Control of contractual terms Flashcards

Question

Bates v Post Office (3) [2019] ## Footnote standard terms used without alteration

Answer 1

- Claimants were sub-postmasters and sub-postmistresses who were accused of financial discrepancies resulting from the use of Horizon, argued that the Post Office had failed to provide adequate training and support for the use of Horizon - standard terms need to be ‘terms which the company in question uses for all, or nearly all, of its contracts of a particular type without alteration’; ‘it is the essence of such terms that they are not varied from transaction to transaction’ - in finding various terms of sub-postmasters’ contracts with the Post Office unreasonable, Fraser J noted that the two parties were ‘not remotely equal’ but in fact ‘almost uniquely unequal’

Answer 2

- claimant was a local authority -> collected a community charge from the populace of St Albans - claimant invited tenders for the supply of a computer system to administer this work - claimant sued the defendant for breach of contract as the software was faulty - did plaintiffs ‘deal’ on defendant’s written standard terms of business? - Court held that defendant was in breach of contract - Court also held that claimant did deal with the defendant on the defendant’s ‘written standard terms of business -> While there were technically negotiations between the parties, the defendant’s standard conditions remained the same throughout - Court also held exclusion clause was void for unreasonableness --> reasons for unreasonableness: defendant’s considerable resource, defendant was one of the few companies in the world that could offer what the claimant wanted -> claimant didn't have many options, lack of any clear objective justification for the selection of £100,000 as the limitation figure

Answer 3

- illustrates the potential width of section 3(2)(b) - BT’s contract to supply services gave BT the right ‘at any time’ to terminate on one month’s notice - T argued that the clause was an exemption clause under section 3(2)(b); BT answered that T could not expect that which the contract never offered (ie enjoyment of services for an indefinite period) - Sir Thomas Bingham MR disagreed. Given that BT was a public telecommunications operator: If a customer reasonably expects a service to continue until BT has substantial reason to terminate it, it seems to me at least arguable that a clause purporting to authorise BT to terminate it without reason purports to permit partial or different performance from that which the customer expected - outcome in Timeload is questionable since the right to terminate was mutual. Moreover, it is unclear that there was a ‘substantial’ deviation from what was reasonably expected (as required by s 3(2)(b)(i)) - as a quasi-monopoly at that time, BT needed customers less than customers needed BT’s services ## Footnote this case basically argues that what is reasonably expected can be seen outside of the contract as well -> doesn't make a lot of sense

Answer 4

- claimant agreed to install and test an overhead conveyor system on the defendant’s premises - defendant was to pay 15% of the price on making the order and the remainder in instalments - Clause 12.4 of the contract stated that the defendant could not withhold any of these payments by reason of any set-off, payment or credit due to them, or for any other reason -> defendant argued this clause was void under s.3 or s.13 UCTA - defendant refused to pay the final 10%, so the claimant brought an action for this sum - Court held it couldnt' fall under s.3 because it wasn't an exclusion / limitation clause BUT could fall under s.13 -> was unreasonable and so void - explained that s.11(2) requires the court to have regard to the factors listed in Schedule 2 of the Act when determining reasonableness under sections 6 and 7 - those factors ‘are usually regarded as being of general application to the question of reasonableness.’ -> Courts can take them into account when applying other provisions - all subsections and Schedule 2 guidelines apply to all of UCTA -> don't have to look at them individually - use all elements to figure out what is fair

Answer 5

- Staughton J said that he was inclined to find the exemption clause unreasonable because the print was so small as to be barely legible and ‘the draughtsmanship was so convoluted and prolix that one almost need[ed] an LLB to understand them’ - a term is also unreasonable if it makes the remedying of defects subject to the customer’s return of the product (eg a ship in this case)

Answer 6

- an exclusion clause was not unreasonable where G had the option to have the liability reinstated at greater cost - Factors relevant to whether an exclusion clause is void for unfairness under UCTA include: - The stringency and breadth of the clause, including whether it deals with liability for a condition (rather than an innominate term or warranty); - Whether other terms of the contract offset the stringency of the clause (such as the clause concerning replacement of faulty parts in the present case); - Whether the other party could have gone elsewhere for better terms; - The extent to which the parties had equal bargaining power; - Whether there was any negotiation between the parties on terms; - Whether the party knew or ought to have known of the clause; - The availability of insurance, and which party was best place to acquire such insurance. - Coulson LJ noted that a clause is not automatically unusual or onerous purely because it is a limitation or exclusion clause: ‘Everything turns on context’.

