Redd Factors Ltd v Bombardier Transportation UK Ltd [2014] EWHC 3138 (QB) (06 October 2014)

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England and Wales High Court (Queen's Bench Division) Decisions

You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> Redd Factors Ltd v Bombardier Transportation UK Ltd [2014] EWHC 3138 (QB) (06 October 2014)
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Cite as: [2014] EWHC 3138 (QB)

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		Neutral Citation Number: [2014] EWHC 3138 (QB)
		Case No: HQ12X04913

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

06/10/2014

B e f o r e :

MR JUSTICE DINGEMANS
____________________

Between:

	REDD FACTORS LIMITED	Claimant
	- and -
	BOMBARDIER TRANSPORTATION UK LIMITED	Defendant

____________________

Tim Calland (instructed by Pitmans LLP) for the Claimant
Justin Davis (instructed by Nelsons Solicitors Ltd) for the Defendant
Hearing dates: 24, 25, 26, 27 June 2014, 30 June 2014, 1, 3 and 4 July 2014
____________________

HTML VERSION OF JUDGMENT
____________________

Mr Justice Dingemans :

Introduction

This is a claim for £681,172.53 made by Redd Factors Limited ("Redd Factors") against Bombardier Transportation UK Limited ("Bombardier").

Redd Factors is, as the name suggests, a factoring company. Primarius UK Limited ("Primarius") was a company engaged in the manufacture of train seats. Bombardier is engaged in the business of manufacturing trains and carriages. Primarius was a supplier of train seats to Bombardier.

Primarius invoiced Bombardier for work done on train seats. Redd Factors paid monies to Primarius in respect of the invoices issued by Primarius to Bombardier pursuant to a factoring agreement made between Redd Factors and Primarius, and Redd Factors took an assignment of debts due from Bombardier to Primarius.

Primarius was supplying train seats for Bombardier in respect of four main contracts. These were for trains for: (1) London Midland, a train operating company. Some of the papers refer to this contract as "Porterbrook" which was the name of the rolling stock operating company ("ROSCO") that was to purchase the completed trains from Bombardier and lease them to London Midland; (2) Chiltern Trains, another train operating company. Some of the documents refer to this contract as "Angel", which was the name of the relevant ROSCO; (3) London Eastern Railway Limited ("LERL"), another train operating company which operated the Stansted Express; (4) London Underground trains. This contract was known as SSL, which was short for "sub-surface line". There were delivery dates agreed between Bombardier and the ROSCOs, which made provision for liquidated damages clauses in the event of late delivery of the trains.

By late 2010 Primarius was experiencing serious cash flow problems, and owed monies to Redd Factors, HMRC and trade creditors. The trade creditors were mainly suppliers of goods and materials which were used in the seats. The suppliers would only permit Primarius to have limited credit. Bombardier had made a payment of £70,000 to Primarius in August 2010 to attempt to help Primarius get over its cash flow difficulties. It was considered that if a mechanism could be found so that supplies of goods and materials for the seats to be manufactured by Primarius could be secured, there would be profit for Primarius in the contracts which meant that Primarius could continue to trade and would not be insolvent.

The evidence shows that after various options had been considered, Bombardier and Primarius came to an agreement signed on 18 January 2011, which was known by the parties as the "licence agreement". It was known as the licence agreement because it made provision for Bombardier to purchase the intellectual property rights in the train seats from Primarius and Prestfold Financial Limited ("Prestfold"), which was the shareholder of Primarius. This meant that Bombardier would be able to continue to manufacture the train seats in the event that Primarius became insolvent and ceased to trade. The agreement also made provision for Bombardier to make incentive payments to Prestfold in the event that various delivery dates were met "to support Primarius to improve its delivery performance" to Bombardier. The agreement made provision for all existing claims and counterclaims accrued to the date of the agreement to be waived so that it would provide a fresh start for both parties.

One of the main provisions of the licence agreement was that Bombardier agreed to purchase the goods and materials for the seats from certain named suppliers ("the original suppliers"), and supply the goods and materials to Primarius to enable Primarius to make the seats for the contracts. These goods and materials became known by the parties as "Free Issue Material" or "FIM". Provision was made in clause 7.1 for Bombardier to set-off the costs of the goods and materials supplied in a manner to be agreed. The enforceability of parts of the licence agreement, the proper interpretation of provisions in the licence agreement, and the extent of what was subsequently agreed, are in issue before me.

The evidence shows, and I find, that in practice the well-intentioned arrangements made under the licence agreement did not work out in the way that the parties had hoped. More suppliers ("the additional suppliers") were added by the parties to the arrangement. Some suppliers of parts to Primarius, who were by then contracting with Bombardier, increased prices. Costs were incurred in accelerating delivery times. Disputes arose about how many parts were ordered, and when the appropriate start up/cut off date for the supply of FIM for each project occurred. Small top up orders were required to be placed, which increased the prices of some units. The disputes about the extra costs incurred by Bombardier in obtaining the FIM were such that any prospect Primarius had of trading out of its then current situation disappeared. It is only fair to note that all of the parties suffered as a result of this. Primarius was unable to trade out of its indebtedness, and Mr Thornton, the director of Primarius was unable to take a salary from Primarius at this time (although he was still a shareholder of Prestfold which did receive incentive payments). Bombardier ended up paying far more for the completed train seats, once the FIM was taken into account, than was due under the contract. Redd Factors were unable to recover sums paid out to Primarius.

In the final event Redd Factors caused Primarius to be placed into administration and Primarius has now been dissolved. Redd Factors brings this claim for unpaid invoices for train seats and parts manufactured by Primarius and supplied to Bombardier, and Bombardier defend the claim, disputing some of the sums claimed and relying on a set-off for sums due under the licence agreement. There were a number of issues raised on the pleadings, for example, whether there was a valid assignment from Primarius to Redd Factors, which have not been pursued, and there were a number of disputes which became clear during the trial which had not been addressed either in pleadings, witness statements or Skeleton Arguments.

At the core of the dispute between the parties are issues: whether sums are owed by Bombardier under various invoices; and whether costs incurred by Bombardier ordering the goods and materials to be supplied by way of FIM can be set-off against any sums owed by Bombardier under the invoices.

Procedural matters

It might have been thought, given the nature of the disputes about invoices and costs incurred in obtaining FIM, that the parties needed to co-operate in the preparation of the case to: identify a list of issues; produce a schedule setting out their respective cases on each disputed invoice; and produce a separate schedule setting out their respective cases on the relevant claims for FIM.

None of these steps had been taken before the trial, and issues wholly unknown and unknowable to the other party surfaced for the first time in cross examination on both sides. The fact that the parties had not any realistic idea of the issues which were going to be raised at the trial was part evidenced by the fact that the time estimate given for the trial was "5 to 10 days".

In my judgment both sides were to blame for this state of affairs. This is because neither side had suggested, let alone made an application to the Court for: a further case management conference in circumstances where the issues had not crystallised before the previous case management conference; the production of relevant schedules; and a list of issues. It is right to record that the Claimant had requested further information from the Defendant, and had obtained an order to that effect, but the request had not identified the critical need for both parties to set out their respective cases on each relevant disputed matter. It should also be recorded that the Defendant had simply served bundles of invoices (forming 15 of the 26 bundles before me) to evidence the FIM claim.

In these circumstances the only realistic options available to me were either to adjourn the trial and list it again in the future, which would have inconvenienced other Court users and caused further delays for these parties, or to attempt to do the best that I could in the time allowed for the hearing. As it was I took the latter course and I made a number of orders providing for a list of issues and the production of relevant schedules. I also permitted a witness to be recalled to enable him to deal with matters which had arisen in the trial. I also directed the parties to attempt to agree various matters, or produce short submissions setting out their respective contentions. An example of this related to the date on which train seats had been delivered by Primarius to Bombardier, which was relevant to certain claims, and which had not been addressed in the evidence of either party.

In the event the case had been listed to be heard over 8 days, and this meant that it was possible for the parties during the trial to do the work that should have been done before the trial, and for the real issues to be identified. In my judgment permitting the parties to deal with issues in this way was consistent with the approach to the Civil Procedure Rules suggested in Denton v TH White Limited and other cases [2014] EWCA Civ 906 because it enabled the real issues to be identified in circumstances where both parties had been at fault in the pre-trial preparation. Whatever the final result there are likely to be costs consequences of the approach taken by the parties to the preparation of this trial.

