Critical Analysis JH Ritchie

Extending the buyer’s right to reject beyond repair

In J&H Ritchie Ltd v Lloyd Ltd, the House of Lords was tasked with the issue whether a buyer could reject goods on redelivery by the seller, not having been informed as to the nature of the defects. Previously, the decisions of the Sheriff Principle and the Inner House found for the sellers. The case could not be decided on previous authorities. The Sale of Goods Act 1979 (the Act) was also silent on the question. Their Lordships’ decision was to imply a term that the seller was under an obligation to inform the buyer upon request, after repair as to the defects in the machine. The sellers were found in material breach by failing to disclose, thereby enabling the buyer (Ritchie) to reject. This arguably led to the correct decision in giving better protection to the buyer, but it has been argued that the ratio does not stand analysis. This work will consider the arguments.

The brief facts were, the appellant Ritchie ordered and paid for a combination seed drill and power harrow from the sellers. Within two days of use, a vibration was noticed. The harrow’s use was stopped and arrangements were made for it to be collected for inspection and possible repair. Upon inspection, it was found that there were two missing bearings. These were replaced by the seller and Ritchie was contacted to collect. The sellers never informed Ritchie’s as to the nature of the problem or the repair, despite his requests. The information given was that it had been repaired to ‘factory gate standard’. Ritchie’s request for an engineer’s report was refused. As a consequence he rejected the harrow because of concerns that he would be unable to test it until the following spring.

S27 of the Act provides that the seller is obliged to deliver the goods, and upon delivery, the buyer is obliged to accept and pay for them. S35(1) provides: i) that a buyer is deemed to have accepted the goods if he intimated to the seller that he had accepted them, or ii) he did any act which was inconsistent with the ownership of the seller. S35(4) provides that where a reasonable time elapses without rejection there has been an acceptance by the buyer. S35(2) further provides that the buyer is not deemed to have accepted the goods where he had not previously examined them before delivery. Moreover s35(6)(a) provides that a buyer does not imply acceptance, merely because he asks for, or agrees to, their repair by or under an arrangement with the seller.

At first instance, the Sheriff found for Ritchie. The harrow had a major defect which constituted a material breach upon delivery. The use of the harrow did not equate to acceptance because its use was necessary to discover the defect and therefore could be rejected.

At second instance the Sheriff Principle overturned the decision. The court considered the state of the harrow post repair. S35(6)(a) was to give the seller an opportunity to repair the goods. It did not mean that the buyer was entitled to reject the goods when the repair was satisfactory.” Ritchie’s concerns as to possible additional damage did not justify rejection.

The Inner House by a majority concurred with the Sheriff Principle. It was held that the contract was still in existence as there was no “stipulated date for performancenor had an unreasonable time elapsed.” Accordingly Ritchie could not reject as the time for performance had yet to expire. Kelvin Low supports this view, “provided the time for performance has not expired, a seller is generally allowed to tender a conforming delivery”. Thus under s27 Ritchie was still under an obligation to accept.

The House of Lords took a different approach by implying a term, that the seller, upon request, is under an obligation after repair, to disclose the nature of the defect and failure to so do entitled Ritchie to reject. The rationale being that the implied term would provide Ritchie with information to make an informed decision, prior to repair. There was no authority as to whether Ritchie was bound to accept the harrow simply because the seller told him it conformed to the contract following repair. The implied term would give ‘business efficacy’ to the contract and that “if its absence had been pointed out at the time both parties` – assuming them to have been reasonable men – would have agreed without hesitation to its insertion.” “The buyer cannot be expected to exercise until he has all the information that he needs to make an informed choice. The seller, for his part, cannot refuse to give him the information that he needs to exercise it.” In Clegg v Anderson, Hale J commented “a buyer does not accept the goods simply because he asks for or agrees to their repairif a buyer is seeking information which the seller has agreed to supply which will enable the buyer to make a properly informed choice between acceptance, rejection or curehe cannot have lost his right to reject.” However, in that case, the request was made before repair. In Ritchie, Lord Hope reasoned that the sellers were under an implied condition to supply the information, “one which no reasonable seller, who was already in breach of contract, could refuse as a condition of being given the opportunity to cure the defect and preserve the contract.”

This work will now consider whether s35(6)(a) was deficient in providing the buyer with a remedy and whether it was necessary for an implied term.

