Distinctive Features of the New Consumer Contract Law

Transcription

1 Distinctive Features of the New Consumer Contract Law Professor Simon Whittaker, St. John s College, University of Oxford Between 2012 and 2015 a series of statutes and statutory instruments have subjected the English law governing consumer contracts to an extraordinary degree of change. The Consumer Contracts (Information, Cancellation and Additional Payments) Regulations 2013 (the Consumer Contracts Regulations or 2013 Regulations ) 1 impose a series of information duties on traders to consumers, grant consumers rights of cancellation and make further particular provision in relation to consumer payments; the Consumer Protection (Amendment) Regulations 2014 create a series of rights to redress for consumers in respect of certain types of unfair commercial practices by traders by amending the earlier Consumer Protection from Unfair Trading Regulations 2008 (the 2008 Regulations 2 ); the Consumer Rights Act 2015 ( the 2015 Act ) enacts, inter alia, a string of provisions governing goods contracts (a new broad category consisting of contracts of sale of goods, hire-purchase, hire and other contracts under which goods are transferred), digital content contracts and services contracts, and also makes general provision for the control of unfair terms in consumer contracts; and the Consumer Insurance (Disclosure and Representations) Act 2012 (as amended by the Insurance Contracts Act 2015) rewrites the law governing disclosure and representations by consumers in insurance. Three features of the new law are immediately apparent. First, much of it has a close relationship with EU law, but the nature of that relationship differs. Sometimes the law implements requirements of EU secondary legislation (as in the case of the Consumer Contracts Regulations 3 and many of the provisions on sales contracts and unfair contract 1 SI 2013/ SI 2008/1277 as amended by Consumer Protection (Amendment) Regulations 2014 SI 2014/ These regulations are the principal means of the UK s implementation of Directive 2011/83/EEC on consumer rights ( Consumer Rights Directive or 2011 Directive ). 1

2 terms in the 2015 Act 4 ). Sometimes, the new law is tied directly to a EU legislative scheme implemented in UK law, even though it is not required by EU law. This is true of various relatively minor changes to the EU legislative schemes (for example, the addition of the consumer s short-lived right to reject non-conforming goods 5 or the apparent narrowing of the core exclusion from the control of the fairness of contract terms 6 ). And sometimes the new law adds an extra dimension to a EU legislative scheme (as in the case of the rights to redress against traders in respect of certain prohibited commercial practices even though the Unfair Commercial Practices Directive does not affect contract law 7 ) or applies (suitably amended) a EU legislative scheme to contracts to which it does not apply (as in the case of the special consumer remedies as regards goods contracts other than sale, digital content contracts and services contracts 8 ). But not all the new English consumer legislation reflects EU law: this is true of a number of provisions in the Consumer Rights Act (which instead reflect earlier and wider domestic legislation), 9 as well as the new law governing consumer insurance (which reflects rather the Law Commission s own researches 10 ). 4 Some provisions in the 2015 Act implement Directive 99/44/EC on certain aspects of the sale of consumer goods and associated guarantees (the Consumer Sales Directive or 1999 Directive ) (notably, ss. 9 and 10 s provisions governing the statutory term that the goods be of satisfactory quality and fitness for purpose, the scheme of special remedies in ss , 23-24, and s. 30 s provisions on goods under guarantee); others implement aspects of the 2011 Directive (notably, ss. 11(4)-(6), 12, 36(3)-(4), 37 and 50(3) (giving contractual force to information supplied by a trader to a consumer as required by the 2013 Regulations) and ss. 28 and 29 (governing the delivery of goods and the passing of risk respectively): 2011 Directive arts. 6(5), 18 and 20. Part 2 of the 2015 Act re-implements Directive 93/13/EC on unfair terms in consumer contracts (the Unfair Terms in Consumer Contracts Directive or 1993 Directive ) formerly implemented by the Unfair Terms in Consumer Contracts Regulations 1999 SI 1999/ Act, ss. 19(1) & (3), 20 and 22: below, p Directive, art. 4(2); 2015 Act, s Directive 2005/29/EC concerning unfair business-to-consumer practices in the internal market ( Unfair Commercial Practices Directive or 2005 Directive ), art. 3(2). On the rights to redress, see below, p The Consumer Sales Directive 1999 applies only to contracts of sale of goods and contracts for the supply of goods to be manufactured or produced (art. 1), but the provisions in Chap. 2 of Pt. 1 of the 2015 Act which implement its requirements apply to the wider category of goods contracts. The special remedies in respect of digital content contracts in ss and, to a much lesser extent, services contracts in ss are clearly inspired by the scheme adopted for goods contracts : on these see below, pp E.g Act, Pt. 1 chap. 4 s statutory terms in services contracts, most of which reflect the general provisions in the Supply of Goods and Services Act 1982: 2015 Act, ss. 49, 51 52, though s. 50(1) & (2) (giving contractual force to anything that is said or written to the 2

