Role of a Revised Sale of Goods Act 2000

2000 Victoria, BC

THE ROLE OF A REVISED SALE OF GOODS ACT

REPORT BY:
Jacob S. Ziegel, Professor of Law Emeritus, University of Toronto
Anthony J. Duggan, Professor of Law University of Toronto

The authors are much indebted to Laurie Jessome, a second year University of Toronto Law student, for valuable research assistance in the preparation of this report.

A. EXECUTIVE SUMMARY

We have been asked to express our views on whether a Revised Uniform Sale of Goods Act (RUSGA) should be included in the ULCC's Commercial Law Strategy and, if our answer is yes, to indicate whether the Uniform Sale of Goods Act (USGA) approved in principle by the ULCC in 1982 should play that role.

We have concluded that:

(a) sales transactions continue to play a central role in the Canadian economy and therefore of Canadian law, and that a commercial law strategy that does not envisage a place for sales law would be seriously deficient;

(b) we do not support the piecemeal approach to sales law reform adopted in the U.K. and, to a lesser extent, Australia;

We recommend that:

(a) the Uniform Sale of Goods Act approved by the ULCC in 1982 should form the basis of a Revised Uniform Sale of Goods Act to be sponsored by the ULCC, but should not be adopted without further review because

  • (i) there have been many legal, economic and technological changes during the intervening 20 years;
  • (ii) the Canadian commercial bar was not represented on the Committee of Experts established by the ULCC in 1979 to review the draft Revised Sale of Goods Act prepared by the Ontario Law Reform Commission (OLRC);
  • (iii) between 1981-1990 a substantial number of drafting changes were made by the Legislative Drafting Section of the ULCC to the 1981 draft Uniform Act that were either not seen or approved by the Committee of Experts;
  • (iv) we believe a new and adequately funded Committee should be struck to review the 1982 Act and make recommendations in light of the factors mentioned in paragraphs (i) -(iii); and that
  • (v) after the Committee has reported with its proposals for a Revised Uniform Sale of Goods Act and assuming the Committee’s recommendations are approved by the ULCC, the common law provinces and territories should be urged to commit themselves to adopt the new Act on a template basis.

(b) so far as Quebec’s position is concerned, we are of the view that given the history, structure and treatment of sales law in the Quebec

Civil Code, it would not be realistic to expect Quebec to adopt the Revised Uniform Sale of Goods Act. However, the basic sales issues are the same across Canada, and Quebec and the common law provinces can learn from each other in fashioning solutions appropriate to the 21st century; but that

(c) if the need arises, a domestic version of CISG could be considered to regulate sales transactions between contracting parties in Quebec and the common law provinces. However, we are not satisfied that the need has been shown for such highly particularised legislation.


B. THE REPORT I. ROLE OF SALE TRANSACTIONS IN THE CANADIAN ECONOMY

One does not have to adduce an array of statistics to be persuaded of the importance of sales transactions in the Canadian economy. The evidence is all around us – from one end of Canada to the other, from the humblest corner store to the large supermarkets and department stores, from the small clothing retailers in Montreal, Toronto, Winnipeg and Vancouver to the manufacturers of truck, automobiles, airplanes, oil refineries and chemical plants in Canada’s manufacturing and processing centres.

A few statistics also attest to the magnitude of the trade in goods within Canada and as part of Canada’s export trade. In 1996, aggregate domestic trade amounted to $1,037 billion, of which $455 billion was in goods.[1] Exports to the U.S. amounted to $309.6 billion in 1999; the auto industry alone accounted for $99.5 billion of the export trade to all countries.[2] Earlier statistics also show the intensity of the trade between the provinces, frequently amounting to 50 per cent or more of the provincial product.[3] The economic importance of trade in goods is not however matched by a comparable volume of litigation. For example, for the period 1995 to April 1999, QuickLaw only cites 149 cases in which a provincial Sale of Goods Act is referred to. Later in this report[4] we discuss the significance of this apparent discrepancy.

