Whitecap Leisure Ltd v John H. Rundle Ltd.

A limitation clause is construed by ascertaining the parties’ objective intention from its language, the contract as a whole and the relevant background. Any genuine ambiguity is resolved against the party relying on the clause, particularly where the proposed construction departs substantially from obligations ordinarily implied by law.

Under the Sale of Goods Act 1979, acceptance prevents a buyer from relying on an existing breach of condition to reject goods. A seller may nevertheless acquiesce in a later purported rejection. Such acquiescence revests property in the seller, ends the buyer’s liability for the price and requires redelivery.

A manufacturer does not ordinarily owe a concurrent duty in negligence to avoid the purely economic loss caused by supplying goods below the contractually required quality.

Whitecap bought a cable tow system from Rundle for its water-skiing business. The equipment suffered persistent failures. The parties later signed heads of agreement under which Rundle promised to use its best endeavours to undertake remedial tasks, while Whitecap’s release of its claims depended on satisfactory completion of the work.

Whitecap purported to reject the equipment after operating it for several seasons. Rundle disputed its right to do so but subsequently collected much of the machinery. Whitecap retained and used some components.

The High Court, in [2007] EWHC 1352 (QB), found that the system was not of satisfactory quality or fit for purpose, but that Whitecap had accepted it and could claim only damages for breach of warranty. The judge held that Rundle could not rely on the contractual limitation clause, awarded Whitecap damages and rejected Rundle’s conversion claim. Rundle appealed. Whitecap sought permission to challenge the finding that it had not effectively rejected the equipment.

1. Rundle’s appeal was allowed. Clause 14 was an effective limitation clause. The modern objective approach to contractual construction applied to it. Read with clause 12, the undefined “defects liability period” meant the year following delivery. Delivery occurred when completion was verified by the independent engineer. Whitecap gave no written notice of outstanding defects during the ensuing 14-day period, so Rundle ceased to be liable for them.

2. The release in the heads of agreement depended on satisfactory completion of the specified remedial work, rather than merely the exercise of best endeavours. Rundle failed to provide a workable solution to the cable and associated mechanism problems. It could not rely on the release, but clause 14 remained effective independently of that agreement.

3. Whitecap had accepted the goods under sections 11(4) and 35 of the Sale of Goods Act 1979 before November 2004. The implied conditions concerning quality and fitness related to the condition of the goods at delivery. Later breakdowns were manifestations of the original breach, rather than fresh or continuing breaches capable of reviving the right to reject.

4. Whitecap nevertheless effected a rejection because Rundle ultimately acquiesced in the purported rejection and accepted redelivery of much of the system. Property revested unconditionally in Rundle, Whitecap ceased to owe the price, and it could recover its payments on the basis of failure of consideration. Clause 14 continued to exclude recovery of damages for the equipment’s defects.

5. Rundle owed a duty to exercise reasonable care to avoid personal injury or property damage caused by defective design or manufacture. It owed no common law duty to avoid the purely economic loss caused by supplying equipment below the contractually required quality. The judge therefore erred in finding concurrent liability in negligence.

6. The judge had jurisdiction to adjourn the trial and permit further pleading about damages. The controlling question was fairness and whether both parties had a proper opportunity to address the real issues. Although his procedure was unfortunate, it caused Rundle no material injustice.

7. Following rejection, Whitecap was required to make all the equipment available for collection. By refusing access and using retained components for its own purposes, it converted Rundle’s property. Judgment was entered for Rundle on that counterclaim, with damages to be assessed. The conversion assessment and Rundle’s invoice claim were remitted to the High Court.

1. Court of Appeal (Civil Division): In [2008] EWCA Civ 429, allowed Rundle’s appeal, set aside the judgment for Whitecap, substituted judgment for Whitecap in the amount paid on account of the price, entered judgment for Rundle on its conversion counterclaim with damages to be assessed, and remitted the assessment and invoice claim. Whitecap was also granted permission to appeal and was held to have effected rejection through Rundle’s acquiescence.

2. High Court, Queen’s Bench Division: In [2007] EWHC 1352 (QB), held that the equipment was defective but had been accepted, rejected Rundle’s reliance on the contractual limitation and settlement provisions, found contractual and negligence liability, awarded Whitecap damages for breach of warranty, and dismissed the conversion counterclaim.