SUPPLY OF GOODS (IMPLIEDTERMS) BILL [H.L.]

HL Deb 16 November 1972 vol 336 cc841-79

4.36 p.m.

THE MINISTER WITHOUT PORTFOLIO (LORD DRUMALBYN)

My Lords, on behalf of my noble friend Lord Limerick. I beg to move that this Bill be now read a second time. The Bill is the first of a number of measures to help the consumer that the Government will be bringing before Parliament this Session, and I hope that your Lordships will be pleased, as I am, that it is being first introduced into this House. It should have fallen to my noble friend Lord Limerick to introduce it as it lies in his sphere of responsibility, but as he is at present representing Her Majesty's Government on a mission abroad, he has asked me to introduce it for him. I do so with pleasure, as I have for some years advocated the implementation of the substance of the recommendations in this regard of the Molony Committee on Consumer Protection.

I must confess that I am a little daunted by the large array of lawyers on the list of speakers to-day. I feel rather as if I were in a den almost entirely occupied by legal lions, and the only exception, the noble Baroness, Lady Phillips, is identified with the protection of the consumer. As one who is likely to be consumed in this particular debate, all I can say is that I rely upon her mercy, and I hope that the legal luminaries will also temper justice with mercy if they find that my speech deserves it.

One of the tasks that one has to perform in a debate of this kind is to try to make a Bill comprehensible to both legal and lay Members. I think, however, that the phraseology is sufficiently well known to your Lordships for me not to have to define my terms as I go along. The Bill is concerned mainly with two things; first, with those provisions of the Sale of Goods Act 1893 which set out the rights of buyers of goods; and second, and more important, with preventing the circumvention of those rights that the Act at present allows. The Sale of Goods Act provides in Sections 12 to 15 that certain terms shall be taken as implied in all contracts for the sale of goods. These terms are either "conditions", breach of which entitles the injured party to treat the contract as rescinded, or "warranties", breach of which entitles the injured party to claim damages for any loss that he has incurred. The terms cover four aspects. As to title, there is an implied condition that the seller has a right to sell and implied warranties that the goods are free from any undeclared encumbrance and that the buyer will have quiet possession. In sales by sample, there are implied conditions that the bulk shall correspond with the sample in quality; that the buyer shall have a reasonable opportunity of comparing bulk with sample; and that the goods shall be free from any defect not apparent from the sample. On a sale by description there are implied conditions that the goods correspond with the description and are generally of merchantable quality. And finally, if the buyer makes known a particular purpose for which the goods are required, there is generally an implied condition that the goods supplied will be reasonably fit for that purpose.

These rights, my Lords, are plainly very valuable to buyers. For many years, however, there has been concern that they have too often been whittled away or denied almost entirely by the operation in contracts of sale of exclusion clauses permitted under Section 55 of the 1893 Act. At one time (although I believe this is much less prevalent than it was) it became almost impossible to buy a new car without signing away these rights in the process. Many people buying electrical appliances have signed and returned the so-called "manufacturer's guarantee" and later been led to believe that by so doing they have excluded or limited their rights under the Sale of Goods Act. The buyer's rights lie in his contract with the seller and cannot normally be excluded by the manufacturer's guarantee. However, there has been much confusion in this area in the past and the Bill will clear it up.

The matter was first considered by the Committee on Consumer Protection under the Chairmanship of Sir Joseph Molony, Q.C. Although they were satisfied that the Sale of Goods Act provided a satisfactory framework of protection for the consumer, they drew attention to the favourable position which traders enjoy by virtue of Section 55 of the 1893 Act. It was noted that except where, through oversight or design, traders omitted to exclude their liability under Sections 12 to 15 of the Act, they were, under no obligation to sell goods which conform to any particular standard of quality or performance. The Committee commented: We feel compelled to view the practice as a general threat to consumer interests, in the sense that heavy and irrevocable loss may fall on the consumer who is unlucky enough to get a defective article. In their Report, published in 1963, the Committee recommended not only improvements from the consumer point of view in certain of the conditions implied in a sale of goods, to which I shall come in a minute, but also that in general it should not he possible for the implied terms to which I have referred to be excluded in a consumer sale.

The Committee's recommendations clearly had implications beyond the field of consumer policy. The Sale of Goods Act of course covers all contracts relating to the sale of goods, not merely those concerned with consumer sales; but the Committee's terms of reference were not wide enough to embrace these. The whole subject was therefore referred in 1966 to the Law Commission and the Scottish Law Commission for study, together with the questions of exclusion of liability for negligence and the use of exclusion clauses in contracts for the sale of services. The Commissions' studies on the last two of these are continuing; but they published their First Report on Exemption Clauses in Contracts in September, 1969. In it they reviewed the rights afforded to buyers by Sections 12 to 15 of the Sale of Goods Act and considered whether, and in what circumstances, it should be possible to exclude them. They recommended draft clauses to amend the relevant sections of the Act; these draft clauses form the basis of the present Bill.

On the main issue, the Law Commissions unanimously endorsed the view of the Molony Committee that sellers to private purchasers should not be allowed to exclude or limit the protective provisions of the Act. These they regarded as a basic code of fair dealing which should be seen unequivocally to apply to all consumer sales. The Commissions also agreed that the ban on exclusion clauses should extend beyond sales to private purchasers. They considered that the implied conditions and warranties relating to title should not be excluded in business sales. They were, however, equally divided as to the manner in which any further extension of protection of business purchasers should be achieved and how far it should go.

Their Report therefore put forward alternative recommendations. The first proposed that the bar on exemption clauses should cover the sale of consumer goods to business purchasers except where the buyer could be said to be in the business of dealing in, or with, the goods. This was intended to protect, say, a professional man buying a car for use in connection with his practice when he is usually in no stronger bargaining position than an ordinary consumer. It would, however, have left other business dealings to be settled by the buyer and seller on whatever basis suited them. The second alternative proposed the protection of all business buyers (including retailers upon whom their suppliers might have imposed exemption clauses) by enabling the courts to strike out any exclusion or limitation of liability if in all the circumstances to rely on it would be unfair. For reasons which I shall explain, it is this second alternative which has been adopted in the Bill—to which, after that brief outline of the history, I now turn. Before doing so, however, I should like once again to express our indebtedness to Sir Joseph Molony and his Committee, and also to the Law Commissions.

In line with the recommendations of the Law Commissions, the primary aims of the Bill are: first, to restate and bring up to date the conditions and warranties implied by the 1893 Act; second, to make void exclusion clauses in consumer sales; third, in business sales to make void exclusion of the implied conditions and warranties relating to title; and fourth, to regulate the exclusion in business sales of the other conditions and warranties implied in the Act. The Law Commissions' comprehensive examination of these matters, as set out in their First Report, related only to the appropriate sections of the Sale of Goods Act. We have thought it right to go beyond this and extend the scope of the Bill to sales involving hire purchase, to conditional sales, and to the exchange of trading stamps for goods. We believe that the same rights should be accorded to a buyer, whether he buys for cash or on credit and, in the case of a consumer, whether he acquires goods by purchase or by the exchange of trading stamps. Those pants of the Bill which deal with hire-purchase and trading stamps bring these forms of trading as far as possible into line with the sale of goods.

Against this general background it might be helpful to mention some particular points on the detailed provisions of the Bill. The first three clauses repeal and re-enact Sections 12 to 14 of the Sale of Goods Act. Clause 1 of the Bill makes no substantial changes to Section 12 of the Act, which deals with implied conditions and warranties as to title. The intention is that these rights should not be excludable in any sale, but it is necessary to provide for sales of limited title; for example, cases where the seller is unsure of his title, as he might be if he received the goods as a gift and received no warranty as to title. This provision is made in Clause 1(2). Section 13 of the Sale of Goods Act provides mainly that in a sale by description there is an implied condition that the goods shall correspond with the description. This is not altered, but Clause 2 adds a subsection to take account of the recent developments of self service where a buyer chooses goods for himself without actually speaking to the seller. The mere fact that no words are spoken is not to prevent the sale from being a sale by description. It is sufficient if the description is on or alongside the goods.

