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You are here: BAILII >> Databases >> Scottish Law Commission >> Scottish Law Commission (Reports) >> Unfair Terms In Contracts [2005] SLC 199(Appendix A) (Report) (February 2005) URL: http://www.bailii.org/scot/other/SLC/Report/2005/199(Appendix_A).html Cite as: [2005] SLC 199(Appendix A) (Report) |
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APPENDIX A
DRAFT UNFAIR CONTRACT TERMS BILL
The appendix begins with a short guide to the Draft Bill. This is followed by the contents section. The Draft Bill is then set out with the clauses on the left hand pages and Explanatory Notes on the corresponding right hand pages.
A GUIDE TO THE DRAFT UNFAIR CONTRACT TERMS BILL
1. This Draft Bill introduces a new regulatory regime for unfair contract terms in place of the Unfair Contract Terms Act 1977 ("UCTA") and the Unfair Terms in Consumer Contracts Regulations 1999 ("the UTCCR"). The UTCCR implemented Council Directive 93/13/EEC ("the Directive"), replacing earlier implementing regulations in 1994 ("the 1994 Regulations").
2. For consumer contracts, the purpose of the Draft Bill is "to create a unified regime reproducing the combined effect of UCTA and the UTCCR" with only minor changes of substance, while implementing the Directive in full. The substantive changes that do occur are, primarily, that (1) (as with those terms of consumer contracts that fall within UCTA) any unfair term will be invalid whether or not it was "individually negotiated", unless it is a "core" term such as the main definition of the subject matter; and (2) (again as under UCTA) the burden of proving that a term is fair will be on the business.
3. For business contracts in general, the purpose of the Draft Bill is to retain the effect of UCTA, which regulates various kinds of contract term excluding or restricting liability, but in a form that is consistent with the unified regime for consumer contracts. It disposes of some provisions that are unnecessary.
4. The Draft Bill also establishes an additional regime for contracts where at least one of the parties is a small business. The purpose of these provisions is to extend to small businesses many of the protections currently available to consumers. However, two consumer protections have not been extended to small businesses. These are the possibility of challenging negotiated terms and the burden of proof falling on the business.
5. The Draft Bill also aims to make the new legislation more accessible for those who will use it on a day-to-day basis. It is intended to be readily understandable not only by lawyers but by business people with some knowledge of contracting and by consumer advisers. (See this Report, paragraph 2.45.) One of the principal ways in which the Draft Bill seeks to achieve this is by having separate parts for consumer contracts and other contracts (including business contracts, employment contracts and "private" contracts in which neither party acts in the course of a business). There is also a Part reproducing those provisions of UCTA which deal with exclusions of business liability for negligence [breach of duty] and which apply to notices that purport to exclude liability in tort [delict] as well as to contractual terms.
6. To make the Draft Bill easier for the lay reader to follow, the interpretation provisions are located at the end of the Bill. The interpretation provisions (clauses 25 – 32) have been drafted to cross-refer to defined terms located elsewhere in the Bill. This provides a point of reference for any reader wishing to establish whether a term is defined and, if so, its meaning.
7. Thus the Draft Bill is divided into Parts as follows:
Part 1 replicates the effect of that part of UCTA which deals with contract terms and non-contractual notices excluding business liability for negligence.
Part 2 contains provisions relating to consumer contracts (including sales, etc by a consumer to a business).
Part 3 contains provisions relating to non-consumer contracts, including private contracts. It is sub-divided so that it deals with business contracts in general; the additional protection for small businesses; employment contracts; and private contracts.
Part 4 sets out the "fair and reasonable test", including provisions on the burden of proof.
Part 5 contains provisions on choice of law rules.
Part 6 contains interpretation, commencement and other miscellaneous provisions.
Schedule 1 contains provisions relating to powers to prevent the use of unfair terms in consumer contracts.
Schedule 2 contains an indicative list of terms that may be regarded as unfair or unreasonable.
Schedule 3 lists exceptions: contracts and contract terms that will not be covered by the Draft Bill's provisions.
Schedule 4 sets out the method of calculating the size of a small business by counting employees.
Schedules 5 and 6 contain consequential amendments and repeals.
