Statutory Regulation of Exclusion Clauses

Why is Statutory Regulation needed?

• Common law control of ECs is limited

• Need for further control to achieve ‘fairness’

• Where parties not contracting on equal terms

• The introduction of legislation to control ECs is to:

  • Achieve fairness

  • Balance between CPS

  • To comply and reflect EU legislation

Consumer Rights Act 2015 - Regulates ECs in consumer contracts

Unfair Contract Terms Act 1977 - Regulates exclusion clauses in business contracts & in private contracts

Exclusion Clauses in Consumer Contracts

Definition (AO1)

Regards contracts between consumer and trader

Regulated under CRA 2015:

• s.31 - Regards implied terms (SoG)

• s.57 - Regards implied terms (SoS)

• s.62 - Unfair terms

• s.65 - Death or personal injury

Exclusion Clauses in Consumer Contracts - s.31

Definition (AO1)

Trader cannot exclude or limit liability for breach of implied terms regarding Supply of Goods

• Section 9 - Satisfactory Quality

• Section 10 - Fit for purpose

• Section 11 - Description

Exclusion Clauses in Consumer Contracts - s.57

Definition (AO1)

Trader cannot exclude or limit liability for breach of implied terms regarding Supply of Service:

• Section 49 - Reasonable care & skill

• Section 52 - Reasonable time

Exclusion Clauses in Consumer Contracts - s.62

Definition (AO1)

• All contract terms must be fair

• Consumer is not bound by terms which are unfair

i.e. An EC stating that faulty products must be returned within 24 hours of purchase.

Exclusion Clauses in Consumer Contracts - s.62(4) - Fairness

Definition (AO1)

A contract term is unfair if:

• It is contrary to the requirement of good faith - (Fair and open dealing)

  AND

• It causes a significant imbalance in the CPs’ rights and obligations:

• To the detriment of the consumer.

Fairness is determined by reference to:

• The subject matter of the contract

• All relevant circumstances at the time the contract is made

Exclusion Clauses in Consumer Contracts - s.62 - Fairness

Case (AO3)

(Director-General of Fair Trading v First National Bank)

Traders will be required to draw the attention of consumers to a term and its effects so as to avoid surprise

Exclusion Clauses in Consumer Contracts - s.65

Definition (AO1)

Trader cannot exclude or limit liability for death or personal injury caused by negligence

Exclusion Clauses in Business Contracts & Private Contracts

Definition (AO1)

Business contracts = Both parties are acting in course of business
Private Contracts = Neither parties are acting in course of business. (i.e. selling second hand goods)

UCTA 1977 applies:

• s.2(1) - Death or personal injury

• s.2(2) - Loss or damage to property

• s.3 - Any EC must be reasonable

• s.6(1) - Title & description of goods

Exclusion Clauses in Business Contracts & Private Contracts - s.2(1)

Definition (AO1)

A business cannot exclude or limit business liability for death or personal injury caused by negligence

Exclusion Clauses in Business Contracts & Private Contracts - s.2(2)

Definition (AO1)

Any term which excludes or limits business liability for loss or damage to property caused by negligence must be reasonable

Exclusion Clauses in Business Contracts & Private Contracts - s.3

Definition (AO1)

Where the contract is on D’s standard form of business - any term whcih excludes or limits liability for breach of contract must be reasonable

Exclusion Clauses in Business Contracts & Private Contracts - s.6

Definition (AO1)

A business party cannot exclude or limit liability for breach of contract relating to the title of the goods or the description of goods

Reasonableness - UCTA 1977 s.11

Definition (AO1)

EC are subject to a test of ‘reasonableness; which is determined by reference to:

• Circumstances at the time the contract was made

• Which were known (subjective)

  OR

• Which ought reasonably to have been known to the CPs (Objective)

Relevant factors under schedule 2 include:

• Bargaining powers of the CPs - How much say in the matter (look at size and wealth of company)

• Any inducement to agree to EC - i.e. financial inducement (promise of a future contract)

• Whether C knew or ought reasonably to have known of the term

• Whether goods / services were supplied to C’s special order

Party seeking to rely on EC mus tprove that it was reasonable.

Exclusion Clauses in Business Contracts & Private Contracts

Case (AO3)

(Green v Cade)

Sellers sold infected potato seed with EC that any complaint must be made 3 days after delivery.

Not reasonable as buyer only found out 3 months after.