Unfair Terms in Commercial Contracts

Contracts have become a natural occurrence in today’s society. The existence of unfair terms is not a new concept within a contract. They can be of vital importance in commercial disputes, with them often rendering the contract unusuable.

Contracts fall into two categories, which are B2B (business to business) and B2C (business to consumer) contracts. These two categories with regards to unfair contract terms are governed by separate pieces of legislation. In 2005, the Law Commission for England and Scotland published a report proposing reform for both B2B and B2C contract legislation. The report proposed a new single Unfair Contract Terms Act which would replace both UCTA (Unfair Contract Terms Act 1977) and UTCCRS (Unfair Terms in Consumer Contract Regulations 1999). The aim of the proposed legislation was to regulate limitation clauses in both B2B and B2C contracts. There was no intention to make major changes, it was created with a strict view for consolidation. However, the proposed legislation never received royal assent and so the two separate pathways remain.

However, the implementation of the Consumer Rights Act 2015 updated the law surrounding unfair terms in B2C contracts. The recommendation made by the Law Commission regarding adding new unfair contract terms was implemented. The new unfair terms for B2C contracts are high exit fees, a change in subject matter and any price change.

A disproportionate high exit fee is defined as a “a term which has the object or effect of requiring that, where the consumer decides not to conclude or perform the contract, the consumer must pay the trader a disproportionately high sum in compensation or for services which have not been supplied.” Any commercial lawyer handed a contract to review will always examine any cancellation/termination clauses. If, however you have signed a contract previously and now find yourself facing a disproportionate high exit fee, then this may be an unfair term under the Consumer Rights Act 2015.

A change in subject matter although an obvious argument for a breach of contract is now under the Consumer Regulations Act 2015. The new regulation states that this new unfair term will cover any “term which has the object or effect of permitting the trader to determine the characteristics of the subject matter of the contract after the consumer has become bound by it. This is subject to paragraph 23 (contracts which last indefinitely)”. This amendment is to protect the consumer and help them receive what they intended, rather than a similar product.

Lastly, a change in price has also been included as a new unfair term under the Consumer Rights Act 2015. A change in price for the purpose of the legislation is defined as “a term which has the object or effect of giving the trader the discretion to decide the price payable under the contract after the consumer has become bound by it, where no price or method of determining the price is agreed when the consumer becomes bound. This is subject to paragraphs 23 (contracts which last indefinitely), 24 (sale of securities, foreign currency etc.) and 25 (price index clauses).”

The Consumer Rights Act 2015 under Schedule 2 gives the Secretary of State the power to add/remove a term, or to modify a term that has already been fully incorporated into the Act. This leaves the Act open to allow even more terms to be incorporated at a later date, likewise it allows unfair terms to be removed from the legislation that are arguably in place to protect the consumer.