Conclusions and recommendations
In the report conclusions are shown in bold,
recommendations are shown in bold italics. In this
list, recommendations are shown in italics.
Consumer Rights Directive
1. We agree with the
Government that the Consumer Rights Directive does not address
quality rights in relation to digital content, and we broadly
support the Government's proposals in this area. In our consideration
of the draft Bill, we have been mindful of the need to avoid gold
plating of EU legislation. (Paragraph 22)
Alternative Dispute Resolution Directive
2. 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. (Paragraph 32)
Definition of a "consumer"
3. We conclude that
the advantages of a simplified, clear and consistent definition
of "consumer" justify the definition used in the draft
Bill. However, we are mindful of the issues that small and micro
businesses experience in relation to their bargaining power.
(Paragraph 41)
4. We recommend
that the Government considers the case for small businesses to
be treated as consumers. (Paragraph 42)
5. We further recommend
that the Government provides a substantive response to the research
commissioned by the Federation of Small Businesses on small businesses
as consumers. (Paragraph 43)
The early right to reject—clauses 19, 20
and 21
6. We recognise that
there are circumstances in which it would be appropriate to extend
the 30 day time limit for the early right to reject goods, for
example where it is reasonably foreseeable that a longer period
would be needed to inspect the goods and to try them out in practice.
We are not persuaded that the draft Bill would adequately protect
consumers in such circumstances. (Paragraph 53)
7. We recommend
that the Government reconsider an exception to the time limit
for the early right to reject where it is reasonably foreseeable
that the consumer would need a longer period to inspect the goods
and to try them out in practice. (Paragraph
54)
Tier 1 remedies—repairs and replacements—clause
23
8. We are satisfied
that the draft Bill protects consumers from being trapped in a
failed cycle of repairs or replacements through its fixed limit,
which addresses the main concern of consumer representatives and
the Law Commissions. On balance, we were not persuaded that a
fixed time limit for repairs to be made would be workable or desirable
because of the huge range of products and circumstances covered
by this regime. (Paragraph 59)
9. We conclude that
the consumer should only have to accept one repair or replacement
attempt before being able to move to Tier 2 remedies, since this
would address the key consumer concern of being trapped in a cycle
of failed repairs and replacements. (Paragraph 60)
Methodology for calculating deduction for use
10. We conclude that
neither the policy behind nor the drafting of the draft Bill's
provisions on deduction for use is clear. We do not believe that
the exception to the rule that there may not be deduction for
use in the first six months is workable. Although the Government's
evidence base and policy examples appear to rely exclusively on
the motor industry, a second hand value and an active second hand
value can be proven for almost any good. Therefore, there is a
risk that deductions for use within six months will be routine
and that consumers will be far less likely to receive full refunds.
(Paragraph 76)
11. As currently drafted,
the proposals risk introducing unintended consequences. In particular,
they risk establishing the second hand value of the goods as a
standard, rather than a minimum, for the refund made to the consumer.
Basing any deduction for use on retail value, when it is highly
unlikely that the consumer would have intended to sell at that
point, places an undue burden on consumers. (Paragraph 77)
12. We recommend
that clause 24(5) (which relates to the "deduction for use"
that may be made if the consumer exercises the final right to
reject) should be removed, in line with the recommendation of
the Law Commissions. (Paragraph 78)
13. Should the
Government retain "deduction for use", we recommend
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. (Paragraph 79)
A bespoke regime for digital content
14. We support
the proposals to apply satisfactory quality rights to digital
content. However, the evidence we received indicates that the
Government has failed to communicate clearly its intention to
create a bespoke set of rights and remedies for digital content.
As a result, the industry remains confused about the intended
flexibility of the proposed digital content regime. The Government
will need to address this as a priority if it is to convince the
industry of the merits of its proposals.
(Paragraph 87)
Digital content to be of satisfactory quality—clause
36
15. We believe that
the Government's intention as to whether "freedom from minor
defects" would be applicable depends on the complexity of
the digital content. Stakeholders displayed very low awareness
of the flexible nature of the quality standard, and did not appear
to be aware that it would be qualified by "reasonableness".