Clause 3 of the Bill restates the implied conditions and warranties concerned with merchantable quality and fitness for purpose at present set out in Section 14 of the Act. It provides, as both the Molony Committee and the Law Commissions recommend, that in any contract of sale where the seller sells in the course of business there shall be an implied condition that the goods supplied shall be of merchantable quality. This will no longer depend on the sale being "by description" and on the seller being a dealer in goods of the kind involved in the sale. The exceptions will be those dictated by common sense, such as defects specifically drawn to the buyer's attention before a sale, or defects which a buyer who examined the goods before buying ought to have seen. Further, under the existing provisions the condition as to merchantable quality is not implied in any sale by a private person, whether through an agent or otherwise. The Commissions found this unsatisfactory. They believed that a buyer purchasing goods otherwise than direct from the owner would frequently be unaware of the status of the owner. So Clause 3 now provides as the Commissions recommended that the condition shall be implied in sales by agents, except in cases where it is made clear that the sale is on behalf of a private person. The concept of "merchantable quality" is given, for the first time I believe, a statutory definition in Clause 7 of the Bill.

I now come to the nub of the Bill, which is Clause 4. What Clause 4 does is to leave Section 55 of the Sale of Goods Act as it is, but then to add substantially to it in such a way as to limit very severely the present freedom to exclude by contract the implied conditions. Thus the new subsection (3) provides that no exclusion in any sales of the implied terms as to title, freedom from encumbrance and quiet possession is to be allowed. Subsection (4) relates to consumer sales. It gives effect to the joint unanimous view of the Molony Committee and the Law Commissions that in consumer sales the clause excluding other implied conditions and warranties in the Sale of Goods Act should be void.

The definition of a "consumer sale" in subsection (8) is important. "Consumer sale" means any sale of goods by a seller in the course of business where the goods are of a type ordinarily bought for private use or consumption and are sold to a person who does not buy or hold himself out as buying them in the course of business. But sales by auction and by competitive tender are excluded. The Law Commissions were divided on whether sales by auction should be subject to any general ban on exclusion clauses. Auction sales have special features which justify different treatment from normal consumer sales. Like sales of goods by competitive tender, they are generally of a more speculative nature than ordinary sales and are recognised as a legitimate means of selling goods whose quality cannot be guaranteed. We have therefore thought it right to exclude both of them from the definition of "consumer sale".

There remains the question of what should be done about exclusion in business sales of implied terms other than those relating to title. This was of course outside the Molony Committee's terms of reference, and the Law Commissions, although agreed that there was a need to protect certain purchasers of goods buying otherwise than for private use and consumption, were equally divided as to how this should be done. Some considered that it would be sufficient to define "consumer sale" widely enough to include sales to those business buyers who seldom buy the goods in question and therefore may be no better able to judge quality than a private consumer. An example of this might arise in a sale of farm machinery to a small farmer. This solution would still allow exclusion clauses in the great majority of business contracts. The trouble is that, with exclusion clauses barred in consumer sales, the proposal could have the effect of leaving retailers to bear an intolerably heavy burden. They would be unable to exclude their liability to their own customers in the terms implied in Sections 12 to 15 of the Sale of Goods Act and they would also be unable to pass that liability back to the wholesaler or manufacturer if their contracts with their suppliers contained an exclusion clause. After wide consultation, we have concluded that this burden should not fall wholly on them.

Since the Commissions reported, we have been considering other ways of dealing with this problem and have consulted further with the various commercial and consumer interests concerned. We have come to the conclusion that the best course would be to adopt the proposal of the other half of the Law Commissioners that exclusion clauses in business sales should be allowed but should be subject to a test of reasonableness. Despite their difference of view on this issue, the Law Commissions were unanimous in their view that if there were to be any general control on business sales it should take the form of a reasonableness test. The Bill therefore provides that any clause excluding the implied terms of Sections 13 to 15 in non-consumer sales shall not be enforceable if the buyer can show that it would not be fair and reasonable to allow reliance on the exclusion. Such a provision seems to strike the most equitable balance between preventing the imposition of onerous conditions by strong sellers on weak buyers in business sales while preserving the freedom of the strong to deal with each other on whatever terms they choose.

The Law Commissions agreed that if exclusion clauses in business sales were to be subject to a test of reasonableness, the degree of uncertainty in such a test could be reduced if the courts were to apply certain guiding principles; and they set out a number of such principles—seven, I think—in their Report to which they envisaged the courts would have regard in considering individual cases. While we agree entirely with the Commissions that guide-lines should be provided, we believe it would be better for guide-lines to be set out in the Bill itself. This is done in subsection (6). In our view, those seeking to determine their rights and responsibilities should so far as possible be able to do this by reference to the Bill itself. Clause 4(2) of the Bill adds a subsection (6) to Section 55 of the 1893 Act setting out guidelines which we believe take account of those factors which the Law Commissions considered should guide the courts in such cases. No doubt this is something noble Lords will wish to examine in Committee. Clause 5 implements those recommendations of the Law Commissions concerned with the conflict of laws. Subsection (1) of the clause is intended to prevent attempts to get round the provisions of the Sale of Goods Act by making contracts which would normally be subject to United Kingdom law subject to the law of some other country. Subsection (2) stops up another escape route which might be offered by the Uniform Laws on International Sales Act 1967. So far as genuine international sales are concerned, the Law Commissions accepted that it would be undesirable to extend the proposed control to such sales, since to do so could place United Kingdom exporters at a disadvantage compared with their foreign competitors. Clause 6 of the Bill therefore allows exclusion clauses to be used freely in international sales.

Clauses 8 to 15 of the Bill re-enact provisions relating to implied terms in hire-purchase and conditional sale agreements. At present, hirers under hire-purchase agreements and buyers under conditional sale agreements enjoy the protection provided by the Hire-Purchase Act 1965. So far as implied conditions and warranties are concerned, in contrast to the provisions of the 1893 Sale of Goods Act, the parties cannot contract out of them. This means that hire-purchasers and conditional sale buyers are at present better protected than persons who buy for cash. They also get more protection than persons who buy on credit by means of credit sale. But generally this protection is less than would be provided to cash purchasers under this Bill. It seems to us that the only sensible thing to do is to give exactly the same protection so far as exclusion is concerned, no matter whether purchase is being made for cash, credit, conditional sale or hire-purchase.

Another anomaly at present is that hire-purchasers who are bodies corporate or hire-purchasers buying an article costing more than £2,000 do not get the protection against exclusion given by the present hire-purchase legislation. Here, too, it seems to us that the same principle should apply: that, so far as implied conditions and warranties are concerned, the same protections should exist in cash sale, credit sale, conditional sale or hire-purchase. Thus, the Bill also corrects this anomaly by giving the same protection to such hire-purchasers as is given to cash purchasers. Similarly it is intended to align so far as possible the warranties to be implied on redemption of trading stamps for goods. The Trading Stamps Act 1964 already implies certain warranties as to title and merchantable quality. But these can be excluded. Clause 16 of the Bill now brings those warranties into line with similar terms to be implied in the sale of goods and bars any attempt to exclude them.

My Lords, complicated as all this may seem, in essence what the Bill proposes to do is very simple: to protect the weak while allowing those who do not need protection to deal with each other on whatever terms they choose. It is common ground that additional protection for the consumer in respect of implied conditions and warranties has long been needed. But we do feel that we ought not to leave the small retailer and the small businessman without any protection, and that some regulation of the use of exclusion clauses in business sales is essential. There are some matters in this Bill which may well give rise to discussion in Committee, especially as the Law Commissions themselves were not fully agreed upon their recommendations about them. But, from the point of view of the consumer particularly, I believe that this Bill will be greatly welcomed as a notable step forward in the legal protection afforded to the consumer. I commend the Bill to your Lordships and I beg to move.

