HL Deb 10 June 1997 vol 580 cc837-64

3.28 p.m.

Lord Hoffmann rose to move, That this House take note of the Report of the European Communities Committee on Consumer Guarantees (10th Report, Session 1996–97, HL Paper 57).

The noble and learned Lord said: My Lords, by your Lordships' leave, I wish to draw the attention of the House to the report of the Select Committee of the European Communities on the proposal for a directive on consumer guarantees.

The object of the proposed directive is to require all member states of the European Union to introduce into their law certain minimum rights for consumers who have bought goods which are defective or are not in accordance with the way in which they were described. This is a matter of considerable importance for the ordinary citizen and the committee therefore took evidence from a large number of people and has produced a detailed report.

The clearest way in which I can describe the effect of the proposed directive is to give your Lordships a brief sketch of the present position in English law and then say how it would be affected by the directive. In English law a consumer who buys something in a shop and then finds that it has a defect may have two kinds of remedy. First, he may have the benefit of a guarantee from the manufacturer. That will usually be a piece of paper in the box headed "Guarantee" in Gothic letters which states what the manufacturer promises to do; whether it is for six months or for a year, whether it covers only the replacement of parts or labour as well, how soon claims must be notified, and so on. That guarantee may be included without extra charge, but nowadays one is quite often offered a longer period of guarantee in return for an extra payment. The directive calls these guarantees commercial guarantees.

In addition to any guarantee which may be given by the manufacturer, a purchaser also has rights against the shop. Buying goods is a contract with the shop and the Sale of Goods Act 1979 automatically writes into that contract certain obligations on the part of the shopkeeper which are called implied terms. The most important of these is that the goods will be free from defects, they will be in accordance with the way in which they were described and they will be reasonably fit for the purpose for which they were sold. Shopkeepers are sometimes surprised to be told that they are legally liable for selling goods which do not comply with these obligations, but that has been the law of England for a very long time.

If the goods do not comply with the seller's obligations, a buyer in England may have one of two remedies. The first is to cancel the contract, return the goods and get back his money. The second is to keep the goods and get compensation in money, which English law calls damages. A person who wants to return goods has to act fairly quickly. If he uses them, even for quite a short time, he loses the right to cancel the sale and he can only obtain financial compensation. That will usually be the difference between what he paid and what the goods were actually worth; for example, it would amount to what it would cost to repair them and to put them into the condition in which they should have been. The claim for damages can be brought at any time within six years after the purchase, but of course the seller will only be liable if the failure of the goods is due to some defect which was present at the time when they were sold. He is not going to be liable for accidents, wear and tear or things that happen afterwards.

That is a brief outline of the present English law on the subject. It is the result of many centuries of development of the common law. It is the result of a famous statutory codification of the common law at the end of the 19th century and a number of amendments over the past 25 years, which were made on the recommendations of the Law Commissions of England and Scotland. It is generally thought to work in a satisfactory way and to preserve a fair balance between the interests of consumers on the one hand and of retailers and manufacturers on the other.

The proposed directive will change this system in a number of ways. First, it will lay down some minimum requirements about what I call commercial guarantees. The main purpose is to ensure that the piece of paper with the Gothic lettering and so forth does actually give the consumer some extra rights and does not merely reproduce or even reduce the rights which he would have had against the shop under the contract. This is not really a problem in England, where the law already covers making misleading statements and does not allow sellers to reduce the consumer's rights.

The most important changes which the directive proposes to make are in the law concerning the rights which consumers have under their contract with the shopkeeper. In the first place, the directive coming from Brussels approaches the scheme of rights in a way which is based on traditional continental ideas derived from Roman law. My noble and learned friend Lord Steyn, who was a member of the sub-committee which prepared the report, and who is learned in the Roman-Dutch law, tells me that you cannot really understand the directive until you realise that it is derived from the remedies which were available in ancient Rome to the buyer of a defective slave. In continental law, following the Roman law, there are two traditional remedies for buyers of defective goods: cancellation of the contract or, alternatively, reduction of the price. And both of these are usually available for a maximum of one year after the purchase. In some member states the rules are even more restrictive.

In respect of standard rights against the shopkeeper, the directive proposes to change the law in four main ways. First, the buyer should have a remedy for any defects which appear during a period of two years. So from a continental point of view, that doubles the existing protection. That will offer consumers on the Continent a very considerable improvement. But in England, as I have mentioned, the consumer already has six years.

Secondly, the buyer should be entitled to choose among four remedies. Two will be available for one year after purchase: to cancel the contract and get your money back or to ask for the goods to be replaced. The other two will be available as long as the defect appears within two years: to obtain a reduction in the price or to require the goods to be repaired. For English consumers, this would be quite a substantial change because at present, as I have said, the right to cancel the contract is usually lost after quite a short period, but under the directive it would last for a year.

Thirdly, there will be a presumption that any defect which emerges within six months was present when the goods were sold. At present, in English law, the burden is on the consumer to prove that the defect was present when he bought the goods and was not the result of misuse or ordinary wear and tear. So that, too, will alter the balance somewhat in favour of the consumer.

Fourthly, the consumer will have no claim unless he notifies the defect to the shop within one month of the date on which he discovered it or should reasonably have discovered it. There is no such provision in English law. Of course, as a matter of common sense, if you go back to the shop and say that your fridge developed a defect over a year ago but you did not bother to tell them, you may have some difficulty in being believed. But there is no rigid rule about a notification period and United Kingdom consumer organisations are alarmed at the prospect of having one. In particular, what does it mean to say that one should reasonably have discovered a defect? What about the lawnmower which you buy in February? When should you have reasonably discovered the defect so that your month starts to run? What about the Christmas present which you buy in October?

But I do not believe that in practice these problems are likely to bother us because the directive makes it clear that member states are entirely free to give their consumers greater rights, and of course that would include not insisting on the one month notification period. In their evidence to us the Department of Trade and Industry made it clear that it was not their intention to reduce the rights of English consumers in any way if they had to adopt this directive.

The evidence which the committee received from manufacturers and retailers was that in giving a one-year period for rejection or replacement and in creating the six-month presumption the directive went too far in favour of consumers. I suppose that one would expect them to say that. They said that it would encourage false claims and it would prove very expensive. Computer manufacturers, for example, said that because their technology was improving month by month and prices were falling, unusually, buyers would be tempted to manufacture complaints in order to upgrade their equipment for free. The motor manufacturers presented an alarming picture of the motorist who never needed to buy a new car because he demanded a replacement every year just before his one-year replacement period expired. The additional costs of all this would, of course, have to be added to the price of the goods for consumers generally and would damage the competitiveness of European manufacturers.

The committee's view was that these fears were probably somewhat exaggerated. There was little hard evidence for the existence of an army of potentially fraudulent consumers. The directive gave member states the right to exclude the remedies of cancellation or replacement in the case of what it called "minor defects". The impression that we gained from representatives of the Commission was that, on the whole, member states would be left to decide for themselves what amounted to "minor defects". As for the six-month presumption, the committee thought that in practice, a judge would be likely to find that a defect in consumer durables which showed up within six months was there at the time of sale unless there was some evidence of misuse; and there seemed some force in the point made by the Consumers' Association that the seller—the shop or the manufacturer—was in a better position to produce evidence on such technical questions than was the consumer. The difficulty was that there was very little hard evidence about the economic effect of the directive and the representatives of the Commission admitted that the research they had done on the likely financial effects on manufacturers and retailers was fairly perfunctory. They said they were commissioning a further study and I understand that they have recently appointed some consultants for the purpose.

