Understanding Unfair Terms in Consumer Contracts

Introduction

All suppliers using standard contract terms with consumers must comply with the Unfair Terms in Consumer Contracts Regulations 1999 (Regulation). A term is unfair if it causes significant imbalance in the rights and obligations of the parties and is detriment of the consumers (Regulation 5(1)). The supplier cannot take undue advantage of consumers who are in weaker bargaining position. Thus, a term cannot be widely drafted to cause detriment to the consumers detriment. This represents a brief summary of the law regarding unfair or unreasonable contractual terms.

Certain terms may be unreasonable subject to a test of reasonableness as provided under Section 11(1) of the Unfair Contract Terms Act 1977 (UCTA 1977). The Consumer Protection from Unfair Trading Regulations 2008 also provide for commercial practices that are not considered fair or reasonable. In this context, this essay will determine whether or not the judicial control is necessary in order to properly enforce the relevant legislation or regulations regarding unfair or unreasonable contract terms. This essay proposes that there should be common law control over the unfair contract terms.

Extent of judicial control

Section 11(1) of UCTA 1977 provides for terms that are not fair and reasonable subject to the circumstances “which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.” The language

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1. Office of Fair Trading, ‘Unfair contract terms guidance’ (2008) accessed 24 May 2021> .
2. Ibid.

of the law demonstrates an consideration, interpretation and explanation of the available circumstances at the time the contract was made in order to determine fairness or reasonableness of the concerned term. This calls for certain degree of discretion exercised by court in determining fairness or reasonableness. One may argue that the law itself has provided all the factors that the court could use to determine the reasonable test, as is provided under Schedule 2 to the UCTA 1977 or Schedule 1 of the Consumer Protection from Unfair Trading Regulations 2008, this list may not be exhaustive. Hence, intervention by the court is needed. However, the opinion of Lord Bridge in Mitchell v Finney Lock Seeds, presented a possibility of differences in opinion of judges while determining the reasonable test. According to him, there would be opinions that could not be demonstrated as being wrong or right. This does not stop the judiciary in laying down appropriate guidelines regarding determination of unfair terms in a contract. For example, the principle of equal bargaining power between parties was found to be applied in the case of Watford Electronics Ltd v Sanderson CFL Ltd, where the Court of Appeal ruled that there was equal bargaining power between the parties who were both commercially aware of the terms and had access to professional advice about the contract. In such case, either of the parties could not be treated as being vulnerable and exposed to unfair and unreasonable. In such scenario, as Chadwick LJ ruled, there cannot a judiciary’s intervention unless a party had unfairly taken advantage of the other party, or a term unreasonable putting a party to detriment.

The relevant laws have provided relevant guidelines as to unfair terms of a contract. At the same it, the determination of a term being reasonable or unfair is left to the

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3. Mitchell v Finney Lock Seeds [1983] QB 284.
4. Ibid.
5. Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317.
6. bid, at para 16.

court. In this context, whether it would be justified if one argues that the judicial decisions in the form of common law should now going forward govern enforcement of unfair terms of a contract. A favourable debate is found in the benefit of consistent approach that common law bring to this aspect. For instance, in regard to the test of reasonable, the matter that is considered to judge fairness is whether “a buyer knew or ought to have reasonably known”. The standard term are finely printed that it cannot be plain. The terms can be such that a party is not aware of as much as the other party or a party in a weaker bargaining position. In Mitchell v Finney Lock Seeds, the judges took several days arguing over the meaning and effect of a clause in dispute applying the test of test of reasonable. They acknowledge that opinions of judges may differ and observed that if the exempted provisions that were meant to be plain and clear are obscure, the courts would hold them unfair and unreasonable. This opinion brings certainty into dealing with terms that are not plain.

The value that common law brings to the question of determining unfair terms arises from the discretion that courts can exercise. Such discretion is only possible when the relevant law needs further interpretation and application. The exercise of this discretion has enabled the court to lay down guiding principles on the law of unfair contract terms. For example, Section 11(2) and Schedule 2 of UCTA 1977 provide five (5) guidelines to help determine reasonableness of an exclusion clause. However, these guidelines are not exhaustive as could be seen in the rulings of courts that these guidelines should also extend it to all question of reasonableness provided particularly under Section 3 of USTA 1977. Not only that, common law

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7. Mitchell v Finney Lock Seeds [1983] QB 284.
8. Ibid.
9. Neil Andrews, Contract Law (Cambridge University Press 2015).

guidelines have emerged too, such as the right factors that Potter LJ laid down in Overseas Medical Supplies Ltd v Orient Transport Services Ltd.

