As part of our continuing mission to help you understand the intricacies of timeshare law, we have created this series of six posts containing the main body of the text from the Unfair Terms in Consumer Contracts Regulations 1999.
This is the official contents of the legal document of legislation regarding unfair consumer contracts, which applies to timeshare contracts as much as any other legal contract you may be obliged to sign for any purchase you make.
This key piece of legislation has been developed for the protection of consumers from salespeople who may deliver them into contracts that are unfair, rendering all of the factors contained in the legislation illegal.
If you have any queries regarding unfair contract terms or wish to discuss your contract in any way, then please do not hesitate to contact us and we will, as always, be happy to help clarify and set things straight.
Under the Regulations the OFT has an ordained duty to mull over any complaint received about unfair terms. Where a term (s) in a contract is considered unfair, enforcement action may be taken on behalf of timeshare consumers to stop its use in part or whole and if necessary by seeking a court injunction in England and Wales or an interdict in Scotland.
The OFT cannot take action on behalf of you or seek redress for individual timeshare consumers.
However the Regulations transmit to timeshare consumers certain legal rights in respect of unfair terms. Being aware of this act Timeshare consumers can take their own legal advice and take action independently of any planned or preserved action taken by the OFT or the other enforcers.
A term found by any court to be unfair is not binding on timeshare consumers.
In addition, Part 8 of the Enterprise Act 2002 gives the OFT and certain other bodies (enforcers) separate powers against traders who breach and continually breach consumer legislation.
Under Part 8, the OFT and other enforcers can seek enforcement orders against businesses that breach UK laws giving effect to specified EC/EU Directives – including but not limited to the Unfair Contract Terms Directive. This is generally actioned where there is a real (as opposed to fanciful) threat of harm to the collective interests of timeshare consumers.
In addition, the Enterprise Act creates the legal framework enabling the OFT to perform a coordinating role to ensure that action is taken by the most appropriate body noted in Unfair contract termsguidance and dependant on each case.
1) The Test of fairness
The Regulations apply a test of fairness to all timeshare standard terms (terms that have not been individually negotiated) in timeshare and club contracts used by businesses with timeshare consumers, subject to certain exceptions.
The main exemption is for terms that set the price or describe the main subject matter of the contract (usually known as ‘core terms’) provided they are in plain and intelligible language. The Regulations thus apply to what is commonly called ‘the small print’ of standard form consumer contracts.
A standard term is unfair ‘if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of any timeshare consumer.
Unfair terms are not enforceable against the consumer.
The requirement of “good faith” embodies a general ‘principle of “fair and open dealing”. It means that terms should be expressed fully, clearly and legibly and that terms that might disadvantage the consumer should be given appropriate prominence (i.e. in bold).
However, transparency is not enough on its own, as good faith relates to the substance of terms as well as the way they are expressed and used.
It requires a supplier of a timeshare product or service not to take advantage of consumers and users who are in a weaker bargaining position, or lack of experience, in deciding what their rights and obligations shall be.
Timeshare Contracts should be drawn up in a way that respects consumers’ legitimate interests.
In assessing fairness, we take note of how a term could be used. A term is open to challenge if it is drafted so widely that it could cause consumer detriment. It may be considered unfair if it could have an unfair effect, even if it is not at presently being used unfairly. In practice and there is no current Per Lord Bingham of Cornhill in Director General of Fair Trading v First National Bank plc  UKHL 52. For instance if a club changed its purpose and altered clause in the constitution so that a forward purpose could be introduced then those new terms would be removed from the contract.
Unfair Contract Terms
The inclusion of contractual terms are subject to a test (in the courts) so that they are used fairly. In such cases fairness can generally be achieved by redrafting the term more precisely, so that it reflects the practice and current intentions of the supplier. These are generally done if the terms do not read right and does not fully express the interests of the parties or they frustrate the purpose of the terms to the detriment of the contracting parties.