We conclude that to date the Government has not adequately communicated
the intended flexibility of the quality standard applicable to
digital content. (Paragraph 93)
16. We agree with
the Government that there are some circumstances in which a reasonable
consumer might expect digital content to be free from minor defects.
However, we do not believe that the draft Bill achieves adequate
clarity on when this quality aspect will be relevant. (Paragraph
94)
17. We recommend
that the Government expressly state in the Explanatory Notes to
clause 36 ('digital content to be of satisfactory quality') that
the application of the quality aspect "freedom from minor
defects" to digital content will depend on reasonable expectations
of quality. (Paragraph 95)
Digital content to be as described and rights
to modify digital content—clauses 28 and 42
18. We conclude that
if clause 38 ('digital content to be as described') is implemented
as it stands, there is a risk that traders and manufacturers of
digital content will cease to provide trial versions that have
only limited functionality. (Paragraph 99)
19. We therefore
recommend that the Government thoroughly examines market practice
in this area to assess the impact of clause 38 ('digital content
to be as described') on consumers and businesses.
(Paragraph 100)
Time when, and period for which, digital content
is provided—clause 41
20. The Government's
2012 consultation and final impact assessment explained the proposal
to apply quality rights to digital content after the performance
of surrounding services using the terms "related" and
"enabling" services. We believe that those concepts
do not cover the range of services that surround digital content.
(Paragraph 107)
21. Furthermore, the
draft Bill does not use or define the terms "related"
and "enabling" services, although it would draw a distinction
between those categories. We conclude that the scope of the services
that the Government intends to be subject to an outcomes-based
liability standard is unclear and uncertain, and therefore that
clause 41, as it stands, would be unworkable in practice. (Paragraph
108)
22. We recommend
that the Government should include in clause 41 clear definitions
of the services which will be subject to an outcomes-based liability
standard. Furthermore, it should be explicit in how these will
be applied to "related" and "enabling" services,
and to other services that surround interactive digital content.
(Paragraph 109)
23. We believe a technical
and legal distinction may be drawn between the application of
an outcomes-based liability test (that is, the application of
satisfactory quality rights) to digital content after the performance
of "related services", and the application of that standard
to the "related services" themselves. Given the different
rights and remedies that apply to fault-based and outcomes-based
liability standards, we conclude that clause 41 would be likely
to increase uncertainty and confusion for traders and consumers.
(Paragraph 112)
24. We recommend
that the Government clarifies the liability standard that is intended
to apply to "related services" under the draft Bill.
(Paragraph 113)
25. The Government's
impact assessment does not specifically address the potential
cost to businesses of applying a satisfactory quality standard
to related services. Under the proposals, a trader may be liable
if a problem with services supplied by another supplier under
the trader's control results in the digital content being substandard.
We conclude that it is foreseeable that this reform may impact
on business to business contracts, which may affect pricing and
availability of digital content and services, which ultimately
affects consumers as well as businesses. (Paragraph 115)
26. We recommend
that a full cost benefit analysis should be undertaken of the
proposal to apply an outcomes-based liability standard to the
services surrounding digital content described in clause 41.
(Paragraph 116)
27. Therefore, we
believe that the requirement for digital content to be available
for a "reasonable period of time" would not override
express limitations in the contract. However, under the Unfair
Terms provisions, any such term may be assessable for fairness.
(Paragraph 118)
28. We recommend
that the Government clarifies how clause 41(3) (a) ('time when,
and period for which, digital content is provided') is intended
to operate. (Paragraph 119)
Statutory remedies
29. The Government
proposes to provide a right to a refund if the trader did not
have the right to provide the digital content (whether tangible
or intangible). There is no requirement on the consumer to return
or delete the digital content, which is justified by the Government
on the basis that "existing legislation adequately protects
IP rights." However, consumers who have brought faulty intangible
digital content will not have a right to reject, a decision that
the Government justifies on the basis of potential threat to IP
rights and copyright. We conclude that this is a clear inconsistency
in the draft Bill. (Paragraph 128)
30. To remedy the
existing inconsistency in the draft Bill, there should be a short-term
right to reject and a final right to reject in relation to intangible
digital content. We recommend that the draft Bill states that
there is an obligation on the consumer to delete the relevant
intangible digital content. This would achieve consistency in
the Bill which would be valuable for both consumers and businesses.
