ACCC and Consumer Contracts Review

The  Australian Competition & Consumer Commission (ACCC) has released its brief report [PDF] on Unfair Contract Terms: Industry review outcomes.

The Commission notes that the Australian Consumer Law (ACL) "incorporates various provisions targeting specific consumer issues, including provisions which render void unfair terms in standard form consumer contracts".

The ACCC reviewed standard form consumer contracts through the lens of these provisions in the airline, telecommunications, fitness and vehicle rental industries, as well as some contracts commonly used by online traders. A select number of standard form contracts used by prominent travel agents were also examined. 

During these reviews, the ACCC identified issues under both unfair contract term laws and broader consumer protection laws. The ACCC worked with businesses to remove or change unfair terms in standard form contracts and address identified issues. 

Its report summarises the outcomes of the reviews, commenting that the following types of terms were of particular concern -

1. Contract terms that allow the business to change the contract without consent from the consumer. 

2. Terms that cause confusion about the agency arrangements that apply and that seek to unfairly absolve the agent from liability. 

3. Terms that unfairly restrict the consumer’s right to terminate the contract. 

4. Terms that suspend or terminate the services being provided to the consumer under the contract. 

5. Terms that make the consumer liable for things that would ordinarily be outside of their control. 

6. Terms that prevent the consumer from relying on representations made by the business or its agents. 

7. Terms seeking to limit consumer guarantee rights. 

8. Terms that remove a consumer’s credit card chargeback rights when buying the service through an agent.

The ACCC states that "particularly significant changes were achieved in relation to standard form contracts of major airlines, with 79% of problematic terms identified by the ACCC amended or deleted as a result of the review".

The ACCC goes on to note that

The national unfair contract terms laws came into effect on 1 July 2010. Part 2–3 of the ACL provides a court may determine that a term of a standard form consumer contract is unfair and therefore void. Under the ACL, a ‘consumer contract’ means a contract for the supply of goods and services or the sale or grant of an interest in land, to an individual who acquires it wholly or predominately for personal, domestic or household use or consumption. 

Although the unfair contract terms provisions do not define a ‘standard form contract’, they outline a number of factors that the court must take into account in determining whether a contract is a ‘standard form contract’. In broad terms, it will typically be one that has been prepared by one party to the contract and is not subject to negotiation between the parties – that is, it is offered on a ‘take it, or leave it’ basis. 

The unfair contact terms laws do not apply to a contract to supply goods or services from one business to another for business use. 

Similar unfair contract terms provisions exist under the Australian Securities and Investments Commission (ASIC) Act in relation to standard form consumer contracts for financial products and services. 

A test consisting of three elements is used to determine whether a term is unfair. 

A term of a consumer contract will be considered unfair if: 1. it would cause a significant imbalance in the parties’ rights and obligations under the contract 2. it is not reasonably necessary to protect the legitimate interest of a party to the contract (note that the party who would be advantaged by the term must prove that it is reasonable necessary), and 3. it would cause detriment to a party to the contract if it were to be applied or relied upon. 

All three elements of the test must be proved in order for a court to find that a term is unfair. In determining whether a term is unfair in accordance with the test, the court must take into account the extent to which the term is transparent, and the contract as a whole. xxxx The laws also provide examples of the types of terms that may be considered unfair and provide a framework for assessing the transparency of terms. Terms that set the upfront price and subject matter of a contract, and terms that are expressly required or permitted by another law are excluded from the unfair contract terms provisions. 

Enforcement of the unfair contract terms is shared between the ACCC, ASIC and the state and territory consumer protection agencies. Individual consumers can also seek to enforce their rights under the law. The ACCC, ASIC and the state and territory consumer protection agencies may apply to the court for a declaration that the term of the contract is unfair. It is then the role of the court to determine whether this is the case. 

If a court makes a declaration that a term is unfair and a party subsequently seeks to apply or rely on the unfair term, the court may make orders including to vary the contracts or arrangements; an order refusing to enforce any or all of the terms of the contract; or an order directing the person to refund money or property to the injured person.

Courts and security

From the Explanatory Memo for the Court Security Bill 2013 (Cth) -

This Bill creates a new framework for court security arrangements for federal courts and tribunals. The new framework will meet the security needs of the modern court environment by providing a range of powers for security officers, and limited powers for authorised court officers, to ensure that court premises are safe and secure environments for court users, court staff, judicial officers and other persons on federal court and tribunal premises. The Bill replaces the current security framework for federal courts and tribunals under Part IIA of the Public Order (Protection of Persons and Property) Act 1971 (Public Order Act). 

