Consumer law and insurance

Question 1

For a joint venture, the parties might need to consider:

Answer 1

• Commercial contracts to be transferred into the joint venture entity by the parties (either by novation or assignment)
• Commercial contracts to be entered into between one or both of the parties and the joint venture entity
• New commercial contracts to be entered into between the joint venture entity and third parties – either business customers or consumers

Question 2

What would be in the contents of a commercial contract?

Answer 2

• Obligations, Covenants and Undertakings
   In its simplest terms, a contract can be seen as a bundle of obligations. Most of the key obligations will involve one party promising to the other to do (or not to do) something: you may also see these promises referred to as “covenants” or “undertakings”.
   Detail of the goods which are being transferred from the seller to the buyer.
   Detail of the payments to be made by the buyer to the seller
   When and how delivery will be effected (i.e. when possession of the goods passes to the buyer).
   When and how transfer of title will be effected (i.e. when ownership passes)
   If the parties do not agree express provisions, terms may be implied into the contract through:
• Custom or practice in the relevant trade
• Conduct of the parties or previous course of dealings
   Statute

Question 3

Remedies for breach of contract?

Answer 3

 Contractual Damages
 Liquidated Damages
* Force majeure
* Warranties and Indemnities

Question 4

Contractual Damages?

Answer 4

• If a party fails to comply with its obligations under a contract, the remedy for breach will generally be contractual damages, which are intended to put the innocent party in the position that they would have been in if the contract had been performed.

Question 5

Liquidated Damages?

Answer 5

• The parties may seek to avoid any difficulty in assessing their loss by agreeing, in advance, a fixed sum payable in the event that a given term is breached. This is known as a liquidated damages clause: the amount to be paid should represent a pre-estimate of loss, or it may risk being found to be a penalty and therefore unenforceable.
• • In sale of goods contracts, it is not unusual to find provision for the buyer to claim liquidated damages in the event of late delivery. For example, the seller may be required to pay a fixed sum per week of delay.

Question 6

• Force majeure?

Answer 6

 Delivery under a sale of goods contract might be delayed for reasons/by events that are not within the reasonable control of the seller – often known as ‘events of force majeure’ or ‘Acts of God’.
 It is usually the seller who is most affected by events of force majeure so it is the seller who usually requests a force majeure clause be included in a contract.
 A “Force Majeure” clause provides that where, for example, delivery is delayed by a catastrophic power cut, the delay may be expressly ‘excused’ under the contract – so there is no breach and no damages.
 A cautious seller will usually wish to ensure that the clause is broadly drafted whereas a cautious buyer will wish to ensure the opposite.

Question 7

• Warranties and Indemnities?

Answer 7

 Much of the negotiation in a commercial agreement will be around the warranties and indemnities given by each of the parties. This is one of the main ways in which the risks involved in a commercial contract are allocated and the liability of the parties defined.

Question 8

Warranties in contracts?

Answer 8

• The term “warranty” is used by contract drafters to mean a binding statement of fact made by one party to the other. Note that this is different from the contract law definition of a warranty as distinct from a condition. Warranties can be used to define the nature of a party’s obligations. For example, if a party is obliged to deliver certain goods, it will often give a warranty as to the quality of those goods.

Question 9

Indemnities in contracts?

Answer 9

• An “indemnity” is a contractual obligation by which one party agrees to keep another protected from a specific loss.
• The liability under an indemnity arises not because of any breach but because the parties have stipulated that one shall save another from loss in specified circumstances. The general principles of liability for breach of contract do not apply with indemnities. Liability under an indemnity does not depend on any fault element and is not subject to rules on remoteness, duty to mitigate etc.

Question 10

• Limitations on liability/entire agreement provisions?

Answer 10

• The parties to a contract may include provisions intended to limit their liability under the contract – including for breach of warranties.
• These provisions could include a cap on the amount of damages to be paid or an agreement that there would be no liability for particular types of breach. However, these will be subject to statutory restrictions

Question 11

• Entire agreement provisions?

Answer 11

• This provides commercial certainty for the parties and ensures that all of the parties’ obligations are recorded in a set of identifiable contractual documents. An entire agreement clause also prevents one party from arguing that other terms of the contract can be found elsewhere (for example, that the agreement is partly oral or that there is a collateral contract).
• Entire agreement provisions will only be enforceable if they contain certain prescribed elements (and a carveout for fraud).

Question 12

• Termination provisions?

Answer 12

• Termination provisions are of crucial commercial importance to the parties and should be reviewed and negotiated depending on the circumstances. Whilst certain events resulting in termination of the agreement are fairly standard across all commercial contracts, other termination events are deal specific and consequently more heavily negotiated.

