5 Digital Single Market: Consumer contract
rights for the online sale of goods
| Committee's assessment |
Legally and politically important |
| Committee's decision | Not cleared from scrutiny; further information requested; drawn to the attention of the Business, Innovation and Skills Committee, Culture, Media and Sport Committee and Justice Committee
|
| Document details | Proposal for a Directive on certain aspects concerning contracts for the online and other distance sale of goods
|
| Legal base | Article 114 TFEU; ordinary legislative procedure; QMV
|
| Department | Business, Innovation and Skills
|
| Document Numbers | (37390), 15252/15 + ADDs 1-2, COM(15) 635
|
Summary and Committee's conclusions
5.1 On 9 December 2015, the Commission published its first tranche
of legislative proposals aimed at delivering the Commission's
Digital Single Market Strategy,[16]
including two Directives on the supply of digital content (for
example, streaming music) and the online sale of goods (for example,
buying books online). These were accompanied by a Commission Communication:
Digital contracts for Europe — Unleashing the potential
of e-commerce (the "Digital Contracts Communication").
5.2 This Report chapter focuses on the draft Directive
on the online sales of goods. The draft Directive on the supply
of digital content and the Digital Contracts Communication (considered
together in one Explanatory Memorandum) is the subject of a separate
Memorandum and chapter.
5.3 The draft Directive proposes 'maximum' harmonisation
in respect of certain contractual rights and remedies for (business
to consumer) distance or online sales of tangible goods. This
means that if the Directive is adopted, no Member State could
give greater or lesser protection than set out in the Directive,
such that certain aspects of consumer contract law would be fully
harmonised across the EU. The Commission considers maximum harmonisation
necessary in order to increase consumer trust in entering into
transactions cross-border by providing uniform rules with clear
consumer rights, and to reduce business costs resulting from the
complexity and uncertainty arising from legal fragmentation in
cross-border e-commerce rules.
5.4 The provisions of the draft Directive on online
content are set out in detail below. Key provisions and areas
of divergence from the recently implemented Consumer Rights Act
2015 (CRA) in the UK include:
· Conformity
criteria of the goods: quality standards may need to be reformulated
to reflect the wording in the proposed Directive;
· Remedies available
to consumers: UK consumers would lose their short-term right to
reject faulty goods (as afforded under the CRA). Instead consumers
would first have to request a repair or replacement and could
only reject goods if these remedies failed. The proposed Directive
does not specify how many times the supplier can offer a repair
or replacement before a consumer can access a partial or full
refund (as opposed to a maximum of once under CRA). However, consumers
would have a statutory right to withhold payment of any outstanding
amounts until the defects were fixed. Furthermore, if the consumer
rejected the goods after repair or replacement had not resolved
the defect, the trader could only deduct from its refund a sum
to reflect use in excess of 'regular use';
· Time limit
for reverse burden of proof: the period within which a defect
emerging is presumed to have been present on delivery would be
extended from six months to two years; and
· Liability:
(the period in which a fault has to appear before a consumer can
make a claim) and limitation periods (the period is the period
of time within which a party to a contract must bring a claim)
for remedies: currently aligned at six years in England, Wales
and Northern Ireland and five years in Scotland. The proposed
Directive would lead to a reduction in the UK's liability period
to two years.
5.5 The Minister for Skills at the Department for
Business, Innovation and Skills (Nick Bowles) appears to support
this draft Directive as part of a package of measures intended
to stimulate cross-border e-commerce and create a Digital Single
Market. However, he raises various concerns, which can broadly
be broken down into:
a) the potential 'mismatch' of consumer contract
rights that may arise between online and 'offline' (in store)
sales; and
b) whether changes to the level of consumer protection
offered in certain areas may negatively impact on consumer confidence
or impose disproportionate costs on businesses.
5.6 He acknowledges that further work is necessary
to assess such impacts, and is seeking views from stakeholders.
5.7 The Committee welcomes
the Minister's Explanatory Memorandum on this technically complex
but legally and politically important proposal, which is likely
to have far-reaching impacts on UK consumers and businesses. We
note that the Minister welcomes "ambitious proposals on consumer
protection that will deliver real benefits" as part of an
overall package of Digital Single Market Strategy measures aimed
at increasing cross-border e-commerce, but does not at any point
explicitly endorse this proposal (in contrast to the proposal
on the supply of digital content).
