In 2007, the Unfair Terms in Consumer Contracts Act
came into force. The Act was passed for the purpose of regulating
unfair terms in consumer contracts and related matters. The
intention appears to be to codify legal principles governing 'unfair
terms in contracts concluded between a seller or supplier and a
consumer'. The Act will affect contracts entered into before, on and
after the coming into force of the Act1.
It is important,
firstly, to clarify that the Act is intended to protect individuals
whose bargaining power is likely to be undermined through the typical
use of 'standard-form agreements' by sellers and suppliers. The Act
defines “seller” as “a person who sells goods and who, in
making a contract to which this Act applies, is acting for purposes
relating to his business”. Similarly “supplier” is defined as
“a person who supplies goods or services and who, in making a
contract to which this Act applies, is acting for the purposes
relating to his business”. The Act does not specify whether
“person” in its definitions of “seller” and “supplier”
include natural and legal persons. To differentiate, however, it is
useful to note that the Act defines “consumer” as “a natural
person who, in making a contract to which this Act applies, is acting
for the purposes which are outside his business”. Accordingly, it
could be said that the Act is intended to include legal and natural
persons in its definitions of “seller” and “supplier”. The
Act, however, does not apply to contracts entered into by two
companies or partnerships as these are legal entities and cannot be
consumers under the provisions of the Act. It does, however, appear
that the Act can apply to contracts relating to land2.
The definition of “in
the course of business” has been explored in R&B
Customs Brokers & Co. Ltd. V United Dominions Trust Ltd.
[1988] 1 WLR 321. If the contract in question is not an integral
part of the business, or if only incidental to the carrying on of the
business, the contract would need to be entered into with sufficient
regularity. Keep in mind that this case was decided on the provision
of the UK Unfair Contract Terms Act, however, the decision can serve
as persuasive rather than
authoritative for the purpose of the Unfair Terms in Consumer
Contracts Act, 2007. I will delve into the details of this case
later.
The
regulation of unfair terms under the Act only applies to contractual
terms which have not been individually negotiated. Of course, it is
often the case that consumer contracts are in such a form. Section
3(3) of the Act provides the test for whether a contractual term has
been individually negotiated. Such a term must have “been drafted
in advance and the consumer has not been able to influence the
substance of the term”. Section 5(4) of the Act states that
notwithstanding that a particular term of a contract may have been
individually negotiated, the Act shall apply to the rest of the
contract if an overall assessment of the contract indicates that it
is a pre-formulated standard contract. Therefore, the fact that the
consumer has been able to influence the contract in a minor way does
not prevent the remainder of the contract not so influenced from
being treated as not individually negotiated and therefore
potentially containing unfair terms.
Where the consumer
has had an opportunity to influence the content of a contractual
term, the presumption is that the term so influenced is not unfair
and thus the Act will only apply to the remainder of the contract.
Although the basis behind this provision is understandable, one can
still imagine a negotiation itself being affected by the inequality
of bargaining power between parties where one is consumer, so that a
false assumption to believe that the terms were individually
negotiated becomes a guard against unfairness, which will work to the
benefit of the seller or supplier.
Under section 4(1)
of the Act, a consumer contract term will be regarded as unfair if
it, contrary to the requirement of good faith, causes a significant
imbalance in the parties' rights and obligations under the contract
to the detriment of the consumer. It would appear that the notion of
'detriment to the consumer' is unlikely to cause great difficulty as
it follows the notion of 'significant imbalance' and the basic
purpose is to indicate for whose benefit the control is to be
exercised. In the unlikely event of an imbalance existing which
acted in favour of the consumer, the contract term will obviously not
be regarded as unfair.
Additionally,
the identification of criteria for compliance with the provisions of
the Act is a process of deduction from what is termed an “indicative
and illustrative list of terms which may be regarded as unfair”.
Note that the Act provides that such terms may
be regarded as unfair rather than 'will' or 'shall'. The list of
such terms is contained in the Third Schedule to the Act. The list
is long (too long to include here). The terms as listed in the Third
Schedule, however, are relatively clear.
In
general, as it relates to good faith, the
requirement of 'good faith' embodies a general principle of fair and
open dealing3.
It means that terms should be expressed fully, clearly and legibly
and that terms that might disadvantage the consumer should be given
appropriate prominence. However transparency is not enough on its
own, as good faith relates to the substance of terms as well as the
way they are expressed and used. It also requires a supplier not to
take advantage of consumers' weaker bargaining position, or lack of
experience, in deciding what their rights and obligations shall be.
Contracts should be drawn up in a way that respects consumers'
legitimate interests.
