Implied Terms I

Common Law Position and Reform

The basic principle at common law was that of “buyer beware”. Goods were taken in their actual state and condition, subject to the express or implied terms of the contract Over time , the common law implied in terms to a contract, compatible with the circumstances and intentions of the parties.

The Sale of Goods Act 1893 codified the law and provided for stautorily implied terms. However, they might be excluded by the terms of the contract.

This position was significantly changed by the Sale of Goods and Supply of Services Act, 1980. The stautory implied terms apply to all contracts, whether involving businesses or consumers. More extensive and absolute obligations are owed to consumers. Some key impled terms cannot be excluded in a coconsumer sale. They can be excluded in a business sale of they meet a fair and reasonable test.

Sale by Description

Section 13 of the Sale of Goods Act, 1893 provides that in the case of the sale of goods by description, it is an implied condition that the goods shall comply with the description. The description is a contractual term, noncompliance with which, will entitle the buyer to terminate the contract and may entitle him to claim damages for breach of contract.

Most commonly, the buyer will not have seen the goods where the sale is by description. However, there may be a sale by description where the goods have been seen. The legislation expressly provides that the fact that the goods are exposed for sale and selected by the customer, does not obviate the possibility that there may be a sale by description.

The description must be such as to influence the buyer in making the purchase. Where it is reasonable to believe that the buyer would rely on the description, a sale by description will be readily found.

Not everything stated, implied or written in relation to the goods, constitutes a part of their description. Some such statements may be representations, rather than part of the description of what is sold.

What is a Description

It is an implied contractual condition that the goods must correspond with their description. Whether this is or is not the case is a matter of interpretation in the particular case. The courts look at what was intended by the parties, in order to identify and describe the goods. Elements that are essential to the goods are likely to be covered by the condition. In some cases, the discrepancy will be very clear and there is an obvious a breach. Other cases will involve more marginal judgments.

If a broad interpretation of what constitutes the description is employed, then the description may overlap issues of quality and merchantability. The courts have been reluctant to employ the condition as to description, in cases of failures of merchantability and quality.

However, it may be the case that the description does expressly refer to some quality, in which case a breach of description may arise where it fails to possess the relevant quality. The House of Lords has held that a product or thing may conform with its description, even though it was defective, contaminated and even completely useless.

Merchantable Quality Condition

The Sale of Goods Act provides that where a seller sends goods in the course of a business, there is an implied condition that the goods supplied under the contract are of merchantable quality.

The condition applies to sales by businesses It cannot be excluded in relation to business to consumer contracts. The condition applies to business-to-business transactions, but subject to a test of fairness and reasonableness, it can be excluded. The condition does not apply to consumer-to-consumer transactions.

A seller may be deemed to sell in the course of business, even if the sale of goods of this type is not part of its usual business. In particular, it has been held that a sale by a business of old equipment in which it did not normally trade, was a sale by a business for this purpose.

The condition applies both to all goods and things sold and supplied. Accordingly, defects in packaging may breach the condition even if the packaging is to be returned, where it has an effect on the goods.

Obviated by Notified Defects

The condition does not apply in relation to defects specifically drawn to the buyer’s attention before the contract is made. If the buyer examines the goods, the condition does not apply to defects which the examination ought to have revealed.

The condition may be obviated where the defect is drawn to the buyer’s attention. It is not clear whether a mere printed notice or sign is enough for this purpose. It is likely that personal action is required, by which the attention of the buyer is drawn to the defect.

The alternative ground of exclusion requires an actual examination. It is not enough that the defect would have been discovered if an examination had been made. If the examination is brief and superficial, then the exception is limited to matters that would have been established on such type of examination.

Requirements of Merchantable Quality I

Goods are defined to be of merchantable quality if they are as fit for the purpose or purposes for which goods of that kind are commonly bought and are as durable as is reasonable to expect, having regard to any description applied to them, the price (if relevant) and all other circumstances.

This amended definition was introduced in 1980 and superseded some older cases, which equated merchantable with “unsaleable” or “unacceptable”. The expression “merchantability” is somewhat antiquated, but it has survived and proved relatively flexible in a variety of circumstances.

In order to be merchantable, the goods must be fit for their usual purpose or purposes. Where there is only one purpose, they must be fit for that purpose. However, where there are several common purposes, the goods must be fit for the purposes.

More recent English cases have held that it is sufficient if the goods are reasonably fit for one of their common purposes. This approach was specifically reversed by UK legislation. Irish case law on this subject has taken a different approach and it has been held that the fact that something might be suitable for another purpose, even a common purpose, does not mean that it is merchantable.

Requirements of Merchantability II

Merchantability requires reasonable durability. What is reasonable will depend on the nature of the goods. The test applies at the time of supply. If goods fail, or they later cease to work earlier than would be reasonably expected, this is evidence of a failure in merchantability at the time of the sale. There may be other factors, such as the buyer’s misuse of the goods. This or other factors may show that there was no defect at the time of supply.

The description is relevant in relation to what is reasonably expected of goods. If something is described as used, second-hand, shop soiled, brand-new etc., differing expectations would apply. The fact that the goods can be repaired does not necessarily mean they were merchantable. The existence or otherwise of statutory or contractual rights or a manufacturer’s guarantee is not generally relevant to whether or not the goods are merchantable.

As with the provisions for the sale by description, mere representations are unlikely to form part of the description in the context of determining merchantability.

Requirements of Merchantability III

Price is often relevant to the issue of merchantability. The higher the price, the higher the level of quality which is expected. The price need not necessarily be relevant. The fact that the goods are sold as new goods will not diminish the quality of standard that is expected of them. Luxury goods or high price may mean a higher standard, but a lower price than average or typical, would not significantly reduce what is expected by way of merchantable quality. Dangerous defects will almost always make goods non-merchantable.

The “merchantable” standard will not generally be breached by minor defects. Goods may still be used for their common usual purpose. There may be a remedy by way of damages

for breach of contract. A minor defect may be important, depending on the circumstances and the nature of the goods. In the case of an expensive, luxury good, a minor defect might be such as to make the product unmerchantable what is sold is less than might reasonably be expected.

Fitness for Purpose Condition

Where a seller sells goods in the course of business, and the buyer expressly or by implication makes known to the seller any particular purpose for which the goods are being bought, there is an implied condition that the goods supplied under the contract are reasonably fit for that purpose. This is the case, whether or not the purpose is one for which the goods are commonly supplied. The condition does not apply where the circumstances show that the buyer does not rely on, or that it is unreasonable for him to rely on, the seller’s skill or judgment.

This provision applies to a sale in the course of a business and to goods supplied under the contract. The purpose must be indicated by the buyer. If there is a single purpose, then this is the relevant purpose. If the goods are to be used for their usual purpose, then the provision adds little to the general requirement of merchantability.

The buyer’s purpose may be verbally communicated. It may be that the seller knows the buyer’s purpose, by reason of a course of previous dealing and special knowledge. Where the buyer fails to communicate his purposes clearly, the buyer may be unable to claim that he has relied on the seller’s skill and judgment.

The goods must be reasonably fit for the purpose indicated. This is not an absolute standard. The buyer must, in fact, rely on the seller’s skill and judgment. The reliance must be reasonable. If a consumer is dealing with a business, reliance will be readily inferred. The burden is on the seller to show that the buyer did not rely on, or it was unreasonable for the buyer to rely on, the seller’s skill and judgment.

Sale by Sample

Section 15 of the Sale of Goods Act applies to a sale by sample. The sale is by sample where there is an express or implied term that this is so. The contractual provisions should clarify whether and what there is a sale by sample. In some cases, the sample is also the description. The sale may be by sample and by description, in which case, both implied conditions apply.

There are three conditions implied.

that the bulk will conform with the sample in quality;
that the buyer will have a reasonable opportunity to compare the bulk with the sample;
that the goods will be free from any defect rendering them unmerchantable, that would not be apparent on reasonable examination of the sample.

The provision applies to sales to consumers and non-consumers.

Spare Parts After Sales Service and Motor Vehicle Warranty

Section 12 of the 1980 Act provides that where there is an offer, advertisement or description by a seller, which represents that spare parts and servicing will be available from the seller or from a manufacturer, there is an implied warranty that the spare parts and adequate services will be available. If a specific period is mentioned, the spare parts and services must be available for that period. Otherwise, it must be available for a reasonable period. The required length of time in respect of particular types of goods may be prescribed by Ministerial order.

In addition to the general warranties applicable to goods, there is a condition in a contract for the sale of a motor vehicle that at the time of delivery, it is free from a defect which would render it a danger to the public. This includes persons traveling in the vehicle. The warranty is not available in favour of a trade buyer.

The condition may be varied or avoided, where it is agreed that the vehicle is not intended for use in the condition in which it is sold, the parties sign documents so confirming and the agreement is fair and reasonable.

Persons using the vehicle with the consent of the buyer, are entitled to the benefit of the condition. They may sue for loss and damage including physical injury which happens in consequence of a breach. A claim must be brought within two years of the accrual of the right of action.

Exclusion of Core Warranties

The core warranties and conditions in sections 13 to 15 of the Sale of Goods Act (sale by description, merchantable quality, and sale by sample), may not be excluded in the case of a sale to a consumer buyer. This is also the case in respect of the warranties in respect of spare parts and servicing and the condition of a motor vehicle.

The implied terms may be excluded in the case of a sale to non-consumer buyer provided the exclusion is fair and reasonable. Criteria are set out in the legislation respect of what constitutes fair and reasonable in this context.

Although there is limited case law on the subject, it appears that where a business purchases goods, even if they are not for the purpose of the business, it deals other than as a consumer. UK cases on similar legislation appear to take the view, that in order for the purchase of goods to be in the course of a business, the purchaser must be in a business in respect of those goods. The contract made in the course of a business must be one that is part of the business or there was a degree of regularity of similar transactions.

Passage of Risk in Consumer Sale

EU derived regulations amend the Sale of Goods Act in relation to the passing of risk in goods in consumer cases. Where the buyer deals as a consumer and the seller dispatches the goods to the buyer, the goods remain at the seller’s risk until the buyer or the person nominated by him acquires physical possession of the goods.

This provision does not apply where the goods are delivered to a carrier commissioned by the buyer, for the purpose of carrying the goods. This is provided that the carrier is not proposed by the seller for that purpose. The goods are at the buyer’s risk from the time of delivery to the carrier.

Delivery Obligations re Consumer Buyer

In the absence of an agreement to the contrary, the seller must deliver the goods by physical transfer of possession or control to the buyer without undue delay, and in any event within 30 days of the contract.

If the seller fails to deliver the goods at the time agreed, the buyer may require the seller to make delivery within an additional period of time, appropriate to the circumstances. This option to extend delivery, does not apply where seller has refused to deliver the goods or where delivery of the goods within the time agreed with the buyer is essential, taking account of the relevant circumstances at the time of the conclusion of the contract or where the buyer has informed the seller prior to the conclusion of the contract, that the delivery on or by a specified date is essential.

If the seller does not deliver the goods as originally agreed or within any additional time period, the buyer may treat the failure as a breach of condition so that he is thereby entitled to terminate the contract. In this case, the seller must, without undue delay, reimburse seller the sums paid. This is without prejudice to any right of damages to which the seller may be subject.

Offences

It is an offence for a person in the course of a business to display, publish or supply goods, which bear a statement, or with which is otherwise published or furnished, a statement which claims to restrict the implied terms in the Sale of Goods Act. Statements that goods may not be returned, even if defective or in breach of warranty, would constitute such a breach.

A trader who breaches this provision, may on summary conviction be fined up to €4,000 or sentenced to up to six months’ imprisonment or both. On conviction on indictment, a trader may be fined up to €60,000 or sentenced to up to two years’ imprisonment, or both.

References and Sources

Irish Texts

Consumer Law Rights & Regulation Donnelly & White (2014)

Consumer Protection Act 2007 Annotated Bird (2008)

Consumer Rights Long (2004)

Commercial & Consumer Law: Annotated Statutes O’Reilly, P (2000)

UK Texts

Consumer Sales Law: The Law Relating to Consumer Sales and Financing of Goods 3rd ed

John MacLeod, James Devenney (2019)

Electronic Consumer Contracts in the Conflict of Laws 2nd ed Zeng Sophia Tang (2018)

The Law of Consumer Redress in an Evolving Digital Market: Upgrading from Alternative to Online Dispute Resolution Pablo Cortes (2017)

Blackstone’s Statutes on Commercial & Consumer Law 2017-2018 Francis Rose

Consumer and Trading Standards: Law and Practice 2017 Bryan Lewin, Jonathan Kirk

Woodroffe and Lowe’s Consumer Law and Practice Woodroffe and Lowe’s Consumer Law and Practice 10th ed Geoffrey Woodroffe, Chris Willett, Christian Twigg-Flesner (2016)

Butterworths Trading and Consumer Law Looseleaf Annual Subscription Deborah L. Parry, Roland Rowell (2016)

Butterworths Commercial and Consumer Law Handbook 8th ed Richard B. Mawrey, Tobias Riley-Smith (2015

Consumer and Trading Standards: Law and Practice 4th ed

Legislation

Sale of Goods Act 1893 56 & 57

Sale of Goods and Supply of Services Act 1980

The 2011 Report of the Sales Law Review Group,

Consumer Protection Act 2007 19/2007

Competition and Consumer Protection Act 2014 29/2014

Orders Re Price Display (retained

Prices Act 1958.

Prices (Amendment) Act 1965

Prices (Amendment) Act1972

Orders made under Prices Acts 1958 and 1965 were carried over on repeal of the 1958 and 1965 Acts by 19/2007

Prices and Charges (Tax-inclusive Statements) Order 1973, S.I.

Charges (Hairdressing) Display Order 1976, S.I. No. 156 of 1976

Retail Prices (Food in Catering Establishments) Display Order 1984, S.I. No. 213 of 1984

Consumer Information (Advertisements) (Disclosure of Business Interest) Order 1984, S.I. No. 168 of 1984417

Consumer Information (Advertisements For Concert Or Theatre Performances) Order 1997, S.I. No. 103 of 1997

Retail Price (Diesel and Petrol) Display Order 1997, S.I. No. 178 of 1997

Retail Price (Beverages in Licensed Premises) Display Order 19/2007

Consumer Information Act Orders

Consumer Information (Advertisements For Airfares) Order 2000, S.I. No. 468 of 2000

Consumer Protection Act 2007 (Commencement) Order 2007,S.I. No. 178 of 2007

Consumer Protection Act 2007 (Establishment Day) Order 2007,S.I. No. 179 of 2007

Consumer Protection (Fixed Payment Notice) Regulations 2007,S.I. No. 689 of 2007

Consumer Protection Act 2007 (National Consumer Agency) Levy Regulations 2011, S.I. No. 560 of 2011

Consumer Protection (Consumer Information) (Articles of Precious Metals) Regulations 2012, S.I. No. 143 of 2012

Consumer Protection Act 2007 (National Consumer Agency) Levy Regulations 2012, S.I. No. 435 of 2012

Consumer Protection Act 2007 (National Consumer Agency) Levy Regulations 2013, S.I. No. 409 of 2013

Consumer Protection Act 2007 (National Consumer Agency) Levy Regulations 2014, S.I. No. 458 of 2014

Consumer Protection Act 2007 (Competition and Consumer Protection Commission) Levy Regulations 2015, S.I. No. 457 of 2015

European Communities (Cooperation Between National Authorities Responsible for the

Enforcement of Consumer Protection Laws) Regulations 2006, S.I. No. 290 of 2006 [Minister

European Communities (Cooperation Between National Authorities Responsible for the

Enforcement of Consumer Protection Laws) (Amendment) Regulations 2008, S.I. No. 316 of 2008

European Communities (Single-Member Private Limited Companies)European Communities (Protection of Consumers in Respect of Contracts made by Means of Distance Communication) (Amendment) Regulations 2010, S.I. No. 370 of 2010

European Communities (Court Orders for the Protection of Consumer Interests) Regulations 2010, S.I. No. 555 of 2010

European Union (Protection of Consumers in respect of Timeshare, Long-term Holiday Product, Resale and Exchange Contracts) Regulations 2011, S.I. No. 73 of 2011

European Communities (Cooperation between National Authorities Responsible for the Enforcement of Consumer Protection Laws) (Amendment) Regulations 2012, S.I. No. 485 of 2012 [

European Union (Public Limited Companies) (Directive 2012/ European Communities (Cooperation between National Authorities Responsible for the Enforcement of Consumer Protection Laws) (Amendment) Regulations 2013, S.I. No. 122 of 2013

European Communities (Unfair Terms in Consumer Contracts) (Amendment) Regulations 2013, S.I. No. 160 of 2013

European Communities (Cooperation between National Authorities Responsible for the Enforcement of Consumer Protection Laws) (Amendment) (No. 2) Regulations 2013, S.I. No. 200 of 2013

European Union (Consumer nformation, Cancellation and Other Rights) Regulations 2013, S.I. No. 484 of 2013

European Union (Consumer Information, Cancellation and Other Rights) (Amendment) Regulations 2014, S.I. No. 250 of 2014

European Communities (Unfair Terms in Consumer Contracts) (Amendment) Regulations 2014, S.I. No. 336 of 2014

European Union (Protection of Consumers in respect of Timeshare, Long-term Holiday Product, Resale and Exchange Contracts) (Amendment) Regulations 2014

European Union (Alternative Dispute Resolution for Consumer Disputes) Regulations 2015, S.I. No. 343 of 2015

European Union (Alternative Dispute Resolution for Consumer Disputes) (No. 2) Regulations

2015, S.I. No. 368 of 2015

European Union (Traded Companies — Corporate Governance Statements) Regulations 2015, S.I. No. 423 of 2015

European Union (Online Dispute Resolution for Consumer Disputes) Regulations 2015, S.I. No. 500 of 2015

European Union (Online Dispute Resolution for Consumer Disputes) Regulations 2016, S.I. No. 32 of 2016

European Union (Consumer Information, Cancellation and Other Rights) (Amendment) Regulations 2016, S.I. No. 336 of 2016

Competition and Consumer Protection Act 2014 (Commencement) Order 2014, S.I. No. 366 of 2014

Competition and Consumer Protection Act 2014 (Establishment Day) Order 2014, S.I. No. 367 of 2014

Consumer Protection Act 2007 (Grocery Goods Undertakings) Regulations 2016, S.I. No. 35 of 2016

Consumer Protection Act 2007 (Competition and Consumer Protection Commission) Levy Regulations 2016, S.I. No. 479 of

2016

District Court (Consumer Protection Act 2007) Rules 2009, S.I. No. 106 of 2009

European Communities (Unfair Terms in Consumer Contracts) Regulations 1995, S.I. No. 27 of 1995 [

European Communities (Unfair Terms in Consumer Contracts) (Amendment) Regulations 2000, S.I. No. 307 of 2000

European Communities (Certain Aspects of the Sale of Consumer Goods and Associated Guarantees) Regulations 2003, S.I. No. 11 of 2003

European Communities (Protection of Consumers in Respect of Contracts Made by Means of Distance Communication) (Amendment) Regulations 2005, S.I. No. 71 of 2005

European Communities (International Financial European Communities (Cooperation Between National Authorities Responsible for the Enforcement of Consumer Protection Laws) Regulations 2006, S.I. No. 290 of 2006

European Communities (Distance Marketing of Consumer Financial Services) Regulations 2004, S.I. No. 853 of 2004

Circuit Court Rules (Consumer Protection Act 2007) 2008, S.I. No. 585 of 2008

European Communities (Court Orders for the Protection of Consumer Interests) Regulations 2010, S.I. No. 555 of 2010

European Communities (Unfair Terms in Consumer Contracts) Amendment) Regulations 2013, S.I. No. 160 of 2013

European Union (Consumer Information, Cancellation and Other Rights) Regulations 2013, S.I. No. 484 of 2013

European Union (Consumer Information, Cancellation and Other Rights) (Amendment) Regulations 2014, S.I. No. 250 of 2014

European Communities (Unfair Terms in Consumer Contracts) (Amendment) Regulations 2014, S.I. No. 336 of 2014

European Union (Alternative Dispute Resolution for Consumer Disputes) Regulations 2015, S.I. No. 343 of 2015

European Union (Alternative Dispute Resolution for Consumer Disputes) (No. 2) Regulations 2015, S.I. No. 368 of 2015

European Union (Online Dispute Resolution for Consumer Disputes) Regulations 2015, S.I. No. 500 of 2015

European Union (Online Dispute Resolution for Consumer Disputes) Regulations 2016, S.I. No. 32 of 2016

European Union (Consumer Information, Cancellation and Other Rights) (Amendment) Regulations 2016, S.I. No. 336 of 2016

Sale of Goods Act

Conditions and Warranties.

Stipulations as to time.

10.—(1) Unless a different intention appears from the terms of the contract, stipulations as to time of payment are not deemed to be of the essence of a contract of sale. Whether any other stipulation as to time is of the essence of the contract or not depends on the terms of the contract.

(2) In a contract of sale “month” means primâ facie calendar month.

Condition to be treated as warranty.

11.—(1) Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may waive the condition, or may elect to treat the breach of such condition as a breach of warranty, and not as a ground for treating the contract as repudiated.

(2) Whether a stipulation in a contract of sale is a condition, the breach of which may give rise to a right to treat the contract as repudiated, or a warranty, the breach of which may give rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated, depends in each case on the construction of the contract. A stipulation may be a condition, though called a warranty in the contract.

(3) Where a contract of sale is not severable, and the buyer has accepted the goods, or part thereof, the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty, and not as a ground for rejecting the goods and treating the contract as repudiated, unless there be a term of the contract, express or implied, to that effect.

(4) Nothing in this section shall affect the case of any condition or warranty, fulfilment of which is excused by law by reason of impossibility or otherwise.]

Annotations:

Amendments:

Substituted (31.12.1980) by Sale of Goods and Supply of Services Act 1980 (16/1980), s. 10, commenced as per s. 1(2).

F3[

Implied undertaking as to title, etc.

12.—(1) In every contract of sale, other than one to which subsection (2) applies, there is—

(a) an implied condition on the part of the seller that, in the case of a sale, he has a right to sell the goods and, in the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass, and

(b) an implied warranty that the goods are free, and will remain free until the time when the property is to pass, from any charge or encumbrance not disclosed to the buyer before the contract is made and that the buyer will enjoy quiet possession of the goods except so far as it may be disturbed by the owner or other person entitled to the benefit of any charge or encumbrance so disclosed.

(2) In a contract of sale, in the case of which there appears from the contract or is to be inferred from the circumstances of the contract an intention that the seller should transfer only such title as he or a third person may have, there is—

(a) an implied warranty that all charges or encumbrances known to the seller have been disclosed to the buyer before the contract is made, and

(b) an implied warranty that neither—

(i) the seller, nor

(ii) in a case where the parties to the contract intend that the seller should transfer only such title as a third person may have, that person, nor

(iii) anyone claiming through or under the seller or that third person otherwise than under a charge or encumbrance disclosed to the buyer before the contract is made,

will disturb the buyer’s quiet possession of the goods.]

Annotations:

Amendments:

Substituted (31.12.1980) by Sale of Goods and Supply of Services Act 1980 (16/1980), s. 10, commenced as per s. 1(2).

Modifications (not altering text):

Enforcement of section provided for (31.12.1980) by Sale of Goods and Supply of Services Act 1980 (16/1980), s. 11, commenced as per s. 1(2).

Statements purporting to restrict rights of buyer.

11.— (1) Subsections (2) and (3) apply to any statement likely to be taken as indicating that a right or the exercise of a right conferred by, or a liability arising by virtue of, section 12, 13, 14 or 15 of the Act of 1893 is restricted or excluded otherwise than under section 55 of that Act.

(2) It shall be an offence for a person in the course of a business to do any of the following things in relation to a statement to which subsection (1) refers:

(a) to display on any part of any premises a notice that includes any such statement, or

(b) to publish or cause to be published an advertisement which contains any such statement, or

(c) to supply goods bearing, or goods in a container bearing, any such statement, or

(d) otherwise to furnish or to cause to be furnished a document including any such statement.

(3) For the purposes of this section a statement to the effect that goods will not be exchanged, or that money will not be refunded, or that only credit notes will be given for goods returned, shall be treated as a statement to which subsection (1) refers unless it is so clearly qualified that it cannot be construed as applicable in circumstances in which the buyer may be seeking to exercise a right conferred by any provision of a section mentioned in subsection (1).

(4) It shall be an offence for a person in the course of a business to furnish to a buyer goods bearing, or goods in a container bearing, or any document including, any statement, irrespective of its legal effect, which sets out, limits or describes rights conferred on a buyer or liabilities to the buyer in relation to goods acquired by him or any statement likely to be taken as such a statement, unless that statement is accompanied by a clear and conspicuous declaration that the contractual rights which the buyer enjoys by virtue of sections 12, 13, 14 and 15 of the Act of 1893 are in no way prejudiced by the relevant statement.

F4[

Sale by description.

13.—(1) Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description; and if the sale be by sample as well as by description, it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description.

(2) A sale of goods shall not be prevented from being a sale by description by reason only that, being exposed for sale, they are selected by the buyer.

(3) A reference to goods on a label or other descriptive matter accompanying goods exposed for sale may constitute or form part of a description.]

Annotations:

Amendments:

Substituted (31.12.1980) by Sale of Goods and Supply of Services Act 1980 (16/1980), s. 10, commenced as per s. 1(2).

Modifications (not altering text):

Enforcement of section provided for (31.12.1980) by Sale of Goods and Supply of Services Act 1980 (16/1980), s. 11, commenced as per s. 1(2).

Implied undertakings as to quality or fitness.

14.—(1) Subject to the provisions of this Act and of any statute in that behalf, there is no implied condition or warranty as to the quality or fitness for any particular purpose of goods supplied under a contract of sale.

(2) Where the seller sells goods in the course of a business there is an implied condition that the goods supplied under the contract are of merchantable quality, except that there is no such condition—

(a) as regards defects specifically drawn to the buyer’s attention before the contract is made, or

(b) if the buyer examines the goods before the contract is made, as regards defects which that examination ought to have revealed.

(3) Goods are of merchantable quality if they are as fit for the purpose or purposes for which goods of that kind are commonly bought and as durable as it is reasonable to expect having regard to any description applied to them, the price (if relevant) and all the other relevant circumstances, and any reference in this Act to unmerchantable goods shall be construed accordingly.

(4) Where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known to the seller any particular purpose for which the goods are being bought, there is an implied condition that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the seller’s skill or judgement.

(5) An implied condition or warranty as to quality or fitness for a particular purpose may be annexed to a contract of sale by usage.

(6) The foregoing provisions of this section apply to a sale by a person who in the course of a business is acting as agent for another as they apply to a sale by a principal in the course of a business, except where that other is not selling in the course of a business and either the buyer knows that fact or reasonable steps are taken to bring it to the notice of the buyer before the contract is made.]

Annotations:

Amendments:

Substituted (31.12.1980) by Sale of Goods and Supply of Services Act 1980 (16/1980), s. 10, commenced as per s. 1(2).

Modifications (not altering text):

C10

Enforcement of section provided for (31.12.1980) by Sale of Goods and Supply of Services Act 1980 (16/1980), s. 11, commenced as per s. 1(2).

Statements purporting to restrict rights of buyer.

11.—(1) Subsections (2) and (3) apply to any statement likely to be taken as indicating that a right or the exercise of a right conferred by, or a liability arising by virtue of, section 12, 13, 14 or 15 of the Act of 1893 is restricted or excluded otherwise than under section 55 of that Act.

(2) It shall be an offence for a person in the course of a business to do any of the following things in relation to a statement to which subsection (1) refers:

(a) to display on any part of any premises a notice that includes any such statement, or

(b) to publish or cause to be published an advertisement which contains any such statement, or

(c) to supply goods bearing, or goods in a container bearing, any such statement, or

(d) otherwise to furnish or to cause to be furnished a document including any such statement.

Sale by Sample.

F6[Sale by sample.

15.—(1) A contract of sale is a contract for sale by sample where there is a term in the contract, express or implied, to that effect.

(2) In the case of a contract for sale by sample—

(a) There is an implied condition that the bulk shall correspond with the sample in quality:

(b) There is an implied condition that the buyer shall have a reasonable opportunity of comparing the bulk with the sample:

(c) There is an implied condition that the goods shall be free from any defect, rendering them unmerchantable, which would not be apparent on reasonable examination of the sample.]

Annotations:

Amendments:

Substituted (31.12.1980) by Sale of Goods and Supply of Services Act 1980 (16/1980), s. 10, commenced as per s. 1(2).

Modifications (not altering text):

C11

Enforcement of section provided for (31.12.1980) by Sale of Goods and Supply of Services Act 1980 (16/1980), s. 11, commenced as per s. 1(2).

Statements purporting to restrict rights of buyer.

(2) It shall be an offence for a person in the course of a business to do any of the following things in relation to a statement to which subsection (1) refers:

( a ) to display on any part of any premises a notice that includes any such statement, or

( b ) to publish or cause to be published an advertisement which contains any such statement, or

( c ) to supply goods bearing, or goods in a container bearing, any such statement, or

( d ) otherwise to furnish or to cause to be furnished a document including any such statement.

________________________________________

Part VI.

Supplementary.

F14[

Exclusion of implied terms and conditions.

55.—(1) Subject to the subsequent provisions of this section, where any right, duty or liability would arise under a contract of sale of goods by implication of law, it may be negatived or varied by express agreement, or by the course of dealing between the parties, or by usage if the usage is such as to bind both parties to the contract.

(2) An express condition or warranty does not negative a condition or warranty implied by this Act unless inconsistent therewith.

(3) In the case of a contract of sale of goods, any term of that or any other contract exempting from all or any of the provisions of section 12 of this Act shall be void.

(4) In the case of a contract of sale of goods, any term of that or any other contract exempting from all or any of the provisions of section 13, 14 or 15 of this Act shall be void where the buyer deals as consumer and shall, in any other case, not be enforceable unless it is shown that it is fair and reasonable.

(5) Subsection (4) shall not prevent the court from holding, in accordance with any rule of law, that a term which purports to exclude or restrict any of the provisions of section 13, 14 or 15 of this Act is not a term of the contract.

(6) Any reference in this section to a term exempting from all or any of the provisions of any section of this Act is a reference to a term which purports to exclude or restrict, or has the effect of excluding or restricting, the operation of all or any of the provisions of that section, or the exercise of a right conferred by any provision of that section, or any liability of the seller for breach of a condition or warranty implied by any provision of that section.

(7) Any reference in this section to a term of a contract includes a reference to a term which although not contained in a contract is incorporated in the contract by another term of the contract.

(8) This section is subject to section 61 (6) of this Act.]

Annotations:

Amendments:

F14

Substituted (31.12.1980) by Sale of Goods and Supply of Services Act 1980 (16/1980), s. 22, commenced as per s. 1(2).

Modifications (not altering text):

C12

Application of section extended (19.05.1997) by European Communities (Contracts For Time Sharing of Immovable Property — Protection of Purchasers) Regulations 1997 (S.I. No. 204 of 1997), reg. 12.

Contracting out of obligation or denial of rights under Regulations not binding

12.— Any clause of a contract whereby a purchaser renounces the purchaser’s freedom or rights under these Regulations or whereby a vendor is freed from the vendor’s responsibilities arising from these Regulations shall not be binding on the purchaser, under conditions as set out in sections 55 of the Sale of Goods Act, 1893, (as inserted by section 22 of the Sale of Goods and Supply of Services Act, 1980), and section 40 (1) of the Sale of Goods and Supply of Services Act, 1980.

C13

Term “fair and reasonable” construed (31.12.1980) by Sale of Goods and Supply of Services Act 1980 (16/1980), s. 2(3), commenced as per s. 1(2).

Interpretation generally.

2.— …

(3) Where, under section 13, 31, 40 or 46 of this Act or under section 55 of the Act of 1893 (inserted by section 22 of this Act), a question arises as to whether a term, agreement or provision is fair and reasonable regard shall be had to the criteria set out in the Schedule in deciding it.

Schedule

1.— In determining for the purposes of section 13, 31, 40 or 46 of this Act or section 55 of the Act of 1893 (inserted by section 22 of this Act) if a term is fair and reasonable the test is that it shall be a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in contemplation of the parties when the contract was made.

…

C14

Application of subs. (1) restricted (31.12.1980) by Sale of Goods and Supply of Services Act 1980 (16/1980), s. 12(3), commenced as per s. 1(2).

Implied warranty for spare parts and servicing.

12.—…

(3) Notwithstanding section 55 (1) of the Act of 1893 (inserted by section 22 of this Act) any term of a contract exempting from all or any of the provisions of this section shall be void.

C15

Application of subs. (1) restricted (31.12.1980) by Sale of Goods and Supply of Services Act 1980 (16/1980), s. 13(9), commenced as per. s. 1(2).

Implied condition on sale of motor vehicles.

13.— …

(9) Notwithstanding section 55 (1) of the Act of 1893 (inserted by section 22 of this Act) any term of a contract exempting from all or any of the provisions of this section shall be void.

Sale of Goods and Supply of Services Act 1980

Interpretation generally.

2.— (1) In this Act—

“ Act of 1893” means the Sale of Goods Act, 1893;

“ business” includes profession and the activities of any State authority or local authority;

F1 [ ‘ consumer-hire agreement ’ has the meaning assigned to it by section 2 (1) of the Consumer Credit Act, 1995; ]

“ deals as consumer” shall be construed in accordance with section 3;

“ fair and reasonable” shall be construed in accordance with subsection (3);

F2 [ ‘ hire-purchase agreement ’ has the meaning assigned to it by section 2 (1) of the Consumer Credit Act, 1995; ]

“ the Minister” means the Minister for Industry, Commerce and Tourism;

“ service” does not include meteorological or aviation services provided by the Minister for Transport or anything done under a contract of service;

“ State authority” means a Minister of the Government, the Commissioners of Public Works in Ireland and the Irish Land Commission.

(2) A reference in this Act to the supply of a service includes reference to the rendering or provision of a service or facility and to an offer to supply.

(3) Where, under section 13 , 31 , 40 or 46 of this Act or under section 55 of the Act of 1893 (inserted by section 22 of this Act), a question arises as to whether a term, agreement or provision is fair and reasonable regard shall be had to the criteria set out in the Schedule in deciding it.

Annotations:

Amendments:

Inserted (13.05.1996) by Consumer Credit Act 1995 (24/1995), ss. 1 (2), 152 (a), S.I. No. 121 of 1996.

Substituted (13.05.1996) by Consumer Credit Act 1995 (24/1995), ss. 1 (2), 152 (b), S.I. No. 121 of 1996.

________________________________________

Dealing as consumer.

3.— (1) In the Act of 1893 and this Act, a party to a contract is said to deal as consumer in relation to another party if—

( a) he neither makes the contract in the course of a business nor holds himself out as doing so, and

( b) the other party does make the contract in the course of a business, and

( c) the goods or services supplied under or in pursuance of the contract are of a type ordinarily supplied for private use or consumption.

(2) On—

( a) a sale by competitive tender, or

( b) a sale by auction—

(i) of goods of a type, or

(ii) by or on behalf of a person of a class

defined by the Minister by order,

the buyer is not in any circumstances to be regarded as dealing as consumer.

(3) Subject to this, it is for those claiming that a party does not deal as consumer to show that he does not.

Saving.

4.— (1) Subject to section 46 (which provides for certain agreements whether made before or after the commencement of this Act) this Act does not apply to contracts made before such commencement.

(2) This Act does not affect any exemption from liability conferred by or under statute.

________________________________________

Orders.

5.— (1) The Minister may by order amend or revoke an order under this Act including an order made by virtue of this subsection.

F3 [ (2) Every order made under this Act shall be laid before each House of the Oireachtas as soon as may be after it is made, and if a resolution annulling the order is passed by either House, within the next twenty-one days on which that House has sat after the order has been laid before it, the order shall be annulled accordingly but without prejudice to the validity of anything previously done thereunder. ]

Annotations:

Amendments:

Substituted (25.01.1988) by Restrictive Practices (Amendment) Act 1987 (31/1987), s. 33(2), S.I. No. 2 of 1988.

Penalties.

6.— (1) A person guilty of an offence under this Act shall be liable—

( a) on summary conviction, to a fine not exceeding F4 [ € 3,000 ] or, at the discretion of the court, to imprisonment for a term not exceeding 6 months or to both the fine and the imprisonment, or

( b) on conviction on indictment, to a fine not exceeding F4 [ € 60,000 ] or, at the discretion of the court, to imprisonment for a term not exceeding 2 years or to both the fine and the imprisonment.

F5 [ (2) If an offence under this Act is committed by a body corporate and is proved to have been committed with the consent, connivance or approval of, or to have been attributable to any neglect on the part of any person being a director, manager, secretary or any other officer of the body corporate or a person purporting to act in any such capacity, that person, as well as the body corporate, is guilty of an offence and is liable to be proceeded against and punished as if that person were guilty of the first-mentioned offence.

(3) If, in a prosecution for an offence against the person referred to in subsection (2) , it is proved that, at the material time, the person was a director of the body corporate or an employee of it whose duties included making decisions that, to a significant extent, could have affected the management of the body corporate, or a person who purported to act in any such capacity, it shall be presumed, until the contrary is shown, that the person consented to the doing of the acts or defaults that constitute the offence.

(4) Subsection (3) shall be read as placing on the person referred to in that subsection an evidential burden only with respect to the matter or matters concerned.

(5) If the affairs of a body corporate are managed by its members, subsections (2) and (3) apply in relation to the acts or defaults of a member in connection with the member ’ s functions of management as if that member were a director or manager of the body corporate. ]

Annotations:

Amendments:

Substituted (30.06.2005) by Investment Funds, Companies and Miscellaneous Provisions Act 2005 (12/2005), s. 81, S.I. No. 323 of 2005.

Substituted (1.05.2007) by Consumer Protection Act 2007 (19/2007), s. 95, S.I. No. 178 of 2007.

Prosecution of offences.

7.— (1) Summary proceedings for an offence under this Act may be brought and prosecuted by the Minister or by the Director of Consumer Affairs.

(2) Notwithstanding section 10 (4) of the Petty Sessions (Ireland) Act, 1851, summary proceedings for an offence under this Act may be instituted within 18 months from the date of the offence.

Expenses.

8.— The expenses incurred by the Minister or the Director of Consumer Affairs in the administration of this Act shall, to such extent as may be sanctioned by the Minister for Finance, be paid out of moneys provided by the Oireachtas.

Exclusion of implied terms and conditions.

55.— (1) Subject to the subsequent provisions of this section, where any right, duty or liability would arise under a contract of sale of goods by implication of law, it may be negatived or varied by express agreement, or by the course of dealing between the parties, or by usage if the usage is such as to bind both parties to the contract.

(2) An express condition or warranty does not negative a condition or warranty implied by this Act unless inconsistent therewith.

(3) In the case of a contract of sale of goods, any term of that or any other contract exempting from all or any of the provisions of section 12 of this Act shall be void.

(7) Any reference in this section to a term of a contract includes a reference to a term which although not contained in a contract is incorporated in the contract by another term of the contract.

(8) This section is subject to section 61 (6) of this Act.

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EC (Certain Aspects of the Sale of Consumer Goods and Associated Guarantees) Regulations

2003

S.I. No. 11/2003 – European Communities (Certain Aspects of the Sale of Consumer Goods and Associated Guarantees) Regulations 2003

View SI Amendments

I, MARY HARNEY, Minister for Enterprise, Trade and Employment, in exercise of the powers conferred on me by section 3 of the European Communities Act 1972 (No. 27 of 1972), and for the purpose of giving effect to Directive 1999/44/EC of the European Parliament and of the Council of 25 May 19991 , on certain aspects of the sale of consumer goods and associated guarantees, hereby make the following regulations:

Citation.

1. These Regulations may be cited as the European Communities (Certain Aspects of the Sale of Consumer Goods and Associated Guarantees) Regulations 2003.

________________________________________

Interpretation.

2. (1) In these Regulations —

“consumer” means a natural person who, as regards a sale or associated guarantee, is acting for purposes which are outside that person’s trade, business or profession;

“consumer goods” means any tangible moveable item, other than —

(a) goods sold by way of execution or otherwise by authority of law,

(b) water or gas where it is not put up for sale in a limited volume or set quantity, and

(c) electricity;

“Directive” means Directive 1999/44/EC of the European Parliament and of the Council of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees1 ;

“enactment” includes an instrument made under an enactment;

“guarantee” means any undertaking by a seller or producer to the consumer, given without extra charge, to reimburse the price paid or to replace, repair or handle consumer goods in any way if they do not meet the specifications set out in the guarantee statement or in the relevant advertising;

“producer” means any manufacturer of consumer goods, importer of consumer goods into the territory of the Community or any person purporting to be a producer by placing his or her name, trade mark or other distinctive sign on the consumer goods;

“repair” means, in the event of lack of conformity of consumer goods, to bring the goods into conformity with the contract of sale;

“seller” means any natural or legal person who, under a contract, sells consumer goods in the course of his or her trade, business or profession.

(2) A reference in these Regulations to —

(a) a Regulation is a reference to a Regulation of these Regulations, unless it is indicated that reference to some other provision is intended, and

(b) a paragraph or subparagraph is a reference to the paragraph or subparagraph of the provision in which the reference occurs, unless it is indicated that reference to some other provision is intended.

(3) A word or expression that is used in these Regulations and is also used in the Directive has, unless the contrary intention appears, the same meaning in these Regulations as it has in the Directive.

(4) Contracts for the supply of consumer goods to be manufactured or produced shall be regarded as contracts of sale for the purpose of these Regulations.

________________________________________

Relationship between Regulations and consumer protection enactments.

3. (1) Subject to paragraphs (3) and (4), these Regulations are in addition to, and not in substitution for, any other enactment relating to the sale of goods or the terms of contracts concluded with consumers, and in particular —

(a) the Sale of Goods and Supply of Services Acts 1893 and 1980,

and

(b) the European Communities (Unfair Terms in Consumer Contracts Regulations 1995 ( S.I. No. 27 of 1995 ).

(2) In particular, Regulation 4 is in addition to, and not in substitution for, a provision of any other enactment that provides that a consumer shall not be deprived, by virtue of a choice of the kind mentioned in that Regulation, of the protection afforded by any enactment.

(3) In a case where the level of protection for the consumer afforded by a particular provision of these Regulations is greater than that afforded by a particular provision of another enactment, or to the extent that the invocation of a latter such provision by the consumer would diminish the first-mentioned level of protection for him or her —

(a) the consumer may opt to invoke the particular provision of these Regulations to the exclusion of the other provision, and

(b) the other provision may be invoked, and shall be construed and operate so as to be capable of being invoked, by the consumer in a manner that does not diminish the first-mentioned level of protection for him or her,

but nothing in this paragraph operates to extend the application of these Regulations to a person who is not a consumer within the meaning of these Regulations or to goods that are not consumer goods within the meaning of these Regulations.

(4) In a case where the level of protection for the consumer afforded by a particular provision of any other enactment is greater than that afforded by a particular provision of these Regulations, or to the extent that the invocation of a latter such provision by the consumer would diminish the first-mentioned level of protection for him or her —

(a) the consumer may opt to invoke the particular provision of that other enactment to the exclusion of the other provision of these Regulations and

(b) that other provision of these Regulations may be invoked, and shall be construed and operate so as to be capable of being invoked, by the consumer in a manner that does not diminish the first-mentioned level of protection for him or her,

but nothing in this paragraph operates to afford to any person the protection of that provision of the other enactment in any case where it would not otherwise be so afforded.

Choice of law provisions.

4. (1) A consumer shall not be deprived of the protection afforded by these Regulations as a result of his or her choosing as the law applicable to the contract the law of a non-Member State if the contract has a close connection with the territory of the Member States.

(2) Paragraph (1) shall have effect notwithstanding section 61(6) of the Sale of Goods Act 1893.

________________________________________

Goods to be in conformity with contract.

5. (1) The consumer goods delivered under a contract of sale to the consumer must be in conformity with that contract.

(2) For the purpose of these Regulations, consumer goods are presumed to be in conformity with the contract of sale if they —

(a) comply with the description given by the seller and possess the qualities of the goods which the seller has held out to the consumer as a sample or model,

(b) are fit for any particular purpose for which the consumer requires them and which he or she made known to the seller at the time of conclusion of the contract and which the seller has accepted,

(c) are fit for the purposes for which goods of the same type are normally used,

(d) show the quality and performance which are normal in goods of the same type and which the consumer can reasonably expect, given the nature of the goods and taking into account any public statements on the specific characteristics of the goods made about them by the seller the producer or his representative, particularly in advertising or on labelling.

(3) There shall be deemed not to be a lack of conformity for the purposes of these Regulations if either —

(a) at the time the contract was concluded, the consumer was aware or ought reasonably to have been aware of the lack of conformity,

(b) the lack of conformity has its origin in materials supplied by the consumer.

Regulation 5: supplemental provisions.

6. (1) The seller shall not be bound by a public statement referred to in Regulation 5(2)(d) if the seller —

(a) shows that he or she was not, and could not reasonably be expected to have been, aware of the statement,

(b) shows that, by the time of conclusion of the contract, the statement had been corrected, or

(c) shows that the decision to buy the consumer goods could not have been influenced by the statement.

(2) Any lack of conformity resulting from incorrect installation of the consumer goods shall be deemed to be equivalent to lack of conformity of the goods if installation forms part of the contract of sale of the goods and the goods were installed by the seller or under his or her responsibility. The foregoing also applies if the goods, intended to be installed by the consumer, are installed by the consumer and the incorrect installation is due to a shortcoming in the installation instructions.

________________________________________

Liability of seller and remedies available to consumer.

7. (1) The seller shall be liable to the consumer for any lack of conformity referred to in Regulation 5 which exists at the time the goods were delivered.

(2) In the case of such a lack of conformity, the consumer shall, subject to, and, in accordance with, this Regulation, be entitled to have —

(a) the goods brought into conformity free of charge by repair or replacement, or

(b) an appropriate reduction made in the price, or

(c) the contract rescinded with regard to those goods.

(3) In the first place, the consumer may require the seller to repair the goods or to replace them (in either case free of charge) unless this is impossible or disproportionate.

(4) Either of these remedies shall be deemed to be disproportionate if it imposes costs on the seller which, in comparison with those of the other remedy or of any other remedy mentioned in this Regulation, are unreasonable, taking into account —

(a) the value the goods would have if there were no lack of conformity,

(b) the significance of the lack of conformity, and

(c) whether the alternative remedy could be completed without significant inconvenience to the consumer.

(5) Where the remedy of repair or replacement is provided the repair or replacement shall be completed within a reasonable time and without any significant inconvenience to the consumer, taking account of the nature of the goods and the purpose for which the consumer required them.

(6) In paragraphs (2) and (3) “free of charge” means free of the costs that must necessarily be incurred to bring the goods into conformity, including the cost of carriage postage, labour and materials.

(7) The consumer may require an appropriate reduction of the price or have the contract rescinded if —

(a) the consumer is entitled to neither repair nor replacement, or

(b) the seller has not completed the repair or replacement within a reasonable time, or

(c) the seller has not completed the repair or replacement without significant inconvenience to the consumer.

(8) The consumer is not entitled to have the contract rescinded if the lack of conformity is minor.

Presumption that lack of conformity existed at time of delivery.

8. (1) Subject to paragraph (2), any lack of conformity which becomes apparent within 6 months from the date of delivery of the goods shall, unless the contrary is proved, be presumed to have existed at the time of delivery of the goods.

(2) Paragraph (1) shall not apply if, by reason of —

(a) the nature of the goods concerned,

(b) the nature of the lack of conformity concerned,

it would not be a reasonable inference that the lack of conformity existed at the time of delivery.

________________________________________

Guarantees.

9. (1) A guarantee shall be legally binding on the offerer under the conditions laid down in the guarantee statement and the associated advertising.

(2) The guarantee shall —

(a) state that the consumer has legal rights under these Regulations and the other enactments governing the sale of consumer goods and make clear that those rights are not affected by the guarantee, and

(b) set out in plain intelligible language the contents of the guarantee and the essential particulars necessary for making claims under the guarantee, including the duration and territorial scope of the guarantee as well as the name and address of the guarantor.

(3) On request by the consumer, the guarantee shall be made available in writing or another durable medium available and accessible to him or her.

(4) The fact that a guarantee does not comply with any of the requirements of paragraph (2) or (3) shall not affect the validity of the guarantee and, accordingly, the consumer may invoke and enforce the guarantee despite any such non-compliance.

________________________________________

Provisions purporting to exclude consumer’s rights.

10. Any contractual terms or agreements concluded with the seller before the lack of conformity is brought to the seller’s attention which purport directly or indirectly to waive or restrict the rights resulting from these Regulations shall not be binding on the consumer.

Jurisdiction of court to order repair or replacement.

11. For the purposes of those provisions of these Regulations providing for the remedies of repair or replacement, there is, by virtue of this Regulation, vested in each court established by the Courts (Establishment and Constitution) Act 1961 jurisdiction to order the repair or replacement of consumer goods.

GIVEN under my Official Seal,

this 22nd day of January 2003.

________________________________________

Cases

Irish Telephone Rentals v. Irish Civil Service Building Society Ltd.

[1991] IEHC 1; [1991] ILRM 880

(b) Did the defects in the system constitute a breach of contract?

11. Clause 2 of the principal hiring contract (and in the supplementary hiring contracts) provided that the agreed hiring rent was to be paid during the continuance of the contract ‘for the hire of the installation and for maintenance of same in good working order’. The defects which I have outlined seem to me to be a breach of the plaintiff’s obligation under this clause as they failed to provide installations during the continuance of the hiring in good working order. The working order of the system by 1988 could not be described as being ‘good’ and it seems to me that the plaintiffs were in breach of an express term of their contracts.

12. The defendants were also in breach of a term implied by the Sale of Goods and Supply of Services Act 1980. By virtue of s. 39 of that Act in every contract for ‘the supply of a service’, where the supplier is acting in the course of a business and where goods are supplied under the contract there is a term implied that the goods will be of ‘merchantable quality’. In this case the contract which was entered into between the parties was for the supply of a telecommunications service. The plaintiff entered into the contract in the course of its business as suppliers of such a service. And goods, namely, a switchboard, console and telephone sets, were supplied under it. ‘Merchantable quality’ has the same meaning in s. 39 as it has in s. 14 (3) of the Sale of Goods Act 1893 (inserted by s. 10 of the 1980 Act). Goods are of ‘merchantable quality’ if they are as fit for the purpose for which goods of that kind are commonly bought and as durable as it is reasonable to expect. The durability of the goods is not in question in this case. What the defendants contend, and I think correctly contend, is that the goods which they hired were not fit for the purpose of providing a reasonably efficient telephone system. There was, in my judgment, a breach of the term implied by s. 39 of the 1980 Act.

(c) Did the plaintiffs breach of contract discharge the defendants from further performance of the contract?

13. The issue which arises now for consideration is one which arises in many cases. It does not follow that because one party is guilty of a breach of contract that the other may treat himself as discharged from obligation further to perform the contract.

14. There may be many cases in which the court, when presented with a problem of this sort, may be required to consider whether the term which was broken was ‘a condition’ or a ‘warranty’ or, a ‘fundamental term’ of the contract but, as the frequently cited case of Hong Kong Fir Shipping Co. Ltd v Kawasaki Kisen Kaisha Ltd [1962] 1 QB 26 shows, this is by no means a necessary exercise to be undertaken in every case. I think the approach suggested by the judgment of Diplock LJ at pp.65 and 66 of the report is appropriate to this case. In answer to the question ‘In what event will a party be relieved of his undertaking to do that which he has agreed to do but has not yet done?’ he said:-

15. The contract may itself expressly define some of these events, as in the cancellation clause in a charter party; but, human prescience being limited, it seldom does so exhaustively and often fails to do so at all. In some classes of contracts such as sale of goods, marine insurance, contracts of affreightment, evidenced by bills of lading and those between parties to bills of exchange, parliament has defined by statute some of the events not provided for expressly in individual contracts of that class; but where an event occurs the occurrence of which neither the parties nor parliament have expressly stated will discharge one of the parties from further performance of his undertakings, it is for the court to determine whether the event has this effect or not.

16. The test whether an event has this effect or not has been stated in a number of metaphors all of which I think amount to the same thing: does the occurrence of the event deprive the party who has further undertakings still to perform of substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain as the consideration for performing those undertakings?

17. If this question is posed in this case there can be only one answer to it. The ‘event’ which occurred in this case is the development of a situation in which the installation which the defendants had hired significantly failed to fulfil its purpose. This ‘event’ has deprived the defendant of the whole of the benefit which it was intended the defendant would obtain from the hiring agreements. The defendant was therefore, in my opinion, discharged from further performing the hiring agreements and was entitled to treat the contract as being at an end and request the plaintiff to take back their installations. It follows therefore that the plaintiffs are not entitled to rely on clause 11 of the contract and that their claim for damages for breach of the hiring contracts relating to the telephone installations also fails.

……

21. Clause 11 provides as follows:-

22. If the subscriber that is, the defendant shall repudiate this contract and the company that is, the plaintiff shall accept such repudiation so as to terminate this contract the company may thereupon remove the installation and the subscriber shall pay to the company all payments then accrued and also a sum equal to the present value on a 5% basis of the remaining rentals that would have been payable under this contract if not so terminated less an allowance of 25% to cover the estimated cost of maintenance and value of recovered material. The said sums shall be payable as liquidated damages it being an agreed estimate of the loss the company would suffer.

23. I have the following comments to make on this clause.

(1) The estimate of the plaintiff’s loss arising from premature termination is based on the gross rents outstanding for the unexpired term of the contract. However, the clause accepts, and correctly accepts, that the plaintiff is not entitled to the full amount of these rents. It also accepts that whatever may be the figure for the agreed loss which the plaintiff may suffer that figure should be discounted because instead of receiving the balance of the rents in installments over the years an accelerated payment of the rent will be made to the plaintiff. The discount in clause 11 is 5%. Whilst the defendant readily accepts the principle of discounting it is urged that the sum estimated for the plaintiff’s loss should be discounted at a higher rate.

(2) The figure for the gross rent is to be reduced, according to clause 11, by a further 25% of the discounted rent because (a) the plaintiff will have been saved maintenance costs during the unexpired term and (b) an allowance should be given for the value of the installations recovered. The plaintiff’s evidence is that the 25% deduction was calculated by allowing a figure of 5% of the discounted gross rent as the percentage attributable to maintenance charges and 20% of the discounted gross rent as the percentage attributable to the value of the returned installations.

(3) It will be observed that the formula is based on a deduction from the gross amount of the outstanding rent of a sum equivalent to 28.75% of the gross rent (25% of 5% of the gross rents) in respect of the estimated cost of maintenance and the estimated value of the recovered installations. The clause was attempting to make an estimate of what the plaintiff would lose by the contract’s premature termination. As the correct measure of the plaintiff’s loss on premature termination at any point of time during the life of the contract is the profit it would have earned in the outstanding period of the contract’s life the formula in clause 11 can only be correct if it produces a figure which approximates to that profit. It follows, therefore that this clause can be shown to be a correct estimate of the plaintiff’s loss if in every case of premature termination the profit thereby lost is 71.25% of the gross rental then outstanding.

(4) Clause 11 is a standard clause. All the plaintiff’s hiring contracts contain this estimate of the loss suffered on each of the plaintiff’s contracts should they be prematurely terminated. The defendant has submitted that the sum calculated in accordance with the condition does not represent a genuine pre-estimate of the actual loss which the plaintiff sustained as a result of the wrongful repudiation of the hiring agreement but is a penalty clause which the court should not enforce. The courts have evolved various rules for considering whether a stipulated sum is a penalty or a genuine pre-estimate. That which is relevant to present case is that stated by Lord Dunedin in Dunlop Pneumatic Tyre Co. Ltd v New Garage and Motor Co. Ltd [1915] AC 79 at 87:-

24. It will be held to be a penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach.

25. The application of this principle is to be seen in the majority decision of the Court of Appeal in England in Robophone Facilities Ltd v Blank [1966] 1 WLR 1428 in which the court considered a contract for the hiring of a telephone-answering machine for a seven year period which was repudiated before the hiring began. The hiring agreement contained a clause which made provision in the event of premature termination for the payment of agreed liquidated damages equal to 50% of the total of the rentals due. In deciding that the sum of 50% was a genuine pre-estimate of loss and not a penalty Lord Diplock examined what would be recoverable by way of damages assessed on common law principles and concluded that because 50% of the gross rent would not produce a figure which was ‘extravagantly greater’ than those damages the clause was enforceable.

26. Before considering in greater detail the operation in this case of clause 11, I should give some more detail of how the plaintiff’s claim is made up.

27. The plaintiff has calculated that there were nine full years of the agreement to run from the date of termination. The annual rent at that time (which had been increased over the years pursuant to the rent revision clause) was then £1,438.16. This annual rent was discounted over a nine year period by 5% giving a discounted figure of £10,222.15. There was added to this one quarter’s rent unpaid in 1988 (that is, £359.51) giving a total of £10,581.66. A figure of 25% of this sum was then calculated, that is a sum of £2,645.42. This was deducted from the sum of £10,581.69 giving a figure of £7,936.27. It is to be noted that the gross rent for the unexpired nine year period of the hiring was £13,043.62 according to these calculations.

