Tweet
Following a recent course I attended and for those that don't know the Consumer Rights Act shall be in force from 1 October 2015. I've focused this thread specifically on unfair contract terms as it would be quite a read if I included everything. If it's worthwhile I am happy to also provide an overview of the remaining changes to the Act which includes the incorporation of the Sale of Goods Act and Supply of Goods and Services Act amongst other things.
The Unfair Terms in Consumer Regulations 1999 (UTCR) will be repealed and replaced with the Consumer Rights Act 2015 (CRA) on 1 October 2015. The CRA will largely have the same provisions although there are some changes that have been implemented.
Scope
The scope of the CRA is to deal with contracts that have been made by consumers. The definition of consumer has derived from a European case Benincasa v Dentalkit 1997 ECR 1-3767 in which the court explained that a person is not a consumer “unless he/she is contracting primarily for their family or personal needs”.
Under the CRA, the definition of a consumer under is someone who:
“is an individual acting for purposes which are wholly or mainly outside that individual's trade, business, craft or profession”
Not much has changed in terms of the definition however the word highlighted above has been inserted for clarity.
Court of Appeal in Evans Cherry Tree Finance [2008] EWCA Civ 331
High Court decided that a contract term which permitted a lender to use the rule to calculate a settlement figure fell foul of the Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083), and was therefore void.
Overy v Paypal (Europe) Ltd [2012] EWHC 2659
The High Court found that Mr Overy was not a consumer. Although the main purpose of his entering into the contract with Paypal was to use the services in his personal capacity, he was also using them for a business purpose. Where that business purpose is more than negligible or insignificant, it will take the customer outside the definition of a consumer for the purposes of the Regulations.
Form of contract
Under the UTCR, the Regulations applied whether agreements were made orally or written and this still applies to the CRA.
Choice of law
There is a key difference between the UTCR and the new CRA relating to choice of law clauses. Under the UTCR, if the contract has a choice of law clause which is not in the EU, the Regulations will still apply if the contract has a “close connection” with an EU state (does not necessarily need to be the UK).
However, under the CRA the Act will still apply only where the choice of law is in a country outside of the EEA (EU states + Iceland, Liechtenstein and Norway) but the contract has a close connection with the UK.
Excluded contracts
The CRA excludes contracts of employment and apprenticeship and there was no such exclusion under UTCR however it is likely that these types of contracts will also be excluded under the 1999 regulations.
Excluded terms
The fairness test (see below) does not apply where there are certain circumstances. An example of this is any definition of the subject matter of the contract or terms which set the price, these are known as ‘core provisions or core terms’. The most significant change in the Act relates to these terms, which are not subject to the fairness test provided that they are both:
Transparent: in plain and intelligible language and, if in writing, legible; and
Prominent: brought to the consumer's attention in such a way that the average customer – who is well informed, observant and circumspect - would be aware of the term
This essentially goes a bit further than the current law with the addition of the ‘prominence’ requirement. The fact that the term does not meet these requirements does not automatically make it unfair but will be subject to further scrutiny.
Example of a ‘core provision’
Plenty of you might be aware of the case OFT v Abbey National [2009] UKSC 6 in which bank charges which were levied on a customer’s personal account relating to unauthorised overdrafts amongst other things were challenged by the OFT as being unfair. Abbey National argued that the charges were deemed as a core provision and therefore not subject to the UTCR, and the court agreed.
Another example case is Ros Fernihough v British Telecommunications plc 2008 (unreported, Walsall CC) in which the claimant disputed the £4.50 charge by BT for not paying by direct debit, with BT arguing that it was a “core provision”. The judge agreed and was satisfied that the claimant was given notice of the charge and had the option to setup a direct debit, pay the charge or leave. Note that the as the above case is a judgment in the County Court, it is no more than persuasive authority.
