Whitecap Leisure Ltd v John H Rundle Ltd & Anor [2007] EWHC 1352 (QB)

[2007] EWHC 1352 (QB)Case No HQ 05 X0 1536
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 13 June 2007
Before
HIS HONOUR JUDGE RICHARD FOSTER(SITTING AS A JUDGE OF THE HIGH COURT)
Between
WHITECAP LEISURE LIMITEDClaimant
James Ramsden (instructed by O’Gorman & Co. Solicitors) for ClaimantRichard Wilson QC and Simon Sugar (instructed by Ringrose Law Group, Solicitors) for DefendantHearing Hearing dates: 6 – 14 and 29 March 2007
JudgmentHis Honour Judge Richard Foster :
[1]At all material times the claimant company, Whitecap Leisure Limited (“Whitecap”) was the tenant of Willen Lake in Milton Keynes from where it operated a business providing leisure and hospitality facilities. The Willen Lake complex consists of a 100 acre lake and 80 acres of park which Whitecap developed so that by 2000 the facilities included a health club and other leisure facilities within a 14,000 square foot building, such that it was able to host events of national importance. By the mid 1990s it was attracting in excess of one million visitors per annum.[2]Although during the course of the trial the court was told of various changes over the years in the structure and control of Whitecap, for the purposes of the issues raised by this case Mr Michael Charles Rollason (“Mr. Rollason”) was the individual who controlled Whitecap.[3]As part of the ongoing development of the Willen Lake complex Mr Rollason and others at Whitecap began to research the possibility of acquiring a piece of mechanised water ski equipment for Willen Lake known as a cable tow. From the mid 1990s onwards a number of cable tow facilities within the United Kingdom were looked at. Of the five facilities within the United Kingdom, four had been manufactured by a German company, Rixens. There was another company, Sesitec, which had been formed from former employees of Rixens. There was one cable tow operation at Skegness which it is clear from Mr Rollason’s evidence he thought at that time was manufactured by the defendants in this case, John H Rundle Limited (“Rundles”), but evidence adduced during the course of this trial has indicated that the Skegness facility was not as such manufactured by Rundles, although Rundles had supplied parts and equipment.[4]It was not until 2001 that the project was advanced with the employment by Whitecap of Mr Ian Crawford Stuart (“Mr. Stuart”) in August 2001 as General Manager with a view to taking forward the research already carried out into the possibility of a cable tow facility at Willen Lake. By that stage although planning permission had been obtained and preliminary research carried out, no decision had been taken as to from which supplier to purchase the system. In his witness statement dated 30 November 2006 which stands as part of his evidence in chief in this case, Mr Stuart said this:
“My task on starting was to source a cable tow and this led me to visiting John H Rundle Ltd in Skegness on the invitation of Rundles to look at their construction. When I visited Rundles there was only one tower of the structure built. As a layman I was impressed by the clearly heavy and strongly galvanised construction. I have seen the specifications and video footage of a German company, Rixens, design, and at this point was more impressed with Rundles’ design for this reason. We knew we would not be able to see a completed Rundles cable tow as one was not in existence but I was aware at the time of their excellent reputation within the theme park industry and was impressed by their presentation and the testimonials from Gerry Russell who was operating the cable tow operating a Rundles tower. It was a joint decision between Mike Rollason and me in Autumn 2001 to use Rundles to supply the cable. A strong factor in our reasoning for choosing Rundles was that they were a British company and should problems arise it would be easier to resolve them as the suppliers would be based not that far away in Lincolnshire, as opposed to the US or Germany. We were also impressed by Rundles’ desire to build their first full cable tow system in the UK, and felt that their enthusiasm at this point would create a greater level of support and resource to this project during the construction, as it would become their only “shop window” for other parties interested in building the same thing.”
[5]At this time Mr Rollason was not involved in the day-to-day running of Whitecap and he told the court that he spent much of that year abroad. Nevertheless his recollection of the events leading up to the decision to purchase the equipment from Rundles accords with that of Mr Stuart. Mr Rollason was not introduced to Mr Ken Rundle (“Mr. Rundle”), the Managing Director of Rundles, until the meeting on 23 November 2001, when the purchase agreement (“the original agreement”) was signed. I shall refer further to that meeting and agreement later in this judgment.[6]Rundles is a family business based in Lincolnshire which was established in 1913 and describes itself as specialist engineers to the leisure industry. Although this was the first supply of a complete cable tow installation it was being actively marketed by them as can be seen from the marketing literature at this time supplied by Rundles (pages 2924 to 2932 of the trial bundles) which begins thus:
“All the fun and excitement of waterskiing is now available from J H Rundle Ltd through our newly developed cable water ski system.”
[7]On 14 March 2000 Rundles had initially provided a quotation for “a five mast cable ski system for installation on Willen Lake as per our drawings”. The quotation goes on to state “From our price list a basic five mast system costs £151,000” but the quotation also offers for that price a number of additional items including a slalom course. No mention is made in that quotation of value added tax. This was put to Mr Rundle in cross-examination, who insisted that this was an error as all their costings are always net of VAT in accordance with their standard terms of trade. I accept this and I am satisfied that the figures quoted on 14 March 2000 were VAT exclusive.[8]It seems that matters were not further advanced until the arrival of Mr Stuart in the Autumn of 2001 because on 10 September 2001 a further quotation was issued by Rundles to Mr Stuart following a site meeting, when for a five mast cable ski system a figure of £120,000 plus VAT was quoted for the full installation, although it is clear from the face of that quotation that groundwork, supplying and laying of concrete, pontooning and any slalom courses would be additional. A specification was attached to that letter and then on 10 October 2001 Rundles quoted further for the installation of the pontooning in the sum of £26,000 plus VAT, that quotation following a meeting on 26 September 2001 when from the handwritten notes it seems that various details from the previously supplied specification were discussed.[9]Eventually a meeting took place on 23 November 2001 when the original contract was signed. Mr Rollason’s evidence in connection with this meeting was:
“Present at the meeting were Ian Stuart, Ken Rundle and myself and whilst an agreement in writing was subsequently signed, I certainly did not read it. Nevertheless I accept that I am bound by its terms. I had, however, regarded it as a purchase order as it was agreed at the meeting that following written alternations, a revised document with full terms was to follow from the defendants.”
He went on to say:
“We expressed the view at the meeting of 23 November 2001 that we had minimal knowledge of engineering and therefore wished to have some sort of mechanism for overseeing and signing off the work that was being done. Rundles confirmed that they were aware of an independent engineering company who would both oversee and sign off their work and that they would notify us of their details.”
[10]Mr Rollason also gave evidence to this effect:
“At the meeting of 23 November 2001 Mr Rundle explained that if the agreement was not signed there and then the defendants would not be able to meet the deadline of 1 April 2002. As a contingency to allow for unforeseen weather conditions, it was agreed to allow a further two weeks, placing completion to be no later than 15 April 2002. Indeed, I hand-wrote on the agreement that the installation had to be fully complete by 15 April 2002.”
[11]Mr Stuart’s evidence accords with that of Mr Rollason. Mr Stuart gave evidence that no attempt was made by Whitecap to change the technical details and that reliance was being placed upon Rundles’ expertise as regards the technical aspects of the cable tow.[12]The contract price was £157,000 plus VAT and the handwritten addition to the contract initialled on behalf of the parties reads as follows:
“Definition – completion: Full installation of cable tow and accompanying infrastructure including training and pontooning and slalom course as verified by an independent engineer.”
[13]Under the section of the contract dealing with terms of payment there is also handwritten and initialled by the parties, a provision which provides for a further part payment of 20 per cent on completion – no later than 15 April 2002.[14]The evidence from Mr Rollason and Mr Stuart concerning what was made clear to Rundles as set out above at that meeting was unchallenged at trial and I find as facts that Rundles were aware from that meeting (if they were not already aware) that Whitecap were relying upon Rundles for technical and engineering expertise for the project. Further, although I do not need to make a finding as to whether time was of the essence of the contract, I do find that Rundles were aware that Whitecap wanted to have the system operational for the 2002 Summer season.[15]A further handwritten addition to the contract, initialled on behalf of the parties, provides:
“A description of goods and services being purchased is described within appendix A.”
