Select Committee on European Communities Twelfth Report


Letter from Nigel Griffiths MP, Parliamentary Under-Secretary of State for Competition and Consumer Affairs, Department of Trade and Industry to Lord Tordoff, Chairman of the Committee

  In March, the House of Lords Select Committee on the European Communities published its Report on the Commission's proposal for a Directive on Consumer Guarantees. The Report followed an enquiry by Sub-Committee E, chaired by Lord Hoffman. The debate recommended by the Committee is to take place on 10 June.

  The Government has now considered the Report and I enclose its response, in the form of a Memorandum drawn up by my Department. The Government supports the Commission's aim of improving the standards of protection which legal and commercial guarantees provide to consumers throughout the Community. However, the Government agrees with the Committee that the present proposal is flawed in a number of important respects.

  The Government is grateful for the wide ranging and expert work carried out by Lord Hoffman and his Committee in producing the Report. Their detailed examination of the proposed Directive and recommendations for improving the present proposal will be of considerable value in any future negotiations.

22 May 1997

Memorandum by the Department of Trade and Industry

  1. This Memorandum is submitted by the Department of Trade and Industry in response to the 10th Report (Session 1996-97) by the House of Lords Select Committee on the European Communities on Consumer Guarantees.

  2. The Government welcomes the Committee's Report. It appreciates the Committee's expert and thorough examination of the implications of the European Commission's proposal for a Directive on consumer guarantees.

  3. As the Committee notes in its Report, the Sale of Goods Act 1979 (as amended and augmented by subsequent legislation), which in the United Kingdom underpins the consumer's rights against the retailer, is one of the mainstays of consumer protection in this country. This system of protection, which the Committee describes as mature and generally satisfactory, is fundamental to consumer confidence. The Government is committed to the principle in the legislation that traders have a duty to sell goods which are satisfactory and conform to the contract and that, if they do not, the consumer has a right to seek redress.

  4. The Government supports the Commission's aim of improving the standards of protection which legal and commercial guarantees provide to consumers throughout the Community. There may be a case for a Directive which establishes a common level of protection. However, the Government agrees with the Committee that the present proposal is flawed in a number of important respects. It is not clear, as the Committee says, that differences in Member States' guarantees regimes are a significant impediment to cross border shopping; the results of the further work for the Commission on the economic impact of the proposal are still awaited; and the draft Directive contains a number of provisions which seem either impracticable or unclear.

  5. The proposed Directive could be adopted by a qualified majority vote of the Council. If the Directive progresses, the UK will work constructively with its European partners and the Commission with a view to ensuring that the text provides appropriate levels of protection and is workable and clear. In determining its negotiating position, the Government will take into account the responses it receives to a further consultation it will be undertaking on the expected costs and benefits of the Directive, together with the results of the Commission's new impact study.

  6. As far as consumers in the United Kingdom are concerned, the disadvantages of the Directive would, as the Committee concludes, if adopted in place of current legislation, outweigh any gains. This is, however, a minimum terms proposal. Article 7 would enable Member States to give consumers greater protection than that provided by the Directive, and the Government is committed to maintaining existing consumer protection in the United Kingdom.

  7. The Government would, for example (and in accordance with the Committee's recommendations), retain as far as possible the implied terms of the Sale of Goods Act rather than copy out Articles 2.1 and 2.2 of the Directive. In implementing Article 3 the Government would keep the present limitation or prescription periods and would retain a right to damages. The Government notes the Committee's general comments on the risks of simply copying out a Directive of the kind proposed.

  8. The remainder of this Memorandum addresses the more detailed conclusions of the Committee's Report.

Scope and definitions

  9. The Government agrees with the Committee that the definitions of "consumer goods" and "consumer" in the draft Directive are unsatisfactory. The Government is still considering this matter, but is inclined towards the Committee's first option (the definition of "consumer goods" from the Unfair Contract Terms Act and "consumer" as defined in the Unfair Contract Terms Directive). This would offer broader protection than the Vienna Convention model which the Committee would prefer, for example in relation to the sale of goods for combined domestic and business use. Were the Directive to adopt a narrower approach, it would be open to the United Kingdom to retain its existing levels of protection.

  10. The Government accepts the Committee's recommendation that the Directive should be amended to clarify that, as the Commission has explained, it is not intended to apply to the supply of electricity, gas and water as utilities. Where, however, the Sale of Goods Act provides protection for utilities consumers, the Government would maintain that protection. The Government shares the Committee's opinion that the Directive should, as the Commission intends, apply to both new and second hand goods, as does the present United Kingdom sale of goods legislation.

  11. The Government wishes to consider further the Committee's recommendation that if the Directive is confined to the sale of goods, the United Kingdom should, in implementing the Directive, extend its provisions to other forms of supply of goods such as hire purchase. How far anomalies might arise if this were not done would depend on the extent to which the Directive required changes to United Kingdom sale of goods law. In general, however, both the existing UK legislation on the sale of goods and that on other forms of supply provide equivalent or better protection than the Directive. This protection would be maintained and the supply of goods legislation might be little affected.