Example of a provision which is not a ‘core provision’
Foster-Burnell v Lloyds TSB (Taunton County Court, 23 June 2014) the bank sought to rely upon the case of OFT v Santander to allow them to unilaterally vary the bank charges under the terms and conditions. The judge disagreed and departed from the ruling in OFT v Santander on the basis that the term did not specifically related to the price, but was more related to the mechanism for amending prices.
Again, this is a judgment in the County Court and so is of persuasive authority only.
Individual negotiation
Under the UTCR, the Regulations do not apply in circumstances where the contract was subject to individual negotiation. At its simplest, individual negotiation is where the consumer negotiates a term or terms of the business’s standard terms.
In Khurana v Webster Construction Ltd [2015] EWHC 758, there was a term in the contract which stated that in the event of a dispute, it would be referred to arbitration. During the course of this period it was found out that both parties in a letter agreed that the arbitration decision would be binding. The judge held that because it was agreed that the arbitration decision would be binding, this constituted an individual negotiation.
However under the CRA, this provision is now removed and as such, the CRA shall still apply whether a term was individually negotiated or not.
Ambiguous terms
There is no more than a change of wording in relation to ambiguous terms. Under the CRA, where a term could have different meanings, the meaning that is most favourable to the consumer will prevail.
In the first of two Plymouth County Court case (reported in Consumer Law Today November 1996), a consumer hired out a morning dress under a contract providing compensation for returning the dress late. It was unclear whether the compensation was to be given daily or weekly. It was held by the court that due to ambiguity, the compensation was decided on a weekly basis in favour of the customer.
The other case, refers to a local authority’s car parking ticket. The ticket stated that it was “not transferable” which did not specify any cark park. The judge questioned whether “not transferable” restricted the ticket from one motorist to another or from one car park to another. It was held that “not transferable” meant from one motorist to another.
Back in Khurana v Webster Construction Ltd [2015] EWHC 758 it was argued that the adjudication to be binding was unclear. However, the judge dismissed this outright and explained that no reasonable person even without any legal background could reasonably think that “binding” would mean anything other than final decision.
Fairness
The CRA applies a test of fairness to all standard terms in contracts which are used by businesses with consumers subject to certain exceptions (for example core provisions). A contract term that is unfair cannot be enforced against the consumer. The duty is on the consumer to prove the unfairness.
There might appear to be some confusion as to whether the onus is on the consumer to prove that the term is unfair or whether it is presumed to be unfair and the burden of proof lay with the other side to prove that it is not. In the earlier case of Foster-Burnell v Lloyds TSB, the judge had stated that there was no precedent in which the burden of proof lay, and decided that the burden of proof lay on the party to whose contract it is. That is to say that if an allegation made that the term is unfair then it is presumed to be unfair and it is up to the party relying on the term to prove its fairness. This is considered wrong and did not cite the case below.
In Director General of Fair Trading v First National Bank plc [2001] 1 WLR 98 decided in the High Court (which ultimately went to the House of Lords), that the burden of proof lay on the consumer and not the party relying upon it.
For those who may ask why Foster-Burnell is considered wrong, that is because the County Court is subordinate to the High Court.
What is unfair?
There is no real change in the meaning of unfair between the UTCR and the CRA.
Example of an unfair clause
Mayhook v NCP (Cambridge CC, 29 November 2012). Here, a term within NCP’s contract provided that the owner of the car (not necessarily the driver) would be liable for any excess charges. As in the case, the driver of the vehicle was not the owner and the owner was sent a letter stating he was liable. The owner had argued that the term was unfair to the court and the court agreed. It would be a significant imbalance in the parties’ rights to impose obligations to say that the owner of the car was deemed to have given authority to another driver to incur excess charges on his behalf. Note that NCP have since withdrawn that term from their contract.
