Unfair terms under the eu contract law

Contracts are part of every persons’ daily life. A contract could be anything from a bilateral agreement, where two parties agree to consent on a common wish, or a consumers’ pre-drafted Agreement, usually presented in a standard “terms and conditions” document form. The latter leaves little room for negotiation to the weaker part, as it is a document that a user of a particular service is offered to sign upon purchasing a product or visiting a web page.

What most individuals are unaware of, is the fact that under the European Union legislation, all standard contract terms used by traders must be fair, regardless of the type of the contract. It is strictly forbidden by Law to create an imbalance between the rights and obligations of any of the parties, as any ambiguities will always be interpreted in favor of the consumer, who is considered to be the weaker part.

The EU legislation clearly states that the first general requirement that must govern a contract is that of “good faith” and “balance”. In the opposite case, the contract is considered to be unfair and not binding.

Although the list is non exhaustive, the EU legislator has exposed a guide list of unfair contract terms:

1. Liability in case of death or injury of the consumer; A traders’ liability cannot in any way be excluded and/or limited in this case, by an act or omission of the trader.

2. Exclusion of compensation in case a trader doesn’t deliver; A contract cannot in any way limit and/or exclude the consumers’ right to compensation in case of a violation of the traders’ obligations.

3. Terms giving the trader the possibility to only one of the parties, the trader to get out of the contract. Such terms create an imbalance within the terms of the contract and are strictly banned, as they leave the weak party at the mercy of the stronger one.

4. One-sided compensation possibilities in case of cancellation; A classic example would be a term allowing a trader to hold on to the monetary advances pre-paid by the consumer in case of cancellation by the latter, while not allowing the consumer to get compensation in case of cancellation by the trader.

5. Excessive compensation; Terms requiring the payment of an unreasonably high compensation, in case of failure to fulfill the contract obligations are considered to be void. The compensation must always be reasonable, fair and proportionate.

6. One-sided cancellation terms; Both parties must have an equal right to unilaterally dissolve a contract in case of breach of contract. This comes back once again to the principe of balance in Contractual Law.

7. Cancellations at short notice; This type of terms, giving the possibility to the trader to terminate the agreement that does not contain a fixed date of execution, are illegal, unless explicitly justified.

8. Automatic renovation of fixed duration agreements; Clauses containing this type of terms must be explicitly explained and cannot be unreasonably early, as the consumer cannot be found trapped in an automatic extension of his contract without having the opportunity to negotiate his consent to renew or not.

9. Hidden terms are strictly prohibited by EU Law. All terms must be explicitly explained in written, in an easy to understand language.

10. Clauses allowing unilateral changes to the agreement; This type of clauses allowing any of the parties to unilaterally amend the contract are not allowed, unless a valid reason justifies such an action. In any case, the other party must be warned in good time.

11. Clauses allowing unilateral changes to the service and/or product, object of the agreement. This type of terms are considered to be void, unless a valid reason justifies such an action.

12. Clauses allowing unilateral price variations before prior warning and/or consent are illegal.

13. One-sided interpretations of the contract are strictly prohibited, due to the principle of fairness and balance within the agreement.

14. Failure to commit to promises and/or statements made by the traders’ staff or the trader himself, prior to the signature of the agreement.

15. Terms containing unilateral obligations of compliance create unfairness and imbalance to the contract, making it void.

16. Terms allowing the transfer of the contract to a third party, under less favorable conditions are strictly prohibited.

17. Clauses containing limited rights to legal action and/or an obligation for the weak party to provide proof that is not by nature that partys’ responsibility to do so, is considered to be void and is not legally binding.

Please note that the non-exhaustive list of the above terms are considered to be illegal and have no binding force on consumers under EU law. This type of clauses turn automatically void, unless they constitute the essential element of the contract, in which case, the entire contract is considered to be void.

The laws and regulations of the EU, particularly the Directive 93/13/EEC of 1993 on unfair terms in consumer contracts have been created for the protection of the consumer.

This article does not constitute legal advice. For further information on the subject, please contact the Arsen Theofanidis LLC and one of our advocates-legal consultants will get in touch with you to evaluate your specific case.

By N. Kalifatidou
Advocate – Legal Consultant
Arsen Theofanidis LLC