Lord Hope’s concerns were that the Act was silent, creating a “gap in the statutory code” as to whether a buyer accepts goods once repairs have been effected. The Act stipulated that a buyer is not deemed to have accepted the goods merely because he asks or agrees to their repair. Lord Hope’s view was that where a repair had been made, there was an implied condition which effectively extended the buyer’s right to reject the goods in circumstances where the buyer had not been notified of the nature of the repair. “The problem is not capable of being solved satisfactorily by a pre-ordained code. In the absence of express agreement, the answer to it must depend on what terms, if any, are to be implied”. Stephen Sly and Paul Clarke argue this method was unnecessary. The court merely needed to clarify s35(6)(a) of the Act. It is obvious that the buyer would not reject the goods once repaired, for “why else would he ask for a repair?”, hence the insertion of such a term is redundant.

Furthermore, Kelvin Low claims that the insertion is “nonsense as it commits the sellers to breaching the contract of sale when in reality they are trying to cure their defective performance under that contract.” Thus the implied term justifies Ritchie rejecting the goods, which otherwise, would have conformed to the contract of sale for the time for performance had yet to expire, entitling the sellers to re-tender. Moreover, Michael Bridge adds that as a result of the avoidance of s35 “the buyers are therefore left in limbo”.

The above commentators are arguably incorrect. Lord Hope pointed out, the Act is silent as to post repair. Their Lordships had to take into account the circumstances of the particular case. The issue before the court was clearly whether, in circumstances where repair had been effected, is the buyer deemed to have accepted the goods? The answer is surely not. A buyer is entitled to receive goods fit for purpose. Therefore the seller was in breach and the buyer is not obligated to accept the goods. Ritchie, in agreeing to the repair, provided the sellers an opportunity to perform the contract. In those circumstances, the buyer is entitled is he not to inquire of the seller, the nature of the defect in order to make an informed decision as to whether or not, to proceed with the repair or to reject the defective goods. In this case, the sellers had repaired the goods but had failed to disclose the nature of the repair. How, therefore could the buyer properly accept the goods not knowing the nature of the defect and whether or not it might re-materialise? The Act needed to be extended to cover this circumstance. The implied condition also lends itself to the principle of equality of arms in ensuring both parties are aware as to the condition of the product.

Sly and Clarke’s argument fails to take this into account. Merely asking for a repair can not imply that there has been an acceptance of the goods unless and until the nature of the repair is known to the buyer. Lord Rodger commentated by example that normally if there was a defect present, the clockmaker would inform the customer as to what the problem was, how long it would take to repair and the cost, in order for the customer to make an informed choice.

Their call for clarification fails to take into account that the Act was entirely silent the issue of post repair. Arguably therefore, has not the call for clarification been met by the implied term? They offer an alternative in the form of interpreting the statute but would not a purposive interpretation of the Act lead to a similar outcome? Kelroy Loi argues that it would be “an undue hardship on the sellers to allow the buyers to reject”. This ignores the fact that the seller refused to disclose the nature of the repair, which surely is an important factor whether to accept or reject the goods. Is Loi arguing that sellers can repair goods and re-tender them without any obligation to disclose their defect? Moreover, Loi is also critical of the ‘business efficacy’ test. He claims the buyers would readily accept the insertion of a term giving the right to information but “it is difficult to see why the sellers would exclaim likewise”. He goes onto say the courts would not normally imply a term where both parties would not agree to it. This fails to take into account the context of the Act in that the legislation was introduced for the protection of consumers. Loi’s argument that normally implied terms would not be inserted in the absence of both parties’ deemed consent is accepted, it cannot be the case in circumstances where one party is material disadvantaged.

Bridge’s contention that the implied term has left the buyer “in limbo” and has shed little light as to when the buyer can reject is arguably incorrect. S35(6)(a) makes it clear that a buyer is not deemed to have accepted merely because he has asked or agreed to their repair. Their Lordship’s decision provides additional protection in placing an obligation on the seller to inform the buyer, post repair, as to the nature of the repair before acceptance. What could be clearer?

