Avoid!

Photo by Eiliv-Sonas Aceron on Unsplash

The above photograph conveys everything that is pleasant about staying in a nice hotel or boutique guesthouse.

Sadly, this was not the case for one couple, Mr and Mrs Jenkinson, who had booked into accommodation (the Broadway Hotel) in the English seaside resort of Blackpool in 2014. The couple were so disappointed by the lack of basic hygiene standards and facilities that they were motivated to leave a review on Tripadvisor – a very bad review, in fact, which did the establishment absolutely no favours.

How did the hotel respond?

Not in the way that you would think the management should have responded i.e. by issuing the couple with a grovelling apology and, possibly, a refund?

No, the couple were checking their credit card statement some days after their review had been posted and noticed that £100 had been charged to their account by the Broadway Hotel. Surely, this must have been some oversight or mistake? Following further enquiries by the couple, they discovered that the hotel had levied the charge because they had the nerve to leave a bad review on Tripadvisor about the very poor standards they had experienced while staying there.

When the couple objected to this, the establishment told them to check the small print in its booking documents – which Mrs Jenkinson had admittedly signed. True enough, buried somewhere in the small print was a statement to the effect:

Despite the fact that repeat customers and couples love our hotel, your friends and family may not. … For every bad review left on any website, the group organiser will be charged a maximum £100 per review.

Now, the Broadway Hotel was by no means luxury accommodation (the Jenkinsons had paid £36 for an overnight stay), but even budget hotels must meet basic standards such as adequate hygiene. The hotel failed miserably to meet these standards. More and more often, we do rely on the experiences of other people to guide us in our choices as consumers and the Jenkinsons were posting a fair comment review on Tripadvisor. The ability of businesses and traders to prevent consumers doing this would clearly be a retrograde development.

At the time, the story went viral and Mr and Mrs Jenkinson were invited on to the BBC Television’s Breakfast show to talk about their experiences. Needless to say, the hotel got more than it bargained for with the adverse media publicity and Blackpool Council’s Trading Standards Department taking a keen interest in its business practices.

A link to the story on the BBC website about the Jenkinsons’ experiences at the Broadway Hotel, Blackpool in 2014 can be found below:

https://www.bbc.co.uk/news/technology-30100973

Was this clause enforceable?

At the time of the story breaking, I fortuitously happened to be teaching Unfair Terms in Contract Law to two of my classes. I had never seen a clause like this before and informed my students that it was very unlikely to be capable of enforcement by the hotel given its blatant unfairness – let alone the implications for freedom of speech in the UK.

I’ve long wanted to write about the Jenkinsons’ experience and I was reminded of their story some weeks ago when teaching a group of students about unfair terms in contracts.

Normally, when I discuss this area of the law, I make students aware that businesses used to be extremely trigger happy when using all sorts of unfair terms in contracts in order to avoid their responsibilities to customers.

Prior to the introduction of the Unfair Contract Terms Act 1977 (about more later), businesses and other organisations could exclude or limit their liability for causing death and personal injury so long as adequate notice of the existence of the term was brought to the attention of the other party to the contract.

So, for example, if a garage owner wished to exclude his liability to a customer who put a vehicle in for repairs or a service, he could simply alert the customer to the existence of an exclusion or limitation clause in the contract. The customer leaves the car to have the brakes fixed; picks the car up later; the mechanic has been negligent and not carried out the work properly; the customer later suffers a terrible accident because the brakes haven’t been fixed. Hey presto, no need to worry because the garage owner could point to his standard terms of business which contained an exclusion clause. In effect, the exclusion clause was a get out of jail card.

Another tactic often deployed was where the business could argue that the customer had constructive notice of the existence of the unfair term e.g. the customer should have read the documents presented to him or her. Mrs Jenkinson had signed the booking documents presented to her by the Broadway Hotel. She later admitted that she did not read the terms because she did not have her spectacles with her.