Indeed appendix A sets out a list of equipment to be supplied and provides for four months manufacture from receipt of order and six to eight weeks assembly.[16]Appendix A to the contract describes the equipment as “a five mast cable tow system with eight carriers and two jointing arms”. The system is perhaps best described by Mr D M Jackson, the defendants’ expert engineer, in his report of 21 December 2006 thus:
“A cable tow water-ski system is a mechanised system which allows waterskiing without the need for a boat. The skier is towed around a lake by an overhead wire rope (“running cable”) that is suspended from a series of towers positioned strategically around the course. The cable passes around pulleys on each tower and is driven by an electric motor. Skiers hold on to a tow line, which is a short length of wire rope that is attached to a carrier on the running cable. Special mechanisms couple and de-couple the carriers and the tow line. The idea is that the skier negotiates the course and then releases the tow line, which is de-coupled from the cable and returned to the start/finish station for use by other skiers.”
During the course of the trial I was able to view a DVD recording of the system in operation at Willen Lake.[17]Mention was made in Rundles’ marketing literature of the supply of a “turnkey” system. This was explained in evidence as being the supply and installation of equipment to the point where the customer could use it by the turn of a key. Mr Rollason in his evidence stated that he understood that this is indeed what Whitecap was purchasing. There is also an issue as to the amount of labour which Whitecap was expected to supply. Whitecap understood that their responsibility was at the most to supply ad hoc manual labour, but with the majority of the labour, and in particular the skilled labour, being supplied by Rundles. The perception of Rundles was that Whitecap would provide most of the labour, and Rundles the supervision thereof. To this extent, Rundles say, this was not a “turnkey” contract.[18]In the event the cable tow was installed with only limited labour provided by Whitecap. Further, Mr Rundle, when giving evidence, accepted that the fact that this was not a “turnkey” installation had no effect upon the eventual outcome, so that what was supplied and installed should be the same regardless of whether it was upon a “turnkey” basis or not. Accordingly, so far as the issues in this case are concerned, it is not necessary for me to consider further these aspects of the case.[19]It is pleaded by Whitecap that reliance is placed upon the terms to be implied into the contract pursuant to sections 13 and 14 of the Sale of Goods Act 1979 and sections 2 to 5 of the Supply of Goods and Services Act 1982. However in its closing submissions Whitecap accepted that its reliance was now confined to section 14(2) and (3) of the Sale of Goods Act 1979. As amended by section 1 of the Sale and Supply and Goods Act 1994, and so far as relevant to this case, these subsections provide:
“(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 any) 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; (b) appearance and finish; (c) freedom from minor defects; (d) safety; and (e) durability (3) Where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known (to the seller) any particular purpose for which the goods are being bought, is an implied term that the goods supplied under the contract are reasonably fit for that purpose.”
Hereafter I refer to these as “the implied terms”. (a) fitness for all the purposes for which goods of the kind in question are commonly supplied; (b) appearance and finish; (c) freedom from minor defects; (d) safety; and (e) durability (3) Where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known (to the seller) any particular purpose for which the goods are being bought, is an implied term that the goods supplied under the contract are reasonably fit for that purpose.”[20]I will deal with other aspects of the original agreement and its interpretation later in this judgment. For the purposes of these proceedings it is not necessary for me to decide whether time was of the essence of the contract. Nevertheless what is clear from the evidence – and I so find – is that Mr Rollason when he signed the contract was anxious that the equipment should be installed and operational by if possible 1 April 2002, and in any event by no later than 15 April 2002, allowing for some flexibility in the event of unforeseen problems. The typed standard form agreement produced by Rundles was amended in hand to reflect this by Mr Rollason at paragraph 10. In his evidence Mr Rollason stated as follows:
“At the meeting of 23 November 2001, Mr Rundle explained that if the agreement was not signed there and then the defendants would not be able to meet the deadline of 1 April 2002. As a contingency to allow for unforeseen weather conditions, it was agreed to allow a further two weeks, placing completion to be no later than 15 April 2002. Indeed I hand-wrote onto the agreement that the installation had to be fully completed by 15 April 2002.”
[21]By the end of 2001 materials were delivered to Willen Lake and Rundles’ employees were on site commencing the installation. Mr Stuart was principally responsible for the liaison with Rundles at this stage. In his evidence he stated at this early stage he began to have some misgivings about the professionalism of Rundles. On Rundles’ side, the contract was managed by their General Manager, Paul Skinner, and Mr Gerry Russell was also involved as a contractor for Rundles. Mr Russell had previous experience in the design and installation of these types of mechanism, and his name appears on a number of the design drawings.[22]Perhaps surprisingly, Mr Russell did not give evidence to the court. Apart from Mr Rundle and Mr Skinner, the only other lay witness called by Rundles was Mr Glenn Thacker who ran the tow system at Skegness. His evidence was of limited assistance as it related to a different system (albeit with similarities) although he confirmed the importance of regular and competent maintenance. I also received the written evidence of Mr James Howe under the Civil Evidence Act. He is a co-owner of the Skegness facility and is able to corroborate Mr Thacker’s evidence.[23]Delivery of components and installation continued during the early part of 2002. There is considerable controversy as to when the cable tow system was completed. It certainly was not completed in April 2002. Mr Rundle in evidence expressed the view that the system was complete and up and running by the first weekend of May 2002, which he recalled as being “the 2nd or 3rd of May”. A completion certificate was issued by ASP Engineering on 20 May 2002. Mr Rollason told the court that the first paying customers were not able to use the equipment until 14 May 2002. I will refer later in this judgment to the uncertainties as to the contractual obligations as regards completion of the mechanism and the consequences of this.[24]Certainly the equipment was in commercial use by mid-May 2002. On Whitecap’s case this is when the problems began in connection with the performance of the cable tow system.[25]The history of the problems and complaints concerning the cable tow system are well documented, and the fact that those problems occurred has not been challenged in these proceedings. These are set out at paragraph 12 and Appendix 1 of the Amended Particulars of Claim, and were expanded upon at trial by the evidence of Whitecap’s witnesses. They are also evidenced by the numerous contemporaneous documents.[26]Arising out of these problems Whitecap employed a number of outside experts in an endeavour to achieve an improvement in the performance of the cable tow system sufficient to meet its commercial requirements. As I have found, those requirements were known to Rundles at the time of the signing of the contract and indeed must have been self-evident from the nature of Whitecap’s business. The cable tow system was an integral part of what Whitecap had to offer its customers, and clearly the failure of the system necessitating it being taken out of operation on a day when, for example, a school party or corporate hospitality group had pre-booked would be disastrous as far as the disappointment was concerned for the customer and the consequent knock-on effect for Whitecap’s business.[27]Initially in July 2002 (in other words within three months or so of the completion of the system) Whitecap consulted a Mr David Wood, who had an engineering background, to recommend a qualified consultant engineer to look at the system and make proposals to Whitecap for an improvement in its performance. Mr Wood also had a number of meetings with Mr Rundle at this initial stage to discuss the problems which had arisen. As a result of David Wood’s involvement, Mr David Bray (“Mr Bray”) was instructed by Whitecap and he carried out an initial assessment of the system and its problems towards the end of July 2002, culminating in his “initial report” dated 26 July 2002 in which he made a number of suggestions to deal with the problems. It is clear that thereafter Mr Bray had considerable involvement with the system (apart from his involvement as an expert for this litigation). He agreed a daily rate for his services of £360 plus expenses. The need for Whitecap to instruct Mr Bray and to take on the burden of such professional fees is, it seems to me, indicative of the failures of the system and the importance to Whitecap of obtaining an improvement in its performance.[28]Despite numerous meetings and discussions between Whitecap and Rundles (Whitecap being assisted by the services of David Wood and Mr Bray) the system was still not operating to the satisfaction of Whitecap and in Whitecap’s view did not meet its commercial requirements. An important meeting took place on 6 September 2002 when in particular the problems with the coupling and de-coupling of the ball and ski wires were discussed. Upon Whitecap’s evidence, which was unchallenged, the problems were not solved and matters did not improve by the end of the 2002 season. This is perhaps best evidenced by a letter from Mr Rollason to Mr Rundle of 10 November 2002, wherein he states:
“Amongst the innumerable problems we have encountered throughout this summer, it alarms me that you find it acceptable as to the large number of ball wires that are damaged beyond use, within normal operation. Tim informs me that 110 of these have been damaged during the very short period of operation this summer. In a full season at the other more established centres operating the Rixen Tow, we are informed that the norm would be a maximum of 30 in one full season. Once I have been satisfied that all the issues have been addressed and I have received written confirmation from you company we can operate the cable tow at all speeds, we can then discuss the financial aspect.”
