New York Laser Clinic Ltd v Naturastudios Ltd

A tripartite collateral warranty may arise where a supplier makes a concrete statement about goods or services, intending contractual force, and the recipient relies on it to procure a third party to contract with the supplier. The test is objective and depends on all the circumstances. Knowledge of falsity or negligence is unnecessary.

For breach of a collateral warranty concerning the quality or anticipated performance of goods, the claimant may elect damages measured by loss of profits or losses incurred in entering the contract. Where the warranty concerns only reasonable care in preparing an estimate, damages are confined to the latter measure. A claim for negligent misstatement remains available where a supplier holds itself out as possessing relevant expertise.

The claimant operated aesthetic clinics and acquired six laser devices from the defendant through hire-purchase companies. It alleged that statements about the devices’ safety, speed, effectiveness, suitability for darker and tanned skin, and running costs constituted collateral warranties. The devices allegedly failed to perform as promised and were withdrawn.

The defendant did not attend the trial. The claimant pursued claims for breach of collateral warranty, negligent misstatement, and, alternatively, negligent training. The central issues were whether the statements had contractual force, whether they were inaccurate and caused loss, and whether damages could include profits that would have been earned had the warranties been true.

1. Collateral warranty. The claimant succeeded. In a tripartite case, the requirements were: a statement made before the main contract; intention that it should have contractual force; consideration supplied by the third party; reliance causing another party to contract with the supplier; inaccuracy; financial loss; and absence of relevant exclusion clauses.
2. The intention to create a collateral warranty was assessed objectively. Clear, specific statements about performance or results, made to induce the recipient to arrange the purchase of the goods, could have contractual force even though the recipient would acquire them through hire purchase. The statements were not mere commercial puffs. Statements that treatment was painless and that burning was impossible were construed as meaning that properly operated devices would cause no significant pain and should not burn clients.
3. The warranties were inaccurate. The devices could not safely and effectively treat skin type VI or active tans, did not achieve the warranted speed or clearance rate, were not safe, had significant down time, and had materially greater running costs. The failures resulted from defects in the devices, rather than improper operation by the claimant’s clinicians.
4. Damages. Applying Cullinane v British “Rema” Manufacturing Co Ltd, loss-of-profit damages were available where the warranty concerned the performance or output of machinery. The claimant could elect between loss of profits and wasted expenditure. By contrast, under Esso Petroleum Co Ltd v Mardon, where the warranty concerned only the care taken in preparing an estimate, the remedy was based on losses incurred in entering the contract. The present warranties concerned performance and quality, so the claimant was entitled to elect loss of profits.
5. Negligent misstatement. The alternative claim also succeeded. The defendant held itself out as possessing special expertise and had represented that it rigorously tested its products. It therefore owed a duty of care in making the statements, which were negligent and caused financial loss. No separate damages were awarded because the loss was subsumed within the collateral warranty damages.
6. The training negligence claim failed on causation because the loss was caused by defects in the devices. Damages of £3,876,830 were awarded for breach of collateral warranty.

The judgment records that the defendant appealed an earlier permission to amend the claim, but the Court of Appeal dismissed that appeal on 13 February 2019. The present judgment was a first-instance trial decision.