Factual and Procedural Background
The Plaintiff ("MSL") owns and operates vacuum furnaces used in manufacturing metal and ceramic products. In June 2017, MSL acquired two used vacuum furnaces, including one known as the Abar HR50 furnace ("the Abar"), originally built in the 1980s and designed to operate up to 5 bar absolute pressure. In November 2017, MSL engaged the Defendant ("VAS") to refurbish the Abar to an "as new" standard, including supplying a new Programmable Logic Controller ("PLC").
The refurbishment was carried out at VAS's premises and the Abar was installed and commissioned at MSL's premises starting October 2018. Although difficulties arose, the refurbishment was completed to apparent satisfaction and the Abar entered service in October 2019.
On 15 June 2021, during a negative pressure cycle intended to keep pressure below atmospheric pressure (1 bar), the Abar unexpectedly reached 3 bar pressure. In attempting to reduce pressure by opening the air admit valve, a filter was ejected forcefully, indicating a serious malfunction. MSL ceased use of the Abar and commissioned a competitor, Vacuum Furnace Solutions ("VFS"), to assess safety and recommend modifications.
VFS produced a report in September 2021 identifying several defects and recommending repairs costing £12,850, with caveats regarding incomplete access to the PLC software and potential for additional issues. MSL did not commission VFS to carry out repairs nor require VAS to do so under warranty. The Abar has remained out of service, and MSL purchased a new furnace in May 2022 to perform the intended work.
On 14 March 2022, MSL issued proceedings against VAS claiming damages for breach of contract arising from the allegedly defective refurbishment. The claim initially included the cost of repairs, PLC replacement, or alternatively the full refurbishment cost, plus additional costs such as staff overtime for running other furnaces. The claim reached trial over two years later, with evidence from multiple witnesses and experts.
The court first addressed which contractual terms applied, whether the contract was varied to limit commissioning to negative pressure operation, then considered alleged defects, causation, damages, and finally counterclaims by VAS for unpaid invoices.
Legal Issues Presented
- Which contractual terms governed the refurbishment contract between MSL and VAS?
- Whether the contract was varied orally to limit commissioning of the Abar to negative pressure operation rather than the original 5 bar specification?
- Whether VAS breached the contract by failing to refurbish, commission, and test the Abar to the agreed specification and with reasonable care and skill?
- What defects in the refurbishment works constituted breaches of contract?
- What losses and damages did MSL suffer as a result of any breaches?
- Whether MSL mitigated its losses reasonably?
- What is the proper resolution of VAS's counterclaims for unpaid invoices?
Arguments of the Parties
Plaintiff's Arguments
- The contract was formed on MSL's standard terms and conditions, as incorporated by reference in the purchase order.
- There was no valid variation of the contract to limit commissioning to negative pressure; any such oral instruction was ineffective due to a no oral modification clause.
- VAS breached the contract by commissioning the Abar only to 0.8 bar instead of the contractual 5 bar standard.
- The defective refurbishment caused various safety and operational defects, including inadequate commissioning, faulty safety valve settings, and insufficient documentation.
- Damages should include the cost of necessary repairs, further commissioning and testing, and consequential losses.
- VAS is liable for damages exceeding unpaid invoices, allowing MSL to set off the invoices against its damages claim.
Defendant's Arguments
- VAS contended that MSL orally instructed commissioning to negative pressure operation, effectively varying the contract.
- VAS argued that the no oral modification clause did not prevent reliance on such oral instructions.
- VAS disputed the extent and causation of defects alleged by MSL and contended MSL failed to mitigate losses reasonably.
- VAS sought payment of unpaid invoices, relying on its own terms and conditions for interest calculation.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Circle Freight International Ltd v Medeast Gulf Exports Limited [1988] 2 Lloyd's Rep 427 |
Incorporation of standard terms by reference without explicit provision, except for onerous or unusual terms |
The court held MSL's standard terms were incorporated by reference in the purchase order, as no onerous terms were involved. |
| B.R.S. v Arthur V. Crutchley Ltd [1968] 1 All E.R. 811 |
"Battle of the forms" principle where the last shot rule applies |
The court found this was not a battle of the forms case; the contract was formed before VAS's invoice, so VAS's terms did not prevail. |
| Kabab-Ji v Kout [2020] EWCA Civ 6, [2020] 1 Lloyd's Rep 269 |
Doctrine of estoppel may preclude reliance on no oral modification clause if clear representation is made and relied upon |
The court found no clear and unequivocal representation by MSL that the contract was varied orally to limit commissioning pressure. |
| MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2018] UKSC 24, [2019] AC 119 |
Requirements for promissory estoppel regarding no oral modification clauses |
The court applied the principle that clear, unequivocal representation is necessary to override no oral modification clauses; VAS failed to establish this. |
| Zurich Insurance Plc v Umerji [2014] EWCA Civ 357 |
Burden on claimant to prove reasonable mitigation of loss |
The court held MSL failed to prove that its mitigation costs were reasonable and necessary. |
Court's Reasoning and Analysis
The court determined that the contract was formed when VAS accepted MSL's purchase order, which incorporated MSL's standard terms and conditions by reference. VAS's later invoice did not alter the terms. The court rejected VAS's claim that the contract was orally varied to limit commissioning to negative pressure operation, holding that the no oral modification clause in MSL's terms applied and no clear, unequivocal representation to the contrary was made.
The court found that VAS breached the contract by commissioning the Abar to operate only at negative pressure (0.8 bar) rather than the agreed 5 bar absolute pressure specification. This breach was demonstrated by the overpressure incident, where the furnace reached 3 bar but was not equipped to handle such pressure safely.
The court examined each alleged defect, finding breaches established in relation to the commissioning pressure, safety valve settings, water pressure switch, heat exchanger safety, gas backfill valve actuator, air admit filter fitting, and failure to provide updated electrical schematic drawings. Other alleged defects, including some software and pneumatic switch issues, were not established as breaches.
Regarding causation and damages, the court accepted the standard measure of damages as the cost of reinstatement to the contracted condition. It relied on the VFS report as a starting point but reduced the cost to reflect only those defects proved to be breaches. Additional costs for commissioning and testing to 5 bar were added. The court rejected MSL's claim for the full refurbishment cost and the full PLC replacement cost, finding insufficient evidence that these were necessary.
The court also found that MSL failed to mitigate its losses reasonably by leaving the Abar unused and incurring substantial costs running other furnaces. The evidence supporting these mitigation costs was insufficient and unconvincing.
Finally, the court addressed VAS's counterclaims for unpaid invoices, holding that MSL's terms applied and that MSL was entitled to set off these amounts against its damages claim, reducing VAS's net liability accordingly.
Holding and Implications
Judgment was given in favour of the Plaintiff (MSL) for breach of contract against the Defendant (VAS).
The court awarded damages to MSL in the net amount of £16,234.97, reflecting the cost of remedial works, commissioning, and testing necessary to bring the Abar to contractual specification, less set-off for unpaid invoices. Contractual interest was also awarded.
The court rejected MSL's claim for the full refurbishment cost and for consequential losses arising from mitigation efforts, due to insufficient evidence and failure to mitigate reasonably. The court also rejected VAS's contention of contract variation by oral instruction.
No new legal precedent was established; the decision applied established principles regarding contract formation, incorporation of terms, no oral modification clauses, breach of contract, causation, and mitigation of loss.