LLB Civil Obligations: Exclusion Clauses - Case Study Example

151097 In order to answer the above question it is necessary to examine the various Acts that may be applicable and discuss whether the disclaimer inserted into the contract by Pc Planet can be treated as binding. Starting first with Hacker rights under the Sale of Goods Act 1979 there is an implied condition inserted into s14 of this Act which states that the goods sold shall be of a satisfactory quality and fit for a particular purpose1. This implied condition cannot be invalidated by an exclusion clause in a contract and the client is entitled to expect the item to be fit for the purpose intended2 and of satisfactory quality. If such goods are deemed to be of unsatisfactory quality the buyer has the right to reject the goods3. There are certain occasions where the right to rescind for breach of condition does not apply4. This restriction would apply where the buyer is not dealing as a consumer and where he would be entitled to reject by reason of a breach of condition implied into the contract. In these cases if the seller can show that the breach is so slight that it would be unreasonable5 for the buyer to reject the goods the breach is not to be treated as a breach of condition but may be treated as a breach of warranty6. By treating it as a breach of warranty the buyer’s remedy would then be in damages. To be treated as a non-consumer the buyer would have to be buying the item to sell to someone else. It has been held in some cases that the contract is a consumer sale even though the buyer is in business. In R & B Customs Brokers Co Ltd v United Dominions Trust Ltd [1988] 1 All ER 847 the plaintiffs bought from the defendant finance company a car supplied to it by a motor dealer. The plaintiff, a private company, bought the car for the personal and business use of its directors. It had done the same 2 or 3 times before. The conditional sale contract between the plaintiff and defendant excluded any implied conditions as to the condition or quality of the car or to its fitness for purpose. The car leaked. The Court of Appeal held that there was a breach of s14(3), unless that section was excluded by the terms of the contract; and that the plaintiff company was dealing as a consumer, so that the obligations under s14(3) could not be excluded. This decision suggests that any occasional and incidental purchase by a business of goods of a type ordinarily supplied for private use or consumption will be a consumer sale. In this particular case although Hacker is using the computer for business he is still classed as a consumer as the computer was for his own use and not to be sold on to another or used by anyone else. This effectively means that PC planet cannot rely on the restrictions as mentioned above7. The implied term as to quality8 and fitness for purpose9 apply only where the seller sells in the course of a business. The seller is not responsible for any defects that are brought to the buyer’s attention. The Supply of Goods (Implied Terms) Act 1973 introduced a definition of merchantable quality which was added to s14(6) of the Sale of Goods Act 1979 which states (6) Goods of any kind are of merchantable quality above if they are as fit for the purpose or purposes for which goods of that kind are commonly bought as it is reasonable to expect having regard to any description applied o them, the price and all the other relevant circumstances. In advising PC Planet as to their legal position and possible remedies that can be adopted to rectify this situation it is necessary to decide whether the term fit for the purpose can apply to a computer failing to operate the software correctly. If a buyer wishes to be sure that the goods will be suitable for a particular purpose which is not a purpose for which such goods are commonly supplied the buyer must make the purpose known to the seller10 and rely on the seller’s judgment. If the seller indicates to the buyer that the goods will be suitable for the express purpose then the seller will be liable if the product fails to perform in the expected manner11. In this particular case it is usual to expect that a computer will be able to use the software installed into it as that is an essential element of the computer. In the case of Watford Electronics Ltd v Sanderson CFL Ltd12 the court held that the requirements that goods should be fit for their purpose and of a reasonable quality were general requirements covering both hardware and software unless otherwise expressly provided in the contract, and the terms as to merchantability and fitness for purpose were unaffected by the entire agreement clause; they took effect because they were part of the contract and the entire agreement clause could not exclude the implication of terms where such implication arose by virtue of the express contractual terms or by operation of law. A further case of relevance is the case of Danka Rentals Ltd v Xi Software Ltd13. In this case the defendant leased a photocopier from the plaintiff which repeatedly broke down. The photocopier was crucial to the defendant’s business which involved photocopying detailed computer manuals. A second machine also broke down and the defendant stopped paying rental payments. The plaintiff sued for payment. The plaintiff’s contract with the defendant purported to exclude any implied terms as to satisfactory quality or fitness for purpose as well as excluding liability for any breach of contract by the plaintiff. It was held; giving judgment for the defendant, that there were implied terms as to quality and fitness for purpose within the contract and that there had been a breach of those terms. The contractual exclusion clause had been part of the agreement between the parties, it having been brought sufficiently clearly to defendant’s attention, but that the term was so widely drawn as to fail the test of reasonableness laid down in the Unfair Contract Terms Act 1977. It would seem reasonable from the above to draw the conclusion that PC Planet would be liable for the condition of the computer and for ensuring it functioned correctly with the software they installed. The breach of the implied condition as to fitness for purpose14 would entitle Hacker to reject the goods and sue PC Planet for breach of the implied condition. Looking next at the Unfair Contract Terms Act 1977 s6 it states that (2) As against a person dealing as a consumer, liability for breach of the obligations