Is your car insured properly? Our Partner Michael Pace gives his expert analysis below. ...
The Sale of Goods Act
We live in an age where our customers, whether commercial or consumer, expect the highest possible standards. If we fail to meet those standards the consequences can be extremely serious.
In nearly all respects the commercial consequences are often more important than the legal consequences. Poor products and/or a poor service soon results in loss of custom, loss of goodwill and damage to reputation. If we are going down that road it will not be long before we will be better off shutting up shop and putting what little money is left in the post office.
The commercial reality is important but as part of the overall risk management process sellers should be aware of their responsibilities and the legal consequences if things go wrong.
In business sales a seller is under a duty to supply goods which are of satisfactory quality.
As always an expression such as “satisfactory quality” covers a multitude of sins but broadly speaking goods will be deemed to be of satisfactory quality if they meet the standards which a reasonable person would accept in terms of:
- Fitness for purpose
- Appearance and finish
- Freedom from defects
The modern market place is extremely sophisticated and the standards which a reasonable person expects are both high and exacting.
So the drill is:
- Ensure that production processes are up to the mark
- Ensure that quality control processes are demanding, effective and rigorous
- If there are defects ensure that these defects are drawn to the attention of the buyer before the sale is concluded
So what are the consequences if the seller gets it wrong and finds itself on the wrong end of a claim from the buyer?
There is a wide variety of consequences:
- In the most straightforward of cases the seller may escape simply by replacing the faulty or defective product.
- In more complicated cases the seller may find itself held responsible for loss and expense suffered by the buyer as a result of the product being defective. Loss and expense will possibly include claims for consequential loss and loss of profit so the financial exposure could be quite astronomic.
So what should the seller do to manage the risk if things do go wrong?
- As is apparent the key thing is to ensure that all products sold meet the appropriate standards and do what they say on the tin, but we are all human – even lawyers I am told! Things do go wrong.
- It would be sensible to have conditions of sale and make sure that all sales which are made are made subject to those conditions.
There are two important points here:
- Conditions of sale will only apply if the buyer is aware of the terms and agrees to those terms before the sale is made. It is therefore important that the seller has a robust sales process in place.
- Exclusions of liability contained in the conditions of sale are of limited effect. Broadly speaking it is impossible to exclude liability for death and/or personal injury flowing from defective/faulty products and other exclusions when dealing on standard conditions are generally only enforceable insofar as they are reasonable.
So the seller does business against an unsatisfactory and uncertain backdrop. Given the uncertainty about the enforcement of exclusion clauses product liability insurance is a vital weapon in the risk management arsenal. The seller is well advised not only to have conditions of sale in place but also to ensure that it has product liability insurance and that its insurers are content with the conditions of sale and the sales process generally.
Those of us with grey hair were brought up in an era when the maxim in sale of goods was – caveat emptor – buyer beware. Nowadays the tables have been well and truly turned.
As with so many things in life dealing with all of this is a team effort. The team will consist of management, quality control, risk management, the lawyer and the insurance broker.
The team will be well advised to:
- Check the production process
- Audit the quality control process
- Review the risk management process
- Review the conditions of sale
- Check that the sales process is effective
- Double check that there is adequate product liability in place
The commercial reality is that there are some wonderful opportunities for sellers of products of the right quality but it is important that the team is aware of the risks and manages the risks. Failure to do so will undoubtedly affect the bottom line.