From now on fair is fair

New rules about small print in contracts will help the consumer, says Sharon Wallach

The small print will have to become the fair print and the intelligible print in July, when new rules (the Unfair Terms in Consumer Contracts Regulations) implementing a European Commission directive come into force. An extensive range of business supplying goods and services - including banking, holidays, car hire, insurance, mortgages, burglar alarms and mobile phones - will have to review their standard term contracts.

From 1 July, a consumer will not be bound by a contract term considered to be unduly one-sided or otherwise unfair. Contracts will also have to be written in plain language. The director-general of the Office of Fair Trading will be empowered to take action against businesses that use unfair terms. But the Consumers' Association believes that others should also have this authority, and it has won a judicial review on the issue.

"A law is only as good as its enforcement," says Sheila McKechnie, the CA's director. "In terms of the way the regulations are worded, they should improve the small-print get-outs. But if there is no effective enforcement, a lot of organisations won't bother to rewrite their contract terms.

"At the moment, only the OFT can take action. We are not very happy with their record and we don't think they have the resources to do it."

The decision to allow the OFT sole authority to act was taken by Michael Heseltine, President of the Board of Trade, who argued that under British law only the parties to a contract may sue and that the CA has no legal standing.

This view is dismissed as "gobbledegook" by Ms McKechnie. She points out, first, that the OFT is not a party to any of the contract issues it takes up either, and second, that the regulations allow for persons or organisations having a legitimate interest in protecting the consumer under national law to take action.

"There is no question that we are an organisation having a legitimate interest," Ms McKechnie says. "The Government consults us regularly on all aspects of consumer affairs. We are regularly asked to give evidence to select committees. How can it then say it doesn't recognise our legitimate interest?"

Although the CA now has formal leave to take the DTI to judicial review, the result is not a foregone conclusion, Ms McKechnie acknowledges, but she says that if necessary the fight will go all the way to the European Court. In the meantime, the CA will be "bombarding the OFT with unfair contracts. I'm going to go on and on."

Examples of contract terms that the CA considers unfair include a tour company that apparently disclaims responsibility for everything: "Unless specifically indicated, nothing shown in this brochure or other publication (supplied by us or not) constitutes a condition or term of this contract, or shall be relied upon in any way." (This is nonsense and has no legal standing, says the CA.)

Standard survey forms are infested with disclaimers "like an attack of dry rot in an old house" (eg, "You must not assume that if defects are not mentioned in the report, all parts of the structure are free from defect. Where your attention is drawn to some defects, it does not mean that other defects may not exist").

The "most shocking clause" found by the CA was in the brochure of a US cycling travel company selling via a UK agent. It attempts to disclaim all responsibility: "I have and do hereby fully assume all risk of illness, injury or death, and hereby release and discharge [the company] and its agents and associates from all actions, claims or demands for damages resulting from my participation in the trip."

But Ms McKechnie is swift to point out that not all is doom and gloom. "There is a lot of work being done in a lot of sectors where businesses really are trying to improve their contracts."

The Association of British Insurers, for example, has published guidelines on the new regulations for the insurance industry and the DTI itself has a draft guidance in the pipeline.

Clifford Chance has also published a memorandum for clients, under the aegis of the director of its public policy group, Richard Thomas. Mr Thomas, a former director of consumer affairs at the OFT and the author of a book on plain English for lawyers, calls the new regulations "the most important piece of consumer law for more than 10 years.

"For the first time," he says, "fairness enters the legal relationship between businesses and consumers."

The regulations extend the scope of the existing legislation (the 1977 Unfair Contract Terms Act), which largely applies only to so-called exclusion clauses, which it either forbids or allows as valid only if reasonable. Mr Thomas acknowledges that to the lay person there may not appear to be a lot of difference between reasonableness and fairness, but he says that the new regulations will influence the way the courts will look at the issue.

"Reasonableness is a very English concept, and there are all sorts of examples of reasonableness in English law," Mr Thomas says. "The continental tradition is very much to ask 'is it fair?' A contract is considered unfair if it causes a significant imbalance between the parties."

The regulations are bound to have a significant impact on business. Many companies have already discovered the "competitive benefits of user-friendly contracts", but they will still need to check their documentation, says Mr Thomas. "Some companies are waiting until there is a challenge. It is new territory, but I predict that there will be one or two cases in the first year or so.

"What is certain is that no business that uses standard terms can afford to ignore these regulations."

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

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