Business, Innovation and SkillsWritten evidence submitted by the Law Society of England and Wales

Introduction

1. The Law Society of England and Wales is the independent professional body, established for solicitors in 1825, that works globally to support and represent its 166,000 members, promoting the highest professional standards and the rule of law.

2. The Law Society welcomes the Select Committee’s decision to undertake pre-legislative scrutiny of this important draft Bill and particularly the opportunity to submit written evidence. Our response is informed by the expertise of the Society’s Consumer Law Reform Reference Group, which consists of solicitors, in-house lawyers and academics.

3. In particular, members of the group have considerable experience and expertise in:

(a)Advising businesses on regulatory compliance, drafting terms and conditions for consumer contracts and representing both businesses and Trading Standards in litigation on consumer law and fair trading issues.

(b)Engaging in legal policy analysis and debate on consumer issues and understanding the impact on business and consumers.

4. Consequently the group contains a broad range of experience and has a great deal of expertise very relevant to the draft Bill.

The Draft Bill: Overall Judgement

5. The Law Society very much welcomes the Government’s plans to reform the UK’s consumer law and enforcement framework.

6. Comprehensive reform is overdue. The task of reform will not be easy because consumer law has to cover a very wide range of situations, taking into account a large number of often competing factors and (as much as it can) anticipate future developments. In most of these respects the draft Bill is a coherent attempt at comprehensive reform of a very complicated and multi-dimensional area of law. However, reform could deliver considerable benefits to consumers, businesses and to the operation of consumer markets in general by creating a better incentive framework for consumers to consumer more confidently and for business to compete more intensively.

7. There are a number of concerns that the Law Society has, relating to the draft Bill. Some are of a high-level policy nature and others are related to questions and concerns about the drafting. The former are discussed in the main section of this written evidence submission, while the latter are set out in the Annex. However, there is a close linkage between both aspects ie the policy issues cannot be read in isolation from the more detailed drafting issues raised.

Problems with the Current Consumer Policy Framework

8. The law governing consumer contracts has been in need of consolidation, simplification and modernisation for a long time.1 As has many aspects of the legal framework which regulates the activities of the public enforcement authorities.2

Problems with the consumer contract law

9. Consumer contracts are governed by numerous pieces of domestic legislation and case law. This patchwork is additionally complicated by the significant growth in EU consumer legislation (and the subsequent case law) since the mid-80s. This piecemeal development has resulted in unnecessary complications, overlaps and inconsistencies in the law, which need to be remedied through reform based on the application of the principles of good law.

10. Parallel developments in consumer markets have further reduced the effectiveness of the existing consumer contract framework. Markets have become much more diverse and complex in the last two or three decades. There has been considerable growth in entirely new types of products and services and methods of purchasing, such as online shopping and digital products, which the drafters of much of the current law could not conceive of. These rapid developments have left some considerable gaps in the law, which need to be filled to create a consumer contract law framework fit for 21st century consumer markets.

Problems with public enforcement

11. A similar story is true of the laws which regulate the activities of consumer enforcement authorities. Inefficiencies in the enforcement regime cost the economy an estimated £4 billion per year.3 This is a significant figure, which if reduced, could deliver enormous gains for the consumer and wider economy.

12. The Government is already taking forward structural reforms to the enforcement framework eg by abolishing the Office of Fair Trading (OFT) and establishing the Trading Standards Policy Board (TSPB). However, improving organisation and working practices through structural reform is only part of the story. The authorities need the right tools at their disposal to be able to benefit from the structural changes.

13. The powers of Trading Standards Officers (TSO) are spread over a very large number of pieces of legislation. There is considerable inconsistency between the different legislation resulting in unnecessary complexity and less effective enforcement. This offers scope for substantial consolidation.

14. In addition, there are some obvious gaps in the current array of enforcement powers available to TSO’s, such as the heavy reliance on criminal sanctions rather than civil enforcement, where the latter could deliver as satisfactory an outcome, without the cost (in terms of time and money) of relying on the criminal approach.

Benefits of Reform

15. Reform would bring a number of benefits for individual consumers, businesses and for the demand-side more generally in many consumer markets. These benefits (in our view) are likely to be large if the right reforms are pursued ie the measures adhere to sound principles of good law and look to build on the solid foundations, which the current consumer policy framework has established.

Creating the right incentives

16. The laws governing consumer contracts help create the right incentives for consumers, generating trust in the business-to-consumer transaction and enabling consumers to be confident about the seller from whom they are purchasing. This means higher consumer demand (than it otherwise would be) across the board. It also results in consumers being more likely to take the risk of trying new products and services and make purchases from untried new entrants into the market. This in turn incentives competition and innovation among businesses trying to maintain or expand their market share.

17. Part of that trust and confidence comes from more consumers being able to understand their rights in relation to a consumer purchase and being able to get more and better redress, if and when things go wrong. The draft Bill will help ensure these positive ends.

Access to justice

18. The second, less utilitarian, benefit to accrue to consumers, of a clearer, simpler and more robust consumer protection regime is that those who suffer detriment will be more likely to get the redress they deserve, resulting in better access to justice for consumers and in turn a stronger rule of law.

Reduced compliance burdens

19. Further, a simpler and clearer consumer contract law will reduce the compliance burden on businesses and allow traders more time to concentrate on selling their products and innovating rather than negotiating the myriad laws that currently exist.

