Distance Selling Regulations

This article examines regulations which came into force on 31 October 2000 and which have substantial implications for any business supplying goods or services to consumers by ‘distance’ means, such as mail order, internet and telesales – and yet the regulations have slipped in almost unnoticed.

A review of a large number of Web sites selling goods to consumers reveals that the vast majority have even now not modified their contract conditions to reflect the new laws. This is worrying. The financial position of the supplier can be much enhanced by modifications to contract terms. Most importantly the new regulations allow consumers to change their mind – they give a right to cancel. A contract is already made but the consumer can have a change of heart : so much for the age-old sanctity of the English law contract. The right to cancel is within seven days of delivery but is extended to three months if the supplier does not tell the consumer about it. All those suppliers who have not yet modified their contracts will find they have extensive cancellation periods which they could easily have avoided.

Application

Readers unsure of whether the regulations apply need to ask two simple questions:

1. Does the business supply goods or services to consumers direct rather than just to other businesses?

If no, then the regulations do not apply. If yes:

2. Does the business supply to consumers by distance methods? If yes, the regulations apply. Distance methods are defined below but are essentially most selling methods which are not face to face. E-commerce, telesales and mail order come within the regulations.

The regulations have applied since 31 October 2000. Businesses should therefore have already modified their contract terms to comply with the regulations. If they have not, then they should do so right away.

Background

Like most new UK commercial laws, the regulations implement an EU directive (97/7 on distance selling) and all EU states should now have similar laws. They are a consumer protection measure designed to protect consumers. They ensure consumers are given basic information such as the name of the seller, which sensible sellers already provide. They also give a new right to cancel contracts.

A distance contract is one where the consumer and supplier do not have face-to-face contact up to and including the moment when the contract is concluded. The Directive covers the sale of goods or services concluded via e-commerce as well as other means of distance selling such as mail order and telephone sales, and fax.

Key Features

The DTI in their guide to the regulations for businesses summarise the key features as:

• 
  
  the consumer must be given clear information about the goods or services offered
  
  
• 
  
  after making a purchase the consumer must be sent confirmation
  
  
• 
  
  consumer has a cooling-off period of seven working days
  
  
• 
  
  new powers for local trading standards departments and the OFT

The regulations do not apply to all distance contracts The most important exception is for financial services (a separate proposed Directive on the distance marketing of financial services is currently being discussed).

What is a distance contract?

There is an indicative list of means of distance communications which are caught by the directive:

• 
  
  unaddressed printed matter (the Mail Order Transactions (Information) Order 1976 is replaced by these new regulations)
  
  
• 
  
  addressed printed matter
  
  
• 
  
  letter
  
  
• 
  
  press advertising with order form
  
  
• 
  
  catalogue
  
  
• 
  
  telephone with human intervention
  
  
• 
  
  telephone without human intervention (automatic calling machine, audiotext)
  
  
• 
  
  radio
  
  
• 
  
  videophone (telephone with screen)
  
  
• 
  
  videotext (microcomputer and television screen) with keyboard or touch screen.
  
  
• 
  
  e-mail
  
  
• 
  
  fax
  
  
• 
  
  television (teleshopping).

The regulations apply only to organised distance selling contracts. If the business does not normally sell to consumers in response to telephone calls then the regulations do not apply. The DTI in their guide on this point say:

“If, for example, you do not usually sell goods or services by distance, but you agree to do so in response to a one-off request from a consumer over the phone, you do not need to comply with the regulations. However if your business regularly handles ‘one-off’ requests from consumers and is organised so that it can deal with such requests (ie there is for example a mail order facility) you do need to ensure that you fulfil the regulations.” (para 3.9).

The definition in the regulations is as follows:

“ ‘distance contract’ means any contract concerning goods or services concluded between a supplier and a consumer under an organised distance sales or service provision scheme run by the supplier who, for the purpose of the contract, makes exclusive use of one or more means of distance communication up to and including the moment at which the contract is concluded;”

The regulations apply where there is exclusive use of distance communications. The DTI say this means that the consumer has no face-to-face meeting with an employee or representative of the business or someone acting on behalf of the business up to and including when the consumer confirms the order.

