This is an extract of our The Legislative Control Of Terms document, which we sell as part of our Contract Law Notes collection written by the top tier of University College London students.
The following is a more accessble plain text extract of the PDF sample above, taken from our Contract Law Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:
THE LEGISLATIVE CONTROL OF TERMS:
Always check first whether the clause has been incorporated and then interpretation, before getting into legislation.
Act only comes into play where it has been demonstrated that the defendant is in some way liable to the claimant. So have to identify the basis upon which the defendant is liable to the claimant first before proceeding to apply the Act to the facts of the case. i.e. If liability is for negligence then = section 2. If breach of contract = S.3.
The act is primarily dealing with inequality of bargaining power
This section deals with the definition under the act. The act largely deals with business liability. This is defined by section 1 (3) as liability arising from things done by a person in the course of a business or from the occupation of business premises. It can include a public authority which was trading one way or another.
The exception is section 6 (4) which deal with private sales: the seller is not in business (e.g selling your car to your neighbour) - where the seller and buyer are private individuals. But private sales fall under section 6 (4) which is included in
UCTA. Under section 4, the buyer is not deemed to be a consumer. This is ironic compared to section 6 (4). If both buyers and sellers are private, the buyer cannot be treated as a consumer and therefore are treated as if both parties were business parties.
SCOPE OF UCTA: Unfair Contract Terms Act 1977-Following enactment of CRA 2015, UCTA now only applies to Business to business contracts NOT Business to consumer contracts. More likely to be greater scrutiny of business to consumer contracts than business to business contracts.
This legislation= choice to intervene in commercial contracts. Question of is it necessary? Business should be savvy enough to know when to withdraw or enter a contract. Some commentators think this intrusion is not a justification for infringing on freedom of contract.
UCTA largely applies only to limitation of liability and exclusion clauses.
Not policing terms which simply look unfair.
Certain kinds of contact are excluded from operation of UCTA i.e.
Insurance contracts (see Schedule 1).
Declares certain exclusion clauses ineffective and subjects others to a reasonableness test.
For the purposes of this Part of this Act, "negligence" means the breach—
(a)of any obligation, arising from the express or implied terms of a contract, to take reasonable care or exercise reasonable skill in the performance of the contract; (b)of any common law duty to take reasonable care or exercise reasonable skill
(but not any stricter duty);
(c)of the common duty of care imposed by the M1 Occupiers' Liability Act 1957 or the M2 Occupiers' Liability Act (Northern Ireland) 1957.
In relation to any breach of duty or obligation, it is, immaterial for any purpose of this Part of this Act whether the breach was inadvertent or intentional, or whether liability for it arises directly or vicariously.
- Definition of 'negligence' = (1) and (4).
Assumes liability has arisen on the part of the defendant as refers to a
'breach' of an obligation to use reasonable care. Thus, an exclusion clause that negates the existence of a duty of care is likely to be outside the scope as the defendant doesn't owe a duty so can't be liable.
In practice, the courts= reluctant to see the effect of a clause is to prevent a duty of care from arising:
Smith v Eric S Bush 
FACTS: The plaintiff applied to a building society for a mortgage and signed an application form which stated that a copy of the survey report and valuation would be given to the plaintiff. The form contained a disclaimer to the effect that neither the society not its surveyor warranted that the report and valuation would be accurate and that they would be supplied without any acceptance of responsibility. The report stated that no essential repairs were required. On the strength of the report, and without obtaining an independent surveyor, the plaintiff purchased the house. The surveyor negligently failed to check that a chimney breast which had been removed was not properly supported. When the chimney collapsed, the plaintiff sued the valuer.
HELD: The House of Lords held that a valuer who valued a house for a building society owed a duty to car to the purchaser of the house. However, the valuer could disclaim liability to exercise reasonable skill and care by an express exclusion clause but such a disclaimer had to satisfy the requirement of reasonableness in section 2 (2) of UCTA. In this case, it would not be fair and reasonable to impose on the purchaser the risk of loss arising from the incompetence or carelessness on the part of the valuer. The disclaimer was therefore not effective to exclude liability for the negligence of the valuer.
Lord Griffiths said that it was impossible to draw up an exhausted list of factors to be taken into account in deciding whether an exclusion clause met the requirement of reasonableness, but certain matters should always be considered. These were:
1. Were the parties of equal bargaining power
2. In the case of advice, could it have been reasonably practical to obtain the advice from an alternative source, taking into account consideration of cost and time. 3. How difficult is the task being undertaken for which liability is excluded and
4. What are the practical consequences of the decision on the question of reasonableness? This involves the sum of money at stake and the ability of the parties to bear the loss, which raises the question of insurance.
In this case, there was not equal bargaining power, there was no alternative source, the task of the surveyor was fairly simple and excluding liability was unreasonable and the valuer was better able to bear the loss.
WHAT TERMS ARE REVIEWABLE?
UCTA controls:exemptions of liability for negligence (s2)
exemptions of liability for breach of contract (s3)
exemptions of liability for breach of specific statutory implied terms in sale and supply contracts (s6 and s7)
Section 2: exemptions of liability for negligence
"(1) A person cannot by reference to any contract term or to a notice given to persons generally or to particular persons exclude or restrict his liability for death or personal injury* resulting from negligence.
(2) In the case of other loss or damage, a person cannot so exclude or restrict his liability for negligence except in so far as the term or notice satisfies the requirement of reasonableness.
(4) This section does not apply to—
(a) a term in a consumer contract, or
Applies to both contracts terms and to notices.
Personal injury defined in s14 UCTA ('includes any disease and any impairment of physical or mental condition').
Definition of negligence set out in s1(1) and (4) - S1: A. defines negligence as a breach of a reasonable skill or care in the performance of a duty.
Thus section only applies to clauses which 'exclude or restrict' liability not those that simply transfer it from one party to another. Also can't apply to attempts to exclude or restrict strict liability (liability that arises irrespective of fault).
Test of reasonableness set out in s11 and Schedule 2 (see below)
Section 3: exemptions of liability for breach of contract- If don't fall within the scope of section 3 then freedom is not curtailed by legislation.
"(1)This section applies as between contracting parties where one of them deals on the other's written standard terms of business".
(3)This section does not apply to a term in a consumer contract (but see the provision made about such contracts in section 62 of the Consumer
Rights Act 2015)
African Export-Import Bank v Shebah Exploration & Production Co Ltd  BLR
469 ( Courts said four elements needed to satisfy s3(1)/ fall within the scope)
Term must be written (can't be oral).
Term must be term of business
Must be part of other party's written standard terms of business
Parties must deal on those written standard terms
What does it mean to 'deal on the other's written standard terms of business'?
No statutory definition
Chester Grosvenor Hotel Co Ltd v Alfred McAlpine Management Ltd (1991) 56
Build LR 115- Court said : Whether terms are 'standard' is a matter of 'fact and degree' (context).
It would emasculate the act if it could be evaded simply by showing that you occasionally varied your standard terms and conditions. Party that proffers terms must regard them as its standard terms and should 'habitually (not everytime but regularly) contract' on those terms.
If the terms occur so frequently that the terms within them cannot be regarded as standard then that might well bring you out of the scope of section 3
Written standard terms in UCTA: Looked to see whether standard terms are a matter of 'fact and degree'. The party that proffers terms must regard them as its standard terms and should 'habitually
Buy the full version of these notes or essay plans and more in our Contract Law Notes.