28. I have come to the conclusion that the formula contained in clause 11 does not produce a liquidated sum that can properly be regarded as a genuine pre-estimate made at the date of the contract of the loss which the plaintiff would suffer should the contract be prematurely determined and that it is in reality a penalty and therefore unenforceable. My reasons are as follows:-

(a) In estimating the plaintiff’s loss clause 11 correctly allows a deduction from the gross rents of the sums saved in maintenance charges. But the evidence establishes that the 5% figure is an estimate not of all the maintenance charges which would have been incurred had the contract run its course but only an estimate of the cost of materials used in maintenance and expenses such as daily allowance, petrol and the travelling expenses of maintenance staff. The wages of the maintenance staff are excluded. Support for this approach is claimed by the plaintiff from an unreported judgment of the High Court in England (the transcript of which was made available) in the case of Telephone Rentals Ltd (the plaintiff’s English parent company) v Photophone Ltd, delivered 8 February 1957 . I do not think that this approach is correct and, with respect, I cannot follow that judgment to which I was referred. In estimating the loss which the plaintiff would suffer the draftsman of clause 11 should have attempted to estimate the net profit which the plaintiff would have earned had the contract been performed. This net profit should have been calculated by deducting the actual total costs of maintenance and not only a proportion of those costs. It seems to me that this error produces an estimate very much in excess of the plaintiff’s actual loss and cannot be regarded as a genuine pre-estimate of that loss.

(b) The clause makes no allowance for other deductions which in my judgment should have been made from the gross rent figure. The evidence establishes that when originally fixing the rent under the contract the plaintiff took into account not only the likely maintenance charges but also finance charges, administrative costs and engineering costs. Any genuine calculation of the actual loss likely to be suffered from premature termination should make an allowance for these charges as otherwise the plaintiff would receive more than the profit it would have made had the contract run its course. As I will show later it would have been a simple enough matter to estimate what that profit would have been. But by only deducting maintenance charges (and only a portion of such charges at that) the clause seriously overestimates the profit which the plaintiff would have made on the hiring.

(c) Part of the 25% deduction is based on an estimate of the value of the materials obtained at the date of premature termination. The evidence established that the clause was based on the assumption that this value would be 20% of the discounted gross rents. This, in my view, is an entirely arbitrary figure and cannot be regarded as a genuine pre-estimate of the value of the recovered installations. It is to be borne in mind that the hiring was to last for twelve years and that there was a rent variation clause. Perhaps by a coincidence 20% of the discounted rent might at some point during that period approximate to the depreciated value of the installations. But this would be mere coincidence; there is no real connection between the figures produced by these calculations. The facts of this case illustrate the point. 20% of the discounted rent at the date of termination of the broadcasting contracts was £2,116. But in fact the installations when returned were valueless. 20% of the discounted value of the outstanding rents under the telephone contracts was £16,789. In fact their value was only £7,500 (only the switchboard being marketable). It seems to me that the relationship between discounted value of outstanding rents due at any point of time during the contract and the then value of the installations at that point of time is so tenuous that an estimate of the plaintiff’s loss based on this connection cannot be a genuine one.

(d) The result of the operation of the formula is to award a liquidated sum equal to 71.25% of the gross rent, less 5% for accelerated payment. This predicates a net profit of 71.25% had the contract not been terminated. This is quite an enormous net profit. Whilst the onus is on the party who alleges that a clause in a contract is a penalty and not a genuine pre-estimate of the loss which would be suffered by premature termination I think the onus is discharged once the clause in question is based on the assumption that this is an estimate of the profit the plaintiff lost. The plaintiff is engaged in the business of letting goods on hire. Its turnover in its profit and loss account would therefore (apart from an occasional and small sum received for goods recovered prematurely and sold) represent its annual rents received under all its contracts. Its profit and loss account would show the net profit (after deducting all maintenance charges administrative and financial charges and depreciation). This would indicate the average net profit on each of its hiring contracts. If clause 11 (which is a standard clause in all its contracts) is a correct estimate of the net profit made on each of its hiring contracts this would mean that the net profit figure in its profit and loss account would be about 71.25% of its turnover.

29. The plaintiff has not produced its profit and loss account and so l do not know what it shows. But I am entitled to apply the knowledge of financial affairs which is available to every reader of the daily press from which companies’ net profits as a percentage of their turnover is shown for an extensive range of different classes of businesses. These, of course, vary widely. In the retail trade a net profit of 10% of turnover is an average figure. In some manufacturing companies it may be considerably less or considerably more. A net profit of 71% of turnover would be a staggeringly large one in any business and in the absence of proof that this is what the plaintiff earned I am driven to the conclusion that the estimate of loss contained in clause 11 is not a genuine pre-estimate but is a penalty.

30. I cannot therefore allow the plaintiff’s claim based on clause 11 and must assess damages based on the actual loss I think the plaintiff suffered.

31. The plaintiff recovered back the equipment let under the contracts but was unable to re-let or sell them. The plaintiff’s damages will therefore be an estimate of the profit lost on the transaction, appropriately discounted for accelerated payment. The gross rent which would have been received for the nine year balance of the contract was £13,043.62 (assuming no increase, in the rent, an assumption the plaintiff has made in its calculations). I have been given no information as to what the plaintiff’s average net profit is, but bearing in mind that the evidence establishes that the plaintiff’s business is a competitive one (which would oblige them to keep their hiring charges at a reasonable competitive level) and that the plaintiff is a long established firm (which would give it the benefit of a considerable good-will) I would consider it probable that a net profit of 20% of gross rents is what the plaintiff would have earned on average. There is nothing to suggest that there are any special circumstances which would justify an award for breach of this particular contract on a basis higher than average net profit and so the plaintiff’s loss of profit for the last nine years of this transaction is £2,608.72 (20% of £13,043.62). I have very little evidence to help me on how this sum should be discounted and I will, in the absence of evidence, accept the 5% figure contained in clause 11. This means that there should be a deduction of £130.47, giving an award for the loss the plaintiff has suffered for this period of £2,478.29. To this to be added the loss in relation to one quarter of the 1988 rent, namely, £359.51. 20% of this sum, discounted by 5% is £68.04. This gives a total figure for damages of £2,546.69. The plaintiff is entitled to an award of this sum.

32. I have assessed damages in the light of the facts established in this case. I do not think I am required to assess them on the different basis which the facts established in In the matter of Rank (Ireland) Ltd [1988] ILRM 751 required.

Pat O’Donnell & Company Ltd. v. Truck & Machinery Sales Ltd.

[1996] IEHC 3; [1997] 1 ILRM 466

Moriarty J

29. The headings of claim that have caused me least difficulty are the alleged breaches of Section 14, subsections 2 and 4, of the Sale of Goods Act 1893 and 1980, respectively, the implied provisions in contracts for the sale of goods that items purchased shall be of merchantable quality and shall be reasonably fit for the purpose for which purchased. It does not appear necessary to set forth the respective subsections verbatim or consider the applicability of any particular subclauses. In the light of the authorities opened to me in the submissions by the parties, in addition to relevant portions cited from Benjamin on the Sale of Goods, allied to the findings of fact that I feel are appropriate to the evidence in its entirety, I am satisfied that on no realistic appraisal of appropriately proven defects in the L150’s supplied can it be said that they were not of merchantable quality or reasonably fit for the purpose for which required.

30. Even on a breach of warranty, ex post facto basis, it seems to me, construing the evidence in its totality as best I can, that given such factors as the relative prices obtained on resale in varying circumstances, the overall hire records, durability and income generated in favour of the Counterclaimants by those shovels which became part of the hire fleet, the relative incidence of repairs required and the apparent evaluation of the L150’s in Ireland and other marketplaces by other purchasers and users that neither term has been shown to be infringed.

31. For some piecemeal items in respect of which defects were either admitted or not seriously contested, a contractual basis of redress might still remain arguable but on the view that I have taken in regard to the Counterclaim as a whole, I believe those items may properly be deferred for consideration under alternative headings.

32. The remaining causes of action relied upon in the Counterclaim are those of negligent misrepresentation and statutory misrepresentation pursuant to Section 45(1) of the Sale of Goods and Supply of Services Act 1980.

33. Following upon the decision of the House of Lords in Hedley Byrne & Company Limited -v- Heller & Partners Limited , (1964) AC 465, it was accepted by Davitt P. in Security Trust Limited -v- Hugh Moore & Alexander Limited , (1964) I.R. 417 that an action for negligent misrepresentation could succeed in this jurisdiction where a relationship between two parties was of such a nature that upon one seeking information from the other damage resulted from a breach of a duty to take reasonable care that the information furnished was correct. In Doolan -v- Murray & Ors . (unreported, 21st December, 1993), Keane J. approved the dictum of Lord Denning, MR, in Esso Petroleum Company -v- Marden , (1976) 2 ALLE.R.5, to the effect that:

“If a man, who has or professes to have special knowledge or skill, makes a representation by virtue thereof to another – be it advice information or opinion – with the intention of inducing him to enter into a contract with him, he is under a duty to use reasonable care to see that the representation is correct, and that the advice, information or opinion is reliable.”

34. In setting forth a statutory entitlement to damages for non-fraudulent misrepresentation in 1980, the Oireachtas did not require that a duty of care should exist between representor and representee. By Section 45(1) of the Sale and Goods and Supply of Services Act, 1980, it is provided that:

“Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable for damages in respect thereof, had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true.”

35. Having appraised the evidence on both sides, I am of the opinion that the Counterclaimants are entitled to succeed in respect of misrepresentation both on a basis of negligent misrepresentation and statutory misrepresentation, but primarily in respect of the former.

36. Patently, Mr. O’Donnell was under a duty of care in relation to the representations he made to Mr. Mansfield with a view to inducing sales. He was a specialised and experienced dealer and up to 90% of his business was Volvo-produced; he knew from previous dealings over dump trucks that Mr. Mansfield was not a person who would exhaustively study vehicle specifications, and he had, on his own evidence, assiduously canvassed Mr. Mansfield as a large potential purchaser of L150’s, whilst further knowing of his difficulties regarding Zettelmeyer over whom Volvo had attained control.

37. Equally clearly, the recommendations made by Mr. O’Donnell in relation to the L150 were instrumental in persuading him to enter into the agreement. The actual elements of conflict in accounts given by both principal witnesses are in fact appreciatively less than in many other areas of controversy in the Counterclaim. Although there are conflicts it seems to me to be established as a relatively clear probability that in circumstances where he was made aware that Mr. Mansfield required shovels that were at least the equal of the Caterpillar 966 for arduous quarrying work, Mr. O’Donnell conveyed emphatically to Mr. Mansfield that the L150 was a new and entirely up-to-date model of the highest standard that would be equal to, and in some ways superior to, the Caterpillar 966.

38. Mr. O’Donnell was furnished with and was familiar with a significant amount of promotional and technical literature which conveyed to him that in such matters as speed in low gears, and in breakout force, a particularly significant attribute in a quarrying concept, the L150 was not equal to the Caterpillar 966.

39. He did not convey to Mr. Kallmin that he was selling L150’s to Mr. Mansfield on a basis of being equal to or superior to the Caterpillar 966 nor did he tell him that quarrying was the main projected use by Mr. Mansfield’s hirers.

40. Whilst I accept Mr. O’Donnell’s evidence that he was surprised and dismayed at the content of the Volvo letter, and likewise accept the evidence of the Volvo witnesses that design modifications are part and parcel of the business of marketing an evolving product, it remains the fact of matters that on such significant aspects as the type of axle and the standard wheel fittings, significant preparations were in train and at an advanced state of development to adapt to a product more suitable to Mr. Mansfield’s needs. In the context of the allegedly extensive dealings between Mr. O’Donnell and Volvo and the latter’s detailed consideration of whether or not to proceed with the proposed agreement at all on a basis of larger tyre fittings, it would seem that these aspects ought to have been elicited and conveyed to Mr. Mansfield.

41. It would be an unwarranted finding to hold that the L150’s supplied were no more than an experimental prototype, yet it remains noteworthy in the light of the representations made, that L150’s supplied to Mr. Mansfield constituted a significantly high percentage of, approximately, 200 shovels manufactured in toto under the older format. It is difficult not to be inclined to a view that this may have reflected some differences between the design and marketing arms of Volvo. All this must be assessed in conjunction with the conflict of evidence in regard to what passed between the parties with regard to the provision of the larger wheels. Mr. Mansfield accepted that he insisted on larger wheels and acknowledged that some limited loss of traction and breakout force would result, but he denied the basis of repeated efforts to dissuade him and warnings and caveats advanced by Mr. O’Donnell.

42. On balance, and I have regard to a degree of difference in relevant testimony between Mr. O’Donnell and Mr. Kallmin, and to the complete absence of any contemporaneous written reference whatsoever, I am inclined to the view that no serious or adequate warning was given by or on behalf of the vendors with regard to the unsuitability of larger tyres for the existing specification.

43. Indeed, as neither principal witness conveyed to me any impression of seeking to give wilfully misleading or unworthy evidence, it is worth remembering that the inherent complexity of the proposed agreement may well have distracted attention from a fully reasoned appraisal of the likely repercussions of fitting larger tyres or indeed the place of use projected for the L150’s sold.

44. The contract was indeed a large and crucial one for both parties, but the Zettelmeyer and other attendant complications may have diverted a degree of attention from aspects that would otherwise have been explored more fully. There remains an issue as to whether or not in law or in fact, in so far as the supply of L150’s with larger wheels undoubtedly very significantly contributed to the losses complained of, Mr. Mansfield should be held to have contributed towards any resultant misfortune that accrued. By section 34(1) of the Civil Liability Act, 1961, it is provided that:

“Where, in any action brought by one party in respect of a wrong committed by any other person, it is proved that the damage suffered by the Plaintiff was caused partly by the negligence or want of care of the Plaintiff or of one for whose acts he is responsible (in this Part called contributory negligence), and partly by the wrong of the Defendant, the damages recoverable in respect of the said wrong shall be reduced by such amount as the Court thinks just and equitable having regard to the degrees of fault of the Plaintiff and Defendant.”

“Wrong” is defined in Section 2 as:

“Tort, breach of contract or breach of trust whether the act is committed by the person to whom the wrong is attributed or by one for whose acts he is responsible, and whether or not the act is also a crime, and whether or not the wrong is intentional.”

45. These provisions, expressly including breaches of contract as wrongs, are more widely drafted than equivalent English legislation and appear to reflect the view of Professor Glanville Williams that contributory negligence should be extended to contract law and that, as argued by him at page 215 of his work on Joint Torts and Contributory Negligence (1951), “Contributory negligence is appropriate even where the contractual duty broken is a strict one”.

46. As recently as in Lyons -v- Thomas (1986) I.R. 666, Murphy J. noted and applied the wide definition of wrong as aforesaid. Further in Gran Gelato Limited -v- Richcliff (Group) Limited & Others , (1992) Ch. 560, it was held that in principle the concept of contributory negligence applied to statutory misrepresentation under the Misrepresentation Act, 1967, Nicholls, VC, holding that such a defence should be applicable in the context of statutory misrepresentation, no less than in respect of negligent misrepresentation founded upon the same representation.

47. In the light of the foregoing, I am of the view that contributory negligence is in principle applicable to a case such as the present Counterclaim, although I would readily accept that in many commercial cases involving representations or contractual terms it may be deemed inappropriate. Should it be applied in this present instance? Mr. Mansfield was an accomplished and experienced businessman who was able to recall in evidence that he had purchased 10 million pounds worth of equipment in the Falkland Islands. He was well versed in the practicabilities of mechanical shovels. He insisted on a relatively radical departure from the then standard specification for his own commercial reasons, in the knowledge that it must to some degree impact negatively upon performance, albeit not to the extent of a general sluggishness.

48. It accordingly seems to me that when dealing with redress, some appropriate discounting on a basis of contributory negligence will require to be ordered.

49. With regard to the contentions belatedly advanced on behalf of Defendants to the Counterclaim, that the Counterclaimants should be (a) precluded from recovering consequential losses pursuant to the standard conditions of sale set forth on the reverse of the signed order form and (b) precluded from recovering any losses that would seem to accrue to HSS Limited, the associate leasing arm of Mr. Mansfield’s group of companies, I have decided that the entire substantive merits of losses flowing from the relevant misrepresentation should be adjudicated upon in the proceedings as presently constituted.

50. Apart from the issues now being more generically akin to negligence, than to a basis of contractual privity, the concurrent designation of the relevant companies as the Mansfield Group in the Consent of the 23rd March, 1992, and some possible argument as to whether all such standard terms were duly incorporated into the agreement for the purposes of the Counterclaim, these aspects have not been pleaded in the amended Reply and Defence to Counterclaim at the conclusion of the extensive and protracted pleadings. If I felt, nonetheless, in law constrained to uphold either argument I would of course do so. But it is difficult to see how the interest of either party could be advanced by leaving undetermined a small portion of the merits exhaustively canvassed at hearing.

51. I turn in conclusion to the issue of damages and whilst differences in the measure of damages appropriate to negligent misrepresentation and statutory misrepresentation may arise, it seems clear that what is applicable is such a sum of money as should suffice to place the Counterclaimants into the position they would have been in had the relevant misrepresentations been true.

52. The respective headings of claim alleged comprise:

(a) losses on the sale of eight L150’s to the Pakistan Army in the sum of £216,789.11;

(b) losses on the sale of five further L150’s between the months of November 1992 and April 1993 in the sum of £132,617.71;

(c) repair costs and associated loss of use in the sum of £53,817.79;

(d) loss of projected rental income in the sum of £250,274.41; and

(e) a claim for loss of future hire in respect of the four L150’s remaining in the hire fleet in the context of the belated emergence in the evidence that provision of replacement axles would not be economically feasible, quantified on a three year basis at £109,368.

53. I have to say that a purported claim exceeding three quarters of a million pounds, bears little reality to the substantive merits of the case as heard over 11 days of evidence.

54. Given that the critical focus of the Counterclaimants grievances until an advanced state of proceedings was on the general mishaps that had befallen the Middle East venture, an aspect expressly abandoned for the purposes of these proceedings at the outset of the hearing, and that minimal if any dissatisfaction with the L150’s had been expressed until after the Volvo letter, it is difficult to repress a view that the entire basis of claim has been belatedly and implausibly recast.

55. This has entailed Mr. Richard Mahon and Mr. Brendan Gibbons, respectively, financial controller and maintenance fitter foreman to the Counterclaimants, advancing documents and figures that appear predominantly to me to import a high degree of artificiality, and in a process akin to the workings of revisionist historians, to Mr. Jim Corkery, Financial Controller to Pat O’Donnell & Co. Limited, and Mr. Leander of Volvo, furnishing detailed rebuttals. Whilst the gulf between competing figures on such aspects as projected sales losses, hiring, downtime, repair costs and realistic expectations is absurdly large, I find the evidence on behalf of the Defendants to the Counterclaim more cogent and impressive in this regard.

56. The evidence of purportedly disgruntled hirers and users of L150’s adduced on behalf of the Counterclaimants had a mantra-like predictability, and whilst accepting that the contrary evidence of Mr. Tom Cleary of Roadstone did not reflect the most arduous of applications, I find it more in keeping with the general proposition that clearly emerged that the L150 model has been generally successful in this country and many others and has very significantly improved the Volvo market share in the comparatively low-volume, but important, market of mid-range shovels.

57. Similarly, the evidence and report of the motor engineer, Mr. Kenneth Robinson, was based upon one comparatively limited early examination of one L150 model, and thereafter was limited to an evaluation on paper between documentation applicable to both the L150 and the Caterpillar 966.

58. In assessing the totality of the evidence, documentation and submissions, as carefully as I can, I have had regard to what seems to me a veritable myriad of infirmities in the quantum of the Counterclaim as alleged. Despite a general evidential picture of machines that resold relatively competitively, required or were provided with relatively few repairs in the context of industry norms, and which worked and have continued to work long hours in a demanding market, thereby producing valuable economic returns for their hirers, it appears to me that unacceptable evidence has been advanced in an endeavour to support a Counterclaim that has been spuriously inflated to a high degree.

59. Taking the important issue of the realistic actual price paid by the Counterclaimants for the L150’s, there has been considerable divergence as to the respective sums advanced. Undoubtedly, the whole basis of the sale and exchange agreement imported a wide measure of comparative imponderables for the Counterclaimants, who were both being forgiven a sizeable remaining payment in respect of the Zettelmeyers, and waiving any contingent entitlement in the action that was settled.

60. But it is axiomatic that what Mr. Mansfield generally obtained was a unit price significantly more favourable than the hundred thousand pounds ascribed to the nine shovels he agreed to pay for in cash. The gulf between that figure and the suggestion of a sum in the vicinity of £65,000 from Mr. Kallmin is vast.

61. I have considered the relevant evidence on both sides in relation to actual new and second hand L150’s sales, the uncontrovertible fact that a purchaser buying an extraordinarily large number of shovels for the Irish market on a partly cash-funded basis will seek and obtain a significant discount, and the degree of highly effective agreed bargaining and haggling that enabled Mr. Mansfield to prevail with a £900,000 ultimatum appreciatively below the asking sum contemplated by Mr. O’Donnell and Mr. Kallmin.

62. It seems to me that in all the circumstances a sum of not more than £84,000 represents the realistic unit cost expended in the Agreement, which, given aspects such as depreciation and the circumstances of some of the sales subsequently made by Mr. Mansfield, has obvious repercussions on this heading of claim.

63. Whilst I have not exhaustively traversed several of the aspects that have caused me misgivings, I have to say with regret that I find the basis of quantification of losses advanced by the Counterclaimants so excessive, unreliable, and punctured by cross-examination and opposing testimony that I find only very limited reliance can be placed on it in quantifying loss.

64. It is difficult not to incline at least in part towards the opposing argument that faced with an indebtedness in excess of £600,000 in the judgment of Costello P., no stone has been left unturned to set forth a belatedly recast Counterclaim that unreliably seeks to exceed that sum. Faced with these conflicts, how are losses to be quantified?

65. Plainly a sum very significantly less then what is sought only is warranted; and whilst a court may not be enamoured of inflated or untenable versions advanced in sworn testimony, it is clear from McGregor on Damages and from the judgments of the Supreme Court in Callinan -v- Voluntary Health Insurance Board , (unreported, 28th July, 1994), that it must do the best it can to quantify a sum that is fair and appropriate.

66. I have contemplated a number of alternative modes of formulating a proper sum, either by awarding very heavily reduced figures under such of the heads of claim as remain applicable or by assessing an appropriate proportion of what I have found to be the actual unit prices paid by the Counterclaimants. The computation I have arrived at using the latter method broadly equates with that obtained from the former.

67. Whilst the submissions made on behalf of Pat O’Donnell & Co. Limited urge only nominal damages, if any, it still must be borne in mind that, given the overall structure of the agreement, some 18 L150 shovels were involved and the aggregate sums thereby were very substantial.

68. I award, in the first instance, a sum based on a one eighth or 12½ % discounting of the £84,000 I have found to have been paid in respect of each of the 18 units. Because of the finding as to contributory negligence, already dealt with, whilst bearing in mind that some limited aspects of the claim were not affected by that factor, I further discount that entitlement to 10%, thereby entitling the Counterclaimants to judgment in the amount of £151,200, being £8,400 multiplied by 18.

69. There remains some aspects such as set-off, interest and the like, and indeed the matter of costs, that I have been asked by the parties to hold over until further argument and perhaps to enable the parties to evaluate the present position. The case should be listed for mention speedily, approximately, a week or so from now, when the persons involved have had an opportunity to consider what has been stated today.

________________________________________

McKenna v. Best Travel Ltd. t/a Cypriana Holidays

[1996] IEHC 42; [1998] 3 IR 57

Lavan J

Counsel for the Plaintiff alleges breach of contract under the Sale of Goods Act, under the Sale of Goods and Supply of Services Act, 1980 and breach of a further implied condition that the Defendants would not knowingly expose the Plaintiff to a significant risk to her life, limb or health which they were aware of or ought to have been aware of, and that they would warn the Plaintiff of any dangers travelling to selected destinations where there would be significant risk and that they would take all reasonable steps to ensure the Plaintiff’s safety including using goods which would be reasonably fit for their intended purpose. These expressed or implied conditions were allegedly breached in that the Plaintiff was exposed to significant risk, was given no advice as to any possible dangers inherent in travelling to certain parts of Israel, especially while the Intefata was active. The bus used by the Defendant’s agent was not fitted with reinforced glass. Furthermore or in the alternative the Plaintiff alleges negligence and breach of duty of care owed to the Plaintiff in failing to warn the Plaintiff of the dangers in recommending the Holy Land as a holiday destination, in failing to organise the trip so as to minimise the risk to the Plaintiff by permitting the Plaintiff to travel through Bethlehem in a bus easily identifiable as Israeli.

3. The first Defendant claimed that reasonable care was taken by daily checking of routes and there was no warning with respect to this route on this particular day. No attack on a tourist bus had taken place in the nine months previous to the incident according to Mr. Lawyer or ever according to Mr. Caspi. There was no evidence that warning should have been given to tourists not to take organised bus tours, a completely different category to Israeli scheduled buses, nor is there any evidence that the coach used was unsuitable. They submit that there as no duty of care in Irish Law requiring travel agents to warn clients of a probable risk to their health posed by the client’s chosen destination. In England the duty of care to protect from the criminal activity of others may arise where injury to the injured party from such criminal conduct was “highly likely” as per Smith -v- Littlewoods Organisation Limited , 1987, 1 All England Reports at page 710. Further assuming that the duty of care is that recognised in Wortherly -v- Greyhound Corporation , 365 S.O. 2D at 177, that is and I quote:-

“To warn passengers of dangers which are reasonably foreseeable and which might cause harm.”

4. The First Defendant submits that there was no danger of which the Plaintiff ought to have been warned.

5. The Second Defendant claims that it was an agent of the First Defendant and therefore it is the First Defendant who should be sued. Concerning the trip to Israel they are not agents for the Plaintiff or First Defendant. Even if they were on principle in Hedley Byrne & Company Limited -v- Helier and Partners Limited , 1964 Appeal Cases at 465, the duty would be to take reasonable care in giving advice and the Plaintiff never sought advice or said she was going on that particular trip.

6. On the Second Defendant’s defence of the general rule of an agency as espoused by Wright J. in Montgomery -v- U.K. Mutual S.S. Association Limited , 1891, 1 Queen’s Bench at 371:-

“This is a general rules and the intention of the parts and parties and the particular circumstances surrounding the contract can render the agent liable.”

7. I make that comment clearly pointing out that I am deciding this case and this particular matter without reference to Council Directive No. 90/314/EEC, which came into effect on the 13th June, 1990 with regard to the claim of breach of contract.

8. The Sale of Goods and the Supply of Services Act, 1980, Section 39 includes as implied conditions in a contract for the supply of services that:-

“the supplier will (b) supply the service with due skill, care and diligence, (c) that where materials are used they will be sound and reasonably fit for the purpose for which they are required.”

9. As regards the first implied condition the routes in this case were checked each morning and no warning had been issued for that route on that morning. The fact that nothing like this had ever happened before would seem to indicate that the Defendants exercised the due care required as their precautions were effective.

10. The Plaintiff contended that the bus should have been fitted with reinforced glass. However no evidence has been adduced that this was common practice or indeed recommended practice and therefore on the basis of Wilson -v- Best Travel, 1993, 1 All England Reports at 353 this argument fails.

11. The issue of Israeli registration plates making the bus easily identifiable as an Israeli bus has not been proven as a causative factor in the attack. In addition to Mr. Caspi’s evidence of approximately 2,000 trips to Jerusalem and Bethlehem each year by such buses with no prior attack having been complained of this would seem to rule out this factor. Allowing for the public sentiment in the West Bank after the invasion of Kuwait it is possibly more likely that the fact that the occupants of buses were easily identifiable as westerners, which was a factor in the attack and this would not have been disguised by different registration plates on the bus.

12. Counsel for the Plaintiff cites a further implied condition in all holiday contracts that the operator will not knowingly expose the holiday maker to significant risk to life, limb or health. This appears to be the opinion of the authors Nelson, Jones and Stewart in, and I quote, ” A practical guide to package holiday law and contract “, derived from the decision in Anns -v- Merton London Borough Council , 1978 Appeal Cases at 728, a case of tortuous liability and therefore not an implied condition in contract. The only other implied condition could derive from Davey -v- Cosmos Air Holidays , 1989 CLY at 327. There is a county court case in England where the Judge held a breach of an applied term of contract and I quote:-

“To take such steps as are reasonable taking all the circumstances into account to avoid exposing their clients to any significant risk of damage or injury to their health.”

13. For the same reasons that the Defendant did not breach the implied condition under the Act it would seem that neither did they breach this condition, should it apply, reasonable care having been taken.

14. Turning to law on the Duty of Care in Tort as laid down in Donoghue -v- Stephenson , 1932 Appeal Cases at 562, and stated by Lord Wilberforce in Anns -v- London , in Anns -v- Merton London Borough Council at 751, this was affirmed in Ireland by the Supreme Court in Ward -v- McMaster , 1989, 9 Irish Law Reports Monthly 400, 409 by McCarthy J. who refused to dilute the words of Lord Wilberforce and preferred to, and I quote:-

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O’Mahony (An Infant) v. Tyndale

[2001] IESC 62 [2002] 4 IR 101

Keane CJ

Counsel for the plaintiff sought to rely on the apparently insurmountable difficulties presented by findings made by the trial judge which were based on credible evidence by invoking the maxim omnia praesumunter contra spoliatorem, literally translated as “everything is presumed against a wrongdoer”. Mr. Hickey submitted that the application of the principle in the present case meant that what he described as the destruction or suppression by the hospital of relevant records had as its necessary consequence an obligation on the trial judge to disregard in its entirety the evidence adduced on behalf of the second named defendants. When replying to the submissions on behalf of the defendants, he somewhat modified that startling proposition by saying that, at the least, the application of the maxim in the present case necessarily entailed a shift in the onus of proof and that, as the trial judge had clearly treated the onus of proof as remaining at all times on the plaintiff his order should be set aside and a retrial ordered. I am satisfied that in either form the submission is wholly unsustainable.

The maxim relied on is certainly of ancient origin and it is somewhat surprising that it has escaped the attention of the editors of two leading English text books, Phipson on Evidence and Cross on Evidence. It is stated in Halsbury’s Laws of England, 4th Edition, Vol. 17, para. 120, under the heading “Unexplained Circumstances and Suppression of Evidence” as follows:-

“As between an innocent and a guilty party, unexplained circumstances are presumed unfavourably to the wrongdoer. Thus a person who, having converted property, refuses to produce it so that its exact value may be known, is liable for the greatest value

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such an article could have; and an unfavourable inference will be drawn in the case of one who destroys or suppresses, or fails to produce, evidence, or who declines to give evidence in support of his case, even though he is in court.”

While the rule was referred to as long ago as 1680 in Lewis .v. Lewis Cas. Temp. Finch 471, Mr. Hickey relied on the statement of it in two more modern cases, Williamson .v. Rover Cycle Company (1901)2 IR 615, and The Ophelia (1916)2 AC 206.

In the first of these cases, the plaintiff had purchased a bicycle from an agent of the defendant company. A fracture having occurred at the top of the steering post, the plaintiff sued for damages relying on representations alleged to have been made by the agent, an implied warranty under the Sale of Goods Act, 1893 s. 14 and an express guarantee alleged to have been contained in the defendant’s catalogue. After the accident the plaintiff had the break examined by experts and then sent it to the company “for inspection”. The company replaced the broken parts and threw the broken pieces away. At the trial the evidence went to show that the break was a “clean” one and not the result of a flaw or defect in materials or workmanship. The jury, however, found everything in favour of the plaintiff. A motion for a new trial having come

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before the Queen’s Bench Division, it was held by the majority (Madden and Kenny JJ.) inter alia that the loss and non-production of the broken pieces by the defendants did not, under the circumstances (as the plaintiff’s experts had seen the pieces) make the defendants spoliatores against whom omnia praesumenda or shift upon them the burden of proof and that a verdict should have been directed for the defendants. Palles CB, dissenting, held that the defendants were spoliatores, even assuming the broken pieces to have been lost inadvertently because the loss was, as against the plaintiff, wrongful, and because that which was lost might reasonably with the other evidence (the fact of the break) have been sufficient to support the plaintiff’s case.

The decision of the majority was unanimously affirmed by the Court of Appeal (Lord Ashboume C. and Fitzgibbon, Walker and Holmes JJ.)

Although the majority in the Queen’s Bench Division and all the judges in the Court of Appeal agreed with the Lord Chief Baron that the maxim could be applicable even where the destruction of evidence was bona fide, he was alone in his view that the destruction of the evidence was sufficient of itself to shift the burden of proof in the case to the defendants. Fitzgibbon L.J. in the course of his judgment said:-

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“I do not differ from the Chief Baron, either as to his statement of the law, or to its applicability, as stated, to the present case. But making every reasonable presumption against the defendants, and even assuming them to be ‘spoliatores’ – though I am not prepared to say that they were – I cannot find any affirmative evidence against them sufficient to maintain the verdict for the plaintff Agreeing with all the other judges – including the Chief Baron that the evidence, apart from the ‘spoliation ‘ of the broken pieces of the machine, was insufficient, I cannot add anything to that evidence merely because the fragments were not forthcoming at the trial, having regard to what was proved about them.”

The second of these authorities arose from the seizure as a prize of a German hospital ship encountered in the North Sea during the Great War by a British squadron. The issue was as to whether the sending by a hospital ship of a wireless message in secret code of itself subjected her to capture and condemnation. The evidence was that the captain had thrown a number of documents overboard, many of which, he said, contained absolutely innocent messages. The matter having come before the Privy Council by way of appeal from the judgment of the prize court condemning the ship as a lawful prize,

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Sir Arthur Channell, delivering the judgment of the Privy Council, said in reference to the maxim under discussion:-

“The substance of it, however, remains and is as forcible now as ever, and it is applicable, not merely in prize cases, but to almost all kinds of disputes. If anyone by a deliberate act destroys a document which, according to what its contents may have been, would have told strongly either for him or against him, the strongest possible presumption arises that if it had been produced it would have told against him; and even if the document is destroyed by his own act, but under circumstances in which the intention to destroy evidence may fairly be considered rebutted, still he has to suffer. He is in the position that he is without the corroboration which might have been expected in his case.”

In the present case, the maxim is said to apply to the non-availability of the paper which recorded the bpm in the last twenty-six minutes prior to delivery. There is nothing to indicate that a trace which had been taken was in fact destroyed by the defendants, but, altogether apart from that consideration, the maxim is clearly of no relevance. The trace, if it had been available, might have shown that the condition of bradycardia continued, and even intensified, up to the time of delivery. Alternatively, it might have shown that it settled

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down. Since, however, the defendants’ case, supported, as it obviously was, by credible evidence, was that if the episode of bradycardia had led to hypoxia, the baby could not possibly have presented the normal and healthy appearance which it did, of which Dr. Corr gave evidence and which was also borne out by the nurse midwife’s record of the baby having cried on delivery, the missing trace would not have been in any way critical to the issue which had to be resolved. As to the destruction of whatever records were kept by the nurses in the 24-hour observation nursery, there is no evidence of any records of the baby’s feeds having been taken or of any abnormal symptoms which the baby was displaying. The criticism, indeed, of the hospital system of record-keeping, accepted by the trial judge, was that routine records were not kept by the nurses in the observation nursery and there was no evidence whatever of any written records recording anything in relation to the plaintiff ever having existed in the case of the observation nursery. I am satisfied, accordingly, that the maxim had no application whatever in the present case.

….

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James Elliot Construction Ltd -v- Irish Asphalt Ltd

[2011] IEHC 269

Charleton J

Use of Clause 804 in Implied Terms

233. It has been argued on behalf of Irish Asphalt that the Irish legislation as to sale of goods should not be applied to this contract. In addition, it is argued for the defence that were that legislation to be applied, then it must be construed in such a way that the European standards applicable to Clause 804 are the only ones which would apply. Relying on Nathan v. Bailey Gibson Ltd.[1998] 2 I.R. 162, it is urged that European law takes precedence over national law and that in the case of any conflict European law must prevail. Pursuant to European Parliament and Council Directive 98/34/E.C. of 22 June, 1998 laying down a procedure for the provision of information in the field of technical standards and regulations and of rules on Information Society Services, O.J. L204/37, 21.7.1998, it is argued that the technical specification set out in the relevant standards must take precedence over national legislation, or that national legislation must be construed in accordance with such standards. Article 1, as amended by European Parliament and Council Directive 98/48/E.C., defines a technical specification as:-

“a specification contained in a document which lays down the characteristics required of a product such as levels of quality, performance, safety or dimensions, including the requirements applicable to the product as regards the name under which the product is sold, terminology, symbols, testing and test methods, packaging, marking or labelling and conformity assessment procedures.”

234. Pursuant to Article 7, as amended, member states have particular obligations which are set out as follows:-

“Member States shall take all appropriate measures to ensure that, during the preparation of a European standard referred to in the first indent of Article 6(3) or after its approval, their standardisation bodies do not take any action which could prejudice the harmonisation intended and, in particular, that they do not publish in the field in question a new or revised national standard which is not completely in line with an existing European standard.”

235. It is urged that European standards are, in consequence, binding on all members and must be literally transposed as national standards. This allows a product, it is urged, to freely circulate within the European Union. It is to be noticed that there may be a prohibition on the marketing of goods which are liable to endanger the safety of persons, animals or property, but that, it logically flows from this argument, is the only qualification open to member states. The standards are therefore urged to be of quasi–legislative effect.

236. Firstly, I do not accept that the material supplied to Elliott Construction by Irish Asphalt meets the relevant standard. That analysis does not need to be repeated. Secondly, while it is true that goods conforming to a standard should circulate freely within the European Union, national consumer legislation is not thereby abrogated. Implications as to a fetter on the free movement of goods might arise where national consumer legislation is shown to have the effect of inhibiting movement between member states. Further, the relevant legislation, were that to be the case, and here it is not proven, is designed to protect the safety of people, animals and property. It would therefore come within a lawful exception as set out in the European directive. In this litigation, it must be remembered, a building and its ruination is in issue. It is therefore lawful under the relevant directive. Even were that not so, there is no mandate whereby this Court could overturn national consumer legislation or construe it in a way which castrates its effect. To do so would, in itself, be contrary to European Law.

237. No rule of statutory interpretation entitles a judge to turn national legislation into something it is not just because the State has an obligation under European law that is not fulfilled. The European Court in Marleasing S.A. v. La Comercial Internacional de Alimentacion S.A. (C-106/89) [1990] ECR 4135, required that courts of member states construe legislation in accordance with their E.U. obligations. The European Court made it clear in Bernhard Pfeiffer & Ors. v. Deutsches Rotes Kreuz (C-397/01 to C-403/01) [2004] ECR I-8835 that this interpretation, however, cannot be so extreme as to do violence to the national legislation, turning it into something that it is not; or, as the Court of Justice says, contra legem. Finally, I do not accept that a standard is a law and is to be given effect to as if it were a European regulation or directive.

238. I turn therefore to the legislation which protects the purchasers of products and provides implied terms.

239. Section 10 of the Sale of Goods and Supply of Services Act 1980 amends the original sections of the Sale of Goods Act 1893 so that the applicable law as to an implied condition as to merchantability and fitness of goods for purpose is now set out as follows:-

14(1) Subject to the provisions of this Act and of any statute in that behalf, there is no implied condition or warranty as to the quality or fitness for any particular purpose of goods supplied under a contract of sale.

(a) as regards defects specifically drawn to the buyer’s attention before the contract is made, or

(b) if the buyer examines the goods before the contract is made, as regards defects which that examination ought to have revealed.

(5) An implied condition or warranty as to quality or fitness for a particular purpose may be annexed to a contract of sale by usage.

240. The first issue is whether the goods were of merchantable quality. This Clause 804 hardcore infill was not as fit for the purpose for which it was bought as might reasonably be expected by a builder purchasing it. It was not as durable as it was reasonable for the purchaser to expect having regard to its description as suitable for under roadway fill. It could not have been expected by the purchaser that, contrary to the relevant experience of builders, this Clause 804 infill would expand and ruin the building into which it was put. The evidence of Dr. Maher referred to earlier as to durability, inertness and strength thus applies. I accept that evidence in full in this context.

241. I regard it as central to the contracts between Elliott Construction and Irish Asphalt, that the material to be supplied carried the characteristics of Clause 804 hardcore infill as had been established through use by numerous builders over the years since 1972. It would be completely contrary to the purpose for which that material was required for it to swell up when used as infill under buildings and ruin floors and buckle walls. The nature of this type of hardcore is as described in the Building Research Establishment Digest, in the following way:-

“The principal uses of hardcore are as make-up material to provide a level base on which to base a ground floor slab, to raise levels, and to provide a dry, firm base on which work can proceed or to carry construction traffic.

A variety of materials have been used satisfactorily but difficulties can occur and there are a number of factors that need to be taken into account in the selection of materials for use as hardcore. Ideally, they should be granular and drain and consolidate readily; they should be chemically inert and not affected by water. However, few of the materials available at reasonable costs satisfy these requirements completely. The main hazards to be avoided are chemical attack by hardcore materials on concrete and brickwork, mortar, settlement due to poor compaction and swelling or consolidation due to changes in moisture content or chemical instability.”

242. It is argued that this Clause 804 infill was capable of a number of uses; consequently if one of the purposes for which this kind of material is commonly bought can be proved to be suitable, then, it is asserted, the goods remain of merchantable quality. In Aswan Engineering Co. v. Lupdine Ltd. [1987] 1 All E.R. 135, the Court of Appeal in England upheld such an argument. In that case the plaintiffs bought pails of waterproofing varnish from the defendant. These were exported to Kuwait where they were left on a quayside in the full glare of the sun which raised the temperature of the plastic containers to around 70º Celsius. Curiously, the Court of Appeal incorporated the former statutory law on this subject notwithstanding that the Sale of Goods Act 1979 had amended the Sale of Goods Act 1893, which was common to Britain and Ireland as of the date it had been passed. In effect, and with great respect, it seems to me that the Court of Appeal applied the law as of 1978. The implications of this older and now reformed legislation can be seen from the case of Christopher Hill Ltd. v. Ashington Piggeries [1972] 1 A.C. 441. There, the House of Lords, applying the Act of 1893, held that contaminated animal meal, which would have done no harm of any appreciable kind to pigs or poultry, but which killed large quantities of mink, remained merchantable because the former survived heartily while the latter died in droves. This was one of a number of purposes, was the reasoning, for which the meal could be bought. It should be remembered that the previous s. 14(2) of the Sale of Goods Act 1893 provided for the implication of a term as to merchantability in a contract of sale in this way:-

“Where goods are bought by description from a seller who deals in goods of that description (whether he be the manufacturer or not), there is an implied condition that the goods shall be of merchantable quality; provided that if the buyer has examined the goods, there shall be no implied condition as regards defects which such examination ought to have revealed.”

243. The Sale of Goods and Supply of Services Act 1980 completely recast the circumstances of liability as between the purchaser of goods and services and the seller. The prior law is not relevant save insofar as sections of the previous legislation were maintained or incorporated intact and where the statutory context within which such provisions are to be interpreted has not changed in any relevant way. In terms of the recasting of any statutory model by extensive amendment this would be a rare result. I note that some four months after Aswan Engineering in Rogers v. Parish Ltd. [1987] Q.B. 933, the Court of Appeal was not inclined to accept an argument that a Range Rover motor car which got its purchaser, as is said, from A to B, but with accompanying extraordinary noises and a rapid decline in its cosmetic appearance was not to be regarded as merchantable. By implication, the Court of Appeal dismissed an argument that a car was of merchantable quality if one of its purposes was fulfilled, which was simply because it conveyed passengers reasonably well. Another purpose of a motor car, the Court held, was to be a source of pride to its owner who could not reasonably be expected to put up with weird engine noises and an off-putting exterior. Central to the decision was the re-casting of the 1893 legislation by the Sale of Goods Act 1979. At pp. 942 to 943, Mustill L.J. stated:-

“In the course of argument before us our attention was drawn to various expressions of opinion in cases decided before the enactment of the [Supply of Goods (Implied Terms) Act 1973]… as to the precise significance of the term “merchantable quality”. In my judgment this is not a practice to be encouraged. The Act of 1973 was an amending Act and it cannot be assumed that the new definition was included simply because the draftsman saw a convenient opportunity to reproduce in more felicitous and economical terms the gist of the speeches and judgments previously delivered. The language of section 14(6) is clear and free from technicality, and it should be sufficient in the great majority of cases to enable the fact-finding judge to arrive at a decision without exploring the intricacies of the prior law. In my judgment the present is not one of those exceptional cases where it may be necessary to have recourse to the former decisions in order to give a full meaning to the words of the subsection”.

244. In the later Australian case of Cavalier Marketing (Australia) Pty. Ltd. v. Rasell [1990] 96 A.L.R. 375, the Supreme Court of Queensland held that it was not sufficient for goods to meet the merchantability standard merely because they were suitable for one of the purposes for which such goods are commonly bought. In that instance a carpet was in question. The judgment in Rogers v. Parish Ltd. was followed. Simply because a carpet was fit for the purpose of covering a floor but was ugly because of reverse piling, did not make it merchantable. A carpet is bought for aesthetic reasons as well as for reasons of warmth and comfort. At pp 400 to 401 of his judgment, Cooper J. sensibly stated:-

“The definition of merchantable quality requires a determination of two matters. The first matter for determination is the identification of the “purpose or purposes for which goods of that kind are commonly bought”. The second matter for determination is whether the goods are as fit for the purpose or purposes, so identified, as is reasonable to expect, having regard to the listed criteria. This is an objective test. Goods may have more than one normal purpose e.g. a utility motor vehicle has two obvious purposes, namely, to act as a means of transport to convey the driver from A to B and also to act as a means of transport to convey the cargo from A to B. Some consumers may acquire a utility solely as a means of personal transport; others may acquire for both purposes. In my view, as a matter of construction and as a matter of legislative intent, the section requires that all normal purposes for which goods are commonly bought should be brought into consideration. Fitness is to be tested against each of these purposes and none are to be excluded. The position is otherwise if the terms of the contract of supply between the direct supplier to the consumer (including any description applied to the goods by that supplier) or, alternatively, any description applied by the corporation (i.e. manufacturer/importer/ distributor) to the goods, requires that a particular normal purpose be excluded. Such a construction is reasonable in both the interests of the consumer and the corporation. First, it addresses the reasonable expectations of the consumer at the time of acquisition of goods that they will be fit for all there normal purposes, subject to the terms of the contract of supply to which the consumer has agreed. Secondly, it addresses the reasonably expectations of the corporation as to the purpose or purposes to which the goods will be put. Thus, the corporation may by the description, if any, it attaches to the goods, the price it receives and any other relevant circumstances, place goods in circulation in such a manner that the corporation made delineate the relevant purpose or purposes itself. Alternatively, it may provide information as to purpose with the goods which information is sufficient to enable a consumer to make an informed choice. If the consumer has information as to the purpose or purposes, contemplated by the corporation as being those for which the goods are fit, any expectation on the part of the consumer as to another, although normal, purpose would be unreasonably”

245. In this instance, the Clause 804 infill was neither chemically inert, nor durable, nor sufficiently strong. The lack of merchantability thereby disclosed is not displaced as an implied condition by any argument that it would be suitable for being put under an external tarmacadamed car park where, it might be argued, though I am certainly not deciding this, the heave of 25 mm or 30 mm or 35 mm over a few years variably over the surface tarmacadam laid above it might not make much difference.

Finlay Geoghegan J

Contractual Analysis

19. The resolution of the primary dispute between the plaintiff and the defendant as to whether the plaintiff’s Purchase Order conditions or the defendant’s terms and conditions as incorporated in the contract or contracts pursuant to which the defendant supplied aggregate to the plaintiff between March 2003 and May 2005, is dependent upon a conclusion as to when and how the contract or contracts between the parties came into existence. It is not in dispute that a contract came into being in March 2003, but the parties contend for differing dates and also differ in their submissions as to the relationship between that contract and the contract or contracts applicable to the subsequent deliveries.

…..

24. In my judgment, an oral agreement was reached between Mr. Regan and Mr. Tuite on the morning of 26th March, 2003, as to the terms upon which the defendant would supply aggregate to the plaintiff for the construction contract at Finglas. There is no requirement that such a contract be in writing. The express terms agreed are recorded on the Purchase Order then sent by fax on the same day at 13.09 hours, stated to be for the attention of “Terry”, who, it was stated, was Mr. Terry Lagan, a director of the defendant. The fax number given by Mr. Tuite, and to which the fax was sent, was that of the head office of the defendant at Rosemount, where Mr. Lagan worked. The express terms include the name of the purchaser, the plaintiff; the name of the vendor, the defendant; the place of delivery, Griffith Avenue, Finglas; the four types of aggregate or stone, the unit price of each type per tonne for collection and the delivery charge per tonne and the specification that the credit terms were 60 days and that it was “fixed price for duration of contract”.

25. On the evidence, I have concluded, as a matter of probability, that there were certain other implied terms. First, on the defendant’s evidence, it appears probable that a written Purchase Order signed by the plaintiff had to be communicated at least by fax to them. This was done on 26th March, 2003. Also, that a credit application had to be completed by the plaintiff and returned to the defendant. Such a form appears to have been faxed by the defendant and returned shortly thereafter by the plaintiff on the afternoon of 27th March, 2003. There were also implied terms as to the manner in which the contract would be performed, including the ordering system by oral “call offs” placed in a telephone call by the site manager or other operative from the plaintiff’s construction site at Finglas to the defendant’s operative on the weighbridge at Baylane, and the recording of the aggregate supplied by the use of delivery dockets in accordance with a well established practice between the quarry and construction industries.

26. In my judgment, accordingly, there was a concluded agreement between the plaintiff and defendant on 27th March, 2003, as to the terms on which the defendant would supply aggregate to the plaintiff for the duration of its construction contract at the site at Griffith Avenue, Finglas.

27. The plaintiff did not, on or before 26th March, 2003, bring to the attention of the defendant its Purchase Order conditions according to which it now submits that it agreed to purchase the aggregate from the defendant. Whilst they are printed on the reverse of the Purchase Order form, there is no reference on the front side to the Purchase Order conditions. Communication of that Purchase Order to the defendant by fax is, in my judgment, the latest point in time at which the concluded agreement came into being. It may have come into being when the oral communication was made by Mr. Regan to Mr. Tuite that he was placing the order with the defendant.

28. Similarly, it is an undisputed fact that the defendant had not drawn to the attention of the plaintiff its terms and conditions on or before 26th March, 2003.

29. It follows from the foregoing conclusions that insofar as the plaintiff relies upon a communication of its Purchase Order conditions on either 27th or 28th March, 2003, that it would have to establish a variation in the already agreed terms for the purchase and supply of aggregate for its construction contract at Finglas. Sensibly, no such submission was made by counsel on its behalf as there are not facts to support any agreed variation. Rather, the plaintiff’s only submission on the incorporation of its Purchase Order were upon a submission that the concluded contract did not come into existence until the first delivery was effected. This does not appear correct for the reasons already set out.

30. The defendant, in its wide-ranging submissions, places great emphasis on the incorporation of its terms and conditions by the signature by or on behalf of the plaintiff on each delivery docket. The defendant’s submission is that each individual delivery formed a distinct and unique contract between the plaintiff and the defendant, albeit part of the over-arching or master contract between them, and that its terms and conditions were incorporated into each such contract, either by the signature given on behalf of the plaintiff, by reasonable notice of the prior delivery documents or by a course of dealing.

31. It is well established that terms and conditions may be incorporated into a contract by signature, reasonable notice or by a course of dealing. (See, inter alia, McMeel, ‘Construction of Contracts’ (2nd Ed.) Oxford University Press 2011, at paragraph 15.53). On the question of signature, Denning L.J., in Curtis v. Chemical Cleaning and Dyeing Company [1951] 1 K.B. 805, at p. 808, as ever, put it pithily:

“If the party affected signs a written document, knowing it to be a contract which governs the relations between them, his signature is irrefragable evidence of his assent to the whole contract, including the exempting clauses, unless the signature is shown to be obtained by fraud or misrepresentation: L’Estrange v. Graucob [1934] 2 K.B. 394.”

It is important to note the condition of “knowing it to be a contract which governs the relations between them”.

32. Whether the incorporation is to be by signature, reasonable notice or course of dealing, the first question is whether the document which makes reference to the terms and conditions is a contractual document. McMeel, at paragraph 15.56, states:

“A first hurdle to overcome is whether the document is of a character that it could be reasonably expected would contain terms and conditions. Is it a contractual document? This can either be satisfied by actual knowledge of the receiving party that it contains terms or by an objective test: would the reasonable recipient expect it to contain conditions? This is relevant to all modes of incorporation. A distinction has to be drawn between documents which effect or form part of the background to the formation of the contract, and post-contractual documents. The former are an obvious source of terms, whereas a court may conclude that the latter came too late to prove an argument of incorporation. Auld L.J. has drawn this distinction:

‘A document may have a contractual purpose as a contract making document or in the execution of an existing contract. Documents such as a time sheet, an invoice or a statement of account are within the latter category. They do not normally have a contractual effect in the sense of the making or the varying of a contract’. (Grogan v. Robin Meredith Plant Hire [1996] C.L.C 1127, at 1130 CA).

That may be an appropriate distinction to draw so far as ‘one-off’ arguments about incorporation by signature or notice are concerned. It may go too far if the argument is that incorporation has arisen by a course of dealing or of industry-standard terms. In that context both invoices and other administrative documents are often the basis of an argument of incorporation based on the parties’ practice.”

33. It follows from my earlier conclusion that the terms agreed on 26th March, 2003, between the plaintiff and the defendant were the terms in accordance with which the defendant agreed to supply aggregate to the plaintiff. The delivery documents commencing on 27th March, 2003, are all post-contractual unless they had the effect either of making a new and distinct contract, or of varying the existing contract. Any analysis must be based upon the facts of this case. Counsel for both parties opened many authorities to me which, whilst helpful insofar as they state the principles, must be very carefully considered and applied, as each tend to turn on their own particular facts. Nevertheless, it does appear that the facts in Grogan, to which reference is made above, are sufficiently similar and that, in particular, the analysis of Auld L.J. in his judgment is of assistance to me on the facts before me. It also appears that quite similar arguments were advanced before the Court of Appeal to those advanced on behalf of the defendant to me in favour of incorporation by signature on the delivery dockets.

34. The facts in Grogan were that the first named defendant, a plant hire company, approached Triact, a civil engineering contractor, seeking work. It was orally agreed that Triact would hire from the defendant a driver and a machine for an all-in rate of £14.50 an hour from 27th January, 1992. Neither party mentioned any other terms. At the end of the first and second weeks, Triact’s site manager signed a timesheet recording the hours that had been worked by the first named defendant’s driver. Toward the bottom of the timesheet was printed, ‘All hire undertaken under CPA conditions. Copies available on request’. Under the CPA conditions, Triact was bound to indemnify the first named defendant against any liability incurred to third parties in the course of the hire. An accident occurred during the third week in which the plaintiff, Grogan, was injured, and ultimately, obtained judgment for damages against the first named defendant and Triact. The first named defendant claimed that the CPA conditions were incorporated into the contract by the signing of the driver’s timesheet and Triact was therefore liable to indemnify it against its liability to the plaintiff. The High Court held that the contract had been varied so as to incorporate the CPA conditions and the first named defendant entitled to succeed against Triact. Triact appealed. Auld L.J., delivering the leading judgment, rejected the submission that the court should only look at the words of a signed document and disregard its nature or function stating:

“I reject MT Turner’s proposition that the court should look only at the words of a signed document and disregard its nature or function. The central question, adopting and adapting the useful statement of principle in Chitty on Contracts (27th edn), vol. 1, para. 12/008, is whether the time sheet in this case comes within the class of a document which the party receiving it knew contained, or which a reasonable man would expect to contain, relevant contractual conditions. Another way of putting it, as Kerr J did in Bahamas Oil Refining Co v Kristiansands Tankrederie A/S (‘The Polyduke’) [1978] 1 LI Rep 211 at pp. 215-216, is whether ‘the document purport[ed] to have contractual effect’. It has to be borne in mind too that the circumstance to which the question relates, the presentation and signing of a time sheet for work done under an existing contract, is one of alleged variation, not the initial making of a contract.”

35. He later considered the different ways in which a document may have contractual purpose in stating:

“A document may have a contractual purpose as a contract making document or in the execution of an existing contract. Documents such as a time sheet, an invoice or a statement of account are within the latter category. They do not normally have a contractual effect in the sense of making or varying a contract. The purpose of time sheets is not normally to contain or evidence the terms of a contract, but to record a party’s performance of an existing obligation under a contract.”

