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The Draft Regulations to Adopt the Directive on Certain Aspects of the Sale of Consumer Goods and Associated Guarantees- Problems of the Time of Conformity for the Quality Obligation
Martin Morgan Taylor, LL.B, LL.M.,
Senior Lecturer in Law, School of Law, De Montfort
University.
André Naidoo, LL.B., LL.M.,
Lecturer in Law. School of Law, De Montfort University.
© Copyright 2002 Martin Morgan Taylor and André Naidoo.
First published in Web Journal of Current Legal Issues
Summary
Following the draft Regulations implementing the Consumer Sales Directive, this paper raises issues concerning the time of conformity of the quality obligation. This time of conformity is significant when a seller delivers goods to the consumer buyer using a third party carrier and the goods arrive damaged. Who should bear the loss? It is submitted that the seller’s strict liability on the quality obligation should extend to the point of physical delivery to the buyer. An examination of the current approach under the existing SoGA highlights a failure to satisfy consumer expectations. The draft Regulations are rather confused on the point and may maintain this approach and in doing so, will be contrary to the logical interpretation of the Directive. On this basis the final Regulations must be clarified on this issue and changed to encompass the Directive and consumer expectations.
Contents
- 1. Introduction
2. Consumer Expectations
3. The Time for Quality Conformity Under the Sale of Goods Act - The Sale of Goods Act and Consumer Expectations
- 4. The Time for Quality Conformity Under the Directive
- What is the meaning of ‘delivery’?
- 5. The Time of Conformity under the Draft Regs.
- The Retrogressive Effect of the Proposed Section
48A
Actual or Constructive Delivery? - 6. Using the Directive to Displace the Rule in
Section 20 of the Sale of Goods Act 1979
7. Harmonisation From the Unfair Terms in Consumer Contracts Regulations 1999.
8. Summary and Conclusion
Bibliography
1. Introduction
This paper is concerned with the issue of the strict liability of the commercial
seller who conveys goods to the consumer using a third party carrier and the
goods arrive damaged. The extent of this liability turns on the time at which
the seller’s quality obligation ends, in other words the time at which
the conformity of the goods with the contract is judged. This issue is now
topical in the light of a recent EC Directive, and its impact on the domestic
Sale of Goods Act.
The Directive on Certain Aspects on the Sale of Consumer Goods and Associated
Guarantees, (99/44, O.J. L171/12, hereinafter ‘the Directive’)
was adopted pursuant to Article 95 of the EC Treaty, which refers to the completion
of the internal market, and Article 153, which refers to consumer protection.
In theory, cross border sales would be encouraged by a set of uniform minimum
rules on the sale of consumer goods. This is achieved by the elimination of
some competition distorting disparities coupled with the enhanced consumer
confidence from the guaranteed protection. (The consumer confidence objective
is emphasised in Recital 5 of the Directive). Under Article 2 of the Directive,
the seller must meet a minimum quality obligation in relation to the goods
sold. This paper is concerned with the time at which goods must conform with
this obligation. The Directive is shortly to be implemented in the U.K.
Draft Regulations(1) were published by the DTI in 2002 and are currently the subject of a second consultation. The chosen method of implementation is by regulations that amend the SoGA to incorporate the requirements of the Directive. In theory this approach would avoid the confusion that may arise from the adoption of a dual regime like that governing the use of exemption clauses. However, implementation by amending the SoGA can be the source of as much confusion as a dual regime. The requirements and paternalistic flavour of the Directive must be placed within the SoGA framework with extreme care. It seems that such care has been overlooked with regard to the timing of the quality obligation in the Regulations. This paper evaluates the adequacy of the draft Regulations on this issue, following consideration of consumer expectations, the approaches of the SoGA and the Directive.
2. Consumer Expectations
When goods are purchased and are to be delivered to the consumer’s
home, the consumer will expect a degree of convenience and certainty as to
their rights and liabilities. This should be taken to mean that the seller
will be strictly liable (under s 14 SoGA), for any damage that occurs up to
the time that the goods arrive with the consumer. The consumer will seek to
rely on the seller’s business skill and judgement to convey goods to
him in a satisfactory condition. Central to this reliance is the fact that
the seller, as a business, should be in a far more knowledgeable position
to arrange carriage. With a view to this distribution of knowledge, the consumer
may not intend to contract on terms where they would be liable for any damage
before physical receipt. Where the seller’s quality obligation extends
to the time of actual, physical delivery, this expectation is clearly satisfied.
However, the alternative approach is where the time at which conformity
is judged is taken to be the time of delivery to a third party carrier (constructive
delivery) so that from that the seller’s obligation would be satisfied
at that point. What happens in these circumstances if the goods arrive damaged?
If the seller will not accept responsibility for the damage, the first question
to burden the consumer is whether the damage occurred before or after the
seller’s obligations had been met, which may not be a simple matter.
If the consumer cannot show where the damage took place he will fail to prove
his case either way. If the damage occurred after delivery to the carrier,
then the only action would be against a potentially unknown third party as
a negligent bailee. Thus, even where it is obvious that damage had occurred
in transit, there will be no liability if the damage was accidental and non-negligent.
Clearly in a sale without dispatch, or a sale where the goods are dispatched
but by the seller himself, the strict liability remedy will exist if the goods
are not in conformity. But this does not exist if the goods are conveyed by
third party carrier, an issue that is contrary to consumer certainty.
