Business, Innovation and SkillsWritten evidence submitted by Centrica

Executive Summary

1. Centrica welcomes the opportunity to respond to the BIS Select Committee’s call for written evidence on the Consumer Rights Bill.

2. Centrica plc is a UK-based FTSE 30 company. Through its subsidiary British Gas, it is the leading energy and home service provider in the UK. It has 12 million residential customers, around 900,000 business accounts and employs around 30,000 people.

3. Centrica welcomes the Government’s proposals to consolidate and simplify consumer rights and believes that this Bill goes a long way to achieving this aim. We found the stakeholder sessions held by BIS to be extremely helpful both in gaining insight into BIS approach to the Bill and highlighting potential issues. We would welcome ongoing transparency as the Bill progresses through Parliament.

4. Our detailed views on the specific areas of the draft Bill where we have concerns are set out below. Our key views are as follows:

(a)The Government needs to ensure that the new proposals fit alongside existing sectoral regulation. There should be clear guidelines as to how sector regulation and the rights and remedies in the Bill interact so as not to cause confusion to customers, create conflicting obligations or place an additional burden on industries which are already regulated. In addition the Bill should make it clear that if consumer redress is available under sectoral regulation companies should not be obligated to compensate customers twice through consumer redress measures taken by another enforcement body (for example Trading Standards or the CAT).

(b)We recognise the difficult task that BIS has to draft horizontal provisions that will be suitable for all consumer facing industries. However we feel that the current drafting of some areas of the Bill would benefit from further clarity to make sure the practical application reflects BIS’s intentions and does not cause uncertainty or unintended consequences. We have highlighted below specific comments in relation to the drafting of sections related to goods, services and digital content.

(c)Centrica does not dispute that consumers who have suffered loss at the hands of UK business should be able to seek and get compensation for breaches of competition law. However we urge the Government to re-think its proposal for opt out collective actions for breaches of competition law.

5. This response is submitted on behalf of the Centrica group of companies and may be placed on the Select Committee website.

Effect of New Consumer Rights on Regulated Sectors

6. BIS needs to be clearer on the interaction between consumer rights under this Bill and consumer rights that already exist in regulated sectors. We consider that the current approach has the potential to cause uncertainty—particularly in the area of consumer redress where, for example the financial services sector is already, and the energy sector will shortly be (under the Energy Bill currently progressing through Parliament) subject to sector consumer redress schemes. Guidance is needed to ensure consistency of approach across regulators and a clear hierarchy of enforcement to ensure, for example, that where a sector regulator is taking action, a regulated industry will not also become subject to action from Trading Standards under the Bill.

7. We welcome the Government’s recognition that the rights and remedies for services it introduces in the Bill (see Clause 55) should be subject to other enactments, such as sectoral regulation. However we do consider that further guidance should be given on the practical application of this, particularly where remedies gives through sector redress schemes (whether regulated or voluntary) may not necessarily supercede the proposed remedies under the Bill. Our view is that where a sector specific redress scheme is in place the statutory remedies under the Bill should not apply.

Treatment of Contracts for the Supply of Gas and Electricity

8. Centrica agrees with BIS’ approach to use a similar definition of “Goods” to that used in the Consumer Rights Directive (2011/83/EU) and to clarify in the Bill that the definition of Goods only includes the supply of water, gas and electricity where they are put up for sale in a limited volume or set quantity. However, we do not think BIS has sufficiently clarified how contracts for water, gas and electricity that are not put up for sale in a limited volume or set quantity should therefore be treated.

9. It is worth noting that the Consumer Rights Directive classifies contracts for the supply of gas and electricity, where they are not put up for sale in a limited volume or set quantity neither as sales [goods] contracts nor service contracts. Specifically we draw the Select Committee’s attention to recital 19 of the Directive which states:

“Similarly to contracts for the supply of water, gas or electricity, where they are not put up for sale in a limited volume or set quantity, or of district heating, contracts for digital content which is not supplied on a tangible medium should be classified, for the purposes of this Directive, neither as sales contracts nor as service contracts”.

