Macdonald’s Exemption Clauses and Unfair Terms 9781526503718, 9781526503749, 9781526503732

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Macdonald’s Exemption Clauses and Unfair Terms

Macdonald’s Exemption Clauses and Unfair Terms Third Edition

Mark Anderson

Managing Partner, Anderson Law LLP

Victor Warner

Solicitor, Anderson Law LLP

BLOOMSBURY PROFESSIONAL Bloomsbury Publishing Plc 50 Bedford Square, London, WC1B 3DP, UK 1385 Broadway, New York, NY 10018, USA 29 Earlsfort Terrace, Dublin 2, Ireland BLOOMSBURY and the Diana logo are trademarks of Bloomsbury Publishing Plc © Bloomsbury Professional Ltd 2022 Mark Anderson and Victor Warner have asserted their rights to be identified as the authors of this work. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the publishers. While every care has been taken to ensure the accuracy of this work, no responsibility for loss or damage occasioned to any person acting or refraining from action as a result of any statement in it can be accepted by the authors, editors or publishers. All UK Government legislation and other public sector information used in the work is Crown Copyright ©. All House of Lords and House of Commons information used in the work is Parliamentary Copyright ©. This information is reused under the terms of the Open Government Licence v3.0 (http://www.nationalarchives.gov.uk/doc/ open-government-licence/version/3) except where otherwise stated. All Eur-lex material used in the work is © European Union, http://eur-lex.europa.eu/, 1998-2022. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. ISBN: HB: 978-152650-371-8 ePDF: 978-152650-373-2 ePub: 978-152650-372-5 Typeset by Evolution Design & Digital Ltd (Kent) To find out more about our authors and books visit www.bloomsburyprofessional. com. Here you will find extracts, author information, details of forthcoming events and the option to sign up for our newsletters

Preface

We are delighted to take over the stewardship of Elizabeth MacDonald’s book for this third edition. This work is different to most of our other books. Exemption clauses and unfair terms are areas we cover in some of our other books, such as Drafting and Negotiating Commercial Contracts and A  to Z  of Commercial and Boilerplate Clauses. But their focus is different – they are practical guides and they do not explore the law in the same way, or to the same depth, as this book does. This book looks in detail at one aspect of contractual liability: clauses that limit or exclude liability. Thus, it is not a complete guide to risk management in commercial contracts – warranties and indemnities also play their part, as do non-contractual issues such as choice of contractor, due diligence and insurance. Once the contract is signed, how the parties actually perform it may be just as important as the how it is worded. This theme is explored in Mark’s courses run through the UCL  Faculty of Laws, including Drafting Legal Clauses in Commercial Contracts. But the drafting and enforceability of exemption clauses is an important part of the picture. What has changed in the 16 years since the second edition? Since 2006 there has been an army, rather than a platoon, of cases on exemption clauses (and an increasingly overweight army, given the length of many modern judgments). It is only possible to describe a few highlights in this preface. For us, the underlying themes include: • the continuing practice of the courts, when interpreting contracts including exemption clauses, to look for the ‘objective’ meaning of the words used, taking account of any admissible background. This was noted in the previous edition with what was then then the leading case on contractual interpretation in Investors’ Compensation Scheme Ltd v West Bromwich Building Society. Since then we have had the Supreme Court decisions in Rainy Sky SA v Kookmin Bank [2011], Arnold v Britton [2015] and Wood v Capita Insurance Services Ltd [2017] – all which develop this trend further (although it possible to see some differences in the approach between these decisions); • recognising the freedom of the parties to allocate risks as they see fit (eg Persimmon Homes Ltd and others v Ove Arup & Partners Ltd and another [2017], E-Solutions JLT and another v O3B Africa Ltd [2018]; v

Preface

• following from the above two points, the parties will be bound by the provisions of their contracts, even where exemption clauses are ‘stringent’ (Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] – as long as reasonable steps are taken to bring such a clause to the attention of the other party) or where they do not take sufficient care over the type, or content, of the contract they are entering (the continuing application of the non est factum doctrine, eg in C F Asset Finance Limited v Okonji and Shaw [2014]); and • the need to ensure that contract wording clearly addresses the parties’ liabilities. This applies, for example, to entire agreement clauses. If parties wish to avoid liability for non-fraudulent, pre-contract (mis) representations then it is necessary to state that intention clearly (eg  AXA  Sun Life Services plc v Campbell Martin Ltd [2011], BSkyB  Ltd v HP Enterprise Services UK Ltd [2010], where a word such a ‘supersede’ was not enough to exclude any pre-contract representations – more is needed, such as stating that no representations have been made; there has been no reliance on any representations; or there is an express exclusion of liability for misrepresentation. The main development concerning unfair terms is the passing into law of the Consumer Rights Act 2015. This largely follows the law found in earlier legislation, but with some changes. The changes include: • there is now the assessment of non-contractual notices for fairness in essentially the same way as for contractual terms; • requiring a court of its own violation to assess whether a term is fair (subject to certain limitations); and •

the assessment of a contractual term for fairness being no longer limited to one which is not individually negotiated.

Perhaps the most significant change is that the Act contains a further reformulation of the meaning of the ‘core exemption’, that is terms which are not subject to assessment for fairness. The Act also now adds an additional pre-condition for a core term to not be subject to assessment for fairness: it now needs to be ‘prominent’ as well as in plain and intelligible language. Also, there is now a difference between the view of the Supreme Court in OFT v Abbey National plc [2009] and the later ECJ cases of Kásler [2013] and Mattei [2013] as how to interpret the meaning of the core exemption. The latter cases (decided before the UK left the EU) indicating that there needs to be a very direct link between the price or remuneration paid in exchange for a specific service, an approach the Supreme Court did not follow. The CMA in its guidance to unfair terms (in 2016) preferred the approach of Kásler and Mattei. For which approach is now correct will have wait for a further decision of the Supreme Court. vi

Preface

We would like to thank Chris Harrison for his work in editing the book, and Christina Turner and Stefano Incarbone of Anderson Law for their assistance with proof-reading. Any errors that remain are the sole responsibility of the authors. Mark Anderson Victor Warner Anderson Law LLP www.andlaw.eu February 2022

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Contents Prefacev Keyxv Table of Statutes  xvii Table of Statutory Instruments  xxiii Table of European Legislation xxv Table of Cases xxix 1. Incorporation 1 Signature2 Basic approach 2 Time3 Contractual document 4 Misrepresentation4 Developments?6 Non est factum 8 Notice – standard form or unsigned documents 15 Introductory points 15 Time16 Notice – when required/of what? 16 Notice – basic test 18 Type of document 22 The content of the clause – unreasonable and unusual clauses 23 Reference31 The basic test – a fuller version? 33 Course of dealing and trade practice 34 The basic test 34 The application of the test 37 Trade practice 42 Notice and the ‘red hand rule’ 43 Relevance of failure to incorporate but for past transactions 44 Changes to standard terms 44 2. Construction 46 Introduction47 Construction in general 47 Approach to exemption clauses – trends 57 The impact of legislation – drafting 59 The impact of legislation – construction and more broadly 64 Standard form contracts 67 ix

Contents

Rules, approaches 68 Strict construction, contra proferentem 68 Limitation clauses 73 Negligence76 Inconsistent terms 94 Outside the contract 96 Particular clauses, phrases 106 ‘Entire’ or ‘whole’ agreement clauses 106 Anti-set-off clauses 122 Wilful misconduct, default, neglect 126 Gross negligence 129 Consequential loss 131 3. The Unfair Contract Terms Act 1977 139 Scope of the act 141 Introduction141 Proposals143 Business liability 145 Excluded contracts or terms 151 UCTA, section 13 – Terms or notices controlled 161 Negligence – section 2 168 The section 168 Negligence169 Requirement of reasonableness 171 Terms and notices excluding or restricting liability 172 Excluding or restricting the obligation or duty 172 Voluntary acceptance of risk (‘volenti’) 173 Indemnities174 Dealing on the other party’s written standard terms – UCTA, section 3 176 The section 176 ‘Written standard terms of business’ 177 Excluding or restricting liability for breach – section 3(2)(a) 189 Claiming to render a substantially different performance or no performance – section 3(2)(b) 191 Goods – UCTA, sections 6 and 7 203 The sections 203 The requirement of reasonableness 205 Excluding or restricting liability 205 Excluding or restricting the relevant obligation or duty 206 Second contracts – UCTA, section 10 211 The section 211 Parties to the contracts 211 Types of contract 213 Defining obligations/performance 214 Indemnity215 The requirement of reasonableness – section 11 215 x

Contents

The basic test 215 Trends218 ‘In so far as’ 220 Appeals and precedents 222 The time frame for the assessment – looking at the whole clause 226 Guidelines228 Limitation clauses 231 Inequality of bargaining power 235 Availability of alternatives 238 Insurance240 Knowledge243 Settlement of past claims 247 Conditions placed on claims 248 Negligence250 Customer’s detailed specifications 251 Difficult/dangerous tasks 252 Consequences253 4. Unfair terms in consumer contracts 257 Introduction – the Consumer Rights Act 2015 260 Summary of the changes 261 Status of EU law 262 Background to the implementation of the CRA 263 Basic scope 263 Comparisons with the Unfair Contract Terms Act 1977 266 ‘Consumer contract’ and excluded contracts and terms 267 The ‘Consumer contract’ 267 Exclusion of contracts entirely from CRA, Part 2 268 Contract terms and notices which are not subject to assessment for fairness268 Disapplication of rules to mandatory terms and notices – Exclusion of terms from Part 2 of the CRA 270 Key definitions 279 The ‘core’ exemption 293 Use of ‘grey list’ 295 Transparent (plain and intelligible language which is legible) and ‘prominent’324 Meaning of transparency 325 Transparency and accessibility 326 Proposals326 CMA Guidance329 Prominent and the ‘average consumer’ 331 Older guidance 333 Construction335 Particular contracts 335 In general 337 xi

Contents

Unfair terms 338 Background to the assessment 338 The basic test 343 Types of unfair terms 372 For the CMA 377 Unfair financial burdens 377 Signed statements/declarations 378 The burden of proof and the duty of a court to consider the fairness of a term 380 The ‘Grey’ list 380 Changes made by the CRA 381 CRA, Sch 2, Part 1, para 1 (1999 Regulations, Sch 2, para 1(a)): Exclusion and limitation clauses – exclusion of liability for death and personal injury 383 CRA, Sch 2, Part 1, para 3 (1999 Regulations, Sch 2, para 1(c)): Binding consumers while allowing the trader to provide no service 403 CRA, Sch 2, Part 1, para 4 (1999 Regulations, Sch 2, para 1(d)): Retention of prepayments on consumer cancellation 405 CRA, Sch 2, Part 1, para 5 (1999 Regulations, none: Disproportionate termination fees and requiring consumer to pay for services not supplied) 409 CRA, Sch 2, Part 1, para 6 (1999 Regulations, Sch 2, para 1(e)): Disproportionate financial sanctions 411 CRA, Sch 2, Part 1, para 7 (1999 Regulations, Sch 2, para 1(f)): unequal cancellation rights and cancellation without refund 412 CRA, Sch 2, Part 1, para 8 (1999 Regulations, Sch 2, para 1(g)): Trader’s right to cancel without a refund 417 CRA, Sch 2, Part 1, para 9 (1999 Regulations, Sch 2, para 1(h)): Excessive notice periods for consumer cancellation 419 CRA, Sch 2, Part 1, para 10 (1999 Regulations, Sch 2, para 1(i)): Binding consumers to hidden terms 421 CRA, Sch 2, Part 1, para 11 (1999 Regulations, Sch 2, para 1(j)): Trader’s right to vary terms generally 424 CRA, Sch 2, Part 1, para 12 (1999 Regulations, Sch 2, para none) and CRA, Sch 2, Part 1, para 13 (1999 Regulations, Sch 2, para 1(k)): Right of a trader to determine or change what is supplied426 CRA, Sch 2, Part 1, para 14 (1999 Regulations, para none): and CRA, Sch 2, Part 1, para 15 (1999 Regulations, Sch 2, para 1(l)): Price variation clauses 429 CRA, Sch 2, Part 1, para 16 (1999 Regulations, Sch 2, para 1(m)): Trader’s right of final decision 433 CRA, Sch 2, para 17 (1999 Regulations, Sch 2, para 1(n)): Entire agreement and formality clauses 435 Formality clauses 440 xii

Contents

CRA, Sch 2, para 18 (1999 Regulations, Sch 2, para 1(o)): Binding consumers where the trader defaults CRA, Sch 2, Part 1, para 19 (1999 Regulations, Sch 2, para 1(p)): Trader’s right to assign without consent 1999 Regulations, Sch 2, para 20 (CRA, Sch 2, para 1(q): Restrict the remedies available to a consumer Appendix 1 – unfair terms provisions Appendix 2 – indicative list of unfair terms

441 443 443 449 459

5. Exemption clauses and third parties 470 Introduction470 Privity470 Outline of the 1999 Act 472 Circumstances when rights of third party arise 472 Identification of the third party 474 Right to enforce terms subject to the provisions of the contact 474 Third party can have benefit of exclusion or limitation 474 Limitations on the contracting affecting rights of a third party 475 Remedies available to the third party 475 Protection of an exemption clause for a third party (whether a third party can have the benefit of an exemption clause) 476 The issues 476 ‘Agency’479 Vicarious immunity 482 Negativing or limiting the duty of care 484 Bailment on terms 486 Trusts487 Stay of action 488 Contracts (Rights of Third Parties) Act 1999 488 Third parties and the burden of a clause 490 Defences and exemption clauses used against a third party claiming a benefit under the act 491 Application of Unfair Contract Terms Act 1977 492 Application of Unfair Contract Terms Act, section 3 492 Application of Unfair Contract Terms Act, section 2 492 6. Misrepresentation and exemptions 496 Introduction496 Fraud497 Construction499 Clauses denying the requirements for a misrepresentation 500 Clauses denying representation by agent 507 Misrepresentation Act 1967, section 3 508 Reasonableness510 The Consumer Rights Act 2015 513 xiii

Contents

7. Exemptions and fiduciary duties 516 The background 516 The efficacy of exemption clauses 517 Introduction of exemption as a breach of fiduciary duty 521 Construction522 Strict construction 522 Negligence524 ‘Actual fraud’ 526 Honesty – an subjective or objective standard? 527 ‘Wilful default’ 528 The Unfair Contract Terms Act 1977 and the Consumer Rights Act 2015 529 Index535

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Key

CRA CRA, Part 2 1994 Regulations 1999 Regulations UCTA 1993 Directive Law Commission Report 2013 Law Commission Issues paper Explanatory Notes CMA Guidance Law Commission Report 2005 Historic Appendix A 2008 Regulations 2013 Regulations 2011 Directive

Consumer Rights Act 2015 Consumer Rights Act 2015, section 61 to 76 Unfair Terms in Consumer Contracts Regulations 1994 Unfair Terms in Consumer Contracts Regulations 1999 Unfair Contract Terms Act Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts Law Commission – Unfair Terms in Consumer Contracts: Advice to the Department for Business, Innovation and Skills. March 2013 Law Commission – Unfair Terms in Consumer Contracts: a new approach? Issues Paper. July 2012 The explanatory notes to the Consumer Rights Act 2015 CMA – CMA37 – Unfair Terms Main Guidance – 2015 Law Commission – Unfair Terms in Contracts, No. 292 Historic Annex A to unfair contract terms guidance The Consumer Protection from Unfair Trading Regulations 2008 Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights, amending Council Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and of the Council and repealing Council Directive 85/577/EC and Directive 97/7/EC of the European Parliament and of the Council.

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Table of Statutes Arbitration Act 1996.................. 4.13, 4.22 s 89..............................................4.22 (1).........................................4.22 90..............................................4.22 91........................................ 4.22, 4.391 Carriage by Air Act 1961................2.186 Carriage of Goods by Road Act 1965.........................................2.186 Carriage of Goods by Sea Act 1971.........................................3.35 Carriage of Goods by Sea Act 1992..................................... 5.16, 5.35 Commonhold and Leasehold Reform Act 2002 s 168(4).......................................4.33 Consumer Credit Act 1974........ 1.33; 4.80 Consumer Rights Act 2015......... 1.6, 1.17, 1.73, 1.75, 1.80; 2.21, 2.25, 2.26, 2.30, 2.42, 2.133; 3.2, 3.7, 3.9, 3.23, 3.26, 3.231; 4.1, 4.2, 4.3, 4.4, 4.5, 4.7, 4.8, 4.11, 4.16, 4.17, 4.20, 4.22, 4.41, 4.42, 4.43, 4.45, 4.46, 4.56, 4.59, 4.60, 4.61, 4.65, 4.67, 4.68, 4.69, 4.70, 4.71, 4.74, 4.120, 4.127, 4.132, 4.134, 4.146, 4.148, 4.154, 4.160, 4.161, 4.162, 4.164, 4.165, 4.167, 4.168, 4.170, 4.174, 4.175, 4.176, 4.189, 4.193, 4.204, 4.206, 4.207, 4.229, 4.244, 4.257, 4.316, 4.369, 4.391, 4.394, 4.398; 6.1, 6.39, 6.40, 6.41, 6.44; 7.30, 7.40, 7.41 Pt 1 (ss 1–60)............ 4.24, 4.263, 4.264, 4.271, 4.272, 4.276, 4.281, 4.294 s 2(2)...........................................4.56 (3)....................................... 4.11, 4.43

Consumer Rights Act 2015 – contd s 2(7)...........................................4.56 9................................................4.265 31, 47.................................. 4.20, 4.263 50..............................................4.369 (1)–(3)..................................4.369 57........................................ 4.20, 4.263 57(2).........................................4.369 Pt 2 (ss 61–76)....................... 2.25, 2.36, 2.174, 2.177, 2.185; 3.280; 4.4, 4.6, 4.8, 4.8, 4.11, 4.13, 4.14, 4.16, 4.17, 4.24, 4.25, 4.65, 4.66, 4.157, 4.203, 4.225, 4.242, 4.254, 4.263, 4.271, 4.299, 4.301, 4.394 s 61(1)............................ 2.21; 4.11, 4.15 (2).........................................4.15 (3)............................ 2.21; 4.11, 4.15 (4).......................... 4.11, 4.65, 4.189 (5).........................................4.65 (7), (8).................................4.65 62............................ 2.36; 4.247, 4.248, 4.251; 6.40 (1)........................... 1.81; 4.23, 4.24, 4.208; 6.39 (2).........................................4.24 (3).........................................4.23 (4)......................... 4.11, 4.69, 4.158, 4.159, 4.170; 6.39 (5)....................... 2.25; 4.158, 4.159, 4.167 (6).......................... 4.11, 4.158; 6.39 (7)................................. 4.158, 4.160 63.............................. 1.80; 4.11, 4.247, 4.248, 4.401 (2).........................................4.344 (6)................................... 4.21, 4.248 (7).........................................4.21 64.............................. 2.29; 4.69, 4.121, 4.125, 4.248; 6.40 xvii

Table of Statutes Consumer Rights Act 2015 – contd s 64(1).......................... 4.11, 4.71, 4.251 (a)............................ 4.115, 4.128 (b)................. 4.82, 4.121, 4.122, 4.123, 4.128 (2)........................... 2.29, 4.11, 4.70, 4.134 (a), (b)............................4.115 (3)......................... 2.30, 4.70, 4.133, 4.134; 7.40 (4)....................... 4.70, 4.146, 4.148; 7.40 (5).........................................4.146 (6)........................ 4.77, 4.125, 4.251 65.......................................... 2.66; 4.19 (1).......................... 4.11, 4.19, 4.257 66..............................................4.19 67................................. 1.81; 4.23, 4.24 68............................. 2.26; 4.133, 4.134 (1)................................ 4.134, 4.141, 4.143 68(2).........................................2.30 69...................................... 4.134, 4.157 (1)................................ 4.153, 4.154, 4.155, 4.156 (2).........................................4.153 70................................. 2.25; 4.11; 6.44 71................... 4.10, 4.11, 4.174, 4.245 73....................4.26, 4.40, 4.248, 4.251 74(1).........................................4.394 75.................................. 3.2; 4.12; 6.40 76(2).........................................4.43 Pt 3 (ss 77–101)..........................4.167 s 77..............................................6.43 90–95........................................4.242 Sch 2................................ 4.4, 4.5, 4.124, 4.128, 4.158, 4.170, 4.174, 4.203, 4.223, 4.224, 4.232, 4.247, 4.247, 4.249, 4.250, 4.251, 4.344, 4.401 Pt 1 (paras 1–20).. 4.77, 4.248, 4.251, 4.252, 4.253, 4.401 para 1......................... 4.225, 4.249, 4.291, 4.361, 4.401 (b).............................4.382 (q).............................4.389 para 2......................... 4.225, 4.249, 4.262, 4.285, 4.305, 4.361, 4.364, 4.401 xviii xviii

Consumer Rights Act 2015 – contd para 3......................... 4.176, 4.249, 4.296, 4.401 4................ 4.75, 4.176, 4.231, 4.249, 4.299, 4.301, 4.313, 4.323, 4.401 5................ 4.75, 4.123, 4.231, 4.249, 4.302, 4.307, 4.312, 4.330, 4.401 6......................... 4.221, 4.249, 4.301, 4.307, 4.312, 4.323, 4.401 7................ 4.75, 4.249, 4.315, 4.382, 4.401 8......................... 4.176, 4.249, 4.324, 4.401 9......................... 4.176, 4.249, 4.329, 4.401 10....................... 4.198, 4.249, 4.332, 4.401 11....................... 4.111, 4.176, 4.249, 4.327, 4.339, 4.344, 4.346, 4.363, 4.401 12....................... 4.249, 4.346, 4.347, 4.401 13....................... 4.176, 4.249, 4.345, 4.346, 4.347, 4.348, 4.352, 4.401 14....................... 4.249, 4.327, 4.353, 4.358, 4.401 15.............. 4.75, 4.176, 4.249, 4.327, 4.345, 4.353, 4.358, 4.401 16....................... 4.249, 4.360, 4.401 17....................... 4.230, 4.249, 4.365, 4.379, 4.401; 6.44 18....................... 4.176, 4.249, 4.382, 4.401 19....................... 4.249, 4.386, 4.401 20........................ 4.249, 4.401 Pt 2 (paras 21–25).......... 4.248, 4.253 para 21....................... 4.249, 4.327, 4.401 22............. 4.111, 4.249, 4.401 23....................... 4.249, 4.344, 4.401

Table of Statutes Consumer Rights Act 2015 – contd para 24....................... 4.249, 4.327, 4.358, 4.401 25........................ 4.358, 4.401 Sch 3............................... 2.25; 4.11; 6.44 para 3........................ 2.36, 2.37; 4.11, 4.153 4–8..................................4.11 Sch 4.......................................... 3.2; 6.43 para 1......................................6.40 2–27................................4.12 Sch 5........................................ 2.25; 4.11 Contracts (Rights of Third Parties) Act 1999...... 1.76; 3.153; 5.3, 5.4, 5.5, 5.11, 5.24, 5.38, 5.39, 5.47, 5.50, 5.51, 5.56, 5.57, 5.59, 5.60, 5.62, 5.64, 5.65, 5.66, 5.70 s 1................................... 5.12, 5.16, 5.71 (1)................................ 5.5, 5.48, 5.50 (a)......................... 5.38, 5.49, 5.50 (b)................... 5.6, 5.7, 5.38, 5.50 (2).................................. 5.5, 5.6, 5.38 (3)...........................................5.9 (4)...........................................5.10 (5)....................................... 5.14, 5.60 (6)...........................................5.11 2(1), (3)–(7)............................5.13 3................................................5.15 (2), (3)...................................5.57 (4)....................................... 5.58, 5.60 (5)...........................................5.58 (6)....................................... 5.15, 5.60 6................................................5.15 (1)...........................................5.15 (5)–(8)....................................5.15 7(1).....................5.24, 5.39, 5.51, 5.71 (2)....................................... 5.65, 5.70 (5)...........................................5.60 Copyright Designs and Patents Act 1988 s 50C............................................3.33 Enterprise Act 2002 Pt 8 (ss 210–236)........................4.11 European Communities Act 1972 s 3(1)....................................... 4.6, 4.123 European Union (Withdrawal) Act 2018 s 6................................................4.6 (1)...........................................4.6 (3)....................................... 4.6, 4.126 (4)...........................................4.6

European Union (Withdrawal Agreement) Act 2020 s 26(1)(a)....................................4.6 42(7).........................................4.6 Housing Act 1985....................... 4.30, 4.31 s 102............................................4.28 103............................................4.28 (1), (5)...............................4.30 Housing Act 1996 Pt VII (ss 175–218)....... 4.61, 4.62, 4.63, 4.64 Housing Grants, Construction and Regeneration Act 1996....... 1.72; 4.181, 4.395 s 106............................................1.72 Hovercraft Act 1968 s 1................................................3.35 Late Payment of Commercial Debts (Interest) Act 1998 s 14..............................................3.95 Law of Property Act 1925 s 49(2).........................................4.300 Limitation Act 1980 s 5................................................2.131 Leasehold Reform, Housing and Urban Development Act 1993..................................... 4.34, 4.35 s 42..............................................4.32 56..............................................4.32 (1).........................................4.32 57..............................................4.32 (1)............................ 4.32, 4.38, 4.39 Merchant Shipping Act 1981........3.35 Misrepresentation Act 1967... 2.34, 2.133, 2.17; 3.37, 3.42, 3.61, 3.62; 6.21, 6.22, 6.30, 6.31, 6.32, 6.33, 6.40, 6.41, 6.42 s 1(a)...........................................6.29 2................................................6.17 (1)...........................................6.42 3......................................... 2.34, 2.176, 2.185; 3.5, 3.42, 3.43; 6.1, 6.4, 6.5, 6.9, 6.17, 6.18, 6.19, 6.20, 6.21, 6.22, 6.23, 6.25, 6.26, 6.27, 6.28, 6.29, 6.31, 6.32, 6.33, 6.42 xix xix

Table of Statutes Occupiers’ Liability Act 1957.... 3.75; 7.31 s 2(2)...........................................3.77 Occupiers’ Liability Act (Northern Ireland) 1957... 3.75; 7.31 Occupiers’ Liability Act 1984.... 3.10, 3.21 Sale and Supply of Goods Act 1994.......................... 3.172, 3.181; 4.2 Sale of Goods Act 1979.. 1.74; 2.156; 3.15, 3.70, 3.219; 4.2 s 12..................................... 2.155; 3.172, 3.173 13................................ 3.7, 3.70, 3.172, 3.175 14................................ 3.7, 3.70, 3.172, 3.175, 3.176 (2)................................. 3.172, 3.181 (3).........................................3.172 (6)................................ 3.181, 3.183, 3.184 15................................ 3.7, 3.70, 3.172, 3.175 55..................................... 3.219, 3.232, 3.260, 3.273 (5).........................................3.221 Supply of Goods (Implied Terms) Act 1973............... 3.70, 3.232 s 8........................................ 3.172, 3.173 9................................................3.172 10...................................... 3.172, 3.176 11..............................................3.172 Supply of Goods and Services Act 1982................................... 3.70, 3.173 s 2................................................3.174 3–5, 8–10..................................3.175 12..............................................4.191 13............................. 2.152; 3.76; 4.191 Telecommunications Act 1984......3.159 Trade Descriptions Act 1968.... 3.11, 3.13, 3.15, 3.16 Trustee Act 1925 s 30(1).........................................7.28 Unfair Contract Terms Act 1977......... 1.6, 1.17, 1.75, 1.76; 2.18, 2.19, 2.20, 2.23, 2.25, 2.31, 2.32, 2.33, 2.35, 2.38, 2.42, 2.49, 2.51, 2.58, 2.68, 2.103, 2.107, 2.124, 2.125, 2.133, 2.174, 2.176, 2.185; 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.9, 3.10, xx xx

Unfair Contract Terms Act 1977 – contd 3.11, 3.15, 3.18, 3.19, 3.21, 3.26, 3.30, 3.37, 3.43, 3.47, 3.48, 3.51, 3.55, 3.58, 3.59, 3.61, 3.62, 3.65, 3.69, 3.70, 3.71, 3.82, 3.84, 3.88, 3.90, 3.97, 3.99, 3.102, 3.104, 3.108, 3.114, 3.123, 3.128, 3.130, 3.131, 3.136, 3.138, 3.144, 3.146, 3.149, 3.156, 3.157, 3.192, 3.193, 3.194, 3.198, 3.199, 3.202, 3.203, 3.206, 3.210, 3.213, 3.219, 3.232, 3.233, 3.258, 3.260, 3.262; 4.1, 4.2, 4.5, 4.10, 4.12, 4.13, 4.14, 4.43, 4.47, 4.168, 4.225, 4.226, 4.227, 4.228, 4.244; 5.52, 5.53, 5.56, 5.60, 5.62, 5.69, 5.70, 5.71; 6.5, 6.28, 6.29, 6.30, 6.31, 6.32, 6.33, 6.35; 7.30, 7.31, 7.33, 7.37, 7.38, 7.39 Pt I (ss 1–14)................. 3.1, 3.75, 3.178, 3.198, 3.200 s 1.................................. 3.18, 3.77; 5.52, 5.65; 6.30 (1).............................. 3.75; 7.31, 7.32 (a).................................. 3.76; 5.63 (b).....................................3.77 (3)............................... 3.5, 3.10, 3.20, 3.22, 3.71, 3.95, 3.176; 7.30 (a)......................... 3.15, 3.17, 3.18 (4)...........................................3.71 2.................................. 1.74; 2.65, 2.66, 2.171; 3.2, 3.3, 3.10, 3.23, 3.24, 3.26, 3.28, 3.34, 3.35, 3.36, 3.54, 3.63, 3.66, 3.69, 3.70, 3.71, 3.73, 3.82, 3.83, 3.84, 3.85, 3.86, 3.87, 3.91, 3.92, 3.93, 3.94, 3.98, 3.134, 3.150, 3.168, 3.179, 3.196, 3.197, 3.202, 3.203; 4.19; 5.63, 5.64, 5.66; 6.15, 6.28; 7.30, 7.32, 7.38, 7.39

Table of Statutes Unfair Contract Terms Act 1977 – contd s 2(1)............................. 3.35, 3.36, 3.71, 3.72, 3.73, 3.89, 3.93, 3.133, 3.220; 4.19, 4.257; 5.53, 5.64, 5.66; 7.38 (2)............................. 3.35, 3.72, 3.73, 3.219; 5.53, 5.64, 5.65, 5.66, 5.70 (3)...........................................3.88 3.................................................. 2.170, 2.171; 3.3, 3.9, 3.10, 3.23, 3.24, 3.26, 3.27, 3.28, 3.34, 3.35, 3.73, 3.95, 3.96, 3.97, 3.98, 3.99, 3.103, 3.105, 3.106, 3.107, 3.108, 3.110, 3.111, 3.112, 3.114, 3.117, 3.120, 3.123, 3.124, 3.126, 3.127, 3.131, 3.133, 3.135, 3.146, 3.168, 3.196, 3.197, 3.238; 5.69; 7.30, 7.33 (1).......................... 3.23, 3.103, 3.219 (2)............................ 2.38; 3.96, 3.142 (a).................... 3.96, 3.132, 3.133, 3.134, 3.135; 7.33 (b)......................................... 1.17; 2.174; 3.2, 3.5, 3.48, 3.59, 3.95, 3.98, 3.137, 3.139, 3.150, 3.155, 3.168, 3.202; 7.33 (i)................................... 2.171; 3.96, 3.140, 3.141, 4.143, 3.144, 3.145, 3.149, 3.150, 3.153, 3.154, 3.156, 3.157, 3.164, 3.169, 3.170 (ii).............. 3.96, 3.166, 3.167, 3.169 (6)...........................................5.52 4...................................... 3.2, 3.9, 3.10, 3.26; 7.30 5.................................... 2.171; 3.2, 3.3, 3.9, 3.10, 3.168 6........................................ 3.2, 3.3, 3.5, 3.7, 3.10, 3.54, 3.70, 3.85, 3.98, 3.168, 3.170, 3.171, 3.176, 3.177, 3.178, 3.179, 3.180, 3.184, 3.185, 3.186, 3.189, 3.190, 3.191, 3.202, 3.236, 3.237; 4.20; 5.70

Unfair Contract Terms Act 1977 – contd s 6(1)................................... 3.173, 3.219 (a), (b)..............................3.173 (1A).................................. 3.70, 3.175 (4)............................... 3.5, 3.10, 3.71, 3.176 7.................................... 2.171; 3.2, 3.3, 3.7, 3.10, 3.23, 3.54, 3.70, 3.85, 3.98, 3.168, 3.171, 3.174, 3.176, 3.177, 3.178, 3.179, 3.180, 3.186, 3.202, 3.236, 3.237; 4.20; 5.70 (1)...........................................3.173 (1A)................................ 3.175, 3.219 (3A)........................................3.174 (4)...........................................3.174 8.................................... 3.5, 3.42, 3.71; 6.1, 6.27, 6.28 10.................................... 3.3, 3.5, 3.48, 3.192, 3.194, 3.195, 3.197, 3.198, 3.199, 3.200, 3.201, 3.202, 3.204, 3.205; 4.160 11......................................... 2.21, 2.23, 2.34; 3.165, 3.206, 3.207, 3.221, 3.223, 3.232, 3.273, 3.280; 6.32, 6.35 (1)......................... 2.23, 2.125; 3.43, 3.81, 3.207, 3.210, 3.211, 3.231, 3.277; 5.53; 6.27, 6.28, 6.33 (2)................................ 3.177, 3.212, 3.236 (3)........................ 3.81, 3.207, 3.210 (4)................................ 3.212, 3.240, 3.242, 3.260 (5)......................... 3.4, 3.213; 4.174, 4.244 12.............................. 3.17, 3.18, 3.131, 3.176 13.................................. 3.5, 3.48, 3.49, 3.188, 3.189; 4.20; 7.32 (1)............................... 3.2, 3.3, 3.54, 3.55, 3.59, 3.66, 3.82, 3.83, 3.85, 3.97, 3.133, 3.135, 3.168, 3.178, 3.179, 3.184, 3.187, 3.190, 3.191, 3.202 xxi xxi

Table of Statutes Unfair Contract Terms Act 1977 – contd s 13(1)(a)...................... 3.50, 3.51, 3.82, 3.97, 3.178 (b)..................... 3.53, 3.82, 3.97, 3.178 (c)...................... 3.53, 3.82, 3.97, 3.178 14................................ 3.11, 3.19, 3.71, 3.72; 7.38 (3).........................................3.190 Pt II (ss 15–25)......................... 3.1; 7.39 Pt III (ss 26–32)..........................3.1 s 26.................................. 3.5, 3.37, 3.38, 3.42, 3.71, 3.95 (1), (2).................................3.42 (3)..................................... 3.37, 3.42 (b)............................... 3.37, 3.41 (4).........................................3.37 (4)(a)....................................3.37 (b)...................................3.40 (c)....................................3.39 27.................................. 3.5, 3.44, 3.45, 3.71, 3.95 (1)....................................... 3.5, 3.44 (2).........................................3.44 (a)....................................3.45 (b)...................................3.46 28.......................................... 3.71, 3.95 29.................................. 3.5, 3.47, 3.71, 3.95 (3).........................................3.47

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31(2).........................................3.1 Sch 1.............................. 2.185; 3.5, 3.23, 3.24, 3.25, 3.32, 3.71, 3.95; 6.30 para 1.................................. 3.23; 4.19 (a)...................................3.24 (b)................... 3.24, 3.27, 3.28, 3.29, 3.30 (c)................... 3.24, 3.27, 3.29, 3.30, 3.32, 3.33, 3.34 (d).................... 3.24, 3.27, 3.29 (e)................... 3.24, 3.25, 3.27, 3.29, 3.30; 7.30 2......................................3.35 (c).................................2.124 3......................................3.35 4, 5..................................3.36 Sch 2................................... 3.212, 3.230, 3.235, 3.236, 3.237, 3.239 (a)........................... 3.250, 3.257 (b)...................................3.257 (c)...................................3.264 (d)...................................3.276 (e)...................................3.281 Uniform Law on Sales Act 1967....3.39 GERMANY Standard Contract Terms Act 1976.........................................4.176

Table of Statutory Instruments Carriage by Air Acts (Application of Provisions) Order 1967, SI 1967/480............................2.186 Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, SI 2013/3134..................... 4.5, 4.7, 4.45, 4.56, 4.316, 4.348 Consumer Protection (Amendment) Regulations 2014, SI 2014/870..................6.43 Consumer Protection from Unfair Trading Regulations 2008, SI 2008/1277.... 4.7, 4.56, 4.57, 4.163, 4.271, 4.294, 4.314; 6.43 reg 2(1).......................................6.43 (2).......................................4.148 3(1).......................................6.43 5(2)(a)..................................6.43 8–17, 19................................6.43 Consumer Rights Act 2015 (Commencement No 3, Transitional Provisions, Savings and Consequential Amendments) (Amendment) Order 2016, SI 2016/484................. 3.9, 3.23; 6.40 Consumer Rights Act 2015 (Commencement No 3, Transitional Provisions, Savings and Consequential Amendments) Order 2015, SI 2015/1630........ 3.2, 3.9, 3.23; 6.40 reg 3............................................4.1 Consumer Rights (Payment Surcharges) Regulations 2012, SI 2012/3110................4.7 Consumer Transactions (Restrictions on Statements) Order 1976, SI 1976/1813.....4.152

Food Protection (Emergency Prohibitions) Order (Northern Ireland) 1994, SI 1994/204.................................2.21 Hovercraft (Civil Liability) Order 1971, SI 1971/720..................3.35 Law Applicable to Contractual Obligations (England and Wales and Northern Ireland) Regulations 2009, SI 2009/3064..........................4.394 Unfair Arbitration Agreements (Specified Amount) Order 1999, SI 1999/2167................4.22 Unfair Terms in Consumer Contracts Regulations 1994, SI 1994/3159................ 4.8, 4.9, 4.16, 4.80, 4.88, 4.196, 4.203; 5.67, 5.68 reg 3(1).......................................4.16 (2).......................... 4.80, 4.82, 4.85 (2)(a), (b)..........................4.82 5............................................5.68 Sch 1............................................4.16 Sch 2.................................... 4.193, 4.194 Sch 3 para 1(i)..................................4.198 Unfair Terms in Consumer Contracts Regulations 1999, SI 1999/2083.............. 1.6, 1.17, 1.73, 1.75; 2.21, 2.25, 2.39, 2.177; 3.6, 3.7, 3.8; ffe4.1, 4.2, 4.3, 4.4, 4.6, 4.8, 4.9, 4.16, 4.25, 4.29, 4.30, 4.31, 4.32, 4.33, 4.34, 4.35, 4.37, 4.40, 4.41, 4.43, 4.44, 4.45, 4.50, 4.51, 4.54, 4.56, 4.58, 4.60, 4.62, 4.63, 4.64, 4.69, 4.71, 4.72, 4.73, 4.97, 4.101, 4.104, 4.105, 4.132, 4.143, 4.153, 4.162, 4.167, 4.168, 4.172, 4.188, 4.189, 4.193, 4.203, 4.213, 4.216, 4.229, 4.244, 4.307, 4.370, 4.376; 5.67; 6.5, 6.26 xxiii

Table of Statutory Instruments Unfair Terms in Consumer Contracts Regulations 1999, SI 1999/2083 – contd reg 3(1)........................ 4.43, 4.56, 4.400 (2).......................................4.71 4(1).......................................4.400 (2)......................... 4.29, 4.30, 4.32, 4.33, 4.34, 4.35, 4.36, 4.37, 4.39, 4.40, 4.41, 4.400 5........................... 4.40, 4.223, 4.400 (1)..................... 4.69, 4.173, 4.221, 4.400 (2)-(4)................................4.400 6(1)..................... 2.25; 4.162, 4.165, 4.167, 4.221, 4.400 (2)........................... 4.9, 4.31, 4.71, 4.75, 4.77, 4.80, 4.88, 4.90, 4.90, 4.91, 4.92, 4.93, 4.94, 4.95, 4.96, 4.99, 4.101, 4.103, 4.105, 4.400 (a).............................. 4.96, 4.98 (b)................... 4.82, 4.91, 4.92, 4.93, 4.94, 4.96, 4.97, 4.98, 4.100, 4.101, 4.102, 4.105 7(1)............................... 4.139, 4.400 (2).............................. 4.153, 4.155, 4.400 8........................................ 4.33; 5.68 (1), (2)...............................4.400 9............................................4.400 12..........................................4.167 (1).....................................2.25

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Unfair Terms in Consumer Contracts Regulations 1999, SI 1999/2083 – contd Sch 2................................... 4.250, 4.302, 4.346, 4.400, 4.401 para 1(a)........................ 4.252, 4.291, 4.361, 4.401 (b)........................ 4.262, 4.305, 4.361, 4.364, 4.382, 4.401 (c)......................... 4.296, 4.401 (d)................. 4.75, 4.76, 4.299, 4.313, 4.401 (e)................. 4.75, 4.76, 4.221, 4.312, 4.330, 4.401 (f).................. 4.75, 4.76, 4.315, 4.382, 4.401 (g)......................... 4.324, 4.401 (h)......................... 4.329, 4.401 (i).......................... 4.332, 4.401 (j)......................... 4.339, 4.344, 4.346, 4.363, 4.401 (k)........................ 4.345, 4.346, 4.347, 4.401 (l).................. 4.75, 4.76, 4.345, 4.353, 4.401 (m)........................ 4.360, 4.401 (n)........................ 4.365, 4.379, 4.401 (o)......................... 4.382, 4.401 (p)......................... 4.386, 4.401 (q).................................4.401 2.............................. 4.389, 4.401 (a)–(c)..........................4.401

Table of European Legislation TREATIES AND CONVENTIONS Athens Convention Relating to the Carriage of Passengers and their Luggage by Sea (Athens, 13 April 1974).........4.336 Brussels Convention on the Jurisdiction and the Enforcement of Foreign Judgments in Civil and Commercial Matters (Brussels, 1969)......... 4.43, 4.50, 4.51 Art 13...................................... 4.49, 4.51 Convention for the Unification of Certain Rules relating to International Carriage by Air (Warsaw, 12 October 1929).......................................2.186 Convention on the Contract for the International Carriage of Goods by Road (CMR) (Geneva, 19 May 1956)..........2.186 Convention on the Law Applicable to Contractual Obligations (Rome, 19 June 1980)................................... 4.43, 4.53 Art 13–15....................................4.53 International Convention for the Unification of Certain Rules of Law relating to Bills of Lading (Hague Visby Rules) (25 August 1924)....................5.42 Art 4............................................5.35 Protocol to Amend the Convention for the Unification of Certain Rules Relating to International Carriage by Air (Hague Protocol) (The Hague, 28 September 1955)....................2.186 Treaty establishing the European Community (Rome, 25 March 1957) Art 100A......................................4.8

REGULATIONS Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I)..............4.394 Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters Art 15, 16....................................4.55 DIRECTIVES Council Directive 85/577/ EEC of 20 December 1985 to protect the consumer in respect of contracts negotiated away from business premises........ 4.7, 4.43, 4.48 Council Directive 87/102/ EEC of 22 December 1986 on the approximation of the laws, regulations and administrative provisions of the Member States concerning consumer credit.4.43 Council Directive 90/619/ EEC of 8 November 1990 on the coordination of laws, regulations and administrative provisions relating to direct life assurance, laying down provisions to facilitate the effective exercise of freedom to provide services and amending Directive 79/267/ EEC.........................................4.21 xxv

Table of European Legislation Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts...... 2.21; 4.3, 4.6, 4.7, 4.8, 4.17, 4.25, 4.26, 4.38, 4.43, 4.44, 4.45, 4.56, 4.57, 4.59, 4.62, 4.63, 4.64, 4.75, 4.97, 4.101, 4.105, 4.105, 4.106, 4.113, 4.117, 4.127, 4.132, 4.134, 4.135, 4.140, 4.146, 4.176, 4.193, 4.195, 4.208, 4.216, 4.219, 4.240, 4.244, 4.250; 5.67 Recital 10....................................4.17 13....................... 4.26, 4.35, 4.36 14....................................4.62 16.................. 4.62, 4.193, 4.203, 4.204, 4.209, 4.216 19................... 4.72, 4.129, 4.160 20.................. 4.88, 4.137, 4.139, 4.140, 4.141, 4.145 Art 1(1).......................................4.400 (2)......................... 4.26, 4.27, 4.29, 4.31, 4.34, 4.35, 4.37, 4.38, 4.116, 4.400 2(a).......................................4.400 (b)................................. 4.43, 4.400 (c).......................................4.400 3................................... 4.114, 4.400, 4.401 (1)............................... 4.208, 4.400 (2).......................................4.400 (3).......................................4.400 4(1)................................. 4.92, 4.400 (2)......................... 4.72, 4.75, 4.89, 4.90, 4.91, 4.92, 4.95, 4.96, 4.99, 4.102, 4.103, 4.106, 4.107, 4.109, 4.110, 4.111, 4.112, 4.113, 4.115, 4.117, 4.118, 4.119, 4.130, 4.140, 4.141, 4.400 5................................... 4.139, 4.140, 4.141, 4.157, 4.400 6(1)............................... 4.208, 4.400 (2).......................................4.400 7.................................... 4.175, 4.400 (2).......................................4.400 9(1).......................................4.116 10(3), (9)..............................4.116 xxvi xxvi

Directive 93/13/EEC of 5 April 1993 – contd Annex para 1(a)–(q)..........................4.401 2(a)–(d)............................. 4.401 ......................... * Dir 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of consumers in respect of distance contracts................................ 4.7, 4.21 Directive 98/27/EC of the European Parliament and of the Council of 19 May 1998 on injunctions for the protection of consumers’ interests...................................4.21 Directive 1999/44/EC of the European Parliament and of the Council of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees.............4.7 Directive 2002/65 of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services and amending Council Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC...............................4.21 Directive 2005/29/EC of the European Parliament of the Council of 11 May 2005 concerning unfair businessto-consumer commercial practices in the internal market and amending Council Directive 84/450/ EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council and Regulation (EC) No 2006/2004 of the European Parliament and of the Council....................................4.57

Table of European Legislation Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights, amending Council Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and of

the Council and repealing Council Directive 85/577/ EEC and Directive 97/7/EC of the European Parliament and of the Council..... 4.7, 4.48, 4.54, 4.55 Recital 17....................................4.54

xxvii xxvii

Table of cases 2 Entertain Video Ltd v Sony DADC Europe Ltd [2020] EWHC 972 (TCC), [2021] 1 All ER 527, [2021[ 1 All ER (Comm) 936............................... 2.210, 2.211 A AE Farr Ltd v Admiralty [1953] 1 WLR 965, [1953] 2 All ER 512, [1953] 2 Ll R 173.................................................................................................................2.87 AEG (UK) Ltd v Logic Resources Ltd [1996] CLC 265, CA.......... 1.15, 1.47, 1.48, 1.49, 1.52, 1.64, 1.66, 1.67, 1.74, 1.75; 2.19; 3.95, 3.101, 3.126, 3.171, 3.213, 3.267 AJ Building & Plastering Ltd v Turner [2013] EWHC 484 (QB), [2013] 3 WLUK 255, [2015] TCLR 3....................................................................... 2.37; 4.155 AMF International Ltd v Magnet Bowling Ltd [1968] 1 WLR 1028, [1968] 2 All ER 789, 66 LGR 706............................................................................. 2.94, 2.100 AXA Sun Life Services plc v Campbell Martin [2011] EWCA Civ 133, [2012] Bus LR 203, [2011] 2 Lloyd’s Rep 1................................................ 1.10, 1.60; 2.153, 2.158, 2.163, 2.164; 3.49, 3.53, 3.143, 3.144, 3.149, 3.250; 6.12, 6.36 Abbott v RCI Europe [2016] EWHC 2602 (Ch), [2016] 10 WLUK 432..............4.191 Abernethie v A M & J Kleiman Ltd [1970] 1 QB 10, [1969] 2 WLR 1364, [1969] 2 All ER 790, CA............................................................................... 3.11, 3.13 Adams (Durham) Ltd v Trust Houses Ltd [1960] 1 Lloyd’s Rep 380...................1.74 Addiscombe Garden Estates v Crabbe [1958] 1 QB 513, [1957] 3 WLR 980, [1957] 3 All ER 563, CA...................................................................................3.13 Adler v Dickson [1955] 1 QB 158, [1954] 3 WLR 696, [1954] 3 All ER 397, CA......................................................................................................................5.28 Affréteurs Réunis SA v Leopold Walford (London) Ltd [1919] AC 801, 88 LJKB 861, 24 Com Cas 268, HL......................................................................5.45 African Export-Import Bank v Shenah Exploration & Production Co Ltd [2017] EWCA Civ 845, [2018] 2 All ER 144, [2018] 1 All ER (Comm) 535................................................................................................... 3.95, 3.104, 3.108, 3.115, 3.120, 3.124, 3.125, 3.128, 3.129 Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd (The Strathallan) [1983] 1 WLR 964, [1983] 1 All ER 101, (1983) 127 SJ 508, HL....... 2.58, 2.59, 2.62, 2.72, 2.104 Air Transworld Ltd v Bombardier Inc [2012] EWHC 243 (Comm), [2012] 2 All ER (Comm) 60, [2012] 1 Lloyd’s Rep 349.................................. 3.15, 3.40, 3.44 Albany International BV v Stichting Bedrijfspensioenfonds Textielindustrie (Case C-67/96) [1999] ECR I-5751, [2001] ICR 774, ECJ............................4.62 xxix

Table of cases Albion Energy Ltd v Energy Investments Global Ltd [2020] EWHC 301 (Comm), [2020] 1 Lloyd’s Rep 501, [2020] 2 WLUK 184............................2.179 Alderslade v Hendon Laundry Ltd [1945] KB 189, [1945] 1 All ER 244, 114 LJKB 196, CA....................................................................................... 2.71, 2.94, 2.97 Alena Ltd v Harlequin Transport [2002] EWHC 2461 (Comm), [2002] All ER (D) 278 (Nov)..................................................................................................2.186 Alexander v Rly Executive [1951] 2 KB 882, [1951] 2 All ER 442, 95 SJ 369.......... 1.46, 1.53, 1.59, 1.60; 2.110 Aliakmon, The see Leigh & Sillivan Ltd v Aliakmon Shipping Co Ltd (The Aliakmon) Allen Fabrications Ltd v ASD Ltd (t/a ASD Metal Services &/or Klockner & Co Multi Metal Distribution) [2012] EWHC 2213 (TCC), [2012] 8 WLUK 12.............................................................................. 1.74; 3.250, 3.270, 3.283 Alman & Benson v Associated Newspapers Group Ltd (unreported, 20 June 1980)............................................................................................................... 6.6, 6.37 Alpstream AG v PK Airfinance Sari [2013] EWHC 2370 (Comm), [2014] 1 All ER (Comm) 441, [2013] 7 WLUK 1049.........................................................2.186 Altonwood Ltd v Crystal Palace FC (2000) Ltd [2005] EWHC 292 (Ch), [2005] 3 WLUK 260.........................................................................................2.179 American Leaf Blending Co Sdn Bhd v Director General of Inland Revenue [1979] AC 676, [1978] 3 WLR 985, [1978] 3 All ER 1185, PC......................3.13 Amiri Flight Authority v BAE Systems plc [2003] EWCA Civ 1447, [2004] 1 All ER (Comm) 385, [2003] 2 Lloyd’s Rep 767, CA; [2003] 1 All ER (Comm) 1............................................................................................ 3.37, 3.38, 3.39 Ampleforth Abbey Trust, Trustees v Turner & Townsend Project Management Ltd [2012] EWHC 2137 (TCC), [2012] 7 WLUK 915, [2012] TCLR 8........3.236 Anglo-Continental Holidays v Typaldos (London) Ltd [1967] 2 Lloyd’s Rep 61, 111 SJ 599, CA........................................................................ 3.155, 3.156, 3.157; 4.84 Anglo Group v Winther Brown & Co [2000] 144 SJ LB 197.................................3.228 Anstey v British National Premium Life Assn Ltd (1908) 24 TLR 871.................6.1 Antares, The see Kenya Rlys v Antares Co Pte Ltd Armitage v Nurse [1998] Ch 241, [1997] 3 WLR 1046, [1997] 2 All ER 705, CA............................................................................................... 2.193, 2.194; 7.3, 7.4, 7.5, 7.17, 7.21, 7.23, 7.29 Arnold v Britton [2015] UKSC 36, [2015] AC 1619, [2015] 2 WLR 1593... 2.3, 2.5, 2.7, 2.9, 2.10, 2.11, 2.12, 2.14, 2.15, 2.205, 2.211 Arthur White (Contractors) Ltd v Tarmac Civil Engineering Ltd [1967] 1 WLR 1508, [1967] 3 All ER 586, 111 SJ 831, HL...................... 2.77, 2.83, 2.84; 3.91 Ashfaq v International Insurance Co of Hannover plc [2017] EWCA Civ 357, [2017] 5 WLUK 301, [2018] Lloyd’s Rep IR 228...........................................4.52 Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441, [1971] 2 WLR 1051, [1971] 1 All ER 847, HL................................................................ 2.114; 3.188 Ashmore v Corpn of Lloyd’s (No 2) [1992] 2 Lloyd’s Rep 620, The Times 17 July 1992............................................................................................................1.91 Association of British Travel Agents v British Airways [2000] 2 All ER (Comm) 204, [2000] Lloyd’s Rep 209, CA................................................................. 2.51, 2.54 Astea (UK) Ltd v Time Group Ltd [2003] EWHC 725, [2003] All ER (D) 212, TCC...................................................................................................................3.213 xxx xxx

Table of cases Astrazeneca UK Ltd v Albermarle International Corpn [2011] EWHC 1574 (Comm), [2011] 6 WLUK 473, [2011] 2 CLC 252........................................2.129 Ata v American Express Bank Ltd (The Times, 26 June 1998), CA.....................3.256 Athinoula, The see Bravo Maritime (Chartering) Est v Alsayed Abdullah Mohamed Baroom, (The Athinoula) Avon Finance Co Ltd v Bridger [1985] 2 All ER 281, (1979) 123 SJ 705, CA.. 1.18, 1.40 Ayora Fine Arts Investment Ltd v Christie, Manson & Woods Ltd [2012] EWHC 2198 (Ch), [2012] 7 WLUK 875, [2012] PNLR 35............................3.270 Aziz v Caixa d’Estalvis de Catalunya, Tarragona i Manresa (Catalunyacaixa) (Case C-415/11) [2013] 3 WLUK 372, [2013] 3 CMLR 5, [2013] All ER (EC) 770....................................................................................... 4.191, 4.204, 4.208, 4.210, 4.212, 4.213, 4.218, 4.219 B BHP Petroleum Ltd v British Steel plc [1999] 2 All ER (Comm) 544, [1999] 2 Ll R 583, QBD................................................................................... 2.61, 2.72, 2.197 BKK Mobil Oil Korperschaft des offentlichen Rechts v Zentrale zur Bekampfung unlauteren Wettbewerbs eV (Case C-59/12) [2013] 10 WLUK 72, [2014] 2 CMLR 1, [2014] CEC 516..............................................4.57 BOC Group plc v Centeon [1999] 1 All ER (Comm) 53, [1999] CLC 497, QBD..................................................................................................................2.179 Bacardi Martini Beverages Ltd v Thomas Hardy Packaging Ltd [2002] EWCA Civ 549, [2002] 2 All ER (Comm) 335, [2002] 2 Lloyd’s Rep 379, CA.... 2.23, 2.24, 2.124; 3.218, 3.222, 3.233 Bahamas Oil Refining Co v Kristiansands Tankrederie A/S (The Polyduke) [1978] 1 Lloyd’s Rep 211.................................................................................1.2, 1.8 Bairstow Eves London Central Ltd v Smith [2004] EWHC 263, [2004] 29 EG 118, QBD................................................................................... 4.78, 4.82, 4.83, 4.87, 4.88 Baker v JE Clark & Co (Transport) UK Ltd [2006] EWCA Civ 464, [2006] 3 WLUK 594, [2006] Pens LR 131................................................................. 7.11, 7.33 Balmoral Group Ltd v Borealis (UK) Ltd [2006] EWHC 1900 (Comm), [2006] 2 Lloyd’s Rep 629, [2006] 7 WLUK 654........................... 3.45, 3.217, 3.231, 3.255, 3.270 Bank of Credit & Commerce International v Ali [2001] UKHL 8, [2001] 2 WLR 735, [2001] 1 All ER 961, [2001] ICR 337, HL.............. 2.17, 2.19, 2.69, 2.75, 2.101, 2.119, 2.120, 2.201 Bank of New Zealand v Simpson [1900] AC 182, 69 LJPC 22, 82 LT 102, PC.....2.1 Bank of Scotland v Dunedin Property Investment Co Ltd 1998 SC 657, 1998 SCLR 531, 1998 GWD 18-887, Ct of Sess 1 Div...............................................2.16 Bankway Properties v Penfold-Dunsford [2001] EWCA Civ 528, [2001] 1 WLR 1369, [2002] HLR 795, CA..............................................................................1.15 Banque Paribas v Cargill International SA [1992] 1 Lloyd’s Rep 96....................1.101 Barbour Builder Ltd v Atrium Ltd (Lexis, 6 February 1991)................................3.273 Barclays Mercantile Finance Ltd v Marsh [2002] EWCA Civ 948.........................3.139 Barking & Dagenham London Borough Council v Stamford Asphalt Co Ltd (1997) 82 BLR 25, 54 Con LR 1, The Times, 10 April 1997, CA..................2.81 xxxi xxxi

Table of cases Bartlett v Barclays Trust Co (No 1) [1980] 1 Ch 515, [1980] 2 WLR 430, [1980] 1 All ER 139..........................................................................................7.15 Bastable v North British Rly Co 1912 SC 555, 1912 1 SLT 259, [1912] 2 WLUK 43.......................................................................................................................2.186 Bates v Post Office Ltd (No 3: Common Issues) [2019] EWHC 606 (QB), [2019] 3 WLUK 260................................................................ 1.42; 2.46, 2.50; 3.106, 3.109, 3.125, 3.151, 3.152, 3.217, 3.236, 3.254 Baybut v Eccle Riggs Country Park Ltd [2006] 11 WLUK 27, [2006] All ER (D) 161 (Nov)..................................................................................................4.40 Beardsley Theobalds Retirement Benefit Scheme Trustees v Yardley [2011] EWHC 1380 (QB), [2011] 9 WLUK 661, [2011] All ER (D) 170 (Oct).......1.30 Beaton v Nationwide Anglia Building Society (formerly Nationwide Building Society) [1991] 2 EGLR 145, [1991] 38 EG 218, The Times 8 October 1990, DC........................................................................................... 3.71, 3.77, 3.227, 3.228, 3.229 Benincasa v Dentalkit (C-269/95) [1997] ECR I-3767, [1998] All ER (EC) 135, [1997] ETMR 447, ECJ............................................................... 4.47, 4.49, 4.51 Bertrand v Paul Ott KG, Case 150/77 [1978] ECR 1431, ECJ..............................4.43 Beswick v Beswick [1968] AC 58, [1967] 3 WLR 932, [1967] 2 All ER 1197, HL.....................................................................................................................5.3 Bidaisee v Sampeth [1995] NPC 59, PC.................................................................4.300 Bishop v Bonham [1988] 1 WLR 742, BCLC 656, (1988) 132 SJ 933, CA...........2.91 Bisset v Wilkinson [1927] AC 177, 96 LJPC 12, [1926] All ER Rep 343, PC........6.9 Blakemore v Bellamy (1982) 147 JP 89, [1983] RTR 303, QBD...........................3.13 Blay v Pollard & Morris [1930] 1 KB 628, 99 LJKB 421, [1930] All ER Rep 609, CA..............................................................................................................1.2 Boardman v Portman (unreported, 26 July 2000), CA..........................................2.187 Boggs v Raper [1998] CLY 4592, The Times 22 April 1998, CA...... 7.4, 7.11, 7.13, 7.18, 7.19 Bolam v Friern Hospital Management Committee [1957] 1 WLR 582, [1957] 2 All ER 118, 101 SJ 357...................................................................................3.76 Bonham v Balke Lapthorn Linnell (a firm) [2006] EWHC 2513 (Ch), [2006] 10 WLUK 427, [2007] WTLR 189................................................................. 7.5, 7.13 Boomsman v Clark & Rose Ltd 1983 SLT 67 (Sh Ct Rep).............................. 2.32, 2.100 Boughen v Frederick Attwood Ltd [1978] 1 Lloyd’s Rep 413, [1978] RTR 313.. 2.116 Bovis Construction (Scotland) Ltd v Whatling Construction Ltd [1995] CLC 1413, 1995 SC (HL) 19, 75 BLR 1, HL...........................................................2.58 Boyd & Forrest v Glasgow & South Western Rly Co 1915 SC (HL) 20.................6.1 Brabant, The [1967] 1 QB 588, [1966] 2 WLR 909, [1965] 2 Lloyd’s Rep 546...2.80 Braganza v BP Shipping Ltd [2015] UKSC 17, [2015] 1 WLR 1661, [2015] 4 All ER 639.........................................................................................................4.191 Brandt v Liverpool, Brazil & River Plate Steam Navigation Co Ltd [1924] 1 KB 575, (1923-4) 17 Ll L Rep 142, CA...........................................................5.55 Bravo Maritime (Chartering) Est v Alsayed Abdullah Mohamed Baroom (The Athinoula) [1980] 2 Lloyd’s Rep 481.............................................................2.40 Bridge v Campbell Discount Co Ltd [1962] AC 600, [1962] 2 WLR 439, [1962] 1 All ER 385, HL.......................................................... 1.5; 3.102; 4.88, 4.300 Brigden v American Express Bank Ltd [2000] IRLR 94, QBD..................... 3.131, 3.141 xxxii xxxii

Table of cases Britain & Overseas Trading (Bristles) Ltd v Brooks Wharf & Bull Wharf Ltd [1967] 2 Lloyd’s Rep 51, QBD........................................................................5.56 British Airports Authority v British Airways Board (The Times, 7 May 1981).....3.280 British Broadcasting Corporation v Johns [1965] Ch 32, [1964] 2 WLR 1071, [1964] 1 All ER 923, CA...................................................................................3.13 British Crane Hire Coporation Ltd v Ipswich Plant Hire Ltd [1975] QB 303, [1974] 2 WLR 856, [1974] 1 All ER 1059, CA............................... 1.84, 1.105, 1.106 British Fermentation Products Ltd v Compair Reavell Ltd [1999] 2 All ER (Comm) 389, [1999] BLR 352, 66 Con LR 1, QBD (TCC)......... 2.42; 3.107, 3.108, 3.114, 3.128, 3.246, 3.269, 3.282 British Sugar plc v Nei Power Projects Ltd (1997) 87 BLR 42, [1998] Info TLR 353, (1998) 14 Const LJ 365, CA.................................................... 2.197, 2.199 British Telecommunications plc v James Thomson & Sons (Engineers) Ltd [1999] 1 WLR 9, [1998] 2 All ER 241, 1999 SC (HL) 9, HL.........................5.41 Britvic Soft Drinks v Messer UK Ltd [2002] EWCA Civ 548, [2002] 2 All ER (Comm) 321, CA........................................................................... 3.222, 3.267, 3.268 Brown v Drake International Ltd & Southampton Cargo Containers [2004] EWCA Civ 1629................................................................................................2.88 Browner International Ltd v Monarch Shipping Co Ltd (The European Enterprise) [1989] 2 Lloyd’s Rep 185, QBD (Comm Ct)..............................3.35 Bryen & Langley v Boston [2004] EWHC 2450, 98 Con LR 82 (TCC)........ 4.161, 4.172 Bryen & Langley v Boston [2005] EWCA Civ 973............................... 4.69, 4.201, 4.202, 4.398 BskyB Ltd v HP Enterprise Services UK Ltd (formerly t/a Electronic Data Systems Ltd) [2010] EWHC 86 (TCC), [2010] 1 WLUK 491, [2010] BLR 267............................................................................................................... 2.161; 6.12 Building & Civil Engineering Holidays Management Scheme Ltd v Clark [1960] TR 1, 53 R&IT 141, (1960) 39 TC 12..................................................3.13 Building Services (London) Ltd v Kerryredd Engineering Ltd (unreported, 12 April 1991), CA...........................................................................................3.72 Burnett v Westminster Bank Ltd [1966] 1 QB 742, [1965] 3 WLR 863, [1965] 3 All ER 81.................................................................................................... 1.43, 1.59 Butler v Hearne (1810) 2 Camp 415......................................................................1.53 Byrne v Tibsco Ltd. see Courage Ltd v Crehan C C & E Comrs v Fisher (Lord) [1981] 2 All ER 147, [1981] STC 238................ 3.12, 3.13 CF Asset Finance Ltd v Okonji [2014] EWCA Civ 870, [2014] 6 WLUK 678, [2014] ECC 23............................................................................ 1.18, 1.21, 1.32, 1.35 CNM Estates (Tolworth Tower) Ltd v Vecref I Sarl [2020] EWHC 1605 (Comm), [2020] 6 WLUK 304, [2020] 2 CLC 243........................................2.196 Cahalne v Croydon London Borough Council (1985) 149 JP 561, (1985) 4 Tr L 199, DC..........................................................................................................3.13 Caledonia North Sea Ltd v Norton Ltd (No 2) [2002] UKHL 4, [2002] 1 All ER (Comm) 321, [2002] 1 Lloyd’s Rep 553, [2002] Lloyd’s Rep IR 261, HL..................................................................................................... 2.42, 2.58, 2.200, 2.214 Camarata Property Inc v Credit Suisse Securities (Europe) Ltd [2011] EWHC 479 (Comm), [2011] 3 WLUK 279, [2011] 2 BCLC 54......................... 2.193, 2.196 xxxiii xxxiii

Table of cases Canada Steamship Lines Ltd v R [1952] AC 192, [1952] 1 All ER 305, [1952] 1 Lloyd’s Rep 1, PC................................................................... 2.64, 2.68, 2.69, 2.71, 2.72, 2.73, 2.76, 2.77, 2.78, 2.79, 2.80, 2.81, 2.82, 2.83, 2.84, 2.85, 2.87, 2.88, 2.92, 2.94, 2.98, 2.101, 2.102, 2.103, 2.104, 2.105, 2.106, 2.107, 2.183; 3.67; 6.4, 6.5, 6.6; 7.18, 7.19, 7.19 Cape Brandy Syndicate v IRC [1921] 2 KB 403, 12 Tax Cas 358..........................3.14 Capes (Hatherden) Ltd v Western Arable Services Ltd [2009] EWHC 3065 (QB), [2010] 1 Lloyd’s Rep 477, [2009] 11 WLUK 630................................1.95 Capita (Banstead 2011) Ltd v RFIB Group Ltd [2014] EWHC 2197 (Comm), [2014] 7 WLUK 164, [2014] All ER (D) 112 (Jul).................................. 2.76, 2.104 Carlisle & Cumberland Banking Co v Bragg [1911] 1 KB 489, 80 LJKB 472, 104 LT 121........................................................................................................1.39 Carlisle & Silloth Golf Club v Smith [1913] 3 KB 75, 29 TLR 508, 6 TC 198......3.13 Carnoustie Golf Course Committee v IRC 1929 SC 419, 14 TC 498....................3.13 Casehub Ltd v Wolf Cola Ltd [2017] EWHC 1169 (Ch), [2017] 5 WLUK 493, [2017] 5 Costs LR 835.............................................................................. 4.120, 4.122 Casper Trader, The Sea Hancock Shipping Co Ltd v Deacon & Trysail (Private) Ltd (The Casper Trader) Caspiana, The see G H Renton & Co Ltd v Palmyra Trading Corpn of Panama (The Caspiana) Cassis de Dijon. see Rewe-Zentrale AG v Bundesmonopolverwaltung fur Branntwein Caterpillar (NI) Ltd (formerly FG Wilson (Engineering) Ltd) v John Holt & Co (Liverpool) Ltd see FG Wilson (Engineering) Ltd v John Holt & Co (Liverpool) Ltd Cavanagh v Secretary of State for Work & Pensions [2016] EWHC 1136 (QB), [2016] 5 WLUK 302, [2016] ICR 826.............................................................5.7 Cavendish Square Holding BV v Talal El Makdessi; ParkingEye Ltd v Beavis see Makdessi v Cavendish Square Holdings BV Cavendish Woodhouse Ltd v Manley (1984) 82 LGR 376, (1984) 148 JP 299, [1984] Crim LR 239, DC........................................................................... 3.70, 3.189 Ceval Alimentos SA v Agrimpex Trading Co (The Northern Progress) (No 2) [1996] 2 Lloyd’s Rep 319, [1996] CLC 1529, QBD (Comm Ct)...... 1.47, 1.64, 1.79 Chanter v Hopkins (1838) 4 M&W 399, 8 LJ Ex 14, 3 Jur 58................................2.113 Chapelton v Barry UDC [1940] 1 KB 532, [1940] 1 All ER 536, 38 LGR 149, CA......................................................................................................... 1.58, 1.59, 1.60 Chapman v Aberdeen Construction Group plc (1990) 27 Feb, Lexis.................3.103 Chapman v Aberdeen Construction Group plc [1991] IRLR 505, Ct of Sess (IH)...................................................................................................................3.198 Charles M Willie & Co (Shipping) Ltd v Ocean Laser Shipping Ltd (The Smaro) [1999] 1 Lloyd’s Rep 225, [1999] CLC 301, QBD (Comm Ct).......2.2 Charlotte Thirty Ltd & Bison Ltd v Croker Ltd (1990) 24 Con LR 46, (Off Ref)............................................................................................ 1.2, 1.13; 2.19, 2.135; 3.95, 3.171, 3.246, 3.271 xxxiv xxxiv

Table of cases Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101, [2009] 4 All ER 677............................................................................ 2.5, 2.205 Charterhouse Credit Co Ltd v Tolly [1963] 2 QB 683, [1963] 2 WLR 1168, [1963] 2 All ER 432, CA...................................................................................2.114 Chester Grosvenor Hotel Co Ltd v Alfred McAlpine Management Ltd (1991) 56 Build LR 115, Off Ref............................................................... 3.95, 3.106, 3.109, 3.132, 3.211, 3.215, 3.257, 3.261 Chevalier Roze, The see Neptune & Orient Line v JVC (UK) Ltd (The Chevalier Roze) Cheverney Consultants Ltd v Whitehead Mann Ltd [2005] EWHC 2431 (Ch), [2007] All ER (D) 103 (Dec), Lawtel 15.11.05............................ 2.135, 2.142, 2.145 Chevron International Oil Co Ltd v A/S Sea Team (The TS Havprins) [1983] 2 Lloyd’s Rep 356, [1983] Com LR 172.................................................... 1.84, 1.111 Christmas v Taylor Woodrow Civil Engineering Ltd [1997] 1 Lloyd’s Rep 407, QBD (Comm Ct)..............................................................................................2.40 Cia Portorafti Commerciale SA v Ultramar Panama Inc (The Captain Gregos) (No 1) [1990] 3 All ER 967, [1990] 1 Lloyd’s Rep 310, [1989] 12 WLUK 218.....................................................................................................................2.110 Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Lloyd’s Rep 427, CA............................................................................... 1.46, 1.47, 1.49, 1.52, 1.53, 1.64, 1.79, 1.84, 1.85, 1.87, 1.89, 1.92, 1.99, 1.106, 1.107, 1.108, 1.109; 2.186, 2.188, 2.192 Circuit Systems Ltd (In Liquidation) & Baston v Zuken-Redac (UK) Ltd (1995) 42 Con LR 120, 71 BLR 106, (1995) 11 Const LJ 201, (OR)............3.213 Civil & Marine Slag Cement Ltd v Cambrian Stone Ltd (unreported, 8 June 2000) QBD (TCC)............................................................................................2.197 City & Equitable Fire Insurance Co Ltd, Re [1925] Ch 407, 94 LJ Ch 445, [1924] All ER Rep 485, CA...................................................................... 2.186, 2.188 City Equitable Fire Insurance Co, Re [1925] Ch 407, [1924] All ER (Rep 485, [1924] 7 WLUK 41...........................................................................................7.28 Clark Boyce v Mouat [1994] 1 AC 428, [1993] 3 WLR 1021, [1993] 4 All ER 268, PC..............................................................................................................7.32 Clarke v Clarke’s Trustees 1925 SC 693..................................................................7.4 Clydebank Engineering & Shipbuilding Co v Don Jose Ramas Yzquiro y Castenada [1912] AC 368................................................................................4.300 Coats Patons (Retail) Ltd v Birmingham Corpn (1971) 69 LGR 356, 115 SJ 757.....................................................................................................................2.94 Coca-Cola Financial Corpn v Finsat International Ltd [1998] QB 43, [1996] 3 WLR 849, [1996] 2 Lloyd’s Rep 274, [1996] CLC 1564, CA...... 2.178, 2.180, 2.184 Cockerton v Naviera Aznar SA [1960] 2 Lloyd’s Rep 450, QBD..... 1.43, 1.52, 1.53, 1.67 Cohen v Brantford (unreported, 8 December 1987)............................................2.80 Collins v Howell-Jones [1981] EGD 207, CA..........................................................6.26 Commercial Management (Investments) Ltd v Mitchell Design & Construct Ltd [2016] EWHC 76 (TCC), [2016] 1 WLUK 306, 164 Con LR 139.. 3.278, 3.284 Comr for the New Towns v Cooper (Great Britain) Ltd [1995] Ch 259, [1995] 2 WLR 677, [1995] 2 All ER 929, CA..............................................................1.13 xxxv xxxv

Table of cases Connaught Restaurants Ltd v Indoor Leisure Ltd [1994] 1 WLR 501, [1994] 4 All ER 834, [1993] NPC 118, CA............................................................. 2.178, 2.179 Constructora Principado SA Jose Ignacio Menendz Alvarez (Case C-226/12) [2014] 1 All ER (Comm) 385, [2014] 1 WLUK 197......................................4.211 Continental Illinois National Bank & Trust Co of Chicago v Papanicolaou (The Fedora) [1986] 2 Lloyd’s Rep 441, [1986] FLR 373, (1986) 83 LS Gaz 2569, CA....................................................................................... 2.85, 2.183; 6.5 Cooke v T Wilson, Sons & Co Ltd (1915) 85 LJKB 888........................... 1.51, 1.52, 1.53 Coomber v Coomber [1911] 1 Ch 723, 80 LJ Ch 999, 104 LT 517, CA...............7.2 Cooper v Tamms [1988] 1 EGLR 257, DC........................................................... 6.9, 6.10 Corfield v Sevenways Garage Ltd (1984) 148 JP 648, [1985] RTR 109, (1984) 148 JPN 621, QBD............................................................................................3.13 Cosgrove v Horsfall (1945) 62 TLR 140.................................................................5.18 Couchman v Hill [1947] KB 554, [1947] 1 All ER 103, [1948] LJR 295, CA........ 2.108, 2.109, 2.135 County & District Properties v Jenner (C) & Son [1976] 2 Ll LR 728, (1974) 3 Build LR 38, DC...............................................................................................2.46 Cox Plant Hire (London) Ltd v Dialbola (unreported, 21 December 1983)......3.112 Cremdean Properties v Nash (1977) 244 EG 547, [1977] EGD 63, CA........ 2.170; 3.55, 3.168, 3.190; 6.19, 6.22, 6.28 Crooks v Allan (1879) 5 QBD 38, 49 LJQB 201, 41 LT 800, QBD........................1.64 Croudace Construction Ltd v Cawoods Concrete Products Ltd [1978] 2 Lloyd’s Rep 55, [1978] 8 Build LR 20, CA........................2.197, 2.199, 2.204, 2.205 Cunard SS Co Ltd v Buerger [1927] AC 1, 96 LJKB 18, [1926] All ER Rep 103, HL.............................................................................................................2.116 Curtis v Chemical Cleaning & Dyeing Co Ltd [1951] 1 KB 805, [1951] 1 All ER 631, 95 SJ 253, CA.................................................................. 1.2, 1.10, 1.13, 1.60 Cyprotex Discovery Ltd v University of Sheffield [2004] EWCA Civ 380, [2004] RPC 44, CA...........................................................................................2.147 D Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd (The Kapitan Petko Voivoda) [2003] EWCA Civ 451, [2003] 1 All ER (Comm) 801, [2003] 2 Lloyd’s Rep 1, CA............................. 2.108, 2.112, 2.119, 2.121, 2.129, 2.130, 2.131 Daly v General Steam Navigation Co Ltd (The Dragon) [1979] 1 Lloyd’s Rep 257, QBD (Adm Ct).........................................................................................1.43 Darlington Borough Council v Wiltshier (Northern) Ltd [1995] 1 WLR 68, [1995] 3 All ER 895, (1995) 11 Const LJ 36, CA.......................................... 5.3, 5.45 Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 68 ALR 385, HCA......2.60 Daroga v Wells (unreported, 11 May 1994)...........................................................6.37 Datec Holdings v United Parcel Services [2005] EWHC 221 (Comm)................2.136 Davies v Collins [1945] 1 All ER 247, 114 LJKB 199, 61 TLR 218, CA.................2.116 Davies v Parry [1988] 1 EGLR 147, (1988) 20 HLR 452, [1988] 21 EG 74.... 3.71, 3.228 Davis v Garrett (1830) 6 Bing 716, 4 Moo & P 540, [1824-34] All ER Rep 286...2.116 Deepak Fertilisers & Petrochemical Corpn v Davy McKee (London) Ltd. see Deepak Fertilisers & Petrochemical Corpn v ICI Chemicals & Polymers Ltd Deepak Fertilisers & Petrochemical Corpn v ICI Chemicals & Polymers Ltd; sub nom Deepak Fertilisers & Petrochemical Corpn v Davy McKee (London) Ltd [1999] 1 All ER (Comm) 69, [1999] 1 Ll LR 387, [1999] BLR 41, CA.............................................................................2.19, 2.140, 2.197; 5.46 xxxvi xxxvi

Table of cases Degeld Options Ltd v Malook [1997] 6 Bank LR 1, QBD.....................................3.105 Dera Commercial Estate v Derya Inc (The Sur) [2018] EWHC 1673 (Comm), [2019] 1 All ER 1147, [2019] 1 All ER (Comm) 448............................. 2.130, 2.132 Derry v Peek (1889) 14 App Cas 337, 58 LJ Ch 864, [1886-90] All ER Rep 1, HL.....................................................................................................................7.21 Deutsche Genossenschaftsbank v Burnhope [1995] 1 WLR 1580, [1995] 4 All ER 717, [1996] 1 LL Rep 113, HL..................................................................2.1 Di Pinto (Patrice) (Criminal Proceedings Against) Case C-361/89 [1991] ECR I-1189, ECJ................................................................................... 4.48, 4.49, 4.53 Dies v British & International Mining & Finance Corp [1939] 1 KB 724, 108 LJKB 398, 160 LT 563, KBD............................................................................4.300 Dillon v Baltic Shipping Co Ltd (The Mikhail Lermontov) [1991] 2 Lloyd’s Rep 155, Sup Ct NSW.................................................................................. 1.43, 1.58 Director General of Fair Trading v First National Bank [2000] 1 WLR 98; revs’d [2000[ QB 672, [2000] 2 WLR 1353, [2000] 2 All ER 759; revs’d [2001] UKHL 52, [2002] 1 AC 481, [2001] 3 WLR 1297, [2002] 1 All ER 97, [2001] 2 All ER (Comm) 1000, HL................................. 1.73; 2.22, 2.25, 2.177; 4.70, 4.73, 4.78, 4.80, 4.81, 4.82, 4.83, 4.88, 4.91, 4.93, 4.96, 4.97, 4.101, 4.102, 4.158, 4.162, 4.167, 4.171, 4.173, 4.177, 4.185, 4.187, 4.188, 4.190, 4.194, 4.200, 4.201, 4.202, 4.204, 4.207, 4.212, 4.216 Dolphin Maritime & Aviation Services Ltd v Sveriges Angfartygs Assurans Forening [2009] EWHC 716 (Comm), [2010] 1 All ER (Comm) 473, [2009] 2 Lloyd’s Rep 123.................................................................................5.7 Don King Productions Inc v Warren [2000] Ch 291, [1999] 3 WLR 276, [1998] 2 All ER 608..........................................................................................5.45 Donoghue v Stevenson [1932] AC 562, 101 LJPC 119, 37 Com Cas 350.............3.77 Dorset County Council v Southern Felt Roofing Co Ltd (1989) 48 BLR 96, (1990) 6 Const LJ 37, (1990) 10 Tr LR 96, CA...............................................2.97 Dragon, The see Daly v General Steam Navigation Co Ltd (The Dragon) Dumitru Tarcau & Ileana Tarcau v Banca Comerciala Intesa Sanpaolo Romania SA (Case C-74/15) (Order of the Court, 6th Chamber, 10 November 2015)...............................................................................................4.59 Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79, 83 LJKB 1574, [1914-15] All ER Rep 739, HL............................................ 4.300; 5.1 du Plessis v Fontgary Leisure Parks Ltd [2012] EWCA Civ 409, [2012] 4 WLUK 2............................................................................................................4.155 Duty on Estate of Incorporated Council of Law Reporting for England & Wales, Re (1888) 22 QBD 279, DC..................................................................3.13 E E Scott (Plant Hire) Ltd v British Waterways Board (Lexis, 20 December 1982).......................................................................................... 1.84, 1.86; 2.19, 2.44, 2.74, 2.76, 2.77, 2.80, 2.82, 2.86, 2.94 EC Commission v Spain (Case C-70/03) [2004] ECR I-7999, ECJ... 4.134, 4.135, 4.154, 4.157 EE Caledonia Ltd v Orbit Valve plc [1994] 1 WLR 1515, [1995] 1 All ER 174, [1994] 2 Lloyd’s Rep 239, CA...........................................2.72, 2.79, 2.89, 2.94, 2.96 xxxvii xxxvii

Table of cases Eagle, The see Hollingworth v Southern Ferries Ltd (The Eagle) Eastern Kayam Carpets Ltd v Eastern United Freight Ltd (1983) 6 Dec, Lexis...... 1.84, 1.105 Eastman Chemical International AG v NMT Trading & Eagle Transport [1972] 2 Lloyd’s Rep 25...................................................................................1.84 Edmund Murray Ltd v BSP International Foundations Ltd (1993) 33 Con LR 1, CA......................................................................................... 2.19, 2.110; 3.50, 3.51, 3.95, 3.171, 3.210, 3.211, 3.215, 3.222, 3.231, 3.236, 3.250, 3.281, 3.282 Easyair Ltd (t/a Openair) v Opal Telecom Ltd [2009] EWHC 339 (Ch), [2009] 3 WLUK 2.............................................................................................2.146 Eiman v Waltham Forest LBC (1982) 90 ITSA MR 204.................................... 3.11, 3.13 Elbe Maru, The [1978] 1 Lloyd’s Rep 206, QBD (Comm Ct)..............................5.46 El Corte Ingles v Office for Harmonisation in the Internal Market (Trade Marks & Designs) (OHIM) (Case T-183/02) [2004] ECR II-965, [2004] 3 WLUK 488, [2004] ETMR 103........................................................................4.148 Elder Dempster & Co Ltd v Paterson, Zochonis & Co Ltd [1924] AC 522, 93 LJKB 625, 29 Com Cas 340, HL; [1923] 1 KB 420, CA........... 5.20, 5.21, 5.22, 5.35, 5.43 Electricity Supply Nominees Ltd v IAF Group plc [1993] 1 WLR 1059, [1993] 3 All ER 372, [1993] 37 EG 155..................................................... 2.178, 2.185; 3.27, 3.32 Elphinstone v Monkland Iron & Coal Co Ltd (1886) 11 App Cas 332, HL.........4.300 Elsey v J G Collins Insurance Agencies Ltd (1978) 83 DLR (3d) 1, Canadian Sup Ct...............................................................................................................4.300 Emmanuel C, The see Industrie Chimiche Italia Centrale SpA v Nea Ninemia Shipping Co SA (The Emmanuel C) Engelbach’s Estate, Re [1924] 2 Ch 348, 93 LJ Ch 616, [1923] All ER Rep 93, ChD...................................................................................................................5.45 Englefield Holdings Ltd, Re [1962] 1 WLR 1119, [1962] 3 All ER 503, 106 SJ 721.....................................................................................................................6.4 Ensign Tankers (Leasing) Ltd v Stokes [1992] 1 AC 655, [1992] 2 WLR 469, [1992] 2 All ER 275, HL..................................................................................3.13 Eridiana SpA v Oetker (The Fjord Wind) [2000] 2 All ER (Comm) 108, [2000] 2 Lloyd’s Rep 191, CA..........................................................................2.201 Essex County Council v UBB Waste (Essex) Ltd [2020] EWHC 1581 (TCC), [2020] 6 WLUK 245, [191 Con LR 77............................................................2.150 Esso Petroleum Co Ltd v Milton [1997] 1 WLR 938, [1997] 2 All ER 593, [1997] CLC 634, CA................................................................................. 2.178; 3.233 European Asian Bank AG v Punjab & Sind Bank [1982] 2 Lloyd’s Rep 356, [1982] Com LR 76, CA....................................................................................5.46 European Enterprise, The see Browner International Ltd v Monarch Shipping Co Ltd (The European Enterprise) Eurymedon, The see New Zealand Shipping Co Ltd v A M Satterthwaite & Co Ltd Evans v Glasgow District Council 1979 SLT 270................................................. 2.76, 2.86 Expo Fabrics (UK) Ltd v Naughty Clothing Ltd [2003] EWCA Civ 1165.... 3.222, 3.233 Exxonmobil Sales & Supply Corpn v Texaco Ltd [2003] EWHC 1964, [2004] 1 All ER (Comm) 435, [2003] 2 Lloyd’s Rep 686, QBD (Comm Ct)...........2.148 xxxviii xxxviii

Table of cases F FG Wilson (Engineering) Ltd v John Holt & Co (Liverpool) Ltd [2012] EWHC 2477 (Comm), [2013] 1 All ER (Comm) 223, [2012] 2 Lloyd’s Rep 479; revs’d [2013] EWCA Civ 1232, [2014] 1 WLR 2365, [2014] 1 All ER 785...............................................................................................................2.180 Fal Bunkering of Sharjah v Grecale of Panama [1990] 1 Lloyd’s Rep 369, QBD (Comm Ct)..............................................................................................1.105 Falco Finance Ltd v Gough (1999) 17 Tr LR 526, [1999] CCLR 16, Cty Ct (Macclesfield)............................................................................................... 4.78, 4.88 Famous Army Stores v Mechan [1993] 1 EGLR 73, [1993] 09 EG 111................2.179 Farnworth Finance Facilities v Attryde [1970] 1 WLR 1053, [1970] 2 All ER 774, 114 SJ 354, CA..........................................................................................2.114 Fastframe Franchises Ltd v Lohinski (unreported, 3 March 1993)....... 2.85, 2.179; 3.53 Fattal v Walbrook Trustees (Jersey) Ltd [2010] EWHC 2767 (Ch), [2010] 11 WLUK 98, [2012] Bus LR D7.................................................... 7.15, 7.16, 7.24, 7.25 Fedora, The see Continental Illinois National Bank & Trust Co of Chicago v Papanicolaou (The Fedora) Ferryways NV v Associated British Ports (The Humber Way) [2008] EWHC 225 (Comm), [2008] 2 All ER (Comm) 504, [2008] 1 Lloyd’s Rep 639........ 2.204, 2.205 Fillite Construction (Runcorn) Ltd v APV Pasilac Ltd (unreported, 22 April 1993), (Off Ref)............................................................................... 2.19, 2.108; 3.55, 3.123, 3.168, 3.180, 3.209, 3.215, 3.229, 3.240, 3.250, 3.253, 3.257 Financial Services Authority v Asset Ll Inc (t/a Asset Land Investment Inc) [2013] EWHC 178 (Ch), [2013] 2 WLUK 269, [2013] 2 BCLC 480............4.155 Fina Samco, The see International Fina Services AG v Katrina Shipping Ltd (The Fina Samco) Fiona, The see Mediterranean Freight Services Ltd v BP Oil International Ltd (The Fiona) Firestone Tyre & Rubber Co Ltd v Vokins & Co Ltd [1951] 1 Lloyd’s Rep 32, KBD...................................................................................................................2.108 First National Commercial Bank plc v Loxleys (A Firm) [1997] PNLR 211, [1996] NPC 158, (1996) 141 Sol Jo LB 6................................ 3.68, 3.85, 3.87, 3.210 First Tower Trustees Ltd v CDS (Superstores International) Ltd [2018] EWCA Civ 1396, [2019] 1 WLR 637, [2018] 6 WLUK 334...................... 3.226, 3.239; 6.16, 6.17, 6.19, 6.21, 6.23, 6.23 Fjord Wind, The see Eridiana SpA v Oetker (The Fjord Wind) Flamar Interocean Ltd v Denmac Ltd (The Flamar Pride & Flamar Progress) [1990] 1 Lloyd’s Rep 434, QBD (Comm Ct)................................ 3.72, 3.211, 3.237, 3.261 Flamar Pride & Flamar Progress, The see Flamar Interocean Ltd v Denmac Ltd (The Flamar Pride & Flamar Progress) Fletcher v Fletcher (1844) 4 Hare 67, 14 LJ Ch 66, 67 RR 6.................................5.45 Fletcher v Krell (1872) 42 LJQB 55........................................................................1.13 Food Co UK LLP (t/a Muffin Break) v Henry Boot Developments Ltd [2010] EWHC 358 (Ch), [2010] 3 WLUK 85..................................... 3.225, 3.239; 6.3, 6.16 xxxix xxxix

Table of cases Forder v Great Western Rly Co [1905] 2 KB 532, 74 LJKB 871, 93 LT 344. 2.186, 2.189 Fosbroke-Hobbes v Airwork Ltd (1936) 56 Ll L Rep 209, (1936) 53 TLR 254, KBD...................................................................................................................1.58 Foster, Re [1938] 3 All ER 357, 82 Sol Jo 584, 54 TLR 993, ChD.........................5.45 Foster v Mackinnon (1869) LR 4 CP 704, 38 LJCP 310, 17 WR 1105, CCP.........1.18 Frans Maas (UK) Ltd v Samsung Electronics (UK) Ltd [2004] EWHC 1502 (Comm), [2004] 2 Lloyd’s Rep 251.............................................. 2.61; 3.215, 3.244, 3.288 Fraser River Pile & Dredge Ltd v Can Dive Services Ltd [2000] 1 Lloyd’s Rep 199, Can Sup Ct............................................................................................ 5.23, 5.36 Fraser v BN Furman (Productions) Ltd [1967] 2 Lloyd’s Rep 153......................2.195 Fred Chappell Ltd v National Car Parks Ltd (The Times, 22 May 1987)....... 3.53, 3.288 Freiburger Kommunalbauten GMBH Baugesellschaft & Co KG v Hofstetter Case C-237/02 [2004] 2 CMLR 13, ECJ...................................... 4.172, 4.195, 4.202, 4.203 G GH Renton & Co Ltd v Palmyra Trading Corpn of Panama (The Caspiana) [1957] AC 149, [1957] 2 WLR 45, [1956] 3 All ER 957, HL.........................2.117 GMAC Commercial Credit Development Ltd v Sandhu [2004] EWHC 716 (Comm), [2006] 1 All ER (Comm) 268, QBD (Comm Ct).................... 2.169; 6.14 Gallagher Ltd v British Road Services & Containerway & Roadferry Ltd [1974] 2 Lloyd’s Rep 440........................................................................... 2.86, 2.108 Gallie v Lee. see Saunders (formerly Gallie) v Anglia Building Society Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd [2001] EWCA Civ 1047, [2001] 2 All ER (Comm) 299, [2001] 7 WLUK 28........................................2.8 Gandy v Gandy (1885) 30 Ch D 57, 54 LJ Ch 1154, [1881-5] All ER Rep 376, CA......................................................................................................................5.1 Garbis Maritime Corpn v Philippine National Oil Co [1982] 2 Lloyd’s Rep 283.....................................................................................................................1.79 Garden Neptune Shipping Ltd v Occidental Worldwide Investment Corp & Concord Petroleum Corp [1990] 1 Lloyd’s Rep 330, CA............................ 6.2, 6.27 Garnham, Harris & Elton Ltd v Alfred W Ellis (Transport) Ltd [1967] 1 WLR 940, [1967] 2 All ER 940, [1967] 2 Lloyd’s Rep 22, QBD.............................2.116 Geier (orse Braun) v Kujawa Weston & Warne Bros (Transport) Ltd [1970] 1 Lloyd’s Rep 364, QBD......................................................................................1.51 Geldof Mataalconstructie NV v Simon Carves Ltd [2010] EWCA Civ 667, [2010] 4 All ER 847, [2011] 1 Lloyd’s Rep 517..............................................2.182 George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1981] 1 Lloyd’s Rep 576; aff;d [1983] 1 All ER 108; aff;d [1983] 2 AC 803, [1983] 3 WLR 163, [1983] 2 All ER 737, HL................................................... 2.18, 2.19, 2.58, 2.60, 2.71, 2.72, 2.110, 2.114, 2.115, 2.118; 3.64, 3.157, 3.209, 3.219, 3.221, 3.222, 3.251, 2.252; 3.260, 3.263, 3.273, 3.274, 3.275, 3.280 Geys v Societe Generale London Branch [2003] UKSC 63, [2013] 1 AC 523, [2013] 2 WLR 50........................................................................................ 2.101; 7.19 xl xl

Table of cases Gibaud v Great Eastern Rly Co [1921] 2 KB 426, 90 LJKB 535, [1921] All ER Rep 35, CA........................................................................................................2.116 Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689, [1973] 3 WLR 421, [1973] 3 All ER 195, HL................................. 2.152, 2.178 Gillespie Bros & Co Ltd v Roy Bowles Transport Ltd [1973] 1 QB 400, [1972] 3 WLR 1003, [1973] 1 All ER 193, CA..................................... 2.72, 2.82, 2.83, 2.86, 2.87; 2.102 Glebe Island Terminals Pty Ltd v Continental Seagram Pty Ltd [1994] 1 Lloyd’s Rep 213, Sup Ct NSW..........................................................................2.110 Glynn v Margetson & Co [1893] AC 351, 62 LJQB 466, 1 R 193, HL............ 2.40, 2.117, 2.121, 2.123 Goff v Gauthier (1991) 62 P & CR 388, ChD.........................................................6.27 Golden Leader, The see Mineralimportexport v Eastern Mediterranean Maritime Ltd (The Golden Leader) Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371, [2017] 6 WLUK 314, [2018] BLR 491.................................................. 1.42, 1.63, 1.64, 1.65, 1.66, 1.68, 1.70, 1.74; 3.215, 3.216, 3.219, 3.220, 3.221, 3.234, 3.240, 3.258, 3.258, 3.261, 3.268, 3.270, 3.271, 3.272, 3.294, 3.295 Gore v Van der Lann [1967] 2 QB 31, [1967] 2 WLR 358, [1967] 1 All ER 360, CA..............................................................................................................5.46 Graham v Belfast & Northern Counties Rly Co [1901] 2 IR 13............................2.186 Granville Oil & Chemicals Ltd v Davis Turner & Co Ltd [2003] EWCA Civ 570, [2003] 1 All ER (Comm) 819, [2003] 2 Lloyd’s Rep 356, CA.......... 3.51, 3.64, 3.215, 3.217, 3.222, 3.249 Great Elephant Corpn v Trafigura Beheer BV (The Crudesky) [2012] EWHC 1745 (Comm), [2013] 1 All ER (Comm) 415, [2012] 2 Lloyd’s Rep 503...... 2.155, 2.156 Great Scottish & Western Ry Co Ltd v BRB (1998) 6 Feb, Lexis (Off Ref)............ 3.215, 3.250, 3.260 Great Western Rly v Bristol Corpn (1918) 87 LJ Ch 414, (1918) 16 LGR 393, 82 JP 233, HL....................................................................................................2.1 Greaves & Co (Contractors) Ltd v Baynham Meikle & Partners [1975] 1 WLR 1095, [1975] 3 All ER 99, [1975] 2 Lloyd’s Rep 325, CA...............................3.76 Greenalls Management Ltd v Smith. see Courage Ltd v Crehan Grill v General Iron Screw Colliery Co (1866) 35 LJCP 321, LR 1 CP 600, (1866) 14 LT 711..............................................................................................2.194 Grimstead v McGarrigan (unreported, 27 October 1999).................. 2.167, 2.168; 6.11, 6.13 Grogan v Meredith Plant Hire & Triact Civil Engineering Ltd (1996) 15 Tr LR 371, 53 Con LR 87, [1996] CLC 1127, CA............................. 1.7, 1.8, 1.9, 1.15, 1.44 Gruber v Bay Wa AG (Case C-464/01) [2006] QB 204, [2006] 2 WLR 205, [2005] ECR I-439................................................................................. 4.44, 4.53, 4.55 Gut Springenheide GmbH Oberkreisdirektor des Kreises Steinfurt-Amt fur Lebensmitteluberwachung (Case C-210/96) [1998] ECR I-4657, [1998] 7 WLUK 352, [1999] 1 CMLR 1383...................................................................4.148 xli xli

Table of cases H H Glynn (Covent Garden) Ltd v Wittleder [1959] 2 Lloyd’s Rep 409, QBD (Comm Ct)................................................................................................... 1.48, 1.57 HIH Casualty & General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6, [2003] 1 All ER (Comm) 349, [2003] 2 Lloyd’s Rep 61, [2003] Lloyd’s Rep IR 230, HL............................................................. 2.62, 2.69, 2.78, 2.79, 2.101, 2.102, 2.103, 2.104; 6.2, 6.3 HIH Casualty & General Insurance Ltd v New Hampshire Ins Co [2001] EWCA Civ 735, [2001] 2 All ER(Comm) 39, [2001] 2 Lloyd’s Rep 161, CA.................................................................................................................. 1.15, 1.64 Hadley Design Associates Ltd v Westminster LBC [2003] EWHC 1617 (TCC)....... 2.39; 3.107, 3.109, 3.114, 3.120, 3.124, 3.141 Hadley v Baxendale (1854) 9 Ex 341, [1843-60] All ER Rep 461, 23 LJ Ex 179.... 2.197, 2.198, 2.199, 2.201, 2.203, 2.204, 2.205, 2.208, 2.214 Hain Steamship Co Ltd v Tate & Lyle Ltd [1936] 2 All ER 597, (1936) 41 Com Cas 350, 80 Sol Jo 68, HL.................................................... 2.116, 2.127, 2.128, 2.129, 2.130, 2.131, 2.132 Hair & Skin Trading Co Ltd v Norman Air Freight Carriers Ltd [1974] 1 Lloyd’s Rep 443, QBD.................................................................................. 2.94, 2.99 Halloway v Cuozzo (Lexis, 9 February 1999), CA................................. 3.87, 3.265, 3.269 Halsall v Champion Consulting Ltd [2017] EWHC 1079 (QB), [2017] STC 1958, [2017] 5 WLUK 463...............................................................................3.256 Hamad M Aldrees & Partners v Rotex Europe Ltd (Company No 04307924) [2019] EWHC 574 (TCC), [2019] 3 WLUK 247, [2019] TCLR 3... 1.42, 1.55, 1.78, 1.79, 1.96, 1.102 Hamed El Chiaty & Co v Thomas Cook Group Ltd [1992] 1 Lloyd’s Rep 399, The Financial Times, 22 May 1992..................................................................2.1 Hancock Shipping Co Ltd v Deacon & Trysail (Private) Ltd (The Casper Trader) [1991] 2 Lloyd’s Rep 550, QBD (Comm Ct).............. 2.89; 3.91, 3.92, 3.93 Harbutt’s “Plasticine” Ltd v Wayne Tank & Pump Co Ltd [1970] 1 QB 447, [1970] 2 WLR 198, [1970] 1 All ER 225, CA..................................................2.110 Hardwick Game Farm v Suffolk Agricultural & Poultry Producers’ Association. see Henry Kendall & Sons v William Lillico & Sons Ltd Hardy v Griffiths [2014] EWHC 3947 (Ch), [2015] Ch 417, [2015] 2 WLR 1239...................................................................................................................3.239 Harling v Eddy [1951] 2 KB 739, [1951] 2 All ER 212, 95 SJ 501, CA.......... 1.58; 2.108, 2.109, 2.135 Harlingdon & Leinster Enterprises v Christopher Hull Fine Art Ltd [1991] 1 QB 564, [1990] 3 WLR 13, [1990] 1 All ER 737, CA............................. 3.188, 3.189 Harris v Great Western Rly Co (1876) 1 QBD 515, 45 LJQB 729, 34 LT 647.......1.45 Harrison v Shepherd Homes Ltd [2011] EWHC 1811 (TCC), [2011] 7 WLUK 273, (2011) 27 Const LJ 709......................................................... 2.150, 2.151, 2.152 Harrison v Wright (1811) 13 East 343....................................................................4.300 Hartman v P&O Cruises (1998) Consum LJ 395...................................................4.318 Harvey v Dunbar Assets plc [2017] EWCA Civ 60, [2017] Bus LR 784, [2017] 2 WLUK 324.....................................................................................................4.60 xlii xlii

Table of cases Harvey v Ventilatoren-Fabrik Oelde Gmbh (1988) 8 Tr L 138, The Financial Times, 11 November 1988, CA...................................................... 1.2, 1.8, 1.10, 1.11 Haseldine v C A Daw & Sons Ltd [1941] 2 KB 343, [1941] 3 All ER 156, 111 LJKB 45, CA......................................................................................................5.54 Havering London Borough Council v Stevenson [1970] 1 WLR 1375, [1971] RTR 58; sub nom London Borough of Havering v Stevenson [1970] 3 All ER 609, DC.......................................................................................................3.15 Hedley Byrne & Co v Heller & Partners [1964] AC 465, [1963] 3 WLR 101, [1963] 2 All ER 575, HL..................................................................................3.77 Hellespont Ardent, The see Red Sea Tankers Ltd v Papachristides (The Hellespont Ardent) Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, [1994] 3 WLR 761, [1994] 3 All ER 506, HL....................................................................... 3.85; 7.2, 7.32 Henderson v Stevenson (1875) LR 2 Sc & Div 470, (1875) 2 R (HL) 71, 39 JP 596, HL......................................................................................................... 1.52, 1.53 Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31, [1968] 3 WLR 110, 112 SJ 562, HL; sub nom Hardwick Game Farm v Suffolk Agricultural & Poultry Producers’ Association [1966] 1 WLR 287, [1966] 1 All ER 309, [1966] 1 Lloyd’s Rep 197, CA............................ 1.84, 1.85, 1.87, 1.89, 1.90, 1.92, 1.99, 1.109 Henson v London & North Eastern Rly Co [1946] 1 All ER 653, (1946) 62 TLR 369............................................................................................................1.58 Higgins & Co Lawyers v Evans [2019] EWHC 2809 (QB), [2020] 1 WLR 141, [2019] 10 WLUK 393.......................................................................................4.155 Hinks v Fleet (t/a Silver Sands Caravan Park) [1986] 2 EGLR 243, CA.......... 2.51, 2.87 Hinton v Dibbin (1842) 2 QB 646..........................................................................2.193 Hodges v Aegis Defence Services (BVI) Ltd [2014] EWCA Civ 1449, [2014] 11 WLUK 297...................................................................................................3.221 Hollier v Rambler (AMC) Motors Ltd [1972] 2 QB 71, [1972] 2 WLR 401, [1972] 1 All ER 399, CA.......................................................... 1.84, 1.93, 1.106; 2.73, 2.74, 2.97 Hollingworth v Southern Ferries Ltd (The Eagle) [1977] 2 Lloyd’s Rep 70, QBD........................................................................................... 1.43, 1.45, 1.47, 1.53, 1.64, 1.74 Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2003] UKHL 12, [2004] 1 AC 715, [2003] 2 All ER 785......................................................5.46 Hone v Benson (1978) 248 EG 1013......................................................................2.94 Hong Kong & Shanghai Banking Corpn v Kloeckner & Co AG [1990] 2 QB 514, [1990] 3 WLR 634, [1989] 3 All ER 513.................................................2.178 Hood v Anchor Line (Henderson Bros) Ltd [1918] AC 837, 1918 SC (HL) 143, [1918-19] All ER Rep 98, HL...........................1.46, 1.49, 1.52, 1.53, 1.60, 1.64 Horabin v British Overseas Airways Corpn [1952] 2 All ER 1016, [1952] 2 Lloyd’s Rep 450, 96 SJ 803............................................................ 2.186, 2.187, 2.191 Horsfall v Thomas (1862) 1 H&C 90, 2 F&F 785, 31 LJ Ex 322............................1.12 Hotel Aida Opera SARL v Golden Tulip Worldwide BV [2004] EWHC 1012 (QB), [2004] All ER (D) 74 (May), QBD............................................... 2.136, 2.143 Hotel Services Ltd v Hilton International Hotels (UK) Ltd [2000] 1 All ER (Comm) 750, [2000] BLR 235, CA.................................................................2.197 Howard Marine & Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd [1978] QB 574, [1978] 2 WLR 515, [1978] 2 All ER 1134, CA.....................6.6, 6.7 xliii xliii

Table of cases Howatson v Webb [1907] 1 Ch 537, ChD; aff’d [1908] 1 Ch 1, 77 LJ Ch 32, 97 LT 730, CA.................................................................................................... 1.18, 1.27 Howe v Smith (1884) 27 Ch D 89, 48 JP 773, [1881-5] All ER Rep 201, CA........4.300 Hughes v Hall [1981] RTR 430, (1981) 125 SJ 255, DC.................................. 3.70, 3.189 Hunt & Winterbotham (West of England) Ltd v British Road Services (Parcels) Ltd [1962] 1 QB 617, [1962] 2 WLR 172, [1962] 1 All ER 111, CA......................................................................................................................2.116 Hunter v Walters (1871) LR 7 Ch App 75, 41 LJ Ch 175, 20 WR 218..................1.18 Hut Group Ltd v Nobahar-Cookson [2016] EWCA Civ 128, [2016] 3 WLUK 592, [2016] 1 CLC 573............................................ 2.19, 2.42, 2.54, 2.55, 2.56, 2.57 Hyundai Heavy Industries Co v Papadopoulos [1980] 1 WLR 1129, [1980] 2 All ER 29, [1980] 2 Lloyd’s Rep 1, HL............................................................4.300 Hyundai Merchant Marine Co Ltd v Gesuri Chartering Co Ltd [1991] 1 Lloyd’s Rep 100, The Financial Times, 23 October 1990, CA.......................2.1 I IFE Fund SA v Goldman Sachs International [2006] EWHC 2887 (Comm), [2007] 1 Lloyd’s Rep 264, [2006] 11 WLUK 491.............................. 3.60, 3.65; 6.17 IRC v Raphael [1935] AC 96, 104 LJ Ch 24, [1934] All ER Rep 749, HL............2.1 IRC v Stonehaven Recreation Ground Trustees 1930 SC 206, 1930 SLT 141, 15 TC 419..........................................................................................................3.13 Impala Warehousing & Logistics (Shanghai) Co Ltd v Wanxiang Resources (Singapore) Pte Ltd [2015] EWHC 25 (Comm), [2015] 1 WLUK 193.... 1.54, 1.60 Industrie Chimiche Italia Centrale SpA v Nea Ninemia Shipping Co SA (The Emmanuel C) [1983] 1 All ER 686, [1983] 1 Lloyd’s Rep 310, [1983] Com LR 7.................................................................................... 2.41, 2.72, 2.90, 2.99 Inglis v John Buttery & Co (1878) 3 App Cas 552, 5 Ry 87, 15 SLR 462, HL.......2.1 Inntrepeneur Beer Supply Co Ltd v Byrne. see Courage Ltd v Crehan Inntrepeneur Beer Supply Co Ltd v Langton. see Courage Ltd v Crehan Inntrepeneur Pub Co (CPC) Ltd v Haigh. see Courage Ltd v Crehan Inntrepeneur Pub Co Ltd v East Crown Ltd [2000] 2 Lloyd’s Rep 611, [2000] 3 EGLR 31, [2000] 41 EG 209, ChD............  2.135, 2.136, 2.141, 2.160; 4.375; 6.36 Inntrepeneur Pub Co Ltd v Salisbury (unreported, 25 February 2000) QBD.....2.179 Interactive E-Solutions JLT v O3B Africa Ltd [2018] EWCA Civ 62, [2018] 1 WLUK 476, [2018] BLR 167............................................................................2.20 Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1988] 2 WLR 615, [1988] 1 All ER 348, (1988) 132 SJ 460, CA.................... 1.15, 1.47, 1.49, 1.62, 1.63, 1.64, 1.65, 1.66, 1.72, 1.74, 1.75; 2.38; 3.101; 4.147, 4.194; 5.71 Intermediate Ltd v Smith (unreported, 22 March 1991)......................................4.300 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, [1998] 1 All ER 98, [1998] 1 BCLC 531, HL.. 2.1, 2.3, 2.4, 2.7, 2.9, 2.17, 2.19, 2.35, 2.49, 2.50, 2.51, 2.52, 2.57, 2.58, 2.62, 2.64, 2.6, 2.70, 2.73, 2.75, 2.78, 2.79, 2.88, 2.101, 2.102, 2.103, 2.112, 2.118, 2.120, 2.200, 2.201; 3.147; 6.6; 7.14, 7.19 Ionia, The see Sudatlantic Navegacion SA v Devamar Shipping Corpn (The Ionia) Irbensky Proliv, The see Mitsubishi Corpn v Eastwind Transport Ltd (The Irbensky Proliv) xliv xliv

Table of cases J J Evans & Sons (Portsmouth) v Andrea Merzario Ltd [1976] 1 WLR 1078, [1976] 2 All ER 930, [1976] 2 Lloyd’s Rep 165, CA............................... 2.108, 2.135 J Gordon Alison & Co Ltd v Wallsend Shipway & Engineering Co Ltd (1927) 43 TLR 323.......................................................................................................2.42 J Lauritzen AS v Wijsmuller BV (The Super Servant Two) [1990] 1 Lloyd’s Rep 1, CA..........................................................................................................2.85 J Spurling Ltd v Bradshaw [1956] 1 WLR 461, [1956] 2 All ER 121, [1956] 1 Lloyd’s Rep 392, CA.................................................................. 1.47, 1.62, 1.64, 1.84, 1.111; 2.110, 2.116 JH Saphir (Merchants) Ltd v Zissimos (AL) Ltd [1960] 1 Lloyd’s Rep 490........1.2 JN Hipwell & Son v Szurek [2018] EWCA Civ 674.......................................2.133, 2.135, 2.149 JP Morgan Chase Bank v Springwell Navigation Corpn [2010] EWCA Civ 1221, [2010] 11 WLUK 17, [2010] 2 CLC 705...................... 2.164; 3.62, 3.63, 3.64, 3.65; 6.15, 6.16, 6.18 Jayaar Impex Ltd v Toaken Group Ltd (t/a Hicks Brothers) [1996] 2 Lloyd’s Rep 437, QBD (Comm Ct)..............................................................................1.78 Jogia (A Bankrupt), Re, ex p Trustee v Pennellier (D) & Co [1988] 1 WLR 484, [1988] 2 All ER 328, (1988) 132 SJ 536.............................................. 1.84, 1.92 John Carter (Fine Worsteds) Ltd v Hanson Haulage (Leeds) Ltd [1965] 2 QB 495, [1965] 2 WLR 553, [1965] 1 All ER 113, CA..........................................6.3 John Dee Group Ltd v WMH (21) Ltd (formerly Magnet Ltd) [1997] BCC 518, ChD...........................................................................................................2.178 Johnson Mathey Bankers Ltd v State Trading Corpn of India Ltd [1984] 1 Lloyd’s Rep 427, QBD (Comm Ct)............................................................. 1.84, 1.87 Johnstone v Bloomsbury Health Authority [1992] QB 333, [1991] 2 WLR 1362, [1991] 2 All ER 293, CA.................................................. 3.36, 3.55, 3.69, 3.75, 3.89, 3.168, 3.180 Jonathan Wren & Co Ltd v Microdec plc (1999) 65 Con LR 157, QBD (TCC)..1.15 Jones v Northampton Borough Council (The Times, 21 May 1990), CA......... 1.5, 1.10, 1.12; 2.72, 2.90; 3.91, 3.92, 3.211, 3.228, 3.237, 3.261 Jones v Roundlistic Ltd [2018] EWCA Civ 2284, [2019] 1 WLR 4461, [2018] 10 WLUK 333............................................................................................. 4.32, 4.38, 4.207 Joseph Travers & Son Ltd v Cooper [1915] 1 KB 73, 83 LJKB 1787, [1914-15] All ER Rep 104, CA...................................................................................... 2.91, 2.97 K KH Enterprise v Pioneer Containers (The Pioneer Container) [1994] 2 AC 324, [1994] 3 WLR 1, [1994] 2 All ER 250, PC............................................ 5.3, 5.43 K/S Victoria Street v House of Fraser (Stores Management) Ltd [2011] EWCA Civ 904.............................................................................................. 2.48, 2.50 Kapitan Petko Voivoda, The see Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd (The Kapitan Petko Voivoda) Karsales (Harrow) Ltd v Wallis [1956] 1 WLR 936, [1956] 2 All ER 866, 100 SJ 548, CA...................................................................................................... 2.110, 2.114 xlv xlv

Table of cases Kásler v OTP Jelzalogbank Zrt (Case C-26/13) [2014] 2 All ER (Comm) 443, [2014] Bus LR 664, [2014] 4 WLUK 830........................................ 4.73, 4.78, 4.106, 4.108, 4.109, 4.110, 4.113, 4.115, 4.116, 4.118, 4.119, 4.120, 4.123, 4.126, 4.127, 4.129, 4.130, 4.140, 4.141 Keeton Sons & Co Ltd v Carl Prior Ltd [1986] BTLC 30, CA.............. 1.49, 1.52; 3.250, 3.257, 3.271 Kelly v Cooper [1993] AC 205, [1992] 3 WLR 936, [1994] 1 BCLC 395, PC.......7.32 Kenya Rlys v Antares Co Pte Ltd (Nos 1 & 2) [1987] 1 Lloyd’s Rep 424, CA; (No 1) [1986] 2 Lloyd’s Rep 626, QBD (Comm Ct)................. 2.110, 2.129, 2.130, 2.131 Kenyon Son & Craven Ltd v Baxter Hoare & Co Ltd [1971] 1 WLR 519, [1971] 2 All ER 708, [1971] 1 Lloyd’s Rep 232...................................... 2.110, 2.188 Khurana v Webster Construction Ltd [2015] EWHC 758 (TCC), [2016] 1 All ER (Comm) 466, [2015] 3 WLUK 587........................................ 4.155, 4.158, 4.182 Kindlance Ltd v Murphy (Lexis, 12 December 1997)....................................... 4.78, 4.88 King v Smith [1900] 2 Ch 425, 69 LJ Ch 598, 82 LT 815.......................................1.18 Knox v Mackinnon (1888) 13 App Cas 753, HL....................................................7.4 Koufos v C Czarnikow Ltd (The Heron II) [1969] 1 AC 350, [1967] 3 WLR 1491, [1967] 3 All ER 686................................................................................2.201 L L Schuler AG v Wickman Machine Tools Ltd [1974] AC 235, [1973] 2 WLR 683, [1973] 2 All ER 39, HL............................................................................2.1 L Gent & Sons (a firm) v Eastman Machine Co Ltd [1986] BTLC 17, CA..........3.69 L’Estrange v F Graucob Ltd [1934] KB 394, 103 LJKB 730, 152 LT 164, KBD.. 1.2, 1.4, 1.10, 1.14, 1.17 Lacey’s Footwear (Wholesale) Ltd v Bowler International Freight Ltd [1997] 2 Lloyd’s Rep 369, The Times, 12 May 1997, CA.................... 1.45, 1.52, 1.74, 1.75; 2.19, 2.109, 2.185, 2.186, 2.189 Lacey’s Footwear (Wholesale) Ltd v Bowler International Freight Ltd (unreported, 17 March 1995), QBD........................................................... 1.78, 1.84 Laemthong International Lines Co Ltd v Artis [2005] EWCA Civ 519, [2005] 2 All ER (Comm) 167, [2005] 1 Lloyd’s Rep 688, CA.......................... 5.7, 5.8, 5.49 Lalji v Post Office Ltd [2003] EWCA Civ 1873, (unreported, 19 December 2003), CA.................................................................................................. 3.141, 3.154 Laminates Acquisition Co v BTR Australia Ltd [2003] EWHC 2540 (Comm), [2004] 1 All ER (Comm) 737, [2003] 10 WLUK 904....................................2.54 Lamport & Holt Lines Ltd v Coubro & Scrutton (M & I) Ltd (The Raphael) [1982] 2 Lloyd’s Rep 42, CA..................................................... 1.84; 2.19, 2.86, 2.90, 2.91, 2.96, 2.97, 2.98 Lazarus Estates Ltd v Beasley [1956] 1 QB 702, [1956] 2 WLR 502, [1956] 1 All ER 341.........................................................................................................6.2 Leach v Pogson (1962) 40 TC 585, [1962] TR 289, 41 ATC 298..........................3.13 Lease Management Services v Purnell Secretarial Services (1994) 13 Tr LR Rep 337, [1994] CCLR 127, The Times 1 April 1994, CA.... 3.19, 3.53, 3.95, 3.103, 3.132, 3.228 xlvi xlvi

Table of cases Leduc & Co v Ward (1888) 20 QBD 475, 57 LJQB 379, [1866-90] All ER Rep 266, CA..............................................................................................................2.117 Leigh & Sillivan Ltd v Aliakmon Shipping Co Ltd (The Aliakmon) [1986] AC 785, [1986] 2 WLR 902, [1986] 2 All ER 145, HL............................ 5.54, 5.55, 5.55 Levison v Patent Steam Carpet Cleaning Co Ltd [1978] QB 69, [1977] 3 WLR 90, [1977] 3 All ER 4987, CA...........................................................................1.2 Lewis v M’Kee (1869) LR 4 Exch 58.......................................................................1.64 Liberty Life Ins Co Ltd v Sheikh (The Times, 25 June 1985), CA...... 3.95, 3.103, 3.131, 3.153 Lictor Anstalt v MIR Steel UK Ltd; Mir Steel UK Ltd v Morris [2012] EWCA Civ 1397, [2013] 2 All ER (Comm) 54, [2012] 11 WLUK 31................ 2.101, 2.104 Lilley v Doubleday (1881) 7 QBD 510, 46 JP 708, [1881-5] All ER Rep 406........2.116 Lloyd v Brassey [1969] 2 QB 98, [1969] 2 WLR 310, [1969] 1 All ER 382, CA...3.11 Lloyd v Browning [2013] EWCA Civ 1637, [2013] 11 WLUK 29, [2014] 1 P & CR 11.................................................................................................................3.239 Lloyd’s Bank plc v Waterhouse [1993] 2 FLR 97, (1991) 10 Tr LR 161, [1991] Fam Law 23, CA......................................................................... 1.10, 1.18, 1.25, 1.28, 1.41 Lloyd’s v Harper (1880) 16 Ch D 290, 50 LJ Ch 140, 43 LT 481, CA...................5.45 London & North Western Rly Co v Neilson [1922] 2 AC 263, 91 LJKB 680, [1922] All ER Rep 395, HL..............................................................................2.116 London Borough of Havering v Stevenson. see Havering London Borough Council v Stevenson London Borough of Newham v Khatun [2004] EWCA Civ 55, [2005] 1 QB 37, [2004] 3 WLR 417, [2004] All ER (D) 386 (Feb), CA.............................4.61 London Drugs Ltd v Kuehne & Nagel International Ltd (1992) 97 DLR (4th) 261, [1992] 3 SCR 299, [1993] 1 WWR 1, Can Sup Ct............ 5.19, 5.23, 5.36, 5.51 Lotus Cars Ltd v Marcassus Sport Sarl [2019] EWHC 3128 (Comm), [2019] 11 WLUK 337........................................................................................... 2.179, 2.181 Lovell & Christmas Ltd v Wall (1911) 104 LT 85...................................................2.1 Lovell Projects Ltd v Legg & Carver [2003] BLR 452....................... 4.170, 4.175, 4.182, 4.201, 4.396, 4.398 Lovell Projects Ltd v Legg & Carver [2003] 1 BLR 487........................................4.172 Lowe v Lombank [1960] 1 WLR 196, [1960] 1 All ER 611, 104 SJ 210, CA........3.190 M MB Pyramid Sound NV v Briese Schiffahrt GmbH & Co KGMS “Sina” [1995] 2 Lloyd’s Rep 144, QBD (Comm Ct)..............................................................2.117 MDIS (formerly McDonnell Information Systems Ltd) v Swinbank; sub nom McDonnell Information Systems Ltd) v Swinbank [1999] 2 All ER (Comm) 722, [1999] CLC 1800, CA...............................................................2.201 McCarthy v George (unreported, 15 January 1991)................................... 6.9, 6.27, 6.35 McCrone v Boots Farm Sales Ltd 1981 SLT 103............................................ 3.105, 3.106 McCullagh v Lane Fox & Partners Ltd [1996] 1 EGLR 35, (1995) 49 Con LR 124, (1997) 61 Conv 229, CA................................................. 3.71, 3.77, 3.87, 3.271, 3.272 McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125, [1964] 1 All ER 430, [1964] 1 Lloyd’s Rep 16, HL...................................................... 1.5, 1.60, 1.83, 1.84, 1.86, 1.87, 1.89, 1.90, 1.99, 1.105, 1.107; 2.1 xlvii xlvii

Table of cases McDonnell Information Systems Ltd v Swinbank. see MDIS (formerly McDonnell Information Systems Ltd) v Swinbank McGeown v Direct Travel Insurance [2003] EWCA Civ 1606, [2004] 1 All ER (Comm) 609, [2004] Lloyd’s Rep IR 599, CA................................................2.52 McGrath v Shah (1987) 57 P & CR 452, The Times, 22 October 1987, ChD........ 2.170; 6.10, 6.28 Mahkutai, The [1996] AC 650, [1996] 3 WLR 1, [1996] 3 All ER 502, PC..... 5.18, 5.22, 5.23, 5.30, 5.31, 5.32, 5.33, 5.34, 5.39, 5.43 Makdessi v Cavendish Square Holdings BV [2015] UKSC 67, [2016] AC 1172, [2015] 3 WLR 1373...................................................................... 4.207, 4.212, 4.213, 4.214, 4.217, 4.218, 4.219, 4.220 Manchester Sheffield & Lincolnshire Rly v Brown (1883) 8 App Cas 703, 50 LT 281...............................................................................................................2.87 Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, [1997] 2 WLR 945, [1997] 3 All ER 352, HL............................................... 2.2, 2.49 Maple Leaf Macro Volatility Master Fund v Rouvroy [2009] EWHC 257 (Comm), [2009] 2 All ER (Comm) 287, [2009] 1 Lloyd’s Rep 475.............4.51 Marc Rich & Co AG v Bishop Rock Marine Co Ltd (The Nicholas H) [1996] AC 211, [1995] 3 WLR 227, [1995] 3 All ER 307, HL...................................5.41 Marex Financial Ltd v Creative Finance Ltd [2013] EWHC 2155 (Comm), [2014] 1 All ER (Comm) 122, [2013] 7 WLUK 786......................................3.270 Mark Rowlands Ltd v Berni Inns Ltd [1985] QB 211, [1985] 3 WLR 964, [1985] 3 All ER 473, CA............................................................................... 2.81, 2.83 Marlow (Gary) (t/a Crown Hotel) v Exile Productions Ltd [2003] EWHC 2631 (QB), [2004] LLR 83..............................................................................3.262 Martin v Lowry [1927] AC 312, 43 TLR 116, 11 Tax Cas 297, HL........................3.14 Marubeni Corpn v Sea Containers Ltd (unreported, 17 May 1995), QBD (Comm Ct)............................................................................................... 2.179, 2.181 Matei v SC Volksbank Romania SA (Case C-143/13) [2015] 1 WLR 2385, [2015] 2 WLUK 827......................................................................... 4.71, 4.73, 4.106, 4.107, 4.110, 4.111, 4.114, 4.115, 4.120, 4.123, 4.126, 4.129, 4.141 Mayfair Photographic Supplies (London) Ltd v Baxter Hoare & Co Ltd [1972] 1 Lloyd’s Rep 410, QBD......................................................................2.117 Mediterranean Freight Services Ltd v BP Oil International Ltd (The Fiona) [1994] 2 Lloyd’s Rep 506, The Times, 27 July 1994, CA...............................2.71 Megaphone International Ltd v British Telecommunications plc (unreported, 28 February 1989)............................................................................................3.141 Mendelssohn v Normand Ltd [1970] 1 QB 177, [1969] 3 WLR 139, [1969] 2 All ER 1215, CA....................................................................... 1.43, 1.48, 1.89, 1.106; 2.108 Mersey Shipping & Transport Co Ltd v Rea Ltd (1925) 21 Ll R 375, KBD.........5.35 Metaalhandel JA Magnum BV v Ardfields Transport Ltd [1988] 1 Lloyd’s Rep 197, [1987] 5 WLUK 173, [1987] 2 FTLR 319, DC.................................... 1.43, 1.93 Micklefield v SAC Technology Ltd [1990] 1 WLR 1002, [1991] 1 All ER 275, [1990] IRLR 218.................................................................................. 3.24, 3.25, 3.27 xlviii xlviii

Table of cases Mikhail Lermontov, The see Dillon v Baltic Shipping Co Ltd (The Mikhail Lermontov) Millar’s Machinery Co Ltd v Way & Son (1934) 40 Com Cas 204, CA........ 2.197, 2.204, 2.205 Mineralimportexport v Eastern Mediterranean Maritime Ltd (The Golden Leader) [1980] 2 Lloyd’s Rep 573, QBD (Comm Ct)...................... 2.77, 2.80, 2.97 Mitsubishi Corpn v Eastwind Transport Ltd (The Irbensky Proliv) [2004] EWHC 2924 (Comm), [2005] 1 All ER (Comm) 328, [2005] 1 Lloyd’s Rep 383, QBD (Comm Ct)............................................................ 2.63, 2.121, 2.122, 2.124 Monarch Airlines Ltd v London Luton Airport Ltd [1996] 1 Lloyd’s Rep 40.....3.261 Monarch Airlines Ltd v London Luton Airport Ltd [1998] 1 Lloyd’s Rep 403, [1997] CLC 698, QBD (Comm Ct).................................................. 2.80, 2.86; 3.102 Monika Kusionova v SMART Capital as (Case C-34/13) (judgment 10 September 2014)..............................................................................................4.27 Montgomerey Litho Ltd v Maxwell 2000 SC 56.....................................................1.15 Moorcock, The (1889) 14 PD 64, 58 LJP 73, [1886-90] All ER Rep 530, CA.......1.91 Moores v Yakely Associates Ltd (1998) 62 Con LR 76........................... 1.45, 1.46; 3.244, 3.256, 3.265 Morris v Breaveglen Ltd (unreported, 9 May 1997), CA.......................... 2.77, 2.81, 2.83 Morris v C W Martin & Sons Ltd [1966] 1 QB 716, [1965] 3 WLR 276, [1965] 2 All ER 725, CA...............................................................................................5.44 Mostaza Claro v Centro Movil Milenium SL (Case C-168/05) [2007] Bus LR 60, [2006] ECR I-10421, [2006] 10 WLUK 671........................................ 4.10, 4.246 Mottram Consultants Ltd v Bernard Sunley & Sons Ltd [1975] 2 Lloyd’s Rep 197, (1974) 118 SJ 808, HL..............................................................................2.179 Multiplex Construction European Ltd (formerly Brookfield Multiplex Construction Europe Ltd) v Dunne [2017] EWHC 3073 (TCC), [2017] 11 WLUK 744, [2018] BLR 36.........................................................................2.50 Muncaster Castle, The see Riverstone Meat Co Pty Ltd v Lancashire Shipping Co Ltd Munkenbeck & Marshall v Harold [2005] EWHC 356 (TCC)............. 1.72, 1.73; 4.161, 4.172, 4.178, 4.184, 4.203 Museprime Properties Ltd v Adhill [1990] 2 EGLR 196, [1990] 36 EG 114, (1990) 61 P&CR 111........................................................................................6.26 Muskham Finance Ltd v Howard [1963] 1 QB 904, [1963] 2 WLR 87, [1963] 1 All ER 81, CA.................................................................................................1.18 Mylcrist Builders Ltd v Buck [2008] EWHC 2172 (TCC), [2009] 2 All ER (Comm) 259, [2008] 9 WLUK 334......................................................... 4.181, 4.396 N National Bank of Sharjah v Delborg (unreported, 9 July 1997)...........................2.16 National Provincial Bank of England v Jackson (1886) 33 Ch D 1, 55 LT 458, CA.................................................................................................................. 1.18, 1.41 National Semiconductors (UK) Ltd v UPS Ltd [1996] 2 Lloyd’s Rep 212, QBD....................................................................................2.186, 2.190, 2.191, 2.192 National Westminster Bank plc v Utrecht-America Finance Co [2001] EWCA Civ 658, [2001] 3 All ER 733, [2001] 2 All ER (Comm) 7, CA................. 2.78; 3.67 Nelson Pine Industries Ltd v Seatrans New Zealand Ltd (The Pembroke) [1995] 2 Lloyd’s Rep 290, NZ High Ct................................................... 2.108, 2.129 xlix xlix

Table of cases Nema, The see Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) Nemzeti Fogyasztovedelmi Hatosag v Invitel Taykozelesi Zrt (Case C-472/10) [2012] 4 WLUK 583, [2012] 3 CMLR 1, [2012] CEC 1375...........................4.75 Neptune & Orient Line v JVC (UK) Ltd (The Chevalier Roze) [1983] 2 Lloyd’s Rep 438, QBD (Comm Ct).................................................................5.46 Neuchatel Asphalte Co Ltd v Barnett [1957] 1 WLR 356, [1957] 1 All ER 362, 101 SJ 170, CA............................................................................................ 2.40, 2.117 New York Star, The (Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Australia) Pty Ltd) [1980] 3 All ER 257, [1981] 1 WLR 138, PC... 5.29, 5.31, 5.33 New Zealand Shipping Co Ltd v A M Satterthwaite & Co Ltd (The Eurymedon) [1975] AC 154, [1974] 2 WLR 865, [1974] 1 All ER 1015, PC................................................................................................................ 5.29, 5.32, 5.33, 5.55 News Ltd v Australian Rugby Football League (1996) 139 ALR 193....................7.32 Nicholas H, The see Marc Rich & Co AG v Bishop Rock Marine Co Ltd (The Nicholas H) Nigeria v JP Morgan Chase Bak NA [2019] EWHC 347 (Comm), [2019] 2 WLUK 300, [2019] 1 CLC 207.................................................................. 2.50, 2.157 Nile Company for the Export of Agricultural Crops v H & MJ Bennett (Commodities) Ltd [1986] 1 Lloyd’s Rep 555, QBD (Comm Ct)................2.179 Nisshin Shipping Co Ltd v Cleaves & Co Ltd [2003] EWHC 2602, [2004] 1 All ER (Comm) 481, [2004] 1 Lloyd’s Rep 38............................................ 5.6, 5.8, 5.49 Nissho Iwai Australia Ltd v Malaysian International Shipping Corpn (1988– 89) 167 CLR 219...............................................................................................2.117 Nocton v Lord Ashburton [1914] AC 932, 111 LT 641, [1914-15] All ER Rep 45, HL...............................................................................................................7.21 North Eastern Properties v Coleman & Quinn Conveyancing [2010] EWCA Civ 277, [2010] 1 WLR 2715, [2010] 3 All ER 528................................... 2.137; 6.35 Northumberland & District Banking Co, Re, ex p Bigge (1858) 28 LJ Ch 50.....1.12 Norwich & Peterborough Building Society v Steed (No 2) [1993] Ch 116, [1992] 3 WLR 669, [1993] 1 All ER 330, CA..................................... 1.18, 1.21, 1.40 Norwich City Council v Harvey [1989] 1 WLR 828, [1989] 1 All ER 1180, (1989) 133 SJ 694, CA......................................................................................5.41 Notts Patent Brick & Tile Co v Butler (1886) 16 QBD 778...................................1.13 Novoship (UK) Ltd v Mikhaylyuk [2015] EWHC 992 (Comm), [2015] 4 WLUK 158........................................................................................................2.150 Nunan v Southern Rly [1923] 2 KB 703, 92 LJKB 703, 39 TLR 514, KBD..... 1.46, 1.52, 1.59, 1.78 O O’Brien v MGN Ltd [2001] EWCA Civ 1279, [2002] CLC 33, The Times, 8 August 2001, CA......................................................................... 1.64, 1.75, 1.78, 1.80 Ocean Chemical Transport Inc v Exnor Craggs Ltd [2000] 1 All ER (Comm) 519, [2000] 1 Lloyd’s Rep 446, CA........................................... 1.15, 1.16; 2.61; 3.37, 3.41 Oceanic Amity, The see Seven Seas Transportation Ltd v Pacifico Union Marina Corpn (The Oceanic Amity) Oceano Grupo Editorial SA v Murciano Quintero Cases C-240–244/98 [2000] ECR I-4941, ECJ............................................................................ 4.174, 4.179, 4.180, 4.202, 4.203, 4.394 l l

Table of cases Office of Fair Trading v Abbey National plc [2009] UKSC 6, [2010] 1 AC 696, [2009] 3 WLR 1215................................................................... 4.10, 4.71, 4.73, 4.76, 4.78, 4.83, 4.89, 4.90, 4.91, 4.92, 4.93, 4.94, 4.97, 4.102, 4.103, 4.105, 4.106, 4.115, 4.119, 4.120, 4.121, 4.122, 4.123, 4.126, 4.247 Office of Fair Trading v Ashbourne Management Services Ltd [2011] EWHC 1273 (Ch), [2011] 5 WLUK 585.............................................................. 4.205, 4.311 Office of Fair Trading v Foxtons Ltd [2009] EWHC 1681 (Ch), [2009] 7 WLUK 289, [2009] 3 EGLR 133.................................................... 4.78, 4.131, 4.162, 4.205 Office of Fair Trading v MB Designs (Scotland) Ltd 2005 SLT 691............ 2.177; 4.168, 4.182, 4.183, 4.184, 4.370, 4.371, 4.397 Olley v Marlborough Court Hotel Ltd [1949] 1 KB 532, [1949] 1 All ER 127, 93 SJ 40, CA.................................................................................................. 1.43, 1.45 Ormsby v H & H Factors Ltd (unreported, 26 January 1990).......... 3.209, 3.222, 3.228, 3.229, 3.290 Oval (717) Ltd v Aegon Ins Co (1997) 54 Con LR 74, 85 BLR 97, QBD, Off Ref.....................................................................................................................3.269 Overbrooke Estates v Glencombe Properties [1974] 1 WLR 1335, [1974] 3 All ER 511, 118 SJ 775........................................................................................ 6.24, 6.25 Overseas Medical Supplies Ltd v Orient Transport Services Ltd [1999] 1 All ER (Comm) 981, [1999] 2 Lloyd’s Rep 273, [1999] CLC 1243, CA.... 3.209, 3.237, 3.238, 3.245, 3.248, 3.249, 3.251, 3.259, 3.271, 3.291, 3.293, 3.294 Overy v Paypal (Europe) Ltd [2012] EWHC 2659 (QB), [2012] 3 WLUK 107, [2013] Bus LR D1.............................................................................................4.52 P PLM Trading Co (International) Ltd v Georgiou [1988] BTLC 404, CA........ 1.84, 1.99 Pan Atlantic v Pine Top Ins Co [1993] 1 Lloyd’s Rep 496, The Times, 8 March 1993, CA............................................................................................................6.1 Panagopoulos v Michaelos (unreported, 2 December 1994), QBD.....................3.27 Pannon GSM Zrt v Erzsebet Sustikne Gyorfi (Case C-243/08) [2010] 1 All ER (Comm) 640, [2009] ECR I-4713, [2009] 6 WLUK 57................. 4.10, 4.174, 4.246 Paragon Finance plc v Staunton [2001] EWCA Civ 1466, [2002] 1 WLR 685, [2002] 2 All ER 248, [2001] 2 All ER (Comm) 1025, CA........... 3.139, 3.150, 3.152 Parker v South Eastern Rly Co (1877) 2 CPD 416, 46 LJQB 768, 36 LT 540.... 1.2, 1.43, 1.45, 1.49, 1.50, 1.52, 1.53, 1.58, 1.59, 1.60, 1.64, 1.82, 1.107, 1.108 Pass v Dundas (1880) 43 LT 665.............................................................................7.4 Peabody Trust Governors v Reeve [2008] EWHC 1432 (Ch), [2008] 6 WLUK 1, [2008] 43 EG 196.........................................................................................4.155 li li

Table of cases Peekay Intermark Ltd v Australia & New Zealand Banking Group Ltd [2006] EWCA Civ 386, [2006] 2 Lloyd’s Rep 511, [2006] 1 CLC 582.................. 6.16, 6.35 Pegler Ltd v Wang (UK) Ltd [2000] BLR 218, 70 Con LR 68...................... 3.253, 3.272 Pembroke, The see Nelson Pine Industries Ltd v Seatrans New Zealand Ltd (The Pembroke) Peninsula Business Services Ltd v Sweeney [2004] IRLR 49, EAT......... 1.16, 1.17; 3.141 Peninsular & Oriental Steam Navigation Co v Youell [1997] 2 Lloyd’s Rep 136..... 3.95, 3.148, 3.280 Persimmon Homes Ltd v Ove Arup & Partners Ltd [2017] EWCA Civ 373, [2017] 5 WLUK 580, [2017] 2 CLC 28.................................... 2.20, 2.48, 2.70, 2.82, 2.105 Peter Schmidt, The see Galaxy Energy International Ltd v Novorossiysk Shipping Co (The Peter Schmidt) Peter Symmons & Co Ltd v Cook (1981) 131 NLJ 758, QBD...............................3.19 Philip Alexander Securities & Futures Ltd v Bamberger [1996] CLC 1757, [1997] Eu LR 63, The Times, 22 July 1996, CA.............................................3.26 Phillips Products Ltd v Hyland [1987] 1 WLR 659, [1987] 2 All ER 620, (1988) 4 Const LJ 53, CA.......................................................... 2.83; 3.55, 3.66, 3.71, 3.77, 3.86, 3.91, 3.92, 3.134, 3.168, 3.177, 3.180, 3.203, 3.204, 3.210, 3.213, 3.222, 3.237, 3.250, 3.251, 3.266 Philpot’s (Woking) Ltd v Surrey Conveyancers Ltd [1986] 1 EGLR 97, (1985) 277 EG 61, CA..................................................................................................2.1 Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, [1980] 2 WLR 823, [1980] 1 All ER 556, HL................................................. 2.19, 2.60, 2.110, 2.111, 2.123, 2.128, 2.131; 3.64, 3.157, 3.214, 3.261, 3.262 Picardi v Cuniberti [2002] EWHC 2923 (QB), [2003] BLR 487, 94 Con LR 81, QBD (TCC)....................................................................... 1.72, 1.74, 1.76; 4.181, 4.182, 4.186, 4.187, 4.188, 4.395 Pickford v Quirke (1927) 13 TC 251......................................................................3.13 Pinnock Bros v Lewis & Peat Ltd [1923] 1 KB 690, (1923) 14 Ll L Rep 227, 28 Com Cas 210, KBD...........................................................................................2.114 Pioneer Container, The see KH Enterprise v Pioneer Containers (The Pioneer Container) Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724, [1981] 3 WLR 292, [1981] 2 All ER 1030, HL............................................................2.1 Poche, Re (1984) 6 DLR (4th) 40...........................................................................7.3 Pollock & Co v Macrae 1922 SC (HL) 192, (1922) 60 SLR 11, 1922 SLT 510.....2.114 Polyduke, The see Bahamas Oil Refining Co v Kristiansands Tankrederie A/S (The Polyduke) Poseidon Freight Forwarding Co Ltd v Davies Turner Southern Ltd [1996] 2 Lloyd’s Rep 388, [1996] CLC 1264, CA............................................. 1.46, 1.55, 1.78 Poucet & Pistre v AGF & Cancava (Joined Cases C-159/91 & C-160/91) [1993] ECR I-637, ECJ.....................................................................................4.64 lii lii

Table of cases Prenn v Simmonds [1971] 1 WLR 1381, [1971] 3 All ER 237, 115 SJ 654, HL...2.1, 2.7 Price & Co v Union Lighterage Co [1903] 1 KB 750, 72 LJKB 374, 8 Com Cas 155.....................................................................................................................2.94 Prostar Management Ltd v Twaddle 2003 SLT (Sh Ct) 11................................ 4.48, 4.50 Prudential Assurance Co Ltd v Ayres & Grew [2007] EWHC 775 (Ch), [2007] 3 All ER 946, [2007] 4 WLUK 30....................................................................5.7 Public Works Comr v Hills [1906] AC 368, [1904-7] All ER Rep 919, PC............4.300 R R v Bow Street Magistrates Court, ex p Joseph (Michael) (1986) 150 JP 650, (1986) 130 SJ 593, (1986) 150 JPN 788, DC...................................................3.13 R & B Customs Brokers Co Ltd v United Dominion Trust [1988] 1 WLR 321, [1988] 1 All ER 847, [1988] RTR 134, CA............................... 3.14, 3.15, 3.16, 3.18, 3.19, 3.176, 3.228; 4.43, 4.47 RW Green Ltd v Cade Bros Farms [1978] 1 Lloyd’s Rep 164...............................3.219 RW Green Ltd v Cade Bros Farms [1978] 1 Lloyd’s Rep 602, QBD............ 3.252, 3.258, 3.270, 3.277; 4.228 RWE Vertrieb AG v Verbraucherzentrale Nordrhein-Westfalen eV (Case C-92/11) [2013] 3 WLUK 596, [2013] 3 CMLR 10................ 4.26, 4.27, 4.32, 4.38, 4.140 Rae v Meek (1889) 14 App Cas 558, HL............................................................... 7.4, 7.14 Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland plc [2010] EWHC 1392 (Comm), [2011] 1 Lloyd’s Rep 123, [2010] 6 WLUK 199.. 6.15, 6.16, 6.20 Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900, [2012] 1 All ER 1137................................................................................. 2.3, 2.4, 2.7, 2.8, 2.9, 2.10, 2.15 Raphael, The see Lamport & Holt Lines Ltd v Coubro & Scrutton (M & I) Ltd (The Raphael) Ravennavi SpA v New Century Shipbuilding Co Ltd [2007] EWCA Civ 58, [2007] 2 All ER (Comm) 756, [2007] 2 Lloyd’s Rep 24................................2.138 Raymond Burke Motors Ltd v Mersey Docks & Harbours Co [1986] 1 Lloyd’s Rep 155, QBD (Comm Ct)..............................................................................5.31 Reardon Smith Line Ltd v Yngvar Hansen-Tangen (t/a HE Hansen-Tangen) [1976] 1 WLR 989, [1976] 3 All ER 570, [1976] 2 Lloyd’s Rep 621, HL..... 2.1, 2.7; 3.188 Red Sea Tankers Ltd v Papachristides (The Hellespont Ardent) [1997] 2 Lloyd’s Rep 547, QBD (Comm Ct).....................................2.80, 2.194, 2.195, 2.196 Reeds Solicitors v Norwich Union [2005] EWCA Civ 343............................ 2.135, 2.136 Rees Hough Ltd v Redland Reinforced Plastics Ltd (1985) 2 Con LR 107, (1985) 27 Build LR 136, (1984) Const LJ 67................................ 1.84; 3.177, 3.209, 3.237, 3.246, 3.252, 3.270, 3.273 Regus (UK) Ltd v Epcot Solutions Ltd [2008] EWCA Civ 361, [2009] 1 All ER (Comm) 586, [2008] 4 WLUK 379......................................................... 3.257, 3.261 Re-Source America International Ltd v Platt Site Services Ltd [2004] EWCA Civ 665, 95 Con LR 1, CA................................................................................2.78 Rhone Poulenc Rorer Ltd v Trans Global Group Ltd (unreported, 18 February 1998), CA..........................................................................................2.47 liii liii

Table of cases Richards Longstaff & Partners Ltd v Lombard North Central plc (unreported, 30 July 1985)............................................................................................. 3.250, 3.272 Richardson, Spence & Co Ltd v Rowntree [1894] AC 217, 63 LJQB 283, [1891-4] All ER Rep 823, HL.................................................... 1.46, 1.49, 1.51, 1.53, 1.83; 4.151 Riyad Bank SA v Ahli United Bank (UK) plc [2005] EWHC 279 (Comm), [2005] 2 Lloyd’s Rep 409, [2006] 1 BCLC 311, QBD (Comm Ct)...............2.193 Roberts v Leonard & Bryan (1995) 151 JP 711, (1995) 14 Tr LR 536, (1995) 159 JPN 655, QBD............................................................................................3.11 Robertson v French (1803) 4 East 130, [1803-13] All ER Rep 350.......................2.40 Rochdale BC v Dixon [2011] EWCA Civ 1173, [2012] PTSR 1336, [2011] 10 WLUK 578.................................................................................................... 4.28, 4.61 Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24, [2019] AC 119, [2018] 2 WLR 1603.................................................. 2.137, 2.144 Roe v R A Naylor Ltd [1917] 1 KB 712, (1918) 87 LJKB 958, 119 LT 359, KBD....... 1.2, 1.8, 1.48, 1.53, 1.84, 1.94, 1.111 Rogers v Parish (Scarborough) Ltd [1987] QB 933, [1987] 2 WLR 353, [1987] 2 All ER 232, CA................................................................ 3.181, 3.183, 3.184 Rohlig (UK) Ltd v Rock Unique Ltd [2011] EWCA Civ 18, [2011] 2 All ER (Comm) 1161, [2011] 1 WLUK 273...............................................................3.51 Rolls Royce plc v Heavylift-Volga DNEPR Ltd [2000] 1 Lloyd’s Rep 653, QBD (Comm Ct).......................................................................................................2.186 Rolls v Miller (1884) 27 Ch D 71, [1881-5] All ER Rep 915, 50 LT 597, CA........3.13 Rolls-Royce Power Engineering plc v Ricardo Consulting Engineers Ltd [2003] EWHC 2871 (TCC), [2004] 2 All ER (Comm) 129, 98 Con LR 169, QBD (TCC)...................................................................................... 3.139, 3.253 Ronson International v Patrick [2005] EWHC 1767 (QB), [2005] 2 All ER (Comm) 453, [2006] Lloyd’s Rep IR 194, QBD.............................................2.189 Roundlistic Ltd v Jones [2016] UKUT 325 (LC), [2016] 7 WLUK 408.......... 4.33, 4.34, 4.35, 4.38 Rover International Ltd v Canon Films Ltd (No 3) [1989] 1 WLR 912, [1989] 3 All ER 423, CA...............................................................................................4.300 Royal Bank of Scotland v McCarthy plc [2015] EWHC 3626 (QB), [2015] 12 WLUK 689........................................................................................................5.7 Rustenberg Platinum Mines Ltd v South African Airways [1977] 1 Lloyd’s Rep 564, Comm Ct...................................................................................................2.191 Rutledge v IRC 1929 SC 379, 14 TC 490, Ct of Sess...............................................3.14 Rutter v Palmer [1922] 2 KB 87, 91 LJKB 657, [1922] All ER Rep 367, CA.... 2.94, 2.97 Andriciuc v Banca Romaneasca SA (Case C-186/16) [2018] Bus LR 1081, [2017] 9 WLUK 313, [2018] 1 CMLR 45....................................... 4.27, 4.116, 4.163 Rylands v Fletcher (1868) LR 3 HL 330, 37 LJ Ex 161, 19 LT 220, HL................3.77 S S Pearson & Son Ltd v Dublin Corpn [1907] AC 351, 77 LJPC 1, [1904-7] All ER Rep 255, HL................................................................................ 2.85; 6.2, 6.3, 6.4 SAM Business Systems Ltd v Hedley & Co [2002] EWHC 2733 (TCC), [2003] 1 All ER (Comm) 465, QBD (TCC)............................................ 2.174; 3.149, 3.215, 3.216, 3.236, 3.246, 3.286 liv liv

Table of cases SAS Institute Inc v World Programming Ltd [2013] EWCA Civ 599, [2020] 5 WLUK 92, [2020] 1 CLC 816..........................................................................2.53 SIAT di del Ferro v Tradax Overseas SA [1978] 2 Lloyd’s Rep 470, QBD (Comm Ct); aff’d [1980] 1 Lloyd’s Rep 53, CA....................... 1.84, 1.86, 1.87, 1.88, 1.90, 1.98, 1.100, 1.105, 1.107 Safehaven Investments Inc v Springbok Ltd (1995) 71 P & CR 59, [1995] EGCS 96, ChD..................................................................................................4.300 Saint Line Ltd v Richardsons’ Westgarth & Co Ltd [1940] 2 KB 99....................2.197 Salvage Assn v CAP Financial Services Ltd [1995] FSR 654 (Off Ref)... 3.24, 3.32, 3.76, 3.80, 3.105, 3.121, 3.124, 3.127, 3.208, 3.215, 3.229, 3.230, 3.237, 3.242, 3.245, 3.272, 3.286 Satef-Huttens Alberns SpA v Paloma Tercera Shipping Co SA (The Pegase) [1981] 1 Lloyd’s Rep 175, [1980] 6 WLUK 133, [1980] Com LR 9..............2.201 Saunders (Executrix of the Estate of Rose Maud Gallie) v Anglia Building Society [1971] AC 1004, [1970] 3 WLR 1078; sub nom Saunders (Executrix of the Estate of Rose Maud Gallie) v Anglia Building Society (formerly Northampton Town & Country Building Society [1970] 3 All ER 961, HL................................................................................ 1.18, 1.19, 1.23, 1.25, 1.27, 1.29, 1.33, 1.37, 1.39, 1.40, 1.41 Scania Finance (Great Britain) Ltd v Monteum Group (unreported, 30 January 2001)...................................................................................................3.228 Schebsman, Re [1944] Ch 83, [1943] 2 All ER 768, 113 LJ Ch 33, CA................5.45 Schenker & Co (Aust) Pty Ltd v Malpas Equipment & Services Ltd [1990] VR 834.....................................................................................................................2.71 Schenkers Ltd v Overland Shoes Ltd [1998] 1 Lloyd’s Rep 498, (1998) 95(11) LSG 36, (1998) 142 SJLB 84, CA..................................................... 2.185; 3.53, 3.95, 3.112, 3.222, 3.237, 3.247, 3.251, 3.252, 3.269, 3.270, 3.274; 6.5 Schneider v Heath (1813) 3 Camp 506..................................................................6.2, 6.3 Schrems v Facebook Ireland Ltd (Case C-498/16) [2018] 1 WLR 4343, [2018] 1 WLUK 376, [2018] CEC 1111......................................................................4.55 Schroeder (A) Music Publishing Co Ltd v Macaulay (formerly Instone) [1974] 1 WLR 1308, [1974] 3 All ER 616, 118 SJ 734, HL.................... 3.100, 3.111 Scottish Power plc v Britoil (Exploration) Ltd (1997) 141 Sol Jo LB 246, (1997) 94(47) LSG 30, The Times, 2 December 1997, CA...........................2.16 Scruttons Ltd v Midland Silicones Ltd [1962] AC 446, [1962] 2 WLR 186, [1962] 1 All ER 1, HL................................................................. 5.1, 5.22, 5.25, 5.26, 5.32, 5.35, 5.43, 5.55 Selda, The see Bem Dis A Turk Ticaret S/A TR v International Agri Trade Co Ltd (The Selda) Sere Holdings Ltd v Volkswagen Group United Kingdom Ltd [2004] EWHC 1551 (Ch).........................................................................................................2.136 Seven Seas Transportation Ltd v Pacifico Union Marina Corpn (The Oceanic Amity) [1983] 1 All ER 672, [1982] 2 Lloyd’s Rep 465, [1982] Com LR 236........................................................................................................ 2.41, 2.95, 2.99 lv lv

Table of cases Shaftsbury House (Developments) Ltd v Kelly Fernandez Less [2010] EWHC 1484 (Ch), [2010] 6 WLUK 391..................................................... 4.61, 4.184, 4.375 Shaw v Great Western Rly Co [1894] 1 QB 373, 70 LT 218, 58 JP 318.................2.86 Shawnigan Ltd v Vokins & Co Ltd [1961] 1 WLR 1206, [1961] 3 All ER 396, [1961] 2 Lloyd’s Rep 153.................................................................................2.195 Shearson Lehman Hutton Inc v Maclaine Watson & Co Ltd [1989] 2 Lloyd’s Rep 570, QBD (Comm Ct)..................................................... 1.66; 2.1; 3.103, 3.138, 3.140, 3.154, 3.231 Shearson Lehman Hutton Inc v TVB Treuhandelgesselschaft fur Vermogensverwaltung und Beteilungen mbH Case 89/91 [1993] ECR I-139, [1993] IL Pr 199, ECJ............................................................................4.43 Sheffield v Pickfords Ltd (1997) 16 Tr LR 337, [1997] CLC 648, CA..................3.213 Shell Chemicals UK Ltd v P&O Roadtankers Ltd [1995] 1 Lloyd’s Rep 297, CA.............................................................................................. 2.87, 2.93, 2.94, 2.116 Shepherd Homes Ltd v Encia Remediation Ltd (Green Piling Ltd, third party) [2007] EWHC 70 (TCC), [2007] 1 WLUK 566, [2007] BLR 135......3.261 Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206, [1939] 2 All ER 113, CA..............................................................................................................1.86 Siba v Devenas (Case C-537/13) [2015] Bus LR 291, [2015] 1 WLUK 185.........4.57 Sidney G Jones Ltd v Bencher Ltd [1986] 1 Lloyd’s Rep 54......................... 2.186, 2.191 Simkins Partnership (A Firm) v Reeves Lund & Co Ltd [2003] EWHC 1946 (QB).......................................................................................................... 2.197, 2.200 Singer & Co (UK) Ltd v Tees & Hartlepool Port Authority [1988] 2 Lloyd’s Rep 164, [1988] FTLR 442, QBD (Comm Ct)........................ 1.2; 2.19, 2.51; 3.177, 3.211, 3.237, 3.242, 3.245, 3.250, 3.251, 3.258, 3.261, 3.263, 3.270, 3.287; 5.43 Sinochem International Oil (London) Co Ltd v Mobil Sales & Supply Corpn [2000] 1 All ER (Comm) 474, [2000] 1 Ll LR 670, CA.................................2.51 Sirius International Insurance Co v FAI General Insurance Ltd [2004] UKHL 54, [2004] 1 WLR 3251, [2005] 1 All ER 191, [2005] Lloyd’s Rep IR 294, HL................................................................................................................. 2.1, 2.120 Skipskredittforeningen v Emperor Navigation SA [1998] 1 Lloyd’s Rep 66, [1977] 2 BCLC 398, [1997] CLC 1151, QBD........................ 2.23, 2.34, 2.85, 2.183, 2.184, 2.185; 3.53, 3.233, 3.247; 6.2, 6.3, 6.5, 6.29, 6.34 Skrine v Gould (1912) 29 TLR 19...........................................................................1.58 Smaro, The see Charles M Willie & Co (Shipping) Ltd v Ocean Laser Shipping Ltd (The Smaro) Smeaton Hanscomb & Co Ltd v Sassoon I Setty Son & Co [1953] 1 WLR 1468, [1953] 2 All ER 1471, [1953] 2 Lloyd’s Rep 580..................................2.110 Smith v Eric S Bush (A Firm); Harris v Wyre Forest District Council [1990] 1 AC 831, [1989] 2 WLR 790, [1989] 2 All ER 514, HL............ 3.66, 3.71, 3.77, 3.86, 3.168, 3.180, 3.227, 3.229, 3.250, 3.257, 3.259, 3.260, 3.266, 3.280, 3.285, 3.289, 3.290; 4.227, 4.228 lvi lvi

Table of cases Smith v Hughes (1871) 6 QB 597, 40 LJQB 221, [1861-73] All ER Rep 632.......1.14 Smith v Lucas (1881) 18 Ch D 531.........................................................................2.1 Smith v South Wales Switchgear Co Ltd [1978] 1 WLR 165, [1978] 1 All ER 18, (1977) 122 Sol Jo 61, HL.................................................... 1.46, 1.78; 2.77, 2.82, 2.86, 2.87, 2.104; 3.136 Smith v Taylor [1966] 2 Lloyd’s Rep 231, 116 New LJ 1518..................................1.53 Snelling v John G Snelling Ltd [1973] 1 QB 87, [1972] 2 WLR 588, [1972] 1 All ER 79...........................................................................................................5.46 Snookes v Jani-King (GB) Ltd [2006] EWHC 289 (QB).......................................3.50 Society of Lloyd’s v Clementson [1995] CLC 117, CA..........................................1.91 Society of Lloyd’s v Leighs; Society of Lloyd’s v Lyon; Society of Lloyd’s v Wilkinson [1997] 6 Re LR 289, [1997] CLC 1398, The Times 7 August 1997, CA..................................................................................... 2.19, 2.68, 2.85, 2.98, 2.183; 6.5 Society of Lloyd’s v Wilkinson (No 2) [1997] 6 Re LR 214, [1997] CLC 1012, QBD (Comm Ct)..............................................................................................6.5 Socimer International Bank Ltd v Standard Bank London Ltd (No 2) [2008] EWCA CIv 116, [2008] Bus LR 1304, [2008] 1 Lloyd’s Rep 558...................4.191 Sofer v Swissindependent Trustees SA [2020] EWCA Civ 699, [2020] 6 WLUK 56, [2020] WTLR 1075....................................................................................7.24 Sonicare International Ltd v East Anglia Freight Terminals Ltd [1997] 2 Lloyd’s Rep 48, Central London Cty Ct....................................... 3.210, 3.242, 3.260 Sounion, The see Summit Investments Inc v British Steel Corpn (The Sounion) South Western General Properties v Marton [1982] 2 EGLR 19, (1983) 2 Tr LR 14, (1982) 263 EG 1090, [1982] EGD 113, QBD................. 6.9, 6.25, 6.27, 6.34 Southern Water Authority v Carey [1985] 2 All ER 1077, QBD..... 5.31, 5.34, 5.41, 5.45 Southwark LBC v Charlesworth (1983) 147 JP 470, QBD.....................................3.13 Sovereign Finance Ltd v Silver Crest Furniture Ltd [1997] CCLR 76, (1997) 16 Tr LR 370, QBD......................................................................... 2.33; 3.228, 3.233, 3.237 Spreadex Ltd v Cochrane [2012] EWHC 1290 (Comm), [2012] 5 WLUK 552, [2012] Info TLR 1.................................................................................... 4.175, 4.204 Spread Trustee Co Ltd v Hutcheson [2011] UKPC 13, [2012] 2 AC 194, [2012] 2 WLR 1360................................................................................. 7.3, 7.5, 7.29 Spriggs v Sotheby Parke Bernett & Co Ltd [1986] 1 Lloyd’s Rep 487, [1986] 1 EGLR 13, (1986) 278 EG 969, CA................................................... 2.23, 2.89, 2.109, 2.110 St Albans City & District Council v International Computers Ltd [1995] FSR 686; [1996] 4 All ER 481, [1997-8] Info TLR 58, CA..................... 3.19, 3.95, 3.103, 3.105, 3.109, 3.111, 3.117, 3.119, 3.213, 3.229, 3.243, 3.245, 3.250, 3.251, 3.256, 3.286, 3.290 Stag Line Ltd v Foscola, Mango & Co Ltd [1932] AC 328, (1931) 41 Ll L Rep 165, HL............................................................................................. 2.33, 2.116; 3.95, 3.133, 3.171, 3.177 Stag Line Ltd v Tyne Shiprepair Group (The Zinnia) [1984] 2 Lloyd’s Rep 211, (1985) 4 Tr L 33, QBD (Comm Ct).................................... 3.177, 3.250, 3.270, 3.277, 3.280 lvii lvii

Table of cases Standard Bank London Ltd v Apostolakis (No 1) [2002] CLC 933.....................4.51 Standard Bank London Ltd v Apostolakis (No 2) [2002] CLC 939, [2001] Lloyd’s Rep Bank 240............................................................................... 4.180, 4.395 Star Polaris LLC v HHIC-Phil Inc [2016] EWHC 2941 (Comm), [2017] 1 Lloyd’s Rep 203, [2016] 11 WLUK 488....................................... 2.202, 2.203, 2.214 Star Rider Ltd v Inntrepreneur Pub Co [1998] 1 EGLR 53, [1998] 16 EG 140, ChD............................................................................................................. 2.179; 3.28 State Trading Corpn of India v M Golodetz Ltd (The Sara D) [1989] 2 Lloyd’s Rep 277, CA......................................................................................................2.129 Steinman & Co Ltd v Angier Line [1891] 1 QB 619, 60 LJQB 425, 39 WR 392, CA......................................................................................................................2.94 Stent Foundations Ltd v M J Gleason Group plc [2001] BLR 134, QBD (TCC).2.42 Stephen v International Sleeping Car Co Ltd (1903) 19 TLR 621.......................1.53 Stevenson v Nationwide Building Society [1984] EGD 934, (1984) 1 Const LJ 239, (1985) 129 LS Gaz 36............................................................... 3.71, 3.81, 3.259, 3.265, 3.280 Stevenson v Rogers [1999] QB 1028, [1999] 2 WLR 1064, [1999] 1 All ER 613, CA........................................................................................................ 3.19, 3.176 Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] QB 600, [1992] 2 WLR 721, [1992] 2 All ER 257, CA.......................................................... 2.23, 2.85, 2.185; 3.49, 3.53, 3.55, 3.168, 3.177, 3.180, 3.219, 3.233, 3.234, 3.236, 3.237, 3.248; 4.168; 6.5 Stone Vickers Ltd v Appledore Ferguson Shipbuilders Ltd [1992] 2 Lloyd’s Rep 578, CA......................................................................................................5.31 Strathallan, The see Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd Sucden Financial Ltd (formerly Sucden (UK) Ltd) v Fluxo-Cane Overseas Ltd [2010] EWHC 2133 (Comm), [2010] 8 WLUK 117, [2010] 2 CLC 216......2.193 Sugar v London Midland & Scottish Rly Co [1941] 1 All ER 172, 105 JP 100, 164 LT 311, KBD................................................................................. 1.51, 1.52, 1.53 Suisse Atlantique Societe d’Armament SA v NV Rotterdamsche Kolern Centrale [1967] 1 AC 361, [1966] 2 WLR 944, [1966] 2 All ER 61....... 2.63, 2.110, 2.123, 2.128, 2.131, 2.132; 3.101 Summit Investments Inc v British Steel Corpn (The Sounion) [1987] 1 Lloyd’s Rep 230, [1987] 1 FTLR 169, CA.......................................................2.1 Sumukan Ltd v Commonwealth Secretariat [2007] EWCA Civ 243, [2007] 3 All ER 342, [2007] 2 Lloyd’s Rep 87...............................................................1.78 Super Servant Two, The see J Lauritzen AS v Wijsmuller BV (The Super Servant Two) Surzur Overseas Ltd v Ocean Reliance Shipping Co Ltd [1997] CLY 906, QBD (Comm Ct)............................................................................. 3.44, 3.215, 3.247 Swain v Law Society [1983] 1 AC 598, [1982] 3 WLR 261, [1982] 2 All ER 827, HL.....................................................................................................................5.3 Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd [1959] AC 576, [1959] 3 WLR 214, [1959] 3 All ER 182, PC................................... 2.116, 2.117, 2.118, 2.119 T TNT Global SpA v Denfleet International Ltd [2007] EWCA Civ 405, [2008] 1 All ER (Comm) 97, [2007] 2 Lloyd’s Rep 504............................................2.186 lviii lviii

Table of cases TS Havprins, The see Chevron International Oil Co Ltd v A/S Sea Team (The TS Havprins) Taberna Europe CDO II plc v Selskabet af 1 September 2008 A/S (formerly Roskilde Bank A/S) [2016] EWCA Civ 1262, [2017] QB 633, [2017] 2 WLR 803.................................................................................... 2.20, 2.57, 2.75, 2.79, 2.103; 3.71; 7.19 Taylor v Glasgow Corpn 1952 SC 440, 1952 SLT 399.............................................1.58 Texas Instruments Ltd v Nason (Europe) Ltd [1991] 1 Lloyd’s Rep 146, QBD.... 2.185, 2.186, 2.192 Thomas Cook Group Ltd v Air Malta Co Ltd [1997] 2 Lloyd’s Rep 399, QBD (Comm Ct)....................................................................................... 2.1, 2.185, 2.186, 2.188, 2.191 Thomas Witter Ltd v TBP Industries [1996] 2 All ER 573, (1994) Tr L 145, ChD.......................................................................................... 2.19, 2.33, 2.85, 2.159, 2.170; 3.50, 3.190; 6.4, 6.10, 6.33, 6.35, 6.36, 6.37 Thompson v London Midland & Scottish Rly Co [1930] 1 KB 41, 98 LJKB 615, [1929] All ER Rep 474, CA............................................... 1.46, 1.49, 1.51, 1.52, 1.53, 1.59, 1.64, 1.78, 1.83 Thompson v Sayed Ali (unreported, 21 March 1994), CA............. 2.109; 6.6, 6.27, 6.35 Thompson v T Lohan (Plant Hire) Ltd [1987] 1 WLR 649, [1987] 2 All ER 631, (1987) 131 SJ 358, CA....................................................... 2.83, 2.84, 2.86; 3.91, 3.92, 3.93, 3.134, 3.136 Thornbridge Ltd v Barclays Bank plc [2015] EWHC 3430 (QB), [2015] 11 WLUK 768........................................................................................................3.257 Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163, [1971] 2 WLR 585, [1971] 1 All ER 686, CA............................................................ 1.43, 1.45, 1.46, 1.47, 1.49, 1.53, 1.62, 1.64, 1.65, 1.67, 1.71, 1.74, 1.80, 1.83 Throwgood v Turner. see Thoroughgood’s Case, Thoroughgood v Cole Thoroughgood’s Case, Thoroughgood v Cole (1584) 1 & 129, 2 Co Rep 9a; sub nom Throwgood v Turner (1584) Moore KB 148................................. 1.18, 1.23 Tietens v Hooper. see Tielens v Hooper Tilden Rent-a-Car v Clendenning (1978) 83 DLR (3d) 400.................................1.15 Timeload Ltd v British Telecommunications plc [1995] EMLR 459, CA....... 2.38, 2.39; 3.133, 3.137, 3.140, 3.150, 3.154, 3.156, 3.157 Times Travel (UK) Ltd v Pakistan International Airlines Corpn [2017] EWHC 1367 (Ch), [2017] 6 WLUK 255.............................................................. 3.193, 3.200 Titan Steel Wheels Ltd v Royal Bank of Scotland [2010] EWHC 211 (Comm), [2010] 2 Lloyd’s Rep 92, [2010] 2 WLUK 338........................ 3.62, 3.63, 3.68, 3.87, 3.257 Toll (FCGT) Pty Ltd v Alphapharm [2004] 219 CLR 165, HCA...................... 1.12; 2.39 Toomey v Eagle Star Insurance Co Ltd (No 2) [1995] 2 Lloyd’s Rep 88, QBD (Comm Ct).................................................................................. 2.94, 2.95, 2.98; 6.1, 6.6 lix lix

Table of cases Total Spares & Supplies Ltd v Antares SRL [2004] EWHC 2626 (Ch).................2.135 Town Investments Ltd v Department of the Environment [1976] 1 WLR 1126, [1976] 3 All ER 479, 120 SJ 435, CA...............................................................3.13 Town Investments Ltd v Department of the Environment [1978] AC 359, [1977] 2 WLR 450, [1977] 1 All ER 813, HL.................................................3.11 Tradigrain SA v Intertek Testing Services (ITS) Canada Ltd [2007] EWCA Civ 154, [2007] 2 WLUK 696, [2007] 1 CLC 188.................................................2.20 Transfield Shipping Inc of Panama v Mercator Shipping Inc of Monrovia (The Achilleas) [2008] UKHL 48, [2009] 1 AC 61, [2008] 3 WLR 345.......2.201 Transformers & Rectifiers Ltd v Needs Ltd [2015] EWHC 269 (TCC), [2015] 2 WLUK 499, [2015] BLR 336.........................................................................1.96 Transmotors Ltd v Robertson Buckley & Co [1970] 1 Lloyd’s Rep 224...............1.84 Transocean Drilling UK Ltd v Providence Resources plc (The GSF Arctic III) [2016] EWCA Civ 372, [2016] 2 All ER (Comm) 606, [2016] 2 Lloyd’s Rep 51............................................................................................. 2.57, 2.197, 2.200, 2.202, 2.205, 2.206, 2.214 Trident General Ins Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107..........5.23 Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd [2008] EWHC 1686 (Comm), [2009] 1 All ER (Comm) 16, [2008] 2 Lloyd’s Rep 581........ 2.164; 3.37, 3.42; 6.31, 6.32 Trigg v MI Movers International Transport Services Ltd (1991) 84 DLR (4th) 504.....................................................................................................................1.15 Triple Point Technology Inc v PTT Public Co Ltd [2021] UKSC 29, [2021] AC 1148, [2021] 3 WLR 521..................................................................... 3.75, 3.78, 3.79 Trolex Products Ltd v Merrol Fire Protection Engineers Ltd (unreported, 20 November 1991)............................................................................... 2.58, 2.72; 3.219, 3.220, 3.234 Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601, [1973] 2 All ER 260, 117 SJ 355, HL..............................1.91 Tudor Grange Holdings Ltd v Citibank NA [1992] Ch 53, [1991] 3 WLR 750, [1991] 4 All ER 1............................................................................ 3.36, 3.193, 3.195, 3.197, 3.199 Turner v Green [1895] 2 Ch 205, 64 h 539, 43 WR 537, ChD..............................1.13 Tweddle v Atkinson (1861) 1 B & S 393, 30 LJQB 265, [1861-73] All ER Rep 369.....................................................................................................................5.1 U UGS Finance Ltd v National Mortgage Bank of Greece & National Bank of Greece SA [1964] 1 Lloyd’s Rep 446, 107 SJ 552, CA....................................2.110 UK Housing Alliance Ltd v Francis [2010] EWCA Civ 117, [2010] 3 All ER 519, [2010] Bus LR 1034.................................................................................4.69 Unchained Growth III plc v Granby Village (Manchester) Management Co Ltd (unreported, 8 October 1999), CA...................................................... 3.28, 3.32 Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514, [1997] 2 WLR 341, [1997] 2 All ER 215, PC...........................................................................4.300 United Dominions Trust Ltd v Western [1976] QB 513, [1976] 2 WLR 64, [1975] 3 All ER 1017, CA........................................................... 1.18, 1.22, 1.31, 1.32 United Fresh Meat Co Ltd v Charterhouse Cold Storage Ltd [1974] 2 Lloyd’s Rep 286, QBD...................................................................................................2.116 lx lx

Table of cases United States v ARC Construction Ltd (unreported, 8 May 1991)........ 2.75, 2.92, 2.94; 3.91, 3.92, 3.93, 3.95, 3.103, 3.112, 3.123, 3.126, 3.135, 3.139, 3.263 United Trust Bank Ltd v Dohil [2011] EWHC 3302 (QB), [2012] 2 All ER (Comm) 765, [2011] 12 WLUK 704...............................................................3.53 University of Keele v Price Waterhouse (a Firm) [2003] EWHC 1595 (Ch); aff’d [2004] EWCA Civ 583.............................................2.33, 2.49, 2.51, 2.58, 2.109 V Van Toll v South Eastern Rlys Co (1862) 12 CBNS 75, 31 LJCP 241, 142 ER 1071...................................................................................................................1.64 Vandepitte v Preferred Accident Ins [1933] AC 70, (1932) 44 Ll L Rep 41, [1932] All ER Rep 527, PC..............................................................................5.45 Vickery, Re [1931] 1 Ch 572, 100 LJ Ch 138, 144 LT 168................................. 7.28, 7.29 Victoria Fur Traders Ltd v Roadline (UK) Ltd [1981] 1 Lloyd’s Rep 570, QBD (Comm Ct)................................................................................................. 1.84, 1.105 Victoria Laundryy (Windsor) v Newman Industries [1949] 2 KB 538, [1949] 1 All ER 997, 65 TLR 274....................................................................................2.201 Vitol BV v Compagnie Européene des Pétroles [1988] 1 Lloyd’s Rep 574..........2.1 W W Fishwick & Son (Meat Contractors) Ltd v Darrington & Co (unreported, 2 April 1984)........................................................................................................3.277 W Photoprint Ltd v Forward Trust Group Ltd (1993) 12 Tr LR 146............. 3.95, 3.103, 3.141, 3.175, 3.190, 3.215, 3.228, 3.251 WRM Group Ltd v Wood [1998] CLC 189, CA.................................. 2.180, 2.183, 2.184, 2.185; 3.53, 3.247; 6.5, 6.36 Walek & Co v Chapman & Ball (International) [1980] 2 Lloyd’s Rep 279..........1.84 Walker v Boyle; Boyle v Walker [1982] 1 WLR 495, [1982] 1 All ER 634, (1982) 44 P&CR 20..................................................................... 2.170; 6.4, 6.9, 6.10, 6.27, 6.33, 6.35, 6.37 Walker v Stones [2001] QB 902, [2001] 2 WLR 623, [2000] 4 All ER 412...... 7.24, 7.25 Walker Cain Ltd v McCaughey. see Courage Ltd v Crehan Wall v Rediaraktiebolaget Luggude [1915] 3 KB 66, 84 LJKB 1663, 21 Com Cas 132, KBD....................................................................................................4.300 Walls v Centaur Co Ltd (1921) 126 LT 242............................................................1.58 Walters v Whessoe Ltd & Shell Refining Co Ltd [1968] 2 All ER 816n, 6 BLR 23, CA................................................................................................................2.71 Warren v Truprint Ltd [1986] BTLC 344, Luton Cty Ct...................... 2.89; 3.222, 3.259 Watford Electronics Ltd v Sanderson CFL Ltd [2000] 2 All ER (Comm) 984; revs’d [2001] EWCA Civ 317, [2001] 1 All ER (Comm) 696, [2001] BLR 143, [2001] 3 TCLR 302, CA....................................................... 2.166, 2.167, 2.168, 2.170, 2.197; 3.120, 3.206, 3.209, 3.216, 3.219, 3.222, 3.234, 3.260, 3.261, 3.270, 3.285; 6.10, 6.11, 6.14 lxi lxi

Table of cases Wathes (Western) Ltd v Austin (Menswear) Ltd [1976] 1 Lloyd’s Rep 14, 9 BLR 113, (1975) 119 SJ 527, CA.....................................................................2.110 Watkins v Rymill (1883) 10 QBD 178, 47 JP 357, 52 LJQB 121, QBD..................1.61 Watts, Watts & Co Ltd v Mitsui & Co Ltd [1917] AC 227, 86 LJKB 873, 22 Com Cas 242, HL.............................................................................................4.300 Wavin Nederland BV v Excomb Ltd (1983) 133 NLJ 937............................... 1.84, 1.110 West v Ian Finlay Associates [2014] EWCA Civ 316, [2014] 3 WLUK 815, [2014] BLR 324................................................................................................4.212 Westfal-Larsen & Co A/S v Colonial Sugar Refining Co Ltd [1960] 2 Lloyd’s Rep 206.............................................................................................................2.80 Westminster Building Co Ltd v Beckingham [2004] EWHC 138 (TCC), [2004] 1 BLR 265, 94 Con LR 107, QBD (TCC).............. 4.182, 4.201, 3.396, 4.398 White Cross Equipment Ltd v Farell (1982) 2 Tr L 21, DC................. 1.78; 3.246, 3.251; 6.27 White v Blackmore [1972] 2 QB 651, [1972] 3 WLR 296, [1972] 3 All ER 158, CA......................................................................................................... 1.52, 1.53; 2.86 White v John Warrick & Co Ltd [1953] 1 WLR 1285, [1953] 2 All ER 1021, 97 SJ 740, CA.........................................................................................................2.94 White v Reflecting Roadstuds Ltd [1991] ICR 733, [1991] IRLR 331, EAT........1.91 Wibau Mascinenefabric Hartman SA v Mackinnon Mackenzie & Co (The Chanda) [1989] 2 Lloyd’s Rep 494, QBD (Comm Ct).......................... 2.108, 2.129 Wight v Olswang (The Times, 18 May 1999) (The Independent, 24 May 1999), CA............................................................................ 7.4, 7.13, 7.14, 7.15, 7.19 Wilkins v Hogg (1861) 31 LJ Ch 41, CA.................................................................7.4 Willbeam v Ashton (1807) 1 Camp 78....................................................................4.300 William Sindall plc v Cambridgeshire County Council [1994] 1 WLR 1016, [1994] 3 All ER 932, [1993] 5 WLUK 212......................................................6.17 Wilson v Darling Island Stevedoring & Lighterage Co Ltd (1955) 95 CLR 43, [1956] 1 Lloyd’s Rep 346, HCA......................................................................5.43 Winnetka Trading Corpn v Julius Baer International Ltd [2011] EWHC 2030 (Ch), [2011] 7 WLUK 888, [2012] 1 BCLC 588............................................2.196 Winter v Trimmer (1762) 1 Wm Bl 395..................................................................4.300 Wire TV Ltd v CableTel (UK) Ltd [1998] CLC 244, ChD.....................................2.16 Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] AC 1173, [2017] 2 WLR 1095.................................................................. 2.3, 2.7, 2.8, 2.9, 2.10, 2.14, 2.62, 2.211 Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277, [1980] 1 All ER 571, (1980) 124 SJ 124, HL..............................5.3 Woodeson v Credit Suisse (UK) Ltd [2018] EWCA Civ 1103, [2018] 5 WLUK 336.....................................................................................................................1.72 Woodman v Phototrade Processing (1981) 131 NLJ 935.............................. 3.258; 4.228 Woolf v Collis Removal Services Ltd [1948] 1 KB 11, [1947] 2 All ER 260, 177 LT 405, CA........................................................................................................2.116 Worker’s Trust & Merchant Bank v Dojap Investments Ltd [1993] AC 573, [1993] 2 WLR 702, [1993] 2 All ER 370, PC..................................................4.300 Wyman or Ferguson (Pauper) v Paterson [1900] AC 271, HL.............................7.4 Y Yasuda Fire & Marine Ins Co of Europe Ltd v Orion Marine Ins Underwriting Agency Ltd [1995] QB 174, [1995] 2 WLR 49, [1994] CLC 1212, QBD......7.32 lxii lxii

Table of cases Yedina v Tedin [2017] EWHC 3319 (Ch), [2017] 12 WLUK 424, [2017] All ER (D) 111 (Dec).............................................................................................1.18 Yeoman Credit Ltd v Apps [1962] 2 QB 508, [1961] 3 WLR 94, [1961] 2 All ER 281, CA........................................................................................................2.114 Yoldings v Swann (unreported, 12 October 2000)................................................1.15 Youell v Bland Welch & Co Ltd [1992] 2 Lloyd’s Rep 127, CA.............................2.42 Yuanda (UK) Co Ltd v WW Gear Construction Ltd [2010] EWHC 720 (TCC), [2011] 1 All ER (Comm) 550, [2011] Bus LR 360.........................................3.124 Z Zanzibar (Government of) v British Aerospace (Lancaster House) Ltd [2000] 1 WLR 2333, [2000] CLC 735, QBD.................................................... 6.4, 6.22, 6.35 Zealander v Laing Homes Ltd (2003) 19 Const Law Hournal 350.............. 4.181, 4.396 Zeus Tradition Marine Ltd v Bell [2000] 2 All ER (Comm) 769, [2000] 2 Lloyd’s Rep 587, CA.........................................................................................2.51 Zinnia, The see Stag Line Ltd v Tyne Shiprepair Group (The Zinnia) Zockoll Group Ltd v Mercury Communications Ltd [1999] EMLR 385, [1998] ITCLR 104, CA............................................................................... 2.39; 3.143, 3.145, 3.150, 3.152, 3.157, 3.158

lxiii lxiii

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Signature1.2 Basic approach 1.2 Time1.7 Contractual document 1.8 Misrepresentation1.10 Developments?1.14 Non est factum 1.18 Who can claim 1.23 Difference in the document 1.27 Signing uncompleted documents 1.31 Signor’s belief 1.38 Not negligent 1.39 Notice – standard form or unsigned documents 1.42 Introductory points 1.42 Time1.43 Notice – when required/of what? 1.45 Notice – basic test 1.49 Type of document 1.58 The content of the clause – unreasonable and unusual clauses 1.62 Reference1.78 The basic test – a fuller version? 1.82 Course of dealing and trade practice 1.84 The basic test 1.84 The application of the test 1.92 Trade practice 1.105 Notice and the ‘red hand rule’ 1.107 Relevance of failure to incorporate but for past transactions 1.109 Changes to standard terms 1.111

1.1 This chapter concerns the issue of the incorporation of clauses as contract terms. It considers incorporation by: • signature; •

notice; and 1

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•

a course of dealing.1

Obviously, if a clause is not incorporated, it cannot have an effect as a contract term. It might have an effect upon liability for negligence as a non-contractual notice2 and it might impact upon the consumer without actually having any legal status at all, because consumers may well not be aware of their legal rights.

Signature Basic approach 1.2 It is established that if a contractual document3 is signed, then in the absence of: • fraud, • misrepresentation;4 or •

a plea of non est factum,

the signor will be bound by its terms. It is irrelevant whether that party has read the terms, or has any knowledge of them:5 ‘When a document containing contractual terms is signed, then in the absence of fraud, or … misrepresentation, the party signing it is bound, and it is wholly irrelevant whether he has read the document or not’.6

When a plea of non est factum is made out, the contract is void.7 1.3 The basic rule, incorporating clauses from signed contractual documents, is strict and, often, very artificial, when there is consideration of the reality of the signor’s consent to the terms.

Exemption clauses are very unlikely to be spoken terms, and the situation in which oral statements become terms is not therefore addressed.

1

See para 3.71.

2

See para 1.8.

3

See para 1.10.

4

Parker v South Eastern Rly Co (1877) CPD 416 at 421; Roe v RA Naylor Ltd [1917] 1 KB 712 at 715; L’Estrange v F Graucob Ltd [1934] KB 394; The Luna [1920] P 22; Blay v Pollard and Morris [1930] 1 KB 628; Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805 per Denning LJ at 808; Bahamas Oil Refining Co v Kristiansands Tankrederie A/S, The Polyduke [1978] 1 Lloyd’s Rep 211; Singer (UK) Ltd v Tees and Hartlepool Port Authority [1988] 2 Ll R 164 at 166; Harvey v Ventilatoren-fabric Oelde Gmbh (1988) 8 Tr L 138; Charlotte Thirty Ltd and Bison Ltd v Croker Ltd (1990) 24 Con LR 46; JH Saphir (Merchants) Ltd v Zissimos Ltd [1960] 1 Ll Rep 490 at 499; Levison v Patent Steam Carpet Cleaning Co Ltd [1978] QB 69.

5

L’Estrange v F Graucob Ltd [1934] 2 KB 394 per Scrutton LJ at 403.

6

See para 1.18.