On occasion, the courts might intervene and side with a party objecting to the enforcement of an unfair term under a number of judicial doctrines:

  • the repugnancy rule
  • fundamental breach
  • the contra proferentum rule

Despite judicial intervention, the odds were still stacked against parties who wished to challenge the inherent unfairness and abusive nature of attempts by traders and businesses to exclude or limit their liability.

Sensibly, the UK Parliament decided to tackle what was becoming the Wild West of contractual terms and passed the Unfair Contract Terms Act 1977 which made such attempts to evade liability automatically void.

Generally speaking, the Act made it much harder (but not impossible) for businesses to impose other unfair terms on consumers. Businesses, on the other hand, were still, advised to read the small print of any agreements that they were contemplating entering, although courts would be more sympathetic if a larger business tried to use its unequal bargaining power to impose unfair terms on a smaller business.

The European Union also passed legislation (European Council Directive 93/13 on Unfair Terms in Consumer Contracts and, for a while, the Unfair Terms in Consumer Contracts Regulations of 1994 and 1999 respectively were in force. These were later repealed and replaced by the Consumer Rights Act 2015, although the terms of the Directive live on in this legislation (remember: EU Law is hardwired into UK national laws).

Along the way, the Enterprise Act 2002 and the Consumer Protection from Unfair Trading Regulations 2008 severely restricted the ability of businesses and traders to impose very unfavourable terms on consumers.

The net effect of all of this legislation was that consumers were really protected against the imposition of unfair terms by traders and businesses. Consumers were often deemed to be the weaker party in a relationship with traders and businesses and, therefore, needed to be protected.

Returning to the Jenkinsons’ experience at the a Broadway Hotel, it is worth emphasising that the couple were being provided with accommodation services as consumers and, therefore, would have been entitled to the benefit of existing UK consumer protection laws on the statute books in 2014.

Had this incident occurred in 2020, the Jenkinsons would, of course, have been able to challenge the legality of the penalty clause primarily in terms of the Consumer Protection from Unfair Trading Regulations 2008 and the Consumer Rights Act 2015.

Conclusion

Happily, we have come a long way in consumer law where businesses could previously impose all sorts of unfair, not to say downright abusive, terms on customers.

We are now in a position, where UK consumers will be protected by legislative safeguards which should ensure that these types of terms will not be permitted to stand i.e. they will be automatically void or simply unenforceable. The penalty clause which the Jenkinsons experienced would doubtless have fallen foul of consumer protection legislation had the issue got anywhere near a court room. Nonetheless, it was an interesting example of the inventiveness of businesses regarding the creation of new types of unfair terms in contracts.

It remains the case, however, that in business to business contracts (or in private transactions), it will be highly advisable for parties to remain wary about the potential unfairness of contractual terms. Only the most outrageous and downright abusive terms (such as excluding or limiting liability for death or personal injury) will be automatically void – no matter how much notice of their existence has been given by the party seeking to rely on them. If a business is seeking to have a clause declared void or unenforceable, the debate to be had in terms of the Unfair Contract Terms Act 1977 will often centre around the perceived reasonableness (or otherwise) of the clause.

Copyright Seán J Crossan, 1 March 2020

Foreign objects or I’ve got a bone to pick with you … (Part 2)

Photo by Owen Beard on Unsplash

One of the first articles which I wrote for this Blog concerned the liability of producers and suppliers for foreign or dangerous objects.

The article had been inspired by an incident at a Primark store where a member of the public had sensationally discovered part of a human finger bone in a pair of socks.

This gave me a very convenient opening to review the area of product liability. The leading case, of course, is Donoghue v Stevenson [1932] AC 562, [1932] SC (HL) 31, [1932] ScLT 317 or the ‘snail in the ginger beer bottle’. This decision of the House of Lords established the foundations of the modern law of negligence – in Scotland and in England.

Mrs Donoghue did not have a contract of sale with Mr Minchella, the seller of the lemonade bottle and, therefore, she could not bring a claim for damages in terms of the (then) Sale of Goods Act 1893. Even today, Mrs Donoghue would not have a remedy against the seller under the Consumer Rights Act 2015.

