Satisfactory Quality and Fitness for Purpose in a Supply Chain
WEBSTER THOMPSON v PEARS (and others) [2009]
issues:
- This case considered the meaning of ‘satisfactory quality’ in the context
of a business to business transaction. Both the Sale of Goods Act 1979 and the
Supply of Goods and Services Act 1982 require that goods supplied must be of
‘satisfactory quality’. However, the meaning of ‘satisfactory quality’ has very
rarely been the subject of judicial scrutiny. The Court concluded that
in assessing whether goods are of satisfactory quality a Judge is not limited
to considering the intrinsic quality and condition of the goods. The surrounding
circumstances will be taken into consideration although the primary focus
is on the intrinsic quality of the goods.
- Statute also implies a condition that where a buyer makes known to the seller
the purpose for which it wants the goods, those goods must be reasonably fit
for that purpose unless the buyer did not rely upon the seller’s skill and
judgement or it was unreasonable to rely. The Court concluded that, in relation
to a claim for breach of the implied term, it is possible for a buyer to rely
upon the skill and judgement of a supplier higher up the supply chain even
if it did not rely upon the skill and judgement of its immediate supplier.
decision:
- Although there was a successful claim for breach
of an express term in this case, the High Court Judge also considered whether
there were breaches of the implied terms of satisfactory quality and fitness
for purpose which could also have given rise to a claim for damages.
- Statute specifies that "goods are of satisfactory quality if they meet
the standard that a reasonable person would regard as satisfactory, taking
account of any description of the goods, the price (if relevant) and all the
other relevant circumstances". It was argued before the Court that the
focus should correctly be on the intrinsic quality and condition of the goods
themselves. This seems to have been the approach taken in the case of [2004]. The Judge concluded that, given the wording of the statute
which specifically refers to ‘all other relevant circumstances’, the test
of ‘satisfactory quality’ was not confined to the intrinsic quality and condition
of the goods but could take into account the surrounding circumstances which,
in this case, was the legislative framework which specifically applied to
goods of the type in question. However, this was something of an exceptional
case and generally ‘surrounding circumstances’ are unlikely to include the
particular use for the goods intended by the buyer.
- The implied term that goods have to be of ‘satisfactory quality’ replaced
the former requirement that goods had to be of ‘merchantable quality’. Interestingly
the Judge commented that he thought that, particularly in a consumer context,
the move from ‘merchantable quality’ to ‘satisfactory quality’ was intended
to strengthen the fitness for purpose test.
- A claim that the goods were not fit for purpose would also have succeeded
as Omega, one of the suppliers higher up the supply chain, had knowledge of
the buyer’s business and knew of the particular purpose for which the goods
were being bought. The buyer was also relying on the skill and judgement of
that former supplier and it was seemingly reasonable to do so. Where there
is a chain of contracts, it is not necessary for the buyer to rely upon the
skill and judgement of his immediate seller if it in fact relies upon that
of a supplier further up the line.
points to note:
- Suppliers in a business to business context will typically exclude the
operation of the implied terms of satisfactory quality and fitness for purpose
as a matter of standard practice because of what is perceived as their inherent
uncertainty, preferring instead to contract against an express specification.
Statute provides that such terms can be excluded in a business to business
transaction where it is reasonable to do so and generally that will be the
case if an express specification is agreed.
- The case does not shed much light on what is meant by ‘satisfactory quality’.
In the Jewson case the Court of Appeal did however try to summarise the term
as ‘establishing a general standard of quality which goods are required to
reach’ and ‘the question in most cases will be whether the goods are intrinsically
satisfactory and fit for all purposes for which goods of the kind in question
are supplied’.
- Where there are several linked contracts, the ultimate seller can be held
liable for its sub-contractors’ acts where their skill and knowledge has been
relied upon. It is important to establish in the contracts where liability
for goods supplied as unfit for purpose or otherwise defective will lie, for
example, by way of an indemnity, if the customer is able to bring a successful
claim.
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