The Competition and Markets Authority (CMA) has released a Statement on coronavirus (COVID-19), consumer contracts, cancellation and refunds (“the Statement”) which sets out the CMA’s views as to how the law operates in relation to consumer contracts that are cancelled or varied due to COVID-19. The Statement should not be regarded as a substitute for, or a definitive interpretation, of the law.
Generally, the CMA’s view is that where a contract is unable to go ahead due to being prevented by lockdown laws, the consumer would be entitled to a full refund. The CMA consider that in these circumstances, the contract would become frustrated, meaning that the contract comes to an end due to events outside of either party’s control making the contract impossible to perform, or radically changes the nature of the contract.
Where the consumer has received some of the services that they have paid for then the CMA’s view is that they would be entitled to at least a refund for the services that have not been provided. In some cases, the business may also be able to deduct a contribution to the costs it has already incurred in relation to the specific consumer contract in question (where it cannot recover them elsewhere).
If a consumer has an ongoing contract, where they make regular payments for regular services, then they will be entitled to a refund for services that have not been provided due to lockdown laws. Businesses may be able to require the consumer to make a small contribution to its costs until the provision of the service is resumed, but only where the contract terms set this out clearly and fairly and the consumer is free to end the contract if they do not wish to pay these fees.
The CMA considers that, even where contract terms do not allow for a full refund, if a contract is required to be cancelled due to lockdown laws, the consumer would be entitled to a refund as the contract term is likely to be unfair and therefore unenforceable.
If a contract requires the consumer to pay early for future services then the business should not seek payment if it knows that it is likely to be prevented from operating the consumer contracts due to lockdown laws. Where it is reasonably likely that the business will be able to provide the future services, it can generally require the consumer to carry on making contractual payments in advance of performance.
Businesses may attempt to re-draft their standard terms and conditions so that full refunds are not provided due to COVID-19 related events however, where the terms related to consumers, it is likely that the terms could be regarded as unfair and therefore be unenforceable. Terms are more likely to be considered fair and enforceable if they are appropriately and clearly brought to the consumer’s attention before they enter into the contract and if they allow for a large proportion of payment to be refunded and only allow the business to withhold a limited amount for any costs it has already incurred.
Where performance of a contract is made more difficult to perform, or where the consumer does not wish to go ahead, due to government guidance then the situation is likely to be more complex. For package holidays, the consumer is likely to be entitled to a full refund, however for other arrangements this may not be the case and the position is likely to depend on the specific facts of each case. Where a business intends to rely on the terms under the contract, it must ensure that these are fair.
In summary, the CMA’s view is that businesses must treat consumers fairly and responsibly in circumstances relating to the COVID-19 pandemic and this may include trying to find a mutually acceptable solution. Ultimately, however, only the Court can decide how the law applies, and in many cases this will be the first time that these issues have been considered in the context of a pandemic like COVID-19.