A. Business Self-Interest/Consumer Self-Reliance

In the context of conformity standards, remedies and unfair terms, it is submitted that business self-interest and consumer self-reliance might be prioritised in the following ways.

The law can minimise the number of conformity standards applicable to businesses, and the remedies available for breach of such standards: so limiting the need for businesses to expend resources on providing remedies (damages, repair, repeat performance etc) to consumers. At the most extreme end of the spectrum here, there would be no mandatory conformity standards or remedies at all. This is resonant of the traditional “caveat emptor” doctrine, with an extremely high degree of self-reliance being required of consumers if they are to protect their interests: so if any standard at all is to apply to the business's performance, consumers must either negotiate for the business to make some express commitment to this effect, find another business that will so commit, or they must insure against the risks.

Continuing with conformity standards and remedies, and still prioritising business self-interest and consumer self-reliance (but not quite as much as above), the next hypothetical position that might be taken would be to hold that there should indeed be conformity standards and remedies, but that these should be designed to be as generous as possible to businesses. So, there could be a “fault” or “negligence” based, standard, which allows businesses to escape responsibility for defective outcomes, as long as they have exercised a reasonable standard of care in their input or procedure (i.e. in relation to the actions/omissions involved in the process of providing the goods, DC or services).Footnote ³⁵ Here, the need for self-reliance by consumers is not quite as vital as above-some protective norm applies, so there is at least the possibility of a remedy if the outcome is defective. However, if consumers wish to ensure they have a remedy should things go wrong, they must still exercise a fairly substantial degree of self-reliance. They must negotiate for the business to promise to take responsibility for a defective outcome (even where the process was carried out with reasonable care), or find another business who will agree to this, or insure against the risks. In the absence of such “opt-in” measures at the pre-contractual stage, consumers must, at the dispute stage, demonstrate a lack of reasonable care in the business's process.

Turning to the unfair terms rules (i.e. the rules applicable to the terms-usually standard terms-used by businesses in contracts with consumers), it is submitted that these rules can also be designed in ways that promote business self-interest. Again the key is to focus on business procedures: such as allowing terms to be very substantively favourable to businesses (and harsh to consumers), so long as the business ensures (this not being especially onerous) that the terms satisfy “procedural” standards (e.g. clarity, prominence and other forms of transparency). There is again a direct link with consumer self-reliance. If terms need only satisfy procedural standards, consumers who wish to protect their interests, must make a pre-contractual search for substantively harsh terms, then either bargain for their removal, insure against the risks or find a business who does not use such terms. If none of this is possible, other forms of self-reliance are required: consumers must either avoid any risks that lurk in these terms (e.g. if high charges are payable where the consumer acts in a particular way-such as inadvertently exceeding an agreed overdraft-the consumer must try to avoid such actions); or subsequently impugn the legal validity of the terms, by establishing a defect in the business's procedures, such as that the terms are insufficiently transparent.Footnote ³⁶

Where consumer contract law reflects the “self-interest/reliance” ethic, there is a high degree of overlap with the values of B2B contract law, which, as indicated above, takes a broadly non-interventionist approach: such as limiting control over penalty clauses and eschewing a general principle of good faith.

B. Need

Moving along the ethical spectrum, it is submitted that it is possible to take a position more focused on consumer need. The premise is that consumers are especially vulnerable to detriment, and require greater protection than is provided by the above procedural standards, namely there should be much less emphasis on business self-interest and consumer self-reliance.

The conception of consumer vulnerability has various facets. First, the idea is that if businesses suffer economic losses (e.g. due to the consumer's breach) or do not make the gains they expect, they are often in a relatively strong position to absorb this such as through insurance, spreading losses across different divisions of the business, etc. By contrast, consumers, as private citizens, often have limited capacity to absorb economic losses caused by defective goods, services and DC, or detrimental terms.Footnote ³⁷ Also, for consumers, breaches of contract, detrimental terms, etc., may have a serious impact on the private sphere of life: so called “consumer surplus” effects such as loss of time, distress, inconvenience in personal lives, the frustration of obtaining no redress.Footnote ³⁸ Businesses are generally less likely to be affected in these ways.Footnote ³⁹ So, from a need-based perspective, account must be taken of the weaker position of consumers as loss bearers.

The above vulnerabilities relate to the adverse impact of poor quality and harsh outcomes. A further facet of the need-based conception of vulnerability is the perception that consumers struggle to exercise self-reliance to protect themselves from these detrimental outcomes. Various reasons can be cited for this. Lack of knowledge, expertise and experience are key factors here. Not being expert, “repeat players” in the business in question, consumers often have limited knowledge or understanding of the risks of products or services failing, or of the risks in standard terms.Footnote ⁴⁰ This may mean businesses are not placed under sufficient competitive pressure to offer guarantees as to high quality outcomes and to provide standard terms that take account of consumer interests. Even if consumers are aware enough to seek to bargain for such outcomes, they will struggle to be successful. Individual consumers are not usually important enough to businesses to place them in a strong bargaining position. Also, because they are not repeat players when it comes to business negotiation, consumers often lack the sophistication and experience of businesses.Footnote ⁴¹ This will usually place the consumer at a disadvantage when seeking to negotiate resolution of a dispute. This disadvantage will be all the greater the more that the actual legal standards favour the business, such as where businesses escape responsibility for defective outcomes so long as they have exercised reasonable care in their processes, or are permitted to use terms detrimental to consumers so long as they make the terms transparent.