For ease of reference, the use of the term 'court' ... includes all federal courts, the Family Court of Western Australia (FCWA) and the Administrative Appeals Tribunal (AAT) unless otherwise specified. 

Part 1 of the Bill deals with preliminary matters, including commencement and definitions. It also provides a guide to the remainder of the Bill. 

Part 2 of the Bill establishes the framework for the exercise of security powers on court premises. Division 1 provides for the appointment of security officers and authorised court officers by administrative heads of courts and requires appointed officers to hold prescribed qualifications. Divisions 2, 3 and 4 outline the powers available to security officers and authorised court officers and prescribes certain offences related to non-compliance with the exercise of these powers. Division 5 authorises security officers to escort people to and from court premises as a protective measure. Division 6 provides various safeguards around the exercise of security powers, including requiring security officers to be appropriately licensed under a law of a State or Territory, and to carry, and produce, identification when exercising a security power in relation to a person. Division 7 provides for complaint procedures in relation to the exercise of powers by officers under the Bill, and an oversight role for the Commonwealth Ombudsman. 

Part 3 of the Bill prescribes certain additional offences connected with court premises including possessing a weapon on court premises, making an unauthorised recording or transmission on court premises, and unreasonably obstructing a person's entry to, or activity on court premises. 

Part 4 of the Bill provides for judicial officers of courts exercising family law jurisdiction to make restraining or protection type orders in circumstances where there is an ongoing risk of significant disruption to those courts or a risk of violence affecting persons or property connected with those courts. 

Part 5 of the Bill deals with miscellaneous matters including immunity from suit, compensation and delegations. It also enables the Governor-General to make regulations. 

The Court Security (Consequential Amendments) Bill 2013 removes the courts and tribunals covered by this Bill from the application of provisions of the Public Order Act.

Intercepts

The Commonwealth Telecommunications (Interception and Access) Amendment Regulation 2013 (No 1) amends the Telecommunications (Interception and Access) Regulations 1987 (here) to prescribe declared organisations within the meaning of s 7 of the Serious Crime Control Act (NT) as criminal organisations within the definition of section 5 of the Telecommunications (Interception and Access) Act 1979 (Cth) (here).

Droit Financials

Information from the response to Parliamentary Questions by Senator Gary Humphries regarding the Australian droit de suite (Resale Royalty Scheme) administered by Copyright Agency Limited (CAL)

1. What is the total value of royalty collections to date, including figures for each quarter.

The total value of royalty collections is $805,115.70. Data is collected on a six monthly basis.

2010 July-Dec: $26,191.80

2011 Jan- June: $128,323.80

2011 July-Dec: $204,811.20

2012 Jan-June: $153,670.50

2012 July-Dec: $292,118.40

2. What percentage of the total value of royalties collected has gone to Indigenous artists, including figures for each quarter.

Since the commencement of the scheme, 59% or $440,042 has been paid to Indigenous right-holders. Actual payment data is only available as a total. A disaggregation would require an unreasonable diversion of resources.

3. What are the annual Art Centres figures for first sales of Indigenous art.

The Department does not have the requested information

4. What is the total value of the top 600 individual royalty payments to date.

 $296,772

5. How many individual right-holders received the top 600 individual payments.

150

6. How many of the top 600 individual royalty payments have gone to Indigenous right-holders, including figures for each quarter.

301 payments for 91 right-holders -

2010 July-Dec: 17 payments

2011 Jan-June: 61 2011

July-Dec: 59

2012 Jan-June: 76

2012 July-Dec: 88

7. To date, what is the total value of the lowest 2,000 individual royalty payments.

$115,379 

8. If the scheme can deliver the smallest individual artist royalty payment at $50, with a 10% administration fee of $5, why does the scheme charge an administration fee of $1,000 to deliver an individual royalty payment of $10,000.

The scheme allows the collecting society to charge a 10% administration fee on each royalty paid to contribute to the scheme becoming self-sustaining over time.