It is quite clear that an action for negligence is far more dangerous and
risky than the strict liability of the quality obligation (s 14 SoGA). The
stumbling block under negligence is likely to be causation, for the crucial
issue is once more where the damage actually took place. This then begs the
question as to whether the carrier would issue part 20 proceedings against
the seller, or whether the consumer must issue negligence proceedings against
both potential culprits. Household economics may discourage the consumer from
pursuing such a risky court action, leaving actions to be pursued for substantial
sums only. So consumers who have suffered relatively small amounts of loss
will usually be the ones who go uncompensated.
The obvious solution to all of these consumer problems is to define the
time of conformity to be actual delivery, so that the goods must conform on
arrival and only then is the seller’s obligation discharged. The section
below addresses the approach of the current SoGA.
3. The Time for Quality Conformity Under the Sale of Goods Act
It will now be shown that the existing SoGA defines the time of conformity
for the purposes of the seller’s quality obligation as the time of constructive
delivery. SoGA, s 14 (2) states ‘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’.
The SoGA does not expressly state the time at which the conformity of goods
to the contract is to be judged and so a closer analysis of the SoGA is necessary.
Reynolds has given an overview of the law by stating ‘that the goods
must be of the quality requisite under s 14 at the time of the passing of
property, or, where property and risk are separated, at the time of the passage
of risk’ (Benjamin, 1997, 11-062). This is perfectly logical, but it
must be read with the default rule on the passage of risk in s 20 (1) (SoGA)
where risk should pass with property:
unless otherwise agreed, the goods remain at the seller’s risk until the property in them is transferred to the buyer, but when the property in them is transferred to the buyer the goods are at the buyer’s risk whether delivery has been made or not.
This means that the time of conformity is the time that risk passes. Reynolds
addresses the time that ‘property’ passes because when the s 20
default rule operates, risk passes when property passes. Where the default
rule is displaced by contrary intention, risk passes independently of property.
Clearly, in both circumstances, it is the time that risk passes that is significant.
This raises two important questions with respect to the time of conformity.
Firstly, if the default rule stands, then when does property (and therefore
risk) pass? Secondly, is there a contrary intention for consumers to depart
from the default rule that property and risk pass together under s 20 (1),
and if so how?
The first question addresses the nature of the delivery obligation, and
when it is met (ie on actual or constructive delivery). The least problematic
answer to this first question is in relation to specific goods. The situation
concerning an unconditional contract for the sale of specific goods that are
in a deliverable state is quite easy, s 18 r1 (SoGA) states that property
passes to the buyer when the contract is made. However, it is common practice
under s 17 (SoGA) that the passage of property and risk takes place at a later
time, such as deferred payment: see Ward (RV) Ltd v Bignall
[1967] 1 QB 534. This would mean that in contracts where the buyer has not
collected the goods, the seller will remain liable as a bailee for any negligently
caused damage. However, this would then involve the meeting of the difficult
criteria involved in a negligence action. But distance-selling contracts usually
involve pre-paid unascertained goods for which the SoGA has other provisions.
Here property, and using the prima facie presumption, the risk of loss, damage
or deterioration, will pass in unascertained goods once the goods have been
unconditionally appropriated to the contract. This means that goods conforming
to the substance of the contract must be put over to the contract with the
buyer’s assent in such a way that the seller has lost control of the
goods. The Act deals specifically with the situation where the goods are dispatched
by a third party carrier:
Where in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee or custodier (whether named by the buyer or not) for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is to be taken to have unconditionally appropriated the goods to the contract. (s 18 r 5(2) SoGA) .
It must be noted that there is no point in a seller reserving the right
of disposal in pre-paid goods. The result is that in most cases where consumers
order goods from a distant seller and pays in advance, the goods are appropriated
to the contract when delivered to the carrier. In other words, the time for
judging conformity is that of constructive delivery and not actual delivery.
This logic is seen (albeit obiter) in the case of Carlos Federspiel
v. Twigg, [1957] 1 Lloyd’s Rep 240. It must be noted that in
this case the goods in question were sold on FOB terms, so that the property
and risk would not pass until they had crossed the ship’s rail. The
issue in the case was a consignment of custom-made push-bikes which was sold
F.O.B. and which the buyer had paid for in full prior to shipment. The seller
had packed up a number of push-bikes to meet the contract and indeed had placed
the buyer’s details on the crates. However, the seller went into liquidation
before the goods were shipped, and as a result of the use of the FOB term
the goods were held not to have been unconditionally appropriated to the contract
as they had not been irrevocably put over to the contract.
It would appear that mail-order goods are irrevocably appropriated to the
contract when they have been sent by the seller to the carrier, or posted
(Badische Anilin und Soda Fabrik v. Basle Chemical Works, Bindschedler
[1898] AC 200. This provision is rooted in the assumption that the buyer has
assented to the unconditional appropriation of the goods. Once, in the hands
of the third party carrier the seller has lost control of the goods and so
the seller’s creditors are unable to withdraw the goods from the sale
in the event of insolvency (although the seller may be able to exercise a
stoppage in transit if the goods are not paid for:s 44 SoGA). Moreover, the
seller is then absolved from responsibility for any damage that is sustained
whilst the goods are in the hands of another business.
