Business, Innovation and SkillsWritten evidence submitted by BT

Introduction

1. BT welcomes the opportunity to provide written evidence to the inquiry.

2. BT is supportive of the Consumer Rights Bill as it brings greater certainty to businesses and consumers alike by codifying in one place consumers’ rights. The purpose of this submission is to set out areas where BT would like to see greater clarity.

Digital Content

3. BT agrees with the approach to digital content set out in the draft Bill. BT only seeks to make the following two points:

4. BT supports the remedies set out in section 44 of the Bill that consumers may rely upon where digital content fails to conform to the requirements set out in sections 36, 37 and 38. In particular, BT supports the decision not to give consumers the right to reject digital content as this remedy may be open to abuse from unscrupulous consumers who might illegally copy the content and either use it themselves or make it available for others to use without having paid for it. BT is supportive of the other remedies that have been drafted in and believes that this strikes a fair balance between businesses and consumers.

5. BT seeks greater clarity as to what is intended by section 37 (6) of the Bill which reads “A contract to provide digital content may be treated as making provision about the quality of the digital content as a matter of custom.” Is there any intention to provide greater clarity on the point as it is unclear what exactly is meant by custom in this context?

Services

6. BT is broadly supportive of the principle set out in the Bill in Article 51(1) which states: “the trader must perform the service with reasonable care and skill.” BT sees this as an extension and strengthening of the law as it previously stood with the corresponding provision in the 1982 supply of service Act which read “there is an implied term that the supplier will carry out the service with reasonable care and skill.” We support the new Bill in so far as it makes this principle more explicit.

7. However, there are two areas within the Bill that give some cause for concern. Firstly Article 52 that all traders representations are to be included at terms of the contract and secondly Article 55 which sets out the relationship of the Act when it is passed to other enactments.

Trader’s Representations Included as Terms of Contract

8. Article 52 of the proposed Bill states that anything the trader says about the service or themselves, and which is relied upon by the consumer is to be “treated as including as a term of the contract (whether or not it does so expressly) anything that (a) is spoken or written to the consumer.” Notwithstanding the caveat Article 52 (3) this formulation will inevitably give rise to a lack of certainty and numerous factual disputes as to what a trader did or did not say and what a consumer did or did not take into account when buying the service. Although the underlying principle is laudable, that the trader be bound by his own representations about the service he is providing, the implementation in the way described may create more uncertainty for the consumer, not less. We believe it would be more effective to limit the implementation of the principle described in Article 52 to those explicit representations made by the trader about the service, ideally in writing, to limit the potential for confusion over what was or was not said or taken into account? This approach would be more effective in creating the certainty for consumers and businesses.

Without Prejudice to other Enactments.

9. The Bill as drafted in the provisions of Article 55 allows for detailed sectoral regulation to take precedence over the Bill where it specifically states: “This Chapter is subject to any other enactment which defines or restricts the rights, duties or liabilities arising in connection with a service of any description.” However, greater clarity is needed as to what is meant by “enactment”. Much detailed sectoral regulation is issued by National Regulatory Authorities (NRAs) such as Ofcom or Ofgem for example, using statutory powers to discharge their statutory duties. Often NRAs are giving effect to underlying EU Directives which have been given legal effect by statutory instrument. Occasionally NRAs will also give guidance on Regulations which have direct effect.

10. To ensure that the proposed Bill, once enacted, is not interpreted to mean that guidance issued by NRAs using statutory powers is to be viewed as subordinate to the Bill we suggest that greater clarity is given to the word “enactment”. And also that any definition should include within it the statement “……and any guidance issued by an [NRA] under statute to discharge their statutory duties.”

11. While we acknowledge that Article 55 repeats the position already set out in the 1982 Supply of Services Act, we anticipate that when this Bill becomes law all these areas will be open to contestation as service contracts inevitably become the subject of renewed litigation to test the Act in the courts. We have no fear of such litigation but would seek clarity on the relationship of other enactments, for the reasons set out above, to make sure that businesses and consumers alike have certainty over which legal regime may apply to the relevant contract. It would create uncertainty for businesses to be found liable under the Consumer Rights Act in relation to service provision when they have in practice more than discharged the obligations imposed upon them by “guidance” issued to them by their sectoral regulator, be it Ofcom, Ofgem, Ofwat, the FCA, etc.

Outcome Based liability Standard

12. During the consultation period on the Bill there has been much discussion about the possibility of introducing a supply of goods type regime to services whereby services would have to be of “satisfactory quality.” While this, on the face of it, does not appear to be unreasonable, there is inevitably a difficulty with any new outcome based liability standard with a subjective element. If introduced any such new standard could lead to a situation where providers of services could be deemed to be liable to their customers in contract even if they have supplied the service with reasonable care and skill. Any attempt to argue that the problem is solved by using the reasonable man test to determine liability, runs into enormous potential difficulty given the uncertainty it would introduce for service providers.

13. The point can be illustrated by reference to the following trite example. A driving instructor says, by way of reassurance to his/her pupil, that they will definitely pass their driving test if they take 20 lessons. The pupil subsequently fails the driving test and sues the instructor for not providing a service of satisfactory quality. Should the instructor’s liability then be subject to a reasonable-man test? The example is relevant because it illustrates how the problem may arise in the context of many service contracts, especially where any statement made by the trader can then be included as a term of the contract. It would be unreasonable to subject driving instructor in this example to the reasonable-man test if she/he can readily show that they have provided the service with reasonable care and skill. If they can establish reasonable care and skill it would be improper for them to be held liable for the failure of their pupil.

14. In a different context, could a broadband service provider be said to not have provided service of satisfactory quality due to the user experience in the home? So, for example, it is quite usual now to have BB speeds of 7mbs as standard if you live close enough to an exchange. But with a 7mbs connection you won’t be able to have two teenage children engaged in separate interactive online games whilst the parents are streaming a video on demand in HD or 3D. Should this service scenario be subject to the reasonable-man test when existing detailed sectoral regulation provides much greater clarity along with the terms set out in the service contract?

15. We believe a better outcome can be achieved by maintaining the reasonable care and skill standard which would provide for greater certainty for service providers. If the subjective outcome based liability standard is introduced it could lead to service providers reigning back on the services that they provide in order to avoid facing potentially ruinous litigation claims, despite having exercised reasonable care and skill.

Unfair Contract Terms

16. Article 67 of the Bill goes much further than the underlying Directive in setting out the principle that “excludes a term from an assessment [for fairness] under section 65(1) only if it is transparent and prominent”. The requirement for a term to be “prominent” (as well as transparent and forming the subject matter of the contract) for it not to be assessed for fairness is a new requirement and one that is potentially onerous for businesses to comply with.

17. No guidance is given on what is meant by prominent. To ensure that all material terms of a contract for service, which form the core terms of the contract, fall within the exemption proposed means that businesses will have to re-write standard terms in line with prominence requirements. But as it is proposed that a trader be bound by all representations he may make in relation to a service it will be difficult for a trader to know which terms should be made more prominent than others. The prominence requirement places a greater burden on businesses and requires less action on behalf of consumers. Where the requirement was just for transparency then consumers were under an obligation to read and understand the terms upon which services have been provided. But where there are additional requirements around prominence such that “if it is brought to the consumers attention in such a way that an average consumer would be aware of the term” it becomes very unclear as to what terms need to be included in the context of service contracts which will have within them many material terms.

18. Greater clarity is needed on how to discharge the prominence requirement in the context of service contracts that are by necessity long and complex and are already written in such a way that a consumer can understand them.

Private Actions in Competition Law

Opt-out damages

19. The proposal to introduce opt-out claims is at odds with action at an EU level. In particular, the European Commission recently published a Recommendation1 which sets out a framework for bringing claims based on “opt-in” principles. Limiting redress to claims brought on an opt-in basis is designed “to avoid the development of an abusive litigation culture in mass harm situations.” The Recommendation provides that: “Any exception to [the opt-in] principle, by law or by court order, should be duly justified by reasons of sound administration of justice.”

