BRIEFING CONSUMER RIGHTS ACT 2015: COMPLIANCE GUIDE FOR BUSINESSES DEALING WITH CONSUMERS SEPTEMBER 2015 THE CONSUMER RIGHTS ACT 2015 WILL TAKE EFFECT FROM 1ST OCTOBER. THIS BRIEFING OFFERS A COMPLIANCE GUIDE FOR BUSINESSES DEALING WITH CONSUMERS. INTRODUCTION IF YOU SUPPLY GOODS, SERVICES OR DIGITAL CONTENT TO CONSUMERS IN THE UK, THE TERMS OF YOUR CONTRACTS ARE MUCH MORE HEAVILY REGULATED THAN THOSE FOR SALES TO BUSINESSES. If you supply goods, services or digital content to consumers in the UK, the terms of your contracts are much more heavily regulated than those for sales to businesses. This has long been true, but contracts entered into with consumers from 1st October 2015 will face still tighter regulation because, on that day, the Consumer Rights Act 2015 (the Act ) takes effect. The Act is just one part of how consumer contracts are regulated. For example, EU rules on unfair trading and distance selling in the Consumer Rights Directive 2011/83/EC as implemented in each EU Member State must also be complied with. This note does not describe these EU rules specifically but you should note that they form part of the consumer regulatory regime with which you may need to comply. What you should do now Now is an opportune time to review the terms and conditions of your consumer contracts because; (a) a regular review allows the business to take into account issues that have arisen under the contract, including customer complaints, and developments in products and services; and (b) failure to update the terms to take account of the Act can expose you to the risk of contracts being unenforceable, or perhaps worse, the risk of enforcement action both public enforcement by regulators such as the Competition and Markets Authority (the CMA ) and private enforcement in the courts.
2 Watson Farley & Williams Be aware also that the Act introduces new statutory remedies for consumers including repeat performance (for service contracts) or price reduction (for goods and services). NOW IS A GOOD TIME TO REVIEW THE OPERATION AND EFFECTIVENESS OF YOUR COMPETITION LAW COMPLIANCE PROGRAMME. Now is also a good time to review the operation and effectiveness of your competition law compliance programme, and to schedule updated training for relevant staff within your business, especially if there have been several joiners and leavers since this training was last conducted. The Act does not change the fundamental elements of competition law (e.g. regarding anti-competitive agreements such as price-fixing cartels, resale price maintenance or the exchange of commercially confidential information) but it does significantly expand the means by which consumers can obtain compensation from businesses which have behaved anti-competitively, in three principal ways: 1. Opt-out representative actions: consumers who have purchased goods whose price has been inflated by anti-competitive behaviour will be part of the represented class automatically, unless they opt out; 2. Collective settlements: both business and the consumers can collectively settle an ongoing claim for damages; and 3. Voluntary Redress: businesses can seek to establish a scheme to pay a voluntary sum in compensation instead of having to defend or settle a damages claim. The rest of this note is a snapshot of some of the main questions you need to answer as you review your consumer contracts for compliance with the Act. THE ACT APPLIES TO ORAL AND WRITTEN CONTRACTS. UNDER THE ACT, A CONSUMER IS AN INDIVIDUAL ACTING FOR PURPOSES WHICH ARE WHOLLY OR MAINLY OUTSIDE THAT INDIVIDUAL S TRADE, BUSINESS, CRAFT OR PROFESSION. Do we contract with Consumers? The Act applies to oral and written contracts. Under the Act, a consumer is an individual acting for purposes which are wholly or mainly outside that individual s trade, business, craft or profession. This definition of consumer is consistent with the UK implementing regulations for the EU Consumer Rights Directive, however, this definition is wider than that in the Directive itself. On this basis the definition of consumer used in legislation in other EU Member States may not be consistent. Corporate entities entering into contracts outside their normal business will not be treated as consumers. What are we selling? The Act regulates contracts for goods, services and for the first time specifically digital content. Goods: any tangible moveable items, including water, gas and electricity in limited volume or set quantity. Goods do not include land, the supply of coins and notes for use as currency, mortgages or deeds. Services: all services other than employment or apprenticeship contracts and particular services such as advocacy services in court. Digital content: data which are produced and supplied in digital form.
