Business to consumer contracts must be written a certain way for them to be binding and enforceable. A written term of a consumer contract or notice must be transparent. A term or notice that is unfair is not legally binding on consumers.
The Competition and Markets Authority and other bodies can take action to stop the use of certain terms or consumer notices which they consider are unfair, breach transparency requirements, or are blacklisted (prohibited). This article will look at the transparency test.
Transparency is essential to fairness and is also a requirement. Breach of transparency can also lead to enforceable action. Section 68 of the Consumer Rights Act 2015 states that a written term in a consumer contract or notice is transparent. This means that written terms and notices must be plain, comprehensible, understandable and be legible. The transparency requirement sits alongside and reinforces the requirement of good faith.
Just like the fairness test, the transparency test applies to all written consumer contracts, including those individually negotiated.
Terms that define the main subject matter and set the price can only benefit from the fairness tests main exemption (the core exemption) if they are transparent and prominent.
Consumers are protected from one-sided agreements and should be given the opportunity to examine all the terms. Transparency is considered in the full sense of the contract.
A term should make grammatical sense and put the consumer into the position of being able to evaluate the economic consequences which come from it. The reason for the term and its relationship to other terms should be transparently set out. It is vital that a consumer has the information before concluding the contract, on the terms of the contract and the consequences of concluding it. Based on that information, the consumer decides whether to be bound by the terms.
It should not be assumed that a consumer can understand the detail of how a particular market or transaction operates. Care should be taken when complex and technical issues need to be covered. Suitable literature should be given to ensure the consumer understands it.
The transparency requirement is seen alongside other legal requirements which oblige businesses to put consumers into a position where they can make informed choices as to whether to enter the contract. The consumer should understand the contract. It should set out all obligations and rights in a clear and comprehensible way. For example, the Consumer Protection for Unfair Trading Regulations 2008 prohibits business practices that mislead consumers, possibly causing them to take a different decision. This could include buying a product that they would not otherwise buy or not exercising a legal or contractual right that they otherwise would have taken.
A term is more likely to be deemed fair when it is transparent. A term that fails the transparency test alone is not unenforceable like a term that creates an unfair balance. However, where a lack of transparency makes a term ambiguous, giving it more than one meaning, the court is required to give the meaning most favourable to the consumer. The purpose of the most favourable interpretation rule is to protect individual consumers in private disputes. If a terms ambiguity could cause detriment to a consumer it may be challenged by a regulator as unfair even if one possible meaning is fair. A regulator can take enforcement action for breach of the transparency requirement in the same way as if it is considered unfair.
Consumers need to understand their rights and obligations. Ordinary words should be used as much as possible and in their normal sense. Words that are not literally unintelligible are likely to fail the transparency test because of vagueness of language. Their effect is likely to be unclear or misleading to consumers. Transparency is more likely to be achieved when sentences are short, and the text of the contract is broken up with easily understandable subheadings covering recognisably similar issues. Statutory references, elaborate definitions and extensive cross referencing should be avoided.
The mere inclusion of references to legislative or regulatory provisions is unlikely to usefully contribute to achieve either fairness or transparency. Consumers must be put into a position where they can understand the effects of legal provisions.
In written contracts the print must be clear. This depends on, size of font, its colour, the background, and where paper is used, its quality.
Transparency and fairness require that consumers have a real chance to learn and understand the nature and consequences of their obligations by the time the contract is binding. Especially the terms which could otherwise come as an unpleasant surprise. Terms that have a disadvantageous impact on the consumer should be given sufficient prominence.
When transparency is achieved, the term is more likely to be fair.