If I can therefore sum up the committee's view of what one might call the negative side of the balance sheet, it is as follows. First, both manufacturers and retailers on the one hand and consumer organisations on the other in this country are reasonably satisfied with our present law. They do not think that it needs to be changed. Secondly, while the practical effect of the directive did not seem to the committee to be as drastic as some witnesses thought, it will undoubtedly alter the balance somewhat in favour of consumers and the cost of this change has not been properly assessed. Thirdly, the difference in approach—the continental language and grammar that will be introduced—is bound to unsettle the present English law and create some uncertainty until the new system has bedded down, at the expense of future litigants.

What is to be said on the credit side? What contribution will the directive make to the development of the Community and the single market? I think that it can be accepted that in a number of member states the rights which it gives to consumers will be a distinct improvement on what they now have under their national laws. But this does not in itself mean that a European directive is the appropriate way of bringing about such a change. Unless it has some effect upon the working of the single market, the principle of subsidiarity—if I dare mention that—would seem to require that the member states should be left to decide for themselves what rights their consumers should have.

The main argument put forward by the Commission was that the existence of certain minimum consumer rights everywhere would encourage cross-border shopping. It commissioned some studies in places like Luxembourg and Maastricht, where people often went shopping in neighbouring territories, and found that there were complaints about problems with defective goods, particularly motor cars and furniture. Of course people in Luxembourg, Maastricht or other border areas, are more likely to be cross-border shoppers than people in Birmingham. But I think it was not mere insularity which made the committee regard this argument with some scepticism. First, cross-border shopping is a minuscule part of the trade between member states. If you want to buy a German fridge, you buy it from an English shop. You do not take the car to Frankfurt, load the fridge into the back and bring it here. If you buy your fridge in an English shop, it is, of course, subject to our own consumer laws.

Secondly, the lack of uniformity in consumer remedies did not seem likely to be the main inhibition against cross-border shopping. The reasons you are more likely to buy your television in John Lewis than in Galleries Lafayette are to do with things like negotiating the transaction in French, getting a model which works in this country, bringing the thing back on the Eurostar and so forth; even if you are concerned about the possibility that it might break down, the sheer difficulty of taking it back to Paris is likely to loom larger than the details of your legal remedy. Thirdly, the directive is not intended to produce uniform consumer remedies over Europe. It sets out only a basic minimum, leaving member states free to give their consumers better rights. So, you have absolutely no guarantee that the rights that you enjoy in your home country will be the same as the rights available to you when you shop across the border.

In some respects, as I have already said, UK consumers already have better rights and the department says that it will stay that way. The result is that the committee felt that it could not give the proposed directive its unqualified recommendation or, for the moment at any rate, any recommendation at all. There seems to be virtually nothing to be said on the positive side of the balance sheet against the items which I have put to your Lordships on the negative side.

The Commission accepts that more work on the economic effect of the directive is needed and the committee has also made numerous detailed recommendations for improving the drafting of the directive, if it should be adopted. The Government have recently published a response to the committee's report in which they largely accept the recommendations for improvement and agree with the committee's general views.

I think that I can speak at any rate for the sub-committee which prepared the report when I say that I regret these somewhat negative conclusions. There is, I think, no doubt about the sincerity and enthusiasm of the officials of the Commission who have put in a good deal of work on the draft directive and were extremely helpful in attending the members of the committee and explaining to us what they had in mind. We learned a good deal from them and I hope that they also learned something from us.

I have no doubt that there are member states where the position of consumers is not so well-protected as in this country and I suspect—I say no more than that—that a case could be made for saying that a general upgrade in consumer rights would be to the advantage of trade throughout the single market. But that argument would have to be different from the one which was presented to us, better researched, based upon more solid evidence and in support of a better drafted directive. I beg to move.

Moved, That this House take note of the Report of the European Communities Committee on Consumer Guarantees (10th Report, Session 1996–97, HL Paper 57).—(Lord Hoffmann.)

3.48 p.m.

Lord Borrie

My Lords, in some ways the subject of this report is fascinating and important. It involves proposals to ensure that consumers who buy goods will receive goods that are as described and are of satisfactory quality. The Commission in Brussels is rightly concerned in the directive, as in a number of other initiatives, to establish its credentials in promoting the interests of the ordinary citizens of the European Union, including, in this instance, the economic interests of the ordinary private purchaser of goods of all kinds. The basic objective of ensuring that consumers across the Community have a minimum floor of rights whenever and wherever goods are bought in the Community is surely sound. It appears that for some member states improvements in consumer rights are needed. However, I suggest that it is not normally appropriate for a Community instrument to be a substitute for inadequate national legislative progress on such matters as these in one or more member states.

I had the honour to serve on Sub-Committee E during its inquiry into the Commission's proposed directive on consumer guarantees. We had the benefit of excellent chairmanship from the noble and learned Lord, Lord Hoffmann. We also had the benefit of a wide range of views from both interested and disinterested parties. There was a general consensus that in the United Kingdom the work of the English and Scottish Law Commissions during the 1970s and 1980s followed by legislation had remedied most of the perceived difficulties and weaknesses in the law as to the rights of consumers when buying goods and that a fair balance had been achieved between those rights and the interests of retailers and manufacturers.

At one time the use of small print exclusion clauses could deny the consumer of one or more of his basic rights going back to the Sale of Goods Act 1893 and, in common law, beyond that. These rights ensure that the consumer has goods that are fit for their purpose and are of satisfactory quality, bearing in mind the description given to those goods and the price paid for them. It had been very unsatisfactory that in respect of major domestic appliances and goods such as motor cars those basic rights had not clearly included such concepts as a measure of durability and the consumer's entitlement to a remedy when the goods still worked but perhaps the decorative aspect of a brand new item left much to be desired.

Our law over the past two decades has been much improved. These problems have been dealt with by a number of Acts of Parliament, most recently the Sale and Supply of Goods Act 1994. For UK consumers who buy goods in the United Kingdom fresh legislation on these matters is not really needed. The unfamiliar concepts emanating from Roman-Dutch law and the unfamiliar grammar and vocabulary used in the proposed directive will require a good deal of clarification and interpretation to enable consumers, traders and their advisers to grasp the full import of the new rules.

There was a good deal of scepticism among some members of the committee and some witnesses as to the stated major purpose of the directive, namely, that it would encourage and facilitate cross-border shopping. Our witnesses regarded it as extremely doubtful whether the removal of differences in the substantive law of member states would be a significant factor in influencing people to shop more frequently or extensively across the borders of member states. For example, the Director General of Fair Trading suggested that other factors, most of which were not susceptible to legislation, played a far more significant part in limiting people's willingness personally to shop abroad. One refers to language differences, transportation problems, difficulties in returning purchases in the event of dissatisfaction and—if one thinks this far ahead—the need to seek redress for defects in a foreign judicial system. Even if in theory the differences in law in the various member states have a distorting effect on competition between member states and on the Common Market, the directive requires only a minimum level of consumer protection and leaves individual states to impose higher requirements if they wish. Therefore, if the directive was implemented in every member state differences between member states would still remain.

Once Sub-Committee E had considered the problems of different concepts and vocabulary it found much in the detailed provisions of the directive that was in substance familiar in terms of the basic rights of the consumer to have goods as described and of reasonable quality that conformed to his or her reasonable expectations. Some provisions in the directive would appear to give greater rights to the consumer than existing UK law. Despite my view that UK law is largely satisfactory for the UK consumer, I welcome the provision that if a defect becomes apparent within six months of delivery there should be a rebuttable presumption that the defect existed at the time of delivery unless that presumption is incompatible with the nature of the goods or lack of conformity. As one witness said to us, that change in the burden of proof would end the irritating riposte of the shopkeeper when, say, one's shoes fall apart at the first wearing, "You've been using them. What do you expect?"