8. Unlike UCTA, there is no separate part making provision for the law in Scotland. Our policy is that there should be a single piece of legislation covering the whole of the United Kingdom
Unfair Contract Terms Bill
CONTENTS
| PART 1 BUSINESS LIABILITY FOR NEGLIGENCE |
|
| 1 | Business liability for negligence |
| 2 | Exceptions to section 1 |
| 3 | Voluntary acceptance of risk |
| PART 2 CONSUMER CONTRACTS Contracts in general |
|
| 4 | Terms of no effect unless fair and reasonable |
| 5 | Sale or supply to consumer |
| 6 | Sale or supply to business |
| 7 | Regulation and enforcement |
| 8 | Ambiguity |
| PART 3 NON-CONSUMER CONTRACTS Business contracts |
|
| 9 | Written standard terms |
| 10 | Sale or supply of goods |
| 11 | Non-negotiated terms |
| 12 | Written standard terms |
| 13 | Sale or supply of goods |
| PART 4 THE "FAIR AND REASONABLE" TEST The test |
|
| 14 | The test |
| 15 | Business liability for negligence |
| 16 | Consumer contracts |
| 17 | Business contracts |
| PART 5 CHOICE OF LAW |
|
| 18 | Consumer contracts |
| 19 | Business contracts |
| 20 | Small business contracts |
| PART 6 MISCELLANEOUS AND SUPPLEMENTARY Miscellaneous |
|
| 21 | Unfairness issue raised by court |
| 22 | Exceptions |
| 23 | Secondary contracts |
| 24 | Effect of unfair term on contract |
| 25 | Preliminary |
| 26 | "Consumer contract" and "business contract" |
| 27 | "Small business" |
| 28 | "Associated person" |
| 29 | "Small business contract" |
| 30 | "Excluding or restricting liability" |
| 31 | "Hire-purchase" and "hire" |
| 32 | General interpretation |
| 33 | Orders |
| 34 | Consequential amendments and repeals, etc. |
| 35 | Short title, commencement and extent |
| Schedule 1 | Consumer contract terms, etc.: regulation and enforcement |
| Schedule 2 | Contract terms which may be regarded as not fair and reasonable |
| PART 1 | Introduction |
| PART 2 | List of terms |
| PART 3 | Exceptions |
| Schedule 3 | Exceptions |
| Schedule 4 | Calculating the number of employees in a business |
| Schedule 5 | Minor and consequential amendments |
| Schedule 6 | Repeals and revocations |
| PART 1 | Repeals |
| PART 2 | Revocations |
DRAFT OF A BILL
TO
Limit the exclusion or restriction of civil liability by contract terms or notices; to limit the effect of unfair terms in consumer and small business contracts; to make provision about the protection of the collective interests of consumers; and for connected purposes.
BE IT ENACTED by the Queen's most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:—
PART 1
BUSINESS LIABILITY FOR NEGLIGENCE
1 Business liability for negligence
(1) Business liability for death or personal injury resulting from negligence cannot be excluded or restricted by a contract term or a notice.
(2) Business liability for other loss or damage resulting from negligence cannot be excluded or restricted by a contract term or a notice unless the term or notice is fair and reasonable.
(3) "Business liability" means liability arising from—
(a) anything that was or should have been done for purposes related to a business, or
(b) the occupation of premises used for purposes related to the occupier's business.
(4) The reference in subsection (3)(a) to anything done for purposes related to a business includes anything done by an employee of that business within the scope of his employment.
(5) "Negligence" means the breach of—
EXPLANATORY NOTES
In these Explanatory Notes, references to UCTA are normally first to the provisions that apply to England, Wales and Northern Ireland; the equivalent sections that apply to Scotland are then given in square brackets.
PART 1 BUSINESS LIABILITY FOR NEGLIGENCE
Clause 1 Business liability for negligence
1. Clause 1 replicates the effect of UCTA section 2 [section 16] but it is placed at the beginning of the Part to make the meaning of Part 1 of the Draft Bill more obvious. For the same reason, the restriction to business liability is not in a separate sub-section (as in UCTA section 1(3)) but [as with the UCTA provision for Scotland, section 16] is contained in the principal subsections, (1) and (2).
2. The definition of "negligence" (a term that encompasses what in UCTA Part II was called "breach of duty") at clause 1(5) relates exclusively to Part 1 of the Draft Bill so it appears here where it is easily available to the reader. Clause 32(1) directs the reader to this definition.
3. UCTA section 2(1) [section 16(1)] refers to the exclusion or restriction of liability by a notice "given to persons generally or to particular persons". These words are not included in the Draft Bill because the meaning of the word "notice" seems clear without them. No change of substance is intended. "Notice" is defined in the Draft Bill at clause 32(1).
