mr Derek McCallum, a design
engineer for the pursuers, who stated (day 6, 11.35) that the pursuers carried
out a volumetric calculation in order to produce the pipe; they did so using
their expertise in extruding pipes, and in doing so they agreed what was and
was not possible. Counsel sought to draw
from this passage that the volumetric calculation indicates that clad thickness
was an issue. He further relied on another passage in Mr
McCallum's cross-examination (day 6, 2.25), where Mr McCallum, after being
referred to the cladding, stated that he was confident that the pursuers'
calculations had been properly carried out.
I am doubtful whether this
passage supports the defenders' case, however; immediately beforehand Mr
McCallum had indicated that factors other than extrusion could have an
influence on the way the pipes worked.
[21] On the
basis of the foregoing evidence, counsel for the defenders submitted that the
dimensions in the drawings had been accepted by the pursuers and that they were
accordingly contractually binding. He
further stressed that the pipes were being produced for FMC, for a specific
project, and that accordingly the requirements of FMC had to govern the
tolerances to which they were produced. In addition, the pursuers determined how the
extrusion process was to be carried out; they considered FMC's requirements and
designed the process accordingly. Thus
in accepting the tolerances on the drawings the pursuers were accepting that
those tolerances were contractually binding.
[22] I
acknowledge that there is some force in this argument. Nevertheless, I am of opinion that it takes
too narrow a view of the manner in which the parties reached agreement on the
contractual terms that were applicable to the Wex pipes. In particular, it fails to give full effect to
the history of the parties' dealings, and it fails to recognize the nature and
development of the Wex process at the time of the Thunderhorse project.
[23] The
critical question is whether the pursuers agreed to tolerance the clad
thickness in the manner shown in the drawings Nos 7/5-8 of process. In my opinion they did not. A number of factors point to this conclusion. In the first place, certain elements in the
background to the Thunderhorse project are relevant. First, although Wex pipes had been
successfully extruded for the Saudi Aramco contract, no attempt was made to
check the clad thickness of those pipes (evidence of Mr William Lawrie, day 13,
11.24, 2.17 onwards, 3.41, in questioning by the court). There was a simple reason for this: neither
the pursuers nor the defenders had any equipment that was capable of giving an
accurate measurement of clad thickness. Consequently, when the Thunderhorse project
began, neither party actually knew whether it was possible to tolerance the
clad thickness.
[24]
Secondly, even after the Thunderhorse project began, the pursuers, to the
defenders' knowledge, did not have any accurate means of measuring the clad
thickness on a systematic basis. More
accurate methods of measuring clad thickness were introduced prior to April
2003; that appears from the minutes of a project meeting held between the
parties on 3 April, where at paragraph 4 it is recorded that "now that
more accurate measurement techniques are being employed it seems that there is
a wide variation in clad layer thickness"; the entry went on to record
that an improvement was necessary. Automatic measurement of that thickness only
became possible in August 2003, when a device known as a Dinsley machine was
installed at the premises (see minutes of meeting of 1
August 2003). Mr McCallum (day 5,
2.23) stated that of the 400 pipes that were manufactured (for the Saudi Aramco
and Thunderhorse projects), the majority were produced without the ability to
measure that thickness in an accurate manner. With better measurement, it was discovered
that there were variables in the process that had not been fully understood. This
was borne out by the minutes of the project meeting held on 3 April 2003 (at paragraph 4).
That evidence, which I accept, suggests that the lack of knowledge as to
whether that thickness could be toleranced extended well into the Thunderhorse
project. It was, moreover, borne out by
the evidence of Mr David Neill, the defenders' group technical director, who
gave evidence (day 13, 12.11) that initially the pursuers could not check the
clad thickness of the whole length of the pipe; that was not possible until a
Dinsley machine was obtained.
[25] Thirdly,
the common assumption of the parties was in my view accurately stated by Mr
Armet (day 1, 4.01): when giving
evidence about the early drawings and the e-mail of 30 September 2002 that
specified the tolerances applicable to wall thickness, he stated the dimensions
were based on the notion that the carbon steel and the cladding would extrude
together, according to a proportionate sum.
The parties had assumed that. Thus
it was assumed that, if the parties achieved the tolerances on the wall
thickness, they would automatically achieve the tolerances on the cladding
thickness as a result of the proportionate extrusion.
[26] Fourthly,
the Wex process was the defenders' process. The pursuers were experts in extrusion, but
the cladding was placed by the defenders. It is true that the pursuers carried out the
dimensional calculations for the extrusion, but that did not make them
responsible for the entirety of the Wex process. The process was a combined process, involving
steps by both the pursuers and the defenders (Mr William Lawrie, day 13,
2.54). In these circumstances, it might
be surprising if the pursuers were to warrant a tolerance that depended on the
Wex process as a whole rather than the mere act of extrusion.
[27] Fifthly,
counsel for the defenders emphasized that the pipes were being produced to meet
FMC's requirements. That is no doubt
correct. Nevertheless, it was fairly
clear that the pursuers did not have a particularly detailed knowledge of FMC's
needs, and the contracts between the defenders and FMC and the defenders and
the pursuers were not entered into on a back-to-back basis. This suggests limitations to the reliance
that can be placed on the requirements specified by FMC.
[28] In the
second place, against the background described in the last five paragraphs,
features of the parties' agreement itself strongly suggest that the pursuers
did not undertake to tolerance the clad thickness. First, as regards timing, it is clear that no
agreement on tolerances existed until, at earliest, 17 October 2002; that is the
date of the e-mail from Mr Bickett to Mr Armet in which the tolerances for the
wall thickness of the 5" pipe were agreed (with similar tolerances being
applied thereafter to the other thicknesses).
The drawings founded on by the defenders, Nos 7/5-8 of process, were not
in fact produced until November 2002. Drawings had been produced earlier (Nos 7/1-4
of process, which were sent to the pursuers on 22 August 2002); these differed
from the later drawings in respect of the overall wall thickness, which was
modified as a result of the e-mails of 30 September and 17 October. That is a strong indication that no agreement
to tolerance the clad thickness could have been reached before November 2002,
as the clad thickness was clearly dependent upon the overall wall thickness. It
follows that any such agreement could only have applied to the pipes ordered in
November 2002 and January and July 2003 (paragraphs [16] and [17] above). Moreover, to the extent that contractual terms
agreed in earlier contracts were carried through to later contracts, if the
clad thicknesses shown in the November drawings were to apply it would be
necessary that there should be some innovation in the contractual terms. There was no express indication that the
contractual terms had been changed in November; nor was there any evidence that
a change in contractual terms was discussed at that time; and in all the circumstances I consider that
a change was unlikely.
