Leche Pascual SA v Collin & Hobson Plc

Leche Pascual (“Leche”) is a large Spanish company, which processes dairy products. Collin & Hobson (“Collin”) is an English company which imports and distributes food products. The parties’ trading relationship began in late 1996. Successful business was developed with Leche’s ambient yoghurt, supplied in “multi-packs” (packs of four).

The present dispute concerns “single pot yoghurts”. For many years Collin had imported single pot yoghurts from a German manufacturer, under the Campina brand. In 1997 their trading relationship with Campina deteriorated, leading to notice of termination to expire in the spring of 1998. Collin needed to find a new supplier of single pot yoghurt. They found Leche, who agreed to supply single pot yoghurt for a minimum period of one year. In the event, Leche was unable to fulfil its contract, due to problems with the machinery it had bought for that purpose.

Following the trial of preliminary issues, the court found that

in January 1998 the parties entered into a binding agreement in respect of the supply of four types of single pot yoghurt, namely Leche Pascual brand and “Best In” brand (to be sold to the Bestway chain for retail under its own label, also referred to in the judgment as “own brand”), each in low fat and “thick and creamy” ranges;

under that agreement Leche was obliged to supply such quantity of single pot yoghurt as Collin from time to time ordered during the contract period;

an order was placed and was not fulfilled.

On 20^th August 2003, following a lengthy hearing, HH Judge Alton gave judgment on a number of remaining points. Most are no longer in issue. Relevant to this appeal she decided that:

Collin was entitled to recover losses calculated by reference to profit on anticipated sales during the whole 12 months of the minimum period of supply, as reasonably foreseeable losses of the failure to supply the first order;

the losses should be calculated assuming anticipated sales of 6.5m single pots and 3m single pots, respectively, of Leche Pascual brand and Best In brand, each reduced by 25% to reflect uncertainty and risk.

Leche sought permission to appeal on a number of points. On 3rd November 2003 Longmore LJ and Sir Martin Nourse gave permission on two grounds relating to the assessment of damages.

To set the context for the Judge’s findings on those issues it is helpful to set out her conclusion on the issue of liability:

The Judge acknowledged the assistance derived from the two expert witnesses on accountancy issues, Mr Hall for Leche and Mr Long for Collin. They had produced a very clear and helpful joint report, which explained the remaining issues and the respective positions of the parties.

As the Judge said, the only live issue was the projected volume of sales. In paragraphs 55 to 78 of her judgment she conducted a detailed review of the evidence on this aspect, and in paragraphs 79-80 she reached the conclusion I have indicated.

The grounds on which permission to appeal was given were in summary:

The judge approached the assessment of quantum of Collin’s loss of profits in the wrong way. She took their estimate of sales, based on historic sales of Campina products in 1996, instead of starting from an assessment of their sales in April 1998 (i.e. at the time of breach), and making appropriate adjustments.

Alternatively, her discount of 25% was insufficient having regard to the uncertainties of the exercise.

There are certain subsidiary points, which are relevant to both grounds:

She failed to take account of an apparent inconsistency of her findings with Collin’s own projections for sales to two supermarket chains, Londis and Nisa (which had been the subject of a separate agreement between the experts);

Her assessment of likely sales of Best In products was based on inadequate evidence;

She gave too much weight to the evidence relating to the original successful introduction of Leche Pascual multi-pack yoghurt.

Leche complains that the Judge wrongly took as her starting point Mr Collin’s own assessment of the likely sales, without regard to later evidence,

Mr Collin had based his estimate on the actual Campina sales in 1996, as explained in his third witness statement. Subsequent analysis by Mr Hall for Leche showed that there had been a decline both in the numbers of customers and the overall sales figures for the following two years. The result was that on his estimate the total sales of Campina 125g single pots had fallen from 6.076m in the 12 months to 1996 to 4.367m in the 12 months to 1^st April 1998. On the basis of the customers remaining at the date of breach (30^th April 1998) he estimated the sales at just over 4 million pots. He assumed a further decline in the following year to 3.6 million pots. That was the basis of his assessment as recorded in the joint report.

