Consumer Rights Bill Bill No 161 of 2013-14

RESEARCH PAPER 14/5 27 January 2014

This Research Paper has been produced to inform the Second Reading debate on the Consumer Rights Bill, which was introduced to the House of Commons on 23 January 2014 and is due to have its Second Reading on 28 January 2014.

The Bill is designed to set out a framework that consolidates in one place key consumer rights covering contracts for goods, services, digital content and the law relating to unfair terms in consumer contracts. The Bill also introduces easier routes for consumers and small and medium enterprises (‘SMEs’) to challenge anti-competitive behaviour through the Competition Appeal Tribunal (‘CAT’). In addition, the Bill would consolidate and simplify enforcers’ powers as listed in Schedule 5 to investigate potential breaches of consumer law and clarifies that certain enforcers (Trading Standards) can operate across local authority boundaries. Finally, the Bill would give the civil courts and public enforcers greater flexibility to take the most appropriate action for consumers when dealing with breaches or potential breaches of consumer law.

Lorraine Conway

Antony Seely

This information is provided to Members of Parliament in support of their parliamentary duties and is not intended to address the specific circumstances of any particular individual. It should not be relied upon as being up to date; the law or policies may have changed since it was last updated; and it should not be relied upon as legal or professional advice or as a substitute for it. A suitably qualified professional should be consulted if specific advice or information is required.

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We welcome comments on our papers; these should be e-mailed to papers@parliament.uk.

ISSN 1368-8456

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Research Paper 14/5

Contributing Authors: Lorraine Conway, Consumer Affairs, Home Affairs Section

Antony Seely, Competition Law, Business & Transport Section

Contents

Summary 1

1.1 Introduction - evolution of consumer law in the UK 2

2 Current consumer law and why it is thought unfit for purpose 2

2.1 Consumer sales 3

Sale of goods 3

Sale of digital content 4

Sale of services 5

2.2 Unfair contract terms 5

2.3 Consumer law enforcement powers 7

Enforcement - complexity of investigatory powers 7

Cross-border enforcement 7

Restricted range of measures available to enforcers of consumer law 7

2.4 Private actions to tackle anti-competitive behaviour 8

Main elements of the competition regime 8

Ineffectiveness of private actions 10

3 Proposals for consumer law reform in detail 10

3.1 Government consumer strategy 10

3.2 Economic rationale 12

4 Reports and Government consultations 13

4.1 Consumer contracts for goods, digital content and services (Part 1 of the Bill) 13

4.2 Unfair terms (Part 2 of the Bill) 16

4.3 Consumer law enforcement powers (Part 3) 16

4.4 Private actions in competition law 17

5 Overview of the structure of the Bill 24

6 Part 1 of the Bill – sale of goods, digital content and services 25

6.1 Scope of Part 1 25

6.2 Supply of goods 25

Consumer rights 25

Remedies for breach of these rights 26

6.3 Supply of digital content 29

Consumer rights 29

Remedies for breach of these rights 31

6.4 Supply of services 33

Consumer rights 33

Remedies for breach of these rights 35

7 Part 2 of the Bill – Unfair terms 36

7.1 Scope of Part 2 36

7.2 Fairness of contract terms and notices 36

7.3 Law enforcement of unfair terms 39

8 Part 3 of the Bill 40

8.1 Investigatory powers of consumer law enforcers (clauses 77 and Schedule 5) 40

8.2 Enforcers to operate across local authority boundaries 41

8.3 Amendment of the Weights and Measures (Packaged Goods) Regulations 200641

8.4 Enhanced consumer measures (clause 79 and Schedule 7) 41

8.5 Private actions in competition law (clause 80 & Schedule 8) 42

Jurisdiction of the CAT & fast track cases 44

Limitation periods for claims made to the CAT 44

CAT rules of procedure 45

Opt-out collection actions & collective settlements 45

Voluntary redress schemes 48

9 Territorial extent of the Bill 48

10 Informing consumers and businesses about the Bill 49

11 Impact of the Bill on existing legislation 49

12 Wider reforms of UK consumer law 51

12.1 The Consumer Rights Directive 51

12.2 New regulations to stop misleading or aggressive behaviour 52

12.3 Alternative Dispute Resolution 53

13 Views of stakeholders 55

Appendix A - Impact of the draft CRB on existing legislation 59

Appendix B – Sale of goods: consumers’ rights and remedies under CRB 60

Appendix C – Sale of digital content: rights and remedies under the CRB 62

Appendix D – Sale of services: consumers’ rights and remedies under CRB 63

Appendix E – Further Reading 64

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Summary

Currently, 12 separate pieces of legislation cover key consumer rights in the UK, and around 60 pieces of legislation set out the investigatory powers of consumer law enforcers. Whilst offering a high degree of consumer protection, the legislative regime has been criticised for being unnecessarily complex, fragmented and, in places, unclear, in particular where the law has not kept up with technological change. Between March and November 2012, the Department for Business, Innovation and Skills (BIS) published a series of public consultation documents proposing measures to overhaul and reform UK consumer law. The responses received highlighted areas of uncertainty and inconsistency in consumer law and enforcement and provided evidence of consumer detriment. Consumer reform was subsequently included in the Queen’s Speech in May 2013 and a draft Consumer Rights Bill was published on 12 June 2013. This draft Bill was subject to pre-legislative scrutiny by the BIS Select Committee, which published a Report on 23 December 2013. The Government published its response to each of the Committee’s recommendations together with its ‘Statement on Policy Reform’ on 23 January 2014. On the same day, the Consumer Rights Bill was introduced in the House of Commons. According to the Government, if implemented, the Bill will represent the biggest overhaul of consumer law for many decades. The Bill is in three parts and contains eight Schedules. Part 1 sets out minimum quality rights and remedies for consumers in sale of goods and services contracts, and in a new category of digital content. The aim of Part 1 is to modernise and improve consumer law to offer appropriate consumer protections.

Part 2 (Schedules 2, 3 and 4),consolidates in one place the legislation governing unfair contract terms in consumer contracts, which currently is found in two separate pieces of legislation. Part 2 seeks to clarify which terms may or may not be challenged in court for fairness. In particular, it would make contract terms specifying the main subject matter or price of the contract exempt from the ‘fairness test’ only if they are ‘transparent’ and ‘prominent’. Part 3 (Schedules 5, 6, 7 and 8) contains important miscellaneous and general provisions. In particular, it would consolidate and simplify the powers of consumer law enforcers (such as Trading Standards) to investigate breaches of consumer law, which are currently contained in over 60 pieces of legislation. It would enable Trading Standards officers to operate over local authority boundaries It would also enable public bodies responsible for consumer law enforcement to ask the civil courts to require traders to compensate consumers where they have breached consumer law (described as ‘enhanced consumer measures’). Finally, Part 3 provisions on private actions in competition law and collective proceedings would reform access to redress for victims of competition law breaches through the Competition Appeal Tribunal (‘CAT’). Outlining the economic rationale for a new Consumer Rights Bill, the Government has said that it should make markets work effectively and drive economic growth. The Bill also needs to be viewed within the context of other important changes to the consumer landscape. In April 2012, the Government announced a series of reforms to the bodies carrying out consumer functions. In addition, the Consumer Contracts (Information, Cancellation and Additional Payments) Regulations 2013 will implement in the UK the Consumer Rights Directive (2011/83/EU) on 13 June 2014. The main aim of the Directive is to simply consumer rights in certain important areas, mostly relating to buying and selling.

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1.1 Introduction - evolution of consumer law in the UK

As outlined by the Law Society1, consumer law in the UK is complex for two key reasons:

i. First, the consumer contract differs markedly from other types of contract law. It is pre-drafted by one party; it cannot be altered or re-negotiated; and it is usually executed between parties with unequal market power and sophistication (i.e. knowledge).

ii. Second, the law on consumer contracts has to take account of a wide range of variables and potential circumstances. For instance, the law will have to apply to a very large number of individual situations spread across the economy and even across borders. By contrast, “contracts in other areas of economic activity tend to be more bespoke and its provisions agreed to between parties, who are tailoring a relationship to mutual advantage”.2

Consumer law in the UK has evolved over the decades, originating both from domestic and EU legislation. As described by the Law Society, ‘there is over a hundred years worth of case-law and legal experience bound up in the current body of law in this area’.3 Main consumer protection rights are currently contained in the following legislation:

Supply of Goods (Implied terms) Act 1973

Sale of Goods Act 1979

Supply of Goods and Services Act 1982

Sale and Supply of Goods Act 1994

Sale and Supply of Goods to consumers Regulations 2002

Unfair Contract Terms Act 1977

Unfair Terms in Consumer Contracts Regulations 1999

Competition Act 1998

Enterprise Act 2002 In addition, 60 pieces of legislation cover the investigatory powers of consumer law enforcers.4 Whilst offering a high degree of consumer protection, the regime is criticised for being unnecessarily complex, fragmented and, in places, unclear, in particular where “the law has not kept up with technological change or lacks precision or where it is couched in legalistic language”.5 There are also overlaps and inconsistencies between changes made as a result of implementing EU legislation alongside un-amended pre-existing UK domestic legislation (see sections 2 and 3 below). As a result, consumers and businesses face difficulty and uncertainty when trying to establish their rights and responsibilities.

2 Current consumer law and why it is thought unfit for purpose

For simplicity, current consumer law and its perceived failings are examined under the following broad headings:

1 ‘Enhancing consumer confidence by clarifying consumer law’, Law Society’s response to the Government’s

consultation on modernising consumer law, October 2012, [online] (accessed 19 March 2013) 2 Ibid

3 ‘Enhancing consumer confidence by clarifying consumer law ‘, Law Society response , October 2012, [online]

(accessed 19 March 2013) 4 Department for Business Innovation and Skills, ‘Draft Consumer Rights Bill – Government Response to

Consultations on Consumer Rights’, June 2013, [online] (accessed 1 July 2013) 5 Ibid

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consumer sales (sale of goods, digital content, and services);

unfair contract terms;

enforcement; and

private actions in competition law 2.1 Consumer sales

A buyer’s legal rights when they purchase goods or services are currently set out in the Sale

of Goods Act 1979 and the Supply of Goods and Services Act 1982. These Acts have been substantially amended over time by both domestic and European legal requirements. Sale of goods

The Sale of Goods Act 1979 (SGA 1979) provides a total of seven implied terms into a contract; when taken together, they ensure that when consumers buy goods they get what they pay for.6 For example, three implied terms ensure that the goods are:

as described (this refers to any advert or verbal description made by the trader);

of satisfactory quality (this covers cosmetic defects as well as major faults, it also means that the goods must last a ‘reasonable’ time, but doesn’t give the consumer any rights in respect of a fault pointed out to them at point of sale); and

be fit for purpose (this covers not only the obvious purpose of an item but any particular purpose made known to the trader by the consumer)

If a consumer buys something which doesn't meet these conditions, he/she may have the right to return it, get a full refund, or repair or replacement.

Whilst the SGA 1979 provides a high level of consumer protection, a general complaint is that the Act is unnecessarily complex. For example:

it is not clear at what point the consumer loses the right to reject a faulty good and get a full refund; and

it is unclear how many repairs or replacements of faulty goods they must accept before they can pursue other remedies (such as getting some money back)

In addition, a consumer’s rights and remedies when buying goods differ according to the type of transaction. For instance, rights are different when goods are bought under a conditional sale or hire purchase arrangement. Implementation of EU consumer Directives has also caused additional complexity, by overlaying EU law on top of the existing domestic regime.7 According to BIS, all of this creates legal uncertainty:

Consumer law governing the sale of goods is burdensome for business, and

consumers are often poorly informed about their rights. In some cases,

consumers do not pursue remedies as they are not aware that a remedy is

available to them; in other instances, consumers overestimate their rights. This

can lead to costly disputes between consumers and retailers, exacerbated by

the fact that in some areas, the law is unclear as well as complex.

6 A seller cannot escape their obligations as they cannot force a consumer to agree that these implied terms will

not apply: any attempt to do so would be void 7 See HM Treasury, Davidson Review – Final Report, November 2006 [online] (accessed 9 October 2013)

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This complexity harms consumers and businesses. An ineffective scheme of

consumer rights also stifles competition between firms to produce the best

quality products, for the best price.8

Sale of digital content

Digital content encompasses a diverse range of products and services, including:

computer software;

films;

music

games;

e-books;

ring tones; and

apps

Consumers can access these in a variety of ways, both through physical media (e.g. on a disc) and intangible media (e.g. downloads via the internet). According to BIS, the digital content market in the UK is established, large and growing. It estimates that in 2012, more than £1billion was spent in the UK on downloaded films, music and games in 2012.9

The problem is that the existing consumer law pre-dates the digital content era. As a result, the SGA 1979 treats digital content as ‘goods’ if they are provided in a physical format such as a CD or DVD. However, where such products are delivered via ‘intangible media’ (e.g. a

digital file for software, games, music files, or films) they fall outside the conventional definition of ‘goods’. In short, there is a significant gap in consumer protection. Inconsistency occurs, for example, where a consumer purchasing a music CD has more protection than a consumer downloading the same music online.

It is claimed that the courts have struggled to fit existing consumer rights to different types of

digital content transactions, leaving the law uncertain and unclear.10 According to BIS, two different issues arise from this legal uncertainty:

i. Consumers are often reluctant to complain to retailers about the problems they

experience with digital content because of a poor understanding of their legal rights and

the typically low value of digital content. As a result, the size of consumer detriment in

this area is likely to be greater than estimates suggest.

ii. Conversely, some consumers may think that they are entitled to a remedy which the

business does not think it is obliged to provide under the current law. The risk is that both

the business and consumer will spend time and money on an unnecessary dispute.

In both cases, when consumers do experience problems and are unable to claim the remedy they expect, consumer confidence is undermined. This could disadvantage new entrants to the market, in particular, as consumers are driven towards established brands.11 BIS

8 Department for Business Innovation and Skills, ‘Draft Consumer rights Bill – Government Response to

consultations on Consumer Rights’, June 2013, [online] (accessed 1 July 2013) 9 Department for Business, innovation and Skills, ‘Consumer Rights Bill: Supply of Digital Content – Impact

Assessment: Final’, June 2013, [online] (accessed 25 June 2013) 10

‘Consumer Rights in Digital Products – A research report prepared for the UK Department for Business Innovation and Skills’, by Professor Robert Bradgate, Institute of Commercial Law Studies, University of Sheffield, September 2010, [online] (accessed 19 March 2013)

11 Department for Business Innovation and Skills, ‘Draft Consumer Rights Bill – Government Response to

consultations on Consumer Rights’, June 2013, [online] (accessed 1 July 2013)

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concludes that it is “clearly unsatisfactory that consumers in this large and growing market should be so poorly protected by the law”.12

Sale of services

The Supply of Goods and Services Act 1982 (‘SGSA 1982’) says very little about consumer

rights when purchasing services, and nothing about remedies. In contrast to goods, there is only one implied term: which is that the service must be provided with ‘reasonable care and skill’. Moreover, (and unlike with goods), a supplier of a service can specify other terms in the contract that limit the effect of this implied term, where it is ‘reasonable’ to do so.13 As a result, it is usually easier for a consumer to establish whether a goods contract has been properly performed than a services one. A further difficulty is that there are no statutory remedies currently available to consumers for breach of this implied term. 14 As a result, buyers and traders are forced to rely on common law (which can be difficult to interpret) and the wider law of contract. BIS explains the legal position as follows:

When a service goes wrong, consumers might want the business to put the

service right, but in England and Wales this remedy is only given at the court’s

discretion and there are a number of factors why this does not often happen in

practice. In Scotland the position is different, and the courts are more willing to

order a remedy to put the service right.15

Again, it is argued that this legal uncertainty impacts on competition and economic growth:

Most consumers are not aware of their rights when contracting for services,

particularly when things go wrong. This means that consumers are less likely to

be confident and engage in the market, and try new service providers.

Businesses providing services therefore find it harder to attract new

consumers. Consumers are also more likely to suffer problems they cannot

resolve, while businesses providing services incur the costs of having to

interpret the law.16

2.2 Unfair contract terms

In certain circumstances, the court can consider the fairness of terms in consumer contracts. Where a court finds that a term is unfair, it will not be binding on the consumer. The law on unfair terms is contained in two separate pieces of legislation, the Unfair Contract Terms Act 1977 (UCTA 1977) and the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs). The regulations implement the Unfair Terms in Consumer Contracts Directive (Council Directive 93/13/EEC). The difficulty is that the UCTA 1977 and the UTCCRs have inconsistent and overlapping provisions, creating uncertainty for consumers and businesses.

12

Department for Business Innovation and Skills, ‘Enhancing Consumer Confidence by Clarifying Consumer Law – Consultation on the supply of goods, services and digital content’, July 2012 [online] (accessed 26 June 2013)

13 Under the Unfair Contract Terms Act 1977, certain liabilities cannot be excluded and others can only be

excluded where reasonable 14

Except to the limited extent of where goods are installed by a trader 15

Department for Business Innovation and Skills, ‘Draft Consumer Rights Bill – Government Response to consultations on Consumer Rights’, June 2013, [online] (accessed 1 July 2013)

16 Ibid

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In brief, the UCTA 1977 applies to a broad range of contracts and also consumer notices, and applies to individually negotiated as well as non-negotiated terms.17 The Act makes some contractual terms and notices automatically void (and therefore, non-binding) for example, terms that aim to restrict liability for:

causing death or personal injury;

other loss or damage caused by a breach of a duty of care;

breaches of certain terms implied by law; and

breach of contract generally

Other contractual terms are subject to a test of ‘reasonableness’. The UTCCRs are narrower in scope than the UCTA 1977 in that they only apply to non-negotiated (standard term) consumer contracts.18 To be legally binding, contract terms must be ‘fair’ and they must also be written in plain, intelligible language. However, there are certain contractual terms (known as ‘exempt terms’) that cannot be assessed for fairness, specifically:

terms that relate to the definition of the main subject matter of the contract; and

those that relate to the adequacy of the price or remuneration as against the goods or services provided in exchange

A major difficulty is that the definition of ‘fairness’ in the UTCCRs differs from that in the UCTA 1977. This has led to uncertainty as to how the law should be applied, despite some guidance from the courts. In 2005, the Law Commissions found that the complexity of the law on unfair terms had a negative impact on both consumer confidence and economic growth.19 BIS has acknowledged the problem:

Some protection in law is necessary because consumers often cannot or do

not wish to investigate the detail of every contract term before they sign-up to

an agreement. Consumers are focused on the product or service they are

purchasing rather than the contract. This leaves the door open to unscrupulous

traders who many deliberately try to get a consumer to enter a contract which

hides onerous requirements and creates a significant imbalance in the parties’

rights and obligations. This could be done by, for example, writing the unfair

term in overly legalistic or opaque language.

However, this needs to be balanced against businesses’ need to be able to

trade without the prospect of every single term being open to challenge.

Contracts are a necessary part of providing certain products and services, and

should enable rather than hinder consumers and businesses in that market.20

17

Some types of contract are exempt from the provisions of this Act, including those relating to insurance contracts, interests in land or, other than in Scotland, intellectual property rights

18 But the Regulations apply to all such contracts, there are no exceptions

19 The Law Commission and The Scottish Law Commission, ‘Unfair Terms in Contracts’, (Law Com No.292)

and (Scot Law Com No.199), February 2005, [online] (accessed 21 August 2013) 20

Department for Business Innovation and Skills, ‘Draft Consumer rights Bill – Government Response to consultations on Consumer Rights’, June 2013, [online] (accessed 1 July 2013)

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2.3 Consumer law enforcement powers

Enforcement - complexity of investigatory powers

There are a number of pieces of consumer legislation that set out rights and obligations on traders. Enforcers, for example, local authority Trading Standards Services (TSS), have powers to investigate compliance. Consumer law investigatory powers include powers of entry, inspection and seizure of goods and documents. The problem is that these investigatory powers are currently scattered in around 60 different pieces of consumer legislation. It is argued that this makes it difficult for businesses and enforcers to know what these investigatory powers are in every circumstance, leading to unnecessary costs to business and the potential for disputes. According to BIS, Government intervention is required to consolidate and simplify the powers and set them out as a generic set in one place in statute.21 Cross-border enforcement

In July 2011, the National Audit Office (NAO) estimated that 70% of consumer detriment is likely to arise out of trading activities which cross local authority boundaries.22 It also estimated that the cost of this consumer detriment to be in excess of £4.8 billion.23 The difficulty is that current law on cross-border enforcement24 is open to different interpretations.25 To be seen to be acting properly, many TSS seek formal authorisation (by way of a memoranda of understanding) to operate on another authority’s territory or even double up with local enforcers.26 This unnecessary bureaucracy increases enforcement costs; this, in turn, reduces the effectiveness and efficiency of the enforcers to tackle rogue traders. According to BIS, there is an urgent need to clarify the position; to make cross-boundary enforcement easier and simpler.27 Restricted range of measures available to enforcers of consumer law

The main formal sanction available to an enforcer (like TSS) against a rogue trader is criminal prosecution. Alternatively, enforcers could seek a civil enforcement order for breach of consumer law. Both options would stop the infringing practise, but would not generally result in redress for individual consumers who have suffered a loss as a result of the breach.

