2 INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH (2 ICBER 2011) PROCEEDING

nd

nd

CONSUMERS RIGHT TO REDRESS AGAINST TRADERS UNDER THE LAW OF SUPPLY OF GOODS: A COMPARATIVE STUDY OF SELECTED JURISDICTIONS*
Sakina Shaik Ahmad Yusoff** Shamsuddin Suhor Rahmah Ismail Azimon Abdul Aziz Muhammad Rizal Razman Kartini Aboo Talib@Khalid

The modern era is a harbinger of ultra-modern, highly complicated and sophisticated technology, trade and industry. The 21st century saw great economic change in market place. In the realm of supply of goods, globalisation and the advancement of technology have a tremendous impact on the production, distribution and consumption of goods. This new phenomenon has led to a major concern on the market place as the guarantor of the best interest of consumers. The disparity in the consumers bargaining power, resources and knowledge vis--vis traders in market place has led to a need for a better legal protection in the realm of supply of goods. However, achieving a fair balance between the needs of market providers and the consumers is indeed a major challenge to law makers. Applying the content analysis method, this paper aims at exploring the provisions on traders contractual liabilities and remedies under the consumer contract for the supply of goods in Malaysia, United Kingdom, European Union and based on the provisions of the United Nations Convention on Contracts for the International Sale of Goods. The paper will first discuss provisions in the Sale of Goods Act 1957 and the Consumer Protection Act 1999 of Malaysia. The paper will then analyse the EC Directive on Certain Aspects of the Sale of Consumer Goods and Associated Guarantees and the United Nations Convention on Contracts for the International Sale of Goods on aspects of traders liabilities and remedies and the United Kingdom provisions on exclusion of traders liability. Field of Research: The Supply of Goods Law, Consumer Law, Contract Law.

* This paper is part of a research conducted under the UKM Arus Perdana 2010 project (Research Code: UKM-AP-CMNB-02-2010). ** Associate Professor Dr. Sakina Shaik Ahmad Yusoff, Faculty of Law, Universiti Kebangsaan Malaysia. Email: kinasay@ukm.my 2106

2 INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH (2 ICBER 2011) PROCEEDING

nd

nd

1.

Introduction

Consumer protection enters the new millennium with a more vigorous role in ensuring a fair marketplace and a just and equitable society. The aim of consumerism is to regulate and intervene in the market in their noble cause of upholding and empowering consumers in trade. Consumerism with its interventionist approach is indeed a great consumer synergy; ensuring equity and social justice thus contributes towards achieving equality in market and the improvement of economic efficiency by remedying market failures. Achieving a fair balance between the needs of market providers and the consumers is indeed a major challenge to law makers. Traders have created an absolutely free market for the smooth flow of their products and at the same time ways and means to discharge their liabilities and increase their rights at their own whim, often at the disadvantage of their unequal partner, the consumers. In the course of remedying market failure, thus ensuring fair trading environment, one of the most important tools in ensuring ethical trading environment is the use of consumer protection legislations. Indeed, market requires a tool through which fair and just exchanges can be effectively regulated, thus balancing the inequality that exists between market players. Indeed consumerism loaded with paternalistic ideals of protecting consumers is a paradigm shift to be welcome in this era. In Malaysia, the new market ideology, consumer welfarism, has permeated through its consumer protection laws. Nevertheless in the area of supply of goods, freedom of contract and caveat emptor still remain predominantly the underlying concepts in consumer contracts in Malaysia. Thus, there is a cause for concern in this area of law in the light of liberalisation of trade. The relevant legislations governing supply of goods in Malaysia are the Contracts Act 1950, the Sale of Goods Act 1957 and the Consumer Protection Act 1999. The Contracts Act 1950 being the parent law governing contractual relationships is not an exhaustive legislation. The Sale of Goods Act 1957 on the other hand is not a consumer protection oriented piece of legislation. Many of its principles are based on the common law principles during the 18th and 19th centuries during which freedom of contract and laissez faire were widely practiced. Therefore it is no surprise that this Act contains provisions which defeat consumer expectations and interests. With the coming into force of the Consumer Protection Act 1999, it has given hope to consumers but the nature of the Act being supplemental and without prejudice to any other law regulating contractual relations has indeed reduces the effectiveness of this long awaited legislation.

2. The Statutory Control of Supply of Goods in Malaysia: The Historical Background and Application
Consumer contracts in Malaysia are governed mainly by the Contracts Act 1950, the Sale of Goods Act 1957 and the Consumer Protection Act 1999. The Contracts Act 1950 (CA) being the parent law governing contractual relationships has its origin in the Indian Contract Act 1872. In 1899, the Indian Act was extended with minor modifications to the Federated Malay States as the Contracts Enactment 1899. In 1950, the
2107

