Unfair Terms in Consumer Contracts: a new ... - Law Commission

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None of you nowadays will remember the trouble we had – when I was called to the Bar – with exemption clauses. They were printed in small print on the back of tickets and order forms and invoices. They were contained in catalogues or timetables. They were held to be binding on any person who took them without objection. No one ever did object. He never read them or knew what was in them. No matter how unreasonable they were, he was bound. All this was done in the name of “freedom of contract”. But the freedom was all on the side of the big concern which had the use of the printing press. No freedom for the little man who took the ticket or order form or invoice. The big concern said, “Take it or leave it”. The little man had no option but to take it. The big concern could and did exempt itself from liability in its own interest without regard to the little man. It got away with it time after time. When the courts said to the big concern, “You must put it in clear words”, the big concern had no hesitation in doing so. It knew well that the little man would never read the exemption clauses or understand them. 8 3.12 This, Lord Denning stated, “was a bleak winter for our law of contract”. 9 3.13 Against such a background the legislature stepped in. In 1975, the Law Commission and Scottish Law Commission published a report on exemption and limitation clauses, 10 which led to the Unfair Contract Terms Act 1977 (UCTA). In 1993, UCTA was supplemented by the Unfair Terms Directive 1993 (UTD). 3.14 It is still the case that consumers rarely read or attempt to understand the many terms with which they are presented. The point can be demonstrated by an April Fools’ joke. On 1 April 2010, Gamestation added a term to their contract to require consumers to sell their souls. The term granted the trader a “nontransferable option to claim, for now and ever more, your immortal soul”. Consumers were entitled to opt out by clicking a link, and if they did were given a £5 voucher. Only 12% of customers clicked the option; the other 7,500 customers sold their souls without bothering to read the clause. 11 8 George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] QB 284, pp 296 to 297. 9 Above, p 297. See for example Thompson v London, Midland and Scottish Railway Co [1930] 1 KB 41 in which a train company’s exemption from liability in small print on the back of a train timetable was upheld and L'Estrange v F Graucob Ltd [1934] 2 KB 394 in which an exemption in small print at the bottom of an order form was upheld. 10 Exemption Clauses: Second Report (1975) Law Com No 69; Scot Law Com No 39. Although the report included draft two Bills (for England and Wales and for Scotland), UCTA does not fully follow these drafts. 11 See Appendix C, para C.41. 20
THE IMPORTANCE OF THE UTCCR 3.15 When the Unfair Terms in Consumer Contracts Regulations 1994 (UTCCR) were introduced into UK law in 1995, they were hailed as ground-breaking. 12 Geoffrey Woodroffe and Robert Lowe commented that their effect was measured not in the volume of litigation but in the amount of enforcement action: In the decade or so since the 1994 Regulations came into force … there has been a great deal of activity out of court – and on that basis consumers have been in a much stronger position than before. 13 … Very few cases under the Regulations reach the courts but many thousands of clauses have been, and are still being, considered by the OFT. 14 3.16 The Office of Fair Trading (OFT) has pointed out that its success in achieving amendments to potentially unfair terms without litigation in thousands of cases has saved hundreds of millions of pounds in litigation costs. 15 3.17 The UTCCR are also used by 11 other bodies qualified to bring a complaint, 16 including the Financial Services Authority, Ofcom and individual trading standards services. The mobile phone market: an example 3.18 An example of the use made of the UTCCR can be seen in the mobile phone market. In 1996, the OFT undertook an investigation into the terms used in standard form mobile phone contracts. These included terms relating to the lack of a “cooling off period”, the length of time that consumers were tied into the contract, and the fees payable for disconnecting a service. The OFT were also concerned that mobile phone contracts were not intelligible: they were often too lengthy, not expressed in plain English and contained terms hidden in small print. 12 G Woodroffe and R Lowe, Woodroffe and Lowe’s Consumer Law and Practice (8 th ed 2010), para 9.01. In 2002 Elizabeth Macdonald described the UTCCR as “possibly the single most significant piece of legislation in the field of contract law”: “Scope and Fairness of the Unfair Terms in Consumer Contracts Regulations: Director General of Fair Trading v First National Bank” (2002) 65(5) Modern Law Review 763. 13 th G Woodroffe and R Lowe, Woodroffe and Lowe’s Consumer Law and Practice (8 ed 2010), para 9.02. 14 Above, para 9.30. 15 In press release 33/2000 The OFT has challenged thousands of clauses, eg OFT Bulletins 21 and 22 list 765 clauses which were amended or deleted within a six month period. 16 These are listed at para 2.11 of this Issues Paper. 21
