Documents considered by the Committee on 6 February 2019 Contents

1Digital Single Market: Consumer contract rights for the sale of goods

Committee’s assessment	Legally and politically important
Committee’s decision	Not cleared from scrutiny; scrutiny waiver granted; further information requested; drawn to the attention of the Business, Energy and Industrial Strategy Committee
Document details	Amended proposal for a Directive on certain aspects concerning contracts for the sale of goods amending Regulation (EC) 2006/2004 and Directive 2009/22/EC and repealing Directive 1999/44/EC
Legal base	Article 114 TFEU; ordinary legislative procedure; QMV
Department	Business, Energy and Industrial Strategy
Document Number	(39194), 13927/17 + ADD 1, COM (17) 637

Summary and Committee’s conclusions

1.1In December 2015 the Commission published two proposals aimed at boosting the EU digital economy by reducing contract-law related barriers to trade and making it easier for consumers to shop online across the single market. It envisaged a uniform set of rules on business-to-consumer contracts across the EU, which would support the EU’s Digital Market Strategy.

1.2The two proposed Directives addressed aspects of:

contracts for the supply of digital content (the Digital Content proposal),1 for example downloading a film from an online platform like Netflix (document (a)); and
contracts for the sale of goods online or by other distance selling2 (the Tangible Goods proposal)3 for example the sale of a coffee machine from Amazon or clothes from the mail order catalogue or over the phone.

1.3We have completed our scrutiny of the Digital Content proposal and cleared it from scrutiny in our Report of 28 November.

1.4A new Sale of Goods proposal was published on 31 October 2017 to replace the Tangible Goods proposal. As a result, negotiations on this proposal lagged behind those on the Digital Content proposal.

1.5The Sale of Goods proposal extends to offline sales of goods as well as the online and distances sales covered by the Tangible Goods proposal. The new proposal reflected the concerns of the UK and other Member States about the possibility of different contractual rules for online and offline sales. The Government has told us that the extension in scope is significant, covering over 90% more sales transactions across the EU than the Tangible Goods proposal. It would capture many businesses who do not sell online or at a distance and who may not enjoy single market benefits.

1.6The Government has also highlighted points of divergence between the “maximum harmonisation” proposal (where more or less stringent national requirements cannot be maintained) and current UK law, mainly the Consumer Rights Act 2015. The potential loss of the UK consumer’s short term right to reject and the possible need to introduce liability periods4 are key concerns of the Government. A detailed account of the proposal and the Government’s view are provided in our previous Reports listed at the end of this Report chapter.

1.7In our last Report of 28 November, we granted a scrutiny waiver to allow the Government the freedom to negotiate a General Approach text in keeping with the UK’s negotiating objectives. This was on the basis that we were reassured by the Governments’ commitment to marshalling support amongst Member States for:

a minimum harmonisation approach to the proposed Directive which would preserve established UK consumer protections, principally the short term right to reject faulty goods; and
clarification that the very specific legal concept of a liability period does not have to be introduced in national law.

1.8We also asked that the Government report fully on the outcome of the meeting, supplying us with a copy of the agreed text. We expected to be told of any significant changes to the texts affecting when the proposals might have to be implemented and which could particularly affect future EU-UK cooperation on consumer protection.

1.9The Minister for Small Business, Consumers and Corporate Responsibility (Kelly Tolhurst MP) in her letter of 17 January writes now with an account, enclosing a copy of the General Approach text which was agreed on 7 December. She confirms that although there were improvements in the text meaning that the UK can maintain for the most part the short-term right to reject goods and not have to introduce liability periods,5 the UK was unable to support it since there were several areas which undermine the current levels of consumer protection in the UK. As this is an important proposal in terms of existing UK legal protections, we set out a summary of the Minister’s account of those improvements and shortcomings in more detail in paragraphs 0.17–0.26 below.

1.10In terms of the next steps in the legislative process the Minister says that:

The overall position of the EP suggests that it is unlikely the text will move significantly further towards the UK position because it favours a maximum harmonisation approach.
If the final text continues to fail to meet UK objectives of maintaining existing UK standards of consumer protection in all affected areas, the Government will again not vote in favour of it.
However, should the text develop in favour of the UK’s negotiating objectives, maintaining existing UK standards of consumer protection in all affected areas, the UK might consider voting in favour.

1.11Bearing that in mind, she requests that we waive the proposal from scrutiny ahead of final adoption due to take place in early February at the Committee of Permanent Representatives (COREPER). Our staff now understand from the Minister’s officials that the agreed text of the proposal following trilogues is to be put to COREPER for agreement on 6 February. Formal adoption by the Council will follow in due course.

