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& H Ritchie Ltd v. Lloyd Ltd [2005] ScotCS CSIH_3 (11 January 2005)

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
Lord Marnoch Lord Hamilton Lord Philip	[2005] CSIH 3 XA106/03 OPINION OF LORD MARNOCH in APPEAL by J.& H. RITCHIE LIMITED Pursuers and Appellants; against LLOYD LIMITED Defenders and Respondents; _______

Act: Wade; Aitken Nairn (for McCartney Stewart, Renfrew) (Pursuers and Appellants)

Alt: Di Emidio; Balfour & Manson (Defenders and Respondents)

11 January 2005

[1] I am indebted to Lord Hamilton for setting out fully the facts of this case and the submissions made to us by counsel for the respective parties. I agree with his assessment of the factual position but, since I differ from both him and Lord Philip in the legal result, it is necessary that I focus at the outset what I see as the essential matter to be decided.

[2] The appellant company purchased from the respondent company certain agricultural equipment comprising, as a single item, a seed drill and power harrow. The latter failed to operate properly and there is no dispute but that the appellants have established a material breach of contract in that respect. They would thus have been entitled, had they so wished, to reject the equipment at the outset and treat the contract as repudiated. They did not do that, however, and instead they agreed that the respondents could attempt a repair of the harrow. To that end the respondents supplied, free of charge, to the appellants a replacement second-hand harrow which enabled the appellants to complete the seeding then taking place on their farm. When, however, the respondents tendered the original harrow in what was said to be, and what on the unchallenged evidence led in the case was, on balance, proved to be, a repaired state, it was rejected by the appellants. In this action the respondents challenge the validity of that rejection.

[3] Quid iuris?

[4] Prior to the passing of the Sale and Supply of Goods Act 1994 it is not unlikely that in the circumstances above described the appellants would have been deemed, quite clearly, to have accepted the goods. By that Act, however, there was inserted as sub-section (6) of section 35 of the Sale of Goods Act 1979 inter alia as follows:

"(6) The buyer is not by virtue of this section deemed to have accepted the goods merely because -

(a) he asks for, or agrees to, their repair by or under an arrangement with

the seller ... ".

[5] In light of that sub-section and, notwithstanding the use, throughout, of the seed drill part of the machine, the parties were agreed, at least before us, that up until the time of repair the appellants' right of rejection remained intact. The sole remaining question in the case, as argued before us, thus came to be the effect, in law, of that repair.

[6] Counsel for the appellant submitted that in terms of the Statute it had no effect.

[7] The learned sheriff principal, in his Note, says this:

"The effect of that provision, [section 35(6) of the 1979 Act as amended] in my view, is to give the seller an opportunity to repair the goods, if the buyer agrees, without prejudice to the buyer's right to reject the goods if the repair is not satisfactory. It does not mean that the buyer is entitled to reject the goods even if the repair is satisfactory. The Act does not say so, and no authority for that proposition has been cited. That is not, perhaps, surprising, because that proposition would have the strange consequence that a seller, having spent time, money and labour in effecting in good faith a perfectly satisfactory repair, could be faced with the rejection of the goods by an intransigent or whimsical buyer. If by repair a machine has been rendered fit for its purpose, the buyer can hardly be entitled to reject it because in the past, at the time of delivery, it had not been so fit. Rejection on such a ground would appear to be quite irrational. There is, I think, some support for this view in the decision in Burnley Engineering Products Ltd. There, the purchaser of welding equipment purported to reject it on the ground that it was not fit for its purpose. It had not functioned properly after installation, but the sellers had worked on it to improve its performance so that by the date of purported rejection it was fit for its purpose. It was held that it was for the purchasers to satisfy the court on a balance of probabilities that at the time of rejection the true condition of the equipment was that it was not fit for its purpose."

[8] As to the foregoing reasoning, I entirely understand the sheriff principal's comments regarding the curious consequences of giving effect to the purchaser's contentions in this case. That may, however, be the result of an assumption on the part of the legislature - no doubt in most cases well-founded - that, if a satisfactory repair is effected, the parties to the contract will no longer be in dispute. In any event, it is not suggested by the sheriff principal or, indeed, by anyone else that it is possible to construe the Statute as containing the sort of qualification for which the respondents contend. Instead, the sheriff principal seeks some support for his view from Burnley Engineering Products v. Cambridge Vacuum Engineering 1994 50 Con. L.R. 10. In my respectful opinion, however, that case cannot assist in that it was there held that the machine installed by the sellers was conform to contract by the end of the commissioning period when, and when only, any right of rejection could arise.

[9] Counsel for the respondents, recognising that if he was to succeed it was necessary to look outwith the terms of the Statute, advanced the thesis, developed most attractively, if I may say so, by Lord Hamilton, that if, prior to the exercise of the right of rejection (or rescission of the contract), a seller re-tenders goods which are said by then to be conform to contract, the right of rejection or rescission will be lost. My difficulty with that thesis is that, despite consulting Chitty on Contracts 29th ed., Benjamin, Sale of Goods, 6th ed., Brown on Sale of Goods and Gloag on Contract, 2nd ed., I can detect no underlying principle to support it.