7

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1.4 In L’Estrange v F  Graucob Ltd8 the rule was applied9 to find that the signor was bound by an exemption clause: •

which she had not read,

•

which was printed on brown paper in ‘regrettably small print’, and

•

which left her with no remedy in relation to serious defects in the goods supplied.10

1.5 On occasion, this artificiality has been noted. In McCutcheon v David MacBrayne Ltd11 Lord Devlin considered what difference it made whether the document in question had been signed or not:12 ‘If it were possible for your Lordships to escape from the world of make-believe which the law has created into the real world in which transactions of this sort are actually done, the answer would be short and simple. It should make no difference whatever. This sort of document is not meant to be read, still less to be understood. Its signature is in truth about as significant as a handshake that marks the formal conclusion of a bargain’.

1.6 Any such artificiality of incorporation may now be relevant if an exemption clause falls within the reasonableness test in the Unfair Contract Terms Act 1977 (UCTA), where the reality of the consent to the terms may be considered.13 In addition, where the contract involves a consumer and a trader a realistic possibility for the consumer to become acquainted with the term is relevant to the question of whether it passes the fairness test under the Consumer Rights Act 2015 (CRA).14

Time 1.7 It is not possible to introduce new terms into a contract once entered15 (unless the contract itself contains provisions which permit the addition of terms) and that point can be made in the context of signed documents,16 as

[1934] 2 KB 394.

8

[1934] 2 KB 394 at 403.

9

The cigarette vending machine did not work satisfactorily and after a few days became jammed and unworkable.

10

[1964] 1 WLR 125.

11

At 133. See, to similar effect, Jones v Northampton Borough Council (1990) The Times, 21 May, Ralph Gibson LJ. See also Levison v Patent Steam Carpet Cleaning Co [1978] QB 69 per Lord Denning MR at 78; Bridge v Campbell Discount Co Ltd [1962] 1 All ER 385 per Lord Denning at 399: ‘They call it “agreed compensation for depreciation”. There is not the slightest evidence that the appellant ever agreed to it, and I do not suppose for one moment that he did. He simply signed the printed form. The contract is contained in a printed form. Not one hirer in a thousand reads it let alone understands it. He takes it on trust and signs it’.

12

See para 3.264.

13

See 4.195.

14

See para 1.43.

15

Grogan v Meredith Plant Hire and Triact Civil Engineering Ltd (1996) 15 Tr LR 371.

16

3

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it has often been in relation to unsigned documents or signs. It is, of course, possible to vary an existing contract.

Contractual document 1.8 As noted above it is necessary for the parties to sign a ‘contractual document’ if terms are to be incorporated. The relevance of whether a document appears to be of a type in which the reasonable person would expect to find contract terms is well recognised in the context of incorporation by notice. However, whether a document is ‘contractual’ is also a question which must be asked where the parties have signed.17 It may be that often the signor will have ‘signified her recognition’ that the document is contractual by signing it.18 But, in some cases, signature of a document may not lead to incorporation of the clauses it contains, on the basis that it is not a contractual document. It would seem that a ‘contractual document’ is one which is actually recognised as containing terms by the signor, or which the reasonable person would expect to contain terms:19 ‘taking account of the nature and purpose of the document’

and the ‘circumstances of its use between the parties’.20 1.9 In Grogan v Meredith Plant Hire and Triact Civil Engineering Ltd,21 signature of a time sheet did not incorporate the terms there referred to. The parties were already operating a contract. To be incorporated, any fresh terms referred to on the time sheet would have had to have been a variation of it, and the time sheet was not seen as a contractual document but as: ‘an essentially administrative and accounting document, raised in the execution of an existing contract’

and no clauses were incorporated from it.

Misrepresentation 1.10 A  misrepresentation as to the contents of a contractual document may limit its effect upon the signor.22 In Curtis v Chemical Cleaning and Dyeing Roe v RA Taylor Ltd [1917] 1 KB 712 per Atkin J at 715; Bahamas Oil Refining Co v Kristiansands Tankrederie A/S  (The Polyduke) [1978] 1 Lloyd’s Rep 211 per Kerr J  at 215: ‘If, as here, the document purports to have contractual effect, and is signed …’. Grogan v Meredith Plant Hire and Triact Civil Engineering Ltd (1996) 15 Tr LR 371.

17

Harvey v Ventilatoren-fabric Oelde GmbH (1988) 8 Tr LR 138, Kerr LJ.

18

Grogan v Meredith Plant Hire and Triact Civil Engineering Ltd (1996) 15 Tr LR 371 per Auld LJ at 373.

19

Grogan v Meredith Plant Hire and Triact Civil Engineering Ltd (1996) 15 Tr LR 371 per Auld LJ at 375.

20

(1996) 15 Tr LR 371.

21

Curtis v Chemical Cleaning and Dyeing Co Ltd [1951] 1  KB  805; Jones v Northampton Borough Council (1990) Times, 21 May, Ralph Gibson LJ; Harvey v Ventilatoren-fabric Oelde Gmbh (1988) 8 Tr L 138; Charlotte Thirty Ltd & Bison Ltd v Croker Ltd (1990) 24 Con LR 46, Lexis; Lloyd’s Bank plc v Waterhouse [1993] 2 FLR 97 per Woolf LJ at 120.

22

4

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Co Ltd23 a customer was asked to sign a document headed ‘receipt’ when she wanted her wedding dress to be dry-cleaned. She asked about the document and was told that it said that the cleaners would not be liable for damage to beads and sequins. The fabric of the dress was damaged through the negligence of the cleaners. On its face, the exemption clause in the ‘receipt’ was wide enough to cover that situation. However, the court held that, under the circumstances, it would not protect the cleaners. It is not clear from the differences in the views stated by the judges in this case: •

whether the clause never became part of the contract at all, or

• whether it could have protected the cleaners to the extent that it had been stated to operate, ie in relation to damage to beads or sequins.24 1.11 A misrepresentation may stem from the document itself. In Harvey v Ventilatoren-fabric Oelde GmbH,25 the parties had concluded oral negotiations and the defendants, a German company, sent to the plaintiffs, an English company, which did not speak or read German, two signed sets of contractual documents, for the plaintiff to sign. The documents were clearly intended to be duplicates of each other, but were not. One contained, in German, on its reverse, some standard terms, which the other did not – the rest of both documents was in English and was identical. The court concluded that the defendants could not rely on a jurisdiction clause which was only contained in the standard form clauses in German. There was a misrepresentation as, in the circumstances of the two sets of documents,

[1951] 1 KB 805.

23

Curtis v Chemical Cleaning and Dyeing Co Ltd [1951] 1 KB 805 per Somervell LJ at 808: ‘this exception never became part of the contract between the parties’; Denning LJ at 810: ‘when the signature to a condition, purporting to exempt a person from his common law liabilities, is obtained by an innocent misrepresentation, the party who has made the misrepresentation is disentitled to rely on the exemption’. But note Denning LJ at 809: ‘it was a sufficient misrepresentation to disentitle the cleaners from relying on the exemption, except in regard to beads and sequins’; the misrepresentation was that the clause only covered damage to beads and sequins. Lloyds Bank Ltd v Waterhouse [1993] 2 FLR 97 per Woolf LJ at 120: ‘As a result of the misrepresentation, the father was misled and the bank never having corrected the misrepresentation, is not entitled to rely on the guarantees which the father entered into if he would not have entered into those guarantees if there had not been a misrepresentation’. In AXA Sun Life Services plc v Campbell Martin Ltd and others and other appeals [2011] EWCA Civ 133 Rix LJ indicated that Denning LJ’s judgment was in fact the minority judgment (as the third judge in that case had agreed with Somervell LJ). Rix LJ agreed with the part of the judgement of Somervell LJ quoted above and indicated that an oral contract had come into being before the issue of the receipt came into play: ‘The receipt is only advanced when the dress has already been accepted for cleaning. The receipt is an attempt to vary the common law consequences of the cleaning contract. If nothing at all had been said, and the receipt had not been signed, it might have been said that the receipt’s exemption, never having been brought sufficiently to the plaintiff’s attention, had never become part of the contract. As it is, the receipt had to be signed: and the rule in L’Estrange v F Graucob Ltd [1934] 2 KB 394, [1934] All ER Rep 16 was invoked. Where, however, the effect of the receipt was misrepresented, it was not difficult to say that its exemption clause had not been incorporated into the contract.’ (from [105]).

24

(1988) 8 Tr L 138.

25

5

Chapter 1 Incorporation ‘it would be natural to conclude that the [German] material could be regarded as irrelevant’.

1.12 A  misrepresentation stemming from the documents themselves might occur in other circumstances. In one case it was suggested, for example, that where a document requires a customer ‘to recite that he [has] received, read and understood’ certain standard conditions, if those conditions had not, in fact been produced by the other party, the customer who had actually read the document might conclude the standard conditions were not relevant to the particular contract, and there could be seen to have been a misrepresentation.26 Of course, there could be no such misrepresentation if the relevant document had not been read – there can be no reliance, and no misrepresentation, if the representation is not known to the representee.27 1.13 It would seem that there can be no misrepresentation that a contractual document does not contain unfair terms simply in one party giving it to the other to sign.28 However, where one party colloquially assured another that there were no ‘wobblers’ in his terms, that was seen as a misrepresentation that they contained no ‘unfair contract terms’.29

Developments?30 1.14 The artificiality31 which may be present in the incorporation of a clause by signature has not gone uncriticised, and it has been argued32 that the common law could escape from it by following the approach taken in Smith v Hughes33 and considering whether the party putting forward the document for signature realised, or should have realised as a reasonable person, that the signor was not intending to agree to the clauses there set out. Such an approach is not unknown elsewhere.

Jones v Northampton Borough Council (1990) Times, 21 May, Ralph Gibson LJ.

26

For example, Re Northumberland and District Banking Co, ex p Bigge (1858) 28 LJ Ch 50; Horsfall v Thomas (1862) 1 H&C 90.

27

Silence, in itself, is not a misrepresentation (Turner v Green [1895] 2 Ch 205; Fletcher v Krell (1872) 42  LJQB  55; Keates v Earl of Cadogan (1851) 10  CB  591), but see Curtis Chemical Cleaning and Dyeing Co Ltd [1951] 1 KB 805 per Denning LJ at 809. However, there can be a misrepresentation through revealing only selective, but misleading facts (as was the case in Notts Patent Brick and Tile Co v Butler (1886) 16 QBD 778). See also Commissioner for the New Towns v Cooper (Great Britain) Ltd [1995] Ch 259 – the wording of the agreement was literally wide enough to cover the matter contended for by D, but (a) it was construed as limited to matters specifically raised and (b) if it was not so limited, it would have been rectified to be so limited. D had raised specific issues to divert attention from those it was really concerned with.

28

Charlotte Thirty Ltd and Bison Ltd v Croker Ltd (1990) 24 Con LR 46, Lexis.

29

See further Macdonald ‘The Emperor’s Old Clauses: Misleading Terms and the Unfair Terms in Consumer Contracts Regulations’ (1999) 58 CLJ 413.

30

See para 1.8.

31

Spencer ‘Signature, Consent and the Rule in L’Estrange v Graucob’ [1973] CLJ 104.

32

(1871) LR 6 QB 597.

33

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Chapter 1 Incorporation

1.15 In the Canadian case of Tilden Rent-A-Car v Clendenning34 unusual and onerous printed clauses were not incorporated and the line was taken that signature could only be relied upon as showing assent to a document when it was reasonable for the person relying on the signed document to believe that the signor assented to its contents. In fact it has been contended that the line taken in Grogan v Meredith Plant Hire35 ‘might suggest’ that the courts in England and Wales ‘are not very far away from’ embracing the approach taken by the Canadian Court.36 In addition, it has also been suggested that the reasoning on the ‘red hand rule’ in the context of incorporation by notice in Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd37 could provide a basis for a requirement that the signor’s attention be drawn to onerous or unreasonable clauses if they are to be incorporated by signature.38 Some indications of judicial readiness to extend the ‘red hand rule’ into the context of signed contracts can be found,39 but the comments of the courts more generally seem to indicate an unwillingness to make such an extension.40 In addition, the uncertainty which the ‘red hand rule’ adds to incorporation by notice has been criticised,41 whereas the current, mechanical, approach to incorporation by signature is one which generates a great deal of certainty and that may be seen as important. ‘A  signature is, and is widely recognised even by the general public as, a formal device, and its value would be greatly reduced if it could not be treated as a conclusive ground of contractual liability at least in all ordinary circumstances’.42

1.16 Indeed, it was the certainty aspect of the current approach to signature which was emphasised by the Employment Appeal Tribunal in

(1978) 83 DLR (3d) 400. See also Trigg v MI Movers International Transport Services Ltd (1991) 84 DLR (4th) 504.

34

[1996] CLC 1127.

35

See McKendrick Contract Law (Macmillan, 1997, 3rd edn) 161.

36

[1988] 1 All ER 348.

37

Rutherford & Wilson ‘Signature of a Document’ (1998) 148  NLJ  380; Downes Textbook on Contract (5th edn) at 5.7.2.

38

Eg in Ocean Chemical Transport Inc v Exnor Craggs Ltd [2000] 1  All ER  519. In response to council’s suggestion that ‘the Interfoto test … has to be applied, even in a case where the other party has signed an acknowledgement of the terms and conditions and their incorporation’, Evans LJ said at [48] that it seemed to him that council ‘could be right in what might be regarded as an extreme case, where signature was obtained under pressure of time or other circumstances …’. See also Montgomerey Litho Ltd v Maxwell 2000 SC 56.

39

Yoldings v Swann (unreported, 12 October 2000); Jonathan Wren & Co Ltd v Microdec plc 65 Con LR 157; Bankway Properties v Penfold-Dunsford [2001] 1 WLR 1369 at [15]; HIH Casualty and General Insurance Ltd v New Hampshire Co [2001] 2 Lloyd’s Rep 161 at [209].

40

AEG (UK) Ltd v Logic Resources Ltd [1996] CLC 265 per Hobhouse LJ at 277.

41

P S Atiyah ‘Form and Substance in English Law’ in Essays in Contract (OUP, 1986) at 109. See also E McKendrick Contract Law: Text Cases and Materials (OUP, 2003) at 344–5.

42

7

Chapter 1 Incorporation

Peninsula Business Services Ltd v Sweeney43 in denying the extension of the ‘red hand rule’ to the context of incorporation by signature44. It was said:45 ‘It would make for wholly unacceptable commercial uncertainty if it were open to B who has signed a written agreement to say that he was not bound by one of the terms expressly contained in it because A had not first drawn his attention expressly to it’.

1.17 Further, the point should be made that the approach of the Canadian Court was taken at about the same time as UCTA was introduced in the UK. The protection afforded by UCTA, and now the unfair terms provisions in CRA, limits considerably the impetus to deal with unfair terms by placing fresh restrictions on their incorporation,46 particularly when the method of incorporation is one in relation to which the certainty produced by the current law is emphasised.47 In reasserting the basic L’Estrange approach to incorporation by signature, and its certainty, the High Court of Australia commented:48 ‘In most common law jurisdictions, and throughout Australia, legislation has been enacted in recent years to confer on courts a capacity to ameliorate in individual cases hardship caused by the strict approach of legal principle to contractual relations. As a result there is no reason to depart from principle, and every reason to adhere to it, in cases where such legislation does not apply, or is not invoked’.

Non est factum49 1.18 In general, in the absence of fraud or misrepresentation, someone who has signed a contractual document cannot escape its obligations by claiming they were mistaken as to its effects. However, exceptionally a contract

[2004] IRLR 49.

43

Referring to Ocean Chemical Transport Inc v Exnorr Craggs [2000] 1 All ER 519 (above fn 40). The EAT did leave open a possible distinction in relation to some case where terms are not included in full in the signed document, but merely referred to therein – Peninsula Business Services Ltd v Sweeney [2004] IRLR 49, [25].

44

[2004] IRLR 49, [23].

45

But see Law Com No 242, para 13.10(iv), fn 10 – see further p 300.

46

In the light of this, the very narrow approach taken by the EAT in Peninsula Business Services Ltd v Sweeney [2004] IRLR 49 to the scope of s 3(2)(b) of the Unfair Contract Terms Act 1977 may be seen as unfortunate (see further below p 129 for the questions raised by this approach more generally).

47

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] 219 CLR 165 at [48]; E Peden and J Carter ‘Incorporation of Terms by Signature: L’Estrange rules’ (2005) 21 JCL 1.

48

Saunders v Anglia Building Society (Gallie v Lee) [1971]  AC  1004; Thoroughgood’s case (1854) 2 Co Rep 9a, b; Foster v Mackinnon (1869)  LR  4  CP  704; Hunter v Walters (1871)  LR  7 Ch App 75; National Provincial Bank of England v Jackson (1886) 33 Ch D 1; King v Smith [1900] 2 Ch  425; Howatson v Webb [1907] 1 Ch  537 (affd [1908] 1 Ch  1); Muskham Finance Ltd v Howard [1963] 1 QB 904; United Dominion Trust v Western [1976] QB 513; Avon Finance Co Ltd v Bridger [1985] 2 All ER 281; Norwich and Peterborough Building Society v Steed (No 2) [1993] 1 All ER 330; Lloyd’s Bank plc v Waterhouse [1993] 2 FLR 97; cf Asset Finance Limited v Okonji and Shaw [2014] EWCA Civ 870, 27.

49

8

Chapter 1 Incorporation

will be void on the basis of a plea of non est factum. The three key elements to raise a successful plea of non est factum were stated in a recent case as: ‘(a) The belief of the signer that the person is signing a document of one character or effect whereas its character and effect were quite different. (b) The need for some sort of disability which gives rise to that state of mind. (c) The plea cannot be invoked by someone who does not take the trouble to find out at least the general effect of the document.’50

1.19 In the leading modern authority in the area, Saunders v Anglia Building Society51 the court stated: ‘the plea of non est factum ought to be available in a proper case for the relief of a person who for permanent or temporary reasons (not limited to blindness or illiteracy) is not capable of both reading and sufficiently understanding the deed or other document to be signed. By “sufficient understanding” I mean understanding at least to the point of detecting a fundamental difference between the actual document and the document as the signer had believed it to be. There must be a proper case for such relief. There would not be a proper case if (a) the signature of the document was brought about by the negligence of the signer in failing to take precautions which he ought to have taken, or (b) the actual document was not fundamentally different from the document the signer believed it to be.’52

1.20

The plea must be:

‘kept within narrow limits if it is not to shake the confidence of those who habitually and rightly rely on signatures when there is no obvious reason to doubt their validity’.53

In particular, the law often has to choose which, of two innocent parties, is to suffer: • the one who signed a document, who believes that the effect of the document is other than they thought it to be; or •

the third party who was induced to act on the faith of the apparently valid, signed document.

1.21 It is ‘almost invariably the latter’ who is protected,54 and that requires a restrictive approach to be taken to a doctrine, such as non est factum, which is capable of rendering a contract void and not merely voidable, because of the consequences that flow from a contract which is void: ‘The court’s desire to confine the effectiveness of a plea of non est factum to very limited circumstances has undoubtedly been dictated by its legal consequences. To declare the contract a nullity has obviously serious and adverse consequences for third parties who may have relied on the contents of the document such as

Yedina v Yedin and another [2017] EWHC 3319 (Ch), [2017] All ER (D) 111 (Dec), para 264.

50

(Gallie v Lee in the courts below) [1971] AC 1004.

51

[1971] AC 1004 at 1034.

52

ibid, at 1015.

53

Norwich and Peterborough Building Society v Steed (No 2) [1993] 1 All ER 330 per Scott LJ at 337.

54

9

Chapter 1 Incorporation the claimant in this case. Their interests cannot be protected or at least taken into account by the court as they might have been had the contract been voidable for misrepresentation and what the appellants were seeking was equitable rescission.55’

1.22

No distinction is made:

‘between on the one hand, the careless signing of a document which is complete when it is signed … and, on the other hand … the careless signature of a document in blank, where it is left to somebody … to fill it in in a particular way’.56

Who can claim 1.23 Originally, the plea of non est factum was available to assist the blind or illiterate who could not, themselves, read the deeds they executed and had to rely on others.57 As indicated above in Saunders v Anglia Building Society,58 the modern law is not limited to that case. In this case the court also explained59 that a plea of non est factum might protect: ‘those who are permanently or temporarily unable through no fault of their own to have without explanation any real understanding of the purport of a particular document, whether that be from defective education, illness or innate incapacity’.

1.24 The possibility of someone of ordinary capacity being able to rely on a claim of non est factum was not entirely denied but a suitable situation is, obviously, unlikely to occur60 – particularly in the light of the emphasis placed upon the requirement that a successful plea cannot be made out by someone who was careless.61 1.25 An examination of the requirements for the plea in general might lead to the conclusion that it is not necessary to establish appropriate categories of those who can make the claim, such as the blind and illiterate. That it is necessary only to consider whether the person concerned was careless in signing the document, without a proper understanding of it. Such an approach was expressly denied in Saunders v Anglia Building Society (Gallie v Lee) as too ‘“permissive” in its tone’.62 Although: ‘if a person forbears to read the document, he nearly always should be reckoned as negligent or otherwise debarred from succeeding on the plea of non est factum’.63

cf Asset Finance Limited v Okonji and Shaw [2014] EWCA Civ 870, 27.

55

United Dominion Trust Ltd v Western [1975] 3 All ER 1017 per Megaw LJ at 1022.

56

Thoroughgood’s case (1854) 2 Co Rep 9a, b. See Saunders v Anglia Building Society (Gallie v Lee) [1971] AC 1004 per Lord Reid at 1016.

57

See para 1.18 above.

58

Saunders v Anglia Building Society (Gallie v Lee) [1971] AC 1004 at 1025.

59

ibid, per Lord Reid at 1016, per Lord Wilberforce at 1026–1027, Lord Pearson at 1035.

60

[1971] AC 1004: see below.

61

ibid, per Lord Pearson at 1035.

62

ibid.

63

10

Chapter 1 Incorporation

1.26 It is irrelevant that the person (‘other party’) asking for the document to be signed had no knowledge of the ‘disability’ or ‘incapacity’ of the signor – as within the narrow confines that it operates, the doctrine renders a contract void because the signor did not properly consent, and the other party’s knowledge is irrelevant to that lack of consent, as such.64

Difference in the document 1.27 In order for the plea to be successful, there has to be sufficient degree of significance in the difference between the document as it is and as it was believed to be. The idea, stemming from Howatson v Webb,65 that a difference in the ‘character’, but not the contents, of a document, could ground a plea was dismissed in Saunders v Anglia Building Society. The document must be ‘essentially different in substance or kind’ from the transaction intended. It is possible to use many other expressions or adjectives, such as – ‘“basically”, or “radically” or “fundamentally”’.66 1.28 For example, in Lloyd’s Bank plc v Waterhouse an ‘all monies’ guarantee was viewed as ‘fundamentally’ different from a guarantee restricted to the money borrowed for the purpose of purchasing land, even though there actually was an overall limit on the amount guaranteed.67 1.29 In Saunders v Anglia Building Society the difference required was viewed from the perspective of the ‘practical result’ so that: ‘if a man thinks he is signing a document which will cost him £10 and the actual document would cost him £1,000 it would not be right to deny him his remedy simply because the legal character of the two was the same’.68

In this case the court focussed on: ‘[The] importance [that] should be attached to the “object of the exercise”, when dissimilar legal documents may have similar practical effects’.69

1.30 In other words, there will not be a sufficient degree of difference if the documents achieve the envisaged result, even if they do so in a different way from that which the signor intended.70

Lloyd’s Bank plc v Waterhouse [1993] 2 FLR 97 per Purchas LJ at 111.

64

[1907] 1 Ch 537 (affd [1908] 1 Ch 1).

65

Saunders v Anglia Building Society (Gallie v Lee) [1971] AC 1004 per Lord Wilberforce at 1026. See also Lord Reid at 1017, Lord Pearson at 1039, Viscount Dilhorne at 1021.

66

Lloyd’s Bank plc v Waterhouse [1993] 2 FLR 97 per Purchas LJ at 112. But see Woolf LJ at 121, who did not view the difference as sufficient for the doctrine of non est factum to apply: ‘the difference was confined to the degree of risk of being liable to pay precisely the same sum’.

67

Saunders v Anglia Building Society (Gallie v Lee) [1971] AC 1004 at 1017.

68

ibid, per Lord Pearson at 1031.

69

As in [1971] AC 1004.

70

11

Chapter 1 Incorporation

The difference can also extend to the signor of the document believing they are signing in one capacity but, in effect, they are signing in another. In Trustees of Beardsley Theobalds Retirement Benefit Scheme v Yardley71 the defendant believed he was signing in the capacity of a witness to other signatures and not becoming the guarantor of the payment of rent.72

Signing uncompleted documents 1.31 A  person who signs a document but leaves it to another to fill in certain details and use the document as completed to finalise a matter or transactions may be able to rely on a plea non est factum. However, this is only likely to be the case where the nature of the transaction (where the other has filled in details which are not as the first person intended) is so different in substance or kind from the type of matter or transaction which the first person had in mind. Where a document is not completed when signed but then completed by another does not in itself deprive the signor from using the plea of non est factum.73 This fact does not change the substance of the document, the nature of the transaction or the signor’s understanding of the document: ‘I cannot accept [the advocate for the defendant’s] submission that there is great difference between signing blind a completed document the contents of which one has not read and signing a printed document, as here, with the blanks for the particular transaction not filled in but agreeing to, or authorising, another to fill in those blanks and the figures later. It seems to me that such a man does make the document that he is signing his document; he takes responsibility for it; and he takes the chance of a fraudulent filling in of the blanks. True, it is technically a different situation from signing a completed document; but I  think it to be a distinction without a substantial difference. It appears to me that the plea of non est factum is just not available to such a man; he cannot be heard to say in those circumstances that there is no consensus ad idem.’74

1.32 Based on this it is hard to see how a person could successfully plead non est factum where they have entrusted a document which they have signed but contains blanks for another to complete. For example, in a later case, C F Asset Finance Limited v Okonji and Siaw, where the court held it was:

[2011] EWHC 1380 (QB), [2011] All ER (D) 170 (Oct).

71

Trustees of Beardsley Theobalds Retirement Benefit Scheme v Yardley [2011]  EWHC  1380 (QB), [2011] All ER (D) 170 (Oct), [29]. The way the document was presented to the defendant was that the pages were folded so that only the signature page was shown to the defendant. The signature page contained no wording to indicate it was the last page of a lease and ‘and that someone with no legal training presented with that page and thinking that they were being asked to witness a signature or signatures in a way that they had been asked to sign many other previous documents would not appreciate that he was signing up to be the guarantor of an annual payment of rent in excess of £30,000 for a period of 15 years.’

72

United Dominion Trust v Western [1976] QB 513.

73

ibid at 523.

74

12

Chapter 1 Incorporation ‘inapplicable in United Dominions Trust Ltd because of the negligence of the defendant in taking the risk that his signature of the uncompleted agreement would not be misused.’75

1.33 It is possible to interpret this statement as almost tantamount to saying that in almost any circumstance a person who gives a document to another which the first person has signed but contains blanks amounts to negligence and it would be ‘a heavy burden on the person who seeks to invoke the remedy’ in this circumstance.76 1.34 In this case one of the solicitors in a firm of solicitors was persuaded by a salesperson to consider hiring certain computer equipment through the use of finance (rather than the preference of the solicitor to buy the equipment outright). The solicitor doubted whether her credit rating was sufficient, but she signed a blank regulated hire agreement and a blank certificate of acceptance which the judge at first instance found had been for the purpose of establishing whether her credit rating was sufficient to enable the hiring to go ahead. The documents were used by the salesperson to enter into the finance agreement. The solicitor defendants were able to argue that they successfully revoked the offer they had made before being accepted by the finance company, and the issue of non est factum was not directly relevant to the deciding the case but the judgment provided detailed consideration of it. 1.35 The court accepted the first instance finding that the solicitor was negligent in signing the document, but also she could not rely on the fact that she had made a mistake as to the nature of the document as: ‘[she] was not least confused as to what she was signing but believed that [the salesperson] would only use it for the purpose of ascertaining her credit status.’77

1.36 So that the solicitor was unable, (as the onus was on her to plead non est factum) to say she was not negligent or that she did not understand the nature of the document: ‘But it is important to keep in mind that the defendant who relies on the doctrine of non est factum must establish not only that his release of the signed document was not negligent but also that his understanding of the nature of the document was so

C F Asset Finance Limited v Okonji and Siaw [2014] EWCA Civ 870, [26].

75

ibid [36]. The Court of Appeal and the judge at first instance were critical of the solicitor signing blank documents, as in that paragraph the Master of the Rolls stated: ‘The judge rejected the defence on the grounds that [solicitor]’s decision to sign a blank hire agreement with [the finance company] … was negligent: …. There has been no appeal from that finding. It is fatal to a reliance on the defence of non est factum. It is extraordinary that … a practising solicitor, was persuaded to sign a document which (i) on its face stated that it was a “Hire Agreement Regulated by the Consumer Credit Act 1974” and (ii) contained a box in which her signature appears with the words “This is a Hire Agreement regulated by the Consumer Credit Act 1974. Sign it only if you want to be legally bound by its terms”. It is clear from the case-law, including the leading authority of [Saunders v Anglia Building Society], that a person may not raise the defence of non est factum if he has been guilty of negligence in appending his signature to the document which he wishes to disown.’

76

C F Asset Finance Limited v Okonji and Siaw [2014] EWCA Civ 870, [28] see also [37].

77

13

Chapter 1 Incorporation fundamentally different from what the document actually was as to enable him to disown his signature to it.’

1.37 Besides the issue of the negligence of the solicitor in signing a blank form, the mistake she made as to the use of the document was equated by court, in effect, to the mistake made by the signor of the document in Saunders v Anglia Building Society (that a mistake as to the identity of the assignee was not enough to come within the protection offered by a plea of non est factum) because the document in question in that case was not ‘radically different in character’ from what the signor believed she was signing. In this latter case, involving the solicitor, there was not misapprehension as to the nature of the document, just as to the use that would be made of the document: ‘[there] is not a misapprehension as to the nature of the document and she is unable to say that what she thought she had signed was something different from what she in fact signed.’78

Signor’s belief 1.38 The doctrine is not available where there is no belief as to the contents of the document by the signor: ‘the essence of the plea of non est factum is that the person signing believed that the document which he signed had one character or effect whereas in fact its character or effect are quite different’.79

If someone signs a document just because a trusted adviser tells him, or her, to, then the signor’s: ‘intention is to sign the deed that is placed before him, whatever it may be’

and the risk which that person then decided to take cannot be avoided by the use of the doctrine of non est factum.80

Not negligent 1.39 In order for a plea of non est factum to be successful, the signor must establish that he, or she, was not negligent.81 In this context: ‘the word “negligence” has no special, technical meaning. It [means] carelessness’82

C F Asset Finance Limited v Okonji and Siaw [2014] EWCA Civ 870, [31], [38].

78

Saunders v Anglia Building Society (Gallie v Lee) [1971] AC 1004 per Lord Reid at 1016.

79

ibid, per Lord Pearson at 1035–1036.

80

ibid, per Lord Reid at 1016, Lord Hodson at 1018, Lord Wilberforce at 1027, Lord Pearson at 1037; Norwich and Peterborough Building Society v Steed (No 2) [1993] 1 All ER 330 at 337; Avon Finance Co Ltd v Bridger [1985] 2 All ER 281 per Brandon LJ at 287.

81

Saunders v Anglia Building Society (Gallie v Lee) [1971] AC 1004 per Lord Pearson at 1037.

82

14

Chapter 1 Incorporation

and that point was emphasised in Saunders v Anglia Building Society in dismissing, as wrong, the approach taken in Carlisle and Cumberland Banking Co v Bragg83 that the innocent third party had to show that the signor owed him a duty of care, if this element of the doctrine was to apply. 1.40 What amounts to negligence will depend upon the circumstances of the particular case, but it has been said that: ‘the donor of a power of attorney who appoints as his attorney a person incapable of understanding the import of a simple transfer can hardly be allowed, if the donee signs without any understanding of what he or she is doing, to repudiate the transfer on the ground of lack of understanding of the donee’.84

1.41 In general, it would seem that the standard of care which must be taken by the signor must take account of the ‘disability’ or ‘incapacity’ under which he, or she, is labouring85 – in that sense it is a subjective86 requirement. But the care required should be that which would be taken by a reasonable person with the relevant ‘disability’ or ‘incapacity’. It has been said that it is not negligent of the person under an ‘incapacity’, such as illiteracy, not to disclose it.87

Notice – standard form or unsigned documents88 Introductory points 1.42 For a standard form (or unsigned) document to be binding it is necessary to decide: •

whether any provision is particularly onerous or unusual; and

• whether or not the provision is onerous or unusual ‘was it fairly and reasonably brought to the attention’ of the other party.89 Although it is necessary for one party to bring terms and conditions to the attention of the other, doing so is not sufficient for the provisions or the terms and conditions to become a term of the contract.90

[1911] 1 KB 489.

83

Norwich and Peterborough Building Society v Steed (No 2) [1993] 1 All ER 330 per Scott LJ at 337.

84

Saunders v Anglia Building Society (Gallie v Lee) [1971] AC 1004 per Viscount Dilhorne at 1023; National Provincial Bank of England v Jackson (1886) 33 Ch D 1.

85

Lloyd’s Bank plc v Waterhouse [1993] 2 FLR 97 per Purchas LJ at 114.

86

ibid. But see Woolf LJ at 121.

87

Clarke (1976) 35 CLJ 51.

88

Goodlife Foods Ltd v Hall Fire Protection Ltd [2018]  EWCA  Civ 1371, [5], [29]; and Bates and Others v Post Office Ltd [2019] EWHC 606 (QB), [976].

89

Aldrees and another v Rotex Europe Ltd (company number 04307924) [2019] EWHC 574 (TCC), [173].

90

15

Chapter 1 Incorporation

Time 1.43 No document or sign can introduce new terms into an existing contract once it has been concluded.91 So there could be no incorporation: •

of clauses printed on a ticket produced by a machine when the contract was concluded by putting money into the machine;92 or

•

of terms on a sign in a hotel bedroom when the contract was made at the reception desk.93

1.44 In appropriate cases, however, clauses may be incorporated not because of the notice provided in the instant case, which is too late, but because there has been a sufficient course of past dealings between the parties to do so.94 In addition, an attempt to introduce late terms might lead the parties to vary the existing contract.95

Notice – when required/of what? 1.45 When the question arises as to the incorporation of clauses in an unsigned document (or in a sign) by the person who seeks to incorporate the clauses and who wishes to rely on it96 (‘first party’), there is obviously no difficulty in finding them to be terms when they have been read and understood by the other party to be the basis on which the first party was intending97 to contract. In that situation, that other party’s acceptance will clearly encompass the first party’s clauses:98

Parker v South Eastern Rly Co (1877) 2 CPD 416 per Bramwell LJ at 426; Thornton v Shoe Lane Parking [1971] 2 QB 163; Olley v Marlborough Court Ltd [1949] 1 KB 532; Burnett v Westminster Bank Ltd [1966] 1 QB 742; Hollingworth v Southern Ferries Ltd [1977] 2 Ll Rep 70; Daly v General Steam Navigation Co Ltd [1979] 1 Ll Rep 257; Dillon v Baltic Shipping Co, The Mikhail Lermontov [1991] 2 Ll Rep 155; Metaalhandel JA Magnus BV v Aarfields Transport Ltd [1988] 1 Ll Rep 197 at 204; Cockerton v Naviera Aznar SA [1960] 2 Ll Rep 451; Mendelssohn v Normand Ltd [1970] 1 QB 177 at 184.

91

Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163.

92

Olley v Marlborough Court Hotel Ltd [1949] 1 KB 532.

93

For example J Spurling Ltd v Bradshaw [1956] 1 WLR 461.

94

As was argued to be the case in Grogan v Meredith Plant Hire (1996) Tr L Rep 371: the argument was unsuccessful, the document was not found to be contractual: see para 1.7.

95

In the context of an exemption clause, it is unlikely not to be the person who sought to incorporate such a clause who then seeks to rely on it. It could occur in the situation where standard terms are used throughout a trade by both parties to it, but in that situation, it is unlikely that non-incorporation will be argued – the trade practice will assist with incorporation. There are additional problems, which do not arise here, but which arise in construing a clause in the possible need to distinguish the situation where the person seeking to rely on a clause did not draft it: see 2.42.

96

Olley v Marlborough Court Hotel [1949] 1 KB 532 at 549; Hollingworth v Southern Ferries Ltd (The Eagle) [1977] 2 Ll Rep 70.

97

Parker v South Eastern Rly Co (1877) 2  CPD  416 per Mellish LJ at 421, Bagallay LJ at 425, Bramwell LJ at 426; Harris v Great Western Rly Co (1876) 1 QBD 515.

98

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Chapter 1 Incorporation ‘The customer is bound by the exemption condition if he knows the ticket is issued subject to it’.99

In fact, where the clauses are not unusual or unreasonable, and they are accessible,100 knowledge of their mere existence and of the first party’s intention that they be used as terms should suffice.101 In one case it was suggested that the same should apply where the other party (that the first party had sought to bind): ‘was well aware that there were most probably terms and conditions and, had he chosen to do so, he could have read them’.102

1.46 However, in other cases, the basic test for the incorporation of terms from an unsigned document (or in a sign) or a combination of the two,103 is whether the party putting forward the terms provided ‘reasonably sufficient’ notice.104 In cases where there are no unreasonable or unusual clauses, this need only relate to their existence and the first party’s intent to use them as terms of the contract.105 This means that when notice is provided, it is not normally necessary to include the clauses themselves, but merely a reference to them and the place where it is possible to find them.106

Thornton v Shoe Lane Parking Ltd [1971] 1 All ER 686 per Lord Denning MR at 689.

99

They are present or it is clear where they may be found.

100

Harris v Great Western Rly Co (1876) 1  QBD  515 per Mellor J  at 524; Parker v South Eastern Rly Co (1877)  CPD  416 per Mellish LJ at 421, Bagallay LJ at 425. If none of the clauses is unreasonable or unusual, it should also suffice if they are accessible, there is knowledge of their existence, and the reasonable person would realise that the proferens intended them as contract terms. Moores v Yakely Associates Ltd (1998) 62 Con LR 76, Dyson J, point 20.

101

Lacey’s Footwear v Bowler International [1997] 2 Ll Rep 367 per Beldam J at 379; Parker v South Eastern Rly Co (1877) CPD 416 per Bagallay LJ at 425.

102

Alexander v Railway Executive [1951] 2 KB 882 at 886.

103

Parker v South Eastern Rly Co (1877)  CPD  416 per Mellish LJ at 424; Hood v Anchor Line (Henderson Bros) Ltd [1918]  AC  837; Richardson, Spence & Co v Rowntree [1894]  AC  217; Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163; Thompson v London Midland and Scottish Rly Co [1930] 1 KB 41 at 54. Nunan v Southern Rly Co [1923] 2 KB 703 per Swift J at 707: ‘If there be an issue as to whether the document contains the real intention of both the parties the person relying on it must show either that the party knew what he was writing contained conditions or that the party delivering them had done what was reasonably sufficient to give notice of the conditions’.

104

Moores v Yakeley Associates Ltd (1998) 62 Con LR  76, per Dyson J, point 20: ‘Clause 6 is in common form in a standard form of contract. All that the defendant was obliged to do was fairly bring to the plaintiff’s attention the fact that some conditions would be attached to the agreement between the parties’.

105

Thompson v London, Midland and Scottish Rly Co [1930] 1 KB 41; Smith v South Wales Switchgear Ltd [1978] 1 WLR 165; Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Ll Rep 427; Poseidon Freight Forwarding Co Ltd v Davis Turner Southern Ltd [1996] 2 Ll Rep 388 at 392–393.

106

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1.47 In relation to clauses which are unusual or unreasonable,107 the party putting forward the terms will need to make additional efforts if it is to provide ‘reasonably sufficient’ notice. And that additional effort should extend to the situation where the existence of the clauses, but not their contents, is made known to the other party that the party putting forward the terms seeks to bind the other party. 1.48 Just as in relation to incorporation by signature,108 fraud or misrepresentation as to clauses in unsigned documents or in signs should prevent them being relied upon, at least to the extent that they were misrepresented.109 Where examples of the clauses contained in a standard form are provided, as well as the simple reference to that standard form, those examples may be misleading110 and constitute a misrepresentation if they are read.

Notice – basic test 1.49 When notice is required to incorporate terms from unsigned documents, the basic test was ‘stereotyped’111 in Parker v South Eastern Rly Co112 as to whether the party putting forward the terms: ‘did what was reasonably sufficient to give the [other party] notice of the condition’.113

It has also been put in terms of whether: ‘reasonable notice of the terms [has] been given’114

or, even, whether the clause was:

J Spurling Ltd v Bradshaw [1956] 1 WLR 461; Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163; Hollingworth v Southern Ferries Ltd, The Eagle [1977] 2 Ll Rep 70; Interfoto v Stiletto Visual Programmes [1988] 1 All ER 348; Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Ll Rep 427; AEG (UK) Ltd v Logic Resources Ltd [1996] CLC 265; Ceval Alimentos SA v Agrimpex Trading Co, The Northern Progress (No 2) [1996] CLC 1529.

107

See para 1.2.

108

Mendelssohn v Normand Ltd [1970] 1  QB  177, Phillimore LJ. See also Roe v R  A  Naylor Ltd [1917] 1 KB 712 at 714–715; H Glyn (Covent Garden) Ltd v Wittleder [1959] 2 Lloyd’s Rep 409; AEG (UK) Ltd v Logic Resource Ltd [1996] CLC 265 at 277.

109

See the discussion in AEG (UK) Ltd v Logic Resources Ltd [1996] CLC 265.

110

Hood v Anchor Line (Henderson Bros) Ltd [1918] AC 837 per Lord Dunedin at 846.

111

(1877) 2 CPD 416.

112

Parker v South Eastern Rly Co (1877) 2 CPD 416 at 424; Hood v Anchor Line (Henderson Bros) Ltd [1918] AC 837; Richardson, Spence & Co v Rowntree [1894] AC 217; Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163; Thompson v London Midland and Scottish Rly Co Ltd [1930] 1 KB 41 at 54. In Parker Mellish LJ apparently also stated a more detailed test: see further p 24.

113

Keeton Sons & Co Ltd v Carl Prior Ltd [1986] BTLC 30, Ackner LJ; Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Ll Rep 427; AEG (UK) Ltd v Logic Resource Ltd [1996] CLC 265.

114

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Chapter 1 Incorporation ‘fairly brought to the attention of the other party’,115

although this latter formulation is primarily used when an unusual or unreasonable term is being considered. If no unreasonable or unusual clauses are included, such notice merely relates to their existence as intended terms.116 1.50 Where unreasonable or unusual clauses are included, notice will, at least, be required that terms of the relevant type are intended.117 The test of reasonably sufficient notice is objective and in Parker v South Eastern Rly Co Mellish LJ said:118 ‘The railway company … must be entitled to make some assumptions respecting the person who deposits luggage with them: I think they are entitled to assume that he can read, and that he understands the English language …’.

1.51 The question is one of sufficiency of notice for the reasonable person, not the particular individual, and the difficulty a particular individual would have in becoming acquainted with the terms, but which a ‘reasonable’ person would not experience, will not affect incorporation. This would apply, for example, to the individual who is illiterate119 or unable to understand English. The situation may however be different if the difficulty of the individual,120 or the type of individual,121 was known to the party putting forward the terms, or should have been realised by the party putting forward the terms, as a reasonable person. 1.52 The basic test of ‘reasonably sufficient notice’ is one of fact122 and will depend upon the circumstances of each case. The type of transaction will be relevant. In Parker v South Eastern Rly Co the court commented123 that the railway company was

Thornton v Shoe Lane Parking Ltd [1971] 2  QB  163 per Megaw LJ at 172; Interfoto Picture Library Ltd v Stiletto Visual Programs Ltd [1988] 1 All ER 348; AEG (UK) Ltd v Logic Resource Ltd [1996] CLC 265.

115

See para 1.78 in relation to incorporation by reference.

116

See para 1.62.

117

Parker v South Eastern Rly Co (1877) 2 CPD 416 at 423.

118

Thompson v London Midland and Scottish Rly Co [1930] 1 KB 41; Sugar v London Midland and Scottish Rly Co [1941] 1 All ER 172 at 173.

119

Geier v Kujawa Weston and Warne Bros (Transport) Ltd [1970] 1 Lloyd’s Rep 364.

120

Richardson, Spence & Co v Rowntree [1894]  AC  217 at 223; Cooke v T  Wilson & Co (1915) 85 LJKB 888 at 896.

121

Hood v Anchor Line (Henderson Bros) Ltd [1918] AC 837 at 844; Cooke v T Wilson, Sons & Co Ltd (1915) 85 LJKB 888; Nunan v Southern Rly [1923] 2 KB 703 at 705; Thompson v London Midland and Scottish Rly Co [1930] 1 KB 41 at 52; Cockerton v Naviera Aznar SA [1960] 2 Ll Rep 450 at 459; Keeton Sons & Co Ltd v Carl Prior Ltd [1986] BTLC 30, Ackner LJ; Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Ll Rep 427; Lacey’s Footwear (Wholesale) Ltd v Bowler International Freight Ltd [1997] 2 Lloyd’s Rep 369; AEG (UK) Ltd v Logic Resource Ltd [1996] CLC 265. But see Henderson v Stevenson (1875) LR 2 Sc & Div 470; Sugar v London Midland and Scottish Rly Co [1941] 1 All ER 172; White v Blackmore [1972] 2 QB 651.

122

Parker v South Eastern Rly Co (1877) 2 CPD 416 at 423.

123

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Chapter 1 Incorporation ‘entitled to assume … that [the other party] pays such attention to what he is doing as may reasonably be expected of a person in such a transaction as that of depositing luggage in a cloakroom’.

1.53 In general, it may be that the more complex the transaction, the greater may be the expectations of the reasonable person that the party putting forward the terms will be seeking to incorporate terms.124 In general, it is necessary to consider any such factors (and the other factors relevant here) against the background of what is commonly known about the type of transaction. If the transaction is of a type in which it is commonly known that there will be use of standard terms, it may be easier to establish that reasonably sufficient notice has been provided.125 The opportunity for the other party to examine the document or sign by which the party putting forward the terms seeks to provide notice may be relevant,126 as will the size of the print,127 and the placing of the terms within a document. In one case, it was: ‘not sufficient to show [the conditions] were printed in a mass of other printed material’

such as advertisements.128 In another case it was held there may be a lack of reasonable notice if there is a gap in time between the other party’s opportunity to observe the relevant document or sign and the conclusion of the contract with the party putting forward the terms.129 It may be that there will not normally be reasonably sufficient notice of a clause printed on the back of a ticket if the front of the ticket does not plainly indicate that,130 but it should depend upon all the facts of the particular case.131 It is also relevant,

Hood v Anchor Line (Henderson Bros) Ltd [1918] AC 837 per Viscount Haldane at 845: ‘If it had been merely a case of inviting people to put a penny into an automatic machine and get a ticket for a brief journey, I might think differently. In such a transaction men cannot naturally be expected to pause to look whether they are obtaining all the rights which the law gives them in the absence of a special stipulation. But when it is a case of taking a ticket for a voyage of some days, with arrangements to be made, I think ordinary people would look to see what bargain they are getting’. See also Smith v Taylor [1966] 2 Ll Rep 231 at 235.

124

Parker v South Eastern Rly Co (1877) 2 CPD 416 at 424; Hood v Anchor Line [1918] AC 827 at 849; Alexander v Railway Executive [1951] 2 KB 882; Thompson v London Midland and Scottish Rly Co Co [1930] 1 KB 41; Cockerton v Naviera Aznar SA [1960] 2 Ll Rep 450 at 460; Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Ll Rep 427.

125

Thompson v London Midland and Scottish Rly Co [1930] 1 KB 41 per Sankey J at 54. See also Thornton v Shoe Lane Parking [1971] 2 QB 163.

126

Thompson v London Midland and Scottish Rly Co [1930] 1 KB 41 at 54; Richardson, Spence & Co v Rowntree [1894] AC 217 at 221; Butler v Hearne (1810) 2 Camp 415; Roe v R A Naylor Ltd [1917] 1 KB 712; Alexander v Railway Executive [1951] 2 KB 882 at 886.

127

Stephen v International Sleeping Car Co Ltd (1903) 19 TLR 621.

128

Hollingworth v Southern Ferries Ltd [1977] 2 Ll Rep 70.

129

Henderson v Stevenson (1875) LR 2 Sc & Div 470; Sugar v London Midland and Scottish Rly Co [1941] 1 All ER 172; White v Blackmore [1972] 2 QB 651 at 664.

130

Hood v Anchor Line (Henderson Bros) Ltd [1918] AC 827 per Viscount Haldane at 844, explaining Henderson v Stevenson. See also Stephen v International Sleeping Car Co Ltd (1903) 19 TLR 621; Cooke v T Wilson & Co Ltd (1916) 85 LJKB 888.

131

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for example, whether a ticket has been folded over132 or if a clause has been obscured by a date stamp.133 1.54 A  recent case has held that standard terms which were referred to in a warehouse certificate, and the terms were to be found on a website, was sufficient to incorporate those terms into a contract:134 ‘As a matter of English law where terms are incorporated it must be shown that the party seeking to rely on the conditions has done what is reasonably sufficient to give the other party notice of the conditions; see Chitty on Contracts Vol.1 para.12014 [now 13-014]. Here, the first page refers to the warehouse certificate as being subject to the Terms and Conditions of Impala. At the base of the page the reader is invited to refer to the reverse of the page for additional conditions. On the reverse the reader is referred to Impala’s web-site for its Terms and Conditions. Thus the holder of the warehouse certificate knows that the certificate is subject to Impala’s Terms and Conditions. He is referred to the reverse of the certificate. On the reverse he is told where to find the Terms and Conditions. I consider that these steps are reasonably sufficient to give the holder notice of the conditions.’ 

1.55 When there was a wide use of fax machines, the transmitting of only one side of a document, may lead to the terms on the back of the original not being incorporated, even though what is transmitted says ‘for terms see back’.135 There was a refusal to regard the situation as equivalent to incorporation by reference to another document. It was thought to be a: ‘more cogent inference that the terms were not intended to apply’.136

More recently a failure to provide terms and conditions, where: •

they are not included on the reverse of a fax (because the reverse was not sent), or

• they are not found or made available in the way stated in any communication where the party sending the communication was stating it was offering to contract on those terms and conditions; ‘will usually be fatal to their incorporation’.137 1.56 A more modern example would be a statement in an email sent by the party putting forward the terms on which it would enter into a contract with the other party. The offer to enter into the contact would be subject to terms and conditions, with the phrase ‘subject to terms and conditions’

Richardson, Spence & Co v Rowntree [1894] AC 217.

132

Sugar v London Midland and Scottish Rly Co [1941] 1 All ER 172; Richardson, Spence & Co Ltd v Rowntree [1894] AC 217.

133

Impala Warehousing and Logistics (Shanghai) Co Ltd v Wanxiang Resources (Singapore) Pte Ltd [2015] EWHC 25 (Comm), [16].

134

Poseidon Freight Forwarding Co Ltd v Davies Turner Southern Ltd [1996] 2 Ll Rep 388.

135

ibid at 394.

136

Aldrees and another v Rotex Europe Limited (company number 04307924) [2019]  EWHC  574 (TCC), [176].

137

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formatted as a link pointing to a website and either the link not working at all or pointing to a page on a website which does not exist. 1.57 Similarly, a failure to incorporate may occur in relation to a standard form document which is only partly translated into English. Where the negotiations had been predominantly in English and the correspondence had been in English, the other party was entitled to infer that the untranslated German parts ‘were not intended to be incorporated’.138

Type of document 1.58 The type of document in which the clause is found will be relevant to the question of its incorporation. As has been indicated, in relation to incorporation by signature, a non-contractual document will not incorporate terms.139 However, in the context of a general requirement of reasonably sufficient notice, the type of document may also be relevant to that requirement140. In Parker v South Eastern Rly Co141 Mellish LJ said:142 ‘If a person driving through a turnpike-gate received a ticket upon paying the toll, he might reasonably assume that the object of the ticket was that by producing it he might be free from paying toll at some other turnpike-gate, and might put it in his pocket unread’.

1.59 Clauses have, for example, not been incorporated from a deckchair hire ticket,143 or a chequebook.144 In contrast, if the document is of a type which is commonly known to include terms, that ‘common knowledge’ will assist incorporation by reasonably sufficient notice. Such ‘common knowledge’ may relate to people in general as with the cloakroom ticket in Alexander v Railway Executive145 where it was said146 that: ‘most people nowadays know that railway companies have conditions subject to which they take articles into their cloakroom’.

Alternatively, it may relate to those normally undertaking the type of contract in question. In Parker v South Eastern Rly Co, Mellish LJ contrasted the turnpike ticket with the bill of lading as: H Glyn (Covent Garden) Ltd v Wittleder [1959] 2 Ll Rep 409.

138

See para 1.8.

139

See generally Clarke ‘Notice of Contractual Terms’ (1976) 35 CLJ 51.

140

(1877) 2 CPD 416.

141

(1877) 2 CPD 416 per Mellish LJ at 422; Chapelton v Barry UDC [1940] 1 KB 532 per Slesser LJ at 538. See also Henson v London and North Eastern Rly Co [1946] 1 All ER 653 at 660; Walls v Centaur Co Ltd (1921) 126 LT 242 at 245; Dillon v Baltic Shipping Co Ltd, The Mikhail Lermontov [1991] 2 Ll Rep 155; Fosbroke-Hobbes v Airwork Ltd (1936) 53 TLR 254; Taylor v Glasgow Corpn 1952 SC 440; Skrine v Gould (1912) 29 TLR 19; Harling v Eddy [1951] 2 KB 739 at 748.

142

Chapelton v Barry UDC [1940] 1 KB 532.

143

Burnett v Westminster Bank Ltd [1966] 1 QB 742 at 763.

144

[1951] 2 KB 882.

145

[1951] 2 KB 882 per Devlin J at 886.

146

22

Chapter 1 Incorporation ‘in the great majority of cases persons shipping goods do know that the bill of lading contains terms’.147

1.60 ‘Common knowledge’ that a type of document will contain contract terms will vary over time.148 For example, that standard terms and conditions are now often found on a website and that a reference to them will be sufficient for their incorporation into a contract.149 A further point to note is that when the issue of the type of document is raised in the context of incorporation, there is sometimes a question as to whether the document is a ‘mere receipt’ and two factors may be at work, that is: • whether the document was one which the reasonable person would regard as proof of payment, and nothing more, as in the examples of the turnpike and deckchair tickets, and secondly, • whether it was introduced too late, only after the contract had been made.150 1.61 However, there is no reason why a document headed ‘receipt’ should not successfully incorporate clauses into a contract if the circumstances indicate its role to the reasonable person and it is introduced in time.151

The content of the clause – unreasonable and unusual clauses 1.62 ‘How much is required as being … “reasonably sufficient notice of the condition” depends upon the nature of the … condition’.152

Parker v South Eastern Rly Co (1877) 2 CPD 416 at 422; Nunan v Southern Rly [1923] 2 KB 703 at 707; Thompson v London Midland and Scottish Rly Co Co [1930] 1 KB 41 at 50. See also para 1.50 above in relation to the type of situations in which standard terms are expected to be used.

147

Contrast the view of cloakroom tickets taken in Alexander v Railway Executive [1951] 2 KB 882 (above) with the earlier view of Bagallay J in Parker v South Eastern Rly Co (1877) 2 CPD 416 at 424: ‘If the practice of issuing cloakroom tickets, containing statements of conditions intended to be binding on depositors had become general, it might well be that a person depositing his property and accepting a ticket, even though ignorant of the practice, must be treated as aware of it’. See also Hood v Anchor Line (Henderson Bros) Ltd [1918] AC 837 per Lord Parmor at 849.

148

Impala Warehousing and Logistics (Shanghai) Co Ltd v Wanxiang Resources (Singapore) Pte Ltd [2015] EWHC 25 (Comm), [16].

149

Chapelton v Barry UDC [1940] 1 KB 532; McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125; Curtis v Chemical Cleaning and Dyeing Co Ltd [1951] 1  KB  805; AXA  Sun Life Services plc v Campbell Martin Ltd and others and other appeals [2011] EWCA Civ 133.

150

Watkins v Rymill (1883) 10 QBD 178.

151

Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 per Megaw LJ at 172. Megaw LJ referred to ‘restrictive conditions’ but it is established that the approach is not confined to exemption clauses: Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1988] 1 All ER 348.

152

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The point was graphically made by Denning LJ:153 ‘the more unreasonable a clause is, the greater the notice which must be given of it. Some clauses which I have seen would need to be printed in red ink on the face of the document with a red hand pointing to [them] before the notice could be held to be sufficient.’

1.63 Similarly: ‘The more outlandish the clause the greater the notice which the other party, if he is to be bound, must in all fairness be given.’154

The later was characterised most recently as: ‘Speaking for myself, I find that a helpful distillation of the necessary relationship between, on the one hand, the degree of onerousness in the clause and, on the other, the degree of notice required.’155

1.64 For obvious reasons, this is sometimes referred to as the ‘red hand rule’. It applies to clauses which are unusual156 or unreasonable,157 although more recently the reference has usually been to ‘onerous’ clauses rather than unreasonable ones,158 but it would seem that ‘onerous’ clauses should be regarded merely as a type of unreasonable clause. In any event, the point has been made that ‘the words “onerous” or “unusual” are not terms of art, and: ‘The authorities do not always agree as to what amounts to an ‘onerous’ clause. In Interfoto Bingham LJ called the clause in question “unreasonable and extortionate”. Dillon LJ referred to “particularly onerous” clauses. In a case decided at about the same time, Circle Freight International Limited (T/A Mogul Air) v Medeast Gulf Exports Limited (T/A Gulf Exports) [1988] 2 Lloyd’s Rep 427, the clause in question, which

J Spurling Ltd v Bradshaw [1956] 1 WLR 461 at 466.

153

Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1988] 1 All ER 348.

154

Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371, Coulson, LJ, [32], and later in the judgement Gross, LJ indicated that the quote from Interfoto indicated that the adequacy of notice operated as a sliding scale.

155

Lewis v M’Kee (1869)  LR  4 Exch 58; Crooks v Allan (1879) 5  QBD  38 at 40; Hood v Anchor Line (Henderson Bros) Ltd [1918] AC 837 at 846–847; Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 per Megaw LJ at 172–173; Hollingworth v Southern Ferries Ltd, The Eagle [1977] 2 Ll Rep 70 at 76; Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1988] 1 All ER 348 per Dillon LJ at 351–352, Bingham LJ at 357; Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Ll Rep 427 per Taylor LJ at 433; AEG (UK) Ltd v Logic Resources Ltd [1996] CLC 265; Ceval Alimentos SA v Agrimpex Trading Co Ltd, The Northern Progress [1996] CLC 1529 at 1543. But see HIH Casualty and General Insurance Ltd v New Hampshire Ins Co [2001] 2 Lloyd’s Rep 161 per Rix LJ, [211].

156

Parker v South Eastern Rly Co (1877) 2 CPD 416 per Bramwell LJ at 428; Van Toll v South Eastern Rlys Co (1862) 12 CBNS 75 per Byles J at 88, but contrast Erle CJ at 85; Thompson v London, Midland and Scottish Rly Co [1930] 1  KB  41 at 53 and 56; J  Spurling Ltd v Bradshaw [1956] 1 WLR 461 per Denning LJ at 466; Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163, Denning LJ; Ceval Alimentos SA  v Agrimpex Trading Co Ltd, The Northern Progress [1996]  CLC  1529 at 1543. In Thompson the reference was to clauses which were unreasonable ‘to the knowledge of the proferens’ – no such restriction has been adopted.

157

Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1988] 1 All ER 348; Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Ll Rep 427 per Taylor LJ at 433; AEG (UK) Ltd v Logic Resources Ltd [1996] CLC 265. But see Ceval Alimentos SA v Agrimpex Trading Co Ltd, The Northern Progress [1996] CLC 1529 at 1543.

158

24

Chapter 1 Incorporation limited the carrier’s liability to a very small sum, were found to be neither unusual nor “Draconian”.’159

1.65

They are simply one way of putting the general proposition that:

• it is necessary to take reasonable steps to draw the particular term in question to the notice of those who are to be bound by it; •

more is required in relation to certain terms than to others depending on their effect’.160

The ‘red hand rule’ means that, whilst all that is generally required to incorporate clauses is notice of their existence, in relation to unreasonable or unusual clauses, that will not suffice. It has been said that the rule requires the party putting forward the terms to ‘show that his intention to attach [a] … condition of that nature was fairly brought to the notice of the other party’,161

and the type of clause was identified with some specificity as one ‘restrictive of statutory rights’ and ‘relating to personal injury’. However, there have also been indications that notice of the type of clause, even at that level of particularity, will not suffice, but that what is required is that the party putting forward the terms show that: ‘the particular condition was fairly brought to the attention of the other party’162 and not: ‘buried away in the middle of a raft of small print, such as occurs in some of the older cases.’163

1.66 Certainly, it would seem that that it is possible to regard a clause as unusual or unreasonable not because of its type but because of its extent. Clauses charging for the retention of photographic transparencies beyond the specified hire period were clearly not unusual or unreasonable in the trade as a type of clause, but in Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd164 the particular clause was both because of the size of the charge.165

Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371, [33].

159

O’Brien v MGN Ltd [2002] CLC 33 per Hale LJ at [23].

160

Thornton v Shoe Lane Parking [1971] 2 QB 163 per Megaw LJ at 172.

161

Interfoto Picture Library v Stiletto Visual Programme Ltd [1988] 1 All ER 348 per Dillon LJ. See also Bingham LJ: ‘whether the plaintiff can be said fairly and reasonably to have brought [the condition] to the notice of the defendant’.

162

Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371, [53].

163

[1988] 1 All ER 348.

164

See also the approach of the majority (Hirst and Waite LJJ) in AEG (UK) Ltd v Logic Resources Ltd [1996] CLC 265 and contrast that of Hobhouse LJ at 277. Providing notice of the use of an unreasonable or unusual term of the relevant type may suffice – Shearson, Lehman, Hutton Inc v Maclaine Watson & Co [1989] 2 Ll Rep 570.

165

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1.67 There have been examples in some cases as to what might constitute sufficient notice in the context of unreasonable or unusual clauses. For the ‘red hand rule’ a suggestion was made in one case, in relation to a sign on a garage wall, that it would need to be in red letters, a foot high, with an arrow pointing to it, to have the effect contended for.166 Less dramatically, in another case it was held as sufficient that an onerous, but not unusual, clause was the first of the conditions set out in the document in question.167 Certainly, it will not assist the incorporation of an unusual or unreasonable term if it appears in the midst of terms dealing with other matters, without anything being done to draw attention to it168 and giving examples of some terms from a set of standard terms, and seeking to incorporate others by reference is problematic in general.169 And it would certainly not assist in the incorporation of unreasonable or unusual terms that they were not included in the examples: ‘The extracts which [the claimants] have chosen to print on the back of their acceptance document are at best highly selective and perhaps more fairly described as misleading. If they are going to quote clauses, then they must recognise that selective and misleading quotes may detract from the incorporation which they are seeking to achieve.’170

1.68 A  more modern case dealt comprehensively with whether a clause was ‘onerous and unusual’ and whether it was fairly and reasonably brought to the attention by one party to the other.171 It concerned a ‘stringent limitation of liability clause’ (Clause 11) which was expressly referenced on a quotation (and sent with the quotation). The first paragraph of the conditions stated: ‘[Section 4 – Conditions of Contract] We draw your particular attention to the following specific conditions and assumptions on which the tender is based, unless qualified in our covering letter. Any contract would be based on our tender and these supplementary conditions sections 4 – 12 which do not provide for the imposition of any form of damages whatsoever and are based on English Law…”172 (emphasis added).

Ie ‘if that condition … really means that the hotel night porter can deliberately destroy or damage the customer’s motor car, take it away and wreck it without the owner having any recourse against his employers’: Adams (Durham) Ltd v Trust Houses Ltd [1960] 1 Ll Rep 380 at 387.

166

Cockerton v Naviera Aznar SA [1960] 2 Ll Rep 450 at 461–463.

167

Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 per Megaw LJ.

168

AEG (UK) Ltd v Logic Resources Ltd [1996] CLC 265.

169

ibid.

170

Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371.

171

ibid, [10]. The clause in question section 11 which stated: ‘11) We exclude all liability, loss, damages or expense consequential or otherwise caused to your property, goods, persons or the like, directly or indirectly resulting from our negligence or delay or failure or malfunction of the systems or components provided by HFS for whatever reason. In the case of faulty components, we include only for the replacement, free of charge, of those defected parts. As an alternative to our basic tender, we can provide insurance to cover the above risks. Please ask for the extra cost of the provision of this cover if required.’ The judge at first found that the conditions were ‘in relatively small but no means illegible type.’ Quoted in the Court of Appeal judgement at [12]. Although the claimants provided a purchase order, the conditions were communicated by the defendants to the claimants in an acknowledgment of the purchase order.

172

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1.69

The judge at first instance found that:

Whilst there is no express reference to clause 11 or to its effect in the body of the quotation, and whilst clause 11 is not highlighted in any way as being an exclusion clause, the opening words of section 4 do alert the reader to the fact that the standard terms and conditions “do not provide for the imposition of any form of damages whatsoever”. Whilst that may be a slightly unusual way of putting it which, indeed, is not strictly accurate on my interpretation of clause 11, it is nonetheless something which would alert even the non-legally qualified reader to the fact that the standard terms and conditions do seek to exclude in a significant way the redress which the other party would have against Hall Fire Solutions in the event that something went wrong with the fire suppression system…. …I  am satisfied that it was fairly and reasonably drawn to Goodlife’s attention, because: (a) the standard terms and conditions were expressly referred to on the face of and sent with the quotation; (b) the impact in legal and commercial terms of the exclusion was referred to at the top of the standard terms and conditions. I am also influenced in this case by the fact that Goodlife had ample opportunity to read and consider the standard terms and conditions before concluding a contract, and that the fact that there is no evidence that it did not have the commercial acumen and access to legal and/or insurance advice which one would normally expect a SME to have to decide what to do about the proffered standard terms and conditions before concluding a contract.’173

1.70

On appeal Coulson LJ agreed with the judge of first instance:

On the issue of notice, I consider that the judge was plainly right in his conclusions. Clause 11 was not buried away in the middle of a raft of small print, such as occurs in some of the older cases. Instead it was one of the standard conditions which were expressly referred to on the front of the quotation and which were printed in clear type. Moreover, its potentially wide-reaching effect was expressly identified at the very start of those same conditions. In my view, the fact that the warning [‘which do not provide for the imposition of any form of damages whatsoever’] was cast in almost apocalyptic terms is a point against (rather than in favour of) Goodlife: if that did not alert them to the effect of clause 11, then nothing would have done. A buyer who started reading these conditions would have seen by the very first words used that, at the very least, the conditions contained terms which were emphatically not in the buyer’s interests. Obviously, the buyer should then have read on. In addition, the judge was right to note that Goodlife had over a year between the sending of the quotation, with the relevant standard terms and conditions, and the entering into of the contract. They have never suggested that they did not read the terms or understand them. Even if they were unsure about clause 11, they had plenty of time to take advice. On the evidence, we have to assume that they accepted the terms and conditions as they were. In such circumstances, it would be commercially unrealistic to say that clause 11 was not fairly and reasonably brought to the attention of Goodlife. Thus, even if I was wrong and this was a particularly onerous and unusual clause, it would still have been incorporated into the contract.’174

1.71

However, the basic point is that:

‘how much is required as being sufficient to give … notice of the condition depends on the nature of the … condition’.175

c [2017] EWHC 767 (TCC), [57], [61].

173

Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371, [53] to [55].

174

Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 per Megaw LJ.

175

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The more unusual or unreasonable a clause the more that the party putting forward the terms is required to do to bring it fairly to the attention of the other party. As has been indicated, there are two types of clauses which fall within this ‘red hand rule’: – •

unusual clauses; and

•

unreasonable (or onerous) clauses.176

1.72 It is possible to determine whether a clause is unusual by comparison with terms used by other dealers in the same market.177 In Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd178 ten sets of terms, in addition to those of the party putting forward the terms, were examined and were sufficient to show the clause in question to be unusual (because of the size of the charge179). In another case it was sufficient to view a clause as unusual simply because it departs from what would otherwise be the default position produced by statute.180 More recently anti-set off clauses in a contract between a bank and the bank’s customers were found not to be unusual in mortgage transactions, even though not usually used and: ‘They may operate harshly on a consumer or indeed a business who has a genuine cross-claim but it is impossible to say that such a clause is onerous in the Interfoto sense of almost being a penalty.’181

1.73 However, such departure would seem to be more appropriately assessed in considering whether the term is unreasonable, rather than unusual, and it is possible to suggested there should be no scope for an automatic conclusion that such a departure makes a term unreasonable within the rule.

See nns 156 and 157 above.

176

But see Munckenbeck & Marshall v Harold [2005] EWHC 336, below fn 156.

177

Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1988] 1 All ER 348.

178

[1988] 1 All ER 848.

179

In Picardi v Cuniberti [2002] EWHC 2923, QB at [99] it was said of a clause in a consumer RIBA contract dealing with adjudication: ‘Adjudication was introduced into English law by the Housing Grants Construction and Regeneration Act 1996, which stemmed from the report by Sir Michael Latham MP in July 1994, entitled “Constructing the Team”, reviewing procurement and contractual arrangements in the construction industry. Under s 106, the Act, following the Latham Report, does not apply to construction contract with a residential occupier. This could, therefore, properly be said to be an unusual contractual provision’.

180

Woodeson and another v Credit Suisse (UK) Ltd [2018]  EWCA  Civ 1103, [42]. The court distinguished the facts in this case from Interfoto, as with the latter, the term in question ‘was considered by the court to be an unreasonable clause on its face and was contained in a document which had been signed by the person the claimant sought to hold liable’ (from [40]).

181

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It should be a matter for assessment.182 Certainly, in relation to the fairness test under the 1999 Regulations (now replaced by CRA), the House of Lords rejected any automatic conclusion that a term was unfair when it departed from a statutory default position. The term had to be considered in the light of the basis of the default position.183 When the question is whether a term is ‘unreasonable’ or ‘onerous’ that is a matter of qualitative assessment. 1.74 The red-hand rule has been seen as applicable to a clause imposing an additional charge for retention of hired goods beyond a set period, when the hire charge was more per item per day than was charged by ten other hirers per item per week.184 More commonly, it has been applied in the context of: •

exemption clauses to clauses exempting liability for personal injury due to negligence;185

•

exemption and limitation of liability clauses more generally;186

• terms removing rights given by statute, particularly in the context of personal injury;187 •

a clause severely restricting liability for breach of the terms implied by the Sale of Goods Act 1979;188

•

an adjudication clause in Royal Institute of British Architects contract with a consumer, when the statutory provision which introduced adjudication did not apply it to residential occupiers;189

•

removal of liability in relation to what was, otherwise, a key element of the first party’s performance.190

In Munckenbeck & Marshall v Harold [2005]  EWHC  356 clauses were seen as unusual ‘notwithstanding that they [formed] part of profession-wide standard terms’. They were also seen as unreasonable, however, and that would seem to be the more appropriate categorisation if an inappropriate approach is not to be taken to the ‘unusual’ label, effectively merging it with the qualitative assessment of the ‘unreasonable’ classification.

182

Director General of Fair Trading v First National Bank [2001] 2 All ER (Comm) 1000 per Lord Steyn at [38] and Lord Bingham at [35].

183

Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1988] 1 All ER 348.

184

Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 per Denning LJ. See now s 2 of the Unfair Contract Terms Act 1977: see para 3.280.

185

Allen Fabrications Limited v ASD Limited [2012] EWHC 2213 (TCC); Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371, [35].

186

[1971] 2 QB 163 per Megaw LJ at 173; Hollingworth v Southern Ferries Ltd, The Eagle [1977] 2 Ll Rep 70 at 76.

187

AEG (UK) Ltd v Logic Resources Ltd [1996] CLC 265.

188

Picardi v Cuniberti [2002] EWHC 2923. The statute was the Housing Grants Construction and Regeneration Act 1996.

189

Adams (Durham) Ltd v Trust Houses Ltd [1960] 1 Ll Rep 380 at 387; Lacey’s Footwear Ltd v Bowler International Freight Ltd [1997] 2 Ll Rep 369 per Brooke LJ at 384.

190

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1.75 However, it was not applied to a ‘rule’ in a newspaper scratch card game which, although it turned ‘an apparent winner into a loser’, was also seen as ‘merely [depriving] the claimant of a windfall for which he had done very little in return’.191

Some consideration should be given to potential developments in this area. To a large extent the passing into law of UCTA and the predecessor of CRA (the 1999 Regulations) have superseded the need for any such common law device as the ‘red hand rule’. Cases have questioned the continued use of the ‘red hand rule’ and the additional element of uncertainty which it.192 Certainly, the existence of the legislation reduces the impetus for the common law to resort to such devices as the ‘red hand rule’ and the significance of certainty in the context of incorporation by signature would seem to provide a counterweight to any remaining impetus to extend the rule into that context.193 However, there are limitations on the application of that legislation: •

UCTA only applies to exemption clauses; and

•

CRA only applies to contracts between consumers and sellers or suppliers,

and the broad context of the ‘red hand rule’ must be considered when potential developments are addressed. In Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd,194 one of the main cases on the ‘red hand rule’, Bingham LJ placed it in a particular context. He said: ‘In many civil law systems, and perhaps in most legal systems outside the common law world, the law of obligations recognises and enforces an overriding principle that in making and carrying out contracts parties should act in good faith. This does not simply mean that they should not deceive each other, a principle which any legal system must recognise; its effect is perhaps most aptly conveyed by such metaphorical colloquialisms as “playing fair”, “coming clean” or “putting one’s cards face upwards on the table”. It is in essence a principle of fair and open dealing. In such a forum it might, I think, be held on the facts of this case that the plaintiffs were under a duty in all fairness to draw the defendants’ attention specifically to the high price payable if the transparencies were not returned in time … English law has characteristically committed itself to no such overriding principle but has developed piecemeal solutions in response to demonstrated problems of unfairness.’

O’Brien v MGN Ltd [2002] CLC 33 per Hale LJ at [21], but see the concerns of Sir Anthony Evans.

191

AEG (UK) Ltd v Logic Resources Ltd [1996] CLC 265 per Hobhouse LJ at 277: ‘In the past there may have been a tendency to introduce more strict criteria [for incorporation], but this is no longer necessary in view of the Unfair Contract Terms Act 1977. The reasonableness of clauses is the subject matter of the Unfair Contract Terms Act 1977 and it is under the provisions of the Act that problems of unreasonable clauses should be addressed and the solution found’. Contrast Lacey’s Footwear Ltd v Bowler International Freight Ltd [1997] 2 Ll Rep 369 per Brooke LJ at 385.

192

See para 1.14.

193

[1988] 1 All ER 348.

194

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1.76 The ‘red hand rule’ was seen as one of these piecemeal solutions, and such a solution could be seen as a basis for further development of that and other common law rules. In concluding that UCTA should have very limited application in the context of the Contracts (Rights of Third Parties) Act 1999, the Law Commission emphasised the use of common law devices to control exemption clauses195 and noted as of particular interest Bingham LJ’s reference to ‘a contractual principle of dealing in good faith’.196 Further, the ‘rule’ has been seen as providing: ‘wider protection for the consumer than [legislation], which only provides a remedy where the terms of the contract cause a significant imbalance in the parties’ rights and obligations to the detriment of the consumer.’197

1.77 Whilst it is difficult to imagine that there will be terms which are ‘unusual or unreasonable’ within the ‘rule’ as presently envisaged, and not ‘unfair’ under the test in CRA, the common law does have an inherent flexibility which is not present in a test prescribed by legislation, however broad. In the light of existing legislation, it is difficult to envisage any major expansion of the rule, but there may be scope for some development, and it does in any event provide a further, potentially flexible, resort when the boundaries of the legislation are reached.198

Reference 1.78 Where a set of clauses do not include any that are unusual or unreasonable, it has long been accepted that they can be incorporated into a contract by reference, such as a ticket or other document not needing to contain the clauses themselves but merely stating their existence199 and where it is possible to find them.200 Similarly, a quotation which had words such as ‘subject to our standard terms and conditions which are available on request’

Law Com No 242, para 13.10(iv). See p 300.

195

Law Com No 242, para 13.10(iv).

196

Picardi v Cuniberti [2002] EWHC 2923, QB, [98] a case decided when the predecessor to the unfair term provisions in the 1999 Regulations were in force.

197

But see Macdonald ‘The Emperor’s Old Clauses: Misleading Terms and the Unfair Terms in Consumer Contracts Regulations’ (1999) 58 CLJ 413.

198

Contrast the approach taken in Jayaar Impex Ltd v Toakem Group Ltd [1996] 2 Ll Rep 437 by Rix J, to the argument that clauses had been incorporated by an oral reference to their existence when a contract was made on the telephone and there was no course of dealing between the parties: ‘in such circumstances it is most unbusinesslike to infer that the buyers intended to accept the terms of the sellers’ contract form whatever it should turn out to be. There was no attempt by the sellers to prove that their contract is in some normal and accepted form. That is to buy a pig in a poke’.

199

Thompson v London, Midland and Scottish Rly Co [1930] 1 KB 41; Smith v South Wales Switchgear Ltd [1978] 1 All ER 18; Nunan v Southern Rly [1923] 2 KB 703 at 707.

200

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might be sufficient.201 In fact, it would seem that it may not be necessary to state where it is possible to find them if they are reasonably accessible, in the sense that a reasonable person would realise where it is possible to find the clauses and the person could reasonably do so.202 In any event, the route to the terms may be circuitous.203 In one case a reference, in a letter, to a quotation document, was held sufficient to incorporate clauses set out on the back of the quotation, without any reference to those clauses as such.204 However, in another case where a document referred to terms on its reverse was faxed, so that only its face was received by the other party, the reference to terms on its back was not accepted as equivalent to incorporation by reference to another document.205 The view was taken that: ‘since what was described as being on the back was not sent, it was a more cogent inference that the terms were not intended to apply’.206

1.79 A point made more strongly more recently in a case where the judge stated: ‘Similarly, in the cases where terms and conditions were said to be on the reverse of an offer sent by fax, but the reverse side was never sent, that in my view would be fatal to any submission that they had been incorporated.’207

In relation to incorporation by reference in general, however: ‘other considerations apply if the conditions or any of them are particularly onerous or unusual’.208

1.80 The ‘red hand rule’ applies here as in relation to incorporation by notice in general.209 At a minimum it will be necessary to show that the intention to incorporate terms ‘of that nature was fairly brought to the notice’

Aldrees and another v Rotex Europe Ltd (company number 04307924) [2019] EWHC 574 (TCC), para 175, following Sumukan Ltd v Commonwealth Secretariat [2007] 2 Lloyds’ Rep 87.

201

This would seem to be the implication of the approach of the majority in O’Brien v MGN Ltd [2002] CLC 33.

202

Thompson v London, Midland and Scottish Rly Co [1930] 1 KB 41 per Lord Hanworth MR at 48.

203

White Cross Equipment Ltd v Farrell (1982) 2 Tr LR 21. But see Lacey’s Footwear (Wholesale) Ltd v Bowler International Freight Ltd (17 March 1995, unreported), QBD.

204

Poseidon Freight Forwarding Co Ltd v Davies Turner Southern Ltd [1996] 2 Ll Rep 388. See also Aldrees and another v Rotex Europe Ltd (company number 04307924) [2019] EWHC 574 (TCC). But the judge in Aldrees went on to state that if the terms and conditions were not available on request then it was not possible to incorporate them into a contract by the use of the words quoted.

205

Poseidon Freight Forwarding Co Ltd v Davis Turner Southern Ltd 1996] 2 Ll Rep 388 per Legatt LJ at 394.

206

Aldrees and another v Rotex Europe Ltd (company number 04307924) [2019] EWHC 574 (TCC), [176].

207

Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Ll Rep 427 per Taylor LJ at 433; Ceval Alimentos SA v Agrimpex Trading Co Ltd, The Northern Progress [1996] CLC 1529 at 1543. But see Garbis Maritime Corpn v Philippine National Oil Co [1982] 2 Ll Rep 283.

208

O’Brien v MGN Ltd [2002] CLC 33.

209

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of the party which the party putting forward the terms sought to bind.210 Also the schedule of consumer contract terms which may be regarded as unfair in CRA includes: ‘10 A term which has the object or effect of irrevocably binding the consumer to terms with which the consumer has had no real opportunity of becoming acquainted before the conclusion of the contract.’211

1.81 In contracts between consumers and traders, this requires consideration of the accessibility of any terms that the party putting forward the terms sought to incorporate by reference. If such an incorporating term is unfair, and does not bind the consumer,212 the terms which it sought to incorporate cannot become part of the contract by that means.213

The basic test – a fuller version? 1.82 In Parker v South Eastern Rly Co Mellish LJ apparently also stated a more detailed test. He said:214 ‘that if the person receiving the ticket did not see or know that there was any writing on the ticket, he is not bound by the conditions; that if he knew there was writing, and knew or believed that the writing contained conditions, then he is bound by the conditions; that if he knew there was writing on the ticket, but did not know or believe that the writing contained conditions, nevertheless he would be bound, if the delivering of the ticket to him in such a manner that he could see there was writing upon it, was … reasonable notice that the writing contained conditions’.

1.83 Despite its citation,215 beyond the simple requirement of reasonably sufficient notice, this is misleading as a statement of the current law. In the first point, the reference to whether or not the individual knows there is writing on the document is inconsistent with the emphasis on the basic test as an objective one of fact.216 In addition, without more, the second point is inconsistent with those cases where the content of the clauses is relevant

Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 per Megaw LJ: see 19. The same should apply where the party it was sought to bind knew of the existence of the terms but not their content.

210

CRA, s 63, sch 2. See 4.332.

211

CRA, s 62(1).

212

Under CRA, s  67, when a term is unfair and therefore does not bind the consumer, ‘the contract continues, so far as practicable, to have effect in every other respect’. When the ‘unfair term’ is the type of incorporating term considered here, its failure to bind the consumer may result in too many other terms not binding the consumer for the contract to continue in existence.

213

(1877) 2 CPD 416 at 423.

214

See for example Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163; Thompson v London Midland and Scottish Rly Co [1930] 1 KB 41; Richardson, Spence & Co v Rowntree [1894] AC 217 per Lord Ashbourne at 220; McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125 per Lord Hodson at 129.

215

See para 1.51.

216

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to their incorporation, ie where the ‘red hand rule’ is relevant because the clauses are unreasonable or unusual.217 Provided the impact of the ‘red hand rule’ is borne in mind, Lord Denning MR’s contraction of Mellish LJ’s three questions, in Thornton v Shoe Lane Parking Ltd, is preferable. He thought that ‘the customer is bound by the exempting condition if he knows that the ticket is issued subject to it; or if the company did what was reasonably sufficient to give notice of it’.

Course of dealing and trade practice The basic test

1.84 In some cases, when the party putting forward the terms has failed to incorporate its standard form clauses into the particular contract in any other way, it may be possible, nevertheless, to incorporate them on the basis of a course of dealing218 between the parties.219 1.85 In Kendall v Lillico,220 for example, the parties made a contract on the telephone and that was followed by the despatch of a ‘sold note’ containing the standard form clauses in question. In each case, the sold note arrived too late to incorporate the clauses into the instant contract.221 However, by the time of the disputed transaction, the clauses in questions were instead incorporated on the basis of the course of dealing by the parties – three or four transactions a month, following the same pattern over a three-year period.222

See para 1.62.

217

Roe v R A Naylor Ltd (1918) 87 LJKB 958 at 963; J Spurling Ltd v Bradshaw [1956] 1 WLR 461; McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125; Kendall & Sons Ltd v Lillico & Sons Ltd [1969] 2 AC 31; PLM Trading Co (International) Ltd v Georgiou [1988] BTLC 404; Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Ll Rep 427; Hollier v Rambler (AMC) Motors Ltd [1972] 2 QB 71; SIAT di del Ferro v Tradax Overseas SA [1978] 2 Ll Rep 470, affd [1980] 1 Ll Rep 53; Transmotors Ltd v Robertson Buckley & Co [1970] 1 LL Rep 224; British Crane Hire Ltd v Ipswich Plant Hire [1975] QB 303; Walek v Chapman [1980] 2 Ll Rep 279; Lamport & Holt Lines Ltd v Coubro & Scrutton Ltd (The Raphael) [1981] 2 Ll Rep 659; Victoria Fur Traders Ltd v Roadline (UK) Ltd [1981] 1 Ll Rep 570; E Scott (Plant Hire) Ltd v British Waterways Board (1982), 20 Dec, Lexis; Chevron International Oil Co Ltd v A/S  Sea Team [1983] 2 Ll Rep 356; Wavin Nederland BV  v Excomb Ltd (1983) 133  NLJ  937: Eastern Kayam Carpets Ltd v Eastern United Freight Ltd (1983) 6 Dec, Lexis: Johnson Mathey Bankers Ltd v State Trading Corpn of India [1984] 1 Ll Rep 427; Rees, Hough Ltd v Redland Reinforced Plastics Ltd (1985) 2 Con LR 107; Re Jogia, ex p trustee v Pennellier & Co [1988] 2 All ER 328 at 335; Lacey’s Footwear (Wholesale) Ltd v Bowler International Freight Ltd (1995) 17 March, Lexis.

218

Or between one of the parties and companies in the same group: SIAT di del Ferro v Tradax Overseas SA [1978] 2 Ll Rep 470, affd [1980] 1 Ll Rep 53. See also Eastman Chemical International AG  v NMT  Trading [1972] 2 Ll Rep 25; Lamport & Holt Lines Ltd v Coubro & Scrutton, The Raphael [1981] 2 Ll Rep 659.

219

Kendall & Sons Ltd v Lillico & Sons Ltd [1969] 2 AC 31.

220

See para 109.

221

See also Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Ll Rep 427: 11 such transactions in six months.

222

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1.86

Incorporation through a course of dealing can be viewed as occurring:

‘as a result of past practice by tacit understanding of the parties when the contract [is] made’.223

Clearly, as the standard form clauses are not expressly introduced into the particular contract, but if they are part of the contract, they will be ‘implied’224 and a version of the ‘officious bystander’ test225 has been viewed as relevant to their inclusion in a contract. In McCutcheon v David MacBrayne Ltd226 Lord Reid said:227 ‘If two parties make a series of similar contracts each containing certain conditions, and then they made another without expressly referring to those conditions it may be that those conditions ought to be implied. If the officious bystander had asked them whether they had intended to leave out the conditions this time, both must as honest men, have said “of course not”’.

1.87 However, the better view would seem to be that this area has its own test, and it is kept distinct from the implication of terms more generally. It is even possible to see that this area is a development of the test for incorporation by notice228 with, in this area, the ‘notice’ being provided by the previous dealings. More specifically, in this context, Lord Reid also took the view that:229 ‘the judicial task … is to decide what each was entitled to conclude from the attitude of the other’.

Similarly, incorporation in this area has been viewed as a matter of: ‘what each party by his words and conduct reasonably led the other party to believe were the acts he was undertaking a legal duty to perform’.230

1.88 This refers not to the actual belief of the ‘other party’ but to what that party would have been led to believe as a reasonable person.231 In addition,

SIAT di del Ferro v Tradax Overseas SA [1980] 1 Ll Rep 53 per Megaw LJ at 56.

223

E Scott (Plant Hire) Ltd v British Waterways Board (1982) Lexis, 20 December.

224

From the dictum of Mackinnon LJ in Shirlaw v Southern Foundries [1939] 2  KB  206 at 227: ‘Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if while the parties were making their bargain an officious bystander were to suggest some express provision for it in the agreement, they would testily suppress him with a common “Oh, of course”.’

225

[1964] 1 WLR 125.

226

[1964] 1 WLR 125 at 128.

227

Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Ll Rep 427 at 433. See also McCutcheon v David MacBrayne Ltd [1964] 1  WLR  125 per Lord Devlin at 138: see below para 107. On incorporation by notice generally see para 1.42.

228

[1964] 1 WLR 125 at 128. See also Donaldson J in SIAT v Tradax [1978] 2 Ll Rep 470 at 490, Staughton J in Johnson Mathey Bankers Ltd v State Trading Corpn of India Ltd [1984] 1 Ll Rep 427 at 433.

229

Diplock LJ in Hardwick Game Farm v SAPPA [1966] 1 WLR 287 at 339 adopted in the House of Lords by Lord Wilberforce at sub nom Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31, 130.

230

SIAT di del Ferro v Tradax Overseas SA [1978] 2 Ll Rep 470 per Donaldson J at 490.

231

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the point can be made that as both the instant case and the past dealings are significant in relation to such incorporation the test could be more fully formulated as: ‘whether, at the time of contracting, each party as a reasonable person was entitled to infer from the past dealings and the actions and the words of the other in the instant case, that the standard clauses were to be part of the contract’.

1.89 There was some indication that such incorporation could not occur if the party it was sought to bind by the clauses had not had any actual knowledge of them in the past. It had been said that ‘previous dealings are only relevant if they prove knowledge of the terms, actual and not constructive’,232 but that has been dismissed.233 It is a matter of considering the facts in each case. 1.90 It is possible to give some explanation of the denial of the aptness of the ‘officious bystander’ test in this context, when it is used in relation to the general implication of terms in fact. The mechanism by which incorporation by a course of dealing occurs is that the circumstances are such that, at the time of contracting, both parties, as reasonable people, would have assumed the inclusion of the first party’s standard terms in the offer and acceptance.234 This is not far divorced from the ‘officious bystander’ test in the form stated by Lord Reid, above, and Lord Reid clearly equated it with the test suggested above as apt for this area.235 1.91 However, in relation to terms implied in fact there is not only reference to the ‘officious bystander’ but also the business efficacy test (ie whether it is ‘necessary’ to imply the term in question to give ‘business efficacy’ to the contract).236 and it is often said that no term can be implied in fact unless it is necessary to do so.237 Such a restrictive approach to the implication of terms in fact in general is used to limit the court’s intervention, to prevent there being, and being seen to be, extensive rewriting of the parties’ bargain.238 There is not the same risk where terms are imported which have appeared in the parties’ prior transaction, rather than being imported in the abstract, because those imported from a previous transaction are more likely to be part of the parties’ bargain, as well as the content of the terms being more

McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125 per Lord Devlin at 134; Mendelssohn v Normand Ltd [1970] 1 QB 177.

232

Kendall & Sons Ltd v Lillico & Sons Ltd [1969] 2  AC  31 at 104 and at 113; Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Ll Rep 427 at 433.

233

Kendall & Sons Ltd v Lillico & Sons Ltd [1969] 2 AC 31 per Lord Morris at 90.

234

McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125 at 128. See also SIAT v Tradax [1978] 2 Ll Rep 470 per Donaldson J at 490.

235

The Moorcock (1889) 14 PD 64.

236

For example, Society of Lloyds v Clementson [1995] CLC 117 per Steyn LJ at 132; White v Reflecting Roadstuds Ltd [1991]  ICR  733; Ashmore v Corpn of Lloyds (No  2) [1992] 2 Ll Rep 620 per Gatehouse J at 627.

237

For example, Trollope and Colls Ltd v North West Regional Hospital Board [1973] 2 All ER 260.

238

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Chapter 1 Incorporation

readily ascertainable.239 The use of a version of the ‘officious bystander’ test may be best avoided here. It might import inappropriate requirements from a different context. The better link to make may be with terms incorporated by notice.240

The application of the test 1.92 In applying the test for incorporation by a course of dealing, it is necessary to consider: •

the previous transactions; and

•

the instant case.

The initial question will be whether the prior contracts have been sufficient to generate any assumptions as to the use of the proferens’ standard form clauses. For example, • in Kendall v Lillico there were three or four transactions a month for three years; • in Circle Freight International v Medeast Gulf Exports Ltd241 there were 11 transactions in six months; and in both cases the terms were incorporated. 1.93 There was no incorporation on the basis of a course of dealing when there had been only ‘intermittent’ contact between the parties and the contracts they had made were regarded as ‘isolated affairs’.242 Similarly, in Hollier v Rambler Motors (AMC) Ltd, where there was no incorporation, Salmon LJ said:243 ‘I am bound to say that for my part, I do not know of any other case in which it has been decided that or even argued that a term could be implied into an oral contract on the strength of a course of dealing (if it can be so called) which consisted at most of three or four transactions over a period of five years’.

See below in relation to changes in standard terms, para 111.

239

See para 1.42.

240

[1988] 2 Ll Rep 427. An extreme example would seem to be Re Jogia (a Bankrupt) [1988] 2 All ER 328 per Browne-Wilkinson V-C at 335: ‘There may be some doubt whether the terms of the first transaction incorporated the exclusive jurisdiction clause. But, once the bankrupt, through his agent, had received CLAL’s first invoice with the printed conditions of sale on the back, in my judgment he cannot be heard to say that the later transactions were not entered into on the basis of those conditions as part of the terms of the contract. It is well established that in such circumstances general conditions of sale can, as part of the course of dealing between the parties become terms of the contract’.

241

Metaalhandel JA Magnum BV v Ardfields Transport Ltd [1988] 1 Ll Rep 197 at 203.

242

[1972] 2 QB 71, [1972] 1 All ER 399 at 402.

243

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Chapter 1 Incorporation

1.94 Obviously, it is not only the number of transactions and the timescale which are relevant. For example, the consistency of the introduction of the standard form clauses should be considered. It may be clear that in some of its sale contracts the party putting forward the terms chooses not to include the relevant clauses and that may244 be sufficient to prevent there being a consistent course of dealing.245 1.95 The standard terms and conditions used by a trade association (and other referred to documentation provided by the party putting forward the terms) may not be enough to make them incorporated into a contract without a sufficient course of dealing. In Capes (Hatherden) Ltd v Western Arable Services Ltd246 there were 6 contracts in a period of one year, and with a gap of 5 months before the last 2 were made. The first 4 contracts were made orally, which were followed by a contract note which made reference to ‘Terms: AIC  Contract No. 1/04 for grain and pulses’ which referred to standard terms and conditions provided by the Agricultural Industries Confederation. The party buying the product was not required to do anything in relation to the contract note sent by the seller and it was found that the buyer had not noticed the reference to the AIC terms and conditions. This limited course of dealing and the lack of evidence of knowledge by the buyer was enough for them not to be incorporated into the contract between the parties: ‘In my judgment these facts are right on the borderline. If there had been any persuasive evidence, either that the terms of Contract 1/04 were the usual terms on which grain merchants purchase grain from UK producers, or that Mr Capes knew that grain merchants commonly employed standard terms which provided for disputes to be settled by arbitration, I would have been likely to hold that Contract 1/04 was incorporated. In the absence of such evidence, I do not think that the previous contracts justify the conclusion that the AIC terms were incorporated. To put it another way, the limited course of dealing between the parties is not in my view such that an impartial observer would conclude that the parties had reached a common understanding that Contract 1/04 applied.’247

1.96 More recently the importance of a series of trading, and the consistency in bringing terms and conditions to the attention of the other party, have been key in incorporating the terms and conditions into contracts between the parties. In Transformers & Rectifiers Ltd v Needs Ltd248 there was

It would depend, inter alia, on whether the transactions in which the terms were not included were themselves a clearly identifiable and consistent set of circumstances, and whether the instant case fell within them.

244

Roe v RA  Naylor Ltd (1918) 87  LJKB  958 per Swinfen Eady MR at 963: ‘the condition in question is not always included in a sold note or memorandum, and that, in certain cases, timber would be sold by the defendants without any such condition … But certainly it cannot be inferred in these circumstances that this condition must have been in the minds of the contracting parties, or that they contracted with reference to this condition’.

245

[2009] EWHC 3065 (QB).

246

ibid, [42].

247

[2015] EWHC 269 (TCC), followed by the same judge in Aldrees and another v Rotex Europe Ltd (company number 04307924) [2019] EWHC 574 (TCC).

248

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a long-standing relationship between the parties, but the orders were not submitted in the same way, sometimes by fax, sometimes as attachments to emails and sometimes by post, with some orders preceded by a telephone call. The back of the top copy of the claimant’s purchase order contained its terms and conditions and were printed in light type but the front contained no reference to the terms and conditions, so that: ‘Accordingly a person receiving the document would probably not know that there was any writing on the back unless he or she happened to turn it over and had been specifically referred to its existence.’249

1.97 The defendants had accepted, by the time the parties where in dispute, that they were aware of the terms and conditions. But orders transmitted by fax or email did not contain the terms and conditions at all, just a copy of the purchase order. This inconsistency in the content of orders was fatal to the claimant who wished to incorporate its terms and conditions and the judge concluded: ‘[43] It seems to me that one problem facing the Claimant is the fact that it did not place its orders in the same way each time…. [44] In my judgment a buyer who wishes to incorporate his own standard terms and conditions when orders are sent by fax or email must give the seller reasonable notice of the terms and conditions and must do so in circumstances that make it clear to the other party that he intends to rely on them. [45] In the context of this case I consider that this involves doing what the buyers did in Sterling Hydraulics, that is to say to fax the terms and conditions on the back of the purchase order as a separate document together with the purchase order or, if being sent by email, to ensure that the pdf attachment includes both the face of the purchase order and the terms and conditions on its back. In my view this is essential if the purchase order does not on its face refer to the terms and conditions on the back. [46] Viewed objectively, therefore, I  consider that by not sending its terms and conditions when placing the purchase orders by fax or email, even though they were printed on the reverse of purchase orders which from time to time were sent by post, the Claimant did not make it clear to a reasonable person in the position of the Defendant that it was seeking to rely on them. In my judgment if the Claimant did not follow a consistent practice of enclosing its terms and conditions with every purchase order, particularly in circumstances where the purchase order that was sent did not on its face refer to any terms and conditions, the Defendant was entitled to assume that the Claimant was not intending to rely on them. [47] I therefore agree with the Defendant’s submission that the Claimant did not do what was necessary to incorporate its terms and conditions into the contract. …. [49] In the light of the authorities that I have discussed, it seems to me that a seller who wishes to incorporate his terms and conditions by referring to them in his acknowledgement of order – thus making it a counter offer – must, at the very least, refer to those conditions on the face of the acknowledgement of order in terms that

Transformers & Rectifiers Ltd v Needs Ltd [2015] EWHC 269 (TCC), [7].

249

39

Chapter 1 Incorporation make it plain that they are to govern the contract. Having done that, if the conditions are not in a form that is in common use in the relevant industry, the seller must give the buyer reasonable notice of the conditions by printing them on the reverse of the acknowledgement of order accompanied by a statement on the face of the acknowledgement of order that it is subject to the conditions on the back.’

1.98 In general, it will be a matter of weighing the similarities and the disparities in the transactions, as well as their number and the timescale over which they have taken place. This can be exemplified by SIAT v Tradax,250 in which case Megaw LJ said:251 ‘In all of the 81 contracts between the buyers and companies in the Tradax group over 5½ years … a Tradax confirmation note had been sent and accepted as containing the terms of the respective contracts. The buyers had signed and returned the confirmation note … It is true that 41 of the 81 contracts were made by the buyers not with the sellers but with other members of the Tradax group. It is true that all of the 41 contracts which the buyers had made with the sellers were on FOB not CIF terms and were for the purchase of commodities other than soya bean meal. I do not think that these factors invalidate the conclusion … [of] incorporation as a result of past practice by tacit understanding of the parties when the contract was made [on the telephone]’.

1.99 In relation to the instant case, it is possible for it to be entirely consistent with the past transactions, as in Kendall v Lillico, but that should not be seen as required,252 and if previous contracts were written there is no requirement that the same should be true of the instant case.253 1.100 The relevance of any such factor will depend upon the application of the basic test to the facts of the instant case. The conclusion that the standard term has been incorporated has not been precluded by considerable differences between the instant transaction and the previous dealings, such as differences: • in the commodities dealt with and the contracts being CIF rather than FOB;254 or •

in the identity of the particular buyer (within a group of companies):255 ‘Does it matter that previously the buyers either dealt with a different Tradax company or in a different commodity and not on CIF terms? The Board of Appeal thought not and I can see no reason to disagree. It is noteworthy that the broker’s telex never identified the Tradax company concerned. This was left to the sellers’ agents. I have no doubt that it was immaterial to the buyers.

[1980] 1 Ll Rep 53.

250

[1980] 1 Ll Rep 53 at 56.

251

The majority in McCutcheon v MacBrayne might have been seen as indicating such a requirement. See also Kendall v Lillico [1969] 2 AC 31 per Lord Guest at 104; PLM Trading (International) Ltd v Georgiou [1988] BTLC 404. But see the cases below.

252

Circle Freight International Ltd v Medeast Gulf Export Ltd [1988] 2 Ll Rep 427 per Taylor LJ at 431.

253

SIAT v Tradax [1980] 1 Ll Rep 53 per Megaw LJ at 56.

254

SIAT v Tradax [1978] 2 Lloyd’s Rep 470.

255

40

Chapter 1 Incorporation They were dealing with the Tradax organisation and which member of the clan was the seller really did not matter.’256

1.101 A court has even taken the view that when parties enter into a new market, after a previous course of dealing in other markets, that it is possible to infer that they ‘intend the unexpressed terms of that contract to be those of their previous course of dealing unless any particular term is inapplicable in the new market or clearly and indisputably inconsistent with the practice in it’.257

1.102 The cases above concern whether the terms and conditions are incorporated into several contracts over a period. But the requirement for consistency is also necessary where the parties are negotiating and communicating with each other to enter into a specific contract. In Aldrees and another v Rotex Europe Ltd (company number 04307924),258 this issue came in for consideration by the court, in what was, essentially, a battle-of-the-forms case. The defendant had submitted two quotations which included their terms and conditions (on the first occasion they had simply been enclosed with any reference to them in the other documents supplied by the defendant). The second quotation by email had contained the words ‘See attached general terms and conditions of sale’ (which appeared attached to the email), but the claimant had not accepted them, as they had sent purchase orders which contained different provisions in relation to some matters. After further negotiation a revised version of the second quotation was sent by the defendant, again with the words ‘See attached general terms and conditions of sale’. But on this third occasion the terms and conditions were not attached. The judge rejected the submission of the defendant that the attachment of the terms and conditions in an earlier quotation using the same words (‘See attached general terms and conditions of sale’) would lead a reasonable business person to understand that the reference to the terms and conditions as those which had been provided on a previous occasion. The judge indicated that in this situation a reasonable business person could make two assumptions: • that the defendant had by mistake failed to attach the terms and conditions; or •

that the defendant did not intend to attach the terms and conditions, but had made an error in failing to delete the words ‘See attached general terms and conditions of sale’ from the previous version of the quotation.

1.103 The judge indicated that only if there had been a consistent use of the terms and conditions than it would be possible for a reasonable business person to conclude that the failure to include the terms and conditions was an oversight: ibid per Donaldson, LJ at 490.

256

Banque Paribas v Cargill International SA [1992] 1 Ll Rep 96 per Webster J at 98.

257

[2019] EWHC 574 (TCC).

258

41

Chapter 1 Incorporation ‘If there had been a significant history of negotiations during which Rotex had attached to every quotation a copy of its terms and conditions and had made reference to them in each quotation, then there would be quite a strong case for saying that the failure to attach the terms and conditions to one particular quotation would be seen by the reasonable businessman as an oversight. However, in this case, there was no reference to Rotex’s terms and conditions in its first quotation, or in the covering letter, although a copy of the terms and conditions was attached to the covering e-mail, and so at that stage a reasonable businessman would in my view be entitled to conclude that Rotex might not be insisting on contracting subject to those terms and conditions. By contrast, the second quotation made it clear that Rotex was at that point intending to contract on those terms and conditions. If, then, the third quotation again refers to “the attached general terms and conditions” but no terms and conditions are attached, what is the reasonable businessman to conclude?’

1.104 And the judge concluding on this point: ‘…where a contracting party has not been consistent in its approach to the incorporation of its terms and conditions, I can see little warrant for treating it as having done what it has not done. In this case the words of incorporation were clear and unambiguous – “see attached general terms and conditions of sale” – but since no such conditions were attached, there was nothing to see. It would in my view take a much stronger case to override the unambiguous meaning of the words by treating as having been attached that which had not been attached’.

What is required is consideration of how the past and present transactions would impact upon the perceptions of the parties as reasonable people.

Trade practice 1.105 Trade practice may be relevant to incorporation. Where there are only a small number of prior transactions, which in themselves might be insufficient to incorporate the party putting forward the term’s standard form clauses, the clauses may be nevertheless incorporated if the parties share a common trade background.259 Although there is some support for the proposition that such incorporation is distinct from that occurring on the basis of a course of dealing260 but it is perhaps more appropriate to view them as stemming from the same source. In SIAT v Tradax,261 Donaldson J said:262

British Crane Hire Corpn Ltd v Ipswich Plant Hire Ltd [1975] QB 303. See also Victoria Fur Traders Ltd v Roadline (UK) Ltd [1981] 1 Ll Rep 570; Fal Bunkering of Sharjah v Grecale of Panama [1990] 1 Ll Rep 369.

259

British Crane Hire Corp v Ipswich Plant Hire [1975] QB 303 per Lord Denning MR at 310–311 [1974] 1 All ER 1059 at 1061.

260

[1978] 2 Ll Rep 470.

261

[1978] 2 Ll Rep 470 at 490. See also Eastern Kayam Carpets Ltd v Eastern United Freight (1983) 6 Dec, Lexis: ‘In the crane case [British Crane Hire Corpn Ltd v Ipswich Plant Hire] by proceeding on the basis of a common understanding the Court was, I  think, to some small degree extending Lord Reid’s approach in the McCutcheon case, on the basis that both parties were in the same trade and both used the same standard conditions’.

262

42

Chapter 1 Incorporation ‘Both [advocates for the parties] approached the matter on the basis that terms can be incorporated in a contract either as a result of a course of dealing or by application of the British Crane doctrine which they seem to regard as different approaches. I do not think they are different. They are two different examples of a much wider concept, namely that a contract is not made in a vacuum but against a background of present and past facts and future expectations and that its terms are to be gathered not only from expressed words but also from their conduct viewed against that background’.

1.106 In general, it will be easier to establish incorporation by a course of dealing where both parties are in business,263 rather than where one is a consumer.264 There is some support in the case law that suggests that the parties’ relative bargaining power, as such, may be relevant,265 but there is no real basis for that has been put forward. A transaction, whether being business/ business or business/consumer may have an effect on the inferences that may be assumed that the parties draw, as reasonable people, as to the contract terms.

Notice and the ‘red hand rule’ 1.107 It is possible to see incorporation by a course of dealing as an extension of the type of incorporation dealt with in Parker v South Eastern Rly Co, that is where there is reasonably sufficient notice of the terms.266 (In this context, the ‘notice’ is provided by the past transactions rather than a document introduced in the instant case.) However, even if this is the case,267 the above test draws attention to the factors relevant to the course of dealing situation, in a way that simply asking if there was ‘reasonably sufficient notice’ would not. 1.108 If incorporation by a course of dealing is viewed as an extension of the Parker v South Eastern Rly Co test, the ‘red hand rule’ would also apply and a distinction made between what is sufficient to incorporate clauses which are reasonable and usual and other terms. In Circle Freight in deciding that the clauses were incorporated by the course of dealing, it was noted that they were ‘not particularly onerous or unusual’.268

Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Ll Rep 427.

263

British Crane Hire Corpn Ltd v Ipswich Plant Hire Ltd commenting on Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71. See also Mendelssohn v Normand [1970] 1 QB 177.

264

British Crane Hire Corpn Ltd v Ipswich Plant Hire Ltd [1974] 1 All ER 1059 per Lord Denning MR at 1061, Sir Eric Sachs at 1064.

265

Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Ll Rep 427 at 433. See also McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125 per Lord Devlin at 138, but see Lord Reid at 128.

266

Such incorporation has also been seen as the implication of terms on the basis of the ‘officious bystander’ test: McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125 per Lord Reid at 128; SIAT v Tradax [1978] 2 Ll Rep 470 per Donaldson J at 490. See 25.

267

Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Ll Rep 427 per Taylor LJ at 433.

268

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Relevance of failure to incorporate but for past transactions 1.109 It is also necessary to give some consideration to the limitations of incorporation by a course of dealing where there has also been a failure to incorporate by the appropriate introduction of the terms into prior transactions as well as the instant case, as occurred in Kendall v Lillico.269 In that case, each time the parties contracted the standard terms were introduced too late to be incorporated by the notice provided in relation to that particular contract, but, nevertheless the terms were incorporated because of those past transactions. Lord Guest said: ‘In the present case SAPPA, by continuing to conduct their business with Grimsdale on the basis of the sold notes which contained the relevant condition and by not objecting to the condition, must be taken to have assented to the incorporation of those terms in the contract’.

1.110 However, where the standard form document has always been introduced after the particular contract was made, its introduction into that particular contract, as such, was legally ineffective. In finding incorporation by a course of dealing in such a situation, the party whom it was sought to bind by the standard form is denied the right to rely on the party putting forward the terms’ failure to introduce the standard form into each specific contract on time. However, that should only be the case where, if the standard form had been introduced in time, in the instant case, there would have been reasonably sufficient notice. This limitation is required if the situation is to be one in which it can be said that the pattern of dealing is such that the reasonable person would have realised that the party putting forward the terms intended to contract on the basis of the standard form – and thus to be a situation in which incorporation by a course of dealing occurs. In addition, there should, similarly, be no possibility of incorporation by a course of dealing if the party putting forward the terms consistently introduced the standard form in time but on each occasion failed to incorporate because of failure to provide reasonably sufficient notice. Again, in that case, there is no reason to find that the person it was sought to bind, would, as a reasonable person, have realised the party putting forward the terms’ intent to contract on the basis of the standard form.270

Changes to standard terms 1.111 There may be changes made to standard form contracts from time to time; the question is whether that affects incorporation by a course

[1969] 2 AC 31; Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Ll Rep 427.

269

Something of this was recognised by Legatt J  in Wavin Nederland BV  v Excomb Ltd (1983) 133 NLJ 937.

270

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Chapter 1 Incorporation

of dealing. In J  Spurling Ltd v Bradshaw Morris LJ did not consider it to be relevant that it had not been established that the party putting forward the terms had consistently used the same standard form clauses.271 But in Chevron International Oil Co Ltd v A/S Sea Team272 the court took account of the fact that the clauses had been changed. It may simply be that it is possible to assess the relevance of such changes by considering the course of dealing and the assumptions which led to the changes. For example, if there is the use of terms standard throughout a trade, changes may be well enough known so that the parties intended to use the latest version. If it is common in a particular trade for different versions to be used at the same time (ie not everyone changes to new versions) then the course of dealing may indicate that a contract has been made on the basis of the version in current use by the first party. However, as noted above,273 the ‘red hand rule’ should be seen as relevant in this context as in relation to incorporation by notice. If a new set of standard terms introduce an unreasonable clause, that rule would indicate that the party putting it forward274 would not be able to incorporate it without drawing specific attention to it. In addition, when standard terms are changed, some patterns of past dealings will impact upon what amounts to an unusual clause for the purposes of the ‘red hand rule’, again requiring the party putting it forward needing to draw attention to it if that party wishes to incorporate the clause.

[1956] 1 WLR 461 at 468.

271

[1983] 2 Ll Rep 356. But see Roe v RA Naylor Ltd (1918) 87 LJKB 958 per Swinfen Eady MR at 963.

272

See para 1.107.

273

In the context of incorporation by notice, the ‘red hand rule’ merely denies the incorporation of the particular onerous or unreasonable clause. In this context, where the incorporation of all the terms occurs on the basis of what each party can assume about the other’s intentions, it could be contended that the standard terms should be incorporated as a whole or not at all – the relevant party’s assumptions as to the proferens’ standard terms being as to the whole package of terms.

274

45

Chapter 2 Construction

Introduction2.1 Construction in general 2.1 Approach to exemption clauses – trends 2.18 The impact of legislation – drafting 2.21 Reasonableness/fairness2.21 Width of clauses 2.23 The requirement for transparency (expressed in plain and intelligible language) 2.26 The impact of legislation – construction and more broadly 2.31 Avoiding ‘strained’ construction 2.31 Interactions of construction and reasonableness/fairness 2.32 Unfair Contract Terms Act 1977 as a platform for common law development 2.38 Standard form contracts 2.40 Rules, approaches 2.42 Strict construction, contra proferentem 2.42 Limitation clauses 2.58 Negligence2.64 Introduction – legislation – trends 2.64 The three-stage test – basic formulation – justification 2.71 Intention of the parties 2.76 Scope2.82 First part of the test 2.86 Second part 2.90 Third part 2.94 The Canada Steamship test post-Investors: summary 2.101 Inconsistent terms 2.108 Outside the contract 2.110 Fundamental breach 2.110 ‘Peas and beans’, main purpose of the contract, four corners rule2.113 Deviation2.127 Particular clauses, phrases 2.133 ‘Entire’ or ‘whole’ agreement clauses 2.133 46

Chapter 2 Construction

Collateral contacts and warranties Subsequent agreements Whether other agreements or other documents relating to the same subject matter can continue to operate in light of an entire agreement clause Implied terms Excluding liability for (mis)representation Anti-set-off clauses Wilful misconduct, default, neglect Gross negligence Consequential loss

2.140 2.143

2.145 2.148 2.158 2.178 2.186 2.193 2.197

Introduction Construction in general1 2.1 Before considering the interpretation of contacts in the context of exemption clauses it is important to give a brief overview as to how the courts now interpret contracts. The objective when construing or interpreting a contract is to determine the parties’ intention,2 objectively ascertained through the language they have used in the contract.3 That is the objective intention as

This section is no more than an overview of how a contract should be interpreted as seen by the most senior courts in the UK. It is possible to write a Chitty-size volume just on the number of cases which have considered the correct way to interpret a contract based on the 3 Supreme Court and 1 House of Lords cases which are the focus of this section.

1

Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724 per Lord Diplock.

2

IRC  v Raphael [1935]  AC  96 per Lord Wright; McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125 per Lord Reid: ‘The judicial task is not to discover the actual intentions of each party, it is to decide what each was reasonably entitled to conclude from the attitude of the other’; Prenn v Simmonds [1971] 1 WLR 1381; Reardon-Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 per Lord Wilberforce: ‘When one speaks of the intention of the parties to the contract one speaks objectively – the parties cannot themselves give direct evidence of what their intention was – and what must be ascertained is what is to be taken as their intention which reasonable people would have had if placed in the situation of the parties’; Summit Investments Inc v British Steel Corpn [1987] 1 Ll Rep 230 at 233; Vitol BV v Compagnie Européene des Pétroles [1988] 1 Ll Rep 574 per Saville J at 576; Deutsche Genossenschaftsbank v Burnhope [1995] 1  WLR  1580 per Lord Steyn at 1587. Sirius International Insurance Co v FAI  General Insurance Ltd [2004] UKHL 54 per Lord Steyn at [18]: ‘The aim of the inquiry is not to probe the real intentions of the parties, but to ascertain the contextual meaning of the relevant contractual language. The inquiry is objective: the question is what a reasonable person, circumstanced as the actual parties were, would have understood the parties to have meant by the use of specific language. The answer to that question is to be gathered from the text and its relevant contractual scene’.

3

47

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embodied in the words of the contract4 – the ‘intention as expressed’5 – and, traditionally, there was a restrictive approach to what further evidence of the parties’ intention that could be adduced.6 2.2 However, in Investors’ Compensation Scheme Ltd v West Bromwich Building Society7 the House of Lords stated that a ‘fundamental change … has overtaken this branch of the law’8 and the result has largely been:9 ‘to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of “legal interpretation” has been discarded’.

Lord Hoffmann provided a summary of the principles:10 ‘(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract (2) The background was famously referred to by Lord Wilberforce as the “matrix of fact”, but this phrase is if anything an understated description of what the background may include. Subject to the requirement that it should be reasonably available to the parties and to the exception mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man (3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we interpret utterances in ordinary life … (4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of a document is what the parties using those words against the relevant background would reasonably have understood them to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words

Smith v Lucas (1881) 18 Ch D 531 at 542; Great Western Rly v Bristol Corpn [1918] 87 LJ Ch 414; Lovell and Christmas Ltd v Wall (1911) 104 LT 85; Prenn v Simmonds [1971] 1 WLR 1381 at 1385; Philpot’s (Woking) Ltd v Surrey Conveyancers Ltd [1986] 1 EGLR 97; Hyundai Merchant Marine Co Ltd v Gesuri Chartering Co Ltd [1991] 1 Ll Rep 100 at 103.

4

IRC  v Raphael [1935]  AC  96 per Lord Wright; Inglis v John Buttery & Co (1878) 3 App Cas 552; Bank of New Zealand v Simpson [1900] AC 182 at 188; Lovell and Christmas v Wall (1911) 104 LT 85; Great Western Rly v Bristol Corpn (1918) 87 LJ Ch 414; Shearson Lehman Hutton Inc v Maclaine Watson & Co Ltd [1989] 2 Ll Rep 570 at 591; Hamed El Chiaty & Co v Thomas Cook Group Ltd [1992] 1 Ll Rep 399 at 407.

5

Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 per Lord Simon.

6

[1998] 1 All ER 98.

7

[1998] 1 All ER per Lord Hoffmann at 114.

8

[1998] 1 All ER at 114.

9

[1998] 1 All ER 98 at 114. Don King Productions Inc v Warren [1998] 2 All ER 608 per Lightman J at 624.

10

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Chapter 2 Construction which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax (see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd11) (5) The rule that words should be given their “natural and ordinary meaning” reflects the common-sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had …’.

2.3 The first principle ‘sets the scene’ for the interpretation of a contract or clause in the contract which the other 4 principles, in effect, explain. The meaning of a document or a clause is obtained: •

objectively; and

•

with the use of background (available up to the date of the contract).

Since the Investors’ Compensation Scheme Ltd v West Bromwich Building Society case there have been a number of cases which have sought to reformulate or develop the principles which were stated in that case. The principal Supreme Court cases are Rainy Sky SA v Kookmin Bank,12 Arnold v Britton and others13 and Wood v Capita Insurance Services Ltd.14 Any of these and Investors’ Compensation Scheme Ltd v West Bromwich Building Society are cited in numerous cases which call for the interpretation of agreements. 2.4 Rainy Sky SA v Kookmin Bank identified how to interpret contracts in the following way: ‘the correct approach to construction of the bonds, as in the case of any contract, was not in dispute. The principles have been discussed in many cases, … I agree … that those cases show that the ultimate aim of interpreting a provision in a contract, especially a commercial contract, is to determine what the parties meant by the language used, which involves ascertaining what a reasonable person would have understood the parties to have meant. As Lord Hoffmann made clear in the first of the principles he summarised in the Investors Compensation Scheme case [1998] 1 All ER 98 at 114–115, [1998] 1 WLR 896 at 912–913, the relevant reasonable person is one who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.’15 and: ‘The language used by the parties will often have more than one potential meaning. … that the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably

[1997] 3 All ER 352. See also Charles M Willie & Co (Shipping) Ltd v Ocean Laser Shipping Ltd, The Smaro [1999] CLC 301 at 316–317.

11

[2011] UKSC 50.

12

[2015] UKSC 36.

13

[2017] UKSC 24.

14

Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [14].

15

49

Chapter 2 Construction have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.’16

2.5 This case appeared to recognise that to interpret a contract it is necessary to determine the intention of the party through the words they use, and that it is possible for language to have alternative meanings. Where there are alternative meanings then the court can use the one which accords most with ‘business common sense’, although the court recognised that if: ‘the parties have used unambiguous language, the court must apply it.’17

In the latter case of Arnold v Britton and others18 it appeared that the court took a more literalist approach to the interpretation of contracts by focussing on the meaning of the words: ‘When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to ‘what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean’, to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 4 All ER 677, [2009] AC 1101 (at [14]). And it does so by focusing on the meaning of the relevant words … in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party’s intentions.’19

2.6 Lord Neuberger went on to emphasise seven factors, the first which sets the tone so that a reliance on commercial common sense and surrounding circumstances should not detract from: ‘…the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focusing on the issue covered by the provision when agreeing the wording of that provision.’20

2.7 In the last of these three Supreme Court cases, Wood v Capita Insurance Services Ltd21 Lord Hodge specifically refused to ‘accept the proposition that Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [21].

16

ibid, [23].

17

[2015] UKSC 36.

18

Arnold v Britton and others [2015] UKSC 36, [15].

19

ibid, [17].

20

[2017] UKSC 24.

21

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Arnold involved a recalibration of the approach summarised in Rainy Sky’ and noting that ‘all the judgements [in Arnold v Britton] confirmed the approach in Rainy Sky’.22 Lord Hodge indicated that, in effect, it is necessary to look at the agreement and its wording, and depending on the wording used (such as the quality of the drafting) give greater or lesser regard to the context (that is the background) necessary to establish the objective meaning of the language used rather than simply take a literalist approach: ‘The court’s task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement. It has long been accepted that this is not a literalist exercise focused solely on a parsing of the wording of the particular clause but that the court must consider the contract as a whole and, depending on the nature, formality and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to that objective meaning. In Prenn v Simmonds [1971] 1 WLR 1381 (1383H-1385D) and in Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 (997), Lord Wilberforce affirmed the potential relevance to the task of interpreting the parties’ contract of the factual background known to the parties at or before the date of the contract, excluding evidence of the prior negotiations. When in his celebrated judgment in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1  WLR  896 Lord Hoffmann (pp 912-913) reformulated the principles of contractual interpretation, some saw his second principle, which allowed consideration of the whole relevant factual background available to the parties at the time of the contract, as signalling a break with the past. But Lord Bingham in an extra-judicial writing, A new thing under the sun? The interpretation of contracts and the ICS decision Edin LR Vol 12, 374-390, persuasively demonstrated that the idea of the court putting itself in the shoes of the contracting parties had a long pedigree.’23

2.8 Which element of the tools available to the court (the analysis of the language or the use of the context (background)) which the court needs to use and which of them has emphasis will depend, although the process of interpretation is a unitary process, so that the interpretation of an agreement is: ‘a unitary exercise; where there are rival meanings, the court can give weight to the implications of rival constructions by reaching a view as to which construction is more consistent with business common sense. But, in striking a balance between the indications given by the language and the implications of the competing constructions the court must consider the quality of drafting of the clause (Rainy Sky para  26, citing Mance LJ in Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd (No 2) [2001] 2 All ER (Comm) 299 paras 13 and 16); and it must also be alive to the possibility that one side may have agreed to something which with hindsight did not serve his interest: Arnold (paras 20 and 77). Similarly, the court must not lose sight of the possibility that a provision may be a negotiated compromise or that the negotiators were not able to agree more precise terms.’24

2.9 What is the correct way for a court to interpret a contract? As Wood v Capita Insurance Services Ltd is, to date, the last case decided by the most senior

Wood v Capita Insurance Services Ltd [2017] UKSC 24, [9], [11].

22

ibid, [10].

23

ibid, [11].

24

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court in the UK its view is still the most authoritative guide that any court can take.25 The following are the keys points from the judgment as to the interpreting of an agreement: •

The previous decisions: That the judgments of the Supreme Court in Rainy Sky SA v Kookmin Bank and Arnold v Britton set out the way a court should approach construction, and that both cases ‘were saying the same thing’.26

•

The approach to construction: The approach to construction was summarised by Lord Clark in Rainy Sky SA v Kookmin Bank27 (which the judges in Arnold v Britton and others confirmed as the correct approach).28

•

The task of the court: The task of the court is to ‘ascertain the objective meaning of the language which the parties has chosen to express their agreement’.29

•

Not a literalist exercise: The court should not carry out a literalist exercise which is ‘focussed solely on a parsing of the wording’ of a particular clause.30

•

Look at the contract as a whole: The court has to look at the contract as a whole.

•

Consideration of the context (background): The court also had to consider the background (context), but the weight given to elements of the wider background will depend ‘on the nature, formality and quality of the drafting of the contract’ to arrive at the objective meaning of the clause.31

•

Up to what time consider the background: the background which is known before or up to the date of the contract.

•

No use of prior negotiation, unless a case of rectification.

•

Extent of background usable: It is possible to use any of the background ‘which would have affected the way in which the language of the document would have been understood by a reasonable man’.32

At the time material for this chapter was prepared (June 2021) according to the ‘case overview’ for this case prepared by LexisNexis is has been considered or applied in 105 cases since 2017, mostly in High Court and some Court of Appeal cases.

25

Wood v Capita Insurance Services Ltd [2017] UKSC 24, [11], [15].

26

[2011] UKSC 50, [21]-[30].

27

Wood v Capita Insurance Services Ltd [2017] UKSC 24, [11].

28

ibid, [10].

29

ibid.

30

ibid.

31

Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 at 115.

32

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•

Construction is a unitary exercise: that, in effect, it is not possible to divorce the language used from the background – both need consideration.33

•

What the unitary exercise involves: it is iterative process so that each suggested interpretation: • is checked against the provisions of the contract; •

•

•

•

has its commercial consequences investigated.

The order in which the unitary exercise takes place does not matter: Once the court has read the language of the clause in the dispute and the provisions of the contract which give context to that clause it does not matter (when the court commences its more detailed analysis) which of the following it considers first: •

‘the factual background and the implications of rival constructions’34; or

•

a detailed consideration of the relevant language used in the contract’; but the court has to balance the indications that each give.

Textualism and context are not in conflict: Focussing on either the language of the contract or the context as being the key to contractual interpretation is not the right approach and it is necessary to consider the following: •

they are both tools to help the court ‘ascertain the objective meaning of the language which the parties have chosen to express their agreement’;35

•

the extent of use of each tool will depend on the circumstances of a particular agreement and for some contracts;

•

it may be possible to rely principally on textual analysis because, for example, skilled professionals have negotiated and prepared the contract; or

•

it may be necessary to place greater reliance on the factual matrix, for example, where the provisions of the contract are expressed briefly, informally or the parties have not had the benefit of professional help.

A complex contract may not be a logical and coherent text (so in effect it is not easy to choose what and how much of each tool it is necessary to use) because: •

of the conflicting aims parties of the parties;

In Rainy Sky SA  v Kookmin Bank [2011]  UKSC  50, [21]: ‘[The] exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances.’

33

Wood v Capita Insurance Services Ltd [2017] UKSC 24, [12].

34

ibid, [10].

35

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•

failures of communication;

•

different drafting practices; or

•

deadlines which require the parties to compromise so they can enter the contract;

• although professionals may draft detailed contract provisions such provisions can still lack clarity and it can help the court to examine the factual matrix as well as the purpose of similar provisions in contracts of the same type. 2.10 Another way of looking at the apparent disparity of approaches of the Supreme Court to the interpretation of contracts is to consider the type of the contracts in each case. The most ‘atypical’ of the three is perhaps that of Arnold v Britton which involved a type of residential conveyancing document – leases for chalets situated on a leisure park, while: •

Rainy Sky SA v Kookmin Bank concerned the wording of a clause in refund guarantees given in relation to separate shipbuilding contracts;

•

Wood v Capita Insurance Services Ltd concerned the wording of an indemnity clause in a sale and purchase agreement (for the purchase of shares).

2.11 Although all three cases concern different situations and different types of agreements, it is only Arnold v Britton which clearly does not concern a commercial agreement. Also a striking feature of that case was the lack of background material available to the court whether generally as to the ‘surrounding circumstances in which the […] leases were executed’ or the effect of the particular clause in dispute, and the court doubted even if there were ‘notes or letters of discussions in connection with the original drafting and granting … of the leases’ (even if such documentation were admissible).36 From the case report there is little or no discussion of the clause in dispute in the context of the other provisions of the lease and the only significant external background were: •

the Retail Price Index for a particular period;

•

other leases for chalets located on the same leisure park; and

•

reference to a practitioner’s text giving the background why the clause in despite is inserted into a lease.37

Arnold v Britton and others [2015] UKSC 36, [11], [12].

36

Wonnacott, The History of the Law of Landlord and Tenant in England and Wales, 2012, with the court stating: ‘…clauses which provide for charges which vary with the costs of providing services have resulted, at least since around 1960, in ‘more trouble between landlord and tenant than anything else’. Further, legislation which started to come into force in 1972 has rendered it progressively more difficult for an ‘amateur landlord’ (to use Wonnacott’s expression) to recover a disputed service charge calculated on such a basis. The fact that the second half of the clause goes on to provide for a fixed increase in the annual sum is also readily explicable: the parties assumed that the cost of providing the services in sterling terms would increase, or, to put the same point another way, they assumed that the value of money would fall.’

37

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2.12

The clause in question in Arnold v Britton stated:

‘To pay to the Lessor without any deductions in addition to the said rent as a proportionate part of the expenses and outgoings incurred by the Lessor in the repair maintenance renewal and renewal of the facilities of the Estate and the provision of services hereinafter set out the yearly sum of Ninety Pounds and Value Added tax (if any) for the first Year of the term hereby granted increasing thereafter by Ten Pounds per hundred for every subsequent year or part thereof.’38

The clause appears to contain a disjunct between the wording up to the words ‘hereinafter set out’ and those that appear after, however Lord Neuberger, while commenting on some difficulties and problems with the wording stated: ‘The reasonable reader of the clause would see the first half of the clause as descriptive of the purpose of cl 3(2), namely to provide for an annual service charge, and the second half as a quantification of that service charge.’39

and Lord Hodge stated in his judgement: ‘While there are infelicities in the language of the relevant clauses in some of the leases and no clear explanation of minor changes in drafting, I am not persuaded that the meaning of the language is open to question when full weight is given to the very limited factual matrix with which the courts have been presented in this case. We are invited to construe that which reads on a first consideration as a fixed service charge with an escalator to deal with future inflation, as a variable service charge which is subject to a cap to which the escalator applies. I find that very difficult. In my view there is nothing in the relevant context to support the construction of the clause as creating a cap, other than the view, which events have fully justified, that it was unwise of the lessees to agree to a fixed service charge with an escalator based on an assumption that the value of money would diminish by 10% per year.’40

2.13 The key effect of the clause in question was that over the long term the lessees would be paying a very high service charge, which led the lessees arguing that the intention of the parties in entering the leases could not have been such that would have led to such a result and also that the wording of the clause in question needed additional wording to make sense.41 However, Lord Neuberger was not convinced that ‘by [that] commercial argument that it is inconceivable that a lessee would have agreed to the service charge provision’

Arnold v Britton and others [2015] UKSC 36, [6].

38

ibid, [27], also see [28].

39

ibid, [75].

40

As noted by Lord Neuberger: ‘However, the consequences of the annual sum of £90 being increased annually by 10% on a compound basis are plainly unattractive, indeed alarming, to a lessee holding a chalet under one of the 25 leases. If one assumes a lease granted in 1980, the service charge would be over £2,500 this year, 2015, and over £550,000 by 2072. This appears to be an alarming outcome for the lessees, at least judging by how things look in 2015, because annual inflation in the last 15 years has hardly ever been above 4%, indeed has been under 3% for ten of those years, and has notoriously been falling recently almost to the point of turning negative, whereas the service charge over that period has increased, and will continue to increase, by 10% per annum.’ (from [30]).

41

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because at the time the leases were originally entered (around 1980) the inflation rate at the time was much higher than 10%, and it was only after the mid-1980s has it run at a significantly lower rate. 2.14 The position was very different with, for example, Wood v Capita Insurance Services Ltd where the sale and purchase agreement was very detailed and contained: •

detailed clauses on matters such as warranties (together with a schedule running to 30 pages of detailed warranties); and

• detailed provisions concerning limitations of liability (and a schedule setting time limits on the warranties give) besides the provision concerning the indemnities which was the subject matter of the dispute. The court found that the wording of the indemnity was ‘not drafted with precision and its meaning is avoidably opaque’, and it required considerable analysis (in the context of the other provisions of the agreements and the background) of different interpretations of its meaning. Unlike the analysis of the clause in dispute in Arnold v Britton and others there was plenty of context (background) in which the court could interpret the indemnity clause including the other provisions allocated their risk and the commercial context. 2.15 Not only is it important to note that any court has to deal with the case (and its particular facts) before it, the perceived emphasis on the use of ‘business common sense’ in Rainy Sky SA v Kookmin Bank only arose if there are alternative meanings to the clause in dispute then the court can use the one which accords most with ‘business common sense’. The key is whether the court can find that there are alternative meanings, if not then, as recognised in Rainy Sky SA v Kookmin Bank, if there is clear language then the court has to apply it. So perhaps the perceived differences in approach between Rainy Sky SA v Kookmin Bank and Arnold v Britton turns not on different ways of interpreting contracts but simply on the different cases before the courts. In Arnold v Britton once the court had decided on the meaning of the language used (having considered the available, but limited factual matrix, available) then: ‘it is not a matter of reaching a clear view on the natural meaning of the words and then seeing if there are circumstances which displace that meaning.’42

2.16 There is one further point which needs some consideration, how much of the background it is permissible for a court to use. The words must be considered not only in the context of the rest of the contract, but against the background of the ‘matrix of fact’, ie subject to certain exceptions, and ‘subject to the requirement that it should have been reasonably available to both parties’

at the time of contracting, that includes:

Arnold v Britton and others [2015] UKSC 36, [76].

42

56

Chapter 2 Construction ‘absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man’43.

2.17 The width of this latter statement in the principles elucidated by Lord Hoffman seemed to be very wide and in a later case he clarified what he meant by it: ‘The background is however very important. I should in passing say that when, in Investors Compensation Scheme Ltd v West Bromwich Building Society, Investors Compensation Scheme Ltd v Hopkin & Sons (a firm), Alford v West Bromwich Building Society, Armitage v West Bromwich Building Society [1998] 1 All ER 98 at 114, [1998] 1 WLR 896 at 913, I said that the admissible background included ‘absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man’, I did not think it necessary to emphasise that I  meant anything which a reasonable man would have regarded as relevant. I was merely saying that there is no conceptual limit to what can be regarded as background. It is not, for example, confined to the factual background but can include the state of the law (as in cases in which one takes into account that the parties are unlikely to have intended to agree to something unlawful or legally ineffective) or proved common assumptions which were in fact quite mistaken. But the primary source for understanding what the parties meant is their language interpreted in accordance with conventional usage: ‘… we do not easily accept that people have made linguistic mistakes, particularly in formal documents.’ I was certainly not encouraging a trawl through ‘background’ which could not have made a reasonable person think that the parties must have departed from conventional usage.’44

Approach to exemption clauses – trends 2.18 Prior to the Unfair Contract Terms Act 1977 (UCTA) placing controls on exemption clauses, the courts used the rules of interpretation inventively to mitigate the effects of such clauses. For example in George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd:45 ‘Faced with this abuse of power – by the strong against the weak – by the use of small print conditions – the judges did what they could to put a curb upon it. They still had before them the idol, “freedom of contract”. They still knelt down and worshipped it, but they concealed under their cloaks a secret weapon. They used it to stab the idol in the back. This weapon was called “the construction of the contract”. They used it with great skill and ingenuity. They used it so as to depart from the natural meaning of the words of the exemption clause and to put upon them a strained and unnatural construction’.

Points (1) and (2) above in Lord Hoffmann’s statement of principle: see para 2. Some concern had been voiced at the width of this: see Scottish Power plc v Britoil (Exploration) Ltd (1997) 141 Sol Jo LB 246, Staughton LJ; Wire TV Ltd v CableTel (UK) Ltd [1998] CLC 244 per Lightman J at 256; National Bank of Sharjah v Delborg (9 July 1997, unreported) Saville and Judge LJJ; Bank of Scotland v Dunedin Property Investment Co Ltd 1998 SC 657.

43

Bank of Credit and Commerce International SA (in liquidation) v Ali and others [2001] UKHL 8, [39].

44

[1983] QB 284 at 297.

45

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2.19 Since UCTA the use of a ‘strained construction’ is no longer favoured.46 In Photo Production Ltd v Securicor Transport Ltd47 the court stated:48 ‘the reports are full of cases in which what would appear to be very strained constructions have been placed upon exclusion clauses, mainly in what today would be called consumer contracts and contracts of adhesion … any need for this kind of judicial distortion of the English language has been banished by Parliament’s having made these kinds of contracts subject to the Unfair Contract Terms Act 1977’.

In addition to avoiding a strained construction it is also necessary to take account of the general trend in relation to the interpretation of contracts identified in Investors’ Compensation Scheme Ltd v West Bromwich Building Society.49 It is important to note the impact of that general trend in relation to the construction of exemption clauses. Not only is it significant in this context50 this fundamental change has also had an effect on the traditional rules to the interpretation of contracts. 2.20

A further development, post UCTA, is that:

‘There has been a shift in the approach of the courts to limitation and exclusion clauses since the enactment of UCTA. In commercial contracts to which UCTA does not apply there is a growing recognition that parties should be free to allocate risks as they see fit.’51

See also a recent case: The Hut Group Ltd v Nobahar-Cookson and another [2016] EWCA Civ 128, [19].

46

[1980] AC 827.

47

[1980] AC 827 at 851. See also George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803 at 810; Singer (UK) Ltd v Tees & Hartlepool Port Authority [1988] 2 Ll Rep 164; Charlotte Thirty and Bison Ltd v Croker Ltd (1990) 24 Con LR  46; Fillite (Runcorn) Ltd v APV  Pasilac (22  April 1993, unreported); Thomas Witter Ltd v TBP  Industries Ltd (1994) 12 Tr L  145 per Jacobs J  at 171; E  Scott (Plant Hire) Ltd v British Waterways Board (20  December 1982, unreported); Lamport and Holt Lines Ltd v Coubro Scrutton Ltd (The Raphael) [1982] 2 Ll Rep 42 per Stephenson LJ at 51–52; Edmund Murray Ltd v BSP International Foundation Ltd (1993) 33 Con LR 1, Neill LJ; Society of Lloyd’s v Wilkinson (No 2) [1997] CLC 1012, Colman J; Deepak Fertilisers and Petrochemical Corpn v ICI Chemicals & Polymers Ltd [1999] 1 Ll LR 387, StuartSmith LJ. It has also been suggested that it is preferable to use the ‘red hand rule’ to its full extent, to prevent incorporation (see 19), rather than to use strained construction – Lacey’s Footwear Ltd v Bowler International Freight Ltd [1997] 2 Ll Rep 369 per Brooke LJ at 385: ‘In my judgment it is infinitely better for the common law to be able to fashion a fair result in a case like this by adopting the approach which was identified by Bingham LJ in Interfoto Picture Library Ltd v Stiletto Visual Programs Ltd [1988] 1 All ER 348 and which is well founded on authority than to resort to interpretive devices of almost Byzantine sophistication to arrive at a result that the words of a contract do not mean what, on the face of it, they clearly do mean’. But on the use of the ‘red hand rule’ in general see the comments of Hobhouse LJ in AEG (UK) Ltd v Logic Resource Ltd [1996] CLC 265 at 277 in relation to limiting its application in the interests of certainty.

48

See para 1.70.

49

See eg Lord Hoffmann’s judgment in Bank of Credit and Commerce International v Ali [2001] 1 All ER 961.

50

Persimmon Homes Ltd and others v Ove Arup & Partners Ltd and another [2017] EWCA Civ 373, [35]; also Taberna Europe CDO II plc v Selskabet af 1 September 2008 A_S (formerly Roskilde Bank A_S) [2016] EWCA Civ 1262, [26].

51

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That the position prior to UCTA was that an exemption or limitation of liability clause should be viewed with hostility or interpreted in a restrictive way by a court is longer appropriate: ‘It is certainly true that English law has traditionally taken a restrictive approach to the construction of exemption clauses and clauses limiting liability for breaches of contract and other wrongful acts. However, in recent years it has been increasingly willing to recognise that parties to commercial contracts are entitled to apportion the risk of loss as they see fit and that provisions which limit or exclude liability must be construed in the same way as other terms.’52

The impact of legislation – drafting Reasonableness/fairness 2.21 UCTA often subjects clauses to the ‘requirement of reasonableness’ set out in UCTA, section 11, and when drafting clauses it is necessary to consider whether the requirements of that section are met.53 For consumer contracts54 the Consumer Rights Act 2015 (CRA) provides the fairness test which will need consideration when drafting a contract.55 Although CRA is a new legislative measure, the provisions in it relating to unfair terms are not, fundamentally, new as they derive from the 1999 Regulations56 with some amendments and additions. For consumer contracts, CRA requires an entirely different approach to the drafting of standard form contracts compared to the drafting of commercial and business contracts, as noted by the predecessor to the Competition and Markets Authority, the Office of Fair Trading:57 ‘That cherished principle [of freedom of contract], instilled in the course of both academic studies and practice had, of course, been under attack well before 1995 in its application to some aspects of consumer contracts. But nothing hitherto actually turned on its head as the Directive does, the general duty of the lawyer to draft

Tradigrain S.A. v Intertek Testing Services (ITS) Canada Limited [2007]  EWCA  Civ 154, [46]. See also similar comment made in Interactive E-Solutions JLT and another v O3B  Africa Ltd [2018] EWCA Civ 62, [14]: ‘The traditional approach of the courts towards exclusion clauses has been one of hostility. A  strict and narrow approach to their interpretation held sway. This began to change with the passing of the Unfair Contract Terms Act 1977. Since then the courts have become more accepting of such clauses, recognising (at least in commercial contracts made between parties of equal bargaining power) that exclusion and limitation clauses are an integral part of pricing and risk allocation: see Persimmon Homes Ltd v Ove Arup & Partners Ltd [2017] EWCA Civ 373, [2017] PNLR 29 at [57]. As Briggs LJ put it in NobaharCookson v Hut Group Ltd [2016] EWCA Civ 128, [2016] 1 CLC 573 at [19]’.

52

On the requirement of reasonableness see para 3.80.

53

That is contracts between a trader and consumer, CRA, ss 61(1), (3).

54

On the fairness test see para 4.158.

55

SI  1999/2083. This statutory instrument replaced SI  1994/204. The 1994 regulations implemented Council Directive 93/13/EEC on unfair terms in consumer contracts.

56

Office of Fair Trading Bulletin 4 at 18.

57

59

Chapter 2 Construction wholly and exclusively in the interests of the client, in whatever language is best adapted to preserve and enhance the client’s legal position’.

So that ‘well tried formulations which simply reserve the maximum advantage to the client’

are no longer appropriate. 2.22 What is required is a ‘wider perspective than taking into account only … clients’ interests’.58 At the very least, the good faith element of the fairness test requires consideration of whether advantage has been taken of the consumer59 and it is likely to mean that the trader has to take sufficient account of the interests of the consumer.60 The predecessor of the CMA, the Office of Fair Trading took the line that the seller or supplier need not lose all protection: ‘Unfair terms normally give businesses a benefit that is excessive, rather than wholly unwarranted, and often the firm’s underlying interest is a vital one. Suppliers can avoid losing all the protection offered by, for instance, a “boiler-plate” exclusion clause, by agreeing to narrow it and accept liability (as fairness requires) for negligence’.61

Width of clauses 2.23 The reasonableness test under UCTA is set against the ‘time frame’ of when the contract was made. The relevant circumstances are those which: ‘were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made’.62

This means that the specific breach which the clause is being called upon to address is not relevant, as such.63 It is the potential coverage of the clause which is relevant and a clause may be unreasonable not because of what it ibid.

58

Director General of Fair Trading v First National Bank [2001] 2 All ER (Comm) 1000 per Lord Bingham at [17].

59

See Council Directive 93/13/EEC of 5  April 1993 on unfair terms in consumer contracts, recital 16: ‘Whereas the assessment, according to the general criteria chosen, of the unfair character of terms, in particular in sale or supply activities of a public nature providing collective services which take account of solidarity among users, must be supplemented by a means of making an overall evaluation of the different interests involved; whereas this constitutes the requirement of good faith; whereas, in making an assessment of good faith, particular regard shall be had to the strength of the bargaining positions of the parties, whether the consumer had an inducement to agree to the term and whether the goods or services were sold or supplied to the special order of the consumer; whereas the requirement of good faith may be satisfied by the seller or supplier where he deals fairly and equitably with the other party whose legitimate interests he has to take into account.’.

60

Office of Fair Trading Bulletin 5 at 15.

61

UCTA, s 11(1).

62

The potential for a type of breach which could be reasonably contemplated at the time the contract was made can be considered.

63

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would do in the particular case, but because of what it could do in other situations.64 2.24

The point has been made, however, that

‘the court should not be too ready to focus on remote possibilities or to accept the argument that a clause fails the test by reference to relatively uncommon or unlikely situations’,65

although it would seem that the potential for coverage of a sufficiently serious breach should be significant even if it is relatively unlikely to occur,66 provided it was within the parties’ reasonable contemplation when the contract was made. In general, the time frame for the assessment of reasonableness means that drafter should use several narrow clauses, rather than one wide one, to try to ensure effectiveness of at least some of the scope of the exemptions they seek. 2.25 The same basic ‘time frame’ of assessment as under UCTA is used under CRA67 and it is also possible to make the same point in relation to the width of clauses: ‘The test of unfairness takes note of how a term could be used’.68

The application of this time frame is clear in relation to the use of CRA by a particular consumer in dispute with a particular seller or supplier, over a particular contract. However, when what is in question is action by the CMA (or a qualifying body)69 in relation to terms not related to a specific contract a particular consumer has entered or a standard form of contract used by a particular trader there will then be no one specific contract, or time of contracting, against which to assess ‘fairness’. It will be necessary to use a more abstract assessment.70 It would seem that consideration should be given

Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] QB  600. In Spriggs v Sotheby Parke Bernet & Co Ltd [1986] 1 Ll L Rep 487 at 495, Neill LJ said: ‘As I see it, there are two questions to be answered: (a) what is the proper construction of clause 2 (b) Does the clause, when properly construed, apply to the facts of the instant case’. Absent any considerations of the UCTA, or other such legislation, when considering construction, the courts basically only had to consider the second question – whether the clause could cover what had occurred. It is only when something like UCTA, s 11 1977 is in question, that it becomes relevant to determine the entire extent of a clause.

64

Skipskredittforeningen v Emperor Navigation SA [1997] CLC 1151 per Mance J at 1164. But see Bacardi-Martini Beverages v Thomas Hardy Packaging [2002] 2 All ER (Comm) 335 at [26].

65

Bacardi Martini Beverages Ltd v Thomas Hardy Packaging Ltd [2002] 2 All ER (Comm) 335.

66

CRA, s 62(5): ‘Whether a term is fair is to be determined— (a) taking into account the nature of the subject matter of the contract, and (b) by reference to all the circumstances existing when the term was agreed and to all of the other terms of the contract or of any other contract on which it depends’.

67

Office of Fair Trading Bulletin 3 at 7; see further para 4.169.

68

CRA, s 70, Schs 3, 5.

69

In Director General of Fair Trading v First National Bank [2001] 2 All ER (Comm) 1000 Lord Steyn indicated that ‘contemplated or typical relationships’ should be considered in identifying a gap the predecessor to CRA, Part 2, the Unfair Consumer Contracts Regulations 1999 and the Consumer Contracts Directive. The CRA has not made any substantive changes on this point See further para 4.158.

70

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to the circumstances which would normally be present when a contract was concluded on the relevant standard terms71 and the width of clauses and their potential coverage remain relevant.

The requirement for transparency (expressed in plain and intelligible language)72 2.26 Whether a term is ‘transparent’ (that is expressed in plain and intelligible language, and if it is in writing is also legible) is very significant under CRA. The exemption of ‘core terms’ from the application of the fairness test is subject to them being transparent and ‘prominent’,73 for example. Further, it is possible to argue that CRA, section 68 requires the drafting of terms in consumer contracts in plain and intelligible language, although there is not a specific penalty for a failure to do so. 2.27 However, even in the absence of any requirement as such, for the drafting of terms in consumer contracts in plain and intelligible language, it is clearly of considerable significance in relation to the fairness test. Although a term which is not transparent will not make it unenforceable (unlike a term which is unenforceable against the consumer) or by itself unfair, an absence of transparency may: • with any ambiguity in the wording, lead to a court adopting the interpretation most favourable to the consumer in the event of court action; and •

regulatory enforcement.74

See also the predecessor to the CMA Office of Fair Trading Bulletin 4 at 21: ‘Fairness is assessed in all the circumstances affecting the conclusion of contracts. The [Office] of Fair Trading applies the same test, but looking forward rather than back – in other words considering the circumstances that are generally likely to obtain, not those attending the conclusion of a particular contract’. But note also that reg 6(1) [now CRA, s 62(5)], which states the time frame of assessment, specifically says that it is ‘without prejudice to reg 12(1) [now CRA, s 70, Schs 3, 5]’. CRA, s 70 [now CRA, sch 3, 5] deals with the CMA, or a qualifying body applying for an injunction.

71

See para 4.132.

72

See para 4.70.

73

CMA, Unfair Terms Main Guidance (CMA37), 2016, 2.6: ‘Failing this specific transparency test alone, independently of the fairness test, does not make a term unenforceable against an individual consumer in the same way as a finding of unfairness. But there is a requirement that, if a term or notice has more than one possible meaning, and so is ambiguous, it should be given the meaning that is most favourable to the consumer. This is designed particularly to assist consumers in their own disputes with traders. Further, if a regulator considers that a term or notice breaches the section 68 transparency requirement, it can take enforcement action in the same way as when the requirement of fairness is considered to have been breached. Such action may be taken where a term or notice is ambiguous even if one of its potential meanings is not unfair.’

74

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2.28 Although an assessment whether a term is fair and whether it is written in a transparent fashion are separate requirements, the latter is an essential component of the former.75 But a term can be written in a plain and intelligible language (and be legible if the term is writing) and still be: ‘not enough to ensure compliance … terms should be drafted to ensure that consumers can make an informed choices’.76

2.29 For the CMA terms must be intelligible to the average consumer, so that the ‘average consumer’ can understand their rights and obligations. The concept of the ‘average consumer’ is an objective standard and derives from EU case law where: ‘average consumer is the appropriate standard by which to determine whether terms meet the [Consumer Contacts] directive’s specific requirement of transparency’.77

2.30 Drafting in plain and intelligible language requires the avoidance of technical legal language, or if it is not possible to avoid it, an explanation of it.78 In addition, it is necessary to consider the structure of the document together with an avoidance of long sentences, elaborate definitions and frequent cross references.79 It is possible to ameliorate any difficulties of drafting if the consumer has sufficient time to consider the terms, by: •

the supply of ‘information packs’ and explanatory information (such as by reference to a website) in advance of the contract; or

•

allowing the consumer a ‘cooling off’ period, after contracting, in which the consumer may withdraw without penalty.

New to the CRA is the specific requirement that a term is ‘legible’ (if the term is in writing, or generally where notices are concerned).80 Legibility requires

CMA, Unfair Terms Main Guidance (CMA37), 2016, 2.4.

75

CMA, Unfair Terms Main Guidance (CMA37), 2016, 2.42. ‘Informed choices’ means in this context that ‘Terms should therefore be drafted to ensure that consumers are put into a position where they can make an informed choice whether or not to enter into the contract. The consumer needs to have a proper understanding of the contract for sensible and practical purposes. It should set out all obligations and rights in a clear and comprehensible way, so that the consumer is able to see how they relate to each other, and can foresee and evaluate, at the time of conclusion of the contract, the consequences they may have in the future.’ (CMA, Unfair Terms Main Guidance (CMA37), 2016, 2.46).

76

CMA, Unfair Terms Main Guidance (CMA37), 2016, 2.63. See para  4.146. The use of the ‘average consumer’ in CRA only appears in relation to the requirements a ‘core term’ needs to meet for it to avoid being assessed for fairness. A ‘core term’ is exempt for assessment for fairness only if it is transparent and prominent (CRA, s 64(2) with CRA defining the meaning of prominent in the following way: ‘A term is prominent for the purposes of this section [CRA, s 64] if it is brought to the consumer’s attention in such a way that an average consumer would be aware of the term’.

77

See para 4.152.

78

See para 4.143.

79

CRA, ss 64(3), 68(2)

80

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the use of clear print, an appropriate choice for the size of the font and the colour in which the words are printed, the colour of any background colour or shade, and if printed on paper the quality of the paper.81

The impact of legislation – construction and more broadly Avoiding ‘strained’ construction 2.31 As has been indicated,82 the use of ‘strained’ construction has been deprecated since the advent of the UCTA.

Interactions of construction and reasonableness/fairness 2.32 UCTA has not changed the need to interpret a contract. Once the court has established that an exemption clause is a contractual provision, it is necessary to consider whether it is appropriately drafted to cover what has occurred. Only if it is appropriately drafted is it is necessary to consider the impact of UCTA.83 2.33 Interpretation (‘construction’) is the ‘logically prior point’ to the application of UCTA.84 In particular, if it is necessary to apply the requirement of reasonableness under UCTA, the content of the clause is clearly vital to its ‘reasonableness’. The issue of construction may decide the outcome of the application of the requirement of reasonableness. For example, if a clause is interpreted so that it does not cover negligence, it will satisfy the requirement of reasonableness, whereas the contrary might have been the case had the clause been construed as extending to a negligent breach85. There has been some recognition of this interaction. In Thomas Witter v TBP Industries Ltd86 Jacobs J said:87 ‘A possible way around this latter objection [ie the unreasonableness of a clause encompassing fraud] would be to construe the clause so that it did not apply to fraudulent misrepresentation. This approach is artificial. It is unnecessary now that the 1977 Act exists to destroy unreasonable exemption clauses … It is not for the law to fudge a way for an exclusion clause to be valid’.

CMA, Unfair Terms Main Guidance (CMA37), 2016, 2.53. This is not new but puts the requirement for legibility on a statutory basis, which was formerly only found in guidance issued by the predecessor to the CMA. CRA does not spell out the meaning of legibility, so it will still be necessary to look at the guidance issued by the CMA.

81

See para 2.18.

82

Boomsman v Clark and Rose Ltd [1983] SLT 67.

83

University of Keele v Price Waterhouse [2003] EWHC 1595 per Hart J at [75].

84

Stag Line Ltd v Tyne Shiprepair Group Ltd, The Zinnia [1984] 2 Ll Rep 211 at 223.

85

[1996] 2  All ER  573, 12 Tr L  145. See also Sovereign Finance Ltd v Silver Crest Furniture Ltd [1997] CCLR 76.

86

(1994) 12 Tr L 145 at 170.

87

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2.34

Also in Skipskredittforeningen v Emperor Navigation SA the court said:88

‘…One question is whether as a matter of construction a set-off clause like the present should be read as embracing cross claims for fraud at all. At the other extreme, assuming the relevant set-off does embrace fraud claims, is the question whether it satisfies the requirement of reasonableness. The two questions are not wholly unrelated. If it would be unreasonable to construe a set-off clause as embracing fraud claims that may be a valid argument for not so construing it. In his submissions on the significance of fraud, Mr Jacobs’ submissions for Emperor seek to steer between the Scylla of such exemptive unreasonableness as could take fraud outside the anti-set-off clause as a matter of construction and the Charybdis of such reasonableness as would mean that the clause satisfied the requirement prescribed by s 3 of the 1967 Act’.89

2.35 The issue then arises as to the extent to which this interaction should influence a court’s interpretation of a clause. Should foresight of the impact on the application of the requirement of reasonableness influence the meaning given to a clause? In one case the court said that ‘the effect of the Act must be ignored in deciding what the language of [the clause] purports to achieve’90

and that would seem to be the approach a court should take. As has been indicated, ‘strained construction’ has been deprecated after UCTA91 so that clauses should no longer be construed unnaturally narrowly to curtail their coverage. Similarly, however, it would seem that their coverage should not be ‘stretched’ beyond its natural bounds in order for them to be found unreasonable under UCTA.92 That would seem to be the inevitable conclusion to be drawn from the general approach to construction recognised in Investors93 and the key subsequent Supreme Court decisions. That the ‘natural bounds’ of the clause are simply determined by the parties’ intentions devoid of any influence from the courts’ views of the fairness or reasonableness of the clause. 2.36 However, there is a rule of interpretation under CRA, Part II94 which, arguably, invites consideration of the interaction with the fairness test in interpretating the contract. When an action between an individual consumer and a trader is in question, CRA, section 62 states a rule of construction that: ‘(1) If a term in a consumer contract, or a consumer notice, could have different meanings, the meaning that is most favourable to the consumer is to prevail.

Skipskredittforeningen v Emperor Navigation SA [1997] CLC 1151 per Mance J at 1165.

88

Misrepresentation Act 1967 (as amended), applying the requirement of reasonableness in s 11 of the UCTA. See para 6.33.

89

Bacardi Martini Beverages Ltd v Thomas Hardy Packaging Ltd [2002] 2 All ER (Comm) 335 per Mance LJ at [19].

90

See para 2.18.

91

There is also a risk of then ‘stretching’ the Unfair Contract Terms Act 1977 to deal with situations that do not fall within its scope. See the discussion of Bacardi Martini Beverages Ltd v Thomas Hardy Packaging Ltd [2002] 2 All ER (Comm) 335 at para 2.124.

92

See para 2.1.

93

See 4.153.

94

65

Chapter 2 Construction (2) Subsection (1) does not apply to the construction of a term or a notice in proceedings on an application for an injunction or interdict under paragraph 3 of Schedule 3.’

2.37 This rule applies in the context of particular disputes between a consumer and a seller or supplier. The powers of the Competition and Markets Authority (or a qualifying body) have to be treated separately as it is an action in that context that is taken outside this rule by the reference to CRA, Schedule 3, paragraph 3. For a dispute between a particular consumer and a trader, it is possible to argue that the ‘interpretation’ which is ‘most favourable’ to the consumer has to be judged not simply by consideration of the term but by taking account of the impact of the fairness test. For example, in relation to an exemption clause, a wide interpretation will favour the consumer if the term will then be found to be unfair, and a narrow one if, whatever the interpretation, the term will be found to be fair. However, that is not the line which has been taken by the ECJ, which has clearly taken the approach that ‘doubt about the meaning of a written term’ should be resolved before the fairness test is applied.95 Also, recent English case law has indicated that the rule will only apply to ‘cases of genuine interpretative doubt or ambiguity’.96 There is further consideration of this rule in Chapter 4.97

Unfair Contract Terms Act 1977 as a platform for common law development 2.38 There has been some judicial consideration as to use of the legislative intention behind UCTA to justify finding common law powers to deal with an unfair term which did not fall within the precise compass of UCTA. In Timeload Ltd v British Telecommunications plc,98 Sir Thomas Bingham MR said: ‘If, however, s 3(2) does not in its precise terms cover this case, I do not myself regard that as an end of the matter. As I ventured to observe in Interfoto Picture Library Ltd v Stiletto Visual Programs Ltd99, the law of England, while so far eschewing any broad principle of good faith in the field of contract, has responded to demonstrated problems of unfairness by developing piecemeal solutions directed to the particular problem before it. It seems to me at least arguable that the common law could, if the letter of the statute does not apply, treat the statute as a platform for invalidating or rectifying the operation of an oppressive clause …’.100

EC Commission v Spain Case C-70/03[2004] ECR 1-7999.

95

A J Building and Plastering Ltd v Turner [2013] EWHC 484 (QB), [53].

96

See para 4.153.

97

[1995] EMLR 459.

98

[1989] QB 433 at 439.

99

In fact, it would appear that the particular problem could be dealt with either under s 3(2) of the Unfair Contract Terms Act 1977 or as a matter of normal construction. On the latter issue Bingham MR said: ‘I also share the learned judge’s view that it is not altogether easy to reconcile clause 6, enabling BT to suspend only for operational reasons, with clause 18, enabling it to apparently exercise the more drastic power of termination without any reason at all. It is in fact reasonable to suppose that Timeload would not have committed themselves to very substantial expenditure and indeed to found their business on possession of a telephone number of which they could be deprived at a month’s notice’.

100

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2.39 This possibility was seen as confined to ‘very special’ cases, but exactly what the common law might do is unclear101 and the idea of such development has been seen as ‘fraught with difficulty’.102 Further, positive evolution in much of the field for such potential development would fit uncomfortably beside the Law Commissions’ conclusion that, contrary to the line taken in their Consultation/Discussion Paper, much of the more general control of unfair terms under the Unfair Terms in Consumer Contracts Regulations 1999 (rather than simply of exemption clauses) should not be broadly extended into the context of business contracts, except in relation to small businesses.103

Standard form contracts 2.40 In general, interpretation requires consideration of the contract as a whole. However, when standard form contracts are in question, it is possible to note certain factors in relation to that requirement. That different weight should generally be given to standard terms and those terms specifically added to the particular contract. When there is use of a printed standard form contract, in general, greater weight will be given to any added written terms specific to that contract.104 The added terms are the ‘immediate language and terms selected by the parties themselves’.105

In Zockoll Group Ltd v Mercury Communications Ltd [1999] EMLR 385 Phillips LJ quoted, inter alia, the above passage and said that it would not be right ‘to ignore the Master of the Rolls’ observations on the potential operation of the common law’, but without any further comment.

101

Hadley Design Associates Ltd v Westminster LBC  [2003]  EWHC  1617 (TCC) Judge Richard Seymour QC at [89]: ‘The development of the law in the direction anticipated by Sir Thomas Bingham at p 468 of the report in Timeload Ltd v British Telecommunications plc would, it seems to me, be fraught with difficulty. It would seem to involve, first, the identification of a principle of the common law, the existence of which was hitherto unsuspected, on the basis of which the court could invalidate, or restrict the operation of, a provision in a contract. Whatever this principle was found to be, it would, or might, apparently only operate in situations of a very special kind, seemingly where a dominant supplier of a service had entered into a contract to provide that service. What might be the defining characteristics of situations in which the principle would be applicable is, for the moment, unclear. The application of the principle would depend upon the conclusion that the situation did not fall within the letter of some statutory provision. However, notwithstanding that upon proper construction of the statutory provision, Parliament had not seen fit to encompass the particular situation within its scope, nonetheless the court should by some means be able to discern from “the clear intention of the legislature expressed in the statute” that Parliament actually intended to achieve some result which a fortiori it had failed to achieve. I should not be prepared to venture into these treacherous waters without the benefit of extremely full consideration of relevant authorities from all jurisdictions in which these issues have been examined. In the absence of citation of relevant authority, I am not satisfied that the principle for which Mr Burr contends exists in English law’. See also Toll (FCGT) Pty Ltd v Alphapharm [2004] 219 CLR 165, [48].

102

‘Unfair Terms in Contracts’ Law Com No  292, Scottish Law Com No  199 (2005). Contrast ‘Unfair Terms in Contracts’ Law Commission Consultation Paper No  166, Scottish Law Commission Discussion Paper No 119 (2002).

103

Robertson v French (1803) 4 East 130; Glynn v Margetson & Co [1893] AC 351; Neuchatel Asphalte Co Ltd v Barnett [1957] 1  WLR  356; The Athinoula [1980] 2 Ll Rep 481. Christmas v Taylor Woodrow Civil Engineering Ltd [1997] 1 Ll Rep 407 at 409.

104

Robertson v French (1803) 4 East 130, Lord Ellenborough.

105

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2.41 A party may develop a standard form contract over time and it may not have been drafted by a single person or originate from one source. In a case it was recognised that: ‘it would undoubtedly be wrong to approach the charterparty form on the assumption it represents the work of a single all-seeing creator. It is notorious that such terms are from different sources and inserted at different times’.106

The effect of a clause specifically referring to negligence was not allowed to colour the interpretation of a clause that had no such specific reference on the argument that the presence of the first clause showed that ‘the draftsman knew how to exempt negligence when he wanted to’. It was regarded as ‘absurd to suppose that this charterparty had one draftsman, when everybody’ knew it did not.107

Rules, approaches Strict construction, contra proferentem108 2.42

The courts have stated that:

• an exemption clause must clearly cover what has occurred if it is to be effective;109 and •

it is for the person seeking to rely upon it to prove that it does so.110

Traditionally, exemption clauses are strictly (or ‘narrowly’) interpreted and the contra proferentem rule applies so that any ambiguity in the clause is resolved against the ‘proferens’.111 However, the traditional reference to ‘the proferens’ in stating the contra proferentem rule can act as a camouflage to a number of situations that may need consideration in which the rule is more, or less, apposite.112 The proferens is sometimes referred to as the person who:

Industrie Chimiche Italia Centrale SpA v Nea Ninemia Shipping Co SA, The Emmanuel C [1983] 1 All ER 686 per Bingham LJ at 691.

106

Seven Seas Transportation Ltd v Pacifico Union Marine Corpn, The Oceanic Amity [1983] 1  All ER 672 per Staughton J at 685.

107

It was noted above that issues may arise in relation to the application of the common law contra proferentem rule when an interaction with the UCTA requirement of reasonableness is in question. In addition, CRA contain a rule of construction resembling the common law rule and which again raises questions as to its appropriate application when an interaction with the fairness test arises. See para 2.32.

108

J Gordon Alison & Co Ltd v Wallsend Shipway and Engineering Co Ltd (1927) 43 TLR 323.

109

British Fermentation Products Ltd v Compair Reavell Ltd [1999] 2 All ER (Comm) 389 at 392; Stent Foundations Ltd v M J Gleason Group plc [2001] BLR 134 at [15]; The Glendarroch [1894] P 226 at 231.

110

See The Hut Group Ltd v Nobahar-Cookson and another [2016] EWCA Civ 128, [14], [16], [18].

111

Kramer makes the point that ‘often terms will have been co-drafted or a term drafted by one party will then be appropriated by the other through negotiations’ and in those circumstances ‘neither party can be held responsible for a drafting mistake or incompletenesss’ and ‘hence the contra proferentem rule is probably inapplicable to co-drafted contracts’ – A  Kramer ‘Common Sense Principles of Contract Interpretation (and how we’ve been using them all along)’ (2003) 23 Oxford Journal of Legal Studies 173 at 195.

112

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•

drafted the clause; or

•

put the clause forward for inclusion in the contract;113

• put forward the document containing the clause in question; and sometimes •

is seeking to rely on it.114

2.43 When the person in question is all four, no difficulty arises. However, in the context of standard form contracts, that will often not be the case and it raises issues as to the appropriate application of a rule which seems to be concerned to place the burden of any ambiguity on the person who is in some sense responsible for it, or who has taken the risk of it. 2.44 At the extreme, parties throughout an industry or trade section may use the standard terms, with it being purely fortuitous as to which one of them introduced the terms into the particular contract. In E Scott (Plant Hire) Ltd v British Waterways Board,115 although differentiating the instant case, Oliver LJ noted that there were cases in which: ‘there may be difficulty in ascertaining which of the willing parties is the proferens’,

2.45

For example:

‘where the clauses under consideration [are] clauses contained in a common form document worked out by various interested parties in the construction industry and which would normally be in use between employers and contractors or contractors and sub-contractors from whichever side the initiative came’.

2.46 In that extreme case, the approach taken by the contra proferentem rule does not seem appropriate.116 Or more simply, in a commercial contract it may be difficult to work out which party is in fact the proferens.117 2.47 Also there is only limited justification for its application in relation to trade terms which are introduced by only one side of a type of transaction to which the terms relate, but the person putting them forward bears no responsibility for their drafting. Certainly, in the extreme case, the more

Caledonia North Sea Ltd v Norton (No 2) Ltd [2002] 1 All ER (Comm) 321 per Lord Mackay at [36].

113

It has been pointed out that the rule is sometimes stated as referring to the drafter of the clause and sometimes the person seeking to rely on it (Youell v Bland Welch & Co Ltd [1992] 2 Ll Rep 127 per Staughton LJ at 134).

114

(20 December 1982, unreported).

115

County and District Properties v Jenner [1976] 2 Ll LR 728 per Swanwick J at 737: ‘With regard to the contra proferentem point he argues that this does not really apply. The form of contract has been worked out between two associations, one of employers and one of sub-contractors, and is a standard term; and the question of who puts it in the post is of little, if any, importance. With this I agree.’

116

Bates and others v Post Office Ltd [2019] EWHC 606 (QB), [635].

117

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appropriate approach would seem to be one which simply looked for the most likely meaning intended by commercial parties.118 2.48 In any event, whether the contra proferentem rule survives at all or is of use in interpreting modern commercial contracts is in doubt. For example, Lord Neuberger in K/S  Victoria Street v House of Fraser (Stores Management) Ltd119 did not believe that the contra proferentem rule will be of much use in interpreting a commercial contract: ‘…such rules are rarely if ever of any assistance when it comes to construing commercial contracts. Quite apart from raising abstruse issues as to who is the proferens (and, in particular, whether the issue turns on the precise facts of the case or hypothetical analysis), “rules” of interpretation such as contra proferentem are rarely decisive as to the meaning of any provisions of a commercial contract. The words used, commercial sense, and the documentary and factual context, are, and should be, normally enough to determine the meaning of a contractual provision.’

2.49 Also a ‘strained construction’ has been deprecated since UCTA, and that in relation to construction generally, in Investors, it was recognised that there has been an assimilation to ‘the common-sense principles by which any serious utterance would be interpreted in ordinary life’.120 In one case there was questioning as to the meaning of ‘strict construction’, as opposed to the ‘normal process’ of ascertaining the parties’ intention121 and it was suggested that it: ‘operates merely by way of intensification, so that the intention must be clear, unambiguous, incapable of misleading …’.122

It has been seen as a principle which applies: ‘…directly, and without nice analysis in terms of ambiguity, when a clause that seeks to exclude liability that would otherwise attach under the contract cannot be construed with ease or confidence whichever parties’ argument is addressed’.123

2.50 More fundamentally, its role is marginal because of the other tools (post Investors) available to the courts to give the answers to the meaning of a provision as well as the difficulty of identifying a proferens in a modern commercial contract – and its use will be limited to where there is genuine ambiguity:

Note the approach of Waller LJ in Rhone Poulenc Rorer Ltd v Trans Global Group Ltd (18 February 1998, unreported): ‘In my view it is only a strict application of the language of art 6.1 that would favour the first suggested solution. The pointers in favour of the latter solution as being that which commercial men would have been likely to agree, are very strong.’

118

[2011] EWCA Civ 904, [68]; Persimmon Homes Ltd and others v Ove Arup & Partners Ltd and another [2017] EWCA Civ 373, [52].

119

Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 per Lord Hoffmann at 114; see para 2.1.

120

Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 3 All ER 352 at 377.

121

[1997] 3 All ER 352 at 377.

122

University of Keele v Price Waterhouse [2004] EWCA Civ 583, [35].

123

70

Chapter 2 Construction ‘In my judgment, the modern approach to the contra proferentem rule, in commercial contracts at least, is something of a sceptical one. The “rule” (if rule is the correct word) requires ambiguity in a provision — for example, in an exemption clause – to be resolved against the party who put the clause forward and relies upon it. The rule has been subject to criticism, and is something of a historical remnant. The first and most difficult aspect of the rule is determining in a commercial contract which party is in fact the proferens.’124

2.51 Although there is doubt as to survival of the contra proferentem rule, post-Investors, the contra proferentem rule continues to have a role,125 but it is seen as a ‘rule of last resort’.126 It was viewed as such even before Investors, simply in the light of the movement away from ‘strained construction’ post UCTA, and the point has been made that it: ‘…would be wrong … to create an ambiguity where none realistically exists, and then to resolve the question by reference to it’.127

2.52 Further, when Investors has emphasised construction in the context of the contract and the relevant background to determine the parties’ intention, it is hardly surprising that the resort to the contra proferentem rule must only occur after appropriate consideration of context if there is to be an avoidance of the creation of ambiguity. In one case the court stated:128 ‘A court should be wary of starting its analysis by finding an ambiguity by reference to the words in question looked at on their own. And it should not, in any event, on such a finding move straight to the contra proferentem rule without first looking at the context and, where appropriate, permissible aids to identifying the purpose of the commercial document of which the words form part. Too early recourse to the contra proferentem rule runs the danger of creating an ambiguity where there is none.’

2.53 Although, it appears that the rule is now of less importance, it still does have a role, as long as there is some doubt on the meaning of the language,

Bates and others v Post Office Ltd [2019] EWHC 606 (QB), [635], and quoting from K/S Victoria Street v House of Fraser (Stores Management) Ltd reproduced above. In the Bates case, the judge indicated there was no difficulty in determining the proferens as only the Post Office had drafted the terms of the contract between it and the sub-postmasters. See also Multiplex Construction European Ltd v Dunne [2017]  EWHC  3073 (TCC); Federal Republic of Nigeria v JP Morgan Chase Bank NA [2019] EWHC 347 (decision appealed, but affirmed), [34]: ‘…In any event, the modern objective and contextual approach to the meaning of the words, with business common sense and purpose also being relevant in some cases, renders it unnecessary to regard there as being a separate contra proferentem rule.’

124

Eg Association of British Travel Agents v British Airways [2000] 2  All ER (Comm) 204 at 213; Zeus Tradition Marine Ltd v Bell [2000] 2 Ll Rep 567 at 597; University of Keele v Price Waterhouse [2004] EWCA 583.

125

Sinochem International Oil (London) Co Ltd v Mobil Sales and Supply Corpn [2000] 1  All ER (Comm) 474 at 483.

126

Singer (UK) Ltd v Tees and Hartlepool Port Authority [1988] 2 Ll Rep 164 per Steyn J at 169. See also Hinks v Fleet [1986] 2 EGLR 243 per Lloyd LJ at 246: ‘The first duty of the court before one comes to the contra proferentem rule at all, is to construe the clause to make sense of it …’.

127

McGeown v Direct Travel Insurance [2004] 1 All ER (Comm) 609 per Auld LJ, [13].

128

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for example in Institute Inc v World Programming Ltd129 the Court of Appeal stated in connection with a licence agreement offered on a ‘take-it-or-leave-it’ basis where there was no room for negotiation: ‘If there were any doubt about the meaning of the licence at this stage, in my judgment the application of the contra proferentem principle would tip the balance in WPL’s favour. In my judgment the judge was wrong to rule out the principle at an early stage in his analysis.’

2.54 Although there is now some doubt as to its remit as well as some difficulty, in modern commercial contracts, in determining its application if it is not clear who is the proferens it appears the contra proferentem rule has a stronger continuing role where the wording under scrutiny by the court is an exemption clause. In The Hut Group Ltd v Nobahar-Cookson and another,130 Brigg LJ reviewed cases which had doubted the continuing operation of the contra proferentem rule and noted that these cases did not concern exemption cases but: ‘…recent decisions about exclusion clauses have continued to affirm the utility of the principle that, if necessary to resolve ambiguity, they should be narrowly construed, including in relation to commercial contracts’.131

2.55 The judge noting that where it is necessary to resolve ambiguity it is necessary to strictly (or narrowly) interpret an exclusion clause – but that requirement: ‘…has nothing to do with the identification of the proferens, either of the document as a whole or of the clause in question. Nor is it a principle derived from an identification of the person seeking to rely upon it.’132

2.56 The requirement to resolve the ambiguity in an exclusion clause by a narrow interpretation of it derives from the effect of such a clause; it lessens or removes the obligation of a party under the contract: ‘Ambiguity in an exclusion clause may have to be resolved by a narrow construction because an exclusion clause cuts down or detracts from the ambit of some important obligation in a contract, or a remedy conferred by the general law such as (in the present case) an obligation to give effect to a contractual warranty by paying compensation for breach of it. The parties are not lightly to be taken to have intended to cut down the remedies which the law provides for breach of important contractual obligations without using clear words having that effect…’.133

Briggs, LJ indicated the narrow interpretation of an exemption clause (with the contra proferentem rule):

[2013] EWCA Civ 148, [108].

129

[2016] EWCA Civ 128, [14].

130

The Hut Group Ltd v Nobahar-Cookson and another [2016]  EWCA  Civ 128, [16], quoting in support of his view Association of British Travel Agents Ltd v British Airways plc [2000] 2 All ER (Comm) 204 and Laminates Acquisition Co v BTR Australia Ltd (2013) EWHC 2540 (Comm).

131

The Hut Group Ltd v Nobahar-Cookson and another [2016] EWCA Civ 128, [18].

132

ibid.

133

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•

is not a presumption;

• is not a special rule which justifies ‘giving of a strained meaning to a provision merely because it is an exclusion clause’; • does not prevent commercial parties allocating the risks between them when a problem or breach occurs in their contract; •

does not allow for a mechanistic application if an ambiguity is found in an exclusion clause; and

• still requires ‘the use of all [the court’s] tools of linguistic, contextual, purposive and common-sense analysis to discern what the clause really means’.134 2.57 It seems that contra proferentem rule’s application will only be used, in effect, as a last resort and only where there is an ambiguity in the wording of an exclusion clause, and not necessarily always then. Following Investors Compensation (and the more recent Supreme Court cases) the first task of the court is to interpret a clause using the wording the parties have used in the appliable background (or context). If there is no ambiguity in the wording of an exclusion clause then any requirement to strictly (or narrowly) interpret it (or apply the contra proferentem rule) has no role. Accordingly, there is no special rule concerning the interpretation of an exclusion clause, with the modern view of the courts being that the parties can make their own bargains and allocate risk and liability (or exclude or limit liability) as they wish. For example, in Taberna Europe CDO II plc v Selskabet af 1 September 2008 A_S (formerly Roskilde Bank A_S), Moore-Bick, LJ stated: ‘In the past judges have tended to invoke the contra proferentem rule as a useful means of controlling unreasonable exclusion clauses. The modern view, however, is to recognise that commercial parties (which these were) are entitled to make their own bargains and that the task of the court is to interpret fairly the words they have used. The contra proferentem rule may still be useful to resolve cases of genuine ambiguity, but ought not to be taken as the starting point…’.135

Limitation clauses 2.58 Until the advent of UCTA a distinction was drawn between clauses which exclude liability and those which merely limit it. Since the introduction of UCTA, and even more so since the Investors Compensation case, the way exclusion and limitation of liability clauses are interpreted by the courts have changed. They are now considered like other clauses (except if there is

ibid [19].

134

[2016]  EWCA  Civ 1262, [23]. In this paragraph The Hut Group Ltd v Nobahar-Cookson and another [2016]  EWCA  Civ 128 with Transocean Drilling UK  Ltd v Providence Resources Plc [2016] EWCA Civ 372 were cited support of this statement.

135

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ambiguity in the wording of such clauses). What is now older case law, such as in Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd136 the court held: •

that such clauses were still to be construed contra proferentem;137 but

• that limitation clauses are not to be treated with ‘the same hostility as clauses of exclusion’;138 and • that the rules for the construction of exclusion clauses should not be applied in ‘their full rigour’ to limitation clauses.139 Similarly, in George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd,140 Lord Bridge stated that the principles used for the construction of exclusion clauses ‘cannot be applied in their full rigour to limitation clauses’.141 2.59 Attempts to justify this distinction have been made. In Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd, in the context of liability for negligence, Lord Fraser viewed the situation as being that, whilst it was improbable that someone would agree to an exclusion of such liability, there was: ‘no such high degree of improbability that he would agree to a limitation of the liability of the proferens’.142

Additionally, Lord Wilberforce said:143 ‘Clauses of limitation are not to be regarded with the same hostility as clauses of exclusion: this is because they must be related to other contractual terms, in particular to the risks to which the defending party may be exposed, the remuneration which he receives, and possibly also the opportunity of the other party to insure’.

2.60 This is to take the line that a limitation clause will represent a carefully agreed allocation of risks between the parties. However, that may equally be true of an exclusion clause144 and is not necessarily true of a limitation clause.145

[1983] 1 WLR 964.

136

[1983] 1 WLR 964 at 966 and at 971. For the contra proferentem rule see para 2.42.

137

[1983] 1 WLR 964.

138

[1983] 1 WLR 964 at 971.

139

[1983] 2 AC 803.

140

[1983] 2 AC 803 at 814 (the rest of the court agreed with Lord Bridge). See also EE Caledonia Ltd v Orbit Valve plc [1994] 2 Ll Rep 239 at 244; Bovis Construction (Scotland) Ltd v Whatling Construction Ltd [1995]  CLC  1413; Trolex Products v Merrol Fire Protection Engineers Ltd (unreported, 20  November 1991), Staughton LJ; University of Keele v Price Waterhouse [2004] EWCA Civ 583.

141

Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1  WLR  964 per Lord Fraser at 970: ‘especially when … the potential losses that might be caused by the negligence of the proferens or its servants are so great in proportion to the sums that can reasonably be charged for the services contracted for’.

142

[1983] 1 WLR 964 at 966. See also Lord Fraser at 970.

143

See for example Photo Production Ltd v Securicor Transport Ltd [1980] AC 827.

144

See for example George Mitchell (Chesterfield) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803.

145

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In fact, the natural reaction to this stated distinction between limitation and exclusion clauses is that it is wholly unrealistic as: ‘a limitation clause may be so severe in its operation as to be virtually indistinguishable from that of an exclusion clause’146

and can depend on the drafting of a clause, and other clauses of the agreement (such as representations and warranties given or excluded) which taken together can more far reaching that a simple exclusion of liability clause.147 2.61 Some support for a movement away from the distinction may be found. It has been indicated that it should be restricted to the context of negligence liability and not extended to that of ‘wilful default’.148 More broadly, in BHP Petroleum v British Steel149 Evans LJ favoured that there should be no categorisation of clauses between those that exclude liability and those that limit it so that there is:150 ‘…a general rule that the more extreme the consequences are, in terms of excluding or modifying liability that would otherwise arise, then the more stringent the court’s approach should be in requiring that the clause should be clearly and unambiguously expressed’.

2.62 Further, in HIH Casualty and General Insurance Ltd v Chase Manhattan Bank151 Lord Hoffmann emphasised that construction is a matter of looking for the parties’ intention and doubted that Lord Fraser had been intending to create a ‘mechanistic’ rule in Ailsa Craig. Also, it is difficult to see how the line taken in Ailsa Craig can survive the recognition in Investors (and its adoption and refinement by Supreme Court cases such as Wood v Capita) that the general approach to construction has now discarded ‘almost all the old intellectual baggage of “legal interpretation”’.152 2.63 There is one situation in which there is a basic distinction, in principle, between a total exclusion clause and a limitation clause, but it is one confined within narrow bounds which would not justify the width of the statements made in relation to the different treatment of the two types of clause. The basic distinction in principle is that an exclusion clause may lead to the question of whether there is any obligation at all (ie if all remedies appear to be excluded) and if the court decides that there was, nevertheless, intended

As stated in the Australian case of Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 68 ALR 385 at 391.

146

Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 68 ALR 385.

147

Frans Maas (UK) Ltd v Samsung Electronics (UK) Ltd [2004] EWHC 1502 [2004] 2 LG Rep 251 per Gross J at [131].

148

[2000] 2 All ER (Comm) 133.

149

At [63]. But see Ocean Chemical Transport v Exnor Craggs Ltd [2000] 1 All ER (Comm) 519, [38].

150

[2003] 1 All ER (Comm) 349, [63].

151

Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 per Lord Hoffmann, 114.

152

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to be an obligation then the clause will have to be read so as to give effect to that intention.153 The need to construe a clause in such a way as to find the existence of an obligation never arises in relation to a limitation clause which, by definition, acknowledges the obligation. However, this seldom arising point is insufficient to justify the width of the statements made as to different approaches to the two types of clause indicated above.

Negligence Introduction – legislation – trends 2.64 The three-stage test was the court’s traditional approach to the interpretation of an exemption clause where the defendant’s liability involves negligence. The basic formulation is found in Canada Steamship Lines Ltd v R.154 Following the reformulation on how a court should interpret contract as established by the case of Investors’ Compensation Scheme Ltd v West Bromwich Building Society155 the scope of the application of the formulation in this case (and its continuing application) is arguably more limited.156 2.65 However, UCTA, section 2 will now affect many exemption clauses covering liability for negligence.157 In relation to the contracts to which UCTA is relevant, UCTA, section 2: • prevents the exclusion or limitation of liability for negligently caused death or personal injury; and •

only allows a clause to limit or exclude liability for other negligently caused loss or damage if the clause satisfies the requirement of reasonableness.

