Out-Law / Your Daily Need-To-Know

Dealing with consumers

Out-Law Guide | 30 Mar 2005 | 3:23 pm | 9 min. read

This guide is based on UK law.

Much of the UK law relevant to e-commerce is only applicable to businesses dealing with consumers. Depending on the area of law concerned, the term "consumer" may include not only natural persons but also partnerships and other unincorporated associations.

The various laws relating to consumers can lead to:

  • Terms in contracts being unenforceable by suppliers;
  • Terms being implied into contracts;
  • Contracts being voidable at the consumer's discretion; or
  • Suppliers incurring both civil and criminal liability.

Who protects consumers?

Due to the relative expense of legal claims, consumers often do not enforce their rights against suppliers. However, government bodies and trade associations are increasingly active in developing and enforcing consumer related regulation. These organisations include:

  • The Department of Trade and Industry – responsible for policy on trading standards, fair trading, weights and measures, consumer credit and consumer safety.
  • The Office of Fair Trading – an administrative agency which monitors and controls trade practices and licences those traders whose area of business is subject to a system of licences.
  • Other Government Departments – the Home Office has a role in relation to the control of firearms and explosives, dangerous drugs and poisons, while the Department of Health and the Department for Environment, Food and Rural Affairs are responsible for enforcement of Food Safety and Medicines legislation.
  • Local trading standards officers – most of the consumer protection legislation is enforced by local trading standards officers who are responsible for bringing prosecutions for breaches of the law.
  • Trade Associations – in many areas of business Trade Associations will operate voluntary codes setting out the way in which their members must deal with customers. Compliance with these requirements often allows a supplier to display a particular brand or mark on its promotional material or website. These brands are intended to encourage consumer confidence.

Contract terms and conditions

Many of the consumer rights described in this guide apply regardless of any contract terms and conditions agreed by the parties. However, suppliers are still advised to incorporate a set of terms and conditions into their consumer sales, as large sections of the terms will still apply and will help clarify each party's rights and responsibilities. A set of terms and conditions is also a useful place to satisfy many of the information requirements detailed later in this guide.

Contract terms should clearly set out each party's rights and responsibilities. This will help avoid disputes, with their resultant costs and bad publicity. Suppliers should note that ambiguous clauses are likely to be interpreted by courts in a way which is favourable to the consumer.

When a consumer buys something on the internet, he or she generally does not need to sign anything and might skip over the supplier's terms and conditions or may not notice a link to those terms. If a supplier wants to rely on its written terms it must be able to show that it has done enough to draw the consumer's attention to the terms.

Accordingly, a consumer should be required to acknowledge that he or she has read and agrees to the terms as part of the purchasing process.

Unfair Terms

A supplier will usually seek to specify in its written terms of business that any liability to a purchaser is limited to a certain amount. However, the Unfair Contract Terms Act provides that:

  • certain exclusion clauses are rendered totally invalid; and
  • other exclusion clauses are valid only if they are considered reasonable.

Suppliers cannot exclude liability to anyone for death or bodily injury caused by negligence, nor can they exclude certain other duties to a consumer. Other exclusion clauses will only be permitted if the court considers them to be reasonable. The burden of proving that the exclusion clause is reasonable rests on the supplier.

Courts have a wide discretion in deciding whether a clause is reasonable. This decision will be made in light of all relevant factors, which may include:

  • the strength of the bargaining positions of the parties;
  • whether the consumer received an inducement to agree to the terms; and
  • whether the consumer knew or ought reasonably to have known of the existence and extent of the term.

The Unfair Terms in Consumer Contracts Regulations 1999 apply, with certain exceptions, to any contractual term between a supplier and consumer which has not been individually negotiated. Any such term found to be unfair under the regulations will be void.

The regulations consider a term to be unfair if, "contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer." This is not the clearest of definitions. However, the regulations more helpfully provide some examples of unfair terms, including those which:

  • inappropriately exclude or limit the legal rights of a consumer where the seller fails to satisfy its contractual obligations (e.g. an unreasonable limitation of liability clause); or
  • enable the seller to unilaterally alter, without a valid reason, any characteristics of the product or service purchased.

The Office of Fair Trading issues guidance on terms which it regards as unfair and investigates unfair terms in consumer contracts, although an individual consumer may also challenge a term. The OFT site also publishes periodic bulletins on cases of unfair terms in consumer contracts.

See also our guide on Using Exemption Clauses in Web Sales.

The E-Commerce Regulations

The E-commerce Regulations came into force in the UK on 21st August 2002, implementing the E-commerce Directive. These regulations cover virtually every commercial web site and introduce important provisions for the protection of consumers.

The regulations stipulate information that must be provided by suppliers to their customers. This information includes the name, address and corporate registration details of the supplier. Additional requirements for selling on-line are also set out. These include requirements to specify the technical steps required to conclude a contract and provide an acknowledgement of orders placed.

