REPORTS OF COMMITTEES

Transcription

1 REPORTS OF COMMITTEES THE MOLONY COMMITTEE FINAL REPORT OF THE COMMITTEE ON CONSUMER PROTECTION A COMMITTEE appointed to consider measures ( desirable for the further protection of the consuming public is likely to be greatly influenced by its economic and political outlook-whether it favours laissez-faire (or, as it is known in this context, caveat emptor and freedom of contract) or not. Although the Molony Committee recognises that, as the consumer is in a weaker position than those with whom he deals, special measures must be taken to protect him, it is not convinced that such measures ought to interfere radically with the basic structure of the law. Its approach to new legislation is rather like the lawyer s approach to precedent: if something has already been done, it can be extended and improved, but the fact that it has not been done before is the most cogent argument for not doing it now. The Committee has been very, very careful to see that it cannot be criticised for going too far. Its assessment of its own approach is perhaps to be found in its paternal advice to the new Consumer Council: its conclusions ( reflect a balanced judgment on the problem taking fully into account the production, commercial and practical difficulties. One can feel quite confident that no difficulties have been lost sight of, though one cannot be so sure about advantages. The Commtttee has, indeed, been so intent on appearing reasonable and objective that it has not heeded the moral of The Bear Who Let It Alone: You might as well fall flat on your face as lean over too far backward. * Lawyers, like all other consumers ( one who purchases (or hire-purchases) goods for private use or consumption ) will find much to interest them in all parts of the Report. But legal attention will naturally centre on the proposals for reforming the law of sale of goods and hirepurchase. These include a prohibition on some exclusion clauses in the sale of goods, a detailed review of implied conditions, and the extension of the Hire-Purchase Acts by abolishing the money limits. Sale of Goods While recognising that the Sale of Goods Act, 1893, enjoys a special position in English jurisprudence and is basically a sound and fair measure, the Committee acknowledges that ( it has 1 Cmnd. 1781, July 1962 (H.M.S.O., 18s.). 2 James Thurber, Fables for Our Time. 66

2 JAN REPORTS OF COMMITTEES 67 precluded the judicial development that has advanced most branches of the law since Victorian days. A number of amendments to the Act are therefore proposed, but these are not to be general amendments to the law: they are to be limited to consumer sales. The Committee offers a tentative definition of a consumer sale : cc A sale or agreement to sell (as defined in the Sale of Goods Act, 1893) by way of trade of goods customarily bought for private use. or consumption to a person who does not buy for the purpose of resale or for letting on hire-purchase or exclusively for use or consumption in any trade or business. Sales to public or local authorities would be expressly excluded from this definition. Exclusion clauses Fortunately there is a precedent for banning the contractingout of implied conditions and warranties in the Hire-Purchase Act, Under the present law a consumer may be better off (in this respect, at least) if he takes goods on hire-purchase than if he pays cash. In order to improve the quality of consumer goods by increasing the liability, and thereby heightening the interest in quality, of those who sell them to the consumer, clauses excluding the implied terms in sections 12 to 15 of the Sale of Goods Act are to be ineffective, subject to the points made below. Implied conditions The Committee wishes to bring into line the implied conditions and warranties in the Sale of Goods Act and in the Hire-Purchase Act, 1938, and these are therefore treated together. Merchantable quality. The implied condition that the goods shall be of merchantable quality should apply to all consumer sales. The requirement in section 14 (2) of the Sale of Goods Act that the goods must be bought cc by description is inapt in modern trading conditions and should be. deleted; so is that limiting the condition to sales by cc a seller who deals in goods of that description - which presumably envisages a course of trading in such goods: the test should be simply whether he sells by way of trade to the particular buyer, a point which is covered in the suggested definition of a cc consumer sale. The Committee accepts the existing proviso to section 14 (2) of the Sale of Goods Act (no condition where examination actually made by the buyer should have revealed the defect), but rejects the further exclusion in the Hire-Purchase Act as regards defects of which the owner could not reasonably have been aware- plainly designed to protect the finance company whose representatives never see the goods at all. In a closely-reasoned paragraph the