5.8 We share many of
the concerns outlined by the Minister. We note that, as currently
drafted, the proposal would result in a diminution of certain
key UK consumer protections, including the loss of the short-term
right to reject faulty goods (which UK consumers can currently
exercise rather than accepting repair or replacement of the faulty
good) and would require many existing provisions of UK consumer
law to be changed. While consumer protection may increase in other
areas (for example, through the proposed extension of the reversal
of the burden of proof from six months to two years), it is not
clear what the overall impact on UK consumer protection would
be.
5.9 We consider that
a specific set of rules for the online sale of goods online could
create a conflict or discrepancy between online and offline regimes
governing exactly the same product, which may have perverse or
unintended consequences. While the Commission acknowledges that
this potential 'mismatch' is an issue, it considers that any problems
can be resolved through its 'REFIT' examination of EU consumer
contract law (which also concerns the 'offline' sphere). However,
as the process is expected to take 18 months and the outcomes
are unclear, this leaves a great deal of uncertainty in the interim.
5.10 We also note that
the Minister considers that: negotiations on this draft Directive
may progress more slowly than the draft Directive on digital content;
the two proposed Directives are not "intrinsically linked";
and trade-offs between the two are not expected. However, we consider
that interactions between the two Directives may need to be considered
further. For example, the draft Directive on the online sale of
(tangible) goods does not apply to goods incorporating digital
content in such a way that the goods function only as a carrier
of the digital content (such as DVDs and CDs). The goods will
be regulated by the draft Directive on digital content. We ask
the Minister whether he supports this distinction (noting that
DVDs and CDs are treated as goods under the Consumer Rights Act)
and whether he has considered how 'offline' sales of items such
as DVDs and CDs would be treated (noting the potential 'mismatch'
issues identified above).
5.11 The Committee also
agrees with the Minister that more work is needed to assess the
specific impacts of the proposal on the level of consumer protection
for UK consumers and the cost implications for businesses.
5.12 The Committee also
considers that policies that complement and support these proposed
maximum harmonisation measures, for example by boosting businesses'
and consumers' understanding of their contract law rights and
obligations and means of cross-border redress or by improving
enforcement action by national authorities, are important to ensuring
the effectiveness of the proposed Directive.
5.13 In order for the
Committee to be able to make a more informed assessment of the
likely impacts of the Directive and the progress of negotiations,
we ask the Minister to:
· explain
how adoption of the draft Directive in its current form would
deviate from the recently implemented Consumer Rights Act (on
an article by article basis) and what impacts this would have
on a) consumers and b) businesses;
· expand
on the potential interactions between the 'offline' and 'online'
frameworks (for example, does he envisage ultimate convergence
of the offline rules with the online rules, once the online rules
have been agreed; prefer that offline and online rights and remedies
proceed in parallel; or that a more holistic approach integrating
goods, digital content and services, as taken under the CRA, is
adopted?);
· provide
an assessment of the effectiveness of the maximum harmonisation
Consumer Rights Directive that fully harmonises certain rules
for the online and other distance sales of goods (mainly pre-contractual
information and the right of withdrawal) and whether there are
any lessons which the Government and Commission could draw on
in relation to progressing this draft Directive;
· set
out stakeholders' (including, but not limited to, consumer and
business groups, law societies and Member States) reactions to
the draft Directive and their key areas of concern or support;
· provide
an assessment of what, if any, 'flanking' measures may impact
on the success of this draft Directive (for example, measures
to improve price transparency and regulatory oversight on parcel
delivery or enhanced consumer protection cooperation between national
enforcement authorities);
· clarify
what work the Government considers necessary to assess the practical
implications for consumers and businesses, and whether it intends
to persuade the Commission to expand its own cost/benefits assessment
in this respect; and
· specify
what changes he hopes to secure during the negotiations (both
in respect of this Directive and any 'flanking' or complementary
measures), whether it has any red lines, and what the Government
intends to do to marshal the support of other Member States in
its efforts.
5.14 We
ask for this response by 8 April, so that it can take account
of the stakeholder conference the Department intends to commence
this February.
