Balmoral Group Ltd v Borealis [UK] Ltd. & Ors

For the purposes of the implied term of fitness for purpose, a specialist manufacturer may reasonably rely on a raw-material supplier’s expertise as to the material’s intrinsic properties, but not ordinarily as to the customer’s product design or manufacturing process. A new polymer is not unfit merely because it has different rheological characteristics from an earlier material. The buyer must assess the material in its own moulds, with its own pigments and processing parameters, and make reasonable adjustments where necessary.

Exclusion clauses covering latent defects and statutory fitness obligations may fail the requirement of reasonableness under the Unfair Contract Terms Act 1977, particularly where the supplier knows the intended use, has substantial resources and insurance, and imposes its terms on a take-it-or-leave-it basis.

Balmoral manufactured oil-storage tanks by rotational moulding. It claimed that polyethylene supplied by Borealis, known as borecene, was unsuitable for making green oil tanks and that tanks manufactured from it failed through environmental stress cracking.

The claim was advanced in contract, misrepresentation and negligence. The central issues were whether borecene was reasonably fit for the disclosed purpose, whether Borealis’s standard terms governed the sales, and whether exclusions and limitations of liability were reasonable under the Unfair Contract Terms Act 1977.

The court also considered the identity of the contracting Borealis entities after changes to invoicing arrangements and whether later contracts were international supply contracts.

1. Fitness for purpose. The claim failed on the principal liability issue. The applicable conditions were that the sale was in the course of business; the buyer made the particular purpose known; the buyer relied wholly or partly, and reasonably, on the seller’s skill and judgment; the defect lay within the seller’s sphere of expertise; and the unfitness caused the loss. The burden of showing absence or unreasonableness of reliance lay on the seller.
2. Borealis knew that Balmoral intended to use borecene to manufacture green oil tanks. Balmoral could reasonably rely on Borealis as to borecene’s intrinsic chemical and mechanical properties. It could not reasonably rely on Borealis for tank design or the detailed rotomoulding process, which lay within Balmoral’s expertise.
3. Balmoral failed to establish that borecene had defective environmental stress-cracking resistance or rheological properties making it incapable of producing satisfactory tanks. The evidence instead showed that failures were concentrated in particular designs and stress hot-spots, and that Balmoral had failed adequately to re-optimise processing parameters and monitor wall thickness after changing material.
4. A competent rotomoulder should recognise that a new material may require changed processing conditions. Appropriate testing should include destructive measurement at corners and protrusions, where ultrasound may be unreliable, together with continuing quality-control checks.
5. Borealis’s terms were incorporated. The earlier Borealis UK terms excluded the statutory terms as to quality and fitness and limited liability. The later General Terms excluded fitness for purpose unless approved in writing and limited liability to replacement or repayment.
6. The exclusions in the Borealis UK terms were unreasonable under the Unfair Contract Terms Act 1977. The allocation of the whole risk of a latent defect to Balmoral was inappropriate, particularly given Borealis’s knowledge of the purpose, resources, insurance and stronger position on contractual terms. The later contracts with Borealis Norway and Borealis Denmark were international supply contracts, so the Act did not apply; had it applied, the relevant limitations would also have failed the reasonableness test.
7. Since borecene was held fit for purpose, no liability or damages arose. The court nevertheless gave provisional observations on quantum in case the matter proceeded further.