Undue influence?

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A recent case in the Outer House of the Court of Session dealt with the issue of undue influence between a mother and her daughter, but don’t jump to conclusions – yet.

We often think of parents exercising a huge amount of influence over their children – especially when they are younger. This is a necessary condition of life. We trust and hope that our parents and guardians will use this influence for our benefit.

As the years go by, children naturally enough want to take control and make their own decisions – good or bad – in spite of parental opinions. Making your own decisions can be an example of youthful rebellion or a sign of growing maturity and confidence – depending on the type of relationship that we have with our parents.

I want to flip this discussion around and change focus. What if the influence in the relationship is going in a different direction? What if it is the child rather than the parent who is the influencer (to use a fashionable term)?

This is not a particularly unusual situation: many people with older parents (and we do live in what seems to be a rapidly ageing society in Scotland and the rest of the UK) will be acting in a very sound legal fashion if they set up a power of attorney to make decisions on behalf of their parents.

We all hope that our parents will remain healthy in old age and will continue to enjoy their independence, but what if the day comes when parents can no longer exercise their autonomy in decision making. The power of attorney facility in Scots Law allows children (or other relatives) to make vital decisions on behalf of their ailing parents. In short order, the power of attorney is something most of us would rather not use; it’s an insurance policy when the worst happens allowing us to make those vital decisions about parental healthcare and the management of family assets.

The case in question was Adeline Margaret Wilson v Peter Watkins & Another [2019] CSOH 44 where Lord Brodie concluded in his Opinion that there was no evidence of undue influence which would have rendered the course of dealings (the transfer of ownership of the parental home) between mother and daughter suspect or dubious in any meaningful way.

In this case, the mother (Mrs Wilson) had invited her daughter and her son-in-law (Mr Watkins) in 2012 to come and live with her. Mrs Wilson had gained title to her home following the death of her husband some years before. The Watkins sold their property in order to move in with Mrs Wilson.  The trio enjoyed a good relationship at first and, some time later (2013), Mrs Wilson transferred the ownership of the property to her daughter by way of a disposition (although she reserved a liferent to herself permitting her to remain living in the house). There appears to have been a falling out in 2015 and Mrs Wilson left the home to move in with her other daughter.

A legal challenge was lodged by Mrs Wilson at the Court of Session in order to have the disposition (the conveyance of title) set aside i.e. made voidable on the grounds that Mrs Watkins (and her husband) had exercised undue influence by persuading her to transfer the ownership of the property to them.

As Lord Brodie emphasised, the relevant judicial precedent in Scotland is Gray v Binny (1879) 7 R 332 which contains Lord Shand’s four part  test addressing the issue of undue influence.

In the essence, the key elements of this test are as follows:

(1) that there was a relationship which created a dominant and ascendant influence,

(2) that the relationship was one of confidence and trust,

(3) that a material and gratuitous benefit had been given to the
prejudice of the granter, and

(4) that the granter had been without the benefit of any independent advice at the material time.

Critically, Lord Brodie was of the view that Mrs Wilson’s case failed to satisfy elements 2-4 of the Shand criteria. Put simply, the mere existence of the relationship of parent and child did not of itself prove that undue influence had affected the transaction or legal dealings between the parties to the dispute. Mrs Wilson’s case was therefore without merit and was not permitted to proceed to trial or proof.

As a point of interest, the Watkins had submitted a counter-claim of £45,000 in respect of an allegation of unjust enrichment against Mrs Wilson had the issue of undue influence been permitted to proceed to proof. This figure represented the sum which the Watkins had used from the sale of their own house to make improvements to Mrs Wilson’s home prior to the falling out of the trio.

A link to Lord Brodie’s Opinion can be found below:

https://www.scotcourts.gov.uk/docs/default-source/cos-general-docs/pdf-docs-for-opinions/2019csoh44.pdf?sfvrsn=0

The effect of undue influence

Undue influence potentially renders a contract or legal transaction voidable so that it may be rescinded or cancelled. It is therefore a factor which can undermine the validity of contracts or legal transactions.

