'Fitness for purpose' and 'satisfactory quality' are deceptively problematic concepts which are frequently encountered in the construction industry. In this analysis we look at Court of Appeal decisions in BSS Group Plc v Makers (UK) Ltd and Lowe v W Machell Joinery Ltd which provide useful guidance in this area.
Both decisions serve as a timely reminder of how implied terms under the Sale of Goods Act impact on construction contracts. Lowe also demonstrates yet again, the danger of not having a written contract, which ultimately resulted in a 'mismatch of assumptions'.
BSS Group Plc v Makers (UK) Ltd
At first instance, the High Court found that BSS had breached the implied term as to fitness for purpose imposed by section 14(3) of the Sale of Goods Act 1979. BSS had supplied Makers with particular types of adaptors and valves for use in a plumbing project as part of a public house renovation.
The problem was that the threads of the adaptor and valve were incompatible so that the connection of the two components became insecure under pressure. Within hours the valve blew off resulting in a damaging flood. BSS appealed.
Sale of Goods Act
Sections 14(2) and (3) of the Sale of Goods Act 1979, as amended, provide as follows:
"(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) ...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... and all the other relevant circumstances.
(3) Where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known -
(a) to the seller; or...
any particular purpose for which the goods are being bought, there is an implied term that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the skill or judgment of the seller..."
These sections are categorised as 'conditions', breach of which entitles the innocent party to reject the goods and claim the purchase price. Reliance by the purchaser is an essential component of the fitness for purpose obligation.
Makers entered into a labour only sub-contract with Messrs Daniel and B&S Mechanical Services Ltd for the replacement of existing copper piping with a new plastic piping system called 'Uponor'. BSS supplied Makers with materials including Uponor piping, Uponor compression adaptors and 22mm isolating valves.
The valves supplied in July 2007 caused no problem. However, the problem arose a month later on 24 August when Makers' sub-contractors used a different type of valve supplied by BSS on 12 August (22mm Boss miniball valves).
Makers' sub-contractors were required to turn off the water supply in order to allow them to work on the bathroom in the property. They replaced certain pipework and at the end of the working day, sealed off three pipes upon which they had been working. One of the pipes was sealed by fitting to it an Uponor compression adaptor that Makers had bought from BSS and then sealing the pipe off by screwing in to the adaptor one of the 22mm Boss miniball valves that Makers had ordered.
Makers' sub-contractors turned the water back on, waited for half an hour to check for leaks and then left the property. The water pressure increased during the evening. On 24 August the valve blew off the end of the pipe, resulting in a substantial flood and damage to the ground floor of the property.
Makers argued that it had made known to BSS that it would be using a certain type of valve in conjunction with a certain type of adaptor, and that the valves were not fit for their intended purpose since they were incompatible with the adaptor.
The judge found that Makers had specified, expressly, a particular purpose to BSS, namely that the valves were being bought for use with 'Uponor' pipes. The judge based his finding on the key contractual documents. Interestingly, the judge found that if he was wrong that the purpose was expressly made known, he found, for the same reasons, that it was made known by implication. The judge also found it was clear that Makers was relying on BSS's skill and judgement as to the compatibility of the valve and the adaptor.
BSS's appeal was based on the following:
- The judge had not directed himself correctly as to the test for determining whether or not Makers had made known the purpose for which it would be using the valves.
- The documents upon which the judge relied did not justify the conclusion that they either expressly or impliedly communicated a sufficiently particular purpose to BSS. Among other things, BSS did not have sufficient information to know that the project at the property was an exclusively Uponor plastic one.
- Idiosyncrasy - there was no breach of section 14(3) where the failure of goods to meet the intended purpose arises from an abnormal feature or idiosyncrasy, which was the case here. The incompatibility between the Boss miniball valve and the Uponor adaptor only emerged because Makers' sub-contractors used the two components together.
- Reliance - the first instance judge should have found that Makers did not rely on BSS's skill and judgment. Makers apparently regarded its sub-contractors as responsible for testing the components and was relying on its skill and judgment, not BSS's.
Makers acknowledged that the documents did not expressly state that the Boss valve was to be used with the Uponor adaptor, but this was an obvious inference from the fact that both parts were ordered together. The first instance judge had found that the documents conveyed 'the purpose for which the valves were bought was for use with Uponor pipes' and Makers submitted that BSS should have foreseen this.
Makers also argued that, notwithstanding that it had asserted that its sub-contractors owed it, and had breached, a duty to test the valve for compatibility with the adaptor, Makers was relying on BSS to provide appropriate components for the project.
Rimer LJ, who delivered the leading judgment in the Court of Appeal, fell short of endorsing the judge's findings that Makers had made known its purpose expressly. He found that Makers had done so impliedly. He found that the valves were not fit for purpose because their thread was incompatible with that of the Uponor adaptors with which they were likely to be used for the purpose of sealing off the plastic Uponor pipe. He commented that:
"BSS's supply of its own valves appears to me to have been fairly remarkable bearing in mind that it had no basis for any assumption that Makers was going to be using any copper pipe in the project...The valves that it supplied were not reasonably fit for the requisite purpose because they were incompatible with the Uponor adaptors and would be likely to (and on 24 August 2007 did) fail when used in conjunction with them."
He also noted that:
"BSS was a specialist dealer, which supplied the Uponor system and made and sold its own brand of 22mm valves, being valves that it recommended for purchase by Makers for use in its Uponor system. It appears to me to be obvious that Makers was relying upon BSS to quote for and sell it a valve that was compatible with that system."
He rejected (as did the first instance judge) the argument that because Makers had arranged for Makers' sub-contractors to have some training in the fitting of the Uponor system, Makers was not relying on BSS to provide a compatible valve, but on its sub-contractors.
