Trac Time Control Ltd v Moss Plastic Parts Ltd (t/a "Rowan Plastic Parts Centre") & Ors [2004] EWHC 3298 (TCC)

Case No 3TC00296

[2004] EWHC 3298 (TCC)

IN THE HIGH COURT OF JUSTICE

QUEEN’S BENCH DIVISION

LEEDS DISTRICT REGISTRY

Technology and Construction Court

Venue Leeds Combined Court

The Courthouse

1Oxford Row

Venue Leeds LS1 3BG

Date 30 th September 2004

Before

HIS HONOUR JUDGE S P GRENFELL

Between

TRAC TIME CONTROL LIMITEDClaimant

MOSS PLASTIC PARTS LIMITEDDefendants

ROWAN PLASTIC MOULDINGS LIMITEDDefendant

Mr Hugh Tomlinson QC and Mr Thomas Grant (instructed by Walker Morris) for Claimant

Mr Oliver Campbell (instructed by Lovells) for Defendants

Mr Mark Anderson and Mr Timothy Mayer (instructed by Oldham Rust Jobson) for 1 st Part 20 Defendant

Mr Michael Curtis (instructed by Berrimans Lace Mawer) for 2 nd Part 20 Defendant

Hearing Hearing dates: 4-7, 11-28 May, 1 July 2004

Judgment

His Honour Judge Grenfell :

[1]Trac Time Control Limited (‘Trac’) is a family company that amongst its products makes floodlights for the UK and international markets. The housings for the lights are moulded polycarbonate. Rowan Plastic Mouldings Limited (‘Rowan’), subsequently taken over by Moss Plastic Parts Limited (‘Moss’), was a moulder. Rowan purchased the raw material in the form of chips, processed it and injection moulded the polycarbonate by forcing the liquid plastic into a two part mould, the tool. Critical to the quality of the polycarbonate housing were its properties. Polycarbonate is a thermoplastic that is suitable for recycling, but inevitably in the process it loses quality. The ‘virgin’ or ‘prime’ polycarbonate is manufactured by one of the large international chemical companies, but there are what are known as ‘compounders’, companies which in effect blend different qualities of polycarbonate to order. Such material is generally known as ‘reprocessed’. Initially Trac required Rowan to purchase its polycarbonate from a compounder, Cotswold Compounders Ltd (‘Cotswold’), but later Rowan purchased it from Anglo Polymers Ltd (‘Anglo’), a company that traded in plastics raw materials, who in turn purchased it from a company of compounders, Regent Chemicals Ltd (‘Regent’).

[2]The material that Regent supplied to Anglo was in fact low grade polycarbonate, which it is now clear was of insufficient quality to manufacture the housings. The resulting polycarbonate housings were excessively brittle and started to crack. During the period in which Anglo was supplying Rowan (‘the Anglo period’, June 2000 to October 2001) in excess of 60,000 floodlights incorporating such housings were sold onto the UK and international markets. It was not until October 2001 that the problems with the housings began to surface.

[3]There is a multiplicity of issues.

[4]Trac claims against Rowan damages for breach of contract under the Sale of Goods Act 1979 in terms of both past and as yet unascertained future loss in respect of returned lights, together with claims for incidental losses resulting from the handling of claims against it and for loss of business. Rowan has a similar claim for breach of contract against Anglo and Anglo against Regent. Regent was taken over by BIP Plastex Ltd (‘BIP’) which was in turn taken over by Chem Polymer Ltd, but in the course of this trial it has been more convenient to refer to those companies as ‘Regent’ and ‘BIP’.

[5]There is an issue as to whether BIP took over any liability that Regent might have for breach of contract. There is a strongly contested issue of fact as between Anglo and Regent/BIP as to the specification of the polycarbonate to be supplied. There are issues between Rowan and Anglo as to the definition of the specification; whether it was ‘plain and obvious’ or ‘patent and obvious’ to Rowan that the polycarbonate supplied was of low quality and as to whether Rowan’s own processing caused the problems with cracking. In addition Anglo has raised with Rowan the issue as to whether design deficiencies on the part of Trac have been responsible for cracking. These issues are raised as causation issues and also foreseeability issues, involving questions whether, once it was patent and obvious that the polycarbonate was unsuitable, Rowan should have ceased to use it, whether, if so, there was a break in the chain of causation as from that point in time, and whether it was not foreseeable that Rowan’s processing would be so deficient as to permit the housings to be manufactured defective. These same issues Rowan, apart from those directed to its own processing, has raised with Trac, in addition to similar issues as to whether Trac should have discovered defects in the housings earlier by testing.

[6]A number of these issues arose within a matter of weeks before the trial following consideration of the expert scientific and technological evidence. At the same time Rowan claimed that Trac was trading in these lights illegally, in that some of them did not conform to regulations and Trac was claiming that their products carried certain standards to which they were not entitled. Rowan seeks to avoid the bulk of its liability for breach of contract on the basis that its contract with Trac was tainted by illegality.

[7]Finally, in the event of Trac succeeding in its claim against Rowan, there are outstanding issues, in particular, as to what percentage of housings can be attributed with low quality polycarbonate and as to the likely rate of future returns. Thankfully the number of past returns attributable to material quality has been agreed. There is a hotly contested expert accountancy issue as to the basis for the loss of profits claim, in particular, whether it is appropriate to use Trac’s own pre breach forecast of profits as the base for calculating both past and future loss of profit. There is a slightly less hotly contested issue as to when the cut off should be set in respect of the claim for future losses, both in terms of returns and loss of profit. There is a further issue raised by Anglo, and, therefore, adopted by Rowan, as to whether and if so to what extent design issues could have caused returns in any event, that is absent low quality polycarbonate.

[8]The quality of polycarbonate depends, in particular, on its molecular weight: the higher the molecular weight the better the quality. It is recognised that the simplest test of molecular weight is to measure the ‘Melt Flow Index’ (‘MFI’) otherwise known as ‘Melt Volume Rate’ (‘MVR’). MVR (or MFI) measures the volume of the polycarbonate passing through a small orifice over a 10 minute period. In general, the lower the MVR the stronger and tougher the polycarbonate.

[9]Mr Clements, the plastics expert relied on by Trac succinctly and clearly explained:

“15. The strength or quality of a polymer depends on the size of the molecules. This is usually expressed in terms of its molecular weight (Mw) a measure of the quality of a polymer. Molecular weight is a measure of the average length of a polymer chain. The longer the chain the better the mechanical performance, and the better the environmental stress crack performance. This is because the longer the chains, the greater the number of entanglements between chains. This means, in turn, that the force required to break these entanglements increases. This is the fundamental principle of entanglement theory for impact performance of amorphous polymers. 16. In the plastics industry, the quality of a thermoplastic is often expressed in terms of its melt volume rate (“MVR” also known as Melt Flow Index “MFI”). This measures the flow of a molten polymer through an extrusion plastometer under specific temperature and load conditions in accordance with ISO 1133. MVR is a crude measure of molecular weight but one that is used as an industry standard because the test is easy to perform. The lower the MVR of the polycarbonate, the higher the molecular weight. This is because, as mentioned above, a polycarbonate with high molecular weight has a greater number of entanglements between chains and therefore flows more slowly than a polycarbonate with a lower molecular weight. A polycarbonate with a low MVR will be stronger and tougher. A polycarbonate with a high MVR will be weaker and will be brittle. In general terms, a polycarbonate will become brittle if its molecular weight is less than 35,000 grams per mole. 17. A polycarbonate which has a higher MVR will have a lower mechanical strength. In general polycarbonates with MVRs of more than 20-25 are not suitable for the manufacture of products which require mechanical toughness. 18. Many hundreds of thousands of tonnes of polycarbonate are manufactured in the world every year by a small number of leading chemical companies. In general, the lower the MVR the higher the price. This is because extrusion grades (lower MVR) which have higher tolerances and improved mechanical and chemical resistance properties are more expensive to produce and process than injection moulding grades (higher MVRs). 19. There are two major types of polycarbonate sold. Virgin polycarbonate is polycarbonate which has not been altered from the time of original manufacturing to the purchase of the product. This is generally sold by the chemical companies which manufacture it, such as GE and Bayer. The other type of polycarbonate is regrind or reprocessed. This comes from polycarbonate which has already been moulded. This can be either manufacturing waste or end of life product. This polycarbonate is ground into pellets which can then be compounded again with other material and/or additives (both virgin and other regrind pellets) to produce a new product. The moulding and grinding processes degrade the polycarbonate so that reground/reprocessed material will always be of a lower grade than the original virgin material. The precise grade can vary over a very wide range depending on the nature of the original feedstock (that is, the polycarbonate which is reground) and whether or not virgin material is added.”

[10]The two comparative polycarbonates with which I am concerned are ‘Sylex 2000’ produced by Cotswold and the Anglo/BIP material. Mr Clements concluded in respect of the Anglo/BIP material:

“34. The MVR was much greater than 12. It was certainly in excess of 40. This, in turn, shows that the polycarbonate had a very low molecular weight. Not every batch of polycarbonate delivered by Anglo has been tested and it is likely that the MVR would vary between batches The Plastics experts’ joint statement at paragraph 7.7 and 7.9 indicated a considerable variation of MVR between 20 and 70. , depending on the exact source of the polycarbonate. However, the test results show a high degree of consistency, showing a molecular weight between 33,000 and 37,000 grams/mole suggesting, in turn, an MVR in the range in excess of 60. In contrast, the Sylex polycarbonate has a molecular weight in the range of 45,000 to 48,000 grams/mole suggesting, in turn, an MVR in the range of 10-14.”

[11]He observed in the body of his report:

“25. I was extremely surprised to see the molecular weight of 33,000 grams/mole. This is a very low figure for a polycarbonate and is, indeed, the lowest polycarbonate molecular weight that I have ever seen in nearly 20 years in the plastics industry. Research had indicated that a molecular weight of 35,000 grams/mole is a "transition point", below which the strength of the polycarbonate decays dramatically (see Gardner and Martin, Appendix 5). I do not think that polycarbonate of that molecular weight has any commercial application.”

[12]In fairness to BIP the plastics experts all accept that there are some commercial uses to which such low grade polycarbonate can be put, where the strength of the mouldings is not in issue. The experts are agreed in effect that the Anglo material was not suitable for the purpose of manufacturing housings for lights which would be exposed to any stresses.

[13]The Plastics experts’ joint statement under Part 35.12 Civil Procedure Rules at paragraph 5.9 reads:

“It was agreed that materials with low molecular weights (below 34-35,000) would have substantially reduced lifetimes because of their inability to sustain damage and their accelerated thermal degradation in service.”

[14]To what extent that reduction would be remains in issue between the experts.

The Facts

[15]I am grateful to counsel for their helpful résumés of the facts, much of which I make no apology for adopting where appropriate.

[16]Most of Trac’s customers are “distributors” rather than “users”. In 1994 it started to develop the design of its own light fittings. Trac decided to buy housings for the lights from external suppliers, initially from a company called Sylek Injection Moulders. The polycarbonate used in the housings from 1996 onwards was the Sylex 2000, compounded by Cotswold. This product was recommended to Trac by Mr John Gardiner of Cotswold based upon the thermal and mechanical stresses to which the products would be subject. Sylex 2000 was in fact sold by Cotswold to a number of customers in the electrical lighting industry. Mr Gardiner took the view that the Sylex 2000 was “absolutely fit for purpose”; by 2000 Cotswold had been supplying Trac for over 3 years and “there were a lot of lights that had been out in the field and they had stood the test of time”. He said that “Sylex 2000 has a certain specification which is particularly suitable for lighting, electrical and security type applications”. It was the clear tenor of the evidence relied on by Trac that, apart from minor and occasional returned items, Trac had no problems with regard to housings manufactured from Sylex 2000 polycarbonate, nor has it had any such problems since the return to using this material.

[17]Mr Anderson has made a valiant attempt to challenge what he refers to as Trac’s statistical case, but I have been left with the clear view that Trac’s evidence is correct, that it had no significant problems with regard to housings both before and after the Anglo material was used.

[18]The first light fitting relevant to this claim to be manufactured and sold by Trac was the Uniflood Mini. The other light fittings relevant to this claim are as follows (with the dates on which they were first made): Light Fitting Date Uniflood Mini 1996 Unipack Nov 1998 Uniflood Maxi Jan 1999 Dominator Jan 2001 Eclipse Jan 2001 Style Plus Feb 2001

[19]In August 1999 Trac was manufacturing Uniflood Minis and Maxis and Unipacks. The supplier of the housings for these products was a company called TT Ninefields Ltd, which used Sylex 2000. Ms Jill Rowe (Rowan’s General Manager and, at the time, the wife of Mr Andrew Kelly, its Marketing Manager) approached Ian Appleyard of Trac with a view to increasing Rowan’s business from Trac. A meeting duly took place on 23rd August 1999. Mr Ian Appleyard and Mr Gary Cochrane visited Rowan’s factory and met with Mr Kelly and Ms Rowe.

[20]Trac’s case is that during the meeting Mr Cochrane provided to Rowan a copy of its current catalogue, some sample housings and a copy of Cotswold’s brochure, which contained the specification for its Sylex 2000 product, setting out the properties and qualities of the material. Mr Kelly did not recall “one way or the other” having been shown a copy of Trac’s then current catalogue, but Mr Cochrane was clear that he had shown such a catalogue to Mr Kelly. Mr Ian Appleyard confirmed that a Trac catalogue was handed to Rowan. I have seen examples of Trac’s catalogues. I accept Mr Cochrane’s and Mr Ian Appleyard’s evidence on this point, because showing Mr Kelly the catalogue was an obvious step for Mr Cochrane to take in the circumstances.

[21]At this meeting it was agreed that Rowan would use polycarbonate as supplied by Cotswold in any housings it supplied to Trac. Rowan was to contact Cotswold directly concerning the agreement of a price at which Rowan would buy Sylex 2000.

[22]Mr Cochrane’s evidence was that he had shown a copy of Cotswold’s brochure to Mr Kelly. Mr Kellydisputed this on the basis that he presumed that he had written Cotswold’s contact details down on a “piece of paper”, since disposed of. The necessary inference of this evidence would be that Mr Cochrane carried around Cotswold’s contact details in his head. I agree that this is inherently unlikely.

[23]I find that Mr Kelly was shown the Cotswold brochure. It was important for Rowan to know the contact details of Cotswold, which were printed on the brochure; and the specification of the polycarbonate to use to manufacture the housings. It is clear from Mr Gardiner’s letter of 27th August 1999 that Ms Rowe had contacted Cotswold by that date and obtained its prices. That letter shows that Ms Rowe was able to seek prices from Cotswold by reference to specific Sylex reference numbers: this is consistent with Rowan having been shown a specification at the meeting on 23rd August 1999. Further, in its first order on Cotswold of 31st August 1999, Rowan was able to quote the stock code and the description of the Sylex 2000 polycarbonate. Clearly, as Mr Kelly accepted, “someone had got that information from Cotswold, either on the telephone or from reading their catalogue”.

[24]I am satisfied that Rowan had all the details they needed from the brochures.

[25]It follows, therefore, that Ms Rowe, who has not given evidence, and Mr Kelly were left in no doubt that not only was Rowan to use materials supplied by Cotswold but also that it should comply with the Sylex 2000 specification; that, further, they were aware of the thermal and mechanical stresses to which the products would be subject.

[26]When in April 2000 Mr Cochrane of Trac was asked to approve the Anglo specification for black polycarbonate, he made it clear, as I find, that he was content to do so on behalf of Trac so long as it complied with the Cotswold specification. That was not a new concept, but one which had been clear from August 1999.

[27]On the 25th August 1999, after it had obtained a polycarbonate price from Cotswold, Rowan sent a quotation to Trac. The price of the polycarbonate from Cotswold was important to the pricing of the housings because it constituted, according to Mr Kelly, about 60-70% of the overall price.

[28]This quotation was acceptable to Trac and as a result Trac sent a master order to Rowan on the 26th August 1999 ordering various housings “to be called off by us as requested”.

[29]Some samples were provided by Rowan to Trac in early September 1999, so that Trac could visually approve them, to ensure that Rowan was able to manufacture cosmetically satisfactory housings. Mr Cochrane also undertook some basic full assembly tests on them.

[30]The first delivery of housings by Rowan to Trac was on the 8th September 1999. Thereafter on a regular basis a master order was placed by Trac for particular quantities of various housing types and Trac would periodically telephone Rowan to place “call-off orders”, orders for some of the quantities of products set out in the master order. A delivery date would be agreed between Trac and Rowan. When a delivery was made a delivery note was handed over by Rowan’s driver to Trac’s “Goods Inwards Inspector”. A few days later an invoice was sent which was processed by Trac’s accounts department. The delivery note contained a declaration that the housings “conformed with specification”.

[31]The range of products which Trac bought from Rowan increased as Trac’s own product range developed. Later in 1999 Trac started buying housings from Rowan which were manufactured from white and grey polycarbonate. In each case it was agreed that Rowan would buy the polycarbonate from Cotswold in accordance with the Sylex 2000 specification. Mr Cochrane said that orders were placed on Rowan for grey and white mouldings; Mr Kelly would then phone him and it would be agreed that Cotswold material would be used. Although Mr Kelly could not recall these conversations, he stated that he was aware that all the polycarbonate had to be sourced from Cotswold.

[32]The black polycarbonate used by Rowan was bought from Cotswold at a price of £1,585 per tonne. This price had decreased to £1,535 per tonne by December 1999 and to £1,505 by February 2000.

[33]As early as the 18th October 1999, Rowan wrote to Anglo as well as to a number of other suppliers and compounders seeking prices for polycarbonate. Enclosed with this letter was a copy of the Sylex Specification, demonstrating clearly that Rowan realised that any replacement polycarbonate would have to be of similar quality. As Mr Scott of Rowan accepted, he knew that:

“if the supplier changed [Rowan] had to stick to the specification required for the mouldings”

. Rowan and Anglo incidentally had an existing commercial relationship.

[34]Mr Kelly denied that Rowan was motivated to look to other suppliers by the desire to reduce its raw material costs. He claimed that in fact the primary reason why Rowan was interested in potentially moving suppliers was because Rowan was “having problems sourcing clear polycarbonate from Cotswold”. I am satisfied that this was incorrect for the following reasons.

[35]In his First Witness Statement Mr Kelly states:

“What prompted me to raise the issue [of an alternative supplier] with Gary was the fact that Cotswold Compounds had begun to alter the prices of their polycarbonate. We were concerned about this and were keen to explore the possibility of using alternative suppliers.”

[36]There was no mention of Rowan “having problems sourcing clear polycarbonate from Cotswold”. Under cross-examination Mr Kelly said that Cotswold was “trying to increase the prices of their clear polycarbonate because of supply problems”. This statement was not supported by any evidence and made no logical sense.

[37]Mr Scott accepted that there was no problem with black polycarbonate deliveries, and Cotswold’s prices were going down.

[38]Cotswold had written to Rowan on the 7th October 1999 quoting for clear polycarbonate and stating that it could deliver “3 working days from receipt of the order”. There was nothing problematic about such a delivery period: it was the same for black and white polycarbonate.

[39]It was not suggested to Mr Gardiner that Trac had experienced any problems sourcing clear polycarbonate from Cotswold or that Cotswold in turn had experienced any problems. There is no documentary evidence to this effect. The logical explanation for this omission is that it formed no part of Mr Kelly’s evidence until he came to give oral evidence.

[40]Mr Kelly finally admitted that, in writing the letters to other suppliers (including the letter to Anglo of the 18th October 1999), he was trying “to find a lower price”. Later Mr Kelly agreed that the reason why Rowan “went to Anglo and switched supplies of black polycarbonate from Cotswold to them was simply to save money.”