According to BIS, there is an urgent need to increase the range of measures available to

enforcers under the civil law enforcement regime:

21

Department for Business innovation and Skills, ‘Enhancing Consumer Confidence: Generic Set of Consumer Law Powers – Impact Assessment: Final’, June 2013

22 Department for Business innovation and Skills, ‘Enhancing consumer Confidence: Improving local authority

Trading Standards Services – Impact assessment: Final’, June 2013, [online] (accessed 17 July 2013) 23

Ibid 24

Section 222 Local Government Act 1972 25

Department for Business innovation and Skills, ‘Enhancing consumer Confidence: Improving local authority Trading Standards Services – Impact assessment: Final’, June 2013, [online] (accessed 17 July 2013)

26 Department for Business, Innovation and Skills, the Office of Fair Trading and Local Authority Trading

Standards Services, 'Protecting Consumers – the system for enforcing consumer law’, Report by the Comptroller and Auditor General, National Audit Office, HC 1087 session 2010-2012, page 8, 15 June 2011, [online] (accessed 1 July 2013)

27 Department for Business Innovation and Skills, ‘Enhancing Consumer Confidence: Improving Local Authority

Trading Standards Services, Impact Assessment: Final’, June 2013

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While criminal prosecution will always remain the most appropriate method for

dealing with out and out rogues, there is a clear gap between the limited civil

powers set out above and criminal prosecution.28

2.4 Private actions to tackle anti-competitive behaviour29

Main elements of the competition regime

Competition law is not the same as consumer law. The main elements of the UK competition regime are:

Market studies and market investigations: examining markets which may not be

working well for consumers, with powers to impose remedies where an adverse effect

on competition is found;

Merger control: maintaining competitive pressures in markets by prohibiting anti-

competitive mergers between businesses or otherwise remedying their potential

adverse effects on competition;

Anti-trust: enforcing legal prohibitions against anti-competitive business agreements

(including cartels) and the abuse of a dominant market position. There is also a

specific criminal cartel offence against individuals who engage in certain forms of

price-fixing and other forms of ‘hard core’ cartel activity;

Competition Advocacy: promoting the benefits of competition and challenging

barriers to competition, such as those which might result from existing or planned

Government regulations.

The main competition institutions are:

the Office of Fair Trading (OFT), responsible in particular for antitrust enforcement and

for the first phase of merger and markets cases;

the Competition Commission (CC), responsible for second phase merger and market

investigations and, in appropriate cases, for the imposition of remedies to any anti-

competitive effects found;

regulators for such sectors as energy, water and telecommunications, many of which

have concurrent powers to apply the anti-trust prohibitions and refer markets to the

CC; the CC also hears certain appeals against licence and energy code modifications

and price determinations in these sectors;

the Competition Appeal Tribunal (CAT), a specialised judicial body, which hears

appeals and decides certain cases involving competition or economic regulatory

issues.

The interactions between these institutions are illustrated below:30

28

Department for Business Innovation and Skills, ‘Draft Consumer rights Bill – Government Response to consultations on Consumer Rights’, June 2013, [online] (accessed 1 July 2013)

29 This section was written by Antony Seely, competition specialist for the House of Commons Library, Business

and Transport Section 30

National Audit Office, Review of the UK’s Competition Landscape, March 2010 p9

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Notes

1 The Civil Aviation Authority has powers to make a market reference of the Air Traffic Control

Services market only.

2 The Secretary of State may also make a reference to the Competition Commission on grounds

of public interest.

3 The diagram omits the Supreme Court of the UK and the European Court of Justice, both of

which are in the judicial structure which includes the Tribunal. It also omits the Northern Ireland

Authority for Utility Regulation.

4 The Court of Appeal’s jurisdiction only extends to England and Wales. The equivalent court in

Scotland is the Court of Session, and in Northern Ireland, the Court of Appeal of Northern

Ireland.

In March 2012 the Government announced the merger of the OFT and the CC to form a new single authority, the Competition & Markets Authority (CMA).31 Provision to establish the CMA, and a series of related reforms to the UK competition regime, was made by the Enterprise and Regulatory Reform Act 2013;32 the CMA will function fully from 1 April 2014.33

31

HC Deb 15 March 2012 cc27-9WS 32

For more background on this reform see, Library Research Paper 12/33, 7 June 2012 pp12-63; the Paper was prepared for the second reading of the Enterprise and Regulatory Reform Bill 2012-13

33 Details of the new authority are collated on the Gov.uk site

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Ineffectiveness of private actions

Broadly speaking, private actions involve one or more parties (for instance, an individual, business or a charity) taking another to court over a matter of competition law. The remedies will vary, but might commonly include one or more of the following:

damages,

an injunction (an order from a court prohibiting an individual or business from a certain type of activity) or

the court declaring a contract void The problem identified by BIS is that challenging anti-competitive behaviour is beyond the resources of individual consumers and many businesses, particularly SMEs:

Cartels are covert and other anti-competitive practices are often difficult to

identify. Establishing the situation that would have existed in the absence of the

anti-competitive behaviour is complex, and will often require costly expert

economic input.34

Both BIS and the OFT are of the view that the present approach to private actions is one of the least effective aspects of the UK competition regime.35

3 Proposals for consumer law reform in detail

3.1 Government consumer strategy

In April 2011, the Government published a strategy document, ‘Better Choices: Better Deals – Consumers Powering Growth’, in which it set out its aim to create a simple, modern framework of consumer law across all sectors. The Government identified three preconditions that must be met if consumers are to play their part in driving economic growth.36 They are:

1. competitive markets - without which there is no choice, and so no effective impetus for keen prices, high quality and innovation;37

2. a strong but simple framework of consumer law - so consumers are confident about their rights and empowered to take action if businesses fail to deliver; and

3. the effective enforcement of the law - so that consumers know that rogue businesses will be effectively tackled38

34

Ibid 35

Department for Business Innovation and Skills, ‘Private actions in competition law: a consultation on options for reform’, URN 12/742, April 2012, [online] (accessed 4 July 2013)

36 Department for Business Innovation and Skills (BIS) and the Cabinet Office, ‘Better Choices: Better Deals -

Consumers Powering Growth’, 13 April 2011, [online] (accessed 19 March 2013) 37

To tackle this first precondition, the Government published a consultation in April 2012 on strengthening private enforcement of competition law and draft legislation was put forward in May 2012. The Law Commission also published a report, ‘Consumer Redress for Misleading and Aggressive Practices’, on 28 March 2012, [online] (accessed 13 March 2013)

38 To tackle this third precondition, the Department for Business Innovation and Skills (BIS) published the

following three documents: (1) ‘Consultation on Consolidating and Modernising Consumer Law Enforcement Powers’, 28 March 2012 (consultation closed 20 June 2012), [online in BIS Archives] (accessed 13 March 2013). (2) ‘Private Actions in Competition Law: A Consultation on Options for Reform’, April 2012, (consultation closed on 24 July 2012), [online] (accessed 13 March 2013). (3) ‘Civil enforcement remedies – consultation on extending the range of remedies available to public enforcers of consumer law’, 5 November 2012 (consultation closed on 31 December 2012), [online] (accessed 13 March 2013)

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In working towards meeting these preconditions, BIS has consulted widely with consumer and business groups, enforcement officers, academics, the Law Commission and Scottish Law Commission (see Section 4 below). Between March and November 2012, BIS published a series of public consultation documents proposing measures to overhaul and reform UK consumer law. Specifically, BIS consulted on

reforms to goods, services and digital content;39

private actions in competition law;40

extending the range of remedies available to public enforcers of consumer law;41 and

modernising consumer law enforcement powers42 During the same period, BIS asked the Law Commission and the Scottish Law Commission to consult and report on unfair terms.43 Consumer reform was included in the Queen’s Speech in May 2013. A draft Consumer Rights Bill was published on 12 June 2013, together with Explanatory Notes and Impact Assessments.44 On the same day, the Government published a series of responses to its various consultations on reforming consumer rights (see Appendix E to this Research Paper). In an accompanying Written Ministerial Statement, Jo Swinson, Parliamentary Under-Secretary of State for Employment Relations and Consumer Affairs, stated that the aim of a new Consumer Rights Bill was to introduce a simple framework that would set out in one place the rights and obligations of consumers and traders:

This [Bill] will help consumers and their advocates understand their rights when

things go wrong, with the aim of empowering consumers and promoting growth

through competitive markets.

Overall, the draft Bill reduces regulatory burdens for business, with the aim of

making markets work better. For example, businesses should have fewer and less

costly disputes with customers, because rights are clearer. Disruption caused by

unplanned enforcement officers’ visits should be reduced by the proposed

requirement to give reasonable notice to businesses when carrying out routine

inspections. It should be easier for businesses and consumers to hold to account

those who have breached competition law. 45

Numerous stakeholder events were held by BIS to answer questions on the draft Bill.

39

Department for Business Innovation and Skills (BIS), ‘Enhancing consumer confidence by clarifying consumer law in relation to the supply of goods, services and digital content, ’ July 2012 [online] (accessed 20 June 2013)

40 Department for Business Innovation and Skills, ‘Private Actions in Competition Law: A consultation on options

for reform – Government Response’, BIS/13/501, January 2013, [online] (accessed 4 July 2013) 41

Department for Business Innovation and Skills, ‘Civil Enforcement remedies – Consultation on extending the range of remedies available to public enforcers of consumer law’, November 2012, [online] (accessed 17 July 2013)

42 Department for Business innovation and Skills, ‘Enhancing Consumer Confidence through Effective

Enforcement – Consultation on consolidating and modernising consumer law enforcement powers’, March 2012, [online] (accessed 17 July 2013)

43 Law Commission and Scottish Law Commission, ‘Unfair Terms in Consumer Contracts: Advice to the

Department for Business, Innovation and Skills’, March 2013, [online] (accessed 27January 2014) 44

Department for Business Innovation and Skills, ‘Draft Consumer Rights Bill – Government Response to Consultations on Consumer Rights’, June 2013, [online] (accessed 1 July 2013)

45 HC Deb 12 June 2013 c 7-8W

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The BIS Select Committee decided to examine the draft Consumer Rights Bill in Parliament through pre-legislative scrutiny and on 2 July 2013, issued a call for evidence which closed on 19 August 2013, although evidence continued to be accepted throughout the duration of the inquiry. The Government submitted several items of supplementary evidence during this time. The Committee took oral evidence from consumer and business representatives, enforcers, the Law Commissions and the Government. The Committee published their report on 23 December 2013.46

The Government’s published its response to each of the recommendations made by the Committee together with its ‘Statement on Policy Reform’ on 23 January 2014.47 Annex B to this Command Paper sets out in table form the Government’s response and (where relevant) amendments subsequently made to the draft Consumer Rights Bill.

On the same day (23 January 2014), the Consumer Rights Bill was introduced in the House of Commons. Jenny Willott, the Parliamentary Under-Secretary of State for Business,

Innovation and Skills, made the following Written Statement:

Today the Government is introducing the Consumer Rights Bill. This Bill is a

fundamental reform of consumer legislation so that consumers’ and business’ key

rights and responsibilities are clear, easily understood and updated to take account of

purchases involving digital content. It contains important new protections for

consumers alongside measures to lower regulatory burdens for business, all with the

aim of making markets work better, which is good for consumers, good for business

and therefore good for growth.48

3.2 Economic rationale

In April 2012, the Government announced a series of reforms to the bodies carrying out consumer functions. The aim of this new consumer landscape is to support growth by helping markets work better for consumers by giving greater clarity about where consumers need to turn for help and advice. It is the Government’s view that the reforms will “deliver a better deal overall for consumers through clearer responsibilities and better co-ordination between consumer bodies and enforcers”.49 The aim of the Bill is to build on the foundations of the institutional changes already announced. Outlining the economic rationale for a new Consumer Rights Bill, and for simplifying and reforming consumer law, the Government has said that it should make markets work effectively and drive economic growth:

It is widely recognised that well-functioning competitive markets encourage

growth by creating incentives for firms to become more efficient and innovative

to compete for customers. Markets can only be fully competitive if consumers

are active and confident, meaning that they are willing to challenge firms to

provide a better deal, switch between suppliers, and take up new products.

Consumer law reform can play a central role in empowering consumers,

thereby supporting more effective competition. Greater awareness of consumer

rights makes markets work more effectively because consumers will have

46

House of Commons Business Innovation and Skills Committee, ‘Draft Consumer Rights Bill’, Sixth Report of Session 2013-14, HC 697, Volume I, II and III, 23 December 2013, [online] (accessed 9 January 2014)

47 ‘Consumer Rights Bill: Statement on Policy Reform and Responses to Pre-Legislative Scrutiny’, Cm 8796,

January 2014 [online] accessed 24 January 2014) 48

HC Deb 23 January 2014 9WS 49

‘Consumer Rights Bill: Statement on Policy Reform and Responses to Pre-Legislative Scrutiny’, Cm 8796, January 2014 [online] accessed 24 January 2014)

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greater confidence to switch to alternative suppliers or take up new products.

This is particularly important in allowing new entrants to compete against the

more established firms.50

It is the Government’s view that reform of consumer law will bring quantifiable net benefits to the UK economy over a period of 10 years:

The reforms taken together are estimated to be worth over £4 billion to the UK

economy over 10 years in quantified net benefits. Clarification and simplification

mean consumers should spend less time trying to understand their rights, less time

and resource applying them, and no longer waste time when they have

misunderstood their rights. Businesses should also spend less time having to

interpret complex legislation. Where things do go wrong, the proposals allow wider

options for redress for both businesses and consumers who have lost out when

consumer or competition law has been broken. The proposals also reduce

regulatory costs for business. Problems following consumer purchases should be

addressed more quickly, with lower complaint handling costs and fewer cases

taken to court.

In addition to these quantified benefits, there are a range of economic benefits that

have not been quantified. The reforms should deliver market-wide changes by

empowering consumers who are confident, experimenting with new products or

services and switching suppliers. This should drive innovation and greater

competitiveness, and help to build a stronger economy. 51

The Government’s estimate of quantified net benefits of £4 billion to the UK economy over 10 years, includes the impact on consumers, businesses and the public sector from the Bill (£1.7 billion) and its associated secondary legislation (£2.73 billion).52 In addition there are a range of economic benefits that have not been quantified. Annex C to the Government’s Command Paper, provides a summary of the main quantified impacts. The Government has also published Impact Assessments, which contain more details (see Appendix E to this Research Paper).

4 Reports and Government consultations

The Government has consulted extensively on reforming consumer law. A number of consultation and academic research papers over several years have examined proposals that form part of this Bill.

For simplicity, the reports and consultation documents relevant to each of the three parts of the Bill are outlined below.

4.1 Consumer contracts for goods, digital content and services (Part 1 of the Bill)

The Davidson Report of 2006 examined the transposition of EU Directives into domestic law. It highlighted consumer law as an area where additional complexity had been caused by overlaying EU consumer law on top of the existing domestic regime, causing confusion for consumers and unnecessary burdens on business:

50

Ibid 51

Department for Business Innovation and Skills, ‘Consumer Rights Bill: Proposals on Unfair Contract Terms – Impact Assessment (Final)’, June 2013, [online] (accessed 26 June 2013)

52 ‘Consumer Rights Bill: Statement on Policy Reform and Responses to Pre-Legislative Scrutiny’, Cm 8796,

January 2014 [online] accessed 24 January 2014)

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For example, following the implementation of the Consumer Sales and

Guarantee Directive, the remedies available to consumers when they have

been sold faulty goods are too complicated. It is unclear how to choose

between the various remedies available.53

A bench-marking study by the University of East Anglia in 2008 found that whilst the current consumer law regime offers a high degree of protection, it is overlapping, complex, expressed in outdated language and is unevenly enforced.54 The report states:

In terms of the extent and content of rights, the UK appears to be on par with

the best, with the caveat that the amount of legislation conferring these rights

may be higher than desirable and may potentially render the rights inaccessible

to consumers. [...]

So long as consumers’ rights are not transparent, they will not be accessible by

consumers. In turn, having rights that are not accessible can be tantamount to

not having any rights at all.55

In November 2008, the Law Commission and the Scottish Law Commission jointly consulted on potential changes to the law on faulty goods.56 They made their recommendations in 2009.57 A main theme was the ‘significant and unnecessary complexities’ in the way the European remedies interact with the traditional UK remedies and the need ‘to simplify and clarify the law in this area’.58 A consumer law review in 2008, by the former Department for Business Enterprise and Regulatory Reform (now BIS), concluded that there would be significant advantages to simplifying consumer law and consolidating it in one piece of legislation.59 This was followed in July 2009 by a BIS White Paper, ‘A Better Deal for Consumers: Delivering Real Help Now and Change for the Future’. 60 A report commissioned by BIS on the ‘Consolidation and Simplification of UK Consumer Law’, edited by Professors G. Howells and C. Twigg-Flesner, was published in 2010. It recommended that consumer contract law would be improved if many of the provisions could be consolidated into a single Act:

1.3 Our general conclusion is that consumer contract law would be improved if

many of the provisions could be brought together in a single consumer contract

law that so far as possible subjected all consumer supply contracts to the same

rights and remedies. The rules should be informed by general principles

reflecting the need for the contract to fulfil consumer reasonable expectations.

53

HM Treasury, Davidson Review – Final Report, November 2006, paragraph 18 54

‘Benchmarking the performance of the UK Framework Supporting Consumer Empowerment through comparison against relevant international comparator countries’, a report prepared for BERR by the ESRC Centre for Competition Policy University of East Anglia, August 2008 [revised December 2008], [online] (accessed 19 March 2013)

55 Ibid

56 The Law Commission and The Scottish Law Commission, ‘Consumer remedies for faulty goods’, (Law Com

No. 317( (Scot Law Com No.216), November 2009, [online] (accessed 17 July 2013) 57

Ibid 58

Ibid 59

Department for Business Enterprise and Regulatory Reform (BERR), Consumer Law Review 2008, quoted at paragraph 4.8 of ‘Enhancing Consumer Confidence by clarifying consumer law – consultation on the supply of goods, services and digital content’, URN 12/937, July 2012, [online] (accessed 19 March 2013)

60 ‘A Better Deal for Consumers – Delivering Real Help Now and Change for the Future’, Department for

Business Innovation and Skills, Cm 7669, July 2009

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Simpler modern terminology should be used that is suited to the consumer

context and understandable to consumers. 61

In the same year (2010), a legal research paper by Professor Bradgate, commissioned by BIS, found that it was not clear what, if any, legal rights the purchaser of digital content has if the content proves defective or fails to live up to expectations:

[...] It seems that there is conceptual difficulty with finding that software – essentially

data which is not tangible in the sense that you can touch it – can be goods. There is

also a tendency to think that if something is not goods, it must be a service – but again

many digital content products do not obviously fit into this category either. This

uncertainty is important as different legal consequences are attached to a consumer

contract depending on whether the transaction relates to goods or services. [...]

It is generally reckoned that to be effective consumer law must be clear, accessible

and comprehensible. The law relating to digital products currently satisfies none of

these criteria. 62

The paper concluded that UK law is not rational, effective, accessible or comprehensive in respect of consumer rights in digital content products, and that it should be clarified.

In 2012, BIS commissioned a report by IFF Research Ltd. One thousand business-to-consumer firms were surveyed by IFF with follow-up interviews with 60 firms, in order to provide quantitative evidence on business practices in relation to consumer rights.63 In the same year, an international literature study by GHK, also on behalf of BIS, found widespread agreement that enhanced consumer legal protection leads to positive economic outcomes, such as increased consumer confidence and economic growth. One example given in this report was Australia, where the Productivity Commission estimated that simplifying national consumer law could increase productivity by 0.13 per cent, worth A$6 billion (equivalent to £7.7 billion in productivity gains for the UK economy) over 40 years.64 BIS held a public consultation from 3 July to 5 October 2012 on ‘Enhancing Consumer Confidence by Clarifying Consumer Law’ in relation to the supply of goods, services and digital content.65 Norman Lamb, then Consumer Minister, outlined the Government’s position:

Obviously the Government cannot tolerate archaic law holding back innovation in a

sector as important as this. Few consumers are willing to pursue their rights when the

benefits of doing so are so hard to predict without expensive legal advice.66

61

Department for Business Innovation and Skills (BIS), ‘Consolidation and Simplification of UK Consumer Law’, URN 10/1255, edited by Professor Geraint Howells and Professor Christian Twigg-Flesner, November 2010, [online] (accessed 19 March 2013)

62 ‘Consumer Rights in Digital Products – A research report prepared for the UK Department for Business

Innovation and Skills’, by Professor Robert Bradgate, Institute of Commercial Law Studies, University of Sheffield, September 2010, [online] (accessed 19 March 2013)

63 Department for Business innovation and Skills, ‘Draft Consumer Rights Bill – Government Response to

Consultations on Consumer Rights’, June 2013, [online] (accessed 17 July 2013 64

Ibid 65

Department for Business Innovation and Skills (BIS), ‘Enhancing consumer confidence by clarifying consumer law in relation to the supply of goods, services and digital content, ’ July 2012 [online] (accessed 20 June 2013)

66 Department for Business Innovation and Skills (BIS), ‘Enhancing Consumer Confidence by clarifying

consumer law – consultation on the supply of goods, services and digital content’, page 7, URN 12/937, July 2012, [online] (accessed 19 March 2013)

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4.2 Unfair terms (Part 2 of the Bill)

In August 2002, the Law Commission and the Scottish Law Commission (the ‘Law Commissions’) consulted on proposals for a unified law on unfair contract terms. Detailed recommendations were set-out in a report published in February 2005, alongside a draft Bill.67 However, these recommendations were not taken forward. A 2009 Supreme Court judgment on bank charges highlighted difficulties in the law on unfair terms in consumer contracts. This led the Government to ask the Law Commissions to bring forward new proposals to reform this law. 68 In May 2012, Norman Lamb asked the Law Commissions to look again at unifying a regime on unfair terms in consumer contracts. The Law Commissions undertook a consultation which focused on two areas:

i. those contract terms that are exempt from an assessment of fairness by the courts because they concern the ‘essential bargain’ of the contract (i.e. the subject matter and the price); and

ii. the ‘grey list’, an indicative and non-exhaustive schedule of types of terms that may be considered unfair

The Law Commissions made recommendations to BIS on 19 March 2013 concerning terms in consumer contracts.69 4.3 Consumer law enforcement powers (Part 3)

A consultation on ‘Enhancing consumer confidence through effective enforcement: Consolidating and modernising consumer law enforcement powers’ ran from 28 March to 20 June 2012.70 In this document, BIS sought views on proposals to:

consolidate and simplify consumer law investigatory powers and set them out in a generic set;

make it easier for Trading Standards Services to tackle rogue traders operating across local authority boundaries; and

where appropriate, reduce burdens on business by introducing certain safeguards on the use of these powers, such as requiring officers to give reasonable notice of routine visits, unless there are good reasons for them to be unannounced.

