The development of trade practices over the past two decades has contributed to reduced prices of goods and their swifter supply in terms of both domestic and international trade, partly due to the introduction of electronic commerce (hereinafter-e-commerce) and electronic data interchange (hereinafter-EDI). E-commerce can be defined as “any form of business or administrative transaction or business information exchange which is executed using information or communications technology” or over the internet, using a computer or a smartphone etc. Contracts of sale of goods can be concluded over the internet at the click of a button irrespective of where the parties are established. These contracts have to be determined by International or European Union law since they are usually concluded between consumer/business and business/manufacturer where the former is termed as a business-to-consumer (hereinafter-B2C) transaction and the latter as a business-to-business (hereinafter-B2B) transaction. The European Union Commission implemented the Consumer Rights Directive (hereinafter-CRD) so as to facilitate consumer protection throughout the European Union (hereinafter-EU) which was aimed at benefitting cross-border e-commerce trade. The CRD was partly implemented so as to increase e-commerce and online shopping in the internal market and lower barriers to online trade in the internal market. The need for reform was brought about so as to complete the internal market due to linguistic, logistical and regulatory barriers. The CRD does not make a sharp distinction between B2B and B2C transactions yet seeks to create a coherent regulatory framework achieving harmonized consumer law throughout the EU. Previously, disparities in consumer protection throughout the European Union existed as a result of a maximum harmonisation which entailed that EU Member States governments were allowed to implement varying consumer protection clauses in their national laws. However, this is not the case anymore due to the introduction of the CRD. Commissioner Viviane Reding stated in June 2011, when The European Parliament by a majority voted in favour of the adoption of CRD;
“This is a good day for Europe’s 500 million consumers. Today's adoption of the new EU Consumer Rights Directive will strengthen consumer rights by outlawing Internet fraudsters who trick people into paying for horoscopes or recipes that appear to be offered for free. Shoppers will no longer be trapped into buying unwanted travel insurance or car rentals when purchasing a ticket online. And everyone will have 14 days if they wish to return goods bought at a distance, whether by internet, post or phone.”
Hence, online sale of goods from an e-commerce perspective as opposed to general sale of goods in high-street shops is a field which is rather new and remains to be scrutinised from a legal point of view.
Before the introduction of electronic commerce, sale of goods took place mostly in high street shops where a buyer had the opportunity to examine the product before purchasing it. Now the purchaser has the possibility to purchase a product online, “in the dark” and at the click of a button. Thus, trade has become easier than ever before. Due to e-commerce, consumers now have a wider choice of shopping at lower prices from the comfort of their home or work. Consumers can now compare prices of goods from a wide range of offers and suppliers respectively i.e. e-commerce consumer shopping provides “speed, convenience and competitive pricing.” However, the risks for consumers to shop online relate to matters such as”product information, protection of privacy, cross-border delivery and after-sale support, returns and payments, trustworthiness of the website [etc]”. Furthermore, consumer protection is needed in case the goods that they have ordered online arrive damaged, do not arrive at all or do not meet their expectations.
Conversely, risks are also posed by online businesses who have to pay the costs of compliance with different consumer national laws in case of a dispute, higher cost of delivery, and after-sale service. In relation to consumer contracts, conflict of law rules, the rules on cancellation rights, returns, and guarantees are implemented differently in Member states which poses another hindrance for online stores. E-commerce on a B2C basis entails that the buyer and the seller do not meet face-to-face and enter a business relationship with the help of an e-commerce contract. In order to protect the buyer, the seller must provide the consumer with a minimum level of product information.
The seller has the duty to deliver the product to the consumer who in turn has to pay the price for it when making the order online. The product can only be inspected by the distance consumer when it is delivered to their home and after they have paid the price for the product, Now that the parties are bound by the contract the buyer, thanks to EU legislation, has the opportunity to return the product by being given the right of withdrawal. The right of withdrawal grants the consumer with the right to unilaterally withdraw from the contact by restricting the binding nature of the distance contract.
The introduction of the Consumer Rights Directive
The national laws on consumer transactions of Member States in the EU, prior to the implementation of the CRD remained fragmented where the Member States only needed to comply at a maximum level with the EU laws on consumer transactions. The effects of the maximum harmonisation was that the businesses which were selling online showed reluctance to sell cross-border to consumers and buyers on the other hand lacked consumer confidence whilst purchasing cross-border which also led to reduced transactions on a B2C level and B2B level. Certain issues need to be addressed when examining the position of web shops and their reluctance to sell goods cross-border. Firstly, from a trader’s perspective who wishes to sell cross-border, they will have to incur legal and other compliance costs since they are obliged to adhere to the consumer protection laws of the consumers country of destination. As a consequence the trader may resort to raising the price of the goods. Conversely, from the consumers perspective, they feel insufficiently protected when purchasing a good abroad from a web-shop and this fear is paramount if the good turns out to be defective and the customer being unaware of the form of redress to seek. Fraud and criminal activity has increased due to the “veil of anonymity” between the end-user and web-shop. Most website operators have standard terms and conditions in place which must be accepted before placing an order online which aid businesses to limit the risks that pose them. Due to these fears the domestic online shopping is increasing whereas cross-border online shopping is declining.
There exists three main reason to why the EU Commission felt the need to intervene and introduce the CRD. Firstly, to minimise the differences in Member States contract law and achieve maximum harmonization. Secondly, to end the legal fragmentation that exists between the national consumer contract laws and thirdly to increase consumer confidence.