2.66 UCTA, section 2 now also does not apply to consumers, and there are separate provisions in CRA covering the same ground as UCTA, section 2: •

a provision in similar terms to UCTA, section 2 (CRA, section 65); and

•

a grey list term which may be potentially unfair if included in a contract between a trader and a consumer:

(1983) 99 LQR 163. Suisse Atlantique Société d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale NV [1966] 2 All ER 61 per Lord Wilberforce at 92: ‘One may safely say that the parties cannot, in a contract, have contemplated that the clause should have so wide an ambit as in effect to deprive one party’s stipulations of all contractual force; to do so would be to reduce the contract to a mere declaration of intent’. See also the arguments in Mitsubishi Corpn v Eastwind Transport Ltd [2004] EWHC 2924 (Comm), [2005] 1 All ER (Comm) 328.

153

[1952] AC 192 at 208 (below).

154

[1998] 1 All ER 98.

155

See para 2.101.

156

See para 3.75.

157

76

Chapter 2 Construction ‘A term which has the object or effect of excluding or limiting the trader’s liability in the event of the death of or personal injury to the consumer resulting from an act or omission of the trader.’158

2.67 The CMA considers that a term which encompasses the grey list term should not be used in a contract with a consumer and: ‘As well as being unfair, their use is liable to be misleading, and therefore may give rise to action as an unfair commercial practice, which can in certain circumstances involve prosecution…’.159

2.68 As has been indicated, UCTA has impacted upon the interpretation of exemption clauses generally, with ‘strained construction’ being deprecated.160 Further, in relation to whether the Canada Steamship test should apply to antiset-off clauses, in one case it was stated that: ‘…the availability of statutory means of consumer protection, such as the Unfair Contract Terms Act 1977, which did not exist at the time when the principle was developed, make it entirely unnecessary now to widen the scope of application of this principle beyond exemption from liability and indemnity clauses’.161

2.69 More broadly, it is now necessary to question more extensively the continuing role of the Canada Steamship test in the light of the recognition in Investors that almost all the old intellectual baggage of: ‘legal interpretation’ has been discarded in favour of an assimilation of the interpretation of contract to ‘the common-sense principles by which any serious utterance would be interpreted in ordinary life’.162

In Bank of Credit and Commerce International v Ali163 Lord Hoffmann indicated that there had been changes in the approach taken to the question of the coverage of negligence by exemption clauses. However, the Canada Steamship test has not simply been seen as no longer relevant post-Investors. In HIH  Casualty and General Insurance Ltd v Chase Manhattan Bank164 even Lord Hoffmann considered its potential application to the clause in question before concluding that the intention to cover negligence was in any event clearly shown. 2.70 More recent case law has questioned the application of the test generally. The position appears to be: •

not that it should never apply;

CRA, Sch 2, para 1.

158

CMA Guidance, para 5.3.1.

159

See para 2.18.

160

Society of Lloyd’s v Wilkinson [1997] CLC 1012 per Colman J.

161

Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 per Lord Hoffmann at 114, see para 2.2.

162

[2001] 1 All ER 961 at [66].

163

[2003] 1 All ER (Comm) 349. And see the statement of Lord Bingham as to the continued application of the test at [11].

164

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•

it is only of use where it is not possible to resolve an issue with a clause using the method of interpretation formulated in Investors’ Compensation Scheme Ltd and the cases that followed on from it; and

• its application is limited to clauses concerning indemnities rather than exemption clauses.165 There will be further consideration of the application of the test, post Investors’ Compensation Scheme Ltd, at the end of the section after examining the test.

The three-stage test – basic formulation – justification 2.71 In Canada Steamship Lines Ltd v R166Lord Morton formulated a threestage test:167 ‘(1) If the clause contains language which expressly exempts the person in whose favour it is made (hereafter called the “proferens”) from the consequences of the negligence of his own servants, effect must be given to that provision … (2) If there is no express reference to negligence, the court must consider whether the words used are wide enough, in their ordinary meaning, to cover negligence on the part of the servants of the proferens. If a doubt arises at this point, it must be resolved against the proferens … (3) If the words used are wide enough for the above purposes, the court must then consider whether the “head of damage may be based on some ground other than that of negligence” to quote again Lord Greene in the Alderslade case.168 The “other ground” must not be so fanciful or remote that the proferens cannot be supposed to have desired protection against it; but subject to this qualification, which is no doubt to be implied from Lord Greene’s words, the existence of a possible head of damage other than that of negligence is fatal to the proferens even if the words used are prima facie wide enough to cover negligence …’.

2.72 Although the test only refers to the negligence of a party’s ‘servants’, it does not mean that the test does not also apply to a party’s own negligence: ‘The fact that Lord Morton … here only speaks of the negligence of the party’s servants and not of his own negligence is of no significance’; the approach also applies in relation to the party’s own negligence.169

The Canada Steamship approach is based on the idea that:

Persimmon Homes Ltd and others v Ove Arup & Partners Ltd and another [2017] EWCA Civ 373, [56].

165

[1952] AC 192; George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] QB 284 at 312; Alderslade v Hendon Laundry Ltd [1945] KB 189 at 192; Walters v Whessoe Ltd (1960) 6 BLR 23 Mediterranean Freight Services Ltd v BP Oil International Ltd, The Fiona [1994] 2 Ll Rep 506. But see Schenker & Co (Aust) Pty Ltd v Malpas Equipment and Services Ltd [1990] VR 834 at 846.

166

[1952] AC 192 at 208.

167

Alderslade v Hendon Laundry Ltd [1945] KB 189, at 192.

168

Gillespie Bros & Co Ltd v Roy Bowles Transport Ltd [1973] 1 All ER 193 per Buckley LJ at 203.

169

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Chapter 2 Construction ‘it is inherently improbable that one party to the contract should intend to absolve the other party from the consequences of the latter’s own negligence’.170

(It has been suggested that there is no such ‘high degree of improbability’ that a limitation of liability would be agreed to and that a less strict approach should be taken to limitation clauses than exclusion clauses,171 but, any such distinction between limitation and exclusion clauses is open to considerable criticism172). 2.73 There is further consideration of the ‘probability’ justification for the Canada Steamship in relation to its continued application post-Investors173. However, in applying the Canada Steamship test to find that a clause does not cover negligence, there also seems to have been some impetus that the proferens should not: ‘be allowed to shelter behind language which might lull the customer into a false sense of security’

that he will be protected in the event of the proferens’ negligence.174 2.74 In one case it was held that the existence of ‘other liabilities’ in a clause led it being interpreted as not covering negligence, with the court taking the view it seems that: ‘either inequitable or contrary to public policy to require contractors who intend to demand such very extensive protection for themselves from their customers to bring their intentions to the notice of prospective [customers] in the most specific terms’.175

2.75 In contrast, in another case where a court concluded that the third part of the test led to a clause being interpreted as covering negligence, it was said of the clause that it ‘was not a case of a guilty party hiding behind unclear wording’.176 Plainly, obscurity in a clause is relevant to its construction postInvestors, as before. The general approach taken in Investors would, however,

Gillespie Bros & Co Ltd v Roy Bowles Transport Ltd [1973] 1 All ER 193 per Buckley LJ at 203. E Scott (Plant Hire) Ltd v British Waterways Board (20 December 1982, unreported), Oliver LJ; Industrie Chimiche Italia Centrale SpA v Nea Ninemia Shipping Co SA, The Emmanuel C [1983] 1 All ER 686 per Bingham J at 689.

170

Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 All ER 101 per Lord Fraser at 105; George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803 at 814; Trolex Products Ltd v Merrol Fire Protection Engineers Ltd (20 November 1991, unreported), Staughton LJ; Jones v Northampton Borough Council (1990) The Times, 21  May; EE  Caledonia Ltd v Orbit Valve plc [1994] 2 Ll Rep 239 at 244; BHP Petroleum Ltd v British Steel Plc [1999] 2 All ER (Comm) 544.

171

See para 2.58.

172

See para 2.76.

173

Hollier v Rambler Motors (AMC) Ltd [1972] 1 All ER 399, Lord Salmon.

174

E Scott (Plant Hire) Ltd v British Waterways Board (20 December 1982, unreported), Slade LJ; Hollier v Rambler Motors (AMC) Ltd [1972] 1 All ER 399, Lord Salmon.

175

United States v ARC Construction Ltd (8 May 1991, unreported), Hobhouse J.

176

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suggest less willingness to use interpretation to police unfairness rather than simply determine the parties’ intentions.177

Intention of the parties 2.76 The three points from Canada Steamship, although commonly referred to as a ‘rule’, or ‘rules’, or a ‘test’, are ‘obviously intended as guides to interpretation and not as rigid rules’178

and that in particular for the third point the rigid line apparently indicated cannot be viewed as such, ie the presence or absence of other, non-fanciful, liability is not necessarily determinative of the coverage of the clause.179 2.77 More broadly, however, it may simply be that if the intention of the parties is clear so that any application of the Canada Steamship approach would be inappropriate and the Canada Steamship test is: ‘a guide designed to ascertain the intention of the parties. It should not be applied rigidly or mechanically to defeat their intentions’.180

Previously, the point had been made that ‘where guidance has been laid down so frequently and authoritatively, the approach which that guidance suggests cannot simply be ignored … If, therefore the result of the authoritative guidance provided by Lord Morton’s three tests is to yield to contra indications in other parts of the contract, it is necessary at least that those contra indications should be extremely compelling’.181

2.78

Even post-Investors, Lord Bingham has made the point that:182

‘There can be no doubting the general authority of [the Canada Steamship rules] which have been applied in many cases, and the approach indicated is sound. The courts should not ordinarily infer that a contracting party has given up rights which

See Lord Hoffmann’s obiter discussion of the treatment of exemption clauses in BCCI v Ali [2001] 1 All ER 961. Of course, an assumption of fair treatment by long-term trading partners might be part of the background considered in deciding what the parties intended. For a recent example where the primarily focus is on the intention of the parties (and to interpret the words used by the parties in their contract) see Taberna Europe CDO II plc v Selskabet af 1 September 2008 A_S (formerly Roskilde Bank A_S) [2016] EWCA Civ 1262, [2017] 3 All ER 1046.

177

Evans v Glasgow District Council 1979 SLT 270 at 276; E Scott (Plant Hire) Ltd v British Waterways Board (20  December 1982, unreported); Capita (Banstead 2011) Ltd v RFIB  Group Ltd [2014] EWHC 2197 (Comm), [2014] All ER (D) 112 (Jul), [10].

178

See para 2.94.

179

Mineralimportexport v Eastern Mediterranean Maritime Ltd, The Golden Leader [1980] 2 Ll Rep 573 per Lloyd J at 574. See also Smith v South Wales Switchgear Ltd [1978] 1 All ER 18 at 22; E Scott (Plant Hire) Ltd v British Waterways Board (20 December 1982, unreported), Oliver LJ; Morris v Breaveglen (9 May 1997, unreported), Legatt LJ; Arthur White (Contractors) Ltd v Tarmac Civil Engineering Ltd [1967] 3 All ER 586 per Lord Pearson at 599.

180

E Scott (Plant Hire) Ltd v British Waterways Board (20 December 1982, unreported), Oliver LJ.

181

HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] 1 All ER (Comm) 349, [11].

182

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Chapter 2 Construction the law confers upon him to an extent greater than the contract terms indicate he has chosen to do; and if the contract terms can take legal and practical effect without denying him the rights he would ordinarily enjoy if the other party is negligent, they will be read as not denying him those rights unless they are so expressed as to make clear that they do so’.

Nevertheless, it appears that its use in interpreting agreements has lessened or that it is not necessary to apply it at all in most cases given the emphasis now placed upon implementing the parties’ intentions if the wording of a contract is clear.183 2.79 Against the above background, it is possible to give some consideration to the circumstances in which the parties’ intention may simply be found to be clear and the Canada Steamship test inapplicable. The Canada Steamship test is based on the ‘inherent improbability’ that one party intends to absolve the other from the consequences of the other party’s negligence. The contract wording may be such that there is no such ‘inherent improbability’ and the Canada Steamship test should be simply inapplicable.184 In HIH  Casualty and General Insurance Ltd v Chase Manhattan Bank185 Lord Hoffmann was of the view that there was no inherent improbability that the intention was to exclude liability for negligence. To the contrary, he saw negligence as: ‘a risk which the parties could reasonably have been expected to allocate’186

and the Canada Steamship test was not applied to confine the coverage of the clause. Post-Investors’ Compensation Scheme Ltd v West Bromwich Building Society, such as view has not lessened and it is likely that the Canada Steamship test should now only apply where it is not possible to establish the intention of the parties from the words they use in their contract (interpreted in the context of the whole contract against the admissible background), which in turn is based on the current approach of the courts that: ‘an increasing willingness in recent years to recognise that parties to commercial contracts are entitled to determine for themselves the terms on which they will do business’187

HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] 1 All ER (Comm) 349; National Westminster Bank v Utrecht-America Finance Co [2001] 3 All ER 733 at [47]; Re-Source America International Ltd v Platt Site Services Ltd [2004] EWCA Civ 665, 95 Con LR 1 per Tuckey LJ at [55].

183

EE Caledonia Ltd v Orbit Valve plc [1995] 1 All ER 174 per Steyn LJ at 182–183. It was unsuccessfully argued that the test should not apply where what was in question were reciprocal indemnities and exemptions in relation to liability for each party’s servants or agents. Under those circumstances, it was contended that there was then no ‘inherent improbability’ that the clauses should cover negligence. The court, however, had ‘regard to the realities’ of the situation and, whilst the clause appeared to be ‘reciprocal’, it was recognised that that did not mean that there was ‘equal’ treatment of the parties and a reason for there to be no inherent improbability – 38 employees of the proferens were involved and one employee of the other party.

184

[2003] 1 All ER (Comm) 349.

185

ibid, [67].

186

Taberna Europe CDO II plc v Selskabet af 1  September 2008 A_S (formerly Roskilde Bank A_S) [2016] EWCA Civ 1262, [2017] 3 All ER 1046, [26].

187

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so that there may be an increased willingness to reach such a conclusion – the ‘probabilities’ may well be considered rather than simply assumed to favour the restriction of the clause. 2.80 Further, the words of the contract may show a contra indication to the application of the Canada Steamship approach. The test was seen as inapplicable where the proferens had stated that liability was accepted in three cases only, involving some liability for negligence. The view was taken that the acceptance of that restricted liability ‘only’, had put ‘beyond doubt’ that there was an exclusion of liability ‘in respect of all other cases’, including those involving negligence.188 Similarly where the clause in question was in the form of ‘not liable unless’ or ‘only liable if’ and the situations in which liability was accepted involved the intentional or reckless causing of damage, the line was taken that: ‘it would make a nonsense of the clause if the [proferens] was to be liable for what might be called ordinary negligence’.189

The contractual allocation of the need to insure may be relevant, although the point has been made that: ‘A mere warning in general terms to the hirer that he should cover the relevant indemnity by insurance … cannot … assist the owner, if it is not accompanied by any specific intimation that the risks insured against should extend to the particular risk of loss occurring through the negligence of the hirer or his servants.’190

2.81 Nevertheless, in appropriate circumstances, an allocation of the need to insure may clearly show the parties’ intention that negligence should be covered by the relevant clause and prevent any need to refer to the Canada Steamship approach. Where the question arose as to a tenant’s liability for damage due to fire caused by negligence, consideration was given to the tenant’s ‘insurance rent’ and the coverage of the corresponding landlord’s covenant to insure and reinstate the demised premises out of the insurance money. The line was taken that: ‘an essential feature of insurance against fire is that it covers fires caused by accident as well as by negligence’,

and that:

Mineralimportexport v Eastern Mediterranean Maritime Ltd, The Golden Leader [1980] 2 Ll Rep 573 per Lloyd J at 574. See also Westfal-Larsen and Co A/S v Colonial Sugar Refining Co Ltd [1960] 2 Ll Rep 206; The Brabant [1967] 1 QB 588.

188

Monarch Airlines Ltd v London Luton Airport Ltd [1997] CLC 698 per Clarke J at 705. Cohen v Brantford (8 December 1987, unreported). See also Red Sea Tankers Ltd v Papachristides, The Hellespont Ardent [1997] 2 Ll Rep 547 – negligence covered by clause stating that the proferens would only be liable where damages ‘resulted from … bad faith, gross negligence or wilful misconduct’.

189

E Scott (Plant Hire) Ltd v British Waterways Board (20 December 1982, unreported), Slade LJ.

190

82

Chapter 2 Construction ‘the intention of the parties, sensibly construed must have been that the landlords were to have no claim’.191

Scope 2.82 The Canada Steamship approach applies not only to exemption clauses but also to indemnity clauses192 which in Smith v South Wales Switchgear Ltd Lord Fraser stated that ‘[i]n many cases [are] merely the obverse of the exemption’193 and it has been said that: ‘it is probably true to say … that the presumption that it is improbable that one party to a contract intends to assume responsibility for the other’s negligence is stronger in the case of an indemnity clause than merely in the case of an exclusion of liability’.194

2.83 Certainly, it seems commonly to be thought that, at least, the same improbability exists as in relation to exemptions195. However, whether they should be regarded as indemnity clauses or not,196 the Canada Steamship approach has been seen as inapplicable to ‘transfer servant’ clauses such as:197 ‘When a driver or operator is supplied by the Owner with the plant, the Owner shall supply a person competent in operating the plant and such person shall be under the Direction and control of the Hirer. Such drivers or operators shall for all purposes in connection with their employment in the working of the plant be regarded as the servants or agents of the Hirer … who alone shall be responsible for all claims arising in connection with the operation of the plant by the said drivers or

Mark Rowlands Ltd v Berni Inns Ltd [1985] 3 All ER 473 per Kerr LJ at 484. See also Morris v Breaveglen Ltd (9 May 1997, unreported) per Legatt LJ: The view was taken that where the ‘arrangement avoided duplication of insurance coverage and was commercially sensible, the court should lean in favour of giving such a meaning to the provisions of the contract, and refrain from adopting a construction which would defeat that approach’. See also Barking and Dagenham London Borough Council v Stamford Asphalt Co Ltd (1997) 82 BLR 25.

191

Gillespie Bros & Co Ltd v Roy Bowles Transport Ltd [1973] 1 All ER 193 per Buckley LJ at 204; Smith v South Wales Switchgear Ltd [1978] 1 WLR 165; USA v ARC Construction Ltd (8 May 1991, unreported), Hobhouse J.

192

Smith v South Wales Switchgear Ltd [1978] 1 All ER 18 at 25; and more recently, may now only apply to indemnity clauses: Persimmon Homes Ltd and others v Ove Arup & Partners Ltd and another [2017] EWCA Civ 373, [56].

193

E Scott (Plant Hire) Ltd v British Waterways Board (1982) 20 Dec, Oliver LJ. See also Smith v South Wales Switchgear Ltd [1978] 1 All ER 18.

194

Gillespie Bros & Co Ltd v Roy Bowles Transport Ltd [1973] 1 All ER 193 per Buckley LJ at 204: ‘Precisely the same reasoning must … apply to a clause of indemnity as to an exemption clause. The one is in essence a correlative of the other, indeed in contracts under which one party is expressly exempted from liability to the other in some specified respect or to some specified extent it is not unusual to find a complementary provision by which the latter agrees to indemnify the former against liability to the same extent. An exactly parallel inherent improbability arises in respect of an indemnity as in respect of an exemption …’.

195

Thompson v T  Lohan (Plant Hire) Ltd [1987] 2  All ER  631 per Dillon LJ at 639 considering Arthur White (Contractors) Ltd v Tarmac Civil Engineering Ltd [1967] 3 All ER 586.

196

Thompson v T Lohan (Plant Hire) Ltd [1987] 2 All ER 631. Arthur White (Contractors) Ltd v Tarmac Civil Engineering Ltd [1967] 3 All ER 586; Phillips Products Ltd v Hyland [1987] 2 All ER 620. See also Morris v Breaveglen Ltd (9 May 1997, unreported). Mark Rowlands Ltd v Berni Inns Ltd [1985] 3 All ER 473 per Kerr LJ at 484.

197

83

Chapter 2 Construction operators. The Hirer shall not allow any other person to operate such plant without the Owner’s previous consent to be confirmed in writing’.

2.84 The inherent improbability of intended exemption, on which the Canada Steamship approach is based, was not viewed as present.198 In addition, it was not seen how the Canada Steamship approach: ‘could be reasonably applied for one of the most obvious claims that the parties must have had in mind was a claim for damages caused by [the employee’s] negligence in actually driving or maintaining the excavator’

and it was ‘hard to think of any other failure by [the employee] except negligence for which his employers would be liable’.199

2.85 Where what is in question is an anti-set-off clause, it has been unsuccessfully argued for an analogous approach to that of Canada Steamship to confine such clauses to legal set-off, excluding coverage of equitable setoff in the absence of express wording.200 Similarly, an analogy in relation to the question of whether a clause should be construed as dealing with liability for fraudulent, as well as negligent, misrepresentation has been denied201 and such denial also occurred in relation to the question of whether an antiset-off clause applied to fraud as well as negligence.202 The Canada Steamship approach was seen as applicable in relation to a clause which the court did not view as an exemption clause but which ‘conferred on one party only, a right exercisable in a very wide range of circumstances to nullify the contractual bargain … at no cost to itself and regardless of the loss which the other party may sustain’.203 The clause referred to matters such as ‘force majeure’, ‘acts of God’, ‘acts of war’ and ‘civil commotion’ and was viewed as limited to the situation where there was no negligence on the part of the proferens.204

First part of the test 2.86

For the first part of the test:

Arthur White (Contractors) Ltd v Tarmac Civil Engineering Ltd [1967] 3  All ER  586 per Lord Pearson at 599.

198

[1967] 3 All ER 586 per Lord Upjohn at 597. See also Thompson v T Lohan (Plant Hire) Ltd [1987] 2 All ER 631 per Dillon LJ at 639.

199

Fast Frame Franchises v Lohinski (1993) 3 March, Legatt LJ. See also Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] 2 All ER 257.

200

Thomas Witter Ltd v TBP Industries Ltd (1994) 12 Tr L 145 per Jacobs J at 170. It would seem, however, that basically liability for fraudulent misrepresentation cannot be affected by an exemption clause; S Pearson & Son Ltd v Dublin Corpn [1907] AC 351. See p 301.

201

Skipskredittforeningen v Emperor Navigation [1997]  CLC  1151 per Mance J  at 1165; Society of Lloyd’s v Wilkinson (No 2) [1997] CLC 1012; Continental Illinois National Bank v Papanicoliou, The Fedora [1986] 2 Ll Rep 441 at 444.

202

J Lauritzen AS v Wijsmuller BV [1990] 1 Ll Rep 1 per Bingham LJ at 7.

203

[1990] 1 Ll Rep 1 per Bingham LJ at 7.

204

84

Chapter 2 Construction ‘…there must be a clear and unmistakeable reference to negligence’.205

There is also case law which has suggested that nothing short of the use of the term ‘negligence’ itself will suffice,206 but also it should be sufficient if some synonym for it is used207 and it could be in the form of a single word or ‘plain periphrasis’.208 For example: •

‘Neglect or default’ has been regarded as synonymous with negligence;209 and

•

the words ‘howsoever caused’ have become … the classic phrase whereby to exclude liability for negligence’.210

2.87 But in Smith v South Wales Switchgear the court held that ‘words such as “whatsoever” or “however arising” are merely words of emphasis and cannot be read as equivalent to an express reference’ to negligence.211 Lord Fraser stated:

Smith v South Wales Switchgear Ltd [1978] 1  WLR  165, Viscount Dilhorne; Evans v Glasgow District Council 1979 SLT 270 per Lord President Emslie, Lord Cameron; E Scott (Plant Hire) Ltd v British Waterways Board (20 December 1982, unreported), Oliver LJ; Lamport and Holt Lines Ltd v Coubro and Scrutton (M and I) Ltd, The Raphael [1982] 2 Ll Rep 42.

205

Lamport and Holt Lines Ltd v Coubro and Scrutton (M and I) Ltd, The Raphael [1982] 2 Lloyd’s Rep 42 at 48.

206

Smith v South Wales Switchgear Ltd [1978] 1  WLR  165 at 168 and 172; Thompson v T  Lohan (Plant Hire) Ltd [1987] 2  All ER  631 at 636; Evans v Glasgow District Council 1979  SLT  270 per Lord President Emslie, Lord Cameron; E Scott (Plant Hire) Ltd v British Waterways Board (20 December 1982, unreported), Oliver LJ; Monarch Airlines Ltd v London Luton Airport Ltd [1997] CLC 698.

207

Evans v Glasgow District Council 1979  SLT  270 per Lord President Emslie, Lord Cameron; E Scott (Plant Hire) Ltd v British Waterways Board (20 December 1982, unreported), Oliver LJ. In Gallagher Ltd v BRS Ltd [1974] 2 Ll Rep 440, clause 6 was regarded as an ‘express’ limitation of liability for negligence as it referred to ‘liability under the preceding conditions’ and clauses 4 and 5 expressly dealt with negligence. However, that was following Gillespie v Roy Bowles [1973] 1 All ER 193 in which the use of phrases such as ‘howsoever caused’ were regarded as sufficient ‘express’ reference to negligence for the first part of the rule which was disapproved in Smith v South Wales Switchgear Ltd [1978] 1 All ER 18. See further below.

208

Monarch Airlines Ltd v London Luton Airport Ltd [1997] CLC 698 per Clarke J at 706, relying on Shaw v Great Western Rly Co [1894] 1 QB 373, from another context.

209

White v Blackmore [1972] 2 QB 651 per Roskill LJ at 677.

210

Smith v South Wales Switchgear Ltd [1978] 1 WLR 165 at 169 and 173; Shell Chemicals UK Ltd v P&O  Roadtankers Ltd [1995] 1 Ll Rep 297 at 301. ‘There is old authority that the use of language referring to the cause of the damage and not merely the kind of damage would cover liability based on negligence (Manchester Sheffield and Lincolnshire Rly v Brown (1883) 8 App Cas 703; AE Farr Ltd v Admiralty [1953] 2 All ER 512. See also Gillespie Bros & Co Ltd v Roy Bowles Transport [1973] 1 All ER 193). However, the line was taken that it is no longer possible, in the light of Smith v South Wales Switchgear Ltd [1978] 1  WLR  165 to treat the undoubtedly wide words ‘any damage whatsoever’ or ‘howsoever arising’ as a periphrasis of ‘damage arising from the negligence of the proferens and as either satisfying or bypassing the test propounded by Lord Morton’ in Canada Steamship; E Scott (Plant Hire) Ltd v British Waterways Board (20  December 1982, unreported), Oliver LJ. But see Hinks v Fleet [1986] 2 EGLR 243 per Lloyd LJ at 246.

211

85

Chapter 2 Construction ‘I  do not see how a clause can “expressly” exempt or indemnify the proferens against his negligence unless it contains the word “negligence” or some synonym for it and I think that is what Lord Morton … must have intended as appears from the opening words of his second [part of the test in Canada Steamship]’.212

2.88 Although more recently, in Brown v Drake International Ltd and Southampton Container Terminals213 the court held: ‘The expression “however caused” gives the clearest indication that negligence and breach of statutory duty are included. The expression should be given its plain meaning.’214

in interpreting the following clause in a contract: ‘The Contractor shall be responsible for and shall release and indemnify SCT and their servants and agents from and against all liability for personal injury (whether fatal or otherwise), loss of or damage to property and other loss, damage, costs and expenses however caused or incurred which arise out of or in connection with the execution of the Contract.’215

2.89 Very explicit references to negligence (using the word ‘negligence’ or some synonym) are not unknown,216 but are not frequently used, because ‘Omissions of express reference to negligence in contracts drafted by lawyers tend to be deliberate’217

perhaps not to highlight to a party to a contract the reach or consequences of the wording of a clause which excludes or limits liability: ‘The printed conditions in the agreement in this case were plainly drafted by a lawyer. Why was an express reference to negligence not inserted? Similar questions have been posed on a number of occasions. Why do draftsmen not take note of the impact of a clear and consistent line of judicial decisions? For my part, I have no doubt that the draftsman on the underground to whom such a question was addressed would say ‘one does not want to frighten off one or other of the parties.’218

[1978] 1 WLR 165 at 173.

212

[2004] EWCA Civ 1629. The case involved a fatal accident occurring at a place of employment and the widow and executrix of the deceased suing the employer among others, and the consideration of cases turned entirely on the Canada Steamship test (and other cases mentioned in this section, such as Smith v South Wales Switchgear Ltd). Perhaps because of the facts, there was no consideration, given the date of the case, of how such a provision which was the subject matter, post Investors Compensation, should be interpreted and the role of the Canada Steamship test – it was simply assumed as of binding relevance.

213

Brown v Drake International Ltd and Southampton Container Terminals [2004] EWCA Civ 1629, [21].

214

ibid, [4].

215

Per Spriggs v Sotheby Parke Bernet & Co [1986] 1 Lloyd’s Rep 487; Hancock Shipping Co Ltd v Deacon & Trysail (Pte) Ltd [1991] 2 Ll Rep 550; Warren v Truprint Ltd [1986] BTLC 344.

216

EE Caledonia Ltd v Orbit Valve Plc [1995] 1 All ER 174, at 184.

217

ibid.

218

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Second Part 2.90 The second part of the rule would seem to require consideration of what the clause ‘plainly means to any ordinary literate and sensible person’,219 although in appropriate circumstances, specialised commercial knowledge may be relevant.220 The reference to the ‘ordinary literate sensible person’ is to a test to be applied by the court, so that: ‘the view of the [party against whom it is sought to use the clause] as to the width of the meaning of the clause, which ever way it went, is in my judgment irrelevant and therefore inadmissible’.221

2.91 A  clause may refer to loss or damage ‘howsoever caused’, directing attention to the cause of the loss222 and that may satisfy this second part of the test, but, such clauses may now fall within the first part of the test (see above). A less explicit general clause may also be sufficient for this second part of the test, such as the words ‘any act or omission’, which a court held ‘certainly wide enough to comprehend negligence’.223 2.92 In a hiring contract, a clause first imposed an obligation on the hirer to take all reasonable steps to keep acquainted with the state of the machinery, then stated that: ‘if such plant be continued for work in an unsafe or unsatisfactory state, the hirer shall be solely responsible for any damage, loss or accidents whether directly or indirectly arising therefrom’.

This clause passed the second part of the Canada Steamship test, so that: ‘These words, on their natural meaning, are comprehensive and they are appropriate to cover any situation where the plant is kept at work or use in an unsafe or unsatisfactory state.’224

2.93 The second and third part of the test can combine to put the proferens ‘on the horns of a dilemma’, ie in some cases arguing that the clause is wide

Lamport and Holt Lines Ltd v Coubro and Scrutton (M and I) Ltd, The Raphael [1982] 2 Ll Rep 42 per Stephenson LJ at 52.

219

Industrie Chimiche Italia Centrale SpA v Nea Ninemia Shipping Co, The Emmanuel C [1983] 1 All ER 686 at 689.

220

Jones v Northampton Borough Council (1990) Times, 21 May; [1990] Lexis Citation 1876, Court of Appeal.

221

Joseph Travers & Sons Ltd v Cooper [1915] 1 KB 73 at 93, 101. The contract as a whole may indicate that such a clause is not sufficient to cover negligence; Bishop v Bonham [1988] 1 WLR 742 at 755.

222

Lamport and Holt Lines Ltd v Coubro and Scrutton (M and I) Ltd, The Raphael [1982] 2 Ll Rep 42 per Donaldson LJ at 45.

223

USA v ARC Construction Ltd [1991] Lexis Citation 1540, Hobhouse J.

224

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enough to satisfy the second part of the test will result in it covering ‘other’ liability within the third.225

Third part 2.94 The third part of the Canada Steamship test deals with t other possible bases of liability to whether a clause covers liability based on negligence. If there is another basis of liability, which is not ‘fanciful or remote’, the clause may be interpreted as not covering liability based on negligence226 and viceversa.227 So, for example: ‘[a common carrier’s] liability in respect of articles entrusted to him is not necessarily based on negligence. Accordingly if a common carrier wishes to limit his liability for lost articles and does not make it quite clear that he is desiring to limit it in respect of his liability for negligence, then the clause will be construed as extending only to his liability on grounds other than negligence’.228

2.95 This example, and the third part of the test, are put in absolute terms, that is the existence of another head of liability, which is not ‘fanciful or remote’, would be ‘fatal’ to the proferens’ claim that the clause covered negligence. However, as indicated above, the issue is the interpretation of the contract, and the search for the intention of the parties. There can be no rule, which is stated in absolute terms. that a clause covers negligence which is simply dependent upon the existence of another basis of liability which is not ‘fanciful or remote’:229 ‘Where the words used are wide enough to cover negligent as well as nonnegligent acts or omissions, but practically speaking the clause lacks substance if it is not construed as covering negligent acts or omissions, the court may in the circumstances of a given case infer that the parties intended the clause to cover negligence … but it need not do so … All depends on the proper inference to be drawn in the instant case.’

Shell Chemicals (UK) Ltd v P&O Roadtankers Ltd [1995] 1 Ll Rep 297 per Balcombe LJ at 301.

225

E Scott (Plant Hire) Ltd v British Waterways Board (20 December 1982, unreported); Coats Patons (Retail) Ltd v Birmingham Corpn (1971) 69 LGR 356 at 361; Toomey v Eagle Star Insurance Co Ltd (No 2) [1995] 2 Ll Rep 88; AMF International Ltd v Magnet Bowling Ltd [1968] 2 All ER 789; Hone v Benson (1978) 248 EG 1013.

226

Hair and Skin Trading Co Ltd v Norman Air Freight Carriers Ltd [1974] 1 Ll Rep 443 at 445; United States v ARC Construction Ltd (8 May 1991, unreported), Hobhouse J.

227

Alderslade v Hendon Laundry Ltd [1945] 1 KB 189 per Lord Greene MR at 192; Steinman & Co Ltd v Angier Line [1891] 1 QB 619; Price & Co v Union Lighterage Co [1903] 1 KB 750; Rutter v Palmer [1922] 2 KB 87 at 94; White v John Warrick & Co Ltd [1953] 2 All ER 1021; EE Caledonia Ltd v Orbit Valve plc [1994] 2 Ll Rep 239; Shell Chemicals UK Ltd v P&O Roadtankers Ltd [1995] 1 Ll Rep 297 at 301; Toomey v Eagle Star Insurance Co Ltd (No 2) [1995] 2 Ll Rep 88 per Colman J at 92–93.

228

Toomey v Eagle Star Insurance Co Ltd (No 2) [1995] 2 Ll Rep 88 per Colman J at 93; Seven Seas Transport Ltd v Pacifico Union Marina Corpn, The Oceanic Amity [1983] 1 All ER 672 at 684.

229

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2.96 If there is another such head of liability, a court should usually interpret a clause as not covering negligence,230 and it is also possible to make the converse point, but neither should be made more strongly, as: ‘Ultimately, the third test is not a rigid or mechanical rule. It is simply an aid to construction. And the ordinary meaning of the words in their contractual setting is the dominant factor.’231

2.97

In particular:

‘there is no artificial rule to compel the court … to construe a clause as covering negligence because it has no other subject matter’.232

Even in the absence of other possible, non-fanciful, liability for a clause to cover, on occasion the courts have still found that negligence is not covered.233 Courts have held, that a clause has, for example, been: •

seen as a warning that there is no liability in the absence of negligence,234 or

•

included for the avoidance of doubt,235 Lamport and Holt Lines Ltd v Coubro and Scrutton (M and I) Ltd, The Raphael [1982] 2 Ll Rep 42 per May LJ at 48.

230

EE Caledonia Ltd v Orbit Valve plc [1995] 1 All ER 174 per Steyn LJ at 181.

231

Lamport and Holt Lines Ltd v Coubro and Scrutton (M and I) Ltd, The Raphael [1982] 2 Ll Rep 42 per Stephenson LJ at 51. Statements of the third part of the test in the form of an absolute rule seem to stem from Alderslade v Hendon Laundry Ltd [1945] KB 189 at 192. In that case, Lord Greene MR considered the third stage of the test and used language which indicated that the presence, or absence, of an alternative basis of liability to negligence is determinative of the question of construction of a widely worded general exemption clause. In the particular case there was no liability in the absence of negligence and Lord Greene was influenced by the fact that if the court had concluded that the exemption clause did not cover negligence, it would have served no purpose at all. He said that the clause must be construed as relating to negligence, in the absence of other possible liability for it to cover. However, that such an approach was too rigid was recognised in the same case by Mackinnon LJ at 195 (quoting Rutter v Palmer [1922] 2 KB 87 at 92).

232

Hollier v Rambler Motors (AMC) Ltd [1972] 1 All ER 399; Dorset County Council v Southern Felt Roofing Co Ltd (1989) 48 BLR 96, Slade LJ. A sufficiently worded clause may cover negligence even where there is another basis of liability – eg Mineralimportexport v Eastern Mediterranean Maritime Ltd, The Golden Leader [1980] 2 Ll Rep 573; Joseph Travers & Son Ltd v Cooper [1915] 1 KB 73.

233

Hollier v Rambler Motors (AMC) Ltd [1972] 1 All ER 399 per Salmon LJ at 406: ‘In [Alderslade and Rutter v Palmer] any ordinary man or woman reading the clause would have known that all that was being excluded was the negligence of the laundry in the one case and of the garage in the other. But here I think the ordinary man or woman would equally be surprised and horrified to learn that if the garage was so negligent that a fire was caused which damaged their car, they would be without remedy because of the words in the condition. I can quite understand that the ordinary man or woman would consider that, because of the words, the mere fact that there was a fire, would not make the garage liable. Fires can occur from a variety of causes. The ordinary man would, I think, say to himself: “well what they are telling me is that if there is a fire due to other than their own negligence, they are not responsible for it”’. In Alderslade and Rutter v Palmer the relevant clause was ‘The maximum amount allowed for lost or damaged articles is 20 times the charge made for laundering’ while in Hollier v Rambler Motors (AMC) Ltd the relevant clause was: ‘The Company is not responsible for damage caused by fire to customer’s cars on the premises. Customer’s cars are driven by staff at owner’s risk.’

234

Dorset County Council v Southern Felt Roofing Co Ltd (1989) 48 BLR 96, Slade LJ.

235

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particularly where some of the causes of damage referred to in the clause could not be caused by the proferens’ negligence (eg  damage caused by ‘lightning, aircraft …’).236 2.98 However, to be relevant to the question of interpretation, an alternative basis of liability must not be too ‘fanciful or remote’ so that it: ‘would not have been within the contemplation of the parties when the terms of the [contract] were agreed’.237

In general, that will depend upon the facts of the particular case but it should be borne in mind that: ‘When two commercial concerns contract with one another, they do not … concern themselves with … legal subtleties … We should look at the facts and realities of the situation as they did or must be deemed to have presented themselves to the contracting parties at the time the contract was made, and ask what potential liabilities the one to the other did the parties apply their minds, or must be deemed to have done so.’238

2.99 In the context of the third part of the rule, where the other liabilities were such that they would have ‘astonished’ those who ‘day in and day out’ made contracts on the standard conditions, no relevant alternative basis of liability was considered to exist and the clause was found to cover negligence.239 When the situation was one in which it was ‘by no means clear’ whether there could be liability for the shipowner in the absence of negligence, and the list of perils in the relevant clause were such that ‘many if not all’ of them would occur without fault, the clause was construed as not covering negligence, but as being present to make sure that there was no liability in the absence of negligence.240 In circumstances of that type, where the extent of potential liability is unclear, a court may consider that: ‘protection against the possibility of such liability [without negligence] could well have been sought’241

and the clause need not be seen as lacking in substance if it does not cover negligence. 2.100 Liability to third parties based on negligence may be sufficient ‘other’ liability for the clause to cover, so that it is not interpreted as covering

ibid.

236

Canada Steamship Lines Ltd v R [1952] AC 192 at 210; Lamport and Holt Lines Ltd v Coubro and Scrutton (M and I) Ltd, The Raphael [1982] 2 Lloyd’s Rep 42; Toomey v Eagle Star Insurance Co Ltd [1995] 2 Ll Rep 88 per Colman J at 92–93.

237

Lamport and Holt Lines Ltd v Coubro and Scrutton (M and I) Ltd, The Raphael [1982] 2 Lloyd’s Rep 42 per May LJ, at 50. See also Stephenson LJ at 51. See also Society of Lloyd’s v Wilkinson (No 2) [1997] CLC 1012 – emphasis on the ‘facts and realities’ of the situation.

238

Hair and Skin Trading Co Ltd v Norman Air Freight Carriers Ltd [1974] 1 Ll Rep 443 at 445.

239

Seven Seas Transportation Ltd v Pacifico Union Marine Corpn, The Oceanic Amity [1983] 1  All ER 672 per Staughton LJ at 684.

240

Industrie Chimiche Italia Centrale SpA v Nea Ninemia Shipping Co SA, The Emmanuel C [1983] 1 All ER 686.

241

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negligence liability to the other party.242 It has been indicated that, when a standard form contract is in question, the fact that there is no ‘other’ liability in the instant case may not assist the proferens if: ‘it is perfectly reasonable to suppose that the draftsman … has in mind that the [proferens] would be undertaking some contracts to which [other liability] would attach and his intention was to exclude that liability’.243

The Canada Steamship test post-Investors: summary 2.101 Investors identified a discarding of ‘almost all the old intellectual baggage of “legal interpretation”’. Lord Hoffmann indicated that this evolution in interpreting clauses also extended to the determination of whether an exemption clause covers negligence244 and leads to the question of the continued use of the Canada Steamship test. However, Canada Steamships ‘general authority’, application in many cases and the ‘soundness’ of the approach were referred to by Lord Bingham in HIH Casualty Insurance Ltd v Chase Manhattan Bank.245 Also it has been approved more recently by the Supreme Court in Geys v Societe Generale, London Branch246 and the Court of Appeal in Lictor Anstalt v MIR Steel UK Ltd; MIR Steel UK Ltd v Morris.247 2.102 In the previous edition it was asked whether the ‘old intellectual baggage’ label is appropriate for the Canada Steamship test which is based on it being: ‘inherently improbable that one party to the contract should intend to absolve the other from the consequences of the latter’s own negligence’,248

but it appears that the approach of Investors has generated an impetus for the existence of such probability to be considered rather than assumed249

AMF International Ltd v Magnet Bowling Ltd [1968] 2 All ER 789 per Mocatta J at 811.

242

Boomsman v Clark and Rose Ltd 1983 SLT 67 at 70 (Sh Ct Rep).

243

BCCI v Ali [2001] 1 All ER 961 [66].

244

[2003] 1 All ER (Comm) 349 at [11], see para 2.76.

245

[2012] UKSC 63, [2013], [2013] 1 All ER 1061, [37].

246

[2012] EWCA Civ 1397, [2013] 2 All ER (Comm) 54.

247

Gillespie Bros & Co Ltd v Roy Bowles Transport Ltd [1973] 1 All ER 193 at 203.

248

Eg HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] 1 All ER (Comm) 349, [67], with Lord Hoffmann stating that commercial parties are likely always to be considering the question of negligence: ‘the question of negligence can never be all that far from the contemplation of the parties. It would be quite unrealistic to hold that when they said that [the defendants] was have no liability for ‘any information provided by any other parties’ or that such information or non-disclosure by any other parties should not be a ground for avoidance of the policy, it went without saying that they did not contemplate negligence. Negligence is a risk which the parties could reasonably have been expected to allocate to one party or the other, so as best to achieve the commercial objectives of the contract.’

249

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and then only where it is necessary to do so as, because it is not possible to establish the intentions of the parties: ‘…from the language they have used, considered in the light of surrounding circumstances which must be taken to have been within their knowledge’. and: ‘The question, as it seems to me, is whether the language used by the parties, construed in the context of the whole instrument and against the admissible background, leads to the conclusion that they must have thought it went without saying that the words, although literally wide enough to cover negligence, did not do so. This in turn depends upon the precise language they have used and how inherently improbable it is in all the circumstances that they would have intended to exclude such liability.’250

2.103 More recent cases have indicated that the presumption inherent in the Canada Steamship test may be no longer applicable as the ‘law has moved on since that decision’251 and: ‘The authorities show that there has been an increasing willingness in recent years to recognise that parties to commercial contracts are entitled to determine for themselves the terms on which they will do business.’252

It is possible to argue that the Canada Steamship test was developed prior to UCTA because: ‘the courts had no remedy but construction to relieve consumers from the burden of unreasonable exclusion clause’253

so that its application is no longer as relevant (if at all) post the introduction of UCTA and the current method of interpreting contracts post Investors’ Compensation Scheme Ltd. 2.104 In one recent case the court summarised the current law in connection with the application of the Canada Steamship test: ‘(1) A  clear intention must appear from the words used before the Court will reach the conclusion that one party has agreed to exempt the other from the consequences of his own negligence or indemnify him against losses so caused. The underlying rationale is that clear words are needed because it is inherently improbable that one party should agree to assume responsibility for the consequences of the other’s negligence…. (2) The Canada Steamship principles are not to be applied mechanistically and ought to be considered as no more than guidelines; the task is always to ascertain what the parties intended in their particular commercial context in accordance with the established principles of construction…. They nevertheless form a useful guide to the approach where the commercial context makes it

HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] 1 All ER (Comm) 349, [63].

250

Taberna Europe CDO II plc v Selskabet af 1  September 2008 A_S (formerly Roskilde Bank A_S) [2016] EWCA Civ 1262, [2017] 3 All ER 1046, [24].

251

ibid, [24], [26].

252

HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] 1 All ER (Comm) 349, [63].

253

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Chapter 2 Construction improbable that in the absence of clear words one party would have agreed to assume responsibility for the relevant negligence of the other. (3) These principles apply with even greater force to dishonest wrongdoing, because of the inherent improbability of one party assuming responsibility for the consequences of dishonest wrongdoing by the other. The law, on public policy grounds, does not permit a party to exclude liability for the consequences of his own fraud; and if the consequences of fraudulent or dishonest misrepresentation or deceit by his agent are to be excluded, such intention must be expressed in clear and unmistakeable terms on the face of the contract. General words will not serve. The language must be such as will alert a commercial party to the extraordinary bargain he is invited to make because in the absence of words which expressly refer to dishonesty the common assumption is that the parties will act honestly….’ 254

2.105 The quote clearly indicates a role for the Canada Steamship test but perhaps the key part from the judgement quoted is that there has to be an ‘absence of clear words’ before it is likely to apply. A similar point can be derived from Persimmon Homes Ltd and others v Ove Arup & Partners Ltd and another,255 where the Court of Appeal also noted that in the Canada Steamship case there was consideration of an exemption and an indemnity clause and in determining whether it is represents good law now: ‘In hindsight we can see that it is not satisfactory to deal with exemption clauses and indemnity clauses in one single compendious passage. It is one thing to agree that A is not liable to B for the consequences of A’s negligence. It is quite another thing to agree that B must compensate A for the consequences of A’s own negligence.’256

2.106 The clause in dispute read: ‘6.3 The Consultant’s aggregate liability under this Agreement whether in contract, tort (including negligence), for breach of statutory duty or otherwise (other than for death or personal injury caused by the Consultant’s negligence) shall be limited to £12,000,000 (twelve million pounds) with the liability for pollution and contamination limited to £5,000,000 (five million pounds) in the aggregate. Liability for any claim in relation to asbestos is excluded.’257

The court held that the words in this clause that excluded liability were clear so that the traditional methods of interpreting contracts (such as the use of contra proferentem and the Canada Steamship test) have no role. Specifically

Capita (Banstead 2011) Ltd and others v RFIB  Group Ltd [2014]  EWHC  2197 (Comm), [10], based on the judges analysis of the following cases: Smith v South Wales Switchgear Co Ltd [1978] 1 WLR 165, Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 WLR 964, HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] 1  All ER (Comm) 349 and Lictor Anstalt v Mir Steel UK Ltd [2013] 2 All ER (Comm) 54 The case was appealed but the appeal was dismissed and the Court of Appeal repeated the quote reproduced here and noted that the quote: ‘…to be in dispute and have in any event now received the imprimatur of Sir Kim Lewison in The Interpretation of Contracts, (2nd supplement 12.06)’.

254

[2017] EWCA Civ 373, 172 ConLR 1, [2017] All ER (D) 175 (May).

255

Persimmon Homes Ltd and others v Ove Arup & Partners Ltd and another [2017] EWCA Civ 373, 172 ConLR 1, [2017] All ER (D) 175 (May), [55].

256

ibid, [24].

257

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in relation to the continuing application of the Canada Steamship test the court stated: ‘…in commercial contracts, the Canada Steamships guidelines (in so far as they survive) are now more relevant to indemnity clauses than to exemption clauses’.258

2.107 The court noted that: ‘there has been a shift in the approach of the courts to limitation and exclusion clauses since the enactment of UCTA. In commercial contracts to which UCTA does not apply there is a growing recognition that parties should be free to allocate risks as they see fit’259

and the parties in construction contracts will agree how to allocate risks between themselves and which party will insure for what type of risk with: ‘exemption clauses [being] part of the contractual apparatus for distribution risk’260

but if the Canada Steamship test were to apply then the court held in relation to the second sentence of the exemption clause quoted above that it would in fact cover negligence as: ‘It is not possible to think of any non-negligent ground of claim relating to asbestos which the parties might have had in mind. The suggested non-negligent breaches put forward by the claimants, namely breaches of various regulations, fall into Lord Morton’s “fanciful or remote” category. The parties cannot sensibly have been agreeing that Arup’s only liability in relation to asbestos would be for non-negligent breaches of those regulations.’261

One current Court of Appeal judge, extra-judicially, has questioned whether the Canada Steamship test represents the law.262

Inconsistent terms 2.108 There may be inconsistency between an exemption clause and another term of the contract and the question will arise as to which term is to take precedence. Where the exemption clause is part of a standard set of terms and the other term is particular to the specific contract, then it may well be clear that giving precedence to the specific term will reflect the intention of the parties. For example, when a new method of shipment was agreed only on the basis of an oral statement that containers carrying the shipper’s goods would be carried below deck, that specific agreement was not rendered meaningless by a clause stating that ‘subject to express instructions in writing given by the customer, [the carrier] reserves to itself complete freedom in respect of means, route and procedure to be followed in the handling and ibid, [56].

258

ibid, [35].

259

ibid, [57].

260

ibid, [60].

261

Lewison, The Interpretation of Contracts, 7th edn, (Sweet & Maxwell, 2020) 12.06.

262

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transportation of goods’.263 The oral statement was effective as a contractual obligation which prevailed over the standard form clause.264 Roskill LJ said:265 ‘It is a question of construction. Interpreting the contract … one has to treat the promise that no container would be shipped on deck as overriding any question of [an] exempting condition. Otherwise … the promise would be illusory’.

Similarly, the standard form terms at an auction could not prevent a term being found in an oral statement made at the time of the bidding, and in order to produce bids.266 2.109 Inconsistencies may also arise between written terms. It may be clear that the specific term was intended to take precedence over the general exemption. Where there was an exemption which stated, ‘The vendor makes no warranty and gives no guarantee in respect of the trade done by the business, and the purchaser must rely on his own enquiries and observations in respect of the same’, it was overridden by the specific warranty stating that, ‘The vendor hereby warrants that there is no matter known to him, whether in the nature of a pending action or otherwise, which would materially affect the goodwill of the business and which would influence the reasonably prudent purchaser in his decision to purchase’.267 Where a clause in a contract of carriage which was viewed as ‘intended to provide specifically for the provision of insurance if the customer requested it in writing’ also stated that the carrier ‘shall not be under any responsibility or liability whatsoever in relation thereto’, those latter words were taken to refer to the situation in which insurers disputed liability and not that in which the carrier had failed to insure.268 However, the apparent contradiction in the single clause: ‘I accept that whilst you take all reasonable care in the handling of the property of clients, you are not responsible for loss or damage of any kind, whether caused by negligence or otherwise, the property being accepted at owners’ risk’

J Evans & Sons (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1 WLR 1078. See also Harling v Eddy [1951] 2 KB 739; Couchman v Hill [1947] KB 554; Mendelssohn v Normand Ltd [1970] 1 QB 177 per Lord Denning MR at 184; Firestone Tyre and Rubber Co Ltd v Vokins & Co Ltd [1951] 1 Ll Rep 32 at 39; Nelson Pine Industries Ltd v Seatrans New Zealand Ltd, The Pembroke [1995] 2 Ll Rep 290; Gallagher Ltd v BRS  Ltd [1974] 2 Ll Rep 440 per Kerr LJ at 446. But see Fillite Construction (Runcorn) Ltd v APV Pasilac Ltd (22 April 1993, unreported). In Wibau Maschinenen v Mackinnon Mackenzie & Co (The Chanda) [1989] 2 Ll Rep 494 there was an acceptance of an attempt to produce a more generalised escape from the effect of an exemption clause where goods which should have been shipped below deck are shipped on deck. This was, however, overruled in Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd (The Kapitan Petko Voivoda) [2003] EWCA Civ 451, [2003] 1 All ER (Comm) 801.

263

Either on the basis that it was a collateral contract, or because it was part of the main contract which was partly oral and partly written.

264

J  Evans & Sons (Portsmouth) v Andrea Merzario Ltd [1976] 1  WLR  1078 at 1084. See also Mendelssohn v Normand Ltd [1970] 1 QB 177 per Lord Denning MR at 184; Firestone Tyre and Rubber Co Ltd v Vokins & Co Ltd [1951] 1 Ll Rep 32 at 39.

265

Harling v Eddy [1951] 2 KB 739; Couchman v Hill [1947] KB 554.

266

Thompson v Sayed Ali (21 March 1994, unreported), Henry LJ.

267

Lacey’s Footwear Ltd v Bowler International Freight Ltd [1997] 2 Ll Rep 369 per Beldam LJ at 379.

268

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was not seen as such by the court.269 Looking at the clause as a whole, its opening words were not seen as generating any contractual warranty or promise. It was thought that ‘the ordinary reader of the clause as a whole would not be lulled into any false sense of security but would recognise that [the proferens] were seeking to exclude a liability which, in the absence of exclusionary words, they would incur as bailee’.270 However, where there are two limbs to an exemption clause, it may be made clear which is to take precedence. So that a limitation clause, followed by an exclusion clause which opened with the words ‘all other liability’ meant that the loss or damage was ‘excluded by the second limb only if it [represented] loss not covered by the first limb’.271

Outside the contract Fundamental breach 2.110 There were attempts to introduce a rule of law preventing fundamental breaches, or breaches of fundamental terms, being covered by exemption clauses, no matter how aptly worded the clause.272 However, in Suisse Atlantique Société d’Armament Maritime SA v NV Rotterdamsche Kolen Centrale,273 the House of Lords disagreed with any such attempts, and in Photo Productions Ltd v Securicor Transport Ltd,274 they: ‘gave the final quietus to the doctrine that a “fundamental breach” of contract deprived the party in breach of the benefit of a clause in the contract excluding or limiting his liability’.275

And the correct approach is that: ‘[It] is always necessary when considering an exemption clause to decide whether as a matter of construction, it extends to exclude or restrict the liability in question,

Spriggs v Sotheby Parke Bernett & Co Ltd [1986] 1 Ll Rep 487.

269

[1986] 1 Ll Rep 487 per Neill LJ at 495.

270

University of Keele v Price Waterhouse [2004] EWCA Civ 583 per Arden LJ at [26].

271

For example Alexander v Railway Executive [1951] 2  KB  882; Smeaton Hanscomb & Co Ltd v Sassoon I Setty Son & Co [1953] 1 WLR 1468; Karsales (Harrow) Ltd v Wallis [1956] 1 WLR 936; J Spurling Ltd v Bradshaw [1956] 1 WLR 461 per Denning LJ at 465; Harbutt’s Plasticine Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447; Wathes (Western) Ltd v Austin (Menswear) Ltd [1976] 1 Ll Rep 14; Kenyon, Son and Craven Ltd v Baxter Hoare & Co Ltd [1971] 1 WLR 519.

272

[1967] 1 AC 361; UGS Finance Ltd v National Mortgage Bank of Greece [1964] 1 Ll Rep 446 per Pearson LJ at 450. See also George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 All ER 737; Kenya Railways v Antares Co Pte Ltd [1987] 1 Ll Rep 424; UCTA, s 9.

273

[1980] AC 827.

274

George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 All ER 737 per Lord Bridge at 741. Spriggs v Sotheby Parke Bernett [1986] 1 Ll Rep 487 per Neill LJ at 495.

275

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Chapter 2 Construction but, if it does, it is no longer permissible at common law to reject or circumvent the clause by treating it as inapplicable to a “fundamental breach”’.276

2.111 In this context, it was never entirely clear what was meant by a ‘fundamental breach’ or a ‘fundamental term’; it now seems unnecessary to be overly concerned with those questions or to use the terminology. Where such term is used it appears that its use should be confined to being a label for a breach justifying termination of the contract, and for a condition respectively, and if it is to be used at all now, it should be confined to that context.277 2.112 It may be that the more extensive, or significant, the breach the more explicit the wording the courts will require in order to be convinced that it was intended to be covered by an exemption clause, but any such tendency does not need to be regarded as a named rule. However: ‘the doctrine of fundamental breach never sprang fully fledged from the heads of judges in the middle of the last century; it had a respectable commercial origin in the nineteenth-century cases relating to “serious” breaches of contract such as deviation from the contractual voyage and storing goods in a warehouse other than that originally agreed’.278

It necessary to consider is how much of these origins survive,279 particularly in the light of the ‘fundamental change’ in relation to construction of contracts generally which Lord Hoffmann identified in the Investors case,280 the result of which has largely been to: ‘assimilate the way in which documents are interpreted by judges to the commonsense principles by which any serious utterance would be interpreted in ordinary life’.281

‘Peas and beans’, main purpose of the contract, four corners rule 2.113 The issue concerned whether an exemption clause did not cover what occurred on the basis that:

Edmund Murray v BSP International Foundations Ltd (1992) 33 Con LR 1 per Neill LJ at 16. See also Kenya Railways v Antares Co Pte Ltd [1987] 1 Ll Rep 424; Comp Portorafti Commerciale SA v Ultramar Panama Inc [1990] 1 Ll Rep 310; Glebe Island Terminals Pty Ltd v Continental Seagram Pty Ltd [1994] 1 Ll Rep 213.

276

Photo Productions Ltd v Securicor Transport Ltd [1980] AC 827 per Lord Diplock at 849.

277

Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd (The Kapitan Petko Voivoda) [2003] 1 All ER (Comm) 801 per Longmore LJ at [10].

278

Longmore LJ continued the above quote by saying: ‘It has not yet been conclusively decided whether what I may call the deviation case and the warehouse cases must be regarded as dead and buried alongside the doctrine of fundamental breach’.

279

Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 per Lord Hoffmann at 114.

280

Ibid. For Lord Hoffmann’s now oft quoted summary of the principles on which construction is based, see para 2.2

281

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• such a clause was only intended to relate to the situation in which the contract was being performed (albeit in some way defectively); and •

what occurred was not a performance of the contract, even a defective one.

In other words, the clause was not intended to apply in such circumstances because they are beyond the boundaries of the contract by which the clause was intended to be limited. In Chanter v Hopkins282 Lord Abinger said: ‘If a man offers to buy peas off another, and he sends him beans, he does not perform his contract. But that is not a warranty; there is no warranty that he should sell him peas; the contract is to sell peas, and if he sends him anything else in their stead, it is a non-performance of it.’

2.114 If there is a contract between two parties, X and Y, and X is contracted to deliver peas to Y, but X in fact delivers beans instead, a contention, based on older case law, is that X  could not rely upon any clause of the contract excluding X’s liability for defective performance because what occurred was not a performance at all, even a defective one. Of course, it is necessary to acknowledge that in examining such as a case, a court would need to ascertain carefully what exactly were the contractual obligations. The contract might have been one for the supply of peas or beans or, even, any green vegetable.283 But this type of argument was also seen as going beyond delivery of goods (which were clearly of an entirely different kind from that contracted for) to the situation where the goods delivered were, at one level, the type of goods contracted for, but which were argued to be so defective that their delivery could not be regarded as within the performance of the contract.284 2.115 However, at the very least, now such an approach will have a very restricted application.285 In George Mitchell (Chesterfield) Ltd v Finney Lock Seeds Ltd there was a contract for the sale of Dutch winter white cabbage seed and an inferior autumn variety was supplied which led to a valueless crop and the House of Lords refused to apply this type of approach.286 The view was taken that acceptance of that argument both at first instance and in the Court of Appeal:287

(1838) 4 M & W 399 at 404.

282

See Devlin, [1966] CLJ 192 at 212.

283

For example Karsales (Harrow) Ltd v Wallis [1956] 1 WLR 936 at 942 and 943; Yeoman Credit Ltd v Apps [1962] 2 QB 508; Charterhouse Credit Co Ltd v Tolly [1963] 2 QB 683; Farnworth Finance Facilities v Attryde [1970] 1 WLR 1053; Pinnock Bros v Lewis and Peat Ltd [1923] 1 KB 690; Pollock & Co v Macrae 1922 SC (HL) 192, but contrast Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441.

284

George Mitchell (Chesterfield) Ltd v Finney Lock Seeds Ltd [1983] 2 All ER 737 at 741.

285

George Mitchell (Chesterfield) Ltd v Finney Lock Seeds Ltd [1983] 2 All ER 737 per Lord Bridge at 741.

286

[1983] 1 All ER 108. See the reasoning of Oliver LJ.

287

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Chapter 2 Construction ‘came dangerously near to re-introducing by the back door the doctrine of fundamental breach’.288

The relevant clause was seen as applying to ‘seeds’ and ‘seeds’ had been supplied.289 The survival of this type of approach must be considered further below. 2.116 However, there are also other situations where the courts have considered whether an exemption clause was not intended to apply to what has occurred because it has gone beyond the boundaries of the contract. For example in relation to situations where: •

a ship unjustifiably deviated from its route;290 or

•

a bailee stored goods other than in the place contracted for;291 or

•

a bailee handed goods over to a sub-contractor without authority.292

(The treatment of deviation is considered further below.) More recently, when the exemption related to: ‘claims or demands … arising directly or indirectly out of the carriage of or other services in relation to the goods’,

the court held that it could not cover the situation where the goods contracted to be carried were ‘the chemical ADIP’ and the claim arose out of the delivery of a different substance, ‘the detergent Texapon’.293 2.117 In each case, it was, of course, necessary to determine what the boundaries of the contract were; a clause might give a ship ‘liberty to deviate’, for example, and effect would be given to such a clause.294 However, faced with wide clauses, serving to stretch the contractual boundaries, the courts might find that such clauses were intended to be restricted by the ‘main purpose’,

[1983] 2 All ER 737 per Lord Bridge at 741.

288

ibid.

289

For example Davis v Garrett (1830) 6 Bing 716; Cunard SS Co Ltd v Buerger [1927] AC 1; Stag Line Ltd v Foscola, Mango and Co Ltd [1932] AC 328; Hain SS Co Ltd v Tate and Lyle Ltd (1936) 41 Com Cas 350; London and North Western Rly Co v Neilson [1922] 2 AC 263.

290

Gibaud v Great Eastern Rly [1921] 2 KB 426; Lilley v Doubleday (1881) 7 QBD 510; J Spurling Ltd v Bradshaw [1956] 1 WLR 461 at 465; Hunt and Winterbottom Ltd v BRS Parcels Ltd [1962] 1 QB 617 at 626; Woolf v Collis Removal Services Ltd [1948] 1 KB 11; United Fresh Meat Co Ltd v Charterhouse Cold Storage Ltd [1974] 2 Ll Rep 286.

291

Garnham, Harris & Elton Ltd v Alfred W Ellis (Transport) Ltd [1967] 1 WLR 940; Davies v Collins [1945] 1 All ER 247; Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd [1959] AC 576.

292

Shell Chemicals UK Ltd v P&O Roadtankers Ltd [1995] 1 Ll Rep 297 per Balcombe LJ at 300–301. See also Boughen v Frederick Attwood Ltd [1978] 1 Ll Rep 413.

293

G H Renton & Co Ltd v Palmyra Trading Corpn of Panama [1957] AC 149; Mayfair Photographic Supplies (London) Ltd v Baxter Hoare & Co Ltd [1972] 1 Ll Rep 410.

294

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or the ‘four corners’, of the contract.295 In Glyn v Margetson, when a clause in a contract for the shipment of a perishable cargo stated that the ship ‘should have liberty to proceed to and stay at any port or ports in any station in the Mediterranean, Levant, Black Sea, or Adriatic, or on the coasts of Africa, Spain, Portugal, France, Great Britain or Ireland, for the purpose of delivering coals, cargo, or passengers, or for any other purpose whatsoever’,

that clause did not prevent the shipowners from being liable for the damage to the cargo, when it had gone 350 miles off the direct route.296 The clause provided a liberty to deviate but the approach taken was that it had to be read in the light of the main purpose of the contract, ascertained from reading it as a whole and that the main purpose of getting a perishable cargo from A to B would be defeated if the liberty to deviate was not read as confined to ports along the route from A to B. Similarly, in Sze Hai Tong Bank v Rambler Cycle Co Ltd,297 where there was a clause stating that: ‘the responsibility of the carrier … shall be deemed … to cease absolutely after the goods are discharged from the ship’

but the contract also provided that delivery should only be made on production of the bill of lading, the court viewed delivery of the goods without production of the bill of lading as defeating the main object of the contract and as outside the protection of the other clause. The situation was equated with what would have occurred if the carriers had burnt the goods or thrown them into the sea.298 2.118 It necessary to consider how much of the above approach survives, not only in the light of the ‘final quietus’299 of the doctrine of fundamental breach, but also of the ‘fundamental change’ which was identified as having overtaken construction in general by Lord Hoffmann in Investors.300 At the very least, it is necessary to use care with the reasoning in Rambler as it may lead to the resurrection of the doctrine of fundamental breach. 2.119 When the line taken in the Rambler case was extended to hold carriers liable who had handed over goods in response to a forged bill of lading, it was seen as ‘coming perilously close to, if not actually to be, the doctrine of

Glynn v Margetson & Co [1893]  AC  351; Leduc & Co v Ward (1888) 20  QBD  475; Neuchatel Asphalte Co Ltd v Barnett [1957] 1  WLR  356. But see Nissho Iwai Australia Ltd v Malaysian International Shipping Corpn (1988–89) 167 CLR 219 at 227.

295

Glynn v Margetson & Co [1893] AC 351.

296

[1959] AC 576.

297

Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd [1959] AC 576; MB Pyramid Sound NV v Briese Schiffahrt GmbH [1995] 2 Ll Rep 144.

298

George Mitchell (Chesterfield) Ltd v Finney Lock Seeds Ltd [1983] 2 All ER 737 per Lord Bridge at 741

299

[1998] 1 All ER 98 at 114.

300

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fundamental breach’.301 Also in Bank of Credit and Commerce International SAI v Ali,302 Lord Hoffmann saw the type of ‘judicial creativity, bordering on judicial legislation’ which he viewed as occurring in the above type of cases as: ‘a desperate remedy to be invoked only if it is necessary to remedy a widespread injustice’.303

He took the line that: ‘there is much to be said for giving effect to what on ordinary principles of construction the parties agreed’.304

2.120 However, it is possible to argue sometimes that it is possible to use an idea such as ‘the main object of the contract’ to cut down exemption clauses if the parties’ intentions are to be fulfilled. What will be in question will be clauses which, if taken literally, would be very wide in their application as they are stated without qualification. Such a type of clause is not only found as an exemption clause and, broadly, it is not one which it is essentially improbable that the parties intended to be qualified in some way. The parties may simply not have regarded it as worthwhile expressly to work out the qualifications.305 Post-Investors, it is possible to see something of this in BCCI v Ali. In that case, the clause in question was not an exemption clause, but a wide ‘full and final settlement clause’ dealing with an employee’s surrender of rights on an additional payment being made on redundancy. All the members of the House of Lords, including Lord Hoffmann, agreed that it should be subject to some limitations on its literal extent, although Lord Hoffmann’s views were of a far narrower limitation than the majority.306 2.121 Further, in relation to an exemption clause in a contract of carriage, the court in Mitsubishi Corpn v Eastwind Transport Ltd307 used the ‘main object of the contract’ argument from Glyn v Margetson308 to cut down the scope of an exemption clause. This was done to deal with the argument that it left the defendants with complete freedom as to whether they performed, reducing the contract to a mere declaration of intent, and thus that it had to be rejected as repugnant to the contract. The judge stated that it was:

B Davenport [2000] LMCLQ 455 at 456. In Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd (The Kapitan Petko Voivoda) [2003] 1 All ER (Comm) 801 the court refused to extend this type of approach to render a limitation clause ineffective in relation to the loss of, or damage to, goods stored on deck when the contract specified that they were to be stored below deck.

301

[2001] 1 All ER 961.

302

Bank of Credit and Commerce International SAI v Ali [2001] 1 All ER 961, [66].

303

ibid.

304

See, eg, A Kramer ‘Common Sense Principles of Contract Interpretation (and how we’ve been using them all along)’ (2003) 23 Oxford Journal of Legal Studies 173 at 188.

305

See also Sirius International Insurance Co v FAI  Insurance Ltd [2004]  UKHL  54, [2004] 1WLR 3251.

306

[2004] EWHC 2924 (Comm), [2005] 1 All ER (Comm) 328.

307

[1893] AC 451.

308

101

Chapter 2 Construction ‘plain that the words “howsoever caused”, or “otherwise howsoever” and “arising or resulting from any other cause whatsoever”, when considered in their context as parts of contracts for the carriage of goods from one party to another [did] not operate to relieve the carrier of liability for any and every breach of contract’.309

2.122 He did not, for example, consider that the words covered a breach caused by dishonesty.310 So that: ‘…the principle that, in cases of doubt a contractual provision will be construed against the person who produced it, and for whose benefit it operates, does not extend to construing a contractual provision as widely as possible so as to render it repugnant to the main object of the contract read as a whole when it can be given a meaning consistent with that object’.311

Further, with the clause preserved across a wide area of operation, it still was effective to exempt the defendants from liability for goods damaged through the unseaworthiness of the vessel or the defendants’ negligence. 2.123 The final point can be made here that it may be that such arguments as consistency with ‘the main object of the contract’ are being too little used because of the fear of resurrecting ‘fundamental breach’. The result being that it leads to the contract not being read in keeping with the intention of the parties and the ‘ordinary principles of construction’ are left unfulfilled. The use of the ‘main object of the contract’ view may continue to be relevant if it is accepted that the decisions in Atlantique Societe v N. V. Rotterdamsche Kolern Centrale312 and Photo Productions Ltdv Securicor Transport Ltd313 do not affect the reasoning in Glynn v Margetson and Co. 2.124 Such a tendency may, in particular, be present where, in any event, the exemption clause in question will be dealt with under UCTA and rendered ineffective if unreasonable,314 but in such a situation, there is a risk of the scope of UCTA being unduly stretched. An example is in Bacardi Martini Beverages Ltd v Thomas Hardy Packaging Ltd.315 In that case, the contract concerned the sale of carbon dioxide to be put into bottled drinks. The particular batch of carbon dioxide had become contaminated with benzene. The suppliers sought to rely on an exemption clause (Clause 12):

ibid, [31]. But see Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd (The Kapitan Petko Voivoda) [2003] 1 All ER (Comm) 801 per Judge LJ at [29].

309

[1893] AC 451, [31].

310

Mitsubishi Corpn v Eastwind Transport Ltd [2004]  EWHC  2924 (Comm), [2005] 1  All ER (Comm) 328, [33].

311

[1967] 1 AC 361.

312

[1980] AC 827.

313

Under UCTA, Sch  1, para  2(c). The Act was not, of course, applicable to the contract of carriage in Mitsubishi Corpn v Eastwind Transport Ltd [2004] EWHC 2924 (Comm), [2005] 1 All ER (Comm) 328, [24].

314

[2002] 2 All ER (Comm) 335.

315

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•

Clause 12.1 dealt with ‘direct physical damage to property’ and was held not to apply in the instant case; and

•

Clause 12.2, the significant clause here, stated that the suppliers: ‘would have no liability whatsoever in respect of … any other loss or damage not covered in 12.1 unless such loss … be caused by supplying gas that is not of the purity warranted’.

The purity warranted was compliance with British Standard 4105, and that had no relevance to the contamination in question. However, the situation was one in which ‘no one would have conceived of other contamination by some extraneous elements (whether benzene or a poison) … because all concerned would have assumed that [the] manufacturing process (and so far as material, [the] delivery service) would have been operated efficiently in such a way as to make it impossible’.

2.125 Under such circumstances, it does not seem to be a major leap to contend that, despite the wide wording of Clause 12.2, it did not cover what had occurred. It is possible to contend that, in the context of such an underlying assumption, such an approach would fulfil the intention of the parties and that is bolstered by the argument that the ‘main object of the contract’ was defeated by such a contaminated supply (it rendered the bottled drinks unusable). However, the focus of the Court of Appeal seems to have been on UCTA and the requirement of reasonableness. Mance LJ took the approach that the clause did not satisfy the requirement of reasonableness because it covered contamination ‘no one would have conceived of’. However, there is a difficulty with this. The requirement of reasonableness is assessed in the light of the circumstances: ‘which were or ought reasonably to have been, known to, or in the contemplation of the parties when the contract was made’.316

2.126 In the light of this, Clause 12.2 would seem to have been found to fail to satisfy the requirement of reasonableness because of a factor which the court should not have taken into account317. Whilst construction must not be ‘strained’ to render an exemption clause ineffective, nor must its full appropriate use be neglected or clauses will be viewed as inappropriately wide in their coverage and UCTA may also be inappropriately stretched.

Deviation318 2.127 Traditionally a distinct approach has been taken to the effect of deviation. In Hain Steamship Co Ltd v Tate and Lyle Ltd319 Lord Atkin said:320 UCTA, s 11(1).

316

See further para 3.231.

317

Examples are given above at para 2.116.

318

(1936) 41 Com Cas 350.

319

ibid, at 354.

320

103

Chapter 2 Construction ‘The true view is that a departure from the voyage contracted to be made is a breach by the shipowner of his contract, a breach of such a serious character that, however slight the deviation, the other party to the contract is entitled to treat it as going to the root of the contract and to declare himself as no longer bound by any of the contract terms.’

2.128 In other words, upon a deviation occurring, the injured party could elect321 to end the contract and the carrier would no longer be bound by any of its terms, including any exemption clauses. However, it is unclear whether this forerunner of the more general idea of fundamental breach survives the ‘quietus’ of that doctrine. In Photo Production Ltd v Securicor Lord Wilberforce said: ‘I  suggested in Suisse Atlantique that [the deviation] cases can be regarded as proceeding upon normal principles applicable to the law of contract generally, viz, that it is a matter of the parties’ intentions whether and to what extent clauses in shipping contracts can be applied after a deviation, ie  a departure from the contractually agreed voyage or adventure. It may be preferable that they should be considered as a body of authority sui generis with the special rules derived from historical and commercial reasons …’.

2.129 would lose the protection of their insurance policies once the ship had deviated, ensuring that the shipowner would be liable in such circumstances. However, most policies now contain a ‘hold covered’ clause allowing for the payment of an additional premium and extension of the cover in the event of deviation. More recent Court of Appeals decisions have indicated that the approach to deviation cases deriving from Hain Steamship Co Ltd v Tate and Lyle Ltd should no longer be followed. In The Antares the court stated: ‘Whatever may be the position with regard to deviation clauses strictly so called (I would myself favour the view the they should now be assimilated into the ordinary law of contract), I  can see no reason for regarding the unauthorised loading of cargo as a special case’322

and in citing the above passage the judge in Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd (The Kapitan Petko Voivoda) stated: ‘is a question of some controversy whether [the deviation cases] now exemplify even a principle of English law’.323

The passages were cited with approval in Astrazeneca UK  Ltd v Albemarle International Corporation.324

If the injured party elected to continue the contract, it remained in force with the shipowner able to rely on all the terms, including exemption clauses: Hain Steamship Co Ltd v Tate and Lyle Ltd (1936) 41 Com Cas 350.

321

The Antares [1986] 2 Ll Rep 626 at 630. Other cases include: State Trading Corpn of India v M Golodetz Ltd (The Sara D) [1989] 2 Ll Rep 277 at 289; Wibau Mascinenefabric Hartman SA v Mackinnon Mackenzie & Co, The Chanda [1989] 2 Ll Rep 494; The Pembroke [1995] 2 Ll Rep 290.

322

Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd (The Kapitan Petko Voivoda) [2003] 1 All ER (Comm) 801 per Longmore LJ at [14].

323

[2011] EWHC 1574 (Comm), at para 300, although the case did not concern shipping.

324

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2.130 Most recently whether Hain Steamship Co Ltd v Tate and Lyle Ltd remains good law was considered in Dera Commercial Estate v Derya Inc; The Sur325 where the judge clearly indicated that if he was free to do so he would have followed judgements in The Antares and Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd (The Kapitan Petko Voivoda) so that deviation cases should be assimilated into the ordinary law of contract: ‘…I  can see no sound basis for treating such [deviation] cases differently from cases involving the unauthorised stowage of cargo on deck. Both are examples of very serious breach. That geographical deviation can be said to be a more serious breach, is a question of degree not principle. As Longmore LJ said in [The Antares [1986] 2 Ll Rep 626] (at [10]), the seriousness of the breach is no longer a selfsufficient yardstick for determining whether limitations or exemptions apply to particular breaches. The early geographical deviation cases bear the hallmarks of the doctrine of fundamental breach which, as Lloyd LJ stated in the clearest of terms in The Antares, no longer exists. The reasons for discrediting the doctrine are relevant to geographical deviation cases just like any other. Uncertainty is as undesirable in a contract of carriage as it is in any other type of contract.’326

2.131 If it had be open to the judge, he would, to simplify matters, have held that a contractual term that the parties had agreed of a limitation period of one year (rather than the six-year limitation period under Limitation Act 1980, section 5) was effective.327 However, the judge felt that he was bound by the doctrine of precedent and rejected the submission of the owners in this case that Hain Steamship Co Ltd v Tate and Lyle Ltd328 was based on the doctrine of fundamental breach and the latter was no longer part of English law, and that Hain Steamship Co Ltd v Tate and Lyle Ltd had been impliedly overruled Suisse Atlantique Société d’Armament Maritime SA v NV Rotterdamsche Kolen Centrale329 and Photo Production Ltd v Securicor.330 The judge was unable to accept this submission because: •

that geographical deviation cases ‘were not swept up under the auspices of the general of contract’ (as was made clear, according to the judge, in the speech of Lord Wilberforce in Photo Productions);331

•

that the leading case on deviation is still Hain Steamship Co Ltd v Tate and Lyle Ltd;332

[2018] EWHC 1673 (Comm), [107].

325

Dera Commercial Estate v Derya Inc; The Sur [2018] EWHC 1673 (Comm), [107], [108].

326

ibid, [118].

327

(1936) 41 Com Cas 350.

328

[1967] 1 AC 361.

329

[1980] AC 827.

330

[1980] AC 827, 845.

331

(1936) 41 Com Cas 350.

332

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•

that it is preferable to consider that deviation cases are a separate body of authority;

•

that the two Court of Appeal decisions ‘had proceeded on the basis that the position with geographical deviation cases remain open’;333

• that the decision in Hain Steamship Co Ltd v Tate and Lyle Ltd334 is not irreconcilable Suisse Atlantique Société d’Armament Maritime SA  v NV Rotterdamsche Kolen Centrale335 and Photo Production Ltd v Securicor336 2.132 For these reasons the judge held that: ‘Hain Steamship has not been impliedly overruled by nor is it irreconcilable with subsequent House of Lords’ decisions in the shape of Suisse Atlantique and Photo Production.’337

Particular clauses, phrases ‘Entire’ or ‘whole’ agreement clauses 2.133 A contract may include an ‘entire’ or ‘whole’ agreement clause in a contract in an attempt to prevent: •

there being any additional terms to those set out in the particular written document; or

•

here being any reliance on any misrepresentations,338

or may attempt to do both. The effectiveness of such clauses need consideration: •

at common law; and

•

in the light of the UCTA and the Misrepresentation Act 1967; and

• the position in regarding to unfair terms in consumer contracts under CRA.

The Antares [1986] 2 Ll Rep 626 and Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd (The Kapitan Petko Voivoda) [2003] 1 All ER (Comm) 801.

333

(1936) 41 Com Cas 350.

334

[1967] 1 AC 361.

335

[1980] AC 827.

336

Dera Commercial Estate v Derya Inc; The Sur [2018] EWHC 1673 (Comm), [114]. In effect, the judge was agreeing with Lewison, Interpretation of Contracts, 7th edn, (Sweet & Maxwell, 2020) 12.142 that it will require a Supreme Court decision to explicitly overrule Hain Steamship Co Ltd v Tate and Lyle Ltd.

337

Not all entire agreement clauses deal with the issue of (mis)representation and not always in terms of a party stating that the other party cannot rely on any precontractual (mis) representation – and where present is ‘juridically different, but complementary’ to entire agreement clause (J N Hipwell & Son v Szurek [2018] EWCA Civ 674).

338

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2.134 In relation to the use of entire agreement clauses to prevent what would otherwise be a term from being so regarded, in 1975 the Law Commission took the view that at common law:339 ‘[An entire agreement clause] may have a very strong persuasive effect but if it were proved that, notwithstanding the clause, the parties actually intended some additional term to be of contractual effect the court would give effect to that term because that was the intention of the parties.’

2.135 In effect the Law Commission were suggesting that an entire agreement clause should not be taken at face value. Rather it is necessary to gauge its effectiveness by considering the interaction of the clause and the underlying factors from which conclusions are drawn as to the existence of terms, or, at the least, that they should be seen as contradictory terms (alongside the additional term contended for) and a priority decided between them.340 However, the courts now take such clauses at face value,341 as overriding terms. For example:342 ‘Such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere, and that accordingly any promises or assurances made in the course of negotiations (which in the absence of such a clause might have effect as a collateral warranty) shall have no contractual force, save insofar as they are reflected and given effect in that document. The operation of the clause is not to render evidence of collateral warranty inadmissible as evidence as is suggested in Chitty on Contract, 28th edn, vol 1, para  12–102; it is to denude what would otherwise constitute a collateral warranty of legal effect’.

2.136 Taking a slightly different approach, but to similar effect, the comment has been made:343 ‘It is elementary that whether an agreement has legal effect is a matter of the intentions of the parties so that an offer and acceptance duly supported by consideration will nevertheless not be a legally binding contract unless the parties intend to create legal relations. I can see no reason why parties who have in fact reached an agreement in pre-contractual negotiations that would otherwise constitute a collateral contract should not subsequently agree in their formal contract that any such collateral agreement should have no legal effect, or in other words should be treated as if the parties had not intended to create legal relations; and … this is precisely what an entire agreement clause on its face does’.

Law Commission, Report No 154, para 2.15.

339

Support for some such approach might be found in cases such as Harling v Eddy [1951] 2 KB 739; Couchman v Hill [1947] KB 554; J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1 WLR 1078; Charlotte Thirty and Bison Ltd v Croiker Ltd (1990) 24 Con LR 46. But see J N Hipwell & Son v Szurek [2018] EWCA Civ 674 where the judge at first instance appeared to follow the view of the Law Commission. The Court of Appeal decision firmly overruled this approach and noted that the Law Commissions recommendation was not adopted in the cases that have come before the English courts, see [para 22].

340

Total Spares & Supplies v Antares SRL [2004] EWHC 2626, Ch, but see Reeds Solicitors v Norwich Union [2005] EWCA Civ 343.

341

Inntrepreneur Pub Co v East Crown [2000] 2 Ll Rep 611 per Lightman J  at 714; Cheverney Consultants Ltd v Whitehead Mann Ltd [2005] EWHC 2431 at [101].

342

Sere Holdings Ltd v Volkswagen Group United Kingdom Ltd [2004] EWHC 1551 Ch at [22].

343

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It is not an approach grounded in basic principle, but on the certainty which it produces:344 ‘The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing through the undergrowth and finding in the course of negotiations some (chance) remark or statement (often long forgotten or difficult to recall or explain) on which to found a claim … to the existence of a collateral warranty.’

2.137 This approach has been affirmed in more recent case law such as in the Court of Appeal decision of North Eastern Properties v Coleman: ‘If the parties agree that the written contract is to be the entire contract, it is no business of the courts to tell them that they do not mean what they have said’ 345

which was followed in the Supreme Court case of Rock Advertising Ltd v MWB Business Exchange Centres Ltd where Lord Sumpton stated: ‘[An entire agreement clause is] intended to achieve contractual certainty about the terms agreed … by nullifying prior collateral agreements relating to the same subject-matter.’346

2.138 It appears not to matter that an entire agreement clause significance is lessened because it is placed among the ‘boilerplate’ clauses: ‘the effect of an entire agreement clause of the kind to be found in […]the two formal shipbuilding contracts executed in this case must depend primarily on its terms, since it is the language chosen by the parties to express their agreement (wherever it appears) which, construed in its proper context, provides the primary source of their intentions. It is for that reason that I am unable to accept the suggestion in the buyer’s skeleton argument that clauses of this kind can be construed by reference to their supposed purpose or that their significance is diminished if they are found among what are sometimes called the ‘boilerplate’ provisions of a formal contract of this kind. There may be circumstances, of course, in which the court can be satisfied that a clause of that kind, although apparently couched in language wide enough to encompass the particular matter on which one or other party seeks to rely, was not intended by the parties to operate in the way in which its terms would suggest, but any such conclusion must be borne out by the particular circumstances of the case. That was the substance of the buyer’s submission in this case.’347

2.139 Although an entire agreement clause is considered effective on its face value, the wording of a particular clause will still need consideration to see if it does relate to the situation which has occurred and the wording of such clauses should be more specifically addressed.

Inntrepreneur Pub Co v East Crown [2000] 2 Ll Rep 611 per Lightman J at 714, Hotel Aida Opera SARL v Golden Tulip Worldwide BV [2004] EWHC 1012 [2004] All ER (D) 74 (May) at [94]. But see Reeds Solicitors v Norwich Union [2005] EWCA Civ 343; Datec Holdings v United Parcel Services [2005] EWHC 221 (Comm) at [114].

344

[2010] 3 All ER 528, [82].

345

[2018] UKSC 24, [14].

346

Ravennavi SpA v New Century Shipbuilding Co Ltd [2007] EWCA Civ 58, [25].

347

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The courts have scrutinised the wording of entire agreement clauses closely particularly in relation: •

to whether they cover collateral contracts or warranties;

•

to subsequent agreements

• to whether other agreements relating to the same subject matter can continue to operate in light of an entire agreement clause; •

to whether a party can remain liable for any representations;

• to whether an entire agreement clause excludes overrides any implied terms. Each is briefly considered.

Collateral contacts and warranties 2.140 In Deepak Fertilisers v ICI348 the contract contained a clause stating: ‘This contract comprises the entire agreement between the parties, as detailed in various Articles and Annexures and there are not any agreements, understandings, promises or conditions, oral or written, expressed or implied concerning the subject matter which are not merged into this contract and superseded hereby. This contract may be amended in the future only in writing executed by the parties’.

The Court of Appeal took the view that Rix J, at first instance, had been ‘perfectly correct to hold that this excluded liability in respect of collateral warranty’.349

2.141 In Inntrepreneur Pub Co v East Crown there was a clause stating: ‘Any variations of this Agreement which are agreed in correspondence shall be incorporated in this Agreement where that correspondence makes express reference to this Clause and the parties acknowledge that this Agreement (with the incorporation of any such variations) constitutes the entire agreement between the parties’.

2.142 Lightman J  viewed the clause as preventing there from being a collateral warranty and he also thought that it would have been sufficient had the clause: ‘been worded merely to state that the agreement containing it comprised or constituted the entire agreement between the parties’.350

(Of course, issues may arise as to what documents constitute ‘the agreement’351).

[1999] 1 Ll Rep 387.

348

Deepak Fertilisers v ICI [1999] 1 Ll Rep 387, [34].

349

[2000] 2 Ll Rep 611 at 614.

350

Cheverney Consultants Ltd v Whitehead Mann Ltd [2005] EWHC 2431 at [102]–[103].

351

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Subsequent agreements 2.143 For a clause in a case which stated: ‘This agreement supersedes any prior agreement between the parties hereto and contains their entire agreement and understanding.’352

The court stated 353 an entire agreement clause ‘will not preclude a subsequent variation of a concluded agreement’. So that to determine whether a letter was signed before or after the formal contract was concluded, the court stated that if it was signed after it would operate as a variation of the contract under consideration. But on the facts of the case the court found that the letter was in fact countersigned before the contract was concluded, and was therefore caught by the entire agreement clause.354 2.144 An entire agreement clause in terms such as the one above will not normally affect or restrict the ability of the parties to a contract to vary their contract: ‘…these clauses do not purport to bind the parties as to their future conduct. They leave the scope and the procedure for subsequent variation entirely unaffected. They therefore give rise to no conceptual difficulty of the type which affects a [no oral modifications] clause.’355

Whether other agreements or other documents relating to the same subject matter can continue to operate in light of an entire agreement clause 2.145 A clause which referred to: ‘This agreement constitutes the entire agreement between the parties to it with respect to its subject matter and shall have effect to the exclusion of any other memorandum agreement or understanding of any kind preceding the date of this Agreement and touching or concerning its subject matter’356

was found to mean that, in the context of the case, that another agreement would take effect, with the judge following the reasoning of the court of appeal (concerning the first trial to which the case related) where it was stated: ‘I agree with the judge [from the first trial’], however, that the wording of the clause is important, and that it must be read in its context, against the background that it was designed as one part of a package of agreements intended to be concluded at the same time, and (on the view expressed above) in fact so concluded. Against that background, the words “any other agreement preceding the date of this agreement” are to be read as not excluding agreements which were part of that agreed package.

Hotel Aida Opera SARL v Golden Tulip Worldwide BV [2004] EWHC 1012 (QB), [87].

352

ibid, [90] to [91].

353

ibid, [93].

354

Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24, [28].

355

Cheverny Consulting Ltd v Whitehead Mann Ltd [2007] All ER (D) 103 (Dec), [10].

356

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Chapter 2 Construction I do not see it as material that the final signatures on the consultancy agreement were not achieved until some time later; that was a matter of mechanics not substance.’357

2.146 In one case, two agreements were entered into on the same day.358 One of the agreements included an entire agreement clause which contained wording 'that the entire agreement was contained not only in [it] but also in documents referred to in it, which included [the other agreement]'. The court held that it was necessary to interpret the agreement and the other documents together as ‘they were plainly part of one overall package'. 2.147 A clause in a contract between multiple parties which stated that it was the entire agreement between the parties was understood as referring to all the parties and the view was taken that it ‘plainly’ did ‘not contain or supersede’ an agreement between two of the parties.359

Implied terms 2.148 It may be possible to exclude the implication of a term by custom or usage by use of an entire agreement clause such as: ‘This instrument contains the entire agreement of the parties with respect to the subject matter hereof and there is no other promise, representation, warranty, usage or course of dealing affecting it.’360

2.149 However, although it depends on the precise wording of an entire agreement it appears clear that: ‘an entire agreement provision does not affect or prevent the implication of a term to be implied on the grounds of business efficacy … It cannot be supposed that the parties would have intended an entire agreement clause to cause the agreement to

Cheverney Consulting v Whitehead Mann [2007]  All ER (D) 103 (Dec), [103] quoting from the Court of Appeal decision (2006 EWCA Civ 1303) on the first trial Cheverney Consulting v Whitehead Mann [2005] EWHC 2431 at [104] where the judge stated that it ‘did not ‘make sense to exclude reference to a document forming part of a suite devised for execution on the same occasion’.

357

Easyair Ltd (t/a Openair) v Opal Telecom Ltd [2009] EWHC 339 (CH), [32].

358

Cyprotex Discovery Ltd v University of Sheffield [2004] EWCA Civ 380, [2004] RPC 44 at [63].

359

Exxonmobil Sales and Supply Corp v Texaco Ltd, The Helene Knutsen [2003] EWHC 1964 (Comm), [25]-[27] with the court going on to state that although such a clause may be sufficient to exclude implication of a term by custom and usage, it may not be sufficient to exclude the implication of one based on business efficacy (at [27]): ‘The entire agreement clause was also relied upon by Exxonmobil in seeking to defeat the argument that a term should be implied based upon business efficacy. I have not, on that account, rejected Texaco’s argument that a term should be implied on the grounds of business efficacy. It seems to me arguable that where it is necessary to imply a term in order to make the express terms work such an implied term may not be excluded by the entire agreement clause because it could be said that such a term is to be found in the document or documents forming part of the contract. The same cannot be said of an implied term based upon usage or custom.’

360

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2.150 The situations where it is possible to imply a term is not limited to giving business efficacy to an agreement,362 but can extend to any implied term (in effect) which makes clear, or interprets, the written terms of a contract: ‘But a conventional “entire contract” clause does not affect the question whether some matter of fact (whether or not in documentary form) is admissible as an aid to the process of construing a contractual document. On this basis it is considered that an entire agreement clause would not usually preclude the implication of a term because the implication of a term is elucidating what the written contract means.’363

2.151 In Harrison v Shepherd Homes Ltd364 the following entire agreement clause came under consideration: ‘This Agreement and the ‘Buildmark’ Offer of Cover constitute the entire contract between the parties and shall be only varied or modified … in writing under the hands of the parties and any terms undertakings promises or agreements not set out in this Agreement are released by both parties and shall have no effect. The buyer acknowledges that save as to such of the written statements of the Seller’s Solicitors prior to the Agreement Date as were not susceptible of independent verification by inspection and search and enquiry of any local or other public authority (and whether or not such inspection search and enquiry has been made) the Buyer has not entered into this Agreement in reliance wholly or partly on any statement or representation made to him.’365

2.152 The court held: • that the words ‘any terms undertakings promises or agreements not set out in this Agreement are released by both parties and shall have no effect’ has the aim of precluding terms, undertakings, promises or agreements being part of the agreement which were the subject of discussion or other consideration of the parties. In this context the word ‘terms’ should be interpreted in a consistent way with the other words in the quoted phrase (‘undertakings promises or agreements’) so that it was of the same kind as those words;366

JN Hipwell & Son v Szurek [2018] EWCA Civ 674, [27], with the Court of Appeal stating (at [26]) ‘it is well established, and was not disputed before us, that a term may be implied where it is necessary to give business efficacy to the contract in question’.

361

Essex County Council v UBB Waste (Essex) Ltd [2020] EWHC 1581 (TCC), [110].

362

Lewison, Intepretation of Contracts, 7th edn (Sweet & Maxwell, 2020) 3.139 cited with approval in Novoship (UK) Ltd and others v Mikhaylyuk and others [2015] EWHC 992 (Comm), [32], Harrison v Shepherd Homes Ltd [2011] EWHC 1811 (TCC), [65] on the same wording appearing in the 5th edn at 3.06.

363

[2011] EWHC 1811 (TCC).

364

ibid, [53].

365

ibid, [61].

366

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•

if the intention was to exclude an implied term, then it is necessary to use ‘clear unequivocal words’367 as a party will not ‘normally give up valuable rights without making it clear that they intend to do so’;368

• the court held that (subject to the wording of the entire agreement clause) Sale of Goods and Services Act 1982, section 13 would be implied into the contract between the parties.369 2.153 In AXA Sun Life Services plc v Campbell Martin Ltd and others and other appeals370 the Court of Appeal stated that an entire agreement clause did not exclude the implication of a term, on the basis that a term which needed to be implied to give business efficacy to an agreement was intrinsic to the agreement. The clause in question stated: ‘This Agreement and the Schedules and documents referred to herein constitute the entire agreement and understanding between you and us in relation to the subject matter thereof. Without prejudice to any variation as provided in clause 1.1, this Agreement shall supersede any prior promises, agreements, representations, undertakings or implications whether made orally or in writing between you and us relating to the subject matter of this Agreement but this will not affect any obligations in any such prior agreement which are expressed to continue after termination.’371

2.154 The ‘intrinsic provisions of the agreement’ came within the wording of the first part of the entire agreement clause (the wording starting ‘This Agreement and the Schedules and documents referred to herein’). Such implied terms were held not to be prior to the agreement; and the second sentence of the entire agreement clause (the sentence starting ‘Without prejudice’) does not affect such implied terms. 2.155 A number of other cases have held that an entire agreement clause will not exclude the implication of terms. For example, in Great Elephant Corporation v Trafigura Beheer BV, The Crudesky372 the court held an entire agreement did not exclude the terms which are implied by Sale of Goods Act 1979, section 12: ‘It was submitted that this clause was effective to exclude the terms implied by s 12 of the 1979 Act. The first sentence relied upon does not have that effect. Rather, it merely provides that the agreement between the parties is to be found in the contract and not in any previous discussions or agreements. The second sentence restricts the parties’ remedies to those in respect of a breach of the ‘express’ terms of the contract as opposed to breach of a collateral contract. I do not consider that that is apt to exclude terms implied by s 12 of the 1979 Act…Thus implied terms spell out the terms which the parties have agreed. They are not part of any collateral

Quoted in Harrison v Shepherd Homes Ltd [2011]  EWHC  1811 (TCC), [64] from Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689.

367

Harrison v Shepherd Homes Ltd [2011] EWHC 1811 (TCC), [64].

368

ibid, [50].

369

[2011] EWCA Civ 133, [41].

370

ibid, [13].

371

[2012] EWHC 1745 (Comm), [90].

372

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Chapter 2 Construction contract or warranty with which ‘express terms of the contract’ are compared in the clause.’373

2.156 On the facts of the case, the judge stated that the parties had used clear language to exclude other provisions of the Sale of Goods Act 1979: ‘…where the parties wished to exclude the terms implied by other sections of the 1979 Act they did so using clear language. Thus they agreed that “[a]ll other conditions, warranties, or other terms whether express, implied or which would otherwise be imposed by statute with respect to quality, satisfactory quality, suitability or fitness for any purpose whatsoever of the product are hereby excluded”’.374

2.157 In Federal Republic of Nigeria v JP  Morgan Chase Bank, NA did not exclude a common law duty of care on the basis that it is ‘unlikely that a party has agreed to give up that right other than by clear wording’.375

Excluding liability for (mis)representation 2.158 It is also necessary to consider whether an entire agreement clause can prevent reliance on and / or exclude liability for non-fraudulent (mis) representation. From recent case law it appears clear that it is necessary for the entire agreement clause (or for a separate ‘non-reliance’ clause) to clearly state: •

that no representations have been made; or

•

that there has been no reliance on any representations; or

•

an express exclusion of liability for misrepresentation.376

2.159 Only the use of clear wording will suffice to exclude any (mis) representations, such as held in Witter (Thomas) Ltd v TBP  Industries Ltd377 where the ‘whole agreement’ clause stated: ‘This Agreement sets forth the entire agreement and understanding between the parties or any of them in connection with the Business and the sale and purchase described herein. In particular, but without prejudice to the generality of the

The relevant part of the entire agreement clause read (as quoted by the court): ‘The contract contains the entire agreement between the parties and supersedes all previous negotiations, representations, agreements or commitments with regard to its subject-matter … Each party further acknowledges that it will only be entitled to remedies in respect of breach of the express terms of the contract and will not be liable in tort or under any collateral contract or warranty in respect of any representations, warranties, statements or undertakings which may have been made prior to the contract being entered into.’ SGA, s 12 concerns implied terms about title.

373

Great Elephant Corporation v Trafigura Beheer BV, The Crudesk [2012]  EWHC  1745 (Comm), [90].

374

[2019] EWHC 347 (Comm), [37].

375

Words adapted from AXA Sun Life Services plc v Campbell Martin Ltd and others and other appeals [2011] EWCA Civ 133, [94].

376

[1996] 2 All ER 573.

377

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Chapter 2 Construction foregoing, the Purchaser acknowledges that it has not been induced to enter into this Agreement by any representation or warranty other than the statements contained or referred to in Schedule 6’

which the court interpreted as not excluding pre-contract representations: ‘The first thing to do is to construe the clause… in my judgment the first sentence does not operate to exclude remedies for pre-contractual misrepresentations. It simply does not say it does. If it said, for instance, ‘The vendor agrees that he will have no remedy in respect of any untrue statement made to him upon which he relied in entering this contract and that his only remedies can be for breach of contract’ the clause would probably have done the job… if a clause is to have the effect of excluding or reducing remedies for damaging untrue statements then the party seeking that protection cannot be mealy-mouthed in his clause. He must bring it home that he is limiting his liability for falsehoods he may have told.’378

2.160 For example, in Inntrepreneur Pub Co v East Crown Ltd379 an entire agreement clause stated: ‘14.1 Any variations of this Agreement which are agreed in correspondence shall be incorporated in this Agreement where that correspondence makes express reference to this Clause and the parties acknowledge that this Agreement (with the incorporation of any such variations) constitutes the entire Agreement between the parties 14.2 Before executing this Agreement the Tenant and Guarantor have: 14.2.1 received independent professional advice about its terms or 14.2.2 been advised of the wisdom of taking independent professional advice but have chosen not to do so and accordingly they have not relied upon any advice or statement of the Company or its solicitors.’380

and the court stated: ‘An entire agreement provision does not preclude a claim in misrepresentation, for the denial of contractual force to a statement cannot affect the status of the statement as a misrepresentation. The same clause in an agreement may contain both an entire agreement provision and a further provision designed to exclude liability e.g. for misrepresentation or breach of duty.’381

with the court finding that clause 14.2 ‘sets out to exclude liability for misrepresentation’. 2.161 Other cases have used wording in an entire agreement clause such as that the agreement ‘supersedes’, among other things, representations, but, depending on the precise wording, and other provisions of the agreement, has not been enough to exclude liability or reliance on any (mis)representations.

Witter (Thomas) Ltd v TBP Industries Ltd [1996] 2 All ER 573, 595-596.

378

[2000] 2 Lloyd’s Rep 611.

379

ibid, [7].

380

ibid, [8].

381

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For example, in BSkyB Ltd v HP Enterprise Services UK Ltd the entire agreement clause stated: ‘this Agreement and the Schedules shall together represent the entire understanding and constitute the whole agreement between the parties in relation to its subject matter and supersede any previous discussions, correspondence, representations or agreement between the parties with respect thereto notwithstanding the existence of any provision of any such prior agreement that any rights or provisions of such prior agreement shall survive its termination. The term “this Agreement” shall be construed accordingly. This clause does not exclude liability of either party for fraudulent mis-representation.’382

2.162 The court held that, in effect, the use of the word ‘supersede’ does not make them part of the agreement between the parties, and was not enough to withdraw the representations for all purposes, to exclude liability for any misrepresentations or stop a party relying on them: ‘Those words do not, in my judgment, amount to an agreement that representations are withdrawn, overridden or of no legal effect so far as any liability for misrepresentation may be concerned. The provision is concerned with the terms of the Agreement. It provides that the Agreement represents the entire understanding and constitutes the whole agreement. It is in that context that the Agreement supersedes any previous representations. That is, representations are superseded and do not become terms of the Agreement unless they are included in the Agreement. If it had intended to withdraw representations for all purposes then the language would, in my judgment, have had to go further. … In this case the statement that the Agreement superseded any previous discussions, correspondence, representations or agreement between the parties with respect to the subject matter of the agreement prevented other terms of the agreement or collateral contracts from having contractual effect. It did not supersede those matters so far as there might be any liability for misrepresentation based on them. … Secondly, while there is reference to representations, there is nothing in the clause that indicates that it is intended to take away a right to rely on misrepresentations… I  consider that clear words are needed to exclude a liability for negligent misrepresentation and that this clause does not include any such wording…’.383

2.163 In AXA Sun Life Services plc v Campbell Martin Ltd and others and other appeals an entire agreement clause stated that it superseded, among other things, representations: ‘This Agreement and the Schedules and documents referred to herein constitute the entire agreement and understanding between you and us in relation to the subject matter thereof. Without prejudice to any variation as provided in clause 1.1, this Agreement shall supersede any prior promises, agreements, representations, undertakings or implications whether made orally or in writing between you and us relating to the subject matter of this Agreement but this will not affect any obligations in any such prior agreement which are expressed to continue after termination.’384 (emphasis added)

[2010] EWHC 86 (TCC), [359].

382

ibid, [382], [385], [387].

383

[2011] EWCA Civ 133, [13].

384

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2.164 Rix, LJ forensically deconstructed and interpreted the wording of the clause in particular the part emphasised and provides a guide as to the level of scrutiny such a clause may be subject:385 •

he rejected the submission of the claimant that the emphasised wording excluded liability for misrepresentation, as the clause ‘was concerned with agreements rather than misrepresentations’ and the word ‘misrepresentations’ is not in the clause;

• the word ‘representations’ does appear, but is ‘completely sandwiched between words of contractual import’; • the emphasised wording does not use the traditional methods to avoid liability for misrepresentations by stating:

•

•

that no representations were made;386

•

that a party places no reliance on any misrepresentations;

•

that liability for (mis)representations was excluded;

that the agreement was concerned with what had been agreed by between the parties, while for a misrepresentation: ‘it is not concerned with what the parties have agreed, but rather with inaccurate statements (innocently, negligently or fraudulently inaccurate statements) which have been made by one party to the other, have been relied on by the representee in entering into their agreement, and which may give the representee rights to rescind that agreement and/or claim tortious or quasi-tortious damages by reason of loss arising out of entering into the agreement.’387

•

that the other parts of the entire agreement clause and the other parts of the emphasised words all concern ‘words of agreement’. The critical word used is ‘representations’ (not ‘misrepresentations’) which in the context would mean that representations which would be a part of the agreement

Drawn from AXA  Sun Life Services plc v Campbell Martin Ltd and others and other appeals [2011] EWCA Civ 133, [80] to [82], [94].

385

Such as Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd [2008]  EWHC  1686 (Comm), [32] [37], where the relevant clause stated: ‘The Lessee [ie  FFCL] also agrees and acknowledges that save as expressly stated in this Agreement and the other Transaction Documents to which the Lessor is a party, the Lessor has not and shall not be deemed to have made any warranties or representations, express or implied, about the Aircraft, including but not limited to the matters referred to above’ and with the court stating: ‘Here the parties agree that no representation was made at all. FFCL has agreed with Trident that a state of affairs is the case, ie  that there were no pre-contract (non-fraudulent) representations by Trident. More importantly, the parties agree that this state of affairs is to form the basis of the transaction. Even if it was not in fact the case that there had been no representations, the parties are free to agree that it was so and base their contractual relations on that state of affairs… I conclude that Trident can rely on that clause to defeat the misrepresentation defence.’ See also JP Morgan Chase Bank v Springwell Navigation Corp [2010] EWCA Civ 1221.

386

AXA Sun Life Services plc v Campbell Martin Ltd and others and other appeals [2011] EWCA Civ 133, [81].

387

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if not for the entire agreement clause, and the word ‘supersede’ is a word of agreement not a word of exclusion; and • that the other surrounding provisions concern contractual agreement, such as the clause dealing with ‘joint and several liability’, where the word ‘representations’ appeared which the judge stated ‘must be intended as a word of contractual obligation’. 2.165 The judge concluded: ‘No doubt all such cases are only authority for each clause’s particular wording: nevertheless it seems to me that there are certain themes which deserve recognition. Among them is that the exclusion of liability for misrepresentation has to be clearly stated. It can be done by clauses which state the parties’ agreement that there have been no representations made; or that there has been no reliance on any representations; or by an express exclusion of liability for misrepresentation. However, save in such contexts, and particularly where the word ‘representations’ takes its place alongside other words expressive of contractual obligation, talk of the parties’ contract superseding such prior agreement will not by itself absolve a party of misrepresentation where its ingredients can be proved.’388

2.166 The more successful, approach has been to make use of a ‘non-reliance’ clause (or a ‘non-reliance’ element in an entire agreement clause) such as: ‘the parties agree … that no statements or representations made by either party have been relied upon by the other in agreeing to enter into the contract’.389

2.167 The view was taken in cases such as Grimstead v McGarrigan390 and Watford Electronics v Sanderson391 that: ‘an acknowledgement of non-reliance … is capable of operating as an evidential estoppel’.

So that it: ‘is apt to prevent the party who has given the acknowledgment from asserting in subsequent litigation against the party to whom it has been given that it is not true’.392

2.168 This is seen as requiring: (i) that the statements (ie as to non-reliance on the (mis)representation) in the clauses were clear and unequivocal, (ii) that the representee had intended that the representor should act upon those statements (as to non-reliance); and

AXA Sun Life Services plc v Campbell Martin Ltd and others and other appeals [2011] EWCA Civ 133, [81].

388

Watford Electronics v Sanderson [2001] 1 All ER (Comm) 696, [38] to [48].

389

(Unreported, 27 October 1999).

390

[2001] 1 All ER (Comm) 696.

391

Grimstead v McGarrigan (unreported, 27  October 1999), Chadwick LJ. See also Watford Electronics v Sanderson [2001] 1 All ER (Comm) 696 at 711.

392

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(iii) that the representor had believed those statements (as to non-reliance) to be true and had acted upon them.393 The difficulties which may arise in fulfilling those requirements are evident when it is emphasised that the statements as to non-reliance are likely to be found in the standard form contract of the representor and they are being used to claim that the representee has so asserted his non-reliance that he is estopped from proving that he relied on a representation. The point has been made that those requirements for an evidential estoppel ‘may present insuperable difficulties; not least because it may be impossible for a party who has made representations which he intended should be relied upon to satisfy the court that he entered into a contract in the belief that a statement by the other party that he had not relied upon those representations was true’.394

2.169 The potential for a clause to protect the relevant party from liability for misrepresentation is there, but, in particular, the burden of establishing the necessary belief by the misrepresentor in the misrepresentee’s nonreliance may be considerable.395 In addition, the need for such evidence invites consideration of the parties’ negotiations in a way which is seen as precluded in the interests of certainty when there is an entire agreement clause which is effective to prevent a search for further terms. 2.170 There has been some indication that entire agreement clauses might be treated as exemption clauses and so subject to either: •

UCTA (if they are preventing additional terms); or

• the Misrepresentation Act 1967 (if they are preventing a claim for misrepresentation).396 In the context of the question of additional terms, plainly there is scope in principle for arguing that, in some circumstances, an entire agreement clause should be regarded as an exemption clause and subject to UCTA. So, when X is dealing on Y’s written standard terms of business, then UCTA, section 3, for example, does not only apply the requirement of reasonableness to Y’s clauses which plainly exclude or restrict liability, but it also applies to a term which Y is relying on ‘to claim to render a performance substantially different from what was reasonably expected’ (s 3(2)(b)(i)).397

Grimstead v McGarrigan (unreported, 27 October 1999), Chadwick LJ, basing his statement as to the requirements for an evidential estoppel on Lowe v Lombank [1960] 1 All ER 611.

393

Watford Electronics v Sanderson [2001] 1 All ER (Comm) 696 at 711.

394

See also GMAC Commercial Credit Development Ltd v Sandhu [2004] EWHC 716 (Comm), [2006] 1 All ER (Comm) 268 at [118].

395

Eg Thomas Witter Ltd v TBP Industries Ltd [1996] 2 All ER 573; Cremdean Properties v Nash (1977) 244 EG 547; Walker v Boyle [1982] 1 All ER 634. But see McGrath v Shah (1987) 57 P&CR 452 at 459–461; Watford Electronics v Sanderson [2001] 1 All ER (Comm) 696 at 711.

396

See para 3.140.

397

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2.171 If the parties’ negotiations are considered at the factual level, without giving the entire agreement clause a determinative role simply because of its status as a term, then it may well be that a particular performance reasonably expected will be based upon statements seen as precluded by that clause from producing terms. If that is the case, then the entire agreement clause would then be a term by which Y is claiming to render a performance substantially different from what was reasonably expected and so subject to the requirement of reasonableness by s 3 of the Unfair Contract Terms Act 1977. Further, UCTA, section 13(1) makes it clear that the application of section 2 and section 5 to 7 extends to terms which ‘exclude or restrict the relevant obligation or duty’,

rather than being confined to terms which are stated to exclude or restrict liability. Like UCTA, section 3(2)(b)(i), this allows for clauses in the form of part of the definition of the obligation to be treated as exemption clauses, but, unlike UCTA, section 3, it does not state how they are to be distinguished from other terms in the form of part of the definition of the obligation. However, as will be seen,398 a distinction can be made between terms or notices defining obligations and those excluding liability ‘in nature’ irrespective of their form. It requires consideration of the creation, or origin, of the obligations and the relationship of the term in question to that creation. 2.172 In other words, the distinction which must be made is between the exclusion of an obligation purely by words and its circumstantial displacement. If there is circumstantial displacement, the term or notice in question is ‘in nature’ part of the definition of the obligation. If the displacement is purely by words, then the term or notice – the words in question – is, in nature, an exclusion of liability. Obviously, although that must be judged objectively, it must also be judged absent the legal artificialities of the contracting process. In this context, in particular, that means that the entire agreement clause must not be viewed as determinative because of its status as a term, its impact must be judged at the factual level, ie did it, objectively, impact upon X’s view of the promised obligations at the factual level. 2.173 However, plainly, this type of approach introduces into consideration of the entire agreement clause the type of examination of the circumstances of the making of the contract which the entire agreement clause was intended to preclude and undermines the certainty sought to be achieved by the approach taken at common law. 2.174 In principle, UCTA is potentially applicable to entire agreement clauses, the question again is whether that will be avoided in the perceived need for certainty, but the point can be made that the extent of the artificiality of the current treatment of ‘entire agreement’ clauses at common law is the kind of approach which invites an active use of UCTA on occasion. (To

See para 3.54.

398

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an extent, the impetus of any such ‘invitation’ has been diminished since such terms have been policed in the consumer context by CRA, Part 2.) In SAM Business Systems Ltd v Hedley & Co399 there was some recognition of the type of approach indicated here as that which should apply in principle. The line was taken that:400 ‘by that contract term [the entire agreement clause] SAM did, in the words of s 3(2)(b) “claim to be entitled to render a performance substantially different from what was reasonably expected of him”. What was reasonably expected was what was represented in the pre-contract representations’.

2.175 Consideration of the point was unnecessary in the case as it was found that the entire agreement clause had been waived, nevertheless here there is an acceptance of the approach which should, in principle, apply. However, the additional point was made that the entire agreement clause did not contain a ‘non-reliance’ element and it was that absence which was seen as making it possible to consider the pre-contractual representations to determine what performance was reasonably expected.401 The ‘non-reliance’ element of an entire agreement clause may have a role to play in relation to the question of additional terms as well as that of misrepresentations. Of course, the requirements of an evidential estoppel would again be relevant, and the accompanying difficulties of establishing them would also be relevant here as above. 2.176 However, when what is in question is the operation of a ‘non-reliance’ clause in the context of misrepresentations and the possible treatment of the clause as an exemption clause under Misrepresentation Act 1967, section 3, there would not seem to be any scope, or need for, such treatment. In effect, the realities of the parties’ reactions to the clause are being examined in applying the requirements for an evidential estoppel. It is the lack of such consideration, and an adherence to the face value of the clause, which calls for, and provides scope for, the application of UCTA in relation to ‘entire agreement clauses’ and the question of additional terms. 2.177 The final issue needing consideration here is the application of the CRA, Part 2 Unfair Terms in Consumer Contracts Regulations 1999. Whatever the type of clause (whether dealing with terms or representations, or both), if it is a term in a contract between a consumer and a seller or supplier, it will fall to be considered under the fairness test in CRA, Part 2402 and certainly the predecessor to the Competition and Markets Authority (Office of Fair

[2003] 1 All ER (Comm) 465.

399

At [62].

400

At [62].

401

It might be contended that it fell within the exemption for certain ‘core’ terms in reg 6(2), but that would require a much wider approach to the ‘core’ than was indicated by the House of Lords in Director General of Fair Trading v First National Bank [2002] 1 All ER 97. E Macdonald ‘Scope and Fairness of the Unfair Terms in Consumer Contracts Regulations’ (2002) Modern Law Report 763. See p 215.

402

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Trading , took the view that such clauses will generally be unfair and that is also indicated by the line taken by the Scottish court in Office of Fair Trading v MB Designs Ltd.403 The Competition and Markets Authority in its Guidance on the unfair terms in the CRA404 indicates that an entire agreement clause can provide scope for unfair detriment if a trader is able to disclaim responsibility for what the trader claims or promises to induce a consumer part with money. Even if, according to the CMA, the use of an entire agreements term does not have such a direct aim: ‘…its use weakens the traders’ incentive to take care (and to ensure that employees and agents take care) in what they say to consumers before contracts are concluded, and thus tends to impair the quality of pre-contract information for consumers’.405

Anti-set-off clauses 2.178 A  clause may exclude the right of set-off406 by stating, for example, there is an undertaking to pay: ‘without any discount, deduction, offset or counterclaim whatsoever’.407

In one case the court stated that: ‘there is a starting presumption that neither party intends to abandon any remedies for breach arising by operation of law and clear language must be used if this presumption is to be rebutted’408.

Where an agreement stated that one party was not ‘for any reason to withhold payment of any amount properly due to’

the other party, that wording was not regarded as sufficiently clear to prevent set-off – there was a lack of clarity in the reference to amounts ‘properly due’.409 2.179 Other examples include: •

‘Deduction’ has not been regarded as a ‘clear’ word;410

(2005) SLT 691 and see 4.370.

403

CMA, Guidance on the unfair terms provisions in the CRA, CMA37, 31 July 2015.

404

ibid 5.25.3.

405

Hong Kong and Shanghai Banking Corpn v Kloeckner [1990] 2 QB 514; Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689; Electricity Supply Nominees v IAF Group plc [1993] 3 All ER 372 at 375; Coca Cola Financial Corpn v Finsat International Ltd [1996] CLC 1564.

406

Hong Kong and Shanghai Banking Corpn v Kloeckner [1990] 2 QB 514. And see also Coca Cola Financial Corpn v Finsat International Ltd [1998] QB 43: ‘free and clear of any right of set-off or counterclaim or any witholding or deduction whatsoever’; John Dee Group Ltd v WMH (21) Ltd [1997] BCC 518: ‘without any deduction (except as may be required by law) and without any set-off or abatement on any occasion whatsoever’.

407

Connaught Restaurants Ltd v Indoor Leisure Ltd [1994] 4 All ER 834 at 838; Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1973] 3 All ER 195 at 215, 220.

408

Esso Petroleum Co Ltd v Milton [1997] 2 All ER 593.

409

Connaught Restaurants Ltd v Indoor Leisure Ltd [1994] 4 All ER 834 at 842.

410

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• ‘the expression “without any deduction” is insufficient by itself, in the absence of any context suggesting the contrary, to operate by implication as an exclusion of the lessee’s equitable right of set-off’;411 • A  clause stating ‘To pay the Rent, the Concessionary Rent and the Additional Rent on the due date without any deduction or set-off whatsoever’ was sufficient to exclude the right of set-off, and wide enough to ‘embrace the damages claim which the plaintiff makes …there is not right to set off those claims against the unpaid licence fees [the plaintiff had to pay the defendant]’;412 •

The specifying of limited deductions may preclude a more general right of set-off;413

• A  clause stating that payment was to be ‘absolute and unconditional’ and was not to be affected by a list of factors or ‘by any other matter whatsoever’, was not held to preclude set-off because of the ‘overall context of the agreement’ and the ‘striking fact that none of the specified factors was premised on any breach’;414 •

A court disagreed with an argument by a party that an anti-set-off clause referred only to legal set-off and did not prevent equitable set-off with the court stating ‘no way in which that could be correct when the words used [were] “without any set-off whatsoever”’;415

•

A court has held that the obligation to pay rent by direct debit precluded a set-off;416

• An obligation on a party to ‘irrevocably undertake[…] to pay each instalment … in cash by way of electronic transfer of immediately available funds’ was not sufficient to exclude the right of set-off417 as the right to set-off ‘can only be excluded by clear language. Even a promise to pay “without any deduction” has been held insufficiently clear to effect this

ibid. But see Famous Army Stores v Mechan [1993] 1 EGLR 73; Marubent Corpn v Sea Containers Ltd (unreported, 17 May 1995).

411

Star Rider Ltd v Inntrepreneur Pub Co [1998] 1 EGLR 53 at page 55. A similarly worded phrase was held sufficient to exclude the right to set-off in Altonwood Ltd v Crystal Palace F.C. (2000) Ltd [2005] EWHC 292 (Ch), [32] but without the word ‘whatsoever’ and the court holding ‘In my judgment the formula used in the present case in respect of payment both of Basic Rent and Turnover Rent, “without any deduction or set-off”, omitting the word “whatsoever”, is likewise clear and sufficient (if less emphatic) to exclude any right of deduction or set-off’.

412

Nile Co the Export of Agricultural Crops v H & MJ Bennett (Commodities) Ltd [1986] 1 Ll LR 555; Mottram Consultants Ltd v Bernard Sunley & Sons Ltd [1975] 2 Ll Rep 197.

413

BOC Group plc v Centeon [1999] CLC 497 at 504; applied in Lotus Cars Ltd v Marcassus Sport S.A.R.L [2019] EWHC 3128 (Comm), [35]-[37].

414

Fast Frame Franchises v Lohinski (unreported, 3 March 1993).

415

Courage Ltd v Crehan Byrne [1999] 2 EGR 145; Inntrepreneur Pub Co Ltd v Salisbury (unreported, 25 February 2000) QBD.

416

Albion Energy Ltd v Energy Investments Global Ltd [2020] EWHC 301 (Comm), [53].

417

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exclusion… The language of [the relevant clause] does not come close to achieving this effect’; • But an obligation to make a payment ‘in full without deduction withholding or qualification’ was sufficient to exclude the right to set-off in the circumstances of the case.418 2.180 Concerning the precise wording it is necessary to use, what is required is that the exclusion of the remedy of set-off should be clear, and it is necessary to use clear and unambiguous language419 and that ‘no more is required than that’420. However, it is necessary to clearly state the intention is to qualify the payment obligation in a contract (whether directly or by interpretation): ‘… Whether the set-off would operate as a substantive defence or as a remedy, what matters in each case is whether there has been clearly expressed an intention that the payment is to be made without reference to the claim which would otherwise be set off. Where the language used does not mention set-off, it may be difficult for a party to satisfy the requirement of clarity if the clause relied on does not in terms qualify the payment obligation. Conversely where the provision does expressly qualify the payment obligation, it may readily be construed as sufficiently clear to be effective (as in Coca-Cola Financial Corp v Finsat International Ltd [1996] 2 BCLC 626, [1998] QB 43, WRM Group Ltd v Wood and the Röhlig (UK) case). But there is no principle of construction that a no set-off clause cannot be effective unless it is expressed in terms to qualify the payment obligation.’421

2.181 The use of the phrase ‘set-off’ is not necessary – however beside the use of clear and unambiguous words what is necessary is to interpret the clause in which the relevant words appears so that: ‘It is nonetheless clear that the issue is ultimately a question of interpretation of the specific clause in the context of the contract in question. Whilst the failure to refer expressly to rights of set-off being excluded may be highly pertinent, the intention of the parties to exclude such rights may be sufficiently clear from the use of other words.’422

Lotus Cars Ltd v Marcassus Sport S.A.R.L  [2019]  EWHC  3128 (Comm), [38]-[40]; applying BOC Group plc v Centeon [1999] CLC 497 (see particularly [37] in the Lotus Cars Ltd judgement).

418

FG Wilson (Engineering) Ltd v John Holt & Co (Liverpool) Ltd [2012] EWHC 2477 (Comm), [83].

419

WRM Group Ltd v Wood [1998] CLC 189 per Morritt LJ at 192, FG Wilson (Engineering) Ltd v John Holt & Co (Liverpool) Ltd [2012] EWHC 2477 (Comm), [83].

420

FG  Wilson (Engineering) Ltd v John Holt & Co (Liverpool) Ltd [2012]  EWHC  2477 (Comm), [85]. The judgement on other matters was overturned by the Court of Appeal (Caterpillar (NI) Ltd (formerly FG Wilson (Engineering) Ltd) v John Holt & Co (Liverpool) Ltd [2013] EWCA Civ 1232, [36]) but not on this point, but in the minority opinion, Longmore LJ found that in the sentence ‘Buyer shall not apply any set-off to the price of Seller’s products without prior written agreement by the Seller’ that ‘it is difficult to think of clearer words than that a party ‘shall not apply any set-off’’.

421

Lotus Cars Ltd v Marcassus Sport S.A.R.L [2019] EWHC 3128 (Comm), [31] and the court also cited the following passage from Marubeni Corp v Sea Containers Ltd [1995] Lexis Citation 2445: ‘“First, in the same way as the words “deduction or withholding” are not terms of art which will always include “set-off”, they are equally not terms of art which limit their meaning to only covering taxes, levies or duties. Second, the fact that clear words are necessary does not mean that the word “set-off” must be used. The words can be clear from their context. Third, what is said in one contract between other parties in one context, cannot really assist in the construction of another contract between different parties in a quite different context.’

422

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Accordingly the words ‘set-off’ do not have to appear if the words used and the intention of the parties are clear. 2.182 The cases considered above concerned whether to limit or exclude a right of set-off, but it is possible for the wording of a clause to extend the right of set-off. In Geldof Metaalconstructie NV  v Simon Carves Ltd423 the following clause came in for consideration: ‘Purchaser, without waiver or limitation of any rights or remedies of Purchaser or Owner, shall be entitled, shall be entitled from time to time to set off against the Purchase Order Price any amounts lawfully due from the Supplier to the Purchaser whether under this Purchase Order or otherwise’

and the Court of Appeal held that the phrase ‘whether under this Purchase Order or otherwise’ points to a wide extension to the right of set-off being intended and ‘[i]t should not therefore be read in a niggardly fashion’.424 2.183 The Canada Steamship rules425 for interpreting exemption clauses which are claimed to cover negligence do not apply to anti-set-off clauses.426 In addition, anti-set-off clauses have been seen as capable of covering the situation in which a claim is made on the basis of fraudulent misrepresentation.427 In one case, fraud may have clearly been in the minds of the parties when the agreement was made, because there was little other scope for liability.428 2.184 But, more generally, the limited nature of the restriction created by an anti-set-off clause has been emphasised.429 In noting the limited effects

[2010] EWCA Civ 667.

423

Geldof Metaalconstructie NV v Simon Carves Ltd [2010] EWCA Civ 667, [50].

424

See 2.86.

425

Continental Illinois National Bank v Papanicolou, The Fedora [1986] 2 Ll Rep 441 at 444; Skipskredittforeningen v Emperor Navigation SA [1997] CLC 1151.

426

WRM  Group Ltd v Wood [1998]  CLC  189; Society of Lloyd’s v Leighs [1997]  CLC  1398; Skipskredittforeningen v Emperor Navigation SA [1997] CLC 1151 per Mance J at 1165: ‘If a set-off clause were treated as analogous to an attempted exclusion of liability for fraud, there would be a case for treating fraud as outside the scope of clause 12.01. As a matter of public policy it is generally impermissible to exclude liability for personal fraud … To my mind, however, a clause preventing the setting off of fraud claims cannot be equated with an exclusion of liability for fraud …’

427

Society of Lloyd’s v Leighs [1997] CLC 1398.

428

ibid at 1407; Skipskredittforeningen v Emperor Navigation SA [1997] CLC 1151 at 1165. Mance J also made a point as to the ‘practical reality’ of the situation. He said at 1165: ‘The practical reality is that the parties cannot be taken to have envisaged it as likely that there would be a call to invoke clause 12.01 in relation to fraud, save perhaps in the most rare situations, and would have envisaged that in such situations fraud would have been strongly in issue. In those circumstances, I  see no reason why businessmen should not agree to a clause preventing set-off in terms wide enough to cover fraud on the basis that, in the event that allegations of fraud by the lender were ever made, they would be highly contentious and would require to be sorted out separately in a manner which did not impinge on the performance of the loan in the meantime’.

429

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of such a clause, the point has been made that it ‘is one which defines the payment obligation but does not exclude it’.430 2.185 However, anti-set-off clauses nevertheless fall within the ambit of UCTA431 or section 3 of the Misrepresentation Act 1967432 and, in appropriate cases, will be subject to the requirement of reasonableness.433 In the consumer context, it will also be necessary to consider CRA, Part 2.

Wilful misconduct,434 default, neglect 2.186 On occasion, liability is excluded or restricted except in those cases where there is •

wilful misconduct;435

• default;436 or • neglect.437

WRM  Group Ltd v Wood [1998]  CLC  189 per Morritt LJ at 192; Coca-Cola Financial Corpn v Finsat International Ltd [1996] CLC 1564.

430

Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] 2 All ER 257; Schenkers Ltd v Overland Shoes Ltd [1998] 1 Ll Rep 498. The clause in Electricity Supply Nominees Ltd v IAF Group plc [1993] 3 All ER 372 fell within the exclusions from the Unfair Contract Terms Act 1977 in Sch 1 – see p 94.

431

WRM  Group Ltd v Wood [1998]  CLC  189; Skipskredittforeningen v Emperor Navigation [1997] CLC 1151.

432

See para 3.206.

433

Misconduct can be found by ‘an enquiry about the conduct ordinarily to be expected in the particular circumstances. The next step is then to ask whether the acts or omissions of the defendant were so far outside the range of such conduct as to be properly regarded as “misconduct”. (An important circumstance would be a deliberate disregard of express instructions clearly given and understood)’; Thomas Cook Group Ltd v Air Malta Co Ltd [1997] 2 Ll Rep 399 per Cresswell J at 407. See also Lacey’s Footwear Ltd v Bowler International Freight Ltd [1997] 2 Ll Rep 369 per Beldam LJ at 374. In Texas Instruments Ltd v Nason (Europe) Ltd [1991] 1 Ll Rep 146 Tudor Evans J at 153 did not find it necessary to determine whether the fact that someone was ‘in effect, acting under orders which he felt compelled to obey, prevent[ed] his act from amounting to’ misconduct.

434

For example ‘Owner’s risk’ note: Forder v Great Western Rly Co [1905] 2  KB  532. Warsaw Convention as enacted in Carriage by Air Act 1932 (until replaced by the Carriage by Air Act 1961, enacting the Hague Protocol of 1955): Horabin v British Overseas Airways Corpn [1952] 2 Ll Rep 450; Unamended Warsaw Convention, Carriage by Air Acts (Applications of Provisions) Order 1967: Thomas Cook Group Ltd v Air Malta Co Ltd [1997] 2 Ll Rep 399. CMR Convention (Convention on the International Carriage of Goods by Road), Carriage of Goods by Road Act 1965: Texas Instruments Ltd v Nason (Europe) Ltd [1991] 1 Ll Rep 146; Sidney G Jones Ltd v Bencher Ltd [1986] 2 Ll Rep 54; Lacey’s Footwear Ltd v Bowler International Freight Ltd [1997] 2 Ll Rep 369.

435

For example ‘wilful neglect or default’: Re City and Equitable Fire Insurance Co Ltd [1925] Ch 407: articles of association.

436

For example Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Ll Rep 426 – standard trading conditions of the Institute of Freight Forwarders.

437

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The meaning of ‘wilful’ has attracted considerable discussion by the courts, Únd a definition that was put forward in Forder v Great Western Rly Co in relation to wilful misconduct was that:438 ‘Wilful misconduct in such a special condition means misconduct to which the will is party as contradistinguished from accident, and is far beyond any negligence, even gross or culpable negligence, and involves that a person wilfully misconducts himself who knows and appreciates that it is wrong conduct on his part in the existing circumstances to do, or to fail or omit to do (as the case may be), a particular thing and yet intentionally does or fails or omits to do it, or persists in the act failure or omission, regardless of the consequences or acts with reckless carelessness, not caring what the results of his carelessness may be’. and more recently: “for wilful misconduct to be proved there must be either (1) an intention to do something which the actor knows to be wrong or (2) a reckless act in the sense that the actor is aware that loss may result from his act and yet does not care whether loss will result or not or … ‘he took a risk which he knew he ought not to take’…”’.439

2.187 In the context of ‘wilful misconduct’, ‘wilful’ basically covers knowledge or recklessness that the conduct is wrongful. In other words, when wilfulness is required, it will be satisfied by appropriate knowledge or recklessness and that state of mind must relate •

not merely to the relevant act or omission; but also

•

to its nature.

For example, where what is required is ‘wilful misconduct’: ‘the will must be a party to the misconduct, and not merely a party to the conduct of which the complaint is made’440.

[1905] 2 KB 532 at 535–536. With the addition of the final reference to ‘reckless carelessness’, Lord Alverstone adopted the definition of Johnson J in Graham v Belfast and Northern Counties Rly Co [1901] 2 IR 13. And see Rolls Royce plc v Heavylift-Volga DNEPR Ltd [2000] 1 Lloyd’s Rep 653; Alena Ltd v Harlequin Transport [2002] EWHC 2461 (Comm), [2002] All ER (D) 278 (Nov) at [27]. This definition is the one more usually adopted, see Bastable v North British Rly Co 1912 SC 555, Lacey’s Footwear Ltd v Bowler International Freight Ltd [1997] 2 Ll Rep 369 per Beldam LJ at 374. Also see for example Thomas Cook Group Ltd v Air Malta Co Ltd [1997] 2 Ll Rep 399 per Cresswell J at 406; Sidney G Jones Ltd v Bencher Ltd [1986] 1 Ll Rep 55 at 59; Texas Instruments v Nason (Europe) Ltd [1991] 1 Lloyd’s Rep 146 at 153.

438

National Semiconductors (UK) Ltd v UPS Ltd [1996] 2 Lloyd’s Rep 212 at 214; TNT Global SpA v Denfleet International Ltd [2007] EWCA Civ 405, [2008] 1 All ER (Comm) 97; Alpstream AG and others v PK Airfinance Sarl and another [2013] EWHC 2370 (Comm).

439

Horabin v British Overseas Airways Corpn [1952] 2 Ll Rep 450 at 459: ‘If the pilot of an aircraft knowingly does something which subsequently a jury find amounted to misconduct, those facts alone do not show that he was guilty of wilful misconduct. To establish wilful misconduct on the part of this imaginary pilot, it must be shown not only that he knowingly (and in that sense wilfully) did the wrongful act, but also that when he did the wrongful act – that is to say, that he was aware that he was committing misconduct’. See also Boardman v Portman (unreported, 26 July 2000).

440

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2.188 This was explained by Romer J in Re City and Equitable Fire Insurance Co Ltd441 in a dictum which may be regarded as the ‘locus classicus on the point’.442 He said:443 ‘An act, or an omission to do an act, is wilful where the person of whom we are speaking knows what he is doing and intends to do what he is doing. But if that act or omission amounts to a breach of his duty, and therefore to negligence, is the person guilty of wilful negligence? In my opinion that question must be answered in the negative unless he knows that he is committing, and intends to commit, a breach of his duty, or is recklessly careless in the sense of not caring whether his act or omission is or is not a breach of duty’.

2.189 Knowledge that an act or omission is wrongful in the relevant sense clearly suffices for that act or omission to be wilful,444 but, in the words from Forder v Great Western Rly C,445 the scope of ‘wilfulness’ also extends to ‘reckless carelessness’. However, despite the references to carelessness, it would seem that this can only encompass subjective recklessness – the conscious taking of an unreasonable risk. It has been said that: ‘a person could be said to act with reckless carelessness towards goods in his care if, aware of a risk that they may be lost or damaged, he nevertheless deliberately goes ahead and takes the risk, when it is unreasonable for him to do so’.446

2.190 Were the reference to ‘reckless carelessness’ also to encompass what might more commonly be regarded as ‘carelessness’, and extend to objective recklessness – where the reasonable person would realise the risk but the party in question did not – it would extend to mere negligence and it is clear that wilfulness is to be regarded as distinct from negligence.447 2.191 Wilful misconduct ‘is far beyond negligence’:448

[1925] Ch 407; Kenyon Son and Craven Ltd v Baxter Hoare & Co Ltd [1971] 1 Ll Rep 232 per Donaldson J at 236; Thomas Cook Group Ltd v Air Malta Co Ltd [1997] 2 Ll Rep 399 at 406.

441

Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Ll Rep 427 per Taylor LJ at 434.

442

Re City and Equitable Fire Insurance Co Ltd [1925] Ch 407 at 434.

443

See also Ronson International v Patrick [2005] 2 All ER (Comm) 453 at [24]: ‘what is damage arising from a wilful act is damage deliberately caused, consciously intended’.

444

Forder v Great Western Rly Co [1905] 2 KB 532 at 535-536, above 72.

445

Lacey’s Footwear Ltd v Bowler International Freight Ltd [1997] 2 Ll Rep 369 per Beldam LJ at 374.

446

It requires more than ‘complete indifference’. In National Semiconductors (UK) Ltd v UPS Ltd [1996] 2 Lloyd’s Rep 212 Longmore J said at 212: ‘At one stage of his argument [counsel] suggested that a complete indifference to his load on the part of [the driver] would be enough to constitute wilful misconduct. I do not accept that that itself is enough, because it lacks the mental element inherent in the phrase, ‘he took a risk which he knew he ought not to take’.

447

Thomas Cook Group Ltd v Air Malta Co Ltd [1997] 2 Ll Rep 399 per Cresswell J at 407.

448

128

Chapter 2 Construction ‘[It] is misconduct to which the will is a party, and it is something which is wholly different in kind from mere negligence or carelessness, however gross that negligence or carelessness may be’.449

When a lorry driver disregarded EEC regulations governing the length of time which he could drive without a break, fell asleep at the wheel, crashed and damaged his load, his conduct was held to ‘fall squarely within’ ‘wilful misconduct’ on the basis that:450 ‘the driver was well aware of the regulations. He was well aware of the purpose of the regulations. He chose to ignore them and he did so deliberately. He knew that, by ignoring them, he exposed the load that he was carrying, the vehicle that he was driving, himself and other road users to a greater risk than if he had complied with the regulations’.

2.192 Other examples include: • a carrier, knowing of the high risk of theft in the area, left a trailer unattended in a car park in east London; held there was ‘wilful misconduct’;451 • a driver left a van unlocked and the keys in the ignition and he was ‘fully conscious not only that he was leaving the vehicle unsecured but that in doing so he was acting in breach of his instructions and in such circumstances as to expose the goods to risk of theft’.452 It did not matter that he was ‘hoping for the best’;453 held there was ‘wilful misconduct’; •

a driver left a lorry in an area ‘where he never thought there was a risk’. In that case, there was no ‘conscious taking of a risk’; held there was no ‘wilful misconduct’.454

Gross negligence 2.193 Whereas the difference between fraud and negligence is seen as ‘a difference in kind’, the difference between negligence and gross negligence

Horabin v British Overseas Airways Corpn [1952] 2 Ll Rep 450 at 459; Thomas Cook v Air Malta Co Ltd [1997] 2 Ll Rep 399 per Cresswell J at 404. See also Rustenberg Platinum Mines Ltd v South African Airways [1977] 1 Ll Rep 564 per Ackner J  at 569: ‘It is common ground that “wilful misconduct” is far beyond negligence even gross or culpable negligence, and involves a person doing or omitting to do that which is not only negligent but which he knows and appreciates is wrong, and is done or omitted regardless of the consequences, not caring what the result of his carelessness may be’. National Semiconductors (UK) Ltd v UPS  Ltd [1996] 2 Lloyd’s Rep 212 per Longmore J at 212.

449

Sidney G Jones Ltd v Bencher Ltd [1986] 1 Ll Rep 54 per Popplewell J at 60.

450

Texas Instruments Ltd v Nason (Europe) Ltd [1991] 1 Ll Rep 146.

451

Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Ll Rep 427 per Taylor LJ at 434.

452

[1988] 2 Ll Rep 427 per Taylor LJ at 434.

453

National Semiconductors (UK) Ltd v UPS Ltd [1996] 2 Ll Rep 212 per Longmore J at 215.

454

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is ‘merely one of degree’.455 Also, gross negligence is seen as a difference for which ‘English lawyers have always had a healthy disrespect’456 and the existence of an intelligible distinction doubted.457 2.194 In fact, it is possible to see gross negligence as merely ‘ordinary negligence with a vituperative epithet’.458 However, there have been some attempts to provide explanations. In Red Sea Tankers Ltd v Papachristidis459 the following statements were made in connection with the meaning of ‘gross negligence’: ‘If the matter is viewed according to purely English principles of construction, … “Gross” negligence is clearly intended to represent something more fundamental than failure to exercise proper skill and/or care constituting negligence’460 and: ‘…as a matter of ordinary language and general impression, the concept of gross negligence seems to me capable of embracing not only conduct undertaken with actual appreciation of the risks involved, but also serious regard of or indifference to an obvious risk’.461

2.195 ‘Gross negligence’ does not require any subjective but an objective element of appreciation of risk: ‘[It] may include … conduct which a reasonable person would perceive to entail a high degree of risk of injury to others coupled with heedlessness or indifference to or disregard of the consequences. The heedless disregard or indifference need not be conscious’462

and having such factors as: ‘(a) the seriousness or otherwise of any injury which might arise, (b) the degree of likelihood of its arising and (c) the extent to which someone takes any care at all are all potentially material when considering whether particular conduct should be regarded as so aberrant as to attract the epithet of “gross” negligence’.463

Camarata Property Inc v Credit Suisse Securities (Europe) Ltd [2011] EWHC 479 (Comm), [161].

455

Armitage v Nurse [1997] 2 All ER 705 per Millett LJ at 713.

456

Hinton v Dibbin (1842) 2  QB  646, Lord Denman; Riyad Bank v Ahli United Bank [2005] EWHC 279 (Comm), [2005] 2 L1 Rep 409 at [181]; Sucden Financial Ltd v Fluxo-Cane Overseas Ltd [2010]  EWHC  2133 (Comm), [54] where the court stated that the adding of ‘gross’ to ‘negligence’ did not ‘add much if anything’ but the court did not carry out any analysis of the meaning of the terms or cite any cases.

457

Grill v General Iron Screw Colliery Co (1866) 35 LJCP 321 per Willes J at 330; Armitage v Nurse [1997] 2 All ER 705 per Millett LJ at 713.

458

[1997] 2 Ll Rep 547.

459

Red Sea Tankers Ltd v Papachristidis [1997] 2 Ll Rep 547 at 586.

460

ibid.

461

ibid at 587, [1997] Lexis Citation 1230; Shawnigan Ltd v Vokins & Co Ltd [1961] 3 All ER 396. But see Fraser v BN Furman (Productions) Ltd [1967] 2 Ll Rep 153.

462

Red Sea Tankers Ltd v Papachristidis [1997] 2 Ll Rep 547 at 588, [1997] Lexis Citation 1230; Shawnigan Ltd v Vokins & Co Ltd [1961] 3 All ER 396.

463

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2.196 Although there may be difficulty in distinguishing between negligence and gross negligence or providing a clear definition as to the latter’s meaning, if in an agreement where both appeared, the court will attempt to identify the meaning of gross negligence over negligence. In Camarata Property Inc v Credit Suisse Securities (Europe) Ltd464 the court held that where both negligence and ‘gross negligence’ appeared in the same clause, then the parties intended them to have different meanings and the meaning was one of degree and not kind. On how to recognise gross negligence, the court cited in support the first two quotes from the Red Seak Tankers Ltd case set out above. The court concluded that the claimant would have to show more than mere negligence on the part of the defendant.

Consequential loss 2.197 It is common to find clauses seeking to exclude liability for ‘consequential loss’, although: ‘It is clear that the word “consequential” can be used in various senses’

and ‘it may be difficult to be sure in some contexts what it does mean’.465

There is a clear line taken in some cases,466 that: ‘[the] word “consequential” does not cover any loss which directly and naturally results’

[2011] EWHC 479 (Comm), [161]–[162]. Applied in Winnetka Trading Corporation v Julius Baer International Ltd [2011] EWHC 2030 (Ch), [16] where the judge stated: ‘The meaning of that expression [gross negligence] is not entirely clear. However, since the Investment Mandate uses both the expressions “negligence” and, separately, “gross negligence”, I consider that the two cannot be intended to have the same meaning; and I think the language in the Banking Mandate should be construed consistently with the Investment Mandate. In that regard, I respectfully agree with the approach of Andrew Smith J in Camarata Property Inc v Credit Suisse Securities (Europe) Ltd [2011]  EWHC  479 (Comm) at 161’. See also CNM  Estates (Tolworth Tower) Ltd v VeCREF I SARL and others [2020] EWHC 1605 (Comm), [69].

464

Croudace Construction Ltd v Cawoods Concrete Products Ltd [1978] 2 Ll Rep 55 per Megaw LJ at 62; Transocean Drilling UK Ltd v Providence Resources plc; The GSF Arctic III [2016] EWCA Civ 372, [15]: ‘The expression ‘consequential loss’ has caused a certain amount of difficulty for English lawyers, mainly as a result of attempts to define its meaning in the interests of commercial certainty’.

465

Millar’s Machinery Co Ltd v Way & Son (1934) 40 Com Cas 204; Saint Line Ltd v Richardsons’ Westgarth & Co Ltd [1940] 2 KB 99; Croudace Construction Ltd v Cawoods Concrete Products Ltd [1978] 2 Ll Rep 55; British Sugar plc v Nei Power Projects Ltd (1997) 87 BLR 42; Deepak Fertilisers v ICI Chemical and Polymers Ltd [1999] 1 Lloyd’s Rep 387; Hotel Services v Hilton International Hotels [2000]  BLR  235; Civil and Marine Slag Cement Ltd v Cambrian Stone Ltd (unreported, 8  June 2000)  QBD (Technology and Construction Court); Watford Electronics v Sanderson [2001] 1 All ER (Comm) 696 per Chadwick LJ at [36]; Simkins Partnership v Reeves Lund & Co [2003] EWHC 1946.

466

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from the breach467 – consequential losses ‘are those which would be recoverable only under the second limb of Hadley v Baxendale’.468

2.198 The remoteness rule set out in Hadley v Baxendale which stated: ‘Where two parties have made a contract which one of them has broken the damages which the other party ought to receive in respect of such a breach of contract should be such as may fairly and reasonably be considered as either arising naturally, ie according to the usual course of things, from such breach of the contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach of it.’469

2.199 This has meant that an exclusion of ‘consequential loss’: •

did not prevent recovery of the costs of a workforce and plant kept idle through delay in the delivery of concrete blocks to a building site;470

• did not prevent the recovery of increased production costs and loss of profits due to breakdowns in the electrical equipment which the proferens had contracted to design, supply and deliver;471 • would cover damages flowing from ‘special circumstances’472 within the second limb of the test of remoteness in Hadley v Baxendale.473 2.200 However, this is not the type of meaning which would ordinarily be given to ‘consequential’ and its continued use after Investors must be questioned.474 In Caledonia North Sea v Norton (No 2)475 Lord Hoffmann in the House of Lords stated that he ‘wished to reserve the question’ of whether the above approach was correct.476 2.201 Within Investors, there is some scope for continued reference to previous precedents as to the interpretation of a particular phrase where the situation is such as to make such precedents part of the background reasonably

Croudace Construction Ltd v Cawoods Concrete Products Ltd [1978] 2 Ll Rep 55 per Megaw LJ at 62; Deepak Fertilisers v ICI Chemical and Polymers Ltd [1999] 1 Lloyd’s Rep 387.

467

BHP Petroleum Ltd v British Steel plc [1999] 2 All ER 544 (Comm) per Rix J.

468

(1854) 9 Ex 341 per Alderson B, at 355.

469

Croudace Construction Ltd v Cawoods Concrete Products Ltd [1978] 2 Ll Rep 55.

470

British Sugar plc v Nei Power Projects Ltd (1997) 87 BLR 42.

471

ibid; Croudace Construction Ltd v Cawoods Concrete Products Ltd [1978] 2 Ll Rep 55.

472

(1854) 9 Exch 341.

473

For a recent example of its unquestioned continued use, see Simkins Partnership v Reeves Lund & Co Ltd [2003] EWHC 1946.

474

[2002] UKHL 4, [2002] 1 All ER (Comm) 321; Transocean Drilling UK Ltd v Providence Resources plc; The GSF Arctic III [2016] EWCA Civ 372, [15]

475

ibid, [100].

476

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available to the parties477. But there may be some doubt that cases would be decided in the same way now: [66] … your Lordships have to revisit some important general issues. These are all aspects of how the rule in Hadley v Baxendale has been developed or modified by 150 years of case law. This topic was reviewed by Robert Goff J in Satef-Huttenes Albertus SpA v Paloma Tercera Shipping Co SA, The Pegase [1981] 1 Lloyd’s Rep 175 at 181–183. He observed (at 181): ‘although the principle stated in Hadley v. Baxendale remains the fons et origo of the modern law, the principle itself has been analysed and developed, and its application broadened, in the 20th century.’ After referring to the Victoria Laundry (Windsor) case and to The Heron II, Robert Goff J stated (at 182): ‘The general result of the two cases is that the principle in Hadley v. Baxendale is now no longer stated in terms of two rules, but rather in terms of a single principle—though it is recognized that the application of the principle may depend on the degree of relevant knowledge held by the defendant at the time of the contract in the particular case. This approach accords very much to what actually happens in practice; the courts have not been over-ready to pigeonhole the cases under one or other of the so-called rules in Hadley v. Baxendale, but rather to decide each case on the basis of the relevant knowledge of the defendant.’ [67] The recognition of the rule as a single principle accords with the reality that even under the first limb, the defendant often needs some particular knowledge (for instance Mr Baxendale’s firm had to know, as Lord Pearce pointed out in The Heron II [1967] 3 All ER 686 at 712, [1969] 1 AC 350 at 416, that the article accepted for carriage from Gloucester to Greenwich was a broken mill shaft). The degree of knowledge assumed under the first limb depends on the nature of the business relationship between the contracting parties. The different outcomes of Hadley v Baxendale and the Victoria Laundry (Windsor) case depended in part (though only in part) on the fact that the defendant in the latter case was an engineering company supplying a specialised boiler, and not merely a carrier of goods with which it had no particular familiarity. [68] Another consequence of the (at least partial) assimilation of the two limbs is to raise doubt as to whether the notion of assumption of responsibility (as a precondition for liability for a larger measure of damages) is necessarily confined to second limb cases. [69] … But the underlying idea—what was the common basis on which the parties were contracting?—seems to me essential to the rule in Hadley v Baxendale as a whole. Businessmen who are entering into a commercial contract generally know a fair amount about each other’s business. They have a shared understanding (differing in precision from case to case) as to what each can expect from the contract, whether or not it is duly performed without breach on either side. No doubt they usually expect the contract to be performed without breach, but they

See, eg, MDIS v Swinbank [1999] 2 All ER (Comm) 722 at 728; Eridiana SpA v Oetker [2000] 2 All ER (Comm) 108 at [15]; Mostcash plc v Fluor (No 3) [2002] EWCA 975, [2002] BLR 411 at [61]. Despite the views of Lord Hoffmann in BCCI  v Ali [2001] 1  All ER  961 [51]: ‘If interpretation is the quest to discover what a reasonable man would have understood specific parties to have meant by the use of specific language in a specific situation at a specific time and place, how can that be affected by authority?’.

477

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Chapter 2 Construction are conscious of the possibility of breach. These points are repeatedly made in the authorities…’.478

2.202 In effect, it is necessary to look at the words used in the context of the contract and its factual background: ‘It is questionable whether some of those cases would be decided in the same way today, when courts are more willing to recognise that words take their meaning from their particular context and that the same word or phrase may mean different things in different documents.’479

For example, in Star Polaris LLC v HHIC-Phil Inc480 the court was required to consider provisions from a ship building contract including the following: ‘4. Extent of BUILDER’s Liability. (a) After delivery of the VESSEL the responsibility of the BUILDER in respect of or in connection with the VESSEL or this CONTRACT shall be limited to the extent expressly provided in the para 4 of this Article. Except as expressly provided in this Paragraph, in no circumstances and on no ground whatsoever shall the BUILDER have any responsibility or liability whatsoever or howsoever arising in respect of or in connection with the VESSEL or this CONTRACT after the delivery of the VESSEL. Further, but without in any way limiting the generality of the foregoing, the BUILDER shall have no liability or responsibility whatsoever or howsoever arising for or in connection with any consequential or special losses, damages or expenses unless otherwise stated herein. Any liability to any third party or any fine, compensation, penalty or other payment or sanction incurred by or imposed upon the Buyer or any other party whatsoever in relation to or in connection with this CONTRACT or the VESSEL until the delivery and acceptance of the VESSEL shall be burdened with the BUILDER.’

2.203 The court held that although ordinarily ‘consequential loss’ would fall within the second limb of Hadley v Baxendale. However, based on the wording of the particular agreement (and because of the other provisions setting out the responsibility of the ship builder had to the buyer and the positive obligations of the ship builder) that the quoted clause above indicated: ‘…there is no liability above and beyond the express obligations undertaken by the Yard and, in particular, without prejudice to that, financial losses consequent upon physical damage are not covered by the guarantee…’481

so that the judge found that: ‘“consequential or special losses, damages or expenses” does not mean such losses, damages or expenses as fall within the second limb of Hadley v Baxendale but does have the wider meaning of financial losses caused by guaranteed defects, above and beyond the cost of replacement and repair of physical damage.’482

Transfield Shipping Inc of Panama v Mercator Shipping Inc of Monrovia, The Achilleas [2008] UKHL 48, [66] to [69].

478

Transocean Drilling UK Ltd v Providence Resources plc; The GSF Arctic III [2016] EWCA Civ 372, [15].

479

[2016] EWHC 2941 (Comm).

480

Star Polaris LLC v HHIC-Phil Inc [2016] EWHC 2941 (Comm), [38].

481

ibid [39].

482

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2.204 However, although the courts may be able to move away from the stricter categorisation of types of excluded loss, which have to fit into the two limbs of Hadley v Baxendale,483 it appears that the courts will still require ‘clear and unambiguous language’ if a party wishes to ‘protect themselves from liability otherwise recoverable by law for breach of contract’. In Ferryways NV v Associated Briish Ports484 the following clause came in for consideration: ‘9 Exclusion and Limitations of Lability… Where the Company is in breach of its obligations in respect of the Services … it shall have no liability to the Customer in contract, tort, negligence, breach of statutory duty or otherwise for any loss, damage, costs or expenses of any nature whatsoever incurred or suffered by the Customer which is of an indirect or consequential nature including without limitation the following (i) loss or deferment of profit; … (iv) loss of business;’

2.205 The judge was unable to depart from the settled meaning that words like ‘loss of profit’ would fall within the first limb of Hadley v Baxendale and do not fall within the second. The words ‘including without limitation the following’ where not enough to bring ‘loss or deferment of profit’ within the category of ‘indirect or consequential’ losses: ‘The important question therefore is whether the words in cl 9 ‘including without limitation the following’ indicate clearly that the parties were giving their own definition of indirect or consequential losses so as to include the specified losses even if they are the direct and natural result of the breach in question. In my judgment those words do not provide the sort of clear indication which is necessary for the defendant’s argument. The parties are merely identifying the type of losses (without limitation) which can fall within the exemption clause so long as the losses meet the prior requirement that they be ‘of an indirect or consequential nature’. Had the parties intended that liability for losses which were the direct and natural result of the breach could be excluded they would have hardly have described such losses as ‘indirect or consequential’.485

With clear drafting it is possible for the traditional approach of categorisation to be discarded. For example, in Transocean Drilling UK  Ltd v Providence Resources plc; The GSF  Arctic III486 the Court of Appeal, in effect, simply discarded consideration of cases such as Millar’s Machinery Co Ltd v Way & Son and Croudace Construction Ltd v Cawoods Concrete Products Ltd, as well the need to decide whether the wording used by the parties in this case fell within one

Such as Millar’s Machinery Co Ltd v Way & Son and Croudace Construction Ltd v Cawoods Concrete Products Ltd.

483

[2008] EWHC 225 (Comm).

484

Ferryways NV v Associated Briish Ports [2008] EWHC 225 (Comm), [84].

485

[2016] EWCA Civ 372.

486

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or other of the limbs in Hadley v Baxendale. Rather the court focussed on the words used by the parties.487 2.206 The court noted that the parties had prepared an agreement which: ‘contained a detailed and sophisticated scheme for apportioning responsibility for loss and damage of all kinds, backed by insurance. Sometimes called ‘knock for knock’ provisions, the scheme as a whole provides an important part of the context in which [the clause dealing with consequential loss] is to be construed.’488

2.207 With the provision concerning consequential loss containing a definition as to the meaning of consequential loss: ‘20. CONSEQUENTIAL LOSS For the purposes of this Clause 20 the expression “Consequential Loss” shall mean: (i) any indirect or consequential loss or damages under English law, and/or (ii) to the extent not covered by (i) above, loss or deferment of production, loss of product, loss of use (including, without limitation, loss of use or the cost of use of property, equipment, materials and services including without limitation, those provided by contractors or subcontractors of every tier or by third parties), loss of business and business interruption, loss of revenue (which for the avoidance of doubt shall not include payments due to CONTRACTOR by way of remuneration under this CONTRACT), loss of profit or anticipated profit, loss and/or deferral of drilling rights and/or loss, restriction or forfeiture of licence, concession or field interests’.489

2.208 The case concerned the claimant hiring a drilling rig to the defendant to drill an appraisal well. Their contract was apparently based on a standard form precedent. The operation of the drill rig was stopped for a period because of a misalignment of a part (before being resumed). The defendant claimed for so-called ‘spread costs’ (essentially ‘the wasted cost of third party equipment and services which had been supplied and paid for’) and whether they came within the meaning of consequential loss (particularly the passage emphasised). Although expressed in this way by the judge such losses and other items in the second part of the definition of consequential loss as coming within the first limb of Hadley v Baxendale. However, the Court of Appeal held that the

[2016] EWCA Civ 372, [14] stating that ‘More recently the principle that the court should give the language used by the parties the meaning which it would be given by a reasonable person in their position furnished with the knowledge of the background to the transaction common to them both has received support from a series of decisions of the highest authority, from Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2010] 1 All ER (Comm) 365, [2009] AC 1101 to Arnold v Britton [2015] UKSC 36, [2016] 1 All ER 1, [2015] AC 1619. Most recently the Supreme Court in Arnold v Britton has re-emphasised that particular importance must be given to the language chosen by the parties to express their intentions: see Lord Neuberger P at paras [15]–[20]. For that reason, the starting point in construing [the clause dealing with consequence loss] must be the language of the clause itself.’

487

Transocean Drilling UK Ltd v Providence Resources plc; The GSF Arctic III [2016] EWCA Civ 372, [9].

488

ibid [14], emphasis added. The remainder of the clause included wording where each party provided an indemnity to the other which the indicated that although the wording was ‘couched in the form of an indemnity, it was common ground that its effect was excluded liability for losses of that kind’, at [8].

489

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spread costs were covered by the wording in the definition of consequential loss and the words emphasised covered that kind of loss: ‘‘Loss of use’ naturally refers to the loss of the ability to make use of some kind of property or equipment owned or under the control of the contractor or the company, as the case may be, but in this case the parties have made it clear by the words in brackets that follow that its scope is intended to be wider than that. For example, it extends to the loss of use or cost of use of property, equipment and materials and to the loss of use or cost of use of services provided by contractors, sub-contractors and third parties. Moreover, it must be borne in mind that this forms part of the definition of losses which flow from (in this case) the contractor’s breach of contract, but are not the immediate consequence of it. The basis of Providence’s claim to recover spread costs is that they represent the cost of goods and services that were obtained and paid for but were wasted as a result of the delay caused by Transocean’s breach of contract. There has to be loss of some kind to engage cl 20 at all and the words ‘loss of use or the cost of use of property, equipment, materials and services … provided by contractors or subcontractors of every tier or by third parties’ are plainly apt on the face of them to cover costs of that kind. Moreover, it is interesting to note the lengths to which the parties have gone to emphasise the width of the clause: twice within the same passage in brackets they have used the expression ‘without limitation’ to make the point.’490

2.209 For the court the wording of the consequential loss was clear and excluded liability for the wasted costs in the form of the spread costs as: ‘I  can see no reason in principle why commercial parties should not be free to embark on a venture of this kind on the basis of an agreement that losses arising in the course of the work will be borne in a certain way and that neither should be liable to the other for consequential losses, however they choose to define them. ‘491

2.210 There was a different result in the latter case of 2 Entertain Video Ltd and other companies v Sony DADC Europe Ltd492 where the court considered the following clause: ‘Neither party shall be liable under this Agreement in connection with the supply of or failure to supply the Logistics Services for any indirect or consequential loss or damage including (to the extent only that such are indirect or consequential loss or damage only) but not limited to loss of profits, loss of sales, loss of revenue, damage to reputation, loss or waste of management or staff time or interruption of business.’

2.211 The case concerned the storage of DVDs and other related media of the claimant at the defendant’s warehouse. The warehouse was attacked during a riot and was totally destroyed by fire started by the attackers. The claimant wished to recover for loss of profits, business interruption costs and increased costs of working because of the fire. The starting point for the interpretation of the clause was the same as in Transocean Drilling UK Ltd v Providence Resources plc; The GSF Arctic III to consider ‘the natural and ordinary

Transocean Drilling UK Ltd v Providence Resources plc; The GSF Arctic III [2016] EWCA Civ 372, [17].

490

ibid [35].

491

[2020] EWHC 972 (TCC).

492

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meaning of the clause’493 and the wording of the first part of the clause (up to the word ‘damage’) is for indirect and consequential loss but the claim for loss of profit was not covered by the word used: ‘The effect of the words in parentheses is to negate the illustration intended by the words of inclusion. The only way in which these words can be given effect is to treat the reference to “loss of profits …” and following categories of loss as losses that might or might not fall within the exclusion. As such, they are of no assistance in determining whether the losses claimed in this case fall within or without the exclusion.’494

2.212 And that the words from ‘including’ where not happily drafted which where: ‘intended to provide an indication of the categories of loss excluded is particularly unhelpful …. The effect of the words in parentheses is to negate the illustration intended by the words of inclusion. The only way in which these words can be given effect is to treat the reference to “loss of profits …” and following categories of loss as losses that might or might not fall within the exclusion. As such, they are of no assistance in determining whether the losses claimed in this case fall within or without the exclusion.’

2.213 After reviewing the existing case law, the judge found that: ‘my initial finding based on the plain and natural meaning of the words used in the clause, namely, that the loss of profits and business interruption costs in this case do not constitute indirect or consequential loss or damage within the meaning of clause 10.3 of the Logistics Contract’.495

2.214 Although the judge was referred to Caledonia North Sea v Norton (No 2), Star Polaris LLC v HHIC-Phil Inc and Transocean Drilling UK Ltd v Providence Resources plc; The GSF Arctic III she was able to distinguish them as: •

there was no attempt to define the extent of the defendant’s liability for all breaches of contact (as in Star Polaris LLC v HHIC-Phil Inc); and

•

there was no definition of indirect or consequential loss which would indicate a wider meaning for such terms than under the second limb of Hadley v Baxendale (as in Transocean Drilling UK Ltd v Providence Resources plc).

In other words, the judge was still using the traditional categorisation into two limbs of Hadley v Baxendale, with loss of profits falling within the first and indirect and consequential falling into the second as although the clause in question was ‘unhappily worded’: ‘…its meaning is reasonably clear on these facts. The loss of profits and business interruption costs claimed in this case do not constitute indirect or consequential loss or damage within the meaning of clause 10.3 of the Logistics Contract.’

2 Entertain Video Ltd and other companies v Sony DADC Europe Ltd [2020] EWHC 972 (TCC), [222], citing Arnold v Britton [2015] UKSC 36, [15] to [23] and Wood v Capita Insurance Services Ltd [2017] UKSC 24, [8] to 15].

493

2 Entertain Video Ltd and other companies v Sony DADC Europe Ltd [2020] EWHC 972 (TCC), [222].

494

ibid, [232].

495

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Scope of the Act 3.1 Introduction3.1 Proposals3.6 Unfair Contracts Terms Bill 3.6 Changes to UCTA following the passing into law of the Consumer Rights Act 2015 3.9 Business liability 3.10 Section 1(3) 3.10 ‘Business’3.11 ‘In the course of a business’ 3.15 Occupation of premises for business purposes 3.20 Excluded contracts or terms 3.23 UCTA, Schedule 1 3.23 International supply contracts 3.37 Choice of law 3.44 Saving for other legislation 3.47 UCTA, section 13 – Terms or notices controlled 3.48 Varieties of exemption clauses – excluding or restricting liability or obligations 3.48 Liability3.48 Obligations3.54 Negligence – section 2 3.71 The section 3.71 Overlap with UCTA, section 3 3.74 Negligence3.75 Requirement of reasonableness 3.80 Terms and notices excluding or restricting liability 3.82 Excluding or restricting the obligation or duty 3.84 Voluntary acceptance of risk (‘volenti’) 3.88 Indemnities3.91 Dealing on the other party’s written standard terms – UCTA, section 3 3.95 The section 3.95 ‘Written standard terms of business’ 3.99 Standard form contracts 3.99 UCTA, Section 3 3.103 Standard terms 3.106 139

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The proferens’ standard terms 3.110 The instant case 3.118 Satisfying the requirement of reasonableness 3.126 Presumption3.128 Of business 3.131 Excluding or restricting liability for breach – section 3(2)(a) 3.132 Indemnities3.134 Claiming to render a substantially different performance or no performance – section 3(2)(b) 3.137 Section 3(2)(b)(i) – to render a contractual performance substantially different from that which was reasonably expected3.140 Section 3(2)(b)(ii) – no performance at all 3.166 Goods – UCTA, sections 6 and 7 3.171 The sections 3.171 The requirement of reasonableness 3.177 Excluding or restricting liability 3.178 Excluding or restricting the relevant obligation or duty 3.179 Second contracts – UCTA, section 10 3.192 The section 3.192 Parties to the contracts 3.195 Types of contract 3.199 Defining obligations/performance 3.201 Indemnity3.205 The requirement of reasonableness – section 11 3.206 The basic test 3.206 Trends3.214 ‘In so far as’ 3.219 Appeals and precedents 3.221 The time frame for the assessment – looking at the whole clause 3.231 Guidelines3.235 Limitation clauses 3.240 Inequality of bargaining power 3.250 Availability of alternatives 3.257 Insurance3.260 Knowledge3.264 Settlement of past claims 3.273 Conditions placed on claims 3.276 Negligence3.280 Customer’s detailed specifications 3.281 Difficult/dangerous tasks 3.285 Consequences3.289

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Scope of the Act Introduction 3.1 The Unfair Contract Terms Act 1977 (UCTA) came into force on 1 February 1978, affecting contracts made after that date1. It is divided into three parts: •

Part I applies to England and Wales;

•

Part II to Scotland; and

•

Part III to the UK as a whole.

This book does not consider Part II. 3.2 The name of UCTA is misleading. It does not only deal with ‘unfair terms’ as such. UCTA concerns terms which ‘exclude or restrict liability’ and, in most cases, it is such clauses that it is stated to cover. However, UCTA makes it clear that such references are not to be understood restrictively.2 Some clauses excluding or restricting obligations are treated in the same way as those which exclude or restrict liability.3 Before the passing into law of CRA, some of the provisions also applied to consumers, including coverage of indemnities (were the indemnifier dealt with a consumer),4 guarantees of consumer goods5 and where a consumer traded on another party’s standard terms.6 3.3 UCTA also extends its coverage to non-contractual notices excluding or restricting liability for negligence7 and, again, the reference to exclusions or restrictions of liability is not to be narrowly understood and can also cover notices relating to the obligation or duty.8 UCTA affects contractual terms or notices falling within its scope in one of two ways: •

in some cases, they are rendered automatically ineffective;

•

in others they are ineffective except in so far as it can be established that they satisfy the requirement of reasonableness.

UCTA, s 31(2).

1

UCTA, s 13(1), s 3(2)(b).

2

The final part of s 13(1) has this effect in relation to the coverage of ss 2 and 5–7. In relation to s  3, note the specific provision in s  3(2)(b), dealing with some clauses relating to the performance of the contract.

3

UCTA, s 4, repealed by Consumer Rights Act 2015 (CRA), s 75, Sch 4, for most purposes from 1 October 2015 (SI 2015/1630).

4

ibid.

5

Words omitted from UCTA, s 3, by CRA, s 75, Sch 4, for most purposes from 1 October 2015 (SI 2015/1630).

6

UCTA, s 2; see also s 5.

7

Section 13(1).

8

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The basic situations in which the Act may be relevant are: •

Cases involving negligence – UCTA, section 2;

•

Contracts in which one party deals on the other’s written standard terms of business – UCTA, section 3;

•

Contracts for the sale of goods or hire purchase or other contracts under which possession or ownership of goods passes – UCTA, sections 6 and 7;

• Where there is an attempt to evade the operation of the Act through a term in a second contract – UCTA, section 10. 3.4 It is possible to loosely describe the sections above as the ‘active’ sections of UCTA. These are the sections which direct that something is to happen to a term or notice, that is either rendering the notice or term automatically ineffective or leaving it effective only in so far as it is proved9 to satisfy the requirement of reasonableness. Whether a term or notice is automatically ineffective or subject to the requirement of reasonableness depends upon the effect of the particular section in question. 3.5 However, there are further restrictions on the basic situations in which UCTA may be relevant. It is generally only relevant to ‘business liability’10 – the limited exception basically being cases covered by UCTA, section 6.11 In UCTA, Schedule 1 there are also lists of contracts which, in whole or in part, are placed outside the scope of some sections. Additionally, there are ousters from the coverage of UUCTA of: •

‘international supply contracts’;12

•

contracts only falling within the scope of English law because of the choice of the parties;13 and

•

certain terms which are authorised or required by statute or comply with an international agreement to which the UK is a party.14

There are provisions which deal with attempts to evade the application of UCTA in various ways: • UCTA, section 10 deals with attempted evasion by means of a second contract;

UCTA, s 11(5).

9

UCTA, s 1(3).

10

UCTA, s 6(4). The restriction to ‘business liability’ does not extend to UCTA, s 8, but that section does not operate as part of the UCTA, s 8 amended the Misrepresentation Act 1967 (MA), s 3.

11

UCTA, s 26.

12

UCTA, s 27(1).

13

UCTA, s 29.

14

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• UCTA, section 13 deal with terms or notices in the form of part of the definition of the obligation, rather than the form of exclusions or restrictions of liability15 and UCTA, section 3(2)(b) is also relevant in relation to that problem;16 and • UCTA, section 27 deals with attempts to evade the Act by means of a choice of a different legal system.17 This chapter will, first, look at the provisions dealing with the basic scope of UCTA: •

the restriction to ‘business liability’;

•

the ouster of certain contract terms from its scope; and

• the basic limitation of its effect to terms or notices which ‘exclude or restrict liability’. It will then finally, address the test embodied in the ‘requirement of reasonableness’.

Proposals Unfair Contracts Terms Bill 3.6 At the time of the second edition a live matter was the Law Commission’s proposals (from 2005)18 for unified unfair terms legislation to replace both: •

UCTA; and

• the Unfair Terms in Consumer Contracts Regulations 1999 (the ‘1999 Regulations’); (with Scotland basically being subject to the same regime) which would bring these two legislative measures into one Act with some modifications. 3.7 First, the proposals would have maintained the controls on attempts to exclude or restrict business liability for negligence, whether through a contract term or a non-contractual notice, and there would be some increased policing of such attempts in the consumer context.19 In the consumer context, the broad controls over unfair terms in consumer contracts provided by then in force 1999 Regulations (now replaced by CRA), which would have

See para 3.54.

15

See para 3.137.

16

See para 3.44.

17

‘Unfair Terms in Contracts’ Law Com No 292, Scot Law Com No 199.

18

Under UCTA there is only policing at the individual level. Under CRA, the CMA and the qualifying bodies can take action to prevent the continued use of unfair terms more generally.

19

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been maintained and extended the controls in the 1999 Regulations, such as no longer being restricted to non-individually negotiated terms.20 The fairness test would have been replaced by a test of whether the term is ‘fair and reasonable’. In addition, those terms which are currently automatically ineffective under UCTA would have remained so. Thirdly, in the business context, UCTA controls upon exemption clauses would have been basically maintained, although they would largely become restricted to standard terms.21 There would, however, have been extended protection for small businesses. In that context, controls would be extended beyond exemption clauses to reflect much of the breadth of control of consumer contracts, except that in relation to small businesses the controls would be restricted to terms introduced as part of the other party’s standard terms which had not been negotiated. 3.8 Among the Law Commissions’ proposals was that a ‘small business’ should receive some of the protections available to consumers under the now repealed 1999 Regulations. This proposal focused on the number of employees as the primary identifying characteristic, with nine employees taken to be the maximum for a ‘small business’, and with complex formulae envisaged to enable the number of employees to be averaged over the year preceding the making of the contract, and properly to take account of parttime employees.22 Further, to confine the additional protection to those businesses in need of it, the number of employees will be calculated not simply by reference to the particular business, but also any associated business.23 For the classification of a contract as one undertaken by a small business, the contract, or the series of contracts, or larger transaction of which it is part, should not have a transaction value in excess of £500,000.24 Finally, because of the existing extensive regulation in the financial services sector, the Law Commissions proposed that the controls on small business contracts should not apply to contracts entered into in pursuit of regulated financial services business’.25 An Unfair Contracts Terms Bill was prepared, but in the end not passed by Parliament. Reflecting the fact that UCTA’s coverage of exemption clauses in the consumer context is not restricted to standard terms. This proposal was implemented in CRA, by removing the exemption for individually negotiated terms from the fairness test, see para 4.69.

20

Basically this would have impacted upon the level of policing of attempts to exclude or restrict liability for breach of the terms implied by Sale of Goods Act 1979 (SGA), ss  13– 15 and associated legislation. UCTA, ss 6 and 7 provide for such terms to be subject to the requirement of reasonableness without any requirement that the terms should be contained in standard form contracts. That additional control would be removed under the proposals so that the more general control of standard terms would operate in relation to such terms.

21

paras 5.34–5.44.

22

‘Unfair Terms in Contracts’ Law Com No 292, Scot Law Com No 199, paras 5.45–5.54.

23

ibid, 5.61.

24

ibid, 5.67.

25

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Changes to UCTA following the passing into law of the Consumer Rights Act 201526 3.9 In 2012 the Law Commission was asked by the Department for Business Innovation and Skills to look again at the report referred to above and update its recommendations concerning consumer contracts.27 Most of the work carried out related to consumer law,28 but the main recommendations, in effect, concerning UCTA were to strip out all provisions affecting only consumers in UCTA, by: •

disapplying provisions of UCTA where a consumers was involved (such as UCTA, section 3); and

•

removing provisions relating solely consumers (such as UCTA, sections 4 and 5).

Some of the concepts in UCTA had found their way into the CRA including: •

making non-contractual notices subject to examination as to fairness (as the 1999 Regulations did not apply to them); and

•

that all contractual terms should be subject to examination as to fairness, not only those which are not individually negotiated.

Business liability Section 1(3) 3.10 With the exception of UCTA, section 6,29 UCTA, section 1(3) states that UCTA, sections 2–7 only apply to business ‘liability’, and the exception in Section 6 is of limited effect. ‘Business liability’ is liability for breach of obligations or duties arising:30 (a) from things done or to be done by a person in the course of a business (whether their own business or another’s); or (b) from the occupation of premises used for business purposes of the occupier.

The main provisions of the CRA came into force from 1 October 2015 (with some further ones from 1 October 2016, relating to ‘consumer transport service’), see SI 2015/1630 and 2016/ 2016/484. For provisions which relate to consumer contracts entered into prior to 1 October 2015, UCTA continues to apply, for which see the previous edition of this book.

26

Law Commission, Unfair Terms in Consumer Contracts: Advice to the Department for Business, Innovation and Skills, March 2013

27

For which see Chapter 4.

28

UCTA, s 6(4): ‘The liabilities referred to in this section [6] a re not only the business liabilities defined by section 1(3), but include those arising under any contract of sale of goods or hirepurchase agreement.’

29

UCTA, s 1(3).

30

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There is an exclusion from the scope of (b) in relation to liability stemming from the dangerous state of premises. Such liability does not fall within UCTA when it is to someone entering the premises for educational or recreational purposes, provided that granting that person access does not fall within the business purposes of the occupier.31

‘Business’ 3.11

‘Business’ is defined as including:

‘a profession and the activities of any government department or local or public authority’.32

This avoids some of the questions which arose under the Trade Descriptions Act 1968, for example, as to the categorisation of professions,33 but: •

UCTA does not provide a definition of ‘business’ as such;

•

it has been held as being ‘an imprecise word and may have a very wide meaning’;34 and

•

there have been numerous attempts, in various contexts, to define it and to determine whether a particular activity is a business.

Also, although many cases may have considered its meaning such consideration may be in the context of other statutes.35 However, it is possible to obtain some guidance from them. 3.12

The term ‘business’ may cover very diverse activities:36

‘The primary meaning of all these words, “business”, trade, profession and vocation, is an occupation by which a person earns a living. It is clear that all ordinary businesses, trades, professions and vocations can be carried on with differences from this standard and norm in regularity or seriousness of application, in the pursuit or disregard of profit or earnings, and in the use or neglect of ordinary commercial principles of organisation … [T]he absence of one common attribute of ordinary businesses, trades, professions or vocations, such as the pursuit of profit

UCTA, s 1(3), as amended by the Occupiers’ Liability Act (OLA) 1984.

31

UCTA, s 14.

32

For example Roberts v Leonard (1995) 151 JP 711.

33

Lloyd v Brassey [1969] 2 QB 98 per Salmon LJ at 106.

34

Based on the point that ‘One must always construe words of this kind secundum subjectam materiam [according to the subject matter], in the context in which they appear’ in Abernethie v A M & J Kleiman Ltd [1970] 1 QB 10 per Harman LJ at p 18. Town Investments Ltd v Dept of Environment [1978] AC 359 per Lord Diplock at 383: ‘The word “business” is an etymological chameleon, it suits its meaning to the context in which it is found. It is not a term of legal art’. Eiman v Waltham Forest LBC (1982) 90 ITSA MR 204 per Ormrod LJ at 205: ‘The precise meaning [of trade or business] varies from statute to statute depending upon the mischief to which the statute is directed’.

35

Customs & Excise Commissioners v Fisher [1981] 2 All ER 147.

36

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Chapter 3  The Unfair Contract Terms Act 1977 or earnings, does not necessarily mean that the activity is not a business or trade etc if in other respects the activity is plainly a “business”. Some people, however, carry on activities which are clearly “business” but which have little to do with ordinary business or trade: thus a man may be a professional sportsman or make a business of his hobby, or make a trade of domestic hospitality’.

3.13 In deciding if there is a business, there is no single determining factor, some of the relevant factors include that: •

there is a requirement to weigh the factors present in a particular case;37

•

it is ‘a question of degree and [depends] largely on the character of the particular activity’;38

•

the profit motive may be important39 but it is not seen as essential;40

• the accoutrements of business, such as premises41 or appropriate stationery,42 may be relevant; •

there is consideration of frequency of the type of transaction;43

•

it is an occupation which is distinct from being a pleasure;44

In the taxation context, the Royal Commission on the Taxation of Profits and Income in its final report (June 1955, Cmnd 9474) took the line that no single definition of ‘trade’ would do (para 116) but set out a list of relevant factors as ‘badges of trade’.

37

Town Investments v Dept of Environment [1976] 1 WLR 1126.

38

Corfield v Sevenways Garage (1984) 148 JP 648; Blakemore v Bellamy (1982) 147 JP 89; Abernethie v A M & J Kleiman Ltd [1970] 1 QB 10. Similarly, the Law Society was not found to be acting in the course of a business under the Trade Descriptions Act 1968 as it was not engaged in a commercial activity and did not offer services to the public: R  v Bow Street Magistrates Court, ex p Joseph (1986) 150 JP 650. Making a profit may not be determinative: Building and Civil Engineering Holidays Scheme Management Ltd v Clark (1960) 39 TC 12; British Broadcasting Corporation v Johns [1965] Ch 32.

39

Town Investments Ltd v Dept of Environment [1976] 1 WLR 1126 per Buckley LJ at 1149; Customs and Excise Commissioners v Fisher [1981] 2 All ER 147 per Gibson J at p 157; Ensign Tankers (Leasing) Ltd v Stokes [1992] 1 AC 655, [1992] 2 All ER 275. Re Duty on Estate of Incorporated Council of Law Reporting for England and Wales (1888) 22 QBD 279 per Lord Coleridge CJ at p 293: ‘Though it may be true that in the great majority of cases the carrying on of a trade does, in fact, include the idea of profit, yet the definition of the mere word “trade” does not necessarily mean something by which a profit is made.’

40

Corfield v Sevenways Garage (1984) 148 JP 648; Southwark LBC v Charlesworth (1983) JP 470; but see Abernethie v A M & J Kleiman Ltd [1970] 1 QB 10.

41

Eiman v Waltham Forest LBC (1982) 90 ITSA MR 204.

42

The importance of frequency, in general, as an indicator of trade can be seen in the context of liability to income tax: Pickford v Quirke (1927) 13 TC 251 Leach v Pogson (1962) 40 TC 585, [1962]  TR  289. But note Lord Diplock’s comment in American Leaf Blending Co v Director General of Inland Revenue [1979] AC 676 in discussing the letting of a warehouse: ‘The carrying on of “business” no doubt usually calls for some activity on the part of whoever carries it on, though depending on the nature of the business, the activity may be intermittent with long periods of quiescence in between’.

43

Rolls v Miller (1884) 27 Ch D 71 per Lindley LJ at p 88.

44

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•

a hobby is not normally a business,45 but clearly it may become one46 (with the factors which are generally relevant, such as the frequency of the transactions of the relevant type, or a profit motive);

•

where there is consideration of the dealings of a club, it may be difficult to categorise, but may be found to be a business.47 Obviously, there should be no sound basis for an argument that there is no business if the ‘club’ is clearly a business in everything but name.48

3.14 There may be a ‘business’, of sorts, where there is a ‘one-off transaction in the nature of trade’. It has been held that such transactions may be made ‘in the course of a business’49 and they should be considered here. The labelling of such transactions as ‘trading’ is familiar in revenue law and the question of the imposition of liability to income tax.50 In that context, an important factor is the subject matter of the transaction. If it is something which does not yield an income or give enjoyment to its owner, that is indicative that its acquisition/disposal is a one-off adventure in the nature of trade. The courts have held the following to be one-off adventures in the nature of trade, the purchase and resale of: •

1 million toilet rolls;51

•

44 million yards of government surplus ‘parachute silk’;52 and

•

3,000 casks of Cape Brandy.53

‘In the course of a business’ 3.15 However, what is required by UCTA, section 1(3)(a) is not simply that the person liable should be ‘in business’ but that the relevant obligation or duty should have arisen: ‘from things done or to be done … in the course of a business’.

Blakemore v Bellamy (1982) 147 JP 89; see also Corfield v Sevenways Garage Ltd [1985] RTR 109 per Mann LJ at 117: ‘Almost any form of activity, apart from one pursued for pleasure or as a hobby, can be described as a “business”.’

45

Customs and Excise Commissioners v Fisher [1981] 2 All ER 147 per Gibson J at 157.

46

Addiscombe Garden Estates v Crabbe [1958] 1 QB 513; Carlisle and Sillito Golf Club v Smith [1913] 3  KB  75. But see John v Mathews [1970] 2  QB  443; Building and Civil Engineering Holidays Management Scheme Ltd v Clark (1960) 39 TC 12.