(a) an obligation to take reasonable care or exercise reasonable skill in the performance of a contract where the obligation arises from an express or implied term of the contract,
(b) a common law duty to take reasonable care or exercise reasonable skill,
(c) the common duty of care imposed by the Occupiers' Liability Act 1957
(c. 31) or the Occupiers' Liability Act (Northern Ireland) 1957 (c. 25 NI), or
(d) the duty of reasonable care imposed by section 2(1) of the Occupiers' Liability (Scotland) Act 1960 (c. 30).
(6) It does not matter—
(a) whether a breach of obligation or duty was, or was not, inadvertent, or
(b) whether liability for it arises directly or vicariously.
2 Exceptions to section 1
(1) Section 1 does not prevent an employee from excluding or restricting his liability for negligence to his employer.
(2) Section 1 does not apply to the business liability of an occupier of premises to a person who obtains access to the premises for recreational or educational purposes if—
(a) that person suffers loss or damage because of the dangerous state of the premises, and
(b) allowing that person access to those premises for those purposes is not within the purposes of the occupier's business.
(3) Subsection (2) does not extend to Scotland.
3 Voluntary acceptance of risk
The defence that a person voluntarily accepted a risk cannot be used against him just because he agreed to or knew about a contract term, or a notice, appearing to exclude or restrict business liability for negligence in the case in question.
EXPLANATORY NOTES
Clause 2 Exceptions
4. Subsection (1) replaces UCTA Schedule 1, paragraph 4, but states the effect of that provision in terms of what it permits rather than in the form of a double exception. UCTA Schedule 1, paragraph 4 does not extend to Scotland. Thus UCTA appears to make different provision in the English and Scottish Parts about whether employees may exclude or restrict their liability. However, it is unclear whether this distinction is one of form or substance (see this Report, paragraph 6.4). The effect of subsection (1) is to ensure that employees in either jurisdiction may exclude or restrict liability to their employers.
5. Subsection (2) replicates the effect of the proviso to UCTA section 1(3) (relating to occupiers' liability); subsection (3) creates an exception for Scotland. This is because when the proviso was added to UCTA by the Occupiers' Liability Act 1984, section 2 and by the Occupiers' Liability (Northern Ireland) Order 1987, SI 1987/1280, Article 4, the proviso was not extended to Scotland. The Draft Bill preserves this difference.
Clause 3 Voluntary acceptance of risk
6. The clause replicates the effect of UCTA section 2(3) [section 16(3)].
PART 2
CONSUMER CONTRACTS
Contracts in general
4 Terms of no effect unless fair and reasonable
(1) If a term of a consumer contract is detrimental to the consumer, the business cannot rely on the term unless the term is fair and reasonable.
(2) But subsection (1) does not apply to a term which defines the main subjectmatter of a consumer contract, if the definition is—
(a) transparent, and
(b) substantially the same as the definition the consumer reasonably expected.
(3) Nor does subsection (1) apply to a term in so far as it sets the price payable under a consumer contract, if the price is—
(a) transparent,
(b) payable in circumstances substantially the same as those the consumer reasonably expected, and
(c) calculated in a way substantially the same as the way the consumer reasonably expected.
(4) Nor does subsection (1) apply to a term which—
(a) is transparent, and
(b) leads to substantially the same result as would be produced as a matter of law if the term were not included.
(5) The reference to the price payable under a consumer contract does not include any amount, payment of which would be incidental or ancillary to the main purpose of the contract.
(6) "Price" includes remuneration.
EXPLANATORY NOTES
PART 2 CONSUMER CONTRACTS
7. The purpose of this Part of the Draft Bill is to set out a comprehensive regime for consumer contracts. It makes provision first (in clause 4) for review of contract terms in general and then goes on to make special provision for contracts for the sale or supply of goods by a business to a consumer (clause 5) and by a consumer to a business (clause
6). Clauses 7 and 8 are supplemental.
Clause 4 Terms of no effect unless fair and reasonable
8. Clause 4 replaces the general control over unfair terms in consumer contracts currently contained in the UTCCR regulation 5(1). The only difference in substance is that clause 4 applies to terms (other than "core" terms, see below) whether or not they were individually negotiated. One reason is that the nearest equivalent in UCTA (section 3 [section 17]) applies to exclusions and limitations of liability in consumer contracts whether negotiated or not. Thus clause 4 maintains existing levels of consumer protection whilst avoiding the complexity of having different sets of rules relating to exclusions and limitations of liability and to other clauses. There are also good reasons of policy for making this change (see this Report, paragraph 3.51 above). Because clause 4 extends to non-negotiated clauses there is no equivalent to regulation 5(2) – (4) of the UTCCR.
