Article 3(4)
38. Article 3(4) sets
out the remedies available to a consumer once he has notified
(under Article 4(1)) a lack of conformity to the seller. The consumer
would be entitled to ask for a free repair, or replacement of
the goods, or to demand a price reduction, or rescission of the
contract. The rights of replacement and rescission are limited
to one year. Article 3(4), second paragraph, would allow Member
States to provide for more limited consumer rights in cases where
there is a "minor lack of conformity". Minor lack of
conformity is not defined in the Directive. Where there has been
a breach of sections 13-15 of the Sale of Goods Act, the buyer
has the right to reject the goods and to terminate the contract.
This right applies, however, only if the goods have not been "accepted"
within the meaning of section 35 of the Act.[23]
Where goods have been accepted the buyer's remedy is limited to
damages.
(i) The new remedies
39. English law does
not give the consumer a right of repair or replacement. However,
a free repair or replacement is frequently offered to and accepted
by the consumer and as Professor Furmston said: "In practice,
a buyer who rejects a reasonable offer for repair or replacement
will have great difficulty in establishing any significant claim
for damages" (pp 171-2). Beale and Howells observed
that in many continental systems which in principle allow enforcement
in natura having work or repairs done by a third party
at the defendant's expense was seen as such a form of enforcement
and thus the net effect of an obligation to repair might be very
similar to requiring the buyer to recover the cost by way of damages:
"it may be that our present law would be seen as giving the
buyer the remedy of repair required by Article 3(4)". Similarly
the right to an appropriate reduction of the price while well
known in the civil law, and in the Vienna Sales Convention, was
not one which exists as such in English law but damages might
effectively give the same result (p 7).
40. The impact of the
Directive, and in particular the extent of the change brought
about by Article 3(4), would depend on whether national courts
would be required, for example, to order a defect to be cured
by repair. Professor Treitel said that what appeared to be envisaged
was specific enforcement of the seller's duty to cure the defect
but it was not certain that courts would routinely grant specific
performance. He added: "The draft Directive is, perhaps fortunately,
vague on this point: it refers to repair and obligations under
"Obligations of the seller" (Article 3(4)) and is silent
on the question whether the consumer's remedy is to be by way
of specific relief" (p 211). The DTI pointed out that
although the Sale of Goods Act provided for specific performance
(in section 52, in relation to "any action for breach of
contract to deliver specific or ascertained goods") the circumstances
in which that remedy might be granted were limited (Q 405).
The Commission explained that the Directive does not require national
courts to order specific performance: Mr Staudenmayer said: "What
we have described in the Directive are the four rights of the
consumer. What happens if these rights are not fulfilled or are
not correctly fulfilled depends on the national law" (Q 319).
41. Whilst the net effect
of the introduction of a right of repair or replacement might
not be as great as some witnesses perceived their inclusion in
the proposal, nevertheless, raised questions. Professor Reynolds
said that a regime for repair or replacement had been considered
by the Law Commission in the 1980s but had been rejected on the
ground that it was likely to give rise to so many problems that
it would in the end be contrary to the consumer interest. The
introduction of a right of repair or replacement would, in Professor
Reynolds' view, give rise to various issues, including: "at
whose risk are the goods when they are being repaired? who pays
the cost of transport to and from the supplier? what if the consumer
moves further away? what controls are there on the rapidity with
which these functions are performed?" (p 199).
42. A number of witnesses
drew attention to the need to clarify the relationship between
the right to repair and other remedies such as replacement or
rescission. CA said that if a consumer accepted a repair it should
not prejudice his or her rights to replacement/rescission if the
repair proved to be unsuccessful. The time when the goods were
being repaired should not count in computing time limits, for
example, under Article 3(1) (p 49). Beale and Howells proposed
two clarifications of the right of repair: first, it should be
clear that the consumer retained his other remedies should an
attempted repair prove to be unsuccessful; and second, the right
to repair should not apply where the cost of cure was disproportionate
to the value of the goods or benefit the consumer would gain by
the repair (p 7).
43. The right to a replacement
also raised problems. Witnesses queried the relationship between
the right of replacement and the other remedies, for example the
extent to which the one year right of rejection could be applicable
if the replacement goods proved defective. The Commission replied
that it would depend on the nature of the defect. The `horror
scenario' under which the consumer bought a motor car and sought
to rely on the right of replacement as a means of obtaining a
new car each year ad infinitum would not be compatible
with the Directive (QQ 322-25). Professor Goode asked:
"If the seller has issued a separate guarantee in respect
of goods that turn out to be non-conforming and are replaced,
will the consumer be entitled to call for a new guarantee covering
the replacement goods?" (p 174).
