Chapter 7

Question 1

What is the purpose of an exclusion clause?

Answer 1

The purpose of an exclusion clause is to exclude, qualify, or limit the liability of a party for specified wrongful conduct.

Question 2

What is the key characteristic of an exclusion clause?

Answer 2

The key characteristic of an exclusion clause is that it operates for the benefit of one party only.

Question 3

How does an exclusion clause limit liability?

Answer 3

An exclusion clause can exclude liability in whole (exclusion or exemption clause) or in part (limitation of liability clause) for negligence, certain breaches of contract, or the occurrence of specific events.

Question 4

What are the requirements for relying on an exclusion clause under common law?

Answer 4

To rely on an exclusion clause, the party must show that it was incorporated into the contract and that, on a strict interpretation, it covers the breach complained of.

Question 5

What statutory controls exist for exclusion clauses?

Answer 5

The Unfair Contract Terms Act 1977 (UCTA) provides controls on exclusion clauses. Additionally, the Consumer Rights Act 2015 protects consumers in certain contracts by stating that they will not be bound by any unfair term.

Question 6

What does a clause contained in a document need to be to be contractual?

Answer 6

For the clause contained in a document to be contractual, it must still be incorporated into the contract. A document given after the contract has been made cannot contain any terms of the contract and so cannot be binding on the recipient. The clause must be contained in a document which the reasonable person would consider to be contractual (see Chapelton v Barry Urban District Council [1940] 1 KB 532). A distinction is made between signing a written document and the mere receipt of a notice

Question 7

What is the significance of the case Chapelton v Barry Urban District Council [1940] 1 KB 532?

Answer 7

Chapelton v Barry Urban District Council is a legal case that established the principle that for a document to be considered contractual, it must be one that a reasonable person would consider to be contractual.

Question 8

In which cases are cases with contracts which includes an exclusion or limitation clause valid?

Answer 8

In cases where a party signs a written contract that includes an exclusion or limitation clause, they are legally bound by the clause, even if they are not aware of its specific terms (e.g., if they have not read it). This applies unless there has been fraud or misrepresentation involved, such as when the party presenting the document for signature provides a misleading explanation of its legal consequences. However, if reasonable measures are taken to bring the limitation clause to the attention of the other party, the information provided must be accurate and not deceptive.

Question 9

What is a leading case where a signed contract with a limitation clause has been rendered ineffective?

Answer 9

A precedent illustrating this is the Curtis v Chemical Cleaning & Dyeing Co Ltd [1951] 1 KB 805 case, where the innocent but incomplete representation made the signed receipt with the limitation clause ineffective.

Question 10

What is a leading case where a signed contract with a limitation clause has been rendered ineffective?

Answer 10

A precedent illustrating this is the Curtis v Chemical Cleaning & Dyeing Co Ltd [1951] 1 KB 805 case, where the innocent but incomplete representation made the signed receipt with the limitation clause ineffective.

Question 11

When a contract is contained in an unsigned document, like a railway ticket, what is the requirement for it to be effective? (leading case)

Answer 11

On the other hand, when a contract is contained in an unsigned document, like a railway ticket, it becomes necessary to demonstrate that the injured party was aware of or should have been aware of the document’s terms and conditions. This principle was established in the L’Estrange v Graucob [1934] 2 KB 394 case.

Question 12

Do electronic signatures now carry the same legal weight as hand-written signatures?

Answer 12

In the context of electronic communications and contracting, it is crucial to recognize that electronic signatures now carry the same legal weight as hand-written signatures. This significant aspect is established by the Electronic Communications Act 2000, ensuring the effectiveness of online contracting.

Question 13

What are the requirements for exclusion or limitation clauses to be applicable in unsigned contracts?

Answer 13

1) Reasonable steps must be taken to draw the clause to the other party’s attention.
2) Normally, these steps should be taken before entering into the contract.
3) Consistent past dealings with similar clauses may exempt the requirement for prior notice.

Question 14

What are the six relevant cases for exclusion or limitation clauses to be applicable in unsigned contracts?

