Beoco Ltd v Alfa Laval Co Ltd [1993] EWCA Civ 22 (21 December 1993)

Facts

The plaintiff, Beoco Ltd., purchased a second-hand plate heat exchanger from the first defendant, Alfa Laval Co Ltd., for use in their lard production process. Alfa Laval had previously acquired the machine from the second defendants, J.M.L. Realisations Ltd. The sale from Alfa Laval to Beoco was on an ‘as seen’ basis. During pre-contractual negotiations, Alfa Laval provided Beoco with service records for the machine which they had received from J.M.L. These records were incomplete and omitted a crucial report about a hazardous pressure test conducted in 1983 which had revealed defects. After installation, the machine exploded, causing significant damage to Beoco’s property. The explosion was caused by a small hole in one of the plates, allowing water to mix with hot lard under pressure, creating a violent steam explosion. Beoco sued Alfa Laval for breach of contract and in tort for negligence, and sued J.M.L. in tort for negligence. The trial judge found both defendants liable in negligence. Alfa Laval appealed the decision against them, arguing they owed no duty of care in tort, or if they did, the ‘as seen’ clause excluded such liability.

Issues

The central legal issues before the Court of Appeal were:

1. Concurrent Liability in Tort and Contract:

Could a duty of care in tort arise between commercial parties where a comprehensive contractual relationship already existed?

2. Negligent Misstatement:

Did Alfa Laval, by passing on incomplete service records from J.M.L. to Beoco, assume a responsibility for their accuracy and completeness, thereby giving rise to liability for negligent misstatement under the principle of Hedley Byrne & Co Ltd v Heller & Partners Ltd?

3. Effect of the ‘As Seen’ Clause:

Did the contractual term ‘as seen’ operate to exclude or prevent the existence of a duty of care in tort concerning the condition of the machine and the accuracy of related documentation?

4. The ‘Just and Reasonable’ Test:

In the context of a commercial sale between parties of equal bargaining power, was it just and reasonable to superimpose a tortious duty of care which would contradict the allocation of risk agreed in the contract?

Judgment

The Court of Appeal unanimously allowed the appeal, overturning the trial judge’s decision and holding that Alfa Laval was not liable to Beoco in negligence. The leading judgment was delivered by Lord Justice Stuart-Smith.

The court’s reasoning focused on the primacy of the contractual allocation of risk in a commercial setting. It was held that where parties of equal bargaining power negotiate a contract, their rights and obligations are to be found within that contract, and the law of tort should not be used to subvert that agreement. Lord Justice Stuart-Smith stated:

In my judgment, where the parties are in a contractual relationship, in this case that of vendor and purchaser of a machine, and the contract, which is a commercial one between two companies of equal bargaining power, provides for the goods to be sold ‘as seen’, it is not open to the Court to superimpose on that contract a duty of care in tort in relation to the quality or condition of the machine which is inconsistent with the contractual terms and the allocation of risk for which the parties have contracted.

The court determined that Alfa Laval had not assumed responsibility for the service records they passed on. They were acting merely as a conduit, transferring records from the previous owner (J.M.L.) to the prospective buyer (Beoco). There was no representation by Alfa Laval that the records were complete or accurate.

I can see no basis for holding that Alfa-Laval assumed responsibility to Beoco for the completeness and accuracy of the JML records. They did no more than pass on the records for what they were worth. They were JML’s records and Alfa-Laval had no reason to believe that they were other than what they purported to be. They were not professional advisers… They were vendors of a machine.

Crucially, the ‘as seen’ clause was interpreted as a clear contractual indication that the buyer (Beoco) was responsible for satisfying itself as to the condition of the machine and accepted the risk of any defects. To impose a duty of care in tort would effectively bypass this explicitly agreed term. Applying the test from Caparo Industries plc v Dickman, the court concluded that it would not be ‘just and reasonable’ to impose such a duty, as it would contradict the contractual framework.

Implications

The decision in Beoco v Alfa Laval is a significant authority on the relationship between contract and tort. It robustly affirms the principle of freedom of contract in commercial transactions. The key implications are:

• Primacy of Contract: In commercial dealings between parties of equal bargaining power, the terms of the contract are paramount in defining their liabilities. The courts are highly reluctant to allow the tort of negligence to be used as a means to escape a bad bargain or to re-allocate risks that have been contractually defined.
• Effectiveness of Exclusion Clauses: The case demonstrates the power of simple, clear clauses like ‘as seen’ to effectively allocate risk to the buyer and, in doing so, preclude a parallel duty of care in tort regarding the quality or condition of the goods sold.
• Limits on Negligent Misstatement: It clarifies that merely passing on third-party information, without endorsing it or assuming responsibility for it, will not generally give rise to liability for negligent misstatement. For an ‘assumption of responsibility’ to be found, there must be something more than acting as a mere conduit.

This case serves as a critical reminder to commercial parties of the importance of clear contractual drafting and the limited scope for tortious liability to override agreed contractual terms.

Verdict: The appeal by the first defendant, Alfa Laval Co Ltd., was allowed. The judgment against them was set aside.

Source: Beoco Ltd. v Alfa Laval Co Ltd. & Anor [1993] EWCA Civ 22 (21 December 1993)