The Consumer Rights Act 2015 represents a significant development in the regulation of consumer contracts under UK law. It consolidates and brings consistency to rules that were previously spread across a wide range of different Acts and Regulations. It also introduces new rules, particularly in relation to digital content, remedies available to consumers and unfair contract terms.
The Act comes into force on 1 October 2015 and will apply to contracts entered into after that date. In this article we consider the most important changes to existing consumer law of which consumer businesses need to be aware.
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- Scope of the Act
- Digital Content
- Rights and Remedies
- Unfair contract terms
- Other points of interest
Consumers have, for many years, enjoyed a high and increasing level of statutory protection under UK law. These protections include the imposition of implied terms into contracts for the supply of goods and services, enhanced remedies in the event of breach of contract and protection from unfair contract terms. However, because of the piecemeal way in which the law has developed, these protections are spread across numerous different Acts and Regulations.
The primary aim of the Consumer Rights Act 2015 ("CRA") is to consolidate the existing rules in order to provide clarity to both consumers and businesses. However, the drafters have also taken the opportunity to update existing rules, not least in order to keep pace with the changing way in which goods and services are bought. In particular, the Act:
- Extends consumer protection to cover the supply of digital content
- Consolidates and updates the remedies available to consumers who receive defective goods and services
- Strengthens the existing law on the effect of unfair terms in consumer contracts and extends this regime to cover notices (i.e. oral or written announcements/communications to the consumer in relation to the contract) as well as contract terms
The Act also makes a number of important changes to the UK competition regime. These changes (which are outside the scope of this article) are intended to give private parties, in particular small and medium sized businesses and consumers, the necessary tools to enforce competition law through private class actions on an “opt out” basis and to provide effective redress for loss caused by anti-competitive behaviour. These elements of the Act were covered in detail in a recent article produced by our Competition team.
Scope of the Act
The CRA applies where a business (a 'trader' in the Act's terminology) supplies goods, digital content or services to a consumer. 'Supply' is broadly defined so as to include sale, hire, hire-purchase and other transactions.
The Act introduces a slightly modified definition of consumer: "an individual acting for purposes that are wholly or mainly outside that individual's trade, business, craft or profession". The words "wholly or mainly" (which do not appear in previous legislation, nor in the EU Consumer Rights Directive) expand consumer protection to include contracts where individuals obtain goods or services for business and personal use (provided the personal use predominates). Many commentators have highlighted this subtle expansion (over and above both existing UK law and the EU wide regime) but in reality it is difficult to envisage many scenarios in which the distinction will arise.
The Act is focused solely on consumers' economic rights. The safety of consumer products continues to be governed primarily by the General Product Safety Regulations 2005 and the Consumer Protection Act 1987.
As noted above, the CRA is primarily about consolidating and clarifying the existing law rather than creating new law. Most of the Acts that it supersedes (e.g. the Sale of Goods Act 1979 and the Sale of Goods and Services Act 1982) will remain in force although their effect will now be limited to business to business contracts.
The existing legislation that the CRA supersedes (e.g. the Sale of Goods Act) introduced implied terms as to quality and fitness for purpose of goods and services as well as remedies available to consumers when these terms were breached. Many of these Acts were drafted long before the purchase by consumers of digital content was even thought of and almost all were drafted before it became as commonplace as it is today.
It was not clear whether any of the existing consumer laws on goods and services applied, by implication, to digital content. The general view was that the existing laws did apply (at least to some extent) where digital content was supplied on physical media (e.g. DVDs, devices etc.) but not when it was merely downloaded or streamed. The CRA extends consumer protection to specifically cover digital content (however it is supplied) for the first time.
Digital content ("data…produced and supplied in digital form") encompasses a vast range of products including apps, other types of software, music, games, movies, e-books etc. It is treated separately from tangible goods and services but the protections afforded by the Act are broadly similar:-
- Every contract for the supply of digital content is taken as including implied terms that it will be of satisfactory quality, be fit for the particular purpose for which it is supplied and match any description of it given by the supplier.
