AcF270 Week 16 Supporting notes

Law of Contract

Unfair contract terms

合同法代写 Contract law, as we have seen has developed to create a very rigorous formality around contract formation, and this as critical…

Contract law, as we have seen has developed to create a very rigorous formality around contract formation, and this as critical is seen as critical to the commerce and business environment to foster certainty and security for those conducting business. Business is conducted using the contractual mechanism so that if a bargain is broken, a deal is gone back on, then the victim has redress and remedy in law. The innocent party can either walk away from the contractual obligation, or seek to enforce it, and of course, can be compensated for the damage and loss he has suffered as a result of the broken deal, the breached contract. So if one party seeks to put a clause in the contract which says that in the event of a breach, there will be no (or limited) liability, it in a way undermines the whole purpose of contract law.

The courts do not like this obviously, but it happens all the time – e.g. in a car park, there is often a clause in our contract with the car park owner that as users of the carpark, our vehicle is left at owner’s risk. Such clauses are often reasonable, but are susceptible to abuse, so law imposes controls as follows.

The law regulates exclusion (exemption) clauses and unfair terms in two ways: there are common law limitations (so these we find in the case law); and there are statutory limitations (these we find in a domestic piece of legislation, and European regulation).

 

  1.  Common Law Limitations 合同法代写

There are two categories of limitation.  This means ways in which the courts will try and get rid of the exclusion clause. Remember, the court is not trying to overthrow the whole contract, destroy the deal – rather it seeks to uphold the contract but sever the exclusion clause, so that an innocent party who suffers damage as a result of a breach is compensated or receives other remedy. The common law (case law) limitations are those of:

(a) Incorporation

(b) Construction and Interpretation

 

(a) Incorporation  

The clause that the party is seeking to rely on must actually have been incorporated into the contract, in other words, it has to be a part of the contract if someone is seeking to rely on it.

 

Signature: Incorporation might be easily established if, for example, the clause is written into the contract and the parties have signed it: L’Estrange v Graucob [1934]; Curtis v Chemical Cleaning and Drying Co Ltd [1951].

 

The Document: If the document is a contractual document i.e. it looks like a legally binding document, then its terms will usually be deemed incorporated, even if it has not been signed: Chapelton v Barry UDC [1940] 合同法代写

 

Notice: An exclusion clause will not be incorporated if it is only brought to the party’s attention after the contract was entered into: Olley v Marlborough Court Ltd [1949]. It must be brought to the attention of the other party before or at the time of contracting, and the more onerous or the more unusual the term, the more notice the court’s will require: Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1988].

 

There are exceptions, such as where there has been a previous course of dealings between the parties and the term in question has been in the previous contracts: J Spurling Ltd v Bradshaw [1956], or where such exclusion clauses are implied by custom or through trade usage.

 

(b) Construction and Interpretation

If it is established that the term has been incorporated – i.e., it is in the contract, then the next considerations are construction and interpretation The words used must be clear: Andrew Bros (Bournemouth) Ltd v Singer and Co Ltd [1934], and if there is any ambiguity, the courts will interpret the clause against the party seeking to rely on it: Houghton v Trafalgar Co Ltd [1954]. This is known as the contra proferentem rule.

 


  1. Statutory Limitations 合同法代写

As time progressed, these common law (case law) limitations needed supplementing by statute as more and more use of exclusion clauses and unfair contract terms were seen in consumer contracts. There were previously 2 pieces of legislation therefore which were enacted to supplement the common law: The Unfair Contract Terms Act 1977 (UCTA), and a piece of EU law, The Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR). These  pieces of legislation overlapped, and there was some inconsistency in their provisions, and so Part 2 of the Consumer Rights Act 2015, the CRA, seeks to simplify the law and streamline the legislation governing unfair contract terms in consumer contracts. The effect of the CRA is that the UTCCRs are revoked – they did only apply, as the name suggests, to consumer contracts, and this is what the CRA is all about remember.

UCTA on the contrary applies to unfair contract terms in other types of contract.

As a result, the CRA amends UCTA substantially so that it only now relates to business-to-business contracts, and consumer-to-consumer contracts, and unfair terms in these and other forms of contract will be governed by an amended UCTA. The provisions in relation to these contracts are largely unchanged, and so we will still have to consider these (see below). In relation to consumer contracts and unfair terms, the governing legislation is now (since October 2015) the CRA.

