Contract Law Notes – The Unfair Contract Terms Act 1977
The Unfair Contract Terms Act 1977
Read our Contract Law Notes covering The Unfair Contract Terms Act 1977. Ideal for exam revision and general reference.
- Contract terms and non-contractual notices (s 2);
- Exemption clauses, clauses which ‘exclude or restrict liability’;
- Must be liability, and clause must be incorporated (s 11(2)) and, on its proper construction, apply to the liability in question.
2 – Control
- Exemption from negligence (s 2);
- Exemption from breach of implied terms in sale of goods, hire-purchase, and supply of goods context (ss 6, 7);
- Exemption from breach of contract in consumer and standard from contracts (s 3).
Exemptions may be:
- Absolutely ineffective; or
- Effective in so far as reasonable.
Types of Exemption Clause
Exemption clauses include (s 13):
- Making liability subject to onerous conditions;
- Excluding or restricting any right or remedy;
- Excluding or restricting rules of evidence.
Green (RW) Ltd v Cade Bros  1 Lloyds Rep 602 (party must make claim within time limit)
Smith v Eric S Bush and Harris v Wyre Forest DC  AC 831 (promisor not ‘give any warranty or undertaking, express or implied, in respect of goods supplied’)
Cf Harlington & Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd  1 All ER 737.
4 – Business Liability
Main concern: business liability, ie, ‘liability for breach of obligations or duties arising – (a) from things done or to be done by a person in the course of a business (whether his own business or another’s), or (b) from the occupation of premises used for business purposes of the occupier’ (s 1(3)).
Deals as consumer if (s 12(1)):
- (a) Contract not made in the course of business; and
- (b) Other party makes contract in the course of business;
R & B Customs Brokers Co Ltd v UDT Ltd  1 WLR 321
Sale of goods and hire purchase (s 12(1)(c)): goods supplied must be ‘of a type ordinarily supplied for private use or consumption’.
Sale by auction (s 12(2)): ‘not in any circumstances to be regarded as dealing as consumer’.
Burden of proof that not dealing as consumer is on party relying on clause (s 12(3)).
6 – Liability for Negligence
S 2, restrictions on exemptions, by businesses, from negligence:
- Prohibited from excluding or restricting liability for death or personal injury caused by negligence;
- Other loss or damage, cannot exclude or restrict liability for negligence except if term reasonable.
S 5, absolute prohibition against exemption of negligence liability by manufacturers or distributors of goods by way of written guarantee. Goods must be:
- Supplied for private use or consumption; and
- Loss or damage must arise from goods being defective while in consumer use.
7 – Indemnity Clauses
S 4, ‘person dealing as consumer’ cannot by reference to any contract term indemnify another in respect of liability for the others negligence or breach of contract, except if contract term reasonable.
8 – Sale of Goods and Hire-Purchase
S 6, restricts capacity of sellers to exempt themselves from liability for breach of implied terms contained in ss 12-15 Sale of Goods Act 1979:
- Exemption from s 12 (stipulations as to title) absolutely prohibited;
- Exemption from ss 13-15 (conditions as to satisfactory quality, fitness for purpose, and correspondence with description or sample) absolutely prohibited where buyer deals as consumer.
- If buyer not consumer, exempt provided reasonable.
S6, contracts of hire-purchase: similar provisions apply re terms exempting liability for breach of implied terms contained in Supply of Goods (Implied Terms) Act 1973.
9 – Supply Contracts
Examples include contracts for work and materials.
S 7, absolutely prohibits exemption from implied terms, against a person dealing as consumer, contained in The Supply of Goods and Services Act 1982, relating to correspondence of goods with description, or sample, or their quality or fitness for purpose.
Dealing otherwise than as consumer: exemptions valid if reasonable.
10 – Business Liability to Consumers and Under Standard Terms of Business
S 3, applies where one contracting party deals:
- as consumer; or,
- on the other’s standard terms.
‘As against that party, the other cannot by reference to any contract term –
- when himself in breach of contract, exclude or restrict any liability of his in respect of the breach; or
- claim to be entitled –
- to render a contractual performance substantially different from that which was reasonably expected of him, or
- in respect of the whole or any part of his contractual obligation, to render no performance at all, except in so far as the contract term satisfies the requirement of reasonableness’.
Anglo Continental Holidays Ltd v Typaldos Lines (London) Ltd  2 Lloyd’s Rep 61
Timeload Ltd v BT Plc (1995) 3 EMLR 459
11 – Reasonableness
S 11 (2), Schedule 2, guidelines:
- Relative bargaining power;
- Conditionality appropriate?
- Specially ordered goods?
S 11(4), re limitation clauses, regard is also to be had to:
- Resources of promisor;
- Ability of promisor to insure.
Burden of proving reasonableness is on party seeking to rely on clause (s 11(5)).
12 – Reasonableness and the Cases
Smith v Eric S Bush  1 AC 831 (‘it is impossible to draw up an exhaustive list of factors to be taken into account’)
Howard Marine and Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd  QB 574 (negotiations, trade practice)
Overseas Medical Supplies Ltd v Orient Transport Services Ltd  2 Lloyd’s Rep 272 (competition, size of limitation, insurance)
Gillespie v Roy Bowles Transport Ltd  QB 400 (could the promisee have paid more not to have the clause?)
St Albans City & DC v International Computers Ltd  FSR 686, aff’d  4 All ER 481 (insurance)
RW Green v Cade Bros Farms  1 Lloyds Rep 602 (can promisee discover defect?)
*George Mithell (Chesterhall Ltd) v Finney Lock Seeds Ltd  QB 284
- Magnitude of damage to contract price
- Trade practice
13 – Powers of the Court
- Limited to upholding term or invalidating;
- Cannot re-write term to make it reasonable (George Mitchell (Chesterhall Ltd) v Finney Lock Seeds Ltd  QB 284).