Part VIII

putting the new legislation into clear, accessible terms

1. Introduction

8.1                                      The third paragraph of our terms of reference requires us to consider the desirability and feasibility of

Making any replacement legislation clearer and more accessible to the reader, so far as is possible without making the law significantly less certain, by using language which is non-technical with simple sentences, by setting out the law in a simple structure following a clear logic and by using presentation which is easy to follow.

8.2                                      In Part II we explained the importance that the Law Commissions place on making the substantive law accessible to the businesses and individuals likely to be affected by it on a day-to-day basis, particularly when the relevant legislation is important to them before any question of a dispute arises and when they are not likely to have legal advice. We suggested that we should aim to make the legislation readily understandable, if not to consumers in general, at least to consumer advisers, and to business people with some knowledge of contracting.[1]

8.3                                      We also explained that we think the only way of testing whether such a project is worthwhile is to draft a sample part of the legislation and expose it to consultation. Therefore we include in Appendix B a draft of a selection of the clauses which would be necessary were the two pieces of existing legislation, UCTA and UTCCR, to be combined.

8.4                                      Consultees will, we hope, comment not only on the details of the draft but also on whether the overall project to put the new legislation into clear, non-technical terms is worthwhile.[2]

8.5                                      We would repeat that, in order to prepare the draft, it was necessary to make some assumptions about various decisions on which we are in fact consulting. Inclusion of a particular approach or decision in the draft does not create any presumption that our final report will adopt that decision or approach, nor indeed that it will recommend that the new legislation should be drafted in the way suggested in this consultation paper.[3]

8.6                                      In this Part of the consultation paper we explain some of the thinking behind the draft provisions. What follows is to some extent similar to the explanatory notes which would normally accompany the draft Bill that we would include in a report in which we recommend legislation. However, it goes a little further than is normal in explanatory notes in explaining the thinking that lies behind the structure of the draft as well as the intention behind each clause.

2. Limits to the third limb of the project

8.7                                      There are limits to what can be achieved in this limb of the overall project. It would be only fair to admit that, as we tried to put the provisional draft into “clear” and “non-technical” terms, we became more and more aware of these limits.

8.8                                      One point is that if, as is envisaged, UCTA and UTCCR are to be replaced by a single piece of legislation, that legislation will have to apply to a variety of different contracts – for example, to consumer contracts and business-to-business contracts. It also needs to be in a style that is internally harmonious. This meant that we were not able to pursue one idea, namely to follow the style of many “Plain English” consumer contracts and refer to the parties as “you” (the consumer) and “us” (the business), or (more realistically) as “you” and “the business”. That might work for the parts dealing with consumer contracts[4] but it would not work for “business-to-business” contracts. We have, however, used the phrases “the business” and “the consumer”.

8.9                                      A second and more fundamental point is that the legislation is dealing with technical concepts that often are quite complex and cannot be explained in the unfair terms legislation itself. For example, section 6 [s 20] of UCTA prevents the exclusion or restriction of various implied terms under the SGA 1979. It may be that, in an ideal world, a reader would find in the unfair terms legislation itself an explanation of precisely what rights the business may or may not exclude, but in reality that would make the unfair terms legislation unmanageably long. Instead we have to use cross-references to other legislation.

8.10                                      Thirdly, the legislation has to be precise. We are not drafting a code in the civilian tradition, nor a set of general principles of contract law that can be interpreted liberally by the courts.[5] This is legislation that will be “just another” statute[6] about contract law and will fall to be interpreted in the same way as the existing legislation.[7]

8.11                                      A fourth point, which as regards legislation that is intended to be “user-friendly” may be more controversial, is that the reader may have to refer to normal rules of statutory interpretation. This is to avoid having to use lengthy phrases that in themselves might make the clauses less clear. Thus the draft does not use “he or she” when referring to individual consumers, not “he, she or it” when referring to legal persons generally. Similarly it uses “persons” to mean both individuals and organisations. The Interpretation Act 1978 provides that “words importing the masculine gender include the feminine”[8] and that “person” includes a corporate or unincorporate body as well as a natural person.[9] After some hesitation we decided that the draft should follow these conventions.

