Contract Law Revision Notes - Unfair Terms in Consumer Contracts 1999

In this series of contract law revision notes we provide a brief overview of Unfair Terms in Consumer Contract 1999 legislation.

Unfair Terms in Consumer Contracts 1999

History, rationale and broad thrust of the Regulations (and the corresponding 1993 EC Directive).
Unfair Terms in Consumer Contracts Regulations 1994 (SI 1994 No. 3159) were replaced by Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999 No. 2083)
Scope of the Regulations

‘consumer’

‘goods and services’

‘seller or supplier’

Term which has not been individually negotiated: Reg. 5(1)-(4)
‘Unfair term’ - Regulation 5(1)

‘significant imbalance’

‘contrary to the requirement of good faith’

assessment at time of contract - Reg. 6(1)

Schedule 2 indicative list of unfair terms

Terms not subject to control - Reg. 6(2) (‘core terms’)

definition of main subject matter of contract

adequacy of price or remuneration

“so far as in plain intelligible language”

terms “which reflect mandatory statutory or regulatory provisions”: Reg 4(2)

Consequences of finding a term to be unfair: Reg. 8.
‘Plain intelligible language’ and construction of terms: Reg. 7.
Preventing the use of unfair terms - 1999 Regulations 10-15

compare 1994 Reg. 8 to Article 7 of the 1993 Directive

The OFT website

(http://www.oft.gov.uk/shared_oft/business_leaflets/unfair_contract_terms/)

especially Unfair Standard terms (OFT 143, ?2005) and Unfair contract terms guidance (OFT311) (2001)

Cases

Director-General of Fair Trading v First National Bank [2001] UKHL 52, [2002] AC 481 (noted BBF 1044, extract in M)

Office of Fair Trading v Abbey National PLC and 7 others [2008] EWHC 875 (Comm) (M)

Relationship with UCTA 1977 and common-law controls

Law Commissions, Unfair Terms in Contracts

Consultation Paper No 166, 2002

Report No 292, 2005

(Both available at www.lawcom.gov.uk)

On the question of why the EC has legislated on unfair terms in consumer contract but not in B2B contracts, see H Collins (1994) Oxford J Legal Studies 229 (extracted BBF 1045-1048)

A broader view on the Regs.

“good faith”: an indirect impact on English law?

Europeanisation of contract law?

possible future developments: the Common Frame of Reference

http://ec.europa.eu/consumers/cons_int/safe_shop/fair_bus_pract/cont_law/index_en.htm

“Tool box”; basis for optional instrument

Principles, Definitions and Models Rules of European Private Law: Draft Common Frame of Reference (Interim Outline Edition, 2008) (text on CCC web page)

Draft Directive on consumer rights (text on CCC web page)

Passing of property and Risk (accidental damage to and destruction of goods)

(a) Delivery obligations:

(1) where

SGA s.29(1),(2) and (6); s.32
Wiskin v Terdich Bros [1928] ArgLR 242

(2) when

SGA s.29(3)

Hartley v Hymans [1920] 3 KB 475, 484 (BBF 574)

(3) how much

SGA s.30(1),(2),(4); s.31.

(4) form of delivery

SGA s.29(4)

Documents of title: Bill of Lading (for an example see BBF 1220)

(b) Passing of property

Why does the passing of property matter?

Insolvency

2. Action for price, s. 49(1)

3. Risk, s.20

4. Action for damages in tort against 3rd person who damages goods

Leigh & Sillivan Ltd v Aliakmon Shipping Ltd, The Aliakmon [1986] AC 785

SGA 1979 s.16: not until ascertained

re London Wine Co (1975)

(wine in warehouse; buyers given certificates of ownership; wine not allocated to buyers)

Re Staplyton Fletcher [1994] 1 WLR 1181 (M)

(wine sold set aside though not marked for individual buyers)

Law Commission, Sale of Goods forming part of a Bulk (1993)

Sale of Goods (Amendment) Act 1995

SGA 1979 s 20A and 20B

s.17: depends upon intention

s.18: p.f. rules

Carlos Federspiel v Twigg [1957] 1 Lloyd's Rep 240 (M)

(no appropriation by goods being labelled for buyer when still not shipped)

Philip Head & Sons Ltd. v Showfronts Ltd [1970] 1 Lloyd's Rep 140

(carpet delivered but not yet laid)

s.19: reservation of right of disposal (eg "cash against documents")

SGA s.20(1): prima facie risk passes with property

s.20(3): CONSUMERS: risk passes on delivery

The meaning of "risk passing"

(1) "at buyer's risk": the buyer must pay.

