Scenario I – Contract Law
In the scenario, it is evident that Jim breached section 14 of the Sale of Goods Act 1979 when he sold to Bettina what was essentially transpired to be “a scrap” of a car worth £50 (whereas Bettina paid for it £5,000). Section 14 of the Sale of Goods Act states that any goods must be of “a satisfactory quality” at the moment of their sale, as amended by the Supply of Goods to Consumers Regulation 2002. Thus, the primary question which arises in the scenario is whether Jim can absolve himself of his breach/responsibility for his defective product pursuant to his exclusion clause. The first question to answer here is whether Jim’s exclusion notice was successfully incorporated into the contract between Jim and Bettina; see Poseidon Freight Forwarding Co. Ltd. v Davies Turner Southern Ltd . If it was incorporated into the contract; construed correctly and is not affected by the Unfair Contract Terms Act 1977, then it will mean that Jim could, indeed. escape his responsibility to Bettina, and do so not only in relation to her loss of £4,950 for the taxi, but also in relation to £1,000 that Bettina lost when she could not secure a subsequent contract for her company.
The rule is that a notice absolving one of liability will be deemed to be successfully incorporated into a contract when it was presented to a claimant “at or prior to contracting”, Olley v Marlborough Court Ltd . In Thornton v Shoe Lane Parking, it was decided that the notice placed inside the park could not be deemed to have been presented to a claimant prior to contracting because it was too late for the claimant to consent to terms when he has already entered the park. Similarly, Jim could not claim that he presented the notice to Bettina prior to or at contracting, because his notice was not visible to Bettina. It also does not matter if Bettina saw Jim’s notice on previous occasions, because what really matters is whether she saw the notice at contracting or just before her purchase of a defective taxi in question, and, clearly, she did not. Jim’s terms may have changed the last time Bettina visited Jim’s shop. It is also a rule that terms must have been included in a document intended to have a contractual effect , but, because it is unclear what was mentioned in the contract for sale between Jim and Bettina, it is hard to speculate on that point. Another requirement is that some reasonable steps must have been taken by one party to bring the terms to the attention of another. This is an objective test. In Sugar v London, Midland & Scottish Railway Co , it was held that the notice was not “sufficiently incorporated” when it was “obliterated by a stamp”. Equally in the scenario, Jim failed to make sure that his notice is not obstructed by any object, and since the terms of his notice are very “onerous” (nearly unreasonable), Spurling v Bradshaw , he should have taken even greater care to ensure that the notice is clearly visible.
Any term may also be incorporated into a contract between the parties through “a course of dealing”, Hardwick Game Farm v Suffolk Agricultural Poultry Producers Association. In other words, through a custom of trading, parties could have inadvertently agreed upon some term. In McCutheon v David MacBrayne Ltd , it was also held that there must have been such “regularity of dealings” between the parties that leads both to reasonably suppose that the particular terms were incorporated. In Hollier v Rambler Motors (AMC) Ltd , it was explicitly stated that two (or even three) previous “business dealing” occasions between the parties would not be sufficient for any terms to be presumed to be incorporated. Poole also talks about the case of Capes Ltd v Western Arable Services , where it was decided that four contracts (for the sale of crop) in one year could not establish a necessary “course of dealing”. In the scenario, Bettina and Jim’s previous ten dealings may as well be insufficient for there to be “a [relatively constant pattern of a] course of dealing” between the parties and, thus, the incorporation of any concrete terms, such as Jim’s exclusion of responsibility notice. Moreover, even if previous ten dealings between Jim and Bettina are sufficient to establish “a course of dealing”, it is clear that no concrete terms had been incorporated into their contract because, on previous occasions, Jim was not strict in applying his exclusion clause. This means that, previously, Bettina might not have even taken into account Jim’s exclusion notice or might not even have paid any attention to it. Thus, it seems that Jim’s exclusion notice is not successfully incorporate into the sale contract, and Jim cannot rely on it to absolve himself of the responsibility for a defective taxi he sold to Bettina.
