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Trade Law - On An Even Keel

By : Colm Nugent

Reasonableness has no place when considering the right to reject under the Sale of Goods Act.

Like me, you may have drooled over the adverts for luxury yachts in those in-flight magazines and whilst strolling near the quay of a smart port town, wondered who buys these ultimate symbols of conspicuous consumption?

In the recent case of Clegg v Olle Andersen t/a Nordic Marine [2003] EWCA Civ 320, the arguments over fitness for purpose and rejection, often confined to disputes involving family saloons, were considered in the case of a £236,000 42' luxury yacht, where to cost of rectification of a delivery defect was less than a quarter of one percent of the purchase price.

Lady Justice Hale expressly rejected the proposition that the law of Sale of Goods required either party to behave reasonably. "In English law, the customer has a right to reject goods which are not of satisfactory quality. He does not have to act reasonably in choosing rejection rather than damages or cure. He can reject for whatever reason he chooses. The only question is whether he has lost that right by accepting the goods: s 11(4)."

The background

Mr Clegg was an experienced yachtsman living in Guernsey. in December 1999 he agreed to buy from Mr Olle Andersson for £236,000 a new Malo 42 yacht in accordance with standard specification and the yacht was delivered by the manufacturers, Malo, to Mr Andersson on 25th July 2000 and by him to the Cleggs on 12th August 2000.

Mr Andersson realised and informed the Cleggs at the time of delivery of the Yacht that the keel was substantially heavier than the manufacturer's standard specification prescribed. In March 2001 solicitors for the Cleggs wrote to Mr Andersson claimed that the Cleggs were entitled to reject the Yacht and thereby did so. Mr Andersson disagreed and proceedings were instituted by the Cleggs in May 2001 for a return of the purchase price and damages for breach of contract.

Andersson won at first instance before HH Judge Seymour QC sitting as a deputy judge of the Queen's Bench Division. He concluded that there had been no breach of condition under either s.13(1) or s.14(2) Sale of Goods Act 1979. In addition he held that if there had been such a breach the Cleggs had lost their right to reject the Yacht before 6th March 2001. The pecuniary claims failed because the Cleggs had, in the view of the judge, failed to mitigate their loss in respect of part of their claim.

The Appeal

The Cleggs obtained permission to appeal on five grounds:

  1. whether there was a breach of condition under ss.13(1A) and/or 14(2) Sale of Goods Act 1979 as amended;
  2. whether the Cleggs had lost any right to reject the Yacht for breach of condition by 6th March 2001;
  3. for those purposes, whether it matters that as at 6th March 2001 the Cleggs believed, if they did, because of information which Mr Andersson supplied, if he did, that the keel was about 1000 kgs overweight rather than 607 kgs;
  4. all questions of fact relevant to issues a), b) and c);
  5. quantum.

The Court of Appeal overturned the decision at first instance in its entirety. In doing so, they closely considered the requirements of the SGA 1979.

Once Anderssen recognised the problem with the excess keel weight, he offered to have the manufacturers rectify it pretty much immediately. Mr Clegg refused to allow them to do so (even though the manufacturers had flown over specifically to undertake the work) because he was taking advice from third parties as to what ought to be done and how.

There followed a series of correspondence in which matters appeared to be moving to a resolution, the manufacturers offering to undertake rectification work, of a fairly nominal value compared to the yacht cost, which they believed would mean that the yacht would in the end be superior to the 'standard model'.

However, in a move which the Court described as 'pretty much out of the blue' Mr Clegg wrote (via solicitors) rejecting the yacht and demanding a refund. This move was described by counsel for Anderssen as a tactic to extract compensation, followed as it was by a proposal to keep the yacht and recover substantial damages and Mr Clegg and his friends wearing t-shirts at the Southampton Boat Show denigrating Anderssen and the manufacturer.

The Experts

At trial, both sides called experts, and they prepared a joint report. They managed to agree the following issues.

  1. The yacht was delivered with a keel heavier than designed.
  2. The increased keel weight would have an adverse effect on speed, fuel efficiency, rig safety, freeboard, and safe capacity.
  3. The increased keel weight would have effects on handling, rig efficiency and sailing performance, but these would not necessarily be adverse.
  4. The increased rig loads were considered unacceptable by the rig designers.
  5. Malo Yachts (the manufacturer) offered to modify the keel in August 2000.
  6. If 1000kg of lead had been removed the error would not have been rectified satisfactorily.
  7. Clegg's claim that removal of lead from the keel would have adverse effects on the directional stability was not correct.
  8. Following an inclining experiment to measure the stability, Malo Yachts offered two alternatives for modification in February 2001. One option was to remove 800kg from the keel, would have produced the design stability characteristics with a keel shape closely matching that designed, and thus rectified the situation satisfactorily.
  9. Shaving the keel, if carried out efficiently by experienced technicians, would not be detrimental to the value of the yacht.

The experts did not agree on two issues.

  1. Clegg's expert considered that, because the increased rig loads were unacceptable to the rig designers, the yacht was not fit for the purpose as delivered. Anderssen's expert did not agree with that statement.
  2. The owners rejected the offer to modify the keel in August 2000, and requested technical advice. Clegg's expert considered that, in the absence of adequate details regarding the proposal by Malo Yachts, their decision was justified. Anderssen's expert did not agree with that statement.

The Issues

The Court of Appeal considered the following issues

Was there a breach of condition?

This turned on the implications of s.14 of the SGA , the material section:

"(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 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 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.

[(3)-(5)]

(6) As regards England and Wales and Northern Ireland, the terms implied by subsections (2) and (3) above are conditions."

