Technology, Media & Telecommunications (TMT)
Surf’s Up: New Consumer Directive makes some Waves
Surf’s Up: New Consumer Directive makes some Waves
16 min read
In Europe, online sales are set to reach 191 billion Euro by the year 2017. Faced with these numbers, businesses simply cannot afford to pass up the opportunities presented to them by online channels. Neither can they afford to remain in the dark about developments in the e-commerce regulatory sector. The ever-changing landscape of the world market necessitates a fast reaction time and a keen adaptability for businesses to remain relevant.
The new Directive on Consumer Rights (2011/83/EC) (the “Directive”) was adopted by an overwhelming majority of the European Parliament. The deadline for all Member States to transpose the new rules contained in the Directive into their national laws was the 13th December 2013, and Malta was right on cue with its promulgation of the Consumer Rights Regulations by virtue of Legal Notice 439 of 2013, which revoked the Distance Selling Regulations of 2001. The provisions of this new Directive, and the strengthened rights granted to consumers, will apply to contracts concluded between a trader and a consumer after the 13th June of this year. However, online sellers would do well to heed the warnings of the new Directive and get their websites and procedures in line with its consumer-friendly rules before then.
When does the Directive come into play?
Although the Directive, by its nature, requires transposition into the national laws of the Member States in order to take effect, its provisions allow State legislatures minimal wriggling room. In fact, article 4 prohibits Member States from maintaining or introducing in their own law consumer protection measures which are more or less stringent than those provided for by the Directive, effectively forcing the legislatures’ hands to transpose its provisions almost tale quale.
Online sales contracts often have private international law implications in that they raise the question of which law is to govern the contract: is it to be the law chosen by the parties, the law of the country where the seller is based, or the law of the country where the buyer is based? The answer lies amongst the provisions of the Rome I Regulation which allows the parties to consumer contracts to choose the law which is to apply to their agreement, subject however to the principal of “directing activities”. This principle is aimed at online traders, and essentially prevents them from choosing a law to govern their contracts with consumers which would put the latter at a disadvantage. According to this principle, where a trader “directs” his business activities to any country, a consumer contract with a person habitually resident in that country must respect the mandatory consumer rights provisions of that country’s law, such that the consumer is not in a worse position than if the law of his own country of residence governed the contract. Although the precise meaning of the term “directing activities” remains vague, the preamble to the Directive offers some guidance. It appears that whilst the mere accessibility of a trader’s website from a particular country does not, by itself, mean that that trader is directing his activities to that country, the fact that a website solicits the conclusion of contracts (basically, invites consumers to make purchases) and that a contract with a consumer based in that country has actually been completed, is a strong indication that a trader is directing his activities to that particular country. Where that particular country is an EU Member State the provisions of the Directive as transposed in the national law of that State immediately come into play.
Thus, the Directive, combined with the relevant provisions of Rome I, creates a very level playing field across the EU in terms of consumer protection, meaning that, regardless of where he is based or which law he has chosen to govern his consumer contracts, an online merchant trading with consumers based in the EU must respect the consumer rights provided for by the Directive.
What does the Directive aim to achieve?
Whilst consumer protection, as a necessary precursor to the highly prized ‘free movement of goods and services within the internal market’, has always been a high priority matter for the EU institutions, it has never assumed more relevance than it does in the present day. With the major retail economies of Europe increasingly relying on online sales to drive growth, businesses are forced to become well-acquainted with the increased consumer protection measures reserved for distance sales.
The new Directive is squarely aimed at achieving greater consumer protection by harmonising rules relating to consumer information and the right of withdrawal in both distance and off-premises contracts, thus enabling cross-border distance selling, particularly internet selling, to reach its full potential.
Where do Online Sales feature in all of this?
In the context of ‘distance contracts’ (whether these are concluded via email, mail order, through a website, or by phone) the consumer is at a significant disadvantage in that he cannot verify either the existence of a legitimate retail structure, or the actual state of the goods which he is acquiring. It’s not surprising then that the Directive lays down significantly more onerous rules intended to achieve higher levels of consumer protection in the context of online sales. Failure to abide by these rules could result in invalid sales, penalties and consequential losses for online traders.
The question is, are you compliant?
Knowledge is Power: Respect the Buyer’s Need to Know
Under the Directive, the consumer’s right to know is sacrosanct. Before the consumer makes an order on a website he must have before him the following information, which must be clear and comprehensible. The information provided on a seller’s website actually forms part of the distance contract between trader and consumer, so it cannot simply be changed mid-way through a transaction without the consumer having first agreed to such change.
