Unfair Contract Clauses 1: The Entire Agreement Clause
May 14, 2020
“Companies that include unfair terms in their contracts not only risk legal action, they are likely to be losing sales.”
Clear and consistent contractual terms are essential for the sale and installation of complex goods and services such as microgeneration. They help the installer and consumer avoid misunderstandings and, when things go wrong, they can minimise the chance that a simple complaint becomes a dispute. Despite their value, however, many providers of low-carbon goods and services are confused by, or unaware of, their own obligation to make sure their own contracts are legally sound.
For example, many installers we speak to think contract clauses are final and binding as long as the consumer signs the document. Research carried out by the Competition and Markets Authority (CMA) has also found that most companies don’t understand the rules on unfair terms with many of those unaware that such clauses cannot be enforced (CMA, 2016).
Consumers are not bound by unfair terms and, where there is a legal dispute between a company and a consumer for any reason, the court may test the contract for fairness even if the issue of fairness is not the subject of the dispute.
But much of the consumer detriment caused by unfair terms is hidden. For example, misleading terms can convince some consumers they don’t have legal rights to challenge a company when, in fact, they do have such rights. For example, a contract may erroneously claim that the company has the right of final decision in any dispute. This potential for hidden detriment is why the CMA and Trading Standards have the power to force companies to remove damaging clauses.
The use of such unfair terms is bad practice and may bring companies (and the wider sector) into disrepute. Consumers who are more aware of their own rights in law may turn down contracts that include terms that are clearly harmful. Companies that include unfair terms in their contracts therefore not only risk legal action, they are likely to be losing sales.
Many companies use ‘legacy’ contracts (those used for decades by parent or linked companies) or ‘borrow’ terms from friends and colleagues in other sectors. As a result, new companies may be using unfair contracts unknowingly.
Given the potential harm to consumers and companies, we are launching a series covering a range of unfair clauses that we frequently see in actual contracts we have audited. rb&m provide expertise in consumer protection in the low carbon sector and rb&m partner Colin Meek wrote the RECC scenario-based guidance on the Consumer Rights Act 2015 which is available from the members’ section of the RECC website (www.recc.org.uk).
For more information:
Competition and Markets Authority advice on How to Write Fair Contracts: information for businesses
Detailed guidance on unfair contracts see the Competition and Markets Authority Unfair contract terms guidance (CMA37) (Competition and Markets Authority, 2015)
The Entire Agreement Clause
Entire agreement clauses can be damaging because they seek to remove the trader’s responsibility for promises or claims made during the wider sales process. The effect of this can confuse consumers about how they can hold the company to account.
For example, during a sales visit a company’s advertising material may claim that a solar PV system will deliver electricity cost savings of 75% but that claim may not be consistent with the performance claims in the quote. The contract may state that the quote ‘overrides any prior representations or claims made verbally or in writing.’ Such a clause is almost certainly unfair under the legislation.
rb&m recently found the following clause in a contract used by an air source heat pump installer:
[These terms] set out the entire agreement and understanding between the Customer and the Contractor in connection with the provision of the Services and Goods and shall supersede and replace all documentation previously issued by the Contractor purporting to set out its terms and conditions.
Under the Consumer Rights Act 2015, such a term is identified as ‘potentially unfair’ but there are circumstances when the term is banned outright (blacklisted) under the legislation in contracts for the supply of services: a fact critical for the low carbon installation sector. For example, where a consumer relies on any statement (such as an advertising claim or statement made by a sales agent) when deciding to enter into a contract, then that information forms part of the binding contract. Any term that seeks to then exclude liability for such a statement or claim is ‘blacklisted’ and therefore unenforceable (Consumer Rights Act, 2015). The company cannot disclaim responsibility for the information it provides.
The CMA states: “Consumers commonly and naturally rely on what is said to them when they are entering a contract. If they can be induced to part with money by claims and promises, and the trader can then simply disclaim responsibility by using an entire agreement clause, the scope for unfair detriment is clear.”(Competition and Markets Authority, 2015)
The CMA goes on to say that misleading statements that affect consumer decisions are also liable to involve a breach of the Consumer Protection from Unfair Trading Regulations 2008 (the CPRs). A breach of the CPRs can be a criminal offence.
Instead of using entire agreement clauses, contracts should advise consumers that the terms should be considered carefully so that it is understood what is included and excluded. Consumers should also be encouraged to ask questions about the contract and any points of confusion about what they have been told.
Competition and Markets Authority (2015) Unfair Contract Terms Guidance: Guidance on the Unfair Terms Provisions in the Consumer Rights Act 2015, CMA37. Available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/450440/Unfair_Terms_Main_Guidance.pdf.
Competition and Markets Authority (2016) CMA: “Over half of businesses don’t know unfair contract rules well”. Available at: https://www.businesscompanion.info/en/news-and-updates/cma-over-half-of-businesses-dont-know-unfair-contract-rules-well
Consumer Rights Act (2015) c.4. Available at: http://www.legislation.gov.uk/ukpga/2015/15/section/50/enacted (Accessed: 4 May 2020).