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Commercially Minded – Seminar Series – Commercial Terms and Conditions
Wednesday 20th May 2015
The Consumer Regulations
The Consumer Rights Act 2015
The Consumer Rights Act 2015
• Due to come into force in October 2015• Business to Consumer contracts only• Consolidates and reforms the law in relation to:
– Consumer rights and remedies for defective goods and services– Introduces new rights and remedies for digital content – Reforms the law on unfair terms in consumer contracts and consumer notices– Enhances consumer remedies which public enforces can impose on businesses– Enables consumers to bring private collective actions against anti-competitive
behaviour
• The most extensive consumer law reform in the UK for decades
Why is reform necessary?
• Existing framework of consumer law set out over 100 pieces of legislation
• Considered to be:– out of date (digital content) – Inconsistent– Confusing for consumers
Harmonisation of Definitions
• Harmonises definitions to be satisfied to confirm whether consumer law provisions are applicable to your business
• Previously inconsistent across existing laws
“Trader”
“a person acting for purposes relating to that person’s trade, business, craft or profession, whether acting personally or through another person acting in the
trader’s name or on the trader’s behalf”
“Goods”
“any tangible moveable items, but which include water, gas and electricity only if supplied in a volume or set
quantity”
•All supplies of goods are covered – sales contract, contract for the hire of goods, hire purchase agreement, contract for the transfer of goods other than by way of price
“Consumer”
“An individual acting for purposes which are wholly or mainly outside that individual’s trade, business, craft or
profession”
•Intended to be wider than previous definitions as it includes contracts for a mixture of business and personal •Trader to prove individual is not a consumer rather than individual proving that they are
Relevant to you?
• The act is applicable to you if:
there is an agreement between a “trader” and a “consumer” for the trader to supply goods, digital content or services and the agreement is a contract
Part 1
• Provides consumers with minimum rights in contracts for goods, services and digital content
• Largely the same as in Sale of Goods Act and Sale of Goods and Services Act and include requirements that goods be:– Satisfactory quality– Fit for a particular purpose
• Introduces tiered system of remedies for faulty goods– Two rights to reject goods (short term and final right)
• Greater certainty for consumers
First Tier Short Term Right to Reject
The Right•Right to reject faulty goods limited to 30 days •May be extended by the trader but not reduced•Right lost if time limit passes•Written confirmation of rejection not required but intention must be clearRefund•Consumer entitled to a refund without undue delay but within 14 days Repair or Replacement•If consumer requests repair or replacement, 30 day period paused for period of waiting•Time limit for short term right to reject extended by 7 days following time the goods are received back or if later, the original time limit, extended by the waiting period
Second Tier Right to Request Repair or Replacement
• Right not limited by time• One attempt only• Trader must repair or replace goods at its own cost, within
a reasonable time and without causing significant inconvenience to the customer
• Consumer cannot enforce if repair or replacement impossible or costs to do so disproportionate to other available remedies
Third Tier Price Reduction or Final Right to Reject
• Right to price reduction or final right to reject if:– repair or replacement is impossible– attempt at repair fails– not repaired or replaced within a “reasonable time” and
without “significant inconvenience” – first replacement is also defective
• Entitled to a price reduction up to the full price paid• If exercise final right to reject, refund may be reduced by a
deduction for use (subject to some exceptions)
Right of Partial Rejection
• Available in short term and final right tiers• May reject some or all of goods which do not conform
with the contract• Cannot reject elements of goods which do conform• An alternative to ending entire contract
Digital Content
• Significant change• “data which are produced and supplied in digital form”• Goods which include digital content• Guidance is expected but data content must comply with the
standard expected from goods:– Satisfactory quality – Fit for purpose– Complies with description
Remedies
• No right to reject• Right to a refund if trader does not have right to sell• Right to repair or replacement or if impossible to resolve fault, a price
reduction
Damage caused by Digital Content• If could have been avoided by trader exercising reasonable skill and care,
entitled to:– Repair within reasonable time and without significant inconvenience; or– Compensation
• No compensation right if repair fails
The Supply of Services
• Consolidates current legislation • Continues to provide implied terms – e.g. performing
service with reasonable care and skill• Applies alongside various industry specific regulations
imposed on businesses
Remedies
• New specific remedies for services failing to conform to contract– Not performed with reasonable skill and care– Breach of any other term which relates to performance of the service
Rights:• Repeat performance• Reduction in price
– repeat performance impossible; or – not done within a “reasonable” time
• Price reduction– Breach of voluntary statement; and – does not relate to performance of the services
Voluntary Statements
• New rules regarding voluntary statements:– oral or written statements– made to the consumer about the trader or service– and taken into account by the consumer– when deciding to enter the contract or make a decision about the
service– are a term of the contract
• Able to qualify statements• Also true of pre-contractual information provided about goods and
digital content
Part 2 – Unfair Terms
• Consolidates two pieces of legislation – Unfair Terms in Consumer Contracts Regulations 1999 and Unfair Contract Terms Act 1977
• Why the change?
