Month: October 2015

It does not happen very often–well, not to this blogger anyhow–to find out that a recent topic of research has made it to the Breakfast news (see: http://www.bbc.co.uk/news/business-34410782 for a potted history of the Act!)… but this is what has happened today! 1 October 2015 marks the entry in force of the Consumer Rights Act 2015 (see: http://www.legislation.gov.uk/ukpga/2015/15/contents).  For the first time, the Parliament in Westminster has brought the complete discipline of consumers’ rights “under one roof”–that is, within one piece of legislation, thus remedying to the perceived complexity of this area of the law.

The 2015 Act is undoubtedly ambitious and constitutes the expression of a genuine commitment to improving the clarity and effectiveness of the consumer protection rules in today’s world, where consumers shop online increasingly often, as opposed to turning up in the shops of their high street, and where tangible goods are often replaced with digital alternatives.  It was often argued that the “old” legislation, i.e., among others, the Sale of Goods Act 1979 and its “successors” (such as the eponymous 1994 enactment and its attending regulations) were no longer fit for purpose, especially in as much as they appeared to lack in legal certainty in respect of important aspects: for instance, how long is a “reasonable period” within which faulty or defective goods can be returned to the seller in order to obtain a refund? Ca a consumer change her mind and expect to be entitled to, for instance, an exchange? And what about digital products? How can these rights be exercise when for instance, a download “malfunctions”?

Admittedly, the EU had already enacted legislation seeking to address these issues: the Council and European Parliament’s Directive 2011/83/EU (see: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2011:304:0064:0088:en:PDF), i.e. the Consumer Rights Directive: the goal of the 2011 Directive was to lay out a common set of rules in the area of business-to-consumer distance selling and thereby to eliminate obstacles to inter-state trade that may arise from the lack of a uniform and certain discipline of key legal requirements such as,information requirements to consumers concerning essential aspects of the contracts (e.g. his or her cancellation rights), the specific conditions that websites used for distance selling should meet (e.g. in terms of legibility) and the discipline of  fees and charges that traders can levy from purchasers of digital goods or services.

The 2015 Act deals with some, albeit not all, of these issues, and yet at the same time it goes much further: its coverage is noticeably ample in as much as it covers consumer contracts for the purchase of goods, the discipline of unfair contractual terms plus, under the slightly minimalist title of “Miscellaneous provisions”, several other matters ranging from “investigating powers” to modifications of the discipline of weights and measurements to the much awaited (and welcome) amendments to the Enterprise Act 2002 in respect of the cartel offence and of the rules on collective litigation in competition cases.   The circumstance that important reforms in the field of competition law were enacted as part of consumer rights’ legislation is in and of itself of particular symbolic importance since it clearly indicates how germane to consumer protection competition law can be.  This may seem to an extent accepted and even a bit trite: it is in fact widely accepted that enhancing consumer welfare, e.g. by encouraging rivalry in the form of the provision of the widest possible variety of high quality goods or services is one of the goals that competition law and policy should pursue.  Besides, the Replica Kit case (see e.g.: http://webarchive.nationalarchives.gov.uk/20140402142426/http:/www.oft.gov.uk/OFTwork/competition-act-and-cartels/ca98/decisions/football-kit), which resulted in the only case brought by a consumer association under the “old” opt-in mechanism for collective litigation had brought to the attention of the wider public the possibilities and the challenges of pursuing a claim for damages arising from price-fixing behaviour through the courts…

Fast forward to 2015 and many consultations, guidance papers, legislative drafts later, the Consumer Rights Act 2015 has truly endeavoured to make redress for the adverse consequences of anti-competitive behaviour a reality, especially when the victims are many and “weak” (mainly because of the lack of any economic incentive due to the small size of their claims).  Gone are the days of the “opt-in”, representative actions that had proven  ineffective at best, such as those disciplined in the Competition Act 1998; the 2015 Act envisages for the first time, albeit within strict limits and under close judicial scrutiny, collective litigation through opt-out, quasi-US style class actions.  According to to the new text of Section 47B of the 1998 Act, the Competition Appeal Tribunal–now the main forum for competition claims–can hear claims brought by a representative claimant on behalf of an identified group of would-be plaintiffs.  As a result of the “opt-out” nature of these proceedings, the final judgment will be effective vis-a-vis all the members of the group unless any of them elect to exercise their right to “opt out” of the proceedings in the form and time limits established by the CAT.  In the face of the much advertised reluctance to introduce a similar form of action, the 2015 reforms are a true breakthrough: it could be argued that the UK Parliament has come to accept that due to the complexity of this type of litigation and to the high risk of “inertia” of individual victims, opt-out proceedings were the only way in which antitrust injuries could be compensated.  At the same time, mindful of the important derogations in which introducing the new rules would have resulted, the new Section 47B sets out a number of important safeguards designed mainly to secure compliance with due process requirements.  For instance, to be eligible for accessing compensation obtained via the opt out rule, would be plaintiffs must be domiciled in the UK.  It is incumbent on the CAT to ensure that the named plaintiff is a “suitable” representative for the class and that the latter is sufficiently uniform as to warrant a collective proceedings order initiating opt-out litigation.  Importantly, damages-based agreements and other arrangements designed to create an incentive for counsel to take on these claims are prohibited, thus eliminating the risk of disalignment of interests between the class and its legal adviser.