Lowe & Anor v W Machell Joinery Ltd
Mrs and Mrs Lowe wanted an impressive bespoke oak staircase in their barn conversion. They ordered the staircase from the defendant, Machell, and paid £16,000. The Lowes took delivery but rejected the staircase (by letter) on the basis that the staircase was not what they had ordered.
They were supplied with a different staircase from another source. There was no written contract between the Lowes and Machell. The Lowes commenced legal proceedings in the Technology and Construction Court in Leeds for the recovery of the price of the original staircase with damages to be assessed.
Machell was to deliver the components for the staircase. The design of the staircase was undertaken by an employee of Machell. The spaces between the spindles were sufficient to allow a 100mm sphere to pass through two adjacent spindles. This was in breach of the Building Regulations.
The Lowes alleged that Machell was in breach of the implied terms of satisfactory quality (which was accepted by Machell) and fitness for purpose under section 14 of the Sale of Goods Act. They also argued that Machell was in breach of a further implied term that the staircase would comply with the Building Regulations.
In relation to fitness for purpose, Machell denied this on the basis that no particular purpose was alleged. As regards breach of the Building Regulations, Machell argued that further spindles could have been added in order to comply.
The first instance decision
The first instance judge found that only the implied term regarding the Building Regulations had been breached, which did not justify rejection of the staircase (in contrast to any breach of section 14 implied terms (satisfactory quality and fitness for purpose)) and the Lowes were bound to accept modifications to the staircase.
The judge held that the Lowes' original reasons for rejecting the goods (the staircase was delivered in parts and not assembled) were unjustified, but that Machell was in breach of contract because the Building Regulations would not have been complied with if the staircase had been installed. However, this was not sufficient to justify rejection of the goods because the design could easily have been modified. Consequently, the Lowes were not entitled to any relief and costs were awarded against them.
The Lowes appealed. They argued that the judge was wrong - having found that Machell was in breach of contract (due to non-compliance with the Building Regulations) - to go on to find that the Lowes were not entitled to reject the staircase and that they would have been bound to accept modifications to the staircase.
Machell sought to uphold the judgment on other grounds, including by asserting an implicit finding by the judge that the goods were of satisfactory quality and the judge was wrong to find that there would have been a breach of the Building Regulations. Equally the same conclusion could be supported on the basis, among other things, that it was the Lowes' responsibility to ensure compliance with the Building Regulations.
Lloyd LJ who gave the leading judgment, found that the first instance judge was right to decide that installation of the staircase as supplied would result in a failure to comply with the Building Regulations. The key issue was whether the judge's finding of breach of contract was consistent with his conclusion that the Lowes were not entitled to reject the staircase.
Lloyd LJ found that both the implied terms relating to satisfactory quality and fitness for purpose (a staircase to be fit for the purpose of being installed in a building to be used as a residence) applied to the contract. The first instance judge had commented that the defendant should, at the very least, have warned the Lowes of the need to ensure that the building control officer would accept the particular design. Lloyd LJ ruled that this clearly supported the proposition that the Lowes did rely, and were reasonable in relying, on Machell in this respect.
The Building Regulations
Interestingly, the appeal judge found that "fitness of the goods for their purpose must surely include the compliance of the goods, when installed and used, with the Building Regulations." He found that there was no separate implied term relating to the requirement to build the staircase in accordance with Building Regulations (in contrast to the first instance judge).
The appeal judge encapsulated the Lowes' dilemma as follows:
"...the Claimants had got exactly what they wanted and had contracted for, but they could not lawfully use it for the purpose for which, to the knowledge of the Defendant, they had ordered it."
In response to this dilemma, he further commented that:
"However, on the basis that the goods, supplied in exact conformity with the contract, could not lawfully be used for their intended purpose, known to the seller, it does not seem to me that they were reasonably fit for purpose, nor that a reasonable buyer would find them satisfactory."
In brief, the appeal was allowed on the basis that the first instance judge was right to conclude that Machell was in breach of contract because the staircase would not comply with the Building Regulations. However, the first instance judge was wrong to hold that this did not entitle the Lowes to reject the goods and be repaid the purchase price.
The position now is that in a case in which the buyer has made known his purpose, there is, on the face of it, an implied condition of fitness. The supplier can only defeat this by proof that the buyer did not rely, or that it was unreasonable for him to rely, on the skill or judgment of the supplier.
The key message for contractors in relation to BSS is that they should make clear to their suppliers:
- the particular purpose for which the goods are being purchased, and
- the fact that they are relying on the supplier's skill and judgment.
This information should be recorded, if possible, in writing and acknowledged by the supplier. Contractors should, however, be aware that if such reliance is unreasonable in the circumstances, they will not be protected. In the case of design and build contractors, fitness for purpose will be implied into the contract unless it is expressly excluded.
Both cases serve as a warning that sellers and suppliers need to consider whether the goods they are providing meet the fitness for purpose requirements. This includes any purpose which has been communicated to them, expressly or impliedly; alternatively any common purpose for those goods. Such a purpose may include ascertaining that the goods can be used lawfully (notwithstanding that the purchaser may have ultimate responsibility to ensure compliance).
It is also advisable to warn the client as soon as possible if there are any issues in relation to lawful use or compatibility generally. Needless to say, the Lowe case was disproportionate (in terms of court time and legal costs) to the value of the staircase, and is a stark reminder of how intransigence doesn't pay.
Also of interest was the fact that Machell did not argue that the Lowes were a business user and not a consumer. This is relevant because in the case of business users, if the breach is slight then it would be unreasonable to reject the goods (as was the case here) and they are not entitled to reject the goods.
The concluding comment mirrors the first - apparently straightforward implied terms in sale of goods cases can be complex and problematic.