Answer 14

1) Parker v South Eastern Railway (1877) 2 CPD 416:

Established the principle that in order to rely on an exclusion clause in an unsigned contract, the party needs to take reasonable steps to draw the clause to the other party’s attention.

Claimant received a ticket for luggage left at a cloakroom.
Claimant failed to read the exclusion clause on the ticket (it had writing on the front “see back”, he failed to read it).
Held that the claimant was bound by the exclusion clause as notice was given.

2) Chapelton v Barry Urban District Council [1940] 1 KB 532:

Counter case to Parker.

Claimant received a ticket for a deckchair after payment. He believed it was a simple receipt.
However, the ticket contained a disclaimer clause that attempted to exclude the council’s liability for any injuries resulting from the use of the deckchair.
Held that the claimant did not assume the ticket contained any terms.
The court stated that it would not be reasonable for anyone to assume that the ticket contained contractual terms, especially regarding personal safety.

3) Olley v Marlborough Court Hotel [1949] 1 KB 532:

Established that exclusion clauses must be shown during formation of contract.

Hotel guest made a contract for a room at the reception desk.
Notice excluding liability for lost or stolen articles was displayed in the bedroom.
Held that the limitation clause came too late as the contract was already made.

4) Spurling v Bradshaw [1956] 1 WLR 461:

Established that “the more unusual and onerous the clause, the greater the notice required.”
Lord Denning argued that unreasonable clauses require greater attention.

The claimant purchased a barrel of orange juice from the defendant, who was a seller of goods.
The barrel was delivered with a label on it that stated, “This sale is subject to our conditions of sale, a copy of which is available upon request.”
The claimant did not request a copy of the conditions and was not aware of their contents.
Later, the claimant discovered that the orange juice was of inferior quality and sought to rely on an implied condition of satisfactory quality.
However, the defendant argued that the sale was subject to their conditions, which excluded liability for the quality of the goods.
The court held that the label on the barrel was sufficient notice of the existence of the conditions.

5) Thornton v Shoe Lane Parking Ltd. [1971] 2 WLR 585:

Car park premises contained a notice stating that cars were parked at the owner’s risk.
The ticket issued to drivers referred to conditions displayed inside the premises.
The ticket contained printed wording, in small print, that it was issued subject to conditions displayed inside the premises.
On a wall opposite the machine and the office where payment is made before leaving the lot, there was a notice stating that the owners would not be liable for any injuries occurring on their premises.
The driver had an accident and sought damages from Shoe Lane Parking.

The court held that the exclusion clause in the notice was valid and enforceable.
The notice was prominently displayed at the entrance of the car park, and the claimant had an opportunity to read it before entering.
The court emphasized that the exclusion clause would be effective if it was brought to the attention of the claimant and was sufficiently clear and unambiguous.

Lord Denning, in his judgment, expressed his dissenting view on the notice’s effectiveness.
He argued that the clause was too wide and destructive of rights.
He suggested that for such a clause to be effective, it would need to be even more explicit, such as having a red hand pointing to it and being printed in red ink.

6) Interfoto Picture Library v Stiletto Visual Programmes Ltd [1988] 1 All ER 348:

The defendant must fairly bring particularly onerous or unusual restrictions to the other party’s notice.
Applies to conditions beyond exclusion clauses. Confirmed by the Court of Appeal.

Question 15

Which statutory legislation restricts the use of exclusion clauses for liability for negligence?

Answer 15

The UCTA 1977 and the Consumer Rights Act 2015 significantly limit the effectiveness of exclusion clauses that attempt to exclude liability for negligence.
However, even in cases where these Acts do not apply, the courts have consistently required clear and unambiguous language to validate the exclusion of liability for negligence. Additionally, when interpreting an exclusion clause, any ambiguity is typically resolved against the party at fault who seeks to rely on the exemption.

Question 16

Hollier v Rambler Motors [1972] 2 WLR 401

Answer 16

Hollier v Rambler Motors [1972] 2 WLR 401, involved a situation where a customer’s car was being repaired at a garage and was damaged by a fire caused by the garage’s negligence. The garage tried to rely on a clause in their standard repair agreement stating they were not responsible for fire damage to customers’ cars on the premises. However, the Court of Appeal interpreted the clause narrowly, concluding that it only excluded accidental fire damage and not fire damage resulting from the garage’s negligence.

