The Unfair Contract Terms Act

At present unfair contract terms are governed by two separate pieces of legislation; the Unfair Contract Terms Act 1977 (UCTA); and the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR). In January 2001, the Law Commission were asked to rewrite the law of unfair contract terms as a single regime, creating an Unfair Contract Terms draft Bill applicable to the whole of the UK.

Until the 1970’s there was no statutory control upon this area and the exemption clause was given effect. Even when the courts attempted to deal with the problem, ultimately the common law proved unequal to the ingenuity of those who sought the protection from the exemption clause. However, judicial control was prevailing, attacking exemption clauses on incorporation and interpretation initially. The judiciary, particularly Lord Denning MR, then developed an additional weapon in the fight against exemption clauses; the doctrine of fundamental breach. According to the doctrine, no exemption clause, however unambiguous, could, as a matter of law, protect a party from liability for a serious or fundamental breach of contract. This doctrine was buried in the House of Lords case Photo Production Ltd v. Securicor Transport Ltd, however the courts continued to apply this wherever convenient, thereon referring to it as a ‘serious breach’.

Finally in the 1970’s, Parliament stepped in, introducing detailed legislation grafted on the pre-existing common law rules, somewhat maintaining the doctrine of ‘serious breach’. UCTA, despite its broad title, is concerned with ‘contractual provisions and notices seeking to limit or exclude liability’ (including non-contractual terms and notices), removing the need to stretch the common law through ‘strained construction’.

Although UCTA is considered a major landmark in the development of contract law, curbing the effectiveness of many exemption clauses, it has been widely criticised for numerous reasons (only some of which will be addressed). UCTA has been supplemented by UTCCR, which uses language not easily understood by UK lawyers. Together they provide a ‘powerful weapon’ against unfair contract terms, but their overlaps, inconsistencies and differing terminology along with their individual complexities merely increase the burdens of ascertaining what the law is.

UCTA covers a wide range of contracts, however, does not address all exemption clauses, only those attempting to exclude or restrict ‘business liability’ in certain circumstances and which are not excluded from the Acts operation. The lack of definition of clauses ‘excluding or limiting liability’ is problematic when mapping the borderlines of the Act. For example, the final part of s.13(1) raises problems as the same result can be achieved by two different types of clause; exclusion clauses; and obligations, because there is no definition, thus no distinction. This is considered a ‘conceptual hole’ at the centre of the Act.

Unlike UCTA, the Regulations provide a more exhaustive list of unfair terms enforceable on a more general basis, however, do not apply to as wide a range of contracts. UCTA contains provisions that disallow reliance on certain types of clauses altogether in any case where the buyer ‘deals as a consumer’ and, although criticised somewhat for adding complication to the Act, caters also for non-consumer transactions. The Regulations, however, only apply to consumer contracts which have not been individually negotiated, providing a separate definition for ‘consumer’. It is believed that offering protection to both consumers and businesses-business contracts should be maintained, providing one separate definition for them both with unambiguous distinctions between the two. It should be born in mind at all times, however, the balance of certainty and freedom of contract.

It has been argued that UCTA does not govern the private contract of sale. If it were, theoretically it would hold no problems, but it could be seen as being too ambitious, adding perhaps unnecessary complexity to an already complex piece of legislation.

With the case of business to business contracts, any attempt to exclude an implied condition as to title is absolutely void under UCTA, and other implied conditions may be excluded if they satisfy the ‘reasonableness’ test. Guidelines as to the application of the test are also provided in schedule 2 of UCTA, and although the fairness of these guidelines has been questioned, they have been applied by the courts more liberally than expected. The Regulations differ, applying a‘fairness’ test, and any unfair term does not bind the consumer, and no terms are rendered automatically ineffective under the Regulations.