[29] Secondly,
in relation to the nature of the parties' dealings, I do not think that the
contracts concluded between the parties for the purposes of the Thunderhorse
project can properly be regarded as simple contracts for the sale of goods. The pipes supplied in the early stages were
qualification pipes, designed for the process of qualification testing;
qualification testing was to ensure that the pipes were capable of being
manufactured in such a way as to meet the defenders' requirements. That in itself indicates that initially
neither party was wholly confident as to the performance of the pipes; indeed,
to some extent it could be said that the qualification pipes were essentially
experimental in nature. Mr Armet
explained (day 1, 3.33) that it was crucial to the qualification process that
the pipes should meet the dimensions on the drawings, including tolerances, but
that if pipes were outwith the tolerances on the drawings the qualification
process would not be approved; in that event it was necessary to find out why
and to modify the process. In cross-examination Mr Armet stated (day 2,
3.40) that, although an agreement had been reached in relation to the
qualification pipes, it was still necessary to prove that those pipes were
suitable for their purpose. In
re-examination he was asked about the qualification process and stated (day 4,
3.46) that, before the end product could be marketed, the parties had to
complete the qualification process to see that it worked. Mr McCallum (day 6, 11.04 onwards) was
cross-examined about the manufacturing procedure specifications. He pointed out that these were all being
continually updated by the parties. It
was then put to him that that did not make the project one big experiment. He replied "In a sense it does". Later
(day 6, 12.00) he stated that he understood that the final designs of the
project had not been finalized. He was asked (day 6, 12.15), in relation to
the meeting held on 12 and 13 August 2002, whether the discussions at
that meeting involved a process of understanding what FMC required. Mr McCallum replied that it did, and also
discussion of what could be done. That was what the pursuers were willing to
commit to. In relation to the meeting
held on 3 April 2003, Mr McCallum stated (day 6, 2.33 onwards) that both the
pursuers and defenders intended to come up with a solution, and that at this
stage, following problems that had arisen with the pipes, the parties did not
understand what was going on. Subsequently
(day 6, 3.18) he stated, in relation to the drawings, that the cladding
material was developing, so the process was evolving. I found both Mr Armet and Mr McCallum to be
careful and conspicuously fair witnesses, and I conclude from their evidence
that there was an important experimental element in the parties' dealings. On that basis I am of opinion that the
contracts that the parties concluded cannot be construed as simple contracts
for the sale of goods, using established processes. In a contract of that nature, it is obviously
less likely that a reasonable supplier would warrant particular tolerances
unless it had been established that they could be met; it is also less likely
that a reasonable purchaser would expect particular tolerances to be warranted
until the processes had been proved.
[30] Thirdly,
the tolerances in respect of the overall thickness were discussed specifically
in the e-mails of 30 September and 17 October; the pursuers made it clear in
the first of those e-mails which tolerances they could and could not achieve. By contrast, the clad thickness was not
discussed in any way. In my opinion that
tends to indicate that the overall thickness was warranted but the clad
thickness was merely the subject of an assumption that the two materials would
extrude proportionately, in the manner indicated in paragraph [25] above. Moreover, the clad thickness was part of the
overall thickness, and if it were to be toleranced that would involve a
tolerance within a tolerance. That
indicates, I think, that if the clad thickness were to be toleranced it would
have been the subject of specific discussion between the parties. In this connection I think that the evidence
of Mr Armet, who was the author of the e-mail of 30 September, is significant. He stated (day 3, 11.22) that the November
drawings were designed to reflect the offer made in that e-mail. The tolerances in the e-mail were offered on
the basis of the pursuers' knowledge of their extrusion process and the
confidence that the defenders had in the Saudi Aramco pipes and the Wex process. The pursuers came up with these figures,
which were accepted by the defenders. Mr
Armet further stated (day 4, 3.28) that the pursuers, in their e-mail of 30
September, only toleranced the combined wall thickness, comprising both
cladding and carbon steel; they did not tolerance the cladding by itself. In my opinion that e-mail could not properly
be construed in any other way, and I think that the November drawings must be
construed in the light of the e-mail, in view of the specific discussions that
had taken place between the parties.
[31] When the
features of the parties' dealings set out in the last three paragraphs are
taken together, especially in the light of the considerations discussed in
paragraphs [23]-[27], I am of opinion that the reasonable inference from the
parties' dealings is that the pursuers warranted tolerances on the inside
diameter and the overall thickness but not on the clad thickness. In relation to pipes ordered before November
2002 I think that that result is clear, for the reasons discussed at paragraph
[28]. Likewise, in relation to the
qualification pipes, I do not think that there could be any warranty of clad
thickness for the reasons set out at paragraph [29]. Even after November 2002, however, and even
in relation to production pipes I am of opinion that the reasonable inference
is that the parties did not innovate on the existing agreement, and that the
position remained as set out in the e-mails of 30 September and 17 October: the
pursuers did not warrant clad thickness.
Instead, I consider that both parties merely assumed that the carbon
steel and cladding would extrude proportionately, the matter never having been
tested. That assumption in fact turned
out to be wrong, for reasons that were never satisfactorily explained, but in
my opinion it represents what parties understood at the relevant time.
[32] As
mentioned in paragraph [16] above, the defenders' purchase order of 16 January 2003 relating to 30 5" pipes made mention of a
drawing using a number that corresponded to that in No 7/5 of process. The relevant wording on the purchase order is
"Drawing 1012DM1078543 refers".
That drawing had been available since November and was obviously known
to the parties. This was the only
purchase order that made any reference to a drawing. The critical question is whether that
reference is sufficient to incorporate the full terms of the drawing, including
the tolerances relating to the clad thickness, into the parties' contract for
these 30 pipes. In my opinion it is not,
for three reasons. First, the reference
itself was very brief; there was no attempt to state, for example, that the
blockers and pipes were to be produced according to the dimensions in the
drawing, or to incorporate the terms of the drawing into the contract through
standard terms and conditions; nor was there any reference to drawings in the
pursuers' offer, which is contained in an e-mail dated 13 January. I should note that the defenders' case as
originally pled was based on the incorporation of their standard terms into the
parties' contracts, but that position was departed from. Secondly, the reference must in my opinion be
construed against the background set out in paragraphs [23]-[27] and in the
light of the conclusions expressed at paragraphs [28]-[31]. The drawings had not previously been
incorporated into the parties' contracts; consequently incorporation at this
stage would involve an innovation on the terms that had previously been agreed. Where there has been a course of dealing, the
reasonable construction is in my view that fairly clear wording is required to
innovate on previously agreed terms. In
the present case I consider that the wording was not sufficiently clear to
achieve this result. Thirdly, it is
significant that the pursuers had repeatedly indicated that they were only
prepared to tolerance two of the three principal lateral dimensions for the
pipes, namely the inside diameter and the overall wall thickness; that appeared
in particular in the e-mails of 30 September and 17 October 2002, although
there were other references in the e-mails of and 29 July and at the project
meeting held on 12 August. For these
reasons I am of opinion that the order placed in January 2003 is in exactly the
same position as the earlier orders.
