EXCLUSION CLAUSES - PART II

Statutory control/protection

a)    Unfair contract term Act 1977

The Unfair Contract Terms Act 1977 (UCTA) is the original statutory attempt to control exclusion clauses. The Act has a restricted scope of application. Its application is limited as follows;

• The Act only applies to clauses inserted into agreements by businesses or commercial concerns.
•    The Act does not apply to some contracts e.g insurance contracts and contracts relating to the transfer of interest in land.
•     The Act specifically applies to;

·         clauses that attempt to liability for negligence

·         clauses that attempt to limit liability for breach of contract.

The main provisions of the Act can be summarized as follows;

•    Any clause that attempt to limit liability for death or personal injury arising from negligence is void. –section 2

A person acting in the course of business cannot, by reference to any contract term restrict his liability for death or personal injury resulting from negligence. The clause containing the term is void and cannot be enforced at law.

•        Any clause that attempts to restrict liability for other loss or damage arising from negligence Is void unless it can be shown to reasonable. 
•  Any clause that attempts to limit liability for breach of contract, where the contract is based on standard terms or conditions, or where one of the parties is a consumer is void unless it can be shown to be reasonable..

The burden of proving reasonableness is on the party seeking to rely on the clause. The term must be reasonable and fair having regard to all circumstances which were, or which ought to have been, known to the parties when the contract was made. 

In assessing whether a term is unfair or unreasonable, the court will consider the following;

•  the relative strength of the parties’ bargaining positions;
•  whether the buyer received inducement to  agree to the term;
•  whether the buyer knew or ought to have known of the existence and extent of the term; or
•  the ability of the party to insure against liability.

In Smith v Eric S Bush 1989, a surveyor prepared a report on a property which contained a clause disclaiming liability for the accuracy and validity of the report. In fact the survey was negligently done and the claimant had to make good a lot of defects once the property was purchased. The court held that in the absence of special difficulties, it was unreasonable for the surveyor to disclaim liability given the cost of the report, his profession and his knowledge that it would be relied upon to make a major purchase.

In St Albans City and District Council v International Computers Ltd 1994, the defendants had been hired to assess population figures on which to base community charges (local government taxation). Their standard contract contained a clause restricting liability to £100,000. The database which they supplied to the claimants was seriously inaccurate and the latter sustained a loss of £1.3 million.

The court held that the clause was unreasonable. The defendants could not justify this limitation, which was very low in relation to the potential loss. In addition, they had aggregate insurance of £50 million. The

Defendants had to pay full damages.

b)    Unfair Terms in Consumer Contracts Regulations(UTCCR) 1999

These regulations applies to contracts where;

•   the seller is acting in the course of business;
•   the other party is a consumer; and 
• the terms have not been individually negotiated

The applicability of these regulations is not restricted to exclusion clauses. The Regulations  apply to all the other terms of the contract.

 A term is unfair if;

i)                   It is not expressed in plain, intelligible language

ii)                 Contrary to the requirement of good faith, it causes a significant imbalance in the parties rights and obligations to the detriment of the consumer.

The following are examples of terms which will be deemed to be unfair;

• any term excluding or limiting liability of the seller when the consumer dies or is injured, where this results from an act or omission of the seller;   
• any term  excluding or limiting liability for partial or incomplete performance by the seller; 
• any term making a contract binding on the consumer where the seller can still avoid performing the contract

A consumer who has concluded a contract containing an unfair term can ask the court to find that the unfair term should not be binding.