[41]During the meeting which took place on the 1st November 2001, after the problems with the housings had become evident, I am satisfied that Mr Kelly told Messrs Philip and Ian Appleyard that the reason why Rowan had shifted from Cotswold to Anglo as a supplier of black polycarbonate was because:

“it was inconvenient for Rowan to continue purchasing Sylex compound from Cotswold as Rowan only purchased Sylex for Trac. Anglo Polymers were a bigger compound supplier to Rowan and it was easier to buy from them”

. Mr Kelly suggested that Mr Philip Appleyard’s attendance note as to this was “inaccurate”, but I found no reason to doubt it.

[42]What Mr Kelly told the Appleyards at this meeting about Rowan’s reasons for moving to Anglo was in fact untrue, but what is of note is that, if it were true that Rowan had shifted from Cotswold because its supply of clear polycarbonate was problematic, there would have been no reason to hide this fact from Trac. The true position, as I accept, is that, on the 1st November 2001, Mr Kelly was anxious to conceal the fact that in purchasing from Anglo Rowan had considerably cut its costs; that the material which it had purchased and which appeared to be the cause of the substantial problems being experienced had been bought at a very cheap price.

[43]I am satisfied that Rowan wished to reduce its materials costs and so increase its profit on its business with Trac. Mr Kelly admitted in evidence that “cost cutting” was one of his main concerns. The profit-motive is perhaps most clearly demonstrated by the expression of delight in the internal email written by Mr Kelly on 12th January 2000: once he discovered that Sylex was classified as ‘reprocessed’ he wrote:

“Once things settle down at bit I would suggest we need to work this as a priority – the improvement in margins could be substantial when you compare £1,535 per tonne against £1,200 per tonne.”

[44]Mr Cochrane’s evidence was that in about January 2000 Mr Kelly had told him that Rowan wished to move to another polycarbonate supplier because “Rowan were having problems with supply and delivery from Cotswold of the polycarbonate”. In his e-mail of 12th January 2000 Mr Kelly wrote, “Gary at Trac is OK with us using other suppliers as long as the quality is OK on the parts” and in manuscript across the top “Gary OK for us to look at other re-processed materials from other suppliers”. Mr Campbell suggested to Mr Cochrane that this e-mail indicated that he had had a conversation with Mr Kelly at about this time. Mr Cochrane was clear that Anglo was not mentioned by Mr Kelly at this stage.

[45]Mr Kelly suggested in his First Witness Statement that he had discussed with Mr Cochrane in the last quarter of 1999 the fact that Rowan wished to move to a cheaper supplier and that Mr Cochrane had told him that Rowan could keep any savings generated. If Mr Cochrane had said that, I have to say that it would have been remarkable, as Mr Kelly himself acknowledged. In his Second Witness Statement Mr Cochrane vigorously denied that he had known that Rowan was paying less for Anglo polycarbonate than for Cotswold: had he known, he would have been concerned that the quality of such polycarbonate would be inferior to Sylex. Price and quality are very closely related in the polycarbonate market, a point made by the experts, by Mr Gardiner and the BIP witnesses.

[46]I am satisfied that Mr Kelly provided a false explanation of the need to shift supplier so that Rowan could make a greater profit on the contract with Trac. Plainly, he did not wish to tell his customer that his own material costs were coming down. The following exchange in Mr Kelly’s evidence is illustrative:

“Q. You must have been delighted with this huge price reduction. A. Fantastic. Q. You must have mentioned it to Mr Cochrane immediately? A. No. Q. He was completely au fait with you taking the profit? A. Yes. … Q. Why did you not say to him: Gary, this is fantastic news, I found somebody who can do the same spec for 20 per cent less? A. Because the price was none of his business. Q. Exactly so, Mr Kelly. It is not a matter you ever discussed with him, is it? A. No.”

Q. You must have mentioned it to Mr Cochrane immediately? Q. He was completely au fait with you taking the profit? A. No.”

Q. He was completely au fait with you taking the profit?

[47]In January 2000, Mr Kelly raised the general question of a change in material supplier with Mr Cochrane. Mr Cochrane had no objection to a change in supplier provided that the polycarbonate remained of the quality and characteristics supplied by Cotswold and set out in the Sylex 2000 specification. Mr Cochrane’s concern was simply that the polycarbonate used was of a proper quality and corresponded with an agreed specification. The specification was recognised as crucial by everyone involved.

[48]It is of interest that Mr Gardiner said in his witness statement that his initial discussions with the Appleyards covered the environmental conditions that the floodlights might encounter in the field. When Rowan was brought in to mould the housings, the specification for the material was already settled. Whilst I am satisfied that Mr Kelly and his wife Ms Rowe were fully aware of the end products and their likely markets, there was no reason to discuss the detailed properties of the material again. This was because Mr Cochrane made it clear that the benchmark was the Cotswold Sylex 2000 specification. If there had been any question of a lesser specification, then there would have had to be detailed discussions about the properties to necessary to meet the environmental conditions to which the lights were liable to be exposed.

[49]I turn now to the discussions between Rowan and Anglo.

[50]In answer to Rowan’s letter of the 18th October 1999 Anglo sent an undated quotation in late October 1999 or early November 1999. Interestingly the prices quoted by Anglo, on the basis of the Sylex 2000 specification which had been enclosed with the 18th October 1999 letter, were actually higher than the prices being charged by Cotswold to Rowan for the black polycarbonate.

[51]At the meeting between Rowan and Anglo on the 22nd November 1999 at which Mr Kelly, Mr Scott and Mr Reid of Anglo were present, Rowan made it clear to Anglo that it was moulding housings for external light fittings: Mr Reid’s note records “They are moulding black boxes for outside lights”. Mr Kelly falsely stated that Rowan was buying black polycarbonate from Cotswold at £1,400 per tonne: Mr Kelly accepted that this was a “lie”, designed to obtain a keener price from Anglo.

[52]At this meeting Mr Reid told Mr Kelly that Anglo could provide black polycarbonate for £1,200 per tonne, a substantial drop from the figures quoted two or three weeks earlier in the undated quotation.

[53]Mr Kelly offered no satisfactory explanation in evidence as to why he thought Anglo was able to reduce the price from between £1,650 and £1,550 per tonne in the written quotation to £1,200 at the meeting. One possible explanation is that he understood from Mr Reid that the polycarbonate which he was offering at £1,200 was not the same quality as the polycarbonate previously quoted for. Of course, as Mr Kelly acknowledged, Anglo, as a distributor, would be buying in this polycarbonate for a figure even less than £1,200 per tonne.

[54]It was agreed at this meeting that Anglo would produce a sample and a quotation. A sample of 25kgs of Anglo’s black polycarbonate was sent on the 23rd November 1999.

[55]One of the surprising features of Rowan’s case is that, having been offered by Anglo a price which was about 25% less than the Cotswold price, it did not immediately start placing orders on Anglo. Mr Scott’s explanation was that he and Mr Kelly had doubts “with regard to the original specification that Anglo could supply”; “we were not convinced that the specification that they were quoting on was to the specification of the Sylex 2000 material”. Mr Scott eventually said that “because of the price differences, we wanted to make sure that we were getting material that was to be original specification”. He said that he and Mr Kelly had “their doubts” about Mr Reid’s quotation, even though, according to Mr Scott, the quotation of £1,200 was expressed as referring to the Sylex specification.

[56]All this has to be considered against the background of Mr Gardiner’s warning to Mr Kelly that he could not expect to purchase polycarbonate of sufficient quality for £1,200 per tonne and Mr Gardiner’s own evidence that such a price would have sounded warning bells to him.

[57]During the remainder of 1999 Mr Reid and Mr Kelly had telephone conversations about Anglo’s possible supply of black polycarbonate to Rowan. It appears that during this period Anglo was finding out what prices it could obtain from its own supplier, Regent, so as to know what price it could quote to Rowan. Mr McLeod says that he haggled with Mr Kersey of Regent and was able to bring Regent down to a price of £965 per tonne, on the basis of 10 tonne orders. It is of significance that Mr McLeod did not recall having sent to Regent the Sylex Specification prior to agreeing the price of £965.

[58]The agreement with Regent at £965 per tonne enabled the price of £1,200 to be quoted.

[59]Anglo confirmed its oral quotation of £1,200 in its fax to Mr Scott of Rowan dated the 10th January 2000. It is notable that this quotation is not for black polycarbonate of the quality of Sylex 2000, but simply for “Repro Polycarbonate Black UV Stabilised”; this may provide some explanation as to why the price was so low, compared to the price being charged by Cotswold to Rowan. Whether or not the polycarbonate being quoted for here was in fact intended to match Sylex 2000 precisely may be indicated by Mr Kelly’s manuscript note, asking what “melt flow” was needed; such a question would have been wholly redundant, if what was being quoted for here was a polycarbonate of the qualities of Sylex 2000 – the Sylex 2000 specification specified a melt flow index. This is confirmed by Mr Scott’s admission that in early January 2000 Rowan “agreed the purchase in principle, providing it met the specification”. Further, the first Purchase Order from Rowan made it clear that the material was to be “AS PER SPEC SHEET SENT TO A. KELLY BY S REID ON 12/4/00.”. If Rowan and Anglo had understood that the quotation at £1,200 was by reference to the Sylex specification then this statement would make no sense. What seems clear now is that Anglo’s offer to sell at £1,200 was in fact not referable to the Sylex specification.

[60]Mr Kelly’s reaction to this fax is clear from his email to various colleagues on the 12 January 2000:

“Once things settle down a bit I would suggest we need to work on this as a priority - the improvement in margins could be substantial when you compare £1,535 per tonne against £1,200 per tonne!!”

[61]Another notable aspect of this email is Mr Kelly’s statement that “FROM ALL accounts the material we are getting in from Cotswold Compounds is re-processed. (This really does open the door on us trying other reprocessed materials from other suppliers – …)” This suggests that this was news to Mr Kelly and further suggests that the quotation from Anglo was not for a product which “matched” Sylex 2000.

[62]The written quotation from Anglo appears to have prompted a meeting between Mr Kelly and Mr Gardiner on 18th January 2000 at which Mr Kelly informed Mr Gardiner that Rowan had a quotation for black polycarbonate from a different supplier at £1,200. Mr Gardiner expressed the view that at this price “it was highly likely that the material would not be satisfactory”. Mr Gardiner said that at the time £1,500 to £1,600 was the “right price” for an engineering grade black polycarbonate carrying a proper specification. At £1,200 per tonne Rowan was proposing to buy “at a knock down price…something which has to go into what I would call a very high end use...when you are looking at something that is going to be hi-tech and require quality, one would be very nervous at £1,200”. Trac’s housings required a proper grade of polycarbonate given that they were exposed to heat, vandalism and the elements: “Therefore you have to have a particular type of polycarbonate. If you take what I call a less expensive grade, possibly a recycled grade, and try to put it into that application, I think it could only spell disaster”.

[63]As a result Mr Gardiner warned Mr Kelly that at such a price the quality of the polycarbonate would be of low quality. Mr Gardiner said that his concern “was that it would not be fit for purpose for a hi-tech application such as lamps for Trac”. Mr Kelly admitted that Mr Gardiner had given him such a warning but said that he assumed that this was “a sort of selling technique of John Gardiner’s in an attempt to retain the business at his margins”; in other words that Mr Gardiner was following Mr Kelly’s own example of “telling little white lies for marketing purposes”. As a result Mr Kelly ignored and failed to follow up these warnings and carried on regardless.

[64]I have no hesitation in accepting Mr Gardiner’s evidence in its entirety making all allowance for the fact that he had a commercial interest in the matter. His evidence was carefully given and he is obviously a man with great experience and expertise in the field of polycarbonate. He said that he had concentrated solely upon polycarbonate since 1990. Mr Kelly’s decision to ignore (as he himself admitted) the warnings given to him by Mr Gardiner was founded purely on the self-interest of Rowan and its desire to maximize its profits. Mr Gardiner’s warnings were not passed on to Trac. Mr Kelly was clearly negligent in this respect.

[65]Mr Kelly then sent to Mr Reid another copy of the Sylex specification in about January 2000. His evidence was that he wanted to be sure that what Anglo supplied complied with Trac’s specification. In his note to Mr Reid written on this specification Mr Kelly writes “Please forward to your technical people and produce a bag 25kg asap, plus spec sheet”. There is a dispute between Mr Reid and Mr Kelly as to when this fax was sent: Mr Reid says in early February 2000; Mr Kelly says on the 12th January 2000. Again the sending of this specification tends to suggest that the polycarbonate quoted for by Anglo at £1,200 per tonne in November 1999 and January 2000 was not of the same quality as Sylex 2000.

[66]A further meeting took place between Rowan and Anglo on the 27th January 2000. At this meeting Mr Reid reconfirmed the quotation of £1,200 per tonne for black polycarbonate, if ordered in 5 tonne batches. It is also recorded that Mr Kelly asked for a further sample and a specification sheet to be sent.

[67]Another sample of 25kgs was sent by Anglo to Rowan in late January or early February 2000. This was purchased by Mr McLeod from Regent on the 28th January 2000 and delivered to Anglo by Regent on the 31st January 2000.

[68]A specification for the black polycarbonate which Anglo proposed to supply to Rowan was sent by Mr Reid to Mr Kelly on about the 31st January 2000 (“the First Specification”).

[69]Mr McLeod said that he had obtained this from Regent in late January 2000 and had disguised the fact that the specification and the polycarbonate itself were supplied by Regent. This was disputed by Mr Kersey, who denies sending a specification to Anglo. This dispute is material only to the dispute between Anglo and Regent/BIP to which I shall return.

[70]On the 2nd February 2000 Mr Kelly telephoned Mr Reid about the specification. He said that the 3 tests which were referred to in the specification were inadequate. Mr Reid said he would go back to his compounder and request a ‘more advanced’ specification. This conversation is noted by Mr Kelly on the face of the First Specification. It was important because it shows that, despite saying in evidence that the specification sheets were largely incomprehensible to him, Mr Kelly was making decisions about the Specification provided by Anglo without reference to Mr Cochrane. Similarly I note the handwritten note on the Anglo quotation of the 10th January 2000, hand-dated the 12th January 2000:

“What melt flow do we need?”

It is clear that this was not a question directed at Mr Cochrane.

[71]In his witness statement Mr Kelly stated that he forwarded the First Specification on to Mr Cochrane who told him that it was inadequate. He accepted at trial that in fact he had no recollection of sending this first specification to Mr Cochrane. Mr Cochrane emphatically denied that he had ever seen the First Specification. Although Mr Kelly had raised with him in January 2000 the general possibility of a change in material supplier, the first he knew of Anglo was in March 2000. I accept Mr Cochrane’s evidence, particularly in the light of Mr Kelly’s uncertainty.

[72]Anglo claims that, as a result of the telephone conversation between Mr Kelly and Mr Reid and the faxed Sylex 2000 specification, it obtained a more detailed specification from Regent. This is, again, disputed by BIP. Mr McLeod says he again liaised with Mr Kersey and again blanked out Regent’s name.

[73]A new specification (“the Second Specification”) was sent by Anglo on to Rowan on the 7th February 2000. Mr Reid says that on receipt of this specification Mr Kelly raised with him the issue of the words at the bottom of it which read: “NB: The information contained herein is to the best of ours and our suppliers knowledge accurate. But should not be constituted as a guarantee” (sic).

[74]Mr Kelly, according to Mr Reid, expressed concern that Anglo could not guarantee the specification, to which Mr Reid explained to Mr Kelly’s satisfaction that it was normal in the industry not to be able to guarantee compliance with a specification for any plastic raw material. Mr Kelly had no recollection of such a conversation, nor of reading the words quoted. I am not satisfied that such a specific conversation did take place, because, in the light of his written comments expressing his immediate concerns which can be seen on the first black specification, the absence of any written concerns about the caveat indicates to me that he raised no such concerns with Mr Reid. In any event, even if something was said about the caveat in passing, Mr Kelly was left with the clear impression, as Mr Reid intended, that the caveat did not mean that the specification would not be followed.

[75]I am satisfied that any concerns that Mr Kelly might have had were not passed on to Mr Cochrane, for the reasons I have just given. Indeed, at the time he (Mr Cochrane) was unaware of the negotiations between Anglo and Rowan.

[76]Mr Cochrane said that he did not recall ever having paid any attention to the words of the caveat or discussing them with Mr Kelly. If Mr Kelly had been concerned that compliance with the Specification might not be met, then he might well have had some discussion about these words with Mr Cochrane. By reason of his confidence, he was not in fact concerned as to the quality of the polycarbonate that Anglo would be supplying. As far as Trac was concerned it was Rowan’s obligation to ensure that the material was supplied to specification. Mr Kelly was fully aware of that obligation.

[77]This Second Specification was sent to Mr Cochrane on 13 March 2000. This was accompanied by a compliments slip on which Mr Kelly wrote:

“Please see attached specs on a reprocessed black polycarbonate from Anglo Polymers. What do you think??”

[78]This, as I find, was the first occasion that Mr Cochrane had come across Anglo or been sent any Anglo specification. Trac had no prior knowledge of Anglo and had never had any dealings with it. Mr Cochrane’s evidence on this was clear. The wording of the compliments slip quoted above is consistent with this.

[79]By this stage Rowan had been in negotiations with Anglo, on and off, for 4½ months without any reference back to Trac. This demonstrates the fallacy in Mr Kelly’s suggestion that he was a “middleman”, providing “two way information and making two way information requests between, on the one hand, the material supplier, and on the other my customer … Trac”.

[80]The true position is, as I find, now clear: Mr Kelly was orchestrating a shift of supplier, and disregarding warnings given to him by Mr Gardiner, for Rowan’s own private (and undisclosed) financial motives. This was demonstrated in the following exchange:

“Q. Your purpose in these discussions with Anglo was purely to serve Rowan’s own commercial interest, was it not? A. Yes, definitely. We were pursuing the £1,200 a tonne price for sure. Q. You were not trying to benefit Trac. You were trying to benefit yourselves. I am not criticising you for that. A. Yes ….. Q. As far as you were aware, did Trac know anything about Anglo at all? A. As far as I was aware? At this stage [i.e. March 2000] I do not think that Gary was aware of Anglo no.”

A. Yes

Q. As far as you were aware, did Trac know anything about Anglo at all?

[81]The negotiations between Anglo and Rowan were for the benefit of Rowan, not for the benefit of Trac, which was gaining nothing and was agreeing to allow Rowan to move from a tried and tested material. Rowan significantly increased its margins as a result of the shift from Cotswold to Anglo, but the price Rowan charged to Trac for the housings sold remained the same.

[82]Having received the Second Specification Mr Cochrane queried with Mr Kelly the issue of the UV stability; UV (ultraviolet) stabilisers were not mentioned and Mr Cochrane made it clear he could not approve the specification unless UV stabilisers were added.

[83]Mr Kelly raised this point with Mr Reid, who sent a further specification (“the Third Specification”) to Rowan on the 7th April 2000. This was the same as the Second Specification with the addition of a new paragraph at the bottom and the words “+ UV STABILISER” in the heading.

[84]Mr Kelly then telephoned Mr Reid again seeking reassurance that the UV additive would last 10 years. Mr McLeod telephoned Mr Kersey who dictated a sentence which was written by Mr McLeod in hand onto the specification sheet. This all occurred on the 7th April. There is a significant issue between Anglo and Regent/BIP in relation to how this information was exchanged to which I shall have to return.

[85]The handwritten amendments were typed up and a final specification was then sent by Anglo to Rowan at about this time, probably on the 11th or 12th April 2000 (“the Fourth Specification”). Importantly it was provided in this Specification that the MVR of the polycarbonate was to be 12.

[86]This Fourth Specification was sent by Mr Kelly to Mr Cochrane on the 14th April 2000. In his covering letter Mr Kelly refers to the additive details. Mr Cochrane agreed the specification on the 19th April 2000. This was because the Fourth Specification was in sufficiently similar terms to the Sylex 2000 Specification: this meant that Rowan expected to be using material of similar quality in manufacturing the housings and Trac expected it to do so. As far as Mr Cochrane was concerned if the product met its specification, then it would be appropriate to his needs. He wanted to match, as nearly as he could, the Cotswold specification. I am satisfied that this remained his belief, until the truth came out.

