Brexit series: Brexit sector briefing: retail and consumers
After 2019, it is unclear what relationship the UK will have with the 27 remaining EU member states. For now, the UK must continue to follow EU law. But the extent to which the UK might depart from established EU consumer laws post-Brexit will ultimately be driven by that new relationship, and in the medium to long term there may be divergence between the laws that protect consumers in the UK and the EU.
On 23 June 2016, the UK voted in favour of leaving the EU and, so far, clarity as to how negotiations on the terms of the UK's exit from the EU will play out remains elusive. However, we now know that the government intends to trigger notice under Article 50 of the Treaty on the European Union by March 2017. That notice will trigger a two-year countdown, which means that the earliest date that the UK could formally leave the EU is March 2019.
Until that date, the UK will remain an EU member state and nothing will change. After 2019, it is unclear what relationship the UK will have with the 27 remaining member states, and the impact of the UK's withdrawal from the EU is difficult to predict until there is better clarity on that post-Brexit relationship. For now, however, the UK must continue to follow EU law. But the extent to which the UK might depart from established EU consumer laws post-Brexit will ultimately be driven by that new relationship and, in the medium to long term, there may be divergence between the laws that protect consumers in the UK and the EU.
Retailers selling to consumers in the UK currently need to comply with a large body of consumer law which is a mixture of both national law and EU law. To understand the likely effect of Brexit on consumer law it is worth remembering that EU law is issued in the form of directives or regulations. Most EU law is issued as a directive which directs a member state to implement the provisions in the particular directive as part of that member state's national law. The UK does this implementation either by statute or by a statutory instrument under the European Communities Act 1972. To a much lesser extent, some EU law is issued as a regulation, which does not need to be formally implemented in individual member states but applies automatically. When the UK leaves the EU, these EU regulations will no longer directly apply in the UK.
EU consumer law is generally in the form of directives; for example, the Consumer Rights Directive (2011/83/EU) (the Directive) harmonised the rules on distance selling across the EU and was implemented in the UK by the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (SI 2013/3134) (2013 Regulations). The 2013 Regulations are now part of national law and it is very unlikely that this type of law will be unpicked on the day the UK leaves the EU. The House of Commons briefing paper acknowledged that most EU-derived law will remain part of UK law, and consumer law is one of the areas which is unlikely to change (see News brief "Brexit briefing paper: further clarity but no answers ( www.practicallaw.com/5-633-7673) ").
Another issue to consider is that when the UK withdraws from the EU, it will no longer be bound by decisions issued by the European Court of Justice (ECJ). Several decisions by the ECJ have shaped how directives should be interpreted and our understanding of EU consumer law. Although the UK courts may no longer be bound by these decisions, they are likely to be persuasive. As so much of the UK's consumer law is derived from EU directives it seems unlikely that decisions issued by the ECJ will be completely ignored by the UK courts.
The digital single market
UK retailers have recently had to grapple with the new changes introduced by the Consumer Rights Act 2015 (2015 Act) which came into force on 1 October 2015 (see feature article "Consumer Rights Act 2015: a step in the right direction ( www.practicallaw.com/6-618-1992) "). The 2015 Act was created by updating and combining existing UK national and EU-derived laws and covers rights and remedies for defective goods, services and digital content as well as unfair terms.
In particular, the 2015 Act introduced new rights and remedies for UK consumers when buying defective digital content, such as apps, e-books and downloaded music or videos. The UK is ahead of the curve by introducing these new remedies for digital content, as most other member states do not yet have comparable legislation.
However, as part of the EU digital single market strategy, the European Commission (the Commission) published a draft Digital Content Directive which will require all member states to implement similar consumer rights and remedies for digital content (www.practicallaw.com/5-622-1210). Although there are similarities between the draft Digital Content Directive and the rights and remedies for digital content in the 2015 Act, there are also some key differences. For retailers currently selling digital content to consumers across the EU, there is a risk that after the UK leaves the EU, the rules that apply when providing digital content to consumers in the UK will diverge from the consumer laws which apply in the EU.
