England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Mr David Foskett QC

		Royal Courts of Justice Strand, London, WC2A 2LL
		28 July 2003

Lord Justice Clarke :

Introduction

1. This appeal arises out of an undated order stamped on 2 October 2002 which was made by Mr David Foskett QC, sitting as a Deputy High Court Judge, after the determination of a number of preliminary issues which he resolved in two judgments, dated 2 August and 2 September 2002 respectively. The appeal is brought pursuant to permission granted by the judge.
2. The appeal is essentially brought in order to challenge the decision of the judge that the appellant was in breach of terms implied by section 14(2) and (3) of the Sale of Goods Act 1979, as amended, into a contract for the sale of 12 boilers by the appellant ("Jewsons") to the original defendant, Mr Kelly. Mr Kelly has unfortunately died since the trial and, by agreement and pursuant to an order of the court, the respondent to the appeal is the personal representative of his estate.

Background Facts

3. I take the background facts largely from the judgment of the judge who has set them out with great care. The vast majority of his findings of fact and most of his answers to the questions posed by the preliminary issues are accepted by the parties. It is not therefore necessary for me to set out the facts in anything like the detail which the judge did.
4. Mr Kelly was an entrepreneur who from time to time engaged in property development. In October 1997 he acquired or agreed to acquire York House, which was a former convent school building, from a Mr Dunn, who had obtained planning permission to convert it into 13 self-contained flats. Mr Kelly originally intended to convert it into a children's home but local opposition was too strong. He therefore decided to convert the property into 13 flats. He borrowed £200,000 from Mr Dunn with interest at the rate of 15% per annum payable monthly and a further £220,000 from a Mr Sanders with interest of a fixed sum of £40,000 repayable when flat no 1 was sold.
5. Mr Dunn had intended to let the flats, whereas Mr Kelly decided to sell them. The difference is significant in the context of the issues raised by the appeal because Mr Dunn had intended to keep the existing central oil-fired boiler, which would heat all the flats, whereas Mr Kelly did not think that that was feasible in the context of individually owned flats and wanted a system with an individual boiler in each flat. He rejected 13 separate oil tanks for each flat. As to solid fuel such as coal, Mr Kelly said in evidence that the installation of fireplaces and back boilers was not really practicable. He asked rhetorically: "would you like to carry coal up in a bucket?"
6. That left gas and electricity. Mr Kelly initially considered incorporating individual gas-fired boilers into each flat. There was a gas supply to one of the flats but his inquiries of the gas providers in the area revealed that it would cost £34,000 to extend the gas supply to the all individual flats and that there was a six month waiting list before they could start. He concluded that it would probably have been a year before they could (as he put it) have done the job. As the judge found, Mr Kelly was not prepared either to pay £34,000 or to wait, so he needed to consider what other options were available to him. So far as I can see, the only alternative source of heating was electricity.
7. In the event, in circumstances to which I shall return, Mr Kelly bought 12 electric boilers from the Bideford branch of Jewsons, the well-known firm of builders' merchants. He did not buy 13 boilers because (as already stated) there was already a gas supply to the thirteenth flat. We were told that the total cost of the boilers was about £7,500 exclusive of VAT, so that they cost about £625 plus VAT each. Mr Kelly also bought a considerable amount of other materials from Jewsons. It is Jewsons' case that he did not pay for all the materials which he bought and they commenced these proceedings in order to recover the shortfall, which they say is £53,322.43. So far as I am aware, that sum is not in dispute but Mr Kelly seeks to set off his counterclaim for damages for breach of the contract to supply the boilers.

Preliminary Issues

8. There have been two trials of preliminary issues relevant to the counterclaim. The first came before His Honour Judge Playford QC. On 20 December 2000 he held that Jewsons' standard terms and conditions applied to the sale. He further held that clauses 8.9 and 8.11 of the terms and conditions were unreasonable but that clauses 8.7 and 8.10 were reasonable. Neither party appealed against any of his decisions.
9. Clauses 8.7 and 8.10 are in these terms:

"8.7 The Customer is deemed to be fully conversant with the nature and performance of the goods including any harmful or hazardous effects resulting from their usage and shall not be reliant in any way upon the advice, skill or judgment of the Company. The Company's employees or agents are not authorised to make any representations concerning the goods other than those confirmed by the Company in writing.

…

8.10 The Company shall not be liable for any consequential loss or indirect loss suffered by the Customer or any third party in relation to this contract (except personal injury directly attributable to the negligence of the Company) and the Customer shall hold the Company fully and effectively indemnified against such losses whether arising from breach of a duty in contract or loss in any way including losses arising from the Company's negligence."

10. The second trial came before Mr Foskett ("the judge") in accordance with directions which had been given by Her Honour Judge Kirkham. He was asked to consider a number of particular questions or issues as follows:

"1. What, if anything, Mr Kelly told Jewsons about his intentions for the property?

2. What, if any, representations Jewsons made to Mr Kelly with regard to Amptec Electric Boilers ("the electric boilers"). What, if any, representations were binding upon Jewsons having regard to clause 8.7 of the Jewsons' terms and conditions? Were such representations as are binding upon Jewsons negligent?

3. What representations, if any, did the Amptec representative make to Mr Kelly with regard to the boilers, were they made on behalf of Jewsons and were such representations negligent?

4. Did Mr Kelly rely upon any assurances and representations (in so far as they are binding upon Jewsons) made by Jewsons and/or the Amptec representative? Was he entitled so to rely having regard to clause 8.7 of Jewsons' terms and conditions?

5. Were any findings of fact made by the judge on 20 December 2000 in relation to 1-4 above and if so what were they?

6. What would constitute satisfactory SAP ratings for the flats?

7. Did Jewsons breach section 14(2) and 14(3) of the Sale of Goods Act 1979?

8. Should the manufacturers of new electric boilers submit them to the BRE for testing and coding?

9. Did the fact that the electric boilers were not coded cause SAP ratings not to be satisfactory within the meaning of point 6 above?

10. Does the SAP rating of electric boilers having (sic) any, and if so what, impact on lending by commercial lenders?

11. What type of loss is recoverable in relation to any breaches of contract and/or misrepresentation found, having regard to clause 8.10 of Jewsons' terms and conditions?"

11. The judge answered each of those questions and, as already stated, held that Jewsons were in breach of the terms implied by section 14(2) and (3) of the Sale of Goods Act 1979, as amended. In this appeal Jewsons accept most of the answers given by the judge to the questions but argue that he was wrong to hold that they were in breach of either of the implied terms. They also say, contrary to the judge's conclusion in his second judgment, that, if they would otherwise be in breach of the term implied by section 14(3), they are protected by the terms of clause 8.7 quoted above.
12. Before considering, so far as it is necessary to do so, the facts found by the judge, it seems appropriate to set out the terms of the Sale of Goods Act 1979 ("the 1979 Act").

The 1979 Act

13. As amended by various provisions of the Sale and Supply of Goods Act 1994 ("the 1994 Act"), with effect from 3 January 1995 section 14(2) and (3) of the 1979 Act provide as follows:

"(2) Where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality.

