CONTRACT LECTURE 10 TRANSCRIPT
C STRICKLAND
EXCLUSION/EXEMPTION/LIMITATION CLAUSES Total time = 54.44 mins
Track/slide 1
First of all, when looking at exclusion clauses, it is necessary to make some general remarks
about their nature.
An exclusion clause is the same as an exemption clause . Such a clause is an Express Term
of the contract. The side putting it into the contract seeks to exclude himself from liability
should the things specified in the exclusion clause transpire.
A limitation clause is where one party seeks to limit his liability to a stated amount of money.
The rules we discuss for exclusion clauses apply similarly to limitation clauses.
In line with the doctrine of ‘laissez faire’ in the 19th century, originally it seemed OK to allow
parties to exclude their liability for things that might go wrong under the contract. This was a
time when most substantial contracts were between businessmen, who were regarded as being
on an equal footing. What exclusion clauses did was to allocate the ‘risk’ under a contract
and presumably this would be reflected in the final ‘price’ of the contract. A contract might
be less expensive for the side that bore more risks under the contract.
However, this approach was not seen as acceptable with new developments, basically when:
i.
ii.
more CONSUMERS started making contracts and
when widespread use of Standard Form Contracts (SFC) became the norm.
Track/slide 2
A SFC is just a written set of standardised contractual terms. These grew in popularity and
use due to the fact that it was unrealistic in many consumer contracts for the business to
‘waste’ time drawing up contracts from scratch with each consumer. It is arguable that if this
had to be done, the final ‘price’ of the item bought would be higher to reflect the time spent
on drawing up the contract.
It is usual for SFCs to contain one or more exclusion clauses. The problem is that a consumer
has had NO SAY in what goes into the SFC because of the unequal bargaining power. The
consumer can merely accept the contract or not and this does not really reflect any sort of
bargaining power.
Thus, both the COMMON LAW (the judges in court) and PARLIAMENT (Acts of
Parliament) have taken a REGULATORY ROLE with regards to the use of exclusion clauses
by businesses – especially when it is a business dealing with a consumer and sometimes
between businesses, though for the latter less often.
Track/slide 3
Exclusion clauses could be seen as just an ‘ordinary term’ of the final contract and be
interpreted as such by the judges in court. Thus, it could be seen as a term that merely
allocated risk under the contract with a price to reflect this.
However, judges do not do this. Rather, they see exclusion clauses as a ‘Defence’
that has been built into the contract to protect the person using it from claims of:
i. Breach of contract, or
ii. Negligence.
In the light of this, judges have taken a ‘restrictive’ approach when interpreting
exclusion clauses, in the first instance to protect a weaker party from exploitation by a
stronger party.
Track/slide 4
We can now consider the operation of exclusion clauses and what the person seeking
to rely on one has to prove in court.
The party wishing to rely on an exclusion clause has to prove 3 things:
i.
that the exclusion clause (the term) was actually incorporated into
the contract in the first place; and
ii.
that the exclusion clause actually covers the liability (loss/damage)
in question in the case; and
iii.
that the exclusion clause is not made ineffective by virtue of either
the Unfair Contracts Terms Act 1977 or the Unfair Terms in Consumer Contracts
Regulations 1999
We shall look at these 3 in turn.
Track/slide 5
First, then, we shall consider whether
the exclusion clause was incorporated into the contract.
We have already covered this work in a previous lecture when looking at how a term becomes
incorporated as an express term of the contract.
Here one has to consider such things as:
Firstly, was the document a contractual document? See for instance the cases of Barry v
Chapelton Urban District Council 1940 and Grogan v Robin Meredith Plant
Hire 1996 in which the ticket and time sheet respectively were not regarded as
contractual documents.
Secondly, did the consumer ‘sign’ the contract? If they did then it would seem that the
exclusion clause has been incorporated into the contract and it will be difficult
to plead non est factum – see L’Estrange v Graucob and Saunders v Anglia
Building Society 1971.
