Unfair Terms Issues

Good Faith Requirement in Consumer Dealing

The European Communities (Unfair Terms in Consumer Contracts) Regulations, (the Unfair Contract Terms Regulations) introduced the concept of negotiation in good faith, into consumer contracts.  The principle is found in many Continental law systems which apply a duty of good faith to many contractual negotiations and dealings.

The purpose of the legislation is to promote fair and open dealing and prevent unfair surprise in contractual terms.   It is aimed in particular at terms which may operate to his disadvantage in a way which the consumer might reasonably not expect and at terms that offend the requirements of good faith.

The unfairness may lie in the failure to bring important and unusual matters to the weaker party’s attention.  If a clause is of a type which may cause surprise and would have been negotiated away if known, it is likely to be unfair.

In assessing good faith, particular regard is to be had to

  • the strength of the bargaining position of the parties;
  • whether the consumer had an inducement to agree to the term;
  • whether the goods or services were sold or supplied to the special order of the consumer;
  • the extent to which the seller or supplier has dealt fairly and equitably with the consumer whose legitimate interests have to be taken into account.


The regulations provide that a term shall be regarded as unfair, if contrary to the requirements of good faith, it causes a significant imbalance in the rights and obligations of the parties under the contract, to the detriment of the consumer.  The unfairness of the contractual terms is assessed taking into account the nature of the goods and services for which the contract was concluded. Reference is made to the circumstances at the time of conclusion of the contract.

Good faith is a continental law concept.  It implies dealing fairly and equitably, taking account of the other party’s legitimate interests.  In making an assessment of good faith, regard is to be had

  • to the strength of the bargaining positions of the parties;
  • to whether the consumer had an interest in agreeing to the term,
  • to whether the goods and services were sold or supplied to the special order of the consumer;
  • the extent to which the seller/supplier has dealt fairly and equitably with the consumer, whose legitimate interests, he is to take into account.

The determination of whether a contract term is unfair is primarily one for the national courts with reference to the statutory criteria. The European courts have not sought to evolve common standards.  They have emphasised that each court should take its own view of the case in its domestic circumstances.

Contracts to be in Plain and Intelligible Language

There is an obligation on businesses to ensure that any written terms of the contract are expressed in plain and intelligible language.  If there is any doubt about the meaning of a term, the interpretation most favourable to the consumer shall prevail.

The requirement that the contract be in plain and intelligible language is determined from the perspective of the ordinary consumer without legal advice.  Legal terminology or jargon should be avoided, if possible.  The requirement relates not just to the language used. The complexity and structure of sentences, cross-referencing, defining terms and the general ease of comprehension are relevant factors.

Plain and Intelligible Language

Consumer contracts must be in plain and intelligible language. The information must be communicated to the consumer in a clear and transparent manner.  The consumer should be in a position to evaluate, on the basis of clear intelligible criteria, the economic consequences of the transaction.

The contractual terms themselves must be in plain and intelligible language.  It appears that ancillary documents, such as explanatory booklets may be taken into account, having regard to whether they are read by the typical consumer.

The question as to whether the terms are in plain and intelligible language may, it has been suggested, be considered having regard to the party’s previous course of dealing.  An alteration in terms and conditions may not be plain and intelligible, unless sufficiently clear.

The wording should be understandable so that the typical consumer can understand the rights and obligations that he and the seller/supplier will have under the contract.

The regulations confirm the rule of interpretation, that where there is a doubt about the meaning of a term, the interpretation most favourable to the consumer shall prevail.  It may be that a term on its literal meaning appears unfair, but on interpretation, it may be given effect in a manner that is not unfair.

Application of Regulations;Consumers

The Regulations apply to contracts between a business and a consumer.  The regulations apply to a consumer, who is a natural person acting for purposes which are outside his business.  A business is defined as including a trade or profession and the activities of any government department, local or public authority. Difficulties of interpretation arise where goods and services are bought or required for a purpose which is partly private and partly business in nature.

A person (but not a corporate body) may be a consumer under the regulations.  This is unlike the position with some other consumer protection legislation, which does not preclude the possibility that a company may act as a consumer.

The definition of a “consumer” under the Unfair Contract Terms Regulations is similar to that under the Consumer Credit Act.  There is a difference of view as to how widely this should be interpreted.  On a narrow view, it is limited to transactions which are undertaken in a purely private and domestic capacity.  On a wider view, it would include personal investment activities, such as buy-to-let transactions.

Application of Regulations; Contracts and Clauses

The regulation applies to all contractual terms, and not just to those which exclude or limit liability.  It applies to all contracts, other than those which have been individually negotiated.The Regulations do not apply to

  • contracts relating to family law;
  • contracts relating to succession rights;
  • contracts of employment;
  • contracts for the formation of partnerships;
  • contracts for the incorporation of companies;

The Regulations do not apply to contractual terms which reflect mandatory provisions of law or the principles of international conventions to which the State or the EU is a party. The legal requirement must be mandatory for this purpose.  The relevant terms must be required by law, rather than simply made under legal authority, such as terms approved by a regulator.

Limits to Application; Financial Services

The English courts have held that the Regulations apply to a loan, which is partly commercial and partly residential on the basis that where the transaction is partly outside the course of a trade or business, the party concerned is a consumer.

It is unclear whether the regulations apply to a guarantee.  This is on the basis that there is arguably no service or goods supplied by the bank or by the guaranteed party.  English decisions suggest that guarantees may be covered.