36. He finally dealt with one further submission also made in these proceedings:

“I should not leave the matter without returning to the argument of Mr. Turner that the mere signature on a document which contains or incorporates by reference contractual terms has the effect of incorporating these terms into a contract. In my view, such a proposition is too mechanistic. The fact that a time sheet is signed by a person authorised to effect or vary a contract on behalf of his employer does not affect the basic question whether that person, or a reasonable man, would have understood that his signing of the document varied the contract already struck between the parties. The question in Chitty, to which I have already referred and have adopted, is whether the document purports to be a contract or to have contractual effect. The answer in each case requires consideration, not only of the nature and purpose of the document, but also the circumstances of its use as between the parties and their understanding of its purpose at the time.”

37. On the evidence given at the trial of this issue, I have concluded that there was already a concluded contract in being as to the terms upon which the aggregate would be supplied by the defendant to the plaintiff when the delivery dockets came into existence. The evidence given on behalf of both the plaintiff and the defendant was to the effect that delivery dockets are crucial dockets for both the construction and quarrying industry. However, in my judgment they are crucial as the written record of the amount and type of aggregate delivered and the time, date and place of delivery. They make no reference to price. The evidence given on behalf of the defendant was that a signed delivery docket was essential to enable the defendant obtain and enforce payment for the loads supplied or delivered. Similarly, the evidence given on behalf of the plaintiff was that they were crucial for the purpose of checking the plaintiff’s potential liability for payments to the defendant. Accounts and invoices supplied by the defendant were checked against the plaintiff’s copies of the delivery dockets.

38. The evidence was that delivery dockets were signed on behalf of the defendant by the weighbridge operator. The delivery dockets were signed on behalf of the plaintiff, either by a haulier sent to collect the aggregate and authorised to sign the delivery document on the plaintiff’s behalf or the site foreman or other site operative if delivered to the site. Further evidence on behalf of the plaintiff was that no such person had any authority to negotiate or agree to any contractual terms relating to the purchase of the aggregate. Whilst express evidence was not given of the absence of any such authority by the weighbridge operator, I have concluded from the evidence of Mr. Tuite, as to the operating systems, that a weighbridge operator of the defendant did not have any such authority. In my judgment on the facts herein, the delivery dockets had a contractual purpose in the sense of being a document used in the execution of the contract which came into existence on 26th March, 2003. They did not have contractual effect in the sense of making or varying a contract. Having regard to the system operated by both parties for the performance ofr the supply contract agreed on 26th March, 2003, neither a reasonable man nor any haulier or site operative signing a delivery docket on behalf of the plaintiff would have understood that his signing of the delivery docket potentially varied the terms of the contract already agreed according to which the aggregate was being supplied by the defendant to the plaintiff.

39. In Continental Tyre and Rubber Company Ltd. v. Trunk Taylor Company Ltd. [1985] S.C. 163, on quite different facts, a somewhat similar analysis was made by the Lord President in which he concluded on the facts of that case that the delivery note which expressly stated that “all offers and sales are subject to company’s current terms and conditions of sale . .” was a non-contractual document, in the sense that it was “a document the only purpose of which was to record performance of a particular transaction with a view to payment”. It appears to me on the facts of this case that the purpose of the delivery dockets was to record the particular supply with a view to payment. They were undoubtedly crucial documents, but in the administration or execution of the contract already agreed.

40. The defendant’s alternative submissions that its terms and conditions were incorporated by notice or a course of dealing by reason of the reference to them on prior delivery dockets is dependent upon a finding that each delivery potentially constituted a new and distinct contract between the plaintiff and the defendant. Unless each new call-off or order potentially gave rise to a new contract, in the sense of a contract with new terms of supply, the defendant’s terms and conditions, to which reference had been made in prior delivery dockets, could not be incorporated, either by notice or by a course of dealing. Such appears to have been the factual position in Circle Freight v. Medeast [1988] 2 Lloyd’s 427, upon which reliance was placed by the defendant.

41. The facts herein do not support the coming into existence of new and distinct contracts of supply to which potentially new terms applied upon the plaintiff’s site foreman or other operative making what was termed “a call-off” or placing an order for a specified quantity of aggregate of a type referred to in the Purchase Order, which was accepted by the defendant’s weighbridge operator, by either making the product available for collection or arranging the delivery of same to the plaintiff’s site. The evidence was that the terms of supply were negotiated between senior management, Mr. Regan and Mr. Tuite on behalf of the plaintiff and defendant, respectively. Each of those gentlemen gave evidence of the need to consult in each case with a superior, Mr. Murphy, and Mr. Lagan prior to reaching agreement between them. Further, the evidence was that the important price terms were not disclosed in the copy of the Purchase Order sent to the site foreman or it would appear to the weighbridge operator. The weighbridge operator was informed when an account was opened by Mr. Lagan and when he might commence delivery. Whilst counsel for the defendant placed much emphasis on the fact that only a limited number of the delivery dockets referred expressly to the number of the plaintiff’s Purchase Order, the evidence of Mr. Tuite was that all the deliveries were referable to the one Purchase Order.

42. I have concluded that on the facts herein, the system which operated between the plaintiff and the defendant was that the contractual terms applicable to supply were agreed at senior management level. Once agreed, they were to last for the duration of the plaintiff’s construction contract at the Finglas site. The single Purchase Order to which all deliveries related confirms this. The single supply contract was to be performed or executed by operatives who had no authority to negotiate any variation in the terms agreed. Insofar as individual contracts for sale may be considered to have come into existence they were all for sales on the terms of the single supply contract as I have termed it. The supply contract was executed or performed in accordance with a well-established practice that the site foreman or other operative would make “a call-off” or, in other words, place an order for a specified amount of a specified type of aggregate to be delivered. Such communication was conveyed orally to the weighbridge operator and would be acted upon by him by preparing the product for delivery and, when placed on either the defendant’s truck or the truck of a haulier sent by the plaintiff, a delivery docket would be generated recording the amount and type of aggregate supplied on that day. On supply, either at the quarry or delivery at the plaintiff’s site, a copy of the delivery docket was required to be signed on behalf of the plaintiff. The purpose of the delivery docket was to record the amount of type of aggregate delivered. The agreed supply terms, including price and credit upon which it was being sold, was not recorded in the delivery docket. Those terms were the terms which had been agreed on 26th March, 2003. The operatives placing the order and supplying the product had no authority to agree any new or different terms of supply.

Other Issues

43. Having regard to my conclusion that neither the plaintiff’s Purchase Order conditions nor the defendant’s terms and conditions were incorporated into the contract of supply according to which all sales were made, it is unnecessary for me to consider the submissions made by the parties in relation to the nature of the limitation of liability in clause 8 of the defendant’s terms and conditions and whether it was so onerous as to require special notice.

44. Each party, however, made an alternative submission as to relevant implied terms in the event that the Court determined, as I have now done, that neither the plaintiff nor the defendant’s terms and conditions were incorporated into the contract or contracts between the parties. The defendant, at para. 13 of the amended Defence, pleads that in the absence of incorporation of either party’s terms that certain terms were implied into the contract by virtue of the custom and practice within the industry. The alleged terms were stated to include “a term that in the event of goods being delivered which were defective, a vendor’s liability is limited to the cost of their replacement only, and a term that vendors are not liable for any other loss arising directly or indirectly from the supply of defective materials”.

45. The plaintiff, at para. 8 of the amended Statement of Claim, contends for implied terms and/or warranties in the agreement, including that the defendant would sell, supply and deliver aggregate of merchantable quality. At the hearing, the plaintiff only pursued the implied condition as to merchantable quality pursuant to s. 14(2) of the Sale of Goods Act 1892, as amended by s. 10 of the Sale of Goods and Supply of Services Act 1980.

46. The principles according to which terms will be implied in a contract by custom are not in dispute. McDermott on ‘Contract Law’ (Butterworth’s 2001) at para. 7.06, identifies the basic question in reliance upon Evans J. in Vitol S.A. v. Phibro Energy AG, the Maturaki [1990] 2 Lloyd’s Report 84, at 88, as being whether, “there was in the trade, a uniform . . . practice, so well defined and recognised that the contracting parties must be assumed to have had it in their minds when they contracted”. McDermott further identifies, at para. 7.07, the following as an non-exhaustive list of the requirements which must be fulfilled before a custom may be implied:

“(i) The custom must have acquired such notoriety that the parties must be taken to have known of it and intended it should form part of the contract.

(ii) The custom must be certain.

(iii) The custom must be reasonable, and the more unreasonable it is the harder it will be to prove that it exists.

(iv) Until the courts take judicial notice of a custom it must be proved by clear and convincing evidence.

(v) The custom must not be inconsistent with the express contract.”

47. The plaintiff relies on the statement of Maguire P. in O’Reilly v. Irish Press [1937] 71 ILTR 194, which has recently been confirmed by Hedigan J. in McCarthy v. Health Service Executive [2010] IEHC 75:

“[A] custom or usage of any kind is a difficult thing to establish. Before a usage such as is contended for here can be held to be established it must be proved by persons whose position in the world [being considered by the Court] entitles them to speak of with certainty and knowledge of its existence. I have to be satisfied that it is so notorious, well known and acquiesced in that in the absence of agreement in writing it is to be taken as one of the terms of the contract between the parties.”

48. The defendant adduced evidence from Mr. Kennedy, a person with significant experience in the quarry industry, including approximately five years as the Pits and Quarries Director for Roadstone Dublin Limited. He gave evidence of the custom and practice amongst the international and large family owned quarries of limiting liability for defective product in supply agreements to the replacement of defective product, or excluding consequential loss. He acknowledged, in the course of his evidence, that he had experience in negotiation with the construction industry of being asked for an indemnity, but expressed the view that he would never have agreed to such an indemnity. Mr. Tuite on behalf of the defendant also gave evidence of the custom or practice within the industry or a standard practice of including limitation of liability in terms and conditions by quarry owners.

49. Mr. Regan on behalf of the plaintiff, from his 25 years experience in the construction industry, disputed this evidence insofar as it related to supply by quarries to the construction industry. He also gave evidence of an example of purchases made by the plaintiff from another quarry owner of aggregate for the Finglas development on the plaintiff’s Purchase Order conditions, including the clause 17 indemnity. Mr. Murphy’s evidence also disputed the alleged custom.

50. In my judgment the evidence adduced by the defendant falls short of establishing a custom of a type which would permit the Court to find that where a contractor operating in the construction industry, such as the plaintiff, enters into a contract with a quarry operator for the supply of aggregate for a construction contract, it could be objectively determined that both parties must be taken to have known of it and intended that it should form part of the contract. On the evidence, I find that there may well have been a standard practice amongst the larger quarry owners of inserting, in their standard conditions of sale, a clause limiting liability to replacement of defective product, or excluding consequential loss and being unwilling to deviate therefrom. Nevertheless, in particular in the evidence of Mr. Kennedy, it appears to be acknowledged that a purchaser from the construction industry might well seek, albeit, perhaps, unsuccessfully, to obtain an indemnity against loss arising from defective product. I am not satisfied that there is evidence of a custom well known and according to which quarry operators were entitled to limit their liability for defective product to replacement product in the absence of the inclusion of an express contractual term to that effect. The practice, insofar as it existed, appears to have been of the inclusion of such an express contractual term.

51. Accordingly, in my judgment, there is no limitation of the liability of the defendant for defective product implied by custom into the contract of supply between the plaintiff and the defendant.

52. The plaintiff contends for an implied condition pursuant to s. 14(20 of the 1893 Act, as inserted by s. 10 of the Act of the Sale of Goods and Supply of Services Act 1980. Section 14 provides:

“14.—(1) Subject to the provisions of this Act and of any statute in that behalf, there is no implied condition or warranty as to the quality or fitness for any particular purpose of goods supplied under a contract of sale.

(a) as regards defects specifically drawn to the buyer’s attention before the contract is made, or

(b) if the buyer examines the goods before the contract is made, as regards defects which that examination ought to have revealed.

(5) An implied condition or warranty as to quality or fitness for a particular purpose may be annexed to a contract of sale by usage.

53. The plaintiff only contends that there is an implied condition that the aggregate and stone supplied under the contract by the defendant was of merchantable quality pursuant to section 14(2). There was some lack of clarity in the closing submissions as to whether counsel for the defendant continued to dispute the existence of such an implied condition in the event that neither party’s terms and conditions were incorporated into the contract. For the avoidance of any doubt at the full hearing of the action, and as this Court on the trial of this issue has to determine what were the relevant terms of the contract between the plaintiff and the defendant (express or implied), I propose holding that those terms include pursuant to s. 14(2) of the Act of 1893 as amended an implied condition that the goods supplied under the contract are of merchantable quality. There is no evidence to support any exclusion of such a condition pursuant to s. 14(2)(a) or (b) of the Act of 1893 as amended.

54. I wish to make clear that all issues relating to questions as to whether or not the aggregate and stone supplied by the defendant to the plaintiff pursuant to the contract of supply between March 2003 and May 2005 for the development at the Finglas site was or was not of merchantable quality are matters for the full hearing of the plaintiff’s claim herein.

Decision in Elliott Construction

55. Subsequent to the end of the hearing of the issue before me Charleton J gave judgment on 25 May 2011 in James Elliott Construction Limited v. Irish Asphalt Limited [2011] IEHC 269. The claim therein is for damages for breach of contract in relation to the supply by the defendant for aggregate alleged to contain pyrite for use in construction. The defendant had used similar delivery dockets to those used in the contract herein which contain a reference to its terms and conditions and sought inter alia to limit its liability in reliance on clause 8 thereof. The parties herein sought and were granted liberty to make further oral and written submissions in relation to the judgment of Charleton J. insofar as it relates to the incorporation of clause 8 of the defendant’s terms and conditions in the contracts at issue in the Elliott Construction case. I have also been informed that the judgment is under appeal.

56. I have reached my decision for the reasons set out above upon a full reconsideration of all the evidence, submissions and authorities (including those relating to the judgment in Elliott Construction) to which I was referred. The contractual analysis made is this judgment is primarily dependent on the evidence before me and hence it does not appear necessary to refer to the judgment of Charleton J. I have noted that we appear to have reached similar conclusions on the non-incorporation of clause 8 of the defendant’s terms and conditions albeit on different facts and contractual analysis.

Relief

57. Whilst the issue set down as the first issue is in terms “what were the terms of the contract between the plaintiff and defendant (express or implied) for the purchase and sale of the aggregate, the subject matter of these proceedings”, it does not appear to me necessary to set out exhaustively, in the form of a declaration, all the relevant terms and conditions. The terms and conditions relevant to the plaintiff’s claim in the proceedings and the defence thereof are those which relate to the plaintiff’s claim for declarations as to the incorporation of its Purchase Order conditions, the declaration of entitlement to an indemnity and the claim for damages for breach of contract. In accordance with this judgment, it appears sufficient that I would make declarations to the following effect. However, I will hear counsel as to the final form of the Order, having regard to the terms of this judgment. The proposed declarations are:

(i) A declaration that the contract of supply between the plaintiff and the defendant according to which the defendant supplied aggregate and stone from March, 2003 to May, 2005, for the plaintiff’s construction contract at Griffith avenue, Finglas did not include either the plaintiff’s Purchase Order conditions or the defendant’s terms and conditions.

(ii) A declaration that there is no limitation on the defendant’s liability for defective product (if any) supplied implied by custom into the said contract of supply between the plaintiff and the defendant.

(iii) There is an implied condition of merchantable quality pursuant to s. 14(2) of the Sale of Goods Act 1893, as inserted by s. 10 of the Sale of Goods and Supply of Service Act 1980, in the said contract of supply between the plaintiff and the defendant.

________________________________________

James Elliott Construction Ltd v Irish Asphalt Ltd

[2014] IESC 74

Merchantability and Fitness for Purpose

27. As already observed , the trial judge concluded that, on the facts found, there had been a breach of the conditions as to merchantability and fitness for purpose implied by s. 14 of the 1893 Act as inserted by s. 10 of the 1980 Act. Irish Asphalt’s appeal on this aspect raises narrow but important issues of law. Accepting as it must, for the purpose of this aspect of the appeal, the facts as found by the trial judge, Irish Asphalt argues nevertheless that there was no breach of the implied condition of merchantability under s. 14(2), and that the implied condition of fitness for purpose under s. 14(4) did not arise. As already mentioned these arguments did not loom large in the High Court where detailed and complex issues of fact and science dominated. However, these matters have been the subject of careful and focussed submissions in this Court.

Merchantability

28. There is no dispute that as this was a sale in the course of business, there was implied into the contract a condition that the goods supplied would be of merchantable quality, pursuant to s. 14(2) of the 1893 Act (as substituted by s. 10 of the 1980 Act). Section 14(3) of the same Act (again as substituted by the 1980 Act) provides a statutory definition of the concept of merchantable quality. It provides:

“Goods are of merchantable quality if they are as fit for the purpose or purposes for which goods of that kind are commonly bought and as durable as it is reasonable to expect having regard to any description applied to them, the price (if relevant) and all the other relevant circumstances, and any reference in this Act to unmerchantable goods shall be construed accordingly.”

29. In simple terms, Irish Asphalt accepts, as it must on the findings of the trial judge and subject to the issues raised by the other grounds of appeal, that the Clause 804 supplied by them was unfit for the purpose of being used as hardcore under the cement floors of the Ballymun building. However, it argues that this does not amount to a breach of the implied condition of merchantability because the Clause 804 was fit for the purpose of being used as hardcore under car parks or non-load bearing areas around the building, where indeed it was used in the course of this development. It is contended that the fact that the product could be used for this separate purpose means that the product was merchantable within the meaning of the 1893 Act.

30. Decisions of the courts of other common law jurisdictions are of persuasive authority. The argument that a product is merchantable if it is shown to be fit for one purpose for which it is used is almost entirely dependent upon the decision of the Court of Appeal of England and Wales in Aswan Engineering Establishment Co. v. Lupdine Ltd & Anor [1987] 1 W.L.R. 1 (“Aswan”), and in particular, the careful analysis of Lloyd L.J. in that case. To understand the legal issue it is necessary to trace the statutory development of s. 14 of the 1893 Act, both in the UK and in Ireland. It is indeed a further complication of this argument that as a result of the statutory changes Aswan is now only of historical interest in the law of the UK and has not been further discussed or analysed in that jurisdiction, but, it is argued, correctly represents the law in Ireland.

31. The concept of statutory implied terms can be traced to the 1893 Act. Section 14 of that Act originally contained versions of the two warranties of merchantable quality and fitness for purpose which are at issue in this case, albeit in different format, and in a different order. Section 14 of the 1893 Act as originally enacted provides: –

“Subject to the provisions of this Act and of any statute in that behalf, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, except as follows:

(1) Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller’s skill or judgment, and the goods are of a description which it is in the course of the seller’s business to supply (whether he be the manufacturer or not), there is an implied condition that the goods shall be reasonably fit for such purpose, provided that in the case of a contract for the sale of a specified article under its patent or other trade name, there is no implied condition as to its fitness for any particular purpose:

(2) Where goods are bought by description from a seller who deals in goods of that description (whether he be the manufacturer or not), there is an implied condition that the goods shall be of merchantable quality; provided that if the buyer has examined the goods, there shall be no implied condition as regards defects which such examination ought to have revealed.”

32. It is notable that the 1893 Act did not originally provide any definition of merchantability. Merchantable quality is, as the Sales Law Review Group chaired by Professor Robert Clark observed in its 2011 Report on the Legislation Governing the Sale of Goods and Supply of Services, an archaic term (p. 157). It is redolent of an earlier age where merchants traded commodities both for use and for resale. As the English and Scottish Law Commissions noted in 1987 in their Report on the Sale and Supply of Goods (Law Com No. 160 and Scot. Law Com. No. 104);

“the word ‘merchantable’ was derived from Victorian cases where (putting the matter at its simplest) the question was, ‘were the goods were of such a quality that one merchant buying them from another, would have regarded them as suitable?’” (para. 3.7)

But the archaic and somewhat mysterious nature of the concept of merchantability also allowed the term to be deployed with some flexibility in assessing whether goods supplied were of adequate or sufficient quality so that a purchaser could not reject them. There was perhaps a tension between different conceptions of “sufficient quality” which was obscured by use of the term “merchantable”. Thus for example, in Bristol Tramways Carriage Co. Ltd v. Fiat Motors Ltd [1910] 2 K.B. 831, Farwell L.J. stated that the term meant that the article is of “such quality and in such condition that a reasonable man acting reasonably would after a full examination accept it” (p. 841). On the other hand in Taylor v. Combined Buyers Ltd [1924] N.Z.L.R. 627, Salmond J. criticised the approach and stated that:

“The term ‘merchantable’ does not mean of good, fair or average quality. Goods may be of inferior or even bad quality but could yet fulfil the legal requirement of merchantable quality. For goods may be in the market in any grade good, bad or indifferent, and yet all equally merchantable.… If the buyer wishes to guard himself in this respect he must expressly bargain for the particular grade or standard that he requires.” (para. 645)

33. This difference of approach reflects perhaps a difference of perspective: from the purchaser’s point of view, ‘acceptability’ is the key feature whereas a vendor will looks to saleability. The development of the law has seen a gradual movement from reflecting the seller’s viewpoint to a position more sensitive to that of the purchaser, especially when a consumer. It can be seen that the 1893 Act is framed in terms of a general rule against any condition or warranty as to fitness to which the terms implied are an exception, whereas today it is probably more realistic to see s. 14 as imposing minimum criteria which in consumer cases cannot be excluded. An influential approach was that of Dixon J. in the High Court of Australia in Australian Knitting Mills Ltd v. Grant (1933) 50 C.L.R. 387 at p. 418, where he suggested that:

“The condition that goods are of merchantable quality requires that they should be in such an actual state that a buyer fully acquainted with the facts and, therefore, knowing what hidden defects exist and not being limited to their apparent condition would buy them without abatement of the price…and without special terms.”

34. This test was referred to with approval by the House of Lords in Henry Kendall & Sons v. William Lillico & Sons Ltd [1969] 2 AC 31. However, relatively few cases have required this degree of analysis of the term ‘merchantable’. For the most part, the term has been sufficiently flexible and sufficiently understood to provide an acceptable vehicle for decisions in individual cases. It is only in particularly difficult and strict cases (and the appellant contends that this is such a case), that the test became difficult.

35. The case of Henry Kendall & Sons v. William Lillico & Sons Ltd is in fact an example of a case which was difficult in this way. In this case, the plaintiff game farmers bought compounded meal from the defendant for feeding to pheasants and partridges and their chicks which they reared for stock and sale. As a result of feeding them this meal, many of the chicks died, or were stunted and unfit for breeding purposes. It was found by the trial judge that this was caused by the presence in the compounded meal of a proportion of Brazilian ground nut extraction which contained a toxic substance known as aflatoxin. The ground nut extraction had been bought from two third parties, which in turn had bought it from fourth parties who had imported it from Brazil. The case was further complicated by the fact that there were different terms and conditions between the relevant parties.

36. The plaintiff recovered damages from the defendant for an admitted breach of the implied terms under both ss. 14(1) and (2) of the 1893 Act, as it then stood. The defendant who produced the feed, in turn, sought an indemnity and damages for breach of contract from the third parties who had supplied the groundnut ingredient, alleging breaches of the same implied terms. The defendant succeeded at first instance and on appeal. In the appeal, the House of Lords held that there was a breach of the implied condition as to fitness for purpose, but it was held by a majority (Lord Pearce dissenting and Lord Wilberforce expressing no opinion) that as the judge had properly directed himself on the meaning of merchantable quality, and on his findings the ground nut extraction was not of unmerchantable quality, there was no breach of the term implied by s. 14(2) of the 1893 Act.

37. The aspect of the case dealing with merchantable quality turned on evidence that ground nut extractions were sold for inclusion in feed stuffs to cattle even when contamination of this nature was detected. On these findings, Lord Reid set out the general principle of sales by description:

“…[I]t is a condition (unless excluded by the contract) that the goods must be of merchantable quality. Merchantable can only mean commercially saleable. If the description is a familiar one it may be that in practice only one quality of goods answers that description – then that quality and only that quality is merchantable quality. Where it may be that various qualities of goods are commonly sold under that description – then it is not disputed that the lowest quality commonly so sold is what is meant by merchantable quality: it is commercially saleable under that description.” (p. 75)

38. On the basis of what Lord Reid described as the somewhat surprising finding that some buyers were ready to buy such ground nut extraction under that description and to pay the ordinary market price for it, the contaminated ground nut extractions were merchantable under the general description of ground nut extractions. At p. 77 of the report, he stated the principle:

“…[I]f the description was so general that goods sold under it are normally used for several purposes, then goods are merchantable under that description if they are fit for any one of these purposes: if the buyer wanted the goods for one of those several purposes for which the goods delivered did not happen to be suitable, though they were suitable for other purposes for which goods bought under that description are normally bought, then he cannot complain. He ought either to have taken the necessary steps to bring subsection (1) [the warranty of fitness for a particular purpose] into operation or to have insisted that a more specific description must be inserted in the contract.”

Lord Pearce dissented on this point and Lord Wilberforce expressed no opinion.

39. In 1973, the law in the UK underwent a significant change. Section 3 of the Supply of Goods (Implied Terms) Act 1973 (“the 1973 Act”) amended s. 14 of the 1893 Act as follows:

“(1) Except as provided by this section, and section 15 of this Act and subject to the provisions of any other enactment, there is no implied condition or warranty as to the quality or fitness for any particular purpose of goods supplied under a contract or sale.

(2) Where the seller sells goods in the course of a business, there is an implied condition that the goods supplied under the contract are of merchantable quality, except that there is no such condition: –

(a) as regards defects specifically drawn to the buyer’s attention before the contract is made; or

(b) if the buyer examines the goods before the contract is made, as regards defects which that examination ought to reveal.

(3) Where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known to the seller any particular purpose for which the goods are being bought, there is an implied condition that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the seller’s skill or judgment.”

40. Furthermore, the interpretation provision of the 1973 Act (s. 7(2)) amended s. 62(1) of the 1893 Act to include a statutory definition of merchantable quality as follows:

“(1A) Goods of any kind are of merchantable quality within the meaning of this Act if they are as fit for the purpose or purposes for which goods of that kind are commonly bought as it is reasonable to expect having regard to any description applied to them, the price (if relevant) and all the other relevant circumstances; and any reference in this Act to unmerchantable goods shall be construed accordingly.”

41. It will be noted that the 1973 Act contains terms very similar to the provisions introduced into Irish law by the 1980 Act. There are a number of significant distinctions between the provisions introduced by the 1973 Act in the UK and the 1980 Act in Ireland, and their common 1893 predecessor. First, the warranty of merchantable quality is no longer limited to sales by description. The warranty now applies to any sale in the course of business. Second, the statutory definition of merchantable quality makes it clear that there is an overlap between the warranty of merchantable quality and that of fitness for purpose since it defines merchantable quality in part by reference to the question whether the goods are “as fit for the purpose or purposes for which goods of that kind are commonly bought”. Third, that definition makes specific reference to price which, it will be recalled, was referred to by Dixon J. in Australian Knitting Mills Ltd v. Grant. Fourth, and significantly for the present purposes, the definition refers to fitness for the “purpose or purposes” for which the goods of that kind are commonly bought. The 1973 UK Act also made a number of other important changes, not least the introduction of the concept of consumer sales from which it was not permissible to exclude the terms implied’ which were later adopted in the Irish legislation.

42. To complete the development of the statutory provisions, it is necessary to observe that the Sale of Goods Act 1979 (“the 1979 Act”) in the UK reorganised the terms of s. 14, making some minor amendments, and bringing the definition of merchantable quality into s. 14 at subs. (6). It is to this Act that the later UK cases refer, although of course the main substantive changes were made in the UK in the 1973 Act. In 1980, the Oireachtas updated the 1893 Act in Irish law so that the statute law in Ireland was broadly similar to that in the UK at that time, as seen above. More specifically, the definition of merchantable quality was brought within s. 14 and placed at subs. (3), and the concept of durability was included in the definition of merchantability. However, nothing turns on that term in these proceedings. Thus, when seeking to understand the argument made on the basis of the decision in Aswan, an important starting point is that the statutory provisions in issue in these proceedings are essentially identical to those contained in the 1979 Act which was the applicable law in the UK at that time.

43. Section 1 of the Sale of Goods and Supply Act 1994 (“the 1994 Act”) in the UK effected a further significant change in replacing the concept of merchantable quality with an implied warranty of “satisfactory quality” which itself was defined as meeting a standard “that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances”. That Act also took the opportunity of amending s. 14 of the 1979 Act to include the concept of durability in the definition of satisfactory quality, but for present purposes it is also significant because it expressly defined the quality of goods as including “fitness for all the purposes for which goods of the kind in question are commonly supplied” (s. 1(2B)(a)). Finally, the Report of the Sales Law Review Group in 2011 on legislation governing the supply of goods and the supply of services, recommended the introduction of a concept of satisfactory quality in place of the warranty of merchantable quality (p. 17). From this recital, it can be concluded that insomuch as this case involves an interpretation of the statutory definition of merchantability in the 1980 Act, the terms in which that definition is couched are effectively identical to the statutory definition of merchantability in the law of the UK between 1973 and 1994. Thus, any decision of the UK courts from that period which considers the statutory definition may be of assistance when considering the Irish legislation.

44. The facts of the Aswan case were quite extreme. The plaintiff, a construction company conducting business in Kuwait, bought from the first defendant (Lupdine) a consignment of waterproofing compound in plastic pails for shipment to Kuwait. The pails had been supplied to the defendant in turn by the second defendant, Thurgar Bolle Ltd. Before the hearing, Lupdine went into liquidation and the issue became the liability, if any, of the second named defendant either in tort to the plaintiff or in contract to the first defendant. One of the issues which arose was the extent to which it could be said that the plastic pails failed the implied condition of merchantable quality, and whether the implied condition as to fitness for purpose arose.

45. The pails of waterproofing compound were shipped stacked 5-6 pails high in a container. When the container arrived at Kuwait it stood on the quayside in the sunshine. The temperature rose to 70º centigrade (150º Fahrenheit). Unsurprisingly, the pails collapsed and the water-proofing compound was lost. Importantly, the evidence was that the pails, stacked in the configuration in which they were, could still have resisted temperatures up to 52º centigrade (122º Fahrenheit) and would even survive the 70º centigrade heat if they had not have been stacked on top of each other. There was also evidence that the pails had been used for export to other parts of the world without mishap.

46. The central issue was Lupdine’s claim to be indemnified by Thurgar Bolle and that issue turned principally on the question of whether there had been a breach of the implied term as to merchantability. The claim failed both at first instance and in the Court of Appeal. At first instance, Neil J. found simply that the pails were of merchantable quality, observing that they had very nearly survived the extreme conditions created by intense heat of an enclosed container in the Gulf. The analysis in the Court of Appeal was however much more detailed. It appears to have been argued that the introduction of the word “purpose or purposes”, and in particular, the use of the plural in the 1973 Act (and re-enacted in the 1979 Act) meant that the pails were required to be fit for all the purposes for which they were sold. It was thus argued that, since they failed in Kuwait, they were not fit for at least one of the purposes for which they were sold and were not merchantable. On behalf of the supplier of the pail, Thurgar Bolle, it was argued that the statutory definition then contained in s. 14(6) of the 1979 Act made little if any change to the existing law, and the fact that the pails were manifestly generally fit for the purposes for which they were sold meant that they were of merchantable quality.

47. Lloyd L.J. conducted a careful and impressive analysis of the law of merchantability prior to the enactment of the 1973 Act. He concluded that the definition of merchantability did not alter the law as laid down in Henry Kendall & Sons v. William Lillico & Sons Ltd (also reported as Hardwick Game Farm v. Suffolk Agricultural Poultry Producers Association) [1969] 2 AC 31 (“Hardwick Game Farm”)). While accepting that the contrary argument was attractive, he concluded that the true position was that the statutory enactment of the definition of merchantability was as accurate a reproduction of the test advanced by Lord Reid in the Hardwick Game Farm case as it was possible to compress in to a single sentence. It was however necessary to explain why the plural “purposes” had been used in the statute. Lloyd L.J. took the view that this could be traced to the fact that, as pointed out in the Hardwick Game Farm case, goods of any one kind may be sold under more than one description corresponding to different qualities. He explained the significance he attributed to this in the following important passage:

“To take the facts of the present case, heavy duty pails are no doubt higher quality than ordinary pails, and for that reason no doubt command a higher price. Pails which are suitable for the lower quality purpose may not be suitable for the higher quality purpose. It would obviously be wrong that pails sold under a description appropriate to the higher quality should be held to be merchantable because they are fit for a purpose for which pails are sold under the description appropriate to the lower quality. Since the definition presupposes that goods of any one kind may be sold under more than one description, it follows that the definition had, of necessity, to refer to more than one purpose. In my opinion, this is the true and sufficient explanation for the reference to “purposes” in the plural. The reference to the purpose in the singular was required in order to cover one-purpose goods, such as the pants in Grant v. Australian Knitting Mills Ltd., 50 C.L.R. 387. It would be wrong to infer from the use of the phrase “purpose or purposes” that Parliament intended any such far-reaching change in the law as that for which Mr. Aikens contends.” (p. 13)

48. The analysis in Aswan was central to the argument made by Irish Asphalt in this case and we were invited to adopt the analysis in Aswan as a correct statement of Irish law. It was argued that Clause 804 was sold for a number of purposes, initially for the purposes of road construction, but also for hard core under floors, as here, and as general hard core for car parks and open areas which were not load-bearing. Those areas had not been remediated by Elliott Construction when it removed the Clause 804 material from the youth facility and replaced it. Accordingly, it could be inferred, it was argued, that the product could be satisfactorily used at least for that purpose. On that basis, it was fit for at least one of the purposes for which it was commonly sold and had indeed been sold for that purpose in this case. On the analysis in Hardwick Game Farm, it was of merchantable quality. Aswan was at least persuasive authority that the changes effected in the UK in 1973, and introduced in Ireland, did not as a matter of law affect the conclusion in the Hardwick Game Farm case, and thus, the Court should hold that the Clause 804 material was of merchantable quality.

49. It was frankly acknowledged that the subsequent development of the law in the UK and elsewhere, until the amendment of the statutory definition in 1994, was less clear-cut. In Rogers v. Parish (Scarborough) Ltd. [1987] Q.B. 933 (“Rogers v. Parish”), a differently constituted Court of Appeal had to confront a similar argument in the context of a consumer contract, in that case the purchase of a Range Rover motor vehicle. The plaintiffs purchased a Range Rover which was sold as new but proved to be defective and another Range Rover was substituted for it. On delivery, however, the engine, gear box and bodywork of the replacement were substantially defective, and oil seals at vital junctions were unsound, causing significant quantities of oil to escape. There were a number of unsuccessful attempts made by the garage to rectify the defects. At the end of a six month period, the engine was still misfiring, excessive noise was being emitted from the gear box, substantial defects remained in the body work, and the plaintiffs rejected the vehicle. The plaintiffs then brought an action for a declaration that there had been a breach of the implied condition as to merchantable quality, and that they had been entitled to repudiate the contract. The judge at first instance found that since none of the defects had rendered the vehicle unroadworthy, unstable or unfit, it was reasonably fit for its purpose which was that of driving, and it was accordingly of merchantable quality.

50. Perhaps unsurprisingly, the decision was overturned on appeal. It is one of the additional difficulties of this line of authority that Aswan was not among the authorities cited to the Court of Appeal, possibly because it had only recently been decided, and may have not have been reported at that time. However, the arguments for the unsuccessful defendant in Rogers v. Parish were almost precisely those which had succeeded in Aswan. At p. 937, counsel is recorded as relying on the decision of the House of Lords in the Hardwick Game Farm case for the proposition that the vehicle, being commercially saleable and useable for a secondary purpose, albeit at a lower price than the plaintiffs had paid, was not therefore unmerchantable, and the plaintiffs were entitled to no more than the difference between the price they paid and the value at which the vehicles were commercially saleable. It was also argued that the 1973 Act, while inserting a statutory definition of merchantability, did no more than codify the law as the House of Lords had stated it in Hardwick Game Farm, relying in that regard on the observations of Lord Denning in Cehave N.V. v. Bremer Handelsgesellschaft M.B.H. The Hansa Nord [1976] Q.B. 44 at p. 62, a decision also referred to and relied on in Aswan.

51. The Court of Appeal (Mustill and Woolf L.JJ. and Sir Edward Eveleigh) unanimously rejected this argument. In particular, the court disapproved of the suggestion that the 1973 Act should be interpreted in the light of decisions under the 1893 Act. Mustill L.J. said at pp. 942 – 943:

“In the course of argument before us our attention was drawn to various expressions of opinion in cases decided before the enactment of the 1973 legislation as to the precise significance of the term “merchantable quality.” In my judgment this is not a practice to be encouraged. The Act of 1973 was an amending Act and it cannot be assumed that the new definition was included simply because the draftsman saw a convenient opportunity to reproduce in more felicitous and economical terms the gist of the speeches and judgments previously delivered. The language of section 14(6) is clear and free from technicality, and it should be sufficient in the great majority of cases to enable the fact-finding judge to arrive at a decision without exploring the intricacies of the prior law. In my judgment the present case is not one of those exceptional cases where it may be necessary to have recourse to the former decisions in order to give the full meaning to the words of the subsection.”

52. The Court then addressed the argument that since the vehicle was capable of starting and being driven safely from one point to the next on public roads, and whatever other service the car was supposed to be able to negotiate, it must necessarily be merchantable. Mustill L.J. firmly rejected that contention:

“I can only say that this proposition appears to have no relation to the broad test propounded by section 14(6) [the definition of merchantability] even if, in certain particular circumstances, the correct inference would be that no more could be expected of the goods sold.” (p. 944)

53. He then pointed out that the purpose for which goods of that kind, i.e. a new motor vehicle, were bought included not just travelling from one place to another, but doing so with the appropriate degree of comfort, ease of handling, reliability and indeed pride in the vehicle’s outward and interior appearance. Accordingly, he had no difficulty in concluding that the Range Rover was not as fit for the purposes the buyer could reasonably expect. Woolf L.J. was also of the same opinion as to the inappropriateness of having recourse to authorities which were dealing with the different provisions of s. 14 of the 1893 Act.

54. As it happens, the Australian Trade Practices Act 1974 also incorporated amendments to the implied terms of merchantability and fitness for purpose, which are essentially similar to those which were introduced by the Act in UK in 1973. In Cavalier Marketing (Australia) Pty Ltd v. Rasell & Anor (1990) 96 A.L.R. 375 (“Cavalier Marketing”), the Supreme Court of Queensland, which was referred to both decisions and firmly preferred the approach in Rogers v. Parish to Aswan. In Cavalier Marketing, the goods supplied were a carpet, which on installation showed evidence of reverse piling which affected its colour and shading. It was argued that the carpet was fit for the purpose of floor covering in terms of physical quality and manufacture, which was the purpose for which a carpet was commonly bought. Thus it was said to be merchantable notwithstanding the reverse piling. One member of the court, Cooper J., addressed the divergence in the authorities and indeed in the academic commentary on the new provisions. Page 400 of his judgment contains three passages which encapsulate his approach to the section:

“I am not persuaded that the approach of Lloyd LJ in Aswan Engineering is a correct approach to statutory interpretation. The words of the statute ought to be given their ordinary meaning. The statutory definition so construed is capable of operating without absurdity or ambiguity, no occasion to refer to the previous common law as an aid to construction arises …

…I agree with the observations of Mustill and Woolf LJJ in Rogers. It is unnecessary and undesirable to look to the common law definition of merchantability for the purpose of construing section 66(2) and section 74(g)(1) and (3) of the Act. The common law tests relates to saleability of goods. They are tests of merchants and are more appropriate to commercial sales. The provisions of s.66(2) and s.74(d)(3) are quite different and focus on the reasonable objective expectations of a consumer as defined. They are not concerned with the goods purchased for resale, although indirectly a consumer may purchase goods with the ultimate view of resale e.g. a family motor vehicle. Further the legislation ought to be interpreted against the background of its remedial character giving consumers rights and protection which previously were not available. The definitions in s.66(2) and s.74(d)(3) are comprehensible and flexible and ought to be directly applied, in accordance with their terms, to the many and varied facts and situations which they may apply. …

Goods may have more than one normal purpose … In my view as a matter of construction and as a matter of legislative intent, the section requires that all normal purposes for which goods are commonly bought be brought into consideration. Fitness is tested against each of these purposes and none are to be excluded. The decision is otherwise if the terms of the contract as supplied between the direct supplier to the consumer (including any description applied to the goods by that supplier) or alternatively any description applied by the corporation (i.e. manufacturer/importer/distributor) the goods requires that a particular normal purpose be excluded. Such a construction is reasonable in both the interests of the consumer and the corporation. First, it addresses and responds to the reasonable expectations of the consumer at the time of acquisition of goods that they will be fit for all their normal purposes, subject to the terms of the contract of supply to which the consumer has agreed. Secondly it addresses the reasonable expectations of the corporation as to the purpose or purposes to which the goods will be put. Thus the corporation may by the description, if any, it attaches to the goods, the price it receives and any other relevant circumstances place goods in circulation in such a manner that the corporation may delineate the relevant purpose or purposes itself. ….”

55. The final case in the sequence is Rotherham Metropolitan Borough Council v. Frank Haslam Milan & Co. Ltd & Anor [1996] C.L.C. 1378 (“Rotherham”). Although decided in 1996, the case concerned works done between March and July 1979. Therefore, it was decided by reference to the provisions of the 1979 Act. The facts of the case bear a superficial resemblance to the facts of the present case.

56. The defendant contractor was employed by the plaintiff Borough Council as contractor for the erection of a new five storey office building to be used as civic offices. Phase one involved site preparations and foundation work. The bill of quantities referred to granular hard core which was to be graded or uncrushed gravel stone or rock, filled crushed concrete, or slag. It was accepted that the granular fill material supplied included steel slag, and that in fact such steel slag, in confined conditions, was subject to expansion, and did expand so as to cause cracking to the reinforced concrete slabs and damage to the building.

57. The claim in the Rotherham case was by the client against the builder. In other words, it was the equivalent of a claim made by Ballymun against the Elliott Construction in these proceedings. As such, it was not a claim for sale of defective goods, but rather provision of services alleged to be defective by the supply of the product. It was however, accepted that the same principle supplied in such a case as in a claim for breach of the terms implied on a sale of goods. The plaintiff Borough Council succeeded at first instance in establishing both a breach of the implied term as to fitness for purpose and the merchantability. In the Court of Appeal, the decision was reversed. The principal focus of the case was the implied term of fitness for purpose. The Court accepted that the specific purpose for which the product was used was made known to the contractor since the specifications made it clear that it would be used in a confined space as foundation material. However, the Court concluded that the circumstances showed that the plaintiff had not relied on the contractor’s skill and judgment, principally because the material was specified by the plaintiff’s architect. The case was treated as one in which the question to be resolved was who should bear the risk of the damage to the building caused by the fill used around the foundations, the professional persons who specified the material or the contractors who supplied it? The Court appears to have been influenced by the fact that there was some developing knowledge about the capacity of steel slag to expand, and that the architects and engineers specifying it were in a better position to know that than contractor who bought material for suppliers to fill a contractual specification. In the circumstances of the case, the Court held that the plaintiff had not relied on the skill and care of the contractor. It will be necessary to return to this analysis when considering the claim under s. 14(4).

58. However the decision also dealt with the claim that there was a breach of the implied term as to merchantability which it was accepted formed part of the contract between the plaintiff Borough Council and the defendant contractor. That was dealt with as subsidiary to the main argument on fitness for purpose and appears to have been influenced by the conclusion to which the Court came on that point. Unfortunately, although the Court was referred to the Hardwick Game Farm case and Aswan, there was no reference to Rogers v. Parish or to Cavalier Marketing.

…..

67. Since, however, the High Court addressed the substance of this issue, and since questions of the interpretation of s. 14 of the 1893 Act (as amended) rarely reach this Court, it is desirable to address the substantive legal issue. On the assumption, therefore, that it was demonstrated that there was a use for which the Clause 804 was saleable to a purchaser aware of the pyrite content and its propensity to swell and heave, then we are of the view that that fact alone would not be sufficient to render the product supplied to the respondent merchantable within the meaning of s. 14 as substituted.

68. First, the Aswan decision is complicated by the fact that the result seems plainly correct. The pails were very robust and almost withstood extraordinary heat to which they were subjected, and would indeed have withstood even that heat if not packed on top of each other in a manner which increased the pressure on the pails. But we doubt, with respect, that it could properly be said that there were two separate purposes involved here, or indeed, that the purpose of the storage of waterproofing compound in Kuwait could be said to be a separate and distinct purpose from that for which for which the pails were commonly sold. It seems more natural to consider that the purpose for which the pails were sold, whatever the location, was a single one: the storage of waterproofing compound or perhaps more generally, other bulk liquids for transport and storage. That was the purpose for which the pails were commonly used and sold, and taken as a whole, the pails were as fit for that purpose as it was reasonable to expect. This was indeed, it appears, the basis upon which the judge at first instance had rejected the plaintiff’s claim. We consider that this is a more plausible and practical approach to this case. Indeed, the fact that it is possible to characterise the same product as either having different purposes or a single purpose expressed at a more general level of abstraction, suggests that there are significant limits to the applicability and utility of this line of argument.

69. Second, we consider in any event that the approach to statutory interpretation in Roger v. Parish and Cavalier Marketing, is preferable to that in Aswan. The normal purpose of statutory amendment is to change the existing law. It may on occasion be useful to address the prior law if only to illustrate the area of change, but it would be unusual to approach a statutory provision on the basis that it did no more than restate the existing law. Indeed, if the definition of merchantable quality was intended to simply express in a slightly more compressed form what had already been said by Lord Reid in the Hardwick Game Farm case, it is difficult to see what would be achieved by attempting to put in statutory form what had already been laid down by the highest court in that jurisdiction.

70. Third, the purpose of the 1973 Act and the 1980 Act was to effect significant changes in the law generally, and in particular to shift the balance of the law somewhat in favour of the purchaser, and indeed to establish the concept of consumer sales in which it would not be possible to exclude the implied terms. It might be said that the changes to the concept of merchantability were quite marginal, but these cases, as the difference of judicial opinion shows, were at the margins, and it is not inconceivable that small changes of definition might alter the outcome of such cases.

71. Fourth, taken on its face, the terms of s. 14(3) are clear, easy to apply, and by no means absurd. There is no reason to advance or accept a more sophisticated meaning. The words “purpose or purposes” when applied in their ordinary sense are both capable of application and produce a sensible result. On the other hand, it is, and with respect, not easy to interpret the words as expressing Lord Reid’s definition in a more compressed form. It is necessary to hypothesise the purpose for which goods are most “commonly bought” for which they are nevertheless, unfit. If this is indeed the case, it is difficult to see why there should be any reluctance to find such goods to be not of merchantable quality. The emphasis on description, while understandable in the context of the 1893 Act where the applied term as to merchantability only arose on sales of description, is less appropriate in the context of the modern legislation

72. Furthermore, the example proffered in Aswan of the circumstance of sale of the same goods by different descriptions, and, therefore, justifying their reference in the plural to “purposes” is not, in our view, persuasive. It was said that heavy duty pails were of higher quality than ordinary pails and for that reason might command a higher price. Pails which are suitable for the lower quality purpose may not be suitable for the higher quality purpose. It would however be obviously wrong that pails sold under the description appropriate to the higher quality should be held to be merchantable because they are fit for a purpose for which pails are sold under the description appropriate to the lower quality. In such a circumstance, it would seem more natural to conclude by reference to the statutory definition, that the more expensive heavy duty pails were not of merchantable quality because they were not fit for the purpose (singular) for which they were sold, having regard to the description applied to them and the price. In any event, this complex interpretation seems an unlikely one to ascribe to a drafter who has used plain and simple language.

73. Finally, and from a broader perspective, it was argued that the interpretation adopted in Rogers v. Parish and Cavalier Marketing, and in the High Court in this case, shifts the dividing line between the merchantability term and the fitness for purpose term, to the point where the fitness for purpose term is virtually obliterated. However, the history of the development of the formulation and interpretation of the terms traced so carefully in Aswan and elsewhere, is of the gradual elevation of the merchantability term, which means, almost inevitably, that the fitness for purpose term has less work to do. This, in itself, is not a reason to reject the interpretation of the High Court. Furthermore, it is perhaps inaccurate to speak of a ‘dividing line’ between the terms. Both terms now address fitness for purpose, and there is an unavoidable, and intended, overlap between them. Indeed, the fitness for purpose term is capable of covering all the ground dealt with by the merchantability term and more. While the fitness for purpose term applies most naturally in the area of special or unusual purposes, it is in principle capable of applying to any purchase. For example, even if the implied term as to merchantability arises, if the purchaser makes known to the seller the purpose for which the goods are bought, then, even if that is the sole purpose for which such goods may be sought, the purchaser can succeed under the implied term as to fitness for purpose as well as the implied term as to merchantability. It is thus perhaps more accurate to say that the end result of the interpretation adopted in the High Court is that the area which is covered for the fitness for purpose term alone, is reduced to special or uncommon purposes but we see no reason why that should lead to a different interpretation of the term ‘merchantable’. A narrow reading of the merchantability term is often justified by the argument that, if the purchaser wishes greater protection, he or she can always invoke the fitness for purpose term by making known the purpose for which the product is sought, and relying on the seller’s skill. This is so, but is hardly a compelling reason to adopt a narrower interpretation. There also must be limits to this type of argument since it assumes, touchingly but unrealistically, that parties negotiating sales are avid consumers of the decisions on the Sale of Goods Act and its various amendments. But even if this approach is taken, it still seems more sensible to adopt the Rogers v. Parish approach. A seller may be more knowledgeable about the purposes to which the product is put than the purchaser. A purchaser may not know that there are multiple uses for the product. He or she may consider that the use for which they are buying the product is the obvious and only use for the product. But, on the Aswan reasoning, the product, though unfit for that purpose (being perhaps the overwhelmingly obvious purpose for the product), can nevertheless be merchantable, if it is suitable for some purpose of which the buyer may be entirely unaware. In such circumstances, the purchaser may not even know of these matters, or their legal consequences, and thus may be unaware of the importance, and indeed necessity, of seeking to bring into play the warranty of fitness for the particular purpose for which he or she has brought the product.

74. Finally, at the level of principle, an interpretation of the provision which imposes the risk (at least initially) upon the seller rather than the purchaser, is sensible and logical. Sellers are normally much more aware of the use to which their products can be put than individual buyers. Increased use will increase demand, and, therefore, the price for the goods, even when used for the original purpose. It is perhaps noteworthy that one of the innovations in the 1980 provisions is the reference to the price at which the product was sold being a component of merchantability. For these reasons, we have come to the conclusion that Irish Asphalt’s contention must fail, and that the High Court was right to hold that the Clause 804 as applied here was not of merchantable quality.

Fitness for Purpose

75. The trial judge also found that Irish Asphalt was in breach of the condition implied pursuant to s. 14(4) of the 1893 (as substituted by s. 10 of the 1980 Act). It may be helpful to set that section out in full:

“Where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known to the seller any particular purpose for which the goods are being bought, there is an implied condition that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the seller’s skill or judgment.”

76. It is of course apparent that this is closely related to the implied condition as to merchantable quality, since both address both the question of fitness for purpose, and the purpose for which goods are commonly bought or supplied. As already observed, there is on any interpretation, a significant degree of overlap between the two provisions. It is however important to distinguish between them. There are some distinct features of s. 14(4). First, whereas the condition as to merchantable quality arises once there is a sale of goods in the course of business, the term implied under s. 14(4) does not arise until the buyer does something. He or she must expressly or by implication make known to the seller any particular purpose for which the goods are being bought. A second distinctive feature of s. 14(4) is the concept of reliance. The section presumes reliance on the seller’s skill and judgment. This is shown by the fact that the implied condition does not arise if reliance is negatived in fact, or if reliance would be unreasonable. By contrast, the implied condition under s. 14(2) arises whether or not there is reliance, and is not negatived by proof of its absence. Finally, the question of the seller’s skill and judgment only arises in the context of s. 14(4). Again by contrast, the condition of merchantability under s. 14(2) arises on sale, and cannot be negatived by proof that the seller has used the utmost skill and judgment to ensure that the product is of merchantable quality. That is also the case under s. 14(4), but the reference to skill and judgment suggests perhaps, that the implied condition would normally be thought to arise in circumstances where the question is the selection and appropriateness of goods for the particular task rather than the inherent, and perhaps latent, defect in the goods. The implied condition is broad enough to cover the latter situation but it is not perhaps its primary focus.

77. The evidence and decision in this matter are contained in paras. 246 and 247 of the judgment of the High Court. The relevant evidence was the cross-examination of Patrick Elliott, the principal of the plaintiff firm, Elliott Construction. Mr Elliott accepted that he did not supply any copies of the Ballymun Regeneration contract to Irish Asphalt from which it follows, none of the drawings would have been supplied to that company. This is to be expected. Elliott Construction merely ordered from a supplier, in this case Irish Asphalt, a product which had been specified by the professional advisers to Ballymun. Mr Elliott agreed that he did not ask anyone from Irish Asphalt to come and look at the site, but pointed out that that firm visited the site regularly with their deliveries. Elliott Construction did not tell Irish Asphalt specifically that it was going to use the Clause 804 under the building. Mr Elliott considered however that that was implied because “why else would we have been buying the Clause 804 off them, it’s a structural infill material…”. He said:

“They [Irish Asphalt] knew we were a general building contractor and not engaged in civil engineering and road building works and works of that nature. They knew that we were primarily into, you know, building factories and buildings like the Youth Centre and such around Dublin…”.

The trial judge accepted the evidence of Mr Elliott who he considered to be honest. He concluded that the material was not reasonably fit for a purpose which had been made known to the seller.

78. It is clear that this was a subsidiary issue in the trial. Furthermore, in circumstances where this Court has upheld the finding of a breach of the condition as to merchantability, it becomes less important to determine whether or not there was a breach of s. 14(4). However, in view of the conclusion of the High Court Judge, the view we have taken of it, and the importance of clarity in this area, it is necessary to consider the matter.

79. While s. 14(4) might apply most classically in the case of a purchaser asking a vendor’s advice as to whether a particular product is suitable for some particular purpose, it is not necessary that anything so formal or pedantic should take place. In many cases, it would be apparent that the particular purpose has been made known by implication, and it is the circumstances, rather than any express evidence, which may show that the buyer does, or does not, rely on the seller’s skill and judgment. Furthermore, while there are a number of different components to the section, it is important to keep in mind that it is a single provision, and that, in most cases, the relevant evidence will be short, and will satisfy all the components of the section, both positive and negative.

80. One distinctive feature of the section, and in contra distinction to s. 14(2), is that, as already observed, it is triggered by the purchaser doing something. This is of some importance because it is the making known of the purpose which gives rise to the circumstances which may demonstrate that the buyer does not rely, or that it is unreasonable to rely, on the seller’s skill and judgment. Therefore, it is not enough that the evidence shows that the seller knows the purpose for which the product is used. There must, at some basic and even rudimentary level, be some circumstances from which it is fair to say that the buyer made that purpose known to the seller. In our view, the evidence goes so far as to demonstrate that the seller probably knew that one of the purposes for which the Clause 804 was ordered by Elliott Construction was to be used under the building at foundation level, but there is no evidence from which it can be said that it was made known to the seller by the buyer as envisaged by s. 14(4). By the same token, and in this respect, applying similar analysis to that in the Rotherham case, we conclude that the circumstances in this regard show that Elliott Construction did not rely on Irish Asphalt’s skill or judgment. Elliott Construction did not itself exercise any thought as to the appropriateness of this Clause 804 for the contract. It was specified, by the employer, on the advice of its professional advisors, and Elliott Construction was required to obtain it. There was no room in that transaction for reliance by Elliott Construction on Irish Asphalt’s knowledge, skill or judgment, as if Elliott Construction relied on anyone’s skill or judgment, it was by implication that of the persons specifying the Clause 804 for this purpose, although it might be more realistic to say that, in that regard, Elliott Construction was simply complying with its contractual obligations. Accordingly, we conclude that no implied condition arose under s. 14(4) of the 1893 Act, as substituted by s. 10 of the 1980 Act. Since, however, we have also concluded that there was a breach of the implied condition as to merchantability, this conclusion on s. 14(4) does not affect the outcome of the case.

Incorporation of Terms and Conditions

81. The next issue that arises for consideration is the question as to whether or not Irish Asphalt’s terms and conditions of sale were incorporated into the contract or contracts between it and Elliott Construction. This issue was considered by the learned trial judge at paras. 248 to 257 of his judgment under the heading “Notice”. The trial judge rejected the argument that the terms and conditions of sale were notified by Irish Asphalt to Elliott Construction. The learned trial judge came to the conclusion that the same were not so notified, and Irish Asphalt has appealed from the findings of the trial judge in that regard.

