Coronavirus and business to consumer (b2c) contracts: what are the implications?
09 March 2020
As Coronavirus fills up our news feeds, attention is turning to the impact it is having in the workplace and, ultimately, on the provision of goods and services that we all buy and sell as consumers.
In the past week Tesla revealed it has had to install older, slower processors in its new cars due to supply chain issues, unsurprisingly sparking customer complaints. Supply chain complications, alongside restrictions on travel and temporary closures of workplaces mean that contractual obligations in business to consumer contracts are at risk of not being met. So, what are the key issues and how can businesses de-risk the situation?
UK consumers are entitled to specific remedies which differ depending on whether they are buying a good or service (or digital content) and also whether the sale is made online or offline.
The main risks we foresee for UK vendors are the inability to get stock on the shelves and/or fulfil deliveries on time (whether due to logistics or other supply chain issues). The risk is heightened in respect of online sales. This is because consumers typically have a right to cancel online purchases if they change their mind (there are exemptions e.g. for perishables and personalised goods) - the right runs from contract conclusion until 14 days from when delivery has been made to the consumer of the item (or the last item where there are several items in one order).
Other risks might include:
- Orders being taken in store (e.g. for high value items or items with longer lead times such as vehicles) but where the contractual terms do not allow for delayed delivery.
- Orders where it has been agreed that the delivery time is essential, either because the circumstances dictate that delivery is essential (such as a wedding cake delivery) or because the consumer made it clear to the vendor that delivery time was essential. This right can exist for products even where the online cancellation right does not apply.
- Offering an item for sale at a specified price without disclosing the fact you may not be able to supply it at that price for a period that is, and in quantities that are, reasonable, having regard to the item, the scale of the advertising and the price offered (which can be a criminal offence and/or give rise to other consumer rights).
A key challenge for businesses dealing with consumers is quickly to identify and manage the delay in the supply chain. One solution might be to consider substituting certain items - but this can be pretty hard to achieve other than perhaps for components where a specific promise has not been made about that component or where an express term made it clear that an item might be substituted.
The starting point is to look at your contractual terms. Even if you have an express right to make a substitution, the term will still need to meet the ‘fairness’ test in the Consumer Rights Act. You will also still need to ensure that any alternative is ‘as described and match any sample or model seen’. Failure to do so may give the consumer a right of rejection. Products must also comply with other statements that you have made about your products and which form part of the contract (e.g. made from 100% recycled materials). The same applies to statements made about yourself as a trader for goods and services (e.g. you and your supply chain is carbon neutral). Failure to comply may give the consumer a right to a price reduction.
For services, consumers have a right for them to be performed within a reasonable time (or within the specific time period set out in the contract). The starting point will again be to check what your contractual terms state. If you have an ability to delay performance because of a widely drafted force majeure clause, the term will still need to meet the fairness test, as explained above.
See here for more about force majeure and frustration, here for specific issues in respect of the ability to cancel consumer events, here to understand the implications for you as an employer and here to find out more about responsible advertising.
On a practical level, it is key to engage not only with your staff, supply chain and logistics providers, but also with your customers. Keep the dialogue open, be fair and keep them onside.
Ten top tips
- Consider what steps that you have taken to prevent the spread in your own organisation and minimise disruption to your workforce
- Identify your key supply chain issues. Engage in constructive dialogue with suppliers and identify ‘workarounds’
- For existing but unfulfilled sales, check the position under your consumer contracts. Assess whether any terms that are helpful to you are ‘fair’ and that enforcement of those rights won’t upset your customers or give rise to adverse PR
- Consider if you can lawfully substitute items
- Maintain an ongoing dialogue with consumers about any actual or likely delays
- Consider offering customers a ‘sweetener’ if you need to reduce the risk of cancellation of online sales
- Update your consumer contracts, and ensure they pass the fairness test
- Check your current and new advertising and marketing statements (including on your website and apps) to ensure they are ‘responsible’ and are clear about stock availability and/or delivery times
- Liaise with and notify your insurers
- Have a contingency plan
Covid 19 - Coronavirus
Our advice on dealing with the impact of coronavirus.