Consumer Rights Act: Compliance Guide for Businesses Dealing with Consumers 3 WHERE THE CONTRACT INVOLVES A MIXED SUPPLY OF GOODS, SERVICES AND/OR DIGITAL CONTENT, THE RULES RELATING TO GOODS WILL APPLY TO GOODS, THOSE RELATING TO SERVICES WILL APPLY TO SERVICES AND THOSE RELATING TO DIGITAL CONTENT WILL APPLY TO DIGITAL CONTENT. Where the contract involves a mixed supply of goods, services and/or digital content, the rules relating to goods will apply to goods, those relating to services will apply to services and those relating to digital content will apply to digital content. Contracts for the supply of consumer transport services such as rail passenger services, carriage of goods or passengers by air, sea and inland waterway will not be regulated by the Act until 6 April 2016, allowing an extra six months for the businesses involved to make the necessary changes to comply. How and where are we selling? Different rules will apply relating to (a) delivery of the goods; (b) what information the supplier has to supply; (c) seeking of consent from the consumer for additional payments; and (d) premium rate help-lines depending on whether the consumer is purchasing on the supplier s premises, off the premises (e.g. on the customer s doorstep) or at a distance (e.g. by telephone, social media or online). For distance and off the premises contracts there are additional cancellation rights available for the consumer that will need to be considered. Are the terms sufficiently clear? The contract must be transparent, that is (if it is in writing): Expressed in plain and intelligible language; and Legible. AN UNFAIR TERM WILL NOT BE LEGALLY BINDING ON CONSUMERS, ALTHOUGH CONSUMERS MAY RELY ON IT IF THEY WISH. IT IS THEREFORE CRITICAL THAT YOUR CONTRACTS DO NOT CONTAIN UNFAIR TERMS. The term should make grammatical sense to the average consumer, and put the consumer in the position of being able to evaluate, on the basis of clear, intelligible criteria, the economic consequences which derive from that term. If your terms fail this transparency test, any ambiguity in them may be given the meaning most favourable to the consumer. You may also face regulatory enforcement action. Are the terms fair? An unfair term will not be legally binding on consumers, although consumers may rely on it if they wish. It is therefore critical that your contracts do not contain unfair terms. A term in your contract will be considered unfair if: It is contrary to the requirement of good faith; or It causes a significant imbalance in the parties rights and obligations under the contract to the detriment of the consumer. The good faith requirement comprises open and fair dealing.
4 Watson Farley & Williams Openness may require the following: The terms should be expressed fully, clearly and legibly, containing no concealed pitfalls or traps. Appropriate prominence should be given to terms which might operate disadvantageously to the consumer. IT IS IMPORTANT THAT TERMS IN CONSUMER CONTRACTS DO NOT CREATE A SIGNIFICANT IMBALANCE. Important terms, or terms disadvantageous to the consumer, should be drawn to their attention. Fair dealing is a more nebulous idea that involves correcting for the imbalance in negotiating power between the parties and for consumers unconscious behaviours (e.g. the tendency to attach less weight to events that are less immediate, such as termination or renewal fees). It is important that terms in consumer contracts do not create a significant imbalance. A contract will be balanced if, for example, the parties enjoy rights of equal extent and value in reality mere cosmetic equivalence will not be enough. A low price for a product will not remove or reduce the detrimental effect of an imbalance in the contract. Contract terms are excluded from the need for a fairness assessment if and to the extent they specify the main subject matter of the contract and the assessment is of the appropriateness of the price payable under the contract by comparison with the goods, digital content or services supplied under it. However, this core exemption will not apply to a term unless it is both transparent (plain and intelligible language and legible) and prominent (brought to the consumer s attention in such a way that an average consumer would be aware of it). Note that the average consumer is reasonably well-informed, observant and circumspect and it is an objective test. A BLACK-LISTED TERM DOES NOT BIND THE CONSUMER. THERE IS NO NEED TO CONSIDER THE FAIRNESS TEST IT IS AUTOMATICALLY UNENFORCEABLE. Do the contracts contain black-listed or grey-listed terms? A black-listed term does not bind the consumer. There is no need to consider the fairness test it is automatically unenforceable. Black-listed terms include those which: exclude or restrict liability for death or personal injury resulting from negligence except in certain types of contract; aim to relieve suppliers from their obligations under the Act to ensure their products are of satisfactory quality and that their services are provided with reasonable care; and where the contract is a licence agreement covering digital content, does not give the consumer the full legal right to use the digital content. A grey-listed term may or may not be enforceable this will depend on whether it meets the fairness test. Grey-listed terms include those which: seek to deny consumers full redress where things go wrong; tie consumers into a contract beyond the term they would normally expect; allow the trader to avoid performing its obligations; unfairly prevent consumers recovering prepayments on termination; allow the trader to arbitrarily vary the terms after they have been agreed (e.g. as regards, product, price or the available consumer rights);