5.15 Pending the information
requested and progress updates from the Minister on developments,
we retain this draft Directive under scrutiny. Given its political
importance and its potentially significant impacts on UK businesses
and consumers, we draw it to the attention of the Business, Innovation
and Skills Committee, Justice Committee and Culture, Media and
Sport Committee.
Full details of
the documents: Proposal
for a Directive on certain aspects concerning contracts for the
online and other distance sale of goods: (37390), 15252/15 + ADDs
1-2, COM(15) 635.
Background
The Digital Single Market Strategy
5.16 The Digital Single Market Strategy set out an
ambitious work programme of EU action in three 'pillars': reducing
barriers to e-commerce; setting the rules and frameworks in which
digital networks and services can thrive; and maximising the growth
potential of the EU digital economy.
5.17 Actions envisaged under the first pillar included
legislative proposals for simple and effective cross-border contract
rules for online and digital purchases, alongside reforms to EU
copyright law. A draft Regulation on the cross-border portability
of online content services in the internal market — the
first legislative proposal of the Commission's action plan to
modernise EU copyright rules — was published on the same
day as the proposed Directives on contract rights and is the subject
of a separate Report chapter.
5.18 The Commission considers that actions intended
to help create a genuine Digital Single Market, such as the recent
proposal on cross-border portability of online content, price
transparency and regulatory oversight on parcel delivery and enhanced
consumer protection cooperation between national enforcement authorities,
should be considered as an overall package to break down cross-border
barriers to e-commerce and therefore complement the proposed Directives
on contract rights:
"The Digital Single Market Strategy intends
to deal with all major obstacles to the development of cross-border
e-commerce in the Digital Single Market in a holistic manner.
The proposal should be seen in the context of this holistic approach.
This covers among others the initiatives related to the role of
platforms, the European Cloud initiative, VAT related burden and
parcel delivery. It also covers initiatives related to enforcement/redress,
i.e. the entry into operation of the Online Dispute Resolution
platform and the review of the Regulation (EC) No. 2006/2004 of
27 October 2004 on cooperation between national authorities responsible
for the enforcement of consumer protection laws. In particular,
fully harmonised contract law rules in the EU will also facilitate
coordinated enforcement actions undertaken by the Consumer Protection
Co-operation authorities."
CURRENT LACK OF HARMONISATION IN EU CONSUMER CONTRACT
LAW
Overview of existing EU consumer law
5.19 National differences arise from national mandatory
rules going beyond EU minimum harmonisation Directives. For example,
the Consumer Sales and Guarantees Directive provides minimum harmonisation
rules on conformity requirements and remedies for non-conforming
goods (which some Member States have chosen to extend to digital
content). The Unfair Contract Terms Directive sets minimum requirements
on unfair standard contract terms for both goods and digital content.
5.20 The Commission is currently conducting a review
of existing EU consumer legislation, in the context of its Regulatory
Fitness and Performance Programme (REFIT), which includes the
Unfair Contract Terms Directive, the Consumer Sales and Guarantees
Directive, the Unfair Commercial Practices Directive, the Price
Indication Directive the Injunction Directive and the Misleading
and Comparative Advertising Directive.
5.21 The proposed Directive's approach of 'maximum
harmonisation' is similar to the approach taken under the Consumer
Rights Directive, which has fully harmonised certain rules for
the online sales of goods and supply of digital (mainly with regard
to pre-contractual information and the right of withdrawal or
cancellation).
5.22 The Commission also sets out its plans within
the context of broader changes to EU consumer legislation resulting
from its 'Regulatory Fitness and Performance Programme' (REFIT),
including the Consumer Sales and Guarantees Directive and stresses
the need for ensuring consistency between 'online' and 'offline'
rules. It states that "these [REFIT] conclusions could feed
into progress made by the co-legislators on the proposal for online
sales of goods, for example by expanding its scope … it is
the Commission's objective to ensure a legal framework of coherent
rules applied throughout the EU for both online and offline sales".