3 Secondly, in general the legislation governing consumer contracts is separated from legislation applying to contracts more widely. So, the 2015 Act separates completely the general legislative schemes for the control of unfair contract terms as between consumer contracts (governed by its own provisions) and other contracts (governed by the Unfair Contract Terms Act 1977); it therefore revokes the Unfair Terms in Consumer Contracts Regulations, deletes references in the 1977 Act to persons dealing as consumer, dis-applies that Act s remaining provisions from consumer contracts, and itself provides a new set of controls of unfair terms which contain elements of the two earlier legislative schemes. 11 Secondly, the 2015 Act sets out rules governing goods contracts trader to consumer (contracts of sale of goods, hire of goods, hire-purchase agreements, and contracts for transfer of goods) 12 and, as a result, parallel provisions in the Sale of Goods Act 1979 and all the provisions in the Supply of Goods (Implied Terms) Act 1973 and the Supply of Goods and Services Act 1982 are amended so as no longer apply to consumer contracts. 13 In the case of consumer sales contracts, this leaves a number of issues arising between parties to contract by a trader to sell goods to a consumer governed by the 1979 Act, including when property passes, 14 aspects of delivery of the goods other than those governed by the 2015 Act, and the seller s remedies against the buyer, 15 but the separation of the legislation governing services contracts is complete, with consumer contracts governed by the 2015 Act and contracts more widely governed by the 1982 Act. Beyond these laws, there are a number of legislative instruments whose contract law provisions apply only to consumer contracts and consumer by the trader about the trader or about the service) are original and seek to implement the 2011 Directive, art. 6(5). The 2015 Act, ss. 65 and 66 reflect provisions in the Unfair Contract Terms Act 1977 (the 1977 Act), s Law Commission, Scottish Law Commission, Consumer Insurance Law: Pre-contract Disclosure and Misrepresentation (Law Com No. 319, Scot Law Com No. 219, 2009) Act, ss. 31, 47 and 57 (exclusion or restriction of liability for breach of the statutory terms in goods, digital content and services contracts) (reflecting in part the 1977 Act, ss. 6(1) & (2), 7(2), (3A) & (4) before their amendment in 2015); Pt. 2 setting out the general scheme of control of the fairness and transparency of terms (reflecting the 1993 Directive/1999 Regulations), extending this scheme to notices and rendering not binding terms or notices excluding liability for personal injuries or death caused by negligence (reflecting the 1977 Act, s. 2) Act, Pt. 1, s. 3 and Chap. 2. Chap 2 of the 2015 Act sets out statutory terms governing satisfactory quality etc. and the special rights for breach of these terms (ss. 9 11, , 19 24), the delivery of the wrong quantity of goods, instalment deliveries, timely delivery of the goods, and the passing of risk in the goods (ss , 28 29). 13 The amendments are contained in the 2015 Act, Sched Act, s. 4 (referring to ownership ) Act, ss 16 19, 20A 20B29 (except for s.29(3)), 41 50; see also 1979 Act, ss. 1(2), and 57. 3

4 which are not paralleled by legislation governing non-consumer contracts: these include the provisions in the 2015 Act governing digital content contracts 16, the Consumer Contracts Regulations, the 2008 Regulations and, for example, the Timeshare Regulations Thirdly, the new legislation is highly complex. Sometimes this complexity is required by the underlying EU legislation. For example, the series of exclusions from the scope of application of the Consumer Contracts Regulations results from the political compromises necessary to allow the Consumer Rights Directive to pass, especially given that it involved a shift from minimum harmonisation to full harmonisation. 18 On the other hand, the complicated character of the law governing the consumer s rights to redress under the 2008 Regulations cannot be blamed on the EU legislator as the Unfair Commercial Practices Directive (which the 2008 Regulations generally implement) does not require any rights for the consumer against the trader, 19 and instead reflects a national compromise between those who argued for a wider (and simpler) model which would have allowed consumer redress in respect of all unfair commercial practices and those who considered that new rights would be too burdensome on traders. 20 And the drafting of Part 1 of the 2015 Act governing goods contracts, digital content contracts and services contracts is both complicated and unnecessarily wordy. For example, the main provision (section 19) which sets out the relationship between breach of the statutory terms in goods contracts and the consumer s special remedies contains 15 sub-sections and just over 750 words. It is indeed ironic that much of this wordiness (as well as the creation of new and often cumbersome terminology 21 ) reflects a desire to make the 2015 Act more accessible to consumers and their advisers. 22 Rather, though, than providing an account of the new law and how it differs from the old, I wish to consider four distinctive features of consumer contract law after the enactment Act, Pt. 1, Chap Timeshare, Holiday Products, Resale and Exchange Contracts Regulations 2010 SI 2010/ Directive, art. 3(3) (exclusions from scope), art. 4 (full harmonisation). See 2013 Regulations, regs. 6 and 7(2)-(4) for the exclusions themselves Directive, art. 3(2). 20 Law Commission, Scottish Law Commission, Consumer Redress for Misleading and Aggressive Practices (Law Com No. 332, Scot Law Com No. 226, 2012) esp. [1.37], below, p E.g. replacing reference to implied terms found in earlier statutes with a contract being treated as including a term. 22 Department for Business, Innovation & Skills, Enhancing Consumer Confidence in Clarifying Consumer Law (July 2012) [2.1] [2.3]. 4