9. After deducting non-recurrent set-up costs, what is the average cost of the CALs individual royalty payments to date.

$30

CIR and Loopy Eunuchs

The Senate has referred the Citizen Initiated Referendum Bill 2013 - proposed by the sole Democratic Labor Party senator - to the Finance and Public Administration Legislation Committee for inquiry and report by 24 June 2013, with submissions due 19 April.

The Committee is to consider:

1. Citizens' Initiated Referendum (CIR) promotes greater openness and accountability in public decision-making.

2. Laws instituted as a result of a CIR are more clearly derived from the popular expression of the people's will.

3. Government authority flows from the people and is based upon their consent.

4. Citizens in a democracy have the responsibility to participate in the political system.

5. The Inter Parliamentary Union's call on member states to strengthen democracy through constitutional instruments including the citizen's right to initiate legislation.

A legal scholar might consider items 1 through 5 as claims, and problematical claims at that, rather than facts.

The actual Bill is less scary than it sounds, with the senator indicating that the object is to enable Australian citizens to initiate a proposal for a referendum to amend the Constitution.

The expectation is that

a) electors must register to amend the Constitution with the Electoral Commission; and

b) the Electoral Commission must review the application to determine whether the proposal relates to amending the Constitution; and

c) if the application is relevant, that the Elector must submit a document to the Electoral Commission containing the signatures of at least 1% of all Australian Electors; and

d) at least 3% of those signatures must be checked randomly by the Electoral Commission to confirm their validity; and

e) the Minister is responsible for introducing a Bill into Parliament to initiate the legislation to have a referendum to consider a proposal to amend the Constitution, should the Electoral Commission confirm that the necessary criterion has been fulfilled; and

f) the first Saturday of October in 2016 and every fourth year afterward will be the day for a referendum to take place.

Presumably once every four years we get to enjoy watching referenda from coelecanths on such utterly important matters as a 'space shield' to protect us from aliens, a canal from Adelaide to Uluru or establishment of Daniel Mannix Day as a national holiday. (The first referendum under the Citizens Initiated Referenda Act 1993 (NZ) somewhat more sensibly asked New Zealanders to vote on the number of full-time professional firefighters employed by the government.)

The 1994 Parliamentary Research Service paper on CIR commented that

Like other proposals to renovate representative democracy [CIR has] however, been subject to considerable criticism. It is argued that:

• the CIR process can be captured by well financed interest groups;

• CIR supporters mistake majority rule for genuine democracy;

• CIR are socially divisive and prone to produce short-term radical solutions to complex problems and are totally unsuitable for certain areas of policy formulation (eg defence and foreign affairs);

• CIR are costly and destructive of good planning; and

• CIR pose a threat to representative and responsible government and make little provision for minority views

before going on to quote Geoffrey Barker's claim that although CIR "has, of late, attracted some surprisingly respectable friends" it is "largely supported by a raft of 'dreamers and zealots"and

is the last refuge of the political eunuch and loopy populist, and it exposes the nation to dangers including the exploitation of irrational fears and prejudices, and lack of balance and consistency in national policy formulation.

Scholars might turn to 'The Failure of Citizens’ Initiated Referenda Proposals in Australia: New Directions for Popular Participation?' by George Williams and Geraldine Chin in (2000) 35(1) Australian Journal of Political Science 27–48

Royal Commissions

The Royal Commissions Amendment Bill 2013 (Cth) to amend the Royal Commissions Act 1902 (Cth) has passed in the lower house.

The expectation is that the amended Act will facilitate the Royal Commission into Institutional Responses to Child Sexual Abuse but and will apply to all future Commonwealth royal commissions.

The Explanatory Memo indicates that

Where a Royal Commission is constituted by more than one Commissioner, the Act currently allows evidence to be taken on oath or affirmation at a hearing by all the Commissioners or by a quorum. The first main purpose of the Bill, to apply to multi-member Royal Commissions, is to enable the President or Chair to authorise one or more members to hold a hearing. The proposed amendment will allow for efficient distribution of work between Commissioners where it is appropriate to do so.

People who want to give evidence will be able to do so in a less formal setting, with scope to go before a private hearing, not swear an oath or affirmation, but receive the same protections as those giving evidence at formal hearings. The amendments also strengthen confidentiality measures surrounding information given in a private session.