So, from a need-based perspective, paying attention to the above consumer vulnerabilities, a key priority of the law should be to protect consumers from detriment. What are the implications of this for rules on conformity standards, remedies and unfair terms?

Conformity standards should be strict liability in nature: businesses to be responsible for defective outcomes, even if they have exercised reasonable care in their procedures (as long as this would not overburden businesses, such as where achieving outcomes is too unpredictable). As indicated above, from a need-based perspective, poor quality outcomes are perceived to have a particularly harmful effect on consumers. In addition, consumers are considered to have limited knowledge, experience, skill and power, and so will find it very difficult (1) to win arguments (especially out of court) about whether businesses have exercised reasonable care in their processes (particularly, as we shall see below, where machinery or technology is involved); or (2) to bargain at an earlier stage for businesses to voluntarily agree to guarantee that the outcome will not be defective.

Also, if guided by a need ethic, the remedies for breach of conformity standards should be designed to take account of consumer vulnerabilities. So, the remedies should prevent detriment being exacerbated at the dispute stage: and we shall see below that cure remedies may be more effective in this regard than damages.

As for the design of rules for contract terms, from a need-based perspective, it should not be sufficient for the terms to be transparently presented during the pre-contractual process. In addition, these terms – the outcome or result of the pre-contractual process – should not be substantively harsh on consumers. This again reflects the concern to ensure consumer protection against detrimental outcomes (here, substantively harsh terms), the idea being that this can rarely be achieved by self-reliant consumer action. The view from a need-based perspective would be that even if terms are transparent, this is of limited practical use in helping consumers to protect their interests. The need-based argument for this would run as follows: Pre-contractually, consumers will often not have time to read the ancillary terms; but will focus on “core” issues: the main goods, services or DC, the main price.Footnote ⁴² Even if they read the standard terms, consumers will struggle (in particular due to limited experience) to estimate how likely it is that the circumstances the terms deal with, will become relevant (e.g. as we shall see below at Section IV, it may be very hard to estimate whether contingent charges will become payable). This, in turn, makes it unlikely that consumers will make purchasing choices based on the standard terms, and consequently also unlikely that businesses will be forced to compete to offer terms that do not cause consumer detriment.Footnote ⁴³ Being unaware of the existence of prejudicial terms, consumers will not typically insure against relevant risks, or bargain for removal of the terms – and anyway their weaker bargaining position would usually make such bargaining unsuccessful. If there is scope for consumers to take action to protect their interests later, such as avoiding high charges by staying within an agreed overdraft, they will often not do so due to understandable factors such as everyday pressures, forgetfulness etc. Finally, if a dispute arises, there is little consumers can do, if all the business need do to win, is show that the term is transparent.

C. No Claim as to the Normative Supremacy of Either Ethic

The competing ethics of self-interest/reliance and need represent different visions of the ideal market order: of what best serves consumer, business and societal interests, and no claim is made here that one vision is “better” as such. Certainly, the need ethic aspires to set higher levels of protection, but this does not, per se, make it superior. One view is that the self-interest/reliance ethic is superior because it is less paternalistic, while it might be responded that a degree of paternalism is required to protect the (weaker) consumer. These alternative views of course do little more than reflect the basic values inherent in the respective ethics. Equally both ethics can find support in economic analysis. Classical economics tends to assume the less regulated choices favoured by the self-interest/reliance ethic to be rational and therefore to produce efficient outcomes; while modern behavioural economics seriously doubts such assumptions of rationality – and therefore supports the notion that consumers often cannot be expected to exercise significant self-reliance.Footnote ⁴⁴

D. Beyond Freedom and Fairness

While no claim is made that one of the ethics is normatively superior, what is claimed is that the “self-interest/reliance versus need” framework promoted here provides a much improved theoretical framework for consumer contract law. As indicated above, one way that contract law theory has previously explained regulatory choices is through a dichotomy of “freedom of contract” (basing rights and obligations on the agreement of the parties – no more, no less), and “fairness” (basing rights and obligations on balancing the interests of the parties).Footnote ⁴⁵ Certainly in broad terms, the self-interest/reliance ethic might often be equated with freedom of contract (parties “free” to pursue their own interests and make self-reliant choices); while the need ethic might often be equated with fairness (it being arguably “fair” to balance the interests so as to protect the weaker party).

However, the self-interest/self-reliance versus need framework is arguably a more illuminating way of conceptualising the important regulatory choices: being more nuanced and precise (than a freedom versus fairness framework) as to the competing values and choices about levels of protection. First, “self-interest/reliance” is more determinate than the notion of “freedom”. Rather than referring simply (and rather vaguely) to “freedom” (or the similar alternative, “autonomy”); the focus is specifically on business freedom (autonomy) to pursue self-interest, and consumer freedom (autonomy) to exercise self-reliance. This also draws a clear line between competing ethics. Self-interest/reliance cannot really be confused with the need ethic, yet “freedom” is sometimes understood to mean something similar to the need ethic: the argument being that information and bargaining weaknesses mean consumers have no “real” freedom, so when the law imposes outcome-based standards to protect consumers, it is actually imposing the standards consumers would choose if they were “really” free.Footnote ⁴⁶

