The OFT has recently published guidance[1] on complying with the Distance Selling Regulations (DSRs),[2] the Unfair Terms in Consumer Contracts Regulations (UTCCRs)[3] and the Electronic Commerce Regulations (ECRs).[4] It is aimed mainly at IT suppliers who enter into contracts with consumers using distance selling means such as the Internet, telephone or fax.
While the guidance is extremely thorough and useful, it does extend to a rather gruelling 73 pages. The purpose of this article is to highlight the main issues of concern to suppliers of IT goods and services. The OFT say that the aim of the guidance is not only to help suppliers remain on the right side of the law, but that it will improve consumer confidence and increase the likelihood that consumers will be willing to do business with IT suppliers.
The Regulations
DSRs
The DSRs apply to contracts to supply goods or services to a consumer where the contract is made exclusively by distance communication, that is any means used without the simultaneous physical presence of the consumer and the supplier. Distance selling includes, but is not limited to, contracts made by mail order, phone, fax, or over the Internet. The DSRs do not apply if a supplier only sells to the public face-to-face.[5] Where the DSRs apply, a consumer has, for example, the right to cancel a distance contract by notice to the supplier during a specified “cooling off period” whose length depends on whether and when the supplier complies with the requirement to provide certain written information.
ECRs
All sales by Internet, e-mail, text messaging or digital TV (whether or not to a consumer) must also take account of the ECRs. The obligations under the ECRs are additional to, and not in substitution for, any other information requirements contained in other legislation, such as the DSRs. For contracts concluded by electronic means, the ECRs require, for example, that a service provider must provide certain information in a clear, comprehensible and unambiguous manner to consumers before the order is placed.
UTCCRs
A supplier who uses preformulated contracts to sell to consumers, must comply with the UTCCRs whether or not the contract is concluded at a distance. The UTCCRs provide that standard terms are unenforceable unless they are fair. A standard term is one that is drafted in advance and is not negotiated with the consumer. A term is likely to be considered unfair if it creates a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer and contrary to the requirement of good faith[6].
Main Issues
Contract terms
A supplier should record in writing any agreed changes to standard contract terms. The OFT warns that, where this is not done, suppliers must honour any oral agreements and/or changes to the contract. The guidance also provides useful examples of such terms that will be open to objection – for example any terms that purport to exclude liability for promises made that are not written into the contract.[7]
The OFT advises that terms should be understandable to consumers without the need for legal advice. Whatever the terms are, they will be open to objection if a consumer has not had an opportunity to see them. Terms should therefore be complete, and regardless of the method of communication, should be clear and readily accessible. If a contract is concluded by electronic means, suppliers need to make terms available to the consumer so they can be stored and reproduced[8].
Making the contract
Under the DSRs, a supplier must supply certain information to consumers in good time before a contract is concluded in a clear and comprehensible manner that is suitable to the means of distance communication used. [9] This includes his identity, address, description of the goods and/or services, price, delivery charges and the existence of a right to cancel. The ECRs also require suppliers to provide information such as the name of their business, geographic address, contact details, VAT number and price information.[10]
As well as this prior information, under the DSRs,[11] suppliers must provide certain other information in writing or some other durable medium[12] to consumers, either before concluding the contract or if after, in good time. At the latest it should be provided when the goods/services are delivered/performed. The required information includes details of the right to cancel, who will be responsible for the cost of returning goods should the consumer cancel, and details of any after sales services and guarantees. If the contract is concluded by electronic means, the ECRs[13] require that a supplier must provide information such as the different technical steps to follow to conclude the contract and technical means for identifying and correcting input errors before a consumer places an order. Further, unless the contract is concluded exclusively by the exchange of e-mails, consumers who place orders through technical means, such as a Web site, must receive acknowledgement of receipt of their order electronically without delay.
Both parties should be clear about when the contract is made. Terms that effectively give the supplier discretion to decide whether the contract has been formed may be vulnerable to challenge. Where a supplier deals with products that are frequently changed, the supplier must make clear for how long the offer or related price will remain valid.
Cancellation Rights
Any standard term dealing with cancellation must not interfere with the consumer’s unconditional right to cancel goods and receive a full refund under the DSRs after a contract is concluded. Provided the supplier gives the consumer the required written or durable information at the correct time, cancellation rights end seven clear working days starting the day after the receipt of the goods.[14] If the required information is not supplied, the cancellation period can be extended by up to three months.