If rescission, however, is being sought as a remedy by one of the parties to the contract as a remedy, there must be no delay in claiming relief after the influence has ceased to have an effect. Delay in claiming relief in these circumstances may bar the claim since delay can be used as evidence of affirmation or agreement.

Undue influence can perhaps occur particularly in the following types of relationship: parent and child; and husband and wife.

There will, of course, be other relationships where a stronger party may exert a particularly negative influence on the weaker party, for example, members of a religious cult who unquestionably obey the orders of their spiritual leader (see both the English decision of Allcard v Skinner (1887) 36 Ch D 145 and the Scottish decision of Anderson v The Beacon Fellowship (1992) S.L.T. 111 which I discuss in Chapter 2 of Introductory Scots Law: Theory & Practice )(3rd Edition)).

During the 1990s, the issue of undue influence in connection with the relationship of husband and wife was given much needed judicial clarity Several cases were brought before the Scottish and English courts regarding the issue of undue influence in the marital relationship and all of these cases had remarkably similar facts, whereby the pursuers, a number of wives, alleged that they had agreed to re-mortgage the marital home so that a bank would lend money to their husbands (usually, but not always, for business purposes).

These wives claimed that they had not been given sufficient information by their husbands when they had agreed to approve what later turned out to be very risky transactions. Some of the pursuers had not sought independent legal advice before agreeing to take out the second mortgage.

Initially, the House of Lords, in Barclays Bank plc v O’Brien [1993] UKHL 6, stated that a married woman (or cohabitee) must be regarded as a special, protected class of guarantor when agreeing to guarantee her husband’s (or partner’s) debts because of the nature of the relationship. The bank should be on alert for signs of undue influence which would undermine the validity of the transaction. Their Lordships were of the opinion that the bank should be placed under a duty of care to ensure that the wife or the cohabitee had had the benefit of independent advice.

Their Lordships, however, rowed backed slightly from this position in a subsequent English case: CIBC Mortgages v Pitt [1994] 1 AC 200. In other words, the legal position on undue influence as factor which might undermine a legal transaction was evolving. In Pitt, a wife was not allowed to succeed in her claim of undue influence because the mortgage was in the names of both husband and wife and, therefore, she was benefiting from the transaction.

The decision of their Lordships in Barclays Bank plc v O’Brien was, however, not followed by the Inner House of the Court of Session in Mumford v Bank of Scotland 1996 SLT 392 where it was held that banks are not under a general duty to explain all the material circumstances of a loan to someone who has guaranteed it.

In Smith v Bank of Scotland [1997] UKHL 26, the House of Lords attempted to bring Scots law into line with English law. Lord Clyde stated that there were a number of sound reasons for attempting to harmonise the laws of Scotland and England:

“I am not persuaded that there are any social or economic considerations which would justify a difference in the law between the two jurisdictions in the particular point here under consideration. Indeed when similar transactions with similar institutions or indeed branches of the same institutions may be taking place in both countries there is a clear practical advantage in the preservation of corresponding legal provisions.”

In a further English case, Royal Bank of Scotland PLC v Ettridge (No. 2) [2001] UKHL 44 the House of Lords appeared to retreat from the position that it had originally laid out in Barclays Bank v O’Brien (1993) whereby that married women or cohabitees should be regarded as a special, protected class of guarantor. The House of Lords in Ettridge has stated that undue influence will not be automatically presumed merely because the parties to a transaction are husband and wife.

In a series of of subsequent cases (Forsyth v Royal Bank of Scotland PLC (2000) SLT 1295, Clydesdale Bank Ltd v Black (2002) SLT 764 and Royal Bank of Scotland PLC v Wilson & Ors (2003) ScotCS 396), the Inner House of the Court of Session refused to accept the automatic presumption that wives were unduly influenced by their husbands. Misrepresentations by the husband were more likely to have induced the wives to agree to become guarantors rather than any hint of undue influence. Misrepresentation, of course, a completely separate factor which can potentially render a legal transaction voidable.

