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Unfair Terms

The Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR) were introduced as a result of EU legislation. The regulations apply in relation to “unfair terms” in contracts concluded between a seller or a supplier and a consumer.

Note :the Consumer Rights Act 2015 has consolidated the provisions of the Unfair Contract Terms Act 1977 (UCTA) with the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR), which were considered to be inconsistent, complex and difficult to apply.

 

The definition of a 'consumer' in the UTCCR means any natural person (i.e. legal persons are excluded) who is acting for purposes which are outside his trade, business or profession. In the CRA (section 2(2)), the definition is slightly wider: 'Consumer' means an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession.

It is expected at the time of writing that the reforms will come into efect on 1 October 2015. The following is a description of the current law.

The Unfair Terms in Consumer Contracts Regulations 1999


A contractual term which has not been individually negotiated is be regarded as “unfair” if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer.

A term is always be regarded as not having been individually negotiated where it has been drafted in advance and the consumer has therefore not been able to influence the substance of the term (e.g. in typical standard terms and conditions of sale).

In the event of a dispute, it is for the seller or supplier who claims that a term was individually negotiated to show that it was.

Terms in contracts which are mandatory under UK or EU law, or under international conventions, are excluded.

 

Assessment of unfair terms


In any dispute, a court must assess the unfairness of a contractual term taking into account the nature of the goods or services for which the contract was concluded and by referring, at the time of conclusion of the contract, to all the circumstances attending the conclusion of the contract and to all the other terms of the contract or of another contract on which it is dependent.

There are “core” terms of a contract which are not subject to assessment of fairness:
*  the definition of the main subject matter of the contract
*  the adequacy of the price or remuneration, as against the goods or services supplied in exchange.

Plain, intelligible language


A seller or supplier must ensure that any written term of a contract is expressed in plain, intelligible language. In case of any doubt about the meaning of a written term, the court must give the interpretation which is most favourable to the consumer.

List of unfair terms


Schedule 2 to UTCCR contains an indicative and non-exhaustive list of the terms which may be regarded as unfair. These are terms which have the object or effect of:


(a)  excluding or limiting the legal liability of a seller or supplier in the event of the death of a consumer or personal injury to the latter resulting from an act or omission of that seller or supplier
(b)  inappropriately excluding or limiting the legal rights of the consumer vis-à-vis the seller or supplier or another party in the event of total or partial non-performance or inadequate performance by the seller or supplier of any of the contractual obligations, including the option of offsetting a debt owed to the seller or supplier against any claim which the consumer may have against him
(c)  making an agreement binding on the consumer whereas provision of services by the seller or supplier is subject to a condition whose realisation depends on his own will alone
(d)  permitting the seller or supplier to retain sums paid by the consumer where the latter decides not to conclude or perform the contract, without providing for the consumer to receive compensation of an equivalent amount from the seller or supplier where the latter is the party cancelling the contract
(e)  requiring any consumer who fails to fulfil his obligation to pay a disproportionately high sum in compensation
(f)  authorising the seller or supplier to dissolve the contract on a discretionary basis where the same facility is not granted to the consumer, or permitting the seller or supplier to retain the sums paid for services not yet supplied by him where it is the seller or supplier himself who dissolves the contract
(g)  enabling the seller or supplier to terminate a contract of indeterminate duration without reasonable notice except where there are serious grounds for doing so.    Exceptions:
    (i) A supplier of financial services may reserve the right to terminate unilaterally a contract of indeterminate duration without notice where there is a valid reason, provided that the supplier is required to inform the other contracting party or parties thereof immediately.
    (ii) See other exceptions below.
(h)  automatically extending a contract of fixed duration where the consumer does not indicate otherwise, when the deadline fixed for the consumer to express his desire not to extend the contract is unreasonably early
    (i)  irrevocably binding the consumer to terms with which he had no real opportunity of becoming acquainted before the conclusion of the contract
(j)  enabling the seller or supplier to alter the terms of the contract unilaterally without a valid reason which is specified in the contract.