At first instance, the judge's decided there had not been a breach of condition because, in part be accepted non-expert evidence that sailing the Yacht with the existing rig and an unmodified keel was not unsafe. This decision was appealed because it did not accord with the expert evidence and was therefore not open to the judge to so conclude upon the basis of non-expert witnesses, even from witnesses of fact who had considerable expertise.

The CA said that the judge had given insufficient weight both to the "obvious implications" to be derived from the factual evidence and the contrary evidence of both the experts. They went on to state that the issue was not whether the Yacht was safe to sail but whether the Yacht, as delivered, was of satisfactory quality. [emphasis mine]

The CA placed some weight upon the fact that the written and oral evidence at length established "beyond doubt" that the effect of the overweight keel on the safety of the rig was both adverse and unacceptable to the manufacturers of the rig. Thus the Yacht as delivered required some remedial treatment.

The cost of rectification

The CA decided that the yacht was not of satisfactory quality in part because the cost of remedial works any reliable indication of whether the defect which requires to be remedied prevented the Yacht as delivered from being of satisfactory quality.

This is perhaps a surprising conclusion when the remedial work was less than 0.75% of the cost of the yacht, or to put it is a more regular setting, it would be equivalent to a £15,000 car being rejected despite the fact the defect could be remedied at a cost of about £110.

Thereby they concluded a reasonable person (including someone who was willing to spend almost a quarter of a million pounds on a yacht) would consider that the Yacht as delivered was not of satisfactory quality because of the overweight keel, the adverse effect it had on rig safety and the need for more than minimal remedial work. Thereby the Cleggs established a breach of condition under s.14(2) Sale of Goods Act 1979. The CA was clearly more focused on the defect, not the cost of rectification.

Did the purchasers lose their right to reject the yacht before March 2001?

Whether the purchasers were entitled to reject after almost 7 months turned on the construction of s.35 Sale of Goods Act 1979 (as amended by the Sale and Supply of Goods Act 1994). The material provisions considered were:

"(1) The buyer is deemed to have accepted the goods subject to subsection (2) below -

 

(a) when he intimates to the seller that he has accepted them, or

 

(b) when the goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller.

 

(2) Where goods are delivered to the buyer, and he has not previously examined them, he is not deemed to have accepted them under subsection (1) above until he has had a reasonable opportunity of examining them for the purpose -

 

(a) of ascertaining whether they are in conformity with the contract, …

 

(3) Where the buyer deals as consumer...., the buyer cannot lose his right to rely on subsection (2) above by agreement, waiver or otherwise.

 

(4) The buyer is also deemed to have accepted the goods when after the lapse of a reasonable time he retains them without intimating to the seller that he has rejected them.

 

(5) The questions that are material in determining for the purposes of subsection (4) above whether a reasonable time has elapsed include whether the buyer has had a reasonable opportunity of examining the goods for the purpose mentioned in subsection (2) above.

 

(6) The buyer is not by virtue of this section deemed to have accepted the goods merely because -

 

(a) he asks for, or agrees to, their repair by or under an arrangement with the seller,…"

Loss of the right to reject

The terms of s.35, the CA decided, posed three questions in this case, namely:

  1. did the Cleggs intimate to Mr Andersson that they accepted the Yacht?
  2. did the Cleggs do any act in relation to the Yacht which was inconsistent with the ownership of Mr Andersson ? and
  3. had a reasonable time elapsed by 5th March 2001 in which the Cleggs retained the Yacht without intimating to Mr Andersson that they had rejected it?

The judge at first instance answered each of the first two questions in the affirmative. He indicated that had it arisen he would have answered the third question in the affirmative too.

However, the CA decided that until the purchaser had all the information was received by the purchaser was not in a position to decide whether to accept the Yacht or not.

Reminding themselves that pursuant to s.35(6)(a) a buyer is not deemed to have accepted goods if he asks for or agrees to their repair by the seller, the fact of the proposed repair was not relevant. The CA also considered that the purchasers had not acted in any way inconsistent with the ownership (of the yacht) of Mr Andersson.

The CA stated that the decision in Bernstein v Pamson Motors (Golders Green) Ltd [1987] 2 AER 220 "does not represent the law now".

Time for undertaking repairs - does it count?

Pursuant to s.35(1) provided that a buyer was deemed to have accepted goods, inter alia, "when after the lapse of a reasonable time he retains the goods without intimating to the seller that he has rejected them". S.59 provided that what is a reasonable time is a question of fact. Subsection (6)(a) shows that time taken merely in requesting or agreeing to repairs and for carrying them out, is not to be counted.

The reason(s) why the Cleggs rejected the Yacht when they did was irrelevant said the CA, if they had the right to do so.

Reasonableness

Lady Justice Hale reaffirmed that the SAG did not require either party has to behave reasonably and the court was not concerned as to whether they did. If it is established that the seller is in breach of a condition of the contract, however, the choice does not lie with him as to what to do to rectify the position.

The sellers in this case thought the yacht was acceptable because they could put it right. But Lady Justice Hale said:

"That is not the point. Seller and buyer often agree to try and put defects right but neither is obliged to do so. The fact that the remedy supplied by English law may be thought disproportionate by some is irrelevant to a consideration of whether the implied term has been broken."

She went on to say:

"The question, as the joint Report of the Law Commission and the Scottish Law Commission explained, is "not whether the reasonable person would find the goods acceptable; it is an objective comparison of the state of the goods with the standard which a reasonable person would find acceptable" (1987, Law Com No 160, Sale and Supply of Goods, para 3.25) The amendments made to section 14 by the Sale and Supply of Goods Act 1994 also make it clear that fitness for purpose and satisfactory quality are two quite different concepts. In some cases, such as a high priced quality product, the customer may be entitled to expect that it is free from even minor defects, in other words perfect or nearly so."

Particularly if you're buying a quarter-of-a-million pound yacht, apparently!