From a reading of the SoGA and its associated case-law, the time of conformity
therefore seems to be that of constructive delivery.
The Sale of Goods Act and Consumer Expectations
Clearly the assumptions above make excellent sense in purely commercial
transactions. Indeed the law appears historically to have been developed for
the benefit of the law merchant and commercial expectations. However, for
the reasons given below, the SoGA approach is in conflict with the late twentieth
century doctrine of consumer welfarism, and social contract law from the EC.
(For an analysis of consumer welfarism, see in particular, Brownsword, 1994).
Clearly the commercial buyer will know that ‘a’ carrier will
be used. It would seem logical to place the risk of loss in transit upon such
a buyer, as the carriage here is a matter of convenience for the buyer, who
should be capable of arranging its own carriage. But the consumer is unlikely
to be able to arrange an alternative, and must instead rely on the seller’s
experience. Moreover, it makes good business sense in international sales,
to have a universal time for the passage of risk, ie constructive delivery
(once the goods cross the ship’s rail, New Zealand v. Adelaide
Maine Insurance (1886) 12 App Cas 128). This provides a degree of certainty
and is supported by the operation of insurance. Insurance can be arranged
by the seller, on behalf of the buyer (Waters v Monarch Fire and
Life Assurance Co (1856) 5 E&B 870) and the seller is under an obligation
to arrange insurance under a CIF contract,. whilst in FOB sales the buyer
himself has the obligation to insure. In each case, therefore, the goods are
covered by insurance whilst in transit. The same business acumen for insurance
considerations is equally applicable to commercial sales on a domestic level.
However, is such insurance a realistic solution for the consumer purchaser?
It must be emphasised that insurance simply results in the inconvenience of
the buyer pursuing a claim, rather than the preferred directness of strict
liability against a known party, the seller.
Overall, these factors act as a significant disincentive for consumers
to buy goods that require dispatch. Therefore, the purchaser might as well
buy the goods elsewhere, where the goods may be collected. This clearly restricts
the realistic market open to the consumer, the very antithesis of the intention
of the Directive and E.C. harmonisation.
The problems posed by constructive delivery have been addressed by the
Ontario Law Reform Commission who suggested that the passage of risk in consumer
sales ought to occur on actual delivery (p 266). Indeed, they recommended
the adoption of the U.S. Uniform Commercial Code (2-509) with some amendments,
to give effect to the expectations of consumer purchasers of shipped goods.
The Commission recommended that risk should not pass until the goods had been
actually delivered. The Commission took the view that their law ought to be
changed to adopt the modern approach, ‘Risk of loss should pass to the
buyer, not as at present, when title to the goods is transferred, but, rather,
when the goods are delivered to the buyer’ (The Law Reform Commission
p 280).
In other words, the Commission favoured the departure from the default
rule of property and risk for consumers. Similarly, the only realistic option
to satisfy consumer expectations under the SoGA would be to split property
and risk for consumer transactions. Thus, the property passes with unconditional
appropriation, but risk does not pass until actual delivery of the goods.
But does this unfairly prejudice the seller? It is proposed that it does not,
for the seller should know that its liabilities would extend to actual delivery
and should have the knowledge to extend its existing insurance accordingly.
Could the cost of the seller’s insurance be passed on to the consumer
through an increase in price? It could be argued that insurance would be shared
equally amongst all purchasers and its cost could thus be diluted across the
whole market (On the wider aspects of the impact of insurance costs on business,
see Cane, 1999, p 203-205). Alternatively, the insurance premium of sellers
who have a higher degree of claims for damaged goods could push up their retail
price and thus price themselves out of the market. It is therefore a salutary
incentive to ensure that the goods are actually delivered to the buyer in
satisfactory condition. This could be a more effective, or at least a contributory
incentive when taken with ‘word of mouth’ bad publicity from disgruntled
consumers.
It is clear that consumer expectations are not satisfied with respect to
the issue of the time of conformity under the existing SoGA regime. If the
draft Regulations do not expressly address the issue, then this traditional
SoGA approach will remain. However, it must be determined if there is an obligation
to give effect to such expectations in the Directive.
4. The Time for Quality Conformity Under the Directive
In broad terms the Directive is based rather heavily on the Contracts for
the International Sale of Goods 1980 (CISG) (see Kruisinga, 2001). Both the
CISG and the Directive use the concept of conformity and they have very similar
remedies. It must however, be noted that the CISG is only for commercial transactions,
and its use is prohibited from consumer sales (CISG Art. 2(a). As a result
of this, caution should be exercised to avoid over-reliance on the CISG when
interpreting the Directive.
The conformity obligation in the Directive (Article 2) is rather prescriptive,
although it does give rise to a number of issues (Oughton & Willett, 2002).
However, the precise timing for the operation of this conformity obligation
is not so clear. The Directive states that ‘the seller must deliver
goods to the consumer which are in conformity with the contract’ (Article
2 (1) of the Directive). It appears that the time for conformity is embedded
within the perceived meaning of ‘deliver.’ However this term is
undefined, and so a textual uncertainty arises. Should it have a meaning?
If so, does it mean ‘actual delivery’ or ‘constructive delivery’?
The former is preferred and is the approach that favours the consumer.
The Directive can be contrasted with the approach adopted by the CISG,
chapter iv of which deals with the passage of risk and therefore the time
of conformity. Within this chapter, articles 67(1) and 69(1) refer to the
‘handing over’ or ‘taking over’ of goods.
