| Sale of goods, digital content and consumer protection | 12 |
SALE OF GOODS AND DIGITAL CONTENT
INTRODUCTION
Publishing is all about selling – or so, at least, every marketing director would tell us. Many other topics with legal significance are involved in the publishing process, of course, as we have seen – copyright, for example – but in a very real sense the act of publishing is the act of selling. No one who has been to Frankfurt could ever be in any doubt about that. However, this chapter is not about selling rights (for this, see Chapter 6), but about selling the thing itself – the book, or the journal, or the online product. What happens in legal terms when X sells something to Y? Are any legal duties and obligations imposed on the seller, and are there any exceptions? Are there any specific duties owed to the public? What is the position of wholesalers and retailers?
Lawyers have traditionally called this area of law sale of goods, although for much of the high street or distance selling which publishers do, consumer law is now a more helpful label. With the growth of published material supplied or published over the Internet, the traditional distinction between the supply of goods rather than services has been tested. Any ambiguities have been resolved, at least in terms of sales to consumers, by the introduction of a new category of digital content contract. This was introduced under the European Consumer Rights Directive 2011 and is now reflected both in the legislation which implements it in the UK and in the recently introduced Consumer Rights Act 2015 (CRA) which consolidates and overhauls the consumer protection landscape in the UK. Even when the publication concerned is not ‘sold’ as such, but distributed free of charge (for example, a controlled-circulation newspaper paid for by advertising revenue), many of the same legal principles apply in relation to goods although not in relation to digital content. This is because a lot of digital content is supplied for free and it is not considered reasonable to hold the supplier to the same standards as when the content is paid for. We shall take a look at these basic principles in this chapter, and in the next chapter we will examine the special rules applying to advertising and marketing.
SUPPLY OF GOODS AND DIGITAL CONTENT
Although ‘sale of goods’ has a wonderfully Victorian ring to it, the law in this area has progressed significantly since that time. The first piece of legislation in this field was the Sale of Goods Act 1893, which was passed in an age when a man’s word was his bond and merchants did not expect (or want) the law to interfere with free trade or freedom of contract. The law assumed, however, that the parties were dealing on more or less equal terms, and that in the case of contracts of sale there was a reasonably fair balance between the buyer and the seller.
Before the 1893 Act, the balance had become heavily weighted in favour of the seller. The basic rule of mercantile law was caveat emptor: let the buyer beware. The law would not protect a buyer from a bad bargain unless there was some obvious impropriety, such as fraud or duress, and buyers were expected to satisfy themselves about the suitability or quality of goods they were buying before buying them. Once the deal was struck, that was that: they had to abide by their contract, however bad. This was all very well in the days when buyers could go to market and inspect what were then relatively straightforward goods (like horses or produce) for themselves, but as the Industrial Revolution developed, two things happened:
(1) goods became more complex and their defects became less visible – so that buyers often found they had to rely on the seller’s description of the goods; and
(2) goods were increasingly mass produced, so that buyers were no longer making individual contracts which they could negotiate with each seller, but were forced to deal on industry-wide terms and conditions, drafted entirely from the seller’s point of view.
The 1893 Act went a long way towards restoring a fair balance between buyers and sellers. In particular, it introduced into all contracts for the sale of goods certain implied terms – for example, implied conditions that the goods would be fit for their purpose and of ‘merchantable quality’. Although the 1893 Act has now been entirely superseded and amended by more recent legislation, many of these implied terms still form an important part of modern UK law. We will look at all of them below, in their modern context.
In today’s consumer society, therefore, the law no longer assumes that well-informed buyers go about striking arm’s-length bargains with individual sellers. That may be the commercial reality in some cases (a sale of stock between two publishers, for example), but in others the buyer (of a computer, for example, or an online purchase from a US-based website) may be negotiating at a distinct disadvantage, and may need more protection. We will therefore need to consider two different kinds of sale:
(1) sales between businesses (where the contract will usually prevail, subject to some important provisos, which we will consider below); and
(2) sales to the public, or ‘consumer sales’ (where the ‘contract’ may be hard to identify, and different provisions may now apply).
This is further complicated by the fact that there is a distinction between contracts for goods and for digital content in consumer sales but not in sales between businesses. It is also worth noting that digital content sold on a tangible medium (for example, audio book CDs) will be treated as goods for most purposes.
Both business and consumer contracts are now highly regulated, but in different ways. A forest of relevant legislation has been passed over the years from the original Sale of Goods Act 1893, replaced by a more modern 1979 Act (which in turn has been amended by the Sale and Supply of Goods Act 1994 and others), and has been added to by (among others) the Misrepresentation Act 1967, the Unfair Contract Terms Act 1977, and the Consumer Protection Act 1987. So fragmented and confusing had the consumer protection landscape become that the CRA was brought in to overhaul and consolidate the patchwork of laws. While the intention had originally been to create a single piece of consumer protection legislation in relation to the supply of goods, digital content and services, things did not quite pan out that way, in part because of the work of the highly consumer-orientated European Commission, which has been responsible in recent years for a steady flow of Directives and other measures from Brussels on topics such as product liability, data privacy and misleading advertising, all designed to protect the interests of consumers throughout the European Union.
The result is that we are left with the Sale of Goods Act 1979, the Supply of Goods and Services Act 1982 and the Unfair Contract Terms Act 1977 (to name but a few) in relation to non-consumer contracts but we have a more up to date set of legislation for consumer contracts, the cornerstone of which is the CRA. This is supplemented by the Consumer Rights Directive 2011, implemented in the UK largely by the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (Consumer Contracts Regulations) which deal with pre-contractual information and cancellation rights in relation to on-premises, off-premises and distance contracts. Other key legislation includes the Consumer Protection from Unfair Trading Regulations 2008 (amended by the Consumer Protection (Amendment) Regulations 2014 (which we look at in the next chapter) and the Electronic Commerce (EC Directive) Regulations 2002.
Remedies for unsatisfied buyers, or consumers, may now therefore be found in a number of different places:
• in the terms of individual contracts;
• in civil liability for torts such as negligence or misrepresentation; and
• (increasingly) in specific statutory duties, many of which are now duties of strict liability.
