Analysis of the Clauses of the Sales Note - Case Study Example

Part A. Nigel, a stock-broker bought a rowing machine from the Bruce Sport shop. The sales contained the following clauses The seller accepts no responsibility for loss or injury caused by defects in the manufacture or design of any goods supplied. 2. The buyer must ensure that the goods are appropriate to his/her personal requirements. 3. No complaints will be entertained by the seller unless notified to him in writing within 6 weeks of the date of purchase. After four weeks of use, Nigel began to experience back pain for the first time. The shop owner on being contacted assured him that there was nothing to be worried about. After a further four weeks of use, Nigel fractured his collar bone when the machine broke during exercise. The legal issues to be addressed are, whether the shop can rely on the exclusion clause and whether Nigel has any remedy to recover the damages for the loss caused to him due to the breaking of the rowing machine. Nigel has to establish that the shop owner cannot rely on the exemption clause in the standard terms of the contract. An exemption clause in a contract purports to exclude liability of one of the parties to the contract, under certain circumstances. The Statute sets out that no contract term can exclude or limit liability in any way for negligently causing death or injury1. Furthermore, if there is other loss or damage, liability for negligence cannot be excluded or restricted if the term of notice is unreasonable. Finally, if a contract term or notice makes efforts to exclude or restrict liability for negligence, agreement to or awareness of this is not of itself to be taken as indicative of the voluntary acceptance of any risk2. Nigel was misled by the shop owner in respect of the usage of the rowing machine, in as much as the shop owner asked him to ignore the back pain that had afflicted Nigel after using the rowing machine. Hence, this incident can be classified under misrepresentation of facts, which renders the shop keeper liable for the injuries caused by the defective and unsuitable rowing machine. It is of paramount importance to determine whether the purchaser is a consumer or not. 'Consumer means any natural person who, in contracts covered by these Regulations, is acting for purposes which are outside his trade, business or profession'3. This expressly limits the definition of a consumer to a natural person and not companies. Adhesion contracts or standard form contracts, which present little or no choice to the party who has not drawn up the document, can be used to impose an exclusion clause. As Downes has pointed out, "The imposition of such exemption clauses may be particularly harmful in consumer contracts, where the disequilibrium between the bargaining positions of the parties may be substantial."4 This constitutes the reason for the existence of statutory controls on exclusion clauses, like the Unfair Contract Terms Act 1977 (UCTA) and the Unfair Terms of the Consumer Contract Regulations 1999 (UTCCR). The UCTA applies to the contract for the purchase of the rowing machine by virtue of section 1(3) which states that the Act applies to business liability which is defined as "liability for breach of obligations or duties arising from things done or to be done in the course of a business". The contract entered by Nigel is included by virtue of section 3 which covers consumer contracts and section 12 which states that a person deals as a consumer if he neither makes the contract in the course of a business nor holds himself out as doing so and the shop owner makes the contract in the course of business. Since, Nigel had purchased the Rowing machine for personal use at his residence the shop owner can not exclude liability for the breach of implied terms5. Reasonableness in respect of contract terms is clarified in section 11, which states that this tests if the clause is fair and reasonable "having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made". The court therefore retains a wide discretion under the Act to determine whether a particular clause satisfies the test of reasonableness. The party seeking to rely on the clause bears the burden of showing that it is reasonable, section 11(5) UTCCR applies to consumer contracts; its scope is wider since it covers all terms in contracts and not merely exclusion clauses. The test is whether the clause is unfair, and in this case it is clearly an unfair clause. The exclusion clause is therefore invalid under both UTCA and the UTCCR; hence Nigel can sue Bruce Sport shop. Written standard terms of business are undefined. Invalid exclusions or limitations include clauses which purport to limit liability: for death or personal injury caused by negligence; for fraud or fraudulent misrepresentation; for lack of unencumbered title in a sale or hire purchase of goods and for non conformity with implied terms, e.g. of satisfactory quality of goods. In Suisse Atlantique, Lord Reed opined that: Probably the most objectionable are found in the complex standard conditions, which are now so common. In the ordinary way the consumer has no time to read them, and if he did read them he probably would not understand them. And if he did understand and object to any of them, he would generally be told he take it or leave it. And if he then went to another supplier