How secure are your trading terms?

May 8, 2009

The value of terms and conditions of business are often undervalued by businesses.  They are important documents that are designed to protect the business. 

If you are in the business of supplying goods or services, you should have a standard set of term and conditions of business (T&Cs).  These may be displayed online (for ecommerce transactions) or in the form of a physical document.  Whether the sale is online or not, T&Cs need to be given to customers before they complete their order or else they will just not apply.

Whilst T&Cs are there to protect your business, they also have to comply with applicable regulation, particlaurly if you are dealing with consumers.

If you sell goods or supply services to consumers, individual terms of your T&Cs can potentially be challenged when you seek to rely on them. In addition to the right of customers to challenge on an individual basis, the Office of Fair Trading (OFT) can take enforcement action to prevent you from using the T&Cs. But where does this leave existing contracts?

A recent case involving the estate agents, Foxtons, considered whether the OFT could seek a general declaration – without your customers taking action – that terms you have been using in the past are unfair and unenforceable. Clearly, this can have dramatic consequences if it is a key term relating to remuneration rights or property ownership because the publicity of such a declaration could cause a rush of claims by old customers.

The Unfair Contract Terms in EC Consumer Contracts Regulations (the “UCT Regs”)

The UCT Regs (which have been in force since 1993) set out certain requirements for fairness which your T&Cs must satisfy. The UCT Regs apply to unfair terms in contracts concluded between a consumer (i.e. somebody not acting in the course of business) and a seller of goods or a supplier of services.

• An unfair term is one which has not been significantly negotiated and which, contrary to the requirements of good faith, causes a significant imbalance in the parties' rights and obligations under the contract, in favour of the seller or supplier;

• Terms must be expressed in clear and intelligible language;

• If a contract term is unfair, that term will not be binding on the consumer;

• The core provisions of a standard contract are the terms that define the main subject matter of the contract, or concern the adequacy of price or remuneration for the goods or services sold. These are excluded from the fairness test, but only insofar as they are expressed in plain and intelligible language.

OFT v Foxtons Ltd

The OFT challenged certain of Foxtons’ T&Cs with landlords which enabled it to charge commissions on certain tenancy renewals or sales to tenants, even where Foxtons had not negotiated the renewal or sale. The OFT said the terms were unfair and that they were not in plain and intelligible language. It sought to prevent Foxtons relying on the terms in its existing and future contracts.

Foxtons argued that the OFT could only obtain an injunction to prevent use in future contracts – affected landlords would need to challenge terms in existing contracts individually. But the Court of Appeal saw things differently. This means that the OFT can generally challenge the fairness of a term in a current contract. If successful, this could prevent you from continuing to rely on that term against a consumer.

Comment

This decision is of interest to any organisation supplying goods or services to consumers. Although the court was careful to indicate that such orders would not be given lightly - as it would be difficult for the OFT to show that the relevant term(s) in the T&Cs would not be fair in all cases - this decision shows that collective action by the OFT can affect a supplier's existing and future contracts containing an unfair term. Such a ruling could have serious repercussions for your business if it related to an important term of your T&Cs.

It is therefore always advisable to take legal advice on the terms that you rely on in your everyday trading, because your T&Cs are the backbone to your business.

Related topics: Terms of Business and Contracts, Protecting your Business Model and IP.


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