9. The main proposition of clause 4 is set out shortly in subsection (1). This makes it clear that it is only a term which is detrimental to the consumer that may be challenged under this clause. It applies a basic test of whether the clause is "fair and reasonable" rather than the complex and unfamiliar phrases of the UTTCR regulation 5(1) and the Directive, namely, whether "contrary to the requirements of good faith, [the term] causes a significant imbalance in the rights and obligations arising under the contract, to the detriment of the consumer". The meaning is the same.
10. Subsection (1) uses the formula that "the business cannot rely on the term" to make it clear that consumers, if it is in their interest to do so, may rely on a clause that might be seen as unfairly detrimental to them. This is to the same effect as regulation 8(1) of the UTCCR which provides that "an unfair term…shall not be binding on the consumer".
11. Subsections (2), (3), (5) and (6) deal with the exemptions for what are commonly referred to as the "core" terms; more accurately, "the main definition of the subject matter" and "the adequacy of the price or remuneration". They replicate the effect of regulation 6(2) of the UTCCR. They are more detailed than the regulations they replace but there is no change of substance. They merely make it clearer to both consumers and businesses what, on a correct interpretation of the Directive, is required for a term to be exempt from review.
12. The effect of subsection (2) is that a term which defines the main subject matter is not subject to review provided (a) that it is "transparent" (the term used to incorporate the "plain, intelligible language" requirement of the Directive) and (b) that it is substantially the same as the consumer reasonably expected.
13. The "plain, intelligible language" requirement of the Directive is probably not satisfied if the term is in print that is difficult to read, the layout of the contract document is difficult to follow or if the terms are not readily accessible to the consumer. Subsection (2)(a) qualifies the exemption in subsection (2) by imposing an explicit requirement of what we have called "transparency". This is defined in clause 14(3). The requirement of transparency also qualifies the exceptions created by subsections (3) and (4).
5 Sale or supply to consumer
(1) This section applies to a consumer contract for the sale or supply of goods to the consumer.
(2) In the case of a contract for the sale of the goods, the business cannot rely on a term of the contract to exclude or restrict liability arising under any of the following sections of the 1979 Act—
(a) section 12 (implied term that seller entitled to sell),
(b) section 13 (implied term that goods match description),
(c) section 14 (implied term that goods satisfactory and fit for the purpose),
(d) section 15 (implied term that goods match sample).
(3) In the case of a contract for the hire-purchase of the goods, the business cannot rely on a term of the contract to exclude or restrict liability arising under any of the following sections of the 1973 Act—
(a) section 8 (implied term that supplier entitled to supply),
(b) section 9 (implied term that goods match description),
(c) section 10 (implied term that goods satisfactory and fit for the purpose),
(d) section 11 (implied term that goods match sample).
(4) In the case of any other contract for the transfer of property in the goods, the business cannot rely on a term of the contract to exclude or restrict liability arising under any of the following sections of the 1982 Act—
(a) section 2 or 11B (implied term that supplier entitled to supply),
(b) section 3 or 11C (implied term that goods match description),
(c) section 4 or 11D (implied term that goods satisfactory and fit for the purpose),
(d) section 5 or 11E (implied term that goods match sample).
(5) In the case of a contract for the hire of the goods, the business cannot rely on a term of the contract to exclude or restrict liability arising under any of the following sections of the 1982 Act—
(a) section 8 or 11I (implied term that goods match description),
(b) section 9 or 11J (implied term that goods satisfactory and fit for the purpose),
(c) section 10 or 11K (implied term that goods match sample).
(6) Subsection (2)(b) to (d) does not apply if the contract is—
(a) for the sale of second-hand goods, and
(b) made at a public auction which the consumer had the opportunity to attend in person.
EXPLANATORY NOTES
14. Under the Directive a term cannot be exempt as a definition of the main subject matter if, because of the way that the "deal" was presented to consumers, they reasonably expected something different. (For the explanation of this implicit requirement of the Directive and the Regulations, see this Report, paragraph 3.58.) It will be observed that the net effect is similar to UCTA section 3(2)(b)(i) [section 17(1)(b)] which provides that a party cannot, by reference to any contract term, claim to be entitled "to render a contractual performance substantially different from that which was reasonably expected of him", except insofar as the term is reasonable.