The Memo indicates that the amendments will

facilitate persons directly or indirectly affected by child sexual abuse and related matters in institutional contexts to present their account to a Commissioner in a setting that is less formal than a hearing. The Bill refers to this type of hearing as a `private session'. The Letters Patent recognise that it is important that persons affected by child sexual abuse and related matters in institutional contexts can share their experiences in appropriate ways recognising that many participants will be severely traumatised or will have special support needs. Private sessions would also allow Commissioners the opportunity to better understand the context and circumstances of child sexual abuse. The proposed amendments will permit the Chair Commissioner to authorise members of the Commission to hold private sessions. The amendments will apply similar protection to participants who give information as would apply to a person giving evidence at a formal hearing. The information will not be taken on oath or affirmation and the sessions will be conducted in private and information that is received and used in a report of the Royal Commission will not identify individuals.

In discussing privacy protection the Memo states that

The Bill will promote the right to privacy by enabling persons who wish to give information to the Royal Commission into Institutional Responses to Child Sexual Abuse to do so voluntarily in a private session that will not be open to the public. This is considered appropriate given the deeply personal and distressing nature of people's experiences of child sexual abuse. The purpose of receiving the information is to assist the lawful purposes of the Royal Commission's inquiry. Information relating to a natural person could only be used in a report of the Royal Commission if the information is also given as evidence to the Commission or under a summons, requirement or notice under section 2 (proposed paragraph 6OD(3)(a)) or if it is de-identified (proposed paragraph 6OD(3)(b)).

Article 19(2) of the International Convention on Civil & Political Rights provides that everyone shall have the right to freedom of expression and that this right includes the freedom to seek, receive and impart information and ideas of all kinds, regardless of frontiers, either orally, in writing or in print, in the form of art, or through any other media of his choice. This right may be subject to certain restrictions, but these shall only be such as are provided by law and are necessary on limited grounds, including for the respect of the rights or reputations of others.

The Bill will limit Article 19 by restricting who may attend private sessions and limiting the use and disclosure of information obtained at a private session. An amendment is proposed to make it an offence to use or disclose information obtained at a private session which is subject to exceptions including where the use or disclosure is for the purposes of performing functions or duties or exercising powers in relation to the Royal Commission .... or where the information is de-identified when used in a report of the Commission. These amendments are considered appropriate given the deeply personal and distressing nature of people's experiences of child sexual abuse. The offence will serve to protect the privacy of participants. As the information obtained at a private session will not be given on oath or affirmation these measures will also serve to protect the reputations of other people.

The fair trial and fair hearing rights contained in article 14 of the ICCPR are not engaged by the amendments. A Royal Commission is not a court or tribunal and cannot adjudicate on a person's guilt or liability. A Royal Commission may report and make recommendations on matters into which it is inquiring.

The Memo states that

Participation at a private session will be voluntary. The Commission would not use compulsory powers at these sessions to require attendance, an answer to an inquiry or production of documents. Information received at a private session would not be taken on oath or affirmation. For these reasons, proposed subsections 6OC(1) and 6OC(2) provide that a person who appears at a private session is not a witness and does not give evidence to the Commission and makes clear that a private session is not a hearing of the Commission. The purpose of proposed subsection 6OC(3) is to ensure that certain powers available to the Royal Commission will apply to information or a document received at a private session. This includes powers under section 6F of the Act to inspect, copy and retain documents that may be voluntarily provided at a private session, and under section 6P of the Act to communicate information to certain office holders, including the Commissioner of a police force.

The Bill reflects restrictions on access under the Freedom of Information Act 1982 (Cth). Personal information in private sessions will not be accessible under that Act. The Bill provides for restrictions on public access to archived Commission records containing information obtained at a private session, with those

containing information obtained at a private session to be treated in the same way as census information so that these records would come into the open access period under the Archives Act 1983 99 years after the year the record came into existence.

Consumer Contracts

The UK Law Commission has released its advice paper on Unfair Terms in Consumer Contracts [PDF], updating its 2005 joint report with the Scottish Law Commission on Unfair Terms. The 2005 document recommended a single harmonised regime to replace both the Unfair Contract Terms Act 1977 (UCTA)and the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR) , the latter giving effect to the Unfair Terms Directive 1993 (UTD, ie Council Directive 93/13/EEC of 5 April 1993, OJ 1993 L 95).

