Contracts, cancellations and refunds – CMA guidance on consumer rights

Throughout this pandemic, the Competition and Markets Authority (CMA) has been publishing various “Statements on Coronavirus” (Statements) which provide guidance on consumer rights during this time.

The most recent Statement was published by the CMA on 28 August 2020. This guidance covers consumer rights where “lockdown laws” do not prevent a trader for providing services, but it changes the way in which those services can be provided. It also provides advice for when a trader’s compliance with government guidance (rather than legislation) would prevent a consumer receiving a service.

Do consumers have a right to a refund?
If a consumer has not been provided with the goods/service and the contract cannot be performed due to lockdown laws, the CMA is of the view that consumers are entitled to a full refund.

The expectation is on the trader to be proactive and contact customers who are entitled to refunds; they cannot require a consumer to follow any unreasonable or unnecessary steps to obtain a refund and refunds should now be provided promptly and without delay

If some of the services have already been provided, a partial refund could be given for the services that have not yet been delivered. In rare circumstances, where lockdown laws prevent services/goods from being provided, the trader can charge some costs towards their fee for services which have already been provided but only where those costs cannot be recovered elsewhere. The Statement also discusses subscription services, where the trader would normally provide ongoing services in return for a regular payment.

A trader can offer an alternative to a refund such as a voucher, re-booking or re-scheduling. However, traders cannot mislead or pressure a consumer to accept these alternatives – cash refunds must be just as easily available to a consumer.

The parties may want to re-negotiate the contract although traders cannot use this as an opportunity to mislead or pressure the consumer into agreeing less-favourable terms consumers cannot be left in a position where they are worse-off.

The latest CMA Statement now includes guidance surrounding contracts that are partially affected by lockdown laws and confirms when the consumer is entitled to a reduction in the price for the element of the services that cannot be provided.

What if services cannot be provided in light of COVID-19?
There are different options available to consumers and traders whose services are affected due to COVID-19.

1.  Amending existing terms

The parties can agree to amend the terms of the contract. The Statement provides guidance for contracts that give the trader a unilateral right to vary the terms. These clauses will be unfair if they too broad, fail to give the consumer reasonable notice of the changes or prevents the consumer from cancelling the contract without being made worse-off, i.e. having to pay a disproportionate amount to cancel the contract.

2.  Introduction of Covid-specific clauses

Contracts may now contain a clause specifically related to COVID-19. The Statement specifies that these clauses:
 – cannot prevent a consumer from receiving a refund if lockdown laws prevent the services from being provided; and
 – must be made clear and prominent to the consumer before the contract is entered into.

3.  Cancellation following Government guidance

A contract may be cancelled where there are no legal grounds preventing the services from being performed, but one party does not want to continue with the service because of current Government guidance – for example, advice surrounding travel. The parties should follow the terms of the contract in relation to cancellation provided that these terms are fair. In any case, traders cannot pressure consumers to ignore Government guidance, to do so would be unfair and, in some cases, illegal.

The CMA advises that where a contract is cancelled by one party on Government guidance and the other party is not at fault then:
 – if the contract is cancelled by the trader then the consumer should be entitled to a full refund; or
 – if the contract is cancelled by the consumer, they should not face high charges for the cancellation.

4.  Frustration

A consumer could be entitled to a refund where a contract has been “frustrated”.

Essentially, frustration is where an event occurs after the contract has been made that is so unexpected and beyond the control of the parties, it makes the contract impossible to perform, or it radically changes the contract to the point where it is not the same contract initially entered into. We went over the doctrine of frustration in more detail in a previous e-briefing that can be found here.

Practically, the principle of frustration is used in very narrow circumstances. However, the CMA does acknowledge that if there is Government guidance in place which advises that a consumer would be at serious risk if the contract went ahead, the courts may decide that the contract has been frustrated. Where a contract has been frustrated, the consumer is entitled to a full refund.

The new Statement does provide some clarity in relation to consumer contracts, however there are different rules depending on whether a contact is cancelled due to legislation or because of Government guidance. This may lead to confusion and offers little comfort to suppliers who are already struggling with cash flow and a fall in new business. Ultimately, parties to consumer contracts should keep in mind that during this current climate, any changes or renegotiation to these contracts have to be fair, reasonable and cannot leave the consumer in a worse position.

A link to the CMA’s statement can be found here.

For more information

If you would like any further advice surrounding the CMA guidance or consumer contracts, please contact Rumandeep Dhariwal or Emma Watt.

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