Out-Law News | 09 Jun 2014 | 11:27 am | 2 min. read
The Competition and Markets Authority (CMA) has issued new guidance which sets out the regulator's views on the kind of consumer contracts terms that may be considered unfair under the Unfair Terms in Consumer Contracts Regulations (UTCCRs).
The UTCCRs apply to business-to-consumer contracts. Under the Regulations, "unfair" contract terms are prohibited and refer to terms in a contract which have not been "individually negotiated" that cause "a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer," contrary to the requirement that they be drafted in "good faith". Under the Regulations, written contracts must also be drafted in "plain, intelligible language".
In its guidance (26-page / 403KB PDF) the CMA said that it may deem some consumer contracts to be 'unfair' even if they are not in written form.
"Consumers should be able to rely on the accuracy of information about an agreement, which they receive both written and verbally," the CMA said in its guidance. "For instance, a term that limits the obligations of the business for verbal statements made by its employees or agents may be considered unfair."
The regulator's new guidance also includes examples of the kind of contract terms it would consider to be unfair. They include some contractual provisions that exclude or limit a seller's liability.
"If a term could be used to reduce or remove the consumer’s power to seek redress, particularly for negligence, it is likely to be considered unfair, even if that was not the intention," the CMA said. "For example, a term that states customers use facilities ‘at their own risk’, covers liability for death or personal injury, even if the main concern of the business may be something else."
"No contract term can legally have the effect of excluding liability for death or personal injury caused by negligence in the course of business, and such terms should not appear in consumer contracts. As well as being unfair, use of such a term is liable to be misleading and may give rise to enforcement action as an unfair commercial practice," it said.
Clauses that apply "disproportionately high penalties" for a breach of contract by consumers may also be considered to be unfair, as may terms that restrict consumers' cancellation rights. In addition, terms that allow businesses to vary their agreements with consumers during the term of those contracts may also be deemed unfair.
"Variation clauses are likely to be unfair if they could be used to force the consumer to accept increased costs, new requirements or reduced benefits," the regulator said. "This may include terms that give the business the right to change elements of the agreement at its discretion, such as the description or price of the product."
"For example, a term stating that all materials used may vary in colour and finish, has potential for unfairness and contradicts the customer’s statutory right to receive something that, in all significant respects, is what he or she agreed to buy," it said.