Our conclusions

1.12We thank the Minister for her letter which also enclosed a limité copy of General Approach text. We welcome her robust approach to defending key UK consumer protections and for not supporting a General Approach text which did not fully do so. We are glad that improvements were achieved which for the most part preserve the UK short-term right to reject goods and the freedom not to introduce liability periods. However, we note from the Minister’s letter that concerns remain about other aspects of the proposal affecting existing UK consumer law (as outlined in paragraphs 0.21 and 0.23 of this Report chapter).

1.13We understand that the next expected step in the EU legislative process for this proposal is agreement at the level of EU ambassadors in COREPER on Wednesday 6 February prior to final adoption in the Council of Ministers. Technically agreement in COREPER is not subject to our Scrutiny Reserve. But we are grateful to the Government for giving us advance notice of that agreement as often the substantive agreement takes place in COREPER with the Council simply rubberstamping that decision later.

1.14We are prepared to grant a scrutiny waiver for that final adoption in the Council. This is to give the Government some negotiating flexibility to attempt to resolve those outstanding areas of concern and garner support from other Member States. But should the final text to be adopted fail to resolve those concerns with the result that key UK consumer protections have been materially undermined, then we would expect the Government to vote against the proposal in any case. We see that the Minister has already committed to this approach in her letter (as outlined in paragraph 0.10 above).

1.15Since our last Report on both this proposal and the proposed Digital Content Directive, attention has become more focussed on the prospect of a “no deal” exit. We are aware that the Government published its “no deal” guidance “Consumer rights if there’s no Brexit Deal” on 12 October. We are also aware that the Government has laid EU exit Statutory Instruments relating to consumer protection, in particular the Consumer Protection (Amendment etc) (EU Exit) Regulations 2018 and the Consumer Protection (Enforcement) (Amendment etc) (EU Exit) Regulations 2018. We do not comment further here, other than to ask the Minister whether the UK consumer is likely to be assisted in a “no deal” situation by the increased harmonisation of the remaining 27 Member States consumer protection laws envisaged by this proposal. We remind the Minister of what her own “no deal” guidance says:

As the UK will no longer be a Member State, there may be an impact on the extent to which UK consumers are protected when buying goods and services in the remaining Member States. The laws of those states are similar but may differ in some areas to UK law both as respective laws evolve over time as well as due to differing levels of harmonisation between Member States in some areas.

To mitigate the potential confusion for the UK consumer of those differences (and vice versa for EU citizens whom the Government would no doubt wish to continue to buy goods from businesses based in the UK):

would the UK Government in a “no deal” situation consider aligning “retained EU law” and other domestic law in the field of consumer protection with both this proposed Directive (once adopted) and the Digital Content Directive. By this we mean alignment to the extent that it would not undermine key UK consumer protections; and
could alignment be an interim measure until it becomes clear what the detailed future EU-UK relationship on consumer laws might be?

1.16Until the Minister has informed us of the outcome of Coreper and Council meetings and responded to our other questions, we feel unable to clear this document from scrutiny. In the meantime, we draw this document and chapter to the attention of the Business, Energy and Industrial Strategy Committee.

Full details of the document

Amended proposal for a Directive on certain aspects concerning contracts for the sale of goods amending Regulation (EC) 2006/2004 and Directive 2009/22/EC and repealing Directive 1999/44/EC: (39194), 13927/17+ ADD 1, COM (17) 637.

More detailed account from the Government of improvements and shortcomings in the General Approach text

1.17In addition to providing an account of the progress of the text (see paragraphs 1.9–1.11), in her letter the Minister explains the improvements in the text which favour the UK’s negotiating position. She also addresses the timetable for the next steps in the legislative process.

Short-term right to reject goods

1.18The Minister explains the UK presented a drafting proposal that set the regime for consumer remedies at minimum harmonisation. This would have:

allowed Member States to retain or adopt more stringent provisions on consumer remedies than those in the proposed Directive; and
avoided the UK having to abolish consumers’ short-term right to reject faulty goods.

1.19However, instead the Presidency added a specific provision that would allow Member States to maintain or adopt this short-term right. This was a major success for the UK with the only restriction on the current right being that UK consumers could not pause the 30-day “right to reject” period if they wanted to try a repair instead.