Thirdly, for unsigned documents, the timing of the notice given to the consumer on
tickets and other notices. See for example, Thornton v Shoe Lane Parking
1971 and Thompson v London, Midland and Scottish Railway 1930
And finally, one has to remember that the full contents of an exclusion clause may not
actually be incorporated into the contract if the person signing a document
was misled by a misrepresentation as to the contents of the document being
signed. See for example, Curtis v Chemical Cleaning and Dyeing Co Ltd
1951.
Track/slide 6
If the exclusion clause is incorporated into the contract, the judge then has to consider
whether it does actually cover the loss or damage in question.
Whether or not it does is down to how the judge interprets the exclusion clause using ‘rules of
construction’. Generally, the courts interpret them by giving the words used their ‘natural and
ordinary meaning’. However, under the rules of construction, it can be seen how the judges
often strained the interpretation to be given to words or phrases in an effort to protect the
weaker party against the stronger party. This was before the passing of the Unfair Contract
Terms Act in 1977 and the introduction of the Unfair Terms in Consumer Contracts
Regulations 1999. Since the introduction of the 1977 Act and 1999 Regulations there has
been less need for judges to struggle with words and phrases to protect the weaker party
because the 1977 Act and 1999 Regulations give the weaker party, especially the consumer, a
lot of protection against exclusion clauses. Under the 1977 Act the courts can now strike
down an exclusion clause if it is not ‘reasonable’ and this give judges a sweeping power that
was not available to them prior to 1977. Thus, even if the judge determines that an exclusion
clause does cover the loss in question, it is likely that a consumer will nevertheless be
protected from the effects of the exclusion clause under the 1977 Act because the judge can
say that it is not reasonable.
However, should the judge decide to get involved with the rules of construction, an outline of
their operation follows.
Track/slide 7
If the words in the ex clause are ‘ambiguous’ so capable of more than one interpretation, then
the courts will tend to use the ‘contra proferentum’ rule to interpret the clause to the
disadvantage of the person wanting to rely on it. Indeed, in order to protect one side of a
contract, the courts have in the past ‘found’ ambiguity in the words in exclusion clauses just
as a sneaky way to exert some control on exclusion clauses. Thus, in Houghton v Trafalgar
Inso Co Ltd 1954 the Court of Appeal found ambiguity in the word ‘load’ to the advantage
of the consumer. A car was covered by an insurance policy with an exclusion clause in it that
stated that no cover was provided when the car was carrying ‘any LOAD in excess of that for
which it was constructed’. An accident occurred when the car was carrying 6 people and the
car was designed for 5 people. The Court of Appeal held that the word ‘load’ was
ambiguous and using the contra proferentum rule construed it against the insurers as meaning
excess ‘weight’ rather than excess people. Thus, words in exclusion clauses, to be effective,
must be ‘clear’.
Track/slide 8
The courts have also not allowed an exclusion clause to be effective if it stands in conflict
with another term of the contract because of the ‘repugnancy’ rule. Thus, in Mendelssohn v
Normand 1970 the printed exclusion clause excluding liability for loss or damage to cars in
the car park could not be relied on because when the car park attendant promised to lock the
person’s car, this created an implied term in the contract that the contents of the car would be
safe. This is a bit like in Olley v Marlborough Court Limited 1949 where there was an
implied term in the hotel contract to safeguard the possessions of clients in the hotel rooms.
Since UCTA 1977, it is probably the case that these repugnancy cases would be interpreted as
being ‘unreasonable’ and so unenforceable and hence there is less need for judges to struggle
with artificial methods of construction.
Thus, the position so far explained is that at common law and it can be seen that judges had
no general power to strike down exclusion clauses because they were unreasonable - all they
could do was see if it was incorporated into the contract and if it was they might be able to
deny its effect by using one of the above rules of construction. This is why quite often they
‘stretched’ the rules of construction to protect consumers. However, such judicial gymnastics
is no longer necessary because it is much easier these days for the judge to make use of the
statutory controls on ex clause which greatly favour the consumer.
