Ch 6 – Part 2 –

The regulation of the terms of the contract

Consumer Rights Act 2015

This applies to contracts entered after Oct 2015 and replaces the Unfair Terms in
Consumer Contracts Regulations and the Unfair Contract Terms Act 1977 in consumer
contracts and notices.

Provisions relating to unfair terms are contained in Part 2 Consumer Rights Act.
According to S.61 - Part 2 CRA 2015 applies to:

1.Consumer contracts between a trader and consumer

2.Consumer notices between a trader and consumer

Definitions in S. 2

S. 2(1) – A trader - a ‘person acting for purposes relating to that person’s trade,
business, craft or profession…’

S. 2(3) – A consumer – ‘an individual acting for purposes that are wholly or mainly
outside the individual’s trade, business, craft or profession’

S. 2(7) – A ‘business’ expressly includes any government department, local or public

authority

This will affect the level of protection offered to persons who purchase goods for mixed
purposes. For example, if a car is purchased primarily for private use but is nonetheless
sometimes used for business purposes, the contract will still be subject to Part 2 of the
CRA 2015.

Part 2 of CRA – unfair terms

s.62 (4) A term or notice is unfair if, contrary to the requirement of good faith, it causes
a significant imbalance in the parties’ rights and obligations under the contract to the
detriment of the consumer.

Where a term or notice is found to be unfair, it is not binding on the consumer under
s.62 (1 & 2) Consumer Rights Act 2015. The consumer may rely on the term or notice
if they choose to do so (s 62(3).

S.62(5) Whether a term or notice is fair is to be determined by —

(a)taking into account the nature of the subject matter of the contract or notice, and

(b)by reference to all the circumstances existing when the term or notice was agreed
and to all of the other terms of the contract or of any other contract on which it depends.
 The assessment of fairness is made when the contract is concluded; it is not a
retrospective judgment and so cannot take account of circumstances that arise after the
contract was entered.

Unfair term 2 key elements  Good faith , significant imbalance

Requirement of good faith  2 parts  Procedural , Substantive

Procedural - when a term’s existence came as a surprise to the party subject to it.
(Court has to assess whether the seller or supplier, dealing fairly and equitably with the
consumer, could reasonably assume that the consumer would have agreed to such a
term in individual contract negotiations)

Office of Fair Trading v Ashbourne Management Services Ltd [2011] gym termination
West v Ian Finlay & Associates [2014] architects, savvy consumers

Where a term is put forward by either the consumer or the consumer’s professional
advisers the element of unfair surprise will be absent and the clause most unlikely to be
found to be unfair.

Schedule 2 contains an indicative but non exhaustive list of what may be

regarded as unfair

S.63(6) A term of a consumer contract must be regarded as unfair if it has the effect
that the consumer bears the burden of proof with respect to compliance by a distance
supplier or an intermediary with an obligation under any enactment or rule implementing
the Distance Marketing Directive.

S. 64 – Unfair terms assessment will not apply to terms central to subject

matter or price
There will be no assessment of fairness in relation to a term that relates to the subject
matter of the contract or the price —S.64 (1) Consumer Rights Act 2015.
Lord Bingham recommends a narrow approach not to nullify the original objective of the
directive (now CRA 2015)
Director General of Fair Trading v First National Bank [2001] – cost of obtaining judgement if
defaulted
Office of Fair Trading v Foxtons Ltd [2009] – commission payment on renewal of lease
Office of Fair Trading v Abbey National plc (2009)- charges on unauthorised overdraft - criticised

S 65. (1) - A trader cannot by a term of a consumer contract or by a consumer notice

exclude or restrict liability for death or personal injury resulting from negligence S.65(1)
Consumer Rights Act 2015

S. 39 – Black list
S. 9 – satisfactory quality, S.10 – Fitness for purpose, S. 11 – match description, #. 13 –
or sample – cannot be excluded

S. 67 – Consequences of unfair terms

A national court cannot vary a term that is held to be unfair.

Unicaja Banco SA v Hidalgo Rueda [2015]

A national court may, having ‘deleted’ an unfair term, substitute for it a supplementary
provision of national law
Kasler v OTP Jelzalogbank [2014]

S. 68 – intelligibility to consumer
There is a requirement of transparency and for consumer notices and contractual terms
to be expressed in plain and intelligible language which is legible S.68 Consumer Rights
Act 2015
it ‘should set out transparently the specific functioning [of the term] so that that
consumer was in a position to evaluate, on the basis of clear, intelligible, criteria, the
economic consequences’
Kasler v OTP Jelzalogbank [2014]
S. 69
Where there is any ambiguity it should be resolved in favour of the consumer according
to S.69 Consumer Rights Act 2015.