[29]It is to be noted that the response to the letter of 10 November 2002 from Mr Rundle dated 18 November 2002 makes no complaint regarding the maintenance of the system by Whitecap, although Mr Rundle did state “the report submitted by Mr David Bray does not demonstrate any fundamental flaws in the design”.[30]In early 2003, before the commencement of the 2003 season, Whitecap engaged the services of another engineer, Mr John James, who carried out the annual inspection and maintenance and carried out modifications to the system at a cost of £4,775.00. There was no evidence before me that there was anything untoward with the work which Mr John James carried out or that it was in any way not in accordance with the annual maintenance recommended by Rundles.[31]Another issue in this case is whether the equipment should have had the benefit of so-called “C E marking”, a regulatory requirement imposed by The Supply of Machinery (Safety) Regulations 1992. There is an issue as to whether the exclusions to these regulations contained in Schedule 5 would cover this machinery, but in any event the requirement for C E marking was not by itself a contractual requirement imposed upon Rundles. Rundles did see fit to prepare a “technical file” which is a requirement of the regulations, but this file has not been disclosed as part of the disclosure process in this litigation. This issue was raised during the trial and Mr Rundle expressed the view that it was not appropriate to disclose that file in view of its commercial sensitivity. It seems clear to me that that file should have been disclosed as it would contain much material relevant to the issues in this case, and it is established that commercial sensitivity has never been a ground for refusing disclosure of relevant documents. Nevertheless, I do not regard the issue of “CE marking” to be of evidential significance.[32]At about the same time as the involvement of John James, another company was instructed by Whitecap because of Whitecap’s concerns over health and safety issues as well as the need for C E marking. A report from Brian Sexton of Weldon Ltd to Whitecap dated 3 November 2003 highlighted breaches of certain EEC directives and listed a number of areas which required attention.[33]It is clear that Whitecap were dissatisfied with the equipment following the first season of usage in 2002 which impacted upon the payments due to Rundles. The original contract price was £157,000 plus VAT, of which 30 per cent was paid upon placing the order, and a further 20 per cent upon completion. Whitecap elected, as they were entitled to under the contract, to pay the remaining 50 per cent by six equal monthly instalments. By 25 October 2002 Rundles were demanding £77,317.54, representing the balance of the contract price. It is clear from the correspondence that Whitecap were refusing to pay further monies to Rundles because of Whitecap’s dissatisfaction with the equipment and were seeking some kind of compromise in order to resolve the dispute. On 18 November 2002 Mr Rundle indicated by letter that Rundles would be unwilling to perform any further work in connection with the mechanism until the outstanding sums due had been paid. At about this stage Rundles instructed solicitors who threatened the issue of proceedings for the sums due. On 10 January 2003 Mr Rollason proposed a settlement whereby if Rundles withdrew the claim for any further sums due, Whitecap would in turn withdraw any claims arising out of the performance of the cable tow mechanism. That proposal was not accepted and a further offer was made by Whitecap on 13 May 2003 in similar terms, which was rejected by Rundles through their solicitors by a letter dated 21 March 2003. There was then no further communication between the parties until September 2003. I will refer to the relevance of this later in this judgment.[34]I am satisfied that by March 2003 Whitecap remained dissatisfied with the performance of the mechanism and had accepted that they would gain no further assistance or co-operation from Rundles in order to improve matters. Whitecap had already engaged the services of Mr Bray, and I am satisfied that this breakdown in the relationship between Whitecap and Rundles necessitated Whitecap instructing a number of outside experts in order to ensure that the mechanism was operational for the 2003 season. Those included John James who, as I have said, carried out the annual maintenance. Mr Bray also continued to be retained, and following a further complete failure of the main wires during July 2003 Professor Richard Chaplin was instructed by Whitecap to consider the cause OF the failures in the wiring of the cable tow. He is recognised as a leading expert in cables of this nature.[35]The cable tow system continued to be in operation throughout the 2003 season, although without any support from Rundles, the relationship between Whitecap and Rundles having broken down. An important witness to the matters in dispute is Mr Timothy Anderton (“Mr Anderton”), who was initially employed as an operator by Whitecap but by the beginning of 2003 was the Operations Manager. I will deal with his evidence further later in this judgment, but on l September 2003 he produced a report upon what he called the “daily persistent faults” with the cable tow system during the 2003 season. In summary he complains of the following:(1) An inability of the fork to catch incoming lines, especially in windy conditions. He stated that this causes dangers to both operatives and skiers when either boats or swimmers are sent out to collect lines.(2) Ropes constantly being caught in the fork or wrapped around it necessitating an emergency stop of the machine, leaving up to ten skiers to either swim or walk back to the starting point. There is also a danger of skiers who have held on to the rope when the machinery is re-started, and in any event the machinery only powerful enough for starting four people from the water.(3) The magazine fails to take ropes cleanly, as a result they become trapped or they fall out onto all the lines. Again if the former occurs an emergency stop has to take place.[36]Mr Rollason in his witness statement dated 29 November 2006, which formed part of his evidence in chief, stated that in the light of the advice which Whitecap had received from their expert advisers “I and the directors of the claimant company assessed that it was an unacceptable and uninsurable risk to take ownership of the liability of manufacture and I therefore determined to see whether a solution could be found with the defendant”. I am not satisfied however that this was the principal reason why a renewed dialogue with Rundles took place. Whitecap had received renewed correspondence from the solicitors acting for Rundles, in particular a detailed letter of 8 September 2003 reminding Whitecap of the monies due and also pointing out the retention of title clause. Additionally, and on my finding most importantly, I heard evidence from Mr Anderton, which I accept, that there was a problem with a lack of spare parts for the machinery.[37]An important meeting took place on 13 January 2004 between Mr Rundle and his solicitor on the one hand and Mr Rollason supported by Professor Chaplin and Mr Bray and Whitecap’s solicitor on the other. That meeting led to the eventual signing of the supplementary agreement by Rundles on 4 May 2004 and Whitecap on 29 April 2004. Importantly this supplementary agreement makes specific provision for the original contract not being superseded “save where the context demands otherwise”. The supplementary agreement recites some of the history and Rundles agreed “to use its best endeavours” to perform certain tasks in order to improve operational efficiency. Rundles reduced their claim for the balance of the monies due to them to a figure of £50,000 inclusive of VAT, £10,000 paid immediately, £20,000 paid into an escrow account to be held jointly by the parties’ solicitors and the balance to be paid by 30 September 2004. The problem with the shortage of spare parts was dealt with in the agreement by these being supplied by Rundles at their usual price to carry out any rectification works, but fitted by Rundles for no charge, except spare parts required for ongoing maintenance for which Whitecap would pay for both the spare parts and for labour. The final paragraph of the supplementary agreement provides:
“In return for the above and the satisfactory completion of the works described, (Whitecap) agrees not to make any claim for loss of profits or in relation to their perception that (Rundles) have failed previously to perform its obligations under the original contract.”
[38]With the rebuilding of a business relationship between Whitecap and Rundles a number of meetings took place, including those on 13 January 2004, 27 January 2004, 10 February 2004, 12 March 2004 and 25 March 2004. As a result of those meetings and arising from the supplementary agreement or the negotiations leading up to the signing of that agreement, it is clear that substantial rectification and maintenance works were carried out by Rundles. It was relevant to separate out maintenance works from rectification works as Whitecap would not be charged for labour in connection with rectification work in accordance with clause 7 of the supplementary agreement. Accordingly, invoices received from Rundles were scrutinised by Mr Bray on behalf of Whitecap.[39]Notwithstanding the works carried out to the system it is not in issue that there were continuing problems throughout the 2004 season as set out in the Amended Particulars of Claim and Appendix 1 thereto and about which I heard evidence.[40]In his witness statement dated 29 November 2006 which formed part of his evidence in chief, Mr Rollason stated that by November 2004 he had decided to reject the cable tow system as being dangerous, not of merchantable quality and not fit for its purpose. He stated that Whitecap decided to dismantle it in that month. This evidence must be viewed in the context of the contemporaneous solicitors’ correspondence. The issues raised in this case were being rehearsed in correspondence between solicitors, culminating in a letter from Whitecap’s solicitors of 12 November 2004 stating amongst other matters:
“In view of the report that their clients have received and the repeated failure of the equipment our clients have confirmed to us that they reject the equipment in its entirety.”
