B2C contracts: what's a fair outcome if services can't go ahead as planned?

Many B2C businesses face the possibility that services they've agreed to provide may not go ahead as planned – but is it fair for the business to retain or demand any payments where this has happened? The Court of Appeal has recently ruled that a term in a contract for legal services was unfair, because it required the consumer to pay the full projected fees, even where the relevant hearing was delayed. We explain why the Court reached this conclusion and look at the wider lessons for providers of consumer-facing services.

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What did the Court of Appeal decide and why?

In Glaser v Atay (2024), a consumer (Mrs Atay) refused to pay her barristers' fees of over £80,000 for representing her at a hearing which was adjourned. The barristers' terms provided that if the hearing didn't go ahead for any reason beyond their control, the client would still have to pay any outstanding instalments in full. The commercial justification was that, particularly if the hearing were to be cancelled at short notice, the barristers would not have time to find replacement work for the relevant days that they had booked out in their calendars. They would also face loss of income because of time spent preparing for the hearing.

Unfair terms: a quick reminder of the law

Under the Consumer Rights Act 2015 (CRA) a term may be unfair (and therefore unenforceable) if:

it is "contrary to the requirement of good faith" and leads to a "significant imbalance" between the parties, to the detriment of the consumer; and/or
it is not in plain, intelligible language.

"Core terms", such as those setting out the price, are excluded from the fairness aspect of this test (i.e. the first bullet point above).

The key question in this case was whether the term went too far in seeking to protect the barristers against their potential loss of income resulting from the hearing being adjourned. Among other things, the Court of Appeal noted that the term put all of the financial risk of the hearing not going ahead on Mrs Atay. It did not think that this struck a fair balance as between the business and the consumer in accordance with the requirements of the CRA - especially as the barristers could have found other work to mitigate their loss (and had in fact done so in this case).

Why wasn't it a core term?

The barristers tried to argue that, as the term was concerned with pricing, it was not open to challenge on the grounds of fairness. However, the Court of Appeal ruled that this carve-out should be applied narrowly. It noted that the core terms exclusion was mainly intended to prevent consumers from challenging aspects of pricing such as the actual level of fees. In this case, Mrs Atay was not challenging the level of fees, but the requirement to pay them, even when the hearing had been adjourned and no services had been provided.

Were the barristers able to claim anything at all?

The Court of Appeal ruled that the effect of the CRA was to render the unfair term unenforceable in its entirety – and that it was not possible to delete words in order to effectively remedy the unfairness (as the courts will sometimes do with restrictive covenants, for example). Nor was it permissible to "read in" additional words to make the term "fair". As a result, the barristers could not rely on the term to claim the outstanding instalments.

The Court of Appeal did go on to consider whether the barristers might be entitled to payment on some other basis. This raised a number of complex issues which we will be exploring in more detail in a further briefing. However, it noted that Mrs Atay had already made two initial payments (of about £25,000 in total) towards the fees for the hearing, which she was not seeking to recover. It concluded that the barristers had already been adequately remunerated for any work they had done prior to the hearing being adjourned.

What are the wider implications?

This ruling serves as a stark reminder that if you don't get the terms of your contracts with consumers right, you won't be able to rely on them. So your contract – which is meant to protect you – can end up leaving you exposed to risks that would have been entirely avoidable if a different approach had been taken to the drafting.

The risks to businesses are also set to increase substantially from April 2025 when the tough new enforcement regime for consumer protection under the Digital Markets, Competition and Consumers Act 2024 is expected to come into effect. Among other things, this will allow the Competition and Markets Authority to impose fines of up to 10% of worldwide turnover for serious breaches of consumer law – which could include the use of unfair terms. For more detail on those changes, see our briefing: The UK's new consumer protection legislation: 3 key takeaways.

Does this case put all the risk on businesses if services can't go ahead as planned?

Whilst this case was concerned with legal services, it is also highly relevant to any B2C contracts which need to deal with the possibility that the relevant services may not go ahead as planned but the business still wants to receive and/or retain payment for them. But it shouldn't be viewed as making it impossible for businesses to ever retain or enforce reasonable payments in such circumstances. As Lord Justice Nugee commented:

"Nothing I have said is intended to prevent counsel from devising and agreeing with their clients contracts that fairly balance their own interests in not being left with gaps in their diaries with the interests of their clients in not paying for work that is not carried out."

How can businesses work out what is "fair"?

Businesses may feel that the CRA and other consumer legislation puts them in an impossible position, not helped by decisions of courts and regulators which focus on what is unfair – rather than what is fair. We have some sympathy for this concern which can make it difficult to say conclusively that a term of this nature is fair and that all risk of challenge under consumer legislation has therefore been eliminated. But we also think that, with appropriate drafting, businesses can reduce these risks to acceptable levels. For example, where the contract needs to deal with how much the consumer should pay if services do not go ahead, businesses should consider factors such as those listed below.

        B2C services can't go ahead as planned: what is fair?
    
Does the provision put all the financial risk on the consumer, as in Glaser v Atay? If so, there is likely to be a significant risk that it will be found to be unfair and needs to be amended.
What irrecoverable losses are you likely to have incurred? The amount of the payment should not generally exceed this level – but note also that, in many cases, it may not be appropriate to seek to recover those losses in full where further mitigation steps can be taken (see remaining bullets). 
Can you do anything to mitigate your risk of loss? For example, if you can find replacement business, the term should include a mechanism for taking that into account when determining how much can be retained or is still payable (it's notable that the term in Glaser v Atay did not include any such provision).
Can you get insurance?  Or can you effectively self-insure by setting your pricing so that the risk is spread across multiple contracts (thus avoiding consumers having to bear the entire risk themselves, as individuals)?
Even if you have a reasonable justification for retaining or demanding payments where services have not gone ahead, it may be appropriate to discount the relevant amount to reflect the fact that – as a business – you are simply better able to bear the financial risk than an individual consumer, who will typically have more limited resources at their disposal.

How we can help?

In the UK and elsewhere, B2C businesses face increasing levels of regulatory scrutiny and risk, including the threat of substantial fines. Our consumer law team will help your business to navigate the regulatory minefield. We provide pragmatic, creative solutions to enable you to achieve your commercial goals whilst minimising your risk.

Worried about the Digital Markets, Competition and Consumers Act?

The Digital Markets, Competition and Consumers Act is set to give the UK one of the toughest consumer enforcement regimes in the world. We can help you to ensure that your business is prepared for these imminent changes. Our specially designed packages aim to equip you with the training, resources and analysis that you and your teams need to ensure your business is legally compliant and insulated from the most punitive aspects of the new regime. To find out more, please speak to any of the contacts listed below.