15. Clause 4, subsections (3), (5) and (6) achieve the equivalent result in relation to the "adequacy of the price or remuneration". Subsection (3) makes clear the effect of the Directive that a term setting the contract price will be exempt from challenge only if the price (a) is transparent and (b) is payable in circumstances, and calculated in a way, substantially the same as those the consumer reasonably expected. Thus consumers 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. But they will be able to challenge the fairness of having to make a payment in circumstances in which they reasonably did not expect to have to make a payment: for example, when an additional charge was not clearly explained in the contract or before the contract was made. (For the explanation of this implicit restriction, see this Report, paragraphs 3.60 – 3.62.)
16. Subsection (5) provides that the exemption for terms that set the price does not extend to incidental or ancillary terms outside the main price clause. Again, it spells out a point that is currently implicit within the UTCRR. An example of an "ancillary" term might be a term which requires the consumer to pay additional sums if certain events occur outside the ordinary and expected performance of the contract, such as the consumer's own default (On this limit, see Director General of Fair Trading v First National Bank [2001] UKHL 52; [2002] 1 AC 481 and this Report, paragraph 3.60.)
17. Subsection (4) aims at another exemption that is not explicit in the UTCCR or the Articles of the Directive but that is made clear by Recital 13 of the Directive. This is that contract terms need not be subject to review if they 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" (in other words, terms that do no more than provide what would be the legal position without the express term). (See this Report, paragraph 3.67.)
Clause 5 Sale or supply to consumer
18. The purpose of clause 5 is to replicate the effect of UCTA sections 6(1) and (2) and 7(2), and (3A) [sections 20 and 21] relating to a supplier's statutory obligations in consumer contracts for the sale or supply of goods. These prevent the business excluding or restricting its liability for breach of its obligations as to the right to sell or supply the goods, as to quiet possession of the goods, as to the goods' correspondence with description or sample and as to their satisfactory quality and fitness for a particular purpose.
19. To make the provisions easier for the user, clause 5 has separate subsections for contracts of sale, contracts of hire-purchase, contracts of hire and other contracts under which possession or ownership of goods passes, and refers in each case to the statutory provisions that impose the relevant obligation.
20. Subsection (2) replicates the effect of those provisions of UCTA that relate to liability under the Sale of Goods Act 1979.
6 Sale or supply to business
(1) This section applies to a consumer contract for the sale or supply of goods to the business.
(2) In the case of a contract for the sale of the goods, the consumer cannot rely on a term of the contract to exclude or restrict liability—
(a) arising under section 12 of the 1979 Act (implied term that seller entitled to sell), or
(b) unless the term is fair and reasonable, arising under either of the following sections of that Act—
(i) section 13 (implied term that goods match description),
(ii) section 15 (implied term that goods match sample).
(3) In the case of a contract for the hire-purchase of the goods, the consumer cannot rely on a term of the contract to exclude or restrict liability—
(a) arising under section 8 of the 1973 Act (implied term that supplier entitled to supply), or
(b) unless the term is fair and reasonable, arising under either of the following sections of that Act—
(i) section 9 (implied term that goods match description),
(ii) section 11 (implied term that goods match sample).
EXPLANATORY NOTES
21. Clause 5(3) replicates the effect of those provisions of UCTA that relate to liability under the Supply of Goods (Implied Terms) Act 1973 regarding contracts of hire-purchase.
22. Subsections (4) and (5) replicate the effect of UCTA section 7(2) and (3A) [section 21]. Section 7 [section 21] applies to exclusions and restrictions of liability of the kinds mentioned in contracts under which possession or ownership of goods passes but which are not contracts for the sale of goods or hire-purchase. In practice this covers contracts of hire, dealt with in subsection (5) of this clause, and contracts for work and materials which are covered by subsection (4). Subsection (4) refers, however, not to any other contract for the transfer of property in goods but only to those covered by the Supply of Goods and Services Act 1982, section 2–5 [11B – 11E]. Because of the exceptions contained in section 1 [section 11A] of the 1982 Act, this has the effect of excepting certain contracts which are very different in nature, including contracts executed by deed without other consideration and contracts intended to operate by mortgage, pledge, charge or other security. In this, the Draft Bill follows UCTA section 7(3A) [section 21(3A)].
