14. Unfair standard terms

Question 1

What are standard terms?

Answer 1

Standard terms deal with contingencies that are not core to the transaction and are unlikely to occur

They are needed to:

• reduce transactions costs
• reduce liabilities of the business
• manage bargaining power

However, businesses can exploit customers through standard terms (market failure due to information asymmetry) => The market for standard terms can be assimilated to the ‘lemon market’ (lemon market: refers to issues that arise due to asymmetric information possessed by the buyer and the seller of an investment or product, regarding its value.) => Bad clauses are likely to drive out the good ones => state intervention

Question 2

2 types of control systems for standard terms

Answer 2

1. Formal control: Unfair terms have no effect unless specifically approved in writing
2. Substanstial control: Provisions in standard business terms are ineffective if, contrary to the requirement of good faith, they unreasonably disadvantage the other party to the contract with the user

Question 3

Formal control

Answer 3

• Rigid, inflexible
• No space for bargaining
• Take it or leave it attitude
• One party decides everything
• If there’s formal control, you can do whatever you want

Question 4

Substantial control

Answer 4

• Possible intervention from judges and authority => make it more difficult
• Directive 93/13 aims at achieving harmonised regulated terms within the internal market of EU

Question 5

Unfairness test

Answer 5

Article 3(1) provides for a general test, referring to:

1. good faith - national court must assess whether buyer has agreed to term in individual contract negotiations -> if not, contrary
2. a significant imbalance in the parties rights and obligations arising under the contract - ‘it must in particular be considered what rules of national law would apply in the absence of an agreement by the parties in that regard’ (CJEU 14 March 2013 Mohamed Aziz case)
   
   • there’s an imbalance when the national law does not correspond to the term

Question 6

ParkingEye Limited v Beavis case (Facts)

Answer 6

1. ParkingEye: car park management
2. 2 hour max stay
3. Customer only car park
4. 4 hour maximum stay for Fitness Centre Members
5. Failure to comply with the following will result in a Parking Charge of £85

To that extent there was an imbalance in the parties’ rights?

Question 7

ParkingEye Limited v Beavis (Judgement)

Answer 7

there was an imbalance of good faith though it did not arise “contrary to the requirement of good faith”, because ParkingEye and the landlord to whom ParkingEye was providing the service had a legitimate interest in imposing a liability on Mr Beavis in excess of the damages that would have been recoverable at common law’

Question 8

Unfair terms and continuation of contract

Answer 8

Article 6(1): Unfair terms shall not be binding on the consumer and the contract shall continue to bind the parties upon those terms if it is capable of continuing in existence without the unfair terms

Question 9

Enforcement

Answer 9

Member States shall ensure that, in the interests of consumers and of competitors, adequate and effective means exist to prevent the continued use of unfair terms in contracts concluded with consumers by sellers or suppliers

Actors:

▪ Consumers
▪ Administrative authorities

▪ Consumer organizations

Question 10

What is individual enforcement?

Answer 10

Individual litigation between traders and consumer calls for certain deviations from ‘classical’ civil procedural law

Question 11

Characteristics of individual enforcement

Answer 11

• The national court is required to examine, of its own motion, the unfairness of a contractual term
• A consumer may choose whether to take advantage or not from the declaration of unfairness
• The binding effect of the term is finally remitted on the consumer, who is considered the person in the best position to know which should be the outcome of the judge’s assessment

Question 12

Why does public or collective enforcement exist?

Answer 12

when imbalance between the consumer and the seller or supplier may only be corrected by a positive action unconnected with the actual parties to the contract

Question 13

Characteristics of public enforcement

Answer 13

• Actors: public authorities or consumer organizations
• Actions may be directed separately or jointly against a number of sellers or suppliers from the same economic sector or their associations (which recommend the use of particular standard terms)
• Main instrument: Injunction (Judgement prohibiting the continued use of the unfair term)