Unfair Contract Terms
Unfair Contract Terms
The law relating to Unfair Contract Terms is there to protect individuals dealing with businesses from harsh contractual terms imposed on them by the business. Examples of such terms may be limiting a businesses’ liability to the consumer in the event the business breaches the contract or imposing harsh penalty clauses on the individual in the event the individual breaches the contract.
Broadly speaking, whether a term is considered fair is to ask whether it is reasonable for the clause to be included in the contract in the first place.
The current law on unfair contract terms appears under the Unfair Contract Terms Act 1977 and Unfair Terms in Consumer Regulations 1999.
The Unfair Contract Terms Act 1977 (UCTA) applies to all contractual relationship though a court will deal with relationships created between business and individual consumers more generously to the individual. Businesses are considered to be savvy enough to know the law or seek help and are therefore not offered as much protection when agreeing to terms which they later could regard as unreasonable.
The Consumer Regulations 1999 applies to just consumers dealing with businesses. The standards of test as to whether a term of a contract is reasonable are much more lenient for consumers. This is because consumers have not had the benefit to negotiate terms of the contract. They are given standard terms of conditions and told that they must accept them as they are not negotiable.
Transactions between businesses are assumed to be on equal footing when it comes to entering into contracts. This means that a test of reasonableness under UCTA will be much narrower than the Act relating to consumer unfair contracts.
However UCTA prohibits a number of terms which cannot be included in any contract whether you are a business or individual. It explicitly disallows businesses from being able to exclude liability for death or injury. Losses caused by negligence are only permitted if reasonable as is liability excluded for defective or poor quality goods.
The test of reasonableness
We have seen that potentially unfair contract terms will only be allowed to be incorporated into a contract if they are deemed to be “reasonable”. The definition of what ‘reasonable’ means is not defined in any of the legislation covering unfair terms. The courts do however tend to take into account what information was available to both parties when the contract was drafted. Whether the contract was negotiated with standard terms of business and whether the purchaser had the ability to bargain on better terms.
Businesses are not offered the same level of protection as individual consumers. A business would not be able to rely on a clause that states liability for defective goods is excluded as the terms would be considered void. But as a business purchaser this term may be valid if considered reasonable.