The Unfair Contract Terms Act 1977

Concerned with only one type of ‘unfair’ term, namely, exclusion and limitation clauses,
Applies only to B2B contracts

S. 26 and schedule 1 – excluded contract types

 contracts of insurance,
 contracts concerning land
 international supply contracts
If the contract requires goods to be carried from one state to another it is classified as
an international supply contract – as is a contract where, at the time of signing, it is
expected, but not stipulated, that the goods will be so transported
Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd [2009]

s.2. ‘Negligence’
Is defined as covering: an obligation to take reasonable care in the performance of a
contract; the tort of negligence; and liability under the Occupier’s Liability Act 1957.

s.2(1) any contract term or notice which seeks to exclude or restrict liability for
negligence causing death or personal injury is void.

s.2(2) any contract term or notice which aims to exclude or restrict liability for
negligently inflicted damage to property is not automatically rendered void.
Instead it is subject to the reasonableness test.
Damage to property or financial losses (lost profits, etc.).
This standard is utilized throughout the UCTA

S. 11 – the reasonableness test

“a fair and reasonable one to be included having regard to the circumstances which
were, or ought reasonably to have been known to… the parties when the contract was
made.”

3 key points referred to when judging reasonableness:

 The time of entering the contract, without the benefit of hindsight
Stewart Gill Ltd v Horatio Myer & Co Ltd [1992
 S. 11(5) - the burden of proving that the clause is reasonable is borne by
the party relying upon it
 it is difficult to generalise about the application of the standard of
reasonableness because each case very much depends upon its own facts.
Shown by the reluctance of the courts of appeal to interefere with the decision of the trial
judge ‘… unless satisfied that [he/she] proceeded on some erroneous principle or was plainly
and obviously wrong’
George Mitchell Ltd v Finney Lock Seeds [1983]

S. 11(4) – When considering limitations (not exclusions) provides

that the court should take account of the resources of the person who may
be subject to liability as well as the extent to which that liability might
have been covered by insurance.
 However, the availability and cost of insurance has been referred to many times in relation to
cases involving exemption clauses (e.g. Smith v Eric S Bush (1989)).

S. 11 (2) refers to a number of guidelines contained in Schedule 2

which should be taken into account in assessing reasonableness.
Only expressly states to be relevant to S. 6 and S. 7. This formal position
has been ignored and the checklist is considered to be relevant to any
section of UCTA that seeks to apply the standard of reasonableness.
Watford Electronics v Sanderson [2001] – software sale / limiting liability
for losses
Chadwick LJ (at [54]) said that the court should only interfere when satisfied that ‘one party has, in effect,
taken advantage of the other’
or where ‘the term is so unreasonable that it cannot properly have been understood or considered’.

This approach, also applied in respects and enforces the the terms
negotiated by commercial contractors of roughly equal bargaining power.
Sterling Hydraulics Ltd v Dichtomatik [2006] similar to Watford – engine seals
sale
Regus (UK) v Epcot Solutions [2008] – limiting liability for loss/serviced
accomodation

S. 3 - The exclusion of contractual liability other than through negligence

Only applies in a business context where one of the parties deals on the other’s ‘written
standard terms of business’.

The relevant party (the party relying on clause)

 has written standard terms of business
 and that, on this occasion, he contracted on the basis of them

Where the contract is preceded by negotiations that leave the ‘general conditions…
substantially untouched’ the parties will still be held to be contracting on written
standard terms of business
St Albans City and District Council v International Computers Ltd [1996

However, ‘any significant difference’ between the terms proposed and agreed will
indicate that the contract was not on the other’s written standard terms
Yuanda (UK) Co Ltd v W W Gear Construction Ltd [2011]

All this is subject to the test of reasonableness

It must be intended to apply to situations where the party seeking to rely on the clause
is not himself in breach of contract

Ss.6 and 7 dealing with contracts for the sale or supply of goods.

This includes hire purchase, hire transactions and contracts for the supply of work and
materials.

In relation to the statutorily implied terms as to title (ownership) that operate in relation
to such contracts, the UCTA prohibits any exclusion of liability.

In relation to the implied terms as to description or quality (for example, under ss.13
and 14 of the Sale of Goods Act 1979), then liability under these terms can only be
excluded or limited in so far as the clause satisfies the requirement of reasonableness.