[41]It is not clear as to what report is referred to in the letter, but a report from Mr Edward Wright, a metallurgist, had been commissioned by Whitecap in order to ascertain the cause of the breakage to the cable joining shoe. Mr White’s report dated 27 September 2004 concluded that the material used for the cable joining shoe was substandard with signs of extensive porosity and throws doubt upon the choice of brass casting. Mr Wright expressed the view that “this component failed when the applied load exceeded the strength of the lug to resist fracture”.[42]Following the letter of 12 November 2004 when Whitecap stated that they were rejecting the goods, the cable tow system was dismantled by Whitecap and by a letter dated 19 January 2005 through its solicitors, Whitecap gave notice to Rundles to collect the equipment within 21 days. In the event Rundles did attend at Whitecap’s premises by arrangement over two days in order to collect the majority of the equipment but thereafter were refused further access to collect the balance. In particular the launching platform and pontoons were not collected and these remain in use as part of the new cable tow system supplied by Rixens, which is now in place at Willen Lake.[43]Whitecap issued these proceedings on 31 May 2005. They were served on Rundles by a letter dated 16 June 2005. Whitecap claims that it was entitled to reject the goods as being unfit for the purpose and not of merchantable quality, and additionally claims damages for the return of that portion of the purchase price which has been paid, together with the repayment of invoices in connection with repairs to the machinery and damages for loss of profit. Alongside the claim in contract there also is a claim in tort for negligence. Rundles deny any breach of contract or negligence, and aver that any problems which there might have been with the machinery were caused by excessive use and/or inadequate maintenance. Rundles also counterclaim for the balance of the purchase monies due under the supplementary agreement and there is also a claim for conversion of goods arising from the retention of title clause in connection with the equipment, both for damage to the items which have been recovered as well as in connection with other items retained by Whitecap. In any event Rundles claim that Whitecap were not entitled to reject the equipment and any claim for damages fails in view of the terms of the limitation clause contained in the original agreement. There is also a small claim by Rundles for the payment of an outstanding invoice.[44]The fact of the problems encountered with the cable tow system as dealt with earlier was not an issue in this case. The principal issue which I have to decide is what was the cause of those difficulties, or more specifically, were they caused by excessive use and/or inadequate maintenance (as alleged by Rundles) or by fundamental flaws in the design and/or manufacture of the equipment or of the components used (as alleged by Whitecap) thus rendering Rundles in breach of its implied terms of satisfactory quality and fitness for purpose. It is not strictly necessary for me to find the precise reasons for the failure of the cable tow mechanism to operate satisfactorily, I merely have to be satisfied that there has been a breach of the implied terms, or in other words I need to reject the argument that the problems were caused by excessive use and/or faulty maintenance. However the burden of proof remains on Whitecap to satisfy me the there was a breach of the implied terms. As regards the claim in tort, if I find that Rundles were in breach of the implied terms then it follows on the facts of this case that they have also been negligent. I find that Whitecap were placing reliance upon the engineering expertise of Rundles, as was well known to Rundles, and that if the equipment supplied and installed was not of satisfactory quality or fit for its purpose (such purpose being well known to Rundles) then it follows that Rundles have been negligent.[45]For the purposes of this litigation Whitecap rely upon three expert witnesses, namely Mr Bray, Professor Chaplin and Mr Edward White. All three had been instructed by Whitecap at an earlier stage, initially to advise it in connection with the operation of the cable tow system. Rundles rely upon the evidence of Mr D M Jackson, a chartered engineer whose report is dated 2 December 2006. Mr Edward White’s evidence was agreed, and the other expert witnesses gave evidence at trial. The usual pre-trial meeting of experts took place on 7 February 2007. The experts agreed that:(1) the brass castings which joined the ends of the cables together were sub-standard and porous, and other castings inspected by the experts were said to show signs of cracks and porosity;(2) the rope tension recommended by Rundles was inconsistent with the drawings for the mechanism;(3) it is essential to minimise “fleet angle” (this is the angle that the rope makes with the plane of the pulley) and the guidance for this in the operation manual is inadequate. Of particular importance the Rundles design for the carrier shoe attachment compared with the Rixen design allows for a space between the rope and the shoe under the stirrup, making over-tightening more likely with consequent rope damage;(4) the performance of the de-coupling mechanism was variable, which requires further development;(5) frequent and regular maintenance is necessary in excess of that recommended in the Rundles’ website.[46]The lay witness evidence dealt principally with the background to the formation of the original and supplementary agreements, and to the problems encountered concerning the performance of the mechanism as well as the steps taken to endeavour to deal with those problems. As I have already said, the fact of the problems with the performance of the system was unchallenged.[47]An issue was raised as to whether this cable tow mechanism was in any way a prototype. This was an expression first introduced into the case by the evidence of Paul Skinner, an employee of Rundles, who in his third witness statement of 27 February 2007 which formed part of his evidence in chief, stated that Rundles could not guarantee a completion date “especially because this was a prototype and the first cable ski system we had constructed”. This issue was explored during the trial. It is uncontroversial that this is the first (and indeed only) cable tow mechanism ever supplied by Rundles. Furthermore, although a competitive price was negotiated for the supply of the system, I find that there was no discount to allow for the fact that this was a prototype and indeed Whitecap agreed to purchase a fully operational cable tow system without any allowances for it being the first cable tow system supplied by Rundles. Mr Rollason gave evidence to the effect that he was told subsequent to signing the original agreement that Rixens would have matched the price, and I am satisfied that any reduction in the price negotiated with Rundles was a reflection of the eagerness of Rundles to supply this particular system to Whitecap as a showcase for potential further customers.[48]A most important witness was Mr Anderton, who had worked for Whitecap since 2002, first as an operator and by the beginning of 2003 as Operations Manager. He had initially declined to provide a witness statement and only agreed to do so upon the service of a witness summons by Whitecap shortly before the commencement of the trial. He told the court, and I accept, that the reason he was not prepared to give a witness statement at first was because he had certain employment issues with Mr Rollason and did not wish to become involved in a dispute in which he had no financial or other interest in the outcome. However, having had a witness summons served upon him and having provided a statement he came to court and I am satisfied that he gave the court every proper co-operation and was, on my finding, a thoroughly honest witness doing his best to assist the court to the best of his ability. In my judgment he was not a partisan witness, and thus his evidence is extremely important, not just in terms of his level of involvement with the day-to-day operation of the cable tow system at all material times, but also in view of the fact that he gave his evidence without any financial interest in the outcome of this litigation.[49]Mr Anderton told the court that he was involved with the cable tow on a daily basis and was aware of the difficulties that had been encountered. His evidence was telling in support of the shortcomings in the system expressed by Mr Rollason and also by Whitecap’s experts. It is clear from his evidence, and I so find, that the cable tow system had to be shut down on numerous occasions because of operating difficulties with the mechanism whereby the rope went into the fork, the emergency release would only work when somebody was directly under the fork, and especially in windy conditions the rope would come out of the fork. The top ball bearing would become trapped and twisted around the rail after de-coupling and the carrier fork failed to take the ball bearing correctly. There were other frequent problems with the loading magazine, all of which had serious repercussions for the operational efficiency of the system. Mr Anderton also explained the frequency with which he had to make corrections to the fleet angles, which the experts have agreed was of crucial importance. Mr Anderton was at best by use of the flag test system only able to obtain just less than 20 rotations, whereas he understood that ideally there should be no rotations at all.[50]Mr Anderton told the court that he was involved with the cable tow system right from its outset, and that Mr Gerry Russell guided him through the operation of the system and the daily maintenance requirements. He had limited training, and he in turn trained to the best of his ability the other operators of the system each season. He had responsibility for keeping adequate maintenance records, the forms for which were supplied eventually, although not initially, by Rundles. Sometimes maintenance records were defaced or lost whilst operators were on the job, but Mr Anderton was satisfied that a strict maintenance regime was carried out in accordance with or in excess of the Rundles’ specification.[51]A particular concern expressed by Mr Anderton was the kink in the rope caused by the stirrup, which was well illustrated in the photographs and diagrams produced during the trial. Although the operations manual recommended the use of a torque wrench, Mr Anderton told the court, and I accept, that Mr Rundle and Mr Gerry Russell advised him not to use a torque wrench but rather to adjust the stirrup manually so as to ensure that there was no light showing between the rope and the stirrup.[52]Mr Anderton did not realise the importance of the fleet angle adjustments until a later stage. Nevertheless from the outset he would check all the pulleys every week by climbing half way up each tower and using binoculars and carrying out a so-called “flag test” whereby tape would be placed on the wire and the rotations counted. To carry out this maintenance of all the towers would take approximately two hours, although he would check some towers daily.[53]In addition to the regular checks of the fleet angles there would be ad hoc or unplanned maintenance of them, and Mr Anderton told the court that the visual inspections of the fleet angles were going on permanently. These would not all be recorded. As regards the annual inspections, this was carried out by John James, who had been brought in by Whitecap before the commencement of the 2003 season, and by 2004 Rundles were again working with Whitecap.[54]Mr Anderton gave a vivid explanation of the effects of having to stop the machinery when the fork release mechanism failed, often resulting in twelve skiers being put into the water and also increasing the queue for users. He was also concerned that the emergency stop button did not stop the machinery quickly enough, as it only stopped the motor running and there was no braking mechanism as such.