According to BIS, these measures are a key response to the Government’s Red Tape Challenge.71 They also take account of the Protection of Freedoms Act 2012; by reviewing and consolidating powers of entry and improving safeguards to their use.72

67

The Law Commission No.292/The Scottish Law Commission No.199, 2005 68

A test case on exempt clauses was brought by the Office of Fair Trading (OFT) against a group of UK banks represented by Abbey National. The issue was whether unauthorised bank charges could be considered for fairness (the OFT’s position) or whether they were exempt and could not be considered (the banks’ position). The High Court found in favour of the OFT but this was overturned by the Supreme Court in 2009. It was the judgment of the Supreme Court that the unauthorised bank charges were exempt from being assessed for fairness because they concerned the ‘price’ under the contract between consumer and bank.

69 The Law Commission and the Scottish Law Commission, ‘Unfair terms in consumer contracts – Advice to the

Department for Business Innovation and Skills’, March 2013, [online] (accessed 2013) 70

Department for Business innovation and Skills, ‘Enhancing Consumer Confidence through Effective Enforcement – Consultation on consolidating and modernising consumer law enforcement powers’, March 2012, [online] (accessed 17 July 2013)

71 Ibid

72 HM Government , ‘The Coalition: our programme for government’, page 11, May 2010

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A second consultation on ‘Extending the Range of Remedies Available to Public Enforcers of Consumer Law’ was published on 5 November 2012 and closed on 31 December 2012. BIS sought views on proposals to extend the range of remedies available to courts when public enforcers apply to them for enforcement orders under Part 8 of the Enterprise Act 2002.73 4.4 Private actions in competition law74

A consultation on ‘Private actions in competition law: Consultation on options for reform’ ran from 24 April to 24 July 2012.75 This sought views on proposals to encourage ‘private actions’ – legal action undertaken by individuals or businesses to obtain redress where they have suffered damages from anti-competitive behaviour, as opposed to action by the public authorities (the OFT, the sectoral regulators or the European Commission). The document gave a little more detail of private actions in the UK, and the EU:

4.1 Private actions refer to circumstances in which one or more parties – for example

an individual, a business or a charitable organisation – take another to court over a

matter of competition law. The remedies sought will vary, but might commonly include

one or more of damages, an injunction76, or voidance of a contract or other legal

document.

4.2 Access to redress is recognised in the UK, as well as in the EU and beyond, as an

important part of a well-functioning competition regime. Through EU Law, there has

been a right of action for damages since the UK joined the EU in 1973, and confirmed

in numerous cases including Courage Ltd v. Crehan, Manfredi v. Lloyd Adriatico

Assicurazioni SpA77 and the House of Lords decision in Garden Cottage Foods Ltd v.

Milk Marketing Board.

4.3 In competition law, there are two main types of action:

Follow-on cases, where an infringement of competition law has already been found

by a competition authority. In such a case, all that the claimant must show is how it

relates to their own case (for example, quantification of damages and causation).

Stand-alone cases, where such an infringement has not been found by the

competition authority. The claimant is therefore obliged to first show that a breach of

competition law has occurred and, if this established, may then attempt to show how it

relates to their case and to seek specific remedies (such as damages or an injunction).

4.4 Currently, all stand-alone claims arising in England and Wales pleading a breach of

EU or UK competition law must be issued in or transferred to the High Court78, with

similar cases in Scotland heard in the Court of Session. Follow-on claims; that is,

73

Department for Business Innovation and Skills, ‘Civil Enforcement remedies – Consultation on extending the range of remedies available to public enforcers of consumer law’, November 2012, [online] (accessed 17 July 2013)

74 This section was written by Antony Seely, competition specialist for the House of Commons Library, Business

and Transport Section 75

Department for Business Innovation and Skills, ‘Private Actions in Competition Law: A consultation on options for reform – Government Response’, BIS/13/501, January 2013, [online] (accessed 4 July 2013)

76 Or in Scotland an interdict or order for specific performance

77 As discussed in ‘Collective Redress For Breach Of Competition Law – A Case For Reform?’ (2011), Sir Gerald

Barling 78

They are assigned to the Chancery Division, unless they come within the scope of Rule 58.1(2) of the CPR, in which case they are assigned to the Commercial Court.

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claims relating solely to issues in which a prior finding of infringement has been made

by a competition authority, may be issued in the CAT.79

4.5 The Court of Appeal has ruled80 that, even for a follow-on case, the scope to go

beyond the findings of the initial infringement are extremely limited and that all aspects

of evidence and argumentation must relate to issues found in the initial infringement

decision. In practice, this severely limits the scope of cases that the CAT can

consider.81

In 2009 the OFT had published some analysis of the impact of the way infringements of competition law are fined, and noted private actions were much less of a deterrent to anti-competitive behaviour in this country compared with the United States:

In the UK, the absence of class actions, the restriction of representative actions to

'specified bodies', and the inability of these bodies to bring actions on an 'opt out' basis

mean that private actions currently do not play the complementary role they do in the

US, where private actions are pursued often and vigorously and treble damages are

available in antitrust cases.82 In relation to EC cases, there is no single legal

mechanism to bring EU-wide collective actions. However, the European Commission

encourages harmed parties to apply for compensation in national courts.83

The consultation paper identified a number of obstacles to private actions:

3.12 Currently it is rare for consumers and SMEs to obtain redress from those who

have breached competition law, and it can be difficult and expensive for them to go to

court to halt anti-competitive behaviour. Between 2005 and 2008, there were only 41

competition cases of any kind which came before the courts and where judgments

were delivered.84 Out-of-court settlements can be a major source of resolution in some

areas of law, but a survey of legal practitioners estimated that there were only 43 out-

of-court settlements between 2000 and 2005 relating to anticompetitive practices.85

3.13 A further difficulty is that competition cases may involve large sums but be divided

across many businesses or consumers, each of whom has lost only a small amount.

This means that a major case, with aggregate losses in the millions or tens of millions

of pounds, can nevertheless lack any one individual for whom pursuing costs makes

economic sense.

3.14 Existing legal mechanisms to address the situation do not appear to be adequate:

79

Under section 47A of the Competition Act. Under section 47B of the Competition Act (inserted by section 19 of

the Enterprise Act), claims under section 47A may be brought by certain specified bodies on behalf of consumers. Under section 16(1) of the EA02, the Lord Chancellor may by regulations make provision enabling the court to transfer to the CAT for its determination so much of any proceedings before the court as relates to an 'infringement issue' and to give effect to the determination of that issue by the CAT.

80 Enron v. EWS (2011)

81 BIS, Private actions in competition law – a consultation on options for reform, April 2012 pp15-6

82 Although treble damages are in principle available, the level at which private case settlements are actually

reached has not been investigated as part of this study. 83

An assessment of discretionary penalties regimes: A report prepared for the Office of Fair Trading by London Economics OFT1132, October 2009 p12. See also, OFT, Private actions in competition law: effective redress for consumers and business – OFT discussion paper 916, April 2007

84 ‘Competition law litigation in the UK courts: a study of all cases 2005-2008 Part I and Part II’ (2009) B. Rodger

Global Competition Litigation Review, 2009, pp 93-114 & pp136-147 85

‘‘Private Enforcement of Competition Law, the Hidden Story: Competition Litigation Settlements in the UK,2000–2005’’ (2008) E.C.L.R. 96, B. Rodger

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The right for consumers to bring collective actions for breach of competition law.86

There has been only one case in almost ten years. This case was brought by

Which? after an OFT investigation which resulted in JJB being fined £6.7 million for

fixing the prices of replica football shirts. Despite widespread publicity, only 130

claimants signed up, fewer than 0.1% of those affected.

The representative action rule in the Civil Procedure Rules.87 The 2010 decision by

the Court of Appeal in Emerald Supplies Ltd v. British Airways plc., rejecting the

representative action against British Airways seeking money damages for the

alleged global air fuel surcharges cartel, indicates that attempts to use this clause

for breaches of competition law are likely to be extremely limited.88

The ability of the CAT to only hear follow-on cases. In Enron v. EWS (I) [2009], the

Court of Appeal ruled that the scope for the CAT to go beyond the findings of the

initial infringement is extremely limited. This makes it harder for cases to be

brought before the CAT.89

3.15 There are many cases where it would be inappropriate for the OFT, the sectoral

regulators or the European Commission90 to take action. In prioritising its work, the

OFT considers a range of factors, including impact, strategic significance, risks and

resources.91 This prioritisation allows the OFT to focus on cases which cause the most

significant detriment to the UK economy as a whole or involve the most important

deterrent effect (or both). However, it leaves a number of cases where it would be an

inefficient use of public resource to bring the full force of an investigation to bear.

Furthermore, even in cases where the OFT does find a breach of competition law,

although a fine is imposed, there is no specific provision to make redress to those who

have suffered loss.92

The paper set out four possible reforms to encourage private actions:

Allowing the Competition Appeal Tribunal (CAT) to hear more kinds of competition

cases and granting it additional powers to allow SMEs to quickly and cheaply

challenge behaviour that is restricting their ability to grow.

Introducing an opt-out collective actions regime for competition law, which would

enable consumers and businesses to collectively bring a case to obtain redress for

shared losses.

Promoting Alternative Dispute Resolution (ADR) to ensure that the courts are the

option of last resort.

Ensuring private actions complement the public enforcement regime, in particular

by protecting the incentives provided for companies to whistle-blow on cartels.93

Over the next three months the Department received 129 responses, and held a number of stakeholder meetings and roundtables.

86

Under Section 47B of the Competition Act 1998 87

Section 19.6 88

“A Missed Gem Of An Opportunity For The Representative Rule” (2011), European Business Law Review,

Rachael Mulheron 89

This was also considered and applied by the CAT in Emerson IV [2011] CAT 4. 90

The European Commission may only take action in cases where there is a European Union interest. 91

OFT, Competition prioritisation framework, October 2006 & Prioritisation Principles OFT953, October 2008 92

BIS, Private actions in competition law – a consultation on options for reform, April 2012 pp10-11 93

BIS press release, Businesses and consumers to be empowered to challenge anti-competitive practices responses, 24 April 2012. Responses to the paper were invited by 24 July 2012.

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On collective actions, the consultation paper looked at the current approach of ‘opt in’, in contrast to two other possibilities:

Pure opt-in: Individual parties have to actively elect to join the action as members of

the represented group. An individual who does not opt-in would not benefit from the

outcome of the collective action, except that it might constitute a precedent were they

to bring a separate claim.

Pre-damages opt-in: Individual parties have to actively elect to join the action as

members of the represented group, but can do so at any point up until the damages

are quantified – even after liability has determined. However, any individuals who do

not opt-out are bound by the outcome of the case as to whether or not they can bring

subsequent claims for damages.

Pure opt-out: All parties who fall within the definition of the represented group are

bound by the outcome of the case whether unless they actively opt-out of the action.

Damages are determined on the basis of an estimation of the total size of the group

with claimants coming forward after the quantification of damages to claim their

share.94

The paper noted the difficulties presented potential claimants by the opt-in regime:

Particularly in cases where the level of individual damage to each consumer or

business is very low, it is difficult to see how an opt-in regime can provide a

satisfactory means of resolution. The hassle-factor of opting in may simply, for many

claimants, outweigh the reward available, even if the aggregate damages are very

large. …OFT has noted that the requirement to take representative actions on an opt-

in basis is restrictive and fails to maximise economies of scale. Legal experts that the

Government has spoken to have also indicated that they think it unlikely that remaining

with an opt-in system would deliver change, even if extended to businesses and stand-

alone cases.

Critically, an opt-in system requires businesses or consumers to link themselves to a

case before they know what the damages are, or even if it is successful. The lack of

certainty makes it difficult to engage potential participants, a difficulty which has been

shown to be prohibitive in large consumer cases, largely due to lack of awareness of

the process. It is possible that this problem would be less acute with businesses, but

they could also face the additional complications of still having ongoing business links

with the infringers.95

It went on to discuss certain advantages to an op-out regime, as well as concerns raised by some that this would result in excessive litigation:

In an opt-out case, the action would be brought on the basis of an estimation of the

total size of the group with claimants coming forward after the quantification of

damages to claim their share. This has at least two principal advantages. Firstly, it is

the type of regime that is most likely to deliver redress to most of those wronged:

claimants only have to step forward after the judgment and amount of award are

decided and the publicity of winning an award likely to generate publicity to make

potential claimants aware … Secondly, in cases where the amount of damages per

claimant is very low, only an opt-out action is likely to succeed in delivering redress.

Because the action is brought on the basis of an estimation of the total size of the

94

Private actions in competition law … , April 2012 p31 95

op.cit. p32

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group, the damages can be calculated accordingly and a fund created to deliver

redress to claimants. This can then be used in case-specific ways to deliver redress …

The Government recognises that [a regime under which] … individuals or businesses

may be represented in an action without their express consent, is of concern to certain

stakeholders. In particular there are concerns that such a provision would be similar to

the ’class action’ procedure available in the USA. This procedure has allegedly led to

instances of large businesses settling for significant sums simply to avoid the cost of

further litigation. The Government considers that other factors in the USA are more

directly responsible for the high volume of litigation in the US. These include treble

damages (imposing such a high risk on defendants that they may be encouraged to

settle cases to which they have a reasonable defence), the lack of the loser-pays rules

and jury trials.96

The Government published its report on the outcome of this consultation six months later on 29 January 2013.97 As it transpired, “the great majority of respondents agreed that reform was necessary, but disagreed as to the extent and form that that reform should take.” On the incidence of private actions, “the strong sense from the consultation was that” cases that were either heard by a court or settled before this stage were “almost exclusively between large companies, and that smaller companies and consumers still have no realistic way of challenging breaches of competition law or gaining redress.” Many respondents agreed with the Government’s view of the main obstacles to individuals and businesses pursuing private actions – specifically, the limited ability of the CAT to hear only follow-on cases, the difficulties with using the procedures under the Civil Procedure Rules (CPR) in the ordinary courts, and the inadequacy of the current opt-in collective action in competition law.98

On the Government’s specific proposals, there was strong support for expanding CAT’s jurisdiction and promoting Alternative Dispute Resolution – but respondents were strongly divided as to the benefits to having an opt-out collective actions regime:

3.8 The Government’s proposal to introduce an opt-out collective actions regime

generated the most heated debate, with approximately equal numbers of respondents

both for and against the procedure, with strong arguments advanced on either side.

Some respondents saw such an action as essential, whereas others felt it could not be

introduced without leading to abuses.

3.9 The great majority of respondents also felt that Alternative Dispute Resolution

(ADR) should be strongly encouraged, but not made mandatory, with several

highlighting that being able to pursue legal actions is a fundamental legal right. Some

highlighted possible ways in which the competition authorities could be involved in

delivering redress or in which an opt-out collective settlement mechanism could be

introduced in the CAT, to facilitate ADR.

3.10 Finally, the majority of respondents emphasised the important of protecting the

leniency regime, whilst noting that action would be preferable at a European level, and

that the European Commission was drawing up proposals.99

In turn, the Government took the view that this range of measures would improve the private actions regime significantly; that said, an opt-out collective actions regime would have to be

96

op.cit. pp33-4. Annex A of the consultation document discusses these issues at greater length. 97

The Government’s response document, impact assessment and the individual responses to the consultation document are collated on the Gov.uk site.

98 Private actions in competition law … government response, January 2013, pp12-13

99 op.cit. p13

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underpinned by a series of safeguards to mitigate the risk of frivolous or unmeritorious cases being brought:

3.15 The Government wishes to enable consumers and businesses to bring cases

against undertakings that are suspected of having breached competition law, both to

the challenge anti-competitive behaviour and to achieve redress. It is clear from the

consultation that the CAT is an organisation with unfulfilled potential and that an

expansion of its role will help fulfil those aims.

3.16 Equally though, the Government wishes litigation to be the option of last resort.

Accordingly, it will be necessary to encourage ADR, both through court rules and

though establishing new procedures whereby businesses who wish to can make

redress quickly and easily.

3.17 Finally, whilst the Government agrees that protecting the leniency regime is

essential, but that action would be better taken at a European level.

3.18 Accordingly, the Government has decided to:

Establish the Competition Appeal Tribunal (CAT) as a major venue for

competition actions in the UK. This would include allowing the CAT to hear

stand-alone cases and grant injunctions, as well as the establishment of a fast

track for simpler cases.

Introduce a limited opt-out collective actions regime, with safeguards, for

competition law.

Promote Alternative Dispute Resolution (ADR) to ensure that the courts are

the option of last resort. This would include establishing a new opt-out

collective settlement regime in the CAT and giving the new Competition and

Markets Authority a limited role in certifying redress schemes.

Ensure private actions complement the public enforcement regime. As

the European Commission is expected to bring forward proposals shortly, the

Government is not intending to take domestic action in this area. If the

Commission’s proposals are significantly delayed then the Government will

consider bringing forward proposals.100

The document gives more detail on each of these proposals. In the case of collective actions, respondents were most sharply divided over the question of whether an opt-out approach was necessary:

5.8 Strong arguments were advanced by respondents on both sides of the debate.

Which? argued that collective action reform “could have a hugely positive impact but

only if such a system could operate, where appropriate, on an opt-out basis”, a view

supported by Citizen’s Advice, who stated that “consumers affected may not be aware

of the case or have the resources in time and ability to engage” and the OFT, who

observed that an opt-out system “should help overcome what appears to have been

one of the key barriers to effective collective actions to date, specifically that it has

been very difficult to get sufficient claimants to make commencing an action viable,

particularly for consumers or SMEs and/ or where the value of the claim is small

compared to the costs of bringing the claim.“

100

op.cit. pp14-15

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The Association of Independent Music said that “we feel an opt-out model might be

preferable for our members” whilst the Law Society of England and Wales considered

that “the ability to bring opt-out collective actions is essential for consumer cases to be

successfully brought”. Which? observed that, provided adequate safeguards such as

judicial supervision and the ‘loser-pays’ rule were in place, “The costs of losing are far

too high for the process to be considered an attractive option for these seeking to

generate publicity or air grievances.”

5.9 On the other hand, the Competition Law Association observed that introducing an

opt-out regime “would constitute a radical reform of the English civil justice system and

we are not convinced that the evidence shows that such changes are required or

wanted”, whilst the CBI considered that “introducing opt-out class actions carries

unacceptable risks, which must be avoided” and went on to say that under an opt-out

system “companies are faced with exaggerated claims which damage their reputation

and financial standing.”

Some respondents also expressed doubt about the benefits of an opt-out model as

well as concern over the risks: the International Chamber of Commerce, for example,

said it “is unclear why a greater number of claimants would claim their share from an

opt-out fund post-quantification than had opted-in to the Which? claim.” Some of these

respondents suggested strengthening the existing opt-in system, for example by

increasing the number of bodies that could bring cases, or supported the introduction

of pre-damages opt-in, which Eversheds, for example, stated “seems to be an

acceptable ‘half-way house’.”101

As noted, in response to these concerns, the Government proposed the new regime would be underpinned by certain safeguards, with cases heard only in the CAT. It also proposed that provision would be made for some actions to be brought under an opt-in basis, and that actions could be heard for both ‘follow on’ and ‘stand-alone’ cases:

The Government does recognise that there may be some collective actions which

would be more appropriately brought on an opt-in basis, such as a case brought by a

small number of businesses all of whom are clearly identifiable. It has therefore

decided that the CAT will be required to certify whether a collective action

brought in the new regime is suitable for collective action and whether it should

proceed under an opt-in or an opt-out basis.

The Government further agrees with the majority of respondents that there should be

no distinction between follow-on and standalone cases in the collective actions regime.

A particularly important point was that trying to make such a distinction in individual

cases is what has led to the current unsatisfactory situation with regards to the CAT,

which the Government (supported by the great majority of respondents) has now

decided to reform.

Regarding whether collective actions should be available to both consumers and

businesses, Government recognises that in some cases businesses will be well-placed

to take action themselves, without the need for a collective action. The Government

therefore believes that collective actions should only be certified if that is the best way

of bringing a case.

