Unfair terms and notices in consumer contracts: the Consumer Rights Act 2015

Transcription

1 2.6 Reforming the law on penalty clauses In 1999, the Scottish Law Commission published a Report on Penalty Clauses (Scot Law Com No 171). The main reform to this area of law proposed by the Commission is that a judge should be permitted to modify an excessively high penalty clause in order to make it enforceable. Currently, if the penalty clause is not a genuine pre-estimate of loss, a judge will have no option but to assess compensation in accordance with the ordinary rules of damages. The current test, centring on the concept of a genuine pre-estimate of loss, should be replaced. The proposed reforms would allow a judge to enforce a clause that was not manifestly excessive even if the sum claimed is not a genuine pre-estimate of loss. The burden of proof will be on the party against whom the clause is being enforced to demonstrate that the clause is manifestly excessive. Whether or not a clause is manifestly excessive should be the new test applied to penalty clauses. Unfair terms and notices in consumer contracts: the Consumer Rights Act 2015 Part 2 of the Consumer Rights Act 2015 addresses the issue of unfair terms and notices in consumer contracts. Section 61(1) of the Act makes it very clear that Part 2 of the Act applies to contracts between traders and consumers. This part of the Act does not apply to contracts of employment or apprenticeship (Section 61(2)). Section 61 will be relevant if a notice in a consumer contract: a) if it relates to the rights and obligations of the trader and the consumer b) if it purports to exclude or restrict a trader s liability to the consumer. It will not matter whether such a consumer notice is in writing or made in any other form by the trader. The important thing is that the trader intends this announcement or communication to be seen or heard by the consumer. Section 62 makes it very clear that unfair terms in consumer contracts or consumer notices that are deemed to be unfair will simply not be binding on the consumer. What is meant by an unfair term? Section 62(4) states that: A term is unfair 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. What is meant by an unfair contract term? According to Section 62(5), whether a contractual term is deemed to be unfair will depend on the following factors: a) taking into account the nature of the subject matter of the contract, and b) 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. 1

2 What is meant by an unfair notice? Section 62(6) states that: A notice is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties rights and obligations to the detriment of the consumer. According to Section 62(7), whether a notice in a consumer contract is deemed to be unfair will depend on the following matters: a) taking into account the nature of the subject matter of the notice, and b) by reference to all the circumstances existing when the rights or obligations to which it relates arose and to the terms of any contract on which it depends. Section 62 does not affect the operation of the following Sections of the Consumer Rights Act 2015: a) section 31 (exclusion of liability: goods contracts), b) section 47 (exclusion of liability: digital content contracts), c) section 57 (exclusion of liability: services contracts), or d) section 65 (exclusion of negligence liability). Terms that may be regarded as unfair WWW Section 63 of the Consumer Rights Act 2015 addresses the issue of terms that may be regarded as unfair. Reference is made in this Section to Part 1 of Schedule 2 of the Act that contains a non-exhaustive list of examples of terms that may be unfair: legislation.gov.uk/ukpga/2015/15/schedule/2 Part 2 of Schedule 2 is also relevant here in that it may limit or exclude the application of the rules in relation to unfair terms and consumer notices with regard to certain types of contracts, e.g. the provision of financial services or consumer credit. This is most commonly due to the fact that such contracts will fall within the remit of specific legislative provisions, e.g. in terms of the Financial Services and Markets Act 2000 and the Financial Services Act That said, such contracts may still be subject to an assessment of fairness in terms of Section 62 of the Act unless Sections 64 or 73 are applicable to the situation. The UK Secretary of State with responsibility for Business Matters has the power to add, modify or remove any entries in either Part 1 or Part 2 of Schedule 2 to the Act. Situations where an assessment of fairness will not be made 2 Section 64 of the Act identifies situations where the term of the contract will not be assessed to see whether it meets the general requirement of fairness. This will arise in relation to the following: a) if it specifies the main subject matter of the contract b) the assessment is of the appropriateness of the price payable under the contract by comparison with the goods, digital content or services supplied under it. Section 64 is primarily concerned about limiting the ability of consumers to pursue complaints about the price to be paid or the main subject matter. This prevents traders being subjected to claims where the consumer is merely unhappy about her perception that the price to be paid is too expensive or the subject matter of the contract is slightly disappointing, e.g. the consumer has unrealistic expectations regarding the range of services to which she believes she is entitled to receive. That said, if terms relating to price or the subject matter of the contract are not prominently displayed (because the trader has decided to include them in the small print), the consumer may be able to mount a challenge based on their lack of prominence and transparency. A