23. Subsection (2) uses a different form of words to that in UCTA. For England and Wales, 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)(i) and 21(1)(a)(i) provide that the relevant type of clause shall "be void against the consumer". The Draft Bill uses the formula that "the business cannot rely on a term of the contract to exclude or restrict liability", which is consistent with clause 4(1).
24. Subsection (6) replaces UCTA section 12(2) [section 25(1B)], as amended by the Sale and Supply of Goods to Consumers Regulations 2002 (SI 2002 No 3045). It exempts from these particular controls sales of second-hand goods bought at public auctions which the consumer had the opportunity to attend in person.
Clause 6 Sale or supply to business
25. Clause 6 replicates the effect of UCTA section 6(1) and (3) [section 20(1) and (2)] insofar as it applies to a sale by a person who is not acting in the course of a business and who sells goods, or supplies them on hire-purchase, to a business. An example might be a consumer selling a car to a motor dealer. It prevents consumers from contracting out of their obligations as to entitlement to sell or transfer property and requires that any exclusion or restriction of the consumer's obligations as to the goods' correspondence with description or sample be fair and reasonable. A specific provision imposing a "fair and reasonable" test is required because the general test under clause 4 applies only in favour of consumers.
26. There is no equivalent for other contracts for the supply of goods. UCTA section 7 [section 21] which deals with contracts other than sale and hire purchase applies only to a supplier who is supplying goods in the course of his business: UCTA section 1(3) [in Scotland, the wording of section 21 itself]. It would be very rare for a consumer to supply goods to a business under such a contract. (See this Report, paragraphs 6.24 – 6.26.)
7 Regulation and enforcement
Schedule 1 confers functions on the OFT and regulators in relation to—
(a) consumer contract terms,
(b) terms drawn up or proposed for use as consumer contract terms,
(c) terms which a trade association recommends for use as consumer contract terms, and
(d) notices relating to the rights conferred or duties imposed by consumer contracts.
8 Ambiguity
(1) If it is reasonable to read a written term of a consumer contract in two (or more) ways, the term is to be read in whichever of those ways it is reasonable to think the more (or the most) favourable to the consumer.
(2) This section does not apply in relation to proceedings under Schedule 1
(regulation and enforcement of consumer contract terms, etc.).
EXPLANATORY NOTES
Clause 7 and Schedule 1 Regulation and enforcement
27. Clause 7 confers powers on the OFT and regulators to prevent the use of unfair terms. It implements Article 7 of the Directive. The details are set out in Schedule 1. The provisions are lengthy. They have been placed in a schedule to simplify the structure of the Draft Bill itself and because they will seldom be required by individual consumers.
Clause 8 Ambiguity
28. Subsection (1) replicates the effect of regulation 7(2) of the UTCCR that a consumer shall be given the benefit of any doubt about the meaning of a term. It implements Article 5 of the Directive. This provision is similar to the rule at common law that any doubt about the meaning of a term should be resolved against the party seeking to rely on the term (often called the "contra proferentem" rule). In some cases it may be in the interests of the consumer to give an exclusion term a narrow meaning (so as to prevent it from excluding the liability that has arisen). In others, it will be in the consumer's interests to give the term a wide meaning, so as to show that it is unreasonably broad. The provision is included because it is possible that the Directive requires that the rule be expressly incorporated into the implementing legislation; and to bring the rule to the attention of consumers and businesses. It is not intended to affect the common law rule in any way.
29. Subsection (2) replicates the effect of regulation 7(2) of the UTCCR and implements the last sentence of Article 5 of the Directive.
PART 3
NON-CONSUMER CONTRACTS
Business contracts
9 Written standard terms
(1) This section applies where one party to a business contract ("A") deals on the written standard terms of business of the other ("B").
(2) Unless the term is fair and reasonable, B cannot rely on any of those terms to exclude or restrict its liability to A for breach of the contract.
(3) Unless the term is fair and reasonable, B cannot rely on any of those terms to claim that it has the right—
(a) to carry out its obligations under the contract in a way substantially different from the way in which A reasonably expected them to be carried out, or
(b) not to carry out all or part of those obligations.
10 Sale or supply of goods
(1) In the case of a business contract for the sale of goods, the seller cannot rely on a term of the contract to exclude or restrict liability arising under section 12 of the 1979 Act (implied term that seller entitled to sell).
