Expert view: Gary Rycroft on refunds for services not provided

Over lockdown, one of the most common questions we’ve heard was ‘can I get a full or partial refund for goods or services I can’t use?

Being locked down for much of the year reminded many people how many subscriptions, memberships and other annual services they signed up to (and couldn’t take advantage of).

The subject of getting a refund is a thorny one. On one hand, people have a lot of sympathy for businesses that are unable to open – particularly when they teetered on the brink of insolvency. So there’s been a wave of support for some businesses and their staff in particular.

However many businesses (often large organisations) have not covered themselves with glory over the last year. We’ve heard endless reports of businesses misleading consumers about their rights or even getting aggressive when people ask for their cash back for cancelled events and services.

Our legal expert Gary Rycroft, a solicitor and the UK’s leading communicator for all things legal for the main broadcasters and papers, tackles your questions from both a legal and consumer rights perspective.

So what does the law say?

There are lots of laws, regulations and rules that relate to the sale of goods and services, how they’re advertised, what both parties have ‘contracted’ and whether you can get a refund or compensation. But the last year has been unique and there’s rarely a law that covers a situation like the pandemic explicitly, even if there are lots that could do.

So: if you have an annual contract and you can’t use some/all of it due to lockdown restrictions, are you entitled to a refund?

The answer isn’t black and white – but the good news is that existing laws are – more or less – on your side.

What are your rights when cancelling an annual subscription?

In recent years, the laws governing how we shop have improved immeasurably for us all. Resolver has a full guide covering the main rules and how they work.

If you have taken out a new subscription online then by law you have the right to cancel the order 14 days after placing it. This comes from the Consumer Contract Regulations. But as with any law, there are always caveats, so some things aren’t covered.

The most noticeable exception sadly is ‘accommodation, transport and leisure services purchased for a specific timeframe’. This is generally taken to mean holidays and travel, which is why those cruise companies can try to hit you with a massive bill for cancelling even the next day after booking. This does not mean you have no legal rights, about which more soon. MoneySavingExpert has the full list of the exemptions.

We get most of our shopping rights – online or on the high street, from the Consumer Contract Regulations and the more wide-ranging Consumer Rights Act. They’re full of wonderful and useful nuggets too – for example since June 2014 all new subscriptions and contracts have to be ‘actively’ signed up to. This means companies can’t opt you into a contract – you have to choose to sign up and the contract needs to be fair and clear.

I didn’t realise I was signed up to an annual contract – can I cancel it and get my cash back?

Thousands of people have checked their bank accounts, credit cards and e-payments like PayPal or Apple Pay over the last year and found out they are being debited for contracts they never agreed to. This sometimes happens when you sign up to a free trial and forget to cancel it. But often people don’t recognise the contract at all – or more often, had told the company to cancel it some time ago.

It’s always a good idea to do an audit of your bank and credit card statements to weed out any recurring payments which you no longer wish to continue with. There is no definitive legal right to a refund on past payments, but you can always ask and try to negotiate one. But always remember that if you were misled into taking out a contract or you didn’t authorise it to be ongoing annually, you can certainly ask for a full or partial refund. A top tip is that the company must be able to prove you agreed to the annual contract and that this was explained to you. If they do not have that evidence, press for a refund and point out you have potentially been ‘mis-sold’. That phrase should send a shiver down the spine of any self-respecting business.

Before you cancel a subscription check the T&C’s on any notice period required. As a general rule, it’s trickier to get out of a contract that runs for a defined period. But again this must have been made clear to you when you signed up.

If the contract is a ‘rolling’ one, that just continues until you cancel it, contact the provider and ask them to cancel with immediate effect. If it’s not playing ball, you can also ask your bank or credit card company to stop future payments as well. If your bank does not act upon this, you can complain to the Financial Ombudsman Service (FOS).

Any payment from your account that isn’t authorised should be automatically cancelled and refunded, though the other party may try to hold you to a contract if there is one.

What if goods or services aren’t provided due to the lockdown, Government guidance or other reasons out of my control?

