In consumer contracts entered into on a business’s
standard terms, the court can find on a claim by an individual
consumer that a term is unreasonable and unenforceable as against
that particular consumer.
In addition, the court can also hold, on a general
challenge by a body not a party to the contract, that such a term
is unreasonable and unenforceable in all such consumer contracts
entered into by that business.
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Moreover, such a finding on a general challenge
will apply retrospectively to contracts already in existence before
the finding of unreasonableness and which have not been
individually challenged.
This was the decision of the Court of Appeal in
Office of Fair Trading v Foxtons Ltd. The Office of Fair
Trading (OFT) challenged the fairness of certain terms in the
defendant estate agent’s standard form of contract under the
procedure set out in the Unfair Terms in Consumer Contracts
Regulations 1999 (the Regulations).
The Regulations enable “general challenges” to be
made, i.e. challenges by bodies who are not a party to the contract
complained of, as a method of providing effective protection for
consumers who might be reluctant to challenge more powerful
businesses.
The OFT sought an injunction to prevent the
defendant from enforcing the relevant unfair terms in existing
contracts.
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By GlobalDataAt first instance, the judge declined to grant the
injunction holding the defendant should not be prevented from
enforcing individual contracts already entered into as although the
term might be unfair on a general challenge, it might be fair in
the particular circumstances of the contract entered into.
On appeal, the Court of Appeal held that protection
of the consumer is at the heart of the Regulations. It would be
inadequate protection to consumers if a court on a general
challenge, having found a term unfair, had no power to prevent the
business from continuing to enforce that unfair term in existing
contracts.
The court held that a general challenge can relate
to a term in a current as well as future contract and that the
courts do have the power to prevent the offending term being
enforced in existing as well as future contracts.
The OFT was therefore entitled to an injunction to
prevent enforcement of the terms in current, as well as future,
contracts.
Comment
This is an important decision for finance
companies dealing with consumers on their own standard terms and
conditions. If a term is found to be unreasonable on a general
challenge, its effect can be widespread. Not only will the term
have to be changed in all future contracts, but it will be
unenforceable against consumers in existing contracts which may be
numerous and go back for a number of years.
Greg Standing, a
partner in Wragge & Co LLP’s Finance, Insolvency, Recoveries
and Sales team
