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.
Remedies
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.