[10] I shall shortly review the three cases mentioned by Lord Hamilton in support of this thesis but, before doing so, I pause to make the point that, although attractive in its formulation, the thesis in question does, in its application, give rise, as in this case, to difficult questions of shifting onus of proof. This, in turn, suggests to me that it might also be somewhat impracticable to operate. In particular, unless the right of rejection is to be lost by the mere assertion that a repair has been effected, the seller will somehow have to demonstrate its effectiveness. In the present case, of course, while evidence was led by the seller regarding the effectiveness of the repair in the course of the proof, there was no demonstration of effectiveness on the ground - for the simple reason that the purchaser, by rejecting the machine, gave no opportunity for that to happen. So, at what stage, it might be asked, was the right of rejection lost? This, to my mind, simply illustrates the sort of practical difficulty to which the respondents' approach gives rise.

[11] Turning to the first of the authorities referred to by Lord Hamilton, viz. Gilfillen v. Cadell & Grant (1893) 21 R. 269, I confess that, for my part, I find the case of no real assistance in that, whatever else, it does not deal specifically with the only issue arising in the present case, namely the effect of a material breach of contract in the course of the performance of a contract. In Gilfillen it appears to have been expressly conceded that no such material breach had in fact been incurred. Grovebury Management Ltd. v. McLaren 1997 S.L.T. 1083 and Cumming v. Brown 1994 S.L.T. (Sh. Ct.) 11 are, in my opinion, similarly distinguishable. Both involve a delay in the payment of the price of heritable property and the application of specific contractual provisions declaring such delay to amount, in certain circumstances, to a material breach of contract and thereafter conferring on the seller an optional right of rescission. In both cases, however, late payment was tendered, with interest as contracted for, prior to that optional right being exercised. Although, in the Second Edition of McBryde on Contract, at para. 20-121, the author refers to the decisions in these cases as vouching the more general proposition that, "If the breach can be remedied tender of late performance may prevent a valid rescission", I prefer, for myself, to see them as doing no more than apply the express contractual provisions to the circumstances of each case. The starting off point in both cases, of course, is that delay in payment does not normally constitute a material breach of contract and, while the period specified in each contract for making the delay material had in each case been exceeded, neither seller had reached the stage of invoking his option so to regard it. The passage in Gloag on Contract (2nd Edition) at pps. 599-600 referred to by counsel for the respondent and by Lord Coulsfield in Grovebury concerns anticipatory breach of contract with which, in my opinion and with all due respect to Lord Philip, neither Grovebury nor the present case is really concerned. Here we are dealing with a statutory right of rejection which, even viewed more generally, is a right of rescission arising by operation of law. In my opinion, therefore, the situation is much more akin to that considered by Lord Sutherland in Ford Sellar Morris Properties plc v. E.W. Hutchison Ltd. 1990 S.C. 34. That was a case in which a contract of sub-lease was subject to the material condition that certain consents should be obtained from the head landlords by a stipulated date, which failing either party would be entitled to resile without penalty. Eight days after the date in question the pursuers' agents wrote to the defenders' agents enclosing a letter of consent from the head landlords and holding the missives as unconditional. On the same day the defenders' agents wrote to the pursuers' agents resiling from the bargain. Although, coincidentally, both letters were written on the same date, nothing appears to have turned on that circumstance. On the contrary, at p. 37, Lord Sutherland says this:

"Where a date has been fixed and made of the essence of the contract, in my opinion that date must be adhered to and if it is not then certain consequences follow. In the present case the consequence is that the defenders become entitled to resile. Obviously this option must be exercised within a reasonable time but in the present case as the time concerned was only eight days this cannot be regarded as in any way excessive and counsel for the pursuers did not seek to say that it was. The defenders in my opinion having acquired a right to resile at midnight on 28 February 1989 cannot have that right taken away from them by the belated performance of the condition which should have been complied with by that date. Performance after 28 February 1989 is not performance within the terms of the contract."

[12] In exactly the same way, in my opinion, the appellants in the present case, having acquired a right to reject the goods at the time of delivery, cannot have that right taken away from them simply by the later renewed tendering of these goods in an allegedly repaired condition. Usually, of course, a repair which has been agreed upon will result in acceptance by the buyer but it cannot, in my opinion, of itself remedy the material breach which has already occurred and which, as such, is irremediable. To put the matter otherwise, a purported second tendering of the goods is, quite simply, in the words of Lord Sutherland "not performance within the meaning of the contract"; vide Section 27 of the 1979 Act. Worse than that, in the present case it was not even, in my opinion, "performance" at all. This is not a case where for the first time goods are tendered late prior to the exercise of a right of rescission. This is a case where the goods, as tendered under the contract, have been shown to be disconform to contract at the time of tendering. In my opinion, there is simply no provision for a second or later tendering of either the same or any other goods.

[13] What, then, is the answer to the legal question which has arisen in this case? In my opinion it is, as is so often the case, to be found in Gloag on Contract op. cit., not at pps. 599-600, but in the following passage at p. 620:

"A party faced with a breach of contract which he regards as material would be well-advised in making a definite intimation to the defaulter that he regards the contract as at an end through his fault, and that he proposes to claim damages. If, in the absence of such intimation, the other party is led to act on the assumption that the contract is still in being, the right to reject may be barred."

[14] In short, if, outwith the purview of the 1979 Act, the respondents did have an answer to the appellants' claimed right of rejection, that answer had to be found, in my opinion, within the domain of personal bar. The provisions of Section 35(1)(b) of the 1979 Act, as amended, are, of course, based on that principle but I acknowledge the possibility that they may not be wholly exhaustive of it. Whatever else, the provisions of the new sub-section (6) of Section 35 introduced by the 1994 Act have clearly made some inroads into either or both of the statutory test and the broader principle on which it was formulated. Unfortunately, this case has illustrated the sort of difficulty to which such inroads can give rise.

