IGA News

Legal Update - September 2015

Legal Update - September 2015

27 August 2015

How the New Consumer Rights Act Affects the Motor Trade


The Consumer Rights Act 2015 is now the law. From 01 October all consumer contracts will be governed by this Act so what are the main aspects?

Definitions

There have been a few minor changes to the definitions. Whilst it has not changed significantly, a consumer will now be :

“an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession”

What is covered?

The Act covers both contracts for ‘Goods’ such as the sale of vehicles or parts, and ‘Services’ where no goods are supplied. A new concept introduced by this Act is the ‘Mixed Contract’. This is a contract where both goods and services are supplied. Mixed contracts are common within the motor trade.

Goods

The description of “goods” is now more prescriptive. Previous legislation failed to define “goods” thereby allowing for judicial discretion and flexibility. The CRA now limits the definition to 4 categories of contract:-

  • a sales contract;
  • a contract for the hire of goods;
  • a hire-purchase agreement;
  • a contract for transfer of goods.

All of these are relatively straight forward and reflect the current legal interpretation of such contracts. Whilst the difference will be of interest to lawyers, in practice it is unlikely that this will in itself change current legal protections or have a significant affect the motor trade.

Services

“This Chapter applies to a contract for a trader to supply a service to a consumer”. 48 (1) Consumer Rights Act 2015

That’s it. As you can see, the definition of a contract for services is relatively broad. The Act does include some exemptions. It does not cover contracts of employment or apprenticeship, neither does it cover gratuitous contracts (a specialist form of contract that applies under Scottish law). As the Secretary of State is granted the power to exempt other contracts, this list may grow in the future.

Mixed Contracts

As you would expect, a mixed contract is one which includes ‘Goods’ and ‘Services’. Controls from sections covering both goods and services will apply to this simultaneously.

Statutory Rights

In general the protections for both goods and services remain the same.

Goods

  • Sections 9 to 18 cover the protections for the sale of Goods. These include :-
  • Of satisfactory quality (Section 9)
  • Fit for a particular purpose (Section 10)
  • As described (Section 11)
  • Match any sample provided (Section 13)
  • Match a model seen or examined (Section 14)

The presentation of the tests to be applied and the descriptions have been changed to make them easier to understand and apply. The statutory provisions within the Act remain sufficiently similar to the current statutory requirements that courts are likely to apply substantially similar protections to those currently in force. Moreover, given the restating of the principles concerned, this may enable garages to benefit from the clearer definitions.

There are however a few things to note :-

Pre contract information (Section 12)

The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 provided requirements at Schedules 1 and 2 for information to be provided to consumers prior to entering into ‘on-premises’ and ‘off premises/distance contracts’. Section 12 (3) of the Act has the potential to result in any pre-contract information becoming binding.

From October, any changes before delivery will have to be expressly agreed with consumers or risk breaching the consumer’s statutory protections.

Services

Sections 49 to 53 cover the protections for contracts for services. These include :-

  • Service to be performed with a reasonable level of care and skill (Section 49)
  • Information about the trader or service to be binding (Section 50)
  • Reasonable price to be paid (Section 51)
  • Performed within a reasonable time (Section 52)

As with goods, whilst the presentation of the tests to be applied and the descriptions have been changed to make them easier to understand and apply, the statutory provisions within the Act remains sufficiently similar to the current statutory requirements that courts are likely to apply substantially similar protections to those currently in force.

As with goods the notable exceptions are :-

Information about the traders’ service is to be binding (Section 50)

This is a new protection and has significant potential to cause complications. Any contract to supply a service will include as a term of the contract: ‘anything that is said or written to the consumer, by or on behalf of the trader, about the trader or the service’ if it is taken into account by the consumer.

It is unclear as to the extent to which the trader has to be aware of the statements, or whether the consumer’s reliance on the same is reasonable.

