Unfair terms law can protect consumers for existing and future contracts, says Court of Appeal

The OFT is taking estate and letting agency Foxtons to court over the standard terms of some of its contracts. It says that the terms break the Unfair Terms in Consumer Contracts (UTCC) Regulations. The case is yet to be heard in full, but the High Court previously said that the OFT's claims could only change Foxtons' future contracts, and not those already in force.

But the Court of Appeal has overturned that ruling, saying that if the OFT wins its case the Regulations can apply to current as well as future contracts.

"This appeal raises an important point relating to the scope of the relief that the court can grant in proceedings brought by the OFT under the [Regulations]," said Lord Justice Waller in his ruling.

If a contract term is thought to be unfair to consumers, action can be brought by a body such as the OFT, Trading Standards or Which? representing all consumers; or the term can be challenged as unfair by a consumer if the consumer is sued.

The High Court had struck out the OFT's claim for injunctions on the enforcement of the terms in relation to existing contracts because there might be some individual, atypical circumstances in which the terms were in fact fair.

"In my judgment, what the court should do in the case of a collective challenge is to assess the fairness of the term having regard to a typical consumer and typical circumstances," said the initial court ruling. "The court cannot be expected to assess whether, on the facts of cases not disclosed to the court, there is or is not a possibility that there might be a case where the term would not be considered to be unfair. The court may well feel that an exceptional case was unlikely but the court would be reluctant in the extreme to say that such a case could never arise. Even if there were a remote possibility of one such exceptional case, that would disentitle the OFT from the injunction it seeks, which makes no exceptions."

The High Court said that even if the term was unfair in the vast majority of cases, an injunction would override Foxtons' rights in the minority of unusual cases where the terms might be fair.

The contract terms to which the OFT objects can require landlords with properties being run by Foxtons to pay out to the company if a tenant stays on after an initial letting period even if Foxtons is no longer involved; or if the property is sold to the tenant, again even if Foxtons was not involved in the sale.

The Regulations are based on a European Union Directive. Article 7 of that Directive says that countries should "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".

"I am quite clear that Article 7 was intended to cover existing as well as future contracts, and that thus an issue on a general challenge could be the fairness of a term in a current contract," said Lord Justice Waller in his decision.

"It would be quite inadequate protection to consumers if a court on a general challenge, having found a term as used in current contracts to be unfair, had no power to prevent the supplier or seller from continuing to enforce that term in current contracts," he said. "It is therefore most unlikely that the Directive intended that a general challenge should not relate to a standard term in current contracts and did not intend the courts of Member States to have power to prevent continued reliance on that term by a supplier or service provider against a consumer."

"In a situation where on a general challenge a court has found a term or terms in a set of standard conditions in use in current contracts unfair, it must be a proper exercise of its power to grant an injunction to prevent enforcement of that term or terms in existing contracts. It follows that in my view it was wrong of [the High Court judge] to strike out the words he did from the terms of the injunction sought," he said.

Lord Justice Waller said that he was not in a position to say that the exact injunction demanded by the OFT was a fair one, just that if the court hearing the full trial found the terms unfair it was within the law for a general injunction to that effect to be put in place.

Two other Court of Appeal judges agreed with Lord Justice Waller and sent the case back to the High Court for its full trial. The OFT said that it "welcomed" the decision.