Business, Innovation and SkillsWritten evidence submitted by The Law Commission


1.1 The Law Commission was set up by the Law Commissions Act 1965 as an independent body to review and recommend reform to the law of England and Wales. The Law Commission aims to ensure that the law is fair, modern, simple and cost-effective.

1.2 We are delighted that the Government’s proposed reforms to consumer law implement recommendations in three reports which we published jointly with the Scottish Law Commission. The reports are:

1.Consumer Remedies for Faulty Goods (Faulty Goods Report);1

2.Unfair Terms in Consumer Contracts: Advice to the Department for Business, Innovation and Skills (Unfair Terms Report);2 and

.Consumer Remedies for Misleading and Aggressive Practices (Misleading and Aggressive Practices Report).3

1.3 Recommendations in the Faulty Goods and Unfair Terms Reports are included in the Draft Consumer Rights Bill 2013. Meanwhile recommendations in the Misleading and Aggressive Practices Report are given effect by the Consumer Protection from Unfair Trading (Amendment) Draft Regulations 2013.

1.4 Here we summarise our main recommendations and highlight a few areas of concern. Some minor technical drafting issues are considered in the Appendix.

Faulty Goods

The current law

1.5 The law concerning consumers’ remedies for faulty goods is unnecessarily complicated and uncertain. Two separate sets of remedies apply where goods fail to conform to contract. The traditional UK “right to reject” is supplemented by the European remedies set out in the Consumer Sales Directive 1999 (CSD).4

1.6 Under the right to reject, a consumer may refuse to pay for the goods or (if they have paid already) claim a full refund. However, the right is lost once the consumer is deemed to have accepted the goods, which may happen “after the lapse of a reasonable time”.5 The case law on what amounts to a reasonable time provides little guidance on how long it lasts. In one case a consumer was said to have accepted a new car in less than four weeks;6 in another, the buyer was entitled to reject a car after seven months.7

1.7 Meanwhile, the CSD introduces four new remedies, organised into two tiers. Consumers must first ask for a repair or replacement. If a trader fails to provide these within a reasonable time or without significant inconvenience, the consumer may move to the second tier—which consists of rescission and a reduction in price. Rescission resembles the right to reject, with one major difference: the consumer is not entitled to a full refund. Instead the trader may make some deduction for the use the consumer has had from the product.

Our recommendations

1.8 Our recommendations were designed to simplify and clarify the law. In particular, we recommended that the right to reject should last for a “normal period” of 30 days. Based on research with consumers, we thought that consumers would be able to understand, remember and assert a clear 30 day period.

1.9 We accepted that in many cases this would be a reduction in consumer rights: courts would often consider a longer period to be a reasonable time. This reduction was balanced against two further recommendations:

1.The 30 day period would be applied flexibly in some circumstances. A longer period would be appropriate where it was reasonably foreseeable at the time of contract that the consumer would not be able to test the goods within 30 days (for example, where a consumer buys a Christmas present in October, or a lawnmower in November).8

2.Where the period was exceeded, and a consumer was unable to obtain a repair or replacement without unreasonable delay or significant inconvenience, the consumer would be entitled to a full refund without a deduction for use.9

1.10 In our research, consumers had been particularly critical of the deduction for use. It was an inflammatory topic. Consumers said that if they had been unfortunate enough to buy a faulty product, and repairs and/or replacements had been unsuccessful, they would feel aggrieved if they were then charged for use of the product. Consumers felt that if the refund were reduced, they should be entitled to compensation for the inconvenience they had suffered (such as taking time off work to wait for repairs). A further problem was that there was no agreed method for valuing the use a consumer had had from a product, particularly where the product had intermittent faults for some time. Traders told us that in practice deductions for use were seldom applied.

The Consumer Rights Bill

1.11 Clause 21(1) of the Bill implements a 30 day right to reject. However:

1.There is no extension for goods likely to be tested only after a period of 30 days (such as the Christmas present bought in October, or the lawnmower in November).

2.Under clause 24(5), the final right to reject is subject to a deduction for use. Clauses 24(6) to (8) set out some limits: where goods do not have a proven second-hand value, no deduction can be made where the right is exercised within six months. However, this may do little to limit the deductions for use. With eBay, it is possible to show a second-hand market in almost any good (even if second-hand prices are extremely low).

1.12 We fear that disputes over deductions for use may undermine the simplicity and certainty of the new rights. There is no obvious way to value a consumer’s use of a product, with differences of view on whether one should look at depreciation over time or second-hand values. There is also scope for dispute about how one should account for intermittent faults, time spent waiting for repairs, and the effect of a replacement which also proves to be faulty. We would suggest that the Committee examines clauses 24(6) to (8) in depth, to see if any further limits to the deduction for use can be made to reduce the potential for disputes in this area.