(ii) The right of rescission
or replacement-the one year rule
44. A number of witnesses
questioned the implications of the right of rescission (which
witnesses generally likened to the right of rejection under English
law) being exercisable at any time during the first year (provided
notice is given within one month under Article 4(1)). Professor
Reynolds said that a year would be longer than normally permitted
under common law for rejection in any consumer sale: "Common
law policy, as repeatedly affirmed during the work for, and clear
in, the Sale and Supply of Goods Act 1994, is that rejection should
only be permitted within a fairly short period". The proposal
for one year would be a substantial change (p 198).
45. Professor Diamond
referred to the Commission's Explanatory Memorandum (Appendix 3)
where the one year period was described as a compromise to accommodate
the traditions of the common law countries where the right of
rejection might exist for only a short period: "I would not
like to think that our "traditions" are being used to
rob consumers in civil law countries of their rights" (p 156).
Both BEUC and CA were critical of the one year limitation on the
right to a refund or replacement. The time limit was arbitrary
and might cause undue hardship in respect of buyers of complex
goods which had latent defects. CA's view was that consumers should
have the right to reject for a reasonable period after discovery
of a defect, time starting to run from the time the defect appeared
(pp 47-48). Both BEUC and CA thought that the law should
be flexible and recommended that the one-year limitation be deleted
(p 48, p 146).
46. A number of witnesses,
however, had reservations about the long-term right to reject
or to seek replacement. Beale and Howells pointed to a danger
that consumers would exercise the right to rescind or demand replacement
when repairs could be done perfectly satisfactorily (p 8,
Q 52). The FLA suggested that the consumer might be put under
an obligation to seek reasonable repair of the goods free of charge
before exercising his or her rights of replacement or rescission,
the latter remedies being restricted in any event to a maximum
of six months (p 169). Beale and Howells thought that a balance
had to be struck in relation to the exercise of the right of rejection.
Mr Howells noted that the Commission had assumed that when the
right of rejection was exercised there would be an allowance made
for any use the consumer had had of the goods. He supported this,
as well as the ability of national courts to apply a theory of
good faith or abuse of rights. The discretion given by the Directive
to Member States to limit remedies in respect of minor defects
could also limit the long-term right of rejection where the defect
was not serious either in the sense that it affected enjoyment
in a minor way or that a reasonable offer of repair was made (Q 52).
47. Other witnesses
also pointed to the failure of the Directive to address expressly
any limitations on the right of rescission. Professor Reynolds
noted that the Directive made no attempt to deal with the problems
of risk on rejection: "rejection of goods damaged (or lost)
with or without the fault of the buyer, of goods modified for
use (fitted carpets), partly used by testing, difficult to retrieve
(fixed to wall or incorporated into something else) etc".
He accepted that the solution to such problems was not clear at
common law but said that extending the period available for rejection
would make them more significant (p 199). Professor Goode
said: "Article 3(4) also fails to incorporate other necessary
qualifications to the right to rescind, e.g. that the buyer
has disposed of the goods or is for other reasons unable to return
the goods, that he has intimated acceptance of them, that he has
elected to retain them and continued to use them with knowledge
of the breach" (p 174).
(iii) The question of choice-the
risk of abuse
48. The consumer organisations
were generally in favour of the consumer having the choice of
remedies under the Directive. The NCC considered that by giving
the consumer a choice of a free repair, reduction in the selling
price, replacement of faulty goods, or rescission of the contract,
the Directive would in many cases improve the consumer's position.
Ms Hall said: "the reality of consumer transactions is that
it is a very uneven balance at present" (p 53, Q 147).
Retailers, however, questioned whether the consumer should in
all circumstances be entitled freely to choose his remedy. A defect
might, for example, be able to be repaired speedily and at very
little cost. Retailers argued that the choice of remedy should
be theirs in the first instance: in particular, retailers should
have the option of repairing the goods. The Commission disagreed.
Mr Staudenmayer said: "We clearly had the choice whether
we should give the choice to the consumer or to the seller and
we considered that the choice should be given to the consumer
and not to the seller because finally it is the seller who is
in breach of the contract and why should we reward the party who
is in breach of the contract with the possibility of choice between
the rights of the other party?" (Q 315).
