J & H Ritchie Ltd v Lloyd Ltd (Scotland)

The House of Lords considered the effect of section 35(6)(a) of the Sale of Goods Act 1979 (as inserted by the Sale and Supply of Goods Act 1994) on a buyer's right to reject goods which were materially not in conformity at delivery where the buyer had agreed that the seller should take the goods away for inspection and possible repair. The court held that an implied term could be read into the separate inspection-and-repair arrangement that the seller, on request, must disclose the results of inspection and what had been done to repair the goods if disclosure is necessary to give the arrangement business efficacy. Where the seller refused to give that information, that refusal could constitute a material breach of the repair agreement entitling the buyer to rescind that agreement and to exercise the earlier right to reject the goods and claim repayment of the price, even though the seller could later show the repair had restored the goods to "factory gate" standard.

The appellants (a farming company) bought a combined seed drill and power harrow from the respondents for £14,217.50. After three days' use vibration was discovered in the harrow; with the buyer's agreement the harrow was taken to the seller's premises for inspection and possible repair. The seller found two bottom bearings missing and fitted replacements. When informed that the harrow was ready for collection the buyer repeatedly requested an account of the nature of the defect and an engineer's report; the seller refused to supply this information and the buyer rejected the goods and demanded repayment.

The proceedings: the sheriff granted the appellants decree for repayment. The sheriff principal revised the sheriff's findings of fact (including that the repair had restored the harrow to "factory gate standard") and allowed the seller's plea, holding the buyer had to accept the repaired goods. The Extra Division of the Court of Session dismissed the buyer's appeal (with a dissent). The House of Lords heard the appeal on points of law.

Nature of the claim: the appellants sought declarator that they validly rescinded the contract of sale and repayment of the purchase price.

Issues framed by the court:

• whether section 35(6)(a) prevents a buyer from rejecting goods after the buyer has agreed to their repair,
• whether a term should be implied into the inspection/repair agreement requiring the seller to disclose the inspection findings to the buyer on request, and
• whether the seller's refusal to disclose justified rescission of the inspection/repair agreement and thereafter rescission of the sale contract despite proof that the repair had restored conformity.

Reasoning and decision: the Law Commissions had inserted s35(6)(a) to prevent mere agreement to repair being treated as acceptance, but the Act did not address the legal effect of successful repair in all factual contexts. The House of Lords reasoned that the consequences of an inspection-and-repair agreement depend on the terms, express or implied, necessary to give it business efficacy. In circumstances where the defect was not immediately identifiable and the buyer reasonably required information to make an informed election, the court would imply a term requiring the seller to disclose the results of inspection and the steps taken to repair on request. The seller's refusal to provide those particulars was a material breach of the inspection-and-repair agreement; that breach removed the purchaser's undertaking (express or implied) not to exercise the right to rescind the sale during the currency of that agreement. The buyer was therefore entitled to rescind and recover the price even though the harrow had in fact been repaired to "factory gate" standard.

Appeal allowed. The House of Lords held that section 35(6)(a) does not of itself prevent a buyer who agreed to inspection and possible repair from later rejecting the goods if, by necessary implication, the inspection-and-repair agreement required the seller to disclose the inspection findings and the seller materially breached that implied term by refusing to disclose; such a breach justified rescission of the repair agreement and reinstated the buyer's right to reject and claim repayment.

Sheriff Court (Jedburgh): sheriff granted decree for the appellants (7 January 2003). Sheriff Principal Iain Macphail QC allowed the respondents' appeal and recalled the sheriff's interlocutor (31 July 2003). Extra Division of the Court of Session (Lords Marnoch, Hamilton and Philip) dismissed the appellants' appeal (11 January 2005) (Lord Marnoch dissenting). House of Lords allowed the appeal ([2007] UKHL 9).