OF AND AT GLASGOW

[2018] SC GLA 62 CA187/17 JUDGEMENT OF ALAYNE E SWANSON

in the cause

CAITHNESS FLAGSTONE LIMITED, a company incorporated under the Companies Acts (registration Number SC465433) and having its registered office at Westerlea, Miller Avenue, Wick KW1 4DF

Pursuer against

BALLYVESEY HOLDINGS LIMITED, a company incorporated under the Companies Acts (registration number 03067227) and having its registered office c/o Montracon Limited, Carr Hill, Doncaster, South Yorkshire, DN4 8DE

Defender Pursuer: McIlvride Defender: Hanretty QC, Manson

Glasgow, 11 October 2018

The Sheriff having resumed consideration of the cause finds the following facts to be admitted or proved:

1. Parties agreed to the remit of this action from Wick to Glasgow Sheriff

Court and have thereby prorogated the jurisdiction of . This

Court accordingly has jurisdiction.

2. The pursuer is a company incorporated under the Companies Acts (registration

Number SC465433) and having its registered office at Westerlea, Miller Avenue,

Wick Caithness KW1 4DF.

3. The pursuer was incorporated on 9 December 2013. 2

4. The pursuer operates as a quarrier, wholesaler and retailer of Caithness Stone,

Caithness Stone products and Caithness Stone by-products.

5. The pursuer operates from Achscrabster Quarry and Spittal Quarry in Caithness,

Scotland. Achsrcabster Quarry is an active quarry where Caithness Stone is

extracted. Spittal Quarry is the site of the pursuer’s stone processing and finishing

equipment and its showroom.

6. The defender is a company incorporated under the Companies Acts (registration

number 03067227) and having its registered office c/o Montracon Limited, Carr Hill.

Doncaster, South Yorkshire, DN4 8DE.

7. Ballyvessey Finance is a trading name of the defender; the trading division which

trades under that name provides finance in respect of sales by all of the defender’s

group companies.

8. The provision of finance by the defender is designed to assist its salesmen in the

group companies.

9. The defender is the parent company of Scotia Plant Limited (“Scotia”).

10. The pursuer approached Mr David Nicholson a sales manager at Scotia with a view

to purchasing a stone crusher in or around July 2014.

11. The pursuer had used Scotia previously as a supplier of machinery.

12. Mr John had known Mr Nicholson for 30 years; the pursuer had

purchased many pieces of plant and machinery from companies Mr Nicholson

worked for.

13. Mr John Sutherland told Mr Nicholson that he required to purchase a stone crusher

to crush large volumes of Caithness stone waste; Mr Sutherland had identified a

demand for crushed stone for major infrastructure projects. 3

14. Mr Nicholson advised Mr Sutherland that Scotia had recently started selling crushers

made by Parker Plant Ltd (”Parker”).

15. Mr John Sutherland and Mr Paul Sutherland had discussed various machines

including Metso and Powerscreen crushers with contacts who knew about crushers

for a couple of weeks before contacting Mr Nicholson; their contacts had advised

that the Parker JR1165 was a good machine.

16. Mr John Sutherland had also visited Garriock Bros at Newbridge in who

stocked Nordberg and Metso crushers, looked at the Powerscreen crusher at Blue

Machinery () Ltd in and discussed crushers with his friend at Gunns

of Leibster before discussing the Parker JR 1165 with Mr Nicholson.

17. Mr Nicholson reported to Mr Cameron Watson the managing director of the

defender’s construction equipment division.

18. Following his conversation with Mr Sutherland Mr Nicholson phoned Mr Steve

Conlon the sales and export manager with Parker and discussed Mr Sutherland’s

requirements with him; Mr Conlon came back with a price for a JR1165 tracked jaw

crusher.

19. As a sales manager Mr Nicholson would have some leeway to negotiate a price with

his customers.

20. Mr Nicholson by email timed at 12:33 on 20 August 2014 (5/1 of process) provided a

quotation for the purchase of a Parker JR 1165 crusher; the email attached

photographs of the crusher and a brochure.

21. Following his conversation with Mr Sutherland Mr Nicholson spoke to Mr Harkison

about his discussion with Mr Sutherland; Mr Harkison told him that the defender

would provide finance in connection with the supply of the crusher to the pursuer. 4

22. Mr Nicholson’s email (5/1) also proposed finance would be provided by the

defender.

23. Mr Nicholson was instructed generally to advise customers that finance for the

supply of plant and equipment by Scotia would be available from the defender; he

could not recommend that finance be taken from the defender.

24. Mr Nicholson was incentivised by bonus payments for introducing finance business

to the defender; for this transaction he received vouchers to a value of around £300.

25. Mr John Sutherland had investigated a number of other options before choosing to

obtain the Parker JR1165 through Scotia.

26. The pursuer needed the crusher urgently.

27. Mr John Sutherland considered the deal offered was a good one; this was based on

price and the provision of two sets of jaws.

28. Mr John Sutherland accepted Mr Nicholson’s offer by email timed at 15:47 on 20

August 2014 (5/2 of process) addressed to Mr Harkison.

29. Mr Harkison replied by email timed at 16:20 advising Mr Sutherland of the financial

information he needed to get the deal done (5/3 of process).

30. Mr Sutherland provided the necessary information by email timed at 17:01 (5/4 of

process).

31. Mr Harkison requested shareholder information by email timed at 16:47 (6/6 of

process) and Mr Sutherland provided it by email timed at 17:08 (6/7 of process);

Mr Sutherland commented that the information had already been provided for the

agreement relating to the Doosan excavator. 5

32. There was email correspondence between Mr Sutherland and Mr Harkison on 21

August 2014 (productions 6/8, 6/9, 6/10, 6/11. 6/12 and 6/13 of process) in relation to

financial information.

