Chapter 9The terms of business contractscompensation of an equivalent amount if the seller or
supplier cancels, e.g. ‘no refunds of deposits if orders
are cancelled’;
■enabling the seller or supplier unilaterally to change
the terms of a contract without a valid reason which
is set out in the contract, e.g. ‘products supplied may
vary in specification from those ordered’;
■providing that the price of goods can be varied with-
out giving the consumer the right to cancel if the
price is too high, e.g. ‘the price of goods may be
increased where there is an increase in costs prior to
delivery’;
■restricting the consumer’s right to take legal action,
for example by requiring disputes to be resolved by
arbitration, or by restricting the evidence available
or by changing the usual burden of proof, e.g. ‘all
disputes concerning this agreement will be resolved
by arbitration’.
‘Core terms’ which define the main subject matter
of the contract or concern the adequacy of the price of
the goods or services are not subject to an assessment
of fairness provided they are in plain and intelligible
language. Any written term of a consumer contract must
be ‘expressed in plain intelligible language’. Where there
is any doubt about the meaning of a term, the interpre-
tation which is most favourable to the consumer must
prevail.
Two different types of remedy are available under the
regulations. First, unfair terms are deemed voidable
as against the consumer, although the contract itself
will still be binding if it can continue in existence with-
out the unfair term. Second, the Office of Fair Trading
(OFT) is under a duty to receive and consider com-
plaints that a contract term drawn up for general use
is unfair. Having considered such a complaint and any
undertakings given about the continued use of such
unfair terms, the OFT may apply for an injunction from
the High Court to prevent the continued use of the par-
ticular unfair term and any similar terms by any party to
the proceedings. The 1999 Regulations provide for the
first time that certain qualifying bodies (e.g. statutory
regulators, such as the Rail Regulator and the Director
General of Gas Supply, trading standards departments
and the Consumers’ Association) can also apply for
an injunction to prevent the continued use of an unfair
term.
The following cases provide interesting examples of
the application of the regulations.
297Director General of Fair Tradingv First
National Bank plc(2001)
The Director General of Fair Trading applied to the High
Court for an injunction to restrain the defendant bank
from using a term in its standard form loan agreement.
The term in question provided for the accrual of interest
on any judgments obtained by the bank under the loan
agreement. The Director General was concerned that
customers who agreed to judgment on terms involving
payment of the balance by instalments would find them-
selves faced with further payments of interest once the
balance had been cleared. The Director General argued
that the term was unfair in that ‘contrary to the require-
ment of good faith, [it caused] a significant imbalance in
the parties’ rights and obligations... to the detriment of
the consumer’. The bank argued that the provision con-
cerning interest on judgments was a ‘core term’ as it
related to the adequacy of the price or remuneration,
and so was not subject to the requirement of fairness.
The Court of Appeal held that the term in question could
not be classed as a ‘core term’ as it did not define the
main subject matter of the contract, nor did it relate to
the adequacy of the remuneration as it applied only where
a consumer was in default. The court took the view that
the term was unfair. It did not satisfy the requirement of
good faith and caused a significant imbalance in the
rights and obligations of the parties. The House of Lords
agreed with the Court of Appeal that the provision about
interest was not a core term, and it was, therefore, sub-
ject to a requirement of reasonableness. Their Lordships
held that the interest provision was not unfair. Borrowers
could easily understand the essential elements of the
bargain, which was that the bank would lend money in
return for the borrower agreeing to repay the loan with
interest. The interest provision in question was designed
to ensure that this remained the position if the bank
obtained judgment against a borrower in default. The
term itself was not detrimental to borrowers. What was
detrimental was the fact that the Consumer Credit Act
1974 did not contain a procedure to require courts to
consider using their powers under the Act, e.g. to vary
interest rates, when borrowers defaulted.Munkenbeck & Marshallv Harold(2005)The defendant H engaged the claimant firm of architects
M under the RIBA SFA/99 standard terms after negotiat-
ing a reduction in fees. The terms of the contract pro-
vided that the defendant should indemnify the claimant
in respect of any legal and other costs in any proceedings