[33] As
indicated in paragraph [15] above, the formal purchase orders in respect of the
pipes ordered in October and November 2003 referred to manufacturing procedure
specifications, which in turn referred to inspection to drawing standards; in
one case the wrong manufacturing procedure specification was referred to and in
another the wrong drawing number was used.
In my opinion the reference to the manufacturing procedure specification
does not affect the reasoning set out in paragraphs [23]-[31] above, which
applies to these orders in exactly the same way as it does to the earlier
orders. It is significant that all of
these orders except that of 12 November were placed before the drawings Nos
7/5-8 of process were available. That
was agreed in evidence by the defenders' Mr David Neill (day 13, 12.17). In any event, the formal purchase orders were
sent by the defenders after agreement had been reached, which indicates that
their terms could not normally have been incorporated into the contract. Finally, at the time when these orders were
placed the pursuers had no means of measuring clad thickness; the Dinsley
machine was only made available some months later. According to the manufacturing procedure
specifications, however, it was the pursuers who were to inspect the pipes
according to the standards in the specified drawings. It would be remarkable to say the least if a
tolerance were imposed that could not be accurately measured by the party who
bore responsibility for it. This is
compounded by the fact that any reference to a tolerance proceeds obliquely,
through a formal purchase order issued after consensus was reached which refers
to a manufacturing procedure specification which in turn refers to a drawing at
the stage of inspection. I am
accordingly of opinion that the orders placed in October and November 2003 were
in exactly the same position as the earlier orders.
[34] The
defenders' position was set out in evidence by Mr David Neill (day 12,
3.44). He stated that if the blockers
were incorrectly machined by the defenders or the cladding applied by the
defenders was not sufficient to provide the finished product to the drawing
requirements, the defenders would accept responsibility. If, however, the volumetric analysis showed
that sufficient carbon steel and cladding material had been used to provide the
finished product, the defenders would expect the pipes to meet the drawing
tolerances, since extrusion was the pursuers' responsibility. I do not doubt that that was Mr Neill's
understanding at the time. The pursuers'
understanding, as explained by Mr Armet and Mr McCallum, was to the contrary. The task that the court must perform is to
decide which of the two approaches a reasonable man would consider that parties
would adopt in the whole circumstances of the case. On that basis, for the reasons that I have
given, I consider that the pursuers' approach should be preferred.
[35] I
should also mention the evidence of Mr William Lawrie on this matter. It was put to him (day 14, 11.14) that the
pursuers claimed that the process was an experiment. He replied, in very definite terms, that it
was not; it was never an experiment, and the defenders would not have put a
purchase order on an experimental process.
On the whole I was impressed by Mr Lawrie as a witness. On this point, however, I think that there is
some ambiguity in the meaning of the word "experiment". I do not think that it was suggested by the
pursuers' witnesses that the process was experimental in the sense that there
was uncertainty about whether the basic processes were possible; that had been
established in the Saudi Aramco contract.
What was not clear, however, was precisely how exactly the processes
could be extended to different sizes of pipe.
In addition, the question of clad thickness had never been tested, and
all that the parties had to go on there was an assumption that the carbon steel
and the cladding would extrude proportionately.
Objectively considered, these factors meant that there was a substantial
element of uncertainty about what was and was not possible.
[36] Finally,
counsel for the defenders submitted that, if the pursuers' argument were
correct, pipe that consisted entirely of carbon steel or entirely of cladding
would be conform to contract; that would be an absurd result. I do not think that this follows. The Wex process was for the production of a
clad pipe, and that implies that there should be both carbon steel and cladding
throughout its length. If, accordingly,
either the carbon steel or the cladding were absent in a significant part of the
pipe that would involve a breach of contract (although the responsibility for
the breach might be in dispute, depending on its cause). What is in dispute in the present case is
whether the pursuers agreed to tolerance the cladding; the absence of any tolerances
does not mean that the absence of cladding or of carbon steel would be
acceptable. No doubt cases can be
imagined where the absence of cladding or of carbon steel is almost complete,
but those are borderline cases of the sort that can exist on any definition in
a contractual term; the existence of borderline cases does not invalidate the
definition.
[37] I
accordingly conclude that the pursuers agreed to warrant the tolerances of the
inner diameter of the pipes and the overall wall thickness of the pipes. The pursuers did not, however, warrant the
tolerances of the clad thickness, either to the standard shown on the drawings
Nos 7/5-8 of process or in any other way.
At one time it was in dispute between the parties as to whether the
pursuers warranted that the extrusion process would yield a particular
percentage of usable pipe or that the pipes would be free from internal scoring
in the bore of the pipe. Ultimately,
however, the defenders accepted that nothing turned on the question of yield for
present purposes; they accepted that there was no agreement that a precise
percentage of yield should be achieved. The
defenders further conceded that no agreement was reached as to any specific
term in the contract about the absence of scoring. Two further matters were in dispute, however. First, the defenders contended that it was a
term of the contract that the pipes should be suitable for use by FMC in the Gulf of Mexico. Secondly, the defenders contended that the
parties concluded a single contract to provide pipe of different dimensions.
[38] In
relation to the first of these, counsel for the defenders relied on the
discussions that took place at the project meeting held on 12 and 13 August 2002. He submitted
that on the basis of the minutes of that meeting and the evidence of Mr Armet
and Mr Bickett details of what was involved were produced at those meetings; in
particular, it was indicated what FMC's requirements were in relation to
manifolds and well jumpers. Counsel also
relied on the evidence of Mr McCallum (day 6, late morning), to the effect that
any pipe produced had to be fit for the purpose of use in the Gulf of Mexico. I am bound to say that I was unable to
discover such a passage in my own notes of evidence, although Mr McCallum did
give extensive evidence (12.44 onwards) in relation to the meeting of 12 and 13
August. In my opinion it is clear that
the pursuers were aware that the pipes were required for supply to FMC. FMC's requirements were explained to them to
some extent, in particular at the meeting held on 12 and 13 August 2002. Nevertheless,
I do not think it possible to conclude that the pursuers warranted that the
pipes would be in a condition suitable for use by FMC. My reasons are broadly those set out in
relation to the tolerance of the clad thickness. In particular, it is significant that the
defenders' contracts with the pursuers and with FMC were not on a back-to-back
basis, and that the pursuers' knowledge of FMC's requirements was not
especially detailed (paragraph [24]). It
is also important that, for the reasons stated at paragraph [26] above, the
parties' contracts cannot be regarded as simple contracts for the sale of
goods, but contained an experimental element.
