Bence Graphics International Ltd v Fasson UK Ltd

Under Sale of Goods Act 1979, section 53(3) supplies only a prima facie market-value measure for breach of a warranty of quality. Damages must instead reflect the buyer’s true loss where the parties’ actual or imputed knowledge shows that a different loss was within their contemplation.

Where commercial parties contemplate that goods will be processed and supplied onwards, the relevant loss may be the buyer’s liability to customers and consequential loss, rather than the difference between the value of sound and defective goods. A buyer cannot elect the market-value measure merely because it produces a larger recovery. Difficulty in assessing the contemplated loss does not justify an award exceeding the loss actually suffered.

The defendant supplied vinyl film to the claimant for conversion into decals used on shipping containers. The film was warranted to remain legible for five years, but a latent defect caused premature degradation. The defendant admitted breach of warranty and the inapplicability of its exclusion terms.

Morland J awarded the claimant £564,328.54, being the difference between the value of the defective and warranted goods under section 53(3) of the Sale of Goods Act 1979. The claimant had, however, met only one customer claim and retained unused defective material worth about £22,000.

The defendant appealed from the Queen’s Bench Division. The central issue was whether damages were the statutory prima facie difference in value or the claimant’s actual loss arising from its onward supply of processed decals.

1. Appeal allowed by a majority. Otton LJ gave the leading judgment and Auld LJ agreed with the result and general reasoning. Thorpe LJ dissented. The award based on the full price of the film could not stand.

2. Section 53(2) of the Sale of Goods Act 1979 embodies the contractual remoteness principle in Hadley v Baxendale. Section 53(3) provides a prima facie difference-in-value measure, but it is not an automatic entitlement. Otton LJ held that a seller may establish that the prima facie measure is displaced. Auld LJ added that the proper starting point is the estimation of the true loss contemplated by the parties under section 53(2), so that section 53(3) may never be engaged on the evidence.

3. The parties knew that the film would be processed into decals, supplied through a commercial chain, and required to remain durable for five years. They must therefore have contemplated that a latent defect would expose the claimant to customer claims that it would seek to pass back to the supplier. That was the relevant category of loss. The market-value measure would compensate the claimant for a loss it had not suffered and was not preserved merely because assessment of third-party claims might be difficult.

4. Otton LJ distinguished Slater v Hoyle and Smith Ltd because the goods here were processed and the supplier knew their intended use. Auld LJ considered that Slater required reconsideration because it gave excessive weight to the market measure rather than actual loss. He further held that differences in contracts down a commercial chain are material only where they break causation or place the claimed loss outside the parties’ contemplation.

5. The court substituted judgment for £22,000, with appropriate interest, for the unused material, and remitted the matter for assessment of further damages. Thorpe LJ would have dismissed the appeal because he regarded the trial judge’s finding on the parties’ contemplation as unassailable.

• Court of Appeal (Civil Division): allowed the defendant’s appeal by a majority, set aside the award based on the section 53(3) measure, substituted judgment for £22,000, and remitted the assessment of further damages.
• Queen’s Bench Division: Morland J entered judgment for the claimant for £564,328.54 with interest, applying section 53(3) of the Sale of Goods Act 1979.