(2A) For the purposes of this Act, 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.

(2B) For the purposes of this Act, the quality of goods includes their state and condition and the following (among others) are in appropriate cases aspects of the quality of goods –

(a) fitness for all the purposes for which goods of the kind in question are commonly supplied,

(b) appearance and finish,

(c) freedom from minor defects,

(d) safety, and

(e) durability.

(2C) The term implied by subsection (2) above does not extend to any matter making the quality of goods unsatisfactory-

(a) which is specifically drawn to the buyer's attention before the contract is made,

(b) where the buyer examines the goods before the contract is made,

(c) in the case of a contract for sale by sample, which would have been apparent on a reasonable examination of the sample.

(3) Where the seller sells goods in the course of a business and the buyer expressly or by implication, makes known-

(a) to the seller, or

(b) where the purchase price or part of it is payable by instalments and the goods were previously sold by a credit-broker to the seller, to that credit-broker,

any particular purpose for which the goods are being bought, there is an implied term that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the skill or judgment of the seller or credit-broker."

14. The essential change introduced by the 1994 Act was that the test of "satisfactory quality" replaced that of "merchantable quality". The question which must be asked under section 14(2) is thus whether the boilers were of satisfactory quality. I will return below to the extent to which the "other relevant circumstances" to be taken into account extend to circumstances peculiar to the buyer or his purposes.
15. Under section 14(3) the questions are these:

i) whether Mr Kelly, expressly or by implication, made known to Jewsons the purpose for which the boilers were being bought;

ii) if so, whether they were reasonably fit for that purpose;

iii) if they were not reasonably fit for that purpose, whether Jewsons have shown

a) that Mr Kelly did not rely upon their skill and judgment or,

b) if he did, that it was unreasonable of him to do so.

It is convenient to consider those questions after identifying the crucial findings of fact made by the judge and how they impact upon Mr Kelly's case.

The Judgment

16. The judge's findings of fact may be summarised in this way. In early February 1998 Mr Kelly went to the Jewsons branch in Bideford in North Devon, where he spoke to Mr Jury, who worked there, and asked him whether there were any electric boilers on the market which could be used at York House. Mr Jury said that he did not know but that he would look into it. Thereafter, to some extent assisted by Mr Eastman (also of Jewsons), he made extensive enquiries in the market and found Amptec. As a result he contacted Mr Kelly and said something along the lines: "I think we've found what you want". He did so because the person he spoke to at Amptec almost certainly said words to the effect that Amptec boilers would appear to fit the bill precisely. Mr Kelly could not, however, reasonably have believed that Mr Jury knew more about the boilers than he had been told by Amptec because, as Mr Kelly was aware, Mr Jury was merely a channel of communication.
17. On 6 February a meeting was held on site at York House at which Mr Kelly, his electrician Mr Dawe, his plumber Mr Powell, Mr Eastman from Jewsons and Mr Brown, who was Amptec's regional sales manager, were all present. Mr Kelly was primarily looking for confirmation that Amptec boilers were what he was looking for. Mr Brown, as the judge put it, "believing (and probably correctly) that the boilers were ideal for the kind of development in progress, would have wanted to emphasise the points that made them so."
18. Those points included the aspects of the boilers set out in Amptec's promotional literature, of which Mr Kelly was given a copy at the meeting. The judge set out parts of the literature in some detail. Under the heading "Can you believe that a boiler can be so small and yet so efficient?" there appeared the following:

"Now let us introduce the Amptec boiler. The largest module is 75 mm wide, 50 mm deep and 1 metre high. You could hold one in each hand. Yet they'd be powerful enough to heat a 4 bedroom house.

The Amptec boiler processes very low volumes of water at very high speeds making it 99.6% heat efficient and impressively cheap to run. It is the first of its type to receive BEAB approval and able to supply heating and hot water for a fully insulated 3 bedroom house from as little as £6.23 a week on a conventional 7 hour cycle.

The Amptec boiler comes in 7 sizes, each one designed to be placed neatly on a wall or stowed away in the narrowest of gaps, freeing up room for a water tank or extra storage.

Because it's so compact, the Amptec boiler is particularly suitable for houses, flats, small shops and mobile homes. Because it's electric, it's ideal when there's no gas main; for new housing, properties in rural area and renovations. And it's easy to use controls and special safety features make it well worth considering when housing people who are elderly or who have disabilities.

The Amptec boiler is much quieter than conventional boilers, and unlike most electric heating systems, it responds instantly to give you heat and hot water at the touch of a button.

There's no flue, no fuel tank and no fuel lines so it can be installed quickly and with a minimum of fuss by a qualified plumber and electrician. There's also no need for expensive servicing. Once installed, the Amptec boiler just quietly gets on with the job

To find out how the new Amptec boiler can give you the latest affordable warmth please contact etc."

19. Under the heading that there was an "easy to use alternative to gas" there appeared the following (as set out by the judge):

"Gas heating simply isn't suitable for some properties.

So if you're thinking about how to provide affordable warmth in housing for the elderly or people with disabilities, may we suggest that you consider the Amptec?

As you know, half the battle of keeping heating costs down is having an easy to operate system so that your client can make maximum use of energy saving tariffs. And that's where the Amptec comes into its own.

Its user friendly controls are childs play to understand and can easily be pre-set.

And the other half of the battle? Making sure that you choose a system that's efficient in the first place.

The Amptec uses latest patented technology to process low volumes of water at very high speeds. The end result is that the Amptec is 99.6% heat efficient and extremely affordable to run.

There are no pilot lights to worry about and no smelly fumes or risk of carbon monoxide poisoning. It's safe too, with its special flow switch and thermal cut out fuse.

Amptec electric heating systems are easy to instal, which makes them particularly suitable if you're refurbishing an existing building and don't want to make major structural changes, or if you need to heat temporary housing of any kind and once installed they are virtually maintenance free.

To find out more about how the Amptec can provide affordable warmth in all types of properties, please contact, etc"

20. As the judge correctly put it, the net effect of the literature was to emphasise the unobtrusive nature of the boiler, its ease of installation, its safety, its efficiency and its ability to provide "affordable warmth". It should, however be noted that no specific claims were made in the literature as to the cost of electricity other than the quotation above that it was "able to supply heating and hot water for a fully insulated 3 bedroom house from as little as £6.23 a week on a conventional 7 hour cycle" (my emphasis).
21. It is in my opinion a very important feature of this case that it is not said that, viewed as boilers, and without reference to the particular building in which they were to be installed, the Amptec boilers were unsatisfactory. In this regard the judge said in paragraph 35:

"It has not formed part of this trial to assess whether those claims, particularly those relating to 'cost efficiency', were true. There has been no suggestion that intrinsically the boilers did not meet the claims made about them by Amptec and, as I understand it, Mr Wilson believes that the product was indeed essentially a good one which was "unique…[and] would eventually find its correct place within the market." The Defendant himself was very pleased with them when installed, describing them as 'very good and very efficient'. Allowing for a little poetic licence, he said that they "do the job 150%". Given that there is evidence (in the form of Land Registry entries) that at least 7 of the flats had been sold by early to mid-2001 at prices at or in excess of those hoped for by the Defendant, and that there is no evidence that the heating system had been changed in the meantime, the inference to be drawn is that the Amptec boilers were indeed working satisfactorily. I have, of course, received no evidence about the cost associated with their use. However, it seems to me that I must proceed on the assumption that the boilers do operate at least to the reasonable satisfaction of those who are using them. I think it must follow from that conclusion that, when installed in 1998, the boilers were capable of working to the reasonable satisfaction of the occupants of the flats in which they had been installed. I shall have to address later the important question whether that ends the debate about whether or not they were of 'satisfactory quality' or were reasonably fit for the purpose or whether it is merely one factor to be taken into account in the overall analysis."

