Unfair Contract Terms Act 1977

From: http://e-lawresources.co.uk/Unfair-Terms---Regulation-by-statute.php

Intro
In addition to the protection offered by the common law, there exists statutory protection from unfair terms in the form of the Unfair Contracts Terms Act 1977  and the Unfair Terms in Consumer Contracts Regulations 1999. The Unfair Contract Terms Act 1977 is a piece of primary legislation whereas the Unfair Terms in Consumer Contracts Regulations is in the form of secondary legislation introduced to implement a European Directive.
There is some overlap in the protection offered by the two pieces of legislation. There are, however, some important differences:
  • UTCCR applies only to consumer contracts, whereas UCTA applies to business to business relationships as well.
  • UTCCR only applies to contracts not individually negotiated. No such restriction applies in UCTA
  • UTCCR applies only to contracts whereas UCTA applies to exclusion of tortious liability also.
  • The definition of consumer differs with an extended meaning given in UCTA whereby a business can be classed as a consumer if it is purchasing goods which are ordinarily supplied to a consumer.
  • UCTA provides specific instances of what may amount to an unfair term. If a term is not within one of the specified categories it is not capable of amounting to an unfair term under the Act. Whereas under the UTCCRs any term is capable of amounting to an unfair term.
  • Under UCTA some terms are automatically treated as unfair. UTCCRs all terms must be shown to be unfair
  • UCTA applies a test of reasonableness in deciding whether terms are unfair.
  • UTCCR has its own test of fairness based on dealing in good faith and balancing the rights and obligations of the parties.
 Unfair Contract Terms Act 1977

The Unfair Contract Terms Act 1977 applies only to liability arising in the course of a business. It does not therefore provide comprehensive protection against unfair terms. Also it provides for specific instances of unfair terms. In particular, penalty clauses are outside its remit. The Unfair Contract Terms Act provides different levels of protection. Some provisions provide absolute protection whereas some will be subject to a consideration of whether the term was a reasonable one to include. The Unfair Contract Terms Act extends beyond liability arising from contracts and extends to tortious liability arising from negligence or liability arising from the Occupiers Liability Act 1957.

The main provisions cover:
  • s.2 - Exclusion of liability for negligence
  • s.3 - Exclusion of liability for breach of contract
  • s.4 - Liability to pay an indemnity
  • s.6 - Exclusion of liability in contracts for the sale of goods and hp
  • s.7 - Exclusion of liability in hire contracts
  • s.8 - Exclusion of liability arising from a misrepresentation
  • s.11 - Sets out the reasonableness test
  • Sch 2 - Provides further guidance on application of the reasonableness test where the contract is a non-consumer contract and ss 6 or 7 are under consideration.
S.2(1) provides that a business can not exclude or restrict liability for death or personal injury arising from negligence. This provision is absolute and not subject to the requirement of reasonableness.
  • S.2(2) provides that a business may exclude or restrict liability for other types of loss only if it is reasonable to do so. The question of what is reasonable is decided by applying the reasonableness test set out in s.11.
 S.2(3) provides that where a person is aware of an exclusion clause this is not to be taken as a voluntary acceptance of risk.

NOTE - Please refer to the case Hollier v Rambler Motors [1972] 2 WLR 401 Court of Appeal, where the claimant had used the services of the defendant garage on 3-4 occasions over a five year period. Each time he had been asked to sign a document excluding liability for any damage. On this occasion the contract was made over the phone and no reference to the exclusion clause was made. The garage damaged the car during the repair work and sought to invoke the exclusion clause through previous dealings.

Held:There was not a sufficient number of or regularity of transactions to amount to a previous course of dealings capable of incorporating the exclusion clause. It was not reasonable to expect the claimant to remember the clause from one transaction to the next. Consequently the garage was liable to pay for the damage.

