Avoiding legal problems in the supply chain

The new Distance Selling rules which come into force at the end of October will make it even more essential for those sourcing consumer products to work seamlessly with those organising their delivery.

The Consumer Protection (Distance Selling) Regulations 2000 (the "Regulations")

These regulations implement the Distance Selling Directive (97/7/EC)which was adopted on the 20 May 1997 for implementation by the Member States. The Regulations apply to any contract concerning goods and services between a supplier and a consumer where there is no face to face contact between the parties until the contract has been concluded. It will affect a range of businesses which conclude contracts through distance selling means, i.e through e-commerce, telephone sales, mail order, fax or direct mail.

Relevant provisions for retailers and direct mail houses

Cooling Off Period

The Regulations give consumers the right to withdraw from distance contracts within 7 working days without penalty and without giving any reason. The only charge which can then be rendered against the consumer is the direct cost of returning the goods (Regulation 8).

These provisions place a duty on the consumer who has received goods prior to cancelling a contract to restore those goods to the supplier and in the meantime to take reasonable care of them.

Performance of Contract

The supplier must execute the order within 30 days (except where the parties have agreed otherwise). If the supplier fails to do this because the goods or services are unavailable, the consumer has the right to a refund within 30 days.

A supplier may provide substitute goods or services of an equivalent quality and price, but the cost of returning such substitute goods or services if the consumer exercises their right of cancellation, must be borne by the supplier.

Upon exercising their right of cancellation, consumers must be reimbursed within 30 days. Failure to make the repayment may result in an injunction from the regulatory authorities.

Impact on e-commerce/home shopping

In theory, the Regulations should mean increased consumer confidence and subsequent growth in the use of distance communications, particularly over the Internet. In practice, it may make the pre-Christmas period even more chaotic for retailiers and their fulfilment operations.

If the Directive does apply:

• make sure that retailers are in a position to provide adequate information prior to contract;
• ensure that the retailer is in a position to provide written confirmation at the earliest opportunity to ensure the cancellation period is kept as short as possible. There will be cost implications of having to provide such information in durable form, with e-mail being one of the cheaper options.
• perform distance contracts or be in a position to reimburse the consumer within the stipulated 30 days to avoid the proposed criminal sanctions.

There will be practical ramifications of these provisions on the standard clauses in agreement with both suppliers and fulfilment houses.

• Delivery
• Returns
• Lost and Damaged Goods
• Returns

Below are some points to mull over when re-reading through the standard clauses -

• Deliveries - At the risk of stating the obvious the cost of delivery should be taken into account when sourcing product. All too frequently, the logistics manager has had his hands tied behind his back by the product sourcing team who have overlooked these problems relating to deliveries and returns when agreeing a price for the product. So consider: a) For example who decides what is a two man product and who pays what for delivery? b) Is the cost of delivery the same for items whatever the size? c) Will the existing carrier be good enough for both the large and small items? d) Have the suppliers stock to deliver - what notice does a supplier require to supply stock to the retailer or its customers (again a point for those negotiating the purchase of the goods)? e) Ensure that the computer systems can meet the requirements of the carrier. Are the carriers cut off times clearly spelt out?
• Product sales promotions - who needs to notify whom and when
• How tight are the order processing commitments? For example, even in peak periods of service, over the forthcoming Christmas period, can the fulfilment house ensure, for all its key retail customers, that there is a minimum level of resources available to provide an agreed level of service.
• How tight are service levels relating to time limits for processing orders? Is the fulfilment house, for example, ensuring that those orders which have to be satisfied by direct delivery from the manufacturers are being promptly e-mailed to the relevant manufacturer?
• Are the performance targets clear enough and what happens when the warehouse staff do not meet those targets? Has the logistic manager had his hands tied behind his back by the product sourcing team who have overlooked these problems relating to deliveries and returns when agreeing a price for the product?

If you would like further information please contact corporate partner Andrew Crawford at [email protected] or alternatively by telephone on +44 (0)20 7367 3000.