Satisfactory Quality Disputes – Case Study
We handle the full range of complaints, disputes and defended actions on behalf of our clients specifically involving (alleged) issues regarding satisfactory quality and fitness for purpose.
A finance company in a tripartite debtor-creditor-supplier agreement is usually best advised to adopt a neutral position in respect of any allegation of satisfactory quality, save in obvious cases (for example a vehicle suffering catastrophic failure; upon receipt of a credible and comprehensive experts report). Finance companies will often have no direct knowledge of the vehicle and any problems experienced with it.
It is important that the customer be put to strict proof of any allegation that the asset is not of satisfactory quality and will have to adduce evidence, whether witness evidence and / or expert written evidence to discharge the burden of proof they face.
However there are circumstances when inevitably the finance company will become involved and be required to take positive steps to resolve the matter. Here we look at a recent case where our client had financed the purchase of a second hand vehicle.
Satisfactory Quality and Fitness for Purpose – The Legal Position
The agreement and contract of sale, by virtue of Section 14 of the Sale of Goods Act 1979 (as amended), included implied terms that the Vehicle would be of satisfactory quality and fit for purpose.
Goods are of satisfactory quality if they meet the standard a reasonable person would regard as satisfactory, taking into account any description of the goods, the price (if relevant) and all the other relevant circumstances. The quality of goods include their state and condition as well as:
1. Fitness for all purposes for which goods of the kind in question are commonly supplied;
2. Appearance and finish;
3. Freedom from minor defects;
4. Safety; and
The following principles apply when considering allegations of satisfactory quality:
(i) A vehicle should be of a standard a reasonable person would expect, taking into account factors such as: age, value, history, mileage, make, durability, safety and description;
(ii) A vehicle should still be roadworthy, reliable, fit to be driven on the road in safety and in a condition consistent with its age/price;
(iii) The warranty of satisfactory quality extends such that the vehicle can be driven in safety after the sale of the vehicle but is not unlimited in time. No vehicle will run safely forever.
(iv) The purchaser of a second-hand car cannot expect to receive a perfect vehicle nor a vehicle whose condition necessarily conforms to the average. The primary rule caveat emptor is displaced to some extent by the statutory implied terms, but not so far as to give the buyer complete protection against hard luck or a bad bargain.
(v) The seller is not liable for fair wear and tear, where the vehicle broke down or the fault emerged through normal use, nor are they liable if they drew the buyer’s attention to the full extent of any fault or defect before he or she bought the car.
If the Vehicle was sold as a second-hand car and not for restoration or scrap, fitness for purpose is inextricably linked with satisfactory quality; the vehicle must be roadworthy, safe and reasonably reliable.
Where a customer has not elected to reject a vehicle they will be limited to damages comprised of:
(a) The costs of repairs to remedy any defects rending the Vehicle of unsatisfactory quality or unfit for purpose;
(b) Any diminution in value of the vehicle in light of the above;
(c) Any other loss or damage reasonably incurred as a result of the unsatisfactory quality.
Instruction – Background
We were instructed to advise our client (“ABC”) in respect of their rights and liabilities arising out of a conditional sale agreement regulated by the Consumer Credit Act 1974.
Under the Agreement ABC agreed to sell to and the customer (“Mr X”) agreed to buy a 2003 Land Rover Range Rover. The Agreement was introduced through a broker. The Vehicle was supplied by K Ltd pursuant to a contract of sale between ABC and K Ltd in March 2014.
Mr X complained that the vehicle supplied under the Agreement was not of satisfactory quality or fit for purpose in breach of the implied term by virtue of Section 14 of the Sale of Goods Act 1979. Mr X raised a complaint with K Ltd “a few days” after entering into the Agreement and directly with ABC some 3 months after purchasing the vehicle.
The Vehicle passed its MOT in July 2014. Mr X drove the vehicle for at least 12,000 after purchasing the vehicle including commuting and family holidays.
An independent garage was instructed by K Ltd to undertake an inspection of the vehicle and report on the complaints and any necessary repairs arising therefrom.
The inspection took place in August 2014. A number of issues were identified with the Vehicle. K Ltd and Mr X paid for some of the repairs however, no agreement was reached as to the remaining items and an impasse ensued.
K Ltd maintained that the items were serviceable or wear and tear to be expected of and consistent with a vehicle that make, age and mileage. Mr X averred that the remaining defects rendered the vehicle of unsatisfactory quality and unfit for purpose.
Our client paid for the cost of hire for an alternative vehicle for Mr X’s use during the vehicles inspection. Further, our client offered to “unwind” the Agreement; for the Vehicle to be returned and for our client to pay Mr X the retail value of his previous vehicle entered as part exchange value for the deposit paid under the Agreement. This offer was rejected by Mr X.
K Ltd refused to engage in any meaningful way with discussions and attempts to resolve the complaints. They simply adopted a stance that the outstanding matters complained of did not compromise the quality or fitness of the Vehicle.
Notwithstanding the complaints Mr X did not elect to reject the vehicle.
A complaint was made by Mr X to the Financial Ombudsman Service (“FOS”). In light of the above, the complaint was vigorously defended and FOS ultimately dismissed Mr X’s complaint.
As a result of Mr X’s complaint our client was put to great lengths to resolve this matter. We advised our client, in light of the factual background to the complaint, that the FOS complaint be resolutely defended. At the same time however overtures were made, in the form of Part 36 offers, to resolve the matter amicably and without incurring further costs. With regard to the Part 36 offer, ultimately it was a commercial decision for our client to take as to how much it was prepared to “throw” at Mr X in order to “get rid of” the threatened claim and complaint and avoid the costs and inconvenience of litigation.
This approach had the following key advantages:
1. It provided the opportunity to resolve matters promptly and without further unnecessary time and money being spent;
2. Mr X bore the burden of proof to satisfy FOS that the vehicle was of unsatisfactory quality;
3. FOS and our client had the benefit of both Mr X’s evidence and K Ltd.’s evidence.;
As a result, the FOS complaint has been dismissed and Mr X has continued to make payments towards, and under the terms, of the agreement.
In these types of complaints consideration must always be given to commencing, by either party, legal proceedings. We were able to take steps that resulted in the matter being resolved without either party reverting to the Court for a resolution. Whilst there is always a place for seeking to resolve a matter / enforce a party’s right through the Court’s, consideration must always be given to the fact that litigation is a costly and inherently uncertain mechanism by which to resolve disputes of this nature.
Every case must be viewed on its merits and consideration must always be given to the factual background to any complaint. One size simply doesn’t fit all.