Question 17

Rules of construction function to prevent the enforcement of exclusion clauses. Which three rules exist?

Answer 17

(a) Contra Proferentem Rule: When an exclusion clause is ambiguous or unclear, the courts will interpret it against the party that included it in the contract. This rule was demonstrated in Andrews v Singer [1934] 1 KB 17, where an exclusion clause attempting to exclude liability for breach of an express term was found ineffective.

(b) Repugnancy Rule: If an exclusion clause contradicts the main purpose of the contract, it is considered repugnant and may be struck down. In the case of Pollock v McRae [1922] SC (HL) 192, the House of Lords invalidated an exclusion clause that was repugnant to the contract’s primary objective. The defendants had supplied goods with inherent defects, rendering them unusable. The court held that the exclusion clause, which aimed to absolve the suppliers of liability, went against the fundamental purpose of the contract, and thus, it was deemed repugnant.

(c) Four Corners Rule: An exclusion clause can only apply within the boundaries of the contract. If a party goes beyond the terms of the contract, the exclusion clause may be rendered null and void.

Question 18

One of the rules of construction, which function to prevent the enforcement of exclusion clauses, is the four corners rule. Give an example to this rule.

Answer 18

Let’s say two parties, Company A and Company B, enter into a written contract for the sale of a piece of machinery. The contract contains an exclusion clause that limits Company A’s liability for any damages arising from the use of the machinery. However, there is also a separate side agreement between the parties, made verbally or in writing, where Company A assures Company B of full responsibility for any damages caused by the machinery.

In this scenario, if a dispute arises regarding the damages caused by the machinery, the Four Corners Rule would come into play. The court would primarily consider the terms and provisions explicitly stated within the written contract, which is the document itself.

If the exclusion clause within the written contract is clear and unambiguous, the court would likely uphold its applicability and limit Company A’s liability. The separate side agreement, which falls outside the four corners of the written contract, may not be considered as part of the contractual terms.

However, if the exclusion clause is unclear or contradicts the main purpose of the contract, such as the separate side agreement where Company A assumes full responsibility, the court may interpret the clause against Company A using the contra proferentem rule. The court would consider the intentions of the parties and the context of the agreement to determine the validity and enforceability of the exclusion clause.

Ultimately, the Four Corners Rule guides the court in focusing primarily on the written contract itself when interpreting its terms and applying exclusion clauses, promoting the importance of clear and comprehensive drafting to avoid confusion or ambiguity.

Question 19

What are non-contractual notices?

Answer 19

Non-contractual notices, also known as exclusion or limitation notices, are statements or notifications that are not part of a contractual agreement but are intended to inform or influence the parties involved in a transaction. These notices typically aim to exclude or restrict liability for certain events or circumstances.

Unlike contractual terms, which are mutually agreed upon and form part of the contractual agreement between the parties, non-contractual notices are separate communications that may be displayed, posted, or provided alongside the contract. They often appear as disclaimers, warnings, or conditions that seek to limit or exclude liability for certain actions, damages, or losses.

Question 20

What is the UCTA 1977?

Answer 20

The Unfair Contract Terms Act 1977 (UCTA) is a law that regulates contract terms and notices that seek to exclude or restrict liability. UCTA aims to limit the circumstances in which such terms and notices can be applied. It applies to both contractual terms and non-contractual notices that attempt to exclude or restrict liability in tort (civil wrongs).

Under UCTA, exclusion clauses are either rendered completely ineffective or are only effective if they can be shown to satisfy the requirement of reasonableness. UCTA does not impact the issues of incorporation and interpretation, which are determined by common law.

Question 21

What is the scope of the UCTA 1977?

Answer 21

It’s important to note that UCTA has a limited scope. It primarily applies to terms within contracts that seek to exclude or limit business liability by commercial concerns. Consumer contracts, on the other hand, are governed by the Consumer Rights Act 2015 rather than UCTA. Private individuals are generally free to restrict liability as much as they wish. Additionally, UCTA does not apply to contracts for insurance, land, patents, or company formation.

