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Contract Law > Unfair Terms > Flashcards

Unfair Terms Flashcards

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1
Q

Exemption clauses can take a number of forms - give 4.

A
  1. Excluding liability
  2. Limiting liability to a specified sum
  3. Restricting the types of remedies available/type of loss recoverable
  4. Trying to modify the performance obligation so the breach does not occur
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2
Q

Why are unfair contract terms problematic?

A

They create an imbalance in bargaining power - which is potentially unfair

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3
Q

Control of unfair terms happens in three parts - what are they ?

A

Incorporation

Construction

Statutory provisions

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4
Q

Describe what the first two steps in the control of unfair terms are composed of

A
  1. Incorporation - is the first common law rule - is exclusion clause part of a contract?
  2. Construction - is the second common law rule - What does is mean/does excl. clause cover the breach that occurred?
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5
Q

What does the third step in the control of unfair terms - statutory provisions - involve?

A
  1. Statutory provisions - involves statutory control of unfair terms - is the term/excl. clause fair under UCTA/CRA
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6
Q

What 4 ways are there to find that a term is incorporated?

A
  1. Incorporation by signature
  2. By ‘reasonable notice’
  3. By course of dealing
  4. By common understanding
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7
Q

How does incorporation by signature work?

It was established in which case?

A

Signed terms are always incorporated, even if harsh, unread, or misunderstood

L’Estrange v Graucob [1934]

Unless there’s duress/misrep - Curtis v Chemical Cleaning [1951]

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8
Q

How can one incorporate a term into an unsigned contract?

A

By reasonable notice

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9
Q

How does reasonable notice work?

A
  1. The document must be something that’s recognisable as a contractual document to the ‘reasonable person’
    Chapelton v Barry [1940]
  2. The person entering the contract must have had ‘reasonable notice’ of the term
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10
Q

What rules exist on the LOCATION of the term? What cases established these rules?

A

Thompson v LMS Railway [1930] - Clause in timetable about a cost = objective test - irrelevant if party is blind/illiterate

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11
Q

What rules exist on the timing of the term? Established by what cases?

A

Notice of terms must be communicated to the other party BEFORE, or at the time the contract’s entered into -

Thornton v Shoe Lane Parking [1971] - ticket came too late

Olley v Marlborough Court Hotel [1949] - notice in room, not where contract formed

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12
Q

What are the rules on particularly onerous terms when considering incorporation of an unfair term?

A

Special attention has to be drawn to any unusual or onerous clause

  • Must be at the time of offer & acceptance
    (Thornton v Shoe Lane Parking [1971])
  • Person seeking to rely on the term must take greater measures to bring it to the other party’s attention
    (Interfoto v Stiletto [1989])
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13
Q

What is the red hand rule?

A
  • Sometimes a term is so harsh/destructive of rights that in order to give sufficient notice it would, say, need to be printed in red ink across the front of the document with a red hand pointing to it - or something equally as startling in order to be incorporated into the contract
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14
Q

Incorporation of a term into an unsigned contract can be done, thirdly, by course of dealing. What has been established as qualifying as a ‘course of dealings’ by which cases?

A
  • Three or four transactions per month for a three-year period –> Spurling v Bradshaw [1956]
  • Dealings not consistent enough – no knowledge of the terms –> McCutcheon v MacBrayne [1964]
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15
Q

To incorporate terms by course of dealing, dealings must be what?

A

A) Sufficiently numerous
B) Sufficiently frequent/regular
C) Consistent (on same terms)

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16
Q

Incorporation by common understanding will only apply to what contracts?

A

Commercial (business-to-business contracts).

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17
Q

Explain a notable case for incorporation by common understanding

A

British Crane Hire v Ipswich Plant Hire [1975]

  1. Both parties in the same industry - machinery hire
  2. Dealt together twice before
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18
Q

What does the question of construction of a term mean?

A

whether the clause is appropriately worded to cover what’s occurred.

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19
Q

Concerning proper instruction of terms -

  1. What scope of interpretation exists for words in exclusion clauses?
  2. How will ambiguous clauses be interpreted?
A
  1. A rule of strict interpretation - words will be given no wider meaning than their scope requires when interpreting exclusion clauses (Wallis, Son & Wells v Pratt and Haynes)
  2. Ambiguous clauses will be interpreted CONTRA PROFERENTUM - against the party seeking to rely on it (the ‘proferens’)
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20
Q

How is CONTRA PROFERENTUM described in S69 of the Consumer Rights Act?

A

‘If there is doubt about the meaning of a written term, the interpretation which is most favourable to the consumer shall prevail’

21
Q

What 3 special rules exist for terms seeking to exclude/limit liability for NEGLIGENCE?

A
  1. Especially clear words must be used - if term expressly mentions negligence then effect must be given to it
  2. If no express reference, are the words used ‘wide enough’ to cover negligence? (Canada Steamship v The King [1952] )
  3. Even if so, does the clause cover more than one type of liability - if so it may be taken to exclude/limit non-negligent liability only
22
Q

What is a ‘fundamental breach’?

A

Breach of a fundamental terms/a breach going to the very root of the contract

23
Q

How does the old approach to a fundamental breach compare to the modern approach?

A
  1. Old approach: Liability for fundamental breach could never be excluded no matter how clear the words/intention of the parties - Karsales v Wallis [1956]
  2. Modern Approach (The interpretation approach) - Liability for fundamental breach CAN BE EXCLUDED, especially between commercial parties of equal bargaining power - But especially clear words must be used.
24
Q

Finish the sentence:

“While liability for fundamental breach can e excluded, it’s not possible to have an exclusion clause so wide that…”

  • What case established this?
A

so wide that the proferens have no obligations whatsoever under the contract.

