Essentials for drafting online consumer terms and conditions

31 October 2019

If you are a trader selling to consumers online, whether that is through a web-based platform or a mobile app, it is important that you understand and comply with relevant consumer protection laws. Eager to launch, many traders fail to satisfy the key legal requirements of fairness and transparency in their online consumer terms despite serious consequences for non-compliance. This article supplements our video 'Top tips for drafting online consumer terms and conditions' and outlines the essentials for contracting with consumers over the internet.

Who are traders and consumers?

A trader is a person who is acting within their trade, business or profession. Determining whether a person is a trader is not always obvious given the flexibility allowed by e-commerce. For example, whilst each case will turn on its own facts, e-commerce can encompass peer-to-peer transactions between consumers which do not involve traders. A consumer is a customer who is acting wholly or mainly outside their trade, business or profession. This could include a purchase made primarily for leisure, as well as some work purposes (such as a laptop), and applies generally to persons that make a purchase to meet their own private consumption needs.

How is a consumer contract formed online?

Your online terms of business will amount to a consumer contract where they are used as the basis for the sale of goods, services or digital content to individuals online for personal use. Digital content includes media that are downloaded or streamed to a device such as online books, music files or in-game purchases. Consumer contracts are governed by the Consumer Rights Act 2015 (CRA) and supporting regulations. These laws aim to protect consumers against unfair contract terms as the courts consider consumers to be less commercially sophisticated than business customers.

Unfair contract terms

The CRA includes a list of unfair or blacklisted terms in consumer contracts which are not binding on consumers in any circumstances and should always be avoided in consumer contracts. The CRA also includes a list of greylisted terms which, whilst not automatically unfair, are considered unfair to consumers in certain circumstances and should therefore also be avoided.

Unfair contract terms examples:

  • Excluding your liability to a consumer for death or personal injury caused by your negligence.
  • Capping your total financial liability to pay compensation to a consumer.
  • Binding consumers into the contract for longer than they would normally expect.
  • Subjecting consumers to disproportionate financial penalties for breaches of the contract.
  • Preventing a consumer, following cancellation of a contract, from recovering sums paid in advance for services which have not been provided.
  • Providing the trader with a unilateral right to vary the contract’s material terms (e.g. price) after the contract has commenced.

Consequences for traders

Whilst the most serious breaches of consumer law can result in criminal prosecution, less serious breaches can still amount to significant consequences for you as a trader. For instance, consumer protection bodies, such as the Trading Standards Services and the Competition & Markets Authority, have powers to:

  • Order compensation to be paid out to affected individuals.
  • Deem offending contracts to be null and void.
  • Issue compliance notices to prevent further breaches.
  • Issue consumer notice measures, for example, making businesses publicise their breaches on social media, in the press and on their websites to correct misleading advertisements.

Court action from aggrieved consumers is a lingering concern and can roll into collective actions for damages having to be paid by you, as well as bad publicity and disruption to daily business.

Presentation and incorporation of terms of business

Online terms of business are more likely to be considered as fair if they are easy for consumers to understand. With this in mind, it is favourable to use ordinary words instead of legal jargon and complex issues should be accompanied with quick links to guidance sources. In addition, it is preferable to build a table of contents and informative headings into your terms so that they are easy to navigate on screen. Short sentences will help make the content more digestible and capital letters can be used to help bring important terms to the reader’s attention, for example disclaimers that restrict their ability to claim compensation from you.

In order to ensure that your online terms of business are enforceable, you must ensure that you have followed a process which creates a legally binding contract with the consumer. This is often achieved by displaying a prominent link and tick box for acceptance of the terms rather than hiding them at the bottom of a webpage or in small print.

Key terms to include in consumer contracts

Subject to limited exceptions, certain terms must be found in all online contracts with consumers, or provided to the consumer in advance, non-exhaustive examples of which include:

  • A right of cancellation within a “cooling off period” of 14 days. This can be without reason and must allow the consumer to recover a full refund for goods or services. Depending on context, it may be helpful to specify when the cooling-off period starts and expires, especially where trial offers apply for digital content, or whether it is waived ahead of a download.
  • Details of the contract length (such as a minimum period) and termination rights must be given to the consumer before the contract is entered into, for example on the order page.
  • Auto-renewal clauses are more likely to be fair and lawful if the consumer receives a notification reasonably close to the renewal date and is made aware of any changes to the terms. These clauses should also have straightforward procedures for opting-out prior to renewal and there should be no financial sanctions for termination.

 

Remember

As a trader it is essential to make sure that your online terms of business are carefully crafted so as to be fair and easy for consumers to understand. In this way, you can build goodwill for the business and avoid costly disputes, disruptions and bad publicity.

Our commercial and contractual experience

We have extensive experience of advising innovative technology businesses in a variety of sectors, including fintech, big data, virtual reality, artificial intelligence and crypto-assets. We regularly carry out healthchecks of existing commercial and contractual arrangements and draft  updates or new documentation as necessary. 

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About the authors

Andrew Solomon is a Senior Associate in the corporate and commercial department. Andrew's commercial practice is focussed on drafting and negotiating technology contracts, although he also advises in relation to a wide range of commercial issues, such as intellectual property, branding, data protection and sponsorship arrangements.

Alex Torpey is an Associate in the corporate and commercial department. Alex advises technologystartup and established companies as well as entrepreneurs on a variety of legal issues for commercial contracts including data protection compliance, licensing and ownership of intellectual property rights, confidentiality and liability.

 

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We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.

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