| Date | 23 June 1999 |
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| Judgment | British Fermentation Products Limited -v- Compair Reavell Limited, TCC 8 June 1999 |
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| The Issue | Exclusion of liability under the IMechE Form of Contract. |
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| Implication |
Model Form C provides a strict regime for the testing and rejection of plant and equipment not in conformity with the contract, and provides a clear limitation upon the seller's liability in accordance with those terms. |
printThe Institution of Mechanical Engineers Model Form of General Conditions of Contract Form C, 1975 Edition, is widely used in contracts for the supply and installation of mechanical and process plant and equipment. The form provides a clear code for the performance testing of the equipment and for the rights of the purchaser to reject and replace any equipment found to be faulty. Whether a purchaser would be entitled to claim damages for faulty equipment in circumstances where it had failed to make use of the contract remedies was examined in the case of British Fermentation Products Limited -v- Compair Reavell Limited. British Fermentation use varying amounts of air under pressure to aerate and mix fermenting wort to produce yeast. To economise on fuel it required air compressors to be adjustable within a specified range so that energy would not be wasted at times when the need for air was reduced. Accordingly, it entered into contract with Compair to supply and install a centrifugal air compressor for the sum of approximately £300,000. The compressor failed to perform to its contractually guaranteed level and British Fermentation commenced proceedings for damages. This included the allegedly excessive consumption of electricity both for the life of the compressor to date and for its future life of 25 years. This amounted to £1.1 million, added to which there was a substantial claim for loss of capacity, or down time. Conditions 4 and 5 of Model Form C deal with testing on delivery and rejection of faulty goods. Condition 4 provides that the vendor shall inspect and test the goods before delivery and give to the purchaser a certificate showing the results of the tests. This condition goes on to state that where the goods fail to pass any prescribed tests the vendor will be entitled to test the goods a second time, and if failure occurs on this occasion the purchaser shall be entitled to reject the goods by notice in writing. Condition 5 gives the purchaser a second right to reject goods within a reasonable time if they fail to comply with the terms of the contract. The condition provides that where the goods have been rejected, either under Condition 4 or 5, the purchaser is entitled to replace the goods and the vendor is obliged to pay the reasonable amounts incurred. British Fermentation did not exercise its rights under Condition 4 or 5. In evidence it stated that it had taken the view that the cost of replacement with related loss of production would make the proposal uneconomical. In other words, whilst Compair would be obliged to meet the cost of replacement of the faulty compressors, British Fermentation recognised that the contract required that any loss of production whilst plant and equipment was stood down would be to its account under these provisions of the contract. British Fermentation instead turned its attention to Condition 11 of the contract. This Condition provides that within 12 months after delivery the vendor shall be obliged to make good any defects appearing in the goods, whether by repair or replacement. Condition 11 (ii) goes on to provide an exclusion of the vendor's liability in terms that "the Vendor's liability under this Condition or under Condition 5 (rejection and replacement) shall be accepted by the Purchaser in lieu of any warranty or condition implied by law as to the quality or fitness for any particular purpose of the goods and save as provided in this condition the Vendor shall not be under any liability to the purchaser for any defects in the goods …". British Fermentation gave notice of the defect as required by this Condition 11, but in the event Compair was unable to correct the deficiency. His Honour Judge Bowsher Q.C. was asked to consider the effect of Condition 11. British Fermentation argued that it would fly in the face of business commonsense if Condition 11 were interpreted to mean that having failed to put the defects right upon notice under Condition 11, the sellers were under no liability whatsoever. Judge Bowsher rejected this contention. In his view the business commonsense and intention of the agreement as a whole was that Compair undertook to supply a machine of the specification warranted, and if it failed in that undertaking British Fermentation had an initial right to withdraw from the contract and reject the machine. This rejection was on terms that Compair would pay the cost of replacement machinery that was up to specification. Alternatively, if British Fermentation chose, there could be a period when the vendors tried to bring the machine up to specification. Those efforts might have been terminated by British Fermentation by rejecting on the same agreed terms. Crucially, if British Fermentation still did not reject the machinery when it failed to come up to specification, it could keep the machine but on terms that it could not complain thereafter of the failure to come up to specification. Thus British Fermentation had two opportunities to withdraw and buy a substitute machine of the standard warranted from another supplier at Compair's expense. However, they could not be allowed to stand on the deal and charge Compair enormous sums for their loss continuing for the life of the machine. In Judge Bowsher's view, Condition 11 of the contract clearly achieved that intention. Furthermore, the Condition was reasonable under the Unfair Contract Terms Act 1977 and was enforceable.
CJ-9925
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