I say nothing more about the procedural matters arising before the trial, and I am very grateful to both legal teams for their hard work during the trial in preparing the schedules and submissions. However, notwithstanding all the hard work at the trial carried out by both parties, it became clear in the course of closing submissions that the parties needed to produce a further schedule breaking down the costs incurred with various suppliers across the contracts. I gave the parties a further 14 days after the trial to produce this schedule. This was supplied to me on Thursday 17 July 2014, together with an agreed statement of financial information. I have attempted to follow these further schedules, but I am not confident, in the absence of submissions, that I have been able to follow the schedule breaking down costs over various suppliers. I considered it best to attempt to get as far as I could with the new schedules and to set out my findings on this new material, and give the parties permission to agree consequential orders or make further submissions in the light of these findings, and I will then give a short further judgment if it is necessary to do so.

Issues

The parties produced, and refined, a list of issues, which I have set out below. The list was produced with respective contentions included. I have set these out with the names of the party making the contention shown in brackets:

17.1 Does clause 7.1 either: (a) Give Bombardier the right to set-off any FIM costs (plus 5%) against any Primarius invoices from any contract? (Bombardier) (b) Simply record an intention to make a further agreement allowing FIM costs (plus 5%) to be recovered from the parties payable to PUK for the seats? (Redd Factors)

17.2 Does the effect of clause 7.2 mean that tooling costs incurred by Bombardier in providing the FIM should not be counted as part of the recoverable FIM costs under the arrangement either made of contemplated in clause 7.1?

17.3 Does the fact that Bombardier has a duty to supply the FIM to Primarius within a reasonable time for it to make the seats when required by Bombardier (clause 4.5) mean that any costs incurred in expediting the delivery of materials should not be counted as the recoverable FIM costs?

The May Agreement

17.4 Did the May Agreement: (a) Fix the amount of FIM costs that Bombardier could recover from Primarius in relation to the Original Suppliers? (Redd Factors) (b) Or fix the amount of costs that Bombardier could recover from Primarius in relation to orders committed by Bombardier to the Original Suppliers as at 17 March 2011 but leave it open to Bombardier to recover any further costs relating to the Original Suppliers if further materials were ordered? (Bombardier)

17.5 Was it part of the May Agreement that Bombardier could not recover airfreight costs or painting costs or any other non-recurring costs?

Redd Factors' claim for payment of the invoices

17.6 How much of Redd Factors' claim is proved? (a) Which invoice claims are proved? (b) Is Redd Factors entitled to recover the VAT on those invoices from Bombardier?

BT's cross-claim for FIM costs

17.7 In relation to each supplier the following points arise: (a) How much can Bombardier prove that it spent on FIM materials? This includes: (i) Are any of the costs for materials that were not subject to the FIM agreement? (ii) Were any of the materials for which a claim is now made delivered later than the time when they could have been used by Primarius to make the seats? (b) What number of parts were needed? (c) How many parts did Bombardier order (and pay for)? [Redd Factors' case is that the parts required are as set out in Volume I; Bombardier's case is that those figures are inaccurate and that the sums actually ordered reflect the actual requirement, with some small allowance for rejected/lost/damaged parts]. (d) If Bombardier ordered and paid for more than were needed: (i) Should the cost of the excess parts be borne by Bombardier? (ii) Or should they be Primarius' liability? (iii) If any over-ordering was caused by Penmark, given Penmark's role in the events that have happened, should those over-ordered parts be Bombardier's liability or Primarius' liability? [Redd Factors contends that Penmark was acting on behalf of Bombardier when procuring parts and managing stock levels; Bombardier contends that it acted for Primarius at all times and for all purposes]. (e) If Bombardier has paid prices for parts that are greater than Primarius expected to pay, then were the price increases avoidable by Bombardier, e.g. as where they were bad management of the ordering process? (f) Are any of the costs claimed expedition costs that should be borne by Bombardier (see issue 3 above)? (g) Are there any of the costs for tooling that fall outside what is recoverable by Bombardier (see issue 2 above)? (h) How much was spent on each project? (i) Is Bombardier entitled to recover VAT on its claimed FIM costs?

What can be set-off against what

17.8 Does Bombardier have a right to set any cost off against any invoice under clause 7.1 of the Licence Agreement?

17.9 It being common ground that Bombardier cannot claim independent/statutory set-off of its FIM claims, and that Bombardier is entitled in principle to an equitable set-off of some kind, how far does that equitable set-off extend? (a) Is it, as Redd Factors contends, restricted only to invoices that would have been discounted under the May Agreement – i.e. invoices for the delivery of seats under the main project contracts – and then only within the same project as that in which the relevant FIM cost arose? (b) Or does it, as Bombardier contends, extend to any invoice from any project whether or not the invoice is one that would have been discounted under the May Agreement? (c) If Bombardier's contention is correct, does the set-off only operate against invoices for goods or services provided after the Licence Agreement was made or the FIM arrangement took effect? (d) Did Bombardier deliberately choose not to exercise its right of set-off against PUK and, if so, what effect does that have on the set-off available?

Calculating the result

17.10 If the set-off to be applied is unrestricted, does the FIM claim exceed the value of the invoices? Otherwise

17.11 Which invoices fall into which categories? [The agreed list of issues noted that the parties were working to agree a further schedule]

17.12 What is the value of Bombardier's FIM claim that falls into each category?

17.13 How much, if anything, is Redd Factors entitled to on its claim?

Relevant provisions of the licence agreement

The following are relevant provisions of the licence agreement:

1.1 The definitions and rules of interpretation in this clause apply in this agreement. Underlying contracts: all and any supply agreements between the parties, whether in writing or otherwise for the supply of driver and passenger seats and other deliverables.

2.1 Primarius shall deliver the driver and passenger seats and other deliverables at the prices and in the quantities agreed in the Underlying Contracts and as described at schedule 1.

4.5 The obligations on the part of the Primarius to deliver the seats referred to in schedule 1 will always be subject to BT complying with its obligation to provide and supply the free issue materials referred to in clause 7.1 in reasonable time for Primarius to complete its obligations under this Agreement.

4.6 Without prejudice to the warranty obligations of Primarius and BT under the Underlying Contracts, upon execution of this agreement all claims and counterclaims which have accrued up to and on the Effective Date are waived by the parties provided that for the avoidance of doubt the following Variation Orders which are yet to be agreed shall be expressly excluded: 4.6.1 LERL – part number 3EER400013-8035 tip up seat design changes. 4.6.2 LERL – first class seat assembly cover plate for kit 520023181. 4.6.3 Turbostar – drawing changes requested at final design review held on 25 October 2010.

7.1 Primarius and BT shall in good faith agree a variation order to the Underlying Contracts whereby BT shall agree the provision of free issue materials to Primarius at cost price plus 5% handling fee and which shall be set-off against the price payable for the deliverables under the Underlying Contracts.

7.2 Any tooling, procured by BT after the Effective Date for the use pursuant to its obligations under the Underlying Contacts will be offered to the Licensor upon termination or expiry of the licences granted in schedule 2 at cost plus and additional mark up of 5%.

7.3 The parties shall agree in good faith by no later than 28 February 2011 the identity and value of stock owned by Primarius where the identity of such stock is limited to such items which are of the same type as the free issue materials provided under clause 7.1 and which can be used in manufacture of the products under the Underlying Contracts and provided that the value of such stock cannot be greater than the amount paid for the free issue item. Provided that BY and Primarius have agreed the stock and the values BT shall pay for this stock subject to an agreed payment profile which shall be dependant upon the delivery of the products as per schedule 1 further assurance.

The witnesses

I heard evidence on behalf of Redd Factors from: Martin Thornton, former managing director of Primarius; Gregory Sullivan, sole director and shareholder of Redd Factors; and Neil Warren, an employee of Redd Factors. There was no cross examination of Mr Sullivan or Mr Warren, and their evidence went to establishing Redd Factors' entitlement to sue on the Primarius invoices, which was not an issue pursued by Bombardier at trial.

I heard evidence on behalf of Bombardier from: Donald Macleod, Procurement Commodity Manager of Bombardier; Nichola Bramley, business controller of Bombardier; and Gary Mowbray, director of controlling and a director of Bombardier.

In my judgment all of the witnesses were giving honest evidence, and doing their best to assist me. The main evidence in the case came from Mr Thornton and Mr Macleod. There were some limitations in the evidence. The main limitation was the paucity of evidence available on some issues. This meant that, as appears when considering the issues below, at times I have had to consider whether there was sufficient evidence to enable me to make a finding, or whether the Court was being invited to cross the line into impermissible speculation.

