Consumer Rights Act 2015 by Peter Collins, Senior Associate April 2016 Overview The Consumer Rights Act 2015 regulates contracts between traders and consumers in the UK. It affects all businesses whether they are providing goods or services, and whether these are tangible or intangible (for example, digital content, such as software and apps). Businesses will need to ensure that their standard terms of business, marketing and sales practices comply with the new law to ensure their contract terms are enforceable, to avoid legal risk and, to the extent possible, ensure that their liability to consumers is effectively managed. The Consumer Rights Act represents a consolidation of existing law and new law with the overarching aim of updating the law protecting consumers when they contract with traders. The Act only applies in business to consumer contracts, but business to business suppliers and purchasers cannot ignore it if the goods, digital content or services in question will eventually be supplied to consumers. The Act addresses four main areas:
goods; digital content; services; and unfair terms.
The Consumer Rights Act will only apply to contracts entered into, or consumer notices provided, on or after 1 October 2015. It is also important to note that the Act does not contain all law relating to consumer rights. Important provisions of the Sale of Goods Act 1979 remain in force and the law governing consumer cancellation rights in respect of distance contracts remains in place.
Peter Collins Senior Associate 020 7405 4600
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Goods All contracts for the supply of goods (‘tangible items’) by a trader to a consumer are potentially caught by the Act. These include sales contracts, hire and hire-purchase contracts. Most of the provisions on goods consolidate the existing law, for example, the statutory implied terms as to satisfactory quality, fitness for purpose, that goods will match their description. However, there are a number of new provisions, including:
New statutory implied terms based on the requirements to provide pre-contract information under the Consumer Contract Regulations 2013. Additionally, goods must match a model seen or examined.
Where goods are to be installed and are installed incorrectly, the consumer will have the same remedies as for defective or non-conforming goods, other than the short-term (30 day) right to reject (see below).
Consumers will have tiered or sequential remedies for goods which breach the statutory implied terms as to quality, fitness for purpose, description, and so on. These are the so called Five R's:
a short term Right to Reject within 30 days (as opposed to the current ‘reasonable period’) and to claim a full refund, which if not exercised leads onto
the Right to Repair or Replacement and, if this is not satisfactory, then
the Right to a Price Reduction or a final Right to Reject (and to claim a refund) after only one attempt at repair or replacement by the trader. One attempt is enough for the consumer to have this right. Where the goods are rejected after the first six months then the trader can reduce any refund by a ‘deduction for use’.
New rules on delivery and transfer of risk on delivery. For example, unless otherwise agreed, goods must be delivered to the consumer without undue delay and within 30 days. In general, the goods are at the trader's risk until they come into the physical possession of the consumer or a person identified by the consumer to take possession of the goods.
Digital content Consumers of digital content (software, apps, eBooks, music, videos, games) will have new statutory rights when they buy digital content or it is supplied along with other paid-for goods or services. In addition, consumers who acquire digital content under a contract, which causes damage to their device or other digital content will also potentially have rights against the trader. Whether the digital content was paid for or free, the trader is obliged to repair the damage or compensate the consumer. The key here is the existence of a contract as not all suppliers of digital content will be under a contract. There is a debate, for example, about the legal status of End User Licence Agreements and ‘shrink-wrap’ and ‘browse-wrap’ licences. However, where digital content is paid for it is likely a court would find a contract in place and, in any event, traders will want to ensure there is a binding contract to protect themselves in such circumstances. Nevertheless, even if the supply of digital content is either not under contract or it is free, it is still possible for the End User Licence Agreements or other licence terms to be caught by the Consumer Rights Act. They are potentially consumer notices under the Act as they typically relate to rights or obligations between a trader and a consumer (such as a right to use software subject to restrictions), or they purport to exclude or restrict a trader's liability to a consumer. An unfair consumer notice is not binding on the consumer. We look at what an unfair notice is below. Services Before the Consumer Rights Act, consumers had no statutory remedies where services were of poor quality or were defective. However, they did have common law remedies (such as damages) where, if services were in breach of any express or implied contract term, the supplier would use reasonable care and skill. Accordingly, in respect of contracts where traders supply services to consumers, including financial services and telecommunications and with very limited exceptions, the Consumer Rights Act provides that:
Every services contract includes a term that the trader must perform the service with reasonable care and skill. Liability for breach of this term cannot be excluded. As long as such an exclusion is fair, liability can be limited to the price paid by the consumer. However, liability cannot be limited to less than the contract price. (Section 49)
Every services contract will include as a contractual term, pre-contractual statements or information about the services dependent on whether these are taken into account by the consumer when deciding to enter into the contract, or are taken into account by the consumer when making any decision about the service after entering into the contract. However, such statements or information can be qualified by the trader or changed, if agreed to by the consumer. (Section 50).