82. Irish Asphalt sought to rely on the terms and conditions by reason of the provisions of Clause 8 thereof which have the effect of limiting its liability in the event of goods being defective. Clause 8 is in the following terms:

“In the event of goods being delivered which are defective, the company’s liability shall be limited to the cost of their replacement. In no circumstances shall the company be liable for any of their loss arising directing or indirectly from the supply of defective materials.”

There may be some debate as to the precise meaning of the phrase “the cost of their replacement” in Clause 8, but there is no doubt that the effect of the clause sought to be relied on by Irish Asphalt is to significantly limit its liability to a party to whom it has supplied goods arising out of any defect in those goods. It is also helpful to refer to a clause which appeared on delivery dockets furnished by Irish Asphalt, which contain the following words:

“This material is sold subject to the terms and conditions available on request. White to accounts – pink to customer – blue to haulier – yellow to file.”

83. The Court was referred to a considerable number of academic works and to a large volume of case law on the subject of incorporation of terms and conditions, particularly those containing exemption clauses, in the course of the hearing. The observation contained in Clark, Contract Law in Ireland (Dublin; Round Hall; 2013; 7th ed.) at p. 221 seems apposite:

“The Irish judges, like their English brethren, have struggled with the problem of incorporation because the tests advanced have varied from time to time.”

84. Terms and conditions can be incorporated into a contract in a number of ways . Irish Asphalt has relied on the following in arguing that the terms and conditions were incorporated into the contract:

(1) Incorporation by signature;

(2) Actual notice of the terms and conditions by reference to three credit notes;

(3) Reasonable notice by reference to delivery dockets both during the course of the Ballymun Regeneration Project and in the course of earlier projects;

(4) Incorporation by means of a course of dealing;

(5) Incorporation by reference.

Contractual Documents

85. An important part of Irish Asphalt’s argument on the issue of incorporation concerned the status of the delivery dockets, and how they should be viewed in the context of the contracts as a whole. It was submitted on behalf of Irish Asphalt that each individual delivery was a separate contract. Counsel for Irish Asphalt submitted that the delivery dockets were contractual documents, and that the signing of those dockets by Mr Hannay, the site foreman of Elliott Construction, created, or alternatively, evidenced, the contracts. Thus, counsel submitted that on each occasion, an individual contract for the sale of Clause 804 took place, and that the contract must have included the terms and conditions relied on because of the proviso as to terms and conditions contained in the delivery dockets signed by Mr Hannay.

86. The delivery dockets were described as contractual documents by Elliott Construction in its replies to particulars, wherein it was stated: “The contractual documentation consists of delivery dockets and invoices”. The characterisation of the delivery dockets in the replies to particulars as contractual documents does not of itself answer the question as to whether or not the delivery dockets are contractual documents, or, more importantly, whether the terms and conditions of Irish Asphalt were incorporated into the contract either by signature or by reference.

87. Counsel on behalf of Elliott Construction, contended that, insofar as the terms of the contract were concerned, they were negotiated prior to the involvement of Mr Hannay. While it was accepted that there were individual contracts created on each occasion that the foreman on site ordered a specific load, the foreman did not have any involvement in the negotiation of price, or in relation to the acceptance or otherwise of any terms and conditions. The pre-existing terms as to price were those agreed between the principals of the respective parties. In his submissions, counsel for Elliott Construction made reference to the High Court decision (Finlay Geoghegan J.) in the case of Noreside Construction Limited v. Irish Asphalt [2011] IEHC 364 (“Noreside”) which is under appeal to this Court. While not relying on the judgment in that case on the subject of contractual documents by way of precedent, counsel for Elliott Construction relied on the analysis contained in that judgment as to the role of the delivery dockets:

“In my judgment on the facts herein, the delivery dockets had a contractual purpose in the sense of being a document used in the execution of the contract which came into existence on 26th March, 2003. They did not have contractual effect in the sense of making or varying a contract. Having regard to the system operated by both parties for the performance of the supply contract agreed on 26th March, 2003, neither a reasonable man nor any haulier or site operative signing a delivery docket on behalf of the plaintiff would have understood that his signing of the delivery docket potentially varied the terms of the contract already agreed according to which the aggregate was being supplied by the defendant to the plaintiff.” (para. 38)

88. Counsel for Elliott Construction pointed out that the delivery notes were for the most part signed by Mr Hannay who was the site foreman, but were not always signed by someone at his level. It was also stated that Mr Hannay had no authorisation to do anything in relation to the delivery notes, other than to confirm the amount shown on the delivery docket was the amount that was in fact delivered, thus confirming that Elliott Construction had received that amount of product.

89. The Court is of the view that there was an overarching contract between the parties or a “master contract” for the supply of goods for the Ballymun project which identified, inter alia, the goods required, the price for the goods, and the credit terms applicable to the sale of those goods. After that, a series of separate contracts were made for the sale and supply of Clause 804 during the course of the Ballymun Regeneration Project. It is in that context that the Court will consider the nature of the delivery dockets.

90. Counsel for Irish Asphalt relied on a number of authorities in support of its arguments including the decision in the case of Spurling Limited v. Bradshaw [1956] 1 WLR 461 (“Spurling”) in which the United Kingdom Court of Appeal considered the status of a “landing account”. The defendant in that case had dealings with the plaintiff warehousemen, and delivered to them a number of barrels of orange juice for storage. A few days later, the defendant received a “landing account” which, on its face, referred to conditions printed in small type on the back. Those conditions included an exemption clause. The barrels, when collected, were found to be empty, or in such damaged condition as to be useless. The warehousemen sued for charges due for storage and the defendant counterclaimed for damages for breach of an implied term of the contract of bailment to take reasonable care of the barrels. Denning L.J. (at p. 467) commented:

“It is to be noticed that the landing account on its face told Mr. Bradshaw that the goods would be insured if he gave instructions; otherwise they were not insured. The invoice, on its face, told him they were warehoused ‘at owner’s risk’. The printed conditions, when read subject to the proviso which I have mentioned, added little or nothing to those explicit statements taken together.

Next it was said that the landing account and invoice were issued after the goods had been received and could not, therefore, be part of the contract of bailment: but Mr. Bradshaw admitted that he had received many landing accounts before. True he had not troubled to read them. On receiving this landing account, he took no objection to it, left the goods there, and went on paying the warehouse rent for months afterwards. It seems to me that by the course of business and conduct of the parties, these conditions were part of the contract.”

91. In the circumstances, the warehousemen were able to rely on the exempting conditions and were able to recover their charges whilst the defendant’s counterclaim was dismissed. Counsel for Elliott Construction, in his submissions, noted that the landing account had been received by the plaintiff on many occasions in the course of his dealings with the defendant, and for that reason, it had the effect of putting the plaintiff on notice of the contractual terms which it contained.

92. It is clear that the Court of Appeal in that case was not concerned with the fact that the landing account was issued after the goods had been received. As the landing account and invoice with the terms and conditions containing the exemption clause had been provided to the defendant on many previous occasions, the Court concluded that, by the course of business and conduct between the parties, the terms were incorporated into the contract.

93. The case of British Road Services Ltd v. Arthur v. Crutchley & Co. Ltd (No.1) [1968] 1 All E.R. 811 (“British Road Services Ltd v. Arthur”), involved a delivery note issued in the course of a contract of bailment. Under a long established course of business between the plaintiff carriers and the defendants, delivery notes for goods transported by the plaintiffs and delivered at the defendants’ warehouse in the course of trans-shipment at Liverpool would be handed back to the plaintiffs’ lorry drivers, on the defendants receiving the goods, stamped “Received on AVC [that is the defendants’] Conditions”. The conditions included a term limiting liability to £800 per ton. A lorry load of whisky was delivered by the plaintiffs to the defendants’ warehouse. During the night the warehouse was broken into, and the whisky was stolen. On appeal, it was found that the defendants’ conditions of carriage were incorporated into their contract with the plaintiffs, and, accordingly, the liability of the defendants was limited to £800 per ton. At pp. 816-817 of his judgment Lord Pearson commented:

“Now I come to the terms of the contract between the plaintiffs and the defendants. It was not proved that the plaintiffs’ conditions of sub-contracting were ever sent to the defendants, and the defendants in evidence denied that they were sub-contractors to the plaintiffs. The plaintiffs’ form of delivery note contained the words:

‘All goods are carried on the [plaintiffs’] conditions of carriage, copies of which can be obtained upon application to any office of the [plaintiffs].’

Under the long-established course of business between the parties, however, the plaintiffs’ driver brought his delivery note into the defendants’ office at the Cotton Street warehouse and asked in effect if he could bring his load into the warehouse. If there was room in the warehouse, the permission would be given, and the delivery note would be rubber-stamped by the defendants with the words ‘Received under AVC conditions’, followed by the date and the address of the warehouse. The delivery note, thus converted into a receipt note, would be handed back to the plaintiffs’ driver and he would bring his load into the warehouse as instructed by the warehouse foreman. If this had only happened once, there would have been a doubt whether the plaintiffs’ driver was their agent to accept the defendants’ special contractual terms. This, however, happened frequently and regularly over many years at this and other warehouses of the defendants. Also the defendants’ invoices contained the words: ‘All goods are handled subject to conditions of carriage copies of which can be obtained on application’. It may perhaps be material to add that the defendants’ conditions of carriage were not peculiar to them, but were the conditions of carriage of Road Haulage Association, Ltd. At any rate, I agree with the decision of the judge that the plaintiffs’ conditions were not, and the defendants’ conditions were, incorporated into the contract between these parties. The effect was that, while the nature of the defendants’ liability as bailees to the plaintiffs was unaffected, the liability was limited in amount to £800 per ton, which, when credit is given for sixty bottles of whisky recovered after the theft, produces a total in this case of £6,135.”

94. What is of interest in that case is that the defendants’ terms and conditions were found to have been incorporated into the contract between the parties but the plaintiffs’ terms and conditions, to which reference was made on the printed delivery note, were not incorporated into the contract. As stated in Lord Pearson’s opinion, the reason why the plaintiffs’ terms and conditions were not incorporated into the contract was because “It was not proved that the plaintiffs’ conditions of subcontracting were ever sent to the defendants and it was denied by the defendants that they were subcontractors to the plaintiffs”. By contrast, the defendants’ terms and conditions were not peculiar to them, but were the conditions of carriage of the Road Haulage Association Limited, and were incorporated into the contract by reference to the rubberstamping of the words “Received under AVC Conditions” on the delivery note.

95. Another case relied on by Irish Asphalt in relation to the nature of contractual documents is the case of Thompson v. T. Lohan (Plant Hire Limited) Ltd & Anor [1987] 1 W.L.R. 649 (“Thompson v. T. Lohan”), a case in which at issue was a letter and a time sheet. This was a judgment of the Court of Appeal of England and Wales. The letter in question concerned the hire of an excavator and contained the following:

“‘All plant hired out under the terms and conditions of the Contractors’ Plant Association conditions of hire a copy of which will be forwarded on request.’” (p. 651)

The letter was read by a Mr Pinder on behalf of a third party and it was accepted that the initial agreement in that case was made between Mr Danby on behalf of the defendant and Mr Pinder on behalf of the third party. It was noted by Fox L.J. in his judgment (at p. 651):

“As to the position of the two individuals principally concerned, Mr. Pinder was the quarry manager of the third party, and Mr. Danby was a director of Lohan. Mr. Pinder had previously hired from Lohan and knew that Lohan traded on the C.P.A. model terms — and the judge so found.”

Fox L.J. went on to say (at p. 653):

“The first question which I deal with, although in fact it came later in the third party’s submissions, is: what was the contract? Was it the bare contract to supply plant at a price, or was the plant so supplied on the C.P.A. conditions? I have no doubt that it was the latter. First, Mr. Danby’s letter of 8 September made it quite clear that the hiring was to be on the C.P.A. terms; the letter says so. Secondly, the third party raised no objection to that; indeed, it is clear that is what they expected. Thirdly, it was absolutely common form in the industry. Fourthly, I should refer to some passages in Mr. Pinder’s cross-examination. [His Lordship referred to passages in which Mr. Pinder said that, although he had never read the C.P.A. conditions, he knew of their existence, that the letter from the first defendants stated that the plant was hired subject to those conditions and that it was the practice and custom in the industry to hire plant subject to the conditions. His Lordship continued:] Fifthly, the form of time sheet has a note at the bottom of the sheet which says:

‘All hours shown on this time sheet certified correct, an invoice charged on these hours will be accepted. C.P.A. conditions of hire to apply’.

That is signed by the operator and also on behalf of the hirer. Mr. Pinder in fact signed that time sheet and some six others which we have in the appeal bundle. Again, there is plain reference to the C.P.A. terms. In my opinion the only conclusion to be reached from those facts and evidence is that the parties entered into the contract upon C.P.A. terms. At what precise point of time the contract was concluded I need not consider. There is no doubt there was a contract and, on the evidence, in my view it was beyond doubt that such contract was on C.P.A. terms.”

96. Counsel for Elliott Construction argued that it was clear from the decision in that case that the incorporation of the terms and conditions occurred independently of time sheets, and suggested that the case was not authority for the proposition that a post-contractual document could have the effect of incorporating new terms and conditions into a contract.

97. That case supports the proposition that terms and conditions can be incorporated by reference to specific terms and conditions in common use in that industry. Significantly, the letter of the 8th September contained the clause set out above stating the terms of the hire in question and the time sheet was relevant because it also made reference to the C.P.A. terms.

98. The English High Court decision in the case of Photolibrary Group Ltd v. Burda Senator Verlag GmbH [2008] 2 All ER (Comm) 881 (“Burda”) is also of interest. It concerned the role of delivery notes. The claimants in the case supplied photographs in the form of transparencies for the consideration of the defendants for publication in their magazines. The defendants would pass on their requests to one of their number who would in turn pass on the request to photograph providers. A number of photographs would be selected and sent to the defendant publishers. They would be considered, some would be published, some not. Those not used would be returned after consideration, some quickly, some not. When the transparencies were sent to the defendants, they were accompanied by a delivery note. On its face and back, it set out terms of business. They were standard terms of the British Association of Picture Libraries and Agencies. A substantial parcel of transparencies was sent out accompanied by the delivery note. While a number of transparencies were being returned, they were lost in transit between Germany and London. The terms and conditions included a term requiring the party who requested them to pay a holding fee while the transparencies were retained and also provided for payment of compensation for loss. In the course of his judgment, Jack J. said:

“65. Mr Ayres put great emphasis on the fact that Burda Media did not sign the delivery notes, which, he submitted, showed that the terms of the notes were not accepted. If the notes had been returned signed, that would have made the defendants’ position as to incorporation really unarguable. But the converse does not follow. The signature which was requested, where it was, was to acknowledge safe receipt. If the terms were not acceptable, Burda Media was asked to return the transparencies. That, of course, was never done.

. . .

68. It follows also that I reject the submission that the deliveries of transparencies are to be considered as bare bailments with no terms apart from a term as to the return of the transparencies with an obligation to take due care of them in the meanwhile. While it is now clear that contract is not a pre-requisite to bailment — I refer to Chitty on Contracts (29th Edition, 2004) Volume II, page 176 (paragraph 33-002) – in my view, in commercial situations such as the present where goods are passed by way of business from one party to another, it will be very unusual that there will be no contract between those parties.”

Jack J. also noted (at para. 63):

“In my judgment the most straightforward analysis of the contractual situation is that a delivery of transparencies accompanied by a delivery note is to be treated as an offer, which was accepted by the acceptance of the transparencies and their onward transmission to Germany. In each case a contract was made in that way. It incorporated the terms of the delivery notes. That is the appropriate objective interpretation of the parties’ conduct, whatever the actual intention of the defendants. However, I should say that I do not think that the evidence established any positive intention on the part of the defendants not to deal on the basis of the delivery notes. The evidence was actually to the contrary. For they knew what the terms were. They never rejected them, or said they would not be bound by them. In the early days the claimants’ delivery notes were sent to Germany and loss fees were noted on Burda Media’s delivery notes. I find that they negotiated loss fees on the basis that the claimants were entitled to the amounts stated in their delivery notes but could be persuaded to accept less because they wanted their businesses with the defendants to prosper. That was the appreciation on both sides. In the case of the sixth claimant, Marianne Majerus, there was an express acceptance of her terms at her meeting with Carmen Durrant in January 2004. Mr Crichton can also rely on the terms of his letter of 9 December 1996.

64. The alternative analysis that the faxed requests for transparencies to be submitted were offers to submit them on the usual terms, that is, the terms of the delivery notes, which offers were accepted by the submission of transparencies accompanied by the notes, seems to be equally viable. Likewise the case can be put on the basis of an established course of dealing on the terms of the delivery notes: compare the Circle Freight case.”

99. Counsel for Elliott Construction made the comment that that decision had no application to post-contractual delivery dockets. It is correct to say that the delivery notes accompanied by the transparencies were viewed as an offer by the Court in that case and, thus, could not be described as post contractual documents; but, nevertheless, the case is of assistance, particularly having regard to the course of dealing between the parties. It is important to bear in mind that in Burda, the delivery note contained the following provision:

“1. Any client who has not previously dealt with us on the terms and conditions set out overleaf and who does not wish to accept such terms must return all the images immediately…The client will be deemed to have accepted our terms if all the Images are not returned within 5 days of their receipt.”

Thus, it was an option for the defendants, on receipt of the transparencies, accompanied by the delivery notes setting out the terms and conditions of the contract, to be entered into, to reject the terms and conditions and to return the goods if not acceptable. It was also clear that the defendants were aware of the terms and conditions which were set out in the delivery notes.

100. Reference was also made to the decision of the Scottish Court of Session – Inner House in the case of Continental Tyre & Rubber Co.Ltd v. Trunk Trailer Co. Ltd [1985] S.C. 163 (“Continental Tyre & Rubber Co. Ltd”). That case concerned the sale and delivery of tyres, and a claim in respect of sums due in respect of the sale of the tyres. A number of tyres had been ordered by a purchase order in a standard form; on delivery, the pursuer’s driver tendered a delivery note in standard form and this was signed by a junior employee of the defenders. An invoice was sent about ten days later. The tyres were alleged to have been rejected by customers of the defenders as not being of merchantable quality. The pursuers in that case, on the assumption that the warranty as to merchantable quality had been breached, pleaded that their liability was excluded by a reference to their standard conditions of sale on the delivery note. It was contended that this note was a counter offer accepted by the defenders. They also relied on the argument that a recent and consistent course of dealing meant that the terms of the delivery note had been incorporated into the contract. It was held in that case that the contract was concluded as soon as the first batch of tyres had been delivered and the delivery note was merely a receipt indicating quantity and description of the tyres. It did not amount to a contract note or a record of the terms on which supply was made. Also, it was pointed out that there were no averments that a signature was required before delivery. It was further held that the incorporation of the contractual term by a course of dealing depended on whether the pursuers were reasonably entitled to conclude that the defenders accepted the tyres subject to their conditions, and particularly on whether sufficient notice had been given; the delivery note was not contractual and the defenders had continued to send purchase orders bearing that their own conditions were to prevail.

101. Lord Brand, the Lord President, in the course of his judgment (at p. 168) commented:

“What has been called the ‘delivery note’ does not so describe itself. It is not and does not bear to be a contract note or ‘sold’ note of the kind considered in Hardwick Game Farm v. Suffolk Agricultural Poultry Producers Association [1966] 1 W.L.R. 287. . . which purported to record the terms of the parties’ agreement, and which was tendered before performance. It is not and does not bear to be, either, an acknowledgement of order form, of the kind considered in Grayston Plant Ltd. v. Plean Precast Ltd. 1976 SC 206, purporting to record the terms on which the supply is made or to be made. The signature of the defenders’ employee is, as the form shows, required for one purpose and one purpose only. Opposite the box containing the signature are the following words: ‘Please note that your signature is proof that the quantity and description of the goods shown on this docket were received correctly.’ There are not averments that the legend near the top left hand corner of the docket, referring to the pursuers’ ‘conditions of sale’, which is in small print and not in bold type, was ever drawn to the attention of the person who signed it, and it is not averred that signature of the docket was required before the delivery was made (cf. the very different circumstances in British Road Services Ltd. v. Arthur v. Crutchley & Co. Ltd. where the delivery note was overstamped, referring to the conditions upon which the warehouse keeper would receive the load, and handed to the plaintiffs’ driver before he brought his lorry into the premises; see the opinion of Lord Pearson at pp. 816 and 817 ).”

102. The form in which it was contended that the terms and conditions in that case were said to be incorporated into the contract was as follows:

“‘All offers and sales are subject to the company’s current terms and conditions of sale, a copy of which will be supplied on request’”. (p. 167)

That case was relied on in the judgment in Noreside to which reference has been made previously.

103. Reference was also made in the course of the submissions to Treitel on The Law of Contract (12th Ed.) at paragraph 7 – 006 where it is stated:

“Nature of the document:

An exemption clause is not incorporated in the contract if the document in which it is set out (or referred to) is not intended to have contractual force: e.g. if the document is a mere receipt for payment. On the other hand, the mere fact that a document is called a ‘receipt’ will not prevent it from having contractual effect. The document will have such effect if the party to whom it was handed knew it was intended to be a contractual document or if it was handed to him in such circumstances as to give him reasonable notice of the fact that it contained conditions. It will also be contractual if it obvious to a reasonable person that it must have been intended to have this effect. This will be the case if the document is of a kind that generally contains contractual terms. Whether a document falls into this class depends on current commercial practice, which may vary from time to time.”

104. The Court is satisfied that the delivery dockets herein are contractual documents in the sense that they are documents which were created in the course of the contracts at issue in these proceedings. However, the real question is whether they are contractual documents in the sense contended for by Irish Asphalt? Chitty on Contracts (London; Sweet and Mazwell; 2012; 31st ed; volume I) at paragraph 12 – 009, puts it well:

“Contractual Documents:

[T]he document must be of a class which either the party receiving it knows, or which a reasonable man would expect, to contain contractual conditions…”

105. When one looks closely at the cases referred to above and the academic commentary, a number of points emerge. First of all, a contractual document may take a variety of forms – a landing account as in Spurling, a delivery note as in British Road Services Ltd v. Arthur, a time sheet and letter as in Thompson v. T. Lohan – to give some examples. Thus, a delivery docket could be a contractual document.

106. The second point that seems to be clear from the authorities is that in those cases in which it was successfully argued that the document at issue was a contractual document, the document contained, in one form or another, the terms and conditions actually relied on. Thus, in Spurling, the document at issued was a landing account which referred on its face to conditions printed in small type on the back. Those conditions spelt out clearly the basis on which the goods were to be taken by the warehouse.

107. The case of British Road Services Ltd v. Arthur.is notable in that the defendants’ conditions were incorporated into the contract as described above, but the plaintiffs’ conditions of contract were not found to have been incorporated in the contract, in circumstances where there was no evidence that their conditions of sub-contracting were ever sent to the defendants.

108. A third point to note is that the timing of the delivery of the relevant terms and conditions may not be the deciding factor in any given case. The decision in James A. Slattery v. Córas Iompair Éireann [1972] 106 I.L.T.R. 71 (“Slattery v. CIE”) (to which reference will be made later) reinforces the point that a party may be bound by terms and conditions although they sign a consignment note containing the terms and conditions of the contract after performance of the contract by one of the parties.

109. What emerges from the authorities is that, to be a contractual document, the document must be one which contains contractual conditions or a reference to specific terms and conditions well known in a particular industry. It is not sufficient to refer in general terms to unspecified terms and conditions. The proviso on the delivery docket in this case is akin to that in the Continental Tyre & Rubber Co. Ltd case which was found not to incorporate the pursuer’s terms and conditions. The Court is satisfied that the delivery dockets, signed by Mr Hannay for the most part, on behalf of Elliott Construction, were for the purpose of recording the type of material delivered, the date of delivery and quantity delivered, and did not set out the terms and conditions of the contractual arrangement between the parties. They are not documents which “generally contained contractual terms”, as it is put in Treitel, or documents of a class which the party receiving it or which a reasonable man would expect to contain contractual conditions as Chitty on Contracts describes it. Accordingly, having regard to the facts and circumstances of this case, the Court rejects the contention that the delivery notes are contractual documents in the sense contended for by Irish Asphalt.

Incorporation by signature

110. Given the finding that the delivery dockets are not contractual documents, strictly speaking, it is not necessary to consider whether Irish Asphalt’s terms and conditions were incorporated by signature into the contracts, as a party will only be found to have incorporated terms and conditions by signature on a contractual document. However some reference will be made to the authorities relied on by the parties in this context to the extent that they could have some bearing on other aspects of the issues herein.

111. Counsel for Irish Asphalt, in the course of his submissions, referred to the leading case of L’Estrange v. F. Graucob Ltd [1934] 2 K.B. 394 (“L’Estrange v. Graucob”). Scrutton L.J. at p. 403 of his judgment stated:

“In cases in which the contract is contained in a railway ticket or other unsigned document, it is necessary to prove that an alleged party was aware, or ought to have been aware, of its terms and conditions. These cases have no application when the document has been signed. When a document containing contractual terms is signed, then, in the absence of fraud, or, I will add, misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not.”

112. Counsel for Irish Asphalt also referred to the well known decision in the case of Curtis v. Chemical Cleaning & Dyeing Company [1951] 1 K.B. 805 (“Curtis”) in which a party’s signature was described as “irrefragable evidence of his assent to the whole contract, including the exempting clauses” (p. 808). That was a case concerning a dress left for cleaning. The plaintiff signed a receipt which contained conditions exempting the cleaners from liability for damage however caused, but at the time of signing the receipt, she did so in circumstances where the assistant in the dry cleaning shop misrepresented the extent of the exemption clause, and it was held in that case, the defendants could not rely on the exemption clause by reason of the innocent misrepresentation of the shop assistant.

113. Reference was also made to Slattery v. CIE. This case related to the transport of a horse. The plaintiff in the case had signed a consignment note following the delivery of the horse. The consignment note signed by the plaintiff was headed in large heavy black print “Consignment note and delivery sheet for horses to be carried… at owners’ risk”. Teevan J. in the course of his judgment at p. 73 noted that the plaintiff’s signature was about two or three inches below that heading. He went on the course of his judgment to observe:

“Be that as it may he signed the contract and no authority has been cited to me and no convincing argument presented to avoid the plaintiff’s assent to its terms, or to support assertion that having been signed on delivery it cannot be read as the contract the parties entered into.” (p. 74)

Accordingly, it was found that the plaintiff bound himself by the conditions on signing the contract note.

114. Irish Asphalt relies on the delivery dockets signed by Mr Hannay as and when goods were delivered by Irish Asphalt to Elliott Construction. It was contended that the delivery dockets were contractual documents and as such the signature by Mr Hannay on the delivery dockets was sufficient to incorporate the terms and conditions into the contract.

115. Counsel on behalf of Elliott Construction did not take issue with the principles identified by counsel for Irish Asphalt, but did not accept that they are applicable to the facts of this case. The delivery dockets, he contended, were not contractual documents in the sense put forward by Irish Asphalt, a point which the Court has accepted. He further argued that incorporation by signature only occurs where, in the course of the formation of a contract, a document is signed which contains the terms of that contract or some of them. He added, in his written submissions, that Slattery v. CIE was a case dealing with a post-contractual document, and was, in that sense, a decision which concerned acknowledgement and estoppel, rather than incorporation by signature. Teevan J. in that case had commented:

“The question is whether the plaintiff can be heard to deny that the conditions set out in the consignment note signed by him form part of the contract? ‘The best way of proving (the terms of a contract) is by a written document signed by the party to be bound’ (per Denning L.J. in Olley v. Marlborough Court Ltd. [1949] 1 K.B. 532 at page 549). Here we have such a document but the argument is that it must be ignored because it was signed after delivery of the horses, in other words after completion of the defendants’ part of the transaction. The plaintiff could have refused to sign the document particularly as it was not shown or its terms otherwise made known to him at the inception of carriage: the fact is that he signed it. Before signing it he was aware, needless to say, of the damage to his horse but he did not then know that the injury was likely to result in loss.” (p. 73)

In the concluding paragraphs, Teevan J. added:

“I must hold that the plaintiff bound himself by the conditions on signing the contract note. It amounts to a declaration by the plaintiff of what the terms of the contract were.” (p. 74)

He went on to say (at p. 74):

“Having regard to the very prominent manner in which the defendants have called attention, almost at the very place where the plaintiff placed his signature, to the carriage being at owners’ risk and subject to the condition over-leaf, the plaintiff has only himself to blame for failing to notice this.”

116. The useful analysis of the decision in L’Estrange v. Graucob contained in McMeel on the Construction of Contracts at paragraph 15.64 explains the position thus:

“In any event, in the view of Scrutton L.J., an order form was a contractual document, which invariably contained terms. In the absence of fraud or misrepresentation and, given the heading of the document, the plaintiff was bound. . . . Nevertheless the term was clearly incorporated in an agreement which had been reduced to writing and which had been signed. No defence of non est factum was possible, because the document clearly related to the sale of the machine. Further, a representation that the document was an order was probably true, but not relevant. What the plaintiff would have to prove in order to succeed was that there was a representation that the document contained no exemption clause.

It is submitted that the reason why a signature is binding is because it demonstrates assent to the terms above it. There is no need to invoke arguments based on estoppel. As Lord Devlin stated in McCutcheon v. David MacBrayne Limited: ‘the law is clear, without any recourse to estoppel, that a signature to a contract is conclusive’.”

Thus, a party signing a contractual document containing terms and conditions is bound by those terms and conditions regardless of whether or not they have read the terms and conditions. This is because the terms of the contract have been reduced to writing and have been signed. The key point is that the terms and conditions incorporated by signature are contained in the contractual document signed by the party sought to be bound.

117. In the present case, the documents relied on to argue that the terms and conditions were incorporated by signature are the delivery notes. The delivery notes did not contain the terms and conditions. They contained a proviso that “the material is sold subject to the terms and conditions available on request”, but, in the view of the Court as explained previously, this is not sufficient for the purpose of incorporation by signature. The party, to be bound, must know what the terms and conditions are (for example, by reference to specific, well known, industry wide terms and conditions on the contractual document, such as the A.V.C. conditions in the British Road Services Ltd v. Arthur case) or by setting out the specific terms and conditions relied on in the document to be signed. A bland reference to terms and conditions alone cannot suffice. It could not be said that the inclusion of such a proviso on a delivery docket is reducing the terms of the contract to writing. How is one supposed to know what those terms and conditions are? As McMeel put it, “a signature is binding because it demonstrates assent to the terms above it.” Thus, the Court is satisfied that the terms and conditions were not incorporated into the contract by the signature of the party to be bound as the delivery dockets could not be regarded as contractual documents.

Incorporation by Actual or Reasonable Notice

118. The learned trial judge in his judgment dealt with the question of notice in some detail. He commented on the disparate outcomes to be found in the cases dealing with the question of notice. As he said:

“The transport cases seem to establish that purchasing a ticket which contains conditions means that you can be bound by the conditions whether you have read them or not; that possibly you are not bound if you do not know that the ticket contained any such conditions; that if you know there is writing on a ticket and believe that it sets out conditions, you are bound whether you read them or not; and even if you do not believe the ticket contained conditions, you will nonetheless be bound if reasonable notice was given.” (para. 251)

119. He referred at para. 251 to the case of Richardson Spence & Co. Ltd v. Rowntree [1894] A.C. 217, which concerned a passenger who had been handed a folded ticket. There was writing on the ticket when opened, and it contained conditions which limited liability for any loss on the journey:

“As the plaintiff did not know that the writing contained conditions and as it was held that the transport company had not done that which would have been sufficient to give the plaintiff notice of these conditions, an award, unlimited by the relevant condition, was upheld on appeal.” (para. 251 of the High Court Judgment)

As the learned trial judge continued:

“Many of the cases as to notice remain peculiar to their own facts”.

120. He then referred to a number of well known decisions on the question of notice. Thus, in Thornton v. Shoe Lane Parking Ltd [1971] 2 QB 163, it was found that an exclusion clause could not be relied on as the particular clause could not be observed by a person entering a car park with an automatic ticket machine. Lord Denning M.R. explained the reasoning behind that decision as follows:

“… the offer was contained in the notice at the entrance giving the charges for garaging and saying ‘at owner’s risk,’ i.e., at the risk of the owner so far as damage to the car was concerned. The offer was accepted when Mr. Thornton drove up to the entrance and, by the movement of his car, turned the light from red to green, and the ticket was thrust at him. The contract was then concluded, and it could not be altered by any words printed on the ticket itself. In particular, it could not be altered so as to exempt the company from liability for personal injury due to their negligence.” (p. 169)

In that case, for the plaintiff to have observed the particular term relied on he would have had to exit his car, and walk around the car park until he found on an internal pillar opposite the ticket machine the set of printed conditions in a panel.

121. Reference was also made to the case of Olley v. Marlborough Court Ltd [1949] 1 K.B. 532. That case concerned the hire of a hotel bedroom. It was found that the contract between the party hiring the bedroom and the hotel was made before the guest had access to the bedroom. In the hotel bedroom, there was a notice which sought to limit the hotel’s liability in respect of valuables that had not been deposited with the hotel. Mrs Olley found that furs and jewellery and other items were missing from her bedroom at a later stage during the course of her stay. The hotel tried to restrict its liability in respect of the loss by reliance on the notice in the plaintiff’s bedroom. Denning L.J., in the course of his judgment (at p. 549), commented:

“Now people who rely on a contract to exempt themselves from their common law liability must prove that contract strictly. Not only must the terms of the contract be clearly proved, but also the intention to create legal relations – the intention to be legally bound – must also be clearly proved. The best way of proving it is by a written document signed by the party to be bound. Another way is by handing him before or at the time of the contract a written notice specifying its terms and making it clear to him that the contract is on those terms. A prominent public notice which is plain for him to see when he makes the contract or an express oral stipulation would, no doubt, have the same effect. But nothing short of one of these three ways will suffice. . . . So, also, in my opinion, notices put up in bedrooms do not of themselves make a contract. As a rule, the guest does not see them until after he has been accepted as a guest. The hotel company no doubt hope that the guest will be held bound by them, but the hope is vain unless they clearly show that he agreed to be bound by them, which is rarely the case.”

122. The learned trial judge contrasted those cases with the decision in the case of Shea v. Great Southern Railways Co. [1944] 1 Ir. Jur. Rep. 26 in which a receipt, indicating that a bicycle was carried on public transport at the owner’s risk, and that the ticket was issued “subject to the company’s rules and regulations” was held to have excluded liability for a damaged bicycle, even though the master copy of the terms and conditions was covered up by the opening of the door of the bus. It was pointed out that the essence of limitation was recorded on the receipt. That may explain the difference. By contrast, in Ryan v. Great Southern and Western Railway Co. [1898] 32 I.L.T.R. 108, a reference on a train ticket to terms and conditions which was not readily available was not sufficient to exclude liability.

123. For completeness, reference should be made to an ex tempore decision of the High Court (Barrington J.) in the case of O’Beirne v. Aer Rianta, (Unreported, High Court, 20 May 1987) (“O’Beirne”). The facts of that case were very similar to those in Thornton v. Shoe Lane Parking Ltd. Barrington J. came to a different conclusion, stating:

“One thing that caused me some trouble was [counsel for the plaintiff’s] submission that in fact the contract was over by the time the plaintiff received his ticket, but I don’t think that is so. I know all the evidence, the witnesses for the plaintiff accepted but it appears to be the case,that, for practical purposes, the driver of the car was committed to the car park once he had turned into the narrow passage or avenue leading to the car park. It will be difficult for him to retreat. Nevertheless, … [counsel for the plaintiff] submits once he was in the car park he was subject to the minimum charge for being in the car park, but nevertheless the ticket, on its face, says the placing of a vehicle in the car park shall be deemed as acceptance of the conditions. That would appear to be an admission on the part of Aer Lingus (sic) that the motorist isn’t bound until he has placed his car in the parking position and therefore it appears that had the plaintiff read the conditions and had he decided he did not like the conditions he would have been entitled to leave the car park without paying anything. He might have had difficulty in retreating or not but it appears to me that Aer Lingus (sic) couldn’t keep him indefinitely in the car park if he did not wish to accept the terms and he would be entitled to leave if he did not accept the terms.”

124. That decision is the subject of some criticism in McDermott on Contract law at para. 8.25. As he pointed out:

“The judgement of Lord Denning M.R. in Thornton does not appear to have been considered by Barrington J. and it is not even clear whether it was cited by counsel in argument… ”

The Court is not of the view that the decision in O’Beirne is of any assistance in this case.

125. It was contended on behalf of Irish Asphalt that the learned trial judge failed to have regard to the fact that the Elliott Construction had actual notice of the terms and conditions prior to the commencement of the contract or contracts for the supply of materials at Ballymun. It was accepted that a credit note had been received by Elliott Construction on the 31st January, 2004 and two were received on the 30th June, 2004. It was submitted on behalf of Irish Asphalt that, once this had been established, Elliott Construction attempted to change the emphasis of their arguments by stating that the credit notes were only seen by those involved in the accounts department and not by senior management. It was also pointed out that Elliott Construction had conceded that Mr Hannay was aware of the proviso on the delivery notes, as indeed was Mr Elliott.

126. The Court does not agree with the submission on behalf of Irish Asphalt to the effect that the learned trial judge did not have regard to the fact that Elliott Construction had actual notice of Irish Asphalt’s terms and conditions before the contract began. At para. 254 of the judgment, the learned trial Judge dealt comprehensively with the evidence in relation to the question of actual notice. He referred to a number of items of correspondence between the parties which Irish Asphalt relied on to demonstrate that Elliott Construction had received the terms and conditions. For example, one was a template letter of the 29th January, 2003, announcing the opening of the quarry at Bay Lane. The letter was sent by way of a mail merge and was identified in an affidavit of discovery as if terms and conditions were printed on the back. The learned trial judge commented as follows:

“This was formally sworn to in an affidavit by Irish Asphalt as being a copy in that form. It is not. The original letter was discovered by Elliot Construction. I have seen the letter. It does not have the terms and conditions on the back. The back is blank.” (para. 254)

127. The trial judge went through the items relied on by Irish Asphalt and found that those items did not contain copies of the terms and conditions. Counsel for Irish Asphalt accepted that he was not in a position to challenge the finding of the learned trial judge in relation to those documents.

128. Having considered the evidence of Ciara Cassidy, on behalf of Irish Asphalt, and Patrick Elliot as to the correspondence, the trial judge made an observation in the course of para. 254 of the judgment in the following terms:

“Of these documents the most fundamental are the template letter of 29th January 2003 and, most importantly, the promotional letter to Mr. Dolphin of 30th January 2003 which is based on it. Were it not for the fact that Elliott Construction kept a copy of this letter, I would have been under the impression that by reason of the system supposedly in place the terms and conditions had been notified as at the time when Irish Asphalt began to deal with Elliott Construction. As regards the price increase letter and the price quotation letter I am urged to rely on the supposed system. I accept that Patrick Elliott is an honest witness. The apparent challenge to his evidence, in contrast, by way of office systems does not establish a probability to counter his evidence. The systems are established by the evidence, instead, as random. It is clear that they were not systematically followed.”

The learned trial judge also rejected the suggestion that the credit notes could be viewed as providing actual notice stating:

“Claiming back credit for relatively small errors is not a reasonable context within which the party in error as to price charging is to announce a limitation clause for all future contracts. Such discourse is unlikely to be noticed. It does not concern the formation of a contract but the true performance of an existing obligation by reference only to price and perhaps, on occasion, to quantity.” (para. 254)

129. The Court is satisfied that, contrary to the contention of Irish Asphalt in relation to the question of actual notice, the learned trial judge had regard to the evidence in relation to actual notice, and found as a fact that there had not been such notice in respect of the formation of the contract between the parties relating to the Ballymun project. The role of the credit notes will be further considered later in the course of the judgment as they were relied on before the trial judge to establish a system of dealing between the parties.

130. The issue then arises as to the correctness of the view of the trial judge as to whether or not Irish Asphalt had given reasonable notice of its terms and conditions to Elliott Construction at any stage. In the course of his judgment, the learned trial judge stated at para. 251:

“There is very little in terms of amplification of the fundamental principle that a party seeking to rely on an exclusion or limitation clause must give the party to be bound reasonable notice of that clause.”

As Sir Kim Lewison put it in the Interpretation of Contracts at p. 126:

“The degree of notice will vary according to the nature of the terms sought to be incorporated.”

131. The trial judge was clearly in agreement with that view as he stated at para. 251 as follows:

“Sometimes the approach of the courts seems to depend on the onerousness of the clause in question. In Thornton v. Shoe Lane Parking, Lord Denning M.R. referred (at 170) to clauses which are ‘so wide and so destructive of rights that the court should not hold any man bound by it unless it is drawn to his attention in the most explicit way’. Rhetorically, he referred to some clauses as requiring ‘to be printed in red ink with a red hand pointing to it – or something equally startling’. This dictum based on the reasonableness of notice of an apparently unattractive exclusion clause has been developed by some later decisions so that unusually onerous clauses are required, as Dillon L.J. noted in Interfoto Library v. Stiletto Ltd. [1989] QB 433 at 438 to 439, to be ‘fairly brought to the attention of the other party’. This suggests an analysis of the quality of the clause as opposed to the quality of the notice whereby any clause in issue was incorporated into a contract.”

132. The delivery dockets were relied on by Irish Asphalt to argue that the proviso on the delivery dockets in which reference was made to terms and conditions, together with the three credit notes and/or the three credit notes, amounted to reasonable notice of the terms and conditions or, in the alternative, incorporated the terms and conditions by a course of dealing.

133. In support of his arguments in this regard, counsel for Irish Asphalt referred to a passage from McMeel in The Construction of Contracts (at p. 430) where the following observation was made:

“The second alternative route of incorporation is by reasonable notice. This is the principal mode of incorporation for unsigned printed documents. It first came to prominence in the nineteenth century ‘ticket cases’ as the Industrial Revolution and the railway age made standard terms a feature of everyday life. In the leading case of Parker v. South Eastern Railway Company, Mellish L.J. distinguished the case of incorporation by signature and continued:

‘The parties may, however, reduce their agreement into writing, so that the writing constitutes the sole evidence of the agreement, without signing it; but in that case there must be evidence independently of the agreement itself to prove that the defendant has assented to it. In that case, also, if it is proved that the defendant has assented to the writing constituting the agreement between the parties, it is, in the absence of fraud, immaterial that the defendant had not read the agreement and did not know its contents. Now if in the course of making a contract one party delivers to another a paper containing writing, and the party receiving the paper knows that the paper contains conditions which the party delivering it intends to constitute the contract, I have no doubt that the party receiving the paper does, by receiving and keeping it, assent to the conditions contained in it, although he does not read them, and does not know what they are.’ – see (1877) 2 CPD 416, 420.’

This passage suggests that in the ordinary case it is sufficient to prove that a document containing terms was provided by one party to or sent to the other and was retained without demur. As with incorporation by signature, Mellish L.J. was emphatic that reading or familiarity with the terms was irrelevant.

In Circle Freight International Ltd. v. Medeast Gulf Exports Ltd., the invoices each stated in small print at the bottom: ‘All business is transacted by the company under the current trading conditions of the [ISF] a copy of which is available on request’. This was, in the words of Bingham L.J., both “clear and legible” and “placed immediately below the price where the eye would naturally light on it”. The exporters never requested a copy and none was sent. Having reviewed the authorities Taylor L.J. concluded:

134. Lewison in the Interpretation of Contracts (at p. 127) commented:

“It is not necessary to the incorporation of trading terms into a contract that they should be specifically set out provided that they are conditions in common form or usual terms in the relevant business. It is sufficient if adequate notice is given identifying and relying upon the conditions and they are available on request. Clear words of reference suffice to incorporate the terms referred to. Other considerations apply if the conditions or any of them are particularly onerous or unusual. In Interfoto Picture Library Ltd. v. Stiletto Visual Programmes Ltd., Interfoto ran a photographic transparency lending library. Following a telephone inquiry by Stiletto, Interfoto delivered to them forty seven transparencies together with the delivery note containing nine printed conditions. Condition 2 said that all the transparencies had to be returned within fourteen days of delivery otherwise a holding fee of £5 per day and Value Added Tax would be charged for each transparency retained thereafter. Stiletto, who had not used Interfoto services before, did not read the conditions. Dillon L.J. said:

‘It is in my judgment a logical development of the common law into modern conditions that it should be held . . . that, if one condition in a set of printed conditions is particularly onerous or unusual, the party seeking to enforce it must show that that particular condition was fairly brought to the attention of the other party.

In the present case, nothing whatever was done by the plaintiffs to draw the defendants’ attention particularly to condition 2; it was merely one of four columns’ width of conditions printed across the foot of the delivery note. Consequently condition 2 never, in my judgment, became part of the contract between the parties.’”

135. The passages cited above from McMeel and Lewison on incorporation by notice are useful summaries of the relevant case law, particularly the reference to the case of Interfoto Picture Library Ltd v. Stiletto Visual Programmes Ltd [1989] QB 433 (“Interfoto”). Bearing in mind the passages referred to, it would be useful then to consider the observations of the trial judge as to whether or not there was reasonable notice in this case. At para. 257 of the judgment the learned trial judge said:

“Looking at this contract of sale from the point of view of Irish Asphalt, it was entitled, should it have so chosen, to seek to limit its liability by reference to an exclusion clause. As a matter of law, incorporation of the exclusion clause in the contract requires it to take reasonable steps to that end. It is obvious what it thought such reasonable steps were. Firstly, it drew up a one page template letter. Instead of being a one page letter, this could have been a two page letter with all of the terms and conditions as part of the text. After all, the terms and conditions are not voluminous and would fit readily on a page. Its expectation was that each template letter would be placed on standard notepaper which had the terms and conditions clearly printed on the back. Anyone who was proposing to buy from the new Bay Lane quarry, therefore, would have known, from the very start, that if the material that he/she purchased was not of good quality, and would ruin any building into which it was put, that his/her recourse would be limited to the purchase price of the material. This, for the reasons stated, is a highly onerous clause and one which would otherwise not be expected. It would leave the builder to lose his reputation and possibly his profit, and more, should the material turn out not only to be of bad quality but also to be actively dangerous to the contemplated construction project. Therefore, it was entirely reasonable for Irish Asphalt to set out its terms and conditions from the very start. This it failed to do; though that is probably what it would have done had office systems been reliable. It also felt that it was worthwhile to remind customers, on every price increase, that liability was so severely limited. There is no evidence in this case that such notice was ever given to Elliott Construction. Then it has delivery dockets with every delivery it makes. These merely recite that the delivery is made subject to terms and conditions. The delivery docket is generated as evidence of delivery. What term or condition did Irish Asphalt regard as important in the context of such delivery? It was certainly not the limitation clause. As regards the person to whom such a notification of an onerous limitation clause should be made before any contract was entered into, it is clear again that Irish Asphalt, by choosing the purchasing manager of Elliott Construction, Tom Dolphin, or indeed by writing to any appropriate executive in that firm, felt that notification of this exclusion clause should be made at the top level. This is reasonable because notification is then reliable; the people who would make any relevant decision within the company are to be told. They can then make the crucial decision to buy what may be unreliable or even destructive building materials without recourse. This may be argued that it should be regarded as reasonable notice. Because of an error in notepaper, this reasonable step in notification was not taken by Irish Asphalt. I do not regard isolated instances where terms and conditions appear in the context of Elliott Construction seeking to be reimbursed for overcharging through an accounts system that no one would reasonably expect would involve people at the level of Tom Dolphin, or any decision making level as to the formation of important contracts, to be reasonable notice.”

136. When one examines that passage in the light of the passage referred to above from Dillon L.J. in the judgment in Interfoto, the views of Charleton J. take on additional force, bearing in mind the onerous nature of Clause 8. In the present case, not only were the terms and conditions not printed on the delivery notes, there is nothing to suggest that the actual terms and conditions, and, in particular Clause 8, were ever brought to the attention of anyone in Elliott Construction. In Interfoto where a delivery note did contain the specific terms and conditions sought to be relied on, that was not found to be sufficient to incorporate the term into the contract in circumstances where the evidence demonstrated that that term had not been brought to the attention of the parties sought to be bound by it. That being so, and in circumstances where not only was there no evidence as to any steps taken by Irish Asphalt to bring its terms and conditions to the attention of Elliott Construction, but where the delivery notes themselves did not contain the terms and conditions, the contentions on behalf of Irish Asphalt as to the incorporation by way of reasonable notice cannot succeed by reference to the phrase used on the delivery dockets alone.

137. The question then arises as to the role of the credit notes which did contain Irish Asphalt’s terms and conditions. One point to bear in mind is that the credit notes were furnished to Elliott Construction by Irish Asphalt prior to the formation of the relevant series of contracts. The second point to note is that the credit notes were provided to the accounts department of Elliott Construction, and evidence was given by Patrick Elliott to the effect that the personnel in the accounts department who would have seen the credit notes were not at a managerial level within the company, a fact accepted by the trial judge. Regardless of the question of the status of the personnel within the accounts department, there was no evidence to suggest that the provisions of Clause 8 of the terms and conditions of contract set out in the credit notes were ever drawn to the attention of any representative of Elliott Construction.

138. Complaint is made by Irish Asphalt that, in considering the question of reasonable notice, the trial judge adopted an incorrect test, in that he introduced a test that a company is only bound by an exclusion clause if it is brought to the notice of senior management level within the company. Reference was made to the position of Mr Hannay, the foreman who signed the delivery dockets, and it was contended that the evidence established that he was a senior person within the company. Charleton J. at para. 252 of the judgment stated:

“Here, unlike in many of the cases, we are not dealing with an individual. Both plaintiff and defendant are corporations. This is of a degree of importance. It is reasonable, in the context of contract law, to have regard to the fact that a decision that a limitation clause should be incorporated into a contract would be made at senior management level within a company that might later seek to rely upon it. It would also be reasonable to expect that such a corporation would notify any other corporation that it seeks to be bound by that limitation clause at the same level. Even if that were not so, ordinary sense would suggest that the rule in contract law whereby reasonable notice should be given of an exclusion clause requires that the concept of reasonableness should incorporate at least a potential analysis as to whether the corporation which is expected to be bound by the clause would be notified in a reasonable way. In terms of ordinary sense as to the workings of corporate structures, this requires notification at a level within the corporation which might reasonably be expected to be effective in terms of bringing the clause to the attention of the appropriate decision making level within that corporation. It is thus of significance that a choice was made by Irish Asphalt to notify the terms and conditions by way of a marketing letter that was addressed to Elliott Construction at high level where these kinds of decisions might reasonably be expected to be made after appropriate analysis as to the risks and consequences of entering into such a contract with such a limitation clause.”

He went on to conclude that Mr Hannay was a responsible person within the company but that his responsibility was limited. He was the on-site foreman.

139. The manner in which the contracts were dealt with was that there was an original engagement between Mr Elliott and Mr Lagan on behalf of Irish Asphalt. They agreed the terms of the contracts in relation to this particular project. Thus, they agreed on such matters as price, terms of credit, cost of delivery and so on. Thereafter, from time to time, and as and when required, individual deliveries were made to the site in accordance with those terms. Undoubtedly, the day to day orders were placed by Mr Hannay but there is nothing to suggest that he had any involvement beyond deciding what quantity of Clause 804 was required on any given day; he accepted deliveries duly made, and did so by means of his signature on the delivery docket.

140. The negotiations between the parties prior to the commencement of this project took place at a high level. In order to give reasonable notice of the terms and conditions relied on by Irish Asphalt, it is logical to conclude that such notice should be provided at the same level. It would be somewhat surprising to reach the conclusion that reasonable notice of an exclusion clause could be given to the party to be bound by informing a low level member of staff of the existence of the exclusion clause. In this case, there is no doubt that Mr Hannay is a valued and responsible member of staff but he could not have negotiated the terms of the contract between the parties, and it is hard to see how the giving of notice as to an exclusion clause to someone in his position could satisfy a requirement as to reasonable notice, even if such notice had been given to Mr Hannay. It could not be suggested on the facts of this case that Mr Hannay was in a position to renegotiate terms of the contract such as price. To put it very simply, notice to a person in the position of Mr Hannay would not be reasonable notice. These observations are equally applicable to the personnel in the accounts department. Obviously, every case will turn on its own facts and circumstances. Looking at the overall situation and the nature of the dealings between the parties, the Court is satisfied that the approach taken by Charleton J. in the context of this case was correct, as was the conclusion that reasonable notice of the actual terms and conditions sought to be relied on was not provided by Irish Asphalt to Elliott Construction.

Incorporation by Course of Dealing

141. There was a course of dealing between the parties but the question arises as to whether that course of dealing could have incorporated the terms and conditions into the contract between the parties. Comprehensive written submissions dealt with the topic of incorporation by course of dealing. Counsel for Irish Asphalt in his oral submissions placed particular emphasis on the observations of Lewison, op. cit. at p. 129 et seq. Lewison had the following to say:

“Terms may be incorporated by a previous consistent course of dealing between the parties, or by their common understanding.

In some cases although the standard terms have not been drawn to the attention of the contracting party before the conclusion of the contract in question, nevertheless he is bound by them because of the pre-existing course of conduct, or a common understanding between the parties. Incorporation of terms by prior course of dealing is a question of fact and degree. It depends on the number of previous contracts, how recent they are, and their similarity in terms of subject matter and the manner in which they were concluded. As Lord Pearce said in McCutcheon v. Macbrayne (David) Limited:

‘It is the consistency of a course of conduct which gives rise to the implication that in similar circumstances a similar contractual result will follow. When the conduct is not consistent, there is no reason why it should still produce an invariable contractual result.’”

Accordingly, where a previous course of dealing does not exhibit consistency, it will not have the effect of incorporating terms. Likewise, as Donaldson J. said in Salsi v. Jetspeed Air Services Limited:

“Usage apart, no one can contend that he has usual trading conditions if he has never used them or brought them to the attention of anyone.”

In general a large number of transactions will require to be proved before the Court will permit one party a contract to rely on a course of dealing in order to rely upon standard terms of business. In cases of contracts made between commercial organisations of equal bargaining power, it seems that less stringent standards are applied as compared with consumer contracts. In view of the Unfair Contract Terms Act 1977, which gives wide protection to consumers against exemption clauses, it is questionable whether this approach is justified any longer.

However, in cases where the number of transactions proved is insufficient to amount to a course of conduct, it is still possible that standard terms will be held to have been incorporated into a contract. In British Crane Hire Corp. Ltd. v. Ipswich Plant Hire Ltd., it was proved that the hirer of a crane expected that the hire would be subject to conditions imposed by the supplier. However, there was no course of dealing between the parties, and the actual terms of business of the supplier had not been drawn to the attention of the hirer before the contract was concluded. Nevertheless, the supplier’s terms were held to have been incorporated into the contract of hire. Lord Denning M.R. (with whom Megaw L.J. agreed) said:

“I would not put it so much on the course of dealing, but rather on the common understanding which is to be derived from the conduct of the parties, namely, that the hiring was to be on the terms of the plaintiffs’ usual conditions.”

Sir Eric Sachs gave a slightly different reason. He said that the terms were incorporated because on the facts the supplier was entitled to conclude that the hirer accepted its conditions.”

It was urged on the Court by counsel for Irish Asphalt that the observations of Lewison in the passage referred to above are a correct summary of the law.

142. The general proposition identified by Lewison, namely, that terms may be incorporated by a previous consistent course of dealing between the parties, or by their common understanding, is hardly controversial. Thus, if in the course of a consistent period of dealing, the parties to a contract entered into a series of contracts including terms and conditions, actually known to the party to be bound or drawn to their attention, and that if, on the conclusion of a subsequent contract, the party relying on the terms and conditions omitted to either draw the terms and conditions to the other party, or failed to include them on a contractual document, it would be wrong to permit the party affected by the relevant term to say that, even though they were aware of the terms and conditions, they could avoid its consequences because the relevant term was not expressly incorporated into the subsequent contract.

143. Obviously, in considering whether a party’s terms and conditions have been incorporated into a contract, it is necessary to consider the facts and circumstances of each individual case. It has already seen that in the case of Spurling referred to above, one of the factors taken into account was the course of business and conduct of the parties. In the passage previously referred to from the judgment of Denning L.J. (at p. 467 of the judgment), it was stated as follows:

“On receiving this landing account, he took no objection to it, left the goods there, and went on paying the warehouse rent for months afterwards. It seems to me that by the course of business and conduct of the parties, these conditions were part of the contract.”

144. By contrast, in the case of Hollier v. Rambler Motors (AMC) Ltd [1972] 2 QB 71, the evidence was that the plaintiff had had his car serviced by the defendant on three or four occasions during a five year period. The plaintiff in that case had signed a document described as an invoice. It contained the following clause:

“The company is not responsible for the damage caused by fire to customer’s cars on the premises.” (p. 75)

The plaintiff had signed the form on at least two previous occasions when repairs had been carried out to his car. The car was damaged by fire while on the defendants’ premises. It was held that the defendants were liable because three or four transactions in the course of five years were not sufficient to establish a course of dealing; the clause on the invoice form could not therefore have been incorporated in the oral contract made between the parties.

