Insights

Protecting Consumers and Businesses: Navigating the Unfair Contract Terms Act 1977

The Unfair Contract Terms Act 1977 (UCTA) is an important piece of legislation that is designed to afford protection to contracting parties from unfair terms in business contracts. It sets out a number of rules that must be followed by businesses when drafting and negotiating contractual terms. UCTA applies to both written and verbal contracts, and it has been used to strike down terms which are deemed to be unfair or unreasonable. 

Scope 

UCTA applies to a broad range of contracts, including those entered into on a B2C and B2B basis. This means that businesses must take extra care when drafting contract terms, as they can be held liable for any terms that are deemed to be unfair. The protection is particularly important for consumers, as they often lack the knowledge and resources to negotiate more favourable terms. 

Amongst the criteria for B2C contract terms to be considered fair are that such terms must be reasonable, clear, and not too onerous for the consumer. This means that businesses must ensure that their contract terms are easy to understand, and that they are not putting too much of a burden on the consumer. 

Liability 

UCTA often comes into play with contract terms that seek to limit or exclude liability. Such terms have been tested in various court cases over the years, and some key principles have been established:

  • Unless there are express terms indicating otherwise, it is assumed that the parties did not intend to stray from their common law rights and obligations when reading or construing an exclusion clause. The more these rights and obligations are violated, the more explicit the language utilised must be.  
  • There is no unique regulation requiring the use of particular language if the exclusion clause covers repudiatory contract breaches. 
  • When one party enters into a contract using the written standard terms of business of the other party, Section 3 of UCTA sets stronger restrictions on limiting or excluding liability. The court will assess whether the terms in question are customarily used by the party presenting them, and whether there have been “more than insubstantial” variations to those standard terms. 
  • Significant alterations will place the terms outside Section 3 of UCTA, and it is less likely to apply when the parties have engaged in back-and-forth negotiations regarding the document. 
  • To exclude set-off rights, precise language is needed, but merely mentioning “set-off” is usually enough to exclude both legal and equitable set-off rights. 

The Pinewood Case 

In the recent case of Pinewood Technologies Asia Pacific Ltd v Pinewood Technologies PLC, the High Court examined the parameters of UCTA. Pinewood PLC sought to rely on exclusion and no set-off clauses included in Reseller Agreements with Pinewood AP. Pinewood AP had suggested that such clauses had failed to meet the requirement of reasonableness under Section 11 of UCTA.  

The court granted reverse summary judgment in favour of Pinewood PLC, and summary judgment on Pinewood PLC’s counterclaim. The Judge held that the UCTA arguments had no real prospect of success at trial because the parties had negotiated the draft agreement and made “clearly substantive” amendments, as opposed to relying on standard business terms. It was also held that the wording of the exclusion provisions included in the Reseller Agreements was “clear and unambiguous” 

Furthermore, the court rejected the notion that exclusion clauses cannot apply to repudiatory breaches of contract or alleged non-performance of contractual obligations. It was held that the extent to which an exclusion clause applies to a particular loss or breach will, in all cases, be a question of construction.  

Conclusion 

UCTA is an important piece of legislation that protects consumers and businesses alike from unfair contract terms. If you are a business supplying goods or services, then it may be advisable to seek professional advice from a legal practitioner prior to drafting or negotiating B2B and B2C contracts. Where such terms become the subject of litigation, then several factors will be considered by the court, including the bargaining strength of the parties and the extent to which standard terms were amended.

*This article is not legal advice but provides a general overview. The specific details of your case will determine the best course of action.