Example of a fair clause
Parker v National Farmers Mutual Insurance Society Ltd [2012] EWHC 2156. Whenever a claim was made NFU stated certain documents would need to be provided before they considered paying out. The claimant argued that such a clause was deemed to be unfair. However the court disagreed and said that a clause such as this was perfectly fair. The insurance company could not properly assess the claim without the proper and relevant documentation. Furthermore the Insurance Conduct Business Rules laid out by the Financial Conduct Authority (FCA) also stated this was the case.
Secondary contracts
The UTCR do not however, apply to contracts that are considered “secondary contracts”. A basic example of a secondary contract would be where a consumer buys a fridge / cooker / washing machine and then also enters into a contract at the same time for the maintenance of that appliance.
The CRA makes good on this and states that where a term in a secondary contract reduces the rights or remedies of a person under the main contract, or increase’s the consumer’s obligations then the secondary contract is subject to the fairness test.
Reliance on unfair terms
Although the UTCR did not provide for this, under the CRA a consumer can still rely on an unfair term if he or she wishes to do so.
Courts can determine the issue of fairness under own initiative
Unlike the UTCR, the court can determine issues of fairness even if the consumer does not raise this. For example, if a consumer disputes the interpretation of something but does not specifically raise the issue that it is unfair, the court can step in and also bring up the issue of unfairness. This provision follows the European case of Pannon GSM v Erzseber [2009] ECR 14713.
Just because the UTCR does not explicitly state that a court cannot determine fairness, in practice it is likely that the court has the power to do so.
Enhanced Consumer Measures
There has been a significant change in the remedies available under the CRA. There is now a range of remedies the courts can now use where there is deemed to be an unfair term known as enhanced consumer measures. They are under three headings:
1. Redress
2. Compliance
3. Choice
What is meant by these three headings? For deliberate policy, there has been no definition made under any of the headings so as to give the court the widest discretion as to remedies they may give. However, there have been some examples that will be included.
1. Consumer collective actions otherwise known as class actions in the US
2. Appointing a compliance office
3. Introducing complaints handling process
4. Improving record keeping
5. Singing up to a feedback site
6. Publicising details of the breach.
As stated above, these are not an exhaustive list and the court can determine what remedies as it sees fit.
Note: once the CRA has come into effect, the Unfair Contract Terms Act (UCTA) shall no longer apply and will be limited to business to business contracts only.
The Unfair Terms in Consumer Regulations 1999 (UTCR) will be repealed and replaced with the Consumer Rights Act 2015 (CRA) on 1 October 2015. The CRA will largely have the same provisions although there are some changes that have been implemented.
Scope
The scope of the CRA is to deal with contracts that have been made by consumers. The definition of consumer has derived from a European case Benincasa v Dentalkit 1997 ECR 1-3767 in which the court explained that a person is not a consumer “unless he/she is contracting primarily for their family or personal needs”.
Under the CRA, the definition of a consumer under is someone who:
“is an individual acting for purposes which are wholly or mainly outside that individual's trade, business, craft or profession”
Not much has changed in terms of the definition however the word highlighted above has been inserted for clarity.
Court of Appeal in Evans Cherry Tree Finance [2008] EWCA Civ 331
High Court decided that a contract term which permitted a lender to use the rule to calculate a settlement figure fell foul of the Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083), and was therefore void.
Overy v Paypal (Europe) Ltd [2012] EWHC 2659
The High Court found that Mr Overy was not a consumer. Although the main purpose of his entering into the contract with Paypal was to use the services in his personal capacity, he was also using them for a business purpose. Where that business purpose is more than negligible or insignificant, it will take the customer outside the definition of a consumer for the purposes of the Regulations.
Form of contract
Under the UTCR, the Regulations applied whether agreements were made orally or written and this still applies to the CRA.
Choice of law
There is a key difference between the UTCR and the new CRA relating to choice of law clauses. Under the UTCR, if the contract has a choice of law clause which is not in the EU, the Regulations will still apply if the contract has a “close connection” with an EU state (does not necessarily need to be the UK).
However, under the CRA the Act will still apply only where the choice of law is in a country outside of the EEA (EU states + Iceland, Liechtenstein and Norway) but the contract has a close connection with the UK.