145. Reference was also made in the submissions to the case of McCutcheon v. David MacBrayne Ltd [1964] 1 WLR 125, a decision of the House of Lords. In that case, the course of dealing was described as follows by Lord Reid (at p. 128):

“If two parties have made a series of similar contracts each containing certain conditions, and then they make another without expressly referring to those conditions it may be that those conditions ought to be implied. If the officious bystander had asked them whether they had intended to leave out the conditions this time, both must, as honest men, have said ‘of course not’.”

146. It would also be helpful to refer to an Irish authority on the subject, namely, the decision of the High Court in Sugar Distributors Ltd v. Monaghan Cash & Carry Ltd (in Liquidation) [1982] ILRM 399. That was a case which concerned a “retention of title” clause. It was a condition of sale contained on the front of the plaintiffs’ invoices sent out to customers that ownership of the sugar to be delivered would only be transferred to the purchasers when the full amount of the purchase price had been discharged. One of the issues in the case was whether the clause shown on the face of the invoices was a binding condition. In that case, Mr McAllister, the managing director of the defendant company, said that his attention was not drawn to the retention of title clause either by phone or letter. In relation to invoices, he was only concerned to check each for quantity and price. He did not read all the small print on the invoices. He did notice a change in the form or size of the invoices. The manager of the defendant company, a Mr Murphy, said that he could not remember being told by anyone about the retention of title clause. It was held that the plaintiffs had failed to prove that the special attention of the defendants was drawn to the retention of title clause which was introduced by the plaintiffs approximately two years after the parties had first commenced trading with each other. On that basis Carroll J. identified the question arising as whether there was a duty on the plaintiffs to draw the defendants’ attention to the clause specifically, or whether the defendants ought to have known of the existence of the clause because it was on all invoices for a period of about fifteen months before the relevant dates. She said:

“I have been urged by Mr. Gleeson for the defendants to hold as Barrington J. held in Western Meats Ltd. v. National Ice and Cold Storage Ltd. & Anor. [1982] ILRM 99 that the plaintiffs had not given the defendants reasonable notice of the contents of their standard conditions.

But the circumstances of that case are not similar to the present one. There was a businessman offering a specialist service (i.e. cold storage) but accepting no responsibility for it. There the business relationship was commenced by a meeting followed by a letter, in the text of which there is no mention of standard conditions. Here there is a supplier of goods, the plaintiffs, incorporating a condition of sale via its invoices which according to the cases cited has apparently become quite common. The managing director of the defendant company said he did not read it and that he never read the small print on invoices but apparently if he had read it, it would not have made any difference to him. The invoice itself is a simple enough document. Three conditions appear on its face and they are not intimidating in complexity.

I consider that the defendants having received these invoices for fifteen months, ought reasonably to have known the terms on which the goods were supplied. In my opinion the plaintiffs gave reasonable notice of the conditions applicable to these transactions by putting them on the face of the invoices and there was no special duty on the plaintiffs to draw the defendants’ attention specifically to the retention of title clause. I therefore hold that the condition was a valid and binding condition.” (p. 401)

147. Carroll J. referred in her judgment to the judgment of Barrington J. in Western Meats Ltd v. National Ice and Cold Storage Co. Ltd & v. Nordic Cold Storage Ltd [1982] I.L.R.M. 99, a decision of the High Court. The circumstances in that case were that the plaintiffs had placed meat with the defendants for storage in cold storage facilities, and, subsequently, the defendants were unable to locate the plaintiffs’ meat within their facility. The conditions of trade relied on by the defendants by way of defence included a clause to the effect that all goods were stored at the owner’s risk. There was a further provision providing that the company would not be responsible for any delay, loss or damage arising from maintaining too high or too low a temperature in the stores, failure of machinery or plant, negligence, thefts, including theft by the company’s servants, “or any other cause whatsoever”. In the course of the judgment, Barrington J. identified the question as to whether the plaintiffs were given reasonable notice of the conditions or not. Evidence was given that Mr Lyons, a director of the plaintiff company, was not aware of them, and there was no evidence that they were ever expressly brought to his attention. In the early years, when the parties first started dealing with one another, the conditions and terms sought to be relied on by the defendants did not appear on their letters. In later years, it appears that the conditions were set out on the back of the defendants’ notepaper and also on the back of many of their storage documents. Barrington J. concluded that the terms were never expressly brought to the attention of the plaintiffs’ director. In those circumstances the defendants were found to be guilty of negligence and breach of contract.

148. In the present case, great emphasis is placed on the fact that in the course of the dealings between Irish Asphalt and Elliott Construction, some eleven hundred and ninety delivery dockets containing the proviso “This material is sold subject to the terms and conditions available on request” were provided by Irish Asphalt to Elliott Construction and signed by a representative of Elliott Construction, usually Mr Hannay. The Court is satisfied that the terms and conditions relied on and, in particular Clause 8 of the terms and conditions, cannot be incorporated into the contract by relying on the delivery dockets alone in circumstances where those delivery dockets did not actually set out the terms and conditions and were not contractual documents. The position in this case can be contrasted with the position in many of the cases cited above, for example, Spurling, Hollier v. Rambler Motors (AMC) Ltd and Burda where the terms relied on were set out in the contractual documents. What about the position in relation to the credit notes which contained terms and conditions on the back including Clause 8 and which were undoubtedly furnished to Elliott Construction prior to the commencement of these contracts?

149. The existence of the three credit notes does not demonstrate the sort of consistent course of dealing or conduct which could result in the incorporation of terms and conditions in a contract. It is worth remembering the circumstances in which the credit notes came to light. At para. 255 of his judgment, Charleton J. observed:

“In addition, I note that in the course of the case a box of correspondence and business documents was handed over by Elliott Construction to Irish Asphalt. Of all the varied correspondence in this box, only three credit notes contain the terms and conditions on the back. There are three further credit notes among these documents which are on original Irish Asphalt notepaper which have no terms and conditions on the back. In addition to that, there are two others with no terms and conditions on the back and here the Irish Asphalt notepaper is photocopied and not professionally printed.”

This could hardly be regarded as the conduct necessary to establish a course of dealing such that that the terms and conditions relied on by Irish Asphalt could be said to have been incorporated into the contracts between the parties by a course of dealing.

150. For the reasons set out above, the Court is satisfied that, despite the very careful and extensive submissions of counsel on behalf of Irish Asphalt, the terms and conditions relied on have not been incorporated into the contract between the parties on any basis put forward by Irish Asphalt. Given that the Court is satisfied that the terms and conditions relied on by Irish Asphalt have not been incorporated into the contract between the parties, it is not necessary to consider whether Clause 8 of the terms and conditions was fair and reasonable having regard to the provisions of s. 55(4) of the 1893 Act, as inserted by s. 22 of the 1980 Act.

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BS Brown & Son Ltd v Craiks Ltd

[1970] UKHL 6 [1972] AC 60, 1970 SLT 141, 1970 SC (HL) 51, 54 Cr App R 460, [1970] UKHL 6, [1970] 1 All ER 823, [1970] 3 All ER 97, [1970] 1 WLR 752, [1970] WLR 752, 134 JP 622, [1970] 3 WLR 501

Lord Robertson

In my opinion it is clear on the evidence that there was a basic misunderstanding between the pursuers and the defenders at the time when these contracts were entered into. The pursuers wanted the material for dress purposes, but they did not expressly inform the defenders of this. The defenders were under the impression that the material was required for industrial purposes, and had it manufactured as such. In my opinion the pursuers have failed to prove that the particular purpose for which the goods were required was conveyed to the defenders. They have failed to prove that Mr J. S. Brown, to the knowledge of the defenders, dealt only with the dress trade. It is admitted that the particular purpose for which the goods were required was not expressly made known to the defenders, and in my opinion it has not been proved that this purpose was made known to the defenders by implication. The pursuers’ case under section 14(1) of the Sale of Goods Act, 1893, accordingly fails.

There remains the case under section 14 (2) of the Act. It is fair to say that counsel for the pursuers put this case first in his submissions, and it raises more difficulty than the case under section 14(1). It is admitted by the defenders that the goods were bought and sold by description, and I did not understand it to be disputed by the defenders that they were manufacturers who dealt in goods of that description. It is also not in dispute that the cloth made by the defenders fulfilled the description set out in the contracts. Further, no point arises under the proviso to section 14(2). The important question therefore is whether the goods were or were not of merchantable quality, because that is an implied condition of the contracts under section 14(2). It was submitted by the pursuers that it had been proved that the goods were not of merchantable quality. The question of what is meant by “merchantable quality” has recently been discussed at length in the House of Lords in Hardwick Game Farm v. S.A.P.P.A., [1969] 2 AC 31 (see particularly Lord Reid at pp. 74–9). Lord Reid (at p. 75) defines “merchantable” as “commercially saleable,” and continues:

“If the description is a familiar one it may be that in practice only one quality of goods answers that description—then that quality and only that quality is merchantable quality. Or it may be that various qualities of goods are commonly sold under that description—then it is not disputed that the lowest quality commonly so sold is what is meant by merchantable quality: it is commercially saleable under that description.”

At p. 77 Lord Reid amends the definition of “merchantable quality” given by Lord Wright in Cammell Laird & Co. v. Manganese Bronze and Brass Co . [1934] A.C. 402 (viz. “What sub-s. (2) now means by ‘merchantable quality’ is that the goods in the form in which they were tendered were of no use for any purpose for which such goods would normally be used and hence were not saleable under that description”) to:

“‘What subsection (2) now means by “

merchantable quality” is that the goods in the form in which they were tendered were of no use for any purpose for which goods which complied with the description under which these goods were sold would normally be used, and hence were not saleable under that description.’ This is an objective test: ‘were of no use for any purpose…’ must mean ‘would not have been used by a reasonable man for any purpose…’” Lord Reid also approves (at p. 78) a dictum of Lord Wright in Canada Atlantic Grain Export Co. v. Eilers, (1929) 35 L1.L.R. 206, at p. 213, viz.:

It is admitted by the defenders in their pleadings that the cloth tendered to the pursuers under the contracts was unsuitable for use as dress material. On the evidence this was clearly so (see in particular the evidence of Mr Jones and the Report and Opinion of the Manchester Chamber of Commerce dated 24th February 1966).

But problems arise in the present case out of the fact, which I have already held proved, that the defenders manufactured the cloth for industrial purposes. There is ample evidence that the quality of the cloth was reasonably satisfactory for industrial purposes, and I accept this evidence. Some of the pursuers’ witnesses, including Mr J. S. Brown, expressed the view that the quality of a cloth was either acceptable or not acceptable. A fault was a fault, and if the number of faults in a piece of 100 yards exceeded the normally accepted figure of 8 to 10, then the piece as a whole was faulty and unacceptable. The evidence of the defenders’ witnesses, however, was that a fault is a matter of opinion, relative to the mind of the inspector, who considered the matter from the point of view of the end-use, or purpose, for which the cloth was required. [His Lordship referred to the evidence as to the faults in the cloth, and as to its suitability for various purposes, and continued]—

As already stated, I hold that the quality of the cloth manufactured by the defenders was reasonably satisfactory for industrial use.

But the more difficult question is whether the goods bought and sold under the description in the contracts were commercially saleable in normal user for an industrial purpose.

It was argued by counsel for the pursuers that there was no evidence that in fact this particular construction of cloth had up till the time of the contract ever been used for an industrial purpose, and that this was fatal to the defenders: industrial use was not a normal user of the cloth. But this in my view is too strict a test. The test is whether the cloth was reasonably capable of being used for a purpose other than dress (Canada Atlantic Grain Export Co. v. Eilers, Lord Wright at p. 213). Normal user in my view means a use for which the cloth in its ordinary state was reasonably capable of being used, as opposed to being used for some extraordinary purpose (see Asfar & Co. v. Blundell, [1896] 1 Q.B. 123).

I accept that a normal user of goods bought under the description in the contracts was for making into dresses. [His Lordship referred to the evidence on this point, and continued]—

So far as other users for the cloth are concerned, it is true to say that there was no evidence that cloth answering to the whole of the description had ever been used for any industrial purpose before this contract, although most of the witnesses could see no reason why it could not be so used for a number of different purposes, including industrial user. [His Lordship discussed the evidence as to possible users. This included the evidence of Mr Duke, one of the directors of a company to which the defenders had subcontracted the manufacture of part of the order. Mr Duke deponed that the specification in the contract was close to a British Standard Specification for hose ducks (materials for laminating and reinforcing various types of hose); that he had not manufactured this particular construction of cloth before, though he had manufactured approximately similar fabrics for such end-uses; and that, though this particular construction was a novelty to him, he remembered an example of a rayon cloth very close to this specification being purchased for money bags. His Lordship then continued]—

My conclusion on this evidence is that no actual sale of this particular construction of cloth for an industrial purpose—or indeed for any purpose other than dress—is proved to have occurred before these contracts in the ordinary course of the textile trade. I am also of the opinion that it is proved on a balance of probabilities that, so far as the cloth is concerned, it was reasonably capable of being used, and was saleable, for a number of industrial purposes.

It is of assistance to examine what actually happened to the cloth which had been made, but not disposed of, at the time when the contracts were cancelled. Mr Duke was left with over 300 pieces of the cloth which were not delivered to the defenders. The price he was getting from the defenders for making it was 35¾d. per yard, which he considered a fair price for it as an industrial cloth in 1964. Eventually he sold all the residue of over 300 pieces to various outlets for various different purposes, but the price he received for it is not proved.

Mr Cook, who had, at the time when the contracts were made, considered that the cloth was for industrial purposes, would have quoted a higher price had he realised that the quality of the cloth demanded was for dress goods. When the contracts were cancelled, the defenders were in possession of a considerable quantity of the cloth (approximately 20,000 yards). In September 1966 they sold 5000 yards of it in two batches at 30d. and 29d. per yard to the Wheeler Silk Company, for use as dress material. It was dyed at a price of 12d. per yard at the expense of the defenders, the price of the dyed material accordingly being 42d. and 41d. per yard. Mr J. S. Brown considered that this price was very low and must be taken to have been on the basis that the goods were faulty. According to him Wheelers in the ordinary course could sell the dyed goods at 70d. to 75d. per yard. The defenders have recently sold another 300 yards to A. Nicol & Co., weavers, Arbroath, at 30d. per yard, for an industrial purpose. The defenders also sold 5000 yards at a price of 30d. per yard to Low and Bonar Ltd., Dundee, for industrial purposes (seed bags) in September 1966. The defenders anticipate that in the future they will readily be able to dispose of the residue of the cloth remaining in their hands (about 11,000 yards).

The pursuers, on the other hand, were left with 26,749 yards of cloth when the customers who had ordered it (Treforest Silk Printers Ltd.) cancelled their contract on 3rd December 1965…Thereafter the pursuers made attempts to sell it. Samples of the cloth were given to their salesmen, with instructions to endeavour to sell it. No offers in the neighbourhood of 36d. or 39d. per yard were received. One offer of 12d. per yard was received. Eventually the whole was disposed of in one lot at a price of 15d. per yard to a company called Andrew Mitchell, of Glasgow, who made tents and tarpaulins, on 10th January 1968. Mr J. S. Brown did not think that they could have got a better price, but it is clear from his evidence that they were attempting to sell it as faulty cloth, rather than as reasonably satisfactory industrial cloth. Mr Brown’s efforts to sell were confined to the dress trade. Mr Brown agreed, however, that he and Mr Cook had agreed that it should be offered at between 27d. and 30d. a yard after the contracts had been cancelled. This he regarded as a reasonable price. Mr J. S. Brown agreed that there had been a fall in demand for this construction of cloth in 1964 and early 1965, but later demand had risen.

Mr Ashworth, who dealt only in industrial fabrics, was one of the salesmen who tried to sell the cloth at a price of 27d. to 30d. after it had been rejected. He tried to sell it to a number of customers, probably 25 to 30, for industrial purposes, without success. He thought that the pursuers did more than anyone could do in trying to sell it.

Mr Sommerville also was enlisted to try and sell the rejected cloth, and he made personal efforts to interest various industrial firms in the cloth at a price of 27d. per yard, without success. He thought that the reason for this was because it was a special type of cloth.

In my view, the evidence of the defenders indicates that there was in fact a market for this cloth in its actual state, for industrial purposes at least, at a price of about 30d. per yard from 1966 onwards. I think that the pursuers did not make sufficiently energetic efforts to sell it among customers likely to buy it, and in the end of the day I think that they gave up and sold it in a lump at a much lower price than they might have got for it.

The price which a buyer would have offered in May 1964 for the cloth for industrial purposes is necessarily speculative. [His Lordship considered the evidence of a number of witnesses on this, and concluded]—In my view Mr Garner’s evidence suggests that the price of 36.25d. per yard was a low price for this cloth as a dress fabric, but that as an industrial cloth its value was approximately 30.5d. per yard. This in my opinion gives support to the evidence that it has been sold for industrial purposes since 1966 at 30d. per yard.

There was some evidence that prices of cloth had tended to fall in late 1964 and early 1965, but had recovered since then. I am prepared to accept that from 1966 onwards the prices approximated to those in 1964.

In these circumstances my conclusion is, as I have already said, that the cloth at the time of the contract was reasonably capable of being used, and was saleable, for a number of industrial purposes. The price of 36.25d. per yard was higher than would have been normal for it as an industrial fabric, but not unreasonably high for the defenders constructing it for such a purpose. On the other hand this price of 36.25d. per yard was low for a dress fabric, and the defenders’ price for constructing it as a dress fabric would have been higher.

Taking Lord Wright’s test of “merchantable quality,” as laid down in Canada Atlantic Grain Export Co. v. Eilers, 35 Ll.L.R. 206, at p. 213, prima facie it would appear from this conclusion that the defenders were entitled to succeed. But there is a further question created by the difference in the prices which I have indicated. This question does not seem to have been finally resolved in the cases which deal with “merchantable quality” under section 14(2) of the 1893 Act.

In Jones v. Padgett, (1890) 24 Q.B.D. 650—where the facts appear to have been not unlike the present case—it was left to a jury to decide whether cloth, which was fit to be sold to merchants for various purposes, was unmerchantable because it was unfit for a dress purpose, which was the purpose—not disclosed to the manufacturer—for which the buyer bought the cloth. The question of price was not considered in that case. See also Drummond v. Van Ingen, (1887) 12 App, Cas. 284, especially Lord Herschell at p. 296. In Canada Atlantic Grain Export Co. v. Eilers, 35 Ll.L.R. 206, Lord Wright (at pp. 212–3), in the passage already referred to, said:

“…if goods are sold under a description which they fulfil, and if goods under that description are reasonably capable in ordinary user of several purposes, they are of merchantable quality…if they are reasonably capable of being used for any one or more of such purposes, even if unfit for use for that one of those purposes which the particular buyer intended. No doubt it is too wide to say they must be of use for some purpose, because that purpose might be foreign to their ordinary user. Thus in Asfer v. Blundell, [1896] 1 Q.B. 123…dates were held to be unmerchantable as dates because they had been submerged in the Thames and had become impregnated with sewage, though they were of considerable value for distillation into vinegar.”

In Hardwick Game Farm v. S.A.P.P.A. Lord Reid approved the above opinion of Lord Wright. He says (at p. 77):

“But if the description was so general that goods sold under it are normally used for several purposes, then goods are merchantable under that description if they are fit for any one of these purposes: if the buyer wanted the goods for one of those several purposes for which the goods delivered did not happen to be suitable, though they were suitable for other purposes for which goods bought under that description are normally bought, then he cannot complain. He ought either to have taken the necessary steps to bring subsection (1) into operation or to have insisted that a more specific description must be inserted in the contract.”

Lord Reid says nothing specific about price, but approves with a small reservation (at p. 79) the dictum of Dixon J. in the High Court of Australia in Australian Knitting Mills Ltd. v. Grant, (1933) 50 C.L.R. 387, at p. 418, viz.:

(The italics are mine.)

This definition appears to refer more narrowly to goods with a latent defect, rather than to goods with no defect which have more than one purpose.

Lord Morris approves Lord Wright’s dictum in Canada Atlantic Grain Export Co. v. Eilers . Lord Guest, however, at p. 108, doubts the universal application of Lord Wright’s dictum in Cammell Laird Co. v. Manganese Bronze & Brass Co. He says:

“The test put forward by Lord Wright may be one factor or one guide in the determination of merchantability but it cannot be the determining factor since purpose is not the sole test of merchantability and the test omits all reference to price. If the test of unmerchantability is that the article is fit for no use, few goods would be unmerchantable because use can always be found for goods at a price.”

Lord Guest goes on to prefer the test of Dixon J. in Australian Knitting Mills.

Lord Pearce (at pp. 117–9) prefers the test of Dixon J. to that of Lord Wright, because “the suggestion, without more, that goods are merchantable unless they are no use for any purpose for which they would normally be used and hence would be unsaleable under that description may be misleading, if it contains no reference to price. One could not say that a new carpet which happens to have a hole in it or a car with its wings buckled are of no use for their normal purposes and hence would be unsaleable under that description. They would no doubt, if their price was reduced, find a ready market. In return for a substantial abatement of price a purchaser is ready to put up with serious defects, or use part of the price reduction in having the defects remedied. In several classes of goods there is a regular retail market for ‘seconds,’ that is, goods which are not good enough in the manufacturer’s or retailer’s view to fulfil an order and are therefore sold off at a cheaper price. It would be wrong to say that ‘seconds’ are necessarily merchantable.” Lord Pearce indicates (p. 119) that he considers the qualification “without abatement of the price” to be vital.

It seems to me that, when applying section 14(2), there are two classes of case in this line of authority to which different considerations may be applied. There are, on the one hand, the cases like Australian Knitting Mills Ltd. v. Grant and Hardwick Game Farm v. S.A.P.P.A., where there was a latent defect in the quality of the goods sold. In such a case, the test of Dixon J. is appropriate. The defective goods could only be said to be of merchantable quality if some buyers would buy them for some purpose knowing of their defective condition and without abatement of price. If they were saleable only at a price appropriate to defective goods, then they were not of merchantable quality. But there is also the type of case (e.g. Jones v. Padgett ) envisaged by Lord Wright in Canada Atlantic Grain Export Co. v.Eilers, where goods bought under a more general description are reasonably capable in ordinary user of several purposes. It may be that they are reasonably capable of being used for one or more of such purposes, although not fit for that one of those purposes which the particular buyer intended. In such a case it seems to me that in that event they are of merchantable quality under that description, even if the buyer might not have offered such a high price if he had realised that he was only going to be getting goods reasonably capable of being used for a purpose other than that for which he had intended them. Such a price is not a give-away price for defective goods: it is a full price payable for goods under that description, albeit for a different purpose not in the contemplation of the buyer. In such a case I respectfully agree with Lord Reid that the buyer’s remedy was to have taken the necessary steps to bring subsection (1) of section 14 into operation or to have insisted that a more specific description must be inserted in the contract.

In the present case, the cloth was sold by description and fulfilled the description set out in the contracts. It was reasonably capable of being used for one of the purposes for which goods under that description were reasonably capable in ordinary user. The price paid was in the seller’s view appropriate to that use, although the buyer considered the price appropriate to another use. In these circumstances I think that the pursuers have failed to prove that the goods were not of merchantable quality and that their case under section 14(2) fails.

[His Lordship then considered the question of damages. He held that the pursuers’ efforts to find a market for the 26,749 yards of cloth left on their hands had not been sufficient; that, had they made proper efforts to sell it, their loss would have been only 9d. a yard; and accordingly that the damages due, had he found in the pursuers’ favour, would have been £1003.]

The pursuers reclaimed, but on 10th July 1969 the First Division (without Lord Cameron) refused the reclaiming motion.

LORD PRESIDENT (Clyde).—This is an action of damages for breach of a contract of sale by description brought by a firm of merchants in Manchester against a jute and cotton manufacturer in Forfar, from whom the material in question had been ordered. The sole issue in the case now turns upon the meaning and effect, as applied in the circumstances of this case, of the words “merchantable quality” in the Sale of Goods Act, 1893. After a proof the Lord Ordinary has held that the defenders were not in breach of any implied condition regarding the merchantable quality of the material supplied, and he has therefore assoilzied them. Against his interlocutor so doing the pursuers have presented this reclaiming motion.

It is not in dispute between the parties that this is a case of a sale of goods by description, and that the goods in question complied with that description. It is also now established that, although they did not so inform the defenders, the pursuers in fact wanted the material for the manufacture of dresses. The defenders on the other hand understood that the material was required for industrial purposes, and manufactured it as such. This meant that it was less uniformly woven than would have been required if its use was for dresses. There was, therefore, as the Lord Ordinary held, a basic misunderstanding between the parties at the time when the contract was entered into, due to the fact that the pursuers had not disclosed to the defenders the purpose for which they intended to use the material. The case which the pursuers originally sought to make against the defenders under section 14 (1) of the Sale of Goods Act, 1893, has therefore failed. This was not disputed before us. The only case left, therefore, is the case under section 14 (2) of the Act. The material part of that subsection is:

To determine whether or not there has been a breach of this subsection it is necessary in the first place to summarise the facts found by the Lord Ordinary in regard to the material in question. This is not a case of a material of such a kind that it can only be used for one purpose, namely dresses. The Lord Ordinary has held that “there is ample evidence that the quality of the cloth” made by the defenders under the contract in question “was reasonably satisfactory for industrial purposes, and I accept this evidence.” And again, after narrating the evidence of the witnesses, he says:

“In these circumstances my conclusion is…that the cloth at the time of the contract was reasonably capable of being used, and was saleable, for a number of industrial purposes.”

As the absence of defects in the weave is much more important in the case where the material is used for dresses than where it is used for one of these industrial purposes, a higher price is to be expected if the purpose is use for dresses. The Lord Ordinary has held that the contract price in this case was low for a dress fabric, but higher than would have been normal for it as an industrial fabric, but not unreasonably high for the defenders constructing it for such a purpose.

In these circumstances in my opinion no breach of section 14 (2) has been established, and the Lord Ordinary reached the correct conclusion on the merchantability of the material. The case fits precisely into the definition of merchantable quality which was expressed by Wright J. (as he then was) in Canada Atlantic Grain Export Co. v. Eilers, 35 Ll.L.R. 206 (at p. 213), and approved by Lord Reid in Hardwick Game Farm v. S.A.P.P.A., [1969] 2 AC 31, at p. 78. Lord Wright says:

The present case is not an instance of goods sold under a description which is commonly used to identify a high quality of goods usable only for making into dresses (the situation envisaged as a possibility by Lord Reid in Hardwick Game Farm, at p. 77). The present case is one where the description in the contract covers both goods of a high quality suitable for dresses (where unevennesses in the weave should not occur) and also goods of a lower quality suitable for industrial use (where such unevennesses are immaterial). The description of the goods in the contract in question in this case is general enough to cover goods made for either purpose, and if the pursuers desired the goods to be made suitable for use for dress purposes only, they should have taken the necessary steps to bring subsection (1) into operation or have insisted that a more specific description was inserted in the contract so as to acquaint the defenders with the specific use for which they wanted the goods.

The pursuers argued, however, that the normal use of the goods such as those in question was for making up into dresses, and that this use set the standard of merchantable quality. This, however, is not the test approved in the decided cases to which I have just referred in judging of the merchantable quality of goods such as those in question, where the goods described in the contract are reasonably capable of being used for more than one purpose. Capability of being used, and not actual use or normal use, is the test. “Reasonably capable” I take to exclude use as scrap, and to cover in the present case use for making bags or other such industrial purposes. As the Lord Ordinary holds in the course of his opinion, “goods bought and sold under the description in the contracts were commercially saleable in normal user for an industrial purpose.” That is the test of their merchantability.

It was also maintained by the pursuers that there was no evidence that, when the contract was made, such material was used for any industrial purpose. From this it was sought to infer that the article in question was not a dual-purpose article at all. This argument, however, is contrary to the conclusion reached in fact by the Lord Ordinary, who held that goods bought and sold under the description in question were commercially saleable in normal user for industrial purposes. The mere fact that no instance was proved, as at the date of the contract, of use of this particular material for industrial purposes is not a secure basis for the inference that it is therefore not capable of use for any other purpose. Such a test would be far too narrow a criterion.

But, apart from this, the evidence does not support it. The pursuers’ own witness Mr Brown admitted that it might well be possible to use the material for making bags. Mr Jones, the pursuers’ expert in the trade, considered the cloth was not made for any special use, but rather for general textile purposes. The defenders’ witness Mr Cook stated that the firm had made rayon material of a very similar construction for industrial use before. Moreover, after reviewing the rest of the evidence in detail, the Lord Ordinary summarises the matter by holding that there was ample evidence that the quality of the cloth was reasonably satisfactory for a series of industrial purposes.

But, apart from this altogether, the proper test is not whether this particular description of cloth had been proved to have been in fact used for industrial purposes at the date the contract was made. The true test is set out by Lord Reid in Hardwick Game Farm v. S.A.P.P.A., [1969] 2 AC 31, at p. 77. The criterion there laid down for distinguishing merchantable from unmerchantable quality is whether “‘the goods in the form in which they were tendered were of no use for any purpose for which goods which complied with the description under which these goods were sold would normally be used, and hence were not saleable under that description.’ This is an objective test: ‘were of no use for any purpose…’ must mean ‘would not have been used by a reasonable man for any purpose…’” Judged by this standard, these goods were merchantable.

Finally it was argued that in any event the material in question was not of merchantable quality because after the cancellation of the contract certain parcels of it only fetched a price substantially less than a reasonable price for the manufacture of goods answering that description. I am not altogether clear how a matter of price in an article of this character is really in this case relevant to the question of merchantable quality. There was no question of a fixed or standard price for these goods. Indeed, as appears from the Lord Ordinary’s opinion, most cloths manufactured by the defenders were in practice unique in some particular and are seldom repeated. Moreover, the prices obtained for the rejected goods were not just throwaway prices. But however this may be, this issue regarding price does not, as I see it, arise in the present case. The Lord Ordinary has held—and his finding was not challenged on this matter—that the contract price “was higher than would have been normal for it as an industrial fabric, but not unreasonably high for the defenders constructing it for such a purpose. On the other hand, this price…was low for a dress fabric, and the defenders’ price for constructing it as a dress fabric would have been higher.” No assistance, therefore, can be gained by the pursuers from the argument on price. For the contract price was not unreasonable, whatever the purpose for which the goods were being manufactured.

On the whole matter, in my opinion, the Lord Ordinary applied the right test of merchantable quality and arrived at the correct conclusion. His interlocutor should be affirmed.

LORD GUTHRIE .—This is an action of damages at the instance of the purchasers of a quantity of cloth against the sellers. The grounds of action were alleged breaches by the defenders of the implied conditions as to the quality of the goods sold, imposed by section 14(1) and section 14(2) of the Sale of Goods Act, 1893. The Lord Ordinary held, first, that the pursuers had failed to make known to the defenders the particular purpose for which the goods were required, and accordingly that the case under section 14(1) failed. He held, second, that the goods were bought by description from the defenders, who dealt in goods of that description, that the goods complied with the description, and that they were of merchantable quality. He accordingly held that the case under section 14(2) failed. Therefore he assoilzied the defenders. He stated in his opinion that, had he found for the pursuers, he would have assessed damages at £1003. The pursuers reclaimed, and their counsel stated that they did not challenge the Lord Ordinary’s decision on section 14 (1), but that they maintained that he had erred in his conclusion dealing with section 14(2). Both parties agreed that, if the reclaiming motion succeeded, damages should be awarded at the sum assessed by the Lord Ordinary.

The Lord Ordinary’s findings in fact were also accepted by both sides, and accordingly the essential facts for the disposal of the reclaiming motion can be stated fairly briefly. [His Lordship gave the narrative quoted supra, and continued]—

In these circumstances the dispute between the parties is whether the cloth supplied was not of merchantable quality within the meaning of section 14(2), because it was not of a quality suitable for dress manufacture—the only purpose for which such cloth had previously been sold—or whether it was of merchantable quality because it was reasonably capable of being used and was saleable for industrial purposes.

In my opinion the purpose of section 14 (2) is to secure that goods which have been sold by description are of such a quality that, if they have to be disposed of subsequently, they will be saleable in the market at a reasonable price for goods of the description. In Hardwick Game Farm v. S.A.P.P.A., [1969] 2 AC 31, Lord Reid said (at p. 75):

“Merchantable can only mean commercially saleable.”

Accordingly it is an unnecessary and impracticable limitation of the subsection if “merchantable quality” is, as the pursuers contend, confined to quality suitable for such purposes as goods of the description have been used for in the past. It is an impracticable limitation, because it obviously cannot be applied to goods of a novel description, where there has been no previous use. Yet goods of a novel description which are sold by description fall within section 14 (2), and are required by it to be of merchantable quality. Therefore one must give a meaning to “merchantable quality” which will be generally applicable. Moreover, there are no practical considerations requiring the imposition of the limitation contended for by the pursuers even in the case of goods of a description previously bought and sold. If a new use is discovered for such goods and their quality is such that there is a market for goods of that description in then ordinary state for that purpose, then these goods are commercially saleable, and consequently are of merchantable quality. The result of applying these considerations to the present case is that, although the particular cloth sold by description had previously only been sold for the manufacture of dresses, nevertheless, since it was reasonably capable of being used for industrial purposes and was saleable for these purposes at a price held by the Lord Ordinary to be reasonable, it was of merchantable quality. Accordingly I am of opinion that the effect in law of the Lord Ordinary’s findings in fact, which are accepted by the pursuers, is that their case under section 14 (2) has failed, as the Lord Ordinary has decided.

But the pursuers contended that this view cannot stand with the opinions in Hardwick, and in particular with certain dicta of Lord Wright in earlier cases, which were approved by the House of Lords in Hardwick. The passage most discussed in argument was taken from the opinion of Lord Wright (then Wright J.) in Canada Atlantic Grain Export Co. v. Eilers, 35 Ll.L.R. 206, at p. 213. It is in these terms:

“It seems to follow that if goods are sold under a description which they fulfil, and if goods under that description are reasonably capable in ordinary user of several purposes, they are of merchantable quality within Sect. 14 (2) of the Act if they are reasonably capable of being used for any one or more of such purposes, even if unfit for use for that one of those purposes which the particular buyer intended. No doubt it is too wide to say they must be of use for some purpose, because that purpose might be foreign to their ordinary user. Thus in Asfar v. Blundell, [1896] 1 Q.B. 123…dates were held to be unmerchantable as dates because they had been submerged in the Thames and had become impregnated with sewage, though they were of considerable value for distillation into vinegar.”

In Cammell Laird & Co. v. Manganese Bronze, and Brass Co., [1933] AC 402, at p. 430, Lord Wright, as edited by Lord Reid in Hardwick at p. 77, stated that goods would not be of merchantable quality if, in the form in which they were tendered, they were of no use for any purpose for which goods which complied with the description under which these goods were sold would normally be used, and hence were not saleable under that description. Again in Grant v. Australian Knitting Mills, Ltd. [1936] AC 85, Lord Wright, delivering the judgment of the Privy Council, said (at pp. 99–100):

“…whatever else merchantable may mean, it does mean that the article sold, if only meant for one particular use in ordinary course, is fit for that use.”

Counsel for the pursuers submitted that when Lord Wright referred to “ordinary user” and “any purpose for which goods…would normally be used,” he meant the use to which such goods had habitually been put in the past. Therefore in the present case the goods were not of merchantable quality, because they were not suitable for the only purpose for which such goods had previously been sold, namely, dress manufacture.

It is true that such words as “ordinary user” are capable of more than one meaning, the particular meaning conveyed being dependent on the context. Normal use or ordinary use may mean customary use, as contended for by the pursuers. It may also mean use which is appropriate to the goods in their proper state, as opposed to a “foreign” use, as in Asfar & Co. v. Blundell, or to an abuse. I think that the context shows that Lord Wright used the words under discussion in the latter sense. He spoke about goods being “reasonably capable in ordinary user of several purposes,” which shows that what he had in mind was the use which might be made of the goods and not the purposes to which they had previously been applied. No doubt previous uses are important in considering the uses of which goods are reasonably capable, but Lord Wright does not suggest that such uses are the only ones for consideration.

Then it was submitted by counsel for the pursuers that a passage from Lord Reid’s speech in Hardwick at p. 75 inferred that the extracts from Lord Wright’s opinions were to be given the meaning contended for by them. Lord Reid said:

I think that his Lordship was in that passage giving illustrative examples, and that he did not mean to convey by using the phrase “commonly sold,” that only previous practice is to be looked to in deciding whether goods are of merchantable quality. In my opinion the law as laid down by the House of Lords in Hardwick is summarised by Lord Morris of Borth-y-Gest at p. 97 thus:

“If therefore, goods of the contract description are tendered and if the tendered goods though having certain defects are reasonably capable of being put to a use for which a buyer knowing of the defects would be likely to buy them, then they are of merchantable quality.”

If this sentence is applied to the present case, the pursuers must fail. Although the goods supplied by the defenders had certain defects which rendered them unsuitable for use as dress material, they were reasonably capable of industrial use, and in fact buyers were found for the material for such purposes.

Counsel for the pursuers also contended that the goods were not merchantable because the prices received when they were ultimately sold showed that buyers would not accept them except at an abatement of about 6d. per yard on the contract price. The fallacy of this argument is that it assumes that the contract price was the appropriate price for such goods if sold for industrial use. In Hardwick Lord Guest pointed out (at p. 108) that, in considering merchantability, regard must be had to the price which the goods can fetch. The reason is that goods may be sold at a throwaway price for use as scrap, although unmerchantable in the true sense. Approval was also given in the House of Lords to a passage from the opinion of Dixon J. in Australian Knitting Mills Ltd. v. Grant, 50 C.L.R. 387, at p. 418, in which he referred to the price obtainable for the goods as having a bearing on the question of merchantability. But in the present case the Lord Ordinary has held that the goods were capable of realising a price which was not a give-away price for defective goods, but a full price for goods of the description for industrial purposes. Accordingly, although that price was less than the price paid by the pursuers for the goods for the purpose of dress manufacture, the goods were still of merchantable quality for industrial purposes.

In my opinion the Lord Ordinary’s decision is sound, and the reclaiming motion should be refused.

LORD MIGDALE .—[His Lordship narrated the facts and the procedure in the action, quoted section 14(2) of the Sale of Goods Act, 1893, and continued]—

We are not told what was the full description of these goods, but counsel for the pursuers conceded that the goods supplied by the defenders complied with the description. So the only question now before us is whether the goods delivered met the implied condition that they were of merchantable quality.

Much has been said by judges as to the meaning and effect of these words. I will content myself with referring to what Lord Reid said in Hardwick Game, Farm v.S.A.P.P.A., [1969] 2 AC 31, at pp. 74–5:

“If one puts aside for the moment the encrustations of authority their meaning [i.e. of the subsections] appears to me to be reasonably clear. But, if a whole chapter of the law is compressed into one section of a code, one cannot expect its words to apply to unusual cases without expansion or adaptation. That is the task of the court: but it is not in my view legitimate to substitute for the words of the code some general words used by an eminent judge in a particular case and treat them as a test of universal application.”

His Lordship then goes on to deal with section 14(2):

“It applies to all sales by description where the seller deals in such goods. There may be a question whether the sale of a particular article is not really a sale by description but that does not arise here: these are clearly sales by description. Then it is a condition (unless excluded by the contract) that the goods must be of merchantable quality. Merchantable can only mean commercially saleable. If the description is a familiar one it may be that in practice only one quality of goods answers that description—then that quality and only that quality is merchantable quality. Or it may be that various qualities of goods are commonly sold under that description—then it is not disputed that the lowest quality commonly so sold is what is meant by merchantable quality: it is commercially saleable under that description.”

Lord Reid then refers to a sale under a novel description, but counsel assured us that the description given in the present case was not a novel description.

His Lordship at pp. 76 and 77 deals with what Lord Wright said in Cammell Laird & Co. v. Manganese Bronze and Brass Co., [1934] A.C. 402, at p. 430, and rephrases it as follows:

“‘What subsection (2) now means by “

In Canada Atlantic Grain Export Co. v. Eilers, 35 L1.L.R. 206, Lord Wright said (at p. 213):

The question in the present case is whether the goods as described were reasonably capable of being used for some purpose in addition to making into dresses. The Lord Ordinary’s finding on this question is:

“…it is true to say that there was no evidence that cloth answering to the whole of the description had ever been used for any industrial purpose before this contract, although most of the witnesses could see no reason why it could not be so used for a number of different purposes, including industrial user.”

This finding means that this cloth, as described, was reasonably capable of being used for industrial purposes, and this was verified later by the fact that both the pursuers and the defenders were able to sell the remainder for such uses.

Counsel for the pursuers contended that on this finding the Lord Ordinary was not entitled to conclude, as he did, that the cloth was of merchantable quality because it was reasonably capable of being used, and was saleable, for a number of industrial purposes. There was then no existing market for cloth of that description outside the dress market, which demanded a higher quality of weaving and finishing than was to be found in the cloth supplied. The words “would normally be used” in the speeches of Lord Wright and Lord Reid meant that there must be in existence a market for cloth of viscous thread of lower-grade weave at the time of the sales. In other words, there must be evidence that previous sales of cloth of that description had taken place for industrial purposes. I do not think this is sound. The question is not whether a buyer for rayon cloth in that grade of weave was to be found in a list of “Classified Trades,” but whether in fact someone would buy it for industrial purposes if it was brought to his notice.

On the view which I take—that the words “would normally be used” include a potential market as well as an established one—I think the Lord Ordinary was entitled to find that the cloth sold was reasonably capable of being used for one of the purposes for which goods of that description were reasonably capable of use in ordinary user and so was of merchantable quality. The situation appears to be that there was an established market for cloth of this lower-grade standard of weave and finish for industrial purposes. That cloth had formerly been woven from cotton or jute. The defenders wove this cloth from rayon fibre on the same looms to the same standard. They had not to date sold much for industrial purposes, but when they tried to do so, they found buyers and were able to sell the whole of the orders left on their hands. In other words, there was, at the time when the orders were placed, a potential market for that grade of cloth made from rayon as well as for cloth of the same grade woven from cotton or jute.

The pursuers also contended that the cloth tendered was not of merchantable quality because, when they did sell it, they were only able to get a price for it which was substantially less than they would have got if it had been sold for making into dresses. I think the answer to this lies in a passage in the speech of Lord Reid in the Hardwick Game Farm case to which I have already referred. In [1969] A.C., at p. 77, his Lordship says:

“…if the description was so general that goods sold under it are normally used for several purposes, then goods are merchantable under that description if they are fit for any one of these purposes: if the buyer wanted the goods for one of those several purposes for which the goods delivered did not happen to be suitable, though they were suitable for other purposes for which goods bought under that description are normally bought, then he cannot complain. He ought either to have taken the necessary steps to bring subsection (1) into operation or to have insisted that a more specific description must be inserted in the contract.”

The pursuers’ contention about the price was founded on a statement by Dixon J. in the High Court of Australia in Australian Knitting Mills Ltd. v. Grant, 50 C.L.R. 387, at p. 418:

This statement of the meaning of “merchantable quality” adds to the older statement the words “without abatement of the price obtainable for such goods.”

Lord Guest in the Hardwick Game Farm case, [1969] 2 AC 31, at p. 108, says that he prefers this test of merchantable quality to that propounded by Lord Wright. Lord Pearce (at p. 118) expresses the same view. He refers to a buyer who hopes to get a new motor car but is given one with buckled wings. I agree with that, but that is not the position here. A motor car delivered to the buyer with buckled wings would not comply with the description of a new motor car and so would not fulfil the terms of section 13. Here it is conceded that the cloth delivered did comply with section 13 and the Lord Ordinary has found that the description under which it was sold would cover cloth which could be used for a number of different purposes.

I think the Lord Ordinary is right when he says that those words are not relevant where the goods sold are reasonably capable of being used for more than one purpose under the same description. On the other hand they do underline the fact that goods are not of merchantable quality if the only price that can be obtained for them is a “give-away” one. In the present case if the price obtainable for industrial use had been much below the price for dress-making cloth, that factor might have indicated to the seller that it was required for a special purpose and so must be of high grade. That might bring the sale under section 14 (1), but the Lord Ordinary’s ruling against that case is not challenged.

In this case the Lord Ordinary has found that the price for cloth for industrial use was about 30d. per yard and that that price was not unreasonably high. On the other hand the price which the defenders would have charged if they had been selling under section 14(1) would have been higher than 36.25d. per yard. There is no room for the suggestion that 30d. was a “give-away” price.

On the whole matter I am of opinion that the defenders complied with the requirements of section 14(2) and that the Lord Ordinary reached the correct conclusions. I would accordingly refuse the reclaiming motion and assoilzie the defenders.

The pursuers appealed to the House of Lords, before which the case was heard on 21st and 22nd January 1970.

At delivering judgment on 3rd March 1970,—

LORD REID .—My Lords, this case arises out of two orders given by the appellants, who are textile merchants, to the respondents, who are cloth manufacturers. Those orders were for the manufacture of considerable quantities of rayon cloth to a detailed specification. There was a misunderstanding as to the purpose for which the buyers wanted the cloth. They wanted it to fulfil contracts for cloth for making dresses. The sellers thought it was for industrial use. The Lord Ordinary found that they were “astounded” when they first heard, some months after deliveries had commenced, that it was to be used for dresses, and that they would not have accepted the order if they had known that. When the contract was determined, both parties were left with considerable quantities on their hands.

The buyers sue for damages. Admittedly this was a sale by description within the meaning of the Sale of Goods Act, 1893, and the cloth delivered complied with the description. But the buyers alleged breach of the conditions implied by section 14 (1) and (2) of the Act. The Lord Ordinary held there was no breach and assoilzied the defenders. The buyers accepted this decision as regards section 14(1) but reclaimed as regards section 14(2). They accept all the Lord Ordinary’s findings of fact. The First Division adhered to the Lord Ordinary’s interlocutor. The only question now before your Lordships is whether the goods were of merchantable quality within the meaning of section 14 (2), which is as follows:

It is common ground that the cloth, though complying with the contract description, was not suitable for making dresses—apparently because of irregular weaving. But it was suitable for a number of industrial uses, such as making bags. Was it therefore of merchantable quality?

The Lord Ordinary found that the contract price was a low price for cloth of that description for use for making dresses but “higher than would have been normal for it as an industrial fabric, but not unreasonably high for the defenders constructing it for such a purpose.” There is no doubt that cloth of this or very similar description was in common use for making dresses. There was no evidence that cloth of this precise description had been used for industrial purposes, but there is a finding that the respondents “had made rayon material of a very similar construction for industrial use before.” The Lord Ordinary appears to have accepted the evidence of an expert who said that he had never seen this particular construction of cloth before because the material was viscose, not cotton.

It is evident that at the proof the appellants put most weight on their case under section 14 (1), so it is not surprising that the findings of fact with regard to their case under section 14 (2) are not as detailed as one might have desired. Certainly this kind of cloth of the quality delivered was suitable for industrial use, but we do not know why it was not more frequently used for industrial purposes. There is no suggestion in the findings that the manufacturers, as dealers in goods of that description, ought to have known, or even suspected, that these goods were not intended for industrial use.

All the well-known authorities were cited on the proper interpretation of “merchantable quality.” Some importance was attached to what I said in Hardwick Game Farm v. S.A.P.P.A. (at p. 75):

I see no reason to alter what I said, but judicial observations can never be regarded as complete definitions: they must be read in light of the facts and issues raised in the particular case. I do not think it is possible to frame, except in the vaguest terms, a definition of “merchantable quality” which can apply to every kind of case. In the Hardwick case no question as to price arose, because the evidence showed that, even when all the facts were known, the market price was the same for tainted and untainted goods. But suppose that the market price for the better quality is substantially higher than that for the lower quality. Then it could not be right that, if the contract price is appropriate for the better quality, the seller should be entitled to tender the lower quality and say that, because the lower quality is commercially saleable under the contract description, he has fulfilled his contract by delivering goods of the lower quality. But I think that the evidence in this case with regard to prices is much too indefinite to support a case on that basis.

The appellants relied mainly on the contention that, whereas cloth of this description had been commonly used for making dresses, there was no evidence that such cloth had ever been put to any industrial use. There is, I think, some ambiguity in saying that goods are of the same description where the contract description is a precise and detailed specification for their manufacture. One may mean of the same precise and detailed description, and that may be novel: or one may mean of the same general description, and that may be common. In most of the authorities the latter meaning seems to have been adopted. Here, as I read the findings of fact, it is not clear whether cloth had commonly been made to this precise specification: but it is clear that cloth of this general description had commonly been used for making dresses and had sometimes been put to an industrial purpose.

Of the various general statements of the law I think that the most applicable to the present case is that of Lord Wright in Cammell Laird & Co. v. Manganese Bronze and Brass Co. In the Hardwick case I suggested (at p. 77) that a slight alteration was necessary and that this statement should read:

“What subsection (2) now means by ‘merchantable quality’ is that the goods in the form in which they were tendered were of no use for any purpose for which goods which complied with the description under which these goods were sold would normally be used, and hence were not saleable under that description.”

The question, then, is whether this cloth “would normally be used” for industrial purposes. It was suitable for such use. Moreover, the manufacturers assumed it was for such use and their good faith is not disputed. There is no finding that other skilled and knowledgeable manufacturers would have thought differently. So I cannot find any ground for holding that the cloth delivered would not normally be used for any industrial purpose. And if one is entitled to look at the facts and the statutory condition apart from authority, I would not hold that it had been proved that the cloth delivered was not of merchantable quality. I would therefore dismiss this appeal.

________________________________________

R & B Customs Brokers Company Ltd v United Dominions Trust Ltd

[1987] EWCA Civ 3 [1988] WLR 321, [1988] 1 All ER 847, [1987] 1 WLR 321, [1987] WLR 321, [1988] 1 WLR 321

Dillon LJ

The company relies on section 14 of the Sale of Goods Act 1979, which in its form relevant to this contract, having regard to its date, provides so far as material as follows:

“14.-(1) Except as provided by this section … and subject to any other enactment, there is no implied condition or warranty about the quality or fitness for any particular purpose of goods supplied under a contract of sale.

“(2) Where the seller sells goods in the course of a business, there is an implied condition that the goods supplied under the contract are of merchantable quality, except that there is no such condition –

(a) as regards defects specifically drawn to the buyer’s attention before the contract is made; or

(b) if the buyer examines the goods before the contract is made, as regards defects which that examination ought to reveal.

“(3) Where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known to the seller any particular purpose for which the goods are being bought, there is an implied condition that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the seller’s skill or judgment.

“(4) …

“(5) The preceding provisions of this section apply to a sale by a person who in the course of a business is acting as agent for another as they apply to a sale by a principal in the course of a business, except where that other is not selling in the course of a business and either the buyer knows that fact or reasonable steps are taken to bring it to the notice of the buyer before the contract is made.

“(6) …

“(7) In the application of subsection (3) above to an agreement for the sale of goods under which the purchase price or part of it is payable by instalments any reference to the seller includes a reference to the person by whom any antecedent negotiations are conducted”.

So far as subsection (2) is concerned, the relevant date is the date when the contract was made. With the usual tripartite arrangement between a dealer, a finance company and a purchaser, that is likely to be the entirely fortuitous date when the relevant documents are countersigned by the finance company, just as in the present case the contract was made on 3rd November 1984. That is not satisfactory for the working of the Act, because if, as here, the purchaser is allowed interim possession of the car (or other goods) in question he may well by the experience of use become aware of defects, without appreciating their gravity, before the date on which the contract happens to be made. So in the present case the company was, through Mr Bell, aware by experience before 3rd November that the roof of the car leaked, though he had no idea that the leak was incurable.

The question therefore that arises under subsection (2) is whether, even though the car was in fact not of merchantable quality at 3rd November, the company is precluded from relying on the condition in subsection (2) by virtue of the exception (b) because the company knew there was a leak in the roof even though it did not know that the leak was incurable. The judge held that the company was precluded from relying on the condition in subsection (2) because the company had knowledge that there was a leak in the roof; in effect, caveat emptor once the purchaser has notice of a defect, however apparently slight. If that is right, then, in the usual tripartite case involving a finance company, subsection (2) is something of a trap for a purchaser; he may lose his rights under the subsection if he fails to return the car or goods, or renegotiate the proposed contract, on the first appearance of an apparently slight defect.

However, in the circumstances of the present case I find it unnecessary to express a concluded view on whether the company can rely on the condition in subsection (2). On the facts of this case it is sufficient for the company if there is in the contract an implied condition either of merchantable quality under subsection (2) or in the terms of subsection (3) of section 14. I agree with the judge -subject to the questions in relation to the 1977 Act to which I have yet to come – that there is to be implied in the contract between the company and the defendants an implied condition, under subsection (3), that the car was reasonably fit for the purpose for which it was being bought and that that condition was broken.

Subsection (3) refers to “any particular purpose for which the goods are being bought.” Nothing has turned on the words “particular purpose” on this appeal; it has been common ground that the particular purpose made known by implication to the third party (who is to be treated as the seller by virtue of subsection (7)) was the purpose of ordinary use upon the roads in England – in English weather. As Lord Morris of Borth-y-Gest observed in Hardwick Game Farm v. S.A.P.P.A. [1969] 2 AC 31, at 93F-G:

“There is no magic in the word ‘particular.’ A communicated purpose, if stated with reasonably sufficient precision, will be a particular purpose. It will be the given purpose. Sometimes the purpose of a purchase will be so obvious that only one purpose could reasonably be in mutual contemplation. An only purpose or an ordinary purpose may therefore be a particular purpose … Sometimes a particular purpose will be made known expressly: sometimes it will be made known by implication.”

What is said for the third party in relation to subsection (3) is that the condition is not to be implied because of the final words of the subsection – “except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the seller’s skill or judgment.” It is said that by the date of the contract, 3rd November, Mr Bell knew of the roof-leak and had so far chosen not to tell the third party of it, while the third party did not know of it at all. It is said further for the third party that, though on 5th November Mr Bell undoubtedly relied on the third party when Mr Wyeth promised to have the leak detected and fixed, that came too late and was inadmissible, as the defendants had signed the forms of contract on 3rd November.

I do not accept those submissions of the third party. What happened on 5th November is, in my judgment, admissible as part of the evidence to show what the state of mind of Mr Bell and therefore of the company was on the 3rd. It is accepted on behalf of the third party that, in respect of most matters concerning the car, the company was relying on the skill and judgment of the third party. That would have been particularly so on the 20th and 21st September, but it would have been a continuing reliance; if Mr Bell after taking possession of the car drove it at speed, he would have done so in continuing reliance on the third party not having “sold” him a car with defective brakes. When he realised that the roof of the car leaked, his reliance on the third party did not automatically terminate. The car was at that stage anyhow to go back to the third party on a date to be arranged for the radio to be fitted, as indicated in the letter of the 10th October. I can see nothing in the short delay from when the leak was first apparent and 3rd November to indicate that Mr Bell had ceased to rely on the third party’s skill and judgment. Then what happened on 5th November confirms that he did still rely on it. Accordingly, as indicated above, I agree with the judge on subsection (3) of section 14.

I come therefore to the 1977 Act and the defendants’ printed conditions on their form of contract with the company. It is not in dispute that those conditions were sufficiently drawn to Mr Bell’s attention, although he did not trouble to read them, and therefore, in so far as they were applicable and valid, they are part of the conditional sale agreement of 3rd November between the defendants and the company.

The relevant condition of the defendants, printed on the back of the form of conditional sale agreement, reads as follows:

“IF THE BUYER DEALS AS A CONSUMER WITHIN THE MEANING OF SECTION 12 OF THE UNFAIR CONTRACT TERMS ACT 1977 OR ANY STATUTORY MODIFICATION OR RE-ENACTMENT THEREOF (‘THE STATUTE’) THE BUYER’S STATUTORY RIGHTS ARE NOT AFFECTED BY SUB-CLAUSE (a) OF THE FOLLOWING CLAUSE.

“EXCLUSION OF WARRANTIES AND CONDITIONS – 2.(a) The seller not being the manufacturer of the goods nor at any time prior to the making of this agreement being in actual possession or control of them does not let the goods subject to any warranty or condition whether express or implied as to condition description quality or fitness for any particular purpose or at all.”

The 1977 Act provides by subsections (2) and (3) of section 6 as follows:

“(2) As against a person dealing as consumer, liability for breach of the obligations arising from –

(a) section 13, 14 or 15 of the 1893 Act (seller’s implied undertakings as to conformity of goods with description or sample, or as to their quality or fitness for a particular purpose);

(b) section 9, 10 or 11 of the 1973 Act (the corresponding things in relation to hire-purchase), cannot be excluded or restricted by reference to any contract term.

“(3) As against a person dealing otherwise than as consumer, the liability specified in subsection (2) above can be excluded or restricted by reference to a contract term, but only in so far as the term satisfies the requirement of reasonableness.”

For the purposes of the present case the reference to the 1893 Act is to be taken as a reference to the Sale of Goods Act 1979.

Two questions therefore arise, and success on either of them is sufficient for the company’s purposes, viz:

(1) In entering into the conditional sale agreement with the defendants, was the company “dealing as consumer”? If it was, then, on the wording of the defendants’ printed conditions, the condition 2(a) did not apply, no doubt because under section 6(2) of the 1977 Act the liability could not be excluded.

