The Consumer Rights Act comes fully into effect today (1 October 2015). The legislation introduces new consumer rights and remedies when purchasing digital content (such as video games and digital music), as well as building upon what constitutes an unfair contract term when dealing with consumers.
It also replaces the existing legislation under the Sale of Goods Act and Supply of Goods and Services Act, to the extent of dealing with consumers for the sale of goods and supply of services.
A consumer for the purposes of the new legislation is defined as “an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession”.
This summary looks at how the supply of goods, services and digital content to consumers is now governed and considers the unfair contract terms section of the legislation. If you need any advice on any of the elements below please contact one of our commercial solicitors.
Like the implied terms that existed under the Sales of Goods Act, goods must be of a certain standard. Under the Consumer Rights Act, all goods supplied under a consumer contract should:
- be of satisfactory quality;
- be fit for purpose;
- match the description, sample or model; and
- be installed correctly (if part of the contract).
What rights does a consumer have to return the goods?
- initial rights to reject the goods – an automatic 30 day period to return the goods if they do not meet the implied terms unless the expected life of the goods is shorter than 30 days.This right entitles the consumer to a 100% refund.
- repair or replacement - If the 30-day period has lapsed or during that time, the consumer chooses not to exercise their right to reject goods, they will be entitled in the first instance to claim a repair or replacement. This remedy will be deemed a failure if, after one attempt at repair or replacement, the goods still do not meet the necessary requirements.
- price reduction and final right to reject - If repair or replacement is unavailable or unsuccessful to the consumer, then they can claim a price reduction or a final right to reject the goods. The reduction or refund can be up to 100% of the product value.
Consumer rights are subject to the following exclusions:
- before contract, where defects are brought to consumer’s attention, or if the consumer examines the goods and any defects should have been obvious;
- where a consumer changes his mind about wanting the goods;
- if the product was used for a purpose that is neither obvious nor made known to the trader; or
- where faults have appeared as a result of fair wear and tear (only applicable 6 months after the goods are provided to the consumer).
Like the implied terms that exist currently under Supply of Goods and Services Act, the services must be performed to a certain standard. Under the Consumer Rights Act, all services supplied under a consumer contract should:
- carried out with reasonable care and skill;
- completed for a reasonable price (where no price is specified, i.e. hourly rates);
- completed within a reasonable time (where no timescale is provided); and
- completed in accordance with any information said or conveyed in writing to the consumer where the consumer relies on it (intended to include quotations, assurances regarding timescales and information provided pre-contract to the customer which induces them to purchase services from the trader). This is in addition to any rights that may arise as a result of a misrepresentation.
What rights does a consumer have when services do not comply?
- repeat performance of the services - when provider fails to exercise reasonable care and skill or where requirement arising from information they gave about service is breached. Cannot be used where it would be impossible to finish providing service to the required standard.
- reduction of price - A price reduction can also be claimed where the service is not provided within a reasonable time; or the supplier breaches the terms given to consumers, whether orally or in writing regarding the standards of service. Can be up to 100% of agreed price.
- appointment of new supplier. Only in circumstances where getting the original supplier to do the work is impracticable or unreasonable, the consumer may have a claim for remedial work by another supplier.
Consumer rights are subject to the following exclusions:
- where unless agreed to the contrary, it does not achieve the consumer's desired outcome (provided trader uses reasonable care and skill);
- where it is the consumer who is responsible for things going wrong (supplier should always make notes of instructions);
- where damage is caused by the consumer.
- where the consumer simply changes their mind ; or
- where faults have appeared as a result of fair wear and tear.
Consumers have additional rights where contracts are subject to Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, for example under a distance/off-premises contract. These are outside of the scope of this summary.
The Consumer Rights Act definition of digital content is: “data which [is] produced and supplied in digital form.
Any physical media that hosts digital content (such as a CD or Blu-ray) carrying faulty content is still subject to the Consumer Rights Act relating to goods, but content on that item will be governed by the digital content provisions of the Consumer Rights Act.
Under the Consumer Rights Act, digital content must be:
- of satisfactory quality (taking into account description of the content, the price paid and other circumstances such as labelling and advertising);
- fit for a particular purpose; and
- as described (including system requirements and another other information given to the original digital content). Upgrades can add to this description.
Most computer operating systems or games have minor bugs that are corrected over time with patches or upgrades and this will be tested objectively as what is “reasonable” to be deemed acceptable in the context of satisfactory quality.
