Unfair terms in consumer contracts

Suppliers of goods and services should be aware of the provisions of the law governing the use of unfair terms in consumer contracts. The original legislation governing this area was originally implemented in Ireland in 1995, and has recently been bolstered by the introduction of further Regulations which give stronger powers of enforcement to the Office of the Director of Consumer Affairs.

Application of the Regulations

In order for the Regulations to apply there must be a transaction between a consumer and a seller or supplier. The Regulations define a consumer as “as a natural person who is acting for purposes which are outside his/her business. A seller is “a person who, acting for purposes related to his/her business, sells goods”, and in similar vein a supplier is “a person who, acting for purposes related to his/her business, supplies services.”

The Regulations apply to any term in a contract between a seller or supplier and a consumer, which has not been individually negotiated. A term drafted in advance, which the consumer has not been able to influence, shall be regarded as not having been individually negotiated. (Examples of these would be holiday contracts, leasing a car, or the standard terms for credit cards). If one term was individually negotiated, the Regulations can still apply to the rest of the contract, and it is for the seller or supplier to show that a term was individually negotiated.

The following contracts and terms are excluded from the scope of the Regulations:

  • Contracts of employment
  • Contracts relating to succession rights
  • Contracts relating to rights under family law
  • Contracts relating to incorporation or organisation of companies or partnerships.
  • Any terms which reflect mandatory statutory or regulatory provisions of Ireland.
  • Any terms which reflect provisions or principles of international conventions to which the member states or community are parties.

The Regulations will apply despite any contract term which attempts to apply the law of a non-member state country, and deprive a consumer of the protection under the Directive. In other words, the Regulations are mandatory rules of law and as such cannot be contracted out of.

What is an unfair term?

A contractual term shall be regarded as unfair if, contrary to the requirements of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract, to the detriment of the consumer. All circumstances and other conditions of the contract must be taken into account in this assessment.

Schedule 2 of the Regulations gives the test for deciding good faith and regard must be had to

  • the strength of the bargaining position of the parties; 
  • whether the consumer had an inducement to agree to the term; 
  • whether the goods or services were sold or supplied to the special order of the consumer; and 
  • the extent to which the supplier or seller has dealt fairly and equitably with the consumer whose legitimate interest he/she has to take into account.

The Regulations also provide sample terms which will be considered unfair.
However, it must be noted that terms concerning definition of subject-matter or
price shall not of themselves be considered unfair if they are in plain intelligible
language. It is, therefore, essential that where terms are offered to the
consumer in writing, the seller/supplier shall ensure that they are drafted in
plain, intelligible language.

Interpretation of fairness

If there is a doubt over the meaning of a term, the meaning most favourable to the consumer shall be applied.

Consequences of term being declared unfair

An unfair term will not be binding on the consumer. The rest of the contract can be severed and continue to bind the parties if that is possible and it does not defeat the main purpose of the contract.

Enforcement

The Director of Consumer Affairs is the main body for enforcement of the Regulations.

In addition to the Office of the Director of Consumer Affairs, the Regulations allow for the establishment of new bodies entitled 'Consumer Organisation', which would be on a par with the Director of Consumer Affairs in relation to enforcement of the Regulations.

These bodies may consist of either an incorporated or unincorporated body of person(s) with the main objective of protecting consumer's interests. In particular, it would be entitled to seek injunctive relief against an offending party provided that the correct notice procedures are obeyed and it need not adduce proof of recklessness or negligence on the part of the offending party. However, the Regulations remove the presumption (when bringing injunctive proceedings) that in interpreting the fairness of the relevant term the interpretation most favourable to the consumer would prevail. From now onwards the courts will not be obliged to interpret the fairness of the term according to the most favourable interpretation of the consumer.
 
Joseph O’Malley
November 2001