Moved, That the Bill be now read 2^a.—(Lord Drumalbyn.)

4.59 p.m.

BARONESS PHILLIPS

My Lords, I should like to thank the noble Lord, Lord Drumalbyn, for introducing this Bill into the House and for his very clear explanation of a matter which could have been much more complicated. As the noble Lord has said, the Bill is the first for consumer protection, and I give him an unqualified commendation for being fortunate enough to introduce it into your Lordships' House. I hope that this Bill will be the forerunner of many. I feel that perhaps I should take back my harsh words when I said that the lines in the gracious Speech which related to consumer protection would not be carried out; I am very happy to eat my words.

In the realm of consumer protection, one of the most important Acts on the Statute Book has always been the Sale of Goods Act 1893. In my role as adviser to the consumer this has been literally a bible, and since we still work under the philosophy of caveat emptor we have constantly had to refer back to this Act. As your Lordships know, it makes the shopkeeper liable for the quality of the goods he sells but hitherto has allowed a contracting-out agreement. At present, as we all know, a customer often signs a manufacturer's guarantee which removes his—the customer's—rights under the Sale of Goods Act and may actually offer him less protection than he would have had if he had not signed. As the noble Lord, Lord Drumalbyn, has said, the Molony Committee recommended a change in this; and, of course, consumer organisations and women's organisations have for many years been urging an amendment along these lines. So we were very happy when, in 1966, the Law Commissioners started to study this and recommended in their Final Report that manufacturers' guarantees which did not give proper protection should be banned.

Here I would echo the tribute paid by the noble Lord to the work of the Law Commissioners: I hope that they will be used far more in the future, particularly for drafting Bills of this kind. So far as I can see, this Bill reproduces largely the draft clauses in the Law Commission's Report and is basically a lawyers' Bill. I think this is highlighted by the star-studded list of legal minds who are going to participate in this debate. Like the noble Lord, I felt that perhaps I should not be speaking at all. I would only say that I have studied this subject for many years and on behalf of the consumers I welcome the Bill.

I am glad to know that the discussion on the question of services in relation to the exclusion clauses is continuing because it seems to me that this is an area in which the shopper spends a great deal of money; in travel, laundries, removals—a whole host of services. Here we do not want unreasonably to limit the trader's liability to other parties in the contract. Although the Bill goes a long way to get rid of guarantees which restrict buyers' ordinary rights, I think there are some other restrictive clauses that we shall have to think about. I could not quite decide whether the conditions applicable to the retention of deposits were covered.

Then there is the date of delivery; and disclaimers about the responsibility of agents. I was particularly interested in the explanation given by the noble Lord on the clause in connection with business suppliers, because literally within the last few days I have been given a classic case of a small garage owned by probably one of the last garage proprietors giving this kind of service. This is the history of a gearbox which was fitted in a car and which literally fell apart within two months of supply. This small garage has been trying to get either the supplier or the agent to accept responsiblity for this, but in the final resort the small garage proprietor appears to be left with the question of having not only to replace the gearbox but to fit a new one completely free of charge; and through the whole jungle of guarantees and warranties he is unable to find out whose is the responsibility. I would add that the car is under the original twelve months' guarantee. So I am hoping very much that this clause will in some way enable a case of this kind to find a final answer.

I understand that the Working Party of the Law Commission considered the special difficulties in striking out exclusion clauses in service industry contracts. I recognise that there are special difficulties, but I hope that their deliberations will finally bring something to your Lordships' House in the form of further legislation. In general, this Bill appears to be a very fair rendition of the work of the Law Commissioners and it shows progress in consumer protection. It is of course subject to the same defect as all consumer legislation in that the individual consumer must finally use the law. I am one of those who hold the view that some agency should be empowered to take up and process individual complaints; that a country-wide pre-shopping and post-shopping advice service must be provided, and that the question of setting up a small claims court must be much more closely investigated. These are general criticisms of consumer advice provision which are by no means met by the appointment of a new Minister for Consumer Affairs, although naturally that is very welcome. Nor indeed is it met by amending existing legislation, excellent as this is. Nevertheless I give this Bill a hearty welcome and I wish it a fair passage through your Lordships' House.

Before I conclude, may I apologise if I do not remain throughout the whole of the discussion. I think this is probably the first time I have had to say this in all the years I have been in your Lordships' House, but I have an opportunity to go to the Tate Gallery, and even my work on behalf of the consumers must, on this occasion, take second place. My Lords, I wish the Bill well.

5.6 p.m.

LORD AIREDALE

My Lords, I too wish the Bill well. If we are searching for the reasons why we now find ourselves frowning upon exemption clauses in contracts of sale we have to realise that, first of all, the law of contract as it applies to the sale of goods grew up at a time when in all cases there was some sort of equality of bargaining power between the buyer and the seller; and secondly, that that happy state of affairs has fairly recently been largely overtaken by events. Within the last 100 years if you wanted to buy, for instance, a carriage, there were coachbuilders in every town and in some of the larger villages, and if your coach-builder sought to impose upon you conditions of sale which you thought were unfair you had no difficulty in finding another coachbuilder. Of course, this was well known, so no coachbuilder would put himself in the foolish position of attempting to impose unfair terms upon his customers. If we take an industry like boat building to-day, I suppose much the same situation obtains. There are no doubt some giants in this industry, but I believe there are many small boatbuilders in the country to-day, and I do not believe that anybody seek- ing to buy a small boat would have any difficulty in finding a boatbuildcr to do business with him without in any way seeking to impose unfair terms upon him.

I do not think that the case against exemption clauses can be better stated than it was in the Report of the Molony Committee, to which the Minister paid tribute in his speech. That Report says at paragraph 435: The overriding argument in favour of prohibiting ' contracting-out ' is that is enables well-organised commerce consistently to impose unfair terms on the consumer and to deny him what the law means him to have. This benefit is obtained without the consumer knowing how he is being treated. If a particular consumer is alive to the position he will find it difficult, and sometimes impossible, to avoid submitting to the terms of business universally adopted. Because the percipient customer is in a small minority the trades concerned can afford to refuse to modify their usual terms at his behest. He possesses no bargaining power of sufficient weight to compel. This is the essence of the case for intervention in support of the consuming public. We endorse the soundness of the case and accept the need to ban contracting-out'. In his speech the Minister referred, as did the noble Baroness, Lady Phillips, to bogus guarantees, and I wondered whether in this connection we might not avail ourselves of the recent precedent of the health warnings which are printed on cigarette packets, and require that every guarantee which takes away legal rights might be required to print in bold type at the very top words such as: "This guarantee limits your legal rights". However, I do not suppose we can do that in this Bill.

The Bill is, of course, riddled with technicalities and I find it difficult to make a Second Reading speech without descending into what are a series of Committee points. I wish to raise what one might call a borderline case in the context of being a Committee matter, so I will mention it briefly. There is an attempt in Clause 2 to deal with self-service buying and selling. The Minister, when commenting on this, referred to the element of "no words being spoken" as being one of the elements of a self-service sale. In Clause 2 there is no reference to this element. A self-service sale is defined in Clause 2 as happening when goods being exposed for sale … are selected by the buyer. There are two elements there. Being exposed for sale is one, but I do not think it helps us very much because in every shop, whether or not it is self-service, goods are exposed for sale. As for the second element, being selected by the buyer, here again we are not helped greatly. Suppose one goes into an ordinary non-self-service, old-fashioned green-grocery shop and says, "I would like a melon, please". The shopkeeper says, "Which one would you like?" and one replies, "I would like that large yellow one on the top of the pile"—that surely satisfies the description "selected by the buyer."

If we mean self-service—and in this clause we do—why do not we say "self-service", which seems a perfectly respectable, sensible and well recognised expression? I of course agree that the Statutes should be hesitant to pick up new expressions whenever they arise. Some new expressions are here to-day and gone tomorrow, like the top twenty tunes. I imagine, however, that "self-service" is an expression which has come to stay. As the Statutes pride themselves on calling a spade a spade, could not we in this Bill call self-service "self-service?" I appreciate that even this is perhaps a Committee point. I shall not, therefore, descend further into making a string of Committee points. With a few minor Amendments, which I hope we shall be able to introduce in Committee, I warmly support the Bill.

