Abusive clauses in the life cycle of a consumer contract
In contracts with consumers, intentional or unintentional use of terms that have been held (or could be held) to be abusive may cause major problems for businesses, including financial consequences.
In an age in which contracts are concluded with consumers on a mass scale, businesses have a dramatic need to standardise the terms under which they sell their goods and services. Businesses seek to frame their legal relationship with consumers as precisely as possible so that the contract terms can address the specific issues that arise during the course of performance.
The use of form contracts, e.g. standard terms of sale, typically create what is known as a “contract of adhesion,” under which consumers buying particular goods or services must accept the terms offered by the seller, on a “take it or leave it” basis, without individual negotiations.
The ease of using standard form contracts presents a temptation for the seller to frame the parties’ rights under the contract in a manner that disproportionately favours the seller over the consumer.
However, since the law bans the use of certain terms in contracts with consumers, drawing up consumer contracts that are in compliance with the law has become a difficult task.
The “life cycle” of specific contract terms includes:
- drafting and review of contract terms for compliance with the law
- use of the contract terms in practice
- questioning of a specific provision by a consumer who is a party to a specific contract (“incidental” review)
- questioning of the specific provision by potential consumers or consumer organisations (“abstract” review).
Drafting and use of general contract terms
A business drafting general contract terms must determine whether the provisions it plans to include are legally permissible. This requires review of the entire contract. First it should be determined whether the proposed provisions contain constructions that are contrary to public policy in Poland (e.g. a release from liability for intentional injury). The second level of review is to determine whether the conditions include terms that are prohibited in consumer contracts—also referred to as “abusive clauses” or “unfair terms.”
Use of abusive clauses in consumer contracts may generate negative consequences for the business, of two main types.
The first consequence is that the consumer is not bound by the abusive clauses under the legal relationship validly formed between the consumer and the business. If a business enters into a contract with a consumer, and the contract includes an abusive clause, the contract will be performed, but the impermissible clause will be excluded. Such exclusion works to the detriment of the business, which intended to obtain some benefit for itself by including the clause. For example, if the contractual conditions include a provision that under certain circumstances the consumer must pay a contractual penalty, and this provision is an abusive clause, the consumer will not be required to pay the penalty. As a result, the business will lose the anticipated revenue. The loss resulting from use of an abusive clause will depend on what economic benefit the business expected from the provision and the importance of the provision for calculating the overall costs of the contract.
Secondly, the use of contractual provisions listed in the Register of Prohibited Clauses will constitute a practice violating the collective interests of consumers. This may lead to commencement of a proceeding by the Office of Competition and Consumer Protection and imposition of significant administrative fines on the business (up to 10% of the revenue in the financial year preceding the year in which the fine is imposed, under Art. 106 of the Act on Competition and Consumer Protection of 16 February 2007).
What are abusive clauses, and how to identify them?
Abusive clauses are defined in Art. 3851 of the Polish Civil Code as “provisions of a contract concluded with a consumer and not individually agreed, which frame the consumer’s rights and obligations in a manner contrary to good practice, grossly infringing the interests of the consumer.” As mentioned, inclusion of an abusive clause in a form contract means that the consumer is not bound by the abusive clause. Significantly, however, the provisions that clearly define the principal consideration provided by each of the parties, for example the item being sold and the price, will always be binding on both parties.
The process of “detecting” an abusive clause should start from the general definition cited above. A provision is regarded as “not individually agreed” when the consumer had no real influence over the wording of the provision, particularly a provision taken from a form contract offered to the consumer (Civil Code Art. 3851 §3). Clearly, the concepts of “contrary to good practice” and “grossly infringing the interests of the consumer” can be interpreted in various ways by a specific individual, a statistical cross-section of the population, or, finally, by the court. The law sheds some light on the definition of an abusive clause by providing a blacklist of impermissible clauses (Civil Code Art. 3853). The code lists 23 types of clauses that should be presumed to be impermissible. This is the next touchstone in the process of reviewing the legality of a proposed term. Some examples from the blacklist include:
- provisions excluding or significantly limiting the liability to the consumer for non-performance or improper performance of an obligation
- provisions permitting the party contracting with the consumer to assign rights and obligations under the contract without the consent of the consumer
- provisions excluding the jurisdiction of the Polish courts or requiring that a dispute arising under the contract be decided by a court that would not otherwise be the proper venue.
The blacklist helps in the review of specific provisions and also indicates the approach that may be taken with respect to other, similar clauses.
