Whitecap Leisure Ltd v John H Rundle Ltd & Anor

A buyer who has accepted defective goods cannot later reject them for breach of condition, but may claim damages for breach of warranty. A contractual time-limitation or exclusion clause is construed strictly against the party relying on it. Where its wording creates substantial uncertainty about when the limitation period begins or what notice is required, the clause cannot be relied upon. Goods supplied for a known commercial purpose must be of satisfactory quality and reasonably fit for that purpose. The buyer bears the burden of proving breach, but need not establish the precise mechanics of every failure where the evidence shows that the goods did not meet the known operational requirements.

Whitecap operated leisure facilities at Willen Lake and contracted with John H Rundle Ltd to supply and install a mechanised cable-tow water-ski system. The system suffered persistent operational, safety and durability problems. Whitecap alleged breach of the implied terms as to satisfactory quality and fitness for purpose, negligence, and loss of profits. Rundles alleged excessive use and inadequate maintenance, relied on contractual defects and limitation clauses, and counterclaimed for unpaid sums and conversion.

The court considered whether the system breached the implied terms, whether Whitecap was entitled to reject it after continued use and a supplementary agreement, the effect of the contractual clauses, and the recoverability of repair and lost-profit claims.

1. Breach of implied terms. Whitecap proved that the cable-tow system was not of satisfactory quality and was not reasonably fit for its known commercial purpose. The evidence established proper maintenance and normal business use. The court therefore rejected Rundles’ case that the problems resulted from excessive use or inadequate maintenance. Fundamental defects included the stirrup design, inadequate control of fleet angles, and substandard castings. Rundles were also negligent because Whitecap had relied on their engineering expertise.
2. Exclusion and limitation clauses. The clauses requiring defects to be notified within 14 days after the defects-liability period were too uncertain to operate. It was unclear when the defects-liability period began, whether it applied separately to components, and how the notice period was to run. Applying the principles in Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, the court treated the clause as a time-limitation exclusion clause and construed it strictly. The former doctrine of fundamental breach did not determine the issue; survival of the clause depended on construction.
3. Acceptance and rejection. By proposing a “drop hands” settlement, retaining and operating the system during the 2003 season, and entering into the supplementary agreement, Whitecap had accepted the goods. Under sections 35, 11(4) and 53 of the Sale of Goods Act 1979, it was therefore no longer entitled to reject the system, although it could recover damages for breach of warranty or negligence.
4. Interpretation and damages. The supplementary agreement recognised continuing issues with the system and was inconsistent with Rundles’ reliance on the limitation clause. The court applied commercial common sense in construing the notice wording, consistently with ICS Ltd v West Bromwich Building Society [1998] 1 WLR 896 and Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191. Claims for repayment of paid invoices based on mistake failed under the approach in Kleinwort Benson Ltd v Lincoln City Council [1999] AC 349, because the payments were not proved to have been made under a qualifying mistake.
5. Disposition. Judgment was given for Whitecap on liability for breach of warranty and negligence. Loss-of-revenue damages were assessed at £67,561. The claims for repayment of paid invoices failed, and Rundles’ counterclaim for the unpaid invoice was dismissed. Further submissions were invited on outstanding quantum, conversion and costs issues.

First-instance judgment. No prior appellate decision is stated in the judgment.