Lobster Group Ltd v Heidelberg Graphic Equipment Ltd & Anor

The Claimant, Lobster Group Limited, formerly Lobster Press Limited (“LPL”), brings a claim for damages for defects in a Heidelberg Speedmaster CD102.6 printing press (“the Press”). The Press was designed and manufactured in Germany by Heidelberger Druckmaschinen AG (“Heidelberg”), the parent company of the First Defendant (“HGL”). The press was hired by LPL from the Second Defendant (“CAF”) who purchased it from HGL. CAF is a company which specialises in financing, lease and hire of machinery and equipment.

Whilst the defendants accept that there was a defect in the Press which was investigated in late 2003 and early 2004, they say that they have no liability to LPL for that defect or for any loss and damage, under the particular contractual relationships with LPL. In any event they say that LPL has not properly established that it suffered any loss.

From March 2004 LPL stopped paying CAF the hire charges for the press and CAF terminated the hire of the Press. In these proceedings, CAF brings a counterclaim for the outstanding hire charges, together with sums due on the early termination of the hire. LPL entered into administration on 27 July 2005 and was placed into liquidation on 13 July 2006.

LPL was incorporated in 1997. In 2001 LPL purchased another company Chameleon Colour (“Chameleon”). Mr Gerry Kilbane was a director of Chameleon and he became one of the five directors of LPL. The other directors were Mr Mark Jones, Mr Stuart Arnup, Mr. Gary Brine and Mr Graham Dodridge. LPL specialised in high quality reprographic products.

Initially LPL had premises in Welwyn Garden City but in 1999 they moved into new premises in Hemel Hempstead, Hertfordshire. At that time they acquired from HGL a Heidelberg Speedmaster 74 printing press (“the SM 74 Press”) to help develop their printing capacity.

Every four years there is a trade fair for the printing industry at Drupa in Germany. Heidelberg exhibits its machines at that trade fair and this includes demonstrations of some machines which are in operation. Mr Kilbane, Mr Jones, Mr. Arnup and LPL’s production manager attended Drupa 2000 which took place in or around February or March 2000. At that trade fair, there was a CD102 printing press which was operated from a CP2000 control terminal which incorporated software developed by Heidelberg.

LPL alleges that various representations about the CD102 press and the CP2000 operating system were made to them at Drupa 2000. LPL also says that there was a further demonstration of the CP 2000 control system at HGL’s premises in Brentford, Middlesex in 2000 or 2001, when further representations were made.

By March 2001 LPL had decided that they needed a printing press which could print on B1 paper, which is twice the size of the paper which the SM 74 Press can print on. They also wanted a machine which could print on a wider variety of paper stock than the SM 74 Press, such as on card or board. The Heidelberg CD 102.6 press was put forward as fulfilling these requirements.

There were discussions in early 2001 between Mr. Kilbane and representatives of HGL and CAF. On 12 February 2001 HGL sent Mr Kilbane a quotation for the supply of a CD102.6 press and associated accessories in the sum of £1,213,390.

This was followed by a rental quotation sent by CAF to Mr Kilbane on 15 February 2001, with a number of rental options over a 36 month period. It also stated:

“Included in any of the three options above is Heidelberg’s full maintenance package (on a two shift basis) to cover against any breakdowns/repairs etc on expiration of the initial manufacturer’s warranty.”

On 21 March 2001 HGL provided Mr Kilbane with a slightly amended quotation omitting two minor accessories resulting in the cost being reduced to £1,213,250. That quotation included the following provisions:

“Guarantee.Please refer to our Standard Trading Conditions.…

Conditions. This quotation is subject to our Standard Trading Conditions which are printed on the reverse of the enclosed order form and to which we would respectfully draw your attention. If there is any discrepancy between any part or parts of this quotation and our Standard Trading Conditions such conditions shall take precedence in all respects.”

The quotation concluded by stating :

“Please sign the copy of the enclosed Order Form and return it to us prior to the quotation expiry date as soon as possible in order that we may process your order. Please note that there will be no agreement between us until we have received and approved the Order Form from you duly signed together with the deposit mentioned above; and we have formally accepted your Order either conditionally or unconditionally.”

An order form was included with the quotation as were a set of Standard Trading Conditions.

There were further discussions and on 23 March 2001 Mr Jones of LPL signed a standard HGL order form for a CD 102.6 press. The document referred to the quotation but included some additional equipment. The price of £1,191,190 which included a “2 year warranty via [CAF]” was fixed at an exchange rate against the Deutschmark.

On 9 April 2001 HGL wrote to Mr Kilbane, acknowledging LPL’s order and enclosing an Order Acknowledgement. In the covering letter HGL drew LPL’s attention to the Standard Trading Conditions printed on the reverse of the document. The Order Acknowledgement set out that LPL was the customer and CAF was the finance house. It stated that a deposit of £10,000 had been received and that installation was currently scheduled for July 2001. Under “payment terms” it stated “Finance to be arranged through [CAF]”.

On 30 May 2001 CAF wrote to LPL with a rental quotation for the CD102.6 press which was stated to be “As per order”. It said that this was a new quotation based on the previous option chosen and the new press price. The price was £1,191,190. It was for a 36 month rental period. It also stated:

“Additional Benefits

Included in the above option is Heidelberg’s full maintenance package (on a two shift basis) to cover against any breakdown/repairs etc on expiration of the initial manufacturer’s warranty.

Terminal Options

At the end of the initial four year period you would have the following options:-

1)

To renegotiate a rental extension which would be based on the residual [value] at the time and therefore showing a significant saving on the three year rental costs.

2)

Purchase the press from Heidelberg at a pre-agreed figure of £750,000.00 + VAT (this could then be financed on a more traditional method, perhaps Hire Purchase).

3)

Return the press to [CAF] or hold it to our order at which point your liability to us ceases. The press would then be sold to hopefully achieve the residual outstanding. Any proceeds received in excess of this balance, less our costs, would be refunded to you.”

In due course LPL signed a standard CAF short term hire agreement (“the Hire Agreement”) which was completed in manuscript and dated 11 July 2001. LPL, as the “Hirer”, hired the press from CAF for a minimum period of hire of 48 months from the date of delivery. The Hire Agreement was subject to standard Terms of Hire Agreement. The Hire Agreement was signed by Mr Kilbane and had an addendum signed by Mr. Kilbane and Mr Jones which set out the variable rentals over the 48 month period.

On 11 July 2001 HGL sent also an invoice to CAF for the Press in the sum of £1,191,190 plus VAT, less the deposit of £10,000 said to have been paid on 28 March 2001. There was an agreement which had been in place between CAF and HGL since 1998 under which HGL bought back a percentage of each press sold to CAF and on 11 July 2001 arrangements were made for the Press to be dealt with under these arrangements.

On 17 July 2001 HGL wrote to Mr Kilbane to provide details of the “Warranty Plus Maintenance Agreements” for the Press. The letter stated:

“Warranty-Plus is a Hardware Service Agreement which is offered as an integral part of the customers purchase. It is a highly cost-effective way of purchasing a service package that covers the customer from day one.

The Warranty Plus Service Agreement provides cover for all mechanical and electrical breakdowns. Labour, travelling and parts are included. Consumable parts are not covered by the agreement, for example, rollers, belts etc. These exclusions will be detailed within the Service Agreement. Our Service Hours are 06.00-22.00 Monday to Friday and 06.00 -14.00 Saturday. Excluding Bank Holidays

An additional and important element of the Warranty Plus Agreement will be Preventative Maintenance and this will be carried out at regular intervals to a detailed Schedule.

…

We have enclosed a sample service Agreement and Preventative Maintenance Checklists. An agreement specific to your press will be sent to you following installation and demonstration.”.

No specific agreement was put in evidence but a copy of the “Customer Service Agreement, Warranty Plus, Terms and Conditions” was provided and this included, amongst other things, various provisions relating to liability at clause 9.

On 19 July 2001 HGL’s Installations Co-ordinator wrote to Mr Kilbane to confirm the installation date and stated that installation was subject to satisfactory finance arrangements and to final confirmation of the machine being delivered from the factory. The following dates were given:

“The machine will be delivered to your premises on Tuesday 31^st July at 08:00 am. The build will complete on Saturday 11^th August, the demonstration will commence on Monday 13^th August and will be completed on Friday 17^th August.”

On 30 July 2001 Mr Philbrick of CAF sent HGL a standard form document stating: “We are in receipt of signed documentation and have clearance on the deposit cheque. Please go ahead and install the machine.”

On 16 August 2001 CAF wrote to Mr Kilbane as follows:

“Please find enclosed a new standing order mandate commencing 1/10/01 for you to sign and return ASAP. I would like to take this opportunity to apologise for the confusion regarding the first payment date on this agreement, our usual policy is for the customer to make his first payment a month from delivery except in special circumstances.”

On 24 August 2001 Mr Kilbane signed a standard HGL form with a title “Declaration by Customer”. It was stated to be for “installations”. The standard form was completed and signed by Mr Kilbane as follows:

“1.

The equipment described above has been so designed and constructed as to be safe as is practicable and without risk to health when properly used.

2.

This equipment is/is not complete with all my standard safety fitments. It has/has not been tested and demonstrated.

3.

Our nominated employees have/have not been instructed on safety, operation and maintenance procedures, and have/have not been provided with manufacturer’s documentation to support the information given.”

Mr Colin Howse of HGL had filled in the “Installation Details” section of that standard form as follows:

“Installation Demonstration CD102.6 543917

Press Print Tested via Production Work

All Appears Satisfactory

Register motor to be replaced at 5^th Print Unit”

Mr Howse, as the HGL demonstrator, had also completed a standard HGL “Press Demonstration Check List” which was signed by him and by Mr Ashley Hawkins of LPL, also dated 24 August 2001.

It seems that a pre-press interface and preset link were installed on about 3 October 2001 and then on 19 October 2001 Colin Forrester the Regional Sales Manager of HGL wrote to LPL in these terms:

“Following our last conversation regarding payment for the new Speedmaster CD installed at Lobster Press, I have now checked with our service department who inform me that the press is complete and running in full production. At this stage any small faults which may occur are subject to the warranty which covers the press. I would therefore ask you to start the repayments to [CAF]. I have informed Paul Philbrick of my findings as I see no reason why you should be withholding the money outstanding.”

HGL attended LPL’s premises on a number of occasions in October 2001 and twice in November 2001 to carry out work on the Press. On each visit Daily Work Sheets were prepared by HGL and they were generally countersigned by a representative of LPL. On 1 November 2001 there was a visit in relation to calibration of the characteristic curves on the CP2000 which Mr Wade identified as the first visit relating to problems with colour variation.

On 21 November 2001 Mr Murray Booker of CAF wrote to Mr Kilbane, following a meeting which had taken place to discuss payment. In that letter he set out the position as follows:

“We appreciate that there were some initial problems with the press in question, and as such your second payment was put back to the 1^st October 2001.

…

In the meantime, despite the initial problems, you have used and continue to use the press extensively whilst continuing to withhold payments to us against the late delivery of CIP3 - a small part of this overall transaction and one which does not affect the performance of the press itself.”

This letter was passed by LPL to their solicitors, Hancock Quins, who wrote to CAF on 26 November 2001 dealing with the payment position and saying:

“We believe that you are aware of our client’s position: their liability to commence payments under the Contract commenced this month when the equipment supplied by you was working satisfactorily. [However], notwithstanding their strict obligations in the matter, our client has already made one monthly payment. The next payment is not due until December 2001.”

After further correspondence the question of payment was resolved and LPL commenced further payment on 4 December 2001.Over the next few months HGL continued to visit LPL’s premises to deal with various problems which arose with the Press and Daily Work Sheets were completed. In particular there were problems with the CP2000 with five visits in the period May to July 2002.

