Scope
Cases
T.G. Brosnan (Inspector of Taxes) v. Leeside Nurseries Ltd;
[1998] 1 I.L.R.M. 312
Barrington J
Conclusion
I would have no difficulty in accepting that potted dwarfed chrysanthemums on a supermarket shelf are ‘goods’ for the purposes of the Sale of Goods Act 1893 . But I think that an ordinary man, however well informed about the plants and the process to which they had been subjected and the scheme and purposes of Part IV of the Corporation Tax Act 1976 or of Part I of the Finance Act 1980 , would be startled to hear them described as a ‘manufactured’ goods.
This case is distinguishable from the case of McCann v. Ó Cúlacháin . That case and many of the cases cited to us in argument dealt with the alleged conversion of inanimate objects into manufactured goods by applying a process to them. In that context Murphy J’s example of the tree trunk and the chair is highly relevant, because the question is to what degree has the inanimate object been changed by the application of the process. At some point the tree trunk ceases to be a tree trunk which it is convenient to sit upon, and becomes a manufactured chair. The question is one of degree.
But it appears to me in the present case we are dealing not with an inanimate object but with a growing plant. The correct question is not simply to what degree has the process affected the plant but what is the nature of the process which has been applied to the plant. It appears to me that the answer to this question must be ‘cultivation’ and not ‘manufacture’ .
The learned Circuit Court judge held quite correctly that: ‘The respondent cultivates plants’ . He also held that the processes of ‘cultivation’ and ‘manufacture’ were not mutually exclusive. But he appears to have gone wrong in assuming that Leeside Nurseries operated on chrysanthemum cuttings in much the same way as Strand Dairies Ltd and Charles McCann Ltd operated on milk and bananas respectively. He appears to have missed the point that milk and severed bananas are inanimate objects whereas chrysanthemums are growing plants. He appears also to have taken the view that because the process to which the chrysanthemums are subjected is a sophisticated process that it is therefore a manufacturing process whereas in fact modern forms of cultivation can be highly sophisticated.
It is true that the process begins to operate on unrooted chrysanthemum cuttings. The first stage is to strike these unrooted cuttings to produce chrysanthemum plants. But this form of vegetative propagation can only be regarded as cultivation. The fact that the plants are grown in pots, under glass in a special compost or that they stand on special matting which supplies them with water and food does not change the process from one of cultivation. Nor does the fact that they are sprayed to protect them against disease. Likewise the removal of superfluous stems or buds can only be regarded as a process of cultivation. The most sophisticated processes are those whereby the plants are fed with special chemicals acting as dwarfing agents and the means whereby the supply of daylight is controlled to persuade the plants to flower by a prescribed date instead of confining their flowering period to the autumn season. But what Messrs Leeside Nurseries are doing is manipulating the environment and the food supply to encourage the plants to react in a particular way. They are, as their name implies, ‘nurserymen’ and they are ‘nursing’ the plants to react in a particular way. But this process — sophisticated as it is — is a process of cultivation not of manufacture.
In these circumstances I agree with the decision of the learned High Court judge and would dismiss the appeal.
KEANE J (O’Flaherty, Lynch and Barron JJ concurring): I also agree that the appeal should be dismissed. Since, however, a decision which I gave as a High Court judge was relied on to a limited extent by Mr McCann SC on behalf of the appellant, I think I should add some observations of my own.
The net issue was as to whether the dwarfed potted chrysanthemum plants were ‘goods manufactured within the State’ within the meaning of s. 39(1) of the Finance Act 1980 so as to entitle the appellant to certain tax reliefs under Chapter VI of Part I that Act.
Since these statutory provisions are applicable to the public generally, the words ‘goods manufactured in the State’ should be given their ordinary meaning: see the passage from the judgment of Lord Esher MR in Unwin v. Hanson [1891] 2 QB 115 cited by Henchy J, speaking for this Court, in Inspector of Taxes v. Kiernan [1981] IR 117 . In addition, as pointed out by Henchy J in the latter case, where the words under consideration are simple words which have ‘a widespread and unambiguous currency’ , the judge construing them should draw primarily on his or her experience of their use. However, in the case of the word ‘manufactured’ , the authorities themselves demonstrate that it cannot be regarded as simple or unambiguous.
London Borough of Southwark v IBM UK Ltd
[2011] EWHC 549
Akenhead J
Statutorily Implied Terms and UCTA
Reliance is, ultimately, only based by Southwark on the Sale of Goods Act 1979. It is first necessary to consider whether this Act applies at all in the context of this case. Relevant parts of the Act are as follows:
“1 (1) This Act applies to contracts of sale of goods made on or after (but not to those made before) 1 January 1894.
2 (1) A contract of sale of goods is a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price.
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.
(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) [set out earlier in this judgment].
(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, 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—
(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.