[55]By 2003 when the relationship with Rundles had broken down it was a difficult position for the operation of the mechanism because Rundles would not supply spare parts and so they had to be obtained from elsewhere. However Mr Anderton was not concerned about the parts being supplied from elsewhere because on the whole they were, in his view, of a higher quality.[56]At the conclusion of his evidence Mr Anderton stated that in view of the history of problems with the mechanism he had become “paranoic” about the safe running of the system.[57]I am quite satisfied that Mr Anderton was a conscientious operator, and later Operations Manager, of the cable tow system who carried out his responsibilities meticulously and in accordance with the guidance given by Rundles, either in the operations manual or verbally. He was well aware of the practical problems for the daily operation of the mechanism and adapted his maintenance regime accordingly. He was highly conscious of the safety issues, as well as the need for operational efficiency in order to meet the requirements of Whitecap’s customers. Although he accepts some shortcomings in the keeping of maintenance records, a perusal of these nevertheless displays a broad compliance with the proper maintenance regime.[58]Helpfully also Mr Anderton was able to give some evidence as to his experience with the Rixens system which has replaced the Rundles system at Willen Lake. He stated that maintenance took half the time on the Rixens system, although it has a similar inspection system.[59]Towards the end of his cross-examination Mr Anderton said that if the machinery was up to its job he would accept responsibility for the problems which had occurred. “But,” he went on to say, “there is a limited amount of work which you can do with machinery which was not up to standard”.[60]Rundles’ expert witness, Mr David Jackson, has not carried out a full analysis of the maintenance records for the cable tow system. He agreed with the conclusions of Mr Edward White, Whitecap’s metallurgical expert, that the castings were substandard, but his conclusion was that this was not a casting design issue. However, Mr Jackson was unable to point to any specific maintenance failure which might have caused the castings to fail. Importantly, Mr Jackson conceded towards the end of his cross-examination that if the maintenance was carried out correctly, then design must be the cause for the failures in the system.[61]Mr Jackson’s conclusion was that the problems with the mechanism were more likely to have been caused by maintenance issues and that the metallurgical shortcomings were not causative of any of the failures. However he conceded that he had not analysed the maintenance records. Furthermore, when he prepared his litigation report there was not available to him the evidence of Mr Anderton. At trial he did not see fit to alter his views in the light of the Anderton evidence. I am satisfied that in the light of my findings regarding the maintenance regime, and in particular the evidence of Mr Anderton, that Mr Jackson’s conclusions are not sustainable.[62]As I have already indicated I am satisfied, and I so find, that the cable tow system was adequately and properly maintained in accordance with the guidance from Rundles. Although the issue of excessive use is pleaded I heard no evidence in support of this – indeed the evidence supports normal usage for a business of Whitecap’s nature which business was well known to Rundles at all material times. I also heard no compelling evidence of any maintenance failures by Whitecap. I am satisfied that the actual maintenance, as supported in particular by the evidence from Mr Anderton, was well in excess of what Rundles indicated should be required and certainly in excess of that recorded in the maintenance records.[63]Accordingly I am driven to the inevitable conclusion that this cable tow system was not of satisfactory quality nor fit for its purpose, and as such Rundles are in breach of the implied terms of the contract. No practical significance attaches to the use by Whitecap of the old fashioned nomenclature of “merchantable quality”.[64]Extensive evidence was received at trial as to the cause of the various shortcomings in the cable tow system. As I have found, I am satisfied that nothing which Whitecap did or failed to do has caused those shortcomings. Hence my finding of breach of the implied terms. It is not necessary for me to make specific findings as to the precise mechanics of each and every failure in the system. The fact is that Whitecap contracted to purchase a cable tow system which would operate adequately for the purposes of its operations at Willen Lake. As I have found the nature of that business and consequent usage of the system was known to Rundles. It is clear that the system did not meet those requirements.[65]Nevertheless there was ample evidence before the court of three fundamental flaws in the design of the cable tow system or in the components used. First, I am satisfied that the design of the stirrup through which the rope passes necessitated a kink in the rope, thus weakening the rope at this point. The Rixens design did not have this fault. Secondly, the design of the system overall was such that the fleet angles required constant adjustment and even when adjusted the standard of 20 rotations was all that could be achieved, which was inadequate. Thirdly, many of the castings, and in particular those which joined the ends of the cable together, were of substandard quality and strength. I am satisfied that these three shortcomings were flaws in the design of the system or in the materials used. At the trial there was explored in evidence whether the casting failure on 14 August 2004 was the cause or the consequence of the rope derailment on that occasion. Given my findings upon the defects in the system as a whole, I am satisfied that this component had been weakened by repetitive stress as a result of the defects in the system as a whole, which ultimately resulted in the casting failure when one further strain was placed upon it.[66]In addition to the fundamental flaws in the system which I have found, there were numerous other defects, including the operation of the coupling and de-coupling mechanism. These further problems when accumulated with the fundamental flaws all lead to the inevitable conclusion of a breach of the implied terms of the contract.[67]As I have already indicated, the findings leading to the conclusion that there has been a breach of the implied terms also leads me to the conclusion that Rundles have been negligent in its supply of this equipment.[68]However the matters which I have to decide do not end there. I have to interpret the original and supplementary agreements in the light of my findings and to decide what remedies the parties are entitled to.[69]The original agreement dated 23 November 2001 contains the following two clauses:
“12. Defects after delivery The seller will make good by repair or supply a replacement, defects which under proper use appear in the goods within a period of one year after the goods have been delivered and arise solely from faulty design (other than a design made, finished or specified by the buyer for which the seller will have disclaimed responsibility in writing) materials or workmanship provided always that defective parts have been returned to the seller which shall refund the cost of carriage on such returned parts and the repaired or new parts shall be delivered back by it free of charge. 14. Final Certificate After expiry of the defects liability period specified in this agreement the seller shall be under no further obligation or liability either under the contract or in tort (including but not limited to negligence) unless within 14 days thereafter the buyer shall have given written notice of any matter in respect of which the seller remains obliged or liable. The buyer shall issue a final certificate to the effect that the seller has fulfilled all obligations and liabilities to the buyer immediately upon expiry of the said period of 14 days or in the event that the buyer shall have given notice as aforesaid which the seller would have not disputed immediately upon its having dealt with the matters specified therein.”
[70]It is submitted on behalf of Rundles that the effect of these two clauses read together is that as Whitecap failed to notify the defects within the period of 14 days from the end of the defects liability period then upon a true construction of those clauses any claim arising out of those defects is barred.[71]The interpretation of clauses 12 and 14 of the original agreement is not without difficulty. It is unclear when the defects liability period should begin. Clause 12 refers to “a period of one year after the goods have been delivered”. In clause 1 “delivery date” is defined as the date specified by the seller when the goods are to be delivered. Rundles did not regard this to be a “turnkey” contract and understood that Whitecap were to supply some of the labour. Goods, in terms of individual components which were to make up the cable tow system, were delivered over a number of weeks following the signing of the original agreement on 23 November 2001. Is there a different delivery date for each component starting on the date when it was delivered? If so, I certainly heard no evidence of when individual components were delivered. If “delivery date” is taken to mean when all components have been delivered and the cable tow system was operational, likewise there is some controversy. When questioned about this Mr Rundle formed the view that the system was operational by “the first weekend in May”. However “delivery date” as defined in clause 1 is not the actual date of delivery but rather that specified by the seller. In the contract signed by both parties “completion” is said to be no later than 15 April 2002. A further complication is that a completion certificate (the provenance of which is disputed by Whitecap) was issued by ASP Engineering on 20 May 2002.[72]The difficulties with the interpretation of clauses 12 and 14 do not end there. Clause 14 provides that the seller shall have no further obligation or liability after the expiry of the defects liability period (whenever that might be) “unless within 14 days thereafter the buyer shall have given written notice of any matter in respect of which the seller remains obliged or liable”. Does this mean that notice must have been given actually within that 14 day period (from whenever it began to run) or should have been given by the expiry of that period? An additional complication is that clause 14 provides that the buyer should issue a “final certificate” after the expiry of that period. I heard no evidence concerning the issue of any such “final certificate”.[73]Clause 14 is a time limitation clause. It is a type of exclusion clause in the sense that it seeks to modify an obligation which would otherwise exist – this definition was used by Lord Diplock in Photo Production Ltd v Securicor Transport Ltd [1980]AC 827 at 850 E. It is established law that such a clause should be construed strictly against the party seeking to rely upon it. It is conveniently and accurately summarised in Chitty on Contracts (29th edition) in volume 1 at paragraph 14-009 thus:
“First, since the party seeking to rely upon an exemption clause bears the burden of proving that the case falls within its provision, any doubt or ambiguity will be resolved against him and in favour of the other party. Secondly, as in the case of any other written document, in situations of ambiguity the words of the document are to be construed more strongly against the party who made the document and who now seeks to rely on them.”