So far as the evidence of Mr Thornton was concerned there were two other limitations. The first limitation was that Mr Thornton had a propensity to consider that everything claimed in the action was established, without the possibility of contrary argument. The best illustration of this was when he gave evidence supporting the claim for two claims for payment of invoice 5732 made in the schedule, notwithstanding that Mr Thornton was shown that part of the schedule where it appeared twice. I have no doubt that Mr Thornton had spent a lot of time attempting to make sure that the claims made were accurate, and honestly believed that they were, but this illustrated that not all of his evidence could be accepted simply because he had given that evidence.

The second limitation about Mr Thornton's evidence concerned Penmark Limited ("Penmark") a firm which provided consultancy services to Prestfold, which as noted above, owned the shareholding in Primarius. Mr Thornton's evidence about this relationship was inconsistent with the legal agreements relating to that relationship which he had negotiated, as appears below.

So far as Mr Macleod was concerned the main limitation with his evidence was that he was not involved in many of the details in the procurement process. Mr Macleod's name was put on a number of emails from Primarius and on invoices, but the reality was that although he had overall responsibility for matters he had not been involved with the details of the particular order.

I turn now to address the issues identified by the parties.

An enforceable right of set-off under clause 7.1

The issue set out in paragraph 17.1 concerns the construction of clause 7.1 of the licence agreement. Bombardier contends that clause 7.1 gives Bombardier the right to set-off any FIM costs (plus 5%) against any Primarius invoices from any contract. Redd Factors contend that clause 7.1 simply records an intention to make a further agreement allowing FIM costs (plus 5%) to be recovered from the parties payable to Primarius for the seats.

I have set out the relevant provisions of clause 7.1 in paragraph 18 above. The real issue is whether clause 7.1 is merely an agreement to agree, which would be unenforceable in the absence of any subsequent agreement, or an enforceable agreement. It is well established that a simple agreement to agree will be unenforceable because it lacks certainty, see Walford v Miles [1992] 2 AC 128. Whether there is sufficient certainty about the objects of the future agreement, so that the existing agreement is not vague and unenforceable, depends on the relevant contractual and factual matrix, see the majority and dissenting judgments in Jet2.com Ltd v Blackport Airport Ltd [2012] EWCA Civ 417.

In my judgment clause 7.1 is sufficiently certain to be enforceable. It is true that it provides that Primarius and Bombardier "shall in good faith agree a variation order", however the clause then goes on to provide that Bombardier should agree the provision of FIM "at cost price plus a 5 per cent handling fee which shall be set-off against the price payable for the deliverables under the underlying contracts". The underlying contracts were defined in the definitions section as "all and any supply agreements between the parties …". Clause 4.4 provided an obligation for Primarius to deliver a minimum number of seats, and clause 4.5 provided an obligation on the part of Bombardier to supply the FIM in reasonable time for Primarius to complete its obligations in making the seats. This meant that the only thing to be agreed by the parties was a variation order, in circumstances where all the material obligations to be set out in the variation order were identified. This did not stop the parties from agreeing terms about the way in which the variation order would operate which might, in the final event, mean that not all the costs would be recovered. The agreement was therefore sufficiently certain to be enforceable. To characterise such an agreement as unenforceable would, in my judgment, frustrate the reasonable expectations of business persons.

It might be noted that much less turns on this particular issue than might have been expected. This is because the parties subsequently made an agreement providing for the payment of discounted agreements which the parties have called the May agreement. It was also common ground that Bombardier would be entitled to claim, if only on the basis of a claim for restitution, for the costs of material incorporated into the seats then manufactured by Primarius against a claim for the cost of the seat.

Tooling costs under clause 7.2

The issue set out in paragraph 17.2 concerns tooling costs incurred by Bombardier in obtaining the FIM. The parties specifically provided in clause 7.2 of the licence agreement that Bombardier should offer Prestfold and Primarius an option to buy tooling procured by Bombardier at cost plus an additional mark up of 5 per cent. In these circumstances, the objective intention of the parties must have been that Bombardier could not claim the cost of tooling as part of the FIM. This is because the parties could not have intended that Bombardier could charge once for the tooling as part of the FIM, and then offer it again for sale.

Costs of expediting delivery

The issue in paragraph 17.3 relates to the costs which were incurred by Bombardier in expediting delivery. Some of these costs (for example airfreighting rather than shipping FIM from China) were the subject of a further agreement, but the point still applies to some other FIM costs claimed to be set off by Bombardier.

The relevant provision in clause 4.5 has been set out in paragraph 18 above. Clauses 4.1 to 4.4 provided for various deliveries dates for Primarius, and then made those obligations conditional on Bombardier supplying parts "in reasonable time for Primarius to complete its obligations …". There is nothing in the wording of clause 4.5 to suggest that it was intended to modify the FIM obligation relating to payment set out in clause 7.1, which was "cost price plus a 5 % handling fee". The question about whether expedition payments can be recovered will either depend on the wording of the subsequent agreement that was made by the parties, but in my judgment payments made to a supplier to expedite delivery were part of the "cost price" within the meaning of clause 7.1 of the licence agreement.

The agreement about additional suppliers and the May agreement

The issues set out at paragraph 17.4 and paragraph 17.5 above relate to the May agreement. It is necessary to set out some of the evidence relating to the May agreement and to record my findings.

As appears above the parties had agreed in January 2011, in clause 7.1 of the licence agreement, to agree in good faith a variation order. The licence agreement was originally limited to a number of suppliers who were the original suppliers being: 3D Ply Limited ("3D Ply"); Holdsworth; Dwinex; Vita Cellular Foam (also referred to as Kaye Metzler, parent company to Vita Cellular Foam); TSI which was short for Trans-Sourcing International. This was the purchasing agent in Hong Kong and Golden Dragon was the manufacturer in China; Seychell; and Beamlight. After the licence agreement had been concluded Primarius supplied a list of parts required from these suppliers, and the prices which Primarius were expecting to pay for those parts. Bombardier then started the process of raising orders on those suppliers.

By January 2011 the London Midland and Chiltern seats had not yet started to be delivered. For the LERL and SSL contracts deliveries had already started and it was necessary to agree a cut-off point after which Bombardier would be responsible for supplying the FIM. The evidence shows that this was at the conclusion of rake 7 so far as the LERL contract was concerned. Clause 7.3 of the agreement contained provisions relating to the purchase by Bombardier from Primarius of stock which Primarius had already obtained, so that it could form part of the FIM. The FIM which had been purchased by Bombardier itself was kept separate from Primarius stock, and supplied to Primarius as and when required. It is apparent that some of the alleged over-ordering appears to have been as a result of differences between the parties about the effect of the cut-offs for the LERL and SSL contracts.

Although Primarius' financial position had improved a bit by the beginning of 2011, it still could not pay all of its suppliers on time. One of these was MTM, and both parties agreed to treat MTM as an additional supplier under the licence agreement.

Other, unexpected, difficulties were caused by the licence agreement. In the time before a variation order had been agreed, Bombardier ceased making payments for invoices issued by Primarius. This was because Bombardier was paying out for the FIM, and no method had been agreed for reimbursing its expenditure. However this had the effect of increasing cash flow difficulties for Primarius, even though it was still receiving sums from Redd Factors, and Redd Factors was understandably concerned about Primarius' increasing liabilities to Redd Factors. Some of the other suppliers, who were not within the licence agreement, refused to make payments without payment up front, and Vic Young ("Mr Young") of Penmark suggested seeing whether Bombardier would agree to take on further suppliers under the FIM arrangement. After emails had been exchanged on 3 March 2011 Mr Macleod agreed with Mr Thornton to take on what became known as the additional suppliers. These were: Albert Jagger; Enzone; Kemlows; MRT; Walkers; and Ritefast. These additional suppliers related to the LERL contract apart from Walkers, who supplied some parts for London Midland, and Ritefast, who supplied parts mainly for the SSL contract. Mr Thornton's evidence about the agreement was "at that meeting [Mr Macleod] agreed to take on the additional suppliers". Mr Macleod's evidence was to the same effect. I therefore find that both parties agreed to take on those additional suppliers and treat them as if they were suppliers under the licence agreement. The agreed cut-off date for the additional suppliers was 7 March 2011.

At around the same time as the additional suppliers were being negotiated, the parties were attempting to agree a mechanism by which the costs of the FIM could be paid to Bombardier. On 31 January 2011 Mr Thornton emailed a spreadsheet showing parts and costs required for completion of the works, and on 1 February 2011 a revised spreadsheet was emailed to correct errors and to show a revised selling price to take account of the fact that Bombardier would be supplying some of the parts for the train seats. The differences between the two spreadsheets show some of the difficulties in accepting at face value figures set out in good faith in the contemporaneous schedules.

