International trade and commercial transactions in the UK (England & Wales): overview

A Q&A guide to the regulation of international trade and commercial transactions in the UK (England & Wales).

The Q&A covers key matters relating to sale of goods contracts, including rules on formation, price and payment, delivery, passing of title and risk, variation and assignment, enforcement and remedies, exclusion of liability, choice of law and jurisdiction, and arbitration. It also provides an overview of the rules governing storage of goods, imports, trade remedies, exports and international trade restrictions.

To compare answers across multiple jurisdictions, visit the international trade and commercial transactions Country Q&A tool.

This Q&A is part of the International Trade and Commercial Transactions Global Guide. For a full list of jurisdictional Q&As visit www.practicallaw.com/internationaltrade-guide.

Contents
1. What are the recent trends affecting the regulation of international trade in your jurisdiction? Is your jurisdiction a member of the World Trade Organization (WTO)?

Recent trends

Depending on the outcome of the negotiations triggered by the UK vote to leave the EU, there are likely to be significant changes to the regulation of trade with the EU and third countries. It is likely that the UK and the EU will agree to extend many or most of the current trading arrangements on goods and services moving between them as part of their negotiation over a future relationship. However, the scope of the changes will only emerge in the two-year negotiation period set by Article 50 of the Treaty on the Functioning of the European Union.

In particular, it is likely that tariff-free treatment will be maintained for goods, although there may be a need for customs regulation (including rules of origin for goods traded). The UK is likely to seek the maintenance of the terms of existing trade agreements in place between third countries and the EU. The status of these third-country agreements will depend on whether the relevant third countries agree to extend the terms of those agreements to the UK as a separate jurisdiction.

Until the UK actually leaves the EU, there will be no substantive change to UK trade rules, which are still covered by the new EU Uniform Customs Code and by all other EU commercial policy instruments (such as anti-dumping measures). Trade agreements with third countries also continue to apply, including the EU-Canada Comprehensive Economic and Trade Agreement, which will be provisionally applied pending ratification by EU member states and Canada.

Reform

See above, Recent trends.


 

Contracts for the sale of goods

General

2. What is the legal system in your jurisdiction based on (for example, civil law (codified), common law or sharia law)?

England and Wales comprises one jurisdiction (references to English law or English court(s) in this Q&A refer to the laws and court(s) of England and Wales, respectively) and have a common law legal system derived from custom, statute and judicial precedent.

While there is no general doctrine of good faith for commercial transactions, the English courts have given effect to express obligations of good faith in contracts (Compass Group UK and Ireland Ltd (trading as Medirest) v Mid Essex Hospital Services NHS Trust [2013] EWCA Civ 200). The courts have also implied duties of good faith into contracts of partnership, agency, insurance and other agreements involving fiduciary obligations. Further, in recent years, they have considered widening the scope of agreements in which they will recognise an implied duty of good faith (Yam Seng v International Trade Corporation [2013] EWHC 111 QB).

Formation

3. What domestic legislation and international rules apply to a sale of goods contract in your jurisdiction? Are standard international contractual terms commonly used?

Domestic legislation

The following domestic Acts and regulations apply to sale of goods contracts in England and Wales:

  • Sale of Goods Act 1979 (SGA). The SGA consolidates the law relating to the sale of goods in England and Wales. Certain provisions of the SGA relating to contracts between a trader and a consumer (that is, not business-to-business) have been replaced wholly or in part by the new Consumer Rights Act 2015.

  • Unfair Contract Terms Act 1977 (UCTA). UCTA applies to sales of goods to restrict the ability of persons to exclude or limit liability for negligence, breach of contractual obligations, statutory implied terms, guarantees and indemnities, and misrepresentation. Some provisions of UCTA relating to contracts between a trader and a consumer have been replaced wholly or in part by the new CRA.

  • Misrepresentation Act 1967. This Act regulates exclusions of liability for misrepresentations made in relation to sale of goods contracts and imposes a statutory liability for misrepresentations that are made at the negotiation stage.

  • Consumer Credit Act 1974. This Act applies to sale of goods contracts if payment is made by instalments.

  • Consumer Protection Act 1986. This Act imposes strict liability on manufacturers and EU importers for injuries caused by goods that are unsafe and intended for consumer use.

  • Contracts (Rights of Third Parties) Act 1999. This Act allows a third party to a contract to enforce or rely on a term of the contract if the contract allows the third party to do so, or if the specific terms of the contract imply to confer a benefit on them.

  • Consumer Protection (Distance Selling) Regulations 2000. This legislation applies to contracts where goods are sold by businesses to consumers at a distance, with no face-to-face negotiations.

  • Electronic Commerce (EC Directive) Regulations 2002. These require various steps and details to be provided when selling goods to another business or consumer over the internet or by e-mail.

  • Consumer Protection from Unfair Trading Regulations 2008. These regulate the sale of goods and require businesses not to mislead customers through acts or omissions, or subject them to aggressive commercial practices.

  • Business Protection from Misleading Marketing Regulations 2008. These prohibit suppliers from advertising goods to traders in a misleading way.

  • Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013. These allow consumers who have entered into a contract remotely to cancel a contract during a statutory cancellation period (cooling-off period).

  • Consumer Rights Act 2015. This Act consolidates existing consumer protection legislation and gives consumers a number of additional rights and remedies (compared to those available under business-to-business contracts). The old legislation (for example, the Unfair Terms in Consumer Contracts Regulations 1999) continues to apply to contracts entered into before 1 October 2015.

International rules

The following international rules apply in the UK:

  • Customs Convention on the International Transport of Goods under Cover of TIR Carnets 1975. This applies to the TIR transport of goods across one or more borders where part of the journey is made by road.

  • Convention for the Unification of Certain Rules for International Carriage by Air 1999. This governs airline liability for damages suffered by passengers, baggage and cargo.

The UK has not ratified the UN Convention on Contracts for the International Sale of Goods 1980.

Standard contractual terms

Standardised terms must be expressly incorporated into contract to have binding effect. The following standardised terms are commonly used:

  • International Chamber of Commerce (ICC) international commercial terms 2010. These terms are relevant to the international movement of goods.

  • UNIDROIT Principles of International Commercial Contracts. These terms were conceived for international commercial contracts.

  • Uniform Customs and Practice for Documentary Credits (UCP). These apply to the issuance and use of letters of credit between international commercial parties. Most letters of credit are governed by the UCP rules.

  • Uniform Rules for Demand Guarantees. These rules are developed by the ICC and govern the rights and obligations of parties under demand guarantees (or demand bonds).

 
4. What are the authority/capacity rules for entering contracts, for different commercial entities?

Domestic companies

The capacity of a company is determined by its constitution. Prior to the Companies Act 2006, a company only had the capacity to enter into contracts falling within the objects specified in the objects clause of its memorandum of association. The Companies Act 2006 removed the need for an objects clause (section 31) and companies now have unlimited objects, unless they choose to expressly restrict them in their constitution.

Foreign companies

The capacity of a foreign company can be restricted by its constitution. It is therefore advisable to obtain a foreign legal opinion on whether the company has the ability to enter into a specific contract, and append the opinion to the contract.

Partnerships

General and limited partnerships are not separate legal entities and therefore do not have capacity to enter into contracts. Any contract is made through one or more of the partners. Parties entering into a contract with these types of partnerships must therefore consider the legal capacity of the partner, depending on whether that partner is an individual, a company or some other type of entity.

Limited liability partnerships, however, have a separate legal personality and unlimited capacity (see the Limited Liability Partnerships Act 2000).

Public bodies

Local authorities have the capacity to enter into contracts that concern their statutory function. Legal advice should be sought to determine if a local authority is within its capacity to contract.

Local authorities have a general duty to obtain "best value" arrangements to secure continuous improvement in the way that their functions are exercised, taking into account factors such as economy, efficiency and effectiveness (section 3(1), Local Government Act 1999).

Agency rules

A third party can enforce a contract made by an agent if the agent has actual or ostensible (apparent) authority. Actual authority means that the agent has been given express or implied authority by the principal to act on its behalf. Ostensible authority arises when a person is holding a position that is associated with authority to act on behalf of the contracting party. Ostensible authority can also arise where a body with actual authority has held out a person as having authority, and has induced a third party to contract with the organisation in reliance on that representation.

Insolvency

Under the Insolvency Act 1986, the liquidator of an insolvent company can deal with the company's property and enter into contracts to this end.

 
5. What are the essential requirements to create a legally enforceable contract?

Substantive requirements

The essential requirements to create a legally enforceable contract are as follows:

  • Offer.

  • Acceptance.

  • Consideration.

  • Intention to create legal relations.

  • Certainty of terms.

Offer. An offer is an expression of willingness to contract on specified terms, which is made with the intention to create a binding agreement if accepted by the offeree. An offer can be express or implied from conduct, and can be addressed to one particular person, a group of persons or the world at large. Offers are generally revocable and can be terminated by any of the following:

  • Withdrawal.

  • Lapse of time.

  • Failure of a condition precedent.

  • Death of the offeror.