2 INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH (2 ICBER 2011) PROCEEDING

nd

nd

Enactment became the Contracts (Malay States) Ordinance 1950. In 1974, the Ordinance was revised and extended throughout Malaysia and by virtue of the Revision of Laws Act 1968, the Ordinance became the Contracts Act 1950. CA governs three important phases of contract law, namely, formation of contract, discharges of contracts and damages. CA is however silent on the content of a contract and thus recourse to common law on this part of the law of contract is required (Sakina and Azimon 2010). One of the legislations in Malaysia affecting content of a contract for the supply of goods is the Sale of Goods Act 1957 (SOGA). Modeled upon the Indian Sale of Goods Act 1930 which has its origin in the English Sale of Goods Act 1893, SOGA 1957 is a revision of the 1957 Sale of Goods (Malay States) Ordinance. The 1957 Act only applies to West Malaysia. By virtue of section 5(2) of the Civil Law Act 1956, the law applicable to the states of Sabah and Sarawak must be the same as would be administered in England in the like case at the corresponding period. In the case of Heng Leong Motor Trading Co. v Osman bin Abdullah [1994] 2 MLJ 456, Chong Siew Fai J in the High Court of Kuching held that the UK Sale of Goods Act 1979 was applicable in Sarawak by virtue of the 1956 Act. As pointed out by Wu Min Aun (1994), this dualism of law in Malaysia has the potential of creating a number of legal problems. The difference between the law as applied in Peninsular Malaysia and the two States of Sabah and Sarawak has the potential to cause complex legal problems. In the absence of cogent reasons for its continuation, the attainment of complete uniformity should be targeted for immediate attention. A quick solution, which was used in the past, would be to extend the Sale of Goods Act to Sabah and Sarawak. This technique was adopted when the Contracts Act was made applicable nationwide. Until full uniformity is achieved, differences in aspects of law will continue as a backdrop that nags legal practitioners. SOGA 1957 applies to contract for the sale of goods as defined in section 4 of the Act. Under the Act, a contract of sale of goods has been defined as a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. The Act incorporates into statutory form important principles established in case law. As the 1957 Act is not a consumer oriented piece of legislation, it thus governs dealings between business and business (B2B) as well as business and consumers (B2C). SOGA applies to all types of goods and makes no difference between commercial and private sales or between wholesale and retail (Wu Min Aun 1994). SOGA does not provide a comprehensive law for the sale of goods and as such it operates against the background of the law of contract. By virtue of section 3 of SOGA however, the Contracts Act 1950, in so far as they are not inconsistent with the express provisions of this Act shall continue to apply to contracts for the sale of goods. In the realm of supply of goods, another legislation which is a source of law in Malaysia is the Consumer Protection Act 1999 (CPA). The Act which comprises of 14 parts and a total of 150 sections, represents the single most important piece of legislation in the history of consumer protection in Malaysia. Speaking at a conference a few months before the passing of the Act, Halimah Ahmad (1999) has this to say;
2108

2 INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH (2 ICBER 2011) PROCEEDING

nd

nd

For the first time in forty-two years there is a basic law, or an irreducible minimum of consumer protection legislation that will be direct protection for consumers instead of indirect protection that is found scattered throughout civil, criminal and commercial legislations covering diverse areas of health, agriculture and transport where the responsibility for implementation lies with different Ministries. Under the CPA, implementation of consumer protection measures will be directly under the Ministry of Domestic Trade and Consumer Affairs. The 1999 Act came into force on 15 November 1999. The Act goes some way towards remedying the forces of inequality. As Wu Min Aun (1999) pointed out, it restores some equilibrium between suppliers and consumers. CPA was enacted to provide a comprehensive protection to consumers. The Act came into effect on 15th November 1999. Before the enactment of CPA, there was no single act which gives a comprehensive protection to consumers in trade. The Act provides for misleading and deceptive conduct, false representation and unfair practice; safety of goods and services; guarantees in respect of supply of goods and supply of services; rights against suppliers and manufacturers in respect of guarantees in the supply of goods and services; product liability; National Consumer Advisory Council and Tribunal for Consumer Claims. Despite the introduction of CPA, it nevertheless transpires that the Act contains several major flaws. Although the Act is very much welcome by consumers and consumer movement groups with a hope that the Act would be able to give a comprehensive protection to consumers, this hope has been set back by the nature of the Act itself. CPA is very limited in its application. By virtue of section 2(4): The application of this Act shall be supplemental in nature and without prejudice to any other law regulating contractual relations. Section 2(4) has made the application of CPA subject to the Contracts Act 1950, Sale of Goods Act 1967 and Hire Purchase Act 1967. Many comments have been made to have this provision deleted. CPA applies in respect of all goods and services that are offered or supplied to one or more consumers in trade. The Act defines consumer as a person who (a) acquires or uses goods or services of a kind ordinarily acquired for personal, domestic or household purpose, use or consumption; and (b) does not acquire or use the goods or services, or hold himself out as acquiring or using the goods or services, primarily for the purpose of resupplying them in trade; consuming them in the course of a manufacturing process; or in the case of goods, repairing or treating, in trade, other goods or fixtures on land. By this definition, it would mean that to be a consumer under the Act and thus entitled to its protection, a person must be able to satisfy two stages: i. he must acquire goods or services for personal, domestic or household purpose, use or consumption; and

2109

2 INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH (2 ICBER 2011) PROCEEDING

nd

nd

ii.

the goods or services that he acquires must be of a kind ordinarily acquired for personal, domestic or household purpose, use or consumption.