If the time for performance is not fixed by contract then the trader must perform the contract within a reasonable time. Where this provision is breached by the trader, the same rules apply as to whether these terms can be limited or excluded as apply in the first bullet point above. (Section 51).
Remedies for defective services Where section 49 or section 50 (in so far as it relates to the services being provided) is breached then, in addition to any other remedies, the consumer is entitled to require repeat performance by the trader at the trader's cost (unless impossible). The consumer is also entitled to seek a price reduction where:
repeat performance of the services is impossible; or
the trader has failed to re-perform in conformity with the contract within a reasonable time and without significant inconvenience to the consumer.
The price reduction must be appropriate and can be the full amount and includes a refund. Unfair terms English law has traditionally had the concept of freedom of contract; if two people entered into a contract which was one sided or unfair, there was little protection for the less favourably treated party. In recent years this position has changed substantially with regards to consumer contracts. This has been driven both by the Unfair Contract Terms Act 1977 (UCTA), which sought to protect consumers from certain types of unfair contract terms (including exclusion clauses) and by European law. Most importantly the Unfair Terms Directive (1993/13/EC) implemented into English law by the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs). Commentators had long argued that UCTA and the UTCCRs were complex, inconsistent and confusing when taken together. The Consumer Rights Act has taken consumer contracts outside of UCTA completely so it now only applies to business to business (and if relevant business to consumer) contracts, and the UTCCRs are replaced by the Act. When looking at whether the terms in a consumer contract are fair (including any terms limited or restricting liability) lawyers now only need to look at the Consumer Rights Act as it has replaced both UCTA and the UTCCRs in relation to consumer contracts. Much of the section in the Consumer Rights Act dealing with unfair terms is consolidation, so should not be new to businesses dealing with consumers. However, there are some significant changes and a restatement of existing ‘fairness’ rules, including: 1. The UCTA ‘reasonableness’ test will be replaced by the UTCCRs ‘fairness’ assessment. The fairness assessment itself has not changed, however. 2. The fairness rules apply to both negotiated and non-negotiated (standard term) contracts. Prior to the Consumer Rights Act the UTCCRs only applied to standard terms. 3. The fairness rules apply to consumer contracts but will also apply to consumer notices. Consumer notices are broadly defined and potentially include website terms and conditions, as well as other legal terms and conditions which are not contractual in nature, such as software End User Licence Agreements and shrink-wrap licences. 4. Unfair terms and notices are not binding on a consumer but they can choose to rely on them.
5. Terms which specify the main subject matter of the contract or the price are not subject to an assessment for fairness provided that:
the term is transparent (in plain and intelligible language and if in writing legible); and
the term is prominent (presented in such a way that an average consumer would be aware of the term). The average consumer is reasonably well-informed, observant and circumspect. Therefore, the price and any subject matter terms must not be hidden in any small print otherwise the price and subject matter terms will be assessed for ‘fairness’.
6. The Consumer Rights Act contains three additional ‘grey list’ terms; terms which may be regarded as unfair. These ‘grey list’ terms are:
A term which has the object or effect of requiring that, where the consumer decides not to conclude or perform the contract, the consumer must pay the trader a disproportionately high sum in compensation, or for services which have not been supplied.
A term which has the object or effect of permitting the trader to determine the characteristics of the subject matter of the contract after the consumer has become bound by it.
A term which has the object or effect of giving the trader the discretion to decide the price payable under the contract after the consumer has become bound by it, where no price or method of determining the price is agreed when the consumer becomes bound.
7. A trader must ensure that a written term of a consumer contract, or a written consumer notice, is transparent. To be transparent it must be expressed in plain and intelligible language and be legible. This reflects the UTCCRs. 8. Where a term in a consumer contract or consumer notice has different meanings, the one most favourable to the consumer will prevail. This reflects the UTCCRs. 9. The courts are under a duty to consider the fairness of a term in a consumer contract whether or not a party has raised the issue. What businesses need to do Whilst the Consumer Rights Act is largely consolidation, it does contain some highly significant changes that will affect most businesses. Businesses will need to:
Review their consumer contracts and any consumer notices (including website terms) for compliance with the unfair terms provisions. This is particularly important with regards to how the main terms describing the subject matter of the contract and the price are presented.
Carefully review advertising and other material or information provided in the run up to selling services as it is likely to have contractual force unless qualified.
If selling to consumers, ensure sales staff are briefed on the 5 R's and the new 30-day short term right to reject and cancellation, and returns policies will need to be reviewed and revised to reflect the Consumer Rights Act.
If the business provides digital content to consumers, address and reflect the new legal regime in your terms of business.
Review terms of business generally, even if it is business to business, to check if there are any downstream business to consumer issues. This may be driven by customers if they are retailers as they will want to back-to-back any new or additional rights consumers have under the Consumer Rights Act in their terms with suppliers.