The Commission comments that

For many years, the law on unfair contract terms has been criticised for its complexity. It is set out in two separate pieces of legislation:  The [UCTA] focuses on exclusion clauses. It applies to a broad range of contracts, including those made between businesses and between businesses and consumers.  The [UTCCR] apply only to contracts between businesses and consumers, but cover a greater variety of non-negotiated terms. Terms may be challenged not only by consumers but by 12 designated enforcement bodies.

In its March 2013 update, based on consultation in 2012, the Commission states that

The UTD is a minimum harmonisation measure, which means that the UK may provide more protection to consumers than is required by the Directive, but may not provide less protection. Where it has been necessary to depart from the words of the Directive, we have ensured consumer rights are not reduced.

The current law (Part 2)

The UTD exempts certain contract terms from review, provided that they are “in plain intelligible language”. Article 4(2) states that a fairness assessment may not relate to “the definition of the subject mater of the contract” or “the adequacy of the price and remuneration…as against the services or goods supplied in exchange”. These words have been copied out into the implementing regulations and are now in Regulation 6(2) of the UTCCR.

The exemption has proved particularly difficult to interpret. It has generated complex litigation, culminating in the 2009 Supreme Court decision, Office of Fair Trading v Abbey National plc [2009] UKSC 6, [2010] 1 AC 696. This was a test case against seven banks and a building society. The issue was whether charges for unauthorised overdrafts were exempt from an assessment for fairness because they were price terms.

The High Court and Court of Appeal found that the terms were not exempt, because they were not part of the essential bargain between the parties, and a typical consumer would not recognise the charges as part of the price. By contrast, the Supreme Court said that overdraft charges were exempt. It rejected the idea that price terms could be divided into those which formed the essential bargain and those which were ancillary. It said that the price should be determined “objectively”, rather than from the viewpoint of a typical consumer. The judgment has proved difficult to interpret, with regulators and businesses expressing different views.

The case for reform (Part 2)

In the Issues Paper we asked whether the law in this area was unduly uncertain. A large majority of consultees agreed that it was. Consumer groups and enforcement bodies felt that this undermined the effectiveness of the legislation:

It is virtually impossible for consumers to apply the rules confidently. [Which?]

Any law that is so complex and could lead to such great delays through judicial interpretation does not meet a fitness for purpose test for consumer protection legislation. [Trading Standards Institute]

The Supreme Court decision has led us to be very cautious in our assessment of unfair terms [Civil Aviation Authority]

Only a small minority of consultees thought that the law was certain. HSBC commented:

The Supreme Court's decision was clear that, in relation to price terms, “any monetary price or remuneration payable under the contract” would naturally fall within the exemption.

We think that the words of the judgment may be lulling some businesses into a false sense of security. There are other ways to interpret the judgment – and it could be overturned by the Court of Justice of the European Union (CJEU). The German Federal Supreme Court takes a different view on the UTD and has reviewed ancillary bank charges for fairness.

In a world of price comparison websites, there is increasing pressure on traders to advertise low headline prices, whilst earning their profits through other charges. Given this potential undermining of competition, the law should provide effective tools to prevent abuse.

The current uncertainty has the potential to damage businesses as well as consumers. If a business uses an ancillary price term to subsidise a low headline price, the business is put at risk if the term is later found to be unfair. It faces the substantial costs of litigation; the reputational damage to its business; the cost of repaying consumers; and the demise of its business model.

We recommend that the exemption for subject matter and price should be reformed. The current law is unacceptably uncertain. It requires significant legal expertise to navigate, and even then the outcome is unpredictable. Both consumers and traders may suffer from this uncertainty.

The need to protect against small print (Part 3)

We think that the exemption should distinguish between terms which are subject to competition and those which are buried in “small print”. Where consumers know about the terms proffered by traders, they are able to take them into account in their choices: the law should not seek to protect consumers from the consequences of their own decisions.

By contrast, consumers rarely read “small print”. “Small print” is a concept instantly understood by consumers in their daily lives. It is not just about font size. It is also marked by poor layout, densely phrased paragraphs and legal jargon. Often simply labelling a hyper-link as “terms and conditions” is sufficient to ensure that most consumers do not read the document. We think that all small print terms should be assessable for fairness.

A new approach based on transparency and prominence (Part 3 and 4)

The 2005 Report proposed that the exemption should not apply to payments which are “incidental or ancillary to the main purpose of the contract”. In Abbey National this test was considered too uncertain.  We now recommend that price or main subject matter terms should be exempt from review only if they are transparent and prominent. Both approaches distinguish between the terms which consumers take into account in their decision to buy the product and those which become lost in small print. The emphasis on prominence, however, offers a practical way of distinguishing between a headline price and other charges. It also emphasises that whether a term is exempt is within the control of the trader.