3 trader would certainly not be entitled to escape liability to the consumer under Section 64 if they were using misleading information about price or subject matter. The best course of action for the trader is to ensure that stipulations in the contract as to price and subject matter meet the requirement that they are transparent and prominent. In order to be regarded as transparent, a term must be expressed in plain and intelligible language and (if it is a written term) it must be legible. A term will satisfy the requirement that it must be prominent for the purposes if it is brought to the consumer s attention in such a way that an average consumer would be aware of the term. Average consumer means a consumer who is who is reasonably well-informed, observant and circumspect. Attempts to exclude negligence by the trader Section 65 prevents a trader excluding his liability to the consumer for negligence. According to Section 65(1): A trader cannot by a term of a consumer contract or by a consumer notice exclude or restrict liability for death or personal injury resulting from negligence. Section 65(2) goes on to state that: Where a term of a consumer contract, or a consumer notice, purports to exclude or restrict a trader s liability for negligence, a person is not to be taken to have voluntarily accepted any risk merely because the person agreed to or knew about the term or notice. Personal injury, with regard to Section 65, means any disease and any impairment of physical or mental condition. Negligence, with regard to Section 65, means the breach of any of the following: a) any obligation to take reasonable care or exercise reasonable skill in the performance of a contract where the obligation arises from an express or implied term of the contract b) a common law duty to take reasonable care or exercise reasonable skill c) the common duty of care imposed by the Occupiers Liability Act 1957 or the Occupiers Liability Act (Northern Ireland) 1957, or d) the duty of reasonable care imposed by section 2(1) of the Occupiers Liability (Scotland) Act It will be of no consequence or immaterial: a) whether a breach of duty or obligation was inadvertent or intentional, or b) whether liability for it arises directly or vicariously. Section 66 states that Section 65 does not apply to the following contracts: a) any contract so far as it is a contract of insurance, including a contract to pay an annuity on human life, or b) any contract so far as it relates to the creation or transfer of an interest in land. Section 65 does not affect the validity of any discharge or indemnity given by a person in consideration of the receipt by that person of compensation in settlement of any claim the person has. Section 65 does not: a) apply to liability that is excluded or discharged as mentioned in section 4(2)(a) (exception to liability to pay damages to relatives) of the Damages (Scotland) Act 2011, or b) affect the operation of section 5 (discharge of liability to pay damages: exception for mesothelioma) of that Act. Section 65 does not apply to the liability of an occupier of premises to a person who obtains access to the premises for recreational purposes if: a) the person suffers loss or damage because of the dangerous state of the premises, and b) allowing the person access for those purposes is not within the purposes of the occupier s trade, business, craft or profession. 3

4 What is the effect of an unfair term on the remainder of the contract? Section 67 of the Act makes it very clear that: Where a term of a consumer contract is not binding on the consumer as a result of this Part, the contract continues, so far as practicable, to have effect in every other respect. The requirement of transparency Section 68 of the Act imposes on an obligation on the trader that written terms in either a consumer contract or a consumer notice must be transparent. A consumer notice will be regarded as meeting the requirement of transparency if expressed in plain and intelligible language and it is legible. What if a contract term or a term in a consumer notice is ambivalent or is capable of having more than one meaning? Section 69 of the Act answers this very important question: If a term in a consumer contract, or a consumer notice, could have different meanings, the meaning that is most favourable to the consumer is to prevail. Enforcement of the law relating to unfair terms Section 70 confers powers on the Competition and Markets Authority and other regulators, e.g. trading standards departments of local councils to enforce the provisions of Part 2 of the Act. Schedule 5 to the Act lists a number of investigatory powers available to regulators. Section 71 confers a general duty on a court, in relation to legal proceedings before it, to the extent that it must consider whether the term is fair even if none of the parties to the proceedings has raised that issue or indicated that it intends to raise it. That said, there is no requirement for the court to take these steps if it considers that it has before it sufficient legal and factual material to enable it to consider the fairness of the term. Secondary contracts or agreements Section 72 is relevant to this area. The parties to the main contract may have entered additional or supplementary agreements with each other that could, in principle, alter the terms of the main contract. The primary concern is that such secondary agreements could have the effect of introducing unfair terms or consumer notices to the main contract. Consumers can now be reassured that the rules in Part 2 of the Act relating to unfair terms and consumer notices will be just as much directly relevant to secondary agreements that were signed before, after or over and above the main contract. This means that traders will not be permitted to introduce new or additional unfair terms or contractual notices effectively via the backdoor which would be very much to the consumer s detriment. No application of Part 2 rules to mandatory or statutory regulatory rules Section 73 makes it very clear that the rules about unfair contractual terms or notices will not be applicable in relation to mandatory statutory or regulatory provisions, e.g. the Consumer Credit Act 1974 or the provisions or principles of an international convention to which the United Kingdom or the EU is a party, e.g. EC Directive 2011/90/EU regarding Additional Assumptions for the Calculation of the Annual Percentage Rate of Charge on Credit Agreements. Such statutory provisions and international obligations will supersede Part 2 of the the Consumer Rights Act 2015 meaning that the parties to a consumer contract will have little or no choice but to accept them. 4

5 Choice of law clauses in consumer contracts It is often common practice for traders to state that the consumer contract will be governed by the laws of a particular country. This may be especially common in situations where the consumer decides to purchase goods or services from a trader located in another EU member state or in a country that is a member of the European Economic Area the 27 EU states plus Iceland, Lichtenstein and Norway. That said merely because the parties to a contract choose the law of another state to govern their agreement, which is part of the European Economic Area, this choice in itself does not exclude the operation of the rules in Part 2 of the Act, which regulate unfair terms and unfair consumer notices. This will be especially relevant if the contract in question has a close connection with the United Kingdom, e.g. the trader may be based in Germany, but the consumer is a British national and the agreement is to be performed in the UK. 5