Writer's note: IFrom the above case, we gather that if the document you have signed has a clause excluding liability for verbal representations (what the sales rep said), it can be deemed to fail 'the test of reasonableness' in UCTA 1977 as you have never dealt with that Business Transfer Company before.
 
S.3 applies where one party deals as a consumer or where there exists a standard form contract. The provisions are subject to the reasonableness test in s.11 and provide restrictions on the other party to the contract's ability to:
 
  • Exclude or restrict liability for breach of contract
  • Provide substantially different performance to that reasonably expected 
  • Provide no performance at all
 
 

A person dealing as a consumer can not be made to pay an unreasonable indemnity arising from liability incurred as a result of breach of contract or negligence. - Subject to the reasonableness test under s.11.

The following is an extract from http://www.39essex.com/content/wp-content/uploads/2015/07/Exclusion-Limitation-Clauses-in-Business-Contracts-Presentation-Paper-JM-Bellamy.pdf

Exclusion and limitation clauses

in business contracts

A presentation at 39 Essex Street on 07.10.09 by

JONATHAN BELLAMY

39 ESSEX STREET

In Granville Oil & Chemicals Ltd v Davis Turner & Co. Ltd7, a strong commercially experienced panel of the Court of Appeal, through Tuckey LJ, took the opportunity to say:

The 1977 Act [UCTA] obviously plays a very important role in protecting vulnerable consumers from the effects of draconian contract terms. But I am less enthusiastic about its intrusion into contracts between commercial parties of equal bargaining strength, who should generally be considered capable of being able to make contracts of their choosing and expect to be bound by their terms.”

THE CONTROL MECHANISMS

There are however a number of control mechanisms applied by the courts in business cases. Although the general approach is based on freedom of contract, the courts are not entirely non‐interventionist.

Construction

It is an accepted principle of construction, but not a rule of law, that an exemption or limitation clause will not be interpreted as extending to a situation which would defeat the main object of the contract or create commercial absurdity, despite the literal meaning of the words used8.

This is a strong, but nonetheless rebuttable, presumption explained on the following grounds

In determining the meaning of the language of a commercial contract …. the law …… generally favours a commercially sensible construction. The reason for this approach is that a commercial construction is more likely to give effect to the intention of the parties. Words are therefore interpreted in the way in which a reasonable commercial person would construe them. And the standard of the reasonable commercial person is hostile to technical interpretations and undue emphasis on the niceties of language.” *

*Mannai Investment Co. Ltd v Eagle Star Life Ass. Co. Ltd [1997] 749 @ 771 and Sirius Int. Ins. Co Ltd v FAI Gen. Ins. Ltd [2004] 1 WLR 3251 @ [19]. In Internet Broadcasting the court relied on this principle to construe an exemption clause so as not to cover a deliberate personal repudiatory breach by one party.

Remote possibilities

In seeking to escape the effect of an exclusion or limitation clause a party may well wish to demonstrate that in certain specified circumstances the clause will work a serious injustice or even cause an absurd commercial result.

This is a legitimate forensic approach but it is worth noting that in Regus (UK) Ltd v Epcot Solutions Ltd [2008] EWCA Civ. 361 (“Regus”) @ [36] the Court of Appeal, through Rix LJ, expressly approved the “wise” words of Mance LJ in Skipsredittforeningen v Emperor Navigation SA10, a case considering the requirement of reasonableness in the context of an exclusion against misrepresentation, that:

“…. The court should, I think, take care to consider the clause as a whole in the light of the circumstances when the contract was made, in order to judge in the round whether it satisfies the requirement of reasonableness. The court should not be too ready to focus on remote possibilities or to accept arguments that a clause fails the test by reference to relatively uncommon or unlikely situations.”

Plain English

This feature, which has come to be referred to as part of a wider doctrine of transparency, indicates that, if the clause is clearly drafted and legibly presented (so that, for example, it is “understandable by any intelligent businessman”11), there is a better prospect that a court will be satisfied that the content is reasonable. The converse is, of course, also the case.