Question 22

What is the Occupiers’ Liability Act 1957?

Answer 22

The Occupiers’ Liability Act 1957 is a piece of legislation in the United Kingdom that governs the liability of occupiers of premises for visitors’ injuries or damages that occur on their premises. The act sets out the duties and responsibilities of occupiers towards visitors and provides a framework for determining the occupiers’ liability in such cases.

The act distinguishes between two types of visitors: lawful visitors and trespassers. Lawful visitors include individuals who are invited or have permission to be on the premises, such as customers, guests, or tenants. Trespassers are individuals who enter the premises without lawful authority or permission.

Question 23

Why was the Occupiers’ Liability Act 1957 covered in connection to exclusion clauses?

Answer 23

The term “negligence” in the UCTA 1977 encompasses breaches of contractual obligations of skill and care, common law duties of skill and care, and the common duty of occupiers of premises under the Occupiers’ Liability Act 1957.

Question 24

There are two sections that are important in the UCTA 1977. Sections 2 and 3. Why is section 2 important?

Answer 24

Section 2 regulates the exclusion of liability for negligence

Section 2 of UCTA specifically states that a person cannot restrict their liability for death or personal injury resulting from negligence through a contract term. The term “negligence” encompasses (1) breaches of contractual obligations of skill and care, (2) common law duties of skill and care, and (3) the common duty of occupiers of premises under the Occupiers’ Liability Act 1957. Liability for other types of negligence can be excluded or restricted, but only if the contract term or notice is deemed reasonable.

The Consumer Rights Act contains a similar bar at section 65 on terms in consumer contracts or consumer notices which exclude or restrict liability for death or personal injury arising from negligence.

Question 25

There are two sections that are important in the UCTA 1977. Sections 2 and 3. Why is section 3 important?

Answer 25

Section 3 regulates the liability arising from standard term contracts

Section 3 of UCTA addresses liability arising in standard term contracts. It states that the party who imposes the standard terms of business cannot restrict their liability for their own breach, unless the term is reasonable. Nor can the party claim to be entitled to render substantially different performance (e.g., the case of a tour operator who arranges accommodation or transport other than that specified), or no performance at all (e.g., reservation by the management of the right to cancel a concert at any time, in the case of a contract for concert tickets).

This means that they cannot claim entitlement to substantially different performance or no performance at all. Even standard terms imposed by third parties, such as the National Conditions of Sale for land transactions, may fall under the scope of Section 3. The Consumer Rights Act 2015 has further extended this rule to cover even clauses within individually negotiated contracts between traders and consumers, allowing them to be deemed unfair.

Even where these standard terms are the terms of a third party, such as the National Conditions of Sale drawn up by The Law Society for the benefit of sellers and purchasers of land, they would seem to come within the scope of s. 3 UCTA.

The Consumer Rights Act 2015 has extended this rule further, with the effect that even clauses within individually negotiated contracts between traders and consumers can be deemed to be unfair.

Question 26

What is the difference between the Consumer Rights Act 2015 in terms of scope, protection against unfair terms and liability for death personal injury and the UCTA 1977?

Answer 26

The Consumer Rights Act 2015 (CRA) and the Unfair Contract Terms Act 1977 (UCTA) serve different purposes and have different scopes within the realm of consumer protection and contract law.

(1) Scope
The CRA primarily focuses on consumer contracts and the rights of consumers in their dealings with traders. It applies to contracts between consumers and businesses, covering the sale of goods, supply of services, and digital content.
UCTA, on the other hand, has a narrower scope and applies to contracts between businesses (commercial concerns) and attempts to regulate and limit the use of unfair contract terms that may exclude or restrict liability.

(2) Protection against unfair terms:
The CRA includes provisions on unfair terms in consumer contracts. It sets out a fairness test that allows courts to assess the fairness of contract terms and determine their enforceability. Unfair terms can be deemed unenforceable, and consumers are provided with remedies.
UCTA, on the other hand, focuses on unfair contract terms in business-to-business contracts. It seeks to limit the use of exclusion and limitation clauses that attempt to exclude or restrict liability in certain circumstances. UCTA renders certain exclusion clauses ineffective unless they satisfy the requirement of reasonableness.