[74]These principles of contractual interpretation are now modified by the Photo Production case: “Since the presumption is that the parties by entering into the contract intended to accept the implied obligations exclusion clauses are to be construed strictly and the degree of strictness appropriate to be applied to their construction may properly depend upon the extent to which they involve departure from the implied obligations. Since the obligations implied by law in a commercial contract as those which, by traditional consensus over the years or by Parliament in passing a Statute, have been regarded as obligations which a reasonable businessman would realise that he was accepting when he entered into a contract of a particular kind, the court’s view of the reasonableness of any departure from the implied obligations which would be involved in construing the express words of an exclusion clause in one sense that they are capable of bearing rather than another, is a relevant consideration in deciding what meaning the words were intended by the parties to bear. But this does not entitle the court to reject the exclusion clause, however unreasonable the court itself may think it is, if the words are clear and fairly susceptible of one meaning only.” – per Lord Diplock in Photo Production v Securicor Transport Ltd [1980] AC 827, pages 850G-851H.[75]Under what might be called the “old law” of fundamental breach this exclusion clause might have been susceptible to defeat. The law as developed prior to the decision in Photo Production was summarised by Lord Diplock in this way: “A fundamental breach is one which entitles the party not in default to elect to terminate the contract. Upon his doing so the contract comes to an end. The exclusion clause is part of the contract, so it comes to an end too; the party in default can no longer rely on it” – per Lord Diplock in Photo Production v Securicor Transport Ltd [1980] AC 827 at page 847 F.[76]However the law has moved on and whether an exclusion clause survives a breach of contract is a matter for construction in each case. As Lord Diplock put it:
“A court is not entitled to reject an exclusion clause if the words are clear and fairly susceptible to one meaning only.”
[77]The difficulty with the clause in this case is that the words are not clear and nor are they fairly susceptible to one meaning only. If the clause is to be upheld then from when does the 14 day period run? Is it from one year after each component was delivered, or is it one year from when the whole system was operational, or when it should have been operational? In any event, when was the machine either due to be operational or actually was fully operational? Was it the first weekend in May, as suggested by Mr Rundle, or the date of the ASP certificate? If, as the definitions clause in the original contract indicates, what mattes is not the actual date of completion but rather the date when the seller specified that the goods are to be delivered?[78]It is clear to me that the very sort of uncertainty and lack of clarity which arises in this contract is the situation envisaged by Lord Diplock in the dicta to which I have referred. The words in these clauses are not clear and give rise to considerable uncertainty as to the scheme which is envisaged to enable the clause to be effective. For these reasons in my judgment Rundles are not able to avail themselves of the benefit of those clauses for which they argue.[79]I did pause for reflection before deciding that the exclusion clauses in this contract were incapable of interpretation whether the guidance on contractual interpretation provided by the House of Lords in ICS Ltd v West Bromwich Building Society [1998] 1 WLR 896 might provide an answer to this particular problem before the court. Lord Hoffman summarises the principles of interpretation at page 912H-913E, including that “interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract” (page 912H) and “the meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its word. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean” (page 913C). However the difficulty with which I am faced in this case is that there is no material before me which enables me to use these principles of interpretation in order to answer the question of when the “defects liability period” began and ended. However, where it would assist me is in the interpretation of the words “unless within 14 days thereafter the buyer shall have given written notice of any matter in respect of which the seller remains obliged or liable” in clause 14. If the exclusion clause had been effective Rundles urged upon me that these words mean written notice must have been given during that 14 day period (whenever that might be). I reject that interpretation. Of crucial importance are the words “shall have given”, which makes it clear to me that what was anticipated is that by the time of the expiry of that 14 day period, Rundles must be on notice of any defects, failing which, if the exclusion clause were to be effective, no further claims could be made. This also it seems to me accords with business common sense. The purpose of this particular type of exclusion clause, a time limitation clause, is to enable parties to have some finality in connection with their liability. In this case Rundles were at all relevant times on notice of the problems with the system. Indeed, the only sensible interpretation of the supplementary agreement (which I deal with later) is an acceptance by Rundles of Whitecap having an ongoing right to claim in connection with the shortcomings in the cable tow system. If I were to require further assistance in support of this interpretation of the original agreement then it is provided by Lord Diplock in Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at page 201:
“ If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense.”
[80]Whitecap claims that as a consequence of the breach of the implied terms (which I have now so found) it is entitled to reject the cable tow system in its entirety, and this they purported to do by the letter dated 12 November 2004.[81]In its Defence, Rundles deny that Whitecap was entitled to reject the mechanised ski tow system. In order to consider this aspect of the claim it is necessary to consider the chronology of events leading up to the purported rejection of the system by Whitecap in the letter of 12 November 2004.[82]The problems which Whitecap encountered with the system are set out in the amended Particulars of Claim and Appendix 1 thereto, and was expanded in the evidence at trial – in particular that from Mr Anderton. Those problems led to Whitecap withholding monies which were due to Rundles under the agreements and for there to be an exchange of correspondence between the parties as well as a number of meetings. By 23 December 2002 Rundles had instructed solicitors who wrote to Whitecap demanding payment of the outstanding sums due of £92,960.45 plus interest of £1,769.73. Prior to this Whitecap had been working with Rundles in an effort to rectify and improve the performance of the cable tow system. On 10 January 2003 Whitecap made a proposal that there should be what might be called a “drop hands” settlement whereby Rundles would make no further claims for monies due and Whitecap would make no claims in connection with the performance of the system. That proposal was repeated by Whitecap on 13 March 2003 but was rejected on behalf of Rundles on 21 March 2003. Thereafter, surprisingly, there is no further communication from Rundles (either directly or through solicitors) until a letter of 4 September 2003 from Rundles’ solicitors requesting a site meeting. This was followed by a more detailed letter on 8 September 2003 seeking payment of the sums due and reminding Whitecap of the retention of title clause in the contract. I will return to the effect of this clause later in this judgment.[83]During the intervening period Whitecap had continued to use the system for the 2003 season and to assist them in this regard had instructed a number of experts, as already set out in this judgment. Indeed not even the inability to obtain spare parts from Rundles seemed to affect the running of the system – Mr Anderton told me that they were able to obtain spare parts from other sources and that on the whole these were of a superior quality.[84]I am satisfied, and so find, that if Rundles had not instigated making contact with Whitecap again by their letters in September 2003, then Whitecap would have been quite prepared to proceed upon the basis of making no further claims against Rundles, so that by default Whitecap would have achieved the “drop hands” settlement proposed the previous March. It is clear to me from the evidence that following the termination of a dialogue with Rundles in March 2003 Whitecap were quite prepared to continue with the cable tow system despite any shortcomings and to work with the experts they had employed to carry out any necessary improvements or modifications. This was notified by Whitecap to Rundles by letter dated 30 December 2002, which explained the need for rectification works prior to the following season in the view of Whitecap and that this would be carried out by alternative qualified engineers in the absence of co-operation from Rundles.[85]I am satisfied that despite what Whitecap perceived to be its shortcomings, by the 2003 season Whitecap had accepted the cable tow system and had decided to carry out any necessary modifications in order to improve its performance, hence the involvement of various experts. This is clear not only from what actually happened but also by virtue of the fact that clearly Whitecap invested substantial time and funds in involving various experts to look at and work on the system. Whitecap also took steps to source spare parts where necessary from suppliers other than Rundles. I am satisfied that had Rundles not initiated further contact with Whitecap and intimated that they would seek to recover the outstanding sums due under the contract, then Whitecap would not have pursued any claim, with the effect that the “drop hands” settlement originally proposed by Whitecap would have occurred by default.[86]The resurrection of the claim by Rundles in September 2003 had the effect of an exchange of correspondence between solicitors and a number of meetings between the parties which resulted in a re-commencement of a working relationship between Whitecap and Rundles. That correspondence and those meetings culminated in a meeting on 13 January 2004 which ultimately led to the signing of the supplementary agreement by Whitecap on 29 April 2004 and Rundles on 4 May 2004. This is an important document not just for what was agreed but also as evidence of the position of the parties at and immediately prior to the agreement being signed.