II. EVOLUTION OF SALES LAW IN COMMON LAW JURISDICTIONS OUTSIDE CANADA

1. United Kingdom[1]

All organized societies that have developed beyond the barter stage need a system of sales rules, however rudimentary. Roman law during its classical period developed a very sophisticated system of sales rules which later greatly influenced many modern civil codes and systems with mixed systems of law, including the sales provisions in the old and new Civil Codes of Quebec.

English sales law was quite rudimentary until the late 18th century but developed rapidly thereafter in response to the industrial revolution.[6] By 1889, the common law rules had reached such a state of complexity that the then Lord Chancellor felt the need to codify them. The task was entrusted to Mackenzie Chalmers, a skilled draftsman and fine commercial law scholar, and led to the enactment of the Sale of Goods Act, 1893.[7] The Act was widely copied in other Commonwealth jurisdictions, including Australia, New Zealand and Canada, and also greatly influenced the Uniform Sales Act of 1906 prepared by Samuel Williston for the NCCUSL. Nevertheless, great though its merits were, the SGA had the misfortune of being enacted just as the United Kingdom was about to enter the automobile age and the new era of mass production and prepackaged and standardized goods sold to generally unsophisticated consumers.

(a) Post-World War II Developments

No significant amendments were made to the SGA in the interwar period but many changes to English sales law have been made over the past half-century. The important developments are the following:[8]

(1) Law Reform (Enforcement of Contracts) Act, 1954. The Act abolished the writing requirements in s.4 of the SGA for contracts of sale above ten Pounds.

(2) Misrepresentation Act 1967. The Act changed some of the rules governing contracts induced by a party’s misrepresentation and in particular allowed the recovery of damages for negligent misrepresentations by a contracting party.

(3) Supply of Goods (Implied Terms) Act 1973 (“SOGIT 1973”). SOGIT 1973 made three main changes: it amended the implied terms in the SGA; limited the seller’s right to exclude or restrict liability for breach of the implied terms; and enacted implied terms for hire-purchase agreements.

(4) Consumer Credit Act 1974 (“CCA 1974”). CCA 1974 substituted new hire-purchase implied terms provisions in SOGIT 1973. The changes were all minor or inconsequential.

(5) Unfair Contract Terms Act 1977 (“UCTA 1977”). UCTA 1977 is a general contract measure for the control of exclusion clauses. It includes provisions relating specifically to exclusion clauses in sales, hire-purchase agreements and other contracts for the supply of goods. The sale and hire-purchase agreement provisions are derived from SOGIT 1973.

(6) Supply of Goods and Services Act 1982 (“SGSA 1982”). The Act introduces implied terms in contracts for the transfer of goods not involving sales, in contracts of hire and in contracts for the supply of services.

(7) Consumer Protection Act 1987 (“CPA 1987”) CPA 1987, Part I deals with product liability. It is based on the European Community Product Liability Directive. Part II deals with product safety. Part III deals with misleading price indications.

(8) Sale of Goods (Amendment) Act 1994 (“1994 Amendment Act”). The 1994 Amendment Act repealed the market overt rule.

(9) Sale and Supply of Goods Act 1994 (“SSGA 1994”). SSGA 1994 implements the recommendations of the English and Scottish Law Commissions in their report on the Sale and Supply of Goods (Cmnd. 137, May 1987). It amends three of the earlier Acts and makes important amendments to the parent SGA.

(10) Sale of Goods (Amendment) Act 1995 (“1995 Amendment Act”). The Act deals with the sale of an undivided share in goods; the sale of unascerained goods forming part of a larger bulk; and ascertainment by exhaustion.

In view of the large number of changes made to the British Sale of Goods Act over the past 30 years, there is growing pressure for the British government to introduce a revised Sale of Goods Act.