(Paragraph 129)
31. We do not consider
that the case has been made to justify the Government's proposal
to introduce varying remedies for tangible and intangible digital
content, and to have inconsistent remedies for intangible content
dependent on which statutory right has been breached. If the Government
is to proceed with this approach it must set out in detail the
evidence base for its proposals alongside legal advice on the
risk to intellectual property rights.
(Paragraph 130)
Compensation for damage to device or to other
digital content—clause 48
32. The Government
must clarify whether or not a claim can include any device damaged
by such content. This is not clear in the Explanatory Notes relating
to clause 48 of the draft Bill. (Paragraph
136)
Cost to business: familiarisation costs and legal
advice costs
33. We believe that
the complexity of the proposed digital content regime, especially
in the inconsistency between the rights and remedies that the
draft Bill would apply to tangible and intangible digital content,
is likely to give rise to uncertainty amongst businesses, consumers,
and their advisers. The Government's estimate that business staff
would need only 10-20 minutes of familiarisation training in these
reforms is not convincing. (Paragraph 140)
34. We recommend
that the Government clarify the proposals in relation to digital
content to ensure that the familiarisation costs and legal costs
incurred by businesses in respect of the draft Bill, are in line
with the Government's estimates. (Paragraph
141)
Service to be performed with reasonable care and
skill—clause 51
35. We believe that
the potential benefits of adopting an additional outcomes-based
liability standard for services are significant for businesses
and consumers. One of the risks of creating a statutory right
that services must be provided with reasonable care and skill
is that this is seen by traders and consumers as a standard to
meet to ensure compliance, rather than as a statutory minimum.
We have considered the circumstances in which the courts have
been willing to imply outcomes-based terms into services contracts,
and we are not persuaded that the Government has done enough to
assess the potential risk that standards of service provision
will be subject to downward pressure by the introduction of the
statutory guarantee. (Paragraph 162)
36. In conclusion,
we do not believe that the Government has given due consideration
to adoption of an outcomes-based liability standard for services.
Specifically, the Government has not addressed the options and
recommendations on this issue set out in the 2010 report it commissioned
on reform of consumer law. There is a lack of detailed analysis
in the Government Response to consultations and in the impact
assessment on this issue. Consequently, the evidence we received
shows very low awareness amongst stakeholders of the flexible
nature of outcomes-based liability standards. (Paragraph 163)
37. The proposals
in the draft Bill to apply such an outcomes-based standard to
related services surrounding digital content strengthens the argument
for the Government to look again at the liability standard it
is proposing for services. We believe the draft Bill risks creation
of a statutory two tiered approach to services liability. This
risks widening the existing gap between consumer expectations
and consumer protection in relation to services, and exacerbating
uncertainty and confusion for consumers and businesses. (Paragraph
164)
38. We recommend
that the draft Bill should apply an additional outcomes-based
liability standard to services that requires service provision
to achieve the stated result, or one which could reasonably be
expected, as well as to any product resulting from the service.
This would simplify and align UK consumer law, and increase certainty
and confidence among consumers and businesses.
(Paragraph 165)
Right to repeat performance (clause 57) and right
to price reduction (clause 58)
39. The Government
has identified a risk that businesses that currently may offer
a full refund would be incentivised to switch to the proposed
statutory remedies which offer less protection for the consumer.
We note that for services, as with goods, there was similar evidence
of consumers bring trapped in a failed cycle of repairs or replacement
services. We conclude that, if implemented without acceptance
of our recommendations, clause 57 ('right to repeat performance')
and clause 58 ('right to price reduction') could result in increased
consumer detriment. (Paragraph 170)
40. We recommend
that where there is to be a price reduction (clause 58), this
should be calculated based on the value received by the consumer
under the contract, not the costs incurred by the trader. This
means that any price reduction should not be linked solely to
the element of the contract that has not been performed with reasonable
skill and care, as that will not provide appropriate redress to
the consumer. (Paragraph 171)
41. We recommend
that the Bill should clarify that in appropriate circumstances
a price reduction could be as much as a full refund, in particular
where the consumer has obtained no benefit or no substantial or
meaningful benefit under a contract for services.
