Commercial Law: Kis Rights under Contract - Case Study Example

1. KI’S RIGHTS UNDER CONTRACT With regard to Ki’s rights against Apollo under the contract, there is no contention that this is an enforceable contract for the sale of goods. Accordingly, Ki’s rights under the contract will depend on the express terms of the contract and any implied terms under applicable statutory provisions. We are not aware of the express contract terms however it is evident that a strong factor motivating Ki’s decision to purchase the system from Apollo was the representations made by Apollo’s sale representative Janus. Moreover, these claims were further bolstered by advertising claims made by the German manufacturer and Australian Importer Deustche Soltech Australia Limited. If these representations were expressly incorporated as a term of the contract between Apollo and Ki, the central issue is whether the term constitutes a condition or warranty. As highlighted above, the product description was clearly a central motivation behind the purchase and therefore as such, went to “the root of the contract,”1thereby pointing in favour of being a condition2. Moreover, it is arguable that the condition was incorporated by reference to Deustche Soltech Australia Limited’s advertising material. Accordingly, the description of the ZX5000 solar hot water system was clearly misrepresented and it is arguable that this misrepresentation causing damage gives Ki the right to repudiate the contract and sue for damages on grounds that the misrepresentation constituted a breach of condition3. The burden would be on Ki to prove this4. Moreover, the Sale of Goods Act 1979 (SGA) implies terms into sale of goods contracts which can be relied on by consumers5. Section 13 of the SGA is of particular importance to Ki’s position, which asserts that “where there is a contract for the sale of goods by description, there is an implied term that the goods will correspond with that description”. Furthermore, section 13(3) provides that “a sale of goods is not prevented from being a sale by description by reason only that, being exposed for sale or hire, they are selected by the buyer”. In order to be a sale by description, the description must be an “identifying” description6. In context of Ki’s purchase, her viewing the system prior to purchase will not prevent it being a “sale by description”. Moreover, the system was advertised as a “solar hot water system”, which would satisfy the “identifying description” requirement. If we consider the case law, in Beale v Taylor7, it was held that as the vehicle failed to comply with the express description, it was a breach of the equivalent section 13 provision of the SGA. With regard to Ki’s purchase, the product was clearly advertised as a solar system with representations made about the product by Janus and in the importer’s promotional literature. Accordingly, Ki will have strong grounds for arguing breach of section 13 of the SGA for failing to comply with its description. Furthermore, the provisions of the Sale and Supply of Goods to Consumer Regulations 2002 (the Regulations) provide further guidance to consumer rights under the SGA. With regard to breach of section 13, Regulation 5 of the Regulations grants buyers additional remedies to require replacement, repair of goods or rescind the contract in consumer cases if the goods do not conform to the contract of sale. Ki’s rights under section 13 are potentially strengthened by virtue of section 14 of the SGA, which provides that there is an implied term that goods supplied under an SGA contract are of satisfactory quality. Section 14(2A) provides that “goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price and all other circumstances”. However, section 14(2C) of the SGA expressly provides that the implied term regarding quality does not extend to any matter making goods unsatisfactory that was brought to the buyer’s attention before the contract was made. With regard to Ki’s position, the factual scenario suggests that the cracks in the solar system were clearly contrary to the representations by Janus and manufacturer that the aqua painted tank prevented deterioration, which was vital in being exposed to all weather conditions. Another issue in applying section 14 is how long the satisfactory quality and fitness of purpose is meant to last after purchase in order to bring a claim, as this is not expressly defined in the SGA. However, there hasn’t been a consistent approach to the length of time post purchase and ultimately it is a question of fact dependant on the circumstances8. Whilst the bulk of these decisions involved purchases of cars, the general consideration in contracts involving goods is the age of the product and the level of quality one can reasonably expect from the product9. With regard to Ki’s purchase, the initial consideration will be the warranty period under the contract of sale. Additionally, whilst the product was operational without any problems for three months, the nature of the product and representations made regarding quality points towards a strong case for arguing breach of section 14 of the SGA. This is further bolstered by the Supply of Goods and Services Act 1982, which implies a term into sale of goods contracts that services will be carried out with reasonable care and skill. This is an objective test and if Ki can establish that the installation of the fell below the standard of care required by law, this will further strengthen grounds for claiming breach of contract against Apollo. However, Apollo is claiming that they are not liable to pay any compensation to Ki due to the exclusion clause in the contract. As Ki is a consumer, the provisions of the Unfair Contract Terms Act 1977 (UCTA) will be relevant to determining whether the exclusion clause is valid. Section 2(2) provides that “with regard to other loss or damage, a person cannot exclude liability for negligence except in so far as the term or notice satisfies the requirement of reasonableness”. With regard to reasonableness, this will be determined by the circumstances of each case and there are no hard and fast rules. The fact that Ki was not aware of the terms of the exclusion clause, coupled with the fact that she has unequal bargaining power under the contract with Apollo will point towards the exclusion of liability for negligence being unreasonable and therefore invalid. With regard to the exclusion of liability for contractual liability, Apollo cannot exclude liability unless the clause