The directive also gives the consumer a longer period than existing UK law within which to rescind the contract and require replacement of the goods, namely, a full year. I feel that here the proper balance of rights between the consumer and retailer does not justify such a change in current UK law which is based on the considered view of the English and Scottish Law Commissions of a decade or two ago that rejection of the goods and a demand for the full price back, as distinct from compensatory damages, should be available only within a fairly short period of the sale.

One of the apparent improvements in consumer rights in the directive is the provision that makes manufacturers' commercial guarantees legally enforceable. Since manufacturers are not now—nor would they be under the directive—legally required to give any such guarantee, I tend to agree with UNICE (Union of Industrial and Employers' Confederations of Europe) that if the directive were in force manufacturers might drop the use of guarantees perhaps in favour of some other kind of marketing incentive to avoid the new rule. It would be a pity if the directive when enforced in member states' laws had that counter-productive effect.

There are also provisions in the directive that involve a reduction in the rights of UK consumers as they are at present. As the noble and learned Lord, Lord Hoffmann, said, a two-year limitation period is a good deal less than the present six years provided for in UK law. If it becomes law that a consumer must notify any defect in goods bought within one month of such defect being detected or that it ought to have been detected in that time, it will create a great deal of difficulty, especially if goods are bought in one season of the year for use in another or are bought as a gift to be used several months later by another person. As the noble and learned Lord pointed out, there is a provision in the directive that a member state may adopt more stringent provisions in favour of the consumer, not the other way around. Therefore, if UK law implements the directive it need not narrow consumer rights to cases where there is notification within the one-month period.

When the Commission gave evidence to us it recognised that the directive was not, as it presently stood, satisfactory. There is to be further research and analysis, including a very important study of costs and implications. I do not know whether in the light of further evidence the case for the directive will be made out. At present it is not.

4 p.m.

Lord Aldington

My Lords, I shall start, as I think all speakers will wish to start, by thanking the noble and learned Lord, Lord Hoffmann, for what, in all humility, I would wish to say was a model introduction of a report such as this, and for his brilliant chairmanship of the inquiry that led to it. I also pay tribute to the noble Lord, Lord Borrie. With his great up-to-date experience of fair trading and so forth, we were lucky to have him on the committee. Those of us who witnessed his contributions pay tribute to the care with which he approached the subject and the help which he gave to those who, like me, are laymen in these matters.

I noticed that during the noble Lord's speech there was one point upon which he thought that UK law might be improved along the lines of the directive. I do not believe that he would disagree with what the noble and learned Lord said—"If that is so, then why not do it here? Why wait for the Commission to do it?" Surely that must be right. I shall return to that point in a moment.

I have just one or two preliminary observations to make as a layman member of the committee which is composed of distinguished practising lawyers, judges and others. It was an enormous privilege to sit for four years with one or two other lay noble Lords on Sub-committee E, and to witness the contribution that such an unrivalled gathering of legal knowledge and wisdom can make to the study of problems that arise as a result of proposals that come from the European Community.

I should like to interpose here merely to say that on occasions we went outside our terms of reference and studied problems that arose on proposals from the EU. I am amazed that in this new Parliament—I have told the Chairman of Committees that I shall say this—this important committee still has its archaic terms of reference. Under its terms of reference it seems to be debarred from examining EU proposals, even though it is now agreed that one of its sub-committees will be concerned solely with the third pillar proposals, which are EU proposals and outwith the committee's terms of reference. I make that point with the intention of helping the House authorities. I am not trying to embarrass the Minister who is to reply. He is an old golfing friend, and I am delighted to see him in his place holding his important office. I do not remember any debate such as this being responded to by a former Commissioner. I look forward to hearing him.

During my service on the committee the chairmen have been brilliant. The chair has been held by distinguished Law Lords and by my noble friend Lady Elles whose chairmanship was every bit as brilliant and who lived up to her great reputation for her study and knowledge of European matters. The House, and in particular the committee, owes an enormous amount to its successive legal advisers who dealt with a mass of paper in the most wonderful way.

A further preliminary point that I wish to make harks back to an occasion when I ventured to divide your Lordships' House on a procedural matter. It is one of the quirks of your Lordships' rules that no sooner has a layman such as myself begun fully to understand the methods and purposes of this learned committee, than he is rotated off it by a rule made by the House and imposed upon the Select Committee, regardless of the circumstances. The principle upon which I divided the House a few years ago was its unwillingness to delegate to its Select Committees the right and power to look after their own procedures. If a Select Committee wishes to get rid of a co-opted member such as myself, it should have every right to do so. But to be forced to do so at the time when one begins to be effective is mad, unless it wishes to get rid of the layman at the time when he becomes capable of being a bit of a nuisance. I commend that point to the House. The result of the Division was 100 votes to 100. We drew, but of course it is useless to draw when one is making a proposal against the usual channels, because according to the rules of the House the usual channels win.

I shall return to the report. I shall be brief because the noble and learned Lord described the area of the sales of goods law which is covered by the directive. It is a narrow but important one. It gives details of what the law should be and what it is in other places, and it also raises the important question of what legislation the Community should enact and what should best be left to national Parliaments.

As the noble and learned Lord said, the report contains a number of important recommendations and conclusions which I leave to the Government and, I hope, also to the Commission to study in case it decides to proceed with the directive after it has received the results of the study on the economic impact of the proposals, which it should have received before it made its proposals.

It is shocking that the Commission had to be pushed into having a thorough survey. That was not done by your Lordships' committee but by Ministers on the Council. It is good to know that the Council has had that effect. The result is that we must wait for a number of months before the conclusions of that second study are available. It is a second study because the Commission made some statistical inquiry earlier.

I have received, I expect like other noble Lords, complaints from the British Retail Consortium, and I received a copy of a letter from the CBI about the fact that the Commission has decided that it will not publish the name of the contracted consultant for fear that undue pressure might be brought upon him, nor will it publish anything about the working methods. That may be right or wrong, but I should like to know from the Minister whether he is satisfied with that.

The British Retail Consortium made a number of cogent observations. We should like to feel that the Government are happy about the procedure upon which the Commission has embarked, because in the balance that has to be drawn between the benefits and disadvantages of the directive, that study will be important. It is a study, not just of statistics, which are known to be a little weak in many places, but of all the information that Her Majesty's Government can give. I hope that it will include the contents of your Lordships' massive document.

In our conclusions at paragraph 116, we expressed the belief that a sufficient case for the directive has not been made. However, we do not rule out the possibility that after completion of the study an adequate case cannot be made. We do not believe that a case has been made out, first, on the ground of subsidiarity. The Government in their reply do not directly refer to that part of our conclusions. I would be grateful if the Minister would give us his views on our argument in the report about subsidiarity. It is important that we are clear about the Government's position.

The report goes on to ram home the subsidiarity point. It states: we are not persuaded that these benefits"— which are held out by the Commission as following from the directive whether in the United Kingdom or in other Member States, need to he conferred by a Community instrument rather than national legislation". That is exactly what the doctrine of subsidiarity is about.

I am not attacking the Commission. I was most impressed by its evidence and the way in which it went about its job and answered our points. I was pleased to hear the noble and learned Lord, Lord Hoffmann, tell the House about that. I am not taking a hostile position and have never done so in any of the inquiries that I have conducted. I am an admirer of the quality of those who man the Commission, who are small in number.

