The focus in Part III of the textbook is on how the law regulates contracts, by setting limits to how parties can behave during the bargaining process as well as by setting bounds on the terms to which they can assent. The three online videos for this Part III illustrate the type of everyday situations and contractual clauses that make these rules necessary, and the manner in which the law seeks to deal with the problems these clauses create.
Each of the three sets of videos deals with one type of situation discussed in Part III of the book. The first deals with misselling, looking at whether particular statements made in the course of a sale amount to a misrepresentation and, if so, the impact they have on the purchaser’s rights. The second deals with two different clauses in consumer contracts, asking whether those clauses are legally valid (and whether they ought to be legally enforceable). The third looks at a controversial clause, using it to explore the role of public policy in setting bounds to the freedom of parties to structure their contracts as they please.
As with Parts I and II, each video is accompanied by an introduction and some commentary on the situation set out in the video. Treat these as setting out points for further discussion and reflection, and as a guide to working through the legal issues arising out of the situations described in the videos.
Video Exercise 1: Selling an extended warranty
In modern chain stores, sales assistants very often have incentives to push certain types of ‘add-on’ products or services to you. How far can they go in trying to convince you to buy those products or services? How much information do they have to give you? What happens if the information they give you about the service is incomplete, leaving out important points which can, however, be found elsewhere?
The video below deals with one such situation—specifically, the sale of an extended warranty. Those of you who have bought electronics or home appliances in a physical store are likely to have been offered an extended warranty at some stage during the process. In 2013, Curry’s extended warranty came in for criticism. The warranty was sold under the brand ‘Whatever happens’. In point of fact, however, it came with several exclusions. Sales assistants rarely explained all these exclusions to customers. Some customers who bought the warranty and tried to claim under it subsequently found that they were hit by one of these exclusions.
Watch the video below, and work out whether a customer would have any remedy for Curry’s staff’s failure to fully explain all relevant exclusions. Consider legal rules are relevant, and how will they apply to these facts. The points under comment 1 will help you to do this if you find yourself struggling.
- From a legal point of view, situations like this raise three distinct sets of legal issues:
- Do the sales attendants’ actions amount to actionable misrepresentation?
- Was the exclusion clause validly incorporated into the contract?
- Is the exclusion clause enforceable under the Consumer Rights Act 2015?
- On the issue of misrepresentation, it is important to keep in mind that
- The question of whether a statement was true or false is assessed objectively. The fact that there was no intention to deceive is irrelevant. Thus it is no defence for Curry’s to argue that their staff did not know that they were making misleading statements about the scope of the extended warranty.
- For a misrepresentation to be actionable, it must induce the contract by playing a ‘real and substantial part’ in the purchaser’s decision to buy the warranty. Are there elements in the video which suggest that this requirement is fulfilled?
- As far as incorporation is concerned, given that a purchaser of an extended warranty rarely expressly assents to the terms of the warranty, the question is whether the exclusion clause was incorporated by reference. This raises issues of the time and adequacy of notice. Were the terms available for the purchaser to read before the purchase (the answer to this question is almost certain to be ‘yes’)? And was the purchaser’s attention adequately drawn to unusual or onerous clauses (the ‘red hand’ rule)?
- On the question of the validity of the exclusion clause under the Consumer Rights Act 2015, the key provision is s. 62(4), under which clauses are not enforceable if they cause as significant imbalance in the parties’ positions and are contrary to good faith. On good faith, a key question to ask is whether the dealings between the parties were fair and open. The video suggests strongly that they were not. The other question to consider is whether the clause tilts the balance in the contract in the supplier’s favour and against the consumer. Consider this question with reference to cases like DGFT v First National Bank  1 AC 481 (HL) and OFT v Ashbourne Management Services  EWHC 1237 (Ch).
Video Exercise 2: Constraining consumers’ freedom
Consumers buying services are very often required to assent to standard terms. Standard terms increasingly include clauses which seek to restrict consumers’ freedom of action. The videos below relate to two such clauses. The first video deals with a clause in Paypal’s terms which prohibits consumers from letting other people use devices on which they use Paypal. Read literally, this would mean that if you use Paypal on a mobile phone or laptop, you cannot let anyone else use that phone or laptop.
