Queen Mary Law Journal
Annual Essay Contest: First Year Contract Law
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© 2013 Queen Mary Law Journal
EDITORIAL BOARD
Annual Essay Contest: First Year Contract Law
Editor-in-Chief
Jonathan Minnes
Managing Editors
Jessica Robin Hewlett
Graeme Scotchmer
Editors
Ana Georgina Alba Betancourt
Katelynn Schoop
Hélène Tyrrell
Postgraduate Members
Mark Hannah
Alexander Horne
Smret Mesfin
Marilee Owens-Richards
Carla Teteris
Design & Typography
Jessica Robin Hewlett
Faculty Advisors
Professor Eric Heinze
“It is well known that people hardly ever read printed
conditions on a ticket or delivery note or similar document.
If they did, they would probably not understand them. And
if they did understand and object to any of them, they would
generally be told to take it or leave it.”
To what extent has the law recognised this in determing the
enforceability of terms?
Alicia Livingston
It could be argued that in an increasingly technological, immediate society, terms and
conditions are no longer read by the people they affect. Contracts are regularly signed, tickets
are simply accepted, or a tick-box on a website is clicked, without any consideration for what
is being agreed to. In 2011, the Guardian published an article that found that only 7% of British people read online terms and conditions when signing up for products and services1, with
12% stating they would rather read the phone book.2 There is a common misconception that
the terms are the same in every consumer contract, or that they do not really have any effect
upon the individual. 43% of British people confirm that this problem is also due to the terms
being boring or hard to understand.3 Which?, a consumer body found that banks’ terms and
conditions can be as long as 30,000 words, taking an hour and half to read.4 Can people even
be expected to read these terms? Additionally, the contracts that are commonly signed without reading the details tend to be between large companies and individual consumers. Even
if there was opposition, it could easily be argued that the consumer would just be told to find
the same product elsewhere as individuals may not be significant to large businesses that trade
with thousands of people a day. This could be argued to be demonstrated by check boxes on
product websites, whereby the terms are non-negotiable as there is no dealing with an actual
person. It could be reasoned, though, that the law does recognise this position of consumers,
both in the common law and in statute.
The common law finds that, generally, the signing of a contract indicates that the parties agree to the terms included. Scrutton LJ stated that where a contract is signed, in the
absence of fraud or misrepresentation, the ‘party signing is bound and it is wholly immaterial
whether he has read the document or not.’5 In this way it could be argued, therefore, that the
law has not recognised that many people do not read a contract before signing it. The exception, as provided by Curtis v. Chemical Cleaning and Dyeing Co Ltd6, lies where there is an oral
agreement that overrides the contract that has been signed. While this recognises that some
consumers may question the terms they are signing, it does not recognise that very few read
them in the first place, and even if they were questioned they are unlikely to be provided with
an oral warranty against the company policy. In the case of documents which are unsigned,
and are agreed to by an action (‘the ticket cases’), the conditions to the incorporation of the
terms have increased recognition of the position of the consumer. Firstly, the notice must be
given before the time of contracting. In Olley v Marlborough Court Hotel Ltd7, it was held that
a notice excluding liability for stolen items that was placed on the back of the door in the hotel
1. Rebecca Smithers, ‘Terms and conditions: not reading the small print can mean big problems’ (Guardian,
11 May 2011) <http://www.guardian.co.uk/money/2011/may/11/terms-conditions-small-print-bigproblems>accessed 11th February 2013
2. ibid
3. ibid
4. James Hall, ‘Banks urged to cut ‘jargon’-ridden terms and conditions’ (The Telegraph, 21 November 2012) <http://
www.telegraph.co.uk/finance/personalfinance/consumertips/banking/9691556/Banks-urged-to-cut-jargon-riddenterms-and-conditions.html>accessed 12 February 2013
5. L’Estrange v F. Groucob Ltd [1934] 2 KB 394, [1934] All ER Rep 16 [403] (Scrutton LJ)
• 6. Curtis v Chemical Cleaning and Dyeing Co Ltd [1951] 1 KB 805, [1951] 1 All ER 631
7. Olley v Marlborough Court Hotel Ltd [1949] 1 KB 532, [1949] 1 All ER 127
Queen Mary Law Journal
room was not sufficient as the contract was made in the reception downstairs before the sign
was seen. Secondly, the term must be contained or referred to in the document intended to
have contractual effect, as found in Chapelton v Barry UDC8 where a ticket with an exemption
clause on the back was considered invalid as it was given as a receipt after the subject of the
contract was received. Lastly, reasonable steps must be taken to bring the terms to the attention
of the other party. In Parker v South Eastern Railway9, Mellish LJ found that for conditions to
be binding, the consumer must be aware that there is writing on the ticket, and must believe
that the writing contained conditions, which could be ascertained if the ticket was given in
such a manner that the writing is visible. Again, however, this means that by accepting the
ticket while being aware that conditions exist, the consumer is bound. This still does not recognise the general trend of not reading the terms on a ticket. However customers are protected
from certain terms, ‘where a condition is particularly onerous or unusual the party seeking to
enforce it must show that that condition, or an unusual condition of that particular nature, was
fairly brought to the notice of the other party.’10 Further to this, in Spurling Ltd v Bradshaw, Denning LJ stated, ‘Some clauses which I have seen would need to be printed in red ink on the face of
the document with a red hand pointing to it before the notice could be held to be sufficient.’11 This
protects people from some exceptionally unfair terms without imposing an obligation upon
the consumer to read every word of the contract. However, it could be argued that this protection is already provided in statute, therefore the common law is very limited in its protection
of those who do not read the terms and conditions before signing.
The Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations
1999 protects consumers from certain terms in a contract in order to prevent a company from
taking advantage of a consumer that has not read the terms and conditions. Both pieces of
legislation apply blanket prohibitions upon exclusion clauses against negligence causing death
or personal injury12, or which exclude liability for negligently damaged goods13. Additionally, a
business cannot take away consumers’ legal rights, as they are unable to exclude their liability
for breach of contract14. The provisions are as such as consumers are recognised to have a
weaker position in the law. S12 of the Unfair Contract Terms Act 1977 specifically defined a
consumer as a party making the contract not ‘in the course of a business’15. It can be argued
that the Unfair Terms in Consumer Contracts Regulations 1999 give an even broader range
of protection for consumers, as it does not only apply to exclusion clauses but to all terms of a
contract, as well as covering employment and insurance contracts while the Unfair Contract
Terms Act does not. The Unfair Terms in Consumer Contracts Regulations applies a ‘fairness’
test to all ‘non-individually negotiated’ contracts. This essentially protects people from
agreeing to unfair terms when they check a box on a website’s terms and conditions. ‘Nonindividually negotiated’ contracts are defined in Regulation 5 as contracts, which are drafted in
advance, where the consumer is not able to influence the content16, and additionally there are
requirements that the contract must be written in ‘plain, intelligible language’.17 This provision
addresses the above issue that if a person were to read the terms of a contract, they ‘would not
understand them’. However, there is no limit upon the length of contracts, or consideration
towards how long they may take to read. The Unfair Terms in Consumer Contracts Regulations
recognises that there is a significant imbalance between a large company and an individual
8. Chapelton v Barry Urban District Council [1940] 1 KB 532, [1940] 1 All ER 356
9. Parker v South Eastern Railway [1877] 2 CPD 416 (CA)
• 10. Interfoto Picture Library Ltd. v Stiletto Visual Programmes Ltd.[1987] EWCA Civ J1112-6,
• [1989] QB 433 [436](Dillon LJ)
11. Spurling Ltd v Bradshaw [1956] 1 WLR 461 (CA) 466
12. Unfair Contract Terms Act 1977, s 2.
13. ibid
14. ibid s 3.
15. ibid s 12.
16. Unfair Terms in Consumer Contracts Regulations 1999, Reg 5(1).
17. ibid Reg 7(1).
Annual Essay Contest: First Year Contract Law
consumer, and strives to protect the consumer. Schedule 2 also outlines examples of certain
terms that could be proven to be unfair, such as terms which enable the seller to alter the
terms of the contract unilaterally without valid reason or oblige the consumer to fulfil all their
obligations even though the seller himself fails to do so.18
Therefore, it can be deduced that to an extent, the law has recognised that it is common for
people not to read what they agree to, especially with statute law protecting consumers from
unfair terms. However, it could be argued there is a need to develop the law further to recognise
modern online transactions where currently there is no option to immediately refute the terms,
as the only option is to tick a box or not, and the need to make the terms shorter and more
understandable before the consumers are expected to read or understand them. It could be
argued that the current law cannot be protecting consumers completely as 21% of people say
they have suffered as a result of agreeing to terms without reading them.19 However, to what
extent should people who do not read the terms and conditions be protected? Should people’s
complacency be recognised in the law, or should consumers be expected to fully understand
what they are agreeing to when signing a contract? Following this argument, the law has done
all that is necessary to protect consumers and it is now up to the consumers themselves to take
responsibility for their own protection.
18. Ibid Sched 2.
19. Smithers (n 1)
Charlotte Seymour
The law of contract is the invisible environment in which consumer and business transactions
take place. In England and Wales the law is to be found on the statute books as well as amongst
the ratios of a wealth of cases. Laws are designed with a purpose in mind, but this is not to
say that the purpose is always consistent across laws or that the design is necessarily fit to
achieve that purpose. One area where the law is put to the test is the scenario of a business or
consumer being presented with contract terms which they have little opportunity to negotiate.
As the above quotation indicates, this party may either be ignorant in relation to the terms of
the transaction, or impotent, or both. The problem for the judge or the legislator, then, is to
determine which principles should govern regulation, and what form of regulation would be
most effective, in cases where one’s ‘freedom to contract’ is formal at best.
The law can affect the life of a contract term in three distinct ways. First, it allows for the
determination that a ‘term’ or clause is not actually a term of the contract at all. That is to say,
that it has not been successfully incorporated into the contract. Second, it establishes how a
term is to be interpreted. Third, it allows a term to be modified or struck down, most notably
on the authority of legislation. The Unfair Contract Terms Act 1977 (UCTA) and the Unfair
Terms in Consumer Contracts Regulations 1999 (UTCCR) whose provisions are used for this
purpose have been described as ‘probably the two single most significant pieces of legislation
in the field of contract law in the UK’1. While the common law and statutory rules which
fall into these categories have largely sought to protect the recipient of the ‘standard form’
contract, there are both competing rationales behind the rules and serious impediments to
their effectiveness.
As a general rule, when a party to a contract signs a document in which clauses are contained,
the clauses become terms of the contract.2 Contracts are increasingly made online, requiring
the provision of an electronic signature. Often this will simply require that a party ticks a box
to agree to terms which may themselves be out of sight. As a result there is a greater risk of
power imbalance, with one party potentially being unaware of the terms of the contract set out
by the other and being in an even weaker position to challenge any terms. In McCutcheon v
1. Elizabeth Macdonald, ‘Unifying Unfair Terms Legislation’ (2004) 67 MLR 69, 69
2. L’Estrange v F Graucob Ltd [1934] 2 KB 394
Queen Mary Law Journal
David MacBrayne Ltd3 Lord Devlin states that the signature ‘is in truth about as significant as a
handshake that marks the formal conclusion of a bargain.’4 In other words, it is little more than
a formality, which may at best provide an incentive to the individual to become acquainted
with the terms within and at worst bind them to terms to which they would not knowingly
have agreed.
In order to become contractually binding, clauses must also be presented to the offeree in a
certain way. One requirement is that the offeree be given ‘reasonably sufficient’5 notice of the
proposed term. The test given in Parker is that knowledge of writing on a document (in this
case a ticket) where it is presented in a way that makes the writing apparent, is enough to
bind the party to the conditions. Logically, where the party knows or believes that the writing
contains conditions they are also bound. The party is only exempted from the conditions where
they do not ‘see or know’ of the writing.6
There are some additional rules which increase the likelihood that the offeree will appreciate
the significance of certain, important contractual terms. These include the stipulation that
where a condition is ‘particularly onerous or unusual’7 the threshold for what constitutes
‘sufficient notice’ is higher. In addition, in Harling v Eddy8 it was determined that an offeror
may only exempt themselves from liability, in this case liability imposed by the common law,
through ‘an express stipulation brought home to the party affected’9.
The rules governing the interpretation of contracts by the judiciary also appear to take into
account one party’s potential lack of awareness of the contract terms. The rules go further
than this however, arguably recognising that this party may have been unable to influence
the terms of the contract in any case. In those situations where a party excludes or limits their
contractual liability, through an exclusion clause for example, there are several rules which
appear to support the best interests of the party who would otherwise assume this risk. There
is common law authority for the fact that liability implied through consumer legislation, such
as the Supply of Goods and Services Act 1982 (SGSA), cannot be excluded unless that liability
is explicitly identified by way of terminology identical to that in the statute.10 In theory this
makes it harder for a party to deviate from those standards which Parliament has deemed
should, as a general rule, be implied into all contracts (such as fitness for purpose11 in the case
of a good sold).
3. [1964] 1 WLR 125, quoted in Macdonald, ‘The Emperor’s Old Clauses: Unincorporated Clauses,
Misleading Terms and the Unfair Terms in Consumer Contracts Regulations’ (1999) CLJ 413, 421
4. Ibid. (McCutcheon) (HL) 133
5. Parker v South Eastern Railway (1877) 2 CPD 416 (AC) 424
6. Ibid. (AC) 423
7. Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433 (QB) 439
8. [1951] 2 KB 739, [1951] 2 All ER 212
9. Ibid. (KB) 748
10. Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31
11. Sale of Goods Act 1979 (SOGA), s 14 (2B) (a)
Annual Essay Contest: First Year Contract Law
Arguably however, if the party seeking to restrict their liability is relatively sophisticated
they should be able to word their exclusion clause accurately. The only possible benefit to the
consumer of this rule at the contracting stage is if the reference to terms contained in statute
held more meaning than other terminology, thus encouraging them to negotiate or not to
contract at all. The more likely, contrary scenario, is that the exclusion of liability in layman’s
terms or terms specific to that transaction (refusing to guarantee a particular outcome in the
case of a service, for example) would resonate far more with the consumer.
The rule of contra proferentum means that where there is uncertainty as to the meaning of an
exclusion clause, it will be interpreted in a way that disfavours the party seeking to impose
it. In Morley v United Friendly Insurance plc12, for example, there was doubt as to whether a
man who died after engaging in ‘horseplay’ with his fiancée, who was at the wheel of a car,
had wilfully exposed himself to ‘needless peril’. The case was resolved against the insurance
company. Relatedly, the law imagines that a party to a contract would not agree that the other
party be absolved of responsibility in the event of their negligence.13 The effect of this is that, in
the absence of an ‘express reference to negligence’, an exclusion clause may only be construed
as excluding negligence where it is both wide enough to cover negligence and where there is
no other ‘possible liability’ to which it could be referring.14
Legislation has huge implications for contracts where the parties may not have contracted on
equal footing. The UCTA and UTCCR acknowledge that the consumer dealing as a consumer
is likely to be less sophisticated and thus less able to contract on equal footing than the business
transacting with another business. UCTA (in regulating exclusion clauses) is more proscriptive
with regards to the exclusion of liability from consumer contracts than it is with regards to the
exclusion of liability from business contracts. For example, under Section 20 (2), liability for
breaches of the terms implied under Section 14 of the Sale of Goods Act can never be voided in
consumer contracts, but between businesses liability may be excluded subject to the exclusion
clause’s fairness and reasonableness. The UTCCR go further in recognising the particular need
to protect consumers who are party to non-negotiated contracts, with the regulations as a
whole applying only to business to consumer transactions.
There is some support for the view that, rather than merely aiming to level the playing field,
the law in this area has grand ambitions. Hugh Collins contends that the UTCCR, for example,
in requiring that a contract term be in ‘good faith’15, encourage a ‘social market policy’ in
which businesses take their customers’ interests into account.16 Further, he makes reference
to UCTA’s blanket prohibition on exclusion or restriction of liability for death or personal
12. [1993] 3 All ER 47
13. Canada Steamship Lines LD v The King [1952] AC 192
14. Ibid. (AC) 208
15. UTCCR, s 5 (1)
16. ‘Good Faith in European Contract Law’ (1994) 14 Oxford Journal of Legal Studies 229, 251
5
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injury resulting from negligence17, and suggests this is a pronouncement on how risk should
be distributed in our society.
Indeed, the fact that UCTA applies to both negotiated and non-negotiated contacts supports
this point, because even where an individual (whether acting as a business or consumer) wishes
to assume this risk they are prevented from doing so. Yet to allow this would not threaten the
claimed ‘primary role’ of the statute, ‘which is to protect consumers against unfair surprise’18.