Track/slide 9
It is necessary to make a comment on ‘fundamental breach’. Sometimes a party will
claim that an exclusion clause protects them even if the breach of contract or
negligence relates to a ‘fundamental breach’ of contract, that is, one that goes to the
very root of the contract. Although historically, the courts have not allowed exclusion
clauses like this to be effective, invoking a ‘rule of law’ approach, these days, since
the case of Photo Production Limited v Securicor Transport Limited 1980, the
courts approach exclusion clauses that cover a fundamental breach of contract just
like any other breaches of contract – on a matter of construction. If they decide that
the exclusion clause does in fact cover the loss in question, even if the loss amounts to
a fundamental breach of contract, then the exclusion clause can apply to it. The
courts are less worried about this nowadays because such an exclusion clause still has
to be tested against UCTA 1977 and may fail if deemed ‘unreasonable’. There are
also the 1999 Regulations to test it against.
Track/slide 10
If the exclusion clause is said to be incorporated into the contract and if it is said to
cover the loss in question, the judge than has to determine whether UCTA 1977 or the
1999 Regulations affect its operation. Can they negate its operation?
A point to note here is that if the court decides that an exclusion clause is reasonable, then it
will stand because in England there is no ‘general’ doctrine of ‘unfairness’ or
‘unconscionability’ in contract law to protect the weaker side.
We shall look at these in turn, starting with
UCTA 1977
Track/slide 11
First we can note a few key points;
Firstly, UCTA governs contracts made in the ‘business setting’
Secondly, it is based on the ideas of REASONABLENESS and FAIRNESS
Thirdly, it does not apply to ALL terms, generally only to Exclusion Clauses – thus
a clever contract draftsperson will try to ‘hide’ terms excluding
their liability in terms which on the face of it do not look like exclusion
clauses to escape the Act . However, as we shall see, the courts
will be careful when looking at clauses to see if they really are
exclusion clauses and so are caught by the Act
One question is, how does UCTA stand viz a viz the common law rules of construction used
to avoid the effect of exclusion clauses mentioned above?
What we can see is that the common law rules are still important and will apply to those
contracts that do not fall within the scope of the 2 pieces of legislation.
Track/slide 12
We will only be looking at sections 1 to 3, and 11 of UCTA.
The act deals with what it calls ‘NEGLIGENCE’ liability and liability arising in
‘CONTRACT’.
Section 1 – of the Act, tells us what it means when the Act talks of ‘negligence’ and
the scope of the Act. It states:
s 1 (1)
For the purposes of this part of the Act, ‘negligence’ means
the breach(a) of any obligation, arising from the EXPRESS or
IMPLIED TERMS of a contract, to take reasonable
care or exercise reasonable skill in the performance of
of the contract;
(b) of any common law duty to take reasonable care or
exercise reasonable skill
(c) of the common duty of care imposed by the
Occupier’s Liability Act 1957
s 1 (3)
In the case of both contract and tort, sections 2 to 7 apply
ONLY to BUSINESS LIABILITY
You can see from this that besides covering the ordinary law of negligence (when someone
might try to escape their duty of care by for instance putting up a ‘notice’ to that effect) the
Act also covers negligence liability which may arise in a ‘contractual’ situation, most
notably when one party SUPPLIES A SERVICE for the other. As such we can see that the
terms that may be IMPLIED into a contract for the SUPPLY OF SERVICES under the
Supply of Goods and Services Act 1982 are subject to this Act – notably section 13 which
states:
‘In a contract for the supply of a service where the supplier is acting in the course of a
business, there is an implied term that the supplier will carry out the service with reasonable
care and skill’
Note that in section 12 of the 1982 Act, it is stated that a contract for the supply of a service is
such a contract even if ‘goods’ are also transferred under the contract – section 12 (3)(a).
Track/slide 13
Section 2 - concerns Negligence Liability
This section informs us that a person cannot by reference to a contract term or a notice
exclude or restrict his liability for DEATH OR PERSONAL INJURY resulting from
negligence.
However, a person may exclude or restrict his liability for ANY OTHER TYPE OF LOSS
OR DAMAGE so long as the contract term or notice satisfies the requirement of
REASONABLENESS.