For our purposes, we are not going to consider the supply of services but will focus on the supply of goods and digital content. Let us start at the beginning, however, and consider what duties – and remedies – may exist under the contract of supply itself.
What does the law understand by a sale? Consider some publishing examples:
• A publisher’s rep visited a bookseller a couple of weeks ago, and the bookseller ordered several titles. The rep described one as being particularly suitable for a degree course taught at the local university, and the bookseller ordered 30 copies. The publisher has now supplied the books, but the bookseller has not yet paid for them.
• An online bookseller sells an electronic book (an ‘e-book’) to a customer (who owns the appropriate hardware) over the Internet. Before the sale the customer e-mailed the bookseller to say that the book is required to study modern history. The bookseller replied by e-mail and said that the e-book was suitable for that purpose, but in fact, the e-book is about medieval history.
• A publisher sells copies of a textbook on wholesale terms to an educational supplier. The supplier has its own standard terms and conditions.
• A UK publisher agrees to sell 20,000 copies of a new title to US co-publishers, in their imprint. The US publishers need the copies by a particular date, and make it clear that time is of the essence.
• An online e-publisher sells a novel to a customer who has paid by credit card. The novel contains a virus and is inaccessible.
In all these examples, the essence of the transaction is a contract for the sale of goods or digital content. But when is each contract complete, what are the terms and conditions of each one, and does the law imply any terms of its own? Equally importantly, if the buyer has any rights under the contract, against whom can those rights be enforced? In the case of the novel for example, is it the bookseller’s fault that the e-book is defective: and does this mean that the bookseller is obliged to give a refund? Who is liable to whom, and when?
Contracts for the supply of goods/digital content
Some of these questions can be answered by first finding out whether a contract exists at all, and if so what kind. Contracts, as we saw in Chapter 5, are fundamental to the publishing business, but may also essentially be very simple things. They may be created whenever X makes a promise to Y, and Y promises something of value in return: on that basis, all the above examples would clearly be contracts. They are also contracts of sale, because in return for an agreed price, it is intended that the buyer will get not only physical possession of the goods, but also the legal ownership of the goods (what lawyers call the ‘property’ or ‘title’ to the goods).
They are therefore different from contracts for certain supplies of free content (considered below), of hire, or contracts for services only, for an important part of the bargain is that the buyer will become the new legal owner.
Contract terms
What are the terms of each contract? Do they have equal weight, or are some more important than others? Terms of a contract may be express, that is specifically set out and agreed by the parties at the time, or they may be implied, for example by a previous course of dealing between the parties, or by representations made by one party to the other, and on which the other party relied. Some terms may also be implied by statute: we will come to several important examples of these below.
Some terms may also be more important than others. A condition is a term which is fundamental to the bargain, which goes to the root of the whole contract. The price is often the best example, but terms relating to quantity and schedule might equally be conditions. Breach of a condition by a seller normally entitles the buyer to treat the whole contract as being revoked, reject the goods completely, and ask for his or her money back. A warranty, by contrast, is much less important. Despite the frequent appearance of the word ‘warranty’ in publishing contracts, in law a warranty is merely collateral to the main purpose of the contract. Breach of a warranty will – generally speaking – not entitle a buyer to rescind the contract entirely or reject the goods, but will merely provide an action for damages. This is not always the case, and illustrates the importance of looking at the meaning of a term rather than its label – a warranty that is clearly core to the purpose of the agreement may in fact be treated as a condition.
Breach of some terms, especially in relation to those implied by statute, will often trigger statutory remedies which are available in addition to other remedies such as damages although each type of loss may only be recovered once.
TERMS IMPLIED BY STATUTE
Both business and consumer contracts for the sale of goods or digital content will contain a number of terms implied by statute. In business contracts, these are found in the Sale of Goods Act 1979; in consumer contracts, they are in the CRA. They include:
• right to supply the goods/digital content
• goods/digital content to be of satisfactory quality
• goods/digital content to be fit for purpose
• goods/digital content to match description.
In consumer contracts, there are additional statutory rights, notably that the goods or digital content must conform with all pre-contractual information given in accordance with the Consumer Contracts Regulations, which become terms of the contract.
In relation to digital content, there is also a right to a remedy for any damage to a device or other digital content caused by the digital content supplied. This right applies even where the content is supplied for free.
In a contract for the sale of goods or digital content, perhaps the most fundamental condition is that the buyer will acquire good title – in other words, become the legal owner, unhindered by any rival claims from elsewhere. This assumes, of course, that the seller owns the goods or digital content in the first place (and has not, for example, stolen them or acquired them on hire purchase). The normal rule in such cases (known to lawyers as the nemo dat rule) is that you cannot give better title than you yourself possess (nemo dat quod non habet: one cannot give what one does not have). If you do not own something, then a person buying from you will not own it either. There are exceptions to this general rule: where, for example, the owner has consented to the sale or has impliedly authorised the sale by his conduct. Therefore, a sale by a commercial agent would normally pass good title.
A seller who remains in physical possession of goods with the buyer’s consent after a sale is completed (for example to repair them, or warehouse them) might also be capable of passing good title by delivering them to a new, second buyer, as long as the new buyer received the goods in good faith and without knowledge of the first buyer’s rights. So if a bookseller sells the last signed copy of a Booker prize-winning novel to buyer A, who pays the price but leaves it in the shop to be collected later and the bookseller meanwhile re-sells it and hands it over to buyer B, buyer B might well become the new owner. Buyer A would, of course, have an action for the return of his or her money and possibly a claim for other damages, but would not be entitled to claim ownership of the book itself.
Similarly, a publisher who in similar circumstances sold a particular consignment of stock twice over, would effectively pass legal ownership to the innocent final customer to whom the stock was actually delivered. In both cases, the seller (however dishonest) was in possession with the owner’s consent, and can therefore pass on good legal ownership to someone buying in good faith.
Although this has the effect of protecting innocent book-buyers, it may leave publishers at some risk if they deliver stock on sale or return to a retailer and the retailer either fails to pay, or – worse still – goes bankrupt. Many publishing distribution contracts therefore contain express terms known as ‘retention of title clauses’, which clearly stipulate that, even after they are delivered to the retailer, legal ownership of the goods remains with the publisher until they are paid for (or, in some cases, all outstanding debts are paid). If a major chain of bookshops (for example) calls in the receivers, such clauses are designed to ensure that relevant unsold stock can be reclaimed from the bookshelves by the publishers concerned, and will not belong to the bookshop’s creditors. Nevertheless, there are often practical difficulties in claiming title to specific stocks when they have become mixed with other stocks on the buyer’s premises (how do you identify those which are yours?) and it may prove difficult to rely on a retention of title clause unless it is very carefully drafted.