Time limits for a remedy

1.20The Minister then outlines the other key improvement which allows Member States to maintain only a limitation period (time limit for pursuing legal action) without having to introduce a liability period (time limit for a defect to arise for the consumer to be entitled to a remedy). This is important as UK consumer legislation does not provide for liability periods.

1.21However, there are still outstanding concerns in relation to the application of the time limit provisions to goods with digital elements (“smart goods”). She gives the example of the current drafting in the text on trader liability. This indicates that for contracts requiring a continuous supply of digital content or digital services for goods over time, any limitation period shall not be shorter than the length of the continuous supply period under the contract. She then explains why this is problematic:

The UK’s current limitation periods (five years in Scotland and six years in England and Wales) would be too short where digital content or services are being continuously supplied for longer than these periods.
It could lead to inconsistent outcomes, where liability can be limited to two years in some circumstances but be almost indefinite where digital content is supplied continuously.

1.22She adds that the Government is working closely with like-minded Member States and MEPs to clarify the position and to agree drafting that would allow Member States to maintain their existing limitation periods, if they have them.

Areas where improvements are still necessary

1.23The Minister identifies the following areas where, without adequate changes to the text the UK’s current level of consumer protection would be weakened. Specifically, the text:

fails to impose a limit of one attempt by traders to repair or replace goods before consumers can seek a refund or price reduction, which is the case in UK law—instead it requires that, if a first attempt at a repair or replacement fails, it should be objectively ascertained what is a reasonable step to take given the full circumstances of the case, such as the value of the goods and the nature of the defect;6
also prohibits consumers from seeking a refund if a defect is “minor”, whereas in UK law there is no such restriction; and
is unclear as the extent to which the UK could retain non-statutory (i.e. common law and equitable) remedies, which, although not consumer-specific, are a source of UK consumer protections and remedies in addition to the statutory regime.

1.24The Minister says that it is disappointing that the UK has not been successful in securing these concessions by way of a minimum harmonisation clause for consumer remedies. She says that the UK is working with other Member States and MEPs to try to achieve this in trilogues.

Treatment of goods with embedded digital elements (smart goods)

1.25The Minister reminds us that in June 2018 the Justice Council agreed that goods with digital elements should be within the scope of the Sales of Goods Directive rather than the Digital Content Directive. The UK supported this as it would give consumers greatest clarity.

1.26Working groups have continued to work on how to ensure that embedded digital content within smart goods is updated sufficiently to preserve the conformity of the overall good with the contract. The result has been to specify that a software update is listed as a requirement for conformity alongside more traditional requirements such as being fit for purpose. EU retailers are concerned about the practicality of this requirement, such as how they would maintain relationships with consumers to provide an update. Government officials have been working with EU partners during trilogues on this to achieve both a clear and practicable solution.

Timetable for implementing the text

1.27The Minister confirms that a two-year deadline still applies to implementation, although this may be extended by six months to allow greater time for adaptation. This deadline is likely to fall after the end of any implementation period following the UK’s withdrawal (based on an end date of 31 December 2020).

Previous Committee Reports

Forty-sixth Report HC 301–xlv (2017–19), chapter 1 (28 November 2018); Fifth Report HC 301–v (2017–19), chapter 1 (13 December 2017); Second Report HC 301–ii (2017–19), chapter 3 (22 November 2017); Eighteenth Report HC 71–xvi (2016–17), chapter 3 (16 November 2016); Sixth Report HC 71–iv (2016–17), chapter 3 (15 June 2016); Twenty-third Report HC 342–xxii (2015–16), chapter 5 (10 February 2016).

1 2015/287, COM (2015) 634: Proposal for a Directive of the Council and the European Parliament on certain aspects concerning the supply of Digital Content.

2 Distance selling is where the two contracting parties are not in the same place at the same time (i.e. sales that are not face-to-face).

3 2015/0288, COM (2015) 635: Proposal for a Directive of the Council and the European Parliament on certain aspects concerning contracts for the online and other distance sales of goods.

4 A liability period is a time limit for a defect to arise for the consumer to be entitled to a remedy, as opposed to limitation periods (which exist in UK law) providing a time limit for pursuing legal action.

5 A liability period is a time limit for a defect to arise for the consumer to be entitled to a remedy, as opposed to limitation periods (which exist in UK law) providing a time limit for pursuing legal action.

6 The Minister comments further that while this approach allows the system to respond flexibly to the sheer complexity and diversity of the goods market, it is unclear how “the next step” could be objectively ascertained without the involvement of a court or dispute resolution body.

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Published: 12 February 2019