33. Mr Harkison confirmed by email dated 26 August 2014 timed at 10:27 (5/5 of process)

that the deal had been agreed as set out in the original quote.

34. The payments were structured on an escalating profile, lower at first and then

increasing, to take account of the pursuer’s predicted cash flow over the first few

months of their involvement in the new contracts for provision of crushed stone.

35. The parties’ contract was regulated by the terms of a hire purchase agreement

entered into between the pursuer and the defender on 26 August 2014.

36. The hire purchase agreement was signed by Mr John Sutherland and Mr Paul

Sutherland on behalf of the pursuer.

37. Mr Paul Sutherland spent around 15 minutes looking over the agreement and

discussing it with Mr John Sutherland before signing it.

38. A copy of the signed hire purchase agreement is produced as no 5/41 of process.

39. Mr John Sutherland is an experienced businessman with fifty years of experience of

asset finance agreements; he first obtained finance for a vehicle when aged 18.

40. Mr John Sutherland has used asset finance in all of his different businesses over the

years; it is his preferred means of operating.

41. The pursuer has previously entered into finance agreements which included the

same terms as the agreement in this case; it has done so with Aldermore Bank, Close

Brothers, Dash Commercial, Hitachi Capital and Northridge Finance. 6

42. The pursuer was refused finance by the defender in December 2014 because Mr John

Sutherland would not provide a personal guarantee; he found finance for the

pursuer elsewhere.

43. Mr John Sutherland knew that he could obtain a machine from a dealer and organise

finance separately.

44. Mr John Sutherland was known as a demanding customer and a tough negotiator.

45. The pursuer entered into an agreement with the defender for finance of a Doosan

excavator on exactly the same terms prior to the agreement in this case; the

equipment was supplied by Scotia.

46. The hire purchase agreement for the crusher contains an exclusion of liability clause

which would be regarded as standard in asset finance agreements of this sort.

47. The agreement signed by Mr John Sutherland and Mr Paul Sutherland contained a

box immediately above where they signed which drew their attention to the

exclusion of liability clause in the following terms: “you understand and agree that it

is both reasonable and acceptable that our liability to you in respect of the goods is

excluded or limited as set out in clause 8“.

48. The pursuer knew, through its directors, of the existence of and extent of the

exclusion clause.

49. The pursuer did not receive any inducement to agree to the exclusion clause.

50. No issue was raised by the pursuer about the terms of the agreement generally or the

exclusion of liability clause in particular.

51. The defender is subject to increased risks where it finances purchases of equipment

from its associated companies or other suppliers. 7

52. Clause 8 contains a preamble explaining parties’ agreement about the allocation of

risk.

53. The pursuers could have obtained finance from another finance company in relation

to this purchase.

54. The crusher was delivered to Achscrabster Quarry on 10 September 2014.

55. The crusher was manufactured by Parker Plant Ltd (“Parker”).

56. The supply was from stock; it was not to the special order of the pursuer.

57. Mr Steve Conlon and Mr Peter Matsuka of Parker attended at Achscrabtser Quarry

to install and commission the crusher on 10 and 11 September 2014.

58. The defender collected the crusher from the pursuer on or about 28 June 2017.

59. The defender entered into a back to back or B2B deal with Santander UK plc to fund

the purchase of the crusher.

60. The defender has had a relationship with Santander for 15 years during which time

Santander has funded many £millions of assets for the defender on this basis.

61. The agreement between the pursuer and the defender is a sub-hire agreement in

terms of a Master Deed of Assignment with Santander Asset Finance Limited dated 2

July 2012 (6/1 of process).

62. The pursuer was unaware of the back to back deal; that is normal practice.

63. The defender has business relationships with five banks, including Santander who

provide funding by way of back to back deals; such arrangements are standard

within the industry.

64. The hire purchase agreement which the defender and the pursuer entered into in

June 2014 was funded by Barclays Bank on the same back to back basis. 8

65. The use of a master deed allows the defender and the funding bank to treat each

asset as an additional item on the master agreement rather than replicating full terms

and conditions for each transaction.

66. The title to the asset in question does not transfer to the defender’s customer until all

payments are made and the end of the agreement’s term is reached.

67. The customer or end-user has a right of quiet possession over the asset provided the

customer is not in default.

68. As is required in terms of the master deed the defender completed a certificate dated

11 September 2014 for Santander in relation to the Parker JR1165 crusher.

69. Santander was fully aware of the sub-hire agreement between the pursuer and the

defender.

70. Santander has and had no intention of preventing the pursuer from enjoying its

rights under the contract with the defender provided there was no default.

71. The pursuer’s quiet possession of the crusher was not in jeopardy.

72. The pursuer could not exercise its option to purchase the crusher until the end of the

hire purchase agreement on 15 August 2019.

73. As at 26 May 2017 the pursuer had 27 payments still to make in terms of the

agreement with the defender.

74. The defender’s practice is to pay off the funder a month or two earlier than the term

of the back to back deal and obtain the clearance certificate from the funder prior to

the final payment being made by the customer.

75. The defender intended to follow that course of action in relation to its agreements

with Santander and with the pursuer. 9

76. Title to the crusher would not pass to the pursuer unless and until it had exercised its

option to purchase and paid the relevant fee.

77. There is a practice within the industry, despite the wording of the agreements and

the legal position, that where a customer has a complaint about a machine the

finance company will try to facilitate a solution with the supplier of the machine.

FINDS IN FACT AND LAW

78. Clause 8 of the hire purchase agreement entered into by parties is a fair and

reasonable clause in terms of the Unfair Contract Terms Act 1977.

79. Any terms as to satisfactory quality express or implied were therefore validly and

effectively excluded by the express terms of Clause 8.