The need ethic is linked to the sociological concept of “need rationality”Footnote ⁴⁷ and, as indicated, can be equated broadly with the notion of “fairness” as interest balancing: Protecting weaker parties (following the need ethic) can be viewed as the “fair” way to balance the parties’ interests. At the same time, the need ethic (like the fairness ethic) does actually balance interests: The need ethic may favour strict liability standards (to protect the consumer as weaker party), but these standards still take into account business interests. For example, the strict liability satisfactory quality standard applicable to goods and DC does not involve “absolute” liability, rather businesses can reduce the level of quality that is viewed as “satisfactory” by how they describe and price goods.Footnote ⁴⁸

However, these similarities notwithstanding, the need ethic is more nuanced and precise than the fairness concept. Whatever interest balancing may be done, it is very clear that the priority is consumer “need”, namely to protect consumers from the consequences of their vulnerabilities. In contrast, the more generic “fairness” concept does not make it sufficiently clear that the priority is to protect the consumer as the weaker party, and it allows scope for it to be argued that it is “fair” to prioritise business self-interest and consumer self-reliance. For example, the traditional distinction made between “procedural fairness” and “substantive fairness” arguably glosses over the difference emphasised here between self-interest/reliance values of process/input based (“procedural”) standards and the more need-based values of outcome-based (“substantive”) standards.Footnote ⁴⁹

A. New DC Conformity Standards

The DC market is enormous and constantly expanding. Even in 2012, 40% of home Internet connections were used for playing games and downloading music or video.Footnote ⁵⁰ Yet, prior to the CRA, there was enormous confusion as to what conformity standards applied to DC. There have long existed outcome-based (strict liability) terms as to quality, fitness etc. in contracts for the supply of goods.Footnote ⁵¹ Prior to the CRA, where DC was supplied on a tangible medium, it could (although this was not completely clear) be classified as goods, and therefore be covered by these terms.Footnote ⁵² However, where there was no tangible medium, it was unclear whether the contract was “sui generis”, containing a common law implied (outcome-based) term of reasonable fitness for purposeFootnote ⁵³ ; or a contract for services,Footnote ⁵⁴ in which case there would be a statutory implied term of reasonable care and skill (a fault standard).Footnote ⁵⁵ There is evidence that quality problems with DC cause significant consumer detrimentFootnote ⁵⁶ ; and apparently this confusion was a real obstacle to consumer redress.Footnote ⁵⁷

The CRA addresses this problem. Where data is “produced and supplied in digital form” (i.e. no tangible medium), this is classed as a distinct type of contract for “DC”,Footnote ⁵⁸ and in such contracts (following the approach in goods contracts) the CRA imposes (strict liability, outcome-based) terms on quality, fitness for purpose, description and right to supply.Footnote ⁵⁹ These new rules are underpinned by a need-based ethic, and will normally result in a reasonably high level of consumer protection. The focus is on whether there has been a defective outcome (DC of poor quality, not fit for purpose etc). Sellers cannot escape responsibility based on their procedures, namely based on having exercised reasonable care in the selection or supply of the DC.Footnote ⁶⁰ If a reasonable care (fault) based standard had been chosen, sellers would have escaped responsibility on this basis: typically not being liable where standard business practice had been followed.Footnote ⁶¹ This would have set a low level of consumer protection, given that (as with goods) there is often a producer, who supplies the DC under a contract to a retailer, who subsequently sells under a separate contract to the consumer. Just as with goods, faults in DC usually emanate from the production process, but retailers cannot be expected to open and check DC before selling it to consumers, and even if they did check it, faults are often latent, namely not obvious to the retailer. So, it would often be very difficult to show that the retailer had not acted with reasonable care. With the chosen outcome-based standards, there is a breach (and a remedy), so long as it can be shown that the DC is defective in terms of quality, fitness etc.

These reforms demonstrate the need ethic in action, setting a high level of protection, with outcome-based conformity standards. However, the reforms are also vital in helping to answer the question as to the relationship between competing ethics and legal certainty and clarity. The need-based DC regime contributes strongly to the CRA's clarification policy goal: enhancing certainty and predictability and reducing complexity. First, there is improved certainty because it is now clear exactly what standards apply. Behavioural science research demonstrates the importance of clear “choice architecture” in influencing consumer behaviour,Footnote ⁶² and this obviously includes clarity as to what the rules actually are. Second, the need-based regime arguably enhances clarity and certainty by creating greater consistency and therefore better reflecting the parties’ reasonable expectations. The point is that the DC regime is now consistent with the regime for goods contracts, namely the same (outcome-based) standards apply. Now, one might argue that to achieve clarity and certainty, all that matters is that rules are expressed clearly and can be applied in a predictable way. However, clear expression and predictable application notwithstanding, there is arguably unnecessary complexity and confusion if two very similar transactions are regulated by conceptually different rules. Indeed, consumers and businesses may expect goods and DC (which are likely to appear very similar to the parties, both often mass produced, and both often supplied together) to be subject to similar standards.Footnote ⁶³ If different standards apply, this fails to reflect reasonable expectations-causing confusion and undermining the clarity of the “choice architecture” that behavioural science indicates is important to empowering consumers to enforce rights.Footnote ⁶⁴ Collins has already used the idea of reasonable expectations to challenge the traditional view that simply enforcing what is agreed is the best way to foster certainty. He showed that open textured supplementation and review standards may promote certainty by providing the flexibility to enforce what parties actually reasonably expect, based on the long term business relationship, customs and making the deal work for both parties.Footnote ⁶⁵ Here, the “reasonable expectations” concept is developed in another way, to support the argument that in B2C relations, the need ethic may foster clarity and certainty: the case (to recap) being that the DC need-based rules focus on outcomes, that this is the norm for similar transactions (i.e. goods) and is therefore what is “reasonably expected” by the parties, which in turn makes the regime clearer and more certain for the parties.