3 68 THE MODERN LAW REVIEW VOL. 26 Committee holds that the consumer s claim in respect of unmerchantable goods is properly maintainable against the party who takes and holds the rights of the owner for his own security. In the Hire-Purchase Act there is no condition of merchantable quality where the goods are described as secondhand. There is no similar exception in the Sale of Goods Act, and the Committee is recommending the prohibition of exclusion clauses. The Committee therefore recommends the automatic exclusion of this condition (without any exclusion clause) where goods are sold as secondhand, shop-soiled or imperfect, or sold by auction, subject to the signature by the buyer or hirer of a statutory form acknowledging the condition of the goods and explaining the effect of this. Here the Committee seems to have gone too far in protecting the seller against the consumer. It is doubtful whether this complex machinery is necessary, for there is after all a considerable flexibility in the notion of merchantable quality. A new car that is dented and scratched is probably not of merchantable quality 3; a secondhand car that is dented but which goes satisfactorily probably is of merchantable quality; if the secondhand car does not go and the buyer knows this, the condition will be excluded by the proviso. Is any further concession necessary to make it possible to dispose of inferior or already used goods? The Committee s recommendations would make it possible for an unconscionable seller to exclude his liability without insisting that the buyer examines the unmerchantable goods, simply by getting his signature to a document: and there is no suggestion by the Committee as to hoiv the buyer can be forced to read what he signs. Fitness for purpose..the requirement that it must be in the course of the seller s business to supply such goods should go (like the merchantable quality requirement of being a dealer, discussed above). So should the patent or other trade name ) proviso. These amendments to section 14 (1) of the Sale of Goods Act would bring it more into line with section 8 (2) of the Hire-Purchase Act. Both sections require that a buyer (hirer) should make known the particular purpose for which the goods are required, but the Sale of Goods Act adds so as to show that the buyer relies on the seller s skill or judgment. The recommendations are that the possibility (but improbability) of excluding the hire-purchase condition (section 8 (3)) should be retained, that a similar provision should be introduced into the Sale of Goods Act, and that reliance on skill or judgment should still be needed in the sale of goods, as an additional method of contracting-out by the seller s refusing to give an opinion or expressing his misgivings. No clear reason is given as to why a consumer should continue to be treated more favourably if he takes goods on hire-purchase than if he pays cash. 8 Cf. Jackson v. Rotaz Motor d Cycle Co.. Ltd. [I K.B. 937.

4 JAN REPORTS OF COMMITTEES 69 A further point affords an outstanding example of the Committee s abundance of caution. Under the Hire-Purchase Act the hirer s purpose must presumably be made known to the owner. If the hirer requires the goods for some special purpose, and if a finance company is involved, the special purpose must therefore be made known to the finance company. To quote: the retailer is rarely, if ever. an agent of the finance house for any purpose we recognise that to make disclosure to the dealer equivalent to disclosure to the owner would involve a breach of the legal conceptions incorporated in the fabric of hire-purchase arrangements.... Although we are disturbed by the point we hesitate to recom- mend that it should be clarified in the only practicable way, i.e., to make disclosure to the dealer sufficient. One can only wonder at a Committee appointed to consider changes in the law which hesitates to recommend a change in the law on the ground that it would change the law. Neither the Law Reform Committee, recommending that the dealer should be recognised as an agent for the finance company: nor the Court of Appeal, holding that the dealer may be the finance company s agent for the purpose of communicating information to the finance c~mpany,~ have been so inhibited. Sale by sample. Sometimes a consumer buys by sample. Contracting-out of section 15 of the Sale of Goods Act should therefore be impossible in consumer sales. Similar implied conditions should be introduced into the Hire-Purchase Act. Correspondence with description. It should not be possible to exclude section 13 of the Sale of Goods Act, or section 17 of the Merchandise Marks Act, 1887, except at auction sales (is the Committee clear whether it is seeking to protect the auctioneer or the auctioneer s principal, the seller?). A provision similar to section 13 of the Sale of Goods Act should be introduced into the Hire-Purchase Act. Whether this is necessary, having regard to the fact that the description is an express term of the contract,6 is not considered. Right to reject jor breach of condition. It is interesting to see that the Committee views merchantability as being the most important condition for the consumer. For this one condition an amendment to section 11 (I) (c) of the Sale of Goods Act is proposed: the buyer is not to lose his right to reject because of the passing of property, nor are the technicalities of acceptance in section 35 to troub!e him. Following the Scottish law in section 11 (2) of the Act, the consumer should be able to reject for breach of the condition of merchantable quality within a reasonable time of delivery. For the other conditions, such as correspondence with description and fitness for purpose, the existing, arbitrary, irrational lam is to 4 Tenth Report (Innocent Misrepresentation) (Cmnd. 1782), para Finuncings, Ltd. v. Stinwon [l962] 3 All E.R Andrews v. Singer [1934] 1 K.B. 17 (C.A.).