In Mumford v Bank of Scotland (1996), Lord Hope made the following statement which (I think) sensibly sums up the approach taken by the Scottish courts in these types of cases between husbands and wives:

There is no indication in this passage that a presumption of undue influence can arise merely from the nature of the transaction and the fact of the relationship. What is important is the effect of that relationship in the particular case, with the result that each case must be examined upon its own facts.” [my emphasis].

In conclusion, I think that Lord Hope hit the nail on the head: the mere existence of a relationship where influence could be abused does not of itself mean that anything underhand has occurred and, therefore, each case will have to be approached on its own merits.

Copyright Seán J Crossan, 26 October 2019

Stormy weather, I’m at the end of my tether!

Photo by J W on Unsplash

We know summer is finally here when people are enthused about the prospect of attending the ever growing list of open air music festivals across the UK and Ireland.

Everyone involved in these events always hopes that the sun will come out, but the reality is that you have to prepare for the likelihood of bad weather. Most of the time, revellers will be able to put up with poorer conditions and it is unlikely that the event will be cancelled.

On occasion, the predicted weather can be very poor, not to say downright dangerous and festival organisers are left with the agonising decision of having to make the call to cancel the event.

This happened at the beginning of August when the Houghton Music Festival in East Anglia was cancelled due to severe weather warnings. Now clearly, by making this decision, the Festival organisers were implementing their duty of care to the artists, the workers and the music lovers.

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

https://news.sky.com/story/houghton-festival-in-east-anglia-cancelled-due-to-severe-weather-warnings-11780064

I was more interested in the contractual implications of cancelling the event. More specifically: does the cancellation of an event result in frustration of contract? In other words, will the frustrating event lead to termination of the contract?

The Festival organisers were very quick to say that the fans were entitled to seek a refund of the ticket price (no doubt minus the booking fee). Admittedly, I was less interested in this aspect of the story. In particular, I was mulling over the impact of cancelling the Festival on local businesses – particularly the local hotel/accommodation/B&B industry.

In 2016, research published by UK Music (Wish You Were Here) demonstrated a number of things:

  • the number of people attending UK music festivals had risen from 27.7 million to 30.9 million between 2015 and 2016;
  • the number of people travelling between different parts of the UK had increased; and
  • the number of foreign tourists willing to attend UK music festivals had risen by 20% in 2016.

(Source: The Guardian available at https://www.theguardian.com/music/2017/jul/10/uk-music-industry-gets-boost-from-12-rise-in-audiences-at-live-events)

So, what if you’re in the business of running a hotel, B&B or renting out a property on Airbnb and the bad news is announced that the local music festival has been cancelled, where do you stand legally?

Is the contract that you entered into with prospective guests capable of enforcement or has it been cancelled due to frustration?

It really depends on the circumstances …

What if the accommodation provider is aware of the fact that the guests have specifically booked rooms or a property in order to attend the festival? Some hotels go even further and might put together event all inclusive packages for guests – so called ‘special offers’ which might include things like all meals provided, spa treatments and even transport to and from the festival site.

This is quite different from a situation where the guest books rooms or hires a holiday property and does not disclose to the accommodation provider the purpose of his or her visit to the local area.

In the famous case of Krell v Henry [1903] 2 KB 740, Lord Justice Vaughn-Williams was of the opinion that frustration of contract was not limited to either the destruction or non-existence of the subject matter of the contract. It will be important to identify the substance or the purpose of the agreement. The cancellation of an event can frustrate the performance of a contract where that event is an absolutely material term of the agreement.

In Krell, the pursuer was the owner of a flat in the central London district of Pall Mall. The pursuer’s flat was on the route of the proposed coronation procession of the new King, Edward VII, which was scheduled to take place on 26 and 27 June 1902. The pursuer had advertised his flat for rent during the daytime on 26 and 27 June for the purpose of viewing the procession. The defender, who was anxious to view the procession, responded to the advertisement and entered into an agreement to hire the flat on the days specified. An announcement was made on 24 June stating that the procession was to be cancelled owing to the King’s illness. The defender refused to pay the balance of the rent for the flat by reason that events had frustrated performance of the contract. The pursuer brought an action against the defender for payment of the balance of the rent.

