Unfair Terms in Consumer Contracts Regulations 1999
Encyclopedia
The Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083) is a UK statutory instrument
Statutory Instrument
A Statutory Instrument is the principal form in which delegated or secondary legislation is made in Great Britain.Statutory Instruments are governed by the Statutory Instruments Act 1946. They replaced Statutory Rules and Orders, made under the Rules Publication Act 1893, in 1948.Most delegated...

, which implements the EU Unfair Consumer Contract Terms Directive 93/13/EC into domestic law.Implemented under the European Communities Act 1972
European Communities Act 1972
European Communities Act 1972 can refer to:*European Communities Act 1972 * European Communities Act 1972...

. See also, (1993) L95 OJ 29.
It replaced an earlier version of similar regulations,See The Unfair Terms in Consumer Contracts Regulations 1994 and overlaps considerably with the Unfair Contract Terms Act 1977
Unfair Contract Terms Act 1977
The Unfair Contract Terms Act 1977 is an Act of Parliament of the United Kingdom which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most important functions is limiting the applicability of...

.

Overview

These Regulations overlap somewhat with the Unfair Contract Terms Act 1977
Unfair Contract Terms Act 1977
The Unfair Contract Terms Act 1977 is an Act of Parliament of the United Kingdom which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most important functions is limiting the applicability of...

 which deals specifically with exemption clauses. The Directive set out requirements that in many ways are narrower than rules already in place in English law
English law
English law is the legal system of England and Wales, and is the basis of common law legal systems used in most Commonwealth countries and the United States except Louisiana...

. It does, however, extend the scope of terms
Contractual term
A contractual term is "Any provision forming part of a contract" Each term gives rise to a contractual obligation, breach of which can give rise to litigation. Not all terms are stated expressly and some terms carry less legal gravity as they are peripheral to the objectives of the...

 which can be rendered ineffective; especially when dealing with unfair terms
Contractual term
A contractual term is "Any provision forming part of a contract" Each term gives rise to a contractual obligation, breach of which can give rise to litigation. Not all terms are stated expressly and some terms carry less legal gravity as they are peripheral to the objectives of the...

 that do not constitute exemption clauses. It also has provisions specifically for standard form contract
Standard form contract
A standard form contract is a contract between two parties where the terms and conditions of the contract are set by one of the parties, and the other party is placed in a "take it or leave it" position with little or no ability to negotiate terms more favorable to it.Examples of standard form...

.

The regulations only work to render ineffective terms
Contractual term
A contractual term is "Any provision forming part of a contract" Each term gives rise to a contractual obligation, breach of which can give rise to litigation. Not all terms are stated expressly and some terms carry less legal gravity as they are peripheral to the objectives of the...

 that benefit seller or suppliers against the interests of consumer
Consumer
Consumer is a broad label for any individuals or households that use goods generated within the economy. The concept of a consumer occurs in different contexts, so that the usage and significance of the term may vary.-Economics and marketing:...

s.

Definition of Unfair

Regulation 5(1)"A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer" defines the principle of unfair:
  • If a contractual term has not been individually negotiatedRegulation 5(2) and
  • the term causes significant imbalance in the parties rights and obligations, then
  • the term is contrary to the requirement of good faith
    Good faith
    In philosophy, the concept of Good faith—Latin bona fides “good faith”, bona fide “in good faith”—denotes sincere, honest intention or belief, regardless of the outcome of an action; the opposed concepts are bad faith, mala fides and perfidy...

    .


"Has not been individually negotiated" encompasses terms of which the consumer has not had the opportunity to mould. Terms that have been individually negotiated are outside this regulation, while other contract terms may be within the regulation.Regulation 8(2)

"Causes significant imbalance". For a term to be deemed unfair, this requires the term
Contractual term
A contractual term is "Any provision forming part of a contract" Each term gives rise to a contractual obligation, breach of which can give rise to litigation. Not all terms are stated expressly and some terms carry less legal gravity as they are peripheral to the objectives of the...

 to be to the detriment of the consumer
Consumer
Consumer is a broad label for any individuals or households that use goods generated within the economy. The concept of a consumer occurs in different contexts, so that the usage and significance of the term may vary.-Economics and marketing:...

 and benefit the seller or supplier to an excessive degree.

"Contrary to good faith". In the complex case of Director General of Fair Trading v First National Bank, the bank
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...

's seemingly unfair interest
Interest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....

 term
Contractual term
A contractual term is "Any provision forming part of a contract" Each term gives rise to a contractual obligation, breach of which can give rise to litigation. Not all terms are stated expressly and some terms carry less legal gravity as they are peripheral to the objectives of the...

 was found to be in good faith as the term guarded the bank
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...

 from a possible situation of receiving no interest defeating their business objective.

Schedule 2 sets out an indicative, non-exhaustive list of terms that would be unfair.

Effect of Unfair Term

Regulation 8 provides that an unfair term
Contractual term
A contractual term is "Any provision forming part of a contract" Each term gives rise to a contractual obligation, breach of which can give rise to litigation. Not all terms are stated expressly and some terms carry less legal gravity as they are peripheral to the objectives of the...

 "shall not be binding upon the consumer".

The 'contra proferentem' rule

The 'contra proferentem' rule is that where there is any ambiguity in regards to a clause it is to be interpreted against the party seeking to rely on it. Regulation 7 states this very clearly:
"(1) A seller or supplier shall ensure that any written term of a contract is expressed in plain, intelligible language
Plain English
Plain English is a generic term for communication styles that emphasise clarity, brevity and the avoidance of technical language – particularly in relation to official government communication, including laws.The intention is to write in a manner that is easily understood by the target...

.

If there is doubt about the meaning of a written term, the interpretation which is most favourable to the consumer shall prevail but this rule shall not apply in proceedings brought under regulation 12."

See also

  • Unfair Contract Terms Act 1977
    Unfair Contract Terms Act 1977
    The Unfair Contract Terms Act 1977 is an Act of Parliament of the United Kingdom which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most important functions is limiting the applicability of...

  • European Directives
  • Statutory Instrument
    Statutory Instrument
    A Statutory Instrument is the principal form in which delegated or secondary legislation is made in Great Britain.Statutory Instruments are governed by the Statutory Instruments Act 1946. They replaced Statutory Rules and Orders, made under the Rules Publication Act 1893, in 1948.Most delegated...

    s
  • Office of Fair Trading v Abbey National and Others (2008)
    Office of Fair Trading v Abbey National and Others (2008)
    Office of Fair Trading v Abbey National plc and Others [2009] , [2009] , [2008] is a case about bank charges in the United Kingdom, concerning the situation where a bank account holder goes into unauthorised overdraft....

  • Director General of Fair Trading v First National Bank plc
    Director General of Fair Trading v First National Bank plc
    Director General of Fair Trading v First National Bank plc [2001] is the leading case on the Unfair Terms in Consumer Contracts Regulations 1999. It was an action to test the fairness of clauses in loan agreements which secured a bank commercial interest rates after a debtor that had defaulted and...

    [2001] UKHL 52
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