80. The terms set out in section 8(1) of the Supply of Goods (Implied Terms) Act 1973 are

implied into the hire purchase agreement entered into by parties.

81. By letter dated 26 May 2017 the pursuer purported to rescind the contract with the

defender on the grounds of the defender’s breach of the implied term.

82. In terms of said implied term the defender was required to have the right to sell the

goods when the property was to pass to the pursuer in August 2019.

83. The defender was more likely than not to be in such a position in August 2019.

84. The defender was not in material breach of contract on 26 May 2017.

85. The pursuer was not entitled to purport to rescind the contract on 26 May 2017 and

was therefore in material breach of contract by so doing.

86. The pursuer having wrongfully rescinded the contract as at 26 May 2017 the

defender is entitled to damages from the pursuer for any loss arising from the

pursuer’s rescission on 26 May 2017. 10

THEREFORE

The Sheriff having resumed consideration of the cause finds that the answers to the preliminary questions posed are as follows: a) the parties’ contract carried the “satisfactory quality term” relied upon by the pursuer but said term was validly and effectively excluded by the express terms of the parties’ contract (b) clause 8.4 of the contract validly and effectively excludes liability for any breach of the implied term as to quality (c) the parties’ contract carried a term which required the defender would have the right to sell the goods at the time when the property was to pass to the pursuer (d) the defender was not likely to breach that term come the relevant time (e) the defender was not in material breach of contract as a result of the breach of the term implied by section 8(1) of the Supply of Goods

(Implied Terms) Act 1973 (” the implied term as to title”) as at 26 May 2017 (f) the pursuer was not entitled to purport to rescind the contract on 26 May 2017 as a result of any breach of the implied term as to title and was in material breach of contract by so doing (g) the pursuer being in material breach of contract by reason of its rescission on 26 May 2017 the defender is entitled to damages for any loss arising from the pursuer’s rescission on 26 May

2017; assigns Wednesday 21 November 2018 at 11.45am as a case management conference to proceed by telephone before Sheriff Swanson to discuss further procedure.

Background

[1] This is a commercial action in which I heard a preliminary proof before answer on

20, 21, and 23 August 2018. The action is an action for damages for losses arising from the supply of what the pursuer says was a faulty machine. The supply of the machine is governed by a hire purchase agreement between the pursuer and the defender. That agreement contains inter alia an exclusion of liability clause which the pursuer argues is an 11 unfair contract term in terms of the Unfair Contract Terms Act 1977 (“UCTA”). The pursuer also argues that it is deemed to contain a term as to title by operation of the Supply of Goods

(Implied Terms) Act 1973 which the defender has breached. Parties were agreed that both of those issues should be resolved as a preliminary matter.

[2] Parties agreed that the questions to be addressed at the preliminary proof were as follows: a) whether the parties’ contract carried the “satisfactory quality term” relied upon by the pursuer or whether said term was validly and effectively excluded by the express terms of the parties’ contract (b) in the event that said term forms part of the contract whether clause 8.4 validly and effectively excludes liability for any breach of it (c) whether the parties’ contract carried a term which required the defender would have the right to sell the goods at the time when the property was to pass to the pursuer (d) in the event that said term was included whether the defender was likely to breach it come the relevant time (e) whether the defender was in material breach of contract as at 26 May 2017 (f) whether the pursuer was entitled to purport to rescind the contract on 26 May 2017 or whether the pursuer by so doing was in material breach of contract (g) whether, if the pursuer was in material breach of contract, the defender is entitled to damages. It was subsequently confirmed by parties and the court during the proof that no issues about quality were to be determined and that answers to questions (e) (f) and (g) were to be answered only in relation to the implied terms argument.

[3] I heard evidence on 20 and 21 August. An objection to part of the pursuer’s proposed proof was argued by both parties and upheld by me prior to the commencement of the pursuer’s proof. As a result of that ruling and a similar one made before the commencement of the defender’s proof, the scope of the proof was limited and I heard evidence only from Mr Paul Sutherland, Mr John Sutherland and Mr David Nicholson for 12 the pursuer and Mr Cameron Watson, Mr Alan Thomson and Mr Douglas Harkison for the defender. Evidence in chief for all of these witnesses was taken by reference to witness statements. As a result of the ruling mentioned above, certain parts of all of these witnesses’ statements were excluded from probation. I heard submissions on 23 August and thereafter

I made avizandum.

Submissions

[4] Written submissions have been lodged by both parties and so I have summarised only briefly the submissions made orally.

[5] In relation to the exclusion clause the pursuer argues that when the relative bargaining strength of the parties, the practice of finance companies and suppliers in relation to remedying defects and the close relationship between the defender’s divisions are considered the term excluding liability is not fair and reasonable. The pursuer also argues as a result of a “back to back” finance agreement which the defender had with Santander the defender would not have a right to sell the machine to the pursuer at the time when property was to pass because title would remain with Santander.

[6] The defender argues that, given the circumstances known to or in the contemplation of parties at the time when the contract was made, the exclusion term is fair and reasonable.

The defender also argues that the rescission of the contract by the pursuer on the basis of breaches of the implied term as to title is not lawful.