More effective enforcement

20. Finally, more effective enforcement is likely to follow from a reformed set of investigatory powers and better access to civil remedies. Clear and consistent powers should make it somewhat easier to tackle rogue traders, dealing more effectively with businesses who consistently deliver poor services to consumers and refuse to offer redress. The result will be:

(a)Less uncertainty for consumers regarding the quality of the businesses who they might be transacting with, as more and more of the businesses frequently infringing the rules are dealt with more efficiently; and

(b)A more level playing field for businesses, who will be freer to compete on quality, price and innovation rather than concern over being undermined by rogue traders.

The Right kind of Reform

21. Having outlined the benefits of reform the type of reform taken forward will determine the extent to which those benefits can be realised. Therefore reform needs to be based on sound principles of good law. These include:

(a)Proportionality, so that reforms are aimed at resolving identified problems and unnecessary legal upheaval is avoided;

(b)Continuity with existing legal principles and law where appropriate eg reform should strive to uphold the principle of freedom of contract by not undermining the free choice of contracting parties;

(c)Simplicity in the law wherever possible ie striving for clear and as easy to understand laws as possible; and

(d)Creating positive incentives by both avoiding unintended negative consequences and creating a framework which encourages beneficial behaviour by consumers and businesses, such as encouraging higher levels of consumer trust and confidence, more competition between businesses and greater levels of innovation.

22. These principles suggest a reform agenda which aims to simplify, consolidate, harmonise (where practical) and modernise (where necessary) the consumer policy framework with relation to consumer contract law and public enforcement.

Timing

23. The timing of the legislation, foreshadowed in this draft Bill, is important. There are other highly relevant pieces of legislation planned, which are closely interlinked with the provisions in the draft Bill, such as the Consumer Rights Directive (CRD). It would be helpful if all the changes were tabled together. Ideally the provisions in the CRD would be incorporated into the Consumer Rights Bill.

24. Implementation in a coordinated fashion would have two advantages:

(a)It would reduce the complexity of compliance for businesses in particular, by ensuring they would only need to make one change to their terms and conditions rather than two (one when the CRD is implemented and then a further change when the Consumer Rights Act is implemented);

(b)It would also enable a coordinated campaign by Government (and relevant bodies) to advertise to consumers the new consumer protection regime. Awareness raising is important. Effective publicity would enable better understanding, by consumers, of their rights. In turn this would mean and more were able to properly exercise them.

Consolidation

25. We strongly support the consolidation of consumer protections, as proposed in the draft Bill, into a single statute and the narrow focus of the draft Bill on business-to-consumer (B2C) issues.. Provisions governing consumer contract law are currently spread over a large number of different pieces of legislation. Those covering the investigation and enforcement of consumer and fair trading laws are spread across even more.

26. In order to keep as much of the law on consumer contracts as possible in one statute we would urge the Committee to examine the case for going further and incorporating the both provisions of the Consumer Rights Directive (CRD) into the new consolidated statute. and the proposed extension of provisions in the Consumer Protection from Unfair Trading Regulations 2008 to allow individual consumers to bring civil actions for misleading and aggressive practices, into the new consolidated statute.4

27. Further, we consider that, where activities governed by other pieces of legislation are referred (or eluded) to in the draft Bill, the relevant sections in the respective Acts should be set out clearly in the draft Bill. In appropriate circumstances it may perhaps be sensible to reproduce the specific provisions in the draft Bill. The proposed Bill will then become a truly single comprehensive piece of self-contained legislation. However, regarding the latter idea an “onerousness” test might need to be applied to such provisions, to ensure this happens only where practical and proportionate to do so. We would ask the Committee to look into this drafting issue as part of their deliberations on the draft Bill.

Simplifying definitions and terminology

28. The first step to consolidating and simplifying the law in this area is to harmonise as many of the basic concepts and definitions, which operate across the full range of the relevant law, as possible eg the definition of a consumer, trader etc.

29. Currently the law suffers from the use numerous different concepts and definitions both domestic and EU across the various consumer related laws currently in place. While little can be done about the different EU definitions by the UK, aligning these basic concepts as much as it is practical to do so would make a difference to those advising business on to comply with the law.

30. Taking into account a number of different definitions when advising on the drafting of terms, conditions and policies, often each with their own subtle differences, can be time consuming and is unnecessarily costly. If a single concept, definition or evidential test could be used across all the relevant law this would make complying with the rules a little more straight forward.

31. Alignment however is not a problem free reform. There may be instances where one definition eg an EU definition, is not as good as a traditional UK definition eg the “average consumer” test used in EU law is often considered to be not god as the traditional English test of the “reasonable person”. Therefore, while working from a presumption that alignment is best, it must be done on a case-by-case basis, with the costs and benefits of each alignment weighed up. Therefore, for example, on the issue of the “average consumer” test we would ask the Committee to look into the relative benefits of alignment with the costs associated with the particular test.

32. In most cases we believe the benefits of simplicity are likely to outweigh the costs of aligning definitions and concepts, even in instances where the definition being aligned with is slightly inferior to the one traditionally used.

