What’s the issue?

In 2015, the Consumer Rights Act (CRA) overhauled the UK consumer protection regime, including rules on unfair contract terms in consumer contracts. The UK rules are now slightly different to those under EU law. In particular, under the CRA, certain terms including the main subject matter and price of the contract, are exempt from a fairness assessment where they are transparent (in plain and intelligible language) and prominent. Under the Unfair Contract Terms Directive, however, there is no prominence requirement.

What’s the development?

The High Court and CJEU have considered issues around unfair contract terms in consumer contracts.

What does this mean for you?

As it is not always clear when a term will be unfair, rulings on this area, particularly in relation to the CRA are worth noting. While decisions can be highly specific, they often provide guidance on the sorts of issues the courts are likely to take into consideration. Cloud service providers and providers of online subscription services to UK consumers will be particularly interested in the High Court judgment.

High Court

The High Court has considered whether a cancellation fee in a cloud services consumer contract could be assessed for fairness (among other issues). The contract charged a monthly fee for a minimum twelve month term contract. Early termination was subject to a cancellation fee calculated as the total of the monthly charges due for the remainder of the minimum term, together with a 10% discount for early payment.

Under the CRA, terms which specify the main subject of the contract or relate to the appropriateness of the price payable under the contract by reference to similar contracts, are not assessable for fairness, provided they are transparent and prominent.

The Court held that the cancellation fee could not be assessed for fairness because it was a monetary obligation on the customer which formed part of the price payable for the service (even if it was not the actual price payable), and any challenge to the appropriateness of the overall price was excluded from being assessed for fairness as the term was also transparent and prominent.

It is arguable that the cancellation charges were not obviously for an exchanged service and, therefore, that under CMA guidance, they might not fall within the exemption. It is also possible that you could argue the cancellation charge was disproportionately high given the service was no longer going to be provided (which would make it a grey-listed term assessable for fairness). However, neither of these points were raised.

CJEU Opinion

AG Wahl has handed down an Opinion on the issue of when something may be considered part of the main subject matter of a contract and, therefore, exempt from the fairness test in the Unfair Contract Terms Directive (providing it is in plain and intelligible language).

The main issue was whether a term in a loan agreement made with Romanian citizens requiring repayments to be made in Swiss Francs, the same currency in which the loan was advanced, leaving the consumer to bear any currency fluctuations, could be assessed for fairness. The CJEU held that because an inevitable part of a loan agreement is repayment of that loan, the term did form part of the main subject matter of the contract and could not be assessed for fairness as long as it was transparent (there is no prominence requirement). The repayment terms were an essential element of the contract, rather than an ancillary issue. This was distinguished from an earlier case, Kasler, in which the loan repayment terms were index-linked to foreign currencies where the repayment terms were held to fall outside the exemption.

The AG also had to answer a question on the meaning of “plain and intelligible language”. The AG said that the term must be understood by the consumer both on a formal and grammatical level and also in terms of its concrete effect. The requirement cannot go as far as to oblige the seller or supplier to anticipate and inform the consumer of subsequent changes which were not foreseeable or to bear the consequence of such changes. However, an average, reasonably well informed consumer would be aware of the possibility of a rise or fall in foreign currency and of the impact that might have on loan repayments.

Finally the AG considered the time at which the existence of any significant imbalance between the rights and obligations of the parties should be considered. He concluded that this would only be relevant where the term at issue was not within the main subject of the contract or was not drafted in plain and intelligible language. However, a seller cannot be held responsible for developments beyond their control which take place after conclusion of the contract (such as currency exchange rate variations).