Finally, the outcome-based standards provide certainty, because it is normally reasonably predictable how they will apply to a dispute. The focus is on the final state of the DC received by the consumer. Especially with new DC, it should usually be reasonably clear whether it is of satisfactory quality, fit for purpose, etc. The importance of this should not be underestimated when it comes to empowering consumers to utilise their legal rights. Recent behavioural science work emphasises that consumers are loss averse and that perceived costs and risks (increased by unpredictable standards) reduce the likelihood that they will make use of law.Footnote ⁶⁶ Compared to the chosen outcome-based standards, a fault standard often involves much more complex arguments, such as as to what quality control processes were set up and followed (or not) by the supplier: making it harder to predict the result in any given case (see Section IV below).

The DC example is an excellent illustration of need-based rules improving protection, and it also demonstrates the strong link between the need ethic and clarity/certainty. We now turn to important (need-based) remedies that also improve protection, clarity and certainty.

B. Cure Remedies

For over a decade, in sale and work and materials contracts, consumers have had remedies of free repair or replacement of non-conforming goods: introduced to implement the Sale of Consumer Goods Directive (SCGD).Footnote ⁶⁷ The CRA extends these remedies to hire, hire purchase (HP) and DC contracts, where the goods or DC do not conform, such as where they are in breach of the terms as to quality, fitness etc. or express terms.Footnote ⁶⁸ “Repair” means bringing the goods or DC into conformity with the contractFootnote ⁶⁹ ; “replacement” is not defined, but clearly involves replacement of the overall thing bought-new car, download, app, etc.

The CRA also introduces a cure remedy in services contracts, providing that where the service does not conform, the consumer can demand free repeat performance to bring the service into conformity.Footnote ⁷⁰ A service does not conform when there is breach of the s. 49 term, which requires the service to be carried out with reasonable care and skill, or of a term arising under s. 50 (based on pre-contractual information provided by the supplier).Footnote ⁷¹

These cure remedies are available in most cases. While the supplier can refuse to repair or replace goods or DC, or to repeat perform a service, if the requested remedy is impossible,Footnote ⁷² this will be relatively rare. Goods or DC might be beyond repair, but then normally a replacement will be possible, unless the item is unique; while most services can be repeated. Repair of goods or DC can be refused if it is disproportionately expensive compared to replacement, and vice versa,Footnote ⁷³ but this “disproportionality” test does not apply to one cure remedy if the other one is impossible.Footnote ⁷⁴ Even when the disproportionality test does apply, and one cure remedy is found to be disproportionately expensive compared to the other, this other cure remedy is available, even if it is itself quite expensive: there is no provision allowing the business to refuse repair or replacement on the grounds that it is disproportionately expensive compared to price reduction, refund or some other remedy. (Such a comparison was allowed under the previous regime, but this was an incorrect implementation of the SCGD.Footnote ⁷⁵ ) Therefore, with goods and DC, consumers are always entitled to one of the two cure remedies, as long as they are not both impossible. With services, there is no proportionality defence at all, so repeat performance is guaranteed, unless impossible. Of course, ultimately cure can only be enforced by an order of specific performance (SP), and the court powers provision arguably allows a degree of discretion, providing that the court “may” (not “must” or “will”) award SP.Footnote ⁷⁶ However, this is surely not intended to allow courts to take the traditionally very restrictive approach to SP-routinely refusing it and viewing damages as an adequate alternative.Footnote ⁷⁷ Such an approach would undermine the whole point of including cure remedies, and probably also fail to implement Article 3 of the SCGD, which generally requires repair and replacement to be provided in sales contracts, as long as the impossibility and disproportionality “defences” do not apply.Footnote ⁷⁸ So, SP can probably only be refused in extreme cases: namely where the non-conformities are minor and SP would involve extreme costs or time commitments for the business.Footnote ⁷⁹

The routine availability of cure is a fundamental change for English contract law. Damages have traditionally been the primary remedy for breach.Footnote ⁸⁰ SP was always theoretically available as a remedy to support non-performance of the primary obligations. However, as indicated above, SP was never routinely granted, the key justification being that damages offer an “adequate” substituteFootnote ⁸¹ : that the party affected by the breach can obtain cure from a third party and recover damages (from the breaching party) to cover the cost of this cure. Yet, from a need-based perspective, this is often not adequate at all.

Certainly consumers may often be content to obtain cure from a third party, but sometimes this may cause significant consumer detriment, and generate undesirable legal and practical complexities. First, there is the time, inconvenience and expense involved in finding and paying a third party to cure the breach: and payment may be a particular problem with expensive services such as building, especially as the consumer has already paid the original supplier. Then, once the third party has effected cure, the consumer must return to the original supplier, and potentially face arguments about how much of what has been paid to the third party can be recovered in damages: there may, for example, be legal arguments as to whether the consumer has paid too much to the third party and thereby failed to mitigate his losses. Also, third-party involvement could generate arguments about causation, such as where the third party makes things worse.Footnote ⁸² All of these problems will be greater with complex and expensive goods, DC or services (e.g. building): adding to the detriment already caused by the breach, potentially meaning further inconvenience and economic detriment.

