The High Court has declared a contract term ‘unfair’ for the first time since the 2015 amendments to the Fair Trading Act 1986 (FTA) that make unfair contract terms unenforceable.
Home Direct Ltd sells goods to consumers online with delivery directly to a consumer’s home. Consumers can buy goods from Home Direct on credit and pay them off over time. Home Direct’s standard consumer contracts contained a voucher entitlement scheme. If a consumer continued to make direct debit payments to Home Direct after they had paid off their item, the additional payments would be converted into vouchers to be used to buy other items from Home Direct.
The scheme had two terms that, together, the court considered were unfair:
- The vouchers were non-refundable, and
- If not used within 12 months, the vouchers expired allowing Home Direct to keep the additional payments.
Under the FTA, a term in a standard consumer contract could be unfair if it creates a significant imbalance in the parties’ rights and obligations, is not reasonably necessary to protect legitimate business interests and causes detriment to a party.
This case highlights the need for businesses to review their terms of trade, particularly given that the government has announced its intention to extend these rules to include business-to-business contracts.
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