Bailment on Terms: Developing the argument

I recently wrote about my ongoing project on bailments and the rule of law. Here I will develop the argument. 

A bailment is a voluntary assumption of responsibility for another's property. A bailment relationship may exist between A and C where A contracts with B and A consents that B may sub-contract the work to C. The law of contract says the terms C performs on are not binding on A because no consideration for the promise made by A moved from C. However, bailment on terms is a rule that allows C to rely on the terms they perform on against A when A consents to B sub-contracting the work to C on those terms or A and B consent that C should benefit from those terms.

I argue this is contrary to the rule of law, first because it is a duplication. A duplication is where two rules function to resolve one dispute. To avoid duplication we must be able to rationally distinguish the rule in bailments from the rule in contract. If not, duplication is contrary to the rule of law because the rules are only distinguishable based on the language the court is speaking. That is a discretion, not law. 

Whether bailments on terms can be rationally distinguished from contract depends on whether bailments is a contextual or conceptual category of law. Conceptual categories of law are based on generic conceptions of events that give rise to rights according to the formal rules of the category a dispute falls into. Contextual categories of law bring together all the law on a particular topic, such as medical law or company law. The formal conceptual rules are the tools that function to resolve the dispute the context it arises in. Therefore, if bailments is a contextual category of law, the formal conceptual rules apply to it. If it is a conceptual category of law, its rules are not dependent on other categories. 

Therefore, if bailments is a contextual category of law, if we are to rationally distinguish bailment on terms from contract, it must be performing a function independent of binding consenting parties to terms. Otherwise, there would be two rules functioning to resolve one dispute, and 'bailments' is not a rational reason for distinction, it is the language spoken, a discretion. I explained in my last post why the reasons for the rule cannot place it within the existing conceptual framework, therefore the reason for it to function must be that it is unique to bailments as an independent conceptual category.

If bailments is a conceptual category of law, formally categorising the rule as unique does not overcome the problem of duplication because the reasoning is circular. We cannot rationally distinguish the rule from contract if all we can say is the rule applies where there is a voluntary assumption of responsibility for another's property. That is to reason a consenting third party is bound because there was a bailment and in bailments consenting third parties are bound. Likewise, a bailee is liable because they volunteered and a volunteer is liable because there was a bailment. There is nothing rational here to distinguish why volunteering or consenting means a distinct result is achieved in bailments, only that it is. They are descriptive terms, not substantive reasons for reaching a distinct result. The only difference is the language spoken. 

No doubt consent is a rational reason to bind someone to terms. Therefore, it might be argued that the rule should be followed to promote the rule of law. The precedent it sets becomes an independent, authoritative reason because we can be certain that where there is a bailment consenting third parties are bound and it takes priority over contract. That ensures equality before the law to an acceptable degree, even if bailments is not rationally distinguishable from contract. The passage of time means that to treat the next bailments case differently would result in unequal treatment.

However, if contract rules are under-inclusive relative to its substantive objectives, the way to resolve that is to have an open discussion of when parties should be bound to contractual terms. Instead, by resorting to verbal formulae to bind consenting but non-contracting parties causes a second problem for the rule of law. Because bailments is defined only by its descriptive terms, it is only those descriptive terms that determine the boundaries of bailments. Therefore, they can be lightly manoeuvred whenever a judge, at their discretion, thinks the third party should be bound. 'Bailments', therefore, is an inherently uncertain concept. Stapleton, for example, referred to assumptions of responsibility as "labile", while Atiyah called them "contract". The lack of certainty as to what a bailment is means that to follow the rule would continue to erode the rule of law. There is reduced legal certainty because the parties cannot be sure which language the court will speak, contract or bailments, and there is not equality before the law because the rights and liabilities of the parties will depend on what language the court does choose to speak. 

That discretion being exercised can be evidenced by looking at the facts in the like cases of The Starsin, The Eurymedon, The New York Star, Scruttons, The Rigoletto, and Singer. I shall not go into the details but they evidence that the descriptive term 'continuous possession' is lightly manoeuvred to reach the desired outcome in the cases without rationalising why continuous possession should matter in reaching a distinct outcome to what the formal rules of contract demand. The outcome is that these like cases have been treated differently in an inconsistent and unequal way. If The Eurymedon, The New York Star, and Scruttons were correct in their judgments, The Rigoletto, Singer, and The Starsin were incorrectly decided on the bailments issues.

Therefore, the duplication of the rules matters because if parties cannot be certain when consent to contractual terms is binding, the rule risks foisting contractual liability on to the parties even if they did not intend their consent to sub-contract to be binding with the sub-contractor. That risks redistributing the contractual allocation of risk and undermining their individual liberty. 

In turn, foisting contractual liability, and thus personal rights, onto the parties can reorder established legal rules, such as in secured credit transactions. If courts speak the language of bailments, a creditor's security, and property right, may be treated as inferior to a sub-purchasers personal right to the property. That may be undesirable because a rational response for the increased risk to the creditor is for the creditor to increase the cost of security, or to limit the use of the property bailed over, which is rarely desirable.

