There has been much debate regarding the unfair terms in business agreements of natural or legal persons for some time now. Lawmakers in Cyprus have wanted to extend these terms for small businesses as well.

A relevant draft law, which assumes that small businesses are unsustainable under certain contractual terms, was supported by most parties and introduced to the House by the Financial Commissioner, Pavlos Ioannou, on June 10, 2019.

On Tuesday, June 11, 2019, members of the trade committee unanimously adopted the final text of the proposal. Now, the proposal needs to be put to vote in the next plenary session of the House.

Terms of the Proposal

According to the amendments proposed in the draft law, the protection offered to natural persons against unfair terms, as per law, will now be extended to legal persons as well. This includes several small businesses in the country.

Companies of a particular size, especially micro-companies, will benefit from the legislation. Three primary conditions have to be met, however, in order to qualify under this law:

  1. The company should have a turnover not above €1 million
  2. It should employ up to 3 workers
  3. It should hold assets worth up to €700,000

Discussions regarding these amendments had been going on for about a year. Finally, a proposal that was agreed upon by all members of the committee was crafted by Financial Commissioner Pavlos Ioannou and submitted to the representatives of the House of Commons. This finally concluded the debate on June 11, 2019.

Andreas Kyprianou, the President of the Commerce Committee, said that a 4-month period would be given for entities to adopt this new legislation. He expressed optimism regarding the creation of a proper framework for market operations, in which no legal person would have to suffer abuse on account of any unfair contractual terms.

Also AKEL MP, Costas Kostas, agreed that it is absolutely necessary to extend the law prohibiting unfair terms to natural persons to business contracts as well, which would hold true for all contracts made with suppliers, traders and licensed credit institutions. He added that if a clause is abusive to a natural consumer, it is also to be considered abusive to a natural person who earns a livelihood, and this will affect small businesses as well, whose shareholders are also acting as its staff.

Members of the Commerce Committee had come together for an in-depth study on the terms of the proposal and made specific suggestions to improve and reinforce the text. Finally, when all parties reached an agreement that the terms would protect all citizens from a bank's abusive clauses, the proposal was passed.

Just a few days before the submission of this proposal, banking institutions had expressed concerns regarding the inclusion of a law associated with consumer protection into business contracts. They feared that it might create market distortions and complications in the lending process. Banks have also been worried about how any code/clause in a contract might easily be termed as abusive by consumers. As a result, non-repayment could increase, which in turn would make loan approvals more difficult.

The new proposal includes variable rates of interest as possible unfair terms. Such rates will be considered more abusive if traders and businesses have not asked for them.

What are Unfair Contractual Terms?

For legal purposes, "unfair contract terms" includes any "contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer."

The Unfair Contract Terms Law 93(1)/1996 (the "Law"), as amended, protects consumers in the European Union from unfair clauses and conditions that might be included in a standard contract for purchase of goods and services, without their knowledge. In today’s highly competitive and fast-paced market, it is the responsibility of the Competition and Consumer Protection Service to act as the national competent authority in ensuring the protection of rights of consumers.

In 2018, the Director of the Competition and Consumer Protection Service found that certain contractual terms included in clients' agreements by investment firms in Cyprus constituted a breach of this law. In focus was a disputed clause, where a Cyprus-based investment firm had sole discretion to refuse or withhold bonuses to clients or even withdraw such funds from a consumer's account when needed.
The current proposal, pending debate in the next session, will be a ground-breaking decision, affecting the framework of financial services offered by firms to consumers in the Republic of Cyprus. This is because most of the terms of such financial services are primarily based on pre-defined contractual terms.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.