So, who could Mrs Donoghue bring a claim against? The manufacturer would seem to be the logical response to this question, but this is the application of hindsight in late 2019. Several years before the Donoghue case, a claim against a manufacturer for harm caused by a dangerous product had been comprehensively rejected by the Inner House of the Court of Session (see Mullen v A G Barr & Co Ltd [1929] SC 461). The House of Lords was, therefore, breaking new legal ground when it found in Mrs Donoghue’s favour against Stevenson, the manufacturer of the lemonade bottle. Stevenson owed a duty of care to the ultimate consumer of the product – irrespective of whether this individual had a contract of sale with the company.

Since Donoghue v Stevenson, this area of the law has developed considerably with the UK Parliament passing the Consumer Protection Act 1987. Part 1 of this Act established a regime of strict liability in relation to dangerous products. Previously, the claimant would be required to prove fault on the part of the manufacturer.

Theoretically, it’s now much easier for a consumer to win a claim against a manufacturer (or someone in the chain of supply) if s/he have suffered injury or damage to property as a result of exposure to dangerous products.

Returning to Primark, the company and the Police have conducted an investigation into the incident and they have not been able to establish responsibility, anywhere in the chain of supply, for the bone’s inclusion in the pair of socks.

It looks as if the affair will go down as one of life’s unsolved mysteries.

A link to the latest developments in the Primark case can be found below:

https://edition.independent.co.uk/editions/uk.co.independent.issue.281219/data/9261571/index.html

Related Blog article:

https://seancrossansscotslaw.com/2019/01/25/foreign-objects-or-ive-got-a-bone-to-pick-with-you/

Copyright – Seán J Crossan, 30 December 2019

Termination of contract

Photo by Craig Whitehead on Unsplash

It has just been announced that the well known UK construction company Balfour Beatty has just had a contract terminated by one of its clients.

The client in question is MI6 or the UK Special Intelligence Service, the equivalent of the CIA and the employer of Britain’s best known (but fictional) spy – James Bond. The Service is based at Vauxhall Cross on the River Thames.

Termination of contract can be a pretty dry area, but mix it in with the world of secret intelligence services and you have a story that will be of interest to a potentially large audience.

Who cares?

The company’s shareholders will almost certainly care about this and a large part of the public will be keenly interested to know the facts behind this development.

What went wrong?

Balfour Beatty had been contracted to refurbish the HQ of MI6. In order to carry out the job, the company had in its possession floor plans of the building. Somehow these plans went missing – although they were later recovered – but too late the damage had been done.

Mindful of the mind boggling ramifications of this huge security breach, the UK Foreign Office, which has overall responsibility for the work of MI6, promptly removed Balfour Beatty from further involvement in the middle of the refurbishment project.

A link to the story as reported in The Financial Times can be found below:

https://www.ft.com/content/81d4ac8c-28d9-11ea-9a4f-963f0ec7e134

I would assume that the Foreign Office is on pretty safe legal ground when it made the decision to terminate Balfour Beatty’s contract. The loss of highly confidential documents by the company could represent nothing less than a material breach of contract. This arises in situations where one of the parties acts in such a way that it completely undermines the contract. The breach, in other words, is so serious because it goes to the very roots of the contract.

The victim of the breach can then potentially use the remedy of rescission i.e. terminate the agreement. The remedy of damages is also available to the victim.

Rescission is actually a much more common remedy than you otherwise might think. In terms of both the Sale of Goods Act 1979 and the Consumer Rights Act 2015, a buyer may choose to terminate a contract of sale in situations where the trader supplies goods that fail to comply with, for example, the implied duty of satisfactory quality.

In employment contracts, an employer is entitled to dismiss an employee in circumstances where the individual commits an act of gross misconduct (theft, violence, gross negligence or failure to follow lawful orders). The Employment Rights Act 1996 recognises that there will be situations where the employer is entitled to terminate the contract of employment and there will be nothing unfair or wrongful about the dismissal (presuming, of course, that proper disciplinary procedures have been followed).

