Webster Thompson Ltd v J G Pears (Newark) Ltd & Ors

Goods may be of unsatisfactory quality even where their physical condition is not intrinsically defective. The court may take account of the contractual description, regulatory status, legal restrictions and all other relevant circumstances.

Where goods supplied as one regulated category contain material belonging to a more restricted category, that supply may breach an express contractual term. A buyer’s particular purpose may be sufficiently made known through the parties’ commercial dealings and established industry relationship. In a chain of contracts, reliance on the skill or judgment of an upstream supplier may satisfy the implied fitness requirement.

The claimant had obtained summary judgment against the defendant. The defendant, which had purchased animal by-products from the third party, alleged that material supplied as Category 3 was in fact Category 1 material under the applicable European regulatory regime. It claimed damages for breach of an express contractual term and, alternatively, implied terms as to satisfactory quality and fitness for purpose under the Supply of Goods and Services Act 1982.

The third party pursued an indemnity claim against the fourth party, which was in liquidation. The principal issues were whether Category 1 material had been supplied, whether the statutory implied terms were breached, and the resulting liability between the parties.

1. Express term. The court accepted that hearsay evidence required care, but there was no rule preventing reliance on uncorroborated hearsay. The documents had to be read as a whole and in context. Their consistency, the absence of any motive to misrepresent, and the supporting witness evidence made them sufficiently reliable. On the balance of probabilities, Category 1 material had entered material supplied as Category 3.
2. The regulatory classification followed from the applicable legislation. The material became Category 1 because vertebral column from cattle over 24 months had been mixed into Category 3 material. The third party supplied that defective material, although without fault, in breach of the contractual requirement to supply Category 3 material.
3. Satisfactory quality. The court held that “satisfactory quality” was not confined to intrinsic physical quality and condition. Under section 4(2A) of the Supply of Goods and Services Act 1982, the reasonable person could take account of the description, price and all other relevant circumstances. Material described as Category 3 was unsatisfactory where its status was uncertain and it could only lawfully be handled and sold as Category 1.
4. Fitness for purpose. Although unnecessary to the result, the court would have found that the buyer made known the purpose for which the goods were bought, that the goods were unfit for it, and that reliance on the supplier’s skill and judgment was not unreasonable. General knowledge of the buyer’s established business could amount to knowledge of the particular purpose. In a chain of contracts, reliance need not be placed only on the immediate seller.
5. The defendant’s claim against the third party succeeded. The third party’s indemnity claim against the fourth party also succeeded. Damages and any outstanding questions were to be dealt with in accordance with the judgment and the parties’ agreed or compromised figures.