Without adequate legal controls, there is a risk that the terms of contracts will be unfair to one of the parties. This applies to both contracts between a business and a consumer (“consumer contracts”) and business-to-business contracts, and is particularly the case where the terms of the contract have been drawn up by one party in advance.
Although the other party may “agree” to the contract, he may not be aware of the term in question, or may not understand its implications. Even if he does realise what the term means, he may find that the other party is unwilling to change its “standard terms” just for him. Both Parliament and the courts have been concerned about unfair contract terms for many years.
Legislation to combat unfair terms was first passed in the 19th century. Until 1994 the controls centred on clauses which exclude or limit liability; the principal Act is now the Unfair Contract Terms Act 1977 (UCTA). However, in 1993 the European Council of Ministers passed a Directive on Unfair Terms on Consumer Contracts1 which applies (with limited exceptions) to unfair terms of any type in consumer contracts. The Directive was implemented in the UK by Regulations made under the European Communities Act 1972; these have now been superseded by the Unfair Terms in Consumer Contracts Regulations 1999
(UTCCR)
The Regulations did not amend or repeal UCTA; they provide an additional set of controls. Thus potentially unfair terms in contracts are at present subject to one or both of two quite separate legal regimes.
If the term in question is one that purports to exclude or restrict the liability of one of the parties, it is likely to be subject to UCTA. UCTA applies both to consumer contracts and to contracts between businesses.3 It may have the effect that the exclusion or restriction of liability is completely ineffective; or it may invalidate the term unless it “satisfies the requirement of reasonableness”.
If the term is in a consumer contract it will normally be subject to UTCCR. UTCCR can apply to almost any type of term that has not been “individually negotiated”, and will invalidate the term if it is “unfair”. However, UTCCR do not apply to “core” terms involving the subject matter or the price of the goods or services.