Activa DPS Europe SARL v Pressure Seal Solutions Ltd (t/a Welltec Systems UK)

For goods bought for resale, contractual fitness for purpose is assessed objectively by asking how a reasonable buyer, credited with the relevant facts, would regard their saleability. The court rejected a presumption that regulatory restrictions will be enforced, and upheld the trial judge’s conclusion where there was no evidence that the relevant regime had been implemented or enforced and the goods had in fact been resold. Generic certificates did not establish compliance, but the evidence did not show an enforcement risk. A new illegality defence may be raised on appeal only where the relevant facts are available and fairness permits it. Where determination would require a further trial and prejudice the respondent, late amendment should be refused. The duty to mitigate does not ordinarily require reversal of the transaction or acceptance of returned goods.

Activa purchased postal machinery, equipment and spare parts from Pressure Seal Solutions Ltd under five invoices. Activa alleged that goods intended for resale in the European Union lacked valid declarations of conformity and were therefore unfit for purpose under the Sale of Goods Act 1979. It also counterclaimed for damages and an indemnity.

The Southampton County Court gave judgment for Pressure Seal Solutions Ltd in the sum of €64,699.09 plus interest. The Recorder held that the goods were fit for purpose because most had been resold. On appeal, Activa challenged that conclusion, alleged failure to mitigate by refusing return of four machines, and sought permission to introduce a new illegality defence based on the Electromagnetic Compatibility Regulations 2006. The central issues were whether the new defence could be raised and whether the goods were legally and practically saleable.

Appeal dismissed.

1. Illegality. Where a court is satisfied that all relevant facts are before it and that a contract is clearly illegal, it must decline to enforce it even if illegality was not pleaded. The Court of Appeal may take the point of its own motion in an appropriate case, applying Snell v Unity Finance [1964] 2 QB 203 and the statement of principle in Edler v Auerbach [1950] 1KB 359. The proposed defence concerned the Electromagnetic Compatibility Regulations 2006, but the trial had not investigated whether the machines were within scope or properly certified.
2. Late amendment on appeal. Permission to introduce an unpleaded defence is discretionary. Relevant considerations include the lateness of the application, prejudice to the respondent, the effect on other court users, and whether the issue could and should have been raised at trial. A direct challenge to legality would require further evidence and probably a further trial, placing Pressure Seal Solutions Ltd at a considerable disadvantage. Permission was therefore refused, consistently with Swain-Mason v Mills & Reeve LLP [2011] EWCA Civ. 14 and Jones v MBNA International Bank unreported 30th June 2000.
3. Fitness for purpose. Assuming that valid declarations of conformity were required, there was no evidence that the EC Directive 2004/108/EC had been brought into force in the Member States forming Activa’s market. The question was not governed by a presumption that local regulations would be enforced. It required an objective assessment of how a reasonable buyer, knowing the relevant facts, would regard the goods. The Recorder was entitled to rely on Activa’s admitted ability to resell most of the machinery and the absence of evidence of enforcement proceedings. Bramhill v Edwards [2004] EWCA Civ 403 did not establish a different presumptive test. Generic certificates were not valid certificates for the purposes of the Directive, but their use did not establish an enforcement risk.
4. Mitigation. A claimant must take reasonable steps to reduce loss caused by breach, but need not ordinarily reverse the transaction or accept the defendant’s offer to take back the goods. The principle in Strutt v Whitnell [1975] 1 WLR 870 applied. The narrower treatment of that case in The Solholt [1983] 1 Lloyds Report 605 was not followed. The Recorder was entitled to conclude that refusing return of the remaining machines fell outside the duty to mitigate.

• Court of Appeal (Civil Division) — On 11 July 2012, dismissed Activa’s appeal: [2012] EWCA Civ 943.
• Southampton County Court — On 11 August 2011, Recorder Acton-Davis QC gave judgment for Pressure Seal Solutions Ltd for €64,699.09 plus interest and dismissed Activa’s counterclaim.