Statutory Control of Exemption Clauses

Purpose of Statutory Control

Background

• Common law controls such as incorporation and contra proferentem were often insufficient to protect consumers and weaker contracting parties.
• Businesses frequently used standard form contracts containing extensive exclusion clauses.
• Parliament introduced statutory controls to prevent unfair exclusion of liability.

Main Statutes

• Unfair Contract Terms Act 1977 (UCTA).
• Consumer Rights Act 2015 (CRA 2015).

Examination Approach

1. Determine whether the contract is consumer or non-consumer.
2. Identify the relevant statute.
3. Determine whether the clause is automatically void or subject to a reasonableness/fairness test.
4. Apply statutory provisions.

Unfair Contract Terms Act 1977 (UCTA)

Scope of UCTA

Application

• Primarily regulates business liability.
• Applies to:
  • Business-to-business contracts.
  • Certain consumer situations not fully covered by CRA 2015.
• Controls exclusion and limitation clauses.

Section 2 – Negligence Liability

UCTA 1977, Section 2(1)

Statutory Provision

• A person cannot exclude or restrict liability for death or personal injury resulting from negligence.

Effect

• Any clause attempting to do so is automatically void.

Examination Application

• Absolute prohibition.
• No reasonableness test applies.

White v Blackmore [1972] 2 QB 651

Facts

• Spectator killed at motor racing event.
• Exclusion clause relied upon.

Application

• Often discussed when examining exclusion of negligence liability.

Modern Position

• Section 2(1) would now prevent exclusion of liability for death or personal injury caused by negligence.

UCTA 1977, Section 2(2)

Statutory Provision

• Liability for other loss or damage caused by negligence may only be excluded if reasonable.

Effect

• Clause subject to reasonableness test.

Application

• Property damage.
• Economic loss.
• Financial loss.

Smith v Eric S Bush [1990] 1 AC 831

Facts

• Surveyor prepared mortgage valuation.
• Disclaimer attempted to exclude liability.
• Purchaser relied on report and suffered loss.

Judgment

• Disclaimer unreasonable.

Legal Principle

• Reasonableness test must be satisfied.

Application

• Leading Section 2 authority.

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Section 3 – Standard Terms of Business

UCTA 1977, Section 3

Statutory Provision

Where one party deals on another’s written standard terms of business, that party cannot:

• Exclude liability for breach.
• Claim substantially different performance.
• Render no performance at all.

Unless the clause satisfies the reasonableness test.

Application

• Frequently applies to standard form contracts.

St Albans City and District Council v International Computers Ltd [1996] 4 All ER 481

Facts

• Software supplied under standard terms.
• Limitation clause capped liability at £100 000.
• Actual loss exceeded £1 million.

Judgment

• Clause unreasonable.

Legal Principle

• Large disparities between actual risk and liability limit may render a clause unreasonable.

Application

• Leading Section 3 authority.

Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317

Facts

• Commercial parties negotiated limitation clauses.

Judgment

• Clause upheld.

Legal Principle

• Courts more willing to uphold negotiated clauses between experienced businesses.

Application

• Important contrast to St Albans.

Section 6 – Sale of Goods Contracts

UCTA 1977, Section 6

Statutory Provision

Attempts to exclude statutory obligations regarding:

• Title.
• Description.
• Quality.
• Fitness for purpose.

Are restricted.

Application

• Particularly important before CRA 2015.
• Remains relevant in non-consumer contexts.

Section 11 – Reasonableness Test

UCTA 1977, Section 11

Statutory Provision

Clause must be fair and reasonable having regard to circumstances existing when the contract was made.

Key Examination Point

• Assessment occurs at the time of contracting.
• Not with hindsight.

Schedule 2 Guidelines

Factors Considered

Relative Bargaining Strength

• Were parties equal in bargaining power?

Availability of Alternatives

• Could the weaker party obtain the goods or services elsewhere?

Knowledge of the Clause

• Was the term adequately brought to attention?

Special Orders

• Was the product specially manufactured?

Ability to Comply

• Could the party realistically comply with the condition?

Application

• Frequently cited in examination essays.

George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803

Facts

• Defective cabbage seeds supplied.
• Limitation clause attempted to restrict liability to replacement seed value.

Judgment

• Clause unreasonable.

Legal Principle

• House of Lords applied Section 11 and Schedule 2 factors.

Application

• Leading reasonableness authority.

Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] QB 600

Facts

• Standard terms prevented set-off rights.

Judgment

• Clause failed reasonableness test.

Legal Principle

• Courts scrutinise exclusion clauses closely.

Application

• Important Section 11 authority.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total Personal A Grades, 7 Distinctions and 11 World Records For Educate A Change A Level Law Full Scale Course

Consumer Rights Act 2015

Purpose

Consumer Protection

• Replaced much of the previous consumer unfair terms regime.
• Provides stronger protection for consumers.

Main Areas

• Fairness of consumer contract terms.
• Transparency.
• Consumer notices.
• Blacklisted terms.

Section 62 – Requirement of Fairness

CRA 2015, Section 62(1)

Statutory Provision

• Unfair consumer terms are not binding on consumers.

Section 62(4)

Fairness Test

A term is unfair if:

• Contrary to the requirement of good faith.
• Causes significant imbalance in parties’ rights and obligations to the detriment of the consumer.

Application

• Core fairness provision.

Director General of Fair Trading v First National Bank plc [2001] UKHL 52

Facts

• Consumer loan agreement contained interest provisions.

Judgment

• House of Lords analysed fairness requirements.

Legal Principle

• Good faith requires fair and open dealing.

Application

• Leading fairness authority.

Section 64 – Core Terms

CRA 2015, Section 64

Provision

Terms concerning:

• Main subject matter.
• Price.

Generally escape fairness review if:

• Transparent.
• Prominent.

Application

• Important limitation on consumer challenges.

Office of Fair Trading v Abbey National plc [2009] UKSC 6

Facts

• Bank overdraft charges challenged.

Judgment

• Charges formed part of the price mechanism.

Legal Principle

• Core price terms receive special protection.

Application

• Leading authority concerning core terms.

Section 65 – Negligence Causing Death or Personal Injury

CRA 2015, Section 65

Statutory Provision

• Traders cannot exclude liability for death or personal injury resulting from negligence.

Effect

• Clause automatically ineffective.

Application

• Similar protection to UCTA Section 2(1).

Section 68 – Transparency

CRA 2015, Section 68

Statutory Provision

Terms must be:

• Transparent.
• Expressed in plain and intelligible language.

Application

• Consumer must understand contractual obligations.

Section 69 – Interpretation Most Favourable to Consumer

CRA 2015, Section 69

Statutory Provision

• Ambiguous consumer terms interpreted in favour of the consumer.

Application

• Statutory version of contra proferentem.

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Schedule 2 Consumer Rights Act 2015

Grey List

Nature

• Contains examples of terms potentially regarded as unfair.

Examples

• Excessive cancellation charges.
• Disproportionate penalties.
• Unilateral variation clauses.
• Terms allowing trader exclusive interpretation rights.
• Clauses binding consumers while allowing trader unrestricted discretion.

Application

• Not automatically unfair.
• Strong indication that fairness should be questioned.

Relationship Between UCTA and CRA 2015

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total Personal A Grades, 7 Distinctions and 11 World Records For Educate A Change A Level Law Full Scale Course

Essential Examination Cases

Essential Statutory Provisions

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