Unfair terms in English contract law are regulated under three major pieces of legislation, compliance with which is enforced by the
Office of Fair Trading
The Office of Fair Trading (OFT) was a non-ministerial government department of the United Kingdom, established by the Fair Trading Act 1973, which enforced both consumer protection and competition law, acting as the United Kingdom's economic ...
. The
Unfair Contract Terms Act 1977
The Unfair Contract Terms Act 1977c 50 is an Act of Parliament of the United Kingdom which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most impor ...
is the first main Act, which covers some contracts that have exclusion and limitation clauses. For example, it will not extend to cover contracts which are mentioned in Schedule I, consumer contracts, and international supply contracts. The
Unfair Terms in Consumer Contracts Regulations 1999
The Unfair Terms in Consumer Contracts Regulations 1999SI 1999/2083 is an old UK statutory instrument, which had implemented the EU (then EEC) Unfair Consumer Contract Terms Directivebr>93/13/EECinto domestic law.Implemented under the European Co ...
partially lays on top further requirements for consumer contracts. The
Consumer Protection from Unfair Trading Regulations 2008
The Consumer Protection from Unfair Trading Regulations 2008 is a statutory instrument in the United Kingdom made under the European Communities Act 1972. It came into force on 26 May 2008. It is effectively the successor to the Trade Descriptio ...
concerns certain sales practices.
History
In the late 20th century, Parliament passed its first comprehensive incursion into the doctrine of contractual freedom in the
Unfair Contract Terms Act 1977
The Unfair Contract Terms Act 1977c 50 is an Act of Parliament of the United Kingdom which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most impor ...
. The topic of unfair terms is vast, and could equally include specific contracts falling under the
Consumer Credit Act 1974
The Consumer Credit Act 1974c 39 is an Act of the Parliament of the United Kingdom that significantly reformed the law relating to consumer credit within the United Kingdom.
Prior to the Consumer Credit Act, legislation covering consumer credi ...
, the
Employment Rights Act 1996
The Employment Rights Act 1996 (c. 18) is a United Kingdom Act of Parliament passed by the Conservative government to codify existing law on individual rights in UK labour law.
History
Previous statutes, dating from the Contracts of Employment ...
or the
Landlord and Tenant Act 1985
The Landlord and Tenant Act 1985c 70 is a UK Act of Parliament on English land law. It sets bare minimum standards in tenants' rights against their landlords.
Background
The Landlord and Tenant Act 1985 sets out the rights and responsibilities ...
. Legislation, particularly regarding
consumer protection
Consumer protection is the practice of safeguarding buyers of goods and services, and the public, against unfair practices in the marketplace. Consumer protection measures are often established by law. Such laws are intended to prevent business ...
, is also frequently being updated by the European Union, in laws like the
EU Airline Compensation Regulation, or the
EU Electronic Commerce Directive, which are subsequently translated into domestic law through a
statutory instrument
In many countries, a statutory instrument is a form of delegated legislation.
United Kingdom
Statutory instruments are the principal form of delegated or secondary legislation in the United Kingdom.
National government
Statutory instrument ...
authorised through the
European Communities Act 1972 section 2(2), as for example with the
Consumer Protection (Distance Selling) Regulations 2000
The Consumer Protection (Distance Selling) Regulations 2000 (totally repealed in June 2014 by The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 which in many respects are however similar regulations), Statut ...
. The primary legislation on unfair contract terms deriving from the EU is the
Unfair Terms in Consumer Contracts Regulations 1999
The Unfair Terms in Consumer Contracts Regulations 1999SI 1999/2083 is an old UK statutory instrument, which had implemented the EU (then EEC) Unfair Consumer Contract Terms Directivebr>93/13/EECinto domestic law.Implemented under the European Co ...
. Both
UCTA 1977
The Unfair Contract Terms Act 1977c 50 is an Act of Parliament of the United Kingdom which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most impor ...
and
UTCCR 1999 cover similar ground and can give rise to concurrent claims. For this reason the
Law Commission
A law commission, law reform commission, or law revision commission is an independent body set up by a government to conduct law reform; that is, to consider the state of laws in a jurisdiction and make recommendations or proposals for legal chang ...
devised a draft
Unfair Contract Terms Bill
The Unfair Contract Terms Bill is a proposed Act of Parliament of the United Kingdom, which would consolidate two existing pieces of consumer protection legislation, the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Reg ...
to unify the two in one document, and make protection for
small business
Small businesses are types of corporations, partnerships, or sole proprietorships which have fewer employees and/or less annual revenue than a regular-sized business or corporation. Businesses are defined as "small" in terms of being able to ap ...
explicit, but Parliament has not acted yet.