Admittedly, in applying the ‘reasonableness test’ of the Act to exclusion clauses, there is some
acknowledgement of the fact that individuals are capable of making arrangements for the
spread of risk. This might be evidenced by the receipt of an ‘inducement’ to relieve the other
party of some liability, or the existence of an opportunity to contract with someone else.19
The introduction of legislation has not particularly aided the debate as to whether a party
may exclude their liability for a ‘fundamental breach’ of the contract. This was debated in
judgements over the last century, and the conclusion reached that it may20. Under UTCCR
this was seemingly clarified, as the test of whether a term is ‘fair’ only applies to non-core
terms. However, there may be some discretion when determining what constitutes a ‘non-core
term’, and the Consumers’ Association have admitted that any significant limit on a party’s
obligations is capable of being judged unfair.21
The law to date has in some ways sought to ensure that the ‘recipients’ of contracts are at least
aware that their transaction is subject to terms. In other ways it has inferred the weaker party’s
best interests at the dispute stage in the face of their inability to protect their own best interests
at the contracting stage. Arguably this is unsatisfactory as contract terms will, in any case, only
be enforced or overthrown should a party take action. The party that is ignorant of their rights
and lacking confidence is less likely to do so. There is evidence, however, that the law is moving
in the right direction. While several bodies are now authorised to act (proactively) on behalf
of consumers22 there also is legislative change on the horizon which may just make it easier for
consumers to know of and assert their own rights.23
17. UCTA, s 2 (1)
18. Law Commission and Scottish Law Commission, Unfair Terms in Consumer Contracts: a new approach?
(Issues Paper, 2012) para 3.4
19. UCTA, sch 2 (b)
20. Photo Productions v Securicor [1980] AC 827
21. Which?, ‘Consultation Response: Enhancing Consumer Confidence By Clarifying Consumer Law:
Consultation on the supply of goods, services and digital content’ (5 October 2012) 24
22. UTCCR, sch 1
23. Department for Business, Innovation and Skills, Enhancing Consumer Confidence by Clarifying Consumer Law:
Consultation on the Supply of Goods, Services and Digital Content (Consultation Paper, URN 12/937, 2012)
Hristina Petkova
As the law of contract develops, it becomes more complicated and intricate. Large companies
with detailed contracting requirements tend to dictate the way in which contract law evolves.
An issue that immediately emerges is if common law and statute only accommodate the
needs of parties with great bargaining powers, are consumers protected at all? Moreover,
when ticking the ‘I accept the terms and conditions’ box, whose rules apply – the rules of
common law or the rules of large companies? If we divide the consumers into three separate
categories - those who do not read the small print, those who read but do not understand
them, and those who understand them but is in no position to object to them, it is obvious
that whatever category of consumer, one adjective is always applicable: powerless. This essay
will explore the ways in which the law protects the average consumer. Firstly, the ways in
which the common law provides protection will be discussed. The discussion will focus on
cases concerning consumer rights and how (if at all) they are protected. The second means
of protection explored will be statutes and EU regulations, in particular the Unfair Contract
Terms Act 1997 (hereinafter UCTA 1977) and the Unfair Terms in Consumer Contracts
Regulations 1999 ( hereinafter UTCCR 1999). The main focus will be on the way they have
accommodated consumers’ needs.
The first rule of common law that will be explored is the incorporation of terms and exclusion clauses in the contract. The general rule comes from the case of L’Estrange v F Graucob
Ltd 1 and it states that if a contractual document is signed, then the person signing it is bound
by the terms. It has been argued that L’Estrange has been wrongly decided and that there
should have been some sort of protection for the consumer on the basis that she simply did
not agree to that particular term.2 In Maughan LJ’s view: ‘It is unfortunate that the important
clause excluding conditions and warranties is in such small print.’3
It is common practice for the terms to be in small print, on the bottom or on the back of the
page. This is one of the reasons why consumers do not take them into account. Moreover, it
almost seems as if these terms are not there to inform consumers of their rights and obligations, but rather to keep the companies’ conscious calm that they have duly done their job.
On the other hand, small print terms leave the impression that companies are trying to hide
the terms, rather than draw the consumers’ attention to them. As J.R Spencer argues, Mrs.
L’Estrange might have refused to sign if the terms had been printed clearly where they could
1. 2 KB 394, [1934] All ER Rep 16
2. JR Spencer , ‘Signature, Consent, and the Rule in L’Estrange v.Graucob’ [1973]The Cambridge Law Journal 32
3. L’Estrange (n 1) 407.
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be seen. 4
The ‘incorporation by notice’ rule which may prove to be more consumer-friendly will be
explored in the following paragraph. In Parker v South Eastern Railway Co 5, the principles
of giving reasonable notice were discussed. The rule that concerns the purpose of this essay
is the one which states that a person may be bound by an exemption clause in a standard
form document, even though subjectively ignorant of its content, if the party seeking to rely
on the clause has done what was reasonably sufficient in the circumstances to bring it to the
other party’s notice.6 This rule was further developed by the then Denning LJ in Spurling v
Bradshaw in which he said ‘some clauses would need to be printed in red ink with a red hand
pointing to it before the notice could be held to be sufficient.’ 7 The ‘red hand’ rule can be
regarded, as E. Macdonald puts it as ‘a logical development of the common law’, mirroring
the reactive nature of the common law system. She also argues the point that the result from
Parker and the ‘red hand’ rule is an attempt to maintain a fair balance between the parties of
the contract.8
The following paragraph concerns the common law rules of construction. These principles
were the response of the Courts to overcome the difference between the strength of the bargaining powers of the parties. It was often the case that terms imposed on consumers were
unfair.9 In Alison Ltd v Wallsend Shipway and Engineering Co Ltd 10 , Scrutton LJ stated that
‘if a person is under a legal liability and wishes to get rid of it, he can only do so by using
clear words.’ Therefore, an exemption clause must exactly cover the liability, which it sought
to exclude.11 This rule is quite straightforward and fair. However, it is more often than never
that contract terms are not. The ‘contra proferentem’ rule comes into play whenever there
is ambiguity within the contract. The rule operates against the party relying on the ambiguous term and in favor of the other party. The final rule of construction is when contracting
parties are excluding their liability for negligence (now largely covered by UCTA 1977). The
traditional approach of Courts towards such exclusions was to assume that it is ‘inherently
improbable’ that the innocent party would consent to such terms.12 It is somewhat comforting to know that if a term was grossly unfair, the Courts would take matters into their hands.
However, this does not fully satisfy the customers’ right to fairness.
Based on the facts and opinions presented thus far, it is apparent that the Courts, try as they
might, is unable to provide satisfactory protection for the consumers’ needs. Common law is
4. L’Estrange (n 1) 2.
5. [1877] 2 CPD 416 (CA)
6. J Beatson, A Burrows, J Cartwright, Anson’s Law of Contract (29th edn, Oxford University Press 2010) 163, 185
7. [1956] 1 WLR 461 (CA) 466
8. Elizabeth Macdonald, ‘The duty to give notice of unusual contract terms’ [1988] Journal of Business Law 375
9. Anson’s Law of Contract (n 6)
10. [1927] 27 Ll L Rep 285 (CA)
11. Anson’s Law of Contract (n 6)
12. Gillespie Bros. & Co. Ltd v Roy Bowles Transport Ltd [1972] EWCA Civ J1024-1, [1973] QB 400 [419] (Buckley LJ)
Annual Essay Contest: First Year Contract Law
simply not a tool powerful enough to protect consumers. In Photo Production Ltd v Securior
Transport Ltd 13 the House of Lords confirmed that it was not within their power to strike
down unfair terms in contracts.
The main purpose of UCTA 1977 was to limit, and, in some cases, to take away entirely, the
right to rely on exemption clauses in certain situations.14 The Act renders the restriction or
exclusion of liability absolutely ineffective, or renders it effective only if the term satisfies
the requirement of ‘reasonableness’. It could be said that UCTA 1977 finally gave the Courts
enough power to protect consumers through the new test for determining the enforceability
of contract terms, the ‘reasonableness’ test. The question that needs to be decided by the
Courts, when applying the reasonableness test is whether the term was reasonable at the time
of entering the contract not at the time when liability arises. The ‘reasonableness test’, therefore, is not affected by the loss that is sustained.15 In Smith v Eric S Bush 16, it was said that ‘it
is impossible to draw up an exhaustive list of factors to be taken into account’ when applying
the ‘reasonableness’ test. Schedule 2 of UCTA 1977 provides some factors that should be taken into account. However, these are by no means ‘exhaustive’ as the Courts have the freedom
to take into account other relevant circumstances as well.
When applying the guidelines set out in Schedule 2, one of the factors that the courts must
take into account is the bargaining power of the parties. From the point of view of the consumer, who does not read nor understand the terms and conditions he is agreeing to, this
would be a most welcome improvement of the law. It is likely that the Courts will recognise
the consumer’s weak position and thus, protect him from unreasonable terms. Another factor that is even more relevant for the purpose of this essay is the requirement for clarity of the
terms. Businesses must take the consequences of the unfairness , which their ‘small print’ has
created..17 It can be inferred that if L’Estrange were to be decided today, the term would have
been likely to be held unreasonable, augmenting the important development in the protection of consumers.
Lastly, the UTCCR 1999 will be explored especially its means of operation and the ways in
which it has enhanced consumer protection. The UTCCR 1999 operates only in consumer
contracts which itself is the first step to greater protection, moreover the Regulations are
solely applicable for terms that were not ‘individually negotiated’.18 This means that the main
scope of operation of the UTCCR 1999 is standard form contracts, which involves one party
being a consumer (or, as defined in reg. 3 – a ‘natural person’).19 Where UTCCR 1999 applies,
the term is not automatically invalidated; instead a test of ‘fairness’ is applied. Reg. 5 states
• 13. [1980] AC 827 (HL)
14. Anson’s Law of Contract (n 6)
15. ibid
16. [1990] 1 AC 831 (HL) [1972] EWCA Civ J1024-1
• 17. George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] QB 284 [314] (Kerr LJ)
18. Unfair Terms in Consumer Contracts Regulations 1999, Reg 5(1).
19. ibid, Reg 3.
Queen Mary Law Journal
that a term will be unfair when ‘contrary to the requirements of good faith, it causes a significant imbalance in the party’s rights and obligations arising under the contract, to the detriment of the consumer’. Reg. 6 provides guidelines as to determining whether a term is unfair:
‘…by referring, at the time of conclusion of the contract, to all the circumstances attending
the conclusion of the contract and to the other terms of the contract’. What is obvious by
UTCCR 1999 is the constant reference to fairness for consumers and the protection of their
rights. Even the name of the regulations suggests that they operate specifically to uphold consumers’ needs.
While UCTA 1977 and the UTCCR 1999 overlap on different points, S. Bright suggests that
the 1999 Regulations will prove to be more effective than the 1977 Act. In her view: Private
law enforcement does not provide an effective way of regulating the standard inclusion of
unfair terms in adhesion contracts: it is true that success in an individual action will mean
that the term is not binding upon that consumer, but its impact beyond that consumer will
be limited, and there is no significant pressure on the business to discontinue future use of
that term.20
The conclusion is that, while there still might be missing gaps within the context of consumer
protection, there are prospects for filling them. UCTA 1977 and the UTCCR 1999 have been
proved to be effective in upholding consumers’ needs that were previously unprotected in
common law especially through the ‘reasonableness’ and ‘fairness’ tests. S. Bright’s conclusion, with which I agree, is that there is still an uneasy relationship between UCTA 1977 and
the UTCCR 1999; ‘Although the two regimes are overlapping they operate differently, thus
generating complexity for both businesses and consumers seeking to clarify their positions’.21
The obvious need to draw up comprehensive legislation, which reconciles UCTA 1977 and
the UTCCR 1999 must be addressed. However, it cannot be denied that contract law has significantly improved in terms of protecting consumers because of UCTA 1977 and the UTCCR 1999.The law of contract is the invisible environment in which consumer and business
transactions take place. In England and Wales the law is to be found on the statute books as
well as amongst the ratios of a wealth of cases. Laws are designed with a purpose in mind, but
this is not to say that the purpose is always consistent across laws or that the design is necessarily fit to achieve that purpose. One area where the law is put to the test is the scenario of a
business or consumer being presented with contract terms which they have little opportunity
to negotiate. As the above quotation indicates, this party may either be ignorant in relation to
the terms of the transaction, or impotent, or both. The problem for the judge or the legislator,
then, is to determine which principles should govern regulation, and what form of regulation
would be most effective, in cases where one’s ‘freedom to contract’ is formal at best.
20. Susan Bright, ‘Winning the battle against unfair contract terms’ [2000] Legal Studies Vol 20 No 3, 331
21. ibid
Iulia Davidescu
Terms and conditions control most of our day to day transactions, no matter how trivial.
However, little importance is given to the choice of enforcing these terms into the contract.
Transactions seem to be executed more on the expectation of what the terms should entail
rather than careful consideration. Our modern transactions seem to be based on trust
between strangers but also on the assumption that if the conditions are not fair, certain
sanctions are going to be imposed.1 When a ticket, a delivery note or any other similar
document containing printed terms is received by a consumer, most of the times he chooses
to ignore it, either because he does not understand them or because he knows that he only
has the option to take it or leave it. This essay will evaluate whether the courts offer sufficient
protection to the intentions and expectations of the parties in the cases in which standard
terms are meant to be incorporated into the contract.
The party when deciding to accept the conditions is not in a position to compare those
terms with any others and there is also the presumption, that even if they would, the terms
would be just as bad since no company wants to lose profits by offering more rights to the
consumer.2 There is also serious imbalance in the parties’ rights and obligations. There is also
a certain lack of comprehension regarding the standard terms and “a strong social pressure
not to make a fuss.”3
David Slawson argues that since the standard terms are imposed rather than agreed upon,
they are mostly universally unfair.4The British courts have not taken this approach. This has
been assessed especially in the context of exemption clauses: which seek either to exclude
or limit liability on the person providing the terms. The court looks at whether the terms
have been incorporated into the contract, whether the exemption clause covers that specific
situation and whether any of the statutory legislation dealing with exemption clauses applies:
notably The Unfair Terms in Consumer Contracts Regulations 1999 and Unfair Contract
Terms Act 1977.
Firstly, the courts seek to decide whether the terms have been incorporated into the contract.
Incorporation can either take place by signature, by notice or by course of dealing.
The rule related to incorporation by signature is that the person signing a contract is bound
by its terms, as illustrated in L’Estrange v F Graucob 5. It is irrelevant if the conditions have
been read.
1. Hugh Collins, Regulating Contracts (2002)
2. W. David Slawson, ‘Standard Form Contracts and the Democratic Control of Lawmaking Power (1971) 84
Harvard lR 529
3. Mindi Chen-Wishart, Contract Law (3rd edn, OUP 2010)
4. W. David Slawson, ‘Standard Form Contracts and the Democratic Control of Lawmaking Power’ (1971) 84
Harvard lR 529
5. [1934] 2 KB 394
Queen Mary Law Journal
The first step is to ascertain whether the conditions are contained in a document in which
either the party receiving it knows, or in which a reasonable man would expect to find
contractual conditions. Consequently, there have been instances in which the courts have
decided that certain documents were not incorporated into the contract. Lord Justice-Clerk
in Taylor v Glasgow Corporation6sought to drew a distinction between tickets related to
carriage or deposit, where the public expects to find conditions and other type of tickets
where there is no such assumption. This view is clearly expected to protect consumers from
situations in which they had no genuine belief that they agreed with the terms of a contract.
Then, the courts will determine whether the conditions have been brought to the notice of
the party to before or at the time when the contract is made7.This also seeks to prevent a
party in a contract from being bound by terms that he had no notice of.
Last but not least, the party tendering the document has to convince the court that he did all
that was reasonably sufficient to give the other notice of the conditions. This is particularly
relevant in the case in which the term is onerous or unusual. In the case of J Spurling Ltd v
Bradshaw8, Lord Denning stated that some particular clauses would need to be printed in red
ink on the face of the document with a red hand pointing to it before the notice could be held
to be sufficient.” Not only does this provision prevent a party from “hiding” certain terms of
the contract, but it also tries to remedy situations in which the terms are “not as expected”.
However, the test for deciding whether a term has been incorporated into the contract
by notice focuses on the party being given the opportunity to read the terms, but not on
whether the terms have actually been read. There is also no mention about clarity or the
length of the document. The focus is always on whether the party who imposes the terms has
taken reasonable steps to bring the conditions to the attention of the party instead of whether
the weaker party actually has the chance to read them. Standard terms seem to be created for
a standard consumer. It does not matter whether the person is illiterate9 or blind. However,
the case of Richardson, Spence & Co v Minnie Rowntree10 took into consideration the fact
that the consumer cannot read because the other party knew that. Lord Ashbourne also
considered the fact that “The ticket in question in this case was for a steerage passenger—a
class of people of the humblest description, many of whom have little education and some of
them none”, proving that the characteristics of the parties entering into the contract are taken
into account, especially when his characteristics match those of a “standard consumer”.
The question that needs to be asked is why does not the court take into account that the
standard consumer does not actually read those terms and conditions? There seems to be
a tension between the judiciary which affirms that it is wholly immaterial that the party
has not read the agreement and does not know its contents and what happens in real life
transactions.11Judge Mellish continues by stating: “I think they are entitled to assume that
he can read [...]and that he pays such attention to what he is about as may be reasonably
expected from a person in such a transaction .The railway company must, however, take
mankind as they find them, [...] I think that a particular plaintiff ought not to be in a
better position than other persons on account of his exceptional ignorance or stupidity or
carelessness. “
6. [1952] S.C. 440
7. Olley v Marlborough Court Ltd[1949] 1 KB 532
8. [1956] EWCA Civ 3
9. Thompson v London, Midland and Scottish Railway Company[1930] 1 KB 41
10. (1894) AC 217
11. Parker v The South Eastern Railway Company [1877] 2 CPD 416 (MELLISH L.J.)
Annual Essay Contest: First Year Contract Law
The problem with Mellish L.J.’s view is that he seems to assume that people who ignore the
conditions represent a minority while this is clearly not the case. If the party imposing the
terms would to take “mankind as it finds it” they would probably have to read the terms
to the other party themselves since evidence shows that only 7% of adults always read
full online terms and conditions when signing up for products and services.12Even worse
results were found by a company conducting experiments with as little as 0 out of 7500
customers reading the terms and conditions.13Even though these conditions relate to online
transactions, one can also argue that is also the case for situations in which a notice is given
personally, especially since one more is likely to be under the pressure of making a decision
quickly in those situations.