arising from (a) section 13,14 or 15 of the 1979 Act (seller’s implied undertakings as to conformity of goods with description or sample or as to their quality of fitness for a particular purpose);… Cannot be excluded or restricted by reference to any contract terms. In essence this means that Hacker has a right to reject the computer for fitness for purpose and PC Planet cannot rely on the exclusion clause in respect of the failure of the software. The Unfair Contract Terms Act 1977 has the effect of only protecting liability for the seller where the contract is in relation to a business. If the purchaser can be deemed to be buying the goods as an ordinary consumer then the seller cannot rely on the exclusion clause. With regards to Hacker’s likelihood to be able to claim for the loss of business due to the computer malfunctioning s5 of the UCTA 1977 provides that the seller cannot limit liability for any such losses that occur as a result of the malfunction. If PC Planet agrees to repair the computer then Hacker might not be successful in bringing a claim against them in respect of the above. PC planet could rely on the case below to assert their right for the contract not to be rescinded. In the case of Bernstein v Pamson Motors (Golders Green) Ltd15 the plaintiff bought a new Nissan motor car, which about three weeks after delivery broke down on the motorway; it had done 140 miles. The plaintiff advised the defendant that he rejected the car as not being of merchantable quality. The defendant repaired the car, so that it was as good as new, but the plaintiff refused to have it back. The court held, that the plaintiff was not entitled to rescind, but could claim damages limited to his cost in getting home after the breakdown, the loss of a full tank of petrol, compensation for his ruined day out, and for his loss of use while the car was being repaired. When required to determine whether a car was unmerchantable the Court should consider (i) whether the car can be driven safely, (ii) the ease or otherwise of repairing the defect, (iii) whether the defect can be completely repaired, (iv) whether there are a number of minor defects and possibly (v) any cosmetic factors which appear to be relevant. On that approach the car was not of merchantable quality. The plaintiff had, however, lost his right to reject because he had had the car for three weeks and had driven it for 140 miles: he had thus had sufficient time to try the car. Given that Hacker has had the computer for three weeks before it has broken down PC planet could argue that he is not entitled to rescind the purchase of the computer as he has been using the computer for some considerable time16 before it has stopped functioning correctly. PC Planet would be under an obligation to repair the computer and may have to pay damages to Hacker for any loss of business he has incurred as a result of not been able to use his computer to conduct his business. PC Planet may hope to rely on proving that Hacker was not a consumer when he purchased the computer as he was proposing to use the computer for his business. However Hacker could rely on the Unfair Terms in Consumer Contracts Regulation 1994 to assert that allowing PC Planet to avoid liability in this manner is unfair. Under s5 of the Regulations it states 5 Consequence of inclusion of unfair terms in contracts (1) An unfair term in a contract concluded with a consumer by a seller shall not be binding on the consumer. (2) The contract shall continue to bind the parties if it is capable of continuing in existence without the unfair term. Schedule 3 of the Regulation lists the terms which have the object of being unfair and includes (i) irrevocably binding the consumer to terms with which he had no real opportunity of becoming acquainted before the conclusion of the contract. Using this Hacker could argue that he was not made aware of the exclusion clause before he signed the agreement. If he could prove to the courts that this was the case he could rely on this to assist him if the courts have agreed with PC Planet that Hacker was not buying as a consumer when he bought the contract. It is unlikely in the above scenario that the courts would treat Hacker as a business when he bought the computer. The most likely outcome that the courts would reach in this instance is that PC Planet are under an obligation under the Sale of Goods Act to provide goods that are fit for their purpose and that failure to do so entitled Hacker to rescind the contract. The courts are also likely to find that under the Unfair Terms Contract Act 1977 the exclusion clause is invalid and cannot be relied upon by PC Planet. The court may order the repair of the computer rather than allowing Hacker to rescind the contract as he has been using the computer for 3 weeks before it malfunctions. Hacker may also be entitled to recover damages for loss of business due to the malfunction. Bibliography Beale, HD, Bishop, WD, Furmston, MP, Contract Cases and Materials, 3rd Ed, 1995, Butterworths Civil Procedure Volume 2, The White Book Service, 2002, Sweet and Maxwell Rose, FD, Statutes on Contract, Tort & Restitution, 10th Ed, 2000, Blackstone’s Treitel, G H, The Law of Contract, 10th Ed, 1999, Sweet and Maxwell Table of Cases Balmoral Group Ltd v Borealis (UK) Ltd [2006] EWHC 1900 [2006] 2 Lloyds Rep. 629 [2006] 2 C.L.C. 220 Barber v NSW Bank Ltd [1996] 1 WLR 641 Bernstein v Pamson Motors (Golders Green) Ltd[1987] 2 All E.R. 220 [1987] R.T.R. 384 Times, October 25, 1986 Danka Rentals Ltd v Xi Software Ltd(1998) 17 Tr. L.R. 74 199 R & B Customs Brokers Co Ltd v United Dominions Trust Ltd [1988] 1 All ER 847 Slater v Finning Ltd [1997] A.C. 473 [1996] 3 W.L.R. 191 [1996] 3 All E.R. 398 [1996] 2 Lloyds Rep. 353 1997 S.C. (H.L.) 8 1996 S.L.T. 912 1996 S.C.L.R. 863 [1996] C.L.C. 1236 (1996) 15 Tr. L.R. 458 (1996) 146 N.L.J. 1023 (1996) 140 S.J.L.B. 185 Times, July 10, 1996 St Albans City and District Council v International Computers Ltd [1996] 4 All E.R. 481 [1997-98] Info. T.L.R. 58 [1997] F.S.R. 251 (1996) 15 Tr. L.R. 444 [1998] Masons C.L.R. Rep. 98 (1997) 20(2) I.P.D. 20020 Times, August 14, 1996 Truk (UK) Ltd v Tokmakidis GmbH [2000] 2 All E.R. (Comm) 594 [2000] 1 Ll Watford Electronics Ltd v Sanderson CFL Ltd[2000] 2 All E.R. (Comm) 984 Zurich Insurance Co v FW Martin & Son (1984) 134 N.L.J. 38 Table of Statutes Sale of Goods Act 1979 Unfair Contract Terms Act 1977 Unfair Terms in Consumer Contracts Regulation 1994 Read More