Unfair Terms in Consumer Contracts: Advice to ... - Law Commission

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S.18 We now recommend that price or main subject matter terms should be exempt from review only if they are transparent and prominent. Both approaches distinguish between the terms which consumers take into account in their decision to buy the product and those which become lost in small print. The emphasis on prominence, however, offers a practical way of distinguishing between a headline price and other charges. It also emphasises that whether a term is exempt is within the control of the trader. S.19 We recommend that: (1) “Transparent” should be defined as in plain, intelligible language; readily available; and, if in writing, legible. (2) The test of “prominence” should refer to the “average consumer” test, which is widely used in European consumer law. It refers to a hypothetical consumer who is “reasonably well informed, reasonably observant and circumspect”. 7 A term would be prominent if it is presented in such a way that the average consumer would be aware of the term. The more unusual or onerous the term, the more prominent it needs to be. S.20 All terms of a contract should be transparent. As discussed below, if they are not, enforcement agencies should be able to challenge them. Clearly not all terms can be prominent. Simply because a term is not prominent does not make it unfair; nor does it raise a presumption that it is unfair. It could, however, be assessed for fairness. Consultees’ views S.21 More than half of those responding agreed that a price term should be excluded from review, but only if it is transparent and prominent. Support came from all categories of consultee: businesses and business groups; consumer groups; public bodies; academics; and the judiciary and lawyers. Transparency and prominence would not only ensure fairness but also further promote competition. [Direct Line Group] Prominence of the price is key to ensure that consumers know what they are getting for their money [MoneySavingExpert.com] Traders can be expected to welcome the degree of control which they would have over the application of the exemption. [Malcolm Waters QC] S.22 Only two consultees disagreed with the tests in their entirety. Several businesses had concerns, however, particularly about how they would work in practice. We think that many of these concerns can be met by guidance from regulators. 7 See Case C-210/96 Gut Springenheide GmbH and Rudolf Tusky v Oberkreisdirektor des Kreises Steinfurt-Amt für Lebensmittelüberwachung [1998] ECR I-4657. iv
S.23 Some regulators and consumer groups argued that prominence and transparency alone may not always be sufficient. Relying on the insights of behavioural economics, they said that consumers may ignore remote or contingent charges, even if they are prominent. We note that the Directive already makes provisions for behavioural biases in the annex or “grey list” of terms which may be regarded as unfair. We think it is helpful to clarify that grey list terms cannot fall within the exemption. Excluded term or excluded assessment? S.24 One particular difficulty in understanding the exemption is whether it excludes the whole term (the excluded term construction) or only an aspect of the term (the excluded assessment construction). S.25 The case law suggests that the courts may consider some aspects of price terms, such as their timing or calculation. It is only the amount (or “adequacy”) of the price which cannot be assessed for fairness. In Foxtons v O’Reardon, for example, the term concerned the payment of the estate agent’s commission, which was due on exchange of contracts rather than on completion of the sale. 8 Although this was a price term, the court was able to consider the timing of the payment, as this did not involve an assessment of “the adequacy of the price”. 9 S.26 In the Issues Paper we argued that it would be simpler to concentrate on the term. Following consultation we have been persuaded that this would underimplement the Directive. To ensure that the UK meets its minimum harmonisation obligation, we recommend that the legislation should follow the approach of the Directive in stating that it is only the amount of the price which is excluded from review. Other aspects of price terms, such as timing, may be assessed for fairness. S.27 By contrast, we think that the exemption for main subject matter applies to all aspects of the term. Thus if the term specifies the main subject matter, the court may not consider its fairness at all. We considered, but rejected, the idea that a court could assess the fairness of any aspect of the main subject matter, provided that it did not consider how the main subject matter had been defined. Suggested redraft S.28 Although the wording will be a matter for Parliamentary Counsel, we conclude that the exemption should be redrafted along the following lines: No assessment of fairness shall be made- (a) of a term which specifies the main subject matter of the contract; or (b) of the amount of the price, as against the goods or services supplied in exchange, 8 [2011] EWHC 2946 (QB). 9 The court did not consider this to be unfair and, in any event, it decided that the term was exempt as a result of the operation of the first limb of the exemption (Regulation 6(2)(a)). v
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