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Consolidating the Law on the Sale and Supply of Goods and Services


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									               Consolidating the Law on the
          Sale and Supply of Goods and Services
                                     Dr Christian Twigg-Flesner
                                            University of Hull

The purpose of my paper is to explore the case in favour of consolidating the
various pieces of legislation on the sale and supply of goods to consumers in
one measure. At the same time, the opportunity could be taken to
modernise/reform those provisions which are perhaps inadequate for modern-
day consumer transactions. Consolidation would make it much easier for
businesses as well as consumers and their advisers to identify the respective
rights and obligations of both consumers and businesses whenever goods are
supplied to a consumer.

Supplying goods to consumers: different types of transaction
Goods can be supplied to consumers in a number of different ways. First,
there is the straightforward contract of sale, where the consumer buys goods
in a High-Street Store and pays for them fully at the time of purchase. A
variation on this is an on-line purchase, which remains a sale but raises
additional issues regarding the delivery of goods.

However, consumers also acquire goods through various types of financing
arrangement. The standard model here is a hire-purchase transaction, under
which the retailer sells the goods in question to a finance company, which
then becomes the contractual supplier of the goods to the consumer. The
consumer will make regular instalment payments to the finance company until
the purchase price, together with any interest, has been settled.

In some instances, a consumer may simply hire goods for a limited period of
time, with no intention of acquiring the goods permanently. These may be
short-term hires (such as hiring a car for a week, or large tools for DIY work
around the house), but could also be longer-term hire arrangements.

And then consumers may order goods that still have to be manufactured or
produced. These might be items made especially to the consumer based on
his specifications, or items made to order based on a standard design.

Finally, instead of buying a physical item, a consumer might acquire software
or other digital content (to be dealt with by Professor Adams in a separate

These are just a few common types of supply transactions. Crucially, the
legislation applicable to these transactions differs, with the result that the
rights of consumers also vary depending on the method of supply.

Dr C.Twigg-Flesner (Hull) - Consolidation of the Law on the Sale and Supply of Goods and Services   1
BERR Conference, 9 April 2008
Dr C.Twigg-Flesner (Hull) - Consolidation of the Law on the Sale and Supply of Goods and Services   2
BERR Conference, 9 April 2008
Now, as far as a consumer is concerned, the different methods of supplying
goods may not matter greatly as far as their expectations with regard to
quality, as well as available remedies, are concerned. Nevertheless, the legal
position is such that there are significant differences.

Background: Why change?
The legislation on the sale and supply of goods is currently spread across
three key Acts of Parliament: the Sale of Goods Act 1979 (SoGA) - for
contracts of sale, the Supply of Goods and Services Act 1982 (SGSA) - for
contracts of work and materials, barter, exchange and hire -, and the Supply
of Goods (Implied Terms) Act 1973 - hire-purchase. These are supplemented
by various measures dealing with doorstep and distance selling, as well as
guarantees and extended warranties.

Much of this diversity has historical reasons, and the distinctions between the
different types of transaction are of reduced significance today. For example,
the implied terms as to quality were first applicable only to contracts of sale
covered by the Sale of Goods Act 1893. Until 1954, however, the Act had a
requirement that contracts for the sale of goods worth more than £10 had to
be evidenced in writing - if this was not done, the contract was unenforceable.
This might have influenced the outcome particularly in some of the cases
dealing with goods which were made to order, or which involved some other
service element, as these transactions often straddle the line between
contracts of sale and contract of work & materials. If the contract was one of
sale - and if it complied with the relevant formalities - the buyer obtained the
benefit of the implied terms as to quality, but if it was some other transaction,
the position was much less certain.

We might note at this stage that the Consumer Sales Directive (99/44/EC)
treats some contracts which might be classified as contracts for work &
materials in English law as contracts of sale: they are contracts for goods to
be manufactured, as well as contracts involving the installation of goods. This
was not implemented in this manner into English law; instead, changes were
made to both SoGA and SGSA in an attempt to comply with the Directive.

