Justice Committee

Meeting date: Tuesday, January 30, 2018

Official Report 613KB pdf

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Brexit (Civil, Commercial and Consumer Law)

Item 3 is a round-table evidence session to explore issues of civil, commercial and consumer law in the context of the United Kingdom’s departure from the European Union. I welcome all the witnesses—I start, as I did in the previous session, by asking everyone to introduce themselves. I am Margaret Mitchell, the convener of the committee.

I am one of the clerks to the committee.

I am also a clerk.

I am the MSP for Coatbridge and Chryston.

I am a legal director at the Competition and Markets Authority, and I deal mainly with consumer law.

I am the MSP for Edinburgh Northern and Leith.

I am a partner with Dentons.

I am an MSP for Highlands and Islands.

I represent the Society of Chief Officers of Trading Standards in Scotland.

I am the MSP for Orkney.

I am from the Faculty of Advocates.

I am an advocate with the Faculty of Advocates.

I am an MSP for North East Scotland.

I am an MSP for West Scotland.

I am professor of EU and private international law at the University of Aberdeen.

I am the MSP for Angus North and Mearns.

I am professor of private law at the University of Glasgow.

I am the MSP for Edinburgh Southern.

I am the MSP for Strathkelvin and Bearsden, and I am deputy convener of the committee.

11:30  

I thank all the witnesses for their written submissions. I noticed someone trying to press their microphone button—you do not need to do that; as soon as I call your name, your microphone will come on automatically. As in the previous session, we are hoping for a good dialogue between witnesses, so you can add to, challenge or question whatever someone else has said. We are aiming for an evidence session that is flowing and flexible, rather than rigid, although obviously everything that is said is in the public domain. In order to ensure that the session does not deteriorate into a shambles—I am sure that it will not—I ask everyone to speak through me as the convener, as that would be helpful.

As with family law, which we discussed in the previous session, issues of EU law in relation to Brexit are very technical and potentially very complicated, so we aim to distil them into a conversation that is reasonably easy to understand, and which will allow us to gather good evidence to enable us to move forward.

I begin by asking the witnesses to explain, in their opinion, the size of the issues around civil, commercial and consumer law in the context of Brexit, and what they consider to be the likely impact on consumers and businesses in Scotland. Who would like to start?

I cannot begin to give you an answer on the scale of the problem—I am not a practitioner, so that would be a little presumptuous of me—but I can outline the legal issues from a private international law perspective. Other witnesses, such as the witness from the Competition and Markets Authority, can describe some of the issues that do not relate directly to that area.

In private international law, the issues—as Professor Carruthers said in the previous session—always involve three points. First, there is jurisdiction, or which court will hear a case; secondly, there is applicable law, or which law will govern the dispute; and thirdly, there is the basis on which foreign judgments are recognised and enforced. In that sense, private international law is really quite simple.

In the civil and commercial field, the rules in those areas are harmonised across Europe. There is one instrument—the Brussels 1a regulation, as it is now—that deals with jurisdiction and recognition and enforcement of judgments, and two instruments that deal with applicable law: the Rome 1 regulation on contracts and the Rome 2 regulation on non-contractual obligations. The EU regime began with the Brussels convention in 1968 and has developed over many years, so there is a long history in this field.

On applicable law, the regime began with the Rome convention in 1980. When the treaty of Amsterdam was signed in 1997, there was a move away from conventions and treaties between EU states towards EU regulations, which is why this area is now governed by EU regulations in the form of Brussels 1a, Rome 1 and Rome 2. The system for jurisdiction and recognition and enforcement of judgments is very simple because of the progress that has been made over the years in the context of Brussels 1a, and we have clear rules for applicable law in Rome 1 and Rome 2.

The effect of Brexit will depend, of course, on the nature of the deal that might be done. If we assume that, after any transitional period, there is no special deal between the EU and the UK in this area, what would happen? We would potentially fall back on a broader European regime—the Lugano convention—that applies to some European Free Trade Association countries. The UK, as an EU member state, is currently a party to the Lugano convention, which applies to Norway, Switzerland and Iceland as well as to all EU states. If we want to remain a party to the convention, which is current UK Government policy—that is in the public domain—we will need the consent of all the other contracted states. The easiest route in that regard would be for the UK to become a member of EFTA.

If we were in the Lugano convention, the changes in comparison with our current adherence to the Brussels 1a regime would not be enormous. Lugano is based on the Brussels 1 regulation from 2001, whereas we now have in Europe a modified version of that regulation in the form of the Brussels 1a regulation of 2012. We would, therefore, basically be going back to the law as it was in 2001. On most matters, that is not a big deal, but there is one important area to consider.

I negotiated the Brussels 1 and Brussels 1a regulations for the Scottish and UK Governments in the Council of Europe. The big change that we won, and were pleased to win, in Brussels 1a was to do with choice-of-court agreements. Let us imagine that two parties have agreed to resolve their dispute in Edinburgh, but one of the parties reneges on the deal and goes to Italy to try to litigate there in the hope of drawing out the whole process and getting a settlement, because Italian courts are slow. Under the new Brussels 1a system, the Scottish court can go ahead and hear the case, and the Italian court has to stop hearing the case until the Scottish court has made its decision, because the Scottish court was originally chosen. Under the Lugano convention, the system operates under the traditional first come, first served approach in Europe, whereby if the Italian court receives the case first, it decides whether the choice-of-court agreement is valid. The process is slow, and can take years. That is an important difference between the Lugano convention and the Brussels 1a regime, and it would certainly be a disadvantage in that respect if we were to operate under the former regime rather than the latter.