47

Cahalne v Croydon LBC  (1985)  JP  561. Also see IRC  v Stonehaven Recreation Ground Trustees 1930 SC 206, 15 TC 419; Carnoustie Golf Course Committee v IRC 1929 SC 419, 14 TC 498.

48

R & B Customs Brokers v United Dominion Trust [1988] 1 All ER 847.

49

See generally Whitehouse Revenue Law: Principles and Practice (14th edn, Bloomsbury Professional) 6.22–6.28.

50

Rutledge v IRC 1929 SC 379, 14 TC 490.

51

Martin v Lowry [1927] AC 312.

52

Cape Brandy Syndicate v IRC [1921] 2 KB 403.

53

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This phrase, ‘in the course of a business’ is not defined in UCTA but it appears in other legislation.54 It appears that it can mean: •

it is an activity which is in the course of a business trade or business as it was part of the businesses’ normal practice to carry out that activity;55

•

that a particular contract will be made in the course of a business if it is either: •

integral to the relevant person’s business, in itself; or

• incidental, in itself, to that business but occurs with sufficient regularity.56 3.16 The second bullet point is the approach taken in R  & B  Customs Brokers v United Dominion Trust Ltd57 where Dillon LJ stated:58 ‘there are some transactions which are clearly integral parts of the business concerned, and these should be held to have been carried out in the course of those businesses; this would cover, apart from much else, the instance of a one-off adventure in the nature of trade where the transaction itself would constitute a trade or business. There are other transactions, however, such as the purchase of the car in the present case, which are at the highest only incidental to the carrying on of the relevant business; here a degree of regularity is required before it can be said that they are an integral part of the business carried on and so entered into in the course of that business’.

The line taken in that case followed the approach taken to the same phrase in the Trade Descriptions Act 1968. It indicated that a particular contract will be made in the course of a business if it is either: •

integral to the relevant person’s business, in itself, or

•

incidental, in itself, to that business but occurring with sufficient regularity.

Obviously, ‘one-off transactions in the nature of trade’, although very different from the central cases, are subsumed within the first category. 3.17 This case considered the phrase ‘in the course of a business’ (in the context of the now repealed UCTA, section 12) and whether a business (incorporated as a limited company) could take advantage of UCTA, section 12 and be treated as a consumer. The section provided: ‘(1) A party to a contract “deals as consumer” in relation to another party if— (a) he neither makes the contract in the course of a business nor holds himself out as doing so; and

And in other legislation, eg SGA, Trade Descriptions Act 1968.

54

Havering London Borough v Stevenson [1970] 3 All ER 609, [1970] 1 WLR 1375.

55

R & B Customs Brokers v United Dominion Trust Ltd [1988] 1 All ER 847; Air Transworld Ltd v Bombardier Inc [2012] EWHC 243 (Comm), [112].

56

[1988] 1 All ER 847.

57

[1988] 1 All ER 847 at 854. See also Neill LJ at 858–859.

58

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Chapter 3  The Unfair Contract Terms Act 1977 (b) the other party does make the contract in the course of a business; and (c) in the case of a contract governed by the law of sale of goods or hirepurchase, or by section 7 of this Act, the goods passing under or in pursuance of the contract are of a type ordinarily supplied for private use or consumption. …’

Since the phrase ‘in the course of a business’ appears both in UCTA, section 1(3)(a) and the repealed UCTA, section 12, it is possible to suggest the requirements that a contract is the course of business apply to contracts which come within UCTA, section 1(3)(a). 3.18 As just noted the case turned on whether a business could take the benefit of UCTA, section 12 as a consumer, so its application to UCTA, section 1(3)(a) is not beyond doubt or its scope. The issue that the approach indicated in R & B Customs Brokers v United Dominion Trust Ltd is very narrow. In the context of that case, such an approach had the effect of extending to the purchasers, R & B, the greater protection which UCTA provided for those who deal as consumers. However, even in the context of the now repealed UCTA, section 12, that line can be strongly criticised for inappropriately restricting the scope of that protection on other occasions and it is even more open to criticism in relation to UCTA, section 1, where it sets the limits for the operation of most of UCTA. In the context of UCTA, section 1, it is simply too restrictive of the scope of the UCTA and there is obvious scope for a very different approach to be taken. It is possible to argue that the phrase itself shows that the line taken in R & B Customs Brokers v United Dominion Trust Ltd is inappropriate. The reference is to transactions ‘in the course of a business’ and not to those ‘in the course of business’. 3.19

As one commentator noted:

‘The former suggests things done by and for a business, while the latter suggests acts limited to the kind of business in which a person is engaged’.59

‘Things done or to be done’ which are merely incidental to the relevant party’s business should be interpreted as having been made ‘in the course of a business’ without the need to establish any regularity in their occurrence. In fact, the phrase could be interpreted even more widely than that, to mean anything done or to be done by a business. It is possible to find some support for a wider approach to the interpretation of ‘in the course of a business’ in some case law.60 Also the Law Commission, in considering the appropriate boundary for UCTA in the context of tortious liability envisaged the phrase as only keeping outside its scope, ‘services supplied in a purely personal

Kidner ‘The Unfair Contract Terms Act 1977 – Who Deals as Consumer?’ [1987] Northern Ireland Legal Quarterly 46 at 53.

59

St Albans City and District Council v International Computers Ltd [1995] FSR 686 (The issue was not addressed on appeal as the Council accepted that ‘in the light of s  12(1)(a) and the definition of “business” in s 14’ it did not deal as consumer: see Nourse LJ [1996] 4 All ER 481 at 490). Lease Management Services Ltd v Purnell Secretarial Services (1994) 13 Tr LR 337 at 344; Stevenson v Rogers [1999] 1 All ER 613. But see Peter Symmonds & Co v Cook [1981] NLJ 758.

60

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capacity’61 – a much narrower exclusion if one was to apply the approach in R & B Customs Brokers v United Dominion Trust Ltd.

Occupation of premises for business purposes 3.20 As indicated above, UCTA, section 1(3) provides that ‘business liability’ arises not only from actions ‘in the course of a business’ but also ‘from the occupation of premises used for business purposes of the occupier’. 3.21 There is an exception where a person obtains access to premises for recreational or educational purposes. In that case, liability in relation to loss or damage suffered because of the dangerous state of premises is not a ‘business liability’ of the occupier, unless granting that person access for the purposes concerned falls within the business purposes of the occupier.62 This exception was inserted into UCTA to allow, for example, the farmer who permits potholers onto his land to protect himself from liability, provided he does not allow them access as a business.63 Obviously, the exception does not apply to ‘holiday camps, safari parks, or bingo halls’.64 3.22 As already stated as a ‘business’ includes the activities of any government department, or local or public authority. If such bodies are regarded as businesses, the buildings they occupy to carry out their functions are occupied for ‘the business purpose of the occupier’. There may be difficulties in relation to the mixed use of premises in, for example, the situation where an individual carries out some work for his, or her, business, at home. If there is a clear physical distinction between the areas used for domestic and business purposes then it would seem that the scope of UCTA, section 1(3) should mirror that division. If there is no such physical distinction, it may be a matter of considering, for example, the purpose of a relevant visit to the premises, ie whether it was for business purposes.

Excluded contracts or terms UCTA, Schedule 1 3.23 Schedule 1 limits the scope of UCTA, sections 2, 3 and 7 in relation to certain contracts or parts of contracts.65 The most sweeping limitation is

Law Com No 69, para 9.

61

UCTA, s 1(3) as amended by the Occupiers’ Liability Act 1984.

62

HL Deb 443, col 721.

63

HL Deb 443, col 722.

64

UCTA, Sch 1 was principally amended by removal of references to UCTA, s 4 (concerning unreasonable indemnity clauses) following implementation of the CRA, from 1 October 2015 and also 1 October 2016, see SI 2015/1630 and 2016/484. UCTA also underwent amendment following the implementation of CRA, principally in the removal of the following wording (in italics here) in UCTA, s 3(1): ‘This section applies as between contracting parties where one of them deals as consumer or on the other’s written standard terms of business’.

65

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contained in UCTA, Schedule 1, para 1 which states that sections 2 and 3 do not extend to: ‘(a) any contract of insurance (including a contract to pay an annuity on human life); (b) 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 the like; (c) any contract so far as it relates to the creation or transfer of a right or interest in any patent, trademark, copyright, registered design, technical or commercial information, or other intellectual property, or relates to the termination of any such right or interest; (d) any contract so far as it relates – (i) to the formation or dissolution of a company (which means any body corporate or unincorporated association and includes a partnership), or (ii) to its constitution or the rights and obligations of its corporators or members; (e) any contract so far as it relates to the creation or transfer of securities or of any right or interest in securities’.

3.24 A distinction has to be made between the wording of sub-para 1(a) and the rest of the paragraph.66 Sub-para 1(a) ousts from the scope of UCTA, section 2 and 3 ‘any contract of insurance’. This contrasts with the rest of the paragraph where the exclusion is only of any contract ‘so far as it relates to’ any of the specified matters. There is a complete removal of contracts of insurance from the scope of UCTA, sections 2 and 3, but only a partial removal in other cases, with the scope of the ouster delimited by the phrase ‘so far as it relates to’. This means that, to a greater or lesser extent, UCTA, Schedule  1, para  1(b)–(e) may be relevant to contracts only peripherally concerned with the matters stated in para UCTA, Schedule  1, 1(b)–(e), as well as those contracts which are primarily concerned with such matters. 3.25 An example of a contract held to be affected, in part, by UCTA, Schedule  1, 1(e), but which was not primarily concerned with the creation or transfer of securities or a right or interest in securities, is contained in Micklefield v SAC Technology.67 In that case, a contract of employment contained an option for the employee to acquire shares. It had been argued that the ouster in UCTA, Schedule  1, 1(e) did not apply because the contract was one of employment and not one for the creation or transfer of securities. However, that argument was not successful because the judge held that the ouster in para UCTA, Schedule 1, 1(e)

Salvage Assn v CAP Financial Services Ltd [1995] FSR 654 at 663; Micklefield v SAC Technology Ltd [1991] 1 All ER 275.

66

Micklefield v SAC Technology Ltd [1991] 1 All ER 275.

67

152

Chapter 3  The Unfair Contract Terms Act 1977 ‘is not worded so as to apply merely to contracts for creation or transfer of securities. It is worded to apply to any contract so far as it relates to the creation or transfer of securities’.

3.26 That meant that ‘so far as the plaintiff’s contract of employment related to his option to acquire shares, it [was] excluded from’ UCTA, sections 2–[3].68 (The case makes a general point in relation to the ouster in UCTA, Schedule 1, para 1(b)–(e) but it should be noted that ‘a uniform approach’ has not been taken to the more specific point on the scope of the reference to ‘securities’ in UCTA, Schedule 1, para 1(e)69). 3.27 In contrast to Micklefield v SAC Technology Ltd, the contract in Electricity Supply Nominees Ltd v IAF Group plc70 was primarily concerned with one of the matters covered by para  1(b)–(e). Nevertheless, the question was as to the extent of the ouster of UCTA produced by the phrase ‘so far as it relates to’. The case dealt with a lease. It was disputed whether an ‘anti-set-off provision’ contained in the covenant to pay rent and other sums, fell within the operation of UCTA, section 3 (the tenant’s defence relied on a counterclaim and setoff for alleged breaches of the repairing covenant). It was argued by the tenant that the ouster was confined to ‘that part of the lease which creates the interest in land, ie the demise itself’, and that it did not encompass provisions relating to ‘the rights and duties of the parties during the term … created by the lease’. This argument was not accepted by the judge who, on the basis of such a construction, would have thought it ‘difficult to identify the purpose of para 1(b) of Sch 1’ and found it ‘hard to think of a term in the demise

ibid 275, 281. The judgement referred to UCTA, ss 2-4, but now, following the implementation of CRA, would only apply to UCTA, ss 2 and 3.

68

PhilipAlexander Securities & Futures Ltd v Bemberger [1996] CLC 1757 per Legatt LJ at 1787– 1788: ‘We see no reason to give the word securities in the 1977 Act any wider meaning than it would ordinarily have borne in 1977. The purpose of the exclusion was to remove from the protection of the 1977 Act a contract of the relevant type entered into by a consumer. There is no reason to think that Parliament wished to remove the protection from consumers entering into futures or options contracts. We doubt whether it is possible to give an exhaustive definition of “securities”. For present purposes it is in our view sufficient to indicate that it refers to the financial assets represented by certificates attesting ownership of stocks and shares and the like. Futures and options even when concerned with securities as defined are to be distinguished from securities themselves … [It was] argued that the Customer Agreements “related to” the transfer of securities or at the least a right or interest in securities. We have already held that it could not have related to securities. In our view it would not normally relate to rights or interests in securities either. The usual option or futures contract would be one which if exercised or matured would lead to a contract for a sale by description. Such a contract would not confer any right or interest in specific securities until securities answering the description had been appropriated to the contract’.   But note also the point made by Lord McCluskey in relation to the Unfair Contract Terms Bill that ‘securities … certainly includes units under a unit trust. I am advised that the only statutory definition of “securities” which is available does not cover a wide enough area of securities’ (385 HL Deb, col 521).   It has also been said that ‘“securities” in the modern world should be construed so as to include commodity transactions’ in Panagopoulos v Michaelos (2 December 1994, unreported), QBD, Bruce Mauleverer QC.

69

[1993] 3 All ER 372.

70

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itself, on which UCTA, sections 2 [and 3] could bite’. The judge took a wide approach to the scope of the ouster: ‘In my judgment all the covenants that are integral to the lease which creates an interest in land “relate to” the creation of that interest in land. What is taken out of the exception provided by para 1(b) would be provisions which are not integral to the lease, but constitute a transaction of a different kind included in the same document as the lease.’

3.28 The covenants to pay rent and also the repairing covenant were regarded as ‘integral to the lease’ and outside the scope of UCTA, sections 2 and 3. This approach was also taken in Star Rider Ltd v Inntrepreneur Pub Co71 on similar facts, and followed by the Court of Appeal in Unchained Growth III plc v Granby Village (Manchester) Management Co Ltd72 in relation to an anti-set-off clause and the tenants’ obligation to pay a service charge to the management company. In that case it was stated: ‘The obligation to pay a service charge to a management company charged with responsibility for the maintenance and management of a development of which the demised property forms part is, in my judgment, plainly a provision which “relates to” the creation of the leasehold interest. It is an integral part of the lease, providing the administrative mechanism for the enjoyment of the leasehold interest in common with, and for the benefit of, the other tenants of the development. To conclude that it did not “relate to” the creation of the leasehold interest would, in my judgment, be to lose sight of commercial reality. I  accordingly reject Mr Morgan’s submissions on the issue of set-off.’

3.29 At its most extreme, this approach could be seen as indicating that those sections could only be relevant to even part of a contract of the type specified in UCTA, Schedule 1, para 1(b)–(e) if it was ‘a composite contract’, including, for example, ‘both a lease and a contract for the sale of goods, where only the terms of the lease would be’ ousted.73 3.30 However, it is possible to suggest that the ouster should be treated more narrowly than this. Certainly, what links the ousters in UCTA, Schedule 1, paras 1(b), (c) and (e), at least, is property rights and that their scope should be confined to clauses seeking to exclude or restrict such rights. (The ousters then avoid the need to draw difficult distinctions between terms to which UCTA should not apply as they are part of the definition of the property rights

See also Star Rider Ltd v Intrepreneur Pub Co [1998] 1 EGLR 53 per Blackburn J: ‘The set-off provision is contained in the tenant’s covenant to pay rent. It is concerned with the amount of rent that the tenant must pay. It, no less than the covenant of which it forms part, is integral to the agreement by Intrepreneur to grant a lease of the premises in that the rent payment is part of the consideration for the agreement to grant the lease. The grant of a lease involves the creation of an interest in land. An agreement for the grant of a lease is a contract for the creation of an interest in land. It is therefore directly within para 1(b). It is none the less within para 1(b) where, as here, under the terms of the agreement, no interest in land is to arise until the lease is actually granted’.

71

[2000] 1 WLR 739.

72

A suggestion made by counsel for the landlord; see [1993] 3 All ER 372 at 375.

73

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passing, and those to which it should as, despite their form as part of the definition of those property rights, they are nevertheless exemption clauses74). 3.31 It is possible to find support for such a narrow approach to the interpretation of the phrase ‘so far as it relates to’ in the ousters when the Unfair Contract Terms Bill came in for consideration by Parliament in [2012]. In relation to the application of this Bill to unit trust schemes Lord McCluskey thought that there would be no ouster:75 ‘in so far as there are any provisions in a unit trust scheme which are contractual in character … and provide for services being rendered by managers and trustees, or by the trustees alone …’.

3.32 This is more in keeping with a narrower approach to the ousters than was indicated in Electricity Supply Nominees Ltd v IAF Group plc76 and by the Court of Appeal in Unchained Growth III plc v Granby Village (Manchester) Management Co Ltd.77 It is also more in keeping with the line taken concerning UCTA, Schedule 1, para 1(c), in The Salvage Assn v CAP Financial Services Ltd78 (admittedly only by the Official Referee). 3.33 This latter case concerned the design, development and supply of computer accounting software. Performance of such a contract would result in the creation of a product in which there would be intellectual property rights and any such contract would have to sufficiently take account of that, to allow the use of the software by the party requiring it.79 The Official Referee80 took the view that UCTA, Schedule 1, 1(c): ‘does not extend generally to all the terms of a contract simply because the contract is concerned overall with the provision of a service, performance of which will result in a product to which the law affords the protection of one or more of the specified intellectual property rights’.

3.34 The Official Review was of the view that it was necessary to consider the individual terms of the contract and that UCTA, Schedule 1, 1(c) did not oust the application of (what is now) UCTA, sections 2 and 3 to exclusions or restrictions of liability in relation to terms dealing with the competence of CAP’s staff, the quality of their performance, the quality of the software, or the time of delivery.81

See para 3.54.

74

385 HL Deb, Col 518.

75

[1993] 3 All ER 372.

76

(8 October 1999, unreported), CA.

77

[1995] FSR 654.

78

It is necessary to ‘copy’ software onto a computer in order to use it. Subject to s 50C of the Copyright Designs and Patents Act 1988, a licence is required if software is to be used without its use involving a breach of copyright.

79

[1995] FSR 654 at 663.

80

[1995] FSR 654 at 663.

81

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3.35 There is a more limited restriction on the scope of UCTA, sections 2, 3 and 7 in UCTA, Schedule 1, para 2. That paragraph is concerned with: (a) any contract of marine salvage or towage; (b) any charterparty of a ship82 or hovercraft;83 and (c) any contract for the carriage of goods by ship or hovercraft. The application of UCTA, section 2(1) is not ousted in relation to these contracts in any case. Similarly, under UCTA, Schedule 1, para 3, there is an ouster of the application of UCTA, sections 2(2) and 3: ‘Where goods are carried by ship84 or hovercraft85 in pursuance of a contract which either – (a) specifies that as a means of carriage over part of the journey to be covered, or (b) makes no provision as to the means of carriage and does not exclude that means’.

3.36 In addition, except in favour of the employee,86 UCTA, section 2 does not extend to contracts of employment87 UCTA, section 2(1) does not: ‘affect the validity of any discharge and indemnity given by a person or in connection with an award to him of compensation for pneumoconiosis attributable to employment in the coal industry, in respect of any further claim arising from his contracting the disease’.88

International supply contracts 3.37 The restrictions imposed on some terms by UCTA89 do not apply to international supply contracts.90 Such a contract is defined as requiring:

Browner International Ltd v Monarch Shipping Co Ltd, The European Enterprise [1989] 2 Lloyd’s Rep 185. See Carriage of Goods by Sea Act 1971, Merchant Shipping Act 1981. See also para 3.

82

See Hovercraft (Civil Liability) Order 1971 (SI 1971/720) Made under s 1 of the Hovercraft Act 1968. See also para 3.

83

See also UCTA, Schedule 1, para 2, above.

84

ibid.

85

Johnstone v Bloomsbury Health Authority [1991] 2 All ER 293 at 301.

86

UCTA, Sch 1, para 4.

87

ibid, para 5. In Tudor Grange Holdings Ltd v Citibank NA [1992] Ch 35, [1991] 4 All ER 1, it was attempted, unsuccessfully, to use the specific ouster in para 5 to argue that s 10 encompassed compromises of contractual claims generally.

88

The control of exemption clauses dealing with misrepresentation does not occur under UCTA but the Misrepresentation Act 1967, as amended by UCTA. On that basis, it would seem that the restrictions of the 1967 Act would apply to international supply contracts.

89

UCTA, s 26.

90

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•

first, in UCTA, section 26(3), possession of the following characteristics:91 (a) either it is a contract of sale of goods or it is one under which possession or ownership of goods passes;92 and (b) it is made by parties whose place of business (or, if they have none, habitual residences) are in the territories of different states;93

And •

secondly, in UCTA, section 26(4), that94: (a) the goods in question are, at the time of conclusion of the contract, in the course of carriage, or will be carried, from the territory of one state to another;95 or (b) the acts constituting the offer and acceptance have been done in the territories of different states; or (c) the contract provides for the goods to be delivered to the territory of a state other than that within whose territory those acts were done.

3.38 In Amiri Flight Authority v BAE Systems plc the point was made that: ‘the scheme of s 26 leads on any view to what may be regarded as narrow or even arbitrary distinctions’.96

In that case examples were provided: ‘A contract for the purchase by a Swedish resident of a chair for his English holiday home from the home’s previous English owner will be subject to the Act, if he happens to place the order when in England, but will be an international supply contract if he places the order by telephone from Sweden. A contract by the same Swede to purchase a chair in the English holiday home from the holiday home’s previous owner, another Swedish resident, will not be an international supply contract, even if the offer and acceptance are done in different countries.’ 97

UCTA, s 26(3).

91

The exclusion in this section of UCTA would also cover provisions in the contract which deals with services: Amiri Flight Authority v BAE Systems plc [2002] EWHC 2481 although the Court of Appeal reversed the judge at first instance on other grounds.

92

The reference to ‘parties’ means the parties to the contract and not to their agents who have made the contract on behalf of the parties: Ocean Chemical Transport Inc v Exnor Craggs Ltd [2000] 1 All ER (Comm) 519, [2000] 1 Lloyd’s Rep 446, CA, [45]: ‘It seems to me as clear as could be that the reference in s  26(3)(b) to a contract which is ‘made by the parties’, and then refers to the places of business of the parties, is referring to the principals to the contract in question and not to the agents through whom the contract may have been made.’ The Channel Islands and Isle of Man being treated as different states from the UK for these purposes.

93

UCTA, s 26(4).

94

Although the wording of UCTA, s 26(4)(a) is ‘not limited to contracts under which goods must be carried across national boundaries in order to fulfil a contract obligation’: Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd [2009] EWCA Civ 290, [32].

95

Amiri Flight Authority v BAE Systems plc [2004] 1 All ER (Comm) 385, [44].

96

[2004] 1 All ER (Comm) 385, [33].

97

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3.39 Amiri Flight Authority v BAE Systems plc itself raised an issue as to the interpretation of UCTA, section 26(4)(c). It was a goods contract and the parties’ places of business were in different states. Offer and acceptance occurred in the same state, Abu Dhabi. The goods were in the UK at the time of contracting and were to be delivered in the UK. Obviously, that was a different state from that in which offer and acceptance occurred, but could the goods be said to be ‘delivered to’ the UK within UCTA, section 26(4) (c)? At first instance, by reference to the definition of an international sale contract within the Uniform Law on Sales, ‘delivered to’ was read as ‘delivered in’98 (the latter being the wording of the Uniform Law). However, the Court of Appeal took the view that the different wording in UCTA, section 26(4)(c) was deliberate and that to fall within UCTA, section 26(4)(c) some international movement of goods was required. 3.40 Difficulties may arise in the interpretation of UCTA, section 26(4) (b). The reference to ‘acts constituting the offer and acceptance have been done’ ‘leaves it in doubt whether it is the physical acts which are referred to or the place where these legally take effect’,99 although the words ‘the acts constituting the offer and acceptance’ does refer ‘to the totality of the acts which constitute the offer and acceptance’.100 3.41 The reference in UCTA, section 26(3)(b) to ‘the parties’ and to the places of business of the parties ‘is referring to principals to the contract in question and not to the agents through whom the contract may have been made’. The ‘possibly wholly coincidental location of the places of business’ of such agents is irrelevant to UCTA, section 26(3)(b).101 3.42 It appears that UCTA, section 26 also applies to exclusion clauses dealing with misrepresentation although the misrepresentation does not occur under UCTA but the Misrepresentation Act 1967 (as amended by UCTA), following the decision in Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd.102 In this case, the court noted that the ability to limit the power of a party to limit its liability for misrepresentation103 made provision for international supply contracts. The court rejected the argument that the wording of UCTA, section 26(1) (‘The limits imposed by this Act…’) does not in effect exclude the operation of the Misrepresentation Act 1967, section 3: ‘In my view the answer to this question is to be found not by concentrating simply on the words “under this Act” in s  26(1), but by looking at the wording

[2003] 1 All ER (Comm) 1.

98

Chitty on Contracts (33rd edn, Sweet and Maxwell, 2020) para 43-125.

99

Air Transworld Ltd v Bombardier Inc [2012] EWHC 243 (Comm), [2012] 2 All ER (Comm) 60, [82].

100

Ocean Chemical Transport v Exnor Craggs [2000] 1 All ER (Comm) 519 per Evans LJ, [45].

101

[2009] EWCA Civ 290.

102

Both in its original formulation as provided in the Misrepresentation Act 1967, s 3, and as substituted by UCTA, s 8

103

158

Chapter 3  The Unfair Contract Terms Act 1977 of sub-ss  (1) and (2) of s  26 as a whole. Subsection (1) is directed to excluding or restricting liability by reference to contract terms in general and is not limited to liability for breach of contract. As such it is capable of extending to liability for misrepresentation. Subsection (2) is also worded generally, being capable of extending to any contract which contains terms purporting to exclude liability and excluding from the requirement of reasonableness any contract falling within sub-s (3). In my view, therefore, when sub-s (1) speaks of “the limits imposed by this Act on the extent to which a person may exclude or restrict liability by reference to a contract term” it is referring to the requirement of reasonableness embodied in the Act and, by operation of s 8, to terms excluding liability for misrepresentation.’

3.43 The court further held that to treat the Misrepresentation Act 1967, section 3 as independent of UCTA would be to frustrate the intention of Parliament to exclude international sales contracts from statutory control but also to not to pay attention to the wording of Misrepresentation Act 1967, section 3 which makes its provisions subject to the control of UCTA, s 11(1):104 ‘Since s 3 is worded in terms which render an exclusion clause ineffective unless it complies with the controls set out in the Unfair Contract Terms Act, it makes the latter the controlling instrument. In my view, therefore, it cannot be right to treat the Misrepresentation Act as imposing restrictions in a case in which the Unfair Contract Terms Act provides none.’

Choice of law 3.44 •

Section 27 deals with conflict of laws points:105

Sub-section (1) ousts from the scope of UCTA contracts which are subject to the law of any part of the UK only by choice of the parties and which would, apart from that choice, be subject to some other law;106

• Sub-section (2) relates to the reverse situation, dealing with attempted evasion of the Act by choice of law. It states that the Act has effect notwithstanding any contract term which applies or purports to apply the law of some country outside the UK where (either or both):

The substituted version of MA, s 3 (by UCTA, s 8) concludes with the following wording: ‘… that terms shall be of no effect except in so far as it satisfies the requirement of reasonableness as stated in section 11(1) of the Unfair Contract Terms Act 1977…’

104

See Dicey, Morris & Collins Conflict of Laws (15th edn, Sweet and Maxwell, 2015); Cheshire, North & Fawcett Private International Law (15th edn, Oxford University Press, 2017).

105

Surzur Overseas Ltd v Ocean Reliance Shipping Co Ltd [1997] CLY 906 per Toulson J: ‘Here, there is an express choice of law clause, and one therefore has to address the hypothetical question whether, apart from that choice, the law applicable to each of these three contracts would be the law of some country outside the United Kingdom … one must answer that hypothetical question by considering what law would apply in that situation under English conflict of law rules and that, since the Rome Convention has now been incorporated into English law one must turn to that convention to see what the answer to that hypothetical question would be. Turning to the Rome Convention, one then goes to see what provisions apply where there is no express choice of the applicable law, and for that purpose one goes to art 4.’ See also Toulson J’s treatment of the choice of jurisdiction clause. See also Air Transworld Ltd v Bombardier Inc [2012] EWHC 243 (Comm), [99],

106

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(a) the term appears to the court, or arbitrator or arbiter, to have been imposed wholly or mainly for the purpose of enabling the party imposing it to evade the operation of this Act; or (b) in the making of the contract one of the parties dealt as consumer, and he was then habitually resident in the UK, and the essential steps necessary for the making of the contract were taken there, whether by him or others on his behalf. 3.45

The purpose of UCTA, section 27 is:

‘to ensure (a) that people did not evade the operation of the Act by an artificial choice of law and (b) that parties who chose English law did not, by litigating in England, find themselves forced to have the 1977 Act apply in circumstances where that was not the natural law of the contract.’107

In relation to UCTA, section 27(2)(a) the use of the word ‘imposed’ according to one leading text would require an inquiry into motive.108 3.46 The same text also notes that odd results could result from the literal wording of s 27(2)(b): ‘Suppose an English consumer makes a contract in England with an agent of the Japanese National Railways for personal effects to be carried by rail from Tokyo to Osaka on a standard contract form which provides that the contract is governed by Japanese law. This appears to fall within the literal words of the section but this would produce a very odd result since on such facts, it is very probable that Japanese law would be held to be the governing law even where there was no express choice of law.’109

Saving for other legislation 3.47 UCTA, section 29 prevents UCTA from affecting any contractual provision which: ‘(a) is authorised or required by the express terms or necessary implication of an enactment; or (b) being made with a view to compliance with an international agreement to which the UK is a party, does not operate more restrictively than is contemplated by the agreement.’

The section also provides for certain terms to be taken to satisfy the requirement of reasonableness.110

Balmoral Group Ltd v Borealis (UK) Ltd [2006] EWHC 1900 (Comm), [435].

107

Cheshire, Fifoot & Furmston Law of Contract (13th edn, Oxford University Press, 2017) at p 255.

108

ibid, p 255.

109

A term ‘incorporated or approved by, or incorporated pursuant to a decision or ruling of a competent authority acting in the exercise of any statutory jurisdiction or function and it is not a term in a contract to which the competent authority is itself a party’. ‘Competent authority’ means ‘any court, arbitrator or arbiter, government department or public authority’ (UCTA, s 29(3)).

110

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UCTA, section 13 – Terms or notices controlled Varieties of exemption clauses – excluding or restricting liability or obligations Liability 3.48 For the most part,111 the active sections of the UCTA have impact upon terms (and sometimes notices) which exclude or restrict liability. 3.49 It is possible to view UCTA, section 13 as extending the operation of those sections.112 It deals with the ‘trite fact that there are more ways than one of killing a cat’113 or of drafting a term or notice so that it has the effect of a clause excluding or restricting liability. The more obvious situations are covered by the first part of UCTA, section 13(1), which states: ‘To the extent that this part of this Act prevents the exclusion or restriction of liability it also prevents – (a) making the liability or its enforcement subject to restrictive or onerous conditions (b) excluding or restricting any right or remedy in respect of the liability, or subjecting any person to any prejudice in consequence of his pursuing any such right or remedy (c) excluding or restricting any rules of evidence or procedure’.

3.50 An obvious example of the type of clause which falls within (a) is one setting a time limit on: •

the notification of breach;114 or

•

the making of a claim.115

It could also apply to a clause stating the jurisdiction (or location of the court) in which a claim is to be made.116 3.51 The reference in UCTA, section 13(1)(a) to ‘onerous conditions’ requires some assessment of whether the relevant conditions are onerous, but such an assessment should not be made so as to constitute a major hurdle

The exceptions being ss 3(2)(b) and 10.

111

Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] 2 All ER 257; AXA Sun Life Services plc v Campbell Martin Ltd and others and other appeals [2011] EWCA Civ 133, [52].

112

Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] 2 All ER 257 per Lord Donaldson at 260.

113

Thomas Witter Ltd v TBP Industries Ltd (1994) 12 Tr LR 145.

114

Edmund Murray Ltd v BSP International Foundations Ltd (1992) 33 Con LR 1 per Neill LJ.

115

Snooks v Jani-King (GB) Ltd [2006] EWHC 289 at [27]. In relation to the question of whether a condition is ‘restrictive or onerous’, the example was given that ‘if an agreement between say two North European companies contained a provision that it could only be enforced in, say, a particular court in South America, then s 13(1)(a) might well have applied, but that would not have been the case if the clause had merely said that the contract could be enforced anywhere but in that particular court in South America’.

116

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in the path of the application of UCTA. In most cases, finding that UCTA is applicable will merely result in the application of the requirement of reasonableness and ‘conditions’ can be regarded as ‘onerous’ for the purposes of UCTA, section 13(1)(a) even though they may satisfy that requirement. In Edmund Murray Ltd v BSP  International Foundations Ltd,117 clause 12.2 of an agreement between the parties contained seven conditions viewed as falling within UCTA under section 13(1)(a) but only one failed to ‘satisfy the requirement of reasonableness’. In Granville Oil and Chemicals Ltd v Davies Turner and Co Ltd118 a clause placed a time limit for a customer of a freight forwarder of nine months to make a claim (and provide written notice) was held reasonable. The Court of Appeal proceeded on the basis that this clause: ‘restricted [the appellant freight forwarders] liability for such breaches by making its enforcement subject to restrictive conditions, so the 1977 Act applied to this term’.

3.52 The Court of Appeal did not agree with trial judge that the clause was too wide because the clause could encompass fraud or that the freight forwarder failed to insure. On the facts of the case, a nine-month period was reasonable as the customer would know relatively soon that the goods requiring transportation were damaged, but a failure to insure by the freight forwarders might make the nine-month period unreasonable. But on the facts where there was a failure by the freight forwarders to notify the customer that the insurance claim had been rejected by the underwriters, it was held by the Court of Appeal it was reasonable to fix the same time period as for damage to the goods. 3.53 Section UCTA, section 13(1)(b) covers clauses which are the ‘counterpart’ of an exclusion of liability as they exclude ‘any right in respect of the breach’119. It also covers less all embracing clauses which merely remove recourse to a particular remedy. In Stewart Gill Ltd v Horatio Myer & Co Ltd,120 a clause preventing a set-off was seen as falling within UCTA, section 13(1) (b). It was: ‘excluding the defendants’ “right” to set off their claims against the plaintiffs’ claim for the price and further excluding the “remedy” which they would otherwise have’.121

(1992) 33 Con LR 1, [1993] Lexis Citation 2198.

117

[2003] EWCA Civ 570; Rohlig UK Ltd v Rock Unique Ltd [2011] EWCA Civ 18, [23].

118

Lease Management Services Ltd v Purnell (1994) 13 Tr LR 337 at 344.

119

[1992] 2 All ER 257.

120

[1992] 2 All ER 257 per Lord Donaldson at 260. See also Fastframe Franchises Ltd v Lohinski (3  March 1993, unreported); Schenkers v Overland Shoes Ltd [1998] 1 Ll LR  498 per Pill LJ at 506; Skipskredittforeningen v Emperor Navigation [1997]  CLC  1151; AXA  Sun Life Services plc v Campbell Martin Ltd and others and other appeals [2011]  EWCA  Civ 133, [52]. But see WRM Group v Wood [1998] CLC 189.

121

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The exclusion or restriction of the right to set-off may also have procedural aspects, excluding or restricting the procedural rules as to set-off, and so bringing it within UCTA, section 13(1)(c) as well as UCTA, section 13(1) (b).122 A clause reversing a burden of proof123 provides another example of the type of situation falling within UCTA, section 13(1)(c).

Obligations 3.54 The final part of UCTA, section 13(1) is more problematic. It ensures that the scope of UCTA extends to some terms or notices which take the form of part of the definition of the obligation. In so far as is relevant UCTA, section 13(1) states: ‘To the extent that this part of this Act prevents the exclusion or restriction of any liability … ss  2, 6 and 7 also prevent excluding or restricting any liability by reference to terms and notices which exclude or restrict the relevant obligation or duty’.

3.55 UCTA does not state which terms or notices which ‘exclude or restrict the relevant obligation or duty’ are to be treated in this way. The section seems to highlight the need for a ‘form and substance’ distinction to be made,124 to identify terms or notices which in form relate to the definition of the obligation but are, in substance, exclusions of liability, but does not, itself, provide any basis for the distinction to be drawn. The presence of this part of UCTA, section 13(1) highlights the conceptual vacuum at the centre of UCTA which stems from the absence of any definition of terms or notices which ‘exclude or restrict liability’. It is possible to understand: •

the lack of appropriate definition; and

Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] 2  All ER  257 per Lord Donaldson at 260; United Trust Bank Ltd v Dohil [2011]  EWHC  3302 (QB), [51] concerning a clause in a guarantee which stated ‘2.4 Any statement of account prepared by the Bank in relation to the Principal Debtor, signed as correct by an officer of the Bank, showing the amount of the Guaranteed Liabilities shall, in the absence of manifest error, be binding and conclusive on and against the Guarantor.’ The party that wished to call on the guarantee argued that this clause prevented the guarantor raising a defence of a set-off. The court held that the clause were confined to ‘the mathematical calculations of the indebtedness and does not extend to preclude the ability to advance cross-claims by way of set-off which would have the effect of reducing or diminishing the indebtedness. It does not seem to me right, looking at the words used in cl 2.4, to treat the provision as extending beyond its mathematical and means of proof parameters’. The court was able to rely on another provision of the guarantee which placed the guarantor under an obligation to make payments without any set-off.

122

For example Fred Chappell Ltd v National Car Parks Ltd (1987) Times, 22 May.

123

Johnstone v Bloomsbury Health Authority [1991] 2 All ER 293 per Stuart Smith LJ at 301; Phillips Products Ltd v Hyland [1987] 2 All ER 620 per Slade LJ at 626; Smith v Eric S Bush [1989] 2 All ER 514 per Lord Griffiths at 530; Cremdean Properties v Nash [1977] EGD 63. But see Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] 2 All ER 257 per Lord Donaldson at 625; Fillite (Runcorn) Ltd v APV Pasilac Ltd (22 April 1993, unreported), HH Judge Bowsher QC (Off Ref).

124

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•

the need for a ‘form and substance’ approach

in the context of the argument that an exclusion clause is not a distinct type of clause at all, but simply part of the definition of the obligations. Because it is possible to draft a clause which is in the form of an exclusion of liability instead as a clause in the form of part of the definition of the obligations.125 3.56

For example, consideration the following:

• Party A  has agreed to sell goods to Party B  and deliver them by a certain date. •

Party A may wish to ensure that it will not be liable to Party B if industrial action causes late delivery.

•

Party A could achieve that by a clause in more than one form:

•

Party A could simply use a clause stating that liability for late delivery is excluded where it is caused by industrial action; or

•

Party A could specify that it is only obliged to deliver by the stated date if there is no industrial action.

3.57 Accordingly, it is possible to achieve the same result by two different forms of clause as others have indicated126 that there is no distinction between exclusion clauses and clauses defining the obligations other than at the level of form. The basis of this argument is that both forms of clause mark out the boundaries within which a legal remedy is available, so that: • a clause in the form of an exclusion of liability does that by removing the legal remedies for breach of what would be, without the clause, an obligation; and • a clause in the form of part of the definition of the obligations simply states the obligations. 3.58 The equation of exclusion clauses with those defining the obligation could have led to avoidance of UCTA by the redrafting of exclusion clauses in the form of part of the definition of the obligation. A similar point can be made in relation to non-contractual notices.127 3.59 However, it is possible to contend that it is possible to distinguish terms or notices which exclude liability from those which form part of the definition of the obligations at a level other than form and that such a distinction is assumed, and required, by the last part of UCTA, section 13(1),

The reference here is to what are sometimes called the ‘primary obligations’ and not the ‘secondary obligations’ which come into play once a breach has occurred, for example paying damages.

125

Coote Exception Clauses (1964) chs 1 and 10.

126

See para 3.84 in relation to disclaimers and the duty of care.

127

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which provides the mechanism to prevent easy avoidance of UCTA through adjusting the form of a term or notice.128 3.60 The form and substance distinction and whether a clause defines the obligations or, in fact, excludes liability remains relevant for a court to consider in some case law. In IFE  Fund SA  v Goldman Sachs International129 the court considered provisions which concerned information supplied to the defendants and for which the defendants stated, among other things, that it had: ‘…not independently verified the information set out in this Memorandum. Accordingly, no representation, warranty or undertaking, express or implied, is made and no responsibility is accepted by Goldman Sachs International… as to or in relation to the accuracy or completeness or otherwise of this Memorandum or as to the reasonableness of any assumption contained therein or any other information made available in connection with the Facilities (whether in writing or orally) to any interested party (or its advisors)’.130

3.61 The court characterised this provision so that a claim under UCTA (for negligent misstatement) or under the Misrepresentation Act 1967 turned on whether: ‘…the relevant paragraphs of the [Goldman Sachs’ Syndicate Information Memorandum] are properly to be understood as excluding a liability for misrepresentation or as going to the question whether the alleged representation was made at all. If the latter, neither Act has any relevance to them’.131

3.62 The court considered the matter as requiring the distinguishing of substance from form. In this case the non-verification of the accuracy or completeness of information was relevant to the ‘scope of the representations made’ and not, for the purposes of the UCTA and the 1967 Act, as concerning the exclusion of liability, so that: ‘The relevant paragraphs of the [Goldman Sachs’ Syndicate Information Memorandum] are not in my view to be characterised in substance as a notice excluding or restricting a liability for negligence, but more fundamentally as going to the issue whether there was a relationship between the parties (amounting to or equivalent to that of professional adviser and advisee) such as to make it just and reasonable to impose the alleged duty of care.’132

3.63 A  distinction also followed in JP  Morgan Chase Bank v Springwell Navigation Corp133 where the court indicated that there was:

See also UCTA, s 3(2)(b).

128

[2006] EWHC 2887 (Comm).

129

IFE Fund SA v Goldman Sachs International [2006] EWHC 2887 (Comm), [40].

130

ibid, [67].

131

ibid, [71]; Titan Steel Wheels Ltd v Royal Bank of Scotland Plc [2010] EWHC 211 (Comm), [98][99].

132

[2008] EWHC 1186 (Comm), [601].

133

165

Chapter 3  The Unfair Contract Terms Act 1977 ‘[a] clear distinction between clauses which exclude liability and clauses which define the terms upon which the parties are conducting their business; in other words, clauses which prevent an obligation from arising in the first place’134

and, on the facts of the case, UCTA, section 2 would not cover those terms that define the basis on which the parties are contracting, because: ‘otherwise every contract which contains contractual terms defining the extent of each party’s obligations would have to satisfy the requirement of reasonableness’.135

3.64 The decision in this case was influenced by decisions in such cases such as Photo Productions Ltd v Securicor Transport Ltd,136 Granville Oil and Chemicals Ltd v Davies Turner137 and George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd138 where in effect, the parties to a commercial contract who are of equal bargaining size should be left to ‘apportion the risks as they think fit’139 and that a court should be respect their decisions140 as it ‘reflects the strong business need for commercial certainty’ for contracts which are substantial transactions between commercial parties.141 3.65 In the absence of some central definition of terms or notices excluding liability, there is nothing in UCTA to indicate how it is possible to make this form and substance distinction, and more recent cases such as JP Morgan Chase Bank v Springwell Navigation Corp IFE Fund SA v Goldman Sachs International do not help, as such, at a general level on how to make the distinction although they clearly signal that the distinction is relevant. 3.66 Also, the use of a ‘but for’ test for the operation of UCTA, section 13(1) appears to have been the approach of the courts in some cases: • in Smith v Eric S Bush (a firm)142 the court took this approach as there was an obligation, and liability, ‘but for’ the disclaimer, the disclaimer was treated as a notice ‘excluding or restricting liability’ falling within the scope of UCTA, sections 2; • in Phillips Products v Hyland143 The same approach was used in relation to contract terms by Slade LJ: ‘In considering whether there has been a breach of any of the obligations referred to in para (a) [of s 1(1)] or of any duty of the nature referred to in

JP Morgan Chase Bank v Springwell Navigation Corp [2008] EWHC 1186 (Comm), [601].

134

ibid; Titan Steel Wheels Ltd v Royal Bank of Scotland Plc [2010] EWHC 211 (Comm), [100].

135

[1980] AC 8, [2003] 1 All ER (Comm) 819.

136

[2003] EWCA Civ 570.

137

[1983] 2 AC 803.

138

Photo Productions Ltd v Securicor Transport Ltd [1980] AC 8.

139

See para 3.214 below.

140

JP Morgan Chase Bank v Springwell Navigation Corp [2008] EWHC 1186 (Comm), [604].

141

[1989] 2 All ER 514 per Lord Griffiths at 530.

142

[1987] 2 All ER 620 at 625.

143

166

Chapter 3  The Unfair Contract Terms Act 1977 para (b) or (c), the court has to leave out of account, at this stage the contract term which is relied on by the defence as defeating the plaintiff’s claim for breach of such obligation or such duty …’.

3.67 There has been little consideration by the courts of the ‘but for’ test. It was not applied in National Westminster Bank v Utrecht-America Finance Co144 when the Court of Appeal was invited to use it to determine whether a nondisclosure clause should be subject to the Canada Steamship v R145 approach to the construction of exemption clauses. There will be consideration of the court’s approach in that latter case below. First, it is necessary to address more general difficulties in the ‘but for’ test. 3.68 There has been criticism of the ‘but for’ test because it reflects a superseded view of the role of disclaimers as defences rather than as relevant to the question of whether a duty of care has arisen.146 A related criticism is that ‘but for’ relates to the ‘issue of liability for poor services rather than the scope of the service to be provided’ and has been superseded by later case law: ‘…in regard to the assumption of responsibility and the move away from any “but for” test in regard to the existence and extent of any duty’.147

3.69 However, the more basic criticism is simply that it is too wide, and that it does not make an appropriate ‘form and substance’ distinction. Such a test would, for example, seem to render subject to UCTA any express term contradicting a term which would, absent the clause, be implied into a contract falling within UCTA.148 ‘But for’ the clause the implication would be made. 3.70 In addition, the ‘but for’ test would seem to make it impossible for the parties to define an obligation to take due care by stating it widely and then qualifying it, without it being subject to UCTA, section 2. However, perhaps the width of the ‘but for’ test is most forcefully illustrated by reference to the terms implied by the Sale of Goods Act 1979 (SGA).149 For a sale to a person UCTA, section 6(1A) prevents the exclusion or restriction of the terms implied by Sale of Goods Act 1979, sections 13–15 by a contract term unless the contract satisfies the requirement of reasonableness.150 The point to be

[2001] 3 All ER 733.

144

[1952] AC 192.

145

First National Commercial Bank v Loxleys (1996) 141 Sol Jo LB 6, [1996] Lexis Citation 3884.

146

Titan Steel Wheels Ltd v Royal Bank of Scotland Plc [2010] EWHC 211 (Comm), [104].

147

Provided the liability existing in the absence of the clause is appropriate to bring the clause within the Act, for example negligence liability falling within s 2: Johnstone v Bloomsbury Health Authority [1991] 2  All ER  293. But see L  Gent and Sons (a firm) v Eastman Machine Co Ltd [1986] BTLC 17, Oliver LJ.

148

On the implied terms see generally Benjamin’s Sale of Goods (5th edn, Sweet & Maxwell), Atiyah and Adams The Sale of Goods (9th edn, Pearson Education); Bridge The Sale of Goods (Oxford University Press).

149

UCTA, s 6 also deals with clauses excluding or restricting the terms implied into hire-purchase contracts (Supply of Goods (Implied Terms) Act 1973) and UCTA, s 7 similarly deals with the exclusion or restriction of terms implied by the Supply of Goods and Services Act 1982.

150

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made here is that the ‘but for’ test would seem to make subject to UCTA any clause which was merely intended to show that the transaction was not one in which it was appropriate to imply the term in question. For example, a clause indicating that ‘sale’ goods were simply sold as seen and not ‘by description’ would be subject to UCTA as a clause in the absence of which section 13(1) of the 1979 Act would imply a term151 that the goods should correspond with their description.152

Negligence – section 2 The section 3.71 UCTA, section 2 deals with the attempted exclusion or restriction of liability for negligence through: ‘any contract term or notice given to persons generally or to particular persons’.

The reference to ‘notices’153 extends the coverage of the section to notices which are not contractual:154 ‘…the words “a notice given to persons generally” in subsection (1) show that the section is directed in part to notices addressed to the public at large, with whom the author is unlikely to have any contractual connection’.155

and it is clear that vicarious liability is encompassed.156 As with most of UCTA,157 the section only applies to ‘business liability’158 and there are restrictions on the contracts to which it can apply in whole, or in part.159 3.72 The effect of the section on terms or notices which exclude or restrict liability for negligence is dependent upon the nature of the injury caused:

Unless it is asked whether the contents of the clause has gained any existence independent of the clause containing it, in the minds of the parties, so that such existence remains even though the clause itself is removed by the ‘but for’ test.

151

Contrast Cavendish Woodhouse v Manley (1984) 82 LGR 376 and Hughes v Hall [1981] RTR 430.

152

A ‘notice’ includes ‘an announcement, whether or not in writing, and any other communication or pretended communication’: UCTA, s 14.

153

Davies v Parry [1988] 1 EGLR 147 per McNeil J at 155. Eg Smith v Eric S Bush [1989] 2 All ER 514; Beaton v Nationwide Building Society [1991] 2 EGLR 145; McCullagh v Lane Fox & Partners Ltd [1996] 1 EGLR 35, 49 Con LR 124; Stevenson v Nationwide Building Society [1984] EGD 934; Taberna Europe CDO II plc v Selskabet AF1 (formerly Roskilde Bank A/S) [2017] 2 WLR 803, [18]: ‘The language of section 2 of the Unfair Contract Terms Act 1977 shows that it is directed both to contractual terms and non-contractual notices which purport to exclude or restrict liability for negligence’.

154

Taberna Europe CDO II plc v Selskabet AF1 (formerly Roskilde Bank A/S) [2017] 2 WLR 803, [18].

155

UCTA, s 1(4). Phillips Products Ltd v Hyland [1987] 2 All ER 620 per Slade LJ at 625.

156

The exceptions are UCTA, ss 6(4) and 8.

157

UCTA, s 1(3), see para 3.10.

158

UCTA, Sch 1, ss 26–29, see para 3.23.

159

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• Under UCTA, section 2(1), when the liability is for negligently caused death or personal injury, the exclusion or restriction of liability is immediately ineffective, without any need to consider the reasonableness of the term or notice. • Under UCTA, section 2(2), in the case of ‘other loss or damage’, the exclusion or restriction is ineffective ‘except in so far as the term or notice satisfies the requirement of reasonableness’.160 Personal injury includes: ‘any disease and any impairment of physical or mental condition’.161

3.73 The ‘other loss or damage’ in UCTA, section 2(2) covers not only liability for negligently caused physical damage to property but also pure economic loss. The division in the section is dependent upon the nature of the injury caused by the negligence and not the particular loss for which a claim is being made. When a claim is made for financial loss consequent upon death or personal injury, UCTA, section 2(1) can be used to defeat a term or notice attempting to exclude or restrict liability.

Overlap with UCTA, section 3 3.74 There is an overlap between UCTA, section 2 and UCTA, section 3 when the liability for negligence is contractual and to someone who on the party’s ‘written standard terms of business’.

Negligence 3.75 For the purposes of Part 1 of UCTA, ‘negligence’ is defined in UCTA, section 1(1)162 as the breach: ‘(a) of any obligation, arising from the express or implied terms of a contract, to take reasonable care or exercise reasonable skill in the performance of the contract; (b) of any common law duty to take reasonable care or exercise reasonable skill (but not any stricter duty);

Flamar Interocean Ltd v Denmac Ltd (The Flamar Pride and Flamar Progress) [1990] 1 Lloyd’s Rep 434 per Potter J. Building Services (London) Ltd v Kerryredd Engineering Ltd (12 April 1991, unreported), CA.

160

UCTA, s 14.

161

Johnstone v Bloomsbury Health Authority [1991] 2 All ER 293. Absent of UCTA, ‘…any breach of an obligation to exercise reasonable care and skill would, in common legal language, be called “negligence”, whether the source of the obligation is a term of the contract or the law of tort.’: Triple Point Technology Inc v PTT Public Company Ltd [2021] UKSC 29, [101].

162

169

Chapter 3  The Unfair Contract Terms Act 1977 (c) of the common duty imposed by the Occupiers’ Liability Act 1957 or the Occupiers’ Liability Act (Northern Ireland) 1957’.

3.76 UCTA, section 1(1)(a) deals with contractual obligations to exercise reasonable care and skill.163 The content of contractual obligations depends upon the particular contract terms, but obligations of care and skill commonly arise where what is in question is the provision of a service164 and the Supply of Goods and Services Act 1982, section 13 implies a term into contracts: ‘for the supply of a service where the supplier is acting in the course of a business’

that the supplier of the service will carry it out ‘with reasonable care and skill’. 3.77 The reference to the ‘common law duty of care’ in UCTA, section 1(1)(b) covers the situations in which there is: •

a tort action for negligence under Donoghue v Stevenson;165 or

•

a negligent misstatement under Hedley Byrne & Co v Heller & Partners;166 and also

• other actions to which negligence is relevant, but it is expressly stated to exclude coverage of any action based on a stricter duty such as that provided for by Rylands v Fletcher.167 The other meaning given to negligence in UCTA, section 1 is a breach of the common duty of care under the Occupiers’ Liability Act 1957, section 2(2).168 3.78 Although the use of the word ‘negligence’ is capable of meaning a contractual or non-contractual (tortious) failure to take reasonable care or exercise reasonable skill, in a clause in a commercial contract it is likely to mean only a contractual failure to take reasonable care or exercise reasonable skill, depending on the facts of a case. In Triple Point Technology Inc v PTT Public Company Ltd169 an exemption clause stated: ‘12.3 … The total liability of CONTRACTOR to PTT under the Contract shall be limited to the Contract Price received by CONTRACTOR with respect to the services or deliverables involved under this Contract. Except for the specific remedies expressly identified as such in this Contract, PTT’s exclusive remedy for any claim arising out of this Contract will be for CONTRACTOR, upon written notice, to use

Salvage Assn v CAP Financial Services Ltd [1995] FSR 654.

163

Bolam v Friern Hospital Management Committee [1957] 2 All ER 118 McNair J at 121. But strict liability does occur, for example Greaves & Co (Contractors) Ltd v Baynham Meikle & Partners [1975] 1 WLR 1095.

164

[1932] AC 562. For example Phillips Products Ltd v Hyland [1987] 2 All ER 620.

165

[1964]  AC  465. For example Smith v Eric S  Bush [1989] 2  All ER  514, Beaton v Nationwide Building Society [1991] 2 EGLR 145, McCullagh v Lane Fox & Partners Ltd [1996] 1 EGLR 35, (1995) 49 Con LR 124.

166

(1868) LR 3 HL 330.

167

And the equivalent Northern Ireland provisions.

168

[2021] UKSC 29.

169

170

Chapter 3  The Unfair Contract Terms Act 1977 best endeavour to cure the breach at its expense, or failing that, to return the fees paid to CONTRACTOR for the Services or Deliverables related to the breach. This limitation of liability shall not apply to CONTRACTOR’s liability resulting from fraud, negligence, gross negligence or wilful misconduct of CONTRACTOR or any of its officers, employees or agents.’170

3.79 Lord Leggat stated that a compelling reason for holding that the word ‘negligence’ has a ‘straightforward and ordinary legal meaning’ is that the clause: ‘only deal[s] with liability for breach’ of [the contract] and does not deal with liability in tort at all. It therefore makes no sense to interpret the word “negligence” in [last sentence of the quoted clause] as referring to a basis of liability which is not part of the subject matter of the clause. The cap imposed in [first sentence quoted] applies to the total liability of the Contractor under the […] Contract. It does not apply to any other liability which the Contractor might have independently of the […] Contract under the law of tort.’171

Requirement of reasonableness 3.80 The standard for reasonableness concerning contractual and noncontractual notices should be the same, as held in one case: ‘the fundamental standard to be met in order to satisfy the “reasonableness test” is broadly the same for both contractual and non-contractual notices, namely that it should be fair and reasonable in all the relevant circumstances’.172

3.81 However, there is some necessary distinction as to what constitutes ‘relevant circumstances’: •

contract: under UCTA, section 11(1), the requirement of reasonableness is that the term shall have been a fair and reasonable one to be included in the contract, having regard to the circumstances which were, or should have been, known to the parties at the time of contracting;

•

non-contractual:173 UCTA, section 11(3) states that it ‘should be fair and reasonable to allow reliance on it having regard to all the circumstances obtaining when the liability arose or (but for the notice) would have arisen’. Triple Point Technology Inc v PTT Public Company Ltd [2021] UKSC 29, [12].

170

ibid [101]. The judge also went to briefly consider the other words appearing the final sentence of the quoted clause: ‘The terms “gross negligence” and “wilful misconduct” are not, at least in common law systems, separate torts. It seems clear that those terms must be intended to describe, or at the very least to include, conduct which amounts to a breach of the contract. The same is true of “fraud”. Although that term could be used to refer to claims in tort such as claims in the tort of deceit, it is apt also to refer to fraud which would entitle the innocent party to rescind the contract or fraud in the performance of the contract. It is anomalous to treat the term “negligence” as excluding negligent conduct which amounts to a breach of the contract when there is no similar restriction on the scope of the other terms in the list.’ (from [102]).

171

Salvage Assn v CAP Financial Services Ltd [1995] FSR 654 HH Judge Thayne Forbes (Off Ref).

172

Stevenson v Nationwide Building Society [1984] EGD 934.

173

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The requirement of reasonableness is dealt with, generally, below.174

Terms and notices excluding or restricting liability 3.82 UCTA, section 13(1) makes it clear that the operation of the first part of UCTA is not confined to clauses simply in the form of exclusions or restrictions of liability.175 It puts it beyond doubt that UCTA, section 2 will also apply to a term or notice • making the liability or its enforcement subject to restrictive or onerous conditions;176 or •

excluding any right or remedy;177 or

•

excluding or restricting rules of evidence or procedure.178

3.83 In addition, the final part of UCTA, section 13(1) also makes it clear that UCTA, section 2 extends to terms or notices which exclude or restrict the ‘relevant obligation or duty’. This is dealt with further below.

Excluding or restricting the obligation or duty 3.84 The scope of UCTA, section 2 provides an example of the problem of determining the appropriate application of UCTA when exclusions of liability can be indistinguishable, at least in form, from the definition of the obligation.179 3.85 Here the problem may occur, for example, in relation to a claim for negligent misstatement because of a disclaimer.180 Disclaimers are viewed as relevant to the question of whether a duty of care arises between the maker of a statement and the injured party.181 However, against the background of the last part of UCTA, section 13(1) which states that to the extent that UCTA, sections 2, 6 and 7 prevent the exclusion or restriction of liability, they: ‘also prevent excluding or restricting liability by reference to terms and notices which exclude or restrict the relevant obligation or duty’,

See para 3.80.

174

See further para 3.178.

175

UCTA, s 13(1)(a).

176

Or subjecting any person to any prejudice in consequence of his pursuing any such right or remedy; UCTA, s 13(1)(b).

177

UCTA, s 13(1)(c).

178

See para 3.54.

179

The same difficulty arises in relation to conditions attached to a licence to enter onto land.

180

Henderson v Merrett Syndicates Ltd [1994] 3  All ER  506 per Lord Goff at 521, First National Commercial Bank plc v Loxleys (1996) 141 Sol Jo LB 6 per Nourse LJ.

181

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disclaimers have been seen as falling within the scope of UCTA, section 2 on the basis of the ‘but for’ test. 3.86 In Smith v Eric S Bush (a firm)182 the court took the approach that as there was an obligation, and liability, ‘but for’ the disclaimer, the disclaimer was treated as a notice ‘excluding or restricting liability’ and within the scope of UCTA, section 2.183 3.87 This approach has been criticised as reflecting a superseded view of the role of disclaimers as defences rather than as relevant to the question of whether a duty of care has arisen184 and no longer reflects the approach of later case law as whether there is an assumption of responsibility.185 In addition, sometimes the application of UCTA, section 2 has just been assumed.186 Nevertheless, an issue of form and substance does arise here and it should be possible to identify those terms which, whilst they are, in form, part of the definition of the obligation, in substance are exclusions of liability. As has been indicated, this can be done by considering the relationship of the term or notice to the creation of the obligation.187 To do so, it will be necessary to look at terms or notices, absent the artificialities which their assessment has acquired – what amounts to ‘reasonably sufficient notice’, for example, can have very little to do with what will impact upon even the reasonable person’s perceptions.188

Voluntary acceptance of risk (‘volenti’) 3.88 Where a contract term or notice purports to exclude or restrict liability for negligence, UCTA, section 2(3) states that ‘a person’s agreement to or awareness of it is not of itself to be taken as indicating his voluntary acceptance of any risk’.

This prevents the evasion of UCTA by a plea that a contract term or notice, excluding or restricting liability, by itself, established that volenti was present and thus that there was no liability. The subsection clearly envisages that volenti may be established if there are factors other than the contract term or notice itself to indicate its presence. The contract term or notice, as one excluding or restricting liability, would seem to be subject to UCTA in the normal way.

[1989] 2 All ER 514 per Lord Griffiths at 530.

182

See also Phillips Products v Hyland [1987] 2 All ER 620 per Slade LJ at 625.

183

First National Commercial Bank v Loxleys (1996) 141 Sol Jo LB 6.

184

Titan Steel Wheels Ltd v Royal Bank of Scotland Plc [2010] EWHC 211 (Comm), [104].

185

McCullagh v Lane Fox & Partners Ltd [1996] 1 EGLR 35 (1995) 49 Con LR 124 per Hobhouse LJ at 35; First National Commercial Bank plc v Loxleys (1996) 141 Sol Jo LB 6; Stevenson v Nationwide Building Soc [1984] EGD 934; Halloway v Cuozzo (1999) Lexis, 9 February.

186

See para 3.54

187

ibid.

188

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3.89 If there was a term or notice which did not take the form of an exclusion or restriction of liability but was in the form merely of an attempt to show that volenti was present, it might, nevertheless, be treated as an exclusion of liability falling under UCTA. In Johnstone v Bloomsbury Health Authority189 it was held that if it was possible to interpret the relevant term as an express term showing volenti then it fell ‘to be considered in the light of s 2(1) of UCTA’.190 3.90 The impact of UCTA on such a term or notice should, in principle, depend upon the application of a form and substance test as indicated above to determine whether the term or notice was, in substance, one excluding liability.

Indemnities 3.91 UCTA, section 2 applies to indemnity, and analogous clauses,191 in some situations.192 In relation to indemnity and analogous clauses, determining the scope of UCTA, section 2 requires a distinction to be made between clauses acting •

‘reflexively’; or

•

as ‘insurance clauses’.

That is a clause may operate when the liability in question is to the indemnifier (reflexive) or when it is to a third party (insurance).193 3.92 The line is taken that when liability for negligence is in question, an indemnity or analogous clause will be subject to UCTA, section 2 when it

[1991] 2 All ER 293.

189

[1991] 2 All ER 293 per Stuart Smith LJ at 298.

190

In Phillips Products Ltd v Hyland [1987] 2 All ER 620 and Thompson v Lohan [1987] 2 All ER 631 the clause was a ‘transfer servant clause’. It was not viewed as a clause to which the common law rules for the interpretation of indemnity clauses applied (Phillips Products per Slade LJ at 626, Thompson v Lohan per Fox LJ at 636–637, following Arthur White Contractors Ltd v Tarmac Civil Engineering Ltd [1967] 1 WLR 1508) but in Thompson v Lohan Dillon LJ said at 639: ‘in a sense it is an indemnity clause, so far as it extends when it provides that the hirer shall alone be responsible as between the parties for all the claims arising in connection with the operation of the plant by the driver or operator’. A ‘transferred servant’ type of clause might still be construed as an indemnity for the purposes of the UCTA, should the question arise.

191

Phillips Products Ltd v Hyland [1987] 2 All ER 620; Thompson v Lohan [1987] 2 All ER 631; Jones v Northampton BC (1999) Times, 21 May; Hancock Shipping Co Ltd v Deacon & Trysail (Private) Ltd, The Casper Trader [1991] 2 Ll Rep 550 per Steyn J  at 552; USA  v ARC  Construction Ltd (8 May 1991, unreported), Hobhouse J.

192

Adams & Brownsword ‘Double Indemnity – Contractual Indemnity Clauses Revisited’ [1988] JBL 146.

193

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operates reflexively,194 but not when it operates as an insurance clause.195 In Phillips Products Ltd v Hyland, in taking the view that UCTA, section 2 operated in a reflexive case, the point was made that: ‘the transfer of liability from A to B necessarily and inevitably involves the exclusion of liability so far as A is concerned’.196

3.93 That reasoning is wide enough to bring within UCTA, section 2, clauses operating as insurance clauses, as well as those operating reflexively. However, subsequently, that case has been distinguished and the line taken that UCTA, section 2 does not apply where the clause is operating as an insurance clause. That distinction is made on the basis that when the clause is operating as an insurance clause, it has no impact upon the injured party. In Thompson v Lohan the court held:197 ‘In my opinion s 2(1)198 is concerned with protecting the victim of negligence … It is not concerned with the arrangements made by the wrongdoer with other persons as to the sharing or bearing of the burden of compensating the victim. In such a case, it seems to me that there is no exclusion or restriction of liability at all’.

3.94 Of course, when a clause operates reflexively, it is the person injured by the negligence against whom it is being used. The current approach to the application of UCTA, section 2 to indemnity clauses can be criticised. As has been indicated, an indemnity clause normally has the potential to operate in two ways, either ‘reflexively’ or as an ‘insurance’199 clause. On the above approach, whether it is treated as a clause ‘excluding or restricting liability’ will depend upon whether, in the particular case, it happens to act reflexively or as an insurance clause.200 It can be regarded as inappropriate to establish, in some sense, the ‘nature’ of a clause, only subsequent to the formation of a contract.

Phillips Products Ltd v Hyland [1987] 2 All ER 620 per Slade LJ at 626.

194

Thompson v Lohan [1987] 2 All ER 631; Jones v Northampton BC (1999) Times, 21 May; Hancock Shipping Co Ltd v Deacon & Trysail (Private) Ltd, The Casper Trader [1991] 2 Ll Rep 550 per Steyn J at 552; USA v ARC Construction Ltd (8 May 1991, unreported) per Hobhouse J.

195

Phillips Products Ltd v Hyland [1987] 2 All ER 620 per Slade LJ at 626.

196

[1987] 2 All ER 631 per Fox LJ at 638. See also Hancock Shipping Co Ltd v Deacon & Trysail (Private) Ltd [1991] 2 Ll Rep 550 per Steyn LJ at 552: ‘I  am satisfied that [s  2] is not applicable because it is clearly only concerned with the exclusion of primary liability’; USA v ARC Construction Ltd (8 May 1991, unreported), Hobhouse J.

197

The same applies to s 2(2); Thompson v Lohan [1987] 2 All ER 631 at 638; USA v ARC Construction Ltd (8 May 1991, unreported), Hobhouse J.

198

Adams & Brownsword ‘Double Indemnity – Contractual Indemnity Clauses Revisited’ [1988] JBL 146.

199

It might operate as both in which case it might be rendered ineffective because s  2, for example, would apply to it because of the reflexive element: see USA v ARC Construction Ltd (8 May 1991, unreported).

200

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Dealing on the other party’s written standard terms – UCTA, section 3201 The section 3.95 UCTA, section 3 applies the requirement of reasonableness to certain terms in certain contracts. Some contracts are excluded from its scope, in whole or in part.202 Otherwise the contracts to which it applies are those in which one party: ‘deals on the other’s written standard terms of business’.203

In other words, it applies to contracts under which the ‘proferens’ (the party seeking to rely upon the clause in question), either contracted on his, her, or its, ‘written standard terms of business’. As is generally the case under UCTA, section 3 is concerned only with ‘business liability’.204 3.96 Within the contracts to which UCTA, section 3 applies, the terms which are subject to the reasonableness test are set out in UCTA, section 3(2). It applies to those terms under which the proferens claims: (a) when in breach of contract, to exclude or restrict any of its liability in respect of that breach;205 or (b) to be entitled to render a performance substantially different from that which was reasonably expected,206 or, in whole or part, to render no performance at all.207

W Photoprint Ltd v Forward Trust Group Ltd (1993) 12 Tr LR 146. Liberty Life Ins Co Ltd v Sheikh (1985) Times, 25 June. Lease Management Services Ltd v Purnell Secretarial Services Ltd (1994) 13 Tr LR 337. USA v ARC Construction Ltd (8 May 1991, unreported). St Albans City and District Council v International Computers Ltd [1996] 4 All ER 481 CA; AEG (UK) Ltd v Logic Resources Ltd [1996] CLC 265; Edmund Murray Ltd v BSP International Foundations Ltd (1993) Con LR 1. Charlotte Thirty Ltd and Bison Ltd v Croker Ltd (1990) 24 Con LR 46; Chester Grosvenor Hotel Ltd v Alfred McAlpine Management Ltd (1991) 56 Build LR 115; Stag Line v Tyne Ship Repair, The Zinnia [1984] 2 Ll Rep 211; Schenkers Ltd v Overland Shoes Ltd [1998] 1 Ll Rep 498; Peninsular and Oriental Steam Navigation Co v Youell [1997] 2 Ll Rep 136; African Export-Import Bank and others v Shebah Exploration and Production Co Ltd and others [2017] EWCA Civ 845, [2018] 2 All ER 144.

201

UCTA, Sch 1, ss 26–29, see para 3.23.

202

Under Late Payments of Commercial Debts (Interest) Act 1998, s  14, whether or not the relevant term is contained in the purchaser’s written standard terms, UCTA, s  3(2)(b) is specifically made applicable to ‘any contract term which purports to have the effect of postponing the time at which a qualifying debt would otherwise be created by a contract’ to which the 1998 Act applies. Under the 1998 Act both parties will be acting in the course of a business.

203

UCTA, s 1(3).

204

UCTA, s 3(2)(a).

205

UCTA, s 3(2)(b)(i).

206

UCTA, s 3(2)(b)(ii).

207

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3.97 UCTA, section 13(1) makes it clear that the operation of the first part of UCTA is not confined to the simplest form of exclusions or restrictions of liability.208 It puts it beyond doubt that the reference to clauses excluding or restricting liability in UCTA, section 3 will also extend to terms: • making the liability or its enforcement subject to restrictive or onerous conditions;209 or •

excluding any right or remedy;210 or

•

excluding or restricting rules of evidence or procedure.211

3.98 The final part of UCTA, section 13(1), which extends the coverage of some sections212 to terms or notices which exclude or restrict the ‘relevant obligation or duty’, has no application in relation to UCTA, section 3. Also UCTA, section 3(2)(b) itself extends the scope of the section to some clauses which are in the form of part of the definition of the performance required.213 To determine the scope of UCTA, section 3, it is essential to know when one party deals on the other party’s written standard terms of business.

‘Written standard terms of business’ Standard form contracts 3.99 UCTA, section 3 is the most-wide ranging of the sections of UCTA. Before the amendment to UCTA to remove the provisions relating, or concerning the application of provisions, to consumers, it was obvious why it should offer protection to those who deal as consumers, but more generally it is worth briefly considering the need for its additional, and overlapping, application to what can, loosely, be described as ‘standard form contracts’. 3.100 Standard form contracts are a familiar commercial device. They save the cost of negotiating every contract. They allow contracts to be made by relatively unskilled personnel and for the standardisation of risks.214 However, they also generate difficulties. It has been suggested that harsh terms appear in such contracts because of situations not sufficiently divorced

See para 3.48.

208

UCTA, s 13(1)(a).

209

Or subjecting any person to any prejudice in consequence of his pursuing any such right or remedy; UCTA, s 13(1)(b).

210

UCTA, s 13(1)(c).

211

UCTA, ss 2, 6, 7.

212

See para 3.137.

213

Beale, Legislative Control of Fairness: The Directive on Unfair Terms in Consumer Contracts in Beatson & Friedmann eds Good Faith and Fault in Contract (1995); Kessler, ‘Contracts of Adhesion – Some Thoughts about Freedom of Contract’ (1943) Col LR 629, 631–632.

214

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from monopolies,215 but such terms appear even without significant market concentrations.216 3.101 A  more important point may be that the use of standard form contracts ‘is notoriously a situation where the contract may include a fictional element of consent’.217 In Suisse Atlantique Société d’Armement Maritime SA  v NV  Rotterdamsche Kolen Centrale,218 Lord Reid, in considering the problems posed by exemption clauses, said: ‘Probably the most objectionable are found in the complex standard conditions which are now so common. In the ordinary way the customer has no time to read them, and if he did read them he probably would not understand them. And if he did understand and object to any of them, he would probably be told he could take it or leave it. And if he then went to another supplier the result would be the same.’

3.102 In short, there may be problems of inequality of bargaining power when standard form contracts are used, so that even if all the terms are read and understood, there can be no significant negotiation, but there are also problems created simply by the artificiality of the process of contracting using such contracts. They are often not read or understood.219 The parties may well focus on a few of the more obvious terms, such as price and delivery date, and not consider the mass of standard terms.220 This may lead to harsh (or simply unwanted) terms being included in the less obvious, standard terms, in order to increase the competitiveness of those terms which are actively considered.221 In short, the relative lack of attention paid to standard terms may result in contracts which do not necessarily provide what was really wanted,222 and key amongst those standard terms may be the exemption clause. In the Report

Kessler ‘Contracts of Adhesion – Some Thoughts about Freedom of Contract’ (1943) Col LR 629, 631–632; Schroeder Music Publishing Co Ltd v Macauley [1974] 1 WLR 1308 per Lord Diplock at p 1316.

215

Trebilcock ‘An Economic Approach to the Doctrine of Unconscionability’ in Reiter & Swan eds Studies in Contract Law (1980); Priest ‘A Theory of Consumer Product Warranty’ (1981) 90 Yale LJ 1297.

216

AEG (UK) Ltd v Logic Resources Ltd [1996] CLC 265 at 278. See also Interfoto v Stiletto Visual Programmes Ltd [1988] 1 All ER 348.

217

Suisse Atlantique Société d’Armement Maritime SA  v NV  Rotterdamsche Kolen Centrale [1967] 1 AC 361.

218

See also Bridge v Campbell Discount Co Ltd [1962] 1  All ER  385 per Lord Denning at 399: ‘The contract is contained in a printed form. Not one hirer in a thousand reads it, let alone understands it. He takes it on trust and signs it’.

219

See, for example, Monarch Airlines Ltd v London Luton Airport Ltd [1998] 1 Lloyd’s Rep 403.

220

Goldberg ‘Institutional Change and the Quasi Invisible Hand’ (1974) 17 J Law & Econ 461; Ramsay Rationales for Intervention in the Consumer Marketplace, Office of Fair Trading (1984); Beale ‘Legislative Control of Fairness: The Directive on Unfair Terms in Consumer Contracts’ in Beatson & Friedman eds Good Faith and Fault in Contract (Oxford University press,1995).

221

Beale ‘Legislative Control of Fairness: The Directive on Unfair Terms in Consumer Contracts’ in Beatson & Friedman eds Good Faith and Fault in Contract (Oxford University Press,1995).

222

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which preceded UCTA, the Law Commission saw as ‘the essential element’ which led them to conclude that: ‘there must be some measure of control over standard contracts between persons in business’ [ and the] ‘lack of negotiation that exists in most situations where they are used’.223

That lack of negotiation may stem from inequality of bargaining power or simply from ignorance of the terms..

UCTA, section 3 3.103 It is important, for the purpose of UCTA, section 3, to determine if they have dealt on the other party’s ‘written standard terms of business’.224 In St Albans City and District Council v International Computers Ltd the court held: ‘[it] is clear that in order that one of the contracting parties may deal on the other’s written standard terms of business within s 3(1) it is only necessary for him to enter into the contract on those terms’,225

but the section may not apply if the terms are relevant merely because the party against whom they are being used is estopped from denying that they form part of the contract.226 In most cases, it will be clear that the terms are written, and what will fall to be determined is whether: •

the relevant party has standard terms, and

•

whether the parties dealt on them in the instant case.

3.104 In African Export-Import Bank and others v Shebah Exploration and Production Co Ltd and others227 this approach was, in effect, followed to establish whether UCTA should apply and to determine whether any particular term is reasonable.228

Law Com No  69, para  156. One well-known example of lack of negotiation of the terms contained in standard form contracts is the ‘battle of the forms’.

223

W Photoprint Ltd v Forward Trust Group Ltd (1993) 12 Tr LR 146. Liberty Life Ins Co Ltd v Sheikh (1985) Times, 25 June. Lease Management Services Ltd v Purnell Secretarial Services Ltd (1994) 13 Tr L 337. USA v ARC Construction Ltd (8 May 1991, unreported).

224

St Albans City and District Council v International Computers Ltd [1996] 4  All ER  481  CA per Nourse LJ at 491. See also Chapman v Aberdeen Construction Group plc (1990) 27 Feb, Lexis per Lord Caplan: ‘I do not take “deals” to have any narrow specialist meaning. In my view it merely means transacts’.

225

Shearson Lehman Hutton Inc v Maclaine Watson & Co Ltd [1989] 2 Lloyd’s Rep 570 per Webster J at 611.

226

[2017] EWCA Civ 845, [2018] 2 All ER 144.

227

In this case the court held (at para  18): ‘Before the Act can be held to apply and require an inquiry into the reasonableness of any particular term, the party relying on the Act must establish … that:- i) the term is written; ii) the term is a term of business; iii) the term is part of the other party’s standard terms of business; and iv) that the other is dealing on those written standard terms of business.’

228

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3.105 The application of UCTA, section 3 does not require the entire contract to be composed of the proferens’ standard terms.229 There could also be other express230 or implied terms.231 It should also be noted that, although they would normally be part of the standard terms, there would seem to be no requirement that the terms to which the section is applied should be.232

Standard terms 3.106 What can constitute standard terms should depend upon the pattern of dealing on the terms in question, when the contract is of the type to which they are appropriate. Reference can be found to ‘a number of fixed terms or conditions invariably incorporated in contracts of the kind in question by the’ proferens.233 However, whilst a set of terms ‘invariably’ incorporated into contracts of the appropriate type would clearly be standard terms,234 a set of terms may be ‘standard terms’ even though not used ‘invariably’. ‘If this were not so the statute would be emasculated’.235 Otherwise it would be possible to avoid UCTA, section 3 by simply not using the relevant terms on one or two isolated, and unimportant, occasions.236 3.107 A court had held as sufficient that if the relevant terms are ‘usually used’.237 However, it is possible to argue that it is too limited an approach if the only requirement was the use of the terms in more than half of the relevant contracts by that party. For example, a relevant party’s relative bargaining power may vary between different contracting parties. The relevant party may be only able to include its terms in a substantial minority of the contracts it makes. In those

St Albans City and District Council v International Computers Ltd [1995] FSR 686 per Scott Baker J at 706.

229

The Salvage Association v CAP Financial Services Ltd [1995] FSR 654 at 671.

230

St Albans City and District Council v International Computers Ltd [1996] 4 All ER 481; McCrone v Boots Farm Sales Ltd 1981 SLT 103 at 105.

231

But see Degeld Options Ltd v Malook [1997] 6 Bank LR 1.

232

McCrone v Boots Farm Sales Ltd 1981  SLT  103 per Lord Dunpark at 105, by reference to UCTA, s 17 (the near equivalent to UCTA, s 3). UCTA, s 17 refers to ‘standard form contracts’. He said that the contract fell outside of UCTA, s 3 as it was at 438: ‘plain that its form was negotiated between the parties, in that the standard form of management agreement which the defendants possessed at the time … was subject to a number of alterations to fit the circumstances of the case’. Potter J’s conclusion that UCTA, s 3 did not apply could relate not merely to the fact that there had been alterations but also to their extent.

233

Bates and others v Post Office Ltd [2019] EWHC 606 (QB), [1071], [1075].

234

Chester Grosvenor Hotel v Alfred McAlpine Management Ltd (1991) 56 Build LR 115, HH Judge Stannard, Off Ref.

235

ibid.

236

British Fermentation v Compare Reavell [1989] 2 All ER (Comm) 389 at 401.

237

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circumstances, the relevant party’ intention as to use might be significant; that is the intention is to use the terms wherever it is possible to do so.238 3.108 However, in what appears to be the most recent case before the courts, the court held that for the terms of business to be that party’s standard terms of business it has to ‘habitually’ use those terms. The decision was made in the context of the use of a trade body’s model template by the claimants, so that: ‘It is not enough that he sometimes does and sometimes does not. Nor is it enough to show that a model form has, on the particular occasion, been used; the party relying on the Act has to show that such model form is habitually used by the other party.’239

3.109 More generally, it should be a question of whether the whole of the relevant party’s use (and, in some cases, the intended use) of the terms is sufficient for them to be regarded as that party’s standard terms.240 For example: • In Chester Grosvenor Hotel v Alfred McAlpine Management Ltd241 the court held that the two contracts in question were made on McAlpine’s written standard terms of business. The two contracts had been made in December 1984 and November 1985 and between January 1983 and November 1985 McAlpine had entered into 15 other contracts of the relevant type with seven using the relevant terms (with some deviations from the norm): •

six made on the other party’s terms; and

Albeit indicating a too narrow view of what can constitute ‘written standard terms of business’ on the approach indicated above, intention was indicated as relevant in Hadley Design Associates Ltd v Westminster LBC [2003] EWHC 1617. Judge Richard Seymour QC said: ‘it is not enough to bring a case within the Unfair Contract Terms Act 1977, s 3 that a party has established terms of business which it prefers to adopt … Something more is needed, and on principle that something more, in my judgment, is that the relevant terms should exist in written form prior to the possibility of the making of the relevant agreement arising, thus being “written”, and that they should be intended to be adopted more or less automatically in all transactions of a particular type without any significant opportunity for negotiation, thus being standard’.

238

African Export-Import Bank and others v Shebah Exploration & Production Company Ltd and others [2017] EWCA Civ 845, [2018] 2 All ER 144, [20]. The court specifically approved the following passage in relation to this point made here from British Fermentation Products Ltd v Compair Reavell Ltd [1999] 2 All ER (Comm) 389, [46]: ‘I shall not attempt to lay down any general principle as to when or whether UCTA applies in the generality of cases where use is made of model forms drafted by an outside body. However, if UCTA ever does apply to such model forms, it does seem to me that one essential for the application of UCTA to such forms would be proof that the model form is invariably or at least usually used by the party in question. It must be shown that either by practice or by express statement a contracting party has adopted a model form as his standard terms of business. For example, an architect might say: ‘My standard terms of business are on the terms of the RIBA Form of Engagement.’ Without such proof, it could not be said that the form is, in the words of UCTA, ‘the other’s’ standard terms of business. I leave open the question what would be the position where there is such proof, and whether such proof either alone or with other features would make s 3 of UCTA applicable.’

239

But see the very narrow approach indicated in Hadley Design Associates Ltd v Westminster London Borough Council [2003] EWHC 1617.

240

(1991) 56 Build LR 115.

241

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•

two using the JCT Standard Form;

• In St Albans City and District Council v International Computers Ltd242 one particular argument made was that the terms in question were not ICL’s ‘standard terms’ because they were not the current version of the terms used. By accident an older version had been used to make the particular contract. The court rejected the argument that the use of the older version was not the standard terms of ICL stating that ‘the practical way of looking at it is that the plaintiffs were dealing on the defendants’ written standard terms albeit [a previous] edition’.

• In Bates and others v Post Office Ltd,243 unsurprisingly, the Post Office’s terms were held to be standard terms as they were invariably used when it appointed sub-post masters and they were used always without any variations to them.

The proferens’ standard terms 3.110 For a case to fall within UCTA, section 3, it is necessary: •

not only that standard terms be used; but also

• those standard terms are ‘the other’s written standard terms of business’ (emphasis added). This possessive reference makes it possible to differentiate between the situation where the standard terms were either drafted: •

by the that other party; or

•

by a ‘third party’ such as a trade association.

3.111 In St Albans City and District Council v International Computers Ltd,244 the judge prefaced his discussion of the applicability of UCTA, section 3 by distinguishing the terms before him from: ‘the type of terms drawn up by, for example, a trade association where conflicting interests in a particular trade are taken into account’.245

He did not state what significance was to be given to the distinction, but his comment could provide support for the exclusion of terms drawn up in such circumstances from the scope of UCTA, section 3.

[1995] FSR 686.

242

[2019] EWHC 606 (QB), [1071], [1075].

243

[1995] FSR 686.

244

See also Schroeder Music Publishing Co Ltd v Macaulay [1974] 1 WLR 1308 per Lord Diplock at 1308.

245

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3.112 However, elsewhere there has been an assumption that UCTA, section 3 applies to such terms246 and, in Cox Plant Hire (London) Ltd v Dialbola247 and USA v ARC Construction Ltd,248 the Contractors Plant Association model conditions were found to be the ‘written standard terms of business’ of the proferens. Further, in the report which led to UCTA, the Law Commission was of the view that the controls it was advocating should extend to: ‘forms drawn up by representative bodies with the intention of taking into account the conflicting interests of the different parties’.249

They recognised that such standard forms did not have all of the problems associated with standard form contracts, but saw the policing of them as appropriate as they are ‘not drafted with any particular transaction between particular parties in mind and are often entered into without much thought being given to the wisdom of the standard terms in the individual circumstances’.250

3.113 Obviously, the argument for the policing of standard terms is weakest where the terms have not only been drawn up by a ‘third party’, but are used by both sides of a contract and could have been introduced by either party. However, even in that situation, the points made by the Law Commission will have force. 3.114 If terms drawn up by ‘third parties’, such as trade associations, are capable of being regarded, in principle, as the proferens’ written standard terms for the purposes of UCTA, section 3, then it will be necessary to consider whether the party has ‘adopted’ the third party terms to become the proferen’s ‘standard terms’.251 In British Fermentation v Compare Reavell252 the judge stated what would be required so that UCTA, section 3 does apply to such ‘model’ contracts drawn up by ‘third parties’: ‘it does seem to me that one essential for the application of the Unfair Contract Terms Act 1977 to such forms would be proof that the model form is invariably or at least usually used by the party in question. It must be shown either by practice or by express statement a contracting party has adopted a model form as his standard terms of business. For example, an architect might say: my standard terms of business are on the terms of the RIBA Form of Engagement’.

Cox Plant Hire (London) Ltd v Dialbola (21 December 1983, unreported); USA v ARC Construction Ltd (8 May 1991, unreported). See also Schenkers Ltd v Overland Shoes Ltd [1998] 1 Ll LR 498.

246

(21 December 1983, unreported), Glidewell J.

247

(8 May 1991, unreported), Hobhouse J.

248

‘Exemption Clauses Second Report’ Law Com No 69, Scots Law Com No 39, para 151.

249

‘Exemption Clauses Second Report’ Law Com No 69, Scots Law Com No 39, para 157.

250

Note the assumption of this approach in Hadley Design Associates v Westminster City Council [2003] EWHC 1617 at [77]–[79].

251

[1989] 2 All ER (Comm) 389.

252

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3.115 However, for a commercial agreement, the use of an industry standard model to count as a party’s written standard terms is unlikely to be a commercially realistic approach: ‘I recognise that it might, in theory, be possible to demonstrate that one party to such negotiations has used the industry standard form as the basis for a set of terms it treats as its own and that it will not in reality countenance substantive changes, but that would be an uncommercial and highly unlikely approach.’253

3.116 There appears to be a presumption against industry standard terms amounting to the written standard terms of a party where there are any negotiations in regard to them and where the parties are represented by solicitors: ‘In circumstances where commercial parties, represented by solicitors, have utilised a ‘neutral’ industry model form as the basis for a complex and detailed financial contract, executed after the usual process of negotiation, including revising a travelling draft, it will require cogent evidence to raise even an arguable case that the resulting contract is made on the written standard terms of one of those parties.’254

3.117 Although the view of the party asserting that a contract has been made on standard terms is relevant to the scope of UCTA, section 3,255 but any label applied by a party is not determinative: that the way terminology is used by a party may not be being used in the same way as in the statute. As has been indicated, however, the relevant party’s intention to use the terms in a particular type of transaction may, however, be relevant and, otherwise, the question of adoption of such ‘model’, or ‘third party’, terms should depend on the pattern of dealing on the terms in relation to contracts of a type to which they are appropriate.

The instant case 3.118 If a party has ‘written standard terms of business’ it is necessary to consider whether they were used in the instant case. To assess whether the parties are contracting on the ‘standard terms’, there should be consideration: •

of the number of terms which have been varied; and

•

of which the terms have been varied.

3.119 Some terms are inherently dependent upon the particular contract, whilst changes to others would be a strong indicator that the relevant party is no longer using its standard terms as such:

African Export-Import Bank and others v Shebah Exploration & Production Company Ltd and others [2016]  EWHC  311 (Comm), [27] and echoed in the Court of Appeal decision, [2017] EWCA Civ 845, [29].

253

ibid, [27].

254

St Albans City and District Council v International Computers Ltd [1995] FSR 686 at 706.

255

184

Chapter 3  The Unfair Contract Terms Act 1977 ‘In many contracts there may be negotiations as to, for example, quality or price but none as to the crucial exempting terms.’256

3.120 Nevertheless, it is necessary to consider the whole of the contract. An amendment which was ‘narrow and insubstantial’ when viewed against the ‘totality of the standard conditions which otherwise remained unamended’ did not put a contract outside the scope of section 3.257 In one case, at the extreme, it was held that it is sufficient if the exemption clauses are the relevant party’s standard terms.258 However, in such circumstances, it is possible to question whether the other party ‘deals on’ the relevant party’s ‘written standard terms of business’. The phrase would seem to imply some larger input into the contract as a whole, if not the majority input. The point has been made that: ‘the role in the context of possibly voluminous documentation of a pre-prepared document setting out “written standard terms of business” may be so small in relation to the whole, or the modifications … may be so significant, that it may be an abuse of language to describe the resulting contract as dealing on the “written standard terms” of the relevant party’.259

3.121 There is some suggestion that factors other than the pattern of usage may be relevant in considering whether the instant contract was made on a party’s ‘written standard terms’. In Salvage Association v CAP Financial Services Ltd260 factors were listed which it was thought should be taken into account in deciding if a contract was made on the party’s/ written standard terms of business: ‘(i) the degree to which the “standard terms” are considered by the other party as part of the process of agreeing the terms of the contract. (ii) the degree to which the “standard terms” are imposed on the other party by the party putting them forward. (iii) the relative bargaining power of the parties. (iv) the degree to which the party putting forward the “standard terms” is prepared to entertain negotiations with regard to the terms of the contract generally and the standard terms in particular. (v) the extent and nature of any agreed alterations to the “standard terms” made as a result of the negotiations between the parties.’

3.122 The final factor would be relevant to a simple comparison of the contract made, with the relevant standard terms. The other factors indicated would require a very different approach to the question of whether the

St Albans City and District Council v International Computers Ltd [1995] FSR 686 per Scott Baker J at 706.

256

Watford Electronics v Sanderson [2000] 2 All ER (Comm) 984 at [113].

257

Pegler Ltd v Wang (UK) Ltd [2000] BLR 218. Not a view supported in African Export-Import Bank and others v Shebah Exploration & Production Company Ltd and others [2017] EWCA Civ 845, [36].

258

Hadley Design Associates v Westminster London Borough Council [2003] EWHC 1617 at [83].

259

[1995] FSR 654 per Thayne Forbes J, Off Ref at 672.

260

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parties dealt on the relevant ‘written standard terms’. To do so would require a detailed examination of the contracting process. 3.123 For example, it is possible to argue, that a party does have ‘written standard terms’ but that they are only the starting point for negotiations, and that the other party had an opportunity to influence the final contract terms, but chose to accept the terms originally put forward by the relevant party. This type of approach might take outside the scope of UCTA, section 3 at least some cases of: ‘terms which although they are what the Americans call “boilerplate” are negotiable’,261

and it is a means of distinguishing those clauses at which, UCTA, section 3 is primarily aimed.262 However, in the report which led to UCTA, the Law Commission took the view that263 ‘an expressed willingness to discuss terms may not in practice mean that the terms are any less proferred on a take it or leave it basis’. In addition, in USA v ARC Construction it was said: ‘Literally, that condition [contracting on a party’s written standard terms] is satisfied and as a matter of construction of the Act, even where both parties are willing to use the conditions, s 3 of the Act is still capable of applying’.264

3.124 In a later case, African Export-Import Bank and others v Shebah Exploration & Production Company Ltd and other,265 a similar approach was taken so that anything other than insubstantial variations would be enough to take the contract outside of being on ‘the other’s written standard terms of business’. The Court of Appeal approved two earlier decisions where they stated: ‘The concept underlying the provisions of Unfair Contract Terms Act 1977 s.3, in my judgment, is that there should exist a stock of written, no doubt usually, at any rate, printed, contract conditions which was simply drawn from as a matter of routine and intended to be adopted or imposed without consideration or negotiation specific to the individual case in which they were to be used. That seems to me to be the force of the words “written” and “standard” in the expression “written standard terms of business”. In other words, it is not enough to bring a case within Unfair Contract Terms Act 1977 s.3 that a party has established terms of business which it prefers to adopt, as, for example, a form of draft contract maintained on a computer, or established requirements as to what contracts into which it entered should contain, as, for example, provision for arbitration in the event of disputes. Something more is needed, and on principle that something more, in my judgment, is that the relevant terms should exist in written form prior to the possibility of the making of the relevant agreement arising, thus being “written”, and they should be intended

Fillite (Runcorn) Ltd v APV Pasilac Ltd (22 April 1993, unreported; [1993] Lexis Citation 4065).

261

See para 3.106.

262

Law Com Rep No 69, para 156.

263

USA v ARC Construction Ltd (8 May 1991, unreported), Hobhouse J.

264

[2017]  EWCA  Civ 845, [2018] 2  All ER  144, [25]. The Salvage Association v CAP  Financial Services Ltd case was not cited in African Export-Import Bank and others v Shebah Exploration & Production Company Ltd and other.

265

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Chapter 3  The Unfair Contract Terms Act 1977 to be adopted more or less automatically in all transactions of a particular type without any significant opportunity for negotiation, thus being “standard”.’266 And: ‘The conditions have to be standard in that they are terms which the company in question uses for all, or nearly all, of its contracts of a particular type without alteration (apart from blanks which have to be completed showing the price, name of the other contracting party and so on). One encounters such terms on a regular basis-whether when buying goods over the internet or by mail order or when buying a ticket for travel by air or rail.’267

3.125 With the Court of Appeal in African Export-Import Bank and others v Shebah Exploration & Production Company Ltd and other holding: ‘that it is relevant to inquire whether there have been more than insubstantial variations to the terms which may otherwise have been habitually used by the other party to the transaction. If there have been substantial variations, it is unlikely to be the case that the party relying on the Act will have discharged the burden on him to show that the contract has been made “on the other’s written standard terms of business”.’268

Satisfying the requirement of reasonableness 3.126 Although a court might find that the contract was made on the relevant party’s ‘written standard terms of business’ that will not mean by itself in the automatic negation of any clause. If the contract falls within the scope of UCTA, section 3 then it is necessary to go on to the next stage – whether the term satisfy the requirement of reasonableness – so that a term is rendered ineffective only if it fails to satisfy the requirement of reasonableness.269 3.127 The type of factors identified in (i) to (iv) from the Salvage Association v CAP  Financial Services Ltd case (see para  3.21 above) are addressed when the requirement of reasonableness is applied. It is more appropriate that they are considered when all the factors relevant to the requirement of reasonableness are examined. For businesses it would be better if the scope of UCTA, section 3 is narrowed at this point, so that fewer contracts are subject to the uncertainties of the application of the requirement of reasonableness. However, narrowing the scope of UCTA, section 3 by considering the first four factors indicated above, would merely introduce the same type of uncertainty

Hadley Design Associates v Westminster City Council [2003] EWHC 1617, [78].

266

Yuanda (UK) Co Ltd v WW Gear Construction Ltd [2011] Bus LR 360 [2010] EWHC 720 (TCC), [2011] 1 All ER (Comm) 550, [2011], [21].

267

African Export-Import Bank and others v Shebah Exploration & Production Company Ltd and other [2017] EWCA Civ 845, [25]. Followed in Bates and others v Post Office Ltd [2019] EWHC 606 (QB), [1075].

268

USA v ARC Construction Ltd (8 May 1991, unreported; [1991] Lexis Citation 1540), Hobhouse J. See also AEG (UK) Ltd v Logic Resources Ltd [1996] CLC 265 per Hobhouse LJ at 278.

269

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at the earlier stage. A less complex test at the earlier stage may well create less uncertainty overall.270

Presumption 3.128 UCTA contains no presumption as to which party must show that a contract is on a party’s written standard terms as such. A case has held that it is the party ‘alleging that a statute applies to demonstrate its application’.271 In the latter case of African Export-Import Bank and others v Shebah Exploration & Production Company Ltd and others272 while agreeing with the earlier case, held: ‘Before the Act can be held to apply and require an inquiry into the reasonableness of any particular term, the party relying on the Act must establish (the onus of proof being on that party, see British Fermentation Products Ltd v Compair Reavell Ltd [1999] 2 All ER Comm 389, at para 49) that: i) the term is written; ii) the term is a term of business; iii) the term is part of the other party’s standard terms of business; and iv) that the other is dealing on those written standard terms of business.’

3.129 In this later case the defendants had not filed any evidence that the agreement between the parties to the case has entered an agreement on the claimant’s standard terms of business and the court stated: ‘and it is, in any event, difficult to see that they could have had any such belief when they were dealing with three different parties in a syndicated loan agreement one of whom is Egyptian and the others of whom are Nigerian’.273

3.130 The court did indicate what would be required of a party who wished to argue that UCTA applied: ‘A party who wishes to contend that it is arguable that a deal is on standard business terms must, in my view, produce some evidence that it is likely to have been so done. This cannot be difficult in a proper case since anonymised requests about prospective terms of business can be made and participants in the credit market may well have knowledge of how particular lenders go about their business. It cannot be right that any defaulting borrower can just assert that business is being done on standard terms and that the lender then has to disclose the terms of other (how many other?) transactions he has entered into before he is entitled to summary judgment.’274

In considering unified unfair terms legislation, the Law Commissions tried to find a formula for the business context that would exclude from control terms which could have been negotiated when the contract was made. The line was taken that ‘it is simply not feasible to develop a clear criterion to distinguish the case where the term could have been raised for negotiation but was not, from the case where there was no real opportunity to do so’ (‘Unfair Terms in Contracts’ Law Com No 292, Scots Law Com No 199, para 4.54).

270

British Fermentation Products v Compare Reavell [1999] 2 All ER 389, [49].

271

[2017] EWCA Civ 845, [2018] 2 All ER 144, [18].

272

African Export-Import Bank and others v Shebah Exploration & Production Company Ltd and other [2017] EWCA Civ 845, [32].

273

ibid [33].

274

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Of business 3.131 To fall within UCTA, section 3, the written standard terms must be ‘of business’. In Liberty Life Ins Co Ltd v Sheikh275 it was argued that: ‘since the plaintiff’s business was to write life insurance, only their policies could fall within that category’.

This argument was rejected by the Court of Appeal and there seems to be no reason to adopt the type of restrictive approach to the construction of ‘of business’ that has been taken to the interpretation of the phrase ‘in the course of a business’ in the now repealed UCTA, section 12.276 The occurrence of factors which explain the need to subject standard terms to UCTA and the ‘requirement of reasonableness’ is not so limited.277

Excluding or restricting liability for breach – section 3(2)(a)278 3.132 Under UCTA section 3(2)(a): •

where a party (the first party) deals on the other party’s (second party’s) written standard terms of business;278

•

then against the first party, the second party cannot by reference to any contract term exclude or restrict any of its liability in respect of the breach;

•

when the second party is itself in breach of contract)

except in so far as the contract term satisfies the requirement of reasonableness.

(1985) Times, 25 June.

275

The example given by Kerr LJ in dismissing the argument would, unfortunately, seem to come within such a narrow approach to the construction of ‘of business’. Certainly, they would be contracts made ‘in the course of business’ even on the present, narrow interpretation of that phrase in the context of UCTA, s 12. (For consideration of UCTA, s 12 see para 3.15 above). Kerr LJ said, ‘By way of analogy one only has to think of large retail companies with their main outlets up and down the country, which may well enter into contracts with suppliers and even manufacturers on standard printed terms. Their commercial objective is to sell to the public by retail, but they could not carry on their business without entering into contracts to acquire goods which they offer for sale. If such contracts are on a standard form, then I do not see why they should not equally be regarded as their written standard terms of business’.

276

In Brigden v American Express Bank Ltd [2000] IRLR 94 Morland J did indicate the narrower approach. The question was as to the application of UCTA, s 3 to a contract of employment. In relation to whether the contract was on the defendant employer’s ‘written standard terms of business’, he said: ‘the defendants’ business was banking, not that of an employment agency. Although the hiring and firing of labour is almost inevitably an activity within any business it is not, except in the case of an employment agency, its business’. However, Morland J had already concluded that UCTA, s 3 applied on the basis that the employee ‘dealt as consumer’ in entering the contract of employment and, as has been indicated in the text above, such a narrow approach to ‘written standard terms of business’ is inappropriately restrictive of the application of UCTA, s 3 in the business-to-business context. The line taken in Liberty Life is to be preferred.

277

Lease Management Services v Purnell Secretarial Services (1994) 13 Tr LR  Rep 337; Chester Grosvenor Hotel Ltd v Alfred McAlpine Management Ltd (1991) 56 Build LR 115.

278

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3.133 In one case the court stated that: ‘s  3(2)(a) is directed to an exemption clause of the classic type exonerating a contractual party in default from the ordinary consequences of the default’.279

It clearly deals with clauses in the form of exclusions or restrictions280 of liability for breach of contract, whether that liability is strict or requires negligence.281 As indicated above, the reference to terms which exclude or restrict liability is not to be understood in the narrowest sense.282

Indemnities 3.134 One question which may arise is as to the applicability of UCTA, section 3(2)(a) to indemnity or related clauses.283 A  court has held that UCTA, section 2 can apply to such a clause if it is acting reflexively (where the indemnification of the proferens relates to the indemnifier’s own injury, rather than the injury of a third party).284 In that type of case, in finding that UCTA, section 2 applied, Slade LJ said:285 ‘A transfer of liability from A to B necessarily and inevitably involves the exclusion of liability so far as A is concerned.’

3.135 This argument could also be applied to bring such clauses within the scope of UCTA, section 3(2)(a).286 In one case it was assumed that UCTA, section 3(2)(a) applied to a clause, in a contract for the hire of machinery, which effectively attempted to ‘transfer’ liability with the relevant clause stating: ‘The Hirer shall be solely responsible for any damage loss or accidents whether directly or indirectly arising therefrom.’287

Timeload Ltd v British Telecommunications plc [1995] EMLR 459 per Sir Thomas Bingham MR.

279

Unfair Contract Terms Act 1977, s 13(1) makes it clear that it does not simply apply to the most basic clauses excluding or restricting liability: see para 3.178.

280

If negligence is involved then see also UCTA, s  2. In that situation, the scope of the two sections overlaps, see for example Stag Line Ltd v Tyne Shiprepair Group Ltd [1984] 2 Lloyd’s Rep 211. Both sections will simply apply the ‘reasonableness’ test unless what is in question is liability for negligently caused personal injury or death, in which case, the term purporting to exclude or restrict liability is automatically ineffective under s 2(1).

281

UCTA, s 13(1), but note the non-applicability to UCTA, s 3 of the final part of that subsection: see para 3.54.

282

See para 3.134.

283

Phillips Products Ltd v Hyland [1987] 2 All ER 620, as qualified in Thompson v T Lohan (Plant Hire) Ltd [1987] 2 All ER 631. See para 3.134.

284

Phillips Products Ltd v Hyland [1987] 2 All ER 620 at 626.

285

Provided that it is not seen as dependent upon the last part of UCTA, s 13(1), which applies to UCTA, s 2 but does not apply to UCTA, s 3.

286

USA v ARC Construction Ltd (8 May 1991, unreported; [1991] Lexis Citation 1540).

287

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3.136 In addition, the common law treatment of indemnities, with the interpretation of such clauses in relation to liability for negligence normally being subject to the same line as that taken in relation to exemption clauses,288 would indicate that there should not be an unduly restrictive approach to the coverage of such clauses by the more general sections of UCTA.289 In fact, it is possible to argue that the categorisation of an exclusion clause should not be restricted to indemnity clauses operating reflexively, but should also apply to ‘insurance clauses’; that is when the liability covered by the indemnity is to a third party, and not the indemnifier.290

Claiming to render a substantially different performance or no performance – section 3(2)(b) 3.137 Under section 3(2)(b), the party who deals on written standard terms of business cannot, by reference to any contract term, except in so far as it satisfies the requirement of reasonableness: ‘claim to be entitled (i) to render a contractual performance substantially different from that which was reasonably expected of him, or (ii) in respect of the whole or part of his contractual obligations to render no performance at all’.

In one case it was stated that the ‘construction and ambit of the sub-s [3(2) (b)] is by no means clear’.291 Plainly, it does not deal with exemption clauses of the ‘classic type’. 3.138 It deals with a situation in which, absent the application of UCTA, there would not appear to be a breach.292 When a clause falls within the subsection, the party who deals on written standard terms of business will be relying on the clause to justify its action, or inaction, as a performance of the contract. 3.139 However, UCTA, section 3(2)(b) does not encompass a clause which deals with the other party’s performance, rather than that of the party who deals on written standard terms of business.

Smith v South Wales Switchgear Co Ltd [1978] 1 All ER 18. See para 2.82.

288

But see Thompson v T Lohan (Plant Hire) Ltd [1987] 2 All ER 631, and see para 3.134. The present approach to indemnity clauses does not view such a clause as one ‘excluding or restricting liability’ for the purposes of the UCTA, when it acts as an insurance clause, ie  transferring to B  A’s liability to a third party. In that type of case, there is said to be no exclusion of liability because the perspective of the third party is taken.

289

See para 3.134.

290

Timeload Ltd v British Telecommications plc [1995] EMLR 459.

291

Shearson Lehman Hutton Inc v Maclaine Watson & Co Ltd [1989] 2 Ll Rep 570, at 611–612.

292

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UCTA, section 3(2)(b) does not apply in the following situations; •

it does not to apply to a term conferring a discretion on the lender (that is the party who deals on written standard terms of business) as to the interest rate to be paid by the borrower.293 The term was regarded as dealing with the performance of the borrower, rather than that of the lender.

•

it does not cover a clause dealing with breach, rather than performance,294 so, for example, it does not apply to a clause which divides responsibility for a breach.295

• it is inapplicable to a clause which prevents the party in breach from relying on a claim that the other party was contributorily negligent, because neither UCTA, section 3(2)(a) nor UCTA, section 3(2)(b) are concerned ‘with the exclusion as against a contract breaker of a defence which would otherwise have been available’.296

Section 3(2)(b)(i) – to render a contractual performance substantially different from that which was reasonably expected 3.140 The ‘reasonable expectations’ are those which are formed at the time the contract was made.297 It is possible to argue that what a party (who deals on written standard terms) is entitled to do is governed by the provisions of the contract and that the other party: ‘cannot reasonably expect that which the contract does not purport to offer’298

Paragon Finance plc v Staunton [2001] 2 All ER (Comm) 1025. Setting the interest rate could literally be regarded as part of the lender’s performance. There is perhaps, an underlying assumption by the court that the scope of the UCTA should be restricted to terms which can, in some sense, be seen as exemption clauses. See also Barclays Mercantile Finance Ltd v Marsh [2002] EWCA Civ 948.

293

Paragon Finance plc v Staunton, Paragon Finance plc v Nash [2001]  EWCA  Civ 1466, [76] the Court of Appeal approved a passage (from what is now Citty on Contracts, 33rd edn, 15086): ‘Nevertheless it seems unlikely that a contract term entitling one party to terminate the contract in the event of a material breach by the other (e.g. failure to pay by the due date) would fall within paragraph (b), or, if it did so, would be adjudged not to satisfy the requirement of reasonableness.[…] Nor, it is submitted, would that provision extend to a contract term which entitled one party, not to alter the performance expected of himself, but to alter the performance required of the other party (e.g. a term by which a seller of goods is entitled to increase the price payable by the buyer to the price ruling at the date of delivery, or a term by which a person advancing a loan is entitled to vary the interest payable by the borrower on the loan).’

294

USA v ARC Construction Ltd (8 May 1991, unreported; [1991] Lexis Citation 1540).

295

Rolls-Royce Power Engineering plc v Ricardo Consulting Engineers [2003]  EWHC  2871 (TCC), [2004] 2 All ER (Comm) 129,[75].

296

Shearson Lehman Hutton Inc v Maclaine Watson & Co [1989] 2 Lloyd’s Rep 570 at 612.

297

Timeload Limited v British Telecommunications Plc [1995] E.M.L.R. 459 at p 469.

298

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which was argued by the defendants in Timeload Ltd v British Telecommications plc.299 In this case, the telephone service provider’s (defendant) standard terms of business contained a provision as follows: ‘Termination of service by notice. At any time after service has been provided this contract or the provision of any service or facility under it can be ended’

while the claimant expected the service to continue. 3.141 The argument of the defendants was: ‘that the subsection [UCTA, section 3(2)(b)(i)] cannot apply where, as here, the clause under consideration defines the service to be provided and does not purport to permit substandard or partial performance. [The telephone service provider’s advocate] says that the customer cannot reasonably expect that which the contract does not purport to offer, namely enjoyment of telephone service under a given number for an indefinite period’

has found some acceptance.300 For example, in Peninsula Business Services Ltd v Sweeney,301 it seems it was the line taken by the Employment Appeal Tribunal had to consider the effect of a clause in a contract of employment which stated: ‘an employee has no claim whatsoever to any commission payments that would otherwise have been generated and paid if he is not in employment on the date when they would normally be paid’.

3.142 In considering the application of UCTA, section 3(2), the Employment Appeal Tribunal took the line that: ‘from the moment [the employee] signed the commission document, he could have had no expectation, reasonable or otherwise, of being paid post-resignation commission, since [the clause] made it clear he would not be entitled to such commission’.

3.143 However, although the ‘reasonable expectations’ referred to are of the contractual performance which the party who deals on written standard terms is bound to deliver, clearly, if UCTA, section 3(2)(b)(i) is to be given any content, those reasonable expectations cannot simply be assumed to reflect what that party is bound to deliver: ‘The answer to [the question “what contractual performance did Zockoll reasonably expect of Mercury”] cannot depend on the proper construction of the contract. The

Timeload Ltd v British Telecommications plc [1995] EMLR 459. The Court of Appeal did not need to come to a conclusion on the point but it clearly did not simply accept the argument, as the matter before the court was an appeal against an injunction granted by the court of first instance.

299

W Photoprint Ltd v Forward Trust Group Ltd (1993) 12 Tr LR 146; Megaphone International Ltd v British Telecommunications plc (28 February 1989, unreported); Brigden v American Express Bank Ltd [2000] IRLR 94; Hadley Design Associates Ltd v Westminster LBC [2003] EWHC 1617. But see the contrary assumption in Lalji v Post Office (unreported, 19 December 2003).

300

[2004] IRLR 49. But see Lalji v Post Office Ltd (unreported, 19 December 2003) and the Court of Appeal’s assumption of the potential relevance of s  3(2)(b) to a term concerned with forfeiture of remuneration during a period of suspension.

301

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3.144 A  point made more recently in AXA  Sun Life Services plc v Campbell Martin Ltd and others and other appeals303 where Stanley Burnton LJ also noted that the meaning of UCTA, section 3(2)(b)(i) was not ‘entirely clear’. His view was that this sub-section of UCTA was: ‘principally aimed at the small print that entitles a party to a contract to provide something other than that defined by the principal terms of the contract, as where a holiday company reserves the right to substitute a hotel or resort for that specified in the main part of the contract’.

3.145 For the judge, in most cases the performance reasonably expected will be that as stated in the parties’ written contract, but that it is necessary to take note of the wording of the UCTA, section 3(2)(b)(i) which is: ‘to render a contractual performance substantially different from that which was reasonably expected of him’

which can be different to the performance set out in the contract.304 3.146 Accordingly, it is possible to argue that the application of UCTA, section 3 requires a recognition that the reasonable expectations of contractual performance can differ from those specified by the contract terms. In the report which led to UCTA the Law Commission clearly thought so too:305 ‘We do not propose to define exemption clauses in general terms; we regard this expression not as a legal term of art but as a convenient label for a number of provisions which may be mischievous in broadly the same way. Their mischief is that they deprive or may deprive the person against whom they are invoked … of rights which the promisee reasonably believed the promisor had conferred on him’.

Zockoll Group Ltd v Mercury Communications Ltd [1998]  FSR  354, [1999]  EMLR  385; and AXA Sun Life Services plc v Campbell Martin Ltd and others and other appeals [2011] EWCA Civ 133, [50].

302

[2011] EWCA Civ 133, [50].

303

ibid. Stanley Burnton LJ echoes a point made by Chitty on Contracts, (33rd edn, Sweet & Maxwell, 2020) 15-085: ‘However, it is submitted that a sensible meaning can in most cases only be given to para.(b) if one assumes that the contractual performance and contractual obligation referred to is the performance required and the obligation imposed by the contract apart from the contract term relied on.[Citing Zockoll Group Ltd v Mercury Communications Ltd [1998]  FSR  354, [1999]  EMLR  385]. For this purpose, the contractual performance reasonably expected of a party may, in appropriate cases be determined by the content of representations made by that party in pre-contract negotiations.’

304

Law Com Rep No 69 (1975) para 146.

305

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3.147 The ‘mischief’ of a term which deprives the promisee of rights which it reasonably believed the promisor had conferred on it can arise because of: •

the artificial way in which terms can be incorporated; and

•

the obscurity of complex drafting (although problems of the latter type are reduced following the decision in Investors’ Compensation Scheme Ltd v West Bromwich Building Society306).

3.148 Although it is necessary to consider the reasonable expectations of the legally required performance, but what is also required is a consideration of the factual impact of the terms on those reasonable expectations, absent any such artificialities which may be present in their assessment at the legal level, as terms.307 In one case, the point was made that ‘in assessing the level of contractual performance reasonably expected of’ the party dealing on written standard terms, regard would be had to ‘the description given, or … the “climate of expectation” engendered by the cruise brochure’.308 3.149 Concerning entire agreement clauses and pre-contractual representations, the purpose of such a clause is for a party who deals on written standard terms to seek to render a performance substantially different from what was reasonably expected (which are set out in pre-contract representations).309 If the clause mechanically prevents those representations from becoming terms, a consideration of the parties’ reasonable expectations at the ‘factual level’ may differ in relation to the contractual performance. Although a pre-contractual misrepresentation or promise can affect the performance that is reasonably expected of a party and may result in an entire agreement clause being subject to the reasonableness test under UCTA. However, UCTA, section 3(2)(b)(i) will only be relevant: ‘if it is possible to identify both the performance [by a party] that was reasonably expected and that defined by the contract’.310

3.150 So, it is necessary to note that:

[1998] 1 All ER 98.

306

The parties’ reasonable expectations at the factual level should be arrived at by taking into account all the relevant facts. It will mean taking into account many facts which are also relevant to the legal status of the clause in question as a term, but it should not require the drawing of the same conclusions. A clause on the back of a ticket may be incorporated by reasonably sufficient notice if the front of the ticket says ‘for conditions see back’, but the significance a clause acquires as a contract term may well not carry through to ensure its inclusion in the reasonable expectations of performance at the factual level. Trade practice and course of dealing may well be relevant to the assessment at the factual level, as they are in relation to the question of incorporation, but their relevance to the reasonable expectations at the factual level should be less artificial.

307

Peninsular and Oriental Steam Navigation Co v Youell [1997] 2 Ll LR 136 per Potter LJ at 142.

308

SAM  Business Systems v Hedley [2003] 1  All ER  465 at [62]. On the effectiveness of entire agreement clauses generally see para 2.133.

309

AXA Sun Life Services plc v Campbell Martin Ltd and others and other appeals [2011] EWCA Civ 133, [50].

310

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the contract term in question must amount to ‘contractual performance’.311 It is necessary to identify (to what amounts) the performance that was reasonably expected by the party whose has put forward the written standard terms in which the contractual term in question appears.312 In Paragon Finance plc v Staunton, Paragon Finance plc v Nash313 the claimant provided mortgages to the defendants, and there were provisions that allowed the claimant to vary the interest rate. The defendants argued that in performing their obligations under the mortgages the claimant would not apply rates of interest substantially different to that of other similar lenders in similar situations of the defendants. And that the setting of interest rates amounted to ‘contractual performance’ for the purposes of UCTA, section 3(2)(b), and ‘the Claimant set interest rates that defeated that expectation’.314 In distinguishing the facts of this case from Timeload Ltd v British Telecommunications plc315 and Zockoll Group Ltd v Mercury Communications Ltd316 Dyson LJ noted in these two cases the telecommunications providers were under a contractual obligation to provide a service, but the removal of that service in the particular circumstances of each case:

•

‘…was such as to render the contract performance (ie the provision of that service) substantially different from that which it was reasonable for the other contracting party to expect.’

But in the instant case there was no ‘relevant obligation’ on the claimant and ‘therefore nothing that can qualify as “contractual performance” for the purposes of section 3(2)(b)(i)’. The effect of interest rate change would not come within UCTA, section 3(2)(b)(i) in effect because it would affect the defendant mortgagors rather than the claimant mortgagee. Each case is likely to turn on its facts, so that in Bates and others v Post Office Ltd317 the judge in analysing what amount to contractual performance (where the Post Office appointing sub-post masters) factors which amounted to contractual performance were: ‘the Post Office remunerating the SPM [sub-post masters] for running the branch; the Post Office permitting or enabling the SPM to run the branch; and/or the Post Office requiring the SPM to provide Post Office services to the public through the branch’.

The wording of UCTA, s 2 states ‘… other cannot by reference to any contract term … claim to be entitled … to render a contractual performance…’.

311

Bates and others v Post Office Ltd [2019] EWHC 606 (QB), [1081].

312

[2001] EWCA Civ 1466.

313

Paragon Finance plc v Staunton, Paragon Finance plc v Nash [2001] EWCA Civ 1466, [72].

314

[1995] EMLR 459.

315

[1998] FSR 354.

316

[2019] EWHC 606 (QB), [1082].

317

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3.151 A  further example is where a tour operator provides a holiday at a particular hotel at a resort to a consumer but by reference to a contract, claims to have the right to change the hotel or cancel the holiday (whether a partial or whole cancelation of the holiday). And in this example, ‘the operator has an obligation to provide a holiday. The provision of the holiday is the “contractual performance”’.318 the contract term must have a substantial effect:

•

‘the subsection imports a question of degree: not every difference between the contractual performance reasonably expected and the contractual performance which the other party claims to be entitled to render will be “substantial”’.319 It has been said that ‘to be substantial the discrepancy must … be significant in a practical sense’.320

3.152 It is possible further to identify circumstances which may generate a case falling within UCTA, section 3(2)(b)(i). 3.153 UCTA, section 3(2)(b)(i) encompasses, for example, what have been seen as ‘trap’ provisions:321 ‘Cases in which the application of small print provisions would enable a party to perform a contract in a substantially different manner from that which could reasonably have been expected from a perusal of its primary terms.’322

3.154 Another situation which may fall within UCTA, section 3(2)(b)(i) is that: •

one term apparently states what the party (who deals on written standard terms) performance is to be; but

•

another term confers, on that party, a discretion as to that performance.

It such a case the other party will expect that the discretion be exercised within narrow bounds,323 and for UCTA, section 3(2)(b)(i) to apply if it is Paragon Finance plc v Staunton, Paragon Finance plc v Nash [2001] EWCA Civ 1466, [77], citing as an example drawn from Chitty on Contracts, 14-070.

318

Zockoll Group Ltd v Mercury Communications Ltd [1999] EMLR 385 per Bingham LCJ; Paragon Finance plc v Staunton, Paragon Finance plc v Nash [2001] EWCA Civ 1466, [77] and Bates and others v Post Office Ltd [2019] EWHC 606 (QB), [1081].

319

[1999] EMLR 385 per Bingham LCJ.

320

Liberty Life Ins Co v Sheikh (1985) Times, 25 June, Kerr LJ.

321

Liberty Life Ins Co v Sheikh (1985) Times, 25 June, Kerr LJ. Law Com Rep 242, para 13.10(vi) (in relation to their proposals for the Contracts (Rights of Third Parties) Act 1999: ‘Under our proposals the Unfair Contract Terms Act 1977 will continue to operate to control exclusion clauses in respect of claims by the promisee to enforce the promise for the third party’s benefit … If the problem was that the promisee was somehow misled into thinking that a third party would get enforceable rights when this was not what the contract provided, the promisee could rely on the present s 3(2)(b)(i): the promisor would be claiming to rely on the small print to “render a contractual performance substantially different from what was reasonably expected”’.

322

Shearson Lehman Hutton Inc v Maclaine Watson & Co Ltd [1989] 2 Lloyd’s Rep 570 per Webster J at 612; Lalji v Post Office Ltd (19 December 2003, unreported).

323

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not. For example, in a contract for the supply of a service by British Telecom, which contained a clause stating that BT could terminate the contract on one month’s notice, the court noted324: ‘If a customer reasonably expects a service to continue until BT has substantial reason to terminate it, it seems to me at least arguable that a clause purporting to authorise BT to terminate without reason purports to permit partial or different performance from that which the customer expected.’

Of course, subject to the small print ‘trap’, or some such device, if a clause was more explicit, the reasonable expectations of the performance might have to encompass a broad discretion. 3.155 The claimed extent of a discretion was an element in an example given by the Law Commission325 of the type of case which might, now, fall within UCTA, section 3(2)(b) using the case of Anglo-Continental Holidays v Typaldos (London) Ltd.326 The contract was for a cruise which apparently specified the date of the cruise, the itinerary and the ship but also contained a clause stating: ‘Steamers, Sailing Dates, Rates and itineraries are subject to change without prior notice.’327

The difference in the ship, sailing date and itinerary offered as performance of the contract, was viewed as sufficient for the clause to provide an example of the type of situation which would fall within UCTA, section 3(2)(b). 3.156 It is necessary to consider the interaction of UCTA, section 3(2)(b)(i) and the construction of the contract, so that: • in Anglo-Continental Holidays v Typaldos (London) Ltd (predating UCTA), which was decided on the basis of construction of the contract. The line was taken that the, apparently, wide discretion had to be construed so as to be in line with the main purpose of the contract. On that basis, the discretion did not allow the holidays to be altered to the extent contended for; • in Timeload v British Telecommunications Ltd the court indicated that the construction of the clause might well mean that BT’s discretion to withdraw its service was a very limited one. In relation to the contrary interpretation for which BT had contended, the court stated that: ‘the courts must be wary of accepting a construction which so obviously flies in the face of what one party at least may be taken to have intended’.

Timeload Ltd v British Telecommunications plc [1995] EMLR 459.

324

Law Com No 69.

325

[1967] 2 Lloyd’s Rep 61.

326

Anglo-Continental Holidays v Typaldos (London) Ltd [1967] 2 Lloyd’s Rep 61.

327

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3.157 It is possible to argue that many, if not all, clauses fall within UCTA, section 3(2)(b)(i) could be construed so as to limit their impact to such an extent that UCTA, section 3(2)(b)(i) would not apply to them. Of course, the approach before UCTA was to use a ‘strained construction’ to restrict the effect of exemption clauses, which is now deprecated since the advent of UCTA.328 But now a construction which, for example, denied the ‘main purpose’ rule in a case like Typaldos Lines might, itself, be seen as straining construction in the direction of undue literalism.329 As Halsbury’s Laws notes: ‘The questions of ‘reasonable expectation’ and ‘substantially different’ performance give rise to difficult questions of fact and degree.’330

3.158 Ultimately each case will turn on its own facts. One approach is perhaps to take a structured approach as set out in the case of Zockoll Group Ltd v Mercury Communications Ltd331 involving asking the following questions: ‘(1) What contractual performance did [the other party] reasonably expect of [the party dealing on its written standard terms of business]? (2) What contractual performance did [the party dealing on its written standard terms of business], by reference to a contract term, claim to be entitled to render? (3) Was the contractual performance which [the party dealing on its written standard terms of business] claimed to be entitled to render substantially different from that which was reasonably expected of it?’

3.159 This case provides a useful illustration of the difficulty in establishing the meaning of what is reasonably expected combined with the different views of the parties. Particularly where a standard written contract did not explicitly state, it appears, the uses that may be made by the claimant of what the defendant was supplying. The defendant was licensed under the Telecommunications Act 1984 to provide telecommunications services and the claimant acquired 53 numbers from the defendant. Three of these numbers were special numbers which, when used with an alphanumerical dial, spelt out a type of service (eg the dialling code 0500 plus the number ‘354448’ would spell out ‘FLIGHTs’). The claimant made little or no use of this number and the defendant gave written notice that it wished to withdraw the number. The defendant was not aware at the time the parties entered their agreement what use the claimant wished to make of the numbers.

Photo Productions Ltd v Securicor Transport Ltd [1980]  AC  827 per at 825; George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803 at 810.

328

See para 2.123.

329

Halsbury’s Law, Vol 22, Contract, para 206, fn 3, noting the different approaches of Timeload Ltd v British Telecommunications plc [1995]  EMLR  459 and Zockoll Group Ltd v Mercury Communications Ltd (No 2) [1999] EMLR 385.

330

[1998] FSR 354, [1999] EMLR 385.

331

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3.160 The written standard contract provided that the defendant could withdraw or change any of the supplied numbers at its sole discretion on reasonable notice: ‘8.1 It is hereby acknowledged that the telephone number(s) allocated by Mercury to the Customer as part of the Agreement do not belong to the Customer and Mercury shall be entitled at its sole discretion at any time to withdraw or change any telephone number used by the Customer on giving the Customer reasonable notice in writing. The Customer accepts that it shall acquire no rights whatsoever in any telephone number allocated by Mercury and the Customer shall make no attempt to apply for registration of the same as a trade or service mark, whether on its own or in conjunction with some other words or trading style.’

3.161 The issue before the court in effect turned on the differing views of the claimant and the defendant as to what is contractual performance: •

for the claimant: the performance expected of the defendant was not simply to provide 50 numbers plus 3 special numbers. The performance was to provide those numbers and not withdraw them except for a good reason;

•

for the defendant: It was, as held by the judge at first instance, to provide 53 numbers (with 3 of them being special numbers).

3.162 In answering the first question, the court held that it is not enough to engage in a ‘proper constructions of the contract’ but: ‘[t]he [first] question cannot be answered by saying that Zockoll had no reasonable expectation of any contractual performance above or beyond what the contract on the proper construction provided that it should have: for if it were held that Zockoll could only reasonably expect such performance as it was strictly entitled to under the contract, there could never be any discrepancy between its reasonable expectation and Mercury’s contractual claim, and any term, if duly incorporated, would stand, however unfair it might be, so long as it was clear and unambiguous. This would frustrate the purpose of the legislation, which is to relieve a party in the position of Zockoll from the effect of unreasonable or unfair contractual provisions.’

3.163 For the second question the judge at first instance (and accepted by the Court of Appeal) found as a fact that the performance that the defendant was contractually entitled to deliver was to provide 53 numbers and also the claimant fully understood the effect of clause 8.1 of the contract between the parties (as quoted above) and that the defendant being entitled to withdraw one of the 53 numbers on reasonable notice without cause was not: ‘…[a] contractual performance […] different from that which Zockoll (on the judge’s finding) reasonably expected of Mercury’.

3.164 In the circumstances the Court of Appeal did not need to go on to answer the third question based on the finding of the court to the second. But the Court of Appeal did indicate that if the contractual performance of the defendant was not simply to provide 53 numbers but not to withdraw any of the numbers except for a good reason. The Court of Appeal indicated 200

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that withdrawing one number on notice did not amount to performance substantially different to what was reasonably expected. The court went to indicate that UCTA, section 3(2)(b)(i): ‘…imports a question of degree: not every difference between the contractual performance reasonably expected and the contractual performance which the other party claims to be entitled to render will be “substantial”. To be substantial the discrepancy must in our view be significant in a practical sense. Given the quantity of telephone numbers which remained with Zockoll following the withdrawal of the disputed number, and the fact that the disputed number was for all practical purposes dormant, we would hesitate to hold that the discrepancy was substantial even if [the claimant] ‘s submission on [its] reasonable expectation were accepted.’

3.165 Only if this third question was answered in the affirmative then would be necessary to answer a question: ‘Has [the party dealing on its written standard terms of business] shown that it satisfies the requirement of reasonableness, ie. that it was a reasonable term to be included having regard 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?’

which would involve consideration of UCTA, section 11 (see further below).

Section 3(2)(b)(ii) – no performance at all 3.166 To give substance to UCTA, section 3(2)(b)(ii)it is necessary to distinguish two types of term, both of which take the form of part of the definition of the contractual performance, or obligations, that is: • terms which are in substance and form part of the definition of the obligation, and •

terms which are, in form part of the definition of the obligation but, in substance, exclusion clauses.

In other words, this raises again the familiar controversy as to whether there is any such distinct type of clause as an exclusion clause, or whether such clauses are all merely part of the definition of the obligation.332 3.167 Meaning can be given to UCTA, section 3(2)(b)(ii) if some terms which, in form, define the performance are identified as exclusion clauses in substance and left out of the initial consideration of the scope of the performance contracted for. They can then be seen as the means by which the party who deals on written standard contract terms is claiming, ‘in respect of the whole or part of his contractual obligations to render no performance at all’ and so subject to the ‘requirement of reasonableness’ by UCTA, section 3(2)(b)(ii).

See para 3.54.

332

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3.168 One difficulty with the above argument is that UCTA, section 3 is outside of the application of the part of UCTA, section 13(1)333 which can be seen as generally indicating that a ‘form and substance’ distinction should be made.334 This might be met by contending that the presence of UCTA, section 3(2)(b) in UCTA, section 3 makes specific provision for the problem of exclusion clauses in the form of part of the definition of the obligation and that there was, therefore, no need for the relevant part of UCTA, section 13(1) to apply to it. However, a problem remains as to the identification of the clauses which are, on the above reasoning, to be seen as exclusion clauses, in substance, despite being in the form of part of the definition of the obligation. It has been contended that it is possible to distinguish exclusion clauses ‘in nature’, whatever their form. This can be done by looking at the basis of the creation of the obligation and the relationship of the term in question to that creation. 3.169 It has been indicated that, in relation to obligations founded on the intention of the parties, objectively ascertained (ie  those based on express terms or terms implied in fact), a clause should be regarded as an exclusion clause in substance, if it would lead to the required contractual performance being less than that reasonably expected, when the parties’ reasonable expectations of performance are viewed at the factual level, ie the reasonable expectations of performance must be viewed absent the artificiality which may be present in the contracting process through the manner of a term’s incorporation or the way in which it was drafted. In short, the ‘expectations test’ can be used to determine the scope of UCTA, section 3(2)(b)(ii) when the obligation is based on the intention of the parties. The courts have shown some willingness to recognise the type of artificiality here referred to, in the context of UCTA, section 3(2)(b)(i).335 In fact, this type of case will often be catered for by UCTA, section 3(2)(b)(i). 3.170 However, the situation which will not often be catered for by UCTA, section 3(2)(b)(i) is based on a term implied in law, either at common law or by statute. In those cases, the implication is not directly derived from the parties’ intention and the content of any such implied term may not be reflected, as such, in their reasonable expectation of performance. Basically, the terms which will have to be considered as possible exclusions of liability, despite their form, are those which appear to affect the factors on which the implication is based, so that it can be argued that no term is implied or that

So far as relevant: UCTA, s 13(1) states: ‘To the extent that this Part of this Act prevents the exclusion or restriction of any liability … ss 2 and 5 to 7 also prevent excluding or restricting liability by reference to terms or notices which restrict the relevant obligation or duty’.

333

Johnstone v Bloomsbury Health Authority [1991] 2 All ER 293 per Stuart Smith LJ at 301; Phillips Products Ltd v Hyland [1987] 2 All ER 620 per Slade LJ at 626; Smith v Eric S Bush [1989] 2 All ER 514 per Lord Griffiths at 530; Cremdean Properties v Nash [1977] EGD 63. But see Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] 2 All ER 257 per Lord Donaldson at 625; Fillite (Runcorn) Ltd v APV Pasilac Ltd (22 April 1993, unreported), Judge Bowsher QC (Off Ref).

334

See para 3.156.

335

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the term which is implied is of more limited extent than would otherwise have been the case. Whether such a clause is to be regarded as an exclusion clause in substance should depend upon the reality of its relationship to the factor which it purports to affect, ie does it impact upon the factor circumstantially or only because of its status as a term. This type of approach is illustrated in the context of the statutory implied terms to which UCTA, section 6 relates.336

Goods – UCTA, sections 6337 and 7338 The sections 3.171 These sections of UCTA deal with the following: •

Section 6 deals with terms excluding or restricting339 the liability of a seller of goods, or the owner of goods let under a hire-purchase agreement, in relation to certain statutorily implied terms.

•

Section 7 deals with the exclusion or restriction of liability in relation to certain implied terms in other contracts under which possession or ownership of goods passes.

Some contracts are ousted from the scope of the sections in whole or in part.340 3.172 In relation to contracts for the sale of goods, the terms are implied by SGA, sections 12–15 are: •

Section 12 deals with title;341

•

Section 13 concerns a sale by description and implies a term that the goods should correspond with their description;

•

Section 14(2) concerns when goods are sold in the course of a business there is an implied term that the goods are of satisfactory quality;342

•

Section 14(3) implies a term that the goods are reasonably fit for the buyer’s particular purpose (if the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known to the seller any particular purpose for which the goods are being bought);

See para 3.84.

336

AEG (UK) Ltd v Logic Resource Ltd [1996] CLC 265 at 278; Edmund Murray Ltd v BSP International Foundations Ltd (1993) 33 Con LR 1

337

Charlotte Thirty and Bison Ltd v Croker Ltd (1990) 24 Con LR 46; Stag Line v Tyne Ship Repair Group Ltd, The Zinnia [1984] 2 Ll Rep 211

338

See further paras 3.84 and para 3.132.

339

See para 3.23.

340

And quiet enjoyment.

341

SGA, s 14(2): the implied term requiring goods to be of satisfactory quality replaced the older term requiring them to be of merchantable quality. The substitution was made by the Sale and Supply of Goods Act 1994.

342

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Section 15 concerns where there is a sale by sample, then there is an implied term that the bulk will correspond with the sample in quality, and the goods will be free from any defect and any defect would not be apparent on a reasonable examination of the sample.

•

For hire-purchase contracts, the equivalent terms are implied by Supply of Goods (Implied Terms) Act 1973, sections 8–11. 3.173 UCTA, Section 7 deals with the exclusion or restriction of liability for breach of similar implied terms ‘arising by implication of law from the nature of the contract’343 in other contracts under which possession or ownership of goods passes. In relation to contracts for work and materials, barter and hire, they stem from the Supply of Goods and Services Act 1982. In other cases, such implication occurs at common law. UCTA, section 6(1) prevents the exclusion or restriction of liability arising from the breach of obligations arising from the implied terms dealing with title344 (that is implied by the SGA, section 12345 and the Supply of Goods (Implied Terms) Act 1973, section 8.346There is no reasonableness test. 3.174 The treatment of the exclusion or restriction of the implied terms dealing with title under UCTA, section 7 of depends upon the source of the implication. In relation to contracts for work and materials, barter, or exchange, when the implied term stems from Supply of Goods and Services Act 1982, section 2, the exclusion or restriction clause is rendered automatically ineffective347. However, in relation to other contracts, exclusions or restrictions of liability in respect of: (a) the right to transfer ownership of the goods or give possession (b) the assurance of quiet possession to a person taking goods in pursuance of the contract are subject to the requirement of reasonableness.348 3.175 The effectiveness of UCTA, section 6(1A) to exclude or restrict liability for breach of the other implied terms with which it deals (correspondence with description349 and sample,350 satisfactory quality and reasonable fitness for purpose351),will depend on whether a term excluding or restricting

UCTA, s 7(1).

343

And quiet enjoyment.

344

UCTA, s 6(1)(a).

345

UCTA, s 6(1)(b).

346

UCTA, s 7(3)A.

347

UCTA, s 7(4).

348

SGA, s 13, Supply of Goods and Services Act 1982, s 3.

349

SGA, s 15, Supply of Goods and Services Act 1982, s 5.

350

SGA, s 14, Supply of Goods and Services Act 1982, s 4.

351

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liability ‘satisfies the requirement of reasonableness’.352 Similarly, in relation to contracts covered by UCTA, section 7(1A), an exclusion or restriction of the corresponding implied terms353 is automatically ineffective except to the extent that the requirement of reasonableness is satisfied.354 3.176 Unlike most of UCTA (including section 7), the application of UCTA, section 6 is not ‘only’ restricted to attempts to exclude or restrict business liability as defined by UCTA355, but that is of limited impact. The terms implied by SGA, section 14, that the goods are of ‘satisfactory quality’ and ‘reasonably fit for the buyer’s particular purpose356 are only implied if the seller sold ‘in the course of a business’ and the same applies in relation to the equivalent terms implied by Supply of Goods (Implied Terms) Act 1973, section 10357 into hire-purchase contracts.

The requirement of reasonableness 3.177 In relation to UCTA, sections 6 and 7, Schedule  2 contains a non-exhaustive list of factors to which ‘regard shall be had in particular’ in determining whether a contract term ‘satisfies the requirement of reasonableness’.358 However, although these factors are only made relevant ‘by legislative prescription’ to UCTA, sections 6 and 7, they are factually relevant in many other cases and will be taken into account as such.359 The requirement of reasonableness in general is considered below at para 3.206.

Excluding or restricting liability 3.178 UCTA, section 13(1) makes it clear that the operation of UCTA, Part I (sections 1 to 14) is not confined to clauses simply in the form of exclusions or restrictions of liability.360 UCTA, s 6(1A). W Photoprint Ltd v Forward Trust Group Ltd (1993) 12 Tr LR 146.

352

The terms are implied into contracts for work and materials and of barter by ss 3–5, Supply of Goods and Services Act 1982 and in relation to contracts of hire by ss 8–10, Supply of Goods and Services Act 1982.

353

UCTA, s 7(1A).

354

UCTA, s 6(4). ‘Busines liability’ as defined by UCTA, s 1(3).

355

SGA, s 14.

356

In Stevenson v Rogers [1999] QB 1028, [1999] 1 All ER 613 it was decided that the meaning given to ‘in the course of a business’ in relation to the now repealed UCTA, s 12 as discussed in R & B Customs Brokers Co Ltd v United Dominions Trust [1988] 1 All ER 847, should not be applied in the context of s 14 of the Sale of Goods Act 1979.

357

UCTA, s 11(2).

358

Singer & Co (UK) Ltd v Tees and Hartlepool Port Authority [1988] Ll Rep 164 at 169; Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] 2 All ER 257 at 262; Phillips Products Ltd v Hyland [1987] 2 All ER 620 at 628; Rees Hough Ltd v Redland Reinforced Plastics Ltd (1985) 2 Con LR 109. But see Stag Line v Tyne Ship Repair Group Ltd, The Zinnia [1984] 2 Ll Rep 211 at 222.

359

See further para 3.132.

360

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It puts it beyond doubt that UCTA, section 6 and 7 also apply to a term or notice: • making the liability or its enforcement subject to restrictive or onerous conditions;361 or •

excluding any right or remedy;362 or

•

excluding or restricting rules of evidence or procedure.363

In addition, the final part of UCTA, section 13(1) also makes it clear that UCTA, sections 6 and 7 extend to terms or notices which exclude or restrict the ‘relevant obligation or duty’. This is dealt with further below.

Excluding or restricting the relevant obligation or duty 3.179 As discussed above,364 in this context, the last part of UCTA, section 13(1): ‘and (to that extent) sections 2, 6 and 7 also prevent excluding or restricting liability by reference to terms and notices which exclude or restrict the relevant obligation or duty’

applies and therefore just as UCTA section 6 and 7 apply to terms excluding or restricting liability, they also apply to terms excluding or restricting the relevant obligation or duty. 3.180 This seems to raise a ‘form and substance’ issue365 requiring a distinction between clauses which: •

in form, relate to the obligation or duty but which:

•

in substance, are exclusions of liability and, as such, subject to UCTA sections 6 or 7.366

It is possible to illustrate the type of situation in which the form and substance issue will arise in relation to these sections. The party seeking to rely upon the clause will argue that the relevant clause does not exclude or restrict liability for breach of the implied term in question. Rather that it affects the

UCTA, s 13(1)(a).

361

Or subjecting any person to any prejudice in consequence of his pursuing any such right or remedy – UCTA, s 13(1)(b).

362

UCTA, s 13(1)(c).

363

See also para 3.132.

364

See para 3.54

365

Johnstone v Bloomsbury Health Authority [1991] 2 All ER 293 per Stuart Smith LJ at 301; Phillips Products Ltd v Hyland [1987] 2 All ER 620 per Slade LJ at 626; Smith v Eric S Bush [1989] 2 All ER 514 per Lord Griffiths at 530; Cremdean Properties v Nash [1977] EGD 63. But see Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] 2 All ER 257 per Lord Donaldson at 625; Fillite (Runcorn) Ltd v APV Pasilac Ltd (22 April 1993, unreported), Judge Bowsher QC (Off Ref).

366

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situation whether it is necessary to imply the term at all or is only implied with a restricted scope. 3.181 This has arisen in case law (but without in-depth consideration of the issue). For example, in Rogers v Parish (Scarborough) Ltd367 (a case concerning the sale of two Range Rovers by the defendants to the claimant) the issue was whether goods were in compliance with the term which was implied by SGA, section 14(2), that the goods should be of merchantable quality (now ‘satisfactory quality’).368 For goods to be of merchantable quality was stated by Sale of Goods 1979 Act, section 14(6) in force at the time of the case: ‘Goods of any kind are of merchantable quality within the meaning of sub-s  (2) above if they are as fit for the purpose or purposes for which goods of that kind are commonly bought as it is reasonable to expect having regard to any description applied to them, the price (if relevant) and all other relevant circumstances …’.

3.182 One of the arguments put forward by the defendant car seller to avoid a finding that a one of the Range Rovers was unmerchantable was that the presence of a ‘warranty’. The warranty stated that ‘should any part of the vehicle require repair or replacement as a result of a manufacturing or material defect within twelve months from the date on which the vehicle was handed over to the first owner, the part will be repaired or replaced completely free of charge by your authorised Dealer, regardless of any change of ownership during the period covered. Any part so repaired or replaced will benefit from these arrangements for the balance of the period applicable to the vehicle … ‘.

The contract between the parties provided that: ‘…The Seller supplies the Goods to the Buyer for his use with the benefit … of the following which are implied by statute … (ii) a condition that the Goods are of merchantable quality … (d) Nothing in this agreement does or will affect the statutory rights of the Buyer in respect of the Goods …’.

3.183 The argument by the defendant car seller on the presence of the warranty (so that the claimant had to accept that the car would be sold subject to some defects) was that it did: ‘…not to deprive the buyer of his rights but rather as a relevant circumstance for the purposes of s 14(6), simply operating to diminish the reasonable expectations of the buyer’.

The court looking at the reality of the situation, did not find this convincing and stated:369 ‘Assume that on an accurate balancing of all the relevant circumstances it could be said that the buyer of a new Range Rover could reasonably expect it to have certain qualities and that accordingly he has a contractual right to receive a vehicle

[1987] 2 All ER 232.

367

‘Satisfactory quality’ replaced ‘merchantable quality’ pursuant to the Sale and Supply of Goods Act 1994.

368

Rogers v Parish (Scarborough) Ltd [1987] 2 All ER 232 at 237.

369

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3.184 SGA, section 14(6) related merchantability to what could reasonably be expected in relation to the goods and, in Rogers v Parish (Scarborough Ltd), the defendants tried to argue that the ‘warranty’ was not affected by UCTA, section 6, but rather acted to diminish those reasonable expectations and thus the content of the term. The court simply did not regard it as effective to produce that result, but if a clause is argued to act in this way and, because it is a term, is not viewed as simply ineffective, the last part of UCTA, section 13(1) of UCTA makes it clear that it may fall within the ambit of UCTA, section 6, even though, in form, it relates to the obligation rather than liability. 3.185 However, it is necessary to determine which terms that, in form, affect the implication, should be brought within the ambit of UCTA, section 6. As has been indicated, the point here concerns the form and substance issue. 3.186 The distinction must be made by considering the relationship of the relevant term to the creation of the obligation. UCTA, sections 6 and 7 concerns terms which are implied on the basis of the presence of a number of different types of factor such as: •

the facts themselves;

•

evaluations of facts; and

•

obligations arising under different terms.

3.187 To determine whether the relevant express term should be treated as a clause excluding or restricting liability under UCTA, section 13(1), it is necessary to consider the relationship of the express term in question to the factor which it attempts to affect. 3.188 One illustration of the form and substance issue, in the context of the situation in which the implication of a term is dependent upon express terms, is provided by SGA, section 13 of the. When a sale is made ‘by description’, a term is implied by that section that the goods will correspond with the ‘description’. For a statement as to the goods to constitute a ‘description’ for the purposes of SGA, section 13 what is required is not merely that it be a term in its own right, but that it be a particular type of descriptive term – one ‘identifying’ the goods370 in the sense of stating that which is essential about them in the eyes of the parties.371

Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441.

370

Reardon Smith Line Ltd v Hansen-Tangen [1976] 1  WLR  989. It is also sometimes asked whether a sale is ‘by description’ (for example Harlingdon v Hull [1990] 1 All ER 737 where ‘reliance’ was seen as the key indicator of whether a sale was ‘by description’). However, if a relevant descriptive term can be found that fulfils the requirements to be a ‘description’ for the purposes of SGA, s 13, it would seem inevitable that there is sufficient link between the description and the sale for it to have been ‘by description’.

371

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3.189 In relation to notices saying ‘bought as seen’ or ‘sold as seen’,372 the question should be whether those notices interacted sufficiently with the fact situation to prevent any descriptive statement becoming important enough to the contract for it to be a ‘description’ for the purposes of SGA, section 13. Assuming the notice to be contractual, and as it is the existence of a particular type of express term (that is a sufficiently important descriptive one) which is being considered, that interaction should be assessed by a version of the test already considered, which looks at the parties’ reasonable expectations of the contractual performance (absent artificialities).373 What needs consideration is whether that notice impacted upon the parties’ reasonable expectations of performance when those expectations are viewed without the artificialities which may be present in incorporation and drafting. In this context, it will also have to take into account the fact that for the purposes of SGA, section 13 of the, what is required is not merely a ‘descriptive term’ but also one which ‘identifies’ the goods. On this basis, if the parties’ reasonable expectations of performance, absent any artificialities, would be of a performance in which the goods were guaranteed to be of the relevant ‘identity’, then a term such as ‘sold as seen’, would either: •

simply be ineffective; or

•

if not viewed as such simply because of its status as a term, then as a term falling within the ambit of section 6 of UCTA, ie an exemption clause.374

3.190 The term implied by SGA, section 14(3) can illustrate what occurs when the factor to which the clause in question relates is either a fact or an evaluation of the facts. SGA, section 14(3) implies a term that the goods should be reasonably fit for the buyer’s particular purpose. The implication will not occur if the buyer did not reasonably rely on the skill or judgment of the seller.375 The seller could include in the contract a clause stating that he has no expertise in relation to the goods in question and gives no opinion on their suitability for any particular purpose.376 Whatever the content of the

For differing treatment of such notices in relation to the applicability of UCTA, s 6, although without significant analysis, see Cavendish Woodhouse Ltd v Manley (1984) 82  LGR  376 and Hughes v Hall [1981] RTR 430.

372

See para 3.54.

373

In Harlingdon & Leinster Enterprises v Christopher Hull Fine Art Ltd [1990] 1 All ER 737 the art dealer who was selling a painting expressly stated to the dealer who came to buy that he had no expertise in relation to the relevant type of painting. That prevented a term from being implied under s 13 as to the painter of the picture in question. The effect of the statement disclaiming expertise was assessed against the other factors to determine if there had been reliance on an earlier labelling of the painting as by a particular painter. Reliance was indicative of whether a sale was by description and how important the stated attribution of the painting was to sale. A notice disclaiming expertise should be similarly assessed to see if, on the basis of that and other factors, sufficient importance was attached to the stated attribution for it to be relevant for the purposes of SGA, s 13.

374

It is for the seller to disprove reasonable reliance.

375

P S Atiyah The Sale of Goods (9th edn, Pearson Education) (Adams, ed).

376

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clause, the question of actual reliance remains a factual one. It is a question of fact whether there has been reliance.377 It may, of course, state what has occurred or it may have influenced the buyer not to rely. Outside of those possibilities the clause does not seem to do anything in relation to the factual question of actual reliance.378 The implication of the term is dependent upon the facts and not what the contract purports to state those facts to be. If such a clause contradicts the facts then if it is viewed as effective at all, it should be seen as a clause brought within UCTA, section 6 of UCTA by the last part of UCTA, section 13(1).379 3.191 It is possible to take the same basic approach where the question is whether a term is relevant to an evaluation of the facts, ie  in this case, whether reliance was reasonable. There is no difficulty if a person has unreasonably relied on a term even without the presence of the clause. However, if the clause could be seen as rendering reliance unreasonable then the question of whether it should be treated as an exclusion clause should depend upon the reality of the situation. If it would have that affect when considered absent the artificiality380 which may occur (for example in its incorporation) then it is in substance part of the definition of the obligation. If, absent any artificialities, the term would not affect the reasonableness of reliance then, if it is seen as effective at all, it should be regarded as a clause excluding or restricting liability, brought within UCTA, section 6 by UCTA, section 13(1) of UCTA. The treatment of attempts to use a term to generate an estoppel to prevent a claim that a statement was relied upon are considered above in the context of entire agreement clauses (see para 2.170).

Lowe v Lombank [1960] 1 All ER 611 – in the absence of an estoppel.

377

A  similar question can arise in relation to misrepresentation as reliance on the misrepresentation is required for it to be operative. In that context, in Cremdean Properties v Nash [1977] EDG 63 the Court of Appeal had to deal with a clause which said ‘Any intending purchaser … must satisfy himself by inspection or otherwise as to the correctness of each of the statements contained in these particulars’. Bridge LJ commented (at 68–69) ‘That part of the [clause] may have considerable importance when this action comes to trial, as bearing upon the question of fact that will arise at the trial, as to whether the plaintiffs relied upon any misrepresentation. Clearly [that part of the clause] … does not amount even to a purported annulment of any representation.’ See also the views of Jacobs J on the effectiveness of the ‘entire agreement’ clause in Thomas Witter Ltd v TBP Industries Ltd [1994] Tr L 145 at 167–168.

378

In W Photoprint Ltd v Forward Trust Group Ltd (1993) 12 Tr LR 146, the party against whom it was sought to use the clause argued that it should be viewed in the manner here suggested. The proferens did not seek to rely on the clause to argue that no term was implied, but rather that it was relevant to the requirement of reasonableness, and that was accepted by the judge.

379

See para 3.54.

380

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Second contracts – UCTA, section 10 The section 3.192 UCTA, section 10 is an anti-avoidance provision. It deals with the situation where there are two contracts and a clause in the second affecting rights arising under the first. It prevents a person achieving by a second contract what UCTA would not permit them to do in the first itself. UCTA, section 10 states: ‘A person is not bound by any contract term prejudicing or taking away rights of his which arise under, or in connection with the performance of, another contract, so far as those rights extend to the enforcement of another’s liability which this part of this act prevents that other from excluding or restricting’.

3.193 The drafting of this section is somewhat obscure.381 It does not reflect the style generally adopted in UCTA, as it does not refer to the exclusion or restriction of liabilities, or even rights, but rather to ‘prejudicing or taking away rights’. It does not apply to agreements compromising claims.382 3.194 The effect of UCTA, section 10 is not uncontroversial. It has been seen as inapplicable in those cases where an exemption clause in the first contract would have been subject to the requirement of reasonableness, rather than being automatically ineffective. The view is taken that in those cases UCTA does not ‘prevent’ the exclusion or restriction of liability in the first contract.383 However, the better view would seem to be that UCTA does prevent the use of some clauses excluding or restricting liability which it subjects to the requirement of reasonableness – it renders ineffective those clauses which fail to satisfy the requirement of reasonableness. On this basis, if the liability under the first contract – the rights in relation to which would be prejudiced or taken away by a term in the second contract – is such that a clause in the first contract which excluded or restricted it would be subject to the requirement of reasonableness, then the question is whether the term in the second contract satisfies the requirement of reasonableness.384

Parties to the contracts 3.195 In Tudor Grange Holdings Ltd v Citibank385 it was suggested that UCTA, section 10 does not deal with the situation where both contracts are between It was introduced into the Bill late in its history.

381

Tudor Grange Holdings Ltd v Citibank [1992] Ch 53, [1991] 4 All ER 1, Times Travel (UK) Ltd and another v Pakistan International Airlines Corporation [2017] EWHC 1367 (Ch).

382

See Cheshire, Fifoot & Furmston Law of Contract (13th edn, Oxford University Press, 2017) p 255.

383

That requirement would have to be viewed as adaptable to the demands of the difficult wording of UCTA, s 10.

384

[1991] 4 All ER 1. Hooley ‘A Reasonable Compromise’ [1991] LMCLQ 449.

385

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the same parties. The court gave an example of the type of contract which the section was designed to cover. The court stated:386 ‘[1] Under contract 1, the supplier (S) contracts to supply a customer (C) with a product. [2] Contract 1 contains no exemption clause. [3] However, C enters into a servicing contract, contract 2, with another party (X). [4] Under contract 2, C is precluded from exercising certain of his rights against S under contract 1. [5] In such a case s 10 operates to preclude X from enforcing contract 2 against C so as to prevent C enforcing his rights against S under contract 1’.

It would seem to provide an opportunity for evasion of UCTA if UCTA, section 10 does not cover the situation where both contracts are made by the same parties. 3.196 However, what must be borne in mind is that the court also took the view that UCTA, sections 2 and 3387 were themselves wide enough to encompass a clause in a second contract between the parties to the original contract: ‘Under ss 2 and 3 there is no express requirement that the contract term excluding or restricting S’s liability to C has to be contained in the same contract as that giving rise to S’s liability to C.’ 388

3.197 This must be borne in mind if the case is cited in relation to the proposition that UCTA, section 10 only deals with a second contract made with someone who was not a party to the original contract. The court recognised that the wording in UCTA, section 10 could possibly apply where there is no third party but: ‘in my judgment, read in context and having regard to the purpose both of the Act and of the section itself, the reference to ‘another’ plainly means someone other than X, that is to say someone other than the party to the secondary contract. In my judgment, s 10 does not apply where the parties to both contracts are the same.’389

And that if, on the specific facts, a case concerned a subsequent compromise agreement between the same parties, UCTA, section 10 would not be needed, because: ‘If S and C enter into two contracts, it makes no difference if the exemption clause is contained in a different contract from that under which the goods are supplied. Sections 2 and 3 by themselves will impose the test of reasonableness. Why then should Parliament have thought that in s 10 there was some possibility of evasion in such circumstances?’390

[1991] 4 All ER at 13. Reformatted for ease of reading, numbers in ‘[ ]’ and italics added.

386

These were the sections raised by the plaintiffs as covering the case had a clause in the original contract been under consideration. However if this reasoning is correct then there would seem to be every reason for it also to apply to other sections (see ss 6 and 7).

387

[1991] 4 All ER at 13.

388

Tudor Grange Holdings Ltd v Citibank NA [1991] 4 All ER 1 at p. 13.

389

ibid.

390

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3.198 However, it would seem very doubtful that UCTA, section 10 does not cover the situation where both contracts are between the same parties and the provision in the Scottish part of UCTA which deals with the situation where there are two contracts has not been seen as so restricted,391 although it must be conceded that the two sections are very differently worded. However, there is nothing in the wording of section 10 to indicate that it should be so limited and any such limitation would seem to be open to the possibility of evasion of UCTA. But in relation to UCTA, section 10 itself the court was clear enough where: •

there is a secondary contract (a compromise agreement or an agreement to settlement of disputes will not count); and

•

the secondary contract seeks to evade the provisions of UCTA, Part I; and

•

the secondary contract is with a third party; and

• the secondary contract attempts to evade UCTA, Part I  through the introduction of an exemption clause; then UCTA, section 10 will apply.

Types of contract 3.199 The heading to UCTA, section 10 states ‘evasion by means of secondary contract’ while the wording used in the section itself is ‘another contract’. Tudor Grange Holdings Ltd v Citibank also considered the type of secondary contract which would come within the meaning of ‘another contract’ for the purposes of UCTA, section 10. The case concerned whether a deed of release (in effect a compromise and settlement agreement of certain claims made by the claimants against the defendants) was unreasonable under UCTA. The court looked at the purpose of UCTA so that based on the report of the Law Commission which led to the UCTA it was a measure: ‘concerned with remedying injustices which are caused by exemption clauses in the strict sense’.392

3.200 The court stated that the report did not find that there was any necessity for a remedy in relation to compromise and settlement agreements. The court then turned to the meaning of a secondary contract and noted that the title of UCTA, section 10 was ‘evasion of a secondary contract’. Although the title to a section: ‘cannot control the language used in a section, it is permissible to have regard to it in considering what is the general purpose of the section and mischief at which it is aimed’.393

Chapman v Aberdeen Construction Group plc [1991] IRLR 505.

391

Tudor Grange Holdings Ltd v Citibank NA [1991] 4 All ER 1 at p 13.

392

ibid.

393

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The court held UCTA, section 10 has as its aim the evasion of UCTA, Part I by the use of another contract, and: ‘…a contract to settle disputes which have arisen concerning the performance of an earlier contract cannot be described as an evasion of the provisions in the Act regulating exemption clauses in the earlier contract. Nor is the compromise contract ‘secondary’ to the earlier contract.’394

Defining obligations/performance 3.201 There are further difficulties with the scope of UCTA, section 10 where: •

there is a term in a second contract which is not in the form of an exclusion or restriction of the liability in the first contract; but rather

•

the term in second contract is part of the definition of the obligations, or performance, in the first contract.

3.202 The type of term which had it been in the first contract would have fallen within the scope of the last part of UCTA, section 13(1)395 or UCTA, section 3(2)(b). The argument for UCTA, section 10 not applying is as follows: • the term (if part of the first contract), would be rendered ineffective (either automatically, or after the application of the reasonableness test); •

the term does not exclude or restrict liability; and

• UCTA, section 10 only refers to liability which UCTA would have prevented the other party ‘from excluding or restricting’ by a term in the first contract. 3.203 However, it is also possible to take an alternative view: •

the relevant term which, in form, relates to the obligations or performance of the first contract;

•

the relevant term only appears in the second contract;

•

if the first contract is considered by itself there will be liability; and

•

it is possible to view the clause in the second contract as one ‘prejudicing or taking away rights’ in relation to that liability.396

[1991] 4 All ER at 13, Also Times Travel (UK) Ltd and another v Pakistan International Airlines Corporation [2017] EWHC 1367 (Ch).

394

Which would bring it within the scope of UCTA, ss 2, 6 and 7, if appropriate.

395

The argument is analogous with that made in Phillips Products Ltd v Hyland [1987] 2 All ER 620 per Slade LJ at 626 in order to find that UCTA, s 2 applied to an indemnity clause. The court sated: ‘the transfer of liability from A to B necessarily and inevitably involves the exclusion of liability so far as A is concerned’.

396

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On the basis of the alternative view, if a clause in the first contract in the form of an exclusion or restriction of that liability would have been rendered ineffective by UCTA, then so will be the clause in the second contract, whatever its form. 3.204 However, the question is whether this should occur in relation to all such clauses, purely on the basis of their mechanical effect in ‘prejudicing or taking away’ rights.397 The alternative to a mechanical approach of this sort is to make a distinction between form and substance. For example, if the liability under the first contract stemmed from an express term, would (after the second contract was made) the performance giving rise to the liability was still encompassed in the parties’ reasonable expectations of performance.398 If it was not, then the clause in the second contract should be regarded as definitional, and not as one ‘prejudicing or taking away rights’ within UCTA, section 10. If, however, the reasonable expectations still encompassed such a performance then the clause would be viewed as one ‘prejudicing or taking away rights’ within UCTA, section 10.

Indemnity 3.205 The final point to consider here is in relation to the approach to be taken to a clause in the second contract in the form of an indemnity clause, relating to liability arising under the first contract. In other contexts, the line has been taken that an indemnity clause operating reflexively is to be regarded as one excluding liability, but not one acting as an insurance clause.399 By analogous reasoning, this would mean that the same division is required in relation to the application of UCTA, section 10, but, in general, it is possible to question that non-application to clauses acting as insurance clauses.400

The requirement of reasonableness – section 11 The basic test 3.206 UCTA often renders a clause ineffective except in so far as it satisfies the requirement of reasonableness. However, before it is possible to determine whether a clause satisfies the requirement it is necessary:

The approach taken in Phillips Products Ltd v Hyland [1987] 2 All ER 620 was a mechanical one (see para 3.91).

397

Judged absent the artificialities which may be present in the contracting process. See para 3.67.

398

See para 3.91.

399

For criticism of the reflexive/insurance division in relation to the treatment of indemnities under other sections see para 3.94.

400

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Chapter 3  The Unfair Contract Terms Act 1977 ‘to determine, first, the scope and effect of that term as a matter of construction. In particular, it is necessary to identify the nature of the liability which the term is seeking to exclude or restrict.’401

3.207 Meaning is given to the requirement of reasonableness in UCTA, section 11 as follows: a contract term (UCTA, section 11(1)):

•

‘In relation to a contract term, the requirement of reasonableness … is that the term shall have been a fair and reasonable one to be included having regard 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.’

•

(UCTA, section 11(3)): ‘In relation to a notice, (not being a notice having contractual effect), the requirement of reasonableness under this Act is that it should be fair and reasonable to allow reliance on it having regard to all the circumstances obtaining when the liability arose or (but for the notice) would have arisen.’

3.208 Although there are clear differences between the two tests, particularly in the time frame of the assessment:402 •

a contractual term: at the time the contract was made;

•

a non-contractual notice: when the liability arose (or would have arisen if not for the notice)

in a case it was stated that: ‘the fundamental standard to be met in order to satisfy the reasonableness test is broadly the same for both contractual and non-contractual notices, namely that it should be fair and reasonable in all the relevant circumstances’.403

3.209 The references to ‘fair’ and ‘reasonable’ may be ‘simply tautologous’ but it would seem that ‘two words have been deliberately introduced’,404 although the fact is unlikely often to be significant. The basic approach is to gather and weigh the relevant factors in each case: ‘… the court must ascertain a whole range of considerations, put them in the scales on one side or the other, and decide at the end of the day on which side the balance comes down’.405

Watford Electronics v Sanderson [2001] 1 All ER (Comm) 696 at [31].

401

See para 3.231.

402

The Salvage Assn v CAP Financial Services Ltd [1995] FSR 654 Thayne Forbes J (Off Ref).

403

Ormsby v H & H Factors Ltd (26 January 1990, unreported), Sir John Megaw.

404

George Mitchell Ltd v Finney Lock Seeds Ltd [1983] 3  WLR  163, 171; comment made in the context of the earlier test in what became s  55 of the SGA, but the point would seem to hold good for the Unfair Contract Terms Act 1977 and has been regarded as such (Rees Hough Ltd v Redland Reinforced Plastics Ltd (1985) 2 Con LR  109, Overseas Medical Supplies Ltd v Orient Transport Services Ltd [1999] 1  All ER (Comm) 981, [1999] 2 Lloyd’s Rep 273; Watford Electronics Ltd v Sanderson CFL Ltd [2001] 1 All ER (Comm) 696, [30]). See also Fillite (Runcorn) Ltd v APV Pasilac Ltd (22 April 1993, unreported).

405

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3.210 This would seem to be so under UCTA, section 11(3) as well as UCTA, section 11(1) and many of the factors considered below, primarily in relation to UCTA, section 11(1), will also be relevant under UCTA, section 11(3), but it is necessary to consider, in particular, the different time frames of assessment, to assess the appropriateness of consideration of a specific factor. It is important to note that the reasonableness test has to be applied to each particular case; so that: ‘the question for the court is not a general question whether or not [a] condition […] is valid or invalid in the case of any and every contract […] entered into between a [one party] and a[nother party] who uses the relevant [standard form] conditions. The question was and is whether the exclusion of [the party who put forward the standard form conditions]’ s liability for negligence satisfied the requirement of reasonableness imposed by the 1977 Act in relation to this particular contract ’.406

3.211 Such an approach can create uncertainty. However, contract planning is assisted by UCTA, section 11(1) which makes it clear that when a contract term is in question, the time frame against which the assessment as to whether it was reasonable is made is when the contract was made.407 It is the circumstances which were, or ought reasonably to have been, in the contemplation of the parties, ie  both parties.408 In other words, factors of which only one party knew, and the other could not reasonably contemplate are not relevant. For example, one party’s actual insurance arrangements are unlikely to be relevant, but the general availability of the relevant type of insurance may well be.409 In relation to non-contractual notices, the time frame of assessment is that of the time when the liability arose or (but for the notice) would have arisen. 3.212 There are non-exhaustive ‘guidelines’ in UCTA, Schedule 2410 and in UCTA, section 11(4) there are matters specified for consideration when what is in question is a term or notice limiting liability to a ‘specified sum’.411

Phillips Products Ltd v Hyland [1987] 2 All ER 620 at 629 (emphasis in judgement); First National Commercial Bank v Loxleys (1996) 141 Sol Jo LB  6; Edmund Murray Ltd v BSP  International Foundations Ltd (1993) 33 Con LR 1; Sonicare International v East Anglia Freight Terminal Ltd [1997] 2 Ll Rep 48 at 55.

406

Law Com Rep No 69.

407

Edmund Murray Ltd v BSP International Foundations Ltd (1992) 33 Con LR 1.

408

Flamar Interocean Ltd v Denmac Ltd [1990] 1 Lloyd’s Rep 434; Chester Grosvenor Hotel Co Ltd v Alfred McAlpine Ltd (1991) 56 Build LR 115; Jones v Northampton BC (1990) Times, 21 May; Singer (UK) Ltd v Tees & Hartlepool Port Authority [1988] 2 Ll Rep 164 at 169.

409

The guidelines are only made relevant by ‘statutory prescription’ to terms covered by ss 6 or 7, (see s 11(2)), but they are generally, factually relevant in other cases and will be considered as such. See para 3.234.

410

See para 3.240.

411

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3.213 UCTA, section 11(5) places the burden of proof upon the person claiming that the contract term or notice satisfies the requirement of reasonableness and this may be of ‘great significance’.412 When a defence is based on an exemption clause to which UCTA and the requirement of reasonableness may be relevant: ‘[the] assertion as to the term satisfying the requirement of reasonableness may properly be regarded as a necessary particular of the defence’

to be included in the pleadings.413 In relation to a proferens who ‘made no attempt to justify by evidence the proposition’ that its clauses satisfied the requirement of reasonableness, in one case it was held that: ‘as the onus of proving that they did was on [the proferens], the failure to adduce evidence meant that a finding that they did not was inevitable’.414

Trends 3.214 Is there any general approach to the application of the requirement of reasonableness in the commercial context? In Photo Production Ltd v Securicor Transport Ltd415 Lord Wilberforce said:416 ‘in commercial matters generally, when the parties are not of unequal bargaining power, and when risks are normally borne by insurance, not only is the case for judicial intervention undemonstrated, but there is everything to be said for leaving the parties free to apportion the risks as they think fit and for respecting their decisions’.

3.215 This part of the judgment has been much cited,417 but immediately after that case it does not seem to have been generally followed to produce a basically non-interventionist approach to the reasonableness test in the

Phillips Products Ltd v Hyland [1987] 2 All ER 620 per Slade LJ at 628. St Albans City & District Council v ICL [1995] FSR 686.

412

Sheffield v Pickfords Ltd (1997) 16 Tr LR 337. Order 18 r 12(1), RSC. See also Circuit Systems Ltd (In Liquidation) and Baston v Zuken-Redac (UK) Ltd (1995) 42 Con LR 120; AEG (UK) Ltd v Logic Resources Ltd [1996] CLC 265 per Hobhouse LJ at 278.

413

Astea (UK) Ltd v Time Group Ltd [2003] EWHC 725.

414

[1980] AC 827.

415

[1980] AC 827 at 843.

416

For example Salvage Assn v CAP Financial Services Ltd [1995] FSR 654; Chester Grosvenor Hotel Co Ltd v Alfred McAlpine (1991) 56 Build LR 115; Fillite (Runcorn) Ltd v APV Pasilac (22 April 1993, unreported). Edmund Murray Ltd v BSP  International Foundations Ltd (1992) 33 Con LR 1; W Photoprint Ltd v Forward Trust Group (1993) 12 Tr LR 146; Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371

417

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context of commercial contracts.418 More recently, however, there has been some re-emphasis that commercial parties are the best judges of the reasonableness of contract terms. In,419 for example: ‘Where experienced businessmen representing substantial companies of equal bargaining power negotiate an agreement, they may be taken to have had regard to the matters known to them. They should, in my view, be taken to be the best judge of the commercial fairness of the agreement which they have made, including the fairness of each of the terms in that agreement. They should be taken to be the best judge on the question whether the terms of the agreement are reasonable. The court should not assume that either is likely to commit his company to an agreement which he thinks is unfair, or which he thinks includes unreasonable terms. Unless satisfied that one party has, in effect, taken unfair advantage of the other – or that a term is so unreasonable that it cannot properly have been understood or considered – the court should not interfere.’

3.216 However, it is important to note that this type of approach: •

‘contains within itself a number of conditions’;420 and

• should not be seen as obviating the need for a careful consideration of the particular case. In Watford v Sanderson itself, where the conclusion was reached that the clause was reasonable, and that:

For example in St Albans v ICL [1995] FSR 686, in finding the term unreasonable, Scott Baker J  said, ‘These factors outweigh the fact that bodies such as computer companies and local authorities should be free to make their own bargain, that the plaintiffs contracted with their eyes open, that limitations of this kind are commonplace in the computer industry and that [the software supplied] was an area of developing technology’. But in Surzur Overseas Ltd v Ocean Reliance Shipping Co Ltd [1997] CLY 906, Toulson J said: ‘I start from the basis that commercial organisations should be allowed to make their own agreements and the courts should ordinarily respect their choices; The Great Scottish & Western Ry Co Ltd v BRB (1998) 6 Feb, Lexis (Off Ref) – GSWR had wanted to operate luxury railway tours in Scotland. To be able to do so, they had to contract with BRB, which was at the relevant time a monopoly owning and operating the national railway system. The relevant clause was found to be reasonable. It was said, ‘Mr Ward in evidence for BRB accepted that Hobbs would have had no real choice but to accept the Agreement, but pointed out that BRB were not obliged to run the train in the first place. He had made it clear that the only way GSWR were going to be able to do so was by accepting – it was a commercial situation – Hobbs decided that this was the business he wanted to go into, so he had run the trains on their lines on their terms; he had a right of appeal which he had exercised to the then minister, Mr Portillo, who did not recommend any change.’

418

[2001] 1 All ER (Comm) 696. See also Salvage Assn v CAP Financial Services [1995] FSR 654 at 656; SAM Business Systems v Hedley [2003] 1 All ER (Comm) 465; Granville Oil and Chemicals Ltd v Davis Turner [2003] 1 All ER (Comm) 819; Frans Maas (UK) Ltd v Samsung Electronics (UK) Ltd [2004] EWHC 1502 [2004] 2 LL Rep 251, [55].

419

SAM Business Systems v Hedley [2003] 1 All ER (Comm) 465 at [67]. Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371, [7], [8] and [73] the court held that the two parties who had annual turnovers respectively of about £2.7 million and £4.88 million were of broadly equal size.

420

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•

the parties were seen to be of equal bargaining power;421

• the contract was a high risk one in which both parties understood the correlation of price to risk and the role of the exemption clause. 3.217 Also in Granville Oil and Chemicals Ltd v Davies Turner and Co Ltd it was noted that the condition for the parties to be left to make their own bargains depended on their being of equal size: ‘The 1977 Act obviously plays a very important role in protecting vulnerable consumers from the effects of draconian contract terms. But I am less enthusiastic about its intrusion into contracts between commercial parties of equal bargaining strength, who should generally be considered capable of being able to make contracts of their choosing and expect to be bound by their terms.’422

3.218 In contrast, in a commercial context of equal bargaining power in Bacardi-Martini Beverages Ltd v Thomas Hardy Packaging Ltd, in concluding that the exemption clause was unreasonable, little seems to have been viewed as of relevance in reaching that conclusion beyond the fact that the clause would: ‘operate as a blanket exemption in respect of matters which the parties would have regarded as fundamental to each supply’.423

The statements of the courts such as those above may show some impetus to be given to certain factors in applying the weighing process, but the process must be carried out.

‘In so far as’ 3.219 The sections which apply the reasonableness test state that a term (or notice) is ineffective ‘except’ (or, ‘but only’), ‘in so far as’, it satisfies the requirement of reasonableness.424 It is possible to view this form of words as providing for the possibility of a term (or notice) being partly effective.425 However, in George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd426 the court

Although the Court of Appeal noted that the judge at first instance had found that the software with which the contract was concerned was the only one on the market which ‘appeared to fulfil Watford’s needs’ and that Watford ‘could not reasonably have expected to have been able to have acquired a similar software package, if available, on better terms as to performance and as to the supplier’s potential liability for non-performance’ – Watford v Sanderson [2001] 1 All ER (Comm) 696, [52].

421

[2003] 1  All ER (Comm) 819, [31]. A  view shared by the court in Balmoral Group Ltd v Borealis (UK) Ltd [2006]  EWHC  1900 (Comm), [405] and Bates and others v Post Office Ltd [2019] EWHC 606 (QB), [1095].

422

[2002] 2 All ER (Comm) 335, [26].

423

UCTA, ss 2(2) (negligence liability), 3(1) (liability arising in contract, when dealing on other party’s written standard terms of business), 6(1), 7(1A) (liability for breach of obligations under provisions of eg, the Sale of Goods Act 1967.

424

Trolex Products Ltd v Merrol Fire Protection Engineers Ltd (20  November 1991, unreported), Staughton LJ.

425

[1983] 2 All ER 737.

426

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considered whether such words427 permitted the court to allow partial reliance on a clause and, for example, to allow the injured party to recover half their consequential loss rather than just the sum specified in a limitation clause. The court took the view that the words did not permit that ‘kind of judgment of Solomon’.428 Also, in Stewart Gill Ltd v Horatio Myer & Co Ltd429 the court took the view that UCTA as a whole, indicates that a term stands or falls in its entirety. It held that there is no scope for the severance of the unreasonable parts of a term to leave the rest effective and the same should apply to a notice.430 However, if a ‘term’ (or ‘notice’) contains several distinct units, it is possible that each of those units could be a distinct term (‘notice’) for the purposes of the reasonableness test.431 Thus, for example, in Watford Electronics v Sanderson432 clause 7.3 of the ‘Terms and Conditions of Sale’ stated: ‘Neither the Company nor the Customer shall be liable to the other for any claims for indirect or consequential losses whether arising from negligence or otherwise. In no event shall the Company’s liability under the contract exceed the price paid by the Customer to the Company for the Equipment connected with any claims’.

3.220 The first and second sentences were treated as two distinct contract terms, one excluding liability for contractual claims for indirect and consequential loss and the other limiting liability for direct loss from breach to the price paid. However, a term which: • excludes or restricts liability which UCTA does not permit at all (such as for death or personal injury under UCTA, section 2(1)); and also • excludes or restricts liability for matters which can be subject to the test of reasonableness (such as excluding or restricting liability for negligence); will not fall in its entirety, as one case held that: ‘…if part of a term is ineffective by reason of section 2(1), the remainder can nevertheless be upheld as reasonable’.433

The case was concerned with the test under s 55 of the Sale of Goods Act 1979, where the phrase was ‘to the extent that’; however, the court clearly thought the point even less open to doubt in relation to the phrase used in the Unfair Contract Terms Act 1977 (Lord Bridge at 744).

427

[1983] 2 All ER 737 per Lord Bridge at 744.

428

Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] 2 All ER 257; applied in Goodlife Foods Ltd v Hall Fire Protection Ltd [2017] EWHC 767 (TCC), [70]-[71] (case appealed but not on this point, [2018] EWCA Civ 1371).

429

But see Green v Cade Bros Farm [1978] 1 Ll Rep 164.

430

Trolex Products Ltd v Merrol Fire Protection Engineers Ltd (20 November 1991, unreported), [1991] Lexis Citation 2136, Nourse LJ; Watford Electronics v Sanderson [2001] 1 All ER (Comm) 696.

431

[2001] 1 All ER (Comm) 696.

432

Trolex Products Ltd v Merrol Fire Protection Engineers Ltd (20  November 1991, unreported), [1991] Lexis Citation 2136 (by reference to what is now Citty on Contracts, (33rd edn, Sweet & Maxwell) 15-114), applied in Goodlife Foods Ltd v Hall Fire Protection Ltd [2017] EWHC 767 (TCC), [67]-[68]. Although in Trolex Staughton LJ stated: ‘The wider question, whether one can sever words when only reasonableness is in issue, does not arise, and I express no opinion upon it.’

433

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Appeals and precedents 3.221 The courts have given some consideration to the approach to be taken to an appeal from a decision on the requirement of reasonableness in UCTA, section 11. In George Mitchell Ltd v Finney Lock Seeds Ltd434 Lord Bridge, with whom the other members of the court agreed, said:435 ‘It may, therefore, be appropriate to consider how an original decision as to what is “fair and reasonable” made in the application of any of these provisions should be approached by an appellate court. It would not be accurate to describe such a decision as an exercise of discretion. But a decision under any of the provisions referred to will have this in common with the exercise of a discretion, that, in having regard to the various matters to which the modified section 55 (5) of the Act of 1979, or section 11 of the Act of 1977 direct attention, the court must entertain a whole range of considerations, put them in the scales on one side or the other, and decide at the end of the day on which side the balance comes down. There will sometimes be room for a legitimate difference of opinion as to what the answer should be, where it will be impossible to say that one view is demonstrably wrong and the other demonstrably right. It must follow … that, when asked to review such a decision on appeal, the appellate court should treat the original decision with the utmost respect and refrain from interference with it unless satisfied that it proceeded upon some erroneous principle or was plainly and obviously wrong.’

3.222 Decisions on the requirement of reasonableness will often provide very limited guidance for the future and is essentially an evaluative judgement for the trial judge to make.436 Another judge might have weighed the factors in the same case differently, come to the opposite conclusion, and still not been overturned on appeal. In Phillips Products Ltd v Hyland,437 for example, the Court of Appeal was concerned with the standard form for the hire of an excavator (incorporating the Contractors’ Plant Association’s conditions). Nevertheless, despite the fact that it took a different view from the trial judge on several of the factors relevant to the issue of reasonableness, it declined to overrule his decision, accepting the approach to appeals indicated in George Mitchell Ltd v Finney Lock Seeds Ltd.

George Mitchell Ltd v Finney Lock Seeds Ltd [1983] 2 All ER 737 per Lord Bridge at 743. See also Ormsby v H&H Factors Ltd (26 January 1990, unreported), Neill LJ; Edmund Murray Ltd v BSP International Foundations Ltd (1993) 33 Con LR 1; Phillips Products Ltd v Hyland [1987] 2 All ER 620 per Slade LJ at 629; Warren v Truprint [1986] BTLC 344; Schenkers v Overland Shoes [1998] 1 Ll Rep 498 per Thorpe LJ at 508; Watford Electronics v Sanderson [2001] 1 All ER (Comm) 696 at [30]; Britvic Soft Drinks v Messer UK Ltd [2002] 2 All ER (Comm) 321,[19]; Bacardi Martini Beverages v Thomas Hardy Packaging Ltd [2002] 2 All ER (Comm) 335, [20]; Expo Fabrics (UK) Ltd v Naughty Clothing Ltd [2003] EWCA Civ 1165,[22]; Granville Oil v Davis Turner [2003] 1 All ER (Comm) 819, [16], Hodges v Aegis Defence Services (BVI) Ltd [2014] EWCA Civ 1449, [33]-[34];

434

[1983] 2 All ER 737 at 743; see also Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371, [27]-[28].

435

First Tower Trustees Ltd and another v CDS (Superstores International) Ltd [2018] EWCA Civ 1396, [75] following George Mitchell Ltd v Finney Lock Seeds Ltd [1983] 2 All ER 737.

436

[1987] 2 All ER 620.

437

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3.223 This approach to appeals inevitably creates uncertainty as to what is required for an exemption clause to pass the reasonableness test in UCTA, section 11 of UCTA. In addition, it is necessary to apply the requirement of reasonableness to the particular parties in each case, and on the specific facts of each case438 even when the term in issue is part of a set of model terms adopted throughout the trade.439 There are difficulties here in relation to contract planning. It may, for example, be difficult to decide whether to pay for insurance and increase costs (and the contract price), if there is uncertainty as to the efficacy of the exemption clause if drafted to obviate the need for insurance. 3.224 The difficulty in ‘overturning’ a trial judge’s view on reasonableness is illustrated in a case440 concerning the granting of a commercial lease and contained two exemption clauses: ‘5.8. The tenant acknowledges that this lease has not been entered into in reliance wholly or partly on any statement or representation made by or on behalf of the landlord. 12.1 The Tenant acknowledge and agree [sic] that it has not entered into this Agreement in reliance on any statement or representation made by or on behalf of the Landlord other than those made in writing by the Landlord’s solicitors in response to the Tenant’s solicitors’ written enquiries. 12.2 Nothing in this Agreement shall be read or construed as excluding any liability or remedy resulting from fraudulent misrepresentation.

3.225 Clause 12 was held reasonable and Clause 5.8 unreasonable by both the trial judge and the Court of Appeal. Prior to the grant of the lease the tenant’s solicitor raised enquiries on a Commercial Property Standard Enquiries form, and one of the questions asked for details of any notices, correspondence relating to ‘perceived environmental problems that affect property…’. The landlord failed to disclose that there was asbestos on the property. The landlord argued that the factors which might make a clause reasonable were present in line with the decision in FoodCo Uk LLP (t/a Muffin Break) v Henry Boot Developments Limited441 (other than v)): ‘i) The aspiration of certainty is a reasonable one for the parties to adopt. In most cases it will have the effect of avoiding a twelve day trial such as this one. ii) There was no substantial imbalance of bargaining power between the parties. Each of the tenants was a commercial and substantial concern. […]

Phillips Products Ltd v Hyland [1987] 2 All ER 620 at 628; First National Commercial Bank v Loxleys (1996) 141 Sol Jo 6; Edmund Murray Ltd v BSP International Foundations Ltd (1993) 33 Con LR 1; Sonicare International v East Anglia Freight Terminal Ltd [1997] 2 Ll Rep 48 at 55.

438

British Fermentation Products v Compare Reavell [1999] 2 All ER (Comm) 389 at 403.

