Contract terms

Our Guidance Note on client care letters sets out the CLSB’s broader expectations regarding your client care letters. While that guidance focuses on the key terms of your engagement – such as the services to be provided, your fees and timescales – it notes that you may wish to include more standard contract terms (or terms of business) within the document.¹ While it is obviously of paramount importance that consumers understand the key terms of your contract with them, consumer law goes further than this. In addition to requiring that all your contract terms are fair, consumer law also requires that you draft all your terms in such away that consumers can be expected to understand the potential consequences to them of entering into a contract with you.

If a term is found by a court to be unfair, it will not be binding on a consumer and cannot be enforced. Consumers may also be able to rely upon unfair terms legislation in any legal proceedings they bring against you or in defence of a claim where you try to enforce an unfair term.

Ensuring your contract terms are transparent

All contract terms should be easy to find and accessible by your clients. They should be brought to the attention of prospective clients in a timely manner before they agree to instruct you. Further, you need to afford your clients an appropriate opportunity to read and understand the contract terms before they become bound by them.² This is particularly important given that in many cases consumers are unlikely to be familiar with the nature of the services you provide and how your business operates.³

As such, it is important that you ensure your contract terms are clear and unambiguous. They should be written using plain and intelligible language⁴ which is clear and informative. You should avoid the use of “legalese” or technical language as consumer law requires that clients must genuinely be able to understand their rights and obligations before agreeing to them. Paragraph 12 of our Guidance Note on client care letters provides some further information in this regard that you may find helpful to consider. Where you are dealing with vulnerable consumers, you will need to factor this into your approach.⁵

You should be aware that where a contract term has more than one possible meaning, and so is ambiguous, it will be given the meaning that is most favourable to the consumer.⁶

Ensuring your contract terms are fair

A term will be unfair if, contrary to the requirements of good faith, it causes a significant imbalance in the parties’ rights under the contract to the detriment of the consumer.⁷

Whether a term is unfair is an assessment that must be considered in the round, taking into account the nature of the subject matter of the contract, and by reference to all the circumstances existing when the term was agreed and to all the other terms of the contract or of any other contract on which it depends.⁸

That said, the fairness test includes the following two main elements: (i) significant imbalance to the detriment of the consumer; and (ii) good faith.

“Significant imbalance” is concerned with the parties’ rights and obligations under the contract. There will be a significant imbalance if a term is so weighted in favour of a business that it tilts the rights and obligations under the contract significantly in its favour. This may be, for example, by granting the business undue discretion or imposing a disadvantageous burden on the consumer. It is important to note that:

a contract term may be unfair if it has the potential to cause a significant imbalance to the detriment of consumers, even if it is not used in that way in practice; and
While a contract may purport to set out equal rights (for example, equal obligations in the event of cancellation), this may still cause a significant imbalance if the practical effect on consumers is significantly disadvantageous compared to that for the business.

The concept of “good faith” is intended to have a broad application and to ensure that the fairness assessment includes an overall evaluation of the different interests involved. The requirement of good faith embodies a general principle of “fair and open dealing”. It looks to good standards of commercial morality and practice.

In terms of fair dealing, this requires that you do not, whether deliberately or unconsciously, take advantage of a consumer’s circumstances to their detriment. Accordingly, when setting your terms of business, you should factor in the typical characteristics of your consumer clients and potential consumer clients (for example, their lack of experience or unfamiliarity with legal processes, or particular vulnerabilities, such as disability). In addition, you also need to actively take the legitimate interests of consumers into account when setting your contract terms.

In terms of open dealing, terms should be “expressed fully, clearly and legibly, containing no concealed pitfalls or traps”. Appropriate prominence should be given to terms that might operate disadvantageously to your clients. You should not assume that consumers can identify terms which are important or which may operate to their disadvantage.

Ask yourself. When setting your contract terms, you need to ask yourself whether it is reasonable to assume that clients would agree to such terms if the respective negotiating positions of your firm and the consumer were equal. If not, the contract term is likely to be unfair and unenforceable.

While the fairness test is deliberately broad and flexible in application, consumer law illustrates what “unfairness” means by listing some types of terms that are likely to be unfair. For example, your contract terms may be unfair if one or more of them has the following characteristics.

It unduly excludes or restricts your liability to the consumer. Indeed, some such clauses are automatically unfair, for example those that seek to exclude or restrict your liability when you have failed to provide your services with reasonable care and skill.⁹
It excludes or limits a consumer’s right to take legal action or exercise any other legal remedy. This would include a term that precludes the escalation of a complaint to the Legal Ombudsman or places more restrictive timeframes on a consumer to do so, or mandates the use of arbitration.
It seeks to bind consumers to hidden terms; that is, contract terms that they have not had the chance to become familiar with or understand.
It allows you to vary the service to be provided, without a valid reason. Particular fairness concerns are likely to arise where you have a wide discretion to impose changes, or where the consumer could not foresee the circumstances in which changes may be necessary or what the potential consequences of those changes might be.
It allows you to increase the price¹⁰ after the consumer is bound by the contract. Where a fixed fee has been agreed, it will be rare for there to be circumstances in which it would be fair to change that fee, particularly in relation to a short-term contract. Similarly, it is unlikely to be fair to change agreed hourly rates, particularly in relation to a short-term contract.
It allows you the right to determine whether the services supplied are in conformity with the contract, or gives you the exclusive right to interpret any term of the contract.
It purports to exclude liability for any statement (oral or written) made by you or someone on your behalf about the business or the service. Such statements are to be treated as a term of the contract if they are taken into account by the consumer when deciding to enter into the contract or, later, when making any decision about the service. Any attempts to exclude such statements (for example, the use of an entire agreement cause) are automatically unfair.

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1
Where ‘contract terms’ are referred to in this section, this includes all wording which gives rise to an obligation or right between you and a consumer client, wherever those obligations/rights are set out (for example in the client care letter, separate contractual documents, conditions, policies or terms published on your website).
2
This was one of the principles underlying the original European legislation on which the Consumer Rights Act 2015 was based – see recital 20 of the European Directive on Unfair Terms.
3
Note that complying with these transparency obligations does not necessarily mean you are compliant with your other legal obligations regarding the provision of information to consumers, as set out elsewhere in this guidance. The various obligations are all distinct and need to be considered on their own merit to ensure compliance.
4
Consumer Rights Act 2015, section 68.
5
For further information, see our Guidance Note on vulnerable consumers.
6
Consumer Rights Act 2015, section 69.
7
Consumer Rights Act 2015, section 62. This is subject to certain exceptions, as further described in Annex 2, paragraphs 23 to 25.
8
Consumer Rights Act 2015, section 62(5).
9
Consumer Rights Act 2015, section 57.
10
Or the way in which the price is to be calculated.