The Competitions and Markets Authority (CMA) has recently published its views on the law in relation to cancellations and refunds during the pandemic. This will help businesses to know where they stand in what has been a very challenging time.
Contract law has many grey areas, and whilst the Consumer Rights Act 2015 provides a framework, Coronavirus has thrown up a whole set of circumstances and challenges for consumers, businesses and those advising both.
The guidance is therefore very welcome.
The CMA say:
“Consumers and businesses should be aware that whether or not a consumer is entitled to a refund will depend on the nature of the goods or services in question, the sector, the detail of the arrangements that have been entered into (including the terms and conditions of any contract) and the impact of the coronavirus pandemic and any restrictions on the arrangement.
Ultimately only a court can decide how the law applies, and in many cases this will be the first time the issues have been considered in the context of a pandemic like this.”
The statement also gives guidance on when it would regard a contract as being “frustrated” – because it cannot go ahead through no fault of the parties, and when it would expect consumers to receive a full refund.
However, where a service can legally be provided as agreed, but a business or consumer does not want to go ahead with the arrangement, for example, because of government guidance (not law), then the position is more complex. Here it is unlikely that the contract would be regarded as frustrated. Therefore any applicable pre-existing terms and conditions on cancellation and refunds will apply (as long as they are fair). The CMA say “although frustration is less likely where there are no legal restrictions in place, it is not impossible. If advice or guidance means a consumer would be at serious risk if the contract went ahead as agreed, it is possible a court might find that the contract had been frustrated”.
Some of the other key points from the Statement are:-
- The CMA considers that businesses should not charge any form of administration fee (or equivalent) for processing refunds circumstances.
- Consumers can normally be offered credits, vouchers, re-booking or re-scheduling as an alternative to a refund, but they should not be misled or pressured into doing so. A refund should still be an option that is just as clearly and easily available. Any restrictions that apply to credits, vouchers, re-booking or re-scheduling must also be fair and made clear to consumers.
- Timeframes for providing refunds should be made clear to consumers and refunds should be given promptly and without undue delay.
- Consumers will normally be entitled to withhold payment for services that are not provided by the business or which the consumer is not allowed to use because of lockdown laws.
- A business should not seek payments for a service it knows, or believes, it will be unable to provide, for example if lockdown laws are still likely to be in place at the time that the contract is due to be performed.
- Variation clauses are likely to be unfair and unenforceable they have the effect of a ‘blank cheque’ allowing a business to adjust important aspects of the contract at will.
- Some businesses will be looking to redraft their contracts, for new customers. Terms in new contracts are likely to be unfair and therefore unenforceable if they prevent consumers from obtaining a refund in circumstances where lockdown laws mean that a contract cannot be performed as agreed.
The CMA has also given guidance on the payment of deposits and state that in order to be fair:
- non-refundable deposits should only be a small percentage of the total price
- advance payments for future services should usually be refunded (and any deductions should be limited to those costs that a business has already reasonably incurred in connection with that contract)
- cancellation charges should be limited to a genuine estimate of what a business will lose directly
- businesses should not be compensated twice for the same loss (e.g. by retaining some advance payments and imposing a cancellation charge)
In summary, the CMA say
“Complying with government guidance is a very important part of stopping the spread of the coronavirus, and consumers should not be unfairly treated for doing so. Where contracts are affected by government guidance, wherever possible, businesses should work with consumers to find solutions which work for both parties. Where a business puts pressure on consumers not to follow government guidance this could be an unfair, and unlawful practice”.
The full statement can be read here
Published 1 September 2020
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