(Paragraph 172)
Exemption for subject matter and price
42. We conclude that
the draft Bill must make it absolutely clear that incidental or
ancillary payments do not form part of the exemption, and are
therefore assessable for fairness. Furthermore, we conclude that
the "prominence" requirement in clause 67(2) is uncertain
and would be difficult to apply in practice. (Paragraph 184)
43. We recommend
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. 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. (Paragraph 185)
44. The definition
of "average consumer" for Part 2 (Unfair Terms) of the
draft Bill is a relatively high standard. "Prominence"
is defined in the draft Bill by reference to the awareness of
an "average consumer". As such, we recommend that clause
67(4) should be amended to provide that for a term to be "prominent",
it should be "brought to the consumer's attention in such
as way that an average consumer would be aware of the term and
would appreciate its significance".
(Paragraph 186)
45. We have seen robust
evidence in the Bank of Ireland case that consumer detriment arises
if the right to terminate the contract does not offer the consumer
the genuine ability to avoid the adverse impact of the change.
(Paragraph 193)
46. We therefore
recommend that the following term is added to the grey list (Schedule
2 Part 1):
A term (including those within the scope of paragraph
22 of Schedule 2 Part 1) 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.
(Paragraph 194)
47. We recommend
paragraph 25 of Schedule 2 should be amended so that it only exempts
price variations to the extent those changes are caused by changes
to a financial market rate or index that the trader does not control.
(Paragraph 195)
48. We conclude that
there is a risk that clause 71 ('other requirements for contract
terms') might operate in practice to modify the fairness test.
As drafted, clause 71 confuses rather than clarifies the concept
of "prominence". (Paragraph 200)
49. We therefore
recommend that clause 71 ('other requirements for contract terms')
is struck out. (Paragraph 201)
Order making powers
50. We note that the
order making power in clause 66(3) would allow primary legislation
to be amended. We believe that any amendments to the grey list
or the existing list of limitations should be subject to an appropriate
level of scrutiny, to ensure adequate protection for both consumers
and businesses. (Paragraph 203)
51. We therefore
recommend that the affirmative procedure should apply to the order
making power in clause 66(3). (Paragraph
204)
Enforcer's Investigatory Powers
52. We conclude that
the safeguards in relation to powers of entry are more restrictive
in the draft Bill than corresponding terms in recent legislation,
and in the context of significant cuts to Trading Standards this
risks placing an undue burden on enforcers which could decrease
protection for consumers and compliant businesses. We believe
that providing the example of reasonable suspicion on the face
of the Bill qualifies the test for the exemption for notice which
introduces unnecessary and undesirable uncertainty. (Paragraph
215)
53. We recommend
that the relevant exemption to the requirement to give written
notice before exercising a power of entry without warrant should
be amended to "the officer reasonably considers that to give
notice in accordance with this paragraph would defeat the purpose
of the entry". (Paragraph 216)
Power to require the production of information
54. Given the difference
in views between the OFT and the Government, we look to the Government
to clarify the legal position. In particular the Government must
demonstrate that the proposed provision against self-incrimination
in relation to civil proceedings is lawful. Given the potential
burdens on enforcers as described by the OFT, the Government must
provide further detail on the provision against self-incrimination
in consumer law. (Paragraph 218)
55. We are not persuaded
that the Government has adequate evidence that the downgrading
of the offence of obstructing an officer is in the interests of
consumers or businesses. The Government has stated that there
is approximately one such offence per annum. Therefore, this cannot
be said to impose a burden on businesses, while it does offer
consumer protection. Downgrading the offence would potentially