In the well known Scottish employment law decision of Macari v Celtic Football & Athletic Club [1999] IRLR 787 SC, a football manager had his contract terminated quite legally by his employer owing to the fact that he had repeatedly failed to follow lawful and reasonable orders. This failure by the employee to honour the terms of his contract was nothing less than a material breach of the agreement.

Conversely, an employee may choose to regard the employment contract as terminated in situations where the employer has breached the implied duty of trust and good faith. This could occur where the employee was subjected to bullying and harassment by colleagues and the employer (being aware of this) does nothing meaningful or concrete to deal with this. In the face of the employer’s indifference (or collusion), the employee could regard him/herself as constructively dismissed.

Particularly serious for the employer could be situations where the bullying or harassment are motivated by hostility towards an individual’s protected characteristic in terms of the Equality Act 2010 e.g. age, disability, gender reassignment, race, religion or belief, sex, sexual orientation.

Back to Balfour Beatty: it looks as the company has no one to blame for this mess, but themselves. MI6 or the Foreign Office obviously felt that the loss of sensitive (Top Secret?) documents was such a serious development that there was no choice to terminate the contract with immediate effect.

Copyright – Seán J Crossan, 29 December 2019

No smoke without fire …

Photo by Patrick Hendry on Unsplash

It would seem that Whirlpool, the domestic appliance manufacturer of Creda, Hotpoint, Indesit and Proline tumble dryers does not have its sorrows to seek as product defects (which could endanger the safety of the public) continue to plague the brand. The appliances have been nicknamed the ‘killer dryers’ because they may represent a fire risk.

Manufacturers of products have a duty of care to ensure that their products are free from defects which could cause damage to property or death or personal injury.

Related Blog article:

Help! The tumble dryer’s on fire!

https://seancrossansscotslaw.com/2019/06/14/help-the-tumble-dryers-on-fire/

Last week, the company admitted that nearly half a million of its appliances could have a serious manufacturing defect which could cause property damage and, more seriously, death or personal injury.

Whirlpool’s (civil) liability to victims is said to be strict in terms of a number of Acts of Parliament:

  • Sale of Goods Act 1979
  • Consumer Protection Act 1987
  • Consumer Rights Act 2015

There is also the issue of possible criminal liability for dangerous and defective products in terms of the Consumer Protection Act 1987.

Potentially, Whirlpool could be liable to a large group of people:

  • Business customers (retailers and traders) who purchased products from Whirlpool directly in terms of the Sale of Goods Act 1979; and
  • The ultimate consumer of the products i.e. any one who does not have a contract of sale with the retailer or manufacturer, but who may suffer property damage, injury or death as a result of exposure to the dangerous product (see Donoghue v Stevenson [1932] UKHL 100) in terms of the Consumer Protection Act 1987.

Those consumers who purchased dangerous item(s) directly from a retailer will, of course, have a contract of sale in terms of the Consumer Rights Act 2015 and they can take legal action against the retailer. The retailer can then pursue a claim against the manufacturer or supplier from whom they obtained the goods.

An excellent link to an article about the problems facing Whirlpool appliances can be found below by clicking on the link to the Which? website:

https://www.which.co.uk/news/2019/12/whirlpool-announces-recall-of-up-to-519000-indesit-and-hotpoint-fire-risk-washing-machines-in-the-uk/?utm_source=whichcouk&utm_medium=email&utm_campaign=whirlpoolrecall171219

A link to the story on the Sky News website can be found below:

http://news.sky.com/story/half-a-million-whirlpool-washing-machines-recalled-over-fire-risk-11889023

Copyright Seán J Crossan, 23 December 2019

Surf’s up?

Photo by Emiliano Cicero on Unsplash

We seem to be on a theme dealing with mishaps concerning products – this blog and the previous one.