The English Court of Appeal stated that the cancellation of the event frustrated the contract and discharged the parties from their obligations under it. The clinching argument in the defender’s favour was that both parties clearly entered into the contract with the same intention. The reason behind the hire of the flat was, therefore, a material term of the contract.

Had the defender failed to communicate his motivation for hiring the flat, then the contract would have remained capable of enforcement by the pursuer. Lord Justice Vaughn-Williams was of the opinion that frustration of contract was not limited to either the destruction or non-existence of the subject matter of the contract. It was also important to identify the substance or the purpose of the agreement. In other words, did the parties share the same intentions?

The illness of King Edward resulted in a second legal action. This time, however, the English Court of Appeal took a completely different approach to the issue of frustration of contract.

The decision in Krell v Henry can be contrasted with the decision below:

Herne Bay Steamboat Co v Hutton [1903] 2 KB 683 the pursuers had entered into a contract to hire a steamship to the defender for two days. The Royal Navy was assembling at Spithead to take part in a naval review to celebrate King Edward’s coronation. The King was to review the fleet personally. The defender wished to transport paying guests from Herne Bay to Spithead to see the naval review. Due to the King’s illness, an official announcement was made cancelling the review. It would still have been perfectly possible for the defender to take his passengers on a cruise to see the assembled fleet. The defender, however, refused to use the vessel claiming that the contract had been frustrated. The pursuers brought an action against the defender for the balance of the fee of £250 owed by the defender who was refusing to pay for the hire of the boat.

The contract was not discharged by reason of frustration. The main purpose of the contract could still be achieved i.e. to take paying guests for a cruise around the fleet.

Conclusion

The difference in approach taken by the Court of Appeal in both cases is sometimes difficult to understand. In Krell v Henry, both parties had clearly intended that the purpose of the contract was to view the procession. Reinforcing this fact, was the fact that the defender was only entitled to use the flat during the daytime. In Herne Bay Steamboat Co v Hutton, the purpose of the defender in hiring the steamship was to see the naval review, but this was not the purpose of the owners who were not the slightest bit interested why the vessel had been hired. Lord Justice Vaughn-Williams compared the situation to someone who hires a carriage to go and see the Epsom Derby, but the outbreak of some unforeseen epidemic means that the races are cancelled. This makes no difference to the owner of the carriage who will still expect to be paid for the hire of his vehicle.

Copyright Seán J Crossan, 28 August 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

Special Offers!

Photo by Artem Bali on Unsplash

My students are well aware that I like to use stories which appear in the media to illustrate legal points or issues. Today, I have been reviewing some old media stories which I have distributed to students over the past few years.

One such story which caught my eye, and is always a topical issue, concerns contract law. When I begin to teach students about the basics of contract law, we often spend a bit of time discussing the difference between genuine offers and invitations to treat.

Invitation to treat

The phrase “invitation to treat” often causes puzzled expressions to appear on the faces of the individuals attending the lecture. I’ll say to them that it’s probably an expression that they have not previously heard. Even if they work in a retail environment or a customer facing role, it’s not something that they are likely to have encountered.

After all, when was the last time you walked around a supermarket or department store and heard over the PA system something like this:

Hello shoppers, we’d like to make you aware that we have a great range of invitations to treat in the store today.”

I can just imagine the reaction from most of the customers: utter and total bemusement.

What you’re much more likely to hear is the disembodied voice saying something like this:

Hello shoppers, we’d like to make you aware that we have a great range of offers in the store today.”

Now, the content of the above announcement isn’t strictly correct. The store or the retailer isn’t making you (the potential customer) an offer; they are making you an invitation to treat.

What is an invitation to treat?

This area is especially relevant for retailers and their pricing policies. Customers might think that a price ticket or indication is a firm offer issued by the retailer.

Very simply, it’s a basic form of marketing or advertising by the retailer or the trader. They wish to alert you to the fact that they have goods or services available that might be of interest. It is then up to you to go and make the offer to the appropriate representative of the trader. This offer will be considered (perhaps extremely quickly and without much in the way of negotiation) and accepted leading to a contractual agreement between the parties. An invitation to treat is a willingness by the trader/retailer to enter into negotiations with a potential customer. The trader or retailer is effectively saying: ‘I’m open to offers or make me an offer‘.