[15] In the result, since in this case personal bar was not pled, either in its statutory form or at common law, and since the only argument advanced for the respondents was in my opinion unsound, my motion to your Lordships would have been to allow the Appeal. Since, however, I find myself in the minority the appeal will be refused in the terms proposed by Lord Hamilton.

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
Lord Marnoch Lord Hamilton Lord Philip	[2005CSIH3] XA106/03 OPINION OF LORD HAMILTON in APPEAL by J. & H. RITCHIE LIMITED Pursuer and Appellant; against LLOYD LIMITED Defender and Respondent; _______

Act: Wade; Aitken Nairn (for McCartney Stewart, Renfrew) (Pursuers and Appellants)

Alt: Di Emidio; Balfour & Manson (Defenders and Respondents)

11 January 2005

[16] The pursuer and appellant carries on a farming business at North Arkleston Farm, Paisley. The defender and respondent is a supplier of agricultural machinery with premises at, among other places, Hunters Hall, Kelso.

[17] By certain oral communings and an exchange of correspondence between the parties in February and early March 1999 the appellant agreed to purchase and the respondent to sell certain agricultural equipment comprising a seed drill and power harrow. At one stage in the ensuing litigation there was an issue as to whether the drill and the harrow were separate items of sale, but it is now accepted that, for the purposes of the contract, they constituted a single item. The equipment had been repossessed, apparently unused, by the respondent from an earlier purchaser.

[18] On 4 March 1999 the appellant paid the purchase price (£14,217.50) and took delivery of the equipment. It was not used immediately as the need for its use was seasonal. The appellant began seeding on 26 April 1999 and the equipment was used for that purpose that day and on the two succeeding days. On 27 April it was noticed that there was vibration coming from part of the drive train of the harrow. No defect was obvious on visual inspection. On the following day the vibration was still present. It then appeared to Mr James Ritchie, a director of the appellant, that the problem was major and he stopped the use of the equipment. He telephoned the respondent's premises and spoke to the workshop supervisor, Mr Elliot, who arranged for an alternative harrow to be made available to the appellant on the following day. On that day the respondent's skilled fitter attended the appellant's farm, removed the harrow and replaced it temporarily with a second-hand harrow. He did so with the agreement of Mr Ritchie, who wanted to complete the work he had started. The fitter took the harrow back to the respondent's premises at Kelso for inspection. The appellant completed its tilling and sowing using the original drill and the replacement harrow. The machinery was then cleaned and greased and put away for the season.

[19] At Kelso the respondent's fitter stripped down the harrow which he had removed. He ascertained that two bottom bearings were missing. That omission was a major defect which rendered the harrow, and thus the equipment, unfit for the purpose of tilling and sowing. The respondent then ordered replacement bearings from the manufacturers. After they were received, the respondent fitted them to the harrow.

[20] Some weeks after the removal of the harrow (the precise date is not disclosed in the evidence), Mr Elliot telephoned Mr Ritchie and told him that the original harrow was now repaired and ready for collection. Mr Ritchie asked what the problem had been. Mr Elliot was reluctant to tell him. Other telephone conversations subsequently took place between Mr Ritchie and other employees of the respondent. There was continued reluctance on the part of the respondent's management to disclose the precise nature of the problem. Mr Ritchie was told repeatedly that the harrow had been repaired to what was described as "factory gate specification". Mr Ritchie had been told informally by persons involved in repairing the harrow that there had been bearings missing from the harrow and that these had been omitted on manufacture. Mr Ritchie was concerned about any consequences which the missing bearings could have had on other parts of the harrow. He was further concerned because the machinery would not be used again until the following Spring; only then would he have an opportunity of discovering whether the problem had been rectified. He was further concerned that the guarantee period might run out.

[21] When the respondent offered to return to him the harrow which it had repaired, Mr Ritchie asked for an engineer's report on the harrow. His request was refused. He rejected the harrow in a telephone conversation with the respondent. He then consulted his solicitors. By a letter to the respondent dated 26 May 1999 the solicitors wrote:

"Our clients' instructions are to intimate to you that because of the condition of the goods supplied by your company, our clients consider that you are in breach of the contract of sale and as a result the contract is now terminated and our clients reject the goods and are seeking return of the price paid."

By letter to the solicitors dated 22 July 1999, the respondent offered to make the repaired harrow available for inspection by any qualified firm of consulting engineers who routinely dealt with examinations of such equipment, nominated by Mr Ritchie. That offer was not acceptable to Mr Ritchie. He would have been content with a report from the respondent's own engineer.

[22] The appellant returned the second-hand harrow which had been loaned to it. The respondent declined to take back the drill, while the appellant declined to take possession of the repaired harrow.

[23] Thereafter the appellant raised an action in the sheriff court in which it sought repetition of the purchase price. The action was defended on various grounds, many of which are no longer live. After proof the sheriff, by interlocutor dated 7 January 2003, granted decree in favour of the appellant. The respondent appealed to the sheriff principal who, by interlocutor dated 31 July 2003, recalled that decree and assoilzied the respondent. The appellant has further appealed to this court.