Finally, the uncertainty of bailments erodes the rule of law at a principled level. If its boundaries are uncertain, parties can take advantage of that uncertainty by switching between causes of action to avoid limitations of the other. Parties can then win or lose cases without good reason and the law is harder to apply.

The duplication has produced a schism in law, a conceptual incoherence that should be resolved. Maybe consent should be binding, and/or the rule is worth retaining in particular contexts but the way to resolve it is not resort to verbal formulae or semantic tricks because it weakens the rule of law. There should be one rule, not two. 

Bailment on Terms

It has been a while since I last blogged. Currently I am working on a paper analysing the law of bailments, specifically ‘bailment on terms’. Here I sketch my argument for those interested.

In the law of contract, if A contracts with B and consents to B sub-contracting the performance of the contract to C, there is no contractual obligations owed between A and C. Privity requires consideration to have moved from the promisee to establish privity. Here, consideration has only moved from B for the promises made to A and C. Therefore, A cannot sue C in contract for the performance of the contract. A can overcome this by suing C in tort. However C could not enforce the terms the contract was performed on against A. This places the court in a dilemma. Courts do not want parties avoiding their consensual obligations on a technicality but at the same time are unwilling to introduce exceptions to privity.

A solution lies in the law of bailments through the rule known as bailment on terms. A bailment exists where a bailee voluntarily assumes responsibility for the bailor’s property. The rule stipulates that terms of a contract may be relied upon between A and C to the extent that A consents to B sub-contracting the work to C on terms or to the extent the terms agreed between A and B intend to benefit C. This is a simple solution to the doctrine of privity.

My paper challenges the descriptive and prescriptive reasons for the rule. It argues they do not justify the operation of the rule. This analysis is done within the analytical framework of contextual and conceptual legal categories. It argues that if bailments is a contextual legal category then the descriptive and prescriptive reasons do not justify its operation. If it is a conceptual category then the generic conception of the event that gives rise to liability does not prescribe any distinct or independent justification for why terms should be binding on consent alone. It is argued the rule is simply a thinly veiled attempt to introduce a new normative perspective of contract law that contractual obligations can be binding on consent alone, similar to civil systems. This paper does not challenge the normative appeal of that argument and remains neutral on the question as to whether consideration  should be required. The more modest contribution this paper seeks to make here is that by introducing an alternative normative position this undermines the general primacy of private ordering in English law, the rule of law, and legal certainty. 

The paper begins by introducing the analytical framework. The law divides between contextual and conceptual legal categories. Conceptual categories are based on generic conceptions of events that gives rise to rights. For example, the law of contract is based on the generic conception of a promise, tort on wrongdoing and so on. Contextual categories make up the whole body of law relating to a particular topic i.e. company law or family law. The reoccurrence of conceptual categories of law in different contexts does not threaten their independence. The conceptual rules are applied in different contexts. For example, for a trust to arise the three certainties must be satisfied. Therefore, in securities law, sales law, and local government, for example, for a trust to arise the subject material of the trust must be sufficiently identifiable. 

From this I infer the following framework to assess whether reasons for a rule can justify its operation. The first three depend on a rule being part of a contextual category of law. To justify a rule it must align with the conceptual categories of law. For example, in securities law, an issuer is not contractually liable to investors when securities issues are purchased through an intermediary. The intermediary is the co-contractor with the issuer. Any other conclusion would violate the law of contract’s conceptual rule. 

In situations where the conceptual category is not the master, the prescriptive reasoning for an exception or special rule in a particular context must be sufficiently cogent to extend beyond shallow appeals to justice. If not, it undermines the rule of law and legal certainty. The law would not apply equally to all and it begs the question as to why ‘justice’ prevails in one context but not another. Thus, when securities law does not require certainty of subject matter to establish a trust or financial law does not require consideration from a beneficiary to honour credits opened in their favour by an applicant, clear contextual reasoning has been provided that confines the special rule to the context that poses no immediate risk to the general conceptual rule. However, when the House of Lords allowed beneficiaries of a will to recover in tort upon an expectation interest, this flouted the conceptual rule that it was generally not permitted without delineating what was special about the context of wills. It opens the door to lawyers to test the limits of this new found freedom in other contexts, including commercial law where expectation interests could be highly profitable. 

If neither the descriptive or prescriptive reasons can justify the rule then one may conclude that the rule is wrong if it is part of a contextual category. For example, the High Court held those who set up a company to perpetuate a fraud could be liable for the company’s contractual obligations but could not enforce it. Both the Court of Appeal and Supreme Court swiftly disapproved holding there was no justification for such a ruling that violates contract’s conceptual rules.

Despite this, an alternative explanation for a rule is not that it is bad law but it forms part of the irreducible core of an independent and distinct conceptual category of law. For example, the law of restitution is independent from the law of contract. Money conditionally paid to a seller can be recovered from a seller without having to prove contract and breach. The generic conception of unjust enrichment gives rise to rights independent of those arising out of contract. 

Therefore, for the rule it comes down to this. If bailments is a contextual category of law the descriptive reasons for the rule must align with the conceptual categories of law. If not, the prescriptive reasons must either be sufficiently cogent to justify a special rule in this context or demonstrate why the generic conception of a voluntary assumption of responsibility for another’s property means terms can be binding on consent alone.

