Consumer Rights Bill

Debate between Lord Hodgson of Astley Abbotts and Baroness Jolly

Wednesday 15th October 2014 Grand Committee

[Baroness Jolly (LD)]

My Lords, I appreciate that the government amendments are technical in nature, so I would like to take some time to explain what they do.

The Bill sets out key statutory remedies, such as the right to reject substandard goods, which entitle the consumer to reject goods, treat the contract as terminated and get a refund, but there is also court-developed common law regarding contracts for goods, and the Bill is intended to work alongside much of that. Amendments 14, 17 and 18 are to explain how the rights to reject goods under the Bill work, where contracts are severable under contract law. By severable, I mean contracts where parts are intended to be independent of each other, so different parts of the payment can be assigned to different parts of the trader’s performance. For example, it could be a contract for numerous goods where payment is due per item or for building work where payment is due pro rata for work done, regardless of whether all of the work has been done. That is distinct from obligations which are entire, when the consumer has to pay only when all the trader’s obligations have been fulfilled—for example, a building contract under which the trader must carry out all the work before the consumer has to pay a lump sum. It is that existing common-law distinction and principle to which the amendments refer.

Let me state from the outset what the amendments are not about. They are absolutely not about preventing consumers from rejecting faulty goods. Where goods are faulty, the consumer has the right to reject them under the amendments. The amendments clarify that where the contract is severable, the consumer has the right to reject the faulty goods and may also have the right to terminate the whole of the contract. Above all, the amendments provide clarity that the Bill would not override the distinction between severable and entire contract, which currently exists in common law.

The Bill, like the Sale of Goods Act, explains the position for contracts where the parties agree to deliver and pay for goods in instalments. A contract, including a mixed contract, such as one where goods are supplied alongside services, may be considered to be severable in other situations. For example, goods may be delivered in instalments but paid for monthly rather than per instalment. I gave some other examples earlier.

Under the Sale of Goods Act, much of the detail of how the right to reject operates is dealt with by common law, whereas in the Bill we have greater clarity about the right to reject. To provide that greater clarity without cutting across the existing concept of severability, we consider that it would be helpful to include some clarification about how the right to reject operates for severable contracts, other than those for delivery and payment in instalments.

Under current law, if a consumer and a trader make a contract which is severable and an item supplied under the contract is faulty, the consumer may be entitled to compensation in relation to the faulty item, or may be able to terminate the whole contract—it will depend on the nature of the goods, the fault, and the detail of the contract. The amendments are intended to set out the position in the Bill.

If the contract is not severable—for example, if the consumer is required to pay only once and the trader has carried out all of the work—the amendments do not bite. The consumer could terminate the whole of the contract if there is a fault in one of the goods.

I turn to the amendments. First, Amendments 14 and 17 are to clarify that the rights to reject goods take account of this common-law distinction between severable and entire contracts. The Bill provides that a consumer should be able to reject goods, including those supplied as part of a mixed contract, where the goods breach one of the statutory rights in the Bill. However, where the contract is severable, in some cases the faulty goods supplied might represent only a small part of the whole contract. These goods or the fault with them may have little impact on other things which the trader must do or supply under the contract. Of course, in other cases the faulty goods may represent most of what the consumer is paying for under the contract, or the fault in the goods may be representative of an inherent fault in other goods which are to be supplied. That is why the amendments provide that the consumer’s right to reject may apply to a severable part of the contract or that the consumer may also have a right to terminate the wider contract.

Whether the consumer can treat the whole contract “as at an end” may depend on the circumstances and the contract. Under common law, the main tests for deciding whether a consumer may treat the whole contract as being at an end in such cases are the extent of the breach compared to the whole contract and the likelihood of the breach being repeated in the other things that the trader is to supply. Imagine, for instance, that a trader has renovated a bathroom and billed the consumer separately for the different items. There is no issue with the trader’s work or most of the items but there is a fault with the sink. Amendment 17 is to make clear that the consumer’s right to reject would apply to the severable part of the contract and not to the whole contract, unless the circumstances justified this. In my example, therefore, a consumer could reject the part of the trader’s performance which did not meet the consumer’s rights—here, it is the sink—but not necessarily the whole bathroom.

Amendment 18 ensures that the distinction between entire and severable contracts is also reflected in Clause 21, which enables a consumer who has the right to reject goods under a contract to choose to reject only some of the faulty goods. Where a contract is severable, the consumer might have the right to reject goods supplied under part of the contract but not all the goods under it. The amendment therefore makes it clear that in this situation, too, the consumer may choose to reject only some of the faulty goods which they are entitled to reject.

As I said at the start, I appreciate that these are technical amendments and if the noble Baroness, Lady Hayter, would like additional time to consider them more fully, the Government are willing to withdraw and not move them at this time and reintroduce them on Report.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I do not want to run before my horse by talking about an amendment which I shall bring up later but I was listening carefully to what my noble friend was saying about the ability to reject part of a contract. In the case that I shall come to in a minute, which will be about custom-made double-glazed units, will that mean that one window only could be rejected?

[Baroness Jolly]

My noble friend makes a very good point. I have extensive speaking notes on that part and we will come to it later in the afternoon.

--- Later in debate ---

[Lord Hodgson of Astley Abbotts]

I am grateful to the Minister and particularly to my noble friend Lord Clement-Jones for his support. This is a probing amendment and, quite rightly, some of its defects have been pointed out. However, my noble friend did not answer on whether partial rejection could take place. If I may use the example given by the noble Baroness, Lady Hayter, let us suppose that she bought not just an aquamarine off-the-peg but a crushed raspberry and a shocking pink as well, and let us say it turned out that the garment in crushed raspberry was poorly manufactured. Was she entitled to return them all? Is that part of the same contract? The issue for my noble friend is this: if in the example that I have given there are 12 windows and one is faulty, does the right to reject extend to all 12 windows, or is it limited to the specific article about which problems have been found? In the example given by the noble Baroness, of course she can return the one dress, but can she return all the dresses that formed part of a single order? That is what I am not clear about. I do not know whether my noble friend can illuminate me any further now.

[Baroness Jolly]

Indeed, my Lords. I will try to keep out of people’s wardrobes. Of course we are keen to ensure that rejection is a proportionate remedy. Amendments 14, 17 and 18 on severable contracts, which we have already discussed, were intended to give clarity here. As was explained in that debate, if the contract is severable, the consumer would have the right to reject the affected part, and the circumstances of the case would determine if they could reject the other parts of the contract.

[Lord Hodgson of Astley Abbotts]

My Lords, we seem to be getting some good clarity there. I will read carefully, take some further advice, thank my noble friend and all noble Lords who have taken part, and beg leave to withdraw the amendment.