Consumer Transport Sale of Goods

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Abbreviations Used

UCTA 1977 Unfair Contract Terms act 1977

SOGA 1979Sale of Goods Act 1979

SSGA 1994Sale and Supply of Goods Act 1994

SSGCR 2002Sale and Supply of Goods to Consumers Regulations 2002, SI 2002/3045

UTCCR 1999Unfair Terms in Consumer Contracts Regulations 1999

Implied rights under the SOGA 1979 (as amended)

Under Section 14 of the SOGA 1979, where goods are sold in the course of business there is an implied condition that the goods will be of satisfactory quality, as defined by Section 14(2A) and further expanded by Sections 14(2B) and (2D). Goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, having regard to any description of the goods, the price (if relevant) and all other relevant circumstances.

Section 14(2B) provides that the quality of goods includes their state and condition and the following, inter alia, are aspects of the ‘quality':

Fitness for all purposes for which the goods are supplied;

appearance and finish;

freedom from minor defects

safety; and

durability.

The facts state that it “quickly became clear” that the car supplied was seriously defective and that at least £1,000 of repairs were required. This suggests that the car was not of satisfactory quality under s.14. Despite the fact that the defects are repairable, they are still not of satisfactory quality since they are not free from minor defects and have not met the standard of durability. Note that if the car is second hand, the implied terms still apply but the age and price of the car will be taken into account.

Does Smith Co deal as a business or as a consumer?

Under the UCTA1977 Section 6(2)(a) (amended by the SGA1979 Schedule 2 Paragraph 19(b)), a party to a contract deals ‘as a consumer' in relation to the other party if:

he neither makes the contract in the course of a business nor holds himself out as doing so: and

the other party does make the contract in the course of a business; and

(unless that person is an individual) the goods passing under or in pursuance of the contract are of the type ordinarily supplied for private use or consumption (Section 12(1), (1A), as added by the SSGCR 2002, reg 14(1), (2))

The facts indicate that the purchase is made by Smith Co (a business) from Thomas Co (another business). However, they also state that the car is for both the private and business use of one of the directors. The facts also state that a ‘number of similar purchases' have been made by Smith Co in the past. The question arises as to whether the cars were an integral part of Smith Co's business or merely incidental. Unfortunately the facts do not indicate what Smith Co's business actually is.

The scenario can be compared R & B Customs Brokers Co Ltd v United Dominions Trust Ltd in which a private freight forward company purchased car for the use of its directors, this being the second or third purchase in five to six years. It was held that there was insufficient regularity of car purchase to make that purchase an integral part of the buyer's business. Dillon LJ at 330–331 stated:

“there are some transactions which are clearly integral parts of the businesses concerned, and these should be held to have been carried out in the course of those businesses; this would cover, apart from much else, the instance of a one-off adventure in the nature of trade where the transaction itself would constitute a trade or business. There are other transactions, however, such as the purchase of the car in the present case, which are at the highest only incidental to the carrying on of the relevant business; here a degree of regularity is required before it can be said that they are an integral part of the business carried on and so entered into in the course of that business”.

The facts are not entirely clear but as the car is for the director's use it is suggested that the car is not an integral part of the business and therefore Smith Co deals as a consumer. Note that the onus is on Thomas Co to show that Smith Co deal as a non-consumer (UCTA 1977 Section 12(3)).

Is the exclusion clause incorporated into the contract?

The facts state that although the contract was concluded by telephone and therefore unsigned on this occasion, there has been a previous course of dealings between the parties.

As a general rule, to be effective exclusion clauses must be incorporated into the contract at the time when the contract is made. However, exclusion clauses can sometimes be incorporated into a contract by a course of dealings. This will apply where the party against whom the clause operates has on previous occasions been put on notice of the other party's intention to contract on the basis of the clause.

It was held that there was a previous course of dealings in J Spurling Ltd v Bradshaw [1956], in which there was many previous dealings between the parties; similarly in Britain and Overseas Trading (Bristles) Ltd a course of dealings was established from contractual relations spanning 50 - 80 years. However, no previous course of dealings was established in McCutcheon v David MacBrayne Ltd where it was held that there was insufficient consistency over five transactions; and similarly in Hollier v Rambler Motors (AMC) Ltd where 3 or 4 transactions over five years was held to be insufficient to constitute a course of dealing so as to incorporate a term from the previous written contract into a subsequent oral contract.

The facts are similar to Hollier but whether there is a previous course of dealings will depend on the number and frequency of transactions between Smith Co and Thomas Co, which is not clear from the facts given.

If incorporated, is the exclusion clause valid?

Liability in respect of the quality of the goods cannot be excluded or restricted by reference to any contract term as against a person dealing as consumer (UCTA1977, Section 7(1), (2)). Where a person deals other than as a consumer, liability can be excluded or restricted so far as the contract term satisfies the requirement of reasonableness (UCTA1977, Section 7(1), (3)).

It is suggested that Smith Co deal as a consumer, as the car is for the use of their director and not integral to the business as far as we know. If this is the case, the attempt to limit liability for breach under the implied terms of s.14 SOGA 1979 to £100 under the contract will be invalid.

