Consumer Rights Act 2015 – 3 Consumer Notices & Unfair Terms

From 1st October 2015 there are fundamental changes to consumer rights introduced under the Consumer Rights Act 2015.  This Act replaces almost all existing consumer protection legislation.   It introduces significant new concepts and protections for consumers.  All businesses should be reviewing their Terms of Business for consumers, their procedures and staff training.

We are posting a series of brief summaries of the changes, highlighting their significance, and with links to further advice.   This is not intended to be legal advice upon which you should act, but awareness of issues which you need to consider.

See Consumer Rights Act 2015 – 1 All Change? and 2 Services & Digital Content

For legal advice please contact Neil Howlett or Andy Hambleton

The Consumer Rights Act will apply to all forms of contract.  Previously, obligations of fairness were restricted to contracts which were not individually negotiated.  The Consumer Rights Act’s test of fairness will apply to all contracts, including oral contracts.   It will be much more important for a trader to be able to prove on the balance of probabilities what they agreed to provide or do, and on what terms.  That will be a great deal easier if the terms are in writing and there is a copy signed by the consumer.

Consumer Notices & Pre-contractual statements

The Consumer Rights Act introduces a new concept of a Consumer Notice.  That is anything which sets out the rights or obligations of the trader and consumer or restricts the trader’s liability.   Anything in these will be subject to the same test of fairness as if they were set out in a trader’s Terms & Conditions.

This will apply to marketing communications, brochures, and signs at premises, all of which will be treated in the same way as if they were contract terms.

Anything said or written to a consumer about a service or trader, whether by or on behalf of the trader, will be treated as a term of the contract if the consumer takes it into account when deciding whether to enter into the contract, and when making any decision about the services after the contract is entered into.

This will make it a great deal easier for consumers to bring claims which would previously have had to be pursued under the complex law of Misrepresentation.

Unfair Terms

The Consumer Rights Act 2015 replaces the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations 1999 (though UCTA remains for B2B contracts).

All written terms of a consumer contract must be “transparent”, i.e. in plain and intelligible language, not using jargon the average consumer must be able to understand them. One ECJ decision said that it must enable the consumer “to evaluate, on the basis of clear, intelligible criteria, the economic consequences for him which derive from it”. Any ambiguity will be interpreted in favour of the consumer. In addition terms must be:-

  • Legible, if in writing, which means that they cannot be hidden away in small print
  • Prominent, which is a new definition, requiring that they are brought to the consumer’s attention in a way that an average consumer would become aware of them.  The average consumer is assumed to be reasonably well informed, observant and circumspect.  The more significant the term, or the closer to the boundary of fairness, the greater the obligation to make it prominent.

Although a term which is not “transparent” may still be enforceable it is more likely to fail the test of “fairness”.

The CRA does not apply to unwritten terms.  Although Sam Goldwyn was not precisely correct any trader seeking to rely upon verbal terms which are advantageous to them as against a consumer is going to be climbing Mount Everest.

A term is unfair if “contrary to the requirement of good faith it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer”.  Any attempt to limit or exclude liability is subject to review. In particular for:-

  • Breach of contract
  • Liability for injury or death not caused by negligence
  • Damage to property

There is a ‘black list’ of items that cannot be excluded.  Any attempt to exclude them will be ineffective.  They are:

  • Excluding liability for death or personal injury resulting from negligence
  • Excluding the statutory tests for conformity
  • Excluding liability for incorrect installation of goods
  • Excluding the obligation to provide services with reasonable skill and care.

There is an extended ‘grey list’ of terms which will be assumed to be unfair and therefore ineffective.  These include:-

  • Disproportionate charges if the consumer ends the contract.
  • Terms which allow the trader to change the characteristics of the Goods (or Services) after the consumer has become bound by the contract.
  • Terms which allow the trader to change the characteristics of the goods or services after the consumer has become bound by the contract.  There is an exception where there is a contract which is “indefinite” and where the trader gives reasonable notice and the consumer has the right to terminate the contract.
  • Terms where the trader can set the price after the consumer has become bound by the contract and has not agreed the price or method of determining the price.  The explanatory notes to the Act gives as an example of lack of prominence a low headline price with hidden extras in separate terms and conditions.

The grey list is not exclusive.  A Court could determine that any term is unfair against the statutory test.

Provisions excluding common law rights are possible but are likely to be subject to assessment against the grey list and the test of fairness.

Terms can be excluded from assessment against fairness if:-

  • They are the main subject matter of the contract, or
  • Terms that set the price; although price may be excluded, terms such as time and method of payment may still be subject to assessment against fairness.

Courts considering consumer contracts must consider the issue of fairness if there is sufficient legal and factual material available, even if it is not raised as an issue by the parties.  The introduction of an obligation of good faith is also a novel concept under English law.  Courts continue to be reluctant to apply it in commercial contracts.

Given the present pressures on the Court Service it seems unlikely that there will be legions of campaigning Judges going through the small print of every consumer contract which comes before them.  The danger is of Judges looking for ways to find in favour of consumers and that these issues will arise at a hearing without prior notice to a trader who is attempting to defend their position.

Useful guidance

Rules for the supply of goods: BIS’s Consumer Rights Act: Goods Guidance for Business 

Rules for the supply of services: BIS’s Consumer Rights Act: Services Guidance for Business

Rules for the supply of digital content: BIS’s Consumer Rights Act: Digital Content Guidance for Business

Unfair terms: The current guidance on unfair terms is CMA Unfair contract terms guidance: CMA37 This guidance makes reference to Annex A, which contains examples of terms which the CMA’s predecessor body, the Office of Fair Trading (OFT), required be withdrawn and substitutes which were accepted under the UTCCRs.  The CMA has not updated Annex A but has stated that it remains of substantial illustrative value.