Question 13

• The reasons for termination of the contract may relate to:

Answer 13

• matters such as the insolvency of a party;
• breaches or defaults of a party under the contract; or
• the right of a party to cancel/ terminate without cause (eg at any time on 30 days’ notice).

Question 14

What termination provisions are prohibited?

Answer 14

 The Corporate Insolvency and Governance Act 2020 (CIGA 2020) now prohibits enforcement of contractual clauses that allow a supplier to terminate a contract when the customer enters into an insolvency procedure (including a pre-insolvency moratorium). Such termination clauses (known as ipso facto clauses) are no longer enforceable in a contract for the supply of goods and services.

Question 15

• Statutory framework for ‘business to business’ contracts?

Answer 15

• A contract for the sale of goods between one business and another is governed under English law by the Sale of Goods Act 1979 (‘SGA’), as amended. Its provisions will also be subject to the Unfair Contact Terms Act 1977 (‘UCTA’).
• • In addition to the SGA, business to business contracts are also subject to the UCTA. The UCTA applies to provisions that limit and exclude liability.

Question 16

• SGA defines a contract for the sale of goods as:

Answer 16

‘a contract by which the seller transfers or agrees to transfer the property ingoods to the buyer for a money consideration, called the price’.
* “Goods” include personal possessions - such as household items, vehicles, domestic animals, gems and clothing - that are physical items able to be moved.

Question 17

• The SGA sets out a number of important terms which are implied into contracts for the sale of goods.
• The implied terms include:

Answer 17

• Terms relating to the goods being sold;
• Terms relating to title to the goods; and
• Terms relating to the delivery of the goods.

Question 18

SGA implied terms for goods?

Answer 18

• If sale is by a description of goods, the SGA implies a term that the goods will conform to the contract description on delivery;
• The SGA also requires goods to be of satisfactory quality; and
• The goods must be fit for purpose - both for their everyday purpose and any specific purpose agreed between the parties.

Question 19

• Statutory remedies - SGA?

Answer 19

• Title, or legal ownership, in the goods may be transferred to the buyer at any time agreed between the parties.
• To reject the goods, terminate the contract and/or claim damages; or
• To reject the goods, affirm the contract and require contractual performance, reserving the right to claim damages; or
• To accept and keep the goods but still claim damages, by treating the breach as a breach of warranty only.
• The right to reject goods for breach of an implied condition is not available for ‘slight breaches’, or where the breach has been waived, or if the buyer has ‘accepted’ the goods.

Question 20

Terms - SGA - title?

Answer 20

• Title, or legal ownership, in the goods may be transferred to the buyer at any time agreed between the parties.
• A seller will usually want to retain title in the goods for as long as possible, at the very least until payment for those goods has been received.
• The seller may want to include a retention of title (ROT) clause, which would reserve title to the goods until they are paid for, even after they have been delivered to the buyer.
• A buyer will normally want title to be transferred to it as soon as possible so that it is free to sell those goods on to a third party or use or modify them in some way.
• The SGA leaves it up to the parties to agreed when title is transferred, and provides how to ascertain the parties’ intentions about title transfer if there is no express provision. It also allows for ROT clauses and provides when they will be enforceable and when they will be void.

Question 21

SGA implied terms for goods?

Answer 21

• The SGA provides that the seller is under a duty to deliver the goods and the buyer is under a duty to accept conforming goods and take delivery at the agreed time or be liable to the seller for damages for non-acceptance.
• Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions, that is to say, the seller must be ready and willing to give possession of the goods to the buyer in exchange for the price and the buyer must be ready and willing to pay the price in exchange for possession of the goods.
• The default time for delivery is ‘within a reasonable time’: the parties are likely to agree a specific time for delivery – in which case the SGA allows the time specified to be made “of the essence”, so any delay would be grounds for termination. In this context, ‘delivery’ means only that the right to possession of the goods has passed. So in a sale of goods contract, it is as well to think of ‘delivery’ of the goods and their transport to the buyer’s place of business (or other destination) as separate matters.
• In the absence of agreement, the SGA sets out the default provision which provides that delivery will take place at the seller’s premises (i.e. the buyer is to collect them).

Question 22

• Type of limitation clause?

Answer 22

• Exclusion of statutory implied terms about title to goods
• Exclusion of liability for breach of liability for causing death or personal injury through negligence
• Effect of UCTA provisions - provision is void
• Exclusion of liability for breach of statutory implied terms about quality of goods
• Other exclusions for causing loss through negligence
• Effect of UCTA provisions - provision is only valid if it is reasonable
• To pass the ‘reasonableness test’, a contract term must have been a “fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made”. One of the relevant criteria is the relative bargaining power of the parties, so a court may be more likely to find that a term is unfair if one of the parties was larger, with greater resources for negotiation at its disposal.