The next step then is to identify what those reasons were. They were:

1) consent is sufficient. Drawing an analogy with liens and proclaiming bailments are a branch of the law of property

2) precedent for the rule in Elder, Dempster

3) lacuna in law without an exception 

4) bailments is a conceptual category of law and justice demands the rule be applied.

Taking each briefly in turn. Consent cannot be sufficient. The lien is a false analogy because it does not arise from consent but the operation of law, nor is the lien a personal right. Second, consent cannot be the basis of the rule if bailments is a branch of the law of property because its principles say you cannot create new types of property rights on consent alone. The reasoning is paradoxical.

Second, Elder, Dempster offers only casuistic reasoning, amounting to one line that bailment might have been the reason for what the court held. The House of Lords have subsequently held bailment on terms was not the ratio of the case.

Third, the prescriptive reason for the rule fails because there is no lacuna. The rule simply states an objection to what the law is. Contract law and property law do not recognise third party rights for personal terms. Thus notional appeals to justice are insufficiently cogent reasons to justify why the context of a bailment means a special rule should exist.

Finally this equally applies to the claim bailment is a conceptual category of law. The rule duplicates contractual liability. It offers nothing distinct. This subverts private ordering. Parties have deliberately structured their relationship to avoid contractual liability. The court cannot then duplicate contractual liability where they agreed there should be none. It is problematic as it may encourage free riding. Why should C bother to try to contract with A for the protection and negotiate a price if the court will give that protection for free? It also undermines the rule of law. Why is a bailment or tangibles treated differently from intangibles such as securities. If it is just for a bailee to rely on terms against a non-contracting bailor then why not a non-contracting investor against an issuer. This also undermines legal certainty. We should avoid dogmatism when it comes to legal certainty but within reason. Flouting conceptual rules because it is just to do so risks their entire collapse. 

Therefore my conclusion is the rule should not be retained. 

Repair and Replacement under the Consumer Rights Act 2015

Introduction

The purpose of this post is to survey the law on key consumer remedies in supply of goods contracts under the Consumer Rights Act 2015.[1] By doing so the aim is to identify potential obstacles to a consumer in claiming a right of repair and replacement and how it interacts with other remedies of rejection, price reduction, and damages, which are highlighted in bold at the end of each section. It is not intend to answer these questions in this post.

As a matter of terminology under the Sale of Goods Act 1979 the parties are the buyer and seller; under the Consumer Rights Act 2015 the parties are the consumer and trader.

The law

Repair or replacement

Repair or replacement is a distinct statutory remedy for consumers.[2] There is, however, little case law on this remedy.[3] Under the Sale of Goods Act 1979, a buyer’s statutory remedies were rejection, damages, or specific performance. It was not until 1994 that consumer buyers were granted the additional remedies of repair or replacement and price reduction.[4] That does not mean the parties could not agree to repair or replacement themselves.

In recognition of this, the Sale of Goods Act 1979 was amended to acknowledge that asking for repair did not amount to an acceptance of faulty goods that precluded a buyer from rejecting them.[5] While this issue was resolved it was not a right to repair or replacement. This created a separate question as to the effect repair or replacement on the buyer’s remedies if the goods were repaired to the required standard under the contract. J & H Ritchie Ltd v Lloyd Ltd offers authoritative guidance on this question but the rationales in the judgments of Lords Hope and Rodger differ in reaching the same conclusion. The judgments of Lord Mance, Brown, and Scott appear to follow Lord Rodger’s judgment, but do expressly endorse Lord Hope as well. This may not have been addressed since the same conclusion was reached, but we shall return to this discrepancy as it may impact the consumer’s remedies to reject, price reduction, and damages.

The facts involved Mr Ritchie purchasing a harrow, farming equipment, from Lloyd Ltd. The goods delivered were faulty due to a vibration occurring when the goods were used. Mr Ritchie agreed to an inspection, from which it was discovered the vibration was caused by a major defect. Later, Mr Ritchie was informed that it had been fixed and made ready for collection. At this point Mr Ritchie did not know what the problem had been. He asked to be informed of the cause and also to see an engineer’s report. Lloyd Ltd refused these requests. Although he was later unofficially informed of the cause, he was not privy to the cause for many months and decided to reject the goods on the grounds of breach of contract. Lloyd Ltd refuted this, contesting the buyer had a duty to accept the goods under the Sale of Goods Act 1979, s 27. They contended that the “effect of the repair … was to make it as good as it would have been if it had left the factory as a new, correctly assembled harrow”.[6]  The law was clear that asking for repair did not preclude rejection, but the issue was whether the buyer was still entitled to reject goods when it was offered back to them fixed. The judgment was made in favour of Mr Ritchie on the basis of an implied term. The judgments, however, were at odds with how that implied term came about.

There was general consensus that if goods were repaired to the required standard, without more the buyer would not be entitled to reject the goods.[7] There is no express remedy to repair or replacement that would lead to any other conclusion. The difference in opinion comes in regarding whether the buyer could reject on the basis of the information not being supplied.