5 of the new legislation 23 : the significance of the provision of information by traders to consumers; the extent of qualifications on the binding force of contract; the character of the consumer s rights and remedies; and the relationship between consumer contract law as it is usually understood and the enforcement of the law s protection of consumers. These features all contrast strikingly with the position under the general law applicable to contracts, whether common law or statutory. For these purposes, I will discuss the law contained in the Consumer Protection from Unfair Trading Regulations 2008, the Consumer Contracts Regulations 2013 and the Consumer Rights Act 2015, generally leaving aside the law governing consumer insurance, consumer credit and other more specific legislation, such as the Timeshare Regulations The provision of information by traders to consumers Under the general law, and with certain exceptions, a person has no duty to disclose information to another person with whom he or she is negotiating towards contract and failure to do so neither affects the validity of any contract concluded nor gives rise to any liability in damages. 24 On the other hand, if a person provides to a would-be contractual partner information which contributes to the latter s decision to contract, this misrepresentation (if the information so qualifies) generates a right in the other party in principle to rescind the contract (with restitution and counter-restitution) and a right to damages in tort so as to put him or her in the position as though the contract had not been made, subject to a defence that the misrepresentor had reasonable grounds for believing (as well as in fact believing) that the information was true. 25 However, the provision of such false information does not constitute a breach of contract unless the contracting parties intended it to have contractual force, though in deciding this the courts take into account, inter alia, its significance and the relative knowledge and means of knowledge of the contracting parties. 26 Where a pre-contractual statement is given contractual force, the party 23 For a detailed account see H. Beale (gen ed.) Chitty on Contracts, 32 nd edn. (London: Sweet & Maxwell, 2015) Vol. II, chap. 38 (S. Whittaker). 24 J. Cartwright, Misrepresentation, Mistake and Non-Disclosure, 3 rd edn. (London: Sweet & Maxwell, 2012) Chaps. 16 and Redgrave v Hurd (1881) 20 Ch. D. 1; Misrepresentation Act 1967, s. 2(1). 26 J. Cartwright, Misrepresentation, Mistake and Non-Disclosure, 3 rd edn. (London: Sweet & Maxwell, 2012) [8-07] [8-13]. 5

6 misled by it may be able to recover damages so as to be put in the position as though the information had been true. 27 The treatment of the provision of information by traders to consumers in relation to contracts is radically different. From the 1980s EU law has required the imposition of a range of duties on traders to supply information to consumers before the conclusion of the contract, with directives imposing duties in respect of certain types of contract (consumer credit, 28 timeshare 29, or package holidays 30 ) or where the contract is made in certain ways (electronically 31, by distance contract 32 or away from the trader s premises 33 ). The assumption behind these duties has been that consumers are weaker parties and that this imbalance of economic power can be sufficiently corrected by adjusting the environment within which the bargain is struck by giving the consumer extra information in advance and extra time to consider the implications. 34 Moreover, information duties are seen by many civil lawyers as promoting the autonomy of the will of consumers as information improves the quality of their consent; they promote the development of the internal market by strengthening competition as consumers are enabled to choose the best bargains for their own needs; and they can also promote the effectiveness of substantive consumer protection 27 This leaves open the question of the content of the contractual promise as between a guarantee and reasonable care in making the statement, a distinction which then affects the measure of damages: Esso Petroleum Ltd v Mardon [1976] QB 801, [1976] 2 All ER 5 at and see J. Cartwright, Misrepresentation, Mistake and Non-Disclosure, 3 rd edn. (London: Sweet & Maxwell, 2012) [8-24] [8-27]. 28 Directive 87/102/EEC on consumer credit arts Directive 94/47/EEC, art. 3 on the protection of purchasers in respect of certain aspects of contracts relating to the purchase of the right to use immovable properties on a timeshare basis, revoked and replaced by the Timeshare Directive 2008/122/EC, art Directive 90/314/EEC on package travel, package holidays and package tours, arts. 3 and Directive 2000/31/EC Directive on electronic commerce, art Directive 97/7/EC on the protection of consumers in respect of distance contracts (the Distance Contracts Directive 1997 ), arts. 4 and 5; Directive 2002/65/EC concerning the distance marketing of consumer financial services, arts Directive 85/577/EEC to protect the consumer in respect of contracts negotiated away from business premises ( Door-step Selling Directive 1985 ) 34 S. Weatherill, EU Consumer Law and Policy, 2nd edn. (Cheltenham: Edward Elgar, 2013), p

7 measures by requiring traders to provide the information which consumers need to exercise their rights. 35 One of the principal aims of the new consumer contract legislation is to implement the significant changes to the EU law governing information duties required by the Consumer Rights Directive, but at times (notably in the case of the consumer s rights to redress in respect of misleading actions) it goes further than EU law requires. Moreover, recent caselaw of the Court of Justice on the Unfair Terms in Consumer Contracts Directive has emphasised the importance of trader information to consumers in its rules governing the transparency of contract terms. 36 (a) The scope and legal significance of information duties The Consumer Rights Directive (implemented in UK law mainly by the Consumer Contracts Regulations) provides that traders must provide or make available sets of information to consumers in principle in respect of all types of consumer contracts 37 concluded in all circumstances, for while it imposes a long list of information duties in traders to consumers as regards distance contracts and off-premises contracts which had been contained in earlier dedicated directives, 38 it also requires a more limited list of information duties in contracts concluded in other circumstances (called on-premises contracts by the 2013 Regulations). 39 These information duties are legally significant in a number of ways. First, a trader s failure to provide the information or to provide it accurately may attract enforcement measures taken by designated authorities under the scheme in the E.g. as regards distance contracts, information on the trader s name and address and, at least for some rights, the nature and duration of the rights themselves Directive 97/7/EC, art. 4(1)(a). 36 Below, p Directive, art. 3(1) and see Chitty on Contracts [paras ], [38-067]-[38-074] (which provides further explanation and sets out the qualifications on this general position). 38 I.e. the Distance Contracts Directive 1997 and the Door-step Selling Directive 1985, above, ns 000 & An important exception here is where a contract involves a day-to-day transaction and is performed immediately at the time when the contract is entered into : 2013 Regulations, reg. 9(2). 7

