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English sales law is driven by the need for fairness and reasonableness rather than by the needs and practices of traders. Discuss.

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As this essay will show, English sales law is mainly driven by the need for fairness and reasonableness rather than by the needs and practices of traders.  The law even sees fit to intervene in respect of traders conducting business solely with each other rather than leave them to their own devices.

There are various factors influencing the application of English sales law including whether the consumer is purchasing as a business person or whether two businesses are dealing with each other.  There are other forms of sale arrangements, such as, consumer to consumer, consumer credit, tenders, auctions etc, that are outside the scope of this essay, as too are the laws which apply to the sale of services.    The principal focus will instead be on explaining the main legislation governing English sales law, namely; the Unfair Contract Terms Act 1977 (UCTA), the Sale of Goods Act 1979 (SGA) and also various regulations that are in force to ensure that consumers are protected from traders and traders are protected from themselves.  In order to ensure a full discussion of the sale of goods this essay will also look at the application and effect of common law.

The Unfair Contract Terms Act 1977

The theory of freedom to contract is based on the premise that the terms of a sale are essentially for the parties to agree, however, where consumers are involved the law will prevent the inclusion of unfair terms and will imply certain terms into some contracts.  In other words the need for freedom must be set against the value of ‘protecting the weak, the foolish, and the thoughtless from imposition and oppression’.[1]

A consumer can be defined as a person who is not purchasing in the course of their business although it does have different definitions under different acts.  UCTA applies to unfair terms in contracts whether they are consumer contracts or business-to-business contracts, although, as shown below, Parliament has seen fit to give the former type of contract much more attention than the latter.   UCTA will affect clauses in contracts that purport to exclude, avoid or restrict liability.   The types of terms which will be ineffective under UCTA include:

(i) a term in a consumer or business-to-business contract restricting or excluding liability for  personal injury or death caused by the seller’s negligence (s. 2(1));  (ii) a term in a consumer or business-to-business contract excluding liability for breach of the statutory implied terms for good title (s. 6(1)); (iii) a term in a consumer contract  excluding liability for breaching statutory implied terms relating to satisfactory quality, fitness for purpose, correspondence with sample or description.    

Under section 4 UCTA, a term that requires a consumer to indemnify a third party for liability incurred by that party for breach of contract or negligence is prohibited.  

Pursuant to section 11 UCTA a “reasonableness” test is used in order to determine the status of the term. The following sorts of terms are enforceable only if they pass the reasonableness test: (a) a term in a consumer contract or business contract on standard terms excluding or restricting liability for negligence (other than for death or personal injury) (s. 2(2)) and (b) a term by which the seller excludes or restricts liability for breach of contract, claims to be entitled to perform a markedly different contract, or claims to be entitled to no performance of the contract (s. 3).

The courts will make a determination on the matter of reasonableness rather than the parties themselves, but Schedule 2 of UCTA provides useful guidance for assessing whether a term is reasonable.  The guidance covers fundamental issues such as the bargaining power of the parties, whether the consumer was given an inducement to agree the term, whether the consumer should have known or did know of the term’s existence, and whether the goods were made to the specific instructions of the consumer.[2] In addition, if a term restricts or excludes liability if a condition is not complied with, the guidance covers whether it was reasonable at the time of the contract to expect that compliance was practicable.  The factor of bargaining power was examined in the London Borough of Southwark where the court rejected the council’s allegation that the software was of unsatisfactory quality and not fit for purpose, and declared the exclusion clause was reasonable - mainly because the parties were almost equals and because they had engaged in prolonged negotiations via lawyers.  The Court of Appeal recently held that an exclusion clause which had the effect of excluding a party's right to set off claims and a time-bar on issuing claims did pass the reasonableness test[3], because even though Rock was small in terms of corporate size it was commercially experienced and had traded with Rohlig for years under the same standard terms. [4]

The issue of reasonableness is also affected by section 3 Misrepresentation Act 1967 which asserts that any term seeking to restrict or exclude liability for misrepresentation before the contract was made or excludes a remedy for misrepresentation will need to pass the UCTA reasonableness test if it is to be enforceable.

The principle that terms must be fair under English sales law is further enabled by the Unfair Terms in Consumer Contracts Regulations (UTCCR).[5] In accordance with Schedule 2 UTCCR, terms may be unfair if they allow the seller to unilaterally alter the terms without a valid reason that is stated in that contract and if they bind the consumer to terms that he had no real opportunity of understanding before the contract was entered into.  An unfair term is one that creates a sizeable imbalance in the obligations and rights of the parties in favour of the seller and has not been significantly negotiated (regulations 3 and 5 UTCCR).  In assessing fairness it is a requirement of regulation 6(1) that the following issues be considered: the nature of the goods covered by the contract, the circumstances applying to the contract at the time it was concluded, and all the other terms of the contract or any other contract that is dependent on that contract.   The main clauses of a standard contract are those that relate to the price for the goods and those that define the subject matter of the contract.  These clauses can only be excluded from the fairness test if they are worded in plain intelligible language (regulation 7).  