Enforcement

Goods contracts

This is perhaps the most detailed change to consumer protections and most likely to affect traders the most and therefore attract the most attention. The Act follows a 3 stage process, but the devil is in the detail, and as such the outcomes for traders and consumers are likely to be significantly different :-

1- short term right to cancel

a. Partial rejection

2- repair or replacement; and lastly

3- Price reduction / Final right of cancellation

Short term right of rejection/ partial rejection

This will be one of the most contentious changes under the Act for the industry. This right entitles consumers to reject goods and treat the contract as at an end for any breach of statutory rights within the first 30 days.

Where a consumer cancels under this right then they are entitled to:-

  • The same amount of money paid
  • Where they have transferred something other than money the exact same amount as that transferred
  • Where the consumer has transferred something other than money which cannot be substituted, the exact same amount of the same thing transferred under the contract

All refunds must be made without undue delay and in any event within 14 days from when the trader agrees to the refund.

Where the goods fail to confirm to the contract because they were not installed correctly, or if there is a breach of any contractual terms specifically dealt with within the contract, the consumer has no short term right of cancellation.

Where the consumer has any rights of rejection under the Act it is open to the consumer to only partially reject the goods.

Repair/replacement

If the goods do not confirm to the contract, the consumer is entitled to request the repair or replacement of the goods. Thankfully section 23 is significantly similar to the current protections as contained at section 48B of the Sale of Goods Act 1978.

A consumer cannot reject goods outside of the first 30 days without offering at least one opportunity to repair or replace the goods.

Price reduction or final rejection

Where goods cannot be repaired or replaced, consumers have a right to either a price reduction or a final rejection of the goods, but not both.

A consumer will only be able to cancel a contract where :-

  • There has been one repair or replacement and the goods still do not confirm to the contract
  • Requiring the trader to repair or replace first would be unreasonable (see section 23)
  • The consumer has required a repair or replacement but this has not been done within a reasonable amount of time.

The Act only requires one repair or replacement. Where a vehicle requires a series of repairs to rectify, this can be agreed with the consumer but cannot be required to accept this. It is unclear whether a court will take into consideration any issues repaired as a gesture of goodwill that were not sufficiently serious to breach the statutory protections.

Where a motor vehicle is rejected, a deduction can be made for its use.

Service contracts

In the event of a breach of a service contract the consumer has 2 options :-

  • Repeat Performance
  • Price Reduction

Repeat performance

This is defined as the right to require the trader to perform the service again. Repeat performance cannot be required if it is impossible.

Price reduction

This is defined as the right to a reasonable reduction in the price paid, and can include a refund of up to 100%.

Other Aspects of the Act

The Act doesn’t just deal with statutory rights. It also creates new rights and entitlements with relating to digital content as well as well as sections relating to unfair contract terms. Anyone interested in these aspects should contact the RMI for further discussions as necessary.

Further reading

In the run up to October the RMI will be producing a number of articles concentrating on each of the areas.

In addition the Trading Standards Institute has produced a number of guides for businesses. These provide a good basic understanding of the law in this area and can be found at

http://www.businesscompanion.info/en/news-and-updates/consumer-rights-act

Paul Carroll

Solicitor

Motor Industry Legal Services


Carrying Over Holiday Pay When Sick


The Employment Appeal Tribunal (EAT) has this week clarified two issues affecting the rights of workers on long-term sick leave to carry forward untaken annual leave under the Working Time Regulations 1998 (WTR).


Firstly, the EAT has confirmed that a worker on sick leave can carry forward untaken leave (the four weeks’ leave granted by regulation 13 of the WTR) into a new holiday year under the WTR even if the worker was capable of taking annual leave. It follows that the principle set out by the Court of Appeal in the case of NHS Leeds v Larner applies to those who are unwilling to take annual leave during sickness absence as much as those who are unable to do so. Secondly, the EAT says that such untaken leave cannot be carried forward indefinitely. European law only requires, at most, that employees on sick leave are able to take annual leave within a period of 18 months of the end of the leave year in respect of which the annual leave arose. Consequently, the WTR are to be read as permitting a worker to take annual leave within 18 months of the end of the leave year in which it is accrued where the worker was unable or unwilling to take annual leave because he was on sick leave and, as a consequence, did not exercise his right to annual leave.

