Contract Law and the Law of Personal Property - Essay Example

It is true that in order to be enforceable, contracts must comply both with Unfair Contract Terms Act 1977 and Unfair Terms in Consumer Contracts Regulations 1999. (a) UNFAIR CONTRACT TERMS ACT 1977 For regulating the use of exclusion clauses in contracts, the principal legislation that was enacted is the Unfair Contract Terms Act,1977. The purpose of the Unfair Contract Terms Act,1977(1) is to limit, and in some cases to take away entirely, the right to rely on exempting clauses in certain situations. Scope of the Act The Act is not just confined to contract terms but also extends to non-contractual notices containing provisions exempting from liability in tort(2). Secondly, the act doesn't confer upon the Courts a general power to strike down any term of a contract on the ground that the term is unfair or oppressive; it applies, for the most part, only to terms that 'exclude or restrict liability', i.e. exemption clauses. According to the provisions of this act there are three broad divisions of control: first, is the control over contract terms that exclude or restrict liability for 'negligence', secondly, control over contract terms that exclude or restrict liability for breach of certain terms implied by statute or by common law in contracts of sale of goods, hire-purchase etc. Thirdly, a more general control in consumer contracts and standard form contracts over terms that exclude or restrict liability for breach of contract, or which purport to entitle one of the parties to render a contractual performance different from that expected or to render no performance at all. If the term of the contract comes within the purview of this act then the control regime will take its form in either of the two ways i.e. the restriction or exclusion of liability may be rendered absolutely ineffective or it may be effective only in so far as the term of the contract satisfies the test of reasonableness. Though there are certain contracts that are in whole or part are exempted from the operation of this act, they include for example the contracts of insurance, carriage of goods by sea, international supply contracts, contracts of employment and any contract so far as it relates to(3) the creation or transfer of an interest in land, any intellectual property right(4) or the creation or transfer of securities. It can be said that subject to certain exceptions, the Unfair Contract Terms Act,1977 only applies to contract terms 'excluding or restricting' specific types of liability; but they are extended to include terms such as : (a) making the liability or its enforcement subject to restrictive or onerous conditions;(b) excluding or restricting any right or remedy in respect of liability, or subjecting a person to any prejudice in consequence of his pursuing any such right or remedy, (c) excluding or restricting rules of evidence or procedure. The practical difficulty, however, is to distinguish such terms from provisions that prevent a contractual duty from arising or circumscribe its extent, or which merely allocate the responsibilities under the contract between the parties(5) The Courts should determine whether a term in a contract 'excludes or restricts' liability by asking whether it deprives a contracting party of the contractual performance which the parties reasonably expected(6). The Unfair Contract Terms Act,1977 for most part exclude or restrict 'business liability'. It means liability for breach of obligations or duties arising - (a) from things done or to be done by a person in the course of a business.; (b) from the occupation of premises used for business purposes of the occupier. As a general rule, greater protection is afforded by the act to a person who deals as consumer than to one who does not. In order that a party should have dealt as consumer, two conditions must have to be satisfied. First, the party must not have made the contract in the course of a business or held himself or herself out as doing so. Secondly, the other party must have made the contract in the course of a business. 'R.&B Customs Brokers Co. Ltd. v. United Dominions Trust Ltd.' (7)adequately represents this position. The burden of proof that a party did not deal as consumer rests upon the party relying on the exemption clause(8). Restrictions are placed by section 2 of the Unfair Contract Terms Act,1977 on the power of a party to a contract to secure exemption from business liability for negligence. It is prohibited to exclude or restrict liability for death or personal injury resulting from negligence by reference to any contract term(9). In the case of other loss or damage, a party to a contract cannot exclude or restrict liability for negligence except in so far as the term satisfies the requirement of reasonableness. Section 5 of the act further prohibits absolutely the exclusion or restriction of the negligence liability of a manufacturer or distributor of goods by means of a written 'guarantee'. By section 4 of the 1977 act, a person who deals as consumer cannot, by any contract term, be compelled to indemnify another in respect of the latter's business liability for negligence or breach of contract, except in so far as the term satisfies the requirement of reasonableness. But indemnities given by persons who do not act as consumer are not affected by section 4,and, in the context of section2 it can be said that the act doesn't control provisions in contracts that require one party to indemnify the other against the latter's liability in negligence