Messer UK Ltd & Anor v Thomas Hardy Packaging Ltd & Anor

A claim for the costs of recalling and destroying a defective product is ordinarily economic loss, rather than loss in respect of direct physical damage to property, where the defective product was defective from its creation. Contractual limitation clauses must be construed by identifying the proper scope of each provision before assessing reasonableness under the Unfair Contract Terms Act 1977. Where a clause operates as a blanket exclusion for matters fundamental to the supply, and compliance with its notification requirement is unrealistic, the supplier bears the burden of showing reasonableness and may fail to do so.

The appeal arose from proceedings concerning benzene-contaminated carbon dioxide supplied by Messer to Thomas Hardy Packaging Ltd, which incorporated it into drinks supplied to Bacardi-Martini. Tomlinson J held that Messer’s contractual limitation provisions did not exclude liability and gave judgment for THP against Messer and Messer against Terra. The present appeal concerned the construction and reasonableness of clauses 12.1 and 12.2 of Messer’s standard terms. Related tort and contribution claims against Terra were also raised, but their determination depended on the characterisation of the loss.

1. Appeals dismissed. Messer’s supplies were subject to implied undertakings of satisfactory quality and fitness for purpose, and those undertakings were breached.
2. Clause 12.1, concerning liability for personal injury and direct physical damage to property, did not cover the losses claimed. The drinks were a new product which was defective from the moment of creation. The concentrate and water were intended to be merged into the finished product and did not retain separate identities. The recall, destruction and associated costs therefore represented economic loss relating to the finished drinks, not loss directly arising from physical damage to pre-existing property.
3. Clause 12.2 was a blanket exclusion covering purely economic loss and other loss not within clause 12.1. Its five-day notification requirement was, in practice, unrealistic because the gas was stored in tanks and contamination would not ordinarily be tested. The clause purported to exclude liability for contamination outside the relevant purity standard, including the contamination which occurred. Messer had not shown the clause to be reasonable under sections 6 and 11 of the Unfair Contract Terms Act 1977.
4. The scope of the contractual provisions had to be determined before considering statutory reasonableness. The principle that an exemption clause should, in case of real doubt, be construed in the less restrictive sense did not determine the issue because the contractual allocation of risk was sufficiently clear.
5. The tort and contribution claims did not arise for decision. Nevertheless, on the assumed basis that actionable physical damage had occurred, foreseeable consequential loss could include an indemnity paid in respect of liability to a third party.

• Court of Appeal (Civil Division): appeals from Tomlinson J’s judgment in the Commercial Court dismissed.
• Commercial Court: judgment dated 12 July 2001; judgment for THP against Messer and for Messer against Terra, with the contractual liability issue determined subject to the appeal.