There was no immediate substantive reply to these emails, and it appears that Bombardier was attempting to check the figures provided by Primarius. In the interim Mr Macleod and Mr Thornton agreed on 1 March 2011 that Bombardier would make payments at the full rate, and that it would then claim credit when a means for recovering the FIM payments had been calculated.

On 23 March 2011 Bombardier proposed calculations for a revised selling price for each seat. These were contained in an email dated 23 March 2011. Mr Thornton responded by email to those calculations in the evening of 23 March 2011. Bombardier, through Ms Bramley, responded by email on 21 April 2011. Percentage discounts were agreed for London Midland, Chiltern and SSL. A provisional agreement for the discount percentage for LERL was suggested.

Primarius and Bombardier could not agree about the treatment of Beamlight costs. A meeting took place on 3 May 2011 between Mr MacLeod and Ms Bramley for Bombardier, and Mr Thornton for Primarius. The discount percentages were discussed. Mr Thornton stated that "the London Midland, Chiltern and SSL percentages were settled; the outstanding matters related to the LERL project. We also agreed that I would invoice for LERL at [Ms Bramley's] percentages until we agreed what to do with the materials from Beamlight and the Additional Suppliers. We agreed that this should be resolved by the 30 June 2011 but I do not think that we discussed what would happen if these matters were not resolved by this time". Both Mr MacLeod and Ms Bramley gave evidence to the same effect, and I accept this joint evidence about the meeting of 3 May 2011. I therefore find that, at the meeting of 3 May, agreement was reached in relation to the percentages for all the contracts save for LERL, and for all the original suppliers save for Beamlight. The parties have referred to this agreement as the May agreement.

Having made these findings of fact I now turn to address the issues set out in paragraphs 17.4 and 17.5. In my judgment the effect of the May agreement was to fix the manner in which the FIM costs incurred by Bombardier for the original suppliers, save for the LERL contract and save for Beamlight both of which were specifically exempted from the agreement, could be recovered. This was what was contemplated by the licence agreement, and there is nothing to suggest that the parties should not be held to the agreement that they made. It is apparent, from a reading of the emails leading up to the making of the agreement on 3 May, that although both parties were simply attempting to work out the future costs of the FIM, there was an element of give and take leading up to the negotiation of the percentage discounts. It is unfortunate for Bombardier that later developments meant that the costs incurred were greater than they expected at that time, but that was part of the risk which they undertook when they agreed the percentage reductions for the respective projects. It was obvious that Bombardier were, understandably, focussed on getting delivery of the train seats so that the trains could be delivered, and this was in the context where Bombardier had paid to support Primarius by means of upfront payments (in the summer of 2010) and by incentive payments to Prestfold through the licence agreement. It also appears that, with the benefit of hindsight, Primarius (and now Redd Factors standing in their shoes) would have done much better to agree the proposed discounted percentage for Beamlight, and to have agreed a discount figure for LERL, but they did not do so, and are left with the provisions of clause 7.1 of the licence agreement providing for recovery of costs plus 5 per cent.

The effect of the May agreement meant that airfreight costs or painting costs, or other non-recurring costs for the original suppliers save for Beamlight, on all the contracts save for LERL, were covered by the agreed percentage discounts. Whether airfreight, painting or other non-recurring costs for LERL or the additional suppliers could be recovered depends on whether they could be considered as "costs" within the meaning of the licence agreement.

Further suppliers, in addition to the additional suppliers, were also used by Bombardier to obtain FIM. It is common ground that some of the costs incurred with those further suppliers can be claimed, notwithstanding that there was no formal agreement to that effect. In my judgment the parties were right to agree this, because if FIM was obtained from additional suppliers by Bombardier and supplied to Primarius, and then used to manufacture seats by Primarius, Primarius could not properly claim for the cost of the seat without taking account of the cost of the FIM. The parties did not make it clear on what basis this common ground was agreed (for example a form of claim for restitution, or an agreement made by conduct) and it is not necessary to say anything more about this.

The outstanding invoices

I turn now to the disputed invoices. It was apparent that there had not been much discussion between the parties about their respective cases on each invoice before trial. The net effect of this was that during the course of the first day Redd Factors accepted that two invoices could not be claimed and Bombardier withdrew their opposition to two invoices. In this judgment I will address only those invoices and those matters which remained in issue at the conclusion of the hearing.

Invoice number 5732. The value of this invoice is £1815.38. Confusion was caused because it appeared twice on the schedule of claim. Notwithstanding this Mr Thornton said that it was properly claimed twice before Mr Calland intervened to make it clear that Redd Factors did not make the claim twice. This in itself created some confusion because Bombardier misunderstood the concession to relate to the whole of the invoice, as opposed to the duplication of the invoice in circumstances where the way in which this invoice related with another invoice was not entirely clear.

In the event it is now clear that the sum claimed was properly due. It is not duplicated on any other invoice and provided it is claimed only once it can be properly claimed. In the circumstances I allow this claim in the sum of £1,815.38.

Invoice number 6471. This is a claim for £86,496.88 which raises an issue about clause 7.3 of the licence agreement. This sum was said to be due in respect of stock which Bombardier agreed to buy from Primarius which Primarius had already purchased with which to manufacture the seats, before the relevant cut-off periods for each respective contract. It can be seen that this involved a circular transaction with Primarius invoicing Bombardier for the materials, and Bombardier then recovering the cost back from Primarius under clause 7.1 and any agreements made under that clause. It is common ground that there was no mechanism agreed for the recovery of FIM under the LERL contract, and that (for reasons addressed below), Bombardier will be able to set off sums due to Bombardier for LERL FIM against this claim.

As appears from paragraph 18 above, clause 7.3 provided a mechanism for a stock take to be taken within a certain period of time and for the stock to be transferred to Bombardier. It appears that although Mr Thornton directed that a stock take should take place, Mr Macleod considered that the list that he had been sent was just a list of stock from Primarius' computer generated stock list rather than the product of a stock take. Having looked at the schedule sent to Bombardier I am satisfied that Mr Macleod's analysis of this document is right and that although Mr Thornton did as he said request a stock take to be taken there is no evidence that the stock take did take place. On the other hand I am also quite satisfied that Primarius did transfer stock to Bombardier. The evidence before me establishes that there would be some discrepancies between stock lists and the actual stock transferred. Part of this was because of the difficulties caused by the cut-offs, which were an artificial construct imposed on the actual stock on the ground. Having heard from both Mr Thornton and Mr Macleod I am satisfied that it would be fair to make a reduction of 10 per cent to reflect the discrepancies between what was expected to be transferred from the stock list, and what a stock take would have shown. I note that this is less of a discrepancy than shown on some other transfers, but this transfer took place at an early stage of the FIM arrangements, and before the parties had lost control of the orders. I am also satisfied that this is not impermissible speculation. The evidence shows that there would have been a difference between stock lists and what was transferred, and I must do my best to work out what that would have been, based on such evidence as is before me. In the circumstances I allow this claim in the sum of £86,496.88, less 10 per cent, which is £77,847.20.

Invoice 7173. This is a claim for £39,833.04. After Primarius ceased trading certain stock was purchased by Bombardier. This included £30,000 worth of stock on invoice 7174. Bombardier's case is that invoice 7173 duplicates invoice 7174. Primarius' case is that invoice 7174 was for work in progress invoiced and paid at the agreed price of £30,000, and invoice 7173 was a distinct transaction for stock, and not work in progress, in the sum of £39,833.04.

Mr Thornton said that Mr Cook of Bombardier had agreed to buy work in progress for £30,000, and stock at the cost price. Mr Thornton stated that the cost of the stock was £39,833.04 at cost price. Bombardier did not call Mr Cook to give evidence about this transaction. Mr Thornton's evidence on this point was clear and consistent, and I accept it. In the circumstances I allow the claim for £39,833.04.

I should note that invoice 7174 was for £30,000 and in the course of the hearing that was conceded on behalf of Bombardier and I say no more about it.

Invoice numbers 6716, 6742, 6802 and 6838. These invoices are for the total sum of £15,120. These are invoices in respect of the cost of replacing cushion or seat covers. There is indirect evidence that this was agreed between Stephen Phillips of Bombardier and Brian Deegan of Primarius. There is also evidence showing that the work was done.

It is right to say that some of the evidence shows that one of the invoices was raised in respect of a date for weekend working, which an email suggests was cancelled, but there is also evidence that the work was later done and the sum became due. The use of the wrong date for the invoice is evidence of poor invoicing practice but I am satisfied on the evidence that this work was properly done and that Bombardier are liable to make this payment.