The area of applicable law is not a problem, because Rome 1 and Rome 2 are applied by EU states unilaterally and universally. The rules in Rome 1 and Rome 2 that identify which law applies to a dispute will be applied in the future by EU states in the same way as they are now, whether or not we are a member of the European Union. We can unilaterally continue to apply Rome 1 and 2, which is the current plan, so there would be no change. There is no conceivable problem on applicable law; the problems relate to jurisdiction and recognition and enforcement of judgments.

To complete the picture, I should point out that we may not be able to stay in the Lugano system. That is a possibility, given that there are voices—Professor Hess from Germany has been raising his voice, for example—that are saying, “We do not want the UK in Lugano, because if it is not a full member of the EU, it will not comply with ECJ decisions”. However, as a professor, I was recently invited by the Swiss Government to attend an official Lugano experts meeting, and I did not hear such voices being raised there. In all honesty, I would say that there is, among the states that were represented at that meeting, more of an openness to the idea of the UK staying in the Lugano convention, and I hope that that would remain the case if the UK decided to try—as it currently wants to—to stay in Lugano and to work out how to make that happen.

If, for some reason, we are not in Lugano, what do we have? We currently have only one bit of an international regime in that regard, which is the Hague convention on choice-of-court agreements. That means that, where there is an agreement between the parties as to jurisdiction, it will be respected vis-à-vis the EU, because the EU is a party to that convention. If we leave, we will become a party to the convention—that is current Government policy—and therefore it would apply to arrangements between the UK and the EU. However, that leaves all the cases in which the parties have not made a choice-of-court agreement, and there are currently no international rules for recognition and enforcement of our judgments in the rest of Europe that would cover that scenario.

I am currently, as an independent expert for the EU, negotiating in The Hague a new convention on recognition and enforcement of judgments. The process is at a fairly advanced stage—there is one more special commission and then a diplomatic session to come, so it should finish next year. The EU’s current policy is to support the new convention, and I therefore have every reason to believe that, in due course, it will be ratified by the EU, and—I hope—by the UK in its new out-of-EU form. We would then have between the UK and the EU a perfectly workable recognition and enforcement regime to ensure that judgments that are given in Scotland are recognised in Germany, and vice versa. However, the new convention will not be in place immediately following Brexit, as that will take a few years, so if we have a hard Brexit there will be a gap in relation to the recognition and enforcement of commercial judgments that are not based on choice-of-court agreements.

I am tempted to ask you what you do in your spare time, but I will not.

In the current wording of the European Union (Withdrawal) Bill, the effect of the repeal of the European Communities Act 1972 will be that the European private international law regulations will “cease to have effect” in the UK. The most significant of the instruments to which Professor Beaumont referred is the Brussels 1 recast regulation on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.

Looking at the matter practically from the point of view of a UK business, consumer or employee, it is clear that the Brussels framework provides great advantages for such parties. The Brussels regime, which was designed to support the internal market, constitutes a set of agreed rules of jurisdiction in civil and commercial matters and, flowing from that, it sets out the principle that a judgment on a civil and commercial matter that is issued by a court in one member state will be recognised and enforced in all other member states. There are certain exceptions, but the principle is basically to provide for reciprocal recognition and enforcement, which allows for the portability of a judgment. For example, if a Scottish consumer, employee or business gets a judgment in a court in one member state, that judgment is portable and can be enforced across the EU. That is a great advantage.

When Brexit happens, even if the UK adopts the wording of the recast regulation in domestic law, we cannot bring about the reciprocity that we currently enjoy. Even if a Scottish court is prepared to recognise a judgment that is issued by a French court, for example, we cannot ensure that a French court will reciprocate vis-à-vis a Scottish judgment. The consequences of that for businesses and consumers—people who currently operate under the terms of the recast regulation–will be prejudicial.

The current scheme as outlined in the withdrawal bill will not be effective in ensuring reciprocity for businesses and consumers, which is a flaw in the current proposals as far as private international law is concerned. That involves a focus on the recast Brussels regulation; one could point to a raft of other regulations that deal with more procedural matters and to instruments such as the insolvency regulation, on which the same reciprocity cannot be brought about simply by the UK Government taking action alone. If there was any hope of preserving the benefits of the European regulations, action would have to be undertaken bilaterally with the EU 27—it is not something that can be achieved through the withdrawal bill alone.

I take the point about the potential for commercial and consumer uncertainty as a result of the European Union (Withdrawal) Bill as it is currently drafted. Graeme Paton states in his written submission:

“At the point of Exit, the UK’s participation in the Rome Convention may cease and these protections will no longer be available to UK consumers. This could have a major impact on consumer confidence to buy goods and services from Europe.”

I am interested in hearing more about the impact on consumers in Scotland and across the rest of the UK.

I also have a question for Frank Johnstone. As a representative of a commercial law firm who is involved in drafting commercial contracts, will you tell me what impacts there currently are on solicitors who are trying to agree transactions for clients? How is the current uncertainty affecting the economy and transactional activity? What considerations have to be taken into account in drafting contracts to try to mitigate the vast uncertainty that the EU withdrawal bill has created?

11:45  

As I made clear when I accepted the invitation to speak to the committee, my interest is primarily in consumer law in a domestic UK context. However, I am aware that commercial enterprises in particular have been—and are—looking at how they can safeguard and achieve a degree of certainty when they enter into contracts. That is certainly not the case for consumers, who are less able to take positive steps to secure their interests.

