In September 2006, the DTI and the OFT jointly published a new guide for businesses on how to comply with various pieces of legislation dealing with contracts made at a distance. The Guidance replaces previous guidance notes and includes advice on complying with the Electronic Commerce (EC Directive) Regulations 2002 and the Consumer Protection (Distance Selling) Regulations 2000. In a separate development, the European Commission issued a communication reporting on the implementation of the Distance Selling Directive (97/7 EC) (the Directive) and asking for views on how the Directive might be adapted to suit changing market conditions and to resolve differences in implementation between Member States.
Guidance by DTI and OFT
The Directive was introduced as a way of improving consumer confidence when carrying out transactions online and ensuring that consumers were not prejudiced by the fact that they could not see the products they were purchasing before buying. In addition, Web site owners could be surprisingly unwilling to provide information on their Web sites such as a geographical address and a contact for queries and complaints (in fact, despite the legislation, it can still be very difficult to find a geographical address and/or telephone number on many Web sites). Consequently, the European Commission took the view that legislation was needed to address these issues.
The legislation applies to ‘distance contracts’ and the Guidance makes it clear that a distance contract means any contract concerning goods or services between a supplier and a consumer under a distance sales or service provision scheme that makes exclusive use of distance communication up to and including the moment at which the contract is made. Mail order, telephone, fax, Internet, mobile (including SMS) and interactive television are all forms of communication that are caught by the Regulations.
The Guidance also considers the meaning of ‘durable medium’ which is not defined in the Regulations. The OFT/DTI’s view is that it means a form in which information can be retained or reproduced but in which it cannot be edited, such as an email that can be printed or a letter, fax or brochure that can be kept for future reference. The OFT does not consider that information on a Web site is durable as it can be changed at any time after the consumer has accessed it.
Traders must give consumers clear information in writing or another durable medium so that they can make an informed choice whether to buy. In most cases, a ‘cooling off’ period must be offered during which a consumer may return the goods. The information must include details about:
• the trader’s business
• goods or services
• the payment arrangements
• the delivery arrangements
• the right to cancel.
There are some exceptions to the Regulations:
• contracts and sale of land (although tenancy agreements are covered if made by distance means)
• contracts for construction of a building where there will also be a transfer of an interest in land
• financial services which are covered by separate distance selling legislation
• conditional sales and contracts for hire purchase
• product support from vending machines
• telephone calls made from a public payphone
• B2B contracts
• auction sales.
Auction sales are generally to be considered a manner of selling items by bids, usually to the highest bidder, by public competition and which have a number of characteristics including (a) a unique item or collection of items for sale, (b) each bid being an offer to buy, (c) the auction ending in a pre-arranged manner, (d) the winning bidder being bound by contract to pay for the items. ‘Buy it now’ and fixed price sales on Internet auction sites are covered by the Regulations as they are not considered to be auctions. In a further clarification of the position in relation to e-bay and similar auction sites, the Guidance makes it clear that sales by private individuals not acting for business purposes are not covered by the Regulations.
There are further exceptions in the areas of catering, leisure and transport.
One of the key areas of the Regulations (and easily the most controversial) is the right to cancel. The right is unconditional and begins from the moment a contract is concluded. It is in addition to consumer statutory rights, if, for example, the goods ordered are defective.
For goods, a consumer’s cancellation right ends 7 working days after the day on which they receive the goods or from the date after the day on which the consumer received the required written confirmation (if it is provided after the goods are delivered). If the information is not provided at all, or is provided more than 3 months after the goods were received, the cancellation right ends 3 months and 7 working days from the day the customer receives the goods. For services, the cancellation right ends 7 working days after the day after the contract was concluded with similar provisions as for goods if the information is not provided on time or at all.
There is an interesting issue in relation to services ordered by telephone which are provided before the consumer can receive the required information. The OFT maintained that, even though the service has already been provided, the consumer would still be able to cancel and therefore receive the service for free. Fortunately, this difficulty was resolved by an amendment made to the Regulations in 2005. A consumer may now not cancel a service which has started with their agreement before the information is provided (as long as the information is provided within the normal timescales). With mixed goods and services contracts such as mixed mobile phone/air time contracts, it is possible to have cancellation periods running at different times and for the service contract to remain cancellable after the period for the goods has expired.
