If  a business buy goods which turn out to be unfit for purpose, the general rule is that it is entitled not only to its money back but also to compensation for additional losses arising. A case in point concerned a refrigeration unit which failed, resulting in the loss of a batch of high-value pharmaceutical products.

The purchaser of the unit had, within days of acquiring it, sold it on to a client who suffered the loss when it failed during a long weekend. After the client threatened legal action, the purchaser settled its claim for £36,000. The purchaser subsequently launched proceedings against the unit's original supplier with a view to recovering its loss and associated expenses.

The supplier conceded that the unit was defective and in breach of warranties as to quality and fitness for purpose implied into the sale contract by Section 14 of the Sale of Goods Act 1979. The purchaser's claim was, however, dismissed by a judge on the basis that the loss suffered by the third-party client was too remote to be recoverable.

In upholding the purchaser's appeal against that ruling, the High Court noted that the supplier knew that the purchaser intended to sell the unit on to its client for use in its freezer room. It was irrelevant that the supplier was unaware of the nature of the products to be refrigerated, or that they were of high value.

The fact that the client had chosen to take the risk of not deploying the unit's facility to be connected to an external alarm or temperature monitoring system did not affect the outcome. That could only have been done at additional cost and it was the failure of a component in the unit, rather than the absence of an alarm system that might optionally have been deployed, that had caused the loss.

On the basis that the perishing of the client's pharmaceutical products was the natural consequence of the defective unit's failure, the Court ordered the supplier to pay the purchaser £37,406 in damages, excluding interest.

If you are interested in ensuring that your contracts effectively limit your business’s liability, contact our commercial team on 0808 166 8827.

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