Commencement of the Consumer Rights Act 2022 (Ireland)
December 2022A commencement order was made last week in respect of the Consumer Rights Act 2022. In this article, Sean O’Halloran and Tara Cosgrove provide a brief overview of the act and its significance for insurers.
On 28 November 2022, a commencement order was made in respect of the Consumer Rights Act 2022 (‘CRA 2022’ or ‘the Act’), bringing almost every provision of the Act into force immediately.
A lengthy and complex legislative instrument designed to reinforce a number of existing consumer rights and protections, CRA 2022 consolidates existing law relating to rights and remedies in contracts between traders and consumers for the sale of goods and the supply of content and services, particularly online.
The Act implements three recent EU consumer rights directives[1]. All three directives arose from the European Commission’s New Consumer Agenda, an overarching suite of legislation designed to strengthen consumers’ rights, particularly when transacting online. CRA 2022 also amends the provisions of the Consumer Credit Act 1995 and Consumer Protection Act 2007.
Service contracts – fitness for a particular purpose or result
S. 80 of the Act sets subjective obligations for conformity of a contract for services. CRA 2022[2], for the first time in law, specifies a requirement that a service supplied under contract must be reasonably fit for its purpose. An implied statutory condition for fitness for purpose has long existed in respect of contracts for the sale of goods, going back to the 19th Century[3], resulting in an implied condition in all contracts for the sale of goods to consumers requiring that those goods be fit for all purposes for which such goods are commonly supplied.
The creation of a statutory fitness for purpose requirement for the supply of services in CRA 2022 represents a novel change from the previous statutory position in respect of the supply of services. Prior to the commencement of CRA 2022, a supplier of services was only required to exercise due skill, care and diligence. However, it is important to note that the fitness for purpose requirement in respect of services introduced by the Act is narrower in scope and is subjective. The requirement applies only so long as (i) the consumer made it known to the trader when contracting that the service was required for a particular purpose, and (ii) the trader accepted to that the service would meet the purpose identified by the consumer.
Notwithstanding the narrow scope, a concern exists here in respect of certain types of insurance. Certain policies will only provide indemnity in respect of allegations that an insured failed to use reasonable skill and care when providing a service. As a fitness for purpose obligation imposes a far higher duty than the usual duty to act with reasonable skill and care, it is common for certain policies of insurance to specifically exclude any acceptance of or guarantee of fitness for purpose by an insured.
Should an insured make a non-negligent error where they had assumed a fitness for purpose obligation and, in so doing, failed to meet an assumed standard of fitness for purpose, the insured’s insurance may not respond. Consequently, insureds who regularly supply servicers to consumers will need to be extremely conscious around the existence of any exclusions in their policy regarding fitness for purpose and should carefully consider the implications of the Act.
It is important to note that the provisions in respect of fitness for purpose in respect of services in CRA 2022 only apply where fitness for purpose or a particular result has been accepted by the trader, should a consumer seek to include a condition that the service be fit for a specific purpose they have identified, the trader should proceed with caution and make it clear to the consumer that they are not in a position to guarantee that any service supplied would meet any particular purpose identified by the consumer. Professionals should not guarantee the result of their work.
Proper record keeping and clear terms are important in this regard as s. 80(5)(a) of the Act requires that the trader demonstrate that they did not accept any purpose made known to them relating to the service by the consumer.
S. 81 of the Act separately specifies some objective requirements of a service contract, including that a service must comply with any public statement (such as an advertisement) in relation to the service.
Existing prohibitions on unfair terms in consumer contracts
CRA 2022 strengthens the existing legal protections prohibiting the use of unfair terms in consumer contracts. Insurers will already be familiar with the 1995 EU Unfair Terms in Consumer Contracts Regulations (SI 27/1995), particularly following the relatively recent commencement of s. 20 of the Consumer Insurance Contracts Act 2019 (CICA), which applied the Unfair Terms Regulations to all consumer insurance contracts as defined in CICA 2019.
