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By | OUT-LAW.COM 10th September 2008 09:06

Sony can sue distributor for sales value of stolen goods, not just cost

The price of memory-card loss

A distributor which lost a consignment of PlayStation memory cards must compensate Sony at the sale price of the cards and not their cost to manufacture, the Court of Appeal has ruled.

Sony Computer Entertainment UK used Cinram Logistics for the storage and distribution of some of its goods. Seventeen thousand memory cards for its PlayStation games console were stolen while in Cinram's possession.

The cards were due to be delivered to the Game chain of shops, which had already paid £187,989 for the cards. Sony sued Cinram for that amount but Cinram argued that it should only have to pay the cost of making the cards, which was £56,246.

The High Court had found that Sony had shown on the balance of probabilities that it had lost the sales to Game and they were not replaced with other sales.

Cinram appealed, arguing that Sony should have to prove that the sales to Game were irretrievably lost and that it should only pay the amount Sony was due to earn if Sony could show that it had not replaced those sales with other ones.

The original trial court looked at the complicated web of orders by Game from Sony. Game is one of the UK's biggest computer game retailers and it had made a complex series of orders from Sony before and after the cards went missing.

Having looked at the order schedule, the Court of Appeals said that there was no evidence that the lost sales had been directly replaced. The stolen cards had been due for delivery on 8th September 2004.

Though there were further orders at the end of October they could not have been replacements because of the fast pace of activity in the retail world, Lord Justice Rix said. "Much water will have flown under the retail bridges in those six weeks of the autumn," he said in his ruling.

"The fact is, that when Game started ordering again in late October, it was not replacing its lost September deliveries, but calling in (in lesser numbers) its November deliveries," said the ruling. "September was by now water under the bridge. Its forecast or re-forecast of its November requirements would itself have depended on a whole number of factors: sales reports in September and October; sales forecasts for November; the ability to source memory cards from other suppliers; the availability of credit; as well as, perhaps, the absence of delivery of those stolen cards."

While he accepted that, all other things being equal, the absence of the stolen cards was likely to have had some effect on sales to Game, Lord Justice Rix said that it was weak ground on which to make a ruling. "All other things are not entirely equal, and the inference is a very weak one," he said.

Lord Justice Rix said that the High Court's placing of the burden of proof on Sony to show that it had not regained the lost sales was a mistake. He said that the burden of proof should have rested on Cinram to show that the sales had been replaced.

"The owner is entitled to the value of his goods…[and] 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," he said in his ruling.

"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."

See: The ruling

Copyright © 2008, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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