The cure remedies protect consumers from these problems and provide a further example of the need ethic in action. However, the cure remedies also further emphasise the link between the need ethic and clarity/certainty. First, as with the DC reforms, the need-based cure regime improves clarity and certainty by improving consistency between similar transactions and arguably therefore better reflecting the parties’ reasonable expectations. It is less confusing if there is a common set of cure remedies, whatever the precise nature of the supply of goods contract, and also for DC and services. It is complex and confusing if (as was the case prior to the CRA) consumers have cure remedies against those who sell goods or supply them under a work and materials contract, but not against other suppliers of goods or DC, or against service suppliers. Whether the transaction is technically sale, work and materials, hire or HP, (defective) goods have been supplied. DC will appear very similar to most-often being mass produced just like goods, and being supplied along with or in close proximity to, goods, such as the supply of a phone, followed by software such as an app. Services will also often be supplied along with goods, such as car repairs which involve the supply of parts. It may well be contrary to the parties’ reasonable expectations and confusing, if transactions that appear very similar and that often occur together are in fact regulated by different standards.Footnote ⁸³ This conclusion is supported by the behavioural science research demonstrating the importance of good choice architecture.Footnote ⁸⁴

Second, as with the new DC conformity standards,Footnote ⁸⁵ the cure remedies provide greater certainty in the form of greater predictability. If consumers use these remedies against the original supplier, this avoids the abovementioned complex and unpredictable disputes that may arise if consumers must rely on cure by third parties.

So, similarly to the DC conformity standards, the need-based cure remedies improve protection, and they further demonstrate the link between the need ethic and certainty/clarity.

C. Beyond Freedom and Fairness

The DC and cure examples also confirm that the competing ethics framework is more nuanced and precise than the traditional “freedom versus fairness” framework, in highlighting the values involved. When first explained above, the need ethic was shown to be concerned with protecting consumers from their vulnerabilities. Here we have seen this manifest, such as in cure remedies, which protect consumers from the inconvenience, expense and complex arguments that the “third party cure/damages” option may involve, recognising that consumers need this protection due to their more limited bargaining power, experience and loss bearing abilities. By contrast, it is not so obvious that the more general “fairness as interest balancing” ethic would take this approach. It might do. It could be said to be “fair” to recognise consumer vulnerabilities in the way the cure remedies do. But “fairness” is vague and can be understood in different ways. It might be argued to be “fair” to place more emphasis on business self-interest, making it “fair” for breaching businesses to refuse to cure, this being more efficient and convenient for them. On the consumer side, it might be argued that the theoretical availability of cost of cure damages is “fair”, or as the orthodox position has it, “adequate” for consumers, namely “fairness” elides with the opportunity for consumers to exercise self-reliance to recover damages.

A. Retention of the Fault Standard for All Services

In the services sector, poor performance causes considerable consumer detriment. In the year to April 2011 the Government's Consumer Direct Helpline received 70,000 complaints about building and home improvement contracts alone, with very significant attendant financial detriment, distress and inconvenience, while in one-quarter alone of 2014–15, Citizens Advice Bureaux received 14,535 enquiries on home improvement contracts.Footnote ⁸⁶

It was shown above that the new repeat performance remedy for services is inspired by the need ethic. However, consumers can only access this remedy if there is a breach of the relevant conformity standard, so all is dependent on what this standard is and how easy or hard it is to establish a breach of it. The previous regime contained an implied term that a business must carry out a service with reasonable care and skill.Footnote ⁸⁷ This covered (1) “pure” services, such as advice, education, etc.Footnote ⁸⁸ ; and (2) services applied to property or DC already owned by the consumer, such as repair, cleaning, storage of goods, cloud storage of DC.Footnote ⁸⁹

Prior to the CRA, there was a proposal to apply a “satisfactory quality” standard to this second category of services.Footnote ⁹⁰ While it was the service (the business's input) that was to have been of satisfactory quality, key to assessing this would have been the “outcome” of the service, namely the condition of the goods or DC after services like repair, cleaning or storage.Footnote ⁹¹

Ultimately, the decision was taken to retain the reasonable care (negligence-based) standard for all services and this rule is copied over into the CRA from the Supply of Goods and Services Act (SGSA).Footnote ⁹² It was argued by some businesses, and accepted by the Government, that services are too intangible, complex and subjective to allow measurement of whether an outcome is of “satisfactory quality”.Footnote ⁹³ This may be true in relation to “pure” services. So, with education, what is the “outcome”? The materials provided? How they are explained? Both? How students translate this into exam performance?

Yet, with services related to consumer property and DC, there is an obvious tangible outcome that can be assessed: namely the final state of the goods/DC, after the service is carried out. There are also objectively verifiable ways of measuring quality: whether the goods or DC have been damaged while being stored, whether they have been reasonably well repaired, cleaned, etc. Certainly, consumers may have differing, subjective, expectations on such issues, but the same is true of goods, and outcome-based quality standards have long been effectively used in this context.Footnote ⁹⁴ This is managed by applying both objective criteria (what “a reasonable person” regards as satisfactory, taking into account fitness for common purposes, etc.), and subjective expectations, those raised, for example, by the “description” or the “price”.Footnote ⁹⁵ These same criteria were contained in the proposed outcome-based standard for services related to consumer property/DC.Footnote ⁹⁶ Finally, addressing the argument as to complexity, it is not significantly more complex to apply these criteria to the condition of goods/DC after a service, than to apply them to goods or DC supplied by the business-especially as goods supplied by the business are often second hand goods (cars being the classic example), where account must be taken of such varied factors as the age of the goods, the price paid, description given etc.

