What is an unfair contract term?
Consumers often encounter unfair contract terms in agreements for goods and services, typically one-sided and in fine print. Many overlook these terms until disputes arise, raising questions about their enforceability.
A term or notice is unfair if, contrary to good faith, it creates a significant imbalance in the parties’ rights and obligations, detrimentally affecting the consumer. Unfair terms are not binding on consumers unless they choose to rely on them.
While unfair terms can cause issues in both business-to-business and business-to-consumer contracts, consumers’ tendency to skim terms often leads to disputes.
Most common law jurisdictions provide statutory protections against unfair contract terms, as shown below:
In the UK, the Consumer Rights Act 2015 (CRA 2015) protects consumers from unfair trader practices, covering all contract terms except the main subject matter, provided it is prominent and transparent.
This article examines unfair contract terms, exploring whether consumer negligence or legislative inadequacies are primarily responsible for related disputes, with a focus on Hong Kong and UK laws.
What are the Relevant Hong Kong Laws?
Unfair contract terms, common in standard form contracts, favor one party unjustly. In Hong Kong, the Unconscionable Contracts Ordinance (Cap. 458) (UCO) protects consumers against such terms in contracts for goods or services where one party is a consumer.
The UCO does not define “unconscionable” but lists factors for courts to assess terms, including:
- Bargaining strength: Whether one party had an unreasonable advantage
- Consumer’s understanding of the contract terms
- Use of undue influence or unfair tactics against the consumer
- Availability of similar goods/services elsewhere
- Unnecessary conditions imposed to protect the other party’s interests
If a contract or term is deemed unconscionable, the court may:
- Refuse to enforce the contract
- Enforce it without the unconscionable term
- Revise the contract to avoid unfair outcomes
Examples of unfair terms include:
- Unilateral changes to terms without consumer notice, denying the option to review or terminate
- Automatic contract renewals without timely written reminders
- Unreasonable restrictions on the consumer’s right to terminate
Are Exemption Clauses Considered Fair?
Unreasonable exemption clauses, which broadly exclude supplier liability (e.g., for death or injury), are often unfair. In Hong Kong, the Control of Exemption Clauses Ordinance (Cap. 284) (CEC) regulates these clauses, deeming them void if unfair. Reasonableness is assessed by:
- Bargaining power of the parties
- Whether the customer was induced to accept the term
- Customer’s awareness of the term and its implications
- Whether liability exclusion depends on unreasonable conditions
- If goods were customized per the customer’s order
Unreasonable exemption clauses are unenforceable.
Are Unfair Contracts the Problem of Consumers or Corporates Under UK Laws?
In the UK, standard form contract terms are incorporated by signature or notice. The case of L’Estrange v Graucob established that signed contracts bind consumers, regardless of whether they read the terms, absent fraud or misrepresentation. In L’Estrange, the consumer’s failure to read an exclusion clause barred a damages claim for a faulty machine. However, the CRA 2015’s quality provisions might mitigate such issues today. Contracts incorporated by notice, however, show that consumer negligence is rarely the primary issue.
Ambiguities in incorporating onerous clauses often cause disputes, not consumer oversight. In O’Brien v MGN Ltd, the court examined whether a newspaper’s discretion to choose a winner was an onerous clause and if it was adequately highlighted. The ruling against O’Brien highlighted that unclear definitions of onerous clauses, not consumer negligence, drive disputes.
Exclusion clauses can also mislead diligent consumers. In Thornton v Shoe Lane Parking, the claimant missed an exclusion clause on car park pillars, but the court ruled it wasn’t incorporated, upholding his injury claim. This shows that even thorough consumers face issues with non-incorporated, misleading terms.
Similarly, in Hollier v Rambler Motors, the consumer’s claim succeeded despite not reading an exclusion clause, as prior transactions didn’t establish a course of dealing to incorporate it. These cases emphasize flawed clause incorporation over consumer negligence.
Ambiguities in clause incorporation disadvantage non-legally proficient consumers, who struggle to identify binding terms even after reading contracts.
The scope of assessing term unfairness remains uncertain, a problem persisting from the Unfair Terms in Consumer Contracts Regulations (UTCCR) to the CRA 2015. In Office of Fair Trading v Abbey National, bank charges were deemed part of the “essential bargain,” favoring the bank despite consumer challenges. The vague regulatory scope allows businesses to exploit loopholes, offering unequal terms to less powerful consumers (e.g., banks vs. average citizens). Charges over 30% of revenue being considered “essential” risks enabling lucrative, unfair contracts.
Baroness Hale of the UK Supreme Court noted that broader legislative definitions of “core terms” (e.g., price) could reduce issues. Contracts with unfair terms remain effective in other respects, and the CRA 2015’s unclear scope perpetuates disputes, awaiting legislative reform.
Conclusion
While consumer inattention may hinder proper agreements, contractual disputes often stem from improper term incorporation, making consumer negligence legally secondary.
Nonetheless, consumers should scrutinize contracts to understand their rights and responsibilities, minimizing risks of unfair agreements.
Please note that this is a general summary of the position under the Laws of Hong Kong SAR and does not constitute legal advice.
