Hardwick Game Farm v Suffolk Agricultural and Poultry Producers Association Ltd [1968] UKHL 3 (08 May 1968)

Contaminated groundnuts were sold through a chain of contracts for use in animal feed, ultimately killing a farmer's pheasants. The House of Lords held that goods with a latent toxic defect are not of 'merchantable quality', establishing liability up the supply chain.

Facts

The case concerned a series of ‘chain’ contracts originating from Brazilian groundnut meal which was unknowingly contaminated with a fungus producing a poison, Aflatoxin. The meal was sold by importers (Gagniere & Co. and others) to merchants (Henry Kendall & Sons), who sold it to compound feed manufacturers (Grimsdale & Sons). Grimsdale used the meal to create a compound which they sold to the Suffolk Agricultural and Poultry Producers Association (SAPPA). SAPPA, in turn, sold the compounded feed to Hardwick Game Farm, who fed it to their pheasants and partridges, leading to the death of thousands of birds. At the time, the toxicity of Aflatoxin to poultry was not widely known. Hardwick Game Farm sued SAPPA for breach of contract, and SAPPA brought in their suppliers, Grimsdale, who in turn brought in their suppliers, Kendall. The appeals were consolidated before the House of Lords.

Issues

The central legal issues revolved around the implied terms under the Sale of Goods Act 1893 in each of the contracts in the supply chain:

1. Whether the groundnut meal was of ‘merchantable quality’ within the meaning of section 14(2) of the Act, despite the presence of a latent defect (Aflatoxin) unknown to both buyers and sellers.
2. Whether the buyers had made known the ‘particular purpose’ for which the goods were required (i.e., inclusion in poultry feed), so as to give rise to the implied condition of fitness for purpose under section 14(1) of the Act.
3. The proper construction of trade association rules (London Cattle Food Trade Association) incorporated into the contracts, particularly clauses attempting to limit liability for latent defects.

Judgment

The House of Lords, in a landmark decision, dismissed the appeals, holding the suppliers liable up the chain. The Law Lords provided detailed reasoning on the interpretation of the Sale of Goods Act 1893.

Lord Reid on ‘Merchantable Quality’

Lord Reid articulated a crucial test for merchantable quality under section 14(2). He reasoned that if goods have only one primary purpose, they are unmerchantable if they are unfit for that purpose. If they have several purposes, they are merchantable if they are fit for any one of those purposes. In this case, the groundnut meal was primarily used as an ingredient for animal feed. Since it was poisonous, it was unfit for this purpose. He stated:

I think that “merchantable quality” in section 14 (2) of the 1893 Act means that the goods in the form in which they were tendered were of no use for any purpose for which such goods would normally be used and hence were not saleable under that description.

He found that the meal was not of merchantable quality because it was contaminated to such an extent that it was toxic. On the issue of fitness for purpose under s.14(1), he held that selling goods to a manufacturer of animal feed implicitly made known that the goods were for that purpose, thus engaging the implied condition.

Lord Pearce on Latent Defects

Lord Pearce delivered a comprehensive analysis, agreeing that the meal was unmerchantable. He emphasised that the latent nature of the defect did not absolve the seller of liability. The core of the breach was the state of the goods themselves at the time of delivery, regardless of the parties’ knowledge. He noted the primary purpose of the goods:

The groundnuts, therefore, at the time of delivery had a toxic element in them which made them totally unsuitable for their main and obvious purpose, namely, compounding into animal feeding stuffs, and which could, in certain circumstances, make them fatally dangerous. Such a state of affairs, in my opinion, plainly made them unmerchantable.

The court collectively concluded that liability under section 14 was strict. The sellers were in breach of the implied conditions of both merchantable quality and fitness for purpose, and the contractual clauses did not exclude liability for this type of latent defect.

Implications

The decision in Hardwick Game Farm is a cornerstone of modern contract law, particularly concerning the sale of goods. It provided an authoritative interpretation of ‘merchantable quality’ (now ‘satisfactory quality’ under the Sale of Goods Act 1979) and clarified that liability for breach of this implied term is strict. The case established that a latent defect rendering goods unfit for their normal use constitutes a breach, even if the defect was scientifically undiscoverable at the time of sale. It powerfully illustrates how liability for defective goods flows back up the commercial supply chain, reinforcing the principle that each seller in the chain warrants the quality of the goods to their immediate buyer. This protects the ultimate consumer and ensures that the loss is ultimately borne by the party who introduced the defective goods into the market, or their insurer.

Verdict: The appeals were dismissed. The sellers in the supply chain were held liable for breaching the implied conditions as to the quality and fitness for purpose of the goods.

Source: Hardwick Game Farm v Suffolk Agricultural and Poultry Producers Association Ltd [1968] UKHL 3 (08 May 1968)