Unfair Contract Terms Act 1977:
Protection:
Businesses / non-consumers against other businesses.
Terms Covered:
Only terms that ‘exclude or restrict’ liability are covered, including terms that are ‘disguised’ to not appear as exclusion clauses. This includes terms that restrict any right or remedy to liability.
s2 – Exclusion or restriction of negligence (either in contract or tort).
s3 – Exclusion or restriction of liability for breach of contract.
s3(2)(b) – Disguised exclusion clauses.
s6 – Exclusion or restriction of statutory implied terms (EG: Sale of Goods Act).
Test:
Automatically Invalid:
s2(1) - Negligence causing death or personal injury.
s6(1) – Breach of implied terms in Sale of Goods Act 1979 s12.
Reasonableness Test:
s2(2) - Negligence causing property damage.
s3 – Breach of contract.
s6(1a) – Breach of implied terms in Sale of Goods Act 1979 s13/14/15.
s11(1): Was the term ‘a fair and reasonable one to be included’? Assessed at the date the contract was made, not when it was breached. Look to Schedule 2 to determine what a fair and reasonable term is.
The more equal the bargaining power, the more likely a clause is to pass the reasonableness test.
‘Where experienced businessmen representing substantial companies of equal bargaining power negotiate an agreement, they may be taken to have had regard to the matters known to them. They should, in my view be taken to be the best judge of the commercial fairness of the agreement which they have made; including the fairness of each of the terms in that agreement. They should be taken to be the best judge on the question whether the terms of the agreement are reasonable. The court should not assume that either is likely to commit his company to an agreement which he thinks is unfair, or which he thinks includes unreasonable terms. Unless satisfied that one party has, in effect, taken unfair advantage of the other – or that a term is so unreasonable that it cannot properly have been understood or considered – the court should not interfere.’ [1]
Schedule 2 Guidance:
Reasonable:
When the customer knew or reasonably ought to have known about the term.
When the goods were manufactured or adapted to special order.
Unreasonable:
If there was no opportunity to enter similar contracts without the term.
Reasonable to expect compliance at time of contract.
Significant disparity in bargaining power.
In Smith v Erik Bush, a term of the contract excluded liability in negligence by a home surveyor. The House of Lords held that s2 did apply, so the exclusion clause was invalid as it was unreasonable.
References:
[1] Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317 [55] (Chadwick LJ)
Cases Mentioned:
Smith v Eric S Bush [1990] UKHL 1 (Griffiths LJ)
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