Bombardier suggested that the work was done because Primarius had not done the work properly first time. There is no evidence to support that submission and I reject it. In these circumstances I allow the claim in the sum of £15,120.

Invoice number 7087. This is in the sum of £10,564.32. This invoice was for seat covers for LERL trains. These seat covers were made by Primarius because Camira's factory in Lithuania was closed. There is evidence showing that the price was agreed between Mr Thornton and Mr Price of Bombardier. Bombardier noted that there was no purchase order for these goods, but suggested that if Primarius could demonstrate that the goods were delivered through a proof of delivery then they would concede the invoice. A dispatch note from Mr Patten of Penmark is in the papers and there are emails evidencing the arrangement. It is understandable that Bombardier would look first to purchase orders to see whether these were goods ordered by, and supplied to, Bombardier. However in circumstances where the licence agreement, the FIM arrangements with the original and additional suppliers all complicated relations between Bombardier and Primarius, the absence of a purchase order could only be the beginning of the inquiries that needed to be made, and very often was not conclusive. In these circumstances I allow this invoice in the sum of £10,564.32.

Invoice numbers 7147, 7148, 7149 and 7150. These are invoices for the total sum of £27,983.43. These invoices were in respect of items for the London Midland contract, which Primarius say were sold to Bombardier at the time that Primarius ceased trade. They also included seat and cushion covers for I M Kelly and some modified finger traps because Primarius say Bombardier asked for them. There is evidence showing that Mr Broughton of Primarius was chasing for a purchase order but none was sent. The evidence shows that these items were asked for Bombardier and were delivered and there is nothing to suggest that the sum of £27,983.43 was not the correct price. In the circumstances I allow these invoices in the sum of £27,983.43.

Invoice 7153. This invoice is for the sum of £14,644.98. This invoice is for non-FIM stock which was not included in the stock which was sold to Bombardier under the provisions of clause 7.3 and which was the subject of invoice 6471. Mr Thornton said that he agreed that Bombardier would pay for the stock and the sum charged was the lower of Primarius' stock record figures and Bombardier's stock record figures. There was a considerable difference between the figures, which part illustrates some of the unreliability of stock figures. There was a schedule produced showing that the lowest figure in each case had been taken.

However further investigation has shown that some FIM stock was included in this invoice. This amounted to a total of £5,651.96. The circumstances in which this stock came to be included is further evidence of the unreliability, for all sorts of understandable reasons given the increasingly chaotic state of the relationship between Primarius and Bombardier, of the stock figures which were being produced at the time. Having taken account of the duplication the remainder of the invoice in the reduced sum of £8,993.78 is due and I allow this sum of £8,993.78.

Invoice 7161. This is in the sum of £917.76. This is an invoice for London Midland seat covers that Primarius says that Bombardier asked it to make. There is reference to an email referring to that agreement. Bombardier's response was that seats for the London Midland trains had been produced and invoiced in full and that there were no additional goods that Bombardier had a record of receiving, but if Primarius could demonstrate that they were delivered Bombardier would concede the invoice. Documents show that there was an email (dated 1 June 2011) referring to this order and the delivery of this seat cover and in the circumstances I allow the invoice in the sum of £917.76.

Invoice 7162. This is in the sum of £1,528.80. This is a claim for the value of seat cover locks which were sent by Bombardier to another sub-supplier to Bombardier without Primarius' permission. Although Bombardier suggested that Primarius supplied this to a sub-supplier and then included the materials in a seat sold to Bombardier, there is no clear evidence to support this. It appears from email exchanges that Bombardier agreed to pay for these locks which had been left over at the end of the contract. In the circumstances this sum is recoverable and I allow this invoice in the sum of £1528.80.

Invoice numbers 6772, 6773, 6886 and 6915. These are in the total sum of £5,712. This was a claim for the cost of tip up seats for LERL train sets. It appears that Bombardier asked for improved tip up seats after comments from their client. The descriptions given by Mr Thornton in relation to this work were not as helpful as they might have been. Bombardier had resisted the claim on the basis that they had paid for the 30 train sets and the costs involved in that and that this invoice duplicated work done. However during the course of the trial the basis for the claim became clear and I am satisfied that Bombardier did ask for improved tip up seats and that the sum is due and I allow it. In the circumstances I allow this claim in the sum of £5,712.

Invoices 6839, 6892 and 6985. These are in the sum of £18,000. These are invoices for weekend working. It is apparent that Bombardier asked Primarius to work weekend shifts to increase capacity and the speed of delivery of the seats. There was evidence showing that Bombardier had agreed an internal limit of 8 weeks which was subsequently increased to 12 weeks. However Bombardier did not tell Primarius that it had limited weekend working for 12 weeks and although specifically asked by Penmark whether weekend working should be stopped Bombardier said nothing. In these circumstances the sum of £18,000 is due. It represents the cost of weekend working which Bombardier had agreed to pay for, and which was carried out. Bombardier had placed an internal limit of 12 weeks which it had not shared with either Primarius or Penmark. I should note that I well understand Bombardier's reluctance to pay the additional sums due in circumstances where it appears that as a matter of history Primarius was in breach of obligations to deliver on time, Bombardier had made a payment in 2010 to assist Primarius discharge its obligations, and Bombardier had made payments under the licence agreement and increased the scope of the FIM arrangements, but this does not provide Bombardier with any legal excuse and there were no arguments before me about the absence of consideration for this agreement. It should be noted that Bombardier had got the trains seats delivered, and this meant that it could meet its own contractual obligations. I therefore allow the sum claimed of £18,000.

Invoice numbers 7145 and 7146. These are in the total sum of £2,128.80. These are invoices for the glass case seat produced on the SSL contract and a claim for a repair under a warranty which was not at Primarius' expense. The glass case seat was a seat which was agreed to represent the specifications against which other seats will be made and the other was for work under a warranty. Although Bombardier originally contended that there was no proof of delivery, the documents before me show that delivery was made. It was also suggested that this invoice duplicated the sum of £30,000 paid for work in progress under invoice 7174. Mr Thornton gave evidence which I accept showing that this was not work in progress. This was because these were finished items. In these circumstances I allow this in the sum of £2,128.80.

Invoice 7077. This invoice which was for a sum over £100,000 was conceded not to be due during the course of the hearing.

VAT claim

An issue arose about whether Redd Factors was entitled to VAT on the invoices. Redd Factors submitted that an assignment of the debt to a factoring company included any VAT due, that VAT was normally payable to factoring companies, and that Bombardier would be entitled to claim back the VAT which it paid over to Redd Factors. Bombardier submitted that VAT was not due, and that it was important to ensure that figures were VAT inclusive, or VAT exclusive, for the purposes of both claim and counterclaim.

I accept that, in normal factoring situations, VAT can be charged on the factored debt. This will be where the company who will owe the VAT to HMRC is still in existence, and the VAT which is then paid, can be paid or accounted for to HMRC. In this case it was apparent from the documents before me that Primarius owed substantial sums to HMRC at the time of its administration and dissolution. It is also the case that Primarius is no longer in existence in order to pay any VAT. In circumstances where, as Redd Factors have noted, Bombardier will be able to recover the VAT which it pays, but Primarius is not around to pay VAT, it seems to me that this raises a potential issue about which HMRC should be notified. It seems likely that there are relevant provisions of the VAT Acts, but my attention has not been directed to any such provisions. In these circumstances I will, subject to hearing any submissions to the contrary from Redd Factors or Bombardier, order the parties to notify HMRC of this judgment, give HMRC permission to make written representations on the matter, and give Bombardier and Redd Factors permission to make further submissions, before making any final ruling on the issue of VAT. In the meantime I will deal with the figures before me as they are, conscious that they include VAT.

The FIM claims and set-off

I now turn to issue 17.7 which is what was spent on the FIM claims and raises a number of sub-issues which can be addressed when dealing with each relevant claim.

Redd Factors took a number of points of general application in relation to the claim made by Bombardier for payment of FIM. One point was that given the amount of monies that Bombardier says it has spent on FIM there was in fact no value left in the contract for Primarius in making the seats. As a general proposition this is true, however I find that this was the result of a combination of factors including the fact that suppliers of the materials took advantage of the opportunity to put up prices, there were difficulties in sourcing the material at short notice and because of the chaotic nature of the stores systems operated after the FIM agreements had been made there were higher than usual amounts of lost stock. It is also true to note that, as a result of the FIM arrangements, Bombardier paid much more for the completed seats than was provided for under the relevant contracts.