In July 2002 LPL encountered some financial difficulties and on 9 and 17 July 2002 CAF wrote to LPL to say that they had not received the standing order payment due on 1 July 2002. The payment instalment due on 1 August 2002 was however paid and on 6 August 2002 Mr Hodge, an accountant with LPL, wrote to CAF to say:

“We regret that we were not in a position to honour our July rental payment due to severe cash flow pressures that month.

Whilst these pressures have eased considerably, we are not yet in a position to make good the missing payment

However, we do wish to bring our account up to date within the tight constraints in which we work and to this end we would propose payments of £1000 per week.”

The question of the missing July 2002 payment was resolved on this basis and HGL continued to visit LPL’s premises on a regular basis to deal with problems with the Press and in relation to the CP2000 in September 2002 and April 2003.

From 26 June 2003 the HGL Daily Work Sheets record a number of problems which refer to colour or colour variation.On 29 September 2003 the HGL Daily Work Sheet records a problem with movement on units 5 and 6 which Mr Wade identified as the commencement of 17 visits to deal with the problem of image fit.

On a visit on 11 December 2003 to discuss an invoice query, Mr Wells of HGL met Mr Kilbane who complained about the length of time HGL had taken to resolve a particular problem with the Press. At that meeting Mr Kilbane also said that LPL had experienced various problems with side lay, colour variation, print length issues and failure of the CP2000 which controlled the Press.

A further meeting was arranged for 18 December 2003 when Mr Wells attended with Mr Stockley and they spoke to Mr Jones because Mr Kilbane was not available. They also spoke to the press operators about the problems and decided that the first step was to carry out a print test.

There was then a follow up meeting on 22 January 2004 and the print test was arranged for 10 February 2004, but in the end took place on 6 March 2004 when HGL took some test plates to run print tests to “investigate ongoing fit problems”. They ran the print tests on units 1 to 4 after adjusting the plate clamps but found that the polyurethane on the grippers which hold the sheets of paper was peeling and decided that the grippers needed to be replaced.

On 13 March 2004 there was a further meeting between Mr Stockley and Mr Kilbane and it was found that there was movement on units 1 to 4 and that the grippers on units 5 and 6 were also damaged.

On 16 March 2004 Hancock Quins wrote on behalf of LPL to HGL and said this:

“Since the machine was supplied there have been, as you well know, frequent problems with the machine and your engineers have attended to inspect, and carry out work on the machine on many occasions. On the 6^th and 13^th instant your engineer inspected the machine and identified various problems and told our client that no remedial works could be completed until the defective grippers on the machine were replaced. We have advised our client that you are in breach of contract in supplying a machine not of satisfactory quality and that they are entitled to look to you for damages including, but not limited to, the cost of having the machine repaired, the losses that they will sustain whilst the machine is out of action and the losses which they have and will sustain by reason of being unable to fulfil their [own]contractual obligations to their customers. We have advised our client that in order that their losses can be quantified and the precise nature of the problems with the machine identified an independent expert should be instructed to inspect the machine.

Taking the above action would leave our client without the machine for an unacceptable period of time. In these circumstances we suggest that you remove and repair the machine and that during the time it is out of action you supply our client with a replacement machine to minimise the time they are without a machine, and therefore their losses and consequently the losses that they will look to you to reimburse.”

A copy of that letter was sent to CAF on 18 March 2004 saying that LPL would not be making any further payments to CAF until the complaints were resolved.

On 23 March 2004 Hancock Quins wrote to HGL’s Solicitors, Ross & Craig, proposing that the BPIF, of which both LPL and HGL were members, should be asked to carry out a joint examination under their mediation service. On 26 March 2004 Ross & Craig wrote to say:

“Our clients do not consider that in these circumstances… any useful purpose will be served by the conduct of a joint examination by the BPIF which will take precisely the same amount of time as our clients say they need to rectify the problem.

Our clients also make the point that they have been more than prepared to carry out the work but your clients have refused to allow it to be done and then consulted your firm in connection with the matter generally. This has simply added to the delay in resolving the matter.”

In response on 30 March 2004 Hancock Quins informed Ross & Craig that they would be instructing BPIF unilaterally. LPL then appointed Mr Malcolm McReath who made a number of visits to inspect the Press on 6 May 2004, 2 and 3 June 2004 and produced reports.

The grippers were replaced in early April 2004. On 13 April 2004 there was a further meeting between Mr Stockley and Mr. Button of HGL and Mr Kilbane. HGL carried out further tests, now that the grippers had been replaced and the Daily Work Sheets noted “all ok”. When Mr Stockley visited the premises on 14 April 2004 he was told that the fit problem still persisted. He therefore arranged for a visit on 21 and 22 April 2004 to check the plate clamps now that any problems with the grippers had been eliminated. The plate clamps on unit 2 were reset and a print test was run which showed good results.

However LPL reported that the problems had not been resolved and Mr Stockley and Mr Collins of HGL visited on 24 April 2004 and re-set the plate clamps on unit 2 and ran further tests. The results were not good and it was decided to stick the rear plate clamp to the cylinder with adhesive. This seemed to solve the problem and Mr Stockley proposed changing the plate clamps.

HGL started to replace the clamps on unit 2 on 27 April 2004. But after doing so and running a print job noted that the problem had not been resolved. Mr Stockley then contacted Mr Kevin Ramsbotham, HGL’s Southern Service Supervisor, who attended site on 28 April 2004. After further work they decided to request assistance from Heidelberg’s office in Germany. This led to the visit of Herr Christian Engel who arrived on 4 May 2004 and worked at the plant on 5 May 2004. Parts were ordered from Germany and on 6 May 2004 the clamp to unit 1 was replaced. After a print run of 2100 sheets, the print length changed on unit 1 showing that there were still image fit problems. Herr Engel then left and returned to Germany.

On 29 April 2004 Mr Button of HGL wrote to Mr Bob Stevenson at CAF to say this:

“We have an ongoing problem with the press since February relating to fit/movement creating a variation in the colour.

This week we discovered that the punching and bending of the plates were causing this.

We have worked weekends where possible to mitigate the downtime suffered by the customer during March and April.

Hopefully we have now solved the problem. We shall definitely know next week after the customer has had the opportunity to run a long production job on the press.”

Herr Engel did not return. On 7 May 2004 Mr Kilbane wrote to Mr Stevenson to say:

“The situation with the Press is now worse than it has ever been and we need to meet, as soon as possible, to decide the best way forward.

We had discussed meeting while we were at the show in Germany but having taken advice, the time and the place are wholly inappropriate.

Could you contact me when you receive this letter, to set a date.”

The annual Drupa trade fair then took place in mid May 2004 and on 12 May 2004 Mr Button, Mr Francis and Mr Wells of HGL met Mr Kilbane and Mr Jones of LPL at HGL’s stand at that trade fair. Mr Button said that HGL needed four days to replace the clamps which he hoped would fix the problems on the Press. Mr Kilbane did not agree to that proposal and disagreed with the diagnosis that the clamps were causing the problems. This led to Mr Button phoning Mr. Stockley from the trade fair and Mr Kilbane then spoke directly to Mr Stockley. In that conversation Mr Stockley said that he could not guarantee that the work would be completed in four days or that replacing the clamps would resolve the problem.

After that meeting HGL started to make arrangements for Herr Engel and another engineer from Heidelberg in Germany to visit LPL’s premises to start work on 14 May 2004, subject to LPL confirming the availability of the Press. On 13 May 2004 Mr Jennings of HGL sent Heidelberg an e-mail which said:

“The customer, Lobster Press will not allow access to his press over the weekend. Any arrangements which may have been made may now be cancelled.

This job will however proceed at some point in the near future, so I would still appreciate it if the preparation for this job still gets done.”

There were further discussions between LPL and HGL and Mr Kilbane wrote to Mr Button on 25 May 2004 to say that he was awaiting confirmation of an offer. He concluded his letter by saying:

“I thought you understood the seriousness of the situation, clearly this doesn’t appear to be the case. Could you please for the last time have a confirmation forwarded to us ASAP.”

On 26 May 2004 there was a meeting between Mr Kilbane and Mr Stevenson of CAF and on 27 May 2004 Mr Davies, the Group Head of Collections and Litigation for CAF, wrote to LPL in these terms:

“Further to your meeting yesterday with Bob Stevenson it has become clear that you have no intention of maintaining regular monthly rentals under the terms of the above agreement.

Under these circumstances we enclose a termination notice and we wish to collect our property next week. With this in mind our engineers will be in contact with you during the next day or so to arrange the removal of our property.”

The attached notice noted that £43,475 was due and stated that:

“You are in breach of the above agreement by your failure (inter alia) to make prompt payment which is the essence of this agreement which is terminated.

You are no longer in possession of the above goods with our permission and we require their immediate return.”

On 28 May 2004 Taylor Walton, now instructed by LPL, wrote to CAF who replied on 4 June 2004 to say:

“Following the termination of the agreement it is our normal practice to take possession of our property. However we note your comments regarding the performance of the equipment and with this in mind, we are prepared to leave the equipment with your client for a further period of ten days from the date of this letter to enable inspection and print tests to take place. You will appreciate that should the equipment be removed that substantive tests would not be possible. After this period has elapsed we require access to your client’s premises to remove our property.

As you quite rightly say this equipment has been the subject of correspondence between your client, Heidelberg and ourselves and hopefully you have now received full instructions from your client. We would refer you to the report of Malcolm Mcreath, dated 9^th May, and also Heidelberg’s letter of the 14^th May. It is also our contention that your client continues to use the equipment whilst not making payment to this company. We would further bring to your notice that as payments have ceased the extended warranty is no longer in place.”

In the event the Press remained at LPL’s premises and in July 2004 solicitors for LPL and for HGL sent a joint letter of instruction to Mr Peter Wade to act as a single joint expert. He visited the premises and carried out print trials on 1 and 2 September 2004.

The Press was then removed on 21 September 2004, with dismantling taking place from 17 September 2004. The Press was then taken to HGL’s premises at Tamworth where HGL carried out further work to it and there were inspections involving Mr McReath and Mr Wade on 19 October 2004 and 23 December 2004. HGL then involved Engineers from Heidelberg’s office in Germany, from December 2004.

In January and February 2005 further work was carried out by Heidelberg’s engineers and on about 11 February 2005 the plate cylinder was changed on unit 1 and further print tests were run then and in June 2005 which showed that the Press was now operating satisfactorily.

The cylinder which had been replaced was sent to Germany for testing and was found to be within acceptable tolerance and measurements. Herr Hans-Joachim Eichhorn, who is Head of Service Support for CD102 printing presses, summarised the position as follows in his witness statement at paragraph 18:

“What caused the fit problem and why it was solved after the exchange of the plate cylinder is an open question. I personally believe that it was a setting change or adjustment made to the first unit during the replacement of the plate cylinder which led to the problem being fixed.”

The Press was then sold by HGL to Collier Litho Limited in Romford, Essex in November 2005.

On 25 May 2007 LPL commenced these proceedings against HGL and CAF. HGL served a defence dated 31 August 2007. Replies were then served to both Defences. By an additional claim CAF also sought damages and an indemnity in these proceedings against HGL. Those proceedings were settled and as a result HGL and CAF were jointly represented in these proceedings.

Directions were given leading up to the trial. In summary the issues which arose in this case concerned representations made by HGL prior to the contracts; the contractual arrangements between LPL and HGL and between LPL and CAF; whether the Standard Terms of HGL and CAF were incorporated into the relevant agreements and whether certain limitation or exclusion clauses in those standard terms were unreasonable; the scope and extent of any breaches and the quantum of any recoverable damages.