Previous attempts at harmonisation
5.23 This is not the first time that the Commission
has attempted to harmonise contractual rights and obligations
across the EU. There have been a series of attempts to achieve
this in a more comprehensive way for more than ten years, the
most recent being a Common European Sales Law (CESL). CESL —
a draft Regulation — provided an 'optional instrument',
which would neither replace nor harmonise national laws, but could
be chosen as an alternative regime from those offered under national
laws. It was opposed by several Member States, including the UK,
and eventually abandoned for a number of reasons, including objections
to the proposed legal base and concerns that an optional system
would increase, not diminish, legal uncertainty. The House of
Commons issued a Reasoned Opinion on 23 November 2011, objecting
to the draft Regulation on the grounds that it did not met the
requirements of a) being necessary, or b) producing clear benefits
by reason of its scale and effect.[17]
5.24 The Commission stresses that it has consulted
a wide range of stakeholders on the draft Directives and "taken
into account the lessons learnt from previous attempts to approximate
contract laws", by proposing a Directive (which allows Member
States "the freedom to adapt the implementation to their
national law") on "targeted full harmonisation of mandatory
consumer rights which remedy cross-border trade and address the
urgency of acting on the online sphere".
UK CONSUMER PROTECTION LAW
5.25 The CRA came into force on 1 October 2015. One
of its main purposes was to simplify UK consumer protection law.
It covers goods, services and digital content and all modes of
supply (online and offline).
The Draft Directive
Objectives and rationale for action
5.26 The proposed Directive intends to "fully
harmonise in a targeted way the key mandatory rights and obligations
of parties to a contract for ... the online sale of goods",
as the Commission believes that this "will contribute to
the faster growth of the Digital Single Market".[18]
5.27 The Commission asserts that legal fragmentation
in certain areas of contract law covering the sale of goods online
are confusing for both businesses and consumers and inhibit cross-border
trade. It points to the following survey evidence in this regard:
· 55%
of EU consumers have purchased goods online from a domestic trader,
but only 18% have purchased a good online from another EU trader;
and
· 39%
of businesses selling online in their home Member State, but not
cross-border, quote different national contract laws as one of
the main obstacles to cross-border sales.
5.28 The Commission considers that a fully harmonised
set of rules would encourage:
· businesses
(including SMEs) to sell more cross-border, by reducing the costs
and legal uncertainty arising from current differences in contract
law; and
· consumers
to shop more cross-border, by providing a high uniform level of
consumer protection across the EU (although the level may change
in certain Member States), regardless of where purchases are made.
5.29 The Commission expects targeted harmonisation
to increase competition, benefitting consumers in the form of
lower prices, better quality and more choice. Commission research
estimates that if the same rules for e-commerce were applied in
all EU Member States, 57% of companies would either start or increase
their online sales to other EU countries and that EU consumers
could gain up to €154 billion (£118 billion) per year
through access to greater choice, lower prices and increased competition.
The Commission also considers that harmonised contract laws would
facilitate coordinated enforcement actions across EU Member States.
KEY PROVISIONS
5.30 The proposed Directive proposes maximum (or
full) harmonisation of certain aspect of consumer law, including
rights relating to conformity criteria of the goods purchased,
remedies and the means of exercising these remedies (hierarchy
of remedies), and the periods of the reverse burden of proof.
It would replace certain aspects of the Consumer Goods and Guarantees
Directive, which is a minimum harmonisation Directive. A summary
of the main provisions is set out below:
Article 1 — Scope:
· Applies
to business to consumer (B2C) transactions only.
· Does
not apply to goods like DVDs and CDs incorporating digital content
in such a way that the goods function only as a carrier of the
digital content or to distance contracts for provision of services.
· Where
a sale contract provides both for the sale of goods and the provision
of services the Directive applies only to the part relating to
the sale of goods.
Article 3 — Maximum (or full) harmonisation:
5.31 Member States are not able to adopt or maintain
provisions that diverge from those set out in the Directive.
Articles 4-7 — Conformity criteria:
5.32 The goods must primarily conform to what was
promised in the contract. In the absence of explicit contractual
terms specifying conformity criteria, the goods must conform to
objective criteria.
Article 8(3) — Burden of proof for lack
of conformity:
5.33 Reverse burden (i.e. lies with the seller) for
a period of two years.
