Sony Computer Entertainment UK Ltd v Cinram Logistics UK Ltd, Court of Appeal - Civil Division, August 08, 2008, [2008] EWCA Civ 955

Resolution Date:August 08, 2008
Issuing Organization:Civil Division
Actores:Sony Computer Entertainment UK Ltd v Cinram Logistics UK Ltd

Neutral Citation Number: [2008] EWCA Civ 955

Case No: A3/2008/0236





2005 FOLIO 475

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 08/08/2008

Before :





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Between :

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(Transcript of the Handed Down Judgment of

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Mr T Marland (instructed by Messrs Waltons & Morse) for the Respondent/Claimant

Mr A Hill-Smith (instructed by Brookstreet Des Roches Llp) for the Appellant/Defendant

Hearing dates : 17 July 2008

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JudgmentLord Justice Rix :

  1. If a manufacturer and seller of goods loses them through the fault of another before he can make delivery and earn the price, can he recover that price as damages for their loss or is he limited to the lower manufacturing cost of replacing those goods, at any rate unless he proves that he could not make good the lost sale to his buyer? That is in effect the issue raised by this litigation.

  2. The goods in question are memory cards used in the Sony PlayStation 2. Such memory cards enable games to be saved. The sales were of 4,000 red and 13,000 black such cards. There is no difference in value or function between a red and a black card.

  3. The claimants are Sony Computer Entertainment UK Limited and Sony Computer Entertainment Europe Limited. No distinction has been made between them, and they have been referred to indiscriminately as ``Sony''. I shall do the same. Sony is the wholesaler in the UK of computer peripherals, predominately the PlayStation computer games with their associated hardware and software, including the memory cards just referred to. These memory cards are manufactured in Japan by Sony's Japanese associated or parent company. There is a three month lag between Sony reordering such cards from Japan and receiving them in the UK.

  4. Among Sony's most important customers in the UK is Game Stores Group Limited (``Game''). Game operates something like 600 stores in the UK. Sony is a major supplier of Game and because of their close trading relationship sold memory cards to Game at a discounted price. Thus it is agreed that the ``open market value'' of the 4,000 red and 13,000 black cards, that is to say the price at which such goods could normally be obtained from Sony, was £289,170, whereas the favoured customer discounted price at which these goods were sold to Game was £187,989.41. Sony claims only the lower discounted value in these proceedings. However, the cost price to Sony of these goods was the lower figure of £56,246.

  5. The defendant in these proceedings is Cinram Logistics UK Limited (``Cinram''). Cinram was responsible for the warehousing and distribution, including carriage, of Sony products. At the time with which we are concerned it was called The Entertainment Network Limited or ``TEN''. It started life as a company jointly owned by Sony Music and Warner Music, but by the time, in September 2004, of the loss of the cards in question had already become a wholly owned subsidiary of Cinram Inc, a Canadian company. At trial the defendant was called TEN and I shall continue to do so.

  6. When Game raised a purchase order with Sony, the order would be logged directly from Game onto TEN's system. At the time due for delivery, TEN would palletise the ordered goods from Sony stock held at TEN's warehouses in Aylesbury, Berkshire, and deliver them to Game's warehouse in Basingstoke, Hampshire, usually by sub-contracted carriers.

  7. The cards in question were stolen by being diverted into the possession of fraudsters. They have never been recovered. TEN admitted liability for the losses, and the trial before HHJ Knight QC, sitting as a deputy high court judge in the Commercial Court, was limited to the assessment of damages. The various values described above were agreed, and in effect the issue between the parties was whether the claim was made good for the price to Game of £187,989.41 or only, as TEN contended, for the cost to Sony of £56,246. Sony's claim had been pleaded in contract, bailment and negligence. The judge found that on the balance of probabilities Sony had proved its claimed loss by showing that the sales in question had not been replaced.

