Implied terms
The Act provides that each contract which is (i) a contract for sale, (ii) a hire agreement, (iii) a hire purchase agreement or (iv) a contract for the transfer of goods shall have the following terms implied into the contract:
Quality
(Section 9) the goods being supplied are of a quality which a reasonable person would consider to be satisfactory, taking into account:
- any description of the goods given by the trader;
- the price or other consideration paid or given for the goods; and
- all other relevant circumstances;
Fit for Purpose
(Section 10) if the consumer has made known to the trader any purpose for which the consumer is contracting for the goods, the goods are reasonably fit for that particular purpose, whether or not that is the purpose for which goods of that type are usually supplied;
Match Description
(Section 11) if the contract is to supply goods by description, the goods to be supplied will match that description;
Regulations
(Section 12) if the trader is required, pursuant to Regulation 9, 10 or 13 of the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, to provide pre-contract information (other than information about the goods mentioned in Schedule 1 or 2 to those Regulations) to the consumer prior to the contract becoming binding, such information is included as a term of the contract;
Match Sample
(Section 13) if goods are supplied by reference to a sample, the goods will match the sample except to the extent any discrepancy is brought to the consumer's attention before the contract is made; and the goods will be free from any defect which would not be apparent on a reasonable examination of the sample;
Match Model
(Section 14) if goods are supplied by reference to a model of the goods that is seen or examined by the consumer before entering into the contract, the goods will match the model except to the extent any discrepancy is brought to the consumer's attention before the contract is made;
Right to Transfer Possession (Hire)
(Section 17) unless the contract is one under which the trader and consumer agree that the trader or a third party will only transfer whatever (limited) title it may have, a hire agreement is deemed to include a term giving the trader the right to transfer possession of the goods by way of hire for the hire period and under any other contract for the supply of goods the trader shall be deemed to have the right to sell or transfer the goods at the time when ownership of the goods is to be transferred;
Free From Encumbrance (Non-hire)
(Section 17) unless the contract is one under which the trader and consumer agree that the trader or a third party will only transfer whatever (limited) title it may have and provided the contract is not a hire agreement, the goods are deemed to be free from any charge or encumbrance not disclosed or known to the consumer before entering into the contract and the contract is deemed to include a term that the goods will remain so until ownership of them is transferred. It is also implied that the consumer will enjoy quiet possession of the goods except so far as it may be disturbed by the owner or other person entitled to the benefit of any charge or encumbrance disclosed or known; and
Quiet Possession
(Section 17) a hire agreement is treated as including a term that the consumer will enjoy quiet possession of the goods for the hire period except so far as possession may be disturbed by the owner or other person entitled to the benefit of any charge or encumbrance disclosed or known to the consumer prior to entering into the contract.
Sections 15 and 16 of the Act also provide that goods supplied do not conform to the corresponding contract if:
- installation of the goods forms part of that contract and the goods are installed by the trader or its representative and are installed incorrectly; or
- if the goods include digital content which does not conform to the contract to supply that digital content.
Rights of Consumers
The consumer's remedies under Section 19 of the Act vary depending on the implied term breached by the trader. The consumer has the following remedies:
1 the short-term right to reject the goods;2 the right to repair or replacement of the goods; and3 the right to a price reduction or the final right to reject the goods.
Any defects which are identified within six months of delivery are deemed under the Act to have existed and affected the goods at the time of delivery, unless the trader can prove otherwise or the nature of the goods is such that defects could not have been identified at the time of delivery. The consumer bears the onus of proving any defects existed at the time of delivery of the goods only if the consumer is seeking to exercise its statutory remedies after more than six months from the date of delivery of the goods.
The statutory remedies are not available to consumers where any defects or breaches of the implied terms are brought to the consumer's attention by the trader prior to conclusion of the contract or if the consumer has examined the goods before purchasing them and the goods are of a type that any defects would have been identifiable on inspection.
1. Short term right to reject
If a consumer is supplied with goods which, at the time of supply do not meet the implied terms noted above, the consumer has a statutory right to reject the goods. This right lasts for a period of 30 days unless the goods have a short life or are perishable and that period would be too long given the nature of the goods.
If a consumer decides to exercise his or her right to reject the goods, the statutory period is paused so that the consumer has the remainder of that statutory period or seven days (if longer) to check whether any repair or replacement has been successful and within which to decide whether or not to reject the goods completely by exercising his final right to reject the goods.If the consumer decides to exercise that final right of rejection of the goods, the consumer has a right to a full refund of the purchase price. If the contract is a hire agreement the consumer's right to a refund extends only to any sums paid out for the hire period during which the goods will not be hired to the consumer because the contract is treated as being at an end as a result of the consumer's rejection of the goods. For the avoidance of any doubt, the consumer is not entitled to a refund until such time as the consumer's right to reject the goods has been exercised by the consumer.
If the contract is a hire purchase agreement, the consumer is released from all future obligations to make payment under the contract, including any hire purchase instalments, and the right to a refund applies only to the part of the price already paid.If the consumer has exercised his final right of rejection and has claimed a refund, the trader of the goods must provide the consumer with the refund due without undue delay and in any event within 14 days of the trader agreeing that the consumer is entitled to a refund. The trader must also bear the cost of collecting the goods from the consumer.
