What is it?
The Unfair Contract Terms Act 1977 (UCTA) regulates the terms which can be included in certain contracts. Usually businesses are allowed to agree whatever they want to, and the law does not restrict what can be put in a contract. However, in certain circumstances UCTA restricts the terms which are deemed valid when they are unfair. In particular, UCTA sets out a number of rules dictating when a business is allowed to put an exclusion clause in a contract which is intended to exclude or restrict their liability.
An example of an exclusion clause would be:
‘Slippery Floors Ltd. takes no responsibility for any injury sustained on our premises.’
What does it apply to?
UCTA applies to almost all contracts as long as they involve attempts to limit or restrict business liability. Hence, private sales between individuals are usually not regulated by UCTA. Private sales between individuals would include the sale of a second hand car or a chest of drawers. It also applies to notices which attempt to exclude liability, even where there is no contract in place.
What does the Act prohibit?
A contractual term is deemed not to be valid if it seeks to exclude or restrict liability for, amongst other things:
a. Negligently caused death or personal injury;
c. Loss arising from defective goods or negligence of the distributor where goods are of a type ordinarily supplied for private use or consumption;
d. Negligently caused loss or damage, unless the term is reasonable;
e. Misrepresentation, unless the term is reasonable.
What is meant by negligence?
In the context of this Act, negligence means breach of one’s duty to:
a. Fulfill an obligation created by a term of a contract;
b. Take reasonable care; or
c. Take all reasonable care to see that a visitor is safe in using one’s premises that they have been permitted or invited to enter.
What is meant by reasonableness?
If a party to a contract wishes to exclude liability they must prove that the term which gives effect to that exclusion is reasonable. In determining reasonableness the court looks at a number of factors, including:
Parties’ relative bargaining powers – if one party is a multinational producer and distributor of timber and the other is a self-employed Italian woodcarver then the latter will be in a much worse position to make demands regarding terms;
How practical it is to source the product elsewhere – if the woodcarver was buying pine the court may decide that he could have simply chosen another source whereas if it were Snakewood then there may not be another choice;
Parties’ relative insurance positions – the multinational company would most likely have insurance to cover small losses whereas the woodcarver would not;
Terms usual in trade – It would not be usual when selling wood to exclude liability if the wood is kept in a workshop, such a term might be found unreasonable;
Knew or ought to have known of existence of terms – if the terms appear in a one page contract that is signed by both parties then a court is more likely to find them reasonable as opposed to if they appeared on a website, the address for which was printed on a schedule annexed to the contact;
Goods manufactured to special order – if the woodcarver had ordered a very rare wood cut into a precise shape it would be more reasonable for the seller to include certain exclusion clauses than for the sale of a 2 x 4 of pine;
Reasonable to expect compliance with any conditions – an exclusion of liability upon touching wood with anything other than silk would most likely be found unreasonable.