Page 1: Unfair Terms in Consumer Contracts:
Page 4 and 5: © Crown copyright 2012 ii
Page 6 and 7: CODE OF PRACTICE ON CONSULTATION Th
Page 8 and 9: TABLE OF ABBREVIATIONS ACL Australi
Page 10 and 11: 1.5 This paper, therefore, has two
Page 12 and 13: 1.14 Our main concern is the uncert
Page 14 and 15: (2) in particular to examine articl
Page 16 and 17: PART 2 OVERVIEW OF THE LAW AND THE
Page 18 and 19: Implementing the Unfair Terms Direc
Page 20 and 21: Terms must be fair 2.16 Under the U
Page 22 and 23: 2.28 In 2002, we noted that there h
Page 24 and 25: (3) For contracts between a busines
Page 26 and 27: PART 3 THE PURPOSE OF UNFAIR TERMS
Page 30 and 31: 3.19 As a result of the investigati
Page 32 and 33: BEHAVIOURAL BIASES 3.27 In the last
Page 34 and 35: Behavioural biases and the UTCCR 3.
Page 36 and 37: 3.48 There is a clear difference, h
Page 38 and 39: PART 4 THE EXEMPTION: PREVIOUS RECO
Page 40 and 41: 4.10 The changes sought to reconcil
Page 42 and 43: Plain, intelligible language 4.19 W
Page 44 and 45: The definition of the main subject
Page 46 and 47: (1) Renewal commissions - terms whi
Page 48 and 49: Of course the theory is that the ty
Page 50 and 51: In my view those words involve no m
Page 52 and 53: 5.28 The Supreme Court overruled th
Page 54 and 55: the more closely related the paymen
Page 56 and 57: 5.50 Therefore, the Court concluded
Page 58 and 59: There can be payments which do not
Page 60 and 61: 5.69 In 2010, the OFT noted that th
Page 62 and 63: 5.79 Despite this, the judge did no
Page 64 and 65: 5.89 Alternatively, a court may dec
Page 66 and 67: PART 6 REACTIONS TO THE BANK CHARGE
Page 68 and 69: Support for the decision 6.7 There
Page 70 and 71: Article 189 of the EC Treaty oblige
Page 72 and 73: 6.23 Conversely, the Confederation
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Page 76 and 77: 6.41 However, when we met the OFT a
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6.48 The case of Bankers Insurance
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PART 7 THE EUROPEAN CASE LAW 7.1 Th
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Correcting an imbalance 7.12 The CJ
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According to settled case-law, it i
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7.28 The finding that the omission
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Directive 93/13, a particular metho
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7.44 The leading case on the averag
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7.52 The list of just three factors
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e aware of the approach taken by th
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(d) readily available to any party
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PART 8 PROPOSALS FOR REFORM A NEW A
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(7) Little attempt to distinguish b
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8.20 In some cases, where the consu
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8.31 In a general challenge, the co
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(1) Permit the trader to retain sum
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Terms which give the trader discret
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8.65 On balance, we think that our
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The grey list 8.74 Article 3(3) of
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Example 3 - Lightfinger Lender In t
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Example 7 - Mr Dodgy Door Seller In
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It is particularly important, in or
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9.17 Do consultees agree that the n
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9.30 Do consultees agree that: (1)
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9.42 We discussed this in some deta
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NOTICES 9.54 UCTA covers contract t
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9.68 The first two protections also
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PART 10 LIST OF CONSULTATION QUESTI
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(1) In proceedings brought by indiv
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