As we approach the grim milestone of a year since the first national lockdown in the UK, it's clear that - despite the fantastic vaccine roll-out - businesses and their customers will continue to be affected by COVID-19 for some time to come.
We know that one key pressure businesses are facing in the COVID-19 era is that of cancelled or disrupted contracts - and, in particular, the dreaded question of refunds. For consumer-facing businesses, this is a particular concern because the law is so protective of consumers' legal rights. There are real, practical implications for businesses as a result of these protections, and the regulators have been highly active since the start of the pandemic, investigating and taking action against businesses who get things wrong.
In this post, we summarise the latest law and guidance for consumer-facing businesses.
For some Practical Dos and Don'ts, take a look at our video below.
Contracts Affected by Lockdown Laws
If a contract can't go ahead, or if to go ahead it would need to be radically different from what was agreed, the contract is 'frustrated' and effectively comes to an end. In the context of a consumer contract, the result of this is fairly straightforward (there are nuances, but this is the basic golden rule): where a consumer has paid for goods or services which are not then supplied, the consumer is almost always going to be entitled to a full refund.
This applies whether or not the business is at fault - something that businesses may find counterintuitive or even unfair, but the law views the protection of the consumer as paramount in this particular scenario.
This basic rule of thumb applies where, for example, a business cancels a contract due to lockdown laws, or where it can't provide the goods/services due to those lockdown laws.
Perhaps less obviously, the rule also applies where a consumer is prevented from receiving any goods or services because, for example, lockdown laws in the UK (or abroad) have made it illegal to receive or use the goods or services. So it might be the case that a business is still offering their product/service (and therefore might feel that a refund isn't justified) but the consumer can't receive or access that product/service because of lockdown laws - the result in this scenario is no different from where the business cancels the contract: the refund right applies.
Keep in mind, too, that there doesn't have to be a full, national lockdown for the rule to kick in. Other situations might include contracts affected by:
- local/regional lockdown laws;
- other specific restrictions imposed by local authorities; or
- any form of mandatory self-isolation.
If a contract is affected by lockdown (or similar) laws but can still be partially performed - i.e. with only minor differences from what was originally agreed - then the consumer would (at most) only be entitled to a partial refund or price reduction.
Although the rule outlined above isn't always great news for businesses, it is at least straightforward: in most cases, no goods/services = refund (or partial goods/services = partial refund).
But there are other situations that are less clear-cut. For example, where goods/services can legally be provided but the consumer doesn't want to go ahead - perhaps because of Government guidance (but not legal restrictions e.g. lockdown) - the situation is legally complex because it's not clear if the contract has been frustrated or not.
Ultimately each situation will need to be decided on its own facts, but some pointers to keep in mind:
- Although frustration of a contract is less likely where there are no legal restrictions in place, it's not impossible - for example, it might happen where current advice or guidance means a consumer would be at serious risk if the contract went ahead as agreed.
- If the contract has not been frustrated, then any terms in the contract which relate to cancellation and refunds will apply - but these must be fair (for more information, take a look at our Quick Guide to Unfair Contract Terms here and our post on Key Contract Considerations in the context of COVID-19 here).
- In any situation, the regulators will expect businesses to treat consumers fairly and responsibly - for example, by trying to find a mutually acceptable solution.
Other more nuanced situations might include:
- Contracts for future services: the basic rule here is that businesses should not seek payments for goods/services they know they will be unable to provide in the future. Lockdown laws are obviously susceptible to change, so a consumer may be willing to reach a voluntary agreement with a business - for example, to wait and see whether a service might be able to go ahead - and this is fine provided that the consumer hasn't been pressured or misled into doing so. Where it is reasonably likely that a business will be able to provide the goods or services as agreed (for example, when the Government has confirmed the date on which lockdown restrictions will end) a business can, in general, require consumers to carry on making contractual payments in advance.
- Ongoing contracts: consumers will normally be entitled to a refund for - or to withhold payment for - any goods/services they have already paid for but that are not provided (or which they're not allowed to use) because of lockdown laws.
Practical Dos and Don'ts
Originally published February 24, 2021 .
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.