The Government has formally introduced the Consumer Rights Bill to Parliament, incorporating an amendment proposed by Penningtons Manches partner, Jon Bartley.

BACKGROUND TO THE BILL

The draft Bill was published in June 2013 with the intention of significantly reforming consumer laws. Jon Bartley, partner in the IP, IT and commercial team in London, identified a potential flaw in the Bill which could cause problems for suppliers of ongoing services to consumers.

Among other things, the Bill amends the unfair terms regime, currently found in the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR), which will be replaced by the Bill.  Under the UTCCR, clauses in consumer contracts must be “fair” and terms considered to be unfair are unenforceable against the consumer.

However, contract terms relating to price or the subject matter of the contract are generally exempt from challenge, provided the term is in plain and intelligible language. In a schedule to the UTCCR, there is an indicative list of contract terms which may be considered to be unfair (the “grey list”) and also exceptions to this list.

WHAT IS THE ISSUE?

The issue relates to the application of the unfair terms regime to price escalation clauses. These are terms in ongoing services contracts with consumers (e.g. gas and electricity contracts) which contain terms permitting the supplier to increase the price of the service from time to time.

As a result of the restructuring and amending of the grey list in the draft Bill, price escalation clauses fall within the scope of three of the terms in the grey list. With respect to two of these terms, they will be exempt from a fairness challenge provided that the relevant term is transparent and prominent, gives reasonable notice of a price increase, and permits the consumer to terminate the contract in response to the increase. However, this did not apply to the third term.

The drafting anomaly resulted in a conflict for services suppliers in that, on the one hand, the Bill enabled them to avoid fairness challenges to price escalation clauses but, on the other hand, suggested that such clauses would always be open to challenge.

LATEST POSITION

Jon alerted his colleagues on the City of London Law Society Commercial Law Committee to the issue and wrote to the Department for Business, Innovation and Skills in the name of the committee, suggesting appropriate amendments to rectify the anomaly. In January 2014, a revised version of the Bill was introduced to Parliament, incorporating these amendments.