Finally, terms can be incorporated by course of dealing between two commercial parties,
irrespective of whether the terms have been incorporated into the contract on this particular
time as long as they ought to have known what the terms were due to previous deals between
the party.
Better protection given by the courts when dealing with an exemption clause is the
contra proferentem rule which states that an ambiguous term will be construed against the
party that imposed its inclusion in the contract. Courts tend to rely on it even when the words
are clear enough particularly in the standard form cases where is such an unequal bargaining
power. An illustrative case is John Lee & Son v Railway Executive14in which the words: “but for
the tenancy hereby created” were confined to the relationship between tenant and landlord.
Probably the most powerful tools that the courts can use when dealing with standard forms are
the UCTA 1977 and the UTCCR 1999.
UCTA deals with avoidance of liability for negligence and breach of contract.
At the core of the act is Section 3. It forbids the party imposing the terms from excluding
liability in respect of breach of contract , no performance at all or performance substantially
different from what has been expected from him as long as it is reasonable to expect that
from him. This prevents parties from taking advantage of consumers who do not read
the conditions at all and is one of the few ways in which the courts look at what has been
expected from the transactions rather than the terms themselves.
It appears that UCTA has adopted a test of reasonableness rather than a reliance test as a
measure to limit the powers of the judges under the Act15. There is some guidance for the courts
in assessing reasonableness in Schedule 2. Factors which weigh against the reasonableness or
the terms are: the strength of the bargaining positions of the parties(courts are more willing
to agree with that in consumer transactions rather than commercial ones) and whether the
goods were manufactured, processed or adapted to the special order of the customer. On the
other hand, factors which weigh in favour of reasonableness 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 having a similar term, whether the customer knew
or ought reasonably to have known of the existence and the extent of the term and whether it
was reasonable at the time of the contract to expect that compliance with that condition would
be practicable. Even so, the last one introduces a very good method of assessing whether the
12.
http://www2.skandia.co.uk/Media-Centre/2011-press-releases/May-2011/SKANDIA-TAKES-THETERMINAL-OUT-OF-TERMS-AND-CONDITIONS/
13. http://www.out-law.com/page-10929
14. (1949) 2 ALL ER 581 CA. 8
15. John N. Adams and Roger Brownsword, Key Issues in Contract Law (1995, Buttersworth)
Queen Mary Law Journal
term imposed on the party has been imposed by reason of necessity and usually prevents an
onerous term from coming into force.
Interestingly, UCTA has a black list with terms that are unconscionable: such as excluding or
restricting liability for death or personal injury caused by negligence.16This is a powerful tool
against introducing unreasonable terms into standard contract but some would argue that this
approach totally undermines the freedom of contract.
UTCCR 1999 has a similar function. Its scope is to apply a fairness test to all nonindividually negotiated, non-core terms in all contracts between consumer and sellers or
suppliers. According to Section 5 a term is unfair “if contrary to the requirement of good
faith, it causes a significant imbalance in the parties’ rights and obligations arising under
the contract, to the detriment of the consumer”. The pattern of determining what good faith
means is similar to the reasonableness guidelines under UCTA. Schedule 2 contains a list of
terms that can be regarded as unfair. An example of these would be excluding or hindering
the consumer’s right to take legal action or requiring any consumer who fails to fulfil his
obligation to pay a disproportionately high sum in compensation.
Those two statutes seem to give more importance to the fact that consumers do not read
Terms and Conditions when entering into a contract than the common law does. They seek
to find the right balance between what both parties intend when entering into the contract
and what is written into the contract itself.
It has been argued that as long as some consumers read terms and conditions, firms will
adapt their terms and conditions to attract such consumers, and that would benefit all
consumers. 17 Whether attracting that minority weighs more than excluding as many
liabilities as possible is arguable but surely it is safer for the consumers to rely on legal
control imposed by the courts rather than the assumption that the firms will play by certain
rules. Unfortunately, rarely do consumers decide to exercise their rights in court and it may
seem that a more efficient approach needs to be taken in order to ensure that the rights and
intentions of the consumers are protected. It remains to be seen whether the Consumer
Rights Bill will manage to fill this gap.
16. UCTA 1977, s 2(1)
17. A. Schwartz & L.L. Wilde, “Intervening in Markets on the basis of Imperfect Information: A Legal and
Economics Analysis” (1979) 127 Univ Pennsylvania LR 630
Kirsty Day
It could be said that people do not read terms and conditions on tickets and delivery notes.
They can be confusing and complicated and if someone did try to read, they could be nonnegotiable. This seems inherently unfair and the law has attempted, through the common
law, statute and other methods to protect vulnerable parties. In particular, consumers, as
these dealings tend to involve delivery notes and tickets as it usually involves buying or
purchasing something. Every kind of contract will have a term or condition in one form
or another, Condition being the most important as they go “To the Root” of the contract
and a breach of these will result in the entire contract collapsing as it is fundamental to its
functioning.
There are many mechanisms in deciding if a condition is enforceable or not. Most of the
time, it will be enforceable if none of the exceptions from statute or common law applies
or if a condition could be rebutted. So, in some cases, a party may refuse outside evidence
that could potentially rebut the contract (Parole Evidence Rule). The Common Law also
developed exceptions to this rule to protect weaker parties from being restrained to one
document. Outside evidence can be submitted if what the parties negotiated is not in the
contract or if they were misled into agreeing to the contract.
One of the most common terms in a contract, especially those involving consumers, are
exclusion clauses. These limit another party’s liability and are also, typically, the most
complex and potentially hidden and are therefore, easily overlooked by consumers. Exclusion
(or limitation) clauses can be found in Common Law and Statute. In Common Law, you
must prove 3 things; first, that the clause has been incorporated into the contract, second,
that it covers or refers to the damage or loss concerned. It is then determined if the clause is
reasonable.
The incorporation of a clause is very similar to the incorporation of a term. In relation to
tickets, the clause should be drawn to the attention of the consumer openly. In the case of
Thornton v Shoe Lane Parking1 Lord Denning confirmed that if attention is not drawn to
the conditions then it will not be valid. In this case, once the claimant had the ticket, the
conditions it referred to were inside the car park and there was no way to read them before
getting the ticket; “he was committed at the very moment when he put his money into the
machine.2” so here, there was no attention drawn to the conditions as they weren’t even
present. You had to enter into the contract before you saw them! Not only did the courts
recognise that people don’t read the conditions but they affirmed that they must be clear.
Not only must the conditions on a ticket be apparent, they must also be expected to be on
1. [1971]2 Q.B.163
2. P169,¶C-D
Queen Mary Law Journal
the ticket. In Chapelton v Barry3 the claimant was successful from a claim upon injury from
a deck chair. The terms and conditions were not read as the claimant assumed the ticket to
merely be a receipt and did not think conditions would be found on it. Slesser LJ found the
ticket to be “No more than a receipt4” and only provided proof of an obligation to pay, not an
acceptance of the terms as they were not noticeably printed. Conditions on tickets must be
expected to be there and attention should be drawn to them clearly.
Delivery Notes are documents that arrive upon the delivery of goods and they offer a
description and assurance as to quality of the goods. They are usually in operation after a
contract is underway. The recipient may, sometimes, be asked to sign the delivery note to
indicate that they accept the goods. If a person signs something that contains terms, these
are then incorporated and binding automatically. Even if a person is unaware or doesn’t
understand the terms, by signing it, they accept them unconditionally from thereon in. A
company could potentially put in an exclusion clause in relation to the quality of the goods
and if a person doesn’t notice this clause, they could be left with unsatisfactory goods.
The law has, however recognised that companies may take advantage of this and try to hide
the clauses in the small print in the hope the consumer will, and in most cases invariably
does, overlook them. So, there are exceptions to incorporation by signature. If a person
signs under a misrepresentation then the clause may be declared ineffective. This occurred
in Curtis v Chemical Cleaning5, the claimant asked for clarification of a clause to which
the shop assistant assured that the limitation clause only applied in relation to damage of
beads and sequins. When a stain was found on the claimants dress, the court found that
although the limitation clause actually referred to “Any damage howsoever caused”, due to
the misrepresentation of the assistant, the clause was then only limited to beads and sequins
as she had stated regardless of what was written and signed as these were the only terms the
claimant was agreeing to.
So law has provided flexibility in Common Law for consumers who don’t read or understand
every condition fully in order to provide an equal footing between themselves and
companies. Although the exceptions are limited, the common law’s rationale for this may be
to avoid a floodgates or policy issue.
The Common Law also states that the damage must be covered by the exclusion clause; this
should be found in the document itself unless a misrepresentation occurred like in Curtis.
Finally, the clause must be reasonable. In general, courts are reluctant to impose obligations
upon a contract as people should be able to freely negotiate their own terms, but terms can
sometimes be dictated to consumers as they have such a disparity in bargaining powers. It
has been suggested by Lord Denning that “an exemption clause would not be given effect if it
was unreasonable6”. The Common Law has not adopted this view formally. However, to avoid
the exploitation of the average consumer from the overbearing pressure to sign or agree to a
contract that has not been freely negotiated, Statute has developed many controls on the use
of exclusion clauses, most notably in the Unfair Contract Terms Act 1977 (UCTA) and the
Unfair Terms in Consumer Contracts Regulations 1999 (1999 Regulations).
The UCTA 1977 mainly applies to business transactions. Section 1.(3)(a) defines this as
3. [1940]1 All ER,356
4. P360,¶C
5. [1951],1KB,805
6. [1949]2 All ER,581
Annual Essay Contest: First Year Contract Law
“things done or to be done by a person in the course of a business.” The act also provides that
a party can put in the contract in the form of an exclusion clause or anything that excludes
liability for “loss of damage other than death or personal injury…so far as the term satisfies
the reasonableness test.7” the reasonableness test will be discussed later.
So what happens if a business doesn’t read this clause? The case of Springwell Navigation v JP
Morgan 20108 shows the general attitude of courts towards businesses. The claimant lost £700
Million due to GKO bonds being traded in roubles instead of dollars in addition to the Soviet
Union financial crisis. The claimant sued for breach of contract, misrepresentation, and
negligence. The courts found none of these had occurred as their “low–level” duty of care
was found to be within the scope of the guidelines. Also, the claimants were a sophisticated
company and should have protected their own interest sufficiently. So the courts are reluctant
to get involved in sophisticated business transactions. However, if a business is ‘dealing as
a consumer’ there is slightly more leniency in regard to exclusion clauses and they may be
protected even if they don’t read all the terms.
‘Dealing as a consumer’ is defined in S.12(1). One party must not make the contract in the
course of a business and the other party must make the contract in the course of a business.
So a consumer under the UCTA could be either a person or a business9. Consumer contracts
like this invariably involve goods. Under the Sale of Goods Act 1979, certain things cannot
be excluded from liability; these include10; Conformity with description (S.13), and quality
and fitness (S.14). So even if the other party doesn’t read the terms, these standards remain
actionable.
As mentioned earlier, exclusion clauses can be applied so long as it is reasonable. There is
a reasonableness test for deciding such things11 but they must be reasonable at the time the
contract was made12. It applies for exclusion clauses relating to, the liability or loss other than
death or personal injury S.2 (2), liability for breach of contract, S.3, indemnity, S.4 (with
consideration to resources and insurance available), breaches of implied conditions, S.6 (3)
& 7 (3) and misrepresentation, S.8. However, this merely tells us when it applies, not how. So
S.11(2) points to Schedule 2 to offer guidelines for the application of this test. These consist
of, but are not limited to, the relative strength of the bargaining parties; the courts are likely
to favour the weaker party as a matter of fairness, even if they don’t read all the conditions.
As well as any inducement that may have occurred to entice the party to agree, effectively
giving them no choice on a take it or leave it basis that is too enticing to turn down.13 Also,
whether the customer knew about the term, but, more importantly, whether they should have
known based on things such as clear notice and type of document. If a clause is found to
be unreasonable, then it cannot apply and neither party is bound by it. Consequently, even
businesses can avoid unfair burdens even though the courts take a harsh view.
But what abut a customer who is a regular citizen? Their additional safeguards can be found
in the 1999 Regulations which is an EU Directive. The regulations’ scope is a transaction
between a customer and a seller.14 S.5 (1) states that a contract that has not been individually
negotiated, such as standard from contracts, will be regarded as unfair if it causes a
significant imbalance in the party’s rights. Terms can also be difficult to understand, this is
7. S.2(2) Unfair Contract Terms Act 1977
8. [2010]All ER(D),08(Nov)
9. R&B Customs Brokers Co Ltd v United Dominions Trust Ltd [1988]1 All,ER,847
10. S.6(2)
11. S.11,UCTA 1977
12. S.11(1),UCTA 1977
13. Green (R W) Ltd v Cade Bros Farms [1978] 1 Lloyd’s Rep602
14. S.4
Queen Mary Law Journal
when the Contra Proferentum rule is applied. According to S.7, any term in a contract must
be in ‘Plain, intelligible language’, if there is any doubt, the term will be construed in favour
of the consumer. S.8 has added to this by confirming that any unfair term will not be binding
on the customer. In addition to this, the ‘Regulations’ provide a non-exhaustive list of what
are likely to be classed as unfair terms, these include, exclusion clauses which limit the
consumers rights on the failure of the seller, disproportionate levels of compensation for a
consumer who fails to pay, and the rights of a seller to unilaterally change the contract. This
provides added security for consumers.
It has been shown that the Common Law and Statute law recognises that consumers (even
sophisticated ones) do not always read the terms of a contract or understand them. It could
be argued that the common law determines whether a clause is qualified to be included
whereas statute builds on this further by assessing whether terms can be excluded. Statute
also protects a wider scope as it includes businesses as consumers whereas the common law
takes a very narrow approach. But common law fills the gaps; statute tends to make many
assumptions which the common law explains in detail. Nevertheless, Common law and
statute’s objective is to protect people in general from unfair or onerous terms, which they do
in complementary rather than divergent fashions.
Leith Gouta
Standard forms of contract enable the use of a uniform set of printed condition time and
time again and for a large number of persons. As eloquently put by Furmston, ‘[t]he process
of mass production and distribution, which has largely supplemented individual effort, has
introduced the mass contract’.1 The evident benefit of such a form of contract is its cost and
time effectiveness compared to individually negotiated contracts. It eliminates substantial
attorney fees and generally facilitates commerce.
The flip-side of the coin with this form of contract is that ‘[t]hey have been dictated by that
party whose bargaining power [..] enables him to say : ‘if you want these goods or services at
all, these are the only terms on which they are obtainable. Take it or leave.’’2 However, it is well
known that ‘people hardly ever read printed conditions on a ticket or delivery note or similar
document. If they do, they would probably not understand them’.3 Considering the uneasy
relationship between standard form contract and unfair terms, the essay will discuss how the
law responded to this relationship and how rules and concepts were developed in order to
counteract unfair terms in standard form contract. The second part will give an account of
proposals of reform.
The present law imposes a threefold burden on a party alleging the use of an exclusion clause
in a contract. The term must have been (1) incorporated, (2) construed accordingly and (3)
must not contravene to statutory regulations.
A term may be incorporated by (a) signature, (b) by notice, or (c) by custom. The law has taken
a rigid stance concerning the rule that, n the absence of fraud, misrepresentation4, or non est
factum, a person is bound by a document he signs. It is irrelevant if he has read it or not.. This
leads to substantive unfairness as in the case of L’Estrange v Gaucob5. J.R. Spencer attacked this
rule arguing that it conflicts with the fundamental theory of contract law. ‘Contracts, he said,
are supposed to based on agreement; but the rule in L’Estrange may bind a person who has
not agreed (because he has not read or not understood) the document which he has signed’6.
Nevertheless, and despite numerous attacks of this rule, it remains unchanged and has been
reaffirmed recently in Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd7.
In order to incorporate terms by notice, the party intending to do so must overcome three
hurdles. The first is that notice must be given at or before the time of concluding the contract.
In Thornton v Shoe Lane Parking, an exemption clause was to be found inside a car park.
1. Furmston.M. Cheshire Fifoot & Furmston The Law of Contract at 24
2. Schroeder Music Publishing Co ltd v Macaulay [1974] 3 All ER 616 at 524 per Lord Diplock
3. Interfoto Picture Library v Stiletto visual Programmes Ltd [1989] QB 443
4. S3 Misrepresentation Act 1967
5. [1934] 2 KB 394
6. Attiyah.P. Essays on Contract (1986) at 109
7. [2006] EWCA Civ 386
Queen Mary Law Journal
Lord Denning held: ‘He was committed at the very moment when he put his money into the
machine. The contract was concluded at that time.’ 8 Therefore, the clause was too late to be
effective. Second, the term must be in a document purporting to have contractual effect. For
instance, if the said clause is on a receipt as in Chapelton v Barry UDC9, it will be ineffective.
