Consumer Rights in Electronic Contracts and Distance Selling

Introduction

The doctrine of freedom of contract has always been respected by the Law, which allows parties to provide for the terms and conditions that will govern the relationship. The Principles of European Contract Law, however, state that this freedom is subject to the requirements of good faith, fair dealing and the mandatory rules established under the Principles. Accordingly, the law has intervened to guide parties as to which terms they can contract on to effectively balance the inequality in their bargaining power, and ensure optimum protection for the consumer who, most times, has limited expertise in the field.

Electronic contracts are no different, as they are subject to laws designed to ensure protection of the consumer. Significantly, the law imposes additional protection, beyond what obtains under traditional paper contracts, particularly for the consumer who elects to buy goods he has not inspected. These protective measures are contained mainly in the European Union (EU) legislative initiatives: the Electronic Commerce Directive (ECD) and the Distance Selling Directive (DSD). The ECD aims to achieve harmony, social and economic development in the internal market by removing barriers to provision of information society services (including online contracting) across member states, and to enhance transparency of information so that consumer confidence and legal certainty in electronic commerce would be ensured. The DSD is primarily aimed at ensuring protection of consumers in their dealings with businesses across the EU.

Consumers’ rights are not extinguished on account of their entering into contracts electronically, and they cannot, by agreement, waive the rights conferred on them by these legislations. In addition, choosing the law of a non-EU member state as the law applicable to the contract cannot deprive the consumer of protection under the DSD. Thus, it is irrelevant that the supplier’s place of establishment is outside the EU. However, enforcing the provisions of the DSD and ECD outside the EU is seriously in doubt.

To effectively assess what protection John has, this essay aims to evaluate the consumer protection provisions of the ECD and DSD applicable to the contract, in addition to the other protection available to him under the general law of contract. The proposals put forward for the amendment of the consumer acquis, particularly the DSD for the purpose of this essay, will also be examined, with an analysis of how the rights of John will be affected by the possible amendment.

Protection For Consumers In Online Contracts

Most of the substantive provisions of the DSD and ECD regulate business-to-consumer (B2C) contracts, in view of the fact that the consumer is, most times, at a disadvantage concerning bargaining power, information about the goods, services or identity of the supplier. Collectively, they strengthen consumer protection in electronic contracts by imposing information obligations on the supplier, which are aimed at giving the consumer as much information as he needs to make a fully informed choice, thereby placing him in the same position as one who shops on the high street.

The provisions under the ECD and DSD available to protect John, as well as the usual remedies for non-delivery under the general law of contract are examined below.

Right Of Withdrawal

This is the consumer’s right to return goods purchased online within a stated period without giving any reason and without penalty. It is aimed at giving the consumer an opportunity to ascertain the quality of the goods or services to facilitate making a fully informed decision, and does not affect the consumer’s rights with regards to supply of defective goods or goods which do not conform to description given by the supplier. Exercising the right entitles the consumer to a full of refund sums paid, and the supplier may only charge for the cost of returning the goods. The existence or otherwise of the withdrawal right forms one of the elements of information which must be provided to the consumer prior to the conclusion of the contract.

The right is, however, subject to some exceptions. Unless parties agree otherwise, it cannot be exercised in respect of personalized goods or goods made to the consumer’s specification; goods which cannot be returned because of their nature or are liable to expire rapidly; contracts for the supply of goods or services whose prices are dependent on market fluctuations outside the supplier’s control; contracts for supply of periodicals, newspapers and magazines; contracts for the supply of audio or video recordings or computer software which have been unsealed; gaming and lottery services; and contracts for the provision of services if performance has begun within the cancellation period with the consumer’s consent.

The “cooling-off” period, which is the period of time within which the contract can be cancelled, is seven working days from the day following delivery date for goods or from the date of conclusion of the contract for services, provided the supplier has complied with the information obligations imposed by Article 5 DSD. This period is extended by three months where the supplier has not complied.

In John’s case, it is pertinent to consider whether the cooling off period is still running. It is submitted that the period extends beyond the usual seven working days and is three months, owing to the fact that the supplier has failed to comply with the Article 5 information requirements. One of these elements of information is a geographical address to which complaints can be forwarded, which has not been provided as can be gleaned from the facts.

In view of the fact that the cooling-off period is still running, the nature of the goods must be considered, assuming that each of them has been delivered in turn. The tricycle and the games console can be returned as they do not fall within the category of excluded goods. The music CDs and games accompanying the games console can only be returned if they have not been unsealed. The iPod engraved with the child’s name cannot be returned because it has clearly been personalized, so this brings it within the excluded category. Also excluded is the selection box of chocolates as they are liable to deteriorate. Concerning the e-book, it is submitted that this is a contract for the provision of services, viz: software program download. Software downloaded from the internet is regarded as an unsealed computer program; if withdrawal is allowed, it can be copied after it is downloaded and then returned. Thus, it is submitted that John cannot exercise the right in respect of the e-book.

