Lessor in very much the same
position as the supplier

The recently decided Lobster
Group v Heidelberg and Close Asset Finance
, deals with the
classic leasing triangle – Heidelberg sold a printing press to CAF
which leased it to Lobster – and the press turned out to be of
unsatisfactory quality.

The Court found that there was a
defect in the press which related to “image fit”. This particular
problem only emerged after the 12 month manufacturer’s warranty
period had passed. The Court found that the damage suffered by
Lobster as a result of the image fit problem was around

Section 9(2) of the Supply of Goods and
Services Act 1982 makes it an implied term of any lease that the
leased equipment is of satisfactory quality.

The lease from CAF contained the usual blanket
exclusion of that term and any other liability for defects, but
such an exclusion is subject to the Unfair Contract Terms Act 1977,
under which the liability can only be excluded so far as the term
excluding liability is reasonable.

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The judge did not consider that it was
reasonable for CAF to exclude liability for the image fit problem
(although he did say that it would be reasonable to exclude
consequential loss).

He considered that:

(1) The change in arrangements (when Lobster
leased from CAF rather than bought from Heidelberg) meant that the
supply of the press took place under the terms of the lease and in
such circumstances, if the implied term of satisfactory quality
were excluded, Lobster would be left without the benefit of the
obligations that would otherwise be implied in a sale contract.

(2) The servicing and the warranty
arrangements which were part of the deal only made provision for
the repair and replacement of the mechanical and electrical parts
of the press, which provided only a limited remedy if the press
contained components which were not of satisfactory quality.

This seems to leave a lessor under terms such
as CAF’s in very much the same position as the supplier would have
been if it had sold the goods directly to Lobster. A total
exclusion of liability in a sale contract is always unlikely to
succeed – by contrast with limitations in relation to amounts and
classes of liability, which have been accepted in sale of goods

The courts over the years have said that a
financier must accept the liability which accompanies the form of
funding. A lender to Lobster financing the cost of the press would
never have been sued for the defects, although the lessor was.
(For further discussion and analysis, please see Watson, Farley
& Williams’ article on the case at www.wfw.com under

The author is a partner at the
firm Watson, Farley & Williams