Chapter 7 Outline answers to end-of-chapter questions

Exemption clauses and unfair terms

1. ‘The “core terms exclusion” from the test of unfairness is outmoded, and we should now recognise that the law should have a role in controlling unfair pricing.’ Critically discuss.

Introduce your answer by identifying that the comment is about the fairness test now in the Consumer Rights Act 2015. Also address your approach – that it is necessary to outline the fairness test and then the basis of the exclusion before turning to cases on its impact.

Commence the main body of your answer by outlining the fairness test from section 62(4) CRA 2015 and then explain the core terms exclusion from the test under s.64(1) CRA 2015. State the reasons for the price exclusion. 

At this stage, you can provide some criticism based on the position consumers face when there are no alternatives from elsewhere.

The exclusion in its earlier form from the 1999 Regulations was examined in Director General of Fair Trading v First National Bank [2001]. Explain the relevant aspects of the case and guidance on the exclusion. This can then be followed by a detailed account of OFT v Abbey National [2009].

Now criticise the approach of the Supreme Court with reference to the different approach adopted by the Court of Appeal.

Contrast the impact of the exclusion on the consumers affected by the case with the potential impact on account holders enjoying free-in credit banking.

This is an opportunity to make use of the views expressed in the further reading that favour the assessment of fairness including the price. Also acknowledge that the rules on competition do provide a means to challenge abusive pricing but that these rules are limited.

Conclude on whether in principle, the exclusion should be removed.

2. ‘Small businesses need more protection than is available to them currently from the effects of unfair terms.’ Critically discuss.

Your introduction should identify that the question is concerned with the limits of the protection from the Unfair Contract Terms Act 1977 and the extent to which the weaker position of consumers is shared by small businesses in their dealings with large businesses. Address your approach – that you need to explain the extent of the current protection for small business and then turn to consider whether they need more.

Begin with a brief mention of the common law protection by summarising the incorporation rules that apply to all contracts in a few lines as well as the low standard of protection provided. Also, briefly mention the contra proferentem rule that also applies to all contracts.

Now turn the key issue of the protection from UCTA 1977 that applies to contracts between businesses. This is only concerned with the limitation or exclusion of liability for negligence (s.2), breach (s.3(2)(a) and s.6) or changes in performance (s.3(2)(b)(i). With the exception of such clauses on the liability for death and personal injury (which are not effective), the exemption clauses are subject the reasonableness test.

Explain the test from s.11 and then address the basic guidance on the assessment from the cases. On the guidance from the cases, provide more detail on the relevance of bargaining strength. 

Now explain the point that small businesses would rely their weaker bargaining position when challenging a clause but that it is still balanced with the other factors. Also, highlight the general limits of UCTA.

Next identify the types of terms small businesses could face that could be unfair but are outside the scope of UCTA. For example, penalties for late payments.

Briefly explain why consumers have more protection from the CRA 2015 and outline that protection, i.e. their ability to challenge unfair terms.

Mention that the Law Commission’s did consider extending consumer protection to small businesses but decided such businesses were too difficult to define.

Conclude your answer with reference to the question, - that small family run businesses are in a similar position to consumers and that there is a good argument in favour of the same protection to consumers being to be extended to such businesses.

3. Cloud Pleaser Ltd orders 1000 units of vaping devices from UberPuff Ltd. Most of the devices are supplied with defective batteries. Following this breach, Cloud Pleaser Ltd demands compensation but Uberpuff Ltd relies on a clause in the delivery note excluding all liability for defects. Advise on the arguments that could be used to challenge the clause.

Your introduction should identify the issues and your approach. The issues are about whether the clause is part of the contract and if it is, whether it can be challenged using the common law or UCTA 1977 since the Act applies to the exemption of liability in business to business contracts. You are to address each issue in turn.

The main body can start with the common law rules on incorporation of terms. Explain the basic principle from L’Estrange v Graucob Ltd [1934].

Apply it - that the term being on the delivery note suggests it was not on a signed document.

Now turn to the reasonable notice principles from (Parker v South Eastern Railway (1877), Chapelton v Barry Urban District Council [1940] and Olley v Marlborough Court Hotel [1949]. Also address Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1988] in the context of the delivery note being on time and the point on onerous and unusual terms.

Apply the principles – was the delivery note too late? You don’t know when the contract was formed so question that fact. Also, even if it was formed before reasonable notice of the note was possible, was there a reference to terms on the delivery note? Even if it was on time, raise a question about the term being onerous or unusual on the basis that it excludes all liability for defects and whether it was prominent. Overall, there might be grounds to challenge it but more facts about the contract formation are needed.

Next turn to the contra-proferentem rule. Explain it briefly with an example and apply it in an abstract way as you don’t have the wording of the clause. Your point is that if it is capable of different meanings then this should assist Cloud Pleaser.

The main issue is UCTA 1977. We have business liability (s.1) and it is excluding liability for defects – essentially liability for a breach of s.14 of the Sale of Goods Act 1979 which s.6 of UCTA makes subject to the reasonableness test in s.11. Explain the test and the role of Schedule 2 the factors here along with factors that are generally relevant. Refer to them and their significance from the cases. As you address each one, apply it. You don’t have enough facts in the question to do anything more than to say ‘if’ there was an inducement or ‘if’ there is a real difference in bargaining strength and so forth.

Conclude by explaining that it might be possible to challenge the term on the basis of it not being part of the contract, its meaning or even its reasonableness, but the outcome depends on the facts not stated in the scenario.

4. Ahmed and Dave booked a night in the Hotel Majestic for £150. They overslept and left at 11.30am. The Hotel demanded an extra £100 because the terms on their booking form state that ‘check out’ time is 10.30, after which a further £100 is payable. Advise on the arguments that could be used to challenge the term using CRA 2015.

Your introduction should identify the issue and your approach. This is concerned with whether Ahmed and Dave can challenge the penalty as an unfair term and so it is necessary to explain and apply the relevant tests based on the case law.

The starting point is the CRA 2015 and its role in allowing consumers to challenge unfair terms. The contract is within the Act because the hotel is clearly a ‘trader’ within s.61.

Refer to Lord Bingham from Director-General v First National Bank [2001] on what an unfair term is and then describe the fairness test in s.62(4). This includes the relationship between the good faith and significant imbalance.

Now turn to the key case of ParkingEye Ltd v Beavis [2015]. Explain the points from the judgments, i.e. what is required to meet the three elements of the fairness test and after each one, apply it to the scenario. With the good faith content, also acknowledge the role of the transparency requirement in s.68

Recognise that the challenge is not of a core term but is relating to a secondary factor, so the exclusion in s.64 is not applicable.

Now turn to the effect of an unfair term under s.62 and Dunai v ERSTE Bank Hungary Zrt [2019].

Finally conclude on likelihood of a successful challenge. Make it clear that the outcome will turn on facts not stated in the question.