Are You A Distance Seller?

I was recently asked by a client who runs a successful online business information service about the UK laws governing distance selling to both consumers and businesses. So after researching his particular issue, I thought I would write a general note on the topic.

The Distance Selling Regulations

The Distance Selling Regulations (full title: Consumer Protection (Distance Selling) Regulations 2000) (“DSRs”) implement European Council Directive (97/7/EC) and for most goods and services, provide additional rights to consumers buying at a distance to encourage confidence in this method of buying.

The protection the DSRs offer is important because consumers cannot inspect goods or services before they buy when they shop at a distance.

All European Union (EU) member states were required to implement the Directive in their national legislation and the in the UK they came into force on 31 October 2000, amended by SI 689/2005 effective from 6 April 2005 (This amendment made changes to the requirements to provide information when supplying services and to cancellation periods for the supply of services.)

The purpose of the legislation is to: give consumers confidence to buy goods and services where there is no face to face contact with the seller, and ensure that all traders selling at a distance in the normal course of their business meet certain basic requirements.

The DSRs provide protection in terms of basic business information, cancellation, refunds, returns etc. Businesses must provide consumers with clear information so that they can make an informed choice about whether or not they wish to buy from you. In most instances you must also give consumers the right to a cancellation period.

The information you give must include details about: your business the goods or services you are selling your payment arrangements your delivery arrangements, and consumers’ right to cancel their orders where appropriate. This pre-contractual information and some additional information, must be confirmed in writing or another durable medium.

Know Thy Customer

The DSRs are aimed at protecting consumers and specifically exclude business to business contracts.

“Consumers” means anyone who buys goods and services using one of the methods to which the DSRs apply (i.e. the internet, text messaging, phone calls, faxing, interactive TV, or mail order – via catalogues, mail order advertising in newspapers or magazines). This excludes anyone buying in the normal course of their business (http://www.oft.gov.uk/shared_oft/business_leaflets/general/oft698.pdf)

Whether or not the DSRs are applicable depends upon the nature of your customer. If you sell to businesses then your returns / cancellation policy is governed by your contract with that buyer i.e. your own Terms of Service.

If you sell to both businesses and consumers, it might be worth considering separate terms for each class of customer i.e. a spearate cancellation policy for business buyers as different regulations apply. Alternatively, it might be worth defining a B2B contract that includes a clear returns policy to reduce such quibbles in future.

If there is no contract / terms and conditions of sale (not preferable if you are running a business, then it could be argued is none then you could argue that the goods were sold and purchased in good faith and ‘caveat emptor’ applies i.e. let the buyer beware.

As a business who is using standard terms in contracts with consumers, you must also comply with the Electronic Commerce (EC DIRECTIVE) Regulations 2002 (http://www.bis.gov.uk/files/file14635.pdf) and the Unfair Terms in Consumer Contract Regulations 1999 (UTCCRs), with which Businesses who are using standard terms in contracts with consumers must also comply.

Exclusions – No Returns

In most cases the consumer will have seven working days to cancel their contract, but in some cases the right to return does not apply. The following items cannot be returned: newspapers, journals, periodicals; unsealed video and audio recordings; unsealed computer software; items that may perish; items that change in value due to circumstances out of the sellers control; tailor made and bespoke items; and personalised Items.

Non-Application

The DSRs do not apply to the following contracts:

Property – Contracts for the sale of land, that is the sale of freehold or leasehold interests. The DSRs do, however, apply to short term tenancy or leasehold agreements (rental agreements) provided the contract is between a business and a consumer and has been concluded by distance means.

Construction – Contracts for the construction of a building where the contract also provides for a sale or other transfer of an interest in the land on which the building is constructed. However, the DSRs do apply where a consumer already has rights over the land and subsequently enters into a distance contract with a builder to construct a building on the land.

Financial Services – Contracts relating to financial services to consumers. However, these services are likely to be subject to the information giving and cancellation provisions contained in the Financial Services (Distance Marketing) Regulations 2004 (SI: 2095 2004) (FSDMR) and, where relevant, the Consumer Credit Act 1974 (CCA).

Conditional sales and contracts for hire purchase (which are covered by the FSDMR and the CCA). However contracts for hire services, for example the hire of electrical items or clothing, are covered by the DSRs. (Note: A conditional sale is where a consumer becomes bound to purchase the goods from the outset, but they do not own the goods until they have fulfilled all the conditions of the contract (usually paid all the instalments. Hire Purchase is hiring of goods with an option for consumers to purchase at the end if they want to.).

Vending Machines – Products bought from vending machines (for example bars of chocolate or cans of drink) or automated commercial premises such as pictures taken by automated photo booths.

