Consumer Rights Act 2015: Unfair Contract Terms & Notices Overview, Study notes of Law

Download Consumer Rights Act 2015: Unfair Contract Terms & Notices Overview and more Study notes Law in PDF only on Docsity! 1 2.6 Reforming the law on penalty clauses In 1999, the Scottish Law Commission published a Report on Penalty Clauses (Scot Law Com No 171). The main reform to this area of law proposed by the Commission is that a judge should be permitted to modify an excessively high penalty clause in order to make it enforceable. Currently, if the penalty clause is not a genuine pre-estimate of loss, a judge will have no option but to assess compensation in accordance with the ordinary rules of damages. The current test, centring on the concept of a genuine pre-estimate of loss, should be replaced. The proposed reforms would allow a judge to enforce a clause that was ‘not manifestly excessive’ even if the sum claimed is not a genuine pre-estimate of loss. The burden of proof will be on the party against whom the clause is being enforced to demonstrate that the clause is ‘manifestly excessive’. Whether or not a clause is ‘manifestly excessive’ should be the new test applied to penalty clauses. Unfair terms and notices in consumer contracts: the Consumer Rights Act 2015 Part 2 of the Consumer Rights Act 2015 addresses the issue of unfair terms and notices in consumer contracts. Section 61(1) of the Act makes it very clear that Part 2 of the Act applies to contracts between traders and consumers. This part of the Act does not apply to contracts of employment or apprenticeship (Section 61(2)). Section 61 will be relevant if a notice in a consumer contract: a) if it relates to the rights and obligations of the trader and the consumer b) if it purports to exclude or restrict a trader’s liability to the consumer. It will not matter whether such a consumer notice is in writing or made in any other form by the trader. The important thing is that the trader intends this announcement or communication to be seen or heard by the consumer. Section 62 makes it very clear that unfair terms in consumer contracts or consumer notices that are deemed to be unfair will simply not be binding on the consumer. What is meant by an unfair term? Section 62(4) states that: ‘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.’ What is meant by an unfair contract term? According to Section 62(5), whether a contractual term is deemed to be unfair will depend on the following factors: a) taking into account the nature of the subject matter of the contract, and b) by reference to all the circumstances existing when the term was agreed and to all of the other terms of the contract or of any other contract on which it depends. 2 What is meant by an unfair notice? Section 62(6) states that: ‘A notice is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations to the detriment of the consumer.’ According to Section 62(7), whether a notice in a consumer contract is deemed to be unfair will depend on the following matters: a) taking into account the nature of the subject matter of the notice, and b) by reference to all the circumstances existing when the rights or obligations to which it relates arose and to the terms of any contract on which it depends. Section 62 does not affect the operation of the following Sections of the Consumer Rights Act 2015: a) section 31 (exclusion of liability: goods contracts), b) section 47 (exclusion of liability: digital content contracts), c) section 57 (exclusion of liability: services contracts), or d) section 65 (exclusion of negligence liability). Terms that may be regarded as unfair Section 63 of the Consumer Rights Act 2015 addresses the issue of terms that may be regarded as unfair. Reference is made in this Section to Part 1 of Schedule 2 of the Act that contains a non-exhaustive list of examples of terms that may be unfair: http://www. legislation.gov.uk/ukpga/2015/15/schedule/2 Part 2 of Schedule 2 is also relevant here in that it may limit or exclude the application of the rules in relation to unfair terms and consumer notices with regard to certain types of contracts, e.g. the provision of financial services or consumer credit. This is most commonly due to the fact that such contracts will fall within the remit of specific legislative provisions, e.g. in terms of the Financial Services and Markets Act 2000 and the Financial Services Act 2012. That said, such contracts may still be subject to an assessment of fairness in terms of Section 62 of the Act – unless Sections 64 or 73 are applicable to the situation. The UK Secretary of State with responsibility for Business Matters has the power to add, modify or remove any entries in either Part 1 or Part 2 of Schedule 2 to the Act. Situations where an assessment of fairness will not be made Section 64 of the Act identifies situations where the term of the contract will not be assessed to see whether it meets the general requirement of fairness. This will arise in relation to the following: a) if it specifies the main subject matter of the contract b) the assessment is of the appropriateness of the price payable under the contract by comparison with the goods, digital content or services supplied under it. Section 64 is primarily concerned about limiting the ability of consumers to pursue complaints about the price to be paid or the main subject matter. This prevents traders being subjected to claims where the consumer is merely unhappy about her perception that the price to be paid is too expensive or the subject matter of the contract is slightly disappointing, e.g. the consumer has unrealistic expectations regarding the range of services to which she believes she is entitled to receive. That said, if terms relating to price or the subject matter of the contract are not prominently displayed (because the trader has decided to include them in the small print), the consumer may be able to mount a challenge based on their lack of prominence and transparency. A WWW