reduce the deterrent effect that the current maximum fine could
reasonably be expected to produce. (Paragraph 221)
56. We therefore
recommend the offence of obstruction of an officer in the generic
set of powers proposed under the draft Bill is maintained at its
current level. (Paragraph 222)
Enhanced consumer measures
57. The enhanced consumer
measures, which would be available throughout the UK, have been
proposed by the Government in response to an identified gap in
the remedies available to consumers who have suffered as a result
of infringement of consumer law. We heard convincing evidence
to suggest that the enhanced consumer measures may not address
consumer detriment because in practice they are unlikely to be
widely used by public enforcers. (Paragraph 245)
58. We recommend
that the enhanced consumer measures are extended to private enforcers,
subject to appropriate safeguards, to increase the likelihood
of their use, which in turn would benefit consumers and compliant
businesses. (Paragraph 246)
Fast-track cases (Paragraph 19(3) Schedule 7 of
the draft Bill/proposed new section 14(1A) Enterprise Act 2002
59. We conclude that
while in relation to some fast track cases it may be appropriate
for the Competition Appeal Tribunal to consist of a chairman only,
that will not be the case for all such proceedings. (Paragraph
259)
60. We recommend
that proposed new Section 14(1A) Enterprise Act 2002 (which would
be amended by paragraph 19(3) Schedule 7 of the draft Bill) should
be amended to provide that in relation to fast track claims "the
Tribunal may consist of a chairman only".
(Paragraph 260)
Limitation periods
61. We conclude that
it is not clear what limitation period would apply to competition
law claims arising before the commencement of the relevant provisions
in the draft Bill. This risks creating uncertainty for the courts,
claimants and defendants, and consequently raises the risk of
litigation. (Paragraph 262)
62. We recommend
that the Government clarifies the limitation periods that will
apply to stand-alone and follow-on claims, as well as in relation
to collective proceedings. Furthermore, the Government should
explain the rationale for its proposal for new Sections 47A Competition
Act 1998 (allowing stand-alone claims to be brought in the Tribunal)
and 47B Competition Act 1998 (allowing collective proceedings
to be brought in the Tribunal) to have retrospective effect.
(Paragraph 265)
Competition Appeal Tribunal Rules of Procedure
(hereafter, the "Tribunal Rules")
63. We conclude that
the CAT's Tribunal Rules will have a key role in setting out how
the intended reforms to the CAT's jurisdiction and power will
work in practice, and will be vital to their effectiveness and
clarity. (Paragraph 266)
64. We recommend
that the CAT should publish draft revised Tribunal Rules before
the Bill is introduced to Parliament.
(Paragraph 269)
65. The draft Bill
would extend the Secretary of State's order making powers in relation
to the making of Tribunal Rules. Given the importance of the Tribunal
Rules to the operation of the proposed collective redress regime,
we recommend that the affirmative rather than the negative resolution
procedure should apply, to ensure an appropriate level of scrutiny.
(Paragraph 268)
Proposed collective proceedings regime (Paragraph
5 Schedule 7 of the draft Bill/proposed new Section 47B Competition
Act 1998)
66. We support the
proposals on collective proceedings in the draft Bill. However,
we are concerned about the proposed process for certifying collective
proceedings. The draft Bill provides that in order to be eligible
for inclusion in collective proceedings, claims must raise the
same, similar or related issues of fact or law. We have seen evidence
to suggest that the uncertainty of this requirement could lead
to proceedings in the CAT being tied up in procedural litigation,
which would undermine the efficient operation of the proposed
collective proceedings regime. We consider that entirely removing
this eligibility requirement from the draft Bill would risk compromising
the transparency of the certification process. However, we believe
that the proposed eligibility requirement should be amended to
avoid unintended consequences. (Paragraph 276)
67. We recommend
that the Government clarifies the eligibility requirement that
cases raise the same, similar or related issues of fact or law.
