THE UNFAIR CONTRACT TERMS ACT 1977

Exclusion and limitation clauses in contracts are terms that will not be implied by the courts. In order for a party to rely on such clauses they must be expressly incorporated into the business to business contract and will then be subject to the Unfair Contract Terms Act 1977 (UCTA). Some exclusion clauses are simply impermissible; the UCTA contains an absolute prohibition on excluding or limiting liability for certain items such as the implied right (or title) to sell goods or supply services and for death or personal injury caused by negligence. As to other attempts to exclude or limit liability, under UCTA and at common law, they will only be enforceable if they are reasonable.

Reasonableness

In the context of commercial contracts and B2B contracts it should be easier to establish whether an exclusion clause or limitation clause is “reasonable”. Schedule 2 to the UCTA provides the following non-exhaustive list of guidelines for applying the test of reasonableness:

  • The strength of each parties’ bargaining position;
  • Whether the party that accepted the clause received an inducement to agree to it or whether they could have entered into a similar contract with another party without this clause;
  • Whether the aggrieved party knew our ought to have known the about the existence and extent of the clause;
  • Where the clause is conditional, whether it was reasonable, at the time of contracting, to comply with the condition; and
  • Whether the goods were bespoke or tailored for the other party.

Whilst the courts are reluctant to interfere with business to business contracts, they will look at the reasonableness of exclusion and limitation of liability clauses in light of what the clause was trying to achieve at the time it was drafted. They will also look at whether such clauses are considered standard in contracts for that particular industry. Another factor that will be taken into consideration is the commercial sophistication and means of each party, which will not always be equal. Clauses that make the contract commercially illogical or cause an injustice to one party are not likely to be enforceable.

It should be noted that the courts are less likely to get involved where such clauses are well drafted and easy to understand. Conversely, they are more likely to get involved when they are not. It will be up to the party relying on the exclusion or limitation clause to show that it is reasonable and this highlights the importance of a well drafted contract.

Written standard terms

Where one of the parties contracts on the other’s written standard terms, section 3 of UCTA imposes further additional controls, prohibiting the party using their written standard terms to:

  • Exclude or restrict any liability in respect of his breach of contract;
  • Claim that they can perform the contract in a manner substantially different to what was reasonably expected; or
  • Claim to be entitled not to perform the contract at all.

Disclaimer:

The information contains in this web-site is prepared for educational purpose. This site may be used by the students, faculties, independent learners and the learned advocates of all over the world. Researchers all over the world have the access to upload their writes up in this site. In consideration of the people’s participation in the Web Page, the individual, group, organization, business, spectator, or other, does hereby release and forever discharge the Lawyers & Jurists, and its officers, board, and employees, jointly and severally from any and all actions, causes of actions, claims and demands for, upon or by reason of any damage, loss or injury, which hereafter may be sustained by participating their work in the Web Page. This release extends and applies to, and also covers and includes, all unknown, unforeseen, unanticipated and unsuspected injuries, damages, loss and liability and the consequences thereof, as well as those now disclosed and known to exist.  The provisions of any state’s law providing substance that releases shall not extend to claims, demands, injuries, or damages which are known or unsuspected to exist at this time, to the person executing such release, are hereby expressly waived. However the Lawyers & Jurists makes no warranty expressed or implied or assumes any legal liability or responsibility for the accuracy, completeness or usefulness of any information, apparatus, product or process disclosed or represents that its use would not infringe privately owned rights. Reference herein to any specific commercial product process or service by trade name, trade mark, manufacturer or otherwise, does not necessarily constitute or imply its endorsement, recommendation or favouring by the Lawyers & Jurists. The views and opinions of the authors expressed in the Web site do not necessarily state or reflect those of the Lawyers & Jurists. Above all, if there is any complaint drop by any independent user to the admin for any contents of this site, the Lawyers & Jurists would remove this immediately from its site.