Schedule 2 to the Regulations illustrates the meaning of ‘unfairness’ by listing some types of terms which may be regarded as unfair. The 17 groups of terms covered in Part II correspond to the 17 headings used in Paragraph 1 of Schedule 2. The terms listed are not necessarily unfair – it is a ‘grey area’ not a so called ‘black’ list. That said terms are under suspicion of unfairness if they either have the same purpose or can produce the same result as terms in the ‘grey’ list. They do not have to have the same form or mechanism.
All the illustrative terms listed in Schedule 2 have the object or effect of altering the position which would exist under the ordinary rules of contract and the general law if the contract were silent. They either protect the supplier from certain sorts of claim in law which the consumer might otherwise make, or give rights against the consumer that the supplier would not otherwise enjoy.
The OFT’s/courts’ starting point in assessing the fairness of a term is, therefore, normally to ask what would be the position for the timeshare consumer if it did not appear in the contract. The principle of freedom of contract can no longer be said to justify using standard terms to take away protection consumers would otherwise enjoy.
The Regulations recognise that contractual small print is in no real sense freely agreed with consumers. Where a term changes the normal position seen by the law, as striking a ‘fair balance’ it is regarded with inquisitive suspicion.
Transparency is also fundamental to fairness. Regulation 7 says that standard terms must use plain and intelligible language. Taking account of the Directive the Regulations implement, this needs to be seen as part of a wider requirement of putting the timeshare consumer into a position where he can make a reasonable informed choice. Thus even though a term would be clear to a lawyer, we will probably conclude that it has the potential for unfairness if it is likely to be unintelligible to normal timeshare consumers and thereby cause detriment, or if it is misleading (in which case its use may also be actionable as an unfair commercial practice).
Moreover, unfair contract terms in guidance 11, timeshare consumers need adequate time to read terms before becoming bound by them, especially lengthy or complex terms, and this can also be a factor in assessing fairness.
Examples of unfair terms
One point needs to be particularly stressed any revised terms should not be seen ‘cleared’ by the OFT for general use. The revisions reflect our assessment of what a court would be likely to consider fair in the particular contract under consideration. Their view and that of others are not binding on the courts, or upon other enforcers, nor does it fetter the freedom of the OFT itself to take future enforcement action in the interests of consumers. They have a statutory duty to consider complaints about any terms brought to our attention, including any terms that have been revised as a result of our actions.
The Consumer Protection from Unfair Trading Regulations 2008
The Consumer Protection from Unfair Trading Regulations 2008 (CPRs) came into force on 26 May 2008, transposing the Unfair Commercial Practices Directive into UK law. They introduce a general duty not to trade unfairly and ban certain specified practices. The OFT and the Department for Business, Enterprise and Regulatory Reform have jointly issued guidance on the CPRs.22 www.oft.gov.uk/shared_oft/business_leaflets/530162/oft1008.pdf
Unfair contract terms guidance 12
The CPRs repeal a range of earlier UK consumer protection laws, replacing them with the general duty and prohibitions referred to above. The legislation that has been replaced includes the Consumer Transactions (Restrictions on Statements) Order 1976. This statutory instrument made it an offence to use certain kinds of unfair contract term or notice.
The CPRs can apply to the use of unfair contract terms. They are intended to provide broad protection for consumers, and business practices which are likely to distort consumers’ decisions regarding their purchases generally fall within their scope. Certain kinds of unfair terms can have that distorting effect, for instance through misleading timeshare consumers about their rights. The use of such terms could give rise to enforcement action under the CPRs as well as, or instead of, the Regulations.
Unfair contract terms guidance 13
Groups 1 and 2: Exclusion and limitation clauses – paragraph 1(a) and (b) of Schedule 2 Schedule 2, paragraph 1, states that terms may be unfair if they have the object or effect of:
- excluding or limiting the legal liability of a seller or supplier in the event of the death of a consumer or personal injury to the latter resulting from an act or omission of that seller or supplier, and
(b) inappropriately excluding or limiting the legal rights of the consumer vis-à-vis the seller or supplier or another party in the event of total or partial non-performance or inadequate performance by the seller or supplier of any of the contractual obligations, including the option of offsetting a debt owed to the seller or supplier against any claim which the consumer may have against him.
