Consumer Protection | Free Company Law Essay

"The consumer's first safeguard must always be an alert and questioning attitude." Molony Committee on Consumer Protection(1962, Cmnd 1781,HMSO). It could be argued that despite the reforms of the Law through statutory provision designed to protect the Consumer, the above statement still seems to be the best advice. DISCUSS.

Let the buyer beware

The doctrine of caveat emptor - "let the buyer beware" - developed in English law from a general reluctance to intervene in contractual disputes and to imply terms into contracts which were not expressly stated . The common law approach placed the onus on buyer to look out for his own interests. The effect of this doctrine is, arguably, that the buyer is at a disadvantage due to a lack of knowledge or expertise about what he was buying1. It is the inequality in economic power between consumer and supplier which has led to a change in policy over time.

The first Sale of Goods Act, codifying the common law position, appeared in statute books in 1893. At that time, any implied terms as to the quality of the goods in question were default rules that could be excluded from the contract if the parties agreed. This position changed in 1973 with the introduction of the Supply of Goods (Implied Terms) Act which made implied terms non-excludable Excluding minimum guarantees of quality would have been viewed as grossly unfair, attracting concern about consumer inequality of bargaining power and potential exploitation by traders (Howells et al, p.148).

Changes to the 1973 Act were consolidated into the Sale of Goods Act 1979, amended by the Sale and Supply of Goods Act 1994 and Sale and Supply of Goods to Consumers Regulations 2002. It is now recognised that the trader is better placed than the consumer to know the quality of goods he is selling (in fact, the producer is arguably in an even better position but the law places the obligation on the seller so that the buyer does not have to seek out the producer and therefore has a more accessible remedy). Further, it is accepted that with greater diversity amongst product categories presenting a "labyrinth of perplexing choices" (Howells et al, p.146), it has become increasingly difficult for a consumer to look after his own interests. The law therefore seeks to protect the consumer and to readdress the balance in bargaining power between consumer and supplier.

It is argued that the burden has placed on the Buyer to make extensive enquiries before purchasing goods has weakened, and some have commented that the burden has shifted to the Seller. The principle of caveat emptor has, according to Lord Steyn, become the principle of caveat venditor . The development of the law over the past thirty years and in particular the introduction of the Misrepresentation Act 1967 and the Unfair Terms in Consumer Contract Regulations 1994 have made the doctrine of caveat emptor seem even less significant.

Some statutory provisions would however appear to retain the principles of buyer awareness. For example, s.14(1) Sale of Goods Act 1979 provides that there is no implied term about the quality of fitness for purpose of goods, but this is subject to major exceptions set out in that and succeeding sections of the Act.

S.14 implies a condition into the contract that where the seller is acting in the course of business, the goods must be of satisfactory quality, as defined by sections 14(2A), (2B) and (2D) of the Act. This states that goods must meet the standard that a reasonable person would regard as satisfactory, taking account of any description, the price and all other relevant circumstances. Section 14(2B) gives further consideration to the state and condition of the goods including their fitness for all purposes for which they are supplied, their appearance and finish, their freedom from minor defects, safety and durability. The section imposes strict (as well as contractual) liability on the Seller so that irrespective of how careful the he is in checking his stock, if the goods are defective he is liable .

The provisions of s.14 have been extended to cover even more transactions so that sales of goods made "in the course of business" now include all sales made in the course of business regardless of the purchase related to the usual trade of the buyer or whether it was an isolated event .

However, arguably provisions such as s.14(2C)(b) still leave the consumer open to exceptions which appear to contradict the principle that the seller has better knowledge of his product. Under this provision, a buyer who has had the opportunity to examine goods will not be able to rely on provisions relating to satisfactory quality as regards to defects the examination ought to have revealed. A buyer who misses an obvious defect could fall within this exception if he examines the goods before purchase and misses the defect .

S.14 also fails to offer protection for private sales and purchases made, for example, at car boot sales; there is a consensus that where the Buyer chooses to take the risk of purchasing goods where the transaction is informal, they should bear the risk.