[87]The supplementary agreement provides that “save where the context demands otherwise, it is additional to and does not supersede the previous agreement between the parties”. Subject to that, in summary, the following was agreed: 1. Rundles agreed to “use its best endeavours” to perform various tasks, with the intention that operational efficiency could be improved 2. Rundles agreed to reduce its claim for the balance of the purchase monies and interest to £50,000 inclusive of VAT, of which £10,000 was paid forthwith and a remaining £20,000 was paid into an escrow account which was held, and still is held, by the solicitors to the parties. 3. The balance of £20,000 was to be paid by 30 September 2004 and the monies in the escrow account were to be released upon confirmation by Mr Bray that Rundles had performed the tasks which they had agreed to use their best endeavours to perform. 4. Whilst all replacement parts were to be paid for by Whitecap, Rundles would not charge for labour in connection with any rectification works. 5. The supplementary agreement concludes importantly, “In return for the above and the satisfactory completion of the work described, [Whitecap] agrees not to make any claim for loss of profits or in relation to their perception that [Rundles] has failed previously to perform its obligations under the original contract”.[88]As I have said, this supplementary agreement is important evidence in this case for a number of reasons. First, it is clear to me, and I so find, that it is a recognition by Rundles that the exclusion clause upon which they now seek to rely was not then of any assistance to them. Without such an interpretation it is difficult to see what consideration emanated from Whitecap for the supplementary agreement. Secondly, the supplementary agreement is further evidence of Whitecap’s acceptance of the cable tow system, despite its shortcomings from its point of view, although in view of the resumption of a commercial relationship with Rundles, by this time Whitecap were endeavouring to work with Rundles.[89]Sadly the supplementary agreement did not bring about a satisfactory conclusion to the parties’ differences. There were further shortcomings and failures in the performance of the cable tow system during the 2004 season, culminating in the purported rejection of the system by the letter of 12 November 2004. No further payment has been made pursuant to the supplementary agreement apart from the first instalment of £10,000 and the monies remain in the escrow account. Furthermore, Mr Bray has not certified the performance of the works, nor has he been asked to.[90]Section 35 of the Sale of Goods Act 1979 provides: “(1) The buyer is deemed to have accepted the goods …(a) when he intimates to the seller that he has accepted them, or(b) when the goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller. (4) The buyer is also deemed to have accepted the goods when after the lapse of a reasonable time he retains the goods without intimating to the seller that he has rejected them.” (a) when he intimates to the seller that he has accepted them, or (b) when the goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller.[91]I am satisfied, and I so find, that in offering the “drop hands” settlement and thereafter retaining the cable tow system and operating it for the 2003 season, Whitecap had accepted the goods, and despite the breach of the implied terms of the contract, were not entitled to reject them as they purported to do in the letter of 12 November 2004. That acceptance is also confirmed by Whitecap entering into the supplementary agreement.[92]Whitecap also argue that it can also rely on any continuing or new breaches after any affirmation of the contract, and that such breaches would still entitle it to reject the system . However the difficulty with this submission is that all the problems with the system were known to Whitecap when, on my finding, it decided to accept the goods prior to the 2003 season and when it signed the supplementary agreement. I have reflected whether the cable failure on 14 August 2004, and the outcome of the subsequent investigations by Mr Bray and Edward White would justify Whitecap rejecting the system, notwithstanding its earlier acceptance. However it is clear from the report by Mr Bray after this incident that Whitecap were aware of the porosity and other problems with the castings prior to the involvement of Edward White. Furthermore the satisfactory completion of the works envisaged by clause 4 of the supplementary agreement would have covered all the continuing problems – in particular the obligation to carry out a full assessment of the equipment (clause 4 (c)) and to find a solution for the cable deformation and degradation problems (clause 4 (f)). It is important to note that although the commitment to carry out the works envisaged by clause 4 was only one for Rundles “to use its best endeavours”, the further payments envisaged by clause 6 and the forbearance to sue provided by clause 8 are all dependent upon the actual satisfactory completion or performance of the clause 4 obligations. In the event, those obligations were not carried through.[93]Section 11(4) of the Sale of Goods Act 1979 provides:
“Where a contract of sale is not severable and the buyer has accepted the goods or part of them, the breach of the condition to be fulfilled by the seller can only be treated as a breach of warranty, and not as a ground for rejecting the goods and treating the contract as repudiated.”
[94]Section 53 of the same Act provides: “(1) Where there is a breach of warranty by the seller, or where the buyer elects (or is compelled) to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such a breach of warranty entitled to reject the goods; but he may –(a) set up against the seller the breach of warranty in diminution or extinction of the price, or(b) maintain an action against the seller for damages for breach of warranty. (2) The measure of damages for breach of warranty is the estimated loss directly and naturally resulting in, in the ordinary course of events, from the breach of warranty. (3) In the case of breach of warranty of quality, such loss is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had fulfilled the warranty. (4) The fact that the buyer has set up the breach of warranty in diminution or extinction of the price does not prevent him from maintaining an action for the same breach of warranty if he has suffered further damage.” (a) set up against the seller the breach of warranty in diminution or extinction of the price, or (b) maintain an action against the seller for damages for breach of warranty.[95]Accordingly, in my judgment, Whitecap is entitled to damages for breach of warranty, or as an alternative damages for negligence. What then is the measure of damage? Such a claim was not the primary submission of Whitecap and accordingly it has not been fully particularised or argued, apart from the claim for loss of profits which I deal with later. If as a result of this judgment the parties are unable to agree such damages then I will invite further submissions from the parties. My initial view is that Whitecap should be entitled to the cost of the replacement cable tow system which they purchased from Rixens (subject to any arguments upon betterment) provided the Rundles system was beyond economic repair to render it of satisfactory quality and fit for its purpose, less the balance of the purchase monies due to Rundles. Whitecap would also be entitled to any costs reasonably and properly incurred by it in endeavouring to rectify the system. These will no doubt include the £72,801.08 set out in appendix 4 to the amended Particulars of Claim. I emphasise, however, that these are my preliminary views only and are subject to further submissions, and if need be, evidence, on this issue. For these purposes this judgment is to be treated as a judgment upon liability only.[96]Likewise, given my primary findings, I am not satisfied that I have heard adequate submissions in connection with the counterclaim for the damages for conversion of Rundles’ cable tow system upon which Rundles have the benefit of a retention of title clause. I have held that the system had a number of design flaws, was not of satisfactory quality and was not fit for its purpose. Again, my preliminary view is that the system, or its component parts, are of little if any value, perhaps reflected by the fact that despite Rundles’ continuing marketing of the system no other sales have been made.[97]I am not satisfied on the balance of probabilities that those parts which were recovered by Rundles were damaged by Whitecap. Those parts which were recovered or formed part of a cable tow system which had design flaws, was not of satisfactory quality and was not fit for its purpose. It had been used for at least three seasons and so fair wear and tear is to be expected and numerous modifications had been carried out both by Rundles and by others in an effort to improve the system’s performance, which I have found to be wanting.[98]The only aspect of the counterclaim which could be sustainable is that in connection with those parts of the Rundles cable tow system which Whitecap has retained at Willen Lake. However, any claim arising out of the retention of title clause would be extinguished by virtue of the reduction in the breach of warranty damages by the balance of the purchase monies.[99]However, given the limited submissions and evidence on these points I invite further argument, in the absence of agreement between the parties, upon the issues of the claim by Whitecap for damages of breach of warranty and/or negligence and the counterclaim by Rundles for damages for conversion in respect of those items retained at Willen Lake.[100]This leaves the issues of the disputed invoices and Whitecap’s claim for damages for loss of profit. I will deal with each in turn.[101]The supplementary agreement provided in clause 7 as follows:
“The parties further agree that any replacement parts that shall be required by [David Bray] (as part of the rectification of design) shall be fitted by [Rundles] and [Whitecap] shall pay for them at their usual price. Labour costs will not be charged in relation to installation of the said parts. This shall not apply to parts which require replacement as part of ongoing maintenance, for which both labour and parts shall be charged.”