Arguably, then, the proposed outcome-based standard would have been perfectly workable.Footnote ⁹⁷ The chosen negligence-based standard certainly reflects the self-interest/reliance ethic. It is not enough for consumers to establish a defective outcome. The business usually escapes responsibility unless the consumer demonstrates that the business's processes did not follow standard business practice.Footnote ⁹⁸ Yet, from a need-based perspective, this expects very significant consumer self-reliance, given their limited knowledge and experience of such matters, and their limited bargaining expertise and power. The other option is for consumers to exercise earlier self-reliance and to persuade the business pre-contractually either to make an express contractual promise to achieve a satisfactory outcome, or even to make the less formal commitments that might lead a court to find a common law implied term of fact that the outcome will be reasonably fit for purpose.Footnote ⁹⁹ From a need-based perspective, it is unrealistic to expect consumers to extract such commitments, given their limited knowledge, experience and bargaining strength.

Overall then, the fault standard provides limited consumer protection. Where consumers cannot establish fault in the business's process, potentially high levels of consumer economic detriment will go un-remedied; particularly with high economic value contracts for services related to consumer property, such as home improvement.Footnote ¹⁰⁰ There may also be significant consumer surplus losses, such as the upheaval and stress when homes cannot be used normally due to poor home improvement work. The proposed outcome-based standard was grounded in the need ethic, and more likely to ensure consumer protection. Under this standard, there would normally be a breach (and a remedy) where the outcome is defective: such as if goods are damaged after repair or storage, if a house extension is defective.

The chosen input/process based standard also undermines clarity and certainty. First, there is the complexity and possible confusion caused by differing standards for goods/DC on the one hand (outcome-based), and services on the other (input/process based). As already discussed above, the existence of different standards increases complexity and complicates the “choice architecture” consumers.Footnote ¹⁰¹ Things are particularly confusing and contrary to reasonable expectations where services are supplied along with goods or DC, such as brake-pads supplied and fitted as part of a car service. Here the consumer finds that the business is strictly responsible if the brake-pads are defective, but only liable on proof of negligence if the car is damaged by the repair.Footnote ¹⁰²

So, just as need-based DC rules and cure remedies are more conducive to clarity and certainty because they create greater consistency and reflect reasonable expectations (above), we find here that self-interest/reliance-based rules compromise clarity/certainty by causing inconsistency and undermining reasonable expectations. However, there is a second point. Just as need-oriented DC and cure rules foster clarity/certainty by being predictable in their application (above), the opposite appears to be the case with some rules grounded in the ethic of self-interest/reliance. The input /process (negligence) based standard for services may cause complex disputes with unpredictable results, especially where services involve machinery or technology: as is common with services applied to consumer property or DC, such as car repairs, home improvement and Internet services.Footnote ¹⁰³ The business may argue that some such factor has caused the unsatisfactory outcome: such as the car engine problem not diagnosed due to the defective testing machinery. A process based standard considers whether the business has followed standard business practice in terms of checks, tests etc. on the machinery or technology. Suppliers may produce a “paper trail” showing that all generally accepted procedures were followed. It may be very time consuming and difficult for consumers to contest such defences. This may make it particularly difficult to resolve matters efficiently out of court; and the outcome of the dispute-whether in or out of court – may be hard to predict. As noted several times above,Footnote ¹⁰⁴ behavioural research shows that perceived costs and risks (increased by complex and unpredictable standards) reduce the likelihood that consumers will rely on their legal rights. It would entirely miss the point to respond that consumers may benefit from reversal of the burden of proof under the res ipsa loquitur (RIL) doctrine: the defective outcome leading the court to infer negligence in the business's process. The whole point of the CRA's clarity policy agenda is to empower consumers to enforce rights and obtain redress out of court,Footnote ¹⁰⁵ where RIL will not help.

The proposed (need-based) standard would have avoided complex arguments about negligence. The focus is not on business processes, but simply on the quality of the outcome received – whether, for example, goods are reasonably well repaired, cleaned etc; whether DC is damaged or lost during cloud storage.

The approach to the services conformity standard shows the ethical tension running through consumer contract law, and the consequences for protection and clarity/certainty. Here, in contrast to the DC and cure rules, the ethic is one of self-interest/reliance: producing a low level of protection and also undermining clarity/certainty. We now turn to another example of this.

B. The Price Term Exemption

CRA Part 2 contains the unfair contract terms regime, unifying the previously overlapping regimes from Unfair Contract Terms Act (UCTA) and Unfair Terms in Consumer Contracts Regulations (UTCCR).Footnote ¹⁰⁶ The new regime does add new protections: individually negotiated terms are now covered by the test of unfairness,Footnote ¹⁰⁷ and even if the parties have not raised the issue, courts must now review the fairness of a term if they have the appropriate factual and legal material.Footnote ¹⁰⁸ However, the focus here is on the choice made under the CRA to interpret the “price exemption” broadly: this reflecting the self-interest/reliance ethic, limiting consumer protection against non-essential charges, and undermining clarity/certainty.