Track/slide 14
Section 3 – concerns Contract liability
This section gives protection to both CONSUMERS and ANYONE TRADING ON THE
BASIS OF A STANDARD FORM CONTRACT (who may also be a consumer though it
could be a businessperson).
The section concerns ‘breach’ of contract and the standard of ‘performance’ of the contract
and subjects any exclusion clauses to the test of REASONABLENESS.
It states:
s 3 (1)
This section applies as between contracting parties where
one of them deals as a consumer or on the other’s written
standard terms of business.
(2)
As against that party, the other cannot by reference to any
contract term(a) when himself in BREACH of contract, exclude or
restrict any liability of his in respect of the breach; or
(b) claim to be entitled(i) to render a contractual performance substantially
different from that which was reasonably expected
of him, or
(ii) in respect of the whole of any part of his
contractual obligation, to render no performance
at all,
EXCEPT in so far as the contract term satisfies the requirement of
REASONABLENESS.
Track/slide 15
Can the terms that are ‘implied’ under the Sale of Goods Act 1979 and under Supply of
Goods and Services Act 1982 be excluded from a contract?
The implied term as regards ‘title’ in either act cannot be excluded at all.
The implied terms as regards description, quality and suitability and sample of goods sold
under the SGA 1979 and provided under the SGSA 1982, CANNOT be excluded as regards
CONSUMERS
but
may be excluded in business to business contracts when the exclusion clause will be put to the
test of reasonableness under UCTA.
These rules had to be put on a statutory footing because business people historically had been
able to exclude the operation of these implied terms; the net result of which was that the
implied terms were not worth the paper they were written on.
You can see how UCTA has given lots of protection to consumers and arguably less to
business people when trading with business people to reflect inequality or equality of
bargaining power.
It can be seen that the whole Act hinges on what is ‘reasonable’ and so we need to consider
what is reasonable. This is answered in section 11 and Schedule 2 of UCTA.
Track/slide 16
Section 11 explains what is meant by ‘reasonableness’
First, note that the reasonableness test does not apply to, for instance, s 2(1) of the Act which
totally prohibits exclusion clauses regarding death or personal injury arising from negligence.
Also, that the reasonable test does not apply to the implied terms noted earlier that cannot be
excluded in ‘consumer’ contracts.
Section 11 states:
s 11 (1)
that the court should decide whether the term in the contract
was a fair and reasonable term in the light of
- circumstances known to the parties
- circumstances that ought reasonably to have been known
to them
- circumstances that were in their contemplation
when the contract was made.
s 11 (5) put the onus of proving reasonableness on the person wishing to say the clause was
reasonable
Just what is reasonable or not is left up to the judges to decide and it is clear that the judges
are not prepared to let a decision on reasonableness in one case become a precedent for use in
subsequent cases – they want each new case to be decided on its own particular facts and
circumstances. In fact there aren’t many reported cases on reasonableness because most
cases, especially those involving consumers, have been dealt with in the County Court whose
decisions are not reported. There are a few reported cases in the appellate courts but these are
mainly cases between business and business – purely commercial cases.
What we can see is that the judges take a different stance in consumer cases and in
commercial cases.
In consumer cases they are more likely to say an exclusion clause was unreasonable and thus
‘interfere’ in the contract to ‘protect’ the consumer.
But in purely commercial cases they like to support ‘laissez faire’ and interfere less in the
contract – and so are more likely to say that an exclusion clause can stand.
Track/slide 17
Some of the factors the judges consider are:
was there equality or inequality of bargaining power?
was the contract on a standard form contract?
were alternative contracts available?
did one party deal as a consumer?
did the parties have a previous course of dealing?
was one party covered by insurance so that the contract reflected an allocation of risk to the
one insured?
was the price lower due to the ex clause and acceptance of risk?
and so forth.
Some of these things are listed in Schedule 2 to the Act which have been applied generally to
reasonableness although supposedly only to the sale of goods. Some of these points can be
seen in the following cases but remember they do not necessarily form precedents.