An offer is different from an invitation to treat. An invitation to treat invites offers to be made. For example, at an auction, the auctioneer makes an invitation to treat to potential bidders and each bid is an offer that the auctioneer can accept or reject (Payne v Cave (1789) 3 TR 148). Other examples of invitations to treat are advertisements, price lists and catalogues (Grainger and Sons v Gough [1896] AC 325).

Acceptance. An acceptance is an unconditional assent to the terms of the offer. The acceptance must be communicated to the offeror. Silence will not amount to acceptance (Felthouse v Bindley [1862] EWHC CP J35) but acceptance can be implied from conduct in some circumstances. Generally, the offeror must receive the acceptance before the contract is effective. If the offeror prescribes a method of acceptance, the offeree must use that method. Use of any other method will constitute a counteroffer.

In determining when an acceptance is received, the English courts have distinguished between non-instantaneous and instantaneous forms of communication. For acceptance by post, acceptance takes place when it is sent, but for acceptance by e-mail, acceptance takes place when it is received by the offeror (Adams v Lindsell (1818) B & Ald 681, Entorres v Miles Far East [1955] 2 QB 327, David Baxter Edward Thomas and Peter Sandford Gander v BPE Solicitors (a firm) [2010] EWHC 306 (Ch)).

Unconditional assent means that the terms of the acceptance must exactly match the terms of the offer. If the two differ, this constitutes a counteroffer that the offeror can accept or reject. In a "battle of the forms" situation during negotiations of agreements between businesses, the last set of terms dispatched before acceptance generally prevail.

Consideration. Each party must receive some benefit and suffer some detriment. This benefit or detriment is known as consideration. A promise that is not supported by consideration is a gift and will only be enforceable under English law if it is made by deed (although promises not supported by consideration can be upheld in equity under the doctrine of promissory estoppel in certain circumstances). Consideration does not need to be adequate, but must come from the promisor and must not have been given in the past.

Intention to create legal relations. An intention to create a legally binding agreement is presumed in commercial situations.

Certainty of terms. The terms of the contract must be sufficiently certain so that it is objectively possible to determine exactly what the parties have agreed. Parties should ensure that no essential terms have been omitted and that there is no ambiguity or vagueness.

Formal requirements

Unless specified in statute (for example, a legal mortgage must be in writing and executed as a deed to be enforceable), a contract does not need to be in a particular form. Contracts can be written, made orally or implied from the conduct of the parties. A contract made in electronic form, such as through e-mail or on a website, is legally enforceable if it meets the substantive requirements (see above, Substantive requirements).

English is most commonly used for contracts that are governed by English law. There is no specific language requirement for the validity of a contract and no translation requirement for contracts drafted in another language. However, for practical reasons, if a dispute regarding a contract drafted in another language is submitted to the English courts, a translation will most likely be required. The parties should consider how a translation may affect the meaning of any contractual terms.

Price and payment

6. If price provisions are not agreed by the parties, does local law impose requirements in relation to price (for example, the time, method and place of payment)?

English law does not impose any requirements in relation to price (such as the method or place of payment), leaving this to be agreed between the parties.

Common methods of payment in commercial transactions include:

  • Letters of credit.

  • Bills of exchange.

  • Promissory notes.

  • Banker's draft.

  • Funds transfers.

A letter of credit is a letter from an issuing bank to another bank (often a bank located in another country) assuring that the seller will receive payment from the buyer of the amount specified in the letter if the conditions of delivery are met. Most letters of credit now incorporate standard terms of the Uniform Customs and Practice for Documentary Credits.

A bill of exchange is an unconditional written order signed by one party ordering another party to make a payment to a specified third party (section 3, Bills of Exchange Act 1882). The bill can be payable on demand or at a future date, and the payee can transfer the bill by endorsing it and delivering it to the transferee.

A promissory note is an unconditional written promise to pay a specified sum of money to the other party (or to their order or to bearer) (section 83, Bills of Exchange Act 1882). A promissory note can be payable on demand or at a specified future date.

A banker's draft is a cheque for payment directly from the bank, rather than from the individual drawer's account. The advantage of a banker's draft is that the party depositing the draft does not need to wait for it to clear. With a normal cheque, the clearing process can take a few days and the cheque can bounce if the payer does not have enough money in their account. With a banker's draft, the bank has already verified that there was enough money in the payer's account. The parties must agree the currency in which the payments must be made.

Parties can include a contractual right to set-off. There are also four main rights of non-contractual set-off that may arise when there is no set-off clause in the contract:

  • Legal set-off for claims and counterclaims in litigation.

  • Equitable right to set-off for closely connected claims.

  • Banker's set-off.

  • Insolvency set-off.

Parties can however choose to exclude or vary legal, equitable and banker's set-off in their contract. Parties cannot contract out of the rules relating to insolvency set-off, as these rules are mandatory and any attempt to do so will be void (Halesowen Presswork and Assemblies Ltd v National Westminster Bank Ltd [1972] AC 785).

Delivery

7. If delivery provisions are not agreed by the parties, does local law impose requirements in relation to delivery (for example, the time, method and place of delivery)?

English law does not impose any requirements regarding the method or place of delivery of goods. Parties should agree these details between themselves. However, if no place of delivery is agreed, delivery takes place at the seller's place of business (section 29(2), Sale of Goods Act 1979 (SGA)). The goods must be delivered within a reasonable time (section 29(3), SGA) and at a "reasonable hour" (section 29(6), SGA), to be determined with reference to relevant industry practices.

The seller must deliver the goods and the buyer must accept and pay for them, in accordance with the terms of the contract of sale (section 27, SGA). Acceptance occurs when the buyer either (section 35, SGA):

  • Tells the seller that it has accepted the goods.

  • Does any act in relation to the goods that is inconsistent with the ownership of the seller.

If the buyer has not previously examined the goods, it is not deemed to have accepted them until it has had a reasonable opportunity to examine them.

The parties can agree on particular packaging requirements in the contract. However, there is an expectation that the seller will package the goods in such a way that they do not get damaged in transit, and that it will bear the expense of doing so (section 29(6), SGA). The requirement for goods to be of satisfactory quality (section 14, SGA) extends to the packaging.

Passing of title and risk

8. If not agreed by the parties, when does title to the goods pass to the buyer?

If the parties have not agreed otherwise, the following rules will apply (section 18, Sale of Goods Act 1979 (SGA)):

  • Where there is an unconditional contract for the sale of specific goods in a deliverable state, title passes to the buyer when the contract is made.

  • Where there is a contract for the sale of specific goods and the seller must do something to the goods for the purpose of putting them into a deliverable state, title does not pass until such thing is done and the buyer has notice that it has been done.

  • Where there is a contract for the sale of specific goods in a deliverable state but the seller must weigh, measure, test or do some other act to ascertain the price, the title does not pass until the act or thing is done and the buyer has notice that it has been done.

  • When goods are delivered to the buyer on approval or on sale or return or other similar terms, the property in the goods passes to the buyer when it:

    • signifies its approval or acceptance to the seller or does any other act adopting the transaction; or

    • retains the goods without giving notice of rejection beyond the expiration of the time fixed for return, or, if no time has been fixed, on the expiration of a reasonable time.

  • Where there is a contract for the sale of unascertained or future goods by description, the property in the goods passes to the buyer when goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller.

  • Where, in accordance with the contract, the seller delivers the goods to the buyer and does not reserve the right of disposal, it must be taken to have unconditionally appropriated the goods to the contract.

  • Where there is a contract for the sale of a specified quantity of unascertained goods in a deliverable state forming part of a bulk that is identified either in the contract or by subsequent agreement between the parties, and the bulk is reduced to (or to less than) that quantity, if the buyer under that contract is the only buyer to whom goods are then due out of the bulk, the remaining goods are appropriated to that contract at the time when the bulk is so reduced and title in those goods then passes to that buyer.

 
9. Are retention of title clauses enforceable in your jurisdiction? If so, what are the requirements to create a legally enforceable retention of title clause?

Retention of title (ROT) clauses are enforceable in the UK. To create a legally enforceable ROT clause, the seller must properly incorporate the ROT clause into the contract. The simplest way to do this is to include a ROT clause in a written contract. Further, Directive 2011/7/EU on combating late payment in commercial transactions provides that it is desirable to ensure that creditors are in a position to exercise a ROT on a non-discriminatory basis throughout the Community, if the ROT clause is valid under the applicable national provisions designed by private international law. Consequently, the English courts will enforce ROT clauses that are subject to the law of another EU member state.

Basic ROT clauses provide that the seller retain title to the goods, both legal and beneficial, until it has received full payment.

Under an all monies clause, the seller reserves ownership of the goods supplied until the buyer has paid not only for those particular goods, but also for any other goods supplied by the seller to the buyer, and has repaid all other monies owed to the seller, regardless of how that indebtedness arose. All the goods supplied, whether paid for or not, belong to the seller until the buyer has settled all invoices. There is some debate around whether an all monies clause creates a charge that must be registered at Companies House. It is therefore advisable to incorporate an all monies clause in a separate subclause, so that it can be severed from the basic ROT clause if it is held invalid by a court for lack of registration.