[24] The various issues between the parties before the sheriff became narrowed in the appeal to the sheriff principal and were further narrowed in the appeal to this court. The sole issue on which the appellant failed before the sheriff principal was whether it was, in the circumstances, entitled to reject the equipment and rescind the contract as it had sought to do, initially in the telephone conversation between Mr Ritchie and the respondent and then confirmed by the solicitors' letter of 26 May 1999.

[25] There are two aspects to that issue, one being whether the sheriff principal, who found it convenient to recast the sheriff's findings in fact, was entitled to include within them a finding (finding in fact 19) in the following terms:-

"The effect of [the repair carried out by the respondent after the return of the harrow to it] was to make the harrow conform to 'factory gate standard', that is, to make it as good as it would have been if it had left the factory as a new, correctly assembled, harrow."

The other aspect is what, if any, effect any repair carried out by the respondent to the harrow and its tendering of the repaired harrow to the appellant had on the appellant's right to reject the equipment and rescind the contract.

[26] It is convenient at this stage to narrate the procedural history and the evidence bearing on the critical factual issue. The proof was heard before the sheriff on 11 and 12 November 2002. In advance of that proof, evidence was on 30 October 2002 taken on commission from Thomas Fairley, a witness for the respondent. He was the fitter, employed by it, who had, on its instructions, attended the appellant's premises on 29 April 1999 following the report of a problem with the harrow. He gave undisputed evidence that, after discussion with Mr Ritchie, he had removed the harrow, taken it back to the respondent's workshop and there dismantled it to see what was wrong. He further testified that he had then discovered that two of the rotors on the harrow had bottom bearings missing; he had ordered the missing parts and, after they had arrived, had fitted them to the harrow. No question was asked in examination-in-chief as to the state of the harrow, or of the equipment as a whole, as a result of the fitting of the bearings which had been missing. In cross-examination Mr Fairley testified that, if the harrow had continued to be used with the bearings missing, it "would have worn the gears maybe through time" and that the discovery of a defect where two rotors were missing their bearings was very unusual. Mr Fairley's evidence that he had carried out the repair which he had described was not challenged. In re-examination the following question was asked and answer elicited:

"Right, and when you had repaired the machine as far as you were concerned it was back to factory standard? - That's right, or even better. Yes, it was ready to go."

[27] The meaning or significance of that answer was not further explored by the examiner. Although it is at least doubtful whether the question arose out of anything said in the course of cross-examination, the cross-examiner neither objected to the question nor sought an opportunity to further cross-examine on that matter.

[28] In the course of the proof there was no evidence, insofar as drawn to our attention, directed specifically to the question whether the use of the equipment for more than two days with the bearings missing had, in fact, had any detrimental effect (and, if so, what) on other parts of the equipment. Mr James Ritchie, in testifying as to why he had pressed for an explanation by the respondent's management of what the defect and the repair had been, explained that if it had been confirmed that bearings had been found to be missing and had been replaced, he would have gone on to ask what checks on other parts had been carried out. His concern was, in effect, that other parts "would have been over-strained out their capacity because of the parts that were omitted on manufacture". Mr William Ritchie, another director of the appellant, testified in the course of cross-examination that the appellant was given no information by the respondent

"as to what damage had been caused to other components or what other components had been replaced ... As I understand it all they did was fit new bearings. Any damage to any other components is not logged, there is no mention of any of these other components having been replaced".

When then asked whether that was just speculation on his part he responded:-

"Absolutely, yes, but it doesn't take a rocket scientist to know that if there are bearings missing and the machine is used that damage is going to occur to the components that don't have the bearings to support them. It's hardly rocket science."

He also explained that, since it might be that the machinery might not be used until the next season, the appellant had had a concern that, if a problem then emerged, the (manufacturer's) warranty would by then have expired.

[29] Mr Allan, the general manager of the respondent's branch at Kelso, gave certain evidence as to the respondent's belief as to the qualitative state of the harrow at the time it was re-tendered, as did Mr Elliot, the respondent's service manager. But the views expressed by these witnesses turned neither on an inspection nor on a comprehensive technical appraisal of the harrow after its repair; in particular, no assessment was made as to the effect, if any, on the equipment of its use with bearings missing.

[30] On this aspect of the case the sheriff principal, after referring to Burnley Engineering Products Ltd. v. Cambridge Vacuum Engineering Ltd. [1994] 50 Con. L.R. 10, stated:

"In the present case, likewise, it was for the pursuers, who are seeking a declarator that they were entitled to reject the goods and rescind the contract, to prove on a balance of probabilities that at the time of rejection the goods were not fit for their purpose. They have failed to do so. The evidence in the case is to the contrary effect: that after the repair, and before the rejection, the goods had been rendered fit for their purpose. It is not enough for the pursuers to have had concerns about the equipment, however sincerely these might have been entertained. Their concerns were not supported by evidence from any skilled witness, or by any evidence of any inspection or trial of the equipment. There is accordingly no evidence that their concerns were well-founded. Nor were they entitled to require an engineer's report: the defenders were not obliged to give them such a report. In my view, the defenders' appeal must succeed on the ground that the pursuers have failed to prove that at the time of their rejection of the equipment it was not fit for its purpose".

