Many contracts contain requirements for goods or services to meet certain levels of quality – but it's not always easy to define in precise, easily measurable terms. In this briefing, we look at the lessons that can be drawn from a recent dispute over whether the quality of furniture provided for a hotel was suitable for its upmarket status.
Phoenix Interior Design was commissioned by Henley Homes to come up with interior designs for an upmarket hotel in Scotland. Among other things, it was also responsible for selecting a supplier of suitable furniture. Henley took the view that the furniture did not meet the quality standards set out in the design contract and withheld a substantial amount of Phoenix's fee. Faced with legal action from Phoenix to recover this sum, Henley's main line of defence was that Phoenix had been obliged to select furniture suitable for a top-of-the-range, five star hotel - whereas the products it had actually ordered were only suitable for a three star facility.
In contracts of this type, quality can be difficult to define because there is inevitably a subjective element – after all, one person's idea of a stylish upmarket hotel near the Cairngorms may be another person's "scotch baronial tat" (a phrase used by one of Henley's staff to describe the décor of the hotel prior to the refit). Based primarily on the contents of an "Initial Brief" drafted by Henley, the court concluded that Phoenix had committed to procure furniture that was "hard wearing" but with a "high quality look or feel". However, there was no clear mention of a requirement for the furniture to be of "five star" quality (indeed, at the time, it was not even clear that the venue was aiming for "five star" hotel status - at best it was "four star plus" and Henley originally envisaged luxury apartments, not a hotel). Moreover, the comparatively low budget set by Henley for purchase of furniture was at odds with its professed desire for quality at the very top of the range. The onus was therefore on Henley to specify that – notwithstanding the challenging budget – furniture of the highest quality was required. Since it had failed to do this, the court did not accept Henley's view on the standard of quality.
The court rejected Henley's contention that it was entitled to withhold sums equivalent to the replacement cost of the furniture, noting (among other things) that the hotel had received numerous positive reviews and awards over several years, including for its interior décor. However, the court accepted that some of Henley's complaints about the furniture had substance; it therefore reduced the award to Phoenix by £10,000 to reflect the likely costs of the remedial work.
The first and most obvious lesson of this case is to ensure that the quality specification is clear and, where possible, goes into a reasonable level of detail on the purchaser's key requirements. In this case, Henley's failure to make clear its expectation that the furniture should meet top-of-the-range, "five star" quality standards was one of the main weaknesses in its argument.
Reference to industry standards is obviously helpful where they exist, but in this case there was no widely accepted "five star" or "luxury" standard for hotel furniture – and that is likely to be the case for many other products too. That said, there were points of detail that could usefully have been highlighted in the specification; for example, both expert witnesses agreed that hardwood (with veneer) would have been preferable to laminate for the legs of chairs and tables. The problem was that neither Henley nor Phoenix appears to have had sufficient expertise in relation to furniture to produce a more detailed specification of this type; in order to do so, they would probably need to have engaged someone with experience similar to that of their expert witnesses. Such a step may be worth considering where the expert's fees are small relative to the total expenditure and the potential costs if something goes wrong, but it will not be practical in all cases.
Other key points to consider include:
The specification is important – but it's also important to step back and look at the wider picture. In particular:
We have extensive experience of advising on a wide range of commercial contracts, from standard terms and conditions through to complex high value, strategic arrangements for supply of goods or services, outsourcings and joint ventures.