Under a proceeds of sale clause, where the goods supplied are to be sold on by the buyer, the seller can assert rights in the proceeds of sale to satisfy the price of the goods. This type of ROT clause creates a charge in favour of the seller, which will be void if it is not registered at Companies House within 21 days of its creation.

A mixed goods clause enables a seller who is selling goods for use in a manufacturing process during which it is mixed with other goods to assert rights of ownership in any new product resulting from the manufacturing process. Generally, for a ROT clause to be enforceable, the goods to which it relates must be identifiable. For this reason, this type of clause must be registered as a charge by the buyer in favour of the seller and will be void if not registered at Companies House within 21 days of creation.

If the goods are consumables that can be consumed during the credit period, and there is a credit period and a ROT clause, it is not a contract of sale within the scope of the Sale of Goods Act 1979 (SGA), so that the buyer is not afforded the protections available under the SGA ((1) PST Energy 7 Shipping LLC and (2) Product Shipping & Trading S.A. v (1) O.W. Bunker Malta Ltd and (2) ING Bank N.V. [2015] EWCA Civ 1058).

If the buyer resells the goods without first having paid for them and without the consent of the seller, the subsequent buyer does not acquire title. However, a buyer that is in possession of the goods with the seller's agreement can pass good title to a subsequent buyer who buys in good faith and without notice of the original seller's ROT (section 25, SGA).

 
10. If not agreed by the parties, when does risk in relation to the goods pass to the buyer?

If the parties have incorporated International Chamber of Commerce international commercial terms (Incoterms) into their contract, the Incoterms expressly provide for each type of contract (namely for FOB (free on board), CIF (cost, insurance and freight) and CFR (cost and freight) contracts) that the transfer of risk in relation to the goods passes to the buyer when the goods "pass the ship's rail".

If the parties have not incorporated Incoterms or agreed otherwise, risk in relation to the goods passes to the buyer at the same time as title (section 20, Sale of Goods Act 1979 (SGA)) (see Question 8). A seller seeking to retain title will not want to retain risk until title passes. In these circumstances, a well drafted contract will provide that risk passes on delivery, and that the buyer must insure the goods and note the seller's interest on the insurance policy.

Variation and assignment

11. What are the main ways and formalities to transfer contractual rights?

The main ways to transfer contractual rights are assignment, novation and subcontracting.

Assignment

An assignment is a transfer of a contractual right from one party to an existing contract (assignor) to another party (assignee). There are two types of assignment, legal and equitable.

To be a legal assignment, the assignment must meet all the following requirements (section 136, Law of Property Act 1925):

  • It must be absolute (unconditional).

  • It must not purport to be by way of charge only.

  • The assigned rights must be wholly ascertainable and must not relate to only part of a debt or other legal right.

  • It must be in writing and signed by the assignor.

  • The other party or parties to the agreement must be given notice of the assignment.

An equitable assignment is an assignment that does not meet the above requirements. The equitable assignee must join the assignor as a party in any action required to enforce the terms of the contract.

Only the benefits and not the burdens of a contract can be assigned (Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1993] UKHL 4). Parties to a contract can choose to restrict or prohibit assignment under its terms.

Novation

Novation transfers the contract outright, including the benefits and the burdens, to an incoming third party. Novation is a multi-party agreement by which the original contract is replaced with a new contract on identical terms, and the outgoing party is substituted with the incoming party. All original parties to the contract and the incoming party must consent to the novation. Novation does not need to be in writing but, for practical reasons, it is usually evidenced in writing. The outgoing party will usually provide an indemnity to the incoming party for past breaches, and the incoming party will provide the outgoing party with an indemnity against future breaches.

Subcontracting

Under a subcontract, a party to the main contract can delegate the performance of its obligations to a third party. The subcontracting party remains liable for the performance of the main contract, and is liable to the other party for any default in performance of those obligations by the subcontractor. The parties can expressly prohibit or restrict subcontracting in the terms of the contract. The common law does not allow subcontracting where the contractual obligations are manifestly too personal to be subcontracted because either:

  • The original party's performance is the essence of the contract (for example, a contract to paint a picture).

  • It can be implied from the circumstances that the parties do not intend to allow subcontracting.

 
12. What are the main rules relating to waiver of contractual rights?

There are three main ways in which contractual rights can be waived under English law:

  • By entering into a waiver, release or variation, by contract or by deed, under which a party agrees to abandon its contractual right(s).

  • By election, when a party has a choice between two mutually exclusive rights or powers, and by choosing one option loses the right to the alternative.

  • By estoppel, where a party unequivocally states or acts in a way that objectively indicates an intention to give up a right, or promises not to enforce a right, and the other party relies on that statement or action to their detriment, such that it is fair to treat it as having made a deliberate choice to waive and prevent the waiving party from pursuing that right.

A waiver, release or variation by contract or by deed must meet the essential requirements for a legally enforceable contract (see Question 5). A variation alters the terms of the original contract, whereas all other types of waivers do not.

The doctrines of waiver by contract or deed and waiver by estoppel can be applied to any right, power or immunity. However, waiver by election only applies to limited categories of rights (such as the rights of an innocent party to terminate or affirm the contract following a repudiatory breach by the other party).

Waiver by estoppel is usually temporary; it only arises if it would be unfair to allow the waiving party to rely on the right that they had previously represented that they would not rely on.

"No waiver" clauses can be included in contracts, but may not be effective in all cases. The purpose of these clauses is to prevent mere inaction from amounting to an unequivocal representation that the inactive party will not be enforcing a particular right, which may otherwise give rise to a waiver by estoppel.

Enforcement and remedies

13. What are the seller's obligations in relation to the description and quality of the goods?

Implied terms

The Sale of Goods Act 1979 (SGA) implies the following terms in relation to the description and quality of the goods:

  • The goods must correspond with their description in the sale agreement (section 13, SGA).

  • The goods must be of a standard that a reasonable person would regard as satisfactory, taking into account any description of the goods, the price (if relevant) and all the other relevant circumstances (section 14(2A), SGA).

  • The goods must be reasonably fit for any purpose expressly or impliedly made known to the seller by the buyer (section 14(2B), SGA).

The implied terms will not apply where the buyer has had a defect specifically drawn to its attention, or in certain situations where a buyer examines the goods and the examination should have revealed a defect.

These implied terms have been replicated for consumer contracts in the Consumer Rights Act 2015 (CRA).

Variation of implied terms

Parties can vary or exclude implied terms in their contract, subject to the:

  • Unfair Contract Terms Act 1977, for business-to-business contracts.

  • CRA, for business-to-consumer contracts.

Any exclusion or limitation clause must be properly incorporated into the contract and brought to the attention of the other party before or at the time of making the contract. It is not possible to exclude liability for fraud, and a party cannot exclude or restrict liability for death or personal injury resulting from negligence.

Defective products

The seller will be liable under the contract if the product does not meet the terms of the contract and the purchaser suffers loss or damage as a direct or foreseeable result. The general remedies under contract law will then be available to the purchaser against the seller. If no primary producer can be identified, the supplier may become liable.

Consumers have additional protections against defective products under the CRA, including the following:

  • A new statutory implied term that goods must match a model seen or examined.

  • Where goods are to be installed and are installed incorrectly, the consumer will have the same remedies as for defective/non-conforming goods.

  • A right to repair or replacement of the goods.

 
14. What are the different types and legal status of contractual terms in your jurisdiction?

Terms and representations

Terms are provisions of the contract agreed between the parties and giving rise to binding obligations. A representation does not amount to a term of the contract. It is a statement made during negotiations prior to, or at the time of, the making of the contract that relates to a matter of fact, circumstance or present intention, and which is influential in bringing about the agreement. If a term is breached, a party can bring an action for breach of contract. If a representation is not fulfilled, a party can bring an action for misrepresentation.

Any cause of action under contract law must be brought on the basis of contractual terms. Parties cannot generally rely on representations that have not been incorporated into the contract. Where a contract is in writing, there is a presumption that all representations intended to be terms are included in the written agreement. Parties can make this expressly clear by including an "entire agreement" clause that excludes reliance on representations outside the contract. However, parties can rebut the presumption if any of the following applies:

  • It is clear that the contract does not form the entire agreement.

  • Oral statements are treated as a separate collateral agreement between the parties.

  • The representation is of particular importance to the contract.

  • One party is relying on the superior expertise of the other.

Express and implied terms

Express terms are the terms specifically stated by the parties as terms of the contract, in writing or orally. Implied terms are terms that are not specifically included by the parties as terms of their contract but are read into it by the court or implied by statute, such as the provisions of the Sale of Goods Act 1979 regarding the requirement for goods to match their description (see Question 13, Implied terms). The courts will imply terms based on:

  • Usage and custom.

  • Previous dealings between the parties.

  • The apparent intention of the parties.

  • The common law.

For a term to be implied under the principle of usage or custom, it must be both:

  • Of notorious, certain and reasonable usage or custom within the relevant trade or place.

