An unfair term contained within a contract is not binding on the consumer this is governed by the Unfair Terms in Consumer Contracts 1999 (the Act).
The Act provides that a term will be unfair if it is contrary to the requirement of good faith and it causes a significant imbalance in the parties rights and obligations under the contract, to the detriment of consumers.
The meaning of good faith has been construed to mean that the business must deal fairly and openly with consumers.
The Act provides that standard terms may be inserted to protect the needs of Businesses but must take into consideration the interests of consumers by making sure that terms do not go further than what is necessary to protect commercial interests. A standard term must be expressed in plain and intelligible language. If the term puts the consumers to a disadvantage because the term is difficult to interpret or the meaning is not clear, the term can be challenged as unfair.
Most standard terms are covered by the Act and there are exceptions:
- that reflect provisions which by law have to be included in contracts
- that have been individually negotiated
- in contracts between businesses
- in contracts between private individuals
- in certain contracts that people do not make as consumers e.g., relating to employment or setting up a business
- in contracts entered into before 1995.