On the other hand, there may be occasions … where it would be perverse to require

multiple cases to be brought or for businesses and consumers to be treated differently.

As was acknowledged by many respondents, it is also the case that small businesses

101

Private actions in competition law …, January 2013, pp29-30

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may often have difficulty in bringing cases themselves, and would be likely to benefit

from taking part in a collective action.

The Government has considered whether or not different provision should be made for

SMEs and larger businesses. However, it has listened to the points made by the

majority of respondents on the question of the Fast Track Procedure, that it is in

practice difficult to distinguish between large and small businesses in terms of access

to court procedures. The Government has listened to respondents on that proposal

and, accordingly, believes that similar principles should be applied in the case of

collective actions.

The Government has therefore decided that collective actions should be

available in both follow-on and standalone cases, with cases to be heard only in

the Competition Appeal Tribunal, and may be brought on behalf of either

consumers or businesses, or a combination of the two.102

The Government’s case for this approach was set out in more detail in an impact assessment, which compared it with three other possible options:

Option 1 – Do nothing

Option 2 – A set of small reforms involving developing court rules, Alternative Dispute

Resolution (ADR) and the leniency regime.

Option 3 – Introducing reforms of option 2 plus allowing private opt-out collective

actions by consumers or businesses.

Option 4 – Similar to option 3 but allowing the OFT to bring collective actions rather

than private opt-out collective actions.

The Government took the view that option 3 was the best, “as we believe the small reforms combined with collective actions would assist the deterrence effect through creating new cases and also assist redress, especially for consumers.”103 In comparison with options 2 and 4, “Option 3 is the better approach for achieving our objectives, due mostly to its substantial advantages in terms of redress and deterrence. The less quantifiable issues of complementing public enforcement and maximising valid cases while minimising poor ones are more disputable: for both, Option 3 has potential benefits over Option 4 but these rely on creating solid protections around the powerful tool of private collective actions.”104

5 Overview of the structure of the Bill

As currently structured, the Bill has 3 parts and 8 schedules: Part 1 – deals with consumer contracts for goods, digital content and services Part 2 – deals with the law on unfair contract terms (including Schedules 2, 3, and 4) Part 3 – contains miscellaneous and general provisions, including consumer law enforcers’ investigatory powers; enhanced consumer enforcement measures; an amendment of the Weights and Measures (Packaged Goods) Regulations 2006; and private actions in competition law (including Schedules 5, 6 and 7)

102

op.cit. pp31-2 103

Private actions in competition law … final impact assessment, January 2013 p2 104

op.cit. p45. This IA also has estimates for the monetary costs and benefits of these options (p46)

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Taken together, BIS has said that the Bill will provide the consumer with the following core consumer rights:

right to clear and honest information before you buy;

right to get what you pay for;

right that goods and digital content are fit for purpose and services are provided with reasonable care and skill; and

right that faults in what you buy will be put right free of charge, or a refund or replacement provided

Parts 1, 2, and 3 of the Bill are summarised in detail below.

6 Part 1 of the Bill – sale of goods, digital content and services

6.1 Scope of Part 1

Part 1 applies to ‘consumer contracts’; the contract must be for a trader to supply goods, digital content or services to a consumer. It is designed to set out in one place, consumer rights to minimum quality for goods and services and a new category of digital content. It also sets out what should happen to rectify matters if those rights are breached. Part 1 also consolidates and aligns the inconsistent rights and remedies available to consumers for goods supplied under different contract types, such as: sale, work and materials, conditional sale or hire purchase. Essentially the same rights and remedies should apply to goods supplied under all contracts where a business supplies goods to a consumer. This includes the short-term right to reject of 30 days, and one repair or replacement, before moving to a reduction in the purchase price or returning the goods for a refund, which may be subject to a deduction for use in some cases. However, in hire contracts, because the consumer pays for use, and the ownership of the goods is not transferred, the consumer will not have a statutory right to claim back any payments made for any hire period that they have already had. 6.2 Supply of goods

Consumer rights

Clauses 9 to 17 sets out the minimum standards that goods must meet in a consumer sale of goods contract, they include:

Goods must be of satisfactory quality,105 fit for particular purpose,106 and be as

described.107 In effect, the current opaque system of ‘implied terms’ would be replaced

with a clearer set of statutory guarantees to make consumer rights easier to understand.

These are minimum standards that goods supplied to a consumer must meet.

Any pre-contractual information about the main characteristics of the goods will

form part of the consumer contract.108 In other words, any goods supplied on the basis

of a description from the trader, a model (such as a display model on a shop floor), or a

sample (for example a swatch of material) must match what was described or seen. If the

goods do not match their description, model or sample, this would be a breach of contract

and the consumer would have the same rights as if the goods were faulty (see below).

105

Clause 9 106

Clause 10 107

Clause 11 108

Clause 11, 13 and 14

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Other pre-contract information provided by the trader which is of a category mentioned in Schedule 1 or 2 of the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013,109 but which does not relate to main characteristics of the goods so does not fall under clause 11 of the Bill, will also form part of the contract between the trader and the consumer.110 If this information is not accurate then the consumer may recover some money (under clause 19(5)) but the other remedies (right to reject, repair, replacement etc.) are not available.

Goods must be delivered within 30 days from the date of the contract, unless both parties agree otherwise.111 Where it has been agreed that a particular delivery date is essential, if the date is missed, the consumer can treat the contract as being at an end. If not essential, a further period can be given by the consumer, but if the trader fails to adhere to that one, the same position applies.

Special rules apply to contracts where goods are both supplied and installed by a trader (or the installation is done under the same trader’s responsibility). In such cases, if the installation service is done incorrectly then the goods remedies outlined in the Bill (see below) would apply, with the exception of the short-term right to reject.112

Again, special rules apply where goods and digital content are supplied together in one product (for example, where digital content is supplied on a disk). In such cases, the Bill makes it clear that if the digital content rights are not met (see below) then this would mean that the goods are substandard and the goods remedies outlined in the Bill (see below) would apply, including the short-term right to reject.113

The trader must have the right to supply the goods and no other person should

have rights over the goods (unless the consumer was informed) or disturb the

consumer’s use of them.114 If the trader does not have the right to supply the goods then

the consumer would be able to exit the contract and receive a refund. If the consumer’s

use of the goods is disturbed, they would be able to seek damages.

It is important to note that these statutory rights would apply to goods that the consumer bought, hired, or acquired from a trader through a hire purchase agreement or in exchange for other goods. The rights would apply to second hand goods as well as to new goods, although the standard of quality expected would be lower.

Remedies for breach of these rights

Clauses 19-24 set out the remedies that would apply if the consumer’s statutory rights under a sale of goods contract are not met.115 Depending on the statutory right which is breached, the consumer may have:

a short-term right to reject (clauses 20-22),

a right to have the good repaired or replaced (clause 23); and/or

if this is not possible or fails to address the fault, a right to have the purchase price reduced (and keep the goods) or a final right to reject the goods (clause 24)

109

SI 2013/3134 110

Clause 12 111

Clause 28 112

Clause 15 113

Clause 16 114

Clause 17 115

Clauses 19-24

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The position is illustrated by the table published in the Explanatory Notes that accompany the Bill and is reproduced at Appendix B of this Research Paper.116 The remedies are also considered in more detail below.

A right to reject a faulty good within 30 days of receiving it (time running from the date of delivery) and receive a full refund.117 An exception is where the goods are perishable or where both parties would reasonably expect a delay before use so that 30 days is insufficient.118 For hire and hire purchase agreements, the 30 days period will run the day after the consumer obtains possession.

It was a recommendation of the BIS Select Committee that the Bill provide longer exceptions to the time limit for the short-term right to reject, in cases where it is reasonably foreseeable that the consumer would need a longer period to inspect the goods and try them out in practice.119 The Government did not accept this recommendation, arguing that longer exceptions would undermine the benefits of certainty provided by the 30-day limit. It highlighted the fact that the specified time limit is a minimum which does not prevent competitive positioning by retailers to offer more flexible arrangements.120

Alternatively (within and after the first 30 days) the consumer has a right to ask for a repair or replacement of the goods, the cost of which must be borne by the trader (‘Tier 1’ remedies).121 If the consumer opts for this remedy, the trader must repair or replace the goods within a ‘reasonable time’ and without significant inconvenience to the consumer. Any question as to what is a reasonable time or significant inconvenience is to be determined by taking account of the nature of the goods and the purpose for which the goods were acquired.122 However, the consumer cannot insist that the trader repair or replace the goods if that remedy is impossible, or is disproportionate compared to the other available remedies.123

Importantly, where a consumer opts for a repair or replacement within the 30-day period, the period for rejection is extended. When the repaired or replaced goods are returned to the consumer they will have the remainder of the period (a minimum of 7 days) to inspect the goods to ensure they are acceptable, before this right is lost.

Limits the number of times that retailers may attempt repairs or replacements of faulty goods before the consumer’s rights of refund or reduction in price are triggered.124 Specifically, the trader will have one opportunity to repair or replace, if that fails; has been impossible; or has been sought, but not carried out within a reasonable time or without significant inconvenience to the consumer, or if another fault occurs, then the consumer can either keep the goods and insist on a reduction in the price or reject the goods and obtain a refund (‘Tier 2’ remedies).125 Depending on the time the

116

Consumer Rights Bill – Explanatory Note, Bill 161-EN, pages 28-29 117

Clauses 20 and 22 118

Clause 22 119

House of Commons Business Innovation and Skills Committee, ‘Draft Consumer Rights Bill’, Sixth Report of Session 2013-14, HC 697-I, Volume I, paragraph 54, [online] (accessed 9 January 2014)

120 ‘Consumer Rights Bill: Statement on Policy Reform and Responses to Pre-Legislative Scrutiny’, Cm 8796, January 2014 [online] accessed 24 January 2014)

121 Clause 23

122 Clause 23(5)

123 Clause 23(3)

124 Clause 23

125 Clause 24

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consumer had had the goods, and the nature of the goods themselves, this may be a full or partial refund.126

Sets limits on the extent to which traders may reduce the level of refund (where goods are not rejected initially) to take account of the use of the goods the consumer has had up to that point. Under Clause 24 of the Bill, if the final right to reject is exercised within 6 months of delivery of the goods, the trader may not apply a deduction to the refund to account for the use that the consumer has had up to that point (i.e. the consumer will receive a full refund).127 But an exception is made under clause 24(10) in cases where there is independent evidence of an active business-to-consumer second-hand market in ‘corresponding goods’.128 In such cases, a deduction for use may be applied within the initial 6 month period (and after that period). However, the Explanatory Notes are careful to state that this does not mean that the deduction is linked to the second hand value of the goods in any way – the deduction is only to take account of the use the consumer has had.129

The BIS Select Committee had recommended that this deduction for use’ provision should be removed from the Bill, in line with the recommendation of the Law Commission.130 However, the Government is of the view that the retention of this provision is required to balance appropriately the interests of businesses and consumers.131 It believes that this provision is vital given the other changes that are being made to the remedies for goods which will collectively make it easier for consumers to reach the final right to reject goods. The Government stressed that in most cases a deduction for use will not be available in the first 6 months (whereas currently deduction for use can be made at any time), and where a deduction may be made, it must be based on an assessment of the use that the consumer has had of the goods.132

The Government did not accept another Committee recommendation that the proportion of any deduction should be based on the lifespan of the good, not on the retail or second hand market value, since the consumer would not have intended to sell the good at this stage.133

However, the Government did accept the Committee’s argument that an exception based simply on the existence of a ‘second-value for, and an active second hand market in’ the goods, was too wide and this provision of the Bill was subsequently amended. The Government believes that the new requirement for the market to be between ‘business and consumers’ will significantly tighten the exception by removing from scope those goods that are commonly traded only between consumers (e.g. online auction sites), a concern raised by the Committee. The requirement for the evidence of an active market to be for the same make and model of the goods additionally tightens this requirement.134 The Government has made a commitment to clarify the position in guidance.

126

Clause 24(9) to (12) 127

Clause 24(10) 128

Clause 24(10) 129

Consumer Rights Bill - Explanatory Notes, Bill 161-EN, page 35 130

House of Commons Business Innovation and Skills Committee, ‘Draft Consumer Rights Bill’, Sixth Report of

Session 2013-14, HC 697-I, Volume I, paragraph 78, [online] (accessed 9 January 2014) 131

‘Consumer Rights Bill: Statement on Policy Reform and Responses to Pre-Legislative Scrutiny’, Cm 8796, January 2014 [online] accessed 24 January 2014)

132 Ibid

133 House of Commons Business Innovation and Skills Committee, ‘Draft Consumer Rights Bill’, Sixth Report of Session 2013-14, HC 697-I, Volume I, paragraph 79, [online] (accessed 9 January 2014)

134 ‘Consumer Rights Bill: Statement on Policy Reform and Responses to Pre-Legislative Scrutiny’, Cm 8796, January 2014 [online] accessed 24 January 2014)

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Any guarantee provided to a consumer alongside the sale of goods contract is legally binding.135 In particular, the guarantee must be written in plain, intelligible language and, if the goods are offered in the UK, in English; it must include the name and address of the guarantor; state the duration and territorial scope of the guarantee; and be made available to the consumer in writing and within a reasonable time.

Traders are prohibited from excluding or restricting their liability.136 Specifically, traders are prevented from ‘contracting out’ of the consumer’s statutory rights (under clauses 9-15), as well as on time of delivery and the passing of risk (clauses 28 and 29) and, for contracts other than hire, the requirement on right to title (clause 17).

6.3 Supply of digital content

Part 1 (chapter 3) of the Bill introduces a new separate regime for digital content.137 It sets out new tailored quality rights for digital content and tailored remedies for any breach of these rights, but excludes the right to reject for intangible digital content.138

Chapter 3 will apply to contracts between a trader and a consumer where a trader agrees to supply digital content that has been:

Paid for with money;

Associated with any paid for goods, digital content or services (e.g. free software given away with a paid-for magazine), and not generally available to consumers for free (that is, the consumer must pay something in order to get the digital content), and/or

Paid for with a facility, such as a token, virtual currency, or gift voucher, that was originally purchased with money

In other words, Chapter 3 in large part only covers those contracts where the consumer has paid some money towards the provision of digital content. However, the Government retains a reserve power to extend in the future the coverage of the digital content provisions to digital content contractually supplied in exchange for something else of value other than money139, should the Secretary of State be satisfied that there is significant consumer detriment resulting from these sorts of contracts.

Consumer rights

In the Bill, minimum quality rights for digital content in consumer contracts follow a similar approach to that taken for goods. They include.

Digital content to be of satisfactory quality.140 The digital content will be of satisfactory quality if it meets the standard that a reasonable person would regard as satisfactory. This clause is the same as clause 9 of the Bill in respect of sale of goods contracts. It is designed to be a flexible standard - able to take into account different features of different digital content products. In judging whether the digital content meets a satisfactory standard, account will be taken of any description given of the digital content, the price paid, and all other relevant circumstances (such as any public statements on the specific characteristics of the digital

135

Clause 30 136

Clause 31 137

For the purposes of the Bill, digital content is given the definition provided in the Consumer Rights Directive, “as data which are produced and supplied in digital form’

138 Clauses 34 to 41

139 The example given is of digital content supplied in exchange for the consumer’s personal data

140 Clause 34

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content made by the trader or the manufacturer). Further, judgements as to the quality of the digital content could include consideration of:

fitness for purpose

appearance and finish

freedom from minor defects

safety and

durability

This is not a comprehensive list. The quality standard is flexible to allow for the many different types of digital content. It should be noted that the application of the quality aspect ‘freedom from minor defects’ to digital content will depend on reasonable expectations of quality.

However, digital content will not be considered as substandard if the consumer was made aware of the aspect of the digital content that makes it unsatisfactory before the contract was concluded – either because it was specifically drawn to their attention or would have been apparent from a reasonable examination of the digital content or from the trial version.

Digital content to be fit for any particular purpose made known to the trader by the consumer prior to contract.141 This clause corresponds to clause 10 of the Bill in relation to the sale of goods.

Digital content to be as described.142 The digital content does not need to be exactly the same in every aspect as a trial version and could, for example, go beyond the description, as long as it also continues to match the description. This is particularly relevant for updates that may enhance features or add new features.

This requirement for digital content to be as described would include meeting any description given in the pre-contractual information. This is an important right since consumers may not be able to view the digital content before buying the full version. This right, taken together with the pre-contractual information requirements in the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, is intended to reduce the consumer detriment caused by lacking, complex and misleading information. Again, the right for digital content to be as described is similar to the statutory right given to consumers in respect of sale of goods contracts.143 The Bill expressly states that no other terms about quality or fitness can be implied into the contract.144 That said, express terms (i.e. terms expressly agreed and set out in the contract about quality and fitness that are more preferential to the consumer (from those in clauses 34-35) can be included. Furthermore, if other legislation exists which implies terms into contracts for digital content these too can be included in the contract.

Supply by transmission and facilities for continued transmission, must also meet quality requirements. In order for a consumer to access some digital content it has to be transmitted to them (for example, where digital content is bought or used via the internet or through a satellite transmission). The Bill makes it clear that this digital content must be of satisfactory quality, fit for a particular purpose and as described at the

141

Clause 35 142

Clause 36 143

Clause 10 144

Clause 38

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point when it reaches either the consumer’s device or, if earlier, a trader with whom the consumer has contracted, such as an internet service provider or mobile network operator.145

It should be noted that the Explanatory Notes to the Bill state that internet service providers are not trading in digital content merely because they provide the service of delivering digital content to the consumer. This is intended to address the point raised by the BIS Committee as to which products come within the scope of the Bill.

A trader, in accordance with the contract, can modify the digital content but the digital content must still meet the quality rights after the modification.146 This clause does not prevent a trader or third party (such as the digital content manufacturer) updating digital content (without needing to request the consumer’s permission), as long as the contract stated that such updates would be supplied. However, following any updates, the digital content must still meet the quality rights (i.e. must still be of satisfactory quality, be fit for purpose and match the description given). The Bill makes clear that the time period for bringing a claim begins when the digital content was first supplied notwithstanding the fact that the modification itself must have occurred sometime after the original supply. This means that any claim for breach of this provision must be brought within 6 years of the date the digital content was first supplied.147

A trader supplying digital content must have the right to supply that content.148 Where the trader does not have the right to sell the digital content the consumer would be entitled to an immediate refund.

Remedies for breach of these rights

Clauses 42 to 47 set out the remedies that would apply if the consumer’s statutory rights under a sale of digital content contract are not met.149 Depending on the statutory right which is breached, the consumer may have:

a right to repair or replacement (clause 43);

if repair or replacement are not possible or do not resolve the fault within a reasonable time or without causing significant inconvenience to the consumer the right to a price reduction (clause 44);

right to an immediate refund if the trader does not have the right to supply digital content (clause 45)

Unlike faulty goods (where a consumer will be able to reject within 30 days and receive a full refund), consumers will not automatically have a right to reject faulty digital content. According to the Government, this is because digital content that is not provided on a tangible medium (e.g. where it is downloaded or streamed) cannot be returned in any meaningful sense. Instead consumers with faulty digital content will only be entitled to receive money back if the trader cannot repair or replace the faulty digital content without significant inconvenience or within a reasonable time.

145

Clause 39 146

Clause 40 147

Clause 40(2) 148

Clause 41 149

Clauses 19-24

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However, consumers will have a short-term right to reject digital content sold on a tangible medium (such as on a DVD or CD) because the disk itself is goods and can be returned (in effect, the digital content and the DVD or CD disk form one product). Moreover, as well as these new statutory remedies for digital content, the consumer retains his/her redress under common law and other legislation.

The position is illustrated by the table published in the Explanatory Notes that accompany the Bill and is reproduced at Appendix C of this Paper.150 The remedies are also considered in more detail below.

A right to repair or replacement of the digital content (known as a ‘Tier 1’ remedy) in circumstances where the digital content does not meet the description given, is not of satisfactory quality, is not fit for purpose, or does not meet the quality standards following an update.151 For the purposes of the Bill, repairing digital content means bringing it back into conformity with the contract. A repair or replacement has to be provided within a reasonable time or without significant inconvenience to the consumer.

A right to keep the digital content but receive a price reduction (known as a ‘Tier 2’ remedy)152 in circumstances where:

i) it is impossible to repair or replace the digital content; or ii) repair or replacement are disproportionate either in relation to each other (i.e. repair is

disproportionate in relation to replacement or vice versa) or in relation to a reduction in price, or

iii) the repair or replacement has not taken place within a reasonable time or without significance inconvenience to the consumer or do not resolve the dispute

The price reduction will be of an appropriate amount depending on the circumstances of each individual case. In some cases a 100% reduction (i.e. a full refund) may be appropriate.

Right to an immediate refund, if the trader does not have the right to provide the

digital content (i.e. clause 41 is breached).153 However, where the digital content that the

trader did not have the right to supply was only part of the contract (e.g. a single film

supplied as part of a subscription package), the refund would not be of the full amount

paid, but an amount reflecting the portion of digital content affected.

It is important to note that this right to a refund contained in clause 45 of the Bill does not apply in any other cases (such as a breach of the quality rights).

