Chapter 8 Guidance on questions in the book

Question

Smith sells a machine to Thomas, stipulating that if anything proves to be wrong with the machine, his liability is to be limited to repairing or replacing it, but is not to extend to consequential damage; and also providing that Thomas must inform Smith within 48 hours if he has any complaint about the machine. Soon after the machine has been installed, it catches fire because of an electrical fault, burning Thomas’s hands severely and destroying the building in which Thomas has installed it. As a result of his injuries, Thomas does not notify Smith of the incident until 72 hours later. In what way are the legal rules likely to differ if (a) neither party; (b) both parties; (c) Smith but not Thomas, made the contract in the course of a business? Would your advice differ if Thomas was a limited company not a human being?

Answer guidance

This problem is best answered by breaking your answer down into parts (a), (b) and (c), although there are some preliminary points to make that are relevant to all three parts. Notice that there are two salient clauses, a limitation clause and a strict time limit on making complaints. But these two clauses are only significant if Smith bears underlying liability for the electrical fault in the machine. So do not just go straight for the unfair terms legislation to challenge the two clauses, without establishing what liability (if any) Smith would be under in the absence of those clauses. Also, don’t forget that although Smith’s underlying liability (if any) would primarily be for breach of contract, he might also be liable in the law of tort - in negligence or possibly even under the Consumer Protection Act (we won’t consider the tortious aspects of the problem any further). Finally, see chapters 16-18 for the remedial and remoteness issues raised by these facts.

(a) Where a sale is made outside the course of a seller’s business, the Sale of Goods Act implied terms about the quality of the goods do not apply. So unless Smith has given an express promise that the machine is in good condition, there is unlikely to be any underlying contractual liability. (If negligence liability is established, UCTA will not apply to the limitation clause as it only regulates exclusions of business liability for negligence.)

(b) Where Smith sells the machine in the course of a business and Thomas buys it for his own business purposes, Smith is prima facie liable for breach of one of the Sale of Goods Act implied terms as to satisfactory quality, but he will wish to rely on the two clauses to negate his liability. Thomas purchased the machine in the course of his business, so won’t be able to rely on the Consumer Rights Act. Can Thomas rely on UCTA? The first clause purports to limit Thomas’s rights if the machine is defective: according to section 6 (1A) of UCTA, the implied term as to the quality of goods in the Sale of Goods Act ‘cannot be excluded or restricted by reference to a contract term except in so far as the term satisfies the requirement of reasonableness.’  So Smith must prove that the clause is reasonable in order to rely on it.

The second clause is not so straightforward, as it isn’t expressly phrased as an exclusion or limitation of liability, but it is brought within the ambit of the UCTA regime by section 13(1)(a), which provides that, to the extent UCTA prevents exclusion of liability, it also prevents making liability or its enforcement ‘subject to onerous conditions’.  A 48-hour deadline for giving notice of complaints would count as such, so apply the same analysis as for the first clause.

In addition, if underlying negligence liability is established, section 2(1) and section 2(2) would both be relevant: an absolute prohibition on excluding or limiting negligence liability for death or personal injury; a test of reasonableness for other sorts of loss or damage. 

(c) Where Smith is in the course of business but Thomas is not, the first thing to notice is that the underlying liability regime is different.Since the contract is made between a trader and a consumer, it counts as a ‘consumer contract’ and is regulated by the Consumer Rights Act 2015.  This means that the relevant implied term about the quality of the goods is now contained, not in the Sale of Goods Act, but in the CRA (see section 9).  It also means that the CRA, not UCTA, regulates the fairness of terms in the contract.  The first clause is simple - section 31(1) states that any term that seeks to exclude or restrict liability for this implied term as to satisfactory quality is not binding on Thomas as consumer.

The second clause is less obvious but falls within the same regime, because section 31(2) says it includes terms which ‘make such a right or remedy or its enforcement subject to a restrictive or onerous condition’. This means that on this occasion Thomas wouldn’t need to apply the unfairness test in section 62(4), nor the indicative guidance from the terms that appear in the ‘grey list’ in Schedule 2.

The same points about negligence apply as in (b) above, though again the relevant regime is now to be found in section 65 of the CRA, not UCTA.

If Thomas was a limited company not a natural person, your advice would differ in that the CRA does not apply to companies, only natural persons. Can you think of any other differences?