In relation to contracts for the provision of goods, terms will be implied by sections 14(3) and (4) of the Sale of Goods Act 1979 to the effect that the goods will be of satisfactory quality and fit for their purpose. Such terms amount to conditions, entitling a buyer of goods to reject the goods if they do not comply with those conditions, but if a buyer has accepted the goods it is compelled by section 11(4) to treat any breach of condition as breach of warranty and cannot treat it as grounds for rejection. Section 35 (4), states a buyer is deemed to have accepted goods after the lapse of a reasonable time. Sellers can also exclude or limit their liability for defects in the goods provided to a buyer.

Such issues arose in the case of Whitecap Leisure Ltd -v- John H Rundle Limited. In November 2001, Whitecap entered into a contract with Rundle for the purchase of a cable tow system to enable it to provide water skiing at its lake without the need for powered boats to tow the skiers. The price was £157,000, payable in instalments before and after the delivery and installation of the equipment. Rundle started delivering and assembling some the equipment towards the end of 2001 and continued doing so into 2002. A certificate of completion was issued on 14 May 2002 and by mid-May 2002 the equipment was in commercial use. Whitecap experienced a succession of problems with the equipment which continued on and off throughout that year and the following two seasons. Whitecap withheld payment of outstanding instalments of the purchase price. Rundle threatened to sue for the balance. A compromise agreement was reached requiring Rundle to use its best endeavours to improve performance but for a reduced payment.

Whitecap continued to operate the equipment, but there was another major breakdown during August 2004. On 12 November 2004, Whitecap rejected the equipment on the grounds that it was not fit for its purpose or of satisfactory quality. Rundle refused to accept Whitecap’s position, but Whitecap dismantled the equipment and, in the end, Rundle removed most of it but was refused access to remove the last of the equipment. Whitecap purchased an alternative system, but continued to make use of some of Rundle’s equipment. Whitecap claimed damages for Rundle’s failure to deliver goods in accordance with the contract, claiming for: (i) the amount paid to Rundle for the goods; (ii) loss of profit for the periods when equipment was out of action; (iii) the costs of carrying out the repairs. Rundle claimed for the balance of payments owed to it.

The Judge decided that that Whitecap had taken too long to object and had lost the right to reject Rundle’s equipment, as Whitecap was deemed to have accepted it in accordance with section 35, owing to the lapse of a reasonable time and by doing various acts (repairing and replacing defective equipment) that were inconsistent with Rundle’s ownership. The Court of Appeal agreed with this part of the Judge’s conclusion. However, the Court of Appeal noted that Rundle had a choice: it could either dispute Whitecap’s right to reject the equipment and claim the outstanding balance of the price, or it could acquiesce in it, recover the equipment and claim damages for non acceptance. Rundle took the latter option, resulting in Whitecap effectively rejecting the equipment. The result was that the goods vested unconditionally in Rundle and Whitecap ceased to be liable for the price, entitling it to recover the payments it had made to Rundle.

Whitecaps’s other claims, in respect of losses caused by the defective equipment, were rejected owing to a limitation clause included within Rundle’s contract terms. That clause relieved Rundle of liability for any defects other than those which appeared during the first year after delivery and were notified in writing within a period of 14 days thereafter as still requiring rectification. Whitecap issued no notices within that 14 day period and therefore its claims failed.

In summary, a buyer should reject defective goods at the earliest opportunity otherwise that option will be lost, unless the seller acquiesces and accepts a late rejection.

- Gary Peters