The focus of Part IV of the textbook is on the remedies that are available to a party when the other side breaches their obligations under the contract. As Part IV has discussed, there has in recent years been a move towards developing new and innovative remedies for breach of contract in consumer transactions. Courts and legislators have contributed to this: the courts by developing new heads of damages such as ‘loss of amenity’ or ‘disappointment damages’, and legislators by developing new remedies, such as the right to repair or replacement under the Consumer Rights Act 2015. These have been accompanied by new approaches to defining breach, which focus on compliance with standards set by the law.
The focus of the three online videos for this Part are on illustrating why these new approaches to breach and remedies came to be seen as necessary. Each of the sets of videos deals with one specific type of situation. The first looks at how consumers perceive the harm they suffer when their holidays are cancelled or disrupted, thus providing some context to the recognition by the courts of remedies for disappointment and loss of amenity, which began in holiday cases. The second deals with situations where defects in goods are discovered after the contractual warranty period has expired, but in a period where statutory remedies still apply. The third looks at the difficulties consumers can have in obtaining remedies in complex cases, using a series of deliberate misstatements by Volkswagen as the example.
As with the other parts, each video is accompanied by an introduction and commentary on the situation set out in the video. Treat these as setting out points for further discussion and reflection, and as a guide to working through the legal issues arising out of the situations described in the videos.
Video Exercise 1: The holiday from hell
Contract law traditionally focused on measuring how much you had actually lost in monetary terms. An important trend in consumer law in recent years has been the willingness of the court to award compensation for other types of loss, most notably loss of amenity. The reason for this is that the cost of cure and difference in value measures of expectation loss fail to take account of the real source of consumers’ grievances where they feel they have received a lower standard of service than they had bargained for. Damages for loss of amenity are a response to a feeling that the law of damages should respond to the actual harm done to consumers.
In the modern context, damages for loss of amenity are awarded in a wide range of contexts, ranging from swimming pools (Ruxley Electronics v Forsyth  AC 344 (HL)) to building surveyors who fail to spot a particular source of aggravation (Farley v Skinner  2 AC 732). The origins, however, lie in contracts for holidays (Jarvis v Swan Tours  1 QB 233 (CA)), and holidays remain the best illustration of why these damages are often the only way a consumer can be properly compensated.
The video below is an excerpt from a programme originally broadcast in the UK in 1999, and features several examples of holidays that fell far below expectations. Watch the video, and consider why the standard measures of damages for breach at the common law do not sufficiently remedy the harm suffered by consumers in situations like this.
- In principle, a consumer could sue for expectation damages in a situation like this, measured either on a ‘cost of cure’ or a ‘difference in value’ basis. As a starting point in assessing why (or whether) loss of amenity damages are necessary, it is useful to examine how the ‘cost of cure’ and ‘difference in value’ measures will actually work in a situation like this.
- The cost of cure is the cost of remedying the breach. The difficulty is that it is only rarely possible to remedy the breach where a holiday has been completed (which it almost always will have been by the time an action is brought).
- The difference in value is the difference between the value of the performance contracted for and the performance received. However, it is difficult to see how one can compute the ‘market value’ of a room with broken fittings and mould (to take an example from the video).
- The recognition of loss of amenity damages reflects these limitations.
- A second factor underlying the move to grant loss of amenity damages is the nature of the harm suffered by consumers in cases involving family holidays, and other transactions concerned with what we might broadly term ‘lived experiences’. In cases like these, loss of amenity damages are a more appropriate response to the consumer’s actual grievance is in connection with a breach by the supplier. The video at the following link, which deals with a consumer who had a family holiday cancelled by the tour operator, instantiates how consumers react to breaches, and the manner in which they perceive the harm occasioned to them by the breach:
- As this video shows, it was the disappointment caused to the family, and the sadness at the inability to embark on the proposed holiday, that were felt particularly keenly by the consumer, far more than the monetary consequences of the cancellation. An understanding of this is what primarily underlies the growing judicial willingness to award damages for non-monetary loss in consumer transactions.
Video Exercise 2: Returning goods out of warranty
An important trend in the development of consumer contract law has been the rise of statutory terms and rights, out of which the parties cannot contract. These rights do not preclude the parties from agreeing on their own warranties, but they do restrict commercial sellers from offering a lower level of protection than the statute offers. Statutory rights can enhance contractual warranties in two ways. Firstly, they may cover matters that contractual warranties do not. Secondly, their duration cannot be restricted to a narrow period of time in the same way as a contractual warranty can.
Retailers are required to honour statutory rights. However, as the video below demonstrates, they do not always do so. Watch the video below, and consider what it tells you about the strength and weaknesses of statutory terms and statutory remedies. There is a second video which you will find under Comment 4 below, which invites you to compare the situation under English law with the situation under Australian law.
- From a completely amoral perspective, retailers do not actually have very much of an incentive to immediately agree to repair or replace products under customers’ statutory rights. As you will know from your study of the law of damages, the fact that a company only complies with its obligations reluctantly and under pressure does not in any way make it liable to pay more compensation. Trying to put customers off from claiming under their statutory rights therefore makes sense from a certain ethics-free point of view, if the retailer doesn’t think there’s much risk of being caught or suffering adverse publicity. Because most review sites only deal with the sale itself rather after sales service, the risk of adverse publicity is also somewhat lower.