[102]Rundles contend that there is no legal basis for the recovery of invoices paid under the mistaken belief that they were properly payable under the terms of the supplementary agreement. Although historically there has been some controversy as to the entitlement of recovery of monies paid under a mistake, the modern law is perhaps best summarised at paragraph 29-029 of Chitty on Contracts (29th edition) volume 1, which states:
“It has long been clear that money paid under a mistake of the payer as to a material fact is, in certain circumstances, unrecoverable.”
[103]The modern law was partly derived from Commonwealth cases but adopted by the House of Lords most recently in Kleinwort Benson Ltd v Lincoln City Council [1999] AC 349 where, adopting the summary from Chitty on Contracts at paragraph 29-033 “… it was stated that the payer ‘must prove that he would not have made the payment had he known of his mistake at the time when it was made’ and that the function of mistake is to show that the benefit which had been received was an unintended benefit.”[104]Invoice No. 12008 dated 12 May 2004 is in the sum of £818.98 for electrical maintenance works carried out the previous day. Mr Bray’s review of that invoice on 3 August 2004 summarises the work as follows:
“Emergency stop at top repaired. Re-programmed feed inverter. Checked main inverter.”
[105]That invoice has been paid. Its payment should be viewed against the background of how the works arose. It is clear that leading up to the signing of the supplementary agreement Rundles prepared a technical report which Mr Bray reviewed on 7 May 2004. Thus Whitecap were fully appraised of the works which were carried out by Rundles and the nature of them and the Bray appraisal of the Rundles technical report refers to work on the emergency stop being necessary because of neglect or sabotage. As regards the inverters, Mr Bray’s appraisal states “This may be a maintenance task”. I am unable to be satisfied that the payment of this invoice was made under a mistake by Whitecap and accordingly the claim for the repayment of this invoice fails.[106]Invoice No. 12116 dated 21 June 2004 is in the sum of £12,672.56, including VAT. This invoice has not been paid and forms part of Rundles’ counterclaim. The straightforward issue is whether Whitecap are still liable to discharge that invoice in the light of my finding that the cable tow system was neither of a satisfactory quality nor fit for its purpose. I am satisfied that the loss by Whitecap of its right to reject the system does not affect the underlying fact that Rundles are in breach of contract and negligent in supplying defective equipment and as such can have no right to recover the cost of labour or parts for such defective equipment. In any event the parts will be subject to Rundles’ retention of title clause which I have dealt with elsewhere in this judgment.[107]There is a further invoice which is said to be unnumbered in the sum of £1,540.00 for the replacement of cable. By implication this had been paid by Whitecap as it does not form part of Rundles’ counterclaim. Again, this sum can only be recovered by Whitecap if it can be established that payment should not have been made and was only made by Whitecap in the mistaken belief that such payment was properly due to Rundles for under the supplementary agreement, being other than for the labour costs of rectification work. The actual cost of the cable was £900, as evidenced by an invoice from Ski Slope Services to Rundles dated 21 May 2004. Accordingly the labour cost was £640. However, I can find no evidence that payment of that invoice was made under a mistake. Whitecap were being well advised by their own experts, including Mr Bray, Edward White and Professor Chaplin and by 2004 knew full well about the shortcomings in the system and in particular those concerning the design of the stirrup fittings causing a kink and thereby tension in the wires, as well as the problems with the fleet angles. Again, the claim by Whitecap for the payment of that invoice, or part of it, upon the basis of mistake, is not made out and must therefore fail.[108]Although I have rejected Whitecap’s claims for repayment of the invoices paid by them based upon the doctrine of mistake, it is open to Whitecap to include any relevant items in the damages claim upon which I have invited further argument.[109]Whitecap claim for loss of revenue and profit which is pleaded in the sum of £164,286.08. Appendix 4 to the amended Particulars of Claim reveals that the claim in this sum includes a number of items of expense (including for example the fees of the outside experts retained by Whitecap), as well as the cost of two specific periods of closure, namely 14 to 28 July 2003 and 14 to 28 August 2004. However, at the trial Whitecap limited their claim for the loss of profits from those two periods of closure only, pleaded at £91,485.00 including VAT. Additionally it is now conceded by Whitecap that VAT cannot be recovered as part of the claim.[110]During the course of evidence before me there was no challenge to the facts of those periods of closure. During final submissions Mr Wilson QC on behalf of Rundles did put before me a schedule purporting to show that the meter readings for the cable tow system do not necessarily support those periods of closure. However this was not explored in evidence and nor was it put to any of Whitecap’s witnesses. Meter readings could be affected by a number of factors, not least by test runs by employees of or contractors to Whitecap or the running of the system to deal with any defects or problems, without paying customers. However all this can be little more than speculation without any evidential basis and I do not regard a schedule of the meter readings by itself to be of any evidential assistance to me. From the outset those two periods of closure have been clearly set out as the basis for Whitecap’s claim for loss of profits and the fact of the closure for those periods was not a matter challenged during the course of the evidence. Accordingly I am satisfied that in principle Whitecap is entitled to claim for loss of profits for those two periods of closure.[111]In support of its claim Whitecap relies upon the report of Alfred Pare, Certified Accountant, dated 15 November 2006. Rundles relied upon the expert’s report of Stephen Thompson dated 16 January 2007. Mr Thompson is a Chartered Accountant and a Director of KPMG, the well-known firm of Accountants. He criticises the methodology of Mr Pare and furthermore is unable to agree Mr Pare’s figures because of the lack of documentary evidence in support. In particular he is of the opinion that for an accurate assessment of any loss of profits it is necessary to look at the overall trading position, to include revenue from other sources within the business.[112]The two accounting experts had met prior to this aspect of the claim being dealt with, and their joint memorandum is dated 2 March 2007. In the event Mr Pare was not called to give evidence, although Mr Thompson was.[113]I am satisfied that the correct approach to calculating any loss of profits for the two periods of closure in question is to calculate the actual earnings lost for those periods. The onus is on Whitecap to prove such losses. I do not consider that other administration or staff costs can properly form part of this claim as Whitecap have been unable to satisfy me that they are over and above what would have been incurred in any event – indeed, if anything, such costs would be reduced by virtue of the closure of the system. Whitecap is adequately compensated for the closure by damages equivalent to the loss of revenue for those periods.[114]Although Mr Pare was not called as a witness and nor was his report agreed, the contents of his report were agreed as being an accurate reflection of the losses actually incurred by Mr Rollason in his witness statement of 29 November 2006 which formed part of his evidence in chief. Furthermore, questions were asked of Mr Rollason as part of his evidence in chief to expand upon this aspect of the claim and he confirmed that the figures quoted in Mr Pare’s report are based upon the available records of Whitecap. For 2003, the calculation is based upon the available diary entries, and 2004 are based upon the computer booking system. This aspect of Mr Rollason’s evidence was not challenged in cross-examination.[115]I have already disallowed the claim for staff and administration costs. This leaves three heads of claim for each year, namely existing bookings which had been cancelled or refunded, loss of casual bookings and refunds of membership fees.[116]Based upon the best evidence available to me (namely the unchallenged evidence of Mr Rollason supported where appropriate by disclosed documents) I assess the value of cancelled or refunded bookings for each of the two closures at £20,068.00 for 2003 and £24,611.00 for 2004. To these two sets of figures must be added a total sum of £1,940.00, being the revised claim for refunded or cancelled memberships as agreed as a figure in the joint memorandum and supported by the print out in the schedule to that memorandum. I have found it somewhat more difficult to assess damages to reflect the loss of casual bookings for the two periods. On balance I am persuaded by the methodology set out in paragraph 10 of the joint memorandum and as such the loss for 2003 (as agreed by the experts) is £4,958.00. As regards the 2004 figures I prefer Mr Pare’s methodology, namely using figures based upon the summer period rather than the whole year, and as such I assess the loss at £15,984.00.[117]In summary, therefore, I find in favour of Whitecap to the extent that there was a breach of the implied terms in this contract, but giving rise to a claim for damages for breach of warranty only in view of my finding that Whitecap were not entitled to reject the goods. I also find that Rundles were negligent in supplying this sub-standard equipment. In the light of these findings I invite further submissions upon the quantum both of the claim and the counterclaim in connection with the items from Rundles’ cable tow system retained by Whitecap at Willen Lake. I do not find in favour of Rundles in connection with the balance of their counterclaim arising out of their retention of title clause. I assess damages for loss of revenue at £67,561. As regards the disputed invoices, I find that those which have been paid are not refundable, and Rundles’ counterclaim for the invoice not paid is dismissed.[118]Accordingly I give permission to the parties to apply to me in connection with any outstanding issues, if these cannot be agreed, arising out of this judgment, to include any issues of interest and costs.