Unfair terms in consumer contracts
[Project now completed]
Professor Hector MacQueen
Gillian Swanson, Project Manager
Julie Davidson, Legal Assistant
Our recommendations in this project have been implemented by the Consumer Rights Act 2015.
This project is now complete. It stemmed from a joint reference from the Department for Business, Innovation and Skills to this Commission and the Law Commission for England and Wales. In July 2012 we published an Issues Paper seeking views on the reform of unfair terms legislation as it affects consumer contracts. Following consultation we have made recommendations which form the basis of our Advice to the Department. The Advice was published on 19 March 2013. A relative Summary of the Advice and a News Release is also available.
In 2005, the two Law Commissions published a joint Report on Unfair Terms in Contracts. The reference asked us to carry out two tasks. The first was to review and update the 2005 Report in so far as it affects contracts made between businesses and consumers; the second was to consider, in particular, one problematic area, namely the exemption for main subject matter and price set out in Regulation 6(2) of the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR).
Currently, two pieces of legislation deal with unfair contract terms. The Unfair Contract Terms Act 1977 (UCTA) sets out the traditional UK approach while the UTCCR implement an EU Directive, the Unfair Terms Directive (UTD). The co-existence of these two overlapping schemes has long been criticised for its complexity and obscurity and, in 2005, we recommended reform to simplify the law. In the Issues Paper we asked whether consultees still supported the relevant recommendations we made at that time and asked if there were any areas where updating was required. 58 consultees responded and we have developed our policy in light of those responses.
Under Regulation 6(2) of the UTCCR, terms cannot be assessed for fairness if they relate to the “main subject matter of the contract” or to “the adequacy of the price or remuneration as against the goods or services supplied in exchange”. These phrases have generated considerable litigation, most notably over bank charges. Our Advice recommends reform of the exemption. With regard to price terms, we recommend confining the exemption to only one aspect of a price term, the amount. For main subject matter terms, we think that the exemption should apply to terms which specify the main subject matter. The exemption is to apply only to terms which are transparent and prominent. To be transparent, a term must be in plain, intelligible language; readily available to the consumer; and, if in writing, it must be legible. To be prominent, a term must be presented in such a way that the average consumer would be aware of the term and, the more unusual or onerous the term, the more prominent it needs to be.
We also advise that the new legislation should specifically state that terms on the grey list (that is, the indicative list of terms in the Annex to the UTD which may be regarded as unfair) are assessable for fairness and we recommend that the list should be copied out from the UTD subject to some specific changes and additions. As price escalation clauses and default charges are already covered by the list, we advise that there is no need for additions to the list to deal with these issues. We recommend, however, that new paragraphs should be added to cover early termination charges and terms which give the trader discretion to decide the amount of the price or the subject matter of the contract after the consumer has become bound by the contract.
In addition, we recommend that the UTD should be copied out into the law of the UK rather than rewritten, subject to specific recommendations made elsewhere in the Advice, and that the fairness test as set out in articles 3(1) and 4(1) of the UTD should be replicated in the new legislation.
We recommend that the new legislation should replicate the substance of those provisions currently contained in UCTA which concern terms and notices which purport to exclude or restrict a trader’s liability for causing death or personal injury. Notices purporting to exclude or restrict a trader’s legal liability to a consumer should be brought within the scope of the new legislation so that, unless they fall within the provisions relating to liability for personal injury and death, such notices would be assessable for fairness and enforcement bodies would have powers to bring actions against notices. Further, we recommend that UCTA should no longer regulate business to consumer contracts, even if it is a business dealing as a consumer, following consolidation of consumer provisions in the new Consumer Bill of Rights.
In addition to the Advice, its relative Summary, News Release and the Issues Paper, the following papers are available:
Appendix A: Comparative law
Appendix B: Schedule 2 to the UTCCR and re-written grey list from the 2005 Report
Appendix C: End user licence agreements
Appendix D: Unfair Terms Directive
Appendix E: Impact Assessment
Summary (which includes all the proposals and questions from both the Issues Paper and the Impact Assessment)
If you require any further information on the project on unfair terms in consumer contracts, or if there are matters you wish to raise, please email: email@example.com.