3. Simpler structure and language, and more explanation

8.12                                      What we think this limb of the project can achieve, by way of making the legislation clearer and more accessible, are two things. First, we have structured the draft legislation in a less compressed way, so that there are separate parts for each broad type of contract affected. We explain this in more detail in the next section. Secondly, we have tried to keep what might be termed the “principal” sections simple and free from “legal jargon”. Consumer contracts are supposed to meet those criteria;[10] it would be ironic if the legislation on unfair terms did not. We have tried to keep “technical detail” to a minimum and to put it into subsidiary provisions, such as definitions sections, where we hope it will be less off-putting to the reader.

8.13                                      Thirdly, we have tried to amplify the words of the current legislation to make it clearer what it actually requires or forbids. We think this is of particular importance to businesses, which will want to know what they need to do to ensure, so far as possible, that the terms of their contracts with consumers satisfy the legislation; and to help consumers and their advisers.

8.14                                      Each of these steps has meant using more words. Ultimately a balance has to be struck between clarity and conciseness. Whether the balance we have struck in the draft legislation in Appendix B is appropriate is a question on which we invite consultees to comment.

4. The parts of the draft Bill

8.15                                      As we suggested in Part I,[11] given the complexity of its subject matter, UCTA is in many ways a model of concision. It frequently covers several different types of transaction (for example, consumer contracts, business-to-business contracts and others) within a single section. This makes it hard to understand at first sight, as it is necessary to analyse the provisions closely to see which apply to which situation.

“Consumer”, “business” and “private” contracts

8.16                                      Our first decision was to “unpack” the provisions and make separate provisions for each type of contract, so that the reader, who will normally know which category is in question, can turn straight to the relevant part and ignore those dealing with the other types of contract. This suggested a broad division into Parts dealing respectively with consumer contracts, business-to-business contracts and “private” contracts (that is, contracts between individuals not acting for business purposes[12]). This makes the new legislation longer than the legislation it replaces, but it is our provisional view that this disadvantage is outweighed by the gain in clarity.

8.17                                      On this model, the “unified regime” to replace UTCCR and those parts of UCTA which deal with consumer contracts would form a separate part of the legislation applying only to consumer contracts. The regime we propose for business-to-business contracts (or, if those proposals are not confirmed, the provisions that would replace the UCTA controls over business contracts) would fall into the business-to-business part; and the few rules which apply to all contracts would be in the “private” contracts part. The draft Bill does not contain provisions dealing with business-to-business contracts.

Exclusions and restrictions of liability for negligence [breach of duty]

8.18                                      This simple tripartite division (consumer, business-to-business and private) does not cover the whole ground. UCTA applies to clauses which exclude business liability for negligence [breach of duty] irrespective of whether the party who has suffered the harm is a consumer, a business or anyone else; and the provisions apply not only to contractual terms but also, where liability in tort [delict] is concerned, to non-contractual notices (see Part VII above). It would be possible to have clauses which apply to terms that purport to exclude or restrict liability for negligence [breach of duty] in each of the three Parts, but it would still be necessary to have a separate provision for non-contractual notices. After considerable thought we decided provisionally that it would be preferable to keep the “negligence” provisions together in a single, separate Part. Thus the principal provisions would be grouped into four Parts:

                                                     (1)           Negligence liability [liability for breach of duty]

                                                     (2)           Consumer contracts

                                                     (3)           Business-to-business contracts (not included in this draft Bill)

                                                     (4)           Private contracts.