2. Repair or replacement of goods
If the consumer decides not to reject the goods, he will be entitled to claim a repair or replacement of the goods from the trader. If the consumer seeks to exercise this right, the trader must bear the cost of the repairs or replacement of the goods and must attend to the necessary repairs or provision of replacement goods in a manner which causes least inconvenience to the consumer. If the trader repairs the goods or provides the consumer with a replacement and the goods remain defective, the consumer does not need to give the trader further opportunities to make additional repairs or provide further replacement goods (but can do so if he so wishes) and can claim a reduction in the price paid for the goods or can exercise his final right to reject the goods.
3. Reduction of price and final right to reject goods
If the consumer is unhappy with the repaired goods or replacement goods, he must choose to retain them and claim a price reduction or reject them and terminate the contract. Any price reduction must be appropriate in the circumstances and must be determined on a case by case basis and could result in the consumer being entitled to claim a full refund. If the consumer rejects the goods, the consumer can claim a refund and the trader may deduct from the full purchase price any use the consumer has had of the goods prior to the consumer exercising its right of rejection, unless the goods are rejected within six months of supply (provided the goods are not vehicles, to which that timeframe does not apply). The trader cannot rely on its failure to collect goods from the consumer promptly as a means to extend the period during which the consumer has had the use of the goods so as to minimise the amount of any refund due to the consumer and to minimise the cost to the trader.
Delivery of Goods from Trader to Consumer
Traders should also bear in mind that Section 28 of the Act provides that, unless the trader and the consumer agree otherwise in their contract, the contract shall be deemed to include an obligation on the trader to deliver the goods to the consumer without undue delay and in any event not later than 30 days after the date on which the contract was entered into.
Implications for asset finance industry
Whilst the Act clarifies on a statutory basis the rights and remedies available to consumers when contracting for the sale and/or supply of goods, asset financiers should be alert to its implications and should consider taking certain steps to reduce any costs which may be incurred in the event of a consumer exercising its remedies against an asset financier, albeit in doing so the asset financier must balance the need to protect itself by minimising the costs borne by it with the need to recognise and comply with the consumer's statutory rights. Asset financiers may wish to consider the following in advance of the Act coming into force in October:
- firstly, is it appropriate to insist on a consumer inspecting the goods prior to conclusion of the contract? Clearly, whether that is appropriate will depend on the nature of the goods being sold but it may be sensible, and indeed can be prudent, to have a paper trail including any certificates of acceptance for future reference in the event of a claim being made by the consumer under the Act;
- secondly, if the trader is aware of any defects in the goods or knows that the goods do not conform with any of the implied terms applicable to the contract, the trader should disclose all relevant details to the consumer as soon as possible and in any event before the contract is concluded;
- thirdly, the Act highlights the importance of the trader having full and proper discussions with the consumer in relation to the goods being sold or supplied and to the remedies available to the consumer. The trader wants to minimise any costs likely to be incurred by it in repairing and replacing goods and should therefore discuss all options fully with the consumer as soon as the consumer has claimed that the goods are defective, before undertaking any repairs. Proactive action is likely to result in a more efficient and cost effective approach being undertaken to repairs and replacements and could minimise costs to the trader in the long term. Consumers may also be less likely to terminate the sales contract if the relationship between the financier and the consumer has been founded on open discussions;
- the Act prohibits traders from misleading consumers about their statutory rights. Asset financiers should consider whether staff should be trained on the Act and whether any steps and controls require to be taken internally as part of their complaints processes and procedures to ensure that consumers' rights are always properly recognised and considered;
- fourthly, traders should consider revising their point of sale wording, if included on or stuck to goods, to make clear that the statutory rights of consumers have been clarified by the Act and to summarise what rights the consumer has in the event the consumer considers the goods to be defective;
- traders should consider whether the 30 day timeframe for delivery of goods implied by the Act is appropriate. If the goods are perishable then clearly a much shorter period should apply and the trader and consumer should agree a more appropriate timescale in the contract. If the trader is supplying new vehicles, the trader should consider manufacturers' timescales and the typical waiting period in the industry for a particular model. That period should be factored in to the timeframe set out in the contract but the trader might also wish to include an additional period of time to allow for any manufacturer's delays over which the trader has no control. As an aside to timing, asset financiers should also consider whether they should be signing the contract on the same day as the consumer. The trader should avoid failing to sign the contract simply to extend the period permitted under the contract for delivery of the goods so that the consumer's rights are being properly recognised and, if there's a good reason for the trader not to sign the contract before or at the same time as the consumer, the trader should consider discussing that with the consumer before the consumer enters into the agreement; and
- lastly and as noted above, Clause 17 provides that the contract is deemed to include a provision to the effect that the goods are deemed to be free from any charge or encumbrance not disclosed or known to the consumer before entering into the contract and the contract is deemed to include a term that the goods will remain so until ownership of them is transferred. It is also implied that the consumer will enjoy quiet possession of the goods except so far as it may be disturbed by the owner or other person entitled to the benefit of any charge or encumbrance disclosed or known. It is common in the asset finance industry for asset financiers to enter into back to back funding arrangements in terms of which the asset financier finances the goods with their own funders before sub-hiring them to its own consumers. Those financing arrangements are rarely, if ever, disclosed to consumers. It will be interesting to see how the industry adapts to the terms of Section 17 of the Act but it is unlikely that any asset financier will want to disclose its own funding arrangements with consumers, particularly if they are complex and difficult to understand from the consumer's perspective.
