Unfair Terms in Consumer Contracts

Status: This project is complete.  Our recommendations have been accepted by the Government and now form Part 2 of the Consumer Rights Bill, which was introduced into Parliament on 23 January 2014

The Consumer Rights Bill forms part of a package of measures to clarify consumer law, to be introduced by primary and secondary legislation.  These measures will draw on three joint reports by the Law Commission and Scottish Law Commission.  Read more about our consumer rights work and the Bill.

The project

In May 2012, BIS asked the Law Commission and Scottish Law Commission to review and update the recommendations made by the two Law Commissions in their 2005 Report on Unfair Terms in Contracts in so far as they affect contracts made between businesses and consumers and examine in particular article 4(2) of the Unfair Terms Directive on terms exempt from review in the light of recent case law.

We published our Advice to BIS on 19 March 2013.  This followed a consultation exercise, which we held in 2012.  A summary is also available.

The price and main subject matter exemption under the UTCCR

The Unfair Terms Directive has been part of UK law since 1995.  It is implemented through the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR).  These Regulations enable consumers and enforcement bodies, such as the OFT, to challenge non-negotiated terms on the ground that they are unfair.  This is subject to an exemption for “the main subject matter of the contract” and “the adequacy of the price… as against the goods or services supplied in exchange”.

There is considerable uncertainty about the meaning of these words, following the 2009 Supreme Court decision in Office of Fair Trading v Abbey National plc.  The decision has been interpreted in different ways, which means that navigating the law requires significant legal expertise, and even then the outcome is uncertain.  It is difficult to predict which terms are price or subject matter terms and may, therefore, not be challenged.

In view of the litigation and uncertainty, we make new recommendations on how the exemption for price and main subject matter should be reformulated to better protect consumers and to clarify the law.

Review of the recommendations in our 2005 Report on Unfair Terms

We still believe that the Unfair Contract Terms Act 1977 and the UTCCR should be consolidated.  Our review led, however, to some changes to our 2005 recommendations.

As part of the consolidation process we recommend extending the unfair terms protection to notices.  This should prove particularly useful in relation to end user licence agreements containing unfair terms.  We also recommend some limited additions to the “grey list” of terms which are indicatively unfair.