Tag: Sale of Goods Act [1979]

Implied Terms in Contracts

With the United Kingdom having shaken up the selling of goods and services with the passing on the Consumer Rights Act [2015], it will be interesting to look at a case that was appealed to the Court of Appeal and see if anything different would or could happen under the new legislation.

The case of Lowe and Another v W Machell Joinery Ltd [2011] EWCA Civ 794 shook up the law with regard to terms implied into contracts.

Backgrounds

Mr and Mrs Lowe converted a barn for residential use and placed a number of orders with W Machell Joinery Limited. Crucially this was done during a conversation with no formal written quotation. The element of this order that led to this case was a bespoke, elaborately designed wooden staircase costing £16,000 (Exclusive of Value Added Tax).

The Lowe’s paid for the staircase on 4th June 2009 and it was delivered to their property on 5th June 2009. However on 12th June 2009 the Lowe’s rejected the staircase by letter and had another staircase supplied by another company. It was claimed by the Lowe’s that they were entitled to reject the staircase because the verbal contract with W Machell Joinery Limited included the installation of the staircase and it should have been installed.

Mr and Mrs Lowe issued proceedings to recover the price of the staircase in July 2009.

Technology and Construction Court (TCC) decision

The trail was heard in July 2010 and by this time the Lowe’s relied on further reasons justifying their rejection of the staircase which included that had the staircase been installed, it would not have complied their Building Regulations.

At the TCC hearing in Leeds, Yorkshire the judge held that the original reasons for rejecting the goods were unjustified.  However, he further held that W Machell Joinery Limited were in breach of contract as the staircase did not comply with Building Regulations. However this breach was not sufficient justification for the Lowe’s to reject the staircase as he reasoned it would have been easy to modify the staircase in a number of ways to ensure compliance with Building Regulations.

The judge therefore dismissed the claim and you would expect this to be the end of the matter.

Court of Appeal

Mr and Mrs Lowe appealed against the decision to the Court of Appeal.

Here they raised an argument on appeal that was not fully relied upon in the original trial. This being that Section 14 of The Sale of Goods Act [1979] implied terms into the contract between the parties which W Machell Joinery Limited subsequently breached entitling the Lowes to reject the staircase.

Section 14(2) of the Act provided that where goods are sold by a seller in the course of a business transaction there is an implied term that the goods are of satisfactory quality.

Section 14(3) provided that when goods are sold by a seller in the course of a business transaction where the buyer makes the seller aware that the goods have a particular purpose, a term is implied that the goods are fit for the purpose for which they have been supplied.

Therefore the Lowe’s also argued the term should be implied into the contract between the parties that the staircase would comply with the relevant Building Regulations and British Standards.

Court of Appeal Decision

The Court of Appeal found that there was a breach of contract and overturned the decision handed down in the TCC where he found this breach entitled the Lowes to reject the staircase.

The Judge found that the breach of the contract was of the implied terms that the staircase had to be of satisfactory quality and, because J Machell Joinery Limited was aware that the barn was to be converted to residential use, it needed to be fit for purpose as required by the Act.

The Court found “fit for purpose” included compliance with Building Regulations and therefore there was an implied term that the staircase would comply with the relevant Building Regulations and British Standards, albeit under cover of “fit for purpose”.

While the only way to see if this would hold true under the Consumer Rights Act [2015] as the legislation still requires these tests, it is highly likely a similar case would result in the same outcome.

Is this fair?

W Machell Joinery Limited contracted with the Lowes to supply a staircase that did not comply with Building Regulations. Further W Machell Joinery was not responsible for obtaining Building Regulation approval for the staircase.  Yet to show how obtuse the law can be, if W Machell Joinery Limited changed the specification of the staircase to be compliant with Building Regulations, this would not be compliant with the design requested by the Lowes. Therefore either way, J Machell Joinery Limited would be in breach of contract.

The solution to this anomaly from the Court of Appeal to avoid this situation was that W Machell Joinery Limited should have made the Lowe’s aware the staircase was not compliant with Building Regulations before it had been manufactured.  The Lowe’s would have had the choice to continue with the design and risk the staircase not complying with Building Regulations, or to alter the design to make it compliant.

