Member Article

Introduction:The Consumer Protection Act, Cap. 326D (‘the Act’) aims at protecting consumer rights by, among other things, prohibiting and penalizing the use of unfair contract terms by suppliers of services. The Act is administered and enforced by the Fair Trading Commission (‘the FTC’). This article summarises the effect of the Act on how service providers can legally contract with their customers. This article does not focus on suppliers of goods. 

What Types of Transactions Are Affected?

For the purposes of the Act, a consumer is an individual who obtains services and goods for personal use. Terms prepared in advance where the consumer had no say in the substance of the term (like terms in standard form contracts) are affected by those parts of the Act concerning unfair contract terms. 

If someone claims that he is a consumer or that a term is unfair, it is for the supplier to disprove this. 

Can I Contract Out of the Act? 

A contract term that is inconsistent with the Act, or that expressly excludes, restricts or modifies the application of the Act to the contract, is of no effect. 

If a supplier tries to contract out of the Act, it may be guilty of misleading conduct and falsely representing that the consumer is not entitled to rights and remedies under the Act. The following penalties may also apply: 

 -  CapacityPunishment

 -  Fine Imprisonment

 -  Supplier 

 -  Individual$10,000.00And/or2 years

 -  Not an Individual$100,000.00 -

 -  Director of Corporate Supplier$25,000.00And/or2 years

How Do I Spot an Unfair Contract Term?

Generally, a contract term is unfair if to the detriment of the consumer it causes a significant imbalance in the rights of the supplier and the consumer. The schedule to the Act provides a list (which is not exhaustive) of terms that are deemed unfair. 

Some common terms found in service contracts that are generally considered unfair are terms:

excluding or limiting the supplier’s liability for its or its agent’s acts or omissions where the supplier is at fault; 

excluding the consumer’s right to set off his debt to the supplier against the supplier’s debt to the consumer;

allowing the supplier to terminate a contract of indeterminate duration without reasonable notice where there are no serious grounds for so doing; 

allowing the supplier to change contract terms unilaterally and without specifying a valid reason in the contract; 

allowing the supplier to unilaterally change a characteristic of a service without a valid reason. 

However, the Act allows the use of the terms at c and d above in: 

transactions in transferable securities, financial instruments and other products or services where the price is linked to fluctuations in a stock exchange quotation or index or a financial market rate that the supplier does not control; or 

contracts for the purchase or sale of foreign currency, traveller’s cheques or international money orders denominated in a foreign currency. 

The Act allows a supplier of financial services to unilaterally change interest rates or the amount of its charges for financial services without notice provided there is a valid reason for the change, the supplier is required to inform the consumer of the change at the earliest opportunity, and the consumer is allowed to terminate the contract immediately. 

The Act allows a supplier to change the conditions of a contract of indeterminate duration once the supplier gives the consumer reasonable notice and the consumer is allowed to terminate the contract. 

It allows a supplier to unilaterally terminate a contract of indeterminate duration without notice provided there is a valid reason for so doing and the supplier is required to inform the consumer immediately. 

What Happens If I Use An Unfair Contract Term?

If a term is unfair, it cannot be enforced against the consumer. The FTC also has the power to apply to the High Court for injunctions restraining the supplier from acting in breach of the Act or for a variety of orders, including orders rendering the entire contract void or varying the contract. 

Simple Plain Language 

The Act requires a written term in a contract to be in plain and intelligible language. If the meaning of the term used is unclear, the interpretation that is most favourable to the consumer will be used.

If a supplier is uncertain about whether a contract term is unfair or unclear, it can submit the contract to the FTC for its comments.