33. We would ask the Committee as part of its deliberations to consider the case for the alignment of all the key cross-cutting concepts and definitions to make sure that in each case a net benefit will accrue and that none will result in a worst outcome for consumers and businesses than continuing with the current definitions.

Sale of goods

34. The law in relation to the sale of goods is the most comprehensive and clearest of the four component parts of consumer contract law.5 However, there is room for some simplification and clarification. The draft Bill is, in addition to an opportunity for general consolidation and tidying up, a particular opportunity to clarify the rules on remedies where currently they can be somewhat vague.

35. We support the proposals to have a tiered system of remedies with limits on first tier remedies (repair and replacement) for example. These should be limited both in terms of the length of time in which they have to be carried out but also in relation to the number of times these can be offered before the consumer can move to tier 2 remedies.

36. We also support the harmonisation of the law, for example, for hire goods, with the general law on the sale of goods. This is a useful simplification.

Supply of services

37. The law relating to the supply of services is in need of more extensive reform than that relating to goods. The current law is opaque in parts, with consumers unsure of their rights and businesses sometimes unclear as to what is expected of them under the law.

38. This is particular concern because a large proportion of problems in consumer markets are related to services or the services aspects of the purchase of a good. If reform in relation to services can be got right, there are considerable gains to be made for consumers, businesses and the wider functioning of consumer services markets.

39. We broadly support the approach taken in the draft Bill in relation to services. However, we believe it is important that the Committee satisfy themselves that:

(a)The new law offers a clear and practical set of remedies for consumers (which we believe can be closely aligned with those available for goods);

(b)Consumers can rely on clear pre-contractual information; and

(c)Suppliers of services cannot minimise their statutory obligations in any way eg through exclusion clauses in their contract terms.

40. We understand that there is some debate over whether the reforms in the draft Bill need to go further and whether the current quality standard for services of “reasonable skill an care” needs complemented by an outcomes-based standard. While we have no principle objection to introducing such a measure and accept that it could increase the number of consumers who are able to get redress in some circumstances, there could be some practical difficulties in introducing such a standard.

41. Further, we believe the proposed measures already in the draft Bill could lead to a significant improvement in the numbers of consumers who currently get redress. Therefore we consider that any decision to take this “next step” should be made on the basis of clear evidence of the impact of the current proposed measures in the draft Bill and what improvements, if any, they bring about, plus international evidence eg examining the situation in New Zealand, where such an outcomes-based standard has been in place for a number of years.

42. In Annex II we set out some of the practical issues which we believe need to be thoroughly thought through before implementing an outcomes-based standard.

43. We therefore urge the Committee, before making any recommendation to proceed with such a significant change, to ask the Government to fully investigate the possible impact of the proposed changes in the draft Bill. This should be done after the proposed measure in the draft Bill have had time to bed-in and their impact can be analysed confidently. Only when there is evidence of the need to make further changes should the next step be contemplated.

44. One key aspect of deciding whether a robust outcomes-based standard could be implemented is whether it could take account of the wide range of consumer services ie not just services that results in a tangible good at the end (which can be measured) but things like advice services, such as financial advice and legal advice which often have an inherently the outcome is unknown.

45. Suitable benchmarks for measuring the possible impact of an outcomes-based quality standard might include:

(a)Specific benefits accruing to consumers and evidence of their utility;

(b)Costs to business;

(c)Changes to insurance provisions; and

(d)Impact on competition and innovation in consumer services markets.

46. Finally, in the context of working to improve the current regime and the existing quality standard in particular, we believe the Committee should look at how the “reasonable skill and care” standard6 might be further clarified and whether “services” as a concept needs further definition or explanation in the draft Bill or perhaps more appropriately in accompanying non-statutory guidance. Additional clarity may be particularly helpful in helping navigate what might occasionally be a “blurred” line between services and digital content.

Digital content

47. The law on digital content is currently inadequate.7 It is made up of an incoherent mix of EU law, IP law, underpinned by general contract law. It desperately needs updating to create a modern framework for the purchase of digital content by consumers. We support the draft Bill in trying to do this and in placing the rules alongside the other reformed laws on the sale of goods, supply of services etc in one consolidated statute.

48. Research commissioned by the EU Commission shows clearly significant levels of detriment experienced by consumers purchasing digital content.8 Illustrating the need for a clear framework to protect consumers and help create a level playing field of minimum standard on which sellers of digital content can compete.

49. We believe a sensible package of regulation encompassing contractual information requirements, quality standards, remedies etc will help to create a better functioning market for digital content. In the long-run the gains to the various markets for digital content could be considerable as consumer confidence in purchasing such products increases due to the increased certainty over their rights and good businesses are not undermined by the few bad ones.

50. We support the recognition in the draft Bill of the sui generis nature of digital content and support adopting a separate definition of it and not including it within the meaning of goods. As there is already an EU definition, which will exist in the law no matter what, courtesy of the constitutional position of EU law, it makes sense, despite some of its vagueness, to adopt that existing definition for simplicity reasons.

51. However, we are concerned that while recognising the sui generis nature of digital content in terms of its definition, the draft Bill does not follow-through on this logic and apply a slightly more flexible legal framework to digital content than that which applies to goods for example. Indeed the draft Bill appears to treat digital content too much like a good in relation to quality standards, remedies etc. There is a risk therefore that the draft Bill takes too rigid an approach to digital content by carrying across much of the goods regime and does not allow enough for the way in which digital content can be different from goods. Too rigid a legal structure risks not taking enough account of how a number of digital markets operate and could, over-time, inhibit innovation and negatively impact competition in these highly dynamic markets.