(2) "at seller's risk": the seller cannot require the buyer to take the goods.

Deterioration due to poor quality:

Mash & Murrell v Emmanuel [1961] 1 All ER 485, rev'd [1962] All ER 77.

Deterioration due to delay: s.20(2)

NB Either party may agree to act as bailee of goods and be liable for failure to take care of the goods.

Is the seller liable in damages or is the contract frustrated?

SGA s.7:

Where there is an agreement to sell specific goods and subsequently the goods, without any fault on the part of the seller or buyer, perish before the risk passes to the buyer, the contract is frustrated.

(a) unascertained goods: Healey v Howlett [1917] 1 KB 337 (M)

(fish shipped by rail; deteriorated before allocated to various buyers)

(b) specific goods: s.7 if perish; if damaged, S may be liable.

(d) Goods "quasi-specific" (unascertained part of defined bulk):

Sterns v Vickers [1923] 1 KB 78

(spirit stored in tank belonging to 3rd party; B given delivery warrant which aw ‘attorned to’ by 3rd party (ie 3rd party acknowledged must deliver to B’s order; risk on B because “constructive” delivery.)

If risk on S and bulk destroyed, frustration?

Howell v Coupland (1876) 1 QBD 258

(Partial failure of potato crop: S not liable for non-delivery of shortfall)

Sainsbury v Street [1972] 1 WLR 834

What if unknown to either party the goods had perished before the contract was made?

Sale of Goods Act 1893/ 1979 s.6:

Where there is a contract for the sale of specific goods, and the goods without the knowledge of the seller have perished at the time the contract was made, the contract is void.

Common mistake

The parties agree to buy and sell goods which, unknown to them, have ceased to exist; or enter the contract under some other mistake which makes the contract very different from what they thought: e.g. they thought they were dealing with a panting of little value when in fact it was an Old Master.

(1) Introduction into English law

It is not clear that English law had a doctrine of common mistake until the end of the 19th century. However in Couturier v Hastie (1856) 5 HLCas 673 (noted BBF 499) it was held that a seller of goods which, unknown to either party had already ceased to exist could not recover the price. (The goods were a cargo which had in fact overheated and which the ship’s captain had therefore off-loaded and sold before it deteriorated further. The seller argued that once it had transferred the bill of lading, the buyer must pay but the HL rejected this.) In later cases and writing this was interpreted as depending on the contract being impossible for mistake, as in Roman law. This was the view taken by the draftsman of the SGA:

Sale of Goods Act 1893/ 1979 s.6:

Where there is a contract for the sale of specific goods, and the goods without the knowledge of the seller have perished at the time the contract was made, the contract is void.

It is not clear whether the contract is always void under s.6 or whether the court could hold that the risk was on the seller, i.e. that the seller was promising the goods would exist. In the analogous case of the oil tanker which never existed, the Australian High Court held the seller liable for breach of warranty: McRae v Commonwealth Disposals Commission (1950) 84 CLR 377 (H.Ct of Australia) (BBF 500) (sale of tanker on Jourmand Reef, which had never existed)

(2) The common law doctrine.

This is really a generalisation from the sale of goods case. In Bell v Lever Bros [1932] AC 161 (BBF 503) (golden handshake; parties did not know that Lever could have fired directors without payment) Lord Atkin accepted that a common mistake might render the contract void even outside the case of the goods having ceased to exist.

Atkin: “Mistake as to the quality of the thing contracted for will not affect assent unless it is the mistake of both parties and is as to the existence of some quality which makes the thing without the quality essentially different from the thing it was supposed to be.”