[7] Both parties rehearsed the statutory provisions which apply. Schedule 2 to UCTA directs the court to have particular regard to certain matters in assessing the fairness and reasonableness of a term. These assessment factors are discussed in Overseas Medical Supplies

Ltd v Orient Transport Ltd [1999] EWHC Civ 1449 which was referred to by Mr Hanretty. He 13 also referred to what he described as the clear line of authority flowing from Photo

Production Limited v Securicor Transport Limited [1980] AC 827 and Watford Electronics Ltd v

Sanderson CFL Ltd [2001] EWCA, Goodlife Foods Ltd v Hall Fire Protection Ltd [2017] EWHC

767 and Denholm Fishselling Ltd v Anderson 1991 SLT (Sh Ct) 24. Mr McIlvride sought to distinguish Denholm and urged the court to prefer the approach in Balmoral Group Limited v

Borealis UK Ltd [2006] 2 CLC 220. He also referred to Watford and Goodlife. Other cases referred to were Britvic Soft Drinks Ltd v Messer UK Ltd [2002] EWCA Civ 548 and George

Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803. Mr Hanretty also referred to W.Photoprint Ltd v Forward Trust Group Ltd & Anr 1992 (12)TrLR 146. There is a dearth of authority on the implied terms arguments. Mr Hanretty made reference to Chitty on

Contracts 32nd Ed and to the case of Barber v NWS Bank plc [1996] 1 WLR 641.

Discussion a) fairness and reasonableness of clause 8

[8] Section 6 of the Unfair Contract Terms Act 1977 (“UCTA”) provides that liability for breach of the obligations arising from the seller’s implied undertakings as to conformity of goods with description or sample or as to their quality or fitness for a particular purpose cannot be excluded or restricted by reference to a contract term unless the term satisfies the requirement of reasonableness. The reasonableness test is set out in section 11(1) of the Act.

That section provides that the requirement of reasonableness is that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made. In determining whether a contract term satisfies the requirement of reasonableness regards shall be had in particular to the matters specified in Schedule 2. The 14 section also provides that it is for those claiming that a contract term or notice satisfies the requirement of reasonableness to show that it does.

[9] Schedule 2 provides that the matters to which regard is to be had are any of the following which appear to be relevant:

 the strength of the bargaining positions of the parties relative to each other, taking

into account (among other things) alternative means by which the customer's

requirements could have been met;

 whether the customer received an inducement to agree to the term, or in accepting it

had an opportunity of entering into a similar contract with other persons, but

without having to accept a similar term;

 whether the customer knew or ought reasonably to have known of the existence and

extent of the term (having regard, among other things, to any custom of the trade

and any previous course of dealing between the parties);

 where the term excludes or restricts any relevant liability if some condition is not

complied with, whether it was reasonable at the time of the contract to expect that

compliance with that condition would be practicable;

 whether the goods were manufactured, processed or adapted to the special order of

the customer.

[10] In having regard to these various matters the court is encouraged to “entertain a whole range of considerations, put them on the scales on one side or the other, and decide at the end of the day on which side the balance comes down1.” It is accepted that there was no inducement, that the pursuer was aware that the agreement contained the term and that the goods were not manufactured or adapted to the special order of the pursuer.

1 Lord Bridge of Harwich in George Mitchell (Chesterhall) Limited v Finney Lock Seeds Limited [1983] 2 AC 15

[11] The pursuer avers that Clause 8 of the hire purchase agreement between the parties is unfair and unreasonable because the justification for that clause is premised on the statement that the defender is only the financier of goods and the pursuer has chosen the goods from the supplier. The pursuer avers that given the relationship between the defender and Scotia the pursuer had no option other than to accept the defender as financier and therefore had no option in purchasing the crusher other than to do so by entering a hire purchase agreement with the defender.2 The defender is criticised for not discussing Clause

8 with the pursuer, for insisting upon the signature and return of the document before delivery and for not drawing the pursuer’s attention to any of the terms of the document, simply describing the agreement as documentation attached to an email.3

[12] In response the defender relies on various facts and circumstances which, having considered the evidence, I am satisfied have been proved. The first of these is that the pursuer freely contracted on this basis. Linked with that is that the defender is not the only party from whom the pursuer could have attempted to obtain crushing equipment and not the only means to finance the purchase. Findings in fact 40 to 45 relate to these issues and

Mr Sutherland’s general experience with finance contracts. I have also found that the pursuer entered into an agreement with the defender for finance of a Doosan excavator on exactly the same terms prior to the agreement in this case; that equipment was also supplied by Scotia.

[13] I am satisfied that the defender has proved that clauses like clause 8 are not unusual, indeed are fairly standard. The pursuer routinely enters into contracts containing clauses of the same type; no attempt was made to discuss never mind negotiate the terms. There was

2 Condescendence 6 p 11 3 Ibid p 12 16 no evidence that the pursuer could have entered into a similar contract with other persons, but without having to accept a similar term; on a balance of probabilities the terms would have been exactly the same. Indeed the evidence showed that the other finance companies with whom the pursuer had in fact contracted had identical terms.

[14] Mr John Sutherland said that he gave the contract a quick look over; he did not read the small print. He passed the document to his son Paul for him to consider. Paul thought that it had taken around 15 minutes to look over it and discuss it with his father. Paul said that he had “flicked though” the contract in the same way as he would any document. He said there was nothing unusual about it; “it just looked like a standard hire purchase contract.” Mr John Sutherland’s attitude was that all agreements are the same so he doesn’t read them; he has seen them a million times before and he needed the machine quickly.

[15] Mr Paul Sutherland’s evidence was in short compass. He came over as a hands on manager who was more involved on site than he was in the office with any documents or contracts. He agreed that on many topics it would be better to ask his father; he said he could not help with dates or which company owned what when. His assistance to the court was therefore limited but, helpfully, his evidence about the formation of the contract was clear. He was also clear about the investigations he and his father had made. His evidence was that he and his father were speaking to people who knew about crushers all the time at places like plant shows and the general view was that this was a good crusher. Mr John

Sutherland gave detailed evidence about the other dealers he had spoken to and the machines he had considered. That evidence is reflected in findings in fact 15 and 16.

