CONTRACT LAW

Melinda Katsiaounis

In November 2018, “Urban Nightclubs”, (UN) entered into a contract with ISL, to buy 50 of their “automated document authentication systems” for £999 each, plus VAT.

 

ISL’s website states that:

 

Within seconds, our “automated document authentication system”, used by all major banks in the UK, can assess the authenticity of any identification document, including Passports, Driving Licenses and ID cards.

 

UN has been using the system for nearly two months in all 50 of their clubs, and are now insisting that although the system can assess UK passports and driving licences in less than 5 seconds it can take up to 10 minutes to assess any other documents. They are also claiming that only two of the UK’s leading banks are known to use this system.

 

UN wish to return all 50 systems and obtain a complete refund.

 

On the basis, that most of their customers purchasing “automated document authentication systems” would qualify as consumers under Section 2 of the Consumer Rights Act 2015 (CRA), Elliott has asked you to draft a briefing note, of not more than 1000 words, to help him to advise ISL as to whether the advertisement promoting their automated document authentication system meets with the requirements of the CRA. He particularly wants to know whether you would advise changing the wording of the advertisement, and if so, on what grounds. 

 

 

Introduction:

When considering business-consumer contracts within s.2 of the Consumer Rights Act [2015], it is important to understand the definition of what a trader is. Traders are expected to act on behalf of purposes that relate to the person’s trade or business[1]. Therefore, ISL is required to fulfil the purpose of meeting up to an efficient and effective service that they have stated on their website. However, knowing that they have failed to do so, brings them to a breach of their own contract if the supply of goods by description is not treated as including a term that the goods will match the description[2].Thus, not meeting the requirements of the CRA in what is expected of a trader.

Although, the advertisement includes boastful statements of guaranteeing a firm facility. The representation of the operation of goods being efficient has induced the consumer party to enter into the contract in the first place. However, after two months of using the system, the consumer party is not satisfied with service as the description of the statement does not match the supply of goods and thus not fit for that purpose. Which does not meet up to the requirement if the consumer party was misled into thinking that the goods are reasonably fit for the purpose of efficiency[3]. Furthermore, this may lead to the consumers trying to claim for a promissory estoppel if the statement lays out the foundations of them entering into the contract in the first place, where they rely on the statement acting on behalf of what is expected and it would be inequitable for the promisor to go back on the statement.

Misrepresentation:

Therefore, the representation of efficiency has been ‘addressed to the party misled’[4] and thus inducing the party into a contract of material fact that is false or misleading-actionable misrepresentation. The consumer party may gear their argument towards fraudulent misrepresentation, where this action was made with the businesses specialist knowledge knowingly that the false statement was represented without belief in its truth to attract the target audience stated by Lord Herschell[5]. This does not meet up to the requirements of the CRA where the main characteristics of goods is to be treated as included as a term of the contract[6]. Thus, the consumer party may present the false information as untruthful, which has made them take a transactional decision they would have not taken otherwise[7]. Therefore stating the misrepresentation as a misleading commercial practice and taking it further to try and claim for damages.

On the other hand, if the information was expressed under the influence of innocent misrepresentation, where ISL had thought that the information expressed in the statement had reasonable grounds for believing it was true at the time of when the statement was made[8]. Thus, this would need to be proven that the company’s system can assess the authenticity of any deification document within seconds from when the statement was made from the UK banks that had installed this system, rather than when the UN started experiencing a slow service. If successful, the plaintiff would not be entitled to as many damages, the decision would be reversed, and the contract would be rescinded on the grounds of innocent misrepresentation as stated by Sir George Jessel[9]. This then fulfils the requirements of the CRA in supplying the goods by description included within the terms of the statement[10], as one believed them to be at the time, due to the system working effectively for their other customers.

Following up from this, within the case of Hedley Bryne v Heller [1964][11], the conclusion came to basing the situation on proving that he had a reasonable ground to believe and did believe up to the time the contract was made and the facts represented were true[12]. Therefore, it could be argued that ISL’s statement was made at the time of truth that allowed the opposing party to rely on them, which resulted in a loss of not fulfilling the requirements of the consumer party. However it is important to understand that rescission with non-fraudulent misrepresentation will only be available if the lapse of time from when the contract was made is limited, not the date of discovery, this was confirmed within Leaf v International Galleries [1950][13].

However, to an extent the statement is not entirely false. As UN experiences the efficiency of assessing UK passports and driving licences in less than 5 seconds. This fulfils the CRA in section 10 (3) where the statement matches the purpose of the goods and has been doing so in the past 2 months. Nevertheless, if the consumer’s right to reject is exercised then the trader has a duty to give a refund[14].

 

Promissory Estoppel:

Though, the opposing party can argue the importance of the statement, as they relied on the statement to influence the outcome in the efficient services that they expected. If the promiser’s promise is inequitable then the doctrine of promissory estoppel applies, this was applied to the case of D & C Builders v Rees [1966][15] where Mr Rees was unsuccessful in attempting to rely on estoppel as there was no true agreement to accept less in the first place.

Reforming the advertisement:

On the basis, that the main issue is the misrepresentation of the statement that is mentioned on the ISL website, changes would be to separate the guaranteed services from the satisfactory services. This would fulfil the CRA in stating that there is an efficient service with UK passports and driving licenses in less than 5 seconds[16], where the term is included to match the description of the goods that is proven to be working effectively by the UN. But to then state that other documents could take up to 30 minutes to clarify that the quality of assessing other documents is satisfactory, this fulfils section 9 of the Consumer Rights Act [2015][17]. Finally, rather than stating that all major banks in the UK use their system, it would be more significant to place a statistic regarding how many major banks use their system or authorising their permission in using the name of the two banks that use their service.

 

Written by Melinda Katsiaounis

 

[1] The Consumer Rights Act [2015] s 2 (2)

[2] Ibid s 11 (1)

[3] Ibid s 10 (3)

[4] Ewan Mckendrick, Contract Law (first published 2003 Oxford University 2005) 660

[5] Derry v Peek [1889] LR 14 App Cas 337

[6] CRA (n 1) s 11 (4)

[7] The Consumer Protection from Unfair Trading Regulations [2008] s 5(2)

[8] The Law Dictionary ‘3 Types of Misrepresentation and Why They Matter’ https://thelawdictionary.org/article/3-types-misrepresentation-matter/ accessed 06 March 2019

[9] Redgrave v. Hurd [1881] 20 Ch D 1, Court of Appeal

[10] CRA (n 2)

[11] Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964) AC 465 (HL)

[12] The Misrepresentation Act [1967] s 2(1)

[13] Leaf v International Galleries [1950] 2 KB 86

[14] CRA (n 1) s 20 (7)(a)

[15] D & C Builders v Rees [1966] 2 WLR 28 Court of Appeal

[16] CRA (n 2)

[17] CRA (n 1) s 9(1)

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