I should record here that I had sympathies with Redd Factors' complaints about the way in which Bombardier had sought at the outset to prove its claim for FIM which was simply to send substantial number of invoices to Redd Factors and to say that was proved. This required Redd Factors to go through the invoices and attempt to work out why the figures claimed were so high. This enabled a number of general matters to be identified including the costs of expediting deliveries, the fact that some deliveries were made after it appeared that Primarius' works on the contracts had finished, and that some non FIM parts had been included.

On the general matters I find that transport would be part of costs for which Bombardier could make a claim under the FIM agreement, unless it was covered by the agreed discount under the May agreement. I also find that painting of parts would be part of the costs for which Bombardier could make a claim under the FIM agreement, unless it was covered by the agreed discount. I make these findings because the costs of transporting materials to the manufacturer, and the costs of painting parts for incorporation into the seats are, in my judgment, "costs" within the meaning of the licence agreement, and even if for further suppliers could not properly be claimed without giving credit for the work which required to be done.

There was an issue in relation to whether Bombardier had made payments to suppliers for all the sums which it claimed. The invoices, supplied in the ring binders, are at least evidence that Bombardier was liable for the sums invoiced. However Redd Factors obtained evidence from some of the suppliers that they had not been paid for the full value of the invoices. The parties co-operated in undertaking further investigations into this matter, Bombardier produced further evidence, and there is now much common ground about what was paid, but there are still some areas of dispute. In my judgment the state of evidence is this. There is some evidence (from the invoices) that Bombardier is liable in the full amount claimed, but there is also some evidence (from the letters from the suppliers) showing that full amounts have not been paid. In these circumstances in my judgment Bombardier have not shown that they have either paid, or are liable to pay, the disputed amounts, and I do not allow them.

On the issue of over ordering, doing the best I can on the evidence, it appears to me that there were a number of contributing factors. However there are two matters which are more general. The first issue related to the chaotic nature of the relationship which developed from January onwards between Bombardier and Primarius. In my judgment this was a by product of the FIM arrangement. It became necessary for Primarius to identify what needed to be ordered, and when, from suppliers. The resources required to do this meant that Primarius required further assistance, which came from Penmark, as appears from the second issue below. However this meant that new personnel were being introduced into the relationship and into existing contracts. Parts which had been purchased by Bombardier for supply to Primarius were kept off site, and there was therefore also a need for Primarius to identify the stock, which had now been ordered, which needed to be delivered. I find on the evidence that there was considerable confusion created by all of this. I also find that Mr Macleod, on behalf of Bombardier, made every reasonable effort to ensure that he was not paying out for stock unless it had been requested and was required. The emails and his evidence show that he was very keen to avoid paying out because he (correctly as it turned out) was not sure that all of the costs would be recovered from Bombardier. I was not provided with any clear evidence showing what parts had been retained by Bombardier at the termination of the relationship.

The second issue related to Penmark, and who was responsible for its actions. This is because the evidence established, and I find, that Penmark was the party which was placing the orders with Bombardier for the parts.

The potential importance of this issue was because there was an over-ordering, on Redd Factors' case, of some of the FIM which Bombardier sought to set-off against the Primarius invoices. Bombardier's response was that they had only ordered materials which they had been asked to order, either directly by Primarius at the beginning, or by Penmark after it had taken over some of the responsibilities for ensuring that the parts were in place. Redd Factors then suggested, relying on Mr Thornton's evidence that Penmark was Bombardier's agent, that if that was the case, that was Bombardier's problem, and not the responsibility of Primarius.

Mr Thornton said he had been introduced to personnel from Penmark by Bombardier, who had suggested that Penmark provide services to Primarius, to assist in getting the train seats manufactured. He also said that Bombardier agreed to pay Prestfold for the costs incurred in obtaining services from Penmark. Both of these facts are established on the evidence and I accept them. However the evidence also shows, and I find, that Bombardier wanted Prestfold to be responsible for the engagement of Penmark. It appears that this was because Bombardier had concerns about becoming shadow directors of Primarius, at a time when Primarius' continued solvency depended on the success of the train seat contracts. Bombardier therefore insisted that Prestfold retain Penmark, and then invoice Bombardier for costs involved in retaining Penmark.

There were a number of contractual arrangements made between Penmark and Prestfold whereby Penmark agreed to provide services to Prestfold's associated company, as it was described, which was Primarius. An agreement dated 18 January 2011 provided for management services, and an agreement dated 1 February 2011 provided for stores support and an agreement dated 25 February 2011 provided for management logistics and procurement operation support. The agreements were rationalised and further agreements were made on 5 April and the 21 April 2011. It appears that Penmark's obligations extended to supplying fitters for work on London Midland seats.

Although Mr Thornton was adamant that Penmark was Bombardier's agent the reality disclosed by the contractual arrangements is that Prestfold contracted with Penmark and supplied Penmark's services to Primarius. It is true that Bombardier paid Prestfold sums to enable Prestfold to pay Penmark and I can understand why subjectively Mr Thornton thought that in those circumstances Penmark was acting for Bombardier, however that was not the reality of the situation disclosed by the agreements, and the evidence. Indeed it appears that by this stage Bombardier were paying to buy the materials with which the seats were to be made and were paying Prestfold extra sums to enable personnel to be deployed at Primarius to enable the contracts to be fulfilled.

As noted above, I consider that there were a number of different factors which contributed to the over-ordering. It is common ground that that there would have been damaged parts which, because of the way in which stock was being delivered, were not necessarily identified. Doing the best that I can on the evidence it seems that was likely to explain about 10 per cent of the over ordered figures. The evidence shows that Penmark was receiving orders, and for the reasons given above, I consider Penmark to have been Primarius' agent. I therefore consider this 10 per cent to have been the responsibility of Primarius. I consider that stock losses would have increased because there were effectively two warehouses operating for the stock, and no one had any effective idea where the stock was. Doing the best that I can on the evidence I consider that would have been responsible for about another 10 per cent of the losses. It seems to me to be fair to apportion 5 per cent to Bombardier, which I find operated one warehouse, and 5 per cent to Primarius, which operated the other warehouse. I am not able, on the evidence, to give further figures. Although I suspect that responsibility for the over-ordering might have been shared between Bombardier on the one hand and Penmark and Primarius on the other hand, I am not in a position to make any findings of fact about the reasons for the further over-ordering of any parts, the amount over-ordered, or who was responsible for the over-ordering. I consider that going beyond the 15 per cent figure set out above would cross the line from drawing permissible inferences from the evidence into impermissible speculation and guesswork. I therefore find that, save for the 15 per cent figure, Bombardier have not proved the reasons for over-ordering, and what of the over-ordered materials were still available to Bombardier at the end of the contract.

I turn now to consider the FIM claims as set out in final schedule supplied to me on 17 July 2014. There is much common ground between the parties, and I have not addressed those parts of the FIM claim which it is common ground ought to be allowed. I noted a number of changes between the schedule dated 17 July 2014, served after the conclusion of the hearing, and the FIM schedule supplied to me during the course of the hearing. It was not possible to explore with the parties the reasons for the changes.

3D Ply was an original supplier under the licence agreement. In the light of my findings set out above I hold that Bombardier are restricted to the discounts agreed between Bombardier and Primarius on the 3 May 2011. Sums were recovered under the 3 May 2011 agreement (of about £144,068) against a claimed spend of £173,676. There were some LERL supplies which are recoverable, but there was over-ordering in the sum of £9,383, of which only 15 per cent (for the reasons given above) can be recovered. It also appears that there are not purchase orders for the sums claimed, and this has not been explained, and cannot therefore be claimed. If the claim for LERL parts, after it has been discounted for the over-ordering, does not exceed £8,061.44 no further sums will be allowed. No sums will be repayable to Primarius under this claim, because the May agreement concluded what it did.

Albert Jagger was an additional supplier. The claim was for £10,234, of which it is accepted that £7,180.85 could be claimed, leaving £3,053.15 as the disputed balance of this claim. The basis of the dispute is that there were over ordered parts for the LERL contract in the sum of £1,242. This falls to be allowed in the proportion identified above. There is also a dispute about parts which Primarius submit were non FIM parts in the sum of £1,811.15. This was explained in Mr Macleod's evidence and shown to be related to FIM material. I therefore allow this sum.

Allport is a claim for £547,777, and represents the transports cost incurred in getting materials supplied by TSI, one of the original suppliers, to the United Kingdom. I would have found that the costs involved in transporting the FIM material were part of the costs covered by clause 7.1, however in the light of the agreed percentages agreed on 3 May 2011 this extra sum is not recoverable. This is because the percentage for TSI was agreed, and Bombardier became liable for the costs it incurred in excess of the percentage discount, and because it does not appear that any of the materials related to the LERL contract.

