1Digital Single Market: Consumer contract rights for the online and offline sale of goods
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Committee’s assessment |
Legally and politically important |
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(a) Cleared from scrutiny (b) Not cleared from scrutiny; further information requested; document and chapter drawn to the attention of the Business, Energy and Industrial Strategy Committee and the Justice Committee |
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Document details |
(a) Proposed Directive concerning contracts for online and other distance sales of goods; (b) Amended proposal for a Directive on the sales of goods |
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Legal base |
Article 114 TFEU; ordinary legislative procedure; QMV |
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Department |
Business, Energy and Industrial Strategy |
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Document Numbers |
(a) (37390), 15252/15 + ADDs 1–2, COM(15) 635; (b) (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 envisages a uniform set of rules on business-to-consumer contracts across the EU, which would support the EU’s Digital Market Strategy. The two proposed Directives addressed aspects of:
i)contracts for the supply of digital content (the “digital” content proposal),1 for example, downloading a film from an online platform like Netflix; and
ii)contracts for the sale of goods online or by other distance selling2 (the “tangible goods” proposal, document (a)),3 for example the sale of a coffee machine from Amazon or clothes from the mail order catalogue or over the phone.
1.2We have been scrutinising negotiations on the digital content proposal which have progressed to a general approach on 1 June 20174 and preparations for trilogues. However, negotiations were postponed on the tangible goods proposal, pending the completion of an EU Consumer Law REFIT5 in May 2017.6 Since then the implications of the REFIT have been discussed in both the Council and the European Parliament (EP), with a majority of Member States and two EP Committees7 calling for an amended proposal applying to both online and offline sales. As the Government anticipated in its last letter to us on the original proposal,8 an amended proposal was published on 31 October.
1.3Such a uniform approach to all sales of goods, regardless of channel provides clarity for consumers and businesses in general and avoids unhelpful differences in rules for online and offline sales which the previous Government disliked.9 But as the current Government identifies in the Explanatory Memorandum (EM) it has submitted on this amended proposal, it also assists those businesses offering multiple sales options: in-store, online and by mobile app. However, the current Government has also highlighted that such an extension of scope is significant. It will mean that 90% more sales transactions will now be caught by the new proposal, as will businesses who may not be single market beneficiaries as they do not sell online or at a distance. It hoped that the Commission would consider proposing a regime as proximate as possible to the existing Consumer Sales and Guarantees Directive (the CSG Directive),10 which currently governs all sales, so as to minimise disruption to the vast majority of sales activity.11
1.4Proposal (b) aims to reduce differences in Member States consumer law by repealing the CSG Directive and re-enacting many of its provisions with “maximum harmonisation” requirements. This means national law may not exceed the terms of the legislation and prohibits “gold-plating” or over-implementation of EU legislation when it is transposed into national law. The CSG Directive took a “minimum harmonisation” approach, leaving Member States free to adopt more stringent provisions to ensure a higher level of consumer protection. However, differences in Member State implementation have led to some discrepancies in the remedies available to consumers.
1.5The new proposal provides for Member States to implement the adopted Directive two years after its entry into force.12 Assuming the UK exits the EU on 29 March 2019, it will not have to implement the Directive, in default of arrangements for a transition/implementation period which requires the UK to comply with new EU legislation.
1.6In its new EM, the Government highlights some basic differences in the original and amended proposal, but mostly rehearses the concerns it had in relation to the original proposal. It remains concerned about potential points of divergence between the CRA and the amended proposal, relating to conformity criteria of the goods, remedies available to consumers, including the loss of the short-term right to reject goods under the CRA, the time limits for reverse burden of proof and limitation and liability periods (see paragraph 1.11 below).
1.7We now clear document (a) as it has been superseded by the amended proposal (b).
1.8However, we retain the amended proposal (b) under scrutiny. We would be grateful, when the Minister next writes to update us and respond to the questions below, if she would provide us with a summary of the key provisions in the amended proposal. The Minister highlights areas of divergence between the proposal and UK law but does not provide us with an overall summary of the proposal. We cannot simply rely on any description contained within the previous Government’s EM on the original proposal because it is not clear to us how similar the two proposals are, disregarding the obvious difference that proposal (b) extends to the offline sales of goods.