They see the situation differently. They argue that the single market would gain from a degree of harmonisation of the laws on consumer protection. They set that out in their explanatory memorandum and confirmed it in answer to a question from me; No. 284. As the noble and learned Lord said, the Commission's case is made more difficult because for some reasons, including subsidiarity, it has limited the area of harmonisation and left a great deal of the law to member states. As the noble and learned Lord said, as a result, the ordinary consumer who enters a shop in another member state will not know whether he has the same protection as he has at home. That is the inevitable result of limiting harmonisation, as we have seen in respect of other inquiries. The problem will continue to arise as the principle of subsidiarity continues to bite. Therefore, we return to the fact that harmonisation is not complete and that we must temper and balance the benefits with the disadvantages.

The noble and learned Lord dealt with the case which was at one time put forward as the main reason for the directive on cross-border shopping. I was not impressed with that case and believe that we do not need to dwell on it further.

I have a final observation to make on what happens if the Commission and the Council decide to proceed with the directive on the ground that further evidence justifies it. The noble and learned Lord referred to the balance. It is very important that a balance is kept between the consumer, the manufacturer and the retailer. The evidence that we received showed that there is a danger to the retailer if there are too many firm rights of replacement and repair. If the balance goes too far in favour of the consumer that might be the case. The number of different brands held by a retailer might be limited, thereby limiting choice.

However, a more important matter is the effect upon manufacturers. This is not the time to do anything to reduce the competitiveness of European manufacturers, including British, in the world at large. Over protective legislation for consumers can result in that. I say "can" because I was more impressed by the evidence of the computer manufacturers at Sony, Panasonic and so forth than were some of my noble colleagues. I was impressed by them because when I was connected with that type of industry I felt as they did. I believe that loading the cost on to high-tech manufacturers by 20 or 30 per cent. because of the need to carry more stock, have more repairers and so forth would be sheer madness. Of course that must be examined, but in arriving at the balance that must finally be struck I hope that Her Majesty's Government, the Council and the Commission will bear those important matters in mind.

4.16 p.m.

Lord Graham of Edmonton

My Lords, I have had the pleasure of listening to the introduction of many reports from our European Communities Committee and have taken a general interest in them. I have applauded its reputation in this country and throughout the world, and certainly in other legislatures, for the value of its reports. However, until I decided to speak in today's debate and took the trouble, not to read every word of the report but to dip into it selectively, I had not appreciated the amount of work undertaken by the committees of this House on this and other matters.

I wish to begin by congratulating the committee, through the personage of its chairman the noble and learned Lord, Lord Hoffmann, on a fine but exhausting job. When I look at the length and thickness of the report, the number of organisations which submitted evidence and those who gave oral evidence, and at the quality of the cross-examination not only by those with legal experience but by non-legal members of the committee, I am most impressed by the value and the quality of the report. I congratulate the committee.

There is not a Member of this House without some experience of guarantees. I refer to their quality and the need for them to be reliable, enforceable and fair. We are looking at an issue which may be arcane in some respects but which, nevertheless, touches everyone in this House and in the country. In preparing my comments for the debate, I read the evidence and submissions of the organisations with which I have some connection and which I respect. I wish to refer to the evidence from the Commission, from the Consumers' Association, from the British Retail Consortium and, interestingly, from the John Lewis Partnership. All that evidence and the chairman's introduction have one thread in common—no enthusiasm for what is proposed. The noble and learned Lord, Lord Hoffmann, used the words "sceptic" and "sceptical".

One is forced to ask what is the purpose of a directive of this kind. In this House, we are entitled to rely on the evidence given by a wide number of organisations. I ask the House to bear in mind what was said by the committee in its introduction at pages 7 and 8 of the report where it states: This Report is about the rights and remedies of a consumer who buys goods which turn out to be defective or to he not in accordance with the way in which they were described It goes on: The object of the Directive is to guarantee a uniform minimum level of protection for consumers throughout the Community when they buy goods". The impact statement on page 71 adds flesh to the bones, but, in my view, the committee had it about right.

The committee looked at all the evidence, weighed it and cogitated about it. It then reached some conclusions, which appear at page 52. Paragraph 174 states: We share the doubts expressed by witnesses that the benefits which, according to the Commission, the Directive would bring, in particular increasing the volume of cross-border shopping and improving confidence in the Single Market, would in fact accrue". Paragraph 177 of those conclusions states: The Directive might bring about improvements to the position of consumers in other Member States but we are not able to assess how beneficial any changes might be". Paragraph 179 states: The Committee does not believe that a sufficient case for the Directive has been established. In particular, in relation to the principle of subsidiarity, we are not satisfied that the proposal passes the tests stipulated in the Edinburgh guidelines. As regards the position in the United Kingdom, the Directive might give some marginal benefits for consumers but these benefits would be outweighed by the disadvantages … We are not persuaded that these benefits, whether in the United Kingdom or in other Member States, need to be conferred by a Community instrument rather than national legislation". Therefore, the committee, which we must respect, has examined that which it was charged to examine and has reached those conclusions.

I move on now to examine some more of the evidence and, in particular, the evidence from the Consumers' Association. I go back to Casper Brook, 20 Buckingham Street, and the first issue of Which?. Therefore, I am well aware of the record and history of the Consumers' Association. It has my respect. From time to time, it may get it wrong but in general it is on the side of the consumer.

What did the consumers' voice say to the committee? The Consumers' Association said in evidence: We are broadly happy with the high street consumer protection law we have in the UK. In many ways, UK law in this area gives consumers a higher degree of protection than that enjoyed elsewhere in the Union. Although the proposed Directive is much better than the Green Paper on guarantees for consumer goods and after-sales service and earlier drafts of the Directive, about which we had little enthusiasm, we are not convinced that the proposal will achieve its aims: boosting consumer confidence in the internal market. The proposed Directive seeks to guarantee a uniform minimum level of protection for consumers throughout the Union. That is a commendable aim. However, we doubt that giving consumers a 'minimum corpus of rights throughout the European Union' will do much, on its own, to encourage consumers to play a more active role in the operation of the internal market. Also, as far as UK consumers are concerned, the proposal is largely unnecessary at least in a domestic context". I then turn to what was said to the committee by the British Retail Consortium. I warm to what it said because a prominent member of that consortium is the Co-operative Movement, with which I have a long association. The evidence of that movement was given to the consortium and fed into it.

The evidence of that consortium is at page 75 where it states that the, BRC believes the proposed Directive will impose significant costs on retailers and manufacturers, reducing their competitiveness without offering commensurate benefits". It then lists its concerns: The BRC believes that the proposals will: … Not assist the development of the single market through increased cross border shopping at the Commission claims … contrary to the Commission's view he costly to businesses and ultimate will increase prices to consumers … Create confusion and tension between consumers and retailers, damaging existing good relations … Encourage dishonest consumers at the expense of other consumers … Reduce choice, particularly to poorer consumers … Create unnecessary waste". The Minister who is to reply will be well aware of the evidence and will have read the report. But evidence from such powerful voices as those of the Select Committee, the Consumers' Association and the BRC and retail trade needs to be weighed very carefully.

Finally, I look at the evidence given by the John Lewis Partnership, which said: The Directive's prime objective, as we understand it, is to improve the functioning of the internal market by facilitating cross border shopping. Its impact in this regard will be minimal. In our Oxford Street shop we serve a substantial number of European visitors. The main limitations on what they buy from us arc practical questions of size, distance and technical specification. If the issue of returning faulty goods comes up, which is rare, the main concern is not the extent of their legal rights in the UK, but how to send the goods back". Further, it goes on to say that, the remedy should be related to the circumstances. For washing machines a repair will usually be the best answer, but a mirror which loses its silvering or a can opener whose handle breaks will need to be replaced". Finally, it says in its evidence: For all the reasons given above we believe that the draft Directive is fundamentally misconceived. It is unlikely that it can be satisfactorily amended. The Commission should be urged to withdraw it and produce another measure which more closely meets the need to overcome harriers to cross border shopping and establishing a sensible minimum level of consumer rights across the Union". I listened with interest to what the noble Lord, Lord Aldington, said about the latest position of the Commission which, if not having second thoughts, is asking for further evidence and for research to be undertaken. I share the noble Lord's disquiet in relation to attempts that have been made by, among others, the British Retail Consortium to ascertain who is inquiring and whether or not one can submit further evidence. There seems to be a grey area, a barrier or an impasse so that it is very difficult to obtain information which may be helpful to the final shape of the directive. I hope that the Minister, who will be well briefed on this matter, will be able to tell us whether that is true or whether that situation can be put right.