[31] Before addressing that reasoning I find it convenient to deal first with certain criticisms which Mrs Wade, counsel for the appellant, made of the sheriff principal's approach in other respects to the factual issues. She submitted that finding in fact 14 (which included a finding that at the appellant's premises the respondent's fitter had removed the harrow and replaced it with a second-hand harrow and had done so with the agreement of Mr Ritchie), a finding which was not challenged, did not support the sheriff principal's statement in his Note that "[the appellant] agreed to the removal of the harrow for inspection and repair by the [respondent]". In particular the italicised words were not supported by the finding in fact.

[32] This criticism is, in my view, unfounded. In the context of the arrangement, under which the harrow was by agreement removed for inspection and the drill retained, with a substitute harrow being loaned for the purpose of continuing with the agricultural operation, it is a reasonable inference that the appellant was content that, in light of what might be found on inspection, the respondent would be free, at its own expense, to effect any repair which might be called for. Mr Ritchie was not, by going along with that arrangement, committing the appellant to accepting the equipment but an agreement that the harrow be, if possible, repaired is, in my view, a proper inference.

[33] Mrs Wade next submitted that the sheriff principal had made a "quantum leap" from finding in fact 19 to his findings in fact and law 8 and 9. The latter were in the following terms:

"8. As a result of the defenders' repair of the harrow to factory gate standard the equipment was rendered of satisfactory quality.

9. At the time when the pursuers rejected the equipment it was of satisfactory quality, the defenders having repaired the harrow to factory gate standard. They were therefore no longer entitled to reject it."

On the assumption (which was disputed) that finding in fact 19 was warranted, the fact that, in the view of the fitter, the equipment was "factory gate standard" did not, it was submitted, justify a conclusion that it was of "satisfactory quality" as contractually implied under section 14 of the Sale of Goods Act 1979 (as amended).

[34] In my view the sheriff principal was entitled to construe the expression "factory gate standard" (and such closely analogous expressions as were used by the witnesses) as meaning "as good as [the harrow] would have been if it had left the factory as a new, correctly assembled harrow" and in turn to find that a harrow having these characteristics met the standard of quality specified in section 14. That standard is objective and is intended to be of general application. In the particular context, including the absence of any suggestion that equipment leaving the premises of the particular manufacturer was, other than exceptionally, of less than satisfactory quality, the findings in fact and law criticised were ones which the sheriff principal was, in my view, entitled to make.

[35] The most difficult question on this aspect of the case is whether the sheriff principal was correct to make finding in fact 19. He was faced with the difficulty that the primary finder of fact (the sheriff) had not addressed this critical issue and had accordingly not, with the benefit of having seen and heard the witnesses, made a specific finding of fact on it. The evidence upon which the sheriff principal relied (Mr Fairley's response in re-examination) is undoubtedly open to comment. It was elicited by a leading question in re-examination and was not wholly clear as to its meaning - what, for example, the witness meant by "even better" [than factory standard] is far from clear. Neither the question nor the answer addressed specifically what turned out to be the critical issue, namely, the consequences, if any, on other parts of the equipment of that equipment having been used for more than two days without the bearings in place; nor is it clear that Mr Fairley had any experience or expertise to qualify him to speak to that matter. However, less than satisfactory as it was, this testimony was the closest the evidence in the case came to what has turned out to be the decisive factual issue. That testimony was unchallenged. It was also uncontradicted. Although Mr James Ritchie and Mr William Ritchie expressed concerns about the possible consequences on other parts of the equipment, neither was in a position to express an informed and qualified view as to whether there would have been any such consequences. While it may not have required expertise in "rocket science" (to use Mr William Ritchie's expression) to reach a view on that matter, it certainly cannot be said to be self-evident that there would have been significant adverse consequences.

[36] The general burden of proof rested on the appellant as pursuer in the action. The appellant proved that, at the date when the equipment was first delivered by the respondent, it did not conform to contractual quality and that the respondent was then in breach, and in material breach, of contract. But the critical factual issue, as it ultimately emerged in the litigation, may be whether or not, at the time when it re-tendered the harrow, the respondent was in material breach of contract on the related but distinct ground that the equipment, having been used with bearings missing, was, despite the subsequent fitting of these bearings, not then of satisfactory quality. If the respondent had not led evidence that work had been carried out by it on the harrow and what that work had been (namely, fitting of the missing bearings), the implication might well have been that the equipment remained in the defective state in which it had been first tendered. But the respondent did lead evidence that the missing bearings had been replaced and that evidence was neither challenged nor contradicted. In that state of the evidence it remained for the pursuer to prove that the equipment in its "repaired" state was so defective that the respondent was even then in material breach of contract. The evidence does not justify a finding to that effect. Rather, in so far as it goes, it tends to suggest the contrary.

[37] While I have some sympathy for the position in which the appellant was put by the lack of candour on the part of the respondent's management as to what had been discovered to be the initial defect in the harrow, the respondent's pleadings included an averment as to what had been ascertained on examination in the respondent's workshop and an assertion that by about 17 May 1999 the defect had been remedied. If, to succeed in this action, the appellant required to demonstrate that the equipment, as at the time of rejection, was so defective as to render the respondent, at that time, in material breach of contract, it did not do so. In these circumstances the appellant's challenge to the sheriff principal's approach on the factual issues must fail.

[38] I now turn to the legal question.

[39] The statutory provisions primarily in issue are certain sections of the Sale of Goods Act 1979 (as amended by the Sale and Supply of Goods Act 1994). Section 15B(1) provides:

"Where in any contract of sale the seller is in breach of any term of the contract (express or implied), the buyer shall be entitled -

(a) to claim damages, and

(b) if the breach is material, to reject any goods delivered under the contract and treat it as repudiated."