439

First Tower Trustees Ltd and another v CDS (Superstores International) Ltd [2018] EWCA Civ 1396, [75], relying on Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317, [55] (the part of the judgement that the court in First Tower Trustees Ltd and another relied on is set out in para 3.214 above.

440

[2010] EWHC 358 (Ch), [177].

441

223

Chapter 3  The Unfair Contract Terms Act 1977 iii) Each of the tenants was advised by solicitors […] iv) The term itself was open to negotiation […] v) Perhaps most importantly, the clause expressly permitted reliance on any reply given by the Henry Boot’s solicitors to the tenant’s solicitors. If, therefore, something of importance had been stated in the course of negotiations upon which the intending tenant wished to rely, its solicitors had only to ask Henry Boot’s solicitors for an answer to a question. That would have revealed whether Henry Boot was prepared to formalise the statement so that the tenant could rely on it or whether the tenant would have to undertake its own due diligence.’

3.226 In effect the argument of the landlord was that the tenant could have negotiated a ‘carve out’ in Clause 5.8 in the same way as for Clause 12.5 if the tenant wished to rely on pre-contract enquiries, that the parties were ‘substantial commercial concerns represented by competent solicitors’ and as the Court of Appeal noted ‘a court should be very vary of saying contract terms negotiated by commercial parties are unreasonable’.442 The Court of Appeal declined to interfere with the trial judge’s decision that Clause 5.8 was unreasonable. The Court of Appeal recognised there was some validity in the landlord’s argument but held that the trial judge had made the right ‘overall assessment’ as to the application of the reasonableness and he was right: ‘to stress the importance of pre-contract enquiries in the field of conveyancing; and right in the conclusion to which he came. As the judge said, if clause 5.8 governs the landlords’ liability the important function of replies to enquiries before becomes worthless. Although there might be a case where, on exceptional facts, a clause which precludes reliance on replies to enquiries before contract might be held to satisfy the test of reasonableness even where those replies have in fact been relied on, I find it very hard to imagine what those facts might be.’443

3.227 However, in some cases of standard forms, the factors indicating that the clause is unreasonable may be so often present when the form is used that a case may be widely relevant to the issue of reasonableness. The House of Lords decision in Smith v Eric S Bush444 is such a case. Lord Griffiths said:445

First Tower Trustees Ltd and another v CDS (Superstores International) Ltd [2018] EWCA Civ 1396, [75].

442

ibid, echoing what the trial judge stated ([2017], EWHC, 891 (Ch): ‘38. …So the landlord can say what he likes in replies to inquiries (fraud apart), withholding his own knowledge of a serious problem and requiring the tenant to carry out his own due diligence, and then meet the tenant with a contractual estoppel. That seems to me highly unreasonable, particularly in the conveyancing world, where pre-contractual inquiries have a particular and well-recognised importance. With clause 5.8 they become a worthless, and indeed positively misleading, exercise. I do not think this is reasonable’ and ‘40. That was not a reasonable clause to put into the lease, because its effect would render the whole exercise of making inquiries and relying on answers thereto all but nugatory. I suspect that conveyancing practitioners would be appalled if such clauses gained wide currency and were upheld by the courts.’

443

[1989] 2 All ER 514.

444

Smith v Eric S Bush [1989] 2 All ER 514 at 532. See also Davies v Parry [1988] 1 EGLR 147 per McNeill J; Beaton v Nationwide Building Soc [1991] 2 EGLR 145 at 151.

445

224

Chapter 3  The Unfair Contract Terms Act 1977 ‘It must, however, be remembered that this is the sale of a dwelling house of modest value in which it is widely recognised by surveyors that purchasers are in fact relying on their care and skill. It will obviously be of general application in broadly similar circumstances. But I expressly reserve my position in respect of quite different types of property for mortgage purposes, such as industrial property, large blocks of flats or very expensive houses. In such cases it may be that the general expectation of the behaviour of the purchaser is quite different.’

3.228 These comments obviously indicate the significance of the decision beyond the particular case and there may be other such points stemming from the cases. For example, there are cases which indicate: •

it is normally more difficult for an indemnity clause dealing with negligence to satisfy the requirement of reasonableness than an exemption clause, as such;446

•

it is easier for a finance house, which has not seen the goods being hired, to establish the reasonableness of an exemption clause relating to the goods, than it would be for the supplier who sells such goods,447 but more recently that approach has been seen as unacceptable as a general proposition.448

3.229 More generally, in Smith v Eric S  Bush,449 Lord Griffiths also made some widely applicable points.450 He said:451 ‘I  believe that it is impossible to draw up an exhaustive list of factors that must be taken into account when a judge is faced with this very difficult decision. Nevertheless, the following matters should in my view always be considered. (1) Were the parties of equal bargaining power? … (2) In the case of advice, would it have been reasonably practicable to obtain the advice from an alternative source taking into account considerations of costs and time? …

Jones v Northampton BC (1990) Times, 21 May, Ralph Gibson LJ, in the context of UCTA, s 4.

446

R & B Customs Brokers v United Dominion Trust Ltd [1988] 1 WLR 321 per Dillon LJ at 331– 332; W Photoprint Ltd v Forward Trust Group Ltd (1993) Tr L 146; Ormsby v H&H Factors Ltd (26 January 1990, unreported), Neill LJ.

447

Lease Management Services Ltd v Purnell Secretarial Services Ltd (1994) 13 Tr LR 337 at 346: ‘If there were such a general proposition, acquisition by hire from a finance company rather than by purchase from a supplier would become a trap. A customer would not expect his rights regarding defects to differ according to which of these two acquisition routes he chose to follow’; Sovereign Finance v Silver Crest Furniture [1997] CCLR 76. But see Anglo Group v Winther Brown & Co [2000] 144 SJ LB 197 – ‘the inclusion of the clause did not place WB in the position where acquisition by hire from a finance company rather than by private purchase from a supplier became a trap’. In Scania Finance (Great Britain) Ltd v Monteum Group (30 January 2001, unreported) Buckley J regarded himself as ‘bound by the clear ratio of the Court of Appeal in Lease Management Services’, but saw ‘considerable force’ in the contrary argument.

448

[1989] 2 All ER 514.

449

St Albans City and District Council v International Computers Ltd [1995] FSR 686 at 710; Ormsby v H&H Factors Ltd (26 January 1990, unreported); The Salvage Assn v CAP Financial Services Ltd [1995] FSR 654; Beaton v Nationwide Building Soc [1991] 2 EGLR 145 at 151; Fillite (Runcorn) Ltd v APV Pasilac (22 April 1993, unreported).

450

[1989] 2 All ER 514 at 531.

451

225

Chapter 3  The Unfair Contract Terms Act 1977 (3) How difficult is the task being undertaken for which the liability is being excluded? When a very difficult or dangerous undertaking is involved there may be a high risk of failure which would certainly be a pointer towards the reasonableness of excluding liability as a condition of doing the work … (4) What are the practical consequences of the decision on the question of reasonableness? This must involve the sums of money potentially at stake and the ability of the parties to bear the loss involved, which, in its turn, raises the question of insurance …’.

3.230 There is some overlap here with the factors referred to in UCTA, Schedule 2 and they will be considered further below. However, it is important to note that the case concerned liability for negligent misstatement and Lord Griffiths’ second point is put in terms specific to the case. More generally, the question is simply that of the availability of an alternative source of whatever is being contracted for.452

The time frame for the assessment – looking at the whole clause 3.231 Under UCTA, section 11(1), the reasonableness of a contractual clause is assessed on the basis of the circumstances known to, or contemplated by, or which should have been known to or contemplated by, the parties at the time of contracting.453 This means that the particular breach is not relevant. What are relevant are the possible breaches which were, or ought reasonably to have been, within the contemplation of the parties at the time of contracting. Assessing the reasonableness of the clause in relation to the circumstances at the time of contracting should assist contract planning.454 A clause should not be rendered unreasonable because it appears unreasonable in the light of unforeseeable events which occurred after the contract was made455 and is ‘directed in part, to potential rather than actual circumstances’.456 The same time frame of assessment is used under CRA. 3.232 The time at which reasonableness is assessed is one of the differences between the reasonableness test under UCTA and its predecessor in what became SGA, section 55.457 Under the previous legislation, the question was whether it was fair and reasonable to allow reliance upon the term and the question of reasonableness thus fell to be judged in the light of the breach

Salvage Assn v CAP Financial Services [1995] FSR 654.

452

Edmund Murray Ltd v BSP International Foundation Ltd (1992) 33 Con LR 1.

453

Law Com Rep No 69.

454

Shearson Lehman Hutton Inc v Maclaine Watson & Co Ltd [1989] 2 Ll Rep 570 at 612.

455

Balmoral Group Ltd v Borealis (UK) Ltd [2006] EWHC 1900 (Comm), [420].

456

There was a predecessor to the Unfair Contract Terms Act 1977 test of reasonableness in the Supply of Goods (Implied Terms) Act 1973. This was preserved, for contracts made between 18 May 1973 and 1 February 1978, by s 55 of the Sale of Goods Act 1979 (originally the 1893 Act, as amended).

457

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and its consequences. Whilst cases decided under SGA, section 55 will provide some guidance as to the operation of the reasonableness test in UCTA, section 11 this difference in timing will affect the current relevance of some of those earlier cases. 3.233 One major impact of the time of contracting providing the time frame for the assessment of reasonableness is that it is necessary to assess the clause as a whole and not merely the part relevant in the instant case. This was emphasised in Stewart Gill Ltd v Horatio Myer & Co Ltd458 where the Court of Appeal was of the view that the particular exclusion of set-off might be reasonable, but the clause as a whole did not satisfy the requirement of reasonableness. However, the point has been made that: ‘[the] court should not be too ready to focus on remote possibilities or to accept arguments that a clause fails the test [of reasonableness] by reference to relatively uncommon or unlikely situations’,459

but a clause’s coverage of even ‘relatively uncommon or unlikely situations’ would be enough to render it unreasonable if those situations were sufficiently serious breaches.460 How it is necessary to take care, that the extreme seriousness of a breach does not prevent recognition of its irrelevance to the question of reasonableness under UCTA if it is a breach which ‘no-one would have conceived of’ when the contract was made.461 However, it may well be that the latter type of breach is one which should not have been seen as covered by the exemption clause in the first place. Unduly narrowing a clause through ‘strained’ construction has been deprecated, but it is as inappropriate to ‘stretch’ a clause through not narrowing it appropriately.462 3.234 The final point to be made here is that Stewart Gill Ltd v Horatio Myer & Co Ltd indicates a precaution to be taken in drafting. When drafting an exemption clause it is advisable to include several narrow exemption clauses rather than one wide clause, so that at least some of the exemptions may survive. Of course, if the clause has the physical appearance of a single term, but is nevertheless composed of several distinct units, those units should be regarded as separate terms for the purposes of the application of the

[1992] 2 All ER 257. See also Esso Petroleum v Milton [1997] CLC 634 at 647; Sovereign Finance v Silver Crest Furniture [1997] CCLR 76.

458

Skipskredittforeningen v Emperor Navigation [1997] CLC 1151 per Mance J at 1164. It was also said in Expo Fabrics (UK) Ltd v Naughty Clothing Co Ltd [2003] EWCA Civ 1165 that ‘in my view it would not be right to declare as unreasonable a provision that is used as a standard provision in the trade simply by reference to a submission that there is a possibility that … some other defect … may occur in cases in relation to which we have absolutely no evidence as to how often that could or could not occur’, Waller LJ at [30].

459

Bacardi-Martini Beverages Ltd v Thomas Hardy Packaging Ltd [2002] 2 All ER (Comm) 335 per Mance LJ, [26].

460

Consider the criticism at para 2.123 of the approach taken to find the clause ‘unreasonable’ in Bacardi-Martini Beverages Ltd v Thomas Hardy Packaging Ltd [2002] 2 All ER (Comm) 335.

461

ibid.

462

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requirement of reasonableness.463 Otherwise, the test ‘would depend on whether a provision … has been expressed as one or had been divided into its component parts’.464 So, for example, as has been indicated,465 the two sentences of a single clause in Watford Electronics v Sanderson466 were treated as two distinct contract terms, one excluding liability for contractual claims for indirect and consequential loss and the other limiting liability for direct loss from breach.

Guidelines 3.235 UCTA, Schedule  2 contains guidelines for the application of the requirement of reasonableness. The factors in UCTA, Schedule 2 are: ‘(a) the strength of the bargaining position 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; (b) 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; (c) 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); (d) 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; (e) whether the goods were manufactured, processed or adapted to the special order of the customer’.

3.236 By UCTA, section 11(2) the above guidelines are applicable when the contract is one covered by UCTA, sections 6 or 7,467 but, even in that context, they are not exhaustive, and are considered of more general application: ‘Section 11(2) of the Act requires the court which is determining the question of reasonableness for the purpose of sections 6 and 7 to have regard in particular to the matters specified in Schedule  2. Although Schedule  2 does not apply in the present case, the considerations there set out are usually regarded as being of general application to the question of reasonableness.’468 and:

Trolex Products Ltd v Merrol Fire Protection Engineers Ltd (20 November 1991, unreported), [1991] Lexis Citation 2136, applied in Goodlife Foods Ltd v Hall Fire Protection Ltd [2017] EWHC 767 (TCC), [67]-[68]; Watford v Sanderson [2001] 1 All ER (Comm) 696.

463

Trolex Products Ltd v Merrol Fire Protection Engineers Ltd (20  November 1991, unreported), [1991] Lexis Citation 2136, CA.

464

See para 3.22.

465

[2001] 1 All ER (Comm) 696.

466

Edmund Murray Ltd v BSP International Foundations Ltd (1992) 33 Con LR 1.

467

Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] 2 All ER 257; SAM Business Systems Ltd v Hedley & Co [2002]  EWHC  2733 (TCC), [68]; Bates and others v Post Office Ltd [2019]  EWHC  606 (QB), [1089].

468

228

Chapter 3  The Unfair Contract Terms Act 1977 ‘Those guidelines have no statutory force in the case of the present contract, but many decisions of the courts have recognised that they are nonetheless of general usefulness in considering the application of the reasonableness test.’469

3.237 Outside of UCTA, sections 6 and 7 the guidelines will not apply by ‘legislative prescription’, but the factors set out in the guidelines are still likely to be factually relevant to the reasonableness of an exemption clause, which the courts have acknowledged.470 3.238 The factors set out in UCTA, Schedule 2 are not a closed list and other factors may go to the question of reasonableness. In one case the court set out the following factors drawn from a number of decided cases: ‘(1) The way in which the relevant conditions came into being and are used generally is relevant […]. (2) Although not specifically applicable to cases falling within Section 3 of the 1977 Act, the five guidelines as to reasonableness set out in Schedule 2 are nonetheless relevant to the question of reasonableness, while bearing in mind that the court is dealing with a commercial and not a consumer transaction. They ought therefore to be taken into account […] Those which are relevant in this case are (a) 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; (b) 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 similar terms; (c) whether the customer knew or ought 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). (3) In relation to the question of equality of bargaining position, the court will have regard not only to the question of whether the customer was obliged to use the services of the supplier but also to the question of how far it would have been practicable and convenient to go elsewhere […]. (4) The question of reasonableness must be assessed having regard to the relevant clause viewed as a whole: it is not right to take any particular part of the clause in isolation, although it must also be viewed against a breach of contract which is the subject matter of the present case […]

Trustees of Ampleforth Abbey Trust v Turner & Townsend Project Management Ltd [2012] EWHC 2137 (TCC), [199].

469

Singer Co (UK) Ltd v Tees and Hartlepool Port Authority [1988] 2 Lloyd’s Rep 164 at 169; Phillips Products Ltd v Hyland [1987] 2 All ER 620 at 628; Rees Hough Ltd v Redland Reinforced Plastics Ltd (1984) 2 Con LR 109; Salvage Assn v CAP Financial Services Ltd [1995] FSR 654; Flamar Interocean Ltd v Denmac Ltd [1990] 1 Ll R 434 per Potter J at 438–439; Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] 2 All ER 257; Schenkers Ltd v Overland Shoes [1998] 1 Ll Rep 498 per Pill LJ at 505; Overseas Medical Supplies Ltd v Orient Transport Services Ltd [1999] CLC 1243 at 1248; Sovereign Finance v Silver Crest Furniture [1997] CCLR 76. But see Jones v Northampton BC (1990) Times, 21 May.

470

229

Chapter 3  The Unfair Contract Terms Act 1977 (5) The reality of the consent of the customer to the supplier’s clause will be a significant consideration […] (6) In cases of limitation rather than exclusion of liability, the size of the limit compared with other limits in widely used standard terms may also be relevant […] (7) While the availability of insurance to the supplier is relevant, it is by no means a decisive factor […]. (8) The presence of a term allowing for an option to contract without the limitation clause but with a price increase in lieu is important […], if the condition works in such a way as to leave little time to put such option into effect, this may effectively eliminate the option as a factor indicating reasonableness […].’471

3.239 It is possible to illustrate that the factors in UCTA, Schedule  2 are not a closed list in a number of cases concerning the granting of leases for commercial property. The relevant factors for such matters would be that the parties are represented by solicitors (and other professional advisors), that all the terms are recorded in a contract and that terms are based or use a model approved or provided by a professional body and perhaps most importantly, in the context of a commercial lease, any exemption clause contains an exception to allow the tenant to rely on any written statements made by the landlord solicitors provided in response to pre-contract enquiries or correspondence: ‘There are, as I see it, other matters also strongly indicating that this condition was a reasonable and fair one to be introduced into this particular contract: (1) First, each side had, and as they each knew, legal advisers. That was, as the judge duly found, plainly material as to the reasonableness of including this particular condition into the contract. Moreover, it was the case, as was known to all concerned, that the Claimants had in addition instructed architects and planning consultants. That was a relevant factor, too. (2) Second, the contract was one for the sale of land. It is generally well known that such contracts do indeed, as the judge put it, have a status of “formality” about them. Contracts relating to the disposition of property are designed by law to require that all the agreed terms are set out in one contractual document signed by each party. (3) Third, this condition was not a “take it or leave it” condition of the kind sometimes imposed in small print on consumers, acting without legal advice, in consumer transactions. It was a special condition agreed by the parties’ lawyers in circumstances where the parties had equal and corresponding negotiating positions. Moreover, such condition had the general imprimatur of the Eastbourne Law Society and was, it is to be inferred, in common use. That, too, is a further factor indicating reasonableness. (4) Fourth and I  think this is a particular striking feature in the present case the condition, expressly by its terms, permitted the Claimants to rely on written statements made by the Defendants’ solicitors in replying to precontract enquiries or otherwise in correspondence. Thus, if the Claimants

Overseas Medical Supplies Ltd v Orient Transport Services Ltd [1999] 1  All ER (Comm) 981, [1999] 2 Lloyd’s Rep 273, [10].

471

230

Chapter 3  The Unfair Contract Terms Act 1977 wished to rely on what had been said to them orally the means for giving legal effect to that were readily available: that is, by an appropriate written precontract enquiry or solicitor’s letter. Such a request would reveal just what the Defendant vendors were prepared formally to commit themselves to.’472

Limitation clauses 3.240 UCTA, section 11(4) makes two factors particularly relevant to the question of the reasonableness of a clause which purports to limit liability to a specified sum.473 When someone purports to use such a clause regard is to be had to: ‘(a) the resources which he could expect to be available to him for the purpose of meeting the liability should it arise; and (b) how far it was open to him to cover himself by insurance.’474

3.241 The reference to the situation in which liability is limited to a ‘specified sum’ should cover not only: •

the case where a particular sum is stated as such; but also

• where the contract states a formula for determining a sum, such as a limitation to the contract price, or some multiple of it. 3.242 It should not be thought that when UCTA, section 11(4) is relevant and the factors there emphasised point towards the clause being unreasonable that this necessarily decides the issue. It is necessary to take into account all the relevant factors which may lead to a different conclusion.475 The cases show that the availability and cost of insurance is an important factor generally,476 not only in relation to clauses limiting liability. Cases have indicated that when liability is limited to a specific sum, it is necessary justify that sum in order to satisfy the requirement of reasonableness.477 In Salvage Assn v CAP Financial

Lloyd v Browning [2013]  EWCA  Civ 1637, [34], approving FoodCo UK LLP and others v Henry Boot Developments Ltd [2010]  EWHC  357 (Ch), and followed in Hardy v Griffiths [2014] EWHC 3947 (Ch) and First Tower Trustees Ltd and another v CDS (Superstores International) Ltd [2018] EWCA Civ 1396.

472

The wording of UCTA, s 11(4) relates only to a term which limits liability rather than one which excludes liability, see Flamar Interocean Ltd v Denmac Ltd (formerly Denholm Maclay Co Ltd), The Flamar Pride and Flamar Progress [1990] 1 Lloyd’s Rep 434 at 438.

473

The aim of UCTA, s 11(4) was to alleviate an issue which small businesses and professional persons may face that they ‘…may not have the resources available to meet unlimited liability or who may not be able to obtain insurance or who may be exposed to claims in excess of the sums for which insurance cover can be obtained’ (Chitty on Contracts, (33rd edn, Sweet & Maxwell) 15-099 approved in Goodlife Foods Ltd v Hall Fire Protection Ltd [2017] EWHC 767 (TCC), [76], affirmed in [2018] EWCA Civ 1371, but not considering this specific point).

474

Singer Co (UK) Ltd v Tees and Hartlepool Port Authority [1988] 2 Lloyd’s Rep 164.

475

See para 3.260.

476

But see Sonicare International v East Anglia Freight Terminal Ltd [1997] 2 Ll Rep 48 at 55: the limitation clause was reasonable because of other factors despite the fact that the limit was a derisory sum.

477

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Services478 it was suggested that it is relevant to ask whether the sum set relates to: •

the proferens’ turnover;

•

the proferens’ insurance;

•

the contract price; or

•

the uninsurable risk to which the other party was exposed.

3.243 Further, it may be appropriate to consider the relationship of the sum specified to the ‘ordinary risks’ of the contract. In St Albans City and District Council v International Computers Ltd, Scott Baker J said:479 ‘There are some types of agreement where ordinary risks fall within a particular sum, and there may be good reasons for limiting liability to that sum and leaving the purchaser to carry any additional risk.’

3.244 In Moores v Yakely Associates Ltd480 the limit was set at £250,000 and that was seen as reasonable, despite the fact that the insurance cover of the proferens for each claim was £500,000, because £250,000 was the proferens’ total estimated cost of the project and a loss in excess of that was seen as requiring exceptional circumstances beyond the reasonable contemplation of the parties.481 More broadly, it is possible to make the point that the factor in relation to which any limit is being considered must be an appropriate one. In Frans Maas (UK) Ltd v Samsung Electronics (UK) Ltd482 a limit set on the liability of freight forwarders for lost or damaged goods was said to be ‘derisory’ when viewed against the value of the goods. It was nevertheless viewed as reasonable. It was set according to the weight of the goods and the court was provided with evidence that ‘no freight forwarder in his right mind would contract on the basis of value’ as: ‘at the time of contracting freight forwarders may well not know the value of the goods with which they may come to deal’.

(The situation was also one in which the parties were of equal bargaining power, the terms were commonly used, the injured party could have contracted for a higher limit and could obtain insurance cover.) 3.245 In relation to standard terms, it may be easier to establish that a monetary limit is reasonable if it is regularly reviewed.483 However, it will

[1995] FSR 654.

478

[1995] FSR 686.

479

(1998) 62 Con LR 76.

480

Dyson J (point 36): ‘when asked why he had not inserted a figure of £500,000 [the proferens] said that … he considered the figure he inserted to be reasonable having regard to the estimated cost of the project … I regard the explanation as a reasonable one’.

481

[2004] EWHC 1502, [2004] 2 LL Rep 251.

482

Singer (UK) Ltd v Tees & Hartlepool Port Authority [1988] 2 Ll R 164 per Steyn J.

483

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obviously be difficult to argue that a monetary limit is reasonable if it is contained in an outdated version of the proferens’ standard terms which have been used by accident and a much higher amount is contained in the version current at the time the contract was made.484 The ‘size of the limit compared with other limits in widely used standard terms may also be relevant’.485 3.246 A  limitation clause may contain restrictions other than a monetary limit. It may restrict the availability of remedies, such as rejection of goods, and the extent and appropriateness of the remedies remaining will be reviewed, in determining the reasonableness of the clause.486 So, for example, the remedies of repair and replacement were not viewed as apt when the breach lay in defects in pipes which were ‘liable to result in pipe jackings having to be abandoned when a pipeline was incomplete’.487 Repair or replacement of defective machinery during a specified period which provided ‘ample time for any major deficiency to emerge’ may be viewed as appropriate, particularly when the intended use of the machine involves considerable wear and tear488. It may be inappropriate to restrict remedies to repair or replacement of parts returned to the supplier when that would require considerable effort on the part of the injured party and the industry practice is for defects to be remedied on site.489 When a supplier contracts to supply machinery to stated specifications and cannot do so, it may be reasonable to restrict the purchaser’s remedies to stated opportunities to claim the price of substitute machinery from another source, thereby preventing the purchaser standing on the deal and charging the supplier enormous sums for the continuing loss during the life of the machine.490 3.247 An anti-set-off clause was regarded as reasonable in the context of a commercial loan agreement. The view was taken that: ‘it is perfectly understandable that banks should wish to insert a clause of this kind for fear that having advanced money, when they seek to get it in, they are liable to be met with counterclaims which hold up proceedings and turn out to be unmeritorious’.491

The Salvage Assn v CAP Financial Services [1995] FSR 654; St Albans City and District Council v International Computers Ltd [1995] FSR 686. There may be difficulties with the use of this factor and the fact that the circumstances to be considered are those known to or contemplated by both parties.

484

Overseas Medical Supplies Ltd v Orient Transport Services Ltd [1999]  CLC  1243 per Potter LJ at 1248.

485

Rees Hough Ltd v Redland Reinforced Plastics Ltd (1985) 2 Con LR 109; White Cross Equipment v Farrell (1982) 2 Tr LR 21; Charlotte Thirty and Bison Ltd v Croker Ltd (1990) 24 Con LR 46.

486

Rees Hough Ltd v Redland Reinforced Plastics Ltd (1985) 2 Con LR 109.

487

White Cross Equipment Ltd v Farrell (1982) 2 Tr LR 21.

488

Charlotte Thirty and Bison Ltd v Croker Ltd (1990) 24 Con LR 46.

489

British Fermentation v Compare Reavell [1999] 2  All ER (Comm) 389. See also SAM  Business Systems v Hedley [2003] 1 All ER (Comm) 465.

490

Surzur Overseas Ltd v Ocean Reliance Shipping [1997] CLY 906.

491

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In addition, anti-set-off clauses may be seen as often reasonable. The point has been made that:492 ‘the impugned clause is not one which purports to exclude or limit the contractual liabilities of the plaintiffs to the defendants. It aims to achieve the different and lesser objective of making it necessary for the defendants to sue the plaintiffs for breach of contract rather than allowing them to set off a claim for breach of contract against the claim for services rendered and disbursements incurred’.

3.248 However, the scope of such a clause may mean that it fails to satisfy the requirement of reasonableness.493 If a clause seeks to cover several different types of breach, the limit specified may not be appropriate for all of them. In Overseas Medical Supplies Ltd v Orient Transport Services Ltd494 a monetary limit was set to cover freight forwarders for loss or damage to goods. It was viewed as unreasonable, however, that it also covered liability for failure to obtain insurance for the goods for the injured party. Potter LJ said:495 ‘The position of the proferens was that of a trading organisation which, under a single contract, had agreed to combine at least two activities or functions in respect of which the nature of the work undertaken, the incidence of risk as between the parties, and the effect of a breach of duty by the appellants were all of different character, yet were treated without distinction as to the subject of a single limitation of liability of only £600’.

3.249 It is necessary to consider the diversity of the obligations, the risk and the potential for insurance. However, what may be unreasonable coverage for a clause providing for one sort of limitation may not be unreasonable where another type of limitation is in question. Overseas Medical was distinguished in Granville Oil and Chemicals Ltd v Davies Turner496 where what was in question was not a monetary limit covering both loss and damage, and failure to insure, but a nine-month time limit on bringing a claim in relation to those diverse breaches. Tuckey LJ said:497 ‘I conclude that the judge was wrong to say that this case was comparable to the Overseas Medical Supplies case. Quite apart from the fact that the judge found in that case that there was no real equality of bargaining position, the failure to insure had caused the customer a loss of over £8,500. Her claim would have been limited to £600 if the limitation of liability clause could be relied on. Such a limit might have been justified for a claim against the freight forwarders for damage to the goods, but was obviously unfair as the measure of compensation for failure to effect an insurance which would have covered the customer’s actual loss. Here the contrast

Schenkers Ltd v Overland Shoes Ltd [1998] 1 Ll Rep 498 per Pill LJ at 507. See also WRM Group Ltd v Wood [1998] CLC 189 at 196; Skipskredittforeningen v Emperor Navigation [1997] CLC 1151.

492

Stewart Gill Ltd v Horatio Myer Ltd [1992] 2 All ER 257.

493

[1999] CLC 1243.

494

ibid, 1253.

495

[2003] 1 All ER (Comm) 819.

496

ibid, [29].

497

234

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Inequality of bargaining power 3.250 Inequality of bargaining power is referred to in UCTA, Schedule 2, para (a): ‘the strength of the bargaining position 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;’

It was also referred to by Lord Griffiths in Smith v Eric S  Bush498 and it is one of the most basic factors to consider in relation to the requirement of reasonableness of an exemption clause. If the parties are of roughly equal bargaining power that is one indicator of the reasonableness499 of a clause and its unreasonableness where the parties are not equal bargaining power500. But this factor cannot be determinative:501 all of the relevant factors must be considered in each case. For example, that parties are of different sizes may not be enough as size is not simply a ‘numbers game’ and what may a more relevant factor is that ‘both parties were and are substantial commercial entities’.502 A  court has also stated that relative bargaining power is to be assessed on a broad basis:503 ‘It can scarcely have been the intention of Parliament that a clause in a ship repairer’s standard terms would be fair and reasonable one week – when the yard had no work and was willing to make concessions if asked but unfair and unreasonable the following week, when the yard was busy. Relative bargaining power must surely be judged by somewhat broader considerations.’

3.251 One important question in considering the parties’ relative bargaining power is whether the injured party could have gone elsewhere (that is whether the injured party had an alternative source of supply for what

See para 3.229.

498

Keeton & Sons Ltd v Carl Prior Ltd [1986] BTLC 30; Singer (UK) Ltd v Tees & Hartlepool Port Authority [1988] 2 Ll R 164; Fillite (Runcorn) Ltd v APV Pasilac Ltd (1993) 22 April.

499

Phillips Products Ltd v Hyland [1987] 2  All ER  620; Fillite (Runcorn) Ltd v APV  Pasilac Ltd (22  April 1993, unreported); St Albans City and District Council v International Computers Ltd [1995] FSR 686.

500

Edmund Murray Ltd v BSP International Foundations Ltd (1992) 33 Con LR 1; Richards Longstaff & Partners Ltd v Lombard North Central plc (30 July 1985, unreported), [1985] Lexis Citation 288; The Great Scottish & Western Rly Co Ltd v BRB (6 February 1998, unreported).

501

Allen Fabrications Limited v ASD Limited and others [2012] EWHC 2213 (TCC), [73] following AXA Sun Life Services plc v Campbell Martin Ltd and others and other appeals [2011] EWCA 133, [59].

502

Stag Line Ltd v Tyne Ship Repair Group Ltd, The Zinnia [1984] 2 Lloyd’s Rep 211 per Staughton J at 222.

503

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was being contracted)504 and whether the alternative source used the same terms.505 Further, ‘…the court will have regard not only to the question of whether the customer was obliged to use the services of the supplier but also to the question of how far it would have been practicable and convenient to go elsewhere.’506

3.252 The use of standard terms throughout a particular trade may indicate that one side of a common transaction is always in a better bargaining position than the other, but this is not necessarily so. Whether the use of standard terms throughout a trade indicates inequality of bargaining power will depend on who drafted or developed them. There may not be an inequality of bargaining power: •

if the standard terms are drafted or developed by representatives of those commonly involved on both sides of the transaction;507 or

•

where there is apparent contentment with the standard terms on the part of the relevant trade association, even though it had not been involved with their drafting.508

3.253 The relative bargaining position of the parties may change if there is a continuing business relationship between the parties. For example, an initial contract may mean that there is compatibility of bargaining position, but this situation needs to continue thereafter between what has been supplied and what is later required,509 which will not be the case where the supplier ‘in effect became a monopoly supplier of [a] rate feeder once their drier had been purchased’. That circumstance was viewed as tipping the balance, so that the exemptions in the supplier’s standard terms failed to satisfy the requirement of reasonableness.510 The parties’ relative bargaining power may change in a similar way between their initial negotiations and the final agreement on terms if the proferens has been allowed to commence work on the basis of a ‘deal in principle’ before standard terms are discussed.511 A continuing relationship may also mean, however, that the relative bargaining power of the parties becomes more equal. Thus, where

W Photoprint v Forward Trust Group Ltd (1993) 12 Tr LR 146; White Cross Equipment Ltd v Farell (1982) 2 Tr L 21; Phillips Products Ltd v Hyland [1987] 2 All ER 620 per Slade LJ at 629; George Mitchell Ltd v Finney Lock Seeds Ltd [1983] 2  All ER  737; Schenkers Ltd v Overland Shoes Ltd [1998] 1 Ll Rep 498 per Pill LJ at 506.

504

St Albans City and District Council v International Computers Ltd [1995] FSR 686.

505

Overseas Medical Supplies v Orient Transport Ltd [1999] [1999] 1  All ER (Comm) 981, [10], citing Singer Co. (UK) Ltd. -v- Tees and Hartlepool Port Authority [1988] 2 Lloyd’s Rep. 164, and St Albans’ City and District Council -v- International Computers Limited (1995) XXI FSR 686.

506

RW  Green v Cade Bros Farm [1978] 1 Lloyd’s Rep 602; see also Singer Co (UK) Ltd v Tees 8 Hartlepool Port Authority [1988] 2 Lloyd’s Rep 164; Schenkers v Overland Shoes [1998] 1 Lloyd’s Rep 498 at 506.

507

Rees Hough v Redland Reinforced Plastics (1985) 2 Con LR 109; George Mitchell v Finney Lock Seeds [1983] 2 All ER 737 at 744; Schenkers v Overland Shoes [1998] 1 Lloyd’s Rep 498 at 507.

508

Fillite Runcorn v APV Pasilac (22 April 1993, unreported), [1993] Lexis Citation 4065.

509

Fillite Runcorn v APV Pasilac (22 April 1993, uneported), [1993] Lexis Citation 4065.

510

Pegler v Wang (1999) Con LR 68, [2000] All ER (D) 260, [77].

511

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R was dealing with A, and A was a ‘member of a large and powerful group of companies’, the point was made that, nevertheless, there was no ‘meaningful’ inequality of bargaining power between them: ‘[R] was one of a small number of companies … able to provide the services which [A] wanted. The successful provision of those services depended on a relationship of trust and confidence between [A] and the organisation providing the services, and [R] was in a strong position on that score by reason of the previous relationship and dealings between it [and A]’.512

3.254 In Bates and others v Post Office Ltd513 it was held that where there is a lack of negotiation on the terms of its contract it is not necessary to take separate note of it as ‘it is effectively subsumed within the parties bargaining position’. In this case the absence of negotiation (and the Post Office, in putting forward its standard form contract, was not prepared to countenance amendments at all) meant that the sub-post masters ‘where in a wholly weak bargaining position’.514 3.255 The relative bargaining strength or equality of the parties may also depend on a balancing exercise which a court will have to undertake depending on factors. For example, in Balmoral Group Ltd v Borealis (UK) Ltd the court noted that the defendant would have been unlikely to trade other than on its own terms but on price the parties ‘were on at least equal terms’ with the claimant possibly being in a slightly stronger position as it could source the product which the defendant supplied elsewhere. The other suppliers, it appeared, would trade on the same terms as the defendant (except for one other supplier).515 3.256 A  court has stated that a local authority should not be regarded as being on the same footing in relation to bargaining power as a business as such, so that:516 ‘Council officials are not, in the ordinary sense of the word, businessmen, although it is to be hoped that they act in a business-like way … They do not operate in the same commercial field as a business’.

Assumptions should not always be made about the relative bargaining powers of businesses and individuals. A particular individual may have considerable relevant expertise, may be able to switch to different contracting parties, and negotiate about terms.517 Rolls Royce v Ricardo [2004] 2 All ER (Comm) 129, [77].

512

[2019] EWHC 606 (QB), [1092].

513

ibid.

514

[2006] EWHC 1900 (Comm), [409].

515

St Albans City and District Council v International Computers Ltd [1995] FSR 686 at 708.

516

Ata v American Express Bank Ltd (1998) Times, 26 June. See also Moores v Yakely Associates Ltd (1998) 62 Con LR 76, Dyson J, point 34 and Halsall and others v Champion Consulting Limited [2017] EWHC 1079 (QB), [297]-[298]. The claimants were individuals (partners in a law firm) and were successful litigation solicitors and ‘and it can be inferred were more than capable of understanding the terms of business and the significance’ of a clause in the agreement between the parties and the court rejected ‘submissions as to unsophistication and lack of experience on the part of the claimants’.

517

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Availability of alternatives 3.257 The question of the availability of alternatives is referred to UCTA, Schedule 2, paras (a) and (b): ‘(a) 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; (b) 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;’

and it was also referred to by Lord Griffiths in Smith v Eric S Bush,518 and it may be significant in a number of ways. It may be a significant indicator of whether there is an imbalance in the bargaining positions if it is possible to obtain the relevant goods and services from other suppliers.519 For example, the Court of Appeal in Regus (UK) Ltd v Epcot Solutions Ltd520 found there was no inequality of bargaining power where the claimant were a much bigger business than the defendant, because the claimant had a number of competitors in the area it operated, one of which the defendants used. In another case the court held that there was complete equality of bargaining power were a commercial customer (who had a £36.5 million annual turnover within a group of companies with a turnover of £450 million) of a major bank and was able to take its custom elsewhere.521 3.258 The case law on UCTA has indicated that the availability of alternatives may be significant in relation to the question of whether the proferens had offered the other party a higher priced contract involving less risk than the contract made which, through the exemption clause, placed significant risk on that other party. For example: • In Woodman v Phototrade Processing Ltd522 a limitation clause was found to be unreasonable because although it allowed a cheap service to be offered, no alternative was provided for those whose photographs were valuable enough for them to want more security. (The code of practice of the photographic industry, as agreed with the predecessor to the Competition and Markets Authority, the Office of Fair Trading, recognised the possibility of a two-tier system of liability for photographic processors, envisaging the customer being offered the choice of a cheaper service

See para 3.229.

518

Chester Grosvenor Hotel Ltd v Alfred McAlpine (1991) 56 Build LR  115; Fillite (Runcorn) Ltd v APV Pasilac (22 April 1993, unreported); Keeton & Son v Carl Prior Ltd [1986] BTLC 30.

519

[2008] EWCA Civ 361, [40].

520

Titan Steel Wheels Ltd v Royal Bank of Scotland Plc [2010]  EWHC  211 (Comm), [105]. Also Thornbridge Ltd v Barclays Bank plc [2015] EWHC 3430 (QB), [116].

521

(1981) 131 NLJ 935.

522

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and very limited liability for the processor or a more expensive service with the processor accepting greater liability).523 • In R  W  Green Ltd v Cade Bros Farm524 there was a choice of level of risk available to purchasers of seed potatoes. There was an alternative available in the form of a different, and safer, type of seed. The availability of more expensive seed potatoes which would be more likely to be healthy indicated that the exemption clause was reasonable in a contract for the purchase of cheaper seed potatoes. • In Goodlife Foods Ltd v Hall Fire Protection Ltd525 an exclusion of liability clause (which the trial judge found was at the ‘far-reaching end of the spectrum’) that excluded: ‘all liability, loss, damages or expense consequential or otherwise caused to your property, goods, persons or the like, directly or indirectly resulting from our negligence or delay or failure or malfunction of the systems or components provided by [the defendant] for whatever reason’526

other than a limited warranty to replace faulty parts but was nevertheless held to be reasonable as the exclusion of liability clause provided an alternative: insurance at an additional cost: ‘As an alternative to our basic tender, we can provide insurance to cover the above risks. Please ask for the extra cost of the provision of this cover if required.’

The Court of Appeal concluded the offer to provide insurance was not a neutral factor as to the reasonableness of the exclusion of liability clause but an ‘important consideration in favour of the [defendants] and the reasonableness of the [exclusion of liability clause].’527 3.259 It is clear that the availability of an alternative is important to the reasonableness of the exemption clause. However, the reality of the alternative must be borne in mind. In Smith v Eric S Bush528 the house purchaser could have obtained her own survey, rather than relying on the mortgage valuation, but the court considered the reality of the alternative. It was regarded as impractical and too expensive for such purchasers to obtain a separate survey.529 It is necessary to consider the reality of the alternative in terms of whether sufficient opportunity to put it into effect had been provided,530 as

See also Singer Co (UK) Ltd v Tees and Hartlepool Port Authority [1988] 2 Lloyd’s Rep 164 at 170.

523

[1978] 1 Lloyd’s Rep 602.

524

[2018] EWCA Civ 1371,

525

Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371, [13].

526

ibid, [76].

527

[1989] 2 All ER 514.

528

Contrast the purchase by an estate agent in Stevenson v Nationwide Building Soc [1984] EGD 934.

529

Overseas Medical Supplies Ltd v Orient Transport Services Ltd [1999]  CLC  1243 per Potter LJ at 1248.

530

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well as whether sufficient had been done to bring it to the attention of the relevant party, as a reasonable person. It has been regarded as ‘not enough … to simply put “NB we will undertake further liability at a supplementary charge, written details on request”’. When the proferens ‘could have quite easily … set out the “further liability” and the cost to the customer’.531

Insurance 3.260 Insurance can be a highly significant factor. The availability of insurance to cover a potential liability is made specifically relevant to the reasonableness of a limitation clause by UCTA, section 11(4). It is also a factor which the courts have indicated as being of general significance.532 The absence of insurance can be factor (among others) to make a term unreasonable where insurance is available so that: ‘[a] seedsmen could insure against the risk of crop failure caused by supply of the wrong variety of seeds without materially increasing the price of seeds.’533

3.261 The reasonableness of the risk allocation in the exemption clause is normally assessed against the possibilities534 open to either party to insure against it – indemnity insurance is regarded as generally less expensive than liability insurance.535 The parties are unlikely to know, or be in a position to reasonably contemplate, each other’s actual insurance position, however the actual position will depend on the circumstances of the case: • in Watford Electronics v Sanderson536 which concerned the supply of a bespoke computer system by the defendant to the claimant. The court held that in considering whether that a term which excluded indirect loss was a fair and reasonable one the following where the factors needing consideration: ‘(i) that there is a significant risk that a non-standard software product, ‘customised’ to meet the particular marketing, accounting or record-keeping needs of a substantial and relatively complex business (such as that carried on by [the customer]), may not perform to the customer’s satisfaction, (ii) that, if it does not do so, there is a significant risk that the customer may

Warren v Truprint [1986] BTLC 344.

531

Smith v Eric S Bush [1989] 2 All ER 514; Sonicare International Ltd v East Anglia Freight Terminals Ltd [1997] 2 Ll Rep 48 at 55; The Great Scottish & Western Rly Co Ltd v BRB (1998) 6 February, Lexis; Watford Electronics v Sanderson [2001] 1 All ER (Comm) 696, [53].

532

Mitchell (George) (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803, [1983] 2 All ER 737 at 744, although a case decided under the statutory scheme in place before UCTA; SGA, s 55.

533

Flamar Interocean Ltd v Denmac Ltd [1990] 1 Lloyd’s Rep 434; Chester Grosvenor Hotel Co Ltd v Alfred McAlpine (1991) 56 Build LR 115; Singer (UK) Ltd v Tees & Hartlepool Port Authority [1988] 2 Ll R 164 per Steyn LJ at 169; Jones v Northampton BC (1990) Times, 21 May; Monarch Airlines Ltd v London Luton Airport [1996] 1 Lloyd’s Rep 40.

534

Singer (UK) Ltd v Tees & Hartlepool Port Authority [1988] 2 Ll R 164 per Steyn LJ at 169; Photo Production Ltd v Securicor Transport Ltd [1980] AC 827.

535

[2001] 1 All ER (Comm) 696, [54].

536

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Chapter 3  The Unfair Contract Terms Act 1977 not make the profits or savings which it had hoped to make (and may incur consequential losses arising from the product’s failure to perform), (iii) that those risks were, or ought reasonably to have been, known to or in the contemplation of both [the supplier] and [the customer ] at the time when the contract was made, (iv) that [the supplier] was in the better position to assess the risk that the product would fail to perform but (v) that [the customer] was in the better position to assess the amount of the potential loss if the product failed to perform, (vi) that the risk of loss was likely to be capable of being covered by insurance, but at a cost, and (vii) that both [the supplier] and [the customer] would have known, or ought reasonably to have known, at the time when the contract was made, that the identity of the party who was to bear the risk of loss (or to bear the cost of insurance) was a factor which would be taken into account in determining the price at which the supplier was willing to supply the product and the price at which the customer was willing to purchase.’

• in Regus (UK) Ltd v Epcot Solutions Ltd537 the claimant provided serviced office accommodation. The dispute turned on the failure by the claimant in providing properly working air condition among other matters. The defendant withheld fees for use of the service office and the claimant sued for those fees. In interpreting whether an exclusion of liability clause was reasonable the court noted that the clause advised customers to obtain insurance and found that: ‘the probability is that it would have been easier for each customer to insure himself against business losses, than for Regus to insure all of its constantly changing phalanx of customers in respect of their own interests. It is true that Regus would only be insuring up to £50,000 per customer per contract; but it would hardly be in a position to give proper information to underwriters about the businesses concerned; and the customers themselves may not have been willing to accept an uninsured position in excess of £50,000.’538

• in Shepherd Homes Ltd v Encia Remediation Ltd (Green Piling Ltd, third party)539 the court held that a factor in finding a term was fair and reasonable to include in a contract was that the third party: ‘would not have been able to bear a liability for the contract price without insurance, and any insurance over and above what it had would probably have been prohibitively expensive. Its insurance did not, in any event, cover every type of claim – a claim for bad workmanship, for example, would not be covered’.

• In Goodlife Foods Ltd v Hall Fire Protection Ltd540 Coulson LJ disagreed with a submission from the claimant that insurance was a neutral factor because the customer (Goodlife) was the better party to obtain insurance as: ‘a party such as Goodlife, conducting (as part of its regular business) a potentially hazardous operation, and with its own unique knowledge of its

[2008] EWCA Civ 361.

537

ibid, [41].

538

[2007] EWHC 70 (TCC), [95].

539

[2018] EWCA Civ 1371, [77].

540

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Chapter 3  The Unfair Contract Terms Act 1977 property and the precise effect on its business if there was a fire which stopped the factory working, was plainly in the best position to place its own insurance to cover those risks in the way most suited to that business. The judge found that Goodlife had that necessary insurance. As the authorities demonstrate, that was a powerful factor in favour of Hall Fire and the reasonableness of the[ir limitation of liability] clause. The fact that Hall Fire also had insurance is relevant but by no means determinative […], in part because Hall Fire’s insurers would never have had the same detailed knowledge of that which needed to be insured.’

3.262 In the earlier case Photo Production Ltd v Securicor Transport Ltd541 UCTA was not applicable because of the time when the events which occurred the Act had not been passed into law. However, the House of Lords considered, obiter, whether the clause was reasonable and thought that it was. The contract was one between two businesses of roughly equal bargaining power. The risk had been allocated to the party who could most appropriately insure against it542 and the fact that the proferens did not have to meet such insurance costs was reflected in a cheap contract price for the other party: ‘As a preliminary, the nature of the contract has to be understood. Securicor undertook to provide a service of periodical visits for a very modest charge which works out at 26p. per visit. It did not agree to provide equipment. It would have no knowledge of the value of the plaintiffs’ factory: that, and the efficacy of their fire precautions, would be known to the respondents. In these circumstances nobody could consider it unreasonable, that as between these two equal parties the risk assumed by Securicor should be a modest one, and that the respondents should carry the substantial risk of damage or destruction.’

3.263 An important point to note is not merely whether a party could have insured but also the cost of the insurance.543 It will be an indicator of unreasonableness if the party seeking to rely upon the clause could have insured without materially increasing the contract price.544

[1980] AC 827.

541

In Photo Productions the clause allocated the need to insure against fire damage to the factory’s owners. They were the most appropriate party to insure as they had to insure against fire damage generally and not merely the risk of it occurring through an employee of the proferens. It has been indicated that, in other circumstances, the proferens’ lack of knowledge of the other’s business and the potential for certain losses may indicate the appropriate allocation of the need to insure those losses to the other party. In Marlow v Exile Productions [2003] EWHC 2631, [2004] LLR 83,[60] the point was made that where what is in issue is the allocation away from the proferens of the other party’s risk of loss of profits or consequential loss, it may be appropriate for that other party to insure where such insurance is available and ‘the circumstances which ought reasonably to have been known to, or in the contemplation of, the parties when the contract was made, included likely difficulties and uncertainties in connection with claims for loss of profit or consequential loss, particularly where the proferens [knows] very little about the nature, extent, financial standing etc’ of that other party’s business. The case was concerned with a hotel owner’s losses when a singer failed to perform and the reasonableness of the singer’s limitation clause.

542

Singer Co (UK) Ltd v Tees and Hartlepool Port Authority [1988] 2 Lloyd’s Rep 164 at 169.

543

George Mitchell v Finney Lock Seeds Ltd [1983] 2 All ER 737.

544

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It may be argued that a clause which could be viewed as ‘one sided’ is reasonable, as the risks could be covered by insurance and the certainty produced by the term as to who should insure, was itself beneficial to the trade.545

Knowledge 3.264 UCTA, Schedule 2, Guideline (c) refers to the factor of knowledge, that is whether there was, or should have been, knowledge of the exemption clause on the part of the party against whom the clause is being used, as a reasonable person: ‘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)’.

3.265 Such ‘knowledge’ could indicate that the clause is reasonable.546 Stevenson v Nationwide Building Society547 concerned the effectiveness of a disclaimer in relation to a negligently carried out mortgage valuation and the court stated:548 ‘When I  bear in mind that the person affected by the disclaimer is someone well familiar with the possibility of obtaining a survey, and also familiar with the difference between a building society valuation and a survey and their different costs, it seems to me perfectly reasonable to allow the building society, in effect to say to him that if he chooses the cheaper alternative he must accept that the society will not be responsible for the content to him.’

3.266 In contrast to the decision in this case, in Smith v Bush there was use of a similar disclaimer against a consumer but the disclaimer was found to be unreasonable.549 Of course, it is necessary to consider the whole picture – even in the business context, a party may knowingly accept a clause on the basis that there was no realistic alternative.550 3.267 When the reasonableness of a contract term is under consideration, the question of ‘knowledge’ is looked at: ‘in circumstances where ex hypothesi the term has been validly incorporated in the contract’.551

In another case the court stated that:

USA v ARC Construction (8 May 1991, unreported).

545

Moores v Yakely Associates Ltd (1998) 62 Con LR 76, Dyson J.

546

[1984] EDG 934. See also Halloway v Cuozzo (9 February 1999, unreported), Clarke LJ; Ata v American Express Bank Ltd (1998) Times, 26 June.

547

Stevenson v Nationwide Building Society [1984] EGD 934 at 935.

548

[1989] 2 All ER 514.

549

Phillips Products Ltd v Hyland [1987] 2 All ER 620 at 629.

550

AEG (UK) Ltd v Logic Resources Ltd [1996] CLC 265.

551

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Chapter 3  The Unfair Contract Terms Act 1977 ‘contractual incorporation may in some circumstances occur without a party either knowing, or being realistically in a position where he or it can be blamed for not knowing, of the extent of certain terms’.552

3.268 In effect, there are two levels of ‘knowledge’ which may be relevant to the reasonableness of a clause: •

what was known; and

•

what ought to have been known.

In one case a court stated that: ‘it is necessary, in order to assess reasonableness, to consider to what extent the party has actually consented to the clause’

and that it is: ‘legitimate to consider and take into account the actual extent and quality of the knowledge of a party’.553

3.269 However, whilst acknowledging different levels of knowledge, ‘knowledge’ can also be at an objective level relevant and that is when factors similar to those considered in relation to incorporation may be looked at.554 So that, for example, even where there ‘is no evidence that the claimants had actual knowledge of the clause’ but because ‘copies of the form are readily available’ that fact may indicate the reasonableness of the clauses in question.555 The difference between this assessment and that made in relation to incorporation is that the artificiality with which the facts are often clothed by the rules on incorporation should be avoided.556 3.270 Also of relevance is:

Britvic Soft Drink v Messer UK Ltd [2002] 2 All ER (Comm) 321, [21].

552

Britvic Soft Drink v Messer UK  Ltd [2002] 2  All ER (Comm) 321, [21]. A  similar view was taken Goodlife Foods Ltd v Hall Fire Protection Ltd [2018]  EWCA  Civ 1371, [54], [73], where the customer had over a year from receipt of a quotation from the supplier to consider the supplier’s terms and conditions so that the customer ‘ought reasonably to have known of the existence of the terms’.

553

Schenkers Ltd v Overland Shoes Ltd [1998] 1 Ll Rep 498 per Pill LJ at 507: ‘The clause was in common use and well known in the trade … It was sufficiently well known that any failure by the defendant’s officers, in the course of long and substantial dealings to put their minds to the clause cannot be relied on to establish that it was unfair or unreasonable to include it in the contract.’ Oval (717) Ltd v Aegon Ins Co (UK) Ltd (1997) 54 Con LR 74: ‘If the plaintiff did not in fact appreciate “the extent of the term”, in my view, it ought reasonably to have done by the time the contract came to be made. The plaintiff … had ample time and the necessary resources to enable it to obtain legal or other professional advice’.

554

British Fermentation Products v Compair Reavell [1999] 2 All ER 389 at 403.

555

But see Halloway v Cuozzo (9  February 1999, unreported), Clarke LJ: ‘the honours clause ought reasonably have been known to the plaintiff, even if it was not, because he signed the coupon with the clause printed on it’.

556

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• trade practice and a long course of dealing between the parties may indicate the reasonableness of a clause;557 • whether a party had familiarity with the terms and conditions of the other party or should be reasonably assumed to know of them in the circumstances,558 for example:559 •

where they were reasonably brought to the notice of a party;

• whether a party had ‘ample opportunity to consider those terms’ (possibly with the benefit of legal advice or the opportunity to obtain it);560 • that a party would be aware that there would be terms of the nature of those of the other party (even if the first party may not know the precise formulation of the other party’s terms) because the terms ‘where commonplace in the industry’ as well as the first party having terms which were more restrictive.561 This situation would be a case of actual knowledge and not: ‘a case where an unacceptable amount of “guesswork” would have been needed on the part of the buyer to appreciate the import of the term’;562

•

a wide distribution and ready availability of the proferens’ standard terms may indicate reasonableness;563

•

the legibility and intelligibility of a clause. If ‘the terms would have been understandable by any intelligent businessman’564 that may be a factor indicating reasonableness. In contrast, in Stag Line Ltd v Tyne Shiprepair Group Ltd, The Zinnia565 Staughton J commented obiter that he was inclined to find the exemption clauses unreasonable because the print was so small that it was barely legible and also because ‘the draughtsmanship was so

R W Green Ltd v Cade Bros Farm [1978] 1 Lloyd’s Rep 602; Schenkers Ltd v Overland Shoes Ltd [1998] 1 Ll Rep 498 per Pill LJ at 507; Allen Fabrications Limited v ASD Limited (T/A Asd Metal Services and/or Klockner & Co Multi Metal Distribution) [2012]  EWHC  2213 (TCC), [77]; Balmoral Group Ltd v Borealis (UK) Ltd [2006] EWHC 1900 (Comm), [412].

557

Avrora Fine Arts Investment Ltd v Christie, Manson & Woods Ltd [2012] EWHC 2198 (Ch), [152]; Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371, [54], [73], see n 726 above.

558

Marex Financial Ltd v Creative Finance Ltd [2013] EWHC 2155 (Comm), [92]; Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371, [54], [73].

559

Such as in Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371, [54], [73], where the customer had over a year to consider the terms and conditions of the supplier.

560

Marex Financial Ltd v Creative Finance Ltd [2013] EWHC 2155 (Comm), [92].

561

Allen Fabrications Limited v ASD Limited (T/A Asd Metal Services and/or Klockner & Co Multi Metal Distribution) [2012] EWHC 2213 (TCC), [76].

562

Singer Co (UK) Ltd v Tees and Hartlepool Port Authority [1988] 2 Lloyd’s Rep 164.

563

Rees-Hough Ltd v Redland Reinforced Plastics Ltd (1985) 2 Con LR 109.

564

[1984] 2 Lloyd’s Rep 211 at 222.

565

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convoluted and prolix that one almost need[ed] an LLB to understand them’. • the injured party’s own standard terms may provide an indicator of ‘knowledge’. In Watford Electronics v Sanderson566 the injured party’s own standard terms not only contained a limitation clause, ‘the terms of which [were] indistinguishable in effect from those of’ the proferens, but also a clause which explained why the limitation was there. This was seen as showing that the injured party: ‘was well aware of the commercial considerations which lead a supplier to include a provision restricting liability for indirect or consequential loss, and, in particular, was well aware that a supplier would be likely to determine the price at which it was prepared to sell its products by reference … to its exposure to the risk of unquantifiable claims to indirect or consequential loss’567.

Plainly, that conclusion helped in finding the clause reasonable. 3.271 ‘Knowledge’ not only of the existence of the exemption but also of its extent may be in question.568 For example, the relevant party knew of the existence of the terms but did not know and could not reasonably have been expected to know of their content569. Although, if the content of the exemption is not unusual or severe, and the exemption clause is accessible, it may be possible to infer that the relevant party, as a reasonable person, should have known of its extent even though: •

the person actually only knew about its existence;570 or

•

which was reasonably brought to that party’s attention.571

3.272 For example, Goodlife Foods Ltd v Hall Fire Protection Ltd572 the supplier provided a quotation which included a copy of its terms and conditions, which the court noted that the purchaser ‘ought reasonably to have known of the existence of the terms’ because: • the clause limiting or excluding liability ‘was not buried away in the middle of a raft of small print’; •

the clause limiting or excluding liability was referred to on the front of a quotation;

[2001] 1 All ER (Comm) 696.

566

ibid, [48].

567

Overseas Medical Supplies Ltd v Orient Transport Services Ltd [1999]  CLC  1243 per Potter LJ at 1253.

568

Charlotte Thirty and Bison Ltd v Croker Ltd (1990) 24 Con LR 46.

569

McCullagh v Lane Fox & Partners [1996] 1 EGLR 35 per Hobhouse LJ at 46.

570

Keeton Son & Co Ltd v Carl Prior Ltd [1986] BTLC 30; Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371.

571

[2018] EWCA Civ 1371, [54], [73].

572

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•

its potentially wide-reaching effect was expressly stated at the beginning of the terms and conditions: ‘In my view, the fact that the warning …was cast in almost apocalyptic terms is a point against [the purchaser]: if that did not alert them to the effect of clause 11, then nothing would have done. A buyer who started reading these conditions would have seen by the very first words used that, at the very least, the conditions contained terms which were emphatically not in the buyer’s interests. Obviously, the buyer should then have read on.’573

•

the customer had a year between receiving the quotation with the terms and conditions and entering into the contract;

•

the customer did not suggest that they had not read or understood the terms and conditions; and

•

they had plenty of time to obtain advice if they were unsure of the clause excluding or limiting liability.

Of course, any inference of ‘objective’ knowledge of the existence or content of an exemption clause is easier to establish where the relevant party is in business574 or is ‘sophisticated and experienced’.575 Although, even if both parties are legally advised ‘it should not be assumed that the advice given to them as to the meaning of the terms was the same’.576

Settlement of past claims577 3.273 The decisive factor in George Mitchell Ltd v Finney Lock Seeds Ltd578 that the exemption clause was unreasonable was the past practice of the seed sellers. In the past they had settled claims which they regarded as justifiable for sums in excess of the limit set by the exemption clause. The sellers had even attempted to negotiate a settlement in the instant case. The exemption clause was determined under the older test in what became SGA, section 55. This section provided whether it was fair and reasonable to allow reliance on the clause, and provided scope for consideration of events after formation of the contract such as the fact of an attempted settlement. Under UCTA, section 11, at most, a past practice could be relevant if it would have been one of the factors within the reasonable contemplation of the parties at the time of contracting.579 However, it is necessary to treat this factor with care as

Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371, [53].

573

Salvage Assn v CAP Financial Services Ltd [1995] FSR 654; Richards Longstaff & Partners Ltd v Lombard North Central plc (30 July 1985, unreported).

574

McCullagh v Lane Fox & Partners [1996] 1 EGLR 35 per Hobhouse LJ at 46.

575

Pegler v Wang (1999) 70 Con LR 68, [79].

576

See Adams and Brownsword [1988] 104 LQR 94.

577

[1983] 2 AC 803.

578

Rees-Hough Ltd v Redland Reinforced Plastics Ltd [1985] 2 Con LR 109.

579

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an indicator that a clause is unreasonable. In George Mitchell Ltd v Finney Lock Seeds Ltd the sellers themselves did not regard this practice as reasonable to rely upon the clause,580 but was simply a product of a desire to avoid a dispute and potential damage to a business relationship.581 3.274 In Schenkers v Overland Shoes582 the court distinguished George Mitchell Ltd v Finney Lock Seeds Ltd, where Pill LJ saw: ‘little merit in the argument that the clause had not in practice been relied upon’.583

He took the view that: ‘the give and take practised by the parties in the course of substantial dealings … was admirable and conducive to a good business relationship but did not … prevent the plaintiffs, when the dispute arose, relying on the term agreed’.584

3.275 However, the Law Commissions found it ‘unsurprising’ that the clause had been viewed as unreasonable in Mitchell v Finney Lock. The Law Commission considered that ‘the clause gave the seed company complete discretion to decide whether to pay further compensation according to its own evaluation of whether the fault was primarily its own or that of the farmer, rather than according to a judicial determination of the question. In effect the clause purported to oust the jurisdiction of the courts over payment for compensation for breach of contract. In these circumstances it is perhaps unsurprising that the clause was held to be unreasonable’585.

When viewed in this light, the practice of settling claims is neutral as to whether the clause is reasonable or unreasonable. It will depend upon whether the level of limitation is set simply to provide the proferens with such a discretion or to provide a fair allocation of risk where there is no ‘business relationship’ reason to settle a claim otherwise.

Conditions placed on claims 3.276 UCTA, Schedule 2, Guideline (d) refers to the situation in which there is an exclusion or restriction of liability unless a condition is complied with: ‘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’.

George Mitchell Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803 at 817.

580

Compare Barbour Builder Ltd v Atrium Ltd (1991) 6 February, Lexis, Balcombe LJ.

581

[1998] 1 Ll Rep 498.

582

[1998] 1 Ll Rep 498 at 508.

583

ibid.

584

‘Unfair Terms in Contracts’ Law Commission Consultation No 166, Scottish Law Commission Discussion Paper No 119, para 5.109.

585

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3.277 For example, a clause may state that any claim must be notified within a specified time.586 It is necessary to note that, under UCTA, section 11(1), the reasonableness of the condition in a term is judged according to what the parties could reasonably contemplate about its operation at the time the contract was made. If the actual breach makes the term appear unreasonable, that is only relevant to the extent that it was within their contemplation at the time the contract was made. If the condition is one which will, within the contemplation of the parties, lead to capricious results, that may indicate that the exemption is unreasonable. For example, if a clause in a ship repair contract requires the return of the ship to the repairers’ yard for the remedy of any defect this may be unreasonable because it is capricious: ‘The apportionment of risk is made to depend upon where a casualty happens to occur, and whether the owner happens to find it convenient and economic to return his vessel to the yard.’587

3.278 In one case it was held unreasonable under Guideline (d): ‘…to expect, at the time when the sub-contract was made, that compliance by [the defendant] with the 28 day time limit imposed by cl 12(d) would, in most cases at least, be practicable’588

where Clause 12(d) stated: ‘All claims under or in connection with this Contract must in order to be considered as valid be notified to us in writing within 28 days of the appearance of any alleged defect or of the occurrence (or non-occurrence as the case may be) of the event complained of, and shall in any event be deemed to be waived and absolutely barred unless so notified within one calendar year of the date of completion of the works.’589

3.279 The work carried out was preformed by a sub-contractor (the second defendant) for the first defendant (Mitchell Designer) who were to design and build a warehouse. The claimant acquired an interest in the property and was a beneficiary of a warranty given by the second defendant. The work was carried in 2002 but in 2011 a sub-tenant (who occupied the warehouse) complained that there was settlement of a slab under the production area in the warehouse. The judge: •

focussed on phrases in Clause 12(d) (‘appearance of any alleged defect or of the occurrence (or non-occurrence as the case may be) of the event complained of’);

R W Green v Cade Bros Farms [1978] 1 Lloyd’s Rep 602; W Fishwick & Son (Meat Contractors) Ltd v Darrington & Co (2 April 1984, unreported), McNeil J.

586

Stag Line Ltd v Tyne Shiprepair Group, The Zinnia [1984] 2 Lloyd’s Rep 211 at 223.

587

Commercial Management (Investments) Ltd v Mitchell Design and Construct Ltd and another [2016] EWHC 76 (TCC), [86].

588

ibid, [23].

589

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• noted that there was an operative trigger of a 28-day period for the appearance of a defect, but because of the nature of the work a defect would not be visible (being covered by the warehouse) and would only appear in the building or the structure of the building (such as in this case, the floor slab); •

the nature of the work means that defects do not appear until well after the sub-contractor has completed the work – so that there would be often ‘a substantial lapse of time between the carrying out of the work and the occurrence of any visible’ signs, and where it did occur may not be in an obvious place (such as appearing in a part of the warehouse that the subtenant does not use or is covered by fixtures and fittings).

Negligence 3.280 One factor relevant to holding the exemption clause unreasonable in George Mitchell Ltd v Finney Lock Seeds Ltd590 was the fact that the breach involved negligence.591 UCTA, section 11 does not allow a court to take into account the actual breach in considering whether the clause is reasonable, merely the potential for it. It may be easier to establish the reasonableness of a clause which has been interpreted as not covering liability based on negligence592 and vice versa.593 In one case it was held that no distinction should be drawn between negligence and gross negligence.594 In Smith v Eric S  Bush,595 in holding the disclaimer of negligence by the valuer to be unreasonable, Lord Griffiths suggested that it would not be unreasonable for a professional to seek to exclude liability for negligence in all circumstances. He said: ‘Sometimes breathtaking sums of money may turn on professional advice against which it would be impossible for the adviser to obtain adequate insurance cover and which would ruin him if he were to be held personally liable. In these circumstances it may indeed be reasonable to give the advice on the basis of no liability or possibly of liability limited to the extent of the adviser’s insurance cover.’

However, a clause falling within CRA, Part 2 is unlikely to be fair if it excludes or limits liability for negligence.596

[1983] 2 All ER 737 at 744.

590

British Airports Authority v British Airways Board (1981) Times, 7 May.

591

Stag Line Ltd v Tyne Shiprepair Group (The Zinnia) [1984] 2 Lloyd’s Rep 211 at 223.

592

Peninsular & Oriental Steam Navigation Co v Youell [1997] 2 Ll Rep 136 per Rix LJ at 143.

593

Stevenson v Nationwide Building Soc [1984] EGD 934.

594

[1989] 2 All ER 514.

595

For example, Office of Fair Trading Bulletin 5 at 15.

596

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Customer’s detailed specifications 3.281 UCTA, Schedule 2, Guideline (e) specifically makes relevant to the ‘requirement of reasonableness’: ‘whether the goods were manufactured, processed or adapted to the special order of the customer’.

In Edmund Murray Ltd v BSP  International Foundations Ltd597 the sellers manufactured a drilling rig for the buyers. The contract contained detailed specifications as to the technical standards which the rig was required to meet and it was made clear exactly how the buyers wished to use the rig. Against that background, the court considered it unreasonable for the sellers to restrict their liability to replacement of defective parts. 3.282 Murray v BSP was, however, distinguished in British Fermentation Products v Compare Reavell.598 It was noted that in Edmund Murray Ltd v BSP International Foundations Ltd the purchaser was left: ‘without any remedy at all when the machinery failed to do what was required of it’.599

In contrast, in British Fermentation Products v Compare Reavel, the purchaser had had the right to reject the goods if the goods twice failed to meet the predelivery tests. The purchaser also had a right to reject the goods after delivery if the goods did not comply with the specifications and effectively entitled the vendor to replace the goods at the vendor’s expense. With those significantly greater remedies for the purchaser, unlike in Murray, the vendor’s clauses were regarded as reasonable. Having chosen not to exercise the rights to reject and obtain a replacement, the purchaser sought £1m in damages for reduced production over the lifetime of the machine. The judge made the point that, without the exemption clauses, the vendors: ‘would no doubt have wished to reconsider the price quoted, having regard to the totally different level of risk undertaken’.600

3.283 It appears not clear to what extent an adaptation will come within the provisions of this Guideline. In Allen Fabrications Limited v ASD Limited601 gratings and clips were not made by the defendant but purchased from a third party and: ‘The gratings themselves are a commonplace product. All that had to be done was to make them to the right dimension. In that sense they were not really made or altered to the “special order” of [the claimant].’602

(1992) 33 Con LR 1.

597

[1999] 2 All ER 389.

598

[1999] 2 All ER 389 at 404.

599

ibid, [64].

600

[2012] EWHC 2213 (TCC).

601

ibid, [78].

602

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3.284 The court stated that it is not clear as to whether this type of circumstance operates to or against the advantage of the customer and on the facts of the case, the effect was neutral concerning reasonableness: ‘Certainly it cannot be said that this was some unusual modification to the product required by the customer which might not work so that the customer should take the risk. On the other hand [the claimant] had a clearer picture of the particular role of this grating because it was supplying the entire platform not just one component as [the defendant] was. Overall I consider that the nature of the goods supplied here is neutral on the question of reasonableness’603

and although work is carried out to the ‘special order of the customer’ the party carrying out the work has to use no more than an application of a ‘standard technique that [is] already in regular use’ to make Guideline (e) more than neutral.604

Difficult/dangerous tasks 3.285 In Smith v Eric S  Bush605 Lord Griffiths stated that if a task is very difficult or dangerous it may be reasonable to exclude or restrict liability. This factor has come to the fore in relation to computer system or software supply contracts. There the courts have recognised the potential for a high level of risk at two points: First, in Watford v Sanderson the court recognised that there is a

•

‘significant risk that a non-standard software product “customised” to meet the … needs of a substantial and relatively complex business … may not perform to the customer’s satisfaction’.606

Such a risk is obviously greater with entirely bespoke software. •

Second, there is a significant risk where the software is bespoke, customised or standard. It stems from the damage which software which does not perform as expected can do to an acquirer’s business and the risk of very significant losses stemming therefrom. In Sam Business Systems v Hedleys607 the court stated that because of the problems in the software, the acquirer ‘might have been closed down by the regulator. If that had happened, the [acquirer’s claim] … could have been enormous. In that event it is not unlikely that both companies (in the absence of insurance) would have been in liquidation’.608

ibid, [78].

603

Commercial Management (Investments) Ltd v Mitchell Design and Construct Ltd and another [2016] EWHC 76 (TCC), [86].

604

[1989] 2 All ER 514.

605

Watford Electronics v Sanderson [2001] 1 All ER (Comm) 696.

606

[2003] 1 All ER (Comm) 465.

607

ibid, [71].

608

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3.286 In both cases, alongside basically equal bargaining power, the above risk factors were important in the restrictions on the supplier’s liability being found to be reasonable.609 3.287 It is possible to make a further point in relation to the risk to the proferens where the proferens will not know of the extent of the risk being undertaken. If a clause restricts liability in relation to the damage to goods which the proferens has to load onto a ship, that clause may well be reasonable if the proferens ‘usually has minimal knowledge of the nature of the goods and none as to their value’.610 3.288 Further, in Frans Maas (UK) Ltd v Samsung Electronics (UK) Ltd,611 although a limit set on the liability of freight forwarders for lost or damaged goods was said to be ‘derisory’ when viewed against the value of the goods, it was nevertheless viewed as reasonable. The limit was set according to the weight of the goods and the court had evidence that: ‘no freight forwarder in his right mind would contract on the basis of value’ as ‘at the time of contracting freight forwarders may well not know the value of the goods with which they may come to deal’.

It may be reasonable to limit liability in relation to cars left in a car park where the nature of the facilities clearly do not offer much protection, particularly where the charge is small.612

Consequences 3.289 In Smith v Eric S Bush,613 there were factors indicating the reasonableness of the disclaimer, but were outweighed by the potential consequences of holding the disclaimer effective – the individual might still have to pay a mortgage for an uninhabitable dwelling. Against that background the court held that it was preferable that such disclaimers should not be effective so that the costs of a negligent valuation would effectively be borne by house purchasers as a whole, through slightly increased valuation fees. (The increase being to cover the rise in valuers’ insurance costs which because they would not be able to rely on such disclaimers.) 3.290 In Smith v Eric S  Bush the court was concerned with consequences which could be disastrous for the individual. However, in St Albans City and

Contrast different approaches in earlier cases, eg  Salvage Assn v CAP  Financial Services [1995] FSR 654; St Albans City and District Council v International Computers Ltd [1995] FSR 686 at 711 (decision on reasonableness followed by the Court of Appeal [1996] 4 All ER 481).

609

Singer (UK) Ltd v Tees & Hartlepool Port Authority [1988] 2 Ll R 164 per Steyn J.

610

[2004] EWHC 1502, [2004] 2 LL Rep 251.

611

Fred Chappell Ltd v National Car Parks Ltd (1987) Times, 22 May.

612

[1989] 2 All ER 514.

613

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District Council v International Computers Ltd614 the situation of the council was equated with that of the house purchaser in Smith v Eric S Bush and the consequences of the effectiveness of the limitation clause were again viewed as highly relevant.615 Scott-Baker J said:616 ‘On whom is it better that a loss of this size should fall, a local authority or an international computer company? The latter is well able to insure (and in this case was insured) and pass on the premium cost to the customers. If the loss is to fall the other way it will ultimately be borne by the local population either by increased taxation or reduced services. I do not think it unreasonable that he who stands to make the profit (ICL) should carry the risk. Therefore in my view the practical consequences count in favour of the plaintiff’.

3.291 More generally, whether a limitation of liability or exclusion of liability clause is reasonable will have consequences depending on whether it is upheld. For example: • in Overseas Medical Supplies Ltd v Orient Transport Services Ltd617 the exemption clauses if upheld as reasonable would have meant that customers would receive only £600 when their loss was approximately £8,500. In this case the supplier was to transport equipment to and from another country and obtain insurance. The equipment was lost and the supplier did not obtain the insurance. At first glance the clause dealing with insurance appeared to limit liability to a specified sum: ‘13 (B) Insofar as the Company agrees to arrange insurance the Company acts solely as Agent for the Customer using its best endeavours to arrange such insurance and does so subject to the limits of liability contained in Clause 29 hereof [which, based on a method of calculation, would limit the supplier’s liability to £600]’.618

3.292 In the circumstances, the court struck a balance in favour of the customer as the failure of the supplier meant that if the clause 13(B) was upheld: ‘…the customer lost both his goods and the very insurance designed to provide him with the full compensation for that loss, rather than the £600 ceiling imposed by the appellants, which insurance the appellants’ own Order Form obliged him to ensure was in place’.619

3.293 The court indicated that Clause 13(B) failed to make it clear to the customer that the limitation of liability in Clause 29 (limiting liability to

[1995] FSR 686 (decision on reasonableness followed by [1996] 4 All ER 481, CA).

614

See also Ormsby v H&H  Factors Ltd (26  January 1990, unreported), in the context of the commercial acquisition of machinery.

615

[1995] FSR 686 at 711.

616

[1999] 1 All ER (Comm) 981, [1999] 2 Lloyd’s Rep 273.

617

Overseas Medical Supplies Ltd v Orient Transport Services Ltd [1999] 1  All ER (Comm) 981, [1999] 2 Lloyd’s Rep 273, [4]. It appears that the terms and conditions used by the supplier were the standard trading terms of the British International Freight Association, see [1].

618

ibid, [20].

619

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£600) would apply both to the loss of goods and the failure to obtain the insurance so ‘there was no “reality of consent”’ to the effect of the clause. The court summarised the argument of the supplier as being that although the two services provided by the supplier (transporting goods and obtaining insurance) although of different characters were ‘treated without distinction as subject to a single limitation of liability of only £600’. The court held: ‘Whereas it may be that, in relation to certain “package” services, a broad brush approach to limitation of liability will be reasonable, and indeed may largely be dictated by the type of insurance cover available in the market to the supplier, the judge held that, in this case, such an approach was unjust and inappropriate for reasons which he clearly and comprehensively stated.’620

3.294 The allocation of risk and the consequences would likely have been different; the judge at first instance would likely have held that the limitation of liability was reasonable if the only issue had been: ‘[the] non-delivery and/or loss of the goods by the [supplier], [the judge at first instance] did not consider that the appellants had demonstrated that a similar limitation in respect of a failure to carry out the plaintiffs’ express instructions to insure could be justified as reasonable’.621

• in Goodlife Foods Ltd v Hall Fire Protection Ltd622 the exemption clause was upheld as reasonable although it excluded all liability (except for a limited warranty) unless the customer obtained asked for and obtained insurance from the supplier: ‘(11) We exclude all liability, loss, damages or expense consequential or otherwise caused to your property, goods, persons or the like, directly or indirectly resulting from our negligence or delay or failure or malfunction of the systems or components provided by HFS for whatever reason. In the case of faulty components, we include only for the replacement, free of charge, of those defected parts. As an alternative to our basic tender, we can provide insurance to cover the above risks. Please ask for the extra cost of the provision of this cover if required.’

3.295 The supplier installed a fire detection and fire suppression for a multi-purpose fryer in the customer’s premises. The value of the contract was for a ‘modest’ amount of about £7,500, when set against the losses allegedly suffered by the customer of £6.6 million, because of an apparent defect in the supplier’s equipment which did not suppress a fire. The customer was insured against these types of losses and the supplier also had insurance.623 Although the exemption clause was described as a ‘stringent limitation of liability clause’ with a limited warranty (for the replacement of parts) the factor which made

Overseas Medical Supplies Ltd v Orient Transport Services Ltd [1999] 1  All ER (Comm) 981, [1999] 2 Lloyd’s Rep 273, [21].

620

ibid, [7].

621

[2018] EWCA Civ 1371.

622

Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371, [9]. In effect this case was between insurance companies as to whom would bear the damages caused by the fire.

623

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it reasonableness was insurance and which party was the better to obtain it and the alternatives available. For the Court of Appeal the customer was in the better position to understand the consequences of a fire on its business: ‘…a party such as Goodlife, conducting (as part of its regular business) a potentially hazardous operation, and with its own unique knowledge of its property and the precise effect on its business if there was a fire which stopped the factory working, was plainly in the best position to place its own insurance to cover those risks in the way most suited to that business. The judge found that Goodlife had that necessary insurance. As the authorities demonstrate, that was a powerful factor in favour of Hall Fire and the reasonableness of the clause. The fact that Hall Fire also had insurance is relevant but by no means determinative (see paragraph 60 above), in part because Hall Fire’s insurers would never have had the same detailed knowledge of that which needed to be insured.’624

3.296 It appears that while the availability of insurance was a key factor in determining that the reasonableness of the exemption clause, the Court of Appeal also, in assessing which party should bear the risk of a fire, noted that the contract was of ‘modest’ value against the value of any damage caused in the event of a fire. Also the contractual terms of the supplier appeared typical in the industry of the supplier, and that losses might occur long after the involvement of the supplier with the customer had ceased.625 All of these pointed to the customer bearing the consequences, particularly as it could cover itself with insurance.

Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371, [77].

624

ibid [92].

625

256

Chapter 4 Unfair terms in consumer contracts

Introduction – the Consumer Rights Act 2015 4.1 Summary of the changes 4.4 Status of EU law 4.6 Background to the implementation of the CRA 4.7 Basic scope 4.8 Comparisons with the Unfair Contract Terms Act 1977 4.12 ‘Consumer contract’ and excluded contracts and terms 4.15 The ‘Consumer contract’ 4.15 Exclusion of contracts entirely from CRA, Part 2 4.16 Contract terms and notices which are not subject to assessment for fairness 4.18 Death and personal injury 4.19 Terms included by CRA, Part 1 4.20 Distance Marketing Directive 4.21 Arbitration agreements 4.22 Disapplication of rules to mandatory terms and notices --Exclusion of terms from Part 2 of the CRA 4.25 Key definitions 4.42 ‘Consumer’4.43 Mixed use 4.53 ‘Trader’4.56 Consumer notice 4.65 Terms not individually negotiated 4.69 The ‘core’ exemption 4.70 Use of ‘grey list’ 4.74 Scope of the ‘core exemption’ 4.78 Director General of Fair Trading v First National Bank plc 4.80 Office of Fair Trading v Abbey National plc 4.89 Kásler and Mattei 4.106 After Office of Fair Trading v Abbey National plc, Kásler and Mattei4.120 CMA Guidance4.127 Transparent (plain and intelligible language which is legible) and ‘prominent’4.132 Meaning of transparency 4.133 Transparency and accessibility 4.137 Proposals4.138 257

Chapter 4  Unfair terms in consumer contracts

ECJ case law 4.140 CMA Guidance4.142 Prominent and the ‘average consumer’ 4.146 Older guidance 4.150 Construction4.153 Particular contracts 4.153 In general 4.157 Unfair terms 4.158 Background to the assessment 4.158 ‘The nature of the subject matter of the contract’ 4.161 ‘All the circumstances existing when the term was agreed’ 4.162 The basic test 4.170 Significant imbalance 4.175 Jurisdiction clauses 4.179 Adjudication clauses 4.181 Entire agreement clauses 4.183 CMA analysis of significant imbalance 4.190 The requirement of good faith 4.193 CMA analysis of good faith 4.204 Recent ECJ case law on good faith and significant imbalance and after 4.207 Types of unfair terms 4.222 Exclusion clauses 4.225 Entire agreement clauses 4.230 Penalty clauses 4.231 Variation clauses 4.232 Indemnification clauses 4.233 Unfair enforcement clauses 4.235 Unfair financial burdens 4.238 Signed statements/declarations 4.240 Excluding the consumer right to assign 4.242 Codes of Practice 4.243 The burden of proof and the duty of a court to consider the fairness of a term 4.244 The ‘Grey’ list 4.247 Changes made by the CRA 4.250 CRA, Sch 2, Part 1, para 1 (1999 Regulations, Sch 2, para 1(a)): Exclusion and limitation clauses – exclusion of liability for death and personal injury 4.252 General points 4.253 Specific points concerning the exclusion or limitation of liability for death and personal injury 4.257 Exclusion of liability for faulty or misdescribed goods or digital content 4.263 258

Chapter 4  Unfair terms in consumer contracts

Terms excluding liability for poor services or work and materials4.266 Limitations of liability 4.271 Exclusions of liability for consequential loss 4.273 Exclusions of liability for delay 4.275 Time limits on clams 4.281 The right to set-off 4.285 Exclusion of liability for failure to perform contractual obligations4.291 Guarantees and warranties that act as exclusion clauses 4.294 CRA, Sch 2, Part 1, para 3 (1999 Regulations, Sch 2, para 1(c)): Binding consumers while allowing the trader to provide no service4.296 CRA, Sch 2, Part 1, para 4 (1999 Regulations, Sch 2, para 1(d)): Retention of prepayments on consumer cancellation 4.299 Background4.299 Scope and commentary 4.302 CRA, Sch 2, Part 1, para 5 (1999 Regulations, none: Disproportionate termination fees and requiring consumer to pay for services not supplied) 4.307 Disproportionate termination fees 4.308 Requiring consumers to pay for services not supplied 4.309 CRA, Sch 2, Part 1, para 6 (1999 Regulations, Sch 2, para 1(e)): Disproportionate financial sanctions 4.312 CRA, Sch 2, Part 1, para 7 (1999 Regulations, Sch 2, para 1(f)): unequal cancellation rights and cancellation without refund4.315 Allowing the trader to dissolve the contract on a discretionary basis 4.316 Allowing the trader to retain sums paid by a consumer 4.322 CRA, Sch 2, Part 1, para 8 (1999 Regulations, Sch 2, para 1(g)): Trader’s right to cancel without a refund 4.325 CRA, Sch 2, Part 1, para 9 (1999 Regulations, Sch 2, para 1(h)): Excessive notice periods for consumer cancellation 4.329 CRA, Sch 2, Part 1, para 10 (1999 Regulations, Sch 2, para 1(i)): Binding consumers to hidden terms 4.332 CRA, Sch 2, Part 1, para 11 (1999 Regulations, Sch 2, para 1(j)): Trader’s right to vary terms generally 4.339 Scope of CRA, sch 2, Part 1, para 11 (1999 Regulations, sch 2, para 1(j))4.344 CRA, Sch 2, Part 1, para 12 (1999 Regulations, Sch 2, para none) and CRA, Sch 2, Part 1, para 13 (1999 Regulations, Sch 2, para 1(k)): Right of a trader to determine or change what is supplied 4.346 259

Chapter 4  Unfair terms in consumer contracts

CRA, Sch 2, Part 1, para 14 (1999 Regulations, para none): and CRA, Sch 2, Part 1, para 15 (1999 Regulations, Sch 2, para 1(l)): Price variation clauses CRA, Sch 2, Part 1, para 16 (1999 Regulations, Sch 2, para 1(m)): Trader’s right of final decision Allowing a trader discretion to decide whether they are in breach of a contract Allowing a trader to decide on the meaning of a term CRA, Sch 2, para 17 (1999 Regulations, Sch 2, para 1(n)): Entire agreement and formality clauses Limiting a trader’s obligation and entire agreement clause Services and statements made by a trader Pre-CRA case law concerning entire agreement clauses Formality clauses CRA, Sch 2, para 18 (1999 Regulations, Sch 2, para 1(o)): Binding consumers where the trader defaults CRA, Sch 2, Part 1, para 19 (1999 Regulations, Sch 2, para 1(p)): Trader’s right to assign without consent 1999 Regulations, Sch 2, para 20 (CRA, Sch 2, para 1(q): Restrict the remedies available to a consumer Arbitration / alternative dispute resolution Exclusive jurisdiction Choice of law Appendix 1 – unfair terms provisions Appendix 2 – indicative list of unfair terms

4.353 4.360 4.361 4.363 4.365 4.366 4.369 4.370 4.379 4.382 4.386 4.389 4.391 4.393 4.394 4.400 4.401

Introduction – the Consumer Rights Act 2015 4.1 Since the last edition of this book, the major change has been the bringing into force of the Consumer Rights Act 2015 (CRA). As far as the subject matter of this chapter is concerned, CRA replaces the Unfair Terms in Consumer Contracts Regulations 1999 (1999 Regulations) and removes the provisions from the Unfair Contracts Terms Act 1977 (UCTA) that apply to consumers.1 CRA applies to contracts entered from 1 October 2015.2 For contracts entered prior to 1 October 2015 the 1999 Regulations and UCTA continue to apply, and the previous edition of this book will continue to be relevant. This chapter considers only the provisions of CRA. The CRA also made other further, far-reaching changes to the protection afforded to consumers – such as recognising digital content as a separate category distinct from goods and services, which has its own rights, protection and remedies separate to goods and services.

1

The Consumer Rights Act 2015 (Commencement No 3, Transitional Provisions, Savings and Consequential Amendments) Order 2015, regs 3.

2

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4.2 The CRA is partly a consolidation of provisions found in other legislation together with introducing further measures to protect consumers. The consolidation centres principally by removing or disapplying provisions concerning consumers found in: • UCTA; •

The Sale of Goods Act 1979 (SGA); and

•

The Sale and Supply of Goods Act 1984

together with the repeal of the 1999 Regulations. 4.3 A  consequence of the new legislation is that the numbering of equivalent provisions is different across CRA, 1999 Regulations and 1993 Directive. However, much of the case law and other materials refers to the older legislation. In this edition there are two appendices with tables (for the main legislative provisions concerning unfair terms and the indicative list of potentially unfair terms), so that is easier to find the equivalent provision and number among these three legislative measures.

Summary of the changes 4.4 The provisions relating to unfair terms are now found in CRA, Part 2 together with Schedule 2 (which contains the list of terms which are potentially unfair). The changes introduced by CRA relating to unfair terms are, in summary, as follows: •

it replaces the 1999 Regulations entirely;

•

it removes from UCTA the provisions concerning persons who are ‘dealing as consumers’ and disapplies other provisions which apply to consumer contracts.

4.5 Some of the specific changes introduced by CRA relating to unfair terms include: •

there are definitions of ‘consumer’ and ‘trader’ which are now consistent throughout CRA and with other consumer legislation including the 2013 Regulations;

•

it is possible to assess non-contractual notices for fairness in the same way as for contractual terms;

•

the assessment of a contractual term for fairness is no longer limited to one which is not individually negotiated;

•

written contractual terms now also need to be legible in addition to being in plain intelligible language (that is a terms need to be ‘transparent’); 261

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•

the core provisions which are exempt from assessment for fairness are:

now expressed in clearer language; and



more tightly drawn (that is provisions relating to the subject matter of the contract and the assessment of the appropriateness of the price payable in comparison to the goods, services or digital contents supplied);

 

•

a court has to consider whether a term is fair where there is a consumer contract before a court, whether or not any party has raised the issue or intends to do so; and

• the addition of three further types of potentially unfair term to the indicative list in CRA, Schedule 2.

Status of EU law 4.6 The unfair provisions in UK law derive from an EU directive (the 1993 Directive), and the 1994 and 1999 Regulations and CRA, Part 2 all aimed to implement the 1993 Directive. So that, before the UK left the EU, if there was: ‘any question as to the … validity, meaning or effect of any [EU instrument]’3

the courts in the UK would have to decide the meaning of it: ‘in accordance with the principles laid down by and any relevant decision of [theEuropean Court]’4,

and the UK courts being required to take ‘judicial notice’ of any judgment or opinion of the ECJ3,5 up to the point that UK left the EU on 31 December 2020. Now that the UK hasleft the EU a court or tribunal in the UK is no longer 'bound by any principles laid down,or any decisions made, on or after [31 December 2020]’6 The case law which has interpreted these legislative measures had, until 31 December 2020, all sought (in principle) to maintain compatibility with the general principles underlying EU law. This, of course, may change over time now that the UK has left the EU. However, other than the Supreme Court, the lower courts are still bound by case law decided by the ECJ prior to 31 December 2020.7 European Communities Act 1972, s 3(1), now repealed by the European Union (Withdrawal Agreenebt) Act 2020, s 1.

3

European Communities Act 1972, s 3(1), now repealed by the European Union (Withdrawal Agreement) Act 2020, s 1.

4

European Communities Act 1972, s 3(2), now repealed by the European Union (WithdrawalAgreement) Act 2020, s 1.

5

European Union (Withdrawal) Act 2018, s 6(1) as amended by European Union (Withdrawal Agreement) Act 2020, ss 26(1)(a), 42(7) and statutory instruments made under it.

6

European Union (Withdrawal) Act 2018, s  6(3), (4). There are exceptions and additional detail which are outside the scope of this book, for which see the remainder of s 6 or Citty on Contracts, 33rd edn (Sweet and Maxwell, 2020) 1-014–1-018.

7

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Background to the implementation of the CRA 4.7 Since the last edition there has been much activity concerning consumer law both at the EU and national level to improve and extend the rights of consumers, including the following: • the implementation of the CRA8 by the Consumer Rights (Payment Surcharges) Regulations 2012 and 2013 Regulations which: 







requires a trader to provide certain information to a consumer before the consumer is bound by the contract;

provides rights of cancellation for contracts entered at a distance or otherwise than in a shop; prevents consumers from being subject to hidden charges after they have entered into a contract.

• amending the Consumer Protection from Unfair Trading Regulations 2008 in 20149 which now gives a consumer the right to get out of a contract (or to obtain a discount on the price they pay) if they are subject to misleading or aggressive practices (in force from 1 October 2014). This was implemented following a Law Commission report;10 • in the run up to the CRA a number of consultations, and reports and studies indicated: 



 



that there were two principal weakness in consumer protection – the law was excessively complex and the protection available to consumers was uneven;

the transposition of EU law into UK on the sale of goods was unnecessarily complex;

that the law on goods and services should be simplified and clarified;

that there was uncertainty as to what where the consumer’s rights concerning digital content products.

Basic scope 4.8 The legislation concerning unfair terms, now found in the provisions of CRA, Part 2, is a creature of EU law. When the UK was a member of the EU, Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights, amending Council Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and of the Council and repealing Council Directive 85/577/EEC and Directive 97/7/EC of the European Parliament and of the Council.

8

Prior to their amendment the 2008 Regulations only allowed public bodies the right to bring enforcement proceedings.

9

Law Commission – No 332 – Consumer Redress for Misleading and Aggressive Practices.

10

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CRA, Part 2 was subject to ultimate control by the EU courts.11 The following is a brief outline of its history. The 1994 Regulations, which came into force on 1 July 1995,12 were the UK’s initial implementation of the 1993 Directive. The 1993 Directive was made under Art 100A13 as part of the facilitation of the internal market. The 1993 Directive provides a minimum level of consumer protection. It does not require complete uniformity, and Member States are free to provide more extensive protection through their own national laws, sometimes which have occurred with the bringing into force of CRA. The 1994 Regulations were replaced by the 1999 Regulations14 which in turn are now replaced by CRA, Part 2. 4.9 The Law Commission proposed in 2005 a single unified piece of legislation to replace both the 1997 Act and the 1999 Regulations15 but this proposal was not followed. Instead in 2012 the Law Commission was asked to review and update the 2005 report. The principal motivation was consideration of the then in force 1999 Regulations, Regulation 6(2) concerning the ‘core’ exemption: ‘(2) In so far as it is in plain intelligible language, the assessment of fairness of a term shall not relate— (a) to the definition of the main subject matter of the contract, or (b)  to the adequacy of the price or remuneration, as against the goods or services supplied in exchange.’

4.10 The Law Commission Report 201316 noted that this exemption had proved difficult to interpret and had resulted in complex litigation, principally in the litigation leading up to and including the Supreme Court decision of Office of Fair Trading v Abbey National plc.17 The Law Commission’s main proposals for inclusion in new legislation were18: • unsurprisingly, to reformulate the wording of the core exemptions and that they should only apply to terms which were ‘prominent’ and transparent,

And until 31 December 2020 the CRA had to be interpreted to give effect to the 1993 Directive, see para 4.6 above. Also see ch 1, page 190 of the previous edition of this book.

11

The Directive required implementation by 31 December 1994.

12

For the evolution of the Directive see CCC  48/77, [1980]  OJ  C  291/35, COM  (84) 55, [1990] OJ C234/2, OJ C73/7.

13

Which came into force on 1 October 1999 (SI 1999/2083).

14

‘Unfair Terms in Contracts’ Law Com No 292 Scot Law Com No 199 (2005).

15

Law Commission – Unfair Terms in Consumer Contracts: Advice to the Department for Business, Innovation and Skills. March 2013.

16

[2009] UKSC 6, [2010] 1 AC 696.

17

Law Commission Report 2013, drawn from Section 8 of the Report.

18

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• that the grey list should be assessable for fairness and that the core exemptions should be subject to this (that is neither the price nor the subject matter exemptions should apply to the grey list terms); •

that the second part of the grey list should be assessable for fairness;

•

for the introduction of three new categories of potentially unfair terms to the grey list;

•

that notices should be assessable for fairness;

•

that the provisions in UCTA concerning terms and notices which aim to exclude liability for death and personal injury caused by the negligence of a trader should be replicated in new legislation;

•

that in proceedings brought by a consumer there should be a duty on the court to consider the fairness of a term in a consumer contract, although a consumer may not have raised the issue, as long as the court ‘has available to it the legal and factual elements for the task’;19

•

that UCTA should no longer apply to consumer contracts; and

•

employees should not be consumers for new legislation.

4.11

The implementation of CRA, Part 2 now applies a fairness test:

• to (contractual) terms: in a consumer contract between ‘traders’ and ‘consumers’; 20 and •

to ‘consumer notices’ (whether contractual or non contractual).21

An unfair term or notice is one which, contrary to the requirement of good faith, causes a significant imbalance in the rights and obligations of the parties, to the detriment of the consumer.22 There is an indicative and non-exhaustive list of terms which may be unfair23 (the ‘grey list’). Any unfair term or notice This provision follows the development of ECJ case law, in particular the cases of Elisa María Mostaza Claro v Centro Móvil Milenium SL, C-168/05 where the court stated: ‘The nature and importance of the public interest underlying the protection which the Directive confers on consumers justify, moreover, the national court being required to assess of its own motion whether a contractual term is unfair, compensating in this way for the imbalance which exists between the consumer and the seller or supplier’ (at para 38); and the latter case of Pannon GSM  Zrt. v Erzsébet Sustikné Győrfi, C-243/08 where the court followed Elisa María Mostaza Claro but put a proviso on this obligation on a court (at para 35): ‘…national court is required to examine, of its own motion, the unfairness of a contractual term where it has available to it the legal and factual elements necessary for that task.’ The Law Commission Report 2013 noted (at 7.89) that a court has to follow this case law and that new legislation should be made consistent with ECJ case law and recommended (at 7.93) that the new legislation keeps to the words quoted from the Pannon GSM Zrt. case above. CRA, s 71 in effect faithfully keeps to the wording of that latter judgment.

19

CRA, ss 2(3), 61(1), (3).

20

CRA, s 61(4).

21

CRA, ss 62(4), 62(6).

22

CRA, s 63 – the list is in Sch 2.

23

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does not bind the consumer.24 CRA, Part 2 is not restricted to written terms and notices, but certain terms and notices are excluded from its scope or the fairness test. ‘Core’ terms are excluded from being the subject matter of the fairness test, provided they are transparent and prominent.25 It is not possible to exclude liability for personal injury and death in a consumer contract or consumer notice resulting from negligence.26 There is a duty on a court to consider the fairness of a term of a consumer contract, even if not raised by the parties.27 A consumer can use CRA in a dispute with a particular trader but, additionally, the CMA and other regulators can enforce CRA, Part 2 and a large number of organisations are given powers to investigate and enforce the operation of CRA.28 The CMA or a regulator can consider a complaint. They have powers to apply for an injunction or obtain an undertaking as well as publishing details of an application for injunction or an undertaking, and can publish advice and information about CRA, Part 2.29 In addition, further enforcement at the preventive level is provided for under Part 8 of the Enterprise Act 2002.30

Comparisons with the Unfair Contract Terms Act 1977 4.12 With the bringing into force of the CRA the overlap between the provisions of what is now CRA, Part 2 and UCTA now no longer apply,31 and that it is no longer possible for any incorporated body to take advantage of consumer legislation. However, it is still useful to contrast the range and scope of these two legislative measures (other than that one legislative measure only applies to consumer and the other only to non-consumers). 4.13 The coverage of UCTA is basically32 restricted to terms which ‘exclude or restrict liability’. The scope of CRA, Part 2 is not restricted to a specific type of term but is restricted to contracts between ‘consumers’ and ‘traders’. UCTA

CRA, ss 62(1), s 62(2).

24

CRA, ss 64(1), (2).

25

CRA, s 65(1).

26

CRA, s 71.

27

CRA, s  70, Sch  3. A  ‘regulator’ means the CMA, the Department of Enterprise, Trade and Investment in Northern Ireland, a local weights and measures authority in Great Britain, the Financial Conduct Authority, the Office of Communications, the Information Commissioner, the Gas and Electricity Markets Authority, the Water Services Regulation Authority, [the Office of Rail and Road], the Northern Ireland Authority for Utility Regulation, or the Consumers’ Association (CRA, Sch 3, para 8). The investigatory powers that a regulator now has are set out in detail in CRA, Sch 5.

28

CRA, Sch 3, paras 3 to 7.

29

See para 4.15.

30

And because of the specific disapplication of UCTA to consumers (CRA, s 75, Sch 4, paras 2–27).

31

But see para 3.48.

32

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applies where one party deals on the other party’s written standard term of business.33 CRA, Part 2 always apply a test of unfairness and contain only an indicative and non-exhaustive ‘grey list’ of terms which may be unfair.34 UCTA applies the requirement of reasonableness in many situations but also contains a limited ‘black list’ of automatically ineffective terms. Under UCTA, it is for those claiming that a term satisfies the requirement of reasonableness to show that it does so. In contrast, in relation to the fairness of a term, the CRA, Part 2 contains no provision placing the burden of proof on the trader, and the presence of a term in the ‘grey list’ is not even stated to do so. However, now CRA provides that a court must consider the unfairness of a term (even if not raised by party) as long as there is ‘sufficient legal and factual material to enable it to consider the fairness of the term’. 4.14 UCTA and CRA, Part 2 should also be compared in relation to enforcement. Both CRA, Part 2 and UCTA can be used to strike down a term in a dispute between two specific parties. However, under CRA, Part 2, the CMA, and the ‘qualifying bodies’, may ask for an injunction to prevent the continued use of unfair terms. Undertakings can be accepted, instead of an injunction being obtained, and the alteration or deletion of many terms has been achieved by agreement. The CMA has issued sets of guidance35 and carried out investigations (and its predecessor, Office of Fair Trading issued bulletins stating the outcome of complaints and showing terms which have been altered, or deleted, and undertakings which have been given). The CMA appears to take a more market orientated approach compared to the OFT; not normally dealing with individual organisations but a particular market or market sector.

‘Consumer contract’ and excluded contracts and terms The ‘Consumer contract’ 4.15

CRA, Part 2 introduces a definition of ‘consumer contract’ as:

‘a contract between a trader and a consumer’.36

This definition does not help in identifying contracts which do not come within its apparent unlimited scope. It is necessary to look to other provisions of CRA that either exclude from that definition:

See para 3.95.

33

Except that compulsory arbitration clauses dealing with claims for a ‘modest amount’ are deemed unfair – Arbitration Act 1996.

34

Including Unfair contract terms – Guidance on the unfair terms provisions in the Consumer Rights Act 2015, CMA37, 31 July 2015.

35

CRA, ss 61(1), (3).

36

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•

a contract entirely; or

•

only certain terms from its scope.

Each is considered in turn.

Exclusion of contracts entirely from CRA, Part 2 4.16 CRA explicitly excludes contracts of employment or apprenticeship from the scope of CRA, Part 2.37 Not mentioned specifically in CRA (or the 1999 Regulations) are the following (which the 1994 Regulations did mention) as being specifically excluded from the scope of the provisions relating to unfair terms: ‘(a) any contract relating to employment (b) any contract relating to succession rights (c) any contract relating to rights under family law (d) any contract relating to the incorporation and organisation of companies’.38

4.17

The list was a reflection of 1993 Directive, recital 10 which stated:

‘Whereas more effective protection of the consumer can be achieved by adopting uniform rules of law in the matter of unfair terms; whereas those rules should apply to all contracts concluded between sellers or suppliers and consumers; whereas as a result inter alia contracts relating to employment, contracts relating to succession rights, contracts relating to rights under family law and contracts relating to the incorporation and organisation of companies or partnership agreements must be excluded from this Directive’.

Although there is no repetition of this list of excluded contracts in the CRA, but its presence in the 1993 Directive could lead to an interpretation of contracts between consumers and traders which echoed the exclusions, although of course the CRA may provide more extensive protection than the 1993 Directive. The issue of whether CRA, Part 2 could cover an employment contract, apart from any possible specific exclusion, is considered below.39

Contract terms and notices which are not subject to assessment for fairness 4.18

The following terms or notices are not binding on consumers:

CRA, s 61(2).

37

1994 Regulations, reg 3(1), Sch 1.

38

See para 4.43.

39

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Death and personal injury 4.19

A trader cannot:

‘by a term of a consumer contract or by a consumer notice exclude or restrict liability for death or personal injury resulting from negligence.’40

This wording is largely the same as that in UCTA, section 2(1) and the other parts of CRA, sections 65 and 66 large replicate the wording found in UCTA, section 2 and Schedule 1, paragraph 1.

Terms included by CRA, Part 1 4.20 For contracts concerning the supply of goods, services or digital content, a term is not binding on a consumer to the extent that it would exclude or restrict the trader’s liability in relation to such provisions concerning satisfactory quality, the goods are fit for a particular purpose, are as described, etc, with corresponding provisions relevant to services and digital content.41 Again, this largely replicates UCTA, sections 6 and 7 before its amendment by CRA.42

Distance Marketing Directive43 4.21

A term in a consumer contract ‘must’ be unfair if:

‘it has the effect that the consumer bears the burden of proof with respect to compliance by a distance supplier or an intermediary with an obligation under any enactment or rule implementing the Distance Marketing Directive’.44

Arbitration agreements 4.22 CRA amended the Arbitration Act 1986 so that the latter continues to apply,45 so that a term in a consumer contract is unfair: •

where the term amounts to an arbitration agreement46; and

CRA, s 65(1).

40

CRA, ss 31, 47 and 57.

41

Together with the extensions in UCTA found in UCTA, s 13 to control the exclusion of liability found in that section. See para 3.171.

42

Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services and amending Council Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC

43

CRA, ss 63(6), (7).

44

Arbitration Act 1986, ss 89-91 as amended by CRA, s 75, Sch 4, paras 30–32.

45

Arbitration Act 1986, s 89(1): an ‘arbitration agreement’ means ‘an agreement to submit to arbitration present or future disputes or differences (whether or not contractual)’.

46

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•

there is a claim for a pecuniary remedy which is less than £5,000.47

4.23 The terminology used in these four instances are different. Concerning the Distance Marketing Directive and arbitration agreement, terms are ‘unfair’ so presumably: • CRA, section 62(1) applies (that the unfair term is not binding on the consumer); and •

CRA, section 62(3) applies (that a consumer can rely on such a term if the consumer chooses to do so);

and where such a term is not binding on the consumer ‘the contract continues, so far as practicable, to have effect in every other respect’ (CRA, section 67). For the other two instances, there is no mention of ‘unfairness’, or the consequences for the rest of the contract (as found in CRA, section 67). 4.24 For the provision concerning death and personal injury the wording used is that the trader ‘cannot’ by a term exclude death or personal injury. The use of this wording may not engage the unfair provisions in CRA, Part 2 at all (that the use of the word ‘cannot’ mean it is not necessary to do so). Also, the terms included by CRA, Part 1 do not engage as such CRA, Part 2 (in particular, as noted immediately above, sections 62(1), (2) and 67)).

Disapplication of rules to mandatory terms and notices – Exclusion of terms from Part 2 of the CRA 4.25

There is one further exclusion from the scope of CRA, Part 2:

‘(1) This Part [Part 2 does not apply to a term of a contract, or to a notice, to the extent that it reflects— (a) mandatory statutory or regulatory provisions, or (b) the provisions or principles of an international convention to which the United Kingdom … is a party. (2) In subsection (1) “mandatory statutory or regulatory provisions” includes rules which, according to law, apply between the parties on the basis that no other arrangements have been established’.48

This largely follows the provisions set out in 1999 Regulations and 1993 Directive, except it now also extends to consumer notices as well.

The amount is set by Unfair Arbitration Agreements (Specified Amount) Order 1999, SI 1999/2167.

47

CRA, s 73.

48

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Chapter 4  Unfair terms in consumer contracts

4.26 Since the last edition of this book the ECJ and the UK courts have considered the meaning of the words ‘mandatory statutory or regulatory provisions’ and their scope. These are considered in turn. In RWE Vertrieb AG v Verbraucherzentrale Nordrhein-Westfalen e.V.49 the ECJ had to consider the following issue: •

Under German law the basic position concerning the supply of gas was as follows: ‘…a gas supply undertaking, concluded contracts with consumers for the supply of natural gas, on the basis of freedom of contract (special contracts). As well as the possibility of concluding such contracts, … gas suppliers are obliged under national legislation to conclude contracts with consumers in which a standard tariff is applied (standard tariff contracts).’50

• German law specified the terms and conditions for standard tariff contracts but not special contracts; •

but the gas supplier in this case used the same terms and conditions for standard tariff contracts as for special contracts;

•

the question for the court was: ‘…whether Article  1(2) [CRA, s  73] of Directive 93/13 must be interpreted as meaning that that directive does not apply to provisions in general terms and conditions, incorporated into contracts concluded between a supplier and a consumer, which reproduce a rule of national law applicable to another category of contracts and are not subject to the national legislation concerned.’51

•

the court noted that: 



•

the exclusion in 1993 Directive, Article 1(2) extended to terms that ‘reflect’ mandatory statutory or regulatory provisions and they are excluded from consideration as to whether they are fair or not; and 1993 Directive, recital 13 extends to terms which reflect the provisions of national law and which apply to the parties to a contract independently of any choice the parties makes to terms of their contract or ‘provisions that apply by default in the absence of other arrangements established by the parties’52;

In the situations described in the previous bullet point the ECJ held that the non-application of the provisions of the 1993 Directive was justified because: ‘…it may legitimately be supposed that the national legislature struck a balance between all the rights and obligations of the parties to certain contracts’53;

Case C‑92/11.

49

Case C‑92/11, para 17.

50

Case C‑92/11, para 24.

51

Case C‑92/11, paras 25, 26.

52

Case C‑92/11, para 28.

53

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• But the ECJ stated this line of reasoning does not apply to terms in a contract which differs from contracts mentioned above because ‘[a] n intention of the parties to extend the application of those rules to a different contract cannot be equated to the establishment by the national legislature of a balance between all the rights and obligations of the parties to the contract’.54 In other words, a supplier deciding to use terms and conditions which are specified by law for a particular type of contract in another type of contract which is not covered by law will not take any terms of that other contract outside of consideration for fairness as set out in the of the 1993 Directive. • The ECJ concluded that the exclusion provided by 1993 Directive, Article 1(2) did not apply to the special contracts and the 1993 Directive: ‘applies to provisions in general terms and conditions, incorporated into contracts concluded between a supplier and a consumer, which reproduce a rule of national law applicable to another category of contracts and are not subject to the national legislation concerned’.55

•

However, the ECJ also made, as noted above, the point that the exclusion in 1993 Directive, Article  1(2) also applied to ‘provisions that apply by default in the absence of other arrangements established by the parties’. This appears to extend (or merely to interpret) the final part of 1993 Directive, recital 13, so that, as Chitty suggests, that the exclusion from 1993 Directive contained in 1993 Directive, Article 1(2) will apply: ‘to terms in a contract which copy out legislative or other legal rules which would otherwise apply to that contract even were those legislative rules do not themselves apply to that contract’56

4.27 In the later case of Monika Kušionová v SMART Capital a.s.,57 which followed RWE  Vertrieb AG  v Verbraucherzentrale Nordrhein-Westfalen e.V., the court noted that for the exclusion provided by 1993 Directive, recital 1(2) to apply two conditions were necessary: •

a term in a contract has to reflect a statutory or regulatory provision; and

•

the provision must be mandatory.58

Case C‑92/11, para 29.

54

Case C‑92/11, para 38.

55

Chitty on Contracts, 33rd edn (Sweet and Maxwell, 2020) 38-234.

56

C-34/13.

57

C-34/13, para  78. See also Case C‑186/16 – Ruxandra Paula Andriciuc and Others v Banca Românească SA, para 27. At para 28 of the latter case the ECJ held that for a contractual term to be excluded from the scope of 1993 Directive it necessary that ‘term reflects provisions of national law that apply between the parties to the contract independently of their choice or which are supplementary in nature and therefore apply by default, that is to say in the absence of other arrangements established by the parties’.

58

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However, the derogation that 1993 Directive, Article  1(2) provides that the provisions of the 1993 Directive must be strictly construed because it is necessary to set it in the context of the purpose of the 1993 Directive – that is to protect consumers against unfair terms in contracts which traders include in their contracts with consumers.59 4.28 The meaning of the ‘mandatory statutory or regulatory provisions’ has also come in for consideration in the UK courts, mostly without reference to EU case law.60 The issue of how to interpret whether a term was inserted into an agreement because of mandatory or regulatory provisions arose in Rochdale Borough Council v Dixon.61 The case concerned a public sector periodic tenancy. The claimant authority entered into a commercial agreement with a third-party water utility company, whereby the claimant authority would collect charges for the use of water by tenants. The claimant authority, using its powers under Housing Act 1985, sections 102 and 103, proposed to vary, and then varied, the tenancy agreements with its tenants, so that the charges for the use of the water would be part of the tenants weekly rent. The defendant tenant refused to pay and the claimant authority brought possession proceedings for non-payment of rent. 4.29 The judgment of the court did not specifically refer to the 1993 Directive, Article 1(2) or the 1999 Regulations, Regulation 4(2). Its judgment was on whether the variation in the tenancy was unfair. The court held that the variation was not unfair because: ‘…a term which is expressly authorised by a statutory power, which replicates or reaches back to the time when water rates were routinely collected through tenancy agreements, is unlikely to be unfair.’62

The court also endorsed the view of the judge of first instance that: ‘… the variation was imposed pursuant to an express statutory power, carried out in accordance with the statute, after consultation, and following a decision taken by elected members of the local authority.’63

4.30 However, the judgment did not explicitly consider whether the authority was within 1999 Regulations, Regulation 4(2) (and therefore potentially taken out of those Regulations altogether). Even if the point had been taken by the claimant authority, that in exercising its lawful authority to impose the variation of the tenancy agreement on the tenant, it is possible to argue that they would be unlikely to succeed. The power in the Housing

C-34/13 – Monika Kušionová v SMART Capital a.s., para 77.

59

Either because it occurred before the above cases were decided or perhaps because they were not cited to the UK courts in these cases.

60

[2011] EWCA civ 1173.

61

[2011] EWCA Civ 1173; [2011] All ER (D) 191 (Oct), para 68. The judgment lists 12 reasons why the variation was not unfair.

62

[2011] EWCA Civ 1173; [2011] All ER (D) 191 (Oct), para 6.

63

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Act 1985 to vary tenancy agreement is not expressed in absolute terms but as having the option to do so: ‘The terms of a secure tenancy which is a periodic tenancy may be varied by the landlord by a notice of variation served on the tenant.’64

4.31 The Housing Act 1985 does not specify the wording that the claimant authority must use, such as: •

the wording of the clause to use in the tenancy agreement; or

•

the wording of the information that the claimant must provide to a tenant.

It is for the claimant authority to decide on what information it should provide to ‘inform the tenant of the nature and effect of the variation’.65 Given that it is not possible to state that the contractual terms concerning the variation: •

‘reflect mandatory statutory or regulatory provisions’; or

• are of type covered by the exclusion provided by 1993 Directive, Article 1(2) that is being: ‘…terms which reflect provisions of national law that apply between the parties to the contract independently of their choice or provisions that apply by default in the absence of other arrangements established by the parties [so that]it may legitimately be supposed that the national legislature struck a balance between all the rights and obligations of the parties to certain contracts’66;

then the variation should have been assessable as to whether they were fair under the 1999 Regulations, Regulation 6(2). 4.32 In the later case of Jones and another v Roundlistic Ltd,67 the Court of Appeal directly addressed the meaning of 1999 Regulations, Regulation 4(2) and two of the judges came to opposite views as to its meaning. In effect with one judge taking a more liberal view as to its meaning while the other following, and citing, EU case law (the case of RWE  Vertrieb AG  v Verbraucherzentrale Nordrhein-Westfalen e.V.). The case involved a lease with the lessee of a maisonette applying for a lease extension under the Leasehold Reform, Housing, and Urban Development Act 1993, section 42, and this extension was granted under sections 56 and 57 of that Act. Section 57(1) provided that: ‘Subject to the provisions of this Chapter (and in particular to the provisions as to rent and duration contained in section 56(1)), the new lease to be granted to a tenant under section 56 shall be a lease on the same terms as those of the existing lease, as they apply on the relevant date…’.

Housing Act 1985, s 103(1). Emphasis added.

64

Housing Act 1985, s 103(5).

65

Case C‑92/11, RWE Vertrieb AG v Verbraucherzentrale Nordrhein-Westfalen e.V, paras 26 and 28. See also Chitty on Contracts, 33rd edn, (Sweet and Maxwell, 2020) 38.237.

66

[2018] EWCA Civ 2284.

67

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The new lease contained a provision (in the first Schedule to the lease at paragraph 4) that: ‘Not to use the premises hereby demised or permit the same to be used for any purpose whatsoever other than a single private dwelling house in the occupation of the Lessee and his family.’

4.33 The lessee let the property on an assured shorthold tenancy for a period of 12 months. The lessor made an application to the under Commonhold and Leasehold Reform Act 2002, section 168(4) that the lessee was in breach of the lease. The specialist property court, First Tier Tribunal, held that paragraph 4 was an unfair term under the 1999 regulations and was not binding (under 1999 Regulations, Regulation 8) on the lessee. The lessor successfully appealed to the Upper Tribunal who held that that the lessee had breached the lease. The appeal was successful on several grounds, including that the 1999 Regulations did not apply to the lease: ‘However regulation 4(2) provides that the regulations do not apply to contractual terms which reflect mandatory statutory provisions. The appellant was statutorily obliged to grant the new lease. The terms upon which the appellant was obliged to grant this new lease were provided for in sections 56 and 57. There was scope for some alteration in the terms of the new lease as compared to the existing lease, but the starting point was that the new lease was to be on the same terms as those in the existing lease subject to certain limited modifications. In these circumstances I conclude that regulation 4(2) is applicable and that the UTCCR do not apply to the contractual terms of the new lease.’68

4.34 On further appeal to the Court of Appeal from Upper Tribunal the appellant lessee argued that 1999 Regulations, Article  4(2) applied to paragraph  4 of the lease (that it was in effect a mandatory or statutory provision) was wrong because: ‘… that [such a] finding cuts across the high level of protection established by UTCCR, misunderstands the rationale of reg 4(2) while extending its scope, and confuses the mechanism by which the lease was extended in 2012 with the source of the provisions of the 2012 lease. In contrast to specific terms in consumer contracts which may be inserted as a direct result of a statutory requirement, it is argued that the terms of the original 1978 lease neither reflected any mandatory statutory provision, nor arose from any legislative consideration or imposition.’69

The main point of the appellant lessor’s submission was that while the new lease (and its provisions):

Roundlistic Limited v Jones and another [2016] UKUT 325 (LC), [101].

68

Roundlistic Limited v Jones and another [2018] EWCA Civ 2284, [21]. The appellant lessee also relied on Chitty on Contracts; what is now the 33rd edn, (Sweet and Maxwell, 2020) 38.328: ‘It is submitted, however, that this decision extends the scope of application of reg.4(2) beyond the likely interpretation by the Court of Justice of the EU of art.1(2) of the 1993 Directive which reg.4(2) implements art.1(2) is to be strictly construed and there is a difference between contract terms required by legislation itself (where “it may legitimately be supposed that the national legislature struck a balance between all the rights and obligations of the parties to certain contracts”) and contract terms which reflect an earlier contract between the parties whose content has not been the object of any legislative consideration or imposition’.

69

275

Chapter 4  Unfair terms in consumer contracts ‘ …arose from the operation of the right to extend under the LRHUDA, the source of the term was the original 1978 lease which did not have any statutory origin’.70

4.35 The respondent lessor argued that paragraph 4 of the first Schedule to the lease was within 1999 Regulations, Article 4(2) once consideration was made of the 1993 Directive, Article 1(2) and recital 13 and: •

although the appellant lessee’s case was supported by the first 2 clauses in recital 13;71 but

• that the final clause of 1993 Directive, recital 1372 did not support the appellant lessee’s cases because: ‘in providing that the phrase “mandatory statutory or regulatory provisions” also covers rules which, according to the law, will apply between the contracting parties provided no other arrangements have been established. The Respondent [lessor]’s case is that the extension of the lease under LRHUDA is precisely the circumstance covered by the third clause of Recital 13’.73

4.36 In the Court of Appeal, Mcfarlane LJ agreed with the Upper Tribunal’s judge’s conclusion (as quoted above) that the 1993 Directive does not apply and that the circumstances of the case fell within the situation set out in the final clause of 1993 Directive, recital 13: ‘…although, the primary focus of reg 4(2) may be upon specific terms in consumer contracts for which the source of the text is directly drawn from legislation, as the final clause in recital 13 demonstrates, the EC Directive, and therefore the domestic legislation, are to be construed more widely as including rules which, according to the law, must apply between contracting parties provided no other arrangements have been established.’74

Mcfarlane LJ also noted that the process for extending the lease was driven by the lessee (as a consumer) who also did not ask for a variation of paragraph 4, and that the relevant Act imposed: ‘mandatory requirement on the lessor to extend the lease on the same terms as the existing lease if the tenant complied with the detailed notice procedure’.75

Roundlistic Limited v Jones and another [2018] EWCA Civ 2284, [23].

70

That is: ‘‘Whereas the statutory or regulatory provisions of the Member States which directly or indirectly determine the terms of consumer contracts are presumed not to contain unfair terms; whereas, therefore, it does not appear to be necessary to subject the terms which reflect mandatory statutory or regulatory provisions and the principles or provisions of international conventions to which the Member States or the Community are party’.

71

That is: ‘whereas in that respect the wording ‘mandatory statutory or regulatory provisions’ in Article 1 (2) also covers rules which, according to the law, shall apply between the contracting parties provided that no other arrangements have been established’.

72

Roundlistic Limited v Jones and another [2018] EWCA Civ 2284, [28].

73

ibid, [32].

74

ibid, [33].

75

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4.37 The other judge (LJ Underhill) in the Court of Appeal who gave a reasoned judgment took an opposite view, focussing on the phrase found in 1993 Directive, Article  1(2) (and 1999 Regulations, Regulation 4(2)): ‘contractual terms which reflect mandatory statutory or regulatory provisions’ and asking whether the phrase: ‘…applies only to terms whose actual content is prescribed (albeit not necessarily word-for-word) by the legislation or regulations in question or whether it also covers cases like the present where, for idiosyncratic reasons, terms whose content was agreed by the parties are continued in effect as a result of a statutory mechanism.’76

4.38 This judge indicated that the phrase only covers terms where the contents are prescribed and was the ‘more natural reading simply as a matter of language’. The judge indicated that the words used could be capable of a wider interpretation, but what was of more importance was the policy underlying 1993 Directive, Article 1(2): ‘The reason why it is appropriate to exclude from the scope of the Directive terms reflecting “mandatory statutory or regulatory provisions” is that the legislator/ regulator must be taken to have given proper weight to consumer protection when prescribing a term to be included in the contract.’

relying on RWE Vertrieb AG v Verbraucherzentrale Nordrhein-Westfalen e.V.77 But the judge held that facts of in Jones and another v Roundlistic Ltd did not accord with a situation where: ‘[a]legislator/regulator must be taken to have given proper weight to consumer protection when prescribing a term to be included in the contract’

as Leasehold Reform, Housing, and Urban Development Act 1993, section 57(1): ‘…says nothing about the substance of the terms to be incorporated in the new lease: all that it mandates is that they should be the same as before.’

and that if a term was not fair before the lease extension that term would continue to be unfair following the extension and: ‘it does not make sense that it should become immune from the operation of the Act because of the fact – which is in the logical sense a mere accident – that the lease has been extended in the meantime.’78

4.39 LJ  Underhill disagreed with the Upper Tribunal judge’s reasoning in paragraph 101 quoted above in the interpretation of Leasehold Reform,

ibid, [39].

76

In particular para 28 of the judgment in the ECJ case: ‘As the Advocate General observes in point 47 of her Opinion, that exclusion of the application of the rules of Directive 93/13 is justified by the fact that, in the cases referred to in paragraphs 26 and 27 above, it may legitimately be supposed that the national legislature struck a balance between all the rights and obligations of the parties to certain contracts’.

77

Roundlistic Limited v Jones and another [2018] EWCA Civ 2284, [40], with the judge indicating that was the point being made by the passage from Chitty on Contracts quoted above at n 123 with which the judged agreed.

78

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Housing, and Urban Development Act 1993, section 57(1) which requires the incorporation of the terms of a previous lease as meaning that 1999 Regulation, 4(2) is engaged because: ‘That does not engage with the point that the statute does not prescribe the content of those terms’79

4.40 Although the appellant lessee was unsuccessful in their appeal as the Court of Appeal were able to dismiss their appeal on other grounds unrelated to the application of the 1999 Regulations, Regulation 4(2), the result is that the court provided two divergent views as to the meaning of that Regulation (and what is now CRA, section 73). In Baybut v Eccle Riggts Country Park Ltd80 the court held: • the 1999 Regulations were not confined specifically to express contract terms; but •

the 1999 Regulations do not apply to any type of implied term (as they are usually only implied by statute, the operation of law or to make a contract work), because by the nature of the need to imply a term in effect the term cannot be unfair: ‘However, it seems to me that before it can be concluded that the Regulations apply to implied terms as opposed to express terms (whether expressed orally or in writing), it is necessary to remember the basis on which terms are implied. Terms can be implied first by operation of law. It would be surprising if a term implied on this basis could nevertheless be ruled unfair as being “… contrary to the requirements of good faith…” or causing “ … a significant imbalance in the parties rights and obligations arising under the contract, to the detriment of the consumer “. Clause 4(2) excludes from the scope of the Regulations terms which reflect mandatory statutory provisions. Thus, it could be said that only terms implied by operation of statute or regulation or international convention are excluded from consideration but not terms implied by the common law. Aside from implication as a matter of law, such terms are implied first in order to make contracts work by filling a technical lacuna in the contract. It is difficult to see how such a term supplied by implication could ever satisfy the test of unfairness established by Regulation 5. Secondly, terms are implied at common law in order to give effect to the obvious common but unspoken intention of the parties. Again, it is difficult to see how such a term could ever be unfair within the definition of that term in Regulation 5.’81

4.41 Concerning 1999 Regulations, Regulation 4(2) and a term which reflects ‘mandatory statutory provisions’ an implied term by the CRA (that goods are satisfactory quality for example) does not specifically specify the precise wording necessary, but it possible to argue that in the event of a court

[2018] EWCA Civ 2284, [2018] All ER (D) 97 (Oct), [41]. Emphasis in the judgment.

79

[2006] All ER (D) 161 (Nov).

80

ibid, [22].

81

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needing to do so, it could just use the wording from the CRA itself which, it is possible to argue, amounts to the same thing. In effect the difference between the judges was whether 1999 Regulations, Article 4(2) required the wording of the lease to be specified by legislation or whether a more interpretative approach was possible.

Key definitions 4.42 One of the policy objectives of the CRA was to provide a greater level of consistency in the meaning of certain defined words among legislative measures concerning consumers. The most relevant (‘consumer’, ‘trader’ and ‘consumer notice’) are considered in this section.

‘Consumer’ 4.43

A ‘consumer’ for the CRA means:

‘an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession.’82The express limitation of ‘consumers’ to an “individual” under CRA (and the removal of provisions relating to a consumer in UCTA) contrasts with the approach which has been taken to the question of who “deals as consumer” under UCTA, prior to the bringing into force of the CRA. Under UCTA a “consumer” could have encompassed a company in certain circumstances.83 The definition in UCTA had been out of step with the definition used, with some consistency, in EU legislation – that a consumer can only be a “natural” person.

The definition of a consumer in the CRA follows that of the 1999 Regulations and the 1993 Directive84 except with one difference. Under those two legislative measures a consumer was defined as: ‘[a] natural person who … is acting for purposes which are outside his trade, business or profession.’

CRA, s 2(3). Applied to Part 2 by s 76(2).

82

R & B Customs Brokers Co Ltd v United Dominion Trust [1988] 1 WLR 321. See p 148 of the previous edition.

83

Which both state that a consumer ‘means any natural person who, in contracts covered by this [Directive][Regulation], is acting for purposes which are outside his trade, business or profession’: 1999 Regulation, reg 3(1); 1993 Directive, Art 2(b). Other EU measures also use basically the same definition: The Rome Convention on the Law Applicable to Contractual Obligations 1980 (see the Guiliano and Lagarde report [1980]  OJ C282/1, 23, 25), the Consumer Credit Directive (Council Directive 87/102/EEC for the approximation of the laws, regulations and administrative provisions of the member states concerning consumer credit), the Doorstep Selling Directive (Council Directive 85/577/EEC to protect the consumer in respect of contracts negotiated away from business premises). Brussels Convention on the Jurisdiction and the Enforcement of Foreign Judgments in Civil and Commercial Matters, 1968. Bertrand v Ott case 150/77 ECR 1431; Shearson Lehmann Hutton Inc v TVB Treuhandelgesselschaft fur Vermogensverwaltung und Beteilungen mbH Case 89/91 [1993] ECR I-139. See further below.

84

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But for the CRA, the definition of consumer adds that the purpose of the individual has to be ‘wholly or mainly’ outside her or his trade, business, etc. 4.44 It is possible to argue that the version of the definitions used in the 1993 Directive, and repeated in the 1999 Regulations, would not permit any act of an individual which is for any non-consumer purpose to have the protection of consumer legislation – however small. And ECJ case law has only allowed, in broad terms, a person to have the benefit of consumer legislation where any non-consumer use or activity was negligible.85 The Law Commission had considered that this was ‘too narrow’ as, in effect, it did not reflect the reality that individuals who have obtained a good or services mainly for non-business use occasionally have to, or choose to, use them for business.86 The Law Commission also recommended that any new legislation on consumer matters should follow the definition of a consumer used in the Consumer Insurance (Disclosure and Representations) Bill (at the time before parliament) that: ‘an individual who enters into the contract wholly or mainly for purposes unrelated to the individual’s trade business or profession.87’

4.45 The use of this definition and, in particular, of the phrase ‘wholly or mainly’ has been followed in other consumer legislation, including the 2013 Regulations and CRA itself (as stated at the top of this section). The Law Commission 2013 Report also expressed a similar concern that: ‘many consumers occasionally use products such as mobile phone or home computers for work purposes. We thought that a consumer buying a mobile phone mainly for recreational purposes should not be stripped of protection simply because they intended to use the phone for some occasional work calls.’88

The definition of ‘consumer’ in the CRA, in following in the main that of 1993 Directive and 1999 Regulations, focuses on a consumer being a natural person and not any type of incorporated organisation. That is the definition, besides not covering any activity of an individual whose main purpose is for business, would also not cover any type of incorporated organisation89 buying goods or services for non-business purposes.90

For example, Gruber v Bay Wa AG, C-464/01.

85

Law Commission. Consumer Redress for Misleading and Aggressive Practices, 2013, 6.11.

86

Clause 1(a) of the Bill.

87

Law Commission Report 2013, para 7.100. The Explanatory Notes (at para 36) provides some practical examples: ‘This means, for example, that a person who buys a kettle for their home, works from home one day a week and uses it on the days when working from home would still be a consumer. Conversely a sole trader that operates from a private dwelling who buys a printer of which 95% of the use is for the purposes of the business, is not likely to be held to be a consumer …’.

88

Such as a company made up of individuals – even if the company is set up or run for a noncommercial purpose.

89

See Explanatory Notes, para 36.

90

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4.46 Neither the definition of ‘consumer’ nor other provisions of the CRA provide further information whether all the acts carried out for an individual’s trade, business, craft or profession fall outside or within the meaning of a consumer. According to the Law Commission the government should have clarified the definition of a consumer so that an individual is a consumer who: ‘seeks to receive goods or services with a view to carrying on a business but not in the course of a current business.’91

However, this point was seen in the context of an earlier Law Commission report, and the concerns of the predecessor (OFT) to the CMA about particular types of exploitative schemes targeted at persons who are wishing to enter into business but are not yet actually trading as a business.92 4.47 The definition of consumer does not encompass the type of distinction drawn under UCTA (when it applied to consumers prior to the bringing into force of CRA) between contracts ‘integral’ to a business and those merely ‘incidental’ to it. ‘Incidental’ contracts only being regarded as made in the course of a business if they are regularly occurring.93 Rather what matters is: •

whether the contract is to satisfy ‘requirements other than the family or personal requirements of a trader’94; or

•

‘for the purpose of satisfying an individual’s own needs in terms of private consumption’.95

4.48 In a series of cases the ECJ (together with some UK case law) has drawn the limits between the activities of a person which would make them a consumer and those which would not. The following section is based on cases which occurred before the bringing into force of the CRA, but still provide some useful insight. In Patrice Di Pinto the ECJ refused to draw a distinction between the ‘normal acts’ of a business and those which are ‘exceptional in nature’96 and the point has been made as to:

Law Commission Report, para 7.109.

91

The OFT was concerned about individuals entering into training contracts for model agencies, home-working schemes (where upfront fees are unlikely to be recovered from amounts received) etc, and those types of contracts should be considered as consumer contracts. The Law Commission agreed ‘since those people are still consumers at the time of entering into a contract and they have “the vulnerabilities characteristic of consumers”’ (Law Commission Report, para 7.105).

92

Under the approach taken in R & B Customs Brokers Co Ltd v United Dominion Trust [1988] 1  WLR  321 a business may deal as consumer in relation to a transaction which is merely incidental to the business provided it is not a transaction which occurs regularly. This can be subject to considerable criticism. See p 155.

93

Patrice di Pinto: Case C-361/89 [1991] ECR I-1189.

94

Benincasa v Dentalkit [1997] ECR I-3767.

95

Patrice di Pinto: Case C-361/89 [1991] ECR I-1189.

96

281

Chapter 4  Unfair terms in consumer contracts ‘[the] absurdity of a major trader claiming the protection afforded to a consumer whenever he stepped out of his habitual line of business’.97

Di Pinto was concerned with a contract to advertise the sale of a business and the scope of protection of the Doorstep Selling Directive.98 The line taken was that it was irrelevant that acts bringing the running of the business to an end would not be part of its normal trade, what mattered was that they were: ‘managerial acts performed for the purposes of satisfying requirements other than the family or personal requirements of the trader’.99

4.49

This broader point is reflected in subsequent cases.

In Benincasa v Dentalkit100 what was in question was a franchise agreement for the opening and operation of a shop. Mr Benincasa contended that when he made the franchise agreement, he was not carrying on a business, although he intended to thereafter. He argued, unsuccessfully, that he was a consumer for the purposes of Article 13 of the Brussels Convention on the Jurisdiction and Enforcement of Foreign Judgements 1968. The ECJ stated: ‘[16] … in order to determine whether a person has the capacity of a consumer, a concept which must be strictly construed, reference must be made to the position of the person concerned in a particular contract, having regard to the nature and aim of that contract, and not to the subjective situation of the person concerned. As the Advocate General rightly observed in point 38 of his Opinion, the self-same person may be regarded as a consumer in relation to certain transactions and as an economic operator in relation to others. [17]. Consequently, only contracts concluded for the purpose of satisfying an individual’s own needs in terms of private consumption come under the provisions designed to protect the consumer as the party deemed to be the weaker party economically. The specific protection sought to be afforded by those provisions is unwarranted in the case of contracts for the purpose of trade or professional activity, even if that activity is only planned for the future, since the fact that an activity is in the nature of a future activity does not divest it in any way of its trade or professional character.’

Di Pinto and Benincasa respectively make the point that contracts related to the termination or start up of a business will not be consumer contracts. Moreover, in those situations and more generally, what matters is whether the contract is •

to satisfy ‘requirements other than the family or personal requirements of a trader’101 or

Prostar Management Ltd v Twaddle [2003] SLT (Sh Ct) 11 at [12].

97

Council Directive 85/577/EEC to protect the consumer in respect of contracts concluded away from business premises, now replaced by the 2011 Directive.

98

[1991] ECR I-1189 at [16].

99

[1997] ECR I-3767.

100

Di Pinto see above quote.

101

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• is ‘for the purpose of satisfying an individual’s own needs in terms of private consumption’,102 and the indication in Benincasa of a generally restrictive approach to the scope of the definition of consumer should be noted. 4.50 Outside of the context of termination or start up, the question may arise more broadly as to whether an individual is carrying on any ‘trade, business or profession’. In Prostar Management Ltd v Twaddle103 it arose in the context of a ‘management contract’ under which a professional footballer appointed Prostar: ‘to act on his behalf “in relation to the negotiation and/or management of any business relating in any way whatsoever” to his career and related activities as a professional football player, including: “(a) any contractual negotiations with the [footballer’s] existing or potential future employer, and (b) the commercial exploitation of the [footballer’s] identity and profile whether by way of promotional or sponsorship contracts or otherwise”’.

The issue whether the footballer had been a consumer when entering into the contract arose in relation to the application of the Brussels Convention and also the then in force 1999 Regulations, which was not treated as a separate issue. The footballer argued that he was an employee of a football club and did not have a trade or profession. The judge took the view that the footballer had the trade or profession of ‘professional footballer’. He was: ‘effectively in the position of a sole trader, and the engagement of an agent to “exploit the identity and profile” of a sole trader [could] hardly be equiparated to that of an individual obtaining employment’.104

4.51 More generally, the judge also noted the view in Benincasa that ‘the concept of “consumer” must be strictly construed’105 (see quote above) and so rejected the argument that ‘the terms trade or profession each have a narrow or specialised meaning’.106 The question may also arise as to whether an individual, who clearly has a trade or profession which is not related to the relevant transaction, has a secondary trade or profession within the purposes of which that transaction falls. Standard Bank London Ltd v Apostolakis (No  1)107 was concerned with a series of foreign exchange transactions entered into by a Greek couple (a civil engineer and a lawyer) with a bank under an umbrella agreement. The Benincasa see above quote.

102

[2003] SLT (Sh Ct) 11.

103

ibid, [13].

104

ibid, [14].

105

ibid.

106

[2002] CLC 933. In Maple Leaf Macro Volatility Master Fund and another v Rouvroy and another [2009] EWHC 257 (Comm), [207] the judge questioned the conclusion reached by Longmore J and noted that the Greek courts had disagreed with Longmore, J and viewed the activities of the defendants as entrepreneurial.

107

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agreement contained an exclusive jurisdiction clause in favour of the English courts. The Greek couple commenced an action in the Greek courts and the bank started an action in England for an injunction to restrain the Greek proceedings. The issue arose as to whether the couple were consumers for the purposes of the Brussels Convention and the 1999 Regulations. Longmore J held that they were consumers for the purposes of art 13 of the Convention and therefore could take action in Greece. (Subsequently, Steele J assumed they were consumers for the purposes of the 1999 Regulations and also held the exclusive jurisdiction clause ineffective as unfair.108) Longmore J  took the line that making foreign exchange contracts was outside the professions of either a civil engineer or a lawyer and further concluded that they were not, outside of those professions, ‘engaging in the trade of foreign exchange contracts’ as such. He made the point that ‘they were disposing of money which they had available. They were using money in a way which they hoped would be profitable, but merely to use money in a way one hopes would be profitable, is not enough … to be engaging in trade’.109

4.52 In Overy v Paypal (Europe) Ltd110 a professional photographer had set up a business account with Paypal and used that account for money received from his work. He also used that account for payments received from an online competition in connection with the sale of his house. The court applied the ECJ case law and came ‘to the conclusion that the competition was not an adventure in the nature of trade’ but the account was opened for the purpose of his business and: ‘175 …too that extent, therefore, when he entered into the contract with Paypal … he was not acting for purposes which were outside his trade, business or profession. Furthermore, in my judgment, that purpose could not reasonably be regarded as one which was insignificant or negligible…. Accordingly, in view of the principles which I  have attempted to summarise earlier in this judgment, he was not entitled to the protection of the 1999 Regulations. 176. …. I am quite satisfied that this is a case in which he would be disentitled from relying upon the 1999 Regulations, even if his purpose had in fact been wholly outside his trade, business or profession. In my judgment, by the nature of the application which he made to Paypal online and the information which he provided in so doing, he clearly conducted himself in such a way as to lead to the obvious conclusion that he was acting in his trade or professional capacity….’111

Standard Bank London Ltd v Apostolakis (No 2) [2002] CLC 939. See para 4.180.

108

[2002] CLC 933 at 937.

109

[2012] EWHC 2659 (QB).

110

See also Ashfaq v International Insurance Company of Hannover plc [2017] EWCA Civ 357 where the appellant obtained insurance for a house let to tenants as part of his business of letting property. The insurance he obtained from the defendant was business insurance rather than domestic insurance and, unsurprisingly, he did not enter the insurance contract as a consumer in the circumstances.

111

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Mixed use 4.53 Another issue arising in relation to the scope of the consumer categorisation is that of mixed transactions where, for example, goods are purchased partly for personal and partly for business purposes. Asking whether the contract is •

to satisfy ‘requirements other than the family or personal requirements of a trader’;112 or

•

‘for the purpose of satisfying an individual’s own needs in terms of private consumption’,113

might be seen as indicating that any intended business use would prevent any such mixed purchase from being made by a ‘consumer’. However, in the Guiliano-Lagarde report on the 1980 Rome Convention on the law applicable to contractual obligations (the Rome Convention), the view was taken that if an individual ‘acts partly within, partly outside his trade or profession, the situation only’ falls within the definition of consumer ‘if he acts primarily outside his trade or profession’.114 In Johann Gruber v Bay Wa AG115 the ECJ decided that a person who concluded a contract partly for use within his trade or profession and partly without: ‘…may not rely on the special rules of jurisdiction laid down in Articles 13 to 15 of the Convention, unless the trade or professional purpose is so limited as to be negligible in the overall context of the supply, the fact that the private element is predominant being irrelevant in that respect’.116

4.54 The approach of the ECJ was restrictive as to when a person can rely on consumer legislation or provisions in legislation when her or his activity relates to some extent to their trade or professional purposes and needs to be contrasted with the 2011 Directive. The 2011 Directive used a definition of consumer almost identical to that found in the 1993 Regulation but at recital 17 stated: ‘The definition of consumer should cover natural persons who are acting outside their trade, business, craft or profession. However, in the case of dual purpose contracts, where the contract is concluded for purposes partly within and partly outside the person’s trade and the trade purpose is so limited as not to be predominant in the overall context of the contract, that person should also be considered as a consumer.’

4.55 Although this recital is intended for the purposes of the 2011 Directive it indicated a wider approach to when a person can take advantage Di Pinto see above quote.

112

Benincasa see above quote.

113

Guiliano-Lagarde Report on the Convention on the Law Applicable to Contractual Obligations (The Rome Convention) [1980] OJ C 282/1.

114

C-464/01.

115

Case C-464/01 Johann Gruber v Bay Wa AG, para 53. Emphasis added

116

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of consumer legislation when involved in non-consumer activities than under Gruber v Bay Wa AG (contrast ‘predominant’ to ‘negligible’ in the wording of the two). However, in the latter case of Schrems v Facebook Ireland Ltd,117 the ECJ recognised that: ‘…account must, in order to ensure compliance with the objectives pursued by the legislature of the European Union in the sphere of consumer contracts, and the consistency of EU law…’.118

in consideration of jurisdiction for consumers under articles 15 and 16 of the Brussels Regulation. However, where a person was involved in both consumer and non-activities the ECJ explicitly followed Gruber v Bay Wa AG: ‘As regards, more particularly, a person who concludes a contract for a purpose which is partly concerned with his trade or profession and is therefore only partly outside it, the Court has held that he could rely on those provisions only if the link between the contract and the trade or profession of the person concerned was so slight as to be marginal and, therefore, had only a negligible role in the context of the supply in respect of which the contract was concluded, considered in its entirety.’119

‘Trader’ 4.56 A ‘trader’: ‘means a person acting for purposes relating to that person’s trade, business, craft or profession, whether acting personally or through another person acting in the trader’s name or on the trader’s behalf’.120

and includes within the meaning of a ‘business’: ‘the activities of any government department or local or public authority’.121 The definition has changed over that in the 1999 Regulations,122 and points to note (other than the change in name from ‘seller or supplier’ to ‘trader’) include: •

the definition is now more consistent with that found in the 1993 Directive;

• that an aim of the CRA was to ensure consistency of definitions among UK legislation such as the 2008 Regulations and 2013 Regulations;

C-498/16.

117

C-498/16, para 28.

118

C-498/16, para 32.

119

CRA, s 2(2).

120

CRA, s 2(7).

121

1999 Regulations, reg 3(1): ‘“seller or supplier” means any natural or legal person who sells goods and who, in contracts covered by these Regulations, is acting for purposes relating to his trade, business or profession whether publicly owned or privately owned’.

122

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•

that the definition departs from that in the 1993 Directive to make it clear that a trader remains liable under a contract with a consumer, where the trader acts through another person (such as a sub-contractor): ‘[The definition of a trader] makes clear that a trader acting through another person acting in the trader’s name or on the trader’s behalf, for example a trader which subcontracts part of a building contract or a company for which the employees make contracts with customers, is liable for proper performance of the contract.’123

4.57 The reference to ‘purposes relating to that person’s trade, business, craft or profession’ would seem to indicate a broad approach to whether someone is a ‘trader’.124 Certainly ‘relating to’ does not seem to indicate that a strong connection with the business is required and nor does it appear that a trader in trading or providing goods and services: •

has to do so for a profit; or

•

has to adopt any particular legal structure125.

The definition would appear to encompass charities and other not-for-profit organisations (co-operatives, mutuals) if they sell goods.126 4.58 On the meaning of ‘business’ generally see para 3.11. The predecessor to the CMA (OFT) made the point that clubs wholly controlled by their members ‘arguably’ do not fall within then in force 1999 Regulations, ‘since it may not be possible to distinguish consumers from suppliers’.127

Obviously, that exclusion from the 1999 Regulations did not arise ‘in the case of a club which is run for profit by a commercial venture’, but the OFT had to consider a hybrid case. However, as: ‘…in its capacity as general manager’ a company controlled ‘certain aspects of the running of the club, including the financial and other terms of the membership agreement, the view was taken that such terms were therefore subject to the Regulations’.128

Does CRA only cover consumer contracts where the consumer is the recipient of a supply of goods, digital content or services?

Explanatory Notes, para 35.

123

For example, in Case C‑537/13 – Siba v Devėna (concerning the Consumer Contracts Directive) where the whether the trader was engaged in public or private of what was being provided by a trader would not determine whether that Directive applied; Case C-59/12 – BKK Mobil Oil Körperschaft des öffentlichen Rechts v Zentrale zur Bekämpfung unlauteren Wettbewerbs eV (concerning the Unfair Commercial Practices Directive (implemented into UK law as Consumer Protection from Unfair Trading Regulations 2008 as amended in 2014)).

124

Case C-59/12 – BKK  Mobil Oil Körperschaft des öffentlichen Rechts v Zentrale zur Bekämpfung unlauteren Wettbewerbs eV, para 26.

125

Explanatory Notes, para 35.

126

Office of Fair Trading Bulletin 5 at 18 (American Golf (UK) Ltd).

127

ibid.

128

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4.59 One issue which arises here is whether the references to a ‘trader’ mean that the consumer must, in some sense, be the recipient of a supply if the contract is to fall within CRA. The question may arise, for example, as to the application of the CRA to a contract of guarantee when a guarantee is being provided by a consumer to a business lender so that a loan will be made to a third party. Other language versions of the 1993 Directive use more neutral terminology than seller or supplier (now trader in CRA), merely making it clear that the relevant party must be in business.129 Further, it has been argued that the 1993 Directive can apply to consumers ‘who supply persons acting in the course of business’ (rather than only the other way around).130 In a recent case the ECJ indicated that 1993 Directive applied to all contracts, not just contracts involving the supply of goods and services to consumers.131 The case noted that the purpose of a contract is ‘irrelevant in determining the scope of the [1993 Directive]’ and that: ‘It is therefore by reference to the capacity of the contracting parties, according to whether or not they are acting for purposes relating to their trade, business or profession, that the directive defines the contracts to which it applies…’132

In this case the issue was whether a natural person could be a consumer where they secured: ‘the contractual obligations owed by a commercial company to a banking institution under a credit agreement’133

with the ECJ concluding that the 1993 Directive can apply to such a situation where the natural person has: ‘acted outside his trade, business or profession and has no link of a functional nature with that company’.

4.60 In the case before the UK courts, Harvey v Dunbar Assets plc134 the court was prepared to assume (without having to decide) that the 1999 Regulations (now the CRA) would: ‘…apply to a case where an individual guarantees the debt of a company, provided that the individual is not connected to the company and has been acting for purposes outside his business, trade or profession.’

S Bright ‘Winning the Battle Against Unfair Terms’ (2000) 20 LS 331 at 341.

129

Chitty on Contracts, 33rd edn (Sweet and Maxwell, 2020) para 38-226.

130

Dumitru Tarcău, Ileana Tarcău v Banca Comercială Intesa Sanpaolo România SA and Others, C‑74/15.

131

ibid, para 23.

132

ibid, para 26. The ECJ described it as ancillary to the principal contract which gave rise to the debt it secures, but from ‘from the point of view of the contracting parties it presents itself as a distinct contract, as it is concluded between persons other than the parties to the principal contract. It is therefore as parties to the contract providing security or contract of guarantee that the capacity in which those parties acted must be assessed’. The principal credit agreement was between the bank and a commercial company (SC Crisco SRL) and one of the claimants was the sole shareholder and director.

133

[2017] EWCA Civ 60, [69].

134

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In this case, the appellant had, under a deed of guarantee, guaranteed the liabilities of a company to a bank. He had lent £40,000 to the company for which in return he would receive a share of the profits concerning the development of land and would then be repaid the loan. He decided shortly after making the loan he no longer wished to be involved with the development and was repaid the £40,000. Subsequently he was persuaded to act as a guarantor (with others) for a loan the bank would make to the company. It appeared that the appellant would become a shareholder in the company, but this did not materialise. The court rejected the appellant’s argument he was a consumer because:135 •

he had lent £40,000 to the company in return for a share of the profits;

•

although the loan had been repaid, and the appellant’s involvement with the company had ceased – this had established a connection with the company;

•

the appellant was acting in the course of business when he agreed to be a party to the guarantee;

• the appellant had ‘expressly disclaimed any motives of friendship or family ties as being the reason for his participation’; • that because the appellant was not provided or promised ‘any payment or other benefit or any consideration at all in return for the guarantee’ was not enough to dispel ‘the conclusion that he was acting in a business capacity’. Even if it was assumed that the appellant was not receiving any payment or benefit it did not meet the point that the appellant ‘must have expected some kind of business benefit, however intangible, to accrue to him from his agreement to sign the Guarantee’. 4.61 The above, recent, cases support the earlier view of the European Commission that: ‘although contracts for the sale of products or the provision of services are those most frequently concluded between professionals and consumers, the Directive also covers other contracts such as contracts pertaining to guarantees for the benefit of a financial institution or even cases in which the consumers themselves are sellers provided the buyer is acting in the course of a business’.136

Issues may arise as to the whether a particular contract, or type of contract, was made by a public authority as a ‘trader’ under CRA. In London Borough

Harvey v Dunbar Assets plc, [2017] EWCA Civ 60, [70].

135

European Commission ‘Report on Directive 93/13/EEC on Unfair Terms in Consumer Contracts’ Com (2000) 248 final at p 8, fn 19.

136

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of Newham v Khatun137 three questions arose concerning this. The case was concerned with application of the then in force 1999 Regulations to the provision of accommodation by a local authority under its responsibility to homeless persons provided for by Part VII of the Housing Act 1996. 4.62 The first question was simply whether the local authority could be (in the terminology of the 1999 Regulations of) a ‘seller or supplier’. That was very simply disposed of. The definition of seller or supplier in the 1993 Regulations and the 1993 Directive specifically encompasses a business ‘whether publicly owned or privately owned’. That, coupled with other references to public bodies in the recitals to the 1993 Directive,138 meant that the court viewed it as ‘plain beyond doubt that the Council is not taken out of the Directive’s scope by reason only of the fact that it is a public or governmental body’.139

The court identified the second question as the ‘true question’ or real issue and which was more significant. There was consideration of whether the ‘Council’s Part VII functions fell within the meaning of “trade, business or profession”’.140 The Court of Appeal adopted the functional approach used in relation to such an issue in the context of European competition rules. The court referred to the line drawn from that case law by Advocate General Jacobs in Albany International141 that: ‘214. … The rationale underlying those cases is that the entities under scrutiny are fulfilling the “function” of an undertaking. The application of arts 85 and 86 [sc. of the Treaty] is justified by the fact that those public bodies or individuals are operating on the same or similar markets and according to similar principles as “normal” undertakings’.

4.63 Basically, what mattered was seen to be whether the function being performed by the public body was one which was performed by private sector businesses. In relation to the Council’s relevant activities under the Housing Act 1996, this led to the conclusion that ‘the Part VII functions centrally involve the grant of a tenancy for rent’ and that that was ‘obviously “an activity which could be carried on by a private undertaking”’.142

The third question was one of the fulfilment of the public policy of the domestic statutory scheme and its interaction with the 1999 Regulations and the 1993 Directive. The court dismissed any idea that, in this context, the Council should not be regarded as a ‘seller or supplier’ for the purposes of the 1999 Regulations on the basis that

[2004] EWCA Civ 55, [2004] 3 WLR 417. See Shaftsbury House (Developments) Limited v Kelly Fernandez Lee [2010] EWHC 1484 (Ch), [54], Rochdale BC v Dixon [2011] EWCA Civ 1173.

137

Recitals 14, 16.

138

[2004] 3 WLR 417, [88].

139

ibid, [88].

140

[1999] ECR I-5751.

141

[2004] 3 WLR 417, [89].

142

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Chapter 4  Unfair terms in consumer contracts ‘the public interest in the integrity of the domestic statutory scheme … would be undermined by the application of the Directive’s discipline’.

4.64 The court holding that the Part VII functions would not be undermined by a requirement of fair contractual terms, but rather assisted by it. However, clearly the court did not view the argument as one which could be dismissed automatically in relation to all statutory schemes under which a public body might operate and with which the 1999 Regulations might interact.143 It would seem that an issue of the proper implementation of the 1993 Directive could be raised by this final question, if a different conclusion was reached.

Consumer notice144 4.65 CRA, Part 2 also introduces a new definition of a ‘consumer notice’ which is a definition by inclusion, which means it includes: ‘an announcement, whether or not in writing, and any other communication or purported communication’.145

The provisions of CRA, Part 2 do not apply to every consumer notice just: ‘to the extent that it— (a) relates to rights or obligations as between a trader and a consumer, or (b) purports to exclude or restrict a trader’s liability to a consumer.’146

A  notice does not need to be specifically intended for, or to apply to, a consumer but what is necessary is that it will apply to a consumer where: ‘it is intended to be seen or heard by a consumer’.147

4.66 The wording of this definition does not require that there must be a contract between a consumer and a trader, as such, for CRA, Part 2 to apply. A  consumer notice will be caught whether it is a contract term or a noncontractual notice – as long as relates to the rights and obligations as between

The idea was raised by analogy with Poucet and Pistre [1993]  ECR  I-637 in the competition field.

143

For the CMA the introduction of the provisions relating to a consumer notice ‘does not represent a major change in the law’ (CMA Guidance, 1.21). It argues that its predecessor (OFT) believed that it was possible to argue that a notice was already covered by the 1999 Regulations as the later ‘considered (and acted on its view) that wording having the practical effect of a contract term was properly treated, for the purposes of giving effect to the Directive, as if it was in law a contract term.’ (CMA Guidance, fn 10, para 1.21). That a notice, prior to the CRA, would be covered under the 1999 Regulations or other legislation or general contract law, for example, a notice could be treated as an onerous provision and therefore would need to be sufficiently brought to the attention of the consumer in order for its to be binding on the consumer. For the latter point, see paras 1.49 and 1.62.

144

CRA, ss 61(7), (8).

145

CRA, s 61(4), and does not include notices which relate to the ‘rights, obligations or liabilities as between an employer and an employee’ (CRA, s 61(5)).

146

CRA, s 61(5).

147

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a trader and a consumer or purports to exclude or restrict the liability of a trader to a consumer so that: ‘… in a broad sense any wording directed by traders to consumers which has an effect comparable to that of a potentially unfair contract term is open to challenge in the same way a such a term. There is no need for technical legal arguments about whether a contract exists and whether, if it does, the wording under consideration forms part of it.’148

4.67 Notices of a traditional kinds are those which are put up in a shop or a car park or other public places which see to exclude or limit the liability of the trader. A traditional type of notice might be where a trader who runs a car park puts up a notice in the car park to say it is not liable for any damage caused to a consumer’s car while parked in the car park. Notices of a more recent kind are those found, for example, relating to the new category to which the CRA now applies, digital content. This is often supplied alone or in connection with physical products and the use of the digital content is often subject to End User Licence Agreements (EULA). It sometimes not clear whether there is a contract between the supplier of the digital content and the consumer. For example, a consumer may purchase a new mobile phone which comes with the manufacturer’s operating system, and for the consumer to use the phone s/ he has to accept a licence agreement. There may be also third party software installed all which may come with their own EULAs. For the CMA: ‘For legal purposes the terms of the EULAs may not in all cases be clearly part of the contract with the consumer. The effect of the [CRA] is to establish that, even if they are not, they are still assessable for fairness and transparency as consumer notices.’149

4.68 The tests of fairness and transparency apply in almost equal terms to both contract terms and consumer notices (although expressed in different sections of the CRA). However, the indicative and non-exhaustive list of terms of consumer contracts (grey list) and the core exemptions apply only to contract terms. However, for the CMA the grey list applies equally to consumer notices as: ‘Since the fairness and transparency tests under [CRA] apply to terms and consumer notices in largely the same way, the CMA considers that the indicative list of the types of terms that may be regarded as unfair […] also serves to illustrate the forms that unfairness can take in non-contractual notices.’150

Terms not individually negotiated 4.69 Under the 1999 Regulations the fairness test only applied to terms which have ‘not been individually negotiated’.151 The CRA has removed this CMA Guidance, 1.20.

148

CMA Guidance, 1.23.

149

CMA Guidance, 1.25. Emphasis in original.

150

1999 Regulations, reg 5(1): ‘a term shall always be regarded as not having been individually negotiated where it has been drafted in advance and the consumer has therefore not been able to influence the substance of the term’.

151

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Chapter 4  Unfair terms in consumer contracts

exception for terms which are individually negotiated from consideration as to whether they are unfair. Now all terms can be subject to consideration as to whether they are fair (other than ‘core terms’).152 The Law Commission Report 2013 argued for the removal of the exception in the following way: •

by accepting the evidence of Which? that: 



few contacts with consumers involve the parties negotiating the provisions of their contract; and those that are negotiated usually fall within the core exemption (concerning the main subject matter or the assessment of the appropriateness of the price paid in exchange for the goods, digital content or services supplied, in CRA, section 64);

• that removing the exception for individually negotiated provisions will only affect a small number of contracts (on the basis that most contracts that a consumer will enter with traders are standard form contracts on which the consumer cannot negotiate the terms); •

that the exception in the 1999 Regulations ‘encourge[d] “argument and litigation” over whether a term was individually negotiated’.153

The ‘core’ exemption 4.70 Under the CRA, the fairness test only applies, in effect to the ‘incidental’ or ‘subsidiary’ terms of the contract,154 as well as applying to other terms (including core terms), if they are not transparent and prominent. What are commonly referred to as the ‘core’ terms155 cannot form the subject matter of the fairness test, provided that they are ‘transparent and prominent’, with ‘transparent and prominent’ meaning156:

CRA, s 62(4).

152

As an example, the Law Commission Report 2013 referred to UK  Housing Alliance Ltd v Francis [2010] EWCA Civ 117, [2010] 3 All ER 519 where the court rejected the argument that having the opportunity to influence a term of a contract was sufficient to make the term individually negotiated. The previous edition of this book also discussed Bryen & Langely v Boston [2005] EWCA 973 and some of the difficulties in interpreting parts of 1999 Regulation, reg 5(1).

153

Director General of Fair Trading v First National Bank [2002] 1 All ER 97, [12], [34], and also at [12], accepting the distinction between terms ‘which express the substance of the bargain and “incidental” (if important) terms which surround them’.

154

Care should be taken with this commonly adopted label. In Director General of Fair Trading v First National Bank the Court of Appeal [2000] 2 All ER 759. [25], made the point that ‘the test in respect of the relevant term is not whether it can be called a “core term”, but whether it falls within one or both of paras (a) or (b)’.

155

CRA, 64(2).

156

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•

transparent meaning the term is in plain and intelligible language (and if the term is in writing than it is legible)157; and also

•

prominent meaning that ‘it is brought to the consumer’s attention in such a way that an average consumer would be aware of the term’.158

4.71

CRA, section 64(1) states:

‘(1) A term of a consumer contract may not be assessed for fairness under section 62 to the extent that— (a) it specifies the main subject matter of the contract, or (b) the assessment is of the appropriateness159 of the price payable under the contract by comparison with the goods, digital content or services supplied under it’.

This provision in the CRA is one of the few provisions which has undergone substantive revision compared to the equivalent provision in the 1999 Regulations, and will be the third time the wording has changed. In the 1999 Regulations the provision stated:160 ‘In so far as it is in plain intelligible language, the assessment of fairness of a term shall not relate – (a) to the definition of the main subject matter of the contract, or (b) to the adequacy of the price or remuneration, as against the goods or services sold or supplied’.

4.72 The 1999 Regulations followed fairly closely that of the 1993 Directive, Article 4(2) which states: ‘Assessment of the Unfair nature of terms shall relate neither to the definition of the main subject matter of the contract nor to the adequacy of price and remuneration on the one hand, as against the services or goods supplied in exchange, on the other in so far as those terms are in plain intelligible language’.

In addition, the 1993 Directive, Recital 19 states: ‘Whereas, for the purposes of this Directive, assessment of unfair character shall not be made of terms which describe the main subject matter of the contract nor the quality/price ratio of the goods or services supplied; whereas the main subject matter of the contract and the price/quality ratio may nevertheless be taken into account in assessing the fairness of other terms; whereas it follows, inter alia,

CRA, 64(3).

157

CRA, 64(4).

158

‘Appropriateness’ or ‘adequacy’ (as under the 1999 Regulations) has been interpreted as meaning ‘the amount of consideration or the price as stipulated in the contract are adequate’ (Case C‑143/13 – Bogdan Matei, Ioana Ofelia Matei v SC Volksbank România SA, para 56). See also Office of Fair Trading v Abbey National plc [2009] UKSC 6, [95].

159

1999 Regulations, reg  6(2). For the 1994 version of the Regulations the provision stated: ‘in so far as it is in plain intelligible language, no assessment shall be made of the fairness of any term which (a) defines the main subject matter of the contract, or (b) concerns the adequacy of the price or remuneration, as against the goods or services sold or supplied’ (1994 Regulations, reg 3(2)).

160

294

Chapter 4  Unfair terms in consumer contracts that in insurance contracts, the terms which clearly define or circumscribe the insured risk and the insurer’s liability shall not be subject to such assessment since these restrictions are taken into account in calculating the premium paid by the consumer’.

4.73 The previous edition of this book set out some of the issues relevant in the years shortly after the passing into UK law of the 1994 Regulations and then the 1999 Regulations, such as whether the meaning of the core exemptions related to differences between civil and common law systems as well as the views of the OFT (now the CMA) and how far the core exemption (as long as expressed in plain intelligible language) encroaches into the freedom of contract of the consumer. These points are not repeated in this edition, because there have been significant developments since the early 2000s. These include a new version of the core exemption, which results from the Law Commission Report 2013 which in turn partly resulted from the difficulties caused following the decisions in Director General of Fair Trading v First National Bank plc161 and Office of Fair Trading v Abbey National plc.162 There were differences in approach between the two cases (and also the difference in approach between the Court of Appeal and the Supreme Court in later case). Finally, there are ECJ cases of Kásler and Matei which do not accord with the reasoning in Office of Fair Trading v Abbey National plc. All of which has interpreted the core exemption in different ways. For this edition there is consideration of the judgments in Director General of Fair Trading v First National Bank plc, Office of Fair Trading v Abbey National, Kásler and Matei, and the current view of the CMA in its Guidance (which largely follows the decision of Kásler).

Use of ‘grey list’ 4.74 Prior to the CRA there was some ambiguity in the OFT’s approach to the ‘grey list’ and the question of the scope of the core exemption. There were indications that some assistance in determining the scope of the core exemption could be gained from consideration of the ‘grey list’ of terms which may be unfair; that is when a term falls within the ‘grey list’ it cannot be core.163 However, the approach was not uniform. The OFT had also clearly assumed that the application of the ‘grey list’ was subject to the ‘core exemption’.164 4.75 Whether the grey list terms are assessable for fairness and whether they fall within the exemption under 1999 Regulations, Regulation 6(2) was considered by the Law Commission Issues paper and 2013 report. The view

[2001] UKHL 52.

161

[2009] UKSC 6, [2010] 1 All ER 667

162

See, for example, Office of Fair Trading Bulletin 1 at 2.2; Bulletin 1 at 1.15.

163

Office of Fair Trading Bulletin 4 at 11.

164

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of the Law Commission of the 1993 Directive was ‘that a grey list term cannot also be an exempt term’ but that the issue was not beyond doubt.165 Also, some of the grey list terms could also amount to price terms or be the main subject matter of the contract for the purposes of 1993 Directive, Article 4(2).166 EU case law has also indicated that certain aspects relating to the price cannot excluded from consideration for fairness such as: ‘a term relating to a mechanism for amending the prices of the services provided to the consumer.’167

4.76 For the Supreme Court in Office of Fair Trading v Abbey National168 there was recognition that some payment provisions were not caught by 1999 Regulations, Regulation 6(2) and could be challenged for fairness if they: ‘do not relate to their appropriateness in amount as against the goods or services supplied in exchange’169

with the Supreme Court stating that 1999 Regulations, Schedule 2, (d), (e), (f) and (l) being in one or both categories.170 The Law Commission in its 2013 Report recommended that new legislation should: •

contain a specific provision that a term which is in the grey list would be always assessable for fairness (although it was likely that it was already the position in law);

•

state that the core exemption is made subject to the new provision.

4.77 The Law Commission did not agree with the OFT that there was a potential problem with implementing this proposal by specifically excluding the grey list terms from 1999 Regulation, Regulation 6(2), where the OFT stated: ‘This could be taken to mean that only terms, which precisely correspond with terms in the grey list fall outside the exemption. However, given the explicitly illustrative and non exhaustive nature of the grey list this cannot be the case. […] In any event, we think that such clarification is unnecessary, particularly if further terms are added to the list. It is obviously right and well-recognised judicially – expressly by the Supreme Court – that terms on the grey list are assessable for fairness.’171

The CRA implemented the Law Commission’s recommendation at CRA, section 64(6) so that this matter is now beyond doubt: ‘This section does not apply to a term of a contract listed in Part 1 of Schedule 2.’

Law Commission Report, 5.3.

165

For example, for price grey list terms: 1999 Regulations, Sch 2, paras 1(d), (e), (f), (l) (now in CRA, Sch 2, paras 4, 5, 7, 15 and with new terms 6 and 14).

166

Case C-472_10 – Nemzeti Fogyasztóvédelmi Hatóság v Invitel Távközlési Zrt, para 23.

167

[2009] UKSC 6.

168

Office of Fair Trading v Abbey National plc [2009] UKSC 6, [101].

169

ibid.

170

Law Commission Report 2013, 5.16, part of the OFT’s submission.

171

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Scope of the ‘core exemption’ 4.78 The issue with the core exemption is its precise scope, which could be very far reaching indeed, such as: •

Does the reference to price terms cover payments to be made on default?172

• Does it cover the situation where the amount to be paid is increased because of a situation other than default?173 •

Does the reference to definitional terms mean that the core covers ‘entire agreement’ clauses?174

•

Does it cover additional payments (renewal or sales commission) on the renewal of rental contracts or sales of properties) where no services are provided?175

•

What elements of a price are caught within the core exemption – just the amount or level of the price, or other elements too, such as the timing of payments, methods of payments?176

•

Does the price a consumer pay have to relate to a specific good or services that a trader provides?177

4.79 What about exclusion clauses? In form they can easily be seen as part of the definition of the obligations178 (and if their subject matter is central to the contract, as part of the definition of the main subject matter of the contract). Examples of questions are easy to find and show the problematic nature of the core exemption as stated. Plainly, if the unfair terms provisions in the CRA are to be effective, the ‘core exemption’ must be understood as much more limited than is immediately apparent on its face.

Director General of Fair Trading v First National Bank plc 4.80 The starting point for consideration of the scope of the ‘core exemption’ was the decision of the House of Lords in Director General of Fair Trading v First National Bank.179 The case concerned one of the bank’s terms in its standard form contract for lending money to borrowers through

Director General of Fair Trading v First National Bank [2002] 1 All ER 97.

172

Kindlance v Murphy (1997) Lexis, 12 December, Office of Fair Trading ‘Non Status Lending – Guidance for Lenders and Borrowers’ (revised November 1997) 192. Bairstow Eves v Smith [2004] EWHC 263; Falco Finance v Gough (1999) 17 Tr LR 526.

173

Office of Fair Trading Bulletin 1 at 2.2.

174

Office of Fair Trading v Foxtons [2009] EWHC 1618 (Ch).

175

Office of Fair Trading v Abbey National plc [2009] UKSC 6, [2010],

176

Case C-26_13 – Árpád Kásler, Hajnalka Káslerné Rábai v OTP Jelzálogbank Zrt.

177

See para 3.21.

178

[2002] 1 All ER 97.

179

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regulated agreements under the Consumer Credit Act 1974. The particular term allowed for the continuance of the contractual rate of interest after judgment for default. Without it, First National would no longer have a right to interest on the amount outstanding once it obtained a judgment; the contractual right to interest would have ‘merged’ with the judgment and, as judgment had to be sought in the county court, no interest could be awarded as what was in question was a regulated agreement.180 However, what caused the relevant term to be brought before the courts under then in force 1994 Regulations was that the county court would give judgment for First National Bank on the consumer’s default, and make an order allowing for repayment by instalments. The consumer would duly make those instalment payments and then face a shock when discovering that she or he still owed a considerable sum because, under the relevant contractual term, the contractual rate of interest had continued to be payable after the judgment. That interest could not be covered by the payments ordered by the court and the court had not, when making the order, considered whether to provide any relief from it. In relation to the relevant term, the issues were raised as to: •

whether it was ‘core’ and, if it was not:

•

whether it was ‘unfair’.

The latter point is dealt with below.181 Here the approach taken to the ‘core exemption’ will be addressed.182 4.81 The House of Lords held that the term was not a ‘core’ price term as it only dealt with money which was to be paid after default. However, the House of Lords commented more broadly on the scope of the core exemption, and the basic approach to be taken regarding it. Lord Bingham accepted the distinction between terms: ‘which express the substance of the bargain and “incidental” (if important) terms which surround them’183

and Lord Steyn thought that the clause in question was a ‘subsidiary’184 term and for the court it seemed that these limits apply to the ‘price’ element of

County Courts (Interest on Judgment Debts) Order 1991, SI 1991/1184.

180

See para 4.117.

181

The House of Lords was considering the then in force 1994 Regulations, rather than the 1999 version, that would not seem to be of significance to the points made here. Under the 1994 Regulations the ‘core exemption’ was dealt with in 1994 Regulations, reg 3(2) while the equivalent regulation in the 1999 Regulations, was reg 6(2).

182

Director General of Fair Trading v First National Bank plc [2001] UKHL 52, [ 12], referring to Chitty on Contracts, 28th edn, (Sweet & Maxwell,1999) 15-025. This wording is not repeated after the 31st edn.

183

Director General of Fair Trading v First National Bank plc [2001] UKHL 52, [34].

184

298

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the core (as well as obviously being applied to the definitional element, with its express reference to the ‘main’ subject matter of the contract). 4.82 Significantly, the court stated that a narrow approach should be taken to the scope of the ‘core exemption’. Lord Bingham said185: ‘The object of the Regulations and the Directive is to protect consumers against the inclusion of unfair and prejudicial terms in standard form contracts into which they enter, and that object would plainly be frustrated if reg 3(2)(b) were so broadly interpreted as to cover any terms other than those falling squarely within it’.

Similarly, Lord Steyn made the point that: ‘in a broad sense all terms of the contract are in some way related to the price or remuneration’186 and that a ‘restrictive interpretation’ needed to be taken to the whole of the ‘core’.

He also made the further point that187: ‘In any event, reg  3(2) must be given a restrictive interpretation. Unless that is done reg  3(2)(a) will enable the main purpose of the scheme to be frustrated by endless formalistic arguments as to whether a provision is a definitional or an exclusionary provision. Similarly, reg  3(2)(b) dealing with “the adequacy of the price of remuneration” must be given a restrictive interpretation’.

4.83 Prior to Office of Fair Trading v Abbey National plc188 the purpose of then in force 1999 Regulations was not to be frustrated a restrictive approach to the core exemption is necessary189 and that included the avoidance of ‘formalistic arguments’. Further consideration should be given to how that was to be achieved. A  key point to take here is Lord Steyn’s statement as to the avoidance of ‘endless formalistic arguments’. It is possible to argue that it is possible to distinguish exclusion clauses at a level beyond form if the perceptions of the parties are considered objectively and absent the artificialities which can be present in the way in which terms are incorporated or drafted.190 At the time of the House of Lords decision in Director General of Fair Trading v First National Bank plc is was necessary to examine when the scope of the ‘core exemption’ is in question whether the parties, objectively, would have perceived the term as being concerned with setting out the main obligations (including the price). It would be necessary to take account of such matters:

Director General of Fair Trading v First National Bank plc, [2001] UKHL 52, [12]. Lord Bingham’s comment only addresses reg  3(2)(b) (1999 Regulations, reg  6(2)(b), CRA, s  64(1)(b)) as such but the same point could be made in relation to s 3(2)(a) (1999 Regulations, reg 6(2) (b), CRA, s 64(1)(b)). See also Bairstow Eves v Smith [2004] EWHC 263, [25].

185

Director General of Fair Trading v First National Bank plc [2001] UKHL 52, [ 34].

186

ibid.

187

[2009] UKSC 6.

188

See also Bairstow Eves v Smith [2004] EWHC 263 at [25].

189

See para 3.53.

190

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•

as how the terms were made available to the consumer,

•

what the consumer was told about the obligations/price,

•

how clearly the terms are set out,

• whether the claimed ‘core’ term is with the other terms setting out the obligations/price. 4.84 It is possible to provide an illustration by the type of situation encountered in Anglo-Continental Holidays v Typaldos (London) Ltd.191 The clause in question stated: ‘Steamers, Sailing Dates, Rates and Itineraries are subject to change without notice’.

It is possible to see such a term as part of the definition of the ‘main’ subject matter of the contract as, on its face, that is what helps it to set the boundaries.192 (Rights to vary the performance generally could be regarded as part of the definition of the main subject matter of the contract.) However, the circumstances in which such clauses are used are unlikely to be such that, objectively, they would be perceived by the parties as definitional. They are unlikely to be placed prominently with the terms they qualify, or otherwise to be drawn sufficiently to a consumer’s attention to be perceived as part of the definition of the main subject matter of the contract. Such terms can normally be seen as outside the definition of the main obligations,193 but, of course, each case would depend upon the treatment of the particular term in the drafting and making of the contract. 4.85 Something of the above approach to the ‘core exemption’ may be seen in the line taken by the predecessor to the CMA (OFT).194 For example, the OFT had to consider a complaint by a consumer about an exclusion of liability under a mechanical breakdown insurance. The term excluded liability unless the vehicle received a partial service every 3000 miles and it appeared only on a sticker on the back of the policy. It was said of 1994 Regulations, reg 3(2), which then provided for the core exclusion: ‘Regulation 3(2) provides that terms which define the subject matter of the contract cannot be assessed for fairness, provided they are in plain intelligible language. The

[1967] 2 Lloyd’s Rep 61.

191

There is no assistance to be gained, in this context, from the approach to interpretation which has been taken to such clauses, ie that they should be read as confined by the main object of the contract. Such an approach to construction limits their legal effects but could be seen as also adding to the argument that they are part of the definition of the main subject matter of the contract.

192

See, eg, Office of Fair Trading Bulletin 1, cases 1 and 2.

193

Some of the OFT’s analysis would indicate that it is the content of the core which is being considered (see text below), whilst at other times what is being addressed is the restriction of the ‘core exemption’ to accessible terms in plain intelligible language (eg Office of Fair Trading Bulletin 4 at pp 11, 21). This is hardly surprising – the same type of factors will be addressed in looking at both issues.

194

300

Chapter 4  Unfair terms in consumer contracts conditions of a warranty are likely to come within this exemption unless they have not been properly drawn to the consumer’s attention. In our view, this exemption does not apply to terms which are hidden from the consumer’s view or if he has no chance to get to know the terms’.

4.86

In addition, the OFT had said195:

‘In our view, it would be difficult to claim that any term was a core term unless it was central to how consumers perceived the bargain. A supplier would surely find it hard to sustain the argument that a contract’s main subject matter was defined by a term which a consumer had been given no real chance to see and read before signing …’196

Further, insufficiently drawing terms to the consumer’s attention seems to have been viewed by the OFT as both putting the expiry date of gift vouchers outside the ‘core’ exclusion and indicating its unfairness.197 4.87 Significantly, something of the above approach to the ‘core’ was found in Bairstow Eves London Central v Smith.198 That case indicated an approach which looked to the parties’ perceptions of the contractual performance to identify the ‘core’. The case was concerned with an estate agent’s fees, which had, mistakenly, not been paid by the vendor’s solicitors at the time of the sale. The contract provided for a ‘standard commission rate’ of 3% and an ‘early payment discounted rate’ of 1.5%. The standard rate became payable if the estate agents were not paid at the ‘discounted rate’ within 10 days of the sale. The case concerned the application of 1999 Regulations to the term requiring 3% commission. The estate agents argued it was a core price term and so not subject to the fairness test. Gross J concluded that it was not a core term. He took the view that the core exemption would be: ‘unlikely to shield terms as to price escalation or default provisions from scrutiny’199

but thought that each case must depend upon the individual contract. In the instant case, he thought it ‘plain that both parties contemplated an agreed operative price of 1.5% with a default provision of 3%’200 and that was the construction of the contract. Plainly, the judge was looking to the parties’ perceptions of the clause to determine its role within the contract and whether it

The reference simply to the consumer’s perceptions arguably makes little difference to an objective assessment since the reasonable seller or supplier should take account of the artificialities affecting the perceptions of the reasonable consumer.

195

Office of Fair Trading Bulletin No  2 on Unfair terms, para  2.25. See also Bulletin No  1, para 1.15.

196

Office of Fair Trading Bulletin 6 at 49 (Kingfisher plc). The point can also be made that the Office of Fair Trading has taken the line that ‘if a “core” term is hidden away in small print as if it were unimportant, when it is in fact potentially burdensome, then it is considered potentially unfair’, Office of Fair Trading Bulletin 6 at p 9.

197

[2004] EWHC 263.

198

[2004] EWHC 263, [25].

199

The market for estate agents was such that the estate agents recognised that they were unlikely to obtain business at 3% and the negotiations had focused on 1.5%.

200

301

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fell within the core exemption. The case should be seen as a movement towards the type of approach advocated here and certainly away from any mechanistic reliance on the form of the clause to determine its classification as ‘core’. The above type of approach to distinguishing the core, with its reliance on the (objective) perceptions of the parties, might be seen as difficult to apply and uncertain. 4.88 It is possible to ask whether the First National Bank case cannot be seen as indicating a simpler, more certain, approach in the emphasis which it placed upon the term in question as non-core because it only dealt with a payment after default. In other words, the question might be raised as to an approach based simply upon identifying types of terms as core/non-core. However, any such approach would not be simpler and more certain, rather it would provoke the ‘endless formalistic arguments’ which Lord Steyn wanted to avoid. By considering a distinction between payments made before or after default as it is a borderline which is familiar from another context; the application of the rule about penalty clauses.201 As the relief afforded to the party faced by a penalty clause is only available when the trigger for payment is a breach, careful drafting can avoid the rule and basically unjustifiable distinctions have to be made as to the cases in which relief is, or is not, provided. It led to the comment that ‘Equity commits itself to this absurd paradox: it will grant relief to a man who breaks his contract but will penalise the man who keeps it’.202 However, although determining the core should not be simply a matter of types of clauses, looking at the type of clause can be very useful if it is not determinative, but merely helpful in considering the perceptions of the parties. Thus it can be regarded as unlikely that a term dealing with payment after breach will be (objectively) perceived as relating to the price. As has been indicated, in Bairstow Eves v Smith the line was taken that ‘reg 6(2) may be unlikely to shield terms as to price escalation or default provisions from scrutiny … “may be unlikely” because, of course, much depends on the individual contract under consideration’.203 The type of approach advocated here avoids the ‘formalistic arguments’ and, once the probabilities are

Difficulties have already been occasioned by the adoption of this line in relation to the core, see Kindlance v Murphy (1997) Lexis, 12 December where a mortgage provided for payment at a ‘concessionary rate’ as long as the buyer paid promptly, but at a much higher ‘standard rate’ if he failed to pay on time. The term was regarded as ‘core’. The review of such a term under the Unfair Terms in Consumer Contracts Regulations 1994 should not depend upon whether the trigger for the higher payment is drafted as a default or the removal of a concession. Compare the approach of the Office of Fair Trading in ‘Non Status Lending – Guidance for Lenders and Borrowers’ (revised November 1997) 192 – ‘a term providing for a higher rate of interest on default cannot be a core term … regardless of how the term is drafted and whether the higher rate is expressed to be the ordinary rate. The term providing for the higher rate of interest is in substance a term making provision for payment of compensation upon breach of an obligation and not therefore a core term’. See also Falco Finance v Gough [1998] Tr L Rep 526.

201

Bridge v Campbell Discount [1962] AC 600 per Lord Denning at 629.

202

Bairstow Eves London Central Ltd v Smith [2004] EWHC 263 at [25].

203

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recognised, has much of the certainty which might have been thought to be produced by looking at the type of clause. Further, issues of uncertainty are limited by the fact that the core is explicitly limited to terms defining the ‘main’ subject matter of the contract, and a similar restriction has been viewed as implicit in relation to price terms by the House of Lords in the First National Bank case.204 In addition, any remaining concerns about the potential additional uncertainty in the above type of approach to the ‘core’ can be met if the restriction of the ‘core exemption’ to terms in ‘plain intelligible language’ is emphasised, particularly if, as the Office of Fair Trading contends, it is ‘inextricably linked’ to a second proviso: that the consumer must have been given an opportunity to examine the terms.205 The same factors would often be relevant both to this limit upon the ‘core exemption’ and the approach to the analysis of the content of the ‘core’ indicated above.

Office of Fair Trading v Abbey National plc 4.89 The next important case was the Supreme Court decision of Office of Fair Trading v Abbey National plc.206 The case concerned complaints made to the OFT about overdraft charges made by UK banks and resulted in an OFT investigation as to the ‘fairness of terms relating to overdraft terms’.207 The issue before the court was whether these charges were assessable for fairness under 1993 Directive, Article  4(2) (or the then in force 1999 Regulations, Regulation 6(2)). Most UK banks operated under a system of ‘free if in credit’ banking which: ‘involves a significant cross-subsidy (amounting to about 30% of the banks’ total revenue stream from current account customers) provided by those customers who regularly incur charges for unauthorised overdrafts (a cohort, we were told, of the order of 12 million people) to those customers (a cohort of about 42 million people) who are in the fortunate position of never (or very rarely) incurring such charges.’208

4.90 This model of the provision of banking services meant that the income a bank receives derives not only from the charges (and interest) made from unauthorised overdrafts, but also:

[2002] 1  All ER  97. Eg Lord Steyn’s labelling of the term as ‘subsidiary’ at [34]. See also the views of the Law Commissions ‘Unfair Terms in Contracts’ Law Com Consultation Paper No 166, Scot Law Com Discussion Paper No 119, para 3.25.