Witness statements were exchanged and I heard evidence on behalf of LPL from Mr Gerry Kilbane who up until the liquidation of LPL in 2005 was a director and 50% shareholder in LPL; from Mr. Mark Jones who had been a director of LPL; from Mr Ashley Hawkins who was employed by LPL and acted as a “minder” or operator of the Press from its installation in August 2001 until 2004 and from Mr Malcolm McReath who had been originally engaged as a expert but gave factual evidence of what he had observed on inspections and printing tests on the Press in 2004.

On behalf of HGL I heard evidence from Mr Michael Winn, a print application specialist involved with the CP2000 computer interface and who visited LPL’s premises between November 2001 and September 2004; Colin Forrester an Area Salesman employed by HGL who was involved in discussions with LPL from 1998 until after purchase of the Press in 2001; Mr Danny Francis, a salesman with HGL who was involved in discussions with LPL from 1999 to May 2004; Mr Paul Wells who was HGL’s Divisional Service Manager for the Southern Division and was involved in complaints about the Press from July 2003 to May 2004; from Mr Kevin Ramsbotham, HGL’s Field Service Supervisor for the Southern Division who became involved in May 2004 and was involved until June 2005; from Herr Hans-Joachim Eichhorn who was employed by Heidelberg in Germany as Head of Service Support for CD102 printing presses and became involved in May 2004 and in 2005 in resolving the problems in the Press; from Mr Stuart Arnup, who was a director of LPL until his resignation in about May 2002; from Mr Christopher Stockley a Field Service Supervisor with HGL’s Southern Division who was involved from December 2003 until August 2004; from Mr Martin Brown, an electrical technical specialist with HGL who was not involved with the press but gave evidence about the CP2000 press operating console and from Mr. David Button, the Divisional Director of HGL, who was involved from March 2004 until his retirement in about March 2005.

On behalf of CAF I heard from Mr Paul Philbrick, an Area Manager at CAF, who was involved in arrangements with LPL during 2001 and from Mr Alan Davies, Group Head of Collection at CAF who first became involved with LPL in August 2001 and dealt with the termination of the arrangements and CAF’s subsequent counterclaim.

In relation to the witness evidence, Mr. Kilbane evidently held strong feelings as to what he regarded as the poor performance of the Press and of HGL. He had been involved throughout the process from the acquisition of the Press up to termination and then until the liquidation of LPL. His memory of the detail of the events and of dates was poor. He tended to make assertions which were not always consistent or accurate. He was generally unable to support his evidence with any documentary records but this was, at least in part, due to the fact that after the administration and liquidation of LPL it seems that a number of LPL’s documents cannot now be found. Mr. Jones merely confirmed the contents of Mr. Kilbane’s witness statements and was not asked any further questions. Mr. Hawkins was evidently a straightforward and fair witness who did his best to recall what had happened. Mr McReath provided useful, largely unchallenged, evidence of the results of his inspections and tests in 2004.

HGL’s witnesses all gave evidence which I consider reflected what they could recall of the facts and events with which they had been involved. Their evidence however did not always reflect the style and tone of their witness statements and I consider that their oral evidence is to be preferred over those statements as it better reflects their recollection of what happened and of what was said and done at the time.

On behalf of CAF, Mr. Philbrick’s evidence as to the arrangements between CAF and LPL was not as clear or consistent as I would have expected. Mr Davies gave clear evidence to the extent that he was able to.

Mr. Peter Wade was, as I said above, appointed as a single joint expert by the parties. He has many years of experience in dealing with issues concerning technical printing production. He has also been a joint chairman of the Technical Committee of the Institute of Printing.

Each party called expert accountancy evidence. LPL called Mr. John Green BA, FCA, CF a director of Pierce Forensic Limited. The Defendants called Mr Douglas Hall, BA FCA, MAE, MEWI, Head of Forensic Services at Smith & Williamson. They helpfully produced a joint statement signed on 21 January 2009.

I shall now deal with the various issues which arise in this case.

LPL rely on representations which they say were made at Drupa 2000 and at a demonstration at HGL’s Brentford premises in early 2001. The claim is put under s.2(1) of the Misrepresentation Act 1967 which provides as follows:

“Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true.”

The representations relied on are set out in LPL’s closing submission as follows:

In those closing submissions LPL also summarise their position in relation to misrepresentation under the following headings: Make Ready, Running Speed and Quality, Service, CP2000 and Market Leadership. It is convenient to deal with the allegations under each of those headings. It is to be noted that LPL has not dealt with other aspects of the pleaded case on misrepresentation.

Generally the way in which the case on misrepresentation was pleaded and pursued did not clearly identify who made the representation or other details of what was said. There was some evidence in Mr Kilbane’s witness statement which gave further detail but nothing that individual witnesses of HGL could properly deal with. It is also the case that misrepresentation was not alleged in the period 2001 to 2004 when the problems with the Press are said to have arisen.

In relation to this, Mr. Kilbane says HGL claimed “make ready times” the time needed to prepare a press before or during printing, would be reduced to 20 minutes for a four colour make ready and also that HGL claimed the make ready time was something like 20 minutes. In his evidence Mr. Forrester of HGL said that a make ready of 20 to 30 minutes was conceivable and that he could not say that Mr. Kilbane was not told of a make ready time of 20 minutes. Mr Francis confirmed that 20 to 30 minutes would have been attainable. Mr. Wade says is his report that a six colour job make ready should be completed in a total of 45 minutes. He also says that the 20 minute make ready is certainly possible on jobs after the initial standard 45 minute make ready was completed. The evidence of Mr Arnup was that 20 to 30 minutes was “pretty mandatory” as a make ready time for presses of that era.

It is evident that a reference to make ready time needs to distinguish between the time for an initial make ready and the time for a further make ready during the printing process. Neither Mr. Kilbane nor the other witnesses, except for Mr. Wade, distinguish between these two times. It seems to me that it is much more likely that Mr. Kilbane was told about the shortest time for a make ready which would generally be for a subsequent make ready rather than an initial make ready. He has no record of what he was told in 2000 and 2001 and these allegations were not made in the period up to May 2004. Given the view I formed as to his ability to recall detail, the lack of contemporaneous documentation is important. In any event, the evidence I have from Mr Forrester, Mr Francis and Mr Arnup is that 20-30 minutes was conceivable, available and “pretty mandatory” and I have no doubt that such periods could be achieved as confirmed by Mr. Wade.

I therefore think it is likely that any reference to a make ready time which was provided to Mr. Kilbane was to the shortest time for a make ready and that, in that context, there was nothing false in the period of 20 minutes which was given.

In relation to running speed and quality, Mr Kilbane says that the CD102.6 was advertised and sold on the basis that it could run up to 15,000 impressions an hour. It is not clear what was said about quality. I have also been referred to Mr Kilbane’s evidence that HGL “advocated and sold” the CD102.6 on the basis that it could achieve 15,000 impressions per hour. There is no document which I have been referred to which contains this figure.

It is clear from the evidence that there are a number of figures that can be given for impressions per hour. There is a maximum speed for a press; there is the speed at which the press will typically run and there is also the average speed at which the press will run given all the other necessary operations which have to be carried out. On the evidence I am left in great doubt as to which speed, if any, Mr Kilbane says is false. His evidence was that the machine he saw at Drupa was running at 15,000. As a result I am not satisfied that any misrepresentation was made.

In relation to service, Mr Kilbane says in his witness statement that HGL made “strong representations” about their “service back-up”. LPL relies on Mr. Francis’s evidence where he said that it sounded reasonable that HGL’s salesman emphasised “the network and quality of Heidelberg’s service engineers available in the UK and their ability to diagnose and fix problems with the press”. It is entirely unclear what aspect of service back-up Mr Kilbane says was strongly represented to him. On the evidence, though, it is clear that HGL do have “service back-up” and did diagnose and fix problems, as shown by HGL’s Daily Work Sheets. The precise representation is therefore not clear but, in any event, HGL did have service back-up and I do not consider that any representation has been shown to be untrue.

In relation to the CP2000 Mr Kilbane says in his witness statement that he was told that the CP2000 had the ability to link to LPL’s existing computer system to enable the ink ducts on the CD102 to be set automatically and that this could save considerable time. LPL do not seem to dispute that the CP2000 allows the link to be made to their existing computer system. Neither do LPL seek to say that this aspect would not save time. Instead they appear to rely on the fact that they were not told about teething problems with the CP2000. I do not consider that this deals with the pleaded representations, which Mr Kilbane refers to. To the extent that any pleaded representation was made it was therefore true.

In relation to market leadership, LPL do not rely in their submissions on any passage of Mr Kilbane’s evidence but rather refer to what Mr. Francis said as to the CD102.6 being regarded as an advanced “state of the art” press and an impressive piece of machinery. I do not consider that LPL have established any representations. What is referred to is much more “sales puff” or opinion which, in any event, could not found a basis for a misrepresentation. In any case, the evidence indicates that the CD102.6 press would be described as a “state of the art” press.

It follows that I do not consider that LPL has established its case either on the basis that the alleged representations were made or on the basis that if they were made they were false. In addition, I consider that LPL’s case on misrepresentation also suffers from other difficulties which were identified in the defendants’ opening submissions. First, the relevant representations were made by HGL and the only agreements which LPL allege were made with HGL were the agreements which gave rise to what I define below as the Warranty Agreement and the Service Agreement. The case on misrepresentation does not affect the Hire Agreement and I do not consider that HGL can be said to have acted on behalf of CAF in making any representations or that CAF can otherwise be liable for any misrepresentations which might have been made by HGL. I was referred to Pilmore v Hood (1838) 5 Bing NC 97 cited to in Chitty on Contracts (30^th Edition) at para. 6-021 where the authors state that “it is sufficient if the misrepresentor was the agent of the other contracting party simply for the purpose of passing on the misrepresentation to the misrepresentee”. Those are not the facts of this case and I do not consider that any representations by HGL would impose liability on CAF.

Secondly, the case being put forward by LPL is not that CD102.6 presses have inherent problems but that the particular Press was not fit for purpose or of satisfactory quality. Thus, the underlying case by LPL is not that CD102.6 presses as a class did not have the characteristics which they allege were represented.

In the circumstances, I find that LPL has not established any case on pre-contract misrepresentations.

There are three contractual relationships relied upon by LPL in relation to their claim: a Hire Agreement between LPL and CAF; a Supply Agreement or Warranty Agreement between LPL and HGL and a Service Agreement between LPL and HGL. It is convenient to consider each separately.

As pleaded in paragraph 4 of the Particulars of Claim and admitted by CAF: there was “a Short Term Hire Agreement No 0310017991 dated 11 July 2001” under which LPL agreed to hire the Press from CAF. I shall refer to that agreement as the Hire Agreement.

That document containing the Hire Agreement was signed by Mr Kilbane and contained the following declaration by the hirer, LPL: “I agree as follows…. (1)… I have read and understood the Terms overleaf… (5) My attention has been drawn to Clause 5 (Exclusion of Liability) overleaf.”

In his oral closing submissions Mr. James Ramsden, on behalf of LPL contended that the standard “Terms of Hire Agreement” which were set out on the other side of the Hire Agreement did not become binding at the stage of the signed agreement but only became effective if and when the Press was accepted on the basis of those Terms of Hire Agreement. Mr Ramsden accepted that it was not an easy submission. I consider that it has no merit.

The Hire Agreement was a document under which LPL hired the Press and, in my judgment, it clearly incorporated the Terms of Hire Agreement on the reverse side. Indeed, I note that in paragraph 34 of the Particulars of Claim that LPL relied on those standard terms which it exhibited at Appendix 1 to the Particulars of Claim, as they did in the written opening. I do not consider that there was any later date at which those terms could be incorporated by acceptance of the Press, which at most would be performance of the obligations already agreed in the Hire Agreement.