52. We urge the Committee to consider closely the potential impacts of the proposals in the draft Bill in this area and take extensive evidence from industry and consumers on this point in order to avoid any unintended consequences.

53. For more on the drafting concerns in relation to digital content please see Annex I.

Unfair contract terms

54. The Society is generally supportive of the draft Bill’s intentions of clarifying, simplifying and consolidating the existing laws on unfair contract terms. Significant benefits could accrue for consumers, businesses and consumer markets in general from such improvements to the current position. However, it is not entirely clear that the approach taken in the draft Bill will achieve those outcomes.

55. Greater transparency and prominence in core-contract terms ie those most relevant to the consumer and the transaction they are involved in, is to be welcomed. More detail on what constitutes these concepts however would be welcome. The approach of minimising any detailed re-drafting the Directive (and thus not “gold-plating” the EU Directive) for domestic law is not a problems free option, as it means some terms remain vague and could benefit from further clarity.

56. We are also concerned that the law might better recognise the practical difficulties for businesses of achieving some of the requirements in the law. The law may benefit from greater clarity in relation to how businesses might comply with the “prominence” requirement, for example in relation to m-commerce.9

57. In particular the model of contract formation inherent in the unfair contract terms rules appears to be that of a face-to-face transaction. They do not appear to take full account of the difficulties of distance contracts and the reality of providing goods, services and digital content online. In that context we urge the Committee to investigate both the principles and practicalities of the unfair contract provisions, including their practical applicability to online contracts and the associated difficulties with compliance as part of their deliberations on the draft Bill.

58. We would also urge the Committee, as part of looking at those issues of compliance, to examine the question whether not drafting a more detailed law is in the long-run the best option. While appearing to be less burdensome in the short-term it leaves a number of unclear points, which make compliance harder and leaves a reliance on case law to try and “fill the gaps”.

59. For example, the Committee may want to look at how the tests for prominence and transparency, can be made clearer. This might be done through creating an additional Schedule, which contains a non-exhaustive but indicative list of how core terms might meet these requirements.

60. For further explanation of our concerns in relation to the provisions on unfair contract terms please see Annex I.

Public enforcement

61. In principle the changes to civil enforcement powers, set out in Part 3 of the draft Bill, are welcome. The Law Society is a strong advocate of greater use of civil enforcement, as an alternative to criminal sanctions, in appropriate situations. As a consequence we welcome measures which facilitate the use of civil action, as the draft Bill does.

62. However, the proposals in the draft Bill contain a number of uncertainties, which we consider need to be addressed. We discuss these in more detail in Annex I.

63. In broad terms we believe there needs to be a central role for the Courts in the implementation of the proposed measures to further ensure their proportionate application, for example, requiring a Judge (in the Civil Courts) to give permission, in light of evidence, for the enforcer to impose the remedy. Principles of good law and due process need to operate. Therefore we urge the Committee to look into how the draft Bill incorporates such safeguards and how they might be made to work effectively within the context of the policy objective to shift enforcement towards the use of more civil enforcement measures and speed up enforcement action.

64. Finally, we believe that BIS could go further in its reforms in the area of enforcement:

(a)First, by taking forward the civil sanctions powers set out in the Regulatory Enforcement and Sanctions Act 2008 (RESA) and applying the powers to the enforcement of consumer laws. RESA is a well drafted Act with significant protections for due process incorporated into it, while offering a good deal of scope for effective enforcement; and

(b)Secondly, strengthening the new Trading Standards Policy Board (TSPB). The new national body does not, in our view, have the requisite resources to be a fully effective body and needs to have a wide remit to pursue national and international investigations and enforcement actions. It can still support the work of Local Authority Trading Standards and regional collaborations. We consider that it is not enough to rely on lead authorities to deal with significant cases, taking on potentially large, international businesses. A strong properly resourced national authority is needed to carry out such activities.

Annex I

SPECIFIC DRAFTING ISSUES

Cross-cutting Drafting Issues

Average consumer test

65. Our first drafting concern relates to the use of different standards against which the case for non-conformity to the statutory provisions in the contract will be tested. The draft Bill refers, in the clauses on sale of goods, supply of services and digital content, to the “reasonable person” and makes no suggestion that any test other than this should be used in any case before the Courts. However, the clauses in the draft Bill relating to unfair contract terms will be tested against the EU standard of the “average consumer”.

66. While there is some overlap between the two definitions, the fact that the draft Bill appears to use two definitions, where there might be some possibility of discrepancies developing in interpretation, could mean a missed opportunity at simplification.

67. We acknowledge that the “reasonable person” test is a well understood test in English law and has many positive elements, not least its objective nature, compared to the more complicated and more subjective aspects which constitute the EU test. However, following the principle of greater simplicity where possible we urge the Committee to look at whether it was the intention to have two different tests for breach of statutory terms in the draft Bill and what, if any, practical differences might result from the use of two different tests.