[87]Dr Wadsworth, the plastics expert relied on by Regent/BIP, confirmed that the two Specifications were “quite close” and agreed that “someone operating in the commercial world would reasonably take them to be specifying a material which was either the same or almost the same”.

[88]The Anglo Specification was for black reprocessed polycarbonate. There was no discussion about white or grey polycarbonate. There was no reason for Trac to believe other than that Rowan continued to source its white and grey polycarbonate (for the manufacture of housings of these colours for Trac) from Cotswold.

[89]It is common ground that Anglo and Regent/BIP had a long standing commercial relationship. Nonetheless, there has emerged as a result of the disastrous supply of polycarbonate to Rowan a sharp conflict of fact in relation to the specifications that were sent by Anglo to Rowan. So sharp is the conflict that there have been allegations that amount to fraud and forgery, with each giving, through its counsel, equally good grounds for being right and for lacking motivation in being dishonest.

[90]Anglo’s case is that Regent, through Mr Kersey, supplied Anglo with a number of specifications which were then negotiated until the stage was reached that Mr Kelly of Rowan felt able to submit the final version of the black specification to Mr Cochrane of Trac; that these specifications came on Regent headed paper, which was then folded or cropped and photocopied so as not to reveal the compounder’s identity; that Regent/BIP are trying to lay the blame for the final black specification at Anglo’s door to avoid the consequences of supplying polycarbonate of a lower grade.

[91]Regent/BIP’s case is that it quoted for, and at all times, intended to supply low grade reprocessed polycarbonate which would have many commercial applications; that at no stage was anyone at Regent/BIP aware of the use to which the polycarbonate would ultimately be put; that it was not responsible for creating the specification in the form in which it was sent to Mr Kelly of Rowan; that, in particular, at no time did it specify that it would supply polycarbonate with an MVR of 12.

[92]The chronology is important.

[93]Mr Scott of Rowan, on the 18th October 1999, wrote the letter, to which I have already referred, to Anglo enclosing the Sylex 2000 specification:

“Please supply details of specification, technical information, pricing and delivery for the above material as per technical information sheet attached.”

The response was, “polycarb” grade “INJ” (injection), “UV” (ultraviolet stabilised), colour black, 5 tonne lots, £1,550 a tonne. This was as against the Cotswold price of £1,585. Anglo at this time quoted £1,750 for grey and £2,100 for clear. This was not an attractive quotation to Rowan According to Mr McLeod, general manager of Anglo, Rowan was on a list of companies to be targeted as existing customers, so Mr Reid, as salesman, was sent to seek Rowan’s business. A meeting was arranged for the 22nd November, at which he was present for Anglo and Messrs Kelly and Scott for Rowan.

[94]At this meeting they discussed a wide range of products. There is an issue whether Mr Reid quoted a price of £1,200 for black reprocessed polycarbonate. His Customer Report dated 22 November 1999 had this entry:

"Quoted on UV stabilised PC from Regent, black, clear and grey."

If there was a quote at this time, then it had to be based on a price to Anglo of £965 that Mr McLeod, in his own words “haggled” with Mr Kersey at Regent. The alternative would have been a risk that they might not be able to haggle a compounder down sufficiently. Mr McLeod said he started haggling with Mr Kersey in October 1999 and that he did so to enable Mr Reid to go back to Rowan with a competitive quote. Mr Kersey was unaware of the Cotswold Sylex Specification. Mr McLeod knew that the polycarbonate for which he had got a quote of £965 was unspecified black reprocessed polycarbonate.

[95]Mr Scott was quite clear in his evidence that Mr Reid quoted £1,200. He and Mr Kelly “were not convinced that the specification that they were quoting on was to the specification of the Sylex 2000 material.” The quote arose, it seems, after Mr Scott or Mr Kelly told Mr Reid that Rowan was paying £1,400 a tonne for the Cotswold polycarbonate.

[96]I am satisfied that Mr Reid did quote £1,200 at the 22nd November 1999 meeting.

[97]I am satisfied that Anglo did not provide a copy of the Cotswold Sylex 2000 Specification to Regent. It was surprising that it did not do so, if Anglo wanted Regent to quote for polycarbonate conforming to that Specification. There is no evidence that either Mr Reid or Mr McLeod ever supplied a copy of the Sylex 2000 Specification to Regent.

[98]The reason that Messrs Kelly and Scott did not ‘bite Mr Reid’s hand off’ is simply that it was not until the beginning of January 2000 that Mr Kelly discovered that the Cotswold material was a form of reprocessed polycarbonate. His e-mail to his colleagues at Rowan makes this clear:

"Guys, just a quick update on Trac for you. From all accounts the material we are getting in from Cotswold Compounds is reprocessed. This really does open the door on us trying other reprocessed materials from other suppliers. Gary at Trac is okay with us using other suppliers as long as the quality is okay on the parts. Once things settle down a bit, I suggest we need to work on this as a priority. The improvement in margins could be substantial when you compare £1,535 per tonne against £1,200 per tonne."

[99]This explains Mr Kelly’s reticence in accepting Mr Reid’s quotation for the black reprocessed polycarbonate at £1,200 to use in place of the Cotswold Sylex. Although he protested that he was under the impression that “from day dot … the Cotswold material was not virgin”, it is clear to me that in November and December 1999 Mr Kelly still believed that the Cotswold Sylex 2000 was virgin polycarbonate, not reprocessed. The e-mail would be inconsistent with any other inference. His “impression” in evidence was clearly enhanced by hindsight.

[100]On the 10th January 2000 Mr Scott and Mr Reid formally agreed a price of £1,200 which Mr Reid confirmed by fax. The polycarbonate that Anglo was going to obtain to supply Rowan was the polycarbonate for which Mr Kersey of Regent had supplied a quote of £965 to Mr McLeod.

[101]On the 12th January 2000 Mr Kelly wrote a query about the ‘MFI’ on a copy of the confirmatory fax and the same day Mr Kelly faxed Mr Reid a copy of the Cotswold Sylex 2000 Specification, with a handwritten request on the bottom of the Specification for a sample and a specification sheet – the note asks for ‘a specification sheet’ not ‘another specification sheet’. Mr Reid’s suggestion that he had already sent the First Black Specification by this time, as I find, was wrong.

[102]Anglo did not send Rowan a specification in response to Mr Kelly’s request.

[103]On the 27th January 2000 Mr Reid had a further meeting with Rowan, recorded in Mr Reid’s Customer Report, which noted that a specification was needed urgently.

[104]It was at this point, as I find, that someone at Anglo drew up the ‘First Black Specification’. It included less information than the Sylex 2000 specification and added a disclaimer. It contained no figure for MVR. Mr Reid faxed it to Rowan.

[105]Shortly afterwards Mr McLeod obtained a sample from Regent and sent it to Rowan in accordance with Mr Kelly’s request. There is no way of knowing what the MVR of the sample was.

[106]On the 2nd February 2000 Mr Kelly telephoned to say that he needed more information: the three tests on the First Black Specification were inadequate. Mr Reid told Mr Kelly that he “was going back to his compounder” (as noted on the ‘First Black Specification’). Thereafter there came into existence the ‘Second Black Specification’ which was faxed to Rowan. Later, Mr Kelly requested the ‘UV’ information to which I have already referred.

[107]At this point Mr McLeod spoke to Mr Kersey by phone and Mr Kersey dictated some information over the telephone. Mr McLeod had the ‘Third Black Specification’ drawn up and someone at Anglo faxed it to Mr Kersey for him to confirm the wording at the bottom that Mr McLeod had handwritten at his dictation about UV additives. Anglo then typed up the Fourth Black Specification and sent it to Rowan which was sent onto Mr Cochrane of Trac who approved it. From the ‘Second Black Specification’ onwards, an MVR of 12 was specified.

[108]Thereafter Anglo bought polycarbonate from Regent and supplied it to Rowan. The Anglo to Rowan contract documentation (orders, delivery notes and the like) refers to the Specification, “AS PER SPEC SHEET SENT TO A KELLY BY S REID ON 12/4/00.”. The Regent to Anglo documentation does not.

[109]It is of interest that initially Mr McLeod only purchased 5 tonnes “in case it proved unsatisfactory”. This raises the question whether Mr McLeod, knowing that it was a term of the contract between Rowan and Anglo that the polycarbonate would conform to the Black Specification, anticipated a risk that Rowan would reject the polycarbonate when it began to use it in manufacture.

[110]It became clear to me when considering Mr McLeod’s written and oral evidence that he placed considerably more importance on samples being approved rather than specification or data sheets. I formed the view that he regarded the MVR as little more than a rough guide. This view was entirely consistent with Mr Anderson’s several observations during the course of the trial that Anglo considered that a disproportionate amount of importance was being placed on the MVR. This, it became clear, reflected Mr McLeod’s own view.

[111]Mr McLeod’s evidence was that each of the Black specifications emanated from Mr Kersey at Regent, in particular, the MVR of 12. His evidence was that Regent had supplied the ‘First Black Specification’ at his request and subsequently had revised the specification to include the necessary additions to bring it into line with the Sylex 2000 specification, a copy of which had been sent to Regent. In short, this explained the MVR of 12 on each of the subsequent versions.

[112]Mr Kersey in effect said that no one at Regent would have inserted an MVR of 12, because there was no way that the polycarbonate Regent was supplying to Anglo for £965 a tonne could possibly have such a low MVR.

[113]Mr Anderson argues that the internal BIP specification ‘E100BKLS25100’, albeit created after BIP took over Regent’s orders, indicates a recognition on the part of Regent/BIP that it expected to produce black reprocessed polycarbonate with an MVR of 15-20. It is not suggested that this internal specification existed at the time Regent was supplying Anglo during the Anglo period, but it could explain that Regent could have optimistically hoped to achieve an MVR at least not significantly far from 12 even for their price of £965 a tonne. Therefore, he submits, it is inherently likely that Regent was prepared to produce a specification with an MVR of 15.

[114]Further he poses the question why would Mr McLeod want to engage in fraud and forgery for the sake of a relatively small contract towards the end of a successful career in the plastics business. Mrs O’Connor, his secretary, gave him a glowing testimonial and thought that such behaviour would be totally out of character.

[115]I am left, therefore, to decide between two ‘inherently’ unlikely situations. It is not unknown for a skilful advocate to emphasise the seriousness of an allegation against his client to achieve a reluctance in the tribunal to find the allegation made out. That has happened in this case. I do not regard it as my task to make findings of fraud or forgery as such, rather to resolve the issue of fact as to whether Regent specified that it would produce polycarbonate at £965 a tonne with an MVR of 12 or thereabouts.

[116]To my mind a piece of contemporary evidence which is of particular significance is the ‘Rowan Plastics Report’ prepared by Mr Reid after the whole problem with the Anglo polycarbonate had come to light. It was a detailed and carefully drafted report to his superiors attempting to explain what had occurred. The very point which has been relied on in the course of this trial received no mention. There is nothing about the specifications emanating from Regent.

[117]There was one brief opportunity for Mr Kersey to assimilate the details of the specification that was being used by Anglo for the £965 a tonne material when the ‘Third Black Specification’ was faxed to him on the 7th April 2000, but the timing of the faxes alone indicate that this was a very quick turnover and I am satisfied that the specific purpose of faxing the specification was to obtain confirmation from Mr Kersey that the handwritten addition was as he had just dictated it to Mr McLeod; and that it is likely that Mr Kersey did not think to pay any attention to the remaining details. Liability as between Trac and Rowan.

[118]It is common ground that the contracts between Trac and Rowan were contracts for the sale of goods. There is no longer any issue in respect of Rowan’s terms and conditions.

[119]I deal with each of the live issues in turn. Messrs Tomlinson and Grant for Trac identify the following: 3. Did Trac’s approval of the polycarbonate specification sent by Rowan mean:(a) That it was an express term of the contracts between Trac and Rowan that the Housings would be manufactured from polycarbonate which corresponded with the Specification? or

(b) That Rowan agreed only that it would supply Housings from reprocessed polycarbonate supplied by Anglo and ordered in accordance with the Specification?

(c) And was it a term of the contracts between Trac and Rowan concerning white and grey housings that the polycarbonate used correspond with the Cotswold specification for white and grey polycarbonate? 4. If it was a term of the contracts that the Housings would be manufactured from polycarbonate which corresponded to the Specification, was the effect of the statement on the Anglo specification and any relevant proven conversations between Mr Kelly and Mr Cochrane: (a) That there was no obligation to use polycarbonate with any particular MVR? or (b) That there was an obligation to use polycarbonate with an approximate MVR of 12? 5. Did the contracts contain implied terms: (a) That the Housings would correspond with the description of mouldings made from polycarbonate which corresponded with the Specification? (b) That the Housings would be reasonably fit for the purpose of the manufacture of light fittings? (c) That the Housings would be of satisfactory quality? 6.(a) Was the Anglo polycarbonate of poor quality and/or did it have a high MVR? (b) If the answer to question 6(a) is “yes”, was Rowan in breach of the terms of the contracts, and if so which?

[120]Mr Campbell for Rowan identifies the following:(1) Was it a term of the contracts that the housings supplied by Rowan would be produced from polycarbonate which corresponded to the specification?

(2) What is the effect of the caveat or disclaimer at the foot of the specification?

(3) Did the housings supplied by Rowan correspond with the description of the goods that Rowan agreed to supply?

(4) Were the housings of satisfactory quality?

(5) Did Rowan breach an implied term as to fitness for purpose?

(6) What relevant differences were there in the terms of the contracts for the supply of grey and white housings?

[121]There is no doubt that Rowan began moulding and supplying housings for Trac pursuant to the August 1999 meeting. Two issues of fact arise from that meeting which I have had no difficulty in resolving already. Mr Kelly and Ms Jill Rowe left with copies of the Trac and Cotswold brochures, the latter containing a copy of the Sylex 2000 specification. I am satisfied that it was a term of the contracts to supply housings that Sylex 2000 as specified and supplied by Cotswold be used. I am satisfied that the same term extended to the supply of housings made in white and grey polycarbonate. Further, I am satisfied that, as a result, Rowan through Mr Kelly and Ms Jill Rowe were aware of the thermal and mechanical stresses to which the products would be subject.

[122]I reject Mr Campbell’s submission that the initial agreement between the parties was simply that Rowan obtain material from Trac's approved supplier (Cotswold), not that it use material to a particular specification.

[123]I am satisfied that at all stages it was a term of the contracts of supply of housings by Rowan to Trac that the material from which they were made should conform to the Sylex 2000 specification or, in the case of black polycarbonate, to the Fourth Specification which was understood by Trac as being of polycarbonate of a similar quality. Mr Cochrane was both clear and unmoved that he had made this clear at all times, in particular, when the question arose of another supplier of polycarbonate.

[124]I am satisfied that at no stage was there any variation of the original term that the polycarbonate conform to the Sylex 2000 specification except in relation to the approval of the Fourth Specification for black polycarbonate. Rather and in any event, there was clear confirmation that this was a term that applied to all polycarbonate of whatever colour. Mr Kelly initially thought that the Cotswold material was made up of virgin feed stock. He plainly understood that equivalent material had to be used. Hence his apparent joy on learning that it was possible to achieve this, as he believed, with reprocessed polycarbonate.

[125]Mr Kelly, as I find, brushed aside the warning of Mr Gardiner and the concerns of his colleague, Mr Scott, having convinced himself that Rowan could purchase good enough reprocessed polycarbonate at substantially lower cost than from Cotswold. Had he paused to think, he could only have concluded that he was taking a significant risk.

[126]I am satisfied that there was no question of Anglo simply being approved by Trac as the supplier of polycarbonate. Trac’s only part in the change was through Mr Cochrane in that Mr Kelly asked him to approve the Anglo specification for black polycarbonate in April 2000. Trac made it clear through Mr Cochrane, as I find, that so long as the material complied with the Sylex 2000 specification Trac was content for the supplier to be changed. That is very different from agreeing an approved supplier. So far as Trac was concerned, Rowan could source material as it pleased with the same proviso in respect of the material. The secret nature of Rowan’s search for an alternative supplier from September 1999 until Mr Cochrane first learnt of it in April 2000 is wholly inconsistent with a simple change of approved supplier.

[127]This became a central feature only because Rowan through Mr Kelly chose to depart from the approved and proved material to what he thought was an equivalent in terms of moulding properties.

[128]There is no dispute that the contracts were contracts for the sale of goods by description and subject to Section 13(1) of the Sale of Goods Act 1979. The question is: what was the description given to them? Was the description of the goods that Trac agreed to buy, housings manufactured from polycarbonate supplied by Anglo, or alternatively housings manufactured from polycarbonate which corresponded with the Fourth Specification? See Ashington Piggeries Ltd v Christopher Hill Ltd

[1972] AC 441

, per Lord Diplock at pp 503-504.

[129]I agree with Mr Campbell that that is in effect the very same question that has been addressed earlier, as to whether Rowan agreed to supply housings made from polycarbonate which corresponded with the specification. In my judgment, the answer is the same: the description of the goods was housings manufactured from polycarbonate which corresponded with the Fourth Specification. The goods did not comply with the description.

[130]There is no dispute that it was an implied term of the contracts that the housings be of satisfactory quality in accordance with Section 14(2A) of the Sale of Goods Act.

[131]I am satisfied that the housings were not of satisfactory quality. The evidence is entirely one way in this respect. It was wholly unsuited to the moulding of housings for external lights by reason of its low molecular weight as evidenced by its unacceptably high MVR.

[132]I agree with Mr Campbell that with respect to Section 14(3) of the Sale of Goods Act the implied term as to fitness for purpose does not apply where, or to the extent that, either the buyer did not rely, or it was unreasonable for him to rely, on the seller's judgment. Rowan’s difficulty, however, is that, if it was a term that the polycarbonate comply with the Fourth Specification, then it is in breach of contract without consideration of Section 14(3); that, if the term was merely that Anglo supply polycarbonate, then plainly Trac did rely on Rowan’s skill and judgment in securing that polycarbonate was supplied that was fit for purpose, it being in the end Mr Kelly’s judgment as to whether Anglo would honour the Anglo black specification – only he had the key information which could have indicated that the polycarbonate might not be all that it was held out to be, namely the obviously low price. It follows that there was in any event an implied term of the contracts that the housings would be reasonably fit for the purpose of the manufacture of light fittings.

[133]The Anglo/BIP polycarbonate, I am satisfied, was not fit for the purpose of manufacturing housings for external lights.

[134]I am satisfied that the caveat that appeared at the foot of the Anglo black specification cannot be construed as giving either Anglo or Rowan the right to supply polycarbonate that departed from the specification to such an extent as to make the specification meaningless.

[135]The effect of the Anglo black specification was to reassure Mr Cochrane that Anglo would be supplying polycarbonate with an MVR within the range specified in the Sylex 2000 specification, namely 8-15. 12 is the average rounded up to the nearest whole number. This is entirely in accordance with the evidence of the plastics experts that material within certain tolerances of MVR would be of satisfactory quality. That was clearly the reason why Cotswold sensibly specified a range of MVR – one of the unresolved mysteries in this case is why any supplier, absent a departure from reason, would specify a single figure MVR. It is clear that a specification for an MVR in the region of 8-15 is of itself a powerful indicator that the performance requirement of the end product is high. The experts agreed that the feed stock of the Sylex 2000 polycarbonate must have contained a significant proportion of virgin material. It is not surprising, therefore, that, although it was classified as ‘reprocessed’, it was of sufficiently high quality to be moulded into housings for lights that would satisfy Trac’s customers’ requirements. This is why the Sylex 2000 polycarbonate was suitable for moulding these housings in spite of being classified as reprocessed and why the opinion of Mr Goff, the plastics expert relied on by Anglo, that reprocessed polycarbonate was not suitable for the manufacture of Trac’s housings, does not apply to the Sylex 2000 material. It also explains Mr Kelly’s understanding that it was virgin material.