  • More than mere trade practice.

The term will be implied on the basis that both parties knew (or should have known) it to be a part of the agreement.

Where the parties have had a previous course of regular dealings on certain and consistent terms, a party may be able to show a reasonable expectation that those previous terms would apply to the current contract, so that they should be implied.

The courts will also imply terms if it is necessary for business efficacy or so obvious as to go without saying (Marks and Spencer plc (Appellant) v BNP Paribas Securities Services Trust Company (Jersey) Limited and another (Respondents) [2015] UKSC 72).

Parties can exclude implied terms by including either:

  • An "exclusion of implied terms" clause.

  • Terms that contradict implied terms.

Conditions, warranties and innominate terms

A condition is a major term that goes to the root of the contract. A warranty is a less important term that is not central to the contract. Because of its significance to the contract, breach of a condition will give the innocent party the right to terminate (or affirm) the contract and to claim damages. Breach of a warranty gives the innocent party the right to claim damages, but not to terminate the contract.

The innominate term approach does not classify terms as conditions or warranties, but looks at the effect of the breach and whether it deprived the innocent party of substantially the whole benefit of the contract (Hong Kong Fir Shipping v Kawasaki Kisen Kaisha [1962] 2 QB 26). The innocent party will be entitled to terminate the contract if it has been deprived of substantially the whole benefit of the contract.

 
15. What are the key rules on privity of contract and third party rights?

Generally, the doctrine of privity of contract means that any person (including a corporate entity) that is not party to a contract cannot sue or be sued under it.

However, there are certain situations in which third parties to a contract can derive enforceable rights from it. These exceptions to privity of contract arise out of legal precedent and statute. Case law has established the following exceptions:

  • When the benefit of a contract is declared to be held in trust for a third party, the third party can have an equitable right to enforce the trust benefit against other parties (Darlington Borough Council v Wiltshier Northern Ltd [1994] EWCA Civ 6).

  • Where there is a side agreement between one party to a contract and a third party, the third party can enforce the contract against the other parties to the contract if the third party has provided some consideration for the benefit conferred on them.

  • A third party may be able to bring a claim in negligence against a party to a contract provided that they can establish the existence of a duty of care, breach of that duty and consequential damage.

Under the Contracts (Rights of Third Parties) Act 1999, a third party can enforce a benefit conferred on them if the contract expressly identifies them by name, description or as a member of a class and either:

  • Provides for third-party enforcement.

  • Contains no express or implied provision that prevents the third party from enforcing the benefit conferred on them.

Parties can limit, place conditions on or entirely exclude the rights of third parties in their contracts.

Further:

  • Third parties have enforceable rights in relation to restrictive covenants affecting land (Law of Property Act 1925).

  • Consumers have certain enforceable rights regardless of contractual status (Consumer Rights Act 2015).

  • A vehicle owner is liable for contractual parking charges incurred by other drivers (Protection of Freedoms Act 2012).

 
16. What are the rules relating to invalidity, misrepresentation and mistake relating to contracts?

Invalidity

A contract can be deemed invalid in any of the following circumstances:

  • Illegality. The courts will generally refuse to enforce contractual terms that are contrary to statute or common law, or which have illegal consequences.

  • Restraint of trade. A contractual term that restricts a party's freedom to carry out its business is generally void unless its effect is no more than is reasonable to protect a party's legitimate interests.

  • Public policy grounds. Contracts that offend other public policy grounds (for example, contracts that are contrary to morality or the administration of justice) may be unenforceable.

  • Duress and undue influence. A contract will generally only be valid if it has been entered into freely and voluntarily. A contract made under duress or undue influence is voidable. The party can generally elect to either set aside or affirm the contract, and the contract remains valid until it is rescinded. Duress can be physical or economic. Undue influence occurs where there is an abuse of a relationship of trust and confidence.

Misrepresentation

A contract can be set aside where a party makes a false statement of fact or law to another party which induces that party to enter into the contract. A statement of opinion or future intention will not amount to misrepresentation unless the representor was in a position to know the facts or had no intention of carrying out the stated intent. Misrepresentation can be:

  • Fraudulent, where a false representation is made knowingly, without belief in its truth, or recklessly as to its truth.

  • Negligent, where a statement is made carelessly or without reasonable grounds for belief in its truth.

  • Innocent, where the representor can demonstrate reasonable grounds for belief in the truth of the statement.

The effect of a finding of misrepresentation is that the contract is voidable, which means that it exists but can be set aside. The remedies available depend on the type of misrepresentation, but generally consist of rescission and/or damages. However, the right to rescind can be lost in any of the following circumstances:

  • Where a third party acquires rights under the contract.

  • Where the representee affirms the contract.

  • Through lapse of time.

  • Where restitution to the pre-contractual situation is not possible.

Mistake

Mistake can be common (where both parties make the same mistake), mutual (where the parties were at cross purposes) or unilateral. Where the courts make a finding of mistake, this will generally render the contract void ab initio (that is, it is as if the contract had never existed). However, the courts will sometimes seek to vary the obligations of the parties to make the contract work, rather than declaring it void. A contract can be void in any of the following cases:

  • The subject matter did not exist at the time the contract was entered into.

  • Both parties shared an incorrect belief on an essential point of fact or law.

  • One party takes a conscious advantage of another party's mistake in the terms it offers.

For mistakes as to identity, the courts draw a distinction between contracts made at a distance and contracts made in face-to-face transactions. In a face-to-face transaction, there is a presumption that the parties intend to deal with the person in front of them.

Lack of capacity

A contract entered into by a legal person that lacks capacity to enter that contract may be void.

Lack of authority

Where an agent enters into a contract on behalf of a principal, the contract may be unenforceable unless the agent had actual or apparent authority (see Question 4, Agency rules).

 
17. What are the main performance and discharge rules relating to contracts?

When a contract is discharged, each party is released from their continuing obligations. A contract can be discharged in a number of ways, including:

  • By performance. A contract is discharged when both parties perform their contractual obligations in their entirety, or a party terminates a contract in accordance with its terms.

  • By breach. Where a party commits an anticipatory breach (that is, it indicates its intention not to perform its contractual obligations) or fundamental or repudiatory breach of contract, the innocent party can repudiate the contract (bring the contract to an end) and claim damages, therefore discharging the contract. However, if a court or arbitration tribunal later decides that the breach was not fundamental or repudiatory, the innocent party will itself be in a situation of fundamental/repudiatory breach. A breach of contract that is not fundamental/repudiatory does not allow a party to repudiate, but may give rise to a claim for damages. In addition, if there is a fundamental/repudiatory breach and the innocent party elects to affirm the contract, it may lose its right to repudiate the contract and to treat itself as discharged from its future obligations under the contract.

  • By mutual agreement. Parties can mutually agree to terminate (or discharge) a contract or to vary its terms. The agreement must be freely given, and be made by deed or supported by consideration. If both parties have continuing obligations, the consideration will generally consist of each of them giving up their rights under the contract. Consideration is however an issue when one party has fully performed their obligations but the other has not. The non-performing party must then provide some other form of consideration.

  • By force majeure. Parties can be excused from performing their obligations under a contract on the occurrence of certain events or circumstances, over which the parties have no control but which will affect performance of the contract, specified within the contract as force majeure events. Examples of possible force majeure events include natural disasters, terrorist attacks, war, collapse of buildings and trade disputes. The remedies available to the parties in cases of force majeure must be set out in the relevant clause. If the particular event is not covered in the force majeure clause or there is no such clause, the contract may still be discharged by frustration (see below).

  • By frustration. A contract can be frustrated where there is a change in circumstances after the contract was made, which is not the fault of any of the parties, and which either renders the contract impossible to perform or deprives the contract of its commercial purpose. Where a contract is found to be frustrated, each party is discharged from its future obligations under the contract and neither party can sue for breach.

Generally, there is no duty to co-operate or to act in good faith in commercial contracts under English law. However, the English courts have recognised express obligations to act in good faith and have also implied duties of good faith into certain types of contracts (see Question 2).

The English courts tend to interpret "best endeavours" provisions as an obligation to take all the steps in a party's power that are capable of producing the desired results. These are steps that a prudent, determined and reasonable obligee, acting in its own interests and desiring to achieve that result, would take. "Reasonable endeavours" is generally interpreted as a lesser obligation that takes into account all relevant commercial criteria, such as the costs and other practicalities of compliance.

 
18. What are the main remedies and rules for losses and damages for breach of a sale of goods contract?

The main remedy for breach of a sale of goods contract is damages. Damages are a monetary award to compensate the injured party and put them in the position they would have been in had the contract been performed in accordance with its terms. Damages are subject to the application of the rules on causation and remoteness, and to a duty to mitigate loss.

In claims for breach of a sale of goods contract, where the buyer fails or refuses to accept (and pay) for goods or where the seller fails or refuses to deliver goods, damages are generally assessed as at the time when the goods should have been accepted or delivered, based on the difference between the contract price and the market price at that time. In claims for defective goods, damages are generally based on the difference between the value of the goods as delivered and their value had they not been defective.