The regulations introduce into UK law the 'country of origin' principle. This means that EU-based suppliers are only obliged to comply with the laws of the particular EU country in which they are based and should not be subject to additional requirements when trying to sell goods in other EU countries. However, an exception is provided to the country of origin rule in respect of consumer contracts.

Consequently, EU consumers may continue to rely, against suppliers from another country, on their own country's laws concerning the quality and safety of goods, the unfairness of contract terms and other specific consumer related regulation.

The country of origin rule is still of benefit to those selling to consumers as rules regarding areas of corporate/administrative compliance and sales promotion do not fall within the consumer exception.

The Distance Selling Regulations

The Distance Selling Regulations apply when goods or services are bought by consumers over the internet or by other remote means, such as telesales. They only apply in sales to consumers. The regulations detail information which must be provided to consumers before and after any sale, such as price and the supplier's details.

The regulations provide consumers with a cooling-off period. This gives a consumer the right to withdraw from a contract within 7 working days, without penalty and without giving any reasons – the consumer can simply have a change of mind about a purchase. There are exceptions to the rule and other provisions worth studying in more detail.

Product liability

Product liability can be divided into:

  • liability for quality; and
  • liability for safety.

These two areas do overlap.

Product quality is primarily governed by contract law. If a product is sub-standard, the consumer can usually claim against the retailer for, (a) any resulting personal injury and damage to property; (b) a refund or, if they have been using the product for some time, the cost of repair; and (c) any other financial loss resulting from the product's poor quality.

Product safety law is governed by contract and non-contract claims (including criminal law claims).

In the UK, goods must be reasonably safe, which means that the risk of death or personal injury must be reduced to a minimum taking into account what the product would be used for (e.g. a set of kitchen knives will not be considered unsafe simply because they are potentially dangerous if used incorrectly). A breach of this general safety requirement under UK legislation may lead to damages claims and, potentially, criminal prosecution. The general safety requirement applies to manufacturers, distributors and retailers.

A defence to such claims may be available where the producer, distributor or retailer reasonably believed it was complying with its safety obligations (e.g. because the available technology at the time of manufacture of the goods did not allow a certain design flaw to be identified).

Trade descriptions

The Trade Descriptions Act created two offences:

  • applying a false trade description to goods in the course of a trade or business
  • supplying or offering to supply in the course of a trade or business any goods to which a false trade description is applied

The offence could, therefore, be committed by an on-line retailer merely applying a false trade description to goods which appear on its web site (even if the retailer never actually sells any of that product) or supplying via its website any goods to which a false trade description has been applied by another party.

It may be possible to escape liability if it can be shown that reasonable precautions were taken to ensure the accuracy of the descriptions used. It may also be possible for a supplier or retailer to rely on a disclaimer. However, these disclaimers must be bold, precise and reasonable.

They must also be brought to the consumer's attention before or at the time the consumer reads the description concerned.

Spam

Spamming is the sending of unsolicited commercial e-mail.

The EU Directive on privacy and electronic communications passed in 2002 provides that spamming will only be permissible to individuals who have given prior consent to the receipt of such e-mail. An exception is provided relating to existing customers, who may be sent the e-mails provided they are given the opportunity to object to future mailings.

The rules for sending spam to businesses are less restrictive and essentially require a business to object to such mailings. Equivalent provisions are yet to be incorporated into UK law. However, the E-Commerce Regulations require any unsolicited commercial communication to be clearly identified as such.

Suppliers may, in any event, want to avoid the bad publicity which is associated with the practice of spamming.

Credit agreements

Businesses providing consumer credit need a licence issued by the Director General of Fair Trading (renewable every five years). Consumer credit agreements are those agreement by which a creditor provides a debtor with credit not exceeding £25,000 (sums in excess of this amount are dealt with under a different regime). The debtor must be an individual which, in this case, includes a partnership but not a company.

The debtor must be given certain information regarding the proposed transaction including:

  • the annual percentage rate of charge (the APR);
  • a comparison of the cash price and the credit price;
  • the total amount payable; and
  • cancellation rights.

The agreement must be physically signed by both the debtor and creditor (or its representative) and cannot be entered into on-line. If consumer credit agreements are to be offered on-line, the site should detail the above information and the paperwork (which should also set out the above information) must be sent to the individual for their signature on paper.

Failure to comply with these requirements renders the agreement unenforceable against the debtor (in the absence of a Court Order). This means that the debtor may be able to keep the property without having to pay for it.

Summary

Internet retailers are liable to consumers for the quality and safety of the products purchased. They are also obliged to ensure that consumers receive specific and accurate information relating to the retailer and the products it sells.

Written terms of business should be clearly drafted and incorporated into on-line sales agreements but only represent one source of a consumer's rights. Certain of these written terms, particularly those relating to exclusion of the supplier's liability, may prove to be unenforceable against consumers.

It can be seen from the above that the law gives special treatment to consumers. Internet suppliers should tailor their agreements and operations accordingly, in order to minimise the risk of financial penalties and, in some cases, criminal liability.

Other useful information on these topics can be found on the web sites of the Office of Fair Trading and the Department of Trade and Industry.

Contacts

See also: