Goods and services - legal rights for businesses

Legal expert Matthew Gough looks at the legal rights for businesses when buying goods and services. In a world where consumers seem to have an awful lot of rights and businesses have few, where do businesses stand when they buy in products and services that subsequently fail to live up to the promises made? It’s well known that the law is less protective to businesses than it is to consumers, but even so, businesses aren’t left high and dry. The starting point is to look at the contract. Unfair Contract Terms First off, small businesses do have a degree of protection under the Unfair Contract Terms Act 1977 against unfair contract terms being imposed by larger suppliers. The Act regulates the use of exclusion clauses and whether terms are enforceable depends on those terms being reasonable. The Act deals with areas such as: breach of statutory implied terms which covers liability for ownership of the purchase as well as correspondence involving description of the item and satisfactory quality and fitness for purpose; breach of contract where a seller claims that he can contractually deliver something other than that which was reasonably expected of him, or which suggests that he doesn’t have to complete the contract; death or personal injury caused by negligence which might apply where a seller negligently failed to maintain a machine that then killed or injured someone; and negligence that applies where there is, say, resultant physical damage to property.  For all of these to be enforceable the Act says that the terms must be reasonable and so the courts look to a number of guidelines when deciding this including: the strength of the relative bargaining positions of the parties; whether anything was given to the customer to agree the term or whether the customer could have bought elsewhere without the term; whether the customer knew of existence of the term; whether any conditions imposed could have been complied with; and whether the goods were a special order for the customer. The Business Protection from Misleading Marketing Regulations 2008 Unfair terms aside, businesses also have protection from misleading advertising through the Business Protection from Misleading Marketing Regulations 2008. These implement an EU Directive and ban advertising that is misleading while also setting out what is acceptable in relation to comparative advertising. Misleading Advertising Advertising which is misleading and which deceives or is deceptive and which changes buying behaviour is illegal. The courts take into account the characteristics of the product - availability, quantity and specification, nature, method and date of manufacture, fitness for purpose, uses and results expected from its use; the price and its calculation; the conditions on which the product is supplied or provided; and the nature of the advertiser including identity, qualifications, intellectual property rights, and awards and distinctions. Comparative Advertising Comparative advertising, on the other hand, is advertising which identifies a competitor or a product offered by a competitor. There are a number of elements here including not being misleading under the Consumer Protection from Unfair Trading Regulations 2008; not creating confusion over trademarks, trade names, other distinguishing marks or products – or harming or taking advantage of those belonging to another; and not presenting trade marked or trade name products as imitations or replicas. Adverts must also compare like for like, be objective and verifiable. The Consumer Credit Act 1974 Savvy consumers know that section 75 of the Consumer Credit Act 1974 makes credit card companies jointly and severally liable for any breach of contract, or misrepresentation, by a seller. Claims are not limited to the amount of the transaction and it may be possible to claim for other losses. Consumers (cardholders) can choose to claim from either the supplier or the credit card company, or simultaneously, so long as they do not recover the same loss twice. Section 75 covers goods or services (or part of) costing between £100 and £30,000 that were purchased within the last six years on a credit card by the main cardholder, and where no third party is involved such as PayPal or Amazon marketplace. Crucially, and this is where businesses benefit, there is no requirement that the purchase must be for individual or non-business related use. Indeed, the cardholder under a credit agreement does not necessarily have to be an individual person and instead, may be a partnership or an unincorporated body of persons (there are some restrictions). However, if the credit agreement is entered into wholly or mainly for business purposes or the amount loaned exceeds £25,000, then section 75 will not apply. Other protection Where a borrower has entered into a credit agreement to fund the purchase of specific goods/services, say a vehicle, that costs between £30,000 and £60,260, and the seller had the supplier make the credit agreement, then the borrower may claim against the seller under s75A of the Act. The same applies if the specific goods/services are expressly stated in the credit agreement. As helpful as this is, there is no protection under this provision if the credit agreement has been entered into for wholly or mainly business purposes. Even if this fails a court can still determine that the relationship between the borrower and the creditor was unfair. Consumer rights may still apply Lastly, the Consumer Rights Act 2015 defines a “consumer” as an individual acting for purposes that are wholly or mainly outside that individual's trade, business, craft or profession. So if the purchaser can show the item is more for personal than business use they may find help in consumer law.   Matthew Gough is partner at Eversheds and specialises in commercial law.