[16] Mr Nicholson’s evidence was that he instigated the discussion with Mr John

Sutherland about the Parker machine. That was inconsistent with what was agreed between parties in the Joint Minute. In cross he said that his initial conversation with Mr Sutherland 17 in June 2014 was just part of his exercise in advising the market about Scotia’s new relationship with Parker. It was subsequent to that discussion that Mr Sutherland reverted to him in July 2014 to ask him to investigate his particular requirements with Parker. He accepted that Mr Sutherland had done his research. I was satisfied on the evidence that the conversation with Mr Nicholson was only part of Mr Sutherland’s investigations and research.

[17] Mr Sutherland was undoubtedly an experienced business man who knows the asset finance industry inside out. The evidence showed that the pursuer, through Mr Sutherland, had entered into similar contracts with several other financiers. Mr Nicholson’s evidence was that he had been directed by Mr Watson to promote finance from the defender.

Mr Watson disagreed with that but did say that the sales team were directed to let customers know that finance was available to them through the defender. There was no evidence of any inducement to the pursuer to form this contract. I have no doubt that if

Mr Sutherland had wanted to purchase a different crusher or obtain finance from a different provider he would have done just that. He is not a man who would leave himself with no options as the pursuer avers. He readily accepted that all the finance agreements he had entered had the same terms. The reason why he had gone with the defender was his relationship with David Nicholson, the fact it was a good deal and the link with Scotia Plant which he considered meant better backup. I am therefore satisfied that the pursuer knew or ought reasonably to have known of the existence and extent of the term. There was evidence about both the custom of the trade and the previous course of dealing between the parties.

[18] The pursuer also avers, as part of its argument that the defender has significantly more economic power than the pursuer, that the defender, through its subsidiaries, had a 18 monopoly on the sale of Parker Plant Limited equipment in the UK4. Mr John Sutherland was forthright on this topic but his knowledge of the arrangements came from

Mr Nicholson. Mr Nicholson’s evidence was that he had been told that Scotia would be taking over exclusive agency for the sale of Parker Plant Limited in Scotland. His evidence about the timing of this and when the relationship started was not reliable. Mr Watson said that discussions were starting about a distribution deal. At the time of the contract with the pursuer Scotia was not a dealer for Parker. The distribution agreement was agreed some time after that probably around December 2014. I preferred Mr Watson’s evidence on this point; he was at a higher level within the defender’s organisation than Mr Nicholson and had direct knowledge of the position. He was also a more independent witness;

Mr Nicholson was very keen to support the pursuer’s case at all costs.

[19] There were definitely aspects of Mr John Sutherland’s evidence which were shown to be incredible and unreliable for example, the position of the companies and which assets the administrator knew about. Neither Mr John Sutherland nor Mr Paul Sutherland accepted that they had in fact not co-operated with the administrators as they should have done despite what was put to them in cross. It was difficult to gauge why that was their attitude.

I couldn’t work out if it was because they didn’t understand their obligations or they understood them all too well and they were trying to be subtly obstructive. Mr Paul

Sutherland’s attitude was that he had co-operated because he left it to his father. Mr John

Sutherland’s attitude was that he had co-operated as far as he needed to. It was certainly an area of the evidence in which neither of them, given their protestations of co-operation, were credible or reliable.

4 Ibid p 11 19

[20] Mr John Sutherland didn’t seem to care if cross-examination highlighted areas of his evidence which were wrong. He appeared to have a fairly unshakeable belief in his own knowledge and was forthright in his views about, for example, whether the crusher in question was a prototype. The point, being related to quality, was not relevant to the preliminary proof but Mr Sutherland’s evidence on this bore upon assessments of general credibility and reliability. It was a prototype because he was convinced it was untested and had no manuals; what they were given was effectively a “bag of bolts.” He could not be moved from that belief. He had the same dismissive attitude to suggestions that he did not understand that the various companies in which he had or has an interest are separate entities; “they’re all the same to me.” He made other extravagant statements like “I’ve never been refused by finance companies yet; they chase after my business” which were shown to be incorrect.

[21] However, in relation to the evidence which was directly relevant to the formation of the contract I found Mr John Sutherland to be credible. This was not a topic on which he got carried away and rendered his evidence incredible by exaggeration. I accepted his evidence about the way in which he approached the obtaining of finance; he was very matter of fact about that. Given his demeanour and his evident expertise his evidence on that topic had a ring of truth about it.

[22] I did form the impression that Mr John Sutherland was an old rascal. He clearly had no time for the process of the proof or those involved in conducting it. He muttered to himself constantly about why he thought questions were irrelevant or just plain stupid.

Many topics caused him to chuckle or laugh in a disparaging fashion. He was flippant and disrespectful. Other people’s view of him, including Lord Tyre’s, seemed to be water off a duck’s back. When it was put to him that he had hidden assets from creditors he said in no 20 uncertain terms that he didn’t care what it looked like. He said his statement was all true but “at different times”.

[23] All of that is relevant to the consideration of whether clause 8 is fair and reasonable.

Having heard Mr Sutherland’s evidence I am clear that the pursuer has not proved the various elements it avers in condescendence 6 as being relevant to the reasonableness test.

This case may be an archetypal example of what Lord Scarman described as “a commercial dispute between parties well able to look after themselves.5”

[24] Lord Justice Coulson in the Goodlife case makes reference to the line of authority following the decision of the House of Lords in Photo Production and refers with approval to

Lord Justice Chadwick’s view in Watford Electronics that: “where experienced businessmen representing substantial companies of equal bargaining power negotiate an agreement, they may be taken to have had regard to the matters known to them. They should, on my view be taken to be the best judge of the commercial fairness of the agreement which they have made; including the fairness of each of the terms in that agreement. They should be taken to be the best judge on the question of whether the terms of the agreement are reasonable. The court should not assume that either is likely to commit his company to an agreement which he thinks is unfair or which he thinks includes unreasonable terms. Unless satisfied that one party has, in effect, taken unfair advantage of the other – or that a term is so unreasonable that it cannot properly have been understood or considered – the court should not interfere.” As Lord Justice Tyler said in Granville Oil whilst UCTA “plays a very important role in protecting vulnerable consumers from the effects of draconian contract terms” the court should be “less enthusiastic about its intrusion into contracts between commercial

5 Photo Production p 853 21 parties of equal bargaining strength, who should generally be considered capable of being able to make contracts of their choosing and expect to be bound by their terms.”