2. Australia[1]

Australian legislatures have been active in sale of goods law reform over the past few decades, but their efforts have been directed mainly to consumer transactions. There has been no attempt at comprehensive reform of sales law at large. The New South Wales Law Reform Commission released a report on the sale of goods in 1987 which recommended a modest package of reforms in relation to: (1) innocent misrepresentation; (2) intermediate stipulations; (3) the statute of frauds requirements; (4) the passing of property as a bar to the buyer’s right of rejection; and (5) the relationship between the rules governing acceptance and the buyer’ statutory right of examination. New South Wales amended its sale of goods legislation in 1988 to give effect to these recommendations. Some of these reforms have also been made in other States. The Law Reform Commission of Western Australia began work on a sale of goods reference in 1995. It produced two Discussion Papers, one dealing with implied terms and the other with equitable rules applicable to sales contracts. However, work on the reference was suspended after that and so far it has not been resumed.

Reforms in the consumer sales area cover the following ground: (1) implied terms and the buyer’s right of rejection; (2) manufacturers’ liability; (3) misrepresentation and misleading conduct; (4) unconscionable transactions; and (5) car sales. A notable feature of the Australian scene distinguishing it from the Canadian position is the very active role played by Commonwealth legislation through the Commonwealth Trade Practices Act with respect to statutory implied terms in consumer contracts, civil liability of business enterprises for misrepresentation and misleading conduct, and manufacturers liability to buyers for defective goods.[10]

3. United States

(a) Uniform Sales Act

Before the adoption of the Uniform Sales Act in 1906, the sales laws of the individual states differed greatly in detail and most of it was case law based. Unhappily, the USA was not entirely successful in its goal of national uniformity since only 36 states adopted the Act before it was replaced in the early 1950s by Article 2 of the Uniform Commercial Code (UCC). Williston greatly admired Chalmers’ work on the British Act. Nevertheless, there were important differences between the USA and the British Act, which included the following:[11] the USA did not distinguish between warranties and conditions; it adopted a reliance definition of express warranty, and it retained a different remedial regime for buyers’ remedies.

(a) Uniform Commercial Code, Article 2

The Uniform Commercial Code project was initiated in the 1940s. The initial impulse for the project was merchant pressure to revise the Uniform Sales Act. In the end, however, it was Article 9 on Secured Transactions that provided the driving force for the successful adoption of the Code by all the states and the District of Washington.

Karl Llewellyn, the chief reporter for the Code and the principal drafter of Article 2, was very critical of many features of the USA and felt strongly that modern sales law should be functional and flexible in character and avoid “lump concept” thinking. He also seized the opportunity to modernize important aspects of the formational rules governing sales contracts, including the binding character of firm offers (UCC 2-205), the battle of forms (UCC 2-207), the interpretation of output and requirement contracts (UCC 2-306), and the enforceability of contract modifications whether or not supported by consideration (UCC 2-209). Llewellyn was also responsible for the famous section 2-302 explicitly authorizing American courts to police unfair contract terms and the good faith behavioral standards applied to merchant parties in the exercise of their contractual powers. Other important features of Article 2 include the following:

  • Demotion of title as the touchstone for the transfer of risk and the assignment of other rights and obligations flowing from the contract (UCC 2-509);
  • Entitlement to adequate assurance of performance where a party has reasonable doubts about the other party’s ability to perform its contractual obligations (UCC 2-609);
  • Greater flexibility in dealing with effects of anticipatory repudiation (UCC 2-610);
  • A buyer’s right to revoke acceptance of goods because of hidden defects (UCC 2-608);
  • Recognition of radical and uncontemplated economic changes as basis for frustration of contract (UCC 2-613);
  • General exception to nemo dat rule arising from entrustment of goods to a merchant seller (UCC 2-403); and
  • Seller’s right to specific performance where no alternative market exists for the goods (UCC 2-709).

