Lawyers Leicester

What is an unfair contract term?

Under The Unfair Contract Terms in Consumer Contracts Regulations 1999, an unfair contract terms is defined as:

“a contractual term which has not been individually negotiated shall be regarded as unfair if, 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”

What legislation applies to unfair contractual terms?

There are three pieces of legislation:

• Unfair Contract Terms Act 1977 (UK)
• Consumer Transactions Restrictions on Statements Order 1976
• Unfair Terms in Consumer Contracts Regulations 1999 (naturally this only applies to consumer contracts)

What are unfair exclusions and limitations under the Unfair Contract Terms Act 1977?

Under the Unfair Contract Terms Act, liability cannot be restricted or excluded altogether for:

• Personal injury or death resulting from negligence
• Negligence, unless the term is drafted according to a standard of reasonableness
• Breach of the contract, unless the change in the way the contract is performed satisfies a reasonableness test

What is an indemnity clause?

An indemnity clause is used to compensate the other party where there is a breach of contract.  If the term does not award a sum which is a ‘genuine pre-estimate of loss’ then the term will be classed as a penalty clause.  Penalty clauses are automatically invalid under the Unfair Contract Terms Act.

Further tell-tales signs of penalty clauses are clauses that apply to any breach of the contract.  Different types of breaches will result in different amounts of loss and a single catch-all term is unlikely to be a ‘genuine pre-estimate of loss.’

Can liability be excluded for defective goods?

Liability for defective consumer goods cannot be excluded or restricted regardless of whether the goods were supplied directly by the manufacturer, distributor or retailer.  Liability for product defects is strict meaning no element of fault on the part of the product supplier needs to be shown i.e. negligence.

Can businesses restrict their liability under the Sale of Goods Act 1979 or Supply of Goods (Implied Terms) Act 1973?

No they cannot.  Terms under these Acts are implied into both business to business and business to consumer contracts.

Under the Sale of Goods Act, implied terms require that the goods or services supplied are according to any description given, the goods and services are of ‘satisfactory quality’ and are ‘fit for purpose’.

There are, however, some exceptions.  The Unfair Contract Terms Act 1979 does not apply to insurance contracts, contracts used in land transfers, the creation of any intellectual property right, the formation and dissolution of companies and the creation or transfer of security rights.