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OFT consults on fairness in consumer contracts

The Office of Fair Trading (OFT) has launched a consultation into its guidance on what constitutes an unfair term in a consumer contract. It has given examples of some of the terms it has come across that it considers unfair.

Statements on order forms like "I have read the Conditions of Sale overleaf and agree to be bound by them" are unfair on consumers, in the OFT's view.

The consultation will result in the first revision to already-produced guidelines to the Unfair Terms In Consumer Contracts Regulations. These 1999 Regulations bind all suppliers who use standard contract terms with consumers. However, the OFT has said that respondents to a recent survey did not want major changes made to the existing guidance.

The six-week consultation is now open and the new guidance will take account of the Enterprise Act of 2002 and the survey which the OFT conducted into its guidance last year.

Under the Regulations the OFT has a duty to consider any complaint received about unfair terms. Where a term is considered unfair, enforcement action may be taken on behalf of consumers to stop its use, if necessary by seeking a court injunction in England and Wales or an interdict in Scotland.

The Enterprise Act 2002 gives the OFT separate powers against traders who breach consumer legislation, including the right to seek enforcement orders, where there is a threat of harm to the collective interests of consumers.

As an illustration for companies on what is and is not appropriate, the Office published some examples of contract clauses that it looked into and the amendments that were made under its guidance. The examples are organised according to the group structure of the guidance itself.

Consumer declarations

Original term: I/we have read the Conditions of Sale overleaf and agree to be bound by them.

New term: before signing this order, the customer should carefully read the terms and conditions set out on the other side of this agreement.

Choosing a jurisdiction

"The terms may be unfair if they have the object or effect of excluding or hindering the consumer's right to take legal action or exercise any other legal remedy," say the Regulations.

Original term: English law will apply to these Terms of Membership. The English courts will have exclusive jurisdiction in the case of any dispute.

New term: Relevant United Kingdom law will apply to the Agreement and the relevant courts of the United Kingdom will have exclusive jurisdiction in relation to the Agreement.

Excessively broad general exclusions

Original term: This car wash is used entirely at owner's risk.

Action taken [by the OFT]: Term deleted.

Original term: The company does not accept responsibility for the failure of any fire protection equipment in the event of a fire.

Action taken: Term deleted.

Limitations of liability

Original term: in respect of any direct damage to property caused by the negligence of Maples or the negligence or wilful default of its servants or agent Maples' liability hereunder shall not exceed £1,000.

New term: we will pay for any damage caused by our employees.

Clauses excluding the right to monetary compensation

Original term: Microsoft's entire liability and your exclusive remedy shall be, at Microsoft's option, either a) return of the price paid or b) repair or replacement of the software or hardware that does not meet Microsoft's Limited Warranty and which is returned to Microsoft with a copy of your receipt.

Action taken: term is no longer applied to consumers

Cancellation fees and penalties

Original term: the company may in its absolute discretion agree to the cancellation of the contract provided that the customer reimburses the company for all expenses actually incurred together with the anticipated gross profit had the contract been completed.

Action taken: term deleted.

Unequal cancellation clauses

Original term: this Contract is not subject to cancellation by The Customer … the Company reserves the right to cancel or refuse acceptance of any order at any time by refunding all monies paid less an administrative charge. Action taken

New term: either party shall have the right to terminate this Contract without penalty within seven days … In the event of such termination by either party the Company shall refund to the Customer all sums paid by the Customer.

Binding consumers to hidden terms

Original term: … the Seller and this contract shall be subject to any conditions which the Company may from time to time attach to the supply of the vehicle and the accessories to the Seller.

Action taken: term deleted.

Supplier's right to vary terms generally

Original term: Sky may at any time vary or add to these Conditions as it deems necessary.

New term: [Sky may] change or add to Conditions … for security, legal or regulatory reasons … We will give you at least one month's notice of any changes or additions. We will not use this right to vary the terms of any special offer which applies to you … you may end this contract at any time … by giving one month's notice, if we tell you … we are going to change these conditions.

Right to change what is supplied

Original term: the company reserves the right to vary design and/or specification of any installation and/or product used without prior notice to the customer.

New term: as it is our policy to continually improve products, methods and materials, we reserve the right to change specifications from time to time, we will not make any significant variations without your agreement.

Clauses claiming the right to vary services

Original term: … a reduction or other variation in the number or identity of the channels included in the Sky Multi-Channels Package will not vary the Subscription Payments payable by the Subscriber … bonus Channels will be supplied to Subscribers at no additional cost … Sky may at any time without notice vary the terms on which these Channels are supplied including but … not limited to introducing or otherwise making a charge …

New term: you may end this contract at any time … if we … withdraw any Sky Premium Channel or reduce significantly the level of service of the Sky Multi-Channels Package.

Price variation clauses

Original term prices of the Goods shall include delivery of the Goods to the Buyer's premises. Provided however, that the Seller reserves the right to impose a delivery charge where the Seller sees fit. Any charge for delivery will be at the Seller's rates from time to time in force.

Action taken: term deleted.

Original term: MDT may vary all or any of its charges … variations to charges may be made retrospectively and the subscriber will be charged accordingly.

New term: … you may terminate this agreement at any time whether in or after the Minimum Period in the event of … any increase in the monthly charges or the call charges [which] will be notified in writing to you by us giving at least 14 days notice.

Allowing the supplier to impose unfair financial burdens

Original term: you must indemnify us against any claims or legal proceedings arising from use of BT Cable which are brought or threatened against us by another person.

New term: if you use the service for business purposes you must also indemnify us against any claims made against us by third parties because the service is faulty or cannot be used.