49. A number of witnesses
expressed concern that increasing the consumer's rights as proposed
would lead to abuse. Mr Thomas said: "It may not be a huge
problem but there will be those who will seize on the new rights
to enable them to undo the contract which they foolishly made
without proper thought" (p 203). Those representing
industry feared a rise in fraudulent or false claims by consumers.
Panasonic said that the refund remedy might be particularly attractive
in markets such as consumer electronics if at the end of the first
year the comparable or identical model was being sold at a lower
price (p 190). This was also a matter of great concern for
the PCA: "because of the nature of our market, where prices
may drop 10 per cent every month ... , any extension of the right
to reject will bring about an increase in non-justified rejections,
as consumers become aware that they can now buy the same product
for substantially less money" (p 192). Both BEUC and
CA, however, said that there was no reason to fear that consumers
would abuse the right to reject goods: consumers did not, and
would not, exercise their right to reject lightly; the right to
reject would in any case still depend on lack of conformity with
the contract (p 49, p 147).
50. The Commission could
not exclude the possibility of abuse but acknowledged that the
rights given to the consumer would have to be exercised in good
faith. This was a general principle in the laws of most Member
States and was implicit in the Directive. The Commission agreed
that it could be made explicit, for the benefit of the United
Kingdom. The DTI was, however, cautious about this and thought
that the introduction of the conception of good faith expressed
in the Directive could give rise to difficulty in implementing
the Directive. Mr Woods said: "it seems to us to fit fairly
ill in statutes like the Sale of Goods Act 1979. We feel that
it could give rise to a deal of uncertainty, as well as almost
introducing a mental element which has to be considered on the
part of the buyer ... if it is introduced in relation to the buyer,
should it not also be produced in relation to the seller and,
indeed, the final seller, in relation to any claims he might make
further up the chain of supply? So I believe it opens a rather
awkward door." (Q 403).
51. The Commission also
acknowledged that where a consumer rejected the goods and sought
a refund of the price paid, any depreciation through use or damage
could be taken into account by the national court (QQ 327-9).
The DTI thought that an allowance could be made for depreciation
under current domestic law (QQ 384-5). CA accepted that where
the consumer exercised the right of replacement or rescission
several months after purchase he or she should be required to
give allowance for the benefit and reasonable use which had been
had from the goods (p 49).
(iv) Minor lack of conformity
52. The second paragraph
of Article 3(4) would enable Member States to limit the scope
of rights to repair, replacement, price reduction or rescission
"in the case of a minor lack of conformity". The Commission
said that this was inserted "with an eye to compromise and
in order to accommodate different national traditions" (Appendix 3).
Under section 15A of the Sale of Goods Act, where there is a breach
of sections 13-15 which is "so slight that it would be unreasonable"
for the buyer to reject the goods then the buyer is not able to
reject the goods but is only able to claim damages. This modification
of the remedies for breach of condition only applies in non-consumer
cases.[24]
53. Beale and Howells
argued that a "minor lack of conformity" in Article
3(4) did not mean a trivial or immediately repairable defect which,
under the Sale of Goods Act, would not prevent the goods being
of satisfactory quality: they suggested that it must mean a non-conformity
that was not particularly serious (p 9). The Commission said
that a Member State might want to limit the right of replacement
or rescission where, for example, the goods were complex and made
up of a large number of components (the example given was a motor
car) and the defect was caused by the failure of a small component
which could easily be replaced. In such a case the consumer's
rights might be restricted to repair or a price reduction (QQ 315-6).
54. CA's view was that
United Kingdom law should remain as it currently exists: the second
paragraph of Article 3(4) should be removed. CA accepted, however,
that if there were a concern that this would give consumers an
unfair advantage then a "good faith" text could be inserted.
Section 15A of the Sale of Goods Act might provide a precedent:
the buyer would not be entitled to a replacement or to rescind
the contract if the breach were so slight that it would be unreasonable
for him or her to reject the goods (p 49, Q 146). The
NCC said that it was not clear how the provision might be interpreted.
It would want to look carefully at any suggestion that minor non-conformity
should result in consumers not having appropriate remedies (p 53).
BEUC favoured the deletion of the second paragraph of Article
3(4) (p 147).
55. The BRC queried
how Member States would deal with the question of minor lack of
conformity and expressed concern that each Member State would
do something different. The DMA expressed similar concerns (p 159).