22. The judge's findings with regard to what was said before and at the meeting of 6 February may be summarised in this way. Mr Jury had told Mr Kelly on the telephone that he thought that they had found what he was looking for. Mr Kelly was also told at the meeting (I think by Mr Brown) that the boilers "were perfect for [his] requirements as they were more efficient and cost less to run than gas boilers" and he was assured by Mr Brown that it would cost less to run the Amptec system than a gas system.
23. He was further told, in response to a specific question, that the boilers complied with all relevant regulations and legislation. Mr Kelly said that he had been advised by Mr Sherry to ask that question. Mr Sherry was a chartered engineer with other engineering qualifications, who also offered building design and planning consultation services. He had originally acted for Mr Dunn and subsequently (as the judge put it) helped Mr Kelly out with various matters during the development. He did not, however, attend the meeting. The judge said that, given that Mr Brown knew that the boilers had BEAB approval, he would doubtless have thought it appropriate to answer the above question affirmatively.
24. It is I think of some significance to note that it is not said on behalf of the respondent that either Jewsons or Amptec made any misrepresentation before or at the meeting. In short, Mr Jury said on the telephone that he thought that they had found what Mr Kelly wanted and at the meeting Mr Brown praised the boilers (as set out in the literature) and said that they complied with all relevant regulations and legislation. By no later than the end of the meeting both Jewsons and Amptec were in no doubt that, if ordered, the boilers would be installed into the flats which Mr Kelly was converting for sale.
25. Mr Kelly bought the boilers in reliance upon what he had been told at the meeting and they were all installed in the flats by about mid-April 1998. As the judge held in paragraph 35 of his judgment quoted above, they all worked satisfactorily. However, Mr Kelly's case at the trial was that they were neither of satisfactory quality nor reasonably fit for their purpose because they reduced the SAP ratings on the flats. No-one had mentioned SAP ratings at the meeting of 6 February. Unlike Mr Sherry, each of Mr Kelly, Amptec and Jewsons was unaware of what SAP ratings were.

SAP Ratings

26. SAP is short for "Standard Assessment Procedure", which is designed to give a home energy rating to a particular residential dwelling. The judge described the system in detail in paragraphs 15 to 20 of his judgment. In paragraph 17 he quoted from the joint statement of the experts instructed on either side. His quotation included the following:

"An energy rating aims to inform householders of the overall energy efficiency of a home in a way that is simple and easy to understand. … The Standard Assessment Procedure (SAP) is the Government's recommended method for home energy rating.

The rating obtained from following the SAP depends upon a range of factors that contribute to energy efficiency:

thermal insulation of the building fabric;

efficiency and control of the heating system;

ventilation characteristics of the dwelling;

solar gain characteristics of the dwelling;

the price of fuels used for space and water heating."

27. It can thus be seen that the characteristics of the particular dwelling are important factors in calculating its SAP rating; for example the less insulated the dwelling the worse the rating. Equally, as the judge observed in paragraph 18, it does not require much imagination to appreciate that a property which has a high-cost source of power for heating purposes is likely to score badly in calculations designed to give an "overall energy efficiency" rating for the property unless very small amounts of power are required. The SAP ratings are (or were) not easy to calculate but the British Research Establishment ("BRE") had designated certain types of heating system as having certain values to be fed into the calculations. Amptec had not, however, submitted their boilers to the BRE for assessment for this purpose.
28. There were certain regulations in force at the relevant time, namely the Building Regulations (Amendment) Regulations 1994 ("the 1994 Regulations"), which were in force by the beginning of 1995. They related to new dwellings, conversions of property into dwellings and sub-division of property into dwellings and thus applied to the conversion of York House into flats. They required the calculation of an SAP rating and the submission of the relevant calculations to the local authority building control department when Building Regulation approval was sought. There was a minimum rating of between 80 and 85 for a "new build" flat, depending upon floor area, but there was no statutory minimum for a conversion. However, the judge said in paragraph 16 that, given the obligation to provide an SAP calculation "within a minimum of five days prior to the occupation of the dwelling or five days after completion, whichever comes first", it was likely that any such calculation would be available for consideration by an intending occupant of the dwelling and/or by any adviser, such as a surveyor, instructed by such a person.
29. In fact SAP ratings for the flats had been calculated in May 1997 when an application for Building Regulation consent was made by Mr Sherry on behalf of Mr Dunn. The "SAP Energy Rating" box on the application form dated 20 May 1997 was ticked and the SAP calculations for each flat were attached. The lowest rating was 44 and the others were 57, 63, 64 (two), 67, 68, 76, 89, 95, 98 and 100 (two). Those ratings were of course based on Mr Dunn's proposal to keep the central oil-fired boiler. There is, so far as I am aware, no evidence that Mr Sherry was asked to consider the effect on the SAP ratings of changing the heating system to individual boilers in each flat or, if he was, what advice he gave. No fresh calculations were sent to the local authority to correct the calculations attached to the application form when it was decided to instal electric boilers.
30. As stated above, at the meeting of 6 February Mr Kelly asked Amptec whether the boilers complied with all relevant regulations and Mr Brown said yes. No-one suggested either before the judge or before us that that answer was wrong because of the provisions of the 1994 Regulations.
31. After the boilers had been installed, Mr Kelly was told by or through the local authority building inspector that, because the heating system had been changed from oil, new SAP rating calculations would be required. As a result Mr Kelly instructed Mr Wilson, an expert who had not advised him until then, to recalculate the SAP ratings. Mr Wilson gave expert evidence at the trial.
32. Mr Wilson discovered that there was no code ascribed by BRE to the Amptec boilers. BRE advised that in these circumstances, in the absence of satisfactory details, the default codes, which were those attributable to electric panel radiators, should be adopted. Mr Wilson followed that advice and the result was that, as the judge put it, dramatically lower SAP ratings were obtained than previously. The highest was 44, there were three in the 30s, two in the teens and the rest were in single figures. They were all considerably lower than the 55-100 range generally achieved by converted flats.
33. Mr Kelly's case before the judge was that potential purchasers were put off from proceeding by the new SAP ratings. It was that at least two purchasers were put off because they were advised by their surveyors that they would not be able to obtain mortgages on the flats because of the low ratings. Mr Kelly relied upon a letter from Mr Michael Lewis, who was a chartered surveyor advising prospective purchasers of one of the flats, in which he said that he had consulted Mr Wilson and that he could not advise his clients to proceed because of the SAP ratings. He expressed the view that the flats were not marketable unless something was done about the heating system. Mr Kelly relied upon that evidence as typical of the likely views of other chartered surveyors and valuers. Mr Wilson was also of the view that purchasers and their surveyors and valuers would be influenced by unacceptable SAP ratings and that this could lead to difficulties in obtaining a mortgage.
34. That evidence must be contrasted with evidence given by leading mortgagees which the judge considered under issue 10. Issue 10 was drafted in order to reflect Mr Kelly's pleaded case, which was not based upon the attitude of purchasers and their valuers but upon the attitude of mortgage lenders. It was that lenders were generally unwilling to authorise mortgages on properties with SAP ratings below 55 and that the SAP ratings of the flats removed or materially reduced the ability of would-be purchasers to obtain a mortgage.
35. After considering the evidence in some detail between paragraphs 64 and 71, the judge concluded in paragraph 72 that certainly from 2001 onwards, and probably even in 1998, major commercial lenders would not be, or would not have been, inclined to refuse to lend on a property with an unsatisfactory SAP rating, provided of course that the amount of the loan was adequately secured by reference to the value of the property. Mr Kelly's pleaded case thus failed.
36. However, the judge's view was that that missed the point. He expressed his conclusions thus in paragraphs 73 to 75:

