Unfair Business Contract Terms
The Unfair Contract Terms Act 1977 (‘the Act’) covers nearly all forms of contract and, inter alia, renders terms seeking to exclude or limit liability ineffective or subject to reasonableness, depending on the nature of the obligation which is sought to be excluded.
The Act extends to both actual contract terms and Notices constituting a contractual obligation.
Stuart Southall of KANGS comments upon the general nature of the Act.
Reasonableness
Generally, the law of contract recognises that all terms which constitute a contract reached by two or more parties are enforceable by those parties.
Such terms will generally appear within the body of a contract, although terms may be ‘implied’ by the tenor of the contract and these are equally as enforceable.
In certain circumstances, a court may consider that the contractual terms, upon consideration of the nature and totality of the contract, are commercially unattractive, unreasonable, or unfair to one of the parties. When taking this view, the court may invalidate or lessen the effect of a disputed contractual term with the intent to render the contract ‘reasonable’ to both parties.
As every contract is different in intent and content, there is no single prescribed method to determine whether a term is unreasonable.
The Act provides at section 11:
‘11.—The “reasonableness” test.
(1) In relation to a contract term, the requirement of reasonableness for the purposes of this Part of this Act, section 3 of the Misrepresentation Act 1967 and section 3 of the Misrepresentation Act (Northern Ireland) 1967 is that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.
(2) In determining for the purposes of section 6 or 7 above whether a contract term satisfies the requirement of reasonableness, regard shall be had in particular to the matters specified in Schedule 2 to this Act; but this subsection does not prevent the court or arbitrator from holding, in accordance with any rule of law, that a term which purports to exclude or restrict any relevant liability is not a term of the contract.
(3) In relation to a notice (not being a notice having contractual effect), the requirement of reasonableness under this Act is that it should be fair and reasonable to allow reliance on it, having regard to all the circumstances obtaining when the liability arose or (but for the notice) would have arisen.
(4) Where by reference to a contract term or notice a person seeks to restrict liability to a specified sum of money, and the question arises (under this or any other Act) whether the term or notice satisfies the requirement of reasonableness, regard shall be had in particular (but without prejudice to subsection (2) above in the case of contract terms) to—
(a) the resources which he could expect to be available to him for the purpose of meeting the liability should it arise; and
(b) how far it was open to him to cover himself by insurance.
(5) It is for those claiming that a contract term or notice satisfies the requirement of reasonableness to show that it does.
The following terms are automatically voided by the Act, thereby avoiding the need to apply the ‘reasonableness test’:
- exclusion or restriction of liability where a statutory implied term is breached,
- exclusion or restriction of liability for negligence or breach of a duty of skill or care causing death or personal injury.
The Act also provides protection from terms which:
- limit remedies;
- place restrictive or harsh conditions on enforcing liability;
- exclude or limit rules of procedure or evidence;
- limit a party’s duties for negligence or breach of statutory implied terms;
- allow a party to change its performance under its own standard terms;
- exclude a party from non-performance of its own standard terms;
- are overly ambiguous.
Supportive Case Law
Reasonableness is determined by that which was foreseeable at the time the contract was made. Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] states that it only needs to be reasonable, rather than ‘remote’ and ‘fanciful’.
Not every term is subject to the reasonableness test found in the Act.
In Goodlife v Hall Fire [2018] the Court of Appeal noted that the four factors which determine reasonableness are:
- Bargaining Strength;
- Width (remedies for breach and acceptance of liability);
- Insurance;
- Choice of Terms.
Put broadly, a term is unreasonable if, at the time the contract is made, a party with less bargaining strength has had a term imposed on it, that excludes liability but protects a party better placed to insure loss, whilst not providing the party with less bargaining power a way to avoid limitation.
How Can We Assist?
Involvement in any form of contractual dispute is time consuming, disruptive to business and worrying, especially where the survival of a company may be dependent upon a prompt resolution.
Additionally, prolonged proceedings through the civil courts can be expensive.
The Team at KANGS is extremely experienced in assisting clients facing contractual issues of any nature, including those where the ‘reasonableness’ of any term(s) is an issue.
When a dispute arises, it is essential that a pro-active approach is adopted from the outset in order to isolate the essential elements of the dispute. This may enable the disputed part of the contract being isolated whilst the remainder is fulfilled.
If the differences between the parties cannot be amicably resolved, then consideration can be given to an Alternative Dispute Resolution Procedure being adopted as an option to the commencement of ‘full blown’ court proceedings.
The Team at KANGS can guide and advice on all pertinent issues and will be delighted to assist.
Should you require our assistance please do not hesitate to contact one of our Team below.
Enquiries are welcome by telephone on 0333 370 4333 or email at info@kangssolicitors.co.uk.
Alternatively, discussions can be held virtually through live conferencing or telephone.