(a) Revised Article 2

Starting in the early 1980s, the sponsors of the Uniform Commercial Code initiated projects for the revision of the Articles of the Code. It was natural for Article 2 to be included in the agenda. An Article 2 Review Committee (later known as Article 2 Drafting Committee) was established and proceeded with its work in two phases.[12] In the first phase (1987-91), the Study Group satisfied itself that there was sufficient consensus in support of a revision. The second phase (1991-99) consisted of the actual revisionary and draft work. The Committee completed its work in 1999 and, after a vigorous debate, Revised Article 2 was approved at the annual meeting of members of the ALI in May 1999. Important changes in the revised Article included the following:[13]

  • New provisions were added dealing with electronic contracts (UCC 2-210, 2-213);
  • The test of unconscionability was broadened (UCC 2-302);
  • The “battle of the forms” provision (UCC 2-207) was rewritten to provide greater flexibility;
  • “Remedial Warranties” were given a separate status (UCC 2-313)[14];
  • The benefit of the seller’s warranties were extended to remote buyers (UCC 2-409);
  • Disclaimer of consumer warranties must be written in consumer friendly language; and
  • Prepaying Buyers were given stronger protection (UCC 2-824).

Some of these changes were strongly opposed by counsel for industry groups and they expected to receive a more sympathetic hearing from NCCUSL than they had received at the ALI annual meeting. Revised Article 2 was on NCCUSL’s annual meeting agenda for August 1999. Fearing that rejection of the report would damage the Code’s image, NCCUSL’s Executive decided to entertain a motion to table the report, and tabled it was. This meant that the report was returned to the ALI for further review to eliminate the controversial features. The ALI established a new Drafting Committee and appointed a new reporter [15]in the fall of 1999. The new committee presented a Discussion Report to the May 2000 annual meeting of the ALI[16], and is expected to present a final report for the year 2001 meeting.

III. CANADIAN SALES LAW DEVELOPMENTS

1. Pre-1980 History

All of the common law provinces have adopted the British Sale of Goods Act 1893 more or less verbatim.[17] Such changes as have been adopted are mainly of post-World War II origin[18] and have been inspired more by domestic Canadian developments than by the many changes made to the parent Act in the UK. Some of the changes adopted in the provincial SG Acts involve the repeal of the Statute of Frauds writing requirements (British Columbia and Ontario), modification of the s.25 provisions in the light of the Personal Property Security Acts (most of the provinces), and deletion or modification of the auction sale provisions (Alberta); restriction or prohibition of exclusion of implied warranties and conditions (many provinces); extension of sales warranties to chattel leases (British Columbia); and creation of a non-possessory lien for prepaying buyers (again British Columbia)[19].

In addition, all the provinces, including Quebec, have adopted a great deal of consumer protection legislation that greatly impacts on the earlier provisions in the Sale of Goods Acts.[20]

1. OLRC Sale of Goods Report

In 1970, the Ontario Law Reform Commission received a reference from the Ontario Attorney General to review the Ontario Sale of Goods Act with a view to recommending changes. The attorney general was acting on a request from the Ontario Branch of the Canadian Bar Association whose commercial law subsection had recommended adoption of Article 2 by Ontario.[21] Before the OLRC was able to start work on the sales reference it was asked to give priority to another reference on warranties and guarantees in consumer sales.[22] As a result, the OLRC did not begin work on the Sale of Goods project until 1972.

The Commission presented its report to the Ontario government in 1979.[23] The Report comprised three volumes. Volumes 1 and 2 contained a detailed analysis of the shortcomings of the current Ontario Act and recommendations for change. It also contained many references to extensive empirical work on current sales practices in Ontario conducted by the OLRC research team. Volume 3 contained the draft bill for a revised Sale of Goods Act. The Report indicated that the Commission had considered the following options in determining the type of new sales legislation it should recommend for adoption in Ontario: (i) maintaining the existing structure and concepts of the SGA and adding to it many changes; (ii) adoption of Article 2 in place of the SGA; and (iii) adoption of a modified form of Article 2[24]. The Commission favoured the third alternative. Some of the many changes to Article 2 incorporated in the Commission’s draft bill included the following:

  • Abolition of writing requirements for contracts of sale regardless of the contract price
  • Greatly simplified "battle of the forms" provision
  • Abolition of the parol evidence rule
  • No formulaic prescription of language sufficient to exclude implied warranties
  • Adoption of a substantial breach test instead of Article 2's perfect tender rule as basis of party's right to cancel contract for breach by the other party
  • No provision, optional or otherwise (unlike UCC 2-318), holding seller liable for personal injuries to members of the buyer's family or other remote parties as a result of breach of the seller's warranties.