Track/slide 18
For commercial cases we can look at, firstly
R W Green Ltd v Cade Brothers Farms 1978
In the contract between the two businesses for the sale of seed potatoes there was a
‘limitation’ clause limiting liability to the price paid for the potatoes - £634. It turned out that
the potatoes were infected with a virus and so did not grow into a good crop when planted.
The real loss was thus in the region of £6000. The court held that the limitation clause was
reasonable because the 2 sides were of equal bargaining power, the limitation clause had been
negotiated by the relevant trade bodies, had been in existence for years and the buyers could
have paid more to get a contract without a limitation clause in it.
And, in Monarch Airlines Ltd v London Luton Airport Ltd 1997 a clause in a contract
excluding the airports liability for unintentional damage to aircraft was held to be reasonable
because of the equality of bargaining power between the 2 sides, the fact that the clause was
accepted in the industry and by allocating risk between the 2 sides it avoided the need for
them both to be insured against such damage.
These cases show how the courts do not like to interfere in commercial contract making.
Track/slide 19
For consumer cases we can look at
Smith v Eric S Bush 1990 House of Lords –
This case went all the way to the House of Lords and so is important (although note what we
have said about not setting precedents). It concerned two cases that went together on appeal
because they concerned the same point of law. There was the case of :
Mrs Smith v Eric S Bush and the case of
Mr and Mrs Harris.
Basically the cases involved both consumers purchasing houses of modest value – the Harris
house cost £9000 and the Smith house cost £18,000. Both required a mortgage. The Harris
mortgage was provided by the local council and the Smith mortgage was provided by Abbey
National Building Society. Both the council and Abbey National as mortgagees required a
survey to be carried out on the property before agreeing to a mortgage advance. The council
used one of its employed surveyors and the Abbey National employed a surveyor from a local
firm.
In the application form filled in by Mrs Smith was a declaration and notice which read:
‘... I understand that neither the society nor the surveyor ... will ... give any assurance to me
that the statements ... expressed or implied in the report ... will be accurate or valid and the
surveyors report will be supplied without any acceptance of responsibility on their part to
me’.
In the application form filled in by Mr and Mrs Harris with the council it had the following
declaration and notice:
‘... no responsibility whatsoever is implied or accepted by the council for the value or
condition of the property by reason of such inspection and report.’
Track/slide 20
Both families and mortgagees relied on the surveyors reports which were favourable and the
sales took place. In both cases serious problems later arose concerning the condition of the
houses and they sued the valuers for damages in negligence.
In the House of Lords all 5 Law Lords found in favour of the consumers. We shall note some
comments from the judgments of Lord Templeman and Lord Griffiths.
Lord Templeman
Said that there were 3 questions to consider:
i.
ii.
iii.
whether the surveyor owed the purchaser in tort a duty to exercise
reasonable care in carrying out the valuation
whether a disclaimer of liability (that is, an exclusion clause) by the valuer
is a notice which comes under the control of the UCTA 1977
if it does, whether it is ‘fair and reasonable’ to let the valuer rely
on the exclusion clause
On point one, His Lordship stated that at common law the law implies a term into contracts
for the supply of services that the work will be done with reasonable care and skill (and in
statute by SSGA) and that a similar duty arose without a contract in the law of tort. He said
that the valuer owed a duty to exercise reasonable care and skill to ‘both’ the mortgagee and
the consumer (mortgagor) knowing that both of them would rely on the valuation. The
existence of this duty to both was agreed by all sides.
On point two, His Lordship stated that the council had argued (since they employed and were
vicariously liable for any negligence of the surveyor whilst in their employ) that their
exclusion clause did not come under the control of UCTA. They argued
this by saying that instead of trying to exclude their liability for negligence, rather, they had
stated in the notice that a duty of care between themselves and the purchaser would not come
into existence. As such the Act did not apply.