8 Regulations themselves 40 or under the general scheme provided by Part 8 of the Enterprise Act Secondly, the 2013 Regulations provide that every contract affected by the information requirements is treated as including a term that the trader has complied with them, 42 with the result that a failure to provide the information (and apparently also to provide it accurately) constitutes breach of contract. The 2013 Regulations do not themselves provide the consequences of such a breach of contract, which suggests that it is governed by the general law. 43 Thirdly, any information which is provided by a trader to a consumer as foreseen by the Consumer Contract Regulations 2013 is given contractual force directly by the Consumer Rights Act 2015, which also provides its own schemes of remedies for breach. 44 In doing so, the 2015 Act distinguishes between the type of information and whether the contract is for the supply of goods, digital content or services. For example, any information provided by the trader about the main characteristics of the goods in a goods contract is to be treated as included as a term of the contract, 45 whether or not this information is required by the 2013 Regulations for the particular goods contract in question, 46 whereas other types of information set out by the 2013 Regulations are included as a term of the contract only if Regulations, Pt 6 and see also the special criminal offence in reg Below, p Regulations, reg. 18 (referring to regs 9 14 & 16, and therefore with the exception of information requirements of traders by telephone with a view to distance contracts). 43 In the case of distance and off-premises contracts, a trader s failure to inform the consumer of their right of cancellation of these contracts leads to the extension of the period in which that right may be exercised from 14 days to up to a year (regs ), and a trader s failure to inform the consumer about additional delivery charges and costs as required by the 2013 Regulations leads to the consumer not having to bear those charges or costs: regs. 10(4) and 13(5) Act, ss 11(4)-(5) and 12(2)-(3) (goods contracts); s. 36(3)-(4) (do you want to refer to s 37(2)-(3)?) (digital content contracts) and s. 50(3)-(4)(services contracts). See also 2013 Regulations, regs. 9(3), 10(5) and 13(6) (as amended) Act, s. 11(4), referring to the 2013 Regulations Sched. 1 para. (a) and Sched. 2 para. (a) both of which refer to the main characteristics of the goods or services, to the extent appropriate to the medium of communication and to the goods or services. 46 The 2013 Regulations require information about the main subject matter of goods contracts to the extent appropriate to the medium of communication and to the goods for on-premises contracts (reg. 9(1), Sch. 1(a); reg. 10(1), Sched. 2(a) (off-premises contracts) and reg. 13(1), Sch. 2(a)(distance contracts). Regs. 6, 7(2) and 7(4) restrict the scope of application of the trader s information duties in certain respects with the effect that not all goods contracts are covered. 8

9 those Regulations require their provision. 47 In either case, where information is incorporated into the contract in this way, the Act specifies that a change to any of the information so supplied, made before entering into the contract or later, is not effective unless expressly agreed between the consumer and the trader, 48 and incorporation also means that any false or inaccurate information constitutes a breach of contract with special remedies available to the consumer depending on the type of information. Where the information concerns the main characteristics of goods, the consumer enjoys the full kit of special consumer rights (the short-term right to reject, the right to repair or replacement, and the right to price reduction or the final right to reject) as well as any other remedies allowed by the general law for breach of contract (such as damages) with the exception of termination. 49 On the other hand, as regards other categories of information required by the 2013 Regulations, the consumer enjoys a special and limited right in the consumer to the amount of any costs incurred by the consumer as a result of the breach, up to the amount of the price paid or the value of other consideration given for the good, though apparently this may be supplemented by other remedies allowed by the general law. 50 The approach of the Act to information supplied by traders to consumers in respect of digital content contracts is very similar. 51 The law governing information supplied in relation to consumer services contracts is even more different from the position under the general law, as the 2015 Act provides that anything that is said or written to the consumer, by or on behalf of the trader, about the trader or the service is deemed to be a term of the contract, as long as either it is taken into account by the consumer when deciding to enter into the contract or it is taken into account by the consumer when making any decision about the service after entering into the Act, s. 12(2) Act, s. 11(5) reflecting 2011 Directive, art, 6(5) (which is limited to the information required as regards distance or off-premises contracts). The incorporation of information supplied as required by the 2013 Regulations is extended by the 2015 Act to cover information supplied as required by the 2013 Regulations in respect of on-premises contracts : 2015 Act, s. 11(4) referring to Sched. 1 (which sets out information relating to on-premises contracts) as well as to Sch. 2 (which sets out information relating to distance and off-premises contracts) Act, ss. 11(3), 19(1)(a), 19(3), and 19(9)-(11) Act, ss. 12 and 19(5) & (9). The position of other remedies is open to question, for while they are foreseen by s. 19(9)(a), allowing the recovery of damages would undermine the restriction on recovery of costs explicitly foreseen by s. 19(5) Act, ss. 36, 37 and 42(1)-(4), (6)-(8). 9

