Unfair Terms

Unfair Contract Terms

The general rule of contract law is that the parties are bound by whatever they agree.  In the past, sellers were entitled to impose whatever conditions they wanted in small print which could be deemed to be accepted and binding on the consumer, no matter how unfair their content. This approach did not recognise that in reality, standard contracts are not negotiated by consumers and given on a take it or leave it basis.

The European Communities (Unfair Terms in Consumer Contracts) Regulations, (the Unfair Contract Terms Regulations ) introduced the concept of negotiation in good faith, and unfair contract terms into consumer contracts.  Under the Regulations, an unfair contract term is not binding on the consumer.

The Regulations do not apply to the core “commercial” terms of the agreement, in the sense of the fairness  of the bargain itself.

The Regulations apply only to contract terms which have not been individually negotiated. A term is deemed not to be individually negotiated, where it has been drafted in advance and where the customer has been unable to influence its content.


Unfairness

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.


Unfair Terms not Binding on Consumer

An unfair term is not binding on the consumer.  The rest of the contract will continue to bind the parties if it is capable of continuing in the absence of the unfair term. The regulations are to apply notwithstanding that a contract term purports to apply the law of a country other than an EU State which would thereby deprive the consumer of the protection of the EU Directive on unfair contract terms.

Unfair terms are not binding on the consumer. The contract continued to bind the parties, provided that it is capable of continuing in existence, without the unfair term.  It is a matter for the court to determine whether the contract can so continue.

The European Court of Justice has held that national courts do not have jurisdiction to revise unfair contract terms.  They may remove the term from the agreement and give effect to the balance of the contract, provided it is capable of continuing in existence, having been severed.


Indicative Unfair Terms

There is a list of indicative unfair terms in the Directive and Regulation. States may designate further presumptively unfair terms. The presence or absence of the indicative term does not necessarily determine whether the contract term is fair or unfair.

Such a term may be fair in context.  Its presence does not necessarily create a presumption of unfairness. However, it is a significant element on which a finding of unfairness can be based.

The following are categories of clauses are potentially unfair. Whether they are in fact unfair and thereby void and have no effect under the legislation would depend on the circumstances.


Indiciative / Potentially Unfair Terms List

The following are set out in the legislation as indicative or potentially unfair contract terms.

  • clauses which limit or exclude liability on the seller or supplier in the event of death or personal injury. This is broader than the Unfair Contract Terms Act and there are greater enforcement powers;
  • Clauses which exclude the legal rights of consumers as regards to seller or supplier in the event of total or partial non performance or inadequate performance;
  • The clause makes the agreement binding on  consumer but obligations on the seller are subject to its discretion;
  • Clauses permitting the seller or supplier to retain sums where the latter decides not to conclude to perform the contract without providing for the consumer to receive compensation of an equivalent amount where the latter party cancels the contract;
  • Clauses requiring any consumer who fails  to fulfil an obligation to pay a disproportionately high amount in compensation;
  • Authorising the seller  to dissolve the contract on a discretionary basis where the same facility is not granted to the consumer;
  • Permitting the seller or supplier to retain sums paid for services not yet supplied by the supplier;
  • Enabling the supplier to terminate a contract of indeterminate duration without reasonable notice except where there are serous grounds.
  • Automatically extending a contract or fixed term where the consumer does not indicate otherwise.
  • Irrevocably binding the consumer to terms which he had no real opportunity to become acquainted with before the conclusion of contract.
  • Enabling the seller to alter the terms of the contract unilaterally without a valid reason specified in the contract.
  • Enabling the seller and supplier to alter unilaterally without a valid reason, any characteristic of the product or service to be provided.
  • Giving the seller and supplier the right to decide whether the goods or services conform with the contract or give him an exclusive right to interpret the contract.
  • Limiting seller or suppliers liability to respect commitments undertaken by agents.
  • Obliging the consumer to fulfil his obligations where the seller or supplier does not perform his.
  • Giving the supplier or seller the ability of transferring his rights or obligations under the contract where this might reduce the guarantee to the consumer.
  • Preventing or hindering the customer’s right to take legal action or exercise legal remedy.