Excluded contracts
The CRA excludes contracts of employment and apprenticeship and there was no such exclusion under UTCR however it is likely that these types of contracts will also be excluded under the 1999 regulations.
Excluded terms
The fairness test (see below) does not apply where there are certain circumstances. An example of this is any definition of the subject matter of the contract or terms which set the price, these are known as ‘core provisions or core terms’. The most significant change in the Act relates to these terms, which are not subject to the fairness test provided that they are both:
Transparent: in plain and intelligible language and, if in writing, legible; and
Prominent: brought to the consumer's attention in such a way that the average customer – who is well informed, observant and circumspect - would be aware of the term
This essentially goes a bit further than the current law with the addition of the ‘prominence’ requirement. The fact that the term does not meet these requirements does not automatically make it unfair but will be subject to further scrutiny.
Example of a ‘core provision’
Plenty of you might be aware of the case OFT v Abbey National [2009] UKSC 6 in which bank charges which were levied on a customer’s personal account relating to unauthorised overdrafts amongst other things were challenged by the OFT as being unfair. Abbey National argued that the charges were deemed as a core provision and therefore not subject to the UTCR, and the court agreed.
Another example case is Ros Fernihough v British Telecommunications plc 2008 (unreported, Walsall CC) in which the claimant disputed the £4.50 charge by BT for not paying by direct debit, with BT arguing that it was a “core provision”. The judge agreed and was satisfied that the claimant was given notice of the charge and had the option to setup a direct debit, pay the charge or leave. Note that the as the above case is a judgment in the County Court, it is no more than persuasive authority.
Example of a provision which is not a ‘core provision’
Foster-Burnell v Lloyds TSB (Taunton County Court, 23 June 2014) the bank sought to rely upon the case of OFT v Santander to allow them to unilaterally vary the bank charges under the terms and conditions. The judge disagreed and departed from the ruling in OFT v Santander on the basis that the term did not specifically related to the price, but was more related to the mechanism for amending prices.
Again, this is a judgment in the County Court and so is of persuasive authority only.
Individual negotiation
Under the UTCR, the Regulations do not apply in circumstances where the contract was subject to individual negotiation. At its simplest, individual negotiation is where the consumer negotiates a term or terms of the business’s standard terms.
In Khurana v Webster Construction Ltd [2015] EWHC 758, there was a term in the contract which stated that in the event of a dispute, it would be referred to arbitration. During the course of this period it was found out that both parties in a letter agreed that the arbitration decision would be binding. The judge held that because it was agreed that the arbitration decision would be binding, this constituted an individual negotiation.
However under the CRA, this provision is now removed and as such, the CRA shall still apply whether a term was individually negotiated or not.
Ambiguous terms
There is no more than a change of wording in relation to ambiguous terms. Under the CRA, where a term could have different meanings, the meaning that is most favourable to the consumer will prevail.
In the first of two Plymouth County Court case (reported in Consumer Law Today November 1996), a consumer hired out a morning dress under a contract providing compensation for returning the dress late. It was unclear whether the compensation was to be given daily or weekly. It was held by the court that due to ambiguity, the compensation was decided on a weekly basis in favour of the customer.
The other case, refers to a local authority’s car parking ticket. The ticket stated that it was “not transferable” which did not specify any cark park. The judge questioned whether “not transferable” restricted the ticket from one motorist to another or from one car park to another. It was held that “not transferable” meant from one motorist to another.
Back in Khurana v Webster Construction Ltd [2015] EWHC 758 it was argued that the adjudication to be binding was unclear. However, the judge dismissed this outright and explained that no reasonable person even without any legal background could reasonably think that “binding” would mean anything other than final decision.
Fairness
The CRA applies a test of fairness to all standard terms in contracts which are used by businesses with consumers subject to certain exceptions (for example core provisions). A contract term that is unfair cannot be enforced against the consumer. The duty is on the consumer to prove the unfairness.
