Loss Of Profits Awarded For Breach Of Collateral Warranty Which Induced Claimant To Arrange Purchase Of Goods From Defendant On Hire Purchase Terms

In a recent decision, the High Court has upheld a claim for breach of collateral warranty where the claimant was induced to arrange the purchase of the defendant's laser hair removal devices for use in its business as a result of the defendant's statements about the quality and anticipated performance of the devices. The claimant could not bring a direct claim for breach of contract as the purchase had been made through a third party, a hire purchase company, and so the claim was put on the basis of a breach of collateral warranty: New York Laser Clinic Ltd v Naturastudios Ltd [2019] EWHC 2892 (QB).

The decision is of interest as a relatively rare example of the court awarding damages for breach of a collateral warranty in the three-party scenario. The decision helpfully sets out the requirements for a claim for breach of collateral warranty in such cases, and considers in some detail the requirement that the statement relied on as a warranty was intended to have contractual force. The test is an objective one, to be applied in light of all the circumstances. The decision suggests that a court may be reluctant to find that a warranty was intended to have contractual force where that will enable the claimant to get round an exclusion of liability in the main contract.

The decision also shows that damages for breach of collateral warranty may be available to compensate the claimant for the loss of profits it would have earned had the warranty been true, if that is greater than its wasted expenditure resulting from the breach. The judge draws a distinction, though with some hesitation, between cases where a warranty is given as to the quality and performance of the product in question and those where the warranty is that reasonable care was taken in providing an estimate as to future performance. Only in the former type of case may damages be awarded for loss of profit; in the latter type, damages are limited to wasted expenditure.

In many cases where there is a claim for breach of collateral warranty, the claimant will also have a claim in negligent misstatement - though that does not necessarily follow, as a claim for breach of collateral warranty does not require negligence on the part of the defendant. The decision illustrates that, where both claims are available, the claim for breach of collateral warranty may in some circumstances be more advantageous.

Background

The claimant operated a number of laser hair removal clinics and the defendant was a supplier of laser hair...