The second video deals with a clause in a hotel’s terms and conditions under which guests are prohibited from leaving negative reviews of the hotel on any review site, with the hotel reserving the right to charge a fee to any person who leaves a negative review.
Watch the videos, and consider the legal issues posed by clauses of this type.
- Neither clause in question is an exclusion clause, in that neither seeks to diminish or reduce the liability of the service-provider. The issue, rather, is that they impose obligations on the consumer which appear unfair. In law, clauses of this type are dealt with under the law relating to unfair terms under the Consumer Rights Act 2015. Under s. 62(4), clauses are not enforceable if they cause as significant imbalance in the parties’ positions and are contrary to good faith.
- The key question in this case will be whether the clause causes a ‘significant imbalance’ in the parties’ relationship. Under DGFT v First National Bank  1 AC 481 (HL), the imposition of a ‘disadvantageous burden or risk or duty’ on the consumer is sufficient to make a clause unfair, if it tilts the parties’ rights and obligations in the supplier’s favour. The question to consider is whether either clause falls into this category.
- Consider the following variants of the clauses discussed in the video. Do these variations affect the position under the Consumer Rights Act? Why or why not?
- Consider a hypothetical clause under which Paypal does not bar consumers from sharing their devices. Instead, it provides that if a consumer shares his or her device, they will no longer be covered by Paypal’s anti-fraud guarantee.
- Consider a hypothetical variation on the ‘no negative reviews’ clause, in which the hotel, instead of barring negative reviews altogether, instead requires guests to contact the hotel and provide them with an opportunity to resolve the complaint before leaving a negative review. Guests who fail to provide the hotel with this opportunity will be charged a fee.
Video Exercise 3: Selective reduction clauses
Surrogacy agreements sometimes incorporate a clause called a ‘selective reduction’ clause, under which the surrogate mother is required to abort one of the foetuses that have been implanted if the biological parents so demand. This clause is typically used where multiple embryos are implanted, and several of them develop to maturity. The video deals with a one such clause in the US, where the surrogate mother refused to abort the child.
Watch the video below, and consider the role of contract law in relation to surrogacy.
- The UK takes a relatively uncompromising attitude towards surrogacy. Under s. 1A of the Surrogacy Arrangements Act 1985, contracts dealing with surrogacy are unenforceable. It is not possible to enter into a legally binding surrogacy agreement. As a result, the question of whether clauses of this type are enforceable does not arise. As things currently stand, a surrogate mother is the child’s legal parent, and she can decide to keep the child after its birth if she so desires.
- Because surrogacy arrangements are declared to be unenforceable by statute, they are not subject to the approach set out in Patel v Mirza  UKSC 42. In particular, a court has no discretion to consider other countervailing policy considerations, and it also has no discretion to consider whether denying a remedy is a proportionate response. Both parties must be denied a remedy, even if doing so would be disproportionate. This is a significant difference between the common law doctrine of illegality and specific statutory provisions making particular types of agreements unenforceable.
- Whilst there is a strong movement towards amending the legal framework of surrogacy in the UK, there is no move to make surrogacy agreements legally enforceable, nor is there any move to permit surrogacy to be governed by contract. The thrust, instead, is to create a legal mechanism by which the biological parents are automatically recognised as the child’s parents, rather than the surrogate mother.
- Part of the reason for the anti-contract understanding of surrogacy in the UK is the view that surrogacy should be treated as a relationship between people, and not an exchange-based transaction. As a result, the law should aim to facilitate altruistic surrogacy, rather than paid-for surrogacy. Contracts, in this view, are not a suitable way of thinking about the relations underlying surrogacy arrangements, and the legal framework of contract law is not a particularly good framework for dealing with the questions raised by surrogacy. The fact that surrogacy arrangements, in jurisdictions where they are legal, give rise to clauses such as the one discussed in the video suggests that there may be some substance in this view, and illustrates the limits of contract as a vehicle for organising social relations.