Exclusions include any contract:

(a) for the sale or other disposition of an interest in land except for a rental agreement;

(b) for the construction of a building where the contract also provides for a sale or other disposition of an interest in land on which the building is constructed, except for a rental agreement;

(c) relating to financial services, a non-exhaustive list of which is contained in Schedule 2 to the regulations and includes: investment services, insurance and reinsurance operations, banking services and services relating to dealings in futures or options;

(d) concluded by means of an automated vending machine or automated commercial premises (if this had not been included then every time someone buys a bar of chocolate from a machine selling chocolate at a railway station a ‘distance contract’ would have been formed);

(e) concluded with a telecommunications operator through the use of a public pay-phone;

(f) concluded at an auction, including an Internet auction.

The major provisions of the Directive (relating to compulsory information to be given to consumers and the right to cancel) do not apply to contracts for the provision of accommodation, transport, catering or leisure services, where the supplier undertakes when the contract is concluded to provide these services on a specific date or within a specific period.

Application to home supermarket shopping?

The DTI in their guide for business say in relation to supermarket deliveries:

“This exception [from information and cancellation provisions] will not generally apply to the growing market for home deliveries by supermarkets. Such deliveries are normally ordered specifically on each occasion by telephone, on the internet or by fax. The consumer must be informed of the price and delivery arrangements etc in accordance with regulation 7 at the time he places the order and receive a written confirmation of the order, at the latest at the time of delivery. There is, however, a specific exception to the right to cancel in respect of the supply of perishable goods”.

Premium rate telephone services

Consumers must be given prior information such as the cost of using the service before they are charged for premium rate telephone services. The DTI in their guide for business (para 5.6) say that the business may provide the information required before the contract is made. They do not need to provide written confirmation of the service but have to ensure the consumer is able to obtain the postal address of the supplier’s place of business so they know where to send consumer complaints. Premium rate Web sites must provide the information clearly before the charge is applied, such as before the consumer switches to the premium rate service.

Prior Information Right

The regulations give the consumer the right to receive clear information about the goods or services before deciding to purchase; this is the prior information right.

By reg7, this must be provided in good time prior to the conclusion of the contract.

The supplier must ensure that the information required by reg7 is provided in a clear and comprehensible manner appropriate to the means of distance communication used, with ‘due regard in particular to the principles of good faith in commercial transactions and the principles governing the protection of those who are unable to give their consent such as minors’. The supplier must ensure that ‘his commercial purpose is made clear when providing the information’. In the case of a telephone communication, the identity of the supplier and the commercial purpose of the call must be made clear at the beginning of the conversation with the consumer.

Confirmation of the prior information in writing or by e-mail

Confirmation of this information in writing or in another appropriate durable medium, eg fax or e-mail must be given. The Directive on which the regulations are based requires that the consumer be given information in writing or in another ‘durable medium that is available and accessible to him’. It does not say exactly what this means so the DTI take the view that e-mail is a durable medium in the sense that it is open to the consumer to retain the information. Giving the details verbally is not, however, enough.

The written confirmation must give details of:

• 
  
  the prior information
  
  
• 
  
  how to exercise the right to cancel and if the consumer is responsible for return of the goods
  
  
• 
  
  any guarantees and after-sales services
  
  
• 
  
  how to end any open-ended service contract, such as gas, telephone, cable or satellite TV etc.

The information must be provided at the latest by the time the goods are delivered or, in the case of services, before or at any early stage during performance of the contract. However, for Internet selling, it makes more sense to give the information both on the Web site before purchase and in the confirmation e-mail on receipt and acceptance of order.

Cooling Off

A cooling-off period is given of seven working days in which the consumer can withdraw from the contract. The DTI say, ‘if the contract is made on Monday, Tuesday will be the first working day of the cooling off period and the seventh working day will be Wednesday of the following week (unless there are any public holidays during this period). If the sale is agreed on Thursday the seventh working day will fall on Monday in the second week following the sale to allow for the two intervening weekends’. The statutory right of withdrawal below does not apply to:

• 
  
  the supply of services, if the supplier has complied with reg8(3) and performance of the contract has begun with the consumer’s agreement before the end of the cancellation period applicable under reg12;
  
  
• 
  
  the supply of goods or services the price of which is dependent on fluctuations in the financial market which cannot be controlled by the supplier;
  
  
• 
  
  the supply of goods made to the consumer’s specifications or clearly personalised or which by reason of their nature cannot be returned or are liable to deteriorate or expire rapidly;
  
  
• 
  
  the supply of audio or video recordings or computer software if they are unsealed by the consumer;
  
  
• 
  
  the supply of newspapers, periodicals or magazines; or
  
  
• 
  
  gaming, betting or lottery services.

