2007 looks set to bring changes to consumer legislation in the UK.

We reported on the Law Commission and the Scottish Law Commission’s draft bill and report on unfair contract terms some time ago. The Government has now announced that it will accept in principle the bill and the recommendations for reform set out in the report, although it needs to consider the issues and potential cost implications. The proposed legislation will be subject to public consultation but no timetable has been given for implementation.

As a quick refresher, the reforms will potentially affect contracts with both consumers and businesses as follows:

Consumers

  •  The most significant change for consumers will be that any unfair term, whether ‘standard’ or ‘negotiated’, will be invalid (unless it is a core term i.e. one relating to subject matter or price).
  • Consumers will be able to challenge the fairness of all clauses.
  • The burden of proving that a term is ‘fair’ will fall on the business seeking to rely on it.
  • International supply agreements with consumers will not be exempt from the new legislation.

 

Business

  • Broadly, the current provisions under the Unfair Contract Terms Act 1997 will remain the same for business to business transactions.
  • ‘Transparency’ and ‘the knowledge and understanding of the party adversely affected by the term’ will become key to the ‘fair and reasonable’ test.
  • Only international supply agreements for export (not import) will be exempt.
  • A person who makes a contract for purposes mainly related to his or her business will no longer be a consumer.

Micro Businesses

Micro businesses, being those with nine or fewer employees, are given the right to challenge a standard term of the other party as being unfair, provided there has not been substantial alteration in their favour. However, small businesses will not be able to challenge terms that are ‘core’, terms of property and insurance contracts or terms in any contract worth over £500,000.

The burden is on the small business to prove the term challenged is not fair or reasonable.

Alongside this statement regarding the reform of unfair contract terms, the Government has also announced that it will legislate to give a cooling off period to people who buy goods or services from door-to-door sales people, even when those sales people have been invited to visit.

Under the Consumer Protection (Cancellation of Contracts concluded away from Business Premises) Regulations 1987, consumers who enter into a contract during an unsolicited visit already have the right to cancel that contract within 7 days. However, this protection is not currently extended to consumers who invited the visit.

This new legislation is a sign of a shake up to come as a result of the anticipated legislation that the UK is required to implement to give effect to the EU Unfair Commercial Practices Directive. The deadline for implementation is 12 December 2007.

 After consulting in 2005, the government took its time in considering the impact of the Directive and just before Christmas released a response to the consultation recommending repeals to provisions in 22 of the 29 pieces of legislation identified as being affected by the Directive, including the Consumer Protection Act 1987, the Consumer Transactions (Restrictions on Statements) Order 1976 and the Trade Descriptions Act 1968.

The Directive puts a wide duty on all businesses not to trade unfairly with consumers and is aimed at stopping, amongst other things, misleading consumers, high pressure and aggressive selling techniques and sales people falsely stating that a product will only be available for a limited period of time. More about the Directive can be found in our July 2006 Commercial Update here.