In 1979, the Ontario commissioners informed the ULCC of the OLRC's Sale of Goods Report and invited the Conference to consider whether the draft bill could be used as the basis for a Uniform Sale of Goods Act. The Conference accepted the invitation and, with the support of the Law Reform Agencies of Canada, appointed a seven member committee of experts ("Experts Committee") to review the draft bill and report its findings to the Conference.[25] The Committee reported in 1981 and recommended adoption of an amended version of the OLRC draft bill as the Uniform Sale of Goods Act.[26] The Committee recommended 10 substantive changes to the draft bill. Easily the most important was the Committee's preference for a perfect tender rule, coupled with a generous right to cure, in place of the substantial breach test and right to cure adopted in the draft bill.[27] The Conference accepted the Committee's recommendation and referred the draft USGA to the Legislative Drafting Section for review in conformity with the Conference's general practice. It also resolved that the draft Act, as approved by the LDS, be adopted by the Conference and that it be recommended for adoption by the provinces.[28]

The LDS proceeded with its review and submitted a revised draft Act in accordance with its mandate. Unfortunately, the Experts Committee was not consulted during the stylistic review and only learned of the many changes that had been made after the event. Prof. Ziegel pointed out in a letter to Derek Mendes da Costa in 1984[29] that the LDS had seriously misunderstood the purpose of some of the provisions in the draft Act and had unwittingly made substantive changes in the guise of drafting changes. He also noted that the sequence of sections and the location of definitions had been changed, greatly to the detriment (in his view) of the clarity and logical structure of the draft Act. At Prof. Ziegel's invitation, other members of the Expert Committee reviewed other parts of the draft Act with which they had particular familiarity and encountered the same problems that he had.[30]

These expressions of concern by the Experts Committee made an impact. Between 1984 and 1990 the Conference received a series of recommendations from the LDS for changes to the USGA. The authors of this report have not examined the current version of the Uniform Act and therefore cannot say whether it faithfully reflects the amended draft Act as presented by the Experts Committee. We do not dwell on the significance of this fact because later in this report we recommend that a new committee be struck to review the 1981 Expert Committee's report and draft Act in light of the many technological and legal changes that have occurred in the meantime.

3. Quebec Sales Law[1]

The current Quebec sales provisions appear in Book V, articles 1708 to 1805, of the Civil Code of Quebec, which came into effect in January 1994. There are many differences between the history, structure and concepts of these provisions and the sale of goods Acts of the common law provinces and Article 2 of the Uniform Commercial Code, of which the following are the more important:

