R & B Customs Brokers Company Ltd v United Dominions Trust Ltd

Factual and Procedural Background

The case concerns a motor vehicle, a Colt Shogun hard top four wheel drive car, sold in 1984 to a private company ("the company") engaged in shipping brokerage and freight forwarding. The vehicle was found to be unfit for ordinary road use due to a persistent roof leak that could not be remedied despite multiple repair attempts by the third party motor dealer ("the third party"). The company purchased the car via a conditional sale agreement with a finance company ("the defendants"), with the third party selling the car to the defendants who then sold it to the company.

The company, through its sole directors, sought to rely on implied terms under section 14 of the Sale of Goods Act 1979 regarding the fitness and merchantable quality of the vehicle. The third party and defendants appealed against a judgment awarding damages to the company, raising issues related to implied contractual terms and the application of the Unfair Contract Terms Act 1977 ("the 1977 Act").

The contract between the company and defendants was held to have been made on 3rd November 1984, despite the company having possession of the car from 21st September 1984. The delay in contract formation was due to the defendants' late countersigning of the conditional sale agreement. The company had discovered the roof leak prior to the contract date but was unaware the defect was incurable.

Legal Issues Presented

1. Whether the terms implied by section 14 of the Sale of Goods Act 1979, particularly regarding merchantable quality and fitness for purpose, applied to the contract between the company and defendants.
2. Whether the company was "dealing as a consumer" under section 12 of the Unfair Contract Terms Act 1977, thereby affecting the validity of exclusion clauses in the contract.
3. If the company was not dealing as a consumer, whether the defendants' exclusion clause satisfied the requirement of reasonableness under the 1977 Act.
4. The effect of the timing of contract formation and the company's knowledge of the defect on the applicability of implied terms and exclusion clauses.

Arguments of the Parties

Appellant's Arguments (Third Party and Defendants)

• The condition of merchantable quality under section 14(2) of the Sale of Goods Act 1979 should not apply because the company had knowledge of the roof leak before the contract was made, thus falling within the exception for defects known or discoverable on examination.
• The implied condition of fitness for purpose under section 14(3) should be excluded because the company did not rely, or it was unreasonable to rely, on the seller's skill or judgment given the company's prior knowledge of the defect.
• The company was not "dealing as a consumer" under section 12 of the 1977 Act as it was a business entity purchasing the vehicle in the course of its business, which would allow exclusion clauses to apply subject to reasonableness.
• The exclusion clause in the conditional sale agreement was valid and reasonable given the defendants' lack of possession or control over the vehicle and their rights of recourse against the third party.

Respondent's Arguments (The Company)

• The contract implied a condition that the vehicle was reasonably fit for the purpose of ordinary use on English roads, which was breached due to the incurable roof leak.
• The company was "dealing as a consumer" under the 1977 Act because the purchase of the vehicle was not a regular or integral part of its business, and thus exclusion clauses could not exclude liability.
• The company's reliance on the third party's skill and judgment continued after taking possession of the vehicle, including at the time of the repair attempts, supporting the implied term under section 14(3).
• Even if the company was not a consumer, the exclusion clause was unreasonable and should not be enforced.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analyzed the timing and formation of the contract, concluding that the binding contract date was 3rd November 1984 when the defendants countersigned the agreement. Although the company had possession of the vehicle earlier, the contract was not legally effective until that date, which affected the application of statutory implied terms under the Sale of Goods Act 1979.

Regarding section 14(2) on merchantable quality, the court acknowledged the difficulty that arises when a buyer has interim possession and knowledge of defects before the formal contract date. The court did not definitively rule on whether the knowledge of the roof leak excluded the implied term under subsection (2), but found it unnecessary to decide because the condition under subsection (3)—fitness for a particular purpose—was clearly implied and breached here.

On subsection (3), the court rejected the third party's argument that the buyer's reliance on the seller's skill and judgment ceased once the defect was known before contract formation. The court found that reliance continued, especially as repairs were arranged shortly after contract formation, and the defect was not known to be incurable at that time.

The court then considered the Unfair Contract Terms Act 1977. It held that the company was "dealing as a consumer" under section 12 because the purchase of the vehicle was not a regular or integral part of its business, but rather incidental, with only two or three such credit purchases made. This classification meant that the defendants could not exclude liability for breach of implied terms under section 14 by contractual clause.

Although the court noted that if the company were not dealing as a consumer, the exclusion clause might have satisfied the reasonableness test under section 11 of the 1977 Act, it was unnecessary to decide this point given the consumer status finding.

The court also discussed the possibility of piercing the corporate veil in similar future cases where companies purchase goods for personal use of directors, but did not apply this doctrine here.

Holding and Implications

The court DISMISSED THE APPEAL, affirming the judgment in favor of the company.

The decision confirms that in a tripartite sale involving a finance company and a motor dealer, the date of contract formation is the date of the finance company's countersignature, which affects the application of implied terms. It also establishes that a company purchasing a vehicle for mixed personal and business use may be considered "dealing as a consumer" under the Unfair Contract Terms Act 1977 if the purchase is not a regular part of its business activities, thereby protecting the buyer from exclusion clauses that would otherwise limit statutory rights.

No new precedent was set beyond the application of existing principles to the facts; the ruling primarily clarifies the interpretation of "dealing as a consumer" and the timing of contract formation in such tripartite arrangements.