Moreover, it was not suggested that the pursuers expressly agreed at any
point to provide pipes that would satisfy the specific requirements of FMC. Indeed, given the somewhat experimental
nature of the processes that were being used, I am of opinion that it would
have been most surprising if they had been willing to do so.
[39] In
relation to the defenders' contention that the parties concluded a single
contract for the supply of pipe of different dimensions, I am of opinion that
the parties' dealings involves a series of distinct contracts for the supply of
particular quantities of pipe of particular diameters. Individual orders were placed by the
defenders for specific quantities of pipe of different diameters; those orders
were accepted individually by the pursuers.
Moreover, the orders involved quantities of both Wex and Ex pipes. The fact that separate orders were placed of
itself strongly suggests a series of contracts.
The point is even clearer if the essential terms of a contract are
considered. These obviously include the
identification of the goods, the quantity and the price. All of these varied from one order to another. When the first order was placed, it was quite
impossible to say how many further pipes would be ordered, what their sizes
would be and what the price would be. The
lack of agreement on these matters which existed at the outset is in my opinion
a decisive consideration against any argument that a single contract was
involved; instead, this factor strongly suggests that the parties concluded a
series of individual contracts.
Contractual analysis: terms
implied under Sale of Goods Act
[40] The defenders further contended that the
parties' contracts included the terms implied by section 14(2) and (3) of the
Sale of Goods Act 1979. Section 14
states the implied terms regarding the quality or fitness of goods supplied
under a contract of sale. So far as
material, it is in the following terms:
"(2) Where the seller
sells goods in the course of a business, there is an implied term that the
goods supplied under the contract are of satisfactory quality.
(2A) For the purposes of
this Act, goods are of satisfactory quality if they meet the standard that a
reasonable person would regard as satisfactory, taking account of any
description of the goods, the price (if relevant) and all the other relevant
circumstances.
(2B) For the purposes of
this Act, the quality of goods includes their state and condition and the
following (among others) are in appropriate cases aspects of the quality of
goods --
(a) fitness for all the
purposes for which goods of the kind in question are commonly supplied,
...
(e) durability.
...
(3) Where the seller sells
goods in the course of a business and the buyer, expressly or by implication,
makes known --
(a) to the seller,...
any particular purpose for
which the goods are being bought, there is an implied term that the goods
supplied under the contract are reasonably fit for that purpose, whether or not
that is a purpose for which such goods are commonly supplied, except where the
circumstances show that the buyer does not rely, or that it is unreasonable for
him to rely, on the skill or judgment of the seller...".
[41] Counsel
for the defenders submitted that section 14(2) was applicable. Whether goods supplied were of satisfactory
quality required objective assessment. The
pipes in question were supplied for use in an offshore installation;
consequently, under subsection (2B), the pipes should be fit for such use and
sufficiently durable for such use. In
relation to section 14(3), counsel submitted that the purpose of the pipes was
made known to the pursuers by the defenders; at the meetings held in 2002, in
particular the meeting held on 12 and 13 August, the defenders had made it
clear that the pipes were for onward supply to FMC, for use by them in an
offshore installation in deep water in the Gulf of Mexico. In the whole circumstances of the case it was
reasonable for the defenders to rely on the skill and judgment of the pursuers
as to the extrusion of the pipes. Reference
was made to evidence that the design of the blockers was the pursuers'
responsibility. Thus Mr Bickett had
stated (day 9, 12.16) that designing the blockers was the responsibility of the
pursuers. Mr David Neill had stated (day
10, 3.11) that the volumetric calculation for a pipe was designed to give a
specific length of pipe with a particular wall section. That calculation was done by the pursuers in
order to provide a reduction ratio for the material. The calculation should provide the overall
wall section shown in the drawings and the section that was shown there. The volumetric calculation had a bearing on
the thickness of both carbon steel and cladding. The pursuers had the reduction ratios that
they had to work to, and worked from these dimensions to give the blocker size. Subsequently (day 11, 10.33 onwards) Mr Neill
referred to the performance of the extrusion process by the pursuers, in a
manner that suggested that it was under their control. He further gave evidence, in relation to the
meeting held on 12 and 13 August 2002 (day 11, 2.27), that the pursuers had
made clear that the information regarding the extrusion was proprietary; it
could be viewed by the defenders and FMC at the pursuers' premises. Finally, counsel relied on the evidence given
by Mr Neill that is summarized at paragraph [29] above (day 11, 3.44). On the basis of that evidence, counsel
submitted that the extrusion process was the pursuers', and was under their
control. In these circumstances reliance
on the pursuers was justified.
[42] The solicitor
for the pursuers submitted that the defenders' case based on the Sale of Goods
Act was misconceived. He submitted, under
reference to Benjamin on Sale of Goods, paragraphs 11-087-11-089, that section
14(3) required a potentially higher standard from the seller than section
14(2), but might be inapplicable because the purchaser did not rely on the
seller or reliance was unreasonable. No
such reliance was required under section 14(2). I should add that these propositions were not
disputed by counsel for the defenders. The
solicitor for the pursuers went on to submit that, if it were held that the
pursuers agreed only to warrant two dimensions, the inner diameter and the
overall wall thickness, that became a description of the goods for the purposes
of section 14(2A). On that basis the
pipes would be of satisfactory quality if they satisfied those two dimensions. If on the other hand the pursuers were
unsuccessful in arguing that the warranty was so limited, the goods supplied
would not match the express contractual terms and hence the contractual
description. In that event there would
be no need for the defenders to rely on the Sale of Goods Act. It was further submitted that the defenders
had failed to lead any evidence as to what a reasonable person would regard as
satisfactory in relation to pipes for use in an oil installation, and had
failed to lead any evidence in relation to the factors set out in subsection
(2B). In relation to the defenders' case
based on section 14(3), the specification that was actually agreed between the
parties was once again relevant. The
pursuers accepted that where an article is manufactured for a purchaser to the
purchaser's specification, it is possible for section 14(3) to apply where
there has been partial reliance. In such
a case, however, the reliance had to relate to matters outwith the
specification: Cammell Laird & Co Ltd
v Manganese Bronze & Brass Ltd,
[1934] AC 402. In the present case, it
was submitted, there was no reliance on the pursuers. The manufacture of the pipes was a matter
undertaken jointly by both parties. The
pursuers' expertise related to the extrusion; consequently they were willing to
tolerance the dimensions created by the extrusion process. So far as the proportionate extrusion of the
clad material and the base steel was concerned, however, the pursuers relied
upon the defenders.