Exclusion and Limitation (clauses in general)
1.1 Terms which serve to exclude or limit liability (also known as disclaimers, or exemption clauses) take many different forms. Detailed comments on particular types of disclaimer which may be unfair can be found in subsections 2(a) to 2(h) below. But some comments can be made which apply to all of them.
1.2 Rights and duties under a contract cannot be considered evenly balanced unless both parties are equally bound by their obligations under the contract and the general law. Any term that undermines the value of such obligations by preventing or hindering the consumer from seeking redress.
Unfair contract terms guidance 14 from a supplier who has not complied with them falls under suspicion of unfairness.
1.3 A disclaimer will often exclude or limit liability for breach of the ‘implied’ terms that the law presumes are included in a contract when nothing is expressly agreed on the issues involved. These help ensure agreements are workable, and generally reflect what the law considers a reasonable person would have agreed. Excluding them can have the effect of allowing one party to act unreasonably or negligently to the other without consequences.
Any term which can have that effect in a consumer contract is particularly likely to be considered unfair.
1.4 Many disclaimers which have such an effect are in fact not allowed under other legislation and are not legally valid. Exclusions or restrictions of liability for death or injury caused by negligence are always legally ineffective – see paragraphs 1.10 to 1.13. But the fact that a term is void under other legislation – and thus, if it comes before a court, cannot have the harmful effect intended – is not something that the consumer may be aware of and so not only is such a term pointless, it is also potentially misleading. This is liable to make it actionable as an unfair commercial practice.
1.5 Other arguments, such as those below, cannot be used to justify an over extensive disclaimer.
- That it is intended only to deal with unjustified demands. If a disclaimer could be used to defeat legitimate claims it is likely to be unfair. The Regulations are concerned with the effect terms can have, not just with the intentions behind them. If the potential effect of a term goes further than is intended, it may be possible to make it fair by cutting back its scope (see Annexe A for examples showing how this can be done).
- That it does not actually operate by excluding liability. If a term achieves the same effect as an unfair exemption clause, it will be unfair whatever its form or mechanism. This applies, for example, to terms which ‘deem’ things to be the case, or get consumers to declare that Unfair Contract Terms guidance 15 they are – whether they really are or not – with the aim of ensuring no liability arises in the first place.
- That there is a statement which says ‘the customer’s statutory rights are not affected’. An unfair disclaimer is not made acceptable by being partially contradicted by an unexplained legal technicality whose effect only a lawyer is likely to understand.
1.6 The fact that certain customers – even a majority – are not consumers does not justify exclusion of liability that could affect consumers. However, there is no objection under the Regulations to terms which cannot affect consumers, for example those which exclude liability for business losses, or losses to business customers.
1.7 Exclusions ‘so far as the law permits’. The purpose of the Regulations is to give consumers additional protection against terms which may be unfair even though the common law or statute permits their use. So terms which exclude liability ‘as far as the law permits’ are no more likely to be fair than those which contain no such wording. They are also objectionable as being unclear as to their practical effect to those without legal knowledge.
1.8 Disclaimers sometimes say that liability is excluded to the extent permitted by the Regulations. That is open to objection, because it is unclear and uncertain in effect. Deciding whether a term is fair or unfair requires consideration of a number of factors, including the circumstances in which it is used. This means it is impossible – at any rate, without expert legal advice – to know what liability could or could not be excluded in any particular situation, and thus what liability is meant to be excluded.
1.9 Subcontractors. A disclaimer covering problems caused by a trader’s suppliers or subcontractors is regarded in the same way as one covering loss or damage caused directly by his own fault. The consumer has no choice as to whom they are, and has no contractual rights against them.