Going back to a point that both Professor Carruthers and Professor Beaumont made, I reiterate that the ability to enforce a judgment abroad is critical for the consumer interest. I think it was Lord Stair who said that a right without a remedy is like a bee without a sting. A right without an effective, accessible and cost-effective remedy is really not sufficient to safeguard the consumer interest.

I made that point about the jurisdiction of consumer contracts in my submission purely because, as trading professionals, we advise consumers on their rights and remedies under the law as it stands. Jason Freeman probably has a good deal more knowledge in this area than I do, but my understanding of the jurisdiction of consumer contracts under the Rome conventions is that, under the current arrangements, a consumer has the right to raise an action against a European business in their own court, but they keep their domestic rights under consumer contracts rather than taking on those that are offered in the foreign jurisdiction. If that changes, consumers’ rights will differ depending on where they buy goods from. That presents the danger of divergent rights for consumers as we leave the EU. It also raises issues for us in trying to advise consumers, depending on the jurisdiction from which they bought products.

Does Jason Freeman want to add anything?

It would be useful to make a couple of points at this stage. First, we should take a step back, look at the whole corpus of consumer law and emphasise the widespread harmonisation that has taken place in that field at the EU level. A huge amount of harmonisation has been achieved of the substance of the existing law across the UK, particularly through the unfair commercial practices directive, but also through other instruments such as the consumer rights directive, which has harmonised cross-border and domestic distance contracts and laid down various other rules. In addition, there are other, more sector-specific harmonised laws.

In principle, all those laws will, as I understand it, be transferred into UK law at the point of exit. However, the UK Government will be able to diverge from those laws, and the reality after Brexit may be a divergence between UK law as it is at the date of exit and EU law as it develops. A number of legislative proposals—and some policy proposals that may become legislative—are in train that are likely to change EU law. That will mean that the UK will have a choice between implementing those changes, which we would be able to do as a sovereign country, or not implementing them, which would result in divergence.

Is that going to be important? In the context of purely domestic transactions, it would not make a huge difference; our law would remain the same and there would be less cost to business if we did not implement those changes. However, businesses that deal into the EU would have to deal with different systems.

Where there are such differences and a consumer is dealing with a business that is based outside the UK in the EU—for example, a big online platform such as Amazon or eBay, which is domiciled in Luxembourg—there would be a question over which law applies to the contract and how the consumer would go about enforcing their rights in the event of a problem. Would UK law apply, so that the consumer would be able to bring their case in the UK courts, or not? Others have addressed that point already.

The other point that is worth talking about concerns cross-border public enforcement. As we understand it, the rules under the Rome and Brussels regulations will apply to public enforcement on the basis that our enforcement action is brought under part 8 of the Enterprise Act 2002 and would be a civil and commercial matter. It would therefore be covered by the rules that give the UK courts jurisdiction where UK consumers are affected and that, generally speaking, apply UK law, except in the context of a contract in which a choice-of-law clause has been agreed, under which, as Graeme Paton mentioned, the system cannot deprive a consumer of their mandatory protections under UK law.

The Court of Justice of the European Union made that finding in a case called Verein für Konsumenteninformation v Amazon EU Sàrl, in which it looked at the position for Austrian consumers, but the facts would apply in the same way to UK consumers. In that context, if we or trading standards departments wished to bring proceedings against a business that was based elsewhere in the EEA, we would, subject to funny little differences between the Lugano convention and the other laws, expect to be able to do so in the UK, serving out of our jurisdiction and being able to enforce our judgment without any problems.

Having said that, we in the CMA do think about whether we can give effect to UK rulings without needing to rely on international conventions or regulations, because we may wish to bring proceedings against a company that is not in the EU. We think about the possibility of serving outwith the court’s permission. Generally speaking, we think that we can do so if we believe that UK courts would be prepared to accept jurisdiction where there are UK consumers and a foreign business involved. We do not believe that the UK courts would decline jurisdiction in that situation.

Given the realities of modern international trade, it is likely that UK-based intermediaries could be prevailed upon to disrupt a business’s activities, particularly if we have obtained a court order against that business, which means that we would not necessarily have to serve or enforce any judgments overseas. For example, that might involve being able to take down a website or ask for a website to be blocked or for the payment process to be disrupted as part of the usual enforcement of an injunctive-type remedy. Those provisions exist in UK civil procedure rules, and I believe they would also pertain under the Scottish procedure rules.

We have looked at the position of public enforcement in the absence of international conventions. It is not as bleak as it might otherwise be, as we would, generally speaking, be able to extend reach.

I am happy to answer questions on all of that, because I appreciate that there was quite a lot of material there.

Absolutely. Before I bring in Liam McArthur, James Mure wants to come in.

I want to introduce one or two points. The issue of confidence is key. I am afraid that the great majority of consumers are unaware of their rights under most of the provisions that have been mentioned, although businesses are perhaps more aware of their obligations to consumers.

I looked at the statistics on the number of cases about enforcement of judgments and so on that come into the Scottish jurisdiction. They barely figure at all, even as a little pimple in the bar charts that are published annually. It seems, therefore, that the CMA’s international perspective and its ability to co-operate with other regulatory agencies around the EU will be key, because there must be some element of consumer confidence.

The concern is that, if the transitory provisions are not clear and effective, the pass may have been sold by the time we are definitely out of the EU. That is an issue not just for Scots consumers but for Scots businesses. If I am a consumer in Germany who is thinking of flying to Scotland, am I going to use a UK-based airline or would I prefer to use Lufthansa or another German airline so that I understand the position and am clear about what I will be able to do?