The BRC, however, would rather the matter be left vague than a
more precise definition of "minor lack of conformity"
be given in the Directive (QQ 228, 239). The Commission thought
that it would be impossible to formulate a definition which would
be appropriate for all goods. What amounted to a minor lack of
conformity would be a question ultimately for the European Court
to determine on a case-by-case basis (QQ 335-8). The DTI
seemed content to leave it undefined (Q 413).
(v) Damages
56. A number of witnesses
drew attention to the fact that the Directive does not address
the question of damages. Under English law damages are a primary
remedy. If a seller is in breach of his obligations under the
Sale of Goods Act the consumer is entitled to sue the seller for
breach of contract and would be able, in appropriate circumstances,
to obtain damages going further than the rights proposed under
Article 3(4). For example, if a consumer bought a defective kettle
which on first use exploded and scalded him, the consumer could
obtain damages for breach of contract in respect of the personal
injury he suffered. In civil law systems, by contrast, the seller's
liability under the "legal guarantee", as Professor
Treitel explained, does not (in principle) extend to consequential
loss or expectation loss (p 211). The Commission's Explanatory
Memorandum stated that "the aim of the Commission, fully
in keeping with the principle of proportionality, is merely to
resolve ... the problems relating to the goods themselves as a
result of each lack of conformity" (Appendix 3). Mr
Pappas referred to the principle of subsidiarity and said: "we
did not think it indispensable to harmonise the question of damages.
It could be left to the discretion of the Member States to define,
each of them, the weight and the extent of the compensation"
(Q 341). Beale and Howells considered that there was, however,
a strong case for harmonisation (p 10)
Article 5
57. The purpose of Article
5(1) is to establish the principle that the commercial guarantee
legally binds the guarantor in accordance with the conditions
of the guarantee document. The Commission leaves to Member States
"and national legal traditions" the means of achieving
this. In English law some theoretical uncertainty surrounds the
enforceability of commercial guarantees. In practice, however,
there do not seem to have been any problems: manufacturers generally
wish to preserve their goodwill and rarely, if ever, seek to rely
on any absence of legal enforceability.
58. Professor Goode
said that Article 5(1) would help deal with a problem under English
law, namely the enforceability of a guarantee which is contained
within the packaging of the goods and is not seen by the consumer
until after the purchase (p 175). Professor Beale said: "The
DTI in 1992, in the Consumer Guarantees paper, floated the idea
that manufacturers' guarantees should be enforceable. We would
endorse that idea, we think they should be enforceable, and we
would not anticipate very much disagreement amongst the manufacturers.
Why do they offer these guarantees if they do not intend to live
up to them?" (Q 67). UNICE, on the other hand, was against
making commercial guarantees legally enforceable: "Their
very nature is incompatible with the notion of binding legal rules"
(p 217). BEUC took a contrary view: "That a guarantee
offered by a seller or producer is legally binding goes without
saying, but it is even better to say it" (p 148).
59. Article 5(1) also
requires the guarantee to "place the beneficiary in a more
advantageous position than that resulting from the rules governing
the sale of goods set out in the national provisions applicable".
The Danish Consumer Ombudsman argued that the consumer should
be placed in a "considerably better" legal position
(p 155). Witnesses were, however, unclear what was intended
by Article 5(1) and saw some overlap with the definition of "guarantee"
in Article 1(1)(d). For the DTI, Miss Gane said: "When we
discussed this with the Commission they said that at least one
term in the commercial guarantee had to be better than the legal
guarantee. That was their view on it. I guess they will never
really give us a definition". Mr Woods added: "I take
the policy behind this provision to be to discourage the practice
of the issuing of what might be called spurious guarantees or
guarantees which are not worth a great deal. Thus you are free
not to offer a guarantee if you do not wish to. However, if you
do the guarantee has actually got to be worth something"
(QQ 420,423).
60. In CA's view, guarantees
worked well in their current, albeit uncertain, state. In practice
they were honoured and CA was concerned that a change in the law
could introduce unnecessary legality, add confusion, create the
potential for difficulties for the consumer and lead to the offering
of fewer guarantees. Consumers might be pushed into reliance upon
commercial guarantees when their statutory rights should, in CA's
view, take prominence (p 50). The Commission rejected the
argument that Article 5(1) would cause confusion: the Directive
dealt with consumers' legal rights, the "legal guarantee"
and there would be confusion, Mr Pappas said, if Article 5 did
not exist (Q 345).