to third parties. Section 6 of the 1977 Act restricts the ability of sellers of goods to exempt themselves from liability for breach of the stipulations implied in contracts of sale by sections 12-15 of the Sale of Goods Act,1979. Section 6 of the 1977 Act further contains similar provisions that prohibit, either absolutely or subject to the test of reasonableness, terms excluding or restricting liability for breach of the stipulations implied by the Supply of Goods(Implied Terms) Act 1973 in contracts of hire-purchase. Section 7 of the 1977 act is concerned with contract terms excluding or restricting business liability for breach of an implied obligation in a contract 'where the possession or ownership of goods passes under or in pursuance of the contract' Examples of such contracts are contracts of hire, work and materials, such as building and engineering contracts. The 1977 act absolutely prohibits the exclusion or restriction of liability for breach of implied terms as against a person dealing as a consumer(10). A more wide ranging and general control is effected by Section 3 of the act, which deals with contractual liability. This section applies in addition to section 6 & 7 of the act, to contracts of sale and hire-purchase and supply contracts. In addition to that it may also apply to any contract, unless it is of a type expressly excepted by the Act. Thus, the many contracts, not only with consumers but with business houses as well, made in reference to the terms and conditions printed in order forms, or in catalogues or price list are subject to section 3. The contract terms controlled by the Act are subject to the test of reasonableness. The court decides whether a contract term is fair and reasonable 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. It is therefore clear that the crucial time is the time of the making of the contract, and not the time when the liability arises(11). Certain guidelines have been laid by the Act to help the Court decide if a term satisfies the requirement of reasonableness : (a) the strength of the bargaining positions of the parties relative to each other. (b) Whether the customer received an inducement to agree to the term, or in accepting it had an opportunity of entering into a similar contract with other persons, but without having to accept a similar term; (c) Whether the customer knew or ought reasonably to have known of the existence and extent of the term; (d) Where the term excludes or restricts any relevant liability if some condition is not complied with, whether it was reasonable at the time of the contract to expect that compliance with that condition would be practicable; (e) Whether the goods were manufactured, processed, or adapted to the special order of the customer. The burden of proof that a contract term satisfies the requirement of reasonableness rests upon the person who claims that it is reasonable(12). The control of exemption and limitation clauses by a test of reasonableness means that decisions are likely to be made on a case by case basis and to turn on the type of contract and the precise nature of the relationship between the parties rather than the application of rules. While the availability of insurance is a factor, it is by no means a decisive factor. The statutory requirement that regard is to be had to how far it was open to the party seeking exclusion to cover itself by insurance. Negligence on the part of the party seeking to rely on the clause is also an important factor. The Court will take into account if there has been such negligence, and, if so, whether it was reasonably practicable for the other party to have done anything to avoid the loss(13). The clarity of the clauses also play an important factor, so that they don't create any uncertainty and ambiguity(14) The magnitude of the damage in relation to the contract price is also a important factor for the test of reasonableness. Although the act uses the words 'except in so far as the term satisfies the requirement of being reasonable the power of court are limited to declaring the term either to be effective or of no effect and are probably more limited than its powers under the Unfair Terms in Consumer Contract Regulations 1999. It could not rewrite the terms. It's difficult to assess the impact of the 1977 Act on contracting behaviour but, in the area of consumer transactions, the level of complaints about unfair terms and conditions has remained quite high, although a small percentage of total complaints. Unfair Terms in Consumer Contracts Regulations 1999: The Unfair Terms in Consumer Contract Regulations 1999(SI 1999, No.2083) have been enacted in to domestic law in implementation of an EC directive on Unfair Terms in Consumer Contracts(93/13 EEC). The regulations were first enacted in the form of Unfair Terms in Consumer Contract. Regulations.1994(SI 1994,No.3159) that came in to force on 1st July 1995(although the EC directive itself came in to force on 1 Jan 1995). The 1994 regulations were revoked by the 1999 regulations that in turn came in to force on 1st October 1999. The regulations will have a considerable impact on contracts concluded between businesses( including Public Service Providers) and consumers. Unlike the Unfair Contract Terms Act,1977, the Unfair Terms in Consumer Contracts Regulations 1999 are not just restricted to exemption and limitation clauses, but subject to all the terms of the contract between a seller or supplier of goods or services and a consumer that have not been individually negotiated to a requirement