It is very clear that the CISG intends risk to pass at the time of constructive
delivery to a third party carrier:
If the contract of sale involves carriage of the goods and the seller is not bound to hand them over at a particular place, the risk passes to the buyer when the goods are handed over to the first carrier for transmission to the buyer in accordance with the contract of sale’. (CISG Art 67).
It is accepted that such an approach is desirable for international trade,
due to insurance issues and the international business-based equality of bargaining
power (for the reasons suggested above). It would therefore be surprising
if the CISG rule was mirrored in the Directive. However the point here is
that the CISG was prescriptive on the issue, whereas the Directive has not
expressly dealt with the matter.
One explanation for this can be found by turning to the early legislative
stage of the Directive. It seems that it was suggested in the European Parliament
that the time should be ‘actual delivery’ (see Staudenmayer, 2000,
p553). However this was rejected on the basis that being so prescriptive would
be an extremely difficult task in view of variations of the rules on the passing
of risk between the member states (Staudenmayer, 2000 p553). As a result,
the European Parliament left the meaning of ‘delivery’ open and
this intention is reflected in Recital 14 of the Directive which states that
‘Whereas the references to the time of delivery do not imply that
Member States have to change their rules on the passing of risk’ (Staudenmayer,
2000, p554).
So the immediate question is why would the harmonisation of the time of
conformity in consumer sales be so complex if it was resolved for the purpose
of international sales law under the CISG? The answer must lie in the nature
of the transaction. The principles underlying the CISG and its rule on the
time of conformity and risk, had for many years been settled in international
trade, at least for common form contracts. Thus the principles of law being
used on the point, were those of the trade usage, therefore nothing new or
unusual. However, the same cannot be said for the domestic sales law of member
states where there is a lack of consistency over the operation and value of
the concept of risk and the time of conformity. Arguably sellers operating
on a national or local level may find such a defined regime of rules rather
difficult to assimilate, thus adding extra weight to the heavy burden on the
national authorities in transcribing their implementation measures.
In view of the above, it seems that the absence of an express definition
of ‘delivery’ in the Directive may be justified. However, it would
be too narrow an approach to assume that the time of conformity issue is beyond
the scope of the Directive and that member states are absolutely free to adopt
their own definitions. It simply means that no uniform rule on ‘risk’
could be prescribed. Courts called upon to interpret the Directive would do
so within the framework of its text and its broader policy objectives, not
necessarily the debate in the European Parliament (Plender, 1982). Even if
it was accepted that no strict mandatory definition was intended, the broader
context of the Directive ought to compel member states to maintain a particular
standard. It must be emphasised that the time of conformity is an integral
element of the operation of the conformity obligation that is rooted in the
core of the Directive. Consequently, the timing issue cannot be side-stepped.
What is the meaning of ‘delivery’?
‘Delivery’ must be given a meaning consistent with the elements
expressly regulated by the Directive, a meaning consistent with both consumer
expectations and the policy objectives of the Directive. ‘Delivery’
in the Directive should be taken to mean actual delivery, and this is certainly
the approach favoured by other commentators (Bradgate & Twigg-Flesner,
2000). Recital 14 does not preclude this interpretation; its wording is not
absolute, it just means that member states are not under an obligation to
change their rules on risk to satisfy the Directive. The ECJ may eventually
resolve the matter by devising a consumer orientated, autonomous definition
of ‘delivery’. In the meantime, to assist and further influence
the assessment of the time of conformity in the Directive reference can be
made to the approach in other jurisdictions.
French law treats commercial cases using the principle res perit domino
in transportation. Thus where goods are in transit the goods travel at the
risk of the owner (L. 132-7 Code of Commerce). This means that goods will
travel at the risk of the buyer. However, the French courts have found a contractual
term along the lines of that laid out above to be unfair in a consumer transaction
and shifted the risk of transportation to the seller (Cass Civ. I, 3.05. 1979,
note by Ghestin therein).
As part of the implementation of the Directive, the time of conformity
in German law has recently been changed. The rule in s 447 BGB that the risk
passes at the time the goods are handed over to the third party carrier no
longer applies. Instead risk passes at the time of actual delivery. This is
by virtue of S 474 subs 2 BGB, which states that the general rule in s 446
BGB applies in consumer transactions, i.e. actual delivery. Further, S 474
subs 2 BGB is made mandatory by s 475 subs 1 BGB.
Sweden already employs this standard of actual delivery under its Consumer
Purchases Act (Sw:konsumentköplagen 1990:932). Under this legislation,
the consumer assumes the risk from the time the goods are actually delivered.
§§ 6 and 8 of the Act says that the risk of loss of the purchased
goods is transferred to the customer when they are in his possession, i.e.
when the carrier has delivered the goods to the customer.
According to the European Sales Law Project at Utrecht University, the
approach of risk passing upon the actual delivery of the goods is recommended
for consumer transactions in all Member States (per John Dickie at ‘Regulating
Product Quality’ conference, Nottingham Trent University, 2001).
Overall, although the Directive provides no express definition of ‘delivery’
it should not be regarded as being silent on the time of conformity issue.