5 70 THE MODERN LAW REVIEW VOL 26 remain: the right to reject will depend on whether the goods are specific or unascertained (a distinction which often has no real significance in consumer transactions; thus, a pound of sugar bought over the counter is unascertained goods, while in a selfservice store the same transaction is of specific goods) and, if they are specific, it will depend on the artificial concept of the passing of property. The Committee might well have adopted the sensible approach of the American Uniform Commercial Code and sought to avoid making practical issues between practical men turn upon the location of an intangible something, the passing of which no man can prove by evidence. Again, the Law Reform Committee has been more consumer conscious.7 In this part of the Report there is evidence of excessive concern for protecting the seller against the consumer (paragraphs 461 and 462). dl anufacturer s Liability Except where the manufacturer sells direct to the consumer, the Sale of Goods Act does not regulate the manufacturer s liability to the consumer. His duties are to be found in the tort of negligence and in the provisions of any contract with the consumer to which he is a party. The Committee has not discussed the creation of a contract by specific promises in a manufacturer s advertising campaign (the possibility of combining Carlill v. Carbolic Smoke Ball Co. with Shanklin Pier, Ltd. v. Detel Products, Ltd. (1951) has not yet attracted much attention). Nor has it analysed in detail the legal effect of a guarantee or warranty given by the manufacturer: it is content to describe the manufacturer s obligations as voluntary, although it concedes that in exceptional circumstances a court might hold a collateral contract to exist. It is true that the question of consideration (and, sometimes, of acceptance of the offer) is a difficult one in relation to guarantees, though it can hardly be denied that where a clause excluding liability for negligence exists this will be a sufficient consideration. Should such clauses be permitted? Excluding liability for negligence. If sellers are to remain liable in contract notwithstanding agreement to the contrary, irrespective of fault, should manufacturers be able to contract out of their obligations? The Committee refused to recommend the prohibition of this type of exclusion clause on the following grounds : (a) Buyers can sue sellers, and therefore need no more protection. (b) The Committee had (for practical reasons) already decided not to deal with services, including repairing and cleaning services. It therefore felt itself precluded, by its own decision, from dealing with exclusion clauses in relation to services. And to ban the use 7 Tenth Report (Innocent Misrepresentation;, para. 15, recommending emendment of and 11 (1) (c) of the Sale of Goods Act.

6 JAN REPORTS OF COMMITTEES 71 of exclusion clauses by manufacturers would be to confer a benefit on the consumer who purchases goods which is denied to the person making use of services. No comment is called for! (c) The problem was too big for this Committee. It was but one facet of a far wider problem, whether freedom to contract out of liability for tort should be restricted. Therefore someone else should study the whole subject. In other paragraphs bucks are passed to other, existing committees (resale price maintenance, protection for the innocent purchaser of hire-purchase goods, and innocent misrepresentation); here, the buck is passed to a nonexistent and rather improbable committee. The transport statutes which restrict or prohibit the exclusion of liability for negligence, going back to the Railway and Canal Traffic Act, 1854, have all been passed piecemeal as particular situations were seen to call for statutory intervention; it is unlikely that any of them would have been passed if it had been thought necessary to postpone action until the wider general principle had been comprehensively examined. The Committee has said that an increase in liability will improve thf quality of consumer goods: this must apply to manufacturers at least as much as to retailers-and it is a consideration which may well be irrelevant to other torts. A new liability for manufacturers? Much the most interesting topic in this context is the possibility of imposing on the manufacturer a direct liability to the consumer, not limited (as is negligence) to personal injuries or damage to property, but recognising that where goods are not fit for the purpose for which they were made because of poor design, inferior materials or faulty construction the real responsibility is the manufacturer s. The Committee considers only two suggestions : an obligation to restore defective goods to working order, and an obligation to repair a defect. Both of these are met by the same objections. At the practical level: the absence of any legal machinery for enforcing positive action (did no one give evidence to the Committee on the Chancery Amendment Act, 1858?), and the difficulty of determining the person at fault (a consideration which does not seem to have robbed the tort of negligence of its usefulness). But the overwhelming objections were no doubt those of principle: It is a novel legal concept to impose such a liability where there is no contractual relationship between the parties.... We are reluctant to endorse the principle that there should be liability without privity of contract. (It is perhaps fortunate that Donoghue v. Stevenson came before the House of Lords, rather than being referred to a committee such as this.) And, even more revealing: the proposals would inflict upon the manufacturer unjustified claims by those who had used their purchase excessively or carelessly. We would not wish to remove one injustice by creating another. This echoes the judicial attitude down the ages, from Popham C.J. s This