Definition of a consumer

68. In addition, it would be helpful if some of the other definitions in the draft Bill were refined. While it makes sense to align with relevant EU law where practical, (as has been done with the definition of consumer in the Bill) there may be a need to further refine or explain certain definitions to aid compliance. For example, the definition of consumer uses the term “mainly” to help describe when an activity can be considered consumer activity and not for the purposes of business. However, the ambiguity of the word “mainly” could be troublesome as there is no clear indication, for example, when “mainly” begins.

69. While we concede that EU law has inconsistent definitions of the consumer and it makes sense to align the one in the draft Bill with that in the Consumer Rights Directive there should be little harm in further trying to refine some of the meanings of some of the words in the definition.

70. Finally, we understand that the intention in the draft Bill is to exclude micro-firms from its provisions, a policy decision we support.10 However, it would be helpful for those advising on compliance to have it made clearer that micro-firms are not included within the provisions of the draft Bill. At the moment it is not entirely clear that they are totally excluded.

“Persons” and “individuals”

71. In Clause 2 of the draft Bill: “Key definitions”, there are some inconsistencies in terminology, which the draft Bill would benefit from clarifying. For example, clause 2(6) refers to “persons”, a well recognised term in English law, but 2(6)(b) and 2(3) refer to “individuals”. The latter is not a well recognised term in English law and may be interpreted differently to “person”. In relation to clause 2(3), for example, the wording may mean that consumers cannot act collectively and be entitled to the rights they would otherwise be covered by, if they are acting as “individuals”. We would ask the Committee to enquire whether the drafting could be tightened up with regards to this.

“As described”

72. Clause 10(5) may need tightening up to aid interpretation and compliance by solicitors advising clients. It could be interpreted as suggesting that the consumer and trader can agree to derogate or exclude certain protections given in the draft Bill. We do not believe this is the intention but to avoid any doubts further detail as to the parameters of this ability to agree specific terms between consumer and trader would be welcome.

73. We would urge the committee to get clarity on this point in order to ensure none of the underlying objectives of the draft Bill will be compromised by this.

Satisfactory quality standard

74. We have further concerns about the broad drafting of clauses 8(5) and (6).11 Such drafting may result in some unintended consequences for some businesses. 8(5) describes “…any public statement…” but in practice the trader often draws a distinction between what is said in advertising and what is said on the labelling and packaging, with the former it is often impractical to say too much. Therefore there could be cost and other implications if this means that a much greater degree of additional information and other compliance requirements are required beyond what is already expected.

75. From the drafting it is not clear to what extent a trader has to go to, in order to be “reasonably aware” of a statement about a product. For example, will a statement on a well known website or user review site or social media site made by a third party, not by the merchant, fall within the purview of the term “reasonable” in this case? If so, this may place considerable extra burdens on business to monitor what is being said about products.

76. In order to avoid some potentially complicated and unforeseeable consequences, eg in the worst-case scenario the merchant ending-up vicariously liable for the “claims” of other people, we would suggest that 8(6) should be re-worded to make it clear it relates to public statements made by the supplier or producer and not simply a third party public statement of which they have no control.

77. Advertising is currently regulated by the Committee on Advertising Practice (CAP) and enforced by the Advertising Standards Authority (ASA). There may be issues arising from this drafting as to whether this could result in enforcement action from different regulators for the same piece of advertising. This might create confusion for consumers as to who regulates advertising and what standards need to be followed. There are also questions as to whether CAP will incorporate any changes imposed by the draft Bill, once finalised. We would ask the Committee to get further clarity on this issue.

Interaction with sector specific regulations

78. The new consumer protections will interact with sector specific rules, in the regulated industries for example, such as telecommunications. Clause 55 states (in relation to services) that the law does not affect a rule that imposes a stricter duty.

79. We believe this rule needs to be clearer to assist consumers. One of the key objectives of the draft Bill is to consolidate a large proportion of the relevant law into one place. Therefore, unless the draft specifies which laws (that impose different duties) it fails to achieve one of its main objectives in our view.

Excluding liability for negligence

80. The Society is concerned about the potential impact of clause 68 “Bar on exclusion or restriction of negligence liability” and asks that the Committee examine the implications of the current drafting of this clause carefully to ensure that the intentions behind this clause will be met by the current drafting.

81. We believe that there is a risk that the current drafting could be interpreted as making a trader liable for the actions of third parties in a way the current law does not eg imposing new vicarious liability standards. We do not believe this is the intention but without clarification this may end up being the consequence of clause 68(1), 68(2) and 68(5).

Digital Content

82. Our next set of detailed concerns relate to some aspects of the proposals on digital content. Good law is about balance and proportionality. Any reform has to balance the sometimes differing needs of one party and another. There is a risk that the model being followed in relation to digital content does not take into fully into account some of the differences between digital content and traditional goods.

Digital content definition

83. The definition proposed in the draft Bill is the EU definition. However, it is a somewhat ambiguous definition. While it makes sense to align the UK definition with the EU one (especially as there is little the UK Government can do about the EU definition, due to the constitutional position of EU law) so there is one definition across all consumer law, it could nevertheless benefit from some further clarity.

84. One way of bringing additional clarity, that might be considered by the Committee, is for there to be a non-exhaustive indicative (and updateable) list of what types of products constitute digital content. It might be inserted into a Schedule in the draft Bill or in accompanying non-statutory guidance. We would support the Committee looking into how more clarity might be achieved in this area.

