Following a consultation on the Consumer Rights Act 2015 (the ‘Act’), the Government has confirmed the way in which train operators cap their liability to customers to compensate for delays or cancellations to services must be consistent with the requirements of the Act.

The Act will apply to the rail industry with effect on 01 October 2016. However, the rail industry has been given a further limited exemption of 12 months to review and align its compensation schemes. This means that from 01 October 2017, train operating companies will not be able to cap their liability to compensate passengers for a breach of the Act to less than the price paid to travel. All other requirements of the Act will come into force earlier, from 1 October 2016.

The full Consultation Response can be read at https://www.gov.uk/government/consultations/rail-aviation-and-maritime-applying-the-consumer-rights-act.

The Scope of the Consumer Rights Act 2015

The Act came into force on 1 October 2015 to provide consumers with a clear understanding of their rights and remedies regarding the supply of goods and services and was intended to apply to all consumers across all sectors.

Whilst the consultation was being undertaken, the rail sector benefited from an exemption to certain provisions of the Act (known as the services chapter) until 6 April 2016. Amongst other things, the services chapter provides consumers with a statutory right to require the contracted services to be provided with reasonable care and skill. It also provides, under section 57(3), that the compensation payable to consumers resulting from a breach by the service provider of the consumer’s rights under the Act must not be limited to anything less than the price paid for the service. To enforce these rights to compensation, consumers are entitled to take their claim before the courts, providing they can demonstrate that the service received was not provided in accordance with the Act, such as without reasonable skill and care.

Exemption in relation to rail passenger operators?

The Government was keen to seek industry views on the application of section 57(3). Given that passengers are already entitled to compensation through existing industry schemes under the National Conditions of Carriage and Delay Repay, the consultation sought to understand whether the application of section 57(3) could lead to a significant increase in industry costs (both through additional compensation payable and the administrative costs of defending claims through the courts) or would a separate arrangement potentially confuse passengers about their rights, given the overlap between industry schemes and the Act?

For these reasons the Government was considering a further, long term, exemption of the application of section 57(3) to the railway industry. Pending the outcome of the consultation the application of the services chapter to train operators was further delayed until 1 October 2016. The Act permits an exemption to ‘EU licensed rail passenger operators’; this excludes operators of metros, subways, trams and tourist railways, these operators having all been caught by the Act since 1 October 2015.

The Government’s Response

On 7 July 2016, the Government responded to the consultation, deciding that the exemption of the rail industry from section 57(3) will not be continued and therefore section 57(3) should apply to train operators. The implementation of the services chapter will happen in two phases. Although the services chapter will apply to train operators from 1 October 2016, section 57(3) will not apply until 1 October 2017. The further 12 months exemption has been allowed to afford industry the time to align existing compensation schemes - which are expected to remain the main means of obtaining redress – with section 57(3).

The Government’s rationale in reaching the decision not to exempt the railway industry from section 57(3) was that the risks of adopting the exemption were outweighed by the benefits which arise for passengers from having the Act applying in full. The transport sector had estimated that the costs of applying the Act could increase industry costs by up to £3.5bn per year. However, the Government analysed the impact of the Act on bus, light rail and metro service providers and concluded that no disproportionate costs had arisen in those sectors from not having an exemption. It also stated that the consumers using rail operators’ services should not be denied rights that they would enjoy in other sectors.

Implications for rail passenger operators

From 1 October 2017 rail operators will not be able to limit their liability to compensate consumers for delays and cancellations to less than the price paid. It means that if a train operator fails to exercise reasonable skill and care when providing services, passengers are entitled to recover the full price paid.

It is worth remembering that compensation entitlement under the Act for the full price paid is not automatic. A passenger seeking full compensation would need to demonstrate that the operator had not acted with reasonable skill and care in providing the services and that as a result the passenger had suffered a loss up to the value of the price paid.

Given that many consumer groups already point out that passengers find existing methods of seeking compensation too difficult, complex or time consuming, it is questionable whether significant numbers of passengers would have the appetite or the awareness to pursue a claim before the courts. However, the rail industry must be alive to the possibility of claims being pursued under the Act, together with the continued risk of adverse publicity with a public facing service.