Equitable remedies may be available for breach of contract, but are only available at the discretion of the court. They include:

  • Rectification. A court can rectify a mistake in a contract if it decides that the contract does not reflect the true agreement between the parties, or that:

    • one party believed that a written contract contained a certain term when it did not;

    • the other party was aware of that but did not draw it to the attention of the first party; and

    • the mistake was calculated to benefit the other party.

  • Rescission. Rescission seeks to place the parties back in their pre-contractual position. It is available where a contract is voidable as a result of a vitiating factor such as misrepresentation, undue influence or duress. The right to rescind may be lost in the following cases:

    • if the claimant affirms the contract;

    • where a third party acquires rights in the goods;

    • through lapse of time; or

    • where restoration to the pre-contractual situation is not possible.

  • Specific performance. Specific performance is an equitable remedy available at the discretion of the judge. It is an order by the court requiring one party to perform their contractual obligation. In considering whether to grant specific performance, the courts consider:

    • whether damages would be an adequate remedy;

    • the type of contract;

    • whether equity requires an order for specific performance.

  • Injunctions. There are three main types of injunctions:

    • interlocutory or interim (temporary injunction until a court hearing);

    • prohibitory (a court order that a party must not do something); and

    • mandatory (an order that a party must do something).

 
19. What are the buyer's remedies for breach of a sale of goods contract?

Non-delivery and late delivery

When a seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer can sue the seller for damages for non-delivery. Where a seller fails to deliver goods on time, a buyer can bring an action for damages for late delivery. This is in addition to the buyer's right to recover the price, if already paid.

The measure of damages is generally the loss (or estimated loss) resulting directly and naturally, in the ordinary course of events, from the seller's breach. This is normally based on the difference between the contract price and the market price at the time when the goods should have been delivered. When the goods are specific or ascertained, a buyer can apply for an order for specific performance. This is a discretionary remedy and will only be ordered when damages would not be an adequate remedy. Specific performance is generally allowed where the goods are of special significance or value, such as a unique work of art.

Unsatisfactory quality

Where goods are delivered but are of unsatisfactory quality, a buyer may have a right to reject the goods and to recover the price. If there is a right to reject, any rejection of the goods must take place within a reasonable time from delivery. A buyer may also be able to claim damages for the cost of repair or replacement.

Goods not as described or not fit for purpose

Where goods supplied by a seller are not as described or not fit for all the purposes for which the goods are commonly supplied, a buyer may, depending on the facts, have a right to either:

  • Reject the goods, terminate the contract and claim damages for breach.

  • Affirm the contract and/or claim damages for breach.

There is no general right to terminate the contract if the breach is so slight that it would be unreasonable for a buyer to reject the goods.

 
20. What are the seller's remedies for non-payment or late payment?

Where a buyer has either not paid or only partly paid for goods, the seller may have the following remedies, depending on the circumstances of the sale:

  • Lien. A seller in possession of the goods can exercise a lien over them. This means that the seller can retain possession of the goods and refuse to deliver them to the buyer until the price due for them is paid. Once the possession is lost, the lien is also lost.

  • Stoppage in transit. In the event of the buyer's insolvency, the seller may have the right to stop the goods in transit, regain possession and retain them until the full price is paid.

  • Re-sale. A seller may have a right to re-sell the goods where:

    • the goods are of a perishable nature; or

    • this right is expressly reserved in the contract in the case of a buyer's default.

  • Withhold delivery. A seller may have the right to withhold delivery where the property in the goods has not passed to the buyer.

  • Action for the price. A seller can make a claim for the contract price.

  • Damages for non-acceptance. A seller may have the right to claim damages for non-acceptance of the goods where the buyer does not accept and pay for the goods.

In the case of late payment under a business-to-business contract, the seller can claim late payment penalties and interest at a rate of 8% plus the Bank of England base rate under the Late Payment of Commercial Debts (Interest) Act 1998.

Exclusion of liability

21. What are the main rules relating to excluding contractual liability? Are exclusion clauses enforceable in your jurisdiction? If so, what are the requirements to create a legally enforceable exclusion clause?

Exclusion clauses are enforceable under English law, subject to certain limits (for example, a party cannot exclude or restrict liability for death or personal injury resulting from negligence).

To be enforceable, an exclusion clause must be validly incorporated into the contract and cover the loss in question. The general rule is that reasonable steps must have been taken to bring the clause to the attention of the contracting party before or at the time the contract was made. Generally, the more onerous a clause, the more steps a party must take to bring it to the other party's attention and to include it in the contract. Statutory protection for consumers in this area was provided under the Unfair Terms in Consumer Contract Regulations 1999, which have now been replaced by the Consumer Rights Act 2015 (CRA). However, as the CRA is largely consolidatory, the rules remain unchanged.

Where a party enters into a contract with a consumer or on its written standard terms of business, that party cannot exclude or restrict its liability for breach unless the exclusion is reasonable. To be reasonable, a term must have been a fair one to include in the contract, having regard to the circumstances that were or should have reasonably been known by, or in the contemplation of, the parties when the contract was made.

A term that purports to exclude or restrict liability for a seller's implied undertakings as to title to goods is void. A term that purports to exclude or restrict liability in relation to a seller's implied obligation regarding conformity of the goods with description or sample, or their quality or fitness for a particular purpose, is void if either:

  • It is included in a consumer contract.

  • It was not fair and reasonable to incorporate the term.

A term that seeks to exclude liability for misrepresentation is also ineffective unless it is reasonable. It is not possible to exclude liability for fraudulent misrepresentation.

Key drafting rules businesses should follow to maximise the enforceability of exclusion clauses include:

  • Ensuring clarity. When interpreting an exclusion clause, the English courts will interpret any uncertainty or ambiguity against the party that benefits from the exclusion clause (this is known as the contra proferentem (against the offeror) rule). If the relevant clause limits rather than excludes liability, the courts will apply the natural meaning of the words used and will not seek to find ambiguity where none exists.

  • Setting out as fully as possible the type of liability that is excluded. This will ensure that the clause is clear and may also assist with reasonableness, particularly if the clause is negotiated specifically with the other party.

Choice of law and jurisdiction

22. Will local courts recognise a choice of foreign law in a sale of goods contract? Are there any mandatory local rules that apply, despite a choice of foreign law?

The English courts will generally recognise a choice of law in a sale of goods contract. Under Regulation (EC) 593/2008 on the law applicable to contractual obligations (Rome I), the primary principle is freedom of choice. Therefore, sale of goods contracts are usually governed by the law chosen by the parties (Article 3(1), Rome I).

However, the parties' choice of law cannot supersede any mandatory provisions of law or the mandatory rules of any other country to which the contract is connected (Article 7, Rome I). The English courts can also refuse to apply provisions of a chosen law that would be clearly incompatible with the public policy of the forum.

In certain consumer contracts, a choice of law must not deprive a consumer of the protection afforded to them by mandatory rules of the law of the country in which they are habitually resident. (Article 5(1), Rome I).

There is a question as to whether Rome I will be applied by the English courts after Brexit. However, it is a long standing principle that parties should have contractual autonomy, so it is likely that the English courts will continue to give effect to choice of law provisions.

 
23. If the parties do not make a choice of law, what rules determine the law applicable to a sale of goods contract?

If the parties do not make a choice of law, the applicable law will be that of the country where the seller has its habitual residence (Article 4, Regulation (EC) 593/2008 on the law applicable to contractual obligations (Rome I)).

If the seller is a company, the habitual residence will be the place of central administration. For a person acting in the course of business, habitual residence is the principal place of business (Article 19, Rome I). If habitual residence cannot be determined, the applicable law is that of the country with which the seller is mostly closely connected (Article 4(4), Rome I). However, all rules determining the law applicable to a contract can be disregarded if the contract is "manifestly more closely connected" with the law of a different country (Article 4(3), Rome I).

 
24. Will local courts recognise a choice of foreign jurisdiction in a sale of goods contract? Are there any mandatory local rules that apply, despite a choice of foreign jurisdiction?

In most cases, the local courts will recognise and enforce a choice of foreign jurisdiction in a sale of goods contract.

Regulation (EU) 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Recast Brussels Regulation) requires the courts of member states to give effect to the jurisdiction provision set out in an agreement made between the parties, regardless of whether either one or both parties are domiciled in the member state, unless the agreement is null and void as to its substantive validity under the law of that member state (Article 25, Recast Brussels Regulation).

The jurisdiction agreement must be either:

  • In writing (or evidenced in writing).

  • In a form that accords with:

    • practices that the parties have established between themselves; or

    • a usage of which the parties are or should have been aware and which is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade or commerce concerned.

The actual agreement of both parties to the jurisdiction clause must also be evident (Knorr-Bremse Systems v Haldex Brake Products [2008] EWHC 156 (Pat)).

However, member states have exclusive jurisdiction in relation to certain matters under Article 24 of the Recast Brussels Regulation. Exclusive jurisdiction cannot be excluded by a jurisdiction agreement. A jurisdiction agreement that seeks to exclude exclusive jurisdiction has no legal force (Article 25(4), Recast Brussels Regulation).