Such an issue is an integral part of the operation of the overall conformity
obligation that the Directive seeks to harmonise. As a result, member states
should, and indeed have started to adopt an approach consistent with the broad
objectives of the Directive. The time of conformity should be taken to mean
actual delivery. This accords with the views cited and the approach of other
jurisdictions that give effect to the expectations of consumers.
5. The Time of Conformity Under the Draft Regulations
The First Consultation of the DTI (DTI 2001) made no reference to the issue
of the time of conformity. It simply addressed the quality obligation in rather
broad terms, with the remedies and implementation options. The second consultation
document containing the Draft Regulations again discussed the quality obligation,
and in particular issues such as advertising statements, but disappointingly,
no question was addressed concerning the time of conformity. So in the absence
of any previous open and transparent analysis or debate on this important
issue, it is a surprise to notice a provision within the Regulations (s.48A,
proposed change to the SoGA), that appears to address the time of conformity.
The Retrogressive Effect of the Proposed Section 48A
Draft regulation 3(7) proposes to insert a new Part 5A (sections 48A –
48D) into the SoGA to give effect to the new remedial scheme for consumer
buyers derived from the Directive. However the introductory s 48A (1) (b)
states that the section (and therefore the remedies) apply where ‘the
goods do not at the time when the property in the goods is transferred to
the buyer conform to the contract.’ So in order for the remedies
from the Directive to apply, the goods must not conform at the time when property
passes. Further s 48A (5) which incorporates the six month reversed burden
of proof, states:
It shall be presumed for the purposes of sub-section (1)( b) above that, unless the contrary is established, the goods which do not conform to the contract of sale at any time within the period of six months starting with the date on which property in the goods in question was transferred to the buyer did not so conform at that date.
So what is the operational effect of these proposed sub-sections? The time
of conformity is the time property passes, which is on delivery to the third
party carrier (see earlier). The impact is softened to a limited extent by
the presumption that any non-conformity within the six months of the property
passing existed at the time that property passed. However, the duration of
the seller’s overall obligation remains. The seller must simply ensure
that the goods conformed on delivery to the carrier, and that this can be
evidenced to rebut the presumption.
Moving beyond the immediate operation of s 48A (1) and (5), the provision
must be viewed within the complex existing SoGA framework. In terms of legislative
structure, it seems that this attempt to prescribe a time of conformity has
been regarded as relating to the extent of the rights of consumers rather
than the seller’s obligation, as the latter would be placed in s 14
or from ss16-20. Perhaps the selected location, under the heading of additional
consumer remedies is intended to eliminate any confusion as to the application
of the implemented remedies. So, although no such time of conformity provision
existed in the SoGA, the inclusion of one must be welcomed. However, the inclusion
of this particular one is extremely problematic and must be reconsidered by
the DTI.
The obvious problem with the time of conformity in the draft Regulations
is the reference to the time of ‘property’ passing. Such a requirement
is not from the Directive; nor is it a reflection of the current SoGA approach.
Under the existing SoGA, the time of conformity is the time risk passes (see
earlier). Of course, under the current s 20 risk prima facie passes with property.
However by definition this is only a presumption that can be displaced and
it has been argued above that this should indeed be deemed to be rebutted
in consumer sales. The wording in the Regulations serves to link the time
of conformity directly with the concept of property but only where the s.48
additional remedies apply. Does this mean that for a traditional remedy under
the SoGA for non-conformity, the time for conformity remains linked with risk?
This creates the absurdity that the concept used for the time of conformity,
will only be known after the contract, once the appropriate remedy has been
selected.
With the reference to ‘property’ in the proposed section, what
is the significance of risk? It is a conceptual inconsistency under the existing
SoGA to have risk independent of responsibility for non-conformity. The proposal
is retrogressive and serves to undermine the conceptual framework of the SoGA.
The result will be the obfuscation of the current approach to sales law, a
prospect that is worse than a failure to change the current position. Perhaps
in the absence of any reference to this provision in any DTI consultation
documents to justify and explain the change, the logical conclusion would
be that the wording is a result of an error, following an attempt to preserve
the current SoGA approach.
What is certain is that whether the DTI intends to maintain the traditional
SoGA mechanism, or adopt the actual delivery approach, the wording of the
proposed ss 48A (1) and (5) must be corrected to be assimilated within the
existing SoGA framework. The reference to ‘property’ must be substituted
with ‘risk’.
Actual or Constructive Delivery?
If the DTI approached the Directive with a narrow and formalistic construction
of its provisions and intended to maintain the current SoGA approach, it seems
it would have to do a lot more. It has been stated that risk is prima facie
linked with the transfer of property, and issues such as unconditional appropriation
and ascertainment are not only rather complex, but also rely on case law in
addition to the rules in s 18 (SoGA), dealt with earlier. The implemented
provisions of a directive must be sufficiently clear and precise for individuals
to be fully aware of their rights. Further recent case law from the ECJ suggests
that seeking to satisfy the requirements of a directive with reliance on pre-existing
domestic case law lacks the ‘clarity and precision needed to meet the
requirement of legal certainty’ (Commission of the European Communities
v. Kingdom of the Netherlands, Case C-144/99, 10/05/01, para 23.; Commission
of the European Communities v. Italian Republic, C-372/99, 24/01/02).