[136]Whilst I accept that in the industry it was usual to add a caveat to the effect that a specification should not be constituted as a guarantee, I am satisfied that this meant and was intended to mean that the precise figures in the specification could not be guaranteed, but that more than a tolerable departure from the figures would make the specification meaningless. The clearest example in this case is represented by the Anglo black specification specifying an MVR of 12, which, if any sufficient technical thought was given to it, appears to have been designed to cover the range of MVR specified by the Sylex 2000 specification of 8-15. The plastics experts agreed that “the supply of a reprocessed polycarbonate with a single value of MVR is not practically achievable” and that “such materials are generally supplied within a range of MVR.”

[137]I am satisfied that the effect of the caveat, in terms of the MVR, is to make clear that the single value MVR cannot be guaranteed, but that a tolerable range either side of that single value would be supplied. In the circumstances, I am satisfied that a tolerable range would be no more than 4 either side, in other words 8-16, which is virtually as specified by the Sylex 2000 specification.

[138]Any conversation relating to the caveat which may have taken place between Mr Kelly and Mr Cochrane would merely have confirmed the general practice outlined above.

[139]Rowan at no time sought Trac’s approval for the supply of white or grey polycarbonate through Anglo. The evidence is entirely one way that no one at Trac was aware until after the end of the Anglo period that polycarbonate of colours other than black was being supplied by Anglo to Rowan for the moulding of housings.

[140]As a result, in my judgment, Rowan was in breach of all its contracts to supply housings where housings were made of Anglo supplied polycarbonate, because I am satisfied that at no time within the Anglo period did the molecular weight rise to a sufficient figure to show an MVR even approaching the range 8-16. Rowan was in breach of the following terms of its contracts with Trac in that, a) The black Housings were not manufactured from polycarbonate which corresponded with the Fourth Specification; b) the polycarbonate used did not correspond with the Cotswold specification for white and grey polycarbonate; c) polycarbonate was used which did not correspond with an MVR of at least 16 and, therefore, with an approximate MVR of 12; d) the housings did not correspond with the description of mouldings made from polycarbonate which corresponded with the Specification; e) the housings were not of satisfactory quality; f) the Housings were not reasonably fit for the purpose of use in the manufacture of light fittings.

[141]I turn now to the issue as between Trac and Rowan: Does Trac's failure to carry out tests on the housings operate as a break in the chain of causation?

[142]Trac’s quality plan, which was applicable to each of the products, provided that:

“2.2 A component specification sheet is completed by the production manager or his deputy detailing the approved supplier, part number and description, any mechanical/technical information, supplier specification sheets are also attached. 2.3 All materials and components shall be checked for • Quality – against purchase order • Specification – Against purchaser order and the specification sheet if applicable, or approved sample”

[143]I accept Mr Cochrane’s evidence that the reference in this part of the Quality Plan to a “specification sheet” was not to the polycarbonate Specification agreed between Trac and Rowan but to an internal specification that would be produced for goods inwards purposes in the absence of a sample. In this case there were no internal specification sheets because there were samples against which the Goods Inwards inspector could check (by visual inspection) the Housings delivered by Rowan to ensure that they matched. In the circumstances there was no obligation undertaken by Trac, whether by reference to its Quality Plan, or in any other respect, to check the Housings for compliance with the Anglo Specification.

[144]Rowan’s case in this respect principally depends on Anglo’s case against it, because Rowan argues that, if there is a break in the chain of causation as between it and Anglo, then so also there should be a break in the chain as between itself and Trac. Necessarily this has to be viewed as an alternative case of a party having to face in two directions.

[145]For reasons which will become apparent when I deal with the issues as between Rowan and Anglo, I am satisfied that there was no break in the chain of causation either from any failure to test or by reason of design issues.

[146]Rowan advances an additional case that Trac had a duty under regulation 5 of the Electricity Equipment (Safety) Regulations 1994 to ensure it was producing a safe product. This case is based on the argument that Trac was under a “positive legal duty to carry out adequate testing on the housings” because of the provisions of regulation 5 of the 1994 Regulations, which provides that:

“(1) Electrical equipment shall be – 1. safe 2. constructed in accordance with principles generally accepted within the member States as constituting goods engineering practice in relation to safety matters and in particular shall be designed and constructed to ensure that it is safe when connected to the electricity supply system by providing a level of protection against electrical shock which relies on a combination of insulation and the protective earthing conductor contained within the electricity supply system or which achieves that level of protection by other means; and 3. in conformity with the principal elements of the safety objectives for electrical equipment set out in Schedule 3 to these Regulations.”

[147]I am satisfied that none of the light fittings was in fact unsafe, or that this Regulation was breached by Trac. There is no basis for contending that this Regulation should have required Trac on a change of supplier of polycarbonate to Rowan to test the Housings, or the samples that were sent in May 2000. I deal with these matters in greater detail when I come to deal with Rowan’s arguments in respect of illegality.

[148]Mr Poole, the regulatory expert relied on by Rowan, said in his report: “If a raw material change is made then a reasonable technical person would normally establish if the proposed material was generically similar to the previous material. This could be done for example by comparison of the two data sheets. If there were no significant differences between those data sheets, and with due regards to the criticality of use of the component in question then it might be reasonable to accept such a change without the need to perform further testing”.

[149]Mr Sheen, Trac’s “regulatory” expert, said that so long as the specification remained substantially the same he saw no need to “change anything”. The Specifications for the Sylex material and the Anglo material were plainly designed to be “generically similar”. Dr Wadsworth confirmed that the two Specifications were “quite close” and agreed that “someone operating in the commercial world would reasonably take them to be specifying a material which was either the same or almost the same”.

[150]This, I add, is yet a further reason supporting the contractual term to supply polycarbonate with an MVR within the range 8-16 unaffected by the caveat contained at the foot of the Anglo black specification.

[151]Mr Cleathero, the plastics expert relied on by Rowan, agreed that it would be unusual for a manufacturer to test a product to ensure that it complied with the Specification agreed with the supplier. Whilst he was of the opinion that the original samples should be tested, I remained unconvinced that he meant anything other than the visual and environmental tests that Trac did in fact carry out.

[152]I agree that Trac was entitled to rely upon the fact that it had agreed a Specification with Rowan and on Rowan’s contractual obligations to deliver Housings which corresponded to description, were of satisfactory quality and fit for purpose. Trac undertook some tests of the kind which it was reasonable for it to undertake and which revealed no problems.

[153]Trac relies on the decision of the House of Lords in Lambert v Lewis

[1982] AC 225

. There is no suggestion that Trac was “on enquiry” concerning potential defects in the Housings supplied under the contracts. The argument that Trac had a separate duty to test the mouldings, which therefore prevents liability arising on the part of Rowan, I agree, falls foul of Mowbray v Merryweather

[1895] 2QB 640

, approved by Lord Diplock in Lambert v Lewis. The present case is stronger than Mowbray v Merryweather because it is clear that Trac was not negligent in not discovering for itself that the Housings had been manufactured from polycarbonate which did not comply with the Specification.

[154]Rowan alleges that the “true and material cause of any loss” which Trac suffered was its own failure to carry out tests on the samples or Housings; and that this failure operated as a “break in the chain of causation”. The definition of ‘novus actus interveniens’ in Clerk and Lindsell on Torts (at §2-36) is: “Where the defendant’s conduct forms part of a sequence of events leading to harm to the claimant, and the act of another person, without which the damage would not have occurred, intervenes between the defendant’s wrongful conduct and the damage, the court has to decide whether the defendant remains responsible or whether the act constitutes a novus actus interveniens, i.e. whether it can be regarded as breaking the causal connection between the wrong and the damage... Whatever its form the novus actus must constitute an event of such impact that it obliterates the wrongdoing of the defendant”.

[155]Rowan argues that Trac’s failure to undertake testing of the Housings meant that it failed to prevent the breach on the part of Rowan from having a causative impact on Trac’s damages. In my judgment, the fact that Trac did not carry out (unspecified) “detailed tests” does not have the effect of “obliterating” Rowan’s breaches: it was those very breaches which led to the defects in the Housings giving rise to the losses claimed.

[156]Rowan relies on Beoco Ltd v Alfa Laval Co Ltd

[1995] QB 137

. In that case, a defective heat exchanger was installed at the claimant's works by the first defendant, and inadequately repaired by the second defendant on discovery of the defect. The heat exchanger subsequently exploded, causing damage to the claimant's plant and loss of production. The supervening act was the negligence of the claimant's engineers in putting the heat exchanger back into service without making proper tests to see that the repair had been properly carried out in circumstances when they knew of the risk of explosion if it was not. This broke the chain of causation. There was no question of the intervening cause being an omission: Stuart-Smith LJ refers to the plaintiffs’ conduct as “a supervening event” (p149C) and the way the defence was pleaded was “that the acts of the plaintiff and/or the second defendant broke the chain of causation between any breach of contract and the explosion”.

[157]I agree that the Beoco case does not assist Rowan.

[158]I am satisfied that any omission on Trac’s part to carry out tests on the Housings such that could have discovered the low grade of polycarbonate did not operate as a break in the chain of causation between the breaches of contract by Rowan that I have found and Trac’s losses. I struggle with the concept that an omission such as Rowan seeks to rely on, could constitute “an event of such impact that it obliterates [its own] wrongdoing.” I am satisfied that it comes nowhere near having such an impact.

[159]For the reasons which I have given, I am satisfied that the low quality of the polycarbonate used by Rowan to mould the housings was the effective and dominant cause of Trac’s losses without any break in the chain of causation.

[160]I turn now to the issues raised between Rowan and Anglo, who agreed a list of issues. The Terms of the Contract Between Rowan and Anglo Issue 1: Was it an express or implied term of each of the contracts between Rowan and Anglo that the(a) black

(b) white and/or

(c) grey polycarbonate would have an MVR of 12? Issue 2: Alternatively, was it an express or implied term of each of the contracts between Rowan and Anglo that the (a) black (b) white and/or (c) grey polycarbonate would have an MVR of approximately 12? Issues 3 & 4: Was it an implied term of each of the contracts between Rowan and Anglo that the polycarbonate would be reasonably fit for use in the manufacture of housings for light fittings? Was it an implied term of each of the contracts between Rowan and Anglo that the polycarbonate would be of satisfactory quality? Performance of the Contract Issues 5 & 9: Did Anglo supply polycarbonate with an MVR in excess of 12 and if so, when? Issues 6 & 9: Did Anglo supply polycarbonate which was not of satisfactory quality, and if so, when? (There is no Issue 7) Issues 8 & 9: Did Anglo supply polycarbonate which was fit for its purpose? Causation Issue 10: Are all the returned/rejected fittings for which Trac claims damages made from Anglo material and if not, how many were so made? Issue 11: Was the chain of causation broken as alleged in paragraph 27 of Anglo’s defence? Issue 12: Were there errors and deficiencies in the processing of the polycarbonate by Rowan and their subcontractors? Issue 13: Was the design of Trac’s lights and/or the choice of materials inadequate? Issue 14: Would all or part of Trac’s or Rowan’s losses have been incurred even if Anglo’s polycarbonate had complied with the contracts? Issue 15: Were Rowan and Moss's losses not reasonably foreseeable on the part of Anglo for the reasons set out in paragraph 29 of Anglo's re-amended defence? Issue 16: In the light of the above what is the correct measure of Rowan’s loss? The Terms of the Contract Between Rowan and Anglo Performance of the Contract Issues 8 & 9: Did Anglo supply polycarbonate which was fit for its purpose? Causation Issue 13: Was the design of Trac’s lights and/or the choice of materials inadequate?

The Terms of the Contract Between Rowan and Anglo

[161]Issue 1: Was it an express or implied term of each of the contracts between Rowan and Anglo that the(a) black

(b) white and/or

(c) grey polycarbonate would have an MVR of 12? I take this with Issue 2: Alternatively, was it an express or implied term of each of the contracts between Rowan and Anglo that the (a) black (b) white and/or (c) grey polycarbonate would have an MVR of approximately 12?

[162]I am satisfied for the reasons that I have already given, that it was an express term that all polycarbonate supplied in pursuance of the contracts between Anglo and Rowan should have an MVR within the range of 8-16.

[163]Issues 3 & 4: Was it an implied term of each of the contracts between Rowan and Anglo that the polycarbonate would be reasonably fit for use in the manufacture of housings for light fittings?

[164]I am satisfied that both Anglo and Rowan were aware that the ultimate customer was going to be using the housings for light fittings which housings needed material of sufficiently high specification to withstand high heat and environmental stresses; the Anglo black specification was fine tuned to require UV protection and long life. To hold otherwise would fly in the face of common sense. I have already made clear that a specification for an MVR in the region of 8-15 is of itself a powerful indicator that the performance requirement of the end product is high, with the feed stock of such polycarbonate probably expected to contain a significant proportion of virgin material.

[165]I am satisfied that, even if there had been no express term, it was an implied term of each of the contracts between Rowan and Anglo that the polycarbonate would be of satisfactory quality.

Performance of the Contract

[166]Issues 5 & 9: Did Anglo supply polycarbonate with an MVR in excess of 12 and if so, when?

[167]I am satisfied that at no time within the Anglo period did Anglo supply polycarbonate with an MVR sufficiently close to the range of 8-16 to enable the material to satisfy the contractual specification and the requirements necessary for the manufacture of the housings. It is possible, although there are obvious evidential difficulties in this respect, that the earlier batches of Anglo polycarbonate had a higher molecular weight than later batches, but I have no difficulty in inferring that the molecular weight was at no time sufficiently high for the simple reason that I am satisfied that Regent/BIP were at no time setting out to achieve anything other than the lowest grade of reprocessed polycarbonate.

[168]Issues 6 & 9: Did Anglo supply polycarbonate which was not of satisfactory quality, and if so, when?

[169]Yes. The polycarbonate supplied by Anglo at no time during the Anglo period satisfied the requirements as I have found them to be known to Anglo and Rowan.

[170]Issues 8 & 9: Did Anglo supply polycarbonate which was fit for its purpose?

[171]The polycarbonate supplied by Anglo was not fit for its purpose of being moulded into housings for lights. At best it was fit for making items such as CDs, DVDs and cheap mouldings, such as plates at the back of light switches, that would not be exposed to any stresses or not required to last. That is my conclusion based on Mr Stuart Smith’s evidence on behalf of BIP and, in particular, the evidence of the plastics experts. I am satisfied that Rowan did rely on the skill and judgment of Anglo to procure polycarbonate that was fit for the purpose as I have found Mr Reid, in particular, to have understood it, namely for the manufacture of external lights.

Causation

[172]Issue 10: Are all the returned/rejected fittings for which Trac claims damages made from Anglo material and if not, how many were so made?

[173]In terms of the agreed figure of 12,000 returns, I am satisfied that it is more likely than not that all were returned by reason of the fact that the lights had housings made from Anglo material. This figure does not include returns for other reasons such as, for example, defects in manufacture or stock cleansing, but does include those returned by reason of the plastic material. Whereas it is possible that some ultimate customers might have used the Anglo material issue as an excuse to return a light which for other reasons it no longer wanted, from the evidence I have heard that the bulk of Trac’s customers were distributors and that the Appleyards trusted those customers, I am satisfied that, if any slipped through this particular ‘net’ it was of an insignificantly low number.

[174]Mr Ian Appleyard, as I accept, overruled the staff who saw the incoming product where necessary, so that there was a further check that items were being returned for genuine plastics related reasons. Even if a product was returned in which Anglo material had not been used, I am satisfied that such was the direct effect of the whole affair on the reputation of Trac’s products that the return of a light on the suspicion that its housing was made from Anglo material was the natural and foreseeable result from the breach of contract. The same principle, in my judgment, applies to future returns. It would be unreasonable and disproportionate to require Trac to prove precisely which items were made of Anglo material and to show that in the future what proportion of Anglo made fittings would be returned as against those made of other material would be returned as failures attributable only to material failure.

[175]Issue 11: Was the chain of causation broken as alleged in paragraph 27 of Anglo’s defence? It reads:

“On the occasions when Anglo supplied polycarbonate with a MVR in excess of 12, that fact would have been plain and obvious for Rowan, Moss or their subcontractors to see when beginning to process it. Rowan and Moss must therefore have continued to purchase and use the material supplied by Anglo when it was plain and obvious that its MVR exceeded 12. The chain of causation between any breach of contract by Anglo and any loss suffered by Rowan and Moss was thereby broken.”

[176]The use of the words “plain and obvious” is deliberate. Mr Anderson argues that the continued use of material supplied which has a plain and obvious deficiency can constitute a break in the chain of causation. In this case, he relies on the evidence of Trac’s plastics expert Mr Clements who described the difference in the moulding characteristics of the Sylex 2000 and Anglo polycarbonates as being akin to treacle and water. In other words, he was of the clear opinion that a competent moulder would easily recognise the difference when he came to mould with it. His evidence was supported by Mr Goff, the plastics expert relied on by Anglo, and Dr Wadsworth. The law.

[177]It is common ground that “The buyer is not debarred from claiming damages merely because he did not make a thorough examination of the goods delivered by the seller to see whether they complied with the contract” – Benjamin’s Sale of Goods 6th Edition at 17-059. It is not Anglo’s case that Rowan could have discovered the deficiency in specification from even a thorough examination of the Anglo polycarbonate.

[178]A buyer who is actually aware of a defect in goods which he has purchased but continues to use the goods cannot claim damages from the seller for losses arising from the defect. See Lambert v Lewis. Mr Anderson argues that Anglo’s case is a logical extension of that principle; that from the language adopted in various cases, in particular Devlin J’s dicta in Biggin & Co Ltd v Permanite Ltd

[1951] 1 KB 422

, it is possible to extract a principle of law that where a buyer of goods, who is under no duty to discover a particular defect by reasonable examination, later ought to have discovered the defect because it was plain and obvious or to use the words adopted in Benjamin (17-059) and Chitty (43-444) ‘patent and obvious’, then at the stage when the defect ought to have become patent and obvious, the chain of causation is broken; alternatively, the buyer at that stage is under a duty to mitigate by ceasing to use the goods.

[179]This alternative argument illustrates the close relationship of the law in relation to causation and to the duty to mitigate. In practical terms it means that there is an evidential burden on the seller in breach of contract to show that the defect was patent and obvious or that it was such that the buyer was under a duty to mitigate by ceasing to use the goods.

[180]Anglo’s case is that a ‘thing is “plain and obvious” if it is there to be seen, whether or not it is actually seen by the particular onlooker.’ The almost similar phrase “patent or obvious” is used in Benjamin andChitty. I prefer the latter phrase in that it makes clear in words that have to be given their ordinary meaning that the deficiency must become patent and obvious for this argument to succeed.

[181]Mr Anderson submits that it was plain and obvious to Rowan that the MVR was higher than 12 to the extent that Rowan, in particular, through its operative moulders ought to have been so aware. He relies on Mr Clements’ opinion that the difference between the Sylex 2000 and Anglo polycarbonates were like water and treacle, backed by Mr Goff’s opinion and tests. Whilst Mr Anderson accepts that Messrs Gill and Napier did not appear to be aware of such obvious difference, he submits that nevertheless the difference must have been there to be seen, in other words plain and obvious to a competent moulder.

[182]It makes clear commercial and legal sense that, if a buyer becomes aware of a defect in goods, but continues to use the goods notwithstanding this knowledge, there is a break in the chain of causation from that point on. However the fact that the buyer ought to have become aware of the defect cannot break the chain of causation, unless the circumstances are such that the only sensible conclusion that the buyer could reach when using them is that the goods were defective and should not be further used. I consider that there are dangers in extending the principle to include a mere negligent failure to recognise a defect in goods, unless on an objective reading of the situation the defect ought to have appeared patent and obvious to all but a person who has closed his mind to the obvious. In my judgment, for this argument to succeed there must be a failure akin to a reckless disregard of the obvious.