Leche says that if, as the Judge said, the relevant loss was that of “the existing customer base”, the starting point should have been the evidence of sales, as they were in April 1998 when the breach occurred. We were taken through the sequence of evidence following Mr Collin’s third statement, in which he originally put forward the 6.5million estimate. The implication was that it was inconsistent for him to seek to stand by that estimate when it was shown that the actual sales in the following two years were significantly less.

In my view, this analysis does less than justice to the work of the two experts, and to the careful examination of these issues in the judgment. It is true that Mr Collin began from the 1996 figures for Campina sales. As he explained in that witness statement, Campina had not provided sales reports for 1997, as the relationship had by then deteriorated. He referred in general terms to the factors which, in his view, were likely to have depressed sales in that period after 1996, and conversely to factors which would have made the Leche Pascual product more attractive to the market. He regarded his estimate of 6.5 million as “conservative”.

Following Mr Hall’s report and his analysis of the actual figures of Campina sales in 1997 and 1998, Mr Collin returned to this subject in a further statement. In that he stood by the estimate of 6.5million as conservative, in the sense that it did not take account of any sales to new customers. He commented in more detail on the reduced level of turnover shown by Mr Hall’s analysis. He thought the reduction would have been due to such matters as continuing quality problems, de-listing of certain products by Campina, and Campina’s pricing policy. In 1997 Collin were in some respects “in a state of limbo”, because it knew the association with Campina was coming to an end but it did not know what could be offered in its place. He also referred to their successful launch of the Leche Pascual multi-pack product, which showed that sales could build up very quickly with a sufficiently attractive product.

Mr Long, in his report for Collin, acknowledged the limits of his expertise in relation to some of the relevant factors. However, he reviewed the available evidence, including Mr Hall’s figures and Mr Collin’s comments on them. Having noted that the 6.5 million estimate represented a 35% increase on the actual Campina sales achieved in the previous year, he said:

The joint report listed the factors which the Court was likely to find relevant in determining a reasonable estimate. It noted the limits on the expertise of Mr Hall and Mr Long. It set out their respective positions as to estimates of total sales for the relevant year. Mr Hall’s conclusion was that 3.6 million was “reasonable, if anything overstated” as an overall estimate of sales (for both Leche Pascual branded and Best In own brand) in the year to 30^th April 1999. Mr Long’s view was that sales of 6.5m Leche Pascual branded, and 3m Best In own brand, were “reasonable and achievable”.

The Judge clearly understood the uncertainties necessarily surrounding the evidence before her. As she said:

She recognised that there was very little independent information as to “the general status of the ambient yoghurt market” and therefore it was necessary to “focus upon (Collin)’s performance as demonstrated in particular by its historical figures.” However, she saw some assistance in the evidence as to the sales of the yoghurt launched in mid-1997, while cautioning herself against “over-heavy reliance” upon such data:

Having reviewed the evidence in relation to that aspect, she said:

At paragraph 69 she considered the relevance of the fall in Campina sales, and whether that was attributable to the problems with Campina and might have been reversed using the Leche Pascual product. It is unnecessary to go through those points in detail. It is sufficient to say that the Judge clearly had in mind and specifically considered the rival contentions and the relevant issues, which had been so clearly identified by the joint report.

She expressed her conclusion as follows:

It is clear therefore that she broadly accepted the evidence of Mr Collin and Mr Long. Her reasons were clearly explained. They were directly related to the way the issues had been presented to her in the joint report. It is impossible in my view to suggest that she gave undue weight to Mr Collin’s evidence on the 1996 figures. They were fairly treated as one aspect of the overall picture. In my view there is no basis for challenging her overall approach.

