Fuji Seal Europe Ltd v Catalytic Combustion Corporation

A commercial party is not entitled to supplement the contractual arrangements it deliberately made by implying a collateral warranty where it chose to contract with a subsidiary rather than the parent company. A duty of care may nevertheless arise in tort where a specialist supplier assumes responsibility by reviewing proposed equipment and giving specific advice on its suitability.

The duty requires the adviser to consider all material supplied for the purpose, including relevant earlier reports. Reliance need not be exclusive. Where negligent advice causes the claimant to purchase unsuitable equipment, losses falling within the scope of the duty are recoverable, including reasonable replacement and maintenance costs.

Fuji Seal operated printing works producing volatile organic compound emissions. Following an enforcement notice, it obtained competing proposals for abatement equipment. Catalytic Combustion Corporation recommended a rotary concentrator and catalytic oxidiser, while its English subsidiary, CCE, entered into the relevant supply and installation arrangements with Fuji.

The equipment later suffered overheating, catalyst damage and shutdowns. Fuji claimed damages from CCC in negligence and for alleged collateral warranties. The principal issues were whether CCC owed contractual or tortious duties, whether it had breached a duty of care by recommending unsuitable equipment, whether Fuji relied on that advice, whether the breach caused the losses, and the recoverable measure of damages.

1. Contractual liability. Fuji failed to establish a collateral warranty. Shanklin Pier v Detel Products [1951] 2 KB 854 concerned parties dealing at arm’s length, whereas CCC and CCE were parent and subsidiary companies. Fuji and CCC could have contracted directly or required a parent company guarantee. The court would not supplement the commercial arrangements chosen by experienced parties.
2. Tortious duty. CCC assumed responsibility towards Fuji by reviewing the proposed equipment and advising specifically on the appropriate abatement system. The duty required CCC to consider all material supplied to it, including the earlier Stanger report and the GMS report.
3. Breach. CCC misread the GMS report, treating carbon figures as solvent figures and adopting an unjustifiably low design loading. Taking account of the measured loading, peaks, fugitive emissions, disconnected ink trays, intended increases in press speeds and the Stanger report, the proper design basis was 3.5 grams of VOCs per cubic metre. A rotary concentrator and catalytic oxidiser were unsuitable; an RTO should have been recommended.
4. Reliance and causation. Reliance on negligent advice need not be total or exclusive. Applying Edgington v Fitzmaurice (1855) 29 Ch. D. 459, CCC’s advice was a major factor in Fuji’s decision. If correct advice had been given, Fuji would have purchased an RTO. The unsuitable plant caused overheating, catalyst damage and shutdowns. Later increases in press speeds did not break the causal link because Fuji had disclosed its intention to increase production.
5. Damages. Applying Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] 1 AC 191, the claim was for negligent advice and the losses fell within the scope of the duty. Fuji recovered £349,200 for overpayment, £49,282 for maintenance costs and £570,000 for replacement equipment, giving judgment for £968,482.