- Legislation implies a number of important terms into all sale of goods contracts to protect purchasers. These terms are of relate to title, description and quality. These implied terms apply whether the contract is with a consumer or a business. However, in B2B contracts, certain of the implied terms may be restricted or excluded depending upon whether it is reasonable to do so in the circumstances.
- Legislation restricts the extent to which a company is allowed to exclude or limit its liability generally to a greater degree where trading on standard terms that have not been individually negotiated.
- Legislation implies that:
- goods are of satisfactory quality. Goods are of satisfactory quality if they meet the standard which a reasonable person would regard as satisfactory, taking account of: (a) any description; (b) the price; and (c) all other relevant circumstances;
- where goods are sold by description, that the goods will correspond to that description;
- goods will be fit for any purpose the purchaser expressly or impliedly makes known to the seller; and
- where goods are sold by sample, goods correspond with such sample.
- Terms excluding or restricting liability for these implied terms are (a) ineffective against consumers; and (b) enforceable in B2B contracts only to the extent that they are “reasonable”.
- Legislation implies that the seller has the right to sell the goods, that the goods are free from undisclosed charges or encumbrances and that the purchaser will enjoy quiet possession of the goods.
- A term excluding or restricting liability for these implied terms is wholly ineffective whether against a consumer or a business.
Rights and Remedies of Purchaser
For B2B contracts:
- Claim for damages (under contract or negligence)
- If breach of contract is material, reject the goods and treat contract as repudiated
- Seek specific implement (only if the seller fails to supply the goods and the sale is of some specific article e.g. where an alternative source of supply is not readily available).
Under legislation, where goods do not conform to the contract at the time of delivery only a consumer has the right to require the seller to repair or replace the goods within a reasonable time and without significant inconvenience to the consumer. In B2B contracts, the purchaser has no such right under legislation, unless the sale was for specific articles and there is no alternative source available – in which case, the purchaser could demand specific implement of the contract. Otherwise, the purchaser would only have a right to the repair or replacement of the goods where such right or remedy is stipulated in the contract.
Right to Choose Subsequent Performance
The seller does not have the right to choose in B2B contracts.
Costs of Subsequent Performance
See above. In B2B contracts, the purchaser has no such right under legislation. Only applicable in consumer contracts: If the consumer requires the seller to repair or replace the goods, the seller must bear any necessary costs incurred in doing so (including in particular the cost of any labour, materials or postage).
Conditions for Claims for Damages
- Damages for breach of contract aim to put the parties in a position they would have been in if the contract had been performed. Damages are intended as compensation to the injured party, not as a punishment of the party in breach. Damages are subject to common law rules, in particular that the damage is not too remote (i.e. it was in the contemplation of the parties at the time of contract) and the claimant’s duty to mitigate.
- Damages for negligence aim to put the parties in the position as if the negligent act had not occurred. These are again subject to the common law rules of remoteness (was the damage reasonably foreseeable at the time the duty was breached) and mitigation.
- For both breach of contract and negligence the burden of proof is on the claimant to prove its loss and the claimant must show factual causation between the breach and the claimant’s damages.
- The conditions for claims for damages are the same for B2B and consumer contracts.
Extent of Claims for Damages/Limitation of Liability
For both B2B and consumer contracts: In addition to the circumstances in which the implied terms cannot be excluded or limited (as set out above):
- Any exclusion or restriction of liability for death or personal injury caused by negligence is wholly ineffective.
- Liability for one’s own fraud or fraudulent misrepresentation cannot be excluded as a matter of public policy.
- Any exclusion or restriction of liability for negligence (other than for death or personal injury e.g. property damage) is only enforceable if it satisfies the “reasonableness” test, taking into account:
- the strength of the bargaining positions of both parties;
- whether any inducement was given to agree on the exclusion or restriction of liability;
- whether the purchaser knew or ought reasonably to have known of the existence and extent of the exclusion or restriction of liability;
- where the term excludes or restricts any relevant liability if some condition is not complied with, whether it was reasonable at the time of the contract to expect that compliance with that condition would by practicable; and
- whether the goods were manufactured, processed or adapted to the special order of the purchaser.
- In B2B contracts on the seller’s standard terms, a term by which the seller excludes or restricts its liability for breach of contract, claims to be entitled to render a contractual performance substantially different from that which was reasonably expected of it or claims to be entitled to render no performance at all will be subject to the reasonableness test.
Withdrawal from Sales Contract
Any breach of the terms implied by legislation set out above (i.e. that they are of satisfactory quality, correspond with the description, are fit for purpose and correspond with the sample) entitles the purchaser to reject the goods and treat the contract as repudiated if the breach is material, provided the purchaser complains within a reasonable time and has not “accepted” the goods (see “Purchaser’s Obligation to Inspect Goods and Report Defects in B-2-B-Contracts’ below). However, where the breach is not material, the breach only gives rise to a right to claim damages. In the case of consumer contracts, a breach by the seller of any of the implied terms above is deemed to be a material breach of contract.
Limitation Period for Claims for Defects
- The limitation period for contractual claims is five years from the breach of contract which, in practice, is taken to be the date on which the goods were delivered.
- The limitation period for negligence claims is five years from the date the damage is suffered. In the case of “latent damage”, the period begins to run when the claimant becomes aware of the damage, or could with reasonable diligence, have been aware.
- Parties may agree longer or shorter limitation periods. However, as noted above, where a contract is on the seller’s standard terms, liability in respect of breach of contract can only be excluded or restricted to the extent it is reasonable to do so.
Purchaser’s Obligation to Inspect Goods and Report Defects in B2B Contracts
- See “Withdrawal from Sales Contract” above regards the purchaser’s obligation to complain about the goods within a reasonable time and prior to “acceptance”. A court will decide what is a reasonable time taking into account all of the circumstances. Acceptance can occur: (i) by intimation to the seller that the purchaser has accepted the goods; (ii) through an act after delivery inconsistent with the seller’s ownership; or (iii) by retention of the goods beyond a reasonable time.
- Contractual restrictions on time limits within which the purchaser can bring an action after delivery of goods in a seller’s standard terms are subject to the reasonableness test. Legislation specifically prevents making the liability or its enforcement subject to restrictive or onerous conditions.