Select Committee on European Union Sixth Report


CHAPTER 6: CONSUMER PROTECTION

113.  Concern about the Country of Origin Principle also focussed on consumer protection.

114.  In broad economic terms consumers fall into two categories, final consumers (businesses, individuals or households) and intermediate consumers (businesses). As Which? pointed out, the difficulty with purchase from a non-home Member State company is that redress in the case where something goes wrong may be complicated.

115.  There are a number of possible complications which witnesses raised. The first is the possibility that the company cannot be traced for the purposes of redress related to consumer protection. This could be exacerbated if the service provider is from another country. A second concern raised by our witnesses was that the contract under which the temporary service was provided could be in law with which the consumer is unfamiliar. A third possible problem could be that the supplier is not aware of standards which apply in the Member State where the service is provided, so provision is made in good faith, but is inappropriate. The first of these points is an issue that needs to be addressed in the services Directive. The second and third we find unjustified.

116.  Clifford Chance argued that with regard to individual consumers, "the concern about UK law not applying is largely misplaced" because the draft Directive includes a specific derogation from the Country of Origin Principle related to consumer contracts. Clifford Chance also told us that "if a foreign service provider is dealing with a consumer, it will always be the host country's consumer rules that apply" (Q 557).

117.  Clifford Chance added: "the only practical difficulty would be if you sue in your own country and you get judgment in your own country, under the Brussels Convention you have to enforce it in the other Member State where the person is established". The lawyers contended that in that case "the Services Directive will help because it will require professional indemnity insurance for services, so ultimately there should be somebody to pick up the tab" (Q 584).

118.  Which? agreed with Clifford Chance that there is no need for concern about a possible lowering of standards in consumer protection, but did point out that consumers prefer to buy services from local providers because "most consumers will be poorly placed to assess the consumer protection regimes of other Member States", Which? went on to say that surveys show that UK consumers are not yet confident about using services from other Member States (Which? written evidence).

119.  Where services are purchased by a firm, then a different derogation to the Country of Origin Principle, (Article 17(20)) is applied, giving parties from any Member State, freedom to choose the law applicable to their contract. Here it is likely that, for example, a master contractor would insist on concluding contracts in a single law with which they were familiar.

120.  Awareness of standards should not be an issue in cases where temporary provision of professional services is concerned. This is because the Services Directive derogates to the Directive on the Mutual Recognition of Professional Qualifications. This Directive was agreed at the beginning of June 2005 and consolidates, simplifies and rationalises the rules on recognition by incorporating a number of existing Directives into one. The Mutual Recognition of Professional Qualification relates to doctors, nurses, dentists, veterinary surgeons, midwives, pharmacists and architects.

121.  Mutual Recognition of Professional Qualifications applies to anyone wishing to pursue a regulated profession (by law or administrative provision), in a Member State other than that in which they obtained their professional qualifications. Where there is no exact correspondence between the qualification required in the Member State of origin and that in the host Member State, migrants will be required to complete an adaptation period or an aptitude test. Service providers who wish to work in the health sector of a host Member State are required to register with the competent professional organisation of the host Member State. In the UK such checks include service provision in the areas of child care, social care, veterinary and gas installation.

122.  In the UK the question of standards in those services that do not fall under the Mutual Recognition of Professional Qualifications Directive should not be an issue of concern. This is because the UK does not have systems of national or local standards applying to all providers of services. For instance, a plumber in the UK can choose to register with the Council for Registered Gas Installers (CORGI), but CORGI registration is not a prerequisite for providing non-gas plumbing services in the UK. This is not the case in all Member States. In Germany for example, a hairdresser must have a master hairdressing qualification to practice his or her trade. In the UK anyone is free to set up as a hairdresser although the business will have to provide a good service at good value if it is to succeed.

123.  We conclude that although consumers should, as with all purchases, exercise due caution in their choice of supplier, consumers are unlikely to be the victim of suppliers as a particular result of their operating under the Country of Origin Principle.

PROFESSIONAL INDEMNITY INSURANCE

124.  We are persuaded that there are a number of issues regarding professional indemnity insurance that need to be addressed in the draft Directive. These relate both to the market for such insurance and to ascertaining that a supplier has it. Indeed, somewhat surprisingly, the Association of British Insurers (written evidence) questions whether insurance should be insisted upon at all.

125.  The professional indemnity insurance brokers Griffiths and Armour Professional Risks told us that: "there will need to be statutory limits on liability for those particular risks to ensure that all the liability arising is covered within the cover of the PII policy[41] of the service provider. This is to be applauded but it has to be recognised that such a cap is not the custom and practice of purchasers in the various Member States."

126.  As we understand it, insurance requirements (often statutory), for practicing various professional activities differ significantly across Member States. Insurers are well able to provide insurance in their own country, but may be unfamiliar with the risks faced in other States and perhaps unwilling to provide cover. To some extent, we can expect the insurance market to develop naturally in order to respond to this need, just as Lloyds of London became used to insuring a wide variety of risks in various places. Indeed, insurance is also a service that one may envisage being traded across borders (although as a financial service, is itself excluded from the draft Directive).

127.  This issue is taken up by the Federation of Small Business and the RIBA, in written evidence, that extra costs and difficulties may ensue. We have not had opportunity to test this issue in detailed questioning of witnesses, except in the case of Clifford Chance, who "do not think we have had any difficulty in securing cover for practising in those different jurisdictions." (Q 558).

128.  On the question of finding out whether a supplier has appropriate insurance, the following passage from Clifford Chance is relevant: "One good thing which the Services Directive would do is this provision about professional indemnity insurance under Article 27. This is where the services provided pose a particular risk to the health and safety of the recipient or a financial risk to the recipient and in that situation the Member State shall ensure that the service provider is covered by professional indemnity insurance or some other equivalent. I am not quite sure how a Member State is going to be able to ensure all cross border service providers are actually covered but that is what the Directive says." (Q 590).

129.  We also welcome this. In our opinion, there are two essential requirements. First (to the extent this is not true already), all Member States need to have in place some minimum set of regulations on professional indemnity insurance that inspires confidence. Second, Member States should not require of a supplier operating temporarily inside its borders a separate insurance pertaining to that Member State, if the supplier can demonstrate that its insurance satisfies the requirements of that Member State.

130.  Consumer protection by extension relates also to third party effects. This is the province of Private International Law and is an important issue. Suppose a contractor in the United Kingdom engages a self-employed plumber from another Member State to work on a contract. Whilst engaged in the task, the plumber drops a tool from some height which lands on a passer-by, causing injury. On this point, Article 17 (23) excludes "the non-contractual liability of a provider in the case of an accident involving a person and occurring as a consequence of the service provider's activities in the Member State to which he has moved temporarily", from the Country of Origin Principle. In other words, in this case the answer is clear: the passer-by can pursue the self-employed plumber under United Kingdom law, subject to any changes that might be introduced by Rome II.

131.  More generally, the position is not entirely clear, as the DTI notes in its supplementary written evidence on the link between the Services Directive, Rome I and Rome II sets out. There is, as currently drafted, some difference on private international law between the SD and Rome II. Rome II "provides a general rule that the law of the country in which the damage arises or is likely to arise shall apply. This differs from the proposed Services Directive, which aims to use the country of origin principle to determine the applicable law in all cases of non-contractual liability, except in cases involving accidents caused by services providers that temporarily provide a service in another Member State (Article 17(23))." (DTI supplementary written evidence).

132.  We conclude that there are several issues arising in respect of insurance for temporary operation that need some clarification, but we do not believe any of these will prove insuperable.


41   PII = professional indemnity insurance. Back


 
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