General provisions

8.19                                      We think that this division is important for what we might call the principal “operative” clauses. There are in addition, as Parts III, IV and V of this consultation paper suggest, a number of ancillary questions (such as definitions, the effect of a decision that a term is not “fair and reasonable”, and various controls on attempts at evasion of the legislation) which apply “across the board”, to each category of contract. It would be possible to insert these provisions into each Part, so that each is complete and free-standing. However, this would involve a good deal of repetition, and we think that it is not necessary. We think that even non-lawyers will readily understand a Part containing general provisions that apply to each of the other Parts. This structure is very common in insurance contracts, which regularly have sections dealing with the various types of cover provided under the policy and then a section of “general conditions”. We believe that business people and most consumers are used to that and can therefore be expected to follow a similar structure in the new legislation.

8.20                                      There are also provisions dealing with what is “fair and reasonable” and the burden of proof. The decision on where these should be placed depends to some extent on whether our provisional proposal that the test of what is “fair and reasonable” should be the same for each type of contract[13] is confirmed, and the recommendation in our final report on the question of the burden of proof.[14] If our final recommendation is that the test of what is “fair and reasonable” and the burden of proof should be the same for both consumer and business-to-business contracts, then these items can also be in the general Part. (There is already a paragraph stating that the factors shall apply to notices with any modifications that are appropriate.[15])

Definitions

8.21                                      A common technique of drafting statutes is to start with definitions. This is entirely logical but, we think, very off-putting to a person not accustomed to reading legislation. We have used the opposite technique of stating the principal operative provisions first, in language which should be broadly understandable to readers without first having recourse to definitions. The detailed definitions are set out later for use if required.

Form of the legislation

8.22                                      If there is to be new legislation, it will have to be decided whether it will be a statute or a statutoryinstrument.[16] For the purposes of this Part we assume that it will be a statute, and so refer to the draft “clauses” of the “Bill”.

5. Negligence liability [liability for breach of duty]

Clause 1: Contract terms or notices excluding or restricting business liability for negligence

8.23                                      Clause 1 is not very different to UCTA section 2 [s 16] but it (or at least its operative part) is placed before the definitions found in UCTA section 1 [or the exceptions found in s 15]. This more direct approach should make it more obvious to the lay reader what the clause is about. For the same reason, the restriction to business liability[17] is introduced into the principal subsections, (1) and (2). Clause 1(4) replaces the cryptic “(whether his own business or another’s)” of UCTA section 1(3)(a).[18]

8.24                                      UCTA section 2(1) [s 16(1)] refers to the exclusion or restriction of liability by a notice “given to persons generally or to particular persons.” We have not felt it necessary to reproduce that explanation in the draft Bill; the meaning of the word “notice” seems clear without it.

Clause 2: Exceptions from section 1 for England and Wales

8.25                                      Clause 2(1) replaces UCTA Schedule 1, paragraph 4, stating the effect of that provision. Clause 2(2) replaces the proviso to UCTA section 1(3).[19] Neither provision of UCTA has an equivalent for Scotland. We see no need to alter that position, hence clause 2(3).

Clause 3: Effect of agreement to, or awareness of, term or notice

8.26                                      This replaces UCTA section 2(3) [s 16(3)].

6. Consumer contracts

8.27                                      The draft refers to “consumer contracts”, and to “the consumer” and “the business”, rather than “a person dealing as consumer”. (These terms are defined in clause 15.)

8.28                                      The principal provisions dealing specifically with consumer contracts fall into two groups. Certain terms are always ineffective. These are covered in clauses 4 and 5. Others are subject to a “fair and reasonable” test. This is provided in clause 6. The headings to the clauses are designed to make this division clear.

Clause 4: Sale to, and hire-purchase by, consumer: terms of no effect

8.29                                      We have retained the division between contracts of sale and hire-purchase,[20] on the one hand, and other contracts under which possession or ownership of goods passes,[21] on the other, simply because to combine them would make the relevant clause very long.

8.30                                      Clause 4(2) uses a different form of words to those in UCTA. For England, UCTA sections 6(2) and 7(2) state that the relevant liabilities “cannot be excluded or restricted by reference to any contract term”. For Scotland, sections 20(2)(b)(ii) and 21(1)(a)(ii) provide that the relevant type of clause shall have no effect if it was not fair and reasonable to incorporate it in the contract. The present draft uses the formula that “The business cannot rely on a term of the contract to exclude or restrict its liability” in order to be consistent with clause 6, for which this seems to be the best approach.[22]

8.31                                      Clause 4(3) sets out the implied terms that cannot be “excluded or restricted” by reference to the sections of the relevant legislation.