Note that if Smith Co are deemed to deal as a consumer, they have a second line of attack under the UTCCR1999. Where clauses appear in standard contracts and are not therefore individually negotiated (See Regulation 5(2)), the term will be unfair under Regulation 5(1) if it causes a significant imbalance in the rights and obligations appearing under the contract to the detriment of the consumer, contrary to the requirement of good faith. Having regard to the examples of unfair terms in Schedule 2 of the Regulations, it would seem that the clause would be deemed unfair and therefore would not be binding.

If however it is established that Smith & Co are dealing as a business, consideration must be given to the fact that this is a ‘standard form' contract and therefore under Section 3 UCTA1977, the clause is subject to the reasonableness test.

The requirement of reasonableness is that the term must be a fair and reasonable on to be included, having regard to all circumstances which are, or ought reasonably to be known to, or in the contemplation of the parties when the contract was made. The following matters, inter alia, are taken into consideration:

the strength of the bargaining positions of the parties;

any inducement to agree to the term;

whether the customer knew or ought reasonably to have known of the existence and extent of the term, having regard, among other things, to any custom of the trade and any previous course of dealing between the parties.

As Thomas Co seek to restrict liability to a specified sum of money, it is also relevant to consider:

the resources which he could expect to be available to him for the purpose of meeting the liability should it arise; and

how far it was open to him to cover himself by insurance.

From the facts, the strength of bargaining power is unknown although they are both businesses. We do not know if Smith Co received any particular inducement, but we do know that they ought reasonably to have been aware of the existence of the clause from previous dealings.

In relation to point a), again we do not know what Thomas Co's resources are although we might assume as a car dealer they would have sufficient resources to deal with damages to this value. It would seem likely that they would have no difficult covering themselves by insurance for such liability.

Given the likely high value of the transaction, the nature of Thomas Co's business and the low figure of limitation imposed by the clause, it seems likely that this clause would be deemed unreasonable under the UCTA 1977, and therefore invalid. However, we do not have all the facts (such as the value of the car) to give a more definite opinion.

Have Smith Co ‘accepted' the goods?

Whether Smith & Co have accepted the goods will be relevant to the remedy they can seek for breach of contract. Under Section 35 of the SOGA1979, acceptance can occur in three ways:

By intimation – the customer must have a reasonable opportunity of examining the goods and discovering the faults (and what is reasonable is a question of fact in every case);

By an act following delivery that is inconsistent with the Seller's ownership; or

By retention beyond a reasonable time.

It is not clear from the facts when exactly the faults were discovered but they do state that the faults were “quickly discovered” so it seems unlikely that Smith Co will have been deemed to accept the goods.

What remedies are available to Smith Co?

The remedies available to Smith Co will depend on whether they deal as a consumer or as a business.

As stated, it seems likely that they are dealing as a consumer and therefore under the SOGA1979, they may reject the goods, recover and monies paid and claim any further damages resulting as a ‘natural and probable consequence' of the breach.

They also have four additional remedies under Sections 48A to 48F of the SOGA1979, in addition to the old rights under the SOGA1979:

Smith Co may choose to have the car repaired; or

Smith Co may decide to have the car replaced.

If however, it is disproportionate to the original cost of the car to have it repaired or replaced (and we do not know what the cost of the car was in relation to the £1,000 repair bill), neither remedy will be available. The repair or replacement must take place within a reasonable time without significant inconvenience for Smith Co. If they decide to take either remedy and Thomas Co provide the remedy within a reasonable time of being demanded, there is no option of the remaining two remedies.

However, if they reject these remedies, they may choose:

rescission of the contract; or

an appropriate reduction in price (a partial refund).

Under Sections 48A to 48F, the goods are presumed to not conform to the implied terms of the contract as to quality and fitness for purpose if they fail within the first six months after delivery. As discussed, Smith & Co are unlikely to have accepted the goods, and will therefore have all of the above options available to them if dealing as a consumer.

If Smith & Co deal as a business, they will just have the old remedies available to them under the SOGA1979; they may reject the goods, recover and monies paid and claim any further damages. Note that if the breach is minor, it must be treated as a breach of warranty and Smith Co will be limited to damages only in respect of the defects. We do not know how minor the breach is because we do not have the value of the car.

The effect of the offer for service contract

The fact that Smith Co did not accept the offer of a service contract for parts and labour is unlikely to make a difference to the scenario. Thomas Co still have the obligation to provide goods that comply with the terms of the contract made with Smith Co.

In conclusion, Smith Co have a contract with Thomas Co into which terms will be implied by the SOGA1979 as amended. It seems likely that they deal as a consumer and therefore the exclusion clause, which is probably not incorporated in any case, will be invalid. Smith Co can reject the goods, claim damages or recover the monies paid, and have the additional rights conferred by sections 48A to 48F of SOGA1979 available to them.

Bibliography

Brown, I & Chandler, A (2005/2006) Law of Contract (5^th Edition) Oxford University Press, Oxford

Howells, G & Weatherill, S (2005) Consumer Protection Law (2^nd Edition) Ashgate Publishing, Hants

http://www.lexisnexis.com: Butterworths, Halsbury's Laws of England

Silberstein, S (2004) Consumer Law (4^th Edition) Sweet & Maxwell, London

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