(3) Liability for death or personal injury:
Both the CRA and UCTA address the issue of liability for death or personal injury.
Under the CRA (Section 57), any terms in consumer contracts or consumer notices that seek to exclude or restrict liability for death or personal injury arising from negligence are considered unfair and unenforceable.
UCTA (Section 2) also restricts the ability to exclude or limit liability for death or personal injury resulting from negligence, but it provides more flexibility by allowing such terms to be reasonable and enforceable in certain circumstances.

Question 27

In contracts for the supply of goods, what is the difference between consumer contracts under the Consumer Rights Act 2015 (CRA) and non-consumer business contracts under the Unfair Contract Terms Act 1977 (UCTA) regarding the exclusion or restriction of liability for breach of certain conditions?

Answer 27

In contracts for the supply of goods, there are differences between consumer contracts and non-consumer business contracts regarding the exclusion or restriction of liability for breach of certain conditions. Here are the key points:

Consumer Contracts:

Under the Consumer Rights Act 2015 (CRA), in a consumer contract for the sale of goods, hire purchase, supply of work or materials, or exchange of goods, liability for breach of certain conditions is protected.
The implied conditions relating to description, quality, fitness for purpose, and conformity with samples cannot be excluded or restricted by the seller or trader. These conditions are automatically implied by the CRA into consumer contracts, and any attempt to exclude or restrict liability for breaching these conditions would be considered unfair and unenforceable.

Non-Consumer Business Contracts:

In non-consumer business contracts governed by the Unfair Contract Terms Act 1977 (UCTA), the situation is different. Exclusion or restriction of liability for the implied conditions mentioned above is possible but subject to reasonableness.
UCTA allows businesses to exclude or limit liability for breach of the implied conditions to the extent that the exclusion clause is considered reasonable. This means that the reasonableness of the exclusion clause will be assessed by the courts based on the circumstances and the parties’ bargaining power.
To summarize, in consumer contracts under the CRA, liability for breach of the implied conditions relating to goods cannot be excluded or restricted. However, in non-consumer business contracts governed by UCTA, these implied conditions can be excluded or limited if the exclusion clause is deemed reasonable.

Question 28

What is the requirement of reasonableness in sections 6 and 7 UCTA? What do these sections regulate?

Answer 28

Sections 6 and 7 of the Unfair Contract Terms Act 1977 (UCTA) pertain to the requirement of reasonableness for exclusion or restriction clauses in contracts. Here’s an overview of the requirement of reasonableness in these sections:

Section 6:
Section 6 of UCTA deals with the exclusion of liability for breach of contract in the sale of goods and hire-purchase agreements. It states that a seller or supplier cannot exclude or restrict liability for breach of the implied terms relating to title, quiet possession, description, quality, fitness for purpose, and sample. However, this exclusion or restriction of liability may be allowed if the clause satisfies the requirement of reasonableness.

In the context of Section 6, the requirement of reasonableness means that the exclusion or restriction clause will be assessed by the courts to determine if it is fair and reasonable considering the circumstances. The burden of proving reasonableness rests on the party seeking to rely on the clause.

Section 7:
Section 7 of UCTA deals with the exclusion or restriction of liability for negligence. It states that a person cannot, by reference to a contract term, exclude or restrict liability for death or personal injury resulting from negligence. However, liability for other types of negligence can be excluded or restricted if the contract term or notice satisfies the requirement of reasonableness.

The requirement of reasonableness under Section 7 is similar to that under Section 6. The courts will consider the fairness and reasonableness of the exclusion or restriction clause in light of the circumstances. Again, the burden of proving reasonableness lies with the party seeking to rely on the clause.

In summary, the requirement of reasonableness in Sections 6 and 7 of UCTA means that exclusion or restriction clauses in contracts will be evaluated by the courts to determine if they are fair and reasonable. The clauses must pass the reasonableness test in order to be enforceable.

