Inner House assoilzies company responsible for maintenance of cigarette paper manufacturer’s ink machines after damages claim appeal

About this case:

• Citation:
  [2022] CSIH 55
• Judgment:
  External link
• Court:
  Court of Session Inner House
• Judge:
  Lord Pentland

Original pursuers Benkert UK Ltd argued that a clause limiting the liability of the defenders, Paint Dispensing Ltd, was not fair and reasonable. The defenders cross-appealed challenging the finding that they were vicariously liable for the conduct of a maintenance engineer in their employ who maintained the reclaimers’ ink dispensing machines.

The appeal was heard by the Lord President, Lord Carloway, sitting with Lord Woolman and Lord Pentland. A Smith KC and CN Smith, advocate appeared for the pursuers and reclaimers, and Lord Keen of Elie KC and McGregor, advocate, for the defenders and respondents.

Catastrophic consequences

The original action arose from a fire at the reclaimers’ printing factory in Alva which caused losses agreed at £29,680,235. After proof, the Lord Ordinary concluded that the fire was caused when a spark ignited solvent vapour that escaped from an ink dispensing machine when a Jubilee clip attached to a polypropylene hose connecting the machine to drums storing ink and solvent suddenly came off.

It was held that a maintenance engineer employed by the respondents, Mr Dunkley, ought to have advised the reclaimers when he serviced the machine in April 2009 that the use of Jubilee clips to attach hoses to the machine was liable to lead to a fire. However, the Lord Ordinary also found that a clause in the maintenance agreement limited the liability of the respondents to just £3,225.06, the amount of the annual maintenance charge paid to the respondents under the contract.

In its reclaiming motion the reclaimers argued that the limitation clause was ineffective under the Unfair Contract Terms Act 1977 because it was not fair and reasonable to incorporate it into the parties’ contract. The Lord Ordinary was plainly wrong to find that the limitation clause was reasonable given the risk of catastrophic consequences and the fact that maintenance was under the control of the respondents at all material times.

Counsel for the respondents submitted in the cross-appeal that the Lord Ordinary was not entitled to conclude that Mr Dunkley had breached any contractual duty incumbent upon him. It was never put to him in proof that he should not have used the Jubilee clip or that such a system was a defect. Mr Dunkley left court after giving his evidence without any inkling he was going to be blamed for £29 million worth of fire damage, nor were the criticisms put to any other witness.

Sufficient bargaining strength

Lord Pentland, delivering the opinion of the court, began by addressing the cross-appeal, saying: “The question is whether the use of Jubilee clips was an issue of design or of maintenance. The reclaimers submitted that a defect was simply anything giving rise to a malfunction, and that the use of that word accordingly gave rise to a broad contractual obligation. The court does not accept that this is the proper meaning of the word ‘defect’ when it is construed properly in its context.”

He continued: “The word appears in clause 3.1.2, which requires the attending service engineer to ‘repair’ defects or malfunctions. The plain meaning of repair is to fix something which has broken or been damaged, to put it back into its original state. It does not mean to improve upon or redesign. The use of Jubilee clips may have been a defect in the design of the machines, but a Jubilee clip which was fitted and working as intended was not in need of repair, and therefore it was not the kind of defect which the contract was intended to cover. The Lord Ordinary erred in holding that it was.”

Lord Pentland concluded on the cross-appeal: “It was never put to Mr Dunkley that he ought to have advised the reclaimers to remove all Jubilee clips and implement a swaged/swivel nut system instead. It was inappropriate for the Lord Ordinary to find fault with Mr Dunkley for not having done so when he had never been given the opportunity to respond to this key criticism. It follows that the cross-appeal must be sustained. The respondents are not liable to the reclaimers for breach of contract or negligence.”

Having dealt with the cross-appeal, Lord Pentland said of the fairness of the limitation clause: “The limitation clause was the only clause in capital, underlined letters in the short and uncomplicated nine-page agreement. It was designed to catch the eye of any person flicking through it, let alone a financial director who would reasonably be expected to have a strong interest in reading and considering each clause in detail before assenting to it on behalf of his or her employers.”

He concluded: “The reclaimers knew of the existence and terms of the limitation clause, to which their attention was clearly and specifically drawn when the contract was presented to them. They had more than sufficient bargaining strength to negotiate had they considered it important to do so.”

The court therefore refused the reclaiming motion, allowed the cross-appeal, and assoilzied the respondents.