Although in the Particulars of Claim no reliance was placed on any implied terms of the Hire Agreement, in his written opening submissions and in his closing submissions Mr Ramsden submitted that there were implied terms under the Supply of Goods (Implied Terms) Act 1973 (“the 1973 Act”). He relied on those terms because he submitted that the Hire Agreement had a four year rental period but also gave LPL the option to buy the Press. He submitted that the Hire Agreement came within the description of a “hire purchase agreement” under the provisions of s.15(1) of the 1973 Act. Alternatively, he submitted that terms would be implied under the Supply of Goods and Services Act 1982 (“the 1982 Act”).

The basis on which Mr. Ramsden submitted that there was a hire purchase agreement was that, in the earlier quotation provided by CAF to HGL on 30 May 2001 for a 36 months rental period, there was a paragraph which contained terminal options, one of which gave LPL the option to purchase the Press at a pre-agreed figure of £750,000 plus VAT. However there is no evidence that a similar option was given in relation to the 48 months rental agreement finally entered into as the Hire Agreement. There is no reference in the Hire Agreement document to any terminal option. LPL’s case that there was a hire purchase agreement is based on the fact that Mr Kilbane always understood that he would have the option to buy. However, such subjective intention does not establish that there was that agreement. In addition LPL refers to the evidence of Mr. Davies. He was asked a lengthy question which included an assertion that the scheme remained the same between the 30 May 2001 quotation and the final Hire Agreement. However the relevant question was based on the terminal option under the 30 May 2001 letter and I do not consider that Mr Davies’ evidence supports LPL’s contention.

Mr Andrew Clarke QC and Mr David Lascelles who appear on behalf of the defendants submit that the Hire Agreement did not have any terminal option permitting LPL to purchase the Press. They submit that the appropriate implied terms, if any, are those in the 1982 Act.

I accept the defendant’s submissions. I do not consider that the Hire Agreement eventually entered into had a terminal option which gave LPL a right to purchase the Press. The documentation does not show that the terms of the 30 May 2001 letter were incorporated into the Hire Agreement and there is no documentary evidence to support that. In these circumstances I hold that there was no hire purchase agreement so that the terms of the 1973 Act would not apply. If any terms are to be implied they are, in my judgment, those under the 1982 Act.

I therefore find that the Hire Agreement between LPL and CAF incorporated CAF’s standard Terms of Hire Agreement and, to the extent that there are implied terms, they would be those under the 1982 Act.

The original contractual arrangement between LPL and HGL consisted of HGL’s quotation dated 21 March 2001, the order form dated 23 March 2001 which was signed by Mr. Jones and the acknowledgement of order form of 9 April 2001. All of those documents referred to and attached HGL’s Standard Trading Conditions. Under that agreement HGL were to supply the Press to LPL by way of sale for the total sum of £1,191,190. That agreement was the original basis for the claim as pleaded against HGL which was based on the Sale of Goods Act 1979. That was also the basis on which LPL opened their case and much of the case at that stage related to the right to reject the Press, whether there had been acceptance and the terms of the Sale of Goods Act, which are no longer relevant. I shall refer to this agreement as the Sale Agreement.

However the Sale Agreement was never performed. Instead the Press was sold by HGL to CAF and CAF then hired it to LPL under the Hire Agreement. In putting together that arrangement it does not appear that any of the parties considered what the effect would be on the existing Sale Agreement. In those circumstances what, if anything, of the Sale Agreement remains so as to impose rights and obligations between HGL and LPL?

In his opening submissions Mr Ramsden submitted that the relationship was converted to a supply agreement to which HGL’s Standard Trading Conditions did not apply but that terms were implied under the Sale of Goods Act 1979 and at common law. The terms implied at common law were that LPL would have recourse to HGL in the event of defects in the Press until the defect was rectified and that there would be a commissioning period for the Press as a pre-condition to acceptance and payment.

In their opening submissions Mr Clarke QC and Mr Lascelles submitted that if there was such a supply contract then it would be subject to HGL’s Standard Trading Conditions although they accepted that not all the terms would be relevant given that there was no sale. In addition, it was submitted that the Sale of Goods Act would not apply as the contract was not a contract for the sale of goods and they would, in any event, be excluded by clause 11 of HGL’s Standard Trading Conditions. It was also submitted that the further terms were not to be implied at common law.

In their opening submissions the defendants had also said at paragraph 75.2 that, as between LPL and HGL, the position was that LPL agreed to be bound by HGL’s Standard Trading Conditions “which included a manufacturer’s warranty”.

By the time of his closing submissions Mr Ramsden no longer relied on the Sale of Goods Act or on the second of the terms he said was to be implied at common law. Rather he adopted the defendants’ submission at paragraph 75.2 of their opening that there was a warranty by HGL and submitted that there was a further implied terms that HGL had the obligation to remedy defects of manufacture notified during the term of the warranty agreement, whether or not they were in fact remedied by its expiry. LPL also contended that HGL’s Standard Trading Conditions did not apply and that, instead, there was a 12 months manufacturer’s warranty, as set out in paragraph 75.2 of the defendants’ opening.

The legal and factual analysis of the consequences of the change from the Sale Agreement to the arrangement that was performed by way of a sale of the Press to CAF, a Hire Agreement by CAF to LPL and a Service Agreement between HGL and LPL is not straightforward. As I have said, the change does not appear to have been the subject of any discussion between the parties. In those circumstances, the parties are agreed that the contractual position as between LPL and HGL has to be ascertained by construing the Sale Agreement against the relevant background and taking account of the conduct of the parties. There is no additional documentation which assists.

Under the original Sale Agreement, LPL would have had the benefit of the “Guarantee” given in Clause 10 of HGL’s Standard Trading Conditions. HGL accepts that this term still applies and LPL now relies on that acceptance in HGL’s opening submissions to found a claim on the basis of the 12 month manufacturer’s warranty in Clause 10. LPL submit that this warranty formed the basis of a contract between HGL and LPL which LPL refers to as a Supply Agreement. I consider that it is better described as the Warranty Agreement as there was no relevant supply by HGL to LPL.

In relation to the background to the arrangements, it is clear that when the Sale Agreement was entered into the question of financing of the purchase of the Press by CAF was being discussed at the same time. When CAF and LPL entered into the Hire Agreement they agreed at clause 5.5 of the Terms of Hire Agreement that “[LPL] warrants that it has obtained direct from the supplier of the Equipment all warranties and other terms that [LPL] requires as to the state, condition or use of the Equipment.”

The Addendum which formed part of the Hire Agreement also said that included in the payment under that agreement was “[HGL’s] full maintenance package (on a two shift basis) to cover against any breakdown/repairs on expiration of the initial manufacturer’s warranty”. It is clear that, as between LPL and CAF, it was intended that the initial 12 month warranty provided by HGL would continue to apply.

I consider that, as seems to be common ground in the submissions, the only contractual basis for the 12 month warranty is the provision contained in clause 10 of HGL’s Standard Trading Conditions. That provides:

“(a)

The goods are guaranteed for … twelve months against breakdown due to defective material or workmanship in manufacture.

(b)

Any claim under this guarantee must be made within ten working days of breakdown or damage and during the period of guarantee.

(c)

This guarantee is confined to replacement or repair at [HGL’s] option of the defective part and the repair of any damage to the equipment arising from the failure of the said part and any payment by way of damages whether for immediate or consequential loss is expressly excluded.”

I accept that, as the defendants submit, the only provisions of the Standard Trading Conditions that apply are those which are relevant to the obligations between LPL and HGL given that the only obligation is the provision of a warranty. HGL submits that clauses 10 to 13 apply. LPL submits that, in effect, only parts of clause 10 apply.

I consider that HGL’s submissions are to be preferred and that the provisions of clauses 10 to 13 are all relevant to the 12 month warranty obligation by HGL to LPL. First, I consider that the relevant warranty or guarantee is that contained in the whole of clause 10 and it cannot be confined to paragraph 10(a) alone. Secondly, clause 11 provides that “[HGL’s] obligations to remedy defects in the goods under the warranties set out above shall be its sole liability…”. That reference to warranties set out above is, in my judgment, a reference to clause 10. Thirdly, I consider that clauses 12 and 13 refer to potential liability arising from defects which are the subject matter of clause 10 and are therefore relevant to the clause 10 obligation.

In relation to implied terms, because the agreement between HGL and LPL relates only to the warranty or guarantee given in clause 10 and does not involve the sale, hire, hire purchase or supply by HGL of any goods to LPL, there are no implied terms which arise out of the Sale of Goods Act, the 1973 Act or the 1982 Act.

In relation to the further implied term relied on by LPL and set out at paragraphs 33 and 34 of LPL’s closing submissions, the term relates to defects which arise in the warranty period and remain unresolved. In my view, subject to notice, the obligation of HGL is to replace or repair the defective part where there is a breakdown within the 12 month period. If there is a breakdown in that period of which they are given notice and they fail properly to identify the defective material or workmanship or properly to replace or repair the defective part then they will be in breach of the obligation, as a matter of the proper construction of clause 10. Thus if there is a breakdown within the 12 month warranty period and HGL fail properly to remedy it because, for instance, they replace the wrong part or replace the defective part with another defective part, they will be in breach of the terms of the warranty in failing to repair or replace the defective part. To that extent as a matter of construction or necessary implication I consider that HGL had the obligation to remedy defects of manufacture notified during the term of the warranty agreement, whether or not they were in fact remedied by its expiry.

The Service Agreement, as I shall refer to it, was then entered into between LPL and HGL and was evidenced in the letter from HGL to LPL of 17 July 2001 and HGL’s standard Terms and Conditions. Those documents contemplated a schedule setting out details of the Service Agreement. No schedule appears to have been completed or, at least, none is relied on, However, as is evident from HGL’s Daily Work Sheets, HGL carried out visits to remedy defects in the Press from 2001 to 2004. Given the 12 month warranty is clause 10 of HGL’s Standard Trading Conditions, then it follows in my judgment that the Service Agreement commenced after that 12 month warranty period. I note that this is consistent with the provisions agreed between CAF and LPL that the maintenance package started on the expiration of HGL’s warranty. The Service Agreement was subject to the standard Terms and Conditions. This seems to be common ground as LPL refers to and relies on Clause 9(a) of those Terms and Conditions in their closing submissions.

LPL say that HGL was obliged to fix defects affecting the Press under the Service Agreement and submit that it was reasonable to expect a manufacturer of sophisticated machinery to identify and correct defects in it, particularly when HGL was the only party who could identify and remedy the defects and where, in relation to image fit, the defect was present since delivery. I shall consider this submission in the context of the defects.

As a preliminary consideration LPL contend that the relevant exclusion clauses do not apply to the relevant liability in this case. They submit that the clauses cannot exclude or limit liability where the defective Press was not repaired or replaced by HGL within 12 months and where the problem was so unusual that it could not be remedied except by extensive diagnosis and remedial works. These matters are best considered, if still relevant, when the breach and loss are identified but in principle I do not consider that an exclusion clause which was potentially applicable would be affected by the matters relied upon by LPL.

LPL relies on the provisions of the Unfair Contract Terms Act 1977 (“the 1977 Act”). It is common ground that:

The provisions of s.11(1) of the 1977 Act provide that a terms is reasonable if it is:

“A fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.”

In determining reasonableness the Court will have regard to any of the matters set out in Schedule 2 to the 1977 Act which appear to be relevant, namely:

“(a)

the strength of the bargaining positions of the parties relative to each other, taking into account (among other things) alternative means by which the customer's requirements could have been met;

(b)

whether the customer received an inducement to agree to the term, or in accepting it had an opportunity of entering into a similar contract with other persons, but without having to accept a similar term;

(c)

whether the customer knew or ought reasonably to have known of the existence and extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties);

(d)

where the term excludes or restricts any relevant liability if some condition is not complied with, whether it was reasonable at the time of the contract to expect that compliance with that condition would be practicable;

(e)

whether the goods were manufactured, processed or adapted to the special order of the customer.

