Sale of Goods legislation for beginners (and those who have forgotten what they know)
I have to admit that I have not given much thought to Part 3 of the Contract and Commercial Law Act 2017* in many years (*previously known as Sale of Goods Act 1908, and in this article referred to as “Sale of Goods legislation”).
Sale of Goods legislation doesn’t seem to make the headlines as much as consumer guarantees, fair trading or contractual remedies legislation. It has sort of faded into the background, as most lawyers involved with drafting contracts will be using templates or including precedent clauses that contract out of or vary the application of Sale of Goods rules, without actually mentioning it. However, it is still there, and possibly applying to thousands of agreements and transactions every day in New Zealand.
When I did look into it recently, I was surprised to learn a few things I didn’t know, or had long forgotten I did know.
Contractual remedies provisions for cancellation of contracts do not apply to Sale of Goods transactions
This matters because getting it wrong when cancelling a contract can lead to fairly serious and unexpected outcomes for a client, let alone the lawyer advising them. If a contract itself does not provide grounds and process for cancellation, and the Sale of Goods legislation is not front of mind, the next step you take could easily be to go straight to contractual remedies rules for cancelling contracts in general – i.e. sections 36 to 42 of the Contract and Commercial Law Act (the old sections 7 and 8 of the Contractual Remedies Act 1979). However, you would be looking in the wrong place.
If Sale of Goods legislation applies to a contract, not only does it have its own cancellation rules, but they involve considering the common law to assess whether the terms of the contract are conditions or warranties. This will then lead you to the answer under the Sale of Goods legislation as to how and when the contract can be cancelled.
It is possible that many lawyers are not aware – or consciously aware – of which legislation applies when advising clients on their rights and obligations relating to cancellation of a Sale of Goods contract. And, once they are aware, it might involve getting out the textbooks to read up on the difference between conditions, warranties and representations (which are not distinguished or treated differently under the contractual remedies legislation), especially if the parties themselves have not clearly defined in the contract how important or essential the terms of the contract are. I have it on good authority that I am not the only commercial lawyer surprised that the contractual remedies legislation on cancellation does not apply, and that it has even been missed in the courts from time to time.
Sale of Goods legislation does not cover all goods, and it can be hard to work out what it does cover
This matters because there’s no point knowing all about the Sale of Goods rules if they don’t apply to the goods in question. “Goods” are defined as moveable personal property, including animals, unharvested crops, and computer software. Intangibles are excluded. Moveable personal property is the replacement terminology in the new Act for what were previously defined as chattels – things that you can pick up, drive or fly or sail away in, or otherwise move. Goods sold to consumers, or of a nature normally sold to consumers, come under consumer guarantees legislation. Sale of Goods legislation primarily covers business to business transactions.
Sale of Goods legislation provides default rules for the parties’ duties and remedies for breach
This matters because many businesses buy and sell goods without reliable written or oral contracts in place. The default rules apply unless they have been varied or excluded by the parties to the contract. The rules impose more duties on sellers than buyers, implying minimum requirements for matters such as delivery, clear title, matching description, and fitness for purpose. Buyers are only required to accept and pay for the goods. It can be a problem if your clients are not specifically contracting out, and default rules apply that they were not aware of and would not have agreed to if they had been aware. But it does provide a basic framework which is of course useful in the absence of any specific terms when problems arise.
Sale of Goods legislation isn’t perfect
This matters because the intent of having a set of rules that business people can rely on is not always achieved – which might be good for the business of lawyers called in to advise or to fix things, but is not so good for the business owners who have to engage and pay the lawyers.
The Sale of Goods Act 1908 itself was a consolidation of the Sale of Goods Act 1895, and the repeal and re-enactment of the 1908 Act into the Contract and Commercial Law Act 2017 around 100 years later did not include any substantive updates or recognition of how things have changed. Commerce, technology, and the goods that are exchanged in commercial transactions, have changed in ways that were incomprehensible before the turn of the 20th century, and consumer and contractual legislative updates over the course of that century are not always helpful when navigating your way through the variety of Acts that might apply to a sale of goods.
Computer software was specifically added for clarification (by an amendment to the 1908 Act in 2003), yet that term is already outdated as these days very little software changes hands other than pursuant to download over the internet, which you cannot touch or move. And, unless it is written as custom software, most software is not sold but is a licensed copy, with no transfer of title. It seems ironic that a definition that was added for clarity over 15 years ago was not updated again in the 2017 Act. The application of the legislation to software, apps, and other programs will be something to watch as more and more entrepreneurs are developing and selling software, and many of them will not have done so pursuant to a thoughtfully-drafted contract.
In summary, we all need to be looking in the right place for information to be able to draft good contracts and to give good advice; and if you are involved in drafting or advising on commercial contracts, getting up-to-speed with Sale of Goods legislation could be a lot more interesting and useful than you expected.
To learn more about the Sale of Goods landscape, including default rules, duties, remedies and contracting out, readers are encouraged to register for ADLS’ webinar on this topic to be held on Tuesday 4 December 2018, and being presented by Nicholas Wood, author of Sale of Goods in New Zealand. For more information or to register for this event, click here.
You can also purchase Sale of Goods in New Zealand, by Nicholas Wood, from the ADLS Bookstore here.