The cancellation right does not apply for:
• goods or services where the price depends on fluctuations in the financial markets which cannot be controlled by the supplier
• custom-made products
• goods that by reason of their nature cannot be returned, such as gas
• perishable goods, such as fresh food or fresh cut flowers
• audio or video recordings or computer software that the customer has unsealed (there is, however, no general exception for copyright products, so books or sheet music which could be copied and sent back are covered by the Regulations).
The Guidance is laid out in the form of FAQs such as ‘Can I withhold a refund if a consumer fails to take reasonable care of the goods?’ with a very helpful index at the back. The Guidance also covers the information requirements of the e-commerce regulations.
There has not been much case law in relation to the Regulations or the Directive but one important case concerned easyCar, which offers an internet-only car hire service. easyCar relied on the transport services exemption in the Directive to assume that its agreements with customers were exempt from the cooling-off rights so that it could offer a ‘book early, pay less’ model. The Office of Fair Trading (OFT) argued that the exemption should not apply and that easyCar’s customers should have a cancellation right. This would have destroyed easyCar’s business model. Although the Advocate General agreed with the OFT, the ECJ reversed the Advocate General’s opinion and found in favour of easyCar to create a binding precedent in all EU Member States.
The ECJ’s view was that the exemption for contracts for the provision of transport services includes contracts for the provision of car hire services.
The approach was good news for consumers who are prepared to pay low prices in return for giving up their right to cancel. It seems strange that the OFT brought this case, since it was clearly against consumers’ interests as, if the cancellation rights were given, prices would be much higher. The outcome of the case was also good for operators who need to know with certainty how much capacity they have at a given time so that they can price their remaining capacity.
European Commission Consultation
The European Commissioner issued a Communication at the end of September discussing the implementation of the Distance Selling Directive and requesting views on how the Directive might be adapted to (a) suit changing marketing conditions and (b) resolve differences in implementation between Member States.
The Commissioner for Health and Consumer Protection said that he was worried that there were possible loopholes or areas of legal uncertainty created by new and fast-growing distance selling products and technologies which might create confusion for consumers and serious business alike or be exploited by rogue traders. Consequently the consultation paper considers the following points.
(a) It assesses the conflict between the Directive and the Directive on Privacy and Electronic Communications in relation to which methods of communication can be used for marketing purposes without an opt in.
(b) It considers the impact of the easyCar case.
(c) The Directive does not apply to auction sales but there has been case law in several member states finding the Directive to apply to online auction sites and this has led the Commission to ask whether auction sales should be made expressly subject to the Directive.
(d) There are the differences in implementation across the EU. For example the cooling off period varies from 7 working days to 14 days. The Commission is concerned that such differences may lead to a distortion of competition across the EU which it wishes to prevent. This is an interesting point as, when the Directive was implemented in the UK, there were criticisms that the UK had merely copied out the Directive and had not taken the opportunity to clarify some of its vaguer provisions.
The consultation also covers:
• the adequacy of definitions used in the Directive
• issues surrounding exemptions from the Directive’s requirements
• the requirement for sellers to give prior information
• the requirement for sellers to provide written confirmation to buyers
• the right of consumers to cancel the contract
• the time limit for providing the goods and services.
The review of the Directive is being carried out within the context of a wider-ranging review of all the consumer-related legislation to ensure that all the directives are working together as they should – both to prevent discrepancies between them and to ensure advances in technology are being covered.
Conclusion
In conclusion, the Distance Selling Directive has created its own problems but the guidance from the OFT and DTI is clear and user-friendly and should assist businesses to understand their obligations. The consultation by the Commission is likely to result in some changes (which hopefully will be constructive and not add yet more complications to the situation) but the European machinery grinds slowly and there are unlikely to be any quick fixes.
Helen Hart is a solicitor in the Corporate and Commercial department at Stevens & Bolton LLP in Guildford. Previously she spent time as sole counsel for Europe at Palm Europe Limited, as well as working in-house at the AA and British Gas: helen.hart@stevens-bolton.co.uk.
