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Case law: Supplier found liable for false statements made to purchaser buying on HP who had no direct contract with supplier

Businesses buying equipment/goods on hire purchase, having no direct contract with the supplier of the equipment/goods, should consider what happens if they buy in reliance on supplier’s statements that turn out to be false. This is because they may not always have a remedy against the supplier in those circumstances, a ruling makes clear.

January 2020

This update was published in Legal Alert - January 2020

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

A business bought six items of valuable equipment via a hire purchase (HP) company, and had no direct contract with the supplier. However, during its search for the right equipment the supplier made various statements to the buyer about the equipment, which the business claimed had induced it to enter into the contract with the HP company.

The business later stopped using the equipment on grounds it was not fit for purpose, saying that the supplier’s statements had been false. The business could not sue the supplier for breach of contract because it had no contract with the supplier. It therefore sued the supplier for breach of ‘collateral warranty’, on the basis that:

  • the supplier had made promises or assertions about its equipment, before the contract had been entered into between the business and the HP company;
  • these had contractual force – they were not ‘mere representations’;
  • they had led to a contract being entered into under which the HP company had provided payment to the supplier;
  • the promises or assertions were false;
  • the business suffered loss; and
  • there were no exclusion clauses in the contract preventing the business from suing the HP company in circumstances where it had made the false statements (if there had been, it would not have been fair to make the supplier liable, when the HP company would not have had to if it had acted in the same way).

In claims for breach of collateral warranty, the warranties do not need to have been made fraudulently or negligently. The test of whether they have contractual force is an objective one – would a reasonable third party, given the circumstances and knowing what the parties knew at the time, have considered there was an intention that the warranties should have contractual force. It is for the party alleging that warranties are intended to have contractual force to prove that they do.

The High Court found that the business was able to satisfy all these requirements and ruled in its favour. The supplier was therefore liable for breach of collateral warranty and had to pay significant compensation.

However, the result may have been different had the contract between the business and the HP company contained clauses excluding or limiting liability for such statements if they had been made by the HP company; or if the promises or assertions made by the supplier had not had contractual force.

Operative date

  • Now

Recommendation

  • Businesses buying equipment on hire purchase, so that they have no direct contract with the supplier, should consider whether they have a remedy against the supplier if the equipment is not fit for purpose in circumstances where they relied on statements made by the supplier that were false.

Case ref: New York Laser Clinic Ltd v Naturastudios Ltd [2019] EWHC 2892

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.

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