Streaming and downloads: the same or different?

85. The draft Bill appears to treat streamed content in the same way as a download, rather than as a service, like a satellite TV package for example. Although it is not entirely clear. In the first instance we consider that it needs to be made clearer as to where streaming sits within the definition of digital content in the draft Bill. This might be made clear, for example, through the indicative list of what constitutes digital content, described above.

86. If streaming is to be covered by the clauses relating to the provision of digital content this may raise some issues of conceptual confusion. In practice streaming, in terms of its qualities, seems much more akin to the provision of satellite TV services than a download. In such a context there is a risk of some confusion among consumers and businesses as the obvious analogous product is no longer considered in the same way by the law. One consequence might be consumers and businesses having different understandings of what they are purchasing and the remedies that consequently may be available.

87. As with the other aspects of digital content outlined above, in order to ensure clarity, we urge the Committee to look into this issue to make sure there is clarity in the proposed draft Bill and that both industry and consumers are content with it and to satisfy themselves that any possible problems down the line will not arise from any conceptual confusion.

Digital content quality standard

88. We urge the Committee to look closely at the quality standards proposed in the draft Bill in relation to digital content.

89. The quality standards required of digital content, in the draft Bill, are closely aligned with those for goods. As a rule we support alignment across sale of goods, supply of services and digital content as much as possible. However, we are concerned that such demanding standards as those required for goods are not as easily applicable to digital content and it may result in too rigid a regime to reflect accurately the reality of digital content markets.

90. We consider there to be some ambiguity over what being “fit for all purposes” might mean in the context of digital content:

(a)Digital content is often purchased for entertainment purposes which is a very subjective outcome. It is not inconceivable that “fit for all purposes” may be construed to cover the subjective outcomes expected by users of the digital content. There may be a requirement for more clarity here and we urge the Committee to look into whether there needs to be more explanation as to what “fit for purpose” might mean in the digital content context ie that it most suitably relates to the functionality of the content and not the “all purposes”; and

(b)A further concern regarding the application of the quality standard for goods to digital content is that the functionality of digital content is often highly dependent on a number of factors that are outside the control of the supplier. For example, digital content is impacted by a myriad of hardware and other software applications and integration issues that the supplier of the content has no control over. A computer operating system is perhaps a clear example of this. Where content performance is contingent on other factors it may be very difficult to meet the requirement to be “fit for all the purposes”. Such interdependencies raise questions as to the whether the goods standard is as easily applicable as, ideally, it would be. Consideration may need to be given as to whether the current drafting sufficiently acknowledges this situation.

91. An additional potential issue, derives from the fact that it’s not uncommon to release digital content that displays minor errors/defects, which get corrected over time through software updates. It is unclear in the draft Bill how these practices will be easily reconciled with the full panoply of quality standards set out in the draft Bill, without potentially damaging this standard industry practice and the important process for software creators of being able to develop and improve their product over time, once published. In this context the requirement to be free from “minor faults and defects” could be difficult to sustain in reality.

92. Finally, digital content can become obsolete quickly, as technology moves on rapidly, raising questions as to how, for example, the “durability” standard might be applied. Clarity and reassurance on how this standard might be likely to be interpreted would be welcome. We ask the Committee to seek clarification on this point.

Remedies for digital content

93. The tiered remedies set out in the draft Bill for faulty digital content are sensible and in principle we support them. However, there may be a risk with applying exactly the same remedies which apply to goods, to digital content.

94. In particular there is a risk that using the same thresholds as those the draft Bill proposes to apply to goods, for repair and replacement remedies, may not be entirely appropriate for digital content. There is a case for increasing the number of times repair or replacement can be offered before moving to tier 2 remedies because in relation to digital content there is more opportunity for some individuals to try and “game the rules”. This risk is likely to be low, but we nevertheless consider it a potential risk. We would ask the Committee to investigate this issue with representatives of business and consumers, as part of their analysis of the draft Bill, in order to gauge the extent to which this might be a potential problem and if a marginal increase in the thresholds for moving to tier 2 remedies may help reduce that risk.

Unfair Contract Terms

95. The Society agrees with the objective of clarifying the rules on unfair contractual terms. We believe that some improvements can be made to the current rules to improve the application of the unfair contract terms laws and help businesses better comply with them.

96. We agree the best place for the unfair contract terms rules to sit are within a consolidated set of statutory consumer rights.

97. We support bringing greater clarity to the definition of what are considered core-contractual terms and what should not be and thus where the relevant tests for transparency and prominence will apply.

98. However, changes need to be made acknowledging the difficulties there may be in the practical application of some of the proposed changes. For example, while the prominence and transparency test should be a rigorous and clear one, there needs to be some flexibility as to how this test is met in practice. As more and more terms are subject to a prominence and transparency requirement the less prominent each term can be in reality ie if all are supposed to be prominent, then none will be prominent. In some regulated sectors in particular this may become even trickier as the level of information that must currently be in plain and clear English to customers, with equal prominence, is already extensive.

99. The draft Bill suggests the Government may have in mind the way the Financial Conduct Authority for example, requires certain terms to be prominent in consumer credit agreements. However, this analogy is not as straight forward as it might appear. There are difficulties in transplanting it across to terms and conditions which apply to a very wide range of other (non-financial) consumer markets. For example, as internet and mobile shopping increases customers are buying products and services on smaller devices where it’s not always easy to clearly display items.

