By Nyrie Eller, paralegal, dispute resolution at Gillespie Macandrew
RENEWING your monthly streaming service, agreeing to a new phone contract and taking up a gym membership – in our daily lives, we often enter into contracts without giving them much thought. We don’t bother with the small print, or even ask to see it.
In the digital age, it’s too easy to click ‘I agree’ on a website, and too difficult to trawl the lengthy conditions beforehand.
Business-to-business contracts vs. consumer contracts
Business-to-business contracts can be just as complex, defining responsibilities, quality of materials, design, specification, scope of the work and delivery time. The business contracts may set up the rules for resolving disputes, they may also outline what events will allow the parties to terminate their relationship.
The contracts are routinely poured over by lawyers and given careful consideration, word by word. Understanding and managing contract terms can be the difference between a successful project and a costly legal dispute. And in business-to-business relationships, the parties are likely to be of more equal bargaining power, so that they can negotiation the right risk balance.
When it comes to contracts, the consumer is often less likely to have any bargaining position. However, the Consumer Rights Act 2015 is in place to protect consumers by ensuring that the business contracts they enter into are fair.
The Act ensures that contract terms do not create a significant imbalance between the parties. The general rule is that if a term is deemed to be unfair, it will probably not bind the consumer. This Act is in force in Scotland, England and Wales.
The case: Glaser and Miller v Atay
The focus of a recent English case, Michael Glaser KC, Victoria Miller v Katharine Jane Atay [2024] EWCA Civ 1111, was on the enforceability of the terms about payment in two contracts. The client of Barristers argued that those terms were unfair.
In this case the contracts stipulated a fixed fee, to be paid in four instalments. The contracts also included a ‘Payment Term’ which required the client to make full payment regardless of whether the hearing, at which the barristers were instructed to appear, proceeded as scheduled. The term was designed to ensure payment in advance of services. This is a common feature in many professional appointments, particularly where significant preparation time is involved.
The hearing was adjourned, and the client then terminated the barristers’ appointments. At this point she had paid the first two instalments but not the final two. This resulted in the barristers suing.
Newport County Court concluded that by application of the 2015 Act, the term was unfair and therefore, unenforceable. The judge noted that the term imposed an obligation for the client to pay substantial sums even if no work had been carried out.
He found that the client was due to pay something more for work that had already been completed. The amount was to be assessed based on a fair commercial rate for the work done (or quantum meruit); and decided that was seventy per cent of the outstanding fees.
In a surprising turn of events, everyone appealed! The client argued that the Payment Term should be deemed unenforceable in its entirety, given that it imposed an unfair burden on her. That meant no further money was due. The barristers argued that the Payment Term was not subject to a fairness assessment under the 2015 Act at all as the terms were lawful.
The unfair payment term
In October 2023, the High Court agreed that the Payment Term was unfair under the Consumer Rights Act 2015; but rejected the possibility of awarding fees on a quantum meruit basis, explaining that the contract was for a lump sum covering both preparation and trial appearance.
Due to the Payment Term being unfair, this removed it from the contract. Partial payment for incomplete performance was not allowed under common law, as the court could not revise the term partially under the act. The barristers were therefore ordered to repay the amounts they had received under the first two instalments.
The barristers appealed once more – to three judges sitting in the King’s Bench Division. The court considered that the contract lacked flexibility, offering no accommodation for unforeseen circumstances such as the adjournment of the hearing. Such a term unfairly shifted all the financial risk onto the consumer while allowing the barristers to retain their fees and potentially accept other work. This violated the good faith principle, central to the 2015 act.
Regarding quantum meruit, the Judges rejected this argument. It was held that the removal of the Payment Term did not entitle the barristers to a quantum meruit claim. This is because the contract was structured as a lump-sum agreement, not a divisible one. The court concluded that the barristers were not entitled to further payment beyond what had already been paid for the services rendered.
Unjustified enrichment was also explored – this occurs when one party benefits at the expense of another without justification. In this case, the client had already paid a significant sum for services that had not been fully rendered, so there was no unjustified enrichment.
Lessons learned
In conclusion, the Court of Appeal ultimately upheld the decision that the Payment Term was unfair under the Consumer Rights Act 2015, following the principle that contract terms must not impose an unreasonable burden on consumers.
The judgment highlights the importance of transparency, fairness, and good faith in contractual relationships with consumers. The case serves as a reminder to professionals not to be too clever when drafting their consumer client contracts, even if that contract requires them to be a clever professional!