8.32                                      Clause 4(4) replaces UCTA section 12(2) [s 25(1) (“consumer contract” – exemption for contract of sale by auction or competitive tender)]. It is in narrower terms to reflect the requirements of SCGD, under which sellers at other kinds of auctions may not be permitted to exclude or restrict the consumer’s rights under the Directive.[23]

Clause 5: Other contracts under which goods pass to consumer: terms of no effect

8.33                                      Clause 5(3), unlike UCTA section 7 [s 21], refers expressly to the sections of the Supply of Goods and Services Act 1982 that imply terms as to title and as to conformity with description or sample and quality and fitness for purpose into other contracts under which ownership or possession of goods pass. It does not seem necessary to retain the reference currently in UCTA section 7(1) [s 21(3)] to other kinds of “obligation […] arising by implication of law from the nature of the contract.” The terms implied under the 1982 Act seem to occupy the whole of the relevant ground.

Clause 6: Other terms detrimental to consumer of no effect unless fair and reasonable

8.34                                      All other terms that are subject to control fall under the “fair and reasonable” criterion set out in clause 6. The operative part of this is short;[24] it is the exceptions, such as for “core terms” and terms which are required by statute or which merely reproduce the general law, that are complex. These exceptions are set out in the remainder of clause 6.

8.35                                      Clause 6(1) makes it clear that it is only a term that is detrimental to the consumer that may be challenged under this clause, but for reasons explained earlier[25] uses the basic test of whether the clause is “fair and reasonable”.

8.36                                      Clause 6(2) addresses a problem that a single term may include some provisions that are detrimental to the consumer and others that are beneficial to the consumer. The clause is designed so as not to affect the parts of the term that are not detrimental.

8.37                                      However, within a term or part of a term that is detrimental to the consumer, the clause does not distinguish between parts which are unfairly detrimental and parts which, on their own, would be fair and reasonable. To allow the business to enforce any provisions of a detrimental term that could on their own be fair would encourage businesses to include as much “boiler-plate” as possible, knowing that they have nothing to lose because only the unfair parts will be struck out. Under clause 6(2) the court is to decide whether the part of the clause that is detrimental to the consumer is fair and reasonable; if it is not, the whole of the detrimental part will be invalid.

8.38                                      Clause 6(1) uses the formula that “the business cannot rely on the term” to make it clear that the consumer, if it is in her interest to do so, may enforce a clause that might be seen as unfairly detrimental to her.[26] This is to the same effect as UTCCR regulation 8(1), which provides that “an unfair term … shall not be binding on the consumer”, but is in language that is perhaps more familiar to the reader in the UK.

8.39                                      The effect of clause 6(3) is that a term which sets out the main subject matter is not subject to review, subject to two provisos. The first proviso is that it is “transparent”, the term used to incorporate the “plain, intelligible language” requirement of the Directive. The second proviso rests on the idea that a term cannot represent the main subject matter of the contract if it is substantially different to what the consumer should reasonably have expected, for example in the light of the information given to her.[27]

8.40                                      Clause 6(4) does the equivalent for the “adequacy of the price”. As we explained above, a sum payable under the contract will not qualify as the “price” if is payable under a “subsidiary term” or is payable in circumstances, or calculated in a way, that is substantially different to what it was reasonable for the consumer to expect. However, the consumer will not be able to challenge the amount of the “principal” price simply on the ground that it was higher than might reasonably have been expected.[28]

8.41                                      Recital 13 of the Directive makes it clear that contract terms that do no more than state “rules which, according to the law, shall apply between the contracting parties provided that no other arrangements have been established” need not be subject to review.[29] Clause 6(5) aims at this exemption.[30]

8.42                                      The OFT has said that in its view the “plain language” requirement is not satisfied if the term is in print that is hard to read, if the terms are not readily accessible to the consumer, or the layout of the contract document is hard to follow. Clause 6(6) imposes explicit requirements to achieve what we have called “transparency”.