The cooling-off period becomes an extra three calendar months where the supplier has not given notice of the seven-day period to the customer. This point illustrates the importance for businesses in amending their terms and conditions now to cover these new rights, so that the legal position can to some extent be ameliorated. The regulations say:

“Where a supplier who has not complied with regulation 8 [information requirements] provides to the consumer the information referred to in regulation 8(2), and does so in writing or in another durable medium available and accessible to the consumer, within the period of three months beginning with the day after the day on which the consumer receives the goods, the cancellation period ends on the expiry of the period of seven working days beginning with the day after the day on which the consumer receives the information”.

Where the supplier never supplied the information requirement then ‘the cancellation period ends on the expiry of the period of three months and seven working days beginning with the day after the day on which the consumer receives the goods’ (ie three months and seven working days).

Often delivery is contracted to be to a third party. In such a case this is treated as if the consumer had received the goods on the day on which they were received by the third party (reg11(5)).

The DTI point out that the cooling-off period is to give the consumer the chance he or she would have had in a conventional shop to ‘examine the goods or to reflect on the nature of the service before deciding to buy’.

The effect of a notice of cancellation is that the contract shall be treated as if it had not been made. For contracts for the supply of goods the cancellation period ends on the expiry of the period of seven working days beginning with the day after the day on which the consumer receives the goods.

The exception relating to audio or video recording or computer software is causing some lawyers problems. It is obviously logical that goods of which the consumer could avail themselves, use/read etc and then conveniently return cancelling the contract should be excluded from the cancellation right. It is a shame that not all computer software is excluded – only that which is ‘unsealed’. The term ‘unsealed’ is not defined. At least one client of mine supplies software to consumers online who have first given a credit card number. The services are provided within the cancellation period. There is nothing to ‘unseal’ except on a very broad and purposive interpretation of the provision which perhaps in practice is the best one to take unless and until challenged. In any event, it would seem sensible to be on the safe side to include relevant wording to ensure the cancellation period is 7 not 30 days and also, as a belt and braces approach, to treat the software as the provision of services, rather than supply of goods (assuming it falls into either category at all which arguably where supplied online, after obiter dicta in St Albans v ICL (CA) [1996] 4 All ER 481, it does not) and include the provisions under reg8(3) as well (see below).

The list of exceptions above is not exhaustive and readers should read the regulations themselves.

Services

Regulation 8(3) provides as follows:

‘Subject to regulation 9, prior to the conclusion of a contract for the supply of services, the supplier shall inform the consumer in writing or in another durable medium which is available and accessible to the consumer that, unless the parties agree otherwise, he will not be able to cancel the contract under regulation 10 once the performance of the services has begun with his agreement.’

Suppliers of services such as solicitors and accountants who provide chargeable advice to clients by telephone, e-mail or fax and thus form a contract at a distance may be caught by the regulations (but only as regards ‘consumer’ clients). It seems that even in such cases the right to cancel may apply. Could this be the case if the services are provided within the seven-day cancellation period? It would seem ludicrous that it might but, unless the service provider gives notice under reg8(3), the customer could cancel after receipt of the advice, possibly even after having signed a valid will, for example, provided under such advice within the seven days. The will presumably would still be valid. In most cases therefore providers are advised to include a new condition in their contracts.

An example of wording which might overcome this problem would be the following:

‘For consumer customers where we carry out work for you, you have a right to withdraw your instructions, without any charge, by giving us a notice in writing or by e-mail at any time within 7 working days from instructing us. This does not apply if we start work within this period and you do hereby consent to our starting work right away.’

Books

Another difficulty with the regulation is that, although there is an exclusion from cancellation for magazines (which obviously is necessary to stop people buying the magazine reading it and sending it back), there is no such exclusion for books. This is illogical. Internet booksellers who often despatch books the day after ordering must be having a major problem with the regulations.

Cancellations and Returns

The consumer must send the cancellation notice in writing including by fax or email. They cannot telephone. The notice is given to the supplier or the person whom the supplier has nominated for this purpose.

Consumers who use or damage the goods are not entitled to exercise the cancellation right. However, if the goods are defective, under sale of goods law the consumer may be allowed to reject them or sue for breach of contract.