Beamlight was an original supplier but was excluded from the agreed percentage discount on the contracts. In the FIM schedule produced for the end of the trial and dated 30 June 2014 there was a sum of £29,517.70 as the "balance of value less agreed discount less sum to disallow", but in the schedule submitted after the completion of the trial this sum was shown as £0. It is not clear to me how or why this change was made. However the claim for £20,530 incurred as a cost of exploring whether Beamlight should take over part of the seat supply was not part of the FIM arrangement and is not recoverable. The claim for the armrest test appears to relate to a defective part, which appears from Mr Macleod's evidence to have been made by another supplier, and is not the responsibility of Primarius. In my judgment making frames for painting, in the sum of £1440 was a "cost" within the meaning of clause 7.1 and is recoverable, as was the cost of weekend working in the sum of £5,100. Some £38,960.36 of the parts appear to have been delivered after the end date for contracts. I suspect that these parts might relate to the original contracts but I have only been shown delivery dates post dating completion of the original contracts, and there is no evidence to justify a finding that these parts were for the original contracts. I therefore do not allow this sum.

This leaves then the issue of over-ordered parts, which appears to be £122,182 less £38,960.36 already taken into account with the issue of late delivery. I allow 15 per cent for the reasons already given.

BTROS is a claim for £61,318.52. BTROS was a further supplier which was not an original or additional supplier. Redd Factors contended that £61,089.32 of the claim was in relation to London Midland fold up chairs which were outside the FIM arrangement, and which cannot therefore be claimed as part of the FIM claim. Redd Factors also contended that if the parts related to the Chiltern contract, the purchase orders appeared to post-date completion of the contract.

Bombardier claimed these were for the Chiltern contract, and were originally intended to be purchased from Dwinex, and were on the Claimant's spreadsheet, and were part of the FIM arrangement.

Mr Macleod gave evidence that BTROS was a Bombardier subsidiary onsite at Derby. Mr Macleod gave clear evidence that these parts were not for the London Midland contract, and I accept that evidence, which was supported by the fact that the project number and part numbers were different. However the evidence does establish that the Chiltern contract was completed by 24 March 2011, and the majority of the purchase orders appear to post-date 24 March 2011, apart from the sum of £1,861. I suspect that these parts all related to the London Midland contract, and that the purchase orders were simply late to what had happened on the ground, however I do not have sufficiently clear evidence to make that finding. In the circumstances I allow the sum of £1,861.

I should note that even if I had allowed the claim, part of the cost (in the sum of £46,374.51) is for parts which it was said were too expensive. Bombardier acknowledges that any price increase against the Dwinex price (the supplier originally intended to be used by Primarius) is attributable to Bombardier's account because this work was carried out by a Bombardier subsidiary.

County Powder is a claim for £82,962. County Power was a further supplier which was not an original or additional supplier. These were costs incurred in painting parts which were supplied by the original suppliers under the May agreement. Bombardier claim that Primarius was responsible for painting the parts, and that these costs are properly claimed. Redd Factors contend that Primarius did not agree to pay for the painting, and that the basis of the May agreement was that Bombardier would bear painting costs.

In an email dated 24 March 2011 from Mr Thornton to Mr Macleod various matters were raised before the conclusion of the 3^rd May 2011 agreement. These covered, for example, who was going to bear the costs of switching suppliers from China to the United Kingdom. The issue of painting was expressly raised by Mr Thornton. He noted that insufficient claims had been made by Bombardier for the painting of Dwinex parts. Bombardier employees noted in manuscript "No change – painting costs taken BT not Primarius". In an email dated 21 April 2011 Ms Bramley of Bombardier responded to Mr Thornton noting "agreed 8K increase for Dwinex, due to unpainted parts".

Nothing further was said about the painting costs at the 3^rd May 2011 meeting. In these circumstances it seems clear that the percentages agreed on 3^rd May 2011 included an allowance, considered by the parties to be sufficient, for painting costs. The fact that Bombardier incurred greater costs (no doubt to attempt to ensure that the work was completed on time) does not mean that Bombardier is entitled to revisit the percentages agreed on 3^rd May 2011. In the circumstances I do not allow this claim unless they relate to painting for LERL, Beamlight or additional suppliers, and I cannot see from the schedules whether this is so, and will give the parties liberty to address me on this if the matter cannot be agreed.

Dwinex. This was an original supplier, and is therefore covered by the discounts agreed on 3^rd May 2011. I note that out of a claimed expenditure of £237,762, Bombardier recovered £198,325 under the discounts.

However on the LERL contracts it appears that parts were obtained from Dwinex. The cost of these parts had not been included in the May agreement, and these can be recovered. Some of the parts were over-ordered, and only 15 per cent of the over-ordered parts is recoverable for the reasons already given.

There is a dispute about whether the full amount was paid, and I have not allowed this sum for the reasons given above.

Enzone. This was an additional supplier. There are a number of disputes. The overtime payment of £50 is recoverable because this is a cost of obtaining the FIM. The tooling charge, on the evidence before me, appears to have been ordered by mistake, and this is not the responsibility of Primarius and is not recoverable. 15 per cent of the over-ordered parts are recoverable for the same reasons as given with Beamlight. The late deliveries are not, on the evidence before me, recoverable.

Equip (Tamworth) Ltd. This was not an original or additional supplier, but the parts were obtained and supplied to Primarius, and incorporated into the seats for which payment is due. The costs fall to be taken into account, and this is not the subject of dispute, but there are issues on the FIM schedule. Primarius submit that the parts should have been obtained at a better price elsewhere. I reject this submission. I was satisfied that Mr Macleod did all that could be done to keep prices as low as possible, and that these were recoverable costs. I also consider it likely, and find, that the costs of modification are part of the costs of obtaining FIM, and therefore recoverable.

Forge/County Powder. This was not an original or additional supplier but was a supplier used for painting parts which it appears were supplied by original suppliers. The painting costs of the original suppliers were recovered under the May agreement and no further sums are due in that respect. If the painting costs related to additional suppliers, or to Beamlight, or LERL, they are recoverable. The invoices appear to suggest LERL figures, but I am not able to determine those figures and will give the parties permission to address me on these matters if they are not agreed. The late deliveries are not recoverable for the reasons given. The over-ordered parts are also recoverable in the percentage previously determined.

Holdsworth. This was an original supplier, and therefore subject to the May agreement, but some of the supplies relate to the LERL contract which was outside the May agreement. The main dispute in this case relates to the date of the cut in for the LERL contract. I was not provided with any reliable evidence on this point by Bombardier, and therefore accept the evidence given by Mr Thornton about the cut in. The percentages about over ordering are allowed in the percentages given before. I do not allow the sums claimed for late deliveries on the materials before me, for the reasons given before.

IM Kelly. This was a supplier agreed in July 2011. It does not appear that there was any reliable quantity agreed for this supplier. The first dispute is that the cost of the item went from £13.50 (with another supplier) to £15.83 with this supplier. In my judgment Bombardier has shown that it made every realistic effort to reduce prices, and that the sum of £15.83 is recoverable.

I agree with Primarius that the cost of the seat covers should be disallowed, because, in the particular circumstances of this supply, Bombardier would have paid Primarius for the supply of seat covers.

The late deliveries are not allowable on the basis as the previous claims.

The one off costs are still costs associated with FIM. These were labour costs (downtime charge) or expedition costs, but they were all connected with the cost of getting the material so that it could be incorporated into the seats.

Kemlows. This was an additional supplier. In my judgment Bombardier has shown that it made every realistic effort to reduce prices, and that the sum of £24.84, as against the price that Primarius had hoped to obtain these goods of £13.46, is recoverable. The additional hours and the costs incurred in speeding up production are all "costs" and recoverable.

MRT. This was an additional supplier, and there is no dispute on the figures before me.

MTM. This was an original supplier, and much of the claim has been recovered by means of the May agreement. The remaining dispute relates to over-ordered LERL parts, which were outside the May agreement. For the reasons given above I accept that 15 per cent of this disputed sum can be recovered by Bombardier.

Ritefast. This was an additional supplier which had been agreed for the SSL contract, but which appears to have been used for the LERL and London Midland contracts as well. The evidence shows that the parts supplied by Ritefast were used in the seats constructed by Primarius, and such parts can be claimed. There are over-ordered parts on LERL and London Midland, and 15 per cent of this sum is recoverable for the reasons given above. There is a dispute about recline gears in the sum of £11,341.12, but there is no evidence to enable me to determine this dispute. In the circumstances I have not allowed this sum.