Problems arise in regard to the ‘reasonableness’ test because the courts have used the guidelines inconsistently, applying consumer protection to quasi-commercial parties, for example farmers in the case of George Mitchell (Chesterhall) Ltd v. Finney Lock Seeds Ltd. The court took an interventionist approach in this case, giving farmers consumer protection because of their lack of bargaining power. This case ‘generated a state of uncertainty which one associates more readily with discretion than with decision’. In comparison, the Photo Production case provided a conflicting relaxed approach, discouraging interference with commercial exemptions. This imbalance has sparked debate as to whether the law is still appropriate, particularly in regard to insurance contracts, for sole traders and ‘micro-businesses’, with similar low bargaining power and few resources. Scottish Law Commissioner, Professor Hector MacQueen, believes that “it is important that micro-businesses who often buy insurance in the same way as consumers are protected by a fair and proportionate law”.

The Law Commission suggests extending to protect ‘micro-businesses’, allowing them to challenge any ‘non-core’ standard contract term under the new ‘fair and reasonable’ test, which includes two lists of relevant factors. Although argued that having two lists adds confusion, this test is still much simpler in comparison to s.11(2) and Reg 5, and wider in terms of capturing other potential unfair terms, including those in consumer contexts. The test removes the unfamiliar concept of the requirement of ‘good faith’, yet maintains the current level of protection provided by current law by amalgamating the positive parts of each piece of legislation.

The burden of proof as to whether the clause satisfies the required test differs in each piece of legislation; in UCTA it lies upon the person seeking to use the clause; and under the Regulations it lies upon the consumer, so offering considerably less protection for the consumer. To avoid such reduction in protection, the Bill has adopted that used by UCTA in relation to any terms falling within the indicative list.

Finally, in regards to preventative actions, UCTA adopts the right of civil action, where as the Regulations also allow for the intervention of the Office of Fair Trading.

Overall, the has been greatly supported.

Badly worded act – doesn’t meant that it cant be examined.

More info

Amalgamate

Inconsistency

REASONABLENESS TEST!!!!!!!!

as it is said to restrict the judiciary too much.

Interfoto –

The Regs add another layer to this area of the law. Confusing it further by European terminology unfamiliar to uk lawyers

Although in some ways UCTA goes further than the directive requirement, it gives less protection in other ways.

AIM – PROTECT THE CONSUMER – BILL WILL GO FURTHER

Although UCTA is a major landmark in the development of the law of contract

Maintain and to an extent extend great consumer protection – mcdonald/

Maintain the directive member state EU thingamigigin.

Change of language

What they don’t cover

The test – INTERFOTO pg 99 Dobson & guidlines

S5 – negligence

Contracts excluded sch1

Regs?

Test

Micro businesses…

Micro-Businesses – Should Micro-Businesses Be Treated Like Consumers For The Purposes Of Pre-Contractual Information And Unfair Terms?

http://www.lawcom.gov.uk/insurance_contract.htm

Reform

The UK Government has indicated its intention to consolidate te provisions of the ICTA 1997 and the Regs to create a unifies code of regulation. In 2002 the Law Commissioh and the Scottish Law Commission issues a joint consulations paperon Unfair Terms in Contracts. The main proposals are;

• There should be a single piece of legislation for the whole UK
• The legislation should apply to both business to business and business to consumer transactions
• The UCTA approach that certain terms are of no effect while others are only valid if fair and reasonable should be adopted into the new legislation.
• The legislation should cover all contractual terms except core terms and the adequacy of the price provided that they are not substantially different to what the consumer should reasonably expect and are set out in plain language.
• Standard terms in business-to-business contracts or terms which have not been individually negotiated should be subject to a ‘fair and reasonable’ test; individually negotiated terms in business-to-business contracts should no longer be controlled.
• Terms that comply with mandatory statutory rules, or are required by regulators or required or authorised by international conventions should be exempt.
• The legislation should provide detailed guidlines on the ‘fair and reasonable’ test and the list of relevant factors should include whether the term is set out in ‘plain and intelligible language’ and is transparent ie reasonably easy to follow and to read.
• The new legislation should contain a list of terms deemed to be unfair unless a business can show otherwise; the list should be appropriate to the UK context
• The existing powers of the OFT and other qualifying bodies to obtain an injunction to prevent the use of unfair terms should continue.

M.Ahmed, Case and Comments – Trident Turboprop (Dublin) Limited v. First Flight Couriers Limited [2009] EWCA Civ 290 (CA) (2009), Nottingham Law Journal, Vol 18(2) at 23.