Answer 7

- Photo Productions (C) engaged Securicor (D) to provide security in its factory - D’s employee started a fire to keep warm and burnt D’s factory down - C sued D in negligence for the damage - D sought to rely on an exemption clause in their contract - House of Lords held that the challenged clause was reasonable since the claimant would already have to insure against fire and the defendant might not have been able to obtain the appropriate insurance, in any case, not without passing its cost on to the claimant in higher charges for its security service - Lord Denning tried to state that a 'fundamental breach', as a rule of law, meant that the party couldn't rely on an exclusion clause - This was dismissed by HoL -> not a rule of law - HoL: whether an exclusion clause should be applied to a fundamental breach is a matter of construction of the contract - Court held that after the UCTA 1977, in commercial matters generally, when parties are not of unequal bargaining power, when risks are normally borne by insurance, there is no case for judicial intervention -> It is parliament’s intention to allow parties to freely apportion risks

Answer 8

- A term in a standard form loan agreement permitted the bank to charge additional interest where a borrower defaulted on the repayment of the loan and agreed to pay off the debt by instalments over a longer period - Regulation 3(2)(b) provides that contract terms relating to the adequacy of remuneration are not subject to the fairness test - The House of Lords held that the term was not unfair (guided by the jurisprudence of the European Court of Justice) but regardless of that, their Lordships considered that good faith implies “open and fair dealing” (Lord Bingham) - At the same point, Lord Steyn warned that “any purely procedural or even predominantly procedural interpretation of the requirement of good faith must be rejected” - Court held that the term was NOT a core term and could be judged for fairness - There is a ‘significant imbalance’ where the term is so heavily weighted in favour of the business that it tilts the parties’ relationship in their favour. This is assessed by reference to the whole contract. - ‘Good faith’ refers to ‘fair and open dealing’. It requires clauses to be expressed fully and clearly, stressing any elements which might be disadvantageous to the consumer. It also requires the business to avoid, deliberately or otherwise, taking advantage of the consumer’s weaker bargaining position.

Answer 9

- a sign at the entrance of a car park close to retailers, which stated that a consumer could park for free for up to two hours, but would incur an £85 charge for breaking stated rules, such as overstaying this permitted period - customer overstayed by an hour - Court held that 1. charge was not the price for use of the car park and so was not excluded from review for unfairness 2. significant imbalance: while the term did create the relevant significant imbalance, the management company and the owners of the car park had a legitimate interest in imposing a liability on consumers -> term was ‘objectively reasonable’ since the consumer was given valuable parking in exchange for a charge for overstaying which was not disproportionately high 3. good faith: a reasonable consumer would have agreed to such a term in individual negotiations - Lord Toulson had a strong dissenting view: 1. charge as significantly imbalanced against the consumer since it far exceeded anything that was likely to be recovered as damages 2. On good faith, the starting point is that the consumer needs special protection -> it is for the trader to show that a non-core term would have been agreed to by a reasonable person -> he didn't think people would agree; £85 is a lot 3. charge has no room for adjustment -> e.g. overstaying by a very short time

Answer 10

- This case establishes distinction between “the essential obligations of the contract and, as such, characterise it” and “ancillary" clauses - helps us understand scope of s.64(1)(a) CRA - ECJ held that the following terms were not exempted from unfairness review 1. An interest rate variation clause in the event of significant changes in the market -> on the list of presumptively unfair terms BUT is considered ancillary 2. The ‘risk charge’, which is aimed at ensuring the consumer’s repayment of the loan and is an important part of the lender’s income

Answer 11

- involved a mortgage loan denominated in a foreign currency - repayment provision set the exchange rate as the creditor bank’s ‘selling rate’ in one term, but the bank’s ‘buying rate’ in another - The claimants challenged the former as unfair since it applied a different exchange rate to that used for the advancement of the loan - ECJ held that this term could not be excluded from review -> financial costs resulting from the difference between the buying and selling rates of exchange could not be regarded as remuneration due as consideration for a service - if the deletion of an unfair term would render the contract unenforceable, the court could substitute the invalidated term with a supplementary provision of the law to further the aims of consumer protection by rebalancing the contract while preserving, as far as possible, the validity of the contract - term should not just make grammatical sense but should also put consumer into a position of being able to evaluate on the basis of clear intelligible criteria, the economic consequences for him which derive from it