The business has chosen to enter agreements with them, and therefore should not seek to disclaim responsibility for their defaults.
Unfair contract terms guidance 16
Group 1: Exclusion of liability for death or personal injury
1.10 No contract term can legally have the effect of excluding liability for death or injury caused by negligence in the course of business, and such terms should not appear in consumer contracts. As well as being unfair, their use is liable to be misleading, and therefore may give rise to action as an unfair commercial practice, which can in certain circumstances involve prosecution
1.11 General disclaimers, for example saying that customers use equipment or premises ‘at their own risk’, cover liability for death or personal injury even though the main concern of the supplier may be something else. It might, for example, be intended to stop consumers trying to sue for loss of or damage to their clothes or other property which is really the result of their own carelessness. But the fact that the intention behind a term is more limited than its potential effects does not make it fair.
1.12 Disclaimers of this kind, like other exemption clauses, may be acceptable if they are qualified so that liability for loss or harm is not excluded or restricted where the supplier is at fault, or is disclaimed only where someone else – or a factor outside anyone’s control – is to blame. Another possible route to fairness where a contract involves an inherently risky activity is that of using warnings against hazards which provide information, and make clear the consumer needs to take sensible precautions, but do not have the effect of excluding or restricting liability.
Section 2 of the Unfair Contract Terms Act 1977 states that:- “such liability cannot be excluded by reference to any contract term”. The Act does not apply to certain contracts listed in Schedule 1, including contracts relating to the creation, transfer or termination of interests in land and insurance contracts. However, such contracts are, if made with consumers, covered by the Regulations, and standards terms of the kind described appearing in them are highly likely to be
Note however that, as is clear from the excerpt from the Regulations at the top of page 12, amending such terms so that liability is accepted only for negligence does not necessarily remove all risk of unfairness. Other kinds of misconduct involving breach of duty can also cause death or injury. The
OFT does not consider it fair to seek to deprive consumers of compensation in any circumstances in which they would normally be entitled to it by law.
Unfair contract terms guidance 18 Group 2(a): Exclusion of liability for faulty or misdescribed goods
2.1.1 Any business selling goods to consumers is legally bound to accept certain implied obligations, whatever the contract says. These are the consumer’s ‘statutory rights’. Goods must match the description given to them, and be of satisfactory quality and fit for their purposes. Contract terms which deny consumers the right to full compensation where goods are mis-described or defective are liable to be considered unfair under the
Regulations, and are void and unenforceable under other legislation.
2.1.2 As well as potentially being unfair under the Regulations, the use of such disclaimers is liable to mislead consumers about their statutory rights. As such, it can give rise to enforcement action as an unfair commercial practice
2.1.3 See Group 1 for the OFT’s objections to disclaimers generally. Note that these apply to any term, whatever the form of words used, or the legal mechanism involved, which has the object or effect of protecting the supplier from claims for redress for defective or mis-described goods. It is also important to note that a statement that statutory rights are not affected, without explanation, cannot make such a term acceptable to the OFT.
2.1.4 A variety of different types of wording can have the effect of excluding liability for unsatisfactory goods. For example,
- Terms saying that the goods must be (or that they have been) examined by the consumer, or by someone on his behalf.
Consumers cannot be legally deprived of redress for faults in goods (except obvious faults) other than by having the faults specifically drawn to their attention before purchase.
- Terms saying that goods only have the description and/or purpose stated on the invoice.
Consumers cannot legally be deprived of redress where goods do not
- Terms which seek to pass on the risk of damage or loss before the goods are actually delivered – for example, from when the seller notifies their availability.
It is not acceptable for the consumer to have no recourse where goods are destroyed, stolen or damaged while in the care of the supplier. The fact that such terms apply, when the consumer fails to collect or take delivery as agreed does not make them fair. Depriving consumers of redress for negligence as opposed to (say) making them liable for reasonable storage and insurance charges – is not an appropriate sanction with which to encourage punctuality.
