Statutory Controls: Unfair Contract Terms Act 1977

Question 1

What is the Unfair Contract Terms Act 1977?

Answer 1

It was the first substantial statutory involvement with exemption and limitation clauses.

It applies only to business-to-business contracts.

The act has different rules applicable to clauses concerning the different types of liability.

Clauses must meet a “reasonableness test” or are void.

Question 2

What are the main provisions of Part 1 of the UCTA 1977?

Answer 2

1. S2 - dealing with liability in negligence
2. S3 - dealing with liability arising in contract with expressed terms
3. S6 - dealing with implied terms within contracts of sale
4. S7 - dealing with miscellaneous contracts under which possession or ownership of goods passes
5. S8 - reasonableness test for liability of misrepresentation (found in s3 Misrepresentation Act)

Question 3

What is the scope of the UCTA 1977?

Answer 3

The act covers:
1. Exemption clauses
2. Limitation clauses
3. Clauses making enforcement of liability subject to restrictive or onerous conditions
4. Clauses restricting right to remedy
5. Clauses excluding or restricting the rules of evidence or procedure

It does not cover all types of clauses.

Under the act, certain types of clauses will be held void per se or subject to the rest of reasonableness.

Question 4

What are the type of contracts which are exempt from controls under UCTA 1977?

Answer 4

1. Contracts of insurance
2. Contracts of creation, transfer or termination of interests in land
3. Contracts relation to formation or dissolution of company
4. Contracts relating to creation of transfer of securities or any right or interest therein.
5. Contracts of marine salvage, charter parties and contracts for the carriage of goods by ship or hovercraft
6. Contracts for international supply

Question 5

What is the negligence definition under UCTA 1977?

Answer 5

S1(1) - breach of obligation to take reasonable care or exercise reasonable skill in the performance of the contract which arises from:

• the express or implied terms of a contract
• common law duty to take reasonable care or exercise reasonable skill
• such a duty arising under the common duty of care imposed by Occupiers Liability Act 1957

Question 6

What terms are made void under UCTA 1977?

Answer 6

1. Liability in negligence for PI or death can’t be excluded by reference to any contractual term or notice (s2(1))
2. In contacts for sale, or hire purchase, liability for breach of obligations arising from s12 SGA - relating to right to sell.

Question 7

What terms are subject to the rest of reasonableness under UCTA 1977?

Answer 7

1. Purporting to exclude or limit liability for loss or damage other than PI or death, caused by negligence (s2(2))
2. Contracts to fall with s3 UTCA 1977 - applied where one of the parties deals on the other’s written standard of terms of business
3. S6(1A) - any term in a contract for the sale or hire purchase of goods purporting to exclude or limit liability for breach of the implied statutory term as against a person dealing other than as a consumer.
   Applies to private seller as long as seller acting in the course of business.
4. S8 UCTA 1977 amends s3 Misrepresentation Act and any term which tries to exclude or limit liability for misrepresentation.

Question 8

What is the requirement for reasonableness under the UCTA 1977?

Answer 8

The test will be case-specific fairness.

A clause will be fair if, on the balance of the facts and in context, it is fair.

S11(1)
“…the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made”

S11(2)
Extends the scope of reasonable.
It provides that, s6 and s7, which relates to implied statutory terms for goods and services, the courts should consider the following factors:

• relative strength of bargaining power
• if either party received incentive to agree
• if customer knew, or ought to have reasonable know, the existence and extend of term
• if term excludes or limits liability if condition not met
• if goods were specifically made at the request of the buyer

CASE: Smith v Eric S Bush

Question 9

CASE: Smith v Eric S Bush

(Test of reasonableness)

Answer 9

House of Lords specified a list of factors which should always be consider when determining reasonableness:

1. Parties have equal bargaining power?
2. If advice - would it of been reasonably practicable to obtain advice from alternative source - taking in consideration time and costs?
3. Difficulty of task being undertaken for which liability is excluded?
4. Practical consequences of decision of reasonableness (e.g costs, ability of parties to pay, insurance, etc)

Question 10

What is s11(5) of UCTA 1977?

Answer 10

A person attempting to rely on clause has burden of demonstrating that it satisfies the test of reasonableness.

CASE: Watfords Electronic v Sanderson
Clause had been negotiated between parties with equal bargaining power and skill.
Held that clauses were reasonable