Part 2 of the Consumer Rights Bill seeks to consolidate existing legislation covering unfair terms in consumer contracts and will effectively "re-implement" existing law on unfair terms contained in the Unfair Contract Terms Act 1977 (UCTA) and the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs).
On the whole the changes which will be brought when the Bill passes into law appear to be more "cosmetic" than representative of any substantial change in the law, but some notable issues are discussed below.
When is a contract term unfair?
A key change in the Bill will see the UTCCRs "fairness test" replace the UCTA "reasonableness test" to form a uniform approach to unfair terms. A term will be considered unfair if, "contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations under the contract, to the detriment of the consumer".
In short, if the contractual wording is drafted and presented in a way that respects the legitimate interests of the consumer, it is more likely to be considered a 'fair' contract term.
When assessing fairness, a useful starting point is to consider whether the consumer is placed in a less favourable position than they would be under the law. Other factors to consider are:
- The nature of the subject matter of the contract;
- All the circumstances existing when the term was agreed
- All the terms of the contract
- All the terms of another contract on which it depends
When assessing 'unfairness', proof that a term has actually caused harm is not a relevant consideration. The wording of a term will be assessed for unfairness if there is a possibility of the term causing consumer detriment, regardless whether any actual harm has occurred as a consequence of a contract term.
As with previous legislation the Bill provides for certain terms which will always considered to be unfair – these are listed on the 'Blacklist' in the Bill. These terms will automatically be unenforceable against consumers. A common example of such a clause is an attempt to exclude or restrict liability for death or personal injury resulting from negligence.
Similarly, the Bill replicates the 'Grey List' of terms which are likely to be considered unfair. The list is contained in schedule 2 of the Act and is not an exhaustive list. The presence of a term on the Grey list will not automatically mean the term is unfair. It will need to be assessed for fairness by the Court. Note that the Court must consider the fairness of terms in a consumer contract, even where the parties themselves have not raised this as an issue, providing that they have enough legal and factual information to do so.
Exemption available to Businesses
Nearly all Business-to-Consumer contracts will be covered by the Act. However, two specific exemptions exist for specific types of contractual clauses, which take such clauses outside of the scope of the Act. The exemptions are:
- Terms or notices reflecting the law
Wording which is legally required in contract terms or notices are exempt from the 'fairness requirement'. However if the wording goes beyond the express purpose for which it is required the wording will not be covered.
If consumers require information to understand the effects of any legal wording, such an explanation must be provided in or with the contract. It is not sufficient for the term to simply mention the relevant legal provision.
- Terms detailing the Price or main subject matter of a contract (the "core exemption")
Any assessment of fairness cannot be made in relation to the adequacy of the price or the definition of the main subject matter of the contract. A term will not be unfair if a trader sets a higher price than a competitor or describes a product which the consumer feels is poor value for money.
However, other price related issues, such as timing of payments or the variation of the price will be assessed for fairness.
To benefit from the core exemption – a term must be:
- Transparent – i.e. expressed in plain and intelligible language (and must be legible if in writing); and
- Prominent - i.e. must be brought to the consumer's attention in such a way that an average consumer would be aware of the term.
If a term is not prominent then the whole clause will be assessed for fairness.
Additional Rights available to Consumers
As well as standard enforcement powers available to regulators, the Consumer Rights Act will, once implemented, enable consumers to take private action against traders and retailers who a consumer believes, has placed an unfair contract term in the contract.
Guidance issued by the CMA clarifies that this power will arise when a trader seeks to rely on a term which is unfair or blacklisted under the Act. A consumer can refuse to comply with an unfair or 'blacklisted' term. Should the trader wish to rely on an unfair term and instigate proceedings against a consumer, or should the consumer wish to commence proceedings against the trader, it will be for the Court to decide whether the term in question is unfair. The CMA rightly points out that as this power is totally removed from the CMA's jurisdiction, consumers should always seek independent legal advice, as they may face a liability for costs should the Court determine that the term in question is not unfair.
Whilst these changes are not that substantial, nevertheless we expect to see an increase in claims that terms are unfair, as consumer groups test the water on this part of the Bill. Traders should review their current ts&cs in light of the "fairness test" to ensure that any challenges can be swiftly dealt with.