  • Historically, the Quebec provisions are derived from the French Code Napoleon, which in turn were much influenced by Roman law concepts. However, the new Quebec provisions have also been influenced by Quebec’s Consumer Protection Law and by several articles in the Vienna Convention on Contracts for the International Sale of Goods (CISG or “International Sales Convention”).[32] The common law sales provisions are largely indigenous and, in the case of Article 2, have a strong functional orientation. The common law provisions are also much more detailed than the Quebec provisions.
  • The Quebec sales provisions apply to sales of immovables as well as movables and, it seems, also to sales of incorporeal property (intangible property)[33]; the common law Acts and Article 2 are restricted to goods.
  • The Quebec sales provisions are also governed by the general contract principles in Book V, Title 1 on Obligations, which makes it unnecessary for the sales provisions to repeat them. Because the common law provinces do not have a code of contract law, the provincial Sale of Goods Acts contain several sections dealing with formation of the contract, writing requirements, capacity, risk of loss and frustration of the contract due to supervening circumstances. As previously noted, Article 2 contains a large number of sections dealing with formation of the contract of sale and related issues.
  • In the Civil Code, the seller’s warranty obligations are differently articulated and have a different scope. In terms of quality of the goods, the seller’s primary obligation is to deliver goods free of hidden defects (vices cachés) which the buyer could not have discovered by reasonable examination prior to purchase.[34] This obligation applies to all sellers. In the common law provinces, the implied conditions of merchantability and fitness for purpose only apply to commercial sellers but there is no obligation on a buyer to examine the goods prior to purchase.
  • Art. 1730 of the new Civil Code also deems the manufacturer, wholesaler and importer of goods to warrant the goods “in the same manner” as the immediate seller of the goods.[35]
  • The Civil Code and the common law provinces approach regulation of the excludability of the implied warranties and conditions in different ways. Prima facie, both jurisdictions permit the seller to contract out of his statutory obligations but the Civil Code does not permit a seller to exclude responsibility for his personal fault (art. 1732) or permit exclusion where the seller knew or could not have been unaware of the defects (art. 1733). The preferred contemporary common law approach to policing of disclaimer clauses is through judicial or statutorily based doctrines of unconscionability or, in the case of consumer goods, through statutory nullification of disclaimer provisions in the contract.
  • The buyer’s right to claim consequential damages for breaches of the seller’s obligations also differ. Apparently, the Civil Code only permits the recovery of consequential damages in the case of claims against professional sellers who are deemed to be familiar with the properties of the goods; the common law jurisdictions generally permit the recovery of foreseeable consequential damages from all sellers under the rule in Hadley v. Baxendale.
  • Where the seller lacks title to the goods, the Civil Code arguably provides stronger protection to the good faith buyer than do the Sale of Goods Acts. Under the Code, if the seller lacks title the sale is a nullity but the owner is bound to reimburse the buyer for the price the buyer has paid if the sale occurred in the ordinary course of business of an enterprise.[36] The Sale of Goods Acts only explicitly protect the buyer where the goods were in possession of the seller with the buyer’s consent under a previous sale[37] although protection is also afforded good faith buyers under other statutory provisions and common law doctrines of estoppel.[38]
IV. INTERNATIONAL DEVELOPMENTS 1. Hague Uniform Laws 1964

International jurists have long been interested in promoting the adoption of a common sales law regime in international transactions. The cause was taken up in the late 1920s by the Rome Institute for the Unification of Private Law (UNIDROIT) and a working group was established to prepare a draft convention. The work was resumed after World War II. In 1948, two conventions were approved at a diplomatic conference held at The Hague: one on a Uniform Law on Contracts for the International Sale of Goods (ULIS) and a second on a Uniform Law on the Formation of Contracts for the International Sale of Goods (ULFC).[39] The Conventions found few adherents and only 9 states had adopted one or both of the Laws before the Uniform Laws were withdrawn by its sponsors in 1981. Canada was not among them. The lack of popularity of the Uniform Laws was ascribed to their complexity and the fact that they were essentially a Western European creation.

2. The UNCITRAL International Sales Convention

Nevertheless, the need for a more representative and widely adopted International Sales Convention continued to be felt and was the first of the projects to be taken up by the United Nations Commission on International Trade Law (UNCITRAL) on the Commission's establishment in 1966. A new Working Group was established and CISG was approved at the Vienna Diplomatic Conference in April 1980. The Convention came into force on January 1, 1988 and, as of 1999, had been ratified or adopted by 56 states. The adopting states include most of Europe, many common law jurisdictions (including Australia, New Zealand, Singapore and, most importantly, the USA, but not the United Kingdom), the Russian Federation, and many Latin American countries. Canada acceded to the Convention on April 23, 1991, with effect from May 1, 1992.[40]

