The Consumer Rights Act 2015 – which revoked the Unfair Terms in Consumer Regulations 1999 – consolidated the unfair contract terms in the consumer contracts regime.
The Act applies a fairness test to the terms of a contract between a consumer and a trader (apart from a contract of employment or apprenticeship) and any notice (written or oral) issued by the trader which relates to rights or obligations between a trader and a consumer, or tries to exclude or restrict a trader’s liability to a consumer.
A consumer notice is wording that may not form part of any contract but which relates to the same type of issues that would be dealt with in a contract (eg, the rights or obligations between the parties).
A ‘trader’ is any person acting for purposes relating to their trade, business, craft or profession, whether acting personally or through another person acting in the trader’s name or on the trader’s behalf.
A ‘consumer’ is an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession. A trader claiming an individual is not a consumer must prove it.
An unfair term of a consumer contract or notice is not binding on the consumer, although where a clause is not binding because it is unfair, the rest of the contract will take effect as far as possible.
What is an unfair term?
A term is unfair under the Act if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer. Where a term can have more than one meaning, the interpretation that most favours the consumer will prevail.
The requirement of good faith means the contract should be created in a course of fair and open dealings. All the terms of the contract should be expressly stated, written in clear, legible terms and that there are no hidden traps or clauses that either party has no knowledge of.
How is fairness determined?
When deciding if a term is fair, the nature of the subject matter of the contract will be considered by reference to all the circumstances existing when the term was agreed, and to all of the other terms of the contract or of any other contract on which it depends.
An ‘indicative and non-exhaustive’ list of terms in consumer contracts which may be considered unfair is listed in Schedule 2 of the Act. This includes three new ‘grey list’ terms:
- disproportionately high charges where the consumer decides not to conclude or perform the contract or for services which have not been supplied, even where the consumer cancels the contract;
- terms allowing the trader to determine the characteristics or subject matter after the consumer is bound;
- terms allowing the trader to set the price after the consumer is bound.
A consumer contract term must be deemed unfair if it forces the consumer to the burden of proof with regard to compliance by a distance supplier or an intermediary with an obligation under any rule implementing the Distance Marketing Directive.