There might appear to be some confusion as to whether the onus is on the consumer to prove that the term is unfair or whether it is presumed to be unfair and the burden of proof lay with the other side to prove that it is not. In the earlier case of Foster-Burnell v Lloyds TSB, the judge had stated that there was no precedent in which the burden of proof lay, and decided that the burden of proof lay on the party to whose contract it is. That is to say that if an allegation made that the term is unfair then it is presumed to be unfair and it is up to the party relying on the term to prove its fairness. This is considered wrong and did not cite the case below.
In Director General of Fair Trading v First National Bank plc [2001] 1 WLR 98 decided in the High Court (which ultimately went to the House of Lords), that the burden of proof lay on the consumer and not the party relying upon it.
For those who may ask why Foster-Burnell is considered wrong, that is because the County Court is subordinate to the High Court.
What is unfair?
There is no real change in the meaning of unfair between the UTCR and the CRA.
Example of an unfair clause
Mayhook v NCP (Cambridge CC, 29 November 2012). Here, a term within NCP’s contract provided that the owner of the car (not necessarily the driver) would be liable for any excess charges. As in the case, the driver of the vehicle was not the owner and the owner was sent a letter stating he was liable. The owner had argued that the term was unfair to the court and the court agreed. It would be a significant imbalance in the parties’ rights to impose obligations to say that the owner of the car was deemed to have given authority to another driver to incur excess charges on his behalf. Note that NCP have since withdrawn that term from their contract.
Example of a fair clause
Parker v National Farmers Mutual Insurance Society Ltd [2012] EWHC 2156. Whenever a claim was made NFU stated certain documents would need to be provided before they considered paying out. The claimant argued that such a clause was deemed to be unfair. However the court disagreed and said that a clause such as this was perfectly fair. The insurance company could not properly assess the claim without the proper and relevant documentation. Furthermore the Insurance Conduct Business Rules laid out by the Financial Conduct Authority (FCA) also stated this was the case.
Secondary contracts
The UTCR do not however, apply to contracts that are considered “secondary contracts”. A basic example of a secondary contract would be where a consumer buys a fridge / cooker / washing machine and then also enters into a contract at the same time for the maintenance of that appliance.
The CRA makes good on this and states that where a term in a secondary contract reduces the rights or remedies of a person under the main contract, or increase’s the consumer’s obligations then the secondary contract is subject to the fairness test.
Reliance on unfair terms
Although the UTCR did not provide for this, under the CRA a consumer can still rely on an unfair term if he or she wishes to do so.
Courts can determine the issue of fairness under own initiative
Unlike the UTCR, the court can determine issues of fairness even if the consumer does not raise this. For example, if a consumer disputes the interpretation of something but does not specifically raise the issue that it is unfair, the court can step in and also bring up the issue of unfairness. This provision follows the European case of Pannon GSM v Erzseber [2009] ECR 14713.
Just because the UTCR does not explicitly state that a court cannot determine fairness, in practice it is likely that the court has the power to do so.
Enhanced Consumer Measures
There has been a significant change in the remedies available under the CRA. There is now a range of remedies the courts can now use where there is deemed to be an unfair term known as enhanced consumer measures. They are under three headings:
1. Redress
2. Compliance
3. Choice
What is meant by these three headings? For deliberate policy, there has been no definition made under any of the headings so as to give the court the widest discretion as to remedies they may give. However, there have been some examples that will be included.
1. Consumer collective actions otherwise known as class actions in the US
2. Appointing a compliance office
3. Introducing complaints handling process
4. Improving record keeping
5. Singing up to a feedback site
6. Publicising details of the breach.
As stated above, these are not an exhaustive list and the court can determine what remedies as it sees fit.
Note: once the CRA has come into effect, the Unfair Contract Terms Act (UCTA) shall no longer apply and will be limited to business to business contracts only.