20. By contrast, the draft Bill raises the spectre of encouraging a costly litigation culture in the UK, thereby harming business investment and growth.

Unclaimed funds

21. The draft Bill proposes that any funds remaining unclaimed in an opt-out damages “pot”, which US experience shows may often be in excess of 50%, will not revert to the defendant (or be distributed on a cy-près basis as in the US). Instead, these funds will be paid either (i) to such person as the Tribunal thinks fit (47C(3)(a)), or (ii) where sums have not been claimed by represented persons, to charity (47C(5)). The damages payable by defendants will therefore be based on the losses of the whole class, not only those who have come forward to claim. This raises the prospect of companies being faced with large potential liability in circumstances where only a small proportion of any payments are made to those directly affected by the alleged anti-competitive conduct. Rather than seek to impose an additional punitive element, BT considers that any unpaid sums should revert to the defendant.

Businesses as claimants

22. The case for allowing standalone collective actions for businesses is much weaker than it is for consumers. One of the objectives of a collective action is to enable the recovery of damages where it might otherwise not occur, due to the relatively small sums involved. This would be the case, for example, where end consumers have purchased a small number of goods and their losses would not warrant the effort of seeking individual redress. By contrast, a business will likely have purchased large quantities of the particular product at issue. It already has sufficient incentive to seek redress where its loss can be demonstrated. The proposed reforms designed to encourage individual actions by SMEs and fast-track procedures already seek to level the playing field between large and small enterprises in this regard. There is a strong case, therefore, for limiting the scope of standalone collective actions to consumers only.

Passing on defence

23. It is not clear whether the Consumer Rights Bill would enable collective proceedings to be brought containing members with differing interests (such as direct and indirect purchasers). The proposed section 47B(6) refers to claims that raise “the same, similar or related issues of fact or law.”

Representatives

24. In terms of the bodies that should be allowed to bring collective actions, the Government should be careful not to skew incentives too far in favour of litigation by allowing private bodies with vested interests to seek to pursue such actions. A strong certification stage before the CAT, where it would be incumbent on the representative body to demonstrate a sufficient link to the pool of potential claimants, could avoid the risk of frivolous or speculative litigation. At present, the draft version of section 47B(8) provides that the Tribunal may authorise a person if it is “just and reasonable” for that person to act as a representative.

25. The European Commission’s Recommendation provides that Member States should designate representatives on the basis of clearly defined conditions of eligibility, which should include the following conditions: non-profit making character, and a direct relationship between the main objectives of the entity and the alleged breach.

26. Another method of ensuring a certain standard of representative and to avoid any abuse would be to recognise a clear list of representative bodies through secondary legislation. To date, only Which? has been specified as a body entitled to bring collective actions under section 47B. This can be contrasted to the list of super-complainants designated under section 11 of the Enterprise Act 2002, which includes bodies such as CAMRA, The National Association of Citizens Advice Bureaux and The National Consumer Council.

Confidential information

27. Collective actions on behalf of businesses risk acting as vehicles for inappropriate sharing of sensitive information, thus fostering potential breaches of competition laws and running counter to the expressed objective of the proposed reforms. They also run the risk of developing into “fishing expeditions”, whereby competitors join forces in order to seek to gain access to confidential information of a putatively dominant company in a particular market.

Collective settlements

28. In principle, BT sees merit in the OFT being given a discretion to seek compensation for victims of anti-competitive behaviour, either as part of its public enforcement role or separately. Conducted effectively, such a procedure could bring certainty to all parties involved far quicker than would be the case if separate public and private enforcement were to be pursued. However, any such reform would need to be carefully considered in order to ensure that such efforts do not unduly delay or interfere with the OFT’s public enforcement of competition laws. Finally, BT considers that where compensation takes place in parallel with public enforcement, any fine levied by the OFT under the Competition Act 1998 should be reduced in recognition of the cooperation offered by the company under investigation. Such a reduction would fall within the mitigating factors already applied by the OFT when assessing the amount of any penalty2 and should merit a material reduction.

David Pincott
Head of Political Research, Policy and Briefing
BT Group plc

15 August 2013