the result would be the same. Freedom to contract must surely imply some choice or room for bargaining6. In respect of standard terms in exclusion clauses, the shop owner cannot rely on the terms printed on the sales note and hence the shop owner cannot escape the liability. The shop owner misguided Nigel by stating that it was absolutely safe to use the rowing machine even though it was causing him back pain. This constitutes misrepresentation of fact leading to injury and loss to Nigel. A misrepresentation is a false statement of fact made by one party to another during negotiating the contract. A party suffering a loss due to a false statement by the other party to the contract can seek rescission of the contract and damages. In Derry V. Peek, 1889, the House of Lords laid down that "(1)in an action for deceit it was unnecessary to prove mens rea and in order to prove it the plaintiff had to show either that the defendant knew or believed the statement in question to be false, or(2) that he did not believe it to be true or(3) he made it in reckless ignorance of whether it was true or false. " - and is either made knowingly, without belief in its veracity or is a statement made without bothering about whether it is true or false. The remedy available for this type of misrepresentation is claim for damages based on common law tort of deceit. Second, negligent misrepresentation is described in section 2(1) of the misrepresentation act of 1967, wherein it is stated that, "Where a person has entered into a contract after a misrepresentation has been made to him by another person and as a result he has suffered loss, then, if the person making the representation would be liable in damages, had the misrepresentation been made fraudulently, that person shall be so liable, unless he proves that he had reasonable grounds to believe, and did believe up to the time the contract was made, that the facts represented were true." 7 The presumption in law is that all misrepresentations are negligent. The onus of proving that it is a misrepresentation rests on the person making the representation. The remedies for the loss incurred due to such type of representations are rescission of the contract at the choice of the deceived party and claim for damages. Nigel was misguided by the shop, in respect of the quality and suitability of the rowing machine leading to back pain and fracture of his collar bone. The shop owner cannot escape the liability, since an expert report had established that the breakage of the machine was due to a latent defect which inspection would not have revealed. This report further established that the machine's dimensions were unsuitable to Nigel's height. As per the section 16(a) of the Sale of Goods Act 1979, in goods bought for a special purpose, the seller must communicate to the buyer the fitness of the goods for which the purpose it can be used. If Nigel had been a Professional Rugby player and in the event that this rowing machine was to be used in his training program, then the seller would have to inform the specific purpose of the rowing machine to him. This is based on the decision in Griffiths v Peter Conway Ltd8 and Slater v Finning9. Part B (i). Jack an agricultural labourer worked for Ken between the years 1992 and 1998, who had a small farm in New Hamlet. In 1998, Ken suffered very poor harvests and had to lay off several of his workers for a number of months. In July 2001, Ken asked Jack to resume work with him. Ken presented Jack with a piece of paper and told him that he could not afford to get involved in all the new protective employment legislations being enacted, and so he was utilizing workers who agreed to be self-employed. Ken tells Jack that his previous wages of 400 would not be paid without deduction of tax or national insurance, and asks Jack to sign the contract contained on the piece of paper which stated that, "I acknowledge that I am a self employed independent consultant in the agricultural trades. I agree to tender my services exclusively to Ken until either party shall give the other notice of 2 weeks termination. I agree that I am responsible for my own health and safety and cannot make a claim of any kind against Ken in the event of an agricultural accident." The relationship between an employer and worker is governed by contract. The contract of employment is central to the relationship of the employer and worker. The legislation states that, "contract of employment means a contract of services or apprenticeship, whether expressed or implied and if it is express, whether oral or in writing' One must distinguish between those personally providing work under a contract of employment, and those providing work on a self-employed basis who are considered to be workers for statutory purposes10. Jack had previously worked between the years 1992 and 1998, for Kent and this is a sufficiently long period for Jack to be considered an employee. Statutory protection of rights is available only to those having a contract of employment. Since, Jack is an employee; he will be entitled to holiday pay, sick pay, protection from unfair dismissal and redundancy. An employee is also entitled to common law rights and duties including confidentiality, good faith and duty of care, which are implied in the contract. Liability for tax and insurance contributions also vary according to