In the previous blog (Just blew it! (Again!)), I examined accusations of racism and anti-semitism surrounding the launch of Nike’s latest version of the Airmax trainer.

Now, we turn to Samsung which also has been in hot water in relation to its advertising campaigns in Australia. It would seem that Samsung is being accused of misrepresentation by the Australian consumer watchdog – the Australian Competition and Consumer Commission (ACCC) – concerning false claims that were made as part of the marketing campaign to sell the company’s Galaxy S10 mobile phones.

Apparently, consumers were told that they could safely go swimming and surfing with the phone on their person without the product suffering water damage. This statement does not appear to be accurate and Samsung now has to deal with a lot of very unhappy customers – as well as the ACCC.

In Australia, swimming and surfing are very popular past times and many mobile phone users will understandably want reassurance that they can use their phones without them being damaged while participating in such activities.

In contract law, there are three types of misrepresentation:

  • Innocent
  • Negligent
  • Fraudulent

A misrepresentation potentially renders a contract voidable and there may also be the potential to claim damages – although a claim for damages involving innocent misrepresentation in Scotland is not competent (unlike the situation in England and Wales).

In the UK, of course, false claims about products or services by a trader can fall foul of the common law of contract principles dealing with misrepresentation. At statutory level, we now have the Consumer Rights Act 2015 – principally Section 10 – which covers situations where the consumer relies on the trader’s expertise regarding the product’s fitness for a particular purpose.

A very important issue to consider in cases of alleged misrepresentation: the victim must demonstrate that s/he relied on the misrepresentation. It will not be enough to show that a misrepresentation or false statement of fact has been uttered by the trader (either expressly or by implication); it must have influenced the victim to enter a contract with the trader.

Section 10 of the UK Consumer Rights Act 2015 has been largely inherited from Section 14 of the Sale of Goods Act 1979 (which previously governed consumer transactions). Interestingly, Australia – as a former colony and then self-governing Dominion of the British Empire – has very similar consumer protection laws which are a direct result of its historical relationship with the United Kingdom.

Furthermore, in the UK, false claims about goods and services by a trader can also represent a potential breach of criminal law (as per the Consumer Protection from Unfair Trading Regulations 2008).

It will be interesting to see how this situation develops.

A link to the story on the BBC News website can be found below:

Samsung sued over water-resistant phone claims

Australia’s consumer watchdog alleges the company made false claims about using its phones while swimming.

Copyright Seán J Crossan, 8 July 2019

Nemo dat quod non habet!

Photo by Jiapeng Guang on Unsplash

What is the legal position if goods are stolen from their true owner? Can a thief pass good title (ownership) to an innocent third party? Obviously, someone who knowingly purchases stolen goods cannot obtain good title to them. Such a purchaser will have acted in bad faith and will probably be guilty of the crime of reset.

In Scotland, we often use the maxim or saying nemo dat quod non habet i.e. if you’re not the owner (or someone authorised by the owner), you cannot transact in the goods and pass ownership or title to an innocent third party.

A number of stories have appeared in the media in the last few days which have made me think about the possible application of the legal principle of nemo dat quod non habet.

The first story concerned an attempt by the Republic of Italy to have a stolen painting returned, which is believed to have been taken by the Nazis during World War II:

The Uffizi Gallery has replaced it with a copy. The exact location of the original is a mystery.

Might this Nazi-stolen painting be returned?

The second story concerned the theft of a Picasso painting which occurred slightly more recently:

Stolen Picasso painting found by ‘art’s Indiana Jones’ after 20 years

http://news.sky.com/story/stolen-picasso-painting-found-by-arts-indiana-jones-after-20-years-11675555

Clearly, an individual who knowingly purchases stolen property from the thief or retains possession of the item(s) cannot acquire good title or ownership. The passage of the years does not diminish the fact that the goods are stolen property.