Answer 12

- terms imposing charges (amounting to billions of pounds) on UK personal current account customers who went into unauthorised overdraft were exempt from review for unfairness as price terms - main reasons were that: 1. the exemption from review was of ‘the adequacy of the price or remuneration, as against the goods or services supplied in exchange’. This should be given its natural meaning. -> no distinction between main and ancillary price 2. These charges are part of the essential bargain because they form over 30 per cent of the banks’ revenue stream - the charges could be challenged for unfairness ‘according to other criteria’, in particular, ‘whether it is fair to subsidise some customers by levies on others who experience contingencies that they did not foresee when entering into their contracts’. -> Lady Hale thought the banks’ charging structure was not ‘necessarily unfair when viewed as a whole’.

Answer 13

- P hired a JCB excavator and driver from H, but condition 8 of the contract made the driver P’s employee -> made P responsible for all claims arising from the driver’s operation of the excavator - driver negligently crashed the excavator into P’s factory wall and P claimed damages - H relied on condition 8 and argued that it was outside the control of section 2(2) of UCTA because it did not exempt liability for breach of duty -> merely restricted H’s duty (by shifting it to P) so that H committed no breach (ie negligence) in the first place - Court rejected this argument: reference to section 13(1) and the ‘but for’ test -> in considering whether there was negligence liability, the court must ignore the clause being relied on to defeat the negligence claim (ie would H be liable ‘but for’ the challenged term?) - term was struck out as unreasonable under section 2(2) of UCTA because 1. the contract was entered into at short notice 2. The claimant was given little opportunity to familiarise himself with the term 3. The claimant was forced into a take it or leave it situation as had no choice but to accept the driver. 4. There was little opportunity to arrange own insurance cover 5. The claimant had no choice in the selection of driver or to assess their qualifications or suitability to do the job.

Answer 14

- D was a company which hired plant and machinery with operators if necessary - claimant hired some machinery with two of the defendant’s operators -> 1 of the operators killed due to negligence of the other - defendant then claimed an indemnity against the claimant under the terms of the agreement -> agreement contained a clause which provided that operators were to be considered the servants of the hirer and that the hirer alone should be liable - claimant appealed on the basis that the clause was not sufficiently clearly worded to absolve liability or alternatively it was an exclusion clause and therefore was invalid under section 2(1) of the Unfair Contract Terms Act 1977 - Court held that the clause was effective in respect of passing liability to the claimant at common law - it was not an exclusion clause within the meaning of the 1977 Act because the purpose of the Act was the protection of victims of negligence -> effect of clause was simply to decide who would carry burden of liability - this clause was not subject to s.13 or s.2 UCTA -> outside their scope

Answer 15

- C obtained a mortgage with a bank for the purpose of purchasing a property - The bank commissioned a report from D surveyor, C paid the bank for the cost of the report - The report led to C purchasing a house which was later found to need expensive repair owing to subsidence - The report contained a disclaimer that neither the bank nor surveyor warranted that the report would be accurate - Court held D was liable for negligence - D knew or ought to have known that C would rely on the report if they were to purchase the house. - This case extended the duty of care for negligent misstatement to third parties who are not parties to a contract nor direct recipients of advice - supports the 'but for' test -> would liability arise ‘but for’ the challenged term?

Answer 16

- Aziz took out a mortgage which he secured using his existing property. The contract allowed the bank to call on the loan if Aziz defaulted on his payments. - Aziz claimed one of the clauses as unfair under Directive -> Spanish law had no remedies for him if the term was deemed unfair - ECJ advised that, in determining the question of ‘significant imbalance’, the court must ask: what rules of national law would apply in the absence of an agreement by the parties in that regard -> to what extent, the contract places the consumer in a legal situation less favourable than that provided for by the national law in force - A significant imbalance can only result from a sufficiently serious impairment of the consumer’s legal situation - Good faith exists if the seller, ‘dealing fairly and equitably with the consumer, could reasonably assume that the consumer would have agreed to such a term in individual contract negotiations’.