"73. That having been said, however, I do consider that an unsatisfactory SAP rating, even now in 2002, would be likely to have an impact on the mind of a would-be purchaser and/or his professional advisers. Mr Rolton, who is an engineer, was understandably reluctant to involve himself in the debate, but he agreed (sensibly, as I think) that a low SAP rating (certainly one as low as 2) would be cause for concern. It would raise the spectre of high heating costs and/or, in respect of a conversion, that the conversion had been done "on the cheap". The reason for the low SAP rating would be a warning sign that required further investigation. In my view, that would undoubtedly be the approach of the prudent surveyor instructed by an intending purchaser and I think that Mr Wilson was right to express the view that it is "reasonable for purchasers and their surveyors/valuers to be influenced by unacceptable SAP ratings when considering properties." There will, of course, be some purchasers who will not be perturbed by this kind of matter, but the ordinary, prudent, purchaser who is spending a fair amount of capital, whether borrowed or from his own resources, will almost inevitably pause before proceeding further until the reason for the unacceptable SAP rating has been found and, if appropriate, dealt with. There is a risk that the proposed purchase will not proceed at all.

74. In short, therefore, in my judgment, an unacceptable SAP rating will substantially increase the risk that a proposed sale of a property will be delayed significantly or even abandoned. I consider that the risk was, if anything, somewhat higher in 1998 than it is now because I believe there was a degree of ignorance, perhaps even amongst the surveying profession, then which has been largely overcome in the succeeding years. Furthermore, what, in my view, made the situation even more difficult in this case was the fact that the boiler which, if it did what was claimed for it, ought in the minds of most people to have contributed to an acceptable SAP rating in fact did the opposite. In those circumstances, particularly at that time, I can understand why people were put off from proceeding.

75. I might add this: both the Defendant and Mr Wilson recalled Mr Brown saying, at the meeting in June 1998 after the problems had become apparent, that Amptec was being threatened with legal action by a Housing Association in Newcastle for the cost of replacing the Amptec boilers because of poor energy ratings. Whilst the context is slightly different, that seems to me to confirm that people were having problems accepting that a boiler marketed as providing low cost heating by electric power was in fact doing so. The SAP rating procedure was, in my view, highlighting the difficulty – as indeed it was designed to do."

I should note in passing that Mr Rolton was the expert instructed on behalf of Jewsons. He gave evidence at the trial and his evidence is, as I see it, correctly reflected in those paragraphs.

37. The judge recognised I think that those conclusions do not reflect the way in which the case had initially been put on behalf of Mr Kelly. However, the case was undoubtedly put in that way during the trial. As the judge said in paragraph 64, Mr McGuire's submissions had the effect of re-aligning the target of Mr Kelly's essential complaint. Mr Jones, who appeared for Jewsons at the trial, did not seek an adjournment in order to meet this new case. In these circumstances, although Mr de Garr Robinson submitted in this court that Jewsons had not prepared for trial on the basis that this was the case they had to meet, I would not for my part allow the appeal on this basis in circumstances in which no objection was taken or adjournment sought at the trial. It has to be said, however, that there is a tension between the conclusions of the judge in paragraphs 73 and 74 and the conclusions in paragraph 35 (also quoted above) as to the impact of an unsatisfactory SAP rating in 2001.
38. However that may be, I proceed on the footing that purchasers would or might be influenced by low SAP ratings since the whole purpose of SAP ratings is to provide some kind of comparison between different properties in terms of energy rating.
39. For present purposes it is sufficient to note that, as the judge said at paragraph 38 (where he must I think have been setting out Mr Kelly's case rather than making findings of fact), the upshot of the difficulties which Mr Kelly either faced or perceived that he faced with selling the flats with the new SAP ratings was that he could no longer keep up the repayments to Mr Dunn and, in order to avoid the costs of repossession proceedings, he agreed that Mr Dunn should repossess the property, which he did in September 1998. It appears that Mr Dunn sold the property to a Mr Coughlan or to a company in which he was interested because it was such a company which sold the flats during 2001.

The Counterclaim

40. Mr Kelly's case is that, as a result of installing the Amptec boilers into 12 of the flats, the whole project collapsed. He claims a loss of profit of £213,450 together with increased costs of £85,000 or alternatively the difference between the value of the flats with Amptec boilers and their value with an "appropriate" system installed, which his solicitors at one stage put at about £450,000. There are, as I understand it, issues of quantum and causation between the parties. Indeed, it is Jewsons' case that the cause of the abandonment of the project was not the installation of the Amptec boilers, which would have had no significant effect on the market value of the flats (as proved to be the case), but entirely independent factors. It is also Jewsons' case that, if Mr Kelly wanted to proceed with the conversion, at any rate within a reasonable time, he had no alternative but to instal electric boilers because (as explained above) he had ruled out other forms of heating. However, these were not questions which the judge was asked to consider at the trial of the preliminary issues and do not arise for decision on this appeal.

Satisfactory Quality - Preliminary

41. The judge held that the boilers were not of satisfactory quality within the meaning of section 14(2) of the 1979 Act, although he said in paragraph 83 that he regarded the issue as a difficult one and the arguments as finely balanced. He thought that the issue of whether Jewsons were in breach of the term implied by section 14(3) was more clear-cut in Mr Kelly's favour.
42. The case is not concerned with any of the situations described in subsection (2C) but, in considering the issue of satisfactory quality it may be appropriate to set out again here subsections (2), (2A) and (2B) of section 14. They provide as follows:

"(2) Where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality.

(2A) For the purposes of this Act, 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.