Implied terms generally

From a construction industry perspective both The Housing Grants, Construction and Regeneration Act [1996] as amended by The Local Democracy, Economic Development and Construction Act [2009] and The Supply of Goods and Services Act [1982] as superseded by the Consumer Rights Act [2015] imply terms into construction contracts.

Housing Grants, Construction and Regeneration Act 1996

This Act implied terms which included:

  • Entitlement to stage payments
  • Limit to right to withhold payment
  • The right to refer disputes to adjudication
  • Mechanism for payment, including payment date and notice of amount
  • Prohibiting conditional payment provisions
  • Right to suspend for non-performance

If the above provisions were not included in a construction contract, the Scheme for Construction Contracts applies, in effect being the implied terms.

 Supply of Goods and Services Act 1982 
This Act implied terms that:

  • Service will be carried out with reasonable care and skill
  • Supplier will carry out the service within a reasonable time
  • Supplier will be paid a reasonable charge

These are still required under the Consumer Rights Act [2015].

Further the courts are empowered to also imply terms into contracts, and these fall into two categories:

  1. Where a contract has been entered into between the parties, to make the contract work successfully a term needs to be implied into the contract.  For example, the language may be ambiguous and require clarifying; and
  2. In construction contracts there are certain usual terms that are implied unless the parties wish to exclude or change these implied terms.  An examples of these implied terms for would be that the parties will co-operate with each other, and that the parties will not prevent completion from taking place.

Can you prevent the Lowe v W Machell Joinery Limited happening?

The primary issue that allowed the dispute to reach the conclusion it did was that no written contract or terms of agreement existed between the parties, setting out the contract terms and what was to be delivered.

Where there is supply or manufacture and supply of high value items you should always draft a contract which details the obligations and liabilities of each party.

This will enable both parties to understanding their duties and obligations and hopefully avoid disputes arising in the future.

Further this will prevent terms being implied into contracts which were not the parties’ intentions at the time the contract was made. In reality the material fact there was no written document allowed the Lowe’s to have the court rule in their favour on matters that were unforeseen at the time of agreement to supply the staircase.

Ansell Murray Limited has experience of drafting bespoke contracts as well as ensuring standard forms are correctly assembled.

Advertisements

The Consumer Rights Act

In the last 20 years how we live and conduct our lives has changed immeasurably as a result of technology. We send documents around the world in seconds, share documents across continents on servers and “clouds”, can have real time video conversations, can buy or sell just about anything almost anywhere in the world. Like most things that happen quickly our elected leaders are slow to begin the catch up to close off loopholes for the unscrupulous.

Finally on the 1st October 2015 in the United Kingdom the catch up began with the passing of the Consumer Rights Act.

The Consumer Rights Act replaces three major pieces of consumer / services legislation, The Sale of Goods Act [1979], Unfair Terms in Consumer Contracts Regulations [1999] and The Supply of Goods and Services Act [1982]. This is the biggest shake-up in consumer law in a generation and was introduced to simplify, strengthen and modernise the law.

Product quality 

As with the Sale of Goods Ac all products must be of satisfactory quality, fit for purpose and as described under the Consumer Rights Act. The act has also caught up with digital content which must also meet the following standards:

  • Satisfactory quality   – Goods shouldn’t be faulty or damaged when you receive them to the test of what a reasonable person would consider satisfactory for the goods in question. For example, bargain bucket products won’t be held to as high standards as luxury goods.
  • Fit for purpose – The goods should be fit for the purpose they are supplied for, as well as any specific purpose you made known to the seller before you agreed to buy the goods.
  • As described – The goods supplied must match any description given to you, or any models or samples shown to you at the time of purchase.

 Digital content

Digital content is defined as “data which are produced and supplied in digital form”.

Like “physical” goods it must conform to the standards detailed above as well. If the digital content does not conform to these criteria, you have the right to a repair or replacement of the digital content you’ve purchased.

If a repair or replacement is not possible or doesn’t fix the situation, you can ask for a price reduction which can be up to 100% of the cost of the digital content. Further the seller has to compensate you if any device or other digital content you own is damaged as a result of the digital content you’ve downloaded. An effective consequential loss clause.

This applies where that damage would not have occurred had ‘reasonable care and skill’ been exercised in the provision of the digital content, even if that content was provided free of charge.