[25] As I have said I formed the impression that Mr Sutherland was more than capable of making contracts of his choosing. He also expected to be bound by the contract terms.

There was evidence that he took a dim view of contract terms which did not suit him. I heard evidence from him about an email exchange between him and the defender in

December 2014 when the defender had asked for a personal or property guarantee on finance Mr Sutherland requested a quote for. Mr Sutherland said in evidence that he would never give guarantees for a hire purchase and in his email of 29 December 2014 he told

Mr Harkison that and said that he could get the finance elsewhere at a good price. After

Mr Harkison came back to say “sadly without support it’s a non-starter” Mr Sutherland responded by email which said simply “bye bye. Kind regards.” I reject the pursuer’s contention that these parties were not of equal bargaining power.

[26] There is no doubt that the exclusion clause was standard in contracts of this type.

There are good reasons for that but the point in contention is whether that in itself renders the clause unfair or whether a broader approach should be taken. Mr Hanretty relied on the case of Denholm Fishselling Limited and Mr McIlvride preferred the approach taken in

Balmoral Group Limited.

[27] In Denholm purchasers of fish from Peterhead fish market sought to recover the price from the seller because the fish were not fit for human consumption. The sellers relied on an exclusion clause which the purchasers argued was not fair and reasonable mainly because that term was included in the terms and condition of all the fish merchants who traded from

Peterhead fish market. The rejected that argument on the basis that the buyers might have been in a disadvantageous bargaining position if they were compelled to 22 buy from a single fish salesman or prevented from discriminating between one vessel and another when deciding whether or not to buy from a particular catch. However, he recognised that both sides employ skilled and experienced staff capable of looking after the interests of their employers when deciding whether or not to enter into contractual relations.

The fact that when they have decided to enter into a contract the terms of that contract are not negotiable does not show that there is a preponderance of bargaining power in favour of the seller or that the conditions are unfair or unreasonable.

[28] By contrast in Balmoral Lord Justice Clarke says that a determination of the reasonableness of a contractual exclusion requires consideration of whether the allocation of risk effected by the exclusion is appropriate; he was not persuaded that requiring the purchaser to bear the entire risk of a latent defect in the seller’s product was. Although he recognises that the court should not lightly treat an agreement between commercial parties which allocates risk as unreasonable he notes that although the seller’s terms were standard in the trade they were not the product of any agreed process of negotiation between representatives of the sellers and buyers. The seller’s terms were presented on a take-it-or- leave-it basis and the purchaser’s scope for going elsewhere on any better terms was very limited. Mr McIlvride contends that a similar position arises here; there was no serious negotiation as to the terms, standard though they may be.

[29] It has to be remembered that the supply in the Balmoral case was of a highly technical polyethylene product manufactured by the seller and used by the purchaser to manufacture storage tanks for the oil industry. There were a large number of scientific and technical expert witnesses in relation to the unsatisfactory quality claim. The purchaser reasonably relied on the seller’s expertise to supply a polymer whose properties made it reasonably suitable for the purchaser’s manufacturing purposes. The court was unhappy 23 that the clause in question introduced a blanket exclusion of any liability whatsoever; that was considered to be prima facie unreasonable. It is also relevant that the defect was latent and the problems with stress cracking in the tanks only emerged after they were in use and filled with kerosene or diesel.

[30] Each case is fact specific. As Mr Hanretty noted, the case where the facts most closely accord with the facts in this case is that of W Photoprint Ltd. In that case Deputy

Judge Johnson accepted that in the 1977 Act Parliament recognised that it may be fair and reasonable to exclude liability even for what was formerly regarded as a fundamental breach, even in the context of hire purchase agreements where the term may exclude liability for breach of any obligation to supply machinery that worked properly or at all. He stressed that the focus is essentially whether it was fair and reasonable to include the term, not whether the term itself in isolation is fair and reasonable or another term would be fair and reasonable.6 Where the parties are of equal bargaining power the courts should not be astute either to cut down the clear effect of exclusion clauses or to change the balance and assumptions of risk provided for in such a contract. Deputy Judge Johnson did not consider either the availability of insurance cover or the assignation of the hirer’s rights against the supplier to be of crucial importance.

[31] The preamble to Clause 8 in the contract reads thus:

“We both recognise that there is a risk that the Goods may not perform as expected and may not be satisfactory. When Goods are financed the risk of them not working satisfactorily or according to any representation made may be assumed by you, us or the supplier of them. You and we both appreciate that the allocation of risk is a matter of agreement and have decided that you shall bear the risk on the terms set out herein as you acknowledge that we are only a financier of goods and you yourself have chosen the Goods from the supplier.”

6 Deputy Judge Johnson in W Photoprint Ltd p162 24

[32] That indicates to me that the parties were commercially savvy; they agreed to this exclusion with their eyes open to the consequences of not so agreeing. Within Clause 8 parties agree that if the allocation of risk had been different then the defender would have charged higher payments or would not have entered into the agreement at all.

Mr Nicholson tried to cast doubt on the defender’s role as “only a financier of goods” but the evidence supported the conclusion that they were. I have no doubt that Mr Sutherland chose the goods, chose the supplier and chose the finance company.

[33] Taking into account all the general evidence and the matters to which I am encouraged to have regard by Schedule 2, I find that clause 8 of the hire purchase agreement, being the exclusion of liability clause, is fair and reasonable in its terms.