10 contract. 52 And for good measure, any information provided by the trader in accordance with the 2013 Regulations is deemed to be a term of the services contract. 53 Again, the 2015 Act makes special provision for the consumer s remedies for breach of these statutory terms. In the case of terms (and therefore information) concerning the service, consumers enjoy a special right to repeat performance or a right to a price reduction (subject to their own conditions), 54 as well as any other remedy available for breach of contract under the general law (including termination). 55 In the case of terms (and therefore information) concerning the trader, consumers enjoy only the special right of price reduction, though again they may enjoy another remedy under the general law of breach of contract. 56 Finally, a trader s failure to provide information or to provide it accurately may constitute (respectively) a misleading omission or a misleading action under the 2008 Regulations, subject to a condition that doing so caused, or was likely to cause, the average consumer to take a transactional decision he or she would not have taken otherwise and to the other conditions which the 2008 Regulations impose. 57 Such an unfair commercial practice attracts enforcement by special criminal offences and the general regime in Part 8 of the 2002 Act, 58 and, in the case of a misleading action (but not a misleading omission) may give rise in a consumer who has entered a contract as a result to a right to redress against the trader. 59 (b) Information for consumers and the transparency of contract terms Much of the information specifically required by EU law for the benefit of consumers must be expressed in a clear and comprehensible manner 60 or in plain, intelligible language Act, s. 50(1) (emphasis added); s. 50(2) then allows anything so taken into account by the consumer to be qualified by the trader at the time when it was said or written Act, s. 50(3) Act, ss. 54(2)(b), 54(3), 55 and Act, s. 54(6)-(7) Act, s. 54(4), (6)-(7) Regulations, regs. 5 and Regulations, Pts. 3 and 4, below, p Regulations, regs. 27A and 27B. On the rights to redress, see below, p Directive, art. 5(1) (consumer contracts other than off-premises contracts or distance contracts). 10

11 These requirements of transparency echo the general requirement of plain, intelligible writing for contract terms in the Unfair Terms in Consumer Contracts Directive, 62 which also sets it as a condition of the core exclusion from the test of fairness. 63 They are fully reflected in the new consumer contract law. 64 The Court of Justice has recently emphasised the importance of transparency for consumers in the context of the Unfair Terms in Consumer Contracts Directive. First, the general requirement of plain intelligible writing in article 5 of the Directive is linked to its recital s requirement that consumers must actually be given an opportunity to examine all the terms of the contract, which would traditionally be seen by English law as one of notice and, therefore, of the incorporation of terms in the contract. 65 Secondly, the fundamental importance for a consumer 66 of pre-contractual information means that the requirement of transparency of contract terms cannot be reduced merely to their being formally and grammatically intelligible 67 and instead requires that the average consumer is in a position to evaluate, on the basis of clear, intelligible criteria, the economic consequences for him which derive from the term in question, the reasons for the trader using the term, and its relationship with other contractual terms. 68 And, thirdly, the omission of legally required information (for example, the APR of a consumer credit agreement from a term of a contract which concerned the cost of the loan) can have a decisive impact on the question whether a term was in plain intelligible language and is also relevant to its fairness. 69 The Court of Justice has therefore interpreted the requirement of transparency in a way which imposes substantive duties of explanation as well as information on traders so as to enable consumers to see the practical significance of the contract for their own situation Directive, art. 7(1) (off-premises contracts); art. 8(1) (distance contracts) ( plain and intelligible language). See also Directive 2008/48/EC on credit agreements for consumers, art. 4(2); Timeshare Directive 2009, art. 4(1) Directive, art Directive, art. 4(2) Regulations, regs. 9(1), 10(1)(a) and 13(1)(a); 2015 Act, ss. 64(2) and C-92/11 RWE Vertrieb AG v Verbraucherzentrale Nordrhein-Westfalen ev of March 21, 2013, [43]. 66 C-26/13 Kásler v OTP Jelzálogbank Zrt of April 30, 2014, [70] referring to C-92/11 RWE Vertrieb AG v Verbraucherzentrale Nordrhein-Westfalen ev of March 21, 2013, [44]. 67 C-26/13 Kásler v OTP Jelzálogbank Zrt of April 30, 2014, [71],. 68 C-26/13 Kásler v OTP Jelzálogbank Zrt of April 30, 2014, [75]. 69 C 76/10 Pohotovost s.r.o. v Korckovskà of November 16, 2010, s[72]-[73]. 11

12 2. Qualifications on the binding force of contract Under general English contract law, freedom of contract requires that contracting parties are in general free to determine the content of their contracts and, having done so, they are bound. 70 As a result, in the absence of an express term allowing one or both parties to do so, 71 a party to a contract cannot change his or her mind and cancel or otherwise terminate a contract: to purport to do so would itself constitute a breach of contract. 72 Furthermore, contract terms (once incorporated) bind, with the principal exceptions of penalty clauses, 73 exclusions of liability for personal fraud 74 and exemption and certain related clauses controlled by the Unfair Contract Terms Act After its amendment by the 2015 Act, the 1977 Act subjects to a test of reasonableness the exclusion or restriction of business liability for negligence, liability for breach of the statutory implied terms in contracts of sale of goods and related contracts, and contractual liability generally when contained in a contracting party s written standard terms of business. 75 Of these exceptions, the common law exceptions still apply equally to consumer contracts, but the 1977 Act no longer does so. 76 striking. The contrasts between the general law and consumer contract law are therefore very First, in a number of situations the law provides consumers with a short-lived right to change their mind and cancel a contract which they have made without giving any reason or establishing any specific ground for doing so. This is true of some types of contract 70 See e.g. Cavendish Square Holding BV v Talal El Makdessi [2015] UKSC 67; [2015] 3 W.L.R [33] (Lord Neuberger PSC and Lord Sumption JSC with whom Lord Carnwarth JSC agreed). The statement in the text leaves aside ineffectiveness on the ground of illegality. 71 Such a term is generally effective unless its effect is to render consideration illusory: Chitty on Contracts, [4-025]. 72 In the absence of a right to do so, cancellation would constitute a renunciatory breach of contract: see Chitty on Contracts, [24-018] and e.g. White & Carter (Councils) Ltd v McGregor [1962] A.C Cavendish Square Holding BV v Talal El Makdessi [2015] UKSC 67; [2015] 3 W.L.R S. Pearson & Son Ltd v Dublin Corp [1907] A.C Act, ss. 2, 3, 6 and 7. An exception to the criterion of reasonableness is made in the case of breach of the statutory terms as to title, which are ineffective in all circumstances: 1977 Act, ss. 6(1) and 7(3A) Act, ss. 2(4), 3(3), 6(5) & 7(4A) (as inserted by the 2015 Act, s.75 & Sched. 4) 12

