Unfair Terms in Consumer Contracts: A European Perspective, Exams of Contract Law

Download Unfair Terms in Consumer Contracts: A European Perspective and more Exams Contract Law in PDF only on Docsity! Bulletin of the European Communities Supplement 1 /84 Unfair terms in contracts concluded with consumers Commission communication presented to the Council on 14 February 1984 (based on COM (84) SS final) EUROPEAN COMMUNITIES Commission This publication is also available in the following languages: DA ISBN 92-825-4364-1 DE ISBN 92-825-4365-X GR ISBN 92-825-4366-8 FR ISBN 92-825-4368-4 IT ISBN 92-825-4369-2 NL ISBN 92-825-4370-6 Cataloguing data can be found at the end of this publication Luxembourg: Office for Official Publications of the European Communities, 1984 ISBN 92-825-4367-6 Catalogue number: CB-NF-84-001-EN-C Articles and texts appearing in this document may be reproduced freely in whole or in part providing their source is mentioned. Printed in Belgium shall apply. may well find that the supplier refuses to do business except on his own standard conditions. Moreover, the consumer who then decided to try another supplier will almost inevitably find himself faced with that supplier's standard conditions. 10. There appear to be two main types of standard term contract which may cause pro­ blems for consumers. First, standard form con­ tracts, which for the purposes of this discussion paper mean contracts prepared and printed in advance: only the name and address of the purchaser and details identifying the goods or services in question need be added in each individual case. The use of standard form contracts effectively excludes the possibility of real negotiation between the parties on the conditions governing the subject matter of the contract (although there may be negotiation on such matters as the price and the specifications of the goods). Secondly, contracts other than the above, whether or not in writing, made subject to the supplier's standard business conditions: typi­ cal examples are contracts for services such as dry-cleaning or transport. where a ticket or voucher is generally given. and written contracts for structural work on buildings. In these cases some of the terms may well be negotiated between the parties. but the standard conditions used by the supplier often purport to restrict or exclude the effect of such negotiation, as outlined under 7 above. In the case of oral contracts there is. from the consumer's point of view, the additional difficulty of proof. 11. Standard contract terms have the advantage of saving time on negotiation and, from the consumer's point of view, ought strictly to provide greater legal certainty than non-standard terms. as they have been used in a large number of contracts and may even have been the subject of court decisions. In practice, however, the typical consumer, not being a lawyer, is very unlikely to be aware of this. 12. In most cases. standard terms are drawn up by or on behalf of the supplier for use in his dealings with consumers. In some cases they are prepared by the company's legal department. or adapted from a model prepared by an indepen· dent legal adviser; in others. they are drawn up by a trade association for use by its members. The common feature of all these methods is that the standard terms are drawn up without the 6 consumer's participation. so he is unable to assert his interests and ensure that they are reflected in the terms. 13. Many, if not most, consumers who enter into contracts made on standard terms do so in ignorance of their precise meaning. Frequently, although the contract stipulates that signature by the consumer indicates that he understands and accepts all its terms. the consumer has in practice no real opportunity to study the terms, for example, because they have not been communica­ ted to him in advance, or because he has simply been advised that they are available on request or are to be found elsewhere. Moreover, even if the consumer has the opportunity to study the terms, he will probably be unaware of the precise legal significance of the language used, and may therefore be misled as to the contract's true meaning. 14. While the law generally ensures a certain equilibrium between the various interests invol­ ved, it is not the purpose or effect of standard terms to establish a fair balance. They are designed to reinforce the economic and legal position of the party who drew them up and uses them. The main purpose of the various clauses governing, for example, the terms of payment of the contract price or the obligations of the supplier in the event of non-delivery or faulty delivery is to limit the supplier's contractual obligations and liabilities while adding to those of the consumer. Since the terms were designed, drawn up and applied unilaterally by the supplier, they improve his bargaining power. The result is that the consumer's position in negotiating and performing contracts with a supplier is further weakened. The reason for this is that the consumer is rarely in an economic position in relation to the supplier which enables him to impose contract terms on the supplier. 15. The widespread use of standard contract terms can thus be seen as calling into question the consensual basis of contract law. It was long believed that the provisions of the general law ensured an equitable balance between the parties to a contract, while parliament and the courts saw to it that this balance was maintained. Since the parties to a contract may in so many cases derogate from the Jaw's provisions. however, the equitable balance which such laws might have guaranteed is almost never achieved, because suppliers use standard terms designed primarily to protect their own interests. s. 1/84 II -The situation in the Member States General observations /6. The principles ofthe law of contract were to a great extent laid down in the last century, and were devised for parties of approximately equal economic power. This was not an altogether realistic view of the typical contract even then: and it is clearly inappropriate today. Rather, however, than take an approach which would involve a general reform of the law of contract, at least in so far as it concerns consumer contracts. a number of Member States in recent years enacted specific legislation dealing with particular types of contract between suppliers and consumers (for example. 'doorstep' contracts. consumer credit and travel contracts). These laws frequently prohibit any derogation from their provisions. 