McCain Foods Gb Ltd v Eco-Tec (Europe) Ltd [2011] EWHC 66 (TCC)

This case related to the purchase by McCain of a BGPur system from Eco-Tec under an Equipment Purchase Agreement including a Specifi cation. McCain successfully argued that the System proved impossible to commission successfully and then sought recovery of monies paid under the Contract and damages. Interestingly the single joint quantum-expert had said that:

“Had the Claimant purchased the comparable system rather than the Equipment from the Defendant, it would have incurred the full cost of the system from Treatment Systems Limited (£389,750). Therefore, I consider the only additional costs incurred by the Claimant are the costs expended on the allegedly faulty equipment. As such, my calculation for this category refl ects the purchase price of the Defendant’s system £224,282.”

This approach was rejected by Mr. Recorder Acton Davis QC as being the wrong test.

Eco-Tec accepted liability for the costs of replacement equipment, but not for other costs such as the costs of employees and third parties. Clause 19.1 of Schedule B of the EPA said that:

“... Seller will indemnify and hold McCain and its directors, offi cers, employees and agents harmless from and against any and all losses, liabilities, damages and expenses whatsoever (in no event however will Seller be responsible for indirect, special, incidental and consequential damages) arising out of any breach by Seller of any commitment or other obligation contained in this Agreement or in any document delivered pursuant hereto or in connection herewith or out of any inaccuracy or misrepresentation of (sic) any representation or warranty made by Seller herein or in any such other document, or out of any actual or alleged injury to persons or property due to the acts or omissions of Seller and those for whom in law it is responsible, whether on the premises of McCain or otherwise”.

Eco-Tec said that the remainder of the claim fell within the defi nition of “indirect, special, incidental and consequential damages”. The Judge referred to the case of Hotel Services Ltd v Hilton International Ltd [2000] BLR 235 where Hilton rented from HSL a number of mini bars for installation in Hilton Hotels. The rental agreement excluded HSL’s liability for any “indirect or consequential loss, damage or liability arising from any defect or failure in the system”. The chillers in the mini bars leaked ammonia and the units had to be removed. Hilton claimed, amongst other losses, loss of profi t from the use of the mini bars.

The CA held that the loss of profi t claim was direct loss with LJ Sedley commenting that:

“An example of consequential loss might be injury to the profi tability of the hotel itself. But when the contract is one of hire of the “thing itself” is not the equipment but the use of the equipment, and if through breach of contract it becomes unusable and dangerous the natural or immediate loss is, it seems to us, the profi t (if any) which it would otherwise be yielding and the cost of neutralising the danger”.

Eco-Tec in particular focused on additional utility costs and the lost revenue from Certifi cates of Renewable Energy Production ( or Renewable Obligation Certifi cates - ROC’s”) and maintained that these were consequential costs. The Judge disagreed. The costs of repair, replacement, mitigation and associated losses were direct losses. Eco-Tec were liable too for the costs of contractors, site managers and health and safety personnel, attempted mitigation, auxiliary equipment and civil works, employee time, third party experts and laboratory testing and the purchase of auxiliary equipment from Eco-Tec.

The additional utility costs arose because they are the costs of electricity which McCain had to purchase elsewhere during periods which ought to have been generated by the System. The claim for lost revenue from ROC’s arose because the Renewals Obligation Order 2007 created a market for such certifi cates. An accredited generator of renewable energy can use the renewed energy itself and sell on to another electricity supplier the ROC’s issued for the renewable energy produced and used. Thus, had the System been commissioned, McCain would have obtained certifi cates under the Order which had market value.

When it came to loss of profi t, the Judge accepted that this could be direct loss. It seemed to him that the use of the System would have resulted in revenue and that loss of revenue is the natural or immediate and thus direct loss caused by the inability to commission the System. It was argued that the mitigation of loss was overly expensive and thus unreasonable. However the Judge accepted that the evidence before him explained how those costs arose and what was done. In his judgment, set in the context of the losses, those attempts amount to reasonable mitigation of loss.

With employee time, it was argued that there was an absence of contemporaneous time records. The Judge agreed. However, the witness evidence set out the basis for the hours claimed. This was an estimate of time spent dealing with the ETE System problems, based on payroll salaries. In cross-examination of the relevant witness, the witness explained that his approach had been conservative. The Judge, who of course saw the cross-examination, accepted this saying that there was no material before him upon which he could conclude that the sum claimed was unreasonable. Thus this case provides an interesting example of the value of careful witness evidence being used to support claims in respect of costs where there was a lack of written documentation.