Contracts of sale to consumers tend to be in standard form drawn up by the trader and thus, are not negotiated between the parties, meaning that a consumer generally cannot add his own provisions to such contract. The notion of good faith is thus fundamental to ensure that the rights and obligations of both parties to the contract are balanced.
The Consumers Affairs Act (Chapter 378 of the Laws of Malta), which transposes the EU Directive on Unfair Terms in Consumer Contracts (93/13/EEC) states that a term within a contract that may be deemed to be of an unfair nature is not binding on the consumer. Furthermore, the Act also provides that any contract containing a prohibited act or unfair term will not bind a consumer at all unless the contract can exist without the said provision.
Article 45(1) of the Act states that an unfair term means any term in a consumer contract which, on its own or in conjunction with one or more other terms:
- creates a significant imbalance between the rights and obligations of the contracting parties to the detriment of the consumer; or
- causes the performance of the contract to be unduly detrimental to the consumer; or
- causes the performance of the contract to be significantly different from what the consumer could reasonably expect; or
- is incompatible with the requirements of good faith.
The Consumer Affairs Act provides some examples of unfair terms, these include: establishing an unreasonably short period of time for notifying the trader of any defects; irrevocably binding the consumer to terms with which he had no real opportunity of becoming acquainted before the conclusion of the contract; a disclaimer of the trader’s liability for his gross negligence; a provision enabling the trader to terminate a contract without reasonable notice (unless there are serious grounds), a provision establishing that only the trader can terminate a contract. This is a non-exhaustive list and thus even if a term does not fall within the list provided by the Act, it can still be considered unfair. Article 45(2) explains that the unfairness of a term is to be assessed by taking into account the following:
- the nature of the goods or services for which the contract was concluded;
- the time of conclusion of the contract; and
- all the circumstances attending the conclusion of the contract and all the other terms of the contract or of another contract on which it is dependent. Such circumstances may also include:
- the bargaining power of the parties;
- whether a consumer was subjected to undue pressure; and
- whether the lack of knowledge or skill of a consumer was improperly taken advantage of.
The Act specifies that this law overrides anything contained in the Civil Code and the Commercial Code and applies notwithstanding any term in a consumer contract which claims the law of a country outside the European Union as the applicable law, if such contract has a close connection with the territory of any Member State.