One of Collin’s complaints was that as a result of the breach of contract they had lost two important customers, Londis Holdings Ltd (“Londis”) and Nisa-Today’s (Holdings) Ltd (“Nisa”). Estimates had been prepared by Collin’s Finance Director, Mr Robinson, in support of this claim. These were referred to in Mr Long’s report. By the time of the trial they were no longer in dispute. However, they were referred to in the joint experts’ report. It was noted that the figures showed that Collin’s expectation of potential sales to Londis in the year ending 30^th April 1999 would have been lower than the actual Campina sales in the year ending 30^th April 1998, and that the sales to Nisa would have been only marginally higher in that year; although the projections assumed growth of 30% in both cases for the following year. The joint report commented:

Mr Boyle complains that this apparent discrepancy was not addressed in terms by the Judge in her reasons. However, he was unable to refer us to any part of the cross-examination of the Collin witnesses, or the final submissions on behalf of Leche, which drew her attention to it as a material issue. In those circumstances, I do not see how the Judge can be criticised for not treating it as an issue requiring specific treatment in her judgment.

The second particular issue concerns the treatment of Best In products. Mr Boyle suggests that this part of the estimate was particularly uncertain. The assumption was that Collin would be buying not merely Leche Pascual single pots in place of those supplied by Campina, but in addition would be providing Best In with its own brand yoghurt. This was in effect a new market, and there was no reliable evidence as to how the two lines would compete with each other. Furthermore there was no direct oral evidence on this aspect.

In his evidence Mr Collin relied on his discussions with Bestway who had indicated that their expected volumes would be 1.5 million pots of each type, making a total of 3 million. These figures had been given to Mr Roessink, who was negotiating on behalf of Leche, at a meeting in January 1998 and confirmed in writing. In paragraph 77, the Judge commented on this part of the case. She noted that Bestway had been intent on developing a significant own brand range of basic products. She continued:

Mr Boyle suggests that this passage places too much reliance on what was in effect hearsay evidence from Bestway. In my view that misrepresents it. As the Judge said, her conclusion was based on a commercial estimate made at the time specifically for the purpose of entering into the contract. It was agreed by both parties as realistic and that view was supported by the other considerations to which the Judge referred. She also made a 25% deduction to represent the risk involved. Mr Boyle submits that the discount should have been 33⅓%, but is unable to offer any more rational basis for proposing that figure. I see no error of approach in the Judge’s reasoning.

Lastly under this head Mr Boyle submits that the Judge placed too much reliance on the success of the multi-pack launch. He refers to Mr Hall’s analysis of the relative prices of the Leche Pascual and Campina multi-packs (2^nd report para 3.5.12ff). He estimated that the Leche Pascual product was 20% cheaper per pot than the Campina product. He considered it “reasonable to assume” that the price advantage of the Leche Pascual product would have been “a highly significant factor in contributing to the successful launch of this product compared to the existing track record of the Campina multi-packs.” The relevance of the successful launch of the multi-pack products was clearly a significant issue at the hearing. It had been identified as such by the experts in their joint report. The Judge recognised (in para 64 – see above) that “all sorts of factors, including price” might play a part in such a launch. With that qualification, she was clearly entitled, particularly having regard to the limited availability of other indicators, to treat this as a significant factor. Although she might have dealt with this point in more detail, I cannot see that her failure to do so undermines her overall conclusions.

As I have noted, a separate ground of appeal related to the overall deduction of 25% for risk. In the event Mr Boyle made it clear that this was in effect an alternative way of putting the more detailed points to which I have already referred. As he submits, even if the individual points do not in themselves provide grounds for questioning the Judge’s reasoning, cumulatively they should be treated as indicating the degree of uncertainty in the overall calculations which should have been reflected in a higher final discount. However, any such deduction is inevitably an arbitrary exercise, based on overall judgment. I see no reason to interfere with the Judge’s assessment.

I can readily understand and sympathise with Leche’s frustration that their breach of contract, caused apparently by circumstances out of their control, had resulted in losses of this order. It may seem particularly galling that the losses are inflated by the acknowledged attractions of the Leche Pascual product, as compared with its predecessor. However, the breach of contract is not in issue. Although particular points can be made about aspects of the Judge’s reasoning, overall it was in my view a very careful and fully reasoned assessment in relation to what, as she acknowledged, must be a speculative exercise.

For these reasons I would dismiss this appeal.

I agree.

I also agree.