Goods and Services – Mobile phones

The cancellation periods differ for goods and services as seen above. The DTI Guide refers to mobile phone contracts where a phone is sold and a service contract is entered into. It states that the Directive on which the regulations are based does not deal with this. The DTI guidance is that ‘if the hardware is given away or sold at a significantly discounted price the contract could be treated as one for service provision and cancellation would mean the phone must be returned too. So the cooling off period would run for 7 working days from the date of the contract. If the phone is sold at full price [which they virtually never are] with limited additional elements then probably the cancellation period for goods would apply, so that it ends 7 working days after delivery of the phone’.

Refunds

In some industries such as clothing it is common (provided the goods are undamaged) to let the consumer return them for no good reason (eg just because in the cold light of day they make the wearer look fat or the colours do not go with some other clothing at home or the buyer’s spouse tells them they have spent too much money and must return them). However, there has until now been no right for the consumer to return even undamaged goods. (Of course if the goods are defective that is a different matter and not considered here.) The new law now allows returns.

In the past many clothing suppliers have allowed exchanges or credit notes but not given monetary refunds unless the law requires it, such as where the goods are defective. This has been legal and the practice has worked well. The new law changes this. If the consumer cancels the contract, all money paid has to be returned within 30 days of the date the notice of cancellation is given. Usually this means recrediting the payment or credit card. Goods purchased by distance methods are rarely paid for in cash, although sometimes they are paid for by cheque.

One of the DTI’s frequently asked questions in its Guide is whether a refund must be paid for a gift wrapping service for goods ordered. The answer is no because the service has already been carried out so cannot be cancelled, but normal delivery costs must be refunded where a consumer has paid for those separately.

Recovering the goods

Ownership in the goods reverts to the seller when the consumer exercises the right to cancel. The consumer has to take reasonable care of the goods even after giving the cancellation notice. The goods should be returned as new.

However, the supplier is obliged to collect the goods unless the contract says otherwise. The consumer just has to make them available for collection. The supplier cannot force the consumer to return the goods unless the contract terms say so. Suppliers therefore would be well advised to include a term in their contracts that the consumer must return the goods. This will make it much less likely that the cancellation right will be exercised.

The supplier has to notify the consumer within 21 days when the supplier will collect the goods and, if this is not done, the consumer is no longer required to look after them with reasonable care, although the consumer must still be given a refund by the supplier in such a case.

If the consumer has been told in the contract and written confirmation that they have to return the goods, then the consumer has to take care of them for up to six months and indefinitely if the supplier serves a notice requiring them to be handed over. If a consumer does not do what they should in looking after the goods, the supplier can claim any resulting loss in value. In practice, if the goods are destroyed this might be the whole value of the goods. Can the supplier in such a case off-set the refund of the price against this? Probably not because of timing. The refund will have to have been made before the consumer has returned them.

Delivery Dates

Most mail order companies are already subject to specific legislation which requires them to deliver in 30 days or else tell consumers this will not be the case. The new regulations do the same thing across all distance selling sectors. Goods must be delivered or services provided within 30 days from the date when the order was placed and if the deadline cannot be met then the consumer must be told before the period expires and must refund money paid in a further 30 days unless the consumer agrees to accept substitute goods or services or to propose a revised delivery date. If the consumer does not agree the later delivery date, which he or she may well not do so, eg if the goods were for a birthday etc, then the contract is cancelled and the consumer is paid his or her money back.

Cold Calling

The regulations also require suppliers who ‘cold call’ consumers at home to be clear about who they represent and what they are offering. When a supplier cold calls someone at home there is often confusion over what is on offer and who is behind the call. The DTI hope the regulations will prevent this. Under these regulations, suppliers who cold call consumers at home must identify clearly the company they represent and the commercial purpose of their call at the beginning of the conversation.

Changes to Unsolicited Goods Law

The Regulations also make changes to the Unsolicited Goods and Services Act 1971. The 1971 Act is amended slightly by the new regulations, but only in relation to goods sent from 31 October 2000 (see reg22(4)). Reference to these changes is included in the version of my paper on the SCL Web site.

Susan Singleton is a leading solicitor in this field and author of many books on related topics, including most recently, e-commerce: A Practical Guide to the Law. She is principal of Singletons (www.singlelaw.com); e-mail: susan@singlelaw.com.

© E S Singleton 2001 n