 
25. If the parties do not make a choice of jurisdiction, what rules determine the jurisdiction applicable to a sale of goods contract?

If the parties do not make a choice of jurisdiction and are all domiciled in the EU, the English courts will apply Regulation (EU) 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Recast Brussels Regulation) to determine jurisdiction.

Unless agreed otherwise, a person domiciled in a member state can be sued or sue in another member state in matters relating to contract if the place of performance of the relevant contractual obligation is in the member state where they wish to sue (Article 5(1), Recast Brussels Regulation). The place of performance in sale of goods contracts is the place where the goods were delivered, or should have been delivered (Article 5, Recast Brussels Regulation).

Where one or more parties are domiciled outside the EU, the English courts will apply common law rules to ascertain whether they have jurisdiction over the contract. The English courts will have jurisdiction if the defendant either:

  • Has been served while domiciled in England or Wales.

  • Agrees to the English courts having jurisdiction or otherwise recognises their jurisdiction by taking steps in the proceedings.

If these criteria are not satisfied, the claimant must show that there is a good arguable case for English jurisdiction (for example, because the contract is subject to English law or the relief is sought in England or Wales).

Arbitration

26. Are arbitration clauses commonly included in sales of goods contracts in your jurisdiction?

Arbitration clauses are sometimes included in sale of goods contracts. Arbitral awards made in England and Wales can be enforced by summary procedure or action on the award for failure to comply with the award. All the methods available to enforce a court judgment can be used to enforce an arbitral award, including injunctions, damages and specific performance (section 66, Arbitration Act 1996).

The UK is a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention). The English courts will therefore recognise and enforce foreign arbitral awards rendered in states that are party to the New York Convention, subject to only a few exceptions (for example, where a party to the arbitration agreement was under some incapacity or where recognition of the award would be contrary to public policy). The enforcement procedure is the same as for a judgment or order made by the courts of England and Wales (sections 100 to 103, Arbitration Act 1996).

 

Storage of goods

27. How is title to goods in storage protected and evidenced? Are warehouse receipts recognised as documents of title in your jurisdiction?

Title to goods in storage is usually protected and evidenced by a document of title, a formal commercial document which proves the holder's ownership of the goods.

Negotiable documents of title can be transferred from one person to another by delivery or endorsement (signed on the back by the transferor named in the document), so that the holder of the instrument can sue on it in its own name. The document will give the purchaser legal title free from any equities or defects of title of the transferor and any other prior holder of the instrument, provided that the purchaser had no notice of any equities or defects in title before the transfer was made. Examples of negotiable documents are bills of exchange and promissory notes (see Question 6).

Non-negotiable documents of title cannot give a subsequent purchaser better title than that of the transferor. If the document was stolen, the purchaser cannot acquire the rights to the goods represented by the document, even if they did not know it was stolen. An example of a non-negotiable document is a bill of lading (see Question 28).

Warehouse receipts are not recognised as documents of title in the UK.

 
28. What conditions and formalities must warehouse receipts comply with?

A warehouse receipt is a document issued by a storage company describing the goods held by it to the order of the person identified on the receipt. It is not considered to be a negotiable document of title under English law and therefore cannot itself be pledged. As such, there are no particular conditions or formalities that warehouse receipts must comply with. Lenders can however take a pledge over the goods to which the receipt relates. The lender will often keep the warehouse receipt as evidence of constructive possession of the goods.

 
29. Are other interests over goods in storage recognised?

Interests over goods in storage can be created by way of a pledge or charge. Pledges are more common. Under a pledge, ownership of the goods remains with the pledgor but the goods are transferred into the possession of the lender/pledgee as security for payment of a debt. For this reason, only items that can be delivered can be pledged. Once the debt has been paid, the pledgee returns the goods to the pledgor. However, if the pledgor does not pay, the pledgee can sell the goods to recover the debt. Generally, the lender/pledgee will take constructive rather than actual physical possession of the goods (for example, by placing the goods with a storage company that will have direct control and possession of the goods and hold them to the lender/pledgee's order).

A charge also provides security over goods for payment of a debt. However, unlike a pledge, a charge does not give the lender/chargee the right to possession. All fixed charges, mortgages and floating charges created after 6 April 2013 by a company registered in England and Wales must be registered at Companies House (Part 25, Companies Act 2006). The company must complete and submit a Form MR01 to Companies House within 21 days of the creation of the charge.

 

Imports

Customs authority

30. What is the authority responsible for enforcing customs laws and regulations? Are certain goods subject to specific examination procedures?

Imports to the UK are governed by the EU Union Customs Code (UCC), Regulation (EU) 952/2013 laying down the Union Customs Code, and related EU legislation, which have been fully applied since 1 May 2016. The UCC aims to bring electronic management of customs compliance throughout the EU into place by 31 December 2020 (see https://ec.europa.eu/taxation_customs/business/union-customs-code_en for an outline and all related legislation and guidance).

The UCC will be enforced by Her Majesty's Revenue and Customs (HMRC) in the UK. HMRC's enforcement powers are set out in the UK Customs and Excise Management Act 1979, as amended (www.legislation.gov.uk/ukpga/1979/2/contents). Detailed guidance on UK application of the UCC and all relevant rules, including applicable tariff rates and links to necessary forms for importers, can be found in the UK Tariff at: www.gov.uk/government/collections/uk-trade-tariff-volume-1. General guidance on the importation process can be found at: www.gov.uk/starting-to-import/importing-from-noneu-countries.

The main customs document for importation into the EU, or for export out of the EU, is the single administrative document (SAD), or Form C88. Information on the completion of the SAD can be found at: www.gov.uk/guidance/declarations-and-the-single-administrative-document. Customs filings in the UK are mostly conducted electronically.

Once a product is imported into the UK, it is considered to be in free circulation in the EU and does not need comply with other member states' customs compliance obligations, subject to very limited exceptions (such as controls on military products).

Import duties, tariffs and rates

31. What are the main customs import tariffs and duties?

General tariffs and rates

The UK is part of the EU customs union and therefore applies the EU common customs tariff, known as the TARIC. Details on the TARIC can be found at: https://ec.europa.eu/taxation_customs/business/calculation-customs-duties/what-is-common-customs-tariff/taric_en. The applicable tariffs can also be found in the UK Tariff (see Question 30).

Value added tax (VAT) is also payable on imports into the UK, subject to specific exceptions. Payment of VAT will depend on the valuation of the imported products. Detailed guidance on valuation of goods can be found at: www.gov.uk/government/publications/notice-252-valuation-of-imported-goods-for-customs-purposes-vat-and-trade-statistics/notice-252-valuation-of-imported-goods-for-customs-purposes-vat-and-trade-statistics.

Preferential tariffs

The UK applies preferential tariffs in line with EU trade agreements and commitments to least developed countries. These preferential tariffs apply to a large number of countries. Information on the preferences applicable to specific imports can be found in the UK Tariff (see Question 30).

The application of preferential tariffs depends on compliance with rules of origin applicable in the EU and contained in each respective trade agreement. Guidance on the applicable rules of origin can be found at: www.gov.uk/guidance/rules-of-origin.

Non-tariff barriers to imports

32. Are there non-tariff barriers to imports into your jurisdiction?

The UK has very few import licensing requirements. However, licensing requirements apply to:

  • Certain items such as firearms and ammunition.

  • Items covered by some sanctions regimes.

Detailed guidance on the UK import licensing regime can be found at: www.gov.uk/government/uploads/system/uploads/attachment_data/file/268395/bis-13-1384-do-i-need-an-import-licence.pdf.

UK domestic rules on labelling apply to different products, but there is no general rule requiring country of origin marking. For example, the import procedures and labelling rules for food products can be found at: www.food.gov.uk/business-industry/imports. A wide range of products are covered by the rules on CE marking. CE marks certify that a product has met applicable product standards or technical regulations. Information on CE marking on products in the UK can be found at: www.gov.uk/guidance/ce-marking.

Special rules are applicable to imports of chemicals and guidance can be found at: www.gov.uk/guidance/chemicals. Pharmaceuticals products are also covered by special rules, which are summarised at: www.gov.uk/government/collections/import-a-human-medicine-guidance-and-forms.

Other product-specific rules apply in areas such as biotechnology and medical devices.

 
33. Can customs decisions and import restrictions be challenged?

Decisions made by HMRC on the application of customs duties are treated as indirect tax decisions for purposes of appeal. Therefore, they are subject to a two-stage appeal process, first to the internal HMRC decision-maker and then to an independent tribunal. The process is summarised in an HMRC document (www.gov.uk/government/uploads/system/uploads/attachment_data/file/501450/hmrc1-02-16.pdf). Guidance on the tribunal procedure and related documents can be found at: http://hmctsformfinder.justice.gov.uk/HMCTS/GetForms.do?court_forms_category=Tax%20(First-tier%20Tribunal).

There are instances where appeal to the courts is possible.