Question 29

What are the guidelines for determining reasonableness under sections 6 and 7 UCTA?

Answer 29

The guidelines for determining the reasonableness of a contract’s terms under sections 6-7 of the Unfair Contract Terms Act 1977 (UCTA) include the following factors, as specified in Schedule 2 to UCTA:

1) Bargaining Positions: The relative strength of the bargaining positions of the parties is considered, taking into account alternative means by which the customer’s requirements could have been met.

2) Inducement: Whether the customer received any inducement, such as a reduced price, to agree to the term, or if they had the opportunity to enter into a similar contract without accepting a similar term.

3) Knowledge of the Term: Whether the customer knew or reasonably should have known about the existence and extent of the term, considering factors such as trade customs and the parties’ previous dealings.

4) Compliance Condition: If the term excludes or restricts liability based on a condition that must be met (e.g., giving notice of a defect within a specific timeframe), whether it was reasonable at the time of the contract to expect compliance with that condition.

5) Special Order Goods: Whether the goods were manufactured, processed, or adapted to the customer’s special order.

In relation to other sections of UCTA that were mentioned previously, the reasonableness test for an exclusion clause considers the resources available to the party seeking to restrict liability in order to meet the liability if it arises, as well as the extent to which that person could obtain insurance coverage.

These guidelines help the court assess the reasonableness of exclusion or restriction clauses in contracts and determine if they are enforceable. The burden of proving reasonableness lies with the party relying on the clause.

Question 30

In the case of George Mitchell v Finney Lock Seeds [1983] 2 All ER 737, the House of Lords considered the requirement of reasonableness in relation to an exclusion clause. Explain the case.

How is the case related to the UCTA?

Answer 30

In the case of George Mitchell v Finney Lock Seeds [1983] 2 All ER 737, the House of Lords considered the requirement of reasonableness in relation to an exclusion clause. In this case, farmers purchased cabbage seeds from seed merchants, but the seeds supplied were commercially useless and of the wrong description. The seed merchants had a standard term contract that limited their liability to refunding the cost of the seeds (£200).

The House of Lords determined that while limitation clauses are generally construed against the party seeking to rely on them (according to the contra proferentem rule), they are not subject to the same strict principles of construction as clauses that completely exclude liability. Under common law, the exclusion clause would have protected the seed merchants.

However, in this case, the requirement of reasonableness was not satisfied. The court considered various factors, including the seller’s normal practice of negotiating settlements for reasonable claims rather than relying on the limitation clause, the seller’s negligence in supplying incorrect and useless seeds, and the availability of insurance coverage for the loss without significantly increasing the seller’s charges.

Based on these considerations, the court concluded that the exclusion clause was not reasonable in the circumstances. Therefore, the farmers were not bound by the limitation of liability clause, and the seed merchants were held liable for their negligence in supplying defective seeds.

Yes, the case of George Mitchell v Finney Lock Seeds [1983] 2 All ER 737 was related to the Unfair Contract Terms Act 1977 (UCTA). The UCTA sets out provisions regarding the reasonableness of exclusion and limitation clauses in contracts. While the case did not directly involve a specific interpretation of UCTA, it dealt with the concept of reasonableness in relation to an exclusion clause, which is a key consideration under UCTA.

Question 31

What is the contra proferentem rule?

Answer 31

The contra proferentem rule is a principle of contract law that applies to the interpretation of ambiguous or unclear contract terms, particularly exclusion clauses. It states that if a contractual provision is unclear or capable of multiple interpretations, it should be construed against the party who drafted or presented the contract (the “proferens”).

In other words, when there is ambiguity in a contract term, the court will interpret it against the party who sought to rely on that term to limit or exclude liability. The rationale behind this rule is to resolve any uncertainty or unfairness by placing the burden of any ambiguity on the party who had control over the drafting of the contract.

The contra proferentem rule is often invoked in cases involving exclusion clauses, where one party seeks to limit or exclude their liability for certain risks or breaches. By interpreting any ambiguity against the party relying on the clause, the rule helps to ensure a more balanced and reasonable outcome in contractual disputes.

Question 32

The concept of “unfairness” was introduced into UK law with which law?
Has this concept survived to the present day?

