United Kingdom House of Lords Decisions

The appeal was heard in the House of Lords before Lord Jauncey of Tullichettle, Lord Lloyd of Berwick, Lord Nolan, Lord Nicholls of Birkenhead and Lord Hoffman on 15 May 1995.

At delivering judgment, on 15 June 1995—

LORD JAUNCEY OF TULLICHETTLE —My Lords, the only issue in this appeal is as to the proper construction of sec 14(5) of the Sale of Goods Act 1979. The defender was the owner of a cabin cruiser which he instructed Harbour Marine and Leisure, Kirkcaldy to sell on his behalf under a brokerage and agency agreement. The pursuer purchased her. The boat had certain defects which rendered her unseaworthy and parties are agreed that she was unfit for the purpose for which she was purchased.

The pursuer sued the defender for damages for breaches of subsecs (2), (3) and (5) of sec 14 of the Act of 1979. The sheriff at Kirkcaldy assoilzied the defender and made, inter alia, the following findings in fact namely (a) that the pursuer knew that the boat was being sold under a brokerage scheme but he thought it was owned by Harbour Marine and Leisure and he was not told the name of the owner nor that the owner was not selling in the course of a business, and (b) that the pursuer was not told that Harbour Marine and Leisure were acting as agents only. He was under the impression that they were the owners of the boat. The sheriff found in law inter alia that Harbour Marine and Leisure sold the boat in the course of their business. On appeal the sheriff principal affirmed these findings in fact and the findings in law but recalled the interlocutor of the sheriff and granted decree in favour of the pursuer for £3,370. The finding in fact (a) is not entirely easy to follow but it may derive from the fact that Harbour Marine and Leisure's sales invoice included the words ‘Sold under our brokerage scheme’. Nevertheless whatever may be its exact significance the appeals up to this House have proceeded upon the basis that Harbour Marine and Leisure were agents acting for an undisclosed principal.

An Extra Division of the Court of Session, 1994 SC 186 affirmed the interlocutor of the sheriff principal and dismissed the appeal, concluding that the defender was within the ambit of sec 14(5) of the Act of 1979 and rejecting an argument that the subsection enabled action to be taken only against an agent acting for an undisclosed principal and not against the principal himself.

Before considering the argument addressed to your Lordships it is appropriate to set out the relevant parts of sec 14 of the Act of 1979: ‘(1) Except as provided by this section and section 15 below and subject to any other enactment, there is no implied condition or warranty about the quality or fitness for any particular purpose of goods supplied under a contract of sale. (2) Where the seller sells goods in the course of a business, there is an implied condition that the goods supplied under the contract are of merchantable quality, except that there is no such condition—(a) as regards defects specifically drawn to the buyer's attention before the contract is made; or (b) if the buyer examines the goods before the contract is made, as regards defects which that examination ought to reveal. (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 condition 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.… (5) The preceding provisions of this section apply to a sale by a person who in the course of a business is acting as agent for another as they apply to a sale by a principal in the course of a business, except where that other is not selling in the course of a business and either the buyer knows that fact or reasonable steps are taken to bring it to the notice of the buyer before the contract is made.’

The Dean of Faculty in an admirably succinct submission maintained that the Extra Division were wrong in concluding that the defender could be sued under sec 14(5) in respect of a breach of subsecs (2) or (3). Subsection (5), the Dean argued, applied only to render liable an agent acting for an undisclosed principal with the result that it was Harbour Marine and Leisure and not the defender who were liable for breach of contract to the pursuer.

Subsection (5) of sec 14 was first introduced into the Sale of Goods Act 1893 (56 & 57 Vict cap 71) by the Supply of Goods (Implied Terms) Act 1973 (sec 3) following upon recommendations of the Law Commissions of England and Scotland. The Report of the Law Commissions (Exemption Clauses in Contracts First Report: Amendments to the Sale of Goods Act 1893 (1969) (Law Com No 24) (Scot Law Com No 12)) drew attention to the fact that no sale of goods by private individuals was subject to any implied condition of fitness even where such individuals sold through auctioneers or agents, a situation which could cause hardship where buyers relied on the agent's reputation. Subsection (5) was drafted by the Law Commissions to meet this situation.

The Dean argued that if the subsection extended beyond the liability of agents acting for undisclosed principals, as the Extra Division held, there would be a measure of overlap inasmuch as an individual selling in the course of business through an agent would already be within the ambit of subsecs (2) and (3). Such duplication, it was said, could not have been the intention of Parliament. It is correct and was recognised by the Extra Division in their judgment, at p 000, that there would be an overlap. However, there are more weighty considerations to be taken into account.

If the Dean's argument were correct it would follow that the second part of the subsection starting with the word ‘except’ would be wholly superfluous. Where an agent is acting for an undisclosed principal, that is to say a principal of whose very existence the buyer is unaware, the latter could not possibly know of the business of the unknown principal. However, the second part of the subsection clearly presupposes that there will be a principal of whose existence the buyer will be aware prior to the contract of sale. The restricted construction advanced by the Dean would involve not only giving no effect to these words but also creating statutory alterations to the normal common law rules, (a) that where an agent contracts on behalf of a disclosed principal the latter alone is liable on the contract (Bowstead on Agency, 15th edn (1985), pp 281, 424) and (b) that an undisclosed principal may be sued on any contract made on his behalf: Siu Yin Kwan v Eastern Insurance Co Ltd and Bowstead on Agency, 15th edn, p 312. Such restricted construction would also mean that the Law Commissions had very substantially failed to achieve the result which they intended.

My Lords, I cannot accept that a construction which produces such results can be correct. Subsection (5) is applicable to any sale by an agent on behalf of a principal whether disclosed or undisclosed, where circumstances giving rise to the exception do not exist. When the subsection applies the normal common law rules of principal and agent also apply. There having been, in this case, no attempt to bring to the notice of the pursuer the fact that the defender was not selling in the course of business it follows that the pursuer was entitled to claim damages from the defender in reliance on the provisions of secs 14(2), (3) and (5). For these reasons I would affirm the judgment of the Extra Division and dismiss the appeal.

LORD LLOYD OF BERWICK —My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Jauncey of Tullichettle. For the reasons he gives I too would dismiss this appeal.

LORD NOLAN —My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Jauncey of Tullichettle. For the reasons he gives I too would dismiss this appeal.

LORD NICHOLLS OF BIRKENHEAD —My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Jauncey of Tullichettle. For the reasons he gives I too would dismiss this appeal.

LORD HOFFMANN —My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Jauncey of Tullichettle. For the reasons he gives I too would dismiss this appeal.