61 (1) In this Act, unless the context or subject matter otherwise requires,—
“goods” includes all personal chattels other than things in action and money…”
A preliminary question to consider is whether the Arcindex Contract was a contract for the sale of goods at all. That involves a consideration first as to whether under Section 2(1) there was to be a “transfer” of “property in goods” and secondly whether “goods” were being sold. I have formed the view that there was here no “transfer” of property in goods for the purposes of the 1979 Act. The Order talks about IBM “supplying” the Arcindex software “under Orchard’s Software Licence Terms defined in Appendix A” and there is a money consideration (£67,000). What was provided by IBM was in effect a licence from Orchard to Southwark to use the software and, therefore, there is no transfer of property. Although the licence is expressed by Appendix A to be a “perpetual licence”, this is said to be a licence “on the terms and conditions contained” in Appendix A. Some of these other terms in Appendix A point strongly to there being no transfer of property in the software. Clause 8.1 specifically talks about “title, copyright and all other proprietary rights in the Software” remaining vested in Orchard. Because copyright is identified as a specific right being retained, the use of the words “title” and “other proprietary rights” suggests strongly that ownership rights are retained. The termination provision in Clause 10 requires Southwark to return at Orchard’s request or destroy all copies, forms and parts of the software covered by the licence. Again that points to property in the software remaining all the time with Orchard. The licence was subject to other restrictions; for instance by Clause 3 of Appendix A it could only be used by Southwark and any “commercial partners”. The software by Clause 7 was not to be modified without Orchard’s consent.
It is therefore unnecessary to decide whether software can be “goods” for the purposes of the 1979 Sale of Goods Act. There is no binding authority which Counsel or I have been able to find on this topic. However, my view, which is necessarily obiter, is that in principle software could be “goods” within the meaning of that Act. I base this view on the following:
(a) Although a CD (compact disc) with nothing on it is worth very little, there is no restriction in the Sale of Goods Act on any goods being excluded from the Act by reason of their low value. CDs are physical objects and there is no reason why they should not be considered as goods.
(b) The fact that a CD is impressed with electrons to add functions and values to it simply gives a CD a particular attribute. Thus, if a customer buys a music CD with a Beethoven symphony or a Mumford & Sons album on it, it must be “goods” and it should, if new, be of satisfactory quality. There can be no difference if the CD contains software.
(c) The definition of “goods” is expressed to be an inclusive rather than an exclusive one. Put another way, the Act is not excluding anything which might properly be considered as goods. It follows that “goods” are not simply “personal chattels”, although a music or software CD may also fall into the category of being a personal chattel.
So far as this issue is concerned, one will need always to examine the contractual terms pursuant to which the customer acquires the software. If, as here, it is simply a licence to use that is being granted albeit for a money consideration, there may be no transfer of property. In principle, a licence to use, if that is all it is, may well not transfer any property or title in the goods in question. However, if the arrangement between the parties can be said to involve the transfer of property to the buyer, I see no reason why in principle software that is so transferred can not be “goods” for the purposes of the Act. There is in reality only one authority by way of an obiter remark against this view. In St Albans City and District Council v International Computers [1996] 4 All ER 481, Sir Iain Glidewell said:
“…in order to answer the question, however, it is necessary to distinguish between the programme and the disc carrying the programme.
In both the Sale of Goods Act 1979 section 61 and the Supply of Goods and Services Act personal chattels other than things in action and money…” Clearly a disc is within this definition. Equally clearly, a programme, of itself, is not.
…in the present case, it is clear that the defective programme 2020 was not sold, and it seems probable that it was not hired. The evidence is that in relation to many of the programme releases, an employee of ICL went to St Albans’ premises where the computer was installed taking with him a disc on which the new programme was included, and himself performed the exercise of transferring the programme into the computer.
As I have already said, the programme itself is not ‘goods’ within the statutory definition. Thus a transfer of the programme in the way I have described does not, in my view, constitute a transfer of goods.”
It is unclear in the current case whether the CDs containing the Arcindex programme were to be given to Southwark. Appendix B expressly talks about “new releases” to be “delivered to [Southwark] on CDs”. An inference is that the original software was also provided on CDs. On that basis, the CDs impressed with the software must be capable of being goods, in my view.
It follows from the above that the Sale of Goods Act does not apply and therefore the terms statutorily implied under that Act can not be applied to the Arcindex Contract. Even if they did, I am satisfied that by operation of UCTA the exclusions of the statutorily implied terms in the Arcindex Contract would be wholly reasonable and would stand. My reasoning is as follows:
(a) I accept that the effect of Section 6 of UCTA is, as between parties such as IBM and Southwark, that the statutorily implied term of fitness for purpose arising under Section 14 of the Sale of Goods Act 1979 will be excluded or restricted pursuant to a contractual term “only in so far as the term satisfies the requirement of reasonableness”.