Lord Templeman did not allow this line of argument because he said it was not possible to
exclude the existence of the duty of care because of section 13(1) of the Act which prohibits
this very thing from being done. If one could do this, then the whole point of the Act would
be destroyed. Thus, he held that both exclusion clauses by the council and the other surveyor
had to be subjected to the Act.
Track/slide 21
On point three, His Lordship considered whether the exclusion clauses were fair and
reasonable in accordance with section 11(3) of the Act? Counsel for the valuers argued that it
‘was’ fair and reasonable because:
i.
ii.
iii.
iv.
the exclusion clause was clear and understandable and forcefully
drawn to the attention of the purchaser – in red
the purchasers solicitor should have reinforced the warning and
urged them to take out their own survey
if valuers cannot disclaim liability they will be faced with lots of
claims and as a result their insurance cover will go up and this will have to
be reflected in the price charged for valuations
and that there was no contract between the valuer and purchaser
Lord Templeman rejected all of these arguments as being inconsistent with the Act. His
lordship then stated that the public are constantly being encouraged to purchase their homes
by the government and it is often difficult to find homes to rent. Couple this with the fact that
valuers know that 90% of purchasers totally rely on the mortgage valuation and do not
commission their own as most can’t afford it especially when the house is of modest price.
The valuer thus knows that if he fails to exercise reasonable care and skill the result may be
disastrous for the purchaser. As a result, he felt it was not fair and reasonable for the building
societies and valuers to put the risk of loss, due to incompetence or carelessness by the
valuers, onto the purchasers.
Track/slide 22
Lord Griffiths noted that it was now common practice by building societies to send the
purchaser a copy of the valuers report and that it was also common practice that the reports
contained a disclaimer in red lettering and in clear terms that neither they nor the valuer
guaranteed the accuracy of the report. He thus stated that at common law the disclaimer was
effective in excluding the valuer’s liability. Although it was an onerous term in the contract it
had been specifically drawn to the attention of the other side (see Spurling v Bradshaw and
Thornton v Shoe Lane Parking). But, he felt that the disclaimer was caught by the UCTA.
He can to this conclusion by constructing section 1(1)(b), and section 11(3) together with
section 13(1). Lord Griffiths said that these sections introduced a ‘but for’ test – would the
duty of care exist ‘but for’ the notice? If yes then it could not be excluded. Otherwise the Act
would be toothless.
Having decided that the notice came under the Act he then said it was for the valuer to show
that in all the circumstances it was fair and reasonable to let him rely on the exclusion clause.
Track/slide 23
His lordship stated that in his view the following matters should always be taken into
consideration:
i.
were the parties of equal bargaining power? In a one off deal between parties of
equal bargaining power then the disclaimer might be reasonable but not so easily where the
disclaimer is imposed upon a purchaser who has no effective power to object.
ii.
in the case of advice, would it have been reasonably practicable to obtain the advice
from an alternative source taking into account factors such as cost and time? The valuers in
this case claim the purchasers should have got a second valuation but at the bottom end of the
property market such costs are often prohibitive to purchasers
iii.
how difficult is the task being undertaken for which liability is being excluded?
When the task in very difficult or dangerous with a high risk of failure this might be a factor
pointing towards the reasonableness of excluding liability as a condition of doing the work.
A valuation, on the other hand, should present no difficulty if carried out with reasonable care
and skill. As such it does not seem to place an unreasonable burden on the valuer to require
him to accept responsibility for the elementary degree of skill and care involved – surely it is
work at the lower end of the surveyors field of professional expertise.
iv.
what are the practical consequences of the decision on the question on
reasonableness? This involves consideration of the sums of money potentially involved, the
ability of the parties to bear the loss involved which raises the issue of insurance. Everyone
knows that prudent professional men carry insurance and so bearing the loss by the valuer is
unlikely to cause hardship whereas it could be a financial catastrophe for the purchaser.
In addition to these factors that must always be considered he added another for this case
v.
although employed by the council or building society, the purchaser has in reality
contributed to the valuer’s fee and so the present position is not far removed from that of a
direct contract between the surveyor and the purchaser. And no one has argued that had the
contract been between valuer and purchaser it would have been reasonable for the valuer to
have excluded liability for negligence.
