Outer House finds makers of ink machine liable for just over £3,000 of £29 million claim by cigarette paper manufacturer

Lord Tyre

About this case:

• Citation:
  [2022] CSOH 17
• Judgment:
  External link
• Court:
  Court of Session Outer House
• Judge:
  Lord Tyre

It was averred by Benkert UK Ltd that a fire that destroyed their premises in Alva, Clackmannanshire, was caused by the breach of contract and fault and negligence of the defender, Paint Dispensing Ltd (formerly Rexson Colorweight Ltd). The defender argued that any liability on their part was limited by the terms of their contract.

The case was heard by Lord Tyre in the Outer House of the Court of Session. A Smith QC appeared for the pursuer and Young QC for the defender.

Specifically built

On 10 November 2009, a fire occurred at the pursuer’s industrial premises in Alva, where it made printed paper used mainly for cigarette filters. The paper was printed with solvent-based coloured ink that was mixed by two dispenser machines supplied by the defender. The defender, which had built the machines specifically for the pursuer, maintained them in accordance with a series of contracts.

It was not disputed that the fire, which totally destroyed the premises, had started in the ink plant room when a spark ignited flammable solvent vapour; however, the parties disagreed on why this was likely to have occurred. The pursuer’s position was that a jubilee clip on the larger of the two machines had suddenly come loose and allowed the vapour to escape, while the defender contended that it was more likely that an employee of the pursuer had failed to follow correct procedure when filling the smaller machine with solvent.

Based on the available evidence, Lord Tyre concluded that the defender, through its engineer, was in breach of contract by failing to recommend that a less safe method of keeping the dispensers’ hoses connected be replaced with a safer one. However, under clause 5.3 of the parties’ then-current maintenance contract, the defender’s total liability “in connection with the performance or contemplated performance of the services” was stated to be limited to the amount of the annual maintenance charge payable by the pursuer, which at the time was £3,225.06 per annum.

The pursuer submitted that the defender had failed to prove that this clause satisfied the requirement of reasonableness under the Unfair Contract Terms Act 1977, the applicable law to the contract being English law. It was reliant on the defender’s expertise to maintain and repair the dispensers and thus had limited bargaining power when negotiating the contract. Further, it would be reasonable to infer that the defender’s £5 million of indemnity cover could be passed on to its customers along with insurance costs.

For the defender, it was submitted that it did not have a monopoly on the servicing of dispenser machines, and while it was logical to prefer to employ them as the designer of the machines, the pursuer had other options. Clause 5.3 had been highlighted to the pursuer and not hidden away in a lengthy document and it had been open to negotiations had the pursuer sought that.

Commercial judgment

In his decision on the limitation issue, Lord Tyre noted: “Clauses limiting a supplier’s liability to the contract price are not regarded by the courts as especially onerous or unusual. In any event the clause was in my view given sufficient prominence in the maintenance agreement which in effect ran to only six pages of normally sized and spaced print plus a short schedule, and in which clause 5.3 was prefaced by a warning in underlined capital letters.”

Turning to the defender’s available insurance, he said: “It seems to me that Benkert were in a much better position than Rexson to assess the size of the potential claim for losses including partial or total destruction of the factory and lengthy business interruption. In this regard the balance, in my view, favours Rexson being permitted in essence to say to Benkert: we will not accept liability for losses which for us are impossible to quantify; it is up to you to make whatever insurance arrangements you think necessary.”

On the equality of the parties’ bargaining power, Lord Tyre concluded: “It would no doubt have been inconvenient to attempt to seek out an alternative supplier of maintenance services. That, however, was a commercial judgment for Benkert to make, and I do not regard the desirability of contracting with Rexson as amounting in itself to an indication of lack of equal bargaining power. There was no evidence of whether any alternative supplier would also have sought to limit its liability. In these circumstances I find bargaining power to be essentially neutral in the balancing exercise.”

For these reasons, Lord Tyre held that the defender had discharged the onus of proving that the limitation of liability clause was fair and held it liable to the pursuer for the sum of £3,225.06 only.