Articles 9-13 — Remedies:
5.34 Article 9 specifies the 'hierarchy' of remedies.
As a first step, the consumer is entitled to have the goods repaired
or replaced within a reasonable time and without any significant
inconvenience. Article 11 allows the consumer to choose between
repair and replacement unless the option would be disproportionate
compared to the other option, impossible or unlawful. A consumer
is only entitled to a price reduction (as set out in Article 12)
or to terminate the contract (as set out in Article 13) where
the lack of conformity cannot be remedied through repair or replacement.
The consumer has the right to withhold payment until the goods
are brought in conformity.
Article 14 — Time limit:
5.35 The time limit for the availability of the remedies
is set at two years (and a Member State's limitation period cannot
expire earlier).
Article 19 — Amendments to other Directives:
5.36 Amends Directive 1999/44/EC in order to avoid
overlaps between the two instruments and adds a reference to the
Directive in the Annex of Regulation (EC) No 2006/2004 to facilitate
cross-border cooperation on enforcement of this Directive. Like
Directive 1999/44/EC the proposal provides that consumers can
seek compensation (damages) arising from lack of conformity using
their national laws. The proposal will not fully harmonise unfair
terms and so will not impact Council Directive 93/13/EEC. The
proposal supplements the maximum harmonisation Directive 2011/83/EU
that fully harmonises certain rules for the online and other distance
sales of goods (mainly pre-contractual information and the right
of withdrawal). The proposal does not require any changes to the
framework of EU private international law, including to Regulation
(EC) No. 593/2008 (Rome 1).
The Minister's Explanatory Memorandum of 5 January
2016
Policy Implications
5.37 The Minister broadly welcomes the proposed Directive
as part of a package of measures intended to help realise the
benefits of a Digital Single Market, by increasing consumer and
business confidence in engaging in cross-border e-commerce:
"The Government has asked the EU to take
bold steps to create a Digital Single Market that delivers for
consumers and entrepreneurs trying to break into new markets.
We therefore welcome the ambitious proposals on consumer protection
that will deliver real benefits, and contribute to a Digital Single
Market.
"The Government supports policies that will
boost consumer and business confidence in cross border sales and
believes that e-commerce should bring the reality of the single
market closer to consumers and business.
"If the Digital Single Market reaches its
full potential it will allow UK consumers to access more choice
and lower prices for goods bought online across Europe and allow
UK business to benefit from its position as a global ecommerce
leader."
5.38 However, he raised concerns in a number of areas.
One of the Government's key concerns is over the potential mismatch
between consumer rights for consumers who purchase the same tangible
good online as opposed to offline. The Government therefore supports
the same rules for all sales, whatever the distribution channel,
except where differences are justified, notes that the Commission's
REFIT assessment of consumer protection rules for 'offline' sales
may propose alignment with the proposed regime for 'online' sales,
and that further work is therefore need to assess divergences,
options and impacts:
"Offline and online differences
"The Government is concerned that proposals
could see two sets of rules existing for online and other distance
sales of goods and for offline, or face-to-face, purchases. We
think that this is confusing for both businesses and consumers
and it would be better if the same rules applied whatever the
sales route, except where differences are justified by the nature
of the sales process (the existing withdrawal right under 2011/83/EU,
for example, which gives consumers a 14-day right to return goods
bought at a distance because they have not the opportunity to
inspect them before purchase).
"We understand the desire to act fast for
online sales routes, in the context of delivering the Digital
Single Market, a political commitment of the Commission. We also
note that the proposal and the Communication set out that the
Commission intends to take steps to avoid differences emerging
so that consumers and business will be able to rely on a coherent
legal framework. The proposal and Communication suggests that
if the Fitness Check exercise on the Consumer Sales and Guarantees
Directive (1999/44/EC) for offline sales concludes that the consumer
protection rules should be aligned, the co-legislators could expand
the scope of the Directive to also cover offline sales. The analysis
of this Directive therefore needs to consider the impacts to offline
sales as well as online."
5.39 The Minister's other concerns can be grouped
around the impacts on the level of protection that will be afforded
to UK consumers in certain areas (i.e. where an extension of maximum
harmonisation measures may lead to a reduction of rights, for
instance in the immediate right of rejection) and on the financial
costs to UK businesses where consumer protections increase (i.e.
whether increases in protections would impose disproportionate
costs on businesses):
"Lack of flexibility in the future
"The UK has introduced or retained provisions
that go beyond the existing minimum standards in EU law, and the
Government would, in principle, be free to de-regulate further
provided that new rules did not fall below the European standard.