The provisions can, however, apply to second hand goods, albeit in a limited capacity. In Crowther v Shannon Motor Co (1975), a car was purchased for £950 and driven 2,500 miles before the engine ceased up. The Court of Appeal held that the defect could not be reasonably anticipated for a car of this age and mileage, and there was a breach of merchantable quality. Under today's legislation, the car would fail on durability and satisfactory quality. This can be contrasted to Bartlett v Sidney Marcus (1965), in which the claimant purchased a second hand jaguar for £950, having been told that the clutch needed a small repair. When the car had done 300 miles it required a completely new clutch costing £84. The car was held to be of merchantable quality as the defect was the kind that could be anticipated in a second hand car. In today's terms, it would be deemed of satisfactory quality under s.14. This shows the limited application of s.14 to second hand goods - age, price and the reasonable expectations of the buyer are taken into account .

The European Union's Stance

The European Union has taken a pro-consumer stance and the law is undergoing a constant program of reform and redevelopment. The Product Liability Directive 85/374/EEC which came into force on 1 May 1988 introduced increased protection for consumers through the Consumer Protection Act 1987, giving persons injured by defective products the right to sue for damages without having to prove the elements of negligence. However, despite extensive changes, it is argued that even more must be done to protect the consumer. The Office of Fair Trading estimate that the level of consumer detriment amounts to £8.3 billion per annum . This is considered to be an understatement as it only accounts for situations where the consumer has noticed the problem.

In markets where consumers have no trouble in making informed choices, such as the retail clothing industry, services offered go beyond what is required by government regulation. Consumers are given the option of returning goods even if they have simply changed their minds - an option that is not conferred on them by legislation, but by general practice.

However, the areas with the highest level of consumer detriment are those where it is more difficult to make informed choices. Purchases in these areas are made less frequently and are generally of a high value. Often, it is difficult to determine in advance what the buyer is getting for their money (e.g. with home improvements) . Whilst consumers often have the opportunity of examining high value goods before purchase, merely discovering attributes of a product such as its appearance and finish may not be sufficient to assess its true quality, reliability and durability (Twigg, 2003). These factors will become apparent with time by which time a buyer may have lost their right to rescind their contract and may only have a claim in damages together with their guarantee to rely on. New rules on consumer guarantees introduced by EC Directive 1999/44/EC are quite modest and the possibility of regulating after sales service considered by the green paper on Guarantees for Consumer Goods and After Sales Services has not been acted on to date .

This situation, similar to that found in Bernstein , has been partially alleviated by more recent legislation. S.35(5) now provides that in deciding whether a reasonable time has elapsed, consideration must be given as to whether the buyer has had reasonable opportunity to examine the goods. The court has been prepared to accept that a buyer may need a longer period of time to discover defects . Further, s.35(6) now provides that by accepting a repair, the consumer has not necessarily accepted the goods.

Further developments in consumer law include the introduction of provisions 48A to 48F of the Sale of Goods Act which give a consumer the right to have the goods repaired or replaced where there is a breach of any statutory implied terms as to description, satisfactory quality or fitness for purpose, provided that this is not impossible or disproportionate to the original cost. If these two remedies are not taken, the buyer may elect to rescind the contract or opt for a partial reduction in the price, and these remedies apply to even the smallest breach, subject only to the acceptance doctrine.

The burden of proof in relation to these remedies is more favourable to the Buyer, further demonstrating how the law attempts to readdress the balance of bargaining power. However, whilst statutory provisions appear increasingly comprehensive and are constantly under review, they are failing to keep pace with the advancement of new technology, for which it is relatively unclear how consumer law will apply. For example, there remains an ongoing debate as to whether software is to be treated as "goods" for the purpose of the SOGA, although a distinction between off-the-shelf products (which, it is suggested, are goods) and customised programs is gradually emerging .

Digital Content

Advanced technologies allowing capabilities such as the use of digital content and the subsequent controversial use of rootkit style DRM technology by Sony / BMG (which installed itself on the user's PC and left them vulnerable to viruses) have suggested that the industry is in dire need of regulation. DRM technology prevents consumers playing DVDs they have bought abroad or making compilations of materials they have purchased for their own use. This is said to undermine existing consumer rights under consumer protection and data protection laws. Consumers also face potential security risks to their equipment, limitations in legal use of products they have purchased, poor information when purchasing and unfair contract terms . These problems highlight the need for further reform and for the introduction of provisions to ensure that the consumer is properly informed.