61. UNICE were strongly
opposed to the legal regulation of the content of commercial guarantees:
"Guarantees are marketing tools, and they foster competition.
They are granted voluntarily on the basis of an independent decision
by the manufacturer or seller, any regulation would impair competition.
There is also a substantial risk that regulation would lead to
a decrease in the use of commercial guarantees which would be
disadvantageous for consumers" (p 218). EUROCOMMERCE
pointed out that from a practical standpoint some retailers might
not in future be able to offer a commercial guarantee given the
requirements imposed on retailers by the Directive in terms of
remedies and deadlines (p 162).
62. Article 5(2) provides
that the guarantee must be contained in a written document which
must be freely available for consultation before purchase. Certain
essential matters must be clearly set out: the duration and territorial
scope of the guarantee and the guarantor's name and address. CA
(and other consumer bodies) welcomed this provision (p 50,
Q 185). Both BEUC and CDC said that certain additional matters
should be set out in the written document, including a reference
to the consumer's statutory rights and the availability of spare
parts and after sale services (p 148, p 153).
63. Retailers were,
however, uncertain as to the meaning and extent of the requirement
that the terms of the guarantee be "freely available".
They believed that compliance with the BRC's Retailers Guide[25]
should suffice. Mr Brotherton said: "Generally that will
mean opening the box ... and showing them the guarantee, so that
they can satisfy themselves that the guarantee is adequate".
He expressed some concern, however, if the Directive meant having
to open the box more frequently: "the trouble is that they
are not necessarily any longer new goods and we will then be faced
with having to mark them down". Alternatively, having to
have available all the different guarantees for all products sold
in a large department store and making sure that they were up-to-date,
Mr Brotherton said, "would be quite an administrative problem"
(QQ 265-267). Mr Thomas, however, believed that there should
be no difficulty in details of guarantees being made available
to potential buyers. Retailers already held (sometimes on computer)
substantial amounts of technical information about products and
"adding a print of the guarantee would be a tiny one-off
cost because the wording would be valid until it was decided to
change it" (p 205). Nor did the Commission accept the
retailers' argument that it might be impractical for the retailer
to supply the necessary details of the commercial guarantee. Guarantees
were an important marketing instrument and in the Commission's
view their terms should be transparent (QQ 353-5). The DTI
had not reached a final view. Miss Gane said: "we have seen
evidence that some shops could suffer a real practical problem
in implementing this. We want to consider this further and we
want to consider the burden against the consumer protection this
might give" (Q 420).
64. The Directive does
not specify the consequences where there is a failure to comply
with its requirements as to legal enforceability, prior availability
and minimum content. The Commission's Explanatory Memorandum,
however, said that infringement of the rules laid down in Article
5 should not affect the guarantee's validity and the consumer's
ability to require it to be honoured (Appendix 3). As regards
the requirement to make guarantees "freely available"
the DTI saw practical difficulties in providing an appropriate
sanction in the event of a default by the retailer (QQ 428,
431).
23
The buyer is deemed to have accepted the goods when he intimates
to the seller that he has accepted them or when the goods have
been delivered to him he does any act in relation to them which
is inconsistent with the ownership of the seller. Where goods
are delivered to the buyer, and he has not previously examined
them, he is not deemed to have accepted them until he has had
a reasonable opportunity of examining them for the purpose of
ascertaining whether they are in conformity with the contract.
The buyer is deemed to have accepted the goods when after the
lapse of a reasonable time (taking into account whether the buyer
has had a reasonable opportunity of examining the goods) he retains
them without intimating to the seller that he has rejected them.
The buyer is not deemed to have accepted the goods merely because
he asks for, or agrees to, their repair by the seller. Back
24
Section 15A only applies "if the buyer does not deal as a
consumer". Back
25
Consumers' Legal Rights and Guarantees: Retailers' Guide. This
provides guidance to retailers on their legal obligations to purchasers
of goods and services and on the role of guarantees. Section
2 stipulates certain General Principles applicable to commercial
guarantees, including:
"1) All guarantees should be
clear and unambiguous and should state as a minimum the name and
address of the guarantor, period of the Guarantee and all its
relevant material terms ...
4) Purchasers should be given the
opportunity to study, if they wish, the terms of the guarantee
before being committed to purchase ...".
The BRC has also issued a Code of
Practice on Extended Warranties of Electrical Goods. Its operation
and effectiveness are reviewed annually by the Office of Fair
Trading. Back