[183]Mr Tomlinson and Mr Campbell rightly submit that in order to prove a break in the causal chain a defendant must show that the intervening event was of such causative potency that it entirely overtook its own breach.

[184]The evidential starting point is the joint statement of the plastics experts:

“8.3 AC [Clements], IW [Wadsworth], JG [Goff]:- were in agreement that Rowan’s process was poorly controlled. Analytical studies of housing material, i.e. molecular weights (MVR), showed dramatic differences, which would have significantly affected the behaviour of the material when being processed. IC [Cleathero] is of the opinion that the consistency of the material is a factor in the control of the process, and that this may have contributed to the apparent variation. IC is of the opinion that it is therefore not possible to conclude that the moulding process itself was poorly controlled. “8.4 IC:-believed that, given the procedures operated by Rowan, the infrequent running of each tool and the nature of the mouldings, it is possible that the operatives did not notice differences in the two materials. He did agree that if the company had recorded operating conditions for the products then differences may have been apparent. “8.5 Injection-moulding trials by JG showed significant differences in material processing history. JG, IW and AC were of the opinion that such differences in material properties should have been clearly apparent to any injection moulding technician and that such differences in material properties would have undoubtedly dictated a significant change in operating conditions in order to process these materials. It was envisaged by them that the injection-moulding technician must have changed operating conditions for these materials many times and should have reported this as a material quality issue.”

[185]Mr Anderson relies on the documentary evidence from Clearex, which was the moulder to whom Rowan had subcontracted the moulding of the Uniflood Maxi housings, to the effect that in November 2001 (after the problems had come to light and Cotswold were again supplying Sylex 2000 polycarbonate) a “dramatic” 25% difference was noticed as between what had been Anglo and the new materials. The difficulty with this evidence is that no one from Clearex gave witness evidence and there is no evidence that its own technicians had noticed that the Anglo polycarbonate which it had undoubtedly been using during the Anglo period was patently or obviously deficient in moulding quality. It comes down to this, in my view: Was it more probable than not that there was a dramatic change when Rowan changed its supplier from Cotswold to Anglo that Rowan’s technicians ought to have noticed such a patent and obvious difference in the moulding qualities of the two materials that the only conclusion to be drawn was that the polycarbonate was of too low a molecular weight?

[186]The evidence from Rowan’s technicians, Messrs Gill and Napier, was that they were unaware of the difficulties that the majority of the plastics experts would have expected them to experience. I agree with Mr Anderson that to some extent this may be explained by the fact that until Rowan commenced work for Trac in the Autumn of 1999 it had no previous experience of moulding in polycarbonate. Mr Kelly and Mr Gill accepted as much.

[187]Mr Napier's evidence was that he did not know there was a problem with the polycarbonate. Mr Gill also repeatedly made it clear during his evidence that he did not notice significant differences between processing the Anglo and the Sylex materials. I accept that evidence.

[188]The evidence of Mr Clements, Mr Cleathero and Dr Wadsworth was that the way that a moulder might detect changes in the MVR would be through a change in processing conditions. Messrs Gill and Napier gave evidence that the setting parameters did not in fact change significantly from moulding with Sylex 2000 material to moulding with Anglo material. The setting sheets for the machines for several of the housings using both Anglo material and Sylex 2000 material record the upper limit injection pressure set by the technician and, in at least some cases, the actual injection pressure used by the machine in production. I accept Mr Napier's evidence that the processing parameters did not change significantly after the change from Sylex 2000 to Anglo material.

[189]Because it was only through changes to the processing parameters that Rowan would have become aware of differences in the material, there is no reason why Rowan's technicians should have appreciated that the Anglo material was of lower quality than the Cotswold material merely from moulding with it.

[190]There are explanations for this. Mr Goff stated in his report: "The flow of the material in the injection moulding process is significantly different to that in the MVR test and there is no linear relationship between the two”. Mr Cleathero explained that polycarbonate has non-Newtonian characteristics, such that its viscosity changes according to both temperature and shear rate, and alters in a non-linear fashion. The shear rate during processing is different to that used for the MVR test. Therefore the fact that two materials have significantly different MVRs does not necessarily mean that they will flow at a proportionately different rate when being processed.

[191]Mr Goff and Dr Wadsworth agreed that any additives in the material can also have an impact on the flow characteristics of the material. The impact of the additives on the viscosity may be different at different temperatures, making it difficult to draw the conclusion that because two materials have different MVRs that they will have different flow characteristics at the moulding temperature and shear. There is evidence from the tests commissioned by Mr Goff that there were additives or fillers in some of the batches supplied by Anglo.

[192]Mr Cleathero considered that it was possible that a significant change in MVR would not be expected to be noticed by Rowan's personnel. Mr Clements also accepted that he was not in a position to say that Mr Napier's evidence that the processing parameters had not changed significantly was wrong.

[193]None of the experts carried out tests on the actual moulding machines used by Rowan. Plainly how easy it is to see changes in processing characteristics between materials will to an extent depend upon the machine in question. Further, Mr Goff pointed out during his evidence that typically technicians would set the values of the injection speed, and would set an upper limit injection pressure, but that from that information the machine itself would work out what actual injection pressure and what injection time would be required.

[194]I accept Mr Napier's evidence that the processing parameters did not alter significantly.

[195]Mr Goff's opinion that the differences in the processing characteristics between the materials ought to have been obvious to Rowan was based in part on tests he carried out on 2 specific batches of Anglo material: batches A47923 and A47924. However, these 2 batches were part of the last delivery of Anglo black polycarbonate to Rowan, delivered at Rowan's premises at the earliest on 1st October 2001. I consider it probable that they were the two batches that Rowan did have difficulties processing and which it referred back to Anglo.

[196]Mr Goff’s tests on different batches showing differences in injection pressure were not carried out on Rowan's machines, nor using the relevant moulding tools. They were carried out on limited numbers of batches of material. It is not known whether Messrs Gill and Napier noticed any changes of injection pressure on the machines, because they were not asked about it. In any event, this would not have been something that was so patent and obvious as to satisfy the required test.

[197]The significance of shot weights, which indicate overweight and underweight mouldings, was considered.

[198]Mr Cleathero accepted that shot weights can indicate that there is a problem which needs investigating. Mr Goff reported that the tolerance Rowan allowed itself was too great and Rowan did not comply with it. He highlighted examples where a moulding exceeded shot weight but was nodded through.

[199]Rowan did not investigate the reasons for the overweight and underweight mouldings. Mr Anderson argues that it ignored the powerful tool which was available to them to indicate that something was wrong. Mr Gill admitted that these varying shot weights could have been the result of variance in the material being processed. “I do not think it was ignored; sloppiness, perhaps, in some degree.” That was a disturbing admission.

[200]Mr Cleathero acknowledged that variable shot weights were indicative of a problem with the material or with the tool and that any technician faced with the shot weights actually achieved by Rowan’s processing would have known that there was a possibility of a melt flow problem. Where the actual shot weight did not match the standard, Mr Anderson submits that it was a plain and obvious sign that something was wrong which needed investigation. There is no doubt that monitoring shot weight is a powerful tool in the technician’s hands.

[201]Mr Cleathero said that, if the shot weights were not matching the standard, he would have advised Rowan to investigate the material, the tool and the processing conditions. He agreed that failure to achieve standard shot weights gave rise to the real prospect that the material did not match the MVR stipulated in Rowan’s order.

[202]The joint statement included the following agreement of 3 of the experts (except Mr Cleathero) :

“It was also agreed by JG, IW and AC that it was surprising that Rowan exceeded its own tolerances and then knowingly supplied out-of-spec product to Trac without informing either Trac that the product was out of spec or without informing Anglo/Plastribution that the material may be causing this problem.”

[203]Concerning though this evidence was, in my judgment, it falls short of indicating that the poor quality of the Anglo material was patent and obvious. At its highest it indicates that one explanation of the variance in shot weights might have been the poor quality.

[204]All this needs to be considered against the background that Rowan had no particular reason, once the concerns of Messrs Kelly and Scott relating to the specification had been addressed, to suppose that Anglo, with whom they had done business before and whom it regarded as a reputable supplier, would have supplied them with polycarbonate of poor quality.

[205]In my judgment, in this case the evidence does not show that Rowan's staff knew the polycarbonate was defective but carried on using it regardless. If they had realised the polycarbonate was defective they would have complained to Anglo about it. They did so when they considered there was a problem with what had been supplied. There would have been no reason for Rowan not to complain to Anglo if they had thought the material was defective.

[206]I am satisfied that there was no break in the chain of causation between Anglo's breach of contract and Rowan's loss on the basis sought on behalf of Anglo that the poor quality of the Anglo material was patent and obvious. By the same token I am satisfied that there was no duty on Rowan to mitigate its loss by ceasing to use this material in moulding the Trac housings.

[207]I take the following 3 issues together.

[208]Issue 12: Were there errors and deficiencies in the processing of the polycarbonate by Rowan and their subcontractors? Issue 13: Was the design of Trac’s lights and/or the choice of materials inadequate? Issue 14: Would all or part of Trac’s or Rowan’s losses have been incurred even if Anglo’s polycarbonate had complied with the contracts?

[209]Trac does not rely on any of the alleged processing deficiencies in its claim against Rowan and Moss. Trac's claim is put on the basis that those units that have failed or will fail because of the quality of the polycarbonate supplied by Anglo. Mr Anderson argues that, if Anglo succeeds in proving that a certain number of units have failed for reasons unrelated to the quality of the polycarbonate supplied by Anglo (whether for processing reasons, design reasons, or any other reason), then Trac's claim against Rowan and Moss cannot be passed on to Anglo to the extent that it is based on failures in those respects.

[210]This part of the case has to be considered in the light of Mr Goff’s concession and the other plastics experts’ clear evidence that the poor quality of the Anglo polycarbonate is the dominant cause for failure. It was clear to me that he had no alternative, in the circumstances, but to concede this. It was unfortunate that his lengthy and detailed report failed to address this vital point. His evidence in support of Anglo’s case is weakened as a result.

[211]I accept the submissions of Mr Tomlinson and Mr Grant that, where there are two causes of failure, the fact that there is a second concurrent cause for failure does not act as a break in the chain of causation, still less so whether there is a dominant cause for failure.

[212]The highest that Anglo can now put its case on these issues is to argue that there were some products made from housings moulded by Rowan which were bound to fail regardless of the quality of material either by reason of poor processing or by reason of inadequate design.

Processing

[213]Anglo alleges that Rowan used ‘regrind’ polycarbonate to mould some of the housings.

[214]It is common ground that Rowan frequently used material which had been labelled in their stock records as ‘regrind’. The production records were pre-printed with the code ‘R’ for regrind after July 2001. In the industry ‘regrind’ means material which has been previously moulded, then ground down and moulded again. Rowan’s evidence is that the word meant something different in their records: that the material was classified as ‘regrind’ if it had been returned to stock as an opened and partially unused bag of material.

[215]That is a curious explanation that does not make much sense. It plainly cut little ice with M Weber, of SLI, Trac’s major foreign (French) customer, who believed that Rowan were using regrind. His letter to Philip Appleyard 11th February 2002 refers.

[216]The use of regrind was occasionally recorded in the production records as a cause of splay marks. This would seem to be inconsistent with the use of rebagged material but consistent with the use of regrind properly so called.

[217]Plainly Rowan had the system of classification in use, but it may not always have been clear what material was in fact being used as between regrind and rebagged material. The record ‘ROWAN Plastic Parts Centre – FORM No. 32/6/01’ 9th July 2001, suggests that its author believed that he was using a different quality of material from the norm because he thought that the regrind was causing splays.

[218]It is possible, therefore, that regrind, properly so called, found its way into at least some of Rowan’s production for Trac, but I find myself unable to find that it did so to any significant degree or had any significant impact. Further, it is plain from Mr Goff's tests, that the effect of using regrind on the impact strength of the housings would have been modest.

[219]Shot weights have been considered in connection with the ‘patent and obvious’ defect argument. The failure to achieve the appropriate shot weight is undesirable. If the mouldings do not have a consistent weight, then the mould was either under-packed or over-packed and the product will be weakened (over-packing can cause stress in the product which when released by heat can cause cracks). However, the highest this point takes Anglo is that some mouldings might have been weaker than they should have been even with material with an MVR of 8-16.

[220]It is clear to me from the expert evidence that a variation in weight of the mouldings is not of itself evidence that there has been an error in the processing: it is evidence of a change in the processing parameters. As Mr Goff accepted, variations in the quality or consistency of the material may cause weight variation. Given that the material clearly was of variable quality and MVR, it is not at all surprising that Rowan experienced weight variations. Therefore it would be misconceived to contend that housings failed because Rowan allowed an excessive weight tolerance. The housings failed because the material was of poor quality.

[221]Mr Goff accepted that he would not always expect a moulder to measure weight at all: often a visual inspection alone will suffice. Whether it is necessary to measure weight will depend upon the “end service performance” of the moulding in question. Mr Goff also accepted that he would expect the manufacturer to tell the moulder of the end service requirements, and to provide a component specification which indicated whether a weight test was necessary. It is clear that Trac did not provide Rowan with any such component specification, or require it to perform weight tests. It is also clear that there was no contractual requirement on Rowan to perform weight tests at all. Rowan therefore submits that it had no obligation, whether contractually or as a matter of proper moulding practice, to carry out any weight tests at all. Therefore it cannot properly be criticised for failing to observe the results of the weight test it did carry out.

[222]Mr Goff has exhibited graphs to his report showing variations in weight of some of the products. However he accepted that he had not been provided with all of Rowan's production records, and that many relevant entries have not been plotted on his graphs. He also accepted that his graphs plotted various entries outside the weight tolerance criteria that represented moulds made during the same production run. The effect of this is to give a misleading impression as to the number of production runs that were producing heavy parts. Mr Goff did not disagree with the observation that the vast majority of “overweight” parts plotted on his graphs are parts made in grey or white material, and which therefore may have different properties. As a result he accepted that his graphs do not present a proper picture of what percentage or number of Rowan's housings were made outside a weight tolerance of 3%. In the circumstances, although there is evidence of limited numbers of the housing being produced outside a weight tolerance of 3%, I agree that there is no evidence for me to conclude that this was a regular occurrence.

[223]Dr Wadsworth made it clear that polycarbonate components generally become brittle for 4 reasons: stress concentrations within the component, dynamic fatigue, stress corrosion cracking, environmental stress cracking. The life expectancy of the component is dependent on the mechanical properties of the polycarbonate itself, on the stresses imposed on the component and on its design. I shall return to the issue of design.

[224]It is clear that the mechanical properties of the component can be affected by the way in which the moulding is processed. If not carried out correctly, pre-drying of the polycarbonate before moulding can have a detrimental effect on the properties of the product. Degradation of improperly dried polycarbonate during processing causes a reduction in strength and toughness leading to failure. Moisture can have a dramatic and detrimental effect on the molecular weight of polycarbonate mouldings: granules should be properly, but not excessively, dried immediately before processing to ensure all water vapour is expelled. Dr Wadsworth’s examinations found evidence of ‘splaying’, which confirmed that complete drying of the polycarbonate granules was not always accomplished. Various references have also been made in the witness evidence as to the possible inclusion of moisture in the mouldings.

[225]Rowan’s Mr Napier described the drying facilities at Rowan from 1999 to May 2001: the polycarbonate granules were dried in a hot air drier in batches of 100kg for 2-4 hours, after which the polycarbonate was transferred in smaller quantities into the injection moulding machine hopper. The polycarbonate granules would remain there for up to three hours before being consumed. He also stated that when moisture-containing granules entered the machine, “streaking in some of the mouldings” was evident. Streaking is another word for splaying. Although Mr Napier stated that no mouldings that showed the visible effects of moisture were sent to Trac, it is now clear that a number with evidence of splaying was sent. According to Mr Gill Rowan encountered two incidences of “surface blistering and cracking of components” that were brought to Anglo’s attention. This was attributed to inadequate drying of the polycarbonate granules before injection moulding. Mr Kelly also recalled a similar occurrence.

[226]During the spring of 2001, Mr Steve Trainor of Summit Systems went to Rowan to discuss replacing the old polymer dryer with a new dehumidifying dryer. He explained, “hot air dryers will not dry polycarbonate efficiently. Whilst a dehumidifying drier will remove moisture from the centre of the polymer pellets hot air dryers tend only to remove the surface moisture”. He expressed concern that the polycarbonate granules would re-absorb moisture during transit to (and storage in) the un-insulated hopper on the injection moulding machine, saying, “Such moisture intake can occur very easily as it is well known within the industry that polycarbonate will absorb water particularly after drying. Warm/dried polycarbonate absorbs water even more quickly, and having dried, material coming from the [drying] hopper would be likely to be at a temperature of 120oC”.

[227]He expressed his concerns about the injection moulding machine hoppers: “Rowan were using much larger non-insulated machine hoppers. These machine hoppers had no lids and we felt that there was a significant likelihood that the polycarbonate would absorb significant amounts of moisture whilst in the hoppers waiting to be processed”.

[228]Summit Systems installed a new de-humidifying drier in May 2001 at Rowan to replace the older heating dryer. In addition, Summit Systems provided Rowan with two insulating machine hoppers. Rowan did not install these hoppers and they were returned to Summit Systems on 2nd August 2001.

[229]Interestingly, Mr Kelly’s Capital Expenditure Requisition Form made out that Rowan had to use 3 hot air driers which had to run for a minimum of 10 hours each before moulding could commence “and even then the material was never really 100% dry”. I have no difficulty in rejecting Mr. Kelly’s explanation that he was saying this only to persuade Mr. Wheeler to spend money on a new drier, as yet another attempt to avoid embarrassing documentation. He had no reason to lie to Mr Wheeler about this.

[230]Rowan’s records also evidence poor drying.

[231]The experts are all clear that moisture can be present in material and degrade its mechanical properties without necessarily causing splay marks or other visual defects. They are equally clear that change in molecular weight would not be so significant as to bring it into the range of molecular weight which comprised the properties of the Anglo material.

[232]My conclusion on this aspect of the case is that Rowan was not taking sufficient care to ensure adequate drying of the polycarbonate before moulding, hence the evidence of splay marks. From this evidence it can properly be inferred that at least some mouldings were sent to Trac which had been processed with inadequately dried polycarbonate; that of these some would have exhibited splay marks, whilst others would have remained latent. The effective and dominant cause for the failure of the housings and the return of the housings was, nevertheless, the Anglo material.

[233]I return to the issue of design.

[234]The importance of avoiding sharp corners and holes that concentrate or magnify locally tensile stresses within the component was considered in detail. The boss regions of the housings and the degree to which these regions of the component could be affected were also given extensive consideration in evidence. Also considered were the various design changes, in particular, of the Eclipse in connection with its designed arrangements for suspension, and with the effect of heat on the polycarbonate.

[235]However, in my judgment, I am satisfied that, although some criticisms of design were properly levelled at the floodlights produced by Trac, they were of little significance when compared to the effect on the life expectancy of the product by reason of the poor polycarbonate, to the extent that any design criticisms pale into insignificance. In any event, as was clearly demonstrated with the Eclipse, design was an ongoing process. As design problems came to light, they could be modified. Once the quality of the polycarbonate itself came to light, there was nothing that could be done to retrieve the situation other than to anticipate widespread failure.

[236]Issue 15: Were Rowan and Moss's losses not reasonably foreseeable on the part of Anglo for the reasons set out in paragraph 29 of Anglo's re-amended defence?

[237]Mr Anderson’s argument that Anglo could not have foreseen that Rowan would continue to use material with an obviously insufficient molecular weight must fail for the same reasons that there is no break in the chain of causation on the similar basis.

