This page forms the final page 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(g): Supplier’s discretion in relation to obligations
18.7.1 This Guidance has already dealt (under Group 13) with the potential unfairness of terms which allow the supplier too wide a discretion in relation to two aspects of the interpretation and application of the contract. There are similar objections to other kinds of term giving the supplier the ability to free himself from compliance with what ought to be his obligations, or to penalise consumers for what he considers to be their breaches. Rights to determine how the supplier’s own obligations are performed
18.7.2 The ordinary law allows suppliers a reasonable degree of flexibility as to how and when they carry out obligations, where they have made no specific promises on the subject. A term giving complete freedom to make arrangements, whether for the carrying out of services or delivery of goods, allows the customer’s needs to be disregarded, and has practically the same effect as an exclusion of liability for causing loss and inconvenience. Such provision is likely to be fair only if it is drafted so as not to allow the supplier to act unreasonably.
18.7.3 An example is a term allowing the supplier to deliver goods in such consignments as he thinks fit. Consumers may need to be able to make arrangements depending on when goods are due to arrive, and to be brought into use, which can be hindered by lack of clarity as to the schedule of delivery, or by changes made without consultation, especially at short notice. This is not to say that delivery terms either can or should reflect only the convenience of the consumer, but rather that they should strike a reasonable balance. Often, such issues as the timing of deliveries are best left to individual agreement rather than being made the subject of any kind of standard contractual provision.
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Rights to determine whether the consumer is in breach
18.7.4 Suspicion of unfairness falls on any term giving to the supplier, or his agent, excessive power to decide whether the consumer ought to be subject to a penalty, obliged to make reparation of any kind, or deprived of any benefits under the contract. An example of this kind of unfairness is a term in a contract with a club giving the management undue freedom to suspend or expel a member for misconduct, especially if the criteria of misconduct are left unstated or are vaguely defined.
18.7.5 As with ‘final decision’ terms (Group 13), fairness is more likely where there is a clear procedure under which the consumer, if unhappy with the decision as to whether he or she is in breach, can refer the matter to an independent expert or arbitrator. Note, however, that compulsory arbitration clauses are unfair – see paragraphs 17.2 to 17.3.
18.7.6 For relevant examples of terms, see Annexe A, Group 18(g). The question of whether any penalty is excessive is entirely separate, and dealt with under Groups 5 (financial penalties) and 18(c) (other unfair enforcement powers). Strictly, a term giving excessive freedom to expel a club member could be defined as an excessive right to cancel – see, paragraph 6.1.3 – but is here considered to be separate from an ordinary commercial cancellation right. In any case, the right is usually reserved to impose other sanctions than just expulsion.
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Group 18(h): Unreasonable ancillary obligations and restrictions
18.8.1 There is a clear risk of unfairness where terms put consumers at risk of incurring contractual penalties that are more severe than is necessary to protect the real interest of the supplier. This form of unfairness most obviously arises where a term provides for an excessive penalty – see Groups 5 and 18(c). In such a case, fairness can normally be achieved by reducing the penalty to an appropriate level. But this form of unfairness can also arise in a different way.
18.8.2 Where contract terms impose requirements that are not required at all by any legitimate interest of the supplier, or which go beyond anything needed to protect his legitimate interests, the source of unfairness is not the level of the penalty. Any penalty entailed by a wholly unreasonable term must be considered potentially disproportionate. Since breach of a contract term always involves some risk of a sanction being applied to the consumer, the term itself is the source of unfairness, and fairness can only be achieved by removing or amending it.
18.8.3 The OFT therefore objects, on the grounds of disproportionate penal effect, to terms which impose obligations or restrictions that are or can be wholly unreasonable, or which give the supplier the power to make stipulations of that nature. The objection applies regardless of the level of penalty stipulated, and indeed whether or not any penalty is mentioned at all.