More than 500 decisions have been rendered so far on some aspect of the Convention by domestic courts and domestic and international arbitral tribunals. However, very few of them have emerged from common law jurisdictions. There are only about a dozen US reported decisions or references to CISG and only two

so far in Canada.[41] Despite the initial support, even enthusiasm, for the Convention it seems that in practice common law lawyers prefer to deal with the domestic legal systems with which they are most familiar even where a contract is clearly governed by the Convention. There may also be other reasons. Important aspects of modern sales law are expressly excluded from the scope of the Convention[42] and some of the Convention provisions have been overtaken by technological and legal developments.[43]Also, there is not always a comfortable fit between the marriage of common law and civil law concepts in CISG and important practical questions remain unresolved.[44]

V. WHERE SHOULD THE ULCC GO FROM HERE?

All we have said so far provides necessary background information for the primary purpose of this Report: to give the Conference the benefit of our opinion on what the ULCC should be doing with respect to the role of sales law as part of the Commercial Law Strategy. In our view, there are three components to this enquiry:

1. Should a Sale of Goods Act be included as part of the CLS?

2. If the answer is yes, what type of Act should be included?

3. What should be done about Quebec?

1. Should a Sales Act be Included?

In our view, a Commercial Strategy that does not provide a place for a sale of goods Act would be seriously incomplete. As we have explained earlier, sales transactions constitute a predominant aspect of modern commerce and may be expected to do so as long as individuals, corporations and governments have material needs.[45]

In putting forward this position we are not insensitive to some possible counterarguments. One concern might be that there is only a modest amount of sales litigation and that this shows that the present laws are working well. The answer is that litigation activity does not necessarily provide a reliable indication of how well laws work. The absence of cases does not prove that parties know what the current law means or that that they are satisfied with what it says. Litigation costs are high, many complaints only involve modest sums, and many parties cannot afford to litigate while those that can often find it not worth while. Governments themselves have actively been promoting alternatives to litigation. The relatively small number of cases in the sales area can also be explained at least partly on the basis that for the most part sales law comprises default rules which apply when the contracting parties have not indicated their preferences for other rules. The freedom to contract around rules which parties find uncongenial reduces the need for litigation after the event.

This last consideration raises another potential argument against the case for reform. If the parties are free to contract around the law, why does it matter what the law says? The answer is obvious. It costs time and money to negotiate agreements around default rules. Lawmakers should strive to minimize these costs to business. They can do so by making sure as far as possible that the law matches modern commercial expectations. To be sure, parties may still want to contract around a modernized sales law, but they are likely to have less need for doing so than if the law is out of date or otherwise deficient.

In any event, providing a set of default rules describes only one (albeit very important) function of modern sales law. It serves at least three other purposes. First, the law must protect weaker parties against oppressive contract clauses and unfair bargains that offend our sense of how much even a free market in goods and services can tolerate. Coupled with this there must be behavioral baselines of good faith and fair dealing in the formation of the contract and performance of the parties’ obligations. These normative rules, while obviously of importance to consumers, also address the needs of small businesspersons, especially those facing standard form contracts by powerful business enterprises.

Second, the Act must address the recurring problems that arise where the seller lacks title to the goods that the seller purports to sell and to resolve the competing claims of the true owner and the good faith buyer. In the third place,

a modern sales law must address emerging problems (such as those posed by electronic forms of contracting or a manufacturer’s warranty obligations to the ultimate consumer of the manufacturer’s goods where there is no privity of contact between the parties in the classical sense) where existing law provides no clear or satisfactory answers and where, for whatever reason, the market is not in a position to do so either.