Decisions of domestic regulatory authorities on licensing and other import restrictions are subject to appeals under the UK legal procedures applicable to the relevant licensing or technical regulation regime.

 

Trade remedies

Regulatory framework

34. What are the main regulations and authorities responsible for investigating and deciding on trade remedies?

Regulatory framework

The regulatory framework for EU trade remedies is currently under review and the European Commission has made proposals for amendments to the existing regime. The EU needs to revise the existing regime in respect of the application of non-market economy status to exporters from China. This revision is likely to result in changes to the entire trade remedies regime within the next year. For the time being, however, the following information applies to trade remedies in the EU, including all trade remedies and resulting duties applicable at UK customs.

Anti-dumping and anti-subsidy measures are intended to impose duties counteracting the unfair price advantages gained by foreign producers through:

  • Dumping of exports to the EU.

  • The use of subsidies contrary to the World Trade Organization (WTO) and EU rules.

The measures target specific exporters and specific countries.

Safeguards provide protection to EU producers and are applicable to all imports.

The EU also has internal rules on subsidies, treated as state aids, which are subject to detailed rules set out in EU law and administered by competition authorities. This section only deals with anti-subsidy measures applied to imports into the EU, including the UK.

The EU is subject to WTO provisions on trade remedies and is a regular participant in WTO panel proceedings covering trade remedies. The Court of Justice of the European Union also hears appeals from specific trade remedy decisions on the basis of the relevant EU regulations and taking into account the WTO rules, which are implemented in EU regulations.

The main EU regulations in the area of trade remedies are:

  • Anti-dumping: Regulation (EU) 2016/1036 on protection against dumped imports from countries not members of the European Union.

  • Subsidies: Regulation (EU) 2016/1037 on protection against subsidised imports from countries not members of the European Union.

  • Safeguards in respect of WTO members: Regulation (EU) 2015/478 on common rules for imports.

Regulatory authority

The European Commission has sole responsibility for investigating anti-dumping, anti-subsidy or countervailing duty and safeguards cases. Decisions on provisional measures are made by the Commission in consultation with EU member states. Definitive measures are decided by the Commission, but are subject to consideration and possible rejection by member states.

The EU conducts investigations in accordance with EU regulations and WTO rules. Investigations consider the "community interest" in imposing measures, in addition to evidence of dumping or subsidies, injury to the EU industry and causal link between the dumping or subsidy and injury.

Detailed information on the trade remedy procedures, past cases and the relevant EU regulations can be found at: http://ec.europa.eu/trade/policy/accessing-markets/trade-defence/actions-against-imports-into-the-eu/.

Investigations and enforcement

35. What are the requirements and procedure to start trade remedies investigations?

EU producers can initiate trade remedy procedures, although in rare cases the European Commission can self-initiate investigations. EU producers must bring evidence of the following elements:

  • Dumping or subsidy.

  • Injury.

  • A causal link between the dumping or subsidy and the injury.

The complaint must both:

  • Be supported by a substantial portion of the affected EU industry, representing at least 25% of the EU production.

  • Not be opposed by companies representing more EU production than the complainants.

In the course of the investigation, all interested parties, including exporters, importers and user groups, can make representations. Interested parties have access to non-confidential versions of the complaint, with commercially sensitive detailed information included only on an indexed basis. An oral hearing can take place in the course of the investigation.

Appeals

36. Is there a right of appeal against the authority's decision? What is the applicable procedure?

Appeals against the imposition of trade remedy measures can be taken directly to the General Court of the Court of Justice of the European Union. Trade remedy measures can also be reviewed where circumstances have changed during the term of application of the measure, which is usually five years for anti-dumping and anti-subsidy measures. The EU industry can request an expiry review before a measure is due to expire, to assess whether it should be extended beyond the original term.

 

Exports

Regulatory framework

37. What are the main requirements to export goods from your jurisdiction?

With very limited exceptions in respect of military goods, exports from the UK to EU countries are not subject to any customs formalities other than compliance with relevant internal tax rules such as VAT. In that context, and until the UK leaves the EU, export regulations apply only to exports from the UK to outside the EU. Most rules affecting exports from the UK are set by the EU under the Uniform Customs Code and other legislation.

The main requirement for exporting most goods outside the EU is to complete a standard customs declaration providing details on both the:

  • Identity of the exporter, by using an Economic Operator Registration and Identification (EORI) number, which is available from HMRC.

  • Products, on a document known as the single administrative document (SAD) or Form C88.

Information on completion of the SAD and exceptions to export requirements (such as minimum value thresholds) can be found at: www.gov.uk/guidance/declarations-and-the-single-administrative-document.

 
38. Are certain categories of goods subject to specific export quotas, restraints or other controls?

Goods considered to be military or dual-use items under EU and UK legislation are subject to export licensing requirements. Licences may also be required for exports of:

  • Animals.

  • Agricultural goods.

  • Chemicals.

  • Pharmaceuticals.

  • Art works.

  • Antiques.

  • Precious metals or stones.

Guidance on the licences that may be required for these different types of exports can be found at: www.gov.uk/starting-to-export/licences.

Specific rules are applicable to exports of:

  • Goods, services and technology considered to be dual-use products.

  • Products that could be used for military or security purposes as well as civilian purposes.

These rules are largely set out in Regulation (EU) 428/2009 on the control of exports, transfer, brokering and transit of dual-use items, as regularly amended. The UK also maintains its own military and dual-use lists and other forms of export controls under the UK Export Control Order 2008. There are specific controls on nuclear material as listed in the Schedule referred to in Article 2 of the UK Export of Radioactive Sources (Control) Order 2006. Products used for torture or capital punishment are controlled under Regulation (EC) 1236/2005 concerning trade in certain goods which could be used for capital punishment, torture or other cruel, inhuman or degrading treatment or punishment.

Guidance on each of these forms of export licensing requirements and a compilation of the products covered can be found in the UK Strategic Export Control List at: www.gov.uk/guidance/uk-strategic-export-control-lists-the-consolidated-list-of-strategic-military-and-dual-use-items.

The Export Control Organisation (ECO) is responsible for issuing export licences in the UK. Applications for licences are made electronically using the SPIRE export licensing system.

It is important to check whether an EU general export authorisation or an open general export licence is available for the export in question. A number of these licences are available for a large number of export transactions, but each licence has conditions that must be strictly complied with. The list of EU general export authorisations and open general export licences available in the UK can be found at: www.gov.uk/government/collections/open-general-export-licences-ogels.

Where one of the EU or UK general export authorisations or licences is not available, an export licence application must be submitted to the ECO. Detailed guidance on how to use SPIRE and the gateway into the system can be found at: www.spire.trade.gov.uk/spire/fox/espire/LOGIN/login.

Certain military exports from the UK require a Ministry of Defence Form 680 to obtain the necessary approvals. Details on the use of Form 680 and when it is required can be found at: www.gov.uk/guidance/mod-f680-applications.

Penalties

39. What are the consequences of non-compliance with export regulations?

The Customs and Excise Management Act 1954 (CEMA) sets out the penalties for non-compliance with export regulations when exporting from the UK. HMRC and the Crown Prosecution Service are responsible for enforcing these penalties.

The Export Control Organisation monitors compliance with the terms of export licences and conducts regular audits at licensees' premises. The UK Export Control Order 2008 imposes specific record keeping obligations to facilitate audits and enforcement. Part V of CEMA contains provisions on the enforcement of export rules, including export restrictions. Offences in relation to exportation of prohibited or restricted goods are subject to up to seven years' imprisonment and unlimited fines, although most cases involve much less severe penalties (Article 68, CEMA).

 

International trade restrictions

Trade sanctions

40. Are there specific restrictions on trade with certain jurisdictions?

The UK applies sanctions largely in line with those agreed at the UN and within the EU, subject to limited variations. Sanctions in place include:

  • Restrictions on trade in certain goods, services and technologies with targeted countries.

  • Financial sanctions, including freezing of funds, applicable to certain regimes, institutions and individuals.

The EU, including the UK, has sanctions regimes in place against a number of governments around the world, including Russia and Syria. There are longstanding sanctions in place against entities and individuals in Libya, Iran and other countries that are being relaxed in line with developments in those countries. The EU sanctions against Iran have been largely lifted, although some sanctions remain in place (including specific UK sanctions on items such as aircraft). The process of removal of international sanctions on Iran is ongoing and subject to reinstatement, or snap-back, of the sanctions.

General information on the application of the UK sanctions regime can be found at: www.gov.uk/guidance/sanctions-embargoes-and-restrictions. Specific information about financial sanctions applicable to individuals and entities can be found at: www.gov.uk/government/publications/financial-sanctions-consolidated-list-of-targets. Information on embargoes and trade controls applicable to exports of military and dual-use items to specified destination can be found at: www.gov.uk/guidance/current-arms-embargoes-and-other-restrictions.

 
41. What is the authority responsible for imposing trade restrictions?

The Foreign and Commonwealth Office (FCO) has overall responsibility for the UK sanctions policy. The Department of the Treasury's Office for Sanctions Enforcement and Implementation (OFSI) administers financial sanctions. The Export Control Organisation (ECO) administers trade sanctions applicable to trade in goods and services and technology, in conjunction with the export control regime.