Unfair Contract Terms Act 1977
The
Unfair Contract Terms Act 1977
The Unfair Contract Terms Act 1977c 50 is an Act of Parliament of the United Kingdom which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most impor ...
regulates clauses that exclude or limit terms implied by the common law or statute. Its general pattern is that if clauses restrict liability, particularly
negligence
Negligence (Lat. ''negligentia'') is a failure to exercise appropriate and/or ethical ruled care expected to be exercised amongst specified circumstances. The area of tort law known as ''negligence'' involves harm caused by failing to act as a ...
, of one party, the clause must pass the "reasonableness test" in section 11 and Schedule 2. This looks at the ability of either party to get insurance, their
bargaining power
Bargaining power is the relative ability of parties in an argumentative situation (such as bargaining, contract writing, or making an agreement) to exert influence over each other. If both parties are on an equal footing in a debate, then they w ...
and their alternatives for supply, and a term's transparency. In places the Act goes further. Section 2(1) strikes down any term that would limit liability for a person's
death
Death is the irreversible cessation of all biological functions that sustain an organism. For organisms with a brain, death can also be defined as the irreversible cessation of functioning of the whole brain, including brainstem, and brain ...
or
personal injury
Personal injury is a legal term for an injury to the body, mind or emotions, as opposed to an injury to property. In common law jurisdictions the term is most commonly used to refer to a type of tort lawsuit in which the person bringing the suit (t ...
. Section 2(2) stipulates that any clause restricting liability for loss to property has to pass the "reasonableness test". One of the first cases, ''
George Mitchell Ltd v Finney Lock Seeds Ltd'' saw a farmer successfully claim that a clause limiting the liability of a cabbage seed seller to damages for replacement seed, rather than the far greater loss of profits after crop failure, was unreasonable. The sellers were in a better position to get insurance for the loss than the buyers. Under section 3 businesses cannot limit their liability for
breach of contract
Breach of contract is a legal cause of action and a type of civil wrong, in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party ...
if they are dealing with "
consumer
A consumer is a person or a group who intends to order, or uses purchased goods, products, or services primarily for personal, social, family, household and similar needs, who is not directly related to entrepreneurial or business activities. T ...
s", defined in section 12 as someone who is not dealing in the course of business with someone who is, or if they are using a written
standard form contract
A standard form contract (sometimes referred to as a ''contract of adhesion,'' a ''leonine contract'', a ''take-it-or-leave-it contract'', or a '' boilerplate contract'') is a contract between two parties, where the terms and conditions of the co ...
, unless the term passes the reasonableness test. Section 6 states the implied terms of the
Sale of Goods Act 1979
The Sale of Goods Act 1979c 54 is an Act of the Parliament of the United Kingdom which regulated English contract law and UK commercial law in respect of goods that are sold and bought. The Act consolidated the original Sale of Goods Act 1893 ...
cannot be limited unless reasonable. If one party is a "
consumer
A consumer is a person or a group who intends to order, or uses purchased goods, products, or services primarily for personal, social, family, household and similar needs, who is not directly related to entrepreneurial or business activities. T ...
" then the
SGA 1979 terms become compulsory. In other words, a business can never sell a consumer goods that do not work, even if the consumer signed a document with full knowledge of the exclusion clause. Under section 13, it is added that variations on straightforward exemption clauses will still count as exemption clauses caught by the Act. So for example, in ''
Smith v Eric S Bush
''Smith v Eric S Bush'' 990UKHL 1is an English tort law and English contract law">contract law case, heard by the House of Lords. First, it concerned the existence of a duty of care in tort for negligent misstatements, not made directly to someon ...
'' the House of Lords held that a
surveyor
Surveying or land surveying is the technique, profession, art, and science of determining the terrestrial two-dimensional or three-dimensional positions of points and the distances and angles between them. A land surveying professional is ca ...
's term limiting liability for negligence was ineffective, after the chimney came crashing through Mr Smith's roof. The surveyor could get insurance more easily than Mr Smith. Even though there was no contract between them, because section 1(1)(b) applies to any notice excluding liability for negligence, and even though the surveyor's exclusion clause might prevent a duty of care arising at common law, section 13 "catches" it if liability would exist "but for" the notice excluding liability: then the exclusion is potentially unfair.