(2B) For the purposes of this Act, the quality of goods includes their state and condition and the following (among others) are in appropriate cases aspects of the quality of goods –

(a) fitness for all the purposes for which goods of the kind in question are commonly supplied,

(b) appearance and finish,

(c) freedom from minor defects,

(d) safety, and

(e) durability."

43. The judge recognised that, in the light of his analysis in paragraph 35 of his judgment (which is quoted in paragraph 21 above) of the evidence concerning the intrinsic capabilities of the Amptec boilers to do the job for which they were installed in the flats, they were capable of working to the reasonable satisfaction of the occupants of the flats when installed in 1998. In short, there was no legitimate complaint that the boilers did not work satisfactorily as boilers. Nor was there anything wrong with their state or condition, their appearance or finish, their safety or their durability and they were free from minor defects.
44. Mr de Garr Robinson submits that they were also fit "for all the purposes for which goods of the kind in question [viz boilers] are commonly supplied". Intrinsically they worked satisfactorily and their intrinsic quality reflected no breach of any regulation designed to protect the end-user. In short there was nothing wrong with the boilers. Mr de Garr Robinson further submits that in these circumstances they met the "standard which a reasonable man would regard as satisfactory".
45. The reason why the judge held that the boilers were not of satisfactory quality is summarised in paragraph 82 as follows:

"For my part, I could understand why a reasonable person, addressing the issue in 1998, would have said that a new form of electric boiler claimed to provide efficient low-cost heating in residential dwellings ought to be capable of being shown to meet such a claim within the tests and procedures then prevailing or, if not, why not and/or why it did not matter. I can see a reasonable person saying that, without meeting such tests or procedures or without such an explanation, he or she would understand a proposed purchaser of a dwelling into which such a boiler was fitted delaying, or even pulling out of, the purchase. My conclusions on the impact of the unsatisfactory SAP ratings are set out in paragraphs 73-75. A reasonable person, reflecting on those conclusions against the background of the description of the boilers given in the promotional literature (see paragraphs 33-35 above) and by virtue of what Mr Brown said about them at the meeting on 6 February (see paragraph 45), would, I think, on balance say that the boilers were not of "satisfactory quality".

I have quoted paragraphs 73 to 75 of the judgment in paragraph 36 above and have set out the relevant parts of Amptec's promotional literature in paragraphs 18 and 19 above. I have also summarised the judge's findings relating to the meeting of 6 February in paragraphs 22 to 24 above.

46. Mr McGuire submits that those conclusions were entirely justified whereas Mr de Garr Robinson submits that they confuse the requirements of the terms implied by subsections (2) and (3). His submissions may be summarised as follows:

i) There is a considerable overlap between subsections 14(2) and 14(3) but they perform different functions. The function of section 14(2) is to establish a general standard which goods are required to reach, whereas the function of section 14(3) is to impose a particular (higher) standard which is appropriate where the buyer (to the knowledge of the seller) buys the goods for a particular purpose and relies on the seller's skill and judgment for that purpose.

ii) Goods are satisfactory if they meet the standard which a reasonable person would regard as satisfactory: section 14(2A).

iii) In determining the standard that a reasonable person would regard as satisfactory, the circumstances which must be taken into account are any description of the goods, the price and all the other relevant circumstances: section 14(2A).

iv) In appropriate circumstances, certain defined features may be regarded as aspects of the quality of the goods, including fitness for all purposes for which goods of the kind in question are commonly supplied: section 14(2B).

47. I would accept those submissions. It seems to me that under the statutory scheme set out in section 14 it is the function of section 14(3), not section 14(2), to impose a particular obligation tailored to the particular circumstances of the case. The problem with which we are faced in this case is what the overlap is between subsections (2) and (3). It is important to note that this is not a case in which it is said that there was anything unsatisfactory about the intrinsic qualities of the boilers. What has been held to be unsatisfactory about them is their impact on the SAP ratings for the flats, which depends upon a number of factors which relate to the particular characteristics of the flats as well as the boilers. In these circumstances, it seems to me that it would be a startling result if Jewsons were liable for breach of the implied terms in section 14(2) and not of the implied terms in section 14(3).
48. I therefore turn to consider the position under section 14(3) before returning to section 14(2).

Fitness for Purpose

49. I identified the relevant questions in this regard in paragraph 15 above. The first question is whether the buyer made known to the seller the purpose for which the goods were being bought. Here the judge held that Mr Kelly made clear to Jewsons that he was buying the boilers for installation in the flats which were being converted for resale.
50. The second question is whether the boilers were reasonably fit for that purpose. The judge's conclusions in this regard may be summarised as follows:

i) Any feature of the boiler which materially or substantially increased the risk of a significantly delayed sale of the flat would have rendered them not reasonably fit for their purpose (paragraph 84).

ii) The unsatisfactory SAP ratings caused by the boilers gave rise to such a risk (paragraph 84). The judge there referred specifically to paragraph 75, where he noted evidence that in June 1998 Mr Brown had said that Amptec was being threatened with legal action by a Housing Association in Newcastle for the cost of replacing Amptec boilers because of poor energy ratings. The judge said that that confirmed that people were having problems accepting that a boiler marketed as providing low cost heating by electric power was in fact doing so and that the SAP rating procedure highlighted the difficulty, as it was designed to do.

iii) The judge added in paragraph 84 that he was fortified in his conclusion that the boilers were not reasonably fit for the purpose by the joint view of Mr Rolton and Mr Wilson that "the Amptec product is an unsuitable one for use in this application where other forms of cost-effective fuel were available".

iv) He noted Mr Jones' submission that he should not be influenced by that view because it presupposes that Mr Kelly had the freedom to choose between comparative systems and then to select the most cost effective, which it was submitted that he did not. However, he added that it was met on the facts by considerations which he had set out in paragraph 50. I take that to be a reference to this passage:

"… if [Mr Kelly] had thought that the Amptec boilers were unsuitable I am quite sure he would have thought again about acquiring them. I suspect that, in truth, he would have examined all the options again and only if it became apparent that each and all were quite impracticable would he have abandoned the project altogether and, as it were, cut his losses."

He added that that was a preliminary view because it raised a matter to be dealt with under the headings of causation or quantum. He also added, to my mind correctly, that it was a matter which might more conveniently have been dealt with at this stage of the case.

v) In short, the boilers were not fit for the purpose of being installed into the flats in York House because of their effect on the SAP ratings.