Facts of the case

The case came about when the claimant claimed a payment in lieu of untaken leave when his employment came to an end after a long period of sickness absence. His leave year ran from 1 February to 31 January each year. His sickness absence began on 26 April 2010 and ended with the termination of his employment on 10 February 2014. During that period he did not take any annual leave.

The EAT ruled that the claimant was entitled, under WTR r14, to a payment in lieu of leave that accrued in the 2012/13, 2013/14 and 2014/15 leave years but not the leave that accrued in the 2010/11 and 2011/12 leave years.

Interestingly the EAT gave both parties permission to appeal to the Court of Appeal (although not in respect of the decision concerning the 2013/14 and 2014/15 leave years). It remains to be seen whether either party will, in fact, appeal.

Andrew Macmillan

Solicitor

Motor Industry Legal Services


Renewing Contracts


“I have recently signed an advertising contract which I thought was for 1 year only. I have now been contacted by the company and told it automatically renews if I do not cancel. Is this fair?” Firstly this is not an uncommon problem. We are seeing more contracts that automatically renew. This can simplify matters for regular contracts such as laundering services, insurance and waste disposal. The problems come when members do not know they will renew until it is too late.

1. Were you told about the renewal or provided with contractual terms at the beginning of the contract?

It is a basic principle of contract law that only terms incorporated into the contract can apply. If you were specifically told about the renewal then this will apply. However the terms of any renewal or cancellation process must have been sufficiently clear to be binding.

It becomes trickier where you agree to a contract without signing any terms and conditions. As businesses the courts will assume that you have read and intend to be bound by any terms signed.

2. What are the cancellation terms?

If the contract has renewed are there sufficiently specific terms to cancel the agreement. If these terms are not sufficiently specific then the court will have to interpret their meaning. Each case will therefore turn on its facts. However, the most likely outcome is that the notice period for cancelation will be the period covered any one invoice. i.e if you are billed monthly one month, is weekly one week.

3. What if the terms are unfair?

In some respects, tough. There are significantly less statutory protections in business to business contracts. If you have signed it you will likely be bound by the terms, so read any terms thoroughly.

That said, there is some protections and arguments that may apply. The most likely is under the Unfair Contract Terms Act 1977. Where you are contracting under the other side’s standard contract, section 17 of the act would prevent

them from being able to use their standard terms to

“render no performance, or to render a performance substantially different from that which the … customer reasonably expected from the contract;

if it was not fair and reasonable to incorporate the term in the contract.”

You may, where the original contract is sold as one year therefore be able to argue that any clause that entitles the other side to renew automatically would be unfair.

Conclusion

Check all contractual terms before reaching an agreement as prevention is better than cure.

Once signed regularly review contracts to ensure they remain relevant and, where you are unhappy that you are familiar with the steps needed to cancel them. This is particularly important for ongoing contract such as Laundry contracts, waste disposal contracts advertising contracts insurance contracts

As always this advice is general in nature and will need to be tailored to any one particular situation. As an RMI member you have access to the RMI Legal advice line, as well as a number of industry experts for your assistance. Should you find yourself in the situation above, contact us at any stage for advice and assistance as appropriate.

Paul Carroll

Solicitor

Motor Industry Legal Services

Motor Industry Legal Services (MILS Solicitors) provides fully comprehensive legal advice and representation to UK motor retailers for one annual fee. It is the only law firm in the UK which specialises in motor law and motor trade law. MILS currently advises over 1,000 individual businesses within the sector as well as the Retail Motor Industry Federation (RMI) and its members.