Third, reasonable steps must have been taken in order to bring the clause to the attention of
the other party. Whether the latter read it or not is irrelevant to the test10. However, the more
unusual or onerous the term, special measure must be taken to bring it to the notice of the
party. In J Spurling Ltd v Bradshaw11, Denning LJ went on to hold that some clauses would
clearly need a ‘red hand’ pointing on them to satisfy the test.
This form of incorporation is the most difficult to allege as a definition of course of dealing has
been ascertained. In Hollier v Rambler Motors (AMC)12, three or four contracts over a period
of five years were held insufficient to establish a course of dealing between a consumer and
a garage, while in British Crane Hire Co Ltd v Ipswich Plant Hire Ltd13, it was held that two
previous dealing and the custom of the trade were sufficient to establish a course of dealing
on the basis that parties were businessmen, accustomed to the trade and of equal bargaining
power.
Once terms had been incorporated, they must be interpreted to establish their true meaning.
When dealing with contractual terms generally, the five principles laid down by Lord Hoffmann
in ICS Ltd v West Bromwich Building Society14 will apply. However, when construing exemption
clause, the contra proferentem rule applies. According to this rule, any ambiguity in a clause
will be interpreted against the ‘proferens’ –the party which seeks to use of the clause. This rule
gives an incentive to parties to draw their clauses in clear and unambiguous way because if
they fail to do as such, the clause will be held ineffective.
To illustrate this point, in Andrews Bros (Bournemouth) Ltd v Singer and Co Ltd 15, the
defendant sought to rely on an exemption clause which stated: ‘all conditions, warranties and
liabilities implied by statute, common law or otherwise are excluded’. The court ruled that
they had omitted the word ‘express’ and therefore it could not cover what was regarded as an
express term of contract. Although it can be doubted that this stringent approach remains of
application, it is of interest as it illustrates how the rule may operate.
Historically, courts had employed the two tests stated above in the regulation of unfair terms.
With Parliament stepping in the regulation of unfair terms, they have been empowered with
new mechanisms.
This part will demonstrate how substantive protection had been gained focusing and selecting
the relevant sections of two pieces of legislation; the Unfair Contract Terms Act 1977 (UCTA)
and the Unfair Terms in Consumer Contracts Regulation 1999 (UTCCR). It does not purport
to be a full analysis of each.
In 1975, the Law Commission published a report which recommended legislative control over
exclusion and limitation of liability clauses. This resulted in the Unfair Contract Terms Act
8. [1971] 2 QB 163 at 169
9. [1940] 1 KB 532
10. Parker v South Eastern Railway (1872) 2 CPD 416
11. [1956] 1 WLR 461
12. [1972] 2 QB 71
13. [1975] QB 303
14. [1998] 1 WLR 896
15. [1934] 1 KB 17
Annual Essay Contest: First Year Contract Law
1977 (UCTA).16 Despite its name, UCTA is solely concerned with exemption and exclusion
clauses. Some exclusion clauses are automatically void under UCTA. Section 2 nullifies any
exclusion clause which may exclude or restrict the liability for the death or personal injury
resulting from negligence while Section 5 nullifies any attempt found in contract terms or
notice to restrict or exclude liability for loss or damage which ‘arise from the goods proving
defective while in consumer use’ and ‘results from negligence of a person concerned in the
manufacture or distribution of the goods’. 17 In other instances, such as loss or damage, a party
cannot exclude his liability for negligence if the term or notice does not satisfy the requirement
of reasonableness. Moreover, s2 (3) sets out that even if a party is aware of such an exclusion
clause, he is not to be taken as voluntarily accepting such a risk.
The Unfair Terms in Consumer Contracts Regulations 1999 implements an EC Directive on
Unfair Terms in Consumer Contracts (93/13/EC) into English Law. It gives broad powers to
courts and in particular the Office of Fair Trading (OFT) to regulate unfair terms in standard
form consumer contracts. However, by contrast with UCTA, the UTCCR is solely concerned
with consumer contracts. In the regulations, to find that a term had been individually
negotiated-not a standard term, a consumer ‘must have been able to influence the substance of
the term’.18 However, regulation 5(3) ensures that the seller or supplier does not avoid the scope
of the act by ensuring that one term of the contract is always individually negotiated.19 Greater
protection is, therefore, granted.
By contrast with UCTA, the UTCCR subjects all terms to an unfairness test. Regulation 5(1)
states that a term ‘ shall be regarded as unfair, if contrary to the requirement of good faith,
it causes a significant imbalance in the parties’ rights and obligations arising under the
contract to the detriment of the consumer’. However, two problems arise. First, the meaning
of significant imbalance has not been clearly defined and the case law is not of great help.
The second problem relates to the requirement of good faith which is common to civic law
jurisdictions while alien to English Law. Courts must consequently draw upon the European
case law. Nevertheless, for instance, in Director General of Fair Trading v First National Bank
plc20, the House of Lords remedied this issue by using the notion of fair and open dealing.
More importantly, the regulation confers broad power to courts and the OFT in the regulation
of unfair terms. If a term is challenged under regulation 12, a court may deliver an injunction
against the use of the term either on contracts on which it presently operates or in the future21.
Moreover, it responds to complaints by not solely looking at the particular term complained
about but will investigate the whole contract22. Furthermore, it will itself initiate sectoral
investigations so that similar contracts or terms are covered. Interestingly, court action is of
last resort. The OFT will generally proceed through negotiation and has been successful in
complying industries and traders. Bright raised that it might be by fear of bad publicity that
they complied.
The OFT has been very effective in regulating unfair terms. Between 2000 and 2005, over
5000 terms were changed or abandoned following investigation by the OFT. For instance, it
negotiated with Vodafone ‘adjustment of the notice requirement, deletion of a clause providing
16. Law Commission: Unfair Terms in Contracts A joint consultation paper (2001) at 11
17. Section 5(1)
18. Regulation 5(2)
19. Mckendrick (2011) p 465
20. [2002] 1 AC 481
21. OFT v Foxtons Ltd [2009] EWCA Civ 288
22. Bright. S. Unfairness and the Consumer Contract Regulations (2007) at 176
Queen Mary Law Journal
for a substantial disconnection charge, and a reduction in the level of compensation payable by
a consumer who terminates early’.23
Having discussed some features of the UTCCR and UCTA, this paper will delve into the
proposals of the Law Commission and the Scottish Law Commission who published a report
N°292 in February 2005. The Law Commission in its paper acknowledges that ‘UCTA is
a complex statute’ and that its structure makes it very difficult to the reader without legal
training to grasp, and that the UTCCR fails to meet the requirement of legal certainty by its
importation of legal concepts alien to English Law as discussed above. Moreover, provisions in
UTCCR and UCTA are inconsistent and overlap in numerous instances.
To remedy to these issues and safeguard greater protection, the Commission proposes a
unified regime of legislation which will fuse UCTA and UTCCR. The new regime will preserve
elements from each legislation such as the terms of no effect which nullify exclusion of liability
for death or personal injury under UCTA and will remedy to the inconsistencies and overlap
in both texts24.
The distinction between a consumer and a business sets out the difficulty of the test. For
instance, in R&B Customs Brokers v United Dominion Trust25, if the party was acting as a business,
the exclusion clause would have passed the reasonableness test set out in UCTA. However, the
court held that he was a consumer, and, therefore, it failed. Therefore, it recommends that
the protection under UTCCR should be extended to small businesses. This would remedy
to numerous injustices as the distinction between consumer and business contracts may be
too rigid. The reason is that numerous small businesses are in a similar bargaining position
when dealing with much larger industries.26 ‘This is especially true where a small farmer,
manufacturer or builder supplies a much larger business’.27
The Law Commission proposals purport to remedy to the inconsistencies and problems
relating to the current law in the regulation of unfair terms. However, eight years after the
publishing of the report, no steps had been taken toward a new legislation regulating unfair
terms in standard form contract. Nevertheless, the law, in its present form, seems satisfying.
Before UCTA, Common Law developed rules and concepts in order to regulate unfair terms
even if, in some instances, the outcome was unsatisfying. At present, with the enactment of the
regulation and with role played by the OFT, it is likely that consumers, especially, are going to
have increasing protection against unfair terms.
23. Ibid p333
24. Law Commission Report (2005) p23
25. [1988] 1 ALL ER 847
26. Mckendrick p493
27. Executive summary cited in Mckendrick p 491
Lucia Ferrer
Consumers are constantly faced with standard form contracts containing endless lists of terms
and conditions. In such a situation, the consumer usually holds no bargaining power, a lack of
comprehension leading to substantive unfairness. This “monopoly of power,”1 between business
and consumer creates a serious disadvantage for consumers, as highlighted in the presented
quotation. Nevertheless, these contracts facilitate the commercial world through lowering
legal costs; increasing observing party’s obligations; excluding liability against the business,
“society as a whole benefits from the use of standard contracts”.2
The law has greatly recognized the problems posed by the enforcement of terms against “more
vulnerable” consumers. In order to demonstrate this, the techniques available to courts when
incorporating and interpreting terms into a contract will be assessed, the relevant Statutes
namely: The Unfair Contract Terms Act 1977 (UCTA) and The Unfair Terms in Consumer
Contract Regulations 1999 (UTCCR) will be analysed, and the essay will assess the significant
development in consumer protection while highlighting areas that require further development
of the law.
Determining whether a term has been incorporated into the contract is the first area of
judicial intervention in consumer protection. The most explicit method of incorporation is
through signature. In L’Estrange v Graucob3 the court took the position that since the terms
had been agreed to with a signature, they had effectively been incorporated into the contract.
However, an exception occurred in Curtis v. Chemical Cleaning and Dyeing Co Ltd4, where the
store attendant clarified the meaning of a wide exclusion clause to the customer. The court
determined the oral warranty superseded the terms incorporated via signature.
The second method of incorporation is notice. Through the development of case law, there are
three main factors to consider. Olley v Marlborough Court5 determined that providing notice of
an exclusion clause after the contract had been entered into is not sufficient notice. Therefore
the term was not incorporated into the contract. Further, Chapelton v Barry Urban District
Council6 confirms that notice must be in a contractual document. Lastly, the degree of notice
1. David Yates, Exclusion Clauses in Contracts 2nd Edition (Sweet & Maxwell 1982) 5
2. Freidrich Kessler, “Contracts of Adhesion-Some Thoughts About Freedom to Contract” (1994) 42 CLR
629, 632
3. [1934] 2 K.B. 394
4. [1951] 1 KB 805
5. [1949] 1 KB 532
6. [1940] 1 K.B. 532
Queen Mary Law Journal
has to be such that it is reasonable to infer the customer actually knew of the notice from
Parker v South Eastern Railway.7
A term may also be incorporated through course of dealing. In Spurling v Bradshaw8 it was
determined that since the parties had an on-going contractual relationship, the fact that on
this particular occasion the terms had not been signed did not amount to insufficient notice.
However, in McCutcheon v. David MacBrayne Ltd9, the court held that inconsistent course of
dealing was insufficient notice. Frequency and consistency are the most determinative factors
in course of dealing.
Once it has been established that a term has been correctly incorporated into the contract it
is then necessary to demonstrate it covers the breach in question. The ability to interpret the
term using the contra proferentum rule10 is another mechanism for the courts to be able to
intervene if necessary on behalf of a disadvantaged party. For instance, in Hollier v. Rambler
Motors (AMC)11 Ltd the court determined that the clause the defendant sought to rely upon
was too wide and vague; therefore, using the contra proferentum rule, it was decided that since
the term did not specifically detail the negligent act the claimant was able to obtain damages.
Another method to determine the enforceability of terms is fundamental breach of the contract:
“the courts regard the promise’s performance as so defective that it is as if he has not performed.”12
In Photo Productions v Securicor, the Court of Appeal held that the breach in question was
of fundamental importance and thus held that the exclusion clause did not apply. However,
the House of Lords later reversed the decision, confirming the exclusion clause did cover the
breach in question and was valid. This is an example of the judiciary recognizing some of the
problems and difficulties with exclusion clauses. However, given the proper incorporation and
unambiguous drafting the term was enforced. This case highlights the balance between the
courts desire to increase consumer protection, and the limitations associated with such a task.
Some commentators are against the judiciary intervening to this extent in contract law. David
Yates suggests “shifting the problem and the role of protection from the law of contract to the law
of tort.”13 While others welcome judicial intervention “on the simple ground that courts have a
broader view of the public good than those drafting contracts.”14
In summary, judicial attitudes recognized to a great extent difficulties in “a classic instance
of superior bargaining power”15 however, there were still limitations to the courts ability to
enforce or limit the enforcement of certain terms. The creation of the UCTA extended judges’
7. Richard Lawson, Exclusion Clauses and Unfair Contract Terms Sixth Edition (Sweet & Maxwell 2000)
8
8. [1956] 1 Q.B. 742
9. [1956] 2 All E.R. 121
10. “If there is any ambiguity as to the meaning and scope of the words used in a clause excluding or
limiting liability, the doubt is resolved by construing them against the party.” Yates (no 1) 137
11. [1972] 2 QB 71
12. Yates (no 1) 196
13. Yates (no 1) 267
14. Jonathan Morgan, Great Debates in Contract Law (Palgrave MacMillan 2012) 86
15. Lord Diplock - Schroeder v Macaulay [1974] 1 WLR 1308
Annual Essay Contest: First Year Contract Law
authority, for instance the ability to declare terms void.
UCTA controls unfair exemption clauses (excluding or limiting liability for breach) either by
declaring them void or subjecting them to a test of reasonableness. UCTA applies only to
business liability (s 1(3)). UCTA dictates a blanket prohibition over businesses attempting
to exclude negligence that results in death or physical harm (s 2(1)) and prohibits liability
due to defect (s 5). In these narrow situations, the courts have considerably more power than
prior to the legislation. In other sections of the act, certain unfair terms such as exclusion for
loss or damage (s 2(2)); (s 3) relating to liability for breach of contract due to performance
or no performance; among others, must satisfy the test of reasonableness. Requirements for
the reasonableness test are outlined in (s 11) with further guidelines detailed in (schedule 2).
Through the creation of Schedule 2, Parliament gave the court ample discretion to help the
“weaker” party to a contract. In order to determine if a clause is reasonable, the courts may
assess the strength in bargaining positions, or whether the customer agreed to an inducement.16
UCTA differentiates between effects on consumer and the effect on a non-consumer within the
same source of liability. This is an important mechanism for judicial protection of consumers,
while ensuring that businesses that often participate in commercial transactions are held to
higher standards. This practice is illustrated in Springwell Navigation Corp. v. JP Morgan Chase
Bank17, when the plaintiff made a claim for a failed investment; the courts looked at who the
claimant was in determining if the clause was reasonable, since both were considered equal
bargaining powers, the exclusion clause was held to be reasonable.
UTCCR is a statutory instrument implemented following the European Union (EU), Unfair
Consumer Contract Terms Direction 93/13/EEC into UK domestic law. This legislation
originates within the European Union and highlights EU law concerns recognizing the
problems created with standard terms contracts for consumers, the aim was to harmonize
consumer protection within the EU.18
UTCCR invalidates only non-core terms (s 6), which have not been individually negotiated (s
5(1)); and applies to consumer contracts only (s 3(1)). UTCCR subjects terms to a “fairness”
test (principle of good faith). Section 4 of UTCCR outlines the scope of the regulations is to
apply in relation to unfair terms in contracts between a seller/supplier and a consumer (s 3(1)).
Differentiated from UCTA which provides a blacklist of certain unfair term subject to blanket
prohibition; UTCCR uses a grey list of unfair terms as a guideline for the court. If a term is
on the grey list it will be subjected to a fairness test; and if the court determines the term to be
unfair it shall not be binding on the customer (s 8).19
The law has greatly recognized the problem with the enforceability of terms against parties
16. The Unfair Contract Terms Act 1977 Schedule 2
17. [2010] EWCA Civ 1221
18. Meryll Dean, “Unfair Contract Terms: The European Approach” (1993) 56 MLR 581, 582
19. Unfair Terms in Consumer Contracts Regulations 1999 Reg 8(1)
Queen Mary Law Journal
with less bargaining power; however, there are issues with the implementation of both statutes.
This report deals with the problems of legal uncertainty in enforcing these two statutes,
concurrently “[a]lthough the two regimes are overlapping, and they operate differently, thus
generating complexity for both businesses and consumers seeking to clarify their positions.”20
Therefore, the Commission calls on the statutes to be created into one unified regime. In
outline, the Commission recommends a “fair and reasonable” test. Terms to be affected are: all
non-core terms (UTCCR), exemption clauses (UCTA) and non-negotiated, non-core terms
in “micro” business contracts (added from the Commission) and lastly the main factors in
assessment of validity will be procedural fairness and substantive fairness.21
The law has extensively recognized problems arising from standard forms contracts. The
development of said recognition began with the court:
“[T]he […] appellants bargaining power vis-à-vis the respondent was strong enough to enable
them to adopt this take it or leave it attitude...”22
However, through the material presented in this essay it is evident the common law was limited
in its ability to respond. Consequently, Parliament further recognized the need to protect
consumers from the enforcement of unfair terms, thus UCTA was created. UCTA provides
the courts with more powers against unfair terms. Nonetheless, commentators claim that
“Difficulties have arisen in relation to mapping the borderlines of the application of the Unfair
Contract Terms Act 1977”23 Due to the lack of definition of clauses that exclude or restrict
liability. MacDonald considers the lack of definition a “conceptual vacuum” in the statute that
has led to the slow progress of delineation of the concept in the judicial system.24 Therefore,
although the judiciary and executive have recognized problems with the enforceability of
terms, legal certainty of what constitutes these unfair terms has yet to be precisely determined.