204

The contention is based on 1993 Directive, recital 20.

205

[2009] UKSC 6. As indicated above, a term which might not be assessable for fairness because it comes within 1999 Regulations, reg 6(2) unless drafted in plain intelligible language (for purposes of the 1999 Regulations). For most of the banks in this case, it was ‘common ground’ that their terms and conditions where in plain intelligible language (except in 4 instances that were not in plain intelligible language ‘in certain specific and relatively minor respects’) (see [56]).

206

[2009] UKSC 6, [18].

207

Office of Fair Trading v Abbey National plc [2009] UKSC 6, [1].

208

303

Chapter 4  Unfair terms in consumer contracts ‘specific charges for particular non-routine services (such as expedited or foreign money transmission services) [but the] most important element of the consideration, however, consists of the interest forgone by customers whose current accounts are in credit, since whether their credit balance is large or small, they will be receiving a relatively low rate of interest on it (sometimes a very low rate or no interest at all).’209

The Supreme Court disagreed with the decisions of the High Court and the Court of Appeal, which both found that the unauthorised overdraft charges did not fall within the core exemption of 1993 Directive, Article 4(2)/1999 Regulations, Regulation 6(2), although for different reasons. 4.91 A  preliminary issue was whether any assessment of the price or remuneration was caught by 1993 Directive, Article 4(2)/1999 Regulations, Regulation 6(2) or only the ‘adequacy’210 of the price or remuneration. A first instance, the view of the judge was that the latter was the correct approach and he summarised the issues as follow: ‘If Regulation 6(2)(b) applies to a term, is any assessment of its fairness excluded (the “excluded term” construction), or does the Regulation exclude only an assessment relating to the adequacy of the price (the “excluded assessment” construction”)? … The OFT argues for an excluded assessment construction: that even if the Relevant Terms are covered by Regulation 6(2), that does not mean that all consideration of their fairness is permitted, and what is precluded is an assessment of the adequacy of the price or remuneration (as against the services supplied in exchange). The Banks argue for the “excluded term” construction, while also submitting that ultimately the question which construction is preferred is not decisive of the issues in this case because, even if an “excluded assessment” construction is adopted, the 1999 Regulations still prohibit any assessment of fairness that affects the level of the Relevant Charges, including an assessment of the fairness of the structure of the charges and the events which allow the Banks to levy them.’211

4.92 With the judge holding that the ‘excluded assessment’ was the correct one:

Office of Fair Trading v Abbey National plc [2009] UKSC 6, [42].

209

‘Adequacy’ is to be read in the sense of ‘appropriateness’: Office of Fair Trading v Abbey National plc [2009] UKSC 6, [4]; and which was further explained in Director General of Fair Trading v First National Bank plc [2001]  UKHL  52, [64] as ‘At first sight the language of both the regulation and the directive is somewhat strange since it might seem to suggest that the court is not to consider the fairness of a term which concerns ‘the adequacy’, in its usual sense of ‘the sufficiency’, of the price or remuneration as against the goods or services sold or supplied. But it is obvious from the context that this cannot be what is intended. …While the point was not explored before us and I therefore express no concluded view on it, I note that the [French and German versions of the directive both] may suggest that what is in issue is the ‘appropriateness’ of the price or remuneration as compared with the services or goods—in other words whether there is an equivalence between the services or goods and the consideration for them. This would seem to be consistent with the reference to ‘the price/quality ratio’ in the nineteenth recital. It may therefore be that ‘adequacy’ in both the directive and the regulations should be interpreted in that spirit. Which is indeed how I understand your Lordships to have approached the matter.’

210

Office of Fair Trading v Abbey National plc [2008] EWHC 875 (Comm), [422].

211

304

Chapter 4  Unfair terms in consumer contracts ‘The wording of Regulation 6(2) of the 1999 Regulations, and that of Article 4(2) of the Directive which it reflects, supports the excluded assessment construction. Article 4(1) is directed to how the unfairness of a contractual term is to be assessed. Article 4(2) specifically states that the “assessment” shall not relate to the exempted matters. It is not to relate to one aspect of the price or remuneration, its adequacy as against the goods or services supplied in exchange (just as an assessment relating to the definition of the main subject matter, and not an assessment relating to any term that defines the main subject matter, is excluded from assessment for fairness). Similarly in Regulation 6(2) the subject of the verb “shall not relate” is “assessment”.’212

So that an assessment which does not relate: ‘to the appropriateness in amount of the price or remuneration is not excluded by reg 6(2)(b)’213

and it is possible to assess: ‘a price term for fairness according to other criteria’.214

4.93 The finding by the first instance judge was not challenged in either the Court of Appeal or the Supreme Court215 and it narrowed the issue before the Supreme Court from that in ‘agreed statement of facts and issue’.216 The latter which has focussed on separating out clauses which where ‘ancillary’ or ‘subsidiary’.217 In the Court of Appeal the court accepted the submission of the OFT that the charges that were made by the banks where not a price or remuneration as 1999 Regulations, Regulation 6(2)(b) was limited to the payment of price in exchange for goods and services: ‘on which payments the consumer be taken to have focused and to which he can be taken truly to have consented’.218

4.94 The heart of the Court of Appeal’s decision was in answering in the affirmative the question whether ‘to import the notion of the essential bargain’ when interpreting both paragraphs of 1999 Regulations, Article 6(2) was as follows:

ibid, [425].

212

Office of Fair Trading v Abbey National plc [2009] UKSC 6, [95].

213

ibid, [60].

214

ibid, [29].

215

ibid [61], and Lord Philips went to state: ‘Had the ‘excluded term’ construction prevailed, a finding in favour of the banks that the relevant terms were included within the meaning of the word ‘price’ in reg 6(2) would have precluded any challenge to those terms on the ground of fairness. As it is, if the banks succeed on the narrow issue, this will not close the door on the OFT’s investigations and may well not resolve the myriad cases that are currently stayed in which customers have challenged relevant charges.’ Although the distinction between the ‘excluded assessment’ and ‘excluded term’ constructions were ‘marginally relevant’ and ‘an abstract point’ to the issue before the Supreme Court, Lord Mance recognised it could have ‘great practical significance’ (from [29] of the judgment).

216

Director General of Fair Trading v First National Bank plc [2001] UKHL 52, [12], [34].

217

Office of Fair Trading v Abbey National plc [2009] UKSC 6, [106].

218

305

Chapter 4  Unfair terms in consumer contracts ‘We would summarise them [as]: i) The concept of the essential bargain flows naturally from the structure of the Directive, from the purpose of the Directive, from the purpose of the exemption and from the decision in the First National Bank case. ii) It flows naturally from the structure of the Directive because, as is common ground, not every payment that a consumer pays falls within regulation 6(2) (b). An appropriate analytical tool for working out what does and what does not fall within 6(2)(b) is to ask whether or not the payment forms part of the essential bargain between the parties. iii) It flows from the purpose of the Directive because it prevents regulation 6(2)(b) from being construed too widely. Moreover, it ensures protection in respect of the kind of issues that a consumer will not have in focus when entering into a bargain. The purpose for which the exception was included was to carve out from the assessment of fairness that part of the bargain which can genuinely be viewed as representing the consensus between the parties and thus a genuine reflection of freedom of contract. iv) Those conclusions reflect the reasoning both in the travaux préparatoires and in First National Bank case: see especially per Lord Bingham at [12] and Lord Steyn at [34].’219

4.95 For the Court of Appeal, to determine whether a provision fall within or without 1999 Regulations, Article 6(2) it was necessary to consider a sliding scale of factors focussing, for example, on factors such as the directness of negotiation between trader and consumer and the closeness of the payment term to the essential bargain: ‘i) The nature of the services provided as a whole and the manner and terms in which the standard term documentation is provided to consumers. ii) The quantum of the particular payment, the goods or services to which it is said to relate and the other payments required under the contract. iii) In order to be ‘price or remuneration’ within the meaning of article 4(2) the payment provision must not be ancillary to the central bargain between the consumer and supplier. Along this sliding scale: a) if the payment obligations are directly negotiated between the consumer and supplier they will not be subject to assessment for fairness under the Directive; b) the more closely related the payment term is to the essential bargain between the parties, the more likely it is to fall within the exception in article 4(2); but c) the more ancillary the payment term is and the less likely it is to come to the direct attention of the consumer at the time the contract is entered into, the less likely it is to be within the concept of ‘price or remuneration’ within the meaning of the Directive.’220

4.96 In the Supreme Court, Lord Walker’s stated that the Court of Appeal had reached a ‘questionable conclusion’ where the Court of Appeal stated: Office of Fair Trading v Abbey National plc [2009] EWCA Civ 116, [86].

219

ibid, [90].

220

306

Chapter 4  Unfair terms in consumer contracts ‘… As we see it, it follows from the reasoning of the House of Lords [in Director General of Fair Trading v First National Bank plc] that what art 4(2) of the Directive was seeking to exclude from the assessment required by the national authorities (here the OFT) was the core bargain or the core price but not ancillary or incidental provisions. In our judgment, reg 6(2) of the 1999 Regulations should be construed with that underlying purpose in mind.’221 And: ‘In our view these considerations support the conclusion that the purpose of reg 6(2)(b) was to limit the exclusion to the essence of the price, just as the purpose of reg 6(2)(a) was to limit it to the main subject matter of the contract. As appears below, the reason for the limitation was to reflect the fact that the parties would be likely to (or might well) negotiate the main subject matter of the contract and the essential price but not the detail.’222

4.97 Lord Walker noted that the reference in this part of the judgment of the Court of Appeal concerning ‘considerations’ was a reference to ‘the price or remuneration’ in 1999 Regulations, Regulation 64(2)(b) and ‘not to part of the price or remuneration’, and although persuasive for the lower of courts Lord Walker did not ‘see much force in it’ as the 1993 Directive was: ‘expressed, in terse, simple language, and the 1999 Regulations follow the same style’.223

In essence the Supreme Court was taking a literal or textual approach to the wording of the 1993 Directive and 1999 Regulations. Lord Walker agreed with the advocate for the banks that the approach of the Court of Appeal was ‘overelaborate’ and had: ‘gone too far in interpreting the language of the Directive and the 1999 Regulations in order to meet the [ ] aim [that of the ‘underlying value the notion that freedom of contract should prevail where there has been meaningful negotiation between supplier and consumer, so that the latter does consent to the terms of the contract’]. … and the [Court of Appeal] depart from the natural meaning of the text in order to achieve an unnecessary duplication of the exception for individually negotiated terms.’224

The main areas of the Supreme Court departing from the decision of Director General of Fair Trading v First National Bank plc were: • that wording found in 1999 Regulations, Regulation 6(2)(b) was not limited to a core or an essential bargain; •

that it is necessary to objectively consider whether a term amounts to the price or remuneration.

Each is considered in turn.

ibid, [49].

221

ibid, [52].

222

Office of Fair Trading v Abbey National plc [2009] UKSC 6, [32].

223

ibid, [45].

224

307

Chapter 4  Unfair terms in consumer contracts

4.98 For the first, in essence the court did not find that what constitutes the price was limited by the wording of 1999 Regulations, Regulation 6(2)(b) – in effect, it is not possible to distinguish what elements of price fall within Regulation 6(2)(b) and those that do not. As part of the literal or textual approach was that Lord Walker refused to consider whether 1999 Regulations, Regulation 6(2)(a) and r6(2)(b) should be read conjunctively or disjunctively as they are not alternatives but rather: ‘the two paragraphs must be given their natural meaning, and read in that way they set out tests which are separate but not unconnected. They reflect (but in slightly different ways) the two sides (or quid pro quo) of any consumer contract, that is (a) what it is that the trader is to sell or supply and (b) what it is that the consumer is to pay for what he gets. The definition of the former is not to be reviewed in point of fairness, nor is the ‘adequacy’ (appropriateness) of the latter.’225

4.99 A key reason why the Supreme Court rejected the Court of Appeal’s analysis of separating out prices which are essential from non-essential ones appears to be a definitional one – that the wording used in the 1993 Directive, Article 4(2) and 1999 Regulations, Regulation 6(2) does not distinguish what is essential and thus not subject to assessment for fairness and which are. For Lord Walker the first side of the ‘quid pro quo inherent in a consumer contract’, that is the ‘main subject matter of the contract’ makes no distinction between whether a single good or multiples will be part of the contract so that: ‘there is no possible basis on which the court can decide that some items are more essential to the contract than others.’

And Lord Walker stated that the same applies where services are involved, so that if a consumer orders from a trader a range of services: ‘there is no principled basis on which the court could decide that some services are more essential to the contract than others and again the main subject matter must be described in general terms’.226

Lord Walker likened what a bank provides to consumers to a package of services in a similar way to what a 5-star hotel provides, which will offer a number of different services. For a bank the package of services will: ‘include the collection and payment of cheques, other money transmission services, facilities for cash distribution (mainly by ATM machines either at manned branches or elsewhere) and the provision of statements in printed or electronic form.’227

4.100 Lord Walker made the same point for the other side of the ‘quid pro quo inherent in a consumer contract’, that is ‘price or remuneration’ and about the difficulty in deciding which prices are essential because the wording of 1999 Regulations, Regulation 6(2)(b) does not provide any indication as to which are ‘essential’ so that: ibid, [31].

225

ibid, [40].

226

ibid, [40].

227

308

Chapter 4  Unfair terms in consumer contracts ‘Any monetary price or remuneration payable under the contract would naturally fall within the language of para (b).’

The elements of the price (or prices) for Lord Walker in connection with the provision of bank services not only included charges for authorised and unauthorised overdrafts but also interest foregone by consumers where their accounts are in credit. And while it is possible to describe the services that a bank provides as a package of services it is also possible to describe ‘the consideration that moves from the customers to the bank’ in the same way, as a package of consideration, so that: ‘Interest forgone is an important part of that package for customers whose accounts are in credit, and overdraft interest and charges are the most important element for those customers who are not in credit. Lawyers are very used to speaking of a package (or bundle) of rights and obligations, and in that sense every obligation which a consumer undertakes by a consumer contract could be seen as part of the price or remuneration received by the supplier.’228

4.101 In interpreting the wording of the 1993 Directive and the 1999 Regulations Lord Walker appears that he was influenced by the amount the banks earned (£2.6 billion in 2006 from charges alone). Lord Walker agreed with the opinions of Lord Steyn and Lord Bingham in Director General of Fair Trading v First National Bank plc that 1999 Regulations, Regulation 6(2)229: •

should be interpreted restrictively; and

•

should cover only terms which fall squarely within it; and

•

that ‘not every term that is in some way linked to monetary consideration falls within reg 6(2)(b)’.

and noting that the reasoning in effect, according to Lord Walker, was that the provision under consideration in the earlier case fell outside the ambit of 1999 Regulations, Regulation 6(2)(b) was that it was a default provision and that: ‘[t]raders ought not to be able to outflank consumers by ‘drafting themselves’ into a position where they can take advantage of a default provision.’230

with Lord Walker stating that in his opinion that terms under consideration by the Supreme Court as well as the charges fell ‘squarely within reg 6(2)(b)’. In effect, it appears here Lord Walker was making the distinction that the bank charges were not default charges (because they were part of the price or renumeration paid by customer, while in the earlier case the interest payable only arose if the customer was in default). Lord Phillips indicated that as long as the price is in exchange for services provided (even if the services are fringe or optional) then 1999 Regulations, 6(2)(b) will apply to them:

ibid, [42].

228

ibid, [43].

229

ibid.

230

309

Chapter 4  Unfair terms in consumer contracts ‘I  can see no justification for excluding from the application of reg  6(2) price or remuneration on the ground that it is ‘ancillary or incidental price [or] remuneration’. If it is possible to identify such price or remuneration as being paid in exchange for services, even if the services are fringe or optional extras, reg 6(2) will preclude an attack on the price or remuneration in question if it is based on the contention that it was excessive by comparison with the services for which it was exchanged. If, on analysis, the charges are not given in exchange for individual services but are part of a package of different ways of charging for a package of varied services, this does not mean that they are not price or remuneration for the purpose of reg 6(2). As I observed earlier, an assessment of the fairness of the charges will be precluded if the basis of the attack is that, by reason of their inclusion in the pricing package, those who pay them are being charged an excessive amount in exchange for the overall package.’231

4.102 Concerning the second, that it is necessary to objectively consider whether a term amounts to the price or remuneration the Court of Appeal used the concept of the ‘typical consumer’. The Court of Appeal held that ‘the perspective of the ‘typical consumer’ is a useful guide’ to making sure that 1993 Directive, Article 4(2) is given a restrictive meaning and the court agreed with the reasoning232 of the judge at first instance: • that in Director General of Fair Trading v First National Bank plc it was necessary to consider the typical consumer when assessing fairness; • it is an extension of that approach to apply it to 1999 Regulations, Regulation 6(2); •

however a court would still need to examine and respect the terms of the parties’ contract’;

• so that: ‘…I  consider that the question whether typical parties to a transaction of the kind under consideration would recognise a payment as the price or remuneration is a useful guide as to whether a payment falls within the Regulation, and I cannot accept the submission made on behalf of [a bank] that this would lead to different answers for different customers or groups of customers. … the question whether a payment is the price or remuneration depends upon the substance of the agreement between the parties and the true nature of the payment rather than upon how it is described or presented, and it would, I think, be surprising if the court felt able to conclude that a payment is the price or remuneration within regulation 6(2)(b) even though the typical consumer would not recognise it as such when presented with the terms of the seller or supplier.’233

4.103 For Lord Mance, in the Supreme Court, to make a judgment of whether a particular charge constituted a price or remuneration ‘through the

ibid, [78].

231

Office of Fair Trading v Abbey National plc [2009] EWCA, Civ 116, [91]-[92].

232

Office of Fair Trading v Abbey National plc [2008] EWHC 875 (Comm), [388].

233

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eyes of a ‘typical consumer’ was not the correct approach because it would difficult to decide who was a ‘typical consumer’: •

should it be all consumers; or

•

just the consumers who would attract the relevant charge.234

Lord Mance went to state that: ‘to identify the price or remuneration for the purposes of art 4(2) and reg 6(2) is a matter of objective interpretation’

and this cannot be done: ‘by attempting to identify a ‘typical consumer’ or by confining the focus to matters on which [a court] might conjecture [on what a consumer] would be likely to focus’235

4.104 The reasoning of Lord Mance for this was based on the 1993 Directive and the 1999 Regulations requiring transparency in provisions for the protection of the consumer. If this is present, then for the judge there is an assumption that a consumer is: ‘capable of reading the relevant terms and identifying whatever is objectively the price and remuneration under the contract into which he or she enters.’236

4.105 The Supreme Court while concluding that the charges made by the banks were exempt from assessment under 1999 Regulations, Regulation 6(2) arrived at this view for different reasons: • for Lord Walker in applying 1999 Regulations, Regulation 6(2) to the facts stated: 





•

that the charges made for unauthorised overdrafts were ‘are monetary consideration for the package of banking services supplied to personal current account customers’237; that the charges are an important source of revenue for a bank from personal account customers (over 30%)238; and

although ‘the [fact] the charges are contingent, and that the majority of customers do not incur them, are irrelevant’.239

For Lord Mance it was necessary to look at what the 1993 Directive and 1999 Regulations concern – terms within contracts – and the first step is

Office of Fair Trading v Abbey National plc [2009] UKSC 6, [108].

234

ibid, [113].

235

ibid, [113].

236

ibid, [47].

237

ibid, [47].

238

ibid, [88]. Lord Phillips also made a similar point to Lord Walker about the importance of the revenue derived from the charges.

239

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to identify the contract in question. At the level of the banking contract one is comparing: 

 





a package of services that the bank offers to a customer (although a customer may not use all of them);

the commitment of a customer for those services s/he uses, so that:

‘the banks’ case is that price or remuneration is or includes the customer’s potential liability for charges, rather than the payments which he or she has actually to make if and when such charges are incurred’; whether a term is fair or unfair must be seen in the context of the contract in which it appears and it is beside the point if it is not; if a customer’s potential liability for a charge constitutes the price or remuneration (of part of the price or remuneration) and is in exchange for the package of services and there is a challenge that the price or remuneration is disproportionate overall then 1999 Regulations, Regulation 6(2)(b) applies so it is not possible to make such a challenge. Accordingly: ‘If there is no challenge to the overall proportionality of the overall price or remuneration of the package, then I  fail to see how a challenge to the proportionality of the relevant charges in relation to the cost of providing particular services in isolation can be admissible or relevant. A term which is proportionate in context cannot become disproportionate viewed out of context.’240

• If the charges the bank make are ‘part of an overall package contract’ then whether it is possible to challenge them and where permitted, any assessment as to the fairness (under the 1993 Directive or 1999 Regulations) will ‘depend upon an analysis of such agreement as part of the package contract’, because otherwise a customer ‘could challenge each separate part of a package in isolation, although as a whole the price or remuneration charged was unchallengeable’.241

Kásler and Mattei 4.106 Subsequent to the Office of Fair Trading v Abbey National plc decision, there has been further ECJ case law on interpreting 1993 Directive. In Kásler242 the ECJ took a different approach to that of Office of Fair Trading v

Office of Fair Trading v Abbey National plc [2009] UKSC 6, [99].

240

ibid, [100].

241

Case C26/13, Árpád Kásler and Hajnalka Káslerné Rábai v OTP Jelzálogbank Zrt.

242

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Abbey National plc, effectively, taking a purposive approach to interpreting the provisions of the 1993 Directive. The ECJ held: •

1993 Directive, Article 4(2) provides: ‘an exception to the mechanism for reviewing the substance of unfair terms, such as that provided for in the system of consumer protection put in place by [1993 Directive]’;243

•

1993 Directive, Article 4(2) must be strictly interpreted;244

• while it is for a national court to rule on the classification of a term depending on the facts of a particular case the ECJ ‘has jurisdiction to elicit from the provisions of Directive 93/13, in this case the provisions of Article 4(2), the criteria that the national court may or must apply when examining a contractual term’.245 •

the exception in 1993 Directive, Article 4(2) covers:  

•



Firstly, terms which deal with the main subject-matter of the contract;

Secondly, terms which concern ‘the adequacy of the price and remuneration on one hand, as against the services or goods supplied, on the other’ or, in accordance with the nineteenth recital in the preamble to that directive, the terms ‘which describe … the quality/ price ratio of the goods or services supplied’.’

for the first the EC recognised that 1993 Directive, Article 4(2) represents a derogation and that it is interpreted strictly so that: ‘contractual terms falling within the notion of the ‘main subject-matter of the contract’, within the meaning of that provision, must be understood as being those that lay down the essential obligations of the contract and, as such, characterise it.’246

4.107  But: ‘By contrast, terms ancillary to those that define the very essence of the contractual relationship cannot fall within the notion of the ‘main subject-matter of the contract’ within the meaning of Article 4(2) of Directive 93/13.’247

•

Also for the first (main subject-matter of the contract) the national court in deciding whether a term is an essential element of the consumer’s obligations has to consider ‘the nature, general scheme and the stipulations of the […] agreement, and its legal and factual context’248

ibid, para 42.

243

ibid, para 42; Case C‑143/13 – Bogdan Matei, Ioana Ofelia Matei v SC Volksbank România SA, para 49.

244

Case C26/13, Árpád Kásler and Hajnalka Káslerné Rábai v OTP Jelzálogbank Zrt, para 45.

245

ibid, para 49.

246

ibid, para 50.

247

ibid, para 1.

248

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– in effect the national court has to take a broad-ranging method to determine what is main subject-matter of the contract; •

It is possible for a payment provision term to come within the meaning of the first category (the main subject-matter of the contract) where that term lays down an essential obligation of the agreement between the trader and consumer.

•

For the second category of 1993 Directive, Article 4(2) means that terms ‘cannot be examined as regards unfairness is limited in scope, for that exclusion concerns only the adequacy of the price or remuneration as against the services or goods supplied in exchange’ because ‘there is no legal scale or criterion exist[ing] that can provide a framework for, and guide, such a review’.249

4.108 Concerning the facts in Kásler, the borrowers: ‘concluded an agreement for a ‘mortgage loan denominated in foreign currency secured by a guarantee _in rem [_mortgage]’.250

The bank advanced to the borrowers a sum and: ‘it being stipulated that ‘the amount of the loan in foreign currency will be determined at the buying rate for the foreign currency applied by the bank on the date of advance of the funds’.’251

Under Clause I/l of the loan agreement: ‘after the funds have been advanced, the amount of the loan, the related interest, the administration fees and default interest and other charges will be determined in the foreign currency’.252

4.109 On the date the bank advanced the sum to the borrowers the bank fixed the buying rate of exchange in Swiss francs. The borrowers were to repay the sum in monthly instalments for 25 years. The clause which was the subject of the litigation stated (‘Clause III/2’) stated: ‘the lender is to determine the amount in HUF of each of the monthly instalments due by reference to the selling rate of exchange for the foreign currency applied by the bank on the day before the due date.’253

The ECJ held that core exemption cannot apply to the term because a term like Clause III/2: ‘merely determine[s] the conversion rate of the foreign currency in which the loan agreement is denominated, in order to calculate the repayment instalments’254

ibid, para 55; Case C‑143/13 – Bogdan Matei, Ioana Ofelia Matei v SC Volksbank România SA, para 55.

249

ibid, para 20.

250

ibid, para 21.

251

ibid, para 21.

252

ibid, para 24.

253

Case C26/13, Árpád Kásler and Hajnalka Káslerné Rábai v OTP Jelzálogbank Zrt, para 58

254

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but there is no: ‘foreign exchange service being supplied by the lender in making that calculation’255

and for the ECJ this did not: ‘constitute ‘remuneration’, the adequacy of which as consideration for a service supplied by the lender could be assessed to determine its unfairness pursuant to Article 4(2) of Directive 93/13.’256

and which the ECJ also stated that: ‘a term, in so far as it contains a pecuniary obligation for the consumer to pay, in repayment of instalments of the loan, the difference between the selling rate of exchange [for the repayment by monthly instalments] when and the buying rate of exchange [for the advancement of the loan] of the foreign currency, cannot be considered as ‘remuneration’, the adequacy of which as consideration for a service supplied by the lender cannot be the subject of an examination as regards unfairness under Article 4(2) of Directive 93/13.’257

4.110 In the later case of Matei258 which followed Kásler the ECJ also had to consider whether two provisions in a credit agreement (concerning a loan for the purchase of a property secured by a mortgage on it, repayable over 25 years) came within the core exemption in 1993 Directive, Article 4(2): •

the first provision under consideration was a variation clause concerned the variable rate of interest payable with the provision stating: ‘the bank reserves the right to alter the current rate of interest in the event of significant changes on the financial markets, the new rate of interest being notified to the borrower; the rate of interest thereby altered shall apply from the date of notification’; and

•

the second concerning a ‘risk charge’ that provided: ‘for [the] making available the credit, the borrower may be required to pay the bank a risk charge, calculated on the basis of the balance of the loan and payable monthly throughout its duration.’

4.111 For the variation clause the ECJ held that it did not come within the scope of 1993 Directive, Article 4(2) for four reasons: • previous ECJ case law259 had held that a term similar to that in Matei concerning ‘a mechanism for amending the prices of the services of the services provided to the consumer did not fall within [1993 Directive, Article 4(2)]’;260

ibid.

255

ibid, para 58.

256

ibid, para 59.

257

Case C‑143/13 – Bogdan Matei, Ioana Ofelia Matei v SC Volksbank România SA.

258

C-72/10 – Nemzeti Fogyasztóvédelmi Hatóság v Invitel Távközlési Zrt.

259

Case C‑143/13 – Bogdan Matei, Ioana Ofelia Matei v SC Volksbank România SA, para 57.

260

315

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•

that a provision allowing a lender to unilaterally vary the rate of interest comes within grey list term, under CRA as Schedule 2, para 11 (unless it comes within CRA, Schedule 2, para 22);

• as it likely to be an ancillary term since it contains ‘an adjustment mechanism enabling the lender to alter the term setting the interest rate, they do not appear to be separable from the term fixing the interest rate which is likely to be part of the main subject-matter of the contract’261; •

that the unfairness alleged in the information provided to the ECJ was not based on the ‘alleged inadequacy of the level of the altered interest rate as against any consideration that may have been supplied in exchange for the alteration, but the conditions and criteria enabling the lender to make that alteration’.262

4.112 As concerns the risk charge the ECJ there were ‘several elements [that] suggest that they do not fall within one of the two categories of exclusions laid down by Article 4(2) of Directive 93/13’. As to whether the risk charge fell within the first limb of 1993 Directive, Article 4(2) (main subject matter of the contract) and whether it amounts to one of the essential services or is ancillary a court has: ‘[to] take account in particular of the essential aim pursued by the ‘risk charge’ which consists in ensuring repayment of the loan. That clearly constitutes an essential obligation on the part of the consumer in exchange for making available the amount of the loan.’

4.113 But it is necessary to take account so that: ‘the objective of protecting consumers which must guide the interpretation of the provisions of Directive 93/13 […], the mere fact that the ‘risk charge’ may be regarded as representing a relatively important part of the APR and, therefore, the income received by the lender from the credit agreements concerned is in principle irrelevant for the purposes of determining whether the terms providing for that charge define the ‘main subject-matter’ of the contract.’263

As to whether the risk charge that the lender applied came fell within the second limb of 1993 Directive, Article 4(2) the ECJ found based on: ‘[c]ertain information in the documents submitted to the Court seems rather to indicate that that is not the case’.264

The ECJ finding that the amount payable by the borrower as the risk charge was not done in return for any service provided by the bank: ‘some of that information suggests that the subject-matter of the dispute in the main proceedings does not concern the adequacy of amount of that commission as compared with a service provided by the lender (of whatever kind) since it is submitted that the lender does not provide any actual service which could constitute

ibid, para 62.

261

ibid, para 63.

262

ibid, para 68.

263

ibid, para 69.

264

316

Chapter 4  Unfair terms in consumer contracts consideration for that charge, so that the question of the adequacy of that charge does not arise.’265

4.114 Rather the dispute: ‘…essentially covers the grounds justifying the terms in question, and in particular, whether, in so far as they require the consumer to pay commission of a substantial amount which aims to ensure the repayment of the loan, even though it is argued that that risk is already guaranteed by a mortgage and that, in exchange for that charge, the bank does not provide a real service to the consumer solely in the consumer’s interests, those terms must be regarded as unfair, within the meaning of Article 3 of Directive 93/13.’266

4.115 It is obvious that there are some significant differences between the reasoning in Kásler and Matei and Office of Fair Trading v Abbey National plc. Also, as discussed below the CMA in its guidance on unfair terms, follows Kásler rather than Office of Fair Trading v Abbey National plc. The principle ones where Kásler and Matei differ over the UK court’s decision are: •

for the second part of 1993 Directive, Article 4(2) (for CRA, section 64(2) (b)) to apply, so that a term is excluded from assessment for fairness, for Kásler and Matei, it is necessary to establish a clear link between the price or remuneration paid in exchange for a specific service. In Office of Fair Trading v Abbey National plc the price or remuneration (foregone interest, charges for a customer going overdrawn) was characterised as a ‘package’ in exchange for a package of services. In the UK court’s decision, there is no specific link between a customer going overdrawn and the payment of a specific charge for doing so.

• for Kásler and Matei it is possible for a payment provision term to fall within both parts of 1993 Directive, Article 4(2) (for CRA, sections 64(2) (a) and (b)). Such a term can come within the first part of 1993 Directive, Article  4(2) (CRA, section 64(1)(a), that is it within the main subject matter of the contract), where it constituted ‘an essential obligation of the agreement’ between the trader and consumer. In Office of Fair Trading v Abbey National plc the Supreme Court only considered that the charges made by the banks came within the second part of the core exemption. It is not clear whether the charges the banks make would constitute ‘an essential obligation’ as they were not payable by all consumers, and only paid where a consumer became overdrawn. For Matei the ‘risk charge’ was potentially within the main subject matter of the contract. • for Matei the amount of income generated by a charge is, in principle, irrelevant as to whether a term providing for that charge comes within the meaning of define the ‘main subject-matter’ of the contract. Although

ibid, para 70. The ECJ here followed Kásler ‘by analogy’ at para 58 in Kásler, see para 4.119 above.

265

Case C‑143/13 – Bogdan Matei, Ioana Ofelia Matei v SC Volksbank România SA, para 71. 1993 Directive, Art 3

266

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Office of Fair Trading v Abbey National plc did not consider the issue of whether charges made by the bank amounted to the main subject-matter but did find that the charges were held to be an important part of the income that the bank earned and part of the reasoning why the charges were not assessable for fairness.267 Kásler and Matei both distinguished between terms which ‘lay down the essential obligations of the contract’ and those which are ancillary – a distinction which the Supreme Court in Office of Fair Trading v Abbey National plc, rejected in overturning the Court of Appeal decision.

•

4.116 By contrast, there is a case where a term was not assessable for fairness under 1993 Directive.268 It also involved a loan denominated in a foreign currency (in a similar way to that of Kàsler) so that the borrowers faced the risk where there was a fluctuation in the conversion rate between the foreign and their currency: ’Under Article  1(2) of each of those agreements, the applicants in the main proceedings were required to make monthly payments on the loans in the same currency as that in which they had been concluded, that is in Swiss francs, with the consequence that the risk of fluctuations requiring an increase in the monthly repayments if the exchange rate of the Romanian leu fell against the Swiss franc was born entirely by the applicants. Furthermore, those agreements contained two clauses, in Article  9(1) and Article  10(3)(9) respectively, authorising the Bank, once the monthly payments had fallen due or in the event that the borrower failed to comply with the obligations arising from the agreements, to debit the borrower’s account and, if necessary, to carry out any conversion of the balance available on the borrower’s account into the currency of the contract at the Bank’s exchange rate as it stood on the day of that operation. Pursuant to those terms, any difference in the exchange rate was borne entirely by the borrower.’269

The borrowers alleged that the bank had not explained the risk to them (that the Swiss currency fluctuated significantly against the Romanian currency, something within the knowledge of the bank). 4.117 The ECJ in following its earlier decision that for a term to be within the meaning of the main subject matter of the contract within 1993 Directive: ‘it must be understood as being [a term] that lay down the essential obligations of the contract and, as such, characterise it’270

but terms ancillary to that define the very essence of the contractual relationship do not. In this case, the term did fall within the main subject matter of the contract within the scope of 1993 Directive, Article 4(2) so that:

Office of Fair Trading v Abbey National plc [2009] UKSC 6, [47], [88]

267

Case C‑186/16 – Ruxandra Paula Andriciuc and Others Banca Românească SA, para 9

268

ibid, para 35.

269

ibid, para 35.

270

318

Chapter 4  Unfair terms in consumer contracts ’In that connection, it must be observed that, under a loan agreement, the lender undertakes, in particular, to make available to the borrower a certain sum of money and the latter undertakes, in particular, to repay that sum, usually with interest, on the scheduled payment dates. Therefore, the essential obligations of such a contract relate to a sum of money which must be determined by the stipulated currency in which it is paid and repaid. Thus, as the Advocate General observed in point 46 et seq. of his Opinion, the fact that a loan must be repaid in a certain currency relates, in principle, not to an ancillary repayment arrangement, but to very nature of the debtor’s obligation, thereby constituting an essential element of a loan agreement.’271

4.118 The ECJ in this case specifically set out why the facts in this case differed from its decision in Kásler . While in both cases both loans were denominated in foreign currency, in Kásler the loans ‘had to be repaid in the national currency according to the selling rate of exchange applied by the bank’ but this case ‘the loans must be repaid in the same foreign currency as that in which they were issued’ so that: ‘As the Advocate General observes, in point 51 of his Opinion, loan agreements indexed to foreign currencies cannot be treated in the same way as loan agreements in foreign currencies, such as those at issue in the main proceedings.’

The conclusion for the ECJ was that the term under consideration, that is the repayment of the loan denominated in a foreign currency, fell within the meaning of the main subject matter of the contract under 1993 Directive, Article 4(2) and was not unfair (as long as it was drafted in plain intelligible language). 4.119 Although not explicitly stated by the ECJ, in effect there is an element of the ‘sliding scale’ used by the Court of Appeal in Office of Fair Trading v Abbey National plc in the approach followed by the ECJ that the ‘more closely related the payment term is to the essential bargain between the parties, the more likely it is to fall within the exception in article 4(2)’.272 Although the ECJ judgment focussed on the provision in question on the first limb of 1993 Directive, article 4(2), the provision was closer to the essential bargain between the parties as there was not the intervening step of the bank applying the selling rate of exchange as in Kásler.

After Office of Fair Trading v Abbey National plc, Kásler and Mattei 4.120 In a UK case273 decided under the CRA and following the decisions in Kásler and Matei the judge rejected the submission of the claimant that Office

ibid, para 38.

271

Office of Fair Trading v Abbey National plc [2009] EWCA Civ 116, [90].

272

Casehub Limited v Wolf Cola Limited [2017] EWHC 1169 (Ch). The claimant took assignments from 3 customers of their claims against the defendants. According to the judgment both the claimant and defendant were represented by directors of each company rather than lawyers (although it appears lawyers prepared skeleton arguments).

273

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Chapter 4  Unfair terms in consumer contracts

of Fair Trading v Abbey National plc274 was now wrongly decided. The judge’s reason is cursory: ‘it is far from clear that the CJEU cases relied on by the claimant have the effect for which it contends’275

but otherwise does not explain why he considered himself bound by the Supreme Court judgment. 4.121 The defendant operated a software-as-a-service business which allowed customers to use the defendant’s server space to store data rather than on the customer’s computer(s). The defendant charged £20 per a month subscription fee, with a minimum fixed term of 12 month. Where a customer terminated the agreement within the 12 month term, the customer had to pay all of the remaining monthly charges less 10%, as a discount reflecting that the customer is paying early. Because of systems problems, the customers did not receive login details to allow them to access the service, and in consequence the customers terminated their agreements with the defendant in the first month. The defendant charged a cancellation fee of £196.00 which was calculated as provided in the defendant’s terms and conditions. The issue was whether the cancellation fee was excluded from assessment under CRA, section 64, in particular section 64(1)(b). The defendant argued: that the decision of Office of Fair Trading v Abbey National plc meant that the cancellation fee provisions were excluded from assessment (under CRA, section 64(1)(b));

•

• that the claimant’s case was that the effect of the cancellation fee provisions was that customer had been overcharged which CRA, section 64(1)(b) excludes from consideration from assessment for fairness as it involves ‘the assessment … of the appropriateness of the price payable under the contract’ . 4.122 For the judge the essential point was whether the cancellation fee provisions came within CRA, section 64(1)(b) – that is whether it constituted ‘the price payable under the contract by comparison with the … services supplied under it’, so that: ‘If [it does], they may still be open to challenge on the ground that they are unfair but not on the basis that they are excessive by comparison with the services in return for which they are paid.’276

At the centre of the judge’s reasoning was the statements in Office of Fair Trading v Abbey National plc that as package of services were being provided by the banks and there was also a package of consideration moving from the customer to the bank, and also that it was not possible to distinguish between

[2009] UKSC 6.

274

Casehub Limited v Wolf Cola Limited [2017] EWHC 1169 (Ch), [54].

275

ibid, [49].

276

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price or remuneration which was or was not ancillary or incidental.277 For the judge the cancellation fee payable: ‘clearly does not comprise the price payable under the contract but it is a monetary obligation on the customer which forms part of it’.278

4.123 The judge held that the cancellation fee formed part of the price payable under the contract and so was exempt from challenge for fairness by CRA, section 64(1)(b), although they could be challenged for fairness on other grounds. The reasons for the judge rejection the decisions of Kásler and Matei over Office of Fair Trading v Abbey National plc: •

was cursory as other than the statement that ‘it is far from clear that the CJEU cases relied on by the claimant have the effect for which it contends’ there is no analysis of why the judge came to this conclusion; and

•

did not appear to meet the requirement set out in then in force European Communities Act 1972, section 3(1).279

4.124 The ECJ cases envisaged that there needed to be clear link between the price or remuneration paid by the consumer in exchange for a service provided by the trader. Based on the on the facts, it is not clear what, if anything, the customers received in return when they cancelled the contract. A further point is that the judge did not, based on his judgment, appear to consider the application of the indicative list of potentially unfair terms in CRA, Schedule 2, in particular CRA, Schedule 2, para 5: ‘A  term which has the object or effect of requiring that, where the consumer decides not to conclude or perform the contract, the consumer must pay the trader a disproportionately high sum in compensation or for services which have not been supplied.’280

4.125 The fact of the customers’ terminating their contracts appears to fall squarely within this grey list term. Also, now under CRA, section 64(6) specifically provides that grey list terms are no longer exempt from assessment for fairness under CRA, section 64. 4.126 Whether the Supreme Court’s view in Office of Fair Trading v Abbey National plc or that of the one of the ECJ in Kàsler and Matei is the correct approach will now have to wait for a further case to come before the Supreme Court, as only it, under European Union (Withdrawal) Act 2018, section 6(3), has the freedom to depart from cases decided by the ECJ before 31 December 2020. ibid, [51]-[52], relying on Office of Fair Trading v Abbey National plc [2009] UKSC 6, [42], [78].

277

Casehub Limited v Wolf Cola Limited [2017] EWHC 1169 (Ch), [51]-[52], relying on Office of Fair Trading v Abbey National plc [2009] UKSC 6, [42], [78].

278

See para 4.6.

279

This is considered further at para 4.307.

280

321

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CMA Guidance 4.127 The CMA in its guidance to the core exemption in the CRA has focussed on the economic rationale for the core exemption (to promote competition) and largely followed the direction set by Kásler as to the meaning of elements of the core exemption. The CMA notes that the 1993 Directive’s principle aim is: ‘…to protect consumers, from one-sided contracts and from distortions in competition that are detrimental to them. It is settled law that the legislation giving effect to the Directive has to be interpreted and applied so as to operate consistently with its purpose.’281

For the CMA, even if the exemption applies it is not possible to ignore the overarching purpose of the 1993 Directive to protect consumers, and that no interpretation of the core exemption provision: ‘is likely to be correct that would allow it to serve as a means of escaping the requirements of fairness through the use of mere drafting techniques.’282

4.128 For the CMA, it is not possible to use the core exemption to prevent the assessment of terms which ‘have as their object or effect the creation of an unfair imbalance’ and the CMA give the following terms as examples: •

exclusion clauses;

•

cancellation provisions;

•

disproportionate financial sanctions; and

•

other terms in the CRA, Schedule 2.

The economic rationale is that the core exemption is to allow for the market to operate and competition to take place where the ‘principal obligations or price’ are concerned and therefore not burden them with ‘unnecessary regulation’. For the CMA: ‘only terms that are subject to and constrained by competition have any realistic chance of being seen to fall within ‘the core exemption’.283

For the CMA it is not possible to consider the limbs (CRA, sections 64(a) and (b)) as: ‘…simplistically as applying to two separate and mutually exclusive categories of term – those dealing with what is bought, and those with what is paid.’

CMA Guidance, 3.3.

281

ibid, 3.4.

282

ibid, 3.5. for the inclusion of the core exemption: The CMA cite as the reason for the inclusion of the core exemption: ‘in a free market economy parties to a contract are free to shape the principal obligations as they see fit. The relationship between the price and the goods or services provided is determined not according to some legal formula but by the mechanism of the market’ (from Brandner, HE and Ulmer, P, ‘The Community Directive on Unfair Terms in Consumer Contracts: Some Critical Remarks on the Proposal Submitted by the EC Commission’, (1991) 28 Common Market Law Review 647, 656).

283

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4.129 The first limb has a broader remit, and the CMA, in following Kásler and Matei, considers it can also include terms relating to payment,284 While the second limb has a more limited remit – and for the for CMA, will not ‘exempt payment terms as such – and particularly not indiscriminately’. As clear from the points raised above concerning the cases discussed, what is needed is consideration of whether the contract price is adequate or appropriate compared to what is supplied in return and to the extent it does so. Another way of considering the meaning of ‘adequate’ or ‘appropriateness’ of the price, is that the level (or amount) of the price cannot be assessed for fairness as long as it is assessed ‘against the value of the product’.285 The exclusion from fairness will not prevent consideration of other aspects of a price, such as: •

when the price or parts of the price need to be paid;

•

the method or methods by which the price is paid;

•

where there is a right to vary the amount of the price.

For the CMA, price-setting provisions are more likely to fall within the second limb, but this may not always the case, as it is necessary to consider 1993 Directive, recital 19 where price is seen in the context of ‘the quality/price ratio of the goods or services supplied’. 4.130 For the main subject matter exemption, the CMA Guidance follows Kásler so that only the ‘very essence of the contractual relationship’ will come within this first limb and not ancillary terms.286 The CMA provides simple examples:287 •

within the meaning of an ‘essential obligation’: a term ‘which describe[s] the nature of the goods to be sold’;

•

not within the meaning of an ‘essential obligation’: a term describing delivery arrangements.

The CMA also follows Kásler in indicating that there needs to be an exchange between a term stating the price in return for goods, services or digital content supplied to a consumer to benefit from the core exemption otherwise: ‘[w] here a term makes a charge payable, but not in return for any separately identifiable goods, services or digital content, there is a risk that it may not benefit from the second limb of ‘the core exemption…’.288

Case C26/13, Árpád Kásler and Hajnalka Káslerné Rábai v OTP Jelzálogbank Zrt, para 59

284

CMA Guidance, 3.12.

285

CMA  Guidance, 3.11 and the CMA quote from Case C26/13, Árpád Kásler and Hajnalka Káslerné Rábai v OTP Jelzálogbank Zrt, paras 49 and 50, where contractual terms falling within the first limb ‘must be understood as being those that lay down the essential obligations of the contract and, as such, characterise it’ and ‘By contrast, terms ancillary to those that define the very essence of the contractual relationship cannot fall within the notion of the ‘main subject­ matter of the contract’ within the meaning of Article 4(2) of Directive 93/13’.

286

CMA Guidance, 3.11.

287

ibid, 3.13.

288

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4.131 The CMA provides the following example:289 •

there is complex service contract;

• the contract provides for multiple charges, some payable immediately and some in the future; •

a price setting charge will likely have the benefit of the core exemption if a particular service is supplied in return for that particular charge.

•

if the trader charges an administration fee during the period the trader is providing the service, but the trader is not providing a specific service in return is likely to be an ancillary term and would not have the benefit of the core exemption.

Transparent (plain and intelligible language which is legible) and ‘prominent’ 4.132 The CRA has expanded and reformulated the meaning of ‘plain intelligible language’ found in the 1993 Directive and 1999 Regulations: •

by expanding it to mean that written contract terms are ‘legible’; and

•

by reclassifying its meaning so that the contract term is ‘transparent’ if it is in plain and intelligible language;

• so that a core term in a contract now needs to be transparent and ‘prominent’; and •

so that the meaning of prominent is based on testing the awareness of a core term by an objective standard, that of an ‘average consumer’.

ibid, 3.14. In support of this analysis the CMA cite The Office of Fair Trading v Foxtons Ltd [2009] EWHC 1681 (Ch), which concerned an agreement between Foxtons and a landlord with Foxtons providing lettings services to the landlord. The agreement also contained a term that the landlord had to pay a commission of 2.5% to Foxtons where the landlord sells the property to the tenant. For the court there was no [at 102] ‘question of core terms arises in relation to this term’ and (at [103]): ‘This is a clause which imposes a potentially large financial liability on the landlord in relation to a transaction in which Foxtons have played no material part. The introduction of the tenant as a tenant hardly counts for those purposes. The liability arises before the landlord receives any sale money, and exists even if the contract for sale is not completed. There is an obvious imbalance.’ The judge going to state (at [104]): ‘This is not the sort of clause a consumer landlord would expect when he goes to a letting agent to get a tenant for his property. He is not thinking about selling the property, whether to the tenant or to anyone else. He has agreed to pay a commission to Foxtons for their services in getting him his tenant…It is so far from what he would expect in a document whose opening words thank him “for instructing Foxtons to act on your behalf in marketing your property for rental”, and which thereafter is solely concerned with the consequences and effect of rental, that he would think it had nothing to do with the transaction at all. If invoked against him he would, entirely understandably, think he had been ambushed. It is plainly unfair for the purposes of the Regulations.’

289

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Meaning of transparency 4.133 The requirement for transparency in consumer contracts is found in two provisions of the CRA: CRA, section 64(3): ‘A term is transparent for the purposes of this Part [that is Part 2, all the provisions relating to unfair terms] if it is expressed in plain and intelligible language and (in the case of a written term) is legible.’

And CRA, section 68: ‘(1) A  trader must ensure that a written term of a consumer contract, or a consumer notice in writing, is transparent.290 (2) A consumer notice is transparent for the purposes of subsection (1) if it is expressed in plain and intelligible language and it is legible.’

4.134 Under the CRA it can be important to know if a term is ‘transparent’. For example, a ‘core’ term cannot be subject to the fairness test if it is in ‘transparent’ and now also ‘prominent’.291 There is a general requirement in CRA, section 64(3) that terms are in plain and intelligible language (and be legible if in writing), which is the meaning given to ‘transparent’ – but in that section it is not stated who has this obligation (although it is unlikely that a consumer would be putting forward the terms of a consumer contract). But CRA, section 68, places an obligation on a trader to make a written term ‘transparent’. Its apparent status as a requirement as such is doubtful because the 1993 Directive and CRA do not provide a specific penalty on a trader for failing to do so, but the failure to make a term transparent should impact upon the question of whether it is fair,292 and the CRA has its own rule of interpretation where there is doubt about the meaning of written terms (that of an interpretation favourable to the consumer (which is only applicable in the context of the particular contract and not at the level of preventive actions)).293 4.135 The ECJ in EC Commission v Kingdom of Spain294 did not take the view that there was any distinct requirement, as such, for terms to be in (based on the wording the 1993 Directive) ‘plain intelligible language’ which would allow them to be dealt with simply because of their lack of ‘plain intelligible language’. At the preventive level, they viewed it as necessary to construe terms ‘objectively’ rather than favourably to the consumer so as to make ‘it possible to prohibit more frequently the use of an unintelligible or unambiguous

In effect CRA, s 68(1) needs to be read with CRA.

290

CRA, s 64(2).

291

See para 4.195.

292

CRA, s 69 See para 4.153.

293

Case C-70/03, [2004] ECR 1-7999.

294

325

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term’ to provide ‘wider consumer protection’.295 Plainly such an approach would not have been required had there been a distinct means of attacking a term simply because it is not drafted plainly and intelligibly (and legibly, if in writing). 4.136 However, the CMA considers that wording which is not transparent may not, in itself, be unfair as such. But if the wording is ambiguous, opaque, or permits a consumer not making a fully informed decision, etc. then it can lead: •

to a court favouring the interpretation most favourable to the consumer;

•

to be a lack of good faith on the part of the trader; or

•

to there being a significant imbalance in the contract between the trader and the consumer.296

Transparency and accessibility 4.137 Further, the CMA also takes the view that references to terms being ‘transparent’ should be linked with the issue of the accessibility of the terms to the consumer.: ‘Clarity and legibility in contractual language is widely recognised as desirable in its own right but the Act goes beyond promoting that objective as an end in itself, or as a means to ensure legal certainty. Consistently with the Act’s (and Directive’s) purpose of protecting consumers from one-sided agreements, and the requirement of the Directive that ‘the consumer should actually be given an opportunity to examine all the terms’ (Recital 20), the transparency provisions in the Act have to be understood as demanding ‘transparency’ in the full sense.’297

Proposals 4.138 The Law Commission Report 2005’s proposals for a unified unfair terms regime adopted ‘transparency’ as the limitation upon the ‘core exemption’, rather than merely ‘plain intelligible language’ and it also referred to ‘transparency’ as an element of a proposed fair and reasonable test298 and in the proposed Unfair Contracts Terms Bill attached to the report transparent was defined as:299 ‘(a) expressed in reasonably plain language,

EC Commission v Spain Case C-70/03 at para 16.

295

CMA Guidance, see Part 2 of the Guidance: Fairness and transparency.

296

CMA Guidance, 2.44.

297

Law Commission Report 2005, p 158. ‘Unfair Terms in Contracts’ Law Com No 292, Scot Law Com No 199.

298

Law Commission Report 2005, p 163, as Clause 14(3).

299

326

Chapter 4  Unfair terms in consumer contracts (b) legible, (c) presented clearly, and (d) readily available to any person likely to be affected by the contract term or notice in question’.

4.139 Neither this fair and reasonable test nor this meaning of ‘transparent’ were implemented. However, the implication of the Law Commission Report 2005 is that the wording of 1999 Regulations, Regulation 7(1) (and the 1993 Directive, Article 5) and what is required once read with 1993 Directive, recital 20 is that the quality of the language alone will not suffice for a consumer to be properly informed about the terms on which they are entering into a contract. So that the aim for terms in consumer contracts is ‘to ensure that consumers can make informed choices’.300

ECJ case law 4.140 The ECJ have held that it is not sufficient for contract terms to be: ‘reduced merely to their being formally and grammatically intelligible’.301

For them to be in plain and intelligible language more is required. The ECJ has in recent judgments indicated the scope of the wording of 1993 Directive, Article 4(2), including: RWE Vertrieb AG v Verbraucherzentrale Nordrhein-Westfalen e.V.,302 the ECJ in effect linked 1993 Directive, Article 5 to recital 20:

•

‘Directive 93/13 imposes, secondly, in Article 5, an obligation on the seller or supplier to draft terms in plain, intelligible language. The 20th recital in the preamble to Directive 93/13 specifies that the consumer must actually be given an opportunity to examine all the terms of the contract.’303

4.141 And going on to indicate: ‘Information, before concluding a contract, on the terms of the contract and the consequences of concluding it is of fundamental importance for a consumer. It is on the basis of that information in particular that he decides whether he wishes to be bound by the terms previously drawn up by the seller or supplier.’304 •

Árpád Kásler, Hajnalka Káslerné Rábai v OTP Jelzálogbank Zrt, a case involving a mortgage between a borrower and a bank concerning a ‘mortgage loan denominated in foreign currency secured by a guarantee’: 

CMA Guidance, 2.42.

300

Case C-26/13 – Árpád Kásler, Hajnalka Káslerné Rábai v OTP Jelzálogbank Zrt, para 71.

301

Case C‑92/11.

302

ibid, para 41.

303

ibid, para 44.

304

327

Chapter 4  Unfair terms in consumer contracts ‘…Article  4(2) of Directive 93/13 [the core exemption] must be interpreted as meaning that, as regards a contractual term such as that at issue in the main proceedings, the requirement that a contractual term must be drafted in plain intelligible language is to be understood as requiring not only that the relevant term should be grammatically intelligible to the consumer, but also that the contract should set out transparently the specific functioning of the mechanism of conversion for the foreign currency to which the relevant term refers and the relationship between that mechanism and that provided for by other contractual terms relating to the advance of the loan, so that that consumer is in a position to evaluate, on the basis of clear, intelligible criteria, the economic consequences for him which derive from it.’305

Bogdan Matei, Ioana Ofelia Matei v SC  Volksbank România SA306 a case involving two loans from a bank and the bank having a right under the loan agreements to impose a ‘risk charge’:

•





‘transparency’ cannot be reduced to a formality: ‘that the requirement of transparency of contractual terms laid down by Articles  4(2) and 5 of Directive 93/13, which, moreover, have identical scope, cannot be reduced merely to their being formally and grammatically intelligible’;307





that the wording has to set out clearly the mechanisms for calculating the interest rates and how that relates to other provisions relating to the price paid by the borrower for the banking services: ‘that it is of fundamental importance, for the purpose of complying with the requirement of transparency, to determine whether the loan agreement sets out transparently the reasons for and the particularities of the mechanism for altering the interest rate and the relationship between that mechanism and the other terms relating to the lender’s remuneration, so that the consumer can foresee, on the basis of clear, intelligible criteria, the economic consequences for him which derive from it’.308





so that term which gave a right by a lender to vary the interest rate of the loan because of ‘significant changes in the money market’ was not transparent because the increases in the rate were not foreseeable by the consumer. Other EU case law makes what are essentially the same points. The effect is that formal compliance to comply with CRA, section 68(1) is not enough and that 1993 Directive, Article 5:

Case C-26/13 – Árpád Kásler, Hajnalka Káslerné Rábai v OTP Jelzálogbank Zrt, para 75.

305

Case C‑143/13 – Bogdan Matei, Ioana Ofelia Matei v SC Volksbank România SA.

306

ibid, para 73, 73.

307

ibid, para 74.

308

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‘…must be read subject to Recital 20, which states that not only should contracts be drafted in plain, intelligible language, but that “the consumer should actually be given an opportunity to examine all the terms”. It follows that terms should not only use the right language but should also be legible and available. Terms cannot be acceptable under the UTD if they are too small to read. We therefore developed the concept of “transparency”…’.309

CMA Guidance 4.142 This is a point made by the CMA in its current guidance that the consumer is: ‘…put into a position where they can make an informed choice whether or not to enter into the contract. The consumer needs to have a proper understanding of the contract for sensible and practical purposes. It should set out all obligations and rights in a clear and comprehensible way, so that the consumer is able to see how they relate to each other, and can foresee and evaluate, at the time of conclusion of the contract, the consequences they may have in the future.’310

It may be necessary to give more, or a more detailed, explanation where technical or complex issues need addressing in the consumer contract so that a consumer: ‘understands the details of how a particular transaction or market operates’.311

There should be enough information given (whether in the contract or in supporting information provided separately to the contract) so that: ‘the consumer understands both the words used and the practical implications of any unavoidably difficult terms and their relationship with his or her other rights and obligations’.312

4.143 The additional requirement for written terms of a contract under CRA, section 68(1), and which is not present in 1999 Regulations, is that they are legible. This is not further defined in CRA and the Law Commission in its 2013 report felt that, in effect, no more should be stated that when a term is in writing it should be legible (and by ‘this we mean legible to most consumers of the product’).313 For the CMA legibility means or concerns: •

the print is clear;

•

the size of the font used;

Law Commission Report 2013, para 6.50.

309

CMA Guidance, 2.46.

310

ibid, para 2.47.

311

ibid.

312

Law Commission Report 2013, para 4.19.

313

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•

the layout;

•

the colour of the font;

•

the type of background which is behind the text; and

•

the quality of paper if used.314

4.144 The CMA view is that the starting point in any analysis of whether a term is transparent is that ‘consumers need to be able to understand their rights and obligations’.315 This will mean: •

terms are intelligible to the ‘average’ consumer (‘taking into account, for instance, the nature of the goods, services or digital content provided’);

•

the use of ordinary words in their normal sense, to the extent possible;

•

not to use ‘words which are literally unintelligible such as where there is a ‘vagueness of language [so that] their effect is likely to be unclear or misleading to the average consumer’;316

• for terms to be ‘fully intelligible’ there is a need for ‘clarity in the way terms are organised’: by means of: 



short sentences;





breaking up the text of the contract under sub-headings;





sub-headings which are easy to understand; and





the sub-headings grouping together similar issues;

• expressing a term clearly and precisely for legal purposes will not meet the requirement by itself that the term is transparent, because: ‘the purpose of transparency is to ensure that the average consumer is properly informed. Consumers do not normally act on legal advice, so precise legal terminology does not generally assist them in their decisionmaking. An example of unhelpful legal drafting is the inclusion of references to statute in exclusion clauses. This may be intended to ensure that the law treats such clauses as fair, but the CMA considers that where a wide exclusion clause is qualified merely by a statement that the trader’s liability is excluded only to the extent permitted by statute, it is highly likely not only to cause an unfair imbalance but also to be in breach of the transparency provisions in the Act…’;317

•

where it is necessary to make a consumer aware of relevant legal provisions to protect a consumer it is not sufficient to merely make a reference to the ‘name or allude to the relevant legal provisions – consumers must be put

CMA Guidance, 2.53.

314

ibid, para 2.51.

315

CMA Guidance, ibid.

316

ibid, 2.54.

317

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in a position of being able to understand their effects’ – such as the trader setting out the content of the relevant provisions;318 • that the above requirements can also apply even though there is the use of straightforward language or wording, because what appears to be ‘relatively straightforward technicalities can have onerous implications of which the consumer are likely to be unaware’319 – with the CMA considering words such as ‘indemnity’, ‘that your statutory rights are not affected’, etc being particularly problematic. 4.145 A contract may be expressed in clear language (that it is transparent), but that may not be enough if the consumer does not have a reasonable opportunity to examine all its terms (see 1993 Directive, recital 20). For a long contract or one which includes technical or complex issues (for which the consumer may to look elsewhere for an explanation) then simply allowing a consumer time consider its provisions may not be enough. One way of ensuring that a consumer has a ‘fuller opportunity to examine is if a ‘coolingoff period’ (including a cancellation right) is provided’.320 Transparency also cannot be met where legally precise and clear language is used in term if the result is that the consumer is not properly informed: ‘While it is desirable that terms are clear and precise for legal purposes, legal precision alone will not suffice to meet the transparency test. This is because the purpose of transparency is to ensure that the average consumer is properly informed. Consumers do not normally act on legal advice, so precise legal terminology does not generally assist them in their decision-making’.321

Prominent and the ‘average consumer’ 4.146 For a core term to be exempt from consideration as to whether it is fair it is necessary to be transparent as well as ‘prominent’, which CRA, section 64(4) defines as: ‘A term is prominent for the purposes of this section if it is brought to the consumer’s attention in such a way that an average consumer would be aware of the term.’

The requirement for a core term to be ‘prominent’ is not found in in the 1993 Directive as such (or implemented in provisions prior to CRA), but for the CMA its use is compatible with an interpretation of the core exemption so that only ‘the ‘principal obligations’ or price terms which are subject to

ibid, 2.55.

318

ibid, 2.56.

319

ibid, 2.57. But allowing such a period or right in itself will not be enough if the there is a lack of transparency ‘whether it arises from gratuitous lack of clarity of language or more fundamental problems inherent in the nature of the contract provisions’.

320

CMA Guidance, 2.54

321

331

Chapter 4  Unfair terms in consumer contracts

the correcting forces of competition and genuine decision-making are fully assessable for fairness’.322 There is a defined meaning of an ‘average consumer’ in CRA, section 64(5): ‘In subsection (4) “average consumer” means a consumer who is reasonably wellinformed, observant and circumspect.’

4.147 The Law Commission Report 2005 considered that a core term such as one concerning price may still not sufficiently brought to the attention to a consumer if contained in terms and conditions which are only available via for example a link, although the term may be written in plain intelligible language and laid out in a legible way. Their view was that such a term is only exempt if it is ‘prominent’: ‘By this we mean that it is presented during the sales process in such a way that a reasonable consumer would be aware of the term even if they did not read the full contractual document. Our intention is that the consumer should be aware of the “essential bargain”. In other words they should know what they have to pay and what they will receive in return.’323

And the Law Commission Issues paper suggested that the common law rule should be followed that the more onerous term is the more prominent it has to be: ‘This is in line with the policy behind the general common law rule that a party should take steps to bring particularly unusual or onerous terms to the other party’s attention. In business to business contracts, such a rule would only apply where a contract was not signed. In business to consumer contracts we think it should apply even if the contract is signed, given how readily consumers agree to terms they have not read.’324

4.148 The Law Commission proposed that to determine whether a term was prominent it was necessary to use an objective standard of the notional ‘average consumer’ (as formulated by EU case law), that is: ‘[a] hypothetical person [who] is “reasonably well informed, reasonable observant and circumspect”, but their “level of attention is likely to vary according to the category of goods and services in question”. Even circumspect consumers do not spend their lives scrutinising every term of every product…’.325

The Law Commission Report 2013 recommended that the test for whether a term was prominent should be expressed in general terms so it would be ibid, 3.8.

322

Law Commission Issues paper, para 8.26.

323

ibid, para 8.27 and the case law which highlighted this point: Interfoto Pictures Library Ltd v Stiletto Visual Programes Ltd [1989] 1 QB 433. See para 1.62.

324

Law Commission Issues paper, para 8.29. As referenced in this paragraph from the paper the wording in the first quote is found in Consumer Protection from Unfair Trading Regulations 2008, reg 2(2) which mirrors that in Case C-210/96 Gut Springenheide GmbH and Rudolf Tusky v Oberkreisdirektor des Kreises Steinfurt-Amt für Lebensmittelüberwachung. And for the second quote referenced are Joined Cases T-183/02 and T184/02 El Corte Inglés v Office for Harmonisation in the Internal Market (Trade Marks and Designs) [2004] ECR II-00965, para 68.

325

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Chapter 4  Unfair terms in consumer contracts

possible to apply the test across all industry sectors, with necessary detail set out in guidance.326 As implemented in the CRA, the wording used does not go further than stating that a term is prominent: ‘if it is brought to the consumer’s attention in such a way that an average consumer would be aware of the term.’327

4.149 The background to the introduction to the term ‘prominent’ was to prevent traders from mentioning a headline price and then hiding in the terms and conditions other charges and costs: ‘There are particular problems where traders use hidden price terms, which undermine the competitiveness of the market. It is too easy for traders to gain market share by offering low headline prices, and then adding hidden extras. This causes detriment to consumers and disadvantages honest traders who are upfront about their charges.’328

The Law Commission Report 2013 noted that there is an overlap between the concepts of transparent and prominent but: ‘transparent terms will not always be prominent, prominent terms will usually be available and legible. Even prominent terms, however, may not necessarily be in plain and intelligible language, and we need to preserve this important element of the [1993 Directive]. We think that a term should only be exempt when both tests are satisfied.’329

Older guidance 4.150 Although not repeated in the current guidance issued by the CMA the following still provides useful practical illustration of what transparent wording can mean (although using the 1999 Regulations wording of ‘plain intelligible language’). The OFT took the view that: ‘what is required is that terms should be intelligible to ordinary members of the public, not just lawyers. It is not sufficient for terms to be clear and precise for legal purposes, except in contracts normally entered only on legal advice’.330

4.151 Further, just as what may be regarded as ‘plain intelligible language’ may alter if the contract is one normally only entered on legal advice, there may be an issue if the trader commonly enters contracts in a situation where he, or she, should be aware that the consumer is not, or the relevant group of

Law Commission Report 2013, para 4.42.

326

CRA, s 64(4).

327

Law Commission Report 2013, para 2.39.

328

ibid, para 4.47.

329

Office of Fair Trading ‘Unfair Contract Terms Guidance’ Feb 2001, para 19.3. For the more up-to-date view of the CMA on this point see paras 4.132 and 4.145.

330

333

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consumers are not, competent in English.331 Certainly, in such a case, even if the question of ‘plain intelligible language’ was not affected as such, it would seem that there would be an impact upon the fairness test and, in particular, the element of good faith.332 4.152 Some specific points can be made in relation to what constitutes ‘plain intelligible language’: •

a contract drafted to be used with other commercial parties may well not be appropriate in the consumer context;333

• the fact that the terms will normally be viewed relative to a consumer without legal advice means that generally technical legal terminology should not be used; and ‘the Office of Fair Trading does not restrict its objections to obviously obscure jargon. Relatively straightforward technicalities, such as references to “indemnity” … can have onerous implications of which consumers are likely to be unaware’;

•

terminology such as ‘consequential loss’, ‘time is of the essence’,334 ‘force majeure’,335 ‘lien’336 and ‘liquidated damages’337 should be avoided.

•

a reference to ‘liquidated damages’ was, for example, replaced by one to ‘agreed damages’;338 and

•

a term retaining ‘title’ to goods until payment was replaced by one stating: 





‘We shall retain ownership of the goods until you have finished paying for them’;339

if technical language is unavoidable, its meaning should be made clear.340

• The OFT found that the scope of a repairing obligation in a tenancy agreement should be made clear to the consumer:341

Compare the situation in relation to the requirements of incorporation by notice where the party putting forward the terms should realise that the other party is from a group which has difficulties beyond the normal in understanding the notice: Richardson, Spence v Rowntree [1894] AC 217.

331

Lowe & Woodroffe, Consumer Law and Practice (4th edn) (Sweet and Maxwell) at 154–5.

332

For example Office of Fair Trading Bulletin 5 at 29 (Emanuel Spence Ltd).

333

Office of Fair Trading Bulletin No 3 at 19.

334

Office of Fair Trading Bulletin No 2 at 2.14.

335

Office of Fair Trading ‘Unfair Contract Terms Guidance’ Feb 2001, p 160.

336

ibid, p 161.

337

ibid, p 161.

338

ibid, p 165.

339

Office of Fair Trading Bulletin No 3 at 19.

340

Office of Fair Trading ‘Guidance on Unfair Terms in Tenancy Agreements’ Nov 2001, para 19.14.

341

334

Chapter 4  Unfair terms in consumer contracts ‘Tenancy agreements normally include specific provisions for dealing with repairs. There are certain common expressions used in these agreements which have particular legal constructions. For example, the requirement to “keep a property in good repair” obliges the tenant to put the property in repair at the start of the tenancy if it is in a state of disrepair. Tenants will not necessarily understand the scope of the repairing obligation unless it is clearly brought to their attention’.

•

Concerning terms and that a consumer will be without legal advice means, a particular difficulty is raised in relation to references to statutes. ‘Wide exclusion clauses, qualified by reference to statute … may not be unclear or uncertain in law, but if consumers cannot understand the statutory references, they may be prevented or deterred form pursuing legitimate claims’.342

• The phrase ‘this does not affect your statutory rights’ is sometimes required,343 but the view taken by the OFT that it is not a phrase which is intelligible to consumers344 and that it cannot rehabilitate an ‘unfairly broad exclusion clause’.345

Construction Particular contracts 4.153 CRA, section 69(1), states: ‘If a term in a consumer contract, or a consumer notice, could have different meanings, the meaning that is most favourable to the consumer is to prevail.’

Although the substance of this provision is the same as under the 1999 Regulations346 there are two changes: •

the provision is no longer restricted to a written term; and

•

the provision now also extends to consumer notices.

CRA, section 69(2) provides that CRA, section 69(1): ‘does not apply to the construction of a term or a notice in proceedings on an application for an injunction …under paragraph 3 of Schedule 3’. 347

Office of Fair Trading ‘Unfair Contract Terms Guidance’ (Feb 2001), para 19.4.

342

Consumer Transactions (Restrictions on Statements) Order 1976, SI 1976/1813.

343

Office of Fair Trading Bulletin No 2 at 2.18.

344

Office of Fair Trading Bulletin No 3 at 12.4.

345

1999 Regulations, reg 7(2) provided: ‘If there is doubt about the meaning of a written term, the interpretation which is most favourable to the consumer shall prevail but this rule shall not apply in proceedings brought under regulation 12’.

346

CRA, Sch 3, para 3 sets out the circumstances when a regulator can obtain an injunction.

347

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4.154 In other words, the rule of construction in CRA, section 69(1) is concerned with the application of the CRA in the context of a particular dispute between a consumer and a trader. The ECJ has emphasised this division in the application of the construction rule between the particular contract and the preventive level in interpreting the Directive.348 4.155 In the context of particular contracts, the rule of construction in CRA, section 69(1) is a version, in effect, of the familiar common law contra proferentem.349 It appears CRA, section 69(1) will only apply where there is an ambiguity in the meaning of the contract term or consumer notice under consideration,350 not where there is ‘a single and obvious construction’ as to its meaning.351 That is that the statutory contra proferentum rule under CRA, section 69(1) should be applied in the same way as common law rule: ‘In my judgment, there is no material difference between the principle of construction in reg 7(2) and the contra proferentem rule. In The Financial Services Authority v Asset LI  Inc [2013]  EWHC  178 (Ch), Andrew Smith J  said that they were “to much the same effect”. I  respectfully agree. The fact that the contra proferentem rule is a matter of common law whereas reg 7(2) is a creature of statute is no reason to differentiate between their applications; the 1999 Regulations give wholesale effect to a European Directive and it is unnecessary to suppose that they were intended to affect the common law relating to contractual interpretation. The occasions on which the principle of construction and the common-law rule apply are the same: their operation is limited to cases of genuine interpretative doubt or ambiguity: see du Plessis v Fontgary Leisure Parks Ltd [2012] EWCA Civ 409, at 40. … If the normal principles of construction yield a clear preference, even of two competing interpretations over one, the remaining ambiguity applies only to the preferred interpretations; all others have been rejected before invoking any rule or principle of last resort; and they are still rejected, even if they remain possible interpretations in the sense that there is room for other courts or judges to favour them – a common enough state of affairs in appellate courts. Neither at common law nor, in my view, under reg 7(2) is the court that invokes what I may call the tie-breaker required or permitted to apply it in favour of an interpretation that has already been rejected by means of the application of the normal canons of construction.’352

4.156 The following was in effect accepted as a summary of how to apply CRA, section 69(1): ‘(a) [CRA, s 69(1)] only applies in circumstances where the common law “contra proferentum” rule would also apply, namely in cases of genuine interpretative doubt or ambiguity;

Case C-70/03 – Commission of the EC v Kingdom of Spain.

348

Peabody Trust Governors v Reeve, [2008] 43 E.G. 196. See also para 2.42.

349

Du Plessis v Fontgary Leisure Parks Ltd [2012] EWCA Civ 409.

350

Higgins & Co Lawyers Ltd v Evans [2019] EWHC 2809 (QB).

351

A J Building and Plastering Ltd v Turner [2013] EWHC 484 (QB), [53]; applied in Khurana and another v Webster Construction Ltd [2015] EWHC 758 (TCC).

352

336

Chapter 4  Unfair terms in consumer contracts (b) in deciding whether or not there is genuine interpretative doubt or ambiguity the usual common law principles of construction should be applied; (c) thus it is only in cases where the application of those usual common law principles of construction produce genuine doubt or ambiguity as to which interpretation should apply that the court should adopt the interpretation most favourable to the consumer.’353

In general 4.157 In relation to the rule of construction indicated above, it is possible to draw a distinction between the particular contract and the policing of CRA, Part 2 at the preventive level. As has been indicated, the rule of construction in CRA, section 69 does not apply when terms are being addressed at the preventive level. At that preventive level, the fairness of the terms should simply be assessed on the basis of the interpretation which is least likely to lead to the terms’ classification as fair, although, in giving a meaning to a term, the lack of clarity in its drafting should not be forgotten as at least354 a factor indicative of unfairness in its own right.355 However, in Commission of the European Communities v Kingdom of Spain356 the ECJ envisaged an ‘objective’ interpretation at the preventive level which seems to mean that doubts as to the interpretation of a term are not resolved on the basis of the construction which is most favourable to the consumer, but simply by adopting the objectively most likely interpretation: ‘The distinction made in Article 5 [of the 1993 Directive, now implemented as CRA, 69] of the directive concerning the applicable rule of interpretation, as between actions involving an individual consumer and actions for cessation which involve persons or organisations representative of the collective interest of consumers may be accounted for by the different aims pursued by those actions. In the former case, the courts or competent bodies are required to make an assessment in concreto of the unfair character of a term contained in a contract which has already been concluded, while in the latter case it is their task to assess in abstracto the unfair character of a term which may be incorporated into contracts which have not yet been concluded. In the former case, an interpretation favourable to the individual consumer concerned benefits him or her immediately. By contrast, in the latter case, in order to obtain, by way of prevention, the most favourable result for consumers as a whole, it is not necessary, where there is doubt, to interpret the term in a manner favourable to them. Accordingly, an objective interpretation makes it possible to prohibit more frequently the use of an unintelligible or ambiguous term, which results in wider consumer protection.357

Khurana and another v Webster Construction Ltd [2015] EWHC 758 (TCC), [55].

353

In relation to the question of a requirement of transparency see below.

354

See para 4.195.

355

Case C-70/03.

356

Case C-70/03 – Commission of the European Communities v Kingdom of Spain, para 16.

357

337

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Unfair terms Background to the assessment 4.158 The unfairness test is dealt with in: •

CRA, sections 62(4) and 62(5) for terms, and there is also an indicative and non-exhaustive list of terms that may be unfair in CRA, Schedule 2; and

•

CRA sections 62(6) and 62(7) for notices.

CRA, section 62(4) sets out ‘the test’358 for determining whether a term is unfair, so that: ‘[a] term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer’.

CRA, section 62(6) for notices is similarly worded, other than not referring to a contract: ‘A notice is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations to the detriment of the consumer’.

4.159 However, CRA, section 62(4) will be returned to below. Initially here, consideration will be given to CRA, section 62(5) for term which sets out the circumstances to be taken into account in the application of the test. It states: ‘Whether a term is fair is to be determined— (a) taking into account the nature of the subject matter of the contract, and (b) by reference to all the circumstances existing when the term was agreed and to all of the other terms of the contract or of any other contract on which it depends.’

4.160 Again, for notices (CRA, section 62(7)), the wording is similar as for a term, except the circumstances that are taken into account are those when the rights and obligations to which then notice relates arose. As can be seen, fairness involves a wide-ranging assessment. All the other terms of the contract are relevant, and that includes the ‘core’ terms which are not themselves subject to the fairness test if they transparent (and prominent, as implemented in CRA).359 The terms of other ‘dependent’ contracts are made specifically relevant.360

‘The nature of the subject matter of the contract’ 4.161 The current guidance issued by the CMA makes no specific points as regards the reference to ‘the nature of the subject matter of the contract’, but cases decided before the implementation of CRA indicated that it should be capable of a broad sweep, ranging from:

Director General of Fair Trading v First National Bank [2002] 1 All ER 97 per Lord Bingham, [17].

358

1993 Directive, recital 19.

359

UCTA, s 10 – see para 3.192.

360

338

Chapter 4  Unfair terms in consumer contracts

•

the bare essentials of what was contracted to be supplied to such matters as the risks361 involved in the supply/acquisition (and their insurability);

•

the complexity of what is being supplied;

•

what the consumer knew, or might be expected to know, about it;

• whether it was a ‘normal’ consumer transaction or one in relation to which the consumer received; or •

whether the consumer was likely to have received, professional advice.362

‘All the circumstances existing when the term was agreed’ 4.162 The wording here under CRA represents a change over that in the 1999 Regulation where the equivalent phrase is ‘taking into account the nature of the goods or services for which the contract was concluded’.363 Whether this change makes any substantive difference is not clear as the CRA version only refers to a ‘term’ and not all the circumstances relating to the contract. For ‘all the circumstances existing when the term was agreed’ the CMA in its guidance notes that: • for a contract between a trader and a consumer involving a single transaction determining what the ‘all the circumstances existing when the term was agreed’ is not ‘inherently difficult’;364 but •

for enforcement action, the position can be more challenging as it will be necessary to look at ‘consumer transactions generally’ rather than ‘all the circumstances existing when the term was agreed’. For the CMA here, it is necessary for a regulator to use not a specific consumer as a reference but a ‘correctly defined hypothetical consumer’365 and to take account of ‘the effects of contemplated or typical relationships between the contracting parties’.366

Munckenbeck & Marshall v Harold [2005] EWHC 356 at [15].

361

Bryen & Langley v Boston [2004] EWHC 2450 (TCC) at [45].

362

1999 Regulations, reg 6.1.

363

CMA Guidance, 2.34.

364

ibid, 2.35. The CMA cites Office of Fair Trading v Foxtons Ltd [2009] EWCA Civ 288, [47] (where the Court of Appeal was interpreting the equivalent provision under the 1999 Regulations) in support of this point: ‘The object of providing for a general challenge is to provide an effective way of protecting consumers who may be reluctant to resist letters from or proceedings taken by the more powerful suppliers. If the general challenge succeeds in relation to standard terms being used in current contracts, the court will have found that those particular terms in use in a standard form of contract with consumers was unfair. It is a mischaracterisation of the court’s finding that it has simply found a term to be unfair in a “typical case”. The true position is that it has found those terms to be unfair in a consumer contract using as its touchstone the typical consumer so as to apply the art 4 criteria as best it can.’

365

Director General of Fair Trading v First National Bank plc [2001] UKHL 52, [33].

366

339

Chapter 4  Unfair terms in consumer contracts

4.163 For the CMA it is only possible to take account of what was in the contemplation of the parties ‘at the time of agreeing to a term as regards its likely effect as drafted’, because what the trader does after the contract is agreed is not in the contemplation of the parties. Although ‘all the circumstances’ can include taking account of circumstances which are likely to arise during the operation of the contact which ‘were of such a nature that they could affect the future performance of the contract’.367 For example: ‘where a trader’s enforcement of a term turns out to involve some form of harassment, the term is not unfair because it fails to forbid such conduct, as opposed to positively permitting it.’368

In such a situation it is necessary to use: • the 2008 Regulations (concerning remedies available for aggressive commercial practices); or •

the remedies under the general law of contract.

4.164 In assessing fairness, what traders and others tell a consumer as to the likely effects of a contract can form one of the circumstances which can be taken account when assessing fairness. But where a consumer is, in fact, misled such an occurrence is a separate issue to that of contractual fairness so that: ‘For the purposes of unfair contract terms legislation, the essential question is whether an unfair imbalance exists in rights and obligations under the contract – for example whether the term has the potential to exclude liability for statements made by the business.’369

Prior to CRA, more detailed commentary was provided concerning the meaning of ‘all the circumstances existing when the term was agreed’, which expands on the briefly set out guidance now issued by the CMA and provides useful information on the type of factors which should be taken into account. 4.165 Prior to CRA the reference to the ‘circumstances attending the conclusion of the contract’ (the wording used in 1999 Regulations, Regulation 6(1)) should encompass, among other things, the type of factors which the Law Commissions in their 2005 report rolled up in the issue of transparency, whether the terms were: •

‘expressed in reasonably plain language’;

• ‘legible’; •

‘presented clearly’ and ‘readily available to any person likely to be affected by the contract term’,370

Case C‑186/16 – Ruxandra Paula Andriciuc and Others v Banca Românească SA, para 54.

367

CMA Guidance, 2.36.

368

ibid, 2.37.

369

Clause 14(3), draft Bill, ‘Unfair Terms in Contracts’ Law Com No 292, Scot Law Com No 199.

370

340

Chapter 4  Unfair terms in consumer contracts

as well as, for example, matters such as bargaining power and the availability of alternatives. The Law Commission in its 2005 report provided a non-exclusive list of factors relevant to the ‘fair and reasonable’ test which they proposed for unified unfair terms legislation and is a useful list of potentially, factually, relevant factors in this context. Clause 14(4) of the draft Bill listed: ‘(a) the other terms of the contract (b) the terms of any other contract on which the contract depends (c) the balance of the parties’ interests (d) the risks to the party adversely affected by them (e) the possibility and probability of insurance (f) other ways in which the party adversely affected by the term might have been protected (g) the extent to which the term (whether alone or with others) differs from what would have been the case in its absence (h) the knowledge and understanding of the party adversely affected by the term (i) the strength of the parties’ bargaining position (j) the nature of the goods or services to which the contract relates’.

4.166 A  further breakdown of relevant factors were provided in the explanatory notes to the draft Bill in relation to matters relevant to the affected party’s ‘knowledge and understanding’ (referred to in para (h) above) and the strength of the parties’ bargaining positions (referred to in para (i) above)371 and those lists would also seem to be factually useful here.

‘Unfair Terms in Contracts’ Law Com No 292, Scot Law Com No 199, draft Bill, notes 44 and 45 respectively. Note 45 to the draft Bill stated:   ‘[Considering] “the strength of the parties’ bargaining position” (clause 14(1)(i)) may involve questions such as: (a) whether the transaction was unusual for either or both of them (b) whether the complaining party was offered a choice over a particular term (c) whether that party had a reasonable opportunity to seek a more favourable term (d) whether that party had a realistic opportunity to enter into a similar contract with other persons but without that term (e) whether the party’s requirements could have been met in other ways (f) whether it was reasonable, given the party’s abilities, for him or her to have taken advantage of any choice offered under (b) or available under (e)’.   Note 44 lists as relevant to knowledge and understanding – ‘(a) any previous course of dealing between the parties (b) whether the party knew of a particular term (c) whether the party understood its meaning and implications (d) what a person other than the party, but in a similar position, would usually expect in the case of a similar transaction (e) the complexity of the transaction (f) the information given to the party about the transaction before or when the contract was made (g) whether the contract was transparent (h) how the contract was explained to the party (i) whether the party had a reasonable opportunity to absorb any information given (j) whether the party took professional advice or it was reasonable to expect the party to have done so, and (k) whether the party had a realistic opportunity to cancel the contract without charge’.

371

341

Chapter 4  Unfair terms in consumer contracts

The ‘time frame’ from which the factors relevant to fairness are to be derived is specifically identified in CRA, section 62(5) as that of ‘when the term was agreed’. However, the fairness test applies at two levels: •

at the level of the particular contract; and also

•

at that of the preventive action.

4.167 Some questions are obviously posed in relation to the assessment at the latter level – there is no particular contract in question. It was acknowledged as so in 1999 Regulations, Regulation 6(1) (the predecessor to CRA, section 62(5)) as that provision is ‘without prejudice to reg  12’. CRA, Part 3 now contains detailed provisions concerning enforcement powers by the CMA and local trading standards departments and others. In Director General of Fair Trading v First National Bank, in relation to the assessment of fairness at the preventive level, Lord Steyn commented:372 ‘The Directive and the Regulations must be made to work sensibly and effectively and this can only be done by taking into account the effects of contemplated or typical relationships between the contracting parties. Inevitably, the primary focus of such a pre-emptive challenge is on issues of substantive unfairness.’

4.168 Lord Steyn’s reference to ‘contemplated or typical relationships’ would seem to be what should be emphasised here. His stressing of ‘issues of substantive unfairness’ as the ‘primary focus’ of the unfairness issue at this level raises some concerns. What is basically in issue under what is now CRA is the fairness of standard form contracts. The test of fairness should not simply be dominated by substantive factors even at the preventive level. Also is the impact of the ‘time frame’ of the assessment of fairness on the relevance of a particular breach or the way in which a contract was operated. In relation to neither the particular contract, nor the general question, is an actual breach, or the actual operation of a contract, of any relevance to the fairness test. However, its foreseeable operation may be highly significant. Under the UCTA 1977, which operates the reasonableness test under a similar approach to the time frame of the assessment, an exemption clause may operate reasonably in relation to the breach which has occurred, but fail to satisfy the requirement of reasonableness because of its potential coverage,373 and the same should apply under CRA. Similarly, although a clause may be ‘neutral’ on its face, it may be found unfair on the basis of the way it will generally operate. In Office of Fair Trading v MB  Designs374 (a case decided when 1999 Regulations was in force) the court was faced with the argument that an entire agreement clause was not an unfair term as it was ‘neutral’. It was contended by the trader that its object was to achieve clarity for both

Director General of Fair Trading v First National Bank [2002] [2001] UKHL 52, [33].

372

Stewart Gill v Horatio Myer & Co [1992] 2 All ER 257, see 3.233.

373

(2005) SLT 691.

374

342

Chapter 4  Unfair terms in consumer contracts

parties and that it could work for or against the consumer.375 The court held that ‘what matters is the generality of cases’ and that it seemed: ‘obvious that the main practical effect of terms of this nature will be to prevent the customer relying on representations made by the [the supplier’s] salesman’.

4.169 The court thought such cases ‘were likely to represent the vast majority of cases where the clauses in question are relevant’. However, a practice of using fairly a term which is widely enough drafted to be unfair should not save it: without redrafting the potential for unfairness remains. The OFT considered that:376 ‘The test of unfairness takes note of how a term could be used. If a term is so widely drafted that it could be used in such a way as to cause consumer detriment, then it is open to challenge. The Office of Fair Trading cannot regard such a term as fair solely on the basis of protestations that it is not in practice used unfairly’.

The OFT also made the point that if it is claimed that a term is not, in practice, used unfairly, it may be drafted too widely, and if rewritten to reflect actual practice might then be fair.377

The basic test 4.170 As has been indicated, the test of unfairness – ‘the definition of what is or is not an unfair term for the purposes of [CRA]’378 – is set out in CRA, section 62(4) which states: ‘A term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer.’

There is also assistance to be gained in the application of the test in the ‘grey list’ of terms which ‘may’ be unfair in CRA, Schedule 2. 4.171 There are two basic elements in the test of unfairness: • significant imbalance in the parties’ rights and obligations to the detriment of the consumer; •

the requirement of good faith.

Office of Fair Trading v MB Designs (2005) SLT 691, [43].

375

Office of Fair Trading Bulletin 3 at 7. See also Bulletin 1 at 2.6. But see Bulletin 2 at 2.11: ‘Whenever a consumer contract is brought to our notice by a complainant who believes that it contains a standard term that is unfair we examine the contract as a whole and look at all the circumstances in which it is likely to be used …’

376

Office of Fair Trading Bulletin 3 at 7, Bulletin 5 at 15. Although the current CMA Guidance does not repeat this point, elsewhere the Guidance notes about a trader’s intention to only use widely drafted term in a restrictive fashion or for a particular purpose still leaves open the possibility that the trader can use it more widely, and in such a case such a term can be unfair.

377

Lovell Projects v Legg [2003] BLR 452, [27].

378

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Chapter 4  Unfair terms in consumer contracts

The test could be seen as involving three elements, with ‘to the detriment of the consumer’ being given a distinct status, but ‘it does not add much’, merely serving: ‘to make clear that the Directive is aimed at significant imbalance against the consumer rather than the seller or supplier’.379

In Director General of Fair Trading v First National Bank Lord Bingham stated that the unfairness test was: ‘[a] composite test, covering the making and the substance of the contract’.380

4.172 Further, the line has been taken that a term will not be unfair unless it produces a ‘significant imbalance’ and is ‘contrary to the requirement of good faith’. Under the 1999 Regulations it was said that ‘a term which has not been individually negotiated will only be relevantly “unfair” if it causes the relevant imbalance “contrary to the requirement of good faith”’,381

so that in Bryen & Langley v Boston, once the Court of Appeal had decided that there was no lack of good faith on the supplier’s part, it did not view it as necessary to decide whether the term in question caused a significant imbalance.382 However, in the ECJ case of Freiburgerer Kommunalbauten GMBH  Baugesellschaft & Co KG  v Hofstetter383 it was held that a significant imbalance may be such that nothing further is required to show a lack of good faith.384 The elements of the test will be considered below, but before then some further preliminary points should be made. 4.173 In Director General of Fair Trading v First National Bank, having referred to the fairness test, Lord Millett identified some indicators which may prove useful in its application385: ‘There can be no one single test of [1999 Regulations, reg  5(1)]. It is obviously useful to assess the impact of an impugned term on the parties’ rights and obligations by comparing the effect of the contract with the term and the effect it would have without it. But the inquiry cannot stop there. It may also be necessary to consider the effect of the inclusion of the term on the substance or core of the transaction; whether if it were drawn to his attention the consumer would be likely to be surprised by it; whether the term is a standard term, not merely in similar non-negotiable consumer contracts, but in commercial contracts freely negotiated

Director General of Fair Trading v First National Bank [2001] UKHL 52, [36].

379

[2002] 1 All ER 97, [17].

380

Bryen & Langley v Boston [2005]  EWCA  Civ 973, [44], although the part of the quote concerning ‘a term that has not been individually negotiated’ is no longer relevant under CRA; Lovell Projects v Legg and Carver [2003] 1 BLR 487,[29]: ‘significant imbalance must be caused by the [relevant term] being contrary to the requirement of good faith’.

381

[2005] EWCA Civ 973

382

Case C-237/02 [2004] CMLR 13.

383

See also Munckenbeck & Marshall v Harold [2005] EWHC, [12]–[15]. See para 4.222.

384

Director General of Fair Trading v First National Bank plc [2001] UKHL 52, [54].

385

344

Chapter 4  Unfair terms in consumer contracts between parties acting on level terms and at arm’s length; and whether, in such cases, the party adversely affected by the inclusion of the term or his lawyer might reasonably be expected to object to its inclusion and press for its deletion.’

For the most part, these indicators may be relevant to both the significant imbalance and the good faith element of the test. So, whilst the consumer’s likely surprise at the term, most obviously goes to the good faith element of the fairness test, it could also be indicative of imbalance. It will be necessary to take care when considering whether the term might have been acceptable to a commercial party – different features may be present in the commercial context. 4.174 It is also necessary to consider the burden of proof. Under UCTA, when an exemption clause is subject to the requirement of reasonableness, UCTA, section 11(5) states that it is for the person seeking to rely upon the clause to establish that it is reasonable.386 Under CRA, there is no statement of the burden of proof in relation to the fairness of a term. There is not even such a statement in relation to terms falling within the ‘grey list’ of terms which ‘may be unfair’ in CRA, Schedule 2. It would seem that basically the normal burden is not displaced under CRA and that it is for the consumer to prove that a term is unfair.387 The ECJ has held that a national court had a duty to consider, without being asked by a consumer, whether a term is fair (if a court has the legal and factual elements available to do so).388 The Law Commission Report 2013 did not recommend that there should any statement about the burden of proof as to do so ‘may not fit with the requirements of EU law’ and ‘we do not want to suggest that all contract terms are assumed to be unfair unless the contrary is shown’.389 The recommendation of the Law Commission, as stated in ECJ case law, was implemented as CRA, section 71.390

See para 3.213.

386

But note the line taken by the European Commission that ‘strictly speaking there is no problem concerning the burden of proof, because the unfair nature of a term is not a matter of facts to be substantiated by the parties concerned, but a matter of law which the court must independently decide upon according to the rules of law (iura novit curia). Unfairness is therefore very much a matter of law, but potentially may depend upon elements of fact which the court may not know and this becomes a matter for the burden of proof for one or the other side which may want the clause to be declared unfair or not fair as the case may be’ (proceedings of the conference ‘The Unfair Terms Directive: five years on’ (July 1999), ‘The Implementation of Directive 93/13 into the National Legal Systems’ Final Report to Workshop 3, ‘The Definition of Unfairness’ pp 141–142 (http://europa.eu.int/.) – see Chitty on Contracts, 33rd edn (Sweet & Maxwell, 2020)paras 33-335–33-337.

387

Case C-243/08, Pannon GSM Zrt. v Erzsébet Sustikné Győrfi. In the earlier ECJ case of Joined cases C-240/98 to C-244/98 Océano Grupo Editorial SA v Quintero [2000] ECR I- 04941 the ECJ took the line that a consumer does not have to raise the issue of the unfairness of a term for a court to find it unfair and not binding on the consumer.

388

Law Commission Report 2013, 7.92.

389

See further para 4.244 below.

390

345

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Significant imbalance 4.175 There is no further explanation of ‘significant imbalance’ in CRA and it has been a problematic concept.391 There seem to be a number of basic ways in which such a test could be approached and it may be that a combination is required. However, in all cases, that in order to be relevant under the CRA: ‘any imbalance will not do: it must be a significant imbalance’.392

Also, the time frame of assessment is that when the particular term was agreed so that what is in question is not proof that a significant imbalance of rights and obligations has led to actual detriment to the consumer in the operation of the contract. It is the term’s potential for unfairness which will be the subject of consideration,393 although the imbalance must exist in the contract the parties have agreed.394 4.176 Here, some consideration will be given to some of the main potential approaches to significant imbalance and then indications from the case law of how significant imbalance should be addressed will be looked at. The potential approaches include: First approach: One possible approach to significant imbalance is to focus on the parties’ rights and obligations in a contract, whether at the particular or preventive level, weighing those rights and obligations as a whole to see if, across the board, there is a significant imbalance between those of the consumer and the seller or supplier, to the detriment of the

•

It may be less problematic for civil lawyers: De Moor (1995) 3 European Review of Private Law 257, 268–269: ‘In continental law it is sometimes argued that some obligations – let us call them principal – follow naturally from entering into a specific type of contract. A contract term which purported to negative these obligations would prima facie be invalid. This way of controlling terms is not really available to English courts. In English law the parties’ liabilities are defined by their promises, so why should there be a “standard liability” … That there is no “natural contract liability” in English law renders the test of unfairness by reference to “a significant imbalance” … if not meaningless, at least very difficult to apply’.

391

Lovell Projects v Legg and Carver [2003] BLR 452, [29].

392

Office of Fair Trading Bulletin 1 at 1.2. See also Office of Fair Trading Bulletin 4 at 24: ‘The Directive, hanging as it does on contractual “imbalance”, is concerned with drafting issues, not directly with the conduct of traders or consumer detriment more generally defined. Its ambition is higher than that of simply creating another means of interfering to protect consumers from immediate threat to harm. Article 7 [which deals with enforcement at the more general level] makes it possible to prevent such threats arising in the first place, by helping to create conditions in which consumers are protected – by fair drafting – from abuse of power in one-sided contracts. For that reason we take action when we consider that on the balance of probabilities, a term involves a risk of consumer detriment, not merely where it could be proved that detriment is likely to occur’.

393

See Spreadex Ltd v Cochrane [2012]  EWHC  1290 (Comm) for example, where a consumer had signed up for an account to use the online platform of the defendant (spread betting bookmaker). On the assumption that there was a contract, the contract deemed the claimant was liable for any trades on the account which were not made or authorised by him, but the defendant ‘would assume no obligations and, correlatively, the customer would have no rights’ so that ‘[t]he result is in my view, and most clearly, a significant imbalance in the parties’ rights and obligations.’ (at [17]).

394

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consumer. To carry out such a weighing is obviously a complex task and it has been suggested that the basic problem in relation to standard form contracts is usually not that of exploitation, as harsh terms are usually offset by a lower price.395 Second approach: Another possible way in which the ‘imbalance test’ might be used is simply to focus on the particular term. For example, by use of the ‘grey list’, which is one way in which such an approach might operate. It may be appropriate simply to look and see if there is a corresponding balancing term to that in question. For example, CRA, Schedule  2, Paragraph 4:396

•

‘A  term which has the object or effect of permitting the trader to retain sums paid by the consumer where the consumer decides not to conclude or perform the contract, without providing for the consumer to receive compensation of an equivalent amount from the trader where the trader is the party cancelling the contract.’.

Third approach: A  third possibility is that the imbalance is assessed on a much broader basis, going beyond considerations of a single contract so that

•

‘there may be an imbalance if, by using a term the supplier reduces the price slightly … but at the price of placing a very large potential loss on the small number of consumers for whom the risk will materialise’.397

More than one approach may be appropriate and a multi-faceted interpretation of the significant imbalance test is not precluded by anything in the CRA or the 1993 Directive. 4.177 In Director General of Fair Trading v First National Bank398 the court indicated that the first approach was the one to take:399 ‘The requirement of significant imbalance is met if a term is so weighted in favour of the supplier as to tilt the parties’ rights and obligations under the contract significantly in his favour. This may be by the granting to the supplier of a beneficial option or discretion or power, or by the imposing on the consumer of a disadvantageous burden or risk or duty … This involves looking at the contract as a whole’

Beale ‘Unfair Contracts in Britain and Europe’ (1989) CLP 197, 200–201.

395

see also CRA, Sch 2, paras 3, 8, 9, 11, 13, 15 and 18.

396

Beale ‘The Directive on Unfair Terms in Consumer Contracts’ in Beatson & Friedman eds Good Faith and Fault in Contract Law (Oxford University Press, 1995) at 243. There may be something of this approach to be found in the German Act on Standard Contract Terms of 1976.

397

[2001] UKHL 52.

398

Director General of Fair Trading v First National Bank plc [2001] UKHL 52, [17]. Emphasis added.

399

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No significant imbalance was found in the case. The term provided for the continuance of the contractual rate of interest after judgment for default and:400 ‘The essential bargain is that the bank will make funds available to the borrower which the borrower will repay, over a period, with interest. Neither party could suppose that the bank would willingly forgo any part of its principal or interest. If the bank thought that outcome at all likely, it would not lend… There is nothing unbalanced or detrimental to the consumer in that obligation; the absence of such a term would unbalance the contract to the detriment of the lender.’

Of course, this assumes that the contractual rate of interest was fair, but it may be necessary to avoid questioning that if a very restrictive approach to the ‘core exemption’ is to be acceptable. 4.178 However, using the second approach where there is simply focus on the particular term and looking for a corresponding, balancing term would be a simpler approach. As noted above through the use of a ‘grey list’ term, which appears to have been the approach of the court in in Munckenbeck & Marshall v Harold.401 In that case the term was regarded as creating a significant imbalance as there was no corresponding right for the consumer. (The consumer was not benefited by a mirror image of the indemnity right conferred on the supplier.) Intuitively, this approach to significant imbalance may have less appeal for the lawyer than consideration of the contract as a whole: it does not seem as if all relevant factors were taken into account. However, not only is this a simpler approach, it is also plainly one which may allow many more terms to be found to be significantly imbalanced and unfair. From that perspective, and in the context of legislation for the protection of consumers, there are considerable advantages in the approach taken in Munckenbeck. However, even without the approach taken in Munckenbeck there are some terms which require an approach which essentially addresses only the term itself. Basically, these are terms dealing with enforcement mechanisms and the exclusive jurisdiction clause may be seen as the most extreme example.

Jurisdiction clauses 4.179 Unless the parties are in the same jurisdiction, one of them is inevitably put to additional cost and inconvenience by such a jurisdiction clause. If the exclusive jurisdiction indicated is that of the trader, the term is detrimental to the consumer. No overall examination of the contract is necessary because of the nature of the detriment; the consumer’s rights under the contract are undermined because of the difficulty of enforcement and, in the most extreme case, made meaningless. In Oceano Grupo Editorial SA v

Director General of Fair Trading v First National Bank plc [2001] UKHL 52, [20]. See also [46].

400

Munckenbeck & Marshall v Harold [2005] EWHC 356.

401

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Rocio Murciano Quintero402 there seems to have been some recognition by the ECJ that essentially all that needs consideration in addressing imbalance in relation to such a clause is whose jurisdiction the clause chooses. The court found significant imbalance in a clause conferring exclusive jurisdiction on the trader’s principal place of business. They recognised that the presence of the clause could mean that the consumer would have to take legal action a long way from the consumer’s domicile and that could make it difficult for the consumer. to enter an appearance. Further, the point was made that: ‘in a case of disputes involving limited amounts of money the costs relating to consumers entering an appearance could be a deterrent and cause him to forgo any legal remedy or defence’.

and also ‘made it easier for the seller or supplier to arrange to enter an appearance and … less onerous for him to do so’.

4.180 That the clause favoured the trader and not the consumer seems to have been sufficient to resolve the significant imbalance issue. In the circumstances the only realistic possibility for disputing significant imbalance to the detriment of the consumer in relation to a jurisdiction clause favouring the trader would seem to be that the imbalance was not significant. In Oceano the court referred to the deterrent to the consumer to the pursuit of a legal remedy where the dispute involved a ‘limited’ amount of money. However, in Standard Bank London Ltd v Apostolakis (No 2)403 where the consumers were wealthy and the amounts involved in the dispute were very high the ‘potential cost and inconvenience’ was still viewed as making an exclusive jurisdiction clause significantly imbalanced.

Adjudication clauses 4.181 Similarly, an adjudication clause may be seen as hindering legal action by the consumer.404 Again, because of the way in which it may impact upon all the other rights under the contract – in the most extreme cases rendering the consumer’s rights meaningless – it is essentially only the clause itself which needs addressing in considering significant imbalance. In Picardi v Cuniberti the question arose as to the fairness of an adjudication clause in a contract dealing with building work. The adjudication provisions of the Housing Grants, Construction and Regeneration Act 1996 would have applied if the contract had not been with a residential occupier. However, those provisions did not apply and a contractual agreement for adjudication was included in the RIBA standard contract in question. The judge took the view that:

[2000] ECR 1 4941.

402

[2002] CLC 939.

403

Such as in Picardi v Cuniberti [2003] BLR 487.

404

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Chapter 4  Unfair terms in consumer contracts ‘the procedure which the consumer is required to follow, and which will cause irrecoverable expenditure … is something which may hinder the consumer’s right to take legal action’.405

4.182 The clause was viewed as unfair.406 In a later case, Lovell Projects v Legg & Carver,407 an adjudication clause was held to be a neutral term not generating a significant imbalance: ‘the adjudication terms apply equally both to contractor and employers: both are bound by the terms’.408

An adjudication clause does not generate an inevitable409 imbalance in the difficulty and expense of taking legal action in the way that a jurisdiction clause does, but, as has held in case,410 neutrality on the face of a clause should not suffice to establish the lack of any imbalance. It is possible to see adjudication as a simpler, quicker and cheaper way to solve a dispute between a trader and a consumer It would seem that it should be asked whether the relevant adjudication would, or does generally, operate as a hindrance or a help to the consumer, but it is a question which essentially focuses on the particular term, and certainly not the rights and obligations in the contract as a whole.

Entire agreement clauses 4.183 It is possible to see an ‘entire agreement clause’ as of: ‘different order from ordinary contractual terms [as it] is not a substantive term, but is designed to regulate the manner in which the contract is concluded’.411

Picardi v Cuniberti [2003] BLR 487, [131]. See also Zealander v Laing Homes Ltd (2003) 19 Const. Law Journal 350 where the consumer was buying a new home from the defendant builder. Here, rather than a statutory scheme, the contract provided for compulsory arbitration under the National House Builders Council ‘Build Mark’ agreement. The consumer would have had to take some proceedings for matters which fell within the ‘Build Mark’ agreement and separate proceedings for those that were outside. The court indicated, in refusing to issue a stay on the consumer’s claim for damages because of building defects in the house, that the provision was unfair because it created a significant imbalance between the consumer and the defendant, because the consumer would have to be involved separate proceeding in pursuing its claims. Also, a ‘further element of imbalance to the detriment of the consumer [can be] where the claims are small and where the fees payable to the arbitrator are comparatively significant’. Similarly unfair was Mylcrist Builders Ltd v Buck [2008] EWHC 2172 (TCC), [55], where the cost of the arbitration was £2,000 compared to the value of the claim of approximately £5,000.

405

The judge did accept that the relevant ‘provision must be seen in the context of other provisions in the RIBA standard contract’. However, he merely referred to other clauses which indicated unfairness and significant imbalance – Picardi v Cuniberti [2003] BLR 487 [132].

406

[2003] BLR 452. See also Westminster Building Co Ltd v Beckingham [2004] BLR 163, Khurana v Webster Construction Ltd [2015] EWHC 758 (TCC), [53], Du Plessis v Fontgary Leisure Park Ltd [2012] EWCA Civ 409, [57].

407

Lovell Projects v Legg & Carver [2003] BLR 452, [29].

408

Unless the parties are in the same jurisdiction.

409

See Office of Fair Trading v MB Designs (Scotland) Ltd [2005] CSOH 85, [43]; (2005) SLT 691 at p 230.

410

Office of Fair Trading v MB Designs (Scotland) Ltd [2005] CSOH 85, [41]; (2005) SLT 691.

411

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However, the impact of an entire agreement clause is not on the enforcement of the substantive terms as a whole, but rather on whether the standard terms have been added to or varied. Despite its ‘different order’, and unlike a jurisdiction clause and an adjudication clause above, it is possible to address whether an entire agreement clause creates a significant imbalance through consideration of the substantive terms as a whole. (It might, of course, be seen as indicative of a significant imbalance if consumers would frequently only contract in reliance on representations which the clause sought to keep from becoming terms.) 4.184 However, although an approach focusing on the particular term is not required in relation to entire agreement clauses, it may be desirable. Adopting an approach which simply focuses on the particular term may be a way in which such terms might more easily be found to be unfair. It is possible by analogy with the approach in Munckenbeck, but in relation to a term, such as an entire agreement clause, which appears neutral on its face, so that what is necessary to address is not the issue of a balancing term, but its likely operation. Where the ‘main practical effect of’ the entire agreement clause was seen as detrimental to the consumer by the Scottish court in Office of Fair Trading v MB  Designs (Scotland) Ltd412 the clause was viewed as significantly unbalanced and unfair. The above discussion makes it plain that the level at which a term impacts upon a contract equally impacts upon the way in which significant imbalance can be addressed. 4.185 As discussed above, there may be good reason to address significant imbalance through focusing on the particular term. In some cases it is required, in others it may be desirable. However, if what is called for is consideration of the contract as a whole, then, even in that type of examination, it is possible to identify some specific factors which it may be helpful to consider. In the Director General of Fair Trading v First National Bank413 case the term departed from what would otherwise have been the situation created by statute, that is no interest would have been payable after judgment. The term could, in a sense, be seen as a departure from what would otherwise be the ‘default position’. The Court of Appeal in Director General of Fair Trading v First National Bank indicated that such departure in the instant case showed a significant imbalance.414 However, that was clearly not the view taken by the House of Lords. Lord Bingham, having considered the development of the statutory background, concluded that he did not think that

[2005]  CSOH  85, [43]; (2005)  SLT  691 see p  230. But much will depend on the facts of the case. For example, in Shaftsbury House (Developments) Limited v Kelly Fernandez Lee [2010] EWHC 1484 (Ch) an entire agreement was judged not to be unfair.

412

[2002] 1 All ER 97.

413

[2000] 2 All ER 759, [35].

414

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Chapter 4  Unfair terms in consumer contracts ‘the term could be stigmatised as unfair on the ground that it violates or undermines a statutory regime enacted for the protection of consumers’.415

Similarly, Lord Steyn did not think that the argument could prevail: ‘in circumstances where the legislature has neither expressly nor by necessary implication barred a stipulation that interest may continue to accrue after judgment’.416

4.186 Clearly, there is much to be said for the avoidance of any idea that the departure from the default position should be automatically unfair, but equally there should be the possibility of the term being unfair even where the legislation does not ‘expressly or impliedly bar’ the departure. The basis of the particular default position must be considered, as well as the factors making it more, or less, appropriate in relation to the contract in question. In Picardi v Cuniberti the judge viewed it as reinforcing his view that the term caused a significant imbalance that ‘the consumer was deliberately excluded by Parliament from the statutory scheme’ of adjudication. 4.187 The point was made above that in the Director General of Fair Trading v First National Bank case Lord Millett identified a number of indicators which may be helpful in addressing the fairness test. In Picardi v Cuniberti417 the court held it was useful to bear in mind Lord Millett’s indicator that consideration should be given to whether, had the clause been drawn to the attention of the consumers, they would have accepted it. That was seen as: ‘a useful cross-check, in that, if a party would obviously not have accepted it, this would be significant evidence that would tend to support the conclusion that it was weighted in favour of the supplier so as to tilt the parties’ rights and obligations under the contract’.418

4.188 When Lord Millett’s indicators were set out above, it was also suggested that it was also necessary to take care in relation to one, that is the question: ‘whether the term is a standard term, not merely in similar non-negotiable consumer contracts, but in commercial contracts freely negotiated between parties acting on level terms and at arm’s length, and whether, in such cases, the party adversely affected by the inclusion of the term or his lawyer might reasonably be expected to object to its inclusion and press for its deletion’.419

Also it is necessary to note that although a term in a commercial contract might be fair does not necessarily make it fair in a consumer contract. Certainly, in Picardi v Cuniberti the court stated that, whilst an adjudication might be desirable in the commercial context, an adjudication term could significantly unbalance the contract in the consumer context.

[2002] 1 All ER 97, [22].

415

[2002] 1 All ER 97, [38].

416

[2003] BLR 487.

417

[2003] BLR 487, [129].

418

Director General of Fair Trading v First National Bank plc [2001] UKHL 52, [54].

419

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Under the 1999 Regulations, it was possible to make a further point here in relation to significant imbalance concerning ineffectively incorporated ‘terms’, or misleading terms. 4.189 Concerning ineffectively incorporated terms, as raised above420 was that prima facie there would seem to be no scope for 1999 Regulations to apply where the seller or supplier’s procedures for incorporating their ‘standard terms’ are such as to be unsuccessful, but the legal ineffectiveness of ‘standard terms’ in such circumstances would not stop them preventing consumers enforcing rights (the consumers would not know that the terms were of no effect).The implementation of CRA has now introduced the ‘consumer notice’ (which is an announcement, communication or purported communication) which overcomes the hole in the protection regime under the 1999 Regulations. The provision in CRA applies essentially same test for unfairness (including that of significant imbalance) to consumer notices as applies to terms. This is as long as the notice: ‘(a) relates to rights or obligations as between a trader and a consumer, or (b) purports to exclude or restrict a trader’s liability to a consumer.’421

CMA analysis of significant imbalance 4.190 The CMA approach is founded on the passage quoted above from Director General of Fair Trading v First National Bank plc.422 For there to be balance will only occur were each party in a consumer contract: ‘…enjoy[s] rights of equal extent and value in reality, particularly taking into account the nature of the goods, services or digital content provided under the contract.’423

Situations where there will be significant imbalance for the CMA include: • a ‘mechanical or formal balance’ in the rights and obligations of the parties. For example, the trader and consumer both face the same financial sanction if they cancel but the right to cancel is not of interest to the trader. In such a situation: ‘the sanction on the trader does not ‘balance’ fairly the imposition of the same sanction on the consumer for cancelling’.424

4.191 In effect, it is necessary to look at the reality of the balance, which can mean that a term is clearly against the rights of the consumer but another term acts as a balance which to the advantage of the consumer – such as the right of the trader to increase the price of a good or a service – but balanced See para 4.18.

420

CRA, s 61(4).

421

[2001] UKHL 52, [17]. See para 4.175.

422

CMA Guidance, 2.13.

423

CMA Guidance, 2.13. The CMA refer to CRA, Sch 2, para 4.

424

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at against the right of the consumer to cancel the contract without facing a penalty.425 • non-financial costs and burdens on the consumer – where there is an effect on the consumer’s rights and obligations, such as where the trader provides the consumer’s personal data outside of what is provided by data protection legislation – as although ‘[t]here may be no financial cost, but the intention is to take away the consumer’s legal rights’;426 • that a reduction in price ‘will [not] necessarily remove or reduce the effect of a detrimental imbalance in the contract’, as ‘[u]nfair terms do not become fair just because a service is categorised by the business as being offered at low cost’.427 For example, a term may allow a trader to keep all the prepayments made by the consumer if the consumer cancels a contract without regard to the circumstances for the reason for cancelling, is unlikely to be fair only because what the trader supplies represents good value for money; • where a term alters the balance of rights and obligations that the law provides if the term was not in place, as held in Mohamed Aziz Caixa d’Estalvis de Catalunya, Tarragona i Manresa (Catalunyacaixa) ‘in order to ascertain whether a term causes a ‘significant imbalance’ in the parties’ rights and obligations arising under the contract, to the detriment of the consumer, it must in particular be considered what rules of national law would apply in the absence of an agreement by the parties in that regard. Such a comparative analysis will enable the national court to evaluate whether and, as the case may be, to what extent, the contract places the consumer in a legal situation less favourable than that provided for by the national law in force. To that end, an assessment should also be carried out of the legal situation of that consumer having regard to the means at his disposal, under national legislation, to prevent continued use of unfair terms.’428

See para 4.353.

425

CMA Guidance, 2.14.

426

ibid, 2.15

427

Case C‑415/11, para 68. See Abbott v RCI Europe [2016] EWHC 2602 (Ch), [44]–[47], where the claimants under contract with the defendant deposited their timeshare rights, whereby those rights would be exchanged for rights to use other properties which other persons had deposited with the defendant. The defendant had a wide discretion. The court held, citing the passage above from Aziz, in support, that, in effect, the national law (in this case, the UK) would apply to the exercise of the defendant’s discretion if there was not an agreement. In this case, there was not an agreement, so that the claimant could ‘obtain access to an exchange system which is operated fairly, with reasonable care and skill’ (using the statutory test in place at the time, under the Supply of Goods and Services Act 1982, ss 12 and 13) . This meant, that under the common law, that the defendant ‘could not exercise the discretion arbitrarily, capriciously or unreasonably: see Braganza v. BP Shipping Limited and another [2015] UKSC 17 and [2015] 1 WLR 1661, applying Socimer International Bank Limited v Standard Bank London Limited [2008] EWCA Civ 116; [2008] Bus LR 1304’. Also, the claimant was able, looking at the contract as a whole, to terminate its agreement with the defendant at any time without penalty (including recovering an unused part of the fee the claimant had paid to the defendant). In the circumstances there was no significant imbalance in the rights of the parties.

428

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4.192 The CMA point to the grey list of terms generally but singles out the following in particular: •

restricting or excluding the normal legal rights a consumer has (such as where a trader is a fault stating that a consumer does not have a right to seek damages);

• preventing a consumer from using legal remedies available to the consumer (such as requiring a consumer to use arbitration where a dispute arises); •

making a consumer face obligations or risk greater than: 



the law normally imposes; or





necessary to protect the legitimate interests of the trader;

such as the customer have to pay an excessive amount where the consumer breaches a contract with the trader.

The requirement of good faith 4.193 For a term to be unfair the ‘significant imbalance’ it generates must be ‘contrary to the requirement of good faith’. The CRA contains no guidance as to the meaning of good faith. However, 1993 Directive, recital 16 states:429 ‘… Whereas in making an assessment of good faith, particular regard shall be had to –

the strength of bargaining position of the parties,

–

whether the consumer had an inducement to agree to the term and

–

whether the goods or services were sold or supplied to the special order of the consumer;

whereas the requirement of good faith may be satisfied by the seller or supplier where he deals fairly and equitably with the other party whose legitimate interests he has to take into account.’

Apart from the reference to the ‘legitimate interests’ of the consumer, much of this had appeared as guidelines to the meaning of good faith in 1994

Reformatted. The first part of 1993 Directive, recital 16 states: ‘whereas the assessment according to the general criteria chosen, of the unfair character of terms, in particular in sale or supply activities of a public nature providing collective services which take account of solidarity among users, must be supplemented by a means of making an overall evaluation of the different interests involved; whereas this constitutes the requirement of good faith…’ The reference to ‘solidarity among users’ would seem to be concerned with equal access and equal treatment for users of public services – see Chitty on Contracts, 33rd edn, (Sweet and Maxwell, 2020) para 38-268.

429

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Regulations, Schedule  2.430 That was not repeated in the 1999 Regulations 1999 nor in CRA, but it can still be referred to as part of the 1993 Directive, and it will be referred to below. 4.194 However, significant guidance on good faith was set out by the House of Lords in Director General of Fair Trading v First National Bank.431 Lord Bingham stated:432 ‘The requirement of good faith in this context is one of fair and open dealing. Openness requires that the terms should be expressed fully, clearly and legibly, containing no concealed pitfalls or traps. Appropriate prominence should be given to terms which might operate disadvantageously to the customer. Fair dealing requires that a supplier should not, whether deliberately or unconsciously, take advantage of the consumer’s necessity, indigence, lack of experience, unfamiliarity with the subject matter of the contract, weak bargaining position or any other factor listed in or analogous to those listed in Sch 2 of the Regulations’.433

Lord Bingham also indicated that, more broadly, good faith: ‘looks to good standards of commercial morality and practice’.434

Similarly, Lord Steyn followed Lord Bingham in seeing good faith as importing ‘the notion of open and fair dealing’435 and he also saw: ‘the purpose of the provision of good faith and fair dealing [as being] ‘to enforce community standards of fairness and reasonableness’’.436

The various facets of the comments made in First National Bank are considered further. 4.195 The first point to be made is that ‘good faith’ is plainly a test which relies upon ‘standards’. On the basis of the above, it embodies ‘community standards’ in relation to open dealing and fair dealing, but the question arises as to which community. As CRA Regulations ultimately derive from the 1993 Sch 2 of the 1994 Regulations stated: ‘In making an assessment of good faith regard shall be had in particular to – (a) the strength of bargaining position of the parties; (b) whether the consumer had an inducement to agree to the term; (c) whether the goods or services were sold or supplied to the special order of the consumer; and (d) the extent to which the seller or supplier has dealt fairly and equitably with the consumer.’

430

[2002] 1 All ER 97.

431

[2002] 1  All ER  97, [17]. Lord Bingham seems to have added a greater emphasis on fair dealing to his often quoted description of good faith in Interfoto PictureLibrary Ltd v Stilletto Visual Programmes Ltd [1989] QB 433, which, of course, preceded the Regulations. He said (at 439): ‘in many civil law systems … [good faith] does not simply mean that they should not deceive each other, a principle which any legal system must recognise; its effect is perhaps most aptly conveyed by such metaphysical colloquialisms as “playing fair”, “coming clean” or “putting one’s cards face up on the table”. It is in essence a principle of fair and open dealing.’ See also CMA Guidance, 2.12.

432

For 1994 Regulations, Sch 2, see fn 604.

433

Director General of Fair Trading v First National Bank [2002] 1 All ER 97, [17].

434

ibid, [36].

435

ibid.

436

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Directive, until now EU community standards might be contended for. Prior to the UK leaving the EU there were the issues such whether it was possible to identify sufficiently common standards and that determining the fairness of a particular term was one for a national court rather than for the ECJ to decide. It is now possible for the UK courts to take a different view here.437 The next point to consider is as to the meaning of ‘open dealing’. As noted above, Lord Bingham saw ‘openness’ as requiring ‘that the terms should be expressed fully, clearly and legibly, containing no concealed pitfalls or traps’

and that ‘appropriate prominence should be given to terms which might operate disadvantageously to the customer’.438

4.196 Plainly this encompasses the basic accessibility and intelligibility of the terms. Whether it goes beyond that will be considered below, but after the implementation of the 1994 Regulations some examples of how this would operate at that basic level could be seen from the activities of the predecessor to the CMA, the OFT, as gleaned from the OFT’s bulletins: • the OFT considered that ‘if a “core” term is hidden away in small print as if it were unimportant when in fact it is potentially burdensome, then it is considered to be potentially unfair’.439 • the second OFT bulletin noted440 that ‘some documents are so printed (tiny pale grey print on pink translucent paper was one example brought to our notice) that we can only conclude that the terms are not intended to be read’ and such factors do not help the term to be viewed as fair. • also the OFT did not view favourably  the printing of terms on the back of receipts;441 or  ‘shrinking the print used in contracts to a size which discourages consumers from the effort of reading them’.442 •

the presence of a warning that the consumer should read the contract was viewed as ‘not only likely to be fair in itself, but may serve to add to the likelihood of other terms being considered fair’443 so that:444

C-237/02, Freiburger Kommunalbauten GmbH  Baugesellschaft & Co. KG  v Ludger Hofstetter and Ulrike Hofstetter.

437

[2002] 1 All ER 97 at [17].

438

Office of Fair Trading Bulletin 6 at 9.

439

Office of Fair Trading Bulletin 2 at 2.27.

440

Office of Fair Trading Bulletin No 1at 1.17.

441

Office of Fair Trading Bulletin No 2 at 2.27.

442

Office of Fair Trading Bulletin No 3 at 11.9. In contrast to the likely unfairness of an attempt to insert a clause stating that the consumer has read and understood the terms – normally a clause which patently does not reflect the reality of the situation.

443

Office of Fair Trading Bulletin 3 at 11.8.

444

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‘Terms are … less likely to be unfair if the consumer has been given an opportunity to examine the terms in advance of entering into the contract. To meet this requirement, efforts should be made to draw the consumer’s attention to, and to explain, those provisions which are of particular importance such as those which may be onerous.’ 4.197 The CMA in its Guidance also focuses that good faith equates to ‘fair and open dealing’ and concerns: •

how a contract is drafted and presented; and

• the way the contract was negotiated and how the contract was carried out.445 Concerning specific examples investigated by OFT were: where a term was judged fair and concerned a contract by which a company provided leisure facilities for members only, the OFT considered a term which purported to bind consumers to:

•

‘general conditions of membership, rules and regulations’ which were not themselves included in the text of the terms.446

4.198 The fairness of the term was looked at in the light of 1994 Regulations, Schedule 3, para 1(i) (now CRA, Schedule 2, para 10). However, it was concluded that the term was fair because the ‘conditions’ referred to had been included in a general information pack sent to consumers for consideration before they signed the membership form, thus providing ‘ample opportunity to read’ them. where a term was judged unfair: a contrasting situation that the OFT considered was a contract providing insurance-based five-year guarantees to consumers who contract with double glazing companies that subsequently go out of business.447 For the particular case which was notified to the OFT, the consumer had not been provided with a copy of the master policy which required immediate notification of any claim, and delay in notification led to the Federation rejecting the consumer’s claim. The OFT stated that:

•

‘the term had potential unfairness for two reasons. First, it was not brought to the consumer’s attention in advance of entering into the contract, and [that] did not meet the “opportunity to examine” requirement … Secondly, the term was unclear in that the word “immediately” was not adequately defined. The Company [said] … that, in this context, “immediately” meant a period of up to thirty days’.

CMA Guidance, 2.21.

445

Office of Fair Trading Bulletin 2 at 22 (David Lloyd Leisure plc).

446

Office of Fair Trading Bulletin 2 (Plastics Windows Federation) at 31.

447

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4.199 The above discussion is concerned with ‘open dealing’ in relation to basic accessibility and intelligibility, but the question arises as to whether ‘open dealing’ goes beyond those elements. Also the difficulties consumers may face can extend far beyond the mere accessibility and intelligibility of terms:448 ‘The informational problem that [consumers] often face is not figuring out what particular clauses mean … but instead of relating that information in a meaningful way to their personal circumstances. For example, in the case of an insurance policy … I may understand perfectly how the policy allocates … risks but what I may have difficulty in assessing is how likely it is that certain risks may materialise, and if they do, what kind of costs are likely to be entailed. Thus how likely is it, as a matter of probability, that my house will catch on fire and, if it does, how much damage is likely to be done?’

4.200 In Director General of Fair Trading v First National Bank, the problem was in essence an informational one. It was due to the consumer’s lack of comprehension of the impact of the term in the light of the term’s interaction with its statutory background. Whatever the clarity or intelligibility of the term, as a piece of English, consumers, who had fallen into difficulties, and complied with a court ordered repayment schedule, were shocked to discover that they still owed extensive amounts after making such repayments. Consumers were astonished to discover that separate from those ordered payments the interest had continued to mount. However, the House of Lords took the view that there was no lack of good faith. It was basically seen as sufficient that the terms were ‘clearly and unambiguously expressed’.449 That their impact upon the consumer’s situation was not plain was not seen as impacting upon that. It would seem, in the case, that ‘openness’ did not extend far beyond the mere availability of the terms and their intelligibility as pieces of English. Lack of openness should, however, also be found in the case of literally accurate but misleading terms, as stated by the OFT in one of their bulletins:450 ‘The Office of Fair Trading normally objects to clauses which reflect the general contractual position concerning damages for breach of contract but in a misleading way. Contracts sometimes give the impression that, if they are cancelled by the consumer, the company can recover all the profit it would have made. In law the supplier actually has a duty to mitigate…’

4.201 There should be seen to be a lack of good faith in such misleading terms. It is possible to distinguish the situation such as described by the OFT from that in First National Bank. There the House of Lords regarded the disadvantage to the consumer as lying not with the term but with the legislation. The ‘fault’ in a misleading term should be sufficient for a different

M J Trebilcock ‘An Economic Approach to Unconscionability’ in B Reiter and J Swann (eds) Studies in Contract Law (Butterworths, 1980) at 416–417.

448

Director General of Fair Trading v First National Bank [2002] 1 All ER 97, [20] (Lord Bingham), [55] (Lord Millett).

449

Office of Fair Trading Bulletin 3 at 12.

450

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conclusion as to good faith from that in the First National Bank case. Further, the idea of ‘responsibility’ for the problem arising from the term may be more broadly relevant. For example, in a building contract, the consumer’s agent introduced a JCT standard form and not the suppliers. The court held there was no scope for lack of good faith by the trader not only where the consumer had ‘insisted on’ those terms,451 but also where the situation was merely that the agent had introduced the terms and the supplier knew the consumer was professionally advised.452 4.202 However, in First National Bank, good faith was seen as not only a matter of ‘open dealing’ but also of ‘fair dealing’ and it is necessary to consider the latter. In relation to fair dealing, it is appropriate to ask whether the term was: ‘imposed on the consumer in circumstances which justify a conclusion that the supplier has fallen short of the requirements of fair dealing’.453

Again, there was not seen to be any imposition of terms and lack of fair dealing where the terms were selected by the consumer’s agent.454 More broadly, in the First National Bank case ‘fair dealing’ was seen as a matter of the supplier not ‘taking advantage’ of a weakness of the consumer. Lord Bingham referred to the ‘advantage taking’ being deliberate or unconscious (above), but Lord Steyn referred to good faith as an ‘objective criterion’.455 An objective criterion is a more workable approach to a test were applied at the preventive level, and not merely that of the specific contract. Further, Freiburger456 suggests the objective approach is correct, as in that case the imbalance caused by the term in Oceano Grupo457 was seen as such that: ‘it was possible to hold the term was unfair without having to consider all the circumstances in which the contract was concluded’.

4.203 However, it should be questioned whether the idea of ‘advantage taking’ provides a sufficiently high standard. Lord Bingham’s reference to what is now CRA, Schedule 2 is a reference to a list of matters to which, in particular, regard was to be had in assessing good faith under the 1994 Regulations. The list did not feature in the 1999 Regulations or CRA, but derives from 1993 Directive, recital 16 which is set out above and which remains of relevance to the interpretation of the CRA, Part 2 as the implementation

Lovell Projects Ltd v Legg & Carver [2003] BLR 452.

451

Bryen & Langley v Boston [2005] EWCA 973. See also Westminster Building Co Ltd v Beckingham [2004] 1 BLR 265.

452

Bryen & Langley v Boston [2005] EWCA 973, [45].

453

Bryen & Langley v Boston [2005] EWCA 973.

454

Bryen & Langley v Boston [2005] EWCA 973, [36].

455

Case C-237/02 [2004] CMLR 13 see p 233.

456

Cases C240–244/98 [2000] ECR I-4941.

457

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of a European measure,458 even though the UK has now left the EU. It is possible to argue that 1993 Directive, recital 16 emphasises the factor of the trader taking account of the legitimate interests of the consumer and that good faith is thus intended to go further than restraining advantage taking and actually requires sufficient account to be taken of the legitimate interests of the consumer.459 This might also suggest a broader approach to ‘openness’ than the above cases indicate. The final point to be made here is as to the relationship of significant imbalance and good faith. As noted above the ECJ, in Freiburger,460 indicates an objective approach to good faith. Additionally it is possible to suggest that a significant imbalance can, in itself, be such as to show the supplier’s lack of good faith. In Freiburger the ECJ took the view that the imbalance in the Oceano Grupo case461 was such that: ‘it was possible to hold that the term was unfair without having to consider all the circumstances in which the contract was concluded’.462

CMA analysis of good faith 4.204 The CMA in its analysis of good faith follows closely, and repeats, the points made in Director General of Fair Trading v First National Bank plc463 and the 1993 Directive. The following considers the additional points made by the CMA as to its understanding of good faith: •

the implication of 1993 Directive, recital 16 means that concept of good faith should have a broad application for the purposes of CRA;

• the principle of ‘fair and open dealing’ encompassed within the requirement of good faith (as described in the Director General of Fair Trading v First National Bank plc464) means that good faith will involve consideration of: 



how a contract is drafted;

See, eg, [2002] 1 All ER 97 per Lord Steyn at [31], Lord Rodger at [63] and Lord Bingham at [17].

458

The other factors could be seen as merely indicative of whether or not that has occurred and certainly Lord Bingham seems to be treating the factors referred to in Sch 2, and analogous factors, as indicative of whether the narrower criteria of ‘advantage taking’ by the seller or supplier has been satisfied. See also Lord Millett at [57].

459

Freiburger Kommunalbauten GMBH Baugesellschaft & Co KG v Hofstetter Case C-237/02 [2004] 2 CMLR 13.

460

Oceano Grupo Editorial SA v Murciano Quintero Cases C-240–244/98 [2000] ECR I-4941.

461

See also Office of Fair Trading v MB Designs (2005) SLT 691; Munckenbeck & Marshall v Harold [2005] EWHC 356, [12]–[15].

462

[2001] UKHL 52.

463

[2001] UKHL 52, [17].

464

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Chapter 4  Unfair terms in consumer contracts 



how a contract is presented;





the way the contract is negotiated;





the way the contract is carried out;

and is ‘not a technical concept but one that looks to good standards of commercial morality and practice’.465 • concerning openness, it will not carry the assumption that a consumer alone can identify a term which: 



is important;





operates to the consumer’s disadvantage; or





has a likelihood of surprising the consumer.

if is brought to the consumer’s attention.466 •

concerning fairness, the relevant facts will include:

•





whether the consumer lacks financial resources;





whether a consumer needs the goods or services they wish to buy;





whether a consumer has experience in negotiation; and





whether they have familiarity with the subject matter of the contract.

not taking advantage for the CMA is not a ‘full statement of the significance of good faith’, but a minimum. The CMA also follows the decision made in Mohamed Aziz v Caixa d’Estalvis de Catalunya, Tarragona i Manresa (Catalunyacaixa)467 as to the meaning of good faith, so that where there is consideration of whether there are circumstances in which an imbalance has arisen which are ‘contrary to the requirement of good faith’ a court:

CMA Guidance, 2.21.

465

CMA Guidance, 2.22. The CMA cite as example where the court held in Spreadex Ltd v Cochrane [2012] EWHC 1290 (Comm), there was a lack of good faith where a customer by agreeing to the terms and conditions would be deemed liable for the acts of another on an online trading platform run by a spread betting bookmaker so that the ‘potential customer was told that four documents, including the Customer Agreement, could be viewed elsewhere on-line by clicking “View”. Many, one might suspect most, would have passed up on that invitation and proceeded directly to click on “Agree”, even though it was suggested that they should do so only when they had read and understood the documents. Even if, exceptionally, the defendant in fact chose to look at the documents, he would have been faced in the Customer Agreement alone with 49 pages containing the same number of closely printed and complex paragraphs. It would have come close to a miracle if he had read the second sentence of Clause 10(3), let alone appreciated its purport or implications, and it would have been quite irrational for the claimant to assume that he had. This was an entirely inadequate way to seek to make the customer liable for any potential trades which he did not authorise, and is a further factor rendering the second sentence of Clause 10(3) an unfair term.’

466

C-415/11.

467

362

Chapter 4  Unfair terms in consumer contracts ‘must assess for those purposes whether the seller or supplier, dealing fairly and equitably with the consumer, could reasonably assume that the consumer would have agreed to such a term in individual contract negotiations’.468

4.205 Which for the CMA means that a business, in writing the terms of their contracts, must not only resist any inclination to take advantage of consumers but must also actively take into account the consumers’ legitimate interest.469 The CMA also states it is necessary to consider how consumer actually behave and it is necessary to take account of the following:470 • consumers usually do not read standard terms and conditions at all or properly before entering a contract with a trader, given the number of transactions a consumer typically enters; but • that the ‘substance of the rights and obligations’ need to be properly communicated to consumers, particularly where the trader: ‘…consider[s] that their legitimate interests require use of terms that are likely to have a significant impact on the consumer.’471

so it will not be possible for a trader to simply include such a provision somewhere in the contract – especially if the contract wording also includes less important terms.472 •

that traders exploit biases of consumers which affect their behaviour so that there are:

C-415/11 – Mohamed Aziz v Caixa d’Estalvis de Catalunya, Tarragona i Manresa (Catalunyacaixa), para 68

468

CMA Guidance, 2.24.

469

The CMA indicates that these points arise from economic research and behavioural economics

470

CMA Guidance, 2.26.

471

The CMA cites in support for this point The Office of Fair Trading v Foxtons Limited [2009] EWHC 1681 (Ch), [92]: ‘…As I have said, that wording in the old terms is sufficient to convey the idea and nature of a renewal commission, but in my view that is not enough for these purposes. It is in very small print with nothing to distinguish it from the “initial” commission, and in my view not enough is done to draw it to the attention of the typical consumer who would not be expecting it. Of course the theory is that the typical consumer, and particularly the circumspect one, will read all the standard terms. But the practice is that even the circumspect one will be unlikely to do so with a great degree of attention. I think that such a consumer will expect a lot of detail be dealt with in what is frequently labelled the “small print”, but the whole point of that expression (which is used in everyday language in a somewhat pejorative sense) is that it contains things which are not of everyday concern to the consumer – it contains various clauses which are thought by the supplier to be necessary but which are not usually relied on even though they might, on odd occasions, turn round and bite one party or the other (usually the consumer). The consumer would not expect important obligations of this nature with likely and significant impact to be tucked away in the “small print” only, with no prior flagging, notice or discussion. I think that that is what has happened here. This important obligation is in the small print only, in the sense that it has not been flagged or referred to in any part of the dealings between the parties. Bearing in mind what I have found to be the usual expectation of the typical consumer landlord (which is consistent with some at least of the complaints that were in evidence in these proceedings) that is not a fair way to bring the point to the attention of the consumer, and is not adequate.’

472

363

Chapter 4  Unfair terms in consumer contracts ‘[c]oncerns as to fairness are likely to arise where businesses sets the parties’ rights and obligations in a consumer contract so as to exploit such biases to their advantage.’473

•

that consumers do not always act rationally and are ‘strongly influenced by how things are presented’, and value benefits received sooner than later (‘hyperbolic discounting’) so that: ‘It may lead consumers not to pay close attention to terms dealing with issues that at the time of contracting may seem to them to be remote or unlikely to arise – for example, termination or renewal fees – even when they are not in any obvious sense hidden from view.’474

• that some consumers have greater difficulties ‘in collecting, processing and acting upon information and thus in exercising choice effectively’475 So how a trader communicates the key terms take on an increased importance. The relevant categories of consumers include 



younger consumers (who do not have the benefit of experience);





older consumers (because mental capabilities decline with age);





consumers who lack time or are easily distracted (such as parents with young children or are recently bereaved).

A consumer in such a category may favour making a purchase immediately rather than taking time reflect before making a purchase. 4.206 Although CRA no longer exempts a term from the test of fairness if individually negotiated, however the CMA indicates that where there has been negotiation over a term it is possible to consider the significance of the negotiation in regard for the requirement of good faith. However, although a consumer may have actually influenced the substance of term will need testing against the circumstances which existed at the time the consumer and trader enter the contract because in the view of the CMA it is unlikely that a consumer will be fully informed and knowledgeable to conduct any negotiations on a term on equal terms with the trader as: ‘individual consumers rarely in practice have the required knowledge and bargaining power to ensure that contractual negotiations involving them are effectively conducted on equal terms.’476

CMA  Guidance, 2.27, citing Office of Fair Trading v Ashbourne Management Services Ltd [2011]  EWHC  1273 (Ch), [162]-[171]. Here gyms set advantageous rates for 12, 24, 36 months for consumers to sign up for membership knowing that consumers rarely would make full use of the period of their membership.

473

CMA Guidance, 2.28.

474

ibid, 2.29.

475

ibid, 2.30.

476

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Chapter 4  Unfair terms in consumer contracts

Recent ECJ case law on good faith and significant imbalance and after 4.207 Although the Director General of Fair Trading v First National Bank plc was a decision of the highest court in the UK, it occurred almost 20 years ago, and the ECJ has more recently sought to analyse the meaning of the concepts of good faith and significance imbalance (which has been followed, at least, in one case by the Supreme Court, in Cavendish Square Holding BV v Talal El Makdessi; ParkingEye Ltd v Beavis477). As will be seen below, the CMA in its guidance to CRA still largely follows that of Director General of Fair Trading v First National Bank plc with some parts drawn from the ECJ case law. 4.208 In the leading case of Mohamed Aziz v Caixa d’Estalvis de Catalunya, Tarragona i Manr esa (Catalunyacaixa)478 the ECJ began its analysis by noting that purpose of 1993 Directive was to protect the consumer who is typically in the weaker position compared to the trader: ‘the system of protection introduced by the directive is based on the idea that the consumer is in a weak position vis-à-vis the seller or supplier, as regards both his bargaining power and his level of knowledge’479

whereby 1993 Directive, Article  6(1) (CRA, section 62(1)) provides that an unfair term is not binding on a consumer480 so: ‘that is a mandatory provision [has the aim] to replace the formal balance which the contract establishes between the rights and obligations of the parties with an effective balance which re-establishes equality between them’.481

The ECJ noted that ‘the concepts’ of good faith and significant imbalance as stated in 1993 Directive, Article 3(1): ‘merely defines in a general way the factors that render unfair a contractual term that has not been individually negotiated’.482

4.209 To determine whether there is a significant imbalance between the parties in their rights and obligations which is to the detriment of the consumer it is necessary to establish what laws would apply in the absence of their contract: ‘…in order to ascertain whether a term causes a ‘significant imbalance’ in the parties’ rights and obligations arising under the contract, to the detriment of the consumer, it must in particular be considered what rules of national law would apply in the absence of an agreement by the parties in that regard. Such a comparative analysis will enable the national court to evaluate whether and, as the case may be,

[2015] UKSC 67, and also in a Court of Appeal decision of Jones and another v Roundlistic Ltd [2018] EWCA Civ 2284

477

C-415/11- Mohamed Aziz v Caixa d’Estalvis de Catalunya, Tarragona i Manresa (Catalunyacaixa), para 45.

478

ibid, para 45.

479

ibid, para 46.

480

ibid, para 46.

481

ibid, para 67.

482

365

Chapter 4  Unfair terms in consumer contracts to what extent, the contract places the consumer in a legal situation less favourable than that provided for by the national law in force. To that end, an assessment should also be carried out of the legal situation of that consumer having regard to the means at his disposal, under national legislation, to prevent continued use of unfair terms.’483

And concerning the situation when such an imbalance can arise which is ‘contrary to the requirement of good faith’, it is necessary to have regard to 1993 Directive, recital 16 so that: ‘the national court must assess for those purposes whether the seller or supplier, dealing fairly and equitably with the consumer, could reasonably assume that the consumer would have agreed to such a term in individual contract negotiations.’484

4.210 In effect the ECJ requires a national court to make its own, hypothetical, judgment, based on an objective standard, as to what a trader would decide a consumer would have agreed to – so that the court, in effect, decides in place of what a particular consumer would do. In this case the borrower took out a mortgage reimbursed in 33 annual payments in the form of 396 monthly instalments. The borrower need to be pay an annual default interest rate of 18.75% automatically applied to sums which the borrower did not pay when due (without notice). The lending bank also had: ‘the right to call in the totality of the loan on expiry of a stipulated time-limit where the debtor failed to fulfil his obligation to pay any part of the principal or of the interest on the loan.’485

as well as the right to determine not only the amount due but to bring enforcement proceedings to reclaim any debt (as well as quantifying the amount due by submitting an ‘appropriate’ certificate’).486 4.211 In the case where, under a long-term contract such in this case where there is a default which ‘occurs within a limited specific period’ the national court should:

ibid, para 68.

483

ibid, and repeated at para 76.

484

C-415/11- Mohamed Aziz v Caixa d’Estalvis de Catalunya, Tarragona i Manresa (Catalunyacaixa), para  21. The case report labels this as an ‘acceleration clause’ because ‘the use of [it] in contracts [is] planned to last for a considerable time – in this case 33 years – for events of default occurring within a very limited specific period.’ (para 31(2(a)).

485

C-415/11- Mohamed Aziz v Caixa d’Estalvis de Catalunya, Tarragona i Manresa (Catalunyacaixa), para  22, which was an ‘unilateral establishment by the lender of mechanisms for the calculation and determination of variable interest – both ordinary and default interest – which are linked to the possibility of mortgage enforcement and do not allow a debtor who is subject to enforcement to object to the quantification of the debt in the enforcement proceedings themselves but require him to resort to declaratory proceedings in which a final decision will not be given before enforcement has been completed or, at least, the debtor will have lost the property mortgaged or charged by way of guarantee – a matter of great importance when the loan is sought for the purchase of a dwelling and enforcement gives rise to eviction from the property…’ (para 31(2)(c)).

486

366

Chapter 4  Unfair terms in consumer contracts ‘…assess in particular […] whether the right of the seller or supplier to call in the totality of the loan is conditional upon the non-compliance by the consumer with an obligation which is of essential importance in the context of the contractual relationship in question, whether that right is provided for in cases in which such non-compliance is sufficiently serious in the light of the term and amount of the loan, whether that right derogates from the relevant applicable rules and whether national law provides for adequate and effective means enabling the consumer subject to such a term to remedy the effects of the loan being called in.’487

In Constructora Principado SA  José Ignacio Menéndez Álvarez488 the ECJ followed Mohamed Aziz v Caixa d’Estalvis de Catalunya, Tarragona i Manresa (Catalunyacaixa) concerning whether a term causes significant imbalance (taking account of ‘which rules of national law apply in the absence of any agreement by parties’). In this latter case the ECJ went on to state that to determine whether a significant imbalance exists: ‘…cannot be limited to a quantitative economic evaluation based on a comparison between the total value of the transaction which is the subject of the contract and the costs charged to the consumer under that clause.’489

so that it is necessary for a national court to carry out a comparative analysis to evaluate: ‘whether and, as the case may be, to what extent, the contract places the consumer in a legal situation less favourable than that provided for by the national law in force’.490

4.212 A significant imbalance also occurs: ‘solely from a sufficiently serious impairment of the legal situation in which the consumer, as a party to the contract in question, is placed by reason of the relevant national provisions, whether this be in the form of a restriction of the rights which, in accordance with those provisions, he enjoys under the contract, or a constraint on the exercise of those rights, or the imposition on him of an additional obligation not envisaged by the national rules.’491

Mohamed Aziz v Caixa d’Estalvis de Catalunya, Tarragona i Manresa (Catalunyacaixa) was followed in the Supreme Court decision of Cavendish Square Holding BV v Talal El Makdessi; ParkingEye Ltd v Beavis were it was stated that the ECJ judgment was ‘the leading case on the topic in the [ECJ]’.492 The

ibid, para 73.

487

Case C‑226/12.

488

Case C‑226/12 – Constructora Principado SA José Ignacio Menéndez Álvarez, para 22.

489

ibid, para 21.

490

ibid, para 23

491

Cavendish Square Holding BV  v Talal El Makdessi; ParkingEye Ltd v Beavis [2015]  UKSC  67, [105]. It was followed in preference to Director General of Fair Trading v First National Bank plc [2001] UKHL 52. The Supreme Court did not apparently overrule the decision of the House of Lords, with the majority in the Supreme Court noting only that it is ‘now sufficient to refer’ to the ECJ case, however a Court of Appeal case following the ECJ decisions (West v Ian Finlay Associates [2014] EWCA Civ 316) did not consider them but followed Director General of Fair Trading v First National Bank plc.

492

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Chapter 4  Unfair terms in consumer contracts

Supreme Court case concerned the application of the fairness test in the 1999 Regulations to a term in a contract whereby a motorist would pay £85 charge if the motorist parked its car for more than two hours or infringed other rules set by the company managing the car park. 4.213 The Supreme Court draw heavily on the opinion of the Advocate General in Mohamed Aziz v Caixa d’Estalvis de Catalunya, Tarragona i Manresa (Catalunyacaixa).493 The majority in the Supreme Court494 did not find the penalty charge unfair as: ‘[t]he term does not exclude any right which the consumer may be said to enjoy under the general law or by statute.’495

The majority in the Supreme Court did find that to an extent there was imbalance in the rights of the parties, but did not occur ‘contrary to the requirement of good faith’ as the owner of the land and the company managing the car park had a legitimate interest:496 ‘in imposing a liability on [an user of the car park] in excess of the damages that would have been recoverable at common law. [The companying manging the car park] had an interest in inducing him to observe the two-hour limit in order to enable customers of the retail outlets and other members of the public to use the available parking space […]charging overstayers £85 underpinned a business model which enabled members of the public to park free of charge for two hours.497 This was fundamental to the contractual relationship created by [the user of the car park] ‘s acceptance of the terms of the notice, whose whole object was the efficient management of the car park.498’

4.214 The majority in the Supreme Court asked499 whether the company managing the car park could ‘dealing fairly and equitably with the consumer … reasonably assume that the consumer would have agreed to such a term in individual contract negotiations’ noting that although in the context of car parking the concept of a negotiated agreement is ‘somewhat artificial’ but is ‘perfectly workable’ if it is recognised that the test is objective. Reformulating the question more practically: ‘The question is not whether [an user of the car park] himself would in fact have agreed to the term imposing the £85 charge in a negotiation, but whether a reasonable motorist in his position would have done so’.500

Particularly paragraphs 73, 75 and 94

493

Lords Neuberger, Sumption and Carnwath.

494

Cavendish Square Holding BV v Talal El Makdessi; ParkingEye Ltd v Beavis [2015] UKSC 67, [107].

495

ibid, [107].

496

The majority in the Supreme Court indicated that this point was to ‘echo the Observations of the Advocate General at [para 94] of her opinion’.

497

The majority in the Supreme Court indicated that for this later point was ‘an interest of exactly the kind envisaged by the Advocate General at [para 87] of her opinion’.

498

Adopting the words of the ECJ concerning the situation when such an imbalance can arise which is ‘contrary to the requirement of good faith’, see para 4.209 above.

499

Cavendish Square Holding BV v Talal El Makdessi; ParkingEye Ltd v Beavis [2015] UKSC 67, [108].

500

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Chapter 4  Unfair terms in consumer contracts

For the majority in the Supreme Court the answer was that motorists in general, and the defendant in particular, had accepted the term, although in non-negotiated standard terms doing so ‘would not ordinarily be entitled to much weight’, but here: ‘…although the terms, like all standard contracts, were presented to motorists on a take it or leave it basis, they could not have been briefer, simpler or more prominently proclaimed. If you park here and stay more than two hours, you will pay £85. Motorists could hardly avoid reading the notice and were under no pressure to accept its terms.’501

4.215 Objectively a motorist of the car park had ‘every reason’ to accept the term as s/he were allowed to park for two hours in return for the risk of being charged £85 if s/he overstayed and the rational was that it led to the ‘efficient management’ of the space to users of the car park and neighbouring retail space, and also: ‘They are beneficial not just to [the company manging the car park], the landowner and the retail outlets, but to the motorists themselves, because they make parking space available to them which might otherwise be clogged up with commuters and other long-stay users. The amount of the charge was not exorbitant in comparison to the general level of penalties imposed for parking infractions. […] The risk of having to pay it was wholly under the motorist’s own control. All that he needed was a watch. In our opinion, a hypothetical reasonable motorist would have agreed to objectively reasonable terms, and these terms are objectively reasonable.’502

Although this was the decision of the majority two other Supreme Court judges provided differing views. One (Lord Mance), while agreeing that the term was not unfair, took a somewhat different line to the majority. The other (Lord Toulson) dissented and found that term was unfair. 4.216 For Lord Mance it was necessary to consider ‘the different interests involved’ as stated in the 1993 Directive, recital 16 when considering the unfair character of a term. Although the £85 charge is incurred for overstaying (even if the overstay period is short and the charge does not vary regardless of the length of overstay) the charge is ‘integral element of the scheme’ for the parking. Where Lord Mance appeared to differ from the majority was that although the majority placed reliance on the ECJ’s emphasis that it is necessary to consider: • ‘what the position would have been under national law apart from the challenged term’; and •

‘whether the supplier could reasonably assume that the consumer would have agreed such a term in individual contract negotiations’;

for Lord Mance it could not be the position of the ECJ that these considerations ‘would by themselves be conclusive, rather than relevant’ given that the

ibid, [108].

501

Would by themselves be conclusive, rather than relevant.

502

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1993 Directive and the 1999 Regulations it is necessary to consider all the circumstances.503 Lord Mance indicated that his point reflected what was Lord Millet stated in Director General of Fair Trading v First National Bank plc.504 4.217 In carrying out his assessment Lord Mance noted the defendant motorist would not have any right to park but for the agreement the defendant motorist made when parking, and would be liable to pay damages which the owner of the car park in connection with the first bullet point immediately above. Concerning the second, Lord Mance, found it ‘less easy to address’ whether the parking operator ‘could not reasonably assume that customers in [the defendant motor]’s position would have agreed to the scheme in individual contract negotiations’. For Lord Mance, a customer in the defendant motorist’s position: •

would ‘have been very satisfied with a proposal of two hours free parking’;

•

would ‘very probably have asked for some form of graduated payment in the event of overstaying’

but because of the other interest involved and that the later point would be unacceptable to the parking operator and the land owner505 Lord Mance was not confident that a motorist would not accept the risk of overstaying and paying £85. Lord Mance concluded, like the majority, that the term in question was not unfair for the reasons stated by the judge at fair instance: ‘a. It is difficult to categorise as not in good faith a simple and familiar provision of this sort of which very clear notice was given to the consumer in advance. b. There is not a significant imbalance between the parties’ rights and obligations, when the motorist is given a valuable privilege (two hours free parking) in return for a promise to pay a specified sum in the event of overstaying, provided that sum is not disproportionately high. c. The charge in question is not disproportionately high, and insofar as it exceeds compensation its amount is justifiable, and not in bad faith or detrimental to the consumer.’506

4.218 Lord Toulson, in dissenting, held that in applying the test laid down on significant imbalance in Mohamed Aziz v Caixa d’Estalvis de Catalunya, Tarragona i Manresa (Catalunyacaixa):507 ‘it follows that the £85 penalty clause created a significant imbalance within the meaning of the regulation, because it far exceeded any amount which was otherwise likely to be recoverable as damages for breach of contract or trespass.’508

[2001] UKHL, [208].

503

[2001] UKHL 52, [54]. See para 4.173 above.

504

Cavendish Square Holding BV v Talal El Makdessi; ParkingEye Ltd v Beavis [2015] UKSC 67, [209].

505

ibid, [212].

506

At para 68 (and para 76) of the ECJ judgment.

507

Cavendish Square Holding BV v Talal El Makdessi; ParkingEye Ltd v Beavis [2015] UKSC 67, [307].

508

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In interpreting the meaning of the test in the ECJ decision, Lord Toulson was equating a ‘less favourable legal situation’ with equivalent legal sanctions such as breach of contract and trespass. 4.219 That the test that Mohamed Aziz v Caixa d’Estalvis de Catalunya, Tarragona i Manresa (Catalunyacaixa) laid down509 on the requirement of good faith was a test: ‘significantly more favourable to the consumer than would be applied by a court in this country under the penalty doctrine [the other aspect which the Supreme Court were considering’.510

Lord Toulson noted that the 1993 Directive has as a starting point that ‘consumers need special protection’ (compared to the normal staring point at common law that ‘parties should be kept to their bargains’) and it is for the trader to show: ‘that a non-core term which is significantly disadvantageous to the consumer, as compared with the ordinary operation of the law without that term, is one which the supplier can fairly assume that the consumer would have agreed in individual negotiations on level terms. The burden is on the supplier to adduce the evidence necessary to justify that conclusion.’511

4.220 Lord Toulson advanced a number of reasons why a person may unintentionally overstay in the car park (congestion trying to get in or out, disabilities, not parking in the right spot if disabled and no disabled spots are available) and a clause such in this case: ‘makes no allowance for circumstances, allows no period of grace and provides no room for adjustment’.512

Lord Toulson considered that the majority had: ‘substituted their judgment of reasonableness of the clause for the question whether the supplier could reasonably have assumed that the customer would have agreed with the term.513

and their ‘approach waters down the test adopted by the [ECJ]’. In stating that he would find the term in question unfair, he believed that the points made about the management of the car park were in effect no more than guesses and returned to the point that: ‘that it was for [the parking operator] to show the factual grounds on which it could reasonably assume that a customer using that car park would have agreed, in individual negotiations, to pay £85 if he overstayed for a minute, or parked with his wheels not entirely within a marked bay, or for whatever reason returned to the car park in less than one hour (perhaps because he had left something behind). On

At para 76 (and 68) in the ECJ decision. See para 4.209 above.

509

Cavendish Square Holding BV v Talal El Makdessi; ParkingEye Ltd v Beavis [2015] UKSC 67, [309].

510

ibid.

511

ibid, [310].

512

ibid, [315]. Lord Toulson was referring to [107], parts of which are quoted above.

513

371

Chapter 4  Unfair terms in consumer contracts the bare information which was placed before the court, I am not persuaded that [the parking operator] has shown grounds for assuming that a party who was in a position to bargain individually.’514

4.221 An issue with the Supreme Court decision was that the court was also concerned with the common law as to penalty clauses – not solely with whether the term in question in the case was unfair. The majority deciding that the term in question was not unfair it opens the possibility that a trader can require a consumer to pay a sum greater than the loss the trader suffers where the consumer is in breach of contract. Potentially such a term comes within one of the grey list terms (CRA, Schedule 2, para 6): ‘A  term which has the object or effect of requiring a consumer who fails to fulfil his obligations under the contract to pay a disproportionately high sum in compensation.’

The majority in the Supreme Court only makes a passing reference to this grey list term in stating that ‘it arguably falls within the illustrative description of potentially unfair terms at para 1(e) of Sch 2 to the Regulations, it is not within the basic test for unfairness in Regulations 5(1) and 6(1)’515

Types of unfair terms 4.222 In the first OFT  Bulletin on unfair terms, the categories of unfair terms which the Director General had then most commonly encountered were identified as516: •

entire agreement clauses;

•

hidden clauses;517

•

penalty clauses;

•

exclusion clauses; and

•

variation clauses.518

4.223 To some extent such clauses are identified as terms which may be unfair by the ‘grey list’ in CRA, Schedule 2, but the OFT Bulletin 3 identified519

Cavendish Square Holding BV v Talal El Makdessi; ParkingEye Ltd v Beavis [2015] UKSC 67, [314].

514

ibid, [105].

515

Office of Fair Trading Bulletin No 1 at 1.18.

516

‘… it is regrettably common for consumers not to have sight, or any notice of, the full terms and conditions until after they have signed the contract’ (Office of Fair Trading Bulletin No 1 at 1.18).

517

‘Typically these give the supplier the right to put up prices with no realistic right for the consumer to withdraw without penalty’.

518

Office of Fair Trading Bulletin 3 at 18.

519

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(and now the CMA Guidance520 as well) a number of other types of term which are not covered by that list, but which are regarded as ‘questionable’ in the light of the general test of fairness: – •

‘indemnification clauses’;

•

‘unfair enforcement clauses’;521

•

‘signed statements’522 or ‘customer declarations’;523

•

clauses allowing for ‘delivery/installation in instalments’;524

•

‘allowing the trader to impose unfair financial burdens’;525

•

‘unfair enforcement powers’;526

•

‘excluding the consumer’s right to assign’;527

• ‘exclusions and reservations of special rights’;528and the OFT indicated that such terms:529 ‘[although an e]xclusion from the [“grey list”] cannot be seen as forming any sort of “white list”. Any standard term will be seen as being unfair whether or not it appears in … the list, if it fails the unfairness test in [reg 5]’.530

4.224 Further, the OFT said: ‘A term so drafted as to be calculated to leave a significant number of consumers open to (for instance) not getting what they were promised, paying more than they bargained for, or obtaining no, (or inadequate) redress for loss or damage caused by the trader’s negligence, will be under suspicion, whether or not the term itself can be categorised under a heading that appears in [Sch 2]’.

The ‘grey list’ is considered below. Here some more general consideration will be given to unfair terms.

CMA Guidance, Part 5A – Other terms considered potentially unfair.

520

Ie terms giving a seller or supplier unduly wide powers to enforce its rights, for example, a clause which is intended to permit a seller or supplier to enter the consumer’s property to repossess goods it has supplied: Office of Fair Trading Bulletin 3 at 18.

521

Ie statements which the consumer is required to sign and which are to the effect that they have read the contract: Office of Fair Trading Bulletin 3 at 18–19.

522

CMA Guidance, 5.34.1 – 5.34.4.

523

Such clauses ‘cause an unfair imbalance in the contract, by allowing the supplier at any time to change the way it proposes to perform without any reference to the consumer’s convenience’ (Office of Fair Trading Bulletin 3 at 19).

524

CMA Guidance, 5.30.1 – 5.30.6.

525

ibid.

526

ibid, 5.33.1 – 5.33.5.

527

ibid, 5.35.1 – 5.35.12.

528

CMA Guidance, Historic Annex A to unfair contract terms guidance. See the terms grouped as ‘group 18’.

529

Office of Fair Trading Bulletin 5 at 10.

530

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Exclusion clauses 4.225 There will often be difficulties with the fairness of exclusion clauses in general in the consumer context. Exclusion clauses are expressly referred to in CRA, Schedule 2, paras 1 and 2 Consideration of insurance has proved to be a very significant factor in relation to whether an exemption clause satisfies the requirement of reasonableness under UCTA,531 although it now no longer applies to consumer contracts. It may also be relevant in relation to the fairness test under CRA, Part 2. 4.226 Under UCTA, it has been relevant to ask which party was in the best position to insure, the cost of insurance, whether the placement of that cost has been reflected in the price charged, and the overall impact of the clause.532 Here, the question of which party is in the better position to insure (frequently the commercial party) could be reflected in the requirement of good faith. If there is a balancing of a cheap service with the need to insure being placed on the consumer, prima facie that might be seen as indicating a balance in the rights and obligations of the parties. 4.227 However, considerations of the likelihood of the consumer understanding the need to insure and, even if such understanding is likely to be present, the likelihood of insurance cover being taken out, may be relevant to good faith. In addition, as was suggested above, sometimes the test of significant imbalance may need to be looked at on a broader scale, going beyond consideration of a single contract, so that there may be an imbalance if, by using a term placing the need to insure on the consumer, the supplier reduces the price slightly, but at a risk of placing a very significant risk on the small number of consumers for whom it may materialise and who may well not have insured.533 4.228 In the context of UCTA, the availability, or otherwise, of an alternative contract has been a significant indicator of whether an exemption clause satisfies the requirement of reasonableness. In the situation where a cheap photographic developing service was provided on the basis of an extensive exemption clause, the clause was nevertheless held not to satisfy the Act’s requirement of reasonableness against the background of an industry practice that an alternative service should also be offered – one involving a higher price and the potential for greater liability.534 In contrast a contract limiting liability in relation to the sale of seed potatoes was seen as reasonable when

See para 3.260.

531

See para 3.264.

532

See para  4.176 and see Beale ‘The Directive on Unfair Terms in Consumer Contracts’ in Beatson & Freidman eds Good Faith and Fault in Contract Law (Oxford University Press ,1995) at 243. For an example, in the context of the Unfair Contract Terms Act 1977, see Smith v Eric S Bush [1990] 1 AC 831.

533

Woodman v Phototrade Processing (1981) 131 NLJ 935.

534

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the farmer had been given a choice of paying a higher price for seed involving less risk of disease.535 Under UCTA (when it applied to consumers), the reality of the alternative has been considered so that the existence of a safer alternative which most consumers could not afford was not viewed as rendering an exemption clause reasonable.536 4.229 Under the CRA it is not clear whether requiring a consumer to take out insurance will be acceptable. The CMA in its guidance only comments on insurance in the context where a trader wishes to transfer risk to the consumer which the trader is better able to bear. In such a context: ‘But unless suitable insurance is easily available to consumers at reasonable cost, they are still liable to be worse off for the use of such a term.’537

In the context of the 1999 Regulations, the availability of a choice might be seen as particularly relevant to the question of good faith if the seller or supplier provides an alternative that could be seen as taking account of the interests of the consumer. However, the reality of the alternative will fall to be considered – for example, whether sufficient effort was made to bring it to the attention of the consumer.

Entire agreement clauses 4.230 CRA, Sch 2, para 17 of the ‘grey list’ is relevant to entire agreement clauses and they are considered in general in that context.538

Penalty clauses 4.231 CRA, para 4 and 5 of the ‘grey list’ are relevant to penalty clauses and related devices and they are considered in that context.539

Variation clauses 4.232 CRA, Schedule 2 refers to variation clauses at several points, and they are considered further in that context.540 However, ‘two things seem clear … First, a variation clause is less likely to be considered harmful if consumers have a right to cancel the contract before they are affected by it and so is more likely to be suspect if they are “captive”. Secondly, the less free a supplier is to use the term as it chooses, the less scope there is for consumer detriment.

RW Green Ltd v Cade Bros Farms [1978] 1 Ll Rep 602.

535

Smith v Eric S Bush [1990] 1 AC 831.

536

CMA Guidance, 5.31.3.

537

See para 4.365.

538

See paras 4.299 and 3.07.

539

See paras 4.339, 4.346 and 4.353.

540

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There may be no unfairness in a term that enables a supplier to charge prices only in line with an independent published index’.541

Indemnification clauses 4.233 These are clauses which transfer liability to the consumer which would otherwise have fallen on the supplier. For the CMA a term which allows a trader to have the benefit of an indemnity for costs is objectionable if the consumer is not at fault (even more so if the trader is itself at fault). Also for the CMA, the word ‘indemnity’ is legal jargon: ‘…which, if understood at all by a consumer, is liable to be taken as a threat to pass on legal and other costs incurred without regard to reasonableness’.542

4.234 The OFT had indicated that an indemnity clause would be unfair where the liability is one which the trader is better able to insure against, or control, or both.543 One example that the OFT gave was of a term ‘likely to fail’ the fairness test, is of: ‘a clause which forces the consumer to indemnify the company for all its legal costs in the event of a dispute arising – regardless of whether they arose as a result of the consumer’s fault, or the company’s’.544

Similarly, a clause which makes the consumer liable for any damage to materials or equipment would be unfair ‘even where the consumer was not responsible or even negligent’.545

Unfair enforcement clauses 4.235 The OFT indicated that terms providing suppliers with unduly wide powers to enforce its contractual rights would be ‘likely to fail’ the fairness test,546 such as allowing the trader: • the right of entry on to the consumer’s private property (for example, to reprocess goods if the consumer has not paid on time or to evict the consumer); •

to sell the goods of the consumer which the trader has in its procession (the trader having a lien over the goods).547

Office of Fair Trading Bulletin 5 at 10.

541

CMA Guidance, 5.31.7.

542

Office of Fair Trading Bulletin 3 at 11.3.

543

ibid.

544

ibid.

545

ibid at 11.4.

546

CMA  Guidance, 5.32.2. And ‘[t]here is even less justification for terms which purport to exclude liability for causing property damage in the course of exercising such rights. Such a term would appear to be designed to permit wilful or even criminal damage and does not, in the CMA’s view, have any place in a consumer contract.’ at 5.32.3.

547

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For the CMA ‘A contract cannot be considered fair and balanced if it gives one party the power to impose disproportionately severe sanctions on the other, or if it misleadingly threatens sanctions over and above those that can really be imposed’.548

4.236 One problem with such a clause was that it allows the trader to avoid the need to go to court in the face of an unpaid bill, and •

provides a remedy ‘that can normally and properly only be authorised by court order’; and also

• without providing any similar method for the consumer to avoid the expenses and delays of action through the courts if the trader does fulfil its obligations. 4.237 The OFT provided more details as to why there could be no justification for such an imbalance:549 •

such clauses are often drafted: ‘so that they could be read as allowing the supplier to rip out products which have already been installed without replacement or making good’.

• Any term indicating to consumers that they could be subject to such a severe sanction was viewed as ‘wholly unacceptable’.550 Finally, the OFT considered it to be ‘objectionable in principle to reserve a right to go into a private residential property without the owner’s consent’. They thought any right of access should be revocable ‘to allow the consumer to exclude company representatives who have, for example, behaved badly or dishonestly’ and clauses which reserved a right in perpetuity were ‘particularly objectionable and obviously quite unnecessary for the purposes of a single double glazing or home-improvement contract’.551

Unfair financial burdens 4.238 The CMA states that a contract will only be balanced if both parties are subject to obligations that have agreed to accept. A term which allows the trader to place ‘an unexpected financial burden on the consumer gives rise to concern’.552 Terms which •

are similar to price variation clauses;553 CMA Guidance, 5.32.1.

548

Office of Fair Trading Bulletin 3 at 11.5.

549

ibid at 11.6.

550

ibid at 11.7.

551

CMA Guidance, 5.30.1.

552

‘Like such a [price variation] clause, cannot be considered to fall within ‘the core exemption’ because it does not clearly set an agreed price’.

553

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• give a trader an ‘explicit right’ to require payment of an unspecified amount which the trader has the discretion on the amount, such as:

•





advance payments; or





security deposits

are unclear as what is payable and when

will all fall in this category of an unfair financial burden. 4.239 A term is more likely to be fair if it has a narrow effect so that it is specific as to what must be paid and the circumstances when it should be paid, so that: ‘it may be sufficiently transparent that it can be said to put consumers into a position where they can make an informed choice whether or not to enter the contract’.554

The CMA recognises that it is not always possible for a trader to specify what is payable and when, but where it has to meet specific costs or is not sure if they arise, then the contract should spell the circumstances clearly in which the amounts may be payable, but subject to a proviso: ‘[any] term should not allow for such costs to be invented or inflated. It is neither fair nor economically efficient for traders to offer products and services at unrealistically low headline prices and then seek to compensate themselves by making charges that consumers have no reason to expect to pay or at levels beyond their reasonable expectations.’555 l

Signed statements/declarations 4.240 Consumers are sometimes sold goods on the basis of printed terms which include a declaration that they have inspected their purchase and found it to be free from faults. For the CMA: ‘Use of such declarations may be intended only to stop consumers making baseless allegations, but it could be used to bar legitimate as well as unfounded claims. As such their use gives rise to broadly the same objections as exclusion clauses…’.556

The predecessor to the CMA, the OFT was also very critical of contracts which required a consumer to sign a statement to the effect that the consumer had ‘read the contract and associated documents’.557 And similarly for the CMA concerning declarations that the consumer has ‘read and understood’ the contract. The 1993 Directive can be seen as emphasising transparency. The OFT viewed such a clause as one which: CMA Guidance, 5.30.3.

554

ibid, 5.30.4.

555

ibid, 5.34.4. For the CMA, ‘misleading or aggressive reliance on such terms with a view to depriving consumers their legal rights’ can also be an unfair commercial practice and subject to enforcement action under 2008 Regulations, at 5.34.3.

556

Office of Fair Trading Bulletin 3 at 11.8.

557

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Chapter 4  Unfair terms in consumer contracts ‘tends to defeat the purpose of the Directive, and as such … open to serious objection’.558

4.241 The OFT indicated that the better practice is to ‘place prominently a warning that the consumer should read the contract’. Such a warning was viewed as ‘not only likely to be fair in itself, but [might] serve to add to the likelihood of other terms being considered fair’.559 The CMA makes a similar point so that any declaration which draws attention to important terms and conditions will contribute ‘to the transparency of the terms’ but the ‘terms [have to be] properly flagged up [otherwise] they are unlikely to be binding on the consumer’ and ‘subject to the proviso that the terms are clear, allowing the consumer to understand the practical significance of what is said in them, and that reading them is likely to be practically feasible for a consumer in the circumstances.’560

Excluding the consumer right to assign561 4.242 The CMA notes that ordinary contract law allows a person to assign to another what the first person has bought so that ‘[t]erms which seek to restrict this right are considered to be open to scrutiny as regards fairness’.562 For the CMA, if the consumer wishes to sell a good which has the benefit of a guarantee but cannot assign the guarantee to the new owner, the consumer is ‘effectively deprived of part of what they may reasonably fee they have paid for’. Traders have legitimate concerns in not facing claims under guarantees which are not genuine, so they can require an assignee of the guarantee to establish that the guarantee was properly assigned ‘as long as the procedural requirements involved are reasonable’.563

Codes of Practice 4.243 It has been indicated that terms which reflect codes of practice in the supplier’s industry may be seen as fair. Bringing terms into line with such practice has been seen as removing unfairness.564

Office of Fair Trading ‘Unfair Contract Terms Guidance’ (Feb 2001) at 18.5.5, and CMA Guidance, 5.34.5.

558

Office of Fair Trading Bulletin 3 at 11.9.

559

CMA Guidance, 5.34.7.

560

CRA, ss 90-95 now provides different provisions for the assignment (resale) of tickets bought on online, including where a re-sale is to take place, certain information must be provided. If an event organiser cancels the ticket or blacklists the seller of the ticket the organiser has to comply with the unfair terms provisions of CRA, Part 2.

561

CMA Guidance, 5.33.1.

562

ibid, 5.33.3.

563

See for example Office of Fair Trading Bulletin 1, case 16 (Weatherseal Holdings Ltd); case 17 (Bourne Leisure Group).

564

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Chapter 4  Unfair terms in consumer contracts

The burden of proof and the duty of a court to consider the fairness of a term 4.244 Unlike the position under UCTA,565 in relation to the fairness of a term, the 1993 Directive and the 1999 Regulations contained no provision placing the burden of proof on the seller or supplier to show a term was unfair or on the consumer to show the term was unfair. The presence of a term in the ‘grey list’ is not even stated to do so. The CRA makes no change concerning the burden of proof as the 1993 Directive and the 1999 Regulations were silent on the issue. 4.245 The Law Commission Report 2013 recommended566 that new legislation contain a provision placing a duty on a court to consider the fairness of a term although no party has raised (or intends to raise) the issue, which was introduced as CRA, section 71: ‘(1) Subsection (2) applies to proceedings before a court which relate to a term of a consumer contract. (2) The court must consider whether the term is fair even if none of the parties to the proceedings has raised that issue or indicated that it intends to raise it. (3) But subsection (2) does not apply unless the court considers that it has before it sufficient legal and factual material to enable it to consider the fairness of the term.’

4.246 The Law Commission in its analysis noted that: • the introducing a burden of proof on a consumer would be unlikely to accord with EU law; and • in the over 20 years since the 1993 Directive had been in operation it appears no concerns had been raised about legislation being silent on the question of the burden of proof.567 However, case law in the ECJ has clearly indicated that: ‘…the national court is required to examine, of its own motion, the unfairness of a contractual term where it has available to it the legal and factual elements necessary for that task. Where it considers such a term to be unfair, it must not apply it, except if the consumer opposes that non-application. That duty is also incumbent on the national court when it is ascertaining its own territorial jurisdiction.’568

The ‘Grey’ list 4.247 Schedule 2 of the CRA contains an indicative and non-exhaustive list of terms which may be unfair.569 It had a relatively insignificant technical status,

UCTA, s 11(5).

565

Law Commission Report, 7.96.

566

ibid, 7.91-7.92.

567

Case C-243/08, Pannon GSM Zrt. v Erzsébet Sustikné Győrfi. Also Case C-168/05 Mostaza Claro: ‘the nature and importance of the public interest underlying the protection which the Directive confers on consumers justify, moreover, the national court being required to assess of its own motion whether a contract term is unfair’ (para 38).

568

CRA, s 63, Sch 2. The Explanatory Notes (para 302) indicates that the terms in the list are not automatically unfair but a court can use them to assess the fairness in CRA, s 62, para 302.

569

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Chapter 4  Unfair terms in consumer contracts

not even reversing the burden of proof in the fairness test, however following the case of Office of Fair Trading v Abbey National plc,570 their significance has increased, particularly those terms which touch on the price element of the core exemption.571 The CMA in its guidance indicates:572 ‘It is a ‘grey’ list because it does not blacklist terms…. A term corresponding to one of the types of terms in the Grey List is not necessarily unfair. It may be unfair in some circumstances but not others. Similarly a term may bear no resemblance to any of the terms listed and yet be unfair if it fails the fairness test […]. However, a suspicion of unfairness arises if a term has the object or effect of one of the types of terms listed.’573

4.248 The relevant part of CRA, section 63 provides: ‘(1) Part 1 of Schedule 2 contains an indicative and non-exhaustive list of terms of consumer contracts that may be regarded as unfair for the purposes of this Part. (2) Part 1 of Schedule 2 is subject to Part 2 of that Schedule; but a term listed in Part 2 of that Schedule may nevertheless be assessed for fairness under section 62 unless section 64 or 73 applies to it. (3) The Secretary of State may by order made by statutory instrument amend Schedule 2 so as to add, modify or remove an entry in Part 1 or Part 2 of that Schedule. … (6) A term of a consumer contract must be regarded as unfair if it has the effect that the consumer bears the burden of proof with respect to compliance by a distance supplier or an intermediary with an obligation under any enactment or rule implementing the Distance Marketing Directive.’574

4.249 The indicative list set out in CRA, Schedule 2 comes in two parts: •

the first part contains the list of indicative terms (CRA, Schedule 2, paras 1 to 20);

• the second part states the scope of these indicative terms concerning contracts relating to financial services, contracts which last indefinitely, the sale of securities, foreign currency, etc and price indexes (CRA Schedule 2, paras 21 to 24).

Changes made by the CRA 4.250 The 17 terms which appeared in the 1999 Regulations, Schedule  2 appear largely unchanged in CRA, Schedule 2 except for a few minor changes:

[2009] UKSC 6.

570

See Law Commission Issues paper, para 8.45.

571

Office of Fair Trading Bulletin 4 at 22.

572

CMA Guidance, 2.38.

573

CRA, s 63(7) sets out the meaning of various terms used in this subsection.

574

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•

to maintain consistency with the provisions of CRA, ‘seller or supplier’ is replaced with ‘trader’; and

•

incorporated into each term in the list is the phrase: ‘a term which has the object or effect’ rather than appear at the beginning of the list, apparently to clearly signal that is not only specific wording which can be caught but that those which can have the same effect, as the CMA Guidance notes: ‘Terms are under suspicion of unfairness if they have the same purpose as terms in the Schedule or if they can, by whatever means (whether an imbalance or a lack of transparency) produce the same result. They do not have to have the same form or mechanism. This is now emphasised in the legislation: each type of term on the list begins with the phrase, ‘A  term which has the object or effect … reflects its underlying purpose of providing effective rather than narrowly circumscribed protection to consumers.’575

•

A change in the numbering scheme of CRA, Schedule 2, from letters of the alphabet to numbers576

4.251 The CRA also introduced more significant changes (or clarifications of existing law, depending on the view taken of the law prior to CRA): •

introducing three new terms into CRA, Schedule 2 (considered further below);

• making clear that the exemption of a core term from assessment for fairness under CRA, section 64(1) ‘does not apply to a term of a contract listed in Part 1 of Schedule 2’.577 •

indicating explicitly (under CRA, section 63(2)) that the first part of CRA, Schedule 2 is subject to the second part, but also stating that it is possible to assess for unfairness any term appearing in the second part (under CRA, section 62), unless: 



it qualifies as a core exemption (CRA, section 64); or





it reflects a mandatory statutory or regulatory provision (CRA, section 73).

It is possible for the Secretary of State to add to, remove or amend any term in Schedule 2. The terms of the grey list in Schedule 2, Part 1 of the CRA are set out below.

CMA Guidance, 2.40.

575

A summary table indicating the numbering scheme for the 1993 Directive, 1999 Regulations and the CRA is set out in Appendix 1 to this chapter, and Appendix 2 compares the actual wording of the three legislative measures.

576

CRA, s 64(6).

577

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CRA, Sch 2, Part 1, para 1 (1999 Regulations, Sch 2, para 1(a)): Exclusion and limitation clauses – exclusion of liability for death and personal injury 4.252 ‘A term which has the object or effect of excluding or limiting the trader’s liability in the event of the death of or personal injury to the consumer resulting from an act or omission of the trader.’

General points 4.253 The CMA considers this and the next grey list items as examples of exclusion and limitation clauses and make some general points which apply to both: •

unless both a trader and the consumer are equally bound by an obligation imposed by a contract or general law then the rights and duties under a contract will not be evenly balanced;

•

the exclusion of, or limitation of, liability for a breach of an implied term can be unfair if there is a detriment to a consumer if it has the effect of allowing a trader to behave unreasonably to another without facing any consequences;

•

CRA Part 1 contains: ‘key obligations imposed on the trader and rights conferred on the consumer by Part 1 of the Act. Excluding or limiting liability for breach of these standards would deny consumers the benefit of their ‘statutory rights’ and Part 1 of the Act therefore makes most terms that exclude or limit such liability legally ineffective for that purpose, without any need to prove that they are unfair. Terms of this kind are referred to in this guidance as blacklisted ….. Any term which can have such an effect in a consumer contract is, in any case, very likely to be considered unfair under Part 2 of the Act.’578

4.254 The CMA is unlikely to find as acceptable the use of ‘over-extensive’ wording in a disclaimer in a consumer contract: •

where the intention is to stop the trader receiving unjustified demands. The provisions of CRA, Part 2 look at the effect of, not only at the intentions of, a term, and if it the wording used can have the effect of stopping a legitimate claim it may be an unfair one to include in a consumer contract (unless it is redrafted to reduce its scope);

• which in fact does exclude liability as such in the choice of words used but has:

CMA Guidance, 5.2.4. Emphasis in original.

578

383

Chapter 4  Unfair terms in consumer contracts ‘the same effect as an unfair or blacklisted exemption or limitation clause, it will likely be unfair whatever its form or mechanism, particularly if it makes it more difficult for consumers to enforce their rights against the trader.’579

4.255 The trader might use wording where the consumer is stating certain facts or situations exist or that they are satisfied with the goods or services they have received and where the wording does not accord the reality – but would have the effect of stopping any liability arising at all. • together with a statement ‘that your statutory rights are not affected’ – which will not make an unfair disclaimer acceptable and would count as: ‘an unexplained legal technicality whose effect only a lawyer is likely to understand’;580 •

together with the use of wording which states that ‘liability is excluded as a far as the law permits’ will generally be unfair as: ‘they are [ ] objectionable as being unclear as to their practical effect in those without legal knowledge’.581

4.256 The CMA Guidance makes a similar point about a similarly worded disclaimer stating ‘liability excluded to the extent permitted by unfair contract law’ as being unclear as to its nature and effect, because deciding whether a term is fair or unfair can depend on several factors – and to determine whether a term which excludes or limits liability in particular circumstances will need specialist legal advice; • such as wording which seeks to disclaim responsibility for what is done by the suppliers of or sub-contractors of a trader is also likely to be unfair in the same way any such disclaimer covering the trader because the consumer has no choice as to whom the trader uses and also because there is no direct contractual relationship with the suppliers and subcontractors and will have no contractual rights against these third parties.

Specific points concerning the exclusion or limitation of liability for death and personal injury 4.257 Clauses which purport to exclude or restrict negligently caused death or personal injury are automatically ineffective under CRA, section 65(1).582 Such clauses are not in themselves subject to assessment for fairness, although they can be subject to scrutiny as to whether they are unfair terms.583 The current CMA Guidance clearly states that there should be no use of clauses CMA Guidance, 5.2.6.

579

ibid, 5.2.6.

580

ibid, 5.2.8.

581

Before coming into force of CRA, the provision was found in UCTA, s 2(1). See para 3.72.

582

CRA, s 65(1) is blacklisted by the CMA, CMA Guidance, 4.1 to 4.3.

583

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which restrict or exclude liability for death or personal injury in a consumer.584 The predecessor to the CMA (OFT) stated: ‘it would be difficult to conceive of circumstances in which [such a clause] would not be unfair’.585

4.258 Wording which may have limited aim, could be still unfair if it could potentially cover the type of liability covered by this grey list term. For example, a general disclaimer that that the use of equipment by a customer is ‘at their own risk’. In such a case the supplier may have the aim to prevent claims from a customer where the customer, because of their own negligence, has been injured or had their property damaged, but the effect of a term could be that it also encompasses liability for death and personal injury. 4.259 A  disclaimer covering death and personal injury is less likely to be unfair where: •

the liability for loss or harm is restricted to where the trader is not at fault;

•

the trader: 



provides a warning specifically of the risk a customer will face if the activity concerned is by its nature risky and the trader makes that warning prominent; and lets the consumer know that the consumer has to take ‘sensible precautions’;

but the effect of providing such information and warning is not to exclude or limit liability. 4.260 In general, in practice there has been a deletion or redrafting of clauses which are not seen as sufficiently limited, so that they might be seen as applicable to cases of death or personal injury involving negligence. However, as indicated guidance issued by the predecessor to the CMA (OFT): ‘disclaimers … may be acceptable if they are qualified so that liability for loss or harm is not excluded or restricted where the supplier is at fault, or is disclaimed only where someone else – or a factor outside anyone’s control – is to blame’.586

CMA Guidance, 5.3.1. The use of such wording may also be misleading and could amount to an unfair commercial practice and prosecution under the 2008 Regulations.

