The recent case of Sony Computer Entertainment UK Limited v Cinram Logistics UK Limited1 reviews the law on recovering loss of profits in addition to manufacturing costs.
When a claimant’s products cannot be sold, for example because they are damaged or have reasonably been recalled, the claimant can normally recover its manufacturing costs from the responsible party. However, lost profit is usually recoverable only where the claimant did not sell replacement products. Where parties trade regularly on a large scale, this can become a complicated issue of fact. This dispute considered which party bears the evidential burden, and what has to be proved.
The case concerned memory cards for the Sony Playstation2 console. Sony’s distributor (Cinram) lost 17,000 cards that had been ordered by the “Game” stores group, which had substantial business with Sony. Sony claimed the manufacturing cost, as well as lost profit, of the 17,000 cards. Cinram denied liability for the lost profit element (approximately 70% of the total claim), on the basis Sony had effectively sold replacement memory cards to Game and thereby avoided loss of profit.
At first instance, the Court said Sony bore the burden of proving its full loss, including that it had not sold replacement cards to Game. It held that the burden had been discharged, and Sony could recover the full amount claimed, including lost profit. Cinram appealed.
The Court of Appeal disagreed with the finding on the evidential burden, and held that it was for Cinram to prove (on the balance of probabilities) that Sony had made replacement sales to Game. However, the result was the same – there was insufficient evidence of any orders for cards that could be said to be replacements, and the Court of Appeal upheld the award.
The Courts considered in detail the chronology of trade between Game and Sony. The trade was almost constant and it appeared that, once the loss was discovered and reported, the parties simply “moved on”. By the time the next orders were placed, there was no evidence that Game had addressed itself to re-ordering the lost cards, or that Sony had considered re-shipping them. Where parties trade in this way, and there is little or no evidence showing a particular order relates to any other, it may be difficult to defend a claim for the full price of the products, including lost profit.