For all those reasons, I believe that the House has been very well served indeed by the committee. The intentions of the directive are well-founded but the directive has got it wrong. This matter should be reconsidered and brought back suitably amended. The Minister will be able to tell us whether that is within the power of the Government or any other body in this country. I have great faith in the institutions of the Community but occasions must arise when it is necessary to ask it to reflect before putting into effect something which will be costly to the consumer and not very beneficial. I very much hope that the Minister will be able to give us some answers to those questions.

4.30 p.m.

Baroness Elles

My Lords, what a pleasure it has been to listen to the noble Lord, Lord Graham of Edmonton, who for so long sat on this side of the House in comparative silence. If one good thing has come out of this change of positions in the Chamber, it is that we may now have the pleasure of hearing the noble Lord speak from time to time in our debates. Not only was it a delight to listen to the noble Lord, but he also displayed his considerable knowledge of the subject. Our thanks are also due to the legal adviser of our committee, Dr. Kerse, for his considerable care in the handling and drafting of the report on consumer guarantees, which is now being considered by your Lordships. I should also like to extend our warm thanks to the noble and learned Lord, Lord Hoffmann, for his valued chairmanship and his masterly introduction of the subject today. Indeed, his introduction almost made one wonder why any of us should bother to get up and speak and add more to what he had to say. However, our names have been tabled and we shall make our contributions to this short debate.

The report was published in March of this year so that some time has elapsed between the termination of the inquiry and today's debate. One of the matters which is therefore of concern—and this matter was raised both by the noble Lord, Lord Aldington, and by the noble Lord, Lord Graham of Edmonton—is to know what became of the further study which was to be undertaken by the consultant (unnamed, as has already been commented upon) and whether its conclusions, if any, may make any alteration to the draft directive and affect those views which are set out in the report. Although the announcement that there was to be an unnamed consultant was made some time ago, I have not yet met anyone who has seen anything that he has written and we do not know whether he has contributed any further to the state of the draft directive.

When considering the matter, there are one or two major questions which arise. The first is whether there is any need for the directive so far as concerns the United Kingdom. It is believed that the excellent Sale of Goods Act 1893, brought up to date in later Acts of 1979 and 1994, gives considerable protection to consumers in relation to retailers from whom they may purchase products. Although the new directive was introduced in particular to protect the consumer who engages in cross-border shopping throughout the European Union, it does not appear that consumers are impeded from doing so—or, indeed, that they have been impeded from so doing—on account of differences in consumer rights. In fact, on returning by air at different times over recent years through various airports within the EU, as well as by Eurostar, there does not appear to me to be any major impediment to the many thousands of travellers laden with carriers or bags bearing the names of shops in the country that they have visited. Of course, there have been some problems which seem to arise regarding a minimal number of those who purchase cars or furniture. I believe that those are the two main items which have caused difficulties, as was mentioned by the noble and learned Lord.

The second question concerns the benefits which would accrue to consumers following the adoption of the directive. The benefits set out at paragraph 15 on page 12 of the report do not appear to justify yet another piece of legislation, certainly so far as concerns the United Kingdom. The stated benefits include, [strengthening] consumer confidence in the Single Market; [facilitating] cross-border shopping … [simplifying] existing national rules in any case, no major changes are envisaged to he made to existing rules so far as concerns the UK, and— [bringing] Community law closer to European citizens". I have read such grounds before and they can apply to many directives. They are certainly not specific to the one that we are considering today.

A basic reason for the introduction of the directive must be to protect consumers better than they are already protected. Whether there would be an increase in cross-border shopping throughout the Community can only be assessed over time; for example, the introduction of a common currency in 2002 or 2003 could have an impact on the sale of goods across frontiers, but there does not appear to be any specific article in the directive which would encourage UK citizens to buy on the Continent rather than in this country. As stated in paragraph 22 of the report: There are all sorts of other factors … which probably have a much greater impact". There are also areas of doubt created by the drafting of the text of the directive. I shall give your Lordships just one example which is to be found in Article 3.1, where it says that the seller is liable to the consumer for any lack of conformity which exists when the goods are delivered to the consumer which becomes manifest within a period of two years unless, at the moment of the conclusion of the contract of sale, the consumer knew or could not have been unaware of the lack of certainty. What appears on the surface of the text to be obvious and clear has not apparently been found to be so. It has in fact been shown that this provision creates an expectation by consumers of a de facto two-year guarantee. The interpretation confirmed by the Commission is not, however, identical as it is, that the seller in broad terms is liable for defects in the goods which emerge within two years of the date of delivery of the goods". Another point which is underlined in the report is the question of damages. That is not raised in the directive, though it is one of the primary remedies under English law to which the noble and learned Lord referred. According to a witness from the Commission, this could be left to member states, to define, each of them, the weight and the extent of the compensation". It would seem that a reasonable conclusion to be drawn from this statement is that the minor differences which exist between English law and the laws of other member states in this field could be dealt with in precisely the same way. If the question of damages can be handled at member state level, so also could the other relatively minor issues of infrequent occurrence contained in the directive be dealt with in the same way. It would appear that the option available to the Government in the circumstances would be to consider whether the proposals for minimum harmonisation contained in the draft directive really do produce any advantage for consumers generally over the current position in English law.

It was stated by the representative of AMDEA (the Association of Manufacturers of Domestic and Electrical Appliances) that, the certain effect of this proposal will be to change every Member State's law, whilst ensuring that every Member State's laws remain different from everyone else's". Even if only partly correct, it is certainly no encouragement for member states to go through the lengthy process of supporting a directive which does not appear to guarantee some basic legislation common to all member states.

4.36 p.m.

Baroness Carnegy of Lour

My Lords, I was very much a lay member of the committee which produced the report. I echo the tributes that have been paid to the noble and learned Lord, Lord Hoffmann, for the skill of his chairmanship and for the expertise of our advisers and our Clerk. It seems to me that the broad issues contained in the report, and those arising from it, have been more than well dealt with by previous speakers. Perhaps I may raise one particular point which was just touched on by my noble friend Lady Elles. I refer to the apparent secrecy with which the Commission is setting up the extremely important independent study which it has promised; that is, a study of the likely economic impact of the proposed directive. I suggest that that secrecy is not only surprising and unnecessary, but that it is also likely to be damaging. Can the Minister say whether he agrees with me in that respect and, if so, will the Government press for openness on this critical point?

As the noble and learned Lord, Lord Hoffmann, and previous speakers said, and as the Government in their response to the report have agreed, it is by no means clear that the directive is necessary. Should the proposals in the current draft be implemented as they stand, it is possible that the disadvantages for consumers may outweigh the advantages and businesses across the European Union will carry considerably increased burdens.

The Commission has made it plain, and the United Kingdom Government in their response have agreed, that much will depend on the outcome of the further research on which the Commission is now embarking. In a letter dated 2nd May, the Commission informed the British Business Bureau that it is intended that the study will evaluate in a methodical way the economic impact of the proposal, identify and compare the possible costs and benefits, and examine the effects on the relations between distributors and producers. It is clear therefore that what the research produces is likely to be absolutely critical in determining whether the directive goes ahead and, if so, whether alterations are likely.