Answer 32

The 1994 Unfair Terms in Consumer Contracts Regulations introduced a new concept of unfairness into UK contract law, over and above the provisions of UCTA 1977. They were repealed and replaced by the Unfair Terms in Consumer Contracts Regulations 1999, which in turn have now been repealed and replaced by the Consumer Rights Act 2015.

Question 33

The concept of “unfairness” is embedded in the Consumer Rights Act 2015. To which contracts does the Consumer Rights Act 2015 apply?

Answer 33

The 2015 Act applies to consumer contracts entered into on or after the 1st of October 2015.

Question 34

Which section of the Consumer Rights Act 2015 introduced the concept of “unfairness” into the UK law?
How does it differ from the two-tiered approach under the Unfair Contracts Terms Act 1977?

Answer 34

Section 62 of the Consumer Rights Act 2015 introduces the concept of unfairness into UK contract law, specifically in relation to consumer contracts. It states that a term in a consumer contract is considered unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the rights and obligations of the parties under the contract, to the detriment of the consumer.

Unlike the two-tiered approach of the Unfair Contract Terms Act 1977 (UCTA), which deems some clauses ineffective and subjects others to a reasonableness test, the Consumer Rights Act 2015 focuses on determining whether a specific term is unfair. All relevant factors and circumstances surrounding the contract will be taken into consideration in assessing unfairness.

Question 35

Which concept plays a role in determining the fairness of contractual terms under the Consumer Rights Act 2015?
The determination of unfairness in a contractual term also takes into account which factors?

Answer 35

The concept of good faith plays a role in determining the fairness of contractual terms under the Consumer Rights Act 2015. Whether a term satisfies the requirements of good faith depends on various factors, including:

1) The relative bargaining positions of the parties: If there is a significant imbalance in bargaining power, it may affect the assessment of good faith.

2) Inducements offered to the consumer: If the consumer was given an incentive or inducement to agree to the term, it may impact the determination of good faith.

3) Special order of goods or services: If the goods or services were sold or supplied to the specific order of the consumer, it may be relevant to the assessment of good faith.

4) Fair and equitable dealing: The extent to which the seller or supplier has dealt fairly and equitably with the consumer is considered in evaluating good faith.

The determination of unfairness in a contractual term also takes into account various factors, such as:

1) Nature of the goods or services: The fairness of a term may vary depending on the nature of the goods or services involved. A term that may be unfair in the sale of new goods might not be considered unfair for second-hand goods.

2) Surrounding circumstances of the contract: The specific circumstances at the time of contract formation, such as whether the consumer had examined the goods, are taken into consideration.

3) Other terms of the contract: The fairness of a term may be assessed in the context of the other terms of the contract or any other related contract.

Additionally, the Consumer Rights Act 2015 extends the fairness test to “consumer notices.” Consumer notices are communications between the consumer and the trader that relate to their respective rights or obligations. These notices can be made orally or in writing and fall under the scrutiny of the fairness assessment.

Overall, the assessment of good faith and unfairness involves considering multiple factors and circumstances related to the parties, the specific contract, and the nature of the goods or services involved.

Question 36

What are “Prima Facie Unfair Terms” under the Consumer Rights Act 2015? Give 10 examples

Answer 36

It’s important to note that these examples are not automatically deemed unfair, but rather they are considered prima facie unfair, meaning they may be presumed to be unfair on their face. However, a proper legal assessment and determination of unfairness would be required in each case.

Here are the examples of unfair terms listed under Schedule 2, Part 1 of the 2015 Act:

1) Terms that seek to exclude or limit the trader’s liability in the event of death or personal injury to the consumer resulting from the trader’s actions or omissions.

2) Terms that inappropriately exclude or limit the legal rights of the consumer in case of total or partial non-performance or inadequate performance by the trader regarding their contractual obligations. This may include the option of offsetting a debt owed to the trader against any claim the consumer may have against the trader.

3) Terms that make an agreement binding on the consumer when the provision of services by the trader depends solely on the trader’s will, subject to a condition imposed by the trader alone.

