This page forms the fifth of our six-part series containing the full text of the Unfair Terms in Consumer Contracts Regulations 1999. To go back to page 1, click here. The link to the next page can be found at the bottom of this post.
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Group 18(a): Allowing the supplier to impose unfair financial burdens
18.1.1 If a contract is to be considered balanced, each party must be subject only to obligations which he or she has agreed to accept. Any kind of term which allows the supplier to impose an unexpected financial burden on the consumer gives rise to concern. It has an effect similar to a price variation clause (see Group 12) and, like such a clause, cannot be considered an exempt ‘core term’ because it does not clearly set an agreed price.
18.1.2 An explicit right to demand payment of unspecified amounts at the supplier’s discretion – for example, by way of security deposit – is particularly open to challenge. But the same objections may apply if terms are merely unclear about what will be payable. Their purpose may not, in fact, be to allow the supplier to make unexpected or excessive demands for money, but the focus of the Regulations is on the effect that terms can have, not just on the intentions behind them.
18.1.3 These objections are less likely to arise if a term is specific and transparent as to what must be paid and in what circumstances. However, as already noted, transparency is not necessarily enough on its own to make a term fair. Fairness requires that the substance of contract terms, not just their form and the way they are used, shows due regard for the legitimate interests of consumers. Therefore a term may be clear as to what the consumer has to pay, but yet be unfair if it amounts to a ‘disguised penalty’, that is, a term calculated to make consumers pay excessively for doing something that would normally be a breach of contract.
18.1.4 Where a precise amount cannot be stated, it should be clear how it will be set. It may in some circumstances be enough merely to say that it will be reasonable, but only where it is fairly obvious what would normally be thought a reasonable sum – for example, where there are identifiable and verifiable costs that have to be covered, but which should not be
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18.1.5 Any such clause may, in any case, be fair if consumers are free to escape its effects by ending the contract without suffering any penalty (such as loss of prepayments) or otherwise being left worse off. Annexe A gives relevant examples under heading Group 18(a).
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Group 18(b): Transferring inappropriate risks to consumers
18.2.1 A contract may be considered unbalanced if it contains a term the supplier is better able to bear. A risk lies more appropriately with the supplier if:
- it is within their control
- it is a risk the consumer cannot be expected to know about, or
- the supplier can insure against it more cheaply than the consumer.
18.2.2 Particular suspicion falls on any term which makes the consumer bear a risk that the supplier could remove or at least reduce by taking reasonable care – for example, of damage to equipment that he himself operates, or the risk of encountering foreseeable structural problems in installation work. Such a term effectively allows him to be negligent with impunity. As such, it is open to the objections to exclusion clauses which are set out under Groups 1 and 2.
18.2.3 Objections are likely even where a risk is outside the supplier’s control (for example, weather damage) if the consumer cannot reasonably be expected to know about and deal with it. The supplier should not make the consumer his insurer. The argument that such a term enables prices to be kept down cannot be accepted unless suitable insurance is easily available to the consumer at reasonable cost. If it is not, the end result is that the consumer pays more overall, or goes unprotected against the risk in question.
18.2.4 Such clauses can often be made fairer if consumers are merely made responsible for losses caused by their own fault (but see the comments under Group 5 on the need to avoid unfairness in penalty clauses). Alternatively, they can be narrowed in scope, so as to relate only to risks against which consumers are likely to be already insured, or can easily insure – for example, the risk of loss or damage to goods while they are in the consumer’s home.
18.2.5 If a risk is transferred to consumers on the basis that they can themselves
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Reasonably control it or insure against it, such as loss or damage to goods in their possession, they need to be aware of what they are supposed to do. To be useful, provision along such lines must be adequately drawn to their attention. If the contract is short and simple, this may require only the use of bold print – otherwise warnings separate from the main body of the contract will be needed. Effective highlighting of such clauses is essential if they require, rather than merely advice, the consumer to do anything.
18.2.6 Advance payments. One kind of risk that should not be unfairly imposed on the consumer is that of the supplier’s own insolvency. This may occur where the purchase price of goods or services, or a large part of it, is demanded substantially earlier than is needed to cover the supplier’s costs. Such a prepayment assists the cash-flow of the business, but is liable to be lost to the consumer if the business is wound up before completion of the contract.
18.2.7 Indemnities against risk. Terms under which the supplier must be ‘indemnified’ for costs which could arise through no fault of the consumer’s are open to comparable objections, particularly where the supplier could himself be at fault. The word ‘indemnify’ itself is legal jargon which, if understood at all, is liable to be taken as a threat to pass on legal and other costs incurred without regard to reasonableness. Clearer and fairer wording to replace legal jargon of this kind is illustrated in Group 19(b) of Annexe A. 18.2.8 Annexe A gives relevant examples under heading Group 18(b).
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Group 18(c): Unfair enforcement powers
18.3.1 A contract cannot be considered fair and balanced if it gives one party the power to impose disproportionately severe penalties on the other, or if it misleadingly threatens sanctions over and above those that can really be imposed. The same principles apply as in relation to financial penalties.