The guidance provides detailed information about recovering goods, duty of care and refunds, and provides examples of terms to avoid regarding interfering with the consumer’s right to cancel, and the time and form of cancellation. One point to note, for example, is that consumers who exercise their right to cancel do not have to return goods to a supplier unless this obligation is stated in the contract.[15] A careful review of contract terms is to be recommended.
Although suppliers do not need to give consumers cancellation rights for goods made specifically to the consumer’s specification, the OFT does not consider this exemption to apply to PCs that are built from standard options.[16] However, as explained further in the next section, cancellation rights do not need to be given for software or audio/video recordings that have been unsealed by the consumer.
Specific Issues for Software Suppliers
As most software is sealed, consumers must be told that they do not have cancellation rights under the DSRs if they unseal computer software. The OFT considers that fairness can only be achieved if suppliers provide software terms to consumers before they have accepted the software, ie before they have broken its seal.
If a supplier provides an optional freestanding installation or support package that is more than a product warranty, this will be viewed as a separate service contract subject to the full DSRs information requirements and cancellation rights. This is the case regardless of whether the supplier or a third party provides the service.[17]
Enforcement
The OFT, Trading Standards Services and the Department of Enterprise Trade and Investment in Northern Ireland (DETI) have enforcement powers under the DSRs, as do “Qualifying Bodies”[18] such as the FSA, the Information Commissioner and DETI under the UTCCRs.
Part 8 of the Enterprise Act 2002 gives designated enforcement bodies powers to take enforcement action through the courts against businesses that breach consumer legislation, including the DSRs, the UTCCRs and certain regulations of the ECRs. These enforcement powers are distinct from direct rights of consumers against suppliers under the general law of contract or statutory provisions.
DSRs
The DSRs place a duty on enforcement bodies to consider complaints about a possible breach of the DSRs, unless the complaint is vexatious. Where they consider a breach has occurred, the ultimate sanction available is the power to apply for an injunction against any person who appears to be responsible for a breach, to obtain compliance with the DSRs.
ECRs
Under the powers provided by the Enterprise Act 2002,[19] an enforcer must not make an application for enforcement unless it has engaged in proper consultation with the person against whom an enforcement order could be made, as well as with the OFT (unless it is the enforcer). Where the OFT is the enforcer, it has the power to ignore the consultation requirement where it thinks that an application for an enforcement order should be made without delay.
An enforcement order will specify the conduct that constitutes the infringement, and will direct the conduct not to be continued or repeated. Suppliers should note that an enforcement order might also require a person against whom an order is made to publish the order and a corrective statement in such form and manner and to such extent as the court considers appropriate for eliminating any continuing effects of the infringement.
Failure to supply the required information when contracts are being made can give rise to a civil action by the recipient of the service against the service provider, for damages for breach of statutory duty[20], or may allow the recipient to seek a court order requiring compliance.[21] If a supplier fails to provide an effective and accessible means by which consumers can identify and correct input errors before they place an order, consumers will be entitled to rescind the contract (unless a court orders otherwise).[22]
UTCCRs
The Qualifying Bodies have a duty under the UTCCRs to consider any complaint received about unfair terms. They share the power, where they consider terms to be unfair, to take action for consumers in general to stop continued use of unfair terms, if necessary by seeking a court injunction. The Qualifying Bodies also have the power to obtain documents and information. The power can be exercised only by written notice and failure to comply with a notice may lead to an application being made to the court for an order to be made.
Words of Caution
Be careful if you choose to offer consumers more than they are entitled to under the regulations.
The regulations do not prevent suppliers from offering consumers more rights than those to which they are legally entitled. However additional contract terms must be carefully drafted so as not to compromise the consumer’s legal rights. For example, a contract that gives the consumer a longer cancellation period than is required under the DSRs but then insists that the cancellation notice is sent by recorded delivery has the potentially unfair effect of limiting the consumer’s rights under the DSRs by placing an additional burden on them when exercising their cancellation right.[23]
Declarations from consumers are also a cause for caution. The OFT has expressed concern over terms that require consumers to state expressly that they ‘have read and understood’ the terms and conditions, as this may not be the case and may put consumers at a legal disadvantage in any subsequent dispute.[24] More likely to be fair is a clear and prominent warning that the consumer should read and understand the terms before placing an order. Alternatively, a supplier may ask consumers to check a box to show that they accept the terms and conditions.