One
criticism of the Act is that it requires complaints to be made to the
Minister, who would then consider the complaint and, if the Minister
thinks that the term is unfair, the Minister would refer the matter
to the Attorney-General to commence proceedings4.
The Minister is within his authority to refuse to refer a
complaint to the Attorney General if the Minister is of the view that
the complaint is vexatious or frivolous. Under the Act, it would
appear that only the Attorney-General has the locus
standi
to apply to the Court for an injunction under the Act5.
There is also no system of appeal set out under the Act to allow a
consumer to challenge the decision of the Minister.
Unfair terms
in Commercial Agreements
The Act carries
with it significant effects on commercial contracts, particularly
those that are unilaterally drafted. An example of this are
agreements between banks and consumers relating to credit card
facilities granted by credit card issuers to their customers. For
example, credit card agreements will invariably contain provision for
the provider of the credit card facility to charge the customer
certain amounts in cases of default. Under the Act, these contracts
fall subject to scrutiny of “fairness” under the provisions of
the Act. Considerations of fairness as it relates to commercial
contracts, particularly default charges on credit cards.
In Director
General of Fair Trading v First National Bank plc [2002] AC 481,
the question of whether a bank clause in a standard form contract
making interest payable on outstanding moneys after discharge of
payments under a court order was unfair. The decision is of
particular importance as in assessing the fairness of such a clause
(more importantly whether a charge is disproportionately high) the
charge which would be payable by the consumer upon default must be
compared to the damages that would be awarded to the credit card
issuer at common law in the event of such default. This brings
considerations of remoteness and causation into the picture.
It would follow
that, in determining the appropriate charge in the event of default,
the credit card issuer needs to assess the costs which arise from a
consumer's default. When considering these costs, the credit card
issuer should be careful to avoid double recovery. It would help to
consider that the credit card issuer may derive some benefit from the
consumer's default (actual or anticipated). Examples of this might be
where a credit card issuer applies interest rates based on a
risk-based pricing policy whereby those falling in the higher-risk
bracket have higher interest rates attached to their facility.
Additionally, the consumer is most likely required under the contract
to pay the full amount of interest due on the outstanding balance in
the event of default. Combining these benefits should be avoided by
credit card issuers.
UTCCA 2007 and
Tenancy Agreements
The Third Schedule
of the Act sets out a non-exhaustive list of terms which may be
regarded as unfair. Two of particular interest here are terms which
will have the effect of:
(a) excluding or
limiting the legal liability of a seller or supplier in the event of
the death of a consumer or personal injury to the latter resulting
from an act or omission of that seller or supplier;
(b) inappropriately
excluding or limiting the legal rights of the consumer vis-à-vis the
seller or supplier or another party in the event of total or partial
non-performance or inadequate performance by the seller or supplier
of any of the contractual obligations, including the option of
offsetting a debt owed to the seller or supplier against any claim
which the consumer may have against him.6
It is not uncommon
for landlords to include disclaimers or exclusions of liability
arising of a failure of the landlord to comply with its obligations
under the common law. Consumers can normally expect the services
that they have contracted for to be carried out to a reasonable
standard. This can be applied to contracts entered into by tenants
when letting premises. These could, for example, include the
provision of services set out in the agreement or the landlord's
obligations to conduct repairs to the premises. Accordingly, any
provision in the tenancy agreement which seeks to relieve landlords
from any obligation to take reasonable care in their dealings with
tenants could be regarded as unfair. This could also be deemed to
include terms excluding the liability of landlords regarding work
done by agents or contractors.
There is,
unfortunately, not a wealth of authority on this subject, however, it
would benefit landlords and those who frequently prepare tenancy
agreements to ensure that they exercise a degree of caution in
efforts to ensure that their tenancy agreements comply with the Act.
The provisions of the Act can be avoided, however, where the
prospective tenant has been given a draft of the agreement and is
afforded an opportunity to negotiate the terms of the agreement7.
This post is for your information only and nothing in this post is intended to constitute a legal opinion. If you require specific advice, you should contact a Bahamian commercial attorney. You can contact a Bahamian commercial attorney by clicking here.
1Section
8 of the Unfair Terms in Consumer Contracts Act 2007
2The
London Borough of Newham v Khatun, Zeb, Iqbal and the Office of Fair
Trading [2004] EWCA Civ 55.
3
Per Lord Bingham of Cornhill in Director General of Fair Trading
v First National Bank plc [2001] UKHL 52, [2002] 1 All ER 97,
HL.
4Section
7 (1) and (2) of the Unfair Terms in Consumer Contracts Act 2007
5Section
7(5) of the Unfair Terms in Consumer Contracts Act 2007
6Clauses
1(a) and (b) of the Third Schedule to the Act
7 Section
5(4) of the Act
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