The Sale and Supply of Goods to Consumers Regulations 2002

Introduction

The Regulations (SI 2002 No 3045) implement Directive 1999/44/EC, also known as the "consumer guarantees" directive, by amending the Sale of Goods Act 1979, the Supply of Goods and Services Act 1982, the Supply of Goods (Implied Terms) Act 1973 and the Unfair Contract Terms Act 1977. The new Regulations will come into force in the UK on 31 March 2003

The Directive gave Member States certain options for implementing the Directive and that they may adopt or maintain more stringent provisions so that there will still remain differences between the various national systems regulating the sale and supply of goods to consumers.

In some cases, the UK has chosen to implement over and above the strict provisions of the Directive. Where this occurs in the Regulations it is pointed out in the discussion below. In no case do the Regulations reduce the rights of consumers.

The main changes to the existing consumer protection legislation to implement the Directive are:

• consumers will have the right to have goods that do not conform to the contract of sale at the time of delivery repaired or replaced, unless that would be impossible or disproportionate, or to require the seller to reduce the purchase price by an appropriate amount or rescind the contract;
• the burden of proof when reporting non-conforming goods will be reversed in favour of the consumer for the first six months of delivery of the goods;
• guarantees offered by a producer or seller to a consumer will be contractually binding, and must be written in plain intelligible language setting out the particulars necessary for making a claim under the guarantee and are to be made available to the consumer on request. (The existing requirement that guarantees must state that the consumer's statutory rights are not affected by the guarantee remains).

The UK has chosen not to limit these new consumer remedies to the period of two years as per the minimum period in the Directive. Instead, the usual UK contractual limitation period of six years will generally apply. In consumer sale of goods cases, the new legislation provides that goods will remain at the seller's risk until they are delivered and delivery of goods to a carrier will not be delivery to the buyer.

Existing UK Consumer Rights

Prior to the introduction of the Regulations the main remedy available to consumers of goods in the UK is the right to reject the goods within a reasonable time of purchase where they are not of satisfactory quality or not as described and obtain a refund of money paid for the goods. There is no definition of what a reasonable time is and so this depends on the circumstances.

Where the goods have been accepted or a reasonable time has passed, thereafter any remedy is in damages, which essentially means the cost of repair or replacement of the goods. The usual contractual limitation period of six years applies but it must be reasonable for the goods to last that long.

These rights and remedies will continue in addition to the new rights introduced by the Regulations.

Definition of Producer

The definition of "producer" is the manufacturer of goods, the importer of goods into the European Economic Area or any person purporting to be a producer by placing his name, trade mark or other distinctive sign on the goods. This definition applies to all the amendments to legislation made by the Regulations and is largely the same as in the Consumer Protection Act 1987.

Amendment of the Sale of Goods Act 1979 ("SGA")

Implied Terms About Quality and Fitness

Regulation 3 amends Section 14 of the SGA which implies terms about quality or fitness of goods into a consumer contract. The Regulation provides that in the criteria for judging whether goods are of reasonable quality, "any other relevant circumstances" includes any public statements on the specific characteristics of the goods made about them by the seller, the producer or his representative, particularly on advertising or labelling.

Amendments to Rules on Passing of Risk and Acceptance of Goods

Regulation 4 amends the rules on the passing of risk and acceptance of goods in consumer cases as set out in Section 20 of the SGA. Under the new Regulations where the buyer is a consumer, then the goods remain at the seller's risk until they are delivered to the consumer. Previously, risk passed when the property in the goods was transferred to the buyer, which was not necessarily on delivery of the goods.

The Regulation amends Section 32 SGA where the buyer is a consumer so that where the seller is authorised or required, in pursuance of a contract of sale, to send the goods to the buyer, delivery of the goods to the carrier is not delivery of goods to the buyer.

Additional Rights of Buyer in Consumer Cases

Regulation 5 introduces Part 5A to the SGA, additional rights of the buyer in consumer cases. This section applies where the buyer is a consumer and the goods bought do not conform to the contract of sale at the time of delivery.

Essentially, where the goods bought do not conform to the contract for sale at the time of delivery of the goods, then the buyer has the right to require the seller to repair or replace the goods within a reasonable time and without causing significant inconvenience to the buyer. If repair or replacement is impossible or disproportionate, or if the seller fails to repair or replace the goods within a reasonable time and without significant inconvenience to the buyer, then the buyer may require the seller to reduce the purchase price of the goods by an appropriate amount or to rescind the contract.

The minimum two year limitation for seeking a remedy from the time of delivery of the goods that the Directive provides for has not been implemented by the Regulations. This means that the usual contract limitation period for England and Wales of six years generally applies for seeking these new remedies.

Reversal of Burden of Proof

Section 48A (3) provides that goods which do not conform to the contract of sale at any time within the period of six months starting with the date on which the goods were delivered to the buyer must be taken not to have so conformed at that date. This presumption essentially reverses the burden of proof so that if, within six months of delivery, non-conforming goods are returned by the buyer, then the seller has the burden of proving that the goods did conform to the contract at the time of delivery.