18.3.2 Rights of entry. An example is a term which purports to give the right of entry without consent to private property, whether to repossess goods for which consumers have not paid on time, to evict the consumer, or for any other purpose. Such a term seeks to permit direct resort to a sanction that can normally and properly only be authorised by court order.
18.3.3 There is even less justification for terms which purport to exclude liability for causing property damage in the course of exercising such rights. Such a term would appear to be designed to permit wilful or even criminal damage and does not, in the OFT’s view, have any place in a consumer contract.
18.3.4 Sale of the consumer’s goods (‘lien’). Similar principles apply in relation to other kinds of term, which purport to allow suppliers to take direct action to secure redress that the court would not necessarily allow. An example would be a term permitting the sale of goods belonging to the consumer which the supplier has in his possession.
18.3.5 The law makes detailed provision as to how such goods should normally be treated. A contract need not reflect these rules in detail provided it does not override or contradict them. Terms are unlikely to be considered fair if they indicate that goods may be sold immediately, or without adequate notice of the date and place of the sale, and particularly if they exclude the duties to obtain the best price that can reasonably be got and to refund any surplus obtained. As with Group 5, Group 18(c) is only relevant where the problem is that a penalty is, or can be, too severe. Where it is that the supplier can impose a penalty when the consumer is not at fault at all, the term belongs in Group 18(g), part ii. 37 In particular, the Torts (Interference with Goods) Act 1977, sections 12 and 13.
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18.3.6 The term ‘lien’ itself is legal jargon, which should be avoided in consumer contracts. Clearer alternative wording is possible, see Group 19(b) in Annexe A. Examples of terms relevant to enforcement clauses generally may be found in Group 18(c) of Annexe A.
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Group 18(d): Excluding the consumer’s right to assign
18.4.1 Contract law ordinarily allows purchasers to sell on (or ‘assign’) to someone else what they bought. Terms which seek to restrict this right are considered to be open to scrutiny as regards fairness. 18.4.2 The commonest restriction on the consumer’s right to assign is one which makes guarantees non-transferable. Guarantees, while they remain current, can add substantial value to the main subject matter of the contract. If consumers cannot sell something still under guarantee with the benefit of that guarantee, they are effectively deprived of part of what they have paid for.
18.4.3 Suppliers have a legitimate interest in ensuring that they are not subject to baseless claims under guarantee. There is no objection to terms which require the purchaser (or ‘assignee’) of goods, if he or she wishes to rely on the guarantee, to establish that it was properly assigned, as long as the procedural requirements involved are reasonable. Alternatively, transfer of the guarantee can be made subject to the supplier’s consent, provided that cannot be unreasonably withheld.
18.4.4 Examples may be found in Group 18(d) of Annexe A.
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Group 18(e): Consumer declarations
18.5.1 If a declaration is written into contract documents, it has to be made for the contract to go ahead, whether or not consumers fully understand its significance and know the facts stated to be true. They may regard it as a mere formality, yet it could put them at a disadvantage.
18.5.2 For example, consumers are sometimes sold goods on printed terms which include a declaration that they have inspected their purchase and found it to be free from faults. If they then subsequently discover defects, they are at risk of being told, or may think they will be told, they have ‘signed away their right’ to make any claim. Comparable problems can be caused by any enforced declaration indicating that the consumer has been dealt with fairly and properly. Declarations as to facts that could be established with certainty only by an expert – such as the condition of a property – are particularly open to objection.
18.5.3 Use of such declarations may be intended only to stop consumers making baseless allegations, but it could be used to bar legitimate as well as unfounded claims. Wording of this kind gives rise to the same objections as exclusion clauses.
18.5.4 Declarations can be acceptable if they are of matters wholly and necessarily within the consumer’s knowledge (for example, their age), and a free choice is given as to what to say. But whether any declaration is in fact fair will depend on how it is used. If consumers are routinely told or given to understand that they must say one thing for the contract to go ahead, the declaration is just as likely to be considered unfair and legally ineffectual as if the written words gave no apparent choice. The Regulations apply to unwritten as much as to written terms.
18.5.5 ‘Have read and understood’ declarations. Declarations that the consumer has read and/or understood the agreement give rise to special concerns. The Regulations implement an EU Directive saying that terms must be clear and intelligible and that consumers must have a proper opportunity to read all of them (see Part IV). Including a declaration of this kind effectively
Unfair contract terms guidance 78 requires consumers to say these conditions have been met, whether they have or not. This tends to defeat the purpose of the Directive, and as such is open to serious objection.
18.5.6 In practice consumers often do not read, and rarely understand fully, any but the shortest and simplest contracts. It might be better if they tried to do so, but that does not justify requiring them to say they have done so whether they have or not. The purpose of declarations of this kind is clearly to bind consumers to wording regardless of whether they have any real awareness of it. Such statements are thus open to the same objections as provisions binding consumers to terms they have not seen at all – see Group 9. 18.5.7 Much more likely to be acceptable is a clear and prominent warning that the consumer should read and understand the terms before signing them.