The trend towards e-technology has highlighted further weaknesses in consumer law. A huge number of retailers now trade online and it should therefore follow that adequate protection exists for the consumer choosing to shop that way. However, current legislation does little to protect consumers and a lack of consumer confidence in internet shopping prevails. Powergen's blunder in 2000 demonstrates the inadequacy of statutory protection - thousands of their customers' credit card details were published on the internet but those customers were not entitled to any financial compensation unless they suffered from credit card fraud or other damages. Powergen incidentally offered £50 to each customer for the "inconvenience" .

Despite blunders like these, online trading remains a gray area although consumers are offered additional protection by the Distance Selling Regulations 2000 which compensates for the fact that a buyer cannot inspect the product if purchasing via the net. The regulations provide a seven day cooling off period and a right to cancel in many circumstances, although this comes with a long list of exceptions. Far more needs to be done to bring the law up to date with the advancing marketplace.

Ofcom have recently published a series of proposals to improve consumer protection for UK phone and broadband users. These are designed to raise awareness of scams and misselling in the communications sector, backed by "quicker and more targeted" enforcement action when things go wrong. The telecoms sector has seen increased competition with scores of different providers competing for consumer business. Ofcom acknowledge the challenge that arises from modern communications systems which make it easy for rip-off merchants to target consumers. However, it is not just legislation that prevents such occurrences - suitable enforcement action needs to be in place too. In particular, it has been noted that where there are laws covering e-transactions, these are not being complied with .

Other areas in desperate need of reform include legislation regulating the financial services market, which is relatively sparse. The FSCP describe how consumers do very little shopping between financial providers and additional measures are needed to secure appropriate levels of consumer protection. It identifies a gap in the supply of advice to low and middle income consumers which needs tackling by the FSA . Consumers need better, impartial advice and this needs to be a statutory entitlement if it is to protect them fully.

There is however a difficulty in tightening statutory provisions - if minimum standards are pitched too high, this could restrict choice and be anti competitive. If they are pitched too low, they serve no purpose. The key focus should arguably therefore be on simplifying legislation and on ensuring that the consumer is able to make an informed choice. The law does not set out to protect rash consumers who make spur of the moment decisions and change their mind later. In contrast, the law does seek to ensure that the consumer's decision is not influenced by pressured selling techniques which thwart their ability to make an informed choice.

Whilst practical proposals are being considered, it is worth noting that the DTI has described the current legal framework as "complicated and fragmented"5. This is because of the way consumer law has developed - new legislation as a result of the EU directive has been integrated into our existing regime so that the existing level of protection is not reduced. As a result there are different rules for consumer and commercial sales although both share a similar set of implied terms. It is envisaged that consumer confidence will be increased by a uniform set of fair rules that set minimum standards throughout Europe.

Conclusion

In conclusion, it has been noted that since selling regulations were first formally codified in 1973, the law has developed through an extensive body of statutory and common law provisions, which have resulted in a complex and ambiguous system. It is accepted that to progress the body of consumer protection law to meet today's marketplace, it will be necessary to simplify and unify the existing provisions. Advanced methods of selling and increased complexities in technology have made it increasingly easy for rogue traders to target and exploit innocent consumers, and DTI figures suggest that this problem is immense. Reform is required to meet rapidly advancing technology and selling practices. In the meantime, the buyer would be well advised to return to the principle of caveat emptor - let the buyer beware - and adopt an alert and questioning attitude when making a purchase, rather than relying on the law to protect them if things should go wrong afterwards.

Bibliography

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    http://www.dti.gov.uk/cpp/topics1/pdf1/cstrategy.pdf
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    [accessed Tuesday 28 February 2006]
  • Ofcom's Consumer Policy - A consultation (8th February 2006)
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  • http://www.econsumer.gov, Ole Horsfeldt, Bech-Bruun Dragsted
    [accessed Tuesday 28 February 2006]

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