Of course, the government may decide as a policy choice to adopt any future EU directives as part of UK consumer law, or amend national UK law to harmonise with new directives. There may be pressure from businesses to ensure continued harmonisation of consumer law in order to make it easier to sell across the EU.
E-commerce retailers have benefitted in particular from the harmonised EU rules on distance selling, which make it easier to use a single set of terms and conditions to sell to consumers across the EU.
The aim of the EU's digital single market strategy has been to expand this harmonisation of consumer law to increase cross-border trade. The Directive currently provides for harmonisation for distance sales in areas such as cancellation rights. The Commission would like to extend this harmonisation to cover rights and remedies available to consumers for defective goods and has published a draft directive for online and distance sales of goods to consumers (www.practicallaw.com/5-622-1210).
The proposed remedies in the draft directive are different from the remedies in the UK's 2015 Act, which applies to both bricks and mortar and distance sales; for example, the Directive does not contain a 30-day short-term right to reject. Depending on how quickly the draft directive progresses, and whether it is finalised before the UK withdraws from the EU, the UK may or may not be required to implement its measures. In the future, e-commerce retailers may potentially need to provide a different set of rights and remedies for UK and EU consumers.
Earlier in 2016, the EU launched an online dispute resolution platform to help resolve consumer complaints against e-commerce retailers. The Online Dispute Resolution Regulation (524/2013/EU) has been introduced into the UK under the Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations 2015 (SI 2015/452) (see News brief "New EU online dispute resolution platform: obligations for businesses ( www.practicallaw.com/9-623-5187) "). Currently, e-commerce retailers must include a link to the EU dispute resolution platform to enable UK consumers to file complaints. It is unclear if UK consumers will continue to have access to this EU platform following Brexit.
Retail supply chains
Currently the UK is part of the EU single market, which provides for the freedom of movement of goods, services, persons and capital between member states. According to the Confederation of British Industry (CBI), UK high-street retailers import nearly 30% of their goods from the EU. The uncertainty about the post-Brexit relationship between the UK and the EU creates some risk for retailers importing goods from the EU, because if the UK is no longer in the single market, customs duties and tariffs could apply on trade between the UK and the EU. If the UK is unable to remain within the single market then the duty and tariff cost for importing goods will increase, which may be passed on to consumers (see feature article "International trade post-Brexit: getting the goods ( www.practicallaw.com/8-634-6987) ").
Long-term retail supply chain contracts are also likely to be reviewed to ensure that they are still commercially viable if there are increased import costs or other implications arising from the UK's withdrawal. Suppliers are already inserting clauses into contracts which give them the option to amend terms or terminate contractual arrangements when the UK withdraws from the EU (see feature article "Brexit and commercial contracts: assessing the impact ( www.practicallaw.com/0-634-4336) ").
During the referendum campaign there was a lot of discussion about the regulatory burden imposed by the EU on UK businesses. However, after the UK leaves the EU, retailers that wish to continue to sell goods to consumers in the EU will need to continue to adhere to EU rules affecting those goods, in the same way that US exporters to the EU have to comply with EU rules at the moment.
There have also been some immediate benefits for certain retailers following the Brexit vote. The pound has seen large falls in value against the euro and dollar, which has been a benefit to UK exporters and has also made the UK more attractive for overseas consumers, leading to a rise in spending with retailers.
Conversely, retailers paying in pounds to import goods into the UK will have found that the weaker pound means that they are paying more for imported goods. Consumers are already finding that the cost of some goods in shops have increased because of these currency fluctuations. Although consumer confidence fell following the June 2016 referendum, this has been steadily recovering with consumer spending still holding strong according to the CBI. Of course, the UK has yet to withdraw from the EU and there may be more of a significant impact on retailers when that happens.
Doris Myles is a professional support lawyer, and Duncan Reid-Thomas is a partner, at Baker & McKenzie LLP.