House of Lords - EU Consumer Rights Directive: getting it right

EU Consumer Rights Directive: getting it right - European Union Committee Contents

CHAPTER 7: Sales Contracts

155. In this chapter, we consider witnesses' views on Chapter IV of the Directive relating to consumer rights that are specific to sales contracts.[38] This includes discussion of the United Kingdom "right to reject", which has been a source of particular concern among United Kingdom stakeholders, and other issues relating to consumer rights in the case of non-conformity with the contract. The question of the application of this section of the Directive to mixed contracts (involving goods and services) was covered in chapter four of our report.

Contents of the proposal

156. Goods should normally be delivered within 30 days of conclusion of the contract, failing which the consumer is entitled to refund, within seven days, of any sums paid. Once the goods have been received, the risk of loss or damage to the goods passes to the consumer.[39]

157. Goods should be delivered "in conformity with the contract", which requires that: they comply with the description given; they are fit for purpose; and they show the quality and performance that can be reasonably expected. The trader is liable for any lack of conformity which exists at the time the risk passes to the consumer.[40]

158. Under Article 26, should the goods fail to conform with the sales contract, the consumer is entitled to: a) repair or replacement; b) a price reduction; or c) rescission (termination) of the contract. In the first instance, the trader has the choice of remedying the problem by either repair or replacement, which means that the consumer does not have the automatic right to reject the goods and claim a refund. Should neither repair nor replacement be possible, the consumer may then choose between price reduction and rescission, although rescission is not an option for minor defects.

159. Under a "second tier" of remedies, the consumer may resort to repair, replacement, price reduction or rescission if the trader: a) refuses to remedy the problem; b) fails to remedy the problem within a "reasonable time"; c) has tried to remedy the problem, causing "significant inconvenience" to the consumer; or if d) the same defect has reappeared more than once within a short period of time.

160. The trader is liable for any lack of conformity with the contract for a period of two years after the consumer has received the goods. A shorter liability period, of not less than one year, may be agreed for second hand goods. A consumer must notify the trader of any lack of conformity within two months from the date that the problem was detected.[41]

The right to reject

161. The impact of Article 26 (on remedies for lack of conformity) was the focus of much of our evidence in relation to both sales and the principle of full harmonisation. This is not least because, under United Kingdom law, where there is a breach of the implied conditions that goods comply with their description and be of satisfactory quality or fitness for purpose,[42] the goods can be rejected and the contract brought to an end. Article 26 would remove this right for consumers as it would, in the first instance, give the trader the choice to try to remedy non-conformity by repair or replacement. Unlike under the existing Sale of Goods Directive the trader would even have the choice between repair or replacement.

162. The Law Commission expressed concern that this loss of the "right to reject" would reduce consumer confidence. Under the European Commission's proposal, the consumer would not be entitled to a refund unless the retailer failed to either repair or replace a faulty good within a reasonable time or without significant inconvenience, or if the same fault reappeared more than once within a short period. According to the Law Commission, its own market research indicated that 94% of consumers considered the right to return faulty goods and receive a refund important. The Law Commission added that there appeared to be a cultural tradition across Europe in favour of refunds, either through a statutory right[43] or voluntarily due to consumer demand (p 178). According to the Government, though, there were other countries, such as Germany, who saw the "right to reject" as perhaps a rejection too far (Q 332). The Law Commission has proposed a short-term right to reject limited to 30 days, with some flexibility, as a compromise in the context of discussions in the United Kingdom and at the EU level.[44]

163. Consumer Focus noted that the simple existence of the "right to reject" helped consumers' bargaining positions, and should affect a retailer's policies (Q 69). Various other witnesses believed that the lack of conformity rules in the proposal were now too heavily weighted in favour of the trader (pp 98, 108, 167, 177, 181). Which? wanted to see the consumer have the free choice between a repair, a replacement or a refund (Q 68). As we have seen, protection of the "right to reject" is one of the United Kingdom Government's "red lines" in negotiations on this Directive (Q 345).

164. Others were less concerned about the right to reject. EuroCommerce noted that the Commission had clearly stated that the Directive would be without prejudice to the United Kingdom "right to reject" and the regime of guarantee for latent defect in France (Q 131). The European People's Party thought it quite probable that manufacturers in the United Kingdom would continue to apply the "right to reject" under their own company policy. The CBI supported this, describing the right to a refund as "natural", although they also welcomed the opportunity to prevent consumers from using goods and then sending them back for a refund (p 69, QQ 365, 388).