Consumers will be entitled to seek compensation if the digital content causes

damage to a device or other digital content that they own.154 The consumer will need

to prove that the trader failed to use reasonable care and skill in preventing such harm

from occurring. This right applies to all digital content contractually supplied, whether paid

for with money, or free (as long as it is provided pursuant to a contract).

150

Consumer Rights Bill – Explanatory Note, Bill 161-EN, pages 28-29 151

Clause 43 152

Clause 44 153

Cause 45 154

Clause 46

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A trader cannot exclude or restrict liability.155 Specifically, the Bill prevents a trader

‘contracting out’ of clauses 34-36 (digital content to be of satisfactory quality, fit for a

particular person, and be as described), clause 41 (the requirement that a trader must

have the right to supply the digital content to the consumer), and clause 46 (which

provides a remedy for damage to the consumer’s device or other digital content).

It should be noted that the BIS Select Committee criticised the Bill for introducing inconsistent remedies for tangible and intangible digital content. It recommended that there should be in the Bill a short-term right to reject and a final right to reject intangible digital content, with an obligation on the consumer to delete the rejected digital content.156 The Government did not accept this recommendation. In its response, it argued that to require consumers to delete intangible digital content would be both impractical and burdensome because it is difficult to delete content from a device altogether. In effect, intangible digital content cannot be returned in any meaningful sense. However, the Government agreed that it should be clear on the face of the Bill that where the consumer is entitled to request a reduction in price this could in appropriate cases be the full amount of the price paid157.

The Committee also recommended that the Government set out in detail the evidence base for introducing varying remedies for tangible and intangible content, alongside legal advice on the risk to intellectual property rights.158 In response, the Government made a commitment to provide a note for Committee Stage of the Bill, setting out the basis of its proposals in more detail, including industry concerns about the risk to intellectual property rights.159

6.4 Supply of services

Consumer rights

Clauses 49-53 set out the minimum standards that services supplied to a consumer under contract by a trader must meet. These would be contractual rights. They include:

Services must be provided with reasonable care and skill.160 There is already an ‘implied right’ under section 13 of the Supply of Goods and Services Act 1982 (SGSA 1982) that the service be performed with reasonable care and skill. Instead of an implied term, the Bill stipulates that every contract where a trader supplies a service to a consumer includes a term that the service must be performed with reasonable care and skill. ‘Reasonable care and skill’ focuses on the way a service has been carried out, rather than the end result of the service. This means that, if a trader has not provided a service with reasonable care and skill, they will be in breach of this right, whatever the end result.

Part 1 does not contain a definition of ‘reasonable care and skill’. According to BIS this is to allow the standard to be flexible between sectors and industries, but industry standards or codes of practice may be relevant. The price paid for the service may also be a

155

Clause 47 156

House of Commons Business Innovation and Skills Committee, ‘Draft Consumer Rights Bill’, Sixth Report of Session 2013-14, HC 697-I, Volume I, paragraph 129, [online] (accessed 9 January 2014)

157 ‘Consumer Rights Bill: Statement on Policy Reform and Responses to Pre-Legislative Scrutiny’, Cm 8796, January 2014 [online] accessed 24 January 2014)

158 House of Commons Business Innovation and Skills Committee, ‘Draft Consumer Rights Bill’, Sixth Report of

Session 2013-14, HC 697-I, Volume I, paragraph 130, [online] (accessed 9 January 2014) 159

‘Consumer Rights Bill: Statement on Policy Reform and Responses to Pre-Legislative Scrutiny’, Cm 8796, January 2014 [online] accessed 24 January 2014)

160 Clause 49 - currently, rules governing the provision of services are mostly set out in case law and the law of contract rather than in consumer protection legislation

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relevant factor, for example, a consumer might expect a lower standard of care and skill from a quick and cheap repair service than from a more expensive and thorough one.161

It should be noted that the BIS Select Committee recommended that the Bill should apply an additional ‘outcomes-based liability’ standard to some service contracts (i.e. those that required the provision of a service to achieve a stated result, or one which would reasonably be expected) as well as to any product resulting from the service. According to the Committee, the benefits to consumers would be significant because:

i. The current ‘reasonable care and skill’ standard would fall short of consumer expectations while the problems with an outcome-based standard (for example, traders’ reliance on disclaimers) could be overcome using the ‘reasonable’ person test.

ii. Closer alignment with the goods regime would help increase consumer and business confidence.162

The Government did not accept this recommendation. It argued that the challenges of an outcome-based approach could not be resolved by resorting to a ‘reasonable person test’, because of the subjective element of many services. It may not be clear what a reasonable person might expect in different circumstances. With goods it is usually obvious whether the item is ‘fit for purpose’ or of ‘satisfactory quality’, but for many services that can be less clear cut. It thought that case law and experience could, over time, help build up an understanding in different service sectors, but cases law can be difficult to assess and apply for businesses and consumers. It concluded that such a standard would not, in fact, increase protection further than the current standard of ‘reasonable care and skill’.163

The service must comply with relevant information given by the trader (orally or in

writing and taken in context), if the consumer relied on that information when contracting

for the services.164 In addition, information required to be provided under the new

Consumer Contracts (Information, Cancellation and Additional Charges) Regulations

2013 is also to be treated as included in the contract. In effect, the trader must comply

with the information it has provided or be in breach of contract.

Services must be provided within a reasonable time165 and for a reasonable price166,

if those details have not been agreed in the contract.

It should be noted that certain types of contract to provide services are regulated by

sector specific legislation (for example, financial or transportation services). The Bill

provides that, in most cases, the sector specific legislation will apply alongside or instead

of the provision of this Bill.167

161

Explanatory notes to the draft Consumer Rights Bill, 12 June 2013, [online] (accessed 17 July 2013) 162

House of Commons Business Innovation and Skills Committee, ‘Draft Consumer Rights Bill’, Sixth Report of

Session 2013-14, HC 697-I, Volume I, paragraph 165, [online] (accessed 9 January 2014) 163

Consumer Rights Bill: Statement on Policy Reform and Responses to Pre-Legislative Scrutiny’, Cm 8796, January 2014 [online] accessed 24 January 2014)

164 Clause 50

165 Clause 52

166 Clause 51

167 Clause 53

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A trader cannot exclude or restrict liability.168 The Bill makes clear that the trader

cannot ‘contract out’ of these statutory rights and cannot limit its liability for breach of

these clauses to less than the contract price.

Remedies for breach of these rights

It is important to note that currently, under section 13 of SGSA 1982, no statutory remedies are available for breach of the implied term that the trader must provide the service with reasonable care and skill. In contrast, Clauses 54-56 of the Bill set out the remedies that would apply if the consumer’s statutory rights under a sale of services contract are not met.169

Depending on the statutory right which is breached, the consumer may have:

i. a right to ask for a repeat performance (clauses 54 and 55); ii. and, if that is impossible, or not done in a reasonable time or without significant

inconvenience to the consumer: the right to a reduction in price (clauses 54 and 56) In most cases, it is thought that consumers and businesses should be able to decide these remedies between themselves, reducing the need for consumers to take their case to court.

The position is illustrated by the table published in the Explanatory Notes that accompany the Bill and is reproduced at Appendix D of this Paper.170 The remedies are also considered in more detail below.

A right to ask for a repeat performance.171 If the service is not provided with reasonable care and skill (in breach of clause 49) or if the service is not performed in line with information given about the service (in breach of clause 50), the service will not conform to the contract. If the service does not conform to the contract, the consumer is entitled to require that the service is properly performed, through it being done again. If the consumer asks for the service to be repeated, the trader must do so within a ‘reasonable’ time and without causing ‘significant inconvenience’ to a consumer. The trader must repeat all or part of the service needed to bring it into conformity with the contract. However, a consumer cannot insist on re-performance if it is impossible (for instance, if the service was time specific).

The right to a reduction in price172 if a repeat performance is not possible, or is not done in a reasonable time or without causing significant inconvenience to the consumer. The reduction will be of an appropriate amount depending on the circumstances of each individual case.

There is also a right to a reduction in price of an appropriate amount if the service is not performed within a reasonable time,173 or if the service is not performed in-line with information provided concerning the trader174.

The Bill’s Explanatory Notes state that a ‘reduction in price of an appropriate amount’ will normally mean that the price is reduced by the difference between the price paid and the value of the service provided. In effect, the reduction in price from the full amount should

168

Clause 57 169

Clauses 19-24 170

Consumer Rights Bill – Explanatory Note, Bill 161-EN, pages 28-29 171

Clauses 54 and 55 172

Clause 54 and 56 173

Clauses 54 and 56 174

Clauses 54 and 56

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take into account the benefit which the consumer has derived from the service. It follows from this, that depending on the circumstances, the reduction in price could mean a full refund. This could be, for example, where the consumer has derived no benefit from the service and the consumer would have to employ another trader to repeat the service from the beginning.

The Bill makes it clear that consumers can always request these rights and remedies when a trader supplies a service to them. In addition to these remedies the consumer retains his/her right to seek redress under common law and other legislation.175

7 Part 2 of the Bill – Unfair terms

7.1 Scope of Part 2

Part 2 of the Bill (including Schedules 2, 3 and 4) seeks to consolidate, clarify and enhance the law on unfair terms in consumer contracts and notices, which currently is found in two separate pieces of legislation. The Bill would set out this law in one place, remove anomalies and overlapping provisions. It is the Government’s view that this would allow businesses and consumers to understand more easily the circumstances in which terms could be assessed for fairness.

In terms of scope, Part 2 only covers ‘consumer contracts’ (i.e. contracts between a trader and a consumer) but also includes consumer notices (both contractual and non-contractual notices). A consumer notice includes an announcement or other communication which it is reasonable to assume is intended to be read by a consumer.

7.2 Fairness of contract terms and notices

Clauses 61 to 76 of the Bill deal with the fairness of contract terms and notices. The Bill includes the following provisions:

Requirement for contract terms and notices to be fair.176 The effect of this clause is

that terms used in contracts and notices will only be binding upon the consumer if they

are fair. It defines ‘unfair’ terms as those which put the consumer at a significant

disadvantage, by limiting the consumer’s rights or disproportionately increasing their

obligations as compared to the trader’s rights and obligations.

The Bill sets out factors that a court should take into account when determining whether a term is fair, notably that it should consider the specific circumstances existing when the term was agreed, other terms in the contract and the nature of the subject matter of the contract. This assessment is known as the ‘fairness test’.177

Schedule 2 (Part 1) to the Bill178, contains an indicative and non-exhaustive list of terms that may be regarded as unfair (this is known as the ‘grey list’). The terms on the list are not automatically unfair, but may be used to assist a court when considering the application of the fairness test to a particular case. Equally, terms not found on the list in Schedule 2 may be found by a court to be unfair by application of the fairness test.

175

Clause 54 176

Clause 62 177

Clause 62 brings together sections 4 and 11 of the UCTA 1977 (for England, Wales and Northern Ireland), sections 17 and 18 of the UCTA 1977 (for Scotland), and regulations 5 and 6 of the CTCCRs. This clause also implements Articles 3, 4 and 6 of the Unfair Terms in Consumer Contracts Directive.

178 Introduced by clause 63

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Enhance the indicative list of terms on the grey list which may be regarded as

unfair.179 The Bill makes clear that the ‘grey list’ will now include terms that:

i) allow the trader to claim disproportionately high early termination charges from the consumer;

ii) give the trader discretion to decide the subject matter of the contract after the contract has been entered into;

iii) allow the trader to determine the price after the consumer is bound

It should be noted that it was a recommendation of the BIS Select Committee that the following term should also be added to the grey list: “a term which has the object or effect of permitting a trader to increase the price of, or alter unilaterally any characteristics of, goods, digital content or services during any minimum contract period or before the end of a contract of a specified duration without a valid reason or where the consumer is not free to dissolve the contract without being disadvantaged”.180

The Government did not accept this recommendation. In its response, the Government said that the grey list already covers terms which allow the trader to unilaterally alter the characteristics of goods, services or digital content without a valid reason. It disagreed that a further term should be added concerning a change by the trader where “the consumer is not free to dissolve the contract without being disadvantaged”. It argued that this would be overly burdensome on business and ultimately impact on costs for consumers. A trader would generally not know without significant costs whether a consumer would be disadvantaged by moving to one of their competitors. They would need commercially sensitive information from their competitor to analyse this or predict how the market will evolve in the future as well as personal data about each potential consumer. The Government concluded that traders would be less inclined to offer good deals if the trader might be ultimately disadvantaged in the event that they had to change terms and the consumer wanted to exit the deal.181

The Bill clarifies the circumstances when the price or subject matter of the contract cannot be considered for fairness. In particular, it makes clear that to avoid being considered for fairness those terms must be transparent and prominent. .182 Under clause 64 the Bill, a contract term may not be assessed for fairness to the extent that it relates to the price or main subject matter of the contract (usually the goods, services or digital content being purchased) but only if it is transparent and prominent.183 In other words, If the term is not transparent and prominent (for example, it is buried in the ‘small print’) it is assessable for fairness. It is important to stress that only price and subject matter terms (which are transparent and prominent) are covered by the fairness test exemption. Other terms, and grey list terms are not.

179

Clause 63 180

House of Commons Business Innovation and Skills Committee, ‘Draft Consumer Rights Bill’, Sixth Report of Session 2013-14, HC 697-I, Volume I, paragraph 195, [online] (accessed 9 January 2014)

181 ‘Consumer Rights Bill: Statement on Policy Reform and Responses to Pre-Legislative Scrutiny’, Cm 8796, January 2014 [online] accessed 24 January 2014)

182 Clause 64

183 Clause 64(2)

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For the purposes of Bill, a term is transparent if it is expressed in plain and intelligible language and (in the case of a written term) is legible.184 A term is prominent if it is brought to the consumer’s attention in such a way that an average consumer would be aware of the term.185 An ‘average consumer’ is taken to mean a consumer who is reasonably well-informed, observant and circumspect.186

The BIS Committee recommended that the Bill should be amended so that a term would only be considered ‘prominent’, if it was ‘bought to the consumer’s attention in such a way that an average consumer would be aware of the term and would appreciate its significance.187

The Government did not accept this recommendation. It argued that the Bill’s requirement for terms to be ‘prominent’ as well as ‘transparent’ to qualify as exempt gave consumers significant protection from unfair terms buried in ‘small-print’ or expressed in unclear language. The Government thought that it would be unclear to both consumers and businesses what was meant by ‘appreciate the term’s significance’.188

The Committee also recommended that the price exemption should be narrowed to exclude only the ‘main’ price that a reasonable consumer would take into account during the purchasing process. It argued that this would not automatically render any other clauses unfair, but would make them potentially assessable for fairness which would allow genuine consumer detriment to be tackled.189

It was the Government’s view that this recommendation would reduce clarity while not providing enhanced protection for consumers. It highlighted the fact that the Supreme Court had in a recent case considered the question of whether it was appropriate to make a distinction between ‘main price’ and ‘ancillary price’ and had ruled that there was no justification to do so. Further, the Court ruled that it was unhelpful to distinguish between the two, because in practice there will rarely be a simple dividing line between what is main or ‘core’ and what is ‘ancillary’ in the contract. It said that the Law Commissions had also looked at this issue in 2013 and had recommended that the Government follow the Supreme Court’s view on this point. The Government said it had therefore decided to improve clarity by developing the concept of transparency and prominence. It confirmed that under the Bill, if price terms are not transparent and prominent, they can be assessed for fairness. This applies equally to ancillary prices if ‘hidden’ in the small print or set-out in overly-technical language. 190

A trader cannot, in a consumer contract or consumer notice, limit liability for death

or personal injury resulting from negligence.191 A consumer cannot be assumed to

have taken on any risk by agreeing to a term which limits a trader’s liability. With regard to

184

Clause 64(3) 185

Clause 64(4) 186

Clause 64(5) 187

House of Commons Business Innovation and Skills Committee, ‘Draft Consumer Rights Bill’, Sixth Report of Session 2013-14, HC 697-I, Volume I, paragraph 186, [online] (accessed 9 January 2014)

188 Consumer Rights Bill: Statement on Policy Reform and Responses to Pre-Legislative Scrutiny’, Cm 8796, January 2014 [online] accessed 24 January 2014)

189 House of Commons Business Innovation and Skills Committee, ‘Draft Consumer Rights Bill’, Sixth Report of

Session 2013-14, HC 697-I, Volume I, paragraph 185, [online] (accessed 23 January 2014) 190

Consumer Rights Bill: Statement on Policy Reform and Responses to Pre-Legislative Scrutiny’, Cm 8796, January 2014 [online] accessed 24 January 2014)

191 Clause 65, this reflects section 2 (for England, Wales and Northern Ireland) and section 16 (for Scotland) of the UCTA 1977

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other loss or damage, the trader can only limit its liability if the clause is ‘fair’. Whether a

term is fair is determined by the fairness test.192

Clarify the effect of an unfair term on the rest of a contract.193 It recognises that a

court can find a particular term to be unfair, rendering it unenforceable, but it may not be

in the interests of the consumer or the business for the entire contract not to be binding

any more. Therefore, in so far as is practical, the contract will continue even if one or

more terms within it is deemed unfair.194

All written contract terms and notices must be transparent195 (i.e. legible and in plain

and intelligible language196). There is a general common law rule that, in order for a

particularly unusual or onerous term to be incorporated in a contract, the party that seeks

to rely on it must take steps to bring it to the other party’s attention prior to contract.197

The Law Commissions recommended (in their Report of March 2013) that “the more

unusual or onerous the term, the more prominent it needs to be”.198 The Bill implements

the principle behind this recommendation.

Any ambiguous contract terms are to be given the interpretation that is most

beneficial to the consumer, rather than the trader.199 It should also be noted that

under the Bill, the courts are under a duty to look at the fairness of a term even if the

parties do not specifically ask the court to do so.200 However, in fulfilling this duty, the

courts would not have to look at the fairness of the term if they do not have adequate

information to do so.201

The Bill also stipulates that the requirement for terms to be fair extends to contracts agreed in addition to the original contract, whether or not they are contracts between a trader and a consumer.202 The aim is to provide additional protection for consumers, by ensuring that any agreements made after, before or in addition to the signing of a contract are also covered by these rules.

7.3 Law enforcement of unfair terms

Schedule 3 to the Bill203 sets out how the law on unfair contract terms can be enforced. Specifically, the Competition and Markets Authority (CMA) and other regulators (coordinated by the CMA) can investigate and apply for injunctions to prevent the use of certain terms. These are terms which the CMA or other regulator considers might be: unfair, not transparent or void.

192

As set out in clause 62 193

Clause 67 194

Clause 67 reflects regulation 6(1) of the Unfair Terms in Consumer Contracts Directive, which is implemented by Article 8(2) of the UTCCRs

195 Clause 68

196 Clause 68 reflects regulation 7(1) of the UTCCRs, which implements Article 5 of the Unfair Terms in Consumer Contracts Directive

197 See Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] 1 QB 433, [1988] 2 WLR 615 and the more recent case of OFT v Foxtons [2009] EWHC 1681 (Ch), [2009] 3 EGLR 133

198 The Law Commission and the Scottish Law Commission, ‘Unfair terms in Consumer Contracts: Advice to the Department for Business, Innovation and Skills’, March 2013, [online] (accessed 17 July 2013)

199 Clause 69, this clause reflects regulation 7(2) of the UTCCRs, which implements Article 5 of the Unfair Terms in Consumer Contracts Directive

200 Clause 71

201 See Case c-243/08 Pannon (2009) ECR I-4713 (at para.3.5)

202 Clause 72

203 Introduced by clause 70; this clause reflects regulations 10 to 15 of the UTCCRS, which implement Article 7 of the Unfair Terms in Consumer Contracts Directive

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The CMA or other regulators may take action if a term or notice falls into one or more of those three categories. The Schedule also enables the CMA to collate and if appropriate make public information about actions taken against certain terms. It also provides that the CMA may issue guidance if it considers it appropriate to do so.

Other enforcement methods include private action by the consumer through the courts or enforcement by a public body through Part 8 of the Enterprise Act 2002.

Finally, it should be noted that Schedule 5 to Part 3 of the Bill also gives enforcers one additional power. This is the power to require the production of information.

8 Part 3 of the Bill

Part 3 of the Bill (including Schedules 5, 6 and 7) contains a number of miscellaneous and general provisions including, those dealing with the investigatory powers of consumer law enforcers; amendment of the Weights and Measures (Packaged Goods) Regulations 2006; enhanced consumer measures and other enforcement; and private actions in competition law. 8.1 Investigatory powers of consumer law enforcers (clauses 77 and Schedule 5)

The Bill is designed to consolidate and simplify the investigatory powers of consumer law enforcers into one new generic set.204 Schedule 5 contains this new generic set, based on those powers currently contained in Part 4 of the Consumer Protection from Unfair Trading Regulations 2008 (CPRs).205

Consumer law investigatory powers include powers of entry, test purchasing and inspection of products, powers to break open containers and powers to seize goods and documents. The Government has confirmed that in setting out the powers in one generic set, they have been aligned as far as possible across consumer law to simplify them and reduce the likelihood of disputes as to enforcers’ powers. The equivalent powers in the existing legislation are being repealed.206

Schedule 5 enables the Secretary of State by order to amend the list of legislation to which the generic set of powers applies.207 This is to ensure that the generic set of powers can be used to enforce any new duties that may be prescribed in the future.