(2) In the case of a business contract for the hire-purchase of goods, the supplier cannot rely on a term of the contract to exclude or restrict liability arising under section 8 of the 1973 Act (implied term that supplier entitled to supply).
(3) In the case of any other business contract for the transfer of property in goods, the supplier cannot rely on a term of the contract to exclude or restrict liability arising under section 2 or 11B of the 1982 Act (implied term that supplier entitled to supply).
Small business contracts
11 Non-negotiated terms
(1) This section applies where there is a small business contract and—
(a) the terms on which one party ("A") deals include a term which the other party ("B") put forward during the negotiation of the contract as one of its written standard terms of business,
(b) the substance of the term was not, as a result of negotiation, changed in favour of A, and
(c) at the time the contract is made, A is a small business.
(2) If that term is detrimental to A, B cannot rely on the term unless the term is fair and reasonable.
(3) But subsection (2) does not apply to a term which defines the main subjectmatter of a small business contract, if the definition is—
(a) transparent, and
EXPLANATORY NOTES
PART 3 NON-CONSUMER CONTRACTS
30. The purpose of this Part of the Draft Bill is to set out a comprehensive regime for nonconsumer contracts. The first cross-heading introduces a regime for business contracts in general. Clause 9 provides for the review of terms in business contracts where one party deals on the written standard terms of business of the other party. Clause 10 makes special provision for contracts for the sale or supply of goods. The subsequent crossheadings introduce additional provisions for small business contracts (clause 11), and provisions for employment contracts (clause 12) and for "private" contracts where neither party deals as a business (clause 13).
Business contracts Clause 9 Written standard terms
31. Clause 9 replicates the effect of UCTA section 3 [section 17] in so far as it applies to business contracts, but in a structure that is easier to understand.
Clause 10 Sale or supply of goods
32. The purpose of this section is to replicate for business contracts the provisions of UCTA by which any attempt to exclude or restrict the supplier's statutory obligations as to entitlement to sell, freedom from encumbrances and quiet possession in contracts for the sale or supply of goods is rendered ineffective (UCTA sections 6(1) and 7(3A) [sections 20(1) and 21(3A)]).
33. For business contracts the Bill does not reproduce the provisions of UCTA section 7(4) [section 21(1)], which apply a reasonableness test to other clauses affecting implied obligations as to title and the like, mainly in contracts of hire (see this Report, paragraphs 4.30 – 4.35). Nor does it reproduce UCTA section 6(3) or 7(3) [sections 20(2)(ii) or 21(1)(a)(ii) and (3)(a)], by which clauses purporting to exclude or restrict liability for breach of suppliers' statutory implied obligations as to conformity with description or sample, quality or fitness for purpose are subjected to a reasonableness test. The general provision of clause 9 is adequate to deal with these clauses since clauses not contained in a set of written standard terms of business will generally have been negotiated and it will be very rare for such a term to be unreasonable. (See this Report, paragraphs 4.25 – 4.35.)
Small business contracts Clause 11 Non-negotiated terms
34. The purpose of this general clause is to protect small businesses against unfair terms that fall outside clauses 9 and 10. The provision is similar to the general clause applying to unfair terms in consumer contracts (clause 4) but the class of terms that can be challenged by small businesses is significantly narrower. First, only a term that was originally put forward as one of the other party's written standard terms of business (subsection (1)(a)) and that has not subsequently been changed in favour of the small business (subsection 1(b)) can be challenged under subsection (2). Secondly, those types of contract that are exempt from the business contracts provisions (and were exempt from UCTA under Schedule 1) are also exempt from clause 11: see Schedule 3 to the Bill. A third difference is that small businesses, unlike consumers, bear the burden of proving that the term is not fair and reasonable: see clause 17(2).
35. Subsections (3) to (5) create exceptions for core terms and terms that do no more than provide what would be the legal position even without the express term. These exceptions are identical to those exceptions created in respect of consumer contracts at clause 4(2) to (4).
(b) substantially the same as the definition A reasonably expected.
(4) Nor does subsection (2) apply to a term in so far as it sets the price payable under a small business contract, if the price is—
(a) transparent,
(b) payable in circumstances substantially the same as those A reasonably expected, and
(c) calculated in a way substantially the same as the way A reasonably expected.
(5) Nor does subsection (2) apply to a term which—
(a) is transparent, and
(b) leads to substantially the same result as would be produced as a matter of law if the term were not included.