S&D Seating. This was not an original or additional supplier, but was used for rectifying problems with the Primarius seats. There is no evidence, apart from the invoice itself, to explain what obligation was owed, or breached, by Primarius. I am not in a position to make any award in this respect.

Seychell. This was an original supplier, and some monies were recovered under the discount agreement, which leaves only the LERL sums. There was over-ordering in the sum of £31,010 in this respect, and 15 per cent is recoverable for the reasons given above. Part of the payment has not been proved which will diminish the additional claims (but will not affect the discount already given).

TSI. This was an original supplier. The sums were recovered under the May agreement and the discount percentage but there were also LERL supplies. Redd Factors contends that in fact too much was recovered under the May agreement, but that does not form a basis for reopening the May agreement. The over-ordering on the LERL contract will be allowed in the percentage determined for the reasons already given. Part of the payment has not been proved which will diminish the additional claims (but will not affect the discount already given).

VCF. This was an original supplier. Sums were recovered under the May agreement. However there were also LERL parts which were alleged to have been over-ordered in the sum of £17,525. 15 per cent of this sum is recoverable for the reasons given above, as well as the other LERL sums, save for any tooling costs.

Walkers. This was an additional supplier. There are issues on over-ordering. 15 per cent of this sum is recoverable for the reasons given above. The material which was delivered late has not been proved to be part of the recoverable FIM.

Set-off

I now turn to issues 17.8 and 17.9 and the issues of set-off that are agreed to arise in this case.

The debts of Primarius were assigned to Redd Factors under the Factoring agreement, see clause 2.3. An assignment of a chose in action is effective at law from the date that the debtor receives notice of the assignment, pursuant to section 136(1) of the Law of Property Act 1925 ("LPA 1925". The evidence shows, and I find, that Redd Factors notified Bombardier of the assignment of each debt in each invoice.

Section 136(1) of LPA 1925 provides that any assignment is "subject to equities having priority over the right of the assignee".

The parties are agreed that there are three possible ways for set-off to operate in this case. The first is by way of contractual set-off, which will operate in accordance with the terms of the contract. The second way is if there is a statutory set-off, originally pursuant to the Statutes of Set-off, which is a set-off of mutual debts. This type of set-off was considered in Business Computers Ltd v Anglo-African Leasing Ltd [1977] 2 All ER 741. At 748b Templeman J. stated "the result of the relevant authorities is that a debt which accrues due before notice of an assignment is received, whether or not it is payable before that date … may be set off against the assignor". It is common ground in this case that a statutory set-off is not available in this case. It appears that this is agreed because the sums due to Bombardier under the FIM agreement are not debts.

The third way if is there is an equitable set-off. This type of set-off has been the subject of detailed consideration in the authorities. In Hanak v Green [1958] 2 QB 9 the development of equitable set-off was traced from the historic intervention of the Courts of Equity before counterclaims were permitted. The Courts of Equity would intervene if it "would have been manifestly unjust" to permit payment of one sum without permitting deduction of another, which in that case was because "there was a close relationship between the dealings and transactions which gave rise to respective claims" (Morris LJ at page 24). Other formulations cited with approval in that case were if the cross claims was "flowing out of and inseparably connected with the dealings and transactions which also give rise to the assignment" (Sellers LJ at page 31, referring to Newfoundland Government v Newfoundland Railway Co 13 Ap. Cas. 199.

Both parties relied on Bim Kemi v Blackburn [2001] EWCA Civ 457; [2001] 2 Ll Rep. 93 in which the Court of Appeal revisited the issue of equitable set-off (noting, among other matters, that equitable set-off could be relied on against an unliquidated sum). The Court of Appeal considered a number of cases subsequent to the decision in Hanak v Green. Different formulations of the test were considered, including whether it was necessary to show that the cross claim "impeached the title" to the first claim. The key test is whether the cross-claim "flows out of and is inseparably connected with the dealings and transactions giving rise to the claim".

It is common ground that claims to set off within the four main contracts can be set off against each other. Although this point is made by concession, I should record that I agree with, and would, if the point had been contested, have made that finding. FIM was treated as generic for each main contract, and goods supplied for one seat, could readily have been used for another seat, and the cost of material provided for one seat on the London Midland contract flowed out of and was inseparably connected with the claim for the costs of making another London Midland seat. This was because London Midland could not be delivered as a project if FIM was not provided, and in such circumstances nothing would have been earned.

However it was not accepted that the costs of FIM on one contract, such as for London Midland, could be set off against the invoice for a seat on another contract, such as for LERL. I have given very careful consideration to this point, but have come to the clear conclusion that FIM claims on each contract should apply against invoices on each main contract. It is apparent that the parties had got themselves to a situation where, but for the licence agreement and the hoped for profit in the four main contracts, Primarius would have had to cease trading on the basis that it was insolvent. The FIM arrangement in relation to the original suppliers meant that Primarius could survive. The wording of clause 7.1 provided that the FIM materials plus 5 per cent "shall be set-off against the price payable for the deliverables under the underlying contracts". As noted before, the underlying contracts included the four main contracts. This therefore enabled a set off against each contract, although no one contemplated a situation where the costs of the FIM would exceed the sums payable to Primarius.

It is right to note that in the May agreement the parties agreed a percentage discount for each respective contract. This was because the parties had worked out (in good faith, but inaccurately as it turns out from the FIM schedules) what it was expected would be the costs for FIM in each contract, meaning that a percentage discount could be applied to each invoice. However I do not consider that altered the fundamental relationship between each claim for FIM, and all the remaining contracts. All were part of the same piece, namely Primarius' principled hope for continued existence, and Bombardier's attempt, for its own commercial purposes, to keep Primarius trading on all the contracts. The way in which the parties added in additional suppliers, and failed to get round to sorting out a proper mechanism for recovery of costs, all became part of the scheme under which the parties hoped (unsuccessfully as it turned out) that Primarius would trade out of its difficulties on all the contracts, and return to profit and solvency. In these circumstances deliveries of FIM under one main contract "flowed out of and is inseparably connected with the dealings and transactions giving rise" to the claim for seats under the other main contracts. I therefore find that FIM under one main contract can be set off against invoices under another main contract for Beamlight, the LERL contract, and the additional suppliers.

Was there a deliberate delay in dealing with negotiations

Mr Sullivan of Redd Factors noted that amounts owing from Bombardier increased to £577,700 at the end of December 2010. Mr Thornton, the former director of Primarius attributed this to the fact that Bombardier was behind on the payment schedule. At the time of the licence agreement invoices owed by Bombardier to Primarius totalled £650,000. It is apparent that Bombardier was paying substantial sums to Primarius over this period of time, between 14 January 2011 and 26 August 2011 it paid just over £1.6 million under the contracts to Primarius. This was in addition to purchasing materials which were to be incorporated to the seats and paying for Penmark. However by June 2011 Primarius had invoiced Bombardier for £902,000 of which Primarius alleged that some £318,000 was overdue as appears from Mr Warren's witness statement. In August 2011 Bombardier made a final payment to Redd Factors in relation to seats supplied by Primarius in the sum of £63,833.29.

It was suggested on behalf of Redd Factors that Bombardier had deliberately decided not to agree a method for recovering sums due for FIM for Beamlight, LERL or the additional suppliers, so that it could justify not paying any further sums, and had decided to keep quiet about its belief that Bombardier was owed a great deal more money by Primarius than was owed by Bombardier to Primarius. It is clear that there are some internal email references to the state of the account between the parties, and whether anything further would be due, but I do not accept that Bombardier made any deliberate decisions of the type suggested. This is because the evidence shows that it took the parties a very long time (between January and May) to agree a discount figure for the original suppliers, and even then could not agree figures for Beamlight and LERL. The evidence shows that the parties were having difficulties working out what needed to be ordered, let alone able to agree figures, and the costs, and then some way in which that could be recouped. In my judgment the delays in making agreements were because the parties had lost control of what was going on between them, and the paucity of evidence before me shows that even now there is a restricted understanding of what has gone on.

Calculating the result

For the reasons already given I will direct the parties to liaise and agree an order to give effect to my findings set out above. If the parties cannot agree I will give them permission to make further submissions, which I will then rule on in a short further judgment.

Conclusion

For the reasons given above I make the findings and directions set out above. The parties are to liaise and agree an order to give effect to my findings set out above. If the parties cannot agree I will give them permission to make further submissions, which I will then rule on in a short further judgment.

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You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> Redd Factors Ltd v Bombardier Transportation UK Ltd [2014] EWHC 3138 (QB) (06 October 2014) URL: http://www.bailii.org/ew/cases/EWHC/QB/2014/3138.html Cite as: [2014] EWHC 3138 (QB)