Under s.11(4) UCTA in relation to a limitation clause as opposed to an exclusion clause the Court will pay regard to “the recourse which the party seeking to rely upon the clause could expect to be available to him for the purpose of meeting the liability should it arise” and “how far it was open to him to cover himself by insurance”.

Further under s.11(5) of the 1977 Act, “It is for those claiming that a contract term or notice satisfies the requirement of reasonableness to show that it does.”

In relation to reasonableness, the defendants rely on the following matters:

LPL refer to a number of decisions on UCTA 1977 and submit that clauses limiting liability to repairing defects under a warranty within short set periods of time have found disfavour with the courts where the customer is reliant upon the expertise of the supplier to do so.

LPL also submit that the following factors are relevant to show that the exclusion clauses are not reasonable:

I was referred to a number of previous decisions on the 1977 Act. Those cases illustrate the application of the 1977 Act to clauses in specific contracts in relation to the particular circumstances of those cases. In summary:

In the present case there are three relationships which need to be considered: the Warranty Agreement and the Service Agreement with HGL and the Hire Agreement with CAF. Whilst the overall relationship has to be taken into account, it is convenient initially to look at each agreement and the terms of those agreements separately.

The relevant warranty provides that the Press is guaranteed for 12 months from the date of installation against breakdown due to defective materials or workmanship.

HGL rely on the following Standard Trading Conditions to exclude, amongst other things, the losses which LPL claim:

The effect of Clauses 10(c), 11, 12 and 13 is to exclude all liability for damage so that HGL’s liability is limited to replacing or repairing the defective part. Were these fair and reasonable terms to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the Warranty Agreement was made?

The Hire Agreement with CAF and not any agreement with HGL was, in the final arrangement, the agreement under which LPL obtained the Press. As a result, there was no agreement under which HGL supplied the Press to LPL. In such circumstances, absent the Warranty Agreement, HGL would have no contractual liability to LPL for defects. This is not a case where the Warranty Agreement is excluding or limiting what would otherwise be HGL’s obligations.

Under the Warranty Agreement HGL undertook an obligation in relation to breakdowns occurring in a 12 month period which was the subject of notice under Clause 10(b) and was limited to replacement or repair of defective parts. There can be no challenge to the scope of the obligation by using the provisions of the 1997 Act as the challenge is in relation to the exclusion or limitation clauses. As Gloster J said in JP Morgan Chase Bank v Springwell Navigation [2008] EWHC 1186 (Comm) at [601]:

In this case I consider that the following factors are of importance:

In such circumstances, where HGL undertook a limited obligation to replace or repair defective parts then I do not consider that there is anything unreasonable about HGL excluding any liability other than the obligations to remedy defects under clause 10. Nor do I consider that the exclusion of liability under clause 12 in respect of matters arising from LPL’s incompetence or negligence is in any way unreasonable.

I do however consider that the exclusion in clause 10(c) of damages for “immediate loss” is unreasonable as is the exclusion of liability for any increased costs or expenses and direct damage in clause 13. If, for instance, HGL fails to replace or repair a defective part then, at the very least, I consider that it is unreasonable that LPL should not be able to recover damages for breach of contract to cover the “immediate loss” or “increased costs or expenses” or “direct damage” suffered in paying others to remedy the defects.

In the light of Mr Kilbane’s evidence of the existence of the AON insurance policy in the context of providing LPL with protection in relation to the Service Agreement and for reasons stated in Regus v Epcot I would not consider it unreasonable for HGL to exclude liability for consequential loss under clause 10(c) or similar heads of loss under clause 13(ii) and (iii). However I consider that the exclusion of immediate loss in clause 10(c) and of increased costs and expense and direct damage in clause 13 renders clause 10(c) and 13 unreasonable and in doing so the unreasonableness goes to the whole of the provision: see Stewart Gill v. Horatio Myer [1992] QB 600 at 607 to 608.

Therefore, whilst I find that it was reasonable for HGL to exclude a wider liability than the expressly undertaken under clause 10 to replace or repair defects, I do not consider that it was reasonable to exclude liability for loss in the terms set out in clauses 10(c) and 13.

In my judgment similar considerations apply to the Service Agreement. The obligation under clause 9(a) of that agreement is that HGL has to exercise reasonable skill and care in providing the services.

HGL rely on the following provisions of Clause 9 of the Service Agreement to exclude the losses which LPL is claiming:

HGL submit that Clause 9(d), read strictly, would limit LPL’s liability to zero because LPL did not actually make payments to HGL under the Service Agreement because LPL paid CAF for the provision of the services under the Service Agreement as part of LPL’s rental payments under the Hire Agreement. HGL say that, if the payment is interpreted to included payments made to CAF the sum is unknown as the documents do not separate out this sum from the overall rental payments.

Were these fair and reasonable terms to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the Service Agreement was made?

As described in HGL’s letter of 17 July 2001 the agreement provides cover for all mechanical and electrical breakdowns. The cost of labour, travelling and parts are included but consumables are not. Again, in the context of the obligation to carry out repairs and replacement when there is a mechanical or electrical breakdown I consider that the exclusion of liability for increased costs and expenses in clause 9(d) is unreasonable, for substantially the same reasons as set out above in relation to the Warranty Agreement. It is not reasonable, in my judgment, for all “increased costs or expenses” to be excluded where, for instance, HGL fail to remedy defects.

In principle, I do not consider that a limitation of liability clause in the terms set out in clause 9(d) is unreasonable given the limited obligations undertaken by HGL under the Service Agreement. However, it is for HGL to establish what that limit is, should that be relevant.

This is the agreement under which the Press was provided. As I have set out above, this agreement would be subject to any relevant terms implied into contracts of hire by virtue of the 1982 Act.

The defects are alleged by LPL to amount to breaches of implied conditions that the Press would be of satisfactory quality and fit for purpose, as set out in paragraph 131 of LPL’s closing submissions. CAF do not accept that the implied obligation of fitness for purpose applies in their case.

In the present case, subject to the application of clause 5.3, I consider that the Hire Agreement would be subject to an implied term that the press was of satisfactory quality under s.9(2) of the 1982 Act.

However, in relation to an implied term that the press was fit for purpose, s. 9(6) of the 1982 Act provides that the implied term of fitness for purpose in Clause 9 (5) does not apply where the circumstances show that LPL did not rely or that it was unreasonable for LPL to rely, on the skill and judgment of CAF. In this case it is evident that LPL relied on HGL and not on CAF in relation to whether the Press was fit for the particular purpose for which LPL were hiring it from CAF. Equally, given the involvement of LPL and HGL, as set out above, I do consider that it would have been unreasonable for LPL to rely on the skill and judgment of CAF.

As a result, I accept CAF’s submission and do not consider that a term of fitness for purpose would be implied into the Hire Agreement under the 1982 Act. Therefore, the only implied obligation would be the provision as to satisfactory quality under s.9(2) of that Act.

CAF rely on clause 5.3 of the Hire Agreement which, as relevant, provides:

“CAF does not let or otherwise supply the Equipment with the benefit of any term condition warranty or stipulation, written or oral, express or implied, whether by statute or otherwise. The terms of Sections 8 to 10 inclusive of the Supply of Goods and Services Act 1982 will not apply to this Agreement.”

CAF also rely on clause 5.4 of the Hire Agreement to exclude or limit all or some of LPL’s losses. That provides:

“subject to the above [CAF] will not be liable in contract or tort or otherwise for any loss or damage suffered by [LPL] or another whether or not caused by the negligence of [CAF]”.

Were these fair and reasonable terms to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the Service Agreement was made?

I do not consider that it was reasonable under Clause 5.3 for CAF to exclude liability which would otherwise arise under s. 9(2) of the 1982 Act, for the following reasons:

Further I consider that the exclusion in Clause 5.4 of all loss or damage suffered by LPL is an unreasonable provision. Whilst, as I have said above, exclusion of loss of profits and losses referred to as consequential damages would, in my judgment, be reasonable because it would be LPL who would know what losses might be suffered and could insure against that risk, I consider that a complete exclusion of losses would be unreasonable in circumstances where the Press failed to perform properly because it was not of satisfactory quality.

It follows that HGL cannot rely on the provisions of clauses 10(c) or 13 of the Warranty Agreement or Clause 9(d) of the Service Agreement to exclude damages if HGL failed to perform their obligations under those agreements. In addition, I do not consider that CAF can exclude liability under the implied term as to satisfactory quality under Section 9(2) of the 1982 Act nor do I consider that they can exclude damages for breach of that obligation.

If LPL had purchased the Press directly from HGL under the original Sale Agreement, they would in principle have had the benefit of the implied terms of the Sale of Goods Act 1979 as to fitness for purpose and satisfactory quality. When LPL changed the arrangement so that they hired the Press from CAF who, in turn, purchased it from HGL then this had two effects. First, any implied terms that might apply to sale of goods were no longer applicable and therefore LPL had to take the terms implied into the hire agreement which the 1982 Act, as amended, has now made more restricted.

Secondly, where a party hires goods then it would normally have protection if the goods were not of satisfactory quality. In the present case, the fact that there was an obligation to replace or repair defective parts under the Warranty Agreement and the Service Agreement provides some protection as to quality. However, it does not provide an underlying obligation as to quality which would normally be expected to be provided and was, as I have found, provided by the Hire Agreement.

I now turn to consider the alleged defects in this case.

LPL contend that the Press suffered from a number of defects. First they say that it suffered from problems with image fit throughout the period of hire and that it was only after the cylinder to Unit 1 was replaced, after termination of the hire, that this defect was remedied. As a result LPL say that there is an overwhelming inference that this fault must have arisen during manufacture, either manufacture of the cylinder itself or in the way in which it was installed in the Press.

Secondly, LPL contend that the Press suffered from problems in relation to colour variation and thirdly that the CP2000 controller was defective and had to be replaced a number of times and that this also related to the colour variation problem.

LPL also contend that the problems of image fit and colour variation were related to a significant extent so that, in particular, the image fit problems would give rise to a variation in colour.

The defendants say that, whilst the image fit was resolved by the replacement of the cylinder, the evidence is that there was nothing wrong with the cylinder and that the question of what caused the image problem is an “open question” as was stated by Herr Eichhorn. They submit that in these circumstances, LPL has not proved that there was a defect in manufacture in the Press or any of its components.

In relation to colour variation, the defendants say that this was caused by LPL’s failure properly to maintain the Press and that the problems with the CP2000 were not linked to any colour variation problems.

I now turn to consider whether there were defects and, if so, what was the cause of the defects.

In his Report Mr Wade refers to the image fit problem arising because after 1500 to 2000 sheets had been printed on the Press, the image fit moved from the pre-set position. Mr Wade carried out tests in September 2004 and noted that Unit 3 had moved and was printing slightly smaller than all the other units. In further tests carried out in November 2004 he noted that Units 4, 5 and 6 had moved from the datum position and were printing smaller. He says that movement in image fit is relatively small and that it is understandable that LPL initially considered the cause of the problem was related to the accuracy of the printing plates or paper stretch. The movement, he says, required the press operator either to re-adjust the plate position manually or to remove the plate and refit it again.

Mr Hawkins said that the image fit problem was there from the beginning and that the press operatives would ensure that everything was set up for the printing jobs to begin running and then after a certain number of sheets, which he said could be 1000 to 1500 or 3000, they would have to stop the Pressbecause the fit had gone wrong and they would have to start to make-ready again.

It is evident that the first reference to “image fit” in HGL’s daily worksheets was only in September 2003, over two years after the Press had been installed at LPL’s premises. In those circumstances, the question arises as to whether the problem was present from delivery and whether HGL had notice of the defect or of the symptoms before September 2003.