The Act expands the current prohibitions set out in the Unfair Terms Regulations to all areas of consumer law whilst codifying the law and providing for stricter penalties. This includes at s. 132 of the Act a contract “blacklist” comprising terms and conditions that are deemed to be unfair in all circumstances. The blacklist includes terms which exclude or hinder a consumer’s right to take legal action or exercise a legal remedy, including by requiring the consumer to take a dispute to arbitration where the procedure is not governed by law. The Act also deems unfair a term which gives a trader the exclusive right to interpret any term of the contract.
The Competition and Consumer Protection Commission (CCPC) and Central Bank of Ireland (CBI) are to be given new rights of enforcement where consumers are not provided with the proposed remedies they will be entitled to under the Act. S. 137 of the Act allows CBI, the CCPC and other authorised bodies (including the Consumers’ Association of Ireland) to apply to the courts for a declaration or injunction in respect of businesses who mislead their consumers or fail to provide them with the adequate remedies or compensation they are entitled to. This includes the right of authorised bodies seek a declaration that a term of a consumer contract is unfair, or instead a declaration as to the proper interpretation of a term that has been drawn up for general use as a term of a consumer contract. One could foresee the latter provision being used to interpret policy terms in circumstances similar to the recent business interruption claims.
In more extreme cases, the Act provides that a court may prohibit the use or continued use in any consumer contract of an unfair term a term or similar terms of like object or effect.
After publication by the authorised body, should a trader, be they an individual or a company, enter into a contract with a consumer containing a term which a court has deemed unfair, or instead seeks to rely upon an unfair term in a consumer contract, they may be prosecuted. The Act provides for fines of up to €60,000 or even imprisonment for up to 18 months where a person breaches such an order. And if a company instead breaches such an order, the directors could themselves be penalised.
Convicted traders may also be made subject to a compensation order requiring them to compensate any consumers where they commit an offence using a term found to be unfair.
Scope of the Act narrower than CICA
It’s important to note that the Act narrowly defines consumers. CRA 2022 only applies to dealings with individuals acting wholly or mainly outside their trade, business, craft or profession. This means that, unlike the Consumer Insurance Contracts Act 2019, the provisions of CRA 2022 will not be apply to insurance products supplied to SMEs or small businesses, even where they have a turnover of below €3 million.
Strict penalties are set for breaches of such court orders in the Act. Where a court makes an order declaring that a term of a consumer contract is unfair, the body who applied to court for a declaration in respect of the term concerned is required to publish a copy of the order on its website (or similar forum).
The only provision of CRA 2022 that has not yet come into force is s. 161 of the Act, which amends the Consumer Protection Act 2007 by providing for a right to consumers to a price reduction or termination of a contract where a trader has carried out a prohibited acts or practices, such as misleading or aggressive sales. Further details are awaited as to when that particular section will commence.
The immediate commencement of the remainder of the Act is not likely to be welcomed by business, particularly as the Act moved through the Oireachtas quickly and without much attention being brought to its impact or imminent arrival. For such a sweeping piece of legislation, one would typically expect to see a lengthy or staggered commencement period to provide insurers and other businesses a bedding-in period to adequately prepare for the commencement of the legislation.
Any trader offering services to or deal with consumers should reflect upon the impact that the commencement of the Act may have on their existing terms and conditions and sales practices, including any marketing material. Particular care should be taken in respect of avoiding the assumption of a fitness for purpose obligation.
[1] The relevant directives are the Enforcement and Modernisation, or “Omnibus” Directive (Directive (EU) 2019/2161), the Digital Content and Digital Services Directive (Dir (EU) 2019/770), and the Directive on Contracts for the Sale of Goods (Directive (EU) 2019/771).
[2] S. 80(1)(c) of the Act.
[3] See s. 14 of the Sale of Goods Act 1893.
If anyone has any questions or comments on the act please either Tara Cosgrove – t.cosgrove@beale-law.com or Seán O’Halloran – s.ohalloran@beale-law.com.
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