Unfair consumer contracts null and void

Consumer contracts which are unfair and in violation of consumer protection laws will be declared null and void

By Jodie Darmanin 

Consumer contracts which are unfair and in violation of consumer protection laws will be declared null and void.

This was highlighted in the recent Court of Appeal decision in F(Advertising) Ltd vs Joseph Borg, delivered on 15 February, 2024. This judgment marks a significant development, underscoring the strength of consumer protection laws in Malta and the fundamental principles of good faith within Maltese contract law.

Over the past few years, Maltese courts have been actively involved in resolving a series of disputes centred on property advertising contracts. F(Advertising) Ltd, operating under the name Owners Best, is renowned for its promotion of properties for sale through various media channels such as their magazine, website, and television platform. However, their contractual practices have faced repeated challenges, with courts consistently finding fault in their advertising services, deeming them unfair and in violation of Maltese consumer protection legislation.

The case at hand began when Owners Best was engaged by the defendant to advertise and sell their property through the company's services. Notably, it emerged that the property owner had also enlisted the services of other estate agents concurrently. Owners Best proposed two advertising options to the defendant: an 'exclusive' package, entailing sole advertisement with Owners Best for a fee of 3.5% of the property's price, and a 'non-exclusive' package, permitting the engagement of other recognised estate agents, subject to specific conditions. These conditions included timely notification to Owners Best and granting them the right to be present during the promise of sale, for a fee of 4% of the property's price.

The defendant opted for the non-exclusive option, as they were already utilising the services of other estate agents. Subsequently, the property was successfully sold through these alternative services, prompting the defendant to contest the payment of the agreed percentage to Owners Best. The defendant argued that it would be unfair to remunerate Owners Best when the sale did not result from their services.

Both the initial court ruling and the subsequent Court of Appeal decision sided with the property owner, finding Owners Best's contracts to be unfair and in violation of consumer protection laws. The courts particularly emphasised the disproportionate payment obligations imposed on the vendor. According to the contract, payment was due irrespective of the actual performance of the advertising services, which constituted a one-sided obligation. These terms are deemed 'prohibited,' particularly those that required consumers to pay disproportionately high sums in breach of their obligations or which specify compensation for the trader without providing similar compensation for the consumer. Moreover, the contract imposed an immediate and final commitment on the consumer upon signature, with conditions dependent solely on Owners Best’s will.

Furthermore, the courts found disproportionality in the contract terms, as the vendor could only be released from payment obligations if the property was sold through listed estate agents, subject to specific conditions. This imbalance was evident given that the trader could non-perform with impunity, while minor failures by the property-owner would result in breach of contract and liability for the contract sum. Such conditions were consistently deemed unjust by and were considered disproportionately onerous by the courts, especially considering the severe consequences for the consumer's failure to comply.

Several other courts have found that these types of contracts are misleading, and observed several grounds for arguing breach of good faith. Owners Best represented itself as an estate agent, despite its true nature as an advertising company, with a price range for services identical to that of estate agents. Additionally, the payment was required on the day of the preliminary agreement, and an exhaustive list of recognized estate agents was provided, creating a misleading impression that the consumer is engaging an estate agent. In opting for the 'open-deal', an ordinary consumer could reasonably assume that no fees would be incurred if the buyer was not introduced by the trader, as is customary in estate-agent agreements.

The recent Court of Appeal decision in F(Advertising) Ltd vs Joseph Borg affirms the development of Maltese consumer protection jurisprudence, confirming the principle that unfair consumer contracts are null and void.

Such contracts, commonly known as standard form contracts, are required to comply with the Consumers Affairs Act and EU Law, which prohibit various terms and clauses which are deemed unfair. If these terms are present, and the object of the contract cannot be concluded without them, then the contract will be considered invalid and unenforceable.

Despite Malta's legal tradition rooted in the theory that contracts legally and voluntarily entered into are binding, where the annulment of a contract is an extraordinary occurrence, consumer protection has superseded this traditional notion of Maltese civil law. EU Law acknowledged that consumers, given their limited contractual involvement in standard form agreements, are the weaker party to consumer contracts.

The aim of consumer protection legislation is to create a level playing field.