Bajaj Healthcare Ltd v Fine Organics Ltd

Contractual compliance with specified tests does not necessarily establish satisfactory quality. Where purchase orders require goods to have a similar quality and impurity profile to earlier supplies, that obligation may extend beyond the stated analytical tests. Goods containing unknown extraneous matter which materially impairs their intended performance may breach express terms and the implied terms of satisfactory quality and fitness for purpose under the Sale of Goods Act 1979. A buyer’s acceptance of goods after discovering possible defects does not waive a later claim for damages unless the circumstances establish waiver. Deliberate destruction or falsification of manufacturing records may support adverse factual inferences, although liability remains based on the contractual terms and proved loss.

Bajaj Healthcare Ltd supplied 2-Amino-4-Hydroxyacetophenone to Fine Organics Ltd for conversion into Octopamine. The 2014 consignments passed the contractual analytical tests but contained substantial extraneous matter which seriously inhibited hydrogenation. Fine Organics withheld payment and counterclaimed for the resulting losses.

The dispute concerned the proper construction of the purchase orders, whether the goods breached express and statutory implied terms, whether manufacture at an unaudited facility breached the contract, and the recoverable loss.

1. Contract terms. The contracts arose through the purchase orders, incorporating the amended specification. The requirement that the material be manufactured at the “same site as previous” referred to the Vadodara facility, the only manufacturing site known to and audited by Fine Organics. The references to “similar quality” and “similar impurity profile” referred to the quality of the 2012 and 2013 supplies, and were not confined to the analytical tolerances in the specification.
2. Quality and fitness. The 2014 AHA contained approximately 0.96% to 1.25% extraneous matter, nearly five times the level in earlier supplies. It did not hydrogenate efficiently. The material therefore breached the express terms requiring similar quality and impurity profile, the implied term of satisfactory quality under section 14(2) of the Sale of Goods Act 1979, and the implied term under section 14(3) that it be reasonably fit for conversion into Octopamine. Fine Organics had made that purpose known expressly or by implication, and was entitled to rely on Bajaj’s skill in manufacturing the AHA.
3. Other terms and waiver. No additional term requiring a laboratory usage test formed part of the contract. The sale-by-sample term added little because the express similar-quality term already required correspondence with the earlier samples. Fine Organics’ acceptance of the 2014 consignments did not waive its right to damages for breaches discovered through subsequent processing.
4. Disposition. Bajaj was liable for breach of contract. Fine Organics’ damages were assessed at £646,883.39 after disallowing £24,400 for unsupported technical-support loss. Bajaj’s claim for US$513,946.23 was dismissed subject to set-off, and the damages were set off in part against the outstanding invoices. Interest was awarded under section 35A of the Senior Courts Act 1981.