Unfair contract terms

Sometimes contract terms are unfair to one of the contracting parties in such situation court and the legislature are prepared the intervene to prevent injustice

Exemption clauses

Exclusion clauses ( exclude all liability) Limitation clauses ( limits the liability)

Controls of exemption clauses

1. common law controls a incorporation b contra proferentem rule 2. statutory controls a Unfair contract terms act (1977) b unfair terms in consumer contracts regulations (1999)

Common law control- incorporation

There are 3 ways in which written exemption clauses may be incorporated into a contract 1 incorporation by signature 2 incorporation by reasonable notice 3 incorporation by previous course of dealing

Incorporation by signature
If a document is signed at the time of making a contract, its content becomes terms of the contract regardless of whether they have been read and understood LEstrange v Graucob- cigarette vending machine

Curtis v Chemical cleaning and dyeing co

wedding dress for cleaning

Incorporation by reasonable notice

If separate written terms are presented at the time a contract is made by handing over a ticket or listing them on a sign such terms are binding if the recipient had reasonable notice of them. (This is very
much applicable with ticket cases)

Ticket cases -guiding principle

Parker v South Eastern Railway (1877) Cloak room case Court of Appeal said that a party could be deemed to have had reasonable notice if they knew of the clause or reasonable steps were taken to bring the clause to their notice

Factors taken into account by court in deciding reasonable notice given

1 when

the notice given 2 What form it took 3 How serious and unusual the effect of the clause

Time of notice
Notice need to be given of the exemption clause before or at the time of contracting Olley v Marlborough court Ltd (fur coat) Thornton v Shoe Lane Parking ( car park)

Form of notice
An exemption clause will only be considered reasonable if it is given in a document which a reasonable person would expect to contain contractual terms. Chapelton v Barry (deck chair) Sugar v LMS Railway ( clause hidden by the date stamp

Effect of clause
Highly onerous clauses cant be incorporated by simple notice special steps need to be taken to draw the recipients attention Interphoto picture library (Borrow photos) Obrien ( Daily Mirror scratch game card)

3 incorporation by previous course of dealing

If 2 parties have previously made contracts bt them and the contracts contained exemption clauses that clause may apply to subsequent transactions even if usual steps are not taken Spurling (barrels of orange juice) Hollier( car in garage)

Common law control 2 contra proferntem rule

Once 1 control is fulfilled court will check to see whether clause actually covers the breach that has occurred. In doing so they apply CP RULE This means where the the words used are ambiguous they will be interpreted in the way least favourable to the party relying on them Houghton ( 5 seater car) Middleton ( waste) Special application of CPR FUNDAMENTAL BREACH

STATOTORY CONTROLS 1. UCTA ( 1977)

Basic purpose

to control the use of clauses excluding / limiting liability for breach of contract esp when 1 party is a consumer

Dealing as a consumer
Sec 12 Party is dealing as consumer where they are not making the contract in a course of a business and the other party does act in a course of a business Where both parties are consumers they are not consumers + goods supplied must be of a type commonly supplied 4 pvt use party is itself in a business will not prevent them from dealing as consumer R&B Customs Brokers (shipping company)

LIMITATIONS- UCTA
Does not apply for Contracts concerning land Contracts concerning intellectual property Formation and dissolution of company Contracts of insurance

Ucta controls exemption clauses in 2 ways

1declaring them ineffective 2. making them subject to reasonableness

Main provisions liability for negligence

Death or personal injury Can not be excluded or limited Clauses purporting to do so will be ineffective S 2(1)
some harm short of death or personal injury

Can be limited or excluded where it is reasonable to do so S 2 (2)

Non Performance Sec 3

In a consumer contract, a contract term cannot exclude or restrict liability for non performance or for performance which is substantially different from what was agreed, unless it is reasonable to do so Timeload ltd V British telecommunication plc

Indemnity clauses Sec 4

One party will reimburse the other (indemnify) in the event of any loss arising from the contract. Transfer liability away from the party liable Such clauses in consumer contracts only valid if reasonable

Guarantees of consumer goods Sec 5

Manufactures issue a guarantee of goods as a quick remedy for minor problems this sometimes seeks to exclude liability for matters such as personal injury caused by the product according to UCTA such exemptions in consumer guarantees are ineffective

Implied terms in sale and hire purchase contracts

Sec 6
Legislation such as the sale of goods act implies certain terms into contracts for the sale of goods and hire purchase contracts Exclusion terms of this act are dealt under this section The sec 12 of the sale of goods act 1979 where the seller has the right to sell goods can never be excluded Other terms implied by ss 13 -15 cannot be excluded if one party is dealing as a consumer Neither party dealing as a consumer , the exclusion clause will be subject to the test of reasonableness

Other provisions
Sec 7 : implied terms in miscellaneous contracts
contracts not for sale of goods or hire purchase, same controls as in in sec 6 ; eg: building contracts

Sec 8 : misrepresentation
Contractual terms that seek to exempt a contracting party from liability for misrepresentation are subject to a test of reasonableness

UNFAIR TERMS IN CONSUMER CONTRACTS REGULATIONS IN 1999

Regulations render ineffective certain unfair terms in contracts between suppliers or sellers and consumers [ reg. 4(1)] Regulations can control the use of exemption clauses, but they can also control other clauses in the contract considered unfair

Acting as a supplier / consumer

Seller or supplier defined as any natural or legal person acting for purposes relating to his trade, business or profession, whether publicly or privately owned Consumer is defined as any natural person acting for purposes outside his trade, business or profession Standard bank london ltd V Apostolakis

(foreign exchange contracts)

Unfair terms
Reg. 5 (1) A contractual term which has not been individually negotiated will be considered as unfair, if contrary to the requirement of good faith it causes a significant imbalance in the parties rights and obligations arising under the contact, to the detriment of the consumer.

Comparison between the 1999 regulations and UCTA

UCTA
PARTIES PROTECTED Consumer contracts and some business to business contracts, particularly when on written standard terms A company can be a consumer Exemption clauses, and clauses allowing a business to change the substance of its performance (s.3) Unreasonable and some terms automatically ineffective Party claiming that exemption clause valid has to slow it satisfies requirement of reasonableness where relevant. By the parties

REGULATIONS 1999
Consumer contracts

DEFINITION OF CONSUMER TYPE OF TERM COVERED

Only human beings can be consumer Most terms (except core terms and those individually negotiated ) Unfair Burden on consumer to prove term unfair

TEST APPLIED BURDEN OF PROOF

ENFORCEMENT

By the parties or by the enforcers, such as the Office Fair Trading, which has preventative powers.