Now, before proceeding further, one key clarification should be made. The CRA uses the language of “fairness” (i.e. the test of “fairness” from which price terms are exemptFootnote ¹⁰⁹ ), yet this should not distract from, or be taken to contradict, a key argument running through this article, namely that when thinking of an underlying ethic that favours rules setting a higher level of protection, “need” is a preferable theoretical label than “fairness”. It just so happens in this case that following a need ethic would involve subjecting a broader range of charges to what is formally known as a “fairness” test: The point is that although the fairness test can itself be interpreted in either need-oriented or self-interest/reliance oriented ways,Footnote ¹¹⁰ if charges are subject to this test, there is at least the possibility of a need-oriented interpretation of the test and therefore a need-based review of the charges. Now, to the core point here: as to the exemption of charges from this (potentially need-oriented) fairness test.

The CRA provides that, if a term is “transparent and prominent”, it cannot be assessed for fairness if “the assessment is of the appropriateness of the price payable under the contract by comparison with the goods, digital content or services supplied under it”.Footnote ¹¹¹ This derives from Article 4(2) of the Unfair Terms in Consumer Contracts Directive (UTCCD),Footnote ¹¹² included to leave a degree of scope for freedom of contract,Footnote ¹¹³ and previously enacted in the UTCCR 1999, Regulation 6(2). Article 4(2) UTCCD refers to the “adequacy” of the price (as did the UTCCR), but “appropriateness” apparently conveys the same idea, and must anyway be interpreted to mean the same thing while the UK remains in the EU. The idea is that (assuming the requisite transparency and prominence,Footnote ¹¹⁴ discussed further below), the test of fairness cannot be used to assess whether the price is too high, given what is received in return (not precluding other types of fairness assessment, such as as to time of payment, or the right to vary the price). As the UTCCD is a minimum harmonisation Directive,Footnote ¹¹⁵ Member States may provide a higher level of consumer protection, so the UK could have applied the test of unfairness to the price, but chose not to. However it is not this basic choice that concerns us here: rather, as indicated already, the particularly broad interpretation of “price”.

There is little doubt that the “price” includes the basic charges payable for the core goods, DC or services; and there is sometimes justification for such charges not to be reviewed for fairness, given that (so long as the market is competitive), they are subject to competitive discipline.Footnote ¹¹⁶ But what about other charges, such as those not routinely payable but which are contingent on some later (usually inadvertent) consumer act or omission: such as charges when consumers accidentally exceed an airline baggage allowance, or an agreed overdraft limit? To understand the CRA's approach to which charges count as the price, it is necessary to review how “price” was interpreted under the UTCCR regime preceding the CRA. The key case is Abbey National, which dealt with terms providing for large bank charges to be made, for example, where consumers exceeded agreed overdraft facilities.Footnote ¹¹⁷ Under the terms, exceeding the overdraft facilities was not defined as a default or breach, but as the consumer choosing to be provided with a service. Following this logic, the obligation to pay the charge was not defined as compensation for the bank's loss; but as a charge for the bank's service, namely the “service” of allowing the payment to be made from the account.

The Court of Appeal (CA) held that the “price” only covered charges that the typical consumer would consider “essential” to the bargain; this not including charges for an unauthorised overdraft, which consumers would not have planned to take when first entering the contract: not being the “price”, the substantive fairness of these charges could be assessed under the test of unfairness.Footnote ¹¹⁸ This was overruled by the Supreme Court, which refused to distinguish between essential and non-essential charges; holding that identifying the “price” was “a matter of objective interpretation by the court”.Footnote ¹¹⁹ The Supreme Court accepted that charges flowing from consumer default were not the “price”,Footnote ¹²⁰ but found that the charges under consideration were not default charges. Rather the Supreme Court accepted the manner in which the terms themselves described the situation, namely that the charges were payable for services; concluding that such charges counted as the “price”, notwithstanding that they were not routine contractual payments, but were contingent on later consumer acts or omissions.Footnote ¹²¹

The CRA's unfair terms regime is based mainly on work by the Law Commissions.Footnote ¹²² The general thrust of the Law Commissions’ analysis was that where charges are provided in exchange for a service, then even if this is contingent on some later inadvertent act or omission,Footnote ¹²³ such charges should (following the Supreme Court approach in Abbey) be treated as the “price”; albeit that they should only be excluded from the fairness assessment where they are both “transparent” and “prominent”.Footnote ¹²⁴ The CRA apparently follows this approach. It repeats the reference to “price”, and simply adds the transparency and prominence conditions.Footnote ¹²⁵ This suggests that the intention is that any charge is the “price”, even where neither the charge, nor the “service” it pays for, is “essential” to the contract, such as where the charge is contingent on post-contractual acts or omissions. If the intention was for only essential charges to count as the price, this would surely have been indicated expressly.

This very broad approach to the price exclusion is another manifestation of the CRA being influenced by the self-interest/reliance ethic. It enables businesses to impose high non-essential charges (exempt from any substantive fairness review) so long as they (1) define these charges such that they are accepted by the court to be for a service, and (2) present them transparently and prominently. This places high expectations of self-reliance on consumers. Pre-contractually, they must take advantage of the transparency and prominence of any harsh non-essential charges that could come into play, consider what risk these pose; and if the risk is unacceptable, either try to bargain for their removal, or find another business who does not impose such charges. If none of this is possible, consumers must then take care not to do anything to trigger the charge (e.g. inadvertently go overdrawn, accidentally exceed an airline baggage allowance etc.).

