As the new year approaches, many businesses begin thinking about updating and amending their standard terms and conditions (and here at Berry Smith we recommend regular reviews) and are considering the key areas that may be of particular concern in the coming year. For example, in an attempt to tackle rising costs, we suggest businesses update their standard terms and conditions to incorporate clauses that allow them to raise their prices in line with increased costs of suppliers or materials. With the cost of living crisis and associated rising prices still at the forefront of public concern as 2023 draws to a close, it is no surprise that businesses are particularly price-conscious when drafting their commercial contracts, however, the inclusion of unfair or hidden clauses in standard terms could lead to companies finding themselves on the wrong side of the Consumer Rights Act (CRA 2015).
Major telecoms company Virgin Media found itself in hot water in recent months after consumer advocate Which? questioned the legality of the inflation-linked price increase clauses they have added to their standard terms and conditions. The clause in question allows Virgin to significantly increase their prices in line with the Retail price Index (RPI) inflation measure, along with the implementation of a 3.9% surcharge. Which? has criticised this clause as violating the CRA 2015 and called on Ofcom to investigate. While there has been no outcome of such investigation as of yet, should this clause be found to be unfair then it will likely be non-binding on consumers. This demonstrates the need for careful drafting to ensure that your business’ terms or consumer contracts do not fall foul of the CRA 2015.
Transparency
The CRA 2015 sets out the requirements for contracts between businesses and consumers. These include the requirement that all written terms used must be transparent, meaning expressed in plain, understandable language. These provisions apply not only to contracts for the supply of goods or services, but any contract between a business and a consumer, such as an IP license, for example.
In order to be considered transparent, any clauses included in consumer contracts must be expressed in plain and intelligible language and clearly legible for consumers. The Competition and Marketing Agency (CMA), in their guidance on unfair contract terms, suggest that in order for a contract term to be considered transparent the consumer should be able to understand and evaluate their rights and obligations under the contract. If a contract contains particularly complex terms, then the consumer should be provided with ‘sufficient information’ to ensure that they understand the practical implications of these difficult terms.
The transparency requirement also relates to the way key terms or clauses are visually presented. This addresses whether key clauses are made prominent to the consumer, rather than hidden away in extensive terms and conditions. If a clause is particularly onerous on a consumer, and it is not presented in such a way as to make it prominent and clear, then this is not likely to be considered as meeting the transparency requirement of the CRA 2015. It is usually best practice, therefore, to draw a consumer’s attention to any key clauses through the use of bold or italic font or through a prologue to the contract listing the key terms for consideration. This is where careful legal drafting is key to ensuring your consumer contracts are fit for purpose.
Fairness Test
Alongside transparency, the CRA 2015 also outlines the requirement that all terms used with consumers must be fair. Certain terms are always prohibited in consumer contracts, such as clauses that exclude the implied terms regarding quality of goods and services, and a list of these unfair terms is provided by the CMA in their Unfair Terms Guidance.
Where a contract term is not automatically considered unfair under the list above, it may be subjected to the fairness test under the CRA 2015. A term is considered unfair under this test if it causes a ‘significant imbalance’ between the parties to the detriment of the consumer and if it is contrary to the requirement of good faith, defined as fair and open dealing. If a term is found to be unfair, then it is not legally binding on the consumer and could be considered deleted from the contract. The consumer must then be returned to the position that they would have been in had that term not been included in the contract, which may mean that the business is required to repay any payments made under the unfair clause.
These provisions aim to ensure that the correct balance is restored between the business and the consumer, but also to dissuade businesses from using similarly unfair terms in the future. It is important to note that where a consumer brings proceedings for unfair terms and there is any doubt about the meaning of a term, then the interpretation that is most beneficial to the consumer will prevail. It is, therefore, extremely important that businesses have clear, fairly drafted consumer contracts in place to avoid the potential consequences of trying to incorporate unfair terms.
Berry Smith Comment
While it is important that your business’ commercial contracts are serving your business needs, it is clear that consumer contracts need to be carefully drafted to ensure they are not failing the CRA’s fairness test, leading to problems down the line. As we approach the start of a new year, it may be wise to consider having any consumer contracts your company has in place reviewed, and where necessary amended, to ensure that all terms can be considered transparent and fair and you can rest assured that your contracts will not infringe the requirements of the CRA 2015, saving time and possible expense in the long run.
The Commercial & IP Team at Berry Smith can provide specialist advice on reviewing and refining commercial contracts, as well as general commercial and business advice.
Please contact us if you would like more information about the issue raised in this article or any other aspect of Commercial law at 029 2034 5511 or commercial@berrysmith.com