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The Distance Selling Regulations: Trick or Treat? Depends on your point of view

On All Hallows Eve (Halloween) 2000, a new set of consumer protection regulations came into effect. But (you knew there would be a "but") after more than four years, most consumers don't know of its existence.

The Distance Selling Regulations (DSR) are of little or no concern to the fruit and veg shop down the road, but once the owners of that shop begin to do business on the Net, the DSR comes into its own. "There are very major implications for those selling virtually anything on the internet (and for consumers who have new rights)," says Rafi Azim-Khan, a partner at McDermott Will & Emery, London.

The regs were made as a result of a European Directive, No. 97/7/EC. According to A. W. & C. Barsby: Legal Research and Publishing, the DSR requires sellers to give the following information before a contract is concluded:

The identity and address of the seller; a description of the goods or services; their price including all taxes; delivery costs where appropriate; payment, delivery or performance terms; existence of a right of cancellation; cost of using the means of distance communications where it is calculated other than at the basic rate; the period for which the offer or price remains valid; and where appropriate, the minimum duration of the contract, in the case of contracts for the supply of goods or services to be performed permanently or recurrently.

The following additional requirements apply and must be provided in writing (or "some other durable medium") when goods are delivered, the company says:

Information about the conditions and procedures for exercising the right to cancel, including (if appropriate) notification that the consumer must return the goods, and who must pay for the return of the goods; the address to which the consumer may address any complaints; information about any after-sales service and guarantees; and conditions for exercising the right to cancel, if the contract is for an unspecified duration or lasts for more than a year.

Those readers with a keen eye will have noted the word "cancellation" three times in the above. And therein lies a major reason sellers are not going to like these regulations. The DSR's "Consumers' cancellation rights" include a "cooling-off period" of seven working days and is without penalty. It commences on the date of receipt of the goods.

That's as opposed to more traditional cancellation periods which commenced on the date of placing the order. In the case of services, however, the cooling off period does begin on the day on which the order for the services is signed. However, if at that point, the above-noted information requirements have not been met, the cooling-off period commences when the information is provided, OR at the expiry of three months from delivery, whichever is earlier.
Hence the advice from Graham Smith, Partner at Bird & Bird and author and editor of the book, "Internet Law and Regulation".

Clear and Practical Advice

He says, "The clear legal and practical thing to do is to make sure you've got your online contracting process properly sorted out and that you understand at what point you are committed to supplying the goods or services that the customer has requested at your website. The crucial point is at what point is the contract concluded. And at that point you're then bound to supply at the prices at which you promised to supply them."

For example, both experts cited cases such as the recent Kodak situation. Kodak advertised a £329 digital camera for only £100. Apparently up to 10,000 people placed orders for the camera before the company noticed and tried to rectify the problem by first cancelling the orders (for which customers had already received confirmations) and then by telling the customers they could have the cameras for the actual £329 price less 10%.

Smith, while refusing to discuss any actual case, says "The problem is most of these [online ordering] processes are automated and there's unlikely to be much human supervision when an order acknowledgement goes out. So, if there's been a mistake on the price, [and an] automated acceptance of the order has gone out with the wrong price, you've got a potentially difficult situation.

"Whether the acknowledgement of the order is a binding contract," Smith continues, "depends on exactly how the ordering process on the site is set up." But since most of these website ordering processes are totally automated, even if there's an error in the pricing, "you can end up in the situation where you, as a supplier, have accepted an order at variance to the price you intend."

One Possible Get-Out

Smith explains that one get-out for the seller would be to prove the "price was so ludicrously low that the customer on the site must have realised that it was a mistake, if that's the situation, then the supplier may have an argument that they're not bound by the contract because the customer must have known that's not what the supplier intended." But, of course, sellers are often known to make goods available at ludicrously low-prices, such situations are known as "sales" and the goods are known as "loss-leaders".

In such case, it's rather difficult for a seller to make the claim that the customer should have known the price was a mistake and "then the supplier is very likely to be bound to supply at that price."

Azim-Khan cites what he calls a "nightmare scenario" resulting from the DSRs. in this situation, a person might buy a car online, use it for a few hundred (thousand?) miles and after five or six days decide she doesn't like the colour or the car itself after all. So she cancels contract. "In theory she could ask for all her money back and the car company could not impose any penalty or depreciation charge (just reasonable actual direct cost of taking it back)."

Like Smith, Azim-Khan warns that any companies concluding any sales over the net, by post or otherwise at a distance must "urgently seek specialist advice as, at the least, their terms and conditions are most likely badly out of date and/or in need of additional provisions to cover scenarios such as those highlighted above. Websites and/or catalogues also need urgent updating. The practical implications in terms of returns and contracts with their own suppliers etc also need urgent review."

But That Ain't All, Folks

In addition to the Distance Selling Regulations, the small business setting up a commercial website needs to be aware of new regulations which came into effect at about the same time as the DSR, but these were to implement the Electronic Commerce Directive (e-CD) according to Graham Smith, Partner at Bird & Bird and author and editor of the book, "Internet Law and Regulation".

And that's not to mention provisions of the Data Protection Act and of the Disability Discrimination Act of 1995. But we won't get into those here.

The e-CD regulations will put "quite specific compliance requirements on the online providers. Those requirements involve things like various pieces of information that have to be provided on the Website, specific provisions about the providing of acknowledgements of orders within a short time, and provisions affecting the technical design of the site." These include provisions that Websites must enable consumers to correct input errors when they're placing an order and that they explain up front the ordering process."

Smith says the bottom line that "the small business is stepping through a mine field in setting up a commercial Website." It's always been problematic, he says, but "what's changed is everyone has woken up to the Internet and e-commerce since then, there is a lot more legislation specifically aimed at online trading and it's now much higher up the agenda of the enforcement authorities to achieve compliance with this legislation. So more attention is going to have to be paid to these sorts of requirements than perhaps was necessary in the past.

"The bottom line," he concludes, "is to think about the legal aspects before you build your Website, not after."

Further Information

And we at Books at Star Dot Star attempt to comply with the DSR at all times.

For further information on the DSRs see (all pages open in a new window):

The actual DSR as implemented by the UK is here. And the e-CD is here.

A Guide to the DSR from the UK's Department of Trade and Industry is here. And to the e-CD is here.

The business guide Home shopping: Distance Selling Regulations (pdf 75 kb) is here. And to the e-CD is here.

A Business's FAQ to the DSR is here.

And there's much more on the DSR if you click on the links on this Google search. And on the e-CD here.