[34] b) the title point

[35] The pursuer avers that the defender does not have title to the crusher and is not therefore in a position to transfer same to the defender as is required by the contract. The pursuer’s position is that this is a breach of section 8(1)(a) of the Supply of Goods (Implied

Terms) Act 1973 (“ the 1973 Act”) because the defender will not have the right to sell the crusher at the time property is to pass in terms of the hire purchase agreement between parties7. There is also a common law breach averred in relation to title at time of delivery but that point was not argued.

[36] The other breach of the 1973 Act which is founded on is a breach of section 8(1)(b)(i) in relation to non-disclosure of the encumbrance arising from the back to back agreement

7 Condescendence 6 p10 25 with Santander8. As result of these material breaches of contract the pursuer rescinded the contract by letter dated 26 May 2017.

[37] In considering the purported breach of the implied term it is important to look carefully at what the 1973 Act seeks to regulate. The terms of section 8(1)(a) are fairly self- explanatory. The terms of section 8(1)(b) must be taken together. “Term” is described in the singular and the two parts of the section are linked by “and”. I do not accept that the pursuer can split these two elements and found on a breach of non-disclosure alone. There was no doubt from the evidence that the pursuer was unaware of the agreement with

Santander; however that is not enough. The goods must be free, and must remain free until the time property is to pass of any undisclosed encumbrance and the person to whom the goods are hired must enjoy quiet possession except as disturbed by any person entitled to the benefit of a disclosed encumbrance. So the situation which Parliament is legislating to prevent is one where someone who has hired goods has his quiet possession disturbed by a third party with rights he does not know about.

[38] The evidence related to the title point came from Mr Thomson and Mr Harkison.

Mr Thomson explained the operation of back to back deals. The terms of the agreement between the pursuer and the defender are reflected in the agreement between the defender and Santander. Santander takes an assignation over the agreement between the pursuer and the defender which allow Santander to step in if the pursuer is in default. Unless the pursuer is in default it has quiet possession of the crusher; similarly unless there is default the defender has quiet possession in its agreement with Santander. Mr Thomson referred in his evidence to a letter from Mr Rob Crawford an Asset Finance Director with Santander which confirms that Santander had and has no intention of preventing the pursuer from

8 ibid 26 enjoying its rights under its contract with the defender provided that there is no default.

Mr Thomson agreed with what Mr Crawford said in the letter referred to.

[39] Mr Thomson also explained by reference to Mr Crawford’s letter that title to the crusher would pass to the defender once all the payments have been made under the agreement and the option to purchase fee is paid at the end of the term. Mr Thomson confirmed that the agreement between the pursuer and the defender contained a similar term in clause 2. That clause provides as follows:

“Providing you have paid all basic rentals and other sums due under this agreement and you are not in breach of any of your obligations under the agreement then you may exercise your option to purchase the goods on the date on which the final basic rental is due by paying us the option fee specified overleaf.”

[40] The option fee is stated on the first page to be £30 including VAT. Mr Thomson confirmed that the defender’s practice would be to contact the customer just prior to the end of the agreement to confirm if they wished to action the option; that would let the defender know what they required to do to ensure that title could be passed on.

[41] Mr Harkison had a slightly different idea of the timing of the final payment to

Santander but I accepted Mr Thomson’s evidence. He deals with the position more directly than Mr Harkison does and he was credible about the problems involved in trying to make sure that the funder is paid off before the customer’s deal comes to an end. He said that

Santander is particularly slow so the defender has to be well organised to do things in the right order. He clearly knew what he was talking about.

[42] The agreement between the pursuer and the defender would have come to an end in

August 2019. The agreement between the defender and Santander would have come to an end in October 2019. Clearly the defender would have had to make some arrangement, if the option was exercised, to have title to the crusher in August 2019. I am satisfied from the 27 evidence that it is more likely than not that they would have done so and that they would have been in a position to transfer title to the pursuer had the option been exercised.

[43] The pursuer rescinded the contract by letter dated 26 May 2017.

[44] As at 26 May 2017 the pursuer could not have exercised its option to purchase; there were 27 payments remaining in terms of the agreement at that point in time. The crusher was still with the pursuer at that time and payments were continuing under both the agreement between the pursuers and the defender and the agreement between the defender and Santander.

[45] The case of Barber v NWS Bank plc [1996] 1 WLR 641 concerned the sale of a motor vehicle to Mr Barber. The garage sold the vehicle to NWS Bank and the bank agreed to sell it to Mr Barber under a conditional sales agreement. That agreement provided Mr Barber with two options: either he paid the balance in ten days at which point the car became his property or he deferred payment, leaving title to the vehicle with the bank until he paid in full. He chose the latter option but after a couple of years Mr Barber got into financial difficulties and, on investigating a sale of the vehicle, discovered that another finance company had a prior interest. It became apparent that the bank had been aware of this.

Mr Barber purported to rescind the agreement on the basis that the bank did not have title to the vehicle. In that case the contract contained an express term that the bank owned the vehicle at the date of the agreement and would retain title until paid in full. Sir Roger

Parker noted that the express term put parties in the same position as if this was a sale rather than an agreement to sell. On the basis that the bank had no title either at the time of the agreement or at any time thereafter the judge held that Mr Barber was entitled to rescind.

[46] There are differences in the factual circumstances between Barber and the present case. Barber involved a conditional sale agreement not a hire purchase agreement with an 28 option to purchase. It was therefore fundamental to the agreement that the bank was in a position to sell not just in a position to ensure quiet possession until an option was exercised.

