SECTION 1: GENERAL PRINCIPLES
(1) Unfair Contract Terms Act 1977
The Unfair Contract Terms Act 1977 ("UCTA") is concerned with terms that exclude or restrict
"business liability". This is defined at section 1(3) as:
"liability for the breach of obligations or duties arising -
from things done or to be done by a person in the course of business (whether his own business or
from the occupation of premises used for business purposes of the occupier."
Notably, by paragraph 1 of Schedule 1 the relevant provisions of UCTA do not extend to:
" any contract so far as it relates to the creation or transfer of an interest in land, or to the
termination of such an interest, whether by extinction, merger, surrender, forfeiture or otherwise.
The exclusion or restriction of negligence liability for loss or damage other than personal
injury or death is permissible, but only insofar as the term or notice satisfies the requirement of reasonableness.
This is set out at section 2:
"A person cannot by reference to any contract term or to a notice given to persons generally or
to particular persons exclude or restrict his liability for death or personal injury resulting from negligence.
In the case of other loss or damage, a person cannot so exclude or restrict his liability for negligence
except in so far as the term or notice satisfies the requirement of reasonableness."
Liability for breach of contract
Where one party "deals as consumer" or on the other party's "written standard
terms of business", then the other party cannot exclude or restrict his liability for breach of contract,
except subject to the requirement of reasonableness. This is set out at section 3:
" This section applies as between contracting parties where one of them deals as consumer or on the
other's written standard terms of business.
As against that party, the other cannot by reference to any contract term -
when himself in breach of contract, exclude or restrict any liability of his in respect of the breach;
claim to be entitledó
to render a contractual performance substantially different from that which was reasonably expected
of him, or
in respect of the whole or any part of his contractual obligation, to render no performance at all,
Öexcept in so far as (in any of the cases mentioned above in this subsection) the contract term satisfies
the requirement of reasonableness."
Note also that section 13(1) goes further:
"To the extent that this Part of this Act prevents the exclusion or restriction of any liability it also
making the liability or its enforcement subject to restrictive or onerous conditions;
excluding or restricting any right or remedy in respect of the liability, or subjecting a person to any
prejudice in consequence of his pursuing any such right or remedy;
excluding or restricting rules of evidence or procedureÖ"
The expression "deals as consumer" is defined at section 12, which states that:
"A party to a contract "deals as consumer" in relation to another party if -
he neither makes the contract in the course of a business nor holds himself out as doing so; and
the other party does make the contract in the course of a business."
The reasonableness test
By section 11(2), the factors set out in Schedule 2 are regarded as relevant to the assessment
of the reasonableness of a contract term. Even though these factors only expressly apply to sections 6 and 7 of
UCTA, they are generally considered in considering the reasonableness of contract terms for other sections of the
Act. The factors are:
" 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;
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;
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 course of dealing between the parties);
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
whether the goods were manufactured, processed or adapted to the special order of the customer."
It is to be noted that where the term seeks to limit liability, the availability of resources and the
possibility of insurance coverage will be especially relevant to the test of reasonableness, and that limitation
clauses are generally more favourably received than exclusion clauses. However, the House of Lords stated in
Smith v Eric S. Bush  1 A.C. 831 that it was impossible to set out an exhaustive list of all the
factors and circumstances which the Courts should take into account.
A helpful example of the way in which the Courts apply UCTA is Watford Electronics Ltd v
Sanderson CFL  BLR 143:
The Court of Appeal firstly identified the scope and effect of the exclusion clause as a matter of
The Court of Appeal then considered the circumstances which were, or ought reasonably to have been, known to or
in the contemplation of the parties when the contract was made;
In so doing, the Court of Appeal indicated that UCTA should be applied on the basis that bargains between
commercial parties containing exclusion or limitation clauses should be considered reasonable unless one party has
taken unfair advantage of the other, or a term is so unreasonable that it cannot properly have been considered. The
threshold is therefore high (though note the decision in St Alban's City and District Council v International
Computers  4 All E.R. 481 where a commercial bargain was found to be unreasonable).
For a recent example of a limitation clause being found to be reasonable under UCTA, see Shepherd Homes
Limited v Encia Remediation Limited  EWHC 70(TCC) where the contractor's liability was limited to the
contract price (which was in fact less than the minimum insurance cover required under the contract).
(2) Unfair Terms in Consumer Contracts Regulations 1999
General effect of the Regulations
The Regulations subject various terms in consumer contracts to a twofold test:
The term should be "fair";
The term should be in "plain, intelligible language."
The Regulations apply to terms in contracts between any seller or supplier and a consumer: see
Regulation 4(1). A consumer is defined in Regulation 3 as:
"any natural person who, in contracts covered by these Regulations, is acting for
purposes which are outside his trade, business or profession."
A "seller or supplier" is defined as:
"any natural or legal person who, in contracts covered by these Regulations, is acting
for purposes relating to his trade, business or profession, whether publicly owned or privately owned."
Accordingly, a company - as opposed to a human being - will not be able to rely upon the Regulations.
There has been some debate as to whether or not the Regulations apply to contracts for the sale of land: see
Chitty (29th ed 2004) paragraph 15-014. However, in light of the Court of Appeal's decision in
London Borough of Newham v...