This does not mean that the relevant regulations are ineffective in enforcing against unfair contracts. It has been argued that there are numerous contracts across economic sectors that have been amended after the concerned authorities under the Regulations address the complaint of unfair contract terms. This is concerning the Office of Fair Trading (“OFT”), which has a duty to consider complaints regarding unfair terms. It can seek a court injunction in England and Wales. The Regulation also apply a test of fairness to all standard terms used by businesses with consumers. The OFT, however, cannot seek redress for or take action on behalf of individuals. The Regulations gives the consumers legal rights to pursue action on their own. The Regulation itself demonstrates the common law support of enforcing unfair contract terms laws. This is understandable given that the discretion exercised by the courts has created important guiding principles while determining unfairness. For example, in the case of Britvic Soft Drinks Ltd v Messer UK Ltd, where the Court of Appeal exercised its discretion to a forensic analysis of a number of factors in order to determine whether or not the CO2 purchased by the plaintiff was of satisfactory quality or reasonably fit given that the CO2 contained a small amount of benzene (considered carcinogenic) that did not pose any health risk. The Court of Appeal held that it would be impossible to conclude that a reasonable person would regard the CO2 as being of satisfactory standard. Even though the purchase of

10. Overseas Medical Supplies Ltd v Orient Transport Services Ltd [1999] 1 All E.R. (Comm) 981 (20 May 1999).
11. Susan Bright, ‘Winning the battle against unfair contract terms’ (2000) 20(3) Legal Studies 331-352.
12. Office of Fair Trading, ‘Unfair contract terms guidance’ (2008) accessed 24 May 2021> .
13. Britvic Soft Drinks Ltd v Messer UK Ltd [2002] EWCA Civ 548.
14. Britvic Soft Drinks Ltd v Messer UK Ltd [2002] EWCA Civ 548.

CO2 was in bulk subject to standard form of contract, the court exercised its discretion to read the print of the contractual terms and identify the obscurity in the terms and denied the exemption clause of liability. Section 11(1) of UCTA 1977 provides for contemplation of the parties of the surrounding circumstances when the contract was made. In this case, a reasonable person will not be able to contemplate that a breakdown of the manufacturing process will contaminate the CO2 with a concentration of benzene. Thus, determining a test of reasonableness cannot be enforced without the judicial control and the consistency and the number of case laws principles bring consistency and clarity to govern unfair terms clause. The judicial control of unfair terms reinforces the legislative principles by addressing the significant imbalance in the rights and obligations of the parties or detriment of the consumers (Regulation 5(1)). The supplier cannot take undue advantage of consumers who are in weaker bargaining position. Thus, a term cannot be widely drafted to cause detriment to the consumers detriment.

The common law established principles that govern unfair contractual terms, including restrictive incorporation, restrictive interpretation, unconscionability, and restraint of trade amongst others. One will find their relevance even today. The tool of reasonableness offers appropriate flexibility and opportunity to the judiciary to given special treatment to certain special cases, without unreasonably disrupting the contractual arrangements. The Law Commission Report of 1975 also shared similar sentiments and stated that there cannot be any legislative formula to address such situation.



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15. Office of Fair Trading, ‘Unfair contract terms guidance’ (2008) accessed 24 May 2021> .
16. Stefan Vogenauer, Contents of Contracts and Unfair Terms (OUP Oxford 2020) 362.
17. Paolisa Nebbia, Unfair Contract Terms in European Law: A Study in Comparative and EC Law (Bloomsbury Publishing 2007) 59.

Conclusion

The control of unreasonableness demonstrates that common law principle should govern unfair contract terms. It forms the core of the unfair contract terms laws. The prioritisation of the role of judiciary and its principles in this field is evident in the law itself, Section 11(1) that provides for the test of reasonableness.

Legislation

The Unfair Contract Terms Act 1977 The Unfair Terms in Consumer Contracts Regulations 1999

Cases

Britvic Soft Drinks Ltd v Messer UK Ltd [2002] EWCA Civ 548 Mitchell v Finney Lock Seeds [1983] QB 284. Overseas Medical Supplies Ltd v Orient Transport Services Ltd [1999] 1 All E.R. (Comm) 981 (20 May 1999) Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317

Books

Andrews N, Contract Law (Cambridge University Press 2015) Nebbia P, Unfair Contract Terms in European Law: A Study in Comparative and EC Law (Bloomsbury Publishing 2007) Vogenauer S, Contents of Contracts and Unfair Terms (OUP Oxford 2020)

Journals

Bright S, ‘Winning the battle against unfair contract terms’ (2000) 20(3) Legal Studies 331-352

Reports

Office of Fair Trading, ‘Unfair contract terms guidance’ (2008) accessed 24 May 2021>

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