Product Liability Insurance

Messer UK Limited & Anr v. Thomas Hardy Packaging Limited and Bacardi-Martini Beverages Limited Court of Appeal, 30 April 2002

Bacardi-Martini is a well-known drinks company that markets a number of brands of carbonated alcoholic drinks. In 1998, traces of benzene were detected in two of Bacardi's product ranges. Although the quantity of Benzene found in the drinks did not pose a risk to health, public concern and the need to protect its business led Bacardi to implement an extensive product recall programme. The recalled product was destroyed.

The benzene had been introduced into the drinks as it had not been removed from carbon dioxide used to carbonate the drinks. Bacardi had contracted with Thomas Hardy Packaging Limited (THP) to manufacture and bottle Bacardi's products. To enable THP to do so, Bacardi supplied THP with alcoholic concentrate and packaging materials. THP obtained the carbon dioxide for the manufacture of the drinks under a contract with Messer UK Limited (Messer). Messer, in turn, obtained the carbon dioxide from Terra Nitrogen (UK) Limited.

THP was adjudged to be in breach of its contract with Bacardi and liable to compensate Bacardi for its loss arising out of the recall. The proceedings before the Court of Appeal concerned an action by THP to recover the damages awarded against it from Messer on the basis of breach of implied terms of satisfactory quality and fitness for purpose under the contract for the supply of the carbon dioxide. Messer denied liability on the basis of clauses in the supply contract that purported (a) to limit Messer's liability for direct physical damage to property to 500,000 and (b) to exclude all liability for economic loss.

Two issues fell to be determined by the Court. These were whether:

1 the contamination of Bacardi's drinks amounted to direct physical damage to property; and

2 the clauses purporting to limit and exclude Messer's liability were unenforceable by reason of the fact that the clauses were unreasonable for the purposes of the Unfair Contract Terms Act 1977.

The Court of Appeal decision

The Court of Appeal endorsed the findings of the trial judge. These were that:

the test to determine if there has been direct physical damage to property is whether there has been harm to existing property that reduces the value of that property;

the property subject of the claim against Messer was the finished drinks manufactured by THP. This final product did not come into existence...

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