 

These terms in Part 2, ss61-76 CRA are however very similar to those previously set out in the UCCTRs. The key provision is s 65 (check) which begins by stating that an unfair term in a consumer contract is not binding on the consumer. The definition as to what constitutes an unfair term is exactly the same as that found in the old UCCTRs, and Schedule 2 contains a non-exhaustive list of terms that are deemed to be unfair. This is a replica of the 17 that were set out in the UCCTRs plus another 3 new additions

 

The approach to exclusion clauses therefore is: 合同法代写

  1. Is the clause incorporated ?– if so,
  2. On construction and interpretation is it clear and does it cover what it purports to cover ? – if so,
  3. Does it satisfy the statutory requirements of UCTA (for non-consumer contracts) – and
  4. Does it satisfy the statutory requirements of CRA (for consumer contracts)

 

The Unfair Contract Terms Act 1977 (UCTA)

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UCTA has two effects: first, it renders certain exclusion clauses completely unenforceable, and secondly, it subjects other exclusion clauses to the test of reasonableness.

 

Section 2(1) of UCTA provides that a person cannot exclude or restrict liability for death or personal injury resulting from negligence

 

Section 2(2) goes on to provide that in relation to any other type of loss or damage (e.g. financial loss or damage to property) then the clause must satisfy the test of reasonableness. It can only be relied upon if in the circumstance the court considers it reasonable.

 

Section 11 and Schedule 2 of UCTA contain the reasonableness test and basically provide that a term will be reasonable ‘if it is a fair and reasonable one to be included, having regard to the circumstances...’. The court in determining reasonableness will have regard to the factors listed in Schedule 2, such as the strengths of the bargaining position of the parties, whether there is insurance cover the liability or loss, whether the part knew of the existence and extent of the term etc. 合同法代写

 

Smith v Eric Bush (1989) – HL  – the claimant bought a house on the basis of a surveyor’s report. The report sought to exclude liability, and the report negligently overlooked some serious defects. Held – the exclusion clause was unreasonable and not effective, for a number of reasons – inequality of bargaining position, lack of special knowledge, insurance cover, and the surveyor failed in a simple task.

 

See also Green v Cade Bros  – allowed to rely on clauses because the buyer could have bought product (potato seed) protected with a guarantee for a higher price. Virus destroyed potato crop – no refund, seller could rely on clause.

 

Cf George Finney Lock Seeds (1983) – cabbage seed – clause was not reasonable because the breach arose from the seller’s negligence, could have insured himself, and in the past the seller had settled such claims.

 

The Consumer Rights Act 2015 – Part 2 合同法代写

 

These regulations apply to consumer contracts where one party is a seller or supplier to the other party, the consumer.

 

The test in the CRA, at s. 62 is one of ‘fairness’ as opposed to ‘reasonableness‘ in UCTA. The test has 3 elements and the term will be unfair if:

  1. it is contrary to the requirement of good faith
  2. it causes an imbalancein the rights and obligations of the parties, and
  3. the imbalance causes a detrimentto the consumer.

 

Again in Schedule 2 of the CRA there is a list of (20) terms that may be regarded as unfair, e.g. terms that exclude or limit liability for death or personal injury, or where the compensation that the consumer has to pay for breaching the contract is disproportionately high.

 

This is an indicative and non-exhaustive list of terms which may be regarded as unfair – for example a clause enabling the seller to alter the product or service unilaterally will be automatically deemed unfair, as will a clause obliging the consumer to fulfil all his obligations where the seller or supplier does not perform all of his. 合同法代写

 

Another significant feature of the new provisions, which is mentioned above, is the requirement at s. 68 that ‘core’ terms, e.g. as to price be ‘transparent’ and ‘prominent’. This has been largely in response to the ancillary charges banks and insurance companies make e.g. when advertising on comparison websites – unrealistically low prices to attract customers then make profit from charges in the small print: Office of Fair Trading v Abbey National plc 2009 in which case the court held that these sorts of ancillary charges were exempt from the assessment as to fairness.  The price paid is not subject to a fairness test, but now s 64 of the CRA says such clauses have to be prominent and transparent otherwise they will be subject to the fairness test.

 

Overall, even though the CRA merely replicates and consolidates much of the previous legislation, it is fair to say that it does make substantial changes in some areas. The CRA represents a significant increase in the rights of consumers and in the powers of the court in dealing with the protection and enforcement of these rights. This should have seen many businesses revisit their standard terms and refund policies and procedure. We are yet to see what real impact the new Act has made.