[43] It was
further submitted for the pursuers in relation to section 14(3) that on the
evidence the buyer did not rely on the skill and judgment of the seller. First, the Wex process was the defenders'
patented process, and they were responsible for lining the blocker. Secondly, the parties' dealings had been
based on the experience of the Saudi Aramco contract; in that contract,
however, there were no criteria relating to clad thickness. It would, it was submitted, be quite
unreasonable to allow the defenders to place reliance on the pursuers on the
basis of a previous transaction which did not contain the critical condition
relating to uniform clad thickness. Any
reliance on the seller by the buyer must be "such as to constitute a
substantial and effective inducement which leads the buyer to agree to purchase
the commodity": Medway Oil and
Storage Ltd v Silicon Gel Corporation,
(1928) 33 Com. Cas. 195; Benjamin, op. cit.,
paragraph 11-076. That was not satisfied
in the present case. Moreover, the
defenders had failed to lead any evidence as to the purpose of the pipes, and
in particular why the pipes required a uniform coating of clad material to the
depth of 3 mm.
[44] The
critical question for present purposes is not the general issue of whether the
provisions of section 14(2) and (3) were incorporated into the contract; it is
rather whether the obligations arising out of those two subsections had the
effect that the pipes must be of substantially uniform clad thickness. In my opinion those obligations did not have
that effect. My reasons for this
conclusion are as follows. In relation
to subsection (2), satisfactory quality, the central point is that critical
dimensions of the pipe had been determined by the parties' agreement; in
particular, the inside diameter and overall wall thickness had been toleranced;
but other warranties as to dimensions were not agreed. That of itself tends to exclude any further
implied terms as to the lateral dimensions of the pipe; the fact that the
parties agreed that certain of those dimensions should be toleranced indicates
that those were the requirements of satisfactory quality. It follows that, if pipe meets the dimensions
that have been agreed, it will satisfy the quality that the parties have
determined should be applicable. In
addition, it is important to bear in mind that the contract was not a simple
contract for the sale of goods but had a certain experimental element, as
described in paragraph [29] above. It is
also significant that the procedures for the production of the pipes involved
the defenders' Wex process as well as the pursuers' extrusion process
(paragraph [26] above), and that the Saudi Aramco contract had been concluded
without any warranty of clad thickness, but with apparently successful results
(paragraph [23] above). Indeed, in the
Saudi Aramco contract and during the early stages of the Thunderhorse project
it was not even known how the cladding was distributed. In these circumstances I am of opinion that
section 14(2) does not impose an obligation that the pipes should be of substantially
uniform clad thickness.
[45] In
relation to section 14(3), fitness for a purpose made known to the seller, I am
of opinion that similar considerations apply.
Once again, because critical dimensions of the pipe had been determined
by the parties' agreement, that is likely to be sufficient to render the pipes
fit for purpose; if more had been required the defenders ought to have
insisted, clearly, upon additional specification. They did not do so, however. The experimental element in the contract is
also important for these purposes, as is the fact that the production
procedures involved the defenders' Wex process and the fact that the Saudi
Aramco contract had been concluded without any warranty of clad thickness. In addition, section 14(3) does not apply in
cases where the buyer does not rely, or it is unreasonable for the buyer to
rely, upon the skill or judgment of the seller.
In my opinion any reliance placed by the defenders on the pursuers was
necessarily confined to the extrusion process itself; it did not extend to
aspects of the Wex process that were under the control of the defenders. That simply reflects the fact that the
process was a complex one, involving important input from both parties. In a case of that nature, section 14(3) will
only apply to the extent that reliance is placed on the seller by the buyer; to
the extent that the production of goods is specified by the buyer, reliance,
and hence section 14(3), will only exist in respect of matters falling outwith
the specification. Thus if the buyer
specifies the dimensions of goods to be manufactured by the seller, he can be
regarded as relying on the seller's skill and judgment in respect of the
manufacturing process, but not in respect of the dimensions: Cammell Laird & Co Ltd v Manganese Bronze & Brass Ltd, supra,
at [1934] AC 427-429, per Lord Wright. In
the present case the defenders' reliance upon the pursuers must accordingly be
confined to the acts carried out by the pursuers rather than the Wex process as
a whole. The defenders did not, however,
lead any evidence that was satisfactory to establish that the problems with clad
thickness related to matters under the pursuers' control rather than the clad
thickness as a whole; in particular, they did not in my opinion lead evidence
that established that the problem lay with either the volumetric calculation
carried out by the pursuers or the extrusion process in itself.
[46] Finally,
the defenders did not in my opinion lead evidence to establish why the
discrepancies in clad thickness meant that the pipes were either of
unsatisfactory quality or unfit for purpose.
There was evidence that they were not accepted by FMC, but that is not
the same thing. Even though the pipes
were for use by FMC, the implied terms only relate to the objective question of
whether the pipes were of satisfactory quality and fit for purpose for use in a
deep water oil installation. It might be
that the requirements imposed by FMC on the defenders were unnecessarily strict
for these purposes. For that reason it
is in my opinion essential that the evidence should go beyond the simple
assertion that FMC were not satisfied with the pipes; instead, it is necessary
to establish that the pipes were objectively of unsatisfactory quality or
objectively unfit for purpose. That
evidence was in my opinion lacking.
[47] For the
foregoing reasons I am of opinion that the terms implied by section 14(2) and
(3) of the Sale of Goods Act did not require that the clad thickness should be
substantially uniform.
Waiver
[48] The pursuers' secondary position proceeded
on the hypothesis that the clad thickness was warranted, either expressly or
under the provisions of section 14 of the Sale of Goods Act. In that event, they contended that the
defenders, through their conduct, waived that term, with the result that they
were no longer entitled to insist on performance of the obligation to provide
pipes with the clad thickness between the agreed tolerances. Put briefly, the pursuers' position was that
pipes were delivered and tested, and it was discovered that the clad thickness
was variable. Despite this, the
defenders continued to order further pipes and to make payment for pipes that
had been delivered. They did not at that
stage reject any pipes, or copy non-compliance reports to the pursuers. On the basis of such conduct by the defenders
the pursuers, it is said, entered into further contracts for the supply of
pipes. Had they known that the defenders
were making an issue of the variations in clad thickness, they would not have
entered into such contracts, or would have ceased to manufacture further pipes
for the defenders.