It’s been well established law for some time that goods displayed on shelves or in shop windows are not offers to the general public capable of acceptance, but rather they should be seen for what they are: invitations to treat (see Pharmaceutical Society of Great Britain v Boots Cash Chemists (1953) and Fisher v Bell (1961)) .

Misleading price indications

What if the retailer or trader applies the wrong prices to a product? Does the customer have the right to hold the seller to this price – even if it’s a mistake?

This can be a particularly acute problem for retailers and traders which use the internet or other digital platforms to advertise and sell goods. You only have to think about some of the big internet traders to realise that keeping track of the prices on every product sold by them must represent a really tough operational challenge.

  • What if prices are not kept up to date?
  • What about data input error where someone keys in the wrong price and is totally unaware of this?
  • What if the promotion (e.g. a discount) applies to only a small group of products or a particular geographical area?

These have all been known to happen to retailers and traders who use the internet or other digital media.

We’re now living in a more hi-tech age where lots of traders will advertise goods and services on the internet, but these platforms should be seen as the virtual equivalent of the high street trader’s shelves or shop window. Even if prices are affixed to certain products or services, the customer should always be wary. These are merely an indication of what the trader would like to achieve. There is nothing, in theory, to stop the customer haggling or negotiating over the goods or services.

In traditional retail or sales environments i.e. face to face situations, the customer sales representative could quickly deal with the problem of wrongly mispriced goods. The customer might huff and puff and threaten legal action, but usually to no avail. Quite simply, the goods which were on display were invitations to treat (not offers). The customer was, in fact, making the offer which the customer sales representative was refusing to accept.

True, many retailers might choose to go ahead and sell the goods at the wrongly marked price as a gesture of goodwill because this was seen as a sensible customer relations tactic, but legally the store was not obliged to do this. Obviously, if there was a really big price discrepancy, even the most customer centred business might choose to draw the line somewhere (I suppose all organisations have their bottom line).

In sales generated using the internet or other digital media, there is a lack of a traditional gate-keeper (a sales assistant). Transactions are processed electronically and remotely and contracts for wrongly (i.e. lower) priced goods may slip through.

Usually, but not always, the virtual retailer or trader will have an explicit term in their general contractual conditions which states that the transaction will not be binding until such time as the customer receives a confirmatory email or other form of message.

Legal consequences

Although a store might not be liable to a customer for misleading price indications or statements under the law of contract, there are potential criminal consequences. The store could be prosecuted under criminal law and fined for misleading consumers. These laws are now contained in the Consumer Protection from Unfair Trading Regulations 2008.

Please see link to the story about the Co-op getting its pricing policy wrong:

Co-op chain accidentally introduces 20% discount at stores

A supermarket chain accidentally introduces a 20% discount at 140 stores instead of just at one branch – costing it thousands in lost revenue.

Conclusion

Contrary to popular opinion, advertisements displayed in newspapers, magazines, trade journals and on the internet are not offers, but are regarded as invitations to treat. The offer is to be made by the consumer in response to the advertisement. The advertiser is at liberty to accept or decline any offers potential customers might choose to make.

An invitation to treat can take the following forms: goods in a shop window display, on a shop shelf or in a catalogue, goods exposed for sale at an auction or via the internet. The offer can be made by taking goods to the checkout (real or virtual) or requesting them from the shop assistant, it is then up to the advertiser or the shop assistant to decide whether to accept or refuse the offer. A shop assistant does not have to give a customer a reason for refusing to accept an offer and is not bound by the marked price on the goods. If, for instance, you happen to be under 18 years of age and you attempt to purchase alcohol from your local supermarket, the assistant will be well within her rights to refuse to accept your offer to purchase these goods.

Copyright Seán J Crossan, 27 March 2019

Nemo dat quod non habet!

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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

Locking horns (Frustration of Contract Part 2)

Photo by Uriel Soberanes on Unsplash

In February, one of my blogs (Frustration of Contract) dealt with the circumstances surrounding the issue of frustration as a factor which could lead to termination of a contractual agreement.