We recommend that: (1) “Transparent” should be defined as in plain, intelligible language; readily available; and, if in writing, legible. (2) The test of “prominence” should refer to the “average consumer” test, which is widely used in European consumer law. It refers to a hypothetical consumer who is “reasonably well informed, reasonably observant and circumspect”. A term would be prominent if it is presented in such a way that the average consumer would be aware of the term. The more unusual or onerous the term, the more prominent it needs to be.

All terms of a contract should be transparent. As discussed below, if they are not, enforcement agencies should be able to challenge them. Clearly not all terms can be prominent. Simply because a term is not prominent does not make it unfair; nor does it raise a presumption that it is unfair. It could, however, be assessed for fairness.

Consultees’ views

More than half of those responding agreed that a price term should be excluded from review, but only if it is transparent and prominent. Support came from all categories of consultee: businesses and business groups; consumer groups; public bodies; academics; and the judiciary and lawyers.

Transparency and prominence would not only ensure fairness but also further promote competition. [Direct Line Group]

Prominence of the price is key to ensure that consumers know what they are getting for their money [MoneySavingExpert.com]

Traders can be expected to welcome the degree of control which they would have over the application of the exemption. [Malcolm Waters QC]

Only two consultees disagreed with the tests in their entirety. Several businesses had concerns, however, particularly about how they would work in practice. We think that many of these concerns can be met by guidance from regulators.

Some regulators and consumer groups argued that prominence and transparency alone may not always be sufficient. Relying on the insights of behavioural economics, they said that consumers may ignore remote or contingent charges, even if they are prominent. We note that the Directive already makes provisions for behavioural biases in the annex or “grey list” of terms which may be regarded as unfair. We think it is helpful to clarify that grey list terms cannot fall within the exemption. Excluded term or excluded assessment?

One particular difficulty in understanding the exemption is whether it excludes the whole term (the excluded term construction) or only an aspect of the term (the excluded assessment construction).

The case law suggests that the courts may consider some aspects of price terms, such as their timing or calculation. It is only the amount (or “adequacy”) of the price which cannot be assessed for fairness. In Foxtons v O’Reardon [2011] EWHC 2946 (QB), for example, the term concerned the payment of the estate agent’s commission, which was due on exchange of contracts rather than on completion of the sale. Although this was a price term, the court was able to consider the timing of the payment, as this did not involve an assessment of “the adequacy of the price”.

In the Issues Paper we argued that it would be simpler to concentrate on the term. Following consultation we have been persuaded that this would underimplement the Directive. To ensure that the UK meets its minimum harmonisation obligation, we recommend that the legislation should follow the approach of the Directive in stating that it is only the amount of the price which is excluded from review. Other aspects of price terms, such as timing, may be assessed for fairness.

By contrast, we think that the exemption for main subject matter applies to all aspects of the term. Thus if the term specifies the main subject matter, the court may not consider its fairness at all. We considered, but rejected, the idea that a court could assess the fairness of any aspect of the main subject matter, provided that it did not consider how the main subject matter had been defined.

Suggested redraft

Although the wording will be a matter for Parliamentary Counsel, we conclude that the exemption should be redrafted along the following lines: No assessment of fairness shall be made- (a) of a term which specifies the main subject matter of the contract; or (b) of the amount of the price, as against the goods or services supplied in exchange, provided that the term in question is transparent and prominent.

Guidance

It is important that the practicalities of making price charges prominent should fit in with other regulations, particularly for financial services, utilities or mobile phone contracts. We recommend that regulators should publish sector-specific guidance on the meaning of “transparent and prominent” to assist businesses. 

The Grey List

Schedule 2 of the UTCCR contains an indicative and non-exhaustive list of terms which may be regarded as unfair (the grey list). It reproduces word for word the Annex to the UTD. We recommend that the legislation should specifically state that all terms on the grey list are assessable for fairness.

