unfair contract terms
unfair contract termscertain provisions in contracts (and in some non-contractual provisions) that are controlled by legislation because they are UNFAIR (as defined). In UK law, provision is now made to regulate unfair contract (and other) terms by the Unfair Contract Terms Act of 1977. The provisions differ as between Scotland and the rest of the UK. At common law, contract theory is such that men are free to make their own bargains, although the common law has always exercised some restraint on the freedom of contract. The Act generalizes this protection. Although primarily directed towards contracts, it also covers other unfair writings such as non-contractual notices, and since the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990 does so also in Scotland. It excludes certain contracts from its ambit, notably insurance contracts, and does not apply in Scotland to unilateral gratuitous obligations. Terms that seek to exclude or limit or disclaim liability in respect of breach of duty, as through negligence, are void so far as personal injury is concerned, otherwise they have to be fair and reasonable. Terms in a standard form contract (which term is not defined in the Act) are also controlled. Any term that attempts to exclude the implied terms under the Sale of Goods Act 1979 is void in a consumer contract but must also be fair and reasonable in other contracts. In England the focus is upon parties who deal as a consumer. A party deals as a consumer in relation to another if:
- (1) he neither makes the contract in the course of a business nor holds himself out as doing so;
- (2) the other party does make the contract in the course of a business;
- (3) in sale and other similar transactions the goods are of a type ordinarily supplied for private use or consumption.
In a sale by auction or competitive tender, the buyer is not in any circumstances to be regarded as dealing as a consumer. In Scotland, a consumer contract is a contract (not being a contract of sale by auction or competitive tender) in which one party to the contract deals, and the other party to the contract (the consumer) does not deal or hold himself out as dealing, in the course of a business, and where the contract involves goods, the goods are of a type normally supplied for private use or consumption. The time for judging the fairness and reasonableness of a contract is the time of contracting, not once the consequences of a breach are known. For the purposes of the provisions relating to the exclusion of the implied terms, certain matters are specifically included within the inquiry (so long as they appear to be relevant) as to whether terms are fair and reasonable both in England and in Scotland:
- (1) the strength of the bargaining positions of the parties relative to each other, taking into account (among other things) alternative means by which the customer's requirements could have been met;
- (2) 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;
- (3) whether the customer knew or ought reasonably to have known of the existence and extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties);
- (4) 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;
- (5) whether the goods were manufactured, processed or adapted to the special order of the customer.
Other additional controls have affected consumer contracts since 1999.
A term that has not been individually negotiated is unfair if, contrary to the requirements of good faith, it causes a significant imbalance in the parties' rights and obligation under the contract to the detriment of the consumer. Written terms have to be drafted in PLAIN INTELLIGIBLE LANGUAGE and since the 1999 Regulations the Office of Fair Trading and some other bodies can enforce the law and require a business to remove unfair terms.