To protect civil liberties, the Bill adds stronger safeguards to the use of the investigatory powers in order to reduce the burdens on businesses.208 For example, subject to a number of exemptions, the power of entry into premises without a warrant cannot be exercised unless a notice in writing has been given to the occupier at least two working days before an inspection is carried out and the power exercised. The requirement for enforcers to give advance notice of routine inspections already exists under Part 8 of the Enterprise Act 2002, and Trading Standards indicated in their response to the BIS consultation that they currently give notice to businesses in 12-19%

204

Clause 77 205

Some specific powers contained in weights and measures and product safety legislation will be retained in that legislation alongside the generic set

206 ‘Consumer Rights Bill: Statement on Policy Reform and Responses to Pre-Legislative Scrutiny’, Department for Business, Innovation and Skills, Cm 8796, January 2014, [online] Accessed 25 January 2014)

207 Schedule 5, Part 2, paragraph 12

208 As outlined in the Protection of Freedoms Act 2012, requiring the review and consolidated powers of entry and to improve safeguards to their use

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of their inspections.209 The Government has confirmed that it does not intend to weaken the powers of enforcers, such as Trading Standards, to tackle rogue trading. That is why the requirement to give notice only applies to routine inspections. The Bill would still allow unannounced inspections to be made (i.e. without giving notice) where one of the exemptions applies.210

In some cases, a limitation has been specifically placed on the use of a particular power. For example, the power to require production of information can only be used if the enforcer reasonably suspects a breach of legislation. This limitation does not apply, or apply in the same way, for all types of enforcer.

According to BIS, enhanced safeguards to investigatory powers, is a key response to the retail theme of the Government’s Red Tape Challenge in July 2011, which aims to reduce regulation. It estimates that these safeguards will reduce cost and disruption to businesses, saving an estimated £4 million per year.211

The Explanatory Notes helpfully sets out in one table a summary of the new generic set of investigatory powers.212 Details of the powers making up the generic set and the changes the Bill makes to the current powers are outlined in the Impact Assessment for the Generic Set of Powers.213 8.2 Enforcers to operate across local authority boundaries

Schedule 5 (Part 6) also clarifies the law so that Trading Standards can operate across local authority boundaries as simply and efficiently as possible. In effect, trading standards officers will be able to work and take legal proceedings outside their local authority. 8.3 Amendment of the Weights and Measures (Packaged Goods) Regulations 2006

In a nutshell, clause 78 of the Bill provides an automatic exemption from keeping records of checks for packers of bread which is sold unwrapped or in open packs.

8.4 Enhanced consumer measures (clause 79 and Schedule 7)

As outlined above (Section 2), currently, when there is a breach or potential breach of consumer law, the main formal sanction is a criminal prosecution of the trader by an enforcer. While this can benefit consumers as it prevents the spread of illegal trading, there is generally no direct remedy for victims of the breach.

As an alternative to criminal prosecution, Part 8 of the Enterprise Act 2002 (EA 2002) enables certain enforcers to take civil action in respect of infringements of specified domestic/Community consumer legislation which harm the ‘collective interests’ of consumers.214 Key to this procedure is an application to the court for an enforcement order that the infringer stops engaging in the conduct in question.215 Alternatively, a court or an enforcer may accept an undertaking from the business that they will not engage in conduct

209

Consumer Rights Bill: Statement on Policy Reform and Responses to Pre-Legislative Scrutiny’, Cm 8796, January 2014 [online] accessed 24 January 2014)

210 Ibid

211 Ibid, Annex I page 62

212 Consumer Rights Bill – Explanatory Notes, Bill 161-EN,Paragrah 351 (pages 75-81)

213 ‘Enhancing Consumer Confidence: Generic Set of Consumer Law Powers Impact Assessment’, Department for Business, Innovation and Skills, 1 May

214 The enforcement procedure is set out at sections 214 to 223 of the Enterprise Act 2002

215 Under section 215 of the Enterprise Act 2002

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that involves an infringement.216 However, civil enforcement will not generally give remedies to individual consumers.

Part 3 of the Bill would amend Part 8 of the EA 2002 so to allow public enforcers to seek, through applying to the civil courts, a range of enhanced consumer measures to enforcement orders and undertakings. Public enforcers will also be able to agree undertakings under Part 8 of the EA 2002 that include enhanced consumer measures. The main objective is to give the civil courts and public enforcers greater flexibility to take the most appropriate action for consumers when dealing with breaches or potential breaches of consumer law.

Under the provisions of the Bill, any enhanced consumer measures must be just, reasonable and proportionate and aimed at achieving one or more of the following:

redress to consumers who have been disadvantaged by breaches of consumer law;

remedies from traders who have breached consumer law to improve their compliance and reduce the likelihood of further breaches; and/or

remedies to give consumers more information so they can exercise greater choice and help improve the functioning of the market for consumers and businesses

To retain flexibility the legislation will not set out a prescribed list of what an appropriate measure might be, though the consultation and the Explanatory Notes set out possible measures. The Government’s aim is that the business would propose appropriate measures which they would agree with the relevant enforcer. Where a business is unwilling to propose a scheme, the enforcer could seek a requirement through civil courts to implement measures to give consumers who have suffered loss redress, improve business compliance with the law and/or to give consumers more information to improve the market.

Given the flexibility enforcers and the courts will have to identify suitable remedies for dealing with breaches of consumer law, the Bill limits the use of these enhanced consumer measures to public enforcers only. The Government did not accept the recommendation of the BIS Select Committee217 that such measures should be extended to private enforcers, as no impact assessment or consultation had been carried out on extending the use of the measures.

However, clause 79 of the Bill includes a power that will enable the Secretary of State to extend the use of the enhanced consumer measures to private designated enforcers218 if it is deemed appropriate and after experience has been gained from public enforcers. Before the power is used the Government confirmed that a consultation and an assessment of the impact on business and consumers would be undertaken. 219

8.5 Private actions in competition law (clause 80 & Schedule 8)

Part 3 of the Bill contains a series of miscellaneous and general measures, including provision – in clause 80 & Schedule 8 – to encourage private actions in competition law: specifically, to:

216

Under sections 217 and 219 of the Enterprise Act 2002 217

House of Commons Business Innovation and Skills Committee, ‘Draft Consumer Rights Bill’, Sixth Report of

Session 2013-14, HC 697-I, Volume I, paragraph 246, [online] (accessed 9 January 2014) 218

Currently, only the consumer group Which? is designated as a private enforcer in that they are able to bring civil actions against traders to stop practices that are detrimental to consumers

219 Consumer Rights Bill: Statement on Policy Reform and Responses to Pre-Legislative Scrutiny’, Cm 8796, January 2014 [online] accessed 24 January 2014)

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widen the types of the competition cases that the Competition Appeal Tribunal hears and to make other changes to the procedure of bringing a private action before the CAT;

provide for opt-out collective actions and opt-out collective settlements; and,

provide for voluntary redress schemes

The Government’s Command Paper gives a series of practical examples of how the reforms set out in the Bill would make a difference, including these changes regarding private actions:

A toy manufacturer is being investigated for suspected price fixing

• The CMA is investigating a toy manufacturer for price fixing and determines that it is a

case in which settlement may be appropriate. The toy manufacturer decides to settle

the case and simultaneously offer a voluntary compensation scheme to affected

consumers.

• Under the current regime, there would be no guarantee to consumers that the

compensation scheme is fair.

• Under the Bill, the manufacturer would have to follow a set process, as laid out in

secondary legislation, to reach a level of compensation. If the CMA decided to consider

the application, it would have to certify that the scheme had followed the process, and

if the scheme was offered alongside a settlement offer to the CMA (i.e. not after the

CMA issues the fine), the manufacturer could qualify for a reduction in fine of up to

10%.220

The Explanatory Notes to the Bill give a detailed description of these provisions.221 The Notes also highlight those parts of the Bill that may raise concerns as to their compatibility with the European Convention on Human Rights, including Schedule 8 – specifically, the opt-out for collective actions:

Paragraphs 5, 6, 10, 11 and 30 of Schedule 8 introduce an “opt-out” collective actions

regime for competition law private actions, so that all underlying claimants who fall

within the definition of a represented class are bound by the outcome of a case unless

they actively opted out of the collective action within a specified period. There are

safeguards to ensure that effective and adequate notice is given to all members of the

identifiable class of their right to opt-out, and that the Competition Appeal Tribunal will

provide a reasonable period of time for that right to be exercised.

It may be argued that Article 6(1) ECHR is engaged where an individual (despite the

safeguards above) is unaware of the collective action of which he or she is a part, and

is bound by the outcome without having been able to participate actively in the

proceedings, or to bring a case in his or her own name. However, the Department’s

view is that if there is any interference with Article 6(1) ECHR rights, it would be limited

and justified. In such a scenario, it remains the case that the civil rights and obligations

of the individual would be determined by an independent and impartial tribunal, as

Article 6(1) requires.

The limited interference with the individual’s ability to participate actively in the

proceedings is justified by the legitimate aim of establishing effective access to justice

for consumers and businesses who would not otherwise have any, or any effective,

access to justice. This is because in the absence of opt-out collective actions, it may

220

Consumer Rights Bill, Cm 8796, January 2014 p49 221

BIS, Consumer Rights Bill – Explanatory Notes, Bill 161 EN, January 2014 paras 401-432, pp88-95

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not be economically worthwhile for potential claimants to bring a claim on the basis that

the sums sought are likely to be small (e.g. the sum due for an over-priced washing

machine or an excessively high coach ticket price) when compared to the cost of

bringing the case.222

When the draft version of the Bill was published in June 2013, the Government set out its response to its consultations on consumer rights, which underpin the main parts of the Bill. In this the Government noted that it had completed its consultation on private actions over 2012, publishing its policy position in January 2013.223

In their report on the draft Bill the BIS Committee looked at the Government’s three proposals regarding private actions in some detail.224 The Committee made a number of recommendations, including a number of suggested amendments to the draft Bill; in turn the Government has agreed with most, if not all of these recommendations.225

Jurisdiction of the CAT & fast track cases

It is proposed that the CAT will be enabled to consider stand-alone cases, as well as follow-on cases.226 In addition some cases will be subject to a fast-track procedure – to enable simpler cases brought by small and medium sized enterprises (SMEs) to be “resolved more quickly and at a lower cost.”227 The Committee raised the concern that under the draft Bill, the CAT panel that considered fast-track cases would consist of a chairman only. In evidence to the Committee the CAT had suggested that the swift resolution of some cases could depend on “the expertise of the CAT’s cross-disciplinary panel (usually made up of a senior judge or lawyer and two other members who are experts in competition law or related disciplines).228 In turn the Government agreed to amend this provision, “to provide greater flexibility for the CAT to decide whether or not it is suitable for having a Chairman sit alone.”229

Limitation periods for claims made to the CAT

At present private action claims must be brought before the CAT within a two year time limit. It is proposed that this period should be extended, to align with the higher limits which apply for cases brought to the High Court in England and Wales (six years), and the relevant courts in Scotland (five years) and Northern Ireland (six years).230 The Committee raised the concern that the wording of the draft Bill did not make it clear “what limitation period would apply to competition law claims arising before the commencement of the relevant provisions in the draft Bill.”231 Moreover it appeared that the Bill would have retrospective effect – by allowing for the CAT to consider stand-alone claims and collective proceedings that would have arisen before the Bill came into force. The Government acknowledged these concerns, but argued that the legislation would not be retrospective:

The Government accepts that on face value sections 47A and 47B may appear

retrospective. However, the changes are of a procedural nature and they do not

222

op.cit. p97 223

Draft Consumer Rights Bill - Government Response to Consultations on Consumer Rights, June 2013 p52 224

Sixth report: Draft Consumer Rights Bill, 23 December 2013, HC 697-I of 2013-14, pp60-72 225

Cm 8796, January 2014 pp37-42, Annex K gives a summary of this section of the Bill (pp66-7) 226

Para 4(1) of Schedule 8 would amend s47A of the Competition Act 1988, to this effect 227

Bill 161-EN para 408, para 31 to Schedule 8 inserts a new s15A of the Enterprise Act 2002, to allow rules to

be made to provide for the fast-track procedure 228

HC 697-I of 2013-14 para 258, 260 229

Cm 8796, January 2014 p37 - para 19(3) to Schedule 8 would insert new section 14(1A) to the Enterprise Act 2002, to determine that in fast track cases the Tribunal may consist of a chairman only

230 Paras 4 & 5 to Schedule 8 would amend ss47A & 47B of the Competition Act 1988, to allow stand-alone claims and collective proceedings to come before the CAT. Stand-alone & follow-on claims, and collective proceedings, would be subject to limitation periods to be determined by a new s47E of the Act

231 HC 697-I of 2013-14 para 264

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change the underlying competition law prior to commencement. They are not creating

new competition law obligations, such as new categories of competition law

infringement. Nor do they change how damages are calculated in respect of

infringement. They are simply extending the jurisdiction of the Competition Appeal

Tribunal. Defendants will only face damages for matters which already constituted

competition law infringements.

On clarifying what limitation periods would apply, the Government went on to state:

The Government has considered and agrees with responses to its consultation that it

will be necessary to harmonise the limitation periods and has therefore decided that

the limitation periods for the CAT should be harmonised with those of the High Court

and the Court of Session. The six year limitation period will apply to all private action

cases in the CAT for England and Wales and Northern Ireland. In Scotland the

limitation period will remain five years in line with the Scottish Court of Session. These

limitation periods apply to both stand-alone and follow-on claims.232

CAT rules of procedure

Several witnesses underlined the importance of the CAT’s Tribunal Rules to the operation of these proposals: for example these rules would determine the criteria for the CAT to apply when certifying if claims were suitable to bring as collective proceedings, and as either opt-in or opt-out. The Committee raised concerns that the draft version of these revised Rules had yet to be published. It went on to argue that the necessary secondary legislation for these rules to be determined should be subject to the affirmative procedure – not the negative procedure as provided for.233 The Government disagreed with this conclusion:

The Government intends to undertake a full review of the Tribunal rules. This will

provide opportunity for interested parties to comment on the revised rules. Before that,

Government will shortly be publishing a draft CAT rule on collective actions which itself

will have been the subject of discussion with a group of expert stakeholders and which

will be available for discussion in Parliament during consideration of the Bill.

Overall therefore the Government believes that this will be an appropriate level of

scrutiny and does not agree that it would add significantly to the scrutiny it intends to

un dertake by amending the order making power to the affirmative procedure. The

negative resolution procedure is also consistent with the Secretary of State’s existing

power to make Tribunal rules and their technical nature as well as the procedure for

other tribunal rules such as the Employment Tribunal rules.234

Opt-out collection actions & collective settlements

As noted, the Government proposes to introduce a limited opt-out collective actions regime. Cases would be heard only by the CAT. Claims would be eligible for inclusion in collective proceedings “only if the Tribunal considers that they raise the same, similar or related issues of fact or law and are suitable to be brought in collective proceedings.”235

In evidence the consumer group Which? gave several examples to illustrate how “ambiguous eligibility requirements in relation to certification can give rise to significant differences of interpretation in relation to collective proceedings.” In turn the Committee argued that the test as set out in the Bill should clarify that "all end consumers of a product, where the price of

232

Cm 8796, January 2014 pp 37-8 233

HC 697-I of 2013-14 paras 269-270 234

Cm 8796, January 2014 p38 235

This eligibility test would be set out in the subsection 6 to the amended text of s47B of the Competition Act 1988 – as inserted by para 5 to Schedule 8

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that product has been affected by an infringement of competition law, are affected by the infringement in the same way, such that their claims raise the same, similar or related issues of fact and law." In its view this would be “crucial to the ensuring the effectiveness of, and preventing abuse of, the new collective actions regime.”236 However, the Government took the view that “consideration and discretion for the CAT to take a view is necessary at the certification stage”:

Without this consideration, the possibility will arise that inappropriate cases for

collective action could proceed with debate and dispute over the nature of the case

taking place at a later, and more costly stage. This is important, because there may be

cases where consumers are not affected in the “same” way by the same infringement

of competition law. For example where they have purchased goods that have been

subject to different amounts of overcharge in a cartel (which is likely to be a key issue

for the main court hearing). It could be that it is better case management and more

efficient to consider different classes of consumer separately and it could lead to

unsuitable claims being included in a collective action.237

As a safeguard the Government proposes that law firms, third party funders or special purpose vehicles should not be able to bring collective actions:

There could be a risk of abuse if legal firms, funders or special purpose vehicles

established solely for the purpose of litigation were allowed to bring cases.

Government believes that only those who have a genuine interest in the case, such as

genuinely representative bodies (such as trade associations or consumer associations)

or those who have themselves suffered loss should be allowed to bring cases.238

A claim may be brought to the CAT either by claimants or a third party if the CAT considers it “just and reasonable” for that person to act as the claimants’ representative.239 The Committee raised concerns that this safeguard was insufficient (emphasis added)

Revised Tribunal Rules should clarify that collective proceedings cannot be brought by

law firms, third party funders or special purpose vehicles … [In addition] the draft Bill

should be amended to provide that a class member may be appointed as a

representative for the purposes of collective proceedings provided that the Tribunal

considers it just and reasonable for that person to act as a representative in those

proceedings.

Subject to these reservations, the Committee took the view that concerns that this reform would “risk creation of a US style litigation culture” were unnecessary, as the safeguards provided in the Bill were “robust, appropriate and proportionate.”240 In turn the Government agreed with both of these recommendations.241

Provision is also made in the legislation to establish a collective settlements regime, to allow businesses to quickly and easily settle cases on a voluntary basis. The Government’s response to the consultation on private actions explains how this would work:

236

HC 697-I of 2013-14 para 276, 279 237

Cm 8796, January 2014 p39 238

Private actions in competition law … government response, January 2013 para 5.30 239

Under subsection 8 to the amended text of s47B of the Competition Act 1988 – as inserted by para 5 to

Schedule 8 240

HC 697-I of 2013-14 para 283, 284, 287, the Committee noted that the Bill prohibits both treble damages and damage-based agreements, or contingency fees (under new s47C, to be inserted by para 6 to Schedule 8)

241 Cm 8796, January 2014 pp39-40, the wording of the proposed text of s47B(8), as provided for in the Bill, has been amended accordingly

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Under this system a representative of those who believe they have suffered a loss as a

result of an infringement of antitrust rules and a potential defendant would jointly apply

to the CAT to approve on an opt-out basis a mutually agreed settlement agreement. It

would also in principle be possible for a defendant to settle with multiple

representatives, each representing different categories of claimants (e.g. direct and

indirect purchasers) simultaneously …

The CAT [would] need to approve the settlement itself, to ensure that it is ‘fair, just and

reasonable’; in other words, does it give satisfactory recompense to those who have

suffered loss, taking into account both the degree of loss alleged and the likelihood of a

collective actions claim succeeding (were it to be brought in absence of settlement).

The CAT will also need to be satisfied that the proposed agreement would be the most

satisfactory way of ensuring that as many members of the identifiable class as possible

receive redress.

For the purpose of approving the settlement, the CAT will be able to take into account

any information it considers relevant, including representations made by the

representative and the defendant or by third parties. The CAT will be able to hold a

hearing to determine the approval of the settlement agreement and to appoint an

expert for the purpose of assisting the CAT to make its decision.242

The Committee raised concerns that claimants might not have sufficient information to be able to judge if a settlement offer was reasonable. They recommended that the provisions in the Bill should require that “the party who makes a settlement offer must demonstrate to the CAT that its terms are just and reasonable.” In addition the Tribunal Rules should specify that the benefit of costs consequences would not attach to an offer where the CAT was not satisfied that the terms of the settlement were just and reasonable.243 In response the Government suggested that there was sufficient safeguard in the Bill regarding settlements:

The current drafting of the Bill requires the CAT to only certify a settlement when it is

“just and reasonable”. This will naturally require all parties involved to submit evidence

to the CAT regarding why an offer is “just and reasonable.” The Government believes

there is therefore already sufficient safeguard to allay the Committee’s concern …

Introducing the proposed requirement could be perceived as placing greater onus on

one party more than the other. It could be seen as a greater burden than it is or appear

more like a trial than a settlement process and therefore not conducive to greater use

of the alternative dispute resolution process …

It went on to argue that the issue of costs would not be arise in the way the Committee feared:

Existing CAT rules provide (at rule 43) that if a defendant makes a settlement offer

which is rejected by the claimant, the claimant becomes liable to pay the defendants

costs from the date of the settlement offer if the claimant fails to secure a greater

amount from the CAT (i.e. the claimant is successful, but does not secure damages

which are greater than the original settlement offer). The purpose of this rule is to

encourage settlement and to discourage claimants from unreasonably refusing to

settle.