The definition thus limits the application of CPA. If a person acquires goods which are not ordinarily acquired for personal, domestic or household purpose, he is not a consumer under CPA even though he acquires the goods for personal, domestic or household purpose. Goods is defined under section 3 as goods which are primarily purchased, used or consumed for personal, domestic or household purposes, and includes goods attached to, or incorporated in, any real or personal property; animals, including fish; vessels and vehicles; utilities; and trees, plants and crops whether on, under or attached to land or not, but does not include choses in action, including negotiable instruments, shares, debentures and money. The definition only covers goods which are primarily purchased, used or consumed for personal, domestic or household purpose. If the purpose of acquiring of the goods is only ancillary to the personal, domestic or household purpose, the goods are not within the meaning of goods under the Act.

3. Traders Liability under a Contract for the Supply of Goods: Consumers Redress
Traders liability under the law of supply of goods in Malaysia is governed by two statutes of a different nature, namely the Sale of Goods Act 1957 and the Consumer Protection Act 1999. Upholding the doctrine of freedom of contract and privity of contract, SOGA provides for both the obligations of the seller and buyer. CPA being a consumer oriented piece of legislation, upholds the consumer welfarism ideology and thus provides for the protection of consumers in trade.

3.1 Sale of Goods Act 1957

The Malaysian Sale of Goods Act 1957 contains several provisions on the obligations of traders under a contract for the sale of goods. The terms implied in sections 12 17 in the Act are designed to ensure that buyers receive certain basic benefits from the sale transaction. i. Section 14 Implied undertaking as to title The section deals with three implied terms, namely, an implied condition that the seller has the right to sell, an implied warranty that the buyer shall have and enjoy quiet possession of the goods and an implied warranty that the goods shall be free from any charge or encumbrance. Under this section, the most important provision is that the seller has to have the right to sell. The phrase right to sell was defined by Scrutton LJ in Niblett Ltd. v Confectioners Materials Co. [1921] 3 KB 387 to mean If a vendor can be stopped by process of law from selling, he has no right to sell. The pharse was also

2110

2 INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH (2 ICBER 2011) PROCEEDING

nd

nd

defines by Atkin LJ as the existence of a title superior to that of the vendor, so that possession of the vendee may be disturbed ii. Section 15 Sale by description Under the section, where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description; and is the sale is also by sample, goods must correspond both with description and sample. iii. Section 16 Implied condition as to quality and fitness The section provides for two implied conditions, namely, that the goods must be reasonably fit for the purpose and that the goods must be of merchantable quality. The Act however fails to define the phrase merchantable quality. In the case of Cehave NV v Bremer Handelsgesellschaft mbH [1976] QB 44, Lord Denning pointed out that among factors to be taken into account in assessing merchantable quality includes the purpose for which goods of that nature are commonly bought, the description applied, the price and any other relevant circumstances. iv. Section 17 Sale by sample The section provides that in the case of a contract of sale by sample, there is an implied condition that the bulk shall correspond with the sample in quality; the buyer shall have a reasonable opportunity of comparing the bulk with the sample; and the goods shall be free from any defect rendering them unmerchantable which would not be apparent on reasonable examination of the sample. Under section 12 of SOGA, where there is a breach of an implied condition, the breach gives rise to a right to treat the contract as repudiated. As such the buyer may exercise his right to reject the goods. Nevertheless, where the term breached is only a warranty, the buyer is only entitled to a claim for damages. Where the seller is in breach of the implied terms under SOGA, a number of remedies are available to the buyer, namely, damages for non delivery of the goods under section 57, damages for breach of warranty under section 59, or specific performance.

3.2 Consumer Protection Act 1999

Part V, VI and VIII of the Malaysian Consumer Protection Act 1999 provides for additional consumer protection in respect of supply of goods. The Act produces significantly Parts I, II and III of the New Zealand Guarantees Act 1993. CPA 1999 has an impact on both suppliers and manufacturers. Part V and VI create new rights against suppliers, whilst Part VII creates new rights against manufacturers. In relation to goods, section 2 of CPA defines a supplier as a person who, in trade (a) supplies goods to a consumer by transferring the ownership or the possession of the goods under a contract of sale, exchange, lease, hire or hire-purchase to which that person is not a
2111

2 INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH (2 ICBER 2011) PROCEEDING

nd

nd

party. Under section 2, a manufacturer has been defined as a person who carries on a business of assembling, producing or processing goods, and includes (a) any person who holds himself out to the public as a manufacturer of the goods; (b) any person who affixes his brand or mark, or causes or permits his brand or mark to be affixed, to the goods; and (c) where goods are manufactured outside Malaysia and the foreign manufacturer of the goods does not have an ordinary place of business in Malaysia, a person who imports or distributes those goods.