18.8.4 Terms of this kind, like excessive exclusion clauses, may be unreasonable in going beyond what is required to protect the supplier rather than in providing no justifiable protection at all. Where they merely go further than is necessary, fairness may be achieved by more precise targeting on the particular problem they are designed to prevent or resolve. For example, we are less likely to object to a term that requires rooms to be properly ventilated than a term which requires all windows to be opened for a required period.
18.8.5 For relevant examples of terms, see Annexe A, Group 18(h).
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IV ANALYSIS OF TERMS BREACHING REGULATION 7 (PLAIN ENGLISH AND INTELLIGIBLE LANGUAGE)
Group 19: Regulation 7 – plain and intelligible language 19.1 Regulation 7 states:
(1) A seller or supplier shall ensure that any written term of a contract is expressed in plain, intelligible language.
(2) If there is doubt about the meaning of a written term, the interpretation which is most favourable to the consumer shall prevail …
19.2 Clarity in contractual language is widely recognised as desirable in itself, but the Regulations go beyond promoting that objective alone. In line with their purpose of protecting consumers from one-sided agreements, and the requirement of the underlying Directive that ‘consumers should actually be given an opportunity to examine all the terms’ (Recital 20), they have to be understood as demanding ‘transparency’ in the full sense. As the High Court has found in a case relating to the fairness of bank charges, it requires ‘not only that the actual wording of individual clauses …be comprehensible to consumers, but that the typical consumer can understand how the term affects the rights and obligations that he and the seller or supplier have under the contract.
19.3 It follows that what is required is that terms are intelligible to ordinary members of the public, not just lawyers. They need to have a proper understanding of them for sensible and practical purposes. It is not sufficient for terms to be clear and precise for legal purposes, except in contracts normally entered only on legal advice.
19.4 That is why, for example, the OFT considers wide exclusion clauses, qualified by references to statute, liable to be unfair by reason of lack of 46 Smith J in OFT v Abbey National plc & Others  EWHC 875. This was said about the plain and intelligible language provision in regulation 6(2), but OFT considers it applies equally to the requirement in regulation 7.
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clarity (Group 1) if not for other reasons, too. Such a term may not be unclear or uncertain in law, but if consumers cannot understand the statutory references, they may be prevented or deterred from pursuing legitimate claims.
19.5 The underlying purpose of Regulation 7 also explains why the OFT does not restrict its objections to obviously obscure jargon. Relatively straightforward technicalities, such as references to ‘indemnity’ (see paragraph 18.2.7) and ‘statutory rights’ (see paragraph 1.5), can have onerous implications of which consumers are likely to be unaware.
19.6 Ambiguity. Where a term is ambiguous, a court may be able to find at least one fair meaning in it, and enforce it on that basis, rather than declaring it unfair and void by reason of lack of clarity. However, the Directive makes clear that the ‘most favourable interpretation’ rule is intended to benefit consumers in private disputes, not to give suppliers a defence against regulatory action – see Regulation 7(2). If a term’s ambiguity could cause detriment to consumers it may be challenged as unfair even if one of its possible meanings is fair.
19.7 What is required to comply? Ordinary words should be used as far as possible, and in their normal sense. Some alternatives to common legal jargon are illustrated under heading Group 19(b) of Annexe A. However, avoidance of technical vocabulary cannot on its own guarantee intelligibility. That also requires clarity in the way terms are organised.
Sentences should be short, and the text of the contract broken up with easily understood subheadings covering recognisably similar issues.
Statutory references, elaborate definitions, and extensive cross-referencing should be avoided.
19.8 Intelligibility also depends on how contracts are presented and used.
Obviously, print must be legible. This depends not only on the size of print used but also its colour, which of the background and the quality of the paper used. And plain language is of little value unless, as required by Recital 20 of the Directive, consumers are actually given an opportunity to examine all the terms. Where a contract is long or detailed, a ‘cooling-off period’ may be necessary to ensure compliance.