Informational Safeguards

The DSD and ECD impose obligations on the supplier to provide certain elements of information to the consumer prior to the conclusion of the contract in a clear, comprehensible and unambiguous manner, so as to ensure transparency in his dealings with the consumer. Among these are a geographical address to which consumers can forward complaints, arrangements for payment, delivery or performance, and an email address to facilitate communication in a direct and effective manner. The European Court of Justice stated in Bundesverband der Ver-braucherzetralen und Verbraucherverbände – Ver-braucherzetrale Bundesverband eV v Deutsche internet versicherung AG that an enquiry template replied by email within 30-60 will suffice, and a telephone number is not necessary except where the consumer has no access to the internet and requests for it. In John’s case, after several days, he is yet to receive a reply to his email demanding redress. It is submitted that this is a clear violation of the relevant cited provisions, as the essence of providing an email address is for “direct and effective communication”. It is not enough to provide an email address which does not serve the intended purpose.

The DSD establishes minimum requirements for consumer protection, as member states may adopt stricter measures to ensure a higher level of consumer protection. The provisions would be dormant without effective mechanisms to ensure compliance. Thus, Article 11 DSD provide that states are to put in place necessary judicial or administrative sanctions to ensure compliance with the provisions of the DSD as transposed under national laws.

In addition, the ECD allows states to impose sanctions for infringement of its provisions, and to take measures necessary to ensure enforcement of such sanctions, which should be proportionate, effective and dissuasive. An instance where this provision may be invoked is where the supplier fails to comply with the information and order processing obligations imposed under Articles 5, 10 and 11. In the United Kingdom, failure to comply with information requirements renders the information society service provider liable to the recipient for damages for breach of statutory duty.

The practice has been for states to require complaints to be channeled through enforcement authorities, who then consider the merits of same and where it is deemed appropriate, make the requisite application to court for an injunction to compel compliance with the Directive. Furthermore, the Injunctions Directive was adopted to strengthen collective consumer protection by arresting cases of infringement promptly and at the community level so that the defaulting party would not be able to move to another state in a bid to evade enforcement action.

It is further submitted that failure to provide certain elements of information, particularly in this case, details of delivery, complaint handling policy and the existence or otherwise of a cancellation right, constitutes misleading omissions within the meaning of the Unfair Commercial Practices Directive. This Directive is aimed at harmonizing national laws on unfair commercial practices to achieve a higher level of consumer protection and eliminate barriers to competition. It enumerates certain actions or omissions which if perpetuated by a trader (supplier) would amount to unfair practices, provided they materially distort or are likely to distort the behavior of an average consumer.

In the light of the foregoing, John can make a complaint to the relevant authorities, relying on the directives mentioned, and if deemed appropriate, the remedy adopted in the national law for breach can be invoked, be it an injunction, an award for damages or the like, in view of the fact that the DSD itself does not provide a specific remedy for breach of the information obligations.

Performance Period

Article 7 DSD requires distance contracts to be performed, in the absence of any term to the contrary, within a maximum period of 30days from the day following that on which the order was placed by the consumer. Where the supplier is unable to deliver the goods or services within this period due to unavailability, he must inform the consumer and refund any amount paid in respect of the contract within a maximum period of 30days. In certain situations, the supplier may provide substitute goods of equivalent price and quality to the consumer, provided this term was part of the pre-contractual information given to the consumer.

It is submitted that John can enforce his right to require the supplier to refund the sums paid for the goods which have not been delivered, as the latter has failed to deliver within the period stipulated under the DSD, and there is nothing to show the parties agreed to a contrary time frame for performance.

Specific Performance

Under the English law of contract, the remedy of specific performance was formulated by the courts of equity to compel the supplier to perform the contract as agreed where damages would not adequately compensate the consumer. In practice, courts in common law jurisdictions have shown a reluctance to grant orders for specific performance, except in cases where the parties had agreed on the exact specification of the goods at the time the contract was concluded.

In the light of the foregoing, with regards to the tricycle, games console and games, selection of chocolates and music CDs, if they are not delivered, John may not succeed in a claim for specific performance, as these are general goods that can be procured anywhere. However, with regards to the iPod engraved with the child’s name, he may succeed in a claim for specific performance if it can be established that he cannot get another supplier to engrave the child’s name on the iPod. Also, the e-book is compatible with his e-book reader which demonstrates an element of specificity as to the goods agreed upon by the parties and he may be able to maintain claim for specific performance.