7 72 THE MODERN LAW REVIEW VOL. 26 case is a dangerous case and may be the cause of a multitude of actions (Chandelor v. Lopus, 1606 to Lord Buckmaster s It is difficult to see how, if that were the law, trade could be carried on (Donoghue v. Stevenson, The Committee shows no signs of familiarity with the American developments of warranty without privity of contract, and one can guess its reaction to a case such as Nenningsen v. Bloomfield Motors lo where the Supreme Court of New Jersey held that there was an implied warranty of merchantability on the part of a manufacturer of a car which extended not only to the ultimate purchaser but to members of his family and to others occupying or using the car with his consent. Ziire-Purc hase The main proposal-perhaps the most revolutionary in the whole Report-is that the Hire-Purchase Acts, 1938 and 1954, should apply to all consumer hire-purchase transactions irrespective of the amount of the hire-purchase price. In view of the trade s attitude to the Hire-Purchase Bill of 1961, which proposed a modest increase in the financial limits to S1,000, there is likely to be considerable opposition to this proposal. Some of this will be justified, for the Committee has not adequately considered the effect of this important extension on two matters. The present position is that the owner may repossess hirepurchase goods without a court order if less than one-third of the hire-purchase price has been paid. If the financial limits are removed, a hire-purchase price of 21,500 would, despite the Act, entitle the owner to snatch back even if 499 had been paid. The Committee recommends the assimilation of English and Scottish law on hire-purchase, and this is one point on which the English could well follow the Scots, and prohibit repossession without a court order at any time after the goods have been delivered. The second matter is the minimum payment clause. The present 50 per cent. is an arbitrary figure, and the Committee is not persuaded... that any different proportion to the present one-half would more closely achieve the rough justice which is the target. Why the law should aim no higher than at rough justice is not explained. When the 1938 Act applied to transactions up to f100, a 50 minimum payment was, perhaps, fair enough. But if the financial limit is to be removed, it is easy to visualise situations where 50 per cent. will achieve rough injustice-not necessarily all on one side. Take, for example, a secondhand car, hire-purchase price 21,500, returned after one month : the depreciation during this period (damage due to negligence is to be separately paid for: section 4 (2) of the 1938 Act) is unlikely to be anything like (1606), reported only in (1894) 8 H.L.R. 283 at p [1932] A.C. 562 at p. 576, citing with approval Mathew L.J. in Earl v. Lubbock [1905] 1 K.B. 253, N.J. 358 (1960).

8 JAN REPORTS OF COMMITTEES 73 In other cases, 50 per cent. may not adequately compensate the owner for the depreciation of the goods, especially for articles other than cars, where the secondhand market may be very limited. Paradoxically, it would probably be open to the courts, in cases outside the Acts, to hold that a 50 per cent. minimum payment is a penalty. In Yeoman Credit, Ltd. V. Waragowski," as revised in Overstone, Ltd. v. Shipway,12 the courts have achieved rather more than rough justice, and a calculation based on the latter decision could be written into the Hire-Purchase Acts, to operate both on breach of contract (section 5 (c) of 1938 Act) and on surrender (section 4 (1) of 1938 Act). But the Committee rejects this, for " it would inevitably lead to disputes." The Committee rejects also any major recasting of the law of hire-purchase : it does not believe that the chattel mortgage device could be used on a widespread scale " without substantial alteration of long-established common law conceptions and statutory provisions," and " we are not interested in law reform merely for the sake of reform." The present framework of the law, suitably amended, is capable of serving the consumer well. What of the dealer? In the common three-party hire-purchase transaction, the hirer's rights lie against the owner under the hirepurchase agreement. Should he be given additional rights against the dealer? No, says the Committee (without hesitation this time) : this would create " rights and obligations of a contractual nature between parties not in contractual relationship." Not only does the Committee fail completely to see the artificiality in denying a contractual relationship : the decision in Andrews v. Hopkin~on,'~ with all its implications, is ignored. The other proposals for the reform of hire-purchase law-none of them radical except the 72-hour right to withdraw from doorstep agreements-cannot be assessed in detail here.14 Merchandise Marks The other major topic of legal interest in the Report is the reform of the Merchandise Marks Acts, 1887 to These Acts should be consolidated and simplified under the title " The Trade Descriptions Act " or " The Merchandise Descriptions Act." The fundamental purpose of the legislation is the restraint of false trade descriptions and control of the use of descriptive terms, and the provisions relating to trade marks should be relegated to a separate Part of the Act. The definition of " trade description " (1887 Act, s. 3 (l), as amended in 1953) should be extended to establish the principle that 11 [196l] 1 W.L.R. 1124; [1961] 3 All E.R [1962] 1 W.L.R. 117; All E.R [1957] 1 Q.B Attention may be drawn to Chapter 22 of the Report which givee, in 211 paragraphs, an admirable (if not entirely accurate) summary of the principal conclusions and recommendations contained in the other 21 chaptere.

