This article will illustrate and explain the relevant provisions of the Unfair Contract Terms Act 1977 (UCTA), in relation to the question above. It is hoped that the reader will gain a greater understanding and perception of the validity of the terms of a contract, to which they are a party.
UCTA focuses on, but is not limited to, terms which seek to exclude or restrict the liability of one party, when that party has for example breached the contract. Before considering whether a contract term is fair or not, it is imperative to discern whether in fact UCTA applies.
Do the provisions of UCTA apply?
Section 3 of UCTA provides in relation to contractual liability that: “as between contracting parties where one of them deals as consumer or on the other’s written standard terms of business except in so far as (in any of the cases mentioned above in this subsection) the contract term satisfies the requirement of reasonableness”.
This means that UCTA can apply to a consumer and a business. When a person acts as consumer he or she: “neither makes the contract in the course of a business nor holds himself out as doing so and…the other party does make the contract in the course of a business and in the case of a contract governed by the law of sale of goods or hire-purchase, or by section 7 of this Act, the goods passing under or in pursuance of the contract are of a type ordinarily supplied for private use or consumption.” (s.12 UCTA).
UCTA also can apply in business to business contracts, provided that one party deals “on the other’s written standard terms of business.”
Reasonableness how is it assessed?
An exclusion or limitation clause must satisfy the requirement of reasonableness (see supra in relation to section 3 of UCTA). This requirement of reasonableness: “is that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made”. (s. 11(1) of UCTA.) As this section highlights the test of reasonableness is conducted at the point of time when the contract was made not, it must be stressed, at the time the breach occurred.
Furthermore, it can be seen in light of section 11(1) of UCTA, reasonableness is a matter of fact and degree, that is, it is decided on a case by case basis. UCTA, however provides some guidelines to which regard is to be had when assessing the reasonableness or otherwise of an exclusion or limitation clause, these are provided in Schedule 2. The following points which appear relevant should be considered:
(a) the strength of the bargaining positions of the parties relative to each other, taking into account (among other things) alternative means by which the customer’s requirements could have been met
(b) whether the customer received an inducement to agree to the term, or in accepting it had an opportunity of entering into a similar contract with other persons, but without having to accept a similar term
(c) whether the customer knew or ought reasonably to have known of the existence and extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties)
(d) where the term excludes or restricts any relevant liability if some condition is not complied with, whether it was reasonable at the time of the contract to expect that compliance with that condition would by practicable
(e) whether the goods were manufactured, processed or adapted to the special order of the customer.