All those issues of confidence are key, so the way in which the negotiations are handled in the next 12 months, the outcome of the withdrawal agreement and what happens looking forward seem to be key.

I will bring in Liam McArthur before I bring Professor Beaumont back in.

My question follows on a little from the point that has just been made, but it is more in response to what Professor Carruthers said earlier. The committee has heard in previous evidence sessions that there is an incentive for both sides, and a mutual benefit to be gained, in continuing to collaborate in the sphere of criminal justice. It is less clear to me whether something similar exists in relation to what we are discussing today, but the comments that James Mure has just made suggest that perhaps it does.

I am interested to hear from the experts who are here whether there is more of an incentive to find some form of agreement post-Brexit, whether through Lugano or whatever, than we have perhaps been led to believe by some of the evidence that we have received.

One consideration is the question of what makes a particular jurisdiction attractive for people to litigate in, or to agree to litigate in at some point in the future, even if they do not actually bring a matter to litigation. The British Institute of International and Comparative Law in London has done quite a lot of research on what makes places attractive to litigate in, and the possibility of securing a judgment in one jurisdiction and being able to take it to another country and enforce it abroad makes a court, as a forum, particularly attractive. That is one consideration, although there are many others.

From a UK perspective, what makes Scotland, or England in a higher number of cases, an attractive forum in which to litigate is the fact that people can take the judgment and—in principle, or in theory, at least—enforce it elsewhere. From the legal services sector perspective, there is a sense that, if we take away the ability through the European scheme to enforce a judgment across the EU, that might make Scotland or England a less attractive forum in which to litigate.

The practitioners are probably better placed to say whether that impact is already being seen: whether it is having a significant effect on Scotland when people look at and draft commercial contracts, and whether it is a concern for clients. It is a consideration in theory, but whether it is so in practice is for others to comment on.

I will deal first with the consumer point. It is important to clarify that the Rome convention does not apply to any contract after 2009—let us be clear about that—and that it applies only to applicable law; it has nothing to do with jurisdiction.

Under the current regime, as Jason Freeman outlined, consumer contracts are governed by the Brussels 1a regulation in terms of jurisdiction and recognition and enforcement, and by the Rome 1 regulation in terms of applicable law. The combination means that a consumer can indeed sue a business in his own habitual residence, and he can normally apply his own law, unless he agreed to a contract that gave the business a choice-of-law clause, in which case a combination of the foreign law—let us say Luxembourg law, if the business is Amazon—and the mandatory aspect of Scots law will apply. The system is extremely complicated, but it is the one that we have.

What would be the system post Brexit? Unilaterally, we would continue to apply Brussels 1a and Rome 1. The consumer would still be able to sue Amazon in Scotland; they would be applying Scots law in combination with Luxembourg law, if that was the law that was chosen in their agreement, in the same way that they currently do. The only thing that would change is whether that judgment would be capable of being recognised and enforced in Luxembourg.

In practice, as Jason Freeman pointed out, consumers do not engage in such litigation as it is too expensive—it just does not happen. Let us be blunt: private litigation for consumers is a non-issue. Only Jason Freeman can help consumers, through public litigation, and that will continue. As he rightly points out, public litigators are big and strong enough to be able to enforce an English or Scottish judgment against a European company without needing to take the judgment to Luxembourg. Again, in practical terms, I do not see any likelihood of a serious diminution in the rights of consumers because of Brexit.

12:00  

If we are talking about commercial transactions between two companies, let us be honest: there is not that much international business coming to Edinburgh because of choice-of-court clauses. It goes to London on a vast scale, and that was happening long before we were a member of the European Union. London is the global capital of commercial litigation; it has been so since before we joined the European Union, and in my view it will continue to be so after we leave. We are envied by our partners in Europe, who would like a share of the business that goes to London, either for arbitration or through choice-of-court clauses that involve big commercial transactions. No European centre can attract that business because none of them currently offers English-language litigation, which is the key. Dublin might be able to do that, but not on the same scale as London.

I want to probe a little further on that. It seems, from what you describe, that there is almost an in-built incentive for the other 27 member states to expose as big a difference between the UK and EU approaches as possible, in order to claw back some of the commercial advantage.

That is what Professor Hess would like, as I mentioned. It is true that there is an incentive for Europe to play hardball to prevent us from getting our judgments recognised and enforced in the EU, which would mean keeping us out of Lugano and not giving us a bespoke deal. That is the hardball approach, but not everyone plays hardball. Plenty of people out there would like to co-operate with us and would want us to continue to be partners in Lugano.

To be frank, I do not see much of a reason for a bespoke deal. In order to get such a deal, we would have to accept the binding jurisdiction of the ECJ, which would, in my view, be a mistake. Again, I say that as a committed European: a country should accept the binding jurisdiction of the ECJ only if it is a full member of the EU, and it has a judge on the court and influences its development. It makes no sense for a country to be in such a position when it is outside the EU.

The Lugano convention is a compromise in which countries such as Norway and Switzerland take due account of ECJ rulings but are not bound by the court’s decisions and do not always follow them. That is the reality. Therefore, there is a good case for the current UK Government position, which is that commercial business should stay in Lugano so that business will be confident in continuing to use English choice-of-court clauses.