(2) If the company was dealing otherwise than as a consumer, does the defendants’ condition 2(a) excluding liability under section 14(3) satisfy “the requirement of reasonableness”?

“Dealing as a consumer” is defined in section 12 of the 1977 Act, which provides as follows:

“12.-(1) A party to a contract ‘deals as consumer’ in relation to another party if –

(a) he neither makes the contract in the course of a business nor holds himself out as doing so; and

(b) the other party does make the contract in the course of a business; and

(c) in the case of a contract governed by the law of sale of goods or hire-purchase, or by section 7 of this Act, the goods passing under or in pursuance of the contract are of a type ordinarily supplied for private use or consumption.

“(2) But on a sale by auction or by competitive tender the buyer is not in any circumstances to be regarded as dealing as consumer.

“(3) Subject to this, it is for those claiming that a party does not deal as consumer to show that he does not.”

It is accepted that the conditions (b) and (c) in section 12(1) are satisfied. This issue turns on condition (a). Did the company neither make the contract with the defendants in the course of a business nor hold itself out as doing so?

In the present case there was no holding out beyond the mere facts that the contract and the finance application were made in the company’s corporate name, and in the finance application the section headed “Business Details” was filled in to the extent of giving the nature of the company’s business as that of shipping brokers, giving the number of years trading and the number of employees, and giving the names and addresses of the directors. What is important is whether the contract was made in the course of a business.

In a certain sense, however, from the very nature of a corporate entity, where a company which carries on a business makes a contract, it makes that contract in the course of its business; otherwise the contract would be ultra vires and illegal. Thus, where a company which runs a grocer’s shop buys a new delivery van, it buys it in the course of its business. Where a merchant bank buys a car as a “company car” as a perquisite for a senior executive, it buys it in the course of its business. Where a farming company buys a landrover for the personal and company use of a farm manager, it again does so in the course of its business. Possible variations are numerous. In each case it would not be legal for the purchasing company to buy the vehicle in question otherwise than in the course of its business. Section 12 does not require that the business in the course of which the one party, referred to in condition (a), makes the contract must be of the same nature as the business in the course of which the other party, referred to in condition (b), makes the contract – e.g., that they should both be motor dealers.

We have been referred to one decision at first instance under the 1977 Act, Peter Symmons & Co. v. Cook [1981] N.L.J. 758, but the note of the judgment is too brief to be of real assistance. More helpfully, we have been referred to decisions under the Trade Descriptions Act 1968, and in particular to the decision of the House of Lords in Davies v. Sumner [1984] 1 W.L.R. 1301.

Under the Trade Descriptions Act any person who in the course of a trade or business applies a false trade description to goods is, subject to the provisions of the Act, guilty of an offence. It is a penal Act, whereas the 1977 Act is not, and it is accordingly submitted that decisions on the construction of the Trade Descriptions Act cannot assist on the construction of section 12 of the 1977 Act.

Also the legislative purposes of the two Acts are not the same. The primary purpose of the Trade Descriptions Act is consumer protection, and the course of business referred to is the course of business of the alleged wrongdoer. But the provisions as to dealing as a consumer in the 1977 Act are concerned with differentiating between two classes of innocent contracting party – those who deal as consumers and those who do not – for whom differing degrees of protection against unfair contract terms are afforded by the 1977 Act. Despite these distinctions, however, it would, in my judgment, be unreal and unsatisfactory to conclude that the fairly ordinary words “in the course of business” bear a significantly different meaning in, on the one hand, the Trade Descriptions Act, and, on the other hand, section 12 of the 1977 Act. In particular I would be very reluctant to conclude that these words bear a significantly wider meaning in section 12 than in the Trade Descriptions Act.

I turn therefore to Davies v. Sumner. That case was not concerned with a company, but with an individual who had used a car for the purposes of his business as a self-employed courier. When he sold the car by trading it in in part exchange for a new one, he had applied a false trade description to it by falsely representing the mileage the car had travelled to have been far less than it actually was. Lord Keith of Kinkel, who delivered the only speech in the House of Lords, commented at page 1304F-G that it was clear that the transaction – s.c. of trading in the car on the purchase of a new one – was reasonably incidental to the carrying on of the business, but he went on to say (at page 1305):

“Any disposal of a chattel held for the purposes of a business may, in a certain sense, be said to have been in the course of that business, irrespective of whether the chattel was acquired with a view to resale or for consumption or as a capital asset. But in my opinion section 1(1) of the Act is not intended to cast such a wide net as this. The expression ‘in the course of a trade or business’ in the context of an Act having consumer protection as its primary purpose conveys the concept of some degree of regularity, and it is to be observed that the long title to the Act refers to ‘misdescriptions of goods, services, accommodation and facilities provided in the course of trade.’ Lord Parker C.J. in the Havering case [1970] 1 W.L.R. 1375 clearly considered that the expression was not used in the broadest sense. The reason why the transaction there in issue was caught was that in his view it was ‘an integral part of the business carried on as a car hire firm.’ That would not cover the sporadic selling off of pieces of equipment which were no longer required for the purposes of a business. The vital feature of the Havering case appears to have been, in Lord Parker’s view, that the defendant’s business as part of its normal practice bought and disposed of cars. The need for some degree of regularity does not, however, involve that a one-off adventure in the nature of trade, carried through with a view to profit, would not fall within section 1(1) because such a transaction would itself constitute a trade.”

Lord Keith then held that the requisite degree of regularity had not been established on the facts of Davies v. Sumner because a normal practice of buying and disposing of cars had not yet been established at the time of the alleged offence. He pointed out for good measure that the disposal of the car was not a disposal of stock in trade of the business, but he clearly was not holding that only a disposal of stock in trade could be a disposal in the course of a trade or business.

Lord Keith emphasised the need for some degree of regularity, and he found pointers to this in the primary purpose and long title of the Trade Descriptions Act. I find pointers to a similar need for regularity under the 1977 Act, where matters merely incidental to the carrying on of a business are concerned, both in the words which I would emphasise, “in the course of” in the phrase “in the course of a business” and in the concept, or legislative purpose, which must underlie the dichotomy under the 1977 Act between those who deal as consumers and those who deal otherwise than as consumers.

This reasoning leads to the conclusion that, in the 1977 Act also, the words “in the course of business” are not used in what Lord Keith called “the broadest sense”. I also find helpful the phrase used by Lord Parker C.J. and quoted by Lord Keith, “an integral part of the business carried on.” The reconciliation between that phrase and the need for some degree of regularity is, as I see it, as follows: there are some transactions which are clearly integral parts of the businesses concerned, and these should be held to have been carried out in the course of those businesses; this would cover, apart from much else, the instance of a one-off adventure in the nature of trade, where the transaction itself would constitute a trade or business. There are other transactions, however, such as the purchase of the car in the present case, which are at highest only incidental to the carrying on of the relevant business; here a degree of regularity is required before it can be said that they are an integral part of the business carried on, and so entered into in the course of that business.

Applying the test thus indicated to the facts of the present case, I have no doubt that the requisite degree of regularity is not made out on the facts. Mr Bell’s evidence that the car was the second or third vehicle acquired on credit terms was in my judgment and in the context of this case not enough. Accordingly, I agree with the judge that, in entering into the conditional sale agreement with the defendants, the company was “dealing as consumer”. The defendants’ condition 2(a) is thus inapplicable and the defendants are not absolved from liability under section 14(3).

There is a different approach which I would wish to leave open for a future case since it was not argued before us. If the company had never incorporated and Mr Bell had bought the car personally for personal (or domestic) and business use, it would, I apprehend, have been difficult to argue that he had not been dealing as a consumer in buying the car. On facts such as those of the present case it would seen anomalous and in some measure disquieting if a different result were reached if the car was bought by a company for the personal and business use of its two directors. It occurs to me that in such circumstances it could well be appropriate to pierce the corporate veil and look at the realities of the situation as in D.H.N. Food Distributors Ltd. v. Tower Hamlets London Borough Council [1976] 1 W.L.R. 852; see especially the comments of Lord Denning M.R. and Goff L.J.

It follows that it is unnecessary to decide whether, if the company had been dealing otherwise than as a consumer, the defendants’ condition 2(a) excluding all liability under (inter alia) section 14(3) satisfied the requirement of reasonableness. It is urged that it does not, because in these tripartite transactions the defendants are working with dealers of their choice, and whom they have approved, such as the third party, and have obvious rights of recourse against the dealer in the event of the defendants being held liable to a purchaser. It was submitted that the defendants had therefore no need for the protection of such a stringent condition as condition 2(a) and it was unreasonable to impose it. This question has, however, to be considered on the hypothesis that the company was dealing otherwise than as consumer, i.e., was making the contract in the course of business. In such a case Parliament has, by the scheme of the statute, envisaged that it may be reasonable for a party to exclude liability under section 14 of the Sale of Goods Act; it cannot be said that as a matter of customer protection any exclusion is per se unreasonable. The requirement of reasonableness is defined in section 11 of the 1977 Act and the onus of establishing that it is satisfied is on the defendants; it requires that the term, s.c. condition 2(a), shall have been a fair and reasonable one to be included in the contract having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made, and with particular regard to the matters specified in schedule 2 of the 1977 Act.

The most obviously important facts are: (1) that the company was ex hypothesi dealing in the course of business and Mr Bell was not devoid of commercial experience; and (ii) that, even though they would have recourse against the third party, the defendants had never themselves had possession of or inspected the car. In view of these factors, I would in all the circumstances have agreed with the judge, had it been necessary to decide the point, that the “reasonableness” test was satisfied in relation to condition 2(a).

In the upshot, however, for the reasons which I have given, and which are substantially the same as those of the judge on the points which he decided in favour of the company, I would dismiss this appeal.

LORD JUSTICE NEILL: The conditional sale agreement between R & B Custom Brokers Company Ltd. (the company) and United Dominions Trust (U.D.T.) was made on 3rd November 1984. It has been accepted that the contract between U.D.T. and the third party (the dealers) was made on the same date. There is no evidence to explain why so long a period elapsed between the date when the company first took delivery of the car (21st September) and the date of the agreement. As a result the company had the use of the car for about six weeks without payment; on the other hand, the company was in a position to observe any defects in the car before the agreement was made.

As the agreement between the company and U.D.T. was made in November 1984, it was governed by the provisions as to implied terms about quality or fitness set out in paragraph 5 of schedule 1 to the Sale of Goods Act 1979, unless those provisions were excluded by the express terms of the agreement. I shall have to consider later the question whether the statutory implied terms were successfully excluded.

The relevant terms are to be found in section 14 of the 1979 Act in the form in which that section took effect in relation to contracts made between 18th May 1973 and 19th May 1985. So far as is relevant, the section was in these terms:

“(1) Except as provided by this section and section 15 below …, there is no implied condition or warranty about the quality or fitness for any particular purpose of goods supplied under a contract of sale.

(a) …..

(b) if the buyer examines the goods before the contract is made, as regards defects which that examination ought to reveal.

“(4) …

Clause 2(a) is in wide terms and prima facie is apt to exclude any implied conditions or warranties. But, as the agreement itself makes clear, a buyer’s statutory rights are not affected if he deals as a consumer within the meaning of section 12 of the Unfair Contract Terms Act 1977 (the 1977 Act): see section 6(2) of the 1977 Act.

It is necessary therefore to examine section 12 of the 1977 Act. It is in these terms:

“(1) A party to a contract ‘deals as consumer’ in relation to another party if –

(a) he neither makes the contract in the course of a business nor holds himself out as doing so; and

(b) the other party does make the contract in the course of a business; and

(c) in the case of a contract governed by the law of sale of goods … the goods passing under or in pursuance of the contract are of a type ordinarily supplied for private use or consumption.

“(2) But on a sale by auction or by competitive tender the buyer is not in any circumstances to be regarded as dealing as consumer.

“(3) Subject to this, it is for those claiming that a party does not deal as consumer to show that he does not.”

By section 14 of the 1977 Act “business” is defined as including “a profession and the activities of any government department or local or public authority”, but there is no definition in the Act of the phrase “in the course of a business”.

It can be strongly argued that, where a person or company, being in “business” within the statutory definition, buys goods for the purposes of that business, the contract is made by him or it “in the course of a business”. Indeed, in the case of a company it can be said that the contract would be ultra vires if it were not made “in the course of a business”.

On this analysis a professional man or a company which buys a carpet for the office makes the contract of purchase “in the course of a business”. Furthermore, this construction of “deals as consumer” (section 12) and of “a person dealing as consumer” (section 6(2)) would appear to be in conformity with the expression “in consumer use” in section 5.

Thus section 5(2)(a) provides that “goods are to be regarded as ‘in consumer use’ when a person is using them, or has them in his possession or use, otherwise than exclusively for the purposes of a business”. It therefore seems clear that, in the example I have taken of the professional man or company buying a carpet for the office, the carpet, if it proved defective, would not be regarded as “in consumer use”.

On the other hand, it is necessary to bear in mind that the phrase “in the course of a business” or similar phrases are to be found in other statutes dealing with the protection of consumers generally.

I can take three examples:

(1) “Sells goods in the course of a business”: Sale of Goods Act 1979, section 14(2) and section 14(3). These words were introduced by the Supply of Goods (Implied Terms) Act 1973: see section 3.

(2) “Any person who, in the course of a trade or business, –

(a) applies a false trade description to any goods; or

(b) supplies or offers to supply any goods to which a false trade description is applied;

shall, subject to the provisions of this Act, be guilty of an office”: Trade Descriptions Act 1968, section 1(1).

(3) “In a contract for the supply of a service where the supplier is acting in the course of a business, there is an implied term that the supplier will carry out the service with reasonable care and skill”: Supply of Goods and Services Act 1982, section 13. The phrase “in the course of a business” is also to be found in section 4 of this Act.

Guidance as to the proper construction of the words “in the course of a trade or business” in section 1(1) of the Trade Descriptions Act 1968 was given by the House of Lords in Davies v. Sumner [1985] R.T.R. 95. In that case a self-employed courier bought a car in June 1980 which he used almost exclusively for his business of transporting films and other material for a television company. In July 1981 he offered the car to a dealer in part exchange for the purchase of a new one. By then the car had travelled 118,100 miles, but the five-digit odometer recorded only 18,100, and the appearance of the car was consistent with that reading.

The defendant did not disclose the true mileage to the dealer, and on the part exchange he obtained a credit appropriate to the mileage on the odometer. He was convicted by the justices of an offence contrary to section 1(1)(a) of the Trade Descriptions Act 1968.

The Divisional Court allowed his appeal on the ground that the false description had not been applied by him in the course of a trade or business and on an appeal by the prosecutor to the House of Lords the appeal was dismissed.

In the course of his speech, with which the other members of the House agreed, Lord Keith of Kinkel considered the earlier case of Havering L.B.C. v. Stevenson [1971] R.T.R. 58, where the defendant, who carried on a car hire business, had a usual practice of selling the cars employed in it every two years. He sold them at the current trade price and paid the proceeds into the business for the purpose of buying new cars.

In relation to one such sale he falsely represented to the purchaser of the car that the mileage it had travelled was substantially less than was actually the case. A charge against him under section 1(1)(b) of the Trade Descriptions Act 1968 was dismissed by the justices but an appeal by the prosecutor by way of case stated was allowed by the Divisional Court. In referring to this decision Lord Keith said ([1985] R.T.R. 95, 102):

“This decision, the correctness of which was not challenged by [counsel] for the respondent, vouches the proposition that in certain circumstances the sale of certain goods may, within the meaning of the Act, be in the course of a trade or business, notwithstanding that the trade or business of the defendant does not consist in dealing for profit in goods of that, or indeed any other, description.

“Lord Parker C.J. in the Havering case … clearly considered that the expression was not used in the broadest sense. The reason why the transaction there in issue was caught was that in his view it was ‘an integral part of the business carried on as a car hire firm’. That would not cover the sporadic selling off of pieces of equipment which were no longer required for the purposes of a business. The vital feature of the Kavering case appears to have been, in Lord Parker’s view, that the defendant’s business as part of its normal practice bought and disposed of cars. The need for some degree of regularity does not, however, involve that a one-off adventure in the nature of trade, carried through with a view to profit, would not fall within section 1(1) because such a transaction would itself constitute a trade.

“In the present case it was sought to be inferred that the respondent, covering as he did such a large regular mileage, was likely to have occasion to sell his car at regular intervals, so that he too would have a normal practice of buying and disposing of cars. It is sufficient to say that such a normal practice had not yet been established at the time of the alleged offence. The respondent might well revert to hiring a car, as he had done previously. Further the respondent’s car was a piece of equipment he used for providing his courier service. It was not something he exploited as stock in trade, which is what the defendant was in substance doing with his cars in the Havering case … Where a person carries on the business of hiring out some description of goods to the public and has a practice of selling off those that are no longer in good enough condition, clearly the latter goods are offered or supplied in the course of his business within the meaning of section 1(1). But the occasional sale of some worn out piece of shop equipment would not fall within the enactment.”

It is of course true that section 1(1) of the Trade Descriptions Act 1968 creates a criminal offence, whereas the other sections to which I have referred create no more than obligations in the civil law. Nevertheless, it would be unsatisfactory in my view if, when dealing with broadly similar legislation, the courts were not to adopt a consistent construction of the same or similar phrases.

Accordingly, in relation to a seller of goods or a supplier of services, I consider that the court should follow the guidance given by Lord Keith in Davies v. Sumner. Furthermore, as the words “in the course of a business” are used both in section 12(1)(a) and in section 12(1)(b) of the 1977 Act and as the party referred to in section 12(1)(b) will be the seller or supplier of the goods, it seems to me that the same construction of the words “in the course of a business” must be adopted for both paragraphs, and that therefore the Davies v.Sumner test should be used for construing section 12(1)(a).

In the present case Mr Bell gave evidence on behalf of the company that the car was only the second or third vehicle acquired on credit terms. It follows, therefore, that no pattern of regular purchases had been established for this business, nor can it be suggested that this transaction was an adventure in the nature of trade. I am therefore satisfied that in relation to the purchase of this car the company was dealing as consumer within the meaning of section 12 of the 1977 Act.

In these circumstances it is unnecessary to consider whether the exclusion clause in the conditional sale agreement would have satisfied the requirement of reasonableness according to the test contained in section 11 and schedule 2 of the 1977 Act. The evidence in this case as to the date when and the precise circumstances in which the conditional sale agreement was signed is unclear. I do not consider I can express any useful opinion on this aspect of the case.

Nevertheless, for the reasons given by my Lord and for the reasons which I have endeavoured to outline, I too would dismiss this appeal.

Order: Appeal dismissed with costs for the plaintiffs; no order as to costs for the defendants; application for leave to appeal to the House of Lords refused.

Harlingdon and Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd

[1989] EWCA Civ 4 [1990] 1 All ER 737, [1991] 1 QB 564, [1989] EWCA Civ 4, [1991] QB 564

LORD JUSTICE STUART-SMITH: The principal issue in this appeal is whether the sale of the painting Dorfstrasse in Oberbayern was a sale by description, the name of the artist, Gabriele Münter, being part of that description. If it was, it is common ground that the painting did not correspond with the description; it was a fake.

S.13(l) and (3) of the Sale of Goods Act 1979 provide:

“(1) Where there is a contract for the sale of goods by description, there is an implied condition that the goods will correspond with the description.

(3) A sale of goods is not prevented from being a sale by description by reason only that, being exposed for sale or hire, they are selected by the buyer.”

Every item in a description which constitutes a substantial ingredient in the “identity” of the thing being sold is a condition. (See per Scott L.J. in Couchman v. Hill (1947) 1 KB 554 at p.559). That the identity of the artist who painted a picture can be a substantial ingredient in the identity of the thing sold seems to be beyond question. And it was so regarded by Denning L.J. in Leaf v. International Galleries (1950) 2 KB 86 in which at p.89 he said:

“There was a term in the contract as to the quality of the subject matter; namely as to the person by whom the picture was painted – that it was by Constable.”

Most of the essential facts are to be found clearly set out in paragraph 9 of the judge’s careful judgment and have been fully set out in the judgment of Nourse L.J.; I need not repeat them.

The learned judge’s conclusion on the question of sale by description is to be found in the following passage of his judgment (page 30 of the bundle):

“In my judgment such a statement (that the painting was by Münter) could amount to a description and a sale in reliance upon it to a sale by description within the meaning of the Act. However on the facts of this case I am satisfied that the description by Hull before agreement was not relied upon by Runkel in making his offer to purchase which was accepted by Hull. I conclude that he bought the painting as it was. In these circumstances there was not in my judgment a sale by description. It follows that there was no breach of it even though the painting did not correspond with the description. Even if contrary to my earlier conclusion the description in the invoice was made prior to the agreement I am satisfied that in those circumstances Runkel did not rely upon it and there was still no sale by description or breach of any implied condition under Section 13.”

I have not found this last sentence easy to follow since the judge had already expressly held that the invoice gave effect to what had been orally agreed earlier and nothing was added. Be that as it may, the nub of his conclusion is that Runkel did not rely on the description but on his own judgment as to the authorship of the painting. For my part I have great difficulty in understanding how the concept of reliance fits into a sale by description. If it is a term of the contract that the painting is by Münter, the purchaser does not have to prove that he entered into the contract in reliance on this statement. This distinguishes a contractual term or condition from a mere representation which induces a purchaser to enter into a contract. In the latter case the person to whom the representation is made must prove that he relied upon it as a matter of fact. Mr. Rueff sought to support the judge’s conclusion that reliance was an essential ingredient in a sale by description. He referred us to Joseph Travers & Sons Ltd. v. Longel Ltd. (1948) 44 TLR 150, where Sellers J. cited with approval a passage from Benjamin on Sale 7th Ed. p.641 as follows:

“Sales by description may, it seems, be divided into sales: 1. Of unascertained or future goods, as being of a certain kind or class, or to which otherwise a ‘description’ in the contract is applied. 2. Of specific goods, bought by the buyer in reliance, at least in part, upon the description given, or to be tacitly inferred from the circumstances, and which identifies the goods.

“So far as any descriptive statement is a mere warranty or only a representation, it is no part of the description. It is clear that there can be no contract for the sale of unascertained or future goods except by some description. It follows that the only sales not by description are sales of specific goods as such. Specific goods may be sold as such when they are sold without any description, express or implied; or where any statement made about them is not essential to their identity; or where, though the goods are described, the description is not relied upon, as where the buyer buys the goods such as they are.”

In that case although the footwear were described as “waders” both parties knew that they were not waterproof, this being apparent from the nature of their construction having been specially made to go over boots and protect the wearer from gas. It could not therefore be implied from in the description “waders” that the goods would be waterproof. If both parties know that the description is in fact a misdescription, then no doubt there is not a sale by description. But that was not the position here. The judge found in terms that both parties believed that the painting was by Münter and Runkel made his offer on the basis that it was.

In my judgment the matter can be tested in this way. If following the telephone conversation Runkel had arrived at the Respondent’s gallery, seen the painting, bargained about the price and agreed to buy it, it seems to me beyond argument that it would have been a sale by description. And indeed Mr. Rueff was at one time disposed to concede as much. Had the invoice been a contractual document, as it frequently is, again it seems to me clear that the sale would have been a sale by description. In fact the invoice was written out subsequently to the oral contract; but the judge held, rightly as it seems to me, that it gave effect to what had been agreed. It was cogent evidence of the oral contract.

How does it come about that what would otherwise be a sale by description in some way ceased to be one? It can only be as a result of the conversation between Hull and Runkel before the bargain was actually struck. If Hull had told Runkel that he did not know one way or the other whether the painting was by Hunter in spite of the fact that he had so described it or that he could only say that the painting was attributed to Münter, and that Runkel must make up his mind for himself on this point, I can well see that the effect of what had previously been said about the identity of the painter might have been cancelled or withdrawn and was no longer effective at the time of the contract. But Hull did not say that, as the judge found. And I cannot see that this is the effect of what was said. Merely to say that he knew nothing of the painter and did not like her paintings does not in any way to my mind necessarily mean that he was cancelling or withdrawing what he had previously said, based as it was on the auction catalogue. Nor does the fact that it was recognised that the appellants were more expert in German expressionist art than Hull advance the matter. It would in my judgment be a serious defect in the law if the effect of a condition implied by statute could be excluded by the vendor’s saying that he was not an expert in what was being sold or that the purchaser was more expert than the vendor. That is not the law; it has long been held that conditions implied by statute can only be excluded by clear words. There is nothing of that kind in this case.

Moreover, the question has to be asked: expert in what? No doubt the appellants were knowledgeable and experienced in the sort of prices at which a painting by Gabriele Hunter could be sold and might well know where to find a buyer. These would be important matters in an art dealer’s expertise. It does not follow that such a dealer has expertise in deciding whether a picture is genuine or a fake; and the judge found that the appellants did not have such expertise.

No doubt the initial telephone conversation was an invitation to treat; but it was an important part of the negotiations. It was, as the judge said, obvious and clearly understood by both Runkel and Hull that the former had come to decide whether the appellants might purchase a painting described by Hull as by Hunter. That being so, I can see no reason why Runkel should apply his mind to the question whether the picture was genuine or not and there was nothing in the subsequent conversation that required him to do so or put him on notice that he should. No doubt he exercised his judgment to the effect that the appellants could find a buyer and make a profit on the deal; but that was on the basis that the painting was genuine. I can find no evidence that justified the judge in finding that he made up his own mind and relied upon his own judgment to the effect that the painting was genuine. And it seems to me to be quite contrary to his evidence.

The respondents adduced the evidence of Mr. Joll to the effect that on the London art market it was the custom and practice as between dealers for the purchaser to make up his mind as to the genuineness of a painting whatever was said by the vendor, and he took the risk of its being a fake, even if the vendor described the painting as having been by a named artist. In other words, despite the Sale of Goods Act, caveat emptor. If this evidence had been accepted, then no doubt the appellants would have failed. But the judge rejected it.

For these reasons I consider that the judge reached the wrong conclusion on this issue and I would allow the appeal. In reaching this conclusion I am in no way influenced by the fact that the judge’s decision appears to produce an unjust result. It is trite that hard cases make bad law. But it is undoubtedly a hardship on the appellants, who have refunded the price to their purchaser, that they are left holding the loss, when the respondents or their client would appear to have a claim over against those who sold the painting to them. In these circumstances I propose to deal quite briefly with the alternative claim that the goods were not of merchantable quality. S.14(2) of the Sale of Goods Act 1979 provides as follows

“Where the seller sells goods in the course of a business, there is an implied condition that the goods supplied under the contract are of merchantable quality, except that there is no such condition-

a) as regards defects specifically drawn to the buyer’s attention before the contract is made; or

(b) if the buyer examines the goods before the contract is made, as regards defects which that examination ought to reveal.”

The respondent admitted that there was such a term; but they denied breach.

Whether goods are of merchantable quality is determined by s.14(6) as follows:

“Goods of any kind are of merchantable quality within the meaning of subsection (2) above if they are as fit for the purpose or purposes for which goods of that kind are commonly bought as it is reasonable to expect having regard to any description applied to them, the price (if relevant) and all the other relevant circumstances.”

The judge rejected the appellants’ arguments on two grounds. First, he held that merchantable quality did not relate to anything beyond the physical quality of the goods sold. It was a picture and fit for use as such. He cited no authority for this proposition. Mr. Rueff has relied upon the case of Buchanan Jardin v. Hamilink (1983) SLR 149. In that case the seller had sold a farm together with the livestock. There was an implied term that the livestock should be of merchantable quality. The vendor contended that there was a breach because after the sale the Health Authority had issued a “stop notice” which prevented the animals for the time being from being moved from the farm. The First Division of the Court of Session rejected this argument. The animals were not unsaleable. There was merely a temporary ban on their movement. At page 153 Lord Cameron said:

“These provisions in subsections (1) and (2) (of s.14 of the Sale of Goods Act) would appear to me to lead to the inference that merchantable quality relates to the physical quality of the goods themselves and not to external circumstances which might affect their saleability.”

While I have no doubt that his decision in that case was correct, I cannot see that it is necessary to confine quality to the physical quality. In that case the stop notice did not affect the quality of the goods at all. It was quite external to them. But the question whether something is genuine or a fake is a quality of the goods themselves. I do not therefore agree with the judge on this ground.

Secondly, he held that the painting was of merchantable quality because the purpose or purposes for which pictures are commonly bought is for aesthetic appreciation of the owner or anyone else he permits to enjoy the experience when the picture is displayed for view; and the painting was fit for that purpose. If the sale was simply for the specific picture an article consisting of oil on board without any description as to the identity of the artist, then I would agree with the judge’s conclusion. The question of merchantability of goods was considered recently in this court in Rogers v. Parish (Scarborough) Ltd. (1987) QB 933, a case referred to in Mr. Rueff’s skeleton argument but upon which no argument was addressed to us by counsel. In that case the goods were a Range Rover bought for a sum in excess of £14,000. At p.944 D Mustill L.J. said:

“Starting with the purpose for which ‘goods of that kind’ are commonly bought, one would include in respect of any passenger vehicle not merely the buyer’s purpose of driving the car from one place to another but of doing so with the appropriate degree of comfort, ease of handling and reliability and, one might add, of pride in the vehicle’s outward and interior appearance. What is the appropriate degree and what relative weight is to be attached to one characteristic of the car rather than another will depend on the market at which the car is aimed.

To identify the relevant expectation one must look at the factors listed in the subsection. The first is the description applied to the goods. In the present case the vehicle was sold as new. Deficiencies which might be acceptable in a secondhand vehicle were not to be expected in one purchased as new. Next, the description of ‘Range Rover’ would conjure up a particular set of expectations, not the same as those relating to an ordinary saloon car, as to the balance between performance, handling, comfort and resilience. The factor of price was also significant. At more than £14,000 this vehicle was, if not at the top end of the scale, well above the level of the ordinary family saloon. The buyer was entitled to value for his money.”

These words are appropriate here. If for the reason given by the judge this was not technically a sale by description within s.13(1) of the Act because of the absence of reliance, the court is nevertheless entitled and required to consider the matters listed in the subsection. These include the description of the painting as being by Münter and the price. Moreover both parties knew perfectly well that the purpose of the sale was resale as dealers, and not merely putting the picture on the wall and enjoying its aesthetic qualities. I cannot think that it is a reasonable expectation in these circumstances that a fake which is virtually worthless is fit for the purpose of being sold as a painting by Münter at a price of £6,000. Accordingly in my judgment the appellant is entitled to succeed on this ground also. I would allow the appeal.

LORD JUSTICE SLADE: The facts of this case appear very clearly from the judgments of Nourse L.J. and Stuart-Smith L.J., and I need not repeat them.

I will consider first the claim based on s.13(1) of the Sale of Goods Act 1979. The contract whereby the defendants agreed to sell and the plaintiffs agreed to purchase the picture was concluded at the meeting between Mr. Runkel and Mr. Hull at Motcomb Street.

It is common ground that in a telephone conversation which preceded and led up to this meeting, Mr. Hull had told Mr. Braasch that he was in a position to sell two paintings “by Gabriele Münter”. The fact that this information had been given must be very relevant in considering whether the contract concluded at the subsequent meeting was “a contract for the sale of goods by description” within the meaning of s.13(1) of the Sale of Goods Act 1979. However, it cannot be conclusive. The question must fall to be determined by reference to the circumstances as they existed when the contract was actually made.

There is no statutory definition of the phrase “a contract for the sale of goods by description”. One has to look to the ordinary meaning of words and the decided cases for guidance as to its meaning. I think that the guidance to be derived from the cases cited to us which have been referred to by my Lords is surprisingly limited. There may be little difficulty in applying the phrase in the case of a sale of unascertained or future goods, since there can be no contract for the sale of goods of these categories, except by reference to a description of some sort. The greater difficulty is likely to arise in cases such as the present where the sale is of “specific goods” within the meaning of s.61 of the Sale of Goods Act 1979 – that is to say, “goods identified and agreed on at the time a contract of sale is made”.

There is no doubt that a contract for the sale of specific goods is capable of falling within s.13(1). However, if it is to do so, it has to be a contract for sale “by description” according to the ordinary meaning of language. The word “by”, which was stressed by Lord Diplock in Gill & Duffus S.A. v. Berger & Co. Inc. (No. 2) (1984) AC 382 at p.394 in my judgment makes this much plain: The fact that a description has been attributed to the goods, either during the course of negotiations or even in the contract (if written) itself, does not necessarily and by itself render the contract one for “sale by description”. If the court is to hold that a contract is one “for the sale of goods by description”, it must be able to impute to the parties (quite apart from s.13(1) of the Sale of Goods Act 1979) a common intention that it shall be a term of the contract that the goods will correspond with the description. If such an intention cannot properly be imputed to the parties, it cannot be said that the contract is one for the sale of goods by description within the ordinary meaning of words. The practical effect of s.13(1), as I understand it, is to make it plain (if it needed to be made plain) that in a case where such a common intention can be imputed, the relevant term of the contract will be a condition as opposed to a mere warranty.

In Couchman v. Hill (1947) 1 KB 554 (at p.559) Scott L.J. said:

“….. as a matter of law, I think every item in a description which constitutes a substantial ingredient in the ‘identity’ of the thing sold is a condition ….”

With all respect, I find the meaning of this passage (which was quoted by Judge Oddie at p.15 without express acknowledgment) rather obscure. However, I do not think that my analysis in the immediately preceding paragraph is inconsistent with it. It is certainly not inconsistent with the statement of Lord Wright in a case not cited to us, Grant v.Australian Knitting Mills Ltd. (1936) AC 85 (at p.100) where he said: “a thing is sold by description, though it is specific, so long as it is sold not merely as the specific thing, but as a thing corresponding to a description ….” The essential ratio of the learned judge’s decision on the s.13(1) point is to be found in three sentences at p.15 of his judgment:

“However, on the facts of this case I am satisfied that the description by Hull before the agreement was not relied upon by Runkel in making his offer to purchase which was accepted by Hull. I conclude that he bought the painting as it was. In these circumstances there was not in my judgment a sale by description.”

While some judicial dicta seem to support the view that there can be no sale by description unless there is actual reliance on the description by the purchaser, I am not sure that this is strictly correct in principle. If a party to a contract wishes to claim relief in respect of a misrepresentation as to a matter which did not constitute a term of the contract, his claim will fail unless he is able to show that he relied on this representation in entering into the contract; in general, however, if a party wishes to claim relief in respect of a breach of a term of the contract (whether it be a condition or warranty) he need prove no actual reliance.

Nevertheless, where a question arises as to whether a sale of goods was one by description, the presence or absence of reliance on the description may be very relevant in so far as it throws light on the intentions of the parties at the time of the contract. If there was no such reliance by the purchaser, this may be powerful evidence that the parties did not contemplate that the authenticity of the description should constitute a term of the contract – in other words, that they contemplated that the purchaser would be buying the goods as they were. If, on the other hand, there was such reliance (as in Varley v. Whipp (1900) 1 QB 513, where the purchaser had never seen the goods) this may be equally powerful evidence that it was contemplated by both parties that the correctness of the description would be a term of the contract (so as to bring it within s.13(1)).

So far as it concerns s.13(1), the issue for the court in the present case was and is, in my judgment, this: On an objective assessment of what the parties said and did at and before the meeting at Motcomb Street, and of all the circumstances of the case, is it right to impute to them the common intention that the authenticity of the attribution to Gabriele Münter should be a term of the contract of sale? The proper inferences to be drawn from the evidence and the findings of primary fact by the judge are matters on which different minds can take different views, as the cogent judgments of Nourse L.J. and Stuart-Smith L.J. have shown. However, I for my part feel no doubt that the answer to the crucial issue is No.

There has been no challenge to the judge’s findings (at p.8) as to what Mr. Hull said at the meeting:

“Hull did say that he did not know much about the paintings. He said he had never heard of Gabriele Münter and thought little of her paintings. He made it absolutely plain that he was not an expert. By some form of words which no one can now precisely remember Hull ‘to a certain extent made it clear that he was relying on’ Runkel. (my emphasis).

I can see no sufficient grounds for disturbing the inference (at p.10) of the judge, who had heard and seen both witnesses give their account of the crucial conversation, that

“Runkel must have known and accepted that Hull was disclaiming any judgment, knowledge or private information which would or could have grounded the latter’s earlier statement to Braasch that he had two paintings by Gabriel Milnter for sale.”

If at the end of that meeting an independent onlooker, who had both heard the initial telephone conversation between Mr. Hull and Mr. Braasch, and had been present throughout the meeting, had been asked whether it appeared that the one dealer (Mr. Hull) was entering into a legal commitment to the other (Mr. Runkel) as to the correctness of the attribution to Gabriele Münter, I think he would have replied, “Of course not. The description in the auction catalogue, which Mr. Runkel has seen, proves nothing and Mr. Hullhas made it quite plain that he is not qualified to give any opinion of his own as to its authorship by Gabriele Münter, of whom he has never previously heard. Mr. Runkel must therefore surely realise that in proceeding with the purchase he will have to rely on his own judgment”. And the judge found (at p.10) that it was in fact “Runkel’s exercise of his own judgment as to the quality of the pictures, including the factor of the identity of their painter, which induced him to enter into the agreement made with Hull.

The judge was not satisfied by Mr. Joll’s evidence that there is any actual usage or custom in the London art market which would exclude the application of the material provisions of the Sale of Goods Act 1979, and his finding on this point has not been challenged. Nevertheless, it is perhaps worth noting that, while s. 6(2)(a) of the Unfair Contract Terms Act 1977 (as amended by the 1979 Act, Schedule 2, paragraph 19) provides that “as against a person dealing as consumer” obligations arising from ss. 13, 14 or 15 of the 1979 Act cannot be excluded or restricted by reference to any contract term, the definition of “dealing as a consumer” in s.12 of the 1977 Act excludes a person who makes the contract “in the course of a business”. I do not say that in the present case s.13 has been excluded by any contract term; my analysis of the position is that the contract was not one for the sale of goods by description. Nevertheless, in my judgment, the provisions of the 1977 Act support the view that the very fact that two parties to the negotiations for the sale of a specific chattel are dealers in that class of chattel is a relevant factor in considering whether or not an attribution of origin made by one dealer to the other during the course of negotiation should be treated as rendering the transaction a “sale by description”.

The form of the invoice subsequently made out in favour of the plaintiffs does not, in my judgment, assist the plaintiffs’ case. By that time the contract had already been concluded. While the reference to Gabriele Münter in the invoice is quite consistent with the parties’ having made the origin of the picture a term of the contract, it can equally well be read as merely a convenient mode of reference to a particular picture which both parties knew to have been attributed to Gabriele Münter (and indeed both still thought to be her work: see p.8 of the judgment).

For these reasons, I agree with the conclusions of Nourse L.J. and the learned judge that this was not a sale falling within s.l3(l) of the 1979 Act. In my view, one cannot impute to the parties a common intention that it should be a term of the contract that the artist was Gabriele Münter.

As to the claim based on s.14, I hope that my opinion is not too simplistic, but it is very clear. The complaint, and only complaint as to the quality of the picture, relates to the identity of the artist. There is no other complaint of any kind as to its condition or quality. If the verdict of the experts had been that the artist was in truth Gabriele Münter, the claim would not have arisen. Having concluded that this was not a contract for the sale of goods by description because it was not a term of the contract that she was the artist, I see no room for the application of s.14. If the plaintiffs fail to establish a breach of contract through the front door of s.l3(l), they cannot succeed through the back door of s.14.

I would dismiss this appeal.

________________________________________

Stevenson & Anor v Rogers

[1998] EWCA Civ 1931 [1999] QB 1028, [1999] 1 QB 1028, [1999] 2 WLR 1064

Potter LJ

THE LEGISLATIVE HISTORY

The origins of s.14(2) of the SGA 1979 lie in s.14(2) of the 1893 Act which provided:

“Where goods are bought by description from a seller who deals in goods of that description (whether he be the manufacturer or not) there is an implied term that the goods shall be of merchantable quality …”

The wording of the section underwent considerable revision in the Supply of Goods (Implied Terms) Act 1973 (“SG(IT)A 1973”) which gave effect, with certain modifications, to the First Report of the Law Commission on Exemption Clauses in Contracts (Amendments to the Sale of Goods Act 1893) (Law Com No 24: Scot Law Com No 12), which in turn had drawn heavily upon the work of the Final Report of the Committee on Consumer Protection 1962: Cmnd 1781 (the Moloney Committee Report). The Moloney Committee had inter alia expressed dissatisfaction with the requirement that the condition of merchantability in s.14(2) of the 1893 Act was dependent on the seller being a dealer in the type of goods sold:

“We take the view that if a retailer sells an article in the course of business he should be answerable for its merchantability – which is not of course an assurance of perfection – whether or not he has traded in the same line previously. The test should be whether he sells by way of trade to the particular purchaser and not whether he makes a habit of trading in similar goods which is a circumstance not necessarily known to the purchaser. We recognise there are exceptional cases where a shopper may order a particular article through a retailer knowing that the retailer does not normally stock that type of goods. We think that even in such cases the consumer is entitled to get a merchantable article.” (See para 243)

It also drew attention to a number of important matters of consumer protection and made a number of recommendations in respect of which the Law Commission was subsequently asked to advise in August 1966 under s.3(1)(e) of the Law Commissions Act 1965.

In paragraph 31(Note 29) of its First Report, the Law Commission advised as follows:

“The Moloney Committee in the text quoted from paragraph 443 of their Final Report, suggested that the test should be whether the seller sells “by way of trade”. We prefer the formula “in the course of a business” which, unlike the phrase “by way of trade”, does not lend itself to a restrictive interpretation tending in the direction of making the seller’s particular trade the applicable test. Such a restrictive interpretation would defeat our main purpose which is to ensure that the conditions implied by section 14 are imposed on every trade seller, no matter whether he is or is not habitually dealing in goods of the type sold.”

Further, at paragraph 46 of the Report, it advised:

“In common with the Moloney Committee we recognise that there are exceptional cases where somebody may order a particular article through a retailer knowing that the retailer does not normally stock that type of goods. The Moloney Committee thought that even in such cases the consumer was entitled to get a merchantable article. Once again, we propose to go one step further and make sure that every buyer from a business seller should have a right under the implied condition to receive goods of merchantable quality.”

There was attached to the Report, a draft clause incorporating the change proposed in this respect.

The bulk of the Report was devoted to considering the problem of the extent to which the implied terms proposed could be excluded or varied by agreement and, in that context, proposed a statutory definition of a “consumer sale”, also contained in a draft clause attached to the Report.

The Law Commission’s draft clause amending s.14(2) of the 1893 Act was adopted and enacted without modification in s.3 of the SG(IT)A 1973, sub-section (2) of which provided:

“Where the seller sells goods in the course of a business, there is an implied condition that the goods supplied under the contract are of merchantable quality …”

The same opening words were also introduced by sub-section (3) into the former s.14(1) of the 1893 Act (Fitness for Purpose). In that case the words replaced the requirement of the 1893 Act that:

“the goods are of a description which it is in the course of the seller’s business to supply …”

At the same time, by s.4 of the SG(IT)A 1973 it was provided, by way of amendment to s.55 of the 1893 Act, that:

“(4) In the case of a contract for sale of goods, any term of that or any other contract exempting from all or any of the provisions of section 13, 14 or 15 of this Act shall be void in the case of a consumer sale … to the extent that it is shown that it would not be fair or reasonable to allow reliance on the term ..

(7) In this section “consumer sale” means a sale of goods (other than a sale by auction or by competitive tender) by a seller in the course of a business where the goods –

(a) are of a type ordinarily bought for private use or consumption; and

(b) are sold to a person who does not buy or hold himself out as buying them in the course of a business.” (emphasis added)

Thus, the imposition of the implied term as to merchantability “where the seller sells in the course of a business ” was enacted at the same time as the provision that the term should not be excluded in a sale “by a seller in the course of a business ” to a person “who does not buy or hold himself out as buying them in the course of a business. ”

In introducing the Second Reading of the 1973 Bill, the Minister of State for Trade and Consumer Affairs (Sir Geoffrey Howe) stated:

“This Bill is designed to bring up to date the important although not exactly modern consumer protection provisions contained in the Sale of Goods Act 1893 … A lot of things have changed since then. Two particular classes of transaction were then customary, and accordingly required attention from the Law – first commercial contracts .. second, those in which consumers generally dealt directly with the makers of the goods they wanted ..

A set of rules of this kind can, however, work fairly only when there is more or less equality of bargaining power between the buyer and the seller. This is manifestly not so in the changed conditions of today.

Mass production and marketing and the increased technological complexity of consumer goods have combined to increase the market power of producers in relation to customers .. As bargaining through personal contact has become less and less practicable during the last 80 years, as the consumer’s bargaining power has declined, so has his chance of getting defective goods repaired or replaced. The balance has shifted a long way since 1893. This Bill will go part of the way towards addressing it.

As a first step consumers will have an inalienable right to be supplied with goods of reasonable quality. When the Bill becomes law it will no longer be possible in a consumer sale to exclude this or any other implied right provided by the Sale of Goods Act …

I should remind the House that the Bill is founded upon the First Report of the Law Commission on Exemption Clauses in Contracts. I am sure the whole House will wish to join with me in expressing our gratitude to the Law Commissions for the work they have done on that task.”

S.4 of the SG(IT)A 1973, which rendered void exemption clauses in relation to the terms implied under s.14(2) in the case of any consumer sale, was itself repealed and replaced by s.6 and s.12 of the UCTA 1977 which, by the latter section, provided a different set of rules in relation to consumer sales. By s.12(1):

“A party to a contract “deals as consumer” in relation to another party if –

(a) he neither makes the contract in the course of a business nor holds himself out as doing so; and

(b) the other party does make the contract in the course of a business; and

(c) in the case of a contract governed by the law of sale of goods .. the goods passing under or in pursuance of the contract are of a type ordinarily supplied for private use or consumption.”

It was s.12(1)(a) which was the subject of the decision in R & B Customs .

The SGA 1979 re-enacted s.14(2) in unaltered form. The act was a Consolidating Act embodying the amendments made to the 1893 Act throughout its long existence, including the additions to take account of the alterations made by the UCTA 1977.

I complete this review of the legislative history by recording that the implied term of merchantable quality contained in s.14(2) of SGA 1979 was replaced by an obligation that the goods supplied be of “satisfactory quality” as provided in s.1 of the Sale and Supply of Goods Act 1994 . However, we are concerned in this case with the law as it stood in 1988.

SALE “IN THE COURSE OF A BUSINESS”

In the light of this history, Mr Wynter has submitted that the words “in the course of a business” in s.14(2) must be interpreted at face value. He relies upon the statement which appeared in Benjamin’s Sale of Goods (2nd ed 1981) at para 795 (i.e. prior to the decision in Davies -v- Sumner ), which he adopts as his own submission. It reads:

“The intention of these words, first inserted by the Supply of Goods (Implied Terms) Act 1973, is doubtless to exclude any sales by purely private sellers. Similar phraseology appears also in Section 14(3) of the Unfair Contract Terms Act 1977. Although there is as yet no authority on the interpretation of the words in the present context, it would appear that their scope is wide, for there is nothing to confine them to situations where the business involved is one of selling .. They cover a seller in the business of selling one type of goods who incidentally in his business sells another type of goods – e.g. where a coal merchant disposes of a lorry by selling it on the second -hand market. But it seems they also cover persons who sell goods in the course of a business even though the business is not directed towards sales at all – e.g. where a television rental company sells off one of its vans ..”

In the current (5th) edition of Benjamin at para 11-045 there are added the further examples of:

“.. a farmer who sells off a surplus tractor or a medical practitioner or solicitor or local government department disposing of surplus equipment which sells a used typewriter ..”

It is notable, however, that the editor of Benjamin (5th ed), having referred to the reasoning underlying the decisions in Davies v- Sumner and R&B Customs expresses the viewthat:

“.. it may well be therefore that the reasoning referred to .. should be extended to section 14, with the result that “sporadic” sales by one in business but not in the business of selling, or of selling items such as that concerned, would not be subject to the same statutory term.”

Further, in the current edition of Chitty on Contracts (27th ed) at para 41-071 in relation to the same question, it is stated that:

“.. recent cases in other contexts suggest that for a person to deal in the course of a business, there must be sufficient degree of regularity in such transactions for them to constitute an integral part of his business, and this seems applicable here also”.

In approaching the construction of the words “in the course of a business”, it is of course the task of the court to construe s.14(2) as it appears in the 1979 Act. In that respect, not only does s.14(2) embody a deliberate change in the wording of its equivalent in the 1893 Act but it is to be construed as part of an overall code embodied in the 1979 Act which is different and more extensive in nature from the codification contained in its predecessor. As stated by Lord Diplock in Ashington Piggeries Limited -v- Christopher Hill Limited [1972] AC 441 at 501:

“Because of the source of the rules stated in the Sale of Goods Act 1893 the classification adopted is by reference to the promises made in relatively simple types of contracts for the sale of goods which were commonly made in the 19th century and had been the subject of judicial decision before 1893”.

In the 1893 Act, no distinctions were made between commercial sales and private sales save for the provisions in s.14(1) (goods “of a description which it is in the course of the seller’s business to supply”) and s.14(2) (goods bought by description from “a seller who deals in goods of that description”). The 1979 Act, on the other hand, consolidated the law as altered and expanded by inter alia, the 1973 Act and the 1977 Act which were largely concerned with consumer protection. The 1979 Act transformed the code of the 1893 Act from that of a corpus of rules which in principle applied to all contracts of sale, into one containing a number of variants, dependent on factors such as whether one of the parties is acting in the course of a business (or through an agent who is so acting), or whether a party does or does not deal as a “consumer”. Those considerations, as well as the nature or description of the goods sold, also govern the question whether a contractual term satisfies the “requirement of reasonableness” originally imposed by certain sections of UCTA 1977.

It seems to me clear that, free of any constraints imposed by the decisions to which we have been referred, this court, making use of the tools of construction now available to it, should construe the words of s.14(2) of the SGA 1979 at their wide face value. In my view, it is not necessary to do more than to turn to the statutory change of wording in s.14(2) as between the 1893 Act and s.3 of the SG(IT)A 1973 (which s.14(2) of SGA 1979 simply re-enacted) to see that it was the intention of the SG(IT)A 1973 to widen the protection afforded to a purchaser by s.14(2) from a situation where the seller was a dealer in the type of goods sold, to one where he simply made a sale “in the course of a business”; the requirement for regularity of dealing, or indeed any dealing, in the goods was removed. Given the removal of that requirement, there is on the face of it no reason or warrant (at any rate in a civil rather than a criminal context) to re-introduce some implied qualification, difficult to define, in order to narrow what appears to be the wide scope and apparent purpose of the words, which is to distinguish between a sale made in the course of a seller’s business and a purely private sale of goods outside the confines of the business (if any) carried on by the seller.

That said, I acknowledge the argument that, because of the varied approach of the courts in differing areas of the law to the question of what is or is not done in the course of a trade or business, an ambiguity or real doubt arises as to whether or not the words of s.14(2) should be taken at face value or whether they should be interpreted to connote at least some degree of regularity and so as to exclude sporadic sales which are no more than incidental to the seller’s business. In the light of that argument, this seems to me a case where it is appropriate and proper under the rule in Pepper -v- Hart to refer to Hansard and in particular to the statement of Sir Geoffrey Howe when introducing the Bill which became the SG(IT)A 1973, already quoted in this judgment; also to the First Report of the Law Commission. So far as the latter is concerned, it is legitimate to refer to it both because of the direct reference to it in the statement of the Minister that the Bill was “founded upon” the First Report of the Law Commission and, second, upon the basis enunciated by Lord Simon of Glaisedale in Black Clawson International Limited -v- Papierwerke Waldhof-Aschaffenburg AG [1975] AC 591 at 647D-648G and Lord Diplock in Fothergill -v- Monarch Airlines Limited [1981] AC 251 at 281A-D.

Reference to Hansard and the First Report makes clear that the mischief which parliament intended to rectify in relation to s.14(2) was that s.14(2) of the 1893 Act had a restrictive effect and was inadequate to impose on every business seller (whether or not habitually dealing in goods of the type sold) the implied condition as to merchantable quality. It was in that context that the draft clause annexed to the First Report was enacted without modification in s.3 of SG(IT)A 1973. Thus, resort to the mischief rule confirms my view formed at first impression that the changed wording of s.14(2) should not be read so as to bear the limitation for which Mr Norris argues.

Nor is there any countervailing reason to suppose that, at the time the SGA 1979 was passed, thereby re-enacting without alteration the form of s.14(2) earlier enacted by s.3 of SG(IT)A 1973, Parliament intended any change. As its Long Title states, the Act was a consolidating act so far as the sale of goods is concerned. Further, as at 1979, there had been no reported judicial decision or pronouncement which restricted or questioned the ambit of the words in s.14(2). Davies -v- Sumner had not been decided and the earlier decision in the Havering case had been cautiously restricted to the context and wording of the Trade Descriptions Act 1968; it had not been suggested to have wider application.

So far as the decision in Davies -v-Sumner is concerned, I would again observe that the context was that of a criminal statute. Thus, in the event of ambiguity, it required to be construed restrictively. Further, the Long Title of the Trade Descriptions Act, upon which Lord Keith placed reliance referred to “mis-descriptions of goods … provided in the course of trade”. The use of the word “trade” in that context tended to emphasise the necessity for the transaction to be by way of trade. Equally, the wording of s.1(1) of that Act (“in the course of a trade or business”), by inclusion of the word “trade”, was apt to lead to an eiusdem generis construction of the word “business”. The observation of Lord Keith that such an expression, in the context of an act having consumer protection as its primary purpose, conveys the concept of some degree of regularity, is to be afforded great respect. However, I do not think that it should necessarily be regarded as of universal application.

The question thus becomes, in my view, whether the decision in the R & B Customs case, albeit relating to a separate section of the SGA 1979, is effectively binding upon us on the basis that the term “in the course of a business” must be interpreted so as to bear the same meaning as between the different sections of the codifying act in which it appears. While I recognise the force of that argument, I do not think that it should prevail.

The SGA 1979 forms a single code; however, that is upon the basis simply that it consolidates and enacts within one statute and without material amendment a number of disparate statutes previously governing the field of sale of goods. While, in the first instance, a consolidating act is to be construed in the same way as any other, if real doubt as to its legal meaning arises, its words are to be construed as if they remained in the earlier act. Thus, in terms of the proper construction of its provisions, the SGA 1979 is not to be regarded as more than the sum of its parts.

That being so, I would observe as follows in respect of the R & B Customs case. First, the ratio of the decision is limited to its context, namely the application of s.12 of UCTA 1977. Second, save for passing reference in the obiter dicta of Neill LJ to which I have referred, the meaning of the phrase “in the course of a business” in that section was not treated as coupled with, or dependent upon, the meaning of the phrase in s.14(2). Thus the court gave no consideration to whether or not the legislative history of s.14(2) might require it to be distinguished from s.12 of UCTA 1977 or, alternatively, if a common interpretation was called for, whether the construction of s.12 should not be subordinated to the of s.14(2). Third, the obiter dicta of Neill LJ which might suggest that the observations of Lord Keith should be applied generally in the case of a seller of goods, lacked the benefit of contrary argument in relation to s.14(2) and, not least (at a date well preceding Pepper -v- Hart ), any reference to Hansard or the First Report of the Law Commission, of which this court has had the advantage.

It is of course desirable that, when identical phrases occur in associated sections of a statute, they should be construed to similar effect. I have little doubt that such was the original intention of the Law Commission and of Parliament in relation both to the modification to s.14(2) made by s.3 of the SG(T)A 1973, and the amendment to s.55 of the 1893 Act made by s.4 of the of the SG(IT)A 1973, which referred to a “seller in the course of a business” when defining a “consumer sale”. However, the latter provision did not survive for long. It was repealed and replaced by s.12 of the UCTA 1977, which put in place a different formula in respect of exemption clauses, based upon either party “dealing as consumer”, rather than upon a “consumer sale” defined principally by reference to the seller. In my view, had the court in the R & B Customs case been concerned not with the UCTA 1977, but with the definition of a consumer sale under the SG(IT)A 1973, it might well have concluded that the phrase “in the course of business” in s.55 of the 1893 Act as amended, required to be construed in harmony with, and subject to, the proper construction of s.14(2).

As to the proper construction of s.14(2), given the clear view which I have formed, I do not consider it right to displace that construction simply to achieve harmony with a decision upon the meaning of s.12 of the UCTA 1977. S.14(2) as amended by SG(IT)A 1973 was itself a piece of consumer protection intended to afford wider protection to a buyer than that provided in the 1893 Act. Indeed, there is a sense in which the decision in R & B Customs can be said to be in harmony with that intention. It dealt with the position of consumer buyers and the effect of adopting the construction propounded in Davies -v- Sumner in relation to s.12(1)(a) of UCTA 1977 was to further such buyers’ protection. In the context of its statutory history, s.14(2), as amended by the SG(IT)A 1973 and re-enacted in SGA 1979, is the primary provision in the overall scheme of increased protection for buyers which the 1973 Act initiated. To apply the reasoning in the R & B Customs case in the interests only of consistency, thereby undermining the wide protection for buyers which s.14(2) was intended to introduce, would in my view be an unacceptable example of the tail wagging the dog. Accordingly, I would hold that, there was an implied term as to merchantable quality in the contract for the sale of the JELLE.

