| Date | 6 February 2008 |
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| Judgment | J & H Ritchie Ltd -v- Lloyd Ltd. HL 7 March 2007 |
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| The Issue | After goods have been repaired is the buyer bound to accept them? |
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| Implication |
A repairing seller is under a duty to disclose to the buyer the nature of the repair. In the absence of that disclosure, the buyer may not be obliged to accept the repaired goods. |
printIn the construction industry, goods are continually being purchased ranging from tap washers to massive earth moving machinery and tower cranes. But what is the situation if the goods are defective when supplied and the buyer agrees to a repair? The transaction may well be regulated by the parties’ terms and conditions but in any event such a transaction will be covered by the Sale of Goods Act 1979. The Act provides that the buyer does not accept the goods simply because he asks for or agrees to their repair. However, the Act fails to provide guidance concerning the continuing availability of a right to reject if the buyer agrees to a repair. Moreover, the Act does not provide when, during the course of the repair, the right to reject will be available. In the case of Ritchie Ltd-v-Lloyd Ltd, heard by the House of Lords on appeal from the Scottish courts, Ritchie, the buyers, purchased agricultural equipment from Lloyd. The equipment was a combination of a seed drill and harrow. On its first day of use, it was noticed that vibration was coming from part of the harrow’s drive chain. However, there was no obvious defect on visual inspection. Ritchie continued to use the machinery for another two days until he realized there was a serious problem and stopped using the equipment. Ritchie contacted the seller, who removed the harrow to its premises, where it was discovered that the problem was due to missing bearings, the absence of which, according to the House of Lords, was a major defect. Lloyd inserted the missing bearings into the harrow and informed Ritchie that the harrow had been repaired and was ready for collection. Ritchie, entirely reasonably, asked Lloyd’s workshop supervisor what the problem had been with the harrow. The supervisor refused to tell Ritchie, merely saying that the harrow had been repaired to what was described as “factory gate specification”. Ritchie then asked for an engineer’s report on the harrow but this too was refused. However, Ritchie was told informally by persons involved with the repair that there had been bearings missing from the harrow, omitted on manufacture. Being concerned about the consequences that the missing bearings could have had on the other parts of the harrow and the possible effects of these events on the guarantee period, Ritchie rejected the equipment on the basis that Lloyd had refused to provide the information that he was seeking. Ritchie asked for a refund of the price paid for the harrow but Lloyd refused to do so, maintaining that the effect of the repair was to make the harrow as good as it would have been had it left the factory new and correctly assembled. On this basis Lloyd contended Ritchie was under a duty to accept the equipment. The Scottish Inner House held that Ritchie could have rejected the equipment at the time of the first delivery as not conforming to the contract. The effect of the repair was to remedy the breach, thereby removing Ritchie’s right to reject the goods and rescind the contract. In allowing Ritchie’s appeal, the House of Lords proceeded on an entirely different basis. Lord Hope’s view was that whilst the Act identified that a buyer should not be assumed to accept goods by agreeing to a repair, it was silent as to what should happen after the parties agree to investigate a possible repair. He considered that the situation was to be regulated by an implied term that Lloyd was under a duty to provide Ritchie with the information it sought. As Lloyd refused to provide that information, it was in beach of that obligation. Ritchie was deprived of the information it obviously needed to make a properly informed choice between accepting and rejecting the equipment and was thus entitled to reject the equipment even although Lloyd was able to prove afterwards that the harrow had indeed been repaired to factory gate standard. Lord Rodger approached the matter differently, although with a similar outcome. When Lloyd took the harrow away for repair that could only have been in terms of a separate agreement between the parties for Lloyd to inspect and, if possible, repair the harrow to the standard required by the sale contract. This constituted a separate inspection and repair agreement. That agreement contained the implied term that whilst Lloyd performed the repairs that Ritchie would not rescind the agreement. The crux of the matter was whether the agreement further contained an obligation upon Lloyd to inform Ritchie of the problem with the harrow. In the event, Lord Rodger found that it did. Lord Brown considered that Lloyd behaved “thoroughly unreasonably” by not disclosing the nature of the fault. Although unanimously implying a duty to disclose, their Lordships failed to state when that duty arose. Although Lord Roger found the implied term that Ritchie could not rescind whilst the goods were being repaired, he said nothing about any duty to disclose whilst Lloyd undertook those repairs. Lord Mance suggested it might operate after inspection but prior to the actual repair or alternatively when presented to the buyer after repair. Overall from the judgments it appears that the duty arose when the goods were offered as having been repaired. There remains the unanswered question that if Lloyd had in fact disclosed the nature of the repair could Ritchie have rejected the goods, particularly as they had been repaired to a factory gate specification? On balance it would appear not but such question will no doubt fall to be decided at some time in the future.
CJ-0805
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