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CCPC Guidance: Identifying and avoiding the use of Unfair Terms in Consumer Contracts – June 2020

AUTHOR(S): Helen Kelly, Kate McKenna
KEY CONTACT(S): Helen Kelly, Kate McKenna
PRACTICE AREA GROUP: EU, Competition and Regulatory
DATE: 24.06.2020

As the Irish economy begins to reopen its doors following the Covid-19 lockdown, businesses continue to be subject to a strengthened regulatory framework of consumer protections and additional engagement from consumer law regulators, in ensuring that Ireland’s most vulnerable consumers are protected during this unprecedented time.  In April 2020, we published an article explaining the Competition and Consumer Protection Commission’s (the “CCPC”) enhanced role in monitoring compliance with consumer law requirements, which included among others, the use of unfair contract terms such as attempts to limit consumers’ legal rights directly or indirectly.

On 15 June 2020 and as anticipated, the CCPC published guidelines on Unfair Terms in Consumer Contracts to assist businesses in ensuring that consumers are not bound by one-sided contractual terms or limited in their legal rights.  The government measures introduced to curb the spread of Covid-19 has led to widespread deferral or cancellation of events and services and with this, the CCPC is concerned that businesses may seek to bind existing consumers to new or amended terms without the consumer’s prior agreement or an opportunity for them to exit the contract without penalty if they are unsatisfied with the business’s proposed change.

The below offers an overview of the CCPC’s guidelines, as well as providing several examples of unfair terms:

Unfair Terms Regulations

The guidelines are governed by the European Communities (Unfair Terms in Consumer Contracts) Regulations 1995, as amended (Unfair Terms Regulations) which provide specific protections to consumers who enter into standard form contracts for goods or services.  Among them, there is an obligation on every business when engaging in contractual negotiations to ensure that they: (i) act in good faith (ii) deal openly and fairly with consumers (iii) ensure contract terms do not mislead or cause surprise, and (iv) present contractual terms to consumers in plain and intelligible language.

The Test of Unfairness

The Regulations state, that in assessing if a term is unfair, account must be taken of:

  • The strength of the bargaining position of the parties;
  • Whether the consumer was offered an inducement to agree to the particular term;
  • Whether the good or services were sold or supplied to the special order of the consumer; and
  • Whether the seller or supplier has dealt with the consumer fairly and equitably.

In addition, and following the recent amendment to the Regulations, the CCPC has been afforded additional powers and is authorised to form a view as to the unfairness of a contract term or terms. It must do so on the basis of whether it is (i) contrary to the requirement of good faith, and (ii) creates a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer.

Examples of Unfair Terms

Schedule 3 to the Regulations provides a non-exhaustive list of seventeen contract terms, which may be found unfair, known as the ‘grey list’. A number of examples of potentially unfair terms have been included in the CCPC’s article announcing the publication of the guidelines and are consistent with previous examples offered.  They are as follows:

  • Unequal Obligations: Terms which impose unequal obligations, i.e. the consumer is bound to perform the contract but not the business.
  • Retaining pre-payments: Terms which permit the supplier to retain pre-payments in the event of cancellation/termination without a valid reason. Where the amount of such a pre-payment is in excess of a genuine pre-estimate of the business’s loss.
  • Disproportionate Penalties: Terms which act so as to impose disproportionate penalties on the consumer.
  • Unfair cancellation/termination clauses.
  • Contract renewal without agreement: Terms which provide for an automatic renewal of a contract without the consumer’s agreement.
  • ‘Hidden’ terms: Terms not brought to the consumer’s attention.  Where a particular contract term is likely to have important consequences for the consumer, these must not be hidden and should be flagged from the outset to the consumer.
  • ‘Entire agreement clause’: Terms which rule out earlier commitments made by the business or his or her agent.
  • Unilateral right to change T&Cs: Terms which allow the business a unilateral right to vary the terms of the contract without advance notification to the consumer, time to consider its implications and an opportunity to exit the contract without penalty.
  • Unilateral right to interpretation: Terms that provide the business with a unilateral right to interpret his or her own contractual obligations.
  • Unilateral right to transfer: Terms which allow the business a unilateral right to transfer the contract.
  • Restrictions to legal action: Terms which restrict or hinder legal actions or the exercise of a legal remedy by the consumer.

Should you have any queries about the impact of the CCPC’s guidelines on your business, please do not hesitate to contact your usual Matheson contact or any member of Matheson’s EU, Competition and Regulatory Group.

This article was co-authored by Helen Kelly and Kate McKenna of Matheson’s EU, Competition and Regulatory Group.

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