In 1969, the House of Lords observed that this was anomalous and declared
that the common law would imply similar terms to those in the SoGA into
contracts for other supply transactions (see Young & Marten Ltd v McManus
& Childs Ltd [1969] 1 AC 454). This was then eventually put on a statutory
footing. The present day position, therefore, is that irrespective of the type of
transaction, the same terms as to description, satisfactory quality and
reasonable fitness for particular purposes made known to the seller are
implied into contracts of sale, hire, hire-purchase, work & materials, barter and

Dr C.Twigg-Flesner (Hull) - Consolidation of the Law on the Sale and Supply of Goods and Services   3
BERR Conference, 9 April 2008
The one major gap appears to be computer software, although this gap could
be filled by the common law (cf. Glidewell LJ in St Albans City and District
Council v International Computers Ltd [1996] 4 All ER 481, p.494). A further
gap appears to exist in respect of contracts of work & materials if the contract
leads to the production of a finished item - here, whilst the materials used in
making the finished item must comply with the quality terms, it seems that the
finished item itself is not subject to any implied terms.

Yet, one crucial difference remains: the remedies of a consumer in case of a
breach of these implied terms. Most people are familiar with the rather
complex remedial scheme under the SoGA even before the additional
remedies required under the Consumer Sales Directive were introduced.
Thus, provided a consumer is not deemed to have “accepted” the goods, he is
entitled to reject the goods, and may also terminate the contract. Termination
entitles the consumer to a full refund. In a consumer case, “acceptance” will
usually occur through the passage of a reasonable time (see s.35 SoGA),
although on a day-to-day basis, there is a lot of uncertainty as to how long a
reasonable period of time might be. This is not our concern today, though.
Rather, the point is that whilst there is this detailed - perhaps too complex -
scheme in the SoGA, there are no corresponding provisions under either the
SGSA 1982 or the SoG(IT)A 1973, with the effect that the consumer’s right to
terminate the contract for breach of the implied terms is governed solely by
the common law.

The common law, however, does not have a concept of “acceptance”;
instead, the consumer’s right to terminate depends on whether he has
“affirmed” the relevant contract. That can only occur once he is aware of the
breach and the right of termination. In the case of latent defects, this might
happen a some time after the goods were first supplied. Whilst this might then
be outside the “reasonable period” under the SoGA and therefore deprive a
consumer to terminate a contract of sale, if the goods were acquired on hire-
purchase (or if the contract is a conditional sale agreement - see s.14(1)
SoG(IT)A 19731), the contract could be terminated at a much later point.

It seems odd that the conditions for exercising such a potent remedy as
termination of the contract vary depending on the type of transaction. Yet, in
1987, the Law Commission expressly stated its decision not to recommend
any changes to the present arrangement, partly because it preferred to
maintain established rights (in particular, the “long-term” right of termination in
the case of hire-purchase, which it did not wish to recommend for contracts of
sale), and also because it had not been provided with any evidence or a “very
strong case” for any changes, nor had consultees expressed particularly
strong views for either position. This, of course, was more than 20 years ago,
and the practical situation might very well now be different.

 The effect of s.14(1) SoG(IT)A 1973 is to disapply s.11(4) SoGA in the case of a conditional
sale agreement where the buyer deals as a consumer. S.11(4) SoGA is the provision that
bars termination of the contract of sale once goods have been accepted.

Dr C.Twigg-Flesner (Hull) - Consolidation of the Law on the Sale and Supply of Goods and Services   4
BERR Conference, 9 April 2008
It is to be hoped that both business and consumer organisations are able to
provide evidence as to whether there is real uncertainty about the exercise of
the right of termination for a breach of the implied terms in different types of
supply transactions.

Since the implementation of the Consumer Sales Directive (99/44/EC),
termination is, of course, now supplemented by the statutory right to ask for
repair or replacement in the first instance, followed by price reduction or
rescission (subject to period of use allowance) at a second level. These
remedies are available for contracts of sale as well as contracts of work and
materials (because contracts for goods to be manufactured, as well as
contracts involving the installation of goods, are treated as sales for the
purposes of the Directive). They are not available in other contracts, however
- probably because the implementation of the Directive was undertaken on the
basis of the European Communities Act 1972, and as the Directive does not
extend to contracts of hire, hire-purchase and barter, there would have been
no constitutional basis for extending the new remedies to these contracts
through regulations adopted under the ECA.
The variation in the applicable remedies might also cause confusion and
uncertainty for both consumers and business.