13 (notably, many contracts of consumer credit 77 and timeshare and related contracts 78 ) and of contracts made in particular circumstances ( distance contracts 79 and off-premises contracts 80 ). Secondly, Part 2 of the 2015 Act provides a general regime for the control of the fairness of all types of contract term 81 contained in all types of consumer contracts, 82 and (unlike the position under the 1999 Regulations) whether or not these terms are individually negotiated. 83 The only exceptions are terms which reflect mandatory statutory or regulatory provisions or provisions of relevant international conventions 84 and those which concern the main subject-matter of the contract or assessments which concern the appropriateness of the price in relation to the subject-matter supplied in return (the core exclusion ). 85 This second exclusion is intended to reflect the appropriate role for freedom of contract in the context of consumer contracts: it can apply to the main subject-matter of the contract or the bargain itself, but not to its surrounding incidental terms, as long as the (average) consumer has genuinely been put in a position to understand the significance of the contract for his or her own context. 86 The effects of the controls on terms in consumer contracts can also differ from those provided by the general law. Under the general law, where a contract term is ineffective, the contracting parties are returned to the position otherwise applicable at common law or by statute. This is true of exemption clauses (where liability in tort for negligence or for breach of contract is left unaffected by a term invalidated either by the common law or under the 1977 Act), but it is also true of penalty clauses, for where such a clause is invalid at common law, an injured party remains able to recover damages for his or her loss under the general 77 Consumer Credit Act 1974, s. 66A (14 days) and s 67 ( cancellable agreements ) on both of which see Chitty on Contracts [39-101] et seq. 78 Timeshare Regulations 2010, regs (14 days) Regulations, regs (14 day right to cancel); Financial Services (Distance Marketing) Regulations 2004 SI 2004/2095, regs (financial services contracts, 14 days; (life insurance or a personal pension, 30 days) Regulations, regs (14 days). 81 This is clear from the terms of the 2015 Act, s. 62 and the 1993 Directive, art. 3(1). 82 C-488/11 Brusse v Jahani BV of May 30, 2013 (residential tenancy agreement); C-537/13 Šiba v Devėnas of January 15, 2015 (provision of legal services) Act, s Act, s Act, s See above, p. 00 in relation to the requirement of transparency as to this proviso. 13

14 law of damages. 87 By contrast, where a contract term is held not binding on a consumer under Part 2 of the 2015 Act, a distinction must be drawn according to the effect of the underlying law otherwise applicable. If that law benefits the consumer, then it can still apply as in the case of a non-binding exemption clause which leaves intact the trader s liability; but if that law would benefit the trader (even to a lesser extent than the unfair contract term), in principle the court must not apply that underlying law as to do so would undermine the protection for consumers which the 1993 Directive requires. 88 Thirdly, in addition to these general controls, many legislative rules protecting consumers are completely immune from any contrary exclusive or restriction by the parties agreement 89 and this is also generally the case as regards the statutory terms in goods contracts, digital content and services contracts inserted by Part 1 of the 2015 Act, in both cases whether or not this is expressed in an individually negotiated term. 90 What all this means is that in many (though by no means all) situations consumers enjoy a short-lived option to cancel the contracts which they conclude; as regards many types of contract, consumers are provided with a series of typically mandatory rights in respect of the main performance of the contract (for example, the satisfactory quality of goods or reasonable care in the performance of services); and, more generally, the incidental terms of consumer contracts are binding only if they are fair. All these qualifications on freedom of contract differ in kind or to a very considerable extent from those found in the general law. 3. The character of the consumer s rights and remedies 87 Cavendish Square Holding BV, [9]. 88 C-602/13 Banco Bilbao Vizcaya Argentaria SA v Quintano Ujeta of June 11, 2015 (available in French), [33]-[39] (available in French); C-90/14 Banco Grupo Cajatres SA v Manjón Pinilla of July 8, 2015 (available in French), [33]-[38]. There is an exception where the non-bindingness of a contract term would otherwise mean that the contract itself would be invalidated with prejudicial consequences for the consumer: -26/13 Kásler v OTP Jelzálogbank Zrt of April 30, 2014, [80]-[83]. 89 E.g. Consumer Credit Act 1974, s. 173; Timeshare Regulations 2010, reg. 19; Consumer Protection Act 1987, s Act, ss. 31, 47 and 57 (with the exceptions there made). 14