[238]In my judgment, his argument that Anglo could not have foreseen the processing and design deficiencies does not advance Anglo’s case beyond showing that there may have been concurrent causes for failure or even that even with material to the Sylex 2000 specification there would have been failures. The reason is that where the material used for manufacture of housings was Anglo polycarbonate, such was always likely to be an effective cause of failure and of the return of the light. Anglo cannot successfully argue on the ground of foreseeability that there was a break in the chain of causation.

[239]Issue 16: In the light of the above what is the correct measure of Rowan’s loss?

[240]There was agreement towards the end of the trial that the loss of profits claim as between Rowan and Anglo subject to liability and causation is the sum of £83,031.

[241]I am satisfied that in one respect of processing there was likely to have been a significant level of failure as a result of inadequately dried polycarbonate, whatever material was used for moulding the housings, but that such failure was only likely to be translated into a failure of a housing, if there was no outward visible sign of splaying. In other words, there was a likelihood of some housings being accepted by Trac which would have been defective on this ground, although housings with splaying on the outside were likely to have been rejected by Trac’s quality control, if they actually passed Rowan’s own testing for appearance.

[242]One obvious difficulty is that it is impossible to assess how many mouldings would have been defective as a result of inadequately dried polycarbonate regardless of the quality of polycarbonate used. Because the chance of this occurring was on the one hand not so insignificant as to be disregarded, but on the other hand by no means widespread or indeed other than occasional, I consider that a 10% figure representing those housings which would have been defective in any event as a result of inadequately dried polycarbonate would be appropriate as between Rowan and Anglo. Anglo’s difficulty, however, is that the dominant and effective cause of Rowan’s loss is the defective material, with the chance of defective processing being no more than a possible concurrent cause of loss.

[243]There should be no discount on this account, but, if I am wrong, I should not have assessed it higher than 10%.

[244]There is no question of ‘contributory negligence’ arising in relation to the claims in this case for breach of contract, nor it seems to me any scope for the kind of apportionment that the Court of Appeal felt it could do in Tennant Radiant Heat ltd v Warrington Development Corporation

[1988] 1 EGLR 41

[245]The issues as between Anglo and Regent/BIP.

[246]I am unable to accept Mr Curtis’ argument that, by reason of the circumstances in which BIP took over Regent, BIP would not be liable for any breach of contract. BIP had regularly traded with Anglo as had Regent. I accept Mr Anderson’s submission that in the circumstances of this case BIP was “at pains to trade as Regent.” I am satisfied that both parties, namely Anglo, on the one hand, and Regent/BIP on the other, intended to trade on similar terms to those on which they had traded in the past. If the intention had been otherwise, I consider that BIP would have made it clear that it was not going to do so. I am satisfied that BIP inherited the terms on which Regent had been trading with Anglo.

[247]In the light of my earlier findings of fact I am satisfied that Regent/BIP was under no contractual duty to supply polycarbonate which conformed with the Sylex 2000 specification, in particular, with an MVR of 12 or anything approaching it; that the contract between Anglo and Regent/BIP was merely to provide an industrial moulding grade of polycarbonate, UV stabilised, appropriate to the price of £965 per tonne, namely low grade polycarbonate; that in supplying the ‘Anglo/BIP’ material to Rowan, Regent/BIP was not in breach of contract with Anglo. The evidence is all one way, in my judgment, that the polycarbonate supplied was worth £965 per tonne and no more, but that it was suitable for certain industrial uses. It follows that as between Regent/BIP and Anglo the polycarbonate supplied to Anglo was of satisfactory quality; that Regent/BIP was not aware of the purpose for which the polycarbonate was being supplied, other than it was being passed on to an end customer and needed to be UV stabilised. The quantification of Trac’s claim.

[248]Trac is entitled to recover damages under three heads:(1) Costs of dealing with past returns.

(2) Estimated costs of dealing with future returns.

(3) Loss of profits.

[249]The general background to the damages claim is clear. Trac is a small, dynamic, family business with a good track record of profitability. The financial records which Trac maintains are neither detailed nor sophisticated, but are what would be expected for a company of this size and type and are wholly adequate for its ordinary business purposes. Trac had substantial expansion plans at the end of 2001 based on its move to new premises. The ‘polycarbonate problem’ had an extremely serious effect on Trac’s business.

[250]A number of matters is agreed between the accountancy experts. Trac has incurred substantial costs in dealing with returns during the period between October 2001 and the 31st March 2004. In the light of the agreement as to the number of returns the differences between the accountants on this head of damage are small. Trac is likely to incur costs in the future in dealing with returns. The amount of these costs depends on a number of uncertainties. Trac has suffered some loss of business because of the plastics issues. Mr Ashton accepted in evidence that it was “pretty apparent that there is a figure to be assessed” and Mr Liddell concurred with his general approach on this issue.

[251]I agree that many of the ‘damages’ issues between the parties are, in substance, issues concerned with, or closely allied to, mitigation of damage. The principles are clear.

[252]A claimant party must take reasonable steps to mitigate his loss and cannot recover damages for any loss which could reasonably have been avoided. The burden of proving a failure to mitigate is on the defendant. Mitigation of loss is concerned first of all with steps that either have been taken, or ought reasonably to have been taken, by the time of trial. For the future, the Court has to consider what will be or will not be reasonable courses of action in the context of the duty to minimise loss in the future. Necessarily, this involves considerations of what may or may not happen. It is impossible to forecast what contingencies may affect whether a certain course of conduct will or will not be reasonable in the future. In terms of a future loss, it must be assumed that the claimant will take reasonable steps to mitigate its loss, judged by the standards of what can be expected to occur. Consideration of the burden of proof is of less assistance, because there is nothing to prove only the basis of chances to be taken into account. The Court is concerned with an exercise similar to that of assessing a future chance. The judge has to take account of the various probable circumstances and to decide what would be a reasonable reaction to them.

[253]To adopt by way of analogy the case of a claimant whose injuries require the regular purchase of specialist equipment, the defendant at trial would have to show that the claimant had acted unreasonably in purchasing the most expensive equipment on the market in order to reduce the claim. For the future the Court would have to select the most reasonably priced item. It would be for the claimant to show why a more expensive item would be justified and for the defendant to show why a cheaper version would be reasonable.

[254]In the present case, it is for Trac to show, in particular, whether it would be reasonable for it to continue to give credits as opposed to replacements into the future, and for Rowan to show why it would be reasonable to cease giving credits at some time in the immediate or more distant future. In this way the Court arrives at a figure for Trac’s reasonable loss.

[255]Where the injured party does take reasonable steps to mitigate his loss he can recover for the loss incurred in so doing, even though the resulting damage is in the event greater than it would have been had the mitigating steps not been taken (Banco de Portugal v Waterlow

[1932] AC 452

[256]The standard of reasonableness in relation to mitigation is not high in view of the fact that the defendant is an admitted wrongdoer. The claimant is not obliged to do anything other than is reasonable in the ordinary course of business. A person is not obliged to minimize damages on behalf of another who has broken a contract if by doing so he would have injured his commercial reputation by getting a bad name in the trade (James Finlay & Co. v. N. V. Kwik Hoo Tong Handel Maatschappij

[1929] 1 KB 400

[257]The loss of repeat orders from customers is recoverable in a claim for breach of a contract of sale of goods, on the basis that it is within the contemplation of the parties that if defective goods are supplied, the goodwill of the buyer may be damaged.

[258]A claim for loss of profits necessarily involves consideration of the chances of what would have happened if the contract had been properly performed. I agree that in the case of a small commercial enterprise it is highly unlikely that sophisticated “financial planning” information will be available. Loss of profits can, nonetheless, be assessed on the basis of the materials which are available.

[259]It was agreed by all counsel that the precise damages figures should be calculated by the accountants in the light of my findings on the eleven disputed issues with which I shall now deal in turn.

Past returns

[260]The first issue was formulated as follows:

“(1)(a) How many claimable returns were made between July 2000 and 31 March 2004?”

[261]Trac and Rowan have agreed that there were 12,000 returns of fittings with Housings made from Anglo material for which Trac has given a credit or provided a replacement. I am satisfied that in giving such credits or providing such replacements Trac was acting reasonably to mitigate their losses.

[262]In relation to the figures for past losses, the experts agree that the cost of replacing faulty stock is £4,229; Ms Barnes and Mr Ashton agree as to the cost of past returns. Taking underlying returns into account and using the agreed number of returns, Trac correctly calculates the total cost of past returns as £603,960.

[263]The second issue is:

“(1)(b) What adjustment should be made for the “underlying rate of returns”?”

[264]It is common ground that an adjustment should be made to reflect the underlying rate of returns of defective products. Ms Barnes has calculated this as being 0.168%. The issue between the parties is whether the “underlying rate of returns” should take into account light fittings which were returned not because they were faulty but because of misorders or stock cleanses. Trac contends that such returns should not be taken into account because if the light fittings did not suffer from plastic problems such returns could simply be placed back into stock and resold. Mr Ashton accepted that, if all Anglo fittings were properly regarded as faulty then it would not be right to take “stock cleanses, misorders and so on into account when calculating the underlying rate of return”. For reasons which I have already given all fittings with housings made of Anglo material are properly to be regarded as faulty.

[265]Mr Anderson argues that the underlying rate of return would have been higher, because in reality as a result of Rowan’s unreliability in processing even with material to contractual standard there would have been defective light fittings. He observes that Rowan had not been moulding housings for Trac for long enough to establish a true statistical base for determining the underlying rate of return.

[266]In my judgment, there was sufficient data available to the accountants on which to determine the underlying rate of returns for the period preceding the Anglo period, whilst Rowan was using the Cotswold polycarbonate.

[267]It follows, in my judgment, that Ms Barnes’ rate of 0.168% is correctly calculated.

[268]The third issue is: (1)(c) What “associated costs” should be included in the cost of replacement?

[269]These “associated costs” are all the costs of dealing with returns in addition to the actual labour cost of dismantling: these include matters such as site visits and third party costs. Mr Ashton accepted, “to the extent that there are additional costs which have to be incurred to replace the light, then they probably should be provided for.”

[270]It is, of course, not possible to “presume” that associated costs will reduce with time. I am satisfied that properly incurred “associated costs” are a proper head of claim.

[271]The fourth issue was: (1)(d) Should Trac have mitigated its loss by supplying replacements rather than giving credit notes from 31st March 2003?

[272]Ms Barnes and Mr Ashton agree that it was reasonable for Trac to offer credit notes for this period up to the present. Ms Barnes took the view that this was a commercial decision for Trac and that the decision was a reasonable one. Mr Liddell disagreed. I agree that this is an area where reasonable disagreement is possible. As a result, I am not satisfied that Trac’s approach constituted an unreasonable failure to mitigate.

Future returns

[273]The fifth issue is: (2)(a) What is the appropriate period over which to consider future returns?

[274]Trac proposes that there should be a cut off date of October 2007, being six years after the last supply. It was explained that this date was chosen because six years is the limitation period, although commercial pressure in the interests of customer relations may require Trac to give credits after this date. Mr Ashton and Mr Liddell take the view that the cut off point should be in 2 years and 7 months time, that is, 5 years since the problem was discovered. Plainly, as Mr Ashton accepted, this is an arbitrary cut off. His reasoning was:

“Because the customer would have had a very substantive amount of use out of the product and it would be far, far less likely that any credit or replacement would be required.” “It is my suggestion, that I think it is a logical period, after which any credit is inappropriate. Five years is a long time for the product. It is well into the age of the product and it is becoming increasingly unlikely that a credit would be expected. The propensity to expect a credit from the customer will decline over time.”

[275]The six years, on the other hand, has the logic that after that time a claim in the court could not be brought. The commercial justification to consider giving credits logically would still apply in years 7, 8, 9 and 10. The selection of the cut off date is a similar exercise to the selection of a multiplier. It is for this reason that the contingency of having to give a credit or to provide a replacement has to be considered as possibly occurring both before and after the cut off date. The most significant factor, however, is the cut off period for bringing a claim in the court.

[276]Of course, the actual limitation period would depend on the date of supply of the fitting, but I am satisfied that the cut-off period which Trac has selected is reasonable. I find that the appropriate cut off date is 1st October 2007.

[277]The sixth issue is: (2)(b) What is the likely number of future returns?

[278]Ms Barnes explains in her Supplemental Report why it is not possible to discern any trends. In general it might be expected that the number of returns would decline over time. However, there is a number of “countervailing” indications. Ms Barnes was unable to discern any trend over the past year. She summarised her position as follows:

“I looked at the trend lines for returns, starting in various months, and I felt that there was no discernible trend, either up or down, in returns in that period. And also, based on all the information I know about the returns and the problems that may well still be out there and may well come back … I felt that the reasonable approach was to take a static rate of return into the future”

[279]Ms Barnes has, therefore, projected the rate of returns for the current year forward to October 2007. Mr Liddell used the “sum of digits method” to calculate future returns. This is simply a statistical method based on the assumption that there is a decreasing rate of returns. Mr Ashton discerns a trend by looking at the last two years and takes a decline over a period of 10 years.

[280]Mr Ashton produced graphs at figures5.1 and

5.2 of his Report as giving a clear picture of a steady declining rate of returns. The problem which Ms Barnes identified is that there is insufficient data from which to plot any trend. The reason is that there can be many and varied circumstances in which a light fitting comes to be returned. For example, it is anticipated by the plastics experts that housings made from Anglo material will break down earlier than their expected lifetime. That means that many housings will fail between now and the end of the 6 year cut off period.

[281]Ms Barnes’ approach gives a “future returns” figure of 5,830. Mr Ashton and Mr Liddell put forward a figure of 3,081. Taking into account all the factors identified in Ms Barnes’ Supplemental Report and the difficulty in discerning trends, I am satisfied that it is not possible to adopt a scientific approach to determine the future rate of returns. Nevertheless, it seems to me that this is literally a case of diminishing returns, simply because there is a finite number of fittings out of which the returns will come. I have decided that the fairest approach is to adopt the current annual rate of returns to 31st March 2004 to calculate the figure up to the year ended 31st September 2005 and to discount that rate by 10% for the remaining two years incrementally in order to determine the total future returns up to October 2007. I calculate this to be a total of 5,223. The following table illustrates the calculation: Future returns current annual rate of returns UK 533 (year ending 31 March 2004) Export 1094 year ending 31 March 2005 1627.00 6 months end 30 September 2005 813.50 year ending 31 March 2006 (less 10%) 1464.30 year ending 31 March 2007 (less 10%) 1317.87 total 5,223

[282]The seventh issue is: (2)(c) Should any “associated costs” be included in the cost of future returns?

[283]This is, I agree, in substance, the same as the third issue. There is no basis for assuming that such “associated costs” will reduce in the future. A good example comes from the evidence of Mr Philip Appleyard in relation to the likely costs of dealing with fittings on site in Manchester.

[284]I am satisfied that the “associated costs” should be included in the cost of future returns at the same rate as for past loss.

[285]The eighth issue is: (2)(d) What is the proper “unit cost” for future replacements?

[286]Ms Barnes takes the average cost of dealing with returns over the past 6 months as the basis for her calculation. Mr Ashton bases his assessment of “unit cost” on a reduction of the average time taken to deal with a return from 50 minutes to 20 minutes: this is a “guesstimate” rather than the result of detailed calculation. He favoured using an average cost taken from the full period over which returns have been made. I agree that the right option is to take the average cost of dealing with returns over the most recent period that will most closely relate to the cost of dealing with returns in the future, rather than the average cost over the full period since October 2001, adopting Ms Barnes’ method of calculation. However, I consider that the last 6 months is too short a period and that the right period for this purpose is the last 12 months, because it is likely to be more representative.

[287]The ninth issue is: (2)(e) Should Trac mitigate its loss by offering reduced credits?

[288]Mr Philip Appleyard made it clear in his evidence that the commercial reality was that he would often have to give full credits some years after the sales had been made. Ms Barnes’ view was that this was a commercial decision which she could not “second guess”. Mr Ashton and Mr Liddell take the view that Trac should require its customers to take reducing credits in the future. Mr Ashton’s evidence was that this was in line with “customer expectations”, that after 5, 6 or 7 years “the likelihood of a full credit being given is a lot less”. In other words, he appeared to be saying that the “future loss” claim should be discounted to reflect the chance that customers would take a reducing credit.

[289]I have already discussed and made clear my approach to future loss in this case. My understanding of Mr Ashton’s evidence on this point following cross-examination was that he accepted that in the end the question as to whether to give or offer full credit was a commercial one for Trac’s management.

[290]The decisive factor in my judgment is that Trac has suffered a substantial reduction in goodwill as a result of the materials issue and of the loss of confidence on the part of its customers. For this reason, the Appleyards’ commercial judgment in this respect cannot be faulted. The question is whether it will continue to be reasonable for Trac to offer full credits, even though the credit involves loss of the original profit which replacement would not.

[291]I think it will be a source of considerable irritation at best for a customer to find that he has a light which was expected to last some 10 years fail after 5 or 6 years, because the material of the housing was inadequate. For this reason the number of years’ use is likely to be of less significance in this instance. The realisation that the customer has had a defective light fitting for all those years may well only be tempered by the offer of a full credit. After all, it is towards the end of the light’s life that the customer will be looking to replace it and Trac will want the business, if at all possible.

[292]In my judgment, the fairest approach to these future circumstances is to predict that after another year (as from October 2005) it would be unreasonable for customers to expect a full credit, because they will have had around half the anticipated life of the light; that, in order to repair damage to goodwill, a replacement unit would continue to be a reasonable way of retaining that goodwill; and that Trac’s commercial judgment by that stage is likely to recognise that full credits would be unnecessary to retain goodwill. I am confident that the accountants can now make the necessary calculation under this issue.

Loss of Profits

[293]This element proceeds now on the clear basis that a loss of profits has been made out, but that it is the method by which it is calculated which is under challenge and, therefore, the figure that is reached by the differing approaches of the accountants. Mr Ashton clearly recognised that there had to be a figure for loss of profits. When Mr Tomlinson suggested, “your range for loss of profits, £57,000 to £73,000, is too conservative?” Mr Ashton answered, “I have expressed my concerns about it.”

[294]The tenth issue is: (3)(a) Is it appropriate to base the calculation of loss of profits on Trac’s forecasts?

[295]Ms Barnes has based her calculation of loss of profit on Trac’s forecasts – on the basis that this is the best available contemporaneous evidence. Mr Ashton and Mr Liddell take the view that the forecasts were unreliable for the purposes of reaching a proper estimate of loss of profits.

[296]Mr Ashton explained the difference of approach, Ms Barnes’ “top down approach” as against his “bottom up approach”, in the following answer:

“Basically, what has been done here is to take what I would loosely call a top down approach; in other words, taking the overall information which is put before us in terms of the budgets for the company, taking one figure for turnover which encompasses the whole range of products, taking an average gross margin and taking an analysis of costs; and the objective is to produce a loss of profits calculation for Trac. “In my own view, that is wrong on two accounts. First of all – it has been touched on before – it should be a loss of contribution, a loss of margin. And secondly, it should be the impact of the plastics problem, wherever that might be in the company. To do that, if you do not have a satisfactory top down ability, in other words looking at the overall results of the company, looking at the analysis of the company, looking at the breakdown of results, then you are forced to a bottom up approach. A bottom up approach means you look to the records the company has – it does have enough records – to look at the customers, the clients that have been affected, or may be affected, to do an overall exercise of a control group, if you can find one, of the so-called unaffected products, and do a more sophisticated review from that perspective. “In my view, given the state of the budgets, in terms of their lack of support, in terms of their lack of analysis, meant that was the proper way to do this. I indicate my concerns in my report.”