There was also a dispute here between the bank and the other finance provider; the other finance provider had asserted title and the bank had kept quiet about that. In the present case Santander consented to the agreement with the pursuer and have never suggested that they had any intention of asserting their rights. Mr Barber was entitled to more than simply undisturbed quiet possession. I agree with Mr Hanretty that for these reasons the case of

Barber can be distinguished from the present case.

[47] As is noted in Chitty on Contracts9, which discusses a similar implied term in the Sale of Goods Act 1979, the implied term is clearly broken if the goods belong to a third party and the seller has at the relevant moment no power to transfer the property in them to the buyer; it requires no knowledge or fault on the part of the seller nor any disturbance of possession merely absence of the right to sell. However the learned author also notes that the seller need not own the goods at any time: he only promises that he will be able to create the appropriate rights in the buyer which may involve causing transfer direct from a third party.

[48] In the discussion that follows that passage the learned author goes on to compare the wording about the goods being free from encumbrance and the enjoyment of quiet possession by the buyer to the warranty given in land law. The difference noted is that a warranty in relation to land is not broken until the buyer’s possession is disturbed whereas in sale of goods the presence of an encumbrance at the relevant time, which may not be when the property is to pass, may be a breach. However it is noted that a buyer’s remedy for breach of the term as to quiet possession and freedom from encumbrances will arise

9 32nd Ed paragraph 44-076 29 when he is compelled to surrender the goods to a third party with rights to them. This is akin to the cases where a total failure of consideration is argued. In that type of case the seller, having title from a party who is not the true owner is treated as not ever having the right to sell. The case of Barber is referred to in Chitty on Contracts in this context.

[49] The learned author in Chitty on Contracts makes reference to a similar principle being applied in relation to hire purchase agreements. The cases referred to in the footnote are all cases where the seller never had title. Mr Justice Goddard, who was sitting in both Karflex

Ltd v Poole [1933] 2 KB 251 and Mercantile Union Guarantee Corp v Wheatley [1938] 1 KB 490 is clear that there is a difference between the situation where the customer gets the machine from a seller who has a perfect right to it and one where the seller has no power to deal with it. In Warman v Southern Counties Car Finance Corp Ltd [1949] 2 KB 576 it is recognised that, the real object of a hire-purchase agreement being to enable the hirer-purchaser to buy the article in question, there had been a total failure of consideration where the defendants were not the owners and the plaintiff was called upon to return the vehicle to the true owners.

That is a different situation from the one in the present case. The pursuer could not argue that there has been total failure of consideration, or what we would call impossibility of performance; the defender is not in a position as at 26 May 2017 where it cannot under any circumstances perform its obligation.

[50] In my view the correct way to look at the implied term here is that the defender has made a promise to be able to pass title to the pursuer at the end of the term of the hire purchase agreement and until then there is no obstacle to the pursuer’s quiet possession of the crusher. This is not a situation like Barber where the transfer could not take place until the rights of the third party were sorted out. Here the third party has full knowledge of the 30 arrangement and I am satisfied on the evidence that the third party was not a threat to the pursuer’s quiet possession.

[51] Mr Hanretty submitted that another way of analysing the pursuer’s rescission of the contract was to treat it as acceptance of an anticipatory breach. If there had been an anticipatory breach of contract the pursuer could have chosen to accept that repudiation and claim damages rather than insist on performance. However, there was no evidence that the defender had unequivocally indicated to the pursuer by words or conduct that its intention was not to perform the contract.

[52] Professor McBryde comments on the hostile academic comment which the concept of anticipatory breach provokes. The intellectual difficulty arises from the concept of a breach before the time for performance has arrived. However, as Professor McBryde notes there is commercial sense in allowing parties to terminate if there is a clear indication from one party that a contract will not be performed10. What we have here is a rescission by the pursuer before the time for performance has arrived but not in the face of a clear indication of non- performance. That cannot be justified as a reaction to an anticipatory breach of contract.

[53] If the breach is not of that nature then the pursuer has a higher hurdle to climb; it must be able to show that there was a material breach by the defender which justifies it withholding its performance under the contract. The nature of such a breach requires to go to the root of the contract and a determination of its nature is primarily a question of fact11. I am not satisfied that the pursuer’s argument about the implied term as to title constitutes a breach of any sort. But if I am wrong about the conjunctive nature of the terms in section

8(1)(b) and non-disclosure of the back to back deal of itself constitutes a breach, it cannot be

10 McBryde on Contract 3d Ed paras 20-22 to 20-43 11 McBryde on Contract 3d Ed paras 20-94 to 20-100 31 a material one where quiet possession was being enjoyed and was under no threat. If on 15

August 2019 the pursuer had exercised its option and called upon the defender to pass title it would have been a material breach for the defender to say at that point that it was unable to do so. In my view the pursuer struggles to show a justified rescission at any time prior to that.

Decision

[54] The pursuer avers that it was an implied term of the contract between parties in terms of section 10 of the Supply of Goods (Implied Terms) Act 1973 (“ the 1973 Act”) that the crusher would be of satisfactory quality. The defender argues that that implied term is excluded by the terms of clause 8.3 of the contract which expressly excludes to the full extent permitted by law any term otherwise implied by law. I do not find that the terms of clause 8 are unfair and unreasonable and so I answer the first and second questions on the basis that the “satisfactory quality term” relied upon by the pursuer was validly and effectively excluded by the express terms of the parties’ contract.

[55] The parties’ contract did carry a term which required the defender would have the right to sell the goods at the time when the property was to pass to the pursuer. I found on the balance of probabilities that the defender was not likely to breach that right come the relevant time and that the defender was not in material breach of contract as at 26 May 2017.

It follows that the pursuer was not entitled to rescind the contract on 26 May 2017 and was therefore in material breach of contract by so doing. There is no reason why the defender would not be entitled to damages as a result of that material breach of contract by the pursuer.