17. Nevertheless, both approaches - general reform or partial reform by sector of the law and contract - require a considerable investment of time and effort. In a society of mass production and distribution any general reform may well have a major impact on the existing economic and legal structures and cause considerable confusion. While affording consumers a degree of protec­ tion. mandatory legislation is at the same time open to criticism as restricting business activity. This frequently leads to more general criticism of excessive legislation on the grounds that it restricts economic freedom and leads to the risk of higher unemployment following price rises, or to loss of competitiveness. Moreover, as it is difficult to evaluate precisely the full impact of new legislation on a given sector of the economy or production and distribution in general, it is not surprising that legislative action sometimes takes a very long time. For example. negotiations on the international convention on a Uniform Law on International Sale of Goods (ULIS) took over 20 years. The process is, admittedly, much faster at national level, but it is still apparent that the drafting and amendment of national legislation does not always keep pace with the need to maintain a balance between the interests of consumers and suppliers. This gap between economic reality and the legislative process is often increased by the fact that laws. being s. 1/84 abstract and general in nature. cannot always take account of all aspects of economic activity. Their precise impact often appears in the interpretation they receive in court decisions. even when drafted in very narrow or precise terms. 18. To sum up: - overall or specific legislative action. whether national or international. takes considerable time to prepare and implement: - the fact that it is abstract and does not specifically deal with all aspects of economic activity means that it cannot cover every situation in which there is an imbalance between the rights and obligations of the contracting parties: - the economic situation evolves so rapidly that it cannot be accurately and permanently reflected in legislation. 19. In seeking a solution to the problems raised by contract terms drawn up unilaterally, Member States have generally introduced a number of measures adopting where appropriate mandatory provisions governing certain types of contract or economic activity. The measures given as exam­ ples below are in many cases concurrent with and supplemented by other provisions. 20. To mitigate some of the consequences of standard contract terms, a general provision may be incorporated in the Jaw laying down the principle that contract terms must not be unfair. Provisions of this kind are to be found in the following laws: - the Danish Marketing Practices Act of 1974, which requires general compliance with fair commercial practice: - the Luxembourg Law of 25 August 1983 on the legal protection of the consumer: - the German Law of 9 December 1976 on general conditions of business (Gesetz zur Rege­ lung des Rechts der Allgemeinen Geschaftsbe­ dingungen). which lays down that a contract term drawn up by one party and placing the other at a disadvantage is void if it is in bad faith: - the French Law of 1978 on consumer protec­ tion and information, providing for the banning. limiting or regulating of contract terms which 'appear to have been imposed on the consumer as a result of the other party's abuse of his economic 7 power, giving that party an excessive advantage': such terms are void. 2/. A number of legal systems have a black list of clauses which are regarded as prejudicial to the interests of consumers; the penalties for using such clauses vary: - the British Unfair Contract Terms Act. I 977. renders void clauses restricting liability for econo­ mic loss. unless the supplier can satisfy a court that they are reasonable in the circumstances; the Consumer Transactions (Restrictions on State­ ments) Order. I 976 (made under the Fair Trading Act. I 973) makes it a criminal offence to display certain statements, such as 'no refund' notices, which purport to limit a consumer's rights under the general law of contract: - the Irish Sale of Goods and Supply of Services Act, 1980, contains very similar provisions; - the German Law of I 976 on general conditions lays down a list of prohibited terms and distin­ guishes between those cases in which some latitude is allowed in assessing whether or not a term is unfair and other case where it is not: - the Luxembourg Law of 25 August 1983 lists 20 clauses which are deemed unfair. 22. Regardless of whether or not legal provi­ sions are adopted governing the content of contract terms. a better balance between the interests of suppliers and consumers can be achieved by negotiations on the drafting of standard terms. - the Danish Marketing Practices Act of I 97 4 entrusts the Consumer Ombudsman with the task of promoting compliance with fair commercial practice. To this end. he negotiates standard contract terms with suppliers or their trade associations. - in the Netherlands in particular. but also in Belgium. France and Germany (automobile sec­ tor). consumer associations have negotiated stan­ dard contract terms with the representatives of given industrial or commercial sectors in an attempt to reach a compromise between the different interests involved. It appears that, with the exception of the automobile sector in Ger­ many, these initiatives have been only moderately successful. partly because there are no legal constraints in the event of a breakdown in negotiations. partly because suppliers are in many cases unwilling to participate. 8 23. Some national laws have introduced specific checks on unfair contract terms: - the German Law of 1976 entitles consumer associations and certain other bodies to bring actions to put an end to the use of standard contract terms which conflict with the provisions of the law (a similar rule appears in the Dutch draft law); - the French Law of I 978 set up a commission on unfair terms to examine contract terms and determine whether they were likely 'to create an obvious imbalance between the rights and obliga­ tions of the parties. to the consumer's detriment'. The commission makes recommendations. where appropriate. and sends them to the government. It is for the government to decide whether the recommendations should be published. 24. Another approach would be to require prior authorization to be obtained in cases involving standard contract terms. A number of States have adopted this approach for the insurance sector. However. the large number of different standard contracts - in Germany alone, there are some I 400 standard life assurance contracts and I 500 standard accident insurance contracts - would seem at first sight to rule out any wider use of this approach. 2 5. There have been proposals to allow the public authorities to draw up standard terms or a standard contract for a given economic sector. (See, for example, the Netherlands draft civil code and the Luxembourg Law of 25 August 1983. A similar proposal has been made in France in respect of travel contracts.) However, because of the lengthy procedure involved. requmng thorough consultation with the relevant interest groups. this approach would not seem at first sight to be likely to produce results more quickly than the legislative or rule-making approach. The current legislative position Belgium 26. There is no general law on unfair contract terms. Specific legislation governs only a few types of contract (transport. travel and insurance contracts). s. 1/84