Section 27 provides:-

"It is the duty of the seller to deliver the goods, and of the buyer to accept and pay for them, in accordance with the terms of the contract of sale."

Section 35 provides:-

"(1) The buyer is deemed to have accepted the goods subject to subsection (2) below -

(a) when he intimates to the seller that he has accepted them, or

(b) when the goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller.

(2) Where goods are delivered to the buyer, and he has not previously examined them, he is not deemed to have accepted them under subsection (1) above until he has had a reasonable opportunity of examining them for the purpose -

(a) of ascertaining whether they are in conformity with the contract ....

(4) The buyer is also deemed to have accepted the goods when after the lapse of a reasonable time he retains the goods without intimating to the seller that he has rejected them.

...

(6) The buyer is not by virtue of this section deemed to have accepted the goods merely because -

(a) he asks for, or agrees to, their repair by or under an arrangement with the seller ..."

[40] It is now undisputed that the equipment as delivered by the respondent to the appellant on 4 March 1999 was disconform to contract, the respondent then being in breach of the term as to satisfactory quality implied by section 14 of the Act. Nor is it disputed that the respondent's breach was material, so that the appellant was entitled at that stage to reject the equipment and to treat the contract as repudiated. In the event, the appellant did not do so at that time. Nor did it do so on the problem of vibration being detected in the course of the operation of the equipment towards the end of April. Instead it acceded to the proposal that the harrow be removed from the equipment and taken to the respondent's premises for investigation into the fault, an alternative harrow being loaned to the appellant meantime. It is also not in dispute that the appellant's agreement to that course of action did not, regard being had in particular to section 35(6)(a), constitute acceptance by the appellant of the equipment, so as of itself to preclude subsequent exercise by the appellant of the entitlement conferred by section 15B.

[41] Mrs Wade submitted, however, that the right to reject, which the appellant had acquired on delivery of the disconform equipment, subsisted thereafter unless and until the equipment was accepted, or was under the statute deemed to have been accepted, by the appellant. Such acceptance could be constituted only by conduct on the part of the appellant. Acceptance could not be constituted by conduct on the part of the respondent, such as repair by it of the equipment, even if that repair rendered the equipment wholly conform to contract and the equipment was, prior to rejection, re-tendered by the respondent in that conform state. The appellant as at 26 May 1999 retained the right to reject the equipment and to treat the contract as repudiated whatever the actual qualitative state of the equipment at that time. The appellant had duly exercised that right. She referred to Clegg v Andersson [2003] EWCA Civ 320; [2003] 2 Ll. L. Rep. 32, especially to the judgments of the Vice-Chancellor at paragraph 58 and Hale LJ at paragraphs 70 and 74-5, to Benjamin's Sale of Goods (6th Edition) paragraph 12.056 and 11.062 and to the Joint Report of the Law Commission and the Scottish Law Commission (Law Com. No. 160, Scot. Law Com. No. 104) on the Sale and Supply of Goods (1987) Commd. 137 ("the Joint Report") at paragraphs 5.20 and 5.26-29. She also sought to distinguish Burnley Engineering Products Ltd. v Cambridge Vacuum Engineering Ltd., on which the sheriff principal had relied.

[42] Mr Di Emidio for the respondent acknowledged that where, as here, the seller had tendered goods disconform to section 14, the purchaser was not obliged to accept them. However, if the goods were not then rejected, the contract of sale remained "on foot". If the breach was remediable, it remained open to the seller to attempt to cure the defect. If he cured the defect and re-tendered the goods in a conform condition, the buyer, if he had not by that time rejected the goods, was obliged to accept them since, in the absence of a subsisting breach, there was no longer a basis for rejection. Section 35 was concerned with circumstances in which, by deemed acceptance, the buyer lost his right to reject disconform goods. It had no application where, prior to rejection, goods conform to contract were tendered by the seller. He referred to Gloag on Contract (2nd Edition) pages 599-600 and to Grovebury Management Ltd. v McLaren 1997 S.L.T. 1083, especially per Lord Coulsfield at page 1085G-L.

[43] Section 15B(1)(b) of the 1979 Act (as amended) is the most modern statutory formulation applicable to Scotland of the right of a buyer in certain circumstances to reject disconform goods delivered to him by the seller and to treat the contract as repudiated. Its statutory predecessors are section 11(5) of the Sale of Goods Act 1979 (prior to amendment by the 1994 Act) and section 11(2) of the Sale of Goods Act 1893. That last provision was inserted with a view to preserving the buyer's remedy under the common law of Scotland in certain circumstances to reject disconform goods and rescind the contract (see Brown - Sale of Goods (2nd Edition) page 62) - though it may be that the current formulation better reflects that common law (see Joint Report at paragraphs 2.27-31 and 4.22).

[44] The respective duties of performance incumbent on the seller and the buyer under a contract for the sale of goods are respectively to deliver and to accept the goods and pay for them (section 27). When the seller delivers goods which are, in respect of quality, so disconform to contract as to amount to a breach of it (and that breach is material), the buyer is not obliged to accept them. He may instantly reject them and reclaim repayment of any purchase price already paid. That is because the statutory precondition for the existence of that remedy (namely, a material breach of that contract) is in these circumstances satisfied. Under the statutory provisions the seller may not require to make an instant decision. Unless otherwise agreed, he is entitled to a reasonable opportunity to examine the goods for the purpose of ascertaining whether they are in conformity with the contract (section 34 - see also section 35(2)). The time required for such an examination will vary with the circumstances. The buyer loses his remedy of rejection of disconform goods by conduct on his part constituting deemed acceptance under section 35; but, in my view, it is not exclusively by operation of that provision that the remedy of rejection (and the associated remedy of treating the contract as repudiated) may cease to be available to him.

