One of the purposes of introducing the Consumer Rights Act 2015 (CRA) was to simplify the UK consumer protection law which became complex after having transposed various EU legislation over the years. However, just after two months since this Act came into force on 1 October 2015, the European Commission published draft Directives which, if adopted, will require some key provisions of the CRA to change to the extent they conflict. These latest proposals aim to harmonise at the EU level the rules on the rights and obligations of the parties to business-to-consumer (B2C) supply contracts for goods and digital content, albeit (unlike the CRA) limited to online and distance supplies. In fact, the emergence of the CRA and other national rules on B2C supply contracts for digital content is explained as one of the reasons for the need to harmonise the rules at the EU level before other Member States start introducing their own national rules.

These proposals, published by the European Commission in December 2015, are (i) the proposal for a Directive on certain aspects concerning contracts for the supply of digital content (COM (2015) 634 final) (the Draft Directive on Digital Content) and (ii) the proposal for a Directive on certain aspects concerning contracts for the online and other distance sales of goods (COM (2015) 635 final)(the Draft Directive on Goods and together with the Draft Directive on Digital Content, the Draft Directives). The scope and the rights and obligations of the parties under these Draft Directives are different from those under the CRA. Moreover, interestingly enough, certain matters which are considered to be outside the scope of the CRA are specifically stated in these Draft Directives to be within the scope.

This article gives some background of these proposals, an overview of the key differences between the provisions of these draft Directives and the current rules under the CRA as well as the discussions that are likely to follow.

Background

The Draft Directives were presented as part of the Digital Single Market Strategy. Their objectives are being described as removal of "consumer contract law barriers" in the online cross-border trade to reduce costs and uncertainties and thereby contribute to the growth and establishment of a ‘Digital Single Market’ (as described in "A Digital Market Strategy for Europe" (COM (2015) 192 final)). In this document, the European Commission said that it would make an amended proposal of the draft proposal on a Common European Sales Law (CESL) (i) covering harmonised EU rules for online purchases of digital content, and (ii) allowing traders to rely on their national laws based on a focused set of key mandatory EU contractual rights for domestic and cross-border online sales of tangible goods. In reality, the EU initiative trying to harmonise contract law rules of the EU Member States is not new and there have been a series of failed attempts to achieve this in a more comprehensive way for more than ten years under different titles and names including European Contract Law and CESL. The key differences from previous proposals are that (i) the scope of application is limited to online and other distance supplies of goods and digital content to consumers and (ii) the rules are proposed to become mandatory, not optional.

The outcome, if the Draft Directives were to be introduced, could be significant in that national contract law rules will need to be effectively re-written to the extent they apply to online or distance supply of goods and digital content that are regulated under the Draft Directive, even if the transactions do not have any cross-border element.

The following two sections set out some key differences between the provisions under these draft Directives and those under the CRA.

Draft Directive: B2C supply contract for digital content

Scope

The Draft Directive on Digital Content is designed to regulate contracts for the supply of digital content to consumers. The scope of the Draft Directive on Digital Content is broader than the rules on digital content under the CRA because, in addition to data produced and supplied in digital form:

  • "digital content" includes services allowing (i) the creation, processing or storage of data in digital form where such data is provided by consumer and (ii) sharing of and any other interaction with data in digital form provided by other users of the service; and
  • the Draft Directive on Digital Content applies to "any durable medium incorporating digital content where the durable medium has been used exclusively as carrier of digital content".

As a result, the Draft Directive on Digital Content extends to those treated as goods or services under the CRA.

On the other hand, the Draft Directive on Digital Content contains express carve-outs for specific sectors such as financial services, healthcare and certain gambling services therefore the rules under the Draft Directive do not apply to those services. This is in contrast with the CRA which does not have any express exclusion or exemption for any specific sectors which are already heavily regulated under separate sector specific legislation.

"consumer"

Consumer is defined to mean any natural person who is acting for purposes which are outside that person's trade, business, craft or profession. This follows the definition of the Unfair Terms Directive (Directive 93/13/EEC) and is in contrast with the CRA which moved away from this definition by allowing those who only mainly but not wholly act for purposes outside their trade, business, craft or profession to be treated as consumers.

Quality requirements

The Draft Directive on Digital Content goes into some more detail than the CRA in terms of what would be taken into consideration for digital content to be considered ‘fit for purpose’. It also specifically requires that digital content be supplied in conformity with the most recent version which is available when the contract is made unless otherwise agreed. There is no corresponding provision in the CRA.

Installation

The Draft Directive on Digital Content applies to any lack of conformity resulting from the incorrect integration of digital content into the consumer’s digital environment, not only where the integration is carried out by the digital content’s supplier or under the responsibility of such supplier but also, even if intended to be integrated by the consumer, the incorrect integration was due to shortcomings in the integration instructions supplied by the same supplier or due to be supplied by it. The consumer has an obligation under the Draft Directive on Digital Content to cooperate with the supplier to the extent possible and necessary to determine the consumer’s digital environment. The CRA only provides the supplier's liability for installation of goods where the installation forms part of the contract and is done incorrectly by the trader.

