Buying bespoke systems and implied terms

by Patricia Wade

The recent Court of Appeal judgment in Trebor Bassett Holdings and the Cadbury UK Partnership -v- ADT Fire and Security provides a useful reminder of the distinction between buying a "system" (or, indeed, anything bespoke involving a design element) and off-the-shelf goods, and applicable implied statutory terms. The Court of Appeal found that once the transaction becomes a provision of services relating to the design of a bespoke system, instead of or as well as a sale of goods, it is likely that the customer must build in express provisions about the quality of what is being purchased, as the terms implied by law offer a lower level of protection than in a pure goods context.

The case in short

The case(1) involved the supply of a bespoke fire suppression system, which failed spectacularly to achieve its purpose, although the component parts all functioned exactly as they should. The Court of Appeal held that a customer buying a bespoke "system" (of whatever nature) is to a large extent paying for its overall design and the supplier's expertise in doing so. The supply of the "goods" which form part of that system is a minor element only. The relevant statutorily implied term will therefore be the implied term about care and skill in section 13 of the Supply of Goods and Services Act 1982 (SOGSA) and not those about satisfactory quality and fitness for purpose in the Sale of Goods Act 1979 (SOGA). If this is not enough for the customer then it must make sure that suitable additional wording is expressly set out in the contract.

The system could not be equated with "goods"

Making popcorn is a surprisingly risky business, especially when hot soya oil is used, and, after a series of factory fires, Cadbury contracted with ADT for the design and installation of a fire suppression system at Trebor Bassett's Pontefract factory, where it had a manufacturing facility. Two years later, a fire developed in a popcorn hopper and eventually led to the entire factory burning down. All parties accepted that, if the system had released carbon dioxide into the hopper at the right time, it would have extinguished the fire before any more damage had been done. Trebor Bassett and Cadbury sued ADT in respect of their loss. When the judge at first instance held that the system had indeed been poorly designed, but that damages should be reduced to take into account Cadbury's contributory negligence, the claimants appealed, arguing that ADT's contractual duties went above and beyond an obligation to use reasonable skill and care in the design of the system.

One interesting thread of ADT's argument was that Cadbury's terms and conditions, which formed part of the contract, required any goods supplied to be of good quality. They had contracted for a fire suppression system, and for these purposes, the system should be regarded as "goods supplied" and the system was obviously not good quality. The Court of Appeal was not persuaded by this. In its view, because the system was bespoke, and not a standard off-the-shelf kit, it was not "natural or accurate" to regard it as a sale of goods. The judge had been right to say that ADT's design - which is essentially "pulling together of all the relevant information", such as deciding to use a particular piece of equipment in a particular place - was what made it a "system". It was therefore not realistic to say that the contract attracted the SOGA implied terms about quality or fitness for purpose. In any event, the component parts had not been defective in any way. The fire had spread because of shortcomings in the design, not in the inherent quality of the goods which formed part of it.

ADT's obligation was to use reasonable skill and care, not to guarantee a result

Cadbury also argued that the specification amounted to a warranty or guarantee that the system would prevent fire as well as extinguishing it. This was rejected as it was clear to the Court of Appeal that the overall context of the contract was for fire suppression, not prevention - "very clear wording indeed" would be needed for a conclusion that all fire risks altogether would be dealt with, and the wording was too general. Usually, the expectation is that a contractor will exercise reasonable skill and care rather than guaranteeing to bring about a specific result, and selecting an experienced or skilful contractor increases the chances of achieving that result. However, ADT had failed to meet that standard at the design stage.
In any event, Cadbury was unable to show that it had made known to ADT a particular purpose for which it was acquiring the system and it had failed to provide an adequate explanation of the popcorn-making process and its hazardous nature.

Express contractual provision

Although the SOGA implied terms can be very valuable to a buyer in a straightforward sale and purchase contract, they may not apply to other types of transaction. Consequently, anyone purchasing bespoke systems or services must take care to ensure that the supplier terms expressly deal with quality issues above and beyond those implied by SOGSA.

Please click on the links below for the other articles in the January 2013 Communications newsletter

• Smartphone wars - Apple/Samsung IPR infringement dispute heating up Down Under
• Cross-media ownership policy post-Leveson
• Beyond bits and bytes: evolving telco business models in a changing landscape
• BDUK superfast broadband now on track following delayed EU State aid clearance?

_Notes:

_{(1) Trebor Bassett Holdings Ltd
(2) The Cadbury UK Partnership -v- ADT Fire and Security plc [2012] EWCA Civ 1158}