It seems to me essential—I should like to know whether the Minister agrees—that member states, consumers and business interests throughout the Union have confidence in the body which carries out the study. They must have confidence in its professionalism and integrity and, above all, its independence and ability to obtain the information that it requires so as to be certain that the research does not simply recycle the facts, figures, arguments and conclusions which have brought the Commission to the somewhat questionable position that it has so far reached.

How can all those most likely to be affected have that confidence when the Commission will not reveal whom it has appointed to do the research? In response to queries by the British Business Bureau, the Commission stated, again in its letter of 2nd May, that it had completed its evaluation of tenders for the study and was about to conclude the contract but that it did not intend revealing the identify of the chosen contractor. The contractor would have only the facts and figures already available upon which to work. The remainder of the three-page letter consisted of lengthy arguments defending the decision to maintain secrecy and to limit the scope of the information available—arguments adding up to anxiety that if the identity of the contractor was revealed it might be nobbled by interested parties or fed partisan facts and figures and so have its assessment compromised in some way.

That seems to me enormously unsatisfactory. A tendering process in the public sector should surely involve making public who is chosen as the contractor. The Commission's practice is normally to do just that. In tune with its commitment to openness and to protecting its own reputation for integrity, it publishes in the Official Journal the identity of the contractors it chooses after competitive tendering. Surely that should apply above all in this case. If the confidence of consumers and businesses across the Union is to be maintained, all those whose interests are at stake, including member states and taxpayers, need to know that the contractors are people of good reputation who, it is recognised, will not be nobbled by anyone and will be able to consider the facts and figures that they need to make a proper, independent report.

The Minister who will reply is an old hand in these matters. Can he give the House an assurance that the Government will press the Commission on this crucial point and request that the chosen contractor will be made public as soon as possible; and that that contractor needs freedom to seek out any facts or figures it requires?

4.44 p.m.

Baroness Denton of Wakefield

My Lords, I believe that there is no subject on earth to which a Select Committee of your Lordships' House does not bring value. The report is of enormous value to consumer protection. It brings value to a scene which to the user is often clouded with confusion, where might has too often been right and the movement from national to international, although necessary and inevitable, might not always seem to the consumer friendly or indeed efficient. Therefore we should all be grateful to the noble and learned Lord, Lord Hoffmann, and his committee. My noble friends Lord Aldington and Lady Carnegy of Lour claim to be lay members of the committee. In a group of expert lawyers, the lay member is often the consumer's friend.

I praise, too, those organisations and groups which provided the comprehensive evidence which allowed the committee to do its work so thoroughly. I was sorry that the citizens advice bureaux were not among those giving evidence. That body is an important point of access to consumer law; and access for the consumer is extremely important. Noble Lords heard this afternoon of the problem for those claiming disability benefit. The citizens advice bureaux have always offered outstanding service when helping those with a complaint who do not know the first step to take. When considering whether this issue should extend over a European scenario, it is indeed important that we consider access to the law, whatever the scope of the law. Unfortunately most of us have heard Beethoven's symphonies while waiting to register a complaint.

The ideal consumer relationship is between the consumer and producer or provider. When that works there is no need for legislation. The best solution is for the relationship to work. I was delighted to learn that the committee considered that the concerns and exaggerations of manufacturers regarding the effect of effective consumer law on their products and profits were to some degree overstated. There would be a need to incorporate a margin for the delays and uncertainties involved when a directive was not fully determined. But that would not be helpful to the consumer. Competition is one of the best protections available to the consumer along with the desire of the producer-provider to see the customer return. That should be encouraged as a first line.

My noble friend Lord Aldington pointed out that handicaps to business help no one. They do not help the British economy; they do not help any other economy in Europe; and most of all they do not help the consumer. An efficient business will provide the goods that the consumer wants in the state that he wants them.

There was much questioning today regarding the aims of the directive and whether increasing cross-border shopping was defensible or likely to be achieved by changing the laws and harmonising sales of goods Acts. I share those doubts. For three and a half years I lived in that part of the United Kingdom which has a land border. The General Consumer Council of Northern Ireland gave substantial evidence backed by statistics of cross-border traffic. Some 650,000 people in the island of Ireland do cross-border shopping.

I contend that the example of Ireland provides proof that harmonisation of sales rights is not the key to the growth of cross-border shopping. When there was a cease-fire and the physical opening of roads, people flocked across the Border in both directions to shop, to the great benefit of the Northern Ireland economy, a feature that is now much missed. The cease-fire ended and, although the roads stayed open, that traffic stopped. No legal changes were envisaged; it was a result of physical changes in the situation. The number of transatlantic flights that appear to be full of "shopaholics" indicate that the details of sale of goods legislation are not uppermost in the consumer's mind on this occasion. Where there has been growth in cross-border shopping; namely, mail order, which has not yet been mentioned, that legislation appears to offer protection to the consumer. If the directive is not to bring harmonisation, how will customers know whether they have extra benefits? What will be the benefit of the directive?

Many noble Lords raised the question of the further study planned by the Commission. Like my noble friend Lady Elles, I, too, welcome the fact that the noble Lord, Lord Graham, joins us as a speaker after a considerable period in this House. This is the first occasion that I have been involved in a debate in which the noble Lord has taken part—though I was fascinated to hear an ex-Chief Whip point out that he was unaware of the hard work going on in this House as regards committees—

Lord Graham of Edmonton

My Lords, perhaps the noble Baroness will allow me to intervene. If I said that, it was entirely wrong. I meant to say that I was not fully aware of the extent of the hard work done by the committees until I forced myself to read the report—which, I assure the noble Baroness, not every Member of this House does.

Baroness Denton of Wakefield

My Lords, I fully accept the noble Lord's remarks. My intention was merely to question whether that would have been the view of my own Chief Whip. I also intended to add that no one has worked harder over the past years than the noble Lord himself.

To return to the issue of the further study, I join with other noble Lords in hoping that the Minister will clarify his views, or even explain why it is acceptable that the position should not be open and transparent. There seems to be no logical reason or justification for a policy of secrecy, of protection of the contractor when chosen. I look forward to the Minister's assurance that he will examine the matter with great seriousness.

I hope, too, that he will be able to assure the House that the study will not be restricted to current statistical information. If the directive is ever to be justified, there appears to be a need for much more information from the field.

The noble and learned Lord, Lord Hoffmann, welcomed the assurance of the Department of Trade and Industry that under no circumstances would the rights of the United Kingdom consumer be lessened. A great deal of work has been done in this area. Much of it has been driven by outside organisations with concern for the consumer, but there has been much determination in the department. We shall be happy to hear the Minister confirm that.

I do not share the ability of my noble friend Lord Aldington to assess the Minister's qualities at golf. But I have had an opportunity over the past years to assess his commitment to detail. I am sure that will be of great benefit in this area.

I hope, too, that we may receive some indication from the Minister regarding the consumer rights of the self-employed small business owner, who is a consumer in exactly the same way as any retail consumer, with no more knowledge and with a need for protective legislation.

Outside the scope of the report but very close to it in subject is the use of credit cards overseas. The real cross-border shopping tool is the piece of plastic; and it must be relevant to what is coming forward in the way of European or further UK legislation.

After an intensive investigation, the committee rejected the case for the directive. That view must be treated with the greatest of respect. The noble Lord, Lord Borrie, rightly asked whether it was the wrong means to improve the much-needed rights of the consumer in some member states. It appears to fall into the "sledge-hammer" category. Were the noble Lord, Lord Bruce, still in his place, he would agree with me that the sledge-hammer category is usually the expensive one.