Following consultation we have been persuaded that the grey list should be retained in its current form with some limited additions. We recommend three additions to the grey list. These are terms which have the object or effect of: (1) permitting the trader to claim disproportionately high sums in compensation or for services which have not been supplied, where the consumer has attempted to cancel the contract; (2) giving the trader discretion to decide the amount of the price after the consumer has become bound by the contract; and (3) giving the trader discretion to decide the subject matter of the contract after the consumer has become bound by it.

Fairness Test

In the Issues Paper we asked whether the UTCCR should be rewritten in more accessible language. We have been persuaded by the strong arguments put to us that the words of the UTD should be changed only if there is a good reason to do so. We therefore recommend that the fairness test set out in articles 3(1) and 4(1) of the UTD should be replicated in the new legislation.

The Need for Transparency

Article 5 of the UTD states that written contracts “must always be drafted in plain intelligible language”. Recital 20 expands this concept to say that “the consumer should actually be given an opportunity to examine all the terms”. We have concluded that article 5 goes beyond the words used, and also requires that terms are legible and readily available. We therefore recommend that the legislation should require terms to be “transparent”, which incorporates all three concepts.

Article 5 does not spell out the consequences of failing to make a term transparent. We do not think that non-transparent terms are automatically unfair, though it is an important factor to consider. Under the Consumer Injunctions Directive, however, enforcement bodies must have the power to prevent their use. We recommend that the legislation should clarify that enforcement bodies may use their powers under Part 8 of the Enterprise Act 2002 against terms which are not transparent.

Terms of no effect

An aim of this project is to bring all unfair term provisions affecting business to consumer contracts together. Therefore, we recommend that the new legislation should replicate the substance of the provisions of UCTA concerning terms and notices which purport to exclude or restrict traders’ liability for causing death or personal injury. Such terms should always be considered unfair.

End user licence agreements and notices

Many end user licence agreements do not have the status of contract terms, yet they often contain exclusion clauses. The clauses are usually unenforceable but may still have a damaging effect by discouraging consumers from claiming their rights. As the UTCCR only apply to contract terms, enforcement bodies cannot take action against clauses which do not have contractual status.

By contrast, UCTA protects consumers against exclusion clauses, whether they are contract terms or mere notices. We recommend that the new legislation should cover notices which exclude a trader’s liability to a consumer. Where they are unfair, enforcement bodies would have powers to bring actions against them.

Terms which reflect existing law

The UTD exempts terms from review if they merely reflect the existing law. Article 1(2) of the UTD refers to “mandatory statutory or regulatory provisions” but Recital 13 explains that this covers “rules which, according to the law, shall apply between the contracting parties provided that no other arrangements have been established”. We recommend that the new legislation should reflect the words of Recital 13.

Negotiated terms

UCTA applies to all consumer contracts, whether or not they are negotiated. By contrast, negotiated terms are exempt under the UTCCR, though negotiated terms are defined narrowly.

We recommend that the new legislation should follow UCTA and apply to negotiated terms. This will affect very few cases. As Which? point out, in practice the vast majority of negotiated terms fall within the exemption for main subject matter or price. Where terms about other issues are genuinely negotiated, they are unlikely to be found unfair. On the other hand, the current exemption for negotiated terms in the UTCCR encourages unnecessary argument and litigation. The legislation will be simpler and more easily enforced if the distinction between standard terms and negotiated terms is removed.

The burden of showing that a term is fair

The CJEU recognises that few consumers have the legal expertise to prove that a term is unfair. It has therefore stressed that national courts must consider the fairness of terms on their own motion. We recommend that the new legislation should reflect this case law explicitly, so that the courts are aware of their duty.

We do not think that it is necessary to make any other statements about the burden of proof. In practice, issues about the burden of proof are unlike to arise.

Definition of a consumer

We recommend that the definition of a consumer should be consistent across the new consumer legislation being considered by BIS. The new definition is likely to be narrower than the definition of “dealing as a consumer” in UCTA, but the loss of protection for businesses will be negligible. A consistent definition will introduce much needed simplification.

Remaining role of UCTA

The new provisions on unfair terms would only affect contracts made between businesses and consumers. UCTA is wider. It applies to contracts made between businesses, between businesses and consumers, employment contracts and even, to some extent, “private contracts” where neither party is a business.

We have considered the effect of a reformed UCTA on employment and private contracts as well as businesses dealing as consumers. We think that all references to “dealing as a consumer” should be removed from UCTA. We also invite BIS to consider whether an opportunity can be found to consolidate the law on private sale contracts.