2. What Type of Act?

In our view, most of the factors point in favour of using the draft Uniform Sale of Goods Act approved by the Committee of Experts in 1981. It represented the best thinking of informed scholars in Canada at the time even though some of the Committee’s conclusions were not unanimous. We see no virtue in adopting the piecemeal postwar U.K. legislative approach, although some of the amendments could usefully be considered for inclusion in the ULCC Act. We also believe, however, that the draft Act needs to be reviewed before it is included in the Commercial Law Strategy. Almost 20 years have elapsed since the Committee did its work and much has happened since then. We also recommend that the Committee’s composition be expanded to include some experienced members of the commercial bar and in-house counsel of manufacturers and retail organizations. This will hopefully ensure that the new Committee’s recommendations enjoy broad support and that differences in policy can be resolved before the ULCC is asked to add its imprimatur to the Act. It is realistic to expect that lawyers representing commercial interests may take a different view of some of the features of the 1981 draft Act from that held by members of the Experts Committee.

(a) Issues to Be Considered

We hope that the new Committee’s deliberations will also include a study of the following issues:

  • The interface between electronic commerce and the Sale of Goods Act, and the adequacy of the provisions in the existing or prospective provincial and federal electronic commerce provisions to deal with the formational problems. The drafters of Revised Article 2 felt that the Article needed its own provisions. We are not in a position to say whether the considerations that influenced the American drafters are also relevant for Canada.

    The interface between the SGA and consumer protection. This question raises issues of policy and drafting preferences. Some would prefer all consumer issues to be hived off into consumer protection legislation; others take a less dogmatic view and believe there is legitimate scope for addressing some consumer issues in the SGA, for example, the warranty liability of sellers to remote buyers. Article 2 has always adopted an undogmatic approach, which we also share. In Canada, the provincial legislation shows no consistent pattern on this issue.[46]

    The treatment of formational issues. The 1981 draft Act, following Article 2’s lead, contains a substantial number of formational sections. In ideal conditions, they might be better located in a Law of Contract Amendment Act (LCAA).[47] This would make it clear that the changes are not meant to be limited to sales contracts. However, there is little evidence that the provinces are ready to contemplate even a mini-contract Code and it may be better therefore to settle for half a loaf than to have no formational provisions at all.

(b) How to Ensure that the Provinces Will Adopt the USGA?

This is a key issue. There is no point in investing intellectual capital to review the 1981 draft Act unless there are substantial prospects of the provinces actually enacting a new Sale of Goods Act. The problem is a familiar one and many federal jurisdictions face the challenge of persuading the constituent members of the Union to adopt uniform legislation. We strongly urge the ULCC to seriously consider adopting Australia’s template solution. This is a two-step procedure and involves (a) a member state agreeing to be the first to enact the agreed on legislation and (b) the other member states agreeing to enact identical legislation within an agreed time frame after the first enactment.[48] No doubt the template model lends itself to variations but the principle itself is of overriding importance if the ULCC’s Commercial Law Strategy is to achieve meaningful success.

3. The Quebec Position

It does not seem to us realistic to expect Quebec to abandon the sales provisions in the new Civil Code in favour of a uniform Act adopted by the ULCC, and in any event the Uniform Act would not fit into the civilian framework without numerous changes and adaptations. It seems to us equally unrealistic to ask the common law provinces to abandon the 1981 draft Act and the immense efforts that have gone into its preparation in favour of an entirely new statutory creation.

A possible compromise would be for Quebec and the common law jurisdictions agreeing to enact a domestic version of CISG to govern sales contracts between Quebec contracting parties and contracting parties in another province.[49] If there was evidence of serious problems arising because of the different sales regimes in Quebec and the common law provinces this approach might be worth considering, although it presents significant difficulties of its own. However, the available evidence does not show that there are serious problems, although admittedly the data is rather dated.[50] We believe it better therefore for market forces and informal consultation between Quebec officials and their counterparts in the other provinces to bring about greater harmonization in the sales rules (as to some degrees they already have[51]) than for the ULCC to try to persuade Québec and the common law provinces to adopt a contrived solution that may do more harm than good.

Next Annual Meeting

2018 Conference (Centennial)

Delta Hotel

Québec City, QC

August 12 - 16, 2018