[49] The
relevant law was not in dispute. The
principle of waiver is explained by Lord Fraser of Tullybelton in Armia Ltd v Daejan Developments Ltd, 1979 SC (HL) 56, at 68-69: the primary
meaning of the word is the giving up or abandonment of a right. It is not necessary, however, that the party
relying on the waiver should have suffered prejudice by his reliance; instead
it is enough if he has conducted his affairs on the basis of the waiver. In the same case Lord Keith of Kinkel defined
the concept in broadly similar terms (at 71-72); he said:
"The word 'waiver'
connotes the abandonment of a right.... The
abandonment may be express, or it may be inferred from the facts and
circumstances of the case. I am of
opinion that certain of the Scottish cases cited as being concerned with the
latter aspect are disclosed, upon close examination, to be cases where one
party to a contract has plainly accepted as being conform to contract
performance tendered by the other party which he might, if so minded at the
time, have rejected as defective".
It seems clear from these statements of the law that
matters must be looked at objectively. On
that basis I am of opinion that it is not necessary that the person waiving a
right should actually intend to do so; it is sufficient if his conduct would lead
an objective observer to consider that the right was being abandoned.
The evidence relating to
waiver
[50] The orders placed by the defenders for
pipes are set out in paragraphs [11]-[16] above. The first order, for five qualification
pipes, was placed on 3 May 2002, and the pipes were
delivered on 29 September 2002 and in January 2003. Further orders were placed in July 2002. The first was for 15 pipes, which were
delivered in December and paid for on 17 February
2003. A further 23 pipes (fifteen 5"
production pipes, five 8" qualification pipes and three 12"
qualification pipes) were ordered on or about 31 July 2002; these were
delivered in December 2002 and January 2003 and paid for on 17 February and 18
March 2003. The next order was placed on
10 October 2002, for seven 10"
production pipes and twenty 12" production pipes; these pipes were
delivered in March, June, July and October 2003, and payment was made in May
and September 2003 and February 2004. A
further order was placed on 12 November 2002, for seventeen 8"
production pipes. 13 of those pipes were
delivered on 2 March 2003; the other four were not
delivered. Payment for the pipes that
were delivered was made on 5 June 2003. Yet further orders for thirty 5" pipes
and sixty 5" pipes were placed in January and July 2003. These were delivered in part on 22 January and 20 February 2004; the defenders did not accept the first of these
deliveries, and none of these pipes were paid for.
[51] The
evidence disclosed that testing of the pipes began at an early stage, although
the means of testing the clad thickness were not very effective until about
February or March 2003. Mr William
Lawrie, the defenders' quality assurance manager, gave evidence (day 14, 3.06)
that it had been known that there was a problem with clad thickness at the
start. The overall thickness of the
pipes was mentioned as a problem in an e-mail of 9
January 2003 from Mr Bickett to Mr Armet.
In cross-examination, Mr Bickett stated (day 10, 12.08) that by 17
January 2003 it was clear to the defenders that the pipe had problems in
relation to among other things the distribution of cladding. An e-mail of that date from Mr Armet to the
defenders (including Mr Bickett) mentioned the distribution of cladding; in
this connection it stated that the parties should carry out certain steps to
discover the extent of the variation in cladding thickness and possible means
of rectifying matters. That indicates
that the existence of variable cladding thickness had been made known to the
pursuers by that time; moreover, the pursuers realized that the defenders
considered it to be a problem. An order
for further 5" production pipes was in fact placed on that date. Payments continued to be made for pipes that
had been delivered. On 17 May 2003 payment was made for the remaining part of the pipes
delivered on 29 September 2002 and for the pipes delivered
in December 2002. By that time it was
clear that the problems with the clad thickness of the pipes were known.
[52] Within
the engineering industry it is common practice to make use of non-compliance
reports ("NCRs") and reject notes ("RNs"). These were explained in the evidence of Mr
Lawrie (day 13, 3.46). If a product does
not meet the contractual requirements, the supplier may issue a notice (the
NCR) specifying the manner in which it does not comply. If it is appropriate, the notice is
accompanied by a concession request, in which the supplier asks its customer to
accept the product even though it is not in strict conformance with the
contractual specification. At that point
the customer has a choice: it may either accept or reject the product. If the product is rejected, the standard
practice is to issue an RN. If the
customer discovers that the goods do not conform to contract but there is no
NCR, the usual practice is to send an RN; at that point the supplier may ask
for a concession. In the present case
the pursuers were unable to send NCRs in relation to the thickness because they
did not have the means to test the thickness until the Dinsley equipment was
available; the appropriateness of sending an NCR obviously depends on the
assumption that the clad thickness was warranted.
[53] As
between the defenders and FMC, the position was spoken to by Mr William Neill,
who was the defenders' manufacturing director at the time of the events in
question (day 15, 11.43 onwards). He
stated that under normal circumstances, if a product did not conform to
specification, an NCR would be sent to the customer or an RN would be sent to
the supplier. In this case, however, the
project was subject to specific requirements imposed by FMC, and FMC had to be
involved in the NCRs. Thus the
acceptance or rejection of a pipe was not the defenders' decision but FMC's. Mr Neill accepted that that was a matter
between FMC and the defenders. Mr Lawrie
stated (day 14, 2.29) that, if the pursuers could not deliver the requisite
clad thickness, the normal practice would have been to issue an NCR or RN; if
an RN had been issued, payment would have been halted. That had not happened in the present case. He went on (2.38) to say that in normal
circumstances the defenders would have rejected the pipes, but did not because
of their delivery schedules agreed with the purchasers. He accepted (day 5, 3.09) that the defenders
had known of pipe that was, in his words, "no good" from January or
February In fact prior to February 2004 no NCR or RN was ever submitted to the
pursuers.
[54] The
first two NCRs were issued by the defenders to FMC on 5
February 2003 (Mr Lawrie, day 14, 12.56).
A schedule of NCRs was produced (No 7/11 of process), which indicates
that thereafter NCRs were issued to FMC by the defenders on a regular basis
until April 2004. Clad thickness was
raised specifically in an NCR dated 20
February 2003, and it was stated as the reason in a substantial number
thereafter. Reject notes were finally
issued on 2 February 2004. The reason for that was explained by Mr
Lawrie; he stated (day 13, 12.39) that at that stage FMC had no further use for
small pieces of pipe because the manifolds were complete; longer lengths were
required for the "jumper" pipes, which connected the manifolds to the
point where oil was transferred to a tanker.
