Leicester Circuits Ltd. v Coates Brothers Plc

Fitness for purpose is ordinarily a question of fact, but an appellate court must decide whether the finding is the correct inference from the evidence. It cannot uphold the finding merely because some evidence supports it. A claimant must prove on the balance of probabilities that loss was caused by the product’s unfitness. Intermittent failures, successful performance in most applications, possible defects in processing, and a change to another product may leave that burden undischarged. Evidence from other users is probative only where their problems are shown to be sufficiently similar. The court also explained, obiter, the incorporation and scope of a contractual exclusion clause.

Leicester manufactured printed circuit boards and bought T4 solder-resist ink from Coates. Leicester claimed that the ink was unfit for use on ground-plane boards with narrow channels and sought damages for resulting losses. The High Court upheld the unfitness-for-purpose claim, although it rejected a negligent misrepresentation claim and did not award loss of profit relating to Tyco’s business.

Coates appealed against the finding of unfitness. Leicester cross-appealed against the refusal of its Tyco loss claim. The central issues were whether Leicester had proved that the ink was unfit and caused the losses, and whether the Tyco problems were attributable to the ink.

Lord Justice Longmore delivered the judgment of the court.

1. Disposition. Coates’ appeal was allowed. Leicester’s cross-appeal concerning the Tyco business was dismissed.
2. Appellate approach. Whether an article is fit or unfit for purpose is an inference drawn from many facts. It is therefore a mixed question of fact and law. Although fitness for purpose was primarily factual in this case, the appellate court had to decide whether the judge had drawn the correct inference from the evidence, rather than merely asking whether some evidence supported his conclusion. The court respected the judge’s assessment of witness demeanour but found that his reasoning on unfitness did not withstand analysis.
3. Burden of proof. Leicester did not need to establish the precise physical mechanism causing the blistering. It did, however, have to prove on the balance of probabilities that its losses were caused by T4 ink being unfit for its purpose. The law did not exclude the possibility of occasional unfitness, but the question remained whether the ink was reasonably fit for its intended use. T4 had worked adequately, or had not been shown to be unfit, for much of the relevant period. The failures were intermittent and variable, no formulation change had been established, and the expert evidence favoured processing defects as the more likely cause. The fact that other ink later worked better did not establish unfitness.
4. Evidence from other manufacturers. Evidence from other PCB manufacturers could not support the claim without proper allegation and proof that their problems were sufficiently similar to Leicester’s. General evidence of difficulties with different board designs or processes was irrelevant and potentially misleading.
5. Tyco. The relevant sample boards had not been retained for examination. The agreed expert evidence and Leicester’s own evidence indicated that the problem had been addressed by increasing coating weight. The judge was entitled to treat the Tyco problem as isolated and not shown to have been caused by T4 ink.
6. Contractual terms. The court stated, obiter, that Coates’ terms had been incorporated through the parties’ course of dealing. The exclusion clause was not sufficiently clear to exclude loss of profit or other losses within the first limb of Hadley v Baxendale (1854) 9 Exch 341. The word consequential had the meaning adopted in Croudace Construction Ltd v Cawoods Concrete Products Ltd [1978] 2 Lloyds Rep. 55, and loss of clientele had to be truly consequential before exclusion.

Leicester was ordered to pay Coates’ appeal costs and specified costs below. Permission to appeal to the House of Lords was refused.

1. Court of Appeal (Civil Division). Allowed Coates’ appeal against the High Court’s finding that T4 ink was unfit for purpose. Dismissed Leicester’s cross-appeal concerning loss of Tyco’s business.
2. High Court, Queen’s Bench Division. His Honour Judge Bradbury upheld Leicester’s contractual unfitness-for-purpose claim, rejected the negligent misrepresentation claim, and refused the Tyco loss claim.