Distance Contracts – Applying the new Regulations
Last month, I wrote about the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013. The Regulations came into force on Friday 13th June.
The focus of last month’s article was on contracts entered into at the business’ premises and those formed away from the premises. This month, I write about a third type of contract impacted by the Regulations; distance contracts.
What is a distance contract?
The Regulations define a ‘distance contract’ as “a contract concluded between a trader and a consumer under an organised distance sales or service-provision scheme without the simultaneous physical presence of the trader and the consumer, with the exclusive use of one or more means of distance communication up to and including the time at which the contract is concluded”.
Who does this apply to?
The first part of the definition is easily interpreted. The customer must be an individual – the Regulations do not apply to corporations – and the individual must be acting for purposes which are wholly or mainly outside that individual’s trade, business, craft or profession.
The last part of the definition is also easy to understand. The definition applies to contracts entered into where there is no physical meeting between the parties and where all communications are carried out at a distance, such as by telephone and email.
That seems straightforward, however, it is the inclusion of the words “under an organised distance sales or service-provision scheme” that are causing difficulty. The Regulations do not themselves define ‘organised distance sales’ or ‘service-provision scheme’ which is rather unhelpful. The guidance my firm has received from the Law Society is that these are likely to address services such as telesales and mail order but no explicit guidance has been provided on how contracts where customers are not met should be treated.
I agree with the Law Society’s interpretation and based on my interpretation of the legislation alone, I believe that ‘distance contracts’ catch something very specific and would not, for instance, apply to my business. However, if that is the case, it means that the Regulations treat contracts that are concluded exclusively by distance communications and where the parties never meet, in exactly the same way as contracts entered into at the business’ premises. Can that really have been the intention of the legislation? It seems unlikely and as such, there is possibility of the definition being clarified in due course.
So, what should be done?
Much like every other business, I must decide how to apply the Regulations to my business and in particular, I have had to determine how I will apply the Regulations to contracts entered into where we have not yet met the client at the point of contract conclusion. The decision is an important one. The Regulations treat contracts entered into at the business’ premises and ‘distance contracts’ very differently. With distance contracts, there is a lot more information to provide to the customer prior to the contract being entered into and in addition, the customer is entitled to a 14 day cancellation period. That entitlement does not apply where the contract is entered into at the business’ premises.
Until further guidance is provided on what a ‘distance contract’ is intended to catch, my advice is to proceed with caution and to adopt a conservative approach. It will be a matter for each business to decide but my advice is that if the contract is one where there has been no physical meeting between the parties at the point of contract conclusion, it should be treated as a ‘distance contract’ and you should go the extra mile, in spite of the additional administrative burden that this will undeniably create.
As with contracts entered into away from a business’ premises, the consequences of not complying with the Regulations is that the 14 day cancellation period is automatically extended to 14 days after the business eventually provides the customer with details of this right, or if the information is never provided, to 12 months and 14 days. This means that the customer could give notice to cancel the contract a year after works started. Even if substantial works have been completed, the customer could demand and would be entitled to have any payments returned to them.
With the Regulations in their infancy, there is currently a lot of uncertainty. It will be interesting to see how the courts react to a customer ‘cancelling’ a contract after all services have been provided due to a technical breach of the Regulations. On the face of the legislation, the impact is clear however, and so all businesses should ensure compliance.
Andrew King is a director and heads up the firm’s Dispute Resolution department, and is happy to discuss the Regulations with you, and to advise on what steps your business should be taking.
Contact Andrew today on 01494 773377 or by email at email@example.com.