One of the stories discussed in that particular blog was the dispute between Cardiff City FC and FC Nantes in respect of the tragic death of Emiliano Sala, the Argentinian footballer who had signed for the English Premiership club.

Despite Sala’s death, the French club was till demanding a portion of the transfer fee of £15 million. This led to speculation on my part as to whether frustration of contract could be an argument put forward by Cardiff.

The plot has since thickened an, today (25 March 2019), it has been reported that Cardiff City is now claiming that the transfer deal was never legally binding. The Premiership side asserts that the proper paperwork was not completed; the French side disputes this.

So, it looks as if the two clubs are going to be locking horns in what now seems to be an inevitable legal dispute.

A link to an article on the BBC website can be found below:

saw this on the BBC News App and thought you should see it:

Emiliano Sala: Cardiff set to claim transfer deal ‘not legally binding’

Cardiff City football are set to tell Fifa the deal to buy Emiliano Sala from Nantes for £15m was not legally binding.

Copyright Seán J Crossan, 25 March 2019

If only everything in life was as reliable as a VW …

Photo by Julian Hochgesang on Unsplash

In the 1980s, Volkswagen UK ran a very successful marketing campaign using the slogan “If only everything in life was as reliable as a Volkswagen.”

A link to one of the VW adverts regularly shown on UK television can be seen below:

Fast forward more than 30 years later and, globally, VW is still dealing with the fallout from a major scandal which was exposed in September 2015. The American Federal Government Agency, the Environmental Protection Agency (EPA) discovered that VW had installed software in many of its models which had the purpose of giving much lower emissions readings. This was an attempt by VW to beat strict environmental pollution controls by giving the impression that its cars and vehicles were “greener”. Consumers are much more aware of their carbon footprint nowadays (think of concerns, for example, about single use plastic) and car manufacturers are not immune to these types of demand for environmentally, sustainable products and services.

Essentially, it is alleged that VW deliberately misrepresented data about the environmental impact of its vehicles (principally in relation to its diesel models) in a cynical attempt to increase sales. Environmentally minded consumers may well have been heavily influenced by the favourable presentation of emissions data when considering whether to purchase a new diesel vehicle.

In Chapter 2 of Introductory Scots Law, I discuss the issue of misrepresentation as a factor which can invalidate a contractual agreement. In particular, I relate the VW scandal to this area of contract law.

If one party (e.g. a seller of goods) makes exaggerated or false claims (the misrepresentation) about a product in order to encourage or induce a buyer to enter the contract, the buyer may be decide to treat the agreement as voidable. This will mean that the buyer may have the right to the following remedies:

  • Rescission (or cancellation) of the contract; and/or
  • An award of damages

Critically, the innocent parties must be able to demonstrate to the courts that the misrepresentation actively encouraged them to enter contracts. It is not enough to say that a false statement has been made therefore the contract should be cancelled. The false statement must have influenced the decision of the innocent parties to enter into a legally enforceable agreement.

In Scotland, three types of misrepresentation have been recognised by the courts since the decision of the House of Lords in Hedley Byrne & Co Ltd Heller and Partners Ltd [1964] AC 365:

  • Innocent (no intention to deceive/an honest mistake)
  • Negligent (a statement carelessly made)
  • Fraudulent (a deliberate intention to deceive)

In the United States of America, the latest twist to the scandal has emerged with the Securities and Exchange Commission taking VW to court in relation to allegations that the company defrauded investors. This is a bitter blow for VW which has already settled many of the claims brought by US consumers.

Across the UK, however, British customers of VW are also being encouraged to sign up for a class action against the company by some leading UK law firms.

It would seem that the advertising slogan from the 1980s is now a very hollow one in 2019.

As the VW scandal demonstrates, a misrepresentation (whatever its nature) can be very costly.

A link to an article about the US legal action against VW can be found below:

US sues VW for “diesel scandal fraud”
https://edition.independent.co.uk/editions/uk.co.independent.issue.160319/data/8825131/index.html

Copyright Seán J Crossan, 16 March 2019