51. The third question divides into two parts, namely whether Jewsons have shown that Mr Kelly did not rely upon their skill and judgment and whether, if he did, it was unreasonable to do so. There is no doubt that, as stated above, Mr Kelly bought the boilers in reliance upon what he was told at the meeting on 6 February. However, the question is whether he relied upon Jewsons' skill and judgment in the relevant sense.
52. The judge identified two points which were taken by Jewsons in relation to the two parts of this third question. They were (a) that Mr Kelly did not rely upon Jewsons' skill and judgment and, if he relied on anyone, he relied upon Amptec and (b) in any event, it was unreasonable for him to rely upon anyone other than his own advisers (eg Mr Sherry) who should have been in a position to specify what type of boiler was required. The judge rejected both submissions.
53. In this court Mr de Garr Robinson puts Jewsons' case somewhat differently. He submits that Mr Kelly did not rely upon Jewsons (or indeed Amptec) to select suitable boilers for his particular flats. They knew little about the flats, whereas Mr Kelly was a developer who could be expected to know about the characteristics of both the flats and the market. He had access to advice and indeed sought it from Mr Sherry and perhaps others. It appears that no-one advised him that he should investigate the effect of particular boilers on the SAP ratings of the flats. He was advised to ask Amptec (or Jewsons) whether the boilers complied with the relevant regulations and received the correct answer that they did. The problem was that he was not advised to ask the correct questions.
54. Mr de Garr Robinson submits that this case is an example of a case where there was either no relevant reliance or it was unreasonable for Mr Kelly to rely upon the skill and judgment of Jewsons. He has drawn our attention to paragraph 43-091 of volume 2 of the 28^th edition of Chitty on Contracts, where the editors give as an example either of no reliance or of no reasonable reliance a case where the buyer knows more about the conditions in which the goods are to be used than the seller. The editors also refer to the decision of the House of Lords in Christopher Hill Ltd v Ashington Piggeries Ltd [1972] AC 441 as authority for the proposition that reliance may only be partial. In that case, where mink farmers had asked a compounder of animal foods to make up mink food to a supplied formula, it was held that there was reliance as to the suitability of the ingredients only.
55. As I see it, the problem in the instant case is that too little (if any) attention was paid at the trial to the possibility that there might be only partial reliance on a seller's skill and judgment. The principle of partial reliance is well settled. For example in the Ashington Piggeries case Lord Wilberforce said at p 490B:

"Equally I think it is clear (as both courts have found) that there was reliance on the respondents' skill and judgment. Although the Act [ie section 14(1) of the Sale of Goods Act 1893] makes no reference to partial reliance, it was settled, well before the Cammell Laird case [1934] AC 402 was decided in this House, that there may be cases where the buyer relies on his own skill or judgment for some purposes and on that of the seller for others. This House gave that principle emphatic endorsement."

56. In the same case Lord Diplock made a speech which was dissenting in part but contained a number of statements to similar effect which are not affected by the fact of his dissent. For example he said this at p 506E with regard to section 14(1) and (2) of the Sale of Goods Act 1893:

"The key to both subsections is reliance – the reasonable reliance of the buyer upon the seller's ability to make or select goods which are reasonably fit for the buyer's purpose coupled with the seller's acceptance of responsibility to do so. The seller has a choice whether or not to accept that responsibility. To enable him to exercise it he must be supplied by the buyer with sufficient information to acquaint him with what he is being relied upon to do and to enable him to appreciate what exercise of skill or judgment is called for in order to make or select goods which will be fit for the purpose for which the buyer requires them."

57. A little later Lord Diplock said this with regard to partial reliance at pp 507H to 508F:

"I turn next to "partial reliance." The actual words of subsection (1) appear to contemplate two classes of contracts only; one, where the buyer does not rely at all upon the skill or judgment of the seller to see to it that the goods supplied are reasonably fit for a particular purpose; the other where the buyer does so rely and the other requirements of the subsection are satisfied. As a matter of linguistics it is possible to construe the expression "so as to show that the buyer relies" as referring to a reliance which was only partial, in the sense that the reliance was not the only or even the determinative factor which induced the buyer to enter into the contract. But it is not possible to extract from the language of the subsection any qualification upon the implied undertaking by the seller, if there is such reliance, that the goods supplied by him shall be reasonably fit for the particular purpose for which they are required by the buyer. Yet as a result of technological advances since 1893 there are an increasing number of cases where the preparation of goods fit for a particular purpose calls for the exercise of more than one kind of expertise. The buyer may himself possess one of the kinds of expertise needed but lack another and may choose a seller who has led him to believe that he, the seller, possesses it. The only reliance by the buyer upon the skill or judgment of the seller is that in the preparation or selection of the goods he will exercise that kind of expertise which he has led the buyer reasonably to believe that he possesses. The goods supplied may then be unfit for the particular purpose for which both parties knew they were required, either because of a defect which lay within the sphere of expertise of the seller or because of a defect which lay within the sphere of expertise of the buyer himself.

The way in which the principle of reliance which underlies subsections (1) and (2) should be applied to a more complex contract of this kind, which was not in the immediate contemplation of the draftsman of the code, poses another stark question of legal policy. In large part this decision was made by your Lordships' House in 1934 in the Cammell Laird case [1934] AC 402. It was there laid down that if the defect in the goods which rendered them unfit for their purpose was due to a characteristic which it lay within the sphere of expertise of the seller to detect and avoid, the responsibility for their unfitness lay with the seller. The ratio decidendi leads ineluctably to the corollary that if the defect was due to a characteristic which it lay within the sphere of the expertise of the buyer to detect and avoid, the seller was not contractually responsible for it. It did not attract the implied condition under subsection (1). The field of the seller's undertaking as to the fitness of the goods for the purpose corresponded with the field of the buyer's reliance upon the skill and judgment of the seller.

My Lords, this seems to me to be consistent with common sense and business honesty. It was accepted as the correct principle by both courts below and by all parties to the appeals in this House."