In addition to UCTA, the UTCCR has also come into force to protect consumers and it’s scrutiny
is more positive: “the impact has been particularly marked within the United Kingdom” given
that that “enforcement mechanism has proven particularly effective.”25 Partially due to consumer
watchdog organizations having the ability to bring concerns to the Unfair Contract Terms
Unit; thus ensuring constant regulation and accountability in standard term contracts. For
instance, there has been significant success in changes to terms in mobile phone contracts.26
UTCCR possess a new problem: “the difficulty therefore lies in the fact that under English law
20. Susan Bright, “Winning the battle against unfair contract terms” (2000) 20 Legal Studies 331, 352
21. Law Commission Report 292
22. Yates (no 1) 6 quoting Lord Diplock in Schroeder Publishing Co. Ltd v Macaulay [1974] 1 WLR 1308
23. Elizabeth MacDonald, “Mapping the Unfair Contract Terms Act 1977 and the Directive on unfair terms
in Consumer Contracts” (1994) JBL 441, 462
24. MacDonald (no 23) 442
25. Bright (no 20) 332
26. Bright (no 20) 334
Annual Essay Contest: First Year Contract Law
“good faith: is not an established, well-defined and coherent concept.”27 Bright suggests this
issue will be resolved through the development of cases and if the proposed reforms occur,
which commentators believe will occur,28 then the test will be more closely linked with the
reasonableness standard that is preferred in English law.
Although the law has greatly recognized consumers need for further protection, until the
legislation becomes more coherent consumers will continue to struggle. The Law Commission
report offers a new structure which Parliament should seriously consider, as aforementioned
change is expected, question is how long will consumers have to wait for more coherent
legislation. Beyond the need for improvement it cannot be denied that the law has greatly
recognized consumer protection in determining the enforceability of terms.
27. Dean (no 18) 584
28. Bright (no 20) 352
Mustafa El-Mumin
Standard forms, often cited as ‘Contracts of Adhesion’1, have been severely criticised in
English Law. They have been characterised as documents that inhibit consumers by forcing
the will of mighty enterprises upon them through a take-it-or-leave-it basis. Further,
they ensure these forms and the terms included are lengthy and laced with legal jargon
to discourage the common consumer from reading - or understanding - the full terms
stipulated, often in small print. Yet, these ‘immoral’ practices by corporations have been
recognised by the law, whereby several methods have been determined in order to ascertain
the enforceability of the terms in such standard forms in order to protect the consumer.
The standard form has arisen out of mercantile trade, settled over years by negotiations of
commercial interests, development of commodity trading2, and the reduction of costs of doing business3 whereby their wide usage has introduced the connotation of fair and reasonable terms. This view has been reaffirmed by the House of Lords who stated standard forms
‘moulded under the pressures of negotiation, competition and public opinion’ were presumptively fair4. Yet, when these standard forms are used on consumers - rather than equal bargaining partners - the courts have adopted an alternate, opposing view point. Lord Diplock,
the champion against court intervention in corporate standard forms5, has stated that no presumptions of fairness can be brought forth with regards to consumer standard forms, where
‘vigilance on the part of the court’ has to be exercised in order to protect the consumer6. The
argument against consumer standard forms follows the logic that, due to the common law,
the law has over-privileged documents, ‘where a document containing contractual terms is
signed ... the party signing it is bound and it is wholly immaterial whether he has read the
document or not’7, and it this fundamental contractual principle that enterprises are exploiting against consumers.
Yet, it has been rebutted by Scwartz and Wilde8, that as long as consumers read the terms and
conditions then the firms will have to adjust and moderate their terms in order to attain continued business, which will be mutually beneficial to both consumers and the firms. However, I believe that this argument is futile and only holds validity in theory with no substantive support on a practical or economic sense. It is ‘entirely unrealistic’9 to expect consumers
to read all the terms and conditions encountered in daily life on these standard forms, which
1. F. Kessler, ‘Contracts of Adhesion – Some Thoughts about Freedom of Contract 91943) 43 Columbia LR 629
2. R. Cranston, The Rise and Rise of Standard Form Contracts: International Commodity Sales 1800-1930’ in Jan Hellney in Memoriam
- Commercial Law Challenges in the 21st Century (Stockholm centre for Commercial Law, 2007)
3. Schroeder Music Publishing Co v Macaulay [1974] 1 WLR 1308, 1316 per Lord Diplock
4. Esso Petroleium Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269, 333 per Lord Wilberforce
5. ‘The only merits of the case are that parties who have bargained on equal terms in a free market should stick to their agreements’,
The Maratha Envoy [1978] AC 1, 8
6. Schroder Music Publishing Co v Macaulay [1974] 1 WLR 1308
7. L’Estrange v F Graucob Ltd [1934] 2 KB 394, 403 per Scrutton LJ.
8. A. Schwartz & L.L. Wilde, ‘Intervening in Markets on the Basis of Imperfect Information: A legal and Economic Analysis’ (1979) 127
Univ Pennsylvania LR 630
9. J. Morgan, Great Debates in Contract Law (Palgrave Macmillan, 2012), p. 86
Queen Mary Law Journal
range from small print on a ticket to reams of online documents10. It is through this hindrance to everyday life - with the use of elongated and complicated words - that the firms
coerce consumers to take their terms, emphasising the immoral stance of corporations using
such methods of standardisation. Furthermore, Macneil argues that attempts to do ‘foolish
things’ such as comprehend the forms could result in an economic ‘screeching halt’11. If every
consumer was to read the terms and conditions, it would be disadvantageous to the businesses themselves, particularly if lawyers are brought in to discuss clauses, postponing the
period of transactions. Additionally, if consumers were to chance upon a term that they were
not satisfied with, would it be on the firms to negotiate and alter each contract to better align
themselves with the need of the individuals? If so, an aspect of corporate immorality would
be eliminated through the extinguishing of the ‘take-it-or-leave-it’ basis, but this would
also go against the fundamental ‘reduction in cost’ rationale of standard forms12. Hence, I am of the opinion that standard forms should not be made obsolete, as they have
proven benefits, but they should be regulated in order as not to spring traps on unaware consumers. This view has been shared amongst several academics and lawyers with Rakoff putting forward the concept that judicial intervention should be enlisted whereby the courts will
imply the missing terms as they have a broader stance on upholding public policy in comparison to the standard form drafters13, who are akin to one-sided dictatorships14. Although
I believe that the judiciary should be involved in regulating standard forms I view Rakoff ’s
account15 as overly optimistic. To have the court imply terms into such standard forms would
be a drain on the courts’ time and capacity. Additionally, terms in standard forms deemed
unfair by courts which are then subsequently replaced by implied terms, are - in essence terms which neither party agreed to, once again going against the basic contractual principle
of offer and acceptance. Thus, the argument that judicial intervention is adept in having
recognised the lack of understanding on the part of the consumer before entering standard
form contracts can be described as weak and not a helpful measure in illustrating the laws
extent in determining the enforceability of such terms.
I think the greatest resolution to the question of consumer standard forms can be found in
legislation, primarily The Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR),
implemented from EC Directive on Unfair Terms in Consumer Contracts (93/12/EC) into
English law. Although the regulations made far-reaching changes to English contract law
(by giving courts and the Director General of Fair Trading broader powers to regulate unfair terms in standard form contracts)16 the purpose of the directive is to protect consumers
against the inclusion of unfair and prejudicial terms in standard-form contracts17. UTCCR
has been welcomed by academics, perceived as a victory for free competition in the European community as a whole18 due to the acts’ main focus against contracts that have ‘not been
individually negotiated’19 highlighting it’s unparalleled significance in the law’s recognition
of corporate abuse of consumer standard forms, with further clarification in regulation 5(2)
whereby contracts drafted in advance in which the consumer has not been able to influence
the substance of the terms are also affected by the act.
10. Apple iTunes UK’s Terms and Conditions consists of 14,077 words, which need to be agreed to before one can purchase from the
store or sync their complimentary iPod product - http://www.apple.com/legal/itunes/uk/terms.html.
11. I.R. Macneil, ‘Bureaucracy and Contracts of Adhesion’ (1984) 22 Osgoode Hall LJ 5, 6
12. M.J. Trebilcock, The Limits of Freedom of Contract (Harvard University Press, 1993) p. 119
13. J. Morgan, Great Debates in Contract Law (Palgrave Macmillan, 2012), p. 86
14. W.D. Slawson, ‘Mass Contracts: Lawful Fraud in California’ (1974) 48 Southern California LR 1
15. See T.D. Rakoff, ‘Implied Terms: ‘’Default Rules’’ and ‘’Situation Sense’’ ‘ in J. Beatson and D. Friedmann (eds), Good Faith and Fault
in Contract (Oxford University Press, 1995)
16. E. Mckendrick, Contract Law: Text, Cases and Materials (5th ed, Oxford Publishing Press, 2012), p. 460
17. Director General of Fair Trading v. First National Bank [2001] UKHL 52, per lord Bingham [12]
18. H. Collins, ‘Good Faith in European Contract Law’ (1994) 14 OJLS 229.
19. S. 5, Unfair Terms in Consumer Contracts Regulations 1999
Annual Essay Contest: First Year Contract Law
UTCCR also proficiently recognises that consumers do not read consumer standard forms,
and if they did, they would not understand them, providing succour for consumers in
Regulation 7. Regulation 7, which applies to all written terms included in standard forms
such as tickets or delivery notes, requires that all written terms should be expressed in
‘plain, intelligible language’20, and if doubt is brought upon the meaning of a term, it shall be
construed to be as favourable to the consumer as possible21. This regulation can be cited as
being of considerable importance to the average consumer, as core terms of standard forms
will be reviewed when they’ve been hidden away and not brought to the attention of the
consumer22 emphasising the acts’ intentions of safeguarding the consumer’s interest against
corporations.
Moreover, the ‘take-it-or-leave-it’ basis favoured by firms has less potency due to UTCCR as
unfair terms will be regarded as not binding on the consumer23. However, it is to be noted
that only the unfair term will be omitted, leaving the contract as a whole if it satisfies the
regulations, still leaving an element of inequality if the term deemed unfair was frivolous in
nature. Yet, it is also implied that if a fundamental term of a contract is deemed unfair then
the contract itself should cease to be binding on both parties.24
However, the UTCCR is not without criticism. Varying views have been presented to oppose
the legislation, particularly in regards to the tests of Good Faith and significant imbalance
set out in regulation 5. Due to the ‘copy-out’ technique of applying the European directive to
national law, obscurities have occurred within the legal and academic field of unfair terms
in regards to which test should take precedence and what they should cover, and thus, has
produced doubt on the effectiveness of UTCCR in regards to the enforceability of terms in
standard forms. Furthermore, it has been noted that the test of good faith is misaligned with
English law as, at the time of writing, there is no - nor has there been - a doctrine of good
faith in English Law25, meaning that there are no English cases from which the courts can
draw from. Contrarily, these arguments against UTCCR are concisely laid to rest through
English case law, evidenced in The House of Lords case Director General of Fair Trading v.
First National Bank26 which equated ‘Good Faith’ with ‘fair and open dealing’, whereby terms
should be fully and clearly expressed, ‘containing no concealed pitfalls or traps’ whilst the
requirement of significant imbalance is met if a term is ‘so weighted in favour of the suppler
as to tilt the parties’ rights and obligations under the contract’ to their favour.27
Therefore, it can be concluded that the Unfair Terms in Consumer Contracts Regulations
1999 is the prime example of illustrating the law’s protection of European consumers
interests derived from the law’s recognition that consumers do not comprehend consumer
standard forms, let alone read them. The legislations clear and unambiguous regulations
are effective in determining whether terms in contracts of adhesion should be upheld or
not, with emphasis placed on the safeguarding of the consumers right through a wide body
of regulators to free court capacity, such as the Director General of Fair Trading as well as
the Consumers’ Association28, which holds further importance as a private body seeking to
defend the concerns of consumers.
20. Ibid S. 7(1),
21. Ibid, S. 7(2)
22. S. Bright, ‘Winning the Battle Against Unfair Terms’ (2000) 20 Legal Studies 329, 346
23. S. 8(1), Unfair Terms in Consumer Contracts Regulations 1999
24. Ibid, S. 8(2)
25. E. Mckendrick, Contract Law: Text, Cases and Materials (5th ed, Oxford Publishing Press, 2012), p. 495
26. [2001] UKHL 52
27. Ibid, per lord Bingham [17]
28. Sch. 1, Part two(11), Unfair Terms in Consumer Contracts Regulations 1999
Rachel Epstein
In order for a term to be effective it must be incorporated into the contract between the
parties. The incorporation of terms is a contentious issue especially with the development of
standard form contracts. The idea of a freely negotiated agreement between the parties has
given way to a uniform set of printed conditions which can be used time and time again, for
a large number of persons, and at less cost than an individually negotiated contract.1 This
type of contract adheres well to the laissez faire English law principle of ‘freedom to contract,’
but the problem arises where the document is drawn up by only one of the parties, which is
usually the more powerful party, who may choose which terms to include and decide how
risk is to be allocated. This significant imbalance of power between the parties means that
the freedom to contract is really one-sided, and the weaker party is usually left with relatively
few rights and the inability to negotiate terms.
The quote at hand addresses this issue - the unequal bargaining power of the consumer
within contracts. Although the courts are reluctant to interfere with a party’s ‘freedom to
contract,’ as protectors of justice it is their job to protect the weak against the oppressor, and
ensure equality amongst parties in law. The courts have responded to the inequalities faced
by the weaker party by imposing strict requirements for the incorporation of terms within
the contract, and by refusing to incorporate those terms that fail to satisfy the requirements.
These common law principles are limited and may not always be capable of providing a just
solution for a contract where freedom of contract exists only on one side, but the Unfair
Contract Terms Act 1977 and Unfair Terms in Consumer Contracts Regulations 1999 were
able to fill the gaps by supplementing the common law and establishing an extra layer of
consumer protection.
The courts have recognised three ways for a term to be incorporated into a contract: a)
signature, b) through a course of dealing, and c) sufficient notice. The simplest method
of incorporation is signature. A party who signs a document which contains contractual
terms is normally bound by them even though that person may not have read them or aware
of their exact legal effect.2 Moore-Bick L.J. reinforced the significance of this principle by
describing it as,
“an important principle of English life which underpins the whole commercial life; any erosion
of it would have serious repercussions far beyond the business community.”3
While the rule may promote certainty and protect the interests of third parties who rely on
1. Beatson, J, A Burrows, and J Cartwright. Anson’s Law of Contract. 29th. NYC: Oxford University Press,
(2000) p.171
2. L’Estrange v. F. Graucob Ltd. (1934) 2 KB 394
3. Peekay Intermark Ltd. v. Australia and New Zealand Banking Group Ltd. (2006) EWCA Civ 386, (2006) 2
Lloyd’s Rep 511 (2006) 1 CLC 582 at (43)
Queen Mary Law Journal
contract terms, it nevertheless has been criticized as being harsh and unfair, especially when
there is an unequal bargaining position between the parties. J.R. Spencer criticises the rule
in LʹEstrange on the basis that it operated harshly in circumstances where a signature does
not actually evidence consent.4 Others say that the rule is reasonable but only when applied
to a contract in which the signer has had an opportunity to thoroughly read the document.5
As the quote above suggests, most people are not privy to reading the entire contract because
they lack the time or understanding necessary to fully comprehend the document.
The court has to some extent recognised this by creating certain exceptions to the general
rule that a party is bound by their signature, in order to ensure fairness and protect the
weaker party. The first exception arises where a party signing the document can invoke
the defence non est factum, which allows the party to deny the signed document on the
basis that they were unable, through no fault of their own, to have any real understanding
of the document without being given an explanation of it.6 The second exception arises
where the person is induced to sign the document as the result of a misrepresentation,
such as in Curtis v. Chemical Cleaning.7 The third exception, acknowledged in Grogan v.
Robin Meredith Plant Hire, is that the document signed must have been intended to have
contractual effects.8 Other ways the courts limit the operation of the L’Estrange rule is by
finding collateral contracts made between the parties, which can override or change certain
unfair or unreasonable clauses in the main contract,9 or by concluding that an overriding oral
warranty was made which prevails over the written document.10 Although the signature rule
still exists, case law has limited its effect and shows the courts to be very be sympathetic to
the position of the consumer, or weaker party in signed contracts.
The second way a party can incorporate terms is through a consistent course of dealings.
