The Yearbook of Consumer Law 2007

Geraint Howells, Annette Nordhausen, Deborah Parry, Christian Twigg-Flesner, Geraint Howells, Annette Nordhausen, Deborah Parry, Christian Twigg-Flesner

• Publisher: Routledge
• Year: 2018
• ISBN:
  9780429774249
• Edition: 1
• Topic: Derecho
• Subtopic: Derecho del consumo

First published in 2007, The Yearbook of Consumer Law provides a valuable guide to developments in the consumer law field with a domestic, regional and international dimension.

The volume presents a range of peer-reviewed scholarly articles, analytical in approach and focusing on specific areas of consumer law such as sales, credit and safety, as well as more general issues, such as consumer law theory. The book also includes a section dedicated to significant developments during the period covered, such as key legislative developments or important court decisions.

The book provides an essential resource for all those, academic and practitioner, working in the areas of consumer law and policy.

Part 1: Articles 2007

1 Reasonable Expectations, Good Faith and Self-Regulatory Codes

Alan Barron

The central question to be addressed in this paper is whether a service provider's subscription to a self-regulatory or 'soft law' code¹ can be said to give rise to a legally enforceable reasonable expectation of compliance on the part of the consumer.

The orthodox answer to that question, based on the attitude of the appellate courts, is in the negative.² However, more recently, there would appear to be some evidence that the courts are taking a more relaxed view in relation to contractual interpretation. This relaxation has involved what might be termed a 'contextual' analysis of the contract, meaning that extrinsic issues and materials are, on occasion, considered. Thus, notwithstanding the traditional approach regarding self-regulatory codes, there would appear to be some scope for the courts to take into account and assess the degree to which a party has complied with the terms of such a code in determining whether that party is in breach of contract.

However, an analysis and comparison of the judicial materials with the academic commentary on this issue reveals a disparity, with the courts taking a somewhat more direct and simplistic approach. A subsidiary line of enquiry will be to determine which, if either, approach is correct.

The central question will be situated within the practical context of banking and insurance contracts and the well known self-regulatory codes that operate in those areas.

1. Reasonable Expectations: The Judicial Perspective

The leading proponent in the judicial sphere of the idea that reasonable expectations can give rise to legally enforceable obligations is Lord Steyn. Extra-judicially, his Lordship has written three articles in which he has articulated his views on this issue,³ and judicially, has on a number of occasions referred to reasonable expectations in deciding contractual disputes.

2. Lord Steyn’s Extra-judicial Writings

Writing in 1991 in the context of an article dealing with the related concepts of good faith and fair dealing, Lord Steyn considered that reasonable expectations and their protection was a theme integral to those concepts. In other words, encouraging good faith and fair dealing in contract will result in the protection of the reasonable expectations of contracting parties.⁴ Further, his Lordship considered that, as English law (and one might venture to add Scots law also) becomes more familiar with ideas of good faith and fair dealing, some areas of law, and in particular consumer law, will find some scope for the use of such principles.⁵ However, his Lordship added that in order to gain wider acceptance, such concepts should not be given too high a moral content, but should be grounded in the responses and usages of ordinary right thinking people.⁶

Elaborating on these views in a later article, his Lordship gave closer consideration to the idea of reasonable expectations in contract, saying that 'a judge is entitled to take into account that simple fairness ought to be the basis of every legal rule', this being the framework within which contract law should give effect to the reasonable expectations of honest me.⁷ One can then refine this proposition further by noting that the use of the external standard of reasonableness removes the need for any reference to honesty since the hypothetical reasonable person is by definition not dishonest. The matter is then reduced to the recognition of the 'reasonable expectations of the contracting parties'.⁸

What, however, is meant by the term 'reasonable expectations'? In this regard, his Lordship noted that the expectations that ought to be protected are those that are, in an objective sense, common to both parties.⁹ Thus, a one-sided expectation, no matter how reasonable, is unenforceable if there is no corresponding expectation resting with the other party to the contract. This therefore reinforces the point that contract law, in England at least, is not concerned with the subjective expectations of the parties.¹⁰

As to the content or core meaning of the term, his Lordship stressed the reasonableness of the expectation, meaning that community values are at issue. Accordingly, the reasonableness of an expectation is to be judged in light of the context of a consumer transaction together with the usages and practices of the particular field in question.¹¹

Given the neatness of the term 'reasonable expectations', similar as it is to terms such as 'good faith' and 'fair dealing', one could be forgiven for elevating it to the status of general principle or rule of law. However, Lord Steyn was careful to point out that he saw it as merely the central objective of the law of contract, rather than as some generalised guiding principle.¹²

The function of the law of contract, he said:

is to provide an effective and fair framework for contractual dealings. This function requires adjudication based on the reasonable expectations of the parties. It is right to acknowledge, however, that the reasonable expectations of parties cannot always prevail. Sometimes they must yield to countervailing principles and policies. For example, other values enshrined in law and public policy may render the contract defeasible. Nevertheless, the aim of protecting reasonable expectations remains constant.¹³