5.13 p.m.

LORD GARDINER

My Lords, I greatly welcome this Bill. It is really an example of the law having to be altered because of changing economic conditions. As the noble Lord, Lord Airedale, indicated, our law used to say, "We must uphold freedom of contract. It is a free country. Nobody who does not want to do so is obliged to enter into a contract or agree to any terms other than those to which he chooses to agree." No doubt at one time that was so and if one took a lease on a house, the landlord having proposed a draft lease, one's solicitor went through it, perhaps made a few suggested amendments in red ink, sent it back, the landlord then sought to compromise in green ink and the lessee's solicitor said, "If you agree to this one further change, in yellow ink, we are ad idem." I think that the next colour to be used was purple. Nowadays, if one wants to take a house on a housing estate the owner of the estate says," I do not make any changes in my standard lease. This is my standard lease and I am sticking to it. If you want a house you must accept it. "It is no good saying to the Gas Board," I like your gas, but I do not like your standard terms of contract "because the Board will simply reply, "Sorry, chum, these are the only terms on which our gas is supplied."

Then there were the so-called guarantees imposed by the big man on the small man, the main object of which was simply to include the little clause at the end which said, This warranty is given in substitution for any warranty whether by Statute or otherwise ", and which simply took away the legal rights which the consumer would otherwise have had. While all this is an old problem, the right solution was never certain with, for example, proposals that there should be a public board which should go through any monopoly which had stiff terms of contract, as had been done with the railways.

We are grateful to both Law Commissions for this Report. It is one which I think must take the price for the degree of consultation. We are of course used to the Law Commission being much more fully consultative of all the interests involved than are either the Lord Chancellor's Law Reform Committee or the Home Secretary's Criminal Law Revision Committee. Here they really seem to have excelled themselves because they started off by appointing a Working Party which I see included five Commissioners from both England and Scotland, four representatives of the Board of Trade, one from the Scottish Office, one from the Treasury Procurement Policy Committee, two from the Bar Council, one from the Faculty of Advocates, two from the Law Society, one from the Association of British Chambers of Commerce, The Law Society of Scotland, the C.B.I., and three from the Consumer Council.

They sat and received evidence from all sorts of interested bodies, and it was only when all that evidence had been received and considered that the Law Commissioners got out their usual working paper, again with their provisional proposals, and these were circulated to the innumerable bodies and individuals specified in Appendix C. We are therefore grateful to them for all that. There is only one point I wish to raise in this context. As the noble Lord, Lord Drumalbyn, so lucidly explained to us, among the central proposals it is said that if there are these objectionable exclusion clauses in consumer sales—the ordinary person buying something for his own use—they should be declared void, but in the case of non-consumer sales, concerning traders, one of whom may be very big and the other very small, while they should not be void a judge should be able to say, "In all the circumstances of this case it would not be reasonable or fair that the big man should be able to rely on this term."

The point I wish to raise is about the criteria or, as the noble Lord, Lord Drumalbyn, called them, the guidelines. The Report is quite clear about this in paragraph 113, where it points out: … the courts would have regard in applying the test to any of the following elements of or surrounding the transaction, in so far as they are relevant in the instant case:

1. (a) the bargaining position of the buyer, relative to the seller and to other sources of supply at the time of the contract;
2. (b) whether the provision excluding or limiting liability is clear in its wording and scope of operation;
3. (c) whether the steps taken to bring the provision to the attention of the buyer were reasonable in all the circumstances, including any customs of the trade and any previous course of dealing;
4. (d) whether the buyer was offered and accepted a material benefit in consideration of agreeing to the provision;
5. (e) where the provision excludes or restricts liability unless certain conditions are complied with (for example, claiming within a prescribed time), whether it was, in the events that have occurred, reasonably practicable to comply with those conditions;
6. (f) whether the goods are manufactured, processed or adapted to the special order of the buyer;
7. (g) the ultimate incidence of risk and liability arising by reason of defects in the goods.

Your Lordships may think that those are seven very sensible criteria for the judges to take into account. I was at first rather puzzled by the fact that although there are draft clauses attached to the Report, these criteria were not set out in the draft clause. Then I discovered from a footnote to that paragraph that the reason appears to be that there is a draft clause attached to the Report in Clause 8(4), which states: In ascertaining the meaning of any enactment as amended by this Act regard may be had to a report of the Law Commission and the Scottish Law Commission recommending that that enactment be amended. In effect, the judges will be able to read the Report where they will see these things set out. This subsection the Government have not accepted and I think I understand why. I am afraid that I have said several times in this House that it is absolutely ridiculous that when an Act of Parliament is passed arising out of the Report of a Royal Commission, the Law Commission, or a departmental committee, the judges, when construing the Act, cannot look at it. That they cannot examine and see what the Report says is the mischief to be cured, or what the proposals are based on, or why they chose this form of words rather than that form of words, has always seemed to me to be an absolute nonsense. Of course the judges, or certainly some of them, do read the Reports in their private rooms; indeed, I have seen them sometimes having them on the bench in front of them, but they are not allowed to admit it. As I say, I think that is nonsense.

Some of your Lordships may remember that in a recent Bill in the lifetime of the last Government, the noble and learned Lord, Lord Wilberforce, moved a clause to this effect, that "judges in construing this Act can look at the Report on which it was based." Your Lordships accepted that, but in the other place this ran into great trouble and it was said to be a monstrous interference with the supremacy of Parliament—or something of that sort—and in view of the opinions expressed I can well understand the Government not putting that draft clause into the Bill.

If they are not going to do that, and the judges cannot look at the Report, then I should have thought that these seven criteria should be in the Bill. What in fact has happened is not that the Bill leaves the matter entirely to the judges without any guidelines at all, but for some reason which I have not followed—and it may be my mistake which no doubt the noble and learned Lord the Lord Chancellor will explain when he comes to reply—what they seem to have done is to have picked out two of the seven criteria mentioned in the Report, reworded them (though not I think advantageously) and then ignored the others. I quite agree that as drafted in the Bill the only two things they refer to here in Clause 4(6) are: (a) whether the buyer knew or ought reasonably to have known of the extent of the term; and— (b) whether in buying goods of the description in question the buyer was able to choose whether to buy the goods (from the seller or any other person) under a contract without that term or with a term less unfavourable to himself. But they do not prevent a judge from taking something else into account because the opening words of the subsection are: In determining for the purposes of subsection (5) above whether or not reliance on any such term would be fair or reasonable regard shall be had to all the circumstances of the case and in particular to the following matters— then these two are mentioned.

It may well be said that it only says "in particular to the following matters" and that will not prevent a judge from looking at something else. But I am apprehensive that if judges are told "these are really the two things to which you ought to pay attention" then they will think that if they have paid attention to those two things they will have done their job. Some of the other five criteria I should have thought were so obviously desirable as matters to be taken into account. One to which I have referred is that if there is, for example, a time provision and you have to put in a claim within a certain period, if the big man is to rely on this condition is it not proper for a judge to say that it would not be fair or reasonable because the small man was in hospital having had an accident and he could not fill up the form in time. What is the objection, therefore, to putting the seven criteria, as they appear in the Joint Report, into the Bill? I should have thought that was what was really required. I personally would sooner have no criteria at all than have the two emasculated ones which at present appear in the Bill.

That is the only point I wish to raise. I very much welcome the Bill. I hope that we give it a Second Reading, and that it will soon become part of our law.

5.25 p.m.

LORD DENNING

My Lords, this has been said to be a lawyer's Bill. Maybe it is. But it affects, I should have thought, more than half of the contracts that all the people in this country make every day throughout the year: contracts of sale; contracts of conditional sale; and contracts of hire purchase. It has been my lot at the Bar and on the Bench to have to consider the operation of these exemption clauses, of the small print and of how we can get out of them. This Bill, to my mind, effects a most important revolutionary reform in the law of contract.