Of course under the Directive there is no express requirement to define ‘delivery’
or the time of conformity. However, as explained above the time of conformity
is an essential element of the operation of the conformity obligation which
is the focus of the Directive. So, for legal certainty on the extent of the
obligation and the application of the remedies, the rules on the transfer
of risk and therefore property may have to be clarified in the text of the
legislation.
However as argued above, the time of conformity implied by the Directive
is the time of actual delivery, and this should be reflected in the final
Regulations with ease. To do so, it is suggested that the existing s 20 should
be amended, perhaps by the addition of a new subsection to the effect that
in consumer transactions, risk passes on actual delivery to the consumer.
This along with an amended s 48A stating that the time of conformity is when
risk is transferred should sufficiently clarify the operation of the conformity
issue. By divorcing risk in consumer sales from the complex rules on property,
no issue of legal certainty ought to arise. It could be argued that the question
of property passing is of general relevance to a consumer sale and so it must
be clarified anyway. However this may be an excessively broad approach to
the Directive. It was not intended to be a complete harmonisation of consumer
sales law (see Explanatory Memorandum for the Proposed Directive, COM (95)
520 final 18.6. 1996, p6). Further, domestic property rules seem beyond the
scope of the EC Treaty (Twigg-Flesner, 1999). The clarification of the time
of conformity and therefore risk is, in the absence of an express obligation
in the Directive, justified on the basis that it is an essential component
to the operation of the Directive’s conformity obligation. The transfer
of property is not.
Overall, it is hoped that the DTI will take advantage of this legislative
window of opportunity and adopt the suggested amendments. The need to take
this particular opportunity is exacerbated by the fact such a change in the
time of conformity may not be guaranteed without a legislative amendment.
The section below explores the feasibility of some alternatives that should
clarify the importance of the current legislative opportunity.
6. Using the Directive to Displace the Rule in Section 20 of the Sale of Goods Act 1979
The general rule in s 20 is that risk passes when property passes and this
is a prima facie, default rule so it is subject to contrary intention. Perhaps
this general rule can be displaced in the light of the Directive. The Directive
would be denied direct effect on the basis that it would amount to a horizontal
action that is not permitted under Marshall v Southampton AHA
([1986] ECR 723. for criticisms of the rule see Craig, 1997). Another avenue
to explore is the possibility of combining the existing material of s 20 (SoGA)
and the interpretative tools from the European Court of Justice. Such an approach
may enable the directive to displace the rule in s. 20, by implying an intention
to displace the default rule merely by virtue of the transaction being a consumer
sale. This would mean that the rules on property passing would not have to
be changed.
For such an interpretation, the domestic courts would require some firm
grounds as a catalyst. There would need to be some kind of obligation to attempt
to subject s. 20 to such an EC orientated re-interpretation. So far, the only
basis that exists is the principle from Von Colson & Kamann v
Land Nordrhein-Westfalen [1984] ECR 1891. In this case the ECJ
referred to the EC Treaty’s good faith clause in article 5 (now 10)
that Member States must ‘take all appropriate measures...to ensure
fulfillment of’ Community obligations. Such an obligation has been
taken to apply to the judiciary so that national law must, as far as possible,
be interpreted to achieve the purposes of EC Law, even if the national legislation
pre-dates the directive (Marleasing SA v. La Comercial Internacional
de Alimentacion SA [1990] ECR 4135). So, although the draft Regulations
make no reference to risk or s 20 to facilitate the desired interpretation,
it may be possible to interpret s 20 in the light of the Directive. However,
the courts of member states are bound by their own constitutional rules and
the general view is that this doctrine does not empower the courts to contradict
the express wording of domestic law (Weatherill & Beaumont, 1999 p 411).
The potential reluctance of the courts to expand and develop s 20 could
be inferred from the House of Lords’ decisions concerning the scope
of the Von Colson principle. It has been applied allowing for a purposive
interpretation when the provisions of the national legislation were intended
to comply with a directive (Pickstone v. Freemans Plc [1989] AC 66; Litster v. Forth Dry Dock & Engineering Co. Ltd [1990] AC 546). However, it seems that the House of Lords has been reluctant to permit
direct effect through the back door when faced with provisions of national
legislation that were not intended to implement a directive (Duke v
Reliance [1988] AC 618; Finnegan v. Clowney Youth Training
Programme Ltd [1990] 2 AC 407). In these cases it was felt that the wording
of the domestic legislation could not reasonably be interpreted to comply
with the relevant directive. However in Webb v EMO Air Cargo (U.K.)
Ltd. [1993] 1 WLR 49. Lord Keith, who delivered the judgment of the House
of Lords (at p59) accepted that the UK courts should:
construe domestic legislation in any field covered by a Community directive so as to accord with the interpretation of the directive as laid down by the European Court, if that can be done without distorting the meaning of domestic legislation.
Lord Keith made it clear (at p60) that the interpretative obligation applied
even where the domestic legislation was passed before a directive but that
it must be possible to read such a meaning into the domestic legislation.
This meant that the ‘domestic law must be open to an interpretation
consistent with the directive whether or not it is also open to an interpretation
inconsistent with it’. Is s 20 open to such an interpretation?
If a broad approach is adopted, it could be argued that no such conflict
should emerge in view of the fact that the rule in s 20 is not absolute but
merely a default presumption capable of rebuttal. Therefore, if the existence
of the Directive is deemed to displace the default rule in consumer sales,
risk would pass on actual delivery by virtue of the operation of s 20 rather
than by imposing a contradiction of the rule. Whether this broad approach
would be adopted remains questionable. The alternative narrow approach would
be centered on a more formalistic notion that the ‘contrary intention’
in s. 20 must relate to the express intentions of the parties only.