Clause 7: Sale to, and hire-purchase by, business: effect of certain terms

8.43                                      Clause 7 deals with the less common type of consumer contract under which a consumer sells goods, or possibly even lets them on hire-purchase to, a business – for example, the consumer who sells a car to a car dealer. UCTA imposes restrictions on the consumer’s power to contract out of his obligations as to title and (unless the term is fair and reasonable) description or sample.[31] If these controls are to be continued, it seems sensible to place them under the broad heading of consumer contracts but in a separate section dealing only with these “consumer-to-business” contracts.

7. Private contracts

Clause 8: Sale of goods and hire-purchase: effect of certain terms

8.44                                      We have raised the question whether the rather limited controls over purely “private contract” terms imposed by UCTA and reproduced in this clause are necessary.[32] If they are to be maintained, we consider that they should be placed in a separate Part of the Bill even though the provisions of clause 8(2) and (3) mirror exactly those of clause 7(2) and (3). This is because clause 8 is dealing with a distinct class of contracts, namely contracts where neither party is acting for purposes related to a business. The easiest way to make it clear to the reader is to have a separate provision.

8. Business-to-business contracts

8.45                                      This Part would follow, or possibly precede, the Part dealing with private contracts. As stated above, provisions dealing with business-to-business contracts have not yet been drafted. We would anticipate that they would follow the same style of drafting as is used in the present draft.

9. General provisions

Clause 9: The fair and reasonable test

8.46                                      As under UCTA, the test of whether a contract term is fair and reasonable has to be slightly different from that applied to non-contractual notices, because the moment of time at which the fairness of a notice is to be judged must be different from the time at which a contract term is agreed, the test under the Directive.[33] The two tests are set out in subsections (1) and (2) of clause 9.

8.47                                      Paragraph (b) of each subsection refers to the fact that, on the approach we have provisionally proposed, in determining whether in an individual case the term or notice was fair and reasonable both substantive fairness (“the substance and effect of the term/notice”) and procedural fairness (“the circumstances existing when the contract was made / the liability arose”) should be taken into account.[34]

8.48                                      Clause 9(3) refers to the list of factors to be taken into account in deciding whether a term or notice is fair and reasonable which, we have provisionally proposed, should be included in the legislation. As the list is rather lengthy, it has been placed in a separate Schedule.[35] If our final report recommends that there should be separate lists for the different types of contract (we have provisionally proposed that the same list can apply to both consumer and business-to-business contracts[36]), there may have to be separate lists in separate Schedules.

8.49                                      Clause 9(4) refers to the Schedule containing the new indicative list and the examples that we propose the list should contain. We have provisionally proposed that there should be different lists for consumer and business-to-business contracts. Each Part can simply refer the reader to the relevant Schedule.[37]

Clause 10: Savings for mandatory and regulatory provisions

8.50                                      Terms which are required by other legislation or rules of law, or by regulators, will continue to be exempt from control.[38] So will terms that are required or authorised by international conventions to which the UK is party. This exemption follows UCTA section 29(1); it is narrower than the exemption that UTCCR seems to give.[39]

Clause 11: Secondary contracts

8.51                                      UCTA contains provisions designed to prevent evasion of the Act’s controls over a contract by a second contract taking away rights that are secured by UCTA under the first contract.[40] The provisions in Part I (England) have proved difficult to apply.[41] They and the equivalent sections for Scotland would be replaced by this clause. It would have the result that, if the term in the first contract would be of no effect at all under clause 1(1), 4, 5, 7(2) or 8(2), the term in the secondary contract will equally be of no effect; if the term in the first contract would be subject to the “fair and reasonable” test, the same will apply to the term of the secondary contract. As the latter term will be treated as if it were part of the main contract, it will not be exempted from control on the ground that it is a “core term”.[42] The clause will apply whether the parties to the two contracts are the same or different.[43] As under UCTA Part II,[44] there is an explicit saving for settlements of existing disputes.