However, in the situation where the CAT is considering a settlement to be just and

reasonable, it is a precondition that all parties, the defendant(s) and claimant(s), have

already reached agreement and are jointly approaching the CAT to rule on the terms of

242

Private actions in competition law … government response, January 2013 paras 6.21-4 243

HC 697-I of 2013-14 para 293-4

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the settlement. We do not therefore think that cost consequences will be relevant

under this collective settlement regime.244

Voluntary redress schemes

It is proposed that the new single competition authority, the Competition and Markets Authority (CMA), will be empowered to certify voluntary redress schemes.245 Businesses which had infringed competition law could negotiate with consumers and businesses, through a voluntary process of alternative dispute resolution, and propose redress schemes to the CMA for approval. The CMA would have to be satisfied that a reasonable process had been followed to establish the scheme, but would not have to assess if the amount of compensation offered in each and every scheme was reasonable. The Committee noted that the draft Bill would prohibit the CMA taking into account the amount or value of compensation offered, when making this assessment – and suggested that this would be “unduly restrictive”. The Government agreed with this view:

The Government agrees that the CMA should not spend its resources undertaking

detailed calculations, and has also received representations from stakeholders, such

as the OFT that the CMA should be able to take into account the amount of

compensation on offer. Therefore the Government is accepting this

recommendation.246

The Government also agreed with the Committee that the CMA’s approval of voluntary redress schemes should be monitored regularly, to ensure that it did not divert resources away from the CMA’s core public enforcement role.247

9 Territorial extent of the Bill

The Explanatory Notes set out the position under the three devolution settlements as follows:

Regulation of the sale and supply of goods and services to consumers is not devolved

to Scotland or Wales but is transferred to Northern Ireland. The Minister for the

Department of Enterprise, Trade and Investment in Northern Ireland has given consent

in principle for the inclusion of Northern Ireland in these measures subject to the

appropriate Legislative Consent Motion from the Northern Ireland Assembly.

Although competition law is not a devolved matter, the changes to the private actions

regime are drafted to take into account the different legal procedures across the UK.248

The Government’s stated aim is to ensure consistency of consumer rights and the effectiveness and efficiency of their enforcement across the UK whilst respecting the devolution settlements.249 In effect, this means that Parts 1 to 3 of the Bill (i.e. the majority of the provisions) extend to the whole of the UK. Some of Part 3 does not apply to Scotland or Northern Ireland because of the differences in the law. For example, the provision relating to the CAT issuing injunctions in private actions does not extend to Scotland, and some of the legislation which

244

Cm 8796, January 2014 pp40-1 245

Para 12 to Schedule 8 would insert a new s49C to the Competition Act 1988. The CMA would be empowered to accept binding, voluntary undertakings in respect of such a scheme.

246 Cm 8796, January 2014 p41, the wording of subsection 3 to s49C, to be inserted by para 12 to Schedule 8, was amended accordingly

247 HC 697-I of 2013-14 para 301; Cm 8796, January 2014 p42

248 Explanatory notes to the draft Consumer Rights Bill, 12 June 2013, [online] (accessed 17 July 2013)

249 Ibid

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Part 3 proposes to amend does not extend to Scotland or Northern Ireland, for example, the Sunday Trading Act 1994.

10 Informing consumers and businesses about the Bill

As already outlined, institutional changes were made by the Government in 2012 to simplify the consumer law advice landscape. As a result, the Citizens Advice Service now has responsibility for consumer information, advice, and education. Trading Standards services have responsibility for most business-facing education activities, with exceptions to allow the Competition and Markets Authority (CMA) to provide sector specific guidance or information relating to unfair contract terms. The BIS Select Committee recommended that in conjunction with these organisations, the Government must set out a clear and detailed education strategy for both businesses and consumers in relation to the Bill and its wider reforms to consumer law in the UK.250

In the Command Paper which accompanied the Bill, the Government acknowledged that the Bill would not have an impact unless consumers and traders knew about the new regime and are adept at using it.251 It recognised that businesses would require a period of adjustment to understand and implement the changes the Bill proposes, whilst consumers would need a basic awareness of their updated rights. In response to the Committee’s recommendation, the Government said that it had already set up an ‘implementation group’, drawing from consumer, business and enforcer groups, to work with it on a coordinated approach which will consider content, channels and timings. It is the Government’s intention that this ‘implementation group’ will meet regularly as the Consumer Rights Bill proceeds through Parliament, and BIS will work with the group to develop core guidance about the legislation so that it is available soon after Royal Assent.

The BIS Committee also supported the recommendations of Citizens Advice for the inclusion of an express requirement in the Bill for a trader to provide information to consumers about their core statutory rights at the point of sale.252 In its response, the Government said that its ‘implementation group’ is already considering whether the provision of mandatory information at point of sale will make a valuable contribution towards consumer protection or whether consumers are more likely to absorb the information about their rights when a problem has arisen and they need specific advice. It is the Government’s view that it would be unhelpful to introduce a legislative information requirement in the Bill without a consensus that this was an effective approach.253

11 Impact of the Bill on existing legislation

The Bill brings together the key consumer rights from a large number of statues, the most significant of which are summarised in a table reproduced at Appendix A to this Research Paper.

In general, the Bill would apply only to ‘consumer contracts’; contracts between a trader254 and a consumer, but not to ‘business to business’ or ‘consumer to consumer’ contracts. The

250

House of Commons Business Innovation and Skills Committee, ‘Draft Consumer Rights Bill’, Sixth Report of Session 2013-14, HC 697-I, Volume I, paragraph 310, [online] (accessed 9 January 2014)

251 ‘Consumer Rights Bill: Statement on Policy Reform and Responses to Pre-Legislative Scrutiny’, Cm 8796, January 2014 [online] accessed 24 January 2014)

252 House of Commons Business Innovation and Skills Committee, ‘Draft Consumer Rights Bill’, Sixth Report of

Session 2013-14, HC 697-I, Volume I, paragraph 311, [online] (accessed 9 January 2014) 253

Consumer Rights Bill: Statement on Policy Reform and Responses to Pre-Legislative Scrutiny’, Cm 8796, January 2014 [online] accessed 24 January 2014)

254 The Bill defines a ‘trader’ as “a person acting (personally or through an agent) for purposes relating to that person’s trade, business, craft of profession2 (Clause 2(2))

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Government intends that provisions in the existing legislation which apply to contracts between a trader and a consumer only will be repealed. The provisions which relate to other types of contract (for example, contracts between businesses) will remain in the existing legislation.255

Interestingly, it was a recommendation of the BIS Select Committee that the Government consider the case for small businesses to be treated as consumers for the purposes of the Bill. It also recommended that the Government provide a substantive response to the research commissioned by the Federation of Small Businesses on small business as Consumers.256 The Government said that it had considered the case for small businesses to be treated as consumers, consulting on this question in 2008 and 2012. All business groups that responded to its 2008 Consumer Law Review preferred to retain the clarity of the current distinction between business and consumer and this position was supported by the majority of responses to the 2012 consultation. However, the Government confirmed that it would examine the findings of the research undertaken on behalf of the FSB when it is published and respond to any recommendations.257 The Bill does not itself implement EU Directives for the first time with the exception of certain parts of Articles 5, 6, 18, 20 and 23 of EU Directive on Consumer Rights (2011/83/EU) (see section 12.1 below). Other than this, the Bill replaces earlier legislation which has implemented EU Directives, namely.

Directive 99/44/EC of the European Parliament and Council on certain aspects of the sale of consumer goods and associated guarantees;

Directive 93/13/EEC of the Council on unfair terms in consumer contracts; and

Some provisions of Directive 2011/83/EU of the European Parliament and Council on consumer rights (see below).

In addition, the Bill implements some provisions (in respect of enforcement) of:

Regulation (EC) No. 2006/2004 of the European Parliament and Council on cooperation between national authorities responsible for the enforcement of consumer protection laws;

Regulation (EC) No.765/2008 of the European Parliament and Council on the requirements for accreditation and market surveillance relating to the marketing of products;

Directive 2001/95/EC of the European Parliament and Council on general product safety; and

Directive 98/27/EC of the European Parliament and Council on injunctions for the protection of consumers’ interests.

255

Explanatory Notes, paragraphs 23-4 256

House of Commons Business Innovation and Skills Committee, ‘Draft Consumer Rights Bill’, Sixth Report of Session 2013-14, HC 697-I, Volume I, paragraphs 42 and 43, [online] (accessed 9 January 2014)

257 ‘Consumer Rights Bill: Statement on Policy Reform and Responses to Pre-Legislative Scrutiny’, Cm 8796, January 2014 [online] accessed 24 January 2014)

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12 Wider reforms of UK consumer law

12.1 The Consumer Rights Directive

In addition to the Bill, the Consumer Contracts (Information, Cancellation and Additional Payments) Regulations 2013 will implement the EU Directive on Consumer Rights (2011/83/EU) (the CRD), which was adopted on 11 October 2011. The Regulations will come into force on 13 June 2014. On the same day, the Distance Selling Regulations 2000258 and the Off-Premises (Doorstep) Regulations 2008259, will be revoked. By way of a brief overview, the main aim of the CRD is to simplify consumer rights in certain important areas, mostly relating to buying and selling.260 The Directive also prohibits traders from imposing excessive charges for card payments. However, this provision has already been introduced in the UK as the Consumer Rights (Payment Surcharges) Regulations 2012.261 The CRD is largely a maximum harmonisation Directive.262 A BIS consultation, which ran between 20 August 2012 and 1 November 2012, sought views on those areas where the UK had some flexibility in the way the Directive might be applied.263 The Government published its response to this consultation with detailed proposals on how it intended to implement the Directive.264

On 6 August 2013, BIS published the draft Consumer Contracts (Information, Cancellation and Additional Payments) Regulations 2013 (the draft CCRs)265 and consultation took place between 6 August and 11 October 2013. BIS analysis of the comments received have been published. The final Regulations266 and order267 were laid before Parliament on 13 December 2013. BIS Guidance on the Regulations was published in December 2013.268

Very briefly, the Consumer Contracts (Information, Cancellation and Additional Payments) Regulations 2013 clarify:

the information which a trader must give to a consumer before and after making a

sale (and how that information should be given);

set out cancellation rights which apply when selling at a distance or off-premises;

delivery times and passing of risk; and

258

Consumer Protection (Distance Selling) Regulations 2000, SI 2000 No.2334 259

The Cancellation of Contracts made on a Consumer’s Home or Place of Work etc Regulations 20008 260

Explanatory Notes, paragraph 11 261

SI 2012 no. 3110 262

Consumer Rights Directive (2011/83/EU), 25 October 2011, amending Directive 93/13/EEC and Directive 1999/44/EC and repealing Directive 85/577/EEC and Directive 97/7/EC. Further information is available from the European Commission Justice page, The Directive on Consumer Rights, 22 November 2011, [online] (accessed 19 March 2013)

263 ‘Consultation on the Implementation of the Consumer Rights Directive 2011/83/EU’, Department for Business Innovation and Skills (BIS), 20 August 2012, [online] (accessed 19 March 2013)

264 Department for Business Innovation and Skills, ‘Reform of Consumer Law: Government Response to Consultations on Misleading and Aggressive Practices and the European Consumer Rights Directive’, August 2013, [online] (accessed 10 October 2013)

265 Comments on the draft Regulations can be made to BIS up until 11 October 2013

266 The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013

267 The Enterprise Act 2002 (Part 8 EU Infringements) Order 2013, SI 2013 No.3168

268 ‘Consumer Contracts (Information, Cancellation and Additional Charges) Regulations – Implementing guidance’, December 2013, online, (accessed 13 January 2014)

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prohibit certain hidden cost practices (such as additional payments which appear as

a default option)

The Regulations would apply to all consumer contracts except those specifically exempt, covering those contracts made at a distance (e.g. over the telephone or online), ‘off- business premises’ and ‘on business premises’. Thirteen sectors are exempted from the CRD. Member States have some flexibility about whether the CRD is applied to those sectors. The UK Government has said that it does not intend to extend the provisions to the exempted sectors in the majority of cases, including financial services and property sectors and those activities which are regulated by the Gambling Act 2005, “on the basis that these sectors are subject to appropriate sector specific legislation”.269

Only a small number of the CRD’s provisions are to be implemented by the Bill (see Section 11 above). Specifically, clauses 11 and 12 of the Bill in relation to goods, clauses 36 and 37 in relation to digital content; and clause 50 in respect of services, provide that pre-contractual information supplied in accordance with the CRD is to be treated as included as a term of the contract. The CRD will require traders to provide details of the main characteristics of the goods, digital content and services being sold, as well as information such as the name and address of the trader.270 In addition, Clause 28 of the Bill implements a CRD requirement that in respect of sales contracts under which the trader is required to deliver the goods to the consumer, the trader must deliver the goods on an agreed date or within 30 days after the contract is made.271 In developing proposals for the draft Consumer Rights Bill, the Government said that it has taken into account the definitions and measures contained within the CRD and, as far as appropriate, had made the draft Bill consistent with the CRD, “with the intention of achieving overall a simple, coherent framework of consumer legislation”.272

Nevertheless, several submissions to the BIS Select Committee’s Inquiry argued that the Bill would go further than or ‘gold plate’ the CRD273 and one argued that the Bill would be ‘incompatible’ with the CRD.274 This was a particular concern in relation to the provisions on digital content in the draft Bill. This was refuted by the Consumer Minister, Jo Swinson:

Let me reassure you that the draft Bill is entirely consistent with the Directive [...] The

Directive does not directly address the issue of quality nor of the appropriate forms of

redress when the quality standards are not met. These are dealt with in the draft Bill.275

12.2 New regulations to stop misleading or aggressive behaviour

By definition, a misleading commercial practice is one which contains false information, or if it is likely to deceive the average consumer in its overall presentation. An aggressive commercial practice is one which significantly impairs the consumer’s freedom of choice through the use of harassment, coercion or undue influence. The Consumer Protection from Unfair Trading Regulations 2008 (CPRs) currently deal with public enforcement of misleading

269

Department for Business, Innovation and Skills, ‘Government Response to Consultations on Misleading and Aggressive Practices and the Consumer Rights Directive’, August 2013, page 16

270 Department for Business, Innovation and Skills, ‘Consultation on the implementation of the Consumer Rights Directive’, August 2012, Annex 3

271 Explanatory Notes, paragraphs 117-122

272 Explanatory Notes, paragraph 13

273 For example, Ev w130, Ev w95, Ev w24

274 Ev w24

275 Ev 50

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and aggressive trade practices, while private rights are dealt with by a complex mix of common law and statute, under the law of misrepresentation and duress.276

Consumer Focus published a report in 2009 in which it calculated that the total detriment suffered by consumers as a result of misleading and aggressive practices was around £3.3billion a year.277 In an earlier report, Consumer Focus found that 60 per cent of the population had been the target of an unfair commercial practice. Such practices prices being a particular problem for vulnerable and elderly consumers.278

The Law Commissions published advice in March 2012, stating that the law surrounding consumer rights to redress from traders following misleading or aggressive behaviour is fragmented, complex and unclear.279 The Law Commissions have recommended limited reform, targeting the most serious causes of consumer detriment.

The Government intends to implement the Law Commission’s proposed reforms by amending the existing Consumer Protection from Unfair Trading Regulations 2008 (CPRs) rather than through the Consumer Rights Bill. Draft regulations were published on 6 August 2013.280 Taken together, the draft Regulations give consumers the right to unwind the transaction (i.e. get a refund) or receive a discount on the price if they were bullied or misled into agreeing a contract. Specifically, the draft Regulations would:

Give consumers 90 days to cancel a contract and receive a full refund if they have been misled or bullied into agreeing it. If the first 90 days have lapsed, consumers can still receive a proportion of their money back. (Under current legislation it is unclear what consumers are entitled to do in this situation).

Give consumers new rights to recover payments made to traders who mislead or bully them into paying money which was not owed. (Currently, the trader can be prosecuted but the consumer finds it much more difficult to get their money back).

Give consumers the right to claim compensation for any alarm or distress caused by these practices.

The Government intends to lay the regulations before Parliament in due course. 12.3 Alternative Dispute Resolution

Directive 2013/11/EU on alternative dispute resolution (‘the ADR Directive’) and Regulation (EU) No 524/2013 on online disputes (‘the ODR Regulation’) were published in the EU Official Journal on 18 June 2013. The aim of this legislation is to provide in every Member State a fast, cheap and informal way for consumers to settle disputes with traders out of court, through the intervention of an approved ADR entity (such as an arbitrator, conciliator, mediator, ombudsman, or complaints board). Approved entities will be listed by competent authorities within each Member State and by the European Commission.

276

Department for Business Innovation and Skills, ‘Government response to Consultations on Misleading and Aggressive Practices and the European Consumer Rights Directive’, August 2013, p16

277 Consumer Focus, ‘Waiting to be heard – Giving consumers the right of redress over Unfair Commercial Practices’, by Lola Bello, August 2009, [online] (accessed 10 October 2013)

278 Ibid

279 The Law Commission and the Scottish Law Commission (Law Com No 332) (Scot Law Com No.226), ‘Consumer Redress for Misleading and Aggressive Practices’, CM 8323, March 2012, [online] (accessed 17 July 2013)

280 The draft ‘Consumer Protection from Unfair Trading (Amendment) Regulations 2013’, [online] (accessed 10 October 2013)

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The European Commission initially proposed this legislation in November 2011, with the publication of a Communication on ADR for consumer disputes alongside a draft ADR Directive281 and a draft ODR Regulation.282 The Commission argued that a substantial proportion of consumers encounter problems when buying goods and services in the internal market; an estimated 20% of consumers suffered detriment in 2010.283 Problems with purchased goods or services often go unresolved, because access to ADR across the EU is inconsistent and inadequate.284 The ADR Directive must be transposed into UK law by 9 July 2015.285 If the Consumer Rights Bill receives Royal Assent, the timescale for implementation might be broadly equivalent. In a nutshell, the ADR Directive requires Member States to create their own ADR systems, with their own approved ADR entities. The Directive also requires Member States to designate a competent authority in charge of monitoring the functioning and development of ADR schemes established on its territory.286

It would be the role of ADR entities to propose or impose a solution or facilitate an amicable solution by bringing the parties together. In fulfilling this function, ADR entities must ensure minimum quality standards in relation to domestic and cross-border contractual disputes between traders established in the EU and consumers resident in the EU.

In addition, the Directive requires all businesses to inform consumers about an ADR scheme that meets the standards of the ADR Directive. Businesses would also have to specify whether or not they commit to use the scheme should a dispute arise. Businesses would have to do this on their website (if they have one), in their general terms and conditions and in relevant invoices and on receipts.287

The ADR Directive will be supplemented by the ODR Regulation, which will enable the European Commission to establish a new online ‘ODR platform’. This would be a free, interactive website through which both traders and consumers can initiate ADR in relation to contractual disputes concerning online sales or service transactions.The ODR Regulation applies from 9 January 2016 but certain provisions in it apply earlier. According to the BIS Select Committee report on the draft Consumer Rights Bill, several respondents to its inquiry thought that the Bill should have included more measures on ADR.288 The relevant section of the Report is reproduced below:

Which? said that the draft Bill could introduce the framework for a Consumer

Ombudsman since the ADR Directive will require that ADR is available for all

consumer transactions.289 The Ombudsman Services argued that the draft Bill could be

281

European Commission Proposal for a Directive of the European Parliament and of the Council on alternative dispute resolution for consumer disputes and amending regulation (EC) No 2006/2004 and Directive 2009/22/EC (Directive on consumer ADR), COM(2011) 793 final

282 “New legislation on Alternative and Online Dispute Resolution (ADR) and (ODR)”, European Commission website, [online] (accessed 9 January 2014)

283 "Consumer Empowerment", Eurobarometer 342, p. 169

284 Department for Business, Innovation and Skills, ‘Call for evidence on EU proposals on Alternative Dispute Resolution’, December 2011, page 2

285 Article 25 of the ADR Directive

286 Ibid, paragraph 30

287 Ibid, paragraph 33

288 For example, Ev W109; Ev w118; and Ev 82

289 Ev 82

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"considerably strengthened" by linking it to the requirements in the ADR Directive.290

Ombudsman Services said that at the expense of ADR, the draft Bill places an

unnecessary focus on enforcement, which it believed "should be seen as the last resort

and in many respects can be seen as an admission that the system has failed".291

In its Report, the BIS Committee made the following recommendation:

Given that the ADR Directive covers any contractual dispute between a trader and a

consumer within the EU, we expect the Government to explain the extent to which the

key requirements of the ADR Directive could have been included in the draft Bill, and

why that approach was not taken.292

In its response, the Government said that the appropriate legislative route for implementing the Directive cannot be determined without first undertaking a detailed consultation exercise, assessing stakeholder views and deciding how best to implement the Directive. It confirmed that it intends to publish a consultation document in the first quarter of 2014:

Depending on the approach we take, we may not need primary legislation to

implement the Directive. The Government has brought forward wide ranging and

fundamental reform of the competition and consumer institutional landscape,

framework of consumer legislation and other reforms to build confident consumers.

While they all interrelate and form part of a stronger, overarching framework not all of

the reforms, including legislative reforms, have been nor should be taken forward in the

same Bill at the same time. However, by consulting thoroughly we are ensuring that

our proposals to implement the ADR Directive will complement the provisions of the

Consumer Rights Bill. 293

13 Views of stakeholders

BIS has published a document that summarises in table form the responses received to the many public consultations that the Government has held to inform its proposals to reform consumer legislation.294 In addition, written evidence was submitted to the BIS Committee in respect of its inquiry into the draft Consumer Rights Bill. The Committee also took oral evidence from consumer and business representatives, enforcers, the Law Commission and the Government. This evidence was published, together with the Committee’s Report, on 17 December 2013.295

In the press, the proposal to simplify and consolidate consumer law on the sale of goods, digital content, and services into a single Consumer Rights Bill has been broadly welcomed by both consumer and business groups. They take the view that most of the provisions in the Bill are existing rights that have been consolidated, with a few significant additions.

