This briefing is relevant to you if you are a:

  • Supplier of energy to household customers;
  • Prospective Green Deal provider;
  • Provider of energy efficiency services generally to consumers; or
  • Supplier of renewable energy generators, such as solar PV panels and biomass boilers

In July 2012, the Law Commissions (the Law Commission and the Scottish Law Commission) published a consultation proposing the reform of consumer law in relation to unfair terms. The consultation details the Law Commissions' general recommendations on unfair terms for the proposed Consumer Rights Bill, and their proposals regarding terms which are currently exempt from review under the Unfair Terms in Consumer Contracts Regulations 1999 ("UTCCRs").

The key proposals made by the Law Commissions are:

  • a shift in the burden of proof, regarding fairness, to the party claiming a term is fair, i.e. businesses;
  • the combining of the UTCCRs and the consumer elements of the Unfair Contract Terms Act 1977 ("UCTA") within one act - the proposed Consumer Rights Act, and the redrafting, in order to make them clearer, of the UTCCRs to be inserted into the Consumer Rights Bill;
  • the expansion of the grey list of potentially unfair terms, including:
    • the addition of a statement that terms on the grey list are not exempt;
    • the regulation of terms committing consumers to pay for services for unreasonably long periods of time; and
    • the regulation of terms which permit businesses to retain or claim payments for services which have not been supplied, once a consumer has cancelled the contract;
  • the Law Commissions argue that the law relating to price terms, as it stands, is uncertain. The Law Commissions propose, therefore, that price terms should only be exempt from review if such terms are transparent and prominent. The proposed test for whether a term is 'prominent', is objective, and so provided a specific term is not included on the grey list, a business wishing to adopt such a term may be able, by ensuring its prominence, to ensure a term is exempt from review;
  • in relation to the price terms attracting the most complaint - escalation terms, default charges and termination charges - the Law Commissions propose including a statement to the effect that the exemption from review does not apply to such terms; and
  • in relation to terms attempting to give businesses discretion to change the subject matter of a contract after a consumer is bound, the Law Commissions propose the inclusion of a statement to the effect that the exemption does not apply to such terms. Additionally, the Law Commissions propose that the main subject matter terms of a consumer contract must also be transparent and prominent to be exempt from review.

Except in relation to the above changes to exempt terms, the consultation broadly mirrors the Law Commissions' 2005 proposals, with the main intention of clarifying consumer law in relation to consumer contracts. The recommendations in relation to exempt terms, however, are far reaching and would result in the most contentious consumer contract terms, for example terms imposing termination and default charges, no longer being exempt from review (though such terms would not be automatically unfair). The consultation ends on 25 October 2012 and to read the same in full, please click here.

Impact on the Energy Sector

The proposals outlined above, will apply to consumer contracts relating to the supply of energy, and energy products/services for the benefit of household consumers.  Such businesses will need to take this opportunity to review their template consumer contracts in light of the above proposals to ensure that they do not fall foul of the new legislation when it comes into force.  Particular focus will need to be made to the sales processes, strategies and sales literature used for new customers and terms in energy contracts that seek to impose termination and default charges.