Any exclusion of liability notice will be construed strictly by the courts. However, since the wording in Jim’s exclusion clause is clear, it is not necessary to debate whether the clause is appropriately worded or not , and the main questions then become whether the Unfair Contract Terms Act 1977 applies to Jim’s exclusion notice, and whether the Act can nullify Jim’s exclusion clause. In the scenario, it is evident that the 1977 Act cannot nullify Jim’s notice without prior consideration because neither section 12 of the Sale of Goods Act 1979 nor section 8 of the Supply of Goods (Implied Terms) Act 1973 are applicable (for there to be no possibility for Jim’s liability for breach to be excluded). Thus, it is necessary to consider the basis of Jim’s liability (a breach of contract for the sale of goods under section 6 (1) of the 1977 Act, and section 14 of the 1979 Act (quality of goods)). This is because liability can be excluded under the 1977 Act by reference to the contract term when the term satisfies “the requirement of reasonableness” when these sections apply. It is generally thought that there are three different tests of reasonableness under the 1977 Act. However, the one most applicable to the scenario is the one under section 11 (3) of the Act which concerns notices. Thus, under the section, the requirement is that “it should be fair and reasonable to allow reliance on [a notice], having regard to all the circumstances”. Under a more general requirement, the term must also have been a “fair and reasonable one” to be included, considering all the circumstances. Moreover, it should be borne in mind that such fairness and reasonableness of a notice or of a term (its inclusion) should arise at the point of contracting, and not at a point of breach. This is an important distinction. It seems that a number of factors will be considered by courts to decide whether this requirement of reasonableness and fairness is satisfied, including the degree of bargaining power between the parties and the meaning of the clause, Watford Electronics Ltd v Sanderson CFL Ltd . For example, any inequality of bargaining power between the parties could mean that the exclusion clause is to be considered void. Also, in considering the degree of this inequality of powers, courts may consider whether it would have been feasible (in practical terms) for a party to seek services elsewhere, RW Green Ltd v Cade Bros Farms .
In the scenario, it should be clear that it is neither fair nor reasonable for Bettina to have relied on Jim’s exclusion clause, and the exclusion clause itself is neither fair nor reasonable. This is because it seems that Jim has all the bargaining power to dictate his own business terms and, taking into account Jim’s clause, Bettina, while paying a fair price, cannot even have a conviction that Jim’s products would be workable or satisfactory. Furthermore, it seems that Jim takes advantage of his customers by placing such an unfair notice at the front of his shop. This is because he makes his customers pay for his goods without even providing any guarantee as to their quality (apart from his advice to contact him for repairs). It is also clear that it is not practicable for Bettina to go elsewhere to seek vehicles for her company, because Jim has been providing taxis for Bettina for some time, and it is clear that his business specialises in the manufacture of taxis, which are cars specifically designed for customer transportation and may not be readily available elsewhere.
Mcdonald and Atkins also state that, when considering the reasonableness of a notice and its inclusion, it is vital to also think whether a wronged party had sufficient knowledge of an exemption or exclusion clause. This is because no or insufficient knowledge of a notice by a wronged party may point to the fact that the notice and its inclusion is unreasonable, Stevenson v Nationwide Building Society . In the scenario, it is clear that Bettina did not have sufficient knowledge of Jim’s exclusion clause (or only had minimal knowledge), for example, she failed to notice it when she came to purchase a defective car. Therefore, considering the above analysis, it can be concluded that Jim’s notice does contain unfair terms and should be declared void pursuant to the Unfair Contract Terms Act 1977.
Next, it is important to consider how the answer would have been different if Bettina bought a taxi from Jim “for purely personal use”. In this case, it is likely that Bettina would have been “a consumer” under the Consumer Rights Act 2015 . Poole also states that a party is to be treated as “a consumer” if they do not make (or intend to make) a contract during the course of their business arrangements (while the other party must intend to forge a contract as a result of their business dealings). Thus, if Bettina is “a consumer”, this would mean that there was some agreement between a trader, Jim, and a consumer, Bettina, for the trader (Jim) to supply relevant goods. Section 62 (4) of the 2015 Act provides a definition of an “unfair term”, and section 62 (1) states that “an unfair term of a consumer contract is not binding on the consumer”. Under the 2015 Act, “a term is unfair if, contrary to…good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer.” Considering that Jim’s notice is incorporated into the contract (a highly unlikely eventuality), then it seems that his exclusion clause amounts to “an unfair term” under the 2015 Act, because it definitely creates an imbalance of power and rights between Bettina and Jim, and Bettina does suffer consequences as a result. Bettina is far worse off than Jim because of Jim’s clause, i.e., she does not have a right to adequate goods (even though she paid), and, generally, she cannot even voice concerns because Jim purposefully absolves himself of all responsibility for any vehicle defect (irrespective of his “repair” contracts). Also, section 9 (1) of the 2015 Act explicitly states that “every contract to supply goods is to be treated as including a term that the quality of the goods is satisfactory”, and section 19 of the Act gives consumers rights to enforce terms about goods, including the right to repair and seek replacement. This means that, if Bettina is a consumer, the right to repair her vehicle is already included in her original contract, and Jim’s provision of quality vehicles is enforceable irrespective of his exclusion clause.
Broadly, it can be concluded that Jim’s exclusion notice does not seem to have been incorporated successfully into the contract between Jim and Bettina, and, even if it were, it must be declared void under the Unfair Contract Terms Act 1977. Thus, without any exclusion notice to rely on, there was clearly a breach by Jim of his contractual duty to provide satisfactory goods to Bettina. The result is that Bettina can claim damages from Jim in relation to her purchased and defective taxi, as well as in relation to the loss she suffered through her failure to secure the contract because of a defective vehicle bought.