Lecture 7C - Unfair Contract Terms

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IntroductionIntroductionSometimes contract terms are considered to be

so unfairunfair to one of the contacting parties thatthe courts have to intervene to prevent aninjustice.

This has tended to arise in the context ofexemption clauses and these are controlledboth by the common law and by the UnfairContract Terms Act 1977.

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Unfair Contract Terms LegislationUnfair Contract Terms Legislation

In general the Act only applies to clausesinserted into agreements in commercialconcerns of businessesconcerns of businesses .

The act does notdoes not apply to certain contracts, forexample contracts relating to the creation or

transfer of interests in land, contracts relatingto company formation or securities transactionand insurance contracts.

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Unfair Contract Terms Act 1977 (UCTA)Unfair Contract Terms Act 1977 (UCTA)

Two techniques are used forTwo techniques are used forcontrolling exclusion clauses:controlling exclusion clauses:

(1) Some types of clauses are void

(2) whereas others are subject to atest of reasonableness.

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Main provisions of UCTA ActMain provisions of UCTA Act

11. Avoidance of Liability for Negligence (S.2). Avoidance of Liability for Negligence (S.2)

Liability for death or personal injury resulting fromnegligence cannotcannot be excluded or limited clausespurporting to do so will simply be ineffective

(S.2(1)).

Similarly, liability for other loss or damages

resulting from negligence cannotcannot be also excludedor limited unless the term is reasonable. Negligencecovers breach of contractual obligations of skill and

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2. Avoidance of liability for breach of contract (s.3)2. Avoidance of liability for breach of contract (s.3)

(The meaning of reasonableness)(The meaning of reasonableness)


reasonableness by UCTA obviouslyonly apply if the courts decide it isreasonable for them to do so.

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3. Unreasonable Indemnity clauses (s.4)3. Unreasonable Indemnity clauses (s.4)

A clause whereby one party undertakesA clause whereby one party undertakesto indemnify the other for liabilityto indemnify the other for liability


incurred in the others performance ofincurred in the others performance ofthe contract is void if the party givingthe contract is void if the party givingthe indemnity is a consumer, unless itthe indemnity is a consumer, unless itis reasonable.is reasonable.

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4. Sale and supply of goods (ss.64. Sale and supply of goods (ss.6- -7)7)

A consumer contractA consumer contract for the sale of goods, hirefor the sale of goods, hirepurchase, supply of work or materials or exchangepurchase, supply of work or materials or exchangeof oodsof oods cannot exclude or restrict liabilit for


breach of the conditions breach of the conditions relating to description,to description,quality, fitness for the purpose for which sold andquality, fitness for the purpose for which sold andsamplesample implied by the Sale of Goods Act 1979 andimplied by the Sale of Goods Act 1979 andthe Supply of Goods and Services Act 1982the Supply of Goods and Services Act 1982 . In a. In anonnon--consumer contract these implied conditionsconsumer contract these implied conditionsmay be excluded if the exclusion clause ismay be excluded if the exclusion clause isreasonable. The implied condition as to title cannotreasonable. The implied condition as to title cannot

be excluded in any contract.be excluded in any contract.9


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A person deals as a consumer if:A person deals as a consumer if:(a) He neither makes the contract in the course of a business,(a) He neither makes the contract in the course of a business,

nor holds himself out as doing so andnor holds himself out as doing so and

Consumers (s.12)Consumers (s.12)

(b) The other party does make the contract in the course of a(b) The other party does make the contract in the course of a

business andbusiness and

(c) The goods are of a type ordinarily supplied for private use or(c) The goods are of a type ordinarily supplied for private use or

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For the purposes of Sale and supply of goods (For the purposes of Sale and supply of goods (ss ss 66

and 7), the court will consider the following:and 7), the court will consider the following:

thethe relative strengths of the partiesrelative strengths of the parties bargaining positionsbargaining positions andand

Test of reasonableness (s.11)Test of reasonableness (s.11)

been metbeen met; ;

whetherwhether the customer received anthe customer received an inducementinducement to agree to theto agree to the

term (e.g. if goods were offered more cheaply if the exclusionterm (e.g. if goods were offered more cheaply if the exclusionclause was accepted), or could have been entered into similarclause was accepted), or could have been entered into similarcontract with another party without agreeing to that term;contract with another party without agreeing to that term;

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The regulations of Unfair Terms inThe regulations of Unfair Terms inConsume Contracts RegulationsConsume Contracts RegulationsUTCCR 1999 have created aUTCCR 1999 have created a

RegulationsRegulations

three tier system for dealing withthree tier system for dealing withunfair terms in the UK: commonunfair terms in the UK: common

law, Unfair Contracts Terms Actlaw, Unfair Contracts Terms Act1977, The Regulations 1999.1977, The Regulations 1999.

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Unfair TermsUnfair TermsA contractual term which has not been individuallyA contractual term which has not been individually

negotiated (e.g. standard form contract)negotiated (e.g. standard form contract) shall be shall be


regarded as unfair if regarded as unfair if ,, contrary to thecontrary to therequirements of good faith, it causes a significantrequirements of good faith, it causes a significantimbalance in the parties rights and obligationsimbalance in the parties rights and obligations

arising under the contract, to the detriment (harmarising under the contract, to the detriment (harmor disadvantage) of the consumer.or disadvantage) of the consumer.

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Unfair TermsUnfair Terms ContdContd

terms obliging the consumer to fulfill all histerms obliging the consumer to fulfill all hisobligations where the seller or supplier dos notobligations where the seller or supplier dos not


Refer toRefer to http:// http://www.legislation.gov.ukwww.legislation.gov.uk to see allto see all

the potentially unfair terms listed there.the potentially unfair terms listed there.

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Unfair TermsUnfair Terms ContdContd

A term found to be unfairA term found to be unfair shall not shall not n n n n


although the contract in existencealthough the contract in existenceif it is capable of continuingif it is capable of continuingwithout the unfair term.without the unfair term.

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Lecture 7C - Unfair Contract Terms

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