584

Bulletin 3 at 1.2. See for example Office of Fair Trading Bulletin 1, cases 2, 7, 23; Bulletin 2 at 41–42; Bulletin 3 at 52–53. Bulletin 4 at 10: ‘Sometimes notices of this kind also disclaim liability for loss or damage more widely defined, including injury to persons. Exclusions of this kind are automatically void under the Unfair Contract Terms Act, regardless of reasonableness, and whether incorporated in a contract. If they are so incorporated they are, in our view, actionable under the Regulations’.

585

Office of Fair Trading ‘Unfair Contract Terms Guidance’ (Feb 2001) at 1.12.

586

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The wording in this grey list term does not only cover negligence, it can cover other ‘kind[s] of misconduct involving breach of duty that can cause death or injury.587 4.261 Examples of deleted and amended terms include: Original term: A car parking contract was redrafted after consideration by the OFT,588 with the relevant clause originally stating: •

‘vehicles and their contents are parked at the owner’s risk and no liability is accepted for any loss or damage to the vehicle or contents or persons, however caused’.

Amended term: •

‘Vehicles and their contents are parked at owner’s risk and no liability is accepted for any loss or damage to the vehicle or contents unless due to the negligence of the company or its employees’.

Original term: Deletion of a clause stating as it might cover cases of death or personal injury:589 ‘The company does not accept responsibility for the failure of any fire protection equipment in the event of a fire’.

Original term: A clause which did not restrict liability where the trader was a fault involved a business providing fitness and exercise facilities had used a clause which stated590: ‘The use by the Member of any of the Company’s equipment or machinery or the facilities of any gymnasium owned by or occupied by the Company is entirely at the Member’s own risk …’

Amended term: It was redrafted to make it plain that the risk fell on the member only when there was no negligence or other breach of duty by the trader. The new clause stated: ‘In the absence of any negligence or breach of duty by the Company the use by the Member of any of the Company’s equipment or machinery to the facilities of any gymnasium owned or occupied by the Company is entirely at the Member’s own risk’.

CMA Guidance, graph 5.3.4.

587

Office of Fair Trading Bulletin 2 at 41 (First Parking Services Ltd).

588

Office of Fair Trading Bulletin 2 (Abbeyflow Ltd).

589

Office of Fair Trading Bulletin 4 (Intrim Fitness Centre).

590

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Original term: For an example where a trader did indicate an inherent risky activity was involved but did not spell out that the customer has to take sensible precautions and sought exclude liability591: ‘Hot Air Balloon Adventures will not be responsible for injuries or consequences for passengers who are pregnant or have any physical or mental infirmity’.

Amended term: ‘We are not qualified to express an opinion confirming that you are fit to fly and you must ensure that you are fit to fly. You must not fly if you are suffering from any serious medical condition or have recently undergone surgery unless you have a certificate of your fitness to fly from your doctor. You must not fly if you are pregnant or under the influence of drink or drugs’.

4.262 CRA, Schedule  2, Part 1, para  2 (1999 Regulations, Schedule  2, para  1(b)): Exclusion and limitation clauses – exclusion and limitation of liability for faulty goods or misdescribed goods, poor service, etc. ‘A term which has the object or effect of inappropriately excluding or limiting the legal rights of the consumer in relation to the trader or another party in the event of total or partial non-performance or inadequate performance by the trader of any of the contractual obligations, including the option of offsetting a debt owed to the trader against any claim which the consumer may have against the trader.’

Exclusion of liability for faulty or misdescribed goods or digital content 4.263 CRA, Part I  provides certain statutory rights from which the trader cannot exclude or limit liability (‘blacklisted’ in CMA terminology) such as that goods and digital content must be of satisfactory quality, must be in accordance with any description applied to the goods or digital content, and that services must be provided with reasonable care and skill. Any term which excludes or limits the liability for these provisions is not binding on a consumer,592 and it is also likely to fail to meet the requirement of fairness under CRA, Part 2 and for which a regulator could take action.593 In addition to the points made under para  4.252 (above, any disclaimer regardless of the type of wording used or whatever legal mechanism is used: ‘which has the object or effect of protecting the trader from claims for redress for defective or misdescribed goods or digital content’594

will be caught.

Office of Fair Trading ‘Unfair Contract Terms Guidance’ (Feb 2001) at p 59.

591

CRA, ss 31, 47 and 57.

592

CMA Guidance, 4.7.

593

ibid, 5.4.3.

594

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Chapter 4  Unfair terms in consumer contracts

4.264 The CMA Guidance summarises the type of terms which result in the exclusion of liability for unsatisfactory goods or digital content: •

a term which states that the consumer has to examine (or has examined) goods (whether by the consumer her/himself or someone on behalf of the consumer). The consumer has to have a genuine opportunity to examine goods before their purchase and that any faults in the goods must obvious or the trader has to draw the faults specifically to the attention of the consumer.

•

that the description that applies to goods or digital content is only that which is stated on an invoice. A  consumer cannot lose any remedies available to them because the goods or digital content are not as described when sold or are not ‘reasonably fit for all the purposes for which goods or digital content of the kind are commonly supplied’.

• a term which attempts to pass the risk of loss or damage to the consumer before actual delivery of goods – such as when a trader disclaims liability for loss or damage once it has sent the goods out. For the CMA, a term which is worded in this way but has the intention of applying only when a consumer does not collect goods or refuses delivery will not be acceptable. It is possible to include a provision which encourages consumers to be prompt in collecting goods other than by means disclaiming all liability for the trader’s negligence. In such a circumstance, it might be acceptable to include a provision that if a customer is not punctual in collecting goods that s/he will have to pay reasonable storage and insurance charges. • a term where a consumer is accepting goods are of satisfactory quality on delivery or restricting the consumer right to return goods if the goods are not of satisfactory quality. The CRA now lays out a detailed code for rejecting goods, which usually starts with a period of 30 days from when the goods are delivered (‘short-term right to reject’). And the practical implication of the right to reject for the CMA in its guidance means: ‘Consumers cannot legally be deprived of this right by being required to sign ‘satisfaction notes’ on delivery, or by being required to return goods in a way that may not be possible – for example, in disposable packaging that they are likely to discard after opening.’

• following on from the previous point, equally ineffective are provisions which attempt to remove any right for a consumer to have redress after 30 days after the delivery of goods – as CRA, Part 1 provides other remedies and rights if the goods a consumer has bought are in fact not of satisfactory quality, although the consumer no longer has the short-term right to reject. • similarly, clauses should not attempt to remove consumers’ rights by requiring consumers: 388

Chapter 4  Unfair terms in consumer contracts ‘to return goods in a way which may not be possible – for instance, in disposable packaging that they are likely to discard after opening’.595



(as set out in guidance issued by the predecessor to the CMA, the OFT) is also likely to be unfair.

•

the same rights apply to sale and second-hand goods as for new goods – so a disclaimer of liability only relating to second-hand goods is likely to be unfair (such as stating that the second-hand goods are sold ‘as seen’) – although it would be reasonable: ‘[to] warn the consumer when the standard of quality that can be reasonably be expected is lower’.596

• in guidance issued by the predecessor to the CMA, the OFT indicated that a term is unlikely to fair where a trader imposes a charge for dealing with defects in goods that the trader has supplied.597 But that: ‘does not affect the rights of a business to make charges for dealing with problems which are the customer’s responsibility – if they are caused by the misuse of a product, for instance’.598

4.265 Examples of deleted and amended terms include: Deleted clauses: The following are examples of the types of clauses which were deleted entirely: ‘No guarantee is given as to the age, make, date of manufacture or mileage of any vehicle, these are sold strictly as seen and approved. Any age, make, date of manufacture or mileage quoted, is given without prejudice to the seller’.599 ‘It is the customer’s responsibility to make sure they have tried the goods before delivery and that they are fit for the purpose for which they are intended’.600 ‘Prior to signing this order form the Purchaser (or if he does not have the mechanical knowledge a competent and experienced mechanical engineer) shall examine the vehicle and the items set out in the Purchaser’s Certificate of Examination overleaf and the Purchaser is reminded that the condition of merchantable quality implied by [now CRA, section 9]601 does not operate in relation to such defects which that examination ought to reveal’.602

Office of Fair Trading ‘Unfair Contract Terms Guidance’ (Feb 2001) at 2.1.3 and p 62 – there was a deletion of the term ‘returns will not be accepted unless accompanied by: ON ALL PRODUCTS – NO MANUAL – NO RETURN. The invoice, full and complete packaging inc Disks, Manuals etc’.

595

CRA Guidance, 5.4.4 – 5.4.5.

596

Office of Fair Trading Bulletin 3 at 9.

597

Office of Fair Trading Bulletin 3 at 9.

598

Office of Fair Trading Bulletin 1 (Humberside Caravans).

599

Office of Fair Trading Bulletin 3 at 55 (GP Care Supplies).

600

Now ‘satisfactory’ quality.

601

Office of Fair Trading Bulletin 4 (Caledonia Motor Group).

602

389

Chapter 4  Unfair terms in consumer contracts ‘All goods must be checked carefully before leaving the premises, otherwise the seller will not be held responsible for any defects or damage to goods claimed after leaving the premises’.603

Original term: In connection with sale items or shop display items a clause originally stated:604 ‘SHOWROOM MODELS. Actual showroom models are sold as seen and inspected by the customer and it is the customer’s responsibility to check that all such goods are of merchantable quality and fit for the purpose at the time the purchaser agrees to buy the same. Such goods are not necessarily in perfect condition’.

Amended term: The clause was redrafted clause, relying on ‘advice’ rather than a statement as to inspection, said: ‘SHOWROOM MODELS. When an actual showroom model is sold it may not necessarily be in perfect condition. Customers should check the goods are of satisfactory condition for their particular use and requirement’.

Of course, the practicability, and effectiveness, of any such checks by consumers is likely to be important in addressing the fairness of such clauses. Original term: A clause which concerning the return of defective parts stated:605 ‘Defective equipment or parts which are returned to the Seller must be carriage paid for by the Purchaser both to and from the Seller’s offices and the Seller shall not be responsible for installation of parts so returned after repair exchange.’

Amended term: Was replaced by one stating: ‘The seller shall not be liable for the costs of carriage where the failure of goods arises from the Purchaser’s misuse’.

Terms excluding liability for poor services or work and materials 4.266 The general points made under para  4. 252 apply here and were services are concerned a consumer should expect that the services will be performed within the statutory requirement of ‘reasonable care and skill’ but extends to ‘everything that is done, or should be done, as part of the transaction’.606 Any disclaimers should not permit the trader to state it is not

Office of Fair Trading Bulletin 3 at 56 (Richline Ltd).

603

Office of Fair Trading Bulletin 4 (Dreams Bed Superstore). See also Office of Fair Trading Bulletin 2 (Crucial Trading Ltd).

604

Office of Fair Trading Bulletin 4 at 69 (Time Computer Systems).

605

CMA Guidance, 5.51.

606

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liable for not taking reasonable and care in skill in providing its services to a consumer. And under the guidance issued by the predecessor to the CMA (OFT) a clause which covers or could be seen as covering negligence is ‘particularly likely to be regarded as unfair’.607 4.267 The current guidance focuses on two areas for specific comment: disclaiming liability when a consumer is at fault.608 The CMA considers a clause may be acceptable which states that a trader is not responsible for loss or damage caused by a consumer where the loss or damage is the fault of the consumer. But such a disclaimer which operates only where the consumer is in breach is not necessarily fair:

•

‘Such a term is unlikely to be acceptable if it could deprive the consumer of all redress in the event of a trivial or technical breach, or where the trader may be partly responsible for loss or harm suffered by the consumer. For example, failure to take specified precautions against the risk of damage or theft by third parties should not be a basis on which the business can escape all liability where it, or any of its employees is negligent or dishonest. That is especially so if the precautions consumers are required to take are unusual or unreasonable in character, or not stated with sufficient clarity.’609

gratuitous services. A  trader can provide some services without charge along with the other services it provides or with goods it sells – although such services made not be part of the contract between the trader and consumer and there may be no charge for them – and

•

‘in such a case the statutory obligation of reasonable care and skill may not apply to such ‘free’ services.’

4.268 However, the CMA takes the line that the trader (and its employees): ‘may still owe a duty to take reasonable care under the general law and a disclaimer covering negligence is still to be unfair’.610

It is acceptable to make it clear that the employee will not be providing expertise or a professional standard and there is no expectation that an employee in offering help has to be infallible. Wording according to the CMA is also acceptable which states that a consumer should obtain the services of appropriate professionals ‘if they want an expert or professional standard of service’ or simply stating that it does not provide such services itself. But the trader has to be careful not try to avoid liability where ‘its employees fail to provide as good a standard of service as they are reasonably able’.611

Office of Fair Trading ‘Unfair Contract Terms Guidance’ (Feb 2001) at 2.2.2.

607

CMA Guidance, 5.5.6.

608

ibid, 5.5.7.

609

ibid, 5.5.9.

610

ibid, 5.5.9, 5.5.10.

611

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4.269 Examples of deleted and amended terms include: Original term: A clause used by a firm dealing with damp problems and providing a 30-year guarantee originally did not simply seek to restrict the scope of the guarantee but was regarded as potentially unfair as it was seen as excluding liability for damage to property, ‘in particular by the installer’s negligence’612 The clause originally stated: ‘This guarantee only provides cover for work carried out to remedy rising damp. The approved installer does not accept any liability for loss or damage to the property arising from their work beyond the making good of their work’.

Amended term: The revised version of the clause restricted the exclusion to damage arising from pre-existing structural defects, rather than covering any loss or damages caused by the work carried out. It stated: ‘This guarantee only provides cover for work carried out to remedy rising damp. The approved installer does not accept liability for damage caused by pre-existing structural defects’.613

Original and Amended term: Similarly, a company which supplies and installs fascias, soffits and gutterings substituted for a broadly worded clause with one making it clear that it would make good damage to roof tiles, render and brickwork, but that it was not liable for damage to exterior decoration unless it occurred through the company’s negligence.614 Original and amended term: A  clause advising consumers as to precautions to be taken may be more acceptable than one simply providing that the supplier will not be liable for loss by the consumer. A coach travel company that had originally sought to use a clause excluding liability for loss of valuables by its customers, replaced it with a clause warning customers as to the precautions they should take to safeguard such valuables.615

Office of Fair Trading Bulletin 3 at 30.

612

Office of Fair Trading Bulletin 3 at 54 (The Damp Detectors).

613

The original clause stated: ‘All reasonable care will be taken but, the company shall not be under any responsibility whatsoever for damage to internal or external decoration caused by the installation’. The redrafted clause stated: ‘We will make good any damage caused in the course of installation to roof tiles, slates render, brickwork and so on, but you accept that the installation may cause damage to exterior decoration and, except for damage caused by our negligence, we do not undertake to carry out any redecoration which is your responsibility’: Office of Fair Trading Bulletin 4 at 65 (Fascia Soffit and Guttering Ltd).

614

Office of Fair Trading Bulletin 5 at 58 (National Express Ltd).

615

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Original term: A clause simply denied the liability of a fitness centre for loss of the consumer’s property with the fitness centre’s clause originally stating:616 ‘The Company shall not be liable to the Member for damage to or the loss or theft of any clothing or other possessions which the member has brought into such gymnasium’.

Amended term: The clause was replaced by one stating that such liability only arose if the consumer had not availed themselves of the security provided: ‘The Company shall not be responsible or liable to the Members for any loss or damage to Member’s possessions which the Member has brought into the Gymnasium which is not locked in one of the lockers provided’.

4.270 The fairness of a clause embodying such an approach would require consideration of such factors as the adequacy of the number of lockers provided and the efforts made to draw the clause to the consumer’s attention. Further, the OFT has made the point that a disclaimer which operated only where the consumer is in breach is not necessarily fair.:The view has been taken that: ‘Such a term is unlikely to be acceptable if it could deprive the consumer of all redress in the event of a trivial or technical breach, or where the supplier may be partly responsible for the loss or harm suffered by the consumer. For instance, failure to take specified precautions against the risk of damage or theft by third parties should not be a basis on which the supplier can escape all liability when he or any employee of his is negligent or dishonest. That is especially so if the precautions consumers are required to take are unusual or unreasonable in character, or not stated with sufficient clarity’.

Limitations of liability 4.271 A trader may wish to limit its liability where it breaches the rights of the consumer under CRA, Part 1. But any such term: •

will be blacklisted under CRA, Part 1;

•

will be unfair under CRA, Part 2; and

•

may be subject to regulatory action under the 2008 Regulations.

And for the CMA the same type of objections can be made where a term which limits liability rather than excludes it altogether.617 4.272 A  term which limits liability can come in many different types of guises including: •

where a trader requires a consumer to pay costs which a trader should pay if what the trader provides breaches any statutory standard, such as: Office of Fair Trading Bulletin 4 at 66 (Intrim Fitness Centre).

616

See para 4.252.

617

393

Chapter 4  Unfair terms in consumer contracts 



call-out charges;





costs of returning faulty goods;



costs of repairing, or carrying out remedial work on, faulty goods or digital content;

•

the liability of the trader is limited to what it can claim from a third party (such as a manufacturer or sub-contractor);

•

the redress available is limited to what is made available under a guarantee or warranty (rather than the remedies available, for example, under CRA, Part 1);

• only providing certain remedies or allowing the trader to choose the kind of remedy it will provide, such as not permitting refunds but only providing a credit note; • limiting what a consumer can recover for certain kinds of loss where it is not appropriate to do so (such as excluding or limiting consequential loss); and •

limiting liability to no more than a specific amount.

For the CMA a term is unlikely to be unfair which is limited to allowing a trader to make a reasonable charge for any activities which result from the fault of the consumer.618

Exclusions of liability for consequential loss 4.273 The view of the CMA is that a provision which excludes liability by use of the technical term ‘consequential loss’ (or ‘indirect loss, if it has the same effect) may be unfair for two reasons: •

the legal meaning of the phrase consequential loss is unlikely to be known to most consumers and could lead to consumers believing that they cannot claim for a loss which flows from the breach of a trader – and may result in the consumer losing the chance to make a claim for compensation;619

• where a term ‘consequential loss’ is used in its ‘proper legal meaning’ it still may have the result that a consumer is prevented from seeking compensation in certain circumstances when the consumer should be able to make a claim for compensation: ‘That is because it is liable to be understood, as a matter of law, as involving a disclaimer of liability for all losses except those which anyone could see would flow directly and naturally from the trader’s breach. It can be argued that it therefore excludes liability for less obvious risks, even if the consumer actually told the trader about them and asked him or her to take care to avoid them.’620

CMA  Guidance, 5.6.4. The Guidance at this point refers to Grey List, Para  6 and that the trader should ‘avoid imposing any unfair financial sanction’.

618

CMA Guidance 5.6.7.

619

ibid, 5.6.8.

620

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The CMA provides an example where a consequential loss provision may lead to an unfair detriment to a consumer: if a supplier of service knows that, if the service is not provided on time the consumer would: o have to pay a financial penalty; or o not be able to obtain or receive a discount under another contract; then in these circumstances the CMA considers that: ‘If the trader then negligently fails to provide the service on time, he or she should not be able to escape liability for that loss, just because the risk of its happening would not have been obvious to the world at large.’621

4.274 A clause is more likely to be fair where it excludes liability: •

for a loss which is foreseeable by both parties at the time they entered the contract;

•

for a loss for a breach which is the not the fault of the trader;

•

losses which arose from a business or suffered by a non-consumer.622

Exclusions of liability for delay 4.275 The CMA expects that the delivery of goods and provisions services should be: •

carried out on time if a date agreed; or otherwise

• delivered within 30 days (for goods) and provided within a reasonable time (for services). 4.276 A provision which fails to comply with the above will not ‘meet this fundamental requirement of timeliness [and] is liable to be considered unfair’ and also such a failure would also breach the statutory requirements under CRA, Part 1.623 Any term is likely to unfair which has the object or effect, whether: •

it excludes all liability for delay; or

•

it allows the trader: 



to set excessively long delivery periods or for the completion of the provision of services; to set too long a period before being required to deliver goods or perform services.

ibid, 5.6.9.

621

ibid, 5.6.10.

622

ibid, 5.9.1.

623

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Chapter 4  Unfair terms in consumer contracts

4.277 A trader may have a genuine concern that it does not wish to be liable for a consumer where a circumstance occurs which it is outside its control – but a general exclusion for liability for delays will leave the consumer unable to claim for compensation for delays which are not outside the control of the trader – the effect of such wording is: ‘to protect the business indiscriminately, whether or not it is fault’.624

Other types of wording which appears to promise something such as that the trader will use ‘every effort’ to deliver goods or perform services by a date as agreed with the consumer but exclude all liability for delivery are also likely to be unfair as it ‘leaves the consumer with no right to redress if no effort is actually made’.625 4.278 A term is more likely to be fair where a trader wishes to exclude or to limit liability for delay if: • the exclusion or limitation of liability is limited to matters which are ‘unavoidably caused by factors beyond the trader’s control’; •

there is no exclusion or limitation of liability for delays which are the fault of the trader – such as trying to limit the redress available to a consumer or failure by the trader to minimise or avoid the delay. If the trader gives examples: ‘in order to be clearly fair, they should only be matters which are genuinely outside the trader’s control, not situations such as shortage of materials, labour problems, etc, which can be the fault of the trader’.626

The term which seeks to exclude or limit liability for matters beyond the control of trader is more likely to be fair if the consumer is able to cancel the contract without a penalty but a term which allows the trader to delay at will are unlikely to be acceptable. 4.279 Examples of deleted and amended terms include: Amended term: •

Examples of clauses deleted are: ‘Any time or date for delivery or performance is given by us as a business estimate only and not a contractual obligation so that time shall not be deemed to be of the essence of the contract. We will make every endeavour to deliver or perform by the time or date given but failure to do so for any reason will not entitle the customer to cancel the contract nor shall we be liable for any direct or consequential loss claimed to have arisen directly or indirectly from any delay. We may deliver the goods in advance of any estimated delivery date by giving reasonable advance notice to the customer.’627

ibid, 5.9.3.

624

ibid, 5.9.4.

625

ibid, 5.9.5.

626

Office of Fair Trading Bulletin 3 at 60 (Gimson Stairlifts Ltd).

627

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and ‘Delivery dates can never be guaranteed and no liability can be accepted for delays or consequential loss arising from them’.628 ‘The term “force majeure” is sometimes used in clauses of this kind and for the CMA ‘It is legal jargon and best avoided and should never be used without clear explanation’.629

Amended term: (Terms restricting liability) A  term limiting liability for negligence is unlikely to be viewed as fair.630 A limitation may be reasonable where the consumer is: •

the party who can assess the risk;

•

in the best position to insure; and

•

given a choice as to the limitation clause.

4.280 A redrafted clause by a security firm stated:631 ‘Our liability under this agreement – We do not know the value of the contents of your premises. You do (or should) know the value of the contents in your premises. Since the loss or damage you might suffer will probably be more than the amounts we can reasonably charge you, and because we are giving you the chance to discuss and agree different amounts from those set out in the following paragraphs of this clause, we will limit our liability to those amounts (unless we agree in writing to change those limits)’.

The original clause had expressly referred to liability for negligence and had not referred to an option for the consumer. An appropriately limited restrictions may be fair. A  coach service redrafted a clause limiting liability for failure (for a reason within their control) to get travellers to their destination to the cost of a taxi, so that the new clause restricted that limitation to the transport component of a claim, that is it did not purport to cover incidental expenses.632

Time limits on claims 4.281 Depending on the type of breach or what is claimed there are statutory defined periods for making claims, unless the parties agree otherwise (six years for a breach of contract, three years for personal injury – and for the CMA where the parties have not agreed otherwise then what is defined

Office of Fair Trading Bulletin 3 at 62 (Richline Ltd).

628

CMA Guidance, 5.9.7.

629

For example, CMA Guidance, 5.4.4; Office of Fair Trading Bulletin 3 at 59, clause 7.7 (Maples Stores plc).

630

Office of Fair Trading Bulletin 4 (Chubb Alarms Ltd).

631

Office of Fair Trading Bulletin 5 at 42, 61 (National Express Ltd).

632

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by statute is ‘regarded as the benchmark of fairness’.633 There are also time limits set out in CRA, Part 1 and other legislation. For example, in the first six months after the sale of goods or digital content, where there is fault with them there is assumption that it is the responsibility of the trader. 4.282 A term is likely to be unfair where a consumer is required to complain immediately (or is only allowed to do so in a unreasonably short period) and if the consumer fails to do so the consequence is the trader no longer has any responsibility to the consumer. Particular circumstances include: •

where a consumer has a time limit so short that it is easy for them to fail to comply with it (such as overlooking it or because of circumstances outside of their control);

• where a fault or issue with the goods or services only reveal themselves after the time limit expires. 4.283 A  term which encourages a consumer to notify of complaints or issues is unlikely to be unfair as in the view of the CMA, it will encourage the complaint or issue to be dealt with but: ‘taking away all rights to redress is liable to be considered an over-severe sanction for this purpose.’634

Wording which does no more than: •

require a consumer, after they discover an issue or problem, to notify the trader within a reasonable period;

•

require a consumer to check as soon as possible to check for defects or issues and to promptly notify the trader

are unlikely to be unfair. 4.284 Examples of deleted and amended terms include: Original term: Term contained a limitation that required notification of problems within ‘three days of receipt of goods’. Amended term: The term was replaced by one requiring the seller to be informed ‘as soon as is reasonably possible’.635

CMA Guidance, 5.7.2.

633

CMA Guidance, 5.7.3.

634

Office of Fair Trading Bulletin 3 at 58 (Maples Stores plc).

635

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Original term: A clause required notification of a claim for damage done by the Company to be made ‘in writing to reach the Company within seven days of such damage occurring’. Amended term: The clause was replaced by one requiring any claim for such damage to be ‘notified to the Company as soon as practicable after the damage is discovered’.636

The right to set-off 4.285 The final part of CRA, Schedule  2, para  2 makes it clear that this element of the ‘grey list’ encompasses exclusions or restrictions of the right of set-off. It provides a way for a consumer to obtain compensation so that the consumer can subtract an amount from what s/he has to pay to the trader (and reduce the necessity for using legal proceedings to obtaining compensation). The predecessor to the CMA (OFT) took the view that: ‘a clause which requires payment of the full contractual price on delivery of the goods, where installation of the goods is also part of the contract is unfair … it has the object or effect of denying the consumer any right of set-off as regards the installation work … There is also no incentive for the supplier to do the work properly’.637

4.286 Current and former guidance has indicated that: • a clause might be fair if merely drafted to deter the consumer from withholding a disproportionately large sum;638 • stage payments may be acceptable, to deal with the supplier’s cash flow problems, although they should leave a consumer still holding on completion an amount to enable the consumer to exercise an effective right of set-off;639 •

clauses requiring full payment on completion may be revised to make full payment a requirement only on ‘satisfactory completion’.640

However, a term is more likely to be unfair which states or implies that the consumer has to pay all of the contract price (without deduction) when the

Office of Fair Trading Bulletin 4 at 70 (Premier Windows and Cladding).

636

Office of Fair Trading Bulletin 3 at 2.14.

637

Office of Fair Trading Bulletin 3 at 2.15.

638

Office of Fair Trading Bulletin 5 at 12.

639

CMA Guidance, 5.8.3; Office of Fair Trading Bulletin 3 at 60 (Protectawall Ltd); Office of Fair Trading Bulletin 4 at 72 (Windows and Conservatories (North East) Ltd).

640

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trader states they have completed their obligations. Such a term is likely to be interpreted as excluding the right of set off. 4.287 A  term is also likely to be unfair where the trader has the right to require the consumer to pay a sum or suffer some disbenefit (without the trader using the courts) where the consumer does not pay the full amount under the contract. For example, where the consumer is no longer entitled to a discount or cannot have the benefit of a guarantee. For the CMA, a clause is unlikely to be unfair which:641 •

is clearly drafted and states the consumer cannot refuse to pay the whole amount due under the contract where there is an issue or problem which is minor; and

•

does not have the effect of stopping a consumer only paying a reasonable amount (that is related to the value or amount that represents the issue or problem).

4.288 A  right to set-off can be removed where the consumer has to pay the whole of the contract before the trader has performed all its obligations under the contract (as well as the risk of loss if the trader becomes insolvent). For the CMA particular issues arise where a consumer has to pay the whole of the contract price: • in advance where the trader performs its work individually for the consumer; or • where the consumer has to pay (or nearly all of) the contract if s/he breaches a contractual obligations (so called ‘accelerated payment’ clauses) to permit the work to begin on a certain date: ‘Terms which cause that position to arise tend to remove or weaken the trader’s proper incentive to perform work with reasonable care and skill.’642

4.289 A ‘stage payment’ is unlikely to be unfair which: ‘fairly reflect the trader’s expenditure in carrying out the contract, and which leave consumers holding until completion a ‘retention’ of an amount reasonably sufficient to enable them to exercise an effective right of set-off.’643

as well as a consumer paying all of the contact price in advance where: ‘…such an amount is held under secure arrangements which guarantee that it will not be released until any dispute is resolved by independent adjudication’.644

CMA Guidance, 5.8.7.

641

CMA Guidance, 5.8.9.

642

CMA Guidance, 5.8.10.

643

Office of Fair Trading ‘Unfair Contract Terms Guidance’ (Feb 2001) at 2.5.10.

644

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4.290 An example of deleted and amended term include: Amended clause: The following clause was deleted: ‘The Company shall be under no liability under the above warranty, condition or guarantee, if the price of the contract has not been paid by the due date for payment notwithstanding that it may have been paid subsequently. The Company shall not be liable to the customer pursuant to the provisions of this clause if the customer has not made any payment due to the company hereafter forthwith in full when due’.645

Exclusion of liability for failure to perform contractual obligations646 4.291 The CMA has made the point that: ‘A term which could allow the business to fail to meet any of its obligations under the contract, at its discretion and without liability, clearly gives rise to the same concerns already outlined [see para 4.253 above], but in particularly acute form.’647

A term which allows a trader to ‘suspend the provision of a significant benefit under [a] contract’ may also be lead to the same type of concerns as outlined under para 4.252. Although such a term: 'may be intended to enable the business to deal with technical problems or other circumstances outside its control, protect the interests of other innocent third parties, or to provide an enhanced service to the customer'648

it is still necessary to look at the effect, in addition to the intention, of the term in considering whether it is fair. If a term goes beyond what is necessary to achieve a legitimate purpose then it will enable a trader to abuse it. 4.292 A term dealing with the right to suspend the providing of significant benefits is more likely to be fair where:649 •

it has a narrow effect – that the trader cannot use it to ‘distort the balance of the contract to the disadvantage of the consumer’;

•

it sets the circumstances when the trader can use it so that the consumer ‘will know when and how they are likely to be affected’; and/or

•

the trader has to give notice when it intends to rely on the term and the consumer has an option to cancel the contract without being affected by the term so that: 



there is no imposition of a financial sanction by the trader; or

Office of Fair Trading Bulletin 3 at 60 (Town and Country Driveways plc).

645

Office of Fair Trading ‘Unfair Contract Terms Guidance’ (Feb 2001) at p 16.

646

CMA Guidance, 5.10.1.

647

CMA Guidance, 5.10.2.

648

CMA Guidance, 5.10.3.

649

401

Chapter 4  Unfair terms in consumer contracts 



the consumer is not in a worse position because s/he has entered the contract with the trader.

4.293 A  term can allow a trader to change or suspend performance of their obligations under the contract where the consumer is in breach of its obligations under the contract. For the CMA, such a provision is not appropriate for •

serious breaches, as the general law already provides a remedy; and

•

non-serious breaches, as it is not likely to be: ‘appropriate for the business to opt out of carrying out its side of the bargain. Any term allowing the trader to withhold a significant benefit under the contract where that would not be allowed by the general law is liable to meet the same objection as other terms that permit imposition of disproportionate sanctions’650

Guarantees and warranties that act as exclusion clauses 4.294 A  guarantee or warranty can also act as a limitation or exclusion of clause where it does not provide additional rights over and above those provided under CRA, Part 1 (such as allowing the consumer to exchange or a obtain a refund for a good on a no default basis or permitting repairs irrespective whether the consumer caused the fault in the good). But a more limited guarantee or warranty, if it reduces a consumer’s rights can have the effect of misleading: ‘…consumers into assuming that it represents the full extent of their rights, and cause them to refrain from exercising their statutory rights, which may be actionable as a breach of the [2008 Regulations]’.651

A  guarantee or warranty which provide less rights than available to a consumer under law will not be made fair by the inclusion of a statement that the consumer’s statutory rights are not affected. Where a trader offers a guarantee or warranty which does not reduce the rights of a consumer (nor has that effect) and wording is used that the rights of consumer’s statutory rights are not affected ‘needs to have some practical meaning’.652 4.295 Examples of deleted and amended terms include: Original term:  All hardware sold by the Seller is guaranteed only to the extent of the original manufacturer’s warranty.

ibid, 5.10.4.

650

ibid, 5.11.3.

651

ibid, 5.11.6.

652

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Amended term : Deleted. Original term:  All equipment materials and workmanship provided by the Company for the maintenance and service of the system are guaranteed for a period of six months from the date of their provision. The Company’s liability under this guarantee is strictly limited to the replacement of parts of or repairs to the system. Amended term:  Deleted. Original term: A [manufacturer’s] guarantee for walls will be issued after completion of the work and all monies to the company have been paid. The [manufacturer’s] … guarantee is issued in addition to and not in substitution for the customer’s rights under common law. Amended term:  A [manufacturer’s] guarantee for walls will be issued after completion of the work and all monies to the company have been paid. The [manufacturer’s] … guarantee is issued in addition to and not in substitution for the customer’s statutory rights relating to faulty or misdescribed goods or services.

CRA, Sch 2, Part 1, para 3 (1999 Regulations, Sch 2, para 1(c)): Binding consumers while allowing the trader to provide no service 4.296 ‘A  term which has the object or effect of making an agreement binding on the consumer in a case where the provision of services by the trader is subject to a condition whose realisation depends on the trader’s will alone.’ The CMA  Guidance draws a distinction between contracts where: •

The trader has the choice not to do anything under a contract to provide a service but the consumer remains bound by the contract (which is potentially unfair);653 and

ibid, 5.12.1.

653

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•

The trader has some control over its performance of its obligations under the contract as long as the circumstances when this occurs are clearly specified and they are reasonable in nature.654

An example for the first bullet point would be where a consumer has to continue paying although the trader is not providing a service as it excludes the liability of the trader to provide compensation (although not preventing the consumer from ending the contract). 4.297 The third OFT Bulletin indicated that home-improvement contracts often allow the supplier to cancel either at its discretion or after survey and also limit any liability to pay compensation for doing so. The OFT considered that: • a right to cancel without any liability as ‘highly likely to be considered unfair’;655 and • it was ‘unsatisfactory’ if the consumer’s only right was to have any prepayments returned, as cancellation ‘late in the day seriously inconveniences consumers and often leaves them facing costs without having gained any benefit’.656 4.298 The OFT had also received complaints that the right to cancel after survey could be used to raise an ‘unrealistically low quote’ and indicated that the unfairness of such clauses could be reduced ‘in one or both of two possible ways’:657 ‘(i) The company’s freedom to cancel is not unrestricted. For instance, the company might promise to carry out the survey within a short period, so as to minimise inconvenience to the consumer. Unfairness would also be reduced if the company committed itself to giving a valid reason for cancellation – an explanation of the adverse structural conditions encountered – preferably in writing. (ii) The company’s right to cancel is balanced by the consumer being given an equally extensive right. If the consumer is given a right to cancel without penalty for a period after signing the contract, this amounts to a “cooling-off period” … But to avoid imbalance obviously the consumer’s right to cancel must last as long as the company’s’.

CMA  Guidance, 5.12.3. For example, if the trader has a genuine reason to suspend performance, as long the provision which enable the suspension is sufficiently. narrow, qualified and the consumer has notice that the trader wishes to rely on such a provision and the consumer has the opportunity to cancel the contract without being affected by the suspension and not suffer financially or otherwise because of it. See also Law Commission Report 2013, 5.10.2 – 5.10.3.

654

Office of Fair Trading Bulletin 3 at 5.1, 5.2.

655

ibid at 5.2.

656

ibid at 5.4.

657

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CRA, Sch 2, Part 1, para 4 (1999 Regulations, Sch 2, para 1(d)): Retention of prepayments on consumer cancellation ‘A term which has the object or effect of permitting the trader to retain sums paid by the consumer where the consumer decides not to conclude or perform the contract, without providing for the consumer to receive compensation of an equivalent amount from the trader where the trader is the party cancelling the contract.’

Background 4.299 At common law the application of the rules as to penalty clauses is so dependent upon the form of the clause that they can easily be avoided. Part 2 of the CRA does not focus on the form of a clause and, even if some of the types of term considered here are not entirely apposite to fall within the stated elements of the ‘grey list’, there may be an analogy to be made, or the terms may simply fall within the fairness test more generally. 4.300 Traditionally the common law has made a significant distinction between sums required to be paid by a breaching party after a breach has occurred and sums required to be paid in advance of any breach. In relation to sums to be paid after breach, penalty clauses have to be differentiated from liquidated damages clauses; the latter being ‘genuine pre-estimates of loss’, seen as beneficial in reducing uncertainty, and recoverable on a breach occurring and the former being unenforceable, leaving the injured party to claim for their actual loss.658 However, traditionally the rules as to penalty clauses have not applied to sums payable before a breach occurs and a deposit659 has been irrecoverable by the breaching party,660 no matter its

‘The essence of a penalty clause is a payment of money stipulated as in terrorem of the offending party [to coerce performance]; the essence of liquidated damages clauses is a genuine covenanted pre-estimate of damage’; Dunlop Pneumatic Tyre Co Ltd v New Garage Motor Co Ltd [1915] AC 79 per Lord Dunedin at 86; Clydebank Engineering and Shipbuilding Co v Don Jose Ramas Yzquiro y Castenada [1912] AC 368; Bridge v Campbell Discount [1962] 1 All ER 385 per Lord Morton at 391; Intermediate Ltd v Smith (unreported, 22 March 1991), Staughton LJ. It may be that the penalty clause remains effective to a limited extent, ie to impose a limit on the injured party’s recovery in the rare case where, in the events which have occurred, the sum specified by the penalty clause is less than the actual loss (Willbeam v Ashton (1807) 1 Camp 78 at 78; Elphinstone v Monkland (1886) 11 App Cas 332 at 346; Public Works Commissioner v Hills [1906] AC 368 at 376; Elsey v J G Collins Ins Agencies Ltd (1978) 83 DLR (3d) 1 at 15; Law Com WP No 61, para 41. But see Wall v Rediaraktiebolaget Luggude [1915] 3 KB 66 at 72–73; Watts, Watts & Co Ltd v Mitsui & Co Ltd [1917] AC 227; Winter v Trimmer (1762) 1 Wm Bl 395; Harrison v Wright (1811) 13 East 343.

658

A deposit has to be distinguished from an advance payment. A ‘deposit is not merely a part payment, but is … also an earnest to bind the bargain’, Howe v Smith (1884) 27 Ch D 89 per Fry LJ at 101. An advance payment is recoverable if there is a total failure of consideration: Dies v British and International Mining and Finance Corp [1939] 1 KB 724; Hyundai Heavy Industries v Papadopoulos [1980] 1  WLR  1129; Rover International Ltd v Canon Films Ltd (No  3) [1989] 1 WLR 912.

659

Exceptionally, where the contract is one for the sale of land, there is a statutory discretion for the court to order the return of a deposit: Law of Property Act 1925, s 49(2).

660

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disproportion to the loss of the other party. This obviously provided scope for avoidance of the rules as penalties. More recently, that has been mitigated by the recognition of the right to recover an ‘unreasonable’ deposit,661 but such a categorisation seems to be of limited application.662 4.301 However, at least in the context of contracts between consumers and traders, there should be a greater mitigation of the artificial distinctions made by the common law under Part 2 of the CRA, provided that an appropriate approach is taken to the exemption of ‘core’ terms.663 Whether a requirement for payment on breach or for a deposit, a clause should be subject to the fairness test. Deposits fall within CRA, Schedule 2, para 4 and penalties into CRA, Schedule 2, para 6.

Scope and commentary 4.302 This and the following two grey list terms can operate as penalty clauses although they operate on different aspects of potentially unfair clauses.664 A term is likely to be unfair which excludes the right for a consumer to receive a refund of a prepayment which the consumer makes under a contract where the contract does not go ahead (or the consumer does not receive a significant benefit because the contract does not go ahead). 4.303 The CMA  Guidance sets out different circumstances as to whether the trader can retain any sums paid by the consumer: • where the consumer is required to make a substantial prepayment and such payment is not refundable regardless of the circumstances could amount to the trader making an unjustifiable windfall gain;665 •

if a consumer ends a contract without justification but the trader incurs costs or suffers loss because of the consumer’s breach – the trader cannot normally retain all the sums paid regardless of the amount of costs incurred or losses suffered – to do so could make such a term an unfair financial sanction;666

• where the trader ‘breaks a contract for goods or services in such a way as to threaten its whole value to the consumer, the consumer is likely to

Worker’s Trust and Merchant Bank v Dojap Investments Ltd [1993] 2 All ER 370.

661

Union Eagle Ltd v Golden Achievement Ltd [1997] 2 All ER 215; Bidasee v Sampeth [1995] NPC 59; Safehaven Investments Inc v Springbok Ltd (1995) 71 P & CR 59.

662

See para 4.87.

663

With the third (CRA, Sch  2, Part 1, para  5 (1999 Regulations, Sch  2, no equivalent para.) being introduced by CRA.

664

CMA Guidance, 5.13.1

665

ibid, 5.13.3 and also see para 4.307 below.

666

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have the right to end the contract’ and the consumer would normally be entitled to a full refund and possibly compensation.667 4.304 A  literal reading of this grey list term might imply that a financial sanction would apply to either the trader and the consumer if either would end their contract and would be fair. In the CMA’s view this is not likely to be the case, particularly if the contract does not confer ‘any real benefit on the consumer comparable to that enjoyed by the trader’.668 The CMA considers that there needs to be a real balance between the interests of the consumer and the trader so that: ‘A ‘balanced’ solution is likely to be acceptable only where there is a roughly equal risk to each party of losing out as a result of the other’s cancelling. In many forms of contract, the business has no particular interest in being able to end the contract, and therefore its agreeing to accept a severe financial sanction for doing so does not ‘balance’ fairly a term imposing a heavy sanction on the consumer for cancelling.’669

4.305 A term where the trader is allowed only to retain sums to cover its net costs or net loss of profit from the default of the consumer is more likely to be fair – although the trader is not entitled ‘to any sum that could reasonably be saved by, for example, finding another customer’.670 A term which requires the consumer to make a prepayment or pay a deposit and allows the trader to retain them can be fair but only: •

if the prepayment is set at a low enough level to reflect the expenses that the trader incurs;

•

if the deposit (where it is a genuine reservation fee and is not an advance payment) is set at a small percentage of the price for the goods or services.

The CMA considers that a larger prepayment may in fact be a disguised penalty clause or may prevent the consumer exercising a right of set-off.671 4.306 Examples of deleted and amended terms include: Original term: ‘In the event of the Purchaser cancelling the contract (save in accordance with Conditions …) or failing to accept delivery or failing to complete this contract the deposit shall be forfeit to the Seller but such forfeiture shall not prejudice any other remedy which the seller may have for breach of any of these conditions’. 672

CMA Guidance, 5.13.2.

667

ibid, 5.13.4.

668

ibid, 5.13.4.

669

ibid, 5.13.5.

670

ibid, 5.13.6. As to such payments being a penalty see para 4.312 and for the right of set-off see para 4.263.

671

Office of Fair Trading Bulletin 5 at 79 (Lex Retail Group Ltd). See also Office of Fair Trading Bulletin 5 at 78 (Streamline Enterprise Ltd); Office of Fair Trading Bulletin 5 at 79 (Rolling Motor Caravan Hire).

672

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Action taken: It was redrafted to state: ‘In the event that you wish to withdraw for some other reason, we will be entitled to retain a proportion of your deposit until we have found another buyer for the vehicle. The sum retained will be sufficient to cover the losses we are likely to incur’.

Original term: The following demonstrates the problem of an apparent lack of connection to the actual loss of the supplier and a lack of any balancing right for the consumer:673 ‘No order which has been accepted by [the company] may be cancelled by the Customer except with the agreement in writing of [the company] (who have a discretion whether or not to accept such cancellation) and on terms that the Customer shall indemnify [the company] in full against all losses and costs incurred by [the company] as a result of cancellation. A minimum cancellation charge of 25% of the contract price will be payable by the customer in the event that [the company] accepts such cancellation’.

Action taken: Redrafted so that the revised clause removed the minimum payment, restricting the company’s claim to its losses and costs, and also provided a balancing right for the consumer on cancellation by the company: •

‘You cannot cancel an order unless we agree in writing. You must pay any losses and costs we suffer because of the cancellation. If we cancel the contract, we must pay you any losses or costs you suffer because of the cancellation’.

Other types of clauses which have come in for scrutiny under this grey list term: • a clause requiring payment of half price for a sunbed session cancelled with less than 24 hours’ notice;674 • a clause allowing for retention of a deposit,675 where there was no countervailing right for the consumer; •

a clause under which membership, joining and subscription fees were not refundable under any circumstances;676

•

a clause stating that no refunds would be given if an order was cancelled.677

Office of Fair Trading Bulletin 3 at 35 (Maples Stores).

673

Office of Fair Trading Bulletin 1 (Falkirk Sunbed, Solarium & Ladies Health Club) case 6.

674

Office of Fair Trading Bulletin 1 (Actif Designs Ltd) case 13.

675

Office of Fair Trading Bulletin 2 at 51 (David Lloyd Leisure plc).

676

Office of Fair Trading Bulletin 2 at 51 (La Bellas Sposa).

677

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Chapter 4  Unfair terms in consumer contracts

CRA, Sch 2, Part 1, para 5 (1999 Regulations, none: Disproportionate termination fees and requiring consumer to pay for services not supplied) 4.307 ‘A  term which has the object or effect of permitting the trader to retain sums paid by the consumer where the consumer decides not to conclude or perform the contract, without providing for the consumer to receive compensation of an equivalent amount from the trader where the trader is the party cancelling the contract.’

This grey list term is new. As noted for CRA, Schedule  2, Part 1, para  6, it concerns where consumer fails to fulfil its obligations by: •

not concluding the contract; or

•

not performing the contract;

the consumer has to pay a disproportionate amount to the trader: •

as compensation; or

•

for services which the trader has not supplied.

Disproportionate termination fees 4.308 A  term is more likely to be unfair where a consumer terminates a contract early but is subject to ‘disproportionate sanctions’. For the CMA this will not only cover where the consumer is in breach by terminating early. The kind of terms which are likely to come under scrutiny are those which: • allows a trader to recover more than the reasonable amount that the trader loses where the consumer terminates a contract early; or • allows a trader to require a payment on a consumer exercising a contractual right to cancel, particularly where the amount payable: ‘does not appropriately reflect:

– any savings for the business associated with no longer having to provide the goods, service or digital content; –

any ability of the business to mitigate (reduce) its loss, for instance by finding another customer; and

– any benefit to the business of receiving a payment earlier than it would otherwise have done.’678

CMA Guidance, 5.15.3.

678

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The CMA Guidance notes that a term may, for example, provide a right to a consumer to cancel early but still be unfair if other terms of the contract allow the trader to charge an excessive amount for the loss it suffers.

Requiring consumers to pay for services not supplied 4.309 The last part of this grey list term for the CMA is ‘relevant to terms that effectively lock consumers into paying for services’.679 The type of terms that ‘tie in’ a consumer in this way are: • ones which do not permit the consumer to cancel during the ‘tie in’ period and makes the consumer liable, if s/he terminates, to pay all or nearly all of the payment for the whole length of the tie-in period if the contract had continued for the tie-in period; or •

allows the consumer to cancel, but only if the consumer pays an amount equivalent for the whole length of the contract.

4.310 It is not necessary for a service contract to include a provision that permits a consumer to cancel a contract without liability to be fair. However, a term may be unfair if the consumer has to pay for the whole (or nearly the whole) of the services that the trader is to provide under the contract but where no allowance is made for savings or gains that the trader could make where there is early termination. For example, if the service that the trader needs to provide includes purchasing materials – then the trader would not need to buy them after the date of termination or the trader could, where possible, find new or replacement customers for them. 4.311 The CMA recognises that for some types of consumer contracts it may be not possible for a trader to avoid or minimise its loses – but where this is the case the focus will be on the length of the period the consumer is tied to the contract with the trader: ‘In such cases, a minimum period for a service contract is, in the CMA’s view, open to scrutiny, particularly if its effect is to give the trader an advantage arising from practical limitations to the consumer’s ability to assess what their circumstances are likely to be in the longer term.’680

The predecessor to the CMA (OFT) brought proceedings against a gym operator because of the minimum tie-in period in their contracts. The court held that a minimum tie-period of 12 months was unfair because it was difficult for consumers to be able to plan ahead as to what would be their circumstances in a year’s time. Also the the gym operator had a particular advantage as there were very few occasions when they could not enrol new members.681

ibid, 5.15.4.

679

ibid, 5.15.6.

680

Office of Fair Trading v Ashbourne Management Services Ltd [2011] EWHC 1237 (Ch).

681

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CRA, Sch 2, Part 1, para 6 (1999 Regulations, Sch 2, para 1(e)): Disproportionate financial sanctions 4.312 ‘A  term which has the object or effect of requiring a consumer who fails to fulfil his obligations under the contract to pay a disproportionately high sum in compensation.’

This grey list term and the new para (CRA, Schedule 2, Part 1, para 5) both concern requiring a consumer to pay disproportionate amount, but: • this grey list term concerns a general liability to make such a payment (where the consumer does not fulfil its obligations generally); and •

CRA, Schedule 2, Part 1, para 5 has a more limited range, dealing primarily where there is early termination of the contract by the consumer.

4.313 Like grey list term CRA, Schedule 2, Part 1, para 4 (1999 Regulations, Schedule 2, para 1(d)) this is another provision which can operate as a penalty. The CMA guidance does not state that a consumer does not have pay anything if it fails to fulfil its obligations under its contract with a trader. Rather any payment should not be disproportionate, or the trader should not be given too much discretion to decide on the amount. The CMA guidance takes an expansive view as to the situations covered within this grey list term which extend beyond the simple payment of a sum by the consumer demanded by a trader. These include: • requiring the consumer to pay ‘unreasonable interest on outstanding payments [… which] makes the consumer pay more than the cost of making up the deficit caused by the consumer’s default’;682 •

requiring the consumer to pay excessive storage or similar charges if the consumer does not take delivery as the time agreed by the trader and the consumer;

• requiring the consumer to pay all the costs and expenses that a trader incurs rather than those expenses arising directly from the consumer’s breach; • allowing a trader to claim its costs and loss of profit, if doing so would mean that the trader is ‘compensated twice over for the same loss’; •

allowing a trader to claim its legal costs on an indemnity basis rather only claiming legal which it reasonably incurs;

•

allowing a trader to require a consumer to pay a fixed or minimum sum in all circumstances, particularly if the amount the consumer is required to pay is too high in some situations;

ibid, 5.14.2.

682

411

Chapter 4  Unfair terms in consumer contracts

•

allowing the trader to much discretion to decide the amount the consumer has to pay where the consumer is in breach. This extends to where the effect of a term which requires payment is vague or unclear;

• allowing the trader to claim ‘inflated sums’ or keep prepayments or is calculated to suggest it allows such a claim. If the consumer terminates its contract wrongfully then allowing the trader to keep all or nearly of the amount paid by the consumer is likely to unfair, if the trader can take reasonable steps to mitigate its loss. In such case, the trader could retain an amount equal to the cost of finding another customer ‘together with any difference between the original price and the resale price’.683 4.314 Less likely to unfair would be where the trader requires a consumer to pay: •

a specific sum which is a ‘genuine pre-estimate loss the supplier is likely to suffer’;684

•

what is reasonable compensation or compensation according to law’.685

These two points are subject to the following proviso: ‘that if a term purports to reflect the law on damages in a way that is potentially misleading, its use may be open to challenge, both as involving contractual unfairness under the Act and as an unfair commercial practice under the [2008 Regulations]’.686

CRA, Sch 2, Part 1, para 7 (1999 Regulations, Sch 2, para 1(f)): unequal cancellation rights and cancellation without refund 4.315 ‘A  term which has the object or effect of authorising the trader to dissolve the contract on a discretionary basis where the same facility is not granted to the consumer, or permitting the trader to retain the sums paid for services not yet supplied by the trader where it is the trader who dissolves the contract.’

This grey list term addresses two issues: •

allowing the trader to dissolve the contract on a discretionary basis; and

•

allowing the trader to retain sums paid by a consumer.

This section considers each in turn. ibid, 5.14.6.

683

For example, there can be a scale of cancellation charges going from lower to higher, as long as the charges are a genuine pre-estimate of loss, are not disproportionate and are displayed prominently to the consumer so that they ‘can provide consumers with certainty and clarity as to their position if they need to cancel’: CMA Guidance, 5.14.18.

684

CMA Guidance, 5.14.7.

685

ibid, 5.14.7.

686

412

Chapter 4  Unfair terms in consumer contracts

Allowing the trader to dissolve the contract on a discretionary basis 4.316 Since the last edition not only has the CRA come into force but also the 2013 Regulations as well. The latter provides rights to consumers who enter consumers contracts other than in a shop or in the presence of the trader. These rights cannot normally be excluded. The CMA notes in its guidance that fairness and balance require a trader and consumer to have rights which are of ‘equal extent and value in relation to the ending or withdrawing from [a] contract’.687 A formal equivalence will not always be sufficient (such as, for example, if both parties can cancel a contract at will, but the effect on the consumer of a trader cancelling being greater). 4.317 A right for a trader to cancel a contract is unlikely to be fair where a trader can unilaterally do so, and its liability is limited to only returning the sum paid by the consumer. Allowing a trader to cancel unilaterally may result in the consumer facing difficulties and problems as a consequence besides any costs s/he may have. Such an excessive right available to the trader can cover: •

not only when the trader can cancel the contract at will; but also

• where the reasons on which the trader can cancel the contract are not clearly defined; and • where even a trivial breach of the contract by the consumer allows the trader to cancel the contract. 4.318 Independent of the rights available to consumers to cancel distance contracts,688 providing the trader with a right to cancel may sometimes be balanced by providing one for the consumer. As noted by the predecessor to the CMA (OFT) a right to cancel without penalty may in effect provide the consumer with a ‘cooling-off period’, which may be seen as beneficial.689 It may show the trader’s good faith, through the provision of a period for the consumer to become better acquainted with the contract terms,690 whilst they still have an opportunity to withdraw. This formal balance of equal cancellation rights will not, however, always prevent a trader’s right to cancel from being unfair, as, for example, where the consequences for a consumer are more severe than for the trader, for example where it means that the consumers lose their anticipated holiday – particularly where if the consumer had cancelled at the same stage, the contract would have allowed the trader to retain 90% of the contract price.691

ibid, 5.16.1.

687

Under the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013.

688

Office of Fair Trading Bulletin 3 at 14.

689

See para 4.195.

690

Hartman v P&O Cruises (1998) Consum LJ at 395.

691

413

Chapter 4  Unfair terms in consumer contracts

As with other grey list terms the CMA guidance notes that the difference between the intention (or object) and the (potential) effect of a term and: ‘wording which is loosely drafted and open to abuse it is liable to be seen as unbalancing the contract.’692

4.319 Wording is more likely to be fair where it reflects no more than what the law provides, such as that a trader can terminate a contract where the consumer party is in serious default. A term can also be fair where the trader has the right to cancel a contract if the consumer is not at fault and the liability of the trader limited to refunding payments made by the consumer where the contract becomes impossible or not practical to undertake. But the trader would have to fulfil certain conditions: •

the trader would need to draw to the attention of the consumer that there is a real possibility of the risk of cancellation;

• the circumstances when the trader can cancel have to be specifically and clearly set out (but should not include matters which are within the control of the trader); and •

if the trader has to carry out some preliminary work (such as a survey) to determine whether it can carry out the work under the contract – then if the trader has to cancel then the preliminary work should be done and the trader should provide to the consumer the result of the preliminary work. Also if the trader needs to cancel, an explanation why it is necessary to cancel (if it is not self-evident why the contract cannot continue).

4.320 Another area which is caught by this grey list item is where the trader purports to have the right to stop the consumer cancelling the contract, such as: •

the consumer cannot cancel at all; or

• the consumer can only cancel the contract with the agreement of the trader. Such a term is likely to be unfair as it will undercut the rights provided under law to a consumer to end a contract so that if the trader: ‘breaks a contract for goods, services or digital content (which is paid for either directly or indirectly), the consumer has remedies which may include a right to end it … A term that purports to deny the consumer those remedies, and in particular to rule out all possibility of the consumer bringing the contract to an end is potentially misleading and unfair.’693

4.321 For the CMA a term is unlikely to cause issues which states no more than is permitted in law concerning cancellation – and the term could be expressed so that

CMA Guidance, 5.16.3

692

ibid, 5.16.6.

693

414

Chapter 4  Unfair terms in consumer contracts ‘it fairly alerts the consumer to his or her liability in damages for wrong cancellation’.694

Allowing the trader to retain sums paid by a consumer 4.322 This concerns where a contract allows a consumer to cancel a contract but also does not explicitly deal with the refund of any pre-payments: •

whether paid: o at the point of entering the contract; or o after entering the contract; or

•

whether they classified as deposits or other types of payments

and are open to abuse by a trader.695 4.323 The previous section considered that terms that allowed a trader to cancel a contract at its discretion, but even clauses which allow cancellation in tightly controlled and described circumstances are unlikely to be fair if the trader can keep any pre-payments where the consumer has not received any benefits under the contract. A  term is less likely to be unfair where the trader can terminate where the consumer commits a serious breach of the contract, and the term entitles the trader to keep prepayments made by the consumer, and these compensate the trader for direct losses it has suffered by reason of the breach.696 However, a term would not be fair which entitled a trader to keep all of a significantly large consumer prepayment in any case where the consumer is in default and the contract is terminated, where the trader has not suffered any loss. In effect, not only is a trader not allowed to retain a prepayment in any circumstances, where it does have the right to terminate because of a consumer’s breach of the contract, it can only keep that part of the prepayment which represents any direct losses it has suffered. 4.324 Examples of deleted and amended terms include: Amended term: An example of a clause deleted from a standard contract in the light of this element of the ‘grey list’ is:697 ‘If at any time it should be necessary to close the club premises for any reason whatsoever or to cease the club’s activities, members shall have no claim of any kind

ibid, 5.16.7. Emphasis in original.

694

ibid, 5.17.1.

695

But it is necessary to consider the CMA Guidance in relation to CRA, Sch 2, paras 4 and 6 and paras 4.299 and 4.312 above.

696

Office of Fair Trading Bulletin 2 at 53 (Curves (Birmingham) Ltd).

697

415

Chapter 4  Unfair terms in consumer contracts for any reason whatsoever against the company, and shall acquire no proprietary rights in the club premises or any property of the club’.

Original term: If a trader feels that there are certain circumstances in which a right to cancel is necessary, and as noted above, the right should be set out within the limits of that necessity. So, for example, a roadside breakdown service originally used a clause which stated:698 ‘We may cancel membership at any time by sending seven days’ notice by recorded delivery to your last known address and in such event you will receive a pro rata refund of your subscription, unless the service has been used’.

Amended term: The predecessor the CMA (OFT) viewed that as ‘potentially unfair … since it allowed [the business] to cancel contracts on a discretionary basis and thus to get out of a bad bargain’.699 The clause was redrafted to allow the business to cancel in limited circumstances: ‘If excessive use of the service has occurred through failure to seek permanent repair following any temporary repair effected by an agent or due to lack of routine vehicle maintenance, we may cancel membership by sending seven days’ notice by recorded delivery to your last known address’.

Original term: Concerning where a trader has the right to cancel a contract where the consumer is not at fault, but the liability of the trader is limited to only refunding any payments made by the consumer, a home improvement contract term providing for termination following an adverse survey originally stated:700 ‘The Contract is subject to the Company Surveyor’s inspection and report. If this Contract is terminated by the Company the deposit paid by the customer will be refunded in full’.

Amended term: It was replaced by one stating: ‘This contract is subject to the Company’s Surveyor’s Inspection and report which will be carried out within fourteen days from the signing of this contract. If the surveyor’s inspection and report discloses material adverse structural conditions the Company will forthwith provide the Customer with a copy of such report and the company will be entitled to terminate the contract by written notice to the consumer and will refund the deposit in full’.

Office of Fair Trading Bulletin 3 (Brittania Rescue Services Ltd).

698

Office of Fair Trading Bulletin 3 at 26.

699

Office of Fair Trading ‘Unfair Contract Terms Guidance’ (Feb 2001) at p 104 (Casewell Ltd t/a Homecare Windows).

700

416

Chapter 4  Unfair terms in consumer contracts

Original term: A term stating:701 ‘As all blinds are made to the customer’s individual requirements, this order cannot be cancelled’.

Amended term: ‘As all blinds are made to the customer’s individual requirements, this order cannot be cancelled unless we are in breach of our obligations to you’.

CRA, Sch 2, Part 1, para 8 (1999 Regulations, Sch 2, para 1(g)): Trader’s right to cancel without a refund 4.325 ‘A term which has the object or effect of enabling the trader to terminate a contract of indeterminate duration without reasonable notice except where there are serious grounds for doing so.’

This grey list term attacks any right of trader to terminate a specific type of contract in a specific circumstance: a contract which is not for a fixed period and where the trader is allowed terminate without reasonable notice. The provision does not seek to stop all without notice terminations for contracts which are not for a fixed period. The trader can still do so where there are serious grounds for doing so. The CMA Guidance notes that a consumer faced with ‘sudden and unexpected termination’ could be put to inconvenience or expense – particularly now that so many services provided to consumers are now on a subscription basis. Such contracts, now besides covering utilities also include many cloud and media services (for example, Netflix, Amazon Prime, Sky Sports, DropBox, iCloud) to which consumers subscribe. For example, a consumer might store personal data or important information (such as photos, documents) with a cloud service provider which are not stored elsewhere. If the cloud service provider had the right to immediate terminate the service, the consumer could lose all of its information. 4.326 A term allowing for immediate termination is more likely to be fair where it is limited to clearly defined situations which are serious such as: ‘circumstances in which there is a real risk of loss or harm to the trader or others if the contract continues for even a short period – for example, where there is a reasonable suspicion of fraud or other abuse’.702

However, it will be necessary for the circumstances to be clearly stated which would lead to the trader being able to cancel without notice so that:

Office of Fair Trading ‘Unfair Contract Terms Guidance’ (Feb 2001) at p 102 (Hillarys).

701

CMA Guidance, 5.18.2.

702

417

Chapter 4  Unfair terms in consumer contracts ‘If the consumer will be unaware whether an immediate cancellation is or is not contractually justified, he or she is in no position to seek redress if it is not, and the term will in practice be open to abuse.’703

4.327 This element of the ‘grey list’ is restricted in its scope by CRA, Schedule 2, Part 2, para 21. That is it is without hindrance to terms by which a supplier of financial services:704 ‘reserves the right to terminate unilaterally a contract of indeterminate duration without notice where there is a valid reason, provided that the supplier is required to inform the other contracting party or parties thereof immediately’.

Under CRA, Schedule 2, Part 2, para 24 this grey list term, together with 11, 14 and 15 do not apply to: ‘– transactions in transferable securities, financial instruments and other products or services where the price is linked to fluctuations in a stock exchange quotation or index or a financial market rate that the seller or supplier does not control; –

contracts for the purchase or sale of foreign currency, traveller’s cheques or international money orders denominated in foreign currency’.

4.328 Examples of deleted and amended terms include: Original term: A clause in an estate agent’s contract, which was revised in the light of this element of the ‘grey list’, originally stated:705 ‘The right is specifically reserved to decline instructions, to decline to offer any discount, or to terminate this engagement at any time, where in [the estate agent’s] opinion, the asking price is unrealistic in the light of the prevailing market conditions, to the extent that there is little or no likelihood of a sale being arranged at, or near, the price in the immediately foreseeable future, or the vendor later raises any additional point which is unacceptable to [the estate agents]’.

Amended term: The revised version stated: ‘We can end this agreement by giving 14 days’ notice in writing to you at any time in the following circumstances: (a) if we believe that the price at which you require us to market the property is unrealistic: or (b) if you require us to take any step which may put us in breach of our legal or professional obligations’.

5.18.3.

703

CRA, Sch 2, para 21.

704

Office of Fair Trading Bulletin 3 at 68 (Bradleys Estate Agents Ltd).

705

418

Chapter 4  Unfair terms in consumer contracts

CRA, Sch 2, Part 1, para 9 (1999 Regulations, Sch 2, para 1(h)): Excessive notice periods for consumer cancellation 4.329 ‘A term which has the object or effect of automatically extending a contract of fixed duration where the consumer does not indicate otherwise, when the deadline fixed for the consumer to express a desire not to extend the contract is unreasonably early.’

This grey list term covers a specific type of clause which automatically renews a contract unless the consumer acts – it covers such clauses where the consumer has to act to terminate ‘unreasonably early’. It does not prevent a trader having a term in its contract whereby a contract can automatically renew. But for such a term is more likely fair: •

where before the consumer enters the contract, the consumer is properly made aware that the contract will automatically renew;

• where the consumer receives a reminder a reasonable time before the start of the new, renewed, contract; •

where together with the reminder the consumer also receives information about:  



the length of the renewed contract;

what the consumer has to reasonably do to let the trader know that the consumer does not intend to the renew the contract;

• where during any renewed period ‘there are reasonable procedures which allow for cancellation of the contract during the renewed period provided that’:706 



there is no financial sanction for cancellation during the renewal period;

if the consumer has to give notice, any such requirement is reasonable and the consumer is not unfairly bound by the contract.

4.330 The grey list term concerns fixed term of contracts but the CMA Guidance also considers contracts which are not for a fixed term. In such cases consumers who enter a contact which is not for a fixed term should expect to be able to cancel it on reasonable notice. If they have to give notice: ‘too far ahead of time, they are liable to forgot to do so when they need to , or wrongly anticipate their future needs. In either case, the effect of the term is

CMA Guidance, 5.19.4.

706

419

Chapter 4  Unfair terms in consumer contracts the same as that of an ‘automatic renewal’ clause – consumers experience an unintended extension of their payment obligations.’707

Deleted term: An example of a clause deleted in the light of this element of the ‘grey list’,708 and which might also have fallen within 1999 Regulations, Schedule 2, para 1(e) (now CRA, Schedule 2, para 5), is709: ‘If a member does not wish to renew membership in any subsequent year then written notice of at least four weeks prior to the expiry of 12 months from the date of the membership certificate must be given. If such a notice is given between two and four weeks expiry, then 75 per cent of the renewal fee for the subsequent year will become payable and if less than two weeks of expiry then 100% of the renewal fee will become payable’.

4.331 In some circumstances, a tacit renewal clause may benefit both parties. It simplifies renewal for the supplier and protects against the risk of renewal being forgotten. However, as noted above, if there is not to be a significant imbalance in the parties’ rights and obligations, the risk of forgetting to renew must not have negative consequences for the consumer. Although not identified as a factor by this element of the ‘grey list’, it may be relevant, in addressing the fairness of renewal clauses, to consider the length of the renewal. Contracts which are not of fixed duration may have provisions for termination which are viewed as unfair because the notice period is excessive:

ibid, 5.19.5.

707

See also Office of Fair Trading Bulletin 3 (Bradley’s Estate Agents Ltd) at 69: Clause revised in the light of para 1(h). Original clause: ‘In the event of Bradleys Estate Agents being instructed as SOLE AGENTS the following provisions shall apply: (a) I/we undertake not to instruct any other estate agent in connection with this proposed sale for a period of 24 weeks, during which time Bradleys Estate Agents may indicate they are sole agents. (b) I/we acknowledge that the sole agency period referred to in para (a) above will last for a minimum period of 24 weeks and that the period of sole agency shall continue, unless and until terminated upon the giving of at least 14 days’ notice in writing (which shall not expire until at least 24 weeks from the date hereof) and at the end of the said 14 days’ notice period I/we shall be at liberty to instruct another firm of Estate Agents in connection with the sale of the property, so that thereafter unless otherwise stated to the contrary, Bradleys Estate Agents will continue to act for me/us on a multiple agency basis as specified in clause 5 above.’ Revised clause: ‘LENGTH OF SOLE AGENCY PERIOD The initial period of the SOLE AGENCY will be 0 weeks from the date of this agreement. You agree that, during that initial period, you will have no right to end this SOLE AGENCY. If you want to end this SOLE AGENCY at the end of the initial period, you must give at least 14 days’ notice in writing ending on the last day of the initial period which is ( ). If you do not give us notice at the end of the initial period, then the SOLE AGENCY will continue after the end of the initial period indefinitely until it is ended either by you giving us notice under the next clause, or by you giving us notice under clause 24 below. At the end of the initial period, you can end the SOLE AGENCY at any time by giving us 14 days’ notice in writing. However, if we have not yet sold the property, we will contact you at that time to talk about renewing our agreement and discussing a new marketing campaign.’

708

Office of Fair Trading Bulletin 2 at 55 (Clamp Busters Club Ltd).

709

420

Chapter 4  Unfair terms in consumer contracts

•

three months was held as excessive in relation to the provision of internet services;710

•

a right to terminate on 90 days’ notice after an initial period of one year (giving a minimum period of 15 months) for mobile phone services was altered to provide for one month’s notice which could expire at any time once a year had been completed (ie the minimum period became one year).711

CRA, Sch 2, Part 1, para 10 (1999 Regulations, Sch 2, para 1(i)): Binding consumers to hidden terms 4.332 ‘A term which has the object or effect of irrevocably binding the consumer to terms with which the consumer has had no real opportunity of becoming acquainted before the conclusion of the contract.’

The need for this ‘grey list’ term arises from the artificial means by which clauses can be incorporated as terms.712 This ‘grey list’ term would also cover terms such as those attempting to incorporate other terms by reference when, prior to the consumer entering the contract s/he has ‘no real opportunity of becoming acquainted’ with the other terms.713 4.333 The key here is the phrase is ‘real opportunity’ – which for the CMA means ‘a real opportunity to read and understand’ – and a consumer without knowledge of the obligations s/he will be under at the time of entering the contract will mean that the contract is unlikely to be fair. Terms which are not provided to consumers in full but are incorporated by reference, for the CMA, are open to challenge. This is now even more of an issue with the growth of online transactions so that: ‘a condition of [receiving the goods or services] is the acceptance of terms and conditions through a tick box against a provision which has the purported effect if binding the consumer to ‘terms’ of the agreement in circumstances where the consumer has no reasonable prospect of reading and understanding them’.714

4.334 The predecessor to the CMA (OFT) also stated in regard to the meaning of a ‘real opportunity’:715

Office of Fair Trading Bulletin 5 (Global Internet Ltd).

710

Office of Fair Trading Bulletin 4 (Motorola Telco (Motorola Ltd)).

711

See para 1.78.

712

For example, Office of Fair Trading Bulletin 1 (Stena Line Ltd) case 2, (Goodalls Caravans Ltd) case 3; Office of Fair Trading Bulletin 2 (Ford Motor Co Ltd) at 56; Bulletin 3 (Country Holidays Ltd) at 70.

713

CMA Guidance, 5.20.2.

714

Office of Fair Trading Bulletin 4 at 10.

715

421

Chapter 4  Unfair terms in consumer contracts ‘We interpret ‘real’ opportunity as something more than the theoretical right to refer to a book held by the operator, while it is not practicable to put much information legibly on the back of a normal sized ticket, it is by no means impossible to take reasonable steps – for example displaying posters in ticket offices – to alert consumers to, and summarize, significant provisions which they might not otherwise realise applied to them, and ignorance of which would cause them detriment’.

However it is not necessary always to provide the whole of agreement in one document to a consumer – as a very lengthy document ‘may be positively unhelpful’. Where the contract is lengthy, detailed, etc, the ways to communicate its provisions (or perhaps its key provisions) can include: •

an explanation provided where the consumer and the trader meet;

•

a brochure or summary of the key terms;

•

a note or guidance about how the contract will operate

but whatever method is used: ‘The overriding requirement is that consumers are effectively alerted – before committing themselves – to all contractual provisions that could significantly affect their legitimate interests.’716

4.335 Another method of making a contract or term fair is to make available to a consumer a ‘cooling off’ period, where: • the provisions of the contract (and other documentation with it) are lengthy; •

there may be doubt whether a consumer will be able to understand all the relevant information which a trader may provide to the consumer for the consumer to make a decision.

This period should provide a reasonable time for the consumer to read the terms and, having considered them, be able to withdraw without facing financial sanctions or loosing pre-payments. But this suggested approach has a limited purpose – for where the consumer does not have enough time to read the information provided and: ‘it is not a universal remedy, and in particular, it cannot ‘cure’ a lack of transparency in the material itself such that the consumer would be likely to be confused or misled by it, even if given an extended opportunity to consider it’.717

4.336 Examples of deleted and amended terms include: Amended term: In the light of this grey list term there was a revision of a clause in a ferry company’s standard booking conditions which referred to other terms and

CMA Guidance, 5.20.4.

716

ibid, 5.20.6.

717

422

Chapter 4  Unfair terms in consumer contracts

conditions which consumers would not have seen the contents of before making a booking. The reference to such other terms and conditions was deleted. The clause also referred to the Athens Convention and the clause was viewed as improved by a clear statement that a copy of the Convention was available from the company’s Passenger Services Dept.718 4.337 Also the ferry company deleted a clause stating: ‘All the booking conditions and conditions of carriage on these pages apply in the same way whether the booking is made in writing or by telephone’.

The predecessor to the CMA (OFT) took the view that: ‘depending on the information given to consumers making telephone bookings, the term shown was potentially unfair’.

The ferry company deleted the term and informed the OFT that it had implemented new procedures ‘so that customers who made bookings over the telephone or in person were advised that the terms of business would apply and that they had a certain time to determine whether the terms were acceptable and, if not, to cancel the booking without penalty’.

4.338 The point can be made that provision of an opportunity to consider terms after the contract has been concluded would not stop the incorporating clause literally falling within this grey list term, but it might prevent it from nevertheless being found to be unfair. Original term: OFT considered a contract used by a leisure club containing a clause which purported to bind members to ‘general conditions of membership, rules and regulations’. The ‘conditions’ were not included in the text of the terms, the OFT did find that the clause referring to them was unfair: ‘since the conditions formed part of the general information pack sent to consumers for consideration before they signed the membership form’.719

The question of whether clauses not effectively incorporated can come within the scope of the CRA, Part 2 is considered above,720 as was the question of whether a significant imbalance can be generated by such clauses.721

Office of Fair Trading Bulletin 1 at 28–29 (Stena Line Ltd) case 2.

718

Office of Fair Trading Bulletin 2 at 22 (David Lloyd Leisure plc).

719

See para 4.18.

720

See para 4.175.

721

423

Chapter 4  Unfair terms in consumer contracts

CRA, Sch 2, Part 1, para 11 (1999 Regulations, Sch 2, para 1(j)): Trader’s right to vary terms generally 4.339 ‘A term which has the object or effect of enabling the trader to alter the terms of the contract unilaterally without a valid reason which is specified in the contract.’

This ‘grey list’ term refers to alterations of the contract where they can occur without a ‘valid reason which is specified in the contract’. The CMA considers that: ‘a right for one party to alter the terms of the contract after it has been agreed, regardless of the consent of the other party, is under strong suspicion of unfairness… A  contract can be considered balanced only if both parties are bound by their obligations as agreed’.722

4.340 The fairness of a variation clause might come under scrutiny: •

for the breadth and extent changes a trader is allowed to make;

• for whether the circumstances and the implications of a change are properly set out; and •

for whether a consumer can exit the contract without penalty if the trader wishes to make a change.

A  variation clause can have the intention of only facilitating ‘minor adjustments or corrections’ but how it is worded could allow for the making of more substantial changes. A variation clause of this type could cause a legal imbalance in the contract between the trader and the consumer, and could require the consumer ‘to accept unanticipated costs or penalties, new requirements or reduced benefits, […and] is likely to be considered unfair whether or not it is meant to be used in that way’.723

4.341 The CMA’s concern is that a clause which may permit a trader to vary a contract to deal with the matters stated in the above quote and which the trader may have the intention only to use where it is necessary to make minor changes could also be used (or allow the trader) to make more substantial changes to their contract with a consumer. A  clause which allows the trader to vary a contract within well-defined and narrow parameters is more likely to be fair. The CMA give as an example a clause which allows a trader to vary a contract where there is a change in law or in regulatory requirements. However, such a term will also need: ‘…information to enable consumers to understand what is likely for consumers in practical terms…’.724

CMA Guidance, 5.21.1.

722

ibid, 5.21.3.

723

ibid, 5.21.5, fn 108.

724

424

Chapter 4  Unfair terms in consumer contracts

4.342 A term which gives a trader discretion to a trader must be transparent so that it: ‘…sets out the circumstances, method and reasons for use of the right of variation in an appropriately clear and specific way.725’

Otherwise, such a term may not be fair particularly if the trader can use it in a way not expected or to the detriment to a consumer. Although the amount of information that a trader will need to provide will be influenced by the type of goods or services it is supplying, there will always be a requirement for ‘full transparency’ so that: ‘…consumers entering contracts are able to foresee the changes that can be made and understand the implications for them.’726

4.343 For the CMA, a variation term is more likely to be fair (particularly if the trader has a unilateral right to vary a term) if: •

the trader is required to give notice in good time before varying the term; and

• the consumer can cancel the contract without an adverse effect on the consumer. However, none of these measures by themselves will make a variation term, which gives wide powers to a trader, fair by itself. All the above factors, in effect, need to need to be present. Also, in the CMA’s view, a term which states that any variation term will be ‘reasonable’ or is only used ‘reasonably’ is no more likely to be fair than one without the use of these words unless, before the consumer and trader enter a contract, there is ‘no doubt’ what type of variations the term permits and in what circumstances. Otherwise: ‘Where the criteria of reasonableness are vague, or clearly meant to include the best commercial interests of the business, there will be scope for the business to change the bargain unexpectedly and potentially to the detriment of consumers to protect its profit margins.’727

Scope of CRA, Sch 2, Part 1, para 11 (1999 Regulations, Sch 2, para 1(j)) 4.344 This grey list term is subject to the following paragraphs of CRA, Schedule 2, Part 2: •

Financial services – para 22 – para 11 does not cover a term which permits a supplier of financial services to change the interest rate payable.

ibid, 5.21.6.

725

ibid, 5.21.6.

726

ibid, 5.21.9.

727

425

Chapter 4  Unfair terms in consumer contracts

•

Contracts which last indefinitely – para 23 – para 11 does not cover a term which allows a trader to unilaterally change the conditions of a contract if the trader has to inform the consumer on reasonable notice and the consumer is free to dissolve the contract.

•

Sale of securities, foreign currency, etc – para 24 – para 11 does not apply for certain transactions and contract concerning financial products (such as transaction in transferable securities or contracts for the purchase or sale of foreign currency.

Although this grey list term does not apply to the terms list immediately above – they are still subject to consideration as to whether they are fair (CRA, section 63(2) which states a term listed in CRA, Schedule 2, Part 2 ‘may nevertheless be assessed for fairness under section 62…’. 4.345 Examples of deleted and amended terms include: Original term: A membership contract of a health club728 stated: ‘We reserve the right to alter hours of business if found necessary and to change the annual membership system and/or price structure’.

Action taken: Deleted. Original term: A contract of a ferry company which stated that it accepted: ‘no liability for any inaccuracy in the information contained in this publication, which may be altered at any time without prior notice, and also reserves the right to alter, amend or cancel any of the arrangements shown in this publication’.

Action taken: Deleted.

CRA, Sch 2, Part 1, para 12 (1999 Regulations, Sch 2, para none) and CRA, Sch 2, Part 1, para 13 (1999 Regulations, Sch 2, para 1(k)): Right of a trader to determine or change what is supplied 4.346 ‘A term which has the object or effect of permitting the trader to determine the characteristics of the subject matter of the contract after the consumer has become bound by it.’ ‘A term which has the object or effect of enabling the trader to alter unilaterally without a valid reason any characteristics of the goods, digital content or services to be provided.’

Office of Fair Trading Bulletin 1 at 37 (Falkirk Sunbed, Solarium & Ladies Health Club) case 6, to which CRA, Sch 2, Part 1, paras 13 and 15 (1999 Regulations, Sch 2, paras 1(k), (l)) also applied.

728

426

Chapter 4  Unfair terms in consumer contracts

CRA, Schedule 2, Part 1, para 12 is new. These grey list terms will apply to the same types of terms as CRA, Schedule 2, Part 1, para 11 (1999 Regulations, Schedule 2, para 1(j)). That grey list term is broader. 4.347 Here the terms covered are those which allow the trader: •

to make unilateral alteration in relation to the characteristics of the subject matter of the contract after the parties have enter the contract (CRA, Schedule 2, Part 1, para 13 (1999 Regulations, Schedule 2, para 1(k));

•

to determine the characteristics of the subject matter of what the trader will be providing more generally then the previous point (CRA, Schedule 2, Part 1, para 12 (1999 Regulations, Schedule 2, para (none)).

For CRA, Schedule 2, para 12 the focus is on the situation where the trader and the consumer have not agreed on what the trader will be supplying when they enter their contract. If the contract contains a term which allows the trader to determine the characteristics of the subject matter of the contract it ‘will be under strong suspicion of unfairness’.729 For the CMA such a clause will have a similar effect to a variation or an exclusion of liability clause and if widely drafted: ‘is liable to be capable […] of being used to deny consumers the full enjoyment of benefits they reasonably expected to enjoy under the contract.’730

4.348 For CRA, Schedule 2, para 13 a term which allows a trader to change what is supplied for the CMA will conflict: ‘with the consumer’s legal right to receive something that is in all significant respects what the trader stated would be supplied, not merely something similar or equivalent.’731

and also, as in many cases, a consumer has a right to receive pre-contract information under the 2013 Regulations so that such a term in the contract would also conflict with what appears in the pre-contract information, which ‘is to be treated as constituting a term in the contract, irrespective of what appears in a contract document as such’.732

To allow a trader to have the right to make the change (leaving aside whether such a term would be fair) it should also be included in the pre-contract information. 4.359 A clause which only allows the trader to vary: •

to make minor technical adjustments, ‘which can be of no real significance to the consumer’;

CMA Guidance, 5.22.11.

729

ibid, 5.22.12.

730

ibid, 5.22.3.

731

ibid, 5.22.3, fn 108.

732

427

Chapter 4  Unfair terms in consumer contracts

•

to reflect changes by law;

•

by necessity;

are more likely to be fair. As an example, a right to vary would likely be fair which would permit a trader to deal with a security threat to a consumer’s digital content or their device. 4.350 If the trader wishes to have the right to vary which would allow it to make ‘more significant, but still only limited in scope’ changes, then the trader would have: •

to make sure the consumer is put in the position, in advance, so that the consumer understands and agrees to the change;

•

to include in the contract wording setting out: 



what the variation would or might be;





in what circumstances would the variation be made;





how far the variation might go.

But with these requirements, fairness can only be achieved if the consumer has also a right to cancel. The right to cancel will only have value if the trader, when wishing to vary, has to give sufficient notice beforehand so that the consumer has enough time to consider whether to accept the variation or to end the contract733 although: ‘a requirement to provide notice of the variation and a cancellation right cannot be relied upon in itself to make a variation clause fair, independently of the breadth of the variation right conferred on the trader and the extent to which it can be exercised at discretion rather than in line with information and reasons stated in the contract.’734

4.351 A provision which allows a trader to vary at will, even if accompanied with a right to cancel and to refund, is unlikely to ever be fair as: ‘[t] he consumer should never have to choose between accepting a product that is not what was agreed, or suffering the inconvenience of unexpectedly not getting, for example, a product for which he or she may have an immediate need, or a longplanned holiday, just because it suits the trader not to supply what was promised.’735

Additionally, including a valid reason as to why a change is needed can be an indicator of fairness: ‘if it serves to ensure that customers can, when deciding whether to enter the contract, foresee the circumstances in which the changes to it may occur and understand how these changes may affect their rights and obligations under the contract.’

ibid, para 5.22.10.

733

ibid, para 5.22.10.

734

ibid, para 5.22.9.

735

428

Chapter 4  Unfair terms in consumer contracts

A reason for the CMA will only be valid: ‘if its inclusion in the contract offers real protection to the consumer against encountering unexpected and unacceptable changes in his or her position.’736

4.352 Example of deleted and amended terms include: Original term: In the contract of a supplier and installer of kitchens a clause was seen as ‘of questionable fairness’ in the light of what is now CRA, Schedule 2, para13.737 The unrevised clause stated: ‘If, for any reason, the Company is unable to supply a particular item of furniture or a particular appliance, the Company will notify the Customer. The Company will normally replace it with an item of equivalent or superior standard and value’.

Amended term: The clause was revised to state: ‘If, for any reason beyond the Company’s control, the Company is unable to supply a particular item of furniture or a particular appliance, the Company will notify the Customer. With the agreement of the Customer the Company will replace it with an item of superior standard and value’.

The revised clause was seen as an ‘improvement’ as it specified that the substitution must be for reasons ‘beyond the company’s reasonable control’ and required the consumer’s consent to the change. The former restriction may be particularly important. The OFT stated that: ‘a term which could allow the supplier to vary what is supplied at will – rather than because of bona fide external circumstances – is unlikely to be fair even if customers have a right of cancellation and refund’.738

CRA, Sch 2, Part 1, para 14 (1999 Regulations, para none): and CRA, Sch 2, Part 1, para 15 (1999 Regulations, Sch 2, para 1(l)): Price variation clauses 4.353 ‘A term which has the object or effect of giving the trader the discretion to decide the price payable under the contract after the consumer has become bound by it, where no price or method of determining the price is agreed when the consumer becomes bound.’

ibid, para 5.22.7.

736

Office of Fair Trading Bulletin 1 (Moben Kitchens) case 1 at 25. See also Office of Fair Trading Bulletin 1 (Stena Line Ltd) case 2, (Falkirk Sunbed Solarium & Ladies Health Club) case 6; Bulletin 2, at 57; Bulletin at 72.

737

CMA  Guidance, 5.22.9: ‘The consumer should never have to choose between accepting a product that is not what was agreed, or suffering the inconvenience of unexpectedly not getting, for example, a product for which he or she may have an immediate need, or a longplanned holiday, just because it suits the trader not to supply what was promised’.

738

429

Chapter 4  Unfair terms in consumer contracts ‘A term which has the object or effect of permitting a trader to increase the price of goods, digital content or services without giving the consumer the right to cancel the contract if the final price is too high in relation to the price agreed when the contract was concluded.’

The CMA  Guidance considers these two grey list terms together and again deals with variations of the contract terms – in this case, the price (CRA, Schedule 2, Part 1, para 14 is new).739 4.354 These two grey list terms deal with two different situations where the trader wishes to change the amount payable by consumer: Situation 1: the trader has discretion to decide on the amount payable by the consumer under the contract:

•

 



after a consumer has entered a contract with a trader; and

there is no agreed price or method of determining the price when the consumer became bound by the contract;

Situation 2: the trader has the right to increase the price of what is supplied, but:

•

 



there is an agreed price when the contract was entered; however

the consumer has no right to cancel if the final amount the trader wishes to charge is too high in relation to the agreed price.

4.355 Neither of these grey list terms stop a trader varying the price payable by a consumer, as such. The first is clearly directed towards the situation where there is no price agreed and gives the trader a ‘discretionary right to set or vary a price after the consumer has become bound to pay’.740 The effect of such a term is that the consumer cannot know (and cannot work out) how much they will have to pay before they enter the contract with the trader who is ‘free to calculate or determine the price’.741 4.356 The second focusses on a different issue, which is trying to control the amount of the increase a trader is permitted to make, in the specific situation where the consumer does not have a right to cancel. For the CMA where a trader is to have the right to vary the price payable by the consumer: •

the circumstances when the trader can vary the price should be clearly set out; and

•

the method of calculation should be clearly set out;

See also paras 4.339, 4.346.

739

CMA Guidance, 5.23.2.

740

ibid, 5.23.2.

741

430

Chapter 4  Unfair terms in consumer contracts

so that: ‘the consumer can foresee on the basis of clear, intelligible criteria, the alterations that may be made and evaluate the practical implications for them742’

The absence of discretion in a price variation clause in itself will not make a term fair. Such as a simple right for a trader to increase the amount the consumer will have to pay where, for example, the trader faces increasing costs, as: • the consumer can be unclear as to what to expect to happen and the amounts payable; and •

such a right can be open to abuse if the consumer has no reasonable way of knowing whether the amount the trader wishes the consumer to pay equals the actual increases in net costs the trader has incurred.

4.357 Such a general right to vary the price in the face of increased costs: ‘fails to recognise that traders are much better able to anticipate and control changes in their own costs than consumers can possibly be.’743

For the CMA a price variation clause is more likely to be fair where: •

the level and timing of price increases are clearly set out;

• such price increases out specified within narrow limits (although necessarily precisely) and ‘they effectively form part of the agreed price’; • the price variation terms are ‘clearly and adequately’ brought to the notice of the consumer before s/he enters the contract; • the notice allows the consumer to ‘foresee and evaluate the practical implications of the variation’. • where possible the price variation term is linked to a publicly available price index; • the consumer is genuinely allowed to end the contract and avoid the effects of a price increase as long as:  



the term meets the ‘transparency criteria’; and

the consumer can make an informed choice about whether s/he should enter the contract at all.

• any right to cancel not only has to give a formal right to cancel but must also: 



allow the consumer to exercise it freely; and





not result in the consumer being in a worse position than if they had not entered the contract such as:

ibid, para 5.23.3.

742

ibid, para 5.23.4.

743

431

Chapter 4  Unfair terms in consumer contracts 



suffering financially (the trader being allowed to keep a prepayment);





suffering serious inconvenience;

• for the right to cancel to be genuine in the circumstance of a price variation the following factors are particularly relevant: 



where the consumer has had sufficient notice of the price variation;





how difficult it is for the consumer to find another supplier;





how competitive the market is.

4.358 CRA, Schedule 2, paras 14 and 15 do not apply to: ‘(a) transactions in transferable securities, financial instruments and other products or services where the price is linked to fluctuations in a stock exchange quotation or index or a financial market rate that the trader does not control, and (b) contracts for the purchase or sale of foreign currency, traveller’s cheques or international money orders denominated in foreign currency.’744

and also do not include: ‘a term which is a price-indexation clause (where otherwise lawful), if the method by which prices vary is explicitly described.’745

4.359 Example of deleted and amended terms: Original term: The OFT viewed the following term as of ‘questionable fairness’ in the light of this element of the ‘grey list’: ‘At any time before delivery has been completed the Company shall be entitled to vary the price of the goods to take into account all or any of the following factors: (i)

Any variation in the manufacturers’ prices between the date of order and the date the manufacturers make delivery to the Company (the prices specified overleaf are based only on manufacturers’ prices current at the date of Order);

(ii) Where goods are imported any variations of the official currency, exchange rates or special taxes or charges imposed by any governments; (iii) Increased costs resulting from the prohibition of actions of other governments; (iv) Increased labour costs; (v)

Increased material costs;

(vi) Increased production costs; (viii) Any costs unavoidably incurred as a result of industrial dispute’.

CRA, Sch 2, para 24.

744

CRA, Sch 2, para 25.

745

432

Chapter 4  Unfair terms in consumer contracts

Amended term: Deleted. The OFT considered that the clause placed on the consumer ‘the risk of the contract price proving to be a bad bargain’ and the consumer would be less able to anticipate the relevant changes than the supplier. It was also noted that this was particularly burdensome for the consumer if there was no right for the consumer, to cancel, without penalty, if the ‘final price proved to be too high’.

CRA, Sch 2, Part 1, para 16 (1999 Regulations, Sch 2, para 1(m)): Trader’s right of final decision 4.360 ‘A term which has the object or effect of giving the trader the right to determine whether the goods, digital content or services supplied are in conformity with the contract, or giving the trader the exclusive right to interpret any term of the contract.’

This grey list term allows a trader a discretion to decide: •

whether they are in breach of the contract; and

•

on the meaning of a term of the contract.

The effect of such terms would in effect remove the jurisdiction of a court to decide on the ‘meaning and application of contract terms’.746

Allowing a trader discretion to decide whether they are in breach of a contract 4.361 This allows a trader to decide whether: ‘they have performed their contractual terms properly [so that] they can unfairly refuse to acknowledge that they have broken them and deny redress to the consumer’.747

Such a term is similar to a clause which allows a trader to exclude liability for goods or digital content which are not of satisfactory quality or for not providing services with reasonable care and skill.748 4.362 The CMA Guidance gives an example of a term which would be unfair and what is needed to make fair:

CMA Guidance, 5.24.1.

746

ibid, para 5.24.2.

747

In a similar way to terms covered by CRA, Sch 2, Part 1, paras 1, 2 (1999 Regulations, Sch 2, paras 1(a), (b)).

748

433

Chapter 4  Unfair terms in consumer contracts

•

unfair term: where a consumer complains goods are not of satisfactory quality, but the contract contains a term which allows the trader to carry out their own test or inspection to establish whether the complaint is valid.

•

term more likely to be fair: the term allows for independent inspection or testing – as long as the consumer does not need to pay the cost of carrying out the inspection or testing if the complaint is found to be valid.749

Allowing a trader to decide on the meaning of a term 4.363 This concerns a term allowing a trader to decide on the meaning of a term which will give the trader a right to change or alter what they do or provide under a contract in a way which suits their interests. For the CMA, the use of the word ‘reasonable’ in a contract term is not ‘necessarily sufficient’ to cure the defect in a clause.750 Furthermore, the CMA Guidance indicates such clauses are subject to the same type of objections as those where a trader gives itself the right to vary a term (see CRA, Schedule 2, Part 1, para 11 (1999 Regulations, Schedule 2, para 1(j)). 4.364 Examples of deleted and amended terms include: Original term: A term which made allowed a consumer to return a certain make of new car if the consumer was dissatisfied but was lost if the car had suffered more than £150 of damage ‘in the opinion of the’ seller. Action taken: Amended to allow for ‘an independent assessment by an RAC expert’, with the costs of the assessment being borne by the losing party.751 Examples of deleted and amended terms include: Original term:752 ‘In the event of any dispute arising during the course of or subsequent to completion of the work, the purchaser shall be entitled to withhold payment of an amount not exceeding the company’s valuation of the work required to rectify or replace the work which is specifically the subject of dispute’.

Action taken: Deleted.

CMA Guidance, 5.24.3

749

ibid, para 5.24.5.

750

Office of Fair Trading Bulletin 1 (Rover Group Ltd).

751

Office of Fair Trading Bulletin 2 at 59 (Spade Oak Duracourt Ltd). The term also fell within CRA, Sch 2, Part 1, para 2 (1999 Regulations, Sch 2, para 1(b)).

752

434

Chapter 4  Unfair terms in consumer contracts

Original term: ‘The Company will repair or replace any part as it deems necessary and where a part which is a replacement is defective then the Company will issue a further part.’753

Action taken: Amended: ‘The Company shall use all reasonable endeavours to supply minor spare parts and replacement components required to maintain the equipment in good working order and no extra charge will be made for the supplies. If, however, the equipment is damaged otherwise than by fair wear and tear, the Company reserves the right to charge the Subscriber for supplying the same.’

Original term: ‘Any dispute or difference which may arise in regard to the interpretation of the Rules shall be determined by the Management, whose decision shall be final.’754

Action taken: Deleted.

CRA, Sch 2, para 17 (1999 Regulations, Sch 2, para 1(n)): Entire agreement and formality clauses 4.365 ‘A term which has the object or effect of limiting the trader’s obligation to respect commitments undertaken by the trader’s agents or making the trader’s commitments subject to compliance with a particular formality.’ This paragraph concerns two elements which may be unfair: •

Limiting a trader’s obligations and entire agreement clauses; and

•

formality clauses.

Limiting a trader’s obligation and entire agreement clause755 4.366 For the first part of this grey list term: ‘A term which has the object or effect of limiting the trader’s obligation to respect commitments undertaken by the trader’s agents…’

the doctrine of good faith requires that each party should be bound to its promises and any other statements it makes which leads to the other party agreeing to enter the contract so that:

Historic Appendix A, page A64.

753

ibid, page A65.

754

This section only considers matters specifically affecting consumers in relation to entire agreement clauses. See para  2.133 for non-consumer related matters relating to entire agreement clauses.

755

435

Chapter 4  Unfair terms in consumer contracts ‘If a contract excludes liability for words that do not appear in it, there is scope for consumers to be misled with impunity.’756

4.367 Also objectionable is wording which has the same effect as they allow a trader: ‘to disclaim liability for oral promises even when they have been relied on by the consumer reasonably and in good faith.’

For the CMA entire agreement clauses are also caught as a consumer will rely on what a trader says to the consumer when the consumers enters the contract. An entire agreement clause can allow a trader to disclaim responsibility so that ‘the scope for unfair detriment is clear’ and: ‘…even if such a term is not deliberately abused, its use weakens the traders’ incentive to take care (and to ensure that employees and agents take care) in what they say to consumers before contracts are concluded, and thus tends to impair the quality of pre-contract information for consumers.’757

4.368 The argument for why a contract should include an entire agreement clause is that there is certainty as to what are provisions of the contract, but for the CMA the price of so doing is ‘unacceptable’ because such a clause excludes: ‘the consumer’s right to redress for misrepresentation or breach of an obligation, which the consumer relied upon when entering the contract’758

Services and statements made by a trader 4.369 It is also necessary to consider, with the implementation of CRA, that in connection with the supply of services an entire agreement clause is unlikely to be effective in any circumstance. CRA now makes any term not binding on a consumer: ‘…to the extent that it would exclude the trader’s liability arising under CRA, section 50’.759

CRA, section 50 provides that every contract for the supply of a service will include as a term what is written or said by a trader (or on behalf the trader), where what is said or written is taken into account by the consumer: •

when deciding whether to enter the contract;

• when deciding about the services, after the consumer has entered the contract.760

CMA Guidance, 5.25.1.

756

ibid, para 5.25.3.

757

ibid, para 5.25.4.

758

CRA, s 57(2), subject to CRA, s 50(2). CRA, s 50(2) provides that CRA, s 50(1) is subject to any qualification or what is written or said by the consumer or that is agreed between the trader and consumer.

759

CRA, s 50(1). Certain pre-contract information comes within this sub-section: CRA, s 50(3).

760

436

Chapter 4  Unfair terms in consumer contracts

Pre-CRA case law concerning entire agreement clauses 4.370 Under the 1999 Regulations, the fairness of an entire agreement clause came in for consideration in Office of Fair Trading v MB Designs (Scotland) Ltd761 where it was recognised that in relation to such clauses any such benefits are likely to be one sided:762 ‘For the respondents [company] it was submitted that the aim of the terms objected to was to achieve clarity for both parties, in order that both parties would know exactly where they stood. Counsel pointed out that such a clause could work for or against the consumer, and should therefore be regarded as a neutral term … It seems to me obvious that the main practical effect of terms of this nature will be to prevent the customer from relying on representations made by the first respondent’s salesman. Such cases are likely in my opinion to represent the vast majority of cases where the clauses in question are relevant. In those cases, it is clear that it is the customer who is likely to be prejudiced’.763

4.371 In addressing the fairness issue in Office of Fair Trading v MB Designs (Scotland) Ltd the court emphasised that little had been done to draw to the attention of the consumer a term which was ‘of a different order from other contractual terms’ (ie regulating the incorporation of terms beyond those in the standard form). The term stated: ‘The Customer should ensure that any representation or promise made before or at the time of signature to the contract not included in the printed form of the contract is added in writing to the face of the contract and signed by the Customer and the Company or its agent. In this way there will be no doubt as to the terms of the representation or promise. Any such statement not in written form must be agreed by the surveyor in writing’.764

4.372 The court held the clause was unfair under the 1999 Regulations because of its significance and lack of prominence:765 ‘This term is obscurely located; it is contained in the middle of detailed contractual provisions in small print which extend over one or two pages, and there is nothing to mark it out as a particularly important term. That is significant, because a term of this nature is of a different order from ordinary contractual terms. It is not a substantive term, but is designed to regulate the manner in which the contract is concluded. In particular, it regulates how alterations may be made to the substantive terms to meet the requirements of a particular contract. As such, it should in my opinion be placed in a prominent position, so that the customer who signs the contract is aware of what he must do to effect any necessary alterations to the printed form’.766

4.373 However, it is also clear that the term would not have been regarded as fair, whatever was done to draw the consumers’ attention to it. The OFT and the suppliers held discussions and the suppliers had offered to give

(2005) SLT 691.

761

ibid, [43].

762

ibid, [43].

763

ibid, [41].

764

ibid, [41].

765

ibid, [41].

766

437

Chapter 4  Unfair terms in consumer contracts

undertakings to make the clause more prominent. The judge was plainly of the view that such an approach would not suffice to make the term fair: ‘While such an undertaking would clearly go some way to deal with the problems with the terms in question, I consider that in the particular types of contract under consideration, involving the supply of doors, windows and conservatories, the use of any term restricting liability for representations made by salesmen will normally be objectionable in itself. That is because it is of the nature of such contracts that the salesman will make statements about the product and its installation, and there is a very clear risk that such statements will not conform to the written terms. That risk is in my opinion sufficiently great to make it unfair and contrary to the requirement of good faith for a supplier of such products to make use of a term that restricts liability for such statements’.767

4.374 It should be questioned as to what would be sufficient to draw the consumer’s attention to an entire agreement clause to make it ‘fair’, whatever the ‘type’ of contract. Given the nature of the clause as of a ‘different order’ from the substantive terms, only the most explicit notification should suffice and it can certainly be doubted that it will ever be achieved when the preventive level of policing is in question, as opposed to it being established in the instant case that the particular consumer was made aware of the term and its impact. Indeed, the CMA Guidance suggests that entire agreement clauses, as such, would not be found to be fair.768 4.375 Although the CMA takes a strong stand against entire agreement clauses in consumer contracts, it appears it will depend on the facts of each case. In Shaftsbury House (Developments) Limited v Kelly Fernandez Lee769 the court was prepared to find that an entire agreement clause was not unfair,770 but clearly the statements need to be of the kind would amount to representations or misrepresentations to be caught by an entire agreement clause, something which was not the case here. The judge noted this grey list term (in its 1999 Regulations version) and the OFT guidance so: ‘The regulations view fairness principally from the viewpoint of the consumer in order to redress imbalance in bargaining power. Entire agreement clauses may be sought to be defended in line with the statement by Lightman J [in Inntrepreneur v East Crown [2000] 2 Lloyd’s Rep 611, 614[7]] which I  have cited on the basis that they achieve certainty and clarity. However as the Office of Fair Trading has observed, the cost of certainty may be too high where it is achieved at the unacceptable price of excluding the consumer’s rights to redress misrepresentation and breach of obligation.’771

ibid, [46].

767

CMA Guidance, 5.25.1 – 5.25.7.

768

[2010] EWHC 1484 (Ch).

769

Shaftsbury House (Developments) Limited v Kelly Fernandez Lee [2010] EWHC 1484 (Ch), [65]. The court noting that it was ‘perhaps [a] sterile exercise to judge the fairness of a term excluding the effect of hypothetical misrepresentations in circumstances where I have found that there were no actionable misrepresentations’.

770

Shaftsbury House (Developments) Limited v Kelly Fernandez Lee [2010] EWHC 1484 (Ch), [61].

771

438

Chapter 4  Unfair terms in consumer contracts

4.376 In this case the defendant failed to make out her case in concerning the statements (to amount to misrepresentations, warranties, constituting a collateral contract or estoppels) which were caught by the entire agreement clause, and the judge in interpreting certain of the statement made by the claimant (or on behalf of the claimant) noted that it was necessary to take account of the ‘ordinary understanding of the reasonable consumer with the characteristics of the Defendant’ – a barrister ‘of some education and understanding’.772 Examples under the 1999 Regulations were the OFT regarded the following clause as ‘improved’ by redrafting included the following.773 The original clause stated: ‘All terms of the Contract between the purchaser and the Company are contained in this document. No representations or warranties are made or given by the Company save as appear herein’.

The ‘improved’ clause stated: ‘It is the intention of the Company that all terms of a contract between the purchaser and the Company are contained in this document and in the brochures and specifications provided to the purchaser’.

4.377 The revision was regarded as an improvement because it did not present itself as an absolute bar to other terms or representations. It might be questioned whether a clause merely referring to the ‘intention’ of the supplier produces that effect with sufficient clarity, given the emphasis which the OFT at the time had generally placed on the need for drafting which makes rights and obligations clear to consumers. However, other traders had adopted similar revisions, some with an added statement as to the recording of additional terms, for example: ‘We enter into this contract with you with the intention that all the terms of the contract between us are included in writing in this form or on the terms and conditions overleaf. Please therefore include below any other applicable terms or special requirements’.774 and: ‘It is the intention of the Company that all terms of the contract between the Customer and the Company are contained in this document and in the brochures and specifications (if any) provided to the Customer. If the Customer wishes to rely on any variation in these terms he is asked to ensure that such variations are written into this agreement or notified to the Company in writing as soon as possible after the contract has been signed’.775

4.378 Whilst the latter clause creates complications through requiring any different terms to be written in after the contract has been signed, the

ibid, [41].

772

Office of Fair Trading Bulletin 1 at 35 (Cordula) case 4, clause 1.

773

Office of Fair Trading Bulletin 5 at 102 (Eurobell Sussex Ltd).

774

Office of Fair Trading Bulletin 4 at 97 (Casewell Ltd).

775

439

Chapter 4  Unfair terms in consumer contracts

idea behind the drafting of such clauses would seem to be to try to create a situation in which it would be difficult for the consumer to argue that he, or she, regarded any statements as important enough for them to be terms, but did not seek to record them in the relevant fashion. The success of any such clauses would seem to depend upon the impact which they would be seen as having on the consumer, for example should they be regarded as sufficient to prevent reliance on a particular statement? That will depend upon their clarity and the efforts made to draw them to the consumer’s attention. The OFT did note in relation to the first of the two clauses set out above that it is ‘now placed prominently on the front of the contract document’.776

Formality clauses 4.379 The second type of term that 1999 Regulations, Schedule 2, para 1(n) covers (CRA, Schedule 2, para 17) are ‘formality clauses’. As noted above an entire agreement clause may also have element of formality to it, and the two types of term in this paragraph of Schedule 2 overlap. However, it is also possible to use a formality clause in relation to the contractual obligations once the contract is operating and that type of clause is addressed here. The CMA Guidance recognises that there may be ‘administrative advantages to consumers with certain formalities ’ such as where there is paperwork that needs completion. But the CMA view is that if the consumer does not comply with a ‘minor or procedural requirement and commits a minor breach’ should not be justification for a trader being allowed not to comply with its obligations777 and: ‘[a] term that imposes severe sanctions for trivial breaches is open to particularly strong objection where these may be committed inadvertently. Unless the need to observe a formality is obvious and important, or is prominently drawn to the attention of consumers, they may overlook or forget it. That risk is particularly significant if it has to be complied with sometime in the future without any reminder.’778

4.380 Further, if a consumer has to comply with a formality which causes her/him disproportionate cost or inconvenience, such as requiring registered post for written notification when an email or the ordinary post would suffice increases the potential for unfairness.779 A requirement to comply with a formality is more likely to be judged fair if three conditions are all fulfilled: ‘(a)  it requires a consumer to do no more than is reasonably necessary;

Office of Fair Trading Bulletin 5 at 102.

776

CMA Guidance, 5.26.2.

777

ibid, para 5.26.3.

778

ibid, para 5.26.4.

779

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Chapter 4  Unfair terms in consumer contracts (b) non-compliance does not involve loss of important rights for the consumer; and (c) he need to comply with the formality is adequately drawn to the consumer’s attention as close as possible to the time when it has to be complied with.’780

4.381 Examples of deleted and amended terms include:781 Original term: ‘DISCREPANCIES – Claims for shortages in number of products cannot be considered unless noted on the receipt copy of the Customers Advice Note.’ Action taken: Deleted. Original term: ‘Please keep this invoice in a safe place as it will be required should a need for after sales service arise in the future too.’ Action taken: Amended. ‘Please keep the invoice in a safe place as it will assist should a need arise in future for after sales service.’

CRA, Sch 2, para 18 (1999 Regulations, Sch 2, para 1(o)): Binding consumers where the trader defaults 4.382 ‘A term which has the object or effect of obliging the consumer to fulfil all of the consumer’s obligations where the trader does not perform the trader’s obligations.’

It is possible to call these ‘unequal opt-out clauses’782 and in the view of the CMA are open to stronger challenge then other grey list terms, particularly: •

which excludes a trader liability where it does not perform its obligations (under CRA, Schedule 2, Part 1, para 2 (1999 Regulations, Schedule 2, para 1(b)); or

•

which allows a trader to cancel a contract at will (CRA, Schedule 2, Part 1, para 7 (1999 Regulations, Schedule 2, para 1(f))).

Those two grey list terms are distinct from this grey list term because they: ‘…exclude the trader’s liability to provide a remedy for breach of contract, but do not require the consumer to continue to perform his or her side of the bargain.783

ibid, para 5.26.6.

780

Historic Appendix A, page A70.

781

For example, see Office of Fair Trading Bulletin 3 at 77.

782

CMA Guidance, 5.27.1.

783

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4.383 The type of provisions the CMA consider falling within this grey list term include: •

a contract for the supply of goods in instalments, but the contract does not allow the consumer to cancel the contract if the trader fails to deliver an instalment; and

•

a contract where a consumer is required to receive a continuing supply of services although the trader has a power to suspend the provision of some of the benefits under the contract. Such a clause may be less subject to objection if the power of the trader is confined within strictly limited circumstances and as well fulfilling certain conditions.784

4.384 A way for such a grey list term being more acceptable if it is a type of force majeure clause so: •

during any suspension of services, the consumer not having to make any payments; or

•

there is an extension of the contract period without the consumer having to pay more ‘to ensure that the consumer receives all the services and benefits contracted for’.785

4.385 Examples of deleted and amended terms include: Original term: ‘A failure by [the company] to make an instalment delivery will not entitle the customer to repudiate the contract’. 786 Action taken: Deleted. Original term: A term in a contract for a mobile phone service, which required the customer to remain liable for charges even when the service was suspended, was amended in the light of this element.787 Action taken: The revised version advised the consumer to take out insurance in relation to such charges and also stated that there would be a refund of a proportion of periodic charges in the situation in which the consumer is ‘unable to use all of the services for a continuous period of three days because: ‘– there is a technical failure of the network; –

they are being tested, modified or maintained; or

–

access is denied to us.’

ibid, paras 5.27.2, 5.27.3, 5.10.2, 5.10.3.

784

ibid, para 5.27.4.

785

Historic Appendix A, page A71

786

Office of Fair Trading Bulletin 3 at 77 (Vodacall Ltd).

787

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CRA, Sch 2, Part 1, para 19 (1999 Regulations, Sch 2, para 1(p)): Trader’s right to assign without consent 4.386 ‘A term which has the object or effect of allowing the trader to transfer the trader’s rights and obligations under the contract, where this may reduce the guarantees for the consumer, without the consumer’s agreement.’

According to the CMA, the transfer of rights and obligations by a trader to another trader is unlikely to be fair where the result is: •

that the consumer receives a poorer service from the new trader;

• that the consumer faces legal complications where, for example, it has deal with two traders.788 4.387 For the CMA, the last three words of the grey list term provide a way that a transfer of rights and obligations can be fair: •

that the consumer is consulted; and

•

that the consumer consents to the transfer; and: ‘Where services, goods or digital content are being provided, and payment is being made, on a continuing basis (as, for example, with membership of a club) a more practicable approach which may assist in achieving fairness is for consumers to have a penalty-free right of exit if they object to the new trader. Alternatively, an ‘assignment clause’ (or ‘assignation’) is less likely to be considered unfair if it operates only in circumstances which ensure that the consumer’s rights under the contract will not be prejudiced in any way.789’


4.388 Example of a deleted and amended term includes: Original term: ‘The Company shall be entitled to assign this agreement either in whole or in part. The Customer shall not assign, re-sell, transfer or sub-lease the Services or his/her rights under these terms and conditions’.

Action taken: Deleted.

1999 Regulations, Sch 2, para 20 (CRA, Sch 2, para 1(q): Restrict the remedies available to a consumer 4.389 ‘A term which has the object or effect of excluding or hindering the consumer’s right to take legal action or exercise any other legal remedy, in particular by—

CMA Guidance, 5.28.2.

788

ibid, 5.28.2.

789

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Chapter 4  Unfair terms in consumer contracts (a) requiring the consumer to take disputes exclusively to arbitration not covered by legal provisions, (b) unduly restricting the evidence available to the consumer, or (c) imposing on the consumer a burden of proof which, according to the applicable law, should lie with another party to the contract.’

This element of the grey list term relates to clauses excluding or hindering the means open to a consumer to deal with a dispute or make a claim: ‘…when the trader is in default and is likely to upset the balance of contract to the consumer’s disadvantage.’790

4.390 The CMA Guidance focusses on three areas: •

compulsory arbitration and alternative dispute resolution clauses (ADR);

•

exclusive jurisdiction clauses; and

•

‘choice of laws’ clauses;

This grey list term can encompass relatively straightforward exemption clauses removing particular remedies or changing the burden of proof.

Arbitration / alternative dispute resolution 4.391 An arbitration clause as a means of resolving a dispute would not fall within the grey list term if the trader and consumer agree, as long as the consumer is not forced to agree. Besides this grey list term, under Arbitration Act 1996, section 91 a compulsory arbitration clause relating to claims of a ‘modest amount’ (currently under £5,000)791 is automatically unfair. The CRA ‘blacklists’ such compulsory arbitration clauses. In the CMA’s view an arbitration clause: •

must not compel a consumer to enter into arbitration;

• if a claim is higher than £5,000, it still must ‘meet the requirement of fairness’; because: ‘When entering contracts, ordinary consumers are most unlikely to consider detailed legal issues connected with the possibility of a dispute arising unless they have the benefit of legal advice on this issue. The consequences of the inclusion of such a clause are thus liable to surprise them unfairly if such a dispute does arise.’792

ibid, 5.29.1.

790

As specified from time to time.

791

CMA Guidance, 5.29.3.

792

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4.392 Other forms of ADR will also fall under suspicion where they ‘have the effect […] to remove or limit the consumer’s right to take legal action before the courts’.793 An ADR provision is more likely to be fair if it is written in plain intelligible language and it describes as ‘fully as reasonably possible the practical implications for the consumer’ in the CMA’s view.794 Although there are now certified ADR bodies795 who need to meet certain quality standards (such as regarding impartiality and fairness) a compulsory use of such of body will not be: ‘binding on the consumer if the agreement was concluded before the dispute arose, and has the effect of depriving the consumer of the right to bring proceedings before the courts’796

Exclusive jurisdiction 4.393 The CMA Guidance considers that clauses: • that prevent a consumer from starting proceedings in the consumer’s local courts; or • that require a consumer to travel lengthy distances or use unfamiliar procedures; as unfair.797

Choice of law 4.394 The CMA Guidance notes that CRA seeks to protect consumers who have a close connection with the UK so that they are not deprived of the protection of CRA, Part 2 where the law of the contract is other than the UK (or any part of the UK).798 The courts have given consideration to some of these types of clauses: Oceano Grupo Editorial SA  v Rocio Murciano Quintero799: the ECJ found unfairness in a clause conferring exclusive jurisdiction on the supplier’s

•

ibid, para 5.29.4.

793

ibid, para 5.29.5.

794

See The Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations 2015.

795

CMA Guidance, 5.29.6.

796

ibid, para 5.29.7.

797

ibid, para 5.29.8 and CRA, s 74(1). If there is no law chosen then Regulation (EC) No 593/2008 (Rome I) will operate to choose the law of the contract (as applied by Law Applicable to Contractual Obligations (England and Wales and Northern Ireland) Regulations 2009).

798

[2000] ECR 1 4941.

799

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principal place of business. The court recognised that the presence of the clause could mean that the consumer would have to take legal action a long way from the consumer’s domicile and which could make it difficult for the consumer to enter an appearance. Further, the point was made that ‘In the case of disputes concerning limited amounts of money, the costs relating to the consumer's entering an appearance could be a deterrent and cause him to forgo any legal remedy or defence.’800

4.395 The point was also made that, in contrast, the clause: •

‘made it easier for the seller or supplier to arrange to enter an appearance and … less onerous for him to do so’.801

•

Picardi v Cuniberti802: There the question arose as to the fairness of an adjudication clause in a contract dealing with building work. Had the contract not been with a residential occupier then the adjudication provisions of the Housing Grants, Construction and Regeneration Act 1996 would have applied. However, those provisions did not apply and a contractual agreement for adjudication was included in the RIBA standard contract in question. The judge took the view that ‘the procedure which the consumer is required to follow, and which will cause irrecoverable expenditure … is something which may hinder the consumer’s right to take legal action’.803

4.396 The clause was viewed as unfair.804 An adjudication clause in such circumstances can hinder legal action by the consumer. See also Zealander v Laing Homes Ltd805 for a similar approach where the consumer was buying a new home from the defendant builder. The contact provided for compulsory arbitration under the National House Builders Council ‘Build Mark’ agreement. The consumer would have had to take some proceedings for matters which fell within the ‘Build Mark’ agreement and separate proceedings for those that were outside. The court indicated, in refusing to issue a stay on the consumer’s claim for damages because of building defects in the house, that the provision was unfair because it created a significant imbalance between the consumer and the defendant, because the consumer would have to be involved separate proceeding in pursuing its claims causing the consumer a financial disadvantage

ibid, para 22.

800

See also Standard Bank London Ltd v Apostolakis (No 2) [2002] CLC 939.

801

[2003] BLR 487.

802

[2003] BLR 487 at [131].

803

The judge did accept that the relevant ‘provision must be seen in the context of other provisions in the RIBA standard contract’. However, he merely referred to other clauses which indicated unfairness and significant imbalance – [2003] BLR 487 at [132].

804

(2003) 19 Const. L.J. 350. Similarly unfair was Mylcrist Builders Ltd v Buck [2008] EWHC 2172 (TCC), [55], where the cost of the arbitration was £2,000 compared to the value of the claim of approximately £5,000.

805

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Lovell Projects v Legg & Carver806: in this case an adjudication was seen as a neutral term not generating a significant imbalance as

•

‘the adjudication terms apply equally both to contractor and employers: both are bound by the terms’.807

4.397 An adjudication clause does not generate an inevitable808 imbalance in the difficulty and expense of taking legal action in the way that an exclusive jurisdiction clause does, but neutrality on the face of a clause should not suffice to establish the lack of any imbalance.809 It is possible that an adjudication can be a ‘relatively quick, cheap and pragmatic form of dispute resolution’ which ‘would in fact be particularly appropriate’ in the consumer context.810 However, given the current view of the CMA, it is not clear whether a consumer will be compelled to use such a method and whether it will operate as a hindrance or a help to the consumer. 4.398 It is not clear whether an adjudication clause would not face scrutiny now for fairness following the passing into to law of the CRA where the adjudication clause has been introduced by the consumer’s agent, rather than the trader. In case prior to the CRA and in relation to a building contract a JCT standard form was introduced by the consumer’s agent, the court held there was no scope for lack of good faith by the suppliers not only where the consumer had ‘insisted on’ those terms,811 but also where the situation was merely that the agent had introduced the terms and the supplier knew the consumer was professionally advised.812 4.399 Examples of deleted and amended terms include: Original term: ‘Arbitration. Any dispute or difference … shall be referred to arbitration under the Arbitration Rules of the Chartered Institute of Arbitrators.’

Action taken: Amended: ‘Arbitration. Where the Customer does not deal as a consumer any dispute or difference … shall be referred to arbitration under the Arbitration Rules of the Chartered Institute of Arbitrators.’

Original term: ‘Any disputes, difference or question … between the parties … shall be referred to the arbitration of a single arbitrator …’

[2003] BLR 452. See also Westminster Building Co Ltd v Beckingham [2004] BLR 163.

806

[2003] BLR 452, [29].

807

Unless the parties are in the same jurisdiction.

808

See Office of Fair Trading v MB Designs (2005) SLT 691. See paras 4.158, 4.162 and 4.168.

809

D  Helps and P  Sheridan ‘Construction Act Review’ (October 2005) Construction Law Journal 521.

810

Lovell Projects Ltd v Legg & Carver [2003] BLR 452.

811

Bryen & Langley v Boston [2005] EWCA 973. See also Westminster Building Co Ltd v Beckingham [2004] 1 BLR 265.

812

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Action taken: Amended: ‘If there is a dispute arising from this agreement which cannot be resolved, either you or we may refer it to the Conciliation Service provided by The National Guild of Office Removers and Storers … or arbitration by mutual consent …’

Original term: ‘English law will apply to these Terms of Membership. The English courts will have exclusive jurisdiction in the case of any dispute.’

Action taken: ‘Relevant United Kingdom law will apply to the Agreement and the relevant courts of the United Kingdom will have exclusive jurisdiction in relation to the Agreement.’

Original term: ‘… this Agreement … shall be governed by the laws of England.’

Action taken: Amended: ‘This contract is governed by the laws of England where the property is located in England or Wales and by Scots law where the property is located in Scotland …’.

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Chapter 4  Unfair terms in consumer contracts

Appendix 1 – unfair terms provisions 4.400 Council Directive 93/13/ EEC of 5 April 1993 on unfair terms in consumer contracts Art

Unfair Terms in Consumer Contracts Regulations 1999

Consumer Rights Act 2015

Reg

Sec

Defi-nitions 2(b) ‘Consumer’ means 3(1) ‘Consumer’ means 2(3) any natural person any natural person who, in contracts who, in contracts covered by this covered by these Directive, is acting Regulations, for purposes which is acting for are outside his purposes which trade, business or are outside his profession. trade, business or profession. 2(c) ‘Seller or supplier’ 3(1) ‘Seller or supplier’ means any natural means any natural or legal person or legal person who, in contracts who, in contracts covered by this covered by these Directive, is acting Regulations, for purposes is acting for relating to his purposes trade, business relating to his or profession, trade, business whether publicly or profession, owned or privately whether publicly owned. owned or privately owned; 2(a) ‘Unfair terms’ 3(1) ‘Unfair terms’ means the means the contractual contractual terms terms defined in referred to in Article 3. regulation 5. 61(3)

Terms to which the legislation does apply

1(1) The purpose of this Directive is to approximate the laws, regulations and administrative provisions of the Member States relating to unfair terms in contracts concluded between a seller or supplier and a consumer.

‘Consumer’ means an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession.

‘Trader’ means a person acting for purposes relating to that person’s trade, business, craft or profession, whether acting personally or through another person acting in the trader’s name or on the trader’s behalf.

A contract to which this Part applies is referred to in this Part as a ‘consumer contract’. 4(1) These Regulations 61(1) This Part applies to apply in relation a contract between to unfair terms a trader and a in contracts consumer. concluded between a seller or a supplier and a consumer.

449

Chapter 4  Unfair terms in consumer contracts

Terms to which the legislation does not apply

Unfair terms

450

Council Directive 93/13/ EEC of 5 April 1993 on unfair terms in consumer contracts Art

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1(2) The contractual terms which reflect mandatory statutory or regulatory provisions and the provisions or principles of international conventions to which the Member States or the Community are party, particularly in the transport area, shall not be subject to the provisions of this Directive.

4(2) These Regulations 73 do not apply to contractual terms which reflect– (a) mandatory statutory or regulatory provisions (including such provisions under the law of any Member State or in Community legislation having effect in the United Kingdom without further enactment); (b) the provisions or principles of international conventions to which the Member States or the Community are party.

(1) This Part does not apply to a term of a contract, or to a notice, to the extent that it reflects— (a) mandatory statutory or regulatory provisions, or (b) the provisions or principles of an international convention to which the United Kingdom or the EU is a party. (2) In subsection (1) ‘mandatory statutory or regulatory provisions’ includes rules which, according to law, apply between the parties on the basis that no other arrangements have been established. 3(1) A contractual term 5(1) A contractual term 62(4) A term is unfair which has not which has not if, contrary to been individually been individually the requirement negotiated shall negotiated shall be of good faith, it be regarded as regarded as unfair causes a significant unfair if, contrary if, contrary to imbalance in the to the requirement the requirement parties’ rights and of good faith, it of good faith, it obligations under causes a significant causes a significant the contract to the imbalance in the imbalance in the detriment of the parties’ rights and parties’ rights consumer. obligations arising and obligations under the contract, arising under the to the detriment of contract, to the the consumer. detriment of the consumer.

Chapter 4  Unfair terms in consumer contracts Council Directive 93/13/ EEC of 5 April 1993 on unfair terms in consumer contracts Art Meaning of 3(2) A term shall always be regarded as individual not individually negotiated negotiated where it has been drafted in advance and the consumer has therefore not been able to influence the substance of the term, particularly in the context of a pre-formulated standard contract. The fact that certain aspects of a term or one specific term have been individually negotiated shall not exclude the application of this Article to the rest of a contract if an overall assessment of the contract indicates that it is nevertheless a pre-formulated standard contract. Where any seller or supplier claims that a standard term has been individually negotiated, the burden of proof in this respect shall be incumbent on him.

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5(2) (2) A term shall (3) always be regarded (4) as not having been individually negotiated where it has been drafted in advance and the consumer has therefore not been able to influence the substance of the term. (3) Notwithstanding that a specific term or certain aspects of it in a contract has been individually negotiated, these Regulations shall apply to the rest of a contract if an overall assessment of it indicates that it is a pre-formulated standard contract. (4) It shall be for any seller or supplier who claims that a term was individually negotiated to show that it was.

451

Chapter 4  Unfair terms in consumer contracts Council Directive 93/13/ EEC of 5 April 1993 on unfair terms in consumer contracts Art

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Deter4(1) Without prejudice 6(1) Without prejudice 62(5) Whether a term to Article 7, the to regulation 12, is fair is to be mining the unfairness of a the unfairness of determined— meaning of contractual term a contractual term (a) taking into unfair shall be assessed, shall be assessed, account the nature taking into account taking into of the subject the nature of account the nature matter of the the goods or of the goods or contract, and services for which services for which (b) by reference the contract was the contract was to all the concluded and concluded and circumstances by referring, by referring, existing when the at the time of at the time of term was agreed conclusion of the conclusion of the and to all of the contract, to all contract, to all other terms of the the circumstances the circumstances contract or of any attending the attending the other contract on conclusion of the conclusion of the which it depends. contract and to all contract and to all the other terms of the other terms of the contract or of the contract or of another contract another contract on which it is on which it is dependent. dependent (1) Part 1 of Use of an 3(3) The Annex 5(2) Schedule 2 to 63 shall contain an these Regulations Schedule 2 indicative indicative and noncontains an contains an list exhaustive list of indicative and indicative and nonthe terms which non-exhaustive list exhaustive list of may be regarded as of the terms which terms of consumer unfair. may be regarded contracts that as unfair. may be regarded as unfair for the purposes of this Part. (2) Part 1 of Schedule 2 is subject to Part 2 of that Schedule; but a term listed in Part 2 of that Schedule may nevertheless be assessed for fairness under section 62 unless section 64 or 73 applies to it.

452

Chapter 4  Unfair terms in consumer contracts Council Directive 93/13/ EEC of 5 April 1993 on unfair terms in consumer contracts Art

Exclusion from the assessment of fairness

Unfair Terms in Consumer Contracts Regulations 1999

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4(2) Assessment of the 6(2) In so far as it is in unfair nature of plain intelligible the terms shall language, the relate neither to assessment of the definition of fairness of a term the main subject shall not relate– matter of the (a) to the contract nor to definition of the the adequacy of main subject the price and matter of the remuneration, on contract, or the one hand, as (b) to the against the services adequacy of or goods supplies the price or in exchange, on remuneration, the other, in so far as against the as these terms are goods or services in plain intelligible supplied in language. exchange.

(3) The Secretary of State may by order made by statutory instrument amend Schedule 2 so as to add, modify or remove an entry in Part 1 or Part 2 of that Schedule. (4) An order under subsection (3) may contain transitional or transitory provision or savings. (5) No order may be made under subsection (3) unless a draft of the statutory instrument containing it has been laid before, and approved by a resolution of, each House of Parliament. 64(1) A term of a consumer contract may not be assessed for fairness under section 62 to the extent that— (a) it specifies the main subject matter of the contract, or (b) the assessment is of the appropriateness of the price payable under the contract by comparison with the goods, digital content or services supplied under it.

453

Chapter 4  Unfair terms in consumer contracts Council Directive 93/13/ EEC of 5 April 1993 on unfair terms in consumer contracts Art Exclusion only to apply if transparency and prominence

454

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Sec 64(2) (3) (4) (5)

(2) Subsection (1) excludes a term from an assessment under section 62 only if it is transparent and prominent. (3) A term is transparent for the purposes of this Part if it is expressed in plain and intelligible language and (in the case of a written term) is legible. (4) A term is prominent for the purposes of this section if it is brought to the consumer’s attention in such a way that an average consumer would be aware of the term. (5) In subsection (4) ‘average consumer’ means a consumer who is reasonably well-informed, observant and circumspect. (6) This section does not apply to a term of a contract listed in Part 1 of Schedule 2.

Chapter 4  Unfair terms in consumer contracts Council Directive 93/13/ EEC of 5 April 1993 on unfair terms in consumer contracts Art Wording in written contracts

5

Unfair Terms in Consumer Contracts Regulations 1999

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In the case of 7(1) A seller or supplier 68 contracts where shall ensure that all or certain any written term terms offered to of a contract the consumer are is expressed in in writing, these plain, intelligible terms must always language. be drafted in plain, intelligible language. This rule on interpretation shall not apply in the context of the procedures laid down in Article 7 (2).

(1) A trader must ensure that a written term of a consumer contract, or a consumer notice in writing, is transparent. (2) A consumer notice is transparent for the purposes of subsection (1) if it is expressed in plain and intelligible language and it is legible. (1) If a term in a Where there is 69 Doubt as to 5 7(2) If there is doubt about the meaning consumer contract, doubt about the meaning of of a written term, or a consumer meaning of a term, a term the interpretation notice, could have the interpretation which is most different meanings, most favourable to favourable to the meaning that is the consumer shall the consumer most favourable to prevail. shall prevail the consumer is to but this rule prevail. shall not apply (2) Subsection (1) in proceedings does not apply to brought under the construction of regulation 12. a term or a notice in proceedings on an application for an injunction or interdict under paragraph 3 of Schedule 3. Unfair 6(1) Member States 8(1) An unfair term 62(1) An unfair term of a shall lay down in a contract consumer contract term not that unfair terms concluded with is not binding on to bind a used in a contract a consumer by a the consumer. consumer concluded with seller or supplier a consumer by a shall not be seller or supplier binding on the shall, as provided consumer. for under their national law, not be binding on the consumer…

455

Chapter 4  Unfair terms in consumer contracts Council Directive 93/13/ EEC of 5 April 1993 on unfair terms in consumer contracts Art Contract to 6(1) … and that the contract shall continue continue to bind if unfair the parties upon terms those terms if it is capable of continuing in existence without the unfair terms. Choice of law

456

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8(2) The contract shall continue to bind the parties if it is capable of continuing in existence without the unfair term.

67

6(2) Member States 9 shall take the necessary measures to ensure that the consumer does not lose the protection granted by this Directive by virtue of the choice of the law of a nonMember country as the law applicable to the contract if the latter has a close connection with the territory of the Member States.

These Regulations 74 shall apply notwithstanding any contract term which applies or purports to apply the law of a nonMember State, if the contract has a close connection with the territory of the Member States.

Where a term of a consumer contract is not binding on the consumer as a result of this Part, the contract continues, so far as practicable, to have effect in every other respect. If— (a) the law of a country or territory other than the United Kingdom or any part of the United Kingdom is chosen by the parties to be applicable to a consumer contract, but (b) the consumer contract has a close connection with the United Kingdom, this Part applies despite that choice. (2) For cases where the law applicable has not been chosen see Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations.

Chapter 4  Unfair terms in consumer contracts Council Directive 93/13/ EEC of 5 April 1993 on unfair terms in consumer contracts Art Duty of court to consider fairness of term

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(1) Subsection (2) applies to proceedings before a court which relate to a term of a consumer contract. (2) The court must consider whether the term is fair even if none of the parties to the proceedings has raised that issue or indicated that it intends to raise it. (3) But subsection (2) does not apply unless the court considers that it has before it sufficient legal and factual material to enable it to consider the fairness of the term.

457

Chapter 4  Unfair terms in consumer contracts Council Directive 93/13/ EEC of 5 April 1993 on unfair terms in consumer contracts Art Application of rules to secondary contracts

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(1) This section applies if a term of a contract (‘the secondary contract’) reduces the rights or remedies or increases the obligations of a person under another contract (‘the main contract’). (2) The term is subject to the provisions of this Part that would apply to the term if it were in the main contract. (3) It does not matter for the purposes of this section— (a) whether the parties to the secondary contract are the same as the parties to the main contract, or (b) whether the secondary contract is a consumer contract. (4) This section does not apply if the secondary contract is a settlement of a claim arising under the main contract.

Chapter 4  Unfair terms in consumer contracts

Appendix 2 – indicative list of unfair terms 4.401 Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts

Unfair Terms in Consumer Contracts Regulations 1999

Consumer Rights Act 2015

Annex Terms referred to in Article 3

SCHEDULE 2 Indicative and nonexhaustive list of terms which may be regarded as unfair Regulation 5(5)

SCHEDULE 2 Consumer Contract Terms which may be Regarded as Unfair Section 63

art

reg 1. Terms which have the object or effect of:

para no 1. Terms which have the object or effect of:

Part 1 List of Terms

(a)

excluding or limiting the legal liability of a seller or supplier in the event of the death of a consumer or personal injury to the latter resulting from an act or omission of that seller or supplier;

(a)

excluding or limiting the legal liability of a seller or supplier in the event of the death of a consumer or personal injury to the latter resulting from an act or omission of that seller or supplier

1

(b)

inappropriately excluding or limiting the legal rights of the consumer vis-à-vis the seller or supplier or another party in the event of total or partial non-performance or inadequate performance by the seller or supplier of any of the contractual obligations, including the option of offsetting a debt owed to the seller or supplier against any claim which the consumer may have against him;

(b)

inappropriately 2 excluding or limiting the legal rights of the consumer visà-vis the seller or supplier or another party in the event of total or partial non-performance or inadequate performance by the seller or supplier of any of the contractual obligations, including the option of offsetting a debt owed to the seller or supplier against any claim which the consumer may have against him

A term which has the object or effect of excluding or limiting the trader’s liability in the event of the death of or personal injury to the consumer resulting from an act or omission of the trader. A term which has the object or effect of inappropriately excluding or limiting the legal rights of the consumer in relation to the trader or another party in the event of total or partial non-performance or inadequate performance by the trader of any of the contractual obligations, including the option of offsetting a debt owed to the trader against any claim which the consumer may have against the trader.

459

Chapter 4  Unfair terms in consumer contracts Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts

Unfair Terms in Consumer Contracts Regulations 1999

Consumer Rights Act 2015

Annex Terms referred to in Article 3

SCHEDULE 2 Indicative and nonexhaustive list of terms which may be regarded as unfair Regulation 5(5)

SCHEDULE 2 Consumer Contract Terms which may be Regarded as Unfair Section 63

art

reg

para no

(c)

making an agreement binding on the consumer whereas provision of services by the seller or supplier is subject to a condition whose realization depends on his own will alone;

(c)

making an agreement binding on the consumer whereas provision of services by the seller or supplier is subject to a condition whose realisation depends on his own will alone

3

A term which has the object or effect of making an agreement binding on the consumer in a case where the provision of services by the trader is subject to a condition whose realisation depends on the trader’s will alone.

(d)

permitting the seller or (d) supplier to retain sums paid by the consumer where the latter decides not to conclude or perform the contract, without providing for the consumer to receive compensation of an equivalent amount from the seller or supplier where the latter is the party cancelling the contract;

permitting the seller or supplier to retain sums paid by the consumer where the latter decides not to conclude or perform the contract, without providing for the consumer to receive compensation of an equivalent amount from the seller or supplier where the latter is the party cancelling the contract

4

A term which has the object or effect of permitting the trader to retain sums paid by the consumer where the consumer decides not to conclude or perform the contract, without providing for the consumer to receive compensation of an equivalent amount from the trader where the trader is the party cancelling the contract.

5

A term which has the object or effect of requiring that, where the consumer decides not to conclude or perform the contract, the consumer must pay the trader a disproportionately high sum in compensation or for services which have not been supplied.

460

Chapter 4  Unfair terms in consumer contracts Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts

Unfair Terms in Consumer Contracts Regulations 1999

Consumer Rights Act 2015

Annex Terms referred to in Article 3

SCHEDULE 2 Indicative and nonexhaustive list of terms which may be regarded as unfair Regulation 5(5)

SCHEDULE 2 Consumer Contract Terms which may be Regarded as Unfair Section 63

art

reg

para no

(e)

requiring any consumer who fails to fulfil his obligation to pay a disproportionately high sum in compensation;

(e)

requiring any consumer who fails to fulfil his obligation to pay a disproportionately high sum in compensation

6

A term which has the object or effect of requiring a consumer who fails to fulfil his obligations under the contract to pay a disproportionately high sum in compensation.

(f)

authorizing the seller or supplier to dissolve the contract on a discretionary basis where the same facility is not granted to the consumer, or permitting the seller or supplier to retain the sums paid for services not yet supplied by him where it is the seller or supplier himself who dissolves the contract;

(f)

authorising the seller or supplier to dissolve the contract on a discretionary basis where the same facility is not granted to the consumer, or permitting the seller or supplier to retain the sums paid for services not yet supplied by him where it is the seller or supplier himself who dissolves the contract

7

A term which has the object or effect of authorising the trader to dissolve the contract on a discretionary basis where the same facility is not granted to the consumer, or permitting the trader to retain the sums paid for services not yet supplied by the trader where it is the trader who dissolves the contract.

(g)

enabling the seller or supplier to terminate a contract of indeterminate duration without reasonable notice except where there are serious grounds for doing so;

(g)

enabling the seller or supplier to terminate a contract of indeterminate duration without reasonable notice except where there are serious grounds for doing so

8

A term which has the object or effect of enabling the trader to terminate a contract of indeterminate duration without reasonable notice except where there are serious grounds for doing so.

461

Chapter 4  Unfair terms in consumer contracts Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts

Unfair Terms in Consumer Contracts Regulations 1999

Consumer Rights Act 2015

Annex Terms referred to in Article 3

SCHEDULE 2 Indicative and nonexhaustive list of terms which may be regarded as unfair Regulation 5(5)

SCHEDULE 2 Consumer Contract Terms which may be Regarded as Unfair Section 63

art

reg

para no

(h)

automatically extending a contract of fixed duration where the consumer does not indicate otherwise, when the deadline fixed for the consumer to express this desire not to extend the contract is unreasonably early;

(h)

automatically extending a contract of fixed duration where the consumer does not indicate otherwise, when the deadline fixed for the consumer to express his desire not to extend the contract is unreasonably early

9

A term which has the object or effect of automatically extending a contract of fixed duration where the consumer does not indicate otherwise, when the deadline fixed for the consumer to express a desire not to extend the contract is unreasonably early.

(i)

irrevocably binding the consumer to terms with which he had no real opportunity of becoming acquainted before the conclusion of the contract;

(i)

irrevocably binding the consumer to terms with which he had no real opportunity of becoming acquainted before the conclusion of the contract

10

A term which has the object or effect of irrevocably binding the consumer to terms with which the consumer has had no real opportunity of becoming acquainted before the conclusion of the contract.

(j)

enabling the seller or supplier to alter the terms of the contract unilaterally without a valid reason which is specified in the contract;

(j)

enabling the seller or supplier to alter the terms of the contract unilaterally without a valid reason which is specified in the contract

11

A term which has the object or effect of enabling the trader to alter the terms of the contract unilaterally without a valid reason which is specified in the contract.

12

A term which has the object or effect of permitting the trader to determine the characteristics of the subject matter of the contract after the consumer has become bound by it.

462

Chapter 4  Unfair terms in consumer contracts Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts

Unfair Terms in Consumer Contracts Regulations 1999

Consumer Rights Act 2015

Annex Terms referred to in Article 3

SCHEDULE 2 Indicative and nonexhaustive list of terms which may be regarded as unfair Regulation 5(5)

SCHEDULE 2 Consumer Contract Terms which may be Regarded as Unfair Section 63

art (k)

(l)

reg enabling the seller or supplier to alter unilaterally without a valid reason any characteristics of the product or service to be provided;

providing for the price of goods to be determined at the time of delivery or allowing a seller of goods or supplier of services to increase their price without in both cases giving the consumer the corresponding right to cancel the contract if the final price is too high in relation to the price agreed when the contract was concluded;

(k)

(l)

para no enabling the seller or supplier to alter unilaterally without a valid reason any characteristics of the product or service to be provided

providing for the price of goods to be determined at the time of delivery or allowing a seller of goods or supplier of services to increase their price without in both cases giving the consumer the corresponding right to cancel the contract if the final price is too high in relation to the price agreed when the contract was concluded

13

A term which has the object or effect of enabling the trader to alter unilaterally without a valid reason any characteristics of the goods, digital content or services to be provided.

14

A term which has the object or effect of giving the trader the discretion to decide the price payable under the contract after the consumer has become bound by it, where no price or method of determining the price is agreed when the consumer becomes bound.

15

A term which has the object or effect of permitting a trader to increase the price of goods, digital content or services without giving the consumer the right to cancel the contract if the final price is too high in relation to the price agreed when the contract was concluded.

463

Chapter 4  Unfair terms in consumer contracts Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts

Unfair Terms in Consumer Contracts Regulations 1999

Consumer Rights Act 2015

Annex Terms referred to in Article 3

SCHEDULE 2 Indicative and nonexhaustive list of terms which may be regarded as unfair Regulation 5(5)

SCHEDULE 2 Consumer Contract Terms which may be Regarded as Unfair Section 63

art

reg

para no

(m)

giving the seller or supplier the right to determine whether the goods or services supplied are in conformity with the contract, or giving him the exclusive right to interpret any term of the contract;

(m)

giving the seller or supplier the right to determine whether the goods or services supplied are in conformity with the contract, or giving him the exclusive right to interpret any term of the contract

16

A term which has the object or effect of giving the trader the right to determine whether the goods, digital content or services supplied are in conformity with the contract, or giving the trader the exclusive right to interpret any term of the contract.

(n)

limiting the seller’s or supplier’s obligation to respect commitments undertaken by his agents or making his commitments subject to compliance with a particular formality;

(n)

limiting the seller’s or supplier’s obligation to respect commitments undertaken by his agents or making his commitments subject to compliance with a particular formality

17

A term which has the object or effect of limiting the trader’s obligation to respect commitments undertaken by the trader’s agents or making the trader’s commitments subject to compliance with a particular formality.

(o)

obliging the consumer to fulfil all his obligations where the seller or supplier does not perform his;

(o)

obliging the consumer to fulfil all his obligations where the seller or supplier does not perform his

18

A term which has the object or effect of obliging the consumer to fulfil all of the consumer’s obligations where the trader does not perform the trader’s obligations

(p)

giving the seller or supplier the possibility of transferring his rights and obligations under the contract, where this may serve to reduce the guarantees for the consumer, without the latter’s agreement;

(p)

giving the seller or supplier the possibility of transferring his rights and obligations under the contract, where this may serve to reduce the guarantees for the consumer, without the latter’s agreement

19

A term which has the object or effect of allowing the trader to transfer the trader’s rights and obligations under the contract, where this may reduce the guarantees for the consumer, without the consumer’s agreement.

464

Chapter 4  Unfair terms in consumer contracts Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts

Unfair Terms in Consumer Contracts Regulations 1999

Consumer Rights Act 2015

Annex Terms referred to in Article 3

SCHEDULE 2 Indicative and nonexhaustive list of terms which may be regarded as unfair Regulation 5(5)

SCHEDULE 2 Consumer Contract Terms which may be Regarded as Unfair Section 63

art (q)

reg excluding or hindering the consumer’s right to take legal action or exercise any other legal remedy, particularly by requiring the consumer to take disputes exclusively to arbitration not covered by legal provisions, unduly restricting the evidence available to him or imposing on him a burden of proof which, according to the applicable law, should lie with another party to the contract.

2 Scope of subparagraphs (g), (j) and (l)

(q)

para no excluding or hindering the consumer’s right to take legal action or exercise any other legal remedy, particularly by requiring the consumer to take disputes exclusively to arbitration not covered by legal provisions, unduly restricting the evidence available to him or imposing on him a burden of proof which, according to the applicable law, should lie with another party to the contract.

2 Scope of paragraphs 1(g), (j) and (l)

20

A term which has the object or effect of excluding or hindering the consumer’s right to take legal action or exercise any other legal remedy, in particular by-(a) requiring the consumer to take disputes exclusively to arbitration not covered by legal provisions, (b) unduly restricting the evidence available to the consumer, or (c) imposing on the consumer a burden of proof which, according to the applicable law, should lie with another party to the contract. Part 2 Scope of Part 1

465

Chapter 4  Unfair terms in consumer contracts Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts

Unfair Terms in Consumer Contracts Regulations 1999

Consumer Rights Act 2015

Annex Terms referred to in Article 3

SCHEDULE 2 Indicative and nonexhaustive list of terms which may be regarded as unfair Regulation 5(5)

SCHEDULE 2 Consumer Contract Terms which may be Regarded as Unfair Section 63

art

reg

para no Financial services

(a)

Subparagraph (g) is without hindrance to terms by which a supplier of financial services reserves the right to terminate unilaterally a contract of indeterminate duration without notice where there is a valid reason, provided that the supplier is required to inform the other contracting party or parties thereof immediately.

(a)

Paragraph 1(g) is 21 without hindrance to terms by which a supplier of financial services reserves the right to terminate unilaterally a contract of indeterminate duration without notice where there is a valid reason, provided that the supplier is required to inform the other contracting party or parties thereof immediately.

Paragraph 8 (cancellation without reasonable notice) does not include a term by which a supplier of financial services reserves the right to terminate unilaterally a contract of indeterminate duration without notice where there is a valid reason, if the supplier is required to inform the consumer of the cancellation immediately

(b)

Subparagraph (j) is without hindrance to terms under which a supplier of financial services reserves the right to alter the rate of interest payable by the consumer or due to the latter, or the amount of other charges for financial services without notice where there is a valid reason, provided that the supplier is required to inform the other contracting party or parties thereof at the earliest opportunity and that the latter are free to dissolve the contract immediately.

(b)

Paragraph 1(j) is without hindrance to terms under which a supplier of financial services reserves the right to alter the rate of interest payable by the consumer or due to the latter, or the amount of other charges for financial services without notice where there is a valid reason, provided that the supplier is required to inform the other contracting party or parties thereof at the earliest opportunity and that the latter are free to dissolve the contract immediately.

Paragraph 11 (variation of contract without valid reason) does not include a term by which a supplier of financial services reserves the right to alter the rate of interest payable by or due to the consumer, or the amount of other charges for financial services without notice where there is a valid reason, if— (a) the supplier is required to inform the consumer of the alteration at the earliest opportunity, and (b) the consumer is free to dissolve the contract immediately.

466

22

Chapter 4  Unfair terms in consumer contracts Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts

Unfair Terms in Consumer Contracts Regulations 1999

Consumer Rights Act 2015

Annex Terms referred to in Article 3

SCHEDULE 2 Indicative and nonexhaustive list of terms which may be regarded as unfair Regulation 5(5)

SCHEDULE 2 Consumer Contract Terms which may be Regarded as Unfair Section 63

art

reg

para no Contracts which last indefinitely

Subparagraph (j) is also without hindrance to terms under which a seller or supplier reserves the right to alter unilaterally the conditions of a contract of indeterminate duration, provided that he is required to inform the consumer with reasonable notice and that the consumer is free to dissolve the contract.

Subparagraph (j) is also without hindrance to terms under which a seller or supplier reserves the right to alter unilaterally the conditions of a contract of indeterminate duration, provided that he is required to inform the consumer with reasonable notice and that the consumer is free to dissolve the contract.

23

Paragraphs 11 (variation of contract without valid reason), 12 (determination of characteristics of goods etc after consumer bound) and 14 (determination of price after consumer bound) do not include a term under which a trader reserves the right to alter unilaterally the conditions of a contract of indeterminate duration if— (a) the trader is required to inform the consumer with reasonable notice, and (b) the consumer is free to dissolve the contract.

467

Chapter 4  Unfair terms in consumer contracts Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts

Unfair Terms in Consumer Contracts Regulations 1999

Consumer Rights Act 2015

Annex Terms referred to in Article 3

SCHEDULE 2 Indicative and nonexhaustive list of terms which may be regarded as unfair Regulation 5(5)

SCHEDULE 2 Consumer Contract Terms which may be Regarded as Unfair Section 63

art

reg

para no Sales of securities, foreign currency

(c)

468

(c) Subparagraphs (g), (j) and (1) do not apply to: — transactions in transferable securities, financial instruments and other products or services where the price is linked to fluctuations in a stock exchange quotation or index or a financial market rate that the seller or supplier does not control; — contracts for the purchase or sale of foreign currency, traveller’s cheques or international money orders denominated in foreign currency.

(c)

Paragraphs 1(g), (j) and (l) do not apply to: — transactions in transferable securities, financial instruments and other products or services where the price is linked to fluctuations in a stock exchange quotation or index or a financial market rate that the seller or supplier does not control; — contracts for the purchase or sale of foreign currency, traveller’s cheques or international money orders denominated in foreign currency.

24

Paragraphs 8 (cancellation without reasonable notice), 11 (variation of contract without valid reason), 14 (determination of price after consumer bound) and 15 (increase in price) do not apply to— (a) transactions in transferable securities, financial instruments and other products or services where the price is linked to fluctuations in a stock exchange quotation or index or a financial market rate that the trader does not control, and (b) contracts for the purchase or sale of foreign currency, traveller’s cheques or international money orders denominated in foreign currency.

Chapter 4  Unfair terms in consumer contracts Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts

Unfair Terms in Consumer Contracts Regulations 1999

Consumer Rights Act 2015

Annex Terms referred to in Article 3

SCHEDULE 2 Indicative and nonexhaustive list of terms which may be regarded as unfair Regulation 5(5)

SCHEDULE 2 Consumer Contract Terms which may be Regarded as Unfair Section 63

art

reg

para no Price index clauses

(d)

Subparagraph (1) is without hindrance to price-indexation clauses, where lawful, provided that the method by which prices vary is explicitly described.

(d)

Paragraph 1(l) is without hindrance to price indexation clauses, where lawful, provided that the method by which prices vary is explicitly described.

25

Paragraphs 14 (determination of price after consumer bound) and 15 (increase in price) do not include a term which is a priceindexation clause (where otherwise lawful), if the method by which prices vary is explicitly described.

469

Chapter 5 Exemption clauses and third parties

Introduction5.1 Privity5.1 Outline of the 1999 Act 5.4 Circumstances when rights of third party arise 5.5 Identification of the third party 5.9 Right to enforce terms subject to the provisions of the contact 5.10 Third party can have benefit of exclusion or limitation 5.11 Limitations on the contracting affecting rights of a third party 5.12 Remedies available to the third party 5.14 Protection of an exemption clause for a third party (whether a third party can have the benefit of an exemption clause) 5.17 The issues 5.17 ‘Agency’5.25 Vicarious immunity 5.35 Negativing or limiting the duty of care 5.40 Bailment on terms 5.43 Trusts5.45 Stay of action 5.46 Contracts (Rights of Third Parties) Act 1999 5.47 Third parties and the burden of a clause 5.54 Defences and exemption clauses used against a third party claiming a benefit under the Act 5.57 Application of Unfair Contract Terms Act 1977 5.59 Application of Unfair Contract Terms Act, section 3 5.61 Application of Unfair Contract Terms Act, section 2 5.63

Introduction Privity 5.1 It is possible to state the principle of the ‘privity of contract’ in connection with third parties as follows (which has faced criticism): ‘Under the common law doctrine of privity of contract, the general rule is that contracts cannot be enforced either by or against third parties. The second limb of this rule (under which a contract cannot impose liabilities on anyone except a 470

Chapter 5  Exemption clauses and third parties party to it) is generally regarded as just and sensible. But its first limb (under which a contract cannot confer rights on anyone except a party to it) has been the subject of much criticism…’.1

5.2 That is the doctrine of privity of contract. It has two principle features, so that a person who is not a party to a contract: •

is not able to take a benefit from a contract; and

• cannot be required to perform obligations contained in the contract which the parties have agreed between themselves that the person should perform. 5.3 The doctrine has been much criticised, particularly in relation to benefits to third parties2 and major changes in relation to the enforcement of benefits by third parties have been made by the Contracts (Rights of Third Parties) Act 1999 (1999 Act). However, what is of particular concern here is third parties and contractual exemption clauses and that involves consideration of3: (i) the extent to which a third party to a contract can claim the benefit of an exemption clause in the contract; (ii) the extent to which a third party to a contract can be subject to the burden of an exemption clause in the contract. These will be considered after a brief outline of the 1999 Act.

Chitty on Contracts (33rd edn, Sweet & Maxwell, 2020) para 18–001. Tweddle v Atkinson (1861) 1  B  & S  393; Gandy v Gandy (1885) 30 Ch D  57 at 69, CA; Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847, HL; Scruttons Ltd v Midland Silicones Ltd [1962] AC 446, HL. Law Commission Report (‘Privity of Contract: Contracts for the Benefit of Third Parties’) paras 2.2–2.6.

1

For example Beswick v Beswick [1968] AC 58 at 72, HL; Woodar Investment Development Ltd v Wimpey Construction UK  Ltd [1980] 1  All ER  571, [1980] 1  WLR  277, HL; Swain v Law Soc [1983] 1 AC 598 at 611, HL; The Pioneer Container [1994] 2 AC 324 at 335; Darlington BC v Wiltshier Northern Ltd [1995] 1 WLR 68 per Steyn LJ at 76. CA.

2

In fact, four basic questions can be identified in relation to privity generally: ‘(i) Can a person enforce a term of a contract to which he is not a party? (ii) Can a person set up a defence based on the terms of a contract to which he is not a party in order to answer a claim brought by a person who is a party to the relevant contract ? (iii) Can a contracting party set up a defence based on the terms of his own contract in order to answer a claim brought by a person who is not a party to the relevant contract? (iv) Can a contracting party enforce the terms of his own contract against a person who is not a party to the relevant contract?’ Cheshire, Fifoot & Furmston (eds) The Law of Contract (Oxford University Press, 2003) para 6.6.

3

471

Chapter 5  Exemption clauses and third parties

Outline of the 1999 Act 5.4 The 1999 Act was based on a Law Commission Report4 (the Report) recommended that: ‘the rule of English law whereby a third party to a contract may not enforce it should be reformed so as to enable contracting parties to confer a right to enforce the contract on a third party’.

In other words, the 1999 Act gives to a person who is not a party to a contract (defined in the 1999 Act as a ‘third party’) its own right to enforce a term of the contract. The 1999 Act did not alter the English common law doctrine of the privity of contract (that only parties to a contract have the right to enforce its provisions) as such, but provided to third parties a right that did not exist prior to the passing of the 1999 Act.

Circumstances when rights of third party arise 5.5 The 1999 Act carries this out through a two-stage test of enforceability. Section 1(1) of the 1999 Act which provides the basic test states: ‘1(1)Subject to the provisions of this Act, a person who is not a party to a contract (a “third party”) may in his own right enforce a term of the contract if – (a) the contract expressly provides that he may, or (b) subject to sub-s (2), the term purports to confer a benefit on him’.5

Section 1(2) of the 1999 Act sets out a limitation to the 1999 Act, section 1(1) (b) so that a third party does not acquire rights where the construction of the contract shows that the parties did not intend that third party to be able to enforce the relevant term: ‘1(2)Subsection 1(b) does not apply if on the proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party’.6

5.6 Where the contract is neutral on whether section 1(1)(b) confers a benefit on a third party so as to enable the third party to enforce a term of

Law Commission Report (‘Privity of Contract: Contracts for the Benefit of Third Parties’). See Burrows ‘Reforming Privity of Contract: Law Commission Report’ [1996] Lloyd’s Maritime and Commercial Law Quarterly 467.

4

The wording ‘confer a benefit on’ rather than ‘of benefit to’ was selected by the Law Commission on the basis that ‘these words draw a crucial distinction between the situation where it is natural to presume that the contracting parties intended to confer legal rights on the third party and the situation where the presumption is forced and artificial’ (see The Report, 7.25).

5

Chitty on Contracts, (33rd edn, Sweet & Maxwell, 2020) para  18-094 argues that the wording creates a rebuttable presumption that a provision of a contract is intended by the parties to be enforced by a third party. And to rebut the presumption (that it is not enforceable) it is the parties (or a party) who has to show that they did not have the intention to have the provision enforced by a third party.

6

472

Chapter 5  Exemption clauses and third parties

a contract in its own right does not mean that section 1(2) is disapplied – rather: ‘Whether the contract does express a mutual intention that the third party should not be entitled to enforce the benefit conferred on him or is merely neutral is a matter of construction having regard to all relevant circumstances.’7

5.7 For section 1(1)(b) to apply, on the true construction of the term which purports to confer the benefit on the third party, there is no requirement in the section that the benefit on the third party is: ‘the predominant purpose or intent behind the term or that it [section 1(1)(b)] denies applicability of s 1(1)(b) if a benefit is conferred on someone other than the third party’8

however: • the wording to ‘confer a benefit’ in 1999 Act, section 1(1)(b) requires that the wording used by the parties in the contract indicates that at least one of the purposes of the contract was to benefit a third party; •

a benefit is not conferred on a third party where the position of the third party is simply improved on the contract being performed;9

•

the language of the contract as used by the parties must show ‘that one of the purposes of their bargain … was to benefit the third party’ and not be an incidental effect if the contract is performed.10

5.8 However, once a third party claimant has established that the relevant term ‘purports to confer a benefit upon him’:

Nisshin Shipping Co Ltd v Cleaves & Co Ltd and others [2003]  EWHC  2602 (Comm), [23]. The judge also indicated ‘It is to be noted that s 1(2) of the 1999 Act does not provide that sub-s 1(b) is disapplied unless on a proper construction of the contract it appears that the parties intended that the benefit term should be enforceable by the third party. Rather it provides that sub-s 1(b) is disapplied if, on a proper construction, it appears that the parties did not intend third party enforcement. In other words, if the contract is neutral on this question, sub-s (2) does not disapply sub-s 1(b).’

7

The Prudential Assurance Company Limited v Ayres and Grew [2007]  EWHC  775 (Ch) citing Laemthong International Lines Co Ltd v Artis [2005] 2 All ER (Comm) 167 in support that there is no additional requirement. Although the Court of Appeal reversed the decision of the judge at first instance (with the Court of Appeal holding, that the contract when properly interpreted, did not purport to provide a benefit to the third part, but it restricted the third party’s rights, [2008] EWCA Civ 52). However, the approach of the judge in considering the meaning of s  1(1)(b) was not criticised by the Court of Appeal, and has been considered correct in other cases: Dolphin Maritime & Aviation Services [2009] EWHC 716 (Comm), The Royal Bank of Scotland v McCarthy [2015] EWHC 3626 (QB), Cavanagh and others v Secretary of State for Work and Pension [2106] EWHC 1136 (QB).

8

9

Dolphin Maritime & Aviation Services Ltd v Sveriges Angartygs Assurans Forenig [2009] EWHC 716 (Comm), [74]. ibid, [74]. See also The Royal Bank of Scotland plc v Michael Patrick McCarthy [2015] EWHC 3626 (QB), [137].

10

473

Chapter 5  Exemption clauses and third parties ‘he is entitled to enforce the term directly against the defendant unless the defendant persuades the court that the parties did not intend the term to be enforceable by him’.11

Identification of the third party 5.9 •

To acquire rights, the third party: must be ‘expressly identified in the contract’;

• can be identified ‘by name, as a member of a class or as answering a particular description’); •

‘need not be in existence when the contract is entered into’.12

Right to enforce terms subject to the provisions of the contact 5.10 The third party will not acquire rights to enforce a term ‘otherwise than subject to and in accordance with any other relevant terms of the contract’13 – that is the whole of the contract needs examination and whether there are any limitations.

Third party can have benefit of exclusion or limitation 5.11 Although the 1999 Act generally refers to the rights of a third party to enforce a term, 1999 Act, section 1(6) makes it clear that it encompasses the situation: •

where a term of the contact contains a provision which excludes or limits liability; and

•

where the 1999 Act refers to the third party enforcing the term; then

• such a reference will include the third party being to avail itself of the exclusion or limitation.14

Laemthong International Lines Co Ltd v Artis [2005] 2 All ER (Comm) 167 at [22]; following Nisshin Shipping Co Ltd v Cleaves & Co Ltd [2004] 1 All ER (Comm) 481.

11

1999 Act, s 1(3).

12

1999 Act, s 1(4).

13

See 5.47. The Report (at 7.10) indicates: ‘In our view, it would also cover an exclusion (or limitation) clause designating third parties (eg “C shall be excluded from all liability to A for damage caused in unloading the goods) because an exclusion clause, as a legal concept, has no meaning unless it is intended to affect legal rights and, where the third party is expressly designated as a person whose liability is excluded, the plain meaning of the exclusion clause is that the third party is to have the benefit of it without having to rely on enforcement by the promisee.’

14

474

Chapter 5  Exemption clauses and third parties

Limitations on the contracting affecting rights of a third party 5.12 Where the third party has rights under the 1999 Act, section 1, there are limitations on the abilities of the contracting parties to vary or extinguish those rights by agreement, variation or rescission of the contract. 5.13 Subject to the parties having inserted an express term agreeing otherwise,15 the third party’s rights cannot be so affected without his, or her, consent if:16 ‘(a) the third party has communicated its assent to the term to the promisor,17 (b) the promisor is aware that the third party has relied on the term, or (c) the promisor can reasonably be expected to have foreseen that the third party would rely on the term and the third party has in fact relied on it.’

There are specified circumstances in which a court or arbitral tribunal may dispense with such consent.18

Remedies available to the third party 5.14

In enforcing a right, the third party has available any remedy:

‘that would have been available to him in action for breach of contract [as] if he had been a party to the contract’.19

The rules relating to damages, injunctions, specific performance and other relief also apply. 5.15 Where the third party brings proceedings to enforce a term, the rights of defence, set-off and counterclaim available to the promisor are dealt with by 1999 Act, section 3.20 Where the third party seeks to enforce a term in proceedings brought against him, or her, that cannot occur if the third party could not have done so had he, or she, been a party to the contract.21 1999 Act, section 6 lists a number of types of contract in relation to which section

1999 Act, s 2(3): ie either agreeing that the parties can rescind or vary the contract without the consent of the third party, or specifying a different set of circumstances in which the consent of the third party is required.

15

1999 Act, s 2(1).

16

The assent may be ‘by words or conduct’ and ‘if sent to the promisor by post or other means, shall not be regarded as communicated to the promisor until received by him’.

17

1999 Act, s 2(4)–(7).

18

1999 Act, s 1(5).

19

See 5.54.

20

Contracts (Rights of Third Parties) Act 1999, s 3(6).

21

475

Chapter 5  Exemption clauses and third parties

1 will not operate to confer rights on a third party. In particular,22 it confers no rights on a third party in the case of a ‘contract on a bill of exchange, promissory note or other negotiable instrument’23 and 1999 Act, section 6(5) states: ‘Section 1 confers no rights on a third party in the case of – (a) a contract for the carriage of goods by sea,24 or (b) a contract for the carriage of goods by rail or road, or for the carriage of cargo by air, which is subject to the rules of the appropriate international transport convention25,

except that a third party may, in reliance on that section avail itself of an exclusion or limitation of liability in such a contract’. 5.16 With the exception of a third party given a right to rely on an exemption clause, this ouster of the operation of 1999 Act, section 1 was seen as necessary to avoid a clash of policy with the Carriage of Goods by Sea Act 199226 and to avoid undermining the relevant conventions.27

Protection of an exemption clause for a third party (whether a third party can have the benefit of an exemption clause) The issues 5.17 Is it possible for a third party, C, to make use of an exemption clause in a contract between A and B? That issue is of particular importance: •

when C is an employee, or subcontractor, of B; and

•

A makes a claim against C (in tort, such as a claim in negligence as there is no contractual relationship between A and C); and

•

the claim is based on C’s carrying out of a task which is part of the work dealt with by the contract between A and B; and

•

A not being able to sue B because of an exclusion or limitation of liability in the contract between A and B.

– – –

22

It also states that s 1 confers no rights on a third party to enforce: any term of employment against an employee; any term of a worker’s contract against a worker; any term of a relevant contract against an agency worker.

Section 6(1).

23

See s 6(6), (7).

24

See s 6(8).

25

Law Commission Report, para 12.10.

26

Law Commission Report, para 12.14.

27

476

Chapter 5  Exemption clauses and third parties

5.18 It has been seen as undesirable to allow the privity rule to be used effectively to undermine the contractual allocation of the risk and the concomitant insurance coverage. Generally at common law a third party, who is not a party to the contract, cannot have the benefit of an exemption clauses in the contract.28 In The Mahkutai the point was made that: ‘Recognition has been given to the undesirability, especially in the commercial context, of allowing plaintiffs to circumvent the contractual exemption clause by suing in particular the servant or agent of the contracting party who caused the relevant damage, thereby undermining the purpose of the exemption, and so redistributing the contractual allocation of risk, which is reflected in the freight rate and the parties’ respective insurance arrangements’.29

5.19

Similarly, it has been said that:30

‘Many have noted that an application of the doctrine [of privity of contract] so as to prevent a third party from relying on a limitation of liability clause which was intended to benefit him or her frustrates sound commercial practice and justice. It does not respect allocations of risk made by the parties to the contract and ignores the practical realities of insurance coverage. In essence, it permits one party to make a unilateral modification of the contract by circumventing its provisions and the express or implied intention of the parties. In addition, it is inconsistent with the reasonable expectations of all the parties to the transaction, including that third party beneficiary who is made to support the entire burden of liability’.

5.20 In Elder Dempster & Co Ltd v Paterson, Zochonis & Co Ltd31 there was some recognition that a third party could have the benefit of a contractual exclusion or limitation of liability clause. In this case the issue was whether the owners of goods (the third party) could sue the owner of the ship who was carrying the goods for negligent stowage when an exemption clause in the bill of lading prevented them claiming from the carriers/charterers. 5.21

The court held:32

‘It would be absurd that the owner of goods could get rid of the protective clauses of the bill of lading, in respect of all stowage, by suing the owner of the ship in tort.’

The court avoided the privity rule and the third party, the ship’s owner, was protected by the clause.33 5.22 But subsequently, Scruttons Ltd v Midland Silicones Ltd34 ‘revealed … a remarkable shift from the philosophy which informed the decision in the

Cosgrove v Horsfall (1945) 62 T.L.R. 140

28

[1996] AC 650 at 661, PC.

29

London Drugs Ltd v Kuehne & Nagel International Ltd (1992) 97 DLR (4th) 261 per Iacobucci J at 348.

30

[1924] AC 522, HL, a case decided on the bailment on terms, which is considered further below at para 5.43.

31

[1924] AC 522 per Viscount Finlay at 548.

32

Elder Dempster & Co Ltd v Paterson, Zochonis & Co Ltd has come in for criticism, some of which relates to the difficulty in working out a consistent reason.

33

[1962] AC 446. HL.

34

477

Chapter 5  Exemption clauses and third parties

Elder Dempster & Co Ltd v Paterson, Zochonis & Co Ltd case’35 with the privity rule being reasserted.36 Since then, there has been a willingness to recognise some devices as effective to circumvent the effects of the privity rule,37 but the point has been made that: ‘The tangled case law in this area provides an excellent illustration of the tension between on the one hand, the formal adherence by the judiciary to the privity doctrine, which would prevent third parties taking the benefit of exclusion clauses, and the judiciary’s desire to find ways round the doctrine so as to effect the contracting parties’ intentions’.38

5.23 In addition, this approach has been criticised as productive of uncertainty and of not providing a sufficient solution: ‘While most commentators welcome, at least in principle, the various judicial exceptions to privity of contract, concerns about the predictability of its use have been raised. Moreover, it is said, in cases where the recognised exceptions do not appear to apply, the underlying concerns of commercial reality and justice still militate for the recognition of a third party beneficiary right’.39

There have been indications that the courts might become willing to develop more generalised exceptions.40 5.24 Also, the 1999 Act has produced far reaching changes41 and the effect of the 1999 Act is considered below. 1999 Act, section 7(1) however has expressly preserves: ‘any right or remedy of a third party that exists or is available apart from this Act’

and that may be useful when the borderlines of the legislation are reached.42 Initial consideration is given to the common law devices to avoid the doctrine of privity of contract.

The Mahkutai [1996] AC 650 at 660.

35

But see Scruttons Ltd v Midland Silicones Ltd [1962] AC 446 per Lord Reid at 473: ‘Although I may regret it, I find it impossible to deny the existence of the general rule that a stranger to a contract cannot in a question with either of the contracting parties take advantage of the provisions of the contract even where it is clear from the contract that some provision in it was intended to benefit him’.

36

5.35.

37

The Report, Law Commission Report para 2.19.

38

London Drugs Ltd v Kuehne & Nagel International Ltd (1992) 97 DLR (4th) 261 per Iacobucci J at 348.

39

For example, The Mahkutai [1996]  AC  650 at 664; KH  Enterprise v Pioneer Containers, The Pioneer Container [1994] 2 All ER 250 per Lord Goff at 255. The step towards more generalised exceptions has already been taken by elsewhere: London Drugs Ltd v Kuehne & Nagel International Ltd (1992) 97 DLR (4th) 261 (limitation clause extended to employees where clause impliedly so extended and employees carrying out services employer contracted to perform – see p 290. Extended beyond employees in Fraser River Pile & Dredge Ltd v Can Dive Services Ltd [2000] 1 Lloyd’s Rep 199). See also Trident General Ins Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 (main contractor’s insurance stated to cover, inter alia, sub-contractors. Privity rule relaxed to allow sub-contractors the benefit of the insurance contract between the main contractors and the insurers).

40

Law Commission Report (‘Privity of Contract: Contracts for the Benefit of Third Parties’).

41

See 5.40.

42

478

Chapter 5  Exemption clauses and third parties

‘Agency’ 5.25 In Scruttons Ltd v Midland Silicones Ltd43 the court refused to allow the privity rule to be avoided. In this case: •

stevedores (C) had negligently damaged the cargo owner’s (A), goods;

•

C had contracted with the carrier (B);

•

C was a third party to the contract between A and B;

• the bill of lading contract incorporated the United States Carriage of Goods by Sea Act 1936 which limited liability to £500 per a package or unit; •

among the arguments advanced by C was that: •

B had entered in the contract with A as agents for C and that C could have the benefit of the provisions of the contract; and

•

that it was possible to imply a contract between C and A so that their liability was limited in accordance with the provisions of the contract between A and B.

5.26 When A  sued C  in tort, C  were held to be unable to rely on an exemption clause in the contract between A and B, to which they were third parties.44

[1962] AC 446, HL.

43

In one of the speeches (that of Viscount Simonds), there was consideration of the use of the word ‘carrier’. The judge found it not possible to extend its meaning to include a ‘stevedore’: ‘This is a proposition which does not admit of any expansion. A  stevedore is not a carrier according to the ordinary use of language and, so far from the context supplying an extended meaning to the latter word, the contrary is indicated … by cl 17 of the bill of lading which authorises the carrier [B]or master to appoint stevedores [C].’ C  in order to avoid that a ‘carrier’ did not include within its meaning a ‘stevedore’ argued that B acted as an agent for C or there was an implied contract, with the judge dismissing these arguments in forthright terms: ‘They did not expressly do so; if then there was agency, it was a case of an agent acting for an undisclosed principal. I  am met at once by the difficulty that there is no ground whatever for saying that the carriers were contracting as agent either for this firm of stevedores or any other stevedores whom they might employ. The relation of the stevedores in this case to the carriers was that of independent contractors. Why should it be assumed that the carriers entered into a contract of affreightment or into any part of it as agents for them?’ and ‘Next it was urged that there was an implied contract between the cargo owners, the respondents, and the stevedores that the latter should have the benefit of the immunity clause in the bill of lading. This argument presents, if possible, greater difficulties. When A and B have entered into a contract, it is not uncommon to imply a term in order to give what is called “business efficacy” to it—a process, I may say, against the abuse of which the courts must keep constant guard. But it is a very different matter to infer a contractual relation between parties who have never entered into a contract at all. In the present case the cargo owners had a contract with the carrier which provided amongst other things for the unloading of their cargo. They knew nothing of the relations between the carrier and the stevedores. It was no business of theirs. They were concerned only to have the job done which the carriers had contracted to do. There is no conceivable reason why an implication should be made that they had entered into any contractual relation with the stevedores.’

44

479

Chapter 5  Exemption clauses and third parties

However, Lord Reid set out what are, in fact, 4 criteria when it might be possible for an agency argument to succeed so that the third party (C) might be able to rely on the exemption clause in the contract between A  and B45 (reformatted as a list to ease reading): ‘I can see a possibility of the success of the argument if: (first) the bill of lading makes it clear that the stevedore is intended to be protected by the provisions in it which limit liability, (secondly) the bill of lading makes it clear that the carrier, in addition to contracting for those provisions on his own behalf is also contracting as agent for the stevedore that those provisions should apply to the stevedore, (thirdly) the carrier has authority from the stevedore to do that, or perhaps later ratification by the stevedore would suffice, and (fourthly) that any difficulties about consideration moving from the stevedore were overcome’.

5.27 Such an approach was unhelpful to the stevedores in the particular case as the exemption clause only referred to the ‘carrier’ – there was nothing which could be said ‘to make it clear that the stevedore [was] intended to be protected’ by it. 5.28 It ‘was essentially on this passage that the Himalaya clause (called after the name of the ship involved in Adler v Dickson46) was later to be founded’.47 Such a clause relies on the idea of a contract between the shippers and the stevedores, containing the exemption clause, and created through the carrier as agent and states, for example:48 ‘every such servant, agent and contractor shall have the benefit of all exceptions, limitations provisions, conditions and liberties herein benefiting the carrier as if such provision were expressly made for their benefit, and in entering into this contract, the carrier, to the extent of these provisions, does so not only on [his] behalf, but also as agent and trustee for such servants, agents and sub-contractors’.

5.29 The Privy Council accepted the effectiveness of such a clause in The Eurymedon (New Zealand Shipping Co Ltd v A M Satterthwaite & Co Ltd),49 allowing the stevedores the protection of the exemption clause, and similarly in The New York Star (Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Australia) Pty Ltd),50 where the point was made that51: ‘It may be that the significance of Satterthwaites case lay not so much in the establishment of any new legal principle, as in the finding that in the normal situation involving the employment of stevedores by carriers, accepted principles enable and require the stevedore to enjoy the benefit of contractual provisions in the bill of lading’.

[1962] AC 446 at 474.

45

[1955] 1 QB 158, CA.

46

The Mahkutai [1996] AC 650 at 661, PC.

47

[1996] AC 650 at 662.

48

[1975] AC 154, PC.

49

[1981] 1 WLR 138. See also The Mahkutai [1996] AC 650, PC.

50

[1981] 1 WLR 138 at 143.

51

480

Chapter 5  Exemption clauses and third parties

5.30

In the latter case of The Mahkutai the judgment noted that:

‘so long as the principles continue to be understood to rest upon an enforceable contract as between the cargo owners and the stevedores entered into through the agency of the shipowner, it is inevitable that technical points of contract and agency law will continue to be invoked by cargo owners seeking to enforce tortious remedies against stevedores and others uninhibited by the exceptions and limitations in the relevant bills of lading’.52

5.31 It will not always be possible to avoid the effects of such technicalities53 but there has been discouragement of a: ‘search for fine distinctions which would diminish the general applicability [of the Himalaya clause approach] in the light of established commercial practice’.54

5.32 In New Zealand Shipping Co Ltd v A M Satterthwaite & Co Ltd, referring to four criteria set out in the Midland Silicones case it was considered ‘plain that the first three were satisfied, the only question being whether the requirement of consideration was fulfilled’.55 Concerning the fourth a pragmatic approach was taken to that with the majority opinion stating:56 ‘If the choice, and the antithesis, is between a gratuitous promise, and a promise for consideration … there can be little doubt which, in commercial reality, this is … This became a full contract when the appellant performed services by discharging the goods. The performance of these services for the benefit of the shipper was the consideration for the agreement by the shipper that the appellant should have the benefit of the exemptions and limitations contained in the bill of lading’.

5.33 In relation to the cargo owner/shipowner/carrier and stevedore situation:57 ‘the problem of consideration … is regarded as having been solved on the basis that a bilateral agreement between the stevedores and the cargo owners entered into through the agency of shipowners, may, though itself unsupported by consideration, be rendered enforceable by consideration subsequently furnished by the stevedores in the form of the performance of their duties as stevedores for the shipowners’.

The Mahkutai [1996] AC 650 at 664.

52

Stone Vickers Ltd v Appledore Ferguson Shipbuilders Ltd [1992] 2 Ll Rep 578 at 585, CA; Raymond Burker Motors Ltd v Mersey Docks and Harbours [1986] 1 Ll Rep 155; Southern Water Authority v Carey [1985] 2 All ER 1077; Palmer on Bailment (2nd edn, Law Book Co of Australasia, 1991) 1610–1625. The Mahkutai [1996] AC 650 at 664: ‘In some cases … courts have felt impelled by the established principles of the law of contract or of agency to reject the application of the [Eurymedon] principle in the particular case before them. In others courts have felt free to follow the lead of Lord Wilberforce in the Eurymedon and Lord Wilberforce and Barwick CJ in The New York Star and so to discover the existence of a contract … in circumstances in which lawyers of a previous generation would have been unwilling to do so’.

53

The New York Star (Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Australia) Pty Ltd) [1981] 1 WLR 138 at 144, PC.

54

The Mahkutai [1996] AC 650 at 662.

55

The Eurymedon (New Zealand Shipping Co Ltd v A M Satterthwaite & Co Ltd) [1975] AC 154 at 167, PC.

56

The Mahkutai [1996] AC 650 at 664.

57

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Chapter 5  Exemption clauses and third parties

In addition, the finding of an agency relationship between B (cargo owner/ shipowner/carrier) and C (stevedore), allowing B to contract with A (owner of the goods carried) on C’s behalf, has not proved difficult where there is a pre-existing relationship between B and C, as where one: •

is partly owned by;58 or

•

is a subsidiary of59

the other. 5.34 Where B cannot be regarded as having had authority to contract on behalf of C at the time when B contracted with A, the situation may be dealt with by C’s subsequent ratification of B’s conduct60 – ‘the problem of authority from the stevedores to the shipowners to contract on their behalf can, in the majority of cases, be solved by recourse to the principle of ratification’.61

There are, of course, limits on effective ratification. It cannot occur if the ‘principal’ was not ascertainable at the time that the contract was made between A and B.62

Vicarious immunity63 5.35 Some of the reasoning in Elder Dempster & Co Ltd v Paterson, Zochnonis & Co Ltd64 might be seen as indicating a principle of vicarious immunity65 – that: ‘servants and “agents” can take advantage of contracts made by their master and “principal”’.66

Any such approach was dismissed in Scruttons Ltd v Midland Silicones Ltd67 where the basic privity rule was reasserted. However, one of the judges in this latter case (Lord Reid) did take the view of the idea of vicarious immunity so that he:

The New York Star (Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Australia) Pty Ltd) [1980] 3 All ER 257, [1981] 1 WLR 138, PC.

58

The Eurymedon (New Zealand Shipping Co Ltd v A  M  Satterthwaite & Co Ltd) [1975]  AC  154, [1974] 1 All ER 1015, PC.

59

The Mahkutai [1996] AC 650 at 664, PC.

60

ibid.

61

Southern Water Authority v Carey [1985] 2 All ER 1077.

62

See also Art 4, Hague Visby Rules, Carriage of Goods by Sea Act 1992.

63

[1924] AC 522, HL.

64

[1924]  AC  522, HL per Viscount Cave at 534, Viscount Finlay at 548, Lord Carson at 565; Scrutton LJ in the Court of Appeal [1923] 1 KB 420 at 441–442. See also Scrutton LJ in Mersey Shipping and Transport Co Ltd v Rea Ltd (1925) 21 Ll R 375. For an explanation of the case see p 293.

65

Scruttons Ltd v Midland Silicones Ltd [1962] AC 446 per Lord Reid at 477, PC.

66

[1962] AC 446.

67

482

Chapter 5  Exemption clauses and third parties ‘would not dissent from a proposition that something of the kind ought to be the law if [it] was plainly the intention of the contract’.68

5.36

He also took the approach that the issue might:

‘well be … worthy of consideration by those whose function it is to consider amending the law’ but it seemed to him ‘much too late to do that judicially’.69

Although not binding on the UK courts, the Supreme Court of Canada has provided some such protection for employees70 taking the view that when most contracts are made between customer and employer it will be contemplated that it will be employees who will actually carry out the services contracted for. In those circumstances, there was seen to be such an identity of interest between employer and employee in relation to a limitation of liability clause in the customer/employer contract that ‘there was simply no reason for denying the benefit of the clause to employees who perform the contractual obligations’.71

5.37

Employees were viewed as entitled to the benefit of limitation clauses if:72

‘(1) the limitation of liability clause must either expressly or impliedly extend its benefit to the employees … seeking to rely on it; and (2) the employees … seeking the benefit of the limitation of liability must have been in the course of their employment and must have been performing the very services provided for in the contract between the employer and the plaintiff (customer) when the loss occurred’.

5.38 With its reference to implied extension of benefit to employees, such an approach might make the protection of an exemption clause more widely available to employees than would be the case under the 1999 Act. Under the 1999 Act, the enforcement of a benefit in a contract term by third parties is dependent upon the case being one where either ‘the contract expressly provides that [the third party] may’73 enforce it or ‘the term purports to confer a benefit on’ the third party.74 5.39 There have been indications that the English courts might be prepared to develop the common law to follow the line taken by the Canadian court.75 In addition, the 1999 Act specifically states that it ‘does not affect any

Scruttons Ltd v Midland Silicones Ltd [1962] AC 446 per Lord Reid at 477, PC.

68

[1962] AC 446 per Lord Reid at 477.

69

London Drugs Ltd v Kuehne & Nagel International Ltd (1992) 97  DLR  (4th) 261. Extended beyond employees in Fraser River Pile & Dredg Ltd v Can Dive Services Ltd [2000] 1 Lloyd’s Rep 199.

70

Iacobucci J at 361.

71

Iacobucci J at 366.

72

Contracts (Rights of Third Parties) Act 1999, s 1(1)(a).

73

Section 1(1)(b); this does not apply where ‘on the proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party’ (s 1(2)).

74

The Mahkutai [1996] AC 650 at 664, PC.