IMPLIED CONDITION OF GOOD TITLE
With one exception, which we deal with below, section 12(1) of the 1979 Sale of Goods Act provides that in every contract of sale there is:
an implied term on the part of the seller that . . . he has a right to sell the goods.
This is so, whether the contract refers to the matter or not. There is a corresponding implied condition in contracts for future sales. Note that the 1979 Act implies a condition of good title into every such contract, not merely a warranty. This means that a buyer who does not get the legal title he or she bargained for may rescind the whole contract – understandably enough.
In addition to the condition of good title, section 12(2) also provides additional warranties that:
• the goods are (and will remain) free of any legal charges or ‘encumbrances’ which may restrict their use; and
• the buyer will enjoy ‘quiet possession’ of the goods.
What happens if you wish to sell the goods but are genuinely uncertain as to whether you have the full legal right to do so? Can you sell ‘such title as I may have’? Where there are difficulties in proving title, buyers may be quite willing to bear that risk as a commercial risk, particularly if you and they have dealt with each other regularly before. Section 12(3) of the 1979 Act provides for this situation, and provides specifically that the implied conditions and warranties above will not apply to such limited sales: there will in such cases only be limited warranties, for example that any charges and encumbrances which are known to the seller are disclosed to the buyer before the contract is made.
Consumer contracts
The CRA implies a a similar term as to title into consumer contracts for goods and paid for digital content and a statutory remedy to reject the goods or receive a refund for the digital content if the term is breached.
SUMMARY CHECKLIST: LEGAL OWNERSHIP IN SALES
To recap so far: to find out who owns particular goods, the questions to ask might be as follows:
• Does a contract of sale exist?
• Does the seller own the goods or digital content in the first place?
• If not, has the owner impliedly (or actually) authorised the sale?
• If not, does the seller possess the goods/digital content with the owner’s consent, and does the buyer buy in good faith?
• Is there a valid retention of title clause?
• Is there any other restriction on title (for example, a sale of only ‘such title as I may have’)?
If we apply these criteria to our first contract of sale example (at p. 312 above), where the publisher has supplied the books, but the bookseller has not yet paid for them, it is likely that the publisher will have owned the books, and that a contract of sale exists. However, if there was a valid retention of title clause, the bookseller might not yet own the books. Even so, if (as is likely) the bookseller had physical possession of the books with the owner’s consent, the bookseller might still effectively pass on legal ownership to a customer who bought one of them in good faith.
SALES BY DESCRIPTION
The seller’s description of the goods may be such an important factor in the buyer’s decision to buy that it should, in fairness, be treated as a term of the contract.
Business contracts
Accordingly, under section 13(1) of the Sale of Goods Act 1979, where there is a contract for the sale of goods by description, there is an implied term that the goods will correspond with the description. This will come into play, for example in a contract between a publisher and a bookseller.
Sales to consumers
The CRA provides similar terms in relation to consumer contracts for goods and paid for digital content but with statutory remedies. Where the term is breached in relation to goods, the CRA provides for a series of tiered statutory remedies as follows:
• short term right to reject (30 days subject to limited exceptions and unless extended by the trader);
• the right to repair or replacement at the trader’s expense (one chance only);
• the consumer may choose repair or replacement. The trader is not required to repair or replace if it is impossible to do so or if either remedy is disproportionate compared with the other;
• if either repair or replacement is requested during the short term right to reject period, the early rejection period stops running for the length of the waiting period. If the goods still do not comply on their repair or replacement, the consumer can then exercise the short term right to reject for 7 days after the end of the waiting period or, if longer, by the end of the original 30 day period plus the waiting period. The trader has one opportunity to repair or to supply one replacement before the consumer can move to the next level which is;
• price reduction or final right to reject – if repair or replacement are impossible or have not been carried out within a reasonable time and without causing the consumer unreasonable inconvenience, or do not resolve the problem, the consumer has a right to a price reduction or to final rejection if the short term rejection period has expired;
• a right to rejection entitles the consumer to reject the goods, receive a refund (from which a deduction for use may be made after six months) and treat the contract at an end (repudiate it).
The remedies are slightly different for digital content as there is no short term right to reject and the right to repair or replacement is not limited to one chance to take into account the fact that updates and patches are routinely supplied in relation to some digital content.
A bookseller can be in a difficult position if selling to a consumer on the basis of an incorrect description of the book provided by the publisher. In this case, the contract, for the consumer’s purposes is with the bookseller and it would be up to the bookseller to supply remedies to the consumer if appropriate. The bookseller would then need to look to its contract with the publisher for compensation.
MISREPRESENTATION
If a description cannot be incorporated as an implied term into the contract of sale itself, a seller might still be liable under the general law of tort for any misrepresentations made to the buyer, if the buyer relied on them and suffered loss or damage as a result.
Misrepresentations may be fraudulent, negligent or innocent:
• Fraudulent misrepresentation. It is well-established law that sellers will be guilty of fraud (strictly speaking, the tort of deceit) if they cause loss or damage to buyers by intentionally misleading them with statements of fact knowing them to be untrue or not caring whether they are true or false. Not surprisingly, most of the cases involve used cars. In most cases, where fraud can be proved, the buyer may rescind the contract (so as to be restored to his or her original position), or alternatively claim damages.
• Negligent misrepresentation. Even in the absence of actual fraud, the Misrepresentation Act 1967, section 2(1), provides that a buyer will still be entitled to damages, or to rescind the contract, if a misrepresentation was made negligently. Negligence, however, implies a duty of care, and may be difficult to prove: on negligence generally, see p. 324.
• Innocent misrepresentation. In the absence of either fraud or negligence, where the misrepresentation was entirely innocent, the buyer’s only remedy would normally be to rescind the contract. However, if this was no longer possible – for example, because the goods had been destroyed – a court may award damages in lieu, under section 2(2) of the 1967 Act.