satisfies the requirement of reasonableness10. However, section 6(2) of UCTA expressly provides that liability for breach of the implied terms under the SGA cannot be excluded. Accordingly, with regard to Ki’s current claim for breach of contract, Apollo’s exclusion of liability clause will be invalid under UCTA. To claim damages, Ki would have to establish that she suffered loss as a result of the breach and that the loss was not too remote. The principles of remoteness were set out in the case of Hadley v Baxendale11, which provided that that following losses are recoverable: 1) All losses flowing as a natural consequence of the breach; and 2) All losses which were in the contemplation of the parties at the time the contract was made. This rule has been interpreted to mean that only loss which is within the reasonable contemplation of the parties can be recovered12. Moreover, the general position regarding contractual remedies is to place the innocent party into the position they would have been in had the contract never been made. On this basis, Ki will be able to recover the $3,000 she paid for the system and the issue is whether she can claim for the cost of damage caused and economic loss to her business. Under the second limb of the Hadley v Baxendale rule, Apollo will only be held liable for an “abnormal” consequence if it had actual knowledge that the abnormal consequence might follow.13 Apollo would have been aware that providing a defective system and failure to take reasonable care in installation would cause significant physical damage to Ki’s property. Whilst this aspect will be foreseeable, it may be difficult for Ki to claim for loss of profits to her business. 2. KI’S RIGHTS AGAINST MANUFACTURER AND IMPORTER IN NEGLIGENCE Alternatively, Ki may have right against the German manufacturer and Australian Importer (the Parties) in tort. The principal requirements that Ki must establish to bring a claim against either party under the tort of negligence is that they owed Ki a duty of care, breached this duty of care and the breach caused Ki actionable damage, which is not too remote14. DUTY OF CARE The test for whether or not there is a legal duty of care was established in the case of Donoghue v Stevenson15. Lord Atkin asserted that a manufacturer owed a legal duty of care to the ultimate consumer of his product. In discussing duty of care as a legal concept, Lord Atkin established the “neighbour” principle. In the leading case of Caparo v Dickman16, the House of Lords confirmed the following three stage test to determine whether a duty of care exists: 1) Whether the consequence of the defendant’s actions were reasonably foreseeable; 2) Whether there was sufficient proximity to impose a duty of care; and 3) Whether it is fair, just and reasonable to impose a duty of care17. In applying the test to Ki’s position, it must firstly be established that it would be reasonable for the Parties to have foreseen that the damage was foreseeable and that they should have taken precautions against this. It is clear that the manufacturer would have known that by negligently providing defective solar systems, they would potentially cause damage. Moreover, the importer would have known that there was a risk that failure to test product claims in Australian weather conditions could lead to damage to consumers. Accordingly, the reasonably foreseeable test has been satisfied and the next question is whether or not there was sufficient proximity for both Parties to owe a legal duty of care. Although the possibility of harm was clearly foreseeable, Ki may have difficulty in establishing proximity of relationship. The case of Anns v Merton London Borough18 asserted that the proximity test relies on a consideration of the nature of the relationship between the parties. The courts will consider whether P was a member of a group to which a duty of care was owed. If we apply this by analogy to Ki’s position, although the damage was foreseeable, it is more likely that there will be proximity with the German manufacturer in line with the rationale in the Donoghue v Stevenson case than the Australian Importer. If Ki can establish sufficient proximity, the next step will be to prove that the German manufacturer breached its duty. The standard of care imposed by law in order to determine a breach of duty is objective and that of “the reasonable and prudent man19”. If negligence can be demonstrated in the manufacture of the system or alternatively it can be established that failure to test the product in the completely different weather conditions of Australia was negligent; the manufacturer will be in breach of its duty of care. CAUSATION As a result of B’s breach, P must then prove that on the balance of probabilities the damage was caused in fact and in law by the negligence. The preliminary test for determining causation is the “but-for” test and whether P would not have suffered the damage “but-for” B’s negligence20. On the basis of the facts, causation does not appear to be an issue. DAMAGES The main issue now is whether or not Ki can claim for losses suffered as a result of the manufacturer’s negligence. It is a general principle of law that a tortfeasor is only liable for damage that is of a kind that is the natural and probable consequence of his wrongful act. Although it was clearly foreseeable that the cracks in the system caused by the manufacturer’s negligence would cause damage to Ki’s property, Ki will have the onus of proving that this damage was a “natural and probable21” consequence of the negligence and not too remote. 3. PRODUCT LIABILITY Alternatively, Ki may have a claim under section 2(1) of the Consumer Protection Act 1987 (the Act), which provides that manufacturers are strictly liable for damage caused by defective products. BIBLIOGRAPHY P. S Atiyah (2005). Sale of Goods.11th Edition Longman. Blackstones Statutes on Contract, Tort and Restitution Chitty on Contracts (2007). 29th Edition Sweet & Maxwell. John Hodgson & John Lewthwaite, “Tort Law” (2007). 2nd Edition, Oxford University Press. John Macleod (2006). Consumer Sales Law. 2nd Edition Routledge Cavendish. Linda Mulcahy & John Tillotson (2004). Contract Law in Perspective. Routledge Cavendish. Jill Poole (2006). Contract law. 8th Edition Oxford University Press. G H. Treitel (2007). The Law of Contract. 12th Revised Edition Sweet & Maxwell. Consumer Protection Act 1987. Sale of Goods Act 1979 Supply of Goods and Services Act 1989 Sale and Supply of Goods to Consumers Regulations 2002 Read More