Lobster Group Ltd v Heidelberg Graphic Equipment Ltd & Anor

A finance hire arrangement may leave the hirer with an implied term that goods are of satisfactory quality, even where the supplier’s warranty covers only repair or replacement. A fitness-for-purpose term will not arise where the hirer relied on the manufacturer rather than the finance company. Exclusion clauses are assessed against the particular contractual obligation and circumstances. A clause may reasonably confine a manufacturer’s liability to repair or replacement, but it may unreasonably exclude immediate loss, direct damage and increased costs of rectification. Loss of profit requires proof of actual causation and a factual basis for quantification.

The claimant hired a specialist printing press from Close Asset Finance Ltd, which had purchased it from Heidelberg Graphic Equipment Ltd. Heidelberg separately provided a manufacturer’s warranty and maintenance services. The claimant alleged misrepresentation, defects in the press, breach of warranty and service obligations, and breach by the finance company of implied terms under the Supply of Goods and Services Act 1982. The finance company terminated the hire after rental payments stopped and counterclaimed the contractual termination sum.

The central issues were the contractual effect of the financing structure, the enforceability of exclusion clauses, whether the press was defective and of satisfactory quality, causation and quantum, and the finance company’s entitlement to terminate.

1. Misrepresentation. The claimant failed to establish either that the alleged representations had been made or that they were false. The representations by Heidelberg could not impose liability on the finance company.
2. Contractual structure. The hire agreement incorporated the finance company’s standard terms. It was not a hire-purchase agreement because the final agreement contained no purchase option. Any implied terms in that agreement arose under the Supply of Goods and Services Act 1982, not the Supply of Goods (Implied Terms) Act 1973. The agreement between the claimant and Heidelberg was properly characterised as a warranty agreement, not a sale or supply agreement.
3. Warranty and service obligations. Heidelberg’s warranty covered replacement or repair of defective parts where a breakdown caused by defective material or workmanship was notified within the warranty period. A defect notified during that period had to be properly remedied even if the repair was completed later. The claimant did not notify the image-fit defect within the 12-month warranty period. Heidelberg also acted with reasonable skill and care under the service agreement.
4. Implied terms and exclusions. The hire agreement contained an implied term that the press was of satisfactory quality under section 9(2) of the Supply of Goods and Services Act 1982. No fitness-for-purpose term arose because the claimant relied on Heidelberg, not the finance company, and reliance on the finance company would have been unreasonable. Under the Unfair Contract Terms Act 1977, excluding all liability for breach of the satisfactory-quality term was unreasonable. Exclusion of consequential loss could be reasonable, but exclusion of immediate loss, direct damage and increased costs or expenses was unreasonable.
5. Defect and loss. The image-fit problem resulted from a manufacturing defect present on installation and meant that the press was not of satisfactory quality. Colour variation was mainly caused by inadequate maintenance, and the CP2000 problems were not shown to have caused it. The claimant failed to prove loss of profit, but recovered 48 per cent of its proven rectification costs, namely £14,543.52.
6. Counterclaim. The hire agreement prevented the claimant from withholding rent because the equipment was unusable. The finance company was entitled to terminate after non-payment and recover £340,168.75 plus contractual interest. The later sale value of the press did not reduce that contractual sum.

Not an appeal. The judgment determined the claimant’s claim and the finance company’s counterclaim at first instance.