As suggested earlier, consumers might not expect there to be variations in the
remedies which result from the type of transaction chosen for supplying
particular goods to them. Indeed, consumers will often fail to appreciate the
legal consequences of acquiring goods on some sort of finance arrangement,
rather than an outright sale (perhaps financed through the consumer’s own
credit card) - here, both the contractual supplier and the available remedies
will differ. It is therefore suggested that a case can be made for
consolidation of not only the implied terms (where de facto
consolidation has already been achieved), but also of the remedies
available for a breach of the implied terms.

Fortunately, the Law Commission has already been given the task of
proposing a method for simplifying the remedies of consumers for faulty
goods - see http://www.lawcom.gov.uk/consumer_remedies.htm. As part of
its review, the Law Commission will consider whether there should be a
unified system of remedies for all supply transactions.

Of course, it must be borne in mind that there are also clear differences
between the various supply transactions referred to in this paper. Primarily,
they relate to the transfer of property (ownership), as well as the transfer of
possession. A contract of sale seeks to transfer outright ownership, and the
SoGA contains specific provisions on this aspect. Although the SGSA applies
to contracts other than sale involving the passing of property, there are no
corresponding rules on this in the SGSA. The extension of the SoGA rules to
such contracts might be helpful (subject to points made below).
Other supply transactions do not immediately involve the outright transfer of
property, but, with the exception of hire, all such transactions will eventually
result in such a transfer. Greater consistency might be helpful.

Dr C.Twigg-Flesner (Hull) - Consolidation of the Law on the Sale and Supply of Goods and Services   5
BERR Conference, 9 April 2008
Finally, it is increasingly the case that contracts for the sale and supply of
goods involve some sort of service element (beyond simply delivering the
goods), e.g., installing domestic appliances, or setting-up a new PC etc. It can
often be quite difficult to figure out how to classify such a transaction, with
several different possible analyses. Indeed, even the courts themselves
occasionally get confused: in Jones v Callagher [2005] 1 Lloyd’s Rep. 377,
the Court of Appeal (correctly) dealt with a contract for the installation of
kitchen units under the SGSA, but then (incorrectly) considered the rules on

The question of how to deal with contracts of services will be dealt with in a
separate presentation by Professor Willett. For present purposes, it is
suggested that consolidation of the provisions on the sale and supply of
goods could extend to contracts which combine the supply of goods with a
service, with the effect that there is no need to undertake a difficult
classification analysis.

Other benefits: tidy-up legislation and correct deficiencies in the
implementation of the Consumer Sales Directive (99/44/EC)

So far, the focus has been purely on consolidation and simplification.
However, there are other matters which really require some attention, and if
the decision were taken to attempt consolidation of the implied terms and
relevant remedies, then other matters should be dealt with at the same time.

One of the main concerns about the present state of the legislation,
particularly the SoGA, is that it is showing its age. The SoGA 1979 is a fairly
limited consolidation of the amendments made to the 1893 version, which, in
turn, was an attempt to codify the primarily Victorian case-law on mercantile
transactions. Since 1979, there have been four major amendments to the
SoGA, many dealing with consumer sales contracts, but some primarily aimed
at commercial sales contracts. The repeated patching of the Act has been
criticised repeatedly (and many Commercial Law exam papers include at least
one question inviting criticism of the current state of the law for this reason).
This is not the time to explore the many problems which have been caused by
this patching in detail. The worst example - the insertion of the new consumer
remedies - has already been mentioned, and was singled out by the Davidson
Review as something requiring urgent attention - hence the current Law
Commission project.