Mr Wade has expressed the view that the fact that the new plate cylinder remedied the problem with the image fit suggested that the original plate cylinder had a mechanical defect which was present from inception. Herr Eichhorn’s evidence was that, when the cylinder was inspected in Germany, there was no defect in it. Whilst it seems that HGL or Heidelberg carried out the tests on the cylinder unilaterally without involving LPL, Herr Eichhorn was obviously a careful and conscientious engineer with a great deal of experience in these matters and I accept his findings that there was no defect in the cylinder itself. However it is quite evident that the operation of replacing the cylinder together with the necessary associated parts which had to be replaced or reset solved the problem. Herr Eichhorn accepted that the resetting could be the explanation.

As I have said, Mr Hawkins’ evidence was that there were fit problems of the type described by Mr Wade, which he described as register problems, from the time when the machine was installed. I found Mr Hawkins a straightforward and honest witness and I have no doubt that the problem with image fit was caused by some defect in the Press which was present when it was first installed. Given that replacement of the cylinder remedied the problem but that the cylinder itself was not defective, in my judgment, the defect was either in an ancillary part which was also replaced when the cylinder was replaced or it was a defect in the assembly of the Press when the components were put together. I consider that both of those defects would come within the description of defects in the manufacture of the Press and, on the basis of Herr Eichhorn’s evidence I consider that the second cause is the more likely.

I therefore conclude that the image fit problem was caused by a defect in material or workmanship in manufacture which was present from the installation of the Press in August 2001. In addition, as set out below the defect in the Press meant that it was not of satisfactory quality.

In his expert report Mr Wade came to the conclusion that “there were issues concerning colour variation some of which I am sure are due in part to a lack of maintenance because of the presence of ink contamination”. He also said that“the CP2000 controller was subject to replacement and setting more than once”. He therefore considered that LPL and HGL should “equally take a share for the reported problems concerning the colour variation experienced on the Speedmaster CD 102.6 press”.

LPL in their closing submissions say that this is a rational apportionment. They say that there is a clear link between colour variation and the CP 2000 Unit as found by Mr Wade and they refer to the evidence of Mr Winn and Mr Brown as accepting this link, with the CP2000 controlling the mixture of ink and water, based on operator inputs. Given that the CP2000 had to be replaced on three occasions, LPL say that this supports the view of Mr Wade that the CP2000 controller was responsible for the colour variation problem. So far as lack of maintenance is concerned, LPL did not challenge Mr Wade’s view but say in their closing submissions that there is no reliable or credible evidence that a lack of maintenance was causative during the period when LPL hired the Press.

The defendants, contrary to the view expressed by Mr Wade as joint expert, invite the court to find that the issues which arose with the CP2000 were not linked to any colour variation problems. Mr Wade was called to give evidence and was taken to each of the records which he relied on as being cases where the CP2000 was linked to colour variation. He reviewed the relevant sheets for incidents on 1 November 2001, 24 May 2002, 8 June 2002, 11 June 2002, 8 July 2002, 16 July 2002, 23 September 2002 and 16 April 2003. Each of those occasions related to problems with the CP2000 or to adjustments to the ink characteristic curves on the CP2000.

In relation to the problems with the CP2000, I note that, for instance, these were reported as an intermittent failure for the CP2000 to start up (27 May 2002) or that it locked up (11 June 2002) or that there were screen faults (16 April 2003). Whilst the CP2000 obviously controls ink and water flow, I do not consider that the records of the faults which caused the CP2000 to fail to start or operate show that those faults would have caused colour variation problems.

I accept that the adjustment of the ink characteristic curves is something that the LPL operators would do and I note that the HGL Daily Work Sheet for 1 November 2001 refers to instruction on adjustment of curves. I do not consider that such adjustments are evidence that there was any defect for which the defendants would be responsible. The need for LPL operators to deal with ink characteristic curves because of different pre-press data, change of ink or other operational matters was explained by Mr Winn whose evidence I accept. The records do not show that the change was made because of colour variation problems.

Whilst the views of a joint expert with the experience of Mr Wade are obviously not lightly to be departed from by the court, Mr Wade fairly accepted that the Daily Work Sheets which he had used did not, for instance, say why the characteristic curves needed adjusting or what was the effect of the CP2000 not starting. Whilst Mr Wade obviously did his best on the limited material available it seemed to me that he could not, on analysis, support the pragmatic view he had reached that responsibility for the cause of colour variation should be shared between LPL and HGL on the basis of the CP2000 being responsible for that problem. In those circumstances, this is one of the cases where based on the factual evidence and Mr Wade’s clarification of the basis for his views, I differ from Mr Wade in his conclusion that the CP2000 was the cause of a colour variation problem. As Clarke LJ said in Coopers Payen Limited v Southampton Container Terminal Limited [2003] EWCA Civ 1223 at [42] when considering a case concerning the evidence of a joint expert: “at the end of the trial the duty of the Court is to apply the burden of proof and to find the facts having regard to all the evidence in the case, which will or may include both evidence of fact and evidence of opinion which may interrelate.”

What then caused the colour variation problem? Mr Wade explains at paragraphs 3.40 to 3.45 the way in which ink roller contamination can cause colour variation. I have seen photographs of the rollers on the Press when it was inspected at Tamworth in September 2004 after being removed from LPL’s premises. It is clear that the rollers were contaminated and I accept Mr Wade’s evidence that the accepted cause of such contamination was poor or infrequent anti-contamination treatment which would be a matter of normal maintenance for LPL.

Mr Hawkins’ evidence was that he had spoken to HGL’s operatives who came to help with the problems and who said that there was a calcium glaze and that, as a result, LPL obtained the relevant cleaning material. On seeing the photographs of the rollers Mr Hawkins expressed the view that LPL had not been cleaning the rollers sufficiently regularly. I have also seen, for instance, the Daily Work Sheet for 2 August 2003 where colour variation is mentioned and the cause is set out as being contamination, with the work needed being cleaning.

I have therefore come to the conclusion that the colour variation problem was likely to have been due to lack of maintenance by LPL, at least in large part. I am not satisfied that any other cause has been established. There was a suggestion in submissions by LPL that HGL might bear some responsibility for the lack of maintenance by failing to draw this to LPL’s attention. I do not consider that this is a tenable contention. As Mr Hawkins says HGL evidently did have some conversations with him as to maintenance and the Daily Work Sheets support this. There was also a suggestion that the Technotrans system which supplies water might have been a cause but that was not pleaded by LPL and was not and could not have been the subject of any proper consideration by Mr Wade or the witnesses in this case. On the evidence, I cannot conclude that the Technotrans system was causative of any colour variation problem.

In relation to colour variation whilst I accept that the lack of fit would cause some colour variation I do not consider that the particular colour variation problems which arose and are recorded in the Daily Work Sheets were caused by the lack of fit. Mr Hawkins treated the problems as separate and I accept that they were.

In those circumstances, I conclude that the cause of the colour variation was not something for which the defendants are responsible and was not caused by defective material or workmanship in manufacture. On the evidence it is likely to have been caused by lack of proper maintenance for which LPL was responsible.

There were clearly problems with the CP2000 console which led to it being replaced on at least three occasions. However, as I have found above those problems did not cause the colour variation problems. Further, as the Daily Record Sheets show, when the problems were notified to HGL they attended LPL’s premises and dealt with them.

I also note and accept Mr Wade’s conclusion at paragraph 3.44 of his report where he said that he was of the view that there was no mechanical fault or manufacturing defect with the Press in relation to the CP2000 control.

The only defect which could give rise to a breach is therefore that of image fit. It is necessary to see to what extent this gives rise to a breach of any of the three agreements.

Under the Warranty Agreement HGL’s obligation was to replace or repair defective parts due to defective material or workmanship in manufacture, where the claim is made within ten working days of breakdown or damage. I do not consider that there is anything to differentiate between the way in which this or any other obligation applies to minor or major defects, as LPL appears to suggest.

Whilst Mr Hawkins’ evidence is that there was a problem with the Press from its installation, I do not consider that LPL made any claim in respect of the problem of image fit during the 12 month period of the Warranty Agreement. I accept Mr Wade’s evidence that the first Daily Work Sheet relating to image fit was that of 29 September 2003. That I consider is the first time that it could be said that a claim or complaint was made in respect of image fit. The suggestion was made by LPL that autoregister problems recorded on the Daily Work Sheet for 23 October 2001 were problems with image fit. However, it is clear from the evidence of Mr Hawkins that the problem with autoregister was that LPL’s software created an extra line which LPL had put on the plate to pick up and read the image and that caused the problem which was resolved by a change in LPL’s software. It is also clear that there was no further problem with the autoregister and that this was not the image fit problem which Mr Wade identified in the sheets from 29 September 2003 onwards.

Whilst image fit was there from the beginning, it is not evident that anyone in LPL considered the defect to be of either sufficient importance or to be a defect in the Press until that notification. It has been described by Mr Wade as relatively small and has also been described as an intermittent defect. It is not clear to what extent it affected particular print jobs other than the few print jobs where rectification costs were necessary. Whilst there may have been discussions between the operators of the Press and HGL personnel who visited LPL’s premises as a result of other problems with the Press, I consider that a claim under the Warranty Agreement requires, at the very least, some express notification of the defect to HGL which would have been likely to be evidenced by HGL making a visit and completing a Daily Work Sheet or by some other document. In the absence of evidence of any such claim, I do not consider that HGL had any obligation to identify or remedy defects.

The fact that LPL did not initially consider that there was a defect is, in my judgment, supported not only by the fact that Mr Kilbane did not raise it as a problem during the 12 month period but also by the fact that when LPL communicated with HGL during that period there was no mention of the problem, contrary to what would have been expected. First, on 26 November 2001 when there was correspondence between HGL and LPL’s then solicitors, Hancock Quins, those solicitors referred to liability for payment commencing “this month when the equipment supplied by you was working satisfactorily.” I do not accept that this statement was made because of anything said by HGL. Rather, I consider that it set out LPL’s view at the time that the Press was working satisfactorily. Had it not been then I have no doubt that Mr Kilbane and the other directors would not have allowed that statement to be made and would have challenged CAF’s entitlement to payment if they had thought that there was a defect in the Press.

Similarly on 6 August 2002 when LPL had “severe cash flow pressures” and were in correspondence about paying the July 2002 rental payment by instalments, I have no doubt that if LPL had thought that there was a problem which was affecting their business then LPL’s directors would not have been slow to raise that in the context of those financial difficulties. Whilst it was explained that the letter was written by Mr Hodge, one of LPL’s accounting personnel, if there had been perceived to be a defect with the Press then I have no doubt that Mr Hodge and directors or other people he discussed the financial problem with, would have raised the matter.

There was evidence that warnings had been given to the operators of the Press because Mr Kilbane and others had thought that the problem of image fit was caused by operator error. Also, there was evidence that as a result of the warnings the operators kept a record of defects. The precise timing of such warnings was not clear and views varied, as they did on the form of the warnings. However, given that the operators only started making records in 2004, I consider that such warnings cannot have been given any earlier than the latter part of 2003 and may well have been given in 2004. They certainly do not indicate any earlier concerns.

I therefore find that there was no breach by HGL of the terms of the Warranty Agreement. The image fit defect was not notified to HGL within the 12 month warranty period and it follows that HGL were not in breach of any obligation to replace or repair any defective parts.

Under the terms of the Hire Agreement, I have held that there was an implied term that the Press was to be of satisfactory quality under s.9(2) of the 1982 Act. Under s.9(2A) goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the consideration for the bailment (if relevant) and all the other relevant circumstances.