– series of high profile cases highlighted unclear terms
– now applicable to all business to consumer contracts – removal of exceptions
“Unfair” Term
• Contractual term is unfair if:“contrary to the requirements of good faith, it causes a
significant imbalance in the parties’ rights and obligations to the detriment of the consumer”
• Not binding on consumers• BUT the consumer may choose to rely on the term
Significant Change
• Terms which specify main subject matter of contract or price of contract are not subject to test of fairness providing they are:– Transparent - plain, intelligible language and if in
writing, legible – Prominent - brought to the customer’s attention so
average consumer would be aware• Aim to combat ancillary fees hidden in smaller print• Be vigilant
“Grey List” Terms
• Previous acts provided list of potentially unfair terms• 3 new “grey list” terms which have the object or effect of
allowing:– the trader to decide characteristics of subject matter
after consumer is bound– disproportionate charges or requiring payment of
services not supplied when consumer ends contract– the trader direction over price after the consumer is
bound
Part 3 - Enforcement
• Provisions concerning enforcement powers are a consolidation of existing legislation
• Introduction of “enhanced consumer measures”:– Redress measures– Compliance measures– Choice measures
• No direct remedy to consumers
Conclusion
• Ensure compliance• Number of reforms and amendments, including:
– Tiered system of remedies for defective goods– Digital content– Introduction of specific remedies for services– Voluntary statements– Unfair terms– Enforcement
Solicitor
Commercial Department
Charlotte Avery
01905 746446
07715 060345
Worcester
Changes to Terms and Conditions–
Consumer Rights Act 2015.
Formation of a Contract
The Contract•An agreement between two or more parties that is intended to be legally binding.•Does not have to be written down.
How is the contract made?
Offer and acceptance.•Offer : expression of willingness to contract made with the intention that it shall become binding on one party as soon as it is accepted by the other. •Invitation to treat•Contract made if and when trader accepts.•Consideration
New terms for existing clients: no previous terms.
• Incorporate new terms into its contracts with existing customers
• Send out copies of new terms• Ask for formal acceptance
Variations to existing terms.
Seller's right to unilaterally vary a contract with a consumer without a valid reason which is set out in the contract is potentially unfair. •Consider specific circumstances•Offer the consumer the chance to terminate contract without penalty – must be realistic•Unilateral right to vary characteristics of goods and services potentially unfair other than for minor technical adjustments.
Variations to existing terms.
Ecommerce:
Always keep a record of when you update your terms and conditions to know which version were on the website at the date of your order acknowledgement.
Drafting Tips
• Use plain and intelligible language • Is its meaning clear? • Can it be understood ?• Informative headings or examples within a clause.• Explain concepts. • Use summaries or boxes of key terms. • Avoid legal terms or jargon.
Examples of using the new consumer laws : Faulty Goods.
Faulty Mobile.•Less than 5 months use.•Still faulty after repair.•Customer rejects and entitled to full refund.•If rejected after 6 months trader can reduce refund to take account of use.
Examples of using the new consumer laws : Faulty Goods.
Lawnmower•Not working week after purchase•Obviously faulty•Not of satisfactory quality•Fewer than 30 days so entitled to reject for a full refund.
Examples of using the new consumer laws : Faulty Goods.
Drill•Salesperson asked if fit for a particular purpose•Drill not suitable•Breach of Act.
Examples of using the new consumer laws : Faulty Digital Content.
Free game
•In app purchase.•Provider only liable for faults affecting chargeable elements of the game.
Examples of using the new consumer laws : Faulty Digital Content.
TV series download:
•Final episode missing•Entitled to download of final episode.
Examples of using the new consumer laws : Faulty Digital Content.
Photo and music organising App.
•App deletes files•Trader liable to repair by recovery of lost content or pay compensation.
Examples of using the new consumer laws:
Services not carried out with reasonable skill and care.
Catering services for birthday buffet•Specified time for delivery breached•No available remedy•Entitled to price reduction (possibly 100%).
Examples of using the new consumer laws: Unfair Contract Terms
Mobile phone contract:•Terms clearly explained•Prominent and transparent•Unlikely to be able to be challenged.
Examples of using the new consumer laws: Unfair Contract Terms
Airline ticket:
•Tick box “Extra fees may apply”•Fee not brought to consumer’s attention•Not transparent and prominent•Could be assessed as unfair.
Summary and Conclusions
Questions
General Awareness of Terms and Conditions
Overview
• Make your customers aware of your standard terms.
• Make your staff aware of how to use your terms.
• Be aware of new enforcement powers under Consumer Rights Act 2015.
Are your terms incorporated?
• Set out in contract signed by both parties.
• State expressly pre-contract that your terms apply.
• Bring your terms to the attention of the customer at the earliest opportunity.
Are your terms incorporated?
• Brochures
• Quotations
• Purchase order forms
• Acknowledgement or confirmation of purchase order forms
• Delivery notes
• Websites
• Invoices
Are your terms incorporated?
• If printed on reverse, have statement on the front referring to terms and that they form part of contract.
• If standard term potentially varies something on the front, cross-refer.
• If term unusual or onerous, particular notice must be drawn to it.