Rather, the more general point to be made here is that it is appropriate not
merely to re-examine all of the legislation to ensure that it is internally
coherent/consistent, but also to consider whether there are some substantive
rules that require modernisation. For example, the default rules on the
passing of property might not be appropriate for consumer cases (although
fine for commercial contracts), and the various exceptions to the nemo dat
principle are so confusing and inconsistent that a major review is long

Dr C.Twigg-Flesner (Hull) - Consolidation of the Law on the Sale and Supply of Goods and Services   6
BERR Conference, 9 April 2008
More importantly, the rules on the passing of risk were changed in 2002 to link
risk to delivery rather than the transfer of property in the case of consumer
contracts (as is the default position under the Act). This is clearly very
beneficial for consumers, particularly when buying goods on-line, as the risk
of loss or damage in the post remains on the retailer (although I was surprised
to notice on retailer recently offering optional insurance to cover that risk as
part of an order form - clearly this change has not yet been drawn to the
attention of every businesses selling at a distance). The difficulty is that there
is case-law which interprets the term “delivery” in another section of the Act as
covering both constructive and actual delivery. Whilst this makes sense for
those provisions, it would undermine the point of s.20(4) on risk (as well as
conflict with other provisions), and some clarification is needed.

Furthermore, the opportunity could - and should - be taken to ensure that
shortcomings in the implementation of the Consumer Sales Directive are
finally dealt with. Whilst most of the requirements of the Directive have been
complied with, there are gaps. For example, a clear reference to the
inadequacy of “installation instructions” is missing, and the treatment of
contracts involving the installation of goods seems to fall short of what is
required, too.

Finally, a major review such as the one suggested in this contribution would
also create an opportunity to consider aspects in respect of which the UK
could take the lead in examining what might be needed for a modern
consumer protection scheme. Although it seems unlikely that there will be
much interest in pursuing the idea of producer and network liability (allowing a
consumer to take direct action against a producer for quality defects, possibly
via authorised members of distribution networks), there are issues where the
current law has gaps.

To take one example: spare parts and after-sales support. There is no
obligation currently to maintain spare parts. Whilst this might, in a particular
case, open up the argument that goods might not be of satisfactory quality, it
also raises the question of how a remedy such as “repair” could be made
available if suitable spare parts are not available? Moreover, with ever-
increasing concerns over the environment and waste, this might be the time
when more emphasis should be put on repairing goods, rather than replacing

Dr C.Twigg-Flesner (Hull) - Consolidation of the Law on the Sale and Supply of Goods and Services   7
BERR Conference, 9 April 2008
What to do with non-consumer transactions?

The focus today is obviously on consumer law. However, the law on the sale
and supply of goods generally applies to all forms of transactions, B2B and
B2C. If there were to be consolidation of the law as it applies to consumer
transactions, some thought might also have to be given to commercial
contracts. This, however, is an issue which can be kept separate from any
consolidation that might be undertaken in respect of the consumer provision,
although it might leave any remaining provisions of the current law in a rather
untidy state. Nevertheless, the non-consumer law would remain workable in
much the same way as it is at present. Whilst consolidating/reforming the law
as it applies to commercial transactions is also necessary, it is possible to
deal with these separately.

Comparative models

The idea that there could be consolidation of the implied terms and associated
remedies is not as far-fetched as it may seem. A good example from a
common law jurisdiction is the Consumer Guarantees Act 1993 in New
Zealand. This Act includes detailed provisions regarding the quality of goods
and services and the associated remedies. It operates alongside the Sale of
Goods Act 1908, which is largely a copy of the UK’s SoGA 1893. According
to s.56A of the Sale of Goods Act 1908, the terms implied by that Act do not
apply to consumer transactions within the scope of the Consumer Guarantees
Act 1993.
The approach adopted in New Zealand, therefore, is to introduce a consumer-
specific regime in respect of all supply transactions (including hire and hire-
purchase) which is modern and better suited to consumer transactions. There
are aspects of the Act which are open to criticism, but as far as the general
approach for consolidation and improvement is concerned, it is a very good
example of how the law can be improved for consumer. It could therefore
serve as a model for improving UK law.

The current state of the legislation on the sale and supply of goods is
unsatisfactory and major reforms have long been overdue. There is a need for
consolidation of the existing law to make it more accessible to consumers,
businesses and their advisers. Furthermore, consistency and coherence
needs to be restored, and, beyond that, it should be considered as part of this
process whether the law can be improved further with new substantive rules.

CTF/April 2008

Dr C.Twigg-Flesner (Hull) - Consolidation of the Law on the Sale and Supply of Goods and Services   8
BERR Conference, 9 April 2008

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