If this proposal is adopted, then that flexibility would be lost
and it would be impossible to either introduce more or less generous
provisions.
"Loss of key UK consumer protections
"The Government supports the proposal to
introduce a full harmonisation measure where there is evidence
that minimum harmonisation and the resulting divergence in laws
create barriers to e-commerce. However, the introduction of a
full harmonisation Directive will have a significant impact on
Member States who have chosen to go beyond the minimum requirements
of the existing Directives in certain areas.
"We recognise that traders can offer consumers
additional protections as part of their offering to customers
and have noted, for example, that the British Retail Consortium's
(BRC) response to the proposal indicated that many UK retailers
intend to continue offering consumer rights that go beyond the
proposed standards. However, we are concerned that the baseline
has to be set at an appropriate level in order to support consumer
confidence and avoid a bias towards established players who are
better able to signal additional protections to an established
customer base, at the expense of new entrants, SMEs and more unfamiliar
cross-border traders.
"Several Member States will have concerns
that full harmonisation will result in a reduction of consumer
protection for their citizens. In the UK the proposals, if finally
agreed in their current form, will mean that certain key rights
would need to be repealed for online and other distance sales.
"i. Loss of the short term right to reject
"The UK has had a short term right to reject
faulty goods since 1894. This right was recently clarified in
the Consumer Rights Act 2015 where the right to reject faulty
goods and obtain a full refund was set at 30 days. This right
sits outside of the hierarchy of remedies contained in the Consumer
Sales and Guarantees Directive (1999/44/EC) which are also available
to UK consumers.
"As this legislative proposal is based on
maximum harmonisation the proposal would require the UK to repeal
the short term right to reject faulty goods. Repealing this right
would mean that consumers would not be able to obtain a refund
until they had first pursued other remedies unless the retailer
decides to provide more generous conditions.
"The Government has shared an economic analysis
with the Commission where we set out the rationale for this key
UK consumer right. Law Commission (2009) research found that 94%
of UK consumers said the right to a refund was important to them,
and 89% thought it should be retained even though other remedies
(repair and replacement) are available. This is not to say that
UK consumers exercise the right in every circumstance: consumers
consider that a refund is the appropriate remedy in 20% of faulty
goods cases but nevertheless see having this right as an important
backstop in situations where they have lost confidence in a good,
or a supplier.
"Building confidence in new suppliers is
particularly important for the Digital Single Market where consumers
will need confidence to try new, unfamiliar suppliers rather than
sticking to tried and tested favourites.
"ii. Loss of a one repair or replacement
limit
"In the UK a supplier may make one attempt
to repair or replace faulty items before the consumer can access
a refund (should they desire one). This protection was reviewed
and clarified in the Consumer Rights Act 2015 where a limit of
one repair or one replacement was introduced. The UK would need
to repeal the one repair or one replacement limit under the proposal.
"The Government is concerned that the proposal
does not contain a strict limit on the amount of repairs and replacements
a supplier can offer before a consumer can access a partial or
full refund. The Government sees a limit on the amount of repairs
and replacements offered to consumers as key to consumer confidence,
whilst balancing the interests of business who welcome the legal
certainty that a (a non-time based) limit provides.
"The proposal does put a number of subjective
limits on offering a repair or replacement. The Government would
argue, however, that these are ambiguous and could lead to further
disputes as consumers and traders argue about how these terms
are defined. Setting a clear limit on the repair/replacement process
provides consumers with legal certainty that they will not be
locked into an endless cycle of failed repairs or replacements,
with the inconvenience this involves, or find themselves in dispute
with a supplier over whether another repair is 'possible' or 'significantly
inconvenient' to either party, or if a full refund does apply.
"In addition business has clarity on their
obligations to the consumer when things go wrong which reduces
the likelihood of disputes arising between traders and consumers
and are prevented from dragging matters out when goods are faulty.
They are therefore incentivised not to sell poor quality goods
in the first place (i.e. because they will lose all monies from
the sale).