In 1893 there was a codifying Statute, the Sale of Goods Act 1893, which simply built on all the hundreds of precedents over hundreds of years and put them in the form of a code. It did not attempt to reform the law. The old Roman law said caveat emptor—the buyer takes his chance. The common lawyers and the Act in 1893 qualified that and said, "If the seller sells and does not exclude his liability, he warrants; he agrees that the goods are reasonably fit for the purpose for which they are sold and are merchantable". There was the qualification permitted by the common law—the seller could exclude his liability. Cases have shown that, however unreasonable it was, however small the print and however unequal the bargaining power, the seller could exempt himself from liability. May I tell your Lorships—because it was a case in which I was concerned and it is a leading case now—that in 1934, when I was at the Bar, there was the case of L'Estrange v. Graucob. It is almost a high watermark of the law as it has been.

It was a case where a lady who kept a small shop in North Wales was approached by a salesman who sold to her an automatic cigarette machine. The cost was payable by instalments. He produced to her a long brown form, with the small print at the bottom, and asked her to "sign here": and she did. The machine was delivered. It would not work, and she told them so. They sent an attendant three times, but he could not make it work, so she said, "I am not paying any more of those instalments". The company took her to the county court. When she said that the machine did not work, they said, "Look at the form". If she had read the form she would have seen the words: Any condition or warranty express or implied by statute or by common law is hereby excluded. The county court judge tried to get around it, but found in favour of the company. I was at the Bar and appeared for the company in the Court of Appeal. In those days I was not concerned with whether it was right or wrong; I was concerned to win the case if I could. I said, "Well, she signed it. In the absence of fraud or misrepresentation she is bound". And the Court of Appeal said, "Yes, she is bound". So we won that case, most unrighteously. The lady had to pay for the machine which would not work. The reporters did not report the case at once; perhaps they did not like it. But my company were cleverer; they got the report privately printed, and I went round the county courts of England, as a junior member of the Bar, winning case after case, most unrighteously, for that company.

It was a little different when I got on to the Bench; I viewed things a little differently then. Leading up to that, I remember one occasion when we went to Northern Ireland with the car. Corning back we were given a sailing ticket which I was told to sign. I signed, and on looking at it I saw on the back in small print that the company would not be liable for any acts neglect or default or wilful misconduct by anyone whatsoever. They could have thrown the car into the sea and done what they liked. Then we had a case in the Court of Appeal. A man had bought a car on hire purchase and it was to be delivered to him the next morning. It was delivered very early in the morning without his knowing it and was left outside. When he tried to start it, it would not go. They had to tow it away. When they sued him for the instalments he said: "But it will not work; it will not go". They said: "Look at the clause; there is no implied condition or warranty as to roadworthiness or anything whatsoever".

At that time in the Court of Appeal we managed to raise a doctrine which is called fundamental breach; if the supplier was guilty of a breach which went to the root of the contract he could not rely on these exempting terms. We managed quite well for fifteen or twenty years; the Court applied the doctrine that the man could not rely on exemption clauses if guilty of a fundamental breach. But I regret to say that we were later told by your Lordships' House sitting judicially that we were all wrong and that there was no such doctrine in our English law; there was no such doctrine as this fundamental breach; you had to look at the clause to see what it meant. We did our best with that. Time after time we have construed these exemption clauses, as we think strictly, saying that a man is not to get out of his liability unless he expresses it in plain words. We could not always do that. If a man said that he would not be liable for any loss or damage we could deal with it; we could say that it did not exclude his own negligence. But if he put the words, "any loss or damage howsoever caused", we could not get round that. So, making one effort after another, we in the courts have tried to mitigate the evil of these exemption clauses.

Equally with guarantees. Your Lordships will know what these people used to do. If you bought a machine or a motorcar from a dealer, there would be a great red seal with a guarantee, and if you read it you found it said, "We will replace any part found to be defective within 12 months, but otherwise we exclude any condition or warranty expressed or implied by contract or by statute or common law or any wise howsoever". In other words, they sheared it down to practically nothing by calling it a guarantee. We have done what we can to remedy that in the courts, but we have not succeeded.

This Bill applies to sale of goods, hire purchase and the like. It does what the courts could not do but what your Lordships' House can do. It says in regard to consumer sales—that is, sales to the little man who is not protected, who buys or takes on hire purchase, perhaps, a motor bike or something else—that where the supplier puts in such exemption clauses those exemption clauses are void. There is no doubt about it. So the consumer is and will be protected in consumer sales. But then there is the other big branch of what might be called business sales, not consumer sales; for instance, that little case I told you about of the lady in North Wales. She was a shopkeeper. That would not be a consumer sale, as I read the definition, but a business sale as between business people, business houses. Often one is in a stronger position than the other. We have seen what some businesses do. You receive a letter with the conditions set out on the back—a whole lot of printed conditions that no-one ever reads—or on a ticket incorporating this, that or the other. In regard to these business sales this Statute—this Bill, as it is now—makes a most important reform which we have never recognised hitherto. The judges, the courts, can consider whether the conditions are reasonable or not, or, rather whether it is reasonable for the seller to be allowed to rely upon them. If it is unreasonable, the courts can disentitle the seller, or whoever it may be, from reliance on that clause.

This principle of reasonableness has never been accepted hitherto. There are vast bodies of opinion which say that it goes against certainty; that you ought to allow people to be certain, to read the words and know what they say. But it now gives the judges the power to shut out the plaintiff if he is unreasonable, and it is, as I suggest, one of the most important reforms in the law. I entirely agree with my noble and learned friend Lord Gardiner that the Law Commission have set out the most valuable seven criteria for the courts to adopt in saying whether something is reasonable or not. Whether it is a big man—the great commercial concerns with their commercial contracts and the like—or a small man they can take everything into account to see whether it is reasonable. All guidance that can be given to the courts in that way, I am sure, everyone would welcome.

I would acid this. This does not apply to services, only to sale of goods, hire-purchase and the like. I hope that the time will not be far distant when it can apply to services, like the carriage of goods, where you find all the printed clauses at the back, or to the laundry to be washed, or the like. If, as the next step, the courts can be allowed to consider the reasonableness of those clauses—whether it is reasonable to apply them—that, I venture to think, will be the next important step in the whole of our civil law and the law of contract. But, speaking for myself, I repeat that, in my judgment this is the most important reform in our commercial law which has been seen in my time.

5.38 p.m.

LORD LLOYD OF HAMPSTEAD

My Lords, this is a law reform Bill in an unspectacular area, and a relatively non-controversial one; but, as the noble and learned Lord, Lord Denning, has pointed out, it is none the less one of very great importance. It illustrates in a striking way the tremendous contribution that can be made and is being made to the reform of our law by the two Law Commissions. Indeed, one feels constrained on this occasion, when happily the noble and learned Lord, Lord Gardiner, felt able to make a contribution to this debate, to say once again, as has been said often in this House, how great a debt we owe to him personally as the creator of this invaluable institution. It may be said, possibly, in some criticism of the Bill, that it is a rather unhappy example of the piecemeal way in which our legislation is reformed; and of course what one would like to see ultimately is some kind of consumer law code. On the other hand, I think we shall all agree that Parliamentary time is a very scarce commodity, and that we should seize every opportunity we can to drive forward with these specific proposals that the Law Commissions put before us.