employment status and an employer would be obliged to pay tax for an employee. Therefore, Ken cannot evade his obligation to pay Jack his previous wages of 400 without deducting tax or national insurance amounts, which Ken has to pay on behalf of his employees. Though rights established for workers are limited; all the same, the ERelA 1999 has empowered the secretary of state to extend employment rights to workers who technically do not qualify as employees. These rights include protection of minimum wage, working time, health and safety. Hence, even if Jack signs the terms in the paper given by Ken, he is not bound to honour the same, since these terms are violative of the rights granted to him by the EReIA 1999. The most important thing to be borne in mind is that any agreement which is violative of the provisions of the law is invalid. Further, any agreement whereby any person agrees to curtail his legal rights is invalid. Therefore, the agreement proposed by Ken to Jack is invalid. In view of the above, Jack will be considered as an employee in general and specifically for the purposes of reinstatement, tax and insurance amounts to be paid by Ken. He will be eligible for holiday pay, sick pay, protection from unfair dismissal and redundancy, like any other employee. Part B (ii). Jane is employed as a sales representative with Auriel PLC, working on a 6 month contract. However, the company refused to furnish the terms of the contract in writing. Additionally, the company refused to give her written confirmation of her entitlement, if any, to holiday pay or to sick pay. The status of Jane in respect of Auriel PLC has to be established in accordance with the provisions under ERA 1996 and ERelA 1999. One must distinguish between those personally providing work under a contract of employment, and those providing work on a self-employed basis who constitute as "workers" for statutory purposes. In order to establish whether Jane is an employee, recourse has to be made to the statutory definition of employee under ERA, s.230(1) which, states that , "employee means an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment'. For statutory purposes, the law is concerned with a "contract of service". Consequently, over the years the courts have developed and applied various tests in an effort to formally determine who is an employee. There are various tests to aid in the establishment of such status. These tests are, first, the control test which was formulated in the case of Yewens v Noakes.11 In this test if a worker is controlled by the employer in the course of performing his duties then he is deemed to be an employee. The work of Jane is controlled by the company as marketing forms a vital aspect of any business. Hence, the provisions of the control test are satisfied and therefore Jane has to be considered as an employee according to this test. Second, the Integration test which was proposed and adopted by Denning LJ in Casidy v Ministry of Health12 . The integration test seeks to establish whether the worker's work is an integral part of the business, if so, the worker is an employee. If the worker's work is merely an accessory to the business, then the worker is considered to be an independent contactor. Jane's work which entails selling the goods of the company is an integral part of the company's business; hence she is an employee as per the provisions of this test. Third, the business reality test was formulated in Market Investigation v Minister of Social Security by J. Cooke and attempts to determine if the workers are in business on their own account. If not so then the worker is an employee. Fourth, the mutuality of obligation test requires that there is a mutually obligatory relationship between the employer and the employee, this is very much so in the case of Jane as she is selling the goods of the company, which constitutes a very important facet of the business. Though there is no legal requirement for a contract of employment to be in writing, the law requires employers to provide what is known as a written statement of terms to their employees under section 1 statement13 . In the section 1 statement14 , the employer must, within two months of employment, commence the furnishing of a written statement of the terms relating to the following particulars, namely any term relating to holidays, holiday pay, sickness and sick pay to the employee. Since, Jane has been appointed for a six month period; she is an employee and her entitlements to pay and the different types of leave that she is eligible for will be similar to that of any other employee and she cannot be deprived of the rights granted by the Employment Regulations Act 1996. Bibliography. 1. A.W.B. Simpson. A History of the Common Law of Contract: The Rise of the Action of Assumpsit. Oxford University Press. Oxford, England. 1987. Director General of Fair Trading V. First National Bank Plc (2002) 1 AC 481 retrieved From http://www.butterworths.co.uk/lawcampus/dataitem. 2. Jack E. Beatson and Daniel E. Friedmann (eds). Good Faith and Fault in Contract Law. Clarendon Press. Oxford. 1997. 3. Joseph M. Perillo and John D. Calamari. Calamari and Perillo on Contracts. August 2003. 4. Marvin A. Chirelstein. Concepts and Case Analysis in the Law of Contracts. May 2001. 5. S.F. Deakin, B.S. Markesinis. Tort Law. Clarendon Press. Oxford. 1999. Read More