- "Quality" includes, amongst other things, state and condition, freedom from minor defects, safety and durability. Digital content will be of satisfactory quality if it meets the standard a reasonable person would consider satisfactory taking into account the description and price of the content and other relevant circumstances. It will be interesting to see how this standard is applied in practice, in circumstances where many people's expectations of quality in digital content are lower than for traditional goods (e.g. people are, at least arguably, more willing to accept minor defects (bugs etc.) in digital content than in traditional goods).
- If digital content does not conform to these implied terms, a consumer has similar rights and remedies as those available for tangible goods. The primary remedy in respect of digital content is the right to demand repair or replacement of the content. If the trader cannot or does not repair or replace the digital product, they must offer a price reduction (up to a full refund where appropriate). The rights and remedies available in relation to tangible goods and services are discussed separately below.
- If the consumer requires the supplier to repair or replace the digital content this must be done within a reasonable period of time, without significant inconvenience to the consumer and with the business bearing any necessary costs (e.g. the cost of shipping as well as repair/replacement).
- A consumer cannot demand repair or replacement if that is impossible or disproportionate compared to other remedies (e.g. in circumstances where repair or replacement would cost more than a full refund). Thus if a digital content provider discovers that errors in its software mean that it cannot provide the content as advertised, it cannot be forced to do so or penalised beyond the price paid by the consumer.
These provisions apply to digital content that is paid for by the consumer and also digital content that is provided 'free' alongside other paid for content and/or goods and/or services.
If digital content supplied to a consumer damages other digital content or any physical device belonging to him (e.g. if the content includes a virus) the supplier will be liable to make repairs or compensate the damage with "an appropriate amount". Where defective digital content damages a device, the value of the damage could be many times greater than the value of the digital content. Suppliers will only be liable for damage that would not have occurred if they had exercised reasonable care and skill. This obviously highlights the importance of careful testing of digital content. Unlike the other terms discussed above (which protect consumers only in relation to digital content for which they have paid, directly or indirectly), this term also applies where it has been provided completely free of charge.
It is worth emphasising that only the supplier of digital content is caught by these terms and not a company that only provides the infrastructure for the transmission of the content (e.g. a mobile phone network or internet service provider).
Rights and Remedies
Consumers purchasing traditional goods have, for many years, been able to take advantage of statutory remedies in the event that the supplier breaches the terms (as to quality, fitness etc.) implied into the contracts of sale. The CRA updates these remedies, in particular by creating a new short term right to reject goods and by clarifying the tiered structure of the various remedies available. The Act also extends many of the existing statutory remedies to cover digital content (as discussed above) and creates new remedies in relation to both digital content and services supplied to consumers.
The different remedies available to consumers and the times at which they can be exercised vary depending on the nature of the breach involved. The position in respect of traditional (i.e. non-digital) goods and services is summarised in the table below.
Click here to view table.
As set out above, the remedies available in relation to digital content are similar to those in respect of tangible goods. The key differences are (i) there is no right to reject digital content (which may in many cases be practically impossible); and (ii) a supplier will be able to attempt to replace or repair the content more than once before the consumer's alternative right to a price reduction becomes effective provided the repair/replacement is carried out within a reasonable period of time and without significant inconvenience to the consumer.
All of the statutory remedies available to consumers are in addition to their common law rights. Consumers can, therefore, bring actions for damages and/or specific performance as well as relying on their statutory rights provided that this does not lead to double recovery in respect of the same loss.
Unfair contract terms
The CRA incorporates the rules relating to unfair contract terms previously found in the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations 1999. As in the other areas discussed above, the Act both consolidates and extends the existing protections.
The test for unfairness remains effectively the same. A term is unfair if "contrary to the requirements of good faith, it causes a significant imbalance in the parties' rights and obligations under the contract to the detriment of the consumer". An unfair term cannot be enforced against a consumer although the consumer can rely on it if, in the circumstances, it is to his advantage.