An excellent example of the legal principle of nemo dat quod non habet can be seen in the following case:

Rowland v Divall [1923] in April 1922, Divall bought an ‘Albert’ motor car from a man who had stolen it from the true owner. One month later, Divall sold the car to a dealer named Rowland for £334. Rowland repainted the car and sold it to a Colonel Railsden for £400. In September, the police seized the car from Railsden.

Held: by the English Court of Appeal that the car had to be returned to its true owner. Railsden brought a successful action to recover the price of £400 that he had paid to Rowland. Rowland, in turn, successfully sued Divall for £334.

Poor Divall, however, was not so fortunate. As he had purchased the car directly from the thief, he would need to track this person down in order to initiate an action for recovery of the purchase price. Thieves, by their very nature, tend not to hang around waiting to be caught and they have a nasty habit of vanishing into thin air.

Section 17 of the Consumer Rights Act 2015

This section of the Act provides very important protection to consumers by ensuring that a trader has the right to sell the goods which are the subject matter of the contract. In a contract of sale, this will mean that the seller must have the right to sell the goods at the time of the actual sale or, if the contract is an agreement to sell, s/he will have the right to sell the goods at the time when the property is to pass to the buyer.

Problems usually arise in this area when the consumer later discovers that the seller has supplied her with stolen goods.

In many respects, Section 17 of the Consumer Rights Act 2015 is very similar to Section 12 of the Sale of Goods Act 1979 (which previously regulated consumer contracts for the sale of goods).

Although the Consumer Rights Act applies to transactions where the trader is only a part-owner of the goods, failure by the trader to disclose to the consumer that he is only a part-owner of the goods and, that consequently, the buyer will only be entitled to a part-share in the goods would represent a breach of Section 17.

In situations where the trader can only give a consumerbuyer a limited title to the goods, she is duty bound to inform the buyer thathe only enjoys limited rights in the property and, therefore, it will beentirely the buyer’s choice if he wishes to proceed with the transaction. Fulland frank disclosure by the trader of any limitations in respect of his titleto the goods means that, at the very least, the buyer will have made aninformed choice if he proceeds with the contract – albeit under somewhatdisadvantaged circumstances.

The main protection that Section 17 gives to theconsumer buyer is that the trader (the seller) is promising that she has theright to sell the goods to the buyer. So, if the goods supplied were stolen,then the seller would be in breach of the duty imposed by this Section of theAct and the buyer would be entitled to reclaim the whole of the purchase pricefrom the seller.

The consequences of abreach of Section 17 by a trader

A breach of Section 17(1) of the Consumer Rights Act 2015 by a trader is extremely serious and this reflected in Section 19(6) of the Act as it will give the consumer the right to reject the goods.

Quiet possession

Another important protection for consumers contained in Section 17 is that she has the right to enjoy quiet possession of the goods after the contract has been implemented. Effectively, the trader promises that no third party can dispute the consumer’s right to own the goods or possess them which would disturb his enjoyment of them. Any disturbance of the consumer’s right of quiet possession by third parties will mean that a potential claim lies against the trader.

Other sales

The Sale of Goods Act 1979 applies to the following transactions:

1. Business to business sales (B2B)

2. Consumer to business sales (C2B)

3. Consumer to consumer sales (C2C)

The general rule regarding the transfer of title to corporeal moveable property (tangible, moveable property) from seller to buyer is that only the true owner of the goods (or her authorised agents) can pass ownership of the goods. A thief, for example, can almost never pass good title to a third party if the goods were stolen by him or the contract was induced by fraud (see Morrison v Robertson (1908)).

Section 12(1) of the Sale of Goods Act 1979 offers protection to a buyer who purchases corporeal moveable property in good faith from most of the negative consequences of the nemo dat quod non habet rule. It states that in a contract of sale … there is an implied condition on the part of the seller that in the case of a sale, he has a right to sell the goods and, in the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass. This means that the buyer will be able to sue for the return of the price of the goods from the seller (who had no right to sell them in the first place). This applies even where the buyer has used the goods.