of fairness. The regulations deals with statutory controls on unfair and unconscionable bargains. Regulations apply to contracts like contracts of insurance, sales of land. Although the regulations only apply to contracts between a seller or a supplier and a consumer, in the context of community law those words are capable of applying to the creation and transfer of interests in land. Regulations do not apply to some matters, which are covered by the 1977 Act. Under the regulations only a natural person can be a consumer, whereas, under Section12 of the 1977 Act, a company may qualify. Secondly, the broader scope of the regulations is accompanied by protection, which is, in some respects, less certain than the 1977 Act. There is an indicative and non-exhaustive list of terms given that may be regarded as unfair. A number of terms in this list would be of no effect under the 1977 Act. The test of 'fairness' is a major component of the regulations to judge if the terms of the contract are to the detriment of the consumer or not. A term will be 'unfair' where, contrary to the requirement of good faith, it causes a significant imbalance in the parties rights and obligations arising under the contract, to the detriment of the consumer. The determination of fairness takes account of the entire contract and a term, which in isolation, might appear to be unfair, might not be when looked at in the light of the contract as a whole. We have noted that the regulations probably permit a broader approach to severance since they provide that 'the contract shall continue to bind the parties if it is capable of continuing in existence without the unfair term. Though there are many differences between the 1977 Act and the 1999 regulations, both the acts are similar on one count that is some of the factors to be taken into account in the determination of 'reasonableness' under the Sec 11 of the Unfair Contract Terms Act 1977 are also to be taken in to account in determining 'good faith' and 'fairness' under the Unfair Terms in Consumer Contracts Regulations 1999. Either test in most cases will lead to a very similar result. It is true that both this Acts were legislated to remove the ambiguities and to make the law more fair for both the parties to the contract especially with regards to the customer or the consumer but in effect the act of 1977 and the regulations of 1999 have resulted in making the law somewhat confusing and there are conflict of laws here like for example the 1977 Act and the 1999 regulations over-rule some of the provisions of 'Sale of Goods Act,1979' ,'Supply of Goods(Implied Terms) Act1973' and 'Supply of Goods and Services Act 1982'. In addition to that it has also led to the amendment and substitution of certain provisions of the 'Merchant Shipping Act 1995' and 'Arbitration Act 1996'. So it is a valid proposition that the Law should be simplified to benefit the litigants as well as common man. The most widely recognized conflict of the 1977 Act and the 1999 regulations is with the most firmly established principle of English law i.e. the freedom to enter in to a contract between two consenting adults with full capacity. There was always inbuilt procedures within the contract act that if free consent of a contracting party is not there and the aggrieved party has entered in to the contract under coercion, duress, undue influence, fraud etc then the contract was voidable at that party's instance and even void in certain cases. Now if two persons without any pressure are willingly entering in to a contract fully aware of the risks and benefits that the particular contract will bring them then law should not take away that freedom from two consenting adults. In addition to that the UCTA 1977 doesn't comprehensively define the notion of 'reasonableness'. It just carries certain guidance in that regard for the benefit of the court. So at the end of the day it will be the discretion of the court. According to a recent Law Commission report the UCTA 1977 and the 1999 regulations are unreasonably complex and difficult to understand, making it even tough for a lawyer to interpret the terms sometimes. In fact the Law Commission through a report published in February 2005 has recommended rewriting the existing law on unfair contract term into a single, unified piece of legislation, which preserves the existing level of consumer protection. So in the light of all these arguments against the UCTA 1977 and the 1999 regulations it makes a very valid case for the law to be simplified. End Notes 1. Coote(1978)41M.L.R.312;Sealy(1978)C.L.J.15 2. Markesinis and Deakin, Tort Law,4th edn.(1999) 3. Micklefield v. S.A.C. Technology Ltd.(1990)1W.L.R.1002. 4. Salvage Association v. CAP Financial Services Ltd.(1995) F.S.R. 654 5. Thompson v. T.Lohan (Plant Hire) Ltd. (1987) 1 W.L.R.649 6. Macdonald(1992)L.S.277 7. (1988) 1W.L.R.321 8. s.12(3) 9. Johnstone v. Bloomsbury H.A.(1992) Q.B.333 10. s.7(2) 11. Stewart Gill v. Horatio Myer & Co.(1992) 1Q.B.600 12. A.E.G.(U.K.)Ltd. v. Logic Resources Ltd.(1996) C.L.C.265 13. George Mitchell v. Finney Lock Seeds Ltd.(1983) Q.B.284 George Mitchell v. Finney Lock Seeds Ltd.(1983) Q.B.284 References Ewan Mckendrick. Contract Law (7th ed). Palgare Macmillan Law Masters. M.P. Furmston . Law of Contract (12th ed). ELBS with Butterworths. J.Beatson. Anson's Law of Contract (28th ed.) Oxford University Press. http://www.johnantell.co.uk/UCTA1977.htm http://www.oft.gov.uk/advice_and_resources/resource_base/legal/unfair-terms/ http://www.lawcom.gov.uk/docs/lc292bill.pdf Read More