58. Those principles are to my mind of particular importance to the facts of this case. There is, I think, no doubt that they apply to the 1979 Act: see eg paragraph 11-076 of the 6^th edition of Benjamin's Sale of Goods. Thus, as the editors put it, there may be reliance in one area or respect but not in others. The principles expressed by Lord Diplock must of course now be read subject to the express provision of section 14(3) that the burden is on the seller to show that the buyer did not rely upon his skill or judgment or, if he did, that it was unreasonable of him to do so.
59. Mr de Garr Robinson submits that this is at best a case of partial reliance, namely reliance only that the Amptec boilers were fit for their purpose as boilers. His submissions may be summarised thus. While Mr Kelly made it clear to Jewsons (and indeed Amptec) that he wanted to buy the boilers in order to instal them in flats for sale, he gave them no information about the nature of the building being converted. He thus gave them no or insufficient information upon which they could form a view as to the effect which the boilers would or might have on the flats' SAP ratings. In order to form a view on that question so as to exercise relevant skill and judgment, it would be necessary for Jewsons (and indeed Amptec) to have considerably more information than Mr Kelly made available to them: see for example the range of factors listed in paragraph 26 above.
60. I would accept those submissions. I do not think that it could properly be held on the facts that Mr Kelly relied upon the skill and judgment of Jewsons save as to the intrinsic qualities of the boilers. He did not rely upon them in relation to the question whether the boilers were suitable for installation in flats with the particular characteristics of these flats, having regard to their effect on the flats' SAP ratings. I would accept Mr de Garr Robinson's submission that the question whether they were suitable in that sense was a matter for Mr Kelly and his advisers. It was a matter for them to calculate, as had indeed been done when the flats were to be heated by oil.
61. I would also hold that in all the circumstances it was not reasonable for Mr Kelly to rely upon the skill and judgment of Jewsons (or indeed Amptec) in that regard. There was no discussion with Jewsons or Amptec either on 6 February 1998 or at any other time before the boilers were bought as to the particular characteristics of the flats or the building being converted. There was no discussion as to the comparable merits, cost or effect on the flats' SAP ratings of different forms of heating system. In my opinion it would not have been reasonable for Mr Kelly to rely upon Jewsons' (or indeed Amptec's) skill and judgment in any of these respects when (as indicated earlier) Amptec's literature only made claims as to cost by reference to a "fully insulated 3 bedroom house". It made no claims as to the energy efficiency of the boilers in a conversion of the kind upon which Mr Kelly was engaged and, in my opinion, Mr Kelly could not reasonably have thought that Jewsons or Amptec realised that he was relying on their skill and judgment in those respects.
62. As I read his judgment, the judge did not consider the problem in quite this way, perhaps because it was not put in quite the way in which it has been approached before us. It seems to me that, in Lord Diplock's words, the effect of the boilers on the flats' SAP ratings was something which lay within the sphere of expertise of Mr Kelly, as a developer, and of his advisers and not within the sphere of expertise of Jewsons or Amptec. Anyone calculating the SAP ratings for the flats if fitted with Amptec boilers would have required input from two sources. It would have required input from Amptec (or perhaps Jewsons) as to the characteristics of the boilers and it would have required input from Mr Kelly or his advisers as to the characteristics of the building and the flats. As I see it, the first was within the sphere of expertise of Amptec or of Jewsons as the sellers of the boilers to Mr Kelly and the second was within the sphere of expertise of Mr Kelly or his advisers.
63. In short, this was a case of partial reliance and in the respect in which Mr Kelly could reasonably have relied upon the skill and judgment of Jewsons as the sellers of the Amptec boilers, they were reasonably fit for their purpose. That is they were fit for their purpose as boilers.
64. Put another way, this seems to me to be an example of the application of the principle stated by Lord Steyn in Slater v Fleming Ltd [1997] AC 473 at 486 D to E:

"After all, if the buyer's purpose is insufficiently communicated, the buyer cannot reasonably rely on the seller's skill and judgment to ensure that the goods answer that purpose."

65. If it could fairly be said that they were not reasonably fit for their purpose as boilers fitted in these particular flats because of their effect on the SAP ratings, that was not something in respect of which Mr Kelly could reasonably rely upon the skill and judgment of Jewsons or Amptec. I put it that way because I have considerable doubts as to whether it is possible to conclude that the boilers were not reasonably fit for their purpose because of their effect upon the SAP ratings and a consequent possible effect upon the minds of purchasers, without carrying out a comparison with the overall effects upon the minds of purchasers of flats fitted with other types of heating system.
66. For these reasons I have reached a different conclusion from the judge and would hold that Jewsons were not in breach of the term implied by section 14(3) of the 1979 Act.

Satisfactory Quality - Conclusions

67. The above analysis seems to me to lead clearly to the conclusion that there was equally no breach of the term as to satisfactory quality implied by section 14(2) of the 1979 Act. As indicated above, the problem in this class of case is the overlap between subsections (2) and (3). In particular the problem is what circumstances can properly be regarded as relevant to the question whether the goods were of satisfactory quality. Subsection (2A) requires the goods to meet the standard that a reasonable person would regard as satisfactory. It thus seems to me that a circumstance would be relevant if a reasonable person would regard it as relevant to the question whether the goods were of satisfactory quality.
68. The judge held in paragraph 82, applying his conclusions in paragraphs 73 to 75, that a reasonable man would regard the boilers as of unsatisfactory quality if their installation in the flats led to SAP ratings which were so low that a proposed purchaser might delay purchasing the flats or pulling out of a purchase. For my part, I would not accept that conclusion. As already stated, the function of section 14(2), by contrast with section 14(3), is to establish a general standard of quality which goods are required to reach. It is not designed to ensure that goods are fit for a particular purpose made known to the seller. That is the function of section 14(3).
69. I recognise that there is scope for debate as to how far it is appropriate to have regard to the purposes for which goods are wanted by the purchaser in deciding what circumstances are relevant for the purposes of subsections (2) and (2A). There may be exceptions, but in general a particular purpose which is not one of the ordinary uses for which goods of the relevant type are generally supplied seems to me to be irrelevant. 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. In my opinion these boilers satisfied that criterion. They were satisfactory as boilers.
70. Subsections (2), (2A) and (2B) make it clear that they are concerned with quality. As I see it, there was nothing wrong with the quality of these boilers and a reasonable man would so conclude. I would accept that some regard must be had to the use which is likely to be made of the goods. Here the question is whether the boilers were of satisfactory quality for being used in flats, whether for sale or not. As I see it, they were.
71. This is not to say that the purpose for which the buyer wants the goods is never relevant, since he will ordinarily want to use them for a purpose for which they are commonly supplied. The judge placed some reliance on the decision of Tomlinson J in Britvic Soft Drinks Ltd v Messer UK Ltd [2002] 1 Lloyd's Rep 20. Put shortly, the facts were that Britvic purchased bulk CO₂ for the carbonation of various soft and alcoholic drinks from a supplier. The CO₂ was manufactured by others. As a result of a breakdown of the manufacturing process, the CO₂ contained a concentration of benzene which, although benzene is carcinogenic, was so small that it represented no risk to health. The questions were whether the CO₂ was of satisfactory quality or reasonably fit for its purpose within section 14(2) or (3) of the 1979 Act. Tomlinson J held that it was neither.
72. He said in paragraph 77:

"It seems to me to be axiomatic that one particular description of the goods to which the reasonable person must have regard is that to be found in BS4105, viz that CO₂ of type 2 is suitable for industrial food applications."

He expressed his conclusions in paragraph 92, which was quoted by the judge. It included the following:

"92. I therefore find it impossible to conclude that a reasonable person would regard the CO₂ supplied as meeting a satisfactory standard. Consumers would not wish to drink products which had inadvertently been contaminated with a measurable quantity of a known carcinogen, notwithstanding the quantity was not harmful to their health. If the manufacturers had not taken steps to satisfy the public that all reasonable measures were being taken to recall the batches of production affected all of their production would very quickly have become unsaleable. The affected products themselves were in a real sense unsaleable in the sense that no consumer would knowingly buy them and the manufacturers could not as responsible manufacturers be seen to attempt to sell them. … All those affected products which could by reasonably proportionate measures be withdrawn from the distribution chain were in a real sense unsaleable. I do not consider that the CO₂ can be regarded as of satisfactory quality if it had this effect on the end product into which it was introduced. … In that situation, the public perception will be that the carcinogen simply ought not to be present at all and the manufacturers ought not to attempt to sell products which have been in that way inadvertently contaminated. … "

The decision in the Britvic case was upheld in this court but we are told that there was no discussion of this point.

