#4599 - Exemption Clauses Ii - GDL Contract Law

Unfair Contract Terms Act 1977

• Purpose: to impose limits on the extent to which liability for breach of contract or for negligence can be avoided by contractual terms

• Provisions which ensure:

1. Certain type of ECs have no effect; and

2. Other types of ECs are effective only in so far as they satisfy the requirements of reasonableness

Scope of UCTA

• S1(3): UCTA applies to business liability - this is the ‘gateway’ into UCTA

  • S1(3)(a) and (b): business liability for breach of obligations arising (a) from things done or to be done by a person in the course of business or (b) from the occupation of premises used for business purposes of the occupier

Excluding liability for negligence: s2

• S1(1) defines negligence:

1. “negligence” means the breach:

1. Of any obligation (express or implied) to take reasonable care/exercise reasonable skill

2. Any common law to take care/skill

3. Of the common duty of care imposed by the Occupier’s Liability Act 1957

• Note: s13 Supply of Goods and Services Act 1982 – implied term that the supplier will carry out services with ‘reasonable care and skill’ – breach of this would amount to negligence in accordance with UCTA s1(1)(a)

• S2(1): a person cannot ‘exclude or restrict his liability for death or personal injury resulting from negligence’

• S2(2): to restrict liability for other loss or damage arising from negligence, one must satisfy the requirement of reasonableness

Reasonableness Test (s11 & sch 2)

• S11(1): the requirement of reasonableness – the term must be fair and reasonable with regard to the circumstances which were, or ought reasonably to have been known or in the contemplation of the parties

• S11(1): requirement of reasonableness to be judged at the time the contract was made

• S11(5): burden of proving reasonableness lies with the party claiming that it does satisfy reasonableness

• Schedule 2 provides “guidelines” for the application of the ‘reasonableness test’ in s11: said to be relevant to ss6 and 7 – but we know from Stewart Gill v Horatio that they may be used more widely

  • States that in assessing reasonableness we must have regard to:

1. Strength of the bargaining position of the parties

2. Whether the customer received an inducement to agree to the term, or in accepting it had an opportunity of entering into a similar contract with other persons but without a similar term

3. Whether the customer knew, or ought reasonably have known of the existence and the extent of the term

4. Where the term excludes or restricts any relevant liability if some condition was not complied with, whether it was reasonable to expect that compliance with that condition would be practical

5. Whether the goods were made to the special order of the customer

• Judicial approach to reasonableness:

  • George Mitchell v Finney Lock: HL emphasised judicial discretion (large element of fact and few legal rules). Scope for legitimate difference of judicial opinion as the reasonableness of an EC: little precedent value in decisions

    • CA: Phillips Products v Hyland and Thompson v T. Lohan Plant Hire: dramatic difference between the decisions based on different factual scenarios but relating to identical ECs

  • Equality of bargaining power is important: the greater the equality the more likely it is that the clause will pass the reasonableness test

    • Watford Electronics v Sanderson: clauses were reasonable as between experiences businessmen of equal bargaining power

    • Granville Oil v Davies Turner: Tucker LJ – ‘I am less enthusiastic about its intrusion into contracts between commercial parties of equal bargaining strength’ – capable of making contracts of their choosing and expect to be bound

Excluding liability for implied terms (s 6)

• S6(1): it is not possible to exclude liability for the seller’s implied undertaking as to title (s12 SGA 1979)

• S6(2): as against a person dealing as consumer it is impossible to exclude or restrict liability for breach of obligations arising from ss13, 14 and 15 SGA 1979

• S6(3)When a person deals otherwise than as a consumer, it is possible to exclude liability for breach of these implied terms, in so far as it satisfies the requirement of reasonableness

• S12(1): a party deals as a consumer where -

1. He neither makes the contract in the course of business nor holds himself out as doing so; and

2. The other party does make the contract in the course of a business; and

3. In contracts governed by the law of sale of goods/hire-purchase, or s7 UCTA, the goods are of a type ordinarily supplied for private use

• R & B Customs v United Dominions: distinction between transactions that are integral to the relevant party’s business and those which are incidental

  • The former are clearly in the course of business under s12(1) while the others are only regarded as being in the course of business when carried on with sufficient regularity

  • Here the C company purchased a car from the C company – only the 2^nd or 3^rd acquired and so there was insufficient regularity : consumer transaction

• However: meaning of ‘in the course of business’ interpreted differently in the context of s14(2) SGA 1979

  • Stevenson v Rogers: fisherman sold a boat he had purchased 5 years earlier – CA held that one-off sale was in the course of business and thus there was an implied condition as to quality – a sale would be in the course of a business unless the transaction was purely private in nature: does NOT necessarily exclude incidental sales

• Criticism of the R & B Customs approach (arguments for a unified test)

  • However in Feldaroll v Hermes –CA decided to apply the R & B Customs test when deciding whether a company could rely on s6(2) UCTA when it purchased a car for use by the company’s MD: preferred to apply the test which had evolved in the UCTA context – unlikely that the UCRA and SGA tests will be merged until a case reaches the HL

Excluding other liability arising in contract (s3)

• S3(1): s3 applies when one of the parties acts as consumer

• S3(2)(a): as against the party acting as consumer, the other cannot restrict liability when he himself is in breach of contract

• S3(2)(b): nor can he claim to be entitled:

1. To render a contractual performance substantially different from that which was reasonably expected form him; or

2. To render no performance at all

... except in so far as the term satisfies the requirement of reasonableness

The Unfair Terms in Consumer Contracts Regulations 1999

The Scope of UTCCR

• In some respects the scope is more limited than UCTA:

  • UTCCR deals only with contractual terms whereas UCTA deals with non-contractual notices

  • UTCCR applies only to terms which have not been individually negotiated, while only UCTA s3(1) is restricted in this ay

  • UTCCR is restricted to business-to-consumer contracts, while UCTA covers B-2-B and business-to-consumer: note also that the definition of consumer is narrower for UTCCR compared with UCTA

• However: UTCCR is applicable to all contractual terms (which have not been individually negotiated), whereas UCTA deals exclusively with exemption clauses

When do UTCCR apply?

• R4(1): applies to contracts concluded btw a seller/supplier and a consumer

• R3(1): ‘seller or supplier’ means any natural or legal person who is acting for purposes relating to his trade, business or profession

• R3(1): ‘consumer’ is any natural person who is acting for purposes outside his trade or profession

  • So much narrower than definition of a consumer under UCTA

Not individually negotiated

• R5(1): UTCCR does not regulate terms which have been individually negotiated

• R5(2): A term will be regarded as not having been individually negotiated where it has been drafted in advance...