Where the clause is a usual one in the trade, the parties are of equal bargaining power in the
same trade, and both parties have a common understanding on the practice of the trade,
then the courts have relied on the ‘freedom to contract’ principle and have been less strict
on the incorporation of terms based on the regularity of the previous course of dealings.11
In order to establish a course of dealing there must be both a regularity and consistency of
dealing between the parties.12 Unlike in commercial contracts, the courts have created a
higher standard about what counts as sufficient regularity of dealing when a consumer is
involved. This strict approach on the incorporation of terms through a course of dealing is
a way the courts attempt to redistribute power between the parties, especially when in most
cases the weaker party lacks any specialist knowledge in the trade.13
If there is no signature or course of dealings, then terms may still become a binding part of
the contract if they are incorporated through notice. This is perhaps the most common form
of incorporation. The court has developed three requirements in order for a contracting
party to incorporate terms by notice to alleviate the potential unfairness to the recipient that
can result from this method. The first is that notice must be given at or before the time of
4. Spencer, JR. ʹSignature, Consent and the Rule in LʹEstrange v F Graucob Ltdʹ, [1973] Cambridge
Law Journal. p.104.
5. Greig and Davis, The Law of Contract, (1987) p. 611‐612.
6. Lack of understanding can be ‘defective education, illness, or innate incapacity’ see Saunders v. Anglia
Building Society (1971) AC 1004, 1016
7. Curtis v. Chemical Cleaning & Dyeing Co. Ltd. (1951) 1 KB 805
8. Grogan v. Robin Meredith Plant Hire (1996) CLC 1127
9. City and Westminster Properties (1934) and Mudd (1959) Ch 129
10. J. Evans & Sons (Portsmouth) Ltd. v. Andrea Merzario Ltd. (1976) 1 WLR 1078
11. British Crane Hire Corp. Ltd. v. Ipswich Plant Hire Ltd. (1975) QB 303
12. McCutcheon v. David MacBrayne Ltd. (1964) 1 WLR 430 HL
13. Hollier v. Rambler Motors (AMC) Ltd. (1972) 2 QB 71
Annual Essay Contest: First Year Contract Law
contracting.14 This may require the courts to apply the rules of offer and acceptance in order
to ascertain the moment at which the contract came into effect. This requirement addresses
the issue raised by academics earlier with regard to the L’Estrange rule, and how it is unfair
for a party to be bound to a document they did not read, by ensuring the recipient of the
notice is given adequate time to read and understand the terms to which they are consenting.
The second requirement, which was also touched on in relation to signature, is with respect
to the form of the notice. It was held in Chapelton v. Barry UDC that for the notice of
terms to be valid it must be contained in a document that was intended to have contractual
effects.15 In Chapelton a ticket given to someone who hired a deckchair was held not to be
a contractual document but instead a receipt. The receipt did not effectively give the hirer
notice of the terms, but instead only proved the hirer had paid. This relates to one of the
fundamental principles of contract law which is the intention to create legal relations. The
issue of timing was also present in this case since the ticket was given to the hirer after they
had used the deckchairs, thus the notice of terms was given too late. The third requirement
is that reasonable steps must be taken to bring the terms to the attention of the other party.
This requirement as to the degree of notice has generated lots of academic debate and case
law dating back to the nineteenth century, where in Parker v. South Eastern Railway the
Court of Appeal had to answer the question of whether the defendant had done what was
reasonably sufficient to give the plaintiff notice of the condition. This question was deemed
to be one of fact, and in answering it the Courts must look at all the circumstances and the
situations of the parties.16 The classic statement of the basic law on this subject is found in
three questions framed by Mellish L.J. for the jury:
“I am of the opinion, therefore that the proper direction to leave the jury in these cases is, that
if the person receiving the ticket did not see or know that there was any writing on the ticket, is
is not bound by the conditions; that if he knew there was writing, and knew or believed that the
writing contained conditions, then he is bound by conditions; that if he knew there was writing
on the ticket but did not know or believe that the writing contained conditions, nevertheless he
would be bound, if the delivering of the ticket to him in such a manner that he could see that
there was writing upon it, was, in the opinion of the jury, reasonable notice that the writing
contained conditions.”17
Thus in determining whether reasonably sufficient notice as to the terms has been given to
the recipient, the court applies the objective test by asking whether a reasonable person in
that situation would have expect to find contractual terms on the document. If the answer is
yes than the party would be bound by the document even if they are subjectively ignorant of
its content.
But what about terms that one would not expect to find in a contract, such as unusual or
onerous terms? To effectively deal with this issue, the court has developed special measures
requiring the supplier of the contract, or the party wishing to rely on the unusual or onerous
clause, to have the burden of bringing that particular clause to the attention of the recipient.
Denning L.J. solved this problem, and by doing so alleviated some ways in which a weaker
party could be take advantage of in a contract, by creating the “red hand” rule which is:
“the more unreasonable a clause is, the greater the notice which must be given of it. Some
14. Olley v. Marlborough Court Ltd. (1949) 1 KB 532
15. Chapelton v. Barry Urban District Council (1940) 1 KB 532
16. Parker v. South Eastern Railway (1877) 2 CPD 416
17. Parker v. South Eastern Railway (1877) 2 CPD 416, 423
Queen Mary Law Journal
clauses would need to be printed in red ink with a red hand pointing to it before the notice could
be held to be sufficient.”18
Lord Denning’s rule was later reaffirmed in Interfoto Picture Library v. Stiletto Visual
Programmes Ltd., where an unreasonable condition was not incorporated into the contract
because according to Lord Bingham the defendant did not do what was necessary to
draw the unreasonable and extortionate clause fairly to the attention of the other party.19
Academic Elizabeth Macdonald notes the significance of the “red hand” rule and the role it
plays in determining the incorporation of terms by notice even after the implementation of
the UCTA 1977 and UTCCR 1995, because like in Interfoto, not all unreasonable or onerous
terms will necessarily be exemptions clauses.20 She also states the importance of the “red
hand” rule in that it does not require the redrafting of any standard form contracts, so long
as the drafter is prepared to give greater prominence to the particular clauses. In effect, no
added cost is incurred by the supplier, while added protection is provided for the recipient.21
Through common law the courts can only protect the weaker party in a contract by refusing
to include a term into a contract (by not satisfying the requirements) or by interpreting a
clause strictly (relying on the contra proferentem rule).22 It was only through UCTA 1977
that the courts could declare certain clauses invalid.23 The statute also reaffirmed the court’s
objective approach used in Parker by creating a “reasonableness test” and guidelines for
determining reasonableness.24 The purpose of the Act was to limit, and in some cases to
entirely remove the right to rely on exemption clauses in certain situations. The Act does not
confer upon the courts a general power to strike down any term of a contract on the ground
that it is unfair or oppressive; it applies only to terms that exclude or restrict liability in both
consumer and business contracts.
Another layer of statutory protection was created with the UTCCR 1995 in which a
“fairness test” is applied to all non-individually negotiated, non-core terms, in all types of
contracts between consumers and suppliers or sellers.25 It has been said that the existence of
statutory controls makes it unnecessary for the courts to apply strict tests of incorporation
and construction.26 However, even accepting this as true, the tests of incorporation and
construction must first be applied to determine if the clause in question forms part of the
contract, for if it does not then the Acts will not take effect. Neither statute is comprehensive
enough to provide for the protection of the weaker party in all types of dealings of various
forms of contracts, which is why the common law principles as to incorporation of terms
remain fundamental.
This essay has shown how the law generally favours the plaintiff, consumer, or weaker
party in a contract. There are of course exceptions, one of which Malcolm Clarke notes in
his article, “Notice of Contractual Terms.” The present law does not demand the plaintiff
be given actual knowledge of the terms, constructive knowledge may be satisfactory. He
18. Spurling v. Bradshaw (1956) 1 W.L.R. 461, 466
19. Interfoto Picture Library v. Stiletto Visual Programmes Ltd. (1989) QB 433, 445
20. Macdonald, Elizabeth. “The Duty to Give Notice of Unusual Contract Terms.” (1988) Journal of Business
Law p.6
21. ibid
22. Contra proferentem means the courts construe a clause against the party relying on it. This is a matter
of interpretation of a contract, which is only relevant if a clause was validly incorporated into the contract.
Refer to Canada Steamship Lines Ltd. v. The King (1952) AC 292 for guidelines on interpretation of terms.
23. s.5 UCTA 1977
24. s.11 & sch.2 UCTA 1977
25. Reg. 5 & sch. 2 UTCCR 1995
26. AEG (UK) Ltd. v. Logic Resources Ltd. (1996) CLC 265, 277
Annual Essay Contest: First Year Contract Law
refers to the case Hardwick Game Farm v. Suffolk Agricultural Poultry Producers Association
in which the agreement was recognised by inferences from conduct between the parties.27
Clarke argues however, the whether the notice is actual or constructive, the common law
of the moment demands more than notice that terms exist.28 The courts have nevertheless
endeavored to alleviate the position of the position of the recipient of the document by
imposing certain requirement for the incorporation of terms (and special measures if the
terms are unusual or onerous), and by construing the document wherever possible in
the person’s favor.29 Lord Hoffman said that the judicial creativity, bordering on judicial
legislation which marked the development of these rules was a desperate remedy to be
invoked only if it is necessary to remedy a widespread injustice.30 But these common law
rules are still important as a means of protection for the weaker party to a contract, and
in determining the efficacy of a clause. The measure of protection offered against unfair
clauses may be considered somewhat slender, but the power of the courts to control such
clauses has been greatly increased since the enactment of the UCTA 1977 and UTCCR
1995. Together the common law and statutory controls address the inequality in the unfair
bargaining position between parties (often found in standard form contracts), by regulating
the incorporation of terms into a contract, especially those which are unreasonable, unusual,
or onerous, in order to ensure fairness, justice, and equality.
27. Hardwick Game Farm v. Suffolk Agricultural Poultry Producers Association (1966) 1 W.L.R. 287, 339-340
28. Clarke, Malcolm. “Notice of Contractual Terms.” (1976) The Cambridge Law Journal, 35, p. 81
29. Beatson, J, A Burrows, and J Cartwright. Anson’s Law of Contract. 29th. NYC: Oxford University Press,
(2000) p.172
30. BCCI SA v Ali (2001) UKHL 8, (2002) 1 AC 251 at (60)
Alan Schweber
The advent of consumer protection laws such as the Unfair Contract Terms Act
1977 (‘UCTA’) or the later implementation of EC Directive 93/13/EC which produced the
Unfair Terms in Consumer Contracts Regulations 1999 (‘Regulations’) came about in the
shadow of exclusion and limitation of liability clauses in contracts. The development of
these clauses was a natural response the changing nature of business sophistication of the
20th century. As parties began to deal on a more large-scale basis, contracts needed to drawn
up to regulate business amongst parties; chiefly to regulate the risk and liability that could
arise from contractual performance. The financial industry in particular has garnered much
pre-eminence as one of the main drivers of modern capitalism. The working flow of credit
is essential to the purchases and costs of businesses today. Whilst courts have been reluctant
to offer protection to sophisticated parties that engage in commercial transactions regarding
banking institutions (for adherence to freedom of contract ideology and public policy1),
arguably not enough protection has been afforded to individual consumers vis-à-vis banks
and other financial services providers. This essay will seek to focus to explain the extent of
the law that governs enforceability of unfair/unreasonable terms, whilst engaging in analysis
of its applications to the financial services sector. Beginning with the case of Director of
the Office of Fair Trading v First National Bank plc [2001] UKHL 52, [2002] 1 AC 481, and
looking at the subsequent case law and legislation, it will be concluded that the current UK
law is not adequately applicable the banking and financial sectors. The law, whilst appearing
to be a great protector of small businesses and individual consumers, falls short of actually
having strong effect in the event of unfair or unreasonable bank terms.
The earliest form of judicial control of exclusion clauses can be found in the common
law. There are two forms by which it has sought to determine the validity of said clauses.
The first is by incorporation of terms, of which contains five tests. Beginning with signature,
it is held that once you sign a contract you are bound by its terms.2 The second is one of
notice - here the exclusion clause must be introduced before or at the time of contract,3 and
be reasonably brought to the attention of the contracting party.4 Third, incorporation can be
completed through terms on a ticket. Sufficient attention must be brought to the terms and
conditions on it and can only be valid in circumstances which a reasonable person would
1. IFE Fund SA v Goldman Sachs International [2006] EWHC 2887, confirmed [2007] EWCA Civ 811;
Springwell Navigation Corp. v. JP Morgan Chase Bank (formerly Chase Manhattan Bank) [2010] EWCA Civ
1221; Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317
2. L’Estrange v F. Graucob Ltd [1934] 2 KB 394; however, a signature could be invalidated by an oral overriding
warranty such as a misrepresentation that would have falsely induced the signature (Curtis v Chemical
Cleaning & Dyeing Co [1951] 1 K.B. 805)
3. Olley v Marlborough Court [1949] 1 KB 532
4. Parker v South Eastern Railway (1877) C.P.D. 416. This is an objective requirement; those who are
illiterate will not have a defence if there is reasonable notice brought to a contracting party’s attention
(Thompson v LMS Railway Co.)
Queen Mary Law Journal
expect to find such terms and conditions.5 Fourth, reference to other documents or onerous
terms. If such is the case, it has been held that explicit attention must drawn to those terms,6
sometimes even using bold font and a red hand.7 The last test is through course of previous
dealings, whereby if parties have consistently done business together, it will be held that they
were sufficiently aware of the exclusion clauses and hence valid.8
If it is proven that the exclusion clause was incorporated into the contract through
any of the aforementioned tests, the clause needs to prove that it covers the breach in
question – this implies that the courts perform the contra preferentum rule9 and evaluate
the seriousness (fundamental) of the breach.10 The application of these interpretive tools has
been significantly limited with the introduction of the UCTA and the later Regulations. The
case law, although abundant, does not really apply anymore to modern banking cases, as
some judges have recognised it as old intellectual baggage.11 It would be more beneficial to
engage with the legislation and determine whether or not they can actually be of assistance to
consumers and small businesses when it comes to unreasonable or unfair banking terms.
The UCTA was one of the first set of laws introduced by Parliament to regulate the
incorporation and validity of exclusion clauses in contracts. Its power allows the courts
to declare certain exclusion clauses ineffective in all circumstances and others ineffective
unless they comply with a requirement of reasonableness.12 It applies to both consumers
and business’, and even has provided small business’ with some measure of power to deal
as consumers as was illustrated in R&B Customs Brokers Co Ltd v United Dominions Trust
Ltd13. It has been very successful at providing relief to the ‘little man’ in a variety of cases
that exemplify the diversity of the Act.14 However there are reservations as to its viability in
banking scenarios. More specifically, in the case of small business’, the Act can potentially
fail to cover them in the event of unreasonable terms, as s.12 ‘dealing as a consumer’ is not
assessed in the same manner when dealing with financial services. In the case of Tital Steel
Wheels & Rogers v RBS plc,15 the court distinguished that in financial situations the FMSA16
regulations make redundant the use ‘of any kind’ in the provisions to determine whether
or not a claimant is dealing as a consumer; the UCTA s.12 provisions are set aside.17 That
being said, there is room to believe that a small business with a one-off bank or financial
interaction could be held as a private consumers, especially where the financial dealings
are not done for pure profit and speculative purposes,18 thus affording the protection of the
UCTA.
5. Chapelton v Barry Urban District Council [1940] 1 K.B. 532. The court’s standards are very high in this
matter, as parties must go to great lengths to bring exclusion clauses in tickets to their contracting party’s
attention, especially in the case of car parks where signs of liability exclusion must be made visible and
explicitly referenced at the time of contracting (Thorton v Shoe Lane Parking)
6. Dillon v Baltic Shipping Co. Ltd. (1993) 176 CLR 344, 111 ALR 289, 67 ALJR 228
7. Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] 1 Q.B. 433
8. J Spurling v Bradshaw [1956] 1 Q.B. 742: In cases where there was no consistency in the way in which
exclusion clauses were made notice of, the courts have held that there will be no incorporation of said
terms (McCutcheon v MacBrayne, Ltd [1956] 2 All E.R. 121). In consumer contract case, the threshold for
number of previous dealings is very high (Hollier v. Rambler Motors (AMC) Ltd [1972] 2 QB 71).
9. See Appendix at section A, subsection 1 for further case law and analysis
10. See Appendix at section A, subsection 2 for further case law and analysis
11. Ibid, specifically BCCI v Ali in reference to Canada Steamship interpretation guidelines
12. Trietel: The Law of Contract, 12th edn Thompson Street & Maxwell, edited by Edwin Peel: 2007, 266
13. [1988] 1 WLR 321
14. Section 11 George Mitchell v Finney Lock Seeds [1983] 2 A.C. 803; Schedule 2 Phillips Products v
Hyland [1987] 2 All E.R. 620; Section 3 St. Albans City and District Council v International Computers Ltd
[1995] FSR 686
15. [2010] EWHC 211 (Comm), 2008 Folio 1231
16. Financial Markets and Services Act 2000 Regulations
17. Ibid at [68]
18. Ibid at [73-76]
Annual Essay Contest: First Year Contract Law
It is clear that the UCTA does not extend to cases regarding sophisticated financial
parties. Section 11 subsection (1) on misrepresentations often exemplifies this, where banks
are found to have not made misrepresentations based on the fact that their representations
had only a possibility as to misleading information.19 Equal bargaining power and access
to legal advice are criteria that courts consider to render the effect of the act inapplicable.20
Hence, if dealing with individual consumers and small businesses, the courts will be more
sympathetic – paradoxically however, in most banking cases with the aforementioned
claimants, the UCTA is seldom brought into the line of argument.