1.13 In the Appendix we raise drafting concerns about how clause 19 deals with part-exchange contracts.

Unfair Terms

The current law

1.14 The Law Commission and Scottish Law Commission have long been concerned with simplifying the law on unfair contract terms. In 2005 we published a report on this subject,10 which we updated in 2013.

1.15 The most controversial area is the exemption for subject matter and price, as set out in article 4(2) of the Unfair Terms Directive (UTD).11 The UTD states that a fairness assessment may not relate to “the definition of the subject mater of the contract” or to “the adequacy of the price and remuneration… as against the services or goods supplied in exchange”, provided that the term is “in plain intelligible language”. These words have been copied out in regulation 6(2) of the Unfair Terms in Consumer Contract Regulations 1999 (UTCCR),12 and have proved particularly difficult to interpret.

1.16 The issue has generated complex litigation, culminating in the 2009 Supreme Court decision, Office of Fair Trading v Abbey National plc.13 The Supreme Court held that charges for unauthorised overdrafts were price terms and thus exempt from a fairness assessment. A large majority of consultees agreed that the law is now unduly uncertain. Consumer groups and enforcement bodies felt that this undermined the effectiveness of the legislation.

1.17 In a world of price comparison websites, there is increasing pressure on traders to advertise low headline prices, whilst earning their profits through other charges. Given this potential undermining of competition, the law should provide effective tools to combat unfair charges buried in small print.

1.18 The current uncertainty has the potential to damage businesses as well as consumers. If a business uses an ancillary price term to subsidise a low headline price, the business is put at risk if the term is later found to be unfair.

Our recommendations

1.19 We made 33 recommendations to simply the law on unfair contract terms. The central reform was that the exemptions for price and main subject matter should be reformulated to apply only to terms which are transparent and prominent.

1.20 The Annex to the UTD contains “an indicative and non-exhaustive list of terms which may be regarded as unfair”. This “grey list” is reproduced word for word in schedule 2 of the UTCCR. We reviewed the grey list and recommended that:

1.The grey list should be retained, substantially in its current form, with three additions. These are terms which have the object or effect of:

(a)permitting the trader to claim disproportionately high sums in compensation or for services which have not been supplied, where the consumer has attempted to cancel the contract;

(b)giving the trader discretion to decide the amount of the price after the consumer has become bound by the contract; and

(c)giving the trader discretion to decide the subject matter of the contract after the consumer has become bound by it.

2.The legislation should clarify that all terms on the grey list should be reviewable for fairness, irrespective of whether they also fall within the exemption for main subject matter and price.

3.The legislation should clarify that the exceptions to the grey list (in paragraph 2 of schedule 2) may be reviewed for fairness unless they fall within the exemption for main subject matter and price.

The Consumer Rights Bill

1.21 We are very pleased to see that the Bill implements almost all of our recommendations. In particular, clause 67 implements our recommendation that the exclusion for main subject matter and price should apply only if the term is transparent and prominent.

1.22 Meanwhile schedule 2 includes our recommended additions to the grey list (at paragraphs 5, 12 and 14). The effect of the grey list is also clarified at clauses 66(2) and 67(7). We have some minor drafting concerns about the grey list which are set out in the Appendix.

Concerns about clauses 71(2) and 71(3)

1.23 We have only one main concern about the Bill: clause 71(2) states that if a term of a consumer contract is especially onerous or unusual, the trader must ensure that the term is drawn particularly to the consumer’s attention. Clause 71(3) states that it is to be determined, in particular, by reference to the main subject matter of the contract. This does not follow from our recommendations.

1.24 It is not clear what consequences arise from a failure to draw a term to the consumer’s attention. We think that the clause could be misunderstood as providing a gloss on the fairness test. If so, this would be a retrograde step. We were persuaded by the strong arguments put to us that the fairness test set out in the UTD should be retained in its current form.

1.25 Instead, we recommended that the issue of whether a term is unusual or onerous should be part of the prominence test. In Recommendation 7 we said that:

To be prominent a term must be presented in such a way that the average consumer would be aware of the term. The more unusual or onerous the term, the more prominent it needs to be.

1.26 We do not think that prominence should be an all or nothing test. Some terms need to be more prominent than others. We think that clause 67(4) could usefully be looked at again.

1.27 Our intention was that terms should be “appropriately prominent”, so that an average consumer would be aware of the term. We think that it might be helpful for the legislation to state that in deciding whether a term is appropriately prominent the court should consider several factors, including whether the term is unusual or onerous. Another factor may be whether the prominence is in line with guidance prepared by regulators (as set out in Recommendation 10).14

Misleading and Aggressive Practices

1.28 At present, misleading and aggressive trade practices are covered by two sources of law: The Consumer Protection from Unfair Trading Regulations 2008 (the 2008 Regulations)15 deal with public enforcement, while private rights are dealt with by a complex mix of common law and statute, under the law of misrepresentation and duress.