Section 48B (4) provides that the seller can rebut this presumption if he can establish that the goods did conform at the date of delivery or that the application of the presumption is incompatible with the nature of the goods or the nature of the lack of conformity.

The reversal of the burden of proof only applies to the remedies introduced by the Regulations and not to the initial right to reject goods still available in the UK law, nor to product liability claims brought under the Consumer Protection Act 1987.

Amendment of the Supply of Goods and Services Act 1982 ("SGSA")

Implied Terms About Quality and Fitness

Sections 7 and 8 of the Regulations amend Sections 4 and 11D of the SGSA respectively, the provisions in each are essentially the same, implying terms about quality and fitness of the goods, but Section 4 applies to England and Wales and section 11D to Scotland.

The provisions of the SGSA in this regard are the same as those implied into the SGA regarding the criteria for relevant circumstances to be taken into account when considering whether goods are of satisfactory quality.

Additional Rights of the Transferee in Consumer Cases

Section 9 of the Regulations adds Sections 11M-11S to the SGSA. These new sections mirror the additions to the SGA, described above, that provide that if the goods do not conform to the contract for the transfer of goods at the time of delivery then the transferee has the right to require the transferor to repair or replace the goods within a reasonable time, or to reduce the price of the goods or to rescind the contract.

The provisions above about the limitation period and reversal of the burden of proof apply similarly to SGSA.

Additional Implied Terms Where Goods Are Hired to Consumers and for Hire-Purchase Contracts

Sections 10 and 11 of the Regulations amend the SGSA provisions regarding quality of goods and fitness for purpose in relation to hire of goods by consumers in England and Wales and in Scotland respectively. These provisions include public statements in the relevant circumstances taken into account when deciding when goods should be considered to be of satisfactory quality. They mirror the provisions added to the SGA and transfer of goods provisions in the SGSA described above.

Regulation 13 imports the same provisions into the Supply of Goods (Implied Terms) Act 1973 ("SG(IT)A") in relation to hire-purchase contracts.

The new consumer rights to repair, replacement, reduction of price or rescission have not been extended to agreements for hire of goods or hire-purchase as suggested by the DTI in its consultation.

Amendments to the Unfair Contract Terms Act 1977 ("UCTA")

For the purposes of UCTA a buyer is not considered to be a consumer and a contract is not considered to be a "consumer contract" where the purchaser is an individual and the goods in question are goods sold at public auction at which the individual has the opportunity to attend the sale in person, or, where the purchaser is not an individual, the goods are sold by auction or by competitive tender.

Consumer Guarantees

Section 15 of the Regulations has added a substantial new area not previously covered by UK law relating to consumer guarantees. Essentially it provides that where goods are sold or otherwise supplied to a consumer with a consumer guarantee, that guarantee takes effect as a contractual obligation. Prior to the new Regulations, many producers provided guarantees free of charge and upheld them, however, they were not usually contractually binding.

A consumer guarantee is defined as "any undertaking to a consumer by a person acting in the course of his business, given without extra charge, to reimburse the price paid or to replace, repair or handle consumer goods in any way if they do not meet the specifications set out in the guarantee statement or in any relevant advertising".

The guarantee must be made available in writing or some other durable medium, in plain intelligible language setting out the contents of the guarantee and the necessary particulars for making a claim.

Where the goods are offered within the territory of the UK, the guarantee must be written in English.

The Directive's requirement to remind consumers of their statutory rights is already contained in UK law in the Consumer Transactions (Restrictions on Statements) Order 1976.

Injunctions

The regulations give power to the enforcement authorities (for example the Director General of Fair Trading) to apply for an injunction (or an order of specific implement in the case of Scotland) against anyone failing to comply with the rules regarding consumer guarantees, requiring him to comply. The courts have the power to approve and implement such an application and also any application by a consumer for specific performance (or specific implement in Scotland) by the seller of any of the new remedial obligations. Enforcement authorities already have powers against anyone failing to comply with the rules governing the sale of goods and services to consumers, by means of the Stop Now Orders (EC Directive) Regulations 2001, SI 2001 No 1422.

Credit Card Purchases and Connected Liability under s75 Consumer Credit Act 1974

Under Section 75 of the Consumer Credit Act 1974 ("CCA"), where a consumer purchases goods or services for a cash price exceeding £100 and less than £30,000, on a credit card and has a claim against the supplier in respect of a misrepresentation or breach of contract, he has a "like claim" against the creditor.

It appears from the drafting of the regulations that the new remedies are not excluded from Section 75 CCA and a consumer may, therefore, in the event of the supplier being unable to meet a claim, apply to the creditor for any one of the new remedies. In most cases it will be impractical for finance houses to offer repair or replacement. In such cases it is most likely that finance houses will seek to show that the cost of doing so is disproportionate in comparison with, for example, a reduction of the purchase price.

Further Information

To discuss the implications of those provisions or for further details please contact Mark Tyler at mark.tyler@cms-cmck.com or tel +44 (0)20 7367 2568, Natalie Wood at natalie.wood@cms-cmck.com or tel +44 (0)20 7367 2523 or Jean Price at jean.price@cms-cmck.com or tel +44 (0)20 7367 3353.