If you’ve signed up for payment for goods and services which you’ve not been able to make the most of because of Government rules or restrictions, the law could well be on your side if you want to be refunded.

The legal principle of ‘Frustration of Contract’ is the basis of your legal right to seek a full refund. In short, this applies where goods or services cannot be delivered for reasons not anticipated when the contract was agreed.

Usually an unforeseen event occurs (such as the Covid-19 Pandemic) which is outside the control of the business and consumer and makes it physically or commercially impossible or illegal to carry out the service specified in the contract. The doctrine can apply to both a single event – such as hiring a venue for a wedding – or ongoing contracts, for example a gym membership.

So say you have paid £300 for gym membership for a year (£25 a month) and the gym is closed for two months. You may be able to claim a £50.00 refund under ‘Frustration of Contract’. This also means you could pause or stop a regular subscription even if you are still within an initial agreed tie-in period, though you would have to start up again once the goods and services were available to use.

However, there are some issues to be wary of when arguing the doctrine of ‘Frustration of Contract’:

As the pandemic becomes ‘the new normal’ the idea of it being an unforeseen event becomes less likely. For contracts entered into after March 2020 it is a weaker argument and in such cases a simple ‘non-performance’ of a contractual obligation is a simpler argument.
The logical outcome is that the whole legal relationship is in effect terminated – and you may not want that if you want an ongoing relationship with the business or want it to provide some but not all of its services to you.

What if the business makes deductions for ‘costs’?

In circumstances where you are relying on a ‘Frustration of Contract’ argument for a refund, a business may be entitled to ask for a small contribution to its costs. But this only applies if the initial contract says this is permitted, so again check the T&C’s you were given when you signed up.

For example, over lockdown we heard of a number of holiday or caravan parks deducting hundreds of pounds for maintenance and security. These charges must be reasonable and reflect what you would have paid anyway. Cleaning and basic maintenance would need to take place of course, even if the venue is closed. But a monthly debit for pool cleaning when the pool is closed isn’t fair. And you should be able to ask for proof of anything you’re being charged by default for.

How do I ask for a refund?

Politely, but firmly, is always a good approach. It’s good to acknowledge the value you have had from a service over time while noting that circumstances have now changed.

Have a think about what you are going to say and stick to it. Remember to point out what services haven’t been available in full or in part and explain what you’ve lost as a result. Make the distinction between things being flat-out unavailable to being partially available. Using the pool analogy again, if you are a gym member but you only use the pool and it’s not open, you can argue the main part of your contract isn’t being fulfilled (though you might get a partial refund).

If you’re planning on returning, make a point of saying you hope to return one day – it helps smooth the path. There’s a big difference between ‘bye for now’ and ‘bye forever’.

What if the business says it doesn’t have to refund me?

The pandemic has brought unbelievable challenges for us all, but it’s also presented unprecedented problems when it comes to interpreting existing law. There’s a huge amount of misunderstanding about laws and regulations – we are constantly fielding questions about firms changing T&Cs, ignoring rules or quoting non-existent or wrongly interpreted legislation.

Bear in mind many businesses are battling to keep going, so some are going to try to stall refunds where possible – especially if they’re going to go under if they refund everyone. You’ll make more progress if you have a think about what you might be willing to compromise on – but get the firm to put its response in writing if it says no.

Remember, this isn’t about you not wanting the goods or services anymore. It’s about not being able to have or use them. Now that many businesses are reopening, they may be more receptive to refund requests. And even if you’ve moved to another service provider, you can still complain.

What does the regulator say?

The Competition and Markets Authority (CMA) have been inundated with questions and indeed complaints about these issues since lockdown was first imposed. It’s firmly of the view that businesses should treat their customers fairly and that means recognising the legal rights explained above.

The CMA has published guidance covering when they expect businesses to refund you. This guidance does not have the same clout as a legal judgment in a Court of Law, but in my view it would be a brave business which went against the spirit and intention of it. The CMA has started issuing fines and threats of legal action to the firms it’s heard the most complaints about – so watch the news.