Damages

In all cases involving breach of contract, either party is entitled to maintain an action for damages in addition to any other remedy available to him or as an independent claim, provided he has suffered loss as a result of the breach. Specifically, a consumer can bring an action for damages where the supplier fails to deliver the goods as agreed. The rationale behind an award of damages is to compensate the innocent party for any loss occasioned by the breach or to place him in the position he would have been if the contract had been performed properly. Thus, the measure of damages is primarily the loss resulting from the breach. Damages may also be awarded where a party claims specific performance but the court is of the view that such an award will be excessive.

It is submitted that John can maintain an action for damages for the supplier’s failure to deliver the goods within the maximum period allowed under the DPD. The amount of damages will be the difference in market price of the goods between the time they ought to have been delivered and their current market price at the time of the claim.

Enforcement Of Rights

It is an acknowledged fact that enforcing the rights discussed against a supplier may not be easy, especially if the consumer has to do this himself. Generally, consumers are reluctant to pursue small claims because of the time and costs involved in judicial procedures. Another reason could be a low level of awareness of their rights where they shop cross-border especially. Article 11(2) DSD provides for various organizations and bodies to be established by states to assist the consumer in realizing his remedies where the supplier defaults. Consequently, the EU states have established various consumer protection organizations to provide support for the consumer. They liaise with one another with a view to amicable and prompt settlement through alternative dispute mechanisms. In addition, simplified and summary court procedures, which are uniform in all EU states, have been put in place to ensure speedy settlement of disputes. One of such organizations is the European Consumer Centre Network (ECC-NET), which provides information to consumers and assists in cross-border dispute resolutions.

Furthermore, the European Commission recently launched a website, the “eYouGuide to your rights online”, aimed at increasing consumer confidence in cross-border online shopping by guaranteeing their rights. It contains all the information consumers need on cross-border e-contracting, and remedies for breach, which include a small claims procedure that facilitates speedy enforcement of claims. It is opined that this will go a long way in raising the current level of awareness among consumers as to their rights where they shop online.

Proposal For Change

The European Commission adopted a Proposal for a Consumer Rights Directive (PCRD) on October 8, 2008 to regulate all B2C contracts for sale of goods and services. It seeks to establish a horizontal set of rules across the EU for all contracts, irrespective of how they are concluded, thereby contributing to the proper functioning of the internal market and achieving a higher level of consumer protection. The PCRD will merge and simplify four existing consumer protection Directives, including the DSD.

Reasons For The Review

A study conducted in 2007 revealed that about 46% of complaints lodged in respect of EU cross border electronic contracts related to late delivery, non-delivery or partial delivery of the goods, as in John’s case. In addition, there is a generally low level of awareness as regards consumer rights in cross-border e-contracting. Consequently, there is a general lack of confidence in the cross border trade system. The review seeks to address this issue by giving consumers the same level of protection wherever they shop in the EU to increase their confidence in cross border trade and thereby boost the integration of the single market.

The allowance given to member states to impose more stringent provisions to ensure higher level of consumer protection has resulted in fragmentation of the internal market, placing businesses at a disadvantage, as they have to comply with a host of divergent legislations where they engage in cross-border trade in the EU. The review seeks to abolish the minimum harmonization regime by advocating full harmonization of all the rules. Therefore, states are to implement the rules as they are without the leeway to impose more or less stringent ones, thereby making compliance for businesses cheaper and easier, promoting legal certainty and encouraging competition.

The review is also aimed at tailoring the current consumer protection legislations to meet the needs of emerging technologies, particularly mobile commerce. In consideration of the restrictions on number of characters on mobile phone screens, the supplier is allowed to provide the basic information via mobile and refer the consumer to another source where the full information is readily available. Also, auctions will be brought under the scope of the PCRD to ensure protection of consumers who contract via that medium.

With particular reference to the DSD, the main reasons for the review stem from the fragmentation of the internal market owing to its divergent implementation across the EU. Cooling off periods vary, with some states adopting the statutory seven working day period, while others relied on the minimum harmonization provision to provide for longer periods. For instance, in Germany, the cooling-off period is six months (maximum, the minimum is two weeks), whether or not Article 5 is complied with. Some states failed to transpose the obligation to reimburse the consumer within 30 days of exercise of the withdrawal right, while some require the refund to be within 30days of “return of the goods”, contrary to the DSD. Also, the prior information requirements in Article 4 and written confirmation in Article 5 have been transposed unsatisfactorily, with some states not making reference to the obligation to give written confirmation, while others omitted certain elements of information from those required to be confirmed.