10. The Directive then separately identifies those provisions that also apply to contracts for the supply of water, gas or electricity, where they are not put up for sale in a limited volume or quantity.

11. Centrica understands from discussions with BIS that it intends contracts for the supply of water, gas and electricity to be treated as services contracts under the Consumer Rights Bill. BIS should make this clear, either within the Bill itself or in supplementary guidance notes, and such guidance notes should explain the reasons for the change in approach from the Consumer Rights Directive.

Supply of ServicesRemedies

12. Nothwithstanding our comments in paragraphs 7–11 above, If BIS are of the opinion that energy supply contracts are contracts for services, the current drafting of the proposed remedies (repeat performance and a reduction in price) for failure to meet a customer’s statutory rights under Sections 51 to 55 of the Bill are not suitable for energy supply contracts. Rather, the remedies appear to be aimed very much at one off service provision, such as building, or decorating works, for which we agree that repeat performance of the failed service followed by a reduction in price is a suitable remedy.

13. For energy suppliers however repeat performance of the service (ie the provision of gas or electricity) under Section 57 of the draft Bill is not possible. Therefore the only available remedy under the draft Bill is a reduction in price under Section 58.

14. Service failings in energy supply contracts very rarely come from an actual failure of energy supply, but rather from poor customer service, such as failed appointments, faulty bills or poor account management. The remedies for such failures are already provided for via compensation payments, either of a set amount defined by regulation (for example £20 for a missed appointment) or voluntary industry schemes (£250 for certain breaches related to mis-selling), a discretionary amount provided by the energy supplier or an amount (up to £5,000) determined by the Ombudsman-Energy as part of a regulated complaints handling process. This amount can be paid as a deduction to a bill, but can equally be paid entirely separately to the bill, for example by cheque or vouchers.

15. Our interpretation of the current drafting of Section 58 is that it gives a statutory right to a reduction in price rather than a statutory right to compensation (which appears to be more aligned to the right to claim damages under Section 56(6)). Within the energy sector the term “price” is generally taken to mean the unit price for gas or electricity. We do not believe it is BIS’ intention that a customer should be entitled to an indefinite reduction in unit price for a service failure of the type we have set out above, but have concerns that this could be an inadvertent consequence of the current drafting. We recommend that the remedies under Section 57 and Section 58 of the Draft Bill should therefore not apply to energy supply contracts. Alternatively BIS should re-visit its drafting and looks to broaden the wording used in Section 58 to include appropriate payments that might be provided to a customer for service failure other than a reduction in price.

Goods and Digital Content

16. The current drafting of Section 15 of the Bill gives an ultimate right for a consumer to reject goods that do not conform to the contract where:

“(a)the goods are an item that includes digital content and

(b)the digital content does not conform to the contract to provide that content...”

17. In the recent stakeholder session held by BIS on 25 July, there was discussion over the interaction and impact of faulty digital content which might not be within a good, but associated with it. Our understanding from that session is that BIS only intends faulty digital content to give rise to a right to reject goods where the digital content is an integral element of the goods. We feel that the drafting of section 1 (a) should be made clearer to give effect to BIS’ intention. As an example where British Gas sells a boiler a customer can also buy an optional remote heating control (RHC) unit that sits entirely separately to the boiler but remotely controls when the boiler is turned on or off and the temperature of the boiler. The boiler can operate without the RHC. We do not think it would be correct for an unintended consequence of the drafting of this section to be that a customer has the right to reject the boiler because of a fault within the RHC. This should therefore be clarified in Section 15.

Digital Content

18. Similarly, we have concerns over the extension of the right to require a price reduction to digital content that is provided free with other goods or services or other digital content for which the consumer pays a price (Section 35(1)). As an example, British Gas provides a free optional App which can help customers manage their energy account via their mobile phone. We do not think it would be appropriate for a customer to have a right to a reduction in the cost of their energy supply because the App might not meet one of the statutory requirements in sections 36, 37 and 38 of the Bill. Equally, by making traders potentially liable to a consumer for free Apps they provide this could have the effect of reducing innovation which is ultimately to the consumer’s disadvantage.


