Unfair Contract Terms Act 1977

The Unfair Contract Terms Act 1977 (c 50) is an Act of Parliament of the United Kingdom 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 terms extend to both actual contract terms and notices that are seen to constitute a contractual obligation.

Unfair Contract Terms Act 1977
Long titleAn Act to impose further limits on the extent to which under the law of England and Wales and Northern Ireland civil liability for breach of contract, or for negligence or other breach of duty, can be avoided by means of contract terms and otherwise, and under the law of Scotland civil liability can be avoided by means of contract terms.
Citation1977 c 50
Territorial extentEngland and Wales; Scotland; Northern Ireland
Dates
Royal assent1977
Status: Amended
Text of statute as originally enacted
Text of the Unfair Contract Terms Act 1977 as in force today (including any amendments) within the United Kingdom, from legislation.gov.uk.

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),[1] as well as the Sale of Goods Act 1979 and the Supply of Goods and Services Act 1982.

The Law Commission and the Scottish Law Commission have recommended that the Unfair Terms in Consumer Contracts Regulations 1999 and the Unfair Contract Terms Act 1977 should be replaced by a more unified and coherent regime.[2]

Terms rendered ineffective
Contract law
Part of the common law series
Contract formation
Defenses against formation
Contract interpretation
Excuses for non-performance
Rights of third parties
Breach of contract
Remedies
Quasi-contractual obligations
Related areas of law
Other common law areas

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

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 all types of negligence (other than for death or personal injury which is banned) must satisfy the requirement of reasonableness.

Contractual liability. s3, This applies against a party that deals on standard written terms or where the other party deals as a consumer. Any exclusion by that party for liability arising from a breach committed by that party under the same contract (s3(2)(a)) or performance under a contract which is substantially or totally different of that which is reasonably expected of him (s(3)(b)) shall be void except insofar as it satisfies the requirement of reasonableness.

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 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 12,[3] 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.[4]
  • s12(1)(b), the other party is in the course of a business.
  • s12(1)(c), In a contract for sale of goods, 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).

Case law

  • Stewart Gill Ltd v Horatio Myer & Co Ltd[5] 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[6] 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[7] as to small print (literally – relating to the size of the lettering).
  • Smith v Eric S Bush.[8] Lord Griffith provides four points that may be considered (see application in St Albans City and District Council v International Computers Ltd[9]):
    • Equality of bargaining powers.
    • How practical was it to obtain independent legal advice regarding the term?
    • How difficult is the task being undertaken for which liability is being excluded?
    • What are the practical consequences of ruling that a term is unreasonable?

See also

Notes
  1. 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'
  2. The Law Commission, 'Unfair Terms in Contracts' (LC292, 2005)
  3. As amended by the Sale and Supply of Goods to Consumers Regulations 2002
  4. Holding himself is important as a party who is otherwise a consumer may attempt to act in the guise of a business for tax benefits or to shop at wholesale stores.
  5. [1992] 2 All ER 257
  6. [1977] 3 WLR 90
  7. [1984] 2 Lloyd's Rep 211
  8. [1990] 1 AC 831
  9. (1996) The Times 14 August

References
  • PS Atiyah, An Introduction to the Law of Contract (Clarendon, Oxford 2000)
  • H Collins, Contract Law in Context (CUP 2004)
  • E McKendrick, Contract Law (8th edn Palgrave 2009)
  • J Hilliard and J O’Sullivan, The Law of Contract (2nd edn OUP 2006)
  • A Burrows, A Casebook on Contract (2nd edn Hart, Oxford 2009)
  • Jill Poole, Casebook on Contract Law (2006) 8th Ed., Oxford University Press
  • Ewan McKendrick, Contract Law - Text, Cases and Materials (2005) Oxford University Press ISBN 0-19-927480-0
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