The UTCCR Regulations, on the other hand, are frequently used in such cases.
One major draw backs of the Regulations, however, were that they did not include any
sort of business to business transactions, only ‘natural’ consumers21 - it seems rather easy
for banks and financial service providers to exploit small businesses whom engage in loan
and investment schemes.22 Furthermore, the Act purportedly sets out to afford relief to
consumers but more often than not comes up short in regards to defining the unfair term
and actually assessing it as unfair, specifically s.5(1)23 and s.6(2)24 respectively. The cases
below highlight these concerns and for the later reasons stated, reform proposals to these
Acts are required if they are to have adequate effect.
Whilst there is litany of issues within the financial sector and the overall industry
needs regulatory reform, several cases outline the problem with unfair terms in banking
contracts. In Director General of Fair Trading v First National Bank,25 the clause in question
was a common-form loan agreement, whereby should a borrower default on his loan
payments, interest would continue to accrue at the contractual rate until any judgment
obtained by the bank was discharged.26 Regulation 6(2)(b)27 provides that contract terms
relating to the adequacy of remuneration are not subject to the fairness test. The judgments
given confirmed that the bank’s clause did fall within the ambit of 6(2)(b) but once assessing
the actual fairness of the term, the requirements of good faith and significant imbalance
(s.5(1)) favoured the bank. Lord Bingham said that while he admitted the term was unfair,
it was perfectly made notice of, in line with other statute,28 and was a standard procedure
by which the bank was recovering its rightfully owed monies.29 The judges recognised this
unfortunate outcome, but there was nothing the Regulations could do in the face of statute
and standard business practices. Perhaps more disconcerting was Supreme Court decision in
Abbey National plc.30
In that case, the OFT wanted to challenge the excessive charges levied against bank
customers for the services supplied to them. The court therefore had to consider whether or
19. Supra note 1, as well as certain occasion the courts will use the Smith v Eric Bush criteria in concurrence
Schedule 2 UCTA guidelines
20. Bank Leumi (UK) plc v Wachner [2011] All ER (D) 278 (Mar)
21. UTCCR 1999, s.3(1)
22. The law excludes any company from being an artificial legal person as it does not confine with s.3(1);
see Standard Bank London Ltd v Apostolakis [2001] Lloyd’s Rep Bank 240
23. A contractual term that has not been individually negotiated shall be regarded as 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
24. Provides that in so far as a term is in plain intelligible language…
25. [2002] 1 A.C. 481
26. [2002] 1 AC 481; where the court extended time for repayment of a loan, the borrower therefore
remained liable for the interest which had accrued during that extended period after all the instalments
due under the judgment had been paid
27. Was actually regulation 3(2)(b) in 1993 Regulations
28. Consumer Credit Act 1974
29. Director General of Fair Trading v First National Bank [2002] 1 AC 481, at [24]
30. Office of Fair Trading v Abbey National plc [2008] EWHC 875 (Comm), [2008] 2 All ER (Comm) 625
Queen Mary Law Journal
not such terms in a contract were within the jurisdiction of 6(2)(b). The Supreme Court held
that “relevant charges constituted part of the price remuneration for the banking services
provided by the banks and, in so far as the terms had been found to be in plain intelligible
language, any assessment of the fairness of those terms which related to their adequacy as
against the services supplied was excluded by regulation 6(2)(b).”31 In other words, the terms
were considered ‘core’ and easily understood and thus outside the scope of the Regulations.
The significance of this was that it now appears possible after Abbey National that “regulation
6(2)(b) would only exclude from the relevant assessment ‘default provisions’ or terms which
‘require ancillary payments to be made which are not part of the price or remuneration for
goods or services to be supplied under its terms.’32 What of excessive overdraft charges then?
Most terms in bank contracts concern the adequacy price and remuneration of the parties
– an issue brought up by Lord Steyn in First National. Does this imply that consumers are
not covered from clear and core-related, yet seemingly obvious unfair terms? Under the
Regulations, it would perhaps appear not.
In light of this, and as the UK moves out of a severe recession, it is worrisome to note
that the according legislation in effect to protect consumers has not done an adequate job.
The OFT has been weakened by these cases, and the public may not have faith that the OFT
will be able to protect them – especially with current law not actually requiring businesses
to stop their practices, but merely be susceptible to challenges from consumers.33 Simon
Whittaker has noted that the decision in Abbey National has only confused the legal position
in that it remains inconclusive as to “how the exclusion of the review of the level of prices
relates to terms by which a business seeks to impose monetary charges on the consumer
other than as (part of) the main price.”34 It also appears that little is being done to clear
anything up, as the Law Commission’s report in 2005 excludes financial services from its new
one-act merge proposal.35
However there is reason to cheer. Predatory lending is an example, albeit that not
many cases are pursued for cost and chances of success related reasons,36that has actually
received a lot of legal attention since the financial crisis. The OFT proposed changes to the
system, where in 2008 they launched their irresponsible lending project, “the aim [of which
was] to provide a clear OFT position on what constitutes ‘irresponsible lending’ within the
meaning of section 25 of the Consumer Credit Act 1974 (CCA 74) (the fitness test). It set
down clearly the types of conduct that the OFT considers unfair so that licensed businesses
know what [was] expected of them and consumers [were] made aware of business practices
that they should not expect to experience when dealing with responsible businesses.”37
What is evident from the above cases is that the courts can only punish unfair
practices and rule out exclusion clauses so far. The current law’s extent, be it the UCTA or
UTCCR, is not as effective at protecting consumers and small businesses from unfair and/or
31. Ewan McKendrick, Contract Law: Text Cases and Materials, 5th edn OUP:2012, 485; summarising Abbey
National at [57]
32. Ibid summarising Abbey National at [113]
33. Susan Bright, ‘Winning the Battle Against Unfair Terms’, (2000) 20 Legal Studies 331, 333
34. Simon Whittaker, ‘Unfair Contract Terms, Unfair Prices and Bank Charges,’ (2011) MLR 74(1) 106-134,
at p. 122
35. Law Commission No 292 and Scottish Law Commission No 199, paras. [9-17] proposal to join the
UCTA and UTCCR into one central Act
36. Special caveat; this fact only relates to American cases as finding examples of UK cases proved
unsuccessful - http://money.cnn.com/2009/10/08/news/economy/Predatory_lending_lawsuits_
increase/index.htm
37. http://news.bbc.co.uk/1/hi/business/8596908.stm
Annual Essay Contest: First Year Contract Law
unreasonable terms in banking contracts as set out to be. Positive signs have been heralded
by the OFT in their crack down of irresponsible lending by banks. There are also sings that
the OFT and FSA are working together to create a more coherent response to unfair and
misleading banking and financial practices.38 Nevertheless there are still grounds for concern
as it is not clear that the law can be used to fully protect customers.39 There are far too many
exceptions and different pieces of statute to comply with. The Law Commission’s proposal
to unify the UCTA and the UTCCR is a great initiative to make the law more accessible
and simple – but it will also need to comprise financial services and, in my opinion, make
specific provision relating to banking contracts, as it becomes evident that such transactions
are core to the economy. A good start in re-writing some of the existing law would be (in the
Regulations) to make any term challenged by the OFT subject to an assessment of fairness.
Other proposed changes could take the form of more power and resources to specific bodies
like the OFT and FSA to prosecute such cases. It is up to Parliament to make these changes,
and so far they have come up short.
38. Office of Fair Trading, ‘Fiancial Services Strategy, a consultation document,’ April 2009
39. Reference to the Abbey National ruling
Travis R ober tson
“It was a bleak winter for our law of contract…Faced with this abuse of power - by the strong
against the weak - by the use of the small print of the conditions - the judges did what they
could to put a curb upon it. They still had before them the idol, “freedom of contract.” They
still knelt down and worshipped it but they concealed under their cloaks a secret weapon.”1
There has been much debate on whether, and to what extent, courts should enforce standard
form contracts. On one hand there are the traditional concerns of promoting freedom
and certainty of contract.2 On the other hand there is the concern to curb the potential for
unconscionable agreements concluded between parties of unequal barging power.3 While
vitiating factors such as misrepresentation, mistake, and duress operate to control procedural
unfairness the nature of standard form contracts and the circumstances within which they are
agreed combine to produce a substitutive unfairness, which often falls outside the parameters
of actions relying on such vitiating factors.4 This weakness, the result of the common law’s
historical preoccupation with libertarian ideals,5 has been increasingly exposed by the
proliferation of standard form contracts in consumer transactions over the past one hundred
years.6 In response common law developed two key mechanisms through which to police the
use of standard form contracts: incorporation and interpretation.7 More recently, parliament
has sought to bolster the courts ability to redress substantive unfairness particularly in
1. George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] Q.B. 284, per Lord Denning at 297.
2. Concerns which grew from the philosophical and economic milieu of the late eighteenth century and to which the
judiciary were predisposed. Samuel Williston, “Freedom of Contract,” Cornell Law Quarterly 6 (1921): 365 at 366-369;
James Gordley, The Philosophical Origins of Modern Contract Doctrine (Oxford: Clarendon Press, 1991) esp. 214-229.
John Griffith, The Politics of the Judiciary (Manchester: Manchester University Press, 1977). For a critque of the traditional
narrative see; David Lieberman, “Contract before ‘Freedom of Contract’,” in The State and Freedom of Contract, 89-121
(Stanford: Stanford University Press, 1998).
3. In George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd, Lord Denning MR gave a characteristically colorful
summary of the debate and outlined the development of common law and statutory remedies by comparing freedom of
contract with oppression of the weak in the context of exclusion clauses. 296-301. See the epigraph.
4. See below and Mindy Chen-Wishart, Contract Law, Fourth Edition (Oxford: Oxford University Press, 2012) 370.
5. See above note 2 and P.S. Atiyah, The Rise and Fall of Freedom of Contract (Oxford: Clarendon Press, 1985).
6. Martin Cutts and Chrissie Maher, Small Print: the Language and Layout of Consumer Contracts: A Report to the National
Consumer Council (London: National Consumer Council, 1983). This trend is not restricted to England and Wales. More
recently, the National Consumer Law Center has estimated that over 80% of contracts with internet service providers
in Massachusetts are standard form. National Consumer Law Center, Establishing Billing and Termination Practices
for Telecommunications Carriers, (Boston: Commonwealth of Massachusetts Department of Telecommunications and
Enegry, 2006) 3.
7. The principles of interpretation have almost exclusively been developed in case law relating to exclusion and liability
clauses: Glynn v Margetson & Co. [1893] A.C. 351; London and North Western Railway Co. v Neilson [1922] 2 A.C. 263;
Cunard Steamship Co. Ltd. v Buerger [1927] A.C. 1; Canada Steamship Lines Ltd. v The King [1952] A.C. 192; Sze Hai
Tong Bank Ltd. v Rambler Cycle Co. Ltd. [1959] A.C. 576; Levison v Patent Steam Carpet Cleaning Co. Ltd. [1978] Q.B. 69;
Ailsa Craig Fishing Co. Ltd. v Malvern Fishing Co. Ltd. [1983] 1 All E.R. 101; George Mitchell (Chesterhall) Ltd. v Finney
Lock Seeds Ltd. [1983] 2 A.C. 803.
George Mitchell (Chesterhall) Ltd. v Finney Lock Seeds Ltd. [1983] 2 A.C. 803
Queen Mary Law Journal
consumer contracts.8 This essay considers the problems raised by standard form contracts and
assesses how well the law deals with them. The first section outlines the problems that such
contracts raise while considering any benefits that arise from the use of stand form contracts.
In the second section the techniques that are available to the courts to control any problems are
described before the third section evaluates how effective these techniques are.
Perhaps the greatest problem with standard form contracts is that there is rarely a mutually
understood and consented agreement as the offeror has carefully constructed the agreement
in their best interests while the offeree usually does not understand the terms or has not even
read them.9 The law has a general presumption that a signature is binding regardless of what
is regarded as ancillary circumstances which surround the conclusion of the agreement.10 This
presents the offeror a, sometimes irresistible, opportunity to include terms so advantageous
to them that they amount to a substantive unfairness towards the other party. The extreme
example of this behavior is where the offeror includes terms which are designed to exclude or
limit liability that might arise as a result of its contractual obligations. Such terms are especially
unfair in standard form consumer contracts as consumers often fail to read or understand the
contracts they sign.11 The situation is magnified in agreements involving consumers of low
socio-economic standing, as they are even less likely to have read the contract, more likely to
be faced with exclusion clauses (because of the greater risks they present) and often are unable
to afford to challenge the contracts.12 These problems are often exacerbated because consumers
are given little choice as standard form contracts have become the default means of structuring
many types of everyday transactions and service providers and merchants are less willing to
negotiate with individuals preferring a take it or leave it approach to customer relations.13
The courts have recognized that in contracts between two sophisticated parties such as those
between businesses exclusion and limitation clauses provide an efficient means of allocating
risk are often agreed upon quid pro quo.14 Even where sophisticated parties use standard form
8. i.e. Unfair Contract Terms Act 1977 [http://www.legislation.gov.uk/ukpga/1977/50] and The Unfair Terms in Consumer
Contracts Regulations 1999 [http://www.legislation.gov.uk/uksi/1999/2083/contents/made].
9. In one sense standard form contracts could be said to exist without consensus ad idem in a broad sense however, on
most occasions the parties intend to enter into a legally binding agreement for exchange of goods or services and are
only without agreement to the [same] thing in respect of the conditions under which the contract they consent is to be
executed. As to the requirement and extent of consensus ad idem see; Household Fire and Carriage Accident Insurance
Co. Ltd. v Grant (1879) 4 Ex D 216; Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256; R. Austen-Baker, “Gilmore
and the Strange Case of the Failure of Contract to Die After All” Journal of Contract Law 18 (2002): 1. cf. the American
approach in Baltimore & Ohio R. Co. v United States (1923).
10. “When a document containing contractual terms is signed, then, in the absence of fraud, or, I will add,
misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not.”
L’Estrange v E. Graucon Ltd. [1934] 2 K.B. 394 per Scrutton LJ at 403; Peekay Intermark Ltd. v Australia and New Zealand
Banking Group Ltd. [2006] 2 Lloyd’s Rep. 511.
11. Research commissioned for the Crowther Committee in 1971 suggested that over 50% of consumers concluding
hire-purchase agreements did not properly read the documents. Commitee on Consumer Credit, Survey of the Past
and Present Borrowing Patterns of Consumers in Britian (London: Department of Trade and Industry, 1971) 17. A 1980
report by the National Consumer Council revealed that only 26% of consumers entering into a hire purchase or credit
sale agreement had read the entire agreement. National Consumer Council, Consumers and Credit (London: National
Consumer Council, 1980) 216. More recently, the Office of Fair Trading found that just 23% of consumers had a good
read of the contract or its terms and conditions before signing. Gavin Ellison, Quantitative Survey of Consumers Appendix
D to Consumer Contracts Report (London: Office of Fair Trading, 2011) 31.
12. Ibid.
13. Merchants of digital content and computer software uniformaly adopt the take it or leave it approcah leaving no
room for negeoation, however these catagories of contract were the less likely to result in consumer dissatiffaction or
complaints. Office of Fair Trading, Consumer Contracts, (London: Office of Fair Trading, 2011).
14. Granville Oil and Chemicals Ltd. v Davies Turner and Co. Ltd. [2003] 1 All E.R. 819; Watford Electronics Ltd. v
Sanderson CFL Ltd. [2001] IP & T 588
Annual Essay Contest: First Year Contract Law
contracts there is a greater understanding of what terms are involved through independent
legal advice or knowledge of trade custom. In these circumstances standard form contracts can
considerably reduce legal costs while speeding up transactions without seriously undermining
the fairness of the agreement.15
Standard form contracts involving consumers do reduce merchants legal costs enabling them
to sell goods at lower prices yet this saving may not always be passed on to the consumer.
Standard form contracts do speed up consumer transactions allowing customers to enter into
complex service provision agreements in a matter of minutes although the eventual price for
such connivance may be higher than originally anticipated. Despite this it is ridiculous to
imagine a situation where before boarding a train or bus one would first have to spend time
negotiating conditions of carriage and drafting an agreement. Such a situation while it may
protect consumers from unexpected exclusion clauses surely undermines the purpose of the
contract: to enable one to get from A to B quickly at low cost and without inconvenience.
A second major problem with standard form contracts arises where both parties are using a
standard form. This situation is almost exclusively restricted to contracts between businesses.
Where the parties negotiating an agreement each have their own standard form contract and these are exchanged - there may be a presumption in law that the last form presented
takes precedence.16 Due to the uncertainty of the law in this area it may be more prudent to
construct a mutual contract.