Scope of digital content supplied for 'free'

The Draft Directive on Digital Content does not consider that provision of personal data is a ‘free’ supply of digital content. It states that the rules under this Draft Directive apply where "the consumer actively provides counter-performance other than money in the form of personal data or any other data" other than in the situation where (i) the processing of personal data is strictly necessary for the performance of the contract or for meeting legal requirements and the supplier does not further process them in a way incompatible with this purpose or, (ii) in the case of other data, to ensure that the digital content conforms with the contract or legal requirements and the supplier does not use that data for commercial purposes. This is in contrast with the view taken under the guidance document on the CRA that paid for digital content does not include a supply of digital content in exchange for personal data.

Timing of supply

The Draft Directive on Digital Content provides that digital content needs to be supplied immediately after the conclusion of the contract unless agreed otherwise whereas the CRA does not specify when digital content must be supplied. A consumer is also allowed to terminate the contract by notice if this requirement is not complied with but such right does not exist under the CRA. Under the CRA, the consumer’s right to terminate a supply contract for digital content is limited to the situation where the supplier does not have the right to supply the digital content.

The Draft Directive on Digital Content also provides what will happen once a consumer terminates the contract for example the consumer's obligation to refrain from using the digital content or making it available to third parties.

Damage to other products

Under the Draft Directive on Digital Content, the supplier is liable for any economic damage to the digital environment (defined to mean hardware, digital content and any network connection to the extent that they are within the control of the user) of the consumer caused by a lack of conformity with the contract or a failure to supply the digital content. This is in contrast with the CRA which limits the scope of the supplier to (i) the loss in respect of which a remedy is provided is limited to a device or other digital content which belongs to the consumer and (ii) the damage that would not have occurred had the trader exercised reasonable care and skill.

Updates

Both the CRA and the Draft Directive on Digital Content anticipate updates of digital content by the supplier after the initial supply but the scope and circumstances in which the changes can be made to what was originally supplied are different. The Draft Directive on Digital Content allows modifications to functionality, interoperability and other main performance feature of the digital content if (i) stated in the contract, (ii) notified to the consumer reasonably in advance of the modification of a notice on a durable medium and (iii) the consumer can terminate the contract free of charge within no less than 30 days from receipt of such notice. Under the CRA, however, the updates after the supply of digital content are limited in essence to the extent they do not vary the description of the digital content and information at the time of contract (although such information can be varied if the consumer agrees to the variation) and the term allowing the supplier to vary the term is subject to the rules on unfair terms in the CRA.

Termination

Under the Draft Directive on Digital Content, if the term of a B2C contract for the supply of digital content is for an indeterminate period or exceeds 12 months, whether due to the duration of the initial term or with a combination of an initial term and renewal periods, the consumer has the right to terminate a contract any time by notice after the first 12 months for the contract to terminate 14 days after receipt of such notice by the supplier . There are some detailed provisions around the consequence of such termination. There is no such right to terminate under the CRA.

Liability of supply chains

The Draft Directive on Digital Content expressly allows the supplier to pursue remedies against other person in the supply chain who is liable if it he is liable to the consumer due to any failure to supply the digital content or a lack of conformity with the contract resulting from an act or omission by a person in earlier links of the chain of transactions. There is no corresponding provision in the CRA.

Draft Directive: B2C distance contracts for supply of goods

Scope

The Draft Directive on Goods is limited to B2C distance sales contracts of goods whereas the CRA applies to any B2C sales contract for goods. In addition, it does not apply to any durable medium incorporating digital content where the durable medium has been used exclusively as a carrier for the supply of the digital content to the consumer. Goods incorporating digital content such as CDs and DVDs are therefore unlikely to be covered, presumably because they are envisaged to be regulated by the Draft Directive on Digital Content, whereas those goods are treated as goods under the CRA.

"consumer"

The point raised in '"consumer"'above also applies to the Draft Directive on Goods.

Quality requirements

The Draft Directive on Goods requires the digital content to possess the qualities and performance capabilities indicated in "any pre-contractual statement which forms an integral part of the contract". The CRA takes any public statement about the specific characteristics of the goods into consideration in determining whether the goods are of satisfactory quality but specifies the pre-contractual information which is deemed to be a term of the supply contract by reference to the provisions of the Consumer Contracts (Information, Cancellation and Additional Information) Regulations 2013.

Another key difference is the period during which lack of conformity with the contract is deemed to exist when the goods were delivered to the consumer. This is two years under the Draft Directive on Goods and is much longer than the period granted under the CRA which is six months. The Draft Directive on Goods also allows the consumer to not only withhold the payment of any outstanding part of the price until the seller has brought the goods into conformity with the contract but also not to pay for any use made before the goods are replaced where the remedy for the lack of conformity with the contract is replacement.

Installation

The provisions on incorrect installation of goods in the Draft Directive on Goods apply not only where the goods were installed by the seller or under the seller’s responsibility but also the goods which are intended to be installed by the consumer were installed incorrectly due to a "shortcoming in the installation instructions". Under the CRA, the rules on goods only apply where installation of the goods forms part of the contract, the goods are installed by the trader or under the trader’s responsibility, and the goods are installed incorrectly.