1.29 Our recommendations provide a targeted private right of redress for misleading and aggressive practices under the 2008 Regulations. We had four aims:

1.To provide a simpler alternative to the law of misrepresentation.

2.To provide greater protection to consumers for aggressive practice. We were given many examples of elderly consumers who were sold expensive mobility aids by aggressive door-to-door sales staff who refused to leave when asked; and lengthy “holiday club” presentations where burly door staff gave the impression that consumers could not leave until they had signed the contract. Consumers do not necessarily have a clear remedy in such circumstances.

3.To clarify that the 2008 Regulations apply to unfair payment collection. We were told about many misleading and aggressive demands for payment, not just following a sale but also for civil compensation following alleged wrongful acts, such as car parking, copyright infringement or shoplifting. We recommended that the 2008 Regulations should clarify that commercial demands for payment are included within the definition of commercial practices and should not be misleading or unduly aggressive. We thought that where the money was not owed, consumers should be given a clear and simple right to a refund.

4.To recommend remedies that could be applied easily, without the need for complex evidence. Stakeholders told us that there was a need for certain, standardised remedies, even if these were sometime “rough and ready”.

1.30 We are pleased that the Government has accepted almost all of our recommendations. However, in some places the drafting of the 2013 Amendment Regulations appears complex and may be difficult to understand. We think that there is some scope for simplifying this draft, and would be happy to provide further evidence on this issue.

1 October 2013



Part-exchange Contracts Under Clause 19

1.31 As currently drafted, clause 19 does not appear to provide a consumer with a refund if they:

1.paid for a good by part-exchange; and is not possible to receive back in the original state what the consumer paid.

1.32 An example would be where a consumer purchases a second-hand car and pays for it with a combination of £6,000 cash and an old car worth £1,000. The car proves to be faulty and the consumer rejects it.

1.33 Under clause 19(7) the consumer has a right to a refund of the £6,000. Under clause 19(8) they also have the right to receive back the old car. However, if the trader sells or scraps the old car before the consumer exercises the right to reject, then clause 19(12)(b) applies: “the thing transferred cannot be given back in its original state”. Clause 19(12) says that in these circumstances “there is no right to a refund”. At first sight it would appear that the consumer is not entitled to a refund of either the original £6,000 payment or £1,000 in lieu of the old car.

1.34 We do not think that this is intended. We think that if a part-exchanged good cannot be returned, the consumer should be refunded money in lieu.

Grey List: Schedule 2, Paragraph 14

1.35 The City of London Law Society (CLLS) argues that paragraph 14 of schedule 2(2) should be made subject to clause 24 of schedule 2(2).16

1.36 The CLLS state that paragraph 14 is drafted too widely and therefore unintentionally catches price escalation clauses. This causes uncertainty to those who supply ongoing services. The CLLS suggests that paragraph 14 be amended to state that, in addition to being subject to paragraphs 25 and 26, it is also subject to paragraph 24 (which excludes variation clauses where the trader gives reasonable notice and the consumer may then dissolve the contract).

1.37 We support the CLLS recommendation, and think that paragraph 14 should be subject to paragraph 24.

1 Consumer Remedies for Faulty Goods (2009) Law Com No 317; Scot Law Com No 216.

2 Law Commission and Scottish Law Commission, Unfair Terms in Consumer Contracts: Advice to the Department for Business, Innovation and Skills (2013).

3 Consumer Remedies for Misleading and Aggressive Practices (2012) Law Com No 332; Scot Law Com No 225.

4 Consumer Sales Directive 99/44/EC, Official Journal L 171 of 07.07.1999 p 12.

5 Sale of Goods Act 1979, s 35(4).

6 Bernstein v Pamson Motors (Golders Green) Ltd [1987] 2 All ER 220.

7 Bows v Richardson & Son Ltd, 28 January 2004 (unreported).

8 Faulty Goods Report, paras 3.83 to 3.88.

9 Faulty Goods Report, paras 6.40 to 6.50.

10 Unfair Terms in Contracts (2005) Law Com No 292; Scot Law Com No 199.

11 Unfair Terms Directive 93/13/EEC, Official Journal L 95 of 21.04.1993 p 29.

12 SI 1999 No 2083.

13 [2009] UKSC 6, [2010] 1 AC 696.

14 See Unfair Terms Report, paras 4.78 to 4.81.

15 SI 2008 No 1277.

16 CLLS letter dated 23 July 2013 to BIS.

Prepared 20th December 2013