Furthermore, Section 21 of the Sale of Goods Act 1979 states that a buyer will not acquire good title to goods in a situation where the person selling them is not the owner and/or lacks the authority to sell them. In other words, the buyer cannot become the owner of the goods and the true owner will be able to reclaim the goods even from a person who bought the property in good faith.

Section 12(2)(b) states that the buyer has the right toenjoy quiet possession of the goods and any disturbance of this right by thirdparties will mean that a potential claim lies against the seller.

Section 12(3) addresses situations where the seller can only give the buyer a limited title to the goods. If such a situation applies to the sale of goods, the seller is duty bound to inform the buyer that he only enjoys limited rights in the property and, therefore, it will be entirely the buyer’s choice if he wishes to proceed with the sale. However, at least the buyer will have made an informed choice.

In many respects, the protection offered to a buyer purchasing corporeal, moveable property in good faith is remarkably similar to those rights found in the Consumer Rights Act 2015.

It will not always be possible, however, to return the stolen property to the true owner when the goods have been converted into other goods and cannot be retrieved e.g. when cattle have been stolen, slaughtered and eaten. In such situations, the true owner will have to be content with an award of damages based on the value of the property now lost to her forever.

Exceptions to Nemo dat quod non habet

The nemo dat quod non habet rule is only a general rule. Like most general rules in the law, however, there are a number of exceptions under both the common law and statute which might mean that someone who is not the true owner of the goods can pass good title to a third party. The practical effect of this is that the third party will often become the lawful owner of the goods despite the original owner’s protests.

Hopefully, buyers purchasing property in good faith which turns out to be stolen or having a defective title, will not fall into one of these exceptions to the general rule!

Conclusion

An innocent (or good faith) buyer of goods might discover, to their horror, that the property is stolen. The general rule is that a thief cannot pass good title to a third party – even if such a person is entirely honest. The rule is often expressed as nemo dat quod non habet.

Both the Sale of Goods Act 1979 and the Consumer Rights Act 2015 provide important legal protection to good faith buyers of stolen property (and more generally in situations where the seller’s title to goods is defective in some way).

The main protection that Section 12 (Sale of Goods Act 1979) and Section 17 (Consumer Rights Act 2015) gives to a buyer is that the seller is promising that s/he has the right to sell the goods to the buyer. So, if the goods were stolen, then the seller would be in breach of the duty imposed by the relevant legislation and the buyer would be entitled to reclaim the whole of the purchase price from the seller.

Copyright Seán J Crossan, 26 March 2019

Frustration of contract?

Photo by Andre Hunter on Unsplash

In Chapter 2 of Introductory Scots Law, I discuss termination of contractual agreements. One way in which a contract can come to an end – albeit in rather an abrupt or unexpected manner – will be when the agreement is said to be frustrated.

Frustration will often arise when unexpected events intervene. Since the formation of the contract, the circumstances surrounding the agreement may have changed dramatically. The contract may now be impossible to perform or the contract may have been rendered illegal by changes in the law.

Physical destruction of the subject-matter of the contract operates to frustrate the agreement (see Taylor v Caldwell (1863) EWHC QB J1 and Vitol SA v Esso Australia (1988) The Times, 1 February 1988).

Frustration as a practical issue came to mind a few months ago, when I was teaching contract law to two groups of students. Some of the more switched on members of the classes highlighted a story which had received a lot of media coverage.

This story involved the sale of a painting (Girl with Balloon) by the artist known as Banksy. In October 2018, the item was being auctioned at Sotheby’s in London. The successful bidder agreed to pay £860,000 – quite a coup  for Sotheby’s. Unfortunately, for the bidder, the artist had other ideas. The frame contained a hidden device which partially shredded the painting.

https://news.sky.com/story/banksy-reveals-he-meant-to-shred-entire-1m-girl-with-balloon-painting-11528598

The artist made a film of the incident:

https://youtu.be/vxkwRNIZgdY

What would have been the legal position?

Would the contract have been capable of enforcement or was this an example of frustration my students wanted to know?