In my judgment, the defect which affected image fit in the Press meant that it was not of satisfactory quality. This was a sophisticated piece of specialist machinery which was hired by CAF to LPL for a rental payment of £12,500 per month initially, rising to £18,500 per month. Any lack of image fit, even if relatively small and intermittent, would have the potential to cause problems to LPL and would mean that the quality of the Press was not satisfactory.

I therefore find that there was a breach of the implied term of the Hire Agreement that the Press was to be of satisfactory quality.

The notification given to HGL in September 2003 was given under the Service Agreement. Under clause 9(a) of that agreement HGL were to exercise reasonable skill and care in providing the services which in this case were to remedy the defects arising from mechanical and electrical breakdowns. LPL say that HGL did not act with reasonable skill and care because they failed to diagnose a fundamental defect of manufacture and failed to provide a coordinated approach to service.

LPL also say that in Spring 2004 HGL acted unreasonably by:

I do not consider that LPL have made out any of these contentions. The history of the matter from September 2003 onwards shows that the defect took some time to identify and that HGL took a series of logical steps to diagnose and deal with the defect.

In particular, it took some time for HGL to be able to arrange meetings with LPL to discuss the problem and to carry out the necessary print tests which, because LPL were continually using the Press to print work, LPL reasonably wanted to have done at weekends. The records show that this is when the tests and the further work was carried out. The first stage was to renew the grippers which were evidently in a poor state. The next stage was to check and adjust the operation of the clamps. The question then arose as to whether changing the clamps would resolve the problem. HGL had contacted Heidelberg’s office in Germany and they sent over Herr Engel who spent time changing clamps on some units.

There was a suggestion from Mr Kilbane that Herr Engel carried out tests on the cylinders using his laptop and discovered a defect which meant that the cylinder would have to be taken out. I do not accept that this happened. Herr Eichhorn stated and I accept that Heidelberg had no such equipment. Rather it seems that Herr Engel could not finish the task and went back to Germany. Therefore the focus was still reasonably on replacement of the clamps at that stage.

Then, by the time of the meeting at Drupa 2004 in early May 2004 HGL had decided that the next step was to replace all the clamps. Mr Button wanted to have access to the Press for four days so as to change the clamps but Mr Kilbane was not prepared for that to happen, particularly when Mr Stockley said that he could not guarantee that this would resolve the problem. Effectively, from 6 May 2004 or shortly after Mr Kilbane did not permit HGL to have access to the Press.

In his evidence, Mr Kilbane did not seek to challenge the sequence which Mr Stockley was taking to diagnose and seek to remedy the defect. Equally, Mr Wade thought that the logical next step in investigating the defect was to change the clamps. Even if that did not eliminate the defect it was the next step which had to be eliminated before proceeding further.

It has to be remembered that throughout this time LPL were using the Press to produce commercial printing work and that the defect was not having such a serious impact that it was preventing LPL from carrying out that work. This meant, as I have said, that LPL not unreasonably wanted to limit HGL to carrying out work at weekends. This led to a contention by HGL that LPL had refused access for HGL to carry out the necessary repairs. I do not consider that this can be properly raised as a complaint by HGL but in terms of the reasonableness of HGL’s actions and, in particular, the time taken to remedy the defect, I do consider that this is relevant.

Given those circumstances, the steps taken by HGL, the fact that LPL properly wished the work to be carried out by HGL at weekends and that the source of the problem was something not obvious and was only eliminated by removing and replacing a cylinder, I do not consider that HGL can be said not to have acted with reasonable skill and care.

I have therefore come to the conclusion that HGL was not in breach of its obligations under the Service Agreement.

LPL’s claim in these proceedings, as set out in their closing submissions, is for damages for loss of profit and business opportunity, for wasted costs and for the instalments paid for hire of the Press. In addition, LPL submit that they are not liable to CAF for the sums claimed by CAF arising from the termination as CAF breached the Hire Agreement and, in any event, as CAF sold the Press for £600,000 plus VAT that sum must be credited against any claim for loss. I shall first deal with the claim for loss of profit and business opportunity.

LPL claim that over the period between August 2001 and March 2004 there was a shortfall in capacity of the Press which led to a loss of profit of between £632,000 and £1,653,000.

The defendants say that the calculation of loss of profit which the expert for LPL and the expert for the defendants have both calculated has not been demonstrated to have been caused by any breach of obligation by the defendants. Rather, they submit that the calculation is simply the difference between the work which was carried out by LPL and the capacity of the Press. They say that LPL has failed to prove causation.

LPL rely on the expert report of Mr Green in which he has calculated a loss of turnover of £3,200,000 between August 2001 and March 2004. He then deducts variable costs, fixed costs and overheads to give a figure of £1,653,000 as the loss of profit. Mr Green’s loss of profits figure has been calculated on the basis of the following component figures:

Mr Green also calculates alternative figures of £632,000 to £1,053,000 based on cost rates applied to the number of impressions lost, making an allowance for fixed costs and overheads. Finally he produces a third alternative calculation based on different working hours, giving a figure of £665,000.

The defendants rely on the expert report of Mr Hall. He has considered the basis on which Mr Green has calculated his loss of profits figure and refers to two key assumptions: first, an assumption used in calculating LPL’s capacity in terms of man hours that LPL would have increased production to a 144 hour week from January 2002; secondly, an assumption that, on that increased shift pattern, LPL would by July 2003 have been able to secure sufficient demand to be able to achieve full utilisation of the Press. He calculates alternative figures based on different assumptions but overall his conclusion is that it is likely that LPL’s loss of profits would have been negligible or nil.

Mr Hall also considers the effect of Mr Green’s calculated loss of profit on the overall profitability of LPL if that extra profit were to be taken into account. He observes that this would have led to 21.5% profit as a percentage of turnover in the 2003 financial year which would have placed LPL in the upper quartile of print companies of its size whereas it made a loss before the installation of the Press. He also refers to a March 2004 article in the print industry which stated that some 59% of print companies were working at under capacity in the previous quarter. He therefore expresses the view that the assumptions on which Mr Green has based his calculation appear over-optimistic, leading to overstated loss of profits.

Before I consider the expert evidence, there are some observations which are relevant to the overall approach of LPL. First, whilst the Court is generally not deterred by difficulties in assessing damages and will, if appropriate, take a pragmatic approach to such assessment, the Court has to be provided with sufficient material to be able to assess a claim for loss of profits. I consider that the defendants are correct to point to the difference between LPL proving the loss which it has suffered and proving the loss by reference to some hypothetical situation based on assumptions not grounded in the facts of the case: see Senate Electrical Wholesalers Ltd v Alcatel Submarine Networks Ltd. [1999] 2 Lloyds Rep 423 at [32] per Stuart-Smith LJ: “the assessment of damages is subjective in the sense that the loss is loss sustained by the actual plaintiff, not some hypothetical plaintiff.”

Secondly, this is a case where very little documentation has been produced by LPL to establish their claim for loss of profits and where those gaps have not been satisfactorily dealt with in witness evidence. Whilst I understand that the loss of documents might have been a result of the Administration and subsequent Liquidation, it is evident that when Wagstaffs, LPL’s accountants, put together a claim in August 2004 they were able to use material which was prepared showing the effect on individual print jobs.

Thirdly, the basis for the claim appears to be that the defects in the Press caused the Press to run at a lower speed; that LPL’s management did not introduce nightshift or extended time working as quickly as it would have done to take up the full capacity of the Press and that LPL lost clients because of poor or late printing caused by defects in the Press. This case on causation is not properly dealt with in the factual evidence so as to enable the loss of profits to be calculated on the basis of properly established facts.

With these observations in mind, I now turn to consider the various component figures or “assumptions” on which Mr Green’s loss of profits calculation has been based.

Mr Green has based his calculation on there being 14,440 hours available from September 2001 to April 2004. This figure is based on 75 hours per week from September to December 2001 and 144 hours per week from January 2002 to April 2004. With 80% utilisation this gives 1000 hours and 13440 hours over those two periods.

There is little evidence of either what hours were worked or what hours were intended to be worked or the reason why such hours were not worked, if such be the case. Mr Hall refers to the evidence from Mr Hawkins and the other Press minder, Mr Laffa, that they each worked for 36 hours a week, with some overlap. That evidence is only contained in draft witness statements which were attached to the Letter of Claim. On this basis Mr Hall calculates that this would be some 63 hours of production per week not 75 hours as used by Mr Green. He also refers to the evidence in Mr Green’s report that in November 2003 “a night shift was eventually implemented for 5 days per week providing additional production hours from 8pm to 6am.” On this basis, in the Experts’ Joint Statement, Mr Hall calculated that LPL would have worked 103 hours a week from November 2003.

The main question is whether it is right that from January 2002 LPL would have operated on the basis of 24 hours per day for 6 days per week and did not do so because of defects in the Press.

Apart from the evidence in the draft witness statements of Mr Hawkins and Mr Laffa served with the Letter of Claim, there was no satisfactory evidence from LPL’s witnesses or from documents as to what hours LPL worked, what LPL’s intention had been as to night and additional shift working or why any such intention had not been implemented. On the basis of the evidence contained in the draft statements from Mr Hawkins and Mr Laffa, I accept Mr Hall’s calculation that, based on the overlap of shifts, the overall production time would be some 63 hours a week.

Mr Kilbane’s oral evidence was neither clear nor consistent and there was nothing in his witness statement on this aspect. Without satisfactory evidence of an intention for LPL to work longer hours or additional shifts or why there was a change in such intention, it is difficult to come to a conclusion as to LPL’s capacity in terms of hours. Mr Kilbane said that there was no fixed plan in terms of the introduction of a night shift but that the directors thought it might be introduced after six months to one year. He also said that a nightshift was added on an ad-hoc basis and then possibly from mid-2003 a full night shift was introduced, rather than from November 2003 as Mr Green suggests. In the report produced by LPL’s accountants, Wagstaffs, in August 2004 in which they calculate available hours they do not refer to a nightshift being introduced but say: “From October 2003, [LPL] had the capability to keep the CD102-6 machine running 24 hours a day. Again this report makes no claim based on this enhanced production capacity.”

I do not consider that there is any reliable basis for saying that LPL would have introduced nightshift working in January 2002 nor for contending that there was any change in this plan because of the defects in the Press. This was not mentioned as I would expect it to be when LPL had financial difficulties in July 2002. Rather I consider that November 2003 is likely to have been the date when they did introduce that extra working and I am not persuaded that they would have introduced it at any earlier date.

On this basis and on the available evidence, I consider that LPL’s maximum capacity in terms of hours was 63 hours per week from August 2001 to November 2003 and 103 hours per week from November 2003 to March 2004. Using the Experts’ agreed figures of 80% utilisation and a 50 week year, this gives a figure of 5460 hours (2520 hours per year x 26 months) and 2060 hours (4120 hours per year x 6 months) for those periods, giving a total of 7520 hours. It follows that I do not consider that any calculation can be based on Mr Green’s figure of 14,440 hours.

Over the period September 2001 to April 2004 Mr Green calculates that 61.5 million impressions could have been produced. This is calculated as 14,440 hours at 4,239 sheets per hour, a figure provided by Mr Wade. The figure for sheets per hour is based on an average run rate of some 10,100 sheets per hour for a 5000 sheet job on ideal paper and is based on various general assumptions rather than any data as to LPL’s workload.

The defendants say that there is a range of figures in terms of sheets per hour which might apply depending, for instance, on the type of paper, the number of sheets and the downtime for make ups and various other activities. They say that if all the paper was lightweight the equivalent figure would be 3,737 sheets per hour and if all the paper consisted of cartons the figure would be 2,832 sheets per hour.