Your Lordships have heard contributions from a number of very eminent lawyers in this House, and towards the I end of this debate there is little that remains for me to say. But I should like to refer to the exclusion clause aspect of this Bill. The noble and learned Lord, Lord Denning, has described to us in his characteristically graphic fashion the struggles that the courts themselves have made to make some sense of our law, based on the principle of caveat emptor—let the buyer beware! Indeed, one may, with respect, pay a tribute to the noble and learned Lord, Lord Denning, himself as being one of the judges who has striven most strenuously to do the maximum degree of justice in this class of case. But, as even he admits, at the end of the day, the Judiciary have rather been defeated by the fundamental in-built principle, so incompatible with the present social and economic situation, of freedom of contract—this idea of notional equality of bargaining. Therefore, when even the skill and erudition of such a judge as the noble and learned Lord, Lord Denning, is defeated in this respect, one must recognise that legislation is the only way in which something can be done about it.

The procedure adopted by the Law Commission in this matter, so well brought out in the speech of my noble and learned friend Lord Gardiner, of putting out a working paper first, having the fullest possible consultation and then producing a fully reasoned Final Report, obviously points to the most satisfactory way of producing adequate reform in a field such as this. Speaking for myself—and this view seems to be shared by others who have spoken—I feel that the Government have shown wisdom in choosing the opinion of those Commissioners who suggested that there should be some measure of control in regard to non-consumer sales. It is interesting to note that the Commissions were almost equally divided on this matter: in fact the situation was that it was virtually the English Commission against the Scottish Commission, with the exception of one English Commissioner who took the side of the Scottish Commission. I am not revealing any secrets in saying this, because of course it appears in a footnote in the Report itself. Though so frequently, when one is concerned with law reform, speaking as a mere English lawyer, one is forced to the conclusion that the Scottish law has on the whole taken the more rational course, on this occasion I am bound to say that I am glad that the Government have chosen the solution substantially put forward by the English Commission, and expressed an opinion which was shared by the distinguished Chairman of the English Commission himself, Sir Leslie Scarman.

It can be said—and this was one of the arguments adduced against this solution—that if the idea of reasonableness is introduced as a test this introduces a major clement of uncertainty in the law, and will impose great difficulty on the judges, and so forth. I think—and here again one can pray in aid the invaluable view of the noble and learned Lord, Lord Denning—that this point has been very much exaggerated. Our judges are extremely accustomed to dealing with the concept of reasonableness, and in fact Parliament has not infrequently expressly given them this power. For example, under the Rent Restrictions Acts, they have the task of deciding whether or not it is reasonable to make an order for possession.

I do not think it can seriously be suggested that in this sort of case there is so great a measure of uncertainty that one can say that the law is rendered unsatisfactory. I can see that there is an arguable case for saying that one ought to treat consumer sales and non-consumer sales in the same way, and thereby render the law more simple. On the other hand, this can lead to complications such as were pointed out very lucidly by the noble Lord who introduced the Bill, Lord Drumalbyn, when he pointed out some of the difficulties to which this might lead. On the whole, one would accept that a very sensible solution has been proposed to this difficult problem, and one is gratified to see that the Government have grasped this early opportunity of adopting it.

I would only wish to add, as a final word in welcoming this Bill, and recognising that there are compelling reasons why a piecemeal approach should be adopted, that I hope we may look forward to a number of further important instalments in the field of consumer law, particularly now that we have the benefit of a Minister in the Cabinet specifically charged with this function. I should like to take this opportunity of welcoming this development, and particularly the appointment to it of Sir Geoffrey Howe who, of course, has very considerable credentials in the field of law reform. His connection with Justice and such bodies over a long period sufficiently testifies to his law reforming spirit. One may indeed hope that we shall have a series of important measures of this kind. Perhaps the next one will arise out of the Final Report of the Law Commissions, to which we are very much looking forward, on the whole field of exemption clauses in relation to negligence, and (the point that was referred to by several previous speakers) exemption clauses in regard to service and other contracts. We have seen the working paper which the Law Commissions have produced—a very interesting and valuable document—and we can now look forward to their Final Report and, we hope, very early legislation. In welcoming this legislation, I should like again to reiterate the hope that it will be only the beginning of a spate of similar and equally significant legislation in this vital field.

5.49 p.m.

LORD JANNER

My Lords, this Bill deserves the very warm welcome which it has received this afternoon, and the Minister is to be congratulated on bringing it forward so early in this Session of Parliament. I would also congratulate him on the very succinct and effective way in which he introduced the Bill this afternoon. We were promised a Bill for last Session, and some of us had begun to wonder whether we were ever going to see it. But here it is at last, and when it comes into force millions of people in all parts of this country will be protected from getting faulty goods in a way which does not happen at present.

We have heard, and quite rightly, that ten years have elapsed since the Molony Committee made a full-blooded recommendation to ban exclusion clauses in contracts for the sale of goods. Ten years is a long time to have to wait for the implementation of a recommendation which hardly anyone has spoken against, and which all right thinking people support. It was only when the Law Commission reinforced the Molony Report's recommendation by their Report of July, 1969, that there were any signs of action in this matter. The Law Commission's Report is in my view—and, I think, that of everybody else—an excellent and painstaking document which demonstrates overwhelmingly what a sensible and skilled body it is. It makes one wonder how our legal system managed for centuries without a Law Commission. I should also like to offer my thanks and congratulations, on behalf of the community as a whole, to the noble and learned Lord, Lord Gardiner, for having been instrumental in setting this Commission on foot.

The evils of the exclusion clause are well known to those people who have anything to do with consumer affairs, but are unknown to the great mass of people who are affected by them. They come in all sorts of ways, and this Bill seeks to deal with them in only one area; namely, sales of goods. We shall have to wait longer—although I hope not for another ten years—to see a ban on exclusion clauses in other contracts. The introduction in this House of a Bill of this nature indicates that the House can serve a very useful purpose when the other place is so heavily overladen with work, where the excuse is so often made—as when leave was given only a year ago for a Bill to be introduced by Greville Janner—that time could not be found for its Second Reading.

I have in mind, in particular, matters such as car parks and holiday brochures, It is sad to find a public corporation—such as the London Transport Executive—indulging in this particular abuse. If one of your Lordships were to park your car at any one of a huge number of London Transport Underground stations—as one might well do out of a public-spirited intention to contribute towards the relief of traffic congestion in central London—you would find that a very distasteful exclusion clause would protect London Transport from almost any calamity which might befall you or your car while in that car park. May I quote the wording of the exclusion clause to which I have referred? It states: The motor vehicle whilst upon the premises of the Executive shall be at the entire risk of the owner, and the Executive accept no responsibility in respect of loss or mis-delivery of or damage to motor vehicles, the contents thereof, or accessories thereto, or in respect of any injury to the occupants howsoever or by whomsoever caused or whether occasioned by negligence or otherwise. The Executive do not undertake to supervise vehicles left in the car park. I regard that as a shocking notice for anyone to publish, and it is quite intolerable when it comes from a public body such as the London Transport Executive.

May I remind your Lordships that Parliament itself, even in very recent years, has blessed the principle of exclusion of responsibility? Section 29 of the Post Office Act 1969 almost entirely frees the Post Office from liability in whatever it does. Thus, if through gross negligence someone's name is left out of a telephone directory, or letters are mis-delivered, the Post Office is not responsible to the citizens for its negligence, even in a way that any respectable business organisation would be in similar circumstances. Owing to a statutory immunity which we have permitted to creep on to the Statute Book, the Post Office enjoys the benefit of what is, to all intents and purposes, an exclusion clause. The Bill at present does not apply to any of these services. It deals only, as we know, with exclusion clauses in contracts for the sale of goods. Nevertheless, it is a great advance and will have a good deal to contribute towards better consumer protection in this country.

The clauses of the Bill have been fully explained from both sides of the House. I would, however, refer to important features of some of them. The provision in Clause 2, that a sale of goods shall not be prevented from being a sale by description by reason only that the goods are selected by the buyer when they are exposed for sale and hire, is important. Thus, when a housewife visits a supermarket and selects those articles which she wants, she will not thereby be deprived of the protection given to those who buy goods "by description". Such a purchase will clearly be a "sale by description" after the Bill is passed. The new description of "merchantable quality" in Clause 7(2) is one of the important provisions, as it provides, in effect, that purchases should be free from faults; and Clause 3, which gives to customers the protection that their purchases should be fit for their intended purposes, is a very valuable one.

