Damages: Sony Computer Entertainment UK Ltd v Cinram Logistics UK Ltd

Though not strictly an intellectual property case, the Court of Appeal's decision in Sony Computer Entertainment UK Ltd v Cinram Logistics UK Ltd [2008] EWCA Civ 955 (8 August 2008) would certainly apply to many computer suply and e-commerce disputes and arguably also to the correct computation of damages in any other type of dispute.

The Issue

The issue as expressed by Lord Justice Rix in opening his lead judgment was:

"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?" 

The claimants were subsidiaries of the Sony consumer electronics group which distributed "Playstation" games and peripherals in the UK and the defendant, Cinram Logistics UK Limited ("Cinram"), was a warehousing and distribution group. Cinram's order and delivery systems were integrated with Sony's so that when one of Sony's principal customers ordered such goods from Sony, the order would be logged directly onto Cinram's system, collected from the warehouse and delivered straight to the customer. The dispute arose because Cinram allowed a stock of memory cards intended for Sony's customer to fall into the hands of fraudsters. The open market value of those cards was £289,170, the price that Sony would have charged its customer was £187,989.41 and the manufacturing cost was £56,246. Sony sued Cinram for £187,989.41. Cinram admitted liability but contended that Sony was entitled to recover only the cost of manufacturing the cards because there was a ready market for the goods. On the assessment of damages, His Honour Judge Knight QC, sitting as a judge of the Commercial Court, awarded Sony the amount that it claimed. At trial he held that the burden lay on Sony to prove that it had lost the sales of the missing cards for ever and that Sony had discharged that burden.

The Appeal

Cinram appealed on the ground that the judge had been wrong to find on the facts that Sony had discharged the burden. Sony replied that the judge had been right to find as he did but argued that he should have found that the burden rested with Cinram to prove that Sony's loss was limited to £56,246. Delivering the lead judgment, Lord Justice Rix found that there was sufficient evidence to support the judge's conclusion but, even if there had not, he would still have found for Sony on the ground that the burden of proof lay with Cinram rather than Sony. Lords Justices Wilson and Rimer agreed.

Analysis

It would appear that the general principle on the measure of damages for non-delivery of goods is the same as for wrongful non-acceptance, namely the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of contract.   Where there is an available market for the goods in question the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price. As Lord Justice Rix put it:

"whether the matter is looked at in this way, by analogy with the case of the seller who sues his buyer for non-acceptance, or whether the matter is looked at more directly, asking what an owner of goods has lost by reason of having his goods lost or converted by a bailee, in breach of contract, there being as in this case no problem on the ground of remoteness or lack of knowledge of the profit in question, the answer must be that prima facie the owner is entitled to the value of his goods; and that if the defendant wishes to say that the loss is less because the profit could have been earned in any event by a substitute or replacement sale, at the cost only of the expenditure of a lesser sum for the purpose of manufacturing or buying in further goods, then the defendant bears the burden of proving that case. It is not for the claimant to prove a negative, that he has not recouped the profit by a substitute sale, but for the defendant to prove a positive, that the profit has been recouped and thus the loss of profit not suffered after all."