Farewell to small print – unfair contract terms and reasonable cancellation penalties

RosalindLake

The Consumer Protection Act changes consumer agreements in a number of ways, the most significant of these is the prohibition of contracting on unfair terms. The Act sets out a number of terms which will be unfair and void. This is supplemented by the regulations which list over 30 instances of clauses which are presumed to be unfair if included in agreements with individual consumers.

The regulations include terms commonly present in most standard agreements. These terms are presumed to be unfair in transactions related to the consumer’s business or profession.

The listed terms are indicative only and consequently, in the circumstances of a particular transaction, clauses could be fair or unfair. Many suppliers will simply exclude these listed terms in their agreements to avoid potential liabilities.

The courts, excluding consumer courts, will have the authority to determine whether a clause or term in an agreement is unfair in terms of the Act, interpreting any document or section of the Act to the benefit of the consumer.

Some of the clauses presumed to be unfair in the regulations are:

• Any exclusion or limitation of the liability of the supplier for death or personal injury to the consumer from defective or unsafe goods.
• Requiring the consumer to fulfill all their obligations even though the supplier has failed to fulfill its obligations.
• Allowing the supplier an unreasonably long time to perform.
• Allowing the supplier to terminate, renew or limit performance if the consumer is not given the same rights.

In addition to clauses that are presumed unfair, there are clauses that are permissible but special attention must drawn to them. If a provision of a consumer agreement attempts to limit risk or liability in any way, makes the consumer assume risk or liability, imposes any obligation on the consumer to indemnify the supplier or any other person or, is an acknowledgement of fact by the consumer, it must be drawn to the attention of the consumer in plain and understandable language.

A consumer may cancel the agreement at any time during the fixed term on 20 days’ notice. The maximum term for fixed term agreements is, for the time-being, 24 months, unless a longer period is agreed to for the consumer’s financial advantage.

Many suppliers have been waiting on the final regulations in order to determine how they will know if they are reasonable. The regulations do not provide a formula but instead require a consideration of all the circumstances of the cancellations, including how much time is left on the contract, the practice of the relevant industry, and the value of goods retained or returned by the consumer. Any penalty may not undermine the value of the consumer’s right to cancel.