3.2.1Consumers Rights Against Suppliers Part V provides seven implied guarantees in the supply of goods to consumers as against a supplier of goods. The guarantees are as follows: i. Section 31: Implied guarantee as to title Where goods are supplied to a consumer, there is an implied guarantee that(a) the supplier has a right to sell the goods; (b) the goods are free from any undisclosed security; and (c) the consumer has a right to quiet possession of the goods. The phrase right to sell means a right to dispose of ownership of the goods to the consumer at the time when that ownership is to pass. Undisclosed security refers to any security that is (a) not disclosed to the consumer in writing before he agrees to the supply; and (b) not created by or with his express consent. The expression quiet possession refers to the right of possession of the goods free from any interference. ii. Section 32: Implied guarantee as to acceptable quality Section 32 introduces a new standard of quality in supply of goods. The concept of acceptable quality incorporates the factors relevant in considering merchantable quality in the Sale of Goods Act 1957. Under section 32(2), goods shall be deemed to be acceptable quality (a) if they are- (i) fit for all the purposes for which of that type are commonly supplied; (ii) acceptable in appearance and finish; (iii) free from minor defects; (iv) safe; and (v) durable. In assessing acceptable quality regard should be had to the nature of the goods, the price, any statements made about the goods on any packaging or label on the goods, any representation made about the goods by the supplier or manufacturer, and all other relevant circumstances of the supply of goods. However section 40 of CPA creates an exception in respect of the implied guarantee as to acceptable quality. Under this section there shall be no right of redress against the supplier of goods where, (a) the manufacturer makes a representation in respect of the goods otherwise than by a statement on any packaging or label; and (b) the goods would have complied with the implied guarantee as to acceptable quality if that representation had not been made. iii. Section 33: Implied guarantee as to fitness for the particular purpose
2112

2 INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH (2 ICBER 2011) PROCEEDING

nd

nd

Section 33 reproduces a substantial part of section 16 of the Sale of Goods Act 1957. Where goods are supplied to a consumer, there shall be an implied guarantee (a) that the goods are reasonably fit for any particular purpose that the consumer makes known, expressly or by implication, to the supplier as the purpose for which the goods are being acquired by the consumer; and (b) that the goods are reasonably fit for any particular purpose for which the supplier represents that they are or will be fit. This provision does not however apply where circumstances show that the consumer does not rely on the suppliers skill or judgment; or it is unreasonable for the consumer to rely on the suppliers skill or judgment. iv. Section 34: Implied guarantee that goods comply with description Under this section, where goods are supplied by description, there shall be an implied guarantee that goods shall correspond with description and if goods are supplied by reference to sample or demonstration model as well as by description, there shall be an implied guarantee that the goods shall correspond with sample as well as description. Descriptions are mostly found on the packaging or labels attached to the goods. Goods are supplied by description in cases where a consumer has not seen the goods but is relying on the description alone. If a consumer has seen and examined the goods, the supply shall be by description if there is some description applying to them. v. Section 35: Implied guarantee that goods comply with sample Where goods are supplied to a consumer by reference to a sample or demonstration model, there is be an implied guarantee (a) that the goods shall correspond to the sample or demonstration model in quality; and (b) that the consumer will have a reasonable opportunity to compare the goods with the sample or demonstration model. iv. Section 36: Implied guarantee as to price Where price for the goods is not determined by the contract or to be determined in a manner agreed by the contract or left to be determined by the course of dealing between the parties, there shall be implied a guarantee that the consumer shall not be liable to pay to the supplier more than the reasonable price of the goods. Under section 36(4), reasonable price shall be a question of fact depending on the circumstances of each particular case. Where there is a failure to comply with this implied guarantee, the consumers right of redress shall be to refuse to pay more than the reasonable price. v. Section 37: Implied guarantee as to repairs and spare parts Section 37 imposes on the supplier as well as the manufacturers an obligation that reasonable actions have been taken to ensure that facilities for the repair of goods and the supply of spare parts are reasonably available for a reasonable period after the goods are so supplied. This section applies equally to imported goods as well as locally manufactured goods. The provision however shall not apply where reasonable action
2113

2 INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH (2 ICBER 2011) PROCEEDING

nd

nd

has been taken to notify consumers, at or before the time the imported or locally manufactured goods are supplied, that the manufacturer or the supplier or both do not undertake that repair facilities and spare parts will be available for those goods. Failure in respect of the guarantees provided for in Part V, except for the implied guarantee as to price, gives rise to a right of redress against the supplier in Part VI. The remedial scheme contained in Part VI is significantly different from the remedies contained in other laws governing contractual relations in Malaysia. This part provides for the right of redress against suppliers where goods fail to comply with any of the implied guarantees under sections 31 37. Under section 41, where a consumer has a right of redress against a supplier, the consumer may exercise the following remedies depending on the extent of the failure: (a) if the failure is one that can be remedied, the consumer may require the supplier to remedy the failure within a reasonable time; and (b) where the failure is one that cannot be remedied or is of a substantial character, the consumer may reject the goods or obtain from the supplier damages in compensation for any reduction in the value of the goods below the price paid or payable by the consumer for the goods. Where the supplier refuses or neglects to remedy the failure as required within a reasonable time, the consumer may have the failure remedied elsewhere and obtain from the supplier all reasonable costs incurred in having the failure remedied; or reject the goods. In remedying the defects, the supplier may repair the goods; if the failure relates to title, curing any defect in the title; replacing the goods with goods of identical type; or providing a refund of any money paid or other consideration provided by the consumer in respect of the goods where the supplier cannot reasonably be expected to repair or replace the goods or cure any defect in title. Under section 44, a failure is regarded of a substantial nature where goods would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failure; goods depart with one or more significant respects from the description; substantially unfit for the particular purpose for which goods of that type are commonly supplied; goods are not of acceptable quality because they are unsafe (Rahmah and Sakina 2010).