From a need-based perspective, consumers have limited ability to take any of these forms of self-reliant action. Certainly the “prominence” and “transparency” conditions are intended to facilitate greater informed choice by consumersFootnote ¹²⁶ : these requirements replacing the previous “plain and intelligible language” requirement.Footnote ¹²⁷ A “transparent” term is one that is in plain and intelligible language, and also “legible”. To be “plain and intelligible” a term must enable the consumer to “evaluate, on the basis of clear, intelligible criteria, the economic consequences for him which derive from [the term]”.Footnote ¹²⁸

However, the need-based viewpoint is that none of this will have much effect: Consumers are unlikely to read standard terms, so “prominent” and “transparent” standard terms, will do little to inform them. Even if “prominence” means that charges must be specially highlighted in some way (and as discussed below, this is not clear), consumers are assumed generally to focus on the essential charges, certainly at least on those that are routinely payable, rather than on contingent charges. If they do read about contingent charges, they may find it difficult to assess whether the events triggering these charges are likely to occur – possibly assuming they will not occur.Footnote ¹²⁹ Consumers are therefore unlikely to feel the need to bargain for lower charges (if they did, they are unlikely to have the bargaining power/skill to be successful), or to make comparisons between different businesses’ charges – so the charges will often be subject to very limited competitive discipline.Footnote ¹³⁰

Consequently, from a need-based perspective, exempting non-essential, especially contingent, charges, from the test of unfairness, is likely to result in significant consumer detriment. High contingent charges are an increasingly common business model: such as bank charges, charges for exceeding an airline's baggage limit, or forgetting to re-fuel a hired car.Footnote ¹³¹ It is rare that consumers make a positive choice to take up the “services” which these charges supposedly pay for. The charges usually arise by inadvertence, which, from a need-based perspective would be understood within a frame of consumer vulnerability, cognitive overload and (understandable) human error.Footnote ¹³² In addition, the relatively vulnerable financial position of most consumers means they have limited ability to absorb the losses caused. Through this lens, the CRA sets a low level of consumer protection in relation to the price term issue. A more need-based approach might have provided that a charge is only the price, if the obligation to pay it is one of the essential terms; or at least that it is not the price where it is “contingent” on some later consumer act or omission. Such charges would then be subject to the unfairness test, potentially protecting consumers when charges are too high, such as where they significantly exceed any loss caused to the business, and are not necessary to protect some other legitimate business interest.Footnote ¹³³ This would be much more protective than charges simply being validated by the processes of the business, namely by transparent and prominent presentation.

What of our other key question: as to the relationship between the competing ethics and legal clarity/certainty? It is true that the test of unfairness involves a degree of uncertainty: such as in relation to the charges discussed here, there needs to be an assessment of the business's real loss, what legitimate reasons there are for charging more than this, and how much the charge needs to be to serve these purposes.Footnote ¹³⁴ So, being guided by the need-based ethic (and applying this test) does compromise certainty to a degree.

However, the CRA approach, guided by the self-interest/reliance ethic, generates at least as much (if not more) uncertainty as the need-oriented approach. Key here is the requirement that a charge escapes the unfairness test if it is “prominent”, namely “brought to the consumer's attention in such a way that an average consumer would be aware of the term”.Footnote ¹³⁵ Yet there is much scope for debate as to what this requires. Must charges be highlighted in some way? Must they be separated out from the other terms? If so, is it sufficient if they are set out prominently and separately in the formal contract, or must they be in other literature, such as advertising, or other communications between the parties? Do charges sometimes need to be explained verbally whether by phone, or face to face? Is greater prominence required for more unusual or onerous terms?Footnote ¹³⁶ Do consumers sometimes need to give separate assent to the charges? In short, the “prominence” concept undermines the clarity policy goal by making disputes less predictable.

The price term issue is another instance in which the ethic of self-interest/reliance has had the strongest influence, the result being very limited consumer protection, and at least as much, if not more uncertainty as would have been caused by a need-based approach.

C. Beyond Freedom and Fairness

The examples in this part further confirm that the competing ethics framework provides a better explanation of consumer contract law than the “freedom versus fairness” framework. For example, it was argued above in Section II that “self-interest/reliance” is more determinate than “freedom”. This is borne out by the discussion on price terms: The CRA approach favours business self-interest by allowing businesses to impose high charges, subject only to satisfying process based standards (presenting charges transparently and prominently). Consumers must exercise an extremely high degree of self-reliance to protect themselves from such charges. This can be referred to also in terms of freedom: the business has freedom in what is charged, and the consumer is, at least on paper, free to decide whether to agree to such charges. The difficulty is that “freedom” can also be understood to mean something similar to the need ethic. On this reading, the argument would be that, even if non-essential charges are transparent and prominent, consumers are not “free” in any meaningful sense to make use of this information: being unlikely to read them, and usually unable to estimate the risks they carry or bargain for their removal. So the only route to “real” freedom for consumers is for the law not to define such charges as price terms, thereby allowing the fairness test to determine what charges consumers would agree to if they were “really” free to bargain, it being imagined that consumers would choose terms that are not too substantively harsh. In short, “freedom” can be understood in different ways.Footnote ¹³⁷ By contrast, the language of self-interest/reliance much more clearly indicates that (as under the CRA regime) the preference is actually for process based standards: under these standards the business can impose harsh outcomes on consumers, unless consumers have exercised a very high degree of self-reliance.