The Unfair Contract Terms Act (UCTA) 1977 regulates contracts by limiting the extent to which one party can avoid liability through use of exclusion clauses such as disclaimers.
It applies to exclusion terms within the majority of contracts, including notices that would bring into existence contractual obligations. Despite its name, the UCTA does not subject any other types of terms to a test of fairness.
Depending on the obligation that the contract excludes, and whether the other party to the contract is a business or a consumer, the Act renders the exclusion term void, or only enforceable if 'reasonable'.
Ironically, the Act itself is rather unclear on the meaning of certain words. What constitutes an 'exclusion clause' is not defined, but the Act implies that it is one that attempts to:
- restrict or exclude a liability
- make a liability (or the enforcement of one) subject to conditions that are restrictive or difficult to carry out
- restrict the rights and remedies of an aggrieved party
- restrict rules of evidence or procedure
For example, a term in a consumer contract for Internet services provision that attempted to restrict the ability of the homeowner to complain about the service provided by insisting that the only method of raising a complaint would be by calling a premium rate telephone number between certain hours of the day would certainly be unenforceable.
Likewise, 'reasonableness' is not defined. It is likely that a court would place the burden of proving reasonableness on the party that wishes to uphold the exclusion of liability term. A term is more likely to be reasonable if:
- it is clear and precise
- the parties had equal bargaining power when the contract was signed
- the task being undertaken was difficult to complete (i.e. both sides knew in advance that success could not be guaranteed)
- the goods were made or adapted to special order for the customer
- the customer was given an incentive to accept the specific term
- the term is commonly used in that type of contractual arrangement
Terms subject to the UTCA
The UTCA applies to contracts made in the course of business. It therefore excludes contracts made between individuals. In addition, it does not apply to:
- contracts of employment
- contracts concerning interests in land and real property
- contracts relating to intellectual property rights
It renders ineffective terms that:
- limit liability for death or personal injury as a result of negligence
- losses arising from defective goods 'ordinarily supplied for private use or consumption'
- are implied and that relate to title (and additionally to description, quality and sample if the purchaser is a consumer)
And subjects to a test of reasonableness, terms that:
- exclude liability for negligence
- exclude liability for breach of contract or a substantially different performance of the contract
- bind a consumer to indemnify a third party (a party not otherwise subject to the contract)
- exclude liability for misrepresentation
The UCTA defines negligence as one of the following breaches:
- 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
- of any common law duty to take reasonable care or exercise reasonable skill (but not any stricter duty)
- of the common duty of care imposed by the M1 Occupiers’ Liability Act 1957 or the M2 Occupiers’ Liability Act (Northern Ireland) 1957
Breach of contract
If breach of contract is not as a result of negligence, the UCTA may still apply. An exclusion clause will be subject to a test of reasonableness if the contract is with a consumer, or if the contract is not negotiated.
The UCTA and the Sales of Goods Act
The Sale of Goods Act 1979 states that goods must be of satisfactory quality and suitable for the specific purpose for which they are being sold.
The UCTA applies if one party attempts to limit liability for the requirements under the Sale of Goods Act. Liability cannot be excluded for breach of contract with a consumer, and is subject to a test of reasonableness if the contract is business to business.