Application of Regulations

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.

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.


Pro-Consumer Interpretation

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.

There may be some overlap between the “fair and reasonable” provisions of the Sale of Goods and Supply of Services Act which apply to contractual terms which purport to limit or exclude liability.

The regulations apply to the sale of goods and the supply of services. They do not apply to contracts of employment, contracts relating to succession rights, family law contracts, contracts relating to the organisation or incorporation of companies or partnerships, terms reflecting mandatory, statutory or regulatory provisions under domestic law, EU law or the provisions or principles of international conventions to which the EU or Ireland is party.


Not Individually Negotiated

The regulations apply where the term is not individually negotiated.  The burden is on the supplier or seller to prove that the term was individually negotiated.

A term will always be regarded as not being individually negotiated, where it has been drafted in advance and the consumer has accordingly not been able to influence its substance.  This applies in particular, to pre-formulated standard contracts.

The fact that a specific term has been individually negotiated, does not preclude the application of the regulations to the rest of the contract if an overall assessment of the contract indicates that is a pre-formulated standard contract.

The English courts have held that the fact that a consumer or his legal representative have had the opportunity to consider the agreement in advance, is not sufficient of itself to make it individually negotiated.

If there has been no ability to substantially influence the substance of the term, it is not individually negotiated. Even the ability to substantially influence the term by itself does not necessarily mean that that the agreement was in fact individually negotiated. The seller or supplier must prove that the provision was in fact individually negotiated.


Unfair Contract Terms

A term may be unfair if it involves a significant imbalance in the parties’ rights and obligations, to the detriment of a consumer and does not follow the principle of good faith.  The issue of fairness is determined at the time the contract is concluded.  The contract itself and other relevant and dependant contracts are considered.  Even if a related contract is not dependent for the purpose of the regulations, it may be relevant to the surrounding circumstances and may be indirectly relevant.

The Regulations set out a list of indicative and non exhaustive terms which are potentially unfair. There are set out below.

A term is not to be considered unfair only with reference and relation to the definition of the main subject matter of the contract or the adequacy of the price or remuneration as against the goods and supplied in so far as these terms are in clean, intelligible language. Accordingly, the obligation does not apply to the fairness or merits of the bargain itself.


Judging Unfairness

Whether or not a term is unfair must be judged in the context of the contract as a whole.  Significant imbalance does not necessarily imply that the relevant term has a significant impact.  The imbalance may result from a sufficiently serious impairment of the legal situation in which the consumer is placed. Regard is to be had to the entire circumstances, including the legal context and other available national mechanisms in respect of unfair contracts legislation.

The question of unfairness must be judged at the date of the contract.  The seller or supplier must not take unfair advantage of the consumer’s necessity, indigence, lack of experience, unfamiliarity with the subject of the contract or weak bargaining position. Regard should be had to the typical position of parties to such a contract.

Emphasis is laid on the absence of fair dealing.  Regard is had to the effect of the contract, with and without the terms. The fact that the consumer would have been surprised by the term if he had understood it, is a factor which may render it unfair.

It is relevant

  • whether the term is standard;
  • whether it is found in freely negotiated contracts between parties dealing at arms’ length;
  • whether a party’s legal representative, if he had one, would reasonably have objected to the term concerned.

Unappropriate Allocation of Risk

Where a term places a risk on the consumer which is more properly borne by the supplier, it may be rendered void as an unfair contract term. This is particularly so if the consumer is unlikely to be aware or fully appreciate the term and the risk and the supplier can more economically insure against and manage it

Clauses which purport to place risks on the consumer prior to delivery are likely to be unfair. It is now statutorily provided that risk cannot pass until the delivery of the goods in consumer contract cases.

Generally, the consumer should only be liable for loss arising from his actions, fault or neglect.Contractual terms which purport to increase the consumer’s obligations beyond taking reasonable care may be void as unfair. Terms which place a risk on the purchaser which could be easily avoided or mitigated by the supplier may be unfair.

Where payment is required in the event of supplier’s insolvency before the delivery of goods or the supply of services, the term is likely to be unfair. Indemnities for costs arising to the supplier.