What are you selling?
The consumer needs to know exactly what he’s buying. The main characteristics of the goods or services being sold must be described as thoroughly as possible, and this information must show up on the trader’s website at the point just before the consumer places his order;
Who are you?
The consumer needs to know who he’s dealing with. The trader must provide its name, or trading name, as the case may be;
Where can I reach you?
The buyer needs to be able to reach the trader if there’s a problem with the goods or services, or if he wishes to withdraw from the contract. Thus, the trader must provide his business address and, where applicable, any other address where the buyer can send complaints, as well as a telephone number and email address, where available. The consumer also needs to know how he can communicate complaints to the seller and how he is to be redressed if there’s a problem.
Interestingly, the Directive lays down that in the case of a ‘public auction’, the information referred to in paragraphs (b) and (c) above may be replaced by the equivalent details of the auctioneer. It is noteworthy, however, that online platforms such as Ebay are not considered as public auctions for the purposes of the Directive, as these are not ‘a method of sale where goods or services are offered by the trader to the consumers, who attend or are given the possibility to attend the auction in person.’ Thus, in a forum such as Ebay, the details of the actual seller must be provided.
The trader must also indicate the total price of the goods or services which he is trying to sell. This total price must include taxes, plus all additional freight, delivery or postal charges. If the trader fails to indicate such additional charges, the buyer is not bound to pay for them, which means that the trader will be footing the bill for delivery. Where, for any reason, the total price of the goods or services the seller is offering cannot be calculated in advance, he must at least indicate the manner in which it is to be calculated. Where additional charges, like freight, delivery or postage, cannot be calculated in advance, the trader must at least indicate that such additional charges apply. If he doesn’t, the consumer won’t be bound to pay them, but the trader will. All of this information must show up on the trader’s website at the point just before the consumer places his order.
How shall we do this?
The consumer needs to know how he is going to pay, and how and when the goods or services are going to reach him. On the trader’s website, there must be clearly indicated the arrangements for payment, and for delivery in the case of goods, or for performance in the case of services. Delivery restrictions and which means of payment are accepted (such as VISA, Mastercard, Paypal and/or cheque) must be indicated somewhere on the website, and not later than the point at which the customer can begin to place his order. It is noteworthy that traders may not charge consumers fees for the use of a particular means of payment which exceed those borne by the trader.
What if I change my mind?
Where the consumer has a right of withdrawal (as described in some detail later in this article), the trader must let the consumer know how and by when he can exercise this right. He must do this by making available to the buyer the model withdrawal form as set out in Annex I(B) of the Directive. Where in certain circumstances laid down in the Directive, the right of withdrawal is not available to the consumer, the trader must make this clear. If the buyer does have a right to withdraw initially, but can lose such right, then the trader must tell him how he can lose such right.
Who’s going to pay if I send it back?
If the buyer is expected to foot the bill for the return of the goods, the trader must make this clear. He must also specify how much this is going to cost the buyer (unless the buyer can return them by normal post). If he fails to provide such information do so, the buyer will not be liable for such costs.
The information in (f) and (g) above may be supplied to the consumer by the trader by means of the model instructions on withdrawal set out in Annex I(A) of the Directive.
What if the goods are faulty?
The trader must remind the buyer of his legal and commercial guarantees, as well as provide him with the details of any after-sales service. Legal guarantees are those granted to the consumer by the law governing the contract between the trader and the consumer and which, in accordance with article 6 of the Rome I Regulation, must not fall short of those granted to the consumer by the law of his country of habitual residence. Commercial guarantees are those which are agreed upon contractually between the trader and consumer, and which apply over and above the applicable legal guarantees.
How long will I be bound for?
If the contract is ongoing, such as in the case of the purchase of a subscription, the buyer needs to know how long he is bound for by the contract. If the contract is indefinite, or is extended automatically, the buyer needs to know how he can terminate it. This information must show up on the website just before the consumer places his order.
Do I need to pay a deposit?
Where the buyer must pay a deposit on his purchase, he needs to know how much he is expected to pay and on what conditions he will forfeit such deposit.
What about digital content?
The consumer must be informed of the functionality of digital content, including applicable technical protection measures, and of any relevant interoperability with hardware and software.
Don’t Play Games: The Obligation to pay must be Explicit
Online traders must ensure that consumers explicitly acknowledge their obligation to pay when placing their order. Thus, it is not sufficient for an online button or similar function to state “Order Now” – this must be changed to the somewhat less catchy, “Order with Obligation to Pay”, or to a similarly clear phrase that emphasises that ordering entails an obligation to pay. If the trader fails to comply with this requirement, then the buyer is not bound by his order.
