Queen Mary Law Journal Annual Essay Contest: First Year Contract Law The Queen Mary Law Journal seeks to publish innovative student legal scholarship. Published by the Queen Mary Law Society in the United Kingdom. Queen Mary Law Journal c/o School of Law Mile End Road London E1 4NS http://www.law.qmul.ac.uk/undergraduate/lawsociety/qmlj/index.html Email: editor@qmlawjournal.org All rights reserved. No part of this publication may be reproduced or transmitted, in any form or by any means, electronic, mechanical, recording or otherwise, or stored in any retrieval system of any nature, without the prior, express written permission of the Queen Mary Law Journal. Exceptions are permitted with regard to fair dealiing for the purpose of research of private study, or criticism or review, as permitted under the Copyrights, Designs and Patents Act 1988. Enquiries concerning reproducing outside these terms should be sent to the Editor-in-Chief. ISSN (print): 1470-3335 ISSN (ONLINE): 2049-1883 © 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 Queen Mary Law Journal 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. Queen Mary Law Journal 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.