1.9Since the original proposal (a) was published, the people of the United Kingdom have voted to leave the EU. On current assumptions, the UK will exit the EU on 29 March 2019 and it would not have to implement the current proposal (b). However, the nature of a possible transition/implementation period is unclear and there is also the possibility that the UK may wish to align with EU consumer law after Brexit to facilitate a trading relationship with the EU. The Government has also acknowledged in its letter of 5 September13 that the amended proposal would represent a very considerable extension of scope, covering over 90% more sales transactions across the EU. In the light of these very different circumstances and considerations, could the Minister confirm in due course:
i)Whether the Government will be carrying out a fresh Impact Assessment of the proposal, which goes beyond simply commenting on the Commission’s Impact Assessment and noting separately that there are no “clear financial implications” for the UK. This should extend to considering a “no deal” outcome to the Article 50 TEU negotiations;
ii)What she means by the “options for implementation” for the UK, as we are unclear whether this refers to obligatory transposition into UK law, possibly during a transition/implementation period, or perhaps to regulatory alignment after Brexit to facilitate trade with the EU;
iii)Whether any decision as to implementation of or alignment with proposal (b) would depend on the negotiations and outcome on the digital content proposal? In other words, would a consistent “implementation” approach be taken to the two proposals?
iv)Whether the Government would consider implementing or aligning with the proposal if the areas in which proposal (b) diverges from UK consumer law, outlined by the Minister in paragraphs 1.20–1.37, persist in the final adopted text? We note, for example, relevant evidence given by representatives of “Which?” to the current and previous House of Lords EU Justice Sub Committee14 on the original proposal (a). They were concerned about the potential lowering of UK consumer law protection, particularly if the short term right to reject faulty goods and obtain a refund is lost. Do other Member States share the same concerns and will the UK be able to build alliances with them to prevent any lowering of protection in proposal (b)?
1.10We draw document (b) and this chapter to the attention of the Business, Energy and Industrial Strategy Committee and Justice Committee.
Full details of the documents
(a) Proposal for a Directive on certain aspects concerning contracts for online and other distance sales of goods: (37390), 15252/15 + ADDs 1–2, COM(15) 635; (b) Amended proposal for a Directive of the European Parliament and of the Council on certain aspects concerning contracts for the sales of goods, amending Regulation (EU) No 2006/2004 of the European Parliament and of the Council and Directive 2009/22/EC of the European Parliament and of the Council and repealing Directive 1999/44/EC of the European Parliament and of the Council: (39194), 13927/17 + ADD 1, COM(17) 637.
Key issues—document (b)
1.11The Government informs us in its EM that key points of divergence between the CRA 2015 and the new proposal, document (b) 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 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.
The Government’s view
1.12In an Explanatory Memorandum of 21 November 2017, the Parliamentary Under Secretary of State and Minister for Small Business, Consumers and Corporate Responsibility at the Department for Business, Energy and Industrial Strategy (Margot James) says:
“Since 2015, the Government has been supportive of the EU’s efforts to create a Digital Single Market which will deliver for consumers and businesses, including new entrants to market.
“The Government also welcomes initiatives which will bolster consumers’ and traders’ confidence in cross-border sales and it is our view that e-commerce will help to bring the reality of the single market closer to consumers and businesses alike.”
1.13Before turning to more detailed policy implications, the Minister addresses the question of implementation. She recognises that proposal (b) repeals and replaces the CSG Directive which was re-implemented in the UK by the CRA 2015. Reflecting on the maximum harmonisation approach of proposal (b), she says that the Government will have to review the CRA 2015 to identify where the UK imposes either less or more stringent statutory requirements. She says that the UK will have to consider “options for implementation” following the outcome of negotiations with the EU.
Policy implications
1.14The Minister then proceeds to outline very similar policy implications to those identified in the previous Government’s EM on the original proposal (a). She explains:
“The main policy implications and concerns in relation to the Directive for the UK are therefore the same as they were when the original proposal was adopted and published, and these are set out below. We will continue to develop our views and engage with stakeholders once discussions begin on the revised proposal.”