Unfair Terms in Consumer Contracts Regulations 1999
![Londres - Fleet Street](https://upload.wikimedia.org/wikipedia/commons/4/4f/Londres_-_Fleet_Street.JPG)
Relatively few cases are ever brought directly by consumers, given the complexity of litigation, cost, and its worth if claims are small. In order to ensure consumer protection laws are actually enforced, the
Office of Fair Trading
The Office of Fair Trading (OFT) was a non-ministerial government department of the United Kingdom, established by the Fair Trading Act 1973, which enforced both consumer protection and competition law, acting as the United Kingdom's economic ...
has jurisdiction to bring consumer regulation cases on behalf of consumers after receiving complaints. Under the
Unfair Terms in Consumer Contracts Regulations 1999
The Unfair Terms in Consumer Contracts Regulations 1999SI 1999/2083 is an old UK statutory instrument, which had implemented the EU (then EEC) Unfair Consumer Contract Terms Directivebr>93/13/EECinto domestic law.Implemented under the European Co ...
regulations 10–12, which follows the requirements of the
Unfair Terms in Consumer Contracts Directive
The Unfair Terms in Consumer Contracts Directive''93/13/EECis a European Union directive (then called European Economic Community directive) governing the use of surprising or onerous terms used by business in deals with consumers.
National law
I ...
93/13/EC the
OFT has jurisdiction to collect and consider complaints, and then seek injunctions in the courts to stop businesses using unfair terms (under any legislation). The
UTCCR 1999 are both broader than
UCTA 1977
The Unfair Contract Terms Act 1977c 50 is an Act of Parliament of the United Kingdom which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most impor ...
in that they cover any unfair terms, not just exemption clauses, but narrower in that they only operate for consumer contracts. The UTCCR 1999 definition of a consumer is also narrower, under regulation 3, where a consumer must be a natural person (and never a legal person, like a
company
A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal person, legal or a mixture of both, with a specific objective. Company members share a common p ...
) who contracts outside his business. However, while the United Kingdom could always opt for greater protection, when it translated the Directive into national law it opted to follow the bare minimum requirements, and not to cover every contract term. Under regulation 6(2), a court may only assess the fairness of terms which do not involve the "definition of the main subject matter of the contract", or terms which relate to "price or remuneration" of the thing sold. Outside such "core" terms, a term may be unfair, under regulation 5 if it is not one that is individually negotiated, and if contrary to
good faith
In human interactions, good faith ( la, bona fides) is a sincere intention to be fair, open, and honest, regardless of the outcome of the interaction. Some Latin phrases have lost their literal meaning over centuries, but that is not the case ...
it causes a significant imbalance in the rights and obligations of the parties. A list of examples of unfair terms are set out in Schedule 2. In ''
DGFT v First National Bank plc
''Director General of Fair Trading v First National Bank plc'' [2001UKHL 52is the leading case on the Unfair Terms in Consumer Contracts Regulations 1999. It was an action to test the fairness of clauses in loan agreements which secured a bank's ...
'' the House of Lords held that given the purpose of consumer protection, regulation 6(2) should be construed tightly and Lord Bingham stated
good faith
In human interactions, good faith ( la, bona fides) is a sincere intention to be fair, open, and honest, regardless of the outcome of the interaction. Some Latin phrases have lost their literal meaning over centuries, but that is not the case ...
implies fair, open and honest dealing. This all meant that the bank's practice of charging its (higher) default interest rate to customers who had (lower) interest rate set by a court under a debt restructuring plan could, under regulation 6(2), be assessed for fairness, but that under regulation 5 the term did not create such an imbalance given the bank wished only to have its normal interest. This appeared to grant a relatively open role for the Office of Fair Trading to intervene against unfair terms. However, in ''
OFT v Abbey National plc
is a judicial decision of the United Kingdom Supreme Court relating to bank charges in the United Kingdom, with reference to the situation where a bank account holder goes into unplanned overdraft.
When a bank customer uses an unplanned overdr ...