Mr Wade has based his figure on a typical industry average of a 5000 sheet job and ideal paper. He accepted that it would differ for a particular printer, depending on print length, paper type and other factors. In the absence of any information from LPL then I consider that there is no proper basis on which to assume that the average industry rate of 4,239 sheets per hour would apply to the type of work carried out by LPL. On the evidence that LPL carried out shorter print runs for the largest customer Aventis and that the Press was purchased, at least in part, to deal with heavier paper for cartons, I consider that the figure is likely to be lower. A figure in the range of 2,500 to 3,500 or say 3,000 sheets per hour would seem to be a reasonable basis on the figures and the lower print runs.

Having come this far in the calculations it can be seen that there are difficulties in calculating loss of profit based on the uncertainties in this evidence. If I apply the 7520 hours to 3000 prints per hour this would lead to a calculation that LPL had a capacity to produce 22.56 million impressions over the period August 2001 to March 2004. In fact some 25.57 million impressions were actually made by LPL in that period which would indicate that there was no loss of profit because there was no loss of capacity. Equally, if I had been persuaded that a figure of, say, 10,000 hours could be used for the capacity and the figure of 2,500 prints per hour were used that would give 25 million impressions and, again, there would no loss of capacity and no loss of profits.

Such uncertainties in the evidence make it impossible, in the absence of some evidence relating to LPL’s business, for the Court to come to an assessment of loss of profit.

Mr Green has evidently had to make an assumption of how LPL’s turnover would have built up. It seems that he has assumed that 100% of the additional capacity available from the Press would have been used to satisfy additional demand by July 2003.

Mr Green has also reviewed information about particular companies which were put forward as being companies from whom further work would have been obtained if there had not been problems with the Press.

The defendants refer to evidence from Mr Kilbane that LPL had planned a 25% increase in profit. In fact, as Mr Hall shows in his report, for the financial years 2001, 2002, 2003 and 2004, turnover increased as follows: £1,693m, £2,477m, £2,582m, £3,357m, with gross profit increasing: £555,000, £772,000, £759,000, £1,063,000. This shows a substantial increase which, over the period, was in line with that 25% figure.

The defendants also challenge the three examples given by LPL of where business was lost.

The first was Salon Success. Mr Kilbane’s evidence in his witness statement differed from what he said orally, the lower figures being in his witness statement where he said that LPL had lost £50,000 on a particular job for Salon Success in mid-2003 which led to loss of ongoing turnover of £25,000 to £30,000 per month. The documentary evidence shows that LPL had rectification work of some £17,000 for that client in May 2003 and it was not clear where the £50,000 had come from. It is however clear that LPL generally had more work for Salon Success up to May 2003 than afterwards and it might appear reasonable to infer that this related to the problem. However, LPL continued to carry out work for this client in October 2003 (£34,783), December 2003 (£11,106), May 2004 (£34,965), August 2004 (£19,460) and November 2004 (£35,040). There is no satisfactory evidence explaining what happened in relation to Salon Success or why LPL continued to be given substantial work by Salon Success after mid-2003.

The second is Centurion Press, a print management company which took work on the basis that it would sub-contract it to companies such as LPL. Mr Kilbane says that LPL had a special relationship with this company but that relationship was not clear from his evidence. The document exhibited by Mr Green, consisting of an email from Centurion Press concerning a supplier seminar in July 2003, does not advance matters. Neither is it clear why and to what extent LPL lost or were unable to take business from Centurion. There was evidently capacity on the SM 74 Press in the relevant period and LPL did not use that capacity to take work from Centurion. Whilst I accept that some work might only be capable of being done on the Press rather than on the SM 74 Press, there is no satisfactory explanation for why work could not generally be taken for the SM 74 Press.

The third was Gyrographic. Mr Green says that Mr Kilbane told him that Gyrographics’ work was lost in October 2002 when two of LPL’s directors, who had control of Gyrographic, left LPL but that by early 2003 relations were fully restored. Despite this, it is said that volumes of work were modest and represented only a fraction of the work available. The directors it seems left in March 2001 and records from LPL’s Sage accounting system show that the last Gyrographic work was done in June 2001 and no further jobs were ever done for that company. A document produced by LPL late in the hearing showed very substantial work being done for Gyrographic in the years ending 30 October 1999 and 2000, with only £82,799 in the 2001 financial year and none in the 2002 to 2004 financial years. The evidence does not support LPL’s case that they lost the Gyrographic work because of poor performance of the Press or that LPL were unable to take on Gyrographic work because of a defect in the Press.

In my judgment this evidence does not assist in establishing LPL’s case that they either lost work because of defects in the Press or did not take on work because of defects in the Press so that there was capacity that would have been used but which was not used because of defects in the Press.

Mr. Green’s calculation depends on there being capacity in excess of the 25 m impressions per year which was available for use but was not used because of defects in the Press. As set out above, I am not satisfied that there was any such loss of capacity by LPL or that LPL have established a case that any such loss of use was caused by defects in the Press.

As a result, no purpose is served by considering the other components of Mr. Green’s calculations in terms of LPL’s turnover per 10,000 impressions or the rate at which work is charged. In any event, certainly in relation to the second aspect it suffers from a lack of actual data from LPL.

I therefore consider that LPL have not made out the grounds for causation for their claim and have not established the necessary case on loss of use of capacity. In these circumstances the model used by Mr. Green does not provide a basis for the court to be able to assess LPL’s loss of profits and LPL have not proved their claim in that respect. Whilst in such circumstances the court would usually be reluctant to make no award of damages, in the absence of a proper case on causation or any case on quantum based on the facts of LPL’s business, I do not consider that it is possible for the court to make any award.

Accordingly LPL’s claim for loss of profit fails.

LPL also claim the costs of rectifying defective printing caused by defects in the Press.

When Wagstaffs produced their claim in August 2004 they included at Appendix 17 a list setting out the cost of paper on “rejected jobs”. That information was taken from sheets that had been prepared in 2004 by Mr. Kilbane, Mr. Jones and others at LPL, with the assistance of Wagstaffs. Although those sheets are not contemporaneous records, I consider that they do provide an assessment of the rectification costs because they were based on information both from those involved at the time and from documents in the “job bag” for each of the printing jobs.

Mr Green has reviewed the costs and calculated that rectification work incurred paper costs of £27,985 in the period form September 2002 to May 2004. He as also assessed the costs of ink by considering the proportional cost of ink to paper in various accounts at 8.27% which he has added to the cost of paper. I consider this to be a reasonable approach. As a result the overall rectification costs is £30,299.

Mr Hall says at paragraph 6.3.3 of his report that he has examined those rectification costs on £27,985 and confirms that, on the available evidence, they appear to be reasonable. He correctly points out that whether they were incurred as a result of alleged defects in the Press is a matter for the court.

As set out above, I have concluded that the only defect which gives rise to liability is the defect which caused problems of image fit. At Appendix 9 to his Report Mr Green has identified each of the jobs on which major problems were encountered and it is these jobs which formed the basis for the claim for rectification costs. Mr Hall has analysed those jobs in section 8 of his report and concluded that the overall costs can be allocated to problems as follows: 26% to colour, 6% to fit, 42% to colour and fit and 26% to other problems.

I consider that as some colour problems were due to fit and as fit was obviously a factor in the 42% which are allocated to “colour and fit”, an appropriate assessment can be made by taking the 6% cases of fit and adding it to the 42% for colour and fit. On this basis, it is reasonable to base an assessment on 48% of the loss being attributed to the defects in image fit.

On this basis, I consider that LPL are entitled to recover 48% of £30,299, that is £14,543.52 from CAF as damages for breach of contract in relation to the defect in image fit which meant that the Press was not of satisfactory quality.

CAF claims the sum of £340,168.75 plus interest from LPL on the basis that CAF terminated the Hire Agreement by the letter and notice dated 27 May 2004 and that this sum is then payable under the terms of the Hire Agreement.

In its opening and closing submissions, LPL claims not to be liable for that sum, essentially on two grounds. First, LPL say that they are not liable to pay CAF on the basis that CAF breached the Hire Agreement. Secondly, they say that, on the evidence, CAF sold the Press on or around 30 November 2005 for £600,000 plus VAT and that this sum must be credited against any claim.

CAF submit that these two matters relied on by LPL do not give rise to a defence to payment of the sums due to CAF under clause 6.1 of the Hire Agreement. First they say that LPL had no right to withhold payment and that CAF were entitled to terminate the Hire Agreement and claim sums due under that agreement. Secondly, they say that under the Hire Agreement, CAF would have been entitled to the Press at the end of the hire period and CAF’s claim is for a debt not damages so that CAF does not have a duty to mitigate damages.

I consider that CAF are correct in their submissions on the two argument put forward by LPL by way of defence. First, it is evident from LPL’s solicitors’ letter of 16 March 2004 to HGL that LPL was asserting a right to claim damages for breach of contract against HGL if HGL did not repair the Press. They then wrote to CAF on 18 March 2004, enclosing a copy of that letter, saying that LPL would not be making any further payments to CAF until the complaints referred to in our letter are resolved to LPL’s satisfaction.

The fact that there was a defect in the Press did not, under the Hire Agreement, give rise to a right for LPL to withhold payment as clause 3.2.3 provided that “the Hirer will not be entitled to withhold hire-rent, or to any rebate of hire-rent, for any period when the Equipment shall be unserviceable or unusable.”

This is not a case where the defect in the Press was so serious as to amount to a repudiatory breach and, in any event, LPL did not seek to terminate the agreement on this basis.

Rather clause 6.1 of the Hire Agreement states that “CAF will be entitled to terminate this Agreement and/or the hiring under it by notice to the Hirer …on or following the occurrence of any of the following events: 6.1.1 If the Hirer fails to pay any Rental or otherwise breaches ant term of this agreement…”. In circumstances where LPL failed to pay the Rental payments from March 2004, CAF were therefore entitled to terminate the Hire Agreement as they did by letter and notice dated 27 May 2004.

On that termination then Clause 6.4 provided that:

“6.4.3

The Hirer will pay to CAF forthwith:

(1)

All arrears of Rental and other sums accrued due; and

…

(3)By way of compensation for loss and/or liquidated damages for breach of this Agreement, an amount calculated as equal to the Rentals that would have been payable by the Hirer if the hiring had continued until the earliest time at which the Hirer could have terminated the hiring under Clause 2.1 above, less a discount for accelerated receipt calculated on the amount of the Rentals not accrued due at the date of termination (such discount to be calculated at the rate of 5% per annum).”

Clause 7.2 then provides that, as applicable here, interest is payable at a minimum rate of 12% if payment of Rental or any other sum is not made on the due date for payment.

In a spreadsheet attached to his witness statement, Mr Davies has carried out the necessary calculation which was not challenged by LPL. He calculates that on 27 May 2004 as a result of the termination LPL was due to pay CAF £340,168.75. He has also calculated interest at 12% as accruing at £111.84 per day.

I do not consider that LPL are correct in their submission that the value of the Press, represented by the price at which it was sold on 30 November 2005, should be taken into account in the calculation of the sum payable to CAF. The Press remained the property of CAF and, as I have found, this was a Hire Agreement without an option to purchase at the end of the period of hire. In such circumstances, I do not consider that CAF have to make any allowance for the value of the Press in relation to the sum which they agreed was due to CAF on termination.

In those circumstances, I find that CAF is entitled to payment of £340,168.75.

I find that CAF are liable to LPL under the Hire Agreement for the defect in image fit because, in breach of the Hire Agreement, the Press was not of satisfactory quality. This gives rise to a claim for damages for breach of contract but LPL has only established liability for £14,543.52.

I find that CAF properly terminated the Hire Agreement and are entitled to payment of £340,168.75 plus interest under that agreement.

Otherwise I have found that HGL has no liability under the terms of the Warranty Agreement or the Service Agreement.

I now invite submissions as to the form of order and any ancillary matters.