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) and Vitol SA v Esso Australia 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:

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