As noted above, the CRA also extends the rules on enforceability of unfair contract terms to cover notices to the extent that they relate to the parties' rights and obligations under the contract or purport to exclude or limit the trader's liability.
The most important changes relate to transparency and prominence of contract terms:-
- First, all written terms of a consumer contract must be transparent (i.e. "expressed in plain and intelligible language").
- Secondly, certain key terms (namely those relating to the subject matter and price of the contract) are exempt from the requirement of fairness provided they are sufficiently transparent and prominent (i.e. brought to the consumer's attention, for example by being shown in bold or capital letters at the top of the terms and conditions). Terms that are not sufficiently prominent will not be deemed to be unfair per se but they will be subject to the test.
The CRA incorporates the 'grey list' of potentially unfair terms previously found in the Consumer Contracts Regulations. This includes, for example, terms that inappropriately limit a consumer's rights against a trader in the event of partial or non-performance of a contract, terms that give the trader (but not the consumer) discretion to unilaterally dissolve a contract etc. The CRA adds the following new items to the list:-
- Terms that require a consumer who decides not to conclude or perform a contract to pay disproportionately high sums in compensation to the trader or to pay for services which have not been supplied.
- Terms that allow the trader to determine the characteristics of the subject matter of the contract (i.e. the goods, services or digital content) after the consumer has already agreed to be bound by the contract.
- Terms that give the trader discretion over the price payable under the contract after the consumer has already agreed to be bound by it.
The list is indicative only and non-exhaustive: a term can be found to be unfair despite not being on the list and a term on the list will not necessarily be deemed to be unfair in all circumstances.
The CRA also removes a caveat that existed under the old regime to the effect that a term would not be deemed unfair if it had been individually negotiated (i.e. the unfair terms regime was directed at the trader's standard terms of business only). Now, even a term specifically negotiated can be deemed to be unfair. Conceptually this is a fairly significant extension of the regime. However, it may be that this has little practical impact given how rarely consumer contracts are individually negotiated.
Finally, the CRA introduces a new rule with the effect that if there is any legal dispute in relation to the contract the Courts will consider fairness even if neither party raises fairness as an issue. It is difficult to predict exactly what impact this will have on judgments but it clearly indicates an intention that there will be increasing scrutiny of fairness to consumers.
Other points of interest
There are two final modifications contained within the Act that may be of interest:-
- The Act incorporates the existing provisions that create implied terms as to quality and fitness for purpose of non-digital goods as well as their compliance with description or sample. It adds 'compliance with a model' to this list. Where a consumer contracts on the basis of a model he has seen or examined, there will now be an implied term that the goods delivered will match that model unless any difference is brought to the consumer's attention before the point of contract.
- There is a significant change to the legal status of voluntary statements made in relation to contracts to perform services. Any written or oral statement made to the consumer by or on behalf of the trader about the services or the trader will now automatically become a term of the contract provided it is taken into account by the consumer when deciding to enter into the contract or when making any decision about the service after entering into the contract. As set out in the table of remedies above, in the event that such a statement proves to be false, consumers will have the right to require repeat performance or a reduction in price (depending on the nature of the information). Under the existing (pre-CRA) law, a consumer would be required to prove that such statements formed part of the contract (pursuant to common law rules on the incorporation of contract terms). If the consumer was unable to prove this, he would have no contractual remedy in relation to false information and would instead need to pursue a claim for misrepresentation.
In summary, the primary goal of the Act is to consolidate rather than to change the existing framework of law that protects consumers buying goods and services. However, in clarifying and updating the rules, the Act has in fact made a number of very important changes. Many of the changes are likely to be welcomed by both businesses and consumers, for example the clarification of the tiered remedies available to a consumer. However, all consumer businesses will want to consider carefully whether their standard terms and conditions are consistent with the new provisions on digital content, remedies and unfair contract terms. Businesses providing digital content in particular will also want to consider whether their existing insurance adequately covers the exposures in relation to faulty content.