Their Lordships agreed as to the nature of the implied condition. However, whether it fell in the contract of sale or in the separate repair arrangement was not agreed. Lord Hope inserted it into the contract of sale. In contrast, Lord Rodger did not find that Ritchie agreed to the repair for at the time of inspection, the nature of the defect was unknown and therefore it was impossible for him to have agreed to a specific repair. Therefore the arrangement for repair must have existed in a separate contract, as “the sellers were not exercising any right of theirs under the contract of sale.” Within this separate arrangement existed the implied terms that “merely entering into the agreement did not mean that the appellants (Ritchie) had accepted [the goods]But equally clearso long as the respondents were duly performing their obligations under it, the appellants were not to exercise their right to rescind the contract of sale.”Thus if the sellers fulfilled their obligation under the repair arrangement, Ritchie could not rescind the contract of sale. The sellers had done so and so it would seem Ritchie would not be able to reject the goods. However, the sellers refused to tell Ritchie the nature of the problems with the harrow, and so were in breach of the arrangement and consequently Ritchie was entitled to rescind the contract of sale. Lord Rodger gave the scenario of repairing a watch. The right to the information he argued was a matter of custom and practice and therefore a term of this sort was implied, “an owner who surrenders his property for inspection in this way can surely insist on being told the outcome of the inspection.” The continued refusal to supply the requested information was sufficient to justify Ritchie’s rejection.

Lord Brown added that the sellers “can only be regarded as having behaved thoroughly unreasonably” in refusing to supply the information. If goods are to be accepted after repair, the buyers “must surely be entitled to some assurance that the repairs have been properly carried out.” The sellers raised Ritchie’s suspicion in not supplying the information or an engineer’s report, suggesting that they had something to hide, justifying his rejection.

Lord Rodger treats the repair arrangement as a separate ‘innominate’ contract. There has been some academic criticism of the creation of such a contract. Alan Barron argues that the repair arrangement cannot be regarded as a separate contract. The Law Commission, as he points out, when considering this, it was “by no means clear that they saw the word “arrangement” in a technical, legal sense, as amounting to a formal secondary contract, separate from the contract of sale.”

Bridge fails to see the effect of rescinding the repair contract on the contract of sale. The right to reject the contract of sale did not follow from rejecting the repair. “There is no principle of general contract law that the commission of a discharging breach under one contract is also to be treated as a discharging breach of any connected contracts.” The breach of the repair arrangement would only have entitled Ritchie to damages and not reject the contract of sale.

Bridge’s criticism that rescission of the repair arrangement could not affect the contract of sale fails to correctly represent Lord Rodger’s reasoning. Lord Rodger does not state that Ritchie may rescind the contract of sale as a result of rescinding the repair arrangement. He states that “once the buyers had rescinded the inspection and repair agreement[there was nothing] preventing them from exercising their right to rescind the sale contract during its currency”. Thus he is effectively claiming that Ritchie had two remedies of recission; for the contract of sale and the repair arrangement.

The criticism that the separate arrangement did not form an ‘innominate contract’ seems well founded for there is a lack of consideration, a requirement of any valid contract. It is arguable whether there is any material significance as to whether, as Lord Hope would state, that there is one contract, or as the majority would find that there is a separate repair contract. Given that the breach of the implied condition means that the buyer can reject the goods, is there any significance in there being one or two contracts?

An alternative approach would be to adopt the right to repair a defect principle, as in America. “Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender.” Thus if a seller is able to make good the defect within a reasonable time provided there is no time of the essence consideration on the part of the buyer, then the seller may re-tender the goods.

On balance, their Lordships got it right by implying a term. Given the void in the legislation mere clarification could not suffice. The silence of the Act as to the post repair issue required more than mere clarification. It is suggested here that Sly and Clarke’s call for clarification would mean reading too much into the legislation. The only realistic remedy as to the deficiency of the Act could only be to impose the implied term that a buyer may exercise his right to reject where, a seller after repair has failed to notify him as to the nature of the defect.

Bibliography

J&H Ritchie Ltd v Lloyd Ltd [2007] UKHL 9

J&H Ritchie Ltd v Lloyd Ltd ]2005] 1 S.C 155 at 7

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in Liverpool City Council v Irwin [1976] 2 All ER 39 at 47

[2003] EWCA Civ 320

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Case Comment Repair, rejection & rescission: an uneasy resolution, Law Quarterly Review 2007

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The US Uniform Commercial Code