4â Equality of bargaining power: non-consumers and consumers

66

Sale of goods policy

major high street retailers such as supermarkets source their supplies from a

large number of small producers who cannot influence the terms of the supply

contract. Such small producers may be driven to sell their produce at a low price

with a very small profit margin because of their inherent weakness when agree-

ing the terms of the contract. Indeed, in the not uncommon situation where a

small producer is selling all of his produce to one major retail company, he has

no control at all over the terms of the contract of sale as, without an alternative

buyer, he has no choice but to accept the terms upon which the retail company

chooses to buy from him.

This potential inequality of bargaining power between the parties has been

partially, though not necessarily successfully, addressed through three differ-

ent legislative routes, namely the use of the Unfair Contract Terms Act (UCTA)

1977, the passage of the Unfair Terms in Consumer Contracts Regulations

199913 and the provision of different remedies for consumer and non-consumer

buyers under the Sale of Goods Act 1979. All of these mechanisms impact upon

the bargaining power and rights of the respective parties. However, they also

reflect the rise of consumerism in the last fifty years as they provide a higher

level of protection for consumer buyers as opposed to non-consumer buyers,

the assumption being that consumers are more vulnerable and thus in need of

greater statutory protection.

(a)â Unfair Contract Terms Act 1977

Section 3 of the UCTA 1977 introduced controls over standard form con-

tracts. These contracts, though eminently sensible from a business perspec-

tive as they negate the need to continually negotiate terms in each individual

contract, present the person imposing the terms with a potential opportunity

to impose unfair terms on the other, usually weaker, party. This is a particular

problem when the purchaser is a consumer who will not be contracting on

their own standard terms and will be powerless to affect those imposed upon

him by the business seller. A business-to-business sale raises a different issue

as, when each usually contracts on their own standard terms, there may be a

disagreement as to whose standard terms govern the contract. This has given

rise to the so-called ‘battle of the forms’14 when both seller and buyer seek to

use their respective standard form contracts, and it will ultimately be up to

the court to decide whose terms will prevail. In practice, it will depend on

the facts of the particular case15 and, if there is no clear evidence as to which

terms are paramount, those implied by the Sale of Goods Act 1979 will take

effect.16

13

SI 1999/2083.

14

Butler Machine Tool Co. v. Ex-Cell-O Corp. [1979] 1 All ER 965.

15

Rimeco Riggelsen & Metal Co. v. Queenborough Rolling Mill Co. [1995] CL 110.

16

GHSP Inc. v. AB Electronic Ltd [2010] EWHC 1828 (Comm).

67

4â Equality of bargaining power: non-consumers and consumers

However, section 3(2)(a) of the UCTA 1977 provides that, when contracting

on standard terms, the person whose terms they are cannot use them to exclude

or limit his contractual liability for breach unless the exclusion or limitation

satisfies the requirement of reasonableness.17 Further, section 3(2)(b) provides

that that person cannot use the contract terms to allow him either to render

contractual performance that differs substantially from that which was reason-

ably expected of him or, alternatively, to render no performance at all, unless in

either instance the contract term would satisfy the test of reasonableness. These

provisions clearly help the weaker contractual party by restricting the oppor-

tunity for the stronger party to abuse that position.

While section 3 applies to all standard term contracts, the cross-over

between contracts for the sale of goods, other related contracts for the acqui-

sition of goods and the control of unfair contract terms is explicit in sections 6

and 7 of the UCTA 1977. It is in these sections that we also see the second legis-

lative technique used to protect an overtly weaker contractual party, namely a

consumer.

Section 6 of the UCTA 1977 lays out controls over any attempt to exclude

or restrict liability for a breach of the implied conditions contained in sec-

tions 12–15 of the Sale of Goods Act 1979.18 Section 6(1)(a) of the UCTA

1977 prohibits absolutely any term that seeks to exclude or restrict the liability

of the seller for a breach of section 12 of the Sale of Goods Act 1979, namely

the implied condition that the seller will have the right to sell the goods at the

time that the property is due to pass. Section 6(1)(b) makes similar provision

in respect of any term that seeks to exclude liability for a breach of section 8

of the Supply of Goods (Implied Terms) Act 1973 in respect of hire-purchase

contracts.19 This control exists irrespective of whether the buyer is a business or

a consumer.

The divergence between business buyers and consumer buyers becomes

apparent when looking at sections 6(2)and (3) of the UCTA 1977, which deal

with attempts to exclude or restrict liability for breaches of sections 13–15 of

the Sale of Goods Act 1979 or sections 9–11 of the Supply of Goods (Implied

Terms) Act 1973. Where the buyer deals as a consumer,20 a contract term

17

The ‘reasonableness’ test applicable here is set out in the UCTA 1977, s.11(1), which states that

the relevant term must ‘have been a fair and reasonable one to be included having regard to the

circumstances which were, or ought reasonably to have been, known to or in the contemplation

of the parties when the contract was made’.

18

The implied conditions in Sale of Goods Act 1979, ss.12–15 cover the right to sell, sale by

description, satisfactory quality, fitness for purpose and sale by sample. These implied conditions

are considered in detail in Part 2 Chapter 2.

19

The property in the goods in a hire-purchase contract does not pass until the hirer exercises the

option to purchase at the end of the agreement either when the agreement has run its full term or

at such earlier time as the hirer pays off the total amount owing and brings the agreement to an

early end. The title will not pass if the hirer terminates the agreement before the final payment is

due or goes into breach.

20

A person is ‘dealing as a consumer’ for these purposes when he does not make the contract in the

course of a business nor holds himself out as doing so, the other party does make the contract

22

SI 1999/2083, reg. 5(2).â 23â Ibid. reg. 5(3).

24

Ibid. reg. 8(1).â 25â Ibid., reg. 8(2).