Time limits

165. Some witnesses considered the proposal that consumers be obliged to notify the trader of a defect within two months of detection to be an unnecessary hurdle which would make it more difficult for consumers to enforce their rights (Q 20). Which? and the OFT suggested that it would allow traders to contest whether the problem had in fact occurred within two months, which was described by the OFT as an "arbitrary period" (QQ 68, 304). Dr Christian Twigg-Flesner noted that, in practical terms, it may be problematic for a consumer who had purchased goods in one Member State and then travelled home: "by the time you go back it is going to be very difficult to overcome the two month notification problem". He added that the provision was included in the original Sale of Consumer Goods and Guarantees Directive but there was not "overwhelming support" among Member States for this rule (Q 34).

166. Substantial concern was also expressed about the proposal to limit the availability of remedies to those defects which appear within two years of delivery (QQ 68, 285, 304, pp 20, 176, 179, 181). In some countries there is no limit, and for the United Kingdom, this would differ from the six years in the Limitation Act (Q 271). The Law Commission posited the example of a steel joist which might collapse after 26 months, or water pipes which burst during the first hard frost (p 179). Which? agreed that there are a number of purchases which have a lifespan far exceeding two years, such as cars, motorbikes, boats and large electrical items (Q 68). The Trading Standards Institute questioned why a supplier of double glazing products would produce something that was going to last 15-20 years if they knew that liability would only last for two years (Q 290).

167. The Minister, Gareth Thomas MP, was sympathetic to the concerns expressed in this regard. He noted that while a two year limit would be reasonable for most goods, there are a number of goods, such as boilers, which would be expected to last much longer than two years. He confirmed that the Government were alert to the matter (Q 318).

Other restrictions

168. There was some concern among witnesses about the restriction on rescission of contracts for minor defects (pp 108, 177). The Law Commission and Law Society argued that the proposal not to allow rescission for minor defects would lead to unnecessary disputes as to whether a defect or defects were minor (pp 178, 181). Dr Christian Twigg-Flesner revealed the uncertainties surrounding the concept of a minor defect—a defective car windscreen wiper, for example, would not be considered by the Commission to be a minor defect (Q 20). Which? was similarly concerned about this uncertainty, and suggested that the easiest solution would be to exclude that exemption from the proposal (Q 64).

169. Dr Twigg-Flesner also referred to the conditions in which a consumer may resort to any of the remedies (a "second-tier remedy"), and was particularly critical of the terms "reasonable time" and "significant inconvenience", which would seem to require the consumer to wait until the trader had failed to act. He suggested that the text of the Directive could benefit from clarification on these points, and on whether it is only on the third appearance of a defect that the consumer is able to move to a different remedy (Q 34). The Law Commission proposed that consumers should be able to move to the second tier after two failed repairs or one failed replacement and where goods proved to be dangerous or where the retailer had behaved so unreasonably as to undermine trust between the parties (p 178).

Conclusions and recommendations

170. Earlier in this Report we discussed the principle of full harmonisation, which would have a significant impact on sales contracts. We conclude that the Sales chapter is not fit for purpose in its current form if intended as a full harmonisation measure.

171. We observed little appetite among our United Kingdom witnesses to see the United Kingdom's "right to reject" removed and, furthermore, we note that this statutory right, or similar, is not exclusive to the United Kingdom. For the sake of clarity, we recommend that these concerns be addressed through an amendment to Article 26 of the Directive. This amendment may need to be flexible, perhaps giving a specific time-limited right to reject, such as the 30 days proposed by the Law Commission, in order to take into account the concerns of Member States which do not currently support the right to reject.

172. The requirement that a consumer must inform the trader of a defect within two months of detection appears arbitrary and we are concerned that it may not always be practicable to notify the trader within two months. As we do not consider the case has been made for the restriction, and as we are concerned at its impact, we recommend deletion of the two month limit as a mandatory requirement.

173. The two year limit on a trader's liability for faulty goods could be problematic in relation to the purchase of a range of goods which could reasonably be expected to last longer than two years. We therefore recommend reconsideration of the two year limit, with a view to either extending the period or allowing some flexibility in its application.