For his part, Lord Hope considered the implied term was a necessary inference from the statute that would enable the buyer to make an informed election between accepting and rejecting the goods. He reasoned that the buyer has a reasonable opportunity to examine the goods under the Sale of Goods Act 1979, s 35(2)(a) while retaining the right to reject the goods but it is not an election a buyer can be expected to exercise “until he has the information that he needs to make an informed choice”.[8] He rationalised this decision by analogy with Clegg v Andersson t/a Nordic Marine,[9] which held retention of goods for 9 months did not preclude rejection of the goods where the seller had agreed to supply information about the fault but had not yet done so and the buyer had not yet agreed to repair. In J & H Ritchie the repair was carried out with no undertaking that the seller would provide them with information as to the nature of the defect.[10] The lack of an undertaking to do so, according to Lord Hope, meant the term was necessary, as the information was “obviously needed if the appellants were to make a properly informed choice between accepting and rejecting the equipment”.[11]

Lord Rodger, however, opined that the request for repair was an innominate contract, separate from the contract of sale.[12] The question was then not whether the information was necessary for the buyer to make an informed election, but whether the information was necessary for the innominate contract to function. He, and the concurring Lords Mance, Brown, and Scott, answered this in the positive:

The respondents were taking the appellants' property to inspect it: an owner who surrenders his property for inspection in this way can surely insist on being told the outcome of the inspection. More particularly, in this case, the respondents were the very people who had supplied the harrow in a defective state. The appellants were surely entitled, at the very least, to insist on being told what the respondents had now discovered which they had not discovered before they originally supplied the harrow. Moreover, a refusal by the respondents' representatives to provide that information would inevitably undermine the appellants' trust and confidence in the respondents' due performance of the contract.[13]

Lord Brown added that a buyer would surely be entitled to some assurances about the repairs carried out.[14] Lord Mance said it was the natural implication from the separate agreement that if the seller received such a request for information they would inform the buyer.[15]

It is submitted that Lord Rodger was correct, while Lord Hope fell into error. The test for implied terms is one of strict necessity. There are two reasons to reject Lord Hope’s judgment due to this. First the implied terms test has been expressed as the officious bystander would deem such a term obvious so it goes without saying. The classic example is where a dock nominated for a ship, the dock will be deep enough.[16] In The Aramis the court held that there could be no implication if the parties would have acted the way they did with or without the contract.[17] Lord Bingham said "it would ... be contrary to principle to countenance the implication of contract from conduct if the conduct relied upon is no more consistent with an intention to contract than with an intention not to contract". Effectively, the test would not be satisfied if more than one conclusion is possible. In Steamship “County of Lancaster” Ltd v Sharp & Co the court refused to make an implication where there had been clear refusal by one party to such a term.[18]

Such a term arising from the statute is not strictly necessary. The statutory rules on acceptance are a code stipulating what amounts to acceptance.[19] It is possible for a buyer to make an election with or without the information, therefore the contract can function without it. Lord Hope’s judgment may be better rationalised on the basis of common law affirmation or simply that by asking for repair and not being furnished with the information by retaining the goods a reasonable period had not yet lapsed,[20] discussed below.

Second, Lord Hope’s implied term adds gloss to the statutory code of acceptance that is not there. The Sale of Goods Act 1979, s 35(2) precludes acceptance of goods by intimating to the seller they accept or acting inconsistently with the seller's ownership until the buyer has had a reasonable opportunity to inspect the goods after delivery to check they are in conformity with the contract. The buyer may also accept the goods by retaining them beyond a reasonable period without intimation or an inconsistent act. Of course, if the buyer does not possess the information about the defect the buyer may not know what the fault is. However, this may be distinguished from knowing there is a fault. A buyer may still inspect goods and discover a fault, even if they do not know what the fault is. They may then intimate to the seller they accept the goods or act in a way that is inconsistent with the seller’s ownership having been afforded a reasonable time to carry out the inspection. A reasonable period for retaining the goods may also lapse before discovery of the fault, as in Douglas v Glenvarigill. Nordic Marine is merely authority for the proposition that a reasonable time may take longer to expire in the absence of information, not that it cannot expire in the absence of the information. Therefore, it is, again, not necessary for the information to be disclosed to enable the buyer to exercise their right of election as the Act does not require it.

If this is wrong, there are other reasons to reject Lord Hope’s judgment. First, had the seller supplied the information, the seller would have complied with their contractual obligations and the buyer would have no grounds to reject the goods. As Lord Brown noted, by relying on the statute alone ignores the “agreement under which the sellers were permitted to take the goods back”.[21] Lord Hope was saying it is an implied term to enable the buyer to make an election from their rights but there can be no election to reject where the seller has complied with their statutory duties. 