Consumer Rights Act: Compliance Guide for Businesses Dealing with Consumers 5 allow the trader to determine the price or subject matter of the contract after the consumer is bound by it; or subject consumers to disproportionate financial sanctions. THE ACT EXTENDS THE TERMS WHICH WILL BE STATUTORILY IMPLIED INTO CONTRACTS, AND THERE ARE STRICT LIMITS ON EXCLUDING OR LIMITING LIABILITY UNDER THOSE TERMS. Which terms are automatically included in contracts? The Act extends the terms which will be statutorily implied into contracts, and there are strict limits on excluding or limiting liability under those terms. Statutory terms are treated as if they were written terms of the contract even if they are not explicitly stated. This means a breach of the statutory terms may allow not only for the stipulated statutory remedy, but may also give rise to a breach of contract by the supplier allowing the consumer the right to sue for damages, terminate the contract or apply other agreed contractual terms, such as contractually agreed liquidated damages. It is important to include these statutory terms explicitly and clearly within the contract. This is helpful for you and your customers and may help reduce ambiguity and customer dissatisfaction. For example, where there is no explicit time period for delivery included in the contract, there is a statutory requirement that goods be delivered without undue delay and in any event no later than 30 days after the contract is entered into. If this term is breached and (a) the supplier has refused to deliver the goods; (b) the time of delivery of the goods is factually essential to the contract; or (c) the consumer has informed the supplier prior to the entry into of the contract that the time of delivery of the goods is essential to the contract, then the consumer will have the right to terminate the contract. If none of (a) to (c) above apply, the consumer will be able to stipulate an appropriate time period for delivery of the goods and failing delivery within such time period, the consumer may be entitled to terminate the contract and claim for their loss. It is therefore wise to include an explicit time frame for delivery of the goods, especially if delivery cannot actually be performed within 30 days. Sales of goods contracts, hire purchase contracts and (except where stated) hire contracts: The table below sets out the terms automatically included in consumer contracts, the relevant reference in the Act, and the position on exclusion of liability. TERM Goods to be of satisfactory quality SECTION OF THE ACT CAN LIABILITY BE EXCLUDED BY AGREEMENT BETWEEN THE PARTIES? 9 No Goods to be fit for a particular purpose 10 No Goods to be as described 11 No Certain pre-contractual information regarding the 12 No
6 Watson Farley & Williams goods or the suppliers to be included as a term of the contract Goods to match a sample of the goods Goods to match a model seen/examined by the consumer Correct installation to be part of conformity of the goods with the contract Digital content supplied along with goods to conform to the terms of the contract The supplier confirms that they have the right to sell or hire out the goods free from encumbrances The supplier must deliver the goods to the consumer The supplier must deliver the goods to the consumer without undue delay and by no more than 30 days after the contract is entered into (N/A for hire contracts) Risk in the goods passes upon transfer of physical possession to the consumer or a person nominated by the consumer or a carrier on behalf of the consumer 13 No 14 No 15 No 16 No 17 No 28(2) No, but you can agree an alternate person to deliver the goods to 28 (3) No, but you can agree an alternate time frame for delivery 29 No
Consumer Rights Act: Compliance Guide for Businesses Dealing with Consumers 7 Services Contracts: TERM SECTION OF THE ACT CAN LIABILTY BE EXCLUDED BY AGREEMENT BETWEEN THE PARTIES Service to be performed with reasonable care and skill Pre-contractual information regarding the services or the supplier to be included as a term of the contract if it is taken into account by the consumer A reasonable price to be paid for the service if no fixed price or mechanism for determining a fixed price is stated Service to be performed within a reasonable time if the contract does not expressly fix a time for service 49 No 50 No, but liability may be limited by giving contemporaneous qualifications or by later agreement between the parties. 51 No, but liability of the supplier may be limited so long as it would not prevent the consumer from recovering value of the consideration paid for the service or availing themselves of any other statutory remedy 52 No, but liability of the supplier may be limited so long as it would not prevent the consumer from recovering value of the consideration paid for the service or availing themselves of any other statutory remedy Sources of further guidance The Consumer Rights Act 2015; see in particular Schedule 2 on unfair terms; CMA guidance on unfair contract terms; and CMA flowcharts on unfair contract terms. Please speak to the authors of this guide, or to your usual WFW contact, for further help.
8 Watson Farley & Williams FOR MORE INFORMATION Should you like to discuss any of the matters raised in this Briefing, please speak with a member of our team below or your regular contact at Watson Farley & Williams. JEREMY ROBINSON Partner, London +44 20 3036 9800 jrobinson@wfw.com JAN MELLMANN Partner, London +44 20 7814 8060 jmellman@wfw.com MARK TOOKE Partner, London +44 20 7814 8074 mtooke@wfw.com FELICITY JONES Partner, London +44 20 7863 8944 fjones@wfw.com Publication code number: 56901382v1 Watson Farley & Williams 2015 All references to Watson Farley & Williams, WFW and the firm in this document mean Watson Farley & Williams LLP and/or its Affiliated Entities. Any reference to a partner means a member of Watson Farley & Williams LLP, or a member or partner in an Affiliated Entity, or an employee or consultant with equivalent standing and qualification. The transactions and matters referred to in this document represent the experience of our lawyers. This publication is produced by Watson Farley & Williams. It provides a summary of the legal issues, but is not intended to give specific legal advice. The situation described may not apply to your circumstances. If you require advice or have questions or comments on its subject, please speak to your usual contact at Watson Farley & Williams. This publication constitutes attorney advertising. wfw.com