Back to the Basics: Balancing the Interests of Buyers and Sellers in Contract Law

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There is a question of whether the law has struck the right balance between protecting the interests of buyers and sellers within both commercial and consumer contracts. This can only be answered after identifying exactly which interests the law intends to protect.

Let’s begin by setting aside an individual’s interests as consumer or trader for the moment.[1] At the most basic level of contract law, we can identify two parties to a contract, the buyer and the seller.[2] The seller’s interests are protected by the Sale of Goods Act 1979 (SGA), when the Consumer Rights Act 2015 (CRA) does not apply.[3] The CRA will not apply in situations where the seller and the buyer are both businesses, or when the buyer is acting within their trade, craft, business, or profession.[4] The same goes for all parties which are buyers in the contract. It appears that the law has attempted to create a balance between the interests of the sellers and buyers by providing more protection for buyers than is afforded to sellers.

One of the arguments behind this is that there is typically an unequal bargaining power on behalf of the seller which the buyer should be afforded extra protection against, to balance the interests of the two parties. This unequal bargaining power is considered to be balanced by the SGA and Unfair Contract Terms Act 1977 (UCTA). Section 11 of UCTA contains the “reasonableness test” which discerns whether a term of a contract is reasonable or not.[5] However, it is widely held that s.11 of UCTA is very difficult to apply in practice and not preferred by claimants, as the determination of whether a term is reasonable or not is very broad and vague, and most often left to the discretion of the courts. In many cases, such as George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd and Smith v Eric S Bush, the House of Lords had determined that the test of reasonableness was, “a balancing exercise in which the court must entertain a whole range of considerations and balance them against each other”.[6]

The uncertainty which lies with the reasonableness test and its application by the courts is one which concerns claimants intending to rely on it, since case law cannot accurately predict the outcome of a claim. As was stated by Moore-Bick LJ in the Court of Appeal case, RÖHLIG (UK) Ltd v Rock Unique Ltd, “In principle the question must be considered separately in each case because the circumstances surrounding the contract may differ from case to case, but where a standard condition of this kind is involved I do not think that the court should be astute to draw fine distinctions between cases that in broad terms are very similar”.[7] Additionally, as is seen in practice and displayed by Tuckey LJ in Granville Oil & Chemicals Ltd v Davies Turner & Co Ltd, the courts do not like to intervene in commercial agreements on the basis of UCTA when there is equal bargaining power between the contracting parties.[8]

We can discern from these facts the following, the courts believe that the intent of UCTA and the reasonableness test in s.11 is to balance the interests of the parties when there is unequal bargaining power. Additionally, the courts believe that the reasonableness test should be applied uniquely to each case it encounters, to avoid creating a stringent rule which can be applied uniformly through the usage of common-law. It appears then that UCTA was created primarily for use by consumers, or in uncommon circumstances, commercial contracts where the parties have unequal bargaining power. UCTA will protect the interests of buyers from being taken advantage of in contracts where they cannot negotiate as freely as other parties normally would.

Having identified that unequal bargaining power is somewhat protected by the courts and UCTA, it is worth considering the SGA. The SGA appears to also favour the buyer in the contractual relationship. Under the SGA, terms are implied regarding delivery, quality, possession of goods, etc.[9] Regardless whether parties included a term in their contract or not, the SGA has determined that it is in the best interest of the parties to have the terms be implied uniformly when certain requirements are met. It appears that in theory and commonly in practice, the buyer’s interests are protected more thoroughly and more often than the seller’s interests.

Lastly, the CRA can be analysed for its balance of bargaining power amongst business to consumer contracts. Parliament decided to further protect the buyer’s interests when they take the form of a consumer. Under the CRA, the trader in the contract is responsible for creating fair, unambiguous, transparent terms.[10] The CRA appears to place even more restrictions and responsibilities upon the trader in the contract as they are now only dealing with individuals who are not acting in their trade, craft, business or profession[11]. The interests of the buyer are now protected even further as consumers via the CRA.

After examining both a buyer and seller’s interests and protections provided by the law, we can clearly see that the buyer’s interests are much more protected by statute than the seller’s interests are. Through the application of the Misrepresentation Act 1967 (MA)[12], the buyer has many more options available to them than the seller does, and could rescind a contract with the possibility of claiming damages as well. Sellers and traders are in a much more difficult position in contract law and must ensure that they abide by the necessary statutes as the balance has been slightly tilted in favour of the consumer and buyer’s interests under contract law.

Unequal bargaining power is a difficult concept to balance between contractual parties. Ensuring that the interests of the consumer and the trader are balanced is something which the law has attempted to further strengthen via the CRA, however it appears that this is a balancing act which statute may not be able to rectify fully, and will still require the interpretation of the courts on an individual basis to ensure that justice is pursued rather than certainty of law, when the law does not provide for a fair and equitable solution.

A consumer’s interests are provided much more statutory protection, while a seller is under a larger burden of proof to claim and prove that a purchaser is not a consumer,[13] and that any representations the seller made which resulted in being false were innocently made in the hopes of having the contract rescinded as their best option, and to avoid damages.[14] The seller’s interests are not balanced in comparison to the consumer’s. The law should consider identifying a new form of contractual relationships, one which consists of consumer to consumer contracts. The SGA mainly applies to business to business contracts, and the CRA only applies to trader to consumer contracts. It appears that the missing link would be consumer to consumer contracts, where both parties are acting wholly outside of their trade, craft, business, or profession. Further balancing of interests and statutory rights should occur for these consumer to consumer contracts to ensure that a balance of interests applies when businesses and traders are not involved in the contract. The SGA in its appearance seems to have been drafted to be used primarily by businesses in commercial contracts, not consumers, which explains the reasoning behind the creation of the CRA. Creating a specific set of rights which applies to consumer to consumer contracts would assist in balancing the interests of individuals in situations where it is possible that both parties were acting as consumers, not traders, and therefore should be awarded more equal and balanced interests under statute.

The interests of sellers/traders and buyers/consumers under statute and common-law are not balanced. The law favours the rights of buyers in the attempt of equaling bargaining powers between consumers and traders. When the bargaining power is equal in commercial contracts, the courts prefer not to interfere. The need for a specific set of rights and protection of interests for parties in a consumer to consumer relationship should be taken into consideration to ensure that all types of contracts are identified and balanced under statute.

[1] Consumer Rights Act 2015, s 2(2); ibid, s 2(3)

[2] Sale of Goods Act 1979, s 2(1)

[3] Consumer Rights Act 2015, s 2(1)

[4] ibid, s 2(2)

[5] Unfair Contract Terms Act 1977, s 11

[6] [1983] 2 AC 803 [816] (Bridge LJ), [1990] 1 AC 831

[7] [2011] EWCA Civ 18 [23] (Moore-Bick LJ)

[8] [2003] 2 Lloyd’s Rep 356 [430] (Tuckey LJ)

[9] Sale of Goods Act 1979, s 14

[10] Consumer Rights Act 2015, s 68

[11] ibid, s 2(2 – 3)

[12] Misrepresentation Act 1967

[13] Consumer Rights Act 2015 s 2(4)

[14] Misrepresentation Act 1967 s 2(1)

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