The draft Bill should be amended to clarify that "all end
consumers of a product, where the price of 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". We
consider acceptance of this recommendation to be crucial to the
ensuring the effectiveness of, and preventing abuse of, the new
collective actions regime. (Paragraph
279)
Proposed safeguards to the collective proceedings
regime
68. The Government
has said that collective proceedings should not be brought by
law firms, third party funders or special purpose vehicles. Under
the draft Bill, any non-class member can be appointed as the representative
in the collective proceedings provided that the Tribunal considers
it "just and reasonable" for that person to act as a
representative. We conclude that this safeguard should be strengthened
to reflect the Government's stated intention to restrict representation
in collective actions to claimants or to genuinely representative
bodies. (Paragraph 280)
69. We recommend
that revised Tribunal Rules should clarify that collective proceedings
cannot be brought by law firms, third party funders or special
purpose vehicles. (Paragraph 281)
70. The draft Bill
would allow any class member to be appointed as a representative.
We conclude that it is foreseeable that there may be circumstances
where a claimant, though a class member, would not be an appropriate
representative in collective proceedings. (Paragraph 282)
71. We recommend
that 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. (Paragraph 283)
72. We heard concerns
from some stakeholders that opt-out collective actions would risk
creation of a US style litigation culture. However, subject to
the Government's acceptance of the relevant recommendations of
this Report, we consider that the safeguards in the Bill are robust,
appropriate and proportionate. (Paragraph 285)
Proposed collective settlements regime (Paragraphs
10 and 11 Schedule 7 of the draft Bill/proposed new Sections 49A
and 49B of the Competition Act 1998)
73. On the basis of
the evidence we have seen, we conclude that there is a risk that
representatives will not be in a position to assess if a settlement
offer is reasonable, but in order to avoid risk in relation to
costs, may be incentivised to accept an offer that may not give
satisfactory recompense to those who have suffered loss. (Paragraph
290)
74. We recommend
that proposed new Sections 49A and 49B Competition Act 1998 (inserted
by Paragraphs 10(1) and 11(1) Schedule 7 of the draft Bill) should
be amended to provide that the party who makes a settlement offer
must demonstrate to the CAT that its terms are just and reasonable.
(Paragraph 291)
75. We recommend
that where the CAT is not satisfied that the terms of the settlement
are just and reasonable, the Tribunal Rules should specify that
the benefit of costs consequences does not attach to such offers.
(Paragraph 292)
Proposal 3: To provide for voluntary redress schemes
which are designed to encourage cases to be resolved outside of
court (using Alternative Dispute Resolution)
76. We agree that
the CMA should not be responsible for calculating compensation
offered under voluntary redress schemes. However, the draft Bill
would prohibit the CMA from taking into account the amount or
value of compensation offered under a voluntary redress scheme
when considering an application for certification. We believe
this is unduly restrictive and is likely to prevent the CMA giving
genuine consideration to whether the scheme should be approved.
(Paragraph 295)
77. We recommend
that the proposed new Section 49C(3) Competition Act 1998 (inserted
by Paragraph 12 Schedule 7 of the draft Bill) should clarify that
in deciding whether to approve a redress scheme, the CMA may not
calculate compensation offered under the scheme, but may take
into account the amount or value of compensation under the scheme.
(Paragraph 296)
78. The CMA must
monitor the impact on its resources of dealing with applications
for approval of voluntary redress schemes. The Government must
evaluate this data to establish whether resources are diverted
away from the CMA's core public enforcement role.
(Paragraph 299)
Educating consumers and business
79. We conclude that
lack of information about and understanding of consumer rights
is a key cause of disputes and consumer detriment. In respect
of improving consumer awareness and understanding of their legal
rights and obligations, we agree with Citizens Advice that there
is little point in requiring businesses to provide consumers with
a reminder of the existence of a legal guarantee of conformity.
(Paragraph 309)
80. We recommend
that the Government, in conjunction with Citizens Advice, the
Trading Standards Institute and the Competition and Markets Authority,
must set out a clear and detailed education strategy for both
businesses and consumers in relation to the draft Bill and its
wider reforms to consumer law in the UK.
(Paragraph 310)
81. We support
the recommendation of Citizens Advice for inclusion of an express
requirement, in clauses 10 and 38 (Goods and Digital Content to
be as described) and clause 52 of the draft Bill (Information
about the trader or service to be binding), for a trader to provide
information about the relevant core statutory rights at the point
of sale. (Paragraph 311)
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