3.2.2 Consumers Rights Against Manufacturers The uniqueness of CPA 1999 lies in the right given to consumers in Part VII against manufacturers in respect of guarantees in the supply of goods. In this respect, CPA abolishes to a certain extent the antiquated or unjust doctrine of privity of contract (Sakina 2000). The United Kingdom Law Commission defines privity of contract as: the doctrine of privity means that, as a general rule, a contract cannot confer rights or impose obligations arising under it on any person except the parties to it. The are several aspects of the doctrine: (i) a person cannot enforce rights under a contract to which he is not a party; (ii) a person who is not a party to a contract
2114

2 INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH (2 ICBER 2011) PROCEEDING

nd

nd

cannot have contractual liabilities imposed on him; (iii) contractual remedies are designed to compensate parties to the contract, not third parties. The doctrine of privity of contract in the context of the chain of distribution of goods is illustrated in Diagram 1 below:

Component Manufacturers/ Grower

Manufacturers/ Assembler/ Canner

Component Wholesalers/ Importers

Wholesaler Vertical privity Retailer

Donee/ Consumer non buyer

Retail buyer

Horizontal privity

Diagram 1

Chain of distribution

Source: JK Macleod (1989) In explaining the doctrine of privity in the context of the chain of distribution of goods, PN Legh-Jones (1969) pointed out that: the manufactured product descends down the chain of distribution from the maker through various middlemen (wholesalers, distributors, etc) to the retailer who sells to the public; vertical privity is the privity which each of these persons has with his predecessor and successor in the chain. Horizontal privity is the ensuing privity of contract between the retailer and the first domestic consumer who buys from him, and then between that consumer and any sub-consumer, if such there be. With the coming into force of the 1999 Act, a consumer now has a right of redress against a manufacturer in the supply of goods where goods fail to comply with certain implied guarantees irrespective of the existence of a contract between the consumer and the manufacturer. Section 50 of CPA gives a consumer the right of redress against
2115

2 INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH (2 ICBER 2011) PROCEEDING

nd

nd

a manufacturer of goods where goods fail to comply with the implied guarantee as to acceptable quality, description, repairs and spare parts and the express guarantee of a manufacturer provided for under section 38. However, section 51 creates exceptions to this right of redress against manufacturers. Under this section, there shall be no right of redress against the manufacturer where failure is due to (a) an act, default or omission of, or any representation made by, a person other than the manufacturer; or (b) a cause independent of human control, occurring after the goods have left the control of the manufacturer. Under section 52 of CPA, a consumer may obtain damages from the manufacturer for the reduction in the value of goods resulting from the manufacturers failure namely, the reduction below the price paid or payable by the consumer for the goods; or the reduction below the average retail price of the goods at the time of supply; which ever is lower. The consumer may also obtain for any loss or damage to him resulting from the manufacturers failure, other than loss or damage through the reduction in the value of the goods, which is proved to be a result or consequences of the failure. Any breach of a manufacturers express guarantee entitles the consumer to repairs of the goods or replacement of the goods with goods of identical type. A comparative analysis of the two sources of the law of supply of goods in Malaysia can be seen in Table 1 below: Table 1 SOGA and CPA: Comparative analysis
SALE OF GOODS ACT 1957 (Sellers obligation) CONSUMER PROTECTION ACT 1999 (Suppliers obligation) S.31 Implied guarantee as to TITLE S.31(1)(a) Right to sell S.31(1)(b) Free from any undisclosed security S.31(1)(c) Right to quiet possession S.34 Implied guarantee as to DESCRIPTION S.33 Implied guarantee as to FITNESS FOR THE PARTICULAR PURPOSE S.32 Implied guarantee as to ACCEPTABLE QUALITY S.35 Implied guarantee as to SAMPLE S.36 Implied guarantee as to PRICE S.50(a) Implied guarantee as to ACCEPTABLE QUALITY S.50(b) Implied guarantee as to DESCRIPTION CONSUMER PROTECTION ACT 1999 (Manufacturers obligation)

S.14 Implied undertaking as to TITLE S.14(a) Right to sell S.14(b) Quiet possession S.14(c) Free from any encumbrance

S.15 Implied condition as to DESCRIPTION S.16(1)(a) Implied condition as to FITNESS FOR THE PARTICULAR PURPOSE S.16(1)(b) Implied condition as to MERCHANTABLE QUALITY S.17 Implied condition as to SAMPLE

2116

2 INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH (2 ICBER 2011) PROCEEDING

nd

nd

S.37 Implied guarantee as to REPAIRS AND SPARE PARTS

S.50(c) Implied guarantee as to REPAIRS AND SPARE PARTS S.50(d) MANUFACTURERS EXPRESS GUARANTEE under S.38