UnfaIr Exclustion of Liability

The exclusion of liability for force majeure matters outside the supplier’s control is usually fair and reasonable. Exclusions for liability for matters within the supplier’s control is less likely to be fair and reasonable. It is more likely fair if supplier notifies the customer of the circumstances and is afforded additional time or other allowance to deal with the consequences of the unforeseen events.

Clauses which exclude or limit the liability of the supplier may be unfair and invalid if they

  • exclude or limit liability for loss caused by faulty goods or poor service,
  • transfer defect liabilities to a manufacturer;
  • exclude reasonably foreseeable losses;
  • in some cases, limit liability to the value of the goods or the value to which the supplier might claim against the manufacturer;
  • require undue complexity in return of the goods.

Unfair Compensation for Supplier

It is a potentially unfair term under the Unfair Contract Terms Regulations to require a consumer who fails to pay or perform his obligation, to pay a disproportionately high sum in compensation.

The following type of clauses on the part of a supplier may be unfair:

  • allowing the supplier to claim a fixed sum which is not linked to the damages in some cases;
  • giving the supplier discretion to determine the sum payable;
  • allowing the supplier to claim costs and loss of profit, thereby giving double compensation;
  • charging unreasonable interest;
  • passing on legal costs on an indemnity basis or where it is unreasonable to make the consumer responsible for cost which may arise when it is not the consumer’s fault;
  • measures of loss or damage which fail to involve mitigation.

Unfair Temination Clauses

Clauses which authorise the supplier to terminate the contract on a discretionary basis where there is not an equivalent facility for the customer are likely to be unfair and invalid. Similarly, clauses which

  • enable the seller or supplier to terminate a contract of indeterminate duration without reasonable notice except where there are reasonable grounds;
  • automatically extend a contract of a fixed duration where the consumer does not opt out

are likely to be invalid.

Termination clauses may be unfair if

  • they are unbalanced in terms of the rights of termination which they grant;
  • they seek to limit the customer in terminating where there is a material fundamental breach;
  • allow the supplier on discretionary grounds or on short or no notice;
  • require long periods of notice for customers exercising the equivalent right;
  • provide for automatic renewal;
  • allow termination on grounds that are not linked to the customer and are outside his control.

Terms which uphold the ordinary default right termination in the case of fundamental breach are unlikely to be invalid.


Restrictions on Assignment

The general principle is that the benefit of contractual rights may be assigned. There may be good objective reasons why assignment should be restricted in certain cases. The burden of performance of the contract cannot be assigned. The performance may not be subcontracted where the identity of the party is critical key and the intention is that the service or supply is to be that particular party.

If the consumer’s right to assign is restricted but the supplier has broad rights to assign and subcontract its rights and obligations, this may be unfair. The regulations provide that a term may be unfair which has the object or effect of giving the seller or supplier the possibility of transferring his rights and obligations under the contract where this may serve to reduce the guarantees for the consumer without his agreement.

Terms requiring criteria in relation to permitted assignment may be legitimate such as proof of ability to perform or the requirement for a guarantee, or a provision that consent to assignment is not to be unreasonably withheld may make an otherwise unfair clause, fair.

If there are protections which do not prejudice the consumer’s rights, an assignment clause for the benefit of the supplier may be fair and reasonable.


Disputes Clauses

In consumer contracts, there are mandatory rules of jurisdiction and forum. Clauses which seek to change the law applicable or the forum in the case of a consumer, to other than his home State are usually invalid.

Dispute resolution mechanisms which operate in an unfair and unreasonable manner are likely to be void under the regulations. The regulations specifically include as potentially unfair terms those which have the object or effect of excluding or hindering the consumer’s rights to take legal action or exercise of their legal remedies particularly by

  • requiring the consumer to take disputes exclusively to arbitration not covered by legal proceedings,
  • unduly restricting the evidence available or
  • placing the burden of proof on the party which by law would lie on the other party.