15 One of the most distinctive features of modern consumer contract law is its provision of rights or remedies for consumers of types which are not found in the general law, notably, rights to cancel or to unwind the contract, to a discount or to a price reduction, to repair or replacement of goods or digital content and to the repeat performance of services. Of these rights, the right to cancel has no direct equivalent in the general law, 91 but some other consumer rights resemble rights or remedies familiar from the general law, as in the case, for example, of the consumer s right to unwind a contract under the 2008 Regulations and the classic rights to rescind a contract available for misrepresentation, duress or undue influence. (a) Rights, remedies, and their relationship While some protections for consumers in the new legislation are expressed only in terms of granting them rights (as in the consumer s rights of cancellation under the 2013 Regulations 92 ), other protections are expressed in ways which combine the language of rights and remedies. This variety of usage can be seen both in the 2008 Regulations and in Part 1 of the 2015 Act. The 2008 Regulations set a series of general conditions for the availability for consumers of a right to redress in respect of certain types of unfair commercial practices, and then make provision for the availability and consequences of each right to redress in turn: the right to unwind the contract, the right to a discount and the right to damages. 93 So, while the 2008 Regulations refer to rights for the consumer, what the consumer actually enjoys are remedies, termed redress. These remedies differ in character in a similar way as do the parallel rights under the general law. The right to unwind is exercisable by the consumer unilaterally in the sense that, where the conditions for its availability are met, the consumer exercises the right by indicating to the trader that he or she rejects the product within 90 days of, for example, delivery of the goods. 94 If the consumer does so, the contract 91 Above, p Above, p Regulations, regs. 27A-27K. 94 The drafting of the 2008 Regulations is odd: rather than conferring a right to unwind that the consumer may exercise and that will expire if the consumer does not exercise it within a limited period, the consumer is stated as having a right to unwind only if he or she exercises it within the period: 2008 Regulations, reg. 27E(1)(a). 15

16 comes to an end 95 and this then generates a duty in the trader to give the consumer a refund and a duty in the consumer to make any goods received available for collection by the trader. 96 By contrast, where a consumer has a right to a discount or to damages, the consumer can claim these from the trader, but if the latter rejects the claim, the consumer must seek its enforcement from the court. Where a consumer establishes that he or she has a right to redress, 97 the Regulations provide that [t]he court must make an order that gives effect to that right, and any associated obligations of the consumer. 98 The court therefore has no discretion to refuse to give effect to such a right nor to substitute for it one of the other rights to redress, for example, refusing a claim by the consumer to unwind the contract and awarding damages instead. 99 The 2008 Regulations, therefore, provide the consumer with a right to one or more remedy (unwinding the contract, a discount or damages); and, in the case of unwinding the contract, the exercise of this remedy gives rise in the consumer to a right to a refund and a duty to make any goods available for collection. The position under Part 1 of the 2015 Act differs in a number of ways. Each of its three substantive chapters (Chapter 2 on goods contracts, Chapter 3 on digital content contracts, and Chapter 4 on services contracts) follows the same pattern. So, in the case of goods contracts, Chapter 2 starts with a heading which asks What statutory rights are there under a goods contract? Underneath this heading the legislation provides that goods contracts are to be treated as including a series of terms which to a considerable extent follow the classic statutory implied terms found in these types of contracts generally. 100 The thinking would appear to be, therefore, that a consumer buyer enjoys a (substantive) right to the satisfactory quality of the goods sold etc. even though the sections themselves (unlike the headings) are not drafted in this way. The second heading in Chapter 2 asks What remedies are there if statutory rights under a goods contract are not met? 101, but section 19 which immediately follows is not drafted in terms of the meeting of the consumer s statutory rights, but is entitled Consumer s rights to enforce terms about goods and provides for the Regulations, regs. 27E(1)(a) and 27F(1) Regulations, reg. 27F Regulations, reg. 27K(1) & (3). The right to unwind and the right to a discount are mutually exclusive: see 2013 Regulations, reg. 27E and 27I(1)(b) Regulations, reg. 27K(3) & (4) (emphasis added). 99 Cf Misrepresentation Act 1967, s. 2(2) (discretion in court to award damages in lieu of rescission for innocent misrepresentation) Act, ss and 17 and cf 1979 Act, ss The main exception is the 2015 Act s treatment of pre-contractual information in ss. 11(3) and 12, on which see above, p Similarly, digital content and services: 2015 Act, ss. 42 and

