COVID 19 TRAPS FOR THE UNWARY: CONSUMERS, CONTRACTS AND CANCELLATION RIGHTS
15th April 2020
Consumer-facing businesses at the moment are having to consider a whole host of dilemmas due to Covid-19.
Whether it is consumer customers seeking refunds or to delay or pull out of a contract, or business themselves being unable (at least for the duration of the lockdown) to deliver what the consumer is expecting by way of performance.
However, one (albeit limited) advantage of many of these problems is that they are obvious because someone (consumer or business) is raising them. But what about the less obvious issues which might only surface after the lockdown?
There are simple and technical matters which may catch some businesses out due to failure to comply with consumer legislation. Such failures can have significant consequences in terms of cancellation rights in particular.
Consumer legislation and cancellation
Numerous different pieces of legislation apply when dealing with consumers, but two of the most important in relation to cancellation and termination are:
• The Consumer Rights Act 2015 (CRA); and
• The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (CCRs)
1. CRA: Is it fair?
The CRA is complex but it is now the place to look for the rules regarding unfair terms in consumer contracts. Put very briefly, one of these rules includes a fairness test. This will not typically affect obvious issues like the appropriateness of the price or the description of what is being bought provided those terms are prominent and transparent. However, when applicable, other contractual provisions which are unfair can render a key clause (such as a clause dealing with cancellation charges) unenforceable against the consumer. Again, keeping a complex topic brief, if the test applies, a provision or term is considered fair (and potentially enforceable) only if it:
• is easy to understand; and
• complies with the requirement of good faith, meaning it does not cause a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer.
This means that, even if the consumer has agreed to the terms and conditions your business uses, some of those T&Cs may not be enforceable if they are unfair. For example, certain limitations of the supplier’s liability and excessive cancellation charges will not typically be enforceable.
2. CCRs: has the business provided the statutory information?
The CCRs are often overlooked by businesses, despite being in force for several years now.
Many businesses will know that, with a few exceptions, certain contracts agreed online, over the phone or via email or post or otherwise “off-premises” can be cancelled by the consumer within 14 days. What tends to be less well-known is that, under these regulations, certain information must be provided to consumers by businesses. The sanctions for non-compliance are both civil and potentially criminal, and may well be lurking in some of your business to consumer contracts.
Starting with the civil sanction, if consumers are not given the required information, the 14 day cancellation period is automatically extended by a further 12 months. Think about that for a moment. Consumers can make use of this right to cancel and demand a full refund up to twelve and a half months after purchase.
It is also a criminal offence to fail to provide such information – albeit, to date, a rarely enforced one. On top of everything else businesses are presently facing, do you really want to encourage disgruntled consumers to contact Trading Standards and CABs about any perception they have that you are being unreasonable?
Our advice since COVID 19 queries began to appear has been clear, and indeed consistent with our pre-COVID 19 advice on consumer contracts. Try to treat each consumer issue proactively and case by case. Unless you have thoroughly checked that your contracts are fully compliant, you should refrain from blanket circulars to your customers which adopt a fixed position on issues such as cancellation, retention of deposits and so on. Failure to do this could result in a trickle of complaints becoming an uncontrollable deluge with significant cashflow issues, poor publicity and potentially criminal offences.
The biggest point is this: a short term hardline or blanket approach may “feel” successful initially but, typically, your consumer customers will have plenty of time after the lockdown to pursue their rights.
We assist businesses in navigating these issues day-to-day, and advise on a variety of consumer contractual issues. Please remember that we at Wright, Johnston & Mackenzie LLP are here to help and are working online during this crisis. Please don’t hesitate to get in touch if there is anything you think we can help with.
The information contained in this newsletter is for general guidance only and represents our understanding of relevant law and practice as at April 2020. Wright, Johnston & Mackenzie LLP cannot be held responsible for any action taken or not taken in reliance upon the contents. Specific advice should be taken on any individual matter. Transmissions to or from our email system and calls to or from our offices may be monitored and/or recorded for regulatory purposes. Authorised and regulated by the Financial Conduct Authority. Registered office: 302 St Vincent Street, Glasgow, G2 5RZ. A limited liability partnership registered in Scotland, number SO 300336.