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Unfair Terms in Consumer Contracts – About Time for a ‘Health Check’?

AUTHOR(S): Helen Kelly, Kate McKenna
PRACTICE AREA GROUP: EU, Competition and Regulatory
DATE: 30.10.2018

The European Commission has recently actively confronted behaviours of large multinationals which it views as threatening the rights of European consumers. With this more aggressive European stance, and with ample consumer regulatory powers under current Irish legislation allowing scope for interventionist action, companies need to be mindful of compliance and the potential repercussions of terms and conditions included in contracts with consumers.

Irish Law

The European Communities (Unfair Terms in Consumer Contracts Regulations) 1995 (as amended) (the “Regulations”) regulate contracts between consumers and businesses, such that businesses do not have absolute freedom to include any and all contractual terms in their interactions with consumers.

The Regulations require that contractual terms be “fair” and prohibit terms which cause a significant imbalance in the position of the consumer, when compared to the position of the business. In making this assessment, a court will have regard to the circumstances in which the contract was concluded and the nature of the goods or services being provided.

This fairness requirement applies only to contractual terms which are not “individually negotiated” by the business and the consumer. In addition, it does not apply to terms that form the very subject matter of the contract which are expressed in plain language.

While these are important carve outs from the Regulations, it is important for businesses to be aware that Irish, and indeed UK courts, have not always been consistent in interpreting the scope of the Regulations. In particular, the Irish courts have recently adopted contrasting approaches on whether mortgage terms come within the scope of the Regulations.

European Law and Developments

The Irish Regulations were introduced following the European Directive on Unfair Terms in Consumer Contracts (the “Unfair Terms Directive”). In April 2018, the European Commission published proposals to amend the existing Unfair Terms Directive to include provisions allowing for national penalties for the inclusion of unfair terms in consumer contracts.  The proposed amendments will include prescriptive guidance on the calculation of such penalties at a national level, including a requirement to take into account the seller’s annual turnover and net profits, and any previous violations on an EU wide level.

Under the ambit of the Consumer Protection Cooperation Network which brings together consumer authorities across the Member States, the European Commission has sought to curb contractual practices in a number of high-profile recent interventions. In November 2016, and July and September 2018 the European Commission, acting with the cooperation of Member State authorities, expressed concerns regarding the standard terms and conditions utilised by a number of large multinational online businesses. It called on national authorities to “act swiftly”, given that the European Commission itself cannot impose consumer law sanctions on businesses. The particular terms which it considered inconsistent with EU consumer law included:

  • Terms preventing consumers from identifying the commercial nature of communications and sponsored content
  • Terms requiring consumers to waive their mandatory consumer rights
  • Terms allowing for unilateral termination of a contract, for any reason, or unilateral changes to contractual terms and fees
  • Terms implying that a court unconnected to the domicile or residence of the consumer may have jurisdiction over disputes
  • Terms excluding liability for personal harm and other damage

Irish Enforcement – Not to be Underestimated

In addition to the risk of investigative action by the European Commission, the potential for “unfair” contractual terms to be subject to enforcement by the Irish courts should not be underestimated. Indeed, the Irish courts can, of their own motion and without it being explicitly raised, consider the compliance of contracts with the Regulations and the Unfair Terms Directive.[1] For example the Regulations recently came before the High Court in Bank of Ireland v McMahon & Anor[2] and Ulster Bank Ireland Limited v Liam Costelloe and Gabrielle Bishop Costelloe.[3]

In addition, the Competition and Consumer Protection Commission has extensive enforcement powers and in particular can apply to the Irish courts for a declaration that a particular term is unfair such that its future use must be prohibited. As many large multinationals have their EU Headquarters in Ireland, other agencies across Europe may look to the Competition and Consumer Protection Commission to show leadership in this area.

While the CCPC currently does not have the power to levy administrative fines, recent developments and the upcoming ECN+ Directive indicate that a more direct role for the CCPC in directing fines may be forthcoming.  In any event, fines could be imposed by the Irish courts, and this proposal continues the trend at European level to pay increased attention to allegedly unfair terms in consumer contracts.

Message for Irish Businesses

With significant legal uncertainty, intervention possible at both the European and national level, and the severe reputational damage and costs at stake, businesses in Ireland should be alive to the requirements of the Regulations.  It is appropriate to take a close and conservative look at your compliance with the Regulations in particular through carrying out routine consumer law ‘health checks’ of your consumer contracts.  A full pro-active check can offer a valuable opportunity to bring any potentially problematic terms into compliance and avoid a costly regulatory investigation or court case.

 

[1]. Case C-40/08 Asturcom Telecomunicaciones SL v Rodriguez Nogueira [2009] ECR I-9579.

[2]. The Governor and Company of the Bank of Ireland v Patrick McMahon and Angela McMahon [2018] IEHC 455.

[3]. Ulster Bank Ireland Limited v Liam Costelloe and Gabrielle Bishop Costelloe [2018] IEHC 289.

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