9 74 THE MODERN LAW REVIEW VOL. 26 persons shall not induce sales or attempt to do so (whether deliberately or not) by making false or misleading statements of a factual character. Thus a claim that goods are Army Surplus, calculated to persuade the buyer that they are of particularly sound quality, would now be covered by the definition; the Committee s correspondents clearly doubted whether the needs of Her Majesty s Forces could be so consistently and so seriously miscalculated as to throw up the large volume of goods regularly offered by traders. (None of the service departments gave evidence to the Committee.) Similarly claims that the price had been reduced from a stated amount would fall within the revised definition- the practice is sufficiently widespread and deceptive to call for repression. A major defect in the Acts is that they apply only to a misdescription in writing. The Committee has no doubt that oral misdescription is widespread- much of it reckless, and a proportion consciously dishonest. But if oral misdescription became a criminal offence we would expect a marked increase in prosecutions not all of which could be easily proved, and we are doubtful whether, in the long run, the consumer would benefit from such invidious conflicts. Such a change in the law would also put a very powerful weapon in the hands of a disappointed shopper. Therefore no amendment to the law is proposed: the shopper is, it seems, not to be trusted with powerful weapons. Perhaps most important of the Merchandise Marks recommendations is that statements made in advertisements, in all media, should become subject to the Acts. At present a.prosecution in respect of a false or misleading trade description contained in an advertisement can be brought only if the goods were delivered in pursuance of a request made by reference to a... trade description appearing in any... advertisement. This is an impossible requirement which virtually limits this provision to mail-order business, and the Committee wish to replace it with a deeming provision, with complicated safeguards to protect new advertisements which might seem to relate to old stocks, and vice versa. Major Organisational Reform The establishment of a Consumer Council does not appear to be of great importance to the legal profession. It will consist of part-time independent members. It will have no regulation-making or lawenforcement functions, nor will it deal with individual complaints, though its mere existence would, it is hoped, inspire a good deal of correspondence. Its functions would be to collect information about coneumer problems, to consider what action is required, and to promote that action by advising the consumer and all other receptive parties, persuading manufacturers and distributors, pressing government departments when statutory action is needed, and

10 JAN REPORTS OF COMMITTEES 75 generally by speaking authoritatively on behalf of the consumer. It will almost certainly be better than nothing. Conclusions 331 pages (including index). 913 numbered paragraphs. This over-long note has, inevitably, omitted to refer to the major, practical, part of the Report, and to the proposals for legal advice through the Citizens Advice Bureaux. A profound fault is the Report s insularity. Some evidence appears to have been tendered to the Committee of practices in other countries, but there seems to be a lack of knowledge of legal developments abroad, notably in the United States. The Uniform Commercial Code contains several very relevant ideas (e.g., the extension of implied conditions to members of the buyer s household and.his guests, and the recasting of the law of chattel mortgage); it is not even mentioned. Nor are the Consumer Counsel appointed at one time or another by the Governors of several states. The Committee could not fail to be aware of the Federal Trade Commission, but it did not find the model a congenial one. The outstanding impression of the legal recommendations is that they are good-hearted but unimaginative. The Committee has been bemused by established legal concepts and categories. It respect- fully submits to irrelevancies like privity of contract. In all seriousness it rejects a proposal for hire-purchase reform on the ground that it involves interference with freedom of contract! It has even been overtaken by developments in the courts. The Committee has undoubtedly worked hard. Much of the Report is of importance; it is all well written and well presented. If it had only displayed a keen and burning desire to protect the consuming public the Committee could have produced a milestone in the development of the law; we must hope that it will not prove to be a millstone round the neck of future generations of reformers. AUBEEY L. DIAMOND.