SUMMARY CHECKLIST: DESCRIPTIONS AND MISREPRESENTATION
• Is there a sale by description?
• Do the goods/digital content correspond with that description?
• Has there been any misrepresentation?
In our first contract of sale example (p. 312) the sales rep described one book as particularly suitable for a local degree course, and the bookseller ordered on that basis: the sale would probably therefore be a sale by description, and if the books did not correspond with the description the bookseller could rescind the contract (for breach of an implied condition) and return the books.
MERCHANTABILITY AND SATISFACTORY QUALITY
Under section 14 of the 1979 Sale of Goods Act (as amended) all sellers of goods who sell in the course of their business are bound by an implied condition that those goods should be of ‘satisfactory quality’ (formerly ‘merchantable quality’). Prior to 1994, when the wording changed, there was considerable argument in the courts over what was or was not ‘merchantable’ (because the implied term was a condition entitling the buyer to reject the goods). The factors which might be taken into account clearly included fundamental defects in quality, such as exploding ‘Coalite’ (in one case) and a plastic catapult which broke and blinded a boy in one eye (in another case), but minor and less obvious defects were less clear, particularly if they were aesthetic rather than purely functional. Although the definition of ‘merchantable quality’ provided an objective standard of sorts, following the introduction of the Sale and Supply of Goods Act 1994 the test became one of ‘satisfactory quality’, with clearer guidance as to the factors which may be taken into account.
Implied terms of satisfactory quality in business contracts
Section 14(2) of the 1979 Act, as amended by the 1994 Act, now provides as follows:
(2) Where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality.
(2A) . . . goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances.
Implied terms of satisfactory quality in consumer contracts
The CRA implies terms of satisfactory quality into consumer contracts for goods and paid for digital content. The statutory remedies for breach are as set out above in relation to implied terms as to matching description.
Under the 1994 Act, quality factors which may specifically be taken into account (among others) include the following:
• fitness for all the purposes for which goods of the kind in question are commonly supplied;
• appearance and finish;
• freedom from minor defects;
• safety; and
• durability.
The CRA has a similar list for consideration in terms of consumer contracts. Satisfactory quality of goods and digital content is determined with reference to meeting the standard a reasonable person would consider satisfactory taking into account any description, the price paid and any other relevant factors. Quality is assessed by reference to the same criteria as under the 1994 Act save that there is no reference to appearance and finish in relation to digital content for obvious reasons.
Any one or more of these factors may be relevant in deciding whether a reasonable person would regard the goods as satisfactory. Clearly, the first category is potentially the broadest, covering all the purposes ‘for which goods [or digital content] of the kind in question are commonly supplied’ – note, however, that the relevant purpose must be one for which such goods [digital content] are commonly supplied, not some special or esoteric purpose not normally associated with them (for fitness for a special purpose, see below, p. 321). A scientific or technical textbook with vital instructions missing so that it could not be used in teaching, or a cookery book without key ingredients or with the wrong quantities and therefore useless for cooking, would probably not be fit for all the purposes for which such books are commonly supplied, and since this would breach the implied condition that the goods would be of satisfactory quality the buyer would be entitled to statutory remedies.
‘Appearance and finish’ and ‘freedom from minor defects’ appeared for the first time, confirming the result of a 1988 case where a string of minor defects in an expensive Range Rover were held to make it unmerchantable (although it was still basically roadworthy). The buyer of a Rolls-Royce or a Range Rover is entitled to have higher expectations than the buyer of, say, a second-hand car whose only concern might be to get (relatively) safely from A to B. This flexible definition of what is or is not satisfactory quality must apply equally to publications. A buyer of an expensive multi-volume encyclopaedia might well be entitled to claim that it was not of satisfactory quality under the Act if the gold blocking on the spines came off after two weeks, whereas the buyer of a cheap paperback classic might be glad if the jacket stayed on at all.
‘Safety’ and ‘durability’ may be of vital concern to consumers, and so were first expressly included in the 1979 Act by the 1994 Act. ‘Durability’ probably only implies durability for a reasonable time and depends on what is a reasonable duration time for those particular goods (in a 1987 case involving merchantable quality, a second-hand Jaguar which was purchased from a motor dealer that seized up three weeks after purchase was not fit for its purpose). ‘Safety’ here probably only implies safety for reasonable or normal use – in one case involving pork chops which contained a harmful parasite, the buyer failed to prove that the chops did not reach the (then) standard of merchantable quality since the chops were only partially cooked, and normal cooking would have killed the parasite and made them perfectly safe to eat. Safety is clearly relevant for cars or electrical goods such as computer equipment – an e-book containing a virus might not now be considered sufficiently safe to be of ‘satisfactory quality’. Sellers also have statutory duties relating to safety under the Consumer Protection Act 1987 (see below, p. 326).
The implied term of satisfactory quality will not apply in the following circumstances:
• where the defect is specifically drawn to the buyer’s attention before the contract is made;
• where the buyer examines the goods before the contract is made (and that examination ought to have revealed the defect); and
• where the sale was by sample, and the defect would have been apparent on a reasonable examination of the sample.
Note that the vital revelation, or inspection, must have taken place before the contract was made. In the case of sales by sample, there are similar implied terms that the bulk will correspond in quality to the sample, and will be of satisfactory quality except for defects apparent on examination.
SUMMARY CHECKLIST: SATISFACTORY QUALITY
• Is the sale in the course of the seller’s business?
• Is the supply to a trader or a consumer?
• Would a reasonable person regard the goods/digital content as satisfactory?
• Are they fit for all the purposes for which goods/digital content of that kind are commonly supplied?
• Is their appearance and finish satisfactory (goods only)?
• Are they free from minor defects?
• Are they reasonably safe and durable?
• Was the defect brought to the buyer’s attention before the contract was made?
• Did the buyer examine the goods/digital content before the contract was made? Ought that to have revealed the defect?
• Was the sale by sample, and would the defect have been reasonably apparent?
FITNESS FOR PURPOSE
Implied terms of fitness for purpose in business contracts
In addition to the implied term that goods will be of satisfactory quality, there is a further implied condition imposed on the seller that goods will be reasonably fit for any particular purpose made known by the buyer.