The decision as to whether a broad or narrow approach would be adopted,
could be dictated by the degree of flexibility perceived in the meaning of
s. 20. However this may be over-simplifying the task of the courts who may
be concerned about the potential impact of the broad approach on the scope
and function of default rules in general. Overall, it is unclear as to whether
the interpretation with its EC dimension would be applied and so a further
alternative approach to harmonising the time of conformity must be explored.
One such alternative relates to the fact that consumers are now armed with
the Unfair Terms in Consumer Contracts Regulations 1999. However it remains
to be seen whether the time of conformity issue is within the scope of the
Regulations’ control.
7. Harmonisation From the Unfair Terms in Consumer Contracts Regulations 1999.
The use of the Unfair Terms in Consumer Contracts Regulations (UTCCR) to
displace the presumption in s 20 (SoGA) may seem contradictory in the absence
of a term. In order for the buyer to bear the risk of transit the seller does
not need to insert a term into the contract. In the absence of a contrary
intention the risk of transit is on the buyer automatically, by this statutory
default rule. On this basis it is necessary to establish whether the UTCCR
can apply to such circumstances before moving on to the test of fairness in
the Regulations.
Under Regulation 5(1) a term must not be ‘individually negotiated’
and this means it must be ‘drafted in advance’ (Reg 5(2)). However
this is not as prescriptive as it seems. It is simply a rule to ensure that
the regulations apply where the consumer did not influence the term in question.
This does not amount to a requirement for a term to be written or ‘drafted’
into the contract in order for it to be subject to the Regulations; in fact
oral statements are covered too. In the Unfair Terms in Consumer Contracts
Directive 93/13 EEC, OJ 1993 L95/29 Recital 11 states that ‘‘the
consumer must receive equal treatment under contracts concluded by word of
mouth and written contracts’’. Further, the Directive does
not prescribe a definition of a ‘term’ and in theory there is
no reason to prevent the Directive from targeting implied terms or rules,
statutory or otherwise. This is certainly consistent with the function of
the Directive to regulate the use of terms in consumer contracts that would
be otherwise permitted by the member state.
With a view to form, a distinction can be drawn between an implied term
and a prima facie rule such as s 20. However, this is a formalistic distinction
and if substance alone is considered, it could be argued that s 20 operates
as a functional equivalent to an implied term. In the absence of contrary
intention, the risk is on the buyer. If one turns to the source of the allocation
of risk, one is confronted by s 20 alone. It does not imply a term into the
contract, but in practice the operation of the presumption is no different
to an implied term allocating risk.
At first sight it would appear that the scope of the Regulations is too
narrow to target terms or rules from a statute. Regulation 4 (2)(a) states
that the regulations do not apply to ‘mandatory statutory or regulatory
provisions’ of member states. A similar provision exists in s 29
of the Unfair Contract Terms Act 1977. However, does this include prima facie
rules along with those that are mandatory? Recital 13 of the Directive refers
to the wording of ‘mandatory statutory or regulatory provisions’
and adds that it ‘also covers rules which, according to the law,
shall apply between the contracting parties provided that no other arrangements
have been established’. Clearly this serves to exclude the application
of the Directive to prima facie rules. However, some flexibility can be sought
from the reasoning behind this inconvenient exclusion.
The first element of Recital 13 states,
Whereas the statutory or regulatory provisions of the Member States which directly or indirectly determine the terms of consumer contracts are presumed not to contain unfair terms; whereas therefore, it does not appear to be necessary to subject the terms which reflect mandatory statutory or regulatory provisions...
It appears that the exclusion of the statutory rules and implied terms
is based on the presumption that member states would not impose terms or rules
that are contrary to fairness in consumer contracts. Arguably, if this presumption
is rebutted then the scope of the Directive and therefore the UTCCR would
be extended to target such provisions. This seems crucial when dealing with
provisions from the Sale of Goods Act 1979, which were originally based on
the law merchant and commercial expectations. Before the Unfair Contract Terms
Act 1977, which concerns the use of exemption clauses, it was possible to
exclude or limit the seller’s liability arising from the statutory implied
terms in consumer contracts. However, this freedom was partially limited by
judicial intervention through the adoption of the contra proferentem
rule which construed ambiguities in such clauses against the party that inserted
the clause (For example, see Andrews v. Singer [1934] KB 17
at 22). The rule in s. 20 existed in the 1893 Sale of Goods Act and the updated
1979 Act. However the reason for maintaining it was not fairness in consumer
contracts but rather commercial certainty and established commercial practice.
On the basis that a presumption of fairness in consumer contracts for s 20
cannot be sustained the next task is to evaluate the default rule within the
framework of the test of fairness from the UTCCR and relevant guidance from
the Office of Fair Trading.
Regulation 5 (1) states the a term is unfair ‘if contrary to the
requirement of good faith, it causes a significant imbalance in the parties’
rights and obligations ....to the detriment of the consumer.’ These
three factors must be satisfied and it seems that they are interlinked. There
are a number of ways in which the three components of the test can be applied
(see Brownsword, Howells and Wilhelmsson, 1996). In Director General of
Fair Trading v. First National Bank PLC ([2001] UKHL 52), Lord
Steyn rejected the notion that the good faith requirement is predominantly
procedural (para 33), and indicated that there was a substantive element.