Does not apply to Core “Commercial” Terms

“Unfairness” does not relate to the core terms of the contract. The core terms are those referable to the bargain. The assessment of the unfair nature of the term may not relate to the definition of the main subject matter of the contract nor to the adequacy of the price or remuneration relative to the value of the services or goods supplied in exchange. This exclusion applies provided that the terms are in plain and intelligible language.

A core term is one which lays down the essential obligations of the contract which characterise it. This is a matter for the national court, having regard to the nature, general scheme and terms of the contract and its legal and factual context. The English courts have held that what is the main subject matter in this context, should be interpreted narrowly.  The legislation would be frustrated if it was to be interpreted too broadly.

It has been held that core terms are limited to payments that can properly be said to be by way of exchange. It has been held that provisions relating to charges are core terms in the context of loan agreements; the interest and charges were part of the consideration for the service. This reasoning also applied to particular charges that applied only in certain circumstances, which did not necessarily occur.

A monetary obligation in itself is not necessarily a core term. A term dealing with the manner of payment of interest rather than the substantive interest rate has been held not to be a core term.


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

Legislation

Sale of Goods Act 1893 56 & 57

Sale of Goods and Supply of Services Act 1980

The 2011 Report of the Sales Law Review Group,

Consumer Protection Act 2007 19/2007

Competition and Consumer Protection Act 2014 29/2014

Orders Re Price Display (retained

Prices Act 1958.

Prices (Amendment) Act 1965

Prices (Amendment) Act1972

Orders made under Prices Acts 1958 and 1965 were carried over on repeal of the 1958 and 1965 Acts by 19/2007

Prices and Charges (Tax-inclusive Statements) Order 1973, S.I.

Charges (Hairdressing) Display Order 1976, S.I. No. 156 of 1976

Retail Prices (Food in Catering Establishments) Display Order 1984, S.I. No. 213 of 1984

Consumer Information (Advertisements) (Disclosure of Business Interest) Order 1984, S.I. No. 168 of 1984417

Consumer Information (Advertisements For Concert Or Theatre Performances) Order 1997, S.I. No. 103 of 1997

Retail Price (Diesel and Petrol) Display Order 1997, S.I. No. 178 of 1997

Retail Price (Beverages in Licensed Premises) Display Order 19/2007

Consumer Information Act Orders

Consumer Information (Advertisements For Airfares) Order 2000, S.I. No. 468 of 2000

Consumer Protection Act 2007 (Commencement) Order 2007,S.I. No. 178 of 2007

Consumer Protection Act 2007 (Establishment Day) Order 2007,S.I. No. 179 of 2007

Consumer Protection (Fixed Payment Notice) Regulations 2007,S.I. No. 689 of 2007

Consumer Protection Act 2007 (National Consumer Agency) Levy Regulations 2011, S.I. No. 560 of 2011

Consumer Protection (Consumer Information) (Articles of Precious Metals) Regulations 2012, S.I. No. 143 of 2012

Consumer Protection Act 2007 (National Consumer Agency) Levy Regulations 2012, S.I. No. 435 of 2012

Consumer Protection Act 2007 (National Consumer Agency) Levy Regulations 2013, S.I. No. 409 of 2013

Consumer Protection Act 2007 (National Consumer Agency) Levy Regulations 2014, S.I. No. 458 of 2014

Consumer Protection Act 2007 (Competition and Consumer Protection Commission) Levy Regulations 2015, S.I. No. 457 of 2015

European Communities (Cooperation Between National Authorities Responsible for the

Enforcement of Consumer Protection Laws) Regulations 2006, S.I. No. 290 of 2006 [Minister

European Communities (Cooperation Between National Authorities Responsible for the

Enforcement of Consumer Protection Laws) (Amendment) Regulations 2008, S.I. No. 316 of 2008  European Communities (Single-Member Private Limited Companies)European Communities (Protection of Consumers in Respect of Contracts made by Means of Distance Communication) (Amendment) Regulations 2010, S.I. No. 370 of 2010

European Communities (Court Orders for the Protection of Consumer Interests) Regulations 2010, S.I. No. 555 of 2010