Clause 12: Effect on contract of term having no effect

8.52                                      This replaces UTCCR regulation 8(2).[45]

Clause 13: Burden of proof

8.53                                      Clause 13(1) replaces UCTA section 12(3) [s 25(1)].

8.54                                      In Part IV we asked for consultees’ views on whether the burden of proving that a clause is “fair and reasonable” should be on the business in all cases, or only in cases in which the term is to be found on the “indicative list”. We have drafted alternative versions of the relevant clause: thus the first version of clause 13(2) and (3) (under “AND”) represents the first alternative, and the second version of clause 13(2)–(4) (under “OR”) the second.

10. Interpretation

Clause 14: “Negligence” and “breach of duty”

8.55                                      This replaces UCTA section 1(1) [s 25(1)].

Clause 15: “Consumer contract”, “the consumer” and “the business”

8.56                                      This replaces UCTA section 12 [s 25(1)] but uses the rather wider test of whether the activity of either party was “related to” business, as found in SCGD.[46] It does not require that any goods supplied be of a type ordinarily supplied for private use or consumption if the contract is to count as a consumer contract, as this restriction cannot survive SCGD.[47]

8.57                                      The last phrase of the clause exempts employment contracts from the controls over consumer contracts in general. This follows the approach of UTCCR, which seem not to apply to employment contracts.[48] For the purposes of this draft we have assumed that employment contracts will not be brought within the controls over consumer contracts.[49]

Clause 16: “Exclusion or restriction of liability”

8.58                                      This clause replaces UCTA section 13 [s 25(3) and (5)]. Examples of “exclusions and restrictions” are given in the next clause. Clause 16 also defines the meaning of “exclude or restrict liability” in Schedule 2, paragraph 1.

Clause 17: Examples of “exclusion or restriction of liability”

8.59                                      This clause contains examples to show more clearly what is meant by “exclusion or restriction of liability” when that is referred to in clauses 1, 4, 5, 7 and 8. The examples are also referred to in Schedule 2, paragraph 1, as examples of terms that are presumed to be unfair under clause 9(4).

Clause 18: Interpretation of other expressions

8.60                                      The list of definitions in clause 17 is largely derived from UCTA section 14 [s 25]. It contains some additional definitions which in UCTA were contained in the relevant clauses but which seemed to “clutter” those clauses unnecessarily.

11. The Schedules

Schedule 1: Factors relevant to fairness

8.61                                      The various factors that seem relevant to whether a term or notice is fair and reasonable[50] are set out in Schedule 1. They are grouped into paragraphs in order to make it clearer how each one is likely to be relevant.

Schedule 2: Terms that are presumed to be unfair

8.62                                      Schedule 2 replaces the “indicative and non-exhaustive list of terms that may be regarded as unfair” presently in Schedule 2 to UTCCR. We have provisionally proposed that the list be reformulated, “translating” the examples into terms which are recognisable to readers from the UK. To give consultees an idea of how this might be done, the draft Bill contains four paragraphs that are intended to replace UTCCR Schedule 1, paragraph 1(b)–(e). An explanation for each one will be found in Part IV above.[51]

12. Questions for consultees

8.63                                      Given the limitations of this third limb of the project that are set out above, we believe that we have made the draft Bill about as clear and non-technical as is likely to be possible. We would of course be very glad to receive suggestions from consultees on how the draft might be further simplified. The principal question we would ask, however, is whether the simpler structure that we have adopted and the amplification of its intended meaning that we have included in the draft (for example by using expanded lists of factors and examples) offer any real improvement over the legislation that this draft is intended to replace.

8.64                                      Do consultees have any suggestions as to how the draft Bill might be further simplified or made more accessible, particularly to those without a legal training?

8.65                                      Do consultees consider that the techniques of using a simplified structure and amplifying what is meant by the clauses should be pursued in any legislation that is finally recommended?