Direct control over terms

1. Even if a term is validly incorporated into the contract and covers the event which has occurred, it may still be subject to direct substantive control under the Unfair Contract Terms Act 1977 (UCTA) and the Consumer Rights Act 2015 (CRA).

2. UCTA applies to ‘business-to-business’ (B2B) contracts, particularly standard form ones, and deals with exemption and related clauses. CRA applies to consumer contracts and controls non-‘core’, non-negotiated terms.

3. In applying these statutory instruments, it is helpful to ask the following questions: Against whom is the statutory control exercised? Who will benefit? What types of term are controlled? What are the control mechanisms? Who can challenge the term? (See Diagram 11B.)

4. Against whom is the statutory control exercised? UCTA applies to ‘business’ liability (including the occupation of premises used for business purposes) and CRA affects the liability of ‘traders’.

5. Who will benefit? UCTA protects businesses against certain exemptions of liability, while  CRA only protects consumers (natural persons acting for purposes wholly or mainly outside their trade, business, craft or profession) agreeing to non-‘core’, non-negotiated terms.

6. What types of term are controlled under UCTA? Control includes:

  1. exclusion or restriction (ie exemption) of liability for negligence causing personal injury or death is invalid outright (s 2(1));
  2. other exemptions of liability are only enforceable if they are reasonable:
    • for negligence causing loss or damage other than personal injury or death (s 2(2));
    • for breach of specific statutory implied terms in sale of goods and hire purchase contracts (s6) and other contracts under which the possession or ownership of goods passes (s7) , except exemptions for breach of implied terms as to title, which are invalid outright; and
    • for breach of contract (s 3).

7. Controversy surrounds the nature and function of exemption clauses (see Diagram 11D). Are they defences against liability which has arisen (as UCTA assumes) or do they restrict the primary duty owed by the defendant (duty-defining) to prevent liability from arising in the first place (as Coote argues)? If it is the latter, or if there is no difference between the two (both strongly arguable), then: (a) the coverage of all non-‘core’ terms by CRA is less artificial than UCTA’s focus on exemption clauses; and (b) the idea that contract law does not directly control the substantive fairness of contracts but only controls exemption clauses (secondary remedial terms) is undermined.

8. What counts as reviewable ‘exemption clauses’ under UCTA? UCTA extends the scope of ‘exemption clauses’ generally by including (see Diagram 11E):

  1. terms that make claims more difficult to proe (s 13(1)–(3)); and
  2. terms that are duty-defining (the last part of s 13(1) and s 3(2)(b)) in the sense of restricting the other party’s obligations.

9. What types of term are controlled under CRA? Control includes:

  1. exclusion or restriction of ‘terms treated as included’ (eg as to title, satisfactory quality and fitness for purpose) is not binding on the consumer;
  2. all terms must be in transparent (s 68); otherwise they are interpreted contra proferentem (s 69(1)) and only enforceable if not unfair; and
  3. non-negotiated terms which relate to the main subject matter or adequacy of price of the contract (‘core’ terms) are not reviewable for fairness if ‘transparent and prominent’ (s 64(2)).

10. The control mechanisms are:

Under UCTA:

  1. outright invalidity of ‘blacklisted’ terms; and
  2. all other terms controlled by UCTA are subject to the requirement of ‘reasonableness’ (s11); the term must have been ‘a fair and reasonable one’ (having regard to the circumstances at the time of contracting). The onus of proof is on the party seeking to rely on the term. UCTA gives a list of guidelines for applying the test, but no list of indicatively unreasonable terms.

Under CRA:

  1. certain terms are not binding on the consumer (exclusion or restriction of ‘terms treated as included’); and
  2. other controlled terms are reviewable for unfairness (s 62(4)); a term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations to the consumer’s detriment. The test is to be assessed ‘at the time of conclusion of the contract’ (s 62(5)). The onus of proof is not explicitly allocated. Courts have a duty to consider the issue of fairness of their own motion (s 71). CRA gives a list of guidelines (s 62(5)) and a list of indicatively unfair terms (Sch 2 Part 1).

11. Who can challenge the term? Only a party directly affected can challenge a term under UCTA and nothing prevents the future use of terms. Under CRA, as under UTCCR which CRA replaced, there is provision for pre-emptive challenge as well as individual challenge. CRA authorises pre-emptive challenge by the CMA and other ‘regulators’.

12. Aside from UCTA and CRA, there are many consumer protection statutes which regulate the content of particular types of contract (eg Consumer Credit Act 1974). There are also common law doctrines which directly control the substance of contracts (eg the rule against penalty clauses) or allow courts to vary their terms (eg salvage).