As observed above, Parliament has sought to ensure that traders are not free to restrict or exclude liability at will, and both UCTA and UTCCR apply to terms that seek to do so.  However, the joint Law Commissions admitted in their Executive Summary that the two sets of rules overlap, have different effects, are inconsistent and have been severely criticised.[6]

The Sale Of Goods Act 1979

The first effort at codification of the law emerged in the form of the Sale of Goods Act 1893, only to be greeted by complaints from critics that it was weighted too heavily in favour of traders. [7]  The current SGA has been encountered various amendment before emerging as the principal law governing sale of goods and it manages to take into account the rights of both consumers and sellers.  

 Pursuant to the SGA various terms are implied into contracts.  It is implied that there is a duty of good title (s. 12), that the buyer should enjoy quiet possession and no encumbrance (s. 12(2)), and that the goods must meet their description (s. 13).  If the goods do not match their description and a consumer becomes aware of this within six months of delivery then the non-conformity is deemed to have been present when it was delivered. [8]  The burden of proof therefore rests on the trader not the consumer, thereby encouraging them to deliver conforming goods. Another implied term is that of satisfactory quality (s. 14(2)) and if it is in relation to a consumer contract that the trader makes public statements about his goods that statement will be used when evaluating whether the quality of the goods was satisfactory.  Protection is thereby afforded to consumers against traders who make outlandish and unproveable statements about the benefits and features of their goods.  The above-mentioned implied terms cannot be restricted or excluded when the seller is dealing with a consumer.  If the seller is trading with a fellow trader the issue of reasonableness will still be relevant as shown, for example, where   the Court of Appeal concluded that terms in a contract for the sale of carbon dioxide to be used in carbonated drinks which sought to exclude the requirement for satisfactory quality and fitness for purpose were unreasonable. [9]

Even in situations where a contract has holes, English sales will attempt to addresses the position by imparting fairness and reasonableness into the equation. If there are gaps in either consumer or business contracts the SGA will imply terms to fill those gaps, for example, if the price of the product has not been agreed the price whatever is reasonable (s. 8). If the payment time is not stated it will be interpreted that the consumer should pay cash on delivery (s. 28). If the place for delivery was not agreed the delivery is deemed to take place at the seller’s place of business (s. 29). If the contract is silent on when title in goods passes to the consumer, it is implied to pass when the parties believed it to pass (s. 17) - where the intention of the parties has been assessed using a certain set of rules (s. 18).

The Position At Common Law

In the nineteenth century the development of English sales law through common law resulted in a wealth of complex and contradictory case law resulting in a call for codification. [10]   Some rules developed by the courts under common law were quite useful, and remain good law today, particularly those used to stem the misuse of exclusion clauses.  

Pursuant to the “contra proferentem rule” an ambiguous term will be interpreted strictly against the party seeking to rely on it.

In Photo Production Ltd the House of Lords held that whether an exclusion clause could apply to a serious breach was a matter of construction of the relevant contract.[11] However, Lord Wilberforce felt that  Parliament’s intention seemed to be one of ‘leaving the parties free to apportion the risks as they think fit…and respecting their decisions’ where dealing with commercial matters when the parties were not of unequal bargaining power and where risks could be covered by insurance. [12]

More unusual clauses should be emphasised in the standard terms and as Lord Denning famously stated ‘some clauses would need to be printed in red ink with a red hand pointing to it before the notice could be held to be sufficient’.[13]  A party cannot rely on a clause to restrict or exclude liability with regard to their own fraud. [14]  The courts will not allow an exclusion clause to survive if an oral representation was made before the contract was entered into and this contradicts the wording of the exclusion clause. The relevance of the latter was seen in Curtis where the claimant signed an unread form and gave over her wedding dress for dry-cleaning, the assistant having advised her that the form excluded liability for damage to beads. [15] In truth the form excluded liability for all damage and the court had no difficulty in finding for the claimant.

It has long been a principle of law that terms in a consumer contract must be brought to the consumer’s notice at the earliest opportunity if such term is to be effectively incorporated.[16] Terms will not be incorporated automatically into a contract because the parties traded with each other under those terms on prior occasions.[17]  They may, however, be incorporated by a course of dealing where each party has caused the other reasonably to believe that the parties liabilities and rights would be represented by the terms of a previously used document.

The Internet Era And Online Sales

Although SGA and UCTA are the major statues covering English sales law, consumers also benefit from the Electronic Commerce Regulations (ECRs) when they purchase goods over the internet. [18]  Under regulation 9(1) ECR, the trader must give the customer certain information, such as, an explanation of the technical process that the customer should follow to alter incorrectly input data before the order is concluded, and details of the technical process the consumer should undertake so that the contract is concluded.

The internet consumer also benefits from the protections offered by the Distance Selling Regulations (DSRs). [19] According to regulation 7 DSRs, the online seller must stipulate various details including a description of the main features of the products, the costs including any taxes, any delivery costs to be incurred, any specific process relating to delivery and payment,  and details explaining the right to cancel without reason during a seven day cooling-off period.

