13 December 2012 | Lorna Kelly

How substantial is the remedy provided by a warranty?

The case

Avrora bought a painting at auction, described in a Christie’s catalogue as the work of the Russian artist Kustodiev. Christie’s standard terms in the catalogue offered a five-year warranty that the painting was by the named artist, describing this as a “limited warranty”.

All other warranties were excluded and a non-reliance clause provided that statements made in the catalogue entry are “…statements of opinion and are not to be relied on as statements of fact. Such statements do not constitute a representation, warranty or assumption of liability by us of any kind”. The buyer’s sole and exclusive remedy was the cancellation of the sale and the refund of the original purchase price.

Within the five-year warranty period, the buyer discovered the painting was probably not by the artist Kustodiev and brought claims against Christie’s for breach of warranty, negligence and misrepresentation.

The court held Christie’s was in breach of warranty and Avrora was entitled to cancel the purchase of the painting and recover the price paid. But Christie’s had successfully limited its liability to the amount of warranty claim and the buyer’s claims for negligence and misrepresentation were rejected.

What this means

Despite the fact the terms and conditions did not expressly mention negligence, the terms made it clear that Christie’s did not accept any liability to the buyer, aside from the express warranty. The court found these exclusions passed the reasonableness test under the Unfair Contract Terms Act (UCTA), because, among other things, a “substantial remedy” was provided to the buyer by way of a warranty claim. From Christie’s perspective, offering this warranty provided it with a quantifiable risk.

When trying to limit liability, consider what alternative remedies might be available to the other party. If you try to exclude all liability, you may fall foul of the UCTA. The bargaining power of each of the parties will also be relevant in considering what is reasonable.

☛ Lorna Kelly is a senior associate at Dundas & Wilson