Contracts in Restraint of Trade

These contracts restrict the future freedom of one of the parties to a contract to carry on his business, trade or profession.  Such clauses are commonly found in:

  • Contracts of employment
  • Contracts for the sale of business
  • Solus agreements

Contracts for employment 合同法代写

This will restrict the employee’s freedom to contract during his period of employment and after the termination of employment.  It is put in place where there are trade secrets at an employers or where it is possible an employee may leave to go and work for a competitor.

Forster & Sons Ltd v Suggett; Morris (Herbert) Ltd v Saxelby; Home Counties Dairies v Skilton; SW Strange v Mann; Proactive Sports Management Ltd v Rooney

Contracts for the sale of business

A purchaser of the goodwill of a business can protect what he has bought by imposing restrictions on the seller in the contract for the purchase of the business.  This must protect the business that has been sold and must not be excessive.

Vancouver Malt & Sake Brewing Co Ltd v Vancouver Breweries Ltd;

Solus agreements 合同法代写

A contract where one party agrees to buy goods only from one supplier, usually in return for trade discount.

Esso Petroleum v Harper’s Garage

Vitiating Factors (factors which can invalidate a contract)

A contract might meet all the necessary formation requirements having offer, acceptance, intention to create legal relations, certainty and consideration but may still not be binding because it lacks other necessary factors.  These invalidating factors are sometimes referred to as vitiating factors and include:

  • Misrepresentation
  • Mistake
  • Duress
  • Undue influence
  • Illegality

Misrepresentation 合同法代写

During negotiations, before a contract is completed, both parties make all kinds of statements.  Some of these statements may become terms of a contract.  Where it is found that the statement is untrue there will be a breach of contract. And the innocent party can pursue remedies for breach of contract.  A contract made after a misrepresentation is voidable.

The statement can be oral, written or by conduct Sykes v Taylor-Rose (2004); Spice Girls Ltd v Aprilia World Service BV (2002)

The statement must be false With v O’Flanagan; Dimmock v Hallett

The statement must be fact Bissett v Wilkinson; Smith v Land & House Property Corp; Esso Petroleum Ltd v Mardon; Fordy v Harwood;

The statement must have induced the other party to enter into the contract Attwood v Small; Redgrave v Hurd.

In order for a misrepresentation to be actionable in the courts it must be untrue, must be a statement of fact (not uninformed opinion). And it must have induced the other party into entering into the contract.

A misrepresentation may have been made fraudulently, negligently or innocently.

Remedies for misrepresentation: recission and damages

Recission sets the contract aside and puts the parties back in the same position they would have been in if the contract had never been entered into.

Damages are a financial payment made to compensate the innocent party.  The damages aim to put the innocent party back in the position they would have been in had the misrepresentation not happened.

Mistake 合同法代写

This is where one or both parties are mistaken about an element of the contract they have entered into.  The contract in this case is usually still valid.  However there are circumstances where the mistake is so fundamental to the contract that the courts will deem it an “operative” mistake which will make the contract void.

Mistake can either be common, mutual or unilateral.

Common mistake: where both parties make the same mistake Couturier v Hastie; Scott v Coulson; McRae v Commonwealth Disposals

Mutual mistake: where the parties are at cross purposes and therefore never really agree Raffles v Wichelhaus

Unilateral mistake: where only one of the parties to the contract is mistaken and the other party is aware of the mistake Hartog v Colin & Shields

Duress and Undue Influence

A contract which is entered into after one party exercised duress or undue influence on the other party is voidable by the innocent party.  This means the contract is valid after it has been made. But the innocent party can apply to the courts to have the contract set aside.  Duress is the threat of unlawful violence or unlawful imprisonment.  Barton v Armstrong

Undue influence makes a contract voidable.  To prove this the victim must prove they entered into a contract due to genuine intimidation.  This is a subjective test looking at the dominance over the victim. Bank of Credit and Commerce International SA v Aboody

Illegality 合同法代写

A contract may be illegal because its purpose is illegal, or because the manner in which the contract is to be performed is illegal.  A contract which does not actually break the law but is not in the public interest can also be illegal.  A contract may be illegal at common law (Everet v Williams; Parkinson v College Ambulance Ltd and Harrison) or under statutory legislation.

 
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