  8. TEN appeals against that judgment. On its behalf, Mr Alexander Hill-Smith submits that the burden of proof was on Sony to prove its loss by showing that it had lost the sales in question, ie by showing that Game had not replaced its orders. If, as he submitted, the evidence showed that the sales had been replaced and thus had not been lost, it must follow that Sony had earned its profit and so was entitled only to the cost price of the lost goods. On behalf of Sony, Mr Tim Marland submitted that the judge's finding was one that he was entitled to make and was correct. In any event, he also submitted in the alternative that Sony had proved its loss, at any rate on a prima facie basis, by proving the loss and value of the goods, and that if it was to be said by TEN that Sony had after all lost only the cost to it of replacing the goods, then the evidential burden of showing that Game had not replaced the goods lay on Ten and not on Sony, and could not be met. This was either because of a shifting evidential burden, or because TEN's argument amounted or was analogous to an implicit plea of failure to mitigate.

  9. These submissions make it necessary to set out further facts about the commercial relationship between Sony and Game.

    Game's orders from Sony

  10. As a large customer, Game was ordering the memory cards as a continuous product throughout the period in question. Thus in calendar year 2004 Game ordered a total of 268,000 black and 66,500 red cards.

  11. The cards which were lost had been ordered on 18 August 2004 for delivery on 8 September.

  12. These orders need to be seen in context. On 18 August Game made many separate orders: for the black cards, a total of 137,776, and for the red cards, a total of 50,000. The delivery dates for these orders were staggered from immediate delivery to 1 December 2004. As of the time when the cards in question were lost, a further 103,776 black and 34,000 red still remained on order from the 18 August orders.

  13. Following the loss of the 13,000 black and 4,000 red cards the order position was as follows. The first column gives order date, the second quantity, and the third due delivery date:

  14. The situation is complicated by the existence of further orders for blue and silver cards. It is not known when these cards were ordered or for what delivery dates, but it is known that as of 26 October 2004 the total outstanding orders for coloured (ie non-black) cards were as follows:

    or a total of 78,300 cards. Those 27,000 red cards were made up of three orders: the 18.8.04 order of 4,000 cards which was never delivered because lost; the 18.8.04 order of 18,000 cards for delivery on 1.11.04; and the 18.8.04 order of 5,000 cards for delivery on 1.12.04. On 26 October 2004 there was an e-mail exchange between Sony and Game whereby these outstanding orders for 78,300 coloured cards were cancelled and replaced with a new order for 54,000 black cards for almost immediate delivery. That replacement order can be seen in the list above for Black against the date 26.10.04.

  15. In sum: (i) there is no sign of any immediate replacement of the lost deliveries being effected by Sony to Game or of any immediate replacement orders given by Game to Sony to make good the lost deliveries; (ii) apart from the small order of 1,700 black cards given by Game to Sony on 15 September 2004 for delivery on 28 September, there were no further orders from Game to Sony until 20 October at the earliest; (iii) on 26 October the outstanding number of 78,300 coloured cards on order were replaced by a diminished order for only 54,000 black cards It is not entirely clear whether the 54,000 black cards then ordered were in addition to the 58,000 black cards then outstanding on order for delivery in November, or also in replacement for them as well. That 58,000, which is mentioned in the e-mail from Sony to Game of 26 October 2004 (``You have 58K black...on order for Nov 1st''), did not include the lost 13,000, which had of course been due for delivery in September. Game's reply e-mail of the same day is to cancel the 78,000 coloured cards and replace with ``ONE order for the Black memory card (54,000 units) which can be shipped immediately''. ; and (iv) the fact that the lost delivery of 4,000 red cards was among the still outstanding orders for coloured cards cancelled on 26 October shows that the lost goods had not been replaced as such by that date.

  16. It was submitted at trial that the order for 9,500 red cards made on 20 October represented a replacement of the 4,000 lost cards which had never been delivered. However, there was no evidence at trial to support that submission, and the fact that the 4,000 order was still outstanding as of 26 October is evidence to the contrary. Moreover, it is prima facie counter-intuitive to think that an order made on 20 October is a replacement for goods due on 8 September. Much water will have flown under the retail bridges in those 6 weeks of the autumn.

  17. It also appears that the financial accounting between Sony and Game and the order book accounting between them were not co-ordinated. Thus, the lost cards, although never delivered and shown (as can be inferred from the case of the 4,000 red cards) to be outstanding orders, were nevertheless paid for in the ordinary way, as part of a bulk periodic settlement on 1 November 2004, pursuant to...

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