[55] Mr
Lawrie gave a detailed explanation of the defenders' position in relation to
NCRs and rejection notices. He explained
(day 13, 12.45) that normally reject notices would have been sent at an earlier
stage, but FMC was desperate for pipe and would have got nothing if the pipe
had been rejected. So far as NCRs were
concerned, Mr Lawrie stated (day 13, 2.06) that the defenders carried out a
full inspection of pipes; the pipes were then passed to FMC who might come back
with further defects. The first
deliveries had been made in December 2002 and January 2003, and it took seven
or eight weeks to get the full picture. In
cross-examination Mr Lawrie accepted that normally, if a product did not
conform to the contractual specification, an NCR or rejection notice would be
issued, and in that event there would be a halt on payment (day 13, 2.28). That had not happened in the present case. The defenders were obtaining concessions, and
the NCRs had not been copied to the pursuers at the time. He was asked why the defenders had not said
that there was a breach of contract and refused to pay for the pipes that had
been delivered; he replied (2.37) that the parties were trying to reach a
solution, and the pursuers had been well aware of the problems. That is supported by the documentary evidence. Thus in Mr Armet's e-mail of 17 January 2003 the distribution of cladding is discussed, and
various steps are suggested to investigate its extent and to solve the problem. Discussion clearly continued, because in the
minutes of a project meeting held on 3 April 2003 reference is made to clad
thickness: paragraph 4 is in the following terms:
"Cladding Thickness
Discussion -- now that more accurate measurement techniques are being employed
it seems there is a wide variation in clad layer thickness and an improvement
is necessary".
Possible means of resolving the problem are discussed
in the following paragraphs of the minute.
At a further meeting held on 21 April
2003
clad thickness was also discussed at some length. Mr Lawrie went on to state that in normal
circumstances the defenders would have rejected the pipe, but did not because
they had contractual and delivery schedules to meet with their customer. He disagreed with a suggestion (2.41) that no
reject note had been issued because the defenders were afraid that it would
prompt the pursuers to stop production. He
accepted (2.44) that no document had been produced asserting that the pursuers
were in breach of contract, but he stated that the parties had to work through
the problem. Mr Lawrie further accepted
(2.49) that, if matters had come to a head and the pursuers had refused to
supply more pipe because they disagreed about the contractual terms, that would
have created a significant problem for the defenders, in particular in relation
to their delivery commitment to their customer.
Finally, Mr Lawrie stated (3.06) that the defenders were obliged to
provide pipe to FMC in specific lengths, and had difficulty in meeting those
lengths from January or February onwards; he stated that the defenders
"knew of pipe that was no good from January or February". I found Mr Lawrie to be a careful witness,
and I accept his evidence on the above matters.
[56] The
defenders paid for the pipes that had been delivered to them by the pursuers,
apart from certain of the last pipes to be manufactured. Evidence on this matter was given by Mr Alan
Rodger, the defenders' group finance director.
He stated (day 15, 2.08 onwards) that the pursuers' payment terms were
30 days from the date of invoice. The
pursuers' requests for payment were usually accompanied by a threat that that
deliveries would be stopped, or had been stopped, and would restart on payment. That would have caused problems for the
defenders. The non-delivery of blockers
would have meant that the defenders' welders had no work; pipes that had been
extruded would not have been released for collection by the defenders, which
would have had a direct effect on the defenders' customers; and pipes in the
process of extrusion would have been put on hold, which would cause problems
because pipes were needed urgently. When
difficulties arose with the pipes supplied by the pursuers, Mr Rodger had
recommended to the defenders' board that they should hold back sufficient from
the sums payable to the pursuers to meet any claim, but the board had disagreed
(day 15, 2 .38). It was pointed out that
problems would have been created if deliveries and production stopped, and the
defenders could not afford that. I found
Mr Rodger to be a straightforward witness who gave clear evidence, and I accept
his evidence on the above matters.
[57] On the
pursuers' side, Mr Armet (day 2, 12.03) referred to the shipping of substantial
quantities of pipe after January 2003, when the pursuers were aware of the
problems with the 5" pipes. The
defenders had not given any rejection notices or NCRs. If the pursuers had received either of those,
they would have been forced to review the whole situation. The defenders had not said that the pursuers
were manufacturing at their own risk, at a time when there was no agreed
process. If they had, the pursuers would
have stopped manufacturing.
Analysis of parties'
dealings
[58] Waiver involves the abandonment of a legal
right, on a permanent basis. In arguing
that waiver had occurred, the pursuers relied in particular on three matters:
the fact that payment was made for pipes that had been supplied, even though
that pipe displayed variable clad thickness, the placing of further orders for
pipe, and the failure of the defenders to issue any rejection notices in
respect of such pipes until February 2004, despite the fact that it was known
that the clad thickness was variable from January 2003 onwards. In relation to the rejection notices,
reliance was placed on the fact that the defenders were sending NCRs to FMC
from February 2003 onwards and on the practice in the engineering industry. There is undoubtedly some force in these
arguments. Nevertheless, I am of opinion
that the matters relied on must be placed in context, and when that is done I
am of opinion that they are not sufficient to amount to the abandonment of the
defenders' rights.
[59] This
part of the case proceeds on the hypothesis that the pursuers agreed to
tolerance the clad thickness. Some time
elapsed after the start of the Thunderhorse project before the discrepancies in
the clad thickness became apparent, but by January 2003 the defenders were
aware of them. At this point they
brought the problem to the attention of the pursuers. That is quite clear from Mr Armet's e-mail to
the defenders of 17 January 2003, in which the distribution
of cladding was discussed and possible means of correcting the problem were
suggested. The issue of cladding was
also discussed at some length at the two project meetings held on 3 and 29 April 2003; once again methods of rectifying the problem were
suggested. When the defenders' payments
and failure to issue rejection notes are looked at in this context, I do not
think that it is reasonable to infer that they were abandoning their rights. They were rather concerned to draw the
problem to the pursuers' attention and to try to arrive at a solution. At this stage (that is to say January to
April 2003) they obviously thought that a solution ought to be possible; that
was not unreasonable, because if the clad thickness was toleranced that
indicated that it was capable of being controlled. Moreover, so far as the NCRs issued to FMC
were concerned, it is clear from the schedule of these that was produced that
the majority of them were closed, often after a fairly short period. That indicates that FMC were accepting that
usable pipes could be produced. It
follows that the pursuers' failure to meet the contractual tolerances could not
at that stage be considered either irremediable or so serious as to prevent the
defenders from fulfilling their contract with FMC. On that basis, it is easy to understand why
rejection notices were not issued and payments continued to be made for pipes
supplied.