Question 23

• Statutory framework for consumer contracts?

Answer 23

• There are a number of additional statutory protections for consumers who enter into sale of goods contracts. The Consumer Rights Act 2015 (‘CRA’) covers contracts between (1) an individual acting as a “consumer” (i.e. acting for purposes ‘wholly or mainly’ outside their trade or business); and (2) a trader acting for the purposes of their trade or business. Under the CRA, a sales contract is a contract under which the trader transfers or agrees to transfer ownership of goods and the consumer pays or agrees to pay the price.

Question 24

• Key additional provisions of the CRA?

Answer 24

• Provision of pre-contract information
• Requirement of transparency
• Requirement of reasonableness

Question 25

• Provision of pre-contract information?

Answer 25

 Certain specified contract information must be provided to the consumer before the contract is concluded
 The content of the information depends on how the contract is concluded – e.g. on-line or in a shop

Question 26

• Requirement of transparency?

Answer 26

 All written terms of a consumer contract must be ‘transparent’
 This requires the terms to be expressed in plain and intelligible language, and to be legible

Question 27

• Requirement of reasonableness?

Answer 27

 All terms must be ‘fair’ (except for transparent terms that reflect the main subject matter of the contract or the adequacy of the price)
 A term is unfair if it is contrary to the requirement of good faith and causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer

Question 28

Statutory remedies for consumer contracts?

Answer 28

• A provision in a consumer sale of goods contract that is not “fair” will not be legally binding on the consumer.
• Under the CRA, a consumer has a short-term right to reject goods within 30 days, even if there is no breach. (Note: if goods have been purchased on-line, the consumer will have additional rights to cancel the contract.)
• A consumer has common law remedies for breach of contract, but also has statutory remedies.
• The consumer may also have a right (depending on the statutory right being breached) to
   repair or replacement of the non-conforming goods, or
   a price reduction, or
   a final right to reject.

Question 29

• Consumer contracts are also protected by the Consumer Protection from Unfair Trading Regulations 2008 (the ‘Regulations’)?

Answer 29

• The Regulations contain a list of 31 unfair practices that will always be unfair and prohibited;
• For example, falsely stating that a product will be available for a very limited time.
• More generally, the Regulations prohibit:
   Misleading actions (that give an overall impression that is likely to deceive the average consumer about the main characteristics of the product);
   Misleading omission (where material information required by an average consumer to make an informed decision is omitted by the trader);
   Aggressive practices (such as selling funerals to recently bereaved consumers); and
   Commercial practices which contravene profession diligence (i.e. practices that result in a material distortion of the economic behaviour of the average consumer).

Question 30

• Consumers can make a claim in the civil courts against traders who commit the following prohibited practices:

Answer 30

 Misleading actions.
 Aggressive practices.
 A commercial practice that falls within any of the categories in the previous slide will also be a criminal offence.
 The Competition and Markets Authority (CMA) has additional powers to tackle undesirable market wide practices.

Question 31

• Depending on an individual consumer’s awareness, action could include the following:

Answer 31

 Exercise their right to reject sub-standard goods and demand a refund (under CRA)
 Refuse to comply with an unfair term on the basis that it is not enforceable (under CRA)
 Claim damages in the small claims courts for loss suffered due to breaches of consumer protection law (under both CRA and CPRs)
 Seek damages as part of a wider group - these type of actions may be driven by law firms – for example, the diesel emissions litigation brought against vehicle manufacturers
* It may make it easier to bring group litigation of this type for certain types of consumer law infringement under the changes proposed by the Digital Markets, Competition and Consumer Bill.

Question 32

• Insurance contract?

Answer 32

A contract under which an insurer agrees to pay money to the insured on the occurrence of an uncertain and adverse event, in return for a premium

Question 33

• Types of insurance contract?

Answer 33

• There are many different types of insurance contract – some cover areas of loss (e.g. if insured property is destroyed) and some cover areas of liability (e.g. if a third party has a right to sue the insured party):

Question 34

• Examples of common types of insurance policies?

Answer 34

 Product liability insurance – covers the cost of compensating anyone injured by a faulty product
 Professional indemnity insurance – covers any breach of professional duty giving rise to financial loss to a third party
 Property ‘all-risk’ insurance – covers any risk to a property that is not expressly excluded (e.g. could cover damage to development works)
 Public liability insurance – covers claims made by members of public (e.g. for injury while on premises)
 Employer’s liability insurance – covers liabilities to employees and is compulsory
 Business interruption/ delayed startup insurance – covers lost profits

Question 35

• Key terms of insurance contract?