3.3

Traders Obligations under a Contract for the Supply of Goods: A Comparative Study

A different standard of traders obligations under the contract for the supply of goods is contained in the Directive 99/44/EC of the European Parliament and of the Council of 25 May 1999 on Certain Aspects of the Sale of Consumer Goods and Associated Guarantees. The rules framing the sale of consumer goods in the European Union (EU) guarantee a uniform minimum level of consumer protection. In particular, the rules ensure that consumers are protected in the event of goods not conforming to contract. Under Article 2 of the Directive, consumer goods must be in conformity with the contract of sale. Consumer goods are deemed to be in conformity with the contract if they: (a) comply with the description given by the seller and possess the qualities of the goods which the seller has held out to the consumer as a sample or model; (b) are fit for any particular purpose for which the consumer requires them and which he made known to the seller at the time of conclusion of the contract and which the seller has accepted; (c) are fit for the purposes for which goods of the same type are normally used; (d) show the quality and performance which are normal in goods of the same type and which the consumer can reasonably expect, given the nature of the goods and taking into account any public statements on the specific characteristics of the goods made about them by the seller, the producer or his representative, particularly in advertising or on labeling. The seller is liable to the consumer for any lack of conformity which exists when the goods are delivered to the consumer and which arises within a period of two years from delivery. However, the lack of conformity cannot be accepted if, at the moment of conclusion of the contract of sale, the consumer knew or could not reasonably have been unaware of the lack of conformity. Under Article 3, when a lack of conformity is notified to the seller, the consumer will be entitled to ask: i. for the goods to be repaired or replaced free of charge within a reasonable period and without major inconvenience to the consumer; ii. for an appropriate reduction to be made to the price, or for the contract to be rescinded, if repair or replacement is impossible or disproportionate, or if the
2117

2 INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH (2 ICBER 2011) PROCEEDING

nd

nd

seller has not remedied the shortcoming within a reasonable period or without major inconvenience to the consumer. The contract cannot be rescinded if the lack of conformity is minor. The United Nations Convention on Contracts for the International Sale of Goods, known as CISG, is a convention offering a uniform international sales law. The CISG was developed by the United Nations Commission on International Trade Law (UNCITRAL) and was signed in Vienna in 1980. Part III of CISG provides for the law of sale of goods. Article 35 provides that the seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract. Goods are regarded as conforming to the contract if they (a) are fit for the purposes for which goods of the same description would ordinarily be used; (b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the sellers skill and judgment; (c) possess the qualities of goods which the seller has held out to the buyer as a sample or model; (d) are contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods. Article 45 of CISG provides for the remedies for breach of contract by the seller. Article 46 further provides that: (1) The buyer may require performance by the seller of his obligations unless the buyer has resorted to a remedy which is inconsistent with this requirement. (2) If the goods do not conform with the contract, the buyer may require delivery of substitute goods only if the lack of conformity constitutes a fundamental breach of contract and a request for substitute goods is made either in conjunction with notice given under article 39 or within a reasonable time thereafter. (3) If the goods do not conform with the contract, the buyer may require the seller to remedy the lack of conformity by repair, unless this is unreasonable having regard to all the circumstances. A request for repair must be made either in conjunction with notice given under article 39 or within a reasonable time thereafter. Remedies of the buyer and seller depend upon the character of a breach of the contract. If the breach is fundamental then the other party is substantially deprived of what it expected to receive under the contract. Provided that an objective test shows that the breach could not have been foreseen, then the contract may be avoided and the aggrieved party may claim damages. Where part performance of a contract has occurred then the performing party may recover any payment made or good supplied; this contrasts with the common law where there is generally no right to recover a good supplied unless title has been retained or damages are inadequate, only a right to claim the value of the good. If the breach is not fundamental then the contract is not avoided and remedies may be sought including claiming damages, specific performance and
2118

2 INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH (2 ICBER 2011) PROCEEDING

nd

nd

adjustment of price. Damages that may be awarded conform to the common law rules in Hadley v Baxendale (1854) 9 Exch 341. Article 79 of CISG however excuses a party from liability to a claim of damages where a failure to perform is attributable to an impediment beyond the partys, or a third party sub-contractors, control that could not have been reasonably expected. Such an extraneous event might elsewhere be referred to as force majeure, and frustration of the contract (Wikipedia CISG).

4.