Implied terms of fitness for purpose in consumer contracts
Again, similar terms are implied into consumer contracts for the sale of goods and paid for digital content by the CRA. The goods or digital content will be presumed to be fit for any purpose made known to the trader prior to supply whether or not it is a purpose for which they are usually supplied. This does not apply where circumstances show that the consumer does not rely or on or it is unreasonable to rely on the skill or judgment of the trader. Remedies for breach are as set out above in relation to implied terms as to matching description.
It should be noted that case law has prompted the proviso in the CRA. The House of Lords (Scotland) in Slater v. Finning (1996) clarified this issue by stating that there will be no breach of the implied condition of fitness where the failure of the goods to meet the intended purpose arose from an abnormal feature or idiosyncrasy, not made known to the seller, in the buyer or in the circumstances of use by the buyer. It is not relevant whether or not the buyer is aware of that feature. For example, if a publisher contractually agrees to provide textbooks suitable for 15-year-olds, it is unlikely that there would be a breach of section 14 if a 15-year-old recipient had learning difficulties, and actually needed simpler material.
The purpose may be made known expressly, or by implication, but it must be clearly made known, so that the seller is in no doubt that that is the purpose for which the buyer requires the goods or digital content, and for which he or she is paying the price. Where the circumstances of the sale indicate otherwise, the implied condition of fitness for that purpose will not apply. For example, where the buyer would have made the purchase anyway, and was clearly not relying on the seller’s professional advice – or where it would have been unreasonable to do so – any statement by the seller about fitness for purpose will probably be regarded as merely ancillary, and will not form part of the contract. So where a student goes into a campus bookstore with a reading list, and selects a textbook on the list and buys it at the till, the purchase is clearly being made in reliance on the reading list, not on any extra encouraging remarks which the bookseller may add. In those circumstances if the book turns out to be unsuitable, the student’s remedy – if he or she has one at all – would be against the lecturer who drew up the reading list, not the bookseller who sold the book, or the publisher who published it.
Suppose, however, that the student is clearly in some doubt, expressly asks the bookseller’s advice as to whether the text is suitable for a specific course, and is advised that it is? In those circumstances, where the student clearly relies on the bookseller’s skill and judgment, the bookseller will almost certainly be bound by an implied condition that the book is fit for that purpose.
SUMMARY CHECKLIST: FITNESS FOR PURPOSE
• Is the sale in the course of the seller’s business?
• Is it made to a consumer or to a business?
• Has the buyer clearly made known a particular purpose?
• Was the buyer relying on the seller’s professional advice or opinion?
• In consumer contracts, did the consumer choose not to rely on or was it unreasonable for the consumer to rely on the skill or judgment of the trader?
• Did the unfitness stem from any other special circumstances, not disclosed at the time?
OTHER STATUTORY TERMS IN CONSUMER CONTRACTS FOR GOODS AND DIGITAL CONTENT
Under the CRA, there are additional statutory rights and remedies in respects of goods and digital content.
EXCLUSION AND LIMITATION CLAUSES
Is it possible to avoid or limit liability under such implied terms (of satisfactory quality etc.), for example, by putting a clause in the contract in small print somewhere which specifically excludes or limits it? In most cases now, the answer is no – particularly where the exclusion clause attempts to avoid liability to consumers. However, some may still be permitted if they pass a test of ‘reasonableness’ or are fair (depending on whether we are talking about a business or a consumer contract). For disclaimers of liability for negligent mis-statements, see Chapter 8.
Exclusion clauses were once widely used (and abused) in standard form contracts, and some of the more notorious examples would attempt total, blanket avoidance of any liability to consumers for any loss, damage or injury, and even for death. In many cases judges have refused to enforce such clauses if they were not properly brought to the notice of the consumer at the time of the contract (as in the infamous phrase ‘for conditions see timetable’), or were unduly onerous or exorbitant (such as a £3,783.50 time penalty charged by a photographic library for a two-week delay in returning transparencies). In addition, because exclusion clauses were so destructive of the consumer’s rights, they have generally been interpreted narrowly by the courts against the party trying to enforce them – so that a clause excluding liability for a breach of warranty, for example, would not avoid liability for any breach of a condition. This is known in English law as the ‘contra proferentem’ rule, but even with this ammunition, courts have not always been able to prevent sellers from using exclusion clauses to avoid their proper obligations.
The Unfair Contract Terms Act 1977 was therefore passed to regulate the scope of exclusion clauses and other unfair terms by statute. The Act now only applies to ‘business to business liability’ (generally in relation to acts done in the course of a business). Purely private transactions are outside the scope of the Act (with the exception of section 6, in relation to clauses that seek to exclude or restrict the statutory implied terms under the Sale of Goods Act 1979, which applies to all contracts). Also, importantly, under section 26, the Act does not apply to international supply contracts. This means exclusion or limitation clauses in a contract for the sale of goods made between parties whose ‘habitual residences’ are in different states will not be subject to the Act. Therefore, exclusion clauses in a publisher’s contract for sale of 50,000 educational books to a US supplier would not be subject to the Act, but theoretically may be caught by equivalent US law.
Exclusion and limitation of liability under business to consumer contracts are now dealt with under the CRA.
Some liabilities – for example, for death or personal injury caused by negligence – may now never be excluded and others may only be excluded in certain circumstances. These largely depend on whether the purchaser is buying as a consumer, or negotiating freely in the course of a business (such as a publisher buying stock from another publisher). The following rules may apply.
Liabilities which may never be excluded
Any clause attempting to exclude liability for the following will be void and unenforceable:
• death or personal injury resulting from negligence;
• breach of the implied condition of good title (see p. 314).
Where the purchaser buys as a consumer
Stricter liability applies in the most common consumer situations where the trader is acting for purposes relating to that person’s trade, business, craft or profession and the buyer is not.
In relation to goods and digital content, none of the statutory terms implied by the CRA can be excluded or limited apart from those which are included as part of the contract by virtue of the pre-contractual information requirements under the Consumer Contracts Regulations which may be varied with express consent of the consumer. In addition, any limitation or exclusion of liability in relation to the right to repair of damage to a device or digital content caused by the supply of digital content (whether free or paid for) and to compensation will be subject to the fairness test. We discuss the application of the unfair contract terms regime to consumer contracts in Chapter 13.