Digital content covered by the Consumer Rights Act include:

  • Any digital content for which you have paid for (money, gift card or with credits)
  • Any free digital content supplied with goods, services of other digital content for which you purchased. For example, a digital programme you need to download in order to watch a paid-for online streaming service.
  • Any free digital content not usually available for free unless you purchase it or the goods, services or digital content it’s supplied with. For example, a smart TV or any other product with digital content pre-installed.

Delivery rights

The seller is responsible for goods until they are in your physical possession or in the possession of someone appointed by you to accept them. This means that seller are liable for the service provided by any couriers they employ, the delivery company or its agents (Drivers etc) are not liable.

There is a default delivery period of 30 days during which the retailer needs to deliver unless a longer period has been agreed.

If the retailer fails to deliver within the 30 days or on the date that has been agreed, you can do the following:

  • If your delivery is later than agreed and it was essential that it was delivered on time, then you have the right to terminate the purchase and get a full refund.
  • If the delivery isn’t time essential but another reasonable delivery time can’t be agreed, you’re also within your right to cancel the order for a full refund.

Supply of a service

The term ‘service’ covers a wide variety of services including large and small-scale work you might have carried out. This can be from a small repair carried out with no written details or the installation of a new bathroom in your home, to a manicure or major construction work. What is common to all of them however is they require you to enter into a contract.

Services can be provided alone, e.g. a repair at your home to a computer that requires no parts or may be provided with goods, e.g. supply and fitting of a fireplace.

 What is a service?

Examples of services provided without goods can include:

  • Home improvements
  • Dry cleaning
  • Work done by professionals, such as Web Designers, Solicitors & Accountants
  • Entertainment

Examples of services provided with goods include:

  • Home improvements involving building and decorating work
  • Double glazing
  • Repairs to goods where parts are replaced e.g. motor vehicle repairs
  • Fitted kitchens or bathrooms

In the examples above the service contract is governed by the Consumer Rights Act and can be relied upon as a remedy and as protection should anything go wrong.

The rules mean that all contracts for services must do the following:

  • The person carrying out the services must perform the service with reasonable care and skill.
  • Information which is said or written is binding where the consumer relies on it.
  • Where the price is not agreed beforehand, the service must be provided for a reasonable price.
  • Unless a particular timescale for performing the service is set out or agreed, the service must be carried out in a reasonable time.

If the service you’re provided does not satisfy these criteria, you’re entitled to the following remedies under the Consumer Rights Act:

  • The person carrying out the services must either redo the element of the service which is inadequate or perform the whole service again at no extra cost to you, within a reasonable time and without causing you significant inconvenience, or
  • In circumstances where the repeat performance is impossible or cannot be done within a reasonable time or without causing significant inconvenience, you can claim a price reduction. Depending on how severe the failings are, this could be up to 100% of the cost and the trader should refund you within 14 days of agreeing that you’re entitled to a refund.

 Supplying a travel service

After the 1st October 2016 where you have purchased a travel service (train, coach or ferry) this must be provided with reasonable care and skill.

If the service you’ve received falls way below the standard you’d expect, you may be entitled to claim a full or partial refund as well as for consequential losses.

Unfair contract terms

It is now easier to challenge hidden fees and charges under the Consumer Rights Act. The key terms of the contract, including price may be assessed for fairness unless they are both prominent and transparent. Terms which are not fair are not automatically binding on you but you may still rely on them if you choose to do so.

 Unfair terms

Some examples of terms that may be unfair under the Consumer Rights Act include:

  • Excessive early termination charges
  • A clause that tries to limit your legal rights
  • Fees and charges hidden in the small print
  • Disproportionate default charges

Having unfair contract terms removed

If you believe a contract term is unfair, you should complain to the other party. However where they do not agree before breaking the terms of the contract you should seek proper legal advice.

A final resort would be to take the other party to court. The court will decide whether a term is unfair and if they rule in your favour you may be able to ignore the term or even cancel your contract without having to pay a cancellation fee.

The commercial impacts

While this post details day to day life changes that the new legislation has brought about in the commercial world the key element when undertaking a service such as designing a railway or road is governed by the act. That is level of skill and care required, which is “reasonable skill and care.” Often in a draft the employing party will require “all skill and care”, “utmost skill and care” and any number of other iterations of this. But the reality is that all of the required tests and standards required are contained in the Consumer Rights Act are those required (and no more) in a contract.