Does your business lack knowledge of consumer contract law?
Recent research shows that some 54% of businesses did not fully understand the rules.
Recent guidance published by the Competition and Markets Authority’s (the “CMA”) sets out their recommended obligations in respect of the application of consumer contracts. The study revealed that over 54% of businesses do not fully understand the rules applicable to consumer contracts.
Do you understand how a term can be deemed included in a contractual document? Did you know that a poster, brochure or even word of mouth can be sufficient to meet the definition of a “term”?
The law perceives a consumer as more vulnerable in a business relationship than when dealing with a business, and seeks to address this through the Consumer Rights Act 2015 (the “Act”). The Act introduced a fairness test in an effort to restore balance between businesses and consumers. If a term tilts this fine balance too much towards the former it is likely to be considered unfair. In the event of a dispute, an unfair term cannot be relied on. It is not only the consumer who can challenge an unfair provision, the CMA and Trading Standards can also question whether or not the terms used by a business are fair.
The courts look not only at the words used in a provision but also take into consideration the subject matter of the agreement as well as other terms and circumstances surrounding the contract in question. A term will fail the fairness test if it is not drafted in good faith for both parties.
All terms need to be spelled out clearly, in a language that consumers will understand and should not cause significant imbalance in the parties’ rights and obligations to the consumer’s detriment. For example, a term providing for excessive cancellation charges or automatic loss of all upfront payments is likely to be unfair. However, a contract setting a higher price than another business will still be enforceable.
The parties should deal with one another in a fair and open manner. Consumer terms need to be expressed clearly and in full, without hidden pitfalls. Any business bias terms should be brought to the consumer’s attention, instead of being concealed in the small print. Issues in this regard commonly arise in areas such as deposits, automatic rollover and contract cancellations.
Certain terms will automatically be considered unfair, without needing to be questioned by the consumer. Attempts to exclude or restrict consumer’s statutory rights or legal remedies as well as attempts to limit liability for death or personal injury has been deemed unfair since the Act came into force on 1 October 2015 .
In conclusion, when drafting terms, businesses should communicate clearly and openly with consumers. Avoid terms that cause significant hardship and take into account consumers’ legitimate interests.