VAI Industries (UK) Ltd. v Bostock & Bramley & Ors.

In a commercial supply contract, whether a warranty creates continuing daily breaches depends on construction. The majority held that a warranty concerning the condition of goods ordinarily creates a single obligation breached at delivery, unless clearer words establish a continuing obligation. A stated warranty period may govern the period during which a delivery defect can manifest itself or be relied upon. A separate latent-defect guarantee may survive alongside the warranty and support an implied term that replacement goods meet the original contractual standards. Claims concerning replacement goods or a later replacement agreement accrue on the later supply or agreement. Ward LJ dissented on the construction of the original warranty.

The claimant’s predecessor contracted for the supply of engineering equipment for installation in an Indian aluminium mill. The equipment was delivered FOB on 28 July 1995. A two-year warranty covered freedom from defects in design, materials and workmanship and conformity with specifications. Standard terms also required latent defects appearing within three years of acceptance to be made good.

After a gearbox failed in August 1998, replacement parts supplied in 1999 also failed. The claimant pleaded breaches of the original warranty, the latent-defect guarantee, an implied term concerning replacement parts, and a November 1998 agreement concerning replacement equipment. The Queen’s Bench Division struck out the claim as statute-barred. The central issues were when the causes of action accrued and whether the pleaded claims had a realistic prospect of success.

Appeal allowed in part. Carnwath LJ and Newman J formed the majority on the original warranty claim and held that it was statute-barred. Ward LJ dissented and would have allowed that claim. All three judges agreed that the claims concerning the guarantee, replacement parts and the later replacement agreement should proceed.

1. Original warranty. The majority construed the warranty as addressing the condition of the equipment at delivery. The warranty period governed the time in which a defect could manifest itself or be relied upon, but did not create fresh daily breaches. Clearer words would have been needed to impose a continuing obligation, particularly in a purchaser’s form of contract. The original-supply claim therefore remained barred under the Limitation Act 1980.
2. Guarantee and replacement parts. Clause 8 of the standard conditions was not displaced by the purchase-order warranty. It provided a distinct remedy for latent defects appearing within three years from acceptance. The meaning of acceptance, including whether provisional acceptance was sufficient, required evidence and could not be resolved on the papers. It was an obvious and necessary implied term that replacement parts would meet the contractual standards applicable to the original equipment. The cause of action arose when the replacement parts were delivered or fitted.
3. Later replacement agreement. The pleaded November 1998 agreement, if proved, was not shown to be statute-barred. Forbearance from suing could provide consideration, and the alleged agreement was sufficiently arguable to resist strike-out or summary judgment.

The formal order was that the appeal was allowed in part, with counsel to lodge an agreed minute of order.

• Court of Appeal (Civil Division) [2003] EWCA Civ 1069 — The appeal was allowed in part. The majority upheld the limitation conclusion on the original-supply warranty claim but restored the claims concerning replacement parts and the later replacement agreement.
• Queen’s Bench Division — Curtis J struck out the particulars of claim on the basis that the limitation arguments were doomed to failure.