  • Tor Line v Alltrans Group
25
Q

What statutory controls of unfair contract terms exists for business-to-business contracts?

A

The Unfair Contract Terms Act 1977

26
Q

What is the scope of the UCTA 1977?

A

Applied to any contract made after 1978 which arises in the course of a business, and applies mainly to exclusion and limitation clauses

27
Q
  • What does Section 2 of UCTA deal with?

- In what way does Section 2 apply differently depending on the damage caused?

A
  • Deals with liability for negligence in non-consumer contracts
  • A person can’t exclude/restrict his liability for death or personal injury resulting from negligence

BUT for any other loss/damage, a person can’t exclude/restrict his liability for negligence except in so far as the term is reasonable

28
Q

What does Section 6 of UCTA deal with?

A
  • Section 6 is used when there’s exclusion/limitation of liability of implied terms from the SGA 1979
29
Q

What does Section 3 of UCTA deal with?

A

It applies in any contract when one party deals on the other party’s written standard terms of business

30
Q

Outline the reasonableness test found in Section 11 (1)

A

Term shall be fair and reasonable to be included having regard to the circumstances which were or ought reasonably to have been known to the parties when the contract was made

31
Q

What 5 factors to take into account when applying the reasonableness test are contained in Schedule 2?

A

a. Strength of bargaining positions
b. Whether customer received an inducement
c. Whether customer knew/ought reasonably to have known of existence/extent of term
d. If some condition is not complied with
e. Whether goods were manufactured, processed or adapted to special order of the customer

32
Q

What ‘reasonable test’ case law exists for where the clause is in common use?

A

If clause is well known/used in many types of contract, it’s more likely to be reasonable, especially if parties have equal bargaining power.

  • Schenkers Ltd v Overland Shoes, George Mitchell v Finney Lock Seeds
33
Q

What ‘reasonable test’ case law exists for where the clause is in an insurance contract?

A

Where the person seeking to rely on the clause could easily have insured themselves against the liability, the less likely the term will be reasonable - George Mitchell v Finney Lock Seeds

34
Q

What ‘reasonable test’ case law exists regarding the width of the term?

A

If the term could apply to more than one type of claim and not just the one being brought, it’s less likely it is reasonable

  • Gill v Horatio Myer
35
Q

What ‘reasonable test’ case law exists for where liability is restricted to a specified sum?

A

The sum will have to be justified in order for the term to satisfy the reasonableness test

  • Salvage Association v CAP Financial Services
36
Q

What ‘reasonable test’ case law exists regarding the availability of alternatives?

A

making entry into an alternative contract without the exemption clause included reasonably available means the term is more likely to be considered reasonable

  • Woodman v Photo Trade Processing
37
Q

What ‘reasonable test’ case law exists concerning settlement of past claims?

A

If in a previous case the defendant has settled out of court rather than relying on their own exemption clause, it suggests the clause can be seen as unreasonable

  • George Mitchell v Finney Lock Seeds
38
Q

What ‘reasonable test’ case law exists regarding conditions placed on claims?

A

If in order to claim the claimant has to adhere to a condition such as a time limit, the term is less likely to be reasonable

  • Green v Code Bros
39
Q

What legislation governs Consumer contracts?

A

The Consumer Rights Act

40
Q

What two types of terms are regulated under the CRA 2015?

A
  1. Terms and notices that are prohibited and not enforceable against a consumer
  2. Terms and notices that are enforceable against a consumer only if they satisfy the test of transparency and fairness
41
Q

What does Section 31 of the CRA 2015 contain?

A

Prohibited terms, liability that can’t be excluded/restricted

42
Q

Give 4 examples of prohibited terms listed in section 31 of the CRA 2015.

A
  1. Goods to be of satisfactory quality
  2. Goods to be as described
  3. Goods to match sample
  4. Goods to be fit for particular purpose
43
Q

What prohibited term is contained in Section 65?

A

A trader can’t by a term exclude or restrict liability for death or personal injury resulting from negligence.

44
Q

What does Section 62 of the CRA contain?

What does Section 62(4) say?

A

1) Requirement for contract terms and notices to be fair - Unfair term of a consumer contract is not binding on the consumer
2) “A term is unfair, 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”

45
Q

What is the requirement of ‘good faith’?

What is it a requirement of?

A

Whether a term causes a significant imbalance to the detriment of a consumer linked to an assessment of whether a trader has acted in good faith

It’s a requirement of openness, transparency and fair dealing

46
Q

What does ‘Openness’ mean in the CRA 2015?

A

Terms should be expressed fully, clearly, and legibly, containing no concealed pitfalls or traps.

47
Q

What does the ‘Transparency’ test require in the CRA 2015?

A
  1. Terms must be written in plain language and be legible
  2. Must be sufficiently clear to allow an average consumer to understand what they’re signing up to and make an informed decision
  3. Should not aim to trick the consumer by hiding away in unclear language , the disadvantageous aspects of a contract
48
Q

What does Section 64 of the CRA 2015 say about exclusion from assessment of fairness?

A

‘The term of a consumer contract may not be assessed for fairness under section 62 to the extent that-

a. It specifies the main subject matter of the contract, or
b. The assessment is of the appropriateness of the price payable under the contract by comparison with the goods supplied

49
Q

What does Section 67 of the CRA 2015 say about the effect of an unfair term on the rest of a contract?

A

‘Where a term of a consumer contract is not binding on the consumer as a result of this part, the contract continues, so far as practicable, to have effect in every other respect

Contract Law (5 decks)

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