73. The judge quoted Tomlinson J's conclusion that a reasonable person would understand why consumers would not drink a carbonated drink which contained a "measurable quantity of a known carcinogen" immediately before expressing his conclusion in the part of paragraph 82 which I quoted in paragraph 45 above. However, to my mind the reasoning in Britvic is of no assistance here. In that case it was plain that the reasonable man would not have regarded CO₂ as of satisfactory quality, given the conclusion in paragraph 77 that the reasonable person would have regard to the fact that the CO₂ had to be suitable for industrial food applications. The facts of that case are a far cry from this.
74. Here, it seems to me that once it is held that it was not reasonable of Mr Kelly to rely upon the skill or4 judgment of Jewsons with regard to the potential impact of the boilers on the flats' SAP ratings, it is clear that the reasonable man would not conclude that the boilers were not of satisfactory quality. It follows that I would hold that there was no breach of the term implied by section 14(2) of the 1979 Act.

Conclusions

75. I would allow the appeal to the extent of declaring that Jewsons were not in breach of either of the terms implied into the contract by section 14(2) or (3) of the 1979 Act. I have reached that conclusion without reference to clauses 8.7 or 8.10 of the contract. In these circumstances I do not think that it is necessary further to lengthen this judgment by considering those provisions. Equally, it does not at present seem to me to be necessary to consider the specific answers to any of the other questions set out in the preliminary issues. However, if it is thought appropriate to alter any of the other answers given by the judge in the light of the decision of this court, it may be appropriate to hear submissions to that effect.

Lord Justice Sedley :

76. I agree that this appeal succeeds for the reasons given by Lord Justice Clarke. I nevertheless take the liberty of setting out my own reasoning about section 14(2) and (3) of the Sale of Goods Act 1979 as amended, since we are to some extent surveying new ground.

Substandard Goods: Section 14(2)

77. Section 14(2) is directed principally to the sale of substandard goods. This means that the court's principal concern is to look at their intrinsic quality, using the tests indicated in subsection (2A)(2B) and (2C). Of these, it can be seen that the tests postulated in paragraphs (a) and (d) of subsection (2B), and perhaps others too, may well require regard to be had to extrinsic factors. These will typically have to do with the predictable use of the goods. But the issue is still their quality: neither these provisions nor the residual category of "all the other relevant circumstances" at the end of subsection (2A), make it legitimate, as a general rule, to introduce factors peculiar to the purposes of the particular buyer. It is section 14(3) which is concerned with these.
78. By parity of reasoning I am unable to accept Mr McGuire's submission that the reasonable person who features in subsection (2A) is a reasonable person equipped with the buyer's personal agenda – so long, Mr McGuire is constrained to add, as he has communicated it to the seller. That too is in general a section 14(3) matter. The reasonable person in section 14(2A) is a construct by whose standards the judge is required to evaluate the quality of the goods. So, for example, the safety and durability of a soft toy would ordinarily need to be judged in relation to how a toddler may handle it – not in relation to the possibility of its being given to the dog. If it gets into a toddler's mouth and causes harm, it may well have been sold in breach of section 14(2). If the dog chokes on it, the claim must probably be brought under section 14(3) or fail – unless, say, the toy was bought in a pet shop, for that might well be a relevant circumstance within section 14(2A).
79. Here Mr Kelly bought some Amptec electric boilers from Jewsons. He got exactly what he had bargained for: twelve boilers which worked perfectly well. A reasonable person knowing what we now know would have said that they were of satisfactory quality – adding that it might nevertheless have been a mistake to install them because their dependence on peak-rate electricity made them expensive to run and (assuming that the reasonable person knew about it) depressed the flats' SAP ratings. The extrinsic factors relied on by Mr McGuire for the contrary argument are not of the kind which, being general, affect the quality of the goods. They go to the marketability of the flats in which the goods were to be installed. It might arguably have been otherwise if, for example, the boilers could only ever function at a impossible cost in fuel; but there may well be flats in which space is at a premium and usage intermittent, making an Amptec boiler an acceptable option. The material extrinsic factors, therefore, were of a kind which, being peculiar to the buyer and his needs, had to be introduced under section 14(3). In reaching this view I have been helped, but not finally persuaded, by Mr McGuire's supplementary written submission on the meaning of section 14 as amended.

Unfitness for Known Purpose: Section 14(3)

80. For the rest, I agree with Lord Justice Clarke about the case made for Mr Kelly under section 14(3). With or without clause 8.7 of the printed terms, it is not possible to accept, on the facts found by the judge in his careful judgment, either that Mr Kelly made it known to Jewsons that he needed boilers which would produce acceptable SAP ratings, or that he relied, or could reasonably have relied, on Jewsons' skill and judgment in selecting boilers with this in mind. It is now apparent that Mr Kelly would probably have done better to pay the steep price quoted to him for bringing gas into the twelve flats which lacked it. It worked out at a little under £3,000 a flat, and in retrospect he should perhaps have incurred the extra expense and passed it on, so far as possible, to the purchasers. But there is no way in which he – or now, sadly, his personal representatives – can translate such a business misjudgment (itself largely the product of hindsight) into a seller's liability under section 14 of the Sale of Goods Act. The conscientious judgment of the deputy High Court judge has, if I may say so with respect, become so closely focused upon the detail of the counterclaim that it has lost this essential perspective.

Split Trials and Case Management

81. I want to add a word about the management of this case. This was a familiar type of claim for the price of goods supplied, met with a defence and counterclaim to the effect that the goods were of unsatisfactory quality and unfit for their known purpose, the seller relying in reply upon their printed terms of trade and the buyer responding that these were unfair.
82. The case-management decisions to disaggregate the issues and to make them, very possibly, the subject of three separate trials have not entirely surprisingly proved a misfortune. Judge Playford QC in December 2000 determined as a preliminary issue that two of the contractual terms were reasonable and two were not. He reserved the costs rather than make them costs in the case, with the result that another judge on another day will have to decide where they should fall. The case went on, and in November 2001 Judge Kirkham ordered the trial of ten "preliminary" issues, later enlarged to eleven. They were in fact all the remaining issues short of causation and quantum. But by hiving these off they created an artificial split, since the causation of loss was integral to the alleged breaches of contract: as Mr McGuire put it, what made the quality of the boilers unsatisfactory and made them unfit for their purpose was that they made the flats much harder to sell.
83. If this appeal had failed and the deputy judge's decision had stood, there would thus have been three costly trials, the third carrying the possibility of a further appeal to this court. There was no sufficient reason, as it seems to me, for taking these risks. Letting the case go straight to trial on all the issues might have added a fourth day to the three which the second trial took, but it would have been time well spent. It might easily have transpired, for example, that even given a breach of contract by Jewsons, there was no recoverable loss.
84. I appreciate that the sequential trial of issues will result in real savings if the outcome of the first or second issue proves dispositive. But experience shows that more often splitting trials is a false economy. As a general rule a trial should not be split unless the case-manager has good reason to conclude that splitting it is likelier than not to produce savings in time and expense.

Mr Justice Cresswell :

85. I agree with both judgments.
Order: Appeal allowed. A minute of order was lodged with the court. Permission to appeal was refused. (Order does not form part of the approved judgment)