I hope that other governments will read this report and that the directive will not be brought forward by default. The report is far too valuable a piece of work not to be given the widest possible circulation. I merely add my congratulations to all those involved in its production.

4.55 p.m.

Lord Clinton-Davis

My Lords, this has been a most interesting debate. It is a pleasure to see the noble Baroness, Lady Denton, taking what is a new brief for her, although I believe she may have dealt with this subject in relation to Northern Ireland. I was about to say that she is an old friend, but that would be impolite—she is a friend of some long-standing. I know that we shall work co-operatively together on a number of trade and industry issues. The debate deals with a complex but fascinating subject on which all who spoke offered some extremely important views. I assure the House that the Government will take those views strongly into account.

I offer particular thanks to the noble and learned Lord, Lord Hoffmann, who led the committee with such diligence and skill, and to the committee members, who worked in such a thorough way in carrying out their investigations, which culminated in this wide-ranging and expert report.

Before I turn to the remarks of the noble and learned Lord, I should like to say what a pleasure it was—a pleasure shared by a number of noble Lords tonight—to hear, in such good voice, my noble friend Lord Graham, whom we greatly respected as Chief Whip in Opposition days. He was not exactly a silent Chief Whip. He was certainly not silent outside the Chamber, but I also heard him on a number of occasions making some very telling interventions in debates from time to time.

Lord Graham of Edmonton

Very good speeches they were!

Lord Clinton-Davis

My Lords, that is an opinion. I thank my noble friend for drawing the attention of the House to some salient features at the beginning of the report. I was a commissioner responsible for consumer protection for one year before Spain and Portugal entered the Community. It would be wrong to allow the idea to emerge from this debate that the Commission has not performed a worthwhile service. Whatever conclusions we may reach on consideration of its proposals, the defined objective—to guarantee a uniform minimum level of protection for consumers throughout the Community when they buy goods—is a not ignoble one.

Clearly many noble Lords feel that the Commission arrived at conclusions that are unsatisfactory. I shall attempt to deal with those points in the course of my remarks. The objective that the Commission set itself is a worthy one, and one to which it should perhaps return in other ways in the future.

The point that was raised about transparency in undertaking studies is one that I wholly share. As the noble Baroness, Lady Elles, has heard me say many times in the Chamber of which she is a very distinguished member, transparency in our political affairs, whether conducted here or in Europe, is a matter of the utmost importance. I therefore hope that the Commission will reflect further on the points made on this in the report and in this debate.

A point arose concerning cross-border shopping, to which I shall allude further in a moment. I sense that noble Lords have reached the general conclusion that the case was not made out on this score, a feeling which I share.

The noble and learned Lord, Lord Hoffmann, with characteristic lucidity, described the main findings of the committee. The Government have had the benefit of considering the full report and the supporting evidence. The detailed examination of the proposed directive and its recommendations carried out by the committee with a view to improving the present draft will be of great value to the Government in formulating their approach in the months to come. If I may say so in parenthesis, I hope it will, in addition, be of great value not only to the Commission but to other member states. The noble Baroness will agree with me that the experience of those who have served in Europe in one capacity or another is that reports of your Lordships' House are viewed as of great importance in formulating ideas within the Commission, the Parliament and the various bodies which have a voice in these matters. It is not the first time that I have said that but it comes from personal experience and I therefore hope that your Lordships will continue to carry out this valuable work.

As the committee suggests, there are many factors which discourage consumers from taking advantage of the single market, some of which may be more important than simple differences in the guarantee regimes. The restraints imposed by distance and language can be considerable, particularly for island dwellers, though less so for many people who live on the Continent, and this trend will, I am sure, persist with the development of the single market. Overall, the Government sympathise with the Commission's aims of improving the protection which legal and commercial guarantees provide to consumers throughout the Community.

I thank the noble Lord, Lord Aldington, for what he said about my golf. He was not complimentary about it, he just happened to say that I am a golfer. and he is quite right about that. The noble Lord is a very considerable golfer—or certainly was. He has also made a very valuable contribution to the deliberations of the committee and the debate today. He raised the question of subsidiarity. We take the view that there may be a case for Community action on grounds of promoting a single market, but we shall want to see whether other member states agree. I believe that it is better for us to be constructive than to go in root and branch and say that the idea is hopeless, a course which would not gain us any influence. But that is not in any way to denigrate the views expressed in the report and in this debate.

As the committee indicated, many of the matters dealt with in the proposed directive are already provided for under existing law. I believe it is right to say that in our own domestic legislation we go further in the protection of the consumer than this proposal does. If the directive were to go ahead, we should take full advantage of the minimum requirement article and not dilute present consumer protection in any way. I wish to emphasise that point to the House because I believe that it is extremely important. We wholly agree with the committee's specific recommendations that in a number of cases we should adhere to existing requirements in this country. Among the most important of those are the existing right to damages and our present limitation and prescription periods, which are respectively six years in England, Wales and Northern Ireland and five years in Scotland. Why there is a disparity between various parts of the United Kingdom is something that we should perhaps look at, but that is not a matter for me today. We believe that these rights should be retained rather than follow the thinking of the Commission, whose proposals would restrict the seller's liability to faults appearing within the first two years after delivery.

We also agree with the conclusion of the noble and learned Lord, Lord Hoffmann, that the proposal is flawed in a number of important respects and we should want to ensure that the ambiguities and uncertainties which the committee has identified are properly resolved. On that point, my noble friend Lord Graham raised the question of whether the proposed directive could be amended. I assure him that the draft will be subject to close scrutiny and intense negotiation and may well be considerably changed in the process. The work of the committee will help greatly in preparing us for those negotiations.

In some ways the proposal would confer useful additional consumer rights and protection—another matter we ought to think about—for example, the presumption that a fault found in the first six months was present at the time of delivery and the explicit right in the first year to repair, replacement, price reduction or rescission of the contract, according to the wishes of the consumer, where the product significantly fails to conform to the contract. Most traders probably regard it as reasonable to act as if consumers already had these legal rights. But rights inevitably become more important when one deals with a trader who adopts an unreasonable position, and that is when the crunch comes.

Like the committee, the Government believe that the proposals must be based on a sound appreciation of their costs and benefits. Legislation must be proportional to the problem and achieve the necessary consumer protection at the minimum achievable cost to business. We share the committee's doubts about the adequacy of the Commission's current impact statement. I believe that the House knows that a further study has been commissioned. However, as I have already indicated, I support the view expressed by Members of this House today and by the CBI, the British Retail Consortium and others about the lack of transparency in the conduct of the study. I am sure that noble Lords will he pleased to note that the Government have raised this at a high level with the Commission, and we shall continue to press this point.

The Commission has not ruled out the possibility of passing on to the consultants, when it is known who they are, any cost data which interested parties may wish to submit to the Commission. I think that that deals with the point raised by the noble Lord, Lord Aldington.

Meanwhile, in order to define the Government's own estimates of the likely costs and benefits, my department will be carrying out further consultations with consumer groups, industry and others. As your Lordships will know, the intended meaning of the proposed two-year liability on the seller is now clearer than when my department carried out its initial consultation. Like the committee, we do not share the rather doom-laden views of some critics on the potential burden on business. The two-year liability is similar in some ways to our right to damages, although the duration of the latter is limited only by our statutes of limitation and prescription. I want to be sure that our compliance costings reflect that clearer understanding.

Your Lordships will know that the scope of the directive is narrower than the comparable United Kingdom legislation. The directive applies only to sales of consumer goods to consumers by traders. It will be important to get these definitions right. As the report says, they are not yet satisfactory. The Government are inclined to favour the committee's option to define "consumer goods" as goods which are ordinarily supplied for private use or consumption and to define "consumer" as any natural person acting outside his trade or business". The guiding principle here will be at least to maintain the present scope of protection, which I believe is the most important point.