[297]Ms Barnes justified her approach summarised in the following answer:

“what I have looked at is the actual costs that have been incurred by this business to date; and it is my opinion that that is one of the reasons why forecasts have not been achieved; and the balance of the variance from forecast, I have seen no other evidence other than to suggest that it has been caused by issues with the plastics. “At that level of past cost, my calculation is as – is set out here. So you look at the variance to forecast and you say: right, okay, the variance relates to costs that have actually been incurred that would not have been ordinarily, and the balance is issues to do with the fact that the business has been disrupted. So my calculations, at that point, are based on the actual past costs that I have calculated. If there were small variances around the past costs that I have calculated then, yes, my calculations would arithmetically work like this. But if, for some reason, the claim for past costs was reduced by half or whatever, 10-75 per cent, I would not alter my claim for – calculation of the claim for loss of profits. “And in the joint statement we set out ranges of losses and my past loss, in relation to returns range, was from quite a low level, based on the number – because we agreed that is how we would do it, to a higher level. But I did not alter the past loss of profits. … “But round a small variance I probably would alter the figures, yes, arithmetically.”

[298]The starting point, in my judgment, is that the Court must act on the best available evidence. I agree that the fact that a small family business like Trac does not prepare detailed spreadsheets and complex financial documentation does not mean that it is, therefore, disqualified from recovering damages. The Court can properly act on the basis of the best available evidence.

[299]Mr Philip Appleyard’s Witness Statement explains how the forecasts were prepared. I am satisfied that he and Mr Ian Appleyard “set out to be as accurate and realistic as possible”. The August 2001 forecast was plainly an honest and realistic forecast, not, of course one, produced with a view to litigation. Mr Philip Appleyard clearly knows his business well. I agree with Ms Barnes that the forecast can be assumed to have been a proper analysis of likely future sales and profits. Despite the importance placed on this litigation, the Appleyards had a potentially expanding business to run. I am satisfied that the subsequent forecasts were made, not with the litigation in mind, but with the ordinary purpose of running their business. Ms Barnes takes the view that the forecasts were in line with the pre litigation forecast. I concur with that view. For these reasons, the forecasts are the best available contemporaneous evidence as to the assessment of Trac’s future profits before the polycarbonate problems became apparent.

[300]The point is made that no account is taken of any variance in the profits achieved from the sales of other products. The difficulty with this point is that, if the forecast of profits was realistic it would have taken account of the likely contingency factors in relation to all products. The one known and clear factor is that the discovery of the Anglo material had a devastating effect on Trac’s business. There is no evidence to suggest that profits from sales of other products were other than within those forecasted. Nevertheless, the impact on the remainder of Trac’s business cannot be overlooked. Where Trac loses a distributor customer, as the evidence shows it did, it is difficult, if not impossible, to assess the effect that might have had on the trade with that distributor in those other products. Likewise, the general reputation is bound to be affected at trade conventions and the like.

[301]Criticism has been made by counsel and expert accountancy witnesses that there could have been more detailed material from which to make these judgments – Mr Ashton’s bottom up approach. Mr Anderson suggested that merely to rely on the August 2001 forecast was not appropriate to the quantification of damages in the High Court. The difficulty, however, in which Trac has been placed by the breach of contract which I have found is that the Appleyards have had to balance and to apportion their time between providing material with which to substantiate Trac’s claim, not only with respect to damages but also to liability. The further difficulty arises from the fact that Mr Ashton did not suggest his bottom up approach until he gave his evidence, so that it was not put to Ms Barnes for her comments. Whilst I follow the concern of both Mr Ashton and Mr Liddell that there was not the financial information that they would have wished for in order to advise on a true figure for loss of profits, each had the opportunity to request whatever information he wanted from Trac.

[302]Mr Campbell argues that to rely on the forecasts and what the Appleyards told Ms Barnes about them is to rely on inadmissible evidence. I disagree. There is nothing inadmissible about the information which is given to an expert witness. It is purely a matter of weight. If an expert appears to be acting on a controversial factual basis it is open to the party wishing to challenge the basis with the authors of that information. In this case, however, it is clear that the Appleyards gave honest and realistic information to the best of their ability, based on what they had forecast before the disaster broke two months later.

[303]Provided that the August 2001 forecast is looked at with a reasonably conservative eye, I am satisfied that it forms a proper basis for the Court’s assessment of loss of profits. I also accept the reasons advanced by Ms Barnes to show that her approach is preferable to the bottom up approach. It seems to me that there would have been a danger of being too analytical in examining detailed financial information as against subjective views of disappointed customers after the event, when for the purposes of assessing the loss of a chance, appropriate and helpful information was available.

[304]I agree that Ms Barnes’ examination of “profit trends” in her Second Report provides a useful cross check for her loss of profit calculations based on the forecasts. I adopt Mr Tomlinson’s and Mr Grant’s summary:(a) The average level of profitability over the 6 years to 31st August 2001 was £261,000.

(b) The profit in the year ended 31st August 2001 was £316,000. This was, of course, just before Trac moved to larger premises.

(c) In the year ended 31st August 2002, Trac made a loss of £347,000. This dramatic decline is only partly explained by the costs of dealing with returns: the average annual cost of this is £240,000.

(d) The calculations show that, on the basis of average 1995-2001 profits Trac has suffered a loss of £108,000, using the 2000-2001 profit figure there is a loss of £258,000 and, if it is assumed that profits would increase by 33% over 2001 there is a loss of £673,000.

[305]It follows that these calculations show that the forecast based assessment is on the right lines. I am satisfied that it is appropriate to base the calculation of loss of profits on Trac’s forecasts. I give the following guidance for the calculations which are to be done.

[306]I am left with a huge bracket. Mr Ashton’s figure, effectively supported by Mr Liddell on the one hand and Ms Barnes’ various figures on the other. As a matter of principle, I follow and accept Ms Barnes’ reasoning that the loss of profits is likely to impact until August 2005, albeit on a significantly reduced scale; I consider that it would be inappropriate to take account of the effect on profits of currency value fluctuations – I cannot relate that identified factor to the breach of contract. Similarly, it is likely that there have been other factors which have affected Trac’s profits which have not been identified as such but which were, or will be, unrelated to the breach. I remind myself that ultimately this head of damage should not produce a precisely calculated figure, but should be a round figure to represent the lost chance of profit, both since 2001 and into the next year.

[307]Although Mr Ashton’s figure now represents his minimum figure, he admittedly has not made any attempt to examine the reliability of Trac’s forecasts. His evidence, however, to my mind acts as a moderating influence on Ms Barnes’ approach. She has taken a number of bases for her calculations and I am satisfied that she should take her most conservative approach and round down her resulting calculation to the nearest £1000.

[308]If I have not given sufficient guidance I am confident that counsel will soon tell me. For the avoidance of doubt, the calculation which I now anticipate is one based on Trac’s forecasts stripping out currency factors and indicating to what extent a percentage discount has been applied to take account of the various factors which I have outlined, so that I can be satisfied that the most conservative approach has been applied to the comparison between profits as forecast and as achieved, to enable me finally to assess the loss of the chance in respect of profits. It may be helpful in this respect to have a number of calculations based on varying percentage discounts. Ms Barnes’ method of calculating loss of profit based on Trac’s forecasts, however, should not be confused with the calculations that she made by way of a cross check, to which I have already referred.

[309]The eleventh issue is:

[310](3)(b) If forecasts are not used is it appropriate to use estimates on lost business from four Trac customers without taking account of any other lost business?

[311]I have already dealt with Mr Ashton’s “bottom up approach”, which had not been mentioned in his Report. There was, nevertheless, a number of concerns about Mr Ashton’s evidence in this respect.

[312]In his report he states that the “UK non-domestic lighting market has been in steady decline since 2000”. This was based on an AMA Report which, in fact, stated that the market was “experiencing relatively stable trading conditions”. Mr Ashton’s explanation for this in evidence was unconvincing. He was driven to qualify his report by maintaining that “in real terms this market is flat, at best, and declining slightly. That is what the figures show.” I see no reason to differ from the AMA Report’s conclusions.

[313]Mr Ashton stated that Trac had refused to provide him with financial information. This was incorrect as Mr Ashton’s assistant was provided with the information which he asked for.

[314]Mr Ashton based his “bottom up” calculation on lost business from four Trac customers in a calculation which he did not regard as having “any reasonable degree of accuracy”. I have already referred to Mr Ashton’s final acknowledgement that the loss of profit figure of £73,000 in his report was the “minimum figure”. This was surprising, since his report indicated a bracket of between £57,000 to £73,000. I was left puzzling where the lower figure came from, in the light of that acknowledgement and can only conclude that there was no basis for any lower ‘minimum’ figure.

Conclusions on damages

[315]I agree that in the light of the Joint Statement of the Accountancy Experts and the concessions made by Mr Ashton in evidence, the areas of dispute between the parties on quantum issues are limited. It will have become clear that, where the evidence of the accountancy experts is in conflict, the evidence of Ms Barnes should be preferred, largely because she felt able to use the available information provided by the forecasts whilst, in particular, Mr Ashton felt that he could not.

[316]Whilst there is obviously an area of uncertainty with respect to the likely number of future returns, in my judgment, a declaration of liability to indemnify would be unsatisfactory, offending as it does the aim of the court to achieve finality wherever possibility. For the reasons I have given, I have decided that it is possible to assess that as a future chance with an informed broad brush approach.

[317]One specific issued was raised, whether it is appropriate to take account of the diverting of management time which has resulted from the effects of the breach of contract in assessing the figure for loss of profits. It is argued that those costs which represent time in effect dealing with the claim, for example attending to requests from the lawyers, ought not to form part of the damages claim, but should be reflected in the assessment of costs at a later date. Even it were possible to apportion time in this way, I am satisfied that, in the circumstances of this small but thriving family business, it was inevitable that a breach of contract such as has occurred would cause management to be diverted to deal with its effects. Mr Philip Appleyard made it clear that his dominant concern from October 2001 has been the rebuilding of the business and that the conduct of this litigation has been merely incidental to that. Whereas lawyers may find that concept hard to understand, I follow and accept his reasoning. So long as there is no duplication in the claim for costs, I am satisfied that it is appropriate to take into account the time taken, including that of senior management.

[318]With regard to the assessment of the loss of profits suffered by Trac, there is lack of detailed material on which to base it. Nevertheless, it is clear to me that Trac has suffered a substantial loss under this head with the figure of £73,000 as the minimum. It is appropriate to base the assessment on the contemporaneous forecasts prepared by Trac. These figures are supported by the cross-check of a calculation based on the levels of profit before the problems with the Anglo polycarbonate became apparent.

[319]The precise damages figures are to be calculated by the accountants in the light my findings on the eleven disputed issues set out above.

Illegality

[320]Rowan raises a distinct defence as a result of discovering, through disclosure of documents and examination of Trac’s Internet website, that in its dealings with customers, Trac was in breach of certain Regulations, which could have resulted in criminal prosecution. Rowan now seeks to argue that Trac was trading unlawfully and that, therefore, its own contract of supply to Trac is so tainted with illegality as to amount to a defence to Trac’s action against Rowan insofar as Trac relies on its trading for the assessment of any damages for breach of that contract.

[321]It is a remarkably bold argument in the circumstances of this case and one which I have no hesitation in rejecting. It is no less remarkable for the fact that it is advanced by the party that seriously misled Trac into a situation where Rowan was supplying housings for its lights which were fundamentally flawed. In deference to Mr Campbell’s detailed arguments, I give my reasons. The law.

[322]The principles which I derive from the authorities cited to me are as follows. For reasons of pubic policy the court will not assist a party to recover from a wrongdoer in tort or in contract where in order to do so that party must rely on his own illegal conduct. Where a party has to rely on an illegal course of conduct to maintain a claim for damages, it is generally clear that that claim will fail on the principle that it would be repugnant that he should be allowed to benefit from his own unlawful conduct.

[323]There has been a number of recent cases in which the law in relation to the effect of illegality has been reviewed.

[324]In Hewison v Meridian Shipping Services PTE Ltd

[2003] ICR 766

the appellant aged 35 sustained a serious head injury during his employment as a seaman/crane operator. One of the heads of damages claimed by the appellant was loss of earnings calculated on the basis that but for the accident he would have continued to work as a seaman/crane operator until his normal retirement age. The respondents’ case was that it would be contrary to public policy to award damages on that basis because an essential part of the appellant’s case was that but for the accident he would have continued to earn money as a crane operator; and that, in order to do so, he would have continued to deceive his employers by fraudulently misrepresenting that he was not suffering from epilepsy, as he had in the past. It was held on a 2 to 1 decision in the Court of Appeal that he was debarred by public policy from recovering for such loss of earnings. The key finding was that “he was continuously deceitful in order to obtain and keep his job offshore.” It was clear in that case that, in order to continue to earn at the rate claimed he had continuously to commit the offence of Obtaining a Pecuniary Advantage by Deception. Significantly it was argued on behalf of the respondents that the “illegal act struck at the root of his contract of remuneration.”, that the appellant had “to rely upon that deception in order to be able to enforce his contract of employment. The appellant was in repudiatory breach of that contract and the first respondents had an unassailable right to treat the contract as discharged upon discovery of the breach, which the first respondent exercised on learning of the true position.”

[325]At paragraph 21 Clarke LJ posed the question, “whether there is a principle of public policy which prevents the appellant from recovering his post-accident loss of earnings as an AB/crane operator on the ground that in order to earn those sums he will have to deceive his employers. There are undoubtedly some circumstances in which public policy will prevent a claimant from being awarded sums which he would otherwise recover. The question is what those circumstances are and whether they apply to the facts of this case.”

[326]In Hunter v Butler [1996] RTR 396 (referred to in Hewison)at p 403E Waite LJ gave his reasons for not taking into account the deceased’s undeclared part time earnings whilst drawing supplementary benefit, which constituted a benefit fraud:

“It offends public policy in two respects. First it assumes that someone who had committed fraud in the past would continue to do so in future; ignoring the possibilities of repentance and detection. Secondly it treats the proceeds of illegally concealed earnings as providing a valid head of recovery by way of damages …”

Then at G referring to Lord Wright’s description in Davies v Powell Duffryn Associated Collieries Ltd

[1942] AC 601

at 617 of ‘damages proportioned to the injury’ being ‘a hard matter of pounds …’:

“the pounds of which he spoke were those derived from wages honestly earned or income honestly received.”

[327]Hobhouse LJ at 405 B said:

“If a plaintiff comes to court and asserts as part of her case that she would have committed criminal acts and bases her claim upon such an assertion, she cannot recover in a court of law on that basis. Here she has claimed a loss of dependency on the basis that the deceased would have paid sums to her which he had to her knowledge obtained fraudulently from the benefits office.” and at E: “This principle provides an additional reason why the plaintiff’s argument that she could claim a loss of dependency based upon the loss of a combination of undeclared part-time earnings and fraudulent payments must fail.”

[328]Clarke LJ quoted the description of public policy in Richardson v Mellish (1824) 2 Bing 229 per Burroughs J at p 252, which, in my judgment, has a certain application to the present case:

“I, for one, protest against arguing too strongly upon public policy; - it is a very unruly horse, and when once you get astride it you never know where it will carry you. It may lead you from the sound law. It is never argued at all but when other points fail.”

[329]The ratio of Hunter v Butler is identified by Clarke LJ in Hewison as to be found in the following passage in the judgment of Hobhouse LJ at page 405 B:

“If a plaintiff comes to court and asserts as part of her case that she would have committed criminal acts and bases her claim on such an assertion she cannot recover in a court of law on that basis.”

[330]Clarke LJ referred to the valuable discussion by Garland J in Newman v Folkes, unreported, dated 5 May 2001, a case in which cash income which was simply not disclosed to the Revenue was taken into account subject to an appropriate discount for the tax which would have been payable, where he (Garland J) said this at paragraph 47:

“In my judgment the reasoning in Duller v South East Lincs Engineers, which was neither cited nor referred to in the judgement in the Hunter v Butler, is plainly correct. In a non-dependence case if the claimant derives income from a lawful source even though there may be a collateral illegality in the performance of the contract (Le Bagge v Buses; St John Shipping Corporation v Joseph Rank Ltd [1957 1 QB 267) he is entitled to rely on the loss of that source of income to found a claim although it may be necessary to make some financial adjustment for unpaid tax and national insurance. If the source of the claimant’s income is itself unlawful, for example the proceeds of crime, then the same consideration would apply as in Hunter v Butler, where the plaintiff was equally guilty with her husband of a fraud on the benefit system.”

[331]This approach was approved on appeal in Newman

[2002] EWCA Civ 591

by Ward LJ at paragraph 14.

[332]Clarke LJ in Hewison stated the ratio at paragraph 29:

“[W]here a claimant has to rely upon his or her own unlawful act in order to establish the whole or part of his or her claim the claim will fail either wholly or in part.”

[333]Tuckey LJ at paragraph 51 favoured “a broad test of the kind outlined by Clarke LJ viz: is the claim or the relevant part of it based substantially (and therefore not collaterally and insignificantly) on an unlawful act?”

[334]The reasons Clarke LJ gave for dismissing the appeal are instructive, and are summarised in (vi):

“In short I accept Mr Davies’s submission that the appellant’s deception struck at the root of the contract under which he earned remuneration and that it would have done so in the future. In this regard it is I think important to note that this will only be the case where the claimant has deliberately deceived his employers; mere failure to disclose the true facts to an employer is not enough.”

[335]It is, I think, uncontroversial, that, even if there is no unlawfulness associated with the cause of action itself, yet, if part of the claim for damages relies upon an unlawful act, that part of the claim should be disallowed unless the unlawfulness was collateral or insignificant.

[336]Following submissions Mr Campbell made reference to the recent decision of Laddie J in Barros Mattos Jnr v MacDaniels Ltd

[2004] 3 All ER 299

, a summary judgment application where the defendant was unable to put up a tainted claim to retention of the proceeds of a large scale bank fraud against the claimant victim’s untainted claim for restitution. Whilst the approach by Laddie J indicates the current approach to the relevance of illegality in the contractual context, the facts of that case were so different that I am unable to derive any principle that is applicable to the instant case. It is an illustration of illegality that is so obvious as to render any case tainted by it unarguable and unable to defeat an application for summary judgment. It is also worth observing that all the cases where illegality has been successfully raised have been cases involving dishonesty in the sense used in the criminal jurisdiction to distinguish between cases including offences of theft, obtaining by deception, stolen property, fraud and the like, as opposed to the remainder of offences which result in criminal conviction.

[337]It may well be right, as Mr Campbell accepts, that the public policy on which he seeks to rely can result in a windfall to defendants. However, as it happened, on a true analogy, there was not a ‘windfall’ to the defendants in Hewison. The claimant was only permitted to establish his true loss of earning capacity as opposed to an earning capacity based on his continued deception of his employers. The true dependency of the claimant in Hunter could not take account of her husband’s earning capacity because his legitimate income derived from state benefits. Interestingly, in the cases where there was nothing illegal about the work done, albeit undisclosed to the tax authorities, the courts have preferred the pragmatic approach of allowing a conservative approach to such earnings subject to an allowance for the tax that would otherwise have been paid.

[338]I turn to the facts in this case.

[339]I am satisfied, in respect of each of the examples of acts or omissions that are relied on to show breaches of the criminal law, it was collateral at best. My reasons will become apparent. Nothing that I say in this judgment is meant to detract from the potential seriousness of some of the breaches of Regulation relied on, but I am also satisfied having heard the Regulatory experts, Mr Poole for Rowan and Mr Sheen for Trac, that a prosecution was extremely unlikely in this case; and, importantly, once breaches were pointed out to those in authority at Trac, they would have immediately ensured that their procedures brought them within the regulatory framework. I am satisfied that no one at Trac set out deliberately to break the law; that there are clear examples of a failure to take sufficient care to remain within the regulatory framework for which no regulatory body would have gone to the lengths of prosecuting Trac, but for which such a body would probably have given strong advice.

