Unfair Contract Terms

scope of UCTA

only applies to B2B contracts not B2C and only applies to limitation of liability and exclusion clauses

section 2 UCTA

controls exemption liability for negligence and breach of contract

section 3 UCTA

only if you can show that you are dealing on the written standards and terms of the contract will you be protected by UCTA

African Export-Import Bank v Shebah Exploration & Production Co Ltd

to satisfy s3(1):

1. terms must be written (does not apply to oral contracts)

2. term must be a term of business

3. must be part of the other party's standard terms of business

Chester Grosvenor Hotel Co Ltd v Alfred McAlpine Management Ltd

whether terms are 'standard' is a matter of 'fact and degree'. If a business 'habitually contracts' on those terms, then it may be seen as a standard term of business.

Bates v Post Office

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

St Albans City and District Council v International Computers Ltd =

It was held that 'deal' just met entering into a contract — negotiations do not mean they are not 'dealing' on those written standard terms

s3(2)(a)

A business can't avoid being responsible for a misrepresentation just by putting a disclaimer in the contract—unless the court thinks it's fair and reasonable in the circumstances.

s3(2)(b) UCTA

when deciding if an exclusion or limitation of liability for misrepresentation is reasonable, the court must consider whether the person who made the misrepresentation should have expected the other party to rely on what they said.

Timeload Ltd v British Telecommunications plc

Facts: BT was supplying telecommunications for a small business and there was a term in the contract that BT could terminate the contract at any time they wanted after giving a month's notice, Timeload argued this was a substantially different performance than was was expected from BT

Decision: if a customer expects a service to continue until BT has a substantial reason to terminate it, terminating it is substantially different from what was expected you have to look externally from the contract to work out what is reasonably expected

Axa Sun Life Services v Campbell Martin Ltd

Facts: Holiday company tried to draft a clause in their contract which placed customers in a hotel which was less luxurious than advertised.

Decision: this performance was substantially different than from what was expected.

How does UCTA control terms

1. outright invalidity - s2(1) liability for death or personal injury caused by negligence

2. UCTA terms are subject to a reasonableness test, if the clause is found to be unreasonable, it will be invalidated

s11(1) reasonableness test

Is the term a fair and reasonable one to be put into the contract, having regard to what ought to have been known at the time of contract formation?

s11(5)

there is a presumption of unreasonableness - the burden of proof is on the party that wants to show that the term satisfies the requirement of reaonableness

s11(4)

The court checks whether it was fair to limit liability based on the situation when the contract was signed, including how much money or insurance the party had to cover any loss.

schedule 2

- The party with a weaker bargaining position will be protected but if there is an equal bargaining position it may be seen as fair and reasonable

- If terms are hidden then they will not be fair and reasonable

- How far was the other party able to protect themselves by insurance? If they were covered by insurance, the courts may see this as fair and reasonable and limit the liability

- All the sections and the Schedule 2 guidelines apply to UCTA

steps needed to follow

1. Is the term incorporated in the contract

2. Is the term properly interpreted and does it apply to the legislation?

3. Is the term subject to legislative scrutiny

4. What type of clause is it? Is it covered by s2(1)

5. Is the clause reasonable?