Battle of the forms
• Each party seeks to incorporate its own terms.
• “Acceptance” on different terms is a counter-offer.
• Offer can be accepted by clear statement or performance.
How to win the battle of the forms
• “Prevail clause”: supplier’s terms will prevail over any terms issued by buyer.
• “Shot-gun” approach: try to have your terms on last document passing between the parties.
How to win the battle of the forms
• All pre-contract documents stated not to be offers.• Customer to submit written purchase order. Accept by
issuing acknowledgment on your terms.• Include statement in standard terms characterising
purported acceptance by customer as an “offer”.• Monitor orders said to be made on customer’s terms.
Staff training
• Put forward your standard terms.
• Complete blank sections with care – could override standard terms.
• Statements made about products or services before contract formed could become terms.
Enforcement powers under CRA 2015
• Enhanced consumer measures
o Redress measures.o Compliance measures.o Choice measures.
Enforcement powers under CRA 2015
• Enforcement by public and private bodies.
• Could face criminal prosecution in addition
Summary
• Make sure your terms are incorporated.
• Educate staff.
• Be aware of enhanced consumer measures.
The Effective Use of Terms and Conditions
Elizabeth Beatty, Partner - Commercial Litigation
Initial Considerations
Terms and Conditions: expressly agreed or implied by statute.
Initial considerations: •What sort of terms best suit the contract?
•Whose terms apply to the contract?
•What rights do the terms give the parties?
•How to get out of the contract if the relationship turns sour
Protecting Your Position• Governing law and jurisdiction
• Dispute resolution clause
• Limitation of liability
• Retention of title
• Interest
• Termination
• Severance
Whose Terms and Conditions Apply?
To ensure a contract has been validly formed on your terms and conditions:
•Make an offer based on your standard terms and conditions
•Ensure that the other party has accepted them
•The offer and acceptance clearly show the intention between the parties to contract on your standard terms
•There is sufficient consideration from both parties to enable the contract to be validly formed
Battle of the Forms
“Battle of the Forms”: parties often attempt to impose their standard terms by referring to and including them with contractual documentation. Battle won by the party that fired the “Last Shot”
To incorporate your standard terms and conditions:
•Refer to your terms in all contractual documents (e.g. Purchase Orders, Order Acknowledgements, Invoices, Delivery Notes)
•Ensure that copies of your standard terms are included with any contractual documents
•Ensure that you formally reject any attempt by the other party to incorporate their standard terms and conditions
Governing Law & Jurisdiction
(1) Governing law clause: certainty on law to be applied to determine rights and obligations of the parties in all contracts
(2) Dispute resolution and jurisdiction clause affects how and where a dispute isresolved:•Exclusive or Non-Exclusive?•Judge or Arbitrator? (confidentiality / coercion / appeals / enforceability)•Where will it be heard/ language?•How long will the dispute take?•Where are the other party’s assets?•Mutual Forum?•All disputes to be covered by DRC or those relating to a particular obligation?•Speed, costs and flexibility•Convenience
Dispute Resolution Clause (DRC)
Consider making Alternative Dispute Resolution (ADR) a contractual obligation as part of a DRC (especially where there are related contracts)
• Negotiation• Mediation / Conciliation• Expert Determination• Early Neutral Evaluation• Executive Tribunals • Mediation- Arbitration
English Courts penalise parties that refuse to embrace ADR (especially if they have agreed to do so in the DRC)
Limitation of Liability
Potential ways to limit liability under a contract include:
•Limiting the usual period of time a party may bring a claim•A cap on the total amount that you may be liable to pay •An entire agreement provision•Exclude certain types of liability
(Liability cannot be limited for fraud or for death or personal injury caused by negligence)
Retention of Title (ROT)An ROT clause provides that a seller retains title to any goods sold until they have been paid for by the buyer and should include the following:
•The seller retains title to the goods until they have been paid for•The seller has the right of entry to the buyer’s premises to repossess the goods•The buyer’s obligation to ensure the goods are easily identifiable and stored separately from other stock •The seller’s entitlement to enter the buyer’s premises to check the goods are stored separately
Other provisions that can be included to further protect a seller’s position are:•An all monies clause•A mixed goods clause
Interest
An interest clause can act as an effective deterrent against late paying clients
Interest can be provided for in a contract in one of two ways:
•Contractual interest at a specified contractual rate
•Statutory interest (provided for by the Late Payment of Commercial Debts (Interest) Act 1998 in business to business contracts)
(NB. If statutory interest is your weapon of choice then this can be applied to the contract even if it is not expressly provided for in the terms and conditions.)
Termination
Termination clauses do not apply to all contracts (e.g. a one off sale of goods contract will not need to include a termination provision). However, where they are required the parties will need an escape route.
An effective termination clause needs to include the following:
•The circumstances when the contract can be terminated•How termination will take place•The notice required to terminate the contract•The consequences of termination and any post termination obligations•Circumstances for automatic termination
Elizabeth BeattyPartnerCommercial Litigation [email protected] 01905 746471 07969 791915 Worcester Office