Where the purchaser buys in the course of business
This covers the case of businesses contracting at arm’s-length, as in co-publishing deals, or contracts with printers, agents or distributors. Here, where the bargaining positions are deemed to be somewhat better balanced (and insurance cover is more likely on both sides), more liabilities may be excluded. Liability for loss or damage (other than death or personal injury caused by negligence) may be excluded, but only if reasonable, and all the Sale of Goods Act implied conditions listed above (except the implied condition of good title) may be excluded, but again only if the relevant clause satisfies the test of reasonableness.
Note that the Unfair Contract Terms Act 1977 does not apply to contracts relating to the creation, transfer or termination of a right or interest in any intellectual property (including copyright). It would therefore not apply to most author–publisher agreements.
NEGLIGENCE AND DUTIES OF CARE
So far, we have considered the remedies which a buyer might have against a seller under a contract of sale. Some will be provided by the terms of the contract itself, and others under implied terms, such as the implied terms of fitness for purpose or satisfactory quality. However, all these remedies depend on the contract of sale between the buyer and the seller. They will not protect anyone who is not a party to that contract. What happens if the defective goods cause loss or damage not to the buyer but to someone else – to the buyer’s family or friends, colleagues at work, or even next-door neighbours? If the seller is not liable under the contract itself, does the manufacturer owe any general duty of care to such people, or to the public at large?
We have seen that, as well as contractual remedies, there may also be remedies in tort, for example for negligent mis-statement (above, p. 225) or for fraudulent or negligent misrepresentation (above, p. 317), where a duty of care can be shown to exist. Duties of care already exist between skilled or professional people such as lawyers and their clients, or between doctor and patient, and breach of such duties could well amount to negligence, but they were not generally regarded as existing between manufacturers and the general public. Not, that is, until 1932 and what is possibly the most famous case in English (and Scottish) law: Donoghue v. Stevenson.
A shop assistant, Miss Donoghue, went with a friend of hers to a cafe in Paisley. The friend (not Miss Donoghue, notice) ordered ice cream for both of them, and ginger beer in a brown bottle. They had the ice cream, and drank half of the ginger beer, but hidden at the bottom of the ginger beer bottle were the decomposing remains of a snail. These remains came floating out with the latter half of the ginger beer at an inappropriate moment and – quite understandably – caused Miss Donoghue severe shock and gastroenteritis.
Miss Donoghue had no action for damages against the cafe proprietor under the contract of sale, because the contract of sale was with her friend, not with her. The House of Lords held that, even so, the manufacturer owed a general duty of care to her as the ultimate consumer of the goods. In the immortal words of Lord Atkin:
The rule that you are to love your neighbour becomes in law – you must not injure your neighbour; and the lawyer’s question, Who is my neighbour? receives a restricted reply. You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour. Who, then, in law is my neighbour? The answer seems to be – persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions which are called in question.
This duty of care is particularly strong when the goods are sold direct to the public in pre-sealed form such as canned or bottled goods – or perhaps today shrink-wrapped books or CDs – which cannot realistically be checked once they have left the manufacturer’s warehouse. As Lord Atkin put it:
A manufacturer of products, which he sells in such a form as to show that he intends them to reach the ultimate consumer in the form in which they left him with no reasonable possibility of intermediate examination, and with the knowledge that the absence of reasonable care in the putting up of the products will result in an injury to the consumer’s life or property, owes a duty to the consumer to take that reasonable care. It is a proposition which I venture to say no-one in Scotland or England who is not a lawyer would for one moment doubt.
In cases since 1932, this duty has been extended to friends, family, guests, borrowers, employees and even bystanders. However, it is up to the person injured to prove that such a duty of care exists, and that – where it does – the manufacturer is negligent in failing to comply with it. In cases involving self-evident defects such as snails in ginger beer bottles, this may be relatively easy particularly now, but in other circumstances negligence on the part of the manufacturer may be harder to prove. It may require evidence of a failure in the production process, a design flaw, or defective instructions for use (where instructions are appropriate) and in many cases such evidence will be hard to obtain.
There may also be some difficulty in establishing negligence where the loss or injury is caused not by manufactured goods but by a statement of advice or assurance, even where the recipient has acted in reliance on that advice and suffered loss as a result: the difficulty will lie in proving that a duty of care already existed, or was assumed. Where a responsibility already exists, for example between professionals and their own clients, this will be fairly clear, and responsibility has been deemed to be assumed in some recent cases, for example involving negligent house surveys. But a business reference (such as a banker’s or employer’s reference) given to a third party, particularly with a disclaimer, might well not create a sufficient duty of care: there might perhaps be a general duty in such circumstances not to be dishonest or not to make statements which are known to be untrue, but otherwise it may be difficult to establish negligence based on a duty of care if the advice or opinion given turns out to be wrong. (On negligent mis-statement generally, see Chapter 8, p. 225.)
For these reasons, some duties of care are now imposed on manufacturers directly by statute. There is also scope for certain enforcement bodies to obtain injunctions against traders who fail to carry out a service with reasonable care and skill (for further comment on this, see p. 328).
LIABILITY FOR DEFECTIVE GOODS
In one particular respect – that of product safety – the liability of producers and manufacturers for their products has increased dramatically in the UK and throughout Europe since the mid-1980s. Following the EC Directive on Product Liability of 1985, the UK passed the Consumer Protection Act 1987, which now imposes on producers and others considerably stricter liability for damage or injury caused by defective goods, without any need for the consumer to establish liability under a contract of sale, or to prove negligence or any other fault. Such strict liability is, of course, chiefly designed to cover those consumer goods with the greatest inherent dangers, such as cars, electrical goods, and – because of the risks to children – toys, but could equally well apply to software containing a virus, or even defective ink or paper if they were proved to have some harmful chemical side-effect.
Those liable under the Act include:
• producers of products (or extractors or refiners of natural products such as natural gas or oil);
• those who import products into the European Union; or
• those who sell goods under their own brand name (such as supermarkets).
Suppliers may also be liable as well as producers where they have supplied the defective goods to the producer (perhaps in the form of defective components) or to the final consumer (such as a retailer, if the producer is not readily identifiable).