1.15For ease of reference and given the importance of the proposal, we reproduce much of this in full, highlighting any material differences or additional points made by the Minister in this current Explanatory Memorandum.
1.16The Minister says:
“We continue to support the view that 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 e-commerce leader.”
1.17In the light of Brexit, she makes the additional comment on the amended proposal that:
“It will therefore continue to be important after our exit from the EU that robust consumer protections are put in place to underpin e-commerce and reassure consumers when buying goods online from unfamiliar traders, or businesses based elsewhere in the EU. These protections will also provide clarity to businesses about their rights and obligations when selling goods and services online and cross-border.”
1.18She then explains the background to the amended proposal:
“The UK has been engaged in Council discussions since they began on the original proposal in 2016. However, as a result of Member States’ desire to extend the scope of the proposal to encompass both online and offline sales, negotiations are yet to begin on the substance of this file.”
1.19The Minister then identifies specific policy implications under the following six sub-headings.
Lack of future flexibility
1.20She repeats the concern as identified in relation to the original proposal:
“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 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
1.21Again the Minister repeats the previous Government’s view on the original proposal:
“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 be likely to have an impact on Member States who have chosen to go beyond the minimum requirements of the existing Directives in certain areas.”
1.22But she adds:
“Our initial assessment is that the short term right to reject would be the chief concern for UK consumers and we discuss this in more detail below.”
1.23As with the original proposal the Government recognises that traders can offer consumers additional protections as part of their offering to customers, but the Minister clarifies this time that this is without the compulsion of a legal requirement.
1.24She recalls the example of the British Retail Consortium’s (BRC) response to the original proposal. This that many UK retailers intend to continue offering consumer rights that go beyond the proposed standards. But she comments that the Government is:
“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.”
1.25The Government expects several Member States to 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.
1.26She adds that this will therefore be an area of significant interest for the UK during negotiations on the new file. The UK will continue to work with stakeholders to develop an official UK position.
Loss of the short term right to reject
1.27In similar terms to the Government’s analysis of the original proposal, the Minister explains the importance of the UK consumers’ current right to reject faulty goods and obtain a refund up to 30 days after purchase:
“The UK has had, in effect, a right to reject faulty goods since 1893. This right was recently clarified in the Consumer Rights Act 2015 where, re-implementing the CSD, the right to reject faulty goods (i.e. goods which do not ‘conform to the contract’), and obtain a full refund was set at 30 days. This right sits alongside the hierarchy of remedies contained in the CSD, which (as a minimum) requires the trader first to offer free repair or replacement before the consumer may rescind the contract and demand a refund. Where all the relevant conditions apply, a UK consumer can go straight to rejection and refund, within the time limit.
“As this legislative proposal is based on maximum harmonisation and includes the same hierarchy of remedies (though some of the detail around it has been amended), the proposal if it passes un-amended, would be likely to require the UK, when implementing, 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, assuming other remedies were available, they had first pursued them, unless the retailer decided to provide more generous conditions.”
1.28The right is important for “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”.
Loss of a one repair or replacement limit
1.29The Minister provides a fuller analysis of loss of the one repair or replacement limit than had been provided by the previous Government in relation to the original proposal. She explains that:
“In the UK, a consumer who chooses not to exercise their right to reject immediately, and has a right to repair or replacement, may reject and, if appropriate, obtain a full refund if after one repair or one replacement, the goods still do not conform to the contract.”
1.30She then recalls that:
“This protection was reviewed and clarified in the Consumer Rights Act 2015 where the limit of one repair or one replacement was introduced. The UK would need to repeal the one repair or one replacement limit under this proposal, to bring it into line with the proposed legislation; although (as has always been the case under the CSD), the right for the consumer to require a repair or replacement is always subject to either recourse being impossible or disproportionate.”
1.31Again the Minister identifies this issue as being key to consumer confidence:
“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 Government argues that the caveat to the requirement to offer repair/replacement is ambiguous and could lead to further disputes as consumers and traders argue about whether or not, in a given set of circumstances, the requirement to replace or repair is impossible or disproportionate, and 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, with the existing UK solution, 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 traders are prevented from locking the consumer into a long cycle of failed repairs or replacements 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).”