My view is that that is not a big deal. With regard to choice-of-court clauses in which businesses choose London, we have the Hague convention, which is just as good as—in fact, marginally better than—Lugano, although it is not quite as good as Brussels 1a. To be frank, however, Brussels 1a is not an option, in my view, unless we stay in the EU. The real options in the real world are Lugano or the Hague convention. If that is the choice, and we want to protect the London market—we are talking about London in this case, not about Edinburgh or Scottish businesses—for commercial court business, I would argue that the Hague convention is a better solution than Lugano. All the EU partners are party to the Hague convention, so they have to recognise and enforce a judgment that comes from London based on a choice-of-court clause, and they have to give way to London. Under the Lugano convention, as I explained earlier—because of the decision in Gasser v MISAT—they do not have to give way to London. From the point of view of party autonomy, there is no big value in staying in the Lugano system. From that point of view, I am an advocate for a hard Brexit, if you like, in which we stay out of the civil judicial co-operation mechanism and fly in the international scheme because we—not in Scotland, but in London—are big enough to play in that scheme in a justice context. That is my honest assessment.

I want to pick up on a couple of Professor Beaumont’s points. He mentioned that there was not likely to be much of a diminution in consumer rights, which goes back to the idea of the average consumer—an individual person—taking a case to court in Scotland. The question of access to justice is as much to do with how much it costs to take a case to court, as was highlighted in the previous session. A small point is the fact that, in Scotland, we pay a lot to the courts for our day in court, whereas people pay nothing in the European courts. I realise that the circumstances would be different, but there are no court fees for people to have their day in court there.

I agree entirely that the choice-of-courts issue is a London matter. Scotland sometimes attracts business, but the service—in my view, anyway—is predominantly England driven, which is something that we know that the UK Government is rather keen to champion. I say that because the official paper from the UK Government mentions UK law, UK jurisdiction and UK courts, which—as a sensitive Scots lawyer—I realise is not quite right; the focus is clearly on London courts and English law.

We have to stand back from the question of what an average consumer or private individual would be doing, and bring back in the public law remedies and the public enforcement powers. At the EU level, the private consumer can rely on a complex matrix of myriad powers and enforcement mechanisms, whether those operate through the European Commission, co-operation via national authorities or other methods. Those powers are almost a fail-safe mechanism to protect the consumer—either the individual goes to court, unlikely as that is, or they rely on what has been decided from a regulatory and a public enforcement point of view and they can call on authorities to come in on their side.

I raise the question of what we are losing when we Brexit, and what reciprocity we will lose. Will we be able to continue to piggyback on the RAPEX recall system and to participate in the SOLVIT system? Will we have access to all the information on biocidal products, cosmetics, chemicals, toys and so on? What will happen after Brexit? Those aspects are as much a part of consumer protection as the ability for individuals to assert their rights in a court.

Could you elaborate on SOLVIT and the other acronym that you mentioned? We are not well versed in those details.

Of course. There are a few EU directives and regulations that put in place harmonised systems for co-operation among all the member states. For example, if a good that is made by an Italian producer and sold throughout the European Union turns out to be faulty, it will appear in a weekly bulletin. There are updates, and every day you can go on to the website and it will show you exactly which products have problems. I checked it yesterday; a children’s toy with funny eyebrows is being recalled—it is flammable, apparently. A statutory recall process is put in place so that all retailers have to take measures to recall the offending item. The producers—or the importers, because if the product is made by an American producer, the importer will be on the hook—have to take measures. RAPEX—the rapid alert system for dangerous non-food products—is an example of a harmonised system that is there to protect the consumer from dodgy, faulty or defective products.

Thank you—an example is always good.

I thought it would be helpful if I went into a little bit more detail on the existing provisions for cross-border enforcement collaboration and the existing opportunities that enable us to enforce UK rights and UK law overseas. A number of years ago, the EU devised a piece of legislation called the injunctions directive, which came into force in 2000 and was updated in 2009. It created the enforcement regime under part 8 of the Enterprise Act 2002, and it permitted the CMA and other public enforcers to have standing in courts elsewhere in the European Economic Area so that we could bring cases overseas to enforce rights at a collective level.

It is important not to overemphasise the importance of that directive. The only enforcer that has brought a cross-border case in that way is the Office of Fair Trading, which did so in Belgium and in the Netherlands—those were difficult and expensive cases. Although the directive is a useful fall-back position, it is not ideal. Indeed, the European legislator accepted that, and devised the consumer protection co-operation regulation, which is in the process of being revised. The regulation lays down several features that have been implemented in UK law, including a minimum set of investigation powers and the requirement to collaborate with other enforcers. In the event that we wish to request investigative assistance, there is a mutual obligation to collaborate and to carry out that investigation. For example, if a business that is based in Slovakia is sending mass-marketed mailings to the UK, and we want to know what is going on in its office, we can request that the Slovak consumer protection authority carries out an on-site inspection and finds out what is going on there. We could, if we decided to do so, request that the Slovak authority brings enforcement proceedings against the business to stop it sending misleading mailings to the UK.

The system is a reasonably effective bilateral cross-border enforcement mechanism, and we are hopeful either that it will remain available to the UK after Brexit or that a similar bilateral arrangement will be put in place between the UK and the EU. An enforcement gap, whereby British businesses would be able to mislead French consumers without there being any mechanism for cross-border enforcement, would be in nobody’s interest. The replication of those provisions should be negotiable as we move forward.

The consumer protection co-operation network has recently been developing a way of working together in which we tackle a common problem, such as a big issue with business that is going on across the EU and on which we need to co-ordinate at a European level. Four such joint actions have taken place so far: three on games and apps for children, car rental and social media, and a slightly more light-touch joint action on airline terms and conditions, which was not co-ordinated at the same level. Those are useful ways of tackling things at a regional level, and likewise it should be reasonable to negotiate continued access to that sort of collaboration as we move forward so that we can continue to deal effectively with big problems that affect consumers across Europe.

