Taylor, and Naidoo, 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

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You are here: BAILII >> Databases >> United Kingdom Journals >> Taylor, and Naidoo, 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 URL: http://www.bailii.org/uk/other/journals/WebJCLI/2002/issue3/taylor3.html Cite as: Taylor, and Naidoo, 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

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.,

André Naidoo, LL.B., LL.M.,

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.

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.

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:

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:

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.

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:

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.

‘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.

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.

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:

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:

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.

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.

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:

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.

Bibliography

⁽¹⁾ The Sale and Supply of Goods to Consumers Regulations 2002, draft Regulations given in The Second Consultation on EC Directive 1999/44/EC on Certain Aspects on the Sale of Consumer Goods and Associated Guarantees. The deadline for responses was 23 May 2002. Available at: <http://www.dti.gov.uk/cacp/ca/consulta.htm#2nd>

United Kingdom Journals