(6) The reference to the price payable under a small business contract does not include any amount, payment of which would be incidental or ancillary to the main purpose of the contract.
(7) "Price" includes remuneration.
Employment contracts
12 Written standard terms
(1) This section applies in relation to an employment contract under which an individual ("the employee") is employed by a business on its written standard terms of employment.
(2) Unless the term is fair and reasonable, the business cannot rely on any of those terms to exclude or restrict its liability for breach of the contract.
(3) Unless the term is fair and reasonable, the business cannot rely on any of those terms to claim it has the right—
(a) to carry out its obligations under the contract in a way substantially different from the way in which the employee reasonably expected them to be carried out, or
(b) not to carry out all or part of those obligations.
EXPLANATORY NOTES
Employment contracts Clause 12 Written standard terms
36. Clause 12 deals with written standard terms in employment contracts. UCTA section 3 [section 17] has been applied to employment contracts by the courts either by treating the employee as a consumer (see Brigden v American Express [2000] IRLR 94) or by treating the employment contract as the employer's written standard terms of business (see Liberty Life Assurance Co Ltd v Sheik, The Times 25 June 1985 (CA)). Thus an employee can challenge a term under which the employer purports to exclude or restrict its liability when in breach of contract or to justify performing in a way that is substantially different to what the employee reasonably expected. The effective difference between the two approaches is that, on the first approach, the employee can challenge the relevant term of employment even if it was not part of the employer's written standard terms. Clause 12 replicates the effect of section 3 [section 17] in relation to employment contracts but only where the relevant term is part of the employer's written standard terms of business.
13 Sale or supply of goods
(1) This section applies if neither party to a contract for the sale or supply of goods enters into it for purposes related to a business of his.
(2) In the case of a contract for the sale of the goods, the seller cannot rely on a term of the contract to exclude or restrict liability—
(a) arising under section 12 of the 1979 Act (implied term that seller entitled to sell), or
(b) unless the term is fair and reasonable, arising under either of the following sections of that Act—
(i) section 13 (implied term that goods match description),
(ii) section 15 (implied term that goods match sample).
(3) In the case of a contract for the hire-purchase of the goods, the supplier cannot rely on a term of the contract to exclude or restrict liability—
(a) arising under section 8 of the 1973 Act (implied term that supplier entitled to supply), or
(b) unless the term is fair and reasonable, arising under either of the following sections of that Act—
(i) section 9 (implied term that goods match description),
(ii) section 11 (implied term that goods match sample).
EXPLANATORY NOTES
Private contracts Clause 13 Sale or supply of goods
37. Clause 13 replicates the effect of UCTA section 6(1) and (3) [section 20(1) and 20(2)(ii)] as those subsections apply to "private" contracts for the sale or hire-purchase of goods where neither party enters into the contract for business purposes. It limits the extent to which the supplier of goods under such contracts can exclude liability for breach of statutory implied terms as to title or for breach of statutory implied terms as to the goods' correspondence with a description or sample.
38. A "private" contract is not a consumer contract because under clause 26 a consumer contract must be one between an individual and a business (similarly, under UCTA section 12(1) a person can deal as a consumer only if the other party acts in the course of a business [under section 25(1) a "consumer contract" means a contract in which one party deals in the course of a business]).
39. Clause 13 does not apply to other contracts for the supply of goods. This replicates the effect of UCTA: section 7 [section 21] is limited by section 1(3) [the language of section 21 itself] to clauses affecting business liability.
PART 4
THE "FAIR AND REASONABLE" TEST
The test
14 The test
(1) Whether a contract term is fair and reasonable is to be determined by taking into account—
(a) the extent to which the term is transparent, and
(b) the substance and effect of the term, and all the circumstances existing at the time it was agreed.
(2) Whether a notice is fair and reasonable is to be determined by taking into account—
(a) the extent to which the notice is transparent, and
(b) the substance and effect of the notice, and all the circumstances existing at the time when the liability arose (or, but for the notice, would have arisen).
(3) "Transparent" means—
(a) expressed in reasonably plain language,
(b) legible,
(c) presented clearly, and
(d) readily available to any person likely to be affected by the contract term or notice in question.
EXPLANATORY NOTES
PART 4 THE "FAIR AND REASONABLE" TEST
Clause 14 and Schedule 2 The test
40. Clause 14 sets out the test to be applied to determine whether a term or notice is fair and reasonable. As under UCTA, the test of whether