Timing of delivery

The Draft Directive on Goods does not specify any timeframe for delivery. Instead, it provides that the goods must where relevant be delivered along with such accessories including packaging, installation or other instructions as the consumer may expect to receive. The CRA requires the goods to be delivered without undue delay and in any event not more than 30 days after the day on which the contract is entered into and does not have any express provision on the delivery of accessories.

Contracting out

The Draft Directive on Goods provides that an agreement excluding or derogating from the provisions on the quality of the goods and installation is valid only if, at the time of the contract, the consumer knew the specific condition of the goods and has expressly accepted such condition. The CRA is more subtle on this point in that the requirements for the goods to be of satisfactory do not apply to anything which is specifically drawn to the consumer's attention before the contract is made or where the consumer examines the goods before the contract is made and that examination ought to reveal, and this is what cannot be contracted out.

Termination

When a consumer terminates a contract due to lack of conformity with the contract, the Draft Directive on Goods contains provisions which are not found in the CRA such as (i) the consumer’s right to terminate not only the contract for those goods delivered but also in relation to any other goods which the consumer acquired as an accessory to the non-conforming goods and (ii) where the goods cannot be returned because of destruction or loss following termination, the consumer must pay to the seller the monetary value which the non-conforming goods would have had at the date when the return was to be made (unless caused by a lack of conformity of the goods). The consumer must also pay for a decrease in the value of the goods to the extent such value exceeds depreciation through regular use whereas the CRA simply allows a deduction for use by the consumer after the first six-month period (other than cars for which such deduction is also available during this period).

Liability of supply chains

The comments in 'Liability of supply chains'above also applies to the Draft Directive on Goods.

Next steps

Detailed considerations of their contents are likely to follow but there is no specific timeline. Apart from specific the provisions of the Draft Directives which differ from those of the CRA and the implications for adopting those provisions, which are outside the scope of this article, there are wider issues which are likely to be looked at.

Although the proposal documents indicate that, in producing these Draft Directive, the concerns raised when previous harmonisation initiatives were debated have been taken into consideration, the fundamental question as to whether intra-EU cross-border transactions will increase if national contract law rules are harmonised at the EU level, and whether the benefit of such harmonisation will outweigh the downside, do not seem to have been answered. There may be reasons other than national contract law rules why businesses and consumers do not enter into transactions beyond their national borders yet the possible implications for introducing new harmonised contract law rules which will re-write corresponding national law can be more significant than the benefits that they may bring about. For example, for the traders operating in the UK, the adoption of the Draft Directives would mean that they will need to comply with two different rules when supplying digital content or goods depending on the means of supply: if supplied online or other distance means, the rights and obligations of the parties would be governed by the European harmonised rules which are different from those when selling offline to which the CRA apply. Does this really help those businesses who are engaged in both online and 'offline' (or face-to-face) sales? Could this initiative if materialises drive businesses away from either offline or distance sales as compliance with two different rules to sell the same products could potentially make things more onerous than the current situation? In fact, could such issue be the beginning of future changes to the national contract law rules which fall outside the scope of these Draft Directives on the ground that having two rules do not help businesses? Furthermore, is mandatory European harmonised contract law is the appropriate approach rather than giving an option for businesses to use as and when they decide to use such law to govern their B2C supply contracts?

One of the concerns of the businesses referred to in the proposal document is indeed a possible divergence of rules depending on whether the supply contract is a distance sales contract to which the proposed Directives apply or offline transactions which are outside their scope. While the suggested initiative for offline supply which at the moment is to try to harmonise other consumer protection rules to be reviewed and aligned while applying the existing national law so as to ensure a level playing field across the EU, a possible long-term effect of these latest proposals is that this might lead to yet another proposal to harmonise the contract law rules for things which are outside the scope of these Draft Directives. In other words, the previous failed attempts to harmonise the contract law rules in a more comprehensive way could be done in two stages with the initial stage being the latest proposals limiting the scope of harmonisation.

The proposal document for the Draft Directive on Digital Content says "there is a need to act quickly in order to prevent possible further legal fragmentation due to the emerging different national rules" as seen in the UK which recently introduced the CRA. However, the contents of the rules and the wider issues mentioned above are such that there are a number of things to be considered apart from the discussions of the appropriateness of particular provisions of the Draft Directives which differ from those of the CRA. When seen against this background, the latest proposals are not simply a question as to how the rights and obligations of the B2C supply contracts for digital content and goods should be governed: it goes beyond the assessment in the context of Digital Single Market or e-commerce, even though presented as proposals which are limited to such market or platform. This fundamental question as to whether there should be a European harmonised mandatory contract law rules regulating the B2C supply contracts is likely to be looked at in relation to these Draft Directives, possibly concurrently with the rules proposed in the Draft Directives, and it may take a while before any agreement is reached as to whether there should be any harmonised EU contract law rules which replace national contract law of the EU Member States.