Banksy’s painting is a unique item i.e. it cannot be replaced with a similar item. Arguably, the bidder would have been entitled to use frustration as a means of withdrawing from the agreement. Clearly, the circumstances of the painting being partially destroyed made performance of the contract very different from that which the bidder originally anticipated.

Imagine, for instance, if two parties had agreed terms concerning the sale of a vintage car. What if the car was stolen before it could be delivered to the buyer? It is later found by the Police on waste ground, completely burnt out by the thieves/vandals. Would the buyer really consider herself to be bound by the terms of the agreement concluded with the seller or would it be reasonable to assume that the contract was terminated due to frustration?

Risk

This area of the law of contract involves risk. The issue of risk relates to any harm or damage caused to the goods and, more importantly, who will have to bear the loss should this happen i.e. the seller or the buyer?

In Chapter 4 of Introductory Scots Law, I discuss the implications for transactions involving the sale of physical/corporeal property and the application of risk.

The question to ask is what kind of category of sale does the transaction fall under?

  • Consumer sale (B2C)?
  • Business to business sale (B2B)?
  • A sale between two private individuals (C2C)?

Section 29 of the Consumer Rights Act 2015 now addresses the issue of risk in relation to consumer contracts of sale before and after the physical possession of the goods has been transferred to the buyer (i.e. delivery has taken place). This is an area of the law which has been much simplified over the years in relation to consumer contracts for the sale of goods (the same cannot be said of business to business contracts of sale). The basic rule is that risk will lie with the trader until such time as s/he is able to transfer physical possession of the goods to the consumer or someone identified by her to take possession of the goods.

Presuming that sale of the vehicle was a consumer transaction, I think most reasonable people would opt for frustration of contract in this situation. Presumably, the seller of the car (the trader) has an insurance policy in place to cover such eventualities as theft and destruction.

In business to business sales and private sales, risk will pass from the seller to the buyer when the parties intend that it should pass or depending upon the classification of the goods (as per Section 18 of the Sale of Goods Act 1979 with its 5 rules).

In the strange environment of the international art world, the semi-destroyed Banksy painting became even more valuable and the bidder was happy to pay the purchase price. This, however, is not normal behaviour for most ordinary people.

Football: it’s a funny old game

On a more tragic note, the issue of possible frustration of contract rose once more in relation to the death of the Argentinian footballer, Emiliano Sala who had completed a transfer agreement to leave the French club, FC Nantes and go to Cardiff City, the English Premier League club.

Before he could play his first competitive game with his new club, Mr Sala was killed in a plane crash over the English Channel. This led to demands by Nantes for payment of the first part of the transfer fee of £15 million from Cardiff City FC.

Such a contract i.e. for personal services could conceivably be discharged by the death of the person who was to perform it. Additionally, the incapacity of a person who is to perform a personal contract may discharge it. However, temporary incapacity is not enough unless it affects the performance of the contract in a really serious way. If an employee is killed or permanently incapacitated, it may be very difficult to argue that the employment contract should be allowed to continue.

Sadly, in the Sala tragedy, it looks as if the lawyers will be the only winners here.

Links to media stories about the Sala dispute can be accessed below:

Nantes demand first slice of £15m Emiliano Sala fee from Cardiff

https://www.theguardian.com/football/2019/feb/06/nantes-demand-transfer-fee-from-cardiff-city-for-emiliano-sala

https://www.independent.co.uk/sport/football/premier-league/emiliano-sala-cardiff-city-nantes-transfer-points-deduction-plane-crash-epl-video-a8769076.html

Conclusion

Frustration can only be used to have the contract discharged in situations where neither party is to blame. When one party is to blame for the failure to perform his obligations under the agreement, this represents a breach of contract and the innocent party can raise the appropriate action.

Copyright Seán J Crossan, 10 February 2019

Related Blog article:

https://seancrossansscotslaw.com/2020/03/18/crazy-days-force-majeure-frustration/