Certain of the sample grounds of unfairness do not apply to

  • the right to terminate unilaterally a financial services contract of indeterminate duration without notice, where there is a valid reason, provided the supplier is required to inform the other party immediately;
  • the right in a financial services contract to alter an interest rate payable by the consumer or the amount of charges for financial services without notice where there is a valid reason, provided that he is required to inform the other contracting party at the earliest opportunity and the latter is free to dissolve the contract immediately;
  • the power of a seller or supplier to alter unilaterally the conditions of a contract of indeterminate duration provided that he is required to inform the consumer with reasonable notice and that the consumer is free to dissolve the contract.

Certain of the sample unfair terms do not apply to transactions in transferable securities, financial instruments, and other products or services, where the price is linked to fluctuations in a stock exchange quotation or index or a financial market, which the supplier does not control. The provision on unilateral determination or variation of the price is without hindrance to price indexation clauses which may be lawful provided that the method by which prices vary is explicitly described in conformity with European Union law

Land Sale and Building Contracts

The regulations apply to consumer building and development agreements.  The Director of Consumer Affairs in Ireland obtained a High Court order which declared certain provisions of the then standard new house building agreements to be unfair. Several of the commonly used standard residential sector building contracts terms were deemed unfair.

The English courts have held that the Regulations do not generally apply to the sale of land. The issue will rarely arise in ordinary sales, as the seller will not usually be acting in the course of a business.

The English courts have confirmed that the Regulations are potentially applicable to the sale of land by an entity in the course of a business to a consumer, notwithstanding that they refer to “goods” and “services”.

The EU and English courts have held that the Regulations apply to tenancy agreements between a landlord acting in the course of a trade business or profession and a tenant acting in a personal capacity.

The UK Office of Fair Trading has taken action in respect of certain clauses commonly found in building contracts.

Enforcement Body

The regulations were originally enforced by the Director of Consumer Affairs. Responsibility for enforcement passed to the National Consumer Agency in 2008 and to the Competition and Consumer Protection Commission in 2014.

An authorised body may apply to the Circuit Court or the High Court for a declaration that terms commonly in uses are unfair.  An authorised body may apply for an injunction against any seller or supplier to restrain the use of the unfair contract terms.

The NCA has published guidelines which seek to assist in identifying and avoiding the use of unfair terms in consumer contracts. The guidelines may be admitted in evidence in proceedings.  However, the failure to comply with the guidelines themselves does not have a direct legal consequence.

Powers of Enforcement

The Competition and Consumer Protection Commission has the power to apply to the court for an order prohibiting the use of contracts of a type which the court determines to be unfair. This procedure has been used in relation to standard form or commonly used contracts in particular industries. It was used to invalidate certain types of clauses which were commonly inserted in new house building contracts.

Persons claiming to have an interest in the application are entitled to appear before the court. On the hearing of the application, it is not necessary for any person to prove actual loss or damage nor to prove recklessnenow the CCPC,nce on the part of the seller or supplier.  In making a declaration, the court is to take account of all interests involved, and in particular the public interest.

The Commission has powers to investigate breaches of the regulations.  An authorised officer may be appointed with investigatory powers.  He may enter premises where any business or activity is carried on and inspect the premises, books, and records.

e may require persons who carry on the business or who are employed, to produce books, documents, and records.  Copies may be taken.  He may require such information as is reasonably required in relation to the business or activity.  It is an offence to obstruct or impede an authorised officer in the performance of his functions.

References and Sources

Irish Texts

Consumer Law Rights & Regulation    Donnelly & White (2014)

Consumer Protection Act 2007 Annotated  Bird (2008)

Consumer Rights Long (2004)

Commercial & Consumer Law: Annotated Statutes O’Reilly, P (2000)

UK Texts

Consumer Sales Law: The Law Relating to Consumer Sales and Financing of Goods 3rd ed

John MacLeod, James Devenney (2019)

Electronic Consumer Contracts in the Conflict of Laws 2nd ed Zeng Sophia Tang (2018)

The Law of Consumer Redress in an Evolving Digital Market: Upgrading from Alternative to Online Dispute Resolution Pablo Cortes (2017)

Blackstone’s Statutes on Commercial & Consumer Law 2017-2018 Francis Rose

Consumer and Trading Standards: Law and Practice 2017 Bryan Lewin, Jonathan Kirk

Woodroffe and Lowe’s Consumer Law and Practice Woodroffe and Lowe’s Consumer Law and Practice 10th ed Geoffrey Woodroffe, Chris Willett, Christian Twigg-Flesner (2016)

Butterworths Trading and Consumer Law Looseleaf Annual Subscription Deborah L. Parry, Roland Rowell (2016)

Butterworths Commercial and Consumer Law Handbook 8th ed Richard B. Mawrey, Tobias Riley-Smith (2015

Consumer and Trading Standards: Law and Practice 4th ed


European Communities (Unfair Terms in Consumer Contracts) Regulations 1995, S.I. No. 27 of 1995[

European Communities (Unfair Terms in Consumer Contracts) (Amendment) Regulations 2000, S.I. No. 307 of 2000

European Communities (Unfair Terms in Consumer Contracts) Amendment) Regulations 2013, S.I. No. 160 of 2013

European Communities (Unfair Terms in Consumer Contracts) (Amendment) Regulations 2014, S.I. No. 336 of 2014