His lordship thus concluded that it would not be fair and reasonable to let the valuer exclude
his liability. He added that this decision applied to a modest dwelling house and that the
position might be different for a more expensive house or commercial property where it might
be reasonable to expect the purchaser to obtain their own survey.
Track/slide 24
Remember that this case concerned not a contract between the purchaser and other party, but
a ‘notice’ in the valuation report – thus it concerned negligence in tort. However, attempts to
exclude negligence liability in either contract or tort are both included in section 2 of the Act
and so the themes discussed are relevant to contract as well.
Certain contracts do not come under the Act as per Schedule 1 and one such contract is ‘any
contract so far as it relates to the creation or transfer of an interest in land’.
We can note the position with regards to composite exclusion clauses.
This is where the exclusion clause covers more than one thing – eg. ‘liability is excluded for
reason A, reason B and any other reason whatsoever that may arise’. When considering such
clauses the courts only look at the ‘whole clause’ – they won’t split it up into bits. So, unless
the whole clause is the subject of scrutiny for reasonableness, the reasonableness test cannot
be applied to just one of the bits of the clause.
This was decided in Stewert Gill Ltd v Horatio Myer and Co Ltd 1992.
Track/slide 25
It has been noted that the key implied terms under the SGA 1979 and under the SGSA
1982 cannot be excluded in contracts with consumers, so it is important to establish just
who is a ‘consumer’.
A person is a consumer where they do not make the contract in the course of a business
whereas the party they are dealing with does, and the goods concerned are of the type
ordinarily supplied for private use.
Just because a person is a business person does not mean that all their contracts are made in
the course of a business. A case that helps understand ‘in the course of a business’ relates to
the implied term as to quality of goods under section 14 of the SGA 1979 - R & B Customs
Brokers Co Ltd v United Dominions Trust Ltd 1988 – the Court of Appeal held that a
contract was made in the course of a business if it was:
-
‘integral’ to the nature of the business or
if only incidental, there was a degree of regularity in entering into
such transactions
In this case the husband and wife owned a company and they bought a car for both business
and private use. When they discovered it was defective they sued the supplier who tried to
rely on an exclusion clause in the contract excluding him from liability as regards the quality
of the car. He could only exclude the implied term under s 14 SGA 1979 if the husband and
wife had not dealt as ‘consumers’. The Court of Appeal said the car was bought by them as
consumers because the car was not ‘integral’ to their freight business and they did not buy
cars like this that often and so the implied term under s 14 could not be excluded.
Track/slide 26
We can now very briefly consider the Unfair Terms in Consumer Contracts Regulations
1999
These regulations replaced the 1994 version of them that were brought in to implement EU
Directive 93/13 which was an attempt to ‘harmonise’ law in EU countries to protect
‘consumers’ from the sellers and suppliers of goods and services.
The Regulations are short.
Key points to bear in mind are:
-
the Regulations only apply to CONSUMER contracts whereas UCTA
can apply to commercial contracts. For instance, when 2 businesses use
a Standard Form Contract.
-
the Regulations apply to ANY term in a contract not just exclusion clauses
-
the Law Commission is currently looking at how UCTA and the
Regulations work together, as at present there is overlap and confusion – see
Law Comm No 166 August 2002
-
the Regulations apply to any terms that have not been individually
negotiated, in other words, where Standard Form Contracts are used. However, it is
possible for a contract still to be seen as a SFC even when the consumer negotiates a
minor term
-
the 2 main tests for deciding if a term is unfair are:
i.
ii.
is the term contrary to the requirement of ‘good faith’ and
does it cause a ‘significant imbalance’ in the parties
rights and obligations under the contract to the detriment
of the consumer
-
unlike UCTA where the seller/supplier has to show that the exclusion
clause was reasonable if he wants to rely on it, with the Regulations the
burden of proof is on the consumer to show that the term was unfair
-
schedules to the Regulations give indications of what an unfair term
may be
-
if a term is declared unfair, if possible the contract continues as if it were not included