(3) The equitable doctrine

This was developed by Lord Denning. He took the view that a common mistake never made a contract void at common law [?] but that rescission would be allowed in equity: Solle v Butcher [1950] 1 KB 671 (BBF 509). (Rent of flat controlled. L carried out improvements. L and T thought that it was now a new flat, not subject to controls; but later T discovered that control still applied and sought to have rent reduced to old figure. By then too late for L to apply to have rent increased because of improvements. CA gave T option of rescission or paying increased rent)

Denning: “A contract is ... liable to be set aside in equity if the parties were under a common misapprehension either as to facts or as to their ... rights, provided the misapprehension was fundamental and that the party seeking to set it aside was not himself at fault.”

The doctrine was applied rather more generously than the common law doctrine, which seems very strict and limited. See e.g. Grist v Bailey [1967] Ch 532

(V and P thought tenant in property sold protected by Rent Acts), though that case was doubted (obiter) in William Sindall v Cambs CC [1994] 3 All ER 932 (noted BBF 527).

In Associated Japanese Bank Ltd v Credit du Nord [1988] 3 All ER 902 (BBF 513)

(sale and lease back of machines; C du N guaranteed payments. Both banks victim of fraud as machines had never existed) Steyn seemed to accept that both the common law and equitable doctrines existed, but did not explain how they differ.

(4) Rejection of the equitable doctrine

However, in Great Peace Shipping Ltd v Tsavliris, The Great Peace [2002] EWCA Civ 1407, [2003] QB 679 (BBF 517), the CA refused to follow Solle v Butcher and said that only mistakes which fall within Bell v Lever Bros were relevant - those which rendered the contract or contractual venture impossible. These render the contract void.

(5) Discharge by construction

There are also odd cases in which the courts, without ever mentioning mistake, achieve the same result by “construction” of the contract: e.g. Financings v Stimson [1962] 3 All ER 386 (BBF 524)

Note on arrangements under FOB and CIF

(1) FOB (S has to place goods “free on board”).

(2) CIF (price includes “cost, insurance and freight”, so that S must arrange carriage and insurance and present shipping documents – the bill of lading (or sometimes a ship's delivery order), the invoice and an insurance policy - to B).

FOB (S has to place goods free on board): risk passes at date of shipment (property may pass then or later if right of disposal reserved, eg by "cash against documents").

CIF (price includes cost, insurance and freight, so that S must arrange carriage and insurance and present shipping documents - bill of lading (or sometimes ship's delivery order), invoice and insurance policy - to B): risk passes as from date of shipment, which may be before contract is made. (If the goods have perished before the contract is made, the contract is void, SGA s.6, see above).

Once the buyer holds the bill of lading or a ship's delivery order it can sue the carrier in contract by virtue of Carriage of Goods by Sea Act 1992.

This Act replaces Bills of Lading Act 1855. There were doubts about the scope of the 1855 Act. In particular there had been problems with s.1, which gave a right of action to

...every endorsee of a bill of lading, to whom the property in the goods mentioned shall pass upon or by reason of such ... endorsement..."

One was when the goods were carried in bulk and were only ascertained when they were unloaded, after transfer of the B/L. The other was when the B/L was not transferred until after the ship had arrived and the goods had been unloaded, so that the B/L was no longer current. In neither case could it be said that the endorsee obtained the property "upon or by reason of the endorsement." Both ARE taken care of by the 1992 Act. The Act also applies to ship's delivery orders.

The importance of the Act is to give the buyer/endorsee contract rights against the carrier. If the endorsee is not protected by the Act (e.g. because it has accepted a delivery order issued not by the ship but by the seller) it is possible that an implied contract may come into existence if the carrier delivers to it and the endorsee pays the freight: Brandt v Liverpool Steam Navigation [1924] 1 KB 575. However this is not reliable protection (e.g. if there are no goods left to deliver). The buyer will not have an action in tort if at the time the goods were damaged the buyer did not own them, even if the goods were at the buyer's risk because the loss is purely economic: The Aliakmon [1986] AC 785.