Consumer rights are subject to the following exclusions:
- the consumer's attention was drawn to an unsatisfactory aspect of the digital content before a contract was made (for example if a game is in beta testing where bugs are typically accepted as part of the game);
- where the consumer examines the digital content before the contract is made and that examination ought to reveal the unsatisfactory aspect; or
- where a trial version is examined by the consumer before the contract is made and a reasonable examination of the trial product ought to make the unsatisfactory aspect apparent (for example, watermarks on files produced by the product).
Remedies under the Consumer Rights Act for defective digital content
- repair or replacement - the consumer does not have choice of repair or replacement if it is either impossible to do so or disproportionate compared to another available remedy. If content is defective within six months of its supply, it is to be taken as being defective on the day it was supplied.
- price reduction - only triggered if the remedy of repair/replacement is not possible or where it has been requested and not provided within a reasonable time. The remedy may be up to the full cost of the digital content.
The following remedies can be claimed either in addition to, or instead of the remedies above:
- a claim for damages;
- forcing the supplier to perform the contract;
- a full refund; or
- not to pay for the product.
Note: a consumer can never recover the same loss twice.
The Consumer Rights Act enables a consumer to be able to rely on the remedies provided for faulty or damaging 'free' digital content. For the consumer to be able to do this the digital content must be supplied under a contract where the consumer has to pay for goods, services or other digital content – computer magazines, for example, typically provide a ‘free’ CD with various software included with the magazine.
Damage to devices
Where digital content that content causes damage to a device or to other digital content (such as corrupting files), that device or content belongs to the customer and the damage is a kind of which would not have occurred if the supplier had exercised reasonable skill, then one of the following remedies will be available to the consumer:
- repair of the damage, which must be done within a reasonable time, without significant inconvenience and without cost to the consumer; or
- payment of compensation, which must be given without undue delay, and in any event within 14 days of the trader agreeing to pay the compensation. The trader cannot charge the consumer a fee for this.
The Consumer Rights Act seeks to replace and add to the current rules on unfair terms in consumer contracts under Unfair Contracts Terms Act 1977 (“UCTA”) and Unfair Terms in Consumer Contracts Regulations 1999 (“UTCCR”) in respect of consumer contracts. An unfair term of a consumer contract is not binding on the consumer, and the assessment of whether a term is unfair will continue to be based on whether the term under scrutiny causes a significant imbalance in the parties' rights and obligations under the contract, to the detriment of the consumer.
Whether a term is fair (or unfair) is to be determined by taking into account:
- the nature of the subject matter of the contract (i.e. the circumstances of the contract);
- reference to all the circumstances existing when the term was agreed; and
- to all of the other terms of the contract or of any other contract on which it depends.
The Consumer Rights Act will apply to consumer notices (whether contractual/non-contractual, oral or written) as well as consumer contracts in the typical form.
What constitutes fairness?
In deciding whether a term in a contract is fair or fair, the term in question will be subject to a "fairness test". The fairness test will be used to decide whether a particular term (or terms) is fair or unfair however, in respect of terms relating to contract price and/or subject matter itself, the fairness test will only be considered in respect of the to the extent that such terms are not “transparent and prominent”, for example, if they were hidden away in small print.
This ensures that the Consumer Rights Act is not a tool for challenging the price or the essence of a contract.
In addition to the terms above, under the Unfair Terms in Consumer Contracts Regulations , there is currently a list of terms which may be regarded as unfair; known as a “grey list”. A term being listed on the "grey list" means that it is assessable for fairness even if the term is "transparent" and/or "prominent".
In addition to the existing grey list terms, the Consumer Rights Act will add three additional terms to the grey list:
- a term which has the object or effect of requiring that, where the consumer decides not to conclude or perform the contract, the consumer must pay the trader a disproportionately high sum in compensation or for services which have not been supplied. (including a "termination fee" for cancellation of a contract);
- a term which has the object or effect of permitting the trader to determine the characteristics of the subject matter of the contract after the consumer has become bound by it; and
- a term which has the object or effect of giving the trader the discretion to decide the price payable under the contract after the consumer has become bound by it, where no price or method of determining the price is agreed when the consumer becomes bound.
Restrictions on excluding liability
Although the Consumer Rights Act is not intended to prevent businesses from limiting liability in their entirety, businesses looking to include in their terms and conditions limitations should note the following:
- it is not possible to exclude or limit the application of the remedies for faulty goods and digital content (such as right to repair or replacement) that are implied into all consumer contracts under the Consumer Rights Act;
- the implied term that the services will be provided with reasonable skill and care cannot be excluded or limited for the reasons above; and
- whilst it is possible to limit liability for supply of services in respect of price and time for performance (provided that such a limit will not prevent the consumer from being able to recover the full contract price), any other limitations in respect of service performance would be subject to a test of fairness.