(b) Having regard to the matters specified in Schedule 2 to UCTA as Section 11(2) requires, this is clearly a case in which it was wholly reasonable for the parties to legislate as they did. The parties were of broadly equal bargaining strength. Southwark had the opportunity to contract with Orchard and also chose the benefit of standard framework agreement terms. There can be no suggestion that Southwark did not or could reasonably not have known of the terms which excluded the implied terms; Southwark went through a protracted process negotiating the terms and clearly had lawyers involved. Finally, it does appear (as accepted by both experts) that there was some enhancement of Arcindex by Orchard to reflect what Southwark said it wanted. The reality is that the Arcindex contract was not, objectively looked at, an unfair or unreasonable one. By all accounts, Southwark was to get exactly what its staff wanted and was or would have been in the position by Clause 12 of the ICT Conditions to have all breaches remedied, to recover damages, albeit somewhat but not spectacularly limited, and indeed to terminate if there were material defaults which were not remedied within specified times.
Feldarol Foundry Plc v Hermes Leasing (London) Ltd & Anor
[2004] EWCA Civ 747 Tuckey LJ
Section 6 (2) of the Unfair Contract Terms Act 1977 states that:
“(2) As against a person dealing as consumer, liability for breach of the obligations arising from –
(a) …..
(b) section ….. 10 ….. of the 1973 Act …..
cannot be excluded or restricted by reference to any contract term.”
It goes on to say:
“(3) As against a person dealing otherwise than as consumer, the liabilities specified in sub-section (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.”
The first question is whether in this transaction the respondent was a person dealing as consumer. If he was, the term implied by Section 10 of the 1973 Act could not be excluded. Section 12 of the 1977 Act states that –
(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 a contract in the course of a business; and
(c) in the case of a contract governed by the law of ….. hire purchase ….. the goods passing under or in pursuance of the contract are of a type ordinarily supplied for private use or consumption.”
In this case it is common ground that conditions (b) and (c) are met: the appellant made the contract in the course of its business and the goods were of a type ordinarily supplied for private use.
In dealing with this question the judge said:
“On first considering this question, it seemed to me that [the respondent] must have been acting in the course of its business. It is a company, which was purchasing a motor car for the purpose of providing the motor car to its managing director as a part of the rewards of his employment. It also seemed to me that [the respondent] had held itself out as acting in the course of its business by the terms of the agreement which provide a statement of the nature of the business and the number of years it has been established, which was signed by Mr Beresford in his capacity as director, and which includes a declaration under which Mr Beresford signed ‘I confirm that I/we have selected the goods and that they will be used for the purposes of my/our business.”
However, he went on to hold that he was bound to conclude that the respondent had dealt as consumer by the decision of this court in R & B Customs Brokers Co Ltd v United Dominion Trust Ltd [1988] 1 WLR 321. The facts in that case could not be realistically distinguished from those of the present case.
In R & B a company had bought a car for use by one of its directors from a finance company under a credit sale agreement. The company was a freight forwarder and shipping agency. The car was defective and the company claimed damages against the finance company for breach of the fitness for purpose term implied by Section 14 (3) of the Sale of Goods Act 1979. The finance company sought to rely on exclusion clauses in its agreement, to which Section 6 of the 1977 Act applied, if the company bought the car as consumer. In reserved judgments Dillon and Neil LJJ held that it could not do so because the company had dealt as consumer within the meaning of Section 12 of the 1977 Act. At page 328 H Dillon LJ said:
“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 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.”
Dillon LJ went on to refer to the decision of the House of Lords in Davies v Sumner [1984] 1 WLR 1031, a case which was decided under the provisions of the Trade Descriptions Act 1968, where the House of Lords held that a self-employed courier who sold his car and falsely represented its mileage had not supplied a false trade description “in the course of a trade or business”, so it had not been guilty of an offence under the Act. Lord Keith had delivered the only speech in that case. He relied on the fact that the car had not been sold as an integral part of the defendant’s business and that a degree of regularity was required before it could be shown that something had been done in the course of a trade or business. Dillon LJ continued at page 330 G:
“I find pointers to a similar need for regularity under the Act of 1977, 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 Act of 1977 between those who deal as consumers and those who deal otherwise than as consumers.
This reasoning leads to the conclusion that, in the Act of 1977 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 CJ 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.”
Neill LJ agreed. In his judgment, at page 336D, he said:
“It is of course true that section 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 consistent construction of the same or similar phrases.”
Mr Richard Maurey QC, for the appellant, makes a number of submissions on this part of the case. In ascending order of ambition they are:
(1) that the judge should have distinguished R & B on the facts;
(2) R & B was the decision of a two-man court which conflicts with the more recent decision of this court in Stevenson v Rogers [1999] QB 1029, and so should not be followed;
(3) that R & B was wrongly decided; and
(4) this court should hold that a company can never deal as consumer for the purposes of this legislation.
I think Stevenson v Rogers provides the answer to a number of these submissions. In that case a fisherman had sold one of his fishing boats to the plaintiffs who claimed damages for breach of the implied term as to merchantable quality in Section 14 (2) of the Sale of Goods Act 1979 in its unamended form. The question was whether the sale had been made by the defendant “in the course of a business”. In allowing the appeal, this court held that it had. The judge had relied on R & B. After an exhaustive analysis of the legislative history of Section 14 (2), including a Pepper v Hart excursion, Potter LJ concluded that free of the restraints of precedent the words were intended to have their wide face value meaning. At page 1040 E he said:
“The question thus becomes, in my view, whether the decision in R & B ….. albeit relating to a separate section of the Act of 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 it should prevail.
The Act of 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 Act of 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 ….. case. First, the ratio of the decision is limited to its context, namely the application of section 12 of the Act of 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 business’ in that section was not treated as coupled with, or dependent upon, the meaning of the phrase in section 14 (2). Thus the court gave no consideration to whether or not the legislative history of section 14 (2) might require it to be distinguished from section 12 of the Act of 1977 or, alternatively, if a common interpretation was called for, whether the construction of Section 12 should not be subordinated to that of section 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 section 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 of section 14 (2) made by section 3 of the Act of 1973 and the amendment to section 55 of the Act of 1893 made by section 4 of the Act of 1973, which referred to a ‘seller in course of a business’ when defining a ‘consumer sale.’ However, the latter provision did not survive for long. It was repealed and replaced by section 12 of the Act of 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 R & B ….. been concerned not with the Act of 1977, but with the definition of a consumer sale under the Act of 1973, it might well have concluded that the phrase ‘in the course of a business’ in section 55 of the Act of 1893, as amended, required to be construed in harmony with, and subject to, the proper construction of section 14 (2).
As to the proper construction of section 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 section 12 of the Act of 1977. Section 14 (2) as amended by the Act of 1973 was itself a piece of consumer protection intended to afford wider protection to a buyer than that provided in the Act of 1893. Indeed, there is a sense in which the decision in the R & B case 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 section 12 (1) (a) of the Act of 1977 was to further such buyers’ protection. In the context of its statutory history, section 14 (2), as amended by the Act of 1973 and re-enacted in the Act of 1979, is the primary provision in the overall scheme of increased protection for buyers which the Act of 1973 initiated. To apply the reasoning in the R & B case ….. in the interests only of consistency, thereby undermining the wide protection for buyers which section 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 ….. in the contract [in that case].”
Butler Sloss LJ and Sir Patrick Russell agreed with Potter LJ.
It is clear from this decision that the court felt bound by R & B. The fact that it was a decision of a two-man court is not to the point. It was and is a decision which is binding on this court. Secondly, the decision is not inconsistent with R & B. Lord Justice Potter explains in the passage I have cited at length how the two decisions can be reconciled. An interpretation of the words “deals as consumer” in the 1997 Act, which gave increased protection for consumer buyers, was consistent with the wide meaning which the court gave the words “seller in the course of a business” in the 1979 Act.
This disposes of Mr Maurey’s second, third and fourth submissions. In argument this morning he subjected R & B to sustained criticism: no reason is given as to why the meaning of words in the Trade Descriptions Act should be the same as in the 1977 Act; “integral part of the business” and “regularity” do not appear in the statute: application of such tests will produce anomalous results. Far better, he said, to go for a root and branch solution which was simply to say that a company can never be a consumer for the purpose of this legislation. This was consistent with other consumer protection legislation and regulations where consumers are defined as natural rather than legal persons.
But none of this answers the point that R & B is binding on us. It is a reported decision that has stood unchallenged for more than 15 years, during which time the relevant provisions in the 1977 Act have stood unamended. If harmonisation of the various provisions dealing with consumer protection is required, that is Parliament’s job. If R & B is to be challenged, that cannot be done in this court.
It is only therefore Mr Maurey’s first submission which survives in this part of the case. Here he relies on a number of points which he says distinguish this case from the facts in R & B. R & B was a one-man private company. The respondent is a public company. The car must have been put through the company’s books and treated as part of its assets. But I do not think that these factors enable us to distinguish this case from R & B which was not decided on a one-off basis or related specifically to the size of the company. The car in that case must also have been put through the company’s books.
Mr Maurey however does have a further point of distinction. He says that by its declaration in the agreement signed by Mr Beresford that “I/we confirm that I/we have selected the goods and they will be used for the purposes of my/our business” and the acknowledgment by the hirer in the terms themselves that “the goods will be used for his own business purposes”, the respondent had held itself out as making the contract in the course of a business within the meaning of Section 12 (1) (a) of the 1977 Act.
I do not accept this submsision. Neither the declaration or the acknowledgment are directed to the capacity in which the respondent is dealing. They deal with the use to which the car is intended to be put. They say nothing about whether the buying of cars is an integral part of the company’s business or the regularity of such transactions.
It follows from what I have said that I think the appellant’s first and main ground of appeal fails. This makes it unnecessary to consider whether the judge was right to conclude that clause 4 of the terms and conditions failed to satisfy the requirement of reasonableness. Suffice it to say that I think there is much in the appellant’s argument that it was reasonable for much the same reasons as Dillon LJ gave for reaching the same conclusion in R & B.
This therefore brings me to the arguments about breach, rejection and affirmation. The appellant first says that the judge should not have held that there was a breach of Section 10 (2) of the 1973 Act. In reaching his conclusion that the defects in the car were sufficiently serious as to amount to a breach, the judge attached too much weight to Mr Beresford’s view of the car when it was the respondent company which was the hirer. Applying the objective standard demanded by Section 10 (2) (2A) and (2B), there was no breach as demonstrated by the relatively small cost of repairing the defects.
I disagree. There was ample evidence to justify the judge’s conclusion. Whether the car is a company car or individually owned, if it is potentially unsafe to drive because of defects in its steering and brakes it cannot be described as being of satisfactory quality. As the implied term was a condition of the contract – Section 10 (7) of the 1973 Act – its breach entitled the respondent to reject the car.
The appellant however says that the respondent did not reject the car or attempt to do so, at least until after he had affirmed the contract by accepting it. This he did by his arrangement to substitute the car, by his correspondence with TCA and the appellant and by paying the first instalment under the agreement after he knew of the defects.
The judge found that the respondent rejected the car on the ground that it was not of satisfactory quality when the appellant received the respondent’s solicitor’s letter of 23 August, to which I have referred. The appellant says this was too late. In reaching his conclusion that there had been rejection, the judge should have ignored the respondent’s dealings with the dealer since the agreement made it clear that the dealer was not the appellant’s agent.
Whether a buyer or a hirer has rejected or accepted goods under contracts of sale or supply of this kind is a broad issue of fact which does not depend upon technicalities or legal niceties. What the court must determine objectively from what the buyer or hirer has said or done is whether he has accepted or rejected the goods tendered in performance of the seller’s or owner’s contractual obligation to deliver goods of the contract quality.
Judged in this way, I think there was only one answer in this case. As the appellant was told within a very short time of delivery, the respondent had expressed his dissatisfaction with the Lamborghini and within days had returned it to the dealer. In his letter to the appellant of 12 August Mr Beresford made it clear that he had rejected the car and payment had been made under the agreement to keep it alive so that it could be rolled over for use with the substitute car which he was still expecting to be provided. In these circumstances, I fail to see how the appellant or anyone else could possibly have thought that the respondent had accepted the Lamborghini or, to put it another way, affirmed the agreement under which that car was to be hire-purchased by the respondent. The Lamborghini had self-evidently been rejected. The fact that the reasons for doing so emerged later is not to the point.
For these reasons I reject Mr Maurey’s arguments about rejection and affirmation.
It follows that I think this appeal should be dismissed. The judge’s judgment, to which I should pay tribute, should be upheld.
LORD JUSTICE KAY: I agree.
LORD JUSTICE KENNEDY: I also agree.
Order: Appeal dismissed with the costs assessed as claimed without VAT
Macbeth & Gray v. Reid (Carmichael, Maclean, & Co.’s Trustee)
[1904] UKHL 369
Lord Davey
But I turn to the Sale of Goods Act and I find that the material sections are those referred to by the learned Judges of the Second Division, namely, sections 16, 17, and 18. I will read only section 16, which seems to me the material one—“Where there is a contract for the sale of unascertained goods no property in the goods is transferred to the buyer unless and until the goods are ascertained;” and then in rule 5, section 18, it says—“Where there is a contract for the sale of unascertained or future goods by description,” and so forth, the property in the goods passes to the buyer on ascertainment by the buyer and the seller. It appears to me that those sections have no application whatever to the case before your Lordships, for the simple reason, which was mentioned by my noble and learned friend on the woolsack, that here there was no contract for a purchase of these materials. The learned counsel and also the learned Judges in the Court below seem to me to have proceeded on the supposition or hypothesis that this contract contained not only a contract for the purchase of the ship but a separate contract for the purchase of the materials also; and that seems to me to be a complete fallacy. There is only one contract—a contract for the purchase of the ship. There is no contract for the sale or purchase of these materials, and unless you can find a contract for the sale of these chattels within the meaning of the Sale of Goods Act, it appears to me that the sections of that Act have no application whatever to the case.
I think therefore that the case is exactly covered by the decision given by your Lordships’ House in the case of Seath v. Moore, and I will only express my entire concurrence in the judgments in that case of those very learned Lords, Lord Blackburn and Lord Watson.
St Albans City and District Council v ICL
[1996] EWCA Civ 1296 [1996] 4 All ER 481, [1996] EWCA Civ 1296, 95 LGR 592, [1997] FSR 251
SIR IAIN GLIDEWELL:
I have read in draft the judgment prepared by Nourse LJ and, like Hirst LJ, I agree with him that Scott Baker J was right in concluding that I.C.L. were in breach of an express term of their contract with St. Albans, that in the alternative the contract was subject to an implied term as to the fitness for purpose of the COMCIS program of which I.C.L. were also in breach, and that they are not saved from the consequences of such breach by any terms of exclusion or limitation of liability in the contract. It follows that I agree with My Lords that I.C.L. are, as the Judge held, liable in damages to St. Albans. I too would therefore dismiss this part of the appeal.
However, before I turn to the subject of damages there is one aspect of the case on liability on which I wish to express my own opinion. This is the second issue to which I have already referred, namely, was the contract between the parties subject to any implied term as to quality or fitness for purpose, and if so, what was the nature of that term? Consideration of this question during argument led to discussion of a more general question, namely, “Is software goods?” To seek to answer this question, it is necessary first to be clear about the meaning of some of the words used in argument.