Licences are available for transactions that may be covered by financial sanctions and trade sanctions. However, the granting of licences is subject to wide discretion by the relevant agencies (that is, OFSI and ECO), in consultation with other agencies in the UK Government and other EU governments (as appropriate). Decisions to reject licence applications and decisions to list certain individuals and entities are subject to judicial review.

 
42. What are the consequences of non-compliance with trade restrictions?

Non-compliance with trade restrictions and financial sanctions is subject to enforcement actions ranging from withdrawal of licences and audit requirements to criminal prosecution.

 
43. Are businesses subject to specific compliance requirements? What practical steps should a business take to ensure compliance with trade restrictions?

Businesses must comply with document retention requirements imposed under the terms of the applicable licensing arrangements. Businesses should also have robust compliance programmes and training of personnel in place to both:

  • Limit the risk of violations.

  • Demonstrate to enforcement authorities that all reasonable steps have been taken to avoid the risk of non-compliance.

Compliance obligations cannot be avoided through contractual means, but it is prudent to ensure that all the relevant contracts include provisions requiring contractual partners to:

  • Confirm their familiarity with the need to comply with sanctions regimes.

  • Co-operate with any requests for information required in the assessment of licensing requirements or investigations of possible violations.

Depending on the exposure in any given transaction, the contractual provisions relating to sanctions compliance can be tailored to the specific requirements of the sanctions regimes in question.

Foreign trade barriers

44. What is the procedure for local exporters to complain against foreign trade barriers contrary to the WTO or other trade agreements?

UK exporters can seek support from the Department for International Trade in raising problems encountered on export markets with the relevant authorities in that country. Exporters can also raise those issues with the European Commission, Directorate General for Trade (DG Trade), preferably in conjunction with the UK Government's engagement with DG Trade. Under the EU treaties, the European Commission has sole responsibility for the enforcement of international trade agreements, including WTO agreements and the various bilateral trade agreements in place between the EU and third countries.

In serious cases of violation, the EU can request a dispute resolution panel under the WTO or under other trade agreements. Where appropriate, Regulation (EC) 3286/94 on procedures to ensure the exercise of the Community's rights under international trade rules (Trade Barriers Regulation) provides a mechanism for raising violations of obligations contained in trade agreements. Information on filing a complaint under the Trade Barriers Regulation can be found at: http://trade.ec.europa.eu/doclib/docs/2013/april/tradoc_150984.pdf.

The European Commission also maintains the Market Access Database of trade restrictions faced by EU exporters, and draws on the submissions to that database in raising trade restrictions with governments in trading partner countries. A list of the reported trade barriers and actions taken in respect of those barriers to date can be found at: http://madb.europa.eu/madb/barriers_crossTables.htm.

Where the trade barriers encountered involve technical regulations or sanitary or phytosanitary measures, there are dedicated mechanisms for notification and consideration of these measures under the auspices of the WTO. Only the UK or the European Commission can initiate these mechanisms, as private parties have no standing before the WTO.

Where the rights of investors in third countries are at issue, UK bilateral investment treaties may provide that investors can seek compensation for losses resulting from violations of the treaties directly from third-country governments.

 

The regulatory authorities

World Trade Organization (WTO)

W www.wto.org/english/res_e/res_e.htm

Principal responsibilities. The WTO deals with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible. The WTO website provides access to online documents and resources, including legal texts of WTO agreements and international trade statistics.

Her Majesty's Treasury (HMT)

W www.gov.uk/government/collections/financial-sanctions-regime-specific-consolidated-lists-and-releases

Principal responsibilities. HMT maintains a consolidated list of targets that are subject to financial sanctions in the UK.

Her Majesty's Revenue and Customs (HMRC)

W www.gov.uk/government/organisations/hm-revenue-customs/services-information

Principal responsibilities. HMRC's website provides information on a range of topics for importers and exporters, including on VAT and other taxes, commodity codes, tax duties and licences that apply to goods, export agents, importing and exporting by post, shipping goods and International Chamber of Commerce international commercial terms (Incoterms).

Export Control Organisation (ECO)

W www.gov.uk/government/organisations/export-control-organisation

Principal responsibilities. The ECO is part of the Department for International Trade and is responsible for issuing export licences for strategic goods.

European Commission

W http://ec.europa.eu/trade/index_en.htm.

https://ec.europa.eu/taxation_customs/home_en

Principal responsibilities. The trade section of the European Commission's website includes links to useful resources such as the Market Access Database, which provides information for companies exporting from the EU about import conditions in third-country markets.



Online resources

List of EU financial sanctions

W https://eeas.europa.eu/topics/sanctions-policy/8442/consolidated-list-of-sanctions_en

Description. This link provides access to the consolidated list of EU financial sanctions and consolidated list of persons, groups and entities subject to EU financial sanctions.



Contributor profiles

Sajid Ahmed

King & Spalding International LLP

T +44 (0)20 7551 2128
F +44 (0)20 7551 7575
E sahmed@kslaw.com
W www.kslaw.com

Professional qualifications. England and Wales, Solicitor

Areas of practice. International arbitration; international trade/WTO.

Recent transactions

  • Advising a major financial institution on EU-Russia sanctions concerning the provision of loans, capital market instruments and other types of financial instruments to Russia-related persons.

  • Advising a major Middle East petrochemicals company on EU sanctions with respect to Iran and Syria and potential exposure based on business transactions with Iranian and Syrian entities.

  • Advising a significant Middle East sovereign wealth fund on the successful de-listing of one its associated companies from the EU sanctions list.

  • Advising a major Asian oil and gas company in connection with the EU relaxation of sanctions on investments in the Iranian hydrocarbons sector and of Iranian oil exports under the Joint Comprehensive Plan of Action.

  • Advising a significant aircraft manufacturer on export sales of aircraft and aircraft parts from certain EU countries to the Middle East region and South America.

  • Advising an aerospace client in its UK voluntary self-disclosures due to potential violation of UK/EU export control rules. The representation included review of customer due diligence policies and procedures as well as sales contracts for the purposes of export controls and sanctions compliance.

Languages. Hindi, Gujarati, Urdu

Iain MacVay

King & Spalding International LLP

T +44 (0)20 7551 2127
F +44 (0)20 7551 7575
E imacvay@kslaw.com
W www.kslaw.com

Professional qualifications. England and Wales, Solicitor; Brussels Bar (B list of EU qualified lawyers; Law Society of British Columbia

Areas of practice. WTO disputes and negotiations; sanctions, export controls and customs compliance; EU law.

Recent transactions

  • Representation of food and drink and life sciences sector clients on five complaints under the EU Trade Barriers Regulation, achieving removal of regulatory barriers to trade through negotiation on the basis of the complaints.

  • Representation of the Scotch Whisky Association in four successful challenges to discriminatory excise taxes under WTO rules and two other challenges that were resolved before going to WTO Dispute Resolution Panels.

  • Advising the European Federation of Pharmaceuticals Industries and Associations on various EU and international trade matters.

  • Advising a client on the use of Technical Barriers to Trade Agreement and WTO Committees to resolve regulatory problems in various jurisdictions.

  • Development of a strategy for confidential client to address regulatory discrimination under EU and international trade and investment laws.

  • Advising a European food manufacturer on the application of rules of origin in free trade agreements to manage their supply chain and to address competitive pressures from imports.

  • Advising an agricultural sector client on the use of mechanisms such as WTO Trade Policy Review Mechanism and bilateral negotiations to change a discriminatory law in an Asian country.

  • Conduct of training on EU law and advocacy for Brazilian Government officials.

  • Advising a European life sciences client on the application of the EU-Turkey Customs Union Agreement and WTO rules to barriers created by regulatory measures.

  • Advising a life sciences client on investment treaty negotiations and on the application of investment treaty rules to intellectual property and regulatory matters.

  • Advising an Asian food producer on the conduct of EU law matter concerning the application of EU geographical indications law to use of generic food terms.

  • EU law opinion on Scotland's proposal for minimum pricing of alcoholic beverages and conduct of submissions to DG Enterprise under technical barriers procedures and complaint under infraction procedures.

  • Opinion and advice to a UK propulsion equipment manufacturer on transfer of technology and licensing requirements under EU and UK dual-use and military list export controls for a confidential client.

  • Advising a UK aviation company on a transaction involving undisclosed transfer to Iran by purchaser, including advice on reputation risk and interim relief against media enquiries.

  • Advising a UK aerospace manufacturer on UK customs audit of inward processing relief and discovery of compliance failure with remedial negotiations.

  • Advising a technology company on export control compliance responsibility under commercial agreements involving data transfers.

  • Advising a chemicals company on the application of tariff suspensions and on procedures for reversing suspensions.

Publications

  • Liberalisation and Protectionism in the World Trading System (1999) MacVay, Masa'deh and Ruttley, eds.

  • Due Process in WTO Dispute Settlement (2001) MacVay, Ruttley and Weisberger, eds.


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