J & H Ritchie Ltd v Lloyd Ltd
| Jurisdiction | England & Wales |
| Judge | LORD RODGER OF EARLSFERRY,LORD BROWN OF EATON-UNDER-HEYWOOD,LORD MANCE,LORD SCOTT OF FOSCOTE,LORD HOPE OF CRAIGHEAD |
| Judgment Date | 07 March 2007 |
| Neutral Citation | [2007] UKHL 9,[2005] CSIH 3 |
| Date | 07 March 2007 |
| Docket Number | No 16,No 5 |
| Court | House of Lords |
[2007] UKHL 9
HOUSE OF LORDS
Appellate Committee
Lord Hope of Craighead
Lord Scott of Foscote
Lord Rodger of Earlsferry
Lord Brown of Eaton-under-Heywood
Lord Mance
Appellants:
Charles Graham QC
Gillian Wade
(Instructed by McCartney Stewart, Renfrew)
Respondents:
Colin Tyre QC
Pino Di Emidio
(Instructed by Balfour & Manson, Edinburgh)
My Lords,
This is an appeal from an interlocutor of an Extra Division of the Court of Session (Lords Marnoch, Hamilton and Philip, Lord Marnoch dissenting) dated 11 January 2005 (2005 SLT 64), dismissing an appeal by the appellants, J & H Ritchie Limited, against an interlocutor of Sheriff Principal Iain Macphail QC dated 31 July 2003, by which he allowed an appeal by the respondents, Lloyd Limited, against an interlocutor of the sheriff (Sheriff Kevin Drummond QC) dated 7 January 2003. In that interlocutor the sheriff granted decree for the sum sued for by the appellants in their action for repayment of the price paid for an item of agricultural equipment which they had purchased from the respondents and had rejected on the ground that it was not in conformity with the contract. The appellants carry on a farming business at North Arkleston Farm, Paisley. The respondents carry on business as suppliers of agricultural machinery at various locations in Scotland, including Hunters Hall, Kelso.
The equipment, which was purchased from the respondents as a single item, incorporated a combination seed drill and a power harrow. It was part of a range of machinery manufactured by Amazone, whose administration centre is in Cornwall and sales, service and parts centre in Yorkshire. Although the seed drill and harrow were capable of being operated separately, the equipment had been advertised for sale in The Scottish Farmer as a single piece of equipment at a reduced price because it had been repossessed from a previous purchaser. Mr James Ritchie, a director of the appellants, responded to the advertisement by telephone on 12 February 1999. The respondents agreed to make various modifications to it to suit the appellants' requirements. A price of £12,100 plus VAT was agreed for the equipment as modified. The respondents agreed to sell it to the appellants for that price, which amounted in total to £14,217.50. On 4 March 1999 the appellants issued a cheque for that sum in the respondents' favour, and they took delivery of the equipment on the same day.
The appellants began seeding on their farm on 26 April 1999. They used the equipment for the first time that day. On 27 April 1999 it was noticed that vibration was coming from part of the harrow's drive chain. There was no obvious defect on visual inspection, so the appellants did not stop using it immediately. But when the vibration was still present on 28 April 1999 Mr Ritchie decided that there was a serious problem, and he stopped using the equipment. He telephoned the respondents and spoke to a workshop supervisor, who arranged for a replacement unit to be delivered to the appellants the next day. On 29 April 1999 the harrow was removed from the equipment and replaced with a second-hand harrow to enable the appellants to complete their sowing operations for the season. After discussion between Mr Ritchie and the respondents' fitter, Mr Thomas Fairley, the harrow was taken back to the respondents' premises for inspection.
The harrow was stripped down and examined by the respondent's fitter in their Kelso premises. He found that the problem was due to the fact that two bottom bearings which ought to have been fitted to two of the rotors on the harrow were missing. This was a major defect. It made the equipment as a whole unfit for the purpose of tilling and sowing and not of satisfactory quality. The fitter ordered the missing parts from the manufacturer. When they arrived he inserted them into the harrow and it was reassembled. Some weeks after its removal to their premises the respondents telephoned the appellants and told them that the harrow had been repaired and was ready for collection.
