HT-2022-000079 - [2024] EWHC 2260 (TCC)

At first blush, the issues of causation and quantification of loss are relatively straightforward. Thankfully, there were no injuries or other lasting damage as a result of the overpressure event, and its principal significance was to prompt investigations into whether the Abar had been refurbished in accordance with the contract and was safe to use. A number of defects have been identified, and the usual measure of damages in a case of defective works is the cost of reinstatement of the property in question to the state in which it should have been left by the defendant if the work had been done without breach of contract. A different approach may be adopted, for example, where the cost of reinstatement is considerably more than the diminution in value of the property due to being in a defective state, but MSL does not argue that the cost of reinstatement is an inappropriate measure in principle in this case.

As I have noted in §5 above, VFS quoted £12,850, to include hotels, travel and meals, for the reinstatement of the Abar to a state where it was safe to operate. The VFS report stated, materially:

“Highlighted Issues

In our opinion, at the moment, this furnace is not safe to use due to many of the safety features either installed badly, not installed or not working. We have listed below essential repairs for your attention.

1.

Heat exchanger water safety switch, replace with flow switch. Supply and fit a new IFM type switch in to the existing ½” socket welded in to the pipe work on the water supply side. This would also require a Software and PLC modification as shows alarm at the moment on the HMI screen, but does not stop the cooling fan motor.

2.

Move the water pressure switch, clean and fit a service valve. Use the existing switch if not damaged and have ½” socket welded in to existing pipe work, will not need any PLC mod as this works.

3.

Fit a flow switch into the water circuit of the heating transformer. IFM type switch can be fitted on the return manifold, on a tee, PLC and software mod required.

4.

Fix the 1 & 3 PLI water circuit faults and set up correctly to alarm on mimic. This might be just cables mixed up, but may also need a PLC and software Mod as one of them shows full flow when turned off.

5.

Change air admit filter for something fit for application, if over pressure quenching being used in production. Fit a metallic industrial type silencer to withstand gas released from the furnace at any workable pressures above atmosphere.

6.

Find high pressure gas safety switch and test or fit if not on furnace at present. If fitted then needs to be tested, if not fit IFM type switch with PLC and Software mod.

7.

Fit spring return type actuator to gas back fill valve, to close or keep closed on pneumatic pressure loss. This can be supplied, fitted and tested as standard stock item.

8.

Supply and fit a pneumatic pressure switch on to the supply manifold, wire in to PLC and Software as a mod.

9.

Change existing vessel gas safety valve set at 6.6 Bar, if only ever to be used at sub atmospheric gas fan quenching. (Not included in price below). Can quote and supply if requested.”

Although we have the software for the PLC, we would need to have total access to all passwords etc, to get in to the control system/PC. The existing panel electrically may need minor additions such as relays, contactors.

Please take in to account there may be other problems with the auto cycle function, when we start testing in earnest.

An estimate for the costs of the above work to get the furnace in to a position to safely operate, with the existing control system.

Price: £12,850 Includes Hotels, travel and meals.

The above price may be reduced, depending on the magnitude of the software issues, as at the moment we cannot view the present system.” [bold in original]

The figure of £12,850 falls to be reduced because only four out of eight items for which VFS was quoting correspond to breaches of contract which I have found to be established (issues numbered 1, 2, 5 and 7: see PoC §§20.5, 20.3, 20.12, 20.9). The others (numbered 3, 4, 6 and 8: see PoC §§20.6, 20.2, 20.10, 20.4) correspond to alleged breaches which I have found not to be established. I have little basis for estimating how great a reduction is called for, since the cost of VFS’s “issues” was not itemised, but on a rough and ready basis I will estimate a reduction of 50%, to reflect a reduction of 50% of the issues for resolution, to £6425. The cost of fixing issue 9 is not included in the quotation but does not arise because the Abar was intended to be used at positive pressure. The relevant cost would be for re-setting the safety pressure valve (see PoC §20.8), which I would assume to be minimal. On the other hand, if it were truly to reflect the cost of reinstatement, VFS’s quotation would fall to be increased because it does not include the cost of providing “as built” electrical schematic drawings (see PoC §20.14). I have very limited evidence of the likely cost of updating VAS’s drawings to an “as built” status, as in VAS’s quotation this cost was subsumed within the much larger cost of supplying the PLC. Doing the best I can, and noting the daily rate of £752 for the services of a VAS engineer (see §56 below), I add £1575 for this element.