The procedural element relates to the way the term is imposed and serves to
prevent the absence of a genuine choice through an unfair surprise. On the
substantive element it has been stated (Beale, 1995) that some clauses create
such an imbalance that they should always fail to satisfy the test of fairness.
This was approved and applied by Peter-Gibson LJ the Court of Appeal decision
of the Director General case ([2000] 2 WLR 1353, p 1365) and
was not rejected by the House of Lords.
The procedural aspect could be satisfied where the seller does not disclose
the operation of the rule on risk. This would depend on whether the requirement
of good faith imposes positive duties on the seller. Recent comments of Lord
Bingham in the First National case suggest that it does ([2001] UKHL 52, para 17). The imbalance would be on the basis that the seller is in the
best position efficiently to accept the risk of transit. The use of the word
‘significant’ to describe the imbalance again gives rise to uncertainty.
However it has been argued that it simply amounts to a requirement that the
imbalance must be non-trivial (see Scott & Black 2000, p95). The guidance
from the Office of Fair Trading (OFT 2001) on consumers being exposed to risks
provides a useful indication on the imbalance issue and how the test of fairness
may be applied after a complaint. Paragraph 18.2.1 states:
A contract may be considered unbalanced if it contains a term making consumers carry risks that the supplier is better able to bear. A risk lies more appropriately with the supplier if it is within his control, or he can insure against it more cheaply than the consumer, and especially if it is a risk of which the consumer cannot be expected to be aware.
The above guidance would suggest that the seller should bear the risk of
transit. On the issue of ‘significant imbalance’ in the First
National case (para 17) Lord Bingham echoed the substance of the above
guidance by stating: ‘This may be by the granting to the supplier
of a beneficial option or discretion or power, or by the imposing on the consumer
of a disadvantageous burden or risk or duty.’
The view expressed above and by the OFT could only be adopted if the operation
of the default rule in s 20 is regarded as a functional equivalent to a term.
This would be an appropriate approach especially in the light of the internal
market objectives of the directive on unfair terms and the fact that in other
member states the rules on risk are in favour of the consumer.
Overall on the application of UTCCR it seems that if, the default rule
can be subjected to the Regulations there would be a strong argument in favour
of its being rendered unfair. A term rendered unfair by the regulations is
not to be binding on the consumer. The effect would seem to be that if a consumer
who received goods damaged in transit sought to bring a non-conformity claim
against the seller, any attempt by the seller to rely on the default rule
in s 20 would be met by a plea of unfairness which, if successful, would prevent
the seller invoking the s 20 rule. (It is altogether more questionable whether
the injunctive procedure provided for in the Regulations to prevent continued
use of un fair terms could be invoked. The Regulations anticipate an injunction
prohibiting the use of a particular term, whereas an injunction to prevent
reliance on the s 20 rule would effectively involve a mandatory order to the
seller to include in contracts a term expressly displacing the s 20 rule.)‘’‘’
8. Summary and Conclusion
Following the recent publication of the draft Regulations to implement
the Consumer Sales Directive, this paper focussed on issues relating to the
time of conformity of the quality obligation. It has been argued that consumers
expect the duration of the seller’s strict liability obligation (the
time of conformity) to extend to the time of actual delivery, whereas the
existing SoGA does not satisfy these expectations and instead uses constructive
delivery. So when goods are damaged, the buyer may be faced with the prospect
of a negligence action against an unknown carrier.
It has been shown that the Directive has not provided an express time for
conformity, but that it can only be reasonably interpreted as meaning actual
delivery. The justifications for this stem from consumer expectations themselves,
and the broader policy framework that underpins the EC consumer law. The time
of conformity should be taken to mean actual delivery: this accords with the
views cited and the approach of other jurisdictions that give effect to the
expectations of consumers. The draft Regulations do not adopt this approach
on the timing of the obligation and it appears that the DTI has attempted
to maintain the traditional SoGA approach and in doing so has used inaccurate
terminology, the effect of which is to place consumer buyers in a worse position
than they are under the existing SoGA.
On this basis it has been argued that the DTI should reconsider the time
of conformity so that the final Regulations accord with the Directive as interpreted.
This can be achieved via a simple amendment to the rule in s 20 (SoGA), and
a correction of the proposed s 48. In addition this paper considered some
alternative methods that may be attempted to give effect to the Directive
in the absence of legislative change to the SoGA. One alternative examined
the possibility of using the Directive to displace the rule in s 20. Another
alternative was based on UTCCR, where it was to argued that the rule on risk
could be regarded as a functional equivalent to an unfair implied term.
Ultimately, the alternative approaches provide no absolute solution to
the problems of the current time of conformity. This serves to further emphasise
the need for a legislative solution. It is hoped that the DTI will take advantage
of this current legislative window of opportunity to amend the SoGA and avoid
the potential inefficiency, litigation and uncertainty for both consumer and
business alike. Overall, the adoption of our recommendations would facilitate
the enhancement of consumer confidence in cross border sales. Whilst for businesses,
the consistency with member states with similar legal concepts, should facilitate
the elimination of competitive distortion.
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