The legal attitude towards standard form contracts has been to accept the legitimacy of the
contracts, as a means of preserving freedom of contract, while targeting specific terms which
produce substantive unfairness, as a means of preventing unconscionable conduct. Common
law polices unfair contract terms in two main ways. Firstly, the law seeks to restrict the
circumstances where such terms can be incorporated into the agreement. Secondly, it operates
to interpret unfair terms restrictively and against the interests of the party seeking to rely
upon the term. In addition the Unfair Contracts Terms Act 1977 (UCTA) and the Unfair Terms
Consumer Contracts Regulations 1999 (UTCCR) provide the courts with mechanisms whereby
unconscionable terms can be removed from contracts altogether.17 It must be noted that while
the act specifically targets exclusion and exemption clauses the regulations have a wider scope
as they operate against a wide range of unfair terms.18
15. The use of standard form contracts by small businesses is officially encouraged in Australia for these reasons:
Department of Industry, Innovation, Science, Research, and Tertiary Education, Working with Contracts, (Canberra:
Commonwealth Government, 2012) at 23-24. cf. the Law Commission’s recommendations that contractual relations
between small and medium enterpriese should be govenrned by similar principles used in the policing of consumer
contracts: The Law Commission and The Scottish Law Commission, Unfair Terms in Contracts (London: Her Majesty’s
Stationery Office, 2005) at 4, 14 and esp. 15-17 [Law Com. No. 292, Scot. Law Com. No. 199].
16. Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd. [1979] WLR 401.
17. The power to override exemption clauses found to be unreasonable had previously been introduced in the case of
implied terms in the sale of goods by the Supply of Goods (Implied Terms) Act 1973. Similar powers now exist in section
55 of the Sale of Goods Act 1979. The UCTA however, provides more extensive controls to a broader category of contracts
and is therefore discussed here more fully.
18. But section 13(1) includes clauses making enforcement of liability subject to compliance with a condition, clauses
excluding or limiting any right or remedy that would otherwise be available, and clauses restricting or excluding rules of
evidence or procedure. See: Stewart Gill Ltd. v Horatio Myer & Co. Ltd.[1992] 1 Q.B. 600. Terms which purport to modify
expected obligations are also covered by section 13: Smith v Eric S. Bush [1990] 1 A.C. 831.
Queen Mary Law Journal
There are four main ways which the courts recognize can incorporate terms into contracts;
(1.) incorporation by signature into a written document,19 (2.) by reasonable notice, (3.) on
the basis of consistent dealing, and (4.) through the common understanding of the parties.20
Incorporation by signature as discussed above stems from the presumption that in written
agreements a signature is legally binding. The other three requirements can be used to assess
incorporation where the contract is formed without written assent. Reasonable notice must be
given at or before the contract is made and must be found in a document which a reasonable
person would expect to contain contractual terms.21 Notices referring to another document
containing terms are capable of incorporating terms contained therein.22 As general rule the
more onerous or unusual a term the more demanding the requirements of notice will be.23
Incorporation on the basis of consistent dealing requires that the clause have been brought to
the other party’s attention in a consistent manner,24 although its application is limited where
the dealings have been on relatively few occasions spread over a substantial period of time.25
Incorporation through the common understanding of the parties is an application of the trade
custom principle,26 which works to recognize widespread use of standard contracting terms
within in a particular industry, to exclusion and limitation clauses.27
If an exclusion or limitation clause meets the requirements for incorporation then it will be
constructed contra proferentem.28 The courts will not imply any exemption greater than that
contained in the clause.29 The clause must expressly exempt the proferens from negligence
to be operative unless its wording is wide enough to cover negligence and there is no other
19. Under section 7 of the Electronic Communications Act 2000 electronic signatures are valid instruments of incorporation.
20. Terms may also be incorporated by the importance attached test: City and Westminster Properties (1934) Ltd. v Mudd
[1959] Ch. 129 and may be found enforceable although not incorporated by the implication of a collateral contract:
Evans & Son (Portsmouth) Ltd. v Andrea Merzario Ltd. [1976] 2 All E.R. 930.
21. Parker v South Eastern Railway [1877] 2 C.P.D. 416; Chapelton v Barry Urban District Council [1940] 1 K.B. 532;
Olley v Marlborough Court Hotel [1949] 1 K.B. 532; Thornton v Shoe Lane Parking Ltd. [1971] 2 QB 163; Grogan v Robin
Meredith Plant Hire
[1996] C.L.C. 127; Photolibrary Group Ltd (t/a Garden Picture Library) & Ors v Burda Senator Verlag GmbH & Ors
[2008] 2 All E.R. 881. For a useful general summary of the key decisions see: Claire Strickland, “Tickets Please!,” (Legal
Executive, February 2003): 20.
22. Parker v South Eastern Railway; Gibaud v Great Eastern Railway Company [1921] 2 K.B. 426; O’Brien v Mirror Group
Newspapers Ltd. [2001] E.W.C.A. Civ. 1279.
23. “ …the more unreasonable a clause is, the greater the notice which must be given of it. Some clauses which I have seen
would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could
be held to be sufficient.” J. Spurling Ltd. v Bradshaw [1956] 1 W.L.R. 461 per Denning LJ at 465; Parker v South Eastern
Railway; Interfoto Picture Library Ltd. v Stiletto Visual Programmes Ltd. [1989] Q.B. 433; Ocean Chemical Transport Inc.
v Exnor Craggs Ltd. [2000] 1 All E.R. 519. For insight of the reasonable test in operation see: Kaye v Nu Skin U.K. Ltd.
[2012] C.T.L.C. 69 here a clause providing that disputes were to be resolved by arbitration in Utah was held to not to
be unreasonable or onerous. Elizabeth Macdonald, “The Duty to Give Notice of Unusual Contract Terms,” Journal of
Business Law, (September 1988): 375.
24. McCutcheon v David MacBrayne Ltd. [1964] 1 Lloyds Rep. 16; Hardwick Game Farm v Suffolk Agricultural and
Poultry Producers Association Ltd. [1969] 2 A.C. 31; Petrotrade Inc. v Texaco Ltd. [2002] 1 W.L.R. 947; Balmoral Group
Ltd. v Borealis Ltd. & Ors. [2006] 2 Lloyds Rep. 629.
25. Hollier v Rambler Motors (AMC) Ltd. [1972] 2 Q.B. 71; Eric Barendt, “Exemption Clauses: Incorporation and
Interpretation,” The Modern Law Review 35, no. 6 (November 1972): 644.
26. Linda Mulcahy, Contract Law in Perspective (Oxford: Routledge, 2008) 160; WN Hillas & Co. Ltd. v Arcos Ltd. (1932)
147 L.T. 503.
27. British Crane Hire Corporation Ltd. v Ipswich Plant Hire Ltd. [1973] Q.B. 303 cf. Scheps v Fine Art Logistic Ltd
[2007] E.W.H.C. 541 (Q.B.); Richard Austen-Baker, Implied Terms in English Contract Law (Cheltenham: Edward Elgar
Publishing, 2011) at 79-99.
28. Beck and Co. v Szymanowski and Co. [1924] A.C. 43; Houghton v Trafalgar Insurance Co. Ltd. [1954] 1 Q.B. 247.
The contra proferentem rule is now expressly incorporated in relation to consumer contracts in the Unfair Terms in
Consumer Contracts Regulations 1999, SI 1999/2083, reg. 7(2).
29. Andrews Bros. (Bournemouth) Ltd. v Singer & Co. Ltd. [1934] 1 K.B. 17.
Annual Essay Contest: First Year Contract Law
ground on which damages may be sought.30 Limitation clauses, while still being construed
contra proferentem, are not regarded with the same hostility as exemption clauses.31
The application of the UCTA may render an exemption clause either totally unenforceable
or unenforceable unless shown to be reasonable. Section two makes terms purporting
exemption for death or personal injury resulting from negligence invalid while establishing a
reasonableness test for assessing the validity of clauses which limit or exclude liability for other
losses or damage.32 Where one party deals as a consumer33 terms implied by the Sale of Goods
Act 1979 and the Supply of Goods and Services Act 1982 cannot be excluded but if the contract
is between businesses the exclusions will stand if shown to be reasonable.34 The act therefore
contains an important distinction between those dealing as consumers and others.35
The UTCCR provides that unfair terms will not be binding on consumers in a contract
concluded between them and a seller or supplier. The regulations apply only in the case of
consumer contracts, although their application is extended beyond exemption clauses to
unfair terms in general, while certain core terms are excluded from the scope of the UTCCR.
It regulates contracts by finding terms unfair if they; “are contrary to the requirement of good
faith, cause a significant imbalance in the parties rights under the contract, to the detriment
of the consumer.”36
The most striking deficiency in the law’s approach to policing standard form contracts is
its presumption that a signature binds regardless of whether or not the contract has been
read or understood. Given that only 23% of consumers read standard form contracts before
signing there seems an enormous gap between the law’s view and the day-to-day reality of
the ordinary people it is there to protect.37 This difference between the formalism of the law
30. Canada Steamship Lines v The King [1952] A.C. 192 per Lord Morton at 208; White v John Warwick Co. Ltd. [1953]
1 W.L.R. 1285. cf. the more relaxed approach in recent cases: Investors Compensation Scheme Ltd. v West Bromwhich
Building Society [1998] 1 W.L.R. 898; HIH Casualty & General Insurance Ltd. v Chase Manhattan Bank [2003] 1 All E.R.
349. Although: Monarch Airlines Ltd. v London Luton Airport Ltd. [1997] C.L.C. 698; E.E. Caledonia Ltd. v Orbit Valve
Co. plc. [1994] 1 W.L.R 1515.
31. Ailsa Craig Fishing Co. Ltd. v Malvern Fishing Co. Ltd. [1983] 1 W.L.R 964 per Lord Wilberforce at 966; George
Mitchell v Finney Lock Seeds [1983] 2 A.C. 803; BHP Petroleum v British Steel [2000] 2 All E.R. 133. cf. the approach
taken by the High Court of Australia in Darlington Futures Ltd. v Delco Australia Pty. Ltd. (1986) 161 C.L.R. 500; John
Kidd, “Exclusion and Limitation Clauses in the Australian High Court,” The Modern Law Review 50, no. 7 (November
1987): 952.
32. Other loss or damage includes property damages and financial loss: Robinson v P.R. Jones (Contractors) Ltd. [2011]
3 W.L.R. 815.
33. “Dealing as a consumer” is defined in UCTA 1977 s. 12 and clarified by the Court of Appeal in R. & B. Customs
Brokers Co. Ltd. v United Dominions Trust Ltd. [1988] 1 W.L.R. 321 although not without criticism esp. cf. the same
court’s definition of “in the course of a business” in Stevenson v Rogers [1999] 2 W.L.R. 1064. The argument to harmonize
these two seemingly apposite definitions was rejected in Feldarol Foundry plc. v Hermes Leasing (London) Ltd. (2004)
101 (24) L.S.G. 32.
34. UCTA 1977 s. 6, s. 7, s. 12; SGA 1979 ss. 13-15; SGSA 1982 s. 2; Southwark London Borough Council v IMB U.K. Ltd.
[2011] 135 Con. L.R. 136.
35. A distinction reflected in the case law: Granville Oil and Chemicals Ltd. v Davies Turner and Co. Ltd. [2003] 1 All E.R.
819; Watford Electronics Ltd. v Sanderson CFL Ltd. [2001] IP & T 588.
36. UTCCR reg. 5(1).
37. See above n. 11; cf. Stewart Macaulay, “Non-Contractual Relations in Business: A Preliminary Study,” American
Sociological Review 28, no. 1 (February 1963): 55.
Queen Mary Law Journal
and the socio-legal reality is a well recognized with convincing arguments on both sides.38
Yet, as Spencer demonstrates the signature rule is challengeable from within the strict
confines of legal formalism.39 Even though, there is no subjective assent to unknown contract
terms objective agreement is itself in doubt when the established exceptions to the rule are
considered. Where the promisee actually knows or should have known that the promisor
was not actually assenting, there is no agreement on those terms.40 Surely, the mere presence
of onerous exclusion terms is enough to negate any presumption by the promisee that the
promisor actually assents, after all who would in their right mind sign a document headed “I
agree to pay for your goods even if they are useless?”41 As convincing as this argument is, it fails
to consider that the promisee might reasonably agree to such a term if other elements in the
contract outweigh this consideration. Often exclusion clauses are part of the parties attempt
to price risks that might arise out of their obligations. The risk of inexpensive useless goods
might be preferable to the certainty of expensive reliable ones. Perhaps it would be preferable
to apply the ordinary requirements of notice of terms to written agreements.42 Yet given the
benefit of certainty that the signature rule provides43 and the alternative means of protection in
the UCTA and the UTCCR this might be a moot point.44 Indeed an alternative reading of the
statics could suggest that the extremely low numbers that read contracts before assenting to
them might be a product of consumers’ confidence in the law policing these agreements. But
just how effective are the UCTA and the UTCCR at policing agreements?
There most significant problem raised by the UTCA stems from the ambiguity of the
reasonableness test. Although the validity of a contract term often rests on its reasonableness
the act provides no definition. It does however contain a set of guidelines that inform a court’s
assessment of the offending clause. In determining reasonableness the court must therefore,
entertain a whole range of considerations, before concluding the enforceability of the terms.45
This in turn limits the value of precedent,46 which in itself contributes to the confusion and
uncertainty that the complex process creates as cases on the same exclusion clause have
been decided differently.47 In addition the small value of precedent that might be useful has
38. See; Stewart Macaulay, “The Real and the Paper Deal: Empirical Pictures of Relationships, Complexity and the
Urge for Transparent Simple Rules,” The Modern Law Review 66, no. 1 (January 2003): 44; Hugh Collins, Regulating
Contracts (Oxford: Oxford University Press, 1999) cf. Alan Schwartz and Robert Scott, “Contract Theory and the Limits
of Contract Law,” Yale Law Journal 113 (November/December 2003): 541; John Gava and Janey Greene, “Do We Need
a Hybrid Law of Contract? Why Hugh Collins Is Wrong and Why It Matters,” The Cambridge Law Journal 63, no. 3
(November 2004): 605.
39. J. R. Spencer, “Signature, Consent, and the Rule in L’Estrange v. Graucob,” The Cambridge Law Journal 32, no. 1 (April
1973): 104.
40. Hartog v Colin & Shields [1939] 3 All E.R. 566.
41. Spencer, “Signature, Consent and the Rule in L’Estrange v. Graucob,” at 115.
42. Matthew Chapman, “Common Law Contract and Consent: Signature and Objectivity,” Northen Island Legal Quarterly
49, no. 4 (Winter 1998): 364; this is the case in Canada where notice is required in consumer contracts: Tilden Rent-ACar Co. v Clendenning (1978) 83 D.L.R. (3d) 400. Toll Pty. Ltd. v Alphapharm Pty. Ltd. (2004) 211 A.L.R. 342 per Gleeson
CJ at 54.
43. P.S. Atiyah, “Form and substance in Legal Reasoning: The Case of Contract,” in The Legal Mind: Essays for Tony
Honoré, ed. N MacCormick and P.B.H. Birks, at 34 (Oxford: Clarendon Press, 1986); Peekay Intermark v Australia & New
Zealand Banking Group [2006] 2 Lloyd’s Rep. 511 per Moore-Bick LJ at 543.
44. Indeed this reasoning was adopted by the High Court of Australia in Toll Pty. Ltd. v Alphapharm Pty. Ltd. (2004) 211
A.L.R. 342.
45. George Mitchell (Chesterhall) Ltd. v Finney Lock Seeds Ltd. [1983] 2 A.C. 803 per Lord Bridge at 816.
46. “It is important therefore that our conclusion on the particular facts of this case should not be treated as a binding
precedent in other cases where similar clauses fall to be considered…” Phillips Products Ltd. v Hyland [1987] 1 W.L.R.
659 per Slade LJ at 669.
47. Thompson v T. Lohan (Plant Hire) Ltd. [1987] 1 W.L.R. 649 cf. Phillips Products Ltd. v Hyland
Annual Essay Contest: First Year Contract Law
become, until recently, difficult to find because there are few reported decisions regarding the
reasonable test as a result of the court’s denial of its value and because consumer cases are likely
to be decided by county courts.
The UTCCR also relies upon vague and ill-defined criteria. In particular the drafting of
regulation 5(1) does not make clear whether the requirement of lack of good faith is additional
to the condition of imbalance between the parties, or if it is evidence of a lack of good faith
itself. Neither the directive nor the regulations provide clear guidance on this matter or on
what constitutes a significant imbalance. Regulation 6(1) provides that unfairness be assessed
by taking into account the subject matter, the circumstances surrounding formation and the
other terms of the agreement. This vagueness is partly offset by the provision of a long list of
terms, which are unfair against which others are gauged. Although this undoubtedly creates
uncertainty and complexity it leaves the courts substantial room to strike out terms and thereby
increases the potential scope of protections afforded to consumers.
The modes adopted for the policing of standard form contracts while, having a substantial
impact on legal certainty and perhaps being over-complicated, achieve their aim of providing
broad protection to vulnerable parties. The vagueness of the legislation and regulations makes
their application more readily fact specific which, while it can create uncertainty, operates
against the inherent discrimination of standard forms. Although the uncertainty of the UTCA
and UTCCR contrast sharply with the formalistic approach of the signature rule it may be
better placed to bridge the gap between the law’s understanding of contracts and the realities of
everyday life. Paradoxically, this combination of clarity and vagueness seems to be an effective
means of regulating standard form contracts as recent research indicates that only 4.8% of
consumer contracts result in a problem or dissatisfaction.48 Whether this impressive statistic
is the result of the law’s approach or a cultural shift is hard to determine. Either way the bleak
winter of exclusion clauses seems to have thawed significantly.
48. Ellison, Quantitative Survey of Consumers Appendix D to Consumer Contracts Report, at 13.