19. We note that the Bill provides that a customer is not entitled to a replacement where a good does not meet the satisfactory quality test unless it is proportionate when considering the alternative of a repair. However it is not clear from the drafting that the same proportionality test applies to a customer’s final right to reject goods within 6 months for minor defects. It would not be proportionate, for example, for a customer to reject a boiler because of 2 repeat minor defects in the boiler where an appropriate price reduction could be applied. A one size fits all final right to reject, arbitrarily set at 2 defects (which could be major or minor) in a six month period, seems a disproportionately blunt tool that will attach more broadly than would be reasonable.

20. We propose that BIS could clarify this area simply by applying the proportionality test in 23(3) to the final right to reject and further by extending section 8(2)(c) to also refer to the aspects listed in Section 8(3) so that the reasonableness of each case should be considered.

Which?New Information Gathering Powers

21. We are concerned that Which? (as the Consumers Association) may have inadvertently gained new information gathering powers in relation to its position as an unfair contract terms enforcer under Schedule 5, paragraph 16(3) and Schedule 3, paragraph 8(1).

22. Under the existing Unfair Terms in Consumer Contracts Regulations 1999, only a body listed in Part 1 of Schedule 1 may exercise a power to require information from a trader. The Consumers Association is not listed within Part 1 of Schedule 1. Instead it is listed separately in Part 2 of Schedule 1.

23. We understand from the stakeholder session on 25 July that it is not BIS’ intention to change any of the existing investigation powers. This should therefore be clarified in the drafting.

Collective Action for Competition Law Breaches

24. Centrica remains opposed to the introduction of opt out collective actions for competition law breaches and we are therefore concerned with the content of Schedule 7 of the Bill. Our views on the original Government proposals were reflected in the GC100 response to which we contributed. We are still not convinced that the case has been made for opt out actions nor why such a different approach should be contemplated for competition law breaches compared to other types of claims in the UK or, to the recommended EU position. Also, these proposals (which would be a significant change to private enforcement of competition law) come at a time when public enforcement is also under review in the BIS Consultation on Regulatory and Competition Appeals and the new rules for the newly created CMA will also be under review—this is a significant amount of change overall.

25. It is our understanding that the stated concerns in the Football Replica Shirts case did not arise from the opt in nature of today’s regime and thus that case does not lead to the conclusion that an opt out regime must be put in place in future. Affected consumers will need to demonstrate they are part of the class whether the case proceeds as opt in or opt out—but the impact on defendants will be markedly different.

26. The European Commission has recently published its own recommendations for private actions—following nearly 10 years consideration. Those EU proposals recommend opt in actions. Although they do recognise that member states can adopt opt out where “justified by reasons of sound administration of justice”, we are not convinced that a case can be made for the UK.

27. We remain concerned that, despite the strength of the concerns expressed by the respondents to the Government consultations on this subject, the decision has been made to go ahead nevertheless. Even the President of the Competition Appeal Tribunal (which organisation will play a key role in the new regime) recognised the proposal for opt out as controversial and only to be cautiously welcomed.

28. Whilst we do not believe an opt out regime should be pursued, if it does go ahead, we do not believe that, as currently drafted, sufficient safeguards are built into the plans. Our concerns fall into two key areas:

(a)The increased role of the CAT, and

(b)The destination of unclaimed damages.

The role of the CAT

29. The CAT’s role will be significantly expanded by the proposals in Schedule 7; not only will it be able to hear stand alone as well as follow on actions, it will have a number of key decisions to take in managing the opt out regime. To be clear, we are not expressing concern about the CAT as an institution nor as a focus for competition litigation—to which it is particularly suited. However, the CAT will be required to make a number of key decisions as part of the collective action regime and is likely to face an increased workload which has the potential to place it under significant pressure.

