The Legislative Control Of Terms Notes

THE LEGISLATIVE CONTROL OF TERMS:

Problem Question:

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

Section 1:

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.

Section 1

(1) 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.

(4) 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 [1990]

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...

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