2 Entertain Video Ltd & Ors v Sony DADC Europe Ltd

A logistics provider responsible for goods and distribution services must assess reasonably foreseeable risks, including unauthorised entry, arson and fire, and take proportionate measures to address them. Relevant industry guidance may provide strong evidence of competent practice, although it is not itself legally binding.

Where contractual limitation clauses address different liabilities, their scope depends on the wording and commercial context. A clause limiting liability for loss of goods to manufacturing replacement cost does not necessarily limit losses caused by destruction of the logistics facility. Loss of profits and business interruption costs resulting directly from the breach are not indirect or consequential losses merely because they follow physical damage. An aggregate contractual cap remains effective, but insurance payments made under a separate insurance obligation do not necessarily exhaust it.

The claimants stored and distributed home-entertainment media through the defendant’s Enfield warehouse under a logistics services agreement. In August 2011, rioters broke into the warehouse, started a fire and destroyed the building, stock and logistics infrastructure.

The claimants sought losses including lost profits, business interruption costs and increased costs of working. The defendant relied on reasonable security and fire precautions, force majeure, contractual exclusions and limitations, insurance payments, and limitation.

The central issues were whether the defendant had breached its contractual, bailment and common-law duties; whether the fire and losses were within its reasonable control; how the contractual provisions operated; and the appropriate basis for assessing damages.

1. Liability. The defendant breached clauses 5.1.3, 5.1.4 and 5.3.2 of the Logistics Contract. It failed to provide adequate security and fire precautions, and was also liable in bailment, conversion and at common law.
2. Security. Previous break-ins, identified weaknesses at the south-west corner and available guidance required a proper security risk assessment and site-specific plan. Continuous perimeter fencing, a stronger fire-exit door, more robust grilles and documented security checks were reasonable measures. BS 8220 was strong evidence of acceptable professional practice.
3. Fire precautions. The warehouse should have been treated as a multi-storey building because the mezzanines and two-tier shelving were galleries. Alternatively, its floor area exceeded the relevant limit for an unsprinklered single-storey building. Compartmentation or sprinklers, or a justified fire-engineered alternative, was therefore required. The defendant had no adequate property fire-risk assessment or alternative engineering analysis.
4. Causation and force majeure. Adequate security probably would have deterred or delayed the attack. Sprinklers, including in-rack sprinklers, probably would have suppressed the fire and significantly limited the loss. The riot was unprecedented, but the relevant risks were foreseeable and the resulting loss was not beyond the defendant’s reasonable control. Clause 14.1 was unavailable.
5. Contractual limits. Clause 10.1 limited liability for loss of or damage to goods to manufacturing replacement cost, but did not limit losses caused by failure to provide the wider logistics services. Under clause 10.3, the lost profits and business interruption losses were direct and natural consequences of the breach, not indirect or consequential losses. Clause 10.4 imposed an aggregate cap of £5 million. The insurance payment did not exhaust that cap because it was made under the insurance arrangements and did not constitute acceptance of contractual liability in that amount.
6. Limitation and damages. The security and fire obligations were continuing covenants, so further breaches occurred at the time of the break-in and fire. The claim was not statute-barred. The appropriate assessment was the Fire Related Basis, putting the claimants in the position they would have occupied had the fire not occurred. Damages were recoverable up to the contractual cap of £5 million, plus interest.

First-instance decision. No appellate history was stated in the judgment.