The Court of Appeal has confirmed that where an end user has knowledge of the defects in a product, it is not able to bring a claim for any subsequent loss resulting from that defect. It held that an end user company would be deemed to have knowledge even where its senior managers were not aware. It is sufficient that employees entrusted with the task of maintaining and operating the defective equipment in a safe manner had such knowledge: Howmet Limited v Economy Devices Limited & Ors [2016] EWCA Civ 847.

Background

The Appellant, Howmet, is a company which manufactures turbine aerofoils and other precision components for the aerospace industry. As part of the manufacturing process, metal castings are dipped into a series of heated tanks. The Respondent, EDL, was engaged to provide a number of "thermolevel" devices which were fitted to the tanks. Operating correctly, the device automatically switches off the heater when the level sensor detects that the liquid in the tank has dropped below a specified level. This function is designed to prevent the risk of the tank catching fire, which was the likely outcome of the heater remaining on when the tank was empty or nearly empty. On two occasions prior to the incident giving rise to the claim, the thermolevel failed to function resulting in a fire. On both of these occasions, the fires were extinguished by members of staff on site at the time. The thermolevel device fitted to the same tank then failed for a third time. On this occasion, there was no one present to witness the chemicals within the tank catching fire and the blaze spread, causing £20 million of loss.

Howmet brought the following claims:

  1. EDL had breached its duty to exercise reasonable care and skill in the manufacture and design of the thermolevel devices.
  2. That EDL had breached its statutory duties under the Electrical Equipment (Safety) Regulations 1994 (the “1994 Regulations”) in failing to affix CE markings and ensure the product was “safe”.

First Instance decision

At first instance, it was held that EDL had not implemented any satisfactory testing regime and the manufacture of the devices was deficient. In addition, EDL provided inadequate instructions to accompany its product demonstrating a lack of reasonable care. The same reasoning also meant that the product was unsafe under the 1994 Regulations. Had Howmet reasonably relied on the thermolevel as protection against fire at the relevant time, the failure of the device to operate properly would have been within the scope of the duty of care and the claim to recover losses caused by the fire would have been successful. It was held, however, that this was not the case; Howmet had knowledge that there had been at least one occasion upon which the thermolevel had not operated as it should have done. The evidence also suggested Howmet might have been prepared to accept vigilance of the operators as a suitable safeguard. There was therefore no such reliance.

Court of Appeal decision

Upholding the judgment at first instance, the Court of Appeal discussed in greater detail whether Howmet did possess the relevant knowledge of the defect, and whether EDL could remain liable for some part of the loss nonetheless.

Attribution

The Court of Appeal noted that the law imposes restrictions on a manufacturer's liability to an end user, noting that the manufacturer will have no control over how the product is used. It is well established that a claim for negligence cannot be brought successfully if a hidden defect in the product was discovered before the damage was caused. A claimant cannot recover losses caused by a faulty product if it continued to use the product after becoming aware of the fault.

The Court of Appeal considered in more detail the question as to who within a company would have to make or have knowledge of such a discovery before the company itself would be deemed to have the relevant knowledge. Jackson LJ confirmed that if one relevant employee in the corporate hierarchy becomes aware of a defect and fails to comply with a duty to report the defect up the line, the company in question will not be able to rely on the ignorance of more senior managers. This would be the case even if it would only be within the power of those senior managers to take steps to deal with the problem. The relevant employees for the purpose of attribution of knowledge in this case were those employees to whom the directors of Howmet had entrusted the task of maintaining and operating the equipment in a safe manner.

Apportionment of Liability

Counsel for Howmet argued that the effect of such a discovery should not defeat a tortious claim in its entirety. Instead, there should be an apportionment of liability under the Contributory Negligence Act 1945. The Court of Appeal rejected this argument. Once an end user is alerted to the dangerous condition of a chattel, it continues to use it entirely at its own risk except in exceptional circumstances where there is no choice but to continue usage.

Comment

The Court of Appeal decision represents a confirmation of the law as it was previously understood.

When a defective product has been supplied to a company as end user, relatively junior employees of the company who discover the defect may possess knowledge which will be attributed to the company. It would be prudent to put in place policies which encourage systematic reporting up the line in order to identify defects and raise these with the supplier as soon as possible, considering carefully whether to continue usage of the product at the company's own risk.