100. Therefore, further clarity in the draft Bill would be welcome in relation to:

(a)What is a core-term and what is not;

(b)What constitutes transparency and prominence; and

(c)The fairness test.

101. As to how this additional clarity might be achieved, we would ask the Committee to look at this in detail. It might further sub-clauses could be the answer, further use of a non-exhaustive but indicative list of how core terms might meet these requirements or non-statutory guidance.

Public Enforcement

Trading Standards Officer (TSO) Enforcement powers

102. Overall, the proposed changes to the investigatory powers of TSOs are welcome. However, we consider that the rules in the draft Bill on enabling cross-boundary enforcement, in particular, need to be made clearer.

103. The changes intended to facilitate cross boundary investigation and enforcement action are somewhat opaque in the draft Bill and could be made clearer to help TSO’s better understand what they can and cannot do in this regard.

104. Part of this clarity should include rules on how Local Authority Trading Standards Services (LATSSs) should interact with each other when trying to take action cross-boundary. This could take the form of a Schedule with a suggested model memorandum of understanding or a legally binding set of procedures (memorandum of understanding) setting out how a LATSS should set-about taking action within the jurisdiction of another. It is important that a LATSS in one part of the country cannot undermine the work of a LATSS in another part of the country. For example, if LATSS A has agreed compliance timetable for a local trader then that relationship should not be undermined by LATSS B (from another part of the country) trying to bring an action on the same issue on behalf of consumers who live within the jurisdiction of LATSS B.

105. We would welcome the Committee looking into whether LATSS believe there is a need for further clarity and how rules to facilitate cross-boundary working in practice might be developed to further enhance what currently occurs and ensure its continued smooth operation.

Civil sanctions

106. The draft Bill improves considerably on the proposals in the BIS consultation on this issue last year. For example, the draft Bill states that the court may include only such enhanced consumer measures as are considered to be “just and reasonable” (paragraph 8(1), Schedule 6) and proportionate, taking into account the likely benefit to the consumer and the cost of obtaining that benefit, and the costs to the business in question (paragraph 8(2), Schedule 6).

107. However, we believe that there is room for further improvement in the drafting to increase certainty for enforcement authorities, Courts and businesses (and their advisors) trying to comply with the law in this area. For example, one further change that would reduce uncertainty and improve implementation would be to make it clear what test will be applied by the Courts when applying these measures ie whether it will be an objective test or might include subjective elements. We consider that an objective test would be the most desirable.

108. A further concern we would like to see the Committee look into is that enforcement orders/undertakings don’t imply guilt on the part of the supplier. The risk with this approach is that the regime may create incentives for businesses to not cooperate with the regulator to impose a measure because the risk of court action will subsist. It is likely to be more effective to use enforcement notices and undertakings on the basis of no admission of guilt and leave it to the Courts to decide on “guilt”.

109. In addition, we believe there is considerable merit in allowing businesses to suggest their own remedies for affected customers, subject to the agreement of the enforcement agencies. It is our understanding that this idea had been discussed but it does not appear to be in the draft Bill. We would support its express inclusion.

110. Further, we consider that the standard of proof should be clearly set out in the draft Bill. As currently drafted, Schedule 6 amends Part 8 of the Enterprise Act 2002. It is reasonable to assume therefore that the same civil standard of proof applies. However, to reduce uncertainty and aid compliance and those advising businesses on how to comply making this clear would be very beneficial.

111. The list of consumer legislation affected by the new remedies goes beyond the scope of the draft Bill. It would include legislation that can be difficult for both consumer and businesses to interpret such as the Consumer Protection from Unfair Trading Regulations 2008. The full scope of the other legislation (and the nature of that legislation) affected needs to be made very clear. Otherwise the draft Bill begins to move away from the objective of simplification as it becomes necessary to track down the various implications through other pieces of legislation. We would ask the Committee to look into the possible consequences of this and obtain assurance that these sorts of possible complications at the margin have been thought about and appropriate action will be taken to minimise them.

112. It is not clear that there is a clear “carve-out” for those sectors that are heavily regulated already and provide for remedies such as escalations to independent ombudsman etc. There is a risk that without the clarity on which “route of action” a consumer could take it could lead to consumer confusion and also costs and difficulty in applying remedies for businesses as they may anticipate a consumer will have “double jeopardy” over the different regulators and/or enforcement steps they could apply for.

113. There is no exhaustive list of the remedies open to enforcers set out in the draft Bill. While this allows flexibility within the legislation this increases uncertainty considerably in terms of compliance. We believe the Committee should look at how this might be reduced eg whether that might be through some clear guidelines that are provided to both Courts and businesses regarding the types of measures that may/may not be taken to redress consumer complaints or more clearly laid out boundaries in the legislation itself.

114. Finally, the draft Bill does not appear to prevent a consumer, when they have a right to make a civil claim for damages, from claiming despite accepting compensation under the new powers. This could result in double “punishment” for businesses, which is something that should be avoided.