- Terms requiring that the goods are accepted as satisfactory on delivery, or imposing unreasonable conditions on their return.
Consumers have a right to a reasonable opportunity to examine goods and reject them if faulty. In the case of complex goods, a reasonable opportunity to examine means a chance to try the goods out.
Consumers cannot legally be deprived of this right by being required to sign ‘satisfaction’ notes on delivery or by being required to return goods in a way that may not be possible – for example, in disposable packaging that they are likely to discard after opening.
- Terms disclaiming liability for sale goods or saying that sale goods cannot be returned.
Consumers have the same rights whether they buy goods at a reduced price or not.
- Terms which end rights to redress after the consumer has dealt with the goods in a particular way.
Even where goods have been legally ‘accepted’, for example, by being used repeatedly or modified in some way, the supplier remains liable to
Unfair contract terms guidance 20 provide redress if they subsequently prove to have been defective when sold.
2.1.5 Second-hand goods. Disclaimers are just as likely to be considered unfair where they are restricted to second-quality or damaged goods, for example using the phrase ‘sold as seen’. It is appropriate to warn the consumer when the standard of quality that can reasonably be expected is lower, but the law forbids use of terms which disclaim responsibility for failure to meet any reasonable standard.
Unfair contract terms guidance 21 Group 2(b): Exclusion of liability for poor service
2.2.1 A business that supplies services to consumers accepts certain contractual obligations as a matter of law. In particular, consumers can normally expect services to be carried out to a reasonable standard. That applies not just to the main tasks the supplier agrees to perform, but to everything that is done, or should be done, as part of the transaction.
2.2.2 A term which could – whether or not that is the intention – serve to relieve a supplier of services of the obligation to take reasonable care in any of its dealings with consumers is particularly liable to be considered unfair. Where goods or materials are supplied along with a service, the same requirements as to description and quality apply as are described in paragraph 2.1.1.
2.2.3 As already explained, mere addition of a statement that statutory rights are unaffected, without explanation, cannot make such a term acceptable.
2.2.4 A more fruitful approach is to narrow the scope of the disclaimer, so that it excludes liability only for losses where the supplier is not at fault, or which were not foreseeable when the contract was entered into.
2.2.5 For illustrative examples of disclaimers of this kind, and of terms which have been amended to meet the OFT’s objections.
2.2.6 Disclaiming liability where the consumer is at fault. Terms which disclaim liability for loss or damage (for example, to the consumer’s property) which is the consumer’s own fault may be acceptable. But this does not mean that a disclaimer which operates only where the consumer is in breach of contract is necessarily fair.
2.2.7 Such a term is unlikely to be acceptable if it could deprive the consumer of all redress in the event of a trivial or technical breach, or where the supplier may be partly responsible for loss or harm suffered by the consumer. For Unfair contract terms guidance 22 example, failure to take specified precautions against the risk of damage or theft by third parties should not be a basis on which the supplier can escape all liability where he, or any employee of his, is negligent or dishonest. That is especially so if the precautions consumers are required to take are unusual or unreasonable in character, or not stated with sufficient clarity.
2.2.8 Gratuitous services. Sometimes services are provided to consumers without charge alongside the main goods or services being sold – for example, advice as to how to use a product, or help with installation. But even if a service is ‘free’ there should be no disclaimer that could cover negligence.
2.2.9 This is not to say that ordinary employees, trying to be helpful when asked to do things they are not trained to do, have to be infallible. There is no objection to wording which spells out that consumers need to employ appropriate specialists if they want an expert or professional standard of service. However, no term should shield a business from liability where its employees fail to provide as good a standard of service as they are reasonably able.
2.2.10 There may be no objection to the contract stating that such services are not provided, as long as that this is really the case. To ensure that it is, steps may need to be taken to ensure that employees know that they are not authorised to, and should not, provide additional services.