What is ‘defective’? A product is defective under section 3(1) of the 1987 Act:
if the safety of the product is not such as persons generally are entitled to expect.
‘Safety’ includes not only the physical safety of the consumer, but also covers any damage to property, although not loss of or damage to the defective product itself – if software causes damage to your data (for example corrupts your hard drive), you may claim for the loss of your computer, but not for the cost of the software itself.
Under section 5 of the 1987 Act, ‘damage’ means death or personal injury or loss of or damage to any property (including land). However, there is no liability imposed in the case of loss or damage to property that is not ordinarily intended for private use and occupation. Note also that no damages will be awarded if the value of loss or damage (to property) would not exceed £275. Section 4 provides a number of defences. The strict liability under the Act may be avoided if:
• the defect was caused by compliance with any statutory or EU requirement;
• the defendant was not the actual supplier;
• the defective product was supplied privately and not for profit (for example, at a private dinner);
• the defect was not present when the product was supplied; or
• the state of scientific and technical knowledge at the time would not have enabled the producer to discover the defect.
In addition to these defences a producer of a defective product may also plead ‘contributory negligence’ on the part of the consumer – in other words, that the consumer’s own negligence in using the product was at least partly to blame for the damage caused or injury suffered, and the damages awarded may be reduced accordingly.
SUPPLYING UNSAFE CONSUMER GOODS
As well as imposing strict liability for defective products on producers, the Consumer Protection Act 1987 (in Part II of the Act as amended by the General Product Safety Regulations 2005 which came into force on 1 October 2005) also imposes criminal liability on suppliers of consumer goods which are not safe. It is an offence, punishable by fine or imprisonment, to supply, offer or agree to supply, or expose or possess for supply, any consumer goods which are not reasonably safe (having regard to all the circumstances). ‘Reasonably safe’ means that there must either be no risk of death or personal injury, or at most a risk ‘reduced to a minimum’. The Secretary of State may make safety regulations and issue notices covering specific goods from time to time. It is extremely unlikely that these would affect publications such as books and periodicals, which in themselves are unlikely to be unsafe, although they might become unsafe if, for example, they were sold to children with accompanying toys, games or other free gifts. It is also quite conceivable that an educational software product might contain unsafe items, particularly if aimed at young children.
Innocent retailers have a defence where they were unaware that particular goods were unsafe, or can establish that they took reasonable precautions and acted with due diligence (for example, by conducting random safety checks).
THE USE OF INJUNCTIONS FOR THE PROTECTION OF CONSUMERS’ INTERESTS
Over more recent years, developments in consumer law have added to the weaponry available to the Office of Fair Trading (OFT), now the Competition and Markets Authority (CMA) and other enforcement agencies. Trading standards authorities, ‘sectoral’ regulators and other ‘designated enforcement bodies’ (which we will refer to collectively as ‘Enforcers’) can apply to the court for orders to stop traders that they consider to be infringing the consumer protection legislation and where such infringements harm the ‘collective interests of consumers’. The orders are known as ‘Stop Now Orders’.
In addition to being available in the case of an infringement of the consumer protection legislation, Enforcers can also obtain Stop Now Orders against traders who fail to run their businesses (in relation to consumers) with reasonable care and skill.
The 2002 Act provides for three types of Enforcers:
• General Enforcers: essentially, the CMA and trading standards officers;
• Designated Enforcers: public or private bodies which are empowered by the Secretary of State by way of Statutory Instrument. The following bodies have been designated:
– The Civil Aviation Authority
– The Director General of Electricity supply for Northern Ireland
– The Director General of Gas for Northern Ireland
– OFCOM
– The Director General of Water Services Regulation Authority
– The Gas and Electricity Markets Authority
– The Information Commissioner
– The Office of Rail Regulation
– The Financial Services Authority
– Which? (The Consumers’ Association)
• Community Enforcers: entities from other European Economic Area (EEA) States that are published in the EU Official Journal.
A breach of a Stop Now Order would be a contempt of court and punishable by fine and/or imprisonment.
SUMMARY CHECKLIST: CONSUMER PROTECTION
• Does a duty of care exist?
• If so, does breach of that duty amount to negligence?
• Might the goods be defective goods?
• Is their safety such as the public is entitled to expect?
• Have unsafe consumer goods been supplied?
• Do any of the available defences apply?
Distance selling (like distance learning) is less exotic than the name implies: it simply means contracts negotiated at a distance (rather than face to face), and includes Internet and mail order sales (whether or not based on direct mail campaigns or telephone ‘cold calling’). As online shopping took off, the European Commission recognised the need for increased consumer protection within the EU and enacted the EU Distance Selling Directive 1997. This was, in turn, replaced by the Consumer Rights Directive in 2011.
THE UK CONSUMER CONTRACTS (INFORMATION, CANCELLATION AND ADDITIONAL CHARGES) REGULATIONS 2013
The Distance Selling Directive was implemented into UK law by the Consumer Protection (Distance Selling) Regulations 2000 (as subsequently amended) which continue to apply to contracts concluded prior to 13 June 2014. The 2000 Regulations have, however, now been replaced by the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (the Consumer Contracts Regulations) which implement the majority of the Consumer Rights Directive and which apply to contracts concluded on or after 13 June 2014. The Consumer Contracts Regulations cover business to consumer contracts for goods, services and digital content (which is treated as a separate category of content for the first time). In addition to covering distance contracts, they also set out pre-contractual information requirements for on-premises and off-premises contracts and cancellation rights for off-premises contracts as well as dealing with refunds.
Broadly, a distance contract is one concluded between a trader and consumer without them being in each other’s physical presence under an organized distance sales or service-provision scheme and using distance communication (e.g. Internet or telephone). An off-premises contract is one which is concluded face to face but not at the trader’s main place of business (even where the negotiations took place face to face). An on-premises contract is defined as being a trader consumer contract which is neither off-premises nor distance. Effectively, this means the type of contract concluded in a shop or at the trader’s main place of business.