Answer 35

• Exceptions/exclusions define the boundaries of the risk insured
• Definition of risk>Exceptions/exclusions define the boundaries of the risk insured
• Warranties/conditions precedent>Insurance cover will effectively ‘switch off’ if these are not complied with
• Duration of cover>May be on an ‘occurrence’ basis or a ‘claims made’ basis
• Premium payable by insured
• Amounts payable by insurer>Amounts payable will be subject to any deductible or excess agreed, which is an amount of liability borne by the insured before the insurance starts to pay out: a deductible reduces the insured amount available; an excess does not.

Question 36

• Occurrence basis?

Answer 36

• Policy written on ‘occurrence’ basis>Policy covers liability/loss from a defined event or circumstance that occurs during the period of cover, even if the claim is made after the end of the policy period (NB: Will generally only be offered for the type of losses that have a ‘short tail’ – that is, where losses become apparent within a short period)

Question 37

Claims made basis?

Answer 37

• Policy written on ‘claims made’ basis>Policy covers any claim notified to the insurer within the period of the policy, regardless of when the insured event occurred* (NB: This is generally more appropriate for losses with a ‘long tail’ – that is, losses that may not become apparent until some time after the event that causes them)

Question 38

• Indemnity basis?

Answer 38

Most insurance policies are on an ‘indemnity basis’ that compensates the insured for losses or liability suffered > In relation to these type of policies, the insured can only recover in relation to a loss or a liability that it has suffered

Question 39

Non-indemnity basis?

Answer 39

Some insurance policies are on a ‘non-indemnity’ basis that pays the insured a lump sum on the occurrence of a defined event, regardless of loss – for example, life insurance > In relation to these type of policies, the insured must have an insurable interest in order to claim under the policy – e.g. it is the insured’s life

Question 40

• Duty of fair presentation?

Answer 40

 The Insurance Act 2015 effectively codifies old law on the ‘duty of utmost good faith’ for any insured party that takes out non-life insurance in the course of business:
 Duty of fair presentation>The insured must disclose to the insurer every material circumstance that the insured knows/ought to know OR give disclosure of sufficient information to put a prudent insurer on notice that it needs to make further enquiries to reveal those material circumstances.>Knowledge of the insured includes both actual and constructive knowledge.>A circumstance is material if it would influence the judgement of a prudent insurer in determining whether to take the risk and, if so, on what terms.>The insured must also ensure that every material representation as to a matter of fact is substantially correct and every material representation as to expectation/belief is made in good faith.>The insured must present its disclosure in a manner that would be r

Question 41

• Remedies for breach of duty of fair presentation?

Answer 41

• Type of breach > Remedy
   Deliberate or reckless>Insurer can avoid the contract of insurance (refuse all claims under the policy) and also retain any premiums paid
   Not deliberate or reckless, but insurer would not have entered into the contract at all>Insurer can refuse all claims under the policy but must return any premiums paid
   Not deliberate or reckless, but insurer would have entered into contract on different terms>Contract is treated as if it had been entered into on the different terms
   Not deliberate or reckless, but insurer would have entered into contract on higher premium>Contract is treated as if it had been entered into on the different terms
   Amount recoverable under the policy will be proportionally reduced – i.e. If premium would have been doubled, the amount recoverable for a claim will be reduced by 50%
   Not deliberate or reckless, but insurer would have entered into contract on different terms and higher premium>Contract is treated as if it had been entered into on the different terms AND amount recoverable is proportionally reduced

Question 42

• Rights against third parties - ‘subrogation’?

Answer 42

• Where there is a loss or liability covered by insurance, there may also be a third party that the insured could make a claim against in relation to the same loss/liability>In this case, common law rules on ‘subrogation’ enable the insurer to recoup some or all of the amount paid out from any third party who caused or contributed to the loss>These rights are exercised by the insurer in the name of the insured – the insured must take care not to prejudice the insurer’s rights of subrogation (for example, the insured must not release any relevant claim against a third party)

Question 43

• Contractual obligations to insure?

Answer 43

• Where two parties are sharing risks between them, one party may want to oblige the other to take out insurance in order to make sure it will have sufficient resources to cover the risks that it has accepted.

Question 44

the contractual provisions that might be included in the contract are likely to involve:

Answer 44

 A clear description of the exact insurance requirements to be covered, including the insured amount and any deductible or excess
 A specification of the insurer(s) to be used, in order to ensure that they are reputable and financially strong
 A mechanism to allow the other party to check whether the insured party is maintaining the required level of insurance

Question 45

• There may be circumstances where more than one party may have exposure to a risk – in this case, there are different ways in which this might be dealt with:

Answer 45

 Interest of the second party may be ‘noted’ on the insurance contract > Example: sub-contractor’s interest noted on a construction all-risks policy taken out by the contractor > This does not give the second party a right to claim directly under the policy, but gives it the right to be notified of cancellation/non-renewal etc.
 Parties may take out joint insurance > Example: joint owners of property take out joint property insurance > Either or both parties may claim up to the limit of indemnity, but wrongdoing by one means neither can claim
 Parties may take out composite insurance > Example: mortgagor and property owner take out composite property insurance > Either or both parties may claim up to the limit of indemnity – wrongdoing by one does not lose rights for the other

Question 46

Your client (‘Company A’) is proposing to outsource some of its customer support functions to an outsourcing provider (‘Company B’). As part of its service to Company A’s customers, Company B will offer a service in which, for a small payment, customers can sign up to receive a newsletter with money off tips and vouchers. Customers pay monthly for the service and were informed by Company B that they can cancel at any time. However, Company A has received complaints from customers who have been charged for the remainder of the year after cancelling their monthly payments.

Which one of the following statements correctly summarises the position on the potential consequences for Company A and Company B’s in respect of the customer complaints?

Depending on the outsourcing contract, both or either of Company A or Company B could be faced with investigation by Trading Standards.

Company B will not have any liability in respect of the customer complaints as it is acting only as the outsourcing provider, whilst Company A could be faced with investigation by the Advertising Standards Authority.

Company A will not have any liability in respect of the customer complaints as it has outsourced the customer service to Company B, which may be faced with investigation by Trading Standards.

Both or either of Company A or Company B, depending on the outsourcing contract, could be faced with investigation by Trading Standards and the Advertising Standards Authority.

Answer 46

Depending on the outsourcing contract, both or either of Company A or Company B could be faced with investigation by Trading Standards.

Question 47

Your client (‘Company A’) is proposing to invest in a smaller online business (‘Company B’). Company B specialises in the sale of organic cotton baby clothes which it obtains from a local supplier certified in the supply of organic cotton. Company B has recently signed up a well-known model to promote its clothes on social media for a substantial fee, in which the model will emphasising the “green” credentials of the clothes (the ‘Promotion’). Company A is concerned whether the Promotion may create any issues for Company B.

The Promotion may cause issues for Company B even if the “green” claims can be evidenced by the supplier’s certification, if it is not declared to be a paid for advertisement.

The Promotion is unlikely to cause any potential issues for Company B as the “green claims” can be evidenced and it has declared it to be a paid for advertisement.

The Promotion is unlikely to cause any issues for Company B as the “green” claims can be evidenced and there is no requirement for it to be declared as a paid for advertisement.

The Promotion may cause issues for Company B as it is unlikely the “green” claims can be evidenced even if it has declared it to be a paid for advertisement.

Answer 47

The Promotion may cause issues for Company B even if the “green” claims can be evidenced by the supplier’s certification, if it is not declared to be a paid for advertisement.

Question 48

Your client (‘Company A’) has entered into a 50/50 owned joint venture company (the ‘JV Co’) with one other party (‘Company B’). Company A transferred a property into the JV Co (the ‘Property’) when the joint venture was established. The JV Co has taken out an insurance policy (the ‘Insurance Policy’) with an insurance company (the ‘Insurer’) to protect itself against environmental liability in relation to the Property. It has since transpired that the Property was contaminated by a chemical spill at some point in the past: the directors of the JV Co appointed by Company A (the ‘A Directors’) were aware of this, but it was not specifically disclosed to the Insurer (although the Insurer was told that the Property had previously been owned by a chemical company).

What is the best advice to give to your client in relation to the JV Co’s duty of fair presentation?

As only the A Directors knew about the contamination, the JV Co would not have been required to disclose this information to the Insurer under its duty of fair presentation.

It is never sufficient to put an insurer on notice of an issue that is material: the duty of fair presentation requires a party seeking insurance to disclose every detail of an issue to the insurer.

The test for whether the contamination was a material circumstance that should have been disclosed under the duty of fair presentation is an objective one, as it depends on whether the information would influence the judgement of a prudent insurer.

As the JV Co failed to disclose the chemical spill to the Insurer, the Insurance Policy will be automatically void.

Answer 48

The test for whether the contamination was a material circumstance that should have been disclosed under the duty of fair presentation is an objective one, as it depends on whether the information would influence the judgement of a prudent insurer.

Correct
This answer is correct. The test is correctly summarised here.