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Contractual Terms Included in Clients’ Agreements of CIFs Identified as Unfair

Contractual Terms Included in Clients’ Agreements of CIFs Identified as Unfair

The Unfair Contract Terms Law 93(1)/1996 (the “Law”) as amended, implements the EU Directive 93/13/EEC of 5 April 1993 regime into national law. The objective of the aforementioned legislation is the protection of consumers in the European Union from unfair terms and conditions which might be included in a standard contract for goods and services they purchase. It introduces the notion of ‘good faith’ to avoid any significant imbalance in mutual rights and obligations.

The relevant national competent authority which has been assigned with the responsibility of ensuring the protection of consumers in today’s highly competitive and fast placed market is the Competition and Consumer Protection Service. Subject to the provisions of the Law, the Director of the Competition and Consumer Protection Service (the “Director”) has the obligation to examine, subject to the receipt of a complaint and/or at his own initiative, whether any contractual term which is designated for general use may be unfair.

In a recent decision of the Director, it was identified that certain contractual terms included in clients’ agreements of Cyprus Investment Firms are unfair and constitute breach of the provisions of the Law. The disputed clause related to the payment of bonuses towards clients of a Cyprus Investment Firm whereby the company retained the right, at its sole discretion to refuse, withhold or withdraw from the accounts of the consumer the payment of a bonus. This was considered to be unfair.

The Law provides that “consumer” is any natural person who, at the time of entering into a contractual agreement, to which the Law applies, acts for purposes unrelated to his/her business. Whereas a “provider” is any physical or legal entity which provides goods or services and which at the time of entering into a contractual agreement, to which the Law applies, acts for the purposes relevant to its business.

The Director has also considered the fact that it was not possible to enter into personal negotiations. Subject to the provisions of the Law, in case the contractual terms are predefined for the purpose of being used in an unidentified number of contracts, the consumer can either accept or decline the terms. This is also identified by the fact that same terms are used in different contracts of the provider with different consumers, which have been executed in a timeframe with substantial differentiation between them.

For the purposes of the Law “unfair contract terms” constitutes a contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer.

The Director’s decision found also that the consumer is found to be in a weaker position against the provider, also in relation to the negotiation power but also as to the level of information he is entitled to receive.

The matter of unfair contract terms was brought many times before the European Court of Justice (CJEU) which has decided as to the applicability of the significant imbalance.

The Director found that the specific terms constituted unfair on the basis of all matters subject to the provisions of the Law.

This is a ground-breaking decision which would materially affect the provision of financial services in the regulatory regime of the Republic of Cyprus, as the provision of such services are primarily bases on predefined contractual terms.

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