I would also add to the likely cost of reinstatement an additional cost for commissioning and testing of the Abar to 5 bar pressure. This was not done by James Long and nor did Mr Long document any risk assessment of the operation of the Abar as the experts agreed he should have done. I accept the evidence of MSL that any other contractor would need further assurance, beyond repairing the essential defects, that the Abar was functional and safe to operate as a 5 bar, positive pressure furnace before signing-off its work. Such assurance may well involve risk assessment and testing consequent upon that assessment. VAS charged £4860 for commissioning and testing. VFS’s quotation included limited testing and may be taken to assume that commissioning of the Abar had been carried out satisfactorily. I am confident that VFS would have included a significant amount for re-commissioning and testing of the Abar had it been aware of the shortcomings of VAS’s commissioning work. I include an additional amount to cover the further commissioning and testing of £7000 as part and parcel of what it would have cost MSL to engage a contractor to repair the defects which I have found to be present in the Abar following VAS’s work on it. This is more than VAS charged, but, as well as the daily rate for the services of a VAS engineer, I take into account that much more work was potentially required than VAS has established that it performed, in particular in providing comprehensible documentation, and that commissioning and testing may be more time-consuming for a contractor which has not refurbished the Abar and so was not familiar with it to the same extent as VAS was. Contrary to a criticism made by VAS, awarding damages in respect of this work is not to permit MSL to maintain an unpleaded claim of breach of contract: this is work which, in my judgment, would have been required to be carried out when repairing the pleaded defects which I have found to be established, and which it was proved at trial that VAS did not itself carry out and/or document satisfactorily or at all.

VFS’s quotation included some software/PLC modification work but it also entered a caveat that a more detailed investigation of the PLC might reveal further essential work, and also that the eventual amount might be less. In the circumstances, I do not add any amount to account for additional work on the PLC. Using the VFS report as my starting point, and doing the best I can, I assess the cost of reinstatement as £15,000.

VAS has produced its own estimate for carrying out the essential repairs identified in the VFS report which, for VFS issues 1, 2, 5 and 7, is £2686.89. I regard this as less reliable than VFS’s estimate because it is not contemporaneous but was formulated at a late stage of the litigation, on 13 March 2024, at a time when VAS’s interests lay in minimising these costs. I was given no explanation as to why VAS did not estimate the costs of repairing the Abar at a much earlier stage.

MSL’s primary case is that, consequential losses aside, the loss it has suffered due to VAS’s defective performance of the contract should be assessed as being the full cost of the refurbishment of the Abar, including the cost of the new PLC, being £199,015. MSL put forward two arguments to justify this claim for the entire cost of the refurbishment project. The first was that “MSL requires proof, via adequate commissioning that the furnace is safe to operate. It can only obtain such proof if the refurbishment and commissioning process is carried out fresh, i.e. so that all necessary documentation is produced” (Closing Submissions, §54a). I have already accepted that, on reinstatement of the Abar, there will need to be proof that it has been properly commissioned and tested, which is likely to involve risk assessment, and I have allowed for that in the cost of reinstatement, taking into account that commissioning and testing was a small proportion of the total cost of refurbishment.

The total cost of £199,015 included new parts for the Abar, refurbishment of parts and repainting which MSL has made no attempt to establish were defective or otherwise not in accordance with the contract. For example, item 1 on VAS’s quote was an “all new hot zone” priced at £26,675 and item 4 an “all new hot zone frame” priced at £8525. MSL has not suggested that there was anything wrong with what VAS supplied under these heads. In total, items in this category total £115,885, excluding the new PLC, which was priced at £74,450. Even if a contractor were engaged to carry out a full refurbishment of the Abar, there is no reason to think that any of these items would have been replaced or fully refurbished once more, or done over, in the case of repainting, or that the proof that MSL argues that it requires can only be obtained if these items were all replaced or fully refurbished afresh or done over. MSL has not obtained any quotation from a contractor to support the proposition that a “full” refurbishment is necessary. Clearly, that was not VFS’s view. MSL did submit that the PLC supplied by VAS was faulty and its claim for the full cost of the project includes the full replacement of the PLC. However, it has not come close to establishing that the issues with the PLC were so serious that it required replacement, at the same cost as VAS originally charged for it. I have rejected the plea in PoC §20.15 regarding the PLC having intermittent faults, and VFS’s quote includes the cost of necessary modifications to the PLC (both its hardware/wiring and software). Whilst it is possible that further investigation of the PLC’s functioning may reveal more serious problems, MSL cannot base its case on causation of loss on the fear that something much worse may turn up.

MSL’s second argument (Closing Submissions, §54b) is that it “has tried to find companies that are able to carry out limited or wholesale repairs to the furnace, without any success”. I reject that submission, and Mr Woolger’s evidence to that effect, simply on the basis of the VFS report. VFS’s quoted “Price” can only be read as an offer to do the essential repairs which it had identified. That is why they entered a caveat that they might find more problems “once we start testing in earnest” and included the cost of hotels, travel and meals for its engineers. MSL did not take up VFS on its offer to perform the repairs. It did not respond to VFS at all but sent the VFS report to VAS. Mr Woolger did not contact VFS about its quote again until “very recently”. In his fourth witness statement, he explains that VFS’s quote “was not viewed as an option without a full replacement of the PLC as this was integral to the overall safety and control of the system. The need to complete full testing, commissioning and safety checks was also highlighted”. The perceived need for a full replacement of the PLC was the view of MSL alone, not VFS (which didn’t say that in its report and was not contacted for further advice). As I have explained, MSL has not established that a full replacement of the PLC was necessary. I have accounted for the costs of full testing, commissioning and safety checks in my estimate of the costs of repairs and I see no reason why VFS could not have been invited to add to its quotation to cover those checks in full.