Areas Affected By The Review

For the purposes of this essay, only the areas relevant to John’s situation that are affected will be highlighted. First, the PCRD provides for a general cooling-off period of fourteen calendar days from delivery of goods or conclusion of contract for services, to be extended to three months where the supplier fails to inform the consumer of the withdrawal right. Where several goods are purchased, the consumer can exercise the right in respect of each of the goods. The change from “working days” to “calendar days” will resolve the difficulty in interpreting working days owing to different national holidays. In addition, a specimen form enumerating the information to be contained in a notice of withdrawal will be introduced, thus, unifying the procedure for exercising the right.

Secondly, pursuant to the exercise of the withdrawal right, for contracts of services, reimbursement of sums paid must be within thirty days from when the trader receives the notice. However, in sales contracts, the trader may withhold reimbursement until he receives the goods or a notice that they have been sent. This places an obligation on the consumer to return the goods to the trader within the fourteen-day period in the absence of an agreement to the contrary.

Third, as regards non-delivery, the consumer will have a right to a refund no later than 7 days from the expiration of the thirty day maximum period allowed for performance of the contract.

Article 9 states the elements of information to be supplied by the trader, which are to form an integral part of the contract. This is a welcome development, as the consumer can rely on failure to comply as a ground to rescind the contract. In addition, the PCRD provides that apart from the specific remedies prescribed for breach of certain information obligations, failure to comply with other information requirements is to be sanctioned appropriately by the states in their national laws. This could potentially undermine the full harmonization regime, as there will inevitably be divergences in these remedies, a situation similar to what obtains under the DSD.

Analysis Of Proposal For Consumer Rights Directive

Owing to the differences in contract laws of the EU states, it is submitted that full harmonization as advocated by the PCRD cannot be attained presently. Furthermore, full harmonization will not necessarily lead to a significant increase in cross-border sales, contrary to common belief that fragmentation of laws is the main obstacle. Conversely, lack of trust in unknown businesses, linguistic, payment, delivery and dispute resolution issues, among others, are more responsible for low cross-border trading. Another major obstacle is the practice of traders who limit access to their services to particular states, such as where delivery is only to certain states in the EU. These must be addressed if a fully harmonized market is to be created.

BEUC, the European Consumers’ Organization submits that fully harmonizing the consumer laws for contract sales will actually lead to lower standards of consumer protection, especially in those states where the minimum harmonization clause in the DSD has been exploited to impose rules ensuring higher consumer protection. The level of protection sought to be imposed by the PCRD is lower than desired, and a better approach will be to provide for minimum harmonization at a higher level than that in current legislations so that states will not need to impose stricter measures. Alternatively, the viability of a mixed model should be explored, thus, only technical issues such as length of the withdrawal period will be fully harmonized, leaving other issues to minimum harmonization so that states can adopt more stringent measures as dictated by their domestic markets.

Another concern expressed is the fact that the ECD which complements the DSD is not up for amendment, which raises serious doubts as regards the practicability of implementing the PCRD with the old ECD.

In addition, the continued exclusion of digital goods from the withdrawal right is a source of concern, considering the fact that they are popular items of cross-border e-contracting. The obligation on the consumer to return the goods following exercise of the right seems to undermine consumer protection and may further lower consumer confidence in cross-border contracting, as there is no guarantee that the trader will reimburse the consumer following return of the goods. However, the extension of the cooling-off period is commendable, as it will give consumers more time to assess the quality of goods bought.

It is further submitted that the main issue under the DSD borders on enforcement. A compliance check conducted in the UK, for instance, showed that nearly a third of the 500 shops surveyed were breaking consumer protection laws. This can be attributed to insufficient checks for monitoring and ensuring compliance with relevant laws. Enforcement mechanisms aimed at bringing defaulting businesses to book need to be put in place; provision should be made at community level to ensure that states have properly implemented the laws and to monitor enforcement, with effective sanctions for any state that falls short of expected standards.

Conclusion

The DSD and the ECD contain provisions aimed at effective integration of the internal market by encouraging cross-border trade, while at the same time, promoting consumer protection and legal certainty. These provisions border mainly on the information which must be disclosed to the consumer prior to the conclusion of the contract so that he has the same opportunity as the traditional high street shopper to make an informed decision. However, the level of cross-border sales has been less than satisfactory, thus, necessitating proposals towards modifying the DSD to fully harmonize its provisions in all EU states, and thereby increase cross-border e-contracting. It is submitted that the provisions in the DSD have failed to deliver the desired results mainly because they were not properly implemented, coupled with the fact that enforcement mechanisms were insufficient. More so, the provisions in the PCRD have failed to address significant problem areas in the DSD. Consequently, a better approach would be to develop appropriate measures to check compliance and sanction same appropriately. When this is done, the problem areas can then be clearly identified and any proposal for change can take off from there. However, if the Commission insists on going on with the review, then there is a need to go over the provisions of the PCRD again so as to cover those areas that have been left as they are in the DSD, but which need to be addressed if the overall aim of internal market integration is to be attained.