18 Oct 2016
In a world where consumers seem to have an awful lot of rights and businesses precious few, where do practices stand when they buy products and services that subsequently fail to live up to the promises made? Adam Bernstein explains some of the do’s and don’ts of buying for business.
Adam Bernstein
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Image: © Maksym Yemelyanov/Fotolia.
Consider the Oxfordshire retailer who bought a cash register on the basis of what the salesman said it would do, but then found it couldn’t cope with multiple small items. He’s refused to pay until the system does what was promised and he’s treading a fine line before being taken to court for non-payment.
It’s well known the law is less protective to businesses than it is to consumers, but even so, businesses aren’t left high and dry.
For businesses looking to protect their buying rights, Matthew Gough – a partner at commercial law specialists, Eversheds – believes the starting point is always to look at the contract.
“It’s important to note small businesses have a degree of protection under the Unfair Contract Terms Act 1977 against unfair contract terms being imposed by larger suppliers,” he said. “The act regulates the use of exclusion clauses and whether terms are enforceable depends on those terms being reasonable.”
Matthew outlined the key elements of protection as:
Luckily, for practices, the framers of the legislation had an eye on fairness because, for all of these to be enforceable, the act says terms must be reasonable.
Matthew noted the courts look to a number of guidelines when deciding reasonableness, including:
Unfair terms aside, practices also have protection from misleading advertising through the Business Protection from Misleading Marketing Regulations 2008. These implement an EU Directive and ban advertising that is misleading, while also setting out what is acceptable in relation to comparative advertising.
Turning first to misleading advertising, Matthew described this as advertising that deceives or is deceptive and which changes buying behaviour and is illegal. He said the courts take into account the characteristics of the product:
“Comparative advertising, on the other hand, is advertising that identifies a competitor or a product offered by a competitor,” said Matthew.
He added a number of elements including:
“Effectively, adverts must compare like for like and be objective and verifiable,” he said.
Savvy consumers know Section 75 of the Consumer Credit Act 1974 makes credit card companies jointly and severally liable for any breach of contract, or misrepresentation, by a seller. Claims are not limited to the amount of the transaction and it may be possible to claim for other losses. Matthew pointed out consumers (cardholders) can choose to claim from either the supplier or the credit card company, or simultaneously, so long as they do not recover the same loss twice.
Section 75 covers goods or services (or part of) costing between £100 and £30,000 purchased within the past six years on a credit card by the main cardholder, and where no third party is involved, such as PayPal or Amazon Marketplace. This point is important because third-party involvement removes the direct involvement of the card company from the transaction.
“Crucially, and this is where businesses benefit, there is no requirement that the purchase must be for individual or non-business related use,” added Matthew.
“Indeed, the cardholder under a credit agreement does not necessarily have to be an individual person and instead, may be a partnership or an unincorporated body of persons (some restrictions exist). However, if the credit agreement is entered into wholly, or mainly for business purposes, or the amount loaned exceeds £25,000, Section 75 will not apply.”
Another avenue can be pursued – the credit agreement itself; something that isn’t widely known.
“Where a borrower has entered into a credit agreement to fund the purchase of specific goods or services, say a vehicle, that costs between £30,000 and £60,260, and the seller had the supplier make the credit agreement, then the borrower may claim against the seller under Section 75A of the act,” Matthew said. “The same applies if the specific goods or services are expressly stated in the credit agreement.”
As helpful as this is, Matthew emphasised there is no protection under this provision if the credit agreement has been entered into wholly or for mainly business purposes. But even if this route fails, a court can still determine the relationship between the borrower and the creditor was unfair.
The last port of call is, surprisingly, the Consumer Rights Act 2015. While it defines a consumer as “an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession”, if the purchaser can show the item is more for personal than business use, they may find help in consumer law.
Matthew summed up: “The message is businesses shouldn’t assume they have no protection.
The Government is aware small businesses are often in the same boat as consumers when making purchases for use in their businesses. Clearly thinking of making changes, the Department for Business Skills and Innovation ran a consultation and a call for evidence, entitled Protection of small businesses when purchasing goods and services, which closed at the end of June 2015.
Responses came from a number of organisations, including the British Independent Retailers Association. Its comments noted that very small businesses operate effectively on the scale of a consumer, but have little protection because of their business structure; that many issues revolve around telecoms and broadband (especially with increased reliance on these services); and that small businesses are likely to be time poor and time spent studying a contract is time not spent earning.
The Government’s response was published in February (www.gov.uk/government/consultations/purchasing-goods-and-services-protection-of-small-businesses) outlining what it intends to do next.