That being so, it is unnecessary to deal in any detail with the argument originally relied upon by the appellant, namely that the sale of the JELLE was the sale of an integral part of the defendant’s business. Suffice it to say that, had the judge been correct to apply the reasoning in Davies -v- Sumner to the sale of the JELLE, then I consider he was entitled to come to the conclusion which he did. I acknowledge that it seems a most curious result that the sale by a seller of the very asset without which he could not carry on his business, with the intention of purchasing a replacement for the purpose of continuing that business, should not be regarded as a sale made in the course of a business. However, that seems to me to be the logical result of applying the Davies -v- Sumner test. As Mr Norris neatly put it, under that test it is the transaction and not the goods which must be integral to the business. The defendant was not in the business of selling trawlers, and the fact that his boat was the principal asset of his business of fisherman did not mean that its sale was other than incidental thereto: c.p. the use made by the defendant of his car in Davies -v- Sumner .

CONCLUSION

For the reasons I have already given, I would allow this appeal.

________________________________________

SW Tubes Ltd v Owen Stuart Ltd

[2002] EWCA Civ 854 Aldous LJ

The case before the judge was concerned with the issue of liability alone. Even so, the parties dealt with the question of mitigation. However, after handing down his written judgment, the proceedings were restored to decide what order should be made and who should pay the costs. For Owen it was contended that the judge’s conclusion had effectively disposed of Tubes’ case and that accordingly it should be dismissed. Tubes contended that they had succeeded in establishing a breach of contract and therefore was entitled to judgment and to their costs with damages to be assessed.

The judge concluded that by the time the production line had been installed, Tubes were reluctant to put it into operation and that it had seized on the non-operation of the saw as an excuse for rejecting the goods. Tubes had no substantial claim for damages for breach of contract. Thus, notwithstanding the technical finding of breach of contract, Tubeshad failed in the proceedings and therefore he ordered that there should be judgment for Owen with costs to be assessed if not agreed.

On the appeal, Tubes support the judge’s conclusion that Owen was in breach of contract by supplying the defective drive to the saw, but contend that he had wrongly concluded that it had failed to mitigate its damage. Second, Tubes contend that Owen were in breach of contract by failing to provide appropriate guards for the saw. Third, they submitted the judge was wrong to make the order that he did. The correct order was to award them the costs with damages to be assessed. They contended that they had established a breach of contract and there was no evidence upon which the judge could have concluded that the damages were nominal. They were therefore entitled at least to an order for damages to be assessed. Further, the order for costs should have reflected the matters upon which they had succeeded.

Owen served a respondent’s notice in which they sought to challenge the judge’s conclusion that they were in breach of contract by supplying the particular drive to the saw. Owen asserted in their notice that the flexible drive was “of satisfactory quality and fit for the purpose” and there was insufficient evidence upon which the judge could have concluded that the particular drive was not satisfactory for the particular type of use for which the contract was made. In particular, Owen asserted that the drive was of adequate strength and, in any case, was adequate for the contracted purpose. Owen also contended that there was no deficiency of guards; also that they had not agreed to supply them. They also contend that if the judge should have given judgment for Tubes, the damages were nominal and that in any event he should have ordered Tubes to pay Owen’s costs of the proceedings.

Mr Baker appeared for Owen. He addressed us with courtesy and his explanation of the machinery and what happened has helped me to understand the evidence in this case. However, he accepted that the flexible drive supplied was not adequate to power the saw. He therefore did not pursue any challenge to the judge’s judgment that there had been a breach of contract.

It follows that this appeal, as argued before us, is concerned with the issues of mitigation, the guards, the order and costs. I will deal with them in that order.

Mitigation

Although the machinery was delivered during 1997 it was not installed until 18th May 1998 because of Tubes’ intended move to new premises, which occurred on 1st May 1998. On 18th May 1998 the drive failed. We now know that the drive was not appropriate for the job. Mr Virgo, who appeared for Tubes, suggested that the breach of contract happened on delivery, but accepted that for practical purposes it occurred on 18th May 1998. The saw was tried again on 8th June 1998. It was switched off before it failed; but it certainly, on the evidence, would have failed. It was on this occasion that Mr Baker offered the replacement saw. No doubt it would have taken a few days to find and install. That offer was repeated in the letter of 23rd June 1998 in the passage which I have already read. From that letter it seems that the new saw might not have been available until 25th June or thereabouts.

The judge held that Tubes had failed to mitigate their damage. He said:

“It is a fundamental rule of contract law that a claimant in respect of a breach of contract cannot recover damages for any part of his loss which he could have avoided by taking reasonable steps. In the present case it is contended by the defendants that the claimant should have accepted their offer to supply an alternative saw until the problems with the original one were rectified. Mr Seabourne said that he did not accept the offer because he had lost confidence in the defendants following the remark about Mystic Meg. Whether that is indeed the case, which I doubt, I have come to the conclusion that Mr Seabourne ought reasonably to have taken up the defendants’ offer. The saw was only one of several components making up the production line and the flexible drive was only a small part of the saw. It cost less than £200 and had been obtained from the most reputable of suppliers. The problem was therefore a technical one which the suppliers, together with the defendants, themselves also a leading company in their field, could be relied upon to solve in due course. Had Mr Seabourne taken up the defendants’ offer the production line would have been operational without any significant loss of time. The fact that the claimants waited for so long before attempting to commission the machine themselves shows, at the very least, that getting into production with the line was not an immediate priority. On the contrary, as I find, the claimants’ objective at that time was to get out of the contract if they could and to recover their outlay.”

Mr Virgo criticised that part of the judgment. He accepted that Tubes had to act reasonably to recover damages and in legal terms had to mitigate their loss, but he submitted it was unreasonable to expect Tubes to accept the offer as there had been two failed attempts to make the saw work. Owen did not know how to put it right and did not appear to Tubes to be taking the matter seriously. All that was offered was a loan. It followed, he submitted, that Tubes were within their rights to treat the breach as a repudiation and to reject the machinery.

I cannot accept those submissions. The saw with its drive was a small part of the line. It was a standard piece of equipment and there was no suggestion that the offered saw would not have worked perfectly satisfactorily, with the result that the line could be used pending resolution of the problem with the flexible drive. To accept the offer cost nothing and would have prevented further damage. In the circumstances I believe the judge was right to conclude that Tubes, acting reasonably, should have accepted the offer. Tubes in my view failed to act reasonably when they rejected it, with the result that the claim for damages should be limited to the period ending with the date when the replacement saw would have been installed.

The judge’s order

The conclusion that Tubes failed to mitigate their damage does not mean that they were not entitled to an order for damages to be assessed. The hearing took place to determine liability and evidence had not been directed to whether Tubes suffered more than nominal damages between 18th May and 8th June or some time around 25th June. Certainly no evidence was put before us upon which the judge could have concluded that damages were not substantial. The judge should, in my view, not have given judgment for Owen. Tubes had established a breach of contract and were entitled to judgment with an order that damages, if any, should be assessed.

The guards

It is not disputed that the saw supplied did not have guards, despite the fact that it had a continuously rotating blade, and moved from side to side and back and forth. Mr Virgoconceded before us that as the saw was second-hand it did not come within the 1992 Regulations. He submitted that the saw was not of merchantable quality as required by section 14 of the Sale of Goods Act 1979. The relevant parts of that section are as follows:

“14(1) Except as provided by this section and section 15 below and subject to any other enactment, there is no implied term about the quality or fitness for any particular purpose of goods supplied under a contract of sale.

(2A) Where the seller sells goods in the course of business, there is an implied term that the goods supplied under the contract are of satisfactory quality.

…

(2B) For the purposes of this Act, the quality of goods includes their state and condition and the following (among others) are in appropriate cases aspects of the quality of goods-

…

(d) safety, …”

The evidence as to guards was given by Mr Hobson of Strange, Strange and Gardner. He said:

“It is necessary to have some part of a circular saw blade exposed to allow it to function. However, in the situation in question it is practicable to design and construct an enclosure to nullify the dangers of the cutting head. It would also be reasonably practicable to arrange safety switches on the front and rear cabinet panels. The arrangement we saw appears to allow these panels to be easily removed without affecting the saw cycle.”

Mr Hobson believed that operation of the saw without guards would be likely to make Tubes liable under the Health and Safety Regulations and at common law. However, he accepted that that was a decision for legal opinion.

Mr Baker emphasised that the saw was second-hand and that it had been operated in the past without guards. But that does not mean that it was safe. In my view it was not safe to operate the saw without guards. That conclusion is supported by the photograph on page 106 of the bundle which shows guards on an old machine. The sort of guards involved are simple structures. As safety is an aspect of quality under the 1979 Act, I conclude that the saw was not of satisfactory quality and its supply breached the term implied by section 14 of the 1979 Act.

________________________________________

Hardwick Game Farm v Suffolk Agricultural and Poultry Producers Association Ltd

[1968] UKHL 3 [1969] 2 AC 31, [1968] UKHL 3

Lord Reid

The case raises a number of points and I shall first consider the position

under the Sale of Goods Act, 1893, section 14. The relevant subsections

are:

” (1) Where the buyer, expressly or by implication, makes known

” to the seller the particular purpose for which the goods are required,

” so as to show that the buyer relies upon the sellers’ skill or judgment,

” and the goods are of a description which it is in the course of the

” sellers’ business to supply (whether he be the manufacturer or not),

” there is an implied condition that the goods shall be reasonably fit

” for such purpose, provided that in the case of a contract for the sale

” of a specified article under its patent or other trade name, there is no

” implied condition as to its fitness for any particular purpose.

” (2) Where goods are bought by description from a seller who deals

” in goods of that description (whether he be the manufacturer or not)

” there is an implied condition that the goods shall be of merchantable

” quality: provided that if the buyer has examined the goods there shall

” be no implied condition as regards defects which such examination

” ought to have revealed.”

Conflicting arguments have been submitted about the meaning of almost

every part of these subsections. If one puts aside for the moment the

encrustations of authority their meaning appears to me to be reasonably

clear. But, if a whole chapter of the law is compressed into one section

of a code, one cannot expect its words to apply to unusual cases without

expansion or adaptation. That is the task of the Court: but it is not in

my view legitimate to substitute for the words of the code some general

words used by an eminent judge in a particular case and treat them as a

test of universal application. Where that has been done in other chapters

of the law it has led to trouble, and there has been a tendency to do that

here.

I take first subsection (2) because it is of more general application. It

applies to all sales by description where the seller deals in such goods.

There may be a question whether the sale of a particular article is not

really a sale by description but that does not arise here: these are clearly

sales by description. Then it is a condition (unless excluded by the

contract) that the goods must be of merchantable quality. Merchantable

can only mean commercially saleable. If the description is a familiar one

it may be that in practice only one quality of goods answers that description

—then that quality and only that quality is merchantable quality. Or it

may be that various qualities of goods are commonly sold under that

description—then it is not disputed that the lowest quality commonly so

sold is what is meant by merchantable quality : it is commercially saleable

under that description. I need not consider here what expansion or adapta-

tion of the statutory words is required where there is a sale of a particular

article or a sale under a novel description. Here the description ground nut

extractions had been in common use.

The novel feature of this case is that whereas in 1960 there appears to

have been thought to be only one quality of this product, subject to minor

variations, it has now been discovered that particular parcels though

apparently of the usual quality may really be of a very different quality

because they are contaminated by minute quantities of a powerful poison.

So the question at once arises—do you judge merchantable quality in light

of what was known at the time of the sale or in light of later knowledge?

It is quite clear that some later knowledge must be brought in for

otherwise it would never be possible to hold that goods were unmerchantable

by reason of a latent defect. By definition a latent defect is something

that could not have been discovered at the time by any examination which

in light of then existing knowledge it was reasonable to make. But there

is a question as to how much later knowledge ought to be brought in. In

the present case it had become well known before the date of the trial

that the defect was that these Brazilian ground nut extractions were con-

taminated by poison: but it had also become well known that, while this

poison made the goods unsuitable for inclusion in food for poultry, it was

generally regarded as proper to include such extractions in cattle food pro-

vided that the proportion included did not exceed 5 per cent, of the whole.

The question is whether this latter fact should be taken into account in

deciding whether these goods were of merchantable quality in 1960.

I think it would be very artificial to bring in some part of the later

knowledge and exclude other parts. In this case it is quite true that there

was a period, after the nature and effect of this contamination had been

discovered but before it had become accepted that small quantities of con-

taminated goods could safely be included in cattle foods, during which con-

taminated ground nut extractions were virtually unsaleable. But suppose

that in this case it had been discovered at an early stage that these goods

could be used for cattle food, so that there never was a period during

which they were unsaleable. In that case I would not think it possible to

take into account the nature of the defect but to exclude from consideration

the effect which knowledge of the defect had on the market.

There is clear evidence that before the date of the trial Indian ground

nut extractions so contaminated were sold under the ordinary description

and were not rejected by the buyers when the contamination was dis-

covered ; a director of British Oil and Cake Mills who are by far the largest

compounders in this country said that they bought these goods untested and

then tested them. If they were found to be very highly contaminated they

were destroyed: but otherwise they were included in feeding stuffs for cattle.

This company apparently did not claim any relief on the ground that such

goods were of defective quality or were of no use if highly contaminated.

And it appears that other buyers who found poison in the goods which

they bought did not try to reject the goods but merely asked for rebates on

the price: they never got any rebates and the evidence is that they did not

press their claims. So I think that it sufficiently appears that ground nut

extractions contaminated to an extent not said to be different from the

contamination of the Brazilian product were regarded as of merchantable

quality under the ordinary description at the date of the trial.

I do not think that I am precluded from taking this view of the meaning

of subsection (2) by any of the authorities.

A statement with regard to the meaning of section 14 (2) which has been

commonly accepted is that of Lord Wright in Cammell Laird v. Manganese

Bronze Co. [1934] A.C. 402. In that case the Respondents contracted to

supply two specially designed ship’s propellers. They first supplied pro-

pellers which were unsatisfactory and it was only at a third attempt that

they supplied propellers which were satisfactory. Cammell Laird sued for

damages caused by the delay. They succeeded on the terms of the contract

and under section 14 (1). But Lord Wright went on to consider the

application of section 14 (2). Apart from a short general statement at the

end of the speech of Lord Tomlin none of the other noble and learned

lords said anything about section 14 (2) or Lord Wright’s gloss on it. Lord

Wright said:

” In earlier times the rule of caveat emptor applied save only where

” an action could be sustained in deceit on the ground that the seller

” knew of the defect or for breach of express warranty (warrantizando

” vendidit). But with the growing complexity of trade dealings in-

” creased in what are now called ‘ unascertained or future goods’ and

” more generally ‘goods sold by description’. As early as 1815 in

” Gardiner v. Gray 4 Camp. 144 Lord Ellenborough stated the rule.

” Goods had been sold as waste silk: a breach was held to have been

” committed on the ground that the goods were unfit for the purpose

” of waste silk and of such quality that they could not be sold under

” that denomination. What subsection (2) now means by ‘ merchantable

” quality’ is that the goods in the form in which they were tendered

” were of no use for any purpose for which such goods would normally

” be used and hence were not saleable under that description.”

I feel sure that Lord Wright did not really mean this to be a test of

universal application in the form in which he stated it. If he did I disagree

for reasons which I shall state. In the Cammell Laird case, if the pro-

pellers were of no use for the ship for which they had been designed it was

true to say that they were of no use for any other ship and therefore

unsaleable as propellers. But there are many cases in which different

qualities of a particular kind of goods are commonly sold under different

descriptions. Suppose goods are sold under the description commonly used

to denote a high quality and the goods delivered are not of that high

quality but are of a lower quality which is commonly sold under a different

description, then it could not possibly be said that the goods in the form

in which they were tendered were of no use for any purpose for which those

goods would normally be used. They would be readily saleable under the

appropriate description for the lower quality. But surely Lord Wright did

not mean to say that therefore they were merchantable under the description

which was appropriate for the higher quality. They plainly were not. Lord

Wright said: ” no use for any purpose for which such goods would normally

” be used “. Grammatically ” such goods ” refers back to ” the goods in

” the form in which they were tendered “. But what he must have meant

by ” such goods ” were goods which complied with the description in the

contract under which they were sold. Otherwise the last part of the

sentence ” and hence were not saleable under that description ” involves a

non sequitur. If I now set out what I am sure he meant to say I think it

would be accurate for a great many cases though it would be dangerous

to say that it must be universally accurate. The amended version would

be ” What subsection (2) now means by ‘ merchantable quality’ is that the

” goods in the form in which they were tendered were of no use for any

” purpose for which goods which complied with the description under which

” these goods were sold would normally be used, and hence were not sale-

” able under that description.” This is an objective test: ” were of no use

” for any purpose . . .” must mean ” would not have been used by a

” reasonable man for any purpose . . .”.

That would produce a sensible result. If the description in the contract

was so limited that goods sold under it would normally be used for only

one purpose then the goods would be unmerchantable under that description

if they were of no use for that purpose. But if the description was so general

that goods sold under it are normally used for several purposes then goods

are merchantable under that description if they are fit for any one of these

purposes : if the buyer wanted the goods for one of those several purposes

for which the goods delivered did not happen to be suitable though they

were suitable for other purposes for which goods bought under that descrip-

tion are normally bought then he cannot complain. He ought either to have

taken the necessary steps to bring subsection (1) into operation or to have

insisted that a more specific description must be inserted in the contract.

That would be in line with the judgment of Mellor J. in Jones v. Just

L.R. 3 Q.B. 197 which has always been regarded as high authority. He

said (page 205):

” It appears to us that in every contract to supply goods of a specified

” description which the buyer has no opportunity to inspect, the goods

” must not only in fact answer the specific description, but must also

” be saleable or merchantable under that description.”

The buyer bought manilla hemp: on arrival the goods were found to be

damaged to such an extent as not to be saleable under that description and

the buyer resold under the description ” Manilla hemp with all faults”

and received about 75 per cent, of what merchantable manilla hemp would

have fetched. So it certainly could not be said that the goods were of no

use. But the buyer recovered, as damages for breach of the implied

warranty, the difference between what the hemp would have been worth

if merchantable as manilla hemp and what he was able to get for it when

sold ” with all faults “.

It would also be in line with what Lord Wright said in Canada Atlantic

Grain Co. v. Eilers 35 Lloyds List Law Reports 206 at page 213:

” If goods are sold under a description which they fulfil and if goods

” under that description are reasonably capable in ordinary user of

” several purposes, they are of merchantable quality within section 14 (2)

” of the Act if they are reasonably capable of being used for any one

” or more of such purposes even if unfit for use for that one of those

” purposes which the particular buyer intended.”

There is another statement by Lord Wright regarding section 14 (2) in

Grant v. Australian Knitting Mills [1936] AC 85 at page 99:

” The second exception (i.e. section 14 (2)) in a case like this in truth

” overlaps in its application the first exception (i.e. section 14 (1)):

” whatever else merchantability may mean, it does mean that the article

” sold, if only meant for one particular use in ordinary course, is fit

” for that use: merchantability does not mean that the thing is sale-

” able in the market simply because it looks alright.”

That too appears to me to be in line with my amended version of what he

said in the Cammell Laird case.

Another explanation of the phrase ” merchantable quality” which has

frequently been quoted is that of Farwell L.J. in Bristol Tramways v. Fiat

Motors [1910] 2 K.B. 831 at page 841:

” The phrase in section 14 subsection (2) is, in my opinion, used as

” meaning that the article is of such quality and in such condition that

” a reasonable man acting reasonably would after a full examination

” accept it under the circumstances of the case in performance of his

” offer to buy that article whether he buys for his own use or to sell

” again.”

I do not find this entirely satisfactory. I think what is meant is that a

reasonable man in the shoes of the actual buyer would accept the goods

as fulfilling the contract which was in fact made. But if the description

was so wide that goods required for different purposes were commonly

bought under it and if these goods were suitable for some of those purposes

but not for the purpose for which the buyer bought them, it would have

to be a very reasonable buyer indeed who admitted that the goods were

merchantable, and that it was his own fault for not realising that goods

might be merchantable under that description although unsuitable for his

particular purpose.

There was also another explanation brought to our attention. In Austra-

lian Knitting Mills v. Grant [1933] 50 C.L.R. 387 at page 418 Dixon J.

said :

” The condition that goods are of merchantable quality requires that

” they should be in such an actual state that a buyer fully acquainted

” with the facts and therefore knowing what hidden defects exist and

” not being limited to their apparent condition would buy them without

” abatement of the price obtainable for such goods if in reasonable

” sound order and condition and without special terms.”

I would only qualify this by substituting ” some buyers ” for ” a buyer “.

” A buyer ” might mean any buyer: but for the purposes for which some

buyers wanted the goods the defects might make the goods useless, whereas

for the purposes for which other buyers wanted them the existence of the

defects would make little or no difference. That is in fact the position in

the present case. I think that it must be inferred from the evidence that

buyers who include ground nut extractions in their cattle foods are prepared

to pay a full price for goods which may be contaminated. But buyers who

only compound poultry foods would obviously not be prepared to buy con-

taminated goods at any price. Nevertheless contaminated ground nut extrac-

tions are merchantable under the general description of ground nut extrac-

tions because, rather surprisingly, some buyers appear to be ready to buy

them under that description and to pay the ordinary market price for them.

On the face of it section 14 (1) has a narrower scope. It requires that the

buyers shall have required the goods for a particular purpose, that that

purpose shall have been made known to the seller, and that it shall have been

made known to him in such circumstances that he realized or ought to have

realized that the buyer was relying on his using his skill or judgment to select

goods fit for that purpose. Many cases in which the seller has been held

liable under this subsection might equally well and more logically have been

decided under subsection (2). But there has been a tendency to construe

subsection (2) too narrowly and to compensate for that by giving a wide

construction to subsection (1).

If the object of the disclosure of the particular purpose is, as I think it must

be, to give to the seller an opportunity to exercise his skill or judgment in

making or selecting appropriate goods, then it is difficult to see how a stated

purpose can be a ” particular ” purpose if it is stated so widely that it would

cover different qualities of goods, because carrying out the purpose in one

way would only require a lower quality of goods whereas carrying it out in

another way would require a higher quality. Different qualities normally

sell at different prices. If a customer sought from a manufacturer or dealer

cloth for the purpose of making overcoats the dealer could not know what

quality was required. A cut price tailor would not want to pay the price

of cloth used in Savile Row, and the tailor in Savile Row would not use

the quality which the cut price tailor wants. Unless the seller knew the

nature of the buyer’s business his only clue to the quality which the buyer

wanted would be the price which the buyer was prepared to pay. If a high

price was offered it might no doubt be right to hold that he must supply

goods suitable for high quality coats. But it could not be right that if the

cloth was sold at a price appropriate for the lower quality, the dealer would

have to supply a higher quality simply because the buyer had stated that his

purpose was to make overcoats and the lower quality would not always be

reasonably fit for making every kind of overcoat.

It was argued that, whenever any purpose is stated so as to bring this

subsection into operation, the seller must supply goods reasonably fit to

enable the buyer to carry out his purpose in any normal way. But that can

only be right if the purpose is stated with sufficient particularity to enable

the seller to exercise his skill or judgment in making or selecting appropriate

goods. The seller may know or be told that the merchant who is buying

from him is buying for the purpose of reselling the goods in the course of his

business. That may be sufficient to enable the seller to select appropriate

goods or it may not. If the buyer’s trade is such that some of his customers

will want goods of the description which he is buying from the seller for one

purpose or of one quality, and others of his customers will want goods of

that description of another quality for another purpose, it could not be right

that the buyer, merely by stating that he wants the goods for resale in the

course of his business, could impose on the seller the obligation to supply

goods reasonably fit for resale to every ordinary customer of the buyer no

matter what his requirements might be.

Perhaps the solution of this problem is to be found in the application of

the requirement of the section that the particular purpose must be made

known ” so as to shew that the buyer relied upon the seller’s skill or judg-

” ment”. A buyer who is buying for the purpose—known to the seller—

of re-selling in the course of his business may want superior goods for which

some of his customers will pay a high price, or he may want goods of lower

quality to sell to less demanding customers. If he does not say which he

wants, or at least indicate which he wants by the price which he is offering,

how can he be relying on the seller to supply something reasonably fit for

his purpose?

The leading case is Manchester Liners v. Rea [1922] 2 A.C. 74. But it

is not a very satisfactory source from which to extract general principles.

Lord Buckmaster began his speech by saying:

” When the circumstances in which this appeal has arisen are examined,

” it will be found that its determination really depends upon the proper

” aspect of the facts rather than on an examination of uncertain principles

” of law.”

Rea were coal merchants and the shipowner’s order was for ” 500 tons South

” Wales coal for the steamship Manchester Importer “. It might seem from

Lord Buckmaster’s speech that there was something unusual about the fur-

naces in this ship, but Lord Atkinson at page 83 quoted the finding of the trial

judge that the ” coal actually delivered was not reasonably fit for an ordinary

” average Manchester steamer like the Manchester Importer in the hands of

” average officers and crew”. So one would assume that coal merchants

could easily have found out if they did not know already what kind of coal

was needed. Lord Dunedin said (at page 82):

” It was not the buyer who was going to find the coal. He says to the

” seller ‘ I want 500 tons for a special purpose, will you give it to me? ‘

” The seller could easily have guarded himself but he merely answered

” ‘ yes ‘ by confirming the proposal as made. Not only so but he came

” into Court asserting that he did supply Welsh coal of suitable quality.”

The passages in Lord Buckmaster’s speech usually quoted are (at page 79):

” It is plain that the order was expressed for the use of a particular

” steamship, and it must therefore be assumed that the respondents knew

” the nature of her furnaces and the character of the coal she used, for

” it was this coal they contracted to supply. … If goods are

” ordered for a special purpose and that purpose is disclosed to the

” vendor so that in accepting it he undertakes to supply goods which are

” suitable for the object required such a contract is in my opinion

” sufficient to establish that the buyer has shewn that he relies on the

” seller’s skill and judgment.”

I think that importance was attached to the fact that the seller was expressly

told for what ship the coal was wanted. It is certainly not necessary in

many cases that the buyer should state his purpose expressly, but in a doubt-

ful case it is much easier to infer that the seller ought to have realised that the

buyer was relying on him if the purpose is stated expressly. I am not at all

convinced that that inference would have been drawn if Rea had merely

happened to know—still less if he had merely assumed—that the coal was

wanted for the Manchester Importer. I do not think that this case is any

authority for the view which has sometimes been expressed that if the seller

knows the purpose for which the buyer wants the goods it will be presumed

that the buyer relied on his skill and judgment. Lord Sumner said (at

page 90):

” The words of section 14 (1) are ‘so as to shew’ not ‘and also

” shews ‘. They are satisfied if reliance is a matter of reasonable inference

” to the seller and to the Court, and in this case I think the evidence

” supports the finding of Salter J. that the inference ought to be drawn.”

Lord Wright might appear to be going further when he said in Cammell

Laird (at page 423):

” Such a reliance must be affirmatively shewn: the buyer must

” bring home to the mind of the seller that he is relying on him

” in such a way that the seller can be taken to have contracted on

” that footing. The reliance is to be the basis of a contractual

” obligation.”

But I do not think that he meant more than that in the whole circumstances

a reasonable man in the shoes of the seller would have realised that he

was being relied on. In Grant’s case he said (at page 99):

” It is clear that the reliance must be brought home to the mind

” of the seller expressly or by implication. The reliance will seldom

” be express: it will usually arise by implication from the circum-

” stances: thus to take a case like that in question of a purchase from

” a retailer, the reliance will be in general inferred from the fact that

” a buyer goes to the shop in the confidence that the tradesmen has

” selected his stock with skill and judgment: the retailer need know

” nothing about the process of manufacture: it is immaterial whether

” he be manufacturer or not: the main inducement to deal with a good

” retail shop is the expectation that the tradesmen will have bought

” the right goods of a good make.”

A shopkeeper’s goodwill consists largely in his reputation of being reliable

—the better the shop the easier it is to draw this inference.

Drummond v. Van Ingen 12 App. Cas. 284 was decided at a time when

there was no clear distinction between the two implied conditions which

are now set out in subsections (1) and (2) of section 14. The contract

was for ” mixt worsted coatings ” equal in quality and weight to samples.

The goods were exported by Van Ingen but rejected by the buyers, returned

and resold at a loss. Van Ingen claimed damages on the ground that the

goods were not merchantable. The trial judge found that there was an

implied warranty that the cloth should be merchantable generally as worsted

coatings, should be properly manufactured and should be suitable to be

made up into coats in the ordinary course of tailor’s work, but that the

cloth was not merchantable as worsted coating and was not properly

manufactured and suitable to be made up into coats in the ordinary course

of tailoring. Lord Selborne said:

” I think your Lordships must . . . take the existence of the defect,

” to a degree sufficient to render the cloth unmerchantable for the

” purposes for which goods of the same general class had previously

” been used in the trade, to have been sufficiently established.”

He went on on page 188 to discuss the degree of knowledge of the trade

to be expected of the manufacturer—but still I think in connection with

merchantability—for he said on page 289 that the Respondents had—

” a right to assume that the Appellants, accepting the order, could

” and would produce and deliver a good article, having the weight

” and all the other apparent qualities of the sample, which would be

” as merchantable for coatings as other articles of the same class

” previously known in the trade.”

Lord Herschell and Lord Macnaghten come nearer to applying the

condition now set out in section 14 (1). Indeed Lord Macnaghten says (at

page 296):

” But the question is not were they saleable but were they fit for

” the purpose for which they were known to have been ordered.”

This was a case of the goods being bought from the manufacturer. It can

only be in unusual circumstances that a buyer doe not rely in part at least

on the skill or judgment of the manufacturer, or that a manufacturer is

entitled to assume that the buyer is not relying on him at least to some

extent.

The difference between the two conditions—they were called warranties

in these cases—is illustrated by the decision in Jones v. Padgett 24 Q.B.D.

650. The plaintiff was a woollen merchant and he ordered a quantity of

” indigo blue cloth “. He also had a tailor’s business and he intended to

use and did use the cloth for making servants’ liveries. It proved to be

not strong enough for that purpose and he sued for breach of an implied

warranty that the cloth should be merchantable. He failed. The cloth

was suitable for other purposes for which cloth of that description was

ordinarily used, and he had not told the defendant the particular purpose

for which he wanted it.

There is some Scottish authority for giving a restricted meaning to the

phrase “particular purpose”. In Flynn v. Scott [1949] SC 442 (an Outer

House case) Lord Mackintosh followed an earlier view that decisions under

the Mercantile Law Amendment Act 1856 were applicable to section 14 (1)

of the Sale of Goods Act. I think this was wrong. The 1856 Act

required that the goods should have been ” expressly sold for a specified

and particular purpose “—words which seem to me to be much narrower

than those in section 14 (1). In Flynn’s case the buyer of a second hand

motor van had informed the seller that he wanted it for the purposes of a

haulage contractor and intended to use it for the carriage of articles such

as furniture and livestock. That purpose appears to me to have been

stated with sufficient particularity to enable the seller to use his skill and

judgment and therefore to come within the scope of section 14 (1).

We were also referred to a more recent case McCallum v. Mason [1956]

S.C. 50 where a nurseryman bought fertiliser for application to his 1952

tomato crop. It contained poison and damaged both his 1952 and 1953

crops. The Second Division upheld that he could rely on section 14 (1)

as regards the 1952 crop but not as regards the 1953 crop, because appli-

cation to the later crop was not within the particular purpose for which

he bought it. But the Court did not consider the matter from the point

of view of measure of damages—whether the seller ought to have known

that it was not unlikely that some of the poisoned goods would remain

and be used the next year without the buyer realising that the 1952

damage had been caused by this fertiliser. There appears to have been no

doubt that the later damage was in fact caused by the breach of contract

in delivering poisoned goods.

There is no doubt that in this case Kendall knew that Grimsdale were

buying the goods to resell to compounders of animal feeding stuffs. In 1960

that was in my view a particular purpose because there is no evidence to

shew that it was not sufficiently particular to enable Kendall to exercise

skill and judgment. It would not have helped Kendall to be told

that the goods were ultimately to be fed to any particular kind or age

of animal because at that time nobody knew that what was suitable for

one kind of animal might not be suitable for another. Both Kendall and

Grimsdale would assume that Grimsdale’s customers would only include a

suitable proportion in the particular food they were compounding: if they

caused damage by using a wrong formula for their product neither Grimsdale

nor Kendall would be responsible for that.

The difficult question is whether the circumstances were such as to shew

that Grimsdale were relying on Kendall’s skill and judgment: but before I

come to that there are two other matters which require some explanation.

If the law were always logical one would suppose that a buyer, who has

obtained a right to rely on the seller’s skill and judgment, would only obtain

thereby an assurance that proper skill and judgment had been exercised, and

would only be entitled to a remedy if a defect in the goods was due to failure

to exercise such skill and judgment. But the law has always gone farther

than that. By getting the seller to undertake to use his skill and judgment

the buyer gets under section 14 (1) an assurance that the goods will be reason-

ably fit for his purpose and that covers not only defects which the seller

ought to have detected but also defects which are latent in the sense that

even the utmost skill and judgment on the part of the seller would not have

detected them. It is for that reason that, if section 14 (1) applies, Grimsdale

are entitled to relief even although Kendall had no reason to suspect that

the goods might be poisoned.

Secondly it is not necessary to decide whether to-day it would be a

sufficiently particular purpose for Kendall to know that Grimsdale intended

to resell to compounders of feeding stuffs. To-day some compounders are

willing to buy infected goods but presumably some are not, and I doubt

whether mere knowledge on the part of Kendall that Grimsdale intended to

resell would oblige Kendall to supply goods free from this poison. I would

readily accept that a customer buying from an apparently reputable shop-

keeper or from a manufacturer will normally as a matter of fact be relying

on the seller’s skill and judgment unless there is something to exclude the

inference. But I do not think that the same can be said when two merchants

equally knowledgeable deal with each other. Then I can see no reason in

law or in fact for any presumption either way.

If one merchant merely acquired from an importer by buying on c.i.f.

documents goods from a normal source and then resold to another merchant

by transfer of the c.i.f. documents before taking delivery, there might then

be little or no reason to suppose that the former merchant had exercised or

could have exercised any skill or judgment with regard to the quality of the

goods or that the latter was relying on him. But that was not the position

in this case. Kendall had acquired these goods from a new source and one

would suppose must have exercised skill and judgment in deciding to buy

them and put them on the market. And the evidence appears to me to shew

that Kendall were recommending them to Grimsdale. In order to bring

this subsection into operation it is not necessary to shew that the parties

consciously applied their minds to the question. It is enough that a reason-

able seller in the shoes of Kendall would have realised that he was inviting

Grimsdale to rely on his skill and judgment and that is what I think that

in fact Kendall were doing. And the same applies to Holland Colombo.

If that is right then section 14 (1) did apply to this case. I agree with your

Lordships that the clause in the contract on which Kendall rely as exempting

them from liability does not apply.

I turn now to the claims under the Fertilisers and Feeding Stuffs Act

1926. Section 2 (2) provides:

” On the sale for use as food for cattle or poultry of an article included

” in the first column of the First or Second Schedule to this Act there

” shall be implied, notwithstanding any contract or notice to the con-

” trary, a warranty by the seller that the article is suitable to be used

” as such, and does not, except as otherwise expressly stated in the

” statutory statement, contain any ingredient included in the Third

” Schedule to the Act.”

In each case the buyers maintain against the sellers that the ground nut

extractions (which are an article included in the Schedule) were sold to them

for use as food for cattle or poultry, that therefore there was a warranty by

the sellers that the goods were suitable to be used as such, that the goods

were not suitable and that this defect caused the death of the pheasants for

which S.A.P.P.A. had to pay damages to the Game Farm. So S.A.P.P.A.

claim relief against Grimsdale and Grimsdale in turn claim relief against

Kendall. In each case the sellers have two answers. In the first place they

put forward what has been called the ” ingredients ” point: they say that

they did not sell for use as food because ground nut extractions are always

compounded with other ingredients before being fed to animals. They

argue that the Act distinguishes between articles used as food and ingredients

of such articles. I agree with your Lordships that there is no substance in

this argument. If a miller sells to a baker flour which is to be made into

bread or if a grocer sells dried fruit, eggs and butter which are to be made

into a cake, all these articles are sold for use as food for human consumption

though none of them is to be eaten in the form in which it is sold. And the

fact that the Act makes some distinctions between articles and ingredients

does not in my view indicate any intention to limit the generality of the

provision in this section. Any such limitation would produce capricious

results and would go far to thwart the obvious purpose of this legislation.

The second argument requires more consideration. In the first place they

say that pheasants are not poultry and therefore the subsection does not

apply. I do not think that these pheasants were poultry. They were reared

for the purpose of being released to serve as targets for sportsmen and

pheasants which have never been in captivity are clearly not poultry. It

may well be that, if it should prove profitable to rear and keep pheasants

in captivity until killed for human consumption, such pheasants should be

regarded as poultry. But the mere fact that these pheasants like other game

will come to the table after they have been shot seems to me to be immaterial.

It would not in my view be in accordance with the ordinary use of language

to say that they were poultry until released and then became game. They

were game throughout and the farm where they were reared was properly

called a game farm.

The next question is whether the subsection applies when the damage is

done to some animals other than cattle or poultry. The argument is that

this Act was passed for the protection of cattle and poultry and their owners,

and cannot have been intended to confer rights when other animals have been

harmed. I would accept that if this provision were reasonably capable of

that interpretation, but I do not think that it is. It may be that if a customer

states that his purpose is to feed the goods to some other animals, or even

if the seller happens to know that, the section does not apply because the

food was not sold for use as food for cattle or poultry and the mere fact

that the bag is labelled ” poultry food ” would not matter. But that is not

this case.

The main purpose for which S.A.P.P.A. bought was, as Grimsdale knew,

to include these goods in compound foods for pigs and poultry (pigs are

included in the definition of cattle), and it would appear that only a small

part of their production was sold to the game farm for pheasants. So one

must construe the subsection. Does it mean that the warranty is to the effect

that if the goods are fed to cattle or poultry they are guaranteed to be suitable,

or does it mean that they are guaranteed to be of a quality suitable for cattle

and poultry? If the former is right then no warranty would operate until

the goods are fed to these animals: if the latter then the warranty is broken

as soon as the goods are delivered and damages can be claimed before the

goods are fed to any animals on proof of their defective quality. I cannot

avoid the conclusion that the latter is the true meaning.

So in this case this statutory warranty was broken when Grimsdale delivered

the goods to S.A.P.P.A. because they were by reason of the poison unsuitable

to be used as food for poultry; and it becomes an ordinary question of

remoteness of damage whether damage suffered by loss of pheasants is

recoverable. The question then is whether Grimsdale knew or as reasonable

traders in this market ought to have known that it was not unlikely that part

of the goods which they sold would ultimately be fed to pheasants. There is

no evidence that they did know but other traders in the market certainly

knew that, and poultry food has been fed to pheasants for many years. I

cannot avoid the conclusion that, if Grimsdale had thought about it, they

would have realised that compounds sold by country compounders like

S.A.P.P.A. were quite likely to be fed to pheasants. If that is so then this

damage was not too remote. I agree with your Lordships that the clause in

the contract which purports to exclude Grimsdale’s liability in certain cases

does not apply to this case. I am therefore of opinion that Grimsdale’s appeal

against S.A.P.P.A. ought to be dismissed and I return to Kendall’s appeal

against Grimsdale.

The question whether the statutory warranty under the 1926 Act attached

to the contract between Kendall and Grimsdale raises another question of

quite a different character. Kendall held various c.i.f. documents which gave

them a right to large quantities of these Brazilian goods which were in transit

in various vessels. In particular they held such documents for 750 tons and

these they sold to Grimsdale who took delivery of the appropriate c.i.f.

documents. Counsel were agreed about the general legal effect of that sale.

When goods are shipped c.i.f. there is a contract of affreightment under which

the Master of the vessel is bound to deliver the goods to whoever produces

the documents at the end of the voyage. While the goods are in transit the

first holder of the documents can sell the goods to a buyer by delivering the

documents in exchange for payment of the price, and there may be a chain

of such sales. None of the sellers knows for certain whether his buyer will

take delivery or will resell the goods by delivering the documents to another

buyer. None of these sales is intimated to the Master of the vessel. He has

no concern with them, and once a seller has delivered the documents and

received the price he has no concern with further sales or with the ultimate

delivery of the goods. He does not deliver the goods either actually or

fictionally to his buyer on their arrival. The only delivery of the goods is

by the Master to the ultimate buyer who presents the documents to him.

Kendall contend that the statutory warranty never attaches to any sale

by delivery of c.i.f. documents. This matter was considered by the Court of

Appeal in Draper v. Turner [1965] 1 Q.B. 424 but I agree with my noble and

learned friend Lord Wilberforce that the reasoning in that decision cannot

be supported. Accordingly I must go back to the 1926 Act and examine its

purpose and effect. It attaches the warranty to sales of feeding stuffs for

cattle or poultry. That is obviously intended to protect livestock and its

owners and Parliament must have had in mind primarily at least livestock

in this country. There is a general presumption that Parliament does not

intend to legislate with regard to things done abroad: and this provision

cannot be held to apply to a foreign sale which has no other connection with

this country than that it was the buyer’s intention to bring the feeding

stuffs here for use in this country. Farther I do not think that Parliament

can have intended the warranty to attach to an English contract for the sale

of feeding stuffs which are in transit to a foreign country. What then if the

seller knows that the buyer intends to take delivery of goods consigned to a

British port and immediately ship them abroad? It does not seem to be

within the purpose of the Act that this warranty should be compulsorily

attached to that contract: the warranty will not attach to farther sales

to the farmer in the foreign country. There must be many sales by delivery

of c.i.f. documents where neither the seller nor the buyer knows for certain

how or where the goods will ultimately be used because the buyers may intend

to resell to the highest bidder before the goods are delivered. It is sufficient

to attract the warranty that the parties to such a sale know that there is a

probability that the goods will ultimately be used as food for cattle or poultry

in this country? The operation of section 2 (2) is certainly not confined to

sales to farmers or others who intend to feed the goods to their own live-

stock ; but with regard to imported goods its operation must stop somewhere,

and where it is to stop must be determined by examining the terms of the

Act.

Section 1 requires the seller to deliver to the buyer a statement in writing

regarding the nature substance and quality of the goods before or as soon as

reasonably practicable after delivery. I do not see how that section can apply

to a seller on c.i.f. documents. Even if he knows enough to enable him to

complete the statement he never delivers the goods to the buyer, and if the

buyer resells on the documents he never takes delivery of the goods. Section

3 entitles the purchaser to have a sample taken within fourteen days after

delivery to him: that cannot apply if neither the seller nor the buyer has

ever taken delivery of the goods. Failure to comply with these and other

requirements of the Act involves criminal liability: there are obvious diffi-

culties in the way of enforcing criminal liability against c.i.f. sellers. Leaving

aside sections 2 and 5 it appears to me that the operation of the Act is

confined to sales of goods where the seller can make delivery to the buyer

in this country.

Section 5 applies where the goods are delivered from a ship or quay to the

purchaser. It appears to assume that the delivery will be made by or on

behalf of the seller for it imposes duties on the seller to keep a register of

certain particulars. But the last buyer on c.i.f. documents does not take

delivery from the seller, and the Master does not deliver as the agent of the

last c.i.f. seller. That seller has no concern with the goods at that stage

and I do not see how he can keep this register. Unless the buyer from him

or the Master chooses to give him information he cannot make out this

register. I cannot read into the Act provisions which would be necessary to

enable or require the last c.i.f. seller to comply with the provisions of this

section. Any c.i.f. seller may be the last because his buyer may take delivery,

or he may not be the last because his buyer may resell on the documents.

I can find nothing in the Act to require or to enable every c.i.f. seller to

find out whether his buyer has resold on the documents or has taken

delivery of the goods.

So it appears to me to be clear that no part of the Act other than section

2 (2) can apply to a seller who sells by delivery of the documents. Why

should section 2 (2) alone apply to him? To hold that it did would do no

good to the farmer or the person who feeds the goods to his livestock.

It would only be of advantage to the merchant like Grimsdale who was the

last buyer who took delivery of the c.i.f. documents. Some merchant has

to bear the ultimate liability because it cannot go back to the person who

was primarily responsible—the producer in Brazil. It seems to me that

all the arguments are in favour of construing section 2 so that this warranty

attaches to sellers who have duties to perform under the Act, but that it does

not attach to contracts made by sellers who are not otherwise affected by the

Act. In my view Kendall had no duties to perform under the Act and

the warranty did not attach to the contract of sale which they made with

Grimsdale by delivery of the c.i.f. documents to Grimsdale. The same must

apply to Holland Colombo.

I would dismiss the appeals of Kendall and Holland Colombo because,

and only because, there attached to the contracts made by them conditions

in terms of section 14 (1) of the Sale of Goods Act and the Appellants were

in breach of these conditions.

I have already stated that I would dismiss the second appeal because

Grimsdale were liable to S.A.P.P.A. by reason of a breach of the statutory

warranty under the 1926 Act.

________________________________________

Jewson Ltd. v Boyhan

[2003] EWCA Civ 1030 [2004] 1 LLR 505, [2004] 1 Lloyd’s Rep 505

Clarke LJ

The 1979 Act

As amended by various provisions of the Sale and Supply of Goods Act 1994 (“the 1994 Act”), with effect from 3 January 1995 section 14(2) and (3) of the 1979 Act provide as follows:

“(2) Where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality.

(2A) For the purposes of this Act, goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances.

(2B) For the purposes of this Act, the quality of goods includes their state and condition and the following (among others) are in appropriate cases aspects of the quality of goods –

(a) fitness for all the purposes for which goods of the kind in question are commonly supplied,

(b) appearance and finish,

(c) freedom from minor defects,

(d) safety, and

(e) durability.

(2C) The term implied by subsection (2) above does not extend to any matter making the quality of goods unsatisfactory-

(a) which is specifically drawn to the buyer’s attention before the contract is made,

(b) where the buyer examines the goods before the contract is made,

(c) in the case of a contract for sale by sample, which would have been apparent on a reasonable examination of the sample.

(3) Where the seller sells goods in the course of a business and the buyer expressly or by implication, makes known-

(a) to the seller, or

(b) where the purchase price or part of it is payable by instalments and the goods were previously sold by a credit-broker to the seller, to that credit-broker,

any particular purpose for which the goods are being bought, there is an implied term that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the skill or judgment of the seller or credit-broker.”

The essential change introduced by the 1994 Act was that the test of “satisfactory quality” replaced that of “merchantable quality”. The question which must be asked under section 14(2) is thus whether the boilers were of satisfactory quality. I will return below to the extent to which the “other relevant circumstances” to be taken into account extend to circumstances peculiar to the buyer or his purposes.

Under section 14(3) the questions are these:

i) whether Mr Kelly, expressly or by implication, made known to Jewsons the purpose for which the boilers were being bought;

ii) if so, whether they were reasonably fit for that purpose;

iii) if they were not reasonably fit for that purpose, whether Jewsons have shown

a) that Mr Kelly did not rely upon their skill and judgment or,

b) if he did, that it was unreasonable of him to do so.

It is convenient to consider those questions after identifying the crucial findings of fact made by the judge and how they impact upon Mr Kelly’s case.

….

Satisfactory Quality – Preliminary

The judge held that the boilers were not of satisfactory quality within the meaning of section 14(2) of the 1979 Act, although he said in paragraph 83 that he regarded the issue as a difficult one and the arguments as finely balanced. He thought that the issue of whether Jewsons were in breach of the term implied by section 14(3) was more clear-cut in Mr Kelly’s favour.

The case is not concerned with any of the situations described in subsection (2C) but, in considering the issue of satisfactory quality it may be appropriate to set out again here subsections (2), (2A) and (2B) of section 14. They provide as follows:

“(2) Where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality.

(2B) For the purposes of this Act, the quality of goods includes their state and condition and the following (among others) are in appropriate cases aspects of the quality of goods –

(a) fitness for all the purposes for which goods of the kind in question are commonly supplied,

(b) appearance and finish,

(c) freedom from minor defects,

(d) safety, and

(e) durability.”

The judge recognised that, in the light of his analysis in paragraph 35 of his judgment (which is quoted in paragraph 21 above) of the evidence concerning the intrinsic capabilities of the Amptec boilers to do the job for which they were installed in the flats, they were capable of working to the reasonable satisfaction of the occupants of the flats when installed in 1998. In short, there was no legitimate complaint that the boilers did not work satisfactorily as boilers. Nor was there anything wrong with their state or condition, their appearance or finish, their safety or their durability and they were free from minor defects.

Mr de Garr Robinson submits that they were also fit “for all the purposes for which goods of the kind in question [viz boilers] are commonly supplied”. Intrinsically they worked satisfactorily and their intrinsic quality reflected no breach of any regulation designed to protect the end-user. In short there was nothing wrong with the boilers. Mr de Garr Robinson further submits that in these circumstances they met the “standard which a reasonable man would regard as satisfactory”.

The reason why the judge held that the boilers were not of satisfactory quality is summarised in paragraph 82 as follows:

“For my part, I could understand why a reasonable person, addressing the issue in 1998, would have said that a new form of electric boiler claimed to provide efficient low-cost heating in residential dwellings ought to be capable of being shown to meet such a claim within the tests and procedures then prevailing or, if not, why not and/or why it did not matter. I can see a reasonable person saying that, without meeting such tests or procedures or without such an explanation, he or she would understand a proposed purchaser of a dwelling into which such a boiler was fitted delaying, or even pulling out of, the purchase. My conclusions on the impact of the unsatisfactory SAP ratings are set out in paragraphs 73-75. A reasonable person, reflecting on those conclusions against the background of the description of the boilers given in the promotional literature (see paragraphs 33-35 above) and by virtue of what Mr Brown said about them at the meeting on 6 February (see paragraph 45), would, I think, on balance say that the boilers were not of “satisfactory quality”.

I have quoted paragraphs 73 to 75 of the judgment in paragraph 36 above and have set out the relevant parts of Amptec’s promotional literature in paragraphs 18 and 19 above. I have also summarised the judge’s findings relating to the meeting of 6 February in paragraphs 22 to 24 above.

Mr McGuire submits that those conclusions were entirely justified whereas Mr de Garr Robinson submits that they confuse the requirements of the terms implied by subsections (2) and (3). His submissions may be summarised as follows:

i) There is a considerable overlap between subsections 14(2) and 14(3) but they perform different functions. The function of section 14(2) is to establish a general standard which goods are required to reach, whereas the function of section 14(3) is to impose a particular (higher) standard which is appropriate where the buyer (to the knowledge of the seller) buys the goods for a particular purpose and relies on the seller’s skill and judgment for that purpose.

ii) Goods are satisfactory if they meet the standard which a reasonable person would regard as satisfactory: section 14(2A).

iii) In determining the standard that a reasonable person would regard as satisfactory, the circumstances which must be taken into account are any description of the goods, the price and all the other relevant circumstances: section 14(2A).

iv) In appropriate circumstances, certain defined features may be regarded as aspects of the quality of the goods, including fitness for all purposes for which goods of the kind in question are commonly supplied: section 14(2B).

I would accept those submissions. It seems to me that under the statutory scheme set out in section 14 it is the function of section 14(3), not section 14(2), to impose a particular obligation tailored to the particular circumstances of the case. The problem with which we are faced in this case is what the overlap is between subsections (2) and (3). It is important to note that this is not a case in which it is said that there was anything unsatisfactory about the intrinsic qualities of the boilers. What has been held to be unsatisfactory about them is their impact on the SAP ratings for the flats, which depends upon a number of factors which relate to the particular characteristics of the flats as well as the boilers. In these circumstances, it seems to me that it would be a startling result if Jewsons were liable for breach of the implied terms in section 14(2) and not of the implied terms in section 14(3).

I therefore turn to consider the position under section 14(3) before returning to section 14(2).

Fitness for Purpose

I identified the relevant questions in this regard in paragraph 15 above. The first question is whether the buyer made known to the seller the purpose for which the goods were being bought. Here the judge held that Mr Kelly made clear to Jewsons that he was buying the boilers for installation in the flats which were being converted for resale.

The second question is whether the boilers were reasonably fit for that purpose. The judge’s conclusions in this regard may be summarised as follows:

i) Any feature of the boiler which materially or substantially increased the risk of a significantly delayed sale of the flat would have rendered them not reasonably fit for their purpose (paragraph 84).

ii) The unsatisfactory SAP ratings caused by the boilers gave rise to such a risk (paragraph 84). The judge there referred specifically to paragraph 75, where he noted evidence that in June 1998 Mr Brown had said that Amptec was being threatened with legal action by a Housing Association in Newcastle for the cost of replacing Amptec boilers because of poor energy ratings. The judge said that that confirmed that people were having problems accepting that a boiler marketed as providing low cost heating by electric power was in fact doing so and that the SAP rating procedure highlighted the difficulty, as it was designed to do.

iii) The judge added in paragraph 84 that he was fortified in his conclusion that the boilers were not reasonably fit for the purpose by the joint view of Mr Rolton and Mr Wilson that “the Amptec product is an unsuitable one for use in this application where other forms of cost-effective fuel were available”.

iv) He noted Mr Jones’ submission that he should not be influenced by that view because it presupposes that Mr Kelly had the freedom to choose between comparative systems and then to select the most cost effective, which it was submitted that he did not. However, he added that it was met on the facts by considerations which he had set out in paragraph 50. I take that to be a reference to this passage:

“… if [Mr Kelly] had thought that the Amptec boilers were unsuitable I am quite sure he would have thought again about acquiring them. I suspect that, in truth, he would have examined all the options again and only if it became apparent that each and all were quite impracticable would he have abandoned the project altogether and, as it were, cut his losses.”

He added that that was a preliminary view because it raised a matter to be dealt with under the headings of causation or quantum. He also added, to my mind correctly, that it was a matter which might more conveniently have been dealt with at this stage of the case.

v) In short, the boilers were not fit for the purpose of being installed into the flats in York House because of their effect on the SAP ratings.

The third question divides into two parts, namely whether Jewsons have shown that Mr Kelly did not rely upon their skill and judgment and whether, if he did, it was unreasonable to do so. There is no doubt that, as stated above, Mr Kelly bought the boilers in reliance upon what he was told at the meeting on 6 February. However, the question is whether he relied upon Jewsons’ skill and judgment in the relevant sense.

The judge identified two points which were taken by Jewsons in relation to the two parts of this third question. They were (a) that Mr Kelly did not rely upon Jewsons’ skill and judgment and, if he relied on anyone, he relied upon Amptec and (b) in any event, it was unreasonable for him to rely upon anyone other than his own advisers (eg Mr Sherry) who should have been in a position to specify what type of boiler was required. The judge rejected both submissions.

In this court Mr de Garr Robinson puts Jewsons’ case somewhat differently. He submits that Mr Kelly did not rely upon Jewsons (or indeed Amptec) to select suitable boilers for his particular flats. They knew little about the flats, whereas Mr Kelly was a developer who could be expected to know about the characteristics of both the flats and the market. He had access to advice and indeed sought it from Mr Sherry and perhaps others. It appears that no-one advised him that he should investigate the effect of particular boilers on the SAP ratings of the flats. He was advised to ask Amptec (or Jewsons) whether the boilers complied with the relevant regulations and received the correct answer that they did. The problem was that he was not advised to ask the correct questions.

Mr de Garr Robinson submits that this case is an example of a case where there was either no relevant reliance or it was unreasonable for Mr Kelly to rely upon the skill and judgment of Jewsons. He has drawn our attention to paragraph 43-091 of volume 2 of the 28th edition of Chitty on Contracts, where the editors give as an example either of no reliance or of no reasonable reliance a case where the buyer knows more about the conditions in which the goods are to be used than the seller. The editors also refer to the decision of the House of Lords in Christopher Hill Ltd v Ashington Piggeries Ltd [1972] AC 441 as authority for the proposition that reliance may only be partial. In that case, where mink farmers had asked a compounder of animal foods to make up mink food to a supplied formula, it was held that there was reliance as to the suitability of the ingredients only.

As I see it, the problem in the instant case is that too little (if any) attention was paid at the trial to the possibility that there might be only partial reliance on a seller’s skill and judgment. The principle of partial reliance is well settled. For example in the Ashington Piggeries case Lord Wilberforce said at p 490B:

“Equally I think it is clear (as both courts have found) that there was reliance on the respondents’ skill and judgment. Although the Act [ie section 14(1) of the Sale of Goods Act 1893] makes no reference to partial reliance, it was settled, well before the Cammell Laird case [1934] AC 402 was decided in this House, that there may be cases where the buyer relies on his own skill or judgment for some purposes and on that of the seller for others. This House gave that principle emphatic endorsement.”