"At present the liability and limitation
periods for remedies are aligned at six years in England, Wales
and Northern Ireland and five years in Scotland. The proposal
will see a reduction in the UK's liability period (the period
in which a fault has to appear before a consumer can make a claim)
to 2 years. The Government sees limited scope for consumer detriment
as most goods would not last this long but will fully consider
the impact of this change, in particular for goods that may be
expected to last this long.
"Reversal of the burden of proof
"The proposal includes an extension to the
reversal of the burden of proof so that in the event of goods
having a fault, the consumer will have the benefit of a presumption
for a period of 2 years that the goods were faulty when delivered.
Under current law this period is 6 months. During this period
it is for the supplier, not the consumer, to prove that the goods
were satisfactory at the time of sale. We agree with the Commission
that this has the potential to lead to a significant increase
in consumer protection.
"We will want to ensure that this extension
to the reversal of the burden of proof does not impose a disproportionate
burden on business and is justified by a robust cost/benefit analysis.
We will consider this in more detail as the proposal progresses."
ENGAGEMENT WITH STAKEHOLDERS
5.40 The Minister lists the stakeholders his Department
has consulted, but does not provide any information on their reactions
to the proposed Directive:
"BIS officials have met and corresponded
with key stakeholders including Which?, the Federation of Small
Business, the British Retail Consortium, the Law Society of England
and Wales and the Competition and Markets Authority and will continue
to do so throughout the negotiation process."
5.41 He also notes that:
"As part of our ongoing engagement, BIS
plans to hold a stakeholder conference in February to provide
the Commission with a chance to explain its approach and to provide
stakeholders with the opportunity to discuss this and the proposal
on digital content."
IMPACT ASSESSMENT
5.42 The Minister refers to, but does not provide
any detailed commentary on, the Commission's Impact Assessment.
The Government's Impact Assessment Checklist, which covers both
this proposed Directive and the one of the online sale of goods
is available online.[19]
5.43 The Government's Impact Assessment Checklist
notes that more work is needed to understand the quantified benefits
and costs to UK consumers and businesses arising from the proposed
measures:
5.44 Under the section Costs and Benefits of proposals
of tangible goods — Impact on businesses:
"The Commission Impact Assessment estimates
that if the same rules for e-commerce were applied in all EU Member
States, 57% of companies would either start or increase their
online sales to other EU countries and this additional choice
would cause EU consumers to gain up to €154bn per year through
increased competition and lower prices. The exact UK share of
this is currently unclear, and we will do further work to understand
the quantified benefits and costs to the UK arising from these
proposals."
5.45 Under the section Costs and Benefits of proposals
of tangible goods — Impact on consumers:
"there is clear evidence that harmonising
consumer rights across the EU will remove a key barrier to consumers
shopping more cross-border and so will allow UK consumers to benefit
from increased access to choice, lower prices and competition
between firms. However, to realise these full benefits it is important
that the statutory protections are set at a level that supports
confidence and allows new entrants to compete on a level playing
field.
"We are not currently in a position to quantify
these impacts, and the Commission's Impact Assessment does not
seek to justify the level of consumer protection based on a robust
analysis of the costs and benefits."
FINANCIAL IMPLICATIONS
5.46 The Ministers states that there "are no
clear financial implications for Government spending".
IMPACT ON UNITED KINGDOM LAW
5.47 The Minister notes that the proposed Directive
proposes maximum harmonisation in certain aspects of consumer
protection law for the online or distance sales of goods, which
will impact on UK law. In particular, the recently adopted and
implemented Consumer Rights Act 2015 would need to be amended
to implement the Directive:
"The Directive which certain provisions
of the proposal repeal and replace is Directive 1999/44/EC (the
Sale of Consumer Goods and Associated Guarantees Directive) implemented
in the UK by certain provisions of the Consumer Rights Act 2015.
"The proposal is intended as a maximum harmonisation
measure. The UK would not be able to maintain more or less stringent
requirements in relation to matters falling within the scope of
the proposed Directive than those set out in the proposal. It
will be necessary to review legislation in the UK which covers
matters falling within the scope of the proposed Directive, primarily
the Consumer Rights Act 2015, to determine the extent to which
they impose more or less stringent requirements.