17 availability of special rights in respect of the goods failing to conform to one or more of the statutory terms, such as the short-term right to reject or the right to repair or replacement. 102 Section 19 also provides that Chapter 2 does not prevent the consumer seeking other remedies, and specifies that these other remedies may be ones in addition to a remedy earlier referred to, i.e. in the provisions providing for the special rights to consumers such as repair or replacement. 103 These other remedies include claiming damages, seeking specific performance and, for breach of an express term, exercising a right to treat the contract as at an end, 104 which means treating it as repudiated. 105 There appear to be two ways of thinking here in relation to the consumer s position. The headings in Chapter 2 are concerned to provide substantive statutory rights for the consumer which, if they are not met, give rise to remedies, but the sections themselves instead set a series of statutory terms in relation to the goods and then provide rights for consumers for their breach: these rights are rights to the special remedies. 106 But this does not mean that the consumer will necessarily enjoy the special remedy which he or she has, since the Act subjects the consumer s special remedies to a double judicial discretion: as to whether a specific remedy (such as the right to repair or replacement of goods) will be supported by court order and as to which special consumer remedy he or she will be granted by the court. 107 Moreover, the pattern established for the consumer s special remedies for breach of the statutory terms is not followed through elsewhere in Part 1 of the Act. So, as has been seen, when Part 1 allows the consumer to use other remedies provided by the general law of breach of contract to sanction breach of the statutory terms, it avoids tagging these other remedies with rights, stating, for example, that the consumer may claim damages or seek specific performance, though there is an exception as regards the consumer exercising a right to treat the contract as at an end. 108 It is not readily apparent why the Act treats other remedies in this way. While it could be thought that a party never has a right to specific performance (as it is a discretionary remedy), an injured party does have a right to damages Act, s. 19(3)-(6) Act, s. 19(9) & (10) Act, s. 19(11) Act, s. 19(13). 106 Cf above, p. 00, in relation to the consumer rights to redress under the 2008 Regulations Act, s. 58 as explained below, p Act, s. 19(11)(e). 17

18 The reason for the special treatment of the right to terminate a contract under the general law is also unclear: while such a right confers a power in the consumer to change the parties relative legal position without judicial intervention (unlike specific performance or damages), this distinction is not used in relation to the consumer s special rights, where (in the case of goods contracts) termination and the specific remedies are equally expressed in terms of rights. 109 Secondly, Chapter 2 s provisions on delivery of the wrong quantity of goods and instalment deliveries 110 are placed under the heading Other rules about remedies under goods contracts and provide (following the 1979 Act 111 ) that the consumer is entitled to reject goods where the trader fails to deliver in the ways which they foresee. 112 In the case of instalment deliveries, this entitlement may be to exercise the short-term right to reject or to reject the goods in an instalment. 113 Here, therefore, the consumer may have a right (entitlement) to exercise a right to a remedy! The approach to the seller s duty to deliver on time differs again, as there the consumer is said simply to enjoy certain remedies and is provided expressly with powers of cancellation and termination. 114 In conclusion, the terminology of rights and remedies in the 2008 Regulations and 2015 Act is, to say the least, unhelpfully complicated and at times inconsistent. In particular, no clear position is adopted as to the relationship between the consumer s substantive rights under the contract (such as the right to goods which conform to the statutory terms, the right to the stipulated quantity of the goods or the right to their delivery on time) and the consumer s remedy or remedies when these substantive rights are not met by the trader. (b) The consumer s special remedies themselves 109 Under Chap. 2 of the 2015 Act, rejection of the goods leads to termination of the contract: ss. 19(12) and 20(4). The specific remedies are the right to repair or replacement: s Act, ss. 25 and Act, ss. 30(1)-(3) & (5) and 31(1) & (2) Act, ss. 25(1) & (2) & 26(3) Act, s. 26(3) Act, s. 19(8) and 28(13) (s.28 appears under the heading Other rules about goods contracts ). The significance of cancellation is obscure and doubtfully compatible with the 2011 Directive, art. 18 which s. 19 purports to implement: Chitty on Contracts, [38-489]. 18

19 The character and effect of the consumer s right to cancel a distance, off-premises or timeshare contract reflect the idea that, in these contexts, consumers should exceptionally be able to change their minds without giving any reason. 115 For example, in the case of sales contracts concluded at a distance or off-premises, cancellation by the consumer leads to termination of the parties obligations to perform, 116 with restitution of any goods received 117 and counter-restitution of money paid (except as regards the cost of delivery beyond the least expensive common and generally acceptable kind of delivery offered by the trader 118 and with the possibility of deduction by the trader for diminution in value of goods by reason of the consumer s handling of the goods). 119 The contract is said to be cancelled and to this extent unwound, but it would not appear to be entirely rescinded or annulled, as the legal provisions that impose duties on traders (though not consumers) arising from cancellation are treated as included in the contract as terms, with the apparent result that any failure by the trader to make restitution etc under these rules would constitute a breach of contract. 120 However, where the general law and consumer law provide remedies in similar situations, the character of the consumer s special rights can differ significantly from those provided by the general law. This is true of one of the consumer s rights to redress under the 2008 Regulations (the right to a discount) and is true generally of the special rights for consumers in respect of breach of the statutory terms in Part 1 of the 2015 Act. Let us take first the consumer s rights to redress in respect of misleading actions and aggressive commercial practices, which are related to the remedies for misrepresentation, duress and undue influence in the general law. The conditions for the availability of the two sets of rights (under the 2008 Regulations and under the general law) clearly differ, Regulations, reg. 29(1); Timeshare Regulations 2010, reg. 20(3) ( right of withdrawal ). The justifications given by the EU directives are: to give the consumer the opportunity of fully understanding their rights and obligations under the contract (Timeshare Directive 2009, rec. 11); because the consumer is not able to see the goods before concluding the contract (distance contracts); and because of the potential surprise element and/or psychological pressure (off-premises contracts) (2011 Directive, rec. 37) Regulations, reg. 33(1)(a) Regulations, reg. 35 (which makes detailed provision as between the trader s collection of the goods and the consumer s sending them back) Regulations, reg. 34(1)-(3) Regulations, reg. 34(9)-(13) Regulations, reg. 34(13) (return of money paid) reg. 35(6) (trader exceptionally bearing direct cost of return of the goods). 19