UK: Regulating Contracts And Services

Last Updated: 16 February 2010
Article by John Halton

December 2009 saw two business regulations come into force in the UK which will have a significant impact on a large number of UK businesses. The Rome I Regulation affects businesses trading with other EEA countries, while the Provision of Services Regulations 2009 apply to all businesses providing services to third parties.

Governing law: the Rome I Regulation

The Rome I Regulation, which took effect in the UK on 17 December 2009, updates the rules determining which country's laws apply to a contract. It is important to know which law applies to a contract, as different countries may interpret the same provisions in very different ways.

For most business-to-business contracts, the parties are free to choose which country's laws apply. This remains the case, though there are various exceptions relating to contracts of carriage, insurance contracts, employment contracts, consumer contracts (see below) and "overriding mandatory provisions" imposed by a country for safeguarding its public interest.

Where the parties do not choose a governing law, the Regulation sets out rules for determining which country's laws apply. However, the advice for business-to-business contracts remains: state the governing law expressly in the contract.

Consumer contracts

Possibly the most important exception for most businesses relates to consumer contracts, where the Regulation updates the previous law to make it more suitable for the era of online trading.

As for other contracts, the parties to a consumer contract can choose the law that governs the contract (in practice this will usually be the law of the supplier's home country). However, the consumer retains the benefit of any mandatory consumer law protections in their home country, provided certain conditions are met.

Under the old law, the consumer's local consumer laws would apply if the consumer was responding to advertisements (or a specific invitation) in that country, or the seller took the order in that country. The application of this to websites situated in one country but accessed from another was unclear.

Under the new law, a consumer's local consumer laws will apply where the seller either "pursues his commercial or professional activities" in the customer's country of habitual residence or "by any means, directs such activities to that country". "Directing activities" towards a country could include offering a choice of languages on your website, providing prices in euros or giving delivery costs for other EEA states.

This means that a large number of UK online sellers will now clearly be caught by the definition and thus bound by local consumer laws, some of which may be considerably more onerous than UK consumer legislation. Those businesses are therefore faced with an unpleasant choice: accept the risk of being required to comply with laws of which they are unaware; obtain legal advice in each country to which they "direct" their activities (which could potentially be every EEA country); or cease trading with consumers in other EEA countries.

Jurisdiction

Note that the Rome Regulation does not affect the existing EEA rules on which country's courts have jurisdiction over any disputes. In practice, this may be a more significant issue than the question of which law applies, especially in consumer contracts, where sellers may be required to bring (or be subjected to) legal proceedings in the consumer's home courts, regardless of what their terms say.

Provision of Services Regulations 2009

The Provision of Services Regulations 2009 (PSR) came into force on 28 December 2009 and apply to most businesses providing services, whether to other businesses or private consumers. They implement a European directive intended to help service providers trade across national boundaries.

Service providers will be required to make certain information available to customers. Some of this is obvious (name, VAT number). Some is less so, such as geographic address (not a PO Box) and details of professional liability insurance. The information must be provided in good time before the contract is concluded so that the recipient has time to change their mind about entering into the contract.

Service providers will now have a legal duty to respond quickly to complaints and to seek to find a satisfactory resolution, though there are exceptions for "vexatious" complaints.

Finally, service providers are now prohibited from having "general conditions of access" to their services which discriminate against individual service recipients based on the recipient's place of residence. A service provider can only impose such restrictions if they are "directly justified by objective criteria". The government's guidance states that it is necessary to be able to show that "providing the service to the relevant location would put an excessive strain on your business".

For full details on the PSR, including full details of the information to be provided to customers, see the Department for Business Innovation and Skills (BIS) guidance note at http://3.ly/chhdec09ref01.

Action points

  • If you are supplying services to consumers, businesses or any other type of customer, ensure you can make available the required information under the Provision of Services Regulations.
  • If you are entering into a business-to-business contract with a non-UK party, make sure the contract includes an express "choice of law" clause.
  • If you are supplying goods or services to consumers elsewhere in the EEA, you will need to weigh the impact of the new rules (together with existing rules on jurisdiction) against the benefit of continuing to trade with other EEA countries – an assessment that is likely to vary from business to business.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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