30. One of the most crucial decisions for the CAT will be whether a claim can proceed on an opt in or an opt out basis. In a recent speech, the President of the CAT considered those key decisions. On the CAT’s role in assessing the suitability of the representative and deciding whether collective action is appropriate, The Honourable Mr Justice Barling noted they raised “knotty issues”, that the “devil will be in the detail” and, in pointing to the very real difficulties experienced in the Comcast case (on the question of commonality), he noted that the CAT will need to approach its task with “considerable humility and caution”. And, in his view, the safeguard that the CAT carries out a preliminary merits assessment raises a number of questions and issues such as the increase in costs arising from such a step in the process and the standard to be applied to that assessment.

31. Whilst we welcome the proposed safeguard that the CAT plays such a crucial certification role, as yet, we have seen no guidance on what factors the CAT will take into account when making these decisions. At the very least, those factors (which will presumably be contained in revised CAT Rules) should be available now for review.

32. We are comforted by the fact that damages based agreements will not be possible for opt out proceedings but remain concerned that no win no fee and after the event insurance remains possible as we believe removing those funding arrangements from collective action is key to ensure the process is not abused.

33. However, given the lack of support for opt out actions and the concerns about the administration of the new process, we propose that Schedule 7 includes a statutory presumption that actions will proceed as opt in. From that default position, and if Government remains convinced that the case is made for opt out/believes it can defend its position, opt out actions could be a limited exception in closely defined circumstances. Clearly we would still need to see the draft CAT Rules but setting a statutory default position in favour of opt in, whilst still allowing opt out on clear, predefined grounds would potentially strike the right balance between ensuring consumers have effective redress and protecting businesses from significant risk whilst also reducing the scope of the CAT’s decision making in its administrative role.

Unclaimed damages

34. The proposal that payment of unclaimed damages to charity (as set out in the proposed new s47C(5) to be inserted into the Competition Act) is particularly disappointing—the GC100 response expressed fundamental opposition to this suggestion, proposing instead that unclaimed damages should revert to the defendant. We understand that the GC100 was not alone in expressing this concern. The US Chamber Institute for Legal Reform’s response to the Government’s consultation also opposed this part of the proposals basing their concerns on experience of class actions in the US.

35. It seems likely that the majority of private actions will continue to be follow on actions so, on those occasions, a fine will already have been levied on, and paid by, the defendant. For unclaimed damages to be paid to a third party on those occasions is simply a fine by another name. And, if claimants don’t come forward, this new regime, rather than meeting its goal of ensuring increased compensation, will simply serve to line the pockets of bodies unaffected by the original cause of action (as it’s also not clear to us that moving from an opt in to an opt out regime will bring more claimants forward). In fact, the failure of the proposals to revert unpaid damages to the defendant is, in our view, a fundamental issue, it moves the proposals from being compensatory in nature to punitive and, in doing so, creates significant exposure for defendants.

36. Since Schedule 7 makes fundamental changes to the potential nature of competition litigation which is currently untested, we believe a better approach would be for unclaimed damages to revert to the defendant and that this should be reflected in s46C(5) rather than the starting point being payment to charity. The Secretary of State’s reserve powers (in subsection (6)) could then make provision in the future to change the destination of unclaimed damages.


37. We support the majority of the proposals put forward by BIS in the Draft Consumer Rights Bill. However there are areas where we feel the drafting needs to be revisited to ensure its practical application.

38. We do consider that the Government needs to review how its proposed reforms will work in regulated sectors, which are already subject to significant consumer protections and consumer redress.

39. We also remain of the view that the case for opt out collective actions has not been made and our position is confirmed now we have reviewed others’ comments on the proposals. It is also out of line with EU thinking on the subject and there are still some key safeguards against misuse missing from the proposals. We urge the Government to rethink its proposals.

27 August 2013

Prepared 20th December 2013