I regard subsection (4) of Clause 4 as by far the most important provision in this Bill. This introduces for the first time a complete ban on contracting out of the legal protection given to the buyer on a purchase of goods. In the case of a "consumer sale", as defined in Clause 4(8), it will be impossible for the seller of goods craftily to rob the consumer of the protection which the law intends him to have. This will mean that the miserable small print which has been referred to, inserted by some manufacturers and retailers, will no longer be effective. The worst offenders in this field have been the motor trade. This is hardly surprising when one considers that the motor trade also holds pride of place—if that is what one can call it—as the segment of trade whose members have most frequently been convicted of offences under the Trade Descriptions Act.

For many years, it was the invariable practice in that trade to require the buyer of a car to sign an order form which effectively took away his Sale of Goods Act rights and provided, as a substitute, the more feeble rights provided by the manufacturers so-called guarantee or warranty. In 1962, the Molony Report stated that at that time the practice of contracting out was "universal" in the motor trade. Things have improved since then. There are some manufacturers who do not insist on their agents and dealers using order forms which take away buyers' rights wholesale. Many garages, however, still do, especially those which belong to the Motor Agents' Association, which promulgates an order form designed to cut down the rights of a purchaser to the bare minimum. It reads thus: The seller undertakes that he will ensure that the pre-delivery work specified by the manufacturer or concessionaire is performed and that he will use his best endeavours to obtain for the purchaser from the manufacturer or concessionaire the benefit of any warranty or guarantee given by him to the seller or to the purchaser in respect of the goods and such undertakings are given and accepted instead of and expressly exclude any other guarantee or condition or warranty as to quality or fitness for any purpose. The position about guarantees, of course, is very confused. Obviously they have some value to the consumer, and most people regard them as being a valuable means of getting faults in purchases put right speedily. No doubt sometimes they are. The trouble is that most people think that the guarantee is the only source of protection. This is quite wrong. It is the buyer's contract of purchase which gives, or should give, the major protection from the legal point of view. The guarantee has tended to obscure that important fact. When this Bill becomes law, the buyer will have those rights against the seller in any event. No small print or device by sharp operators in commerce or industry will succeed in taking away those rights. It is therefore of great importance that these new inalienable rights of the consumer should become very widely known. Those of us who have been in either this House or the other place for a number of years realise that it is not only important to have Acts passed; we must also see to it that the general community know what they are all about. I hope that the new Minister for Trade and Consumer Affairs will regard it as part of his responsibility to publicise by every possible means this new protection when it comes into force, because it will not be of much use if people are not aware of its existence.

A massive programme of advertising and education will be needed to get it across to consumers everywhere that in future they are entitled to look to the shop which sold them a product for the correction of any faults. This will remain an important question because we may expect guarantees to soldier on, even when this Bill gives assured protection vis-à-vis the seller. Manufacturers find that issuing guarantees helps business, and so long as that remains the case we may expect to find them floating around. They help consumers, too, but only as a second string. If guarantees are still going to be around for many years to come, it will be particularly important to get over to people the idea of looking to the seller in future for putting right things that have gone wrong.

Apart from cars, people do not often have to sign an order form when they buy something new in a shop. Legally, therefore, it does not often happen that tinder the present system, a buyer's rights get extinguished because as a rule a guarantee from a manufacturer cannot achieve that. It is only a contract with the seller which can have any effect on the buyer's rights against the seller. All the same, one finds cases where guarantees purport to take away rights. Fox example, in the radio, television and hi-fi industry, guarantees have almost invariably put upon the consumer the obligation to pay for labour charges in connection with putting right faults under the guarantee.

For instance, even the Philips organisation, which is a very important organisation, say in their guarantee: The costs of labour, packing and carriage are not covered by the Guarantee. This, of course, is quite unjust. Why should one pay for the labour involved in putting right a fault in a new radio or record player which has just been bought? The labour charges are likely to be very much more than the cost of the faulty part, which is all that the guarantee will cover; and, of course, that is quite wrong. Legally, in spite of this clause in the Philips guarantee, the buyer, in my view, has the right to claim from the shop for the labour charges; but in practice this does not happen because of what the guarantee says. The public is bamboozled by the wording of the guarantee into thinking that it does not have redress, when in law it does. So that is another reason why it is essential that a big educating programme should be undertaken to inform the public about the true legal situation when they buy things in shops.

There are other occasions when a purchaser is requested to sign an order form. This can arise in respect of mail orders, and so on. A company called Gemini Engineering, for instance, produce what may be, for all I know, a very good shower unit for installation in people's homes; and they advertise widely in selling their shower units. This company use an exclusion clause which reads as follows: All the terms of this Agreement between the Company and the Purchaser are contained in this document and no statement, representation or description, whether made by the Company or its servants or agents on its behalf,"— it is amazing what some of these people say about these matters— whether written or oral, or contained in an advertising literature or other matter issued by or on behalf of the Company, shall form part of this Agreement, or have any effect thereon, or be deemed to be a representation, warranty or condition inducing or forming part thereof". There is one item I should like to see added to the Bill in Committee which in my view would clear up a somewhat doubtful point of law. It arises in this way. Often, when a member of the public has bought something in a shop and it goes wrong, he or she takes it back to the shop where it was bought and the shop, very properly, replaces it with another article of the same kind. The question is this: is that second article protected legally in the same way as the first? It may well not be. I do not know whether I am mistaken in this; but, of course, we have very eminent legal authorities here who may help. It is argued that it was not, after all, acquired by a sale of goods but by what is in reality an exchange of goods—the exchange of the faulty article for the replacement. As I read the Sale of Goods Act 1893, the legal protection for the buyer operates only where there has been a sale of goods, as in the case of the faulty article; that is, to use the words in the Act, where it is acquired through an agreement "at a price". There is no price for the second article, only for the first. Some lawyers argue in various ways that this cannot be a correct view of the law; but there must be, and there obviously is, some doubt. I should like to see an Amendment brought forward when this Bill is in Committee to make sure that a replacement article or substitute is equally covered. Perhaps the Minister would look into that point.

Now the most dramatic effect in practical terms which this Bill will have will be to give the buyer a right to compensation as well as a right to have faults put right. It will arise in this way. If I buy a new car and within a short time it breaks down, I shall be able to take the car back to the garage where I bought it and insist that they put the fault right free of charge. In addition, when this Bill becomes law I shall also be able to insist that the garage provides me with transport for the period during which my car is being repaired. This is how I read it: they must pay for the cost of hiring another car to see me through the time during which I am deprived of the use of my own car. This will make a tremendous difference in practice. For thousands of buyers the greatest bugbear of the existing situation has been the deprivation of the use of the article for the period when it is being repaired. The guarantee has never covered that additional expense, and the result has been that most people have either struggled through without their cars for however long it takes to get the car put right, or, alternatively, have paid out of their own pockets for the hire of another car. This situation will change, and I think it will have a profound effect on the motor trade.

But perhaps the greatest effect of all will be that, in the long run, quality control in the factories will improve. If those responsible for manufacturing and selling goods throughout the country know that there is now a come-back for the consumer, come what may, and that they will have to foot the bill for putting faults right and, in my view, for hiring another article, as I indicated a moment ago, they will probably come to realise in the fullness of time that the cheapest thing to do is to take better care to see that fewer faults are there in the first place. This could well be the most significant result of this excellent Bill: and, if it is, we shall all benefit enormously from that result. I congratulate the Minister once more, and I hope that he will take into account what has been said with regard to other abuses and get this Bill on to the Statute Book as speedily as possible. Your Lordships should tell the Government that we are prepared to do the donkey work and get through the first stages of any Bill if it is introduced into this House first, and then the other place will not have so much trouble with it when it gets there.

6.9 p.m.