Seal the Deal: Confirmation of the Sale
Confirmation of the sale must be provided to the buyer in writing – an email would suffice for this purpose. This must be provided within a reasonable time after the sale, and at the latest at the time of the delivery of the goods or before the performance of the service begins. It must contain all the information indicated in paragraphs (a) to (k) above.
The Buyer can Back Out: The Right of Withdrawal
The right of withdrawal referred to in paragraph (f) above is the buyer’s right to change his mind and withdraw from an online sale – so long as he does so within a period of 14 days. He may do this without giving any reason, and without incurring any costs, except for the cost of the return. In the case of sales contracts for goods, these 14 days start running only from the moment that the buyer receives physical possession of the goods. Where multiple goods are ordered by the buyer in one order and are delivered separately, the 14 days begin to run from the day on which the buyer acquires physical possession of the last good. In the case of service contracts, or for the supply of digital content, the 14 days begin to run on the day of the conclusion of the contract. Notably, however, the buyer loses his right to withdraw from a contract for the supply of digital content (which is not supplied on a tangible medium such as a CD, DVD etc.) as soon as downloading commences.
If the trader has omitted to provide the consumer with information about his right of withdrawal, the consumer will have 12 months from the end of the initial 14 day withdrawal period within which he can withdraw from the contract. If within those 12 months, the trader provides the necessary information to the consumer about his right to withdraw, the consumer will then have 14 days from the date on which he received such information.
Where the buyer has withdrawn from the contract within the specified time frames, the trader must reimburse all payments received from him, including any delivery costs, within 14 days from the day on which the buyer informed him of his decision to withdraw. Such reimbursement must be made by the same means as the buyer used to make the payment. The trader may however withhold the reimbursement until he receives the goods back, or proof of the return of the goods, whichever is the earliest.
Dinner Jackets and Fine Wines: Exceptions to the Right of Withdrawal
There are certain situations in which it would be an outright injustice to allow the buyer to back out of the sale. In these cases, the Directive expressly excludes the right of withdrawal. This is the case where the price for the supply of goods or services is dependant on fluctuations in the financial market which may occur during the withdrawal period, such as, for instance, with wine supplied on the basis of a speculative contract, where the value is dependant on fluctuations in the market (“vin en primeur”). It stands to reason, also, that there should be an exception to the right of withdrawal in the case of sales of clearly personalised goods, or of goods made to the consumer’s specifications, such as tailored suits or curtains. The online purchaser of a newspaper, periodical or magazine is also deprived of his right to withdraw from the contract, because the value of these articles would undoubtedly be affected by the passing of even a short period of time. The exception to this rule is the conclusion of a contract for a subscription for such publications. Consumers should be 100% certain before booking hotels, holiday villas or cultural or sporting events online – cancelling these bookings could result in a vacancy difficult to fill if the right of withdrawal were allowed to be exercised. The same goes for car rental and catering services.
Get me to the Church on Time … or I Want my Money Back!
The Directive bears more good news for online shoppers – if the trader fails to deliver the goods to the consumer at the time agreed upon, or by not later than 30 days from the conclusion of the contract, the consumer shall call upon him to make the delivery within an additional period of time appropriate to the circumstances. If the trader fails to deliver the goods within that additional period of time, the consumer shall be entitled to terminate the contract and the trader shall be liable to reimburse all sums paid under the contract without delay. Where the trader has outright refused to deliver the goods, or where the delivery within the agreed period is essential, taking into account all the circumstances surrounding the conclusion of the contract – such as in the case of a wedding dress where the trader has been informed of the date of the wedding – or where the customer has informed the trader that delivery by a specified date is essential, the customer need not provide an additional period of time for the delivery, but may simply terminate the contract immediately.
When you assume…
Those notorious pre-ticked boxes binding consumers to pay for taxi services, hotel rooms, insurance and all other manner of extra goods and services have been definitely banned by the Directive. Any additional payments must be expressly consented to by the buyer, and if this consent has been inferred in some way (including through the use of pre-ticked boxes), the buyer shall have the right to be reimbursed for this payment.
 Figures based on Forbes’ projections for US and EU Commerce for 2012 – 2017; accessible at http://www.forbes.com/sites/forrester/2013/03/14/us-online-retail-sales-to-reach-370b-by-2017-e191b-in-europe/