[60] In
addition, it is clear that testing of the pipes took some time; that is clear
from the general evidence of Mr Lawrie on the morning of day 14. Proper testing would be necessary before the
pipes were dispositioned. That of itself
suggests that the defenders could not rush into rejection. In any event, they required to send NCRs to
FMC and to obtain FMC's reaction; in many cases concessions were made and the
pipe was accepted by FMC. That again
suggests that the process of assessing the suitability of the pipe would
inevitably take a considerable time. A
further factor was that initially FMC required shorter lengths of time for the
construction of manifolds, and such sections were available from the pipes
supplied by the pursuers. It was only at
a later stage, when FMC moved on to the construction of jumpers, that longer
lengths of pipe were required, and it was at that stage that problems with clad
thickness became acute (evidence of Mr Lawrie, day 14, 11 .07). These factors indicate that the scale of the
problem did not become instantly apparent, but developed over time. In those circumstances I think that it is
particularly difficult to construe the actings of the defenders in the early
part of 2003 as constituting waiver of their contractual rights. That is particularly so in view of the fact
that, as mentioned in the last paragraph, the pursuers were made aware of the
problems and asked to devise solutions.
[61] The
pursuers attached considerable importance to the fact that the defenders found
themselves in a very difficult position with FMC. They were obliged to supply pipes to FMC but
did not have back-to-back contracts with the pursuers and with FMC;
consequently they required pipes but had little leverage against the pursuers. Consequently, the pursuers' solicitor
submitted, the defenders decided not to make use of the usual procedures
involving rejection notices, in the hope that they would thereby induce the
pursuers to continue supplies of pipe. If
the pursuers had known the true position they would have refused to provide any
further supplies. I think that it was
clear on the evidence that the defenders were in a difficult position as
against FMC, and that they were anxious to ensure that supplies of pipe
continued. That does not, however, mean
that they waived their contractual rights.
Instead, I am of opinion that the proper construction of their actings
is that they tried to induce the pursuers to improve the consistency of clad
thickness but at the same time made their difficulties known. I accept that if the pursuers had known the
true position they would have declined to make further supplies; nevertheless,
that is relevant to reliance on waiver, not to the fact of waiver itself.
[62] The
pursuers placed reliance on the older Scottish cases that are referred to by
Lord Keith in Armia Ltd v Daejan Ltd, supra, at 1979 SC (HL) 72. These were described as "cases where one
party to a contract has plainly accepted as being conform to contract
performance tendered by the other party which he might, if so minded at the
time, have rejected as defective". In
the present case, standing the fact that in the period from January to April
2003 the problems of clad thickness were made known to the pursuers, I do not
think that it can be said that the defenders "plainly accepted" the
pipes as conform to contract. Moreover,
when the cases cited by Lord Keith are examined individually, it is clear that
none was similar to the present case. In Macdonald v Newall, 1898, 1 F 68, objections to title were taken and cleared
up, and the purchaser took entry; thereafter a wholly separate and clearly
trivial objection which was apparent on the face of the title was taken. That was a clear case where performance was
accepted as conform to contract notwithstanding an apparent defect. In
Davies v City of Glasgow Friendly Society, 1935 S. C. to 24, salary
had been accepted and receipts granted over a period of 12 years, and it was
held that that amounted to waiver of a claim for additional remuneration. A clearer case can hardly be imagined. In Donnison
v Employers' Accident & Live
Stock Iinsurance Co Ltd, 1897, 24 R 681, a case involving a policy of
assurance against accidental injury, notice was not given timeously under the
policy but the insurers requested a post-mortem examination under another
provision of the policy. That was held
to amount to waiver, a result that is hardly surprising in the circumstances of
the case. In my opinion none of these
cases assists the pursuers in the present case.
[63] I
conclude, therefore, that the pursuers had not established the case based on
waiver, essentially on the ground that the defenders' actings in the early part
of 2003 cannot be construed as amounting to the permanent abandonment of their
rights under the contract in respect of clad thickness. Those actings nevertheless appear to me to be
entirely consistent with the view that clad thickness was never warranted. They cannot of course be used directly as an
aid to the construction of the contract, because they followed the time when
the parties reached agreement on tolerances.
The actings can, however, be used to assess the reliability of the
defenders' witnesses when they asserted that securing a toleranced clad
thickness was clearly the pursuers' responsibility (for example, Mr David Neill
on day 11 at 3.44; Mr Lawrie on day 14 at 11.13). In my opinion the absence of any clear
statement in either January or April 2003 that the variations in clad thickness
were the pursuers' contractual responsibility casts considerable doubt on the
statements by the defenders' witnesses as to their understanding of the
contractual position. It may well be
that by the time they gave evidence they had reached a definite view, but that
was not apparent in the early part of 2003.
This must I think cast considerable doubt on the reliability of the
defenders' evidence on this aspect of the case.
[64] Finally,
I should mention that the dispute regarding waiver related to the pursuers'
claim that the defenders' had waived their right to insist on toleranced clad
thicknesses in general terms. It did not
relate to the supply of individual pipes, many of which were accepted even
though they did not strictly conform to the contractual specification. I should also mention that I was invited to
find that Mr David Neill and Mr William Neill were not credible
witnesses. I did not form any impression
that these witnesses were not credible.
Mr William Neill's evidence was generally rather vague, however,
and I do not derive assistance from it to any significant extent. I have rejected substantial parts of Mr David
Neill's evidence, but that is for reasons other than credibility.
Conclusion
[65] For the reasons stated I find that the
parties entered into a series of individual contracts for the supply of
quantities of Wex and Ex pipes. Under
those contracts the pursuers agreed to tolerance the inside diameter and
overall clad thickness of the pipes, to the dimensions set out in the e-mails
of 30 September and 17 October 2002. The pursuers did not, however, agree to
tolerance the clad thickness of the pipes.
Nor did the pursuers warrant that the pipes would be suitable for use by
FMC. I further find that, if I am wrong
in the last conclusion and the pursuers did agree to tolerate clad thickness,
the defenders did not waive their contractual rights in respect of that
obligation. This is, however, without
prejudice to the acceptance of individual pipes. I will now have the case put out by order to
discuss further procedure in the light of these findings.