Avoidance of Contractual Liability: The Traders Defence

An area of much concern in consumer contract law is the situation where traders attempts to exclude or limit their liability for breach of contract by including exemption or exclusion clauses in consumer contracts. Several cases have demonstrated the courts increasing concern, in particular, on the use of standard form exclusion clauses in consumer contracts (Sakina et al. 2010). The essence of this concern was captured in Lord Reids judgment in Suisse Atlantique Societe d Armament Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361; Exclusion clauses differ greatly in many respects. Probably the most objectionable are found in the complex standard conditions which are now so common. In the ordinary way the customer has no time to read them, and if he read them he would probably not understand them. And if did understand or object to any of them, he would generally be told he could take it or leave it. And if he went to another supplier the result would be the same. Yates (1978) pointed out that a standard form contract containing an exclusion clause acts as a tool of oppression of the consumers as the terms are not subject to negotiation by both parties to the contract. The reality perhaps, as the Law Commission (1975) puts it; All too often they are introduced in ways which results in the party affected by them remaining ignorant of their presence or import until it is too late so that the other party even if he knows of the exemption clause will often be unable to appreciate what he may lose by accepting it. It is because of this ignorance that the consumers do not bargain for better terms in individual cases or do not place suppliers under sufficient market pressure to compete over these terms. Once these factors are put together a picture begins to emerge of consumers being in a weak bargaining position to even begin to make choices or force changes in terms. (Willett 1994) Prior to 2010, the Malaysian legislative development on the use of exclusion clauses has been very minimal (Azimon and Sakina 2010). The Contracts Act 1950 is silent on prohibition against unfair terms. The Sale of Goods Act 1957 which governs the sellers obligations in a contract for the sale of goods accords no protection to consumers as far as unfair terms are concerned. Instead of regulating the use of unfair terms in sale, the 1957 Act by virtue of section 62 allows exclusion of the implied terms and conditions by express agreement.

2119

2 INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH (2 ICBER 2011) PROCEEDING

nd

nd

Section 6 of the Consumer Protection Act 1999 prohibits contracting out of the provisions of the Act. The section further provides that every supplier or manufacturer who purports to contract out of any provision of this Act commits an offence and under section 145 those persons are liable to a fine not exceeding fifty thousand ringgit or to imprisonment for a term not exceeding three years or to both. The introduction of Part IIIA of the Consumer Protection (Amendment) Act 2010 has to some extent resolved the problems associated with the use of exclusion clauses in consumer contracts in Malaysia. Under this part, where a court or the Tribunal comes to the conclusion that a contract or term is procedurally or substantively unfair or both, the court or Tribunal may declare the contract or the term as unenforceable or void. Under section 24C, A contract or a term of a contract is procedurally unfair if it has resulted in an unjust advantage to the supplier or unjust disadvantage to the consumer on account of the conduct of the supplier or the manner in which or circumstances under which the contract or the term of the contract has been entered into or has been arrived at by the consumer and the supplier. A contract or a term of a contract is substantively unfair, under section 24D, if the contract or the term of the contract (a) is in itself harsh; (b) is oppressive; (c) is unconscionable; (d) excludes or restricts liability for negligence; or (e) excludes or restricts liability for breach of express or implied terms of the contract without adequate justification. In addition to the contract or the term being held unenforceable or void, Part IIIA provides for a criminal penalty for contravention of its provisions. Under section 24I, if a body corporate contravenes any of the provisions in Part IIIA, the corporate body shall be liable to a fine not exceeding RM250,000; and if such person is not a body corporate, to a fine not exceeding RM100,000 or to imprisonment for a term not exceeding three years or both. Comparatively, in England, the most important limitations on the efficacy of exclusion clauses are now statutory. The Unfair Contract Terms Act 1977 (UCTA) now works together with the Unfair Terms In Consumer Contracts Regulations 1999 (UTCCR) serving as double barriers to scrutinize the validity of certain contractual terms, in particular the use of exclusion clauses. UCTA is national in origin. It renders some exclusion clauses absolutely ineffective and subjects others to a test of unreasonableness. It applies to consumer contracts (whether standard form or not) and to many business-to-business contracts (particularly those on standard form) (Mindy Chen-Wishart 2005). UCTA has three broad areas of control. First, exclusion of liability for negligence, secondly, general control of exclusion clauses which seek to exclude or restrict one partys liability for breach of contract, and thirdly, control over certain specific contract terms which exclude or restrict liability for breach of certain terms implied by statute in the sale of goods, hire purchase and supply of goods. If the Act applies to the clause in question, control may take one of two forms; the clause may be rendered absolutely void and ineffective or it may be effective only to the extent that it satisfies the test of reasonableness (Sakina and Azimon 2010). UTCCR resulted from the national implementation of the European Directive on Unfair Terms in Consumer Contracts. These Regulations apply in relation to unfair terms in contracts concluded between a seller or a supplier and a consumer. UTCCR only gives consumers added protection over those conferred by common law and UCTA in respect
2120

2 INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH (2 ICBER 2011) PROCEEDING

nd

nd

of terms which have not been individually negotiated. According to Regulation 5(2), A term shall always be regarded as not having been individually negotiated where it has been drafted in advance and the consumer has therefore not been able to influence the substance of the term. The Regulations define a consumer to mean any natural person who, in contracts covered by these Regulations, is acting for purposes which are outside his trade, business or profession. According to Regulation 5(1): A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer. Regulation 6(1) of UTCCR provides that the assessment of whether a term is unfair must take into account the nature of the goods or services for which the contract was concluded and by referring, at the time of conclusion of the contract, to all the circumstances attending the conclusion of the contract and to all the other terms of the contract or of another contract on which it is dependent. Schedule 2 to these Regulations contains an indicative and non-exhaustive list of the terms which may be regarded as unfair. An analysis of UCTA and UTCCR can be seen in Table 2 below: Table 2 An analysis of UCTA and UTCCR
Who can benefit? Definition of consumer a UCTA Anyone, but consumers get greater protection A person who neither makes the contract in the course of business nor holds himself out as doing so; and the other party does make the contract in the course of a business a business can be treated as a consumer. Exclusion and limitation clauses only UTCCR Only consumers a natural personacting for purposes which are outside his trade, business or profession. do not apply to businesses and only natural person can be a consumer

Scope of contractual terms affected Effect of the legislation on the term

Certain terms are automatically ineffective. Others must satisfy the test of reasonableness. Reasonableness is not defined, but guidelines are provided.