'' the Supreme Court held that if a term related in any way to price, it could not by virtue of regulation 6(2) be assessed for fairness. All the High Street banks, including
Abbey National, had a practice of charging high fees if account holders, unplanned, exceeded through withdrawals their normal
overdraft
An overdraft occurs when something is withdrawn in excess of what is in a current account. For financial systems, this can be funds in a bank account. For water resources, it can be groundwater in an aquifer. In these situations the account is s ...
limit. Overturning a unanimous Court of Appeal, the Supreme Court viewed that if the thing being charged for was part of a "package" of services, and the bank's remuneration for its services partly came from these fees, then there could be no assessment of the fairness of terms. This controversial stance was tempered by their Lordships' emphasis that any charges must be wholly transparent, though its compatibility with
EU law
European Union law is a system of rules operating within the member states of the European Union (EU). Since the founding of the European Coal and Steel Community following World War II, the EU has developed the aim to "promote peace, its val ...
is not yet established by the
European Court of Justice
The European Court of Justice (ECJ, french: Cour de Justice européenne), formally just the Court of Justice, is the supreme court of the European Union in matters of European Union law. As a part of the Court of Justice of the European Un ...
, and it appears questionable that it would be decided the same under the proposed
Unfair Contract Terms Bill
The Unfair Contract Terms Bill is a proposed Act of Parliament of the United Kingdom, which would consolidate two existing pieces of consumer protection legislation, the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Reg ...
.
[The ]Unfair Contract Terms Bill
The Unfair Contract Terms Bill is a proposed Act of Parliament of the United Kingdom, which would consolidate two existing pieces of consumer protection legislation, the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Reg ...
(2005
Law Com 292
, in clause 4(5) says price "does not include any amount, payment of which would be incidental or ancillary to the main purpose of the contract".
Consumer Protection from Unfair Trading Regulations 2008
*''
Purely Creative Ltd v Office of Fair Trading''
011EWCA Civ 920, Sir Andrew Morritt, Jackson LJ, Munby LJ made a reference to the ECJ on the
Unfair Commercial Practices Directive
The Unfair Commercial Practices Directive 2005/29/ECOfficial Journal of the European Union, L149/22 – L149/39, 11 June 2005 regulates unfair business practices in EU law, as part of European consumer law. It requires corresponding laws to be ...
2005/29/EC, Annex I, para 3, implemented by the
Consumer Protection from Unfair Trading Regulations 2008
The Consumer Protection from Unfair Trading Regulations 2008 is a statutory instrument in the United Kingdom made under the European Communities Act 1972. It came into force on 26 May 2008. It is effectively the successor to the Trade Descriptio ...
, asking whether traders were prohibited from informing consumers they had won a prize when they were invited to incur any cost to claim the prize
See also
*
UK consumer protection
*
Good faith
In human interactions, good faith ( la, bona fides) is a sincere intention to be fair, open, and honest, regardless of the outcome of the interaction. Some Latin phrases have lost their literal meaning over centuries, but that is not the case ...
*
English contract law
English contract law is the body of law that regulates legally binding agreements in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the industrial revolution, it shares a heritage with countries ...
*
US contract law
Contract law regulates the obligations established by agreement, whether express or implied, between private parties in the United States. The law of contracts varies from state to state; there is nationwide federal contract law in certain areas, s ...
*
German contract law German contract law is found in the Bürgerliches Gesetzbuch, in both the "Allgemeine Teil" and the chapter on "Schuldrecht". It forms part of the general law of obligations.
See also
*Abstraktionsprinzip
*Drittwirkung
Contract
A contract is ...
*
French contract law
French contract law is part of the law of obligations found in the '' Code Civil'' dealing with contracts.
Notes
See also
*English contract law
*US contract law
*German contract law German contract law is found in the Bürgerliches Gesetzbuch, ...
*
Principles of European Contract Law Arts 4:107, 4:116 and 4:117
Notes
References
;Books
*
PS Atiyah
Patrick Selim Atiyah, (5 March 1931 – 30 March 2018) was an English lawyer and academic. He was best known for his work as a common lawyer, particularly in the law of contract and for advocating reformation or abolition of the law of tort. He ...
, ''Introduction to the Law of Contract'' (4th edn Clarendon, Oxford 1994)
*H Beale, Bishop and Furmston, ''Cases and Materials on Contract Law'' (OUP 2008)
*A Burrows, ''Cases and Materials on Contract Law'' (2nd edn Hart, Oxford 2009)
*H Collins, ''Contract law in context'' (4th edn CUP, Cambridge 2004)
*E McKendrick, ''Contract Law'' (8th edn Palgrave, London 2009)
*E Peel, ''Treitel: The Law of Contract'' (7th edn Thompson, London 2008)
;Articles
External links
Unfair Contract Terms Generally in Common Law
{{English contract law
English contract law