The ECJ ruled that the supplier had to not remove and replace but also install the replaced goods despite not having been responsible for the original installation as the goods had been faulty on delivery and consumers needed to have an absolute right for them to be put right without suffering loss. Alternatively, the supplier would have to bear the cost of someone else doing so. The ECJ further said that if only one remedy is possible then the seller cannot refuse to provide that remedy even if the cost of removing and reinstalling would be disproportionate to the value. In this case, the tiles cost €1,382 and the cost of removing and replacing was €5,830. The seller would not have been liable for the replacement if the reason for the defect was the poor installation (that the supplier was not responsible for), although proving who was at fault may not be easy.

In this case, S supplied goods to J with a retention of title clause. That clause stated that in the event of J becoming the subject of a formal insolvency procedure, S could by notice prevent J from selling or parting with possession of any of those goods. In the meantime, as in most contracts, it was implicit that the buyer could deal with the goods. However, J did actually go into administration. S failed to serve notice to prevent further dealing with the goods. S claimed that J’s subsequent dealings amounted to wrongful interference with its goods.

The High Court initially, and now the Court of Appeal, disagreed with S. The contract did allow S to terminate J’s right to deal with the goods if J went into an insolvency procedure, but that express termination right – that had not been exercised – clearly showed that the parties did not intend that the right should terminate automatically in an insolvency event. The Court added that it was open for the supplier to state the basis on which the buyer could deal with the supplier’s goods. They could agree that the buyer’s right to deal with the goods in the ordinary course of its business would be limited by express contractual provision, but unless the parties expressly agreed to that the court would not imply such a term. The Court said that trading in an insolvency process was not in the ordinary course of business.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: “This case shows that a court would be likely to uphold an automatic restriction in the supply contract on the buyer from dealing with the goods if the buyer goes into an insolvency type process. It is open for the supplier to agree the basis on which the buyer can deal with goods that remain owned by the supplier. Traders should look at their own standard terms and conditions and get them updated as necessary without delay.”

The High Court ruled that all the losses were direct losses. The supplier was therefore liable for all the damages claimed.

There is nothing startling about the result. What is surprising is that many suppliers are still under a misapprehension about how much they are covered by a crucial clause which seeks to limit their exposure for something going wrong. A lot of businesses think that economic losses are indirect and they are therefore not liable for them. This is wrong. Physical damage or economic loss (such as loss of profits, loss of revenue, loss of reputation, etc) can be either direct or indirect. It depends on the circumstances according to an interpretation based on a legal case from 150 years ago.

Liability clauses go to the heart of why businesses have contracts – in order to give certainty. However, many people are trading under a misunderstanding of the level of the risk that they have accepted.

The Government’s ability to do this will depend on the outcome of the European Commission’s ambitions to introduce a new Consumer Rights Directive. If enacted, that Directive would harmonise all consumer laws across the European Union. However, that proposal has been controversial and opposed by the UK Government because it would water down the rights that UK consumers currently have to reject goods that do not conform to the contract.

For more on the Government’s latest recommendations, click here: http://www.bis.gov.uk/assets/biscore/consumer-issues/docs/c/10-1255-consolidation-simplification-uk-consumer-law.

On appeal, the Court of Appeal has now ruled that B’s argument that there should be an implied term was wrong. The contract had provided that the product would be tested by an inspector at the time of loading and that decision was final and binding unless there was a manifest error. The Court of Appeal said that the implied term would render such an inspection meaningless. It could not possibly have been impliedly agreed by the parties. The parties had clearly had a desire for contractual certainty.

However, that was a pyrrhic victory for P as it lost on the other point. The implied term of Section 14 of the Act was not excluded by Clause 18 because of the poor wording of that Clause. Under English law, there was a difference between ‘conditions’ and ‘warranties’. Section 14 of the Act was a ‘condition’, but Clause18 did not exclude ‘conditions’.

This can be the danger of using a contract not written with English law in mind. This problem often arises when people use a US-originated contract and substitute the words ‘English law’ instead of the other US governing law. Unless exclusion clauses are drafted properly to reflect English law requirements, they may not work. That’s what one of the parties found out to its cost here.