Unfair Terms in a Contract Act 1977 and Regulations - Essay Example

Unfair Terms in a Contract Act 1977 and Regulations In order to be enforceable, contracts must comply both with Unfair Contract Terms Act 1977 and Unfair Terms in Consumer Contracts Regulations 1999. Explain this double requirement. Should the law be simplified ? Previously the consumer (in business transactions) often fell vulnerable to the seller or supplier. The consumer had very little protection against the exemption clause, or unfair terms that where hidden in contracts. Since 1977 the consumer can take refuge under the Unfair Terms in a Contract Act 1977 (UCTA), which has given the consumer extra protection. The protection has been increased by the Unfair Terms in a Consumer Contract Regulations 1999 (UTCCR). These regulations have strengthened the net of consumer protection by incorporating unfair terms. The essay will provide a brief over look of the two pieces of legislation and go into detail of the protection that they both provide. It will then explain the need for the double requirement and finally, conclude with the proposal for the future. The introduction of UCTA introduced a significant addition to the mechanism for the governing of exemption clauses (Poole, 2008, 281). Provision for the controlling of exemption clauses was originally only through an implied term under the Supply of Goods (Implied Terms) Act 1973 (now s.55 Sale of Goods Act 1979). UCTA now incorporates more extensive controls to a wide array of contract varieties and allows the court for the first time to have a general and direct means of control over exemption clauses (Poole, 2008, 281). The main advantage of the act is the power to render exemption clauses either totally unenforceable, or unenforceable unless shown to be reasonable. UTCCR have added to the powers of UCTA. The regulations provide that ‘unfair terms’ in a contract concluded between a ‘seller or supplier’ and a ‘consumer’ will not be binding on the consumer (Poole, 2008, 282). This means that the regulations will only be binding in the context of ‘consumer contracts’, but is not restrained to exemption clause but extends to unfair terms. A popular misconception is that UCTA applies to all exemption clauses, this is not the case. UCTA only applies to business liability, the liability covers to breaches of obligations or duties arising from 1) things done or to be done by a person in the course of a business, or 2) from the occupation of premises used for the business purposes of the occupier (s.1(3) UCTA) (Koffman and Macdonald, 2007, 211). The act does not have a definition for ‘Business’ but provides that business includes ‘a profession and the activities of any government department or local or public authority’(Furmston, 2007, 232). As stated previously UCTA does not cover every type of contract, the excluded types are located in Schedule 1 of UCTA, including; contracts of insurance, transfer of an interest of land, intellectual property, the formation or dissolution of a company. (Koffman and Macdonald, 2007, 211) UCTA is divided into three parts, part one applies to England, Wales and Northern Ireland, Part 2 applies to Scotland and part 3 applying to whole of the UK (Furmston, 2007, 232) Section 2 to 7 are the main engaging provisions of part one, they apply to business liability. Section 6(3) is the one exception, but is minimal in use as exemption clauses are relatively unusable in none business sales and fewer terms are implied into a sale where the seller is not a merchant (Furmston, 2007, 232). The main scope of the act is the requirement of reasonableness (s.2), it is an important and widely applicable section, as it deals with the liability arising from negligence (s.1) (Koffman and Macdonald pg212). Only clauses which fall subject to the requirement of ‘reasonableness’ will be subject to the test, elements of a clause which are prohibited by the act will not be subject to reasonableness. The test for reasonable is located under s.11 UCTA. ‘In relation to a contract term, the requirement of reasonableness… 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’ The exclusion of negligence which results in the personal injury or death of another party is prevent by s.2(1). This was illustrated in the case of Thorton v Shoe Lane Parking Ltd [1971] 1 All ER 686 where Mr Thorton suffered injury at the result of Shoe Lane Parking Ltd, which was covered by an exclusion clause. There was no need to consider whether the clause was reasonable as, personal injury is strictly prohibited by the act. UCTA has a broad coverage and is not limited to dealing with any particular obligation or liability (Koffman and Macdonald, 2007, 213). Sections 2, 6 and 7 deal with negligence and obligations while the other two with obligations stemming from implied terms in a goods contract. However Section 3 deals with two broad types of contract, those where one party ‘deals as a consumer’(s.12) and those where he, or she, deals on the other party’s written standard terms of business’. ‘Dealing as a consumer’ is defined under UCTA where as ‘written standard terms’ is silent (Koffman and Macdonald, 2007, 214). International supply contracts which are defined under s.26 are beyond the scope of UCTA. UTCCR is the government’s incorporation of the Unfair Terms in Consumer Contracts directive. The 1999 regulations revoke and replace the 1994 regulations (Elliott and Quinn, 2007, 150). The existing UK legislation featured UCTA, which is both wider and narrower than the directive (Furmston, 2007, 255). UTCCR therefore implements the directive in that it expands