As the committee's report indicates, the contractual obligations on fitness for purpose and other matters in Article 2 of the directive seem less favourable to the consumer and less helpful to suppliers than is our present law. So, our general approach in negotiation and in implementing any directive will be to stick very closely indeed to the Sale of Goods Act terms, including the ingredients making up the concept of "satisfactory quality".

I turn to the question of breaches resulting from incorrect installation of goods by the seller. In fact, there was no reference to that in the course of the debate but I feel that I should advert to it. The directive gives rise to questions about the boundary between sale of goods and supply of services legislation. For example, does a fitted kitchen count as goods or as a service, or is it perhaps both?

Let me turn to Article 3.3. We agree with the committee that the provision would probably have little effect on the outcome of court cases, but the Government are reserving their position pending the results of their further consultation exercise.

We now come to the core of the directive: the so-called one year right to reject, or rescission or replacement. This is, understandably, the focus for concern, particularly for business. Indeed, in the light of what I have already said about Articles 1 and 2 of the directive, and our assessment of the reversed burden of proof. the one year right to reject may be the only major remaining point of contention in the legal guarantee provisions.

The Government are especially grateful to the committee for looking for a solution to that potential problem. The approach recommended would be very similar to the United Kingdom's present "short term" right to reject, but with a longer term right where there had been a "fundamental breach". I note that this is based on the approach in the Vienna Convention on the sale of goods. We shall certainly want to consider this carefully. The Government will also want to look at the recommendation in the light of the information we have received about the cost implications of the directive and the results of our forthcoming further consultation.

The serial eleventh hour—or eleventh month—rejector of goods has come to cast a familiar shadow, particularly, I gather, over the personal computer field. In general, we do not feel that the fears that have been expressed about abuses by consumers will, in fact, materialise. It will still be necessary to show that the fault in question existed at the time of sale. But it may be that in some cases it would be unreasonable to give a right to a replacement where a repair would be practicable. The provision in the directive on "minor defects" recognises that, and the committee has suggested going a step further in the direction of United Kingdom law. We also recognise the practical problems which might be involved in accounting for the use the consumer had had from the product before it broke. The concept of damages is a more flexible one here. We will consider that matter carefully.

The Government agree with the committee that Article 3.5, which gives the final seller a right to pursue previous sellers in the supply chain, is very problematic, particularly because it goes into the area of commercial contracts and relationships. The precise meaning of the provision is unclear, but we consider that these are matters which would be better left to the national laws of individual member states. It is not so much a matter of consumer protection but of the relative strengths of the firms in the supply chain. So, we would prefer the article to be deleted.

I come now to the time limit for consumers' claims. The obligation that the directive would impose on the consumer to notify the seller within one month would represent a significant departure from practice in this country, where the buyer must have a reasonable opportunity to examine the goods. I should prefer the directive to take a very much more flexible approach. But, as the committee observes, Article 7 would allow individual member states to give their consumers greater protection. That should enable the United Kingdom to continue present practice, although it may be necessary to allow the consumer a minimum of a month to notify the seller, given that in some cases a "reasonable time" might at present be deemed to be less than a month.

As to the terms of commercial guarantees, the Government share the committee's reservations about the requirement that a commercial guarantee should place the beneficiary in a more advantageous position than the "statutory guarantee". We believe that this provision could lead to a decline in the availability of commercial guarantees, while also failing to address the risk that the terms of some guarantees could mislead consumers about their statutory rights.

The committee says that if there is a problem of spurious guarantees, it needs to be tackled more directly. I agree. The Government favour the approach of a straightforward notice, as required by the Consumer Transactions (Restrictions on Statements) Order 1976, under which a guarantee must carry a statement that it does not affect the consumer's statutory rights. The present form of words may, however, need to be re-thought, since I am not sure that they currently fulfil their intended function of informing consumers of their rights.

The most difficult aspect of the Commission's proposals on commercial guarantees is the requirement that they should be available for consultation before purchase. I share the committee's doubts about whether the problems posed by that provision could be overcome without disproportionate cost; nor do the Government believe that the benefits would justify the measure. We shall be urging more realism when detailed negotiations start.

Let me briefly allude to some of the other contributions that have been made in the debate. I was very interested to hear my noble friend Lord Borne with his great knowledge about these matters and in particular his comments about grammar, vocabulary and concepts being at variance. He knows a great deal about that. One important comment concerned the imprecision and ambiguities to which I have already referred.

I hope that I have dealt with most of the points raised. I note that the noble Baroness, Lady Carnegy, was very concerned about lack of transparency, and I have gone into that matter in considerable detail.

This has been a very interesting and worthwhile debate. I have taken careful note of what has been said. We shall certainly take all those views into account in the negotiations that lie ahead. Again, I extend my thanks to the noble and learned Lord, Lord Hoffmann, and the members of the committee for their invaluable work. Naturally, we shall keep the committee in touch with developments as the discussions progress in Brussels.

5.18 p.m.

Lord Hoffmann

My Lords, I am grateful to noble Lords who have taken part in this debate for their thoughtful and careful contributions. I also thank my noble friend the Minister for the general welcome he gave to the report. Perhaps I may endorse what my noble friend Lady Elles said about the thanks that we owe to our legal adviser, Dr. Kerse. The noble Lord, Lord Graham of Edmonton, commented on the enormous amount of work evidenced by the report and Members of the House will well know that the great burden of that work is borne by the legal adviser.

I also endorse what the noble Lord, Lord Graham, said about the importance of the lay members of the committee. There is no subject so technical that it does not benefit from the presence of lay members on a committee. Indeed, the more technical the subject is, the more necessary it perhaps is that they should be there, so that the lawyer members of the committee are obliged to explain themselves in terms which other people can understand. In that respect, I hope your Lordships will allow me to express my great personal regret that the iron law of rotation has removed from the committee my noble friend Lord Aldington. It was a pleasure to have him on the committee. Your Lordships may appreciate the particular piquancy of that pleasure by his contribution this afternoon when he drew attention to a point I never noticed; namely that the Select Committee is still called the "Select Committee on the European Communities" notwithstanding that the European Union has been in existence for several years. It requires a layman to draw to the attention of lawyers the extent to which they are sloppy with words and meanings.

My noble friend Lord Aldington also drew attention to a peculiar feature of some of the reactions produced by the committee to proposals emanating from Brussels. Members of the Commission may well feel that they are being subjected to a kind of Morton's Fork. If they produce a draft directive which harmonises the law in great detail, so that it is exactly the same everywhere, they are said to be over-prescriptive and doing things which ought to be left to member states. On the other hand, if they leave a great deal to the discretion of the member states and merely have an outline or a basic minimum proposal, then it is said that the proposal does not serve any purpose because there still remain discrepancies between the laws of the various member states. Either way therefore it may seem to them that they cannot win. The solution to the problem is to be more selective in relation to the specific target that they tackle and the way in which they tackle it.

I am grateful to my noble friend the Minister for accepting what seemed to me to be the overwhelmingly persuasive arguments of my noble friend Lady Carnegy of Lour for greater transparency in the way the Commission is dealing with the economic impact report. That seemed to me unanswerable. I am grateful too to my noble friend Lady Denton of Wakefield for drawing attention to something that I should perhaps have mentioned in my introduction; that is, the great assistance the committee received from an extremely timely report by the Northern Ireland Consumers' Association in relation to cross-border shopping in Northern Ireland. It is the only part of the United Kingdom where cross-border shopping takes place because there is a land border.

I am grateful to your Lordships for the contributions made to the debate and I commend the Motion to the House.

On Question, Motion agreed to.