Can you explain the difference between directives and regulations? Does one trump the other? Does it make a difference, in considering the impact of Brexit, whether the legislation that we are looking at is a regulation or a directive?

The differences can be quite technical. A regulation is directly applicable across the European Union, and specific legislation tends not to be required for its implementation unless a particular mechanism is necessary. For example, with the CPC regulation, we had to implement the powers provisions—the regulation said that member states have to ensure that the powers exist, but it did not give the enforcers the powers. A directive is binding as to the effect that it seeks to achieve, but it usually requires implementation by the UK, so there is a slightly different legal framework.

In practical terms, if the unfair commercial practices directive had been a regulation, like the geo-blocking regulation, it would probably have been drafted in exactly the same way, so the effect would not have been hugely different.

Thank you for clarifying that.

I remind the committee of my entry in the members’ register of interests: I am a director of a company with retail interests in the west end of Edinburgh. I state that fact because, although we have talked a lot about consumers and big business, I want to ask—following on from James Mure’s comment about whether a German traveller would use a UK website to book his flight—about online trade and small and medium-sized businesses. The UK’s online retail offer is much better developed than is the case in the rest of the EU. Last time I checked, I found that the proportion of our retail sales that are made online is double the proportion in the rest of Europe. What are the implications of the proposed changes for online retail and for small and medium-sized businesses that want to sell into Europe? At present, if a business complies with UK regulations, it knows that it can just sell away. What perspectives do you have on the impact of Brexit in that regard?

12:15  

That is an interesting point, because sales within Europe and abroad to consumers in the UK are increasingly effected online. There are challenges in regulating that sector, especially if we are no longer part of a larger geographic and economic group. That relates to the point that Jason Freeman made. Where there are risks, and emerging risks, emanating from abroad, it is very helpful if those can be dealt with at source through organisations such as the consumer protection co-operation network, which allows national enforcement bodies to speak to each other and share information and intelligence to address issues of consumer harm at source in the country from which they emanate.

I will answer Daniel Johnson’s question, but first I want to elaborate on Peter Sellar’s point about RAPEX, which is the system that we, in representing the enforcement and market surveillance departments of 31 local authorities in Scotland, use to identify consumer products with which there is a problem. There is another system called ICACS—the Consumer Contracts (Information, Cancellation and Additional Information) Regulations 2013—which allows us to see activities by market surveillance authorities across Europe so that their work can inform what we do. There is also a system called RASFF—the rapid alert system for food and feed—which is similar to RAPEX. We get alerts from RASFF that there may be a problem with animal feed, and we can take action to remove certain products from the marketplace.

I crave your indulgence, convener—there are further bodies which we currently rely on for consumer protection and trading standards to underpin the relevant regulations. One example is WELMEC, which is the western European legal metrology co-operation body; it sets standards for legal metrology. There is also CEN—the European committee for standardization—and CENELEC, which is the European committee for electrotechnical standardization. Those bodies all create standards that underpin our product safety and legal metrology laws.

If we leave the EU, will we still participate in those bodies, which set the technical standards that underpin our legislation and our ability to enforce it? That brings us back to Daniel Johnson’s point. If we cannot participate in those standards bodies, and the standards cease to apply in the UK while they continue to apply in the EU, there are two positions that we can take.

If standards diverge between the EU and UK, there will be, in effect, two different sets of standards for the same piece of legislation, which—as far as I can see—would place a burden on businesses, because they would need to meet a different standard in order to trade in Europe.

At present, the customs union allows businesses to import goods to the EU. Once goods have been checked at the first point, they can go anywhere in the EU. If we are no longer in the customs union, any goods that come into the UK will possibly be redirected to a UK port to be assessed for compliance with British law before they can be sold in the country. Small businesses and enterprises would therefore become importers or exporters, whereas they may not currently be defined as such. That could create an additional burden, which small businesses may not yet appreciate. I make that point more lucidly at paragraph 20 of my written submission.

We can refer to paragraph 20 of your submission when we look back at the Official Report of the meeting.

I endorse what Graeme Paton said. It will depend on the product that Daniel Johnson produces in the west end of Edinburgh and sends to a consumer in France. At present, a business can do that relatively seamlessly if the product is regulated. A lot of the products that we make, such as toys and cosmetics, are now highly regulated.

When we are outside the EU, we will be a third-country exporter, which brings us to the import-export issues. The difference in statute will be significant, because a business will no longer be a distributor throughout the EU; it will be an exporter into the EU, and it will have to change its relationship—to go back to a previous question about commercial contracts—with the importer. The person in Rotterdam or Antwerp who receives the products and makes the customs declaration will become the importer. Their job will no longer simply be that of an onward distributor—they will have a load of different obligations, depending on what the law is.

In the world that I inhabit—a bit too often—we deal with the biocidal products regulation, which concerns products such as mosquito repellent, Dettol and anything that kills things when it is not being applied to a field for agricultural purposes. If a business is selling mosquito repellent in the EU, it is highly regulated and has to go through all sorts of hoops and hurdles. If it does not do so, it is committing a crime.

In a post-Brexit world, the importer will have to adopt all those obligations, and they will need to have the paperwork to show the relevant authority—in Belgium, it would be shown to the Belgian authorities, for example—that they have complied with the BPR.

