Unfair Terms in Contracts
Unfair terms in contracts will occur when a term is incorporated into a contract that goes against the principle of good faith. This action would essentially create an imbalance of power between the rights and obligations of the innocent party under the contract resulting in a detrimental effect for the consumer.
The most important piece of legislation here that goes right to the centre of unfair terms in contracts is the Unfair Terms of Contract Regulations 1999. This Act works well to implement a Directive from the European Council that essentially oversees the regulations of member states and puts in place safeguards against unfair terms in contracts that exist between businesses, sellers, suppliers and consumers.
- The Seller – An individual who sells goods and contracts to a consumer on behalf of their business
- The Supplier – Someone who supplies products or services and contracts to a consumer in relation to their business
- The Consumer – This could be anyone who creates a contract, but they do so not acting in a business context
What Is a Non-Fair Term
Unfair terms in contracts would be something in a contract that would for example allow a business to unilaterally amend the characteristics of a product or service without good reason, or terms that would eliminate a consumer’s legal rights. The regulations are overseen by the Office of Fair Trading and the implications of unfair contracts are significant for businesses.
Sellers or suppliers are organisations or people acting for the purpose of a business. This would include any trade or profession and would also incorporate a government or public body. Standard terms are those created by a business in advance of a contract being entered into and they are generally not negotiated with the consumer. Terms do not necessarily have to be in writing, but they are often found in the small print of business documents such as on the reverse of order forms, placed at the back of brochures or located on a web page.
How the Regulations Applied
These regulations are applicable in contracts between sellers or suppliers and consumers and they relate to terms which have not been negotiated between the people involved in the contract. In the majority of cases, the consumer will be asked to sign a contract that includes standard terms used in that industry of for that business. Contracts for employment, succession rights, family issues or incorporation for business companies or partnerships are excluded from these regulations.
Under the legislation, a contract must be written in clear and unambiguous language so that any consumer can read and understand what they are entering into. Contracts should be written in plain and intelligible language. Whenever uncertainty arises as to the meaning of a term within a contract, the meaning that the consumer takes from this contract is the one that will be adopted.
When assessing the fairness of a contractual term, several things will be explored such as:
- The product or service being sold
- The circumstances that resulted in the contract being created
- Other terms contained within the contract
- Whether any other contracts rely on or a linked to the contract in question
There are several terms that are included from the fairness assessment under these regulations and they include:
- Contractual terms that refer to the subject matter of the agreement
- Contractual terms that relate to the price or renumeration that will be agreed between the parties
- Contracts which are made between private individuals
- Contracts that don’t involve consumers such as in an employment situation
Contracts before 1995
If the contract, simply states the price of a product or service or it defines the product or service to the consumer
There are many standard terms that are often found in contracts that could be considered as unfair. However, just because a term is on this list doesn’t mean to say that it is unfair. Careful examination of the contract and its nature will need to be looked at to establish unfairness. Common terms that are deemed unfair (but not always) include:
- Those that mislead the consumer about their legal rights or the contract itself
- Denying any redress if something goes wrong
- Binds the customer to the contract in an unfair way
- Allows the business to alter the terms of the contract after it has been agreed and signed
- A term that enables a business to create unfair penalties
If a case proceeds to court, it is at the Courts discretion to determine whether the term is unfair. If it is, it will no longer be binding on the consumer, but the contract will still be valid if it is possible for the contract to continue.
Fairness inquiries are carried out by the court if a claim is brought that raises questions over unfairness within the terms of a contract.
About the Author
This article was written by a member of the Expert Answers team and posted by Lloyd Barrett, Admin & Customer Services Manager for online advice service Expert Answers. Expert Answers provides legal advice to users in the UK who post a question on their secure platform.