Legislation aiming to make terms and conditions fair for consumers came into effect at the beginning of April. This will be relevant to you if your business sells goods or supplies services of any kind to consumers. This is particularly pertinent to businesses which have previously not been subject to similar consumer protection provisions, such as insurers.
The Fair Trading (Amendment) Act 2001 (Appointed Day) (No. 2) Order 2014 brings into effect amendments to the Consumer Protection Act 1991 (CPA) which were originally approved by Tynwald in 2001 but never brought into effect. The new provisions in the CPA are almost identical to the UK Unfair Terms in Consumer Contracts Regulations 1999.
The amended CPA applies even where the contract contains a term which applies or purports to apply the law of a country or territory other than the Isle of Man, although there is an exception to this where the contract has a close connection with that country or territory.
The amended CPA now includes a schedule of terms which may be considered unfair and general provisions about fairness in contracts, which are, in summary:
- a contract which has not been individually negotiated shall be regarded as unfair if it causes a significant imbalance in the parties' rights and obligations arising under the contract, which is to the detriment of the consumer and cannot be justified;
- standard terms and conditions of a business are always open to assessment as to fairness;
- where there is doubt in the meaning of a written term, it will be interpreted in favour of the consumer;
- a contract should be framed in "plain and intelligible language"; and
- an "unfair" term does not bind the consumer.
"Fairness" is assessed having regard to: the nature of the goods or services supplied; all the circumstances attending the conclusion of the contract; and all the other terms of the contract and any other contract on which it is dependent. Provided that terms are framed in plain and intelligible language, the assessment of the fairness does not have regard to the basic scope of the contract (the goods or services supplied) or the adequacy of the price payable in exchange for them. Writing terms in "plain and intelligible language" can of course be difficult.
The non-exhaustive list of unfair terms in the new schedule to the CPA includes terms concerning: the exclusion or limitation of liability; termination rights; variation of terms; compensation payments; and limitation of the consumer's rights. Fairness of such terms is likely to depend upon the corresponding rights given to the consumer and the effect that the term may have upon the consumer.
As a result of the amended CPA consumers are not bound by terms which are deemed to be "unfair". The contract between the seller or supplier and the consumer is not rendered void by the inclusion of an unfair term, but continues to bind the parties so far as it is capable of continuing in existence without the unfair term(s). Consequently it is important to ensure that all terms in a contract comply with CPA to ensure certainty of enforceability. It is also vital that key terms, such as termination rights, are fair so that they may be relied upon, rather than a contract continuing without the seller or supplier having the rights they anticipated when offering the contract to the consumer.
A "consumer" is defined as any person who is acting for purposes which are outside his trade, business or profession. Where to draw this line was recently considered by the Irish court in the case of Ulster Bank Ireland Limited v Healy  IEHC 96. The court found that an accountant who, on more than one occasion, used saved or borrowed monies to make a personal investment in property with a view to making a profit in the hope of funding a better quality retirement, did not necessarily become a person whose trade, business or profession was that of a professional investor so was not automatically precluded from the statutory protection afforded to consumers.
It is also worth noting that the amended CPA defines a consumer as a "person", which does not necessarily mean an individual. The case of R&B Customs Brokers Co Ltd v United Dominions Trust Ltd  1 W.L.R. 321 established that a company may be a consumer where undertaking an activity which is merely incidental to the carrying on of a business (in this case buying a car for a director), and a degree of regularity has to be established before it can be said that the activity is an integral part of the business and therefore carried on in the course of business. Determining whether a customer should be categorised as a consumer is therefore not always obvious and a decision to disregard the relevance of consumer protection should be made with caution.
The amended CPA also imposes a duty on the Office of Fair Trading (OFT) to consider any complaint made to it that a contract term drawn up for general use is unfair (unless the complaint appears to be frivolous or vexatious). The OFT may apply to court for an injunction against any person appearing to be using, or recommending the use of, an unfair term in consumer contracts. Such an injunction may relate not only to the use of a particular contract term but to any similar term or a term having a like effect used, or recommended for use, by any person. Although how this will be achieved where the seller or supplier has no presence in the Isle of Man is open to question. The OFT also has powers to request information and to publicise either that it has applied to court for an injunction or that an undertaking has been given to it by a person with regard to the use of a term which the OFT considers to be unfair. Reviewing your standard terms and conditions, irrespective of their governing law, is therefore also a good idea to avoid the risk of action being taken by the OFT and the bad publicity this could bring.
The amended CPA compliments the protection already given to consumers in the existing CPA and the Misrepresentation and Unfair Contract Terms Act 1981 (MUCTA). Whereas MUCTA contains exemptions for certain types of contract (namely: insurance contracts; contracts creating or transferring interests in land; intellectual property contracts; contracts concerning the formation or dissolution of companies or the rights of their members; or contracts creating or transferring securities), although there is a power within the amended CPA for exemption regulations to be made, none appear to be on the horizon and if we follow the UK then the new parts of CPA will apply to all contracts with consumers.
The amended CPA does apply slightly differently to the financial services industry with recognition given to the reality that suppliers may need to alter interest rates or terminate contracts in some cases without being able to give reasonable notice (however the consumer still must be informed as soon as possible), and that some of the "unfair terms" in the schedule are not applicable for contracts concerning foreign currency and products or services where the price is linked to fluctuations in a financial market rate outside the control of the seller or supplier. Nevertheless, the overarching themes of fairness and balance between the parties will still apply.
Tedious as it may seem, because the CPA has been amended it is time to read your small print to make sure your standard terms and conditions are compliant with the new legislation - failure to do so brings the risk of bad publicity from the OFT and a risk that, when you need to, you may not be able to rely on these small but important 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.