Key considerations when drafting consumer contracts

Is it a consumer contract?

Before a business starts drafting a consumer contract it should consider whether it is supplying to consumers. Given the impact consumer protection law has if it applies, this should be based on a proper assessment and not an assumption.

For a consumer contract to arise, the customer must be contracting as a consumer and buying from a trader. The key definitions are:

• Consumer: “an individual acting for purposes which are wholly or mainly outside that individual’s trade, business, craft or profession”
• Trader: “a person acting for purposes relating to that person’s trade, business, craft or profession, whether acting personally or through another person acting in the trader’s name or on the trader’s behalf”.

What is being sold?

The nature and subject matter of the contract are important. Different rules apply whether the business is selling goods, services, digital content, or a combination of some or all of these. The business will need to understand the rights and remedies available to consumers under legislation such as the Consumer Rights Act 2015 (“CRA”) and the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (“CCR”).

How is the contract formed?

The way the contract is formed affects whether cancellation rights, such the 14-day cooling off period, are available to the consumer and what key information needs to be provided by the business before the contract is formed. The business will need to consider whether the contract is a distance contract, an off-premises contract, or an on-premises contract.

There are exclusions which mean that the CRA and the CCR do not apply to some contracts involving consumers. The business should work this through to see if it has the benefit of any of those exclusions.

Transparency

The CRA imposes transparency requirements on businesses when contracting with consumers. Plain and intelligible language should be used to ensure consumers can understand the terms. Legal jargon and references to statutory legislation should be avoided unless clear explanations are provided.

If the business is selling to both consumers and businesses, it will need to consider how to deal with the different customers in its terms. A combined set of terms could be used, either giving business customers equivalent rights to consumers or which makes clear which provisions apply to business customers and which apply to consumers. Alternatively, two completely separate sets of terms could be used. There are pros and cons for each approach.

Avoid barred and unfair terms

There are limits on how robust businesses can be in their contracts with consumers. The controls are much stricter than in business to business contracts. Certain terms are banned altogether whereas others will be under a strong suspicion of unfairness and unlikely to be enforceable against consumers.

Banned terms include those which attempt to exclude or limit liability for:

• Death or personal injury caused by negligence
• Breaches of terms implied by the CRA relating to goods and digital content, e.g., requirements on satisfactory quality, or fitness for a particular purpose
• Breaches of terms implied in relation to services, e.g., performance with reasonable care and skill.

Examples of terms which are not banned but are likely to be unfair include those which seek to:

• Cap the trader’s liability to the consumer
• Allow the trader to retain a prepayment on cancellation
• Impose disproportionate financial sanctions on the consumer
• Restrict the consumer’s remedies
• Allow the trader to unilaterally vary the terms of the contract.