Sale Of Goods At The Doorstep

The consumer will be protected by the Home Regulations when buying certain goods at the door. [20]  The Home Regulations apply to both unsolicited and solicited visits where a seller visits the consumer’s office or house and enters a contract, or where the consumer makes an offer during a visit from the seller (regulation 5). At the time the contract is entered into the trader must provide the consumer with notice in writing of the consumer’s right to cancel[21] including informing the consumer that they can cancel the have a cooling-off period of seven calendar days (regulation 7).  

Conclusion

This essay demonstrates that there are many sources of law relating to the development of English sales of goods, the primary sources being SGA and UCTA.  As the methods and means of sales have evolved in the computer age Parliament has also seen fit to allow consumers to benefit from the ECRs and DSRs where goods are purchased online or where consumers have been door-stepped.  Common law still features largely in the development of English sales law as a number of cases decided before the governing legislation was enforce remains good law.  

The conclusion that the writer has drawn is that English sales law primarily reflects the need for fairness and reasonableness for consumers and as well as for sellers.  As consumers ultimately have less means and power than businessmen it is not too difficult to see why sales law has gravitated away from the needs and practices of traders and towards the protection of consumers.  The legislature has not ignored the needs and practices of traders as witnessed in the need for reasonableness and the need to imply various terms even where neither of the parties are consumers.  

Unfortunately, it is apparent that there are too many overlapping consumer laws regarding sale of goods, however, there appears to be a movement to rectify this as in November 2010, BIS launched a proposal to try to simplify the mass of consumer protection rights and remedies and codify them under one law[22].  Whilst we await such a laudable feat, however, consumers can take comfort in the disparate laws of SGA, UCTA, secondary legislation and common law which have all sought to reflect the needs of consumers over and above those of traders.

(2501 words)


Bibliography

Books

H. G. Beale, Chitty on Contracts Volume I. (London: Sweet & Maxwell, 29th ed, 2004).

M. Furmston and J. Chuah, Commercial and Consumer Law (London: Pearson, 2010).

Articles and Journals

The Solicitors’ Journal (2003) Vol 147

S. Trimmings,  ‘Fair Trade: The reasonableness of no set off and time bar clauses’ (2011) Commercial Litigation Bulletin at http://www.rpc.co.uk/index.php?task=download&option=com_flexicontent&fid=22&Itemid=92&cid=7087&id=983(Last visited 2 May 2011)

S. M. Waddams ‘Unconscionability in Contracts’ (1976) 39 Modern Law Review 369-393.

Consultation Papers

Department for Business Innovation and Skills, Consolidation and Simplification of UK Consumer Law (London: The Stationery Office, 2010)

The Law Commission and the Scottish Law Commission, Unfair Terms in Contracts: A Joint Consultation Paper (No 166, 2002) http://www.justice.gov.uk/lawcommission/docs/cp166_Unfair_Terms_In_Contracts_Consultation.pdf


[1] S. M. Waddams ‘Unconscionability in Contracts’ (1976) 39 Modern Law Review 369-393.

[2]London Borough of Southwark v IBM UK Ltd [2011] EWHC 549

[3]Rohlig (UK) Ltd v Rock Unique Ltd [2011] EWCA Civ18

[4] Sarah Trimmings, Commercial Litigation Bulletin, Reynolds Porter Chamberlain, March 2011

[5]Unfair Terms In Consumer Contracts Regulations (SI 1999/2083)

[6] The Law Commission and the Scottish Law Commission, Unfair Terms in Contracts: A Joint Consultation Paper (2002)  at S.8

[7] M. Furmston and J. Chuah, Commercial and Consumer Law (London: Pearson, 2010) 259.

[8] Regulation 5, Sale and Supply of Goods to Consumers Regulations. (SI 2002: 3045)

[9]Britvic Soft Drinks Ltd v Messer UK Ltd [2002] EWCA Civ 548 in The Solicitors’ Journal 2003 Vol 147, 20

[10] M. Furmston and J. Chuah, Commercial and Consumer Law (London: Pearson, 2010) 259.

[11]Photo Production Ltd v Securicor Transport Ltd [1980] 2 WLR 283

[12] H. G. Beale, Chitty on Contracts Volume I. (London: Sweet & Maxwell, 29th ed, 2004) 847.

[13] J Spurling Ltd v Bradshaw [1956] 2 All ER 121

[14]Pearson & Son Ltd v Dublin Corporation [1907] AC 351 andHIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6.

[15]Curtis v Chemical Cleaning and Dyeing Co Ltd[1951] 1 KB 805

[16]Interfoto Picture Library v Stiletto Visual Programmes Ltd [1988] 1 All ER 348

[17]McCutcheon v Davd MacBrayne Ltd [1964] 1 WLR 125

[18] Electronic Commerce (EC Directive) Regulations (SI 2002: 2013)

[19] Consumer Protection (Distance Selling) Regulations (SI 2000: 2334)

[20] Cancellation of Contracts made in a Consumer’s Home or Place of Work Regulations (SI 2008: 1816)

[21] Except when a consumer makes an offer under regulation 5(c) in which case the notice must be given when the offer is made.

[22] Department for Business Innovation and Skills, Consolidation and Simplification of UK Consumer Law (London: The Stationery Office, 2010)

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