Later, placing these comments within the context of the good faith debate his Lordship said:

Given the needs of the international market place, and the primacy of European Union law, English lawyers cannot avoid grappling with the concept of good faith. But I have no heroic suggestion for the introduction of a general duty of good faith in our contract law. It is not necessary. As long as our courts always respect the reasonable expectations of parties our contract law can satisfactorily be left to develop in accordance with its own pragmatic traditions. And where in specific legal contexts duties of good faith are imposed on parties our legal system can readily accommodate such a well-tried notion. After all, there is not a world of difference between the objective requirement of good faith and the reasonable expectations of the parties.¹⁴

On construction of contracts, his Lordship emphasised the objective nature of the enquiry. He noted also that the rule that permits an analysis of precontractual exchanges to show that the parties attached an agreed meaning to an apparently ambiguous contract term, is a paradigm example of where the strict approach of the law is tempered so as to give effect to the reasonable expectations of the parties.¹⁵

His Lordship further adverted to the modern trend, away from the strict, literal approach to contract interpretation, towards a more purposive approach that utilises the contextual scene of the contract in order to resolve ambiguities. 'Speaking generally,' he said, 'commercially minded judges would regard the commercial purpose of the contract as more important than niceties of language. And, in the event of doubt, the working assumption will be that a fair construction best matches the reasonable expectations of the parties.'¹⁶

This then brought his Lordship to the implication of terms. He began by noting that those systems that recognise a general duty of good faith have less need to resort to implication. However, in English law, where no such generalised duty as yet exists, his Lordship said that 'implication of terms fulfils an important function in promoting the reasonable expectations of parties'.¹⁷ Although noting the three types of implied term – those implied in fact; those implied in law; and those implied through custom and usage¹⁸ – his Lordship stressed that the 'legal test for the implication of a term is the standard of strict necessity'. The reason for this is that it is not the role of the court to supplement a contract unless it is necessary to give effect to the reasonable expectations of the parties.¹⁹

Notwithstanding, his Lordship went on to advocate a broader approach to the implication of terms. He said that:

[I]n such new cases a broader approach than applied in the case of terms implied in fact [i.e. the officious bystander test or the test of necessity in order to give business efficacy to the contract] must necessarily prevail. The proposed implication must fit the generality of cases ... it is tolerably clear that the court may take into account considerations of reasonableness in laying down the scope of terms to be implied in contracts of common occurrence.²⁰

His Lordship concluded that English law appeared to be moving away from a formalistic approach. That is, courts are now starting to resolve contract disputes by looking at the reason for a rule and by considering the reasonable expectations of the parties.²¹

In summary, one can pick out the main features of what Lord Steyn saw as central to the concept of reasonable expectations. Giving effect to reasonable expectations is seen as a fundamental aim of contract law, rather than as a substantive general principle. This is based upon an objective, contextual, pragmatic approach to the resolution of contract disputes. However, an expectation is only to be regarded as reasonable if entertained by both parties to the contract. Indeed, reasonableness seems to be the core feature, stressing as it does the objective nature of the enquiry. This objectivity allows broader factors, such as policy issues, to be taken into consideration. Again, this might be seen as part of a contextual, pragmatic approach to contractual interpretation. Further, Lord Steyn seems to see the pursuit of reasonable expectations as justifying the implication of terms in circumstances going beyond what have traditionally been regarded as acceptable. Finally, the pursuit of reasonable expectations is seen as an alternative to, or even an equivalent to, the recognition of a general duty of good faith in contract. From here, one can now go on to assess how this approach has been developed in the courts.

(i) Lord Steyn’s Judicial Writings

The question of the reasonable expectations of contracting parties has featured in a number of cases decided by Lord Steyn, either sitting alone in the Queen's Bench Division or sitting as part of an appellate court. However, in none of those cases is anything of any substance added to what his Lordship said extra-judicially. What is of interest, however, is the range of factual settings in which his Lordship referred to the reasonable expectations of the parties.

For example, Associated Japanese Bank (International) Limited v Credit Du Nord SA²² concerned the sale and leaseback of industrial machinery. The lessee's obligations were guaranteed by a third party. The lessee defaulted and the lessor sought to enforce the guarantee. Only then did it become apparent that the machinery did not exist. The question for the court was whether the guarantee was effective. It was held by Lord Steyn in the Queen's Bench Division that it was not. In the very first paragraph of his judgment, his Lordship began with a reference to the need to give effect to the reasonable expectations of honest men. Unfortunately, that was where the discussion of the issue began and ended. No further reference was made to reasonable expectations and the case was ultimately decided on the basis of a term implied in fact.

Similarly, in G. Percy Trentham Limited v ...