Second, and following on from the first, is that the inspection and repair was carried out with agreement from the buyer. Lord Hope’s reasoning is that the implied term enables the buyer to make an “properly informed election”.[22] This is suggesting the buyer could still exercise their right to reject even after the information is given. The problem with this is acknowledged by Lord Brown as "a buyer who agrees to the repair of defective goods [keeping] the seller on the end of a string". By relying on the statutory framework only the buyer could reject the goods up to a point of re-delivery without regard to what was agreed between the parties.[23]

Finally, Lord Hope rationalises the existence of this implied term on post contract negotiations. Yet it is trite law that you cannot introduce new terms after the contract has been entered into.[24] The term would have no binding effect unless it was implicit at the point of contracting.

The position under the Consumer Rights Act 2015 entitles the consumer to repair or replacement. They can claim this if the trader is in breach of the statutory implied terms[25] or where there is a shortfall in the quantity delivered,[26] instalment delivery,[27] or failure to deliver.[28]

If a repair is requested by the consumer it must be completed within a reasonable period and without significant inconvenience to the consumer and the trader must also bear any necessary costs incurred in repair or replacement.[29] What is a reasonable time or significant inconvenience is determined by taking account of the nature of the goods, and the purpose for which the goods were acquired.[30]

If either repair or replacement are exercised the consumer cannot require the trader to do the other nor can they exercise any short term right to reject the goods under section 22 without giving the trader reasonable time to repair the goods, unless that time would cause significant inconvenience the consumer.[31] Finally, whether the repair is successful means whether the goods conform to the contract.[32]

The significance of asking for repair or replacement under the Consumer Rights Act 2015 is that it limits the use of other remedies. It has already been noted that the consumer cannot exercise the short-term right to reject during this period subject to there being a significant inconvenience. Furthermore, the consumer can only exercise a final right to reject or request a price reduction after the trader has had one opportunity to repair or replace the goods and they still do not conform to the contract; repair or replacement is impossible or disproportionate; or the repair or replacement could not be completed within a reasonable time or without significant inconvenience to the consumer.[33]

1.     J & H Ritchie was based on the effect of the agreement to repair on the buyer’s remedy of rejection. The Consumer Rights Act 2015 gives the consumer an express right to repair or replacement. How is the consumer’s express right to repair or replacement affected by the agreement to repair?

2.     Might the answer to question 1 differ is there is a material distinction between the judgments of Lords Hope and Rodger?

Rejection and Acceptance

If repair is unsuccessful a buyer may wish to seek another remedy. If they no longer wish to keep the goods they may seek a remedy of rejection. Rejection may be expressed as either a rejection of the goods or as a rejection to perform your contractual obligation. Both have the same effect: the contract is brought to an end. That is the entire effect of rejection. “When … one speaks of “termination,” what is meant is no more than that the innocent party or, in some cases, both parties, are excused from further performance”.[34]

Under the Sale of Goods Act 1979, once the effect of the breach is known a term can either be a condition or a warranty.[35] To be entitled to reject the goods there must be a breach of condition.[36] The Consumer Rights Act 2015 dispenses with this terminology and entitles a consumer to exercise a right to reject if there has been a breach of the statutory implied terms[37] or where there is a shortfall in the quantity delivered,[38] instalment delivery,[39] or failure to deliver.[40]

A right to reject may be lost under the Sale of Goods Act 1979 or under common law rules and equitable principles. Under the SGA 1979 a buyer may either waive the breach of condition, elect to treat it as a warranty,[41] accept the breach of condition,[42] or the breach of condition is so slight it would be unreasonable to reject.[43]  

An election enables the buyer to treat the condition as a warranty by affirming the contract. This was the position at common law and what amounts to an affirmation is found in common law. It can, therefore be distinguished from statutory acceptance. Affirmation by election is predicated on the buyer having sufficient information to make an informed choice.[44] The information normally required to make an election is that which is material, which may include the fact they had the right to reject.[45] The only requirements for acceptance under the statute are either an intimation of acceptance or an inconsistent act with the seller’s ownership,[46] both of which are subject to a reasonable time to check the goods are in conformity with the contract.[47] If a buyer does neither they will be deemed to have accepted goods by retaining the goods once a reasonable time has lapsed.[48] Acceptance and affirmation can further be distinguished by conduct: Statute limits acceptance to these categories but common law affirmation can extend further, such as conduct by the seller.[49]

A waiver may also take the form of an estoppel. This would require conduct or a representation by the buyer that they will not enforce their strict legal rights, which is detrimentally relied upon by the seller. This is not like affirmation or acceptance as the conduct or representation is signalling that the buyer will not enforce their rights to both rejection and damages. To put it another way, they are not making an election to affirm the contract and pursue damages, they are indicating they will take no enforcement action. This would require a clear representation or conduct to this effect; mere acceptance would be insufficient.[50]

For simplicity, herein it is useful to refer to acceptance generally, encompassing common law affirmation and statutory acceptance, and estoppel or waiver to cover all species of how the right of rejection may be lost, unless otherwise stated. This is in keeping with Carter’s observation that waiver should not be employed in a legal sense because it has been used to describe each of these species discussed.[51]

The Consumer Rights Act 2015 does not definitely stipulate which, if any, of these species of waiver are extant. It is clear from the Act that statutory acceptance has now been removed and a consumer automatically has the tiered remedies.[52] The Consumer Rights Act 2015 does not, however, amend the Sale of Goods Act 1979, s 11(2). The Consumer Rights Act 2015 clearly intended to amend the Sale of Goods Act 1979 insofar as stipulated. If it intended to alter all of the rules on waiver then it would have expressly done so. That means common law affirmation by election and estoppel can still prevent a consumer exercising a right to reject.

