Out-Law News 4 min. read
15 Nov 2010, 5:04 pm
Ofcom published guidance for companies in 2008 on what constituted unfair terms in telecoms contracts. Since then the Supreme Court has issued a ruling on unfair terms in a banking case, outlining an exemption to the requirement for fairness in contract terms.
While Ofcom has updated its guidance, it has said that it remains largely unchanged, and that the terms it said in 2008 were unfair remain so.
"In Ofcom’s view, the Supreme Court’s approach to the exemption was not substantially different in principle to that we took in the Guidance," said an Ofcom statement (11-page / 62KB PDF) on the issue.
The guidance was designed to help companies and consumers to understand how the Unfair Terms in Consumer Contracts Regulations would apply to telecoms contracts. Those Regulations deem unfair any term that has not been individually negotiated that causes an imbalance in the rights of the parties to the contract.
Ofcom's 2008 guidance said that its aim was "to set out how Ofcom considers the Regulations are likely to apply to certain standard terms in contracts for the supply of communications services and on terms that in our view may be unfair (or potentially unfair). It is intended to help Communications Providers meet the requirements of the Regulations, as well as to assist Ofcom and any other bodies which have powers to enforce the Regulations," it said.
Ofcom's latest statement said that this Guidance is mostly still valid in the aftermath of the Supreme Court's ruling.
The guidance initially said that the basics of a bargain between a supplier and a consumer, as long as they were clearly expressed, were exempt from the Regulations.
"Our view of the Regulations, in principle, was this. That, as long as the relevant terms are clear and transparent enough, the quid pro quo in a consumer contract – what the CP [communications provider] is to sell or supply and what the consumer is to pay for it – is within the exemption. It is not subject to the Regulations’ fairness requirement," said the new statement.
It said, though, that the guidance had identified some charges that were outside of the basic bargain, such as default and early termination charges, that were subject to the fairness demands of the Regulations.
It said that the Supreme Court judgement in 2009 in a case related to bank charges backed its approach.
"The key point about the Supreme Court’s judgment, in our view, is this. What is exempt from the requirement to be fair is the quid pro quo consumers make with CPs. Terms and charges outside that must be fair," it said.
"The judgment only concerns the scope of one part of an exemption from the Regulations’ fairness requirement for certain contract terms," it said. The judgment does not concern, for example, what the Regulations’ fairness requirement means, and so does not affect Ofcom’s view on that. And, in Ofcom’s view, the Supreme Court’s approach to the exemption was not substantially different in principle to that we took in the Guidance."
"[The ruling] means the fairness requirement does not apply so as to demand that the price consumers pay in exchange for goods and services is appropriate (not too high). The law does not ask the ‘value for money’ question: is ‘£X too much to pay for Y?’ That exchange need not be fair and there need not be value for money," said the statement.
"Instead, the Court said, the law only requires that the terms about the price be clear and transparent. As long as they are, a consumer is capable of identifying the price and deciding whether to pay it. That is the protection the consumer has in relation to the price," it said.
Ofcom said, though, that the ruling backed its view that not every payment under a contract falls within that definition, and that some payments can still be unfair.
"A contract may of course require ancillary payments to be made which are not part of the price or remuneration for goods or services to be supplied under its terms," said the Court. Amongst the Court's examples of such payments were those "requiring any consumer who fails to fulfil his obligation to pay a disproportionately high sum in compensation".
"The approach Ofcom took in our Guidance is, therefore, consistent in principle with the Court’s judgment," said the Ofcom statement. "Both make clear that what falls within the exemption from the Regulations’ fairness requirement is the quid pro quo – again, what the CP supplies and the price the consumer pays for it – under the relevant contract."
"As long as that is clear, so consumers can make informed choices, the fairness requirement does not apply to it. That is what we said in the Guidance and the judgment does not change that," it said.
Ofcom has recognised, though, that some items which it previously thought would have to be assessed for fairness would be likely to be considered to be just part of the price of goods or services.
"But, the Court confirmed that the scope of the exempt ‘price’ – that is part of the relevant quid pro quo – is wider in some ways than we set out in the Guidance," it said. "So, the judgment means non-direct debit charges and itemised and paper billing charges are likely to be part of the price within the exemption in many cases, provided they are clear and transparent ... we have amended the Guidance on this point."
"In other respects, we think the judgment confirms the position Ofcom took in the Guidance," it said. "Most important, given the focus of our enforcement programme, the judgment supports the view that default charges and early termination charge are outside the exemption and must be fair."