There then followed a series of conversations between Mr Ritchie and various employees of the respondents which gave rise to this litigation. They are important because no agreement was entered into prior to the removal of the harrow to Kelso as to what the consequences were to be once the defect had been identified. Mr Ritchie did not know what the problem was. It was not yet clear that the appellants were entitled to reject the equipment on the ground that the respondents were in material breach of the contract: see section 15B(1)(b) of the Sale of Goods Act 1979, which was inserted into the 1979 Act by the Sale and Supply of Goods Act 1994, section 5(1). So Mr Ritchie agreed to the respondents' proposal that the harrow be taken back by them with a view to investigation and, if possible, repair. This was how Lord Hamilton described the arrangement which was entered into: 2005 SLT 64, 73A-B, para 48. The question whether the appellants would exercise their right of rejection if the inspection revealed that there was a material defect was left open until after the inspection had been carried out.
Mr Ritchie's reaction on being told that the harrow was ready for collection was to ask the respondents' workshop supervisor, Mr Raymond Elliot, what the problem had been with it. Mr Elliot refused to tell Mr Ritchie. Having received no answer from Mr Elliot to his inquiry, Mr Ritchie had several telephone conversations with other employees of the respondents. Despite Mr Ritchie's requests, none of them would reveal what the nature of the problem was or what had been done to the harrow to repair it. All he was told was that it had been repaired to what was described as "factory gate specification". Mr Ritchie then asked for an engineer's report on the harrow. This too was refused. He was told informally by persons involved in repairing the harrow that there had been bearings missing from it and that they had been omitted on manufacture. But he was not satisfied by this information. He was concerned for any consequences that the missing bearings could have had on the other parts of the harrow. The harrow had, of course, been used by the appellants on 26, 27 and 28 April 1999 with the bearings missing. Mr Ritchie was concerned that this might have damaged the machine in other ways. He was concerned too that, if he were to take the harrow back, it would not be used again until the following spring. Many months would go by until he would have the opportunity of discovering for himself whether the problem had been rectified. He was also concerned as to the effect which this delay might have on the manufacturer's guarantee period.
In the light of these concerns Mr Ritchie decided to reject the equipment. He did so in a telephone conversation with the respondents, in which he told them that he was doing so because they had refused to provide him with the information that he was seeking. He then consulted the appellants' solicitors. By letter dated 26 May 1999 they confirmed that the appellants had rejected the equipment on the ground that the respondents were in breach of contract and asked them to return the price which the appellants had paid for it. The respondents refused to do so. They maintained that the effect of the repair to the harrow was to make it as good as it would have been if it had left the factory as a new, correctly assembled harrow. So it was the duty of the appellants to accept the equipment: see section 27 of the Sale of Goods Act 1979.
The proceedings below
The sheriff held that the appellants were entitled to reject the equipment. He accepted Mr Ritchie's evidence about his attempts to discover what was wrong with the harrow and what had been done to repair it. In his opinion Mr Ritchie was entitled to be concerned about any consequential damage that might have followed from the material defect. He held that these were legitimate concerns which, having regard to the course which events took, entitled the appellants to reject the equipment. He did not include in his findings of fact a finding to the effect that the effect of the repair to the harrow was to make it as good as it would have been if had been correctly assembled when it left the factory. On the view which he took of the case, a finding to that effect would not have deprived the appellants of the right to reject the equipment. They were entitled to reject the equipment because there was a material defect in the harrow when it was delivered to them. It did not prevent the machinery from working, but it had the potential to limit the life of the equipment. The appellants did not lose their right to reject the equipment by the use they made of it, as this was necessary to disclose the existence of the defect. They retained that right because the respondents' insistence that the harrow had been put back to factory gate standard had failed to answer the appellants' concerns about consequential damage and the risk that the manufacturer's guarantee would expire in the meantime, which were legitimate.
The Sheriff Principal was of the opinion that a number of changes needed to be made to the sheriff's findings of fact. He decided to produce a new set of findings, incorporating these changes, which could be read as a single document. Among the new findings that he made was the following:
"19. The effect of that repair was to make the harrow conform to 'factory gate standard', that is, to make it as good as it would have been if it had left the factory as a new, correctly assembled harrow."
He accepted that the defect in the harrow was a material defect which rendered the equipment unfit for the purpose of tilling...
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