Class actions governed by the principle of ‘opt-out’ however are only one piece of a wider-ranging jigsaw: the 2015 Act strengthens the role of the institutions entrusted with the public enforcement of the competition rules.  As anticipated, the Competition Appeal Tribunal has now become the central forum in which these claims are heard.  Its powers of case management of competition cases–whether individual or collective–have been greatly enhanced.  In addition, the Tribunal is expressly tasked with the job of appraising collective settlements on an opt-out basis, with a view to ensuring that the deal being negotiated is fair and ensures an adequate level of compensation to the victims.  The Competition and Markets Authority (CMA) is also envisaged as a far more active participant in the task of securing redress of these injuries: according to the new Section 49C the CMA is empowered to approve “voluntary redress schemes”, i.e. those voluntary undertakings that companies investigated for allegations of anti-competitive behaviour often put forward in order to provide relief for the adverse impact of their practices.  This is undoubtedly an important development, since it places these schemes, which hitherto had been frequent but not “officialised” in any formal way, on a firmer legal footing and also ensure a degree of vetting especially as regards their inherent fairness and adequacy vis-a-vis the merits of each case.  It should be emphasised that the CMA has already consulted on a set of Draft Guidelines according to which the schemes should be assessed and approved, thus suggesting that this is an area of work that the Authority wishes to pursue keenly in the near future.

In light of the forgoing, it may be legitimate to wonder whether the 2015 Act is going to herald a new wave of competition litigation and more generally pave the way for the more frequent as well as fairer award of compensation for these complex injuries. Admittedly, the rather disappointing performance of the old Section 47B action sets the bar for any future achievement rather low.  The reforms introduced this year are to be commended for their focus on consumers and the “trust” they place on both the CMA as the expert regulator and the CAT as the specialised judge.  However, it is perhaps too early to expect a surge in new cases: take the limits on accessing opt-out adjudication for instance.  If one takes into account the nature of e-commerce, which is in itself “geographically delocalised”, it may legitimately be wondered whether, aside for concerns for the good administration of justice and the fairness of civil litigation, placing a domicile requirement on prospective claimants may be germane to the objective of granting prompt and effective relief of these injuries.  Also, while the new rules on the award of damages (contained in para. 6 of schedule 4 to the 2015 Act) envisage the possibility that the Tribunal could allow for damages to be paid to a third person, albeit within strict judicial supervision, thus potentially paving the way for third party funding, the Act seems to remain silent on a key obstacle to new cases, i.e. the costs involved in bringing these claims and the ensuing need to source appropriate levels of finance, something that may put even “ideological claimants” off the whole endeavour altogether.

The Consumer Rights Act 2015 responds to a much felt need to engender clarity, legal certainty in a key area of the law and in particular to bring often scattered and not altogether coherent legislation in line with the reality of business-to-consumer relations today.  Thus, for its breadth and ambition there is a lot to be liked in the new Act and this day is going to be certainly etched in the memory of policy makers, academic, legal advisers active in this area, as well as perhaps in that of may savvy consumers… which brings to a more general issue surrounding consumer law and policy: given that the legislator has gone a long way toward protecting consumers in today’s world, is the level of awareness that individual consumers have of these safeguards sufficiently strong as to make them active players when it comes to seeking relief against harmful business practices? This seems ultimately the litmus test for the 2015 Act: in other words, while it seems that as a result of these reforms the “hearts and minds” of many lawyers have changed on key issues (starting from opt out litigation, to name only one!), it is now necessary to translate these important reforms in concrete action among consumers: to this end, advocacy and education, while presenting inevitable challenges, are going to be indispensable for the true success of these important reforms.