THE LORD CHANCELLOR (LORD HAILSHAM OF SAINT MARYLLBONE)

My Lords, I see that my name is down to wind up this debate. I think it may be generally considered (to parody Sir Winston Churchill) that noble Lords have left me comparatively little "up with which to wind". However, a certain number of points emerge. The Bill has, I think it is fair to say, received a general welcome—a welcome which is not the less warm because it has been introduced early in the Session into your Lordships' House rather than in another place. I certainly agree with the last speaker when he said that this process results not merely in saving us some of the agonies of the last Session resulting from the piling of work on to us in July, when another place has processed it, but also enables a general saving of Parliamentary time to take place because we can iron out some of the weaknesses in proposed legislation and thus shorten the labours of the other place as well.

The Bill's scope extends to conditional sales, self-service sales, contracts by way of hire purchase and contracts in which savings stamps are exchanged for goods; which, I suppose, is strictly not sales of goods. No one has criticised any of these extensions of scope and I fancy that they will be generally welcome. The proposed Amendments to Sections 12 to 15 of the Sale of Goods Act have also I think escaped much attention because they are generally welcome.

The debate has very largely revolved around exclusion clauses, whether or not these are of the type which are generally included in the Bill. These are not really—as I think some perhaps unguarded expressions from noble Lords would lead one to suppose—examples of the principle of caveat emptor. They are, on the contrary, examples of the principle that contract is free; and noble Lords have been disposed to say, and I agree with them, that changes in the relative bargaining power of the parties and, in particular, the power of what I might call "the small print", have combined to effect a certain amount of injustice. The noble and learned Lord, the Master of the Rolls, gave us a graphic and racy account of his misdemeanours both at the Bar and on the Bench; and I am not entirely sure that he was very fair to the law. I believe that one can, in fact, destroy some of these exemption clauses by a close attention to the nature of the defect which is discovered in the service or the goods.

Ever since the noble and learned Lord, Lord Devlin, made a very valuable dictum in the Firestone case to the effect that it is illusory to say we promise to do a thing but are not liable if we do not do it, I think that ingenious members of the Bar have been able to destroy a great number of these clauses. However, I am very glad to know that the Master of the Rolls says—and I agree with him—that it is high time that legislation took place to limit the possibility of these clauses in relation to sale of goods—and, as several noble Lords have pointed out, in the pipeline from the Law Commission there is promise of legislation ultimately covering exclusion clauses in contracts not covered by this particular Bill.

I do not share altogether the implied criticism of the noble and learned Lord, Lord Gardiner, of other agencies of law reform, whether they be the Law Reform Committee or the Criminal Law Revision Committee or special committees like those dealing with contempt and libel which have been found necessary from time to time. Both Law Commissions necessarily are relatively small bodies and they would lose some of their distinction if they were not. There is plenty of law reform which has to take place through other agencies. I do not regard these bodies as poaching on each other's preserves; I regard them, on the other hand, as allies in a worthy cause.

The noble and learned Lord, Lord Gardiner, entered upon an interesting topic which he introduced by way of referring to the guidelines in paragraph 113 of the Law Commission's Report which he contrasted with the rather simpler guidelines contained in the Bill. I am not sure myself that he did it entirely for its own sake; because he was at pains to introduce to the House his view which was on another occasion shared by the noble and learned Lord, Lord Wilberforce, that courts ought to construe Acts of Parliament by reference to the Blue Books which preceded them. I venture to say to the noble and learned Lord that in one respect at least I have the advantage both of him and of the noble and learned Lord, Lord Wilberforce, in that I was for a great number of years in the House of Commons. I very much doubt myself whether, if he and the noble and learned Lord, Lord Wilberforce, had shared that experience they would be quite so confident that the intentions of Parliament as defined by an Act of Parliament which has gone through the process of Committee in another place can effectively be construed, even if one takes a commonsensical view of the matter and not a technical view of the matter, by reference to the Blue Book which preceded them. I think that that could be most misleading. and I think the other place were perfectly right in showing a certain amount of caution about the noble and learned Lord's well-known doctrine in that respect. Of course, lawyers and judges read Blue Books which have relation to Acts of Parliament which ultimately emerge. The noble and learned Lord, the Master of the Rolls, has more than once used a Blue Book to illustrate the purpose, the underlying mischief as it is called, of a particular Act of Parliament. But to construe particular clauses by reference to the preceding Commission or Committee Report is, I think, a dangerous undertaking and I am glad that on the whole the courts are not able to do it.

The noble and learned Lord did, however, contrast the actual guidelines in the Bill with the actual guidelines in the Law Commission Report. Part of the differ- ence must necessarily reside in the fact that whereas the Commission put its guidelines in the Report for reference but not as a matter of strict construction of an Act of Parliament (they did not design it to form part of an Act of Parliament) we have decided, as my noble friend Lord Drumalbyn explained in opening, to translate what was intended as a piece of text book guidance into the actual terms of the Act. Part, at any rate, of the difference between the two sets of guidelines can, I think, be attributed to this fact. Ours are simpler than those suggested by the Law Commission and I think none the less that they may take account of all the important factors.

In the first place, the fairness and reasonableness of an exclusion clause is, under the Bill, to be tested in the light of all the circumstances of the case, just as the Law Commission recommended; but the provisions of the Bill drawing the court's attention to the question whether the buyer knew or ought reasonably to have known of the extent of the term would we believe, cover the Law Commission's points (b) and (c) on whether the clause was clear in wording and scope and whether reasonable steps were taken to bring the clause to the buyer's attention. The other special point drawn to the attention of the court by the Bill, in contra-distinction to the Report, is whether in buying the goods of the description in question the buyer was able to choose whether to buy the goods (from the seller or any other person) under a contract without that term or with a term less unfavourable to himself. The questions that the court might therefore ask itself are: did the buyer have a genuine alternative? If not, was it because of the unequal bargaining strength of the relative parties? That approach would cover the Commission's guideline (a) but would place less onerous requirements on the buyer to demonstrate that his bargaining strength was less than that of the seller, if indeed it was. It would also take into account guideline (d) whether the buyer was offered and accepted a benefit of compensation for the exclusion of liability and, we believe, also guideline (f) whether the goods were made specially for the buyer himself.

Of the two remaining guidelines laid down by the Commission, guideline (e) relates principally to exclusion clauses which limit the time within which claims may be made. I know that that guideline in the Commission's Report has received criticism on the grounds that liability can be considered fairly only in relation to events which were evident or foreseeable at the time when the contract was made. To take account of other and later events would introduce, so it is said, an intolerable degree of uncertainty to the contrary; and we did not think the intention of guideline (g), the remaining one, was at all clear. Obviously, my Lords, in Committee we can discuss all these related questions in greater detail than I have endeavoured to do.

The noble Lord, Lord Janner, raised one interesting point about a replacement article. With great respect, I do not think that an Amendment of the kind he suggested would be really necessary. I believe that in any case which I can foresee a replacement article would still be supplied under a contract of sale, notwithstanding that it was exchanged for an original piece of merchandise delivered under the original contract. I believe the courts would hold—although I agree that they do not yet appear to have had such a case—that the implied conditions were still appropriate; or at least that it was an implied term of the contract whereby the customer agreed to release his rights in respect of the original breach on terms similar to those applied in the original contract. Of course, if the manufacturer or the retailer replaces an article under the express terms of a guarantee in a case where the customer goes to him direct, the implied conditions would not apply, but here I feel reasonably confident that the courts would extend any terms in the original guarantee to the substitute article.

My Lords, I am glad that this Bill has received such favourable consideration from your Lordships. It is, of course, only the first of a series of Bills for consumer protection which we hope will be passed during this Session of Parliament. I was grateful to the noble Baroness, Lady Phillips, for her graceful and gracious recantation of her slightly derogatory words during the debate on the Queen's Speech and for the kind way in which she opened the discussion which is now drawing towards its close. I thank the House and those who have taken part in the debate for their consideration of this Bill and I hope that we may now give it a Second Reading.

On Question, Bill read 2^a, and committed to a Committee of the Whole House.