- An assumption underlying much of the law on contract is that self-interested parties should protect themselves. This also applies to the law of remedies. Consumers are expected to be assertive in insisting on their rights if retailers seek to avoid their obligations. Consumer protection law is a response to the fact that no consumer, no matter how assertive, can negotiate the terms on which they deal with businesses. In contrast, consumers are in a position to be assertive when their rights are breached, and the law therefore generally expects them to protect themselves. In English law, paternalism only goes so far.
- In theory, the CMA has the power to investigate and fine retailers if they are regularly acting in breach of consumer protection laws. The CMA’s predecessors, the OFT and the DGFT, did in fact take action against retailers whose practices were in breach of the laws which preceded the Consumer Rights Act. You have come across some of these cases in your readings in Part III. However, they have limited resources, and face many demands on those resources. Their focus is therefore on large-scale problems, rather than ensuring that each individual consumer is dealt with fairly.
- An example from Australia, which takes a slightly different approach to consumer protection, illustrates how the law and regulatory action can create incentives for companies to develop a culture of respecting consumers’ statutory rights. The Australian case arose out of the returns policy of a US-based company called Valve. Valve runs a popular game distribution network called ‘Steam’, which is used around the world. Until 2015, Steam did not permit consumers to return games they had bought, even though Australian law stated that consumers did have a right to return goods under certain circumstances. In 2014, Valve was sued by Australian Competition and Consumer Commission, which is the government agency tasked with consumer protection in in Australia, on the basis that Valve’s policies violated the provisions of Australian Consumer Law, contained in Schedule 2 to the Australian Competition and Consumer Act 2010. The video below summarises the nature of the issue:
- The Federal Court of Australia upheld the complaint (See Australian Competition and Consumer Commission v Valve Corporation (No 3)  FCA 196, upheld on appeal Valve Corporation v Australian Competition and Consumer Commission  FCAFC 224). Apart from holding that Valve was legally bound to allow consumers to return games when the Australian statue said they could, the Court also held that Valve had committed an actionable misrepresentation by telling that the consumers that they did not have the right to return their games when, in point of fact, they did. The findings in relation to misrepresentation turned on statute, rather than common law, and specifically on the wording of ss. 18(1) and 29(1)(m) of the Australian Consumer Law which requires traders not to engage in certain types of misleading or deceptive conduct.
- Australian law thus not only grants consumers statutory rights, but also makes a retailer’s refusal to recognise that right a separate civil wrong. Compare this with the position at English law. Would a similar statement by a retailer in England and Wales be an actionable misrepresentation, if it fails to inform consumers of their statutory rights? Consider the position under common law as well as with reference to any applicable statutes.
Video Exercise 3: The Volkswagen emissions scandal
In 2015, press reports revealed that Volkswagen had installed special software and ‘defeat devices’ in diesel cars it made. The purpose of the software was to detect when the car was being subjected to an emissions test in relation to a gas called NOx. If it detected that it was, the car would move into an artificial mode which reduced NOx emissions to comply with the legal cap. At other times, NOx emissions were higher (although Volkswagen claims that they are never in excess of the cap). Volkswagen have offered to fix the affected vehicles to remove the ‘defeat device’.
Watch the video below, and consider whether any remedies are available to the vehicle owners against Volkswagen under the law of contract.
- Is Volkswagen in breach of contract? It is not immediately obvious that it is.
- Consider the impact of the doctrine of privity. Car owners tend to buy their vehicles from a dealer, rather than directly from the manufacturer. This means that many of the terms in relation to the quality and fitness for purpose of the vehicle will be contained in a contract to which Volkswagen is not a party. Volkswagen will, of course, have contracts with its dealers, but the car owners are not parties to those contracts and will be barred from suing Volkswagen under the doctrine of privity.
- It is not obvious that any of the common law exceptions to the doctrine of privity applies. Will the statutory exception created by the Contracts (Rights of Third Parties) Act 1999 apply? Consider the question with reference to the points that must be made out under the statute. The contract must purport to confer a benefit on the third party (and not just incidentally happen to confer a benefit). The third party must also be identified in the contract. It is very unlikely that buyers of cars will be able to satisfy these requirements to claim a direct contractual right against Volkswagen.
- Volkswagen will have given a manufacturer’s warranty to the purchasers, and will have some liability under that warranty. However, its obligations under that warranty are likely to be considerably more limited than they would have been under a contract for the sale of goods.
- Assuming there was a contract between car purchasers and Volkswagen, what damages can be awarded against Volkswagen in a case like this? Again, it is not obvious exactly what loss the purchasers have suffered.
- It is difficult to see how damages computed with reference to the cost of cure might be awarded, given that Volkswagen has offered to cure the breach free of charge.
- In theory, damages could be awarded on the difference of value measure, if car owners can show (for example) that the resale value of their car has been affected. In practice, it will be hard to prove this.
- As the video above shows, consumers are aggrieved in part because they purchased a car in the belief that they were making a ‘green’ choice. As it transpired, the car they got was a lot less green than they were led to believe. Does this suggest that an argument could be made for ‘loss of amenity’ damages, along the lines of Ruxley Electronics?
- The most likely ground of action against Volkswagen is not in contract at all, but in tort—specifically, the tort of deceit, which is briefly discussed in chapter 11. Deceit is available when a person causes loss to another by making an untrue statement which they know to be false, or without caring whether it is true or false. Deceit does not require a contract to have come into being—any loss caused by the false statement is recoverable. This means that car owners can sue Volkswagen notwithstanding the absence of privity. A group of people who purchased affected cars in England and Wales have brought a group action in the High Court on this precise basis.