Legal briefing | 15 Sep 2015 |

New rules on consumer sales

On 1 October 2015 large parts of the Consumer Rights Act 2015 take effect. It changes the law regarding sales of goods and services to consumers, both in store, by tele-sales and on-line.

What are the changes?

They re-state (with slight changes) and bring into one place existing rules on the sale of goods and services, and concerning unfair terms in consumer contracts;
They change the rules relating to consumer remedies. The changes shouldn't cause much surprise, and existing complaints and redress procedures may already offer what the new rules require;
They introduce new consumer rights relating to sale of "digital content". This is the most prominent change, but in practice is unlikely to be that onerous on suppliers;
Terminology has changed – perhaps largely of interest to lawyers, but changes may be needed to the language of terms of sale, web-notices and such-like to keep them up-to date;
Probably the most important point to remember is that how suppliers (and their sale staff) describe the service provided will form part of the contractual promise to the customer, and any qualifications need to be very clearly and understandably set out. The same applies to certain key statements about goods.

These obligations fall on the immediate supplier, who sells goods or services to the consumer, rather than the original manufacturer.

A key change is that how you describe the service you provide forms part of your contractual promise to the customer.

New remedies?

If a product or service isn't up to scratch, what the supplier must offer the consumer by way of redress varies depending on whether it is goods, digital content (see below) or services. See the text box opposite for a broad summary of the remedies available (the actual detail depends on the particular obligation which is not performed, so suppliers will need to familiarise themselves with the specifics as they apply to your business).

While the cost of repair may, in practice, exceed the original price, the obligation to give a refund will never exceed the price paid. That said, the customer can also sue for damages, but cannot recover twice for the same loss.

"Digital content"

For the past 20 years or so it hasn't been clear whether the supply of software and other forms of digital content constituted "goods" or "services". The customer's implied rights under statute depended on which categorisation applied. But in practice it usually didn't matter much because a minimum quality level still applied. Now we have a clear statement of the law that:

"Digital content" is "data which are produced and supplied in digital form";
When a supplier sells digital content, the consumer has rights as if they were buying goods (the content must be of satisfactory quality, fit for purpose and comply with its description);
"Sell" includes free content provided as a package with goods, services or other digital content which is paid for;
Digital content delivered on a physical medium is treated as goods;
Where the content is a streaming service, or depends on access to a website, the supplier will need to be clear in their contract about how long the consumer will continue to have access to such facilities. Otherwise the time period must be "reasonable";
As an extra obligation, if content damages other data or a device of the consumer (e.g. on which it is downloaded) because the supplier didn't exercise reasonable care and skill, they have an obligation to repair the damage or pay "appropriate" compensation;
This obligation applies where the supplier provides digital content under any contract, so potentially applies in a wider set of circumstances than the core obligations referred to above (satisfactory quality etc). For example a "free" app offered in return for providing the user's email contact details would be covered. In the past anyone who downloaded a defective app which damaged their tablet or other device would have to rely on suing in negligence, whereas now their rights and remedies are clearly set out – albeit that failure to use "reasonable care and skill" must still be shown (as with negligence).

Remedies

Goods

The consumer may, within 30 days, reject the goods (and must receive a refund); or
He can require you to repair or replace the goods; and
If they still don't work the consumer is entitled to an "appropriate" price reduction (which can be 100%) or can reject the goods and receive a refund.

Digital content

The consumer may require repair or replacement. If neither is possible, or repair isn't properly effected, an "appropriate" price reduction/refund (which can be 100%) must be given.

Services

The consumer can require repeat performance within a reasonable time (and without significant inconvenience to the consumer). If this isn't or cannot be performed a price reduction/refund (which can be 100%) must be given.

Can a supplier restrict liability under the contract?

Generally "no". The core obligations implied under the CRA cannot be excluded or limited.

However, other terms and related remedies can be limited to the extent that they are "fair". This test replaces the old "reasonableness" test which applied under the Unfair Contract Terms Act ("UCTA"). A term is "unfair" if "contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations … to the detriment of the consumer".

The best course is to make sure that the customer has sufficient material drawn to their attention before sale in order to understand both the benefits of what is on offer, and its limits.

New enforcement powers

The CRA also introduces new enforcement powers for consumer regulators including Trading Standards and the Competition and Markets Authority.

In the past, the main enforcement tools used by regulators have been criminal prosecutions (usually reserved for “rogue traders” and certain infringements relating to pricing or descriptions of products/services) and/or civil injunctions known as “Stop Now Orders” (under which businesses could be required to cease infringing practices).

Under the CRA, regulators will have new powers to seek much broader orders from the civil courts. These will include requiring businesses to pay compensation to consumers who have suffered loss due to an infringement of consumer law (e.g. where products have been missold) and/or to take active steps to comply with the law in future. The new powers will apply to all consumer protection law infringements, not just breaches of the CRA.

This raises the stakes for businesses found to have infringed consumer law; whereas in the past, the main concern was often reputational damage, businesses will now be more exposed to potentially significant financial liabilities as well (as illustrated by the amounts paid in compensation by banks for mis-selling of PPI).