European Union (Protection of Consumers in respect of Timeshare, Long-term Holiday Product, Resale and Exchange Contracts) Regulations 2011, S.I. No. 73 of 2011

European Communities (Cooperation between National Authorities Responsible for the Enforcement of Consumer Protection Laws) (Amendment) Regulations 2012, S.I. No. 485 of 2012 [

European Union (Public Limited Companies) (Directive 2012/ European Communities (Cooperation between National Authorities Responsible for the Enforcement of Consumer Protection Laws) (Amendment) Regulations 2013, S.I. No. 122 of 2013

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

European Communities (Cooperation between National Authorities Responsible for the Enforcement of Consumer Protection Laws) (Amendment) (No. 2) Regulations 2013, S.I. No. 200 of 2013

European Union (Consumer  nformation, Cancellation and Other Rights) Regulations 2013, S.I. No. 484 of 2013

European Union (Consumer Information, Cancellation and Other Rights) (Amendment) Regulations 2014, S.I. No. 250 of 2014

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

European Union (Protection of Consumers in respect of Timeshare, Long-term Holiday Product, Resale and Exchange Contracts) (Amendment) Regulations 2014

European Union (Alternative Dispute Resolution for Consumer Disputes) Regulations 2015, S.I. No. 343 of 2015

European Union (Alternative Dispute Resolution for Consumer Disputes) (No. 2) Regulations

2015, S.I. No. 368 of 2015

European Union (Traded Companies — Corporate Governance Statements) Regulations 2015, S.I. No. 423 of 2015

European Union (Online Dispute Resolution for Consumer Disputes) Regulations 2015, S.I. No. 500 of 2015

European Union (Online Dispute Resolution for Consumer Disputes) Regulations 2016, S.I. No. 32 of 2016

European Union (Consumer Information, Cancellation and Other Rights) (Amendment) Regulations 2016, S.I. No. 336 of 2016

Competition and Consumer Protection Act 2014 (Commencement) Order 2014, S.I. No. 366 of 2014

Competition and Consumer Protection Act 2014 (Establishment Day) Order 2014, S.I. No. 367 of 2014

Consumer Protection Act 2007 (Grocery Goods Undertakings) Regulations 2016, S.I. No. 35 of 2016

Consumer Protection Act 2007 (Competition and Consumer Protection Commission) Levy Regulations 2016, S.I. No. 479 of

2016

District Court (Consumer Protection Act 2007) Rules 2009, S.I. No. 106 of 2009

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 (Certain Aspects of the Sale of Consumer Goods and Associated Guarantees) Regulations 2003, S.I. No. 11 of 2003

European Communities (Protection of Consumers in Respect of Contracts Made by Means of Distance Communication) (Amendment) Regulations 2005, S.I. No. 71 of 2005

European Communities (International Financial  European Communities (Cooperation Between National Authorities Responsible for the Enforcement of Consumer Protection Laws) Regulations 2006, S.I. No. 290 of 2006

European Communities (Distance Marketing of Consumer Financial Services) Regulations 2004, S.I. No. 853 of 2004

Circuit Court Rules (Consumer Protection Act 2007) 2008, S.I. No. 585 of 2008

European Communities (Court Orders for the Protection of Consumer Interests) Regulations 2010, S.I. No. 555 of 2010

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

European Union (Consumer Information, Cancellation and Other Rights) Regulations 2013, S.I. No. 484 of 2013

European Union (Consumer Information, Cancellation and Other Rights) (Amendment) Regulations 2014, S.I. No. 250 of 2014

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

European Union (Alternative Dispute Resolution for Consumer Disputes) Regulations 2015, S.I. No. 343 of 2015

European Union (Alternative Dispute Resolution for Consumer Disputes) (No. 2) Regulations 2015, S.I. No. 368 of 2015

European Union (Online Dispute Resolution for Consumer Disputes) Regulations 2015, S.I. No. 500 of 2015

European Union (Online Dispute Resolution for Consumer Disputes) Regulations 2016, S.I. No. 32 of 2016

European Union (Consumer Information, Cancellation and Other Rights) (Amendment) Regulations 2016, S.I. No. 336 of 2016