In his judgment, Scott Baker J adopted a description of a computer system which contains the following passage which I have found helpful:
“By itself hardware can do nothing. The really important part of the system is the software. Programs are the instructions or commands that tell the hardware what to do. The program itself is an algorithm or formula. It is of necessity contained in a physical medium.
A program in machine readable form must be contained on a machine readable medium, such as paper cards, magnetic tapes, discs, drums or magnetic bubbles.”
In relation to COMCIS the property in the program i.e. the intangible “instructions or commands”, remained with I.C.L. Under the contract, St. Albans were licensed to use the program. This is a common feature of contracts of this kind. However, in order that the program should be encoded into the computer itself, it was necessarily first recorded on a disc, from which it could be transferred to the computer. During the course of the hearing, the word “software” was used to include both the (tangible) disc onto which the COMCIS program had been encoded and the (intangible) program itself. In order to answer the question, however, it is necessary to distinguish between the program and the disc carrying the program.
In both the Sale of Goods Act 1979 s.61 and the Supply of Goods and Services Act 1982 s.18 the definition of “goods” is “includes all personal chattels other than things in action and money ….” Clearly a disc is within this definition. Equally clearly, a program, of itself, is not.
If a disc carrying a program is transferred, by way of sale or hire, and the program is in some way defective, so that it will not instruct or enable the computer to achieve the intended purpose, is this a defect in the disc? Put more precisely, would the seller or hirer of the disc be in breach of the terms as to quality and fitness for purpose implied by s.14 of the Sale of Goods Act and s.9 of the Act of 1982? Mr Dehn, for I.C.L., argues that they would not. He submits that the defective program in my example would be distinct from the tangible disc, and thus that the “goods” – the disc – would not be defective.
There is no English authority on this question, and indeed we have been referred to none from any Common Law jurisdiction. The only reference I have found is an article published in 1994 by Dr. Jane Stapleton. This is to a decision in Advent Systems Ltd. v. Unisys Corporation 925 F 2d 670 that software is a “good”; Dr Stapleton notes the decision as being reached “on the basis of policy arguments.” We were referred, as was Scott Baker J, to a decision of Rogers J in the Supreme Court of New South Wales, Toby Construction Ltd. v. Computa Bar (Sales) Pty. Ltd. (1983) 2 NSWJR 48. The decision in that case was that the sale of a whole computer system, including both hardware and software, was a sale of “goods” within the New South Wales legislation, which defines goods in similar terms to those in the English statute. That decision was in my respectful viewclearly correct, but it does not answer the present question. Indeed Rogers J specifically did not answer it. In expressing an opinion I am therefore venturing where others have, no doubt wisely, not trodden.
Suppose I buy an instruction manual on the maintenance and repair of a particular make of car. The instructions are wrong in an important respect. Anybody who follows them is likely to cause serious damage to the engine of his car. In my view the instructions are an integral part of the manual. The manual including the instructions, whether in a book or a video cassette, would in my opinion be “goods” within the meaning of the Sale of Goods Act, and the defective instructions would result in a breach of the implied terms in s.14.
If this is correct, I can see no logical reason why it should not also be correct in relation to a computer disc onto which a program designed and intended to instruct or enable a computer to achieve particular functions has been encoded. If the disc is sold or hired by the computer manufacturer, but the program is defective, in my opinion there would prima facie be a breach of the terms as to quality and fitness for purpose implied by the Sale of Goods Act or the Act of 1982.
However, in the present case, it is clear that the defective program 2020 was not sold, and it seems probable that it was not hired. The evidence is that in relation to many of the program releases an employee of I.C.L. went to St. Albans’ premises where the computer was installed taking with him a disc on which the new program was encoded, and himself performed the exercise of transferring the program into the computer.
As I have already said, the program itself is not “goods” within the statutory definition. Thus a transfer of the program in the way I have described does not, in my view,constitute a transfer of goods. It follows that in such circumstances there is no statutory implication of terms as to quality or fitness for purpose.
Would the contract then contain no such implied term? The answer must be sought in the Common Law. The terms implied by the Sale of Goods Act and the Act of 1982 were originally evolved by the Courts of Common Law and have since by analogy been implied by the courts into other types of contract. Should such a term be implied in a contract of the kind I am now considering, for the transfer of a computer program into the computer without any transfer of a disc or any other tangible thing on which the program is encoded?
The basis upon which a court is justified in implying a term into a contract in which it has not been expressed is strict. Lord Pearson summarised it in his speech in Trollope & Colls Ltd. v. N.W. Metropolitan Regional Hospital Board (1973) 1WLR 601 at 609 when he said:
“An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract; it is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them; it must have been a term that went without saying, a term which, though tacit, formed part of the contract which the parties made for themselves.”