Public Pay Phone – Contracts concluded with a telecommunications operator in respect of a telephone call from a public pay phone.

B2B – Products and services you sell to other businesses (these are business-to-business contracts).

Auctions – Auction sales, including online and interactive TV auctions. However, some activities described as auctions may not necessarily result in sales at auction, so will not fall within this exemption. This will depend on exactly when and how the sale occurs. For further information see paragraph 2.16.

Other Consumer Protection Legislation in the UK

It is important to know what rights consumers have and to deal with complaints as quickly and as helpfully as possible. As well as the regulations mentioned above, businesses should also be aware of other legislation such as:

– Trade Descriptions Act 1968 (Goods: this requires a trader to only supply or offer to supply goods that are accurately described. Services: this requires a trader to accurately describe any service, accommodation or facilities being supplied.)

– Sale of Goods Act 1979 (Requires traders to sell goods as they are described and that the goods are of satisfactory quality. It also sets out remedies available to consumers if the goods do not meet these requirements.)

– Supply of Goods and Services Act 1982 (Requires a supplier of a service acting in the course of a business to carry out that service with reasonable care and skill and, unless agreed otherwise, within a reasonable time and for a reasonable charge.)- Control of Misleading Advertisements Regulations 1988 (These provide protection against misleading advertisements and also set out requirements for advertisements that make comparisons with competitors.)

– The Consumer Protection Act 1987 (Among other things this covers product safety and product liability and prohibits the use of misleading price indications.)- Unfair Terms in Consumer Contract Regulations 1999 (These require that standard terms you use in contracts are fair and balanced.)

– Consumer Credit Act 1974 (This regulates all consumer credit activities including what is required in documentation, advertising, and the calculation of the cost of credit. It sets out rules, not just for credit providers, but also for others involved in the credit industry.

Enforcement and Penalties

Under the Enterprise Act 2002 the OFT, the Local Authority Trading Standards Services and other designated enforcers have powers to take enforcement action through the courts against businesses that breach these regulations. However, the OFT is committed to ensuring that any enforcement action is necessary and proportionate and that businesses are given a reasonable opportunity to put matters right before we take court action.

Failure to comply with certain aspects of the DSRs may result in the DTI / Trading Standards electing to prosecute. The DTI does have power to consider complaints and to apply for an injunction to secure compliance with the DSRs. Fines of up to £5,000 may be levied on suppliers who supply consumers with unsolicited goods and/or services, which can amount to a criminal offence under the DSRs.

The Bottom Line

Are you dealing with Businesses or Consumers?

Usually, this is obvious i.e. is the purchase for a large quantity of items? Were the items bought for resale or for use in the manufacture/make up of another product, or for use in an office/factory? These uses would all be B2B.

As a distance seller you should, however, be aware that a sale is a consumer sale if the intention of the buyer was to use other than for the purposes of a business or trade or profession. Only the buyer can say what was his intention with any authority, not you. This is why it is so important to have a well-drafted set of Terms and Conditions that reduce the risk of sales believed to be B2B, but being actually classed by a court as B2C. There are ways to achieve this, for example, having a B2B section of the site, containing a declaration that the use is in the ordinary course of business.

If it is a B2B buyer, then they will only be entitled to a refund if you, the seller, has breached the contract of sale i.e. that the products did not meet the description or quality originally represented. Unlike in a consumer case, the terms that apply to the sale in B2B are limited to what is set out in your terms of business / sales contract OR their terms – if they succeeded in empowering them. This would occur, for example, if they wrote to the seller stating that they order the goods on the condition that all orders are under their terms of business (NOTE: If there is a disagreement over which party’s terms govern the sale, this is known in law as the “battle of the forms” and is not covered in this post.) It is always advisable to insist on using your terms of business, as it may become problematic for a seller who did not use its own terms of business, only to find that the buyer’s terms do apply and include a right of return of the product, not dependent on quality.

No doubt, there are many companies engaged in distance selling who already follow many of the above provisions as a matter of good practice. However companies selling over the phone or internet should review their sales procedures and consumer contracts to check that they comply with the requirements of the DSRs.

The DSRs do set a potentially nasty trap for the unwary, particularly the provisions that give consumers the right to cancel. Please take note – You have been warned!

Gregory Abrams Davidson LLP

If you or your business have any questions relating to Contract or Corporate Law matters (including a review and/or redraft of your standard terms of business or terms of sale) and would like a free consultation with a member of our Corporate  Law Team, please contact us on 020 8209 0166. If you prefer, you can contact us by email at jabrams@gadllp.co.uk.