115. The affected business could seek a waiver from the consumers as part of a settlement agreement however this is likely to increase costs and also does not guarantee the consumer will sign the waiver so could still accept the compensation and then seek a separate civil action. While the civil courts may prevent double recovery the best solution would be if the draft Bill made it clear (as it does in paragraphs 18(7), 44(5) and 56(6)) that consumers may not recover twice for the same losses.

Annex II

CONCERNS ABOUT AN OUTCOMES BASED QUALITY STANDARD FOR SERVICES

Issues for Consideration in Policy Formation

116. While acknowledging that some consumer benefits would likely accrue from a shift to an outcomes-based quality standard for the supply of consumer services eg in terms of more consumers getting redress when statutory contractual standards are breached by a supplier, in this Annex, we set out some of the practical issues which we believe need to be carefully considered before such a step is taken.

The nature of Services is different

117. The services sector is very different to the goods or digital content sectors in that it is much more difficult to judge what is a satisfactory outcome for services, given the range of possible expectations that a customer may have. For example, the quality of a service which does not have a physical product, such as education, a hair cut or beauty treatment, is more difficult to assess than a service that does have a physical product/result at the end of it, such as the building of a new wall, the painting of a room or a car repair.

118. This means that it is difficult to have one standard that would apply meaningfully to each type of service. The general rule is that there should only be liability where there is fault, and the current standard of “reasonable care and skill” captures this.

119. If the reasonable care and skill test is applied robustly, it will in most cases lead to the same result as an outcome based standard without imposing unrealistically high burdens on business. This test has applied for many years and has resulted in few disputes leading to costly litigation and reported cases.

Specific issues with a satisfactory quality test for services

120. Risk of traders being held to unrealistic standards: Often there will be matters out of the control of the trader that will mean that they will not be able to meet the pre-contractually negotiated outcome. For example, a student attending a university course may expect to receive a certain qualification at the end, but this is subjective, and will largely depend on the ability of the student and the efforts that the student itself puts into the course. In addition, different individuals will have different expectations for the level of service they receive. This would be very difficult to manage in practice on an objective basis.

121. Complex contracts: In practice, a satisfactory quality standard would mean that there would be a large amount of disclaimers in the contracts. This paperwork would be expensive to research and provide—most firms would need to seek legal advice to draw up these documents. This is at a time when traders are already having to review their contracts in response to other changes (eg unfair contract terms). It also may mean that the right itself is no easier to apply for consumers than the current one, and will continue to involve looking through complex paperwork. The use of disclaimers would be one of the obvious ways traders would seek to protect themselves against these new standards, but this in itself would not be satisfactory for customers, as there would be less certainty as to what they can expect from an individual trader, and a greater prospect of “small print”.

122. Uncertainty for consumers: The inevitable increase in the use of disclaimers by businesses is likely to cause more confusion for consumers as to what their legal rights are. We would argue that having a clear set of remedies in place for when a consumer is unhappy with any service it has been given, would significantly help consumers and businesses alike in addressing such concerns. In addition to a rise in excessive use of disclaimers, this increased standard could result in a polarisation of providers in the market: those companies that will provide “premium” quality services (likely to be at significant cost to consumers); and those companies that are not concerned with the quality and offer “budget” services at low costs. This type of market would not favour the consumer, and will offer less choice.

123. Costs of insurance would no doubt rise: We think this and other costs will mean that some service providers will be forced out of the market with the potential of leaving only very high end service providers or cowboys, which has the potential to cause significant consumer detriment.

124. Traders being liable for service failures they are not directly responsible for: In addition, certain businesses could face extra costs in providing remedies for problems with a service for which they are directly not responsible. For example, if (non-package) travel companies were to be liable for injuries to tourists that were caused by their subcontractors. At the moment the test is based on negligence (so if the travel company exercised reasonable care and skill in selecting their subcontractors they won’t be liable). In addition, an outcomes based standard would be impossible to implement for travel services which will involve overseas contractors.

125. Compliance with sector specific requirements: Many services, such as financial services, utilities and telecoms, have their own sector specific legislation and governance, and it is vitally important that the general consumer obligations dove tail with the sector specific legislation eg if mobile phone operators meet the standards required by OFCOM would this mean that they have met a satisfactory quality test? How this will work in practice warrants further consideration. The proposals to reform the law relating to the purchase of consumer services are positive steps. We support them. In particular it is good that the Bill will set out more clearly the remedies available for consumers for non-conformity to the contract to supply a service and to limit the ability of suppliers to limit their liability. The current law on services is opaque. It is difficult for consumers to understand if there has been a breach of contract and how they might remedy this. It can be unnecessarily burdensome for businesses too, from time-to-time, as they are not clear on what standards they are expected to meet. While at the same time the current law leaves substantial room for those providing poor services to “get away with it” easier and undermines consumer trust and confidence in the wider sector that they operate in.

126. In summary, clearer and robust remedies, in conjunction with clear rules on pre-contractual information and unfair contract terms and no ability to limit liability for in relation to statutory contractual terms will improve considerably the current situation faced by consumers in terms of their ability to get redress and simplify the obligations faced by suppliers. At this stage we believe this range of reforms should be allowed to “bed-in” and the consequences properly analysed before the next stage is considered. Albeit that we do not oppose moving towards an outcomes-based standard if the current reforms fail to produce the desired policy outcomes.

19 August 2013