In the same case Lord Diplock made a speech which was dissenting in part but contained a number of statements to similar effect which are not affected by the fact of his dissent. For example he said this at p 506E with regard to section 14(1) and (2) of the Sale of Goods Act 1893:

“The key to both subsections is reliance – the reasonable reliance of the buyer upon the seller’s ability to make or select goods which are reasonably fit for the buyer’s purpose coupled with the seller’s acceptance of responsibility to do so. The seller has a choice whether or not to accept that responsibility. To enable him to exercise it he must be supplied by the buyer with sufficient information to acquaint him with what he is being relied upon to do and to enable him to appreciate what exercise of skill or judgment is called for in order to make or select goods which will be fit for the purpose for which the buyer requires them.”

A little later Lord Diplock said this with regard to partial reliance at pp 507H to 508F:

“I turn next to “partial reliance.” The actual words of subsection (1) appear to contemplate two classes of contracts only; one, where the buyer does not rely at all upon the skill or judgment of the seller to see to it that the goods supplied are reasonably fit for a particular purpose; the other where the buyer does so rely and the other requirements of the subsection are satisfied. As a matter of linguistics it is possible to construe the expression “so as to show that the buyer relies” as referring to a reliance which was only partial, in the sense that the reliance was not the only or even the determinative factor which induced the buyer to enter into the contract. But it is not possible to extract from the language of the subsection any qualification upon the implied undertaking by the seller, if there is such reliance, that the goods supplied by him shall be reasonably fit for the particular purpose for which they are required by the buyer. Yet as a result of technological advances since 1893 there are an increasing number of cases where the preparation of goods fit for a particular purpose calls for the exercise of more than one kind of expertise. The buyer may himself possess one of the kinds of expertise needed but lack another and may choose a seller who has led him to believe that he, the seller, possesses it. The only reliance by the buyer upon the skill or judgment of the seller is that in the preparation or selection of the goods he will exercise that kind of expertise which he has led the buyer reasonably to believe that he possesses. The goods supplied may then be unfit for the particular purpose for which both parties knew they were required, either because of a defect which lay within the sphere of expertise of the seller or because of a defect which lay within the sphere of expertise of the buyer himself.

The way in which the principle of reliance which underlies subsections (1) and (2) should be applied to a more complex contract of this kind, which was not in the immediate contemplation of the draftsman of the code, poses another stark question of legal policy. In large part this decision was made by your Lordships’ House in 1934 in the Cammell Laird case [1934] AC 402. It was there laid down that if the defect in the goods which rendered them unfit for their purpose was due to a characteristic which it lay within the sphere of expertise of the seller to detect and avoid, the responsibility for their unfitness lay with the seller. The ratio decidendi leads ineluctably to the corollary that if the defect was due to a characteristic which it lay within the sphere of the expertise of the buyer to detect and avoid, the seller was not contractually responsible for it. It did not attract the implied condition under subsection (1). The field of the seller’s undertaking as to the fitness of the goods for the purpose corresponded with the field of the buyer’s reliance upon the skill and judgment of the seller.

My Lords, this seems to me to be consistent with common sense and business honesty. It was accepted as the correct principle by both courts below and by all parties to the appeals in this House.”

Those principles are to my mind of particular importance to the facts of this case. There is, I think, no doubt that they apply to the 1979 Act: see eg paragraph 11-076 of the 6th edition of Benjamin’s Sale of Goods. Thus, as the editors put it, there may be reliance in one area or respect but not in others. The principles expressed by Lord Diplock must of course now be read subject to the express provision of section 14(3) that the burden is on the seller to show that the buyer did not rely upon his skill or judgment or, if he did, that it was unreasonable of him to do so.

Mr de Garr Robinson submits that this is at best a case of partial reliance, namely reliance only that the Amptec boilers were fit for their purpose as boilers. His submissions may be summarised thus. While Mr Kelly made it clear to Jewsons (and indeed Amptec) that he wanted to buy the boilers in order to instal them in flats for sale, he gave them no information about the nature of the building being converted. He thus gave them no or insufficient information upon which they could form a view as to the effect which the boilers would or might have on the flats’ SAP ratings. In order to form a view on that question so as to exercise relevant skill and judgment, it would be necessary for Jewsons (and indeed Amptec) to have considerably more information than Mr Kelly made available to them: see for example the range of factors listed in paragraph 26 above.

I would accept those submissions. I do not think that it could properly be held on the facts that Mr Kelly relied upon the skill and judgment of Jewsons save as to the intrinsic qualities of the boilers. He did not rely upon them in relation to the question whether the boilers were suitable for installation in flats with the particular characteristics of these flats, having regard to their effect on the flats’ SAP ratings. I would accept Mr de Garr Robinson’s submission that the question whether they were suitable in that sense was a matter for Mr Kelly and his advisers. It was a matter for them to calculate, as had indeed been done when the flats were to be heated by oil.

I would also hold that in all the circumstances it was not reasonable for Mr Kelly to rely upon the skill and judgment of Jewsons (or indeed Amptec) in that regard. There was no discussion with Jewsons or Amptec either on 6 February 1998 or at any other time before the boilers were bought as to the particular characteristics of the flats or the building being converted. There was no discussion as to the comparable merits, cost or effect on the flats’ SAP ratings of different forms of heating system. In my opinion it would not have been reasonable for Mr Kelly to rely upon Jewsons’ (or indeed Amptec’s) skill and judgment in any of these respects when (as indicated earlier) Amptec’s literature only made claims as to cost by reference to a “fully insulated 3 bedroom house”. It made no claims as to the energy efficiency of the boilers in a conversion of the kind upon which Mr Kellywas engaged and, in my opinion, Mr Kelly could not reasonably have thought that Jewsons or Amptec realised that he was relying on their skill and judgment in those respects.

As I read his judgment, the judge did not consider the problem in quite this way, perhaps because it was not put in quite the way in which it has been approached before us. It seems to me that, in Lord Diplock’s words, the effect of the boilers on the flats’ SAP ratings was something which lay within the sphere of expertise of Mr Kelly, as a developer, and of his advisers and not within the sphere of expertise of Jewsons or Amptec. Anyone calculating the SAP ratings for the flats if fitted with Amptec boilers would have required input from two sources. It would have required input from Amptec (or perhaps Jewsons) as to the characteristics of the boilers and it would have required input from Mr Kelly or his advisers as to the characteristics of the building and the flats. As I see it, the first was within the sphere of expertise of Amptec or of Jewsons as the sellers of the boilers to Mr Kelly and the second was within the sphere of expertise of Mr Kelly or his advisers.

In short, this was a case of partial reliance and in the respect in which Mr Kelly could reasonably have relied upon the skill and judgment of Jewsons as the sellers of the Amptec boilers, they were reasonably fit for their purpose. That is they were fit for their purpose as boilers.

Put another way, this seems to me to be an example of the application of the principle stated by Lord Steyn in Slater v Fleming Ltd [1997] AC 473 at 486 D to E:

“After all, if the buyer’s purpose is insufficiently communicated, the buyer cannot reasonably rely on the seller’s skill and judgment to ensure that the goods answer that purpose.”

If it could fairly be said that they were not reasonably fit for their purpose as boilers fitted in these particular flats because of their effect on the SAP ratings, that was not something in respect of which Mr Kelly could reasonably rely upon the skill and judgment of Jewsons or Amptec. I put it that way because I have considerable doubts as to whether it is possible to conclude that the boilers were not reasonably fit for their purpose because of their effect upon the SAP ratings and a consequent possible effect upon the minds of purchasers, without carrying out a comparison with the overall effects upon the minds of purchasers of flats fitted with other types of heating system.

For these reasons I have reached a different conclusion from the judge and would hold that Jewsons were not in breach of the term implied by section 14(3) of the 1979 Act.

Satisfactory Quality – Conclusions

The above analysis seems to me to lead clearly to the conclusion that there was equally no breach of the term as to satisfactory quality implied by section 14(2) of the 1979 Act. As indicated above, the problem in this class of case is the overlap between subsections (2) and (3). In particular the problem is what circumstances can properly be regarded as relevant to the question whether the goods were of satisfactory quality. Subsection (2A) requires the goods to meet the standard that a reasonable person would regard as satisfactory. It thus seems to me that a circumstance would be relevant if a reasonable person would regard it as relevant to the question whether the goods were of satisfactory quality.

The judge held in paragraph 82, applying his conclusions in paragraphs 73 to 75, that a reasonable man would regard the boilers as of unsatisfactory quality if their installation in the flats led to SAP ratings which were so low that a proposed purchaser might delay purchasing the flats or pulling out of a purchase. For my part, I would not accept that conclusion. As already stated, the function of section 14(2), by contrast with section 14(3), is to establish a general standard of quality which goods are required to reach. It is not designed to ensure that goods are fit for a particular purpose made known to the seller. That is the function of section 14(3).

I recognise that there is scope for debate as to how far it is appropriate to have regard to the purposes for which goods are wanted by the purchaser in deciding what circumstances are relevant for the purposes of subsections (2) and (2A). There may be exceptions, but in general a particular purpose which is not one of the ordinary uses for which goods of the relevant type are generally supplied seems to me to be irrelevant. The question in most cases will be whether the goods are intrinsically satisfactory and fit for all purposes for which goods of the kind in question are supplied. In my opinion these boilers satisfied that criterion. They were satisfactory as boilers.

Subsections (2), (2A) and (2B) make it clear that they are concerned with quality. As I see it, there was nothing wrong with the quality of these boilers and a reasonable man would so conclude. I would accept that some regard must be had to the use which is likely to be made of the goods. Here the question is whether the boilers were of satisfactory quality for being used in flats, whether for sale or not. As I see it, they were.

This is not to say that the purpose for which the buyer wants the goods is never relevant, since he will ordinarily want to use them for a purpose for which they are commonly supplied. The judge placed some reliance on the decision of Tomlinson J in Britvic Soft Drinks Ltd v Messer UK Ltd [2002] 1 Lloyd’s Rep 20. Put shortly, the facts were that Britvic purchased bulk CO2 for the carbonation of various soft and alcoholic drinks from a supplier. The CO2 was manufactured by others. As a result of a breakdown of the manufacturing process, the CO2 contained a concentration of benzene which, although benzene is carcinogenic, was so small that it represented no risk to health. The questions were whether the CO2 was of satisfactory quality or reasonably fit for its purpose within section 14(2) or (3) of the 1979 Act. Tomlinson J held that it was neither.

He said in paragraph 77:

“It seems to me to be axiomatic that one particular description of the goods to which the reasonable person must have regard is that to be found in BS4105, viz that CO2 of type 2 is suitable for industrial food applications.”

He expressed his conclusions in paragraph 92, which was quoted by the judge. It included the following:

“92. I therefore find it impossible to conclude that a reasonable person would regard the CO2 supplied as meeting a satisfactory standard. Consumers would not wish to drink products which had inadvertently been contaminated with a measurable quantity of a known carcinogen, notwithstanding the quantity was not harmful to their health. If the manufacturers had not taken steps to satisfy the public that all reasonable measures were being taken to recall the batches of production affected all of their production would very quickly have become unsaleable. The affected products themselves were in a real sense unsaleable in the sense that no consumer would knowingly buy them and the manufacturers could not as responsible manufacturers be seen to attempt to sell them. … All those affected products which could by reasonably proportionate measures be withdrawn from the distribution chain were in a real sense unsaleable. I do not consider that the CO2 can be regarded as of satisfactory quality if it had this effect on the end product into which it was introduced. … In that situation, the public perception will be that the carcinogen simply ought not to be present at all and the manufacturers ought not to attempt to sell products which have been in that way inadvertently contaminated. … “

The decision in the Britvic case was upheld in this court but we are told that there was no discussion of this point.

The judge quoted Tomlinson J’s conclusion that a reasonable person would understand why consumers would not drink a carbonated drink which contained a “measurable quantity of a known carcinogen” immediately before expressing his conclusion in the part of paragraph 82 which I quoted in paragraph 45 above. However, to my mind the reasoning in Britvic is of no assistance here. In that case it was plain that the reasonable man would not have regarded CO2 as of satisfactory quality, given the conclusion in paragraph 77 that the reasonable person would have regard to the fact that the CO2 had to be suitable for industrial food applications. The facts of that case are a far cry from this.

Here, it seems to me that once it is held that it was not reasonable of Mr Kelly to rely upon the skill or4 judgment of Jewsons with regard to the potential impact of the boilers on the flats’ SAP ratings, it is clear that the reasonable man would not conclude that the boilers were not of satisfactory quality. It follows that I would hold that there was no breach of the term implied by section 14(2) of the 1979 Act.

Conclusions

I would allow the appeal to the extent of declaring that Jewsons were not in breach of either of the terms implied into the contract by section 14(2) or (3) of the 1979 Act. I have reached that conclusion without reference to clauses 8.7 or 8.10 of the contract. In these circumstances I do not think that it is necessary further to lengthen this judgment by considering those provisions. Equally, it does not at present seem to me to be necessary to consider the specific answers to any of the other questions set out in the preliminary issues. However, if it is thought appropriate to alter any of the other answers given by the judge in the light of the decision of this court, it may be appropriate to hear submissions to that effect.

Lord Justice Sedley :

I agree that this appeal succeeds for the reasons given by Lord Justice Clarke. I nevertheless take the liberty of setting out my own reasoning about section 14(2) and (3) of the Sale of Goods Act 1979 as amended, since we are to some extent surveying new ground.

Substandard Goods: Section 14(2)

Section 14(2) is directed principally to the sale of substandard goods. This means that the court’s principal concern is to look at their intrinsic quality, using the tests indicated in subsection (2A)(2B) and (2C). Of these, it can be seen that the tests postulated in paragraphs (a) and (d) of subsection (2B), and perhaps others too, may well require regard to be had to extrinsic factors. These will typically have to do with the predictable use of the goods. But the issue is still their quality: neither these provisions nor the residual category of “all the other relevant circumstances” at the end of subsection (2A), make it legitimate, as a general rule, to introduce factors peculiar to the purposes of the particular buyer. It is section 14(3) which is concerned with these.

By parity of reasoning I am unable to accept Mr McGuire’s submission that the reasonable person who features in subsection (2A) is a reasonable person equipped with the buyer’s personal agenda – so long, Mr McGuire is constrained to add, as he has communicated it to the seller. That too is in general a section 14(3) matter. The reasonable person in section 14(2A) is a construct by whose standards the judge is required to evaluate the quality of the goods. So, for example, the safety and durability of a soft toy would ordinarily need to be judged in relation to how a toddler may handle it – not in relation to the possibility of its being given to the dog. If it gets into a toddler’s mouth and causes harm, it may well have been sold in breach of section 14(2). If the dog chokes on it, the claim must probably be brought under section 14(3) or fail – unless, say, the toy was bought in a pet shop, for that might well be a relevant circumstance within section 14(2A).

Here Mr Kelly bought some Amptec electric boilers from Jewsons. He got exactly what he had bargained for: twelve boilers which worked perfectly well. A reasonable person knowing what we now know would have said that they were of satisfactory quality – adding that it might nevertheless have been a mistake to install them because their dependence on peak-rate electricity made them expensive to run and (assuming that the reasonable person knew about it) depressed the flats’ SAP ratings. The extrinsic factors relied on by Mr McGuire for the contrary argument are not of the kind which, being general, affect the quality of the goods. They go to the marketability of the flats in which the goods were to be installed. It might arguably have been otherwise if, for example, the boilers could only ever function at a impossible cost in fuel; but there may well be flats in which space is at a premium and usage intermittent, making an Amptec boiler an acceptable option. The material extrinsic factors, therefore, were of a kind which, being peculiar to the buyer and his needs, had to be introduced under section 14(3). In reaching this view I have been helped, but not finally persuaded, by Mr McGuire’s supplementary written submission on the meaning of section 14 as amended.

Unfitness for Known Purpose: Section 14(3)

For the rest, I agree with Lord Justice Clarke about the case made for Mr Kelly under section 14(3). With or without clause 8.7 of the printed terms, it is not possible to accept, on the facts found by the judge in his careful judgment, either that Mr Kelly made it known to Jewsons that he needed boilers which would produce acceptable SAP ratings, or that he relied, or could reasonably have relied, on Jewsons’ skill and judgment in selecting boilers with this in mind. It is now apparent that Mr Kelly would probably have done better to pay the steep price quoted to him for bringing gas into the twelve flats which lacked it. It worked out at a little under £3,000 a flat, and in retrospect he should perhaps have incurred the extra expense and passed it on, so far as possible, to the purchasers. But there is no way in which he – or now, sadly, his personal representatives – can translate such a business misjudgment (itself largely the product of hindsight) into a seller’s liability under section 14 of the Sale of Goods Act. The conscientious judgment of the deputy High Court judge has, if I may say so with respect, become so closely focused upon the detail of the counterclaim that it has lost this essential perspective.

Split Trials and Case Management

I want to add a word about the management of this case. This was a familiar type of claim for the price of goods supplied, met with a defence and counterclaim to the effect that the goods were of unsatisfactory quality and unfit for their known purpose, the seller relying in reply upon their printed terms of trade and the buyer responding that these were unfair.

The case-management decisions to disaggregate the issues and to make them, very possibly, the subject of three separate trials have not entirely surprisingly proved a misfortune. Judge Playford QC in December 2000 determined as a preliminary issue that two of the contractual terms were reasonable and two were not. He reserved the costs rather than make them costs in the case, with the result that another judge on another day will have to decide where they should fall. The case went on, and in November 2001 Judge Kirkham ordered the trial of ten “preliminary” issues, later enlarged to eleven. They were in fact all the remaining issues short of causation and quantum. But by hiving these off they created an artificial split, since the causation of loss was integral to the alleged breaches of contract: as Mr McGuire put it, what made the quality of the boilers unsatisfactory and made them unfit for their purpose was that they made the flats much harder to sell.

If this appeal had failed and the deputy judge’s decision had stood, there would thus have been three costly trials, the third carrying the possibility of a further appeal to this court. There was no sufficient reason, as it seems to me, for taking these risks. Letting the case go straight to trial on all the issues might have added a fourth day to the three which the second trial took, but it would have been time well spent. It might easily have transpired, for example, that even given a breach of contract by Jewsons, there was no recoverable loss.

I appreciate that the sequential trial of issues will result in real savings if the outcome of the first or second issue proves dispositive. But experience shows that more often splitting trials is a false economy. As a general rule a trial should not be split unless the case-manager has good reason to conclude that splitting it is likelier than not to produce savings in time and expense.

Mr Justice Cresswell :

I agree with both judgments.

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Slater v Finning Ltd

[1996] UKHL 59 [1996] 3 All ER 398, [1997] AC 473, 1997 SC (HL) 8, [1996] CLC 1236, [1996] 3 WLR 190, [1996] UKHL 59, (1996) 15 Tr LR 458, 1996 SLT 912, [1996] 2 Lloyd’s Rep 353, 1996 SCLR 863

Lord Keith

The appellants raised the present action against the respondents in April 1989, concluding for payment of some £662,500 by way of damages on the ground of breach by the respondents of the condition contained in s 14(3) of the Act of 1979. The respondents counterclaimed for the sum of some £63,700 with interest in respect of goods and services supplied by them to the appellants and unpaid for.

A proof was heard before Lord Weir, who on 22 January 1993 assoilzied the respondents from the conclusions of the summons and gave judgment in their favour for the sum counterclaimed with interest, amounting in all to £82,826. After an elaborate review of the evidence, which included expert evidence on both sides, the Lord Ordinary concluded that the cause of the failure of the camshafts was excessive torsional resonance excited by some cause external to the engine and the camshafts themselves. The Lord Ordinary accepted the evidence of the witness Dr Halleen, an employee of the Caterpillar Co, of which he said this: ‘The effect of Dr Halleen’s evidence was that in his view whatever caused the torsional resonance to be excited and so leading to damage, it was not the 1W camshafts, which were supplied by the defenders, but that the cause had to be an external one. It is important to observe that there was no suggestion at any time that external forces could not have been responsible. The inability to establish what precisely was the external force is, in my opinion, immaterial. The mystery might have been unravelled if further examination of the engine and its associated parts had taken place before it had been removed from the Aquarius. This did not occur so the problem to that extent remains unsolved. But what has been established quite convincingly is that whatever the cause, it was not due to excitation coming from within the engine or any part of it which, added to the torsional frequency inherent in the engine, could have led to resonance and so to the failures. In particular, in my judgment, the fitting of these camshafts were not responsible for the failures which were observed.’

Later, under reference to the terms of sec 14 (3), the Lord Ordinary said:

‘The question which has to be borne in mind is, “What was the specified purpose?” The purpose for which the camshafts and followers were supplied was for use as competent parts of the engine of the pursuers’ fishing vessel. No question arises as to the manner in which these parts were installed. This case is not concerned with a contract of services. There is no evidence that the defenders were told of any special circumstances concerning this engine which would have made the requirement for a new camshaft any different from that of any other D398 engine. The defenders supplied the pursuers with the camshaft and followers appropriate to this type of engine in 1986. The proper question is whether the inference can be drawn that they themselves were unfit for their intended purpose.

‘The answer to that question is to be derived from my analysis of the evidence, and, in my opinion, the evidence demonstrates that the camshafts and their followers were in fact fit for their purpose. The damage observed in them from time to time was not due to their unfitness to fulfil the purpose, but were the consequences of external factors. But for these factors, they would not have failed. That, in my judgment, is a complete answer to the pursuers’ case.’

The appellants reclaimed, and on 30 November 1994 the Second Division (Lord Justice-Clerk Ross, Lord Clyde and Lord Morison) refused the reclaiming motion and affirmed the interlocutor of the Lord Ordinary, subject to an agreed adjustment of the interest element in his award in favour of the respondents. The appellants now appeal to your Lordships’ House.

The argument for the appellants did not involve any challenge to the Lord Ordinary’s findings in fact. It was accepted that the excessive torsional resonance which resulted in damage to the camshafts was caused by some unascertained force external to the engine and the camshafts themselves. It was argued, however, that the condition to be implied by sec 14(3) of the Act of 1979 was properly to be related to Aquarius II as a vessel having its own peculiar characteristics, including the possession of a tendency to give rise to excessive torsional resonance in the engine camshaft. The appellants had made known to the respondents that the camshafts were being bought for the specific purpose of installation in Aquarius II. The respondents therefore took the risk that Aquarius II might have some unknown and unusual characteristic such as would cause the camshafts to be subjected to excessive wear. In the event the camshafts proved not to be reasonably fit for use as part of the engine of Aquarius II.

….

In the present case the Lord Ordinary has found that cause of the trouble did not lie in the camshafts themselves but in some external feature peculiar to Aquarius II.

The case of Griffiths v. Peter Conway Ltd is closer to the point. There the plaintiff had purchased from the defendants a Harris tweed coat, which had been specially made for her. Shortly after she had begun to wear the coat she contracted dermatitis. She sued the defendants for damages, claiming breach of sec 14(1) of the Act of 1893 in that the coat was not reasonably fit for the purpose for which it was supplied. It was proved that the plaintiff’s skin was abnormally sensitive, and that there was nothing in the coat which would have affected the skin of a normal person. The defendants were not aware of the plaintiff’s abnormal sensitivity, and the plaintiff herself was also unaware of it. Branson J dismissed the action and his judgment was affirmed by the Court of Appeal. Sir Wilfrid Greene MR quoted the relevant findings of the trial judge and continued at p 691: ‘That finding is, of course, that no normal skin would have been affected by this cloth. There was nothing in it which would affect a normal skin, but the plaintiff unfortunately had an idiosyncrasy, and that was the real reason why she contracted this disease.

‘On the basis of that finding, which is not challenged, Mr Morris says:

“Take the language of the section, and the present case falls within it.”

He says that the buyer, Mrs Griffiths, expressly made known to the defendants the particular purpose for which the coat was required—that is to say, for the purpose of being worn by her, Mrs Griffiths, when it was made. Once that state of affairs is shown to exist, Mr Morris says that the language of the section relentlessly and without any escape imposes upon the seller the obligation which the section imports.

‘It seems to me that there is one quite sufficient answer to that argument. Before the condition as to reasonable fitness is implied, it is necessary that the buyer should make known, expressly or by implication, first of all the particular purpose for which the goods are required. The particular purpose for which the goods were required was the purpose of being worn by a woman suffering from an abnormality. It seems to me that, if a person suffering from such an abnormality requires an article of clothing for his or her use, and desires to obtain the benefit of the implied condition, he or she does not make known to the seller the particular purpose merely by saying:

“The article of clothing is for my own wear.”

The essential matter for the seller to know in such cases with regard to the purposes for which the article is required consists in the particular abnormality or idiosyncrasy from which the buyer suffers. It is only when he has that knowledge that he is in a position to exercise his skill or judgment, because how can he decide and exercise skill or judgment in relation to the suitability of the goods that he is selling for the use of the particular individual who is buying from him unless he knows the essential characteristics of that individual? The fact that those essential characteristics are not known, as in the present case they were not known, to the buyer does not seem to me to affect the question. When I speak of “essential characteristics” I am not, of course, referring to any variations which take place and exist within the class of normal people. No two normal people are precisely alike, and, in the matter of sensitiveness of skin, among people who would be described as normal their sensitiveness must vary in degree.’

The reasoning contained in that passage is directly applicable to the facts of the present case. The particular purpose for which the camshafts were here required was that of being fitted in the engine of a vessel which suffered from a particular abnormality or idiosyncrasy, namely a tendency to create excessive torsional resonance in camshafts. The respondents, not being made aware of that tendency, were not in a position to exercise skill and judgment for the purpose of dealing with it. Nor were they in a position to make up their minds whether or not to accept the burden of the implied condition, a matter to which the Master of the Rolls alludes at p 692. It is to be noted that the Master of the Rolls specifically mentions that the plaintiff was unaware of her abnormal sensitivity.

In Christopher Hill Ltd v. Ashington Piggeries Ltd a firm of mink breeders had contracted with certain sellers for the supply of animal feedstuff. The feedstuff supplied caused thousands of mink to die because one of the ingredients, Norwegian herring meal, contained a toxic chemical agent called ‘DMNA’. This House, reversing the Court of Appeal, held that the sellers were liable to the buyers inter alia for breach of sec 14(1) of the Act of 1893. It was proved that herring meal containing DMNA was deleterious to a wide variety of animals, not only to mink. On the other hand mink were more sensitive to it than other animals. Lord Wilberforce said, at [1972] AC, p 490: ‘If mink possessed an idiosyncrasy, which made the food as supplied unsuitable for them though it was perfectly suitable for other animals, this would be the buyers’ responsibility, unless, as is not the case here, they had made this idiosyncrasy known to the sellers so as to show reliance on them to provide for it. But any general unsuitability would be the sellers’ responsibility. Although the evidence was not very complete, it is sufficiently shown, in my opinion, that mink are more sensitive to DMNA than most other animals to whom compound foods would be sold. Chicken and pigs are among the least sensitive, next cattle and then sheep, with mink at the top of the scale. So the question arises, what does the buyer, alleging unfitness, have to prove? If the fact were that the herring meal supplied, while damaging to mink, was perfectly harmless to all other animals to whom it might be fed, it would be unjust to hold the sellers liable. If, on the other hand, the herring meal was not only lethal to mink but also deleterious, though not lethal, to other animals, the sellers’ responsibility could be fairly engaged. A man can hardly claim that the product he sells is suitable, especially if that is a foodstuff, merely because it fails to kill more than one species to which it is fed.’

This passage is in line with the opinion expressed by Sir Wilfrid Greene MR in Griffiths v. Peter Conway Ltd, which was thus referred to in the speech of Lord Hodson, at p 468: ‘The defendants have proved a general defect and that their animals were poisoned thereby. The expert called by the third parties, Nils Koppang, an expert from the Department of Pathology, Veterinary College of Oslo, Norway, described the disease which had existed as early as 1957. He himself referred to toxic doses in connection with DMNA in such a way that it appears that the toxic condition was not a peculiar one such as is illustrated by the case of Griffiths v. Peter Conway Ltd, a case relied upon as a decision in favour of the seller. That was a case concerning the purchase of a Harris tweed coat by a woman with an abnormally sensitive skin who did not disclose the fact to the seller. She failed in her action because the unsuitability of the article arose from the special state of affairs relating to the buyer, of which the seller was not aware. It is otherwise here, where DMNA is shown to have been toxic to all animals, not only to mink.’

As matter of principle, therefore, it may be said that where a buyer purchases goods from a seller who deals in goods of that description, there is no breach of the implied condition of fitness where the failure of the goods to meet the intended purpose arises from an abnormal feature or idiosyncrasy, not made known to the seller by the buyer, in the buyer or in the circumstances of the use of the goods by the buyer. That is the case whether or not the buyer is himself aware of the abnormal feature or idiosyncrasy.

In the course of argument my noble and learned friend Lord Griffiths put the illustration of a new front wheel tyre being purchased for a car which, unknown to the buyer or the seller, had a defect in the steering mechanism as a result of which the tyre wore out after a few hundred miles of use, instead of the many thousands which would normally be expected. In these circumstances it would be totally unreasonable that the seller should be liable for breach of sec 14(3). The present case is closely analogous. Aquarius II suffered, unknown to the respondents, from a defect in the shape of an unusual tendency to produce excessive torsional resonance in the camshafts, with the result that the camshafts became badly worn and unserviceable much sooner than would otherwise have been the case.

My Lords, for these reasons I would dismiss this appeal.

LORD STEYN —My Lords, the central issue is whether a dealer, who on three occasions sold and delivered component parts of an engine manufactured by the Caterpillar Tractor Co to the owners of a fishing vessel, was in breach of the implied condition imputed to a seller by sec 14(3) of the Sale of Goods Act 1979. While it is a Scottish appeal, the relevant law of Scotland and England have been assimilated by statute. Moreover, the questions debated in this case can arise in international and domestic sales as well as in commercial and consumer sales. Given this broad context I regard the analysis and disposal of this appeal as being of general importance to our sales law. Accordingly, I propose to explain briefly why I agree that the appeal ought to be dismissed.

….

That brings me to the interpretation of the words in sec 14(3), which are of critical importance in the present case, namely that ‘the buyer, expressly or by implication, makes known … to the seller … any particular purpose for which the goods are being bought’. The courts have consistently given a broad and liberal interpretation to these words, consistent with the reasonable and effective protection of the buyer. Thus the courts have refused to hold that the word ‘particular’ purpose conveys the opposite of ‘general’: instead they have construed ‘particular’ as signifying a specified purpose, which may be very general, eg a bicycle to ride on the road. Similarly, the courts have adopted a non-technical approach to the manner in which the buyer must communicate the purpose to the seller. No conceptual difficulty arises in cases of express communication, but usually there will not be an express communication. One then turns to the process of implication. In the context a practical and flexible approach has prevailed. That is best demonstrated by the observations of Lord Wright in Grant v.Australian Knitting Mills Ltd. In dealing with the implication of the purpose for which the goods are bought, Lord Wright in giving the judgment of their Lordships said at p 99: ‘it will usually arise by implication from the circumstances: thus to take a case like that in question, of a purchase from a retailer, the reliance will be in general inferred from the fact that a buyer goes to the shop in the confidence that the tradesman has selected his stock with skill and judgment: the retailer need know nothing about the process of manufacture: it is immaterial whether he be manufacturer or not: the main inducement to deal with a good retail shop is the expectation that the tradesman will have bought the right goods of a good make: the goods sold must be, as they were in the present case, goods of a description which it is in the course of the seller’s business to supply: there is no need to specify in terms the particular purpose for which the buyer requires the goods, which is none the less the particular purpose within the meaning of the section, because it is the only purpose for which any one would ordinarily want the goods. In this case the garments were naturally intended, and only intended, to be worn next the skin’.

It is sufficient that the seller was aware of the buyer’s purpose. On the other hand, it must be borne in mind that our law generally subscribes to an objective theory of contract. What matters in this context is how a reasonable person, circumstanced as the seller was, would have understood the buyer’s purpose at the time of the making of the contract: Hardwick Game Farm v.Suffolk Agricultural Poultry Producers’ Association at p 81.

In the present case the buyers did not expressly communicate their purpose to the sellers. The question is what could the sellers fairly have been expected to infer about the buyers’ purpose from the circumstances of the case. Neutrally, it is obvious that the sellers would have inferred that the buyers’ only purpose was to buy the camshafts as working component parts in the engine of their fishing vessel. It is therefore not a case where the buyer had more than one purpose. The correct approach is well settled. Professor Roy Goode, Commercial Law (2nd edn, 1995), p 335 explains: ‘The seller is entitled to assume that the goods are required for their normal purpose, or one of their normal purposes, unless otherwise indicated by the buyer. Accordingly, if the buyer requires the goods for a non-normal purpose, he must make steps to acquaint the seller of this fact before the contract is made, otherwise the seller, if unaware of the special purpose for which the goods are bought, will not be considered to undertake that they are suitable for that purpose.’

In other words, the implication will normally be that the goods are fit for the purpose for which the goods would ordinarily be used. For example, if a contractor in England buys pipes from a dealer for use in a pipe laying project, the seller would normally assume that the pipes need merely be suitable to withstand conditions in our moderate climate. If the contractor wishes to use the pipes in arctic conditions for a Siberian project, an implied condition that the pipes would be fit to withstand such extreme weather conditions could only be imputed to the seller if the buyer specifically made that purpose known to the seller. Applying this approach to the facts of the present case, the seller was entitled to assume that the camshafts would be used in a Caterpillar engine in an ordinary vessel. And the implied condition must be so limited in scope. The particular purpose for which the buyers ordered the new camshafts was for installation in a vessel which was in fact afflicted by an abnormal tendency to resonate excessively. It follows that on the facts found by the Lord Ordinary there was no breach of the implied condition.

While the application of first principles persuades me that the buyers’ claim is unsustainable, that conclusion is reinforced by the decision of the Court of Appeal in Griffiths v. Peter Conway Ltd. The plaintiff contracted dermatitis from a Harris tweed coat which she had bought from the defendant. The judge found that the plaintiff had an unusually sensitive skin and that the coat would not have harmed an ordinary person. The Court of Appeal dismissed an appeal by the plaintiff against the judge’s dismissal of her claim. Sir Wilfrid Greene MR explained at p 691 that if a person suffering from such an abnormality desires to obtain the protection of the implied condition, ‘The essential matter for the seller to know … consists in the particular abnormality or idiosyncrasy from which the buyer suffers. It is only when he has that knowledge that he is in a position to exercise his skill or judgment …. The fact that those essential characteristics are not known … to the buyer does not seem to me to affect the question.’

Contrary to the submission of counsel for the appellants on the present case, the Court of Appeal held that it is no answer to argue that the buyer was unaware of the abnormality. Given that the inquiry is as to what the buyer made known to the seller in order to enable the seller to use his skill or judgment to select suitable goods, that holding must be right. Counsel for the appellants accepted that Griffiths v. Peter Conway Ltd was correctly decided but he said that the reasoning was wrong. He said the Court of Appeal should have decided the case on the ground of lack of reliance by the plaintiff. I disagree. The particular purpose for which the plaintiff required the coat was for wear by a person with an abnormally sensitive skin: failure to make this known to the seller was fatal to the claim. This decision fits in exactly with the approach indicated by first principles. And I would hold without hesitation that the reasoning of Sir Wilfrid Greene MR was correct. See also Christopher Hill Ltd v. Ashington Piggeries Ltd at p 490F–H, per Lord Wilberforce.

Outside the field of private sales the shift from caveat emptor to caveat venditor in relation to the implied condition of fitness for purpose has been a notable feature of the development of our commercial law. But to uphold the present claim would be to allow caveat venditor to run riot.

For these reasons I agree that the appeal should be dismissed.

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Viskase Ltd Anor v Kiefal GmbH

[1999] EWCA Civ [2000] ILPr 29, [1999] CLC 957, [1999] WLR 1305, [1999] EWCA Civ 1045, [1999] 1 WLR 1305

Evans LJ

28. The plaintiffs rely in the alternative on an implied term, which it was assumed before us corresponds to the statutory term as regards fitness for purposes implied by section 14(3) when the necessary conditions are satisfied. (The appellants objected inter alia that any such term is precluded by the express terms of the contracts.) As stated above, the argument centred on the question whether this implied term imposed an obligation on the defendant for performance in England, within Article 5(1)(c). But that issue does not arise if the express term which is also alleged is the principal obligation relied upon, and in my judgment it is. The essential part of the plaintiffs’ case is that the defendants undertook that machines built to the agreed specification would achieve certain results in practice. If no such undertaking was given, then it is difficult to see how the defendants could be in breach of the statutory implied term as to fitness for use by the plaintiffs at their factory. It is not alleged that the machines were unfit, except by reference to what the plaintiffs alleged was an agreed standard.

29. The matter can be tested in this way. If the plaintiffs alleged an undertaking by the defendant that the machines would achieve a certain output – so many pieces per hour, if that is the appropriate standard – then it would be clear in my judgment that the place for performance of that obligation was England rather than Germany where the machines were supplied. The plaintiffs do not allege a fixed or easily measured standard, but it has not been suggested that the term on which they rely is insufficiently certain to be given contractual effect.

30. For these reasons, I agree with the judge’s conclusion (quoted in paragraph 19 above) although his was expressed in rather wider terms. In my judgment, the English court has jurisdiction in this case because the principal contractual obligation, which the plaintiffs allege was broken, had its place for performance in England, for the purposes of Article 5(1)(c).

31. I do not dissent from Chadwick L.J.’s analysis of what the position would be if the sole or principal obligation was the statutory implied term under section 14(3) or, strictly, its equivalent under German law. The key issue, in my judgment, is whether the express promise alleged by the plaintiffs gave rise to an obligation which was for performance in England. If there was a performance guarantee, then subject to the conceptual difficulty to which I have referred, the position in my judgment would clear. The guarantee, if performance fell below the agreed standard, would be broken in England. Similarly with a guarantee against defects not necessarily present in the machines as delivered. There is such a guarantee in these contracts (clause VII), although it is not relied upon because, as I understand the position, the stringent time-limit was not complied with. If there was such a claim, then it would be artificial, in my view, to regard that obligation as being performed or broken in England, whilst an undertaking that the machines would perform to an acceptable commercial standard in the actual conditions encountered in the plaintiffs factory in England was not. For these reasons, in my judgment the alleged express term was complied with or broken in England. The proof of the pudding was in the eating. Whether the machines would so perform could not be determined at the time and place of delivery in Germany, but only when they were installed and operated in England. I agree with the Judge’s common-sense view (para.19 above

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Messer UK Ltd. & Anor. v Britvic Soft Drinks Ltd. & Ors

[2002] EWCA Civ 548 [2002] 2 LLR 368, [2002] 2 Lloyd’s Rep 368, [2002] 2 All ER (Comm) 321, [2002] EWCA Civ 548

Mance LJ

11.0 Warranty

11.1 Messer warrants that the purity of the Gas is not less than that laid down in the Standard. All other implied warranties and conditions as to quality or description are excluded except to the extent that such exclusion is prevented by law.

11.2 It is the Customer’s responsibility to satisfy itself that the Gas is suitable for the purpose for which the Customer intends to use it. Recommendations relating to the use of the Gas made by Messer, in writing or otherwise, are given in good faith but no warranty is given as to the suitability of the Gas for any particular purpose.

12.0 Limitation of Liability

12.1. Subject to any other limitation or exclusion of liability expressed elsewhere in this Contract, the liability of Messer, its employees and Agents to the Customer in respect of personal injury or direct physical damage to property (and losses, costs and expenses directly arising ftom such injury or damage), whether through negligence or otherwise, shall be limited to £500,000 in respect of any one incident, except that nothing in this Contract shall restrict Messer’s liability to an injured person or his personal representatives for personal injury or death resulting from negligence.

12.2 Messer, its employees and Agents shall have no liability whatsoever in respect of losses, costs or expenses of a purely financial or economic nature (including, but not limited to, loss of profits, loss of use or other consequential loss), or any other loss or damage not covered in Clause 12. 1, unless such loss, cost, expense or damage be caused by Messer supplying Gas that is not of the purity warranted or by failure to deliver or by late delivery of Gas by Messer and unless such defective or late delivery or failure to deliver is notified within five days of the delivery or failure to deliver is notified within five days of the delivery or intended delivery, in which case Messer’s liability shall be limited to the value of the quantity of Gas concerned (at Messer’s selling price).”

Messer’s industrial grade specification for the gas provided as follows:

“1. PURCHASE SPECIFICATION

1. A solution of the gas in water shall be free of any objectionable taste or odour.

….

4. Hydrocarbons (as CH) 10ppm by volume

2. SALES SPECFICATION

The product complies with BS 4105: 1990 and BS 6535

The product meets the requirements of the Miscellaneous Food Additives Regulations SI 3187 wherein it is referred to as “E290”.”

A summary of the specific requirements of BS 4105 followed.

BS 4105 (as it was formulated at the relevant time) consisted of a foreword, a general section 1, followed in sections 2 and 3 by descriptions and specifications of particular constituent elements for carbon dioxide types 1 and 2, then by appendices dealing with sampling and methods for determination of the amount of such particular elements, and finally by figures showing such methods or the equipment used. Section 1 provides as follows:

“Section 1. General

1. Scope

This British Standard specifies two types of carbon dioxide for industrial use. Type 1 is suitable for industrial non-food applications, e.g. purging, inerting, life raft inflation. Type 2 is a higher quality grade which is also suitable for industrial food applications, e.g. beverages, gas packaging, food freezing and chilling.

Note 1. Type 2 carbon dioxide is covered by the specific and general criteria of purity laid down in The Miscellaneous Additives in Food Regulations 1980 (SI 1980 No. 1834) in which carbon dioxide is referred to as E290.

This standard does not apply to carbon dioxide for:

(a) medical use, for which a specification is included in the British Pharmacopoeia.,

(b) fire fighting, for which BS 6535: Part 1 applies;

(c) welding.

Note 2. Throughout this standard, concentrations expressed by mass or volume are at a temperature of 20’C and 101.3 kPa1 pressure.

Note 3. The titles of the publications referred to in this standard are listed on the inside back cover.

2. Definition

For the purposes of this British Standard the following definition applies.

carbon dioxide

A high pressure liquefiable gas expressed by the chemical formula C02.”

It is common ground that the carbon dioxide agreed to be supplied by Messer to Brothers and THP was of type 2. Section 3 of BS 4105 provides in relation to type 2:

“Section 3. Carbon dioxide, type 2

8 Description

The product shall consist essentially of carbon dioxide, C02, in liquid form.

A carbonated solution of the product in tasteless water, with a headspace vapour pressure of 300 kPa at 200C, shall be free from any objectionable taste or odour.

9 Sampling

The product shall be sampled from the liquid phase by the method specified in the appropriate method of test and as described in appendix A. Care shall be taken to purge the valve and connecting line before taking a sample.

Note. Attention is drawn to the provisions of BS 341: Part l.

10 Residual gases content …….

11 Water content ……

12 Oil content ……

13 Content of sulphur compounds ……

14 Content of nitric oxide (NO) and nitrogen dioxide (N02) ……

15 Packaging and identification ……”

The first point – the scope of BS 4105

The judge concluded that “the gas supplied simply did not conform with the words of description in BS 4105, in other words …. that the gas supplied was not suitable for industrial food applications”. He went on to say that ‘It is implicit in this conclusion that they [the claimants] are equally entitled to succeed on the broader basis of breach of the statutory implied terms” – referring to the undertakings in respect of satisfactory quality and fitness for purpose arising prima facie under s. 14 of the Sale of Goods Act 1979.

…….

Nor do I think that the respondents obtain any assistance on this point from the wording of Messer’s conditions, incorporated into the contracts with THP and Brothers. Leaving on one side the issue of the validity of some of those conditions, it seems to me, if anything, that they would tend to underline the relatively limited role of BS 4105 – cf e.g. the warranty in clause 11.1 ‘that the purity of the Gas is not less than that laid down in the Standard” – a reference to Messer’s printed standard which in turn identifies and summarises BS 4105; and the attempts in clause 11.2 to impose responsibility for assessing suitability on THP and Brothers.

1 therefore accept the submissions of Mr Prynne and conclude that the judge was wrong to treat BS 4105 as containing any express term relevant to benzene for breach of which the claimants could obtain damages from Messer. It follows that the respondents, Bass, as assignees of THP and Brothers, can only claim against Messer if they can rely on undertakings as to satisfactory quality and fitness for purpose implied by virtue of s. 14 of the Sale of Goods Act 1979.

The second point – the reasonableness of clause 11.1 and 11.2

That leads to the second point argued before us. Messer relied in its defence upon the terms of clauses 11. 1 and 11. 2 “to limit its liability”, by excluding any liability for breach of any implied undertaking of satisfactory quality or fitness for purpose under s. 14 of the 1979 Act. Bass replied that clauses 11. 1 and 11.2 did not satisfy the requirement of reasonableness in the Unfair Contract Terms Act 1977. That statute provides as follows:

“2 Negligence liability

(1) A person cannot by reference to any contract term or to a notice given to persons generally or to particular persons exclude or restrict his liability for death or personal injury resulting from negligence.

(2) In the case of other loss or damage, a person cannot so exclude or restrict his liability for negligence except in so far as the term or notice satisfies the requirement of reasonableness.

(3) Where a contract term or notice purports to exclude or restrict liability for negligence a person’s agreement to or awareness of it is not of itself to be taken as indicating his voluntary acceptance of any risk.

3 Liability arising in contract

(1) This section applies as between contracting parties where one of them deals as consumer or on the other’s written standard terms of business.

(2) As against that party, the other cannot by reference to any contract term–

(a) when himself in breach of contract, exclude or restrict any liability of his in respect of the breach; or

(b) claim to be entitled–

(i) to render a contractual performance substantially different from that which was reasonably expected of him, or

(ii) in respect of the whole or any part of his contractual obligation, to render no performance at all, except in so far as (in any of the cases mentioned above in this subsection) the contract term satisfies the requirement of reasonableness.

6 Sale and hire-purchase

(2) As against a person dealing as consumer, liability for breach of the obligations arising from–

(a) [section 13, 14 or 15 of the 1979 Act] [FN2] (seller’s implied undertakings as to conformity of goods with description or sample, or as to their quality or fitness for a particular purpose);

(b) section 9, 10 or 11 of the 1973 Act (the corresponding things in relation to hire-purchase), cannot be excluded or restricted by reference to any contract term.

(3) As against a person dealing otherwise than as consumer, the liability specified in subsection (2) above can be excluded or restricted by reference to a contract term, but only in so far as the term satisfies the requirement of reasonableness.

(4) The liabilities referred to in this section are not only the business liabilities defined by section 1(3), but include those arising under any contract of sale of goods or hire-purchase agreement.

11 The “reasonableness” test

(1) In relation to a contract term, the requirement of reasonableness for the purposes of this Part of this Act, section 3 of the Misrepresentation Act 1967 and section 3 of the Misrepresentation Act (Northern Ireland) 1967 is that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.

(2) In determining for the purposes of section 6 or 7 above whether a contract term satisfies the requirement of reasonableness, regard shall be had in particular to the matters specified in Schedule 2 to this Act; but this subsection does not prevent the court or arbitrator from holding, in accordance with any rule of law, that a term which purports to exclude or restrict any relevant liability is not a term of the contract.

(3) In relation to a notice (not being a notice having contractual effect), the requirement of reasonableness under this Act is that it should be fair and reasonable to allow reliance on it, having regard to all the circumstances obtaining when the liability arose or (but for the notice) would have arisen.

(4) Where by reference to a contract term or notice a person seeks to restrict liability to a specified sum of money, and the question arises (under this or any other Act) whether the term or notice satisfies the requirement of reasonableness, regard shall be had in particular (but without prejudice to subsection (2) above in the case of contract terms) to–

(a) the resources which he could expect to be available to him for the purpose of meeting the liability should it arise; and

(b) how far it was open to him to cover himself by insurance.

(5) It is for those claiming that a contract term or notice satisfies the requirement of reasonableness to show that it does.

….

SCHEDULE 2

GUIDELINES” FOR APPLICATION OF REASONABLENESS TEST

Sections 11(2), 24(2)

The matters to which regard is to be had in particular for the purposes of sections 6(3), 7(3) and (4), 20 and 21 are any of the following which appear to be relevant–

(a) the strength of the bargaining positions of the parties relative to each other, taking into account (among other things) alternative means by which the customer’s requirements could have been met;

(b) whether the customer received an inducement to agree to the term, or in accepting it had an opportunity of entering into a similar contract with other persons, but without having to accept a similar term;

(c) whether the customer knew or ought reasonably to have known of the existence and extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties);

(d) where the term excludes or restricts any relevant liability if some condition is not complied with, whether it was reasonable at the time of the contract to expect that compliance with that condition would by practicable;

(e) whether the goods were manufactured, processed or adapted to the special order of the customer.

It was accepted both before the judge and before us that clauses 11.1 and 11.2 of Messer’s conditions purport to exclude Messer’s liability for breach of the implied terms arising from s. 14 of the Sale of Goods Act 1977, within the meaning of s.6(2) and (3) of the l977 Act, and so that it is for Messer to show that such clauses satisfy the requirement of reasonableness, having regard in particular to the matters specified in Schedule 2 to the Act.

The judge, after considering what he identified as the relevant circumstances, found that the clauses did not satisfy that requirement. In these circumstances, the correct approach in this court is that prescribed in Mitchell (George)_(Chesterfield) v. Finney Lock Seeds Ltd. [1983] 2 AC 803, 815-6 per Lord Bridge:

“It may, therefore, be appropriate to consider how an original decision as to what is “fair and reasonable” made in the application of any of these provisions should be approached by an appellate court. It would not be accurate to describe such a decision as an exercise of discretion. But a decision under any of the provisions referred to will have this in common with the exercise of a discretion, that, in having regard to the various matters to which the modified section 55 (5) of the Act of 1979, or section 11 of the Act of 1977 direct attention, the court must entertain a whole range of considerations, put them in the scales on one side or the other, and decide at the end of the day on which side the balance comes down. There will sometimes be room for a legitimate difference of judicial opinion as to what the answer should be, where it will be impossible to say that one view is demonstrably wrong and the other demonstrably right. It must follow, in my view, that, when asked to review such a decision on appeal, the appellate court should treat the original decision with the utmost respect and refrain from interference with it unless satisfied that it proceeded upon some erroneous principle or was plainly and obviously wrong.”

I start with the scope of clauses 11.1 and 11.2. Clause 11.1 warrants a purity not less than that laid down in Messer’s standard, which in turn incorporates BS 4105. This cannot be read as an absolute warranty of “purity” in the abstract, or of anything other than compliance with Messer’s standard. The clause qualifies its exclusion of other warranties “to the extent that such exclusion is prevented by law”. But this qualification simply refers to, and requires consideration of, the potential effect of the 1977 Act. Mr Prynne suggested in opening the appeal that clauses 11.1 and 11.2 might leave room for an implied undertaking that the carbon dioxide supplied would not be injurious to health, contrary to the Food Safety Act 1990, which could cater for possibilities such as the presence of strychnine. But, except in cases where the purity of the carbon dioxide laid down in Messer’s standard was affected, clauses 11.1 and 11.2 would in terms exclude any such implied undertaking, and there is nothing in ss.7 and 8 of the Food Safety Act 1990 to override such exclusion.

The judge accepted that the parties were to be regarded as having been of equal bargaining power – see paragraph (a) in Schedule 2 to the Act. There were other suppliers (Hydrogas and BOC) to which THP and Brothers could have gone. The judge also treated it as axiomatic for the purposes of paragraph (c) that “on the footing that the terms are applicable at all” the buyers “must be regarded as cognisant of their existence and effect”. I am not satisfied that paragraph (c) can be quite so easily disposed of. Contractual incorporation may in some circumstances occur without a party either knowing, or being realistically in a position where he or it can be blamed for not knowing, of the extent of certain terms. Take someone contracting for the carriage of a parcel by rail or air on the carriers’ standard conditions. No-one really expects him to obtain or read the terms. Nor do I think that paragraph (c) is to be necessarily even to be read as equating the positions of someone who actually knows and someone who “ought reasonably to have known” of the existence and extent of a term. It seems to me legitimate to consider and take into account the actual extent and quality of the knowledge of a party, however much he or it may, under ordinary contractual principles, have become contractually bound by the particular term(s).

Thus, in the case of Watford Electronics Ltd. v. Sanderson CFL Ltd. [2001] EWCA Civ 317; [2001] 1 AER 696, cited to the judge and to us, the judge found as a relevant factor under paragraph (c) that the buyer of the relevant software was “aware of the existence of the term, only first learned of its existence towards the end of the pre-contract discussions, attempted unsuccessfully to have it substantially amended, only succeeded in achieving a make-weight amendment and learnt from Sanderson [the supplier] that a term excluding liability was standard software industry practice.”

The Court of Appeal in Watford, in upholding the validity of an exclusion of liability for any “claims for indirect or consequential losses whether arising from negligence or otherwise”, regarded that as a most material factor, as appears from the judgment given by Chadwick LJ (with which Buckley J agreed) at paragraphs 54(vii) and 56 and that of Peter Gibson LJ at paragraph 62(4). In the present case, the commercial and contractual background were significantly different. The manufacture of carbon dioxide so as to exclude benzene does not compare with the provision of software (an exercise notoriously liable to give rise to problems). No-one would have contemplated that the manufacturing process would allow benzene in, or (despite clause 11. 2) that the buyers (THP and Brothers) would test for benzene, or indeed for compliance with BS 4105, which Messer anyway warranted. The parties did not discuss or negotiate with regard to the specific provisions of the contract, clauses 11.1 and 11.2 in particular. Clauses 11.1 and 11.2 were simply incorporated as part of Messer’s standard provisions. Although this is not a consideration specifically identified in Schedule 2, it seems to me that it can be relevant under paragraph (c) and anyway as a general consideration under s. 11(2) (cf also by analogy s. 3(1)).

Messer’s basic contention, as the judge recognised, was and is that it was reasonable for it as a supplier (but not a manufacturer) to limit its liability to compliance of the carbon dioxide supplied with BS 4105, on the basis that this represented the contemporary understanding of the required purity. The judge in rejecting this said:

“I suspect that if the parties had been asked when they were contracting on whom should lie the risk of a breakdown in the manufacturing process permitting the unexpected introduction into the CO2 of a redundant carcinogen in quantities which, whilst not injurious to health would render products made using that CO2 unsaleable, they would have unhesitatingly replied that of course that risk should be borne by the supplier…… In my judgment it is wholly unreasonable for the supplier of a bulk commodity such as CO2 for a food application to seek to exclude liability for the commodity not being of satisfactory quality or being unfit for its purpose where that has come about as a result of a breakdown in the manufacturing process allowing the inadvertent introduction of a redundant carcinogen.”

Messer submits that the judge was in this first sentence posing the wrong question. He was taking advantage of hindsight, and his knowledge of what had actually happened and its consequences, instead of asking whether the term was a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.

In my judgment, however, the judge was entirely justified in rejecting Messer’s submission that it was reasonable for it as a supplier (and not a manufacturer) to limit its liability to compliance of the carbon dioxide supplied with BS 4105, on the basis that this represented “the contemporary understanding” of the required purity. The authors of BS 4105 were concerned to regulate the quantities of and methods of testing for elements which carbon dioxide might be expected to contain. They did not identify or regulate other elements, not because the contemporary understanding was that carbon dioxide might contain them, but because the presence of an extraneous or deleterious substance such as benzene or strychnine was wholly unexpected, and could only occur due to some manufacturing or other mishap. If one asks whether it was reasonable to limit Messer’sliability to compliance with BS 4105, the answer seems to me, therefore, to be that it ought to have been appreciated that compliance with BS 4105 would not, by itself, necessarily mean that the carbon dioxide supplied was suitable for use. BS 4105 assumed that the process of manufacture and supply would exclude the introduction of other extraneous elements, and so did not actually address such elements. Clauses 11.1 and 11.2 are thus unreasonable, because they contradict a fundamental assumption that all parties would have made in this respect. Since it is accepted that there was no basis on which the buyers, THP and Brothers, could have been expected to test for extraneous components which they had no reason to consider could be present, and since their presence could only arise from some mishap in manufacture or supply, responsibility should rest on the supplier, Messer, who would be expected to be able to pass it on, where appropriate to the manufacturer, Terra (as it can in fact in the present proceedings).

Conclusions

Accordingly, I consider that the judge reached the right conclusion on the second ground pursued before us. Although the appellants are right on the first ground, in that BS 4105 contains no express warranty or undertaking of suitability, clauses 11.1 and 11.2 are not shown to satisfy the requirement of reasonableness and cannot therefore be relied upon by the respondents to exclude their liability for breach of the implied undertakings as to suitability and fitness for purpose, which, as is accepted, arose by virtue of s.14 of the Sale of Goods Act 1979 unless they were validly excluded by clauses 11.1 and 11.2. It follows that this appeal against the judge’s full and helpful judgment fails.

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Hardwick Game Farm v Suffolk Agricultural and Poultry Producers Association Ltd

[1968] UKHL 3 [1969] 2 AC 31