The next level of review of the permissibility of specific provisions is the Register of Prohibited Clauses, which is maintained and updated by the Office of Competition and Consumer Protection (available online, in Polish). The register includes provisions that have been analysed by the court pursuant to “abstract” review (discussed in more detail below) and identified as abusive clauses in contracts actually used in practice. The register is a dynamic collection, expanded and supplemented on a day-to-day basis, and as of June 2012 included over 3,000 clauses. Because the register changes rapidly, businesses using form contracts are advised to monitor the register to see whether the treatment of clauses included in their contracts has changed (i.e. whether the clauses have been held by the court to be impermissible).
Abusive clauses—incidental review through litigation
A controversial provision included in a specific contract may be questioned by a consumer who is a party to the contract in a proceeding before the common court. For example: If a business included a provision in a contract not individually agreed with the consumer that excluded its own liability for non-performance, and then failed to perform its obligation under the contract and refused to make up the resulting loss to the consumer, the consumer may bring an action against the business for damages. The consumer will argue that the exclusion of liability was not binding (because it was not individually agreed and is listed as an abusive clause in Civil Code Art. 3853(2)). As a result, the court would find that the clause excluding liability is ineffective, and award damages to the consumer. At trial, the business could argue in its defence that the clause was agreed individually with the consumer, but it would have to prove that.
The result of this litigation would be a judgment binding on the two parties to the dispute: the consumer and the business. In such case, the operative wording of the judgment would not contain a ruling about the form contract or the contractual provision as such, but would only resolve the specific dispute between the parties (ordering the business to pay damages to the consumer). The judgment would not be disclosed in any way in the Register of Prohibited Clauses, and thus the negative finding about the specific clause would not have any effect on third parties.
Abusive clauses—abstract review in a separate judicial proceeding
Another way to eliminate abusive clauses from use in commerce is to seek a judicial determination of the legality of specific contractual provisions through abstract review—i.e. isolated from any agreement with a specific individual. Such review may be sought in a separate type of proceeding for a determination that provisions of a form contract are impermissible (Civil Procedure Code Art. 479(36)–479(45)), before the Court of Competition and Consumer Protection—a special division of the Warsaw Regional Court.
Unlike incidental review, where only a consumer who has entered into a contract with a business may assert his or her individual claim, abstract review may be initiated by any person who, according to the offer proposed by the defendant, could enter into a contract with the defendant containing the questionable provision. Other plaintiffs authorised by law to bring such cases include non-governmental organisations whose statutory purposes include protection of the interests of consumers. In practice, over recent years there has been notable activity in this area by consumer organisations (such as associations), which have frequently filed claims of this sort.
In abstract review, the relief sought in the statement of claim is a finding by the court that provisions of a form contract are impermissible and an injunction against the defendant’s use of the contract containing such provisions. If the defendant has ceased using the form, that is not grounds for dismissing the claim if the defendant ceased using the form less than 6 months earlier.
If the court finds that the provisions are impermissible, the operative wording of the judgment will cite the provisions held to be impermissible and prohibit their use. While the judgment is issued against the defendant, it is also effective against third parties upon publication of the clauses found to be abusive in the Register of Prohibited Clauses maintained by the Office of Competition and Consumer Protection.
How to live with a clause that the competition court has held to be impermissible?
For the business that is named as a defendant in a proceeding involving use of impermissible clauses in a form contract, a judgment against it by the Court of Competition and Consumer Protection means that it must immediately cease using the clauses in question in contracts with consumers. Failure to comply with the judgment provides grounds for commencement of proceedings to enforce compliance, e.g. by imposing fines.
For other businesses, publication of the provisions in the Register of Prohibited Clauses is equivalent to a ban on use of the provisions, unless they are individually negotiated with the consumer.
Use of provisions in form contracts that have been entered in the Register of Prohibited Clauses is deemed to be a practice violating the collective interests of consumers, and thus a prohibited practice. The President of the Office of Competition and Consumer Protection may issue a decision imposing financial penalties on a business that employs such practices, after first conducting an appropriate explanatory proceeding.
For purposes of civil law, a judgment by the Court of Competition and Consumer Protection holding a clause to be impermissible does not exert automatic effects. For example, if the court holds a provision under which a consumer has paid a contractual penalty to be prohibited, the judgment in itself will not serve as grounds for the consumer to enforce a claim for reimbursement of a penalty it has already paid. Nonetheless, the consumer would have little difficulty being repaid by filing his or her own claim against the business for reimbursement.
Does the system work?
While the rationale for prohibiting the use of specific clauses creating an unfair imbalance in the relations between a business and a consumer is clear, the long and growing list of prohibited clauses, combined with the need for each business to compare such clauses against its own general contract terms, clearly means that this will not be an easy task.
Sylwia Paszek, Wardyński & Partners