All types of terms, not just exclusion clauses, which are not individually negotiated. No terms are automatically unfair. Terms are unfair if they are contrary to the requirement of good faith and cause significant imbalance in the parties rights and obligations under the contract to the detriment of the consumer. - No factors listed for the assessment of good faith - Indicative and non-exhaustive list of terms which may be regarded as unfair

2121

2 INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH (2 ICBER 2011) PROCEEDING

nd

nd

5.

Conclusion

To ensure Malaysias success within the increasingly competitive global marketplace, the government must not only ensure economic growth, but the rights of market players particularly the consumer, a significant contributor to economic growth, must also be at the heart of the social, economic, political and legal development. To strike at the heart of inequality, efforts must be made to minimise the disparities between consumers and traders. With the rise of consumerism in many countries, the 20th century has seen paternalistic approach in consumer protection. Caveat emptor no longer applies to consumer transactions as courts and the legislature gradually began to turn to creative means to protect the weaker party in the bargain. In many countries both the legislature and the judiciary have adopted a new attitude in promoting the consumer welfare. The same is true in Malaysia. The legislative development in the area of supply of goods in Malaysia illustrates the paternalistic role of the government in ensuring ethical and just trading environment. The enactment of the Consumer Protection Act 1999 and the introduction of Part IIIA of the Consumer Protection (Amendment) Act 2010 evinced the governments commitment in protecting the weaker party, namely, the consumer, in marketplace. In light of the current development in marketplace, it is thus significant to ensure that the development of future consumer protection laws be focused on, among others, ensuring fair and balanced consumer legislation which protects both consumers and ethical businesses from exploitation of unscrupulous persons.

REFERENCES
Azimon Abdul Aziz & Sakina Shaik Ahmad Yusoff. (2010). Regulating standard form consumer contracts: The legal treatment of selected Asian Jurisdictions. Asian Journal of Accounting & Governance, 1, 105-123. Second Report on Exemption Clauses, Law Com No 69, Scot. Law Com. No. 39. (1975). Chen-Wishart, M. (2005). Contract law. Oxford University Press. Halimah Ahmad. (1999). A holistic approach to consumer protection. Proceeding of the 4th National Seminar of MACFEA. 19 August. Selangor. Law Commission Consultation Paper No. 121. Privity of contract: Contracts for the benefit of third parties. Legh-Jones, P.N. (1969). Product liability: Consumer protection in America. Cambridge Law Journal. 54. Macleod, J.K. (1989). Consumer sales law. Butterworths. Rahmah Ismail & Sakina Shaik Ahmad Yusoff. (2010). Corporate responsibility through the consumer protection laws in Malaysia. Proceeding of the Tuanku Jaafar Law Conference 2010. International Conference on Corporate Governance and Corporate Responsibility. 19-20 October. Kuala Lumpur. Sakina Shaik Ahmad Yusoff. (2000). Kontrak jualan barang-barang: Doktrin priviti kontrak sebagai halangan tuntutan pengguna. Malayan law Journal, 3, cclvii.

2122

2 INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH (2 ICBER 2011) PROCEEDING

nd

nd

Sakina Shaik Ahmad Yusoff & Azimon Abdul Aziz. (2010). Reforming the Malaysian contract law: A study on exclusion of traders liabilities in consumer contract. Proceeding of the Seminar Kebangsaan MACFEA Ke-14. 13-14 Julai. Selangor. Sakina Shaik Ahmad Yusoff, Suzanna Mohamed Isa, Azimon Abdul Aziz & Ong, T.C. (2010). Corporate responsibility through contract law in Malaysia: Areas of concern for consumer protection. Proceeding of the Tuanku Jaafar Law Conference 2010. International Conference on Corporate Governance and Corporate Responsibility. 19-20 October. Kuala Lumpur. Willett, C. (1994). Directive on unfair terms in consumer contracts. Consumer Law Journal, 114. Wikipedia, The Free Encyclopedia. United Nations Convention on Contracts for the International Sale of Goods. Retrieved February 18, 2011, from http://en.wikipedia.org/wiki/United_Nations_Convention_on_Contracts_for_the_In ternational_Sale_of_Goods#cite_ref-48 Wu Min Aun. (1994). Legal aspects of sale of goods. Longman Malaysia Sdn. Bhd. Wu Min Aun. (1999). Consumer Protection Act 1999 supply of goods and services. Pearson Education Malaysia Sdn. Bhd. Yates, D. (1972). Exclusion clauses in contracts. London: Sweet & Maxwell.

2123