[45] The remedy of rejection and rescission is one which the buyer may, in the relevant circumstances, choose to exercise or not to exercise. If he chooses not to treat the contract as repudiated, the contract remains in force. That situation, so long as it obtains, may at least in some circumstances afford to the seller an opportunity to tender goods which conform to contract. If the seller does, prior to the buyer exercising his right to rescind, tender due performance, it will then be too late for the buyer to reject the goods and rescind the contract.

[46] While the above propositions appear to me to be sound in principle, there is a dearth of Scottish authority on the matter. But, as the statutory rules in respect of sale of goods have their origins in the principles of the common law relative to sale, it is legitimate to have regard to such authority as may exist in that field. Again, there is little guidance. Gilfillan v. Cadell & Grant (1893) 21 R. 269 concerned a contract for the sale of heritage. There appears to have been no specific date contractually stipulated for the seller to perform his obligation to deliver a good title. In the event he tendered a title which was defective. The issue for decision is not relevant for present purposes; but at page 274 Lord Kinnear made the following general observation:

"When a contract of purchase and sale is to be carried into effect, if the purchaser objects to the title as defective, and it turns out that although defective it may be made good at some expense of time and money, then it may be that any delay in performing the contract which may be caused by the controversy will not dissolve the contract or deprive the seller of his bargain".

The Lord President observed at page 272:

"The contract of sale could have been fulfilled by the tender by the seller within a reasonable time of a good title, the adjustment of a title being often, as we know, a matter of negotiation. The Dean of Faculty admitted that in this contract of sale it did not look as if time were of the essence of the contract, and the seller was entitled to a reasonable allowance of time within which to give a good title".

Accordingly the court appears to have contemplated that, notwithstanding defective performance by the seller (in respect of the delivery of a good title), that need not of itself deprive the seller of his bargain. If the seller thereafter re-tendered a title which was good, that could, at least in some circumstances, constitute due and effectual performance of his obligation of delivery.

[47] Where, however, the contract stipulates a time for performance of the obligation and that time has passed, the legal position is less certain. Lord Coulsfield in Grovebury Management Limited v. McLaren 1997 S.L.T. 1083 at page 1085 and Sheriff Principal Nicholson in Cumming v. Brown 1994 S.L.T. (Sh. Ct.) 11 at page 13, both cases being concerned with the purchaser's obligation to pay the price, appear to have contemplated that, provided that the seller had not exercised his right to rescind, the purchaser might still effectually tender performance, albeit that in these cases the contractually stipulated date for performance had passed. On the other hand Lord Sutherland in Ford Sellar Morris v. Hutchison 1990 S.C. 34 at page 37 (again a case concerned with the purchaser's obligation to pay the price) appears to have reached a contrary view. In my opinion it is unnecessary in the circumstances of this case, where there appears to be no contractually stipulated date for the seller's performance of delivery of conform equipment, to resolve these apparent differences of approach.

[48] In the present case the respondent was, at the time of delivery of the equipment, in material breach of contract. Accordingly, the appellant might then have rejected the equipment and treated the contract as repudiated. In the event it did not do so. (It was not suggested that the appellant had then or in April rejected the equipment; such a position would hardly have been consistent with the appellant's retention of the drill and its taking on loan the second-hand harrow. Nor, on the other hand, was it suggested that this special arrangement gave rise to acceptance of the equipment). The appellant agreed to a proposal that the harrow, part of the equipment, be taken back by the respondent with a view to investigation (and possible repair). Certain work was carried out on it. The result of that work was to render the harrow fit for its purpose and, in the event of it being re-associated with the power drill, to render the equipment as a whole of satisfactory quality. The repair work was carried out promptly. The appellant's agricultural operations were not disrupted. The appellant declined to receive the repaired harrow and sought, in effect, then to treat the contract as repudiated. But at that stage the respondent was not in breach of any term of the contract. All that can be said is that historically it had been so in breach. So far as appears, no contractually stipulated date for performance of the obligation to deliver the goods conform to contract had come and passed; nor had an unreasonable time elapsed. In these circumstances the purported rejection and rescission came, in my view, too late.

[49] Mrs Wade's argument, while attractively presented, involved implicitly that, on delivery of disconform equipment, there accrued to the appellant the right of rejection which could be lost only if and when the buyer was deemed to have accepted the equipment. But the authority upon which she primarily relied (Clegg v Andersson) does not, on closer analysis, support that proposition. In that case, while the facts are complicated, it is plain that, as at the date of intimated rejection (6 March 2001) the yacht remained not of satisfactory quality. No repairs had been agreed to, far less carried out. The issue was whether by his actings the buyer was to be deemed to have accepted it. At paragraph 75 Hale LJ, following a discussion of the effect of section 35(6), observed -

"It follows that if 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 cure, and if cure in what way, he cannot have lost his right to reject."