As noted above, the right to reject under the Consumer Rights Act 2015 is subject to a right to repair or replacement. If repair or replacement is requested before the 30 days expires, the short term right to reject may not be exercised unless the reasonable period required to complete the repair or replacement would cause significant inconvenience to the consumer. If the 30 days has expired then the trader must have had one attempt at repair or replacement and failed to provide conforming goods, repair or replacement was impossible or disproportionate, or repair or replacement could not be carried out within a reasonable time or without significant inconvenience to the consumer.[53]

1.     Based on Consumer Rights Act 2015, s 24(5)(a), does asking for repair or replacement mean the consumer is bound to accept a conforming redelivery, regardless of anything agreed between the parties, thereby superseding Lord Rodger’s judgment from J & H Ritchie?

2.     Or will any agreement for repair be considered in whether it amounts to a significant inconvenience, based on Consumer Rights Act 2015, ss 23(5), 24(5)(c), following Lord Rodger’s judgment?

3.     How do other forms of waiver interact with a consumer’s right to reject where a repair or replacement has failed or not completed within a reasonable time or caused significant inconvenience?

4.     What happens to the right to reject if the consumer makes a second request for repair after the first one fails?

Price reduction

A consumer may elect between rejection and price reduction where repair or replacement fails.[54] If the consumer does not elect to reject the goods the consumer may now pursue two monetary remedies: price reduction and/or damages. It would stand to reason that if a buyer is not entitled to damages where a waiver amounts to an estoppel, then price reduction would also be unavailable in such circumstances.

Price reduction has its origin in the Roman Law actio quanti minoris civilis.[55] Generally, it was a unilateral remedy that enabled a buyer to reduce the price according to the defects in the goods delivered. This remedy has subsequently formed part of the Convention on Contracts for the International Sale of Goods, Art 50. This permits the buyer to reduce the contractual price proportionally with reference to the value of goods delivered as defective and the value conforming goods would have had at the date of delivery. By way of an example, take goods sold for £100. At the date of delivery, had the goods conformed to the contract, they would be worth £80.  As delivered defective they are valued at £40. The proportional loss is 50%, so the price may be reduced by £50.

English law had not directly made such a remedy available until 1994.[56] Since then there has only been two cited case.[57] Bridge has acknowledged that the common law example of abatement is a functional equivalent of the price reduction remedy,[58] but is limited in application by comparison. There was also the possibility of self-help. Nothing in common law would prevent the parties mutually agreeing to reduce the price, but had no statutory authority to do so.

Its somewhat short history means the availability of price reduction is somewhat of an unknown quantity in English Law. The nuances of common law and judicial interpretation mean complementarities of the English legal system may impact on its application.

A consumer is entitled to price reduction:

(a)   after one repair or replacement, the goods do not conform to the contract;

(b)   because of section 23(3) the consumer can require neither repair nor replacement of the goods; or

(c)   the consumer has required the trader to repair or replace the goods, but the trader is in breach of the requirement of section 23(2)(a) to do so within a reasonable time and without significant inconvenience to the consumer.[59]

A buyer would have to satisfy one of these three elements for a price reduction. A price reduction is defined as “the right to require the trader to reduce by an appropriate amount the price the consumer is required to pay under the contract…”.[60] Unlike the CISG’s proportional reduction test, the UK price reduction is an “appropriate amount”. The Explanatory Notes to the Consumer Rights Act 2015 state that an appropriate reduction would “reflect the difference in value between what the consumer paid for and the value of what they actually receive” but an appropriate amount will “depend on the circumstances and the remaining functionality of the goods”.

The inclusion of price reduction appears to offer better rights to the consumer on top of their previous rights under the Sale of Goods Act 1979. This may make this remedy preferable to the previous remedy of damages. The first benefit is that no reference is made to the date of delivery for calculating the value of price reduction. The buyer may simply reduce the contract price to the value of the goods received. This will protect the buyer from adverse market price movements where goods have not been rejected.  Take the example of the value of goods that drop from £100 at the point of contracting to £80 at the point of delivery. The defective goods are defective and are worth £40. The previous remedy to the consumer for breach of warranty was under common law or statutory damages.[61] The consumer could only recover £40 to put them in a position had the contract been performed. Damages do not compensate buyers for adverse market price movements to put them in a position had the contract never been entered into,[62] except in special circumstances.[63] The consumer would lose out by £20. Under the explanation of “appropriate amount”, price reduction would enable the buyer to recover the difference between the contractual price and the value of goods received, which is £60. The consumer may even be able to reduce the price further upon the explanation given as to “appropriate amount” if the circumstances disclose that it should.

Second, it appears there is also a unilateral ability to demand the trader reduce the price. According to section 24(1) the consumer has a right to require the trader to reduce the price provided they are entitled to price reduction in accordance with above.