75

483

Chapter 5  Exemption clauses and third parties

right or remedy of a third party that exists or is available apart from this Act’76 and the Law Commission clearly envisaged the possibility of such judicial development continuing to occur. It was said:77 ‘We should emphasise that we do not wish our proposed legislation – which we believe to be a relatively conservative and moderate measure – to hamper the judicial development of third party rights. Should the House of Lords decide that in a particular sphere our reform does not go far enough and that, for example, a measure of imposed consumer protection is required or that employees (even though not mentioned in the contract) should be able to rely on exclusion clauses that protect their employers under a doctrine of vicarious immunity, we would not wish our proposed legislation to be construed as hampering that development.’

Negativing or limiting the duty of care 5.40 An exclusion clause in a contract between A  and B  may indirectly protect C from liability, in tort, for negligence by negativing or limiting, the duty of care which C owes to A78. In other words, the ‘contractual background’, particularly questions of the allocation of the need to insure, may serve to prevent a duty of care arising between a contracting party and a third party, in particular between the owner of a building and the sub-contractor carrying out work on it. The contract terms and the background in each case will need to be considered. The helpfulness of the reasoning, although perhaps not the result, in each case, depends to an extent on assumptions made as to the appropriate test for the duty of care. 5.41 •

Some examples are given:

Southern Water Authority v Carey:79 in this case the court was simply concerned with the allocation of liability in the main contract. A  subcontractor was faced with a claim in tort in relation to defective work and materials resulting in the failure of a sewage works scheme. A clause in the contract put certain obligations on the main contractors in relation to making good defects arising within 12 months of completion and stated that the main contractor and its sub-contractors, servants or agents were not otherwise to be liable. The judge regarded the ‘contractual setting’ as relevant to the consideration of whether the sub-contractors owed the plaintiffs a duty of care as it indicated ‘the extent of the liability’ which the plaintiffs wished to impose and he saw no reason why ‘such limitation should not be honoured’.80

Contracts (Rights of Third Parties) Act 1999, s 7(1).

76

Law Commission Report at 5.10.

77

Southern Water Authority v Carey [1985] 2 All ER 1077; Norwich City Council v Harvey [1989] 1 All ER 1180, CA; Marc Rich & Co v Bishop Rock Marine, The Nicholas H [1995] 3 All ER 307, HL; British Telecommunications plc v James Thomson and Sons (Engineers) Ltd [1999] 2 All ER 241, HL.

78

[1985] 2 All ER 1077.

79

[1985] 2 All ER 1077 at 1086.

80

484

Chapter 5  Exemption clauses and third parties

•

Norwich City Council v Harvey:81 In this case, the allocation of the need to insure in the main contract played a part in determining whether the sub-contractor owed a duty of care. The terms in the main contract were reflected in those between the main contractor and the sub-contractor. The plaintiff building owners contracted with the main contractors for the extension of a swimming pool complex using a JCT standard form of local authority building contract (1963 edition). Clause 20(c) of the building contract put the sole risk of, inter alia, fire damages on the building owner and stated that it would insure. The main contractors subcontracted with the defendants and their contract identified the form of the main contract and was on the same terms, expressly stating that clause 20(C) was included. The Court of Appeal took the view that it was:82 ‘clear that as between the employer and the main contractor the former accepted the risk of damage by fire to its premises arising out of and in the course of the building works. Further although there is no privity between the employer and the sub-contractor, it is equally clear from the documents passing between the main contractors and the sub-contractors … that the sub-contractors contracted on a like basis’.

On the ‘basis of what [was] just and reasonable’, the lack of privity did not prevent the sub-contractors from ‘relying on the clear basis on which all the parties contracted’,83 and no duty of care was found. •

Marc Rich & Co v Bishop Rock Marine, The Nicholas H:84 In this case there were a complex set of standard arrangements for limitations of liability and concomitant insurance cover were the background against which the duty of care of a third party needed to be considered. The surrounding contractual structure was seen as preventing a duty of care arising between cargo owners and the classification society whose surveyor had recommended temporary repairs to deal with a fault in the vessel carrying the cargo owner’s goods. (The temporary repairs failed after a day and the ship sank with the loss of all the cargo.) It was not regarded as ‘fair just and reasonable’ for a duty of care to exist between the classification society and the cargo owners as, inter alia, it would upset the complex balance of liability set up by the Hague Rule and Hague Visby Rules and the concomitant insurance arrangements. The ‘international trade system’ was seen as ‘tending to militate against recognition of the claim in tort’.85 The ‘lesser injustice’ was viewed as being done ‘by not recognising a duty of care’.

[1989] 1 All ER 1180, CA.

81

[1989] 1 All ER 1180 per May LJ at 1187.

82

[1989] 1 All ER 1180 per May LJ at 1187.

83

[1995] 3 All ER 307.

84

[1995] 3 All ER 307 per Lord Steyn at 331.

85

485

Chapter 5  Exemption clauses and third parties

•

British Telecommunications plc v James Thomson and Sons (Engineers) Ltd:86 By contrast in this case a close analysis of the terms of the contract, and the impact on insurance coverage, led to the conclusion that a duty of care did arise.87 The defendant subcontractors carried out work on premises of BT, during the course of which the premises were damaged by fire. The main contract allowed for two types of subcontractor, a ‘nominated subcontractor’ and a ‘domestic subcontractor’. Nominated subcontractors were chosen by the architect/supervising officer. The contract between BT and the main contractor specifically required BT to take out insurance in relation to ‘existing structures’ and inter alia fire damage. It also specifically stated that the main contractors and ‘nominated subcontractors’ would be recognised as insured under the policy. The contract between the main contractors and the defendants stated that it was on the same terms as the main contract. The defendants argued that as BT was obliged to insure, that should mean that there was no duty of care. The court said that in deciding if it was fair, just and reasonable that a duty of care exist between the defendant sub-contractors and BT, account had to be taken of all of the terms of the main contract, including the differentiation between nominated and domestic subcontractors. They viewed that differentiation as impacting upon the insurance premium which BT would have to pay in relation to the insurance it was contractually obliged to undertake, ie the premium would be less because of the possibility of a right of subrogation against a domestic subcontractor. That meant that ‘any element of double insurance … was not a sustainable commercial objection’ to BT’s argument that a duty of care existed.

Bailment on terms 5.42 Elder Dempster & Co Ltd v Paterson, Zochonis & Co Ltd88 may be seen as based on the idea of ‘bailment on terms’89. The view was taken that in the circumstances of the case:

[1999] 2 All ER 241, HL.

86

The lower courts had come to the opposite conclusion.

87

[1924] AC 522, HL per Lord Sumner at 564. In Elder Dempster the ship was chartered, but the goods were not those of the charterer. In that case, the bill of lading is normally issued by the ship’s owner and there is normally no question of liability for the charterer. In the Elder Dempster, the master issued bills of lading on a standard form of the charterer and the principal contract of carriage was between the charterer and the goods’ owner. The ship’s owner was in possession of the goods and both charterer and owner were potentially liable but exceptionally the owner had no contract. Against that background, the bailment on terms argument was putting the owner on the same basis as the charterer – the House of Lords regarded it as self evident that the ship’s owner should be protected.

88

See the analysis of Fullager J in Wilson v Darling Island Stevedoring and Lighterage Co Ltd (1955) 95  CLR  43 at 78. See also The Pioneer Container [1994] 2  AC  324 at 340, PC; The Mahkutai [1996] AC 650 at 668, PC.

89

486

Chapter 5  Exemption clauses and third parties ‘the obligations to be inferred for the reception of the cargo for carriage to the United Kingdom amount to a bailment upon terms, which include the exceptions and limitations of liability stipulated in the known contemplated form of the bill of lading’.90

5.43 This approach was ‘given a restrictive treatment’91 in Scruttons Ltd v Midland Silicones Ltd but it is now looked upon more favourably:92 ‘Shippers may be held to have impliedly consented that the sub-bailment to the shipowners should be on terms which included the exemption.’93

5.44 In addition, it would seem that this approach can also carry the burden of an exemption to a third party owner of goods when the relevant clause is in the contract between the bailee and sub-bailee. The ‘owner is bound by the condition if he has expressly or impliedly consented to the bailee making a sub-bailment containing those conditions’.94

Trusts 5.45 In some circumstances, a promise by A to B for the benefit of C could be found to constitute a trust – allowing C  to enforce the promise. At one point, such an approach was favourably regarded as a device to avoid the privity rule, with the necessary intention to create a trust being readily inferred from the intention to benefit the third party.95 However, the finding of a trust disabled the contracting parties from varying their agreement, and there was a clear movement away from such an approach with emphasis being placed upon the need for a ‘clear indication that a trust was intended’.96 In any event, in the context of exemptions, the line has been taken that ‘the conception of a trust attaching to a benefit under an exemption clause extends far beyond conventional limits’.97 [1924] AC 522 per Lord Sumner at 564. See also The Mahkutai [1996] AC 650 at 668: such an argument was ineffective in The Mahkutai to import the jurisdiction clause into the relationship between A and C, on the basis of conflict with the express terms of the bill of lading, and in particular, the Himalaya clause, as it expressly imported some terms to the benefit of C and the express importation was construed as not including the jurisdiction clause.

90

The Mahkutai [1996] AC 650 at 660.

91

The Pioneer Container [1994] 2 AC 324 at 339–340; The Mahkutai [1996] AC 650.

92

The Pioneer Container [1994] 2  AC  324. Singer v Tees & Hartlepool Port Authority [1988] 2 Ll Rep 164.

93

Morris v C W Martin & Sons Ltd [1966] 1 QB 716 per Lord Denning MR at 729, CA.

94

For example Les Affréteurs Réunis SA v Leopold Walford (London) Ltd [1919] AC 801, HL; Fletcher v Fletcher (1844) 4 Hare 67; Lloyd’s v Harper (1880) 16 Ch D  290; Re Flavell (1883) 25 Ch D 89, CA.

95

Law Commission Report at para  2.8; Re Schebsman [1944] Ch  83, CA; Re Engelbach [1924] 2 Ch 348; Vandepitte v Preferred Accident Ins [1933] AC 70, CA; Re Clay’s Policy [1937] 2 All ER 548; Re Foster [1938] 3 All ER 357; Re Sinclair’s Life Policy [1938] Ch 799. But see Darlington Borough Council v Wiltshier (Northern) Ltd [1995] 1 WLR 68 at 75, CA; Don King Productions Inc v Warren [1998] 2 All ER 608.

96

Southern Water Authority v Carey [1985] 2 All ER 1077 at 1083.

97

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Stay of action 5.46 It is not possible to interpret an exemption clause which aims to negate the liability of a third party to a contract as a promise that the third party will not be sued.98 Indirect99 enforcement of an exemption clause for the protection of a third party (C), in a contract between A and B, could be achieved if B  applied to stay A’s action against C. There will need to have been an express or implied promise not to sue and a sufficient interest on B’s part.100

Contracts (Rights of Third Parties) Act 1999 5.47 The 1999 Act is relevant to the situation in which the third party (C) wishes to make use of an exemption clause in the contract between A  and B. Although the 1999 Act generally refers to the rights of the third party to enforce a term, section 1(6) makes it clear that it encompasses the situation in which third parties seek to avail themselves of exclusions or limitations in the contract between A and B. 5.48 As has been indicated by section 1(1), a third party can avail themselves of exemptions if either: (a) the contract expressly provides that the third party may enforce the term; or (b) the term purports to confer a benefit on the third party and on the proper construction of the contract it does not appear that the parties did not intend the term to be enforceable by the third party. 5.49 The latter possibility means that once a third party claimant has established that the relevant term ‘purports to confer a benefit’ upon him: ‘he is entitled to enforce the term directly against the defendant unless the defendant persuades the court that the parties did not intend the term to be enforceable by him’.101

However, the tenor of the Law Commission Report is that exemption clauses which expressly extend their protection to C will normally fall within (a):102 Gore v Van der Lann [1967] 2 QB 31, CA.

98

From C’s perspective.

99

Gore v Van der Lann [1967] 2 QB 31, CA; Snelling v John G Snelling Ltd [1973] QB 87; The Elbe Muru [1978] 1 Ll Rep 206; European Asian Bank v Punjab and Sind Bank [1982] 2 Ll Rep 356 at 369; Neptune and Orient Line v JVC (UK) Ltd ( The Chevalier Roze) [1983] 2 Ll Rep 438 at 443; Deepak Fertilisers & Petrochemical Corp v ICI Chemicals and Polymers Ltd [1999] 1 Ll Rep 387, CA; Homburg Houtimport BV v Agrosin Private Ltd, The Starsin [2003] UKHL 12, [2004] 1 AC 715, [2003] 2 All ER 785

100

Laemthong International Lines Co Ltd v Artis [2005] 2  All ER (Comm) 167 at [22]; Nisshin Shipping Co Ltd v Cleaves & Co Ltd [2004] 1 All ER (Comm) 481.

101

Law Comission Report, para 7.10.

102

488

Chapter 5  Exemption clauses and third parties ‘In our view [s  1(1)(a)] would … cover an exclusion (or limitation) clause designating third parties (eg “C shall be excluded from all liability to A for damage caused in unloading goods”) because an exclusion clause, as a legal concept, has no meaning unless it is intended to affect legal rights and, where the third party is expressly designated as a person whose liability is excluded, the plain meaning of the exclusion clause is that the third party is to have the benefit of it without having to rely on enforcement by the promisee …’.

5.50 Moreover, the contract drafter when drafting a contract can include wording that a third party shall have the right to enforce exclusion or limitation clauses where such clauses refer to the third party. However, for third parties to be able to rely on the 1999 Act, there must be sufficient express reference to the third parties for the situation to fall within section 1(1)(a) or (b). For example: • in the situation in which B, a carrier, contracts for the carriage of A’s packages, on the basis that their value is ‘deemed to be not over £100 unless declared’, than in the absence of any reference to the subcontractor (C), who undertakes the delivery for B, C will not be able to make use of the 1999 Act to rely on such a clause in the face of negligent loss of a package of A’s which is worth £1,000;103 •

more significantly, an employee (C), will not be able to make use of the 1999 Act to rely on an exemption clause in a contract between A and his, or her, employer in the absence of sufficient reference to employees for the situation to fall within section 1(1).

5.51 In the light of this second example, it would seem that the English courts may still develop the common law in this area to encompass a type of ‘vicarious immunity’ along the same lines as the Canadian Supreme Court in London Drugs Ltd v Kuehne and Nagel International Ltd.104 The 1999 Act specifically states that it ‘does not affect any right or remedy of a third party that exists or is available apart from this Act’105 and, as indicated above,106 if A  is able to sue the employee, C, the contractual allocation of risk is defeated. 5.52 Where the third party, C, seeks to rely on an exemption clause in the contract between A and B, the question may arise as to the application of the

Law Commission Report, para 7.44.

103

(1992) 97 DLR (4th) 261. See 5.40.

104

1999 Act 1999, s 7(1). Law Commission Report, para 5.10.

105

See 5.17.

106

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Chapter 5  Exemption clauses and third parties

UCTA. It would seem that the UCTA will apply in this context.107 Section 3(6) states: ‘Where in any proceedings brought against him a third party seeks in reliance on s 1 to enforce a term of the contract (including, in particular, a term purporting to exclude or limit liability), he may not do so if he could not have done so (whether by reason of any particular circumstances relating to him or otherwise) had he been a party to the contract’.

5.53

If A is suing C in tort, for negligence:

‘the Unfair Contract Terms Act 1977 applies so as to render the clause void under s 2(1) (as regards negligently caused death or personal injury) or valid only so far as reasonable between the contracting parties under ss 2(2) and 11(1)’.108

Third parties and the burden of a clause 5.54 The doctrine of privity of contract will normally prevent a contract placing a burden on a third party. In this context, that means that where there is an exemption clause in a contract between A and B, A will not normally be able to rely on it in relation to an action by a third party, C.109 However, as has been indicated, A may be able to obtain the protection of the clause if the situation •

is that of a ‘bailment on terms’;110 and also

•

is where the clause prevents, or restricts, the duty of care arising between A and C.111

5.55 Additionally, and exceptionally, the possibility of an implied contract between A and C may also arise. In the stevedore–consignee situation (where the consignee was not a party to the contract in the bill of lading) an implied contract was found on the basis of the consignee’s acceptance of the bill of lading and request for delivery of the goods.112

But not when C is trying to enforce a positive benefit in the contract between A and B, relying on the proposed legislation, and A is seeking to rely on an exemption clause in A’s contract with B.

107

Law Commission Report, para 13.11. It would be in keeping with the approach taken in the section to other ‘defences’ for A, if the clause was ineffective if judged on the basis either of the contracting parties or as between A and C. See also Law Commission Report, para 10.22.

108

For example Haseldine v C  A  Daw & Sons Ltd [1941] 2  KB  343, CA; Leigh & Sillivan Ltd v Aliakmon Shipping Co Ltd, The Aliakmon [1986] AC 785, HL.

109

See 5.42.

110

See 5.40.

111

The Eurymedon (New Zealand Shipping Co Ltd v A M Satterthwaite & Co Ltd) [1975] AC 154, PC (see now the Carriage of Goods by Sea Act 1992) by analogy with Brandt v Liverpool, Brazil and River Plate Steam Navigation Co Ltd [1924] 1 KB 575, CA. But see Scruttons Ltd v Midland Silicones Ltd [1962] AC 446, HL; Leigh & Sillivan Ltd v Aliakmon Shipping Co Ltd, The Aliakmon [1986] AC 785, HL.

112

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Chapter 5  Exemption clauses and third parties

5.56 However, consideration must also be given to the 1999 Act in this context. That legislation is relevant where C  relies on it to claim a benefit under the contract between A  and B  and the promisor, A, seeks to rely on an exemption clause in the contract. In that situation, the exemption clause may be seen as a condition attaching to the benefit – ie the benefit to C is conditional on the exemption clause operating and C cannot claim the benefit without account being taken of the exemption clause. The Law Commission took the view that:113 ‘A very important example of a condition being attached to the benefit enforceable by the third party (C) is where in the contract between A and B benefiting C, there is a clause excluding or limiting A’s liability to C. C’s right to enforce A’s promise under our proposed Act must be subject to the exclusion or limitation clause.’

The general non-application of the UCTA to exemption clauses in that type of situation is considered below.114

Defences and exemption clauses used against a third party claiming a benefit under the Act 5.57 It is necessary to consider the situation where C uses the 1999 Act to sue, on the basis of the benefit that C is to receive under the contract between A and B. In particular, the defences available to the promisor, A. Subject to the parties agreeing otherwise,115 1999 Act, section 3(2) deals with the situation in relation to any matter of defence or set-off that would have been available to A (the promisor) against B (the promisee). It states: ‘The promisor shall have available to him by way of defence or set-off any matter that (a) arises from or in connection with the contract and is relevant to the term, and (b) would have been available to him by way of defence or set-off if the proceedings had been brought by the promisee’.

5.58 Similarly, and again subject to the parties agreeing otherwise,116 1999 Act, section 3(4) deals with matters of defence, set-off, or counterclaim that would have been available against the third party, C, if C had been a party to the contract. It states: ‘The promisor shall also have available to him (a) by way of defence or set-off any matter, and

Law Commission Report, para 10.30. Compare Britain & Overseas Trading (Bristles) Ltd v Brooks Wharf & Bull Wharf Ltd [1967] 2 Ll Rep 51.

113

See 5.60.

114

The 1999 Act, s 3(3).

115

The 1999 Act, s 3(5).

116

491

Chapter 5  Exemption clauses and third parties (b) by way of counterclaim any matter not arising from the contract, that would have been available to him by way of defence or set-off or as the case may be, by way of counterclaim against the third party if the third party had been a party to the contract.’

5.59 However, what is of specific concern here, is the situation in which the contract between A and B contains an exemption clause. Provided that it is appropriately drafted, A may seek to rely upon it when C takes action on the contract under the 1999 Act.

Application of Unfair Contract Terms Act 1977 5.60 One question is whether C, in turn, will be able to rely on UCTA. For the purposes of enforcing a benefit in A and B’s contract, the 1999 Act does not treat C as a contracting party on any general basis. The view taken by the Law Commission was that, without amendment, UCTA is not, for the most part, appropriately drafted to be used by C to strike down an exemption clause relied upon by A.117

Application of Unfair Contract Terms Act, section 3 5.61

UCTA, section 37, for example:

‘applies as between contracting parties where one of them … on the other’s written standard terms of business’

and means that, in simple terms: ‘as against that party the other cannot’ rely on an unreasonable exemption clause. 5.62 In other words, on the drafting of the section, there is no scope for C to rely upon it to render ineffective an exemption clause in the contract between A and B, and used by A in C’s action under the 1999 Act. The wording of the provisions of UCTA generally provide a barrier to C’s use.

Application of Unfair Contract Terms Act, section 2 5.63 However, the position as regards UCTA, section 2 was regarded as somewhat different118. That section applies to attempts to exclude or restrict liability for negligence and the point was made that negligence here means, inter alia:

Law Commission Report, para 13.9. See also 1999 Act, s 7(5): ‘A third party shall not, by virtue of s 1(5), 3(4) or (6), be treated as a party to the contract, for the purposes of any other Act (or any instrument made under any other Act)’. These provisions relate to the availability of remedies to the third party and the promiser.

117

Law Commission Report, para 13.12.

118

492

Chapter 5  Exemption clauses and third parties ‘the breach of any obligation, arising from the express or implied term of a contract, to take reasonable care or exercise reasonable skill in the performance of the contract’.119

5.64 On this approach, the view can be taken that, prima facie, UCTA, section 2 could be applied in the situation in which C takes action under the 1999 Act, if A’s defective performance in relation to the relevant benefit to C involves negligence.120 However, UCTA, section 2 applies to two different situations: • where the liability it is sought to exclude or restrict is for negligently caused death or personal injury (UCTA, section 2(1)); and •

where the liability is for other negligently caused loss or damage (UCTA, section 2(2)).

5.65 The 1999 Act is expressly drafted to prevent UCTA, section 2(2) being used in relation to an exemption clause in the situation under consideration here. 1999 Act, section 7(2) states: ‘Section 2(2) of the Unfair Contract Terms Act 1977 (restriction on exclusion etc of liability for negligence) shall not apply where the negligence consists of the breach of an obligation arising from a term of the contract and the person seeking to enforce it is a third party acting in reliance on s 1.’

5.66 Obviously, on the above reasoning, UCTA, section 2(1) remains available to the third party, C, where the liability in question is for negligently caused death or personal injury. In addition, it should, of course, be emphasised that the ousting of section 2(2), in relation to ‘other’ types of negligently caused loss or damage, will only apply where C’s action is based on the 1999 Act. If C sues A in tort, then UCTA, section 2 will apply as usual to any exemption or disclaimer used by A. 5.67 Brief mention should also be made of the applicability of the Consumer Rights Act 2015 where C sues A and A seeks to rely on an exemption in his, or her, contract with B. The Law Commission took the view that: ‘Although we venture this argument with some diffidence, as the correct interpretation is far from clear, it appears that the Unfair Terms in Consumer Contracts Regulations 1994 [now 1999] implementing EEC  Council Directive 93/13, are inapplicable to conditions on, or exclusions of, a third party’s rights.’

5.68 They viewed the then in force Unfair Terms in Consumer Contracts Regulations 1994 as inapplicable, giving the example of what is now Consumer Rights Act 2015, sections 62(1) and 67, ie  ‘An unfair term of a consumer contract is not binding on the consumer.’ Again, the wording is seen as inappropriate for application to the third party situation.

UCTA, s 1(1)(a). But consider the wording of s 2.

119

Law Commission Report, para 13.12. But see para 13.12 fn 12 and s 7(5).

120

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Chapter 5  Exemption clauses and third parties

5.69 Finally, it is worthwhile giving some brief further consideration to the approach recommended by the Law Commission as to the non-applicability of the UCTA in this context. The Law Commission recognised the existence of arguments that ‘as a matter of policy, the Unfair Contract Terms Act 1977 ought to be extended to cover such a situation’. That otherwise: ‘… third parties would be left exposed to unreasonable exclusion clauses; third parties might be ‘deceived’ as to their entitlement: and one would be producing an ‘uneven’ law whereby, in an action by the promisee to enforce the promise by the third party, s 3 of the Unfair Contract Terms Act 1977 would apply whereas, in our proposed direct action by the third party, the Unfair Contract Terms Act 1977 would not apply’.

5.70 However, as has been indicated, despite these arguments, the Law Commission did not recommend the extension of UCTA to the third party situation, and the 1999 Act expressly excludes the operation of UCTA, section 2(2) which was seen as applicable without amendment.121 The reason for that approach was primarily the importance placed upon the intention of the parties as the basis for the rights which will be conferred on the third parties by the proposed legislation. In the view of the Law Commission, to apply UCTA in the circumstances here being considered would ‘cut across that essential basis of our reform’.122 In response to that, it is possible to make the point that with standard form contracts, and artificiality of drafting and incorporation of clauses, giving full effect to an exemption clause may well be a less true reflection of the parties’ intention, than if UCTA was applied. However, the Law Commission also pointed out the difficulties in deciding on the precise ‘extent and form’ of any amendments to UCTA123 and that they did not want to jeopardise the reform as a whole by making it more controversial. They said:124 ‘as a matter of practical politics, one step should be taken at a time. To reform the privity doctrine to reflect the contracting parties’ intentions is to take a relatively uncontroversial step. To combine that with an amendment which would in certain circumstances prevent promisors contracting out of conferring rights on third

1999 Act, s 7(2), above.

121

Law Commission Report, para 13.10 (i).

122

Law Commission Report, para 13.10 (vii): ‘If we were to recommend reform of the Unfair Contract Terms Act 1977, some difficult questions of policy would be raised as to the precise extent and form of the amendments. In particular, we would have to decide whether reasonableness should be judged as between the promisor and the promisee or as between the promisor and the third party. And we would have to decide whether one can sensibly apply to third parties the notion of “dealing as consumer” in UCTA. We might also be forced to deal, in respect of UCTA sections 6–7, with tricky problems relating to the exclusion of implied terms in contracts for the sale of goods: for example, it is not obviously clear that all contracts in which goods are bought for the benefit of third parties are classified as contracts of sale. Without the benefit of consultees’ views, we could prefer not to tamper with the definition of a contract of sale but this might be unavoidable if ss 6–7 were extended to cover claims by third parties’.

123

Law Commission Report, para 13.10 (viii).

124

494

Chapter 5  Exemption clauses and third parties parties is much more controversial and might jeopardise the acceptance of our central reform’.

5.71 Of course, if UCTA was applicable in this context, it would again raise questions as to whether or not a relevant clause is an exclusion clause falling within that Act or a clause showing that the parties did not intend to confer an enforceable benefit on the third party, ie  whether the clause was to be treated as an exclusion clause or as part of the definition of the contractual obligations.125 However, the Law Commission did emphasise that to an extent exemption clauses are controlled by the common law rules as to incorporation and construction,126 noting127 as particularly interesting the reference to a ‘contractual principle of dealing in good faith’ in the judgment of Bingham LJ in Interfoto v Stiletto Visual Programmes.128 In addition, attention has already been drawn to the fact that the Law Commission did not want its ‘relatively conservative and moderate measure’ to ‘hamper judicial development of third party rights’.129 In particular stating that ‘Should the House of Lords decide that in a particular sphere our reform does not go far enough and that, for example, a measure of imposed consumer protection is required … we would not wish our proposed legislation to be construed as hampering that development.’130

See 3.54. In this context it might be necessary to provide for some clauses in the form of exemption clauses to be treated as clauses defining the obligation and so as falling outside of UCTA – at the moment the only substance/form provision within UCTA relates to the application of the Act to clauses not in the form of exemption clauses but in the form of part of the definition of the obligation.

125

Law Commission Report para 13.10 (iv).

126

Law Commission Report para 13.10 (iv), fn 10.

127

[1989] QB 433: in the context of a discussion of the ‘red hand rule’ on incorporation, see 1.75.

128

1999 Act, s 7(1): ‘Section 1 does not affect any right or remedy of a third party that exists or is available apart from this Act’.

129

Law Commission Report, para 5.10.

130

495

Chapter 6 Misrepresentation and exemptions1

Introduction6.1 Fraud  6.2 Construction  6.6 Clauses denying the requirements for a misrepresentation 6.8 Clauses denying representation by agent 6.24 Misrepresentation Act 1967, section 3 6.27 Reasonableness6.33 The Consumer Rights Act 2015 6.39

Introduction 6.1 As with breach, a clause may exclude or restrict liability for misrepresentation, or purport to. The clause may exclude or restrict rescission2 as well as damages and, as with other exemption clauses, questions of incorporation3 and construction4 can also arise. However, it is necessary to address a particular common law approach to clauses involving fraud5 as well as exemption clauses dealing with misrepresentation which are subject to the requirement of reasonableness by Misrepresentation Act 1967 (1967 Act), section 3.6 In addition, this chapter also gives consideration to Consumer Rights Act 2015 (CRA).7

For the effect of misrepresentations as to the scope of exemption clauses in signed contracts see para 1.10.

1

The argument that a clause in a contract which prima facie, absent any consideration of the clause, could be rescinded for misrepresentation, cannot remove the right to rescind because the clause is part of the contract which is to be rescinded, has not met with success: Toomey v Eagle Star Ins Co Ltd (No 2) [1995] 2 Ll Rep 88 at 91; Pan Atlantic v Pine Top Ins Co [1993] 1 Ll Rep 496, CA; Boyd & Forrest v Glasgow & South Western Rly Co 1915 SC (HL) 20; Anstey v British National Premium Life Assn Ltd (1908) 24 TLR 871.

2

On the incorporation of clauses see Chapter 1.

3

On construction of exemption clauses generally see Chapter 2. On some particular issues see para 6.6.

4

See para 6.2.

5

As amended by Unfair Contract Terms Act 1977, s 8. See para 6.27.

6

See para 6.39.

7

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Chapter 6  Misrepresentation and exemptions

Fraud 6.2 As a matter of policy, an exemption clause cannot operate to exclude or restrict liability for fraud that the perpetrator of the fraud committs,8 because: ‘…fraud is a thing apart. This is not a mere slogan. It reflects an old legal rule that fraud unravels all: fraus omnia corrumpit [fraud corrupts all]. It also reflects the practical basis of commercial intercourse. Once fraud is proved, ‘it vitiates judgments, contracts and all transactions whatsoever’: Lazarus Estates Ltd v Beasley [1956] 1 All ER 341 at 345, [1956] 1 QB 702 at 712 per Denning LJ. Parties entering into a commercial contract will no doubt recognise and accept the risk of errors and omissions in the preceding negotiations, even negligent errors and omissions. But each party will assume the honesty and good faith of the other; absent such an assumption they would not deal.’9

6.3 It is unclear whether an appropriately worded clause can be effective where the fraud is that of an employee or agent,10 and the issue was left open in HIH Casualty and General Insurance v Chase Manhattan Bank.11 It is plain that while if it is possible to have a clause which is effective to exclude or restrict the liability of an employee or agent, but to do so it will be necessary to state that intention in very clear terms: ‘Precisely what statements are covered by a non-reliance clause is a question of construction of the clause. But this is subject to the important principles that, as a matter of public policy, a contracting party cannot exclude liability for his own fraud; and that if he wishes to exclude liability for the fraud of his agent he must do so in clear and unmistakable terms on the face of the contract.’12

and in HIH  Casualty and General Insurance v Chase Manhattan Bank Lord Bingham said:13 ‘It is in my opinion plain beyond argument that if a party to a written contract seeks to exclude the ordinary consequences of fraudulent or dishonest misrepresentation by his agent, acting as such, inducing the making of the contract, such intention must be expressed in clear and unmistakeable terms on the face of the contract … General words, however comprehensive the legal analyst might find them to be, will not serve: the language used must be such as will alert a commercial party

S  Pearson & Son v Dublin Corpn [1907]  AC  351 at 356, 362, 365, HL. See also Schneider v Heath (1813) 3 Camp 506; Garden Neptune Shipping Ltd v Occidental Worldwide Investment Corpn [1990] 1 Ll Rep 330; Skipskredittforeningen v Emperor Navigation [1997]  CLC  1151 at 1165; HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6, [2003], [16].

8

HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6 at [15].

9

John Carter (Fine Worsteds) Ltd v Hanson Haulage (Leeds) Ltd [1965] 1  All ER  113, CA (case dealing with liability of carrier for theft of goods by employee in the light of a limitation clause). Pearson & Son Ltd v Dublin Corp [1907] AC 351, HL per Lord Loreburn LC at 354: ‘I will not say that a man himself innocent may not in any circumstances, however peculiar, guard himself by apt and express clauses from liability for the fraud of his own agents’. Skipskredittforeningen v Emperor Navigation [1997] CLC 1151 per Mance J at 1165: ‘As a matter of public policy it is generally impermissible to exclude liability for personal fraud. The position differs in relation to fraud of employees, but even so such an exclusion would require clear wording’. But see Schneider v Heath (1813) 3 Camp 506.

10

[2003] 1 All ER (Comm) 349.

11

FoodCo LLP v Henry Boot Developments Ltd [2010] EWHC 358 (Ch) at [166].

12

[2003] 1 All ER (Comm) 349 at [16].

13

497

Chapter 6  Misrepresentation and exemptions to the extraordinary bargain he is invited to make. It is no doubt unattractive for a contracting party to propose a term clearly having such effect, because of its predictable effect on the mind of the other contracting party…’

6.4 A clause may be seen as contemplating ‘honesty on both sides and protect[ing] only against honest mistakes’.14 When the literal meaning of the words: ‘no error, misstatement or omission in any preliminary answer … shall annul the sale’

could have been seen as worded to preclude a purchaser: ‘obtaining rescission, even though the misstatement or omission was deliberately fraudulent on behalf of the vendor’

a court stated that ‘plainly that cannot have been the intention’15. However, it has been indicated that an approach which leans against finding that a clause should be seen as intended to cover fraud is not appropriate where what is in question is the scope of the clause for the purposes of determining its reasonableness under 1967 Act, section 3.16 6.5 However, some it is necessary to give some consideration to anti-setoff clauses. The courts have been prepared to accept that an anti-set-off clause could prevent one party claiming set-off on the basis of the other’s fraud.17 An anti-set-off clause does not remove the right to rescind or claim damages for misrepresentation and the approach has been taken that such a clause ‘does not purport to exclude or limit liability’ but merely ‘defines the extent of the obligation to pay’.18 In Society of Lloyd’s v Leighs, there was seen to be no difficulty in interpreting the clause as applying to fraud as there was little other scope for liability.19 What was in question in relation to the anti-set-off

S Pearson & Son Ltd v Dublin Corpn [1907] AC 351 at 354.

14

Walker v Boyle [1982] 1 All ER 634 at 641. A clause stating ‘The properties are believed to be correctly described and any incorrect statement, error or omission in the particulars shall not annul the sale’ could ‘have no operation where the operation was to the knowledge of the vendor incorrect’ because of its initial assertion as to the belief of the vendor – Re Englefield Holdings Ltd [1962] 3 All ER 503 at 506. An analogy with the Canada Steamship rules (see 2.64) has been denied in relation to whether a clause covers fraud as well as negligence – Thomas Witter v TBP Industries [1996] 2 All ER 573, (1994) Tr L 145 per Jacob J at 170.

15

Thomas Witter v TBP Industries [1996] 3 All ER 573 at 598, but see Zanzibar v British Aerospace [2000] 1 WLR 2333. See 2.31.

16

Society of Lloyd’s v Leighs [1997] CLC 1398, CA; WRM Group Ltd v Wood [1998] CLC 189, CA. See also Skipskredittforeningen v Emperor Navigation [1997] CLC 1151.

17

Society of Lloyd’s v Leighs [1997]  CLC  1398 at 1407, CA. See also WRM  Group Ltd v Wood [1998] CLC 189 at 192.

18

[1997] CLC 1398 at 1408. An analogy with the Canada Steamship (see 2.64) rules has been denied in relation to the question of whether an anti-set-off clause covered fraud as well as negligence: Skipskredittforeningen v Emperor Navigation [1997]  CLC  1151 at 1165; Society of Lloyd’s v Wilkinson (No 2) [1997] CLC 1012; Continental Illinois National Bank v Papanicolaou, The Fedora [1986] 2 Ll Rep 441.

19

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clauses was not proven fraud, but merely claims of fraud.20 Despite the fact that anti-set-off clauses have been seen as not excluding or limiting liability at common law, they fall within the ambit of the Unfair Contract Terms Act 1977 (UCTA)21 and section 3 of the 1967 Act22 and in the consumer context it is necessary to consider CRA.23

Construction 6.6 The general rules of interpretation apply in the context of exemption clauses dealing with misrepresentation as elsewhere.24 It is possible to consider particular examples, but it is necessary to bear in mind the general change in the approach to interpretation recognised in Investors Compensation Scheme Ltd v West Bromwich Building Society.25 A clause stating: ‘This contract is neither cancellable or voidable’

was held to exclude the right to rescind the contract for material misrepresentation or material non-disclosure but, applying the rule from the Canada Steamship case,26 only where that misrepresentation or non-disclosure occurred without negligence.27 When a claim was made for damages for misrepresentation as to the deadweight capacity of a barge, the owners sought to rely upon a clause stating:28 ‘On handing over by the Owners the vessel shall be tight, staunch and strong but Charterers’ acceptance of handing over the vessel shall be conclusive that they have examined the vessel and found her in all respects seaworthy, in good order and condition and in all respects fit for the intended and contemplated use by the Charterers and in every way satisfactory to them.’

6.7 The clause was seen as restricted to ‘such attributes of the vessel as would be apparent on an ordinary examination of the vessel’ which did not

See WRM Group Ltd v Wood [1998] CLC 189 at 196.

20

Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] 2 All ER 257, CA; Schenkers v Overland Shoes Ltd [1998] 1 Ll Rep 498.

21

Skipskreditforeningen v Emperor Navigation [1997]  CLC  1151. But see WRM  Group v Wood [1998] CLC 189: it was conceded that Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] 2 All ER 257 precluded an argument in that court that s 3 did not apply but they reserved the right to raise the point if the matter went to a higher court.

22

See para 6.39.

23

See Chapter 2.

24

[1998] 1 All ER 98. See para 2.1.

25

Canada Steamship Lines Ltd v R [1952] AC 192 at 208, PC; ie a clause not expressly referring to negligence, but prima facie wide enough to cover negligence is less likely to be found to do so where there is another ‘non-fanciful’ basis of liability for it to be taken to refer to. On this rule generally see 2.74.

26

Toomey v Eagle Star Ins Co Ltd (No 2) [1995] 2 Ll Rep 88.

27

Howard Marine & Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd [1978] 2 All ER 1134, CA.

28

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include the deadweight capacity.29 A clause stating that the written contract constitutes ‘the entire agreement and understanding between the parties …’ was held not to refer to misrepresentations.30 A misrepresentation made prior to contract has been seen as not coming within a clause merely referring to a ‘warranty or guarantee’.31

Clauses denying the requirements for a misrepresentation 6.8 Sometimes clauses attempt to produce the situation in which it will be found that there was no misrepresentation, rather than simply stating that they exclude or restrict liability for misrepresentation. More recent versions of these clauses have met with theoretical success, although as will be seen the factors on which they rely to be effective are unlikely to be found. Some of the earlier clauses will first be considered. 6.9 A clause in auction particulars attempted to prevent the reliance by the representee which is necessary for there to be a misrepresentation. The clause stated:32 ‘any intending purchaser must satisfy himself by inspection or otherwise as to the correctness of any statement contained in the particulars’,

the court nevertheless found that there was reliance on the particulars and that, in any event, the clause was subject to the requirement of reasonableness under 1967 Act, section 3.33 Similarly, an attempt to turn a statement of fact into one of opinion, which would put it outside of the requirements of a misrepresentation,34 was also unsuccessful. The clause: ‘these replies are believed to be correct but their accuracy is not guaranteed. They do not obviate the need to make appropriate searches and inquiries and inspections’

was not sufficient to protect the vendors from a claim of misrepresentation in their ‘replies to inquiries’ in relation to the sale of land.35 The court stated:36 ‘This may be a warning to a purchaser’s solicitor to do what any experienced solicitor would know was his duty and make appropriate searches, inquiries and inspections,

Howard Marine & Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd [1978] 2 All ER 1134, CA per Bridge LJ at 1147. But see Lord Denning MR at 1143.

29

Alman and Benson v Associated Newspapers Group Ltd (20  June 1980, unreported), BrowneWilkinson J. See also 2.158–2.177 for consideration of misrepresentation and entire agreement clauses.

30

Thompson v Sayed Ali (21 March 1994, unreported).

31

South Western General Properties v Marton [1982] 2 EGLR 19.

32

ibid.

33

Bisset v Wilkinson [1927] AC 177.

34

Walker v Boyle [1982] 1  All ER  634; Cooper v Tamms [1988] 1  EGLR  257; McCarthy v George (15 January 1991, unreported).

35

Walker v Boyle [1982] 1 All ER 634 per Dillon J; Cooper v Tamms [1988] 1 EGLR 257 at 263.

36

500

Chapter 6  Misrepresentation and exemptions but it cannot prevent the answers given from being representations of fact. Any vendor will know that that is the object of asking the questions, and will know that the answers are likely to be relied on. A person who makes a representation of fact cannot negative the representation by words such as those in the small print …’.

Such clauses cannot turn statements of fact into mere statements of opinion on which a misrepresentation cannot be based.37 6.10 However, whilst previous forms of clause had basically proved unsuccessful in this context,38 the more recent, and theoretically more successful, approach has been to make use of a ‘non-reliance’ clause (or a ‘non-reliance’ element in an entire agreement clause39) such as: ‘The parties agree … that no statement or representations made by either party have been relied upon by the other in agreeing to enter into the contract’.40

6.11 In cases such as Grimstead v McGarrigan41 and Watford Electronics v Sanderson42 the view was taken that: ‘an acknowledgement of non-reliance … is capable of operating as an evidential estoppel’.

So that: ‘[it] is apt to prevent the party who has given the acknowledgment from asserting in subsequent litigation against the party to whom it has been given that it is not true’.43

6.12 Later case law has indicated that only clear wording that a party has not made any representations, or that a party has not relied on any representations, will be effective: ‘No doubt all such cases are only authority for each clause’s particular wording: nevertheless it seems to me that there are certain themes which deserve recognition. Among them is that the exclusion of liability for misrepresentation has to be clearly stated. It can be done by clauses which state the parties’ agreement that there have been no representations made; or that there has been no reliance on any representations; or by an express exclusion of liability for misrepresentation. However, save in such contexts, and particularly where the word ‘representations’ takes its place alongside other words expressive of contractual obligation, talk of

See also McCarthy v George (15 January 1991, unreported).

37

Thomas Witter Ltd v TBP Industries Ltd [1996] 2 All ER 573 at 597. See also Walker v Boyle [1982] 1 All ER 634; Cooper v Tamms [1988] EGLR 257 at 263. But see McGrath v Shah (1987) 57 P & CR 452 at 459–461.

38

On ‘entire agreement clauses’ seeking to prevent the finding of terms additional to those in the written contract document, see para 2.133.

39

Watford Electronics v Sanderson [2001] 1  All ER (Comm) 696. But see Thomas Witter Ltd v TBP Industries Ltd [1996] 2 All ER 573.

40

[1999] Lexis Citation 3338, [1999] All ER (D) 1163.

41

[2001] 1 All ER (Comm) 696.

42

Grimstead v McGarrigan [1999] Lexis Citation 3338, [1999] All ER (D) 1163, Chadwick LJ. See also Watford v Sanderson [2001] 1 All ER (Comm) 696 at 711.

43

501

Chapter 6  Misrepresentation and exemptions the parties’ contract superseding such prior agreement will not by itself absolve a party of misrepresentation where its ingredients can be proved.’44

6.13

This is seen as requiring:

(i) that the statements (ie as to non-reliance on the (mis)representation) in the clauses were clear and unequivocal; (ii) that the representee had intended that the representor should act upon those statements (as to non-reliance); and (iii) that the representor had believed those statements (as to non-reliance) to be true and had acted upon them.45 The difficulties which may arise in fulfilling those requirements are evident as: • the statements as to non-reliance are often contained in the standard form contract of the representor; and • the statements are used to claim that the representee has asserted its non-reliance that s/he is estopped from proving that s/he relied on a representation. 6.14 The point has been made that those requirements for an evidential estoppel: ‘may present insuperable difficulties, not least because it may be impossible for a party who has made representations which he intended should be relied upon to satisfy the court that he entered into a contract in the belief that a statement by the other party that he had not relied upon those representations was true’46.

The potential for a clause to protect the relevant party from liability for misrepresentation is there, but, in particular, the burden of establishing the necessary belief by the misrepresentor in the misrepresentee’s non-reliance may be considerable.47 In addition, the need for such evidence invites consideration of the parties’ negotiations in a way which is seen as precluded in the interests of certainty when there is an entire agreement clause which is effective to prevent a search for further terms. 6.15 Later case law has also considered whether a clause seeking to exclude liability for a representation might operate as a contractual estoppel

AXA Sun Life Services plc v Campbell Martin Ltd and others and other appeals [2011] EWCA Civ 133, [94]. For example, a clause which states that an agreement supersedes a representation is not likely to be effective to exclude liability for a representation, such as in AXA Sun Life Services or BSkyB  Ltd v HP  Enterprise Services UK  Ltd [2010]  EWHC  86 (TCC), [359]. See para 2.158 for consideration of this point.

44

Grimstead v McGarrigan [1999] Lexis Citation 3338, [1999]  All ER (D) 1163, Chadwick LJ, basing his statement as to the requirements for an evidential estoppel on Lowe v Lombank [1960] 1 All ER 611.

45

Watford Electronics v Sanderson [2001] 1 All ER (Comm) 696 at 711.

46

See also GMAC  Commercial Credit Development Ltd v Sandhu [2004]  EWHC  716 (Comm), [118].

47

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(rather than or in addition to an evidential estoppel, given the difficulties stated immediately above). It seems clear that it is possible for the parties to a contract to regulate the ‘basis’ on which the enter into their contract, that is to set out on what terms they will provide their services or goods,48 which will not amount to an exclusion or limitation of liability: ‘[601]…There is a clear distinction between clauses which exclude liability and clauses which define the terms upon which the parties are conducting their business; in other words, clauses which prevent an obligation from arising in the first place… … [602] Thus terms which simply define the basis upon which services will be rendered and confirm the basis upon which parties are transacting business are not subject to s 2 of UCTA. Otherwise, every contract which contains contractual terms defining the extent of each party’s obligations would have to satisfy the requirement of reasonableness…’.49

6.16 Such a definition of the basis on which the parties enter into a contract can include them: ‘accepting a particular state of affairs even if they know that state of affairs to be untrue …Thus as a matter of contract parties can bind themselves at common law to a fictional state of affairs in which no representations have been made or, if made, have not been relied on’.50

and so creates a contractual estoppel: ‘where parties to a contract have agreed that a certain state of affairs will form the basis of their transactions, they are estopped by their contract from asserting that the true facts were different’.51

Because it is a form of estoppel reached by the parties by entering into their contract, unlike forms, ‘it requires no proof of reliance other than entry into the contract itself’.52

Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland plc [2010] EWHC 1392 (Comm).

48

JP Morgan Chase Bank (formerly known as Chase Manhattan Bank) (a body corporate) and others v Springwell Navigation Corp (a body corporate) [2008] EWHC 1186 (Comm), [601]–[602].

49

First Tower Trustees Ltd and another v CDS (Superstores International) Ltd [2018] EWCA Civ 1396, [47]. Also see JP Morgan Chase Bank v Springwell Navigation Corp [2010] EWCA Civ 1221, [143]; Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland plc [2010] EWHC 1392 (Comm), [230] and Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] EWCA Civ 386, [2006] 1 CLC 582, [56].

50

Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland plc [2010] EWHC 1392 (Comm), [239]. See also Peekay Intermark Ltd and another v Australia and New Zealand Banking Group Ltd [2006] EWCA Civ 386, [56]: ‘Where parties express an agreement of that kind in a contractual document neither can subsequently deny the existence of the facts and matters upon which they have agreed, at least so far as concerns those aspects of their relationship to which the agreement was directed. The contract itself gives rise to an estoppel…’.

51

First Tower Trustees Ltd and another v CDS (Superstores International) Ltd [2018] EWCA Civ 1396, [47] and [96]. Also see the statement by the same judge (Lewison LJ) made in an earlier case that it is not necessary to prove ‘… that he believed the truth of the acknowledgment of nonreliance.’: FoodCo Uk LLP (t/a Muffin Break) v Henry Boot Developments Limited [2010] EWHC 358 (Ch), [171].

52

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6.17 The effect of such a contractual estoppel, subject to the wording of the term in question, is that the reasonableness test under 1967 Act, section 2. However, the term in question has to be a ‘primary obligation’. A  ‘nonreliance’ term which seeks to exclude or limit liability for any representations is unlikely to be a primary obligation, although it might do so depending on the wording of the term in question.53 For example, in First Tower Trustees Ltd and another v CDS (Superstores International) Ltd the following non-reliance clause stated: ‘5.8 The tenant acknowledges that this lease has not been entered into in reliance wholly or partly on any statement or representation made by or on behalf of the landlord.’54

would unlikely be sufficient. In this case Leggatt LJ stated that in principle parties can agree: ‘to give any right to assert that they were induced to enter into [an agreement] by misrepresentation, provided that they make their intention clear’55

but a clause such as the above (which ‘acknowledges’) will not express such an intention, it is necessary to use strong or more explicit wording: ‘If what the parties wish to agree is that A  will not assert in any future dispute that it relied on a representation made by B even if A did in fact rely on such a representation, then it seems to me that this is what the clause ought to say.’56

6.18 Although a ‘no reliance’ clause may be effective as a contractual estoppel as between the parties the 1967 Act, section 3 can, in effect, override whatever the parties have agreed: ‘If A  and B  enter into a contract then, unless there is some principle of law or statute to the contrary, they are entitled to agree what they like. […] there is no legal principle that states that parties cannot agree to assume that a certain state of affairs is the case at the time the contract is concluded or has been so in the past, even if that is not the case, so that the contract is made upon the basis that the present or past facts are as stated and agreed by the parties.’57

6.19 For Lewison LJ in First Tower Trustees Ltd and another v CDS (Superstores International) Ltd,58 in agreeing with this statement, indicated that the application of 1967 Act, section 3 is a ‘statute to the contrary’ as it involves the interpretation of a statute rather than the interpretation of a contract because:

See IFE Fund SA v Goldman Sachs International [2006] EWHC 2887 (Comm), [70]; and William Sindall plc v Cambridgeshire County Council [1994] 3 All ER 932.

53

First Tower Trustees Ltd and another v CDS (Superstores International) Ltd [2018] EWCA Civ 1396, [14].

54

ibid, [94].

55

ibid, [91]. But later in the judgement (at [99]), Leggatt LJ states that a clause drafted in such in way is unlikely to escape control by 1967 Act, s 3.

56

JP Morgan Chase Bank v Springwell Navigation Corp [2010] EWCA Civ 1221, [143].

57

[2018] EWCA Civ 1396, [49].

58

504

Chapter 6  Misrepresentation and exemptions ‘The fact that clause 5.8 of the lease operates as a contractual estoppel does not prevent consideration of this question; not least because section 3 is expressly directed at contract terms.’59

If the effect of the non-reliance clause is to exclude liability for misrepresentation Lewison LJ considered that applying 1967 Act, section 3 is: ‘…to give effect to [1967 Act, section 3’s] evident policy. That policy, in my judgment, is to prevent contracting parties from escaping from liability for misrepresentation unless it is reasonable for them to do so. How they seek to avoid that liability is subsidiary.’60

6.20 Lewison LJ agreed with statements made in the earlier case of Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland plc:61 ‘In that example62 there has been a clear statement of fact, on a matter said to be within the representor’s personal knowledge, which was in fact intended to induce the contract, upon which the purchaser in fact relied, which is false. If s 3 has no application in respect of a contractual estoppel there is no further control mechanism on its operation, which does not require detrimental reliance. The seller (and any other similar seller) may, subject to any applicable consumer protection laws, make non-fraudulent misrepresentations of that type with impunity. In such a situation s  3 is, as it seems to me, applicable because, on those facts, there has been what the person to whom the statement was made would reasonably understand to be a representation, which was intended to be and was in fact relied on. The clause seeks to avoid liability for what, absent the clause, would be a clear liability in misrepresentation. The situation might be different in the unlikely scenario that before he contracts the buyer sees the clause and, eyes wide open, agrees that he is not relying on what he may have been told. … … the essential question is whether the clause in question goes to whether the alleged representation was made (or, I would add, was intended to be understood and acted on as a representation), or whether it excludes or restricts liability in respect of representations made, intended to be acted on and in fact acted on; and that question is one of substance not form.’

6.21 According to First Tower Trustees Ltd and another v CDS (Superstores International) Ltd it appears it is not open to the parties to draft their way out of the operation of 1967 Act, section 3 in their contract where the result

First Tower Trustees Ltd and another v CDS (Superstores International) Ltd [2018] EWCA Civ 1396, [49].

59

ibid [51]. See also Cremdean Properties Ltd and another v Nash and others [1977] 2 EGLR 80.

60

[2010] EWHC 1392 (Comm), [307], [308], [310].

61

The example was in para [306] of the judgement: ‘Suppose, to take a[n] example [of where] a car is sold. The dealer says “I have serviced the car since it was new, it has had only one owner and the clock reading is accurate”. He is not fraudulent but mistaken, carelessly confusing one car for another, in relation to which the statement is true. Relying on his statement the buyer purchases the car. Without it he would not have done so. The car has had several owners, no known service history, and the clock reading is substantially inaccurate. The contract of sale provides (in one of many paragraphs on the back of the form which the buyer does not read and to which his attention is not directed) that the buyer is entering into the contract on the basis that no representations have been made to, or relied on by, the purchaser.’

62

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of a non-reliance clause will be that liability is excluded or limited for any representation. To do so would undermine the policy intent of the 1967 Act. In effect the 1967 Act provides a ‘fail-safe’ mechanism on the parties freedom to contract, that ultimately the courts can test the term as to whether it is a reasonable one to include in the contract in question. Although a party can give up the right to challenge a term which states its agreement to the provisions of the contract was procured by a misrepresentation, the 1967 Act, section 3 will still operate to determine whether such a term satisfies the requirement of reasonableness. The policy intention of the 1967 Act was picked up by Legatt LJ in his judgement in First Tower Trustees Ltd and another v CDS (Superstores International) Ltd: ‘The decision to make section 3 applicable to all contracts induced by misrepresentation, irrespective of the nature and subject matter of the contract and the identity of the contracting parties, is readily understandable. The importance which English law attaches to the freedom of parties to contract on whatever terms they choose depends crucially on the assumption that their consent to the terms of the contract has been obtained fairly. That is not the case where one party’s consent has been induced by a misrepresentation made by the other contracting party. Misrepresentation is a paradigm “vitiating factor” which undermines the validity of a contract. This does not mean that a party cannot choose to give up the right to complain that its consent to the terms of the contract was obtained by misrepresentation. But in so far as a contract term is said to have removed that right, a control mechanism is needed to ensure that this term was a fair and reasonable one to include. That, at all events, is the policy which Parliament has thought it right to adopt. It is the duty of the courts to uphold and not to subvert that policy choice.’63

6.22 As part of the overriding application of 1967 Act, section 3, a number of cases have also considered whether it was possible for the parties to draft their way out of the section operating on a term and clearly they did not belief it was possible to do, for example in the following extracts from 3 cases: ‘Even if, by giving the language of section 3 of the Act a strained interpretation, a distinction could be drawn between a contract term which would exclude liability and a term which would prevent liability from arising, there is no reason to draw such a formalistic distinction and good reason not to interpret section 3 in a way which omits the latter type of term from its scope. The result of doing so would be that a lawyer drafting boilerplate provisions could avoid the application of section 3 purely by the choice of words in which the clause is phrased. A  clause stating that a party will have no liability for any representation made or on which the other party has relied on any view falls within section 3 and is subject to the requirement of reasonableness. But on this interpretation, if instead the clause were worded to say that A agrees not to assert that B has made or that A has relied on any representation, section 3 would not apply. No rational legislator could have intended that the need for a contract term to satisfy a test of reasonableness could be avoided simply by felicity in drafting the contract term.’

First Tower Trustees Ltd and another v CDS (Superstores International) Ltd [2018] EWCA Civ 1396, [96].

63

506

Chapter 6  Misrepresentation and exemptions ‘But I would go further and say that if the ingenuity of a draftsman could devise language which would have that effect, I am extremely doubtful whether the court would allow it to operate so as to defeat section 3. Supposing the vendor included a clause which the purchaser was required to, and did, agree to in some such terms as ‘notwithstanding any statement of fact included in these particulars the vendor shall be conclusively deemed to have made no representation within the meaning of the Misrepresentation Act 1967,’ I should have thought that that was only a form of words the intended and actual effect of which was to exclude or restrict liability, and I should not have thought that the courts would have been ready to allow such ingenuity in forms of language to defeat the plain purpose at which section 3 is aimed.’64  ‘A  term which negates a reliance which in fact existed is a term which excludes a liability which the representor would otherwise be subject to by reason of the representation. If that were wrong, it would mean that s  3 could always be defeated by including an appropriate non-reliance clause in the contract, however unreasonable that might be.’65

6.23 In First Tower Trustees Ltd and another v CDS (Superstores International) Ltd the non-reliance clause in question was held as one which excluded liability for misrepresentation and therefore subject to 1967 Act, section 3.66 Although a non-reliance clause of this type may be effective as a contractual estoppel and subject to 1967, section 3, it does not mean that it will be unreasonable, as such. A court will still need to carry out the evaluative task of determining whether, on the facts of the case, the clause in dispute is or is not reasonable.

Clauses denying representation by agent 6.24 Sometimes it is necessary to question as to whether a clause is sufficient to curtail an agent’s apparent, or ostensible, authority and prevent the principal being liable for the agent’s false statements. In one case in which it was claimed that there had been a misrepresentation by auctioneers, the question was raised as to whether specific performance should be given of a contract for the sale of land.67 The vendors sought to rely on a clause in the general conditions of sale in the auction catalogue to deny that the auctioneers had had any authority to make a representation on their behalf. The clause stated: ‘The vendors do not make or give and neither the Auctioneers nor any person in the employment of the Auctioneers has any authority to make or give any representation or warranty in relation to these properties’.

6.25 The court held that the auctioneers had no actual authority to make representations and that the clause prevented there being any ostensible authority and there was therefore no misrepresentation that the purchasers

Cremdean Properties v Nash [1977] 2 EGLR 80 at 82.

64

Government of Zanzibar v British Aerospace (Lancaster House) Ltd [2000] 1 WLR 2333.

65

First Tower Trustees Ltd and another v CDS (Superstores International) Ltd [2018] EWCA Civ 1396, [67].

66

Overbrooke Estates v Glencombe Properties [1974] 3 All ER 511.

67

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could rely upon. It was denied that 1967 Act, section 3 1967 had any relevance to such a clause.68 The judge stated:69 ‘In my view the section only applies to a provision which would exclude or restrict liability for a misrepresentation made by a party or his duly authorised agent, including of course an agent with ostensible authority. The section does not, in my judgment, in any way qualify the right of a principal publicly to limit the otherwise ostensible authority of his agent.’

6.26 This has been followed subsequently.70 However, circumstances may take a particular case outside such a clause. Where there were errors in the auction particulars and the vendor gave the auctioneer a typed amendment to read out at the auction, it was said that notwithstanding the relevant clause in the particulars (which was the same as above), the auctioneer had authority to make the statement to correct the errors and that the representations made in that statement were the responsibility of the vendors.71 More generally, the point should be made that to treat clauses as merely delimiting an agent’s apparent authority and not as excluding or restricting liability is only appropriate if the interaction between the relevant clause and the circumstances required to generate apparent authority are viewed absent the artificialities which may be present in the contracting process. If the clause is viewed as effective to define the agent’s apparent authority merely because of its contractual status, it is in that situation that it should be viewed as subject to section 3 when a misrepresentation is in question.72 In the consumer context, the application of the Unfair Terms in Consumer Contracts Regulations 1999 should be considered.73

Misrepresentation Act 1967, section 374 6.27 The 1967 Act, section 3 may affect an exemption clause dealing with misrepresentation,75 which states:

But see South Western General Properties v Marton [1982] EGD 113 at 119–120.

68

Overbrooke Estates v Glencombe Properties [1974] 3 All ER 511 at 517.

69

Collins v Howell-Jones [1981] EGD 207, CA; Museprime Properties Ltd v Adhill [1990] 2 EGLR 196.

70

Museprime Properties Ltd v Adhill [1990] 2 EGLR 196.

71

See further para 3.54.

72

See para 6.39.

73

In relation to the application of s  3 of the 1967 Act see, for example, Walker v Boyle [1982] 1  WLR  495: holding condition 17 of the National Conditions of Sale (19th edn) ‘unreasonable’ ; McCarthy v George (15 January 1991, unreported): holding condition 17 of the National Conditions of Sale ‘unreasonable’ in the amended 20th edition; South Western General Properties v Marton (1982) 263 EG 1090; Cooper v Tamms [1988] 1 EGLR 257; Goff v Gauthier (1991) 62 P & CR 388; Garden Neptune Shipping Ltd v Occidental Worldwide Investment Corp and Concord Petroleum Corp [1990] 1 Ll Rep 330, CA per Dillon LJ; White Cross Equipment v Farrell (1982) 2 Tr LR 21; Thompson v Sayed Ali (21 March 1994, unreported).

74

As amended by UCTA, s 8.

75

508

Chapter 6  Misrepresentation and exemptions ‘If a contract contains a term which would exclude or restrict – (a) any liability to which a party to a contract may be subject by reason of any misrepresentation made by him before the contract was made; or (b) any remedy available to another party to the contract by reason of such a misrepresentation that term shall be of no effect except in so far as it satisfies the requirement of reasonableness as stated in s 11(1) of the Unfair Contract Terms Act 1977, and it is for those claiming that the term satisfies that requirement to show that it does’.

6.28 Terms falling within the section are rendered ineffective unless they satisfy the requirement of reasonableness, which is set out in UCTA, section 11.76 The section: ‘only applies where the contract contains a term which would exclude or restrict liability’77 which may be a restriction of limited effect’.78

It covers clauses excluding or restricting: •

liability for pre-contractual misrepresentation; and, also,

•

any remedy for such a misrepresentation.

6.29 It deals with, for example, attempts to exclude the right to rescind, as well as the exclusion or restriction of damages for misrepresentation. On its wording, the 1967 Act, section 3 would seem to cover clauses relating to mere misrepresentations and also clauses dealing with misrepresentations which have also become contractual terms.79 However, even where a clause would encompass misrepresentations, if the claim is made in relation to a breach rather than misrepresentation, it would seem that the 1967 Act, section 3 would have no application. The point has been made that: ‘despite the generality of the phrase “of no effect” [in s 3], the effect of s 3 of the Misrepresentation Act 1967 can only be to invalidate a clause in respect of clams based on misrepresentation. So far as the clause applies … to breach of contract, its validity must be tested under the different scheme of the Unfair Contract Terms Act 1977’.80

On the requirement of reasonableness generally see 3.206. In this context see 6.33. The test has been that of UCTA since 1967 Act, s 3 was amended by UCTA, s 8.

76

McGrath v Shah (1987) 57 P & CR 452 at 461 – emphasis added.

77

Cremdean Properties v Nash [1977]  EGD  63, CA per Bridge LJ at 71–72: ‘he submitted that, it being no part of the contract, s  3 would not apply to it. For my part I  am unable to see how that argument assists [the defendant]. If the [clause] is a term of the contract binding as between plaintiff and defendant, then it is a … term which is counter to s  3 of the Act and therefore ineffective, unless the court trying the action thinks it fair and reasonable … if it is not part of the contract then it is not binding on the plaintiffs and does not help [the defendant]’. Of course, when negligent misstatement is in question, liability may be affected by non-contractual notices, but s  2 of UCTA may then be relevant. However, the additional point can be made that the underlying fact situation, and therefore the existence of a misrepresentation, could be affected by a non-contractual notice; ie a non-contractual notice telling the plaintiff not to rely could result in the absence of reliance in fact.

78

See also 1967 Act, s 1(a).

79

Skipskredittforeningen v Emperor Navigation [1997] CLC 1115 at 1163–1164.

80

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6.30 The operation of 1967 Act is not limited to certain types of contract in the way that UCTA is. UCTA: •

contains provisions which are basically concerned with ‘business liability’;81 and

• puts some contracts outside its scope in whole or in part,82 such as contracts of insurance or for the sale of land.83 6.31 These and other restrictions on the scope of UCTA are not present in the 1967 Act. However, although 1967 Act, section 3 is not restricted in the same way as UCTA, a contract which is outside the scope of UCTA can also mean that 1967 Act, section 3 will not apply to that contract. In Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd84 a contract term excluded liability and also indicated that a party had not made any warranties or representations: ‘The Lessee […] also agrees and acknowledges that save as expressly stated in this Agreement and the other Transaction Documents to which the Lessor is a party, the Lessor has not and shall not be deemed to have made any warranties or representations, express or implied, about the Aircraft, including but not limited to the matters referred to above.’85

6.32 The court held that but for this clause the lessee ‘would have rights in respect of representations’ and the above clause would fall: ‘within the scope of s 3 of the 1967 Act, because they [that is the exclusion of liability and the no representation clause] both purport to exclude or restrict liability for misrepresentations’.86 and: ‘Accordingly, unless the lease agreements are outside the ambit of the 1977 Act because they come within the class of ‘international supply contracts’, those clauses would only be effective if they satisfy the ‘reasonableness’ test set out in s 11 of that Act.’87

The judge concluding that the lease agreements were international supply agreements for the purposes of UCTA, section 26(4)(a) and that the 1967 Act does not apply to them.

Reasonableness 6.33 It is for the party seeking to rely upon the clause to establish that it satisfies the requirement of reasonableness,88 which is the same test as under

UCTA, s 1.

81

See para 3.23.

82

See UCTA, Sch 1.

83

[2008] EWHC 1686 (Comm).

84

ibid, [32].

85

Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd [2008] EWHC 1686 (Comm), [48].

86

ibid, [49].

87

Walker v Boyle [1982] 1 All ER 634 at 644.

88

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UCTA. The ‘time frame’ of assessment under UCTA, section 11(1) is that of the conclusion of the contract, that is it is against the circumstances which were known to, or which should have been known to, the parties at the time of contracting that the ‘reasonableness’ of the clause is assessed.89 This means that the potential scope of a clause may render it unreasonable: ‘The Misrepresentation Act 1967 calls for consideration of the term as such … It does not call for consideration of the term so far as it applies to the misrepresentation in question or to the kind of misrepresentation in question. The term is not severable; it is either reasonable as a whole or not. So one must consider its every potential effect’.90

6.34 However: ‘the court should not be too ready to focus on remote possibilities or to accept arguments that a clause fails the test by reference to relatively uncommon or unlikely situations’.91

the particular parties. For example, in relation to the reasonableness of a standard form clause in auction particulars, account was taken of the fact that the land was being purchased by a builder and not a property speculator.92 As has been indicated, the extent of the coverage of a clause may affect its reasonableness. A clause was regarded as unreasonable which: ‘would exclude liability for a failure to tell the purchaser more than only part of the facts which were among the most material to the whole contract of sale’.93

6.35 More generally, the degree of fault on the part of the misrepresentor which the clause is capable of encompassing may indicate its unreasonableness. A clause which was: ‘drafted to deprive a purchaser of redress for a misrepresentation of fact within the vendor’s own knowledge’

was not seen as satisfying the requirement of reasonableness,94 and it was viewed as ‘inconceivable’ that a clause could be viewed as reasonable which covered a misrepresentation which the misrepresentor did not believe was true.95 In Thomas Witter v TBP  Industries Ltd96 Jacob J  was of the view that because it encompassed fraud a clause would fail to satisfy the requirement

Contrast the earlier version of s 3 which referred to reasonable reliance.

89

Thomas Witter v TBP Industries Ltd [1996] 2 All ER 573 at 598.

90

Skipskredittforeningen v Emperor Navigation [1997] CLC 1151.

91

South Western General Properties v Marton [1982] EGD 113 at 122.

92

ibid: statements as to previous planning applications which were true but misleading because of what they left out were regarded as misrepresentations of a type which it was unreasonable for the clause to cover as they went to the central purpose for which the purchaser was buying the land. There is, in general, no misrepresentation in a mere failure to disclose – half truths are a different matter.

93

Walker v Boyle [1982] 1 All ER 634; McCarthy v George (15 January 1991, unreported).

94

Thomson v Sayed Ali (21 March 1994, unreported).

95

[1996] 2 All ER 573, (1994) Tr L 145.

96

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of reasonableness under UCTA, section 11, as applied by 1967 Act, section 3, and he commented adversely on the idea that it should be construed so as not to encompass fraud. He said:97 ‘A  possible way around this latter objection [ie  the unreasonableness of the clause] would be to construe the clause so that it did not apply to fraudulent misrepresentation. This approach is artificial. It is unnecessary now that the Unfair Contract Terms Act 1977 exists to destroy unreasonable exemption clauses … It is not for the law to fudge a way for an exclusion clause to be valid. If a party wants to exclude liability for certain sorts of misrepresentations, it must spell those sorts out clearly.’

6.36 Practically, entire agreement clauses often now include wording to specifically state that the clause does not exclude liability for fraud to avoid the sort of approach found in Thomas Witter. However, as noted in the final part of the quote from this case, if the parties wish to exclude liability for reliance on representations it is necessary to use clear words.98 However, a clause which covered fraud was seen as reasonable when its effect on the other parties’ rights was small – it was a mere anti-set-off clause.99 6.37 The usage or genesis of a clause may be relevant to its reasonableness. In one case an indication of whether a clause was reasonable was whether there were similar ‘clauses … commonly included by skilful and reputable solicitors’.100 An argument that a clause was reasonable was viewed as having ‘considerable force’ when it was ‘a usual type of clause and … both parties were advised by solicitors’.101 However, the use of standard form clause will not be by be itself reasonable because: •

it has been in use for a long time;102

•

it is in common usage; or

At 598, but see Zanzibar v British Aerospace [2000] 1 WLR 2333. Later case law has taken a step away from such a formalistic analysis and also allowing parties to be free to decide on the basis such as in Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] EWCA Civ 386, [57]; North Eastern Properties v Coleman [2010] 3 All ER 528, [82].

97

For example, Inntrepreneur Pub Co v East Crown Ltd [2000] 2 Lloyd’s Rep 611; AXA  Sun Life Services plc v Campbell Martin Ltd and others and other appeals [2011] EWCA Civ 133 (see para 2.158).

98

WRM Group Ltd v Wood [1998] CLC 189, CA per Morritt LJ at 196: there were a number of factors operating: ‘First … the agreement is a carefully drawn document and sought to balance, as a result of a bargain at arms’ length, the competing interests of the vendors and purchasers. Under the agreement the purchaser obtained complete control of the sale companies at the conclusion of the contract but was only required to pay about 10% of the price immediately. There was no exclusion of liability nor of rescission if the misrepresentation was fraudulent … it is not, in my view, either unfair or unreasonable to require the purchaser to pay the deferred price when due without any deduction’.

99

Alman & Benson v Associated Newspapers (20  June 1980, unreported); Thomas Witter v TBP Industries Ltd [1996] 2 All ER 573 at 598.

100

Daroga v Wells (11 May 1994, unreported).

101

Walker v Boyle [1982] 1 All ER 634 per Dillon J at 645.

102

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•

is used where the parties were legally advised (particularly if the specific clause was not addressed).103

6.38 It may be very relevant to consider the source of the clause, that is a clause is reasonable as it has: ‘evolved by negotiation between trade associations, associations of merchants or trade unions or other such bodies concerned to protect the rights of their members’

so that it can be regarded as: ‘representing what consensus in the trade regards as fair and reasonable’104.

What is required is a weighing of the various factors in each case. Further consideration is given to factors relevant to the ‘requirement of reasonableness’ generally at 3.206.

The Consumer Rights Act 2015 6.39 CRA relates to contracts between traders or suppliers and consumers. The Act applies a test of fairness to terms, except ‘core’ terms which are transparent and prominent, and unfair terms do not bind the consumer.105 An unfair term is one which: ‘…contrary to the requirement of good faith [which] causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer’.106

6.40 With the implementation of CRA, 1967 Act, section 3 no longer applies to contracts coming within the meaning of a consumer contract.107 It appears that the meaning between ‘reasonableness’ (under the 1967 Act) and ‘fairness’ (under CRA) for a term will not be substantively different.108 However, there is one substantive difference between the two: •

under 1967, section 3 a term will only come under consideration if it is one ‘which would exclude or restrict’ liability or a remedy;

• under CRA, any term can be subject to assessment as to whether it is unfair, other than a ‘core exemption’ term.109

ibid: Condition 17 of the National Conditions of Sale (19th edn) held unreasonable.

103

[1982] 1 All ER 634 per Dillon J at 645.

104

See 4.70–4.132.

105

CRA, ss 62(1) and (4). There is a similar provision in respect of notices under CRA, ss 62(6): ‘A notice is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations to the detriment of the consumer.’ See para 4.158.

106

CRA, s 75, Sch 4, para 1, SI 2015/1630 (in force for most purposes from 1 October 2015) and SI 2016/484 (for remaining purposes from 1 October 2016).

107

As argued by Chitty on Contracts, (33rd edn, Sweet & Maxwell, 2020) 7-149.

108

CRA, ss 62, 64. See 4.158–4.192, and 4.70–4.132.

109

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6.41 Given that definition of ‘unfair term’ it is possible to question whether an exemption clause dealing with misrepresentation can ever be ‘unfair’, as such a term does not affect the parties’ ‘rights and obligations under the contract’ and cannot cause the required ‘significant imbalance’. However, a trader, for example, in misleading the representee consumer as to some matter relevant to the contract, can in making the misrepresentation, have led to the making of a contract so that the rights and obligations of the parties are significantly imbalanced. A clause removing, or limiting, the ability of the representee consumer to take action in relation to the misrepresentation, may be a term helping to maintain that imbalance and, in a sense, to be a cause of its continuance. It is possible to argue: •

that an exemption clause dealing with misrepresentation could be found to be an unfair term under CRA; and

•

that it is largely irrelevant whether that is so, because such exemptions will be subject to the test of reasonableness by 1967 Act, section 3 which is of much broader application than CRA.

6.42 However, a misrepresentation by which a trader has induced a consumer to enter a contract may not become a term of the contract, and therefore it may not be assessable as to whether it is fair one to include as a term in the contract with the consumer.110 Although, 1967 Act, section 3 no longer applies to consumer contracts, the position may be different with 1967 Act, section 2, which was not amended to no longer apply to where a misrepresentation involves a consumer. 1967 Act, section 2(1) provides: ‘Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true.’

6.43 Additionally and separately, a misrepresentation may amount to a unfair commercial practice,111 which are prohibited112 under the Consumer Protection from Unfair Trading Regulations 2008. A breach of the Regulations,

CMA Guidance (at 2.37 seems to suggest this).

110

A  commercial practice means ‘any act, omission, course of conduct, representation or commercial communication (including advertising and marketing) by a trader, which is directly connected with the promotion, sale or supply of a product to or from consumers, whether occurring before, during or after a commercial transaction (if any) in relation to a product’: Consumer Protection from Unfair Trading Regulations 2008, reg 5(2)(a). The 2008 Regulations are detailed and comprehensive and further consideration of its provisions is outside the scope of this book.

111

Consumer Protection from Unfair Trading Regulations 2008, reg 3(1). The 2008 Regulations are far ranging and not only an action but also omissions.

112

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can attract criminal sanctions113 (enforced by the Competitions and Markets Authority and local trading standards departments114) but also now provides a right of address for consumers themselves following amendment by the 2008 Regulations where the consumer has entered into a contract with a trader and the trader has engaged in a ‘prohibited practice’ (meaning a commercial practice which is a misleading action or is aggressive).115 For example, a commercial practice is unfair if it constitutes a misleading action where the commercial practice: ‘contains false information and is therefore untruthful…or if it or its overall presentation in any way deceives or is likely to deceive the average consumer in relation to any of the matters in that paragraph, even if the information is factually correct’.116

6.44 However, the CRA provides that the CMA and the ‘qualifying bodies’ have powers to prevent the continued use of unfair terms drawn up for general use.117 CRA can prevent consumers encountering what would be unfair exemption clauses, and being misled by them as to their rights. In addition, CRA could apply to terms which try to prevent the existence of misrepresentations or which seek to restrict the apparent, or ostensible, authority of agents.118

Consumer Protection from Unfair Trading Regulations 2008, regs 8 to 15, subject to any available defences, regs 16–17.

113

Consumer Protection from Unfair Trading Regulations 2008, reg 19 and CRA, s 77 and Sch 4.

114

Consumer Protection from Unfair Trading Regulations 2008, reg  27A–27F (amended by a SI 2014/870 and in force from 1 October 2014).

115

Consumer Protection from Unfair Trading Regulations 2008, reg 2(1).

116

CRA, s 70 and Sch 3.

117

See the CMA Guidance, in its commentary on CRA, Sch 2, Part 1, para 17 (‘A term which has the object or effect of limiting the trader’s obligation to respect commitments undertaken by the trader’s agents…’) at 5.25.1-5.25.6; particular at 5.25.3: ‘Consumers commonly and naturally rely on what is said to them when they are entering a contract. If they can be induced to part with money by claims and promises, and the trader can then simply disclaim responsibility by using an entire agreement clause, the scope for unfair detriment is clear …. its use weakens the traders’ incentive to take care (and to ensure that employees and agents take care) in what they say to consumers before contracts are concluded, and thus tends to impair the quality of pre- contract information for consumers.’

118

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The background 7.1 The efficacy of exemption clauses 7.3 Introduction of exemption as a breach of fiduciary duty 7.11 Construction7.12 Strict Construction 7.13 Negligence7.18 ‘Actual fraud’ 7.21 Honesty – an subjective or objecteve standard? 7.24 ‘Wilful default’ 7.28 The Unfair Contract Terms Act 1977 and the Consumer Rights Act 2015 7.30

The background 7.1 Fiduciary relationships arise in many situations. There are particular relationships which are established as fiduciary in nature, such as principal and agent and trustee and beneficiary, but a fiduciary relationship has been described more generally as:1 ‘A person will be a fiduciary in his relationship with another when and in so far as that other is entitled to expect that he will act in that other’s interests or (as in a partnership) in their joint interests, to the exclusion of his own interests.’

7.2

The duties of fiduciaries:

‘stem … from the extension … of the duties and responsibilities imposed by courts of equity upon express trustees’2

and what is required in any given case will depend upon the particular relationship:3 ‘the fiduciary duties owed by an express trustee are not the same as those owed by an agent’.4

Finn ‘Fiduciary Law and the Modern Commercial World’ in McKendrick ed Commercial Aspects of Trusts and Fiduciary Obligations (1992) at 9. See also Bowstead and Reynolds on Agency (22nd edn, Sweet & Maxwell, 2020) at 6–033.

1

Bowstead and Reynolds on Agency (22nd edn, Sweet & Maxwell, 2020) at 6–033.

2

Coomber v Coomber [1911] 1 Ch 723, CA per Fletcher Moulton LJ at 728–729.

3

Henderson v Merrett Syndicates Ltd [1994] 3 All ER 506, HL per Lord Browne-Wilkinson at 543.

4

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The efficacy of exemption clauses5 7.3

The courts have given consideration to the question of:

• whether a person who has a fiduciary role can have the benefit of an exemption clause; and •

the limits of the efficacy of an exemption clause.

In Armitage v Nurse6 there was consideration of whether an exemption clause was capable of providing protection for a trustee from liability for loss or damage except where there is ‘actual fraud’ – it had been contended that a trustee must be at least liable for their gross negligence.7 In the case, there was consideration whether an extensive clause such as: ‘No Trustee shall be liable for any loss or damage which may happen to Paula’s fund or any part thereof or the income thereof at any time or from any cause whatsoever unless such loss or damage shall be caused by his own actual fraud …’.8

should be void as repugnant to the nature of the trust or contrary to public policy. However, Millett LJ said that: ‘there can be no question of the clause being repugnant to the trust’.9

He accepted that there is an: ‘irreducible core of obligations owed by the trustees to the beneficiaries’

if there is to be a trust,10 but took the view that the minimum which is not only necessary but also sufficient is: ‘the duty of the trustees to perform the trusts honestly and in good faith for the benefit of the beneficiaries’,11

In cases concerning trusts, exemption clauses are often called ‘exoneration’ clauses. This chapter, for the sake of consistency uses ‘exemption’ clauses.

5

[1997] 2  All ER  705, CA. Followed by the majority in Spread Trustee Co Ltd v Hutcheson [2011] UKPC 13.

6

For example, Mathews ‘The Efficacy of Trustee Exemption Clauses in English Law’ [1989] Conv 42. See also Law Com Rep No 124 (1992) at para 3.3.41; Re Poche (1984) 6 DLR (4th) 40 per Hetherington J at 55: ‘In my opinion a trustee must be held responsible for any loss resulting from his gross negligence, regardless of any provision in the trust instrument relieving him from such liability’.

7

Emphasis in judgment.

8

[1997] 2 All ER 705 at 713.

9

[1997] 2 All ER 705 at 713.

10

[1997] 2 All ER 705 at 713. It has been suggested that ‘any term by which a person who was under a fiduciary duty attempted to exempt himself from liability for a deliberate breach of that duty would be … ineffective’ (Treitel The Law of Contract (14th edn, Sweet & Maxwell, 2015) 7.34). However, in Armitage v Nurse [1997] 2 All ER 705 a point was made as to deliberate but good faith breaches. Millett LJ said at 710: ‘By consciously acting beyond their powers (as for example, by making an investment which they know is unauthorised) the trustees may deliberately commit a breach of trust; but if they do so in good faith and in the honest belief that they were acting in the interests of the beneficiaries their conduct is not fraudulent.’

11

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but the duties of skill and care, and prudence and diligence, were not seen as part of the minimum. 7.4 In addition, Millett LJ also took the line that there was no authority on which to base an argument that the exclusion of liability of a trustee for gross negligence was contrary to public policy and any dicta which might appear to be to the contrary12 were analysed as either obiter or as concerned with the wording of the clause in the particular case, rather than any more general point.13 Millett LJ did acknowledge:14 ‘that the view is widely held that these clauses have gone too far, and that trustees who charge for their services and who, as professional men, would not dream of excluding liability for ordinary professional negligence, should not be able to rely on a trustee exemption clause excluding liability for gross negligence’,15

but he was also of the view that if clauses such as that in the instant case; ‘are to be denied effect, then … [it] should be done by Parliament which will have the advantage of wide consultation’.

7.5 Although Millet LJ expressed concerns about the extent and width of exemption clauses to protect trustees, and despite a Law Commission considering them (see the following paragraphs), subsequent case law (including to the level of the equivalent of the Supreme Court, the Privy Council16) has indicated that the position remains as stated by the Law Commission in 2006: ‘it appears now to be the settled law in England and Wales that trustee exemption clauses can validly exempt trustees from all breaches of trust except where such breaches were fraudulent or dishonest’.17

See Wilkins v Hogg (1861) 31 LJ Ch 41, CA; Pass v Dundas (1880) 43 LT 665; Knox v Mackinnon (1888) 13 App Cas 753, HL; Rae v Meek (1889) 14 App Cas 558; Wyman or Ferguson (Pauper) v Paterson [1900] AC 271, HL; Clarke v Clarke’s Trustees 1925 SC 693.

12

Following the approach of the Jersey Court of Appeal in Midland Bank Trustee (Jersey) Ltd v Federal Pension Services Ltd [1996] PLR 179. However, the minority in Spread Trustee Co Ltd v Hutcheson [2011] UKPC 13 doubted whether Armitage v Nurse was correct in deciding whether a trustee could have the benefit of an exemption clause which excluded liability for gross negligence (turning on whether, it appears, Miller LJ in Armitage in Nurse correctly analysed, in part, differences between English and Scottish case law, see judgement of Lady Hale at [133] ff). See also Law Commission, Trustee Exemption Clauses, Law Com 301, 2006, 2.15.

13

[1997] 2 All ER 705 at 715.

14

See also Millett LJ’s comments in Bogg v Raper ((1998) 8 April, transcript Smith Bernal). See also Wight v Olswang (1999) Times, 18 May, CA.

15

Spread Trustee Co Ltd v Hutcheson [2011] UKPC 13: ‘Millett LJ …summarised his view as being that cl 15 [the exemption clause in Armitage v Nurse], which excluded liability for anything other than fraud— ‘exempts the trustee from liability for loss or damage to the trust property no matter how indolent, imprudent, lacking in diligence, negligent or wilful he may have been, so long as he has not acted dishonestly.’ The Board agrees.’ Also Bonham v Balke Lapthorn Linnell (a firm) [2006] EWHC 2513 (Ch), [174].

16

Law Commission, Trustee Exemption Clauses, Law Com 301, 2006, 2.16.

17

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7.6 The concerns about the use of trustee exemption clauses, particularly by professionals, led to the Law Commission considering the area. The consultation exercise revealed that the use of exemption clauses: ‘reduced the protection afforded to beneficiaries in the event of breach of trust to an unacceptably low level’

and that there was a need for reform.18 The consultation paper considered that there should be a distinction between professional and lay trustees and that there should be statutory or regulatory regulation of professional trustees: ‘… the case for regulation of the use of trustee exemption clauses by professional trustees is very strong, but that lay trustees should in general continue to be able to rely upon trustee exemption clauses. We provisionally propose therefore that any statutory regulation of such clauses should make a distinction, in broad terms, between professional trustees and lay trustees.’19

7.7 A further criticism was that some settlors of trusts where not aware at all (because they did not read the trust document) or not fully aware that the trust document exempted the trustees from liability, or the extent of the protection afforded to trustees. In their Consultation Paper, ‘Trustee Exemption Clauses’,20 the Law Commission provisionally concluded that ‘professional trustees should not be able to rely on clauses which exclude their liability for breach of trust arising from negligence’21

through the use of statutory invention. For a trustee to obtain protection they should have the power to obtain indemnity insurance where they are liable for breach of trust, and the funds for the insurance to come from the trust’s funds.22 7.8 The final Law Commission Report did not recommend a statutory scheme, rather recommended the introduction of a ‘rule of practice’ and focussed on making a settlor of a trust aware that the trust document includes a provision which excludes or limits liability for negligence. Among the responses of the consultees where the following points as to why a statutory should not be introduced: •

the setting up of trusts would be more time consuming, more expensive and result in delay (such as if a statutory scheme required a settlor to take independent legal advice);

• setting up a trust would require more rigorous procedures to avoid evidential issues (such making sure documentation remains available to

Law Commission, Trustee Exemption Clauses, Law Com 301, 2006, 3.8.

18

‘Trustee Exemption Clauses’ Law Commission Consultation Paper No 171, 4.39.

19

‘Trustee Exemption Clauses’ Law Commission Consultation Paper No 171.

20

‘Trustee Exemption Clauses’ Law Commission Consultation Paper No 171 at viii.

21

‘Trustee Exemption Clauses’ Law Commission Consultation Paper No 171, 4.32.

22

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show that procedures that a statutory scheme requires were followed as well as the trust documents themselves continuing to be available where the trust runs for many years);23 • not all trusts would have the funds to permit covering the trustees with insurance; • because a trust can run over a long period so that trustees and/or the beneficiaries may be different to those at the setting up of the trust when the reliance on the exemption clause becomes an issue; 7.9

The Law Commission Report’s specific recommendations were that:24

• there should the introduction of a rule of practice so that those who advise on a trust should have the responsibility to bring to the attention of the settlors of the trust that the trustees will have their liability excluded or limited by an exemption clause in the trust document; • the control over the advisors would come from the advisors’ regulatory bodies with enforcement in accordance with the code of practice of the specific regulatory body; •

the government should ‘promote the application of this rule of practice as widely as possible across the trust industry’.

7.10

The rule of practice proposed by the Law Commission was:

‘Any paid trustee who causes a settlor to include a clause in a trust instrument which has the effect of excluding or limiting liability for negligence must before the creation of the trust take such steps as are reasonable to ensure that the settlor is aware of the meaning and effect of the clause.’25

It is possible to see that the rule of practice:

As Law Commission Reported noted (at 6.23): ‘The potential for evidential difficulties would be pronounced where a trust had continued over a long period, with a number of changes of trustee. Consultees observed that a trust may have been set up decades before any issue as to the validity of an exemption clause arose. If there were not complete and accurate records, then the distant memories of relevant persons would become crucial, assuming that they were still alive. Any dispute about the original trustee’s compliance would be time-consuming and costly.’ Although the Report went to state that professional trustees should be able to avoid such difficulties by ‘applying appropriate procedures’, but recognised that could be difficulties for a long-running trust.

23

Law Commission, Trustee Exemption Clauses, Law Com 301, 2006, 7.1 to 7.4. Following publication of the Report the Society of Trust and Estate Practitioners (STEP) introduced its own practice rule as well as guidance as to its meaning and application (‘Guidance Notes: Step Practice Rule to Trustee Exemption Clauses). Available at the date material for this book was prepared at www.step.org/system/files/media/files/2020-03/STEPGuidanceNotes.pdf.

24

Law Commission, Trustee Exemption Clauses, Law Com 301, 2006, 6.65. The Report provides consideration of the phrases used in this ‘rule of practice’ at 6.67 to 6.77.

25

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• extends only to paid trustees not all professional trustees, as the Law Commission recognised that some professional trustees act on a voluntary basis,26 and also • puts on the paid trustee an obligation to make clear the meaning and effect of the exemption clause only to the person who creates or sets up the trust, and not any other person or, for example, any subsequent or additional beneficiaries.27

Introduction of exemption as a breach of fiduciary duty 7.11 A fiduciary relationship may exist between parties prior to the making of a contract or production of an instrument containing an exemption clause. In such circumstances, the mere inclusion of the exemption may, in itself, be a breach of fiduciary duty in the absence of informed consent. Whether it is will depend upon the exact nature of the relationship and the duties required thereby.28 In Bogg v Raper29 where one of the trustees of the settlement was the testator’s solicitor, who had drawn up the will, it was contended that he could not rely upon the exemption clause as, in the circumstances, its inclusion involved a breach of fiduciary duty. The court took the line that it was unclear exactly what breach of fiduciary duty was being alleged and the clause was not invalidated. More broadly the point was made that:30 ‘the mere fact that the person named as trustee was the draftsman of the trust instrument is not sufficient to make an exculpatory provision ineffective. It is, of course, otherwise if the draftsman inserted the provision without calling the settlor’s attention to it and knowing that the settlor did not realise its effect.’31

7.12 The Law Commission considered whether the problems with such clauses might be alleviated by imposing formality requirements in relation to the settlers’ consent to such clauses. However, they did not regard such an approach as appropriate to the problem: The Law Commission in their report (at 6.67) noted that ‘paid’ should have a wide meaning: ‘[it] should be interpreted flexibly so as to take account of indirect financial benefits. Regulated professionals should be required to take all reasonable steps to procure that any company or partnership in which they have a financial interest comply with the rule’

26

The STEP guidance defines the a ‘Settlor’ as meaning ‘any person who would be a principal initial settlor in relation to a settlement, or at whose directions the Instrument is created’.

27

Law Com Consultation Paper No 124 at 3.3.4.

28

[1998] EWCA Civ 661.

29

Millett LJ, point 53 in his judgment.

30

In Baker v J E Clark & Co [2006] EWCA Civ 464 the argument of the claimant that the notice was not brought to her attention was not accepted in the sense that the Court of Appeal noted ‘that the potential beneficiaries of a group scheme […] would be a shifting class whom it might be difficult to identify and that the trustees would have had an obligation to make a copy of the trust deed available to any beneficiary who asked for it.’ Bogg v Raper was not cited in this later case.

31

521

Chapter 7  Exemptions and fiduciary duties ‘It is only the settlor’s consent to the inclusion of the clause which is material. The beneficiary has no say. To focus on the settlor is unlikely to achieve the desired objective of balancing the rights of trustees and beneficiaries.’32

As noted above, the approach of recommended by Law Commission was to make the paid advisor responsible for bringing the exemption clause to attention of the settlor.

Construction Strict construction 7.13

It has been said that a trustee exemption clause:

‘should be restrictively construed and … anything … not clearly within it should be treated as falling outside it’33

although: ‘…trustees accept office on the terms of a document for which they are not responsible, and are entitled to have the document fairly construed according to the natural meaning of the words used’.34

7.14 However, construction in this context should be considered in the light of the change in the approach to contractual construction which was recognised in Investors Compensation Scheme Ltd v West Bromwich Building Society.35 Some examples of the interpretation of clauses are: •

a clause excluding liability for ‘errors and omissions’ does not encompass liability for positive breaches of trust;36

• where there were two inconsistent exemption clauses, the view was taken that: ‘the trustee claiming exemption will not have his liability excluded unless he comes clearly within the exemption, and that he cannot do if there is ambiguity created by inconsistent clauses’.37

‘Trustee Exemption Clauses’ Law Commission Consultation Paper No 171 at para 4.45.

32

Bogg v Raper (1998) EWCA Civ 661, Millett LJ. Wight v Olswang (1999) Times, 18 May, CA per Peter Gibson LJ: ‘… Whilst professional trustees are entitled to have professionally drawn exemption clauses for which they are not responsible fairly construed according to the natural meaning of the words used, the court should not be astute to construe an exemption clause beyond its natural meaning. To exclude liability for breach of trust or negligence by a trustee there should be clear and unambiguous words in the settlement.’ See also Bonham v Balke Lapthorn Linnell (a firm) [2006] EWHC 2513 (Ch), [177]: ‘…I must construe the clause restrictively and anything which is not clearly within it should be treated as falling outside it. A liability can be excluded only by clear and unambiguous words’.

33

Bonham v Balke Lapthorn Linnell (a firm) [2006] EWHC 2513 (Ch), [177].

34

[1998] 1 All ER 98. See para 2.2.

35

Rae v Meek (1889) 14 App Cas 558, HL.

36

Wight v Olswang (1999) Times, 18 May, Peter Gibson LJ.

37

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Chapter 7  Exemptions and fiduciary duties

7.15 The scope of the exemption in one case was interpreted as limited to that of the narrower clause (it only applied to trustees not receiving ‘remuneration’).38 •

where a clause entitled a trustee to: ‘act in relation to the [trust] or any other company and the shares securities and properties thereof in such a way as it shall think best calculated to benefit the trust premises and as if it was the absolute owner of such shares, securities and property’

the court interpreted it as conferring on the trustee the power to engage in a transaction which might otherwise be outside the scope of its authority. It was not interpreted as: ‘an indemnity protecting [the trustee] against liability for a transaction which is a breach of trust because it is one that a prudent man of business would have eschewed’.39

•

where the beneficiaries of a trust contended that it is possible to separate out part of an exemption clause, and that part should have a particular meaning, (that is imposing positive obligations on the trustees) was not accepted by the court.40 They separated out the exemption clause into different parts (after adding the wording in square brackets and adding numbers): ‘In the execution of these trusts no trustee shall be liable: (1) for loss to the Trust Fund arising by reason of any improper investment made in good faith; (2) for negligence or fraud of any agent employed by the trustee although the employment of such agent was not strictly necessary or expedient; (3) [for loss to the Trust Fund arising] by reason of any mistake or omission made in good faith; and (4) [for loss to the Trust Fund arising] by reason of any other matter or thing except wilful and individual fraud or dishonesty on the part of the trustee.’41

7.16 The judge set out the beneficiaries argument on this point (based on (3) from the above quotation): ‘One of the key features of a trust is the imposition of duties on trustees, such as a duty to manage the trust property and deal with it in the interests of the beneficiaries. This is a positive obligation, which connotes good faith. To exclude liability for mistakes or omissions made otherwise than in good faith runs counter to the purpose of the trust; and the relationship of trust and confidence that gives rise to the fiduciary relationship. It is contrary to the core positive obligation to deal with trust property in the interests of the beneficiaries. If trustees are able to exclude liability for mistakes or omissions committed other than in good faith the substance of the trust, and the positive obligation of the trustee is removed. The

‘Remuneration’ was given its natural meaning of ‘any payment for services rendered’: Wight v Olswang (1999) Times, 18 May.

38

Bartlett v Barclays Trust Co (No 1) [1980] 1 Ch 515 per Brightman J at 536–537.

39

Fattal v Walbrook Trustees (Jersey) Ltd [2010] EWHC 2767 (Ch).

40

ibid at [68].

41

523

Chapter 7  Exemptions and fiduciary duties exoneration clause cannot be interpreted in such a way so as to remove liability for the irreducible core obligation to act in good faith. If a trustee cannot bring himself within the “good faith” limb of the clause, then he cannot escape liability.’42

7.17 The judge disagreed with the claimant beneficiaries that it was possible to read, in effect, the clause as a set of separate items. He held that it is necessary to read the clause as a whole. However, the judge did state that in reading the clause in its ‘natural grammatical sense’ one proceeds from the start and if the trustee’s actions do not fall within limb (1) then one proceeds on to (2), (3) and (4) on the same basis, and that a trustee would only fall outside of (4) if the trustee ‘is guilty of wilful and individual fraud or dishonesty’.43 The judge also stated that the clause is drafted in the negative and does not state that a trustee is liable if the trustee’s actions fall within one of the limbs, but does say the trustee ‘will not be liable if his action falls within one of them’.44 The judge held that for limb (4) (‘any other’ matter or thing) ‘could hardly be wider’ in its meaning. When what was in issue was a breach of the ‘no conflict’ duty by a trustee acquiring trust property, a clause referring to ‘loss or damage’ to the trust could not impact upon a claim to set aside the sale and recover the land. The right to recover did not depend upon any loss or damage to the trust and would have succeeded even if the sale had been at an overvalue.45

Negligence 7.18 In Bogg v Raper46 there was consideration whether the Canada Steamship rules of construction to contractual clauses47 applied to a trustee exemption clause. Under the Canada Steamship rules,48 a clause which does not expressly refer to negligence, but which contains words wide enough to cover such liability, will normally not do so, if there is some other, non-fanciful, non-negligent liability for it to be concerned with.49 The rule is based on the idea that there is an inherent improbability that one party to a contract would Fattal v Walbrook Trustees (Jersey) Ltd [2010] EWHC 2767 (Ch), [71].

42

Lewison, J  stated (at [72]) there was some force in the beneficiaries’ argument that if the approach outlined by him was followed then the first 3 limbs were superfluous but ‘although the argument from redundancy does not carry a great deal of weight in relation to the more traditionally drafted trust instruments. Moreover, it is relatively common to find in exclusion or force majeure clauses a list of illustrations of the principle, followed by general words to make sure that nothing within the conceptual target has been inadvertently omitted. That, in my judgment, is the technique that the draftsman of this clause has adopted’.

43

ibid at [72].

44

Armitage v Nurse [1997] 2 All ER 705 at 712–713.

45

[1998] EWCA Civ 661.

46

See para 2.64.

47

Which as Millet LJ noted that Canada Steamship ‘was concerned with a contractual exemption clause which was found to have potential application to relieve against claims not founded on negligence’.

48

See para 2.71.

49

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Chapter 7  Exemptions and fiduciary duties

intend to exempt the other from liability for negligence In Bogg v Raper Millet LJ made the point that:50 ‘The document is the unilateral work of the testator or settlor through whom the beneficiaries claim. There is no inherent improbability that he should intend to absolve his executors or trustees from liability [for] the consequences of their negligence. They accept office on the terms of a document for which they are not responsible, and are entitled to have the document fairly construed according to the natural meaning of the words used.’

7.19 Further, Millett LJ went on to make it clear that the rule could be seen as inappropriate because of the clarity of the clause in the instant case.51 The clause was stated to exempt liability for ‘any omission made in good faith’ and the line was taken that the natural meaning of those words was ‘any omission except an omission made in bad faith’ (that is even a negligent one). If the drafter had wished to limit it further ‘by excluding negligent omissions from its scope, they could have added the following words ‘and without negligence’. In Olswang v Wright the court stated that: ‘[to] exclude liability for … negligence by a trustee there should be clear and unambiguous words in the settlement’52

but, in the context of ordinary contractual construction, general changes in approach were identified in Investors Compensation Scheme Ltd v West Bromwich Building Society.53 In that context, post-Investors, there may be a readiness to consider the probabilities of a clause covering negligence, rather than the assumption of them under the Canada Steamship rules, and a greater willingness simply to find that the clarity of the clause is such as to preclude any need for such rules.54 It is important to note that although more recent cases than Investors Compensation Scheme Ltd v West Bromwich Building Society have noted the ‘general authority’ and ‘soundness’ of the Canada Steamship rules and approved its continued application,55 it appears that Canada Steamship rules will only apply to the extent that it is necessary to do so.56 In this context, Bogg v Raper indicates against any impetus to a mechanical application of the Canada Steamship rules. 7.20 A  final point under this heading is that the cases concerning negligence and the application of the Canada Steamship rules mainly concern Bogg v Raper [1998] EWCA Civ 661, [48].

50

In any event, the point was made that there was no other non-fanciful basis of liability and the clause would have covered negligence even on the basis of the Canada Steamship rule.

51

Wight v Olswang (1999) Times, 18 May, CA.

52

[1998] 1 All ER 98. See para 2.1.

53

See 2.101.

54

Geys v Societe Generale, London Branch [2012] UKSC 63, [2013], [2013] 1 All ER 1061, [37].

55

Taberna Europe CDO II plc v Selskabet af 1  September 2008 A_S (formerly Roskilde Bank A_S) [2016] EWCA Civ 1262, [2017] 3 All ER 1046, [24].

56

525

Chapter 7  Exemptions and fiduciary duties

commercial contracts while there may be doubt as to whether a trust is in fact a contract at all, so the cases cited about its application may not be relevant to a trust (see further below).

‘Actual fraud’ 7.21 In Armitage v Nurse,57 the exemption clause stated that no trustee was to be liable for any loss or damage to a trust fund unless it was caused by ‘his own actual fraud’. The reference to ‘actual fraud’ made it clear that the trustee did not become liable merely for ‘constructive’ or ‘equitable fraud’: ‘a breach of duty to which equity [has] attached its sanctions’.58

7.22 The clause was regarded as making it clear that the trustee would only be liable if there was fraud in the sense identified in Derry v Peek.59 It was seen as connoting:60 ‘at the minimum an intention on the part of the trustee to pursue a particular course of action, either knowing that it is contrary to the interests of the beneficiaries or being recklessly indifferent whether it is contrary to their interests or not’.

7.23 On this basis, a trustee committing a conscious breach of trust is not acting fraudulently provided he, or she, acts honestly, believing it is in the interests of the beneficiaries.61 In contrast, if a trustee does not believe that he, or she, is acting in the interests of the beneficiaries, the trustee will be outside the exemption even if s/he does not intend to benefit him, or her, self, but someone who is not the object of the trust.62 A clause such as that in the instant case was seen as exempting the trustee from liability for loss or damage: ‘no matter how indolent, imprudent, lacking in diligence, negligent or wilful he may have been, so long as he has not acted dishonestly’.63

[1997] 2 All ER 705, CA.

57

Nocton v Lord Ashburton [1914] AC 932, HL per Viscount Haldane LC at 953: ‘Equitable fraud … covers breach of fiduciary duty, undue influence, abuse of confidence, unconscionable bargains and frauds on powers. With the sole exception of the last, which is a technical doctrine in which the word fraud merely connotes excess of vires, it involves some dealing by the fiduciary with his principal and the risk that the fiduciary may have exploited his position to his own advantage’; Armitage v Nurse [1997] 2 All ER 705 per Millett LJ at 712.

58

(1889) 14 App Cas 337, HL.

59

[1997] 2 All ER 705 per Millett LJ at 711 adopting the slightly modified formulation of counsel for the respondents.

60

[1997] 2  All ER  705 per Millett LJ at 710: ‘By consciously acting beyond their powers (as for example, by making an investment which they know is unauthorised) the trustees may deliberately commit a breach of trust; but if they do so in good faith and in the honest belief that they were acting in the interests of the beneficiaries their conduct is not fraudulent.’

61

[1997] 2 All ER 705 at 711.

62

ibid.

63

526

Chapter 7  Exemptions and fiduciary duties

Honesty – an subjective or objective standard? 7.24 In Armitage v Nurse the court stated that the trustees' own honest belief is what determines whether or not he/she was acting fraudulently: that is stating it is a subjective standard to determine honesty: ‘By consciously acting beyond their powers … the trustees may deliberately commit a breach of trust; but if they do so in good faith and in the honest belief that they are acting in the interest of the beneficiaries their conduct is not fraudulent. So a deliberate breach of trust is not necessarily fraudulent…. It is the duty of a trustee to manage the trust property and deal with it in the interests of the beneficiaries. If he acts in a way which he does not honestly believe is in their interests then he is acting dishonestly. It does not matter whether he stands or thinks he stands to gain personally from his actions. A trustee who acts with the intention of benefiting persons who are not the objects of the trust is not the less dishonest because he does not intend to benefit himself.’64

7.25 A different view as to the standard to test honesty was taken in Walker v Stones,65 where at least in regard to solicitor-trustees, it was necessary to use an objective standard. The latter case of Fattal v Walbrook Trustees (Jersey) Ltd followed Walker v Stones and set out what was required to show that a professional trustee was dishonest is: i) a deliberate breach of trust; ii) committed by a professional trustee: a) who knows that the deliberate breach is contrary to the interests of the beneficiaries; or b) who is recklessly indifferent whether the deliberate breach is contrary to their interests or not; or c) whose belief that the deliberate breach is not contrary to the interests of the beneficiaries is so unreasonable that, by any objective standard, no reasonable professional trustee could have thought that what he did or agreed to do was for the benefit of the beneficiaries.66 7.26 Although in Walker v Stones the use of an objective standard was limited to solicitor-trustees, Lewison J in Fattal v Walbrook Trustees (Jersey) Ltd extended it to all professional trustees. Walker v Stones did not close the door completely on the type test that a court may use: ‘I limit this proposition to the case of a solicitor-trustee, first, because on the facts before us we are concerned only with solicitor-trustees and, secondly, because

Armitage v Nurse [1997] 2 All ER 705, 710-711.

64

[2001] 4 All ER 412.

65

Fattal v Walbrook Trustees (Jersey) Ltd [2010] EWHC 2767 (Ch), [81]. This meaning of dishonest was applied in Sofer v Swissindependent Trustees SA [2020] EWCA Civ 699.

66

527

Chapter 7  Exemptions and fiduciary duties I accept that the test of honesty may vary from case to case, depending on, among other things, the role and calling of the trustee…’.67

7.27 Lewison J  commented on this passage and distinguished between where: •

a trustee preferred their own interest over a beneficiary;

•

a trustee choose one duty over another.

For the former where there is an allegation of dishonesty where it is argued that the trustee preferred their own interests over a beneficiary ‘in circumstances where there is a straight conflict between duty and interest dishonesty may be easier to establish’ compared to that later. For the later the trustee may still be in breach of their duty as a trustee ‘but it seems to me that it would be harder to characterise that as “dishonest”’.

‘Wilful default’68 7.28 The meaning of ‘wilful default’ has caused some difficulties in the trustee context. Its meaning more generally is dealt with elsewhere.69 In the context of trustees, the traditional meaning of ‘wilful default’ was regarded as including ‘lack of ordinary prudence or negligence’.70 However, in Re Vickery71 Maugham J adopted the approach taken in the case of Re City Equitable Fire Ins Co,72 which is the line taken in other contexts.73 The judge was of the opinion that74: ‘a person is not guilty of wilful neglect or default unless he is conscious that, in doing the act which is complained of, or in omitting to do the act which he ought to have done, he is committing a breach of his duty, or is recklessly careless whether it is a breach of his duty or not’.

[2000] 4 All ER 412 at 443 and which cited Twinsectra Ltd v Yardley [1999] Lloyd’s Rep Bank 438 at 465, where the court in that case ‘regarded the standard of honesty applicable in the case of the defendant solicitor … ‘that to be expected of a reasonably prudent and honest solicitor’.

67

The phrase is important in the context of s 30(1) Trustee Act 1925 which states: ‘A trustee shall be chargeable only for money and securities actually received by him notwithstanding his signing any receipt for the sake of conformity, and shall be answerable and accountable only for his own acts, receipts, neglects or defaults, and not for those of any other trustee, nor for any banker, broker or other person with whom any trust money or securities may be deposited, nor for the insufficiency or deficiency of any securities, nor for any loss unless the same happens through his own wilful default’.

68

See para 2.186.

69

Mathews [1989] Conv 42 at 45.

70

[1931] 1 Ch 572.

71

[1925] Ch 407, CA.

72

See para 2.186.

73

[1931] 1 Ch 572 at 583.

74

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Chapter 7  Exemptions and fiduciary duties

An approach which draws a clear line between wilful default and negligence. 7.29 In Armitage v Nurse75 Millett LJ adopted the line taken in Re Vickery. He said:76 ‘In the context of a trustee exclusion clause, however, such as s 30 of the Trustee Act 1925, [wilful default] means a deliberate breach of trust (Re Vickery …). The decision has been criticised, but it is in line with earlier authority … Nothing less than conscious and wilful misconduct is sufficient’.

Millett LJ then went on to quote from that passage in the judgment of Maugham J in Re Vickery indicated above.

The Unfair Contract Terms Act 1977 and the Consumer Rights Act 2015 7.30 There is legislation dealing with exemptions in particular contexts. Here consideration is given to the most widely applicable legislation – the Unfair Contract Terms Act 1977 (UCTA) and the Consumer Rights Ac 2015 (CRA).77 UCTA  Act essentially applies to exemption clauses dealing with ‘business liability’,78 although there are some exclusions from its scope.79 The most potentially relevant sections in this context are UCTA, sections 2 and 3.80 UCTA, section 2 basically deals with liability for negligence. In many cases, for example, it prevents professionals from excluding or restricting their liability for negligence and its application in the context of fiduciaries should be considered.81 UCTA, section 2 states: ‘(1) 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. (2) 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.’

7.31 The meaning of negligence in the context of UCTA1977 is dealt with by UCTA, section 1(1) which states: ‘For the purposes of this part of this Act, “negligence” means the breach –

[1997] 2 All ER 705, CA.

75

[1997] 2 All ER 705 at 711, and see Spread Trustee Co Ltd v Hutcheson [2011] UKPC 13, [54] ff.

76

For example see Chapters 3 and 4.

77

1977 Act, s 1(3). See para 3.10.

78

For example UCTA, Sch 1, para 1(e), ss 2–4 do not extend to ‘any contract so far as it relates to the creation and transfer of securities or of any right or interest in securities’. See para 3.23.

79

Additional coverage is provided by other sections.

80

Goodhart ‘Trustee Exemption Clauses and the Unfair Contract Terms Act 1977’ [1980] Conv 333; Mathews [1989] Conv 42 at 52.

81

529

Chapter 7  Exemptions and fiduciary duties (a) of any obligation, arising from the express or implied term of the contract, to take reasonable care or exercise reasonable skill in the performance of the contract; (b) of any common law duty to take reasonable care or exercise reasonable skill (but not any stricter duty); (c) of the common duty of care imposed by the Occupiers’ Liability Act 1957 or the Occupiers’ Liability Act (Northern Ireland) 1957 …’.

7.32 Thus, in determining the application of UCTA, section 2, it will be necessary to consider whether the clause in question is an appropriate ‘term or notice’ and whether the obligation to take due care stemmed from one of the sources identified in UCTA, section 1(1). Where the fiduciary relationship in question is based on a contract, as is often the case between principals and agents for example, then it may be possible for the injured party to claim for breach of a contractual duty to use due care and UCTA, section 2 might then apply to the exemption clause82. Similarly, if the clause is viewed as an appropriate ‘notice’ there would seem to be scope for the application of UCTA, section 2 where, although the relationship could be viewed as fiduciary, the claim for failure to use due care could be made in tort.83 Some clauses not in the form of exclusions or restrictions of liability can be brought within the scope of UCTA, section 2 by UCTA, section 13.84 7.33 UCTA, section 3 subjects some contract terms to the requirement of reasonableness.85 It deals with cases in which one party deals as consumer or on the other’s written standard terms of business. As against that party, except in so far as it satisfies the requirement of reasonableness, the other cannot rely on a term to exclude or restrict liability86 or claim to be entitled to render The contract may be seen as subsuming the duties of the agents. Kelly v Cooper [1993] AC 205 at 213–214, PC; Clark Boyce v Mouat [1994] 1 AC 428 at 437, PC; Henderson v Merrett Syndicates Ltd [1994] 3 All ER 506 at 542–544, HL; News Ltd v Australian Rugby Football League (1996) 139  ALR  193. But see Re Goldcorp Exchange [1994] 2  All ER  806 at 821, PC; Yasuda Fire & Marine Ins Co of Europe Ltd v Orion Marine Ins Underwriting Agency Ltd [1994] CLC 1212 at 1219.

82

Henderson v Merrett Syndicates Ltd [1994] 3  All ER  506 per Lord Browne-Wilkinson at 543: ‘The liability of a fiduciary for the negligent transaction of his duties is not a separate head of liability but the paradigm of the general duty to act with care imposed by law on those who take it upon themselves to act for or advise others. Although the historical development of the rules of law and equity have, in the past, caused different labels to be stuck on those on different manifestations of the duty, in truth the duty of care imposed on bailees, carriers, trustees, directors agents and others is the same duty: it arises from the circumstances in which the defendants were acting, not from their status or description. It is the fact that they have all assumed responsibility for the property or affairs of others which renders them liable for the careless performance of what they have undertaken to do, not the description of the trade or position that they hold. In my judgment, the duties which the managing agents have assumed to undertake in managing the insurance business of the names brings them clearly into the category of those who are liable, whether fiduciaries or not, for any lack of care in the conduct of that management.’ For discussion of this case see Heydon ‘The Negligent Fiduciary’ (1995) 111 LQR 1.

83

See para 3.54.

84

See para 3.99.

85

UCTA, s 3(2)(a). See 3.132.

86

530

Chapter 7  Exemptions and fiduciary duties

a performance substantially different from what was reasonably expected or, in respect of the whole or part of his contractual obligation, to render no performance at all.87 In one case it was held that an exemption clause in a trust neither qualified as a contractual term nor a notice and accordingly UCTA did not apply at all.88 7.34 In this case the deceased spouse of the claimant was a member of the first defendant employer’s group pension scheme (which was insured, and which provided life cover). The rules of the scheme were set out in a trust deed which contained a trustee exemption clause which stated: ‘None of the trustees shall be liable for the consequence of any mistake or forgetfulness, whether of law or fact of the trustees or their advisors, whether legal or otherwise, or any of them or for any breach of duty or trust whatsoever, whether by commission or omission unless it shall be proved to be made, given, done or omitted in personal conscious or bad faith of the trustees or any of them.’89

7.35 The second defendant was appointed a trustee of the scheme. The underwriters did not renew the insurance, and after the cover lapsed the spouse developed a brain tumour and eventually died while in the first defendant’s employment. The claimant claimed on the basis that the second defendant: ‘…owed a duty of care at common law and/or assumed responsibility and/or owed an equitable duty to exercise reasonable care and skill in carrying out the duties of an administrator and/or trustee of the scheme he owed a duty of care’90

as well as being liable to maintain and provide the benefit under the insurance scheme. 7.36 The judge at first instance held that that the exemption clause protected the second defendant trustee. On appeal the claimant argued, from a common law standpoint, that the second defendant: ‘…assumed a personal responsibility to act with reasonable care and skill as the administrator or trustee of the scheme with a duty to maintain the life cover or, at the very least, to notify the deceased if for some reason it had come to an end.’91

7.37

The clamant also argued that the exemption clause:

•

did not restrict the second defendant’s liability for breach of duty as it had not been incorporated into the relationship;

•

had not been brought to the notice of the claimant or that she was not aware of its provisions;

UCTA, s 3(2)(b). See para 3.137.

87

Baker v J E Clark & Co [2006] EWCA Civ 464.

88

ibid at [5].

89

ibid at [11].

90

ibid at [13].

91

531

Chapter 7  Exemptions and fiduciary duties

• in the alternative, did operate to exclude liability and would cover the liability of the second trustee, but then it would be subject to UCTA, and would subject to determination as to whether was reasonable. Of interest for the purposes of this chapter is that the Court of Appeal agreed with the judge at first instance92 that there was no contractual relationship between a trustee and a beneficiary, as there was no ‘consensual relationship’ between them.93 The Court of Appeal noted that a trustee assumes unilateral obligations and that the group pension scheme was directed to beneficiaries who might change over time and it may be difficult to identify them. 7.38 Concerning the application of UCTA the relevant provisions were UCTA, sections 1 and 2. UCTA section 2 provides (as edited by the Court of Appeal): ‘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 … loss or damage … except insofar as the term or notice satisfies the requirement of reasonableness.’

The Court of Appeal accepted the concession from the claimant that a trust is not a contract so the exemption clause, in effect, is not a contract term on which UCTA, section 2(1) can operate. The court then considered whether the exemption clause can amount to a notice noting that UCTA, section 14 stated that a notice: ‘includes an announcement, whether or not in writing, and any other communication or pretended communication’.

7.39 The Court of Appeal held that there were ‘insuperable difficulties’ in applying the UCTA to an exemption clause of the kind in this case. On the assumption that the second defendant did owe a common law duty of care to The Court of Appeal agreed with the following passage from the judgement at first instance: ‘It seeks, in my judgment, to import contractual concepts of the consensual relationship into the relationship which arises between a trustee and a beneficiary of the trust. In a trust relationship there is no such consensus. What cl 13(3) of the trust deed does is to define the ambit of the liability under which the trustees of that trust were prepared to act from the date the deed was executed. That willingness to act on those terms was not dependant on any assent on the part of the beneficiaries or any knowledge on their behalf as to what the trust deed provided.’

92

The Law Commission in their paper on ‘Trustee Exemption Clauses at 2.60 also considered that a trustee exemption is not a contract: ‘It seems that a trustee exemption clause is not a contract because it is extremely unlikely that an English court would consider a trust instrument containing a trustee exemption clause to be a “contract”. The appointment of the trustees is consensual, the trust instrument a form of contract under seal. But while it must be conceded that there are some similarities between a contract and a trust, the contract derives its enforceability from the vital factors of agreement and consideration, whereas the trust is based firmly on the grant of property. Although the terms of the trust may in certain circumstances be negotiated and agreed between the settlor and the trustees, and the trustees may be remunerated for the services which they provide, these are not necessary components of the trust relationship.’ In the next paragraph of their Paper, the Law Commission noted that a trust ‘has a proprietary impact which transcends the ordinary principles of contract law’ as a trustee exemption clause will be for the benefit not only of the trustee appointed under the trust document but any of her/his successors.

93

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Chapter 7  Exemptions and fiduciary duties

the claimant the Court of Appeal did not believe the exemption clause was the type of notice referred to in UCTA, section 2. The court referred to the following points from the Law Consultation Paper on ‘Trustee Exemption Clauses’: ‘While there may be a stronger argument that a trustee exemption clause is a form of “notice”, this may also be somewhat speculative in that it would seem that “notice” within the 1977 Act is primarily intended to cover attempts to exclude liability by reference to a sign outside the confines of a formal legal document.’94

and ‘We have already made reference to the Unfair Contract Terms Act 1977 in Part II, where we came to the conclusion that it does not generally apply to trustee exemption clauses.’95

7.40 CRA applies a test of fairness to terms in contracts between traders and consumers. CRA is not restricted in its scope to exemption clauses, but apply the fairness test more generally – unless the terms are ‘core’ and are transparent and prominent.96 The Law Commission in its consultation paper on trustee exemption clauses, made the point that: ‘whilst it has been suggested that the European Court might take an autonomous view of the meaning of “contract” such as to include some trust relationships, we consider this a remote possibility’.97

Neither the Law Commission Issues Paper98 or its Advice report99 which led to the introduction of the CRA considered this point, and now that the UK has left the EU it is unlikely that there will be a development of contract law to cover trust relationships. 7.41 Nevertheless, there is scope for the application of CRA where, for example, a professional agent is acting for a consumer under a contract. Attempts to use standard terms to define the fiduciary element out of the relationship might be regarded as ‘core’, but are unlikely to be expressed in language which is transparent and prominent for the ‘core’ exemption from the fairness test to apply. Statements for the consumer to sign that, for example, they have read and understood a standard form contract are unlikely to be fair.100 Also it would seem that the same would be true of clauses simply stating that the consumer consents to what would otherwise be a breach of fiduciary duty – their general lack of connection with reality should be recognised.

Trustee Exemption Clauses’ Law Commission Consultation Paper No 171, 2.62.

94

ibid, 4.46.

95

CRA, s 64(3), (4). See 4.133, 4.134 and 4.146.

96

‘Trustee Exemption Clauses’ Law Commission Consultation Paper No 171 at para 2.64.

97

Law Commission – Unfair Terms in Consumer Contracts: a new approach? Issues Paper. July 2012.

98

Law Commission – Unfair Terms in Consumer Contracts: Advice to the Department for Business, Innovation and Skills. March 2013.

99

See 4.247 to 4.399.

100

533

Index

[all references are to paragraph number]

A Accessibility unfair terms in consumer contracts, 4.137 Adjudication clauses unfair terms in consumer contracts, 4.181–4.182 Agency misrepresentation, 6.24–6.26 third party claiming benefit of exemption clause, 5.25–5.34 ‘All the circumstances existing when the term was agreed’ unfair terms in consumer contracts, 4.162–4.169 Alternative dispute resolution unfair terms in consumer contracts, 4.391–4.393 Annuity contracts excluded contracts or terms, 3.23 Anti-set-off clauses construction of contract terms, 2.178– 2.185 Appeals reasonableness, 3.221–3.230 Apprenticeship contracts unfair terms in consumer contracts, 4.16 Arbitration unfair terms in consumer contracts, 4.391 Arbitration agreements unfair terms in consumer contracts, 4.22–4.24 Assignment without consent unfair terms in consumer contracts, 4.386–4.388

Auctions misrepresentation, 6.9 ‘Average consumer’ unfair terms in consumer contracts, 4.146 B Bailment on terms third party claiming benefit of exemption clause, 5.42–5.44 Barter and hire contracts and see Sale of goods generally, 3.173 Blind and partially sighted people non est factum, 1.23 Burden of proof excluding or restricting liability, 3.53 fairness, 4.244–4.246 reasonableness, 3.213 Business liability ‘business’, 3.11–3.14 deals as consumer, 3.17–3.18 fiduciary duties, and, 7.30–7.39 ‘in the course of business’, 3.15–3.19 introduction, 3.10 ‘occupation of premises for business purposes’, 3.20–3.22 ‘But for’ test excluding or restricting obligations, 3.66–3.70 C Canadian Steamship test basic formulation, 2.71–2.75 fiduciary duties, 7.18 first part, 2.86–2.92 intention of parties, 2.76–2.81 535

Index Canadian Steamship test – contd introduction, 2.64–2.70 justification, 2.71–2.75 scope, 2.82–2.85 second part, 2.93 summary, 2.101–2.107 third part, 2.94–2.100 Cancellation clauses unfair terms in consumer contracts excessive notice periods, 4.329–4.338 retention of prepayments, 4.299– 4.306 Carriage of goods by ship excluded contracts or terms, 3.35 Changes in supply unfair terms in consumer contracts, 4.346–4.352 Charterparties excluded contracts or terms, 3.35 Choice of law excluded contracts or terms, 3.44–3.46 scope of UCTA, 3.5 unfair terms in consumer contracts, 4.394–4.399 Claiming to render a substantially different performance or no performance introduction, 3.137–3.139 no performance at all, 3.166–3.170 substantially different performance, 3.140–3.165 Claims excluding or restricting liability, 3.50 CMA guidance unfair terms in consumer contracts ‘core’ terms exemption, 4.127–4.131 good faith, 4.204–4.206 significant imbalance, 4.190–4.192 transparency, 4.142–4.145 Codes of Practice unfair terms in consumer contracts, 4.243 Collateral contracts construction of contract terms, 2.140– 2.142 Commercial information excluded contracts or terms, 3.23 Company formation or dissolution excluded contracts or terms, 3.23 unfair terms in consumer contracts, 4.16 536

Compromise agreements second contracts, 3.193 Conditions excluding or restricting liability, 3.51 reasonableness, 3.276–3.279 Conflict of laws excluded contracts or terms, 3.44–3.46 Consequential loss construction of contract terms, 2.197– 2.214 unfair terms in consumer contracts, 4.273–4.274 Construction of contract terms anti-set-off clauses, 2.178–2.185 approach to exemption clauses, 2.18–2.20 Canadian Steamship test basic formulation, 2.71–2.75 fiduciary duties, 7.18 first part, 2.86–2.92 intention of parties, 2.76–2.81 introduction, 2.64–2.70 justification, 2.71–2.75 scope, 2.82–2.85 second part, 2.93 summary, 2.101–2.107 third part, 2.94–2.100 collateral contracts, 2.140–2.142 common law developments, 2.38–2.39 consequential loss, 2.197–2.214 contra proferentum, 2.42–2.57 deviation, 2.127–2.132 drafting fairness, 2.21–2.22 plain, intelligible language, 2.26– 2.30 reasonableness, 2.21–2.22 time frame, 2.23–2.25 transparency, 2.26–2.30 width of clauses, 2.23–2.25 entire agreement clauses collateral contracts, 2.140–2.142 documents relating to same subject matter, 2.145–2.147 exclusion of liability for misrepresentation, 2.158–2.177 generally, 2.133–2.139 implied terms, 2.148–2.157 subsequent agreements, 2.143–2.144 warranties, 2.140–2.142

Index Construction of contract terms – contd exclusion of liability for misrepresentation, 2.158–2.177 fairness generally, 2.21–2.22 interactions with construction, 2.32–2.37 fiduciary duties actual fraud, 7.21–7.22 Canada Steamship decision, 7.18 honesty, 7.23–7.27 negligence, 7.18–7.20 strict construction, 7.13–7.17 wilful default, 7.28–7.29 ‘four corners’ rule, 2.113–2.126 fundamental breach of contract, 2.110–2.112 gross negligence, 2.193–2.196 impact of legislation avoiding ‘strained’ construction, 2.31 drafting, 2.21–2.30 interactions with reasonableness and fairness, 2.32–2.37 implied terms, 2.148–2.157 inconsistent terms, 2.108–2.109 intention, 2.1 introduction, 2.1–2.17 limitation clauses, 2.58–2.63 “matrix of fact”, 2.2–2.16 misrepresentation denying representation by agent, 6.24–6.26 denying requirements exist, 6.8– 6.23 generally, 6.6–6.7 Misrepresentation Act 1967, s 3, 6.27–6.32 reasonableness, 6.33–6.38 “natural and ordinary meaning”, 2.2–2.15 neglect, 2.186–2.192 negligence Canadian Steamship test, 2.71–2.107 introduction, 2.64–2.70 legislative provisions, 2.64–2.70 particular clauses and phrases anti-set-off clauses, 2.178–2.185 collateral contracts and warranties, 2.140–2.142

Construction of contract terms – contd particular clauses and phrases – contd consequential loss, 2.197–2.214 default, 2.186–2.192 entire agreement clauses, 2.133– 2.177 gross negligence, 2.193–2.196 neglect, 2.186–2.192 warranties, 2.140–2.142 ‘whole’ agreement clauses, 2.133– 2.177 wilful misconduct, 2.186–2.192 ‘peas and beans’ test, 2.113–2.126 plain, intelligible language, 2.26–2.30 reasonableness generally, 2.21–2.22 interactions with construction, 2.32–2.37 rules and approaches contra proferentum, 2.42–2.57 deviation, 2.127–2.132 ‘four corners’ rule, 2.113–2.126 fundamental breach of contract, 2.110–2.112 inconsistent terms, 2.108–2.109 limitation clauses, 2.58–2.63 main purpose of the contract, 2.113–2.126 negligence, 2.64–2.107 ‘peas and beans’ test, 2.113–2.126 strict construction, 2.42–2.57 standard form contracts, 2.40–2.41 ‘strained’ construction contra proferentum, 2.49 generally, 2.31 strict construction, 2.42–2.57 subsequent agreements, 2.143–2.144 summary of principle, 2.2 time frame, 2.23–2.25 transparency, 2.26–2.30 unfair terms in consumer contracts common law developments, 2.38– 2.39 general, 4.157 particular contracts, 4.153–4.156 warranties, 2.140–2.142 ‘whole’ agreement clauses collateral contracts, 2.140–2.142 documents relating to same subject matter, 2.145–2.147 537

Index Construction of contract terms – contd ‘whole’ agreement clauses – contd exclusion of liability for misrepresentation, 2.158–2.177 generally, 2.133–2.139 implied terms, 2.148–2.157 subsequent agreements, 2.143–2.144 warranties, 2.140–2.142 width of clauses, 2.23–2.25 wilful misconduct, 2.186–2.192 ‘Consumer’ unfair terms in consumer contracts, 4.43–4.52 ‘Consumer contract’ definition, 4.15 exclusions, 4.16–4.17 Consumer guarantees and see Business liability generally, 3.10–3.22 Consumer Rights Act 2015 See also Unfair terms in consumer contracts background, 4.7 basic scope, 4.8–4.11 comparison with UCTA 1977, 4.12– 4.14 fiduciary duties, 7.40–7.41 implementation, 4.7 introduction, 4.1–4.4 status of EU law, 4.6 summary of changes, 4.4–4.5 Contra proferentum construction of contract terms, 2.42– 2.57 Contracts (Rights of Third Parties) Act 1999 agency, 5.25–5.34 bailment on terms, 5.42–5.44 bearing burden of exemption clause generally, 5.54–5.56 use against third party, 5.57–5.71 circumstances in which rights arise, 5.5–5.8 claiming benefit of exemption clause agency, 5.25–5.34 bailment on terms, 5.42–5.44 introduction, 5.11 limiting the duty of care, 5.40–5.42 negativing the duty of care, 5.40–5.42 relevant issues, 5.17–5.24 538

Contracts (Rights of Third Parties) Act 1999 – contd claiming benefit of exemption clause – contd statutory provisions, 5.47–5.53 stay of action, 5.46 trusts, 5.45 vicarious immunity, 5.35–5.39 damages, 5.14 defence and counterclaim, 5.15 enforceability test, 5.5 enforcement of terms subject to provisions of contract, 5.10 extinguishment, 5.12–5.13 generally, 5.4 identification of third party, 5.9 injunctions, 5.14 introduction, 5.1–5.16 limitations on variation or extinguishment, 5.12–5.13 limiting the duty of care, 5.40–5.42 negativing the duty of care, 5.40–5.42 ouster of operation, 5.16 privity of contract doctrine, 5.1–5.3 relevant issues, 5.17–5.24 remedies available, 5.14–5.16 set-off, 5.15 specific performance, 5.14 stay of action, 5.46 trusts, 5.45 Unfair Contract Terms Act 1977, and introduction, 5.60 section 2, 5.63–5.71 section 3, 5.61–5.62 use of defences and exemption clauses against party introduction, 5.57–5.59 UCTA 1977, and, 5.60–5.71 variation, 5.12–5.13 vicarious immunity, 5.35–5.39 ‘Contractual documents’ incorporation by signature, 6–7 Controlled terms or notices excluding or restricting liability, 3.48–3.53 excluding or restricting obligations, 3.54–3.70 Cooling-off periods unfair terms in consumer contracts, 261

Index Copyright excluded contracts or terms, 3.23 ‘Core’ terms exemption case law, 4.80–4.126 CMA guidance, 4.127–4.131 DGFT v First National Bank, 4.80–4.89 generally, 4.70–4.73 ‘grey list’, 4.74–4.77 Kásler, 4.106–4.109, 4.115–4.119 Matei, 4.110–4.119 OFT v Abbey National, 4.89–4.105 scope, 4.78–4.79 ‘Counterpart’ clauses excluding or restricting liability, 3.53 Course of dealing incorporation of terms application of test, 1.92–1.104 basic test, 1.84–1.91 changes to standard terms, 1.111 failure to incorporate in past transactions, 1.109–1.110 ‘red hand rule’, 1.107–1.108 trade practice, 1.105–1.106 written standard terms of business, 3.106 Covenants excluded contracts or terms, 3.28–3.29 Customer declarations unfair terms in consumer contracts, 4.240–4.241 D Damages misrepresentation, 6.5 Dangerous tasks reasonableness, 3.285–3.288 Deals as consumer generally, 3.17–3.18 Death or personal injury unfair terms in consumer contracts generally, 4.257 introduction, 4.19 Default construction of contract terms, 2.186– 2.192 unfair terms in consumer contracts, 4.382–4.385 Delay unfair terms in consumer contracts, 4.275–4.280

Delivery by instalments unfair terms in consumer contracts, 4.223 Description, sale by and see Sale of goods generally, 3.172 Detailed specifications reasonableness, 3.281–3.284 Deviation construction of contract terms, 2.127– 2.132 Difficult tasks reasonableness, 3.285–3.288 Digital content unfair terms in consumer contracts, 4.263–4.265 Disclaimers excluding or restricting obligations, 3.66–3.68 negligence, 3.85–3.87 Disproportionate financial sanctions discretionary dissolution of contract, 4.316–4.321 generally, 4.312–4.315 retention of sums paid by consumer, 4.322–4.328 Disproportionate termination fees unfair terms in consumer contracts, 4.307–4.308 Dissolution of companies excluded contracts or terms, 3.23 unfair terms in consumer contracts, 4.16 Dissolution of contract unfair terms in consumer contracts, 4.316–4.321 Distance marketing unfair terms in consumer contracts, 4.21 Donoghue v Stevenson liability negligence, 3.77 Drafting fairness, 2.21–2.22 plain, intelligible language, 2.26–2.30 reasonableness, 2.21–2.22 time frame, 2.23–2.25 transparency, 2.26–2.30 width of clauses, 2.23–2.25 E Economic loss negligence, 3.73 539

Index Employment contracts excluded contracts or terms, 3.36 unfair terms in consumer contracts, 4.16 Entire agreement clauses collateral contracts, 2.140–2.142 construction of contract terms collateral contracts, 2.140–2.142 documents relating to same subject matter, 2.145–2.147 exclusion of liability for misrepresentation, 2.158–2.177 generally, 2.133–2.139 implied terms, 2.148–2.157 subsequent agreements, 2.143–2.144 warranties, 2.140–2.142 documents relating to same subject matter, 2.145–2.147 exclusion of liability for misrepresentation, 2.158–2.177 generally, 2.133–2.139 implied terms, 2.148–2.157 limiting trader’s obligation, 4.366– 4.368 services made by trader, 4.369 significant imbalance, 4.183–4.189 statements made by trader, 4.369 subsequent agreements, 2.143–2.144 unfair terms in consumer contracts generally, 4.365–4.378 introduction, 4.230 limiting trader’s obligation, 4.366– 4.368 pre-CRA case law, 4.370–4.378 services made by trader, 4.369 significant imbalance, 4.183–4.189 statements made by trader, 4.369 warranties, 2.140–2.142 Estoppel misrepresentation, 6.15–6.19 EU law unfair terms in consumer contracts, 4.6 Excessive notice periods unfair terms in consumer contracts, 4.329–4.338 Excluded contracts or terms See also Unfair contract terms choice of law, 3.44–3.46 international supply contracts, 3.37– 3.43 540

Excluded contracts or terms – contd introduction, 3.23–3.26 relevant contracts, 3.23 saving for other legislation, 3.47 Exclusion clauses See also Exclusion clauses (consumer contracts); Unfair contract terms construction and see Construction of contract terms approach to exemption clauses, 2.18–2.20 drafting, 2.21–2.30 impact of legislation, 2.21–2.39 introduction, 2.1–2.17 particular clauses and phrases, 2.133–2.214 rules and approaches, 2.42–2.132 standard form contracts, 2.40–2.41 fiduciary duties and see Fiduciary duties background, 7.1–7.2 construction of terms, 7.13–7.29 Consumer Rights Act 2015, and, 7.30–7.41 efficacy of clauses, 7.3–7.10 exemption as breach of duty, 7.11– 7.12 UCTA 1977, and, 7.30–7.41 incorporation and see Incorporation of contract terms course of dealing, by, 1.84–1.111 introduction, 1.1 notice, by, 1.42–1.83 signature, by, 1.2–1.41 misrepresentation and see Misrepresentation construction of terms, 6.6–6.26 Consumer Rights Act 2015, and, 6.39–6.44 fraud, 6.2–6.5 introduction, 6.1 statutory provision, 6.27–6.38 third parties and see Third parties burden of a clause, 5.54–5.56 defences, 5.57–5.71 introduction, 5.1–5.16 protection for third party, 5.17–5.53

Index Exclusion clauses (consumer contracts) See also Unfair terms in consumer contracts consequential loss, 4.273–4.274 death and personal injury, 4.257–4.262 delay, 4.275–4.280 entire agreement clauses, 4.230 failure to perform contractual obligations, 4.291–4.293 faulty goods or digital content, 4.263– 4.265 general points, 4.253–4.256 generally, 4.225–4.229 guarantees acting as, 4.294–4.295 indemnification clauses, 4.233–4.234 introduction, 4.252 limitations of liability, 4.271–4.280 misdescribed goods or digital content, 4.263–4.265 penalty clauses, 4.231 personal injury, 4.257–4.262 poor services or work and materials, 4.266–4.270 right to set-off, 4.285–4.290 specific points, 4.257–4.270 time limit on claims, 4.281–4.284 variation clauses, 4.232 warranties acting as, 4.294–4.295 Exclusion or restriction of liability See also Unfair contract terms generally, 3.48–3.53 misrepresentation, 2.158–2.177 sale of goods, 3.178 Exclusion or restriction of obligations See also Unfair contract terms generally, 3.54–3.70 negligence generally, 3.84–3.87 introduction, 3.82–3.83 sale of goods, 3.179–3.191 Exclusive jurisdiction unfair terms in consumer contracts, 4.393 Express terms excluding or restricting obligations, 3.69 F Failure to perform contractual obligations unfair terms in consumer contracts, 4.291–4.293

Failure to provide services unfair terms in consumer contracts, 4.309–4.311 Fairness test See also Unfair terms in consumer contracts adjudication clauses, 4.181–4.182 ‘all the circumstances existing when the term was agreed’, 4.162–4.169 background, 4.158–4.169 basic test, 4.170–4.221 CMA analysis of good faith, 4.204– 4.206 CMA analysis of significant imbalance, 4.190–4.192 ECJ case law, 4.207–4.222 elements, 4.171 entire agreement clauses, 4.183–4.189 good faith, 4.193–4.206 jurisdiction clauses, 4.179–4.180 meaning, 4.158 ‘nature of the subject matter of the contract’, 4.161 significant imbalance, 4.175–4.192 Family law rights unfair terms in consumer contracts, 4.16 Faulty goods or digital content unfair terms in consumer contracts, 4.263–4.265 Fees unfair terms in consumer contracts, 4.307–4.308 Fiduciary duties background, 7.1–7.2 business liability, and, 7.30–7.39 construction of terms actual fraud, 7.21–7.22 Canada Steamship decision, 7.18 honesty, 7.23–7.27 negligence, 7.18–7.20 strict construction, 7.13–7.17 wilful default, 7.28–7.29 Consumer Rights Act 2015, and, 7.40–7.41 efficacy of clauses, 7.3–7.10 exemption as breach of duty, 7.11– 7.12 ‘fiduciary relationship’, 7.1 introduction, 7.2 541

Index Fiduciary duties – contd negligence, and business liability, 7.30–7.39 construction of terms, 7.18–7.20 rule of practice, 7.8–7.10 UCTA 1977, and, 7.30–7.39 Final decision unfair terms in consumer contracts, 4.360–4.364 Financial sanctions unfair terms in consumer contracts, 4.312–4.328 Fitness for purpose unfair terms in consumer contracts, 4.20 Formality clauses unfair terms in consumer contracts, 4.379–4.381 Formation of companies excluded contracts or terms, 3.23 unfair terms in consumer contracts, 4.16 ‘Four corners’ rule construction of contract terms, 2.113– 2.126 Fraud fiduciary duties, 7.21–7.22 incorporation of contract terms, 1.2 misrepresentation, 6.2–6.5 Fundamental breach of contract construction of contract terms, 2.110– 2.112 G Good faith CMA analysis, 4.204–4.206 ECJ case law, 4.207–4.222 generally, 4.193–4.203 Goods barter and hire contracts, 3.173 business liability and see Business liability generally, 3.10–3.22 introduction, 3.176 excluded contracts or terms and see Excluded contracts or terms generally, 3.23–3.47 introduction, 3.171 excluding or restricting liability, 3.178 excluding or restricting obligations, 3.179–3.191 542

Goods – contd fit for purpose, 3.172 hire contracts, 3.172 hire-purchase contracts, 3.172 ‘in the course of business’, 3.172 introduction, 3.171–3.176 onerous conditions, 3.178 reasonableness generally, 3.177 introduction, 3.172 restrictive conditions, 3.178 rules of evidence, 3.178 sale by description, 3.172 sale by sample, 3.172 satisfactory quality, 3.172 title to goods, 3.172 unfair terms in consumer contracts, 206–207 work and materials contracts, 3.173 Government departments business liability, 3.11 ‘Grey’ list See also Unfair terms in consumer contracts allowing traders to provide no service, 4.296–4.298 assignment without consent, 4.386– 4.388 changes in supply, 4.346–4.352 changes made by CRA, 4.250–4.251 default by traders, 4.382–4.385 entire agreement clauses, 4.365–4.378 exclusion and limitation clauses, 4.252–4.295 fees, 4.307–4.311 final decision, 4.360–4.364 formality clauses, 4.379–4.381 generally, 4.247–4.249 introduction, 4.224 notice periods, 4.329–4.338 price variation, 4.353–4.359 remedies available, 4.389–4.399 retention of prepayments, 4.299–4.306 sanctions, 4.312–4.328 table, 4.401 use, 4.74–4.77 variation of terms, 4.339–4.345 Gross negligence construction of contract terms, 2.193– 2.196

Index Guarantees business liability and see Business liability generally, 3.10–3.22 unfair terms in consumer contracts, 4.294–4.295 Guidelines reasonableness, 3.235–3.239 H Hedley Byrne v Heller liability negligence, 3.77 Hidden clauses unfair terms in consumer contracts, 4.222 Hire contracts and see Sale of goods generally, 3.173 Hire-purchase contracts and see Sale of goods generally, 3.172 I Implied terms barter and hire contracts, 3.173 business liability and see Business liability generally, 3.10–3.22 introduction, 3.176 entire agreement clauses, 2.148–2.157 excluded contracts or terms and see Excluded contracts or terms generally, 3.23–3.47 introduction, 3.171 excluding or restricting liability, 3.178 excluding or restricting obligations, 3.179–3.191 fit for purpose, 3.172 hire contracts, 3.173 hire-purchase contracts, 3.172 ‘in the course of business’, 3.172 introduction, 3.171–3.176 onerous conditions, 3.178 reasonableness generally, 3.177 introduction, 3.172 restrictive conditions, 3.178 rules of evidence, 3.178 sale by description, 3.172 sale by sample, 3.172

Implied terms – contd satisfactory quality, 3.172 title to goods, 3.172 unfair terms in consumer contracts, 253–256 work and materials contracts, 3.173 ‘In so far as’ reasonableness, 3.219–3.220 ‘In the course of business’ generally, 3.15–3.19 implied terms, 3.172 Inconsistent terms construction of contract terms, 2.108– 2.109 Incorporation of companies excluded contracts or terms, 3.23 unfair terms in consumer contracts, 4.16 Incorporation of contract terms course of dealing, by application of test, 1.92–1.104 basic test, 1.84–1.91 changes to standard terms, 1.111 failure to incorporate in past transactions, 1.109–1.110 ‘red hand rule’, 1.107–1.108 trade practice, 1.105–1.106 fraud, 1.2 introduction, 1.1 misrepresentation generally, 1.10–1.13 introduction, 1.2 non est factum claimants, 1.23–1.26 difference in document, 1.27–1.30 generally, 1.18–1.22 introduction, 1.2 not negligent, 1.39–1.41 signor’s belief, 1.38 uncompleted documents, 1.31–1.37 notice, by basic test, 1.49–1.57 content of clause, 1.62–1.77 detailed test, 1.82–1.83 introduction, 1.42 knowledge, 1.45–1.48 reference, 1.78–1.81 timing, 1.43–1.44 type of document, 1.58–1.61 unreasonable and unusual clauses, 1.62–1.77 543

Index Incorporation of contract terms – contd reference, by, signature, by basic approach, 1.2–1.6 contractual document, in, 1.8–1.9 developments in the law, 1.14–1.17 misrepresentation, 1.10–1.13 non est factum, 1.18–1.41 timing, 1.7 trade practice, by, 1.105–1.106 uncompleted documents, 1.31–1.37 unreasonable and unusual clauses, 1.62–1.77 Incorporation by reference generally, 1.78–1.81 Indemnification clauses unfair terms in consumer contracts, 4.233–4.234 Indemnities business liability and see Business liability generally, 3.10–3.22 excluded contracts or terms and see Excluded contracts or terms generally, 3.23–3.47 negligence, 3.91–3.94 second contracts, 3.205 written standard terms of business, 3.134–3.136 Indicative list See also Unfair terms in consumer contracts allowing traders to provide no service, 4.296–4.298 assignment without consent, 4.386– 4.388 changes in supply, 4.346–4.352 changes made by CRA, 4.250–4.251 default by traders, 4.382–4.385 entire agreement clauses, 4.365–4.378 exclusion and limitation clauses, 4.252–4.295 fees, 4.307–4.311 final decision, 4.360–4.364 formality clauses, 4.379–4.381 generally, 4.247–4.249 introduction, 4.224 notice periods, 4.329–4.338 price variation, 4.353–4.359 remedies available, 4.389–4.399 544

Indicative list – contd retention of prepayments, 4.299–4.306 sanctions, 4.312–4.328 table, 4.401 use, 4.74–4.77 variation of terms, 4.339–4.345 Inequality of bargaining power reasonableness, 3.250–3.256 written standard terms of business, 3.102 Installation in instalments unfair terms in consumer contracts, 4.223 Instant case written standard terms of business, 3.118–3.125 Insurance contracts excluded contracts or terms, 3.23 reasonableness, 3.260–3.263 Intellectual property rights excluded contracts or terms, 3.23 Intention construction of contract terms, 2.1–2.5 Interests in land excluded contracts or terms, 3.23 International conventions unfair terms in consumer contracts, 4.25 International supply contracts excluded contracts or terms, 3.37–3.43 scope of UCTA, 3.5 Interpretation of contract terms anti-set-off clauses, 2.178–2.185 approach to exemption clauses, 2.18–2.20 Canadian Steamship test basic formulation, 2.71–2.75 fiduciary duties, 7.18 first part, 2.86–2.92 intention of parties, 2.76–2.81 introduction, 2.64–2.70 justification, 2.71–2.75 scope, 2.82–2.85 second part, 2.93 summary, 2.101–2.107 third part, 2.94–2.100 collateral contracts, 2.140–2.142 common law developments, 2.38–2.39 consequential loss, 2.197–2.214 contra proferentum, 2.42–2.57

Index Interpretation of contract terms – contd deviation, 2.127–2.132 drafting fairness, 2.21–2.22 plain, intelligible language, 2.26– 2.30 reasonableness, 2.21–2.22 time frame, 2.23–2.25 transparency, 2.26–2.30 width of clauses, 2.23–2.25 entire agreement clauses collateral contracts, 2.140–2.142 documents relating to same subject matter, 2.145–2.147 exclusion of liability for misrepresentation, 2.158–2.177 generally, 2.133–2.139 implied terms, 2.148–2.157 subsequent agreements, 2.143–2.144 warranties, 2.140–2.142 exclusion of liability for misrepresentation, 2.158–2.177 fairness generally, 2.21–2.22 interactions with construction, 2.32–2.37 ‘four corners’ rule, 2.113–2.126 fundamental breach of contract, 2.110–2.112 gross negligence, 2.193–2.196 impact of legislation avoiding ‘strained’ construction, 2.31 drafting, 2.21–2.39 interactions with reasonableness and fairness, 2.32–2.37 implied terms, 2.148–2.157 inconsistent terms, 2.108–2.109 intention,2.2–2.5 introduction, 2.1–2.17 limitation clauses, 2.58–2.63 “matrix of fact”, 2.2–2.16 “natural and ordinary meaning”, 2.2–2.15 neglect, 2.186–2.192 negligence Canadian Steamship test, 2.71– 2.107 introduction, 2.64–2.70 legislative provisions, 2.64–2.70

Interpretation of contract terms – contd particular clauses and phrases anti-set-off clauses, 2.178–2.185 collateral contracts and warranties, 2.140–2.142 consequential loss, 2.197–2.214 default, 2.186–2.192 entire agreement clauses, 2.133– 2.177 gross negligence, 2.193–2.196 neglect, 2.186–2.192 ‘whole’ agreement clauses, 2.133– 2.177 wilful misconduct, 2.186–2.192 ‘peas and beans’ test, 2.113–2.126 plain, intelligible language, 2.26– 2.30 reasonableness generally, 2.21–2.22 interactions with construction, 2.32–2.37 rules and approaches contra proferentum, 2.42–2.57 deviation, 2.127–2.132 ‘four corners’ rule, 2.113–2.126 fundamental breach of contract, 2.110–2.112 inconsistent terms, 2.108–2.109 limitation clauses, 2.58–2.63 main purpose of the contract, 2.113–2.126 negligence, 2.64–2.107 ‘peas and beans’ test, 2.113–2.126 strict construction, 2.42–2.57 standard form contracts, 2.40–2.41 ‘strained’ construction contra proferentum, 2.49 generally, 2.31 strict construction, 2.42–2.57 subsequent agreements, 2.143–2.144 summary of principle, 2.2 time frame, 2.23–2.25 transparency, 2.26–2.30 unfair terms in consumer contracts common law developments, 2.38– 2.39 generally, 224–226 warranties, 2.140–2.142 ‘whole’ agreement clauses collateral contracts, 2.140–2.142 545

Index Interpretation of contract terms – contd ‘whole’ agreement clauses – contd documents relating to same subject matter, 2.145–2.147 exclusion of liability for misrepresentation, 2.158–2.177 generally, 2.133–2.139 implied terms, 2.148–2.157 subsequent agreements, 2.143– 2.144 warranties, 2.140–2.142 width of clauses, 2.23–2.25 wilful misconduct, 2.186–2.192 J Jurisdiction clauses unfair terms in consumer contracts, 4.179–4.180 K Knowledge incorporation by notice, 1.45–1.48 reasonableness, 3.264–3.272 L Land contracts excluded contracts or terms, 3.23 Liability controlled terms or notices, 3.48– 3.53 Limitation clauses construction of contract terms, 2.58– 2.63 reasonableness, 3.240–3.249 Limitation of liability See also Unfair terms in consumer contracts consequential loss, 4.273–4.274 delay, 4.275–4.280 failure to perform contractual obligations, 4.291–4.293 generally, 4.271–4.272 right to set-off, 4.285–4.290 time limit on claims, 4.281–4.284 Local authorities business liability, 3.11 M Making claims excluding or restricting liability, 3.50 546

Mandatory statutory or regulatory provisions unfair terms in consumer contracts, 4.25–4.41 Marine contracts excluded contracts or terms, 3.35 Matrix of fact construction of contract terms, 2.2–2.16 Misdescribed goods or digital content unfair terms in consumer contracts, 4.263–4.265 Misrepresentation agents, 6.24–6.26 auctions, 6.9 construction of contract terms denying representation by agent, 6.24–6.26 denying requirements exist, 6.8–6.23 generally, 6.6–6.7 Misrepresentation Act 1967, s 3, 6.27–6.32 reasonableness, 6.33–6.38 Consumer Rights Act 2015, and, 6.39–6.44 damages, 6.5 estoppel, 6.15–6.19 fraud, 6.2–6.5 incorporation by signature generally, 1.10–1.13 introduction, 1.2 introduction, 6.1 Misrepresentation Act 1967, s 3 generally, 6.27–6.32 reasonableness, 6.33–6.38 non-reliance clauses, 6.10–6.14 reasonableness generally, 6.33–6.38 introduction, 6.27–6.32 rescission, 6.5 Mixed use unfair terms in consumer contracts, 4.53–4.55 N Natural and ordinary meaning construction of contract terms, 2.2– 2.15 Neglect construction of contract terms, 2.186– 2.192

Index Negligence business liability and see Business liability generally, 3.10–3.22 introduction, 3.71 Canadian Steamship test basic formulation, 2.71–2.75 fiduciary duties, 7.18 first part, 2.86–2.92 intention of parties, 2.76–2.81 introduction, 2.64–2.70 justification, 2.71–2.75 scope, 2.82–2.85 second part, 2.93 summary, 2.101–2.107 third part, 2.94–2.100 definition, 3.75–3.79 disclaimers, 3.85–3.87 Donoghue v Stevenson liability, 3.77 economic loss, 3.73 excluded contracts or terms and see Excluded contracts or terms generally, 3.23–3.47 excluding or restricting obligations generally, 3.84–3.87 introduction, 3.82–3.83 fiduciary duties business liability, 7.30–7.39 construction of terms, 7.18–7.20 Hedley Byrne v Heller liability, 3.77 indemnities, 3.91–3.94 introduction, 3.71–3.74 meaning, 3.75–3.79 negligent misstatements, 3.77 non-contractual notices, 3.78 onerous conditions, 3.82 ‘other loss or damage’, 3.72–3.73 ‘personal injuries’, 3.72 reasonable care and skill, 3.76 reasonableness generally, 3.280 introduction, 3.80–3.81 Rylands v Fletcher liability, 3.77 standard terms of business, 3.74 tort actions, 3.77 vicarious liability, 3.71 voluntary assumption of risk (volenti), 3.88–3.90 written standard terms of business, 3.74

Negligent misstatements negligence, 3.77 Non-contractual notices negligence, 3.78 reasonableness, 3.208 Non-disclosure clauses excluding or restricting obligations, 3.67 Non est factum claimants, 1.23–1.26 difference in document, 1.27–1.30 generally, 1.18–1.22 introduction, 1.2 not negligent, 1.39–1.41 signor’s belief, 1.38 uncompleted documents, 1.31–1.37 Non-reliance clauses misrepresentation, 6.10–6.14 Notice, incorporation by basic test, 1.49–1.57 content of clause, 1.62–1.77 detailed test, 1.82–1.83 introduction, 1.42 knowledge, 1.45–1.48 reference, 1.78–1.81 timing, 1.43–1.44 type of document, 1.58–1.61 unreasonable and unusual clauses, 1.62–1.77 Notice periods unfair terms in consumer contracts, 4.329–4.338 Notification of breach excluding or restricting liability, 3.50 O Obligations and see Excluding or restricting obligations controlled terms or notices, 3.54– 3.70 second contracts, 3.201–3.204 ‘Occupation of premises for business purposes’ business liability, 3.20–3.22 ‘Of business’ written standard terms of business, 3.131 One-off transactions business liability, 3.16 547

Index Onerous conditions excluding or restricting liability, 3.50–3.51 negligence, 3.82 sale of goods, 3.178 written standard terms of business, 3.97 Opt-out clauses unfair terms in consumer contracts, 4.382 ‘Ordinarily supplied for private use or consumption’ generally, 3.17 ‘Other loss or damage’ negligence, 3.72–3.73 P Patents excluded contracts or terms, 3.23 Payment for services unfair terms in consumer contracts, 4.309–4.311 ‘Peas and beans’ test construction of contract terms, 2.113– 2.126 Penalty clauses unfair terms in consumer contracts, 4.231 Performance second contracts, 3.201–3.204 unfair terms in consumer contracts, 4.291–4.293 Personal injuries negligence’, 3.72 unfair terms in consumer contracts exclusion or limitation of liability, 4.257–4.262 generally, 4.19 Plain intelligible language construction of contract terms, 2.26– 2.30 unfair terms in consumer contracts generally, 4.150–4.152 introduction, 4.70 Poor services or work and materials unfair terms in consumer contracts, 4.266–4.270 Prepayments unfair terms in consumer contracts background, 4.299–4.301 548

Prepayments – contd unfair terms in consumer contracts – contd CMA guidance, 4.303–4.304 scope, 4.302–4.306 Privity of contract and see Third party rights generally, 5.1–5.3 Professions business liability, 3.11 Prominent unfair terms in consumer contracts average consumer, and, 4.146–4.149 meaning, 4.70 Price variation unfair terms in consumer contracts, 4.353–4.359 Public authorities business liability, 3.11 Q ‘Qualifying bodies’ unfair terms in consumer contracts, 4.14 R Reasonableness appeals, 3.221–3.230 assessment time frame, 3.231–3.234 availability of alternatives, 3.257–3.259 basic test, 3.206–3.213 burden of proof, 3.213 conditions on claims, 3.276–3.279 consequences, 3.289–3.296 construction of contract terms generally, 2.21–2.22 interactions with construction, 2.32–2.37 customer specifications, 3.281–3.284 dangerous tasks, 3.285–3.288 detailed specifications, 3.281–3.284 difficult tasks, 3.285–3.288 general approach, 3.214–3.218 guidelines, 3.235–3.239 ‘in so far as’, 3.219–3.220 inequality of bargaining power, 3.250– 3.256 insurance, 3.260–3.263 knowledge, 3.264–3.272 limitation clauses, 3.240–3.249

Index Reasonableness – contd meaning, 3.207 misrepresentation, and generally, 6.33–6.38 introduction, 6.27–6.32 negligence generally, 3.280 introduction, 3.80–3.81 non-contractual notices, 3.208 precedents, 3.221–3.230 sale of goods generally, 3.177 introduction, 3.172 second contracts, 3.194 settlement of past claims, 3.273–3.275 standard terms of business generally, 3.126–3.127 introduction, 3.95 time frame for assessment, 3.231– 3.234 trends, 3.214–3.218 written standard terms of business generally, 3.126–3.127 introduction, 3.95 ‘Red hand rule’ incorporation by course of dealing, 1.107–1.108 incorporation by notice basic test, 1.83 unusual clauses, 1.64–1.67, 1.75– 1.76 incorporation by reference, 1.80 signature of document, 1.15–1.16 Reference, incorporation by generally, 1.78–1.81 Registered designs excluded contracts or terms, 3.23 Rent covenants excluded contracts or terms, 3.28–3.29 Repairing covenants excluded contracts or terms, 3.28–3.29 Rescission misrepresentation, 6.5 Retention of prepayments background, 4.299–4.301 CMA guidance, 4.303–4.304 scope, 4.302–4.306 Retention of sums paid unfair terms in consumer contracts, 4.322–4.328

Reverse burden of proof excluding or restricting liability, 3.53 Right to set-off unfair terms in consumer contracts, 4.285–4.290 Rule of practice fiduciary duties, 7.8–7.10 Rules of evidence negligence, 3.82 sale of goods, 3.178 written standard terms of business, 3.97 Rylands v Fletcher liability negligence, 3.77 S Sale and Supply of Goods Act 1984 unfair terms in consumer contracts, 4. Sale by description and see Sale of goods generally, 3.172 unfair terms in consumer contracts, 4.20 Sale by sample and see Sale of goods generally, 3.172 unfair terms in consumer contracts, 4.20 Sale of goods barter and hire contracts, 3.173 business liability and see Business liability generally, 3.10–3.22 introduction, 3.176 excluded contracts or terms and see Excluded contracts or terms generally, 3.23–3.47 introduction, 3.171 excluding or restricting liability, 3.178 excluding or restricting obligations, 3.179–3.191 fit for purpose, 3.172 hire contracts, 3.172 hire-purchase contracts, 3.172 ‘in the course of business’, 3.172 introduction, 3.171–3.176 onerous conditions, 3.178 reasonableness generally, 3.177 introduction, 3.172 549

Index Sale of goods – contd rules of evidence, 3.177 sale by description, 3.172 sale by sample, 3.172 satisfactory quality, 3.172 title to goods, 3.172 unfair terms in consumer contracts, 4.2 work and materials contracts, 3.173 Salvage contracts excluded contracts or terms, 3.35 Samples and see Sale of goods generally, 3.172 unfair terms in consumer contracts, 4.20 Satisfactory quality and see Sale of goods generally, 3.172 unfair terms in consumer contracts, 4.20 Saving for other legislation excluded contracts or terms, 3.47 Second contracts compromise agreements, 3.193 defining obligations or performance, 3.201–3.204 generally, 3.192–3.194 indemnity, 3.205 obligations, 3.201–3.204 parties, 3.195–3.198 performance, 3.201–3.204 purpose of provision, 3.200 reasonableness, 3.194 types, 3.199–3.200 Securities excluded contracts or terms, 3.23 Services not supplied unfair terms in consumer contracts, 4.309–4.311 Set-off excluding or restricting liability, 3.53 third parties, 5.15 unfair terms in consumer contracts, 4.285–4.290 Settlement of past claims reasonableness, 3.273–3.275 Ship charterparties excluded contracts or terms, 3.35 550

Signature, incorporation by basic approach, 1.2–1.6 contractual document, in, 1.8–1.9 developments in the law, 1.14–1.17 misrepresentation, 1.10–1.13 non est factum claimants, 1.23–1.26 difference in document, 1.27–1.30 generally, 1.18–1.22 introduction, 1.2 not negligent, 1.39–1.41 signor’s belief, 1.38 uncompleted documents, 1.31–1.37 timing, 1.7 Signed statements unfair terms in consumer contracts, 4.240–4.241 Significant imbalance adjudication clauses, 4.181–4.182 CMA analysis, 4.190–4.192 ECJ case law, 4.207–4.222 entire agreement clauses, 4.183– 4.189 generally, 4.175–4.178 jurisdiction clauses, 4.179–4.180 Specifications reasonableness, 3.281–3.284 Standard form contracts construction of contract terms, 2.40– 2.41 written standard terms of business, 3.99–3.102 Standard terms of business business liability and see Business liability generally, 3.10–3.22 introduction, 3.95 claiming to render a substantially different performance or no performance introduction, 3.137–3.139 no performance at all, 3.166–3.170 substantially different performance, 3.140–3.165 course of dealing, 3.106 deals as consumer, 3.17–3.18 excluded contracts or terms and see Excluded contracts or terms generally, 3.23–3.47 introduction, 3.95

Index Standard terms of business – contd excluding or restricting liability for breach generally, 3.132–3.133 indemnities, 3.134–3.136 generally, 3.106–3.109 indemnities, 3.134–3.136 inequality of bargaining power, 3.102 instant case, 3.118–3.125 introduction, 3.95–3.98 meaning, 3.106–3.109 negligence, 3.74 ‘of business’, 3.131 onerous conditions, 3.97 presumption, 3.128–3.130 proferens’ terms, 3.110–3.117 reasonableness generally, 3.126–3.127 introduction, 3.95 rules of evidence, 3.97 standard form contracts, 3.99–3.102 unfair terms in consumer contracts, 208–209 use in the instant case, 3.118–3.125 ‘written standard terms of business’, 3.99–3.131 Statutory and regulatory provisions unfair terms in consumer contracts, 4.25–4.41 Statutory authority scope of UCTA, 3.5 Stay of action third party claiming benefit of exemption clause, 5.46 ‘Strained’ construction contra proferentum, 2.49 generally, 2.31 Strict construction fiduciary duties, 7.13–7.17 generally, 2.42–2.57 Subsequent agreements entire agreement clauses, 2.143– 2.144 Succession rights unfair terms in consumer contracts, 4.16 T Technical information excluded contracts or terms, 3.23

Tenancy agreements unfair terms in consumer contracts, 4.30–4.33 Termination fees unfair terms in consumer contracts, 4.307–4.308 Terms not individually negotiated unfair terms in consumer contracts, 4.69 Third party rights agency, 5.25–5.34 bailment on terms, 5.42–5.44 bearing burden of exemption clause generally, 5.54–5.56 use against third party, 5.57–5.71 circumstances in which rights arise, 5.5–5.8 claiming benefit of exemption clause agency, 5.25–5.34 bailment on terms, 5.42–5.44 introduction, 5.11 limiting the duty of care, 5.40–5.42 negativing the duty of care, 5.40– 5.42 relevant issues, 5.17–5.24 statutory provisions, 5.47–5.53 stay of action, 5.46 trusts, 5.45 vicarious immunity, 5.35–5.39 Contracts (Rights of Third Parties) Act 1999 circumstances in which rights arise, 5.5–5.8 claiming benefit of exclusion or limitation, 5.11 damages, 5.14 defence and counterclaim, 5.15 enforcement of terms subject to provisions of contract, 5.10 generally, 5.4 identification of third party, 5.9 injunctions, 5.14 introduction, 5.3 limitations on contracting affecting rights, 5.12–5.13 ouster of operation, 5.16 remedies available, 5.14–5.16 set-off, 5.15 specific performance, 5.14 damages, 5.14 551

Index Third party rights – contd defence and counterclaim, 5.15 enforceability test, 5.5 enforcement of terms subject to provisions of contract, 5.10 extinguishment, 5.12–5.13 identification of third party, 5.9 injunctions, 5.14 introduction, 5.1–5.16 limitations on variation or extinguishment, 5.12–5.13 limiting the duty of care, 5.40–5.42 negativing the duty of care, 5.40– 5.42 ouster of operation, 5.16 privity of contract doctrine, 5.1–5.3 relevant issues, 5.17–5.24 remedies available, 5.14–5.16 set-off, 5.15 specific performance, 5.14 stay of action, 5.46 trusts, 5.45 Unfair Contract Terms Act 1977, and introduction, 5.60 section 2, 5.63–5.71 section 3, 5.61–5.62 use of defences and exemption clauses against party introduction, 5.57–5.59 UCTA 1977, and, 5.60–5.71 variation, 5.12–5.13 vicarious immunity, 5.35–5.39 Time frame assessment construction of contract terms, 2.23– 2.25 Time limits excluding or restricting liability, 3.52 unfair terms in consumer contracts, 4.281–4.284 Title to goods and see Sale of goods generally, 3.172 Tort actions negligence, 3.77 Towage contracts excluded contracts or terms, 3.35 Trade marks excluded contracts or terms, 3.23 Trade practice Incorporation of terms, 1.105–1.106 552

Trader unfair terms in consumer contracts, 4.56–4.54 Trades business liability, 3.12–3.14 Transparency see also Unfair terms in consumer contracts accessibility, 4.137 ‘average consumer’, 4.146 CMA guidance, 4.142–4.145 definition, 4.133–4.135 ECJ case law, 4.140–4.141 generally, 4.132 introduction, 4.70 Law Commission proposals, 4.138– 4.139 older guidance, 4.150–4.152 plain intelligible language, 4.150– 4.152 prominent, 4.146–4.149 Trusts third party claiming benefit of exemption clause, 5.45 U Unfair contract terms See also Unfair terms in consumer contracts application, 3.1 business liability ‘business’, 3.11–3.14 ‘in the course of business’, 3.15– 3.19 introduction, 3.10 ‘occupation of premises for business purposes’, 3.20–3.22 commencement, 3.1 construction of contract terms common law developments, 2.38– 2.39 Consumer Rights Act 2015, and comparison, 4.12–4.14 introduction, 4.2 controlled terms of notices excluding or restricting liability, 3.48–3.53 excluding or restricting obligations, 3.54–3.70 ‘deals as consumer’, 3.17–3.18

Index Unfair contract terms – contd excluded contracts or terms choice of law, 3.44–3.46 international supply contracts, 3.37–3.43 introduction, 3.23–3.36 relevant contracts, 3.23 saving for other legislation, 3.47 excluding or restricting liability, 3.48–3.53 excluding or restricting obligations, 3.54–3.70 extent, 3.2–3.3 fiduciary duties, and, 7.30–7.39 goods excluding or restricting liability, 3.178 excluding or restricting obligations, 3.179–3.190 introduction, 3.171–3.176 reasonableness, 3.177 indemnities, 3.134–3.136 introduction, 3.1–3.5 negligence, 3.74 reasonableness appeals, 3.221–3.230 assessment time frame, 3.231–3.234 availability of alternatives, 3.257–3.259 basic test, 3.206–3.213 conditions on claims, 3.276–3.279 consequences, 3.289–3.296 customer specifications, 3.281–3.284 dangerous tasks, 3.285–3.288 detailed specifications, 3.281–3.284 difficult tasks, 3.285–3.288 guidelines, 3.235–3.239 ‘in so far as’, 3.219–3.220 inequality of bargaining power, 3.250–3.256 insurance, 3.260–3.263 knowledge, 3.264–3.272 limitation clauses, 3.240–3.249 meaning, 3.207 non-contractual notices, 3.208 precedents, 3.221–3.230 settlement of past claims, 3.273– 3.275 time frame for assessment, 3.231– 3.234 trends, 3.214–3.218

Unfair contract terms – contd reform proposals, 3.6–3.9 scope business liability, 3.10–3.22 controlled terms of notices, 3.48– 3.70 excluded contracts or terms, 3.23– 3.47 introduction, 3.1–3.5 second contracts compromise agreements, 3.193 defining obligations or performance, 3.201–3.204 generally, 3.192–3.194 indemnity, 3.205 obligations, 3.201–3.204 parties, 3.195–3.198 performance, 3.201–3.204 purpose of provision, 3.200 reasonableness, 3.194 types, 3.199–3.200 standard terms claiming to render a substantially different performance or no performance, 3.137–3.170 course of dealing, 3.106 excluding or restricting liability for breach, 3.132–3.136 generally, 3.106–3.109 indemnities, 3.134–3.136 inequality of bargaining power, 3.102 instant case, 3.118–3.125 introduction, 3.95–3.98 meaning, 3.106–3.109 ‘of business’, 3.131 presumption, 3.128–3.130 proferens’ terms, 3.110–3.117 reasonableness, 3.95 standard form contracts, 3.99– 3.102 use in the instant case, 3.118–3.125 ‘written standard terms of business’, 3.99–3.131 Unfair Contracts Terms Act 1977 See also Unfair contract terms unfair terms in consumer contracts comparison with CRA 2015, 4.12– 4.14 introduction, 4.2 553

Index Unfair enforcement clauses, 4.235–4.237 powers, 4.223 Unfair financial burdens unfair terms in consumer contracts, 4.238–4.239 Unfair terms in consumer contracts See also Unfair contract terms accessibility, 4.137 adjudication clauses, 4.181–4.182 ‘all the circumstances existing when the term was agreed’, 4.162–4.169 allowing traders to provide no service, 4.296–4.298 alternative dispute resolution, 4.391– 4.393 apprenticeship contracts, 4.16 arbitration, 4.391 arbitration agreements, 4.22–4.24 assignment without consent, 4.386– 4.388 ‘average consumer’, 4.146 background to CRA 2015, 4.7 basic scope, 4.8–4.11 binding consumers allowing traders to provide no service, 4.296–4.298 default by traders, 4.382–4.385 burden of proof as to fairness, 4.244– 4.246 cancellation retention of prepayments, 4.299– 4.306 changes in supply by trader, 4.346– 4.352 choice of law, 4.394–4.399 CMA guidance ‘core’ terms exemption, 4.127– 4.131 good faith, 4.204–4.206 significant imbalance, 4.190–4.192 transparency, 4.142–4.145 Codes of Practice, 4.243 company incorporation, 4.16 comparison of terminology, 4.400 comparison with UCTA 1977, 4.12– 4.14 compulsory arbitration clauses, 280–281 consequential loss, 4.273–4.274 554

Unfair terms in consumer contracts – contd construction of contract terms common law developments, 2.38– 2.39 general, 4.157 particular contracts, 4.153–4.156 consumer cancellation excessive notice periods, 4.329– 4.338 retention of prepayments, 4.299– 4.306 ‘consumer’, 4.43–4.52 ‘consumer contract’ definition, 4.15 exclusions, 4.16–4.17 ‘consumer notice’, 4.65–4.68 Consumer Rights Act 2015 background, 4.7 basic scope, 4.8–4.11 comparison with UCTA 1977, 4.12–4.14 implementation, 4.7 introduction, 4.1–4.4 status of EU law, 4.6 summary of changes, 4.4–4.5 contract terms, 210–212 cooling-off periods, 261 ‘core’ terms exemption case law, 4.80–4.126 CMA guidance, 4.127–4.131 DGFT v First National Bank, 4.80– 4.89 generally, 4.70–4.73 ‘grey list’, 4.74–4.77 Kásler, 4.106–4.109, 4.115–4.119 Matei, 4.110–4.119 OFT v Abbey National, 4.89–4.105 scope, 4.78–4.79 customer declarations, 4.240–4.241 death or personal injury generally, 4.257 introduction, 4.19 default by traders, 4.382–4.385 definitions average consumer, 4.146 consumer, 4.43–4.52 consumer contract, 4.15 consumer notice, 4.65–4.68 mixed use, 4.53–4.55

Index Unfair terms in consumer contracts – contd definitions – contd plain intelligible language, 4.150– 4.152 prominent, 4.146–4.149 trader, 4.56–4.54 transparency, 4.132–4.152 delay, 4.275–4.280 delivery by instalments, 4.223 determining supplies made by trader, 4.346–4.352 digital content, 4.263–4.265 disproportionate financial sanctions discretionary dissolution of contract, 4.316–4.321 generally, 4.312–4.315 retention of sums paid by consumer, 4.322–4.328 disproportionate termination fees, 4.307–4.308 dissolution of contract, 4.316–4.321 distance marketing, 4.21 ECJ case law, 4.207–4.222 employment contracts, 4.16 enforcement enforcement orders, 194 generally, 191–192 preventive policing, 193–195 entire agreement clauses generally, 4.365–4.378 introduction, 4.230 limiting trader’s obligation, 4.366– 4.368 pre-CRA case law, 4.370–4.378 services made by trader, 4.369 significant imbalance, 4.183–4.189 statements made by trader, 4.369 EU law status, 4.6 excluded contracts, 4.16–4.17 excluded terms arbitration agreements, 4.22–4.24 death, 4.19 distance marketing, 4.21 fitness for purpose, 4.20 included by CRA Part 1, 4.20 included by CRA Part 2, 4.25–4.41 introduction, 4.18 personal injury, 4.19 sale by description, 4.20

Unfair terms in consumer contracts – contd excluded terms – contd satisfactory quality, 4.20 statutory and regulatory provisions, 4.25–4.41 tenancy agreements, 4.30–4.33 excessive notice periods, 4.329–4.338 exclusion clauses consequential loss, 4.273–4.274 death and personal injury, 4.257– 4.262 delay, 4.275–4.280 entire agreement clauses, 4.230 failure to perform contractual obligations, 4.291–4.293 faulty goods or digital content, 4.263–4.265 general points, 4.253–4.256 generally, 4.225–4.229 guarantees acting as, 4.294–4.295 indemnification clauses, 4.233– 4.234 introduction, 4.252 limitations of liability, 4.271–4.280 misdescribed goods or digital content, 4.263–4.265 penalty clauses, 4.231 personal injury, 4.257–4.262 poor services or work and materials, 4.266–4.270 right to set-off, 4.285–4.290 specific points, 4.257–4.270 time limit on claims, 4.281–4.284 variation clauses, 4.232 warranties acting as, 4.294–4.295 exclusion of right to assign, 4.242 exclusion of special rights, 4.223 exclusive jurisdiction, 4.393 failure to perform contractual obligations, 4.291–4.293 failure to provide services, 4.309–4.311 fairness test adjudication clauses, 4.181–4.182 ‘all the circumstances existing when the term was agreed’, 4.162–4.169 background, 4.158–4.169 basic test, 4.170–4.221 CMA analysis of good faith, 4.204– 4.206 555

Index Unfair terms in consumer contracts – contd fairness test – contd CMA analysis of significant imbalance, 4.190–4.192 ECJ case law, 4.207–4.222 elements, 4.171 entire agreement clauses, 4.183– 4.189 good faith, 4.193–4.206 jurisdiction clauses, 4.179–4.180 meaning, 4.158 ‘nature of the subject matter of the contract’, 4.161 significant imbalance, 4.175–4.192 family law rights, 4.16 faulty goods or digital content, 4.263– 4.265 fees disproportionate, 4.307–4.308 final decision, 4.360–4.364 financial sanctions, 4.312–4.328 fitness for purpose, 4.20 formality clauses, 4.379–4.381 good faith CMA analysis, 4.204–4.206 ECJ case law, 4.207–4.222 generally, 4.193–4.203 ‘grey’ list allowing traders to provide no service, 4.296–4.298 assignment without consent, 4.386– 4.388 changes in supply, 4.346–4.352 changes made by CRA, 4.250–4.251 default by traders, 4.382–4.385 entire agreement clauses, 4.365– 4.378 exclusion and limitation clauses, 4.252–4.295 fees, 4.307–4.311 final decision, 4.360–4.364 formality clauses, 4.379–4.381 generally, 4.247–4.249 introduction, 4.224 notice periods, 4.329–4.338 price variation, 4.353–4.359 remedies available, 4.389–4.399 retention of prepayments, 4.299– 4.306 556

Unfair terms in consumer contracts – contd ‘grey’ list – contd sanctions, 4.312–4.328 table, 4.401 use, 4.74–4.77 variation of terms, 4.339–4.345 guarantees acting as exclusion clauses, 4.294–4.295 hidden clauses, 4.222 incorporation of companies, 4.16 indemnification clauses, 4.233–4.234 indicative list allowing traders to provide no service, 4.296–4.298 assignment without consent, 4.386– 4.388 changes in supply, 4.346–4.352 changes made by CRA, 4.250–4.251 default by traders, 4.382–4.385 entire agreement clauses, 4.365– 4.378 exclusion and limitation clauses, 4.252–4.295 fees, 4.307–4.311 final decision, 4.360–4.364 formality clauses, 4.379–4.381 generally, 4.247–4.249 introduction, 4.224 notice periods, 4.329–4.338 price variation, 4.353–4.359 remedies available, 4.389–4.399 retention of prepayments, 4.299– 4.306 sanctions, 4.312–4.328 table, 4.401 use, 4.74–4.77 variation of terms, 4.339–4.345 installation in instalments, 4.223 introduction background to CRA 2015, 4.7 basic scope, 4.8–4.11 comparison with UCTA 1977, 4.12–4.14 general, 4.1–4.4 status of EU law, 4.6 summary of changes, 4.4–4.5 jurisdiction clauses, 4.179–4.180 limitations of liability consequential loss, 4.273–4.274

Index Unfair terms in consumer contracts – contd limitations of liability – contd delay, 4.275–4.280 failure to perform contractual obligations, 4.291–4.293 generally, 4.271–4.272 right to set-off, 4.285–4.290 time limit on claims, 4.281–4.284 mandatory statutory or regulatory provisions, 4.25–4.41 misdescribed goods or digital content, 4.263–4.265 ‘mixed use’, 4.53–4.55 ‘nature of the subject matter of the contract’, 4.161 notice periods, 4.329–4.338 payment for services not supplied, 4.309–4.311 penalty clauses, 4.231 performance of contractual obligations, 4.291–4.293 personal injury exclusion or limitation of liability, 4.257–4.262 generally, 4.19 plain intelligible language generally, 4.150–4.152 introduction, 4.70 poor services or work and materials, 4.266–4.270 price variation, 4.353–4.359 prominent average consumer, and, 4.146–4.149 meaning, 4.70 remedies available alternative dispute resolution, 4.391–4.393 arbitration, 4.391 choice of law, 4.394–4.399 exclusive jurisdiction, 4.393 generally, 4.389–4.399 reservation of special rights, 4.223 retention of prepayments background, 4.299–4.301 CMA guidance, 4.303–4.304 scope, 4.302–4.306 retention of sums paid by consumer, 4.322–4.328 right to set-off, 4.285–4.290

Unfair terms in consumer contracts – contd Sale and Supply of Goods Act 1984, and, 4.2 sale by description, 4.20 Sale of Goods Act 1979, and, 4.2 sanctions, 4.312–4.328 satisfactory quality, 4.20 services not supplied, 4.309–4.311 set-off, 4.285–4.290 signed statements, 4.240–4.241 significant imbalance adjudication clauses, 4.181–4.182 CMA analysis, 4.190–4.192 ECJ case law, 4.207–4.222 entire agreement clauses, 4.183– 4.189 generally, 4.175–4.178 jurisdiction clauses, 4.179–4.180 special rights, 4.223 status of EU law, 4.6 statutory and regulatory provisions, 4.25–4.41 succession rights, 4.16 summary of legislative changes, 4.4–4.5 table of derivation, 4.400 tenancy agreements, 4.30–4.33 termination fees, 4.307–4.308 terms not individually negotiated, 4.69 time limit on claims, 4.281–4.284 ‘trader’, 4.56–4.54 transparency accessibility, 4.137 ‘average consumer’, 4.146 CMA guidance, 4.142–4.145 definition, 4.133–4.135 ECJ case law, 4.140–4.141 generally, 4.132 introduction, 4.70 Law Commission proposals, 4.138– 4.139 older guidance, 4.150–4.152 plain intelligible language, 4.150– 4.152 prominent, 4.146–4.149 types of unfair terms burden of proof, 4.244–4.246 Codes of Practice, 4.243 customer declarations, 4.240–4.241 557

Index Unfair terms in consumer contracts – contd types of unfair terms – contd delivery in instalments, 4.223 entire agreement clauses, 4.230 exclusion clauses, 4.225–4.234 exclusion of right to assign, 4.242 exclusion of special rights, 4.223 generally, 4.222–4.224 ‘grey list’, 4.247–4.399 hidden clauses, 4.222 indemnification clauses, 4.233–4.234 installation in instalments, 4.223 penalty clauses, 4.231 reservation of special rights, 4.223 signed statements, 4.240–4.241 unfair enforcement clauses, 4.235– 4.237 unfair enforcement powers, 4.223 unfair financial burdens, 4.238–4.239 variation clauses, 4.232 Unfair Contracts Terms Act 1977, and comparison with CRA 2015, 4.12–4.14 introduction, 4.2 unfair enforcement clauses, 4.235–4.237 powers, 4.223 unfair financial burdens, 4.238–4.239 unfairness ‘test’ adjudication clauses, 4.181–4.182 ‘all the circumstances existing when the term was agreed’, 4.162–4.169 background, 4.158–4.169 basic test, 4.170–4.221 CMA analysis of good faith, 4.204– 4.206 CMA analysis of significant imbalance, 4.190–4.192 ECJ case law, 4.207–4.222 elements, 4.171 entire agreement clauses, 4.183–4.189 good faith, 4.193–4.206 jurisdiction clauses, 4.179–4.180 meaning, 4.158 ‘nature of the subject matter of the contract’, 4.161 significant imbalance, 4.175–4.192 variation of terms by trader, 4.339–4.345 warranties acting as exclusion clauses, 4.294–4.295 558

Unfair terms in consumer contracts – contd work and materials, 4.266–4.270 Unfair Terms in Consumer Contracts Regulations 1999 see also Unfair terms in consumer contracts repeal, 4.1–4.3 Unsigned documents basic test, 15–17 content of clause, 19–23 detailed test, 24–25 knowledge, 14–15 reference, 23–24 timing, 13–14 type of document, 17–18 unreasonable and unusual clauses, 19–23 V Variation clauses unfair terms in consumer contracts, 4.339–4.345 Vicarious immunity third party claiming benefit of exemption clause, 5.35–5.39 Vicarious liability negligence, 3.71 Visually impaired people non est factum, 1.23 Vocations business liability, 3.12 Voluntary assumption of risk (volenti) negligence, 3.88–3.90 W Warranties construction of contract terms, 4.294– 4.295 Wilful default fiduciary duties, 7.28–7.29 Wilful misconduct construction of contract terms, 2.186– 2.192 Work and materials contracts and see Sale of goods generally, 3.173 unfair terms in consumer contracts, 4.266–4.270