Do we need a Consumer Rights Act for SMEs or micro-businesses?

We have been getting very excited about the much-heralded Consumer Rights Act recently, which came into force on 1 October and harmonises and modernises the law relating to contracts for the supply of goods, services and digital content between businesses and consumers.  Although the Consumer Rights Act is not perfect, and arguably adds more complexity to the situation in certain areas, it should, on the whole,  make it easier for consumers and businesses to understand their rights and obligations.

However, the Act only applies to consumers, and small or micro-businesses are excluded from its protection.  During its passage through Parliament, attempts were made to introduce protection for micro-businesses but the Government rejected those attempts.  So, at the moment, a small business would need to bring itself within the definition of consumer in the Act to benefit from its protection. This is not as hard as it sounds, the Court of Justice of the European Union recently decided that a lawyer could be treated as a consumer in Costea v SC Volksbank Romania SA Case C-110/14[2015] All ER (D) 29 (Sep) and the High Court considered such a situation in Overy v Paypal (Europe) Ltd [2013] All ER (D) 133 (Mar). Although those cases related to different legislation, the definitions are very similar.

Although the government rejected attempts to extend the protection of the Act to micro-businesses, it did issue a call for evidence earlier this year on whether the current legislative framework for the sale and supply of goods and services to micro and/or small businesses sufficiently protects them and if there was a gap in the law.  It published the responses in August but there is no current timeline for further action.  Some respondents favoured a change.  Although micro-businesses can rely to some extent on the protections under the Unfair Contract Terms Act 1977 (as happened in the Overy case), there is little or no protection against unfair terms. For example, a first-time author negotiating with a large publishing house has little protection against onerous terms, such as indemnity clauses which put all the risk on the author.

However, some respondents made the point that micro-businesses would also have to comply with such legislation when contracting with other micro-businesses, which might be a burden for them.

It is not yet clear if the Government will take steps to give micro-businesses protection against unfair terms.  However, the B2B legislation may need reform in any event at some point, so that it deals for example effectively with online contracting and digital content.


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