We have had a lot of discussions with people in Helsinki, because that is where the European Chemicals Agency, which has a role in looking after biocidal products, is based. There is a whole different dynamic that raises issues around a business’s legal responsibilities and obligations and the question of whom it has to discharge them to beyond, and in addition to, the requirement to make a customs declaration and pay a tariff.

Having looked at some of the problems around the legislation, perhaps we can move on.

We have heard about the current situation and the consequences of Brexit. Is there a plan? Are there a suite of options for how we will deal with those matters after Brexit? How far advanced are our plans? Are we able to look at the options and decide what the best option will be to deal with the changes that are going to take place? Are there any options? That might be an impossible question.

There are certainly some options in the submissions from the witnesses.

I have a point to make that concerns the regulatory aspect rather than the legal aspects. I am thinking about what might happen in certain sectors. The financial services sector, for example, is regulated by the Financial Conduct Authority. It seems unlikely that, once we have left the EU, the FCA would suddenly ignore emerging risks to consumers that are identified by the EU. It also seems unlikely that the FCA would ignore the interpretations that the ECJ applies to certain matters in implementing its obligations to protect consumers in the UK. That is an important point.

Where the Financial Ombudsman Service, for example, is free of charge to the consumer, and where the FCA is a very proactive regulator, those bodies will be very keen to identify risks in relation to consumers in the UK being harmed, even if the first signs of such harm emerge in the EU.

We are almost straying into trade law, which is not my area of expertise, but I will make a general point that I hope is not incorrect.

It is very hard for people to plan on the UK’s future trading arrangements with the EU until we have the final deal, including the trade deal that the UK hopes to agree, because it is precisely such issues that a trade deal will encompass. There may be complete regulatory alignment in a particular sector—which would mean that there would be no change, if I understand it correctly—whereas in other sectors, some regulatory divergence may begin to occur. Therefore, I do not know how people can try to plan until the trade deal is finished. We currently have no idea what will be in the trade deal at the end of the day—that is life. We can anticipate that there may be problems, but we will not know the nature of those problems until the trade deal is finalised.

Those issues are different from issues of civil justice. There is an EU law trade issue, and there are issues around the impact of leaving the customs union and the single market, and how far we would diverge from those in a trade deal. The closer we are to the customs union and the single market, the less likely it is that those trade problems will arise. The more we diverge, the more likely it is that they will arise. I am stating the obvious here. On the other hand, if we have the freedom to create different trading arrangements with the rest of the world, and if—it is a big if—we have enough of those arrangements, the cost-benefit analysis might be positive rather than negative; we do not know yet. That is a long-term rather than a short-term view.

It is clear that there will be a short-term hit, but in the long term, we could shift our balance of trade. After all, we should pay attention to the fact that in terms of goods, we do very badly at trading with the rest of the EU; it is only in services that we do well. In terms of pure trade and the balance of payments, our involvement in the EU is not a big success, even though we are in the single market. It may be easier for individual traders, but is it necessarily working for UK plc? That is the bigger question with which we need to concern ourselves.

That is the other side to the argument. If UK plc might do better in the international rather than the European market, switching our attention to the international market might be a good thing in the long run. I am no expert, and I am not an economist—I simply point out that we must also look at the very big picture rather than focusing only on the technical legal aspects. We cannot address those aspects in relation to trade until we know what the trade deal is.

On the civil justice side, which concerns jurisdiction, applicable law and the recognition and enforcement of judgments, there will—as I said—be a gap in terms of the ability of commercial companies to enforce judgments against EU companies. The question is how big an issue that actually is, because enforcement is not in fact required very often. Usually, a company gets its judgment and the other side pays up; cross-border enforcement is rarely necessary.

I would like an improved cross-border enforcement regime—in fact, I am currently negotiating in The Hague a new regime that I believe will do the job of recognition and enforcement in future. However, I am not sure—I am trying to be objective—that, if we do not either have a bespoke European deal or stay in the Lugano convention, the lack of a bespoke EU civil justice deal with harmonised rules on jurisdiction and on recognition and enforcement of judgments would be a huge issue for business-to-business relationships.

I want to expand on that a wee bit and seek views from some of our other panel members. If the outcome is that there is no deal, what effect would that have on Scottish businesses and consumers? Would we just carry on and perhaps move to trading internationally, as Professor Beaumont suggested? What would be the outcome?

Before we move to that more general question, I think that James Mure wants to pick up on Professor Beaumont’s point.

My point goes back to Rona Mackay’s question too. The answer is that people have modelled different scenarios and analysed consumer law. They have looked at what will happen if we negotiate to join the European Economic Area or if we fall back on the World Trade Organization model. We know that the aim is to negotiate some sort of bespoke model. Of course, it is difficult to look at the consequences of that until—as Professor Beaumont said—we can actually read the terms.

Over the past year or so, concerns have been widely expressed that consumer protection has not figured sufficiently in the UK Government’s papers on Brexit, and that it was not one of the main principles that were laid down early on. There is, therefore, a need for people to articulate issues around consumer protection in particular.

12:30  

I say that for the following reason. As I have said, the irony is that the British consumer will best understand what being in the EU means at the point when we leave. At that point, people will turn round and say, “Hang on—have I lost that? I didn’t have to pay roaming charges back then—are those back again now?” That also applies to things such as airline passengers being denied boarding and issues around package travel. We have also heard about progress on geo-blocking, which covers the right for people to access digital services as they travel around the EU. That is the key point—we do not want consumers to wake up at a particular point and start reading stories in the press about how they have been let down by the process.

I take your point entirely, but what can be done about that right now?