The potential advantages such wording can confer are described, together with certain conditions that need to be met, in paragraphs 14.1.7 and
14.1.8. See Annexe A, Group 18(e), for illustrative examples of wording relevant to declarations in general.
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Group 18(f): Exclusions and reservations of special rights
18.6.1 Any contract wording which could have the effect of depriving consumers of protection normally afforded to them under the law is open to suspicion of unfairness. The Regulations indicate specifically that terms excluding rights to redress for breach of contract may be unfair (see Groups 1 and 2). But consumers also enjoy protection under legislation that operates separately from contract law.
18.6.2 An example is the law relating to data protection.38 A term or statement which could be understood as permitting the supplier to pass on information about the consumer more freely or widely than would otherwise be allowed under the Data Protection Act is likely to be open to challenge. A term about the use or disclosure of personal information that does not inform consumers how their information may be processed is likely to be unfair too.
18.6.3 Provisions of this kind may be acceptable if they are modified so as not to diminish the protection offered by the law or where there is a free choice to agree to them or not – for example, via an option separate from the rest of the contract. But note that fairness is much more likely if consumers have positively to ‘opt in’ to lose their legal protection. A chance to ‘opt out’ in small print may be missed or misunderstood. In any case the chances of fairness will be increased if the significance of the choice is indicated and drawn to the consumer’s attention.
18.6.4 In mail order contracts, references to possible future offers can be misleading and potentially unfair if they are insufficiently clear and precise. Consumers have certain rights where they receive something that is ‘unsolicited’. They can treat goods they have not asked to receive as The Information Commissioner has powers under the Regulations to take action against unfair terms. Unfair contract terms guidance 80 gift,39 and cannot be made to pay for them.
18.6.5 There is unlikely to be any objection to consumers being given a clear option to request more items to be sent on approval, accompanied by appropriate explanation. But unclear wording can be used which looks to the consumer as if it merely indicates willingness to consider further purchases, but is capable of being treated by the supplier as a definite request for goods. Any term which could result in consumers being sent goods they were not expecting, and being denied legal protection in relation to unsolicited goods, is likely to be considered unfair.
18.6.6 Another example of non-contractual consumer protection is legislation relating to ‘doorstep selling’.41 This legislation gives the consumer a right to cancel a purchase after a ‘cooling off’ period where the sale was made away from the supplier’s business premises, for example on the consumer’s doorstep or in her home. The protection given may be undermined by use of standard wording.
18.6.7 An example is a statement to the effect that the contract has been made at the supplier’s place of business. Such a statement may, of course, be true, but there is no guarantee that it will be used only when justified. If it is not necessarily true, it is likely to be unfair, since it may have the effect, in practice, of unjustifiably depriving consumers of their rights.
18.6.8 Another form of wording that can undermine the protection conferred by this legislation is a term which says or seeks to give the impression that the consumer has to do something, for example return a form by post, in order to enjoy a cancellation right. Such a term is also open to objection.
18.6.9 Distance Sales. Consumers entering contracts ‘at a distance’– for example 39 Regulation 24 of the Consumer Protection (Distance Selling) Regulations 2000 (see paragraph 18.6.6 below). Regulation 25 makes any contract term which is inconsistent with this void, regardless of the fairness test. Paragraph 29 of Schedule 1 of the Consumer Protection from Unfair Trading Regulations 2008.Cancellation of Contracts Made in a Consumer’s Home or Place of Work etc Regulations 2008 – effective from 1 October 2008. Unfair contract terms guidance 81 by post, over the telephone or on the internet42 – enjoy legal protection where the supplier’s distance selling is being operated in an organised way. They have, in particular, a right to receive certain information before the contract is concluded and normally have a right to cancel during a ‘cooling off’ period. Further details on the rights conferred by this legislation are available at www.oft.gov.uk.
18.6.10 Terms in ‘distance selling’ contracts which seek to exclude or restrict these rights, or which could have the practical effect of depriving consumers of the protection they are intended to confer, are likely to be unfair. Indeed, the legislation expressly states that contract terms inconsistent with it will be void. However, this provision does not, of course, make such terms acceptable, since they are likely to be accepted at face value by consumers and thus to mislead them: see above paragraph 1.4)
18.6.11 Guarantees. A seller who provides a consumer guarantee must ensure that it sets out the contents of the guarantee in plain intelligible language and gives certain information that a consumer needs to know before making a claim under it. This information must include the duration of the guarantee, and the name and address of the person providing it.43 Consumer guarantees also have to contain a statement that the consumer has statutory rights in relation to the goods and that those rights are not affected by the guarantee – note, however, that simply including the words ‘your statutory rights are unaffected’ cannot be relied upon to achieve fairness (see above, paragraph 2.8.4).
18.6.12 The rights that consumers enjoy in relation to guarantees are enforceable separately, using powers similar to those which deal with unfair terms. However, in addition, any term which seeks to exclude or restrict these rights, or which could have the practical effect of depriving consumers of the protection they are intended to confer, is likely to be unfair. The Consumer Protection (Distance Selling) Regulations 2000), as amended. Regulation 15, The Sale and Supply of Goods to Consumers Regulations 2002, as amended.