It is argued variously that the proposed changes should make it easier for consumers to know their legal rights, for businesses to comply with the law, and for disputes to be

290

Ev w109 291

Ev w110 292

House of Commons Business Innovation and Skills Committee, ‘Draft Consumer Rights Bill’, Sixth Report of Session 2013-14, HC 697-I, Volume I, paragraph 22, [online] (accessed 9 January 2014)

293 ‘Consumer Rights Bill: Statement on Policy Reform and Responses to Pre-Legislative Scrutiny’, Cm 8796,

January 2014 [online] accessed 24 January 2014) 294

Department for Business, Innovation and Skills (BIS), ‘Consumer Rights Bill – Table of Responses to consultations’, June 2013, [online] (accessed 25 January 2014)

295 House of Commons Business Innovation and Skills Committee, ‘Draft Consumer Rights Bill’, Sixth Report of Session 2013-14, HC 697, Volumes I, II and III, 23 December 2013, [online] (accessed 9 January 2014)

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resolved. This, in turn, should encourage competition and economic growth. For example, the Confederation of British Industry (CBI) has endorsed reform:

A simplified framework of consumer law is needed to allow businesses and

consumers to address the challenges posed by increasing competition at a

global level, rapidly expanding technology and far greater choice, particularly of

increasingly complex goods and services.296

An article published in ‘TS Today’ (a magazine published by the Trading Standards Institute (TSI)) reported that Trading Standards officers broadly welcomed the introduction of a 30-day window within which a consumer can seek a refund for a contract breach soon after purchase and new rules to limit the number of repairs a consumer must accept:

Some retailers of high-value items might feel disadvantaged by the new rules,

in that a repair for a plasma television or motor car might be considered a more

suitable outcome, rather than offering a refund as a first course of redress.

However, the arrival of much needed clarity in this area will probably outweigh

the limitations.

The new rules that limit the number of repairs a consumer must accept will

hopefully put an end to the eternal cycle of ‘fault and repair’, which consumers

spend 59 million hours resolving, contributing to the £3 billion that is lost to

consumer detriment – the direct financial or material loss or disadvantage from

a trader not complying with the law – every year.297

Commenting on a consumer’s right to have a service perfumed again if the trader fails to provide the original service with ‘reasonable care and skill’, the article thought that time would tell just how practicable these new remedies would be in the real world.298 The article also highlighted the fact that the Bill extends a consumer’s statutory rights to digital content, with the noticeable exception of the early right to reject. It states:

This ‘twin-speed’ set of rights does appear a little incongruous with the spirit of

‘simplicity’ within the bill. for example, a consumer can buy a new tablet

computer and will have the right to reject the hardware, but not the ‘apps’,

should either develop a fault within the first 30 days of use, notwithstanding the

practical difficulties that surely lie ahead in demonstrating digital content is not

of satisfactory quality.299

Some other commentators have expressed concern about how appropriate it is to align remedies across goods, services and digital content given the many differences between them. They have questioned whether flexibility and effectiveness may be sacrificed in the push for legal simplification.300 Others have questioned whether quality standards in respect of digital content should apply to ‘free content’ and whether statutory rights and remedies should apply to ‘related services’ such as downloading and streaming services.

296

Confederation of British Industry, Response to the Consumer Law Review 2008, quoted at para.4.10 of ‘Enhancing Consumer Confidence by clarifying consumer law – consultation on the supply of goods, services and digital content’, URN 12/937, July 2012, [online] (accessed 19 March 2013)

297 The devil’s in the detail”, article by Andy foster, operations and policy director of the Trading Standards institute, published in ‘TS Today’, Volume 122 Issue 8, August 2013, [not online]

298 Ibid

299 Ibid

300 ‘Making consumer law fit for purpose’, by Jon Bartley, Solicitors Journal, vol.156 No.46, 4 December 2012,

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To make it easier to seek redress, Citizens Advice has called for groups of consumers to be given the power to campaign collectively for compensation from businesses in any circumstances of unfair treatment. Citizens Advice Chief Executive, Gillian Guy, said:

Simplifying the complex web of consumer regulations is vital to our economy and to

customers who often lose money as a result of confusing or weak regulation. Today’s

proposals [contained in the draft CRB] are a welcome development, but streamlining

existing rules won’t be enough without urgent, strong, new tools for customers to get

fair treatment.

Regulators should name and shame businesses which refuse to put right bad practice

so that customers know who they can trust to treat them fairly. As well as protecting

customers, naming and shaming by enforcers would prevent dodgy businesses gaining

a competitive advantage over companies that abide by the law.

Last year our clients collectively spent £185 million on daily goods, like clothes, that

were not up to scratch. Campaigning against business can be a scary prospect, and

Citizens Advice wants customers to be able to claim compensation collectively

whenever something goes wrong, not just in the limited circumstances suggested by

the Government today.

Businesses should be required to tell customers what their rights are and what to

expect from a service before parting with money. Displaying consumer rights

prominently and in writing at the point of sale would avoid stressful, time-consuming

disputes later on.301

One obvious omission from the Bill is the absence of an all-encompassing consumer ombudsman. It has been suggested that a consumer ombudsman would be a possible solution to the requirement in the ADR Directive to provide dispute resolution access for all consumer goods and services transactions (see Section 12.3 above). Others suggest that the Bill’s collective redress provisions should extend beyond the proposed competition case boundaries.302 Reportedly, for Trading Standards officers, one of the most controversial areas of the Bill is the requirement that inspectors should serve notice before using a power to enter premises. It is argued that this would cause a significant step-change in how trading standards tackle ‘routine’ inspections:

Serving notice will add cost, time and bureaucracy to our already stretched resources,

not to mention the overall effect of impotency it will have on our profession, as an

inspectorate, to tackle consumer fraud.

On top of this, there is an interesting provision in the bill that reduces the fine for

obstruction of an officer down from the current level 5 (£5,000) to level 3 (£1,000).

Whether or not this incentives more unscrupulous businesses to obstruct rather than

co-operate, it hardly sends a message of support to a declining trading standards

workforce, who are tackling consumer detriment that stands at an all-time high.

A better dialogue with government would be to understand what evidence there is to

show how the intervention of a trading standards officer places an unnecessary burden

on a business. Then we could work out how to manage that behaviour. Perhaps the 301

‘New Consumer Rights Bill should give regulators power to ‘name and shame’ dodgy businesses’, Citizens

Advice press notice 12 June 2013, [online] (accessed 9 January 2014) 302

Ibid

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regulator’s compliance code would be a better vehicle for inviting local authorities to

publish their approach o unannounced inspections, explaining how that policy can be

challenged through local democratic channels.303

However, in another article in ‘TS Today’, published in September 2013, the Consumer Affairs Minister Jo Swinson seeks to reassure trading standards officers that she has no intention of weakening powers to tackle rogue traders. An extract is reproduced below:

[...] I want to address one concern about the proposals I have heard from

trading standards officers – the proposal to require notice to businesses for

routine inspections. Let me be clear, I have no intention of weakening powers

to tackle rogue traders.

There are vital exemptions in the proposed legislation, which clarify the

measures. These will allow inspections of commercial premises to be made

without notice so that, for example, the sale of counterfeit goods can be

investigated, or unsafe goods can be quickly removed from sale. These

reforms are about recognising what is already practised in many areas.

One of the primary aims of the Bill – to create clarity – is not just good for

consumers, it’s good for enforcers, too. We want to make it easier for you to

inform, guide and support businesses and enforce breaches of law where they

do occur. But I believe the Bill does far more to support trading standards

services.

I am particularly enthusiastic about some of the opportunities stemming from

the Bill. these will allow you to obtain undertakings or orders to require

businesses to provide positive remedies to consumers, improve future

business compliance or give consumers more information to help them make

the right purchase.

I recognise that in many cases, prosecution will remain the most appropriate

course of action. But where possible, I think helping consumers get their money

back where they have suffered loss will help build greater confidence and

promote trading standards’ success. I hope you will continue to work with us to

maximise the potential here.

Rogue trading doesn’t stop at the authority boundary, and so we are clarifying

the law to enable trading standards to work across boundaries without

unnecessary bureaucracy.

This is a great opportunity to create confident consumers.304

303

“The devil’s in the detail”, article by Andy foster, operations and policy director of the Trading Standards institute, published in ‘TS Today’, Volume 122 Issue 8, August 2013, [not online]

304 TS Today, ‘Don’t worry, I am with you’, September 2013, [not online]

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Appendix A - Impact of the draft CRB on existing legislation305

Supply of Goods (Implied Terms) Act 1973

This will be replaced by provisions in the Consumer Rights Bill.

Sale of Goods Act 1979 (the SGA 1979)

For business to consumer contracts this will mainly be replaced by the Consumer Rights Bill but some provisions of the SGA 1979 will still apply, for example, rules which are applicable to all contracts of sale of goods (as defined by that Act – essentially these are sales of goods for money), regarding matters such as when property in goods passes. The SGA 1979 will still apply to business to business contracts.

Supply of Goods and Services Act 1982

For business to consumer contracts, this Act’s provisions will be replaced by the Consumer Rights Bill. The SGSA 1982 will be amended so that it covers business to business contracts only.

Sale and Supply of Goods Act 1994

This will be replaced by provisions in the Consumer Rights Bill.

Sale and Supply of Goods to Consumers Regulations 2002

This will be replaced by provisions in the Consumer Rights Bill.

Unfair Contract Terms Act 1977 (the UCTA 1977)

In respect of business to consumer contracts the Act’s provisions will be replaced by the Consumer Rights Bill. The UCTA 1977 will be amended so that it covers business-to-business and consumer-to-consumer contracts only.

Unfair Terms in Consumer Contracts Regulations 1999

These will be replaced by the Consumer Rights Bill.

305

Department for Business Innovation and Skills, ‘Enhancing Consumer Confidence by Clarifying Consumer Law – Consultation on the supply of goods, services and digital content’, July 2012 [online] (accessed 26 June 2013)

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Appendix B – Sale of goods: consumers’ rights and remedies under CRB306

Statutory right being breached

Statutory remedies that may apply

Goods to be of satisfactory quality (clause 9)

The short-term right to reject (clauses 20-22)

The right to repair or replacement (clause 23)

The right to a price reduction or the final right to reject

(clause 24)

Goods to be fit for particular purpose (clause 10)

The short-term right to reject (clauses 20-22)

The right to repair or replacement (clause 23)

The right to a price reduction or the final right to reject

(clause 24)

Goods to be as described (clause 11), including

conforming to information re material characteristics

under the CRD

The short-term right to reject (clauses 20-22)

The right to repair or replacement (clause 23)

The right to a price reduction or the final right to reject

(clause 24)

Conformity with contract information provided

pursuant to the 2013 Regulations (clause 12)

The right to recover costs incurred, up to the contract price

(clause 19(5))

Goods to match a sample (clause 13)

The short-term right to reject (clauses 20-22)

The right to repair or replacement (clause 23)

The right to a price reduction or the final right to reject

(clause 24)

Goods to match a model seen or examined (clause

14)

The short-term right to reject (clauses 20-22)

The right to repair or replacement (clause 23)

The right to a price reduction or the final right to reject

(clause 24)

Incorrect installation of goods (by trader or under

trader’s responsibility) (clause 15)

The right to repair or replacement (clause 23)

The right to a price reduction or the final right to reject

(clause 24)

Goods not conforming to contract if digital

306

Reproduced from the Explanatory Notes that accompany the Consumer Rights Bill, Bill 161-EN, pages 28-29

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content does not conform (clause 16) The short-term right to reject (clauses 20 -22)

The right to repair or replacement (clause 23)

The right to a price reduction or the final right to reject

(clause 24)

Trader to have right to sell or transfer the goods

or to transfer possession (clause 17(1))

The right to reject (clause 20)

Goods to be free from any charge or encumbrance

not disclosed or known (clause 17 (2) and (5))

Statutory remedies do not apply but consumers may claim

damages (clause 19(9) and (10) )

Consumer to enjoy quiet possession of the goods

(clause 17(2), (3), (6) and (7))

Statutory remedies do not apply but consumers may claim

damages (clause 19(9) and (10) )

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Appendix C – Sale of digital content: rights and remedies under the CRB307

Consumer’s statutory rights being breached

Remedies that may apply

Digital content to be of satisfactory quality

(clause 34)

The right to repair or replacement (clause 43)

If repair or replacement are not possible or do

not resolve the fault within a reasonable time

or without causing significant inconvenience

to the consumer the right to a price reduction

(clause 44)

Digital content to be fit for particular purpose

(clause 35)

The right to repair or replacement (clause 43)

If repair or replacement are not possible or do

not resolve the fault within a reasonable time

or without causing significant inconvenience

to the consumer, the right to a price reduction

(clause 44)

Digital content to be as described (clause 36)

The right to repair or replacement (clause 43)

If repair or replacement are not possible or do

not resolve the fault within a reasonable time

or without causing significant inconvenience

to the consumer, the right to a price reduction

(clause 44)

Other pre-contractual information (clause 37)

The right to recover costs incurred as a result of

the breach (clause 44)

Trader’s right to supply digital content (clause

41)

The right to a refund (clause 45)

Remedy for damage to device or other digital

content (clause 46)

The right that the damage should be repaired

If rectifying the damage is not possible,

financial compensation to reflect the loss

suffered (clause 46)

307

Reproduced from the Explanatory Notes that accompany the Consumer Rights Bill, Bill 161-EN, pages 52-53

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Appendix D – Sale of services: consumers’ rights and remedies under CRB308

Consumers’ statutory right being breached

Remedies that apply

Service not performed with reasonable care and

skill (clause 49)

The right to ask for a repeat performance

(clauses 54 and 55)

And, if that is impossible, or not done in a

reasonable time or without significant

inconvenience to the consuumer:

The right to a reduction in price (clauses 54

and 56)

Service not performed within a reasonable time

(clause 52)

The right to a reduction in price (clauses 54

and 56)

Service not performed in-line with information

provided concerning the service (clause 50)

The right to ask for a repeat performance

(clauses 54 and 55)

And, if that is impossible, or not done in a

reasonable time without inconvenience:

The right to a reduction in price (clauses 54

and 56)

Service not performed in-line with information

provided concerning the trader (clause 50)

The right to a reduction in price (clauses 54

and 56)

308

Reproduced from the Explanatory Notes that accompany the Consumer Rights Bill, Bill 161-EN, page 62

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Appendix E – Further Reading

Consumer Rights Bill, Bill No.161of session 2013-14

Consumer Rights Bill: Explanatory Notes, Bill161-EN, 23 January 2014

‘Consumer Rights Bill: Statement on Policy Reform and Responses to Pre-Legislative Scrutiny’, Cm8796, January 2014

Department for Business, Innovation and Skills, ‘Consumer Rights Bill: Supply of Goods – Revised Impact Assessment: Final’, BIS/13/1360, January 2014

Department for Business, Innovation and Skills, ‘Consumer Rights Bill: Supply of Digital Content – Revised Impact Assessment: Final’, BIS/13/1356, January 2014

Department for Business, Innovation and Skills, ‘Consumer Rights Bill: Proposals on Services – Revised Impact Assessment: Final’, BIS/13/1361, January 2014

Department for Business, Innovation and Skills, ‘Consumer Rights Bill: Proposals on Unfair Terms – Revised Impact Assessment: Final’. BIS/13/1362, January 2014

Department for Business, Innovation and Skills, ‘Enhancing Consumer Confidence: Improving Local Authority Trading Standards Services – Impact Assessment: Final’, BIS/13/1358, January 2014

Department for Business, Innovation and Skills, ‘Enhancing Consumer Confidence: Generic Set of Consumer Law Powers – Impact Assessment: Final’, BIS/13/1359, January 2014

Department for Business, Innovation and Skills, ‘Consumer Rights Bill: Proposals on Enhanced Consumer Measures – Impact Assessment: Final’, BIS/13/1357, January 2014

House of Commons Business Innovation and Skills Committee, ‘Draft Consumer Rights Bill’, Sixth Report of Session 2013-14, HC 697, Volumes I, II and III, 23 December 2013

Department for Business Innovation and Skills, Draft Consumer Rights Bill, 12 June 2013.

Draft Consumer Rights Bill: Explanatory Notes.

Department for Business, Innovation and Skills, Written Ministerial Statement on Draft Consumer rights Bill, Jo Swinson, Parliamentary Under-Secretary of State for Employment Relations and Consumer Affairs, 12 June 2013.

Department for Business, Innovation and Skills, ‘Consumer Rights Bill – Table of Responses to consultations’, June 2013.

Department for Business Innovation and Skills, ‘Consumer Rights Bill: Supply of Goods – Impact Assessment: Final’, June 2013, paragraph 3, [online] (accessed 17 July 2013)

Department for Business, Innovation and Skills, ‘Consumer Rights Bill: Supply of Digital Content – Impact Assessment: Final’, June 2013, [online] (accessed 25 June 2013)

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Department for Business, Innovation and Skills, ‘Consumer rights Bill: Proposals on Services – Impact Assessment: Final’, June 2013, [online] (accessed 25 September 2013)

Department for Business Innovation and Skills, ‘Consumer Rights Bill: Proposals on Unfair Contract Terms – Impact Assessment (Final)’, June 2013, [online] (accessed 26 June 2013)

Department for Business Innovation and Skills, ‘Enhancing consumer Confidence: Improving local authority Trading Standards Services – Impact assessment: Final’, June 2013, [online] (accessed 17 July 2013)

Department for Business Innovation and Skills, ‘Enhancing Consumer Confidence: Generic Set of Consumer Law Powers – Impact Assessment: Final’, June 2013

Department for Business, Innovation and Skills, ‘Consumer Rights Bill: Proposals on enhanced enforcement remedies – Impact Assessment Final’, June 2013

Department for Business Innovation and Skills, ‘Draft Consumer Rights Bill – Government Response to Consultations on Consumer Rights’, June 2013, [online] (accessed 1 July 2013)

Department for Business, Innovation and Skills, ‘Consumer Rights Bill: table of responses to consultations’, June 2013

White Papers and BIS consultations:

Department for Business Innovation and Skills, ‘A Better Deal for Consumers – Delivering Real Help Now and Change for the Future’, Cm 7669, July 2009

Department for Business Innovation and Skills and the Cabinet Office, ‘Better Choices: Better Deals - Consumers Powering Growth’, 13 April 2011, [online] (accessed 19 March 2013)

Department for Business Innovation and Skills, ‘Enhancing Consumer Confidence by Clarifying Consumer Law – Consultation on the supply of goods, services and digital content’, July 2012 [online] (accessed 26 June 2013)

Department for Business Innovation and Skills (BIS), ‘Consultation on Consolidating and Modernising Consumer Law Enforcement Powers’, 28 March 2012 (consultation closed 20 June 2012), [online in BIS Archives] (accessed 13 March 2013).

Department for Business Innovation and Skills (BIS), ‘Civil enforcement remedies – consultation on extending the range of remedies available to public enforcers of consumer law’, 5 November 2012 (consultation closed on 31 December 2012), [online] (accessed 13 march 2013).

Department for Business Innovation and Skills, ‘Private actions in competition law: a consultation on options for reform’, URN 12/742, April 2012, [online] (accessed 4 July 2013)

Reports:

IFF Research, ‘Consumer Rights and Business Practices’, prepared for the Department for Business, Innovation and Skills, March 2013, [online] (accessed 25 September 2013)

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ICF/GHK, ‘Consumer rights and economic growth – Final Report’, 11 January 2013, [online] (accessed 25 September 2013)

The Law Commission also published a report, ‘Consumer Redress for Misleading and Aggressive Practices’, on 28 March 2012, [online] (accessed 13 March 2013)

Department for Business, Innovation and Skills, the Office of Fair Trading and Local Authority Trading Standards Services, 'Protecting Consumers – the system for enforcing consumer law’, Report by the Comptroller and Auditor General, National Audit Office, HC 1087 session 2010-2012, page 8, 15 June 2011, [online] (accessed 1 July 2013)

Department for Business Innovation and Skills (BIS), ‘Consolidation and Simplification of UK Consumer Law’, URN 10/1255, edited by Professor Geraint Howells and Professor Christian Twigg-Flesner, November 2010, [online] (accessed 19 March 2013)

‘Consumer Rights in Digital Products – A research report prepared for the UK Department for Business Innovation and Skills’, by Professor Robert Bradgate, Institute of Commercial Law Studies, University of Sheffield, September 2010, [online] (accessed 19 March 2013)

The Law Commission and The Scottish Law Commission, ‘Consumer remedies for faulty goods’, (Law Com No. 317( (Scot Law Com No.216), CM 7725, November 2009, [online] (accessed 17 July 2013)

Benchmarking the performance of the UK framework supporting consumer empowerment through comparison against relevant international comparator countries’, a report prepared for BERR by the ESRC Centre for Competition Policy, University of East Anglia, August 2008 (revised December 2008), [online] (accessed 17 July 2013)

Department for Business Enterprise and Regulatory Reform (BERR), Consumer Law Review 2008, quoted at paragraph 4.8 of ‘Enhancing Consumer Confidence by clarifying consumer law – consultation on the supply of goods, services and digital content’, URN 12/937, July 2012, [online] (accessed 19 March 2013)

HM Treasury, Davidson Review – Final Report, November 2006, paragraph

The Law Commission and The Scottish Law Commission, ‘Unfair Terms in Contracts’, (Law Com No.292) and (Scot Law Com No.199), February 2005, [online] (accessed 21 August 2013)