Unfair Contract Terms Act 1977

The Unfair Contract Terms Act 1977 is a British Act of Parliament (1977, c 50) 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 important functions is limiting the applicability of disclaimers of liability. The title is misleading as it creates obligation in tort and contract. The terms extend to both actual contract terms and notice that are seen to constitute a contractual obligation.

The Act renders terms excluding or limiting liability ineffective or subject to reasonableness, depending on the nature of the obligation purported to be excluded and whether the party purporting to exclude or limit business liability, acting against a "consumer".

It is normally used in conjunction with the Unfair Terms in Consumer Contracts Regulations 1999 (Statutory Instrument 1999 No. 2083), [as amended by the Unfair Terms in Consumer Contracts (Amendment) Regulations 2001 (Statutory Instrument 2001 No. 1186) which merely further defined a 'Financial Service Authority'] as well as the Sale of Goods Act 1979 and the Supply of Goods and Services Act 1982.

Terms rendered ineffective

Negligence. s2(1), liability for negligence occasioning death or personal injury cannot be excluded.

Manufacturers' guarantee. s5(1), loss arising from (a) defective goods or (b) negligence of distributor; cannot be excluded where goods are "of a type ordinarily supplied for private use or consumption.

Sale of Goods
*s6(1), implied terms as to title (Sale of Goods Act 1979 s12) cannot be excluded.
*s6(2), implied terms as to description, quality or sample (Sale of Goods Act 1979 ss13-15) cannot be excluded "against a consumer".

terms governed by the Consumer Protection Act 1987.

They are also governed (since 2007) by the Occupiers Liability Act 1984.

Terms subject to reasonableness

Negligence. s2(2), exclusion of liability for negligence (other than for death or personal injury) must satisfy the requirement of "reasonableness".

Contractual Liability. s3, This applies against a party that ed a standard form contract where the other party is a "consumer". Exclusion of breach of the same contract (s3(2)(a)) or performance of which is substantially or totally different of that which is resonably expected of him (s(3)(b)).

Indemnity clauses. s4, A party dealing as a "consumer" cannot contract to indemnify a third party on behalf of the other party, except insofar as it satisfies the requirement of "reasonableness".

Sale of Goods. s6(3), Implied terms as to description, quality and sample (Sale of Goods Act 1979 ss 13-15) may only be reasonably excluded where neither party is dealing as a "consumer".

Misrepresentation. s8, substitutes the Misrepresentation Act 1967 s3. Under that post-1979 section, an exclusion of liability for misrepresentation must be satisfy the requirement of reasonableness.

Definition of "consumer" and "business"

Business. s 1(3), The Act only applies to "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". s14, Includes any government department.

Consumer. s 12As amended by the Sale and Supply of Goods to Consumers Regulations 2002] , A party deals as a consumer if
*s12(1)(a), He is not in the course of a business and does not hold himself to do so.Holding himself is important as an otherwise consumer may attempt to act in the guise of a business for tax benefits or to shop at wholesale stores]
*s12(1)(b), the other party is in the course of a business.
*s12(1)(c), In Sale of Goods contract, the goods are of a type "ordinarily supplied for private use or consumption" (s12(1A), this subsection does not apply to individuals)
*s12(2), A party is not a consumer if dealing at an auction where he has the opportunity to attend in person or is not a natural person buying auction.
*s12(3), Burden is upon the party purported to be acting in the course of a business to show that either he is not in the course of a business or that the other party is otherwise not a consumer

Definition of "reasonableness"

Section 11 provides some guidance but most development has been in common law

Schedule 2 gives guidelines specifically to ss 6(3), 7(3), 7(4).

Common Law
*"Stewart Gill Ltd. v Horatio Myer & Co. Ltd." [1992] 2 All ER 257] provides that reasonableness is assessed at the time of contract; and that the burden of proof is upon the party purporting to have excluded liability.
*"Levison v Patent Steam Carpet Cleaning Co. Ltd." [1977] 3 WLR 90] provides that clarity and preciseness will raise the reasonableness of a term; and vice versa. See also Stag Line Ltd. v Tyne Ship Repair Group Ltd. [1984] 2 Lloyd's Rep 211] as to small print (literally; size-wise).
*"Smith v Eric S Bush" [1990] 1 AC 831] . Lord Griffith provides 4 points that may be considered... (see application in St Albans City and District Council v International Computers Ltd.(1996) "The Times" 14th August] ).
**Equality of Bargaining Powers.
**How practical was it to obtain independent legal advise regarding the term?
**How difficult is the task being for which liability is being excluded?
**What are the practical consequences of ruling that a term is unreasonable?

ee also

* Standard form contract
* Unfair Terms in Consumer Contracts Regulations 1999
* Electronic Commerce Regulations 2002
* "Office of Fair Trading v Abbey National and Others (2008)" - Bank charges test case

References