Speculation revolving e-commerce trade
A buyer purchasing goods over the internet and concluding a contract with the seller entails that both of the parties have contractual obligations in relation to each other. On the other hand, a web-shop, i.e. a business commits itself to an additional contract by purchasing goods from the manufacturer, and thereby a B2B contract it concluded. The web-shop acting in the capacity of an intermediary in his own right is put in a risky position since they have a returned good that they do not have any use of. Hence, the aim of this research will be to clarify the difficult position of the web-shop and what the available remedies are available when the customer returns goods which the web-shop has little use of. E-commerce barriers in relation to cross-border and domestic trade has widened due to barriers that face cross-border online trade. Between 2006 and 2008, 30% of EU consumers bought at least one item online in comparison to 6% who purchased it cross-border.Various legal instruments such as the Consumer Rights Directive (hereinafter-CRD), Brussels I, UNCITRAL, E-commerce directive determine the law on internet sales. Yet, of greatest importance to this research is the CRD which was enacted by the European Union Commission on the 13th of June 2014, and introduces a horizontal instrument on consumer rights throughout the EU. The contract that the web-shop concludes with supplier of the goods is a B2B contract which entails both the parties have equal bargaining powers and positions. Both parties may be businesses, one of which for example is a manufacturer and the other a wholesaler, or between a wholesaler and a retailer. On the other hand, the other contract between business and consumer is concluded between the end-user and web-shop where the former does not have equal bargaining powers who is visiting the website to buy the product and the webshop which is selling the product to earn profits.
Now, it is the web-shop which is left in a difficult position since they have to suffer the financial toil of having a recently returned product which they have no use of. In essence, the web-shop concludes two separate contracts, one with the supplier on a B2B basis and another one with the prospective consumer on a B2C basis.
Lack of bargaining power
The lack of bargaining power of the consumer gives the consumer certain rights where they are entitled to withdraw their contract with the web-shop. “The right of withdrawal is therefore intended to offset the disadvantage for the consumer resulting from a distance contract by granting him an appropriate period for reflection during which he can examine and test the goods acquired.”
It is the contract terms between seller and producer on a B2B basis and between seller and consumer on a B2C basis which defines the rights and duties of the parties who are bound to the contract. Standard contract terms facilitate commercial certainty and are beneficial for consumers. However, in consumer contracts the sellers and suppliers are entitled to define their own contract terms which confers them another advantage without having to individually negotiate them with the consumers. It is for the purpose of harmonising consumer laws on this matter and diminishing unfair contract terms that the intervention on EU level is desirable. The directive on unfair contract terms introduces the concept of “good faith” so as to prevent sellers and consumers to circumvent any imbalances of their respective rights and obligations. Terms that are unfair are enshrined in the directive and do not bind any of the parties where the consumers are favoured in the event of ambiguous contract terms. Article 3(1) of the Unfair contract terms directive reads: “A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer.”
National authorities of EU member states are required to enforce consumer rights and urge that businesses do not use unfair contract terms practices.
As a result of the right of withdrawal, the consumer is placed on a similar level as a face-to-face buyer. During the cooling-off period the consumer may reject the product if it does not meet their expectations due to their lack of knowledge of the product when they place an order online. In this way consumer confidence in e-commerce sales has increased. It is cumbersome for consumers to purchase goods online yet businesses have to face 28 different national laws. The desire to remove obstacles in relation to cross-border trade is one of the reasons for the introduction of the right of withdrawal. More online contracts will be concluded with higher consumer confidence and eventually more cross-border trade between businesses will take place. If the consumer is allowed to rethink his decision then the disadvantages of purchasing goods online would reduce. Some scholar argue that; “[it] seems unlikely that harmonisation of private law will result in a (substantive) increase in cross-border contracts, as other barriers such as diverging tax rates and different languages are not taken away. Although harmonisation will certainly take away some barriers for trade within the internal market, the promotion of the internal market is therefore not a convincing argument to introduce or maintain a right of withdrawal”.
Conclusion
Stricter protection is afforded in favour of the consumer rather than the business who runs the online web-shop i.e. the seller, which leaves the latter in a risky position. E-commerce consumer protection laws exist because consumers who buy “in the dark” have little knowledge about the products end-result until it is delivered to their homes. Thus, in order to protect the consumer, there exists an obligation on the web-shop to provide the consumer with the possibility to cancel the contract in the event that the purchaser decides to exercise their right to return the item. As a result, the web-shop who has contracted with the customer has to fill in an “empty seat” and accept the cancelled good. The CRD affords rights to the consumer to return goods to the online retailer within 14 days of the purchase, without any justification. The consumer has a contract with the retailer and not the manufacturer and cannot use their right of withdrawal against the manufacturer. The reason to why the consumer cannot enforce his rights against so as to receive a remedy from the manufacturer is due to the legal phenomena known as privity of contract.
The lack of bargaining power of the consumer gives the consumer certain rights where they are entitled to withdraw their contract with the web-shop. “The right of withdrawal is therefore intended to offset the disadvantage for the consumer resulting from a distance contract by granting him an appropriate period for reflection during which he can examine and test the goods acquired.” However, the right of withdrawal does put the web-shop who contracts on a b2b and b2c basis respectively, in a risky position as it has obligations in both contracts.
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