1.32The Minister then looks to the response received from businesses and consumer organisations during the Commission’s REFIT:
“They suggest that the existence of a hierarchy of remedies for when things go wrong is in line with consumers’ expectations as well as consumers’ behaviour when seeking redress for faulty goods.”
Liability period and limitation periods
1.33The Minister explains that the CSG Directive sets a limit of two years from delivery of the goods during which a seller may be held liable for lack of conformity to the contract (including faults). She adds:
“Though lack of conformity—breach of contract, in effect—gives rise to the hierarchy of remedies (repair/replace/refund), national legislation will make provision for a time limit during which those claims for breach of contract may be brought. Thus the Limitation Act, applicable in England and Wales and Northern Ireland, prevents actions for breach of contract being taken six years after the cause of action arose (five years in Scotland), which could, in principle be longer than two years after delivery of the goods.”
1.34She says that the UK has understood the minimum standard in the CSG Directive:
“…as meaning that in principle a consumer could make a claim against a trader for breach of the lack of conformity condition at any point where the breach became apparent, which (as mentioned above) could occur after two years from the date of delivery.”
1.35She explains that the amended proposal (b) would restrict claims to those “where lack of conformity became apparent before two years from the date of delivery, although national limitation periods for taking action in relation to such claims are set at a minimum” (as with the current CSG Directive) “and so the six/five year minimums would not be affected”.
Reversal of the burden of proof
1.36The Minister explains that proposal (b) includes an extension to the reversal of the burden of proof. This means 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 (the CSD, and as transposed into UK law in the CRA) this period is 6 months (minimum). During this period it is for the supplier, not the consumer, to prove that the goods, contrary to the consumer’s claim, were satisfactory at the time of sale.”
1.37The Minister says that whilst the Government agrees that this could enhance consumer protection, it 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”.
Impact Assessment and Financial Implications
1.38The Minister explains that a new Commission Impact Assessment has been published with the revised proposal, assessing the need to set uniform rules for all types of sale.
1.39She adds that there are no clear financial implications for the UK from the proposal.
Timetable
1.40The Minister says that:
“We do not yet have a clear timetable for ongoing consideration of this revised proposal, although the Estonian Presidency have preliminarily scheduled a Council Working Group meeting on 19 and 20 December, at which point we expect they may set out the way forward for the file. It is then possible that Bulgaria will table further Working Groups during 2018.”
Consultation
1.41Since the original proposal was published on 9 December 2015, the Minister says that BEIS officials have met with a number of 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. Whilst negotiations were suspended those officials continued to engage with key stakeholders and will continue to do so throughout the negotiations.
Previous Committee Reports
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.
5 Regulatory “fitness for purpose” review.
6 Result of the Fitness Check of consumer and marketing law and of the evaluation of the Consumer Rights Directive, May 2017.
7 Internal Market and Consumer protection (IMCO) and the Legal Affairs (JURI) Committees.
8 See Second Report, HC 301–ii (2017–19), chapter 3 (22 November 2017).
9 The previous Government said in its Explanatory Memorandum of 5 January 2016 that it was “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 applies 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).
10 Directive 1999/44/EC of the European Parliament and of the Council on certain aspects of the sale of consumer goods and associated guarantees. This was originally transposed into UK law in the Sale and Supply of Goods to Consumers Regulations 2001, which amended remedies provided in the Sales of Goods Act 1979. the key requirement for traders to provide consumers with goods “in conformity with the contract”, failing which a hierarchy of remedies, from repair and replacement to refund is available to the consumer.
11 See our Second Report, footnote 8.
12 The Directive will enter into force on the twentieth day following its publication in the EU’s Official Journal.
13 As reproduced in our Second Report, HC 301–ii (2017–19), chapter 3 (22 November 2017).
14 One-off oral evidence given by Lucy Rigby on “Contracts for the Supply of Digital Content and Contracts for the Online and other Distance Sale of Goods, on 10 May 2016, Q9 and oral evidence given to the “Brexit: Consumer Protection” inquiry by Peter Moorey, Head of Campaigns, Which? on 25 April 2017, Q1 and Q8.
15 December 2017