Conformity with the contract

  12. The terms of Articles 2.1 and 2.2 of the Directive appear, as the Committee's Report indicates, to be less favourable to the consumer and less helpful to suppliers than the implied terms of the Sale of Goods Act. The Government's general approach in negotiation and in implementing any Directive would be to adhere as closely as possible to the Sale of Goods Act terms, including the ingredients making up "satisfactory quality".

  13. The Government agrees with the Committee that, if the Directive were to follow the approach of Article 2, the text would need to clarify that compliance with Article 2.2 does not exhaust the wider obligation of Article 2.1. The Government also accepts the case for consideration of the meaning of "delivery" in the Directive, as it does the case for clarifying whether the "description by the seller" in Article 2.2 (a) is intended to have a wider meaning than the analogous provision in the Sale of Goods Act.

  14. The Committee's recommendation that Article 2.2(b) should include a reference to reliance on the seller's skill and judgement is helpful. The Government agrees there are problems with the requirement in the same Article that the assessment of quality and performance should take into account statements not only by sellers but also by producers. It would seem preferable to restrict the liability of the seller to statements which he had himself made or displayed.

  15. The Government will consider the concerns which the Committee draws to its attention regarding the application of the Directive to breaches resulting from incorrect installation of goods by the seller (Article 2.3). This could be a difficult area for Member States given that the provision raises questions about the boundary between sale of goods and supply of services legislation.


  16. The Government shares the Committee's view that agreement to the two year liability period proposed in Article 3.1 should be conditional on the clear understanding that Member States would remain free to give consumers more favourable treatment. It also agrees that the meaning of this provision should be set out more clearly and that the specific amendment proposed by the Committee ("could not reasonably be unaware of") would be an improvement.

  17. The Government agrees with the Committee that Article 3.3 would be unlikely to have a major impact compared with the existing rules on the burden of proof. Since the provision would probably have little effect on the outcome of court cases, it seems unlikely that retailers - provided they were aware of that probability - would feel under increased pressure to agree what they believed to be unfounded claims from consumers. However, the Government is reserving its position pending the results of its further consultation exercise.

  18. As far as the proposed remedies in Article 3.4 are concerned, the Government agrees that it would be desirable for the Directive to state that a national court would continue to be able to make an order for damages. As regards the problems of a one year right to rescission or replacement, the Committee's recommended solution would be similar to the UK's present "short term" right to reject, but with a longer term right where there had been a "fundamental breach". The Government will consider this further in the light of the results of its forthcoming consultation exercise. In the meantime it is worth noting, in relation to second hand goods, that Article 3.4 would only require a replacement "when this is possible"; if it were not, the consumer would be able to opt for rescission (in year one).

  19. The Government agrees with the Committee that Article 3.5, which gives the final seller a right to pursue previous sellers in the supply chain, is very problematic, particularly because it goes into the area of commercial contracts and relationships. The Government accepts that it should be deleted.

Obligations of the consumer

  20. The Government believes it would be preferable for the Directive to take a more flexible approach regarding notification of the seller, instead of requiring the consumer to act within one month as in Article 4.1. As the Committee observes, however, Article 7 would allow individual Member States to give their consumers greater protection, which should enable the United Kingdom to require the buyer to act within a "reasonable time". At the same time the Government would need to consider whether (assuming Article 4.1 remained as drafted) it would have to allow the consumer a minimum of one month to notify the seller, given that in some cases a "reasonable time" might be deemed to be less than a month.

Commercial guarantees

  21. The Government agrees with the Committee that the proposed definition of a "Guarantee" should not necessarily be restricted to guarantees of conformity with the contract, and that any requirements on subject matter should be dealt with in Article 5.

  22. As to the subject matter, the Government shares the Committee's reservations about the requirement that a commercial guarantee should place the beneficiary in a more advantageous position than the "statutory guarantee". Depending on its exact meaning, this provision could lead to a decline in the availability of commercial guarantees without adequately addressing the risk that the terms of some guarantees could mislead consumers about their statutory rights. The Government favours the approach of a straightforward notice to the consumer, as required by the Consumer Transactions (Restrictions on Statements) Order 1976, under which a guarantee must carry a statement that it does not affect the consumer's statutory rights. The form of words currently used in the United Kingdom may need to be reviewed.

  23. Like the Committee, the Government doubts whether the difficulties of requiring guarantees to be available for consultation before purchase could be overcome without disproportionate cost. Nor does the Government believe the benefits would justify the measure.

Article 6

  24. The Committee is right to point out that Article 6.1 would need to be amended so that it would not be possible for the consumer's statutory rights to be excluded by contract with the producer. As the Committee recommends, the Government will be considering further the implications of Article 6.2, in particular for the choice of law in cross border disputes.

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