Articles

Filobake Limited v Rindo Limited

Date: May 20, 2007

Expertise: Commercial Dispute Resolution

COURT OF APPEAL, 11TH MAY 2005 (ON APPEAL FROM HHJ RICHARD SEYMOUR QC)

Sale of Goods – Damages for breach of contract – Whether claim for wasted expenditure can be advanced as an alternative to claim for loss of profits

The Court of Appeal notes that it is wrong to advance alternative breach of contract claims for loss of profits and wasted expenditure because, when considering whether the Claimant would have made a loss of profits, the burden of proof lies on different parties in each case.

This morning the Court of Appeal handed down its decision in the above case, upholding the trial judge’s decision that Rondo was not in breach of contract and so dismissing Filobake’s appeal.

The contract was a contract to supply various items of equipment to be used by Filobake in a production line to produce Samosa pastry. The claim that the equipment was in breach of contract was dismissed, the cause of Filobake’s problems being matters outside the ambit of Rondo’s contractual control.

As a result, the Court of Appeal’s statements relating to the potential remedies available for breach of contract, may be treated as obiter. Nevertheless, they are of significance, given the sparseness of authority in this field.

At trial, Filobake had argued it was entitled to reject the equipment, and so recover the purchase price and the expenditure wasted in installing and attempting to operate it in the production line, as well as damages for loss of profits based on the profits which would have been earned by properly operating equipment.

The judge found that the right to reject had been lost, and therefore it was unnecessary to consider the wasted expenditure claim. He found that there was no credible evidence that Filobake had, or would have, established a market for the Samosa pastry which it was the purpose of the equipment to produce. As a result, he also rejected the loss of profits claim.

Before the Court of Appeal, Filobake did not challenge the judge’s finding that the right to reject the equipment had been lost. However it sought to amend its Particulars of Claim to introduce an independent ‘wasted expenditure’ claim which was not dependent on the existence of the right to reject. At the same time, it wished to argue that the judge was wrong to reject the loss of profits claim.

The Court of Appeal was persuaded that the evidence amply justified the judge’s conclusion on the loss of profits claim.

The Court of Appeal then considered Filobake’s attempt to add an alternative claim for damages for wasted expenditure. It will be recalled that in the famous case of Anglia Television v Reed [1972] 1 QB 60 the Claimant could not say what profit it would have made had Mr. Reed fulfilled his contract to appear in a proposed TV programme, because as soon as Mr. Reed repudiated the contract Anglia TV cancelled the Project. It therefore sought to recover the expenditure wasted on the Project rather than loss of profits to be made by the programme.

It was accepted by the Court of Appeal in Anglia that the innocent party could elect to pursue a claim for wasted expenditure rather than for loss of profit.

However, in a further Court of Appeal decision, C&P Haulage v Middleton [1983] 1 WLR 1461, it was held that the Claimant, although the innocent and wronged party, could not elect to claim wasted expenditure when it was apparent that the bargain he entered into, which was broken by the Defendant, was one which would have occasioned him loss in any event. It was said by the Court that the lost expenditure was brought about by the poor quality of the bargain, not by the breach committed by the Defendant.

These decisions were considered by Hutchison J in CCC Films (London) Ltd v Impact Quadrant Films Ltd [1985] 1 QB 16. The Judge permitted the Claimant to abandon its claim for loss of profits at a very late stage of the proceedings, and to substitute for it a claim for wasted expenditure. He interpreted the C&P Haulage case as permitting the Defendant to prove, the burden resting upon it, that all or part of the expenditure would have been wasted in any event because the bargain was always going to be unprofitable.

In their consideration of the appeal in Filobake, the Court of Appeal accepted the analysis of the shifting burden of proof as expounded by Hutchison J.

However, the Court of Appeal rejected Filobake’s attempt to pursue a loss of profits claim and a wasted expenditure claim in parallel as alternatives. It tended to the view that the Claimant was obliged, at some stage before the Defendant was called on to discharge any burden of proof laid upon it, to elect between a claim for loss of profits and one for wasted expenditure. This was justified in part by the embarrassment which would otherwise be caused by both parties having a burden of proof in relation to the issue of loss of profits. But the Court also set some store by dicta in Anglia TV and C&P Haulage. In the former, Lord Denning suggested that a wasted expenditure claim is only available where the claimant “has not suffered any loss of profits or cannot prove what his profits would have been” ([1972] 1 QB 60 at 63H-64A). In the latter, Ackner LJ contemplated that a wasted expenditure claim was restricted to cases where the loss of profits situation “could not be prophesied”.

What is clear from this case is that lawyers acting for claimants will need to give careful consideration to whether to seek loss of profits or wasted expenditure as the consequences of a breach of contract. It may be counter productive to pursue a highly speculative loss of profit claim, when a wasted expenditure claim may more easily, and more surely, be proved. It will certainly be wise to elect between these remedies in order to avoid the risk of falling between two stools.

Howard Palmer QC and Bruce Gardiner of 2 Temple Gardens appeared for Rondo Limited, instructed by John Field of Carter Bells. Jonathan Marks QC and Simon Williams appeared for Filobake.

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