The ability to shift market price risk back to the trader while keeping the goods, and the ability to recover a higher amount than damages, may see price reduction become a common consumer weapon, while damages will become the exception, as is the practice on the Continent.[64]

1.     Will courts permit consumers to use price reduction to take advantage of adverse market movements?

2.     What happens to a price reduction remedy if the consumer makes a second request for repair after the first one fails?

Damages

The availability of any of the remedies in the Consumer Rights Act 2015 does not preclude the consumer exercising any other remedies. This includes damages, which may be exercised in conjunction with any price reduction provided there is not double recovery,[65] as is the practice on the continent.[66]

Damages are designed to put the consumer or buyer into a position they would have been in had the contract been performed. Therefore the rules in the Sale of Goods Act 1979 permitted a buyer to recover the difference between the value of the goods at the time of delivery and the value they would have had if they had fulfilled the warranty.[67]

This formula means that as well as price reduction enabling the consumer to shift negative price movements back on to the trader, the consumer can benefit from positive price movements. Take the following example: A consumer purchases goods for £100. On the date of delivery they are worth £150 but they are delivered warranted at £50. The appropriate amount would only be £50 if the court disregards market price movements in any formula it applies. Damages, however, could be reclaimed on top of the £50 price reduction. They should have received goods worth £150 but only have £100 (£50 goods + £50 price reduction). The additional £50 can be recovered in damages.

One distinction with the Sale of Goods 1979 rules on damages and any damages claimed for a breach of the Consumer Rights Act 2015 is that the former are calculated in accordance with the provisions in that Act. However, the Consumer Rights Act 2015 makes no provision for the calculation of damages and the Sale of Goods Act 1979 rules on damages now expressly state they do not apply to the Consumer Rights Act 2015.[68] That means damages would be calculated under common law rules. These can be quite technical when dealing with issues such as remoteness and mitigation of loss.

1.     This may not cause any immediate problems for consumers but if the purpose of the Consumer Rights Act 2015 was to consolidate the law, removing rules important for the consumer’s remedies is surely more a hindrance than a help.

---

[1] Consumer Rights Act 2015, s 3

[2] Consumer Rights Act 2015, s 23

[3] Lowe v W Machell Joinery Ltd [2011] EWCA Civ 794; Douglas v Glenvarigill [2010] CSOH 14 – as cited on Westlaw; W Ervine, ‘Cure and Retender Revisited’ (1996) Journal of Business Law 799 – and 1 cited article

[4] Sale and Supply of Goods to Consumer Regulations 2002/3045, Reg 5; previously Sale of Goods Act 1979, ss 48B, C before repeal

[5] Sale of Goods Act 1979, s 36; J & H Ritchie Ltd v Lloyd Ltd [2007] UKHL 9 at [13]

[6] J & H Ritchie Ltd v Lloyd Ltd [2007] UKHL 9 at [7]

[7] J & H Ritchie Ltd v Lloyd Ltd [2007] UKHL 9 at [15], [34], [54]; See also, CMS Scotland Ltd v ING Lease (UK) Ltd [2010] CSOH 39 at [153], [182] – where successful repair rescinded the right to reject and there was an implied term in the hire purchase agreement to that effect

[8] J & H Ritchie Ltd v Lloyd Ltd [2007] UKHL 9 at [16]

[9] Clegg v Andersson t/a Nordic Marine [2003] 2 Lloyd's Rep 32

[10] J & H Ritchie Ltd v Lloyd Ltd [2007] UKHL 9 at [17]

[11] J & H Ritchie Ltd v Lloyd Ltd [2007] UKHL 9 at [18]

[12] J & H Ritchie Ltd v Lloyd Ltd [2007] UKHL 9 at [33]; CMS Scotland Ltd v ING Lease (UK) Ltd [2010] CSOH 39 at [156] – recognised the difference in Lord Rodger’s reasoning

[13] J & H Ritchie Ltd v Lloyd Ltd [2007] UKHL 9 at [37]

[14] J & H Ritchie Ltd v Lloyd Ltd [2007] UKHL 9 at [45]

[15] J & H Ritchie Ltd v Lloyd Ltd [2007] UKHL 9 at [52], [54]

[16] The Moorcock (1889) 14 PD 64

[17] The Aramis [1989] 1 Lloyd’s Rep 213, 224, CA

[18] Steamship “County of Lancaster” Ltd v Sharp & Co (1889) 24 QBD 158

[19] Glencore Grain Rotterdam BV v Lebanese Organisation for International Commerce [1997] EWCA Civ 1958, [1997] CLC 1274, 1286

[20] See, for example, Douglas v Glenvarigill [2010] CSOH 14 – finding that the reasonable period of time to reject began to run from delivery and had lapsed by the time of repair

[21] at [44]

[22] J & H Ritchie Ltd v Lloyd Ltd [2007] UKHL 9 at [18]; see also at [16]

[23] J & H Ritchie Ltd v Lloyd Ltd [2007] UKHL 9 at [44]