In my judgment a contract for the transfer into a computer of a program intended by both parties to instruct or enable the computer to achieve specified functions is one to which Lord Pearson’s words apply. In the absence of any express term as to quality or fitness for purpose, or of any term to the contrary, such a contract is subject to an implied term that the program will be reasonably fit for i.e. reasonably capable of achieving the intended purpose.
In the present case if, contrary to my view, the matter were not covered by express terms of the contract, I would hold that the contract was subject to an implied term that COMCIS was reasonably fit for, that is, reasonably capable of achieving the purpose specified in the “Statement of User Requirements” in Chapter 5 of St. Alban’sInvitation to Tender, and that as a result of the defect in release 2020 I.C.L. were in breach of that implied term.
I turn now to the issue of damages. When the Judge was considering whether the Plaintiffs’ loss was irrecoverable as damages because it had already been recouped in 1991/92, he drew no distinction between the £685,000 and the £484,000. Moreover, it seems that he was not referred directly to the decision of this Court in Palatine Graphic Arts Ltd. v.Liverpool City Council (1986) 1QB 355 nor to the passages from the speech of Lord Reid in Parry v. Cleaver (1970) AC 1 quoted in the judgments in that case, especially the passage from page 15 which Nourse LJ has set out in his judgment.
Applying the principles derived from those authorities, I entirely agree with Nourse LJ that St. Albans suffered a loss of £685,000 which, with interest, must form part of the damages. As to the £484,000, however, St. Albans recouped their loss of this sum from their chargepayers in 1991/92. For the reasons given by Nourse LJ they are not entitled to recover the £484,000 as damages, but only the interest on that sum for one year.
Esso Petroleum Limited v Commisioners of Customs and Excise
[1975] UKHL 4 [1976] WLR 1, [1976] 1 WLR 1
Lord Simon
Believing as I do that Esso envisaged a bargain of some sort between
the garage proporietor and the motorist, I must try to analyse the transaction.
The analysis that most appeals to me is one of the ways in which Lord
Denning M.R. considered the case ([1975] 1 W.L.R. 406 at p. 409 B-D).
namely a collateral contract of the sort described by Lord Moulton in
Heilbut, Symons & Co. v. Bucckleton [1913] AC 30. 47:
“… there may be a contract the consideration for which is the making
” of some other contract. ‘ If you will make such and such a contract
” ‘ I will give you one hundred pounds ‘, is in every sense of the word
” a complete legal contract. It is collateral to the main contract. . . .”
So here. The law happily matches the reality. The garage proprietor is
saying, ” If you will buy four gallons of my petrol, I will give you one of
” these coins “. None of the reasons which have caused the law to consider
advertising or display material as an invitation to treat rather than an
offer applies here. What the garage proprietor says by his placards is in
fact and in law an offer of consideration to the motorist to enter into a
contract of sale of petrol. Of course, not every motorist will notice the
placard, but nor will every potential offeree of many offers be necessarily
conscious that they have been made. However, the motorist who does notice
the placard, and in reliance thereon drives in and orders the petrol, is in
law doing two things at the same time. First, he is accepting the offer of
a coin if he buys four gallons of petrol. Secondly, he is himself offering
to buy four gallons of petrol: this offer is accepted by the rilling of his tank.
Has there then been a sale of the coins, so that they can be said to have
been ” produced in quantity for general sale ” within Group 25 of Schedule 1
of the Purchase Tax Act 1963? I think that the main emphasis here is
on ” quantity ” and ” general “. But it would be contrary to all principles
of sound statutory construction not to give each word its full significance.
I agree with my noble and learned friend, Lord Russell of Killowen, for
the reasons which he gives, that the definition of ” purchase ” in section 40(1)
throws no light on the meaning of ” sale ” in the Schedule. ” Sale ” must
therefore be interpreted in the primary sense demanded by the context of a
taxing statute (unless some secondary meaning must be preferred in order
to avoid injustice, absurdity, anomaly or stultification of the statutory objec-
tive). The primary sense of ” sale ” in this context is its primary meaning in
ordinary legal usage. This is expressed in section 1 of the Sale of Goods
Act 1893 (which codified the common law), namely ” a contract whereby
” the seller transfers or agrees to transfer the property in goods to the buyer
” for a money consideration, called the price “. Here the coins were not
transferred for a money consideration. They were transferred in considera-
tion of the motorist entering into a contract for the sale of petrol. The
coins were therefore not produced for sale, and do not fall within the Schedule.
They are exempt from purchase tax.
I would therefore dismiss the appeal.
Flynn v. Mackin
[1974] IR 101
Walsh J.
Supreme Court
Therefore, the situation appears to have been that there was an agreement for sale of the motor car between Mr. Mahon and Fr. Mackin. There was also apparently an agreement for sale between Athlone Motors and Mr. Mahon, but this appeal is not concerned with that transaction. There was no agreement for sale between Athlone Motors and Fr. Mackin. So far as the evidence establishes, at the time the motor car was handed by Athlone Motors to Mr. Mahon, the property in the car passed from Athlone Motors to Mr. Mahon. It passed out of Athlone Motors and the question is whether it passed to Mr. Mahon or to Fr. Mackin.