"We envisage being able to implement this
Directive by means of secondary legislation under the section
2(2) powers of the European Communities Act 1972.
"Member States will be able to adopt or
maintain their own national provisions covering aspects of business
to consumer contracts outside the scope of the Directive."
FUNDAMENTAL RIGHTS ANALYSIS
5.48 The Minister notes that certain fundamental
rights under the European Charter of Fundamental Rights will be
engaged, in particular Article 16 (the freedom to conduct a business),
Article 38 (consumer protection) and Article 47 (the right to
an effective remedy and fair trial), but that the interference
would appear to be justified in order to fulfil legitimate policy
objectives to ensure free cross-border movement of goods:
"A recital to the Directive respects the
freedom to conduct a business (Article 16), consumer protection
(Article 38) and the right to an effective remedy and to a fair
trial (Article 47), and the current proposal makes no further
references to the Charter.
"A thriving cross-border e-commerce sector
can bring benefits to businesses and consumers, supporting the
rights in Article 16 and 38.
"The Government agrees with the Commission
that a set of fully harmonised rules for online sales of goods
will contribute to the freedom to conduct a business by facilitating
the sale of goods cross-border. The Government also agrees that
fully harmonised consumer protection would support consumer protection
if it is set at a sufficiently high level."
SUBSIDIARITY
5.49 The Minister agrees with the Commission's assessment
that only action at an EU level on cross-border contractual rights
in relation to online sales can effectively overcome fragmentation
in the internal market, and in this content the proposed Directive
is therefore justified in accordance with the principle of subsidiarity
set out in Article 5 of the Treaty of the Functioning of the European
Union:
"The Commission's objective in introducing
this proposal is to create a single set of consumer rules relating
to conformity of goods, time limits relating to burden of proof
and guarantee periods, and remedies for non-conformity across
the EU in order to fully harmonise all consumer protection aspects
which are relevant to online cross-border trade. This will contribute
to the completion of the Digital Single Market (Internal Market)
by removing the fragmentation caused by the differing implementation
of the existing minimum harmonisation Directive 1999/44/EC. The
Commission states that this fragmentation creates barriers to
online cross-border trade. Such fragmentation cannot be addressed
through uncoordinated actions by Member States.
"The Government accepts that the establishment
of a clear and harmonised framework for consumer rules within
the EU will require action at EU level and cannot be achieved
by Member States on their own."
EXPECTED TIMETABLE
5.50 The Minister states that discussions at Working
Group level were scheduled to begin at the end of January, with
a view to making "rapid progress" in the first six months,
and that "the proposal will be presented to an informal Justice
and Home Affairs Council on 25-26 January 2016 for initial views
of Ministers, and for likely discussion in the May Competitiveness
Council". He considers agreement before mid-2017 unlikely:
"Nevertheless we expect that the negotiations
will carry over to the Slovakian Presidency. It is possible that
the file could still be under consideration during the UK Presidency
in 2017."
5.51 The Minister is not able to provide any information
on the European Parliament's expected timetable for consideration
of the proposal, but expects it "is likely to become clear
in early 2016".
5.52 It is worth highlighting that in his Explanatory
Memorandum of 5 January on the proposed Directive on harmonising
certain consumer contract rights for the supply of digital content,
the Minister states:
"Although this proposal [on the supply of
digital content] was published at the same time as the proposal
for Directive on the online and other distance sales of tangible
goods (15252/15), they are not intrinsically linked and seem unlikely
to run to the same timetable. … In any case we would not
expect trade-offs between the two."
Previous Committee Reports
None.
16 See Fifth Report HC 342-v (2015-16) Chapter 4 (14
October 2015) and Tenth Report HC 342-x (2015-16) Chapter 7 (25
November 2015) for further information. Back
17
Reasoned Opinion of the House of Commons concerning a draft Regulation
on a Common European Sales Law for the European Union (23 November
2011). Back
18
The Commission considers that the full potential of online sales
is not yet fully exploited in the EU: in 2014, the share of e-commerce
in the total retail sector in Europe was 7.2%, while in the USA
it reached 11.6%. Back
19
Impact Assessment
Checklist Back
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