- This regulation came into force on 1st October 1999, there was an implemented EU directive on this, it seeks to regulate unfair contracts alongside the Unfair Contract Terms Act 1977. Please note, as you will see there is overlap between the two as well.
Outcome of the legislation
- Any term that is deemed to be unfair will be ineffective at binding the consumer and this can be found in regulation 8.
Effect of unfair term
8.—(1) An unfair term in a contract concluded with a consumer by a seller or supplier shall not be binding on the consumer.
(2) The contract shall continue to bind the parties if it is capable of continuing in existence without the unfair term.
What is a consumer?
- Someone who is acting for their own private interests as opposed to commercial reasons, see R3
“consumer” means any natural person who, in contracts covered by these Regulations, is acting for purposes which are outside his trade, business or profession;
Case Example: Standard Bank London Ltd v Apostolakis
Facts: A wealthy couple from Greece (civil engineer & lawyer), made financial investments in order to make a profit. The question for the courts was whether they could be deemed to be consumers.
Judgement: The courts found regardless of the profit motive they were consumers as they were acting for their own private interests and not within their own respective professions.
What is a seller or supplier?
- Again this can be found in R3, anybody who is selling or supplying for the purposes of his own profession or trade
- This includes the sale or letting of land.
“seller or supplier” means any natural or legal person who, in contracts covered by these Regulations, is acting for purposes relating to his trade, business or profession, whether publicly owned or privately owned;
What is an unfair term?
- This can be found in regulation 5;
—(1) A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer.
(2) A term shall always be regarded as not having been individually negotiated where it has been drafted in advance and the consumer has therefore not been able to influence the substance of the term.
(3) Notwithstanding that a specific term or certain aspects of it in a contract has been individually negotiated, these Regulations shall apply to the rest of a contract if an overall assessment of it indicates that it is a pre-formulated standard contract.
(4) It shall be for any seller or supplier who claims that a term was individually negotiated to show that it was.
(5) Schedule 2 to these Regulations contains an indicative and non-exhaustive list of the terms which may be regarded as unfair.
(1) It will be deemed unfair if the term is not individually negotiated, and does not have good faith causing an imbalance of rights to the detriment of the consumer.
(2) If the contract was drafted in advance, then it will be deemed to be individually negotiated
(3) If most of the contract is standard form then just because one term is individually negotiated doesn't mean that these regulations won't apply to it.
(4) Burden of proof lies with the seller to show the contract is not standard form.
(5) Schedule two gives a 'grey list' of examples of terms that would be deemed to be unfair under these regulations.
If there is a doubt of what a term means it should be interpreted in favour of the consumer, following the contra preferendem common law rule, see R7 (2).
(2) If there is doubt about the meaning of a written term, the interpretation which is most favourable to the consumer shall prevail but this rule shall not apply in proceedings brought under regulation 12.
How can these regulations be enforced?
They can be brought forward in court.
Or through the OFT ( Office for Fair Trading ), this is given in R10 , it is the duty of the OFT to look into complaints and they have the power to obtain an injunction, none of this is given in UCTA.
Complaints – consideration by Director
10.—(1) It shall be the duty of the Director to consider any complaint made to him that any contract term drawn up for general use is unfair, unless–
(a)the complaint appears to the Director to be frivolous or vexatious; or
(b)a qualifying body has notified the Director that it agrees to consider the complaint.
(2) The Director shall give reasons for his decision to apply or not to apply, as the case may be, for an injunction under regulation 12 in relation to any complaint which these Regulations require him to consider.
(3) In deciding whether or not to apply for an injunction in respect of a term which the Director considers to be unfair, he may, if he considers it appropriate to do so, have regard to any undertakings given to him by or on behalf of any person as to the continued use of such a term in contracts concluded with consumers.
- Some terms are not regulated and those are called "core terms" , see R6(2)
- Courts will not intervene in the market practices and not for the substance of the contract. This is because it is intended to preserve market forces
- The only way unfair pricing would be subject to modification is if it not written in 'plain intelligent language'
- Intelligibility is to be measured by reference to ordinary members of the public; e.g. legal words and phrases should be avoided, long sentences and cross referencing within a document should be avoided and some long contracts may require a summary
- (2) In so far as it is in plain intelligible language, the assessment of fairness of a term shall not relate–
(a)to the definition of the main subject matter of the contract, or
(b)to the adequacy of the price or remuneration, as against the goods or services supplied in exchange.