[340]The marketing of the lights was not of itself unlawful. Moreover, Section 35 of the Trade Descriptions Act 1968 provides that a contract is not rendered void or unenforceable by virtue of a contravention of that Act. In any event, I have been unable to detect any feature concerning the design of any of the lights which was such that a customer could have returned the light other than for faulty workmanship or, as it turned out, for flawed material. Returns for faulty workmanship are taken into account in the underlying rate of return with which I have already dealt. There is no evidence to suggest that Trac’s customers were influenced by the assertions in respect of Kite mark and BSi testing. Further, I am satisfied that at no time did Trac benefit from any of the breaches of Regulations which have been highlighted.

[341]There would be something repugnant about a result that allowed the supplier of flawed material to benefit merely because it can now be discovered that its customer was not complying with legal requirements designed solely to protect the ultimate customer, whose only complaint concerns that very same flawed material.

[342]Mr Tomlinson and Mr Grant argue that Trac’s position with respect to its regulatory breaches is clearcut in the light of the expert evidence. I agree. That was my clear impression at the time the regulatory experts gave their evidence.

[343]I consider the evidence of the regulatory experts, in the context of the individual allegations.

[344]Mr Poole accepted that he had been instructed to go through each of Trac’s technical files with a “fine toothed comb” and to hunt out breaches of the Regulations, the first time he had conducted such an exercise. “Inevitably” he had seen examples of poor technical files in the past and had given advice to clients accordingly. He accepted that if had carried out the same level of in-depth examination on other manufacturers he might well find similar deficiencies.

[345]The significance of this evidence is clear. If Mr Campbell’s submissions on illegality in this case are well founded, any manufacturer of goods could well find its claim, in respect of defective materials supplied, defeated by a similar defence. That is not what the defence of illegality is about, in my judgment.

[346]Clearly the primary purpose of the Regulations is to ensure that electrical products which are going to be used in the field and the market are safe. It was clear that Mr Poole could not comment on whether any of the Trac products actually complied with the Standards or Regulations. The breaches he had identified in his report were “documentary breaches.” He accepted that if the breaches he identified came to the attention of the HSE then the likely response would be for it to give strong advice to Trac to put its files in order. He said that the only time the HSE would even look at the technical files was if there had been a “frontline problem”. It was when a product had failed that the technical files became important to allow the HSE to investigate whether something had gone wrong in the manufacturing process so as to render the products unsafe. But on the unlikely hypothesis of an unprompted visit from the HSE then the response would be strong advice; and, if Trac did not take that advice, the issuing of a compliance notice under regulation 13. This represents the reality.

[347]I agree that the central point which came across in Mr Sheen’s evidence was that the overall purpose of the Regulations is to ensure that lighting products are safe. With the exception of the early Eclipses there has been no suggestion that any of these products were unsafe.

[348]Mr Sheen identified breaches on the part of Trac, but saw no evidence to suggest that the products were in breach of the British Standard. Like Mr Poole he had not tested them, but they appeared to him “to be sound, well produced luminaires”. Mr Sheen said of Trac’s factory that it had a full range of testing facilities, was modern and well set-out and had a very robust quality assurance system.

[349]I consider the individual allegations.

[350]Mr Campbell seeks to rely on the evidence of Mr Goff and Mr Cleathero that the Eclipse in its original designs was unsafe. He argues that that plainly would have been a serious breach and one for which Trac would have been likely to have been prosecuted had it been brought to the attention of the appropriate authority. He points to Mr Sheen's evidence that, if Trac had signed a declaration of conformity without carrying out all the relevant tests under the British Standard, then that would have been a breach of the Electricity Equipment (Safety) Regulations 1994. Plainly it is a serious matter for a manufacturer to place products on the market without having carried out all the relevant safety testing.

[351]Regulation 5(1) requires manufacturers to ensure their products are safe. By regulations 14(1) and 17, it is an offence to supply products which are not safe.

[352]Mr Campbell submits that the Eclipse as originally designed and supplied during 2001 did not comply with Regulation 5(1) and so was unsafe that, as a result, it is alleged, Trac’s supply of the product was in breach of regulation 14 of the Regulations.

[353]He relies on Mr Goff's opinion that the Eclipse, even made of adequate polycarbonate, potentially held a risk of heat from the lamp causing cracking and the bulb and the shroud falling to the ground. Mr Cleathero's opinion was that the upper boss section was badly designed and liable to failure:(a) because the whole of the weight of the Eclipse was being held by the threads of four "self-tapping" screws, and

(b) because the holes for the screws were too short, leading to the screws impinging on the plastic of the boss and inducing stress. Mr Clements disagreed because Mr Cleathero had applied too high a safety factor. I disagree that it is implicit in Mr Clements' acceptance, on the premise put to him by Mr Anderson based on Mr Goff's criticism of the original design, that a need for a recall would have arisen in any event, or that he accepted that the product in its original design was unsafe. To the contrary, he made clear his opinion that in fact the Eclipse, even in its original design was “robust” and safe. This was even after his misapprehension that the boss screws were open ended was corrected. He rightly pointed out that Mr Goff had suspended a fully fitted Eclipse for 48 hours with an additional 32 kilos and a further 48 hours with an additional 60 kilos without failure.

[354]Mr Cleathero’s safety factor of 50 was apparently obtained by first applying a safety factor of 5 and then a further factor of 10. Mr Cleathero had to accept that his calculations were “very rudimentary” and that the factor of 10 was in fact “arbitrary”. Mr Cleathero was unable to explain why he had taken this view. As Mr Sheen said, a safety factor of 15 night be appropriate in extreme conditions, for example in a sub-aqua vessel, but a factor of 50 was unheard of. Mr Clements expected a safety of factor of 50 only in the nuclear industry. Mr Goff, as I have indicated, considered that the Eclipse in its original design was safe. Even Mr Poole was perplexed.

[355]I am satisfied in fact that the original design for the Eclipse was not unsafe as such and that Mr Cleathero applied too high a safety factor. The evidence shows clearly that the design of the Eclipse was developing. The most sensible change to the design of this fitting which is a suspended light was to move away from reliance on the plastic body to an internal metal bracket for supporting the light. In reality, it would be wholly wrong to go the several steps further and hold that, even if there were concerns about the original design of this or any of the other fittings, Trac was trading their light fittings unlawfully. Not even the most disgruntled customer appears to have suggested this.

[356]I remind myself, however, that I am considering whether Trac was trading an unsafe product. Where experts of the quality I have heard in this case, both in the plastics and regulatory fields, hold differing opinions as to certain safety aspects of the Eclipse, it would hardly seem to be an obvious case for prosecution, particularly where the product was so rigorously tested by Mr Goff.

[357]In the end, however, I accept Mr Clements’ evidence that none of these products was in fact unsafe and the “the material problem was the fundamental issue causing the failure.”

[358]Documentary breaches of regulation 11(1) of the Regulations are alleged. Trac admits that some of the technical files were incomplete in that they did not record certain test results. Mr Sheen did not regard this breach of the regulations as particularly serious, but like Mr Poole anticipated some very strong advice from the HSE had they become aware. The design changes and improvements to some of the products should have been noted in the technical file, but he doubted whether “most people would think of [doing so]”. Mr Sheen regarded the design changes as in the nature of relatively minor product improvements “which most companies do as a matter of routine”.

[359]Mr Sheen and Mr Poole were of the view that there was no need to undertake further tests after Anglo had become the supplier of polycarbonate. Mr Poole thought that “there should have been some documentation to reflect the change of polycarbonate”, but there is no regulatory requirement to do so.

[360]The argument, that, because the wall of a housing is increased slightly in width, it indicates that Trac is carrying out its “own design of the products”, I agree, is unsustainable.

[361]Mr Campbell submits that Trac failed to make and keep proper declarations of conformity in relation to each of the products. Trac maintained its declarations of conformity in virtual form on a computer, so that they could be printed off when required. Trac accepts there was a breach of Regulation 10(f) as regards the failure to affix the last two digits of the year. This was a trivial breach.

[362]A question arose in the course of the trial whether the requirement to make a record in writing is satisfied when the record is merely stored electronically. In my judgment, where the written word is stored on an electronic file it is plainly stored in writing. In this day of electronic record keeping, if Parliament intended that a hard copy of a record should be kept in a paper file, that would have been made clear. In any event, I have no difficulty with the concept that a record, or anything else for that matter, that is written in an electronically stored document, is nonetheless a written document and is a record made in writing.

[363]Mr Campbell submits that Trac’s manufacturing processes did not conform to its technical documentation, in breach of regulation 11(4), in that they did not conform to the quality plans contained within each of the technical files. Mr Campbell relies on the reference to a “specification sheet” as being a reference to the polycarbonate Specification – so that Trac’s own procedures would apparently require it to check each Housing for each of the qualities set out in the Specification agreed between it and Rowan. I accept Mr Cochrane’s evidence that this is a misreading of the quality plan which says that such a specification sheet is to be completed by the production manager. Mr Sheen said: “…when I went to the factory I was shown the physical object that the incoming supply is checked against. They use the spec sheet when they do not have a sample, for the inspector to compare it with what is coming in. In the case of a housing, he has an approved housing and he looks at the pallets of housings and checks that what he is getting matches what is in his hand as the approved sample. So in most cases there is not a spec sheet, there is a sample”.

[364]Mr Campbell submits that Trac did not carry out an adequate inspection and/or test of each batch of components. Mr Cochrane explained in his Supplemental Witness Statement that the reference in the quality plan is a reference to an inspection of the finished product by the patrol inspector; each light fitting would be inspected in detail after it had been manufactured. The reference to testing is to electrical testing of the control gear.

[365]There is nothing in this allegation.

[366]The BSi tests carried out in relation to the Uniflood Mini and Maxi were carried out on products produced from Sylex 2000 polycarbonate. Mr Campbell submits that there should have been a record of the change in supplier once Rowan switched to Anglo. For the reasons I have already given, I am satisfied that this was not necessary. Indeed, because the Anglo material was expected to conform to the Sylex 2000 specification, Rowan, being responsible for the actual departure from the specification, is in no position to make the criticism in the first place.

[367]Mr Campbell submits that the failure to conform to regulation 11(4) constituted criminal offences pursuant to section 12(2) of the Consumer Protection Act 1987. This is a serious allegation. Section 12(2) of the 1987 Act provides that:

“Where safety regulations require a person who makes or processes any goods in the course of carrying on a business- (a) to carry out a particular test or use a particular procedure in connection with the making or processing of the goods with a view to ascertaining whether the goods satisfy any requirements of such regulations; or (b) to deal or not deal in a particular way with a quantity of the goods of which the whole or part does not satisfy such a test or does not satisfy standards connected with such a procedure that person shall be guilty of an offence if he does not comply with the requirement.”

[368]I accept Mr Tomlinson’s and Mr Grant’s submission that the wording of Section 12(2) is such that that a breach of regulation 11(4) does not constitute a breach of section 12(2). Regulation 11(4) does not require the manufacturer to carry out a “particular test” or “procedure”, nor with “a view to ascertaining whether the goods satisfy any requirements of such regulation”. This allegation fails.

[369]Mr Campbell submits that in breach of Regulation 9 of the Regulations Trac affixed a CE mark to the products even though the equipment did not comply with the requirements of the Regulations. Regulation 9 provides that:

“Subject to regulation 12, the manufacturer of electrical equipment or his authorised representative shall affix to all electrical equipment to which these Regulations apply (or to their packaging, instruction sheet or guarantee certificate) in a visible, easily legible and indelible form the CE marking as shown in Schedule 1 by way of confirmation that the electrical equipment conforms with all the requirements of these Regulations which relate to it”

[370]Regulation 9 creates a mandatory obligation to apply a CE marking. It is the failure to apply that marking which constitutes the breach.

[371]Regulation 14(1) states:

“…no person shall supply any electrical equipment in respect of which the requirements of regulations 5(1) and 9(1) above are not satisfied”

[372]Rowan alleges that Trac committed a criminal offence by “wrongly” affixing a CE mark contrary to section 12(3) of the 1987 Act which provides that:

“If a person contravenes a provision of safety regulations which prohibits or requires the provision, by means of a mark or otherwise, of information of a particular kind in relation to goods, he shall be guilty of an offence”

[373]I am satisfied that Section 12(3) is not engaged. Mr Campbell’s interpretation involves an analysis whereby, if a manufacturer breaches any aspect of the Regulations, however trivially, and then proceeds to apply a CE mark to his product, then he is guilty of an offence under section 12(3). This would be a strange result. Moreover Regulation 9 does not provide that a manufacturer shall not affix a CE marking in the event that there is any breach of the Regulations.

[374]I agree that it is clear that the only criminal offence created by the Regulations is the supply of electrical equipment which fails to satisfy the requirements of regulation 5(1): see regulation 17(2). No such criminal offence, in my judgment is made out, but, even if it were, I am satisfied that in the context of this case, any such breach of regulation would have been entirely collateral to Rowan’s breach of contract.

[375]Rowan relies on a number of allegations that Trac was in breach of the Trades Description Act 1968. I accept Mr Philip Appleyard’s evidence that there had not been a conscious decision to put the wrong descriptions in the brochure; that it was an error for which he took responsibility.

[376]Section 35 of the 1968 Act reads: “A contract for the supply of any goods shall not be void or unenforceable by reason only of a contravention of any provision of this Act”.

[377]Thus a vendor who has applied a false trade description to goods may nonetheless sue the buyer upon the contract, whether for the price or for damages. In fact the goods sold by Trac had no false trade description applied to them. Rather, the alleged breaches relate to Trac’s brochure and website. It follows that the contracts for the sale of each light sold were not rendered unenforceable or void by any breach of the 1968 Act. Trac could not be debarred from suing in respect of lost sales by reason of Rowan’s breach of contract.

[378]I am satisfied that the defence of illegality to Trac’s claim for damages is without merit. It is unfortunate that so much time and effort has been expended on it.

Summary of Issues addressed

[379]I summarise my conclusions in respect of the identified issues on the clear understanding that my findings contained within the body of this judgment prevail.

[380]Did Trac’s approval of the polycarbonate specification sent by Rowan mean that it was an express term of the contracts between Trac and Rowan that the Housings would be manufactured from polycarbonate which corresponded with the Specification? Yes

[381]And was it a term of the contracts between Trac and Rowan concerning white and grey housings that the polycarbonate used correspond with the Cotswold specification for white and grey polycarbonate? Yes.

[382]What relevant differences were there in the terms of the contracts for the supply of grey and white housings? None.

[383]If it was a term of the contracts that the Housings would be manufactured from polycarbonate which corresponded to the Specification, was the effect of the statement on the Anglo specification and any relevant proven conversations between Mr Kelly and Mr Cochrane that there was an obligation to use polycarbonate with an approximate MVR of 12? Yes.

[384]Did the contracts contain implied terms: i) That the Housings would correspond with the description of mouldings made from polycarbonate which corresponded with the Specification? Yes. ii) That the Housings would be reasonably fit for the purpose of the manufacture of light fittings? Yes. iii) That the Housings would be of satisfactory quality? Yes.

[385]Was the Anglo polycarbonate of poor quality and/or did it have a high MVR? Yes.

[386]If that answer is “yes”, was Rowan in breach of the terms of the contracts, and if so which? Yes, in that: i) the Housings were not manufactured from polycarbonate which corresponded with the Specification; ii) the polycarbonate used did not correspond with the Cotswold specification for white and grey polycarbonate; iii) polycarbonate was used which did not correspond with an MVR of at least 16 and, therefore, with an approximate MVR of 12; iv) the housings did not correspond with the description of mouldings made from polycarbonate which corresponded with the Specification; v) the housings were not of satisfactory quality.

[387]What is the effect of the caveat or disclaimer at the foot of the specification? It cannot be construed as giving either Anglo or Rowan the right to supply polycarbonate that departed from the specification. The issues raised between Rowan and Anglo. The Terms of the Contract between Rowan and Anglo

[388]Was it an express or implied term of each of the contracts between Rowan and Anglo that the(a) black

(b) white and/or

(c) grey polycarbonate would have an MVR of 12? Alternatively, was it an express or implied term of each of the contracts between Rowan and Anglo that the (a) black (b) white and/or (c) grey polycarbonate would have an MVR of approximately 12? Yes, that each would have an MVR of approximately 12 and no more than 16.

[389]Was it an implied term of each of the contracts between Rowan and Anglo that the polycarbonate would be reasonably fit for use in the manufacture of housings for light fittings? Yes.

[390]Was it an implied term of each of the contracts between Rowan and Anglo that the polycarbonate would be of satisfactory quality? Yes.

Performance of the Contract

[391]Did Anglo supply polycarbonate with an MVR in excess of 12 and if so, when? Yes, all such supplies.

[392]Did Anglo supply polycarbonate which was not of satisfactory quality, and if so, when? Yes, all such supplies.

[393]Did Anglo supply polycarbonate which was fit for its purpose? No.

Causation

[394]Are all the returned/rejected fittings for which Trac claims damages made from Anglo material and if not, how many were so made? Yes.

[395]Was the chain of causation broken as alleged in paragraph 27 of Anglo’s defence? No.

[396]Were there errors and deficiencies in the processing of the polycarbonate by Rowan and their subcontractors? Yes.

[397]Was the design of Trac’s lights and/or the choice of materials inadequate? No.

[398]Would all or part of Trac’s or Rowan’s losses have been incurred even if Anglo’s polycarbonate had complied with the contracts? No.

[399]Were Rowan and Moss's losses not reasonably foreseeable on the part of Anglo for the reasons set out in paragraph 29 of Anglo's re-amended defence? No.

[400]In the light of the above what is the correct measure of Rowan’s loss? The damages that Trac recovers from Rowan.

The issues between BIP and Anglo

[401]Was BIP responsible for sales/breaches of contract by Regent? Yes, in the sense that it inherited the terms on which Regent was trading.

[402]Did Mr. Kersey send the Specification(s) to Anglo? No with the exception of returning the copy of the specification on the 7th April 2000.

[403]Were the mouldings manufactured from polycarbonate supplied by BIP? Yes.

[404]Was the alleged poor quality of the polycarbonate the cause of the failure of the mouldings? Yes. However, I do not hold BIP to have been in breach of contract to Anglo.

[405]If the polycarbonate was as bad as alleged, should this have become apparent during the manufacture of the mouldings and breaks the chain of causation? No.

[406]Was Rowan intended to and did it rely on Anglo’s certificates of conformity? No, in the light of my findings in relation to Mr Kelly’s state of mind about them. Did this break the chain of causation between any breach of contract by BIP and the alleged loss and damage? Not applicable.

[407]If BIP is liable, is the correct measure of loss ‘difference in value’? This is academic, but in such event I should have taken into account the value of polycarbonate with an MVR of no greater than 16 as it was supplied by Cotswold; further, I should have had to consider that BIP in such circumstances would have foreseen that polycarbonate of the quality actually supplied at least would have affected the properties of any moulding made from such raw material.

Damages

[408]How many claimable returns were made between July 2000 and 31 March 2004? 12,000.

[409]What adjustment should be made for the “underlying rate of returns”? 0.168%.

[410]What “associated costs” should be included in the cost of replacement? All the costs of dealing with returns in addition to the actual labour cost of dismantling: these include matters such as site visits and third party costs.

[411]Should Trac have mitigated its loss by supplying replacements rather than giving credit notes from 31st March 2003? No.

[412]What is the appropriate period over which to consider future returns? The appropriate cut off date is 1st October 2007.

[413]What is the likely number of future returns? 5,223.

[414]Should any “associated costs” be included in the cost of future returns? Yes, at the same rate as for past loss.

[415]What is the proper “unit cost” for future replacements? The average cost of dealing with returns over the last 12 months adopting Ms Barnes’ method of calculation.

[416]Should Trac mitigate its loss by offering reduced credits? Yes, but only as from October 2005.

[417]Is it appropriate to base the calculation of loss of profits on Trac’s forecasts? Yes.

[418]I look forward to finalising this judgment, following editorial comment and further representations, particularly as to the calculations to be done. If counsel agree that there is any issue which I have left unresolved I should be prepared to attempt to resolve it on the basis of argument already completed.