Her Ladyship does not suggest that, if cure, so as to render the yacht contractually conform, were effected, the right to rejection would at that time subsist. Moreover, the recommendation in the Joint Report at paragraph 5.29 (which led to what is now section 35(6)) appears in light of the immediately preceding paragraphs to have been designed to encourage attempts at cure. The construction of the statute urged by Mrs Wade, if correct, seems more likely to discourage such attempts.

[50] In the whole circumstances I move your Lordships to adhere to the sheriff principal's interlocutor of 31 July 2003 and to refuse the appeal.

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
Lord Marnoch Lord Hamilton Lord Philip	[2005CSIH3] XA106/03 OPINION OF LORD PHILIP in APPEAL by J.& H. RITCHIE LIMITED Pursuer and Appellant; against LLOYD LIMITED Defender and Respondent: _______

Act: Wade; Aitken Nairn (for McCartney Stewart, Renfrew) (Pursuers and Appellants)

Alt: Di Emidio; Balfour & Manson (Defenders and Respondents)

11 January 2005

[51] I gratefully adopt Lord Hamilton's narrative of the facts of this case and his summary of the submissions of counsel. I am in agreement with his analysis of the law and with his conclusion, but since your Lordship in the Chair has come to a different conclusion it is appropriate that I should indicate the reasoning which has led me to agree with Lord Hamilton.

[52] It is common ground that the harrow as originally tendered was disconform to contract and that the appellants were entitled to reject it and to rescind the contract. They did not however do so, but accepted the replacement harrow on loan and agreed to the defective harrow being taken back to the respondents' premises for inspection. I agree with Lord Hamilton that it is a reasonable inference that the appellants were content that the respondents should be free at their own expense to carry out any such repair as was necessary.

[53] The appellants having declined to rescind the contract, it follows that the contract remained in existence. But if a contract remains in existence, it must remain in existence for the benefit of both parties. I rely for that proposition on the dictum of Cockburn C.J. in Frost v Knight, referred to in Gloag and Contract, 2^nd Ed. p.600, and cited with approval by Lord Coulsfield in Grovebury Management Limited v McLaren. The facts of Frost v Knight were widely different from the present case, involving, as they did, an anticipatory breach of a promise of marriage. Nevertheless I see no reason why the principle enunciated by Cockburn C.J., viz: that when a party who is entitled to rescind a contract declines to do so but keeps it alive, he keeps it alive for the benefit of the other party as well as himself, should not apply to the circumstances of the present case.

[54] Since the contract remained alive, the duties to deliver and to accept the goods imposed on the seller and buyer respectively by section 27 of the Sale and Supply of Goods Act 1979 continued to be incumbent on the parties. Accordingly, so long as the appellants refrained from rescinding the contract, if the respondents tendered delivery of the goods the appellants were bound to accept them. The appellants were of course protected by the terms of Section 35(2) of the Act which gave them a reasonable opportunity to examine the goods before they were deemed to have accepted them.

[55] The question arises as to what effect the enactment of Section 35(6) of the Act has on the foregoing analysis. It may well be, as Lord Marnoch has said, that before the enactment of that subsection, it is likely that the appellants, by agreeing to have the harrow repaired, would have been deemed to have accepted the goods. I do not however agree that the appellants, having acquired the right to reject the goods when they were discovered to be disconform to contract, cannot have that right taken away from them by subsequent events. In my view the effect of Section 35(6) is intended to be limited. Its effect is to remove the risk that, by agreeing to a repair, a purchaser will be deemed to have accepted the goods. The result is that a seller of defective goods who agrees to repair them, but then fails to do so, cannot demand payment of the price, or demand to retain it if it has already been paid. In that situation the buyer's right to reject is preserved by the operation of the section.

[56] If, however, the seller tenders the goods in a state which is conform to contract before the buyer rescinds the contract, because the contract remains alive, the buyer is obliged to accept them. We were referred to the joint report of the Law Commission and the Scottish Law Commission on the Sale and Supply of Goods (1987) Command 137 whose recommendations at paragraph 5.29 led to the enactment of Section 36(6). That recommendation was made in the context of encouraging informal attempts to cure defective goods. Against that background I take the view that Parliament cannot have intended to entitle a buyer who agrees to the repair of defective goods to keep the seller on the end of a string, and without redress, uncertain as to whether his ultimate tender of the repaired goods will be accepted or not.

[57] In the present case the appellants' reason for rejecting the repaired machine, as I understood it, was that they had been given no information by the respondents as to the nature of the original defect. They therefore contended that they could not be confident that the defect had not caused weaknesses in the machine in other respects. But their lack of confidence was based only on conjecture or speculation. The only evidence as to whether the goods conformed to contract at the time of their ultimate rejection by the appellants came from Mr Fairley, the respondents' fitter, who repaired the harrow and said that it had been restored to "factory gate condition". That evidence was not challenged or contradicted and the Sheriff Principal found in fact, as he was in my view entitled to do on the evidence, that the repaired harrow was as good as it would have been had it left the factory as a newly correctly assembled harrow. It was therefore established that the respondents tendered a machine which was conform to contract. In that situation I am of the view that the appellants were obliged to accept the goods, subject to the protection afforded by Section 35(2). In the circumstances of this case, it may be that a reasonable opportunity of examining the machine would not have expired until the next seeding season.

[58] For these reasons I concur in Lord Hamilton's motion that the interlocutor of the Sheriff Principal of 31 July 2003 should be adhered to and the appeal refused.