Exceptions:
(i) A supplier of financial services may reserve the right to alter the rate of interest payable by the consumer or due to the latter, or the amount of other charges for financial services without notice where there is a valid reason, provided that the supplier is required to inform the other contracting party or parties thereof at the earliest opportunity and that the latter are free to dissolve the contract immediately.
(ii)  A seller or supplier may  reserve the right to alter unilaterally the conditions of a contract of indeterminate duration, provided that he is required to inform the consumer with reasonable notice and that the consumer is free to dissolve the contract.
(iii) See other exceptions below.

(k)  enabling the seller or supplier to alter unilaterally without a valid reason any characteristics of the product or service to be provided
(l)  providing for the price of goods to be determined at the time of delivery or allowing a seller of goods or supplier of services to increase their price without in both cases giving the consumer the corresponding right to cancel the contract if the final price is too high in relation to the price agreed when the contract was concluded.

Exceptions:
(i) price indexation clauses are not excluded by the regulation provided that the method by which prices vary is explicitly described;
(ii) See other exceptions below.

(m)  giving the seller or supplier the right to determine whether the goods or services supplied are in conformity with the contract, or giving him the exclusive right to interpret any term of the contract
(n)  limiting the seller’s or supplier’s obligation to respect commitments undertaken by his agents or making his commitments subject to compliance with a particular formality
(o)  obliging the consumer to fulfil all his obligations where the seller or supplier does not perform his
(p)  giving the seller or supplier the possibility of transferring his rights and obligations under the contract, where this may serve to reduce the guarantees for the consumer, without the latter’s agreement;
(q)  excluding or hindering the consumer’s right to take legal action or exercise any other legal remedy, particularly by requiring the consumer to take disputes exclusively to arbitration not covered by legal provisions, unduly restricting the evidence available to him or imposing on him a burden of proof which, according to the applicable law, should lie with another party to the contract.

 

Other exceptions:
Paragraphs 1(g), (j) and (l) do not apply to:
(i) Transactions in transferable securities, financial instruments and other products or services where the price is linked to fluctuations in a stock exchange quotation or index or a financial market rate that the seller or supplier does not control;
(ii) Contracts for the purchase or sale of foreign currency, traveller’s cheques or international money orders denominated in foreign currency.

Effect of an unfair term


An unfair term in a contract concluded with a consumer by a seller or supplier is not binding on the consumer. However, the rest of the contract continues to bind the parties if it is capable of continuing in existence without the unfair term.

Choice of law clauses


UTCCR will apply even if the contract is subject to the law of a non-Member State, if the contract has a close connection with the territory of the Member States.

Enforcement of UTCCR

Criminal law sanctions: UTCCR creates no criminal offences.

Civil law sanctions:
Non-binding: as noted above, contract terms which are unfair according to UTCCR are not binding on the consumer.

Undertakings and injunctions: complaints about unfair contract terms may be made to the Office of Fair Trading and certain other “qualifying bodies”. The OFT has a duty to consider any complaint made to him that any contract term drawn up for general use is unfair. Exceptions: any complaint appearing to be frivolous or vexatious; a complaint which a “qualifying body” has notified the OFT that it agrees to consider the complaint.

“Qualifying bodies” include Trading Standards departments and certain other utility regulators; also the Consumers’ Association. If a qualifying body has so notified the OFT, it then has the legal duty to consider the complaint.

The OFT will in practice seek undertakings from businesses found to have applied unfair contract terms whereby the business owner will promise not to use such terms in future. Failing an undertaking, the OFT may apply to the court for an injunction.

Other qualifying bodies including the Consumers’Association may seek undertakings or apply for injunctions subject to notifying the OFT.

Examples / further reading
The Unfair Terms hub provides guidance and practical examples:

What's new:
19 August 2011: OFT secures High Court order to stop unfair gym contract terms
The OFT is urging gyms to check their contract terms to make sure they are lawful and check whether they need to notify their customers of any changes, after the High Court ordered a gym management company not to use certain unfair terms and business practices.

[Page updated: 18/06/2015]

 

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