the consumer protection to areas that UCTA fails to reach. Seller or supplier is defined as ‘any natural or legal person…acting for the purposes relating to his trade, business or profession, whether publicly owned or privately owned’. Consumer is defined as ‘any natural… acting for purposes outside his trade, business or profession’ (reg 3). The regulations apply to contract terms that have not been individually negotiated, or fall under regulation 5 (3): Notwithstanding that a specific term or certain aspects of it in a contract has been individually negotiated, these regulations shall apply to the rest of a contract if an overall assessment of it indicates that it is a pre-formulated standard contract. Regulation 6(2) lays out two important exceptions in this context which are, core contractual terms; or the adequacy of the price or remuneration for goods or services provided. Core terms are usually those illustrating the price or defining the subject matter of the contract. The regulations purpose is to protect consumers from hidden injustice (Elliott and Quinn, 2007, 150). For example, when a person shops they usually confirm their approval of the quality of the goods and the price of the goods and therefore as a result theses two elements do not need to be controlled by the regulations. It may be seen that if you were an admirer of David Beckham and paid £200 to watch him play football, you would not be able to rely on the Regulations later that you had paid an unfair price. Unfair terms are defined under regulation 5(1), stating ‘A contractual term which has not been individually negotiated shall be regarded as unfair if, contray to the requirement of goodfaith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer’. In addition Reg 6 adds …the unfairness of a contractual shall be assessed, talking into account the nature of the goods or services for which the contract was concluded and by referring, at the time of conclusion of the contract, to all circumstances attending the conclusion of the contract and to all the other terms of the contract or of another contract on which it is dependant. Schedule 2 contains a list of terms that may be regarded as unfair (Elliott and Quinn, 2007, 152). The effect of the regulations is that unfair terms of a contract are not binding on the consumer. The contract is still valid, but the provisions that the non-consumer party is relying upon becomes void (Upex and Bennett, 2008, 101). The role of UCCTR and UCTA in the UK legal system is very important, they are the horse and carriage, if you will. The double requirement is necessary because the two parts of legislation overlap each other. UCTA fails to provide protection against unfair terms in a contract as a whole and only covers exclusion clauses. It is solely business liability and doesn’t cover the consumer not acting in a business context. The regulation covers consumers as well as unfair terms, in fact, the Regulations are limited to consumer contracts. However they are wider than the provisions of UCTA because they apply to terms which confer rights and are thereby not limited to exclusion clauses (Upex and Bennet, 2008, 101). UCCTR also satisfies the EU requirement of the directive, which UCTA fails to do, illustrating the need for the double action. But do UCTA and UCCTR need to be made clearer? In 2001 the Dept of trade and Industry asked the Law Commission this question, as the perceived problem was that UCTA and UCCTR provided inconsistent overlapping provisions (Richards, 2007, 210). The two pieces of legislation are similar but not identical, which leaves gaps in the law. For example UCCTR incorporates European concepts which are alien to UK law thus proving for confusion (Richards, 2007, 210). The case against UCTA is therefore that is uses unnecessary complex language that taxes even lawyers, and which the lay person cannot be expected to fully get to grips with. Furthermore, although the Law Commission provided a draft bill which would provide a complete framework covering the effects of both provisions, no attempt has yet been made at putting this bill through Parliament (Stone, 2008, 338). The proposals include provision for one single act, with all terms in consumer contracts being subject to a requirement of reasonableness. Furthermore, small businesses would gain extra protection through having all of their contract terms, other than core terms, subject to the test of reasonableness (Law Commission 2005). In conclusion, the double requirement of UCTA and the UTCC Regulations was initially necessary to protect consumers from clauses other than exemption clauses which may have a negative impact on them, as provided for by the EU. Since the implementation of the UTCC however, no real attempt has been made to codify the requirements or to make them more easily understandable to those people they are designed to protect. This area of law is, therefore, still in need of reform and simplification. Bibliography Elliott, C. and Quinn, F., (2007), Contract Law, 6th Edition, Sweet & Maxwell Furmston, M., (2007), Cheshire, Fifoot & Furmston’s Law of Contract, 15th Edition, Oxford University Press Koffman, L. and MacDonald, E., (2007), The Law of Contract, 6th Edition, Oxford University Press Law Commission, (2005) Unfair Terms in Contracts, Law Com No 292, Cm 6464 Poole, J., (2008), Textbook on Contract Law, 9th Edition, Oxford University Press Richards, P. (2007) Law of Contract, 8th Edition, Pearson Stone, R., (2008), The Modern Law of Contract, 7th Edition, Routledge-Cavendish Upex, R., and Bennett, G. (2008), Davies On Contract, Sweet & Maxwell Read More