Nick Graham and Mark Young are members of the TMT Group at
Resources
DTI/OFT Guidance
“Guidance for Business: Changes to the Consumer Protection (Distance Selling) Regulations 2000”, DTI
http://www.dti.gov.uk/ccp/topics1/pdf1/distsellguidebuis.pdf
“A Guide for Business to the Electronic Commerce (EC Directive) Regulations 2002”, DTI
http://www.dti.gov.uk/industries/ecommunications/electronic_commerce_directive_0031ec.html#guidance
OFT 512. Enforcement of consumer protection legislation: Guidance on Part 8 of the Enterprise Act (June 2003)
http://www.oft.gov.uk/NR/rdonlyres/07F55E7B-8E74-4FF9-823D-FC32C1FBD793/0/OFT512.pdf
OFT 672. IT consumer contracts made at a distance: Guidance on compliance with the Distance Selling and Unfair Terms in Consumer Contracts Regulations (December 2005) http://www.oft.gov.uk/NR/rdonlyres/F0F8ED8F-CEF0-4C06-A500-F7C915DEEBD7/0/oft672.pdf
OFT 698. Business Guide to the Distance Selling Regulations http://www.oft.gov.uk/NR/rdonlyres/1E6F3C94-8BB0-4374-A65B-6281E030C3C9/0/oft698.pdf
Legislation
The Consumer Protection (Distance Selling) Regulations 2000 as amended by SI 2005/689.
The Electronic Commerce (EC Directive) Regulations 2002
Unfair Terms in Consumer Contracts Regulations 1999
Text Books
“Butterworths Trading and Consumer Law”.
Harvey, Brian and Deborah Parry. “The Law of Consumer Protection and Fair Trading”.
Lowe, Robert and Jeffery Woodroffe. “Consumer Law in Practice”.
Web sites
Halsbury’s Laws online: www.butterworths.co.uk/halsbury/index.htm
SALES OF GOODS AND SUPPLIES OF SERVICES
8. Consumer Protection
(3) Regulation of Consumer Protection
(iv) Regulatory Authorities; and
(5) Statutory Protection; In General
(vii) Distance Selling Contracts
The Department of Trade and Industry
http://www.dti.gov.uk/ccp/topics1/ecomm.htm http://www.dti.gov.uk/ccp/topics1/facts/distancesell.htm
The Office of Fair Trading: http://www.oft.gov.uk/Business/Legal/DSR/default.htm
[2] Consumer Protection (Distance Selling) Regulations 2000.
[3] Unfair Terms in Consumer Contracts Regulations 1999.
[4] Electronic Commerce (EC Directive) Regulations 2002.
[5] Certain goods and services are exempt from all or part of the DSRs, but IT goods and services are not exempt.
[6] Schedule 2 to the UTCCRs contains an indicative and non-exhaustive list of the terms that may be regarded as unfair. The most common types of unfair terms include, (a) those that have the effect of excluding or restricting liability for breach of contract; (b) those that impose financial penalties on the consumer; (c) those that allow the supplier the right to cancel without notice; (d) those that bind consumers to hidden terms; and (e) those that seek to restrict the consumer’s legal remedies.
[7] OFT672, paras. 3.6 and 3.7.
[8] ECR, reg. 9.
[9] DSR, reg. 7.
[10] ECR, reg. 6.
[11] DSR, reg. 8.
[12] There is no legal definition of a “durable medium”. However, in the view of the OFT, a consumer must be able to keep the information, unchanged, for as long as it is needed and access it for future reference. The OFT considers durable information to include brochures, letters, e-mails or faxes but not Web site content, which can be amended. The OFT advises that technological advances may change what is regarded as durable in future.
[13] ECR, reg. 9.
[14] These rights are in addition to the consumer’s statutory right to reject faulty or misdescribed goods.
[15] OFT672, para. 3.73.
[16] OFT672, para. 3.56.
[17] OFT672, para. 3.104.
[18] These are listed in Schedule 1 to the UTCCRs.
[19] These powers apply to ECRs, regs. 6, 7, 8, 9 and 11.
[20] ECR, reg. 13.
[21] ECR, reg. 14.
[22] ECR, reg. 11(1); OFT 672, para. 3.24.
[23] OFT672, para.1.7.
[24] It could be argued that they have ‘signed away their rights’ even where they did not in fact understand a term: OFT 672, para. 3.26.