Unfair contract terms guidance 23 Group 2(c): Limitations of liability
2.3.1 If a contract is to be fully and equally binding on both seller and buyer, each party should be entitled to full compensation where the other fails to honour its obligations. Clauses which limit liability are open to the same objections as those which exclude it altogether.
2.3.2 In a contract for the sale of goods, use of a term either excluding or restricting consumers’ statutory rights is always ineffective in law regardless of its fairness, and its use may give rise to enforcement action as a misleading commercial practice in the same way as the use of a term which excludes such rights altogether.
2.3.3 Many types of contractual provision – not just terms which simply place an overall cap on available compensation – can have the effect of limiting a supplier’s liability. They include, for example, terms which:
(a) require consumers to meet costs that in law might be for the supplier to pay – for example, by making call-out charges non-refundable, or obliging the consumer to meet the costs of returning faulty goods to the supplier
(b) say the supplier is liable only to the extent that he can claim against the manufacturer
(c) limit the types of redress that are available – for example, allowing only credit notes, not cash refunds – or which give the supplier the choice as to what type of redress to give, and
(d) limit the kinds of loss for which redress is given, for example by excluding ‘consequential’ loss.
2.3.4 The OFT’s view of what makes terms of this kind fair and unfair is illustrated by examples published at Annexe A– see terms in Group 2(c). These show that the OFT has no objection to terms which, for example, allow the supplier to charge reasonably for dealing with problems which Unfair contract terms guidance 24 arise owing to the consumer’s fault
2.3.5 As already explained, the mere addition of wording saying that the consumer’s statutory rights are not affected, without explanation, cannot on its own make a limitation clause acceptable.
2.3.6 Consequential loss exclusions.
Terms excluding claims for consequential loss are supposed to protect the supplier from remote or unforeseeable liability. Such a term effectively disclaims liability for any loss or damage resulting from any breach of contract by the supplier unless it would have been generally obvious to anyone that the breach in question would cause that loss or damage. The OFT considers they can stop the consumer from seeking redress in certain circumstances when it ought to be available.
2.3.7 This can allow a supplier to escape liability for negligently causing a serious problem for the consumer, even if, for example, the consumer actually told him about it and asked him to take care to avoid causing it. An example would be where the supplier of a service has been told that if it is not performed on time, the consumer will incur a financial penalty or lose an advantage such as a discount under another contract. The supplier should not be able to escape liability for that loss, just because the risk of its happening would not have been obvious to the world at large.
2.3.8 Under the ordinary rules of law, compensation is awarded for loss or damage that the parties themselves could reasonably have been expected to foresee, at the time of entering the contract, even if no-one else could have foreseen it. The OFT considers consumers should not be deprived of the right to claim for damages they may be legitimately able to claim.
2.3.9 In any case, the technical meaning of ‘consequential loss’ is unknown to most people. Its use in standard contracts can lead to consumers thinking – and being told – that they have no claim for any loss which is a consequence of a supplier’s breach of contract. This may effectively
These objections apply to exclusions of ‘indirect’ loss to the extent that their meaning is unclear to the consumer and that they are therefore open to being relied on by the supplier in the same circumstances as exclusions of consequential loss.
Unfair contract terms guidance 25 deprive them of any compensation at all. But, for the reasons just given, the OFT does not accept that this sort of term is fair even if it is put in plainer language.
2.3.10 Suppliers can protect their position in various ways which are in our view unlikely to be considered unfair under the Regulations – for example, by excluding liability for:
(a) losses that were not foreseeable to both parties when the contract was formed
(b) losses that were not caused by any breach on the part of the supplier, and
(c) business losses, and/or losses to non-consumers.
2.3.11 See examples of terms considered by the OFT at Annexe A under the Group 2(c) ‘consequential loss’ subheading.
Note however that under the Unfair Contract Terms Act unreasonable exclusions in standard terms can be void and unenforceable even as between businesses.