[24] Thornton v Shoe Lane Parking Ltd [1971] QB 163

[25] Consumer Rights Act 2015, ss 9-11, 13-4, 19, Sch I para 10, 30

[26] Consumer Rights Act 2015, s 25

[27] Consumer Rights Act 2015, s 26

[28] Consumer Rights Act 2015, s 28

[29] Consumer Rights Act 2015, s 23(2)

[30] Consume Rights Act 2015, s 23(5)

[31] Consumer Rights Act 2015, s 23(6), (7)

[32] Consumer Rights Act 2015, s 23(8)

[33] Consumer Rights Act 2015, s 24(5)

[34] Photo Productions Ltd v Securicor Transport Ltd [1980] AC 827, 844

[35] Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha [1962] 2 QB 26 – terms may be classified as ‘innominate’ before this point

[36] Sale of Goods Act 1979, s 11(3)

[37] Consumer Rights Act 2015, ss 9-11, 13-4, 19, Sch I para 10, 30

[38] Consumer Rights Act 2015, s 25

[39] Consumer Rights Act 2015, s 26

[40] Consumer Rights Act 2015, s 28

[41] Sale of Goods Act 1979, s 11(2)

[42] Sale of Goods Act 1979, s 11(4)

[43] Sale of Goods Act 1979, ss 15A, 30A

[44] Corinth Motor Oil Hellas Refineries SA v Shipping Corporation of India (The Kanchenjunga) [1990] 1 Lloyd’s Rep 391, HL, 398–99; see also M Bridge, The Sale of Goods (3^rd ed, OUP 2014) 6.121

[45] Corinth Motor Oil Hellas Refineries SA v Shipping Corporation of India (The Kanchenjunga) [1990] 1 Lloyd’s Rep 391, HL, 398–99; see also Peyman v Lanjani [1985] Ch 457, CA; Transcatalana de Comercio SA v Incobrasa Industrial e Commercial Brazileira SA [1995] 1 Lloyd’s Rep 215, 220; AMB Generali Holding AG v Seb Trygg Liv Holding Aktiebolag [2005] EWCA Civ 1237 at [46]; M Bridge, The Sale of Goods (3^rd ed, OUP 2014) 6.121

[46] Sale of Goods Act 1979, s 35(1)

[47] Sale of Goods Act 1979, s 35(2)

[48] Sale of Goods Act 1979, s 35(4)

[49] See, for example, Glencore Grain Rotterdam BV v Lebanese Organisation for International Commerce [1997] EWCA Civ 1958, [1997] CLC 1274, 1286

[50] Ets Soules & Cie v International Trade Development Co Ltd [1980] 1 Lloyd’s Rep 129

[51] J Carter, ‘Panchuad Freres Explained’ (1999) 14(2) Journal of Contract Law 239

[52] Consumer Rights Act 2015, Sch I, paras 10, 24; amending the Sale of Goods Act 1979, ss 11(4), 35

[53] Consumer Rights Act 2015, s 24(5)

[54] Consumer Rights Act 2015, s 24(5)

[55] For a full discussion on origins, see, for example, J Hallebeek, ‘The Ignorant Seller’s Liability for Latent Defects: One Regula or Various Sets of Rules’ in J Cairns and P Du Plessis (eds), The Creation of the Ius Commune. From Casus to Regula, (Edinburgh University Press, 2010) Ch 8; E Bergsten and A Miller, ‘The remedy of Reduction of Price’ (1979) 27 American Journal of Comparative Law 255

[56] Sale and Supply of Goods to Consumer Regulations 2002/3045, Reg 5; previously Sale of Goods Act 1979, ss 48B, C before repeal

[57] Richford v Parks of Hamilton (Townhead Garage) Ltd  2012 GWD 24-505 (Sh Ct (South Strathclyde) (Hamilton)); Douglas v Glenvarigill [2010] CSOH 14 – as cited on Westlaw

[58] M Bridge, ‘Markets and damages in the sale of goods cases’ (2016) Law Quarterly Review 405, 416-20

[59] Consumer Rights Act 2015, s 24(5)

[60] Consumer Rights Act 2015, s 24(1)

[61] Sale of Goods Act, s 53; Hadley v Baxendale (1854) 9 Ex 341

[62] Consumer Rights Act 2015 Explanatory Notes p 22 para 103; See also, M Bridge, The International Sale of Goods (OUP 4^th ed, 2017) Ch 9.104

[63] Taylor & Sons v Bank of Athens (1922) 27 Com Cas 142; James Finlay & Co v Kwik Hoo Tong Handel Maatschappij [1929] 1 KB 400, CA; Kwei Tek Chao v British Traders and Shipper Ltd [1954] 2 Q.B. 459

[64] E Bergsten and A Miller, ‘The remedy of Reduction of Price’ (1979) 27 American Journal of Comparative Law 255, 257

[65] Consumer Rights Act 2015, s 19(9), (10)

[66] CLOUT case No. 935 [Handelsgericht des Kantons Zürich, Switzerland, 25 June 2007]; CLOUT case No. 938 [Kantonsgericht des Kantons Zug, Switzerland, 30 August 2007]

[67] Sale of Goods Act 1979, s 53(3)

[68] Sale of Goods Act 1979, ss 51(4), 53(4A)