On 30 April 2024, again shortly before the trial, Mr Woolger contacted another potential contractor, Vacuum Furnace Engineering Ltd (“VFE”) which is the only UK-based contractor other than VAS and VFS to do this type of work. He did not ask VFE to quote for repairs to the Abar but asked them instead to quote for refurbishment to “as new” with a new PLC and control system. VFE refused to quote for a full refurbishment on the grounds that the Abar could not be CE-marked. This appears from emails exchanged between VFE and Mr Woolger; a phone call which preceded the exchange was not noted or minuted, despite Mr Woolger’s intention in contacting VFE being to lay the ground for the trial and may have shed further light on VFE’s stance. VAS also invites me to find that it was prepared to carry out the repairs, based on Mr Long’s second witness statement of 13 March 2024. I decline to do so: Mr Woolger’s evidence, which I accept, was that VAS did not respond to the VFS report in autumn 2021 by offering to do the work itself, but (he said) with an aggressive letter from its lawyers. Nevertheless, MSL has not established the somewhat surprising proposition that there was, and would be, no contractor willing to carry out essential repairs to the Abar. It seems to me that the true position is that MSL has not been concerned to find a contractor to carry out those repairs, but only to strengthen its legal case against VAS. I find that VFS for one would have been willing to carry out repairs to the Abar if it had been asked to do so.

I therefore reject the claim that MSL has suffered losses in the full amount of the contracted refurbishment cost of the Abar. In its Closing Submissions (§61), MSL floated a yet further case on quantification of loss, namely that of the diminution in value of the Abar based on its current value on the market as compared with its value if it had been correctly refurbished, commissioned and tested. This basis was not pleaded, and the Court does not have anything like sufficient evidence on which to reach a view on the two relevant valuations. I take this alternative claim no further.

Instead of ensuring that the Abar was reinstated promptly, MSL decided to leave it unused and to run other furnaces instead. It claims for the additional costs of running other furnaces (up to 19 October 2022, when a furnace which directly replaced the Abar came online), whilst leaving the Abar furnace unused (up to 16 August 2023), in the amount of £57,608.17. These were described by Ms Atkins in opening submissions as “costs in mitigation” and the burden was on MSL to plead and prove that its expenditure in mitigation of its primary loss (defects in, and so loss of use of, the Abar) was reasonably incurred (see, for example, Zurich Insurance Plc v Umerji [2014] EWCA Civ 357, §37). In my judgment, MSL has not established that its approach was a necessary or reasonable one and, in particular, has not satisfactorily explained why it did not have the Abar reinstated promptly, at relatively modest cost, which could have been claimed from VAS, rather than incurring what it says were substantially greater costs by using other furnaces instead of the Abar, whilst leaving the Abar unused. Indeed, there were, according to MSL, water system costs associated with not using the Abar, in the amount of £21,295.12, very likely more than it would have cost to get the Abar up and running again. These findings justify the conclusion either that MSL has not proved that the claimed losses in mitigation were reasonably incurred and so were caused by VAS’s breach of contract, or that MSL has failed reasonably to mitigate its losses. VAS pleaded (in §27 of its Defence), and argued extensively at the trial, that MSL had not satisfactorily proved that its alleged losses were caused by the alleged breaches of contract and that is the primary basis for my findings against MSL in this regard. VAS did not expressly plead a failure by MSL to mitigate its loss, although it took that point without objection in both opening and closing submissions and put the substance of its case on mitigation to Mr Woolger in cross-examination. If it were necessary, I would find against MSL’s claim for losses in mitigation on that alternative basis.

There would undoubtedly have been some delay after the overpressure incident before the Abar could be repaired and the relevant commissioning and testing carried out and the question arises whether MSL should be entitled to claim “losses in mitigation” during that period of delay. Again, however, I take the view that MSL has not proved its alleged losses to the requisite standard:

MSL claims £19,335 in respect of the costs of collection, delivery and installation of the Abar, but these costs are premised on it being necessary to send away the Abar for a further refurbishment, meaning that there would need to be a further set of transport and installation costs. I reject that premise: the Abar could and should have been repaired in situ. Finally, MSL claims £1600 in respect of the cost of obtaining the VFS report. This does seem to me to be a recoverable head of loss: VAS’s breaches of contract resulted in defects in the Abar and it was entirely reasonable for MSL to commission an independent investigation to ascertain what needed to be done to rectify those defects.

In total, therefore, and before turning to the counterclaims, I would award MSL damages for breach of contract in the amount of £16,600 net of VAT.