The answer is that we should move consumer protection up the agenda. You heard the same being said about family law by Janys Scott QC in the previous evidence. Those issues will affect people. We are not going to leave the global marketplace: we will still be sourcing and buying things on the internet, and travelling to Europe. We also have a huge tourism industry, so people will be travelling to the UK.

I also make the point that much of the EU law on consumer protection does not consist simply of minimum standards that leave states to put in higher standards; there is harmonisation, so that standards are the same throughout the European Union. Therefore, the closer we can remain in alignment with the law elsewhere, the better. Of course, the difficulty with that approach is that, if we do not accept the ECJ’s interpretative judgments, there is bound to be an element of divergence, which raises the question how we direct our courts on how they should treat ECJ jurisprudence in the future.

As I said, many of the laws that we enforce are directives or regulations. If there is simply a lift-and-shift approach, the impact of Brexit may not be immediate. I will still be able to undertake legal metrology work and enforce the Weights and Measures Act 1985, and consumer protection regulations will still be in place. It is when divergence begins to happen that problems will arise for enforcement bodies. The EU regulations that removed roaming charges, and those that introduced compensation for delayed or cancelled flights and for people who are refused boarding, for example, will have to be brought into British law.

The immediate effect on enforcement will not be that stark, especially given the likely transition period that is currently being negotiated. Ultimately, however, if our technical standards start to diverge from those of Europe, that will cause issues for consumers and for business. There will be additional burdens involved in running two different sets of standards and producing two different goods for different markets. The question will then become whether European businesses will bother manufacturing to the British standard. If they do not, consumer choice will probably reduce. Even if they do, there will probably be a stark increase in prices for consumers, because the cost to producers’ business will go up and will be passed on.

There will be a great many issues further down the line. If we are part of the single market and the customs union, that is great—that will make my job much easier. However, if we are not, that will introduce a maelstrom of potential outcomes. My colleagues in the Department for Business, Energy and Industrial Strategy are spending hours trying to work out what those could be, but until they get some sort of steer from those above them, or the aims of the British Government become apparent to them, they will not be able to predict which situation we will be in. To a large extent, it is all guesswork.

I will bring in Ben Macpherson, followed by Peter Sellar, after which we will hear concluding comments.

My question relates to what Graeme Paton just said. He stated clearly that maintenance of our membership of the single market and the customs union would provide the added continuity that would be beneficial for consumers and businesses. Do the witnesses want to comment on that point, given that it is currently an area of political discussion?

Peter Sellar wants to make a comment; I do not know whether it is on that point.

My comment is perhaps related. I want to pick up on the specific question of what we, as individuals around the table, can do to try to maintain the level of consumer protection to which we have become accustomed and in which we can look forward to seeing continued improvement at European level. I have not seen much of the type of lobbying that one would hope to see. As an example, I have kept a close eye on the considerations of the Exiting the European Union Committee. Many witnesses from the Confederation for British Industry and other industry organisations have appeared before the committee, but I have not seen any representatives from Which?, for example. I am not saying that the organisation is not making its point behind the scenes, but I have not seen its concerns being widely broadcast. That is not least because it is difficult for Which? to represent such a generic group of people. In effect, it represents the entire population, so it cannot lobby from a subtle and nuanced position.

With regard to the cliff edge, if we leave the EU without a bespoke trade deal, we will fall back on the WTO terms of trade. Within those terms—leaving aside tariffs and so on—there are agreements such as the technical barriers to trade agreement and the agreement on the application of sanitary and phytosanitary measures that will deal with any barriers that WTO members put up to restrict the selling of products. For instance, if there is an issue with beef hormone and we ban it in the UK, that would be a WTO matter. The critical point, however, is that the consumer has no say in that process. Whenever we hear about WTO disputes, we hear words such as “Boeing” and “Airbus”, or “bananas” and “Chiquita”—whatever it is—which highlights that it is not individuals who are bringing cases; it is very much at the governmental level. If we fall off the cliff edge, the consumer is immediately right at the back of the queue of concerns.

I direct the committee to the report that the House of Lords European Union Committee produced a couple of months ago, which is entitled “Brexit: will consumers be protected?” That is perhaps what the House of Commons committee is missing. I also point out that the Chartered Trading Standards Institute has convened a think tank to consider all the various changes that will affect trading standards law. Most of those areas have been detailed today: the think tank is also considering animal health and welfare. The report will be produced in the next six to nine months and it may direct the thoughts of the panel.

I have two brief points to make. The first is on the single market. It is interesting that, in the past several years, much of the EU’s work on consumer protection has been based on expansion of the single market, rather than coming at the issues from the consumer-rights end. Indeed, some people have been critical of the EU for putting the business side ahead of consumer rights.

Secondly, the answer may come down to resources in this country. If we have to set up offices ourselves—a new office for product safety was announced just a day or so ago, for example—resources will be required to ensure that regulatory agencies are able to co-operate internationally, as has been the case to date. I am afraid that, as with other sectors of the economy, we cannot underestimate the need for resources, especially during the transition stage when confidence may go through a bumpy period. I stress that aspect.

That concludes our round-table session. I thank you all very much for clearly setting out some of the issues. What is not clear, of course, is what trade deal we will eventually end up with, and I understand that a lot of what you have said is speculation regarding the various scenarios and how we can address them. I thank you for your attendance at the meeting today—your evidence has been very worthwhile in enabling us to put the issues in perspective. The committee will look at all the evidence and see where we go from there.

I suspend the meeting briefly to allow the witnesses to leave.

12:39 Meeting suspended.  

12:41 On resuming—