R&B Customs Brokers v United Dominions Trust: Dealing as a Consumer

R&B Customs Brokers Co Ltd v United Dominions Trust Ltd [1988] 1 WLR 321 established that a company can deal as a consumer under the Unfair Contract Terms Act 1977, and set the test for when it does.

The decision surprised practitioners at the time and remains counter-intuitive, because the ordinary use of the word consumer does not extend to limited companies. What the Act protects, on this reading, is not a type of person but a type of transaction.

The facts

R&B Customs Brokers was a small freight forwarding company owned and run by a married couple. It bought a second-hand Colt Shogun car on conditional sale from United Dominions Trust, for the use of one of the directors, partly for business and partly privately.

The car leaked badly. The company sued, alleging the vehicle was not of merchantable quality and not fit for purpose.

The finance company relied on a clause excluding the implied terms. Whether that clause was effective depended on whether the buyer dealt as a consumer: if it did, section 6(2) of the Unfair Contract Terms Act made the exclusion void outright; if it did not, the exclusion survived if it satisfied the reasonableness test.

The decision, and the test

The Court of Appeal held that the company dealt as a consumer, so the exclusion clause was ineffective.

The reasoning turned on section 12(1), which defines dealing as a consumer as requiring that the party neither makes the contract in the course of a business nor holds itself out as doing so, that the other party does make it in the course of a business, and that the goods are of a type ordinarily supplied for private use or consumption.

The Court adopted a narrow reading of in the course of a business. A transaction falls within the course of a business only if it is integral to the business — part of what the business does — or, where it is merely incidental to the business, if it is carried on with sufficient regularity to have become an established practice.

This company had bought two or three cars over five years. Buying vehicles was not what a freight forwarder did, and two or three purchases did not establish a regular practice. The purchase was therefore not in the course of the business, and the company dealt as a consumer.

Why this reading, and not the other

The same words are read widely in section 14 of the Sale of Goods Act, following Stevenson v Rogers. The two cases are reconciled by purpose, not by finding one of them wrong.

In section 14 the phrase identifies who carries an obligation. Reading it widely means more sellers carry the implied quality terms, which extends protection.

In section 12 of the Unfair Contract Terms Act the phrase identifies who receives protection. Reading it narrowly means fewer buyers are treated as acting in a business capacity, so more of them qualify as consumers, which also extends protection.

Both readings run in the same direction as a matter of policy and in opposite directions as a matter of language, because the phrase sits on different sides of the transaction. An answer that states this clearly is doing the thing the pairing is set to test.

What the case decided and what it did not

It did not hold that companies are consumers. It held that a company can deal as a consumer on a particular transaction. The status attaches to the transaction, not to the buyer.

It did not remove the third requirement. The goods must be of a type ordinarily supplied for private use or consumption. A car satisfies this; a forklift truck or an industrial press would not, whatever the buyer's regularity of purchase.

It did not settle the treatment of mixed-purpose purchases. The car was used partly for business and partly privately, and the Court did not treat the mixed use as decisive either way. Later cases have had to work with that gap.

What happened to the rule afterwards

Two developments have narrowed the case's practical reach, and an answer that stops in 1988 is describing a position that has moved.

Later commercial cases have been reluctant to extend it. Courts have distinguished R&B Customs where the buying company was larger, where the purchase was more clearly connected to the business, or where the goods were not of a consumer type. The integral-or-regular test survives, and the outcomes have been less generous to corporate buyers.

The Consumer Rights Act 2015 changed the framework. For consumer contracts it defines a consumer as an individual acting for purposes wholly or mainly outside their trade, business, craft or profession. A company cannot be a consumer under that definition at all, so the R&B Customs position has no application to contracts governed by the 2015 Act.

What survives is the treatment of business-to-business contracts under the Unfair Contract Terms Act, where section 12 still operates in its original form and where the case remains the authority. The practical population it governs is therefore smaller than it was and is not empty.

The reasonableness test, and why the distinction is worth so much

The consequence of dealing as a consumer is not that the clause is examined more carefully. It is that section 6(2) makes it void, with no argument available.

For a buyer who does not deal as a consumer, the clause survives if it satisfies the reasonableness test in section 11, judged on the circumstances known to the parties when the contract was made, with the burden on the party relying on the clause. Schedule 2 supplies guidelines: the relative bargaining strength of the parties, whether the customer received an inducement to accept the term, whether the customer knew or ought to have known of it, and whether the goods were made to the customer's special order.

The gap between the two outcomes is therefore very large. In one the clause fails automatically; in the other the supplier has a real prospect of upholding it, particularly where the parties are commercial, the term was negotiated and the price reflected it.

That is why so much litigation turns on section 12 and not on section 11. Establishing consumer status decides the case; failing to establish it merely opens an argument the supplier may well win.

Why it matters for drafting

The case is the reason a supplier cannot rely on the corporate status of its buyer to validate an exclusion clause.

Where there is any prospect that the buyer deals as a consumer on the transaction, an exclusion of the implied quality terms is void rather than merely subject to reasonableness. A supplier who wants certainty has two routes: establish that the transaction is integral or regular for the buyer, which is difficult to do at the point of sale; or draft on the assumption that the exclusion may fail and limit exposure by other means, such as a capped liability that survives independently.

The wider drafting lesson is that the enforceability of an exclusion clause depends on facts about the other party that the drafter may not know. This is uncomfortable and is the intended effect of the statute.

The criticism of the decision

The case has been criticised steadily since it was decided, and a strong answer engages with the objections rather than treating the outcome as settled good sense.

It produces uncertainty for the supplier. Whether an exclusion clause is void depends on the buyer's purchasing history, which the supplier cannot observe and the buyer has no obligation to disclose. A rule whose application turns on facts known only to one party is difficult to plan around, and the criticism is not answered by saying that the statute intended protection.

The integral-or-regular test has no threshold. Two or three purchases over five years was not regular. Nobody knows what number would be, and the reported cases do not supply one, so the test is applied by impression.

It sits oddly with the company form. A limited company exists to conduct business and has no private life. Saying that one of its purchases fell outside the course of its business is coherent under the statute's wording and strained as a description of what a company does.

The outcome favoured a party that had chosen incorporation. The owners had taken the benefits of a corporate structure and then received protection designed for individuals, which is the objection most often made and the one with the least legal force, since the statute speaks of dealing as a consumer, not of being one.

The defence is that section 12 was drafted to catch transactions and not persons, and that the Court applied the words Parliament used. That defence is sound and leaves the practical difficulty untouched, which is why the 2015 Act took a different route for consumer contracts.

How it is examined

The case turns up where a small company or a sole trader has bought something with a mixed purpose and the seller relies on an exclusion clause.

Work through section 12's three requirements in order. Apply the integral-or-regular test explicitly to the buyer's purchasing history, since that is what decides it. Check that the goods are of a type ordinarily supplied for private use, which is the requirement most often forgotten and the one that defeats the argument for industrial equipment. Then take the consequence: void if the buyer dealt as a consumer, reasonableness test if it did not.

Raising Stevenson v Rogers to explain the divergent readings, instead of treating them as a contradiction to be resolved, is what separates a strong answer here.