4) Terms that allow the trader to retain sums paid by the consumer if the consumer decides not to conclude or perform the contract, without providing equivalent compensation to the consumer when it is the trader who cancels the contract.

5) Terms that require the consumer, who decides not to conclude or perform the contract, to pay a disproportionately high sum in compensation or for services that have not been supplied.

6) Terms that require the consumer, who fails to fulfill their obligations under the contract, to pay a disproportionately high sum in compensation.

7) Terms that authorize the trader to dissolve the contract on a discretionary basis where the same facility is not granted to the consumer or permit the trader to retain sums paid for services not yet supplied by the trader if the trader dissolves the contract.

8) Terms that enable the trader to terminate a contract of indeterminate duration without reasonable notice, except in cases where there are serious grounds for doing so.

9) Terms that automatically extend a contract of fixed duration if the consumer does not indicate otherwise, where the deadline fixed for the consumer to express their desire not to extend the contract is unreasonably early.

10) Terms that irrevocably bind the consumer to terms with which the consumer had no real opportunity to become acquainted before the conclusion of the contract.

If a term is ultimately found to be unfair, it will not be legally binding on consumers. However, consumers may still choose to rely on the term if they wish.

Question 37

The Consumer Rights Act 2015 contains an exception for the requirement of fairness. What is it?

Answer 37

The 2015 Act does not govern the fairness of any terms which

(1) define the subject matter of the contract, or
(2) which concern the adequacy of the price or other remuneration in relation to the goods or services.

The only requirement is that these terms must be in plain, intelligible language.

The principle of freedom of contract is, thus, upheld, as is the principle that the courts will not, generally, enquire into the adequacy of consideration.

Question 38

Under the Consumer Rights Act 2015, the supplier is under a duty to ensure that all the terms of the contract are couched in plain and intelligible language. What would happen if there was a doubt about the meaning of a term?

Answer 38

If there is any doubt about the meaning of a term, it will be construed in the consumer’s favour.

Question 39

What requirement does the Consumer Rights Act 2015 have regarding core provisions of a contract in terms of prominence? What does that mean?

Answer 39

The 2015 Act does require that Core Provisions of a consumer contract must be prominent, i.e. sufficiently brought to the attention of the consumer such that the average consumer would be aware of the term.

Question 40

Is the freedom of contract upheld even with the restrictions in the Consumer Rights Act 2015?

Answer 40

The principle of freedom of contract allows parties to freely enter into agreements without external interference. It gives them the autonomy to negotiate and determine contract terms. In the context of the 2015 Act, certain core provisions defining the contract’s subject matter and price are exempt from fairness scrutiny, upholding this principle. However, consumer protection is ensured by requiring these core provisions to be presented prominently to make consumers aware of their implications.

Question 41

Contracts between traders and consumers
Contracts of employment
Apprenticeship contracts
Contracts involving the transfer of an interest in land, such as:
House purchase contracts
Transfer of tenancy contracts
Mortgage contracts

Do these contracts also fall under the Consumer Rights Act 2015?

Answer 41

The 2015 Act applies only to contracts between traders and consumers, and does not extend to contracts of employment, apprenticeship or other types of contracts. The change in description from “a seller of goods” (under the 1994 Regulations) to merely “a trader” (under the 2015 Act) means that the Act applies also to the transfer of an interest in land, e.g. a house purchase, transfer of tenancy, grant of a mortgage, where the consumer is dealing with a business, e.g. a housing developer as the seller, or a business as the landlord.

Question 42

If terms in a contract are deemed unfair under the Consumer Rights Act 2015, can the be enforced?

Answer 42

No. Unfair terms in a contract to which the 2015 Act applies will not be binding on the consumer, although the rest of the contract will be enforceable, provided the unfair terms are voidable and can be severed from the rest of the contract.

Question 43

Which authority has the chief enforcement responsibility for unfair contract terms?

Answer 43

The Consumer Rights Act 2015 vests chief enforcement responsibility for unfair contract terms in the Competition and Markets Authority, which must work in close cooperation with market-specific regulators listed in the Act, such as the Financial Conduct Authority and local trading standards services.