Key features for distance contracts
In relation to distance contracts, the Consumer Contracts Regulations apply to any trader who sells goods, digital content or services to consumers (subject to limited exceptions):
In summary, the key features of the Regulations are:
• the consumer must be given (in good time before the conclusion of the contract) clear information about the goods, digital content or services offered and the terms on which they are being supplied;
• the consumer must be sent a confirmation by the supplier after making a purchase (in a way appropriate to the means of distance communication used). If a cancellation right exists, a cancellation form must also be supplied in a prescribed form (this can be via a link);
• where a distance contract is concluded by electronic means, additional information must be given immediately before the order is placed and the trader must ensure the consumer explicitly acknowledges any obligation to pay (for example, by clicking on a button labelled ‘pay now’);
• the consumer has a 14-day cooling off period during which they can cancel the contract (but this can extend by an additional 12 months where the consumer is not properly informed of the right of cancellation).
As referred to in Chapter 13, any pre-contractual information which must be supplied under the Consumer Contracts Regulations will become a term of the contract under the CRA;
The information that the consumer must be given includes:
• the identity and address (if payment is made in advance) of the supplier and his commercial purpose;
• a clear description of what is being supplied;
• the price of the goods, digital content or services (including taxes) and delivery costs (where appropriate);
• information on the arrangement for payment, delivery or performance;
• the existence of any right of cancellation together with a cancellation form in a prescribed format (which can be provided via a link);
Where a distance contract is made by electronic means, additional information is required (as mentioned above).
In the case of telephone communication, the identity of the supplier and the commercial purpose must be made clear at the start of the conversation with the consumer.
It should be noted that pre-contractual information requirements now also apply to certain on-premises contracts (so in shops although day-to-day transactions performed immediately at the time the contract is entered into are exempt); and also to off-premises contracts provided the payment from the consumer is over £42.
Consumer’s right to cancel
The Consumer Contracts Regulations provide a 14-day ‘cooling off period’ in relation to the supply of goods, services and digital content supplied under off-premises or distance contracts. This can be extended by an additional 12 months if the trader has not given valid notification of the consumer’s cancellation rights. Notice of cancellation can be given using the model cancellation form or by making any clear statement of cancellation.
Unless the parties agree otherwise, the consumer does not have a right to cancel in respect of certain contracts, including:
• for the supply of newspapers, periodicals or magazines (other than by subscription);
• for gambling contracts within the meaning of the Gambling Act 20015;
• for the supply of audio or video recordings or computer software if they are unsealed by the consumer;
• personalised or bespoke goods.
Once the contract is cancelled, it is treated as if it has not been made and the supplier must (as soon as possible and in any event within 30 days) reimburse any sums paid by the consumer under that contract (including delivery charges).
This ‘no questions asked’ cancellation right can cause problems for publishers when supplying goods or digital content. It is quite possible to order a book online, read it and return it within the cooling off period. This is not a new risk but the consumer potentially has a longer period to do this in now. The Consumer Contracts Regulations do introduce some comfort for the trader by allowing the trader to make a reduction in any refund due on goods which have been handled beyond what is necessary to establish the characteristics and functioning of the goods (taken to mean beyond what you might reasonably do with the goods in a shop before you decide to buy). If, therefore, a trader sells a travel guide to Thailand which is returned in pristine condition within the cancellation period, a full refund will have to be given. If it is sent back with grains of sand in it and pages bent back, the trader will probably be able to argue that no refund is due although it may have to take into account any secondhand value of the book.
Where the trader supplies digital content, there are other considerations in respect of the cooling off period. One of the advantages of digital content is the immediacy of supply; consumers can click, pay and download. The Consumer Contracts Regulations state that digital content on a non-tangible medium must not be supplied before the end of the cancellation period unless the consumer has given express consent and acknowledged that they will lose their cancellation right (similar provisions also apply with respect to services). If this consent and acknowledgment is not obtained, the consumer is not required to pay for the content. If it is obtained, the cancellation period is terminated once the supply of the digital content has begun. In addition, the trader must provide the necessary confirmation of the contract within a reasonable time. This means that suppliers of digital content must build in appropriate wording, preferably immediately before payment is taken and ensure confirmation is sent properly.
OTHER INFORMATION REQUIREMENTS ON ONLINE TRADERS DEALING WITH EU CONSUMERS
Where a website is used to conclude online contracts by electronic means with consumers, Regulations 9(1) and (2) of the E-Commerce Regulations 2002 require the following information to be provided to the potential customer in a clear, comprehensible and unambiguous manner prior to the placement of the customer’s order:
• a description of the different technical steps the customer must follow to conclude the contract (so that the customer is made aware of the process in which they are involved and the point of the process at which they will commit themselves);
• confirmation of whether or not any contract concluded between the service provider and the customer will be filed by the service provider and, if so, whether it will be accessible by the customer;
• a description of the technical means by which the customer can identify and correct input errors before s/he places an order;
• the language(s) offered for the conclusion of the online contract; and
• if the service provider subscribes to any code(s) of conduct they must say so and tell the customer how the customer can consult such code(s) electronically.
Regulation 9(3) of the E-Commerce Regulations requires that where terms and conditions applicable to the contract are provided to the customer, the customer must be allowed to store and reproduce them, preferably by giving the customer the ability to download and print electronic copies.
Regulation 11(3) of the E-Commerce Regulations requires that where a customer places an order through a website:
• an electronic acknowledgement of receipt of the order should be given without undue delay; and
• the customer must be given appropriate, effective and accessible technical means to identify and correct input errors before placing the order.
Non-compliance with the E-Commerce Regulations could have serious implications for a business. In particular:
• failure to comply with the disclosure requirements may provide customers with a cause of action in damages for breach of statutory duty (regulation 13 of the E-Commerce Regulations);
• failure to give a consumer the means to identify and correct input errors entitles the consumer to rescind the contract. This right to rescind is in addition to any right to cancel that the consumer may have under the Consumer Contracts Regulations and is wider as it is not limited in time (Regulation 15 of the E-Commerce Regulations);
• failure to provide applicable terms and conditions that have been requested by the customer will give the customer a right to seek a court order requiring the service provider to make these available (Regulation 14 of the E-Commerce Regulations).
In addition to requirements under the E-Commerce Regulations, there are also requirements to give information about the availability of Alternative Dispute Resolution (under certain circumstances) under the ADR Regulations 2015 as amended, and, if you are an outline trader or marketplace, about the EC Online Dispute Resolution platform. There are also company law requirements around contact details and other information which must be provided about the company behind the website.