The “contract for sale” between Mr. Mahon and Fr. Mackin was made before Mr. Mahon acquired the motor car from Athlone Motors. Therefore, the motor car constituted future goods within the meaning of s. 62 of the Sale of Goods Act, 1893.6 The motor car was ordered by description, namely, that it was to be a blue Vauxhall Viva car. Each side of this present appeal has relied upon the provisions of s. 18, rule 5, of the Act of 1893 which provides as follows:
“18. Unless a different intention appears, the following are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer . . .
Rule 5(1) Where there is a contract for the sale of unascertained or future goods by description, and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer, or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. Such assent may be express or implied, and may be given either before or after the appropriation is made . . .”
Attention was also directed to the provisions of s. 34 of the Act which provides as follows:
“(1) Where goods are delivered to the buyer, which he has not previously examined, he is not deemed to have accepted them unless and until he has had a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract.
(2) Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound, on request, to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the contract.”
If this particular contract is governed by the provisions of the Sale of Goods Act then the particular provisions cited above are the relevant ones.
In my view, on the facts as given in evidence, there was no unconditional appropriation of the motor car to the contract by Mr. Mahon. He undoubtedly collected a blue Vauxhall Viva which he intended to use for the purpose of fulfilling his contract with Fr. Mackin. However, Mr. Mahon’s contract was to sell a blue Vauxhall Viva and, in collecting this one, he was preparing to appropriate the motor car to the contract. However, there was nothing in the contract between himself and Fr. Mackin which would have in any way prevented his selling that car to another party anywhere between Athlone and Kinnegad or at any time before he came to conclude the transaction with Fr. Mackin. His obligation was to sell Fr. Mackin a blue Vauxhall Viva and any blue Vauxhall Viva would have satisfied his side of the bargain. He was not under an obligation to sell this particular one. Therefore, in my view the motor car had not been unconditionally appropriated to the contract. When Mr. Mahon collected the motor car in Athlone he was not acting as an agent for Fr. Mackin, but was a principal in the contract to which Fr. Mackin was the other principal. If the original plan had been carried out, namely, the plan of having Fr. Mackin go to Athlone with Mr. Mahon and the car had been delivered to Fr. Mackin in Athlone, even directly by Athlone Motors, it would have been a constructive delivery on behalf of Mr. Mahon because he was the vendor and the property would have passed at that stage with delivery provided that Fr. Mackin, having seen the car, was satisfied to accept it. However, in the events which happened, I am satisfied that as there was no unconditional appropriation of the motor car to the contract the property in the motor car did not pass to Fr. Mackin, apart altogether from any question of a different intention appearing within the meaning of s. 18 of the Act of 1893. In view of the conclusion which I have reached, it is unnecessary for me to decide whether or not the parties had intended that the property in the motor car was not to pass in the event of an unconditional appropriation of the motor car to the contract.
However, there is another matter which was submitted by Mr. Finlay in the course of his arguments. Section 1, sub-section (1), of the Sale of Goods Act, 1893 provides as follows:
“A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price . . .”
Mr. Finlay has submitted that the transaction in this case did not amount to a sale within the meaning of the Act of 1893 as it was partly a barter. In my view, this submission is correct. There is no evidence in the case of an agreement to buy the motor car for an agreed price. The question of the price of the motor car, if it arose, is not referred to at all in the evidence. The terms of the transaction, as given in evidence, are that the new motor car was to be obtained by Fr. Mackin in exchange for the motor car which he possessed plus a sum of £250. If the transaction had been that the new motor car was to be a particular price but that in lieu of part of that price the vendor would take the existing motor car and cash for the balance then, in my view, the contract would have been a contract for sale because it would have been an agreement to buy a new car for an agreed price. That was not the case here. Therefore, the provisions of s. 18 of the Act of 1893 are not applicable to the transaction under review. The particular transaction was one which, on the evidence, was an agreement to transfer the Vauxhall Viva in consideration of a particular sum of money together with another chattel which was not valued; this transaction was one of exchange or barter. In such a case the ownership of the new Vauxhall Viva would only have been transferred when it was handed over to Fr. Mackin with the intention of transferring ownership. That point was never reached in the present case.
For the reasons I have given I am of opinion that at the time of the accident the motor car in question was in the ownership of Mr. Mahon, and that the learned trial judge was correct in law in withdrawing from the jury the case against Fr. Mackin.
On the hearing of this appeal it was agreed that the Court would first decide the question of the correctness of the judge’s ruling, and that the appeal in respect of the damages would not be argued until that matter had been determined. Consequently, in my view, the order of the Court should be that the appeal by the plaintiff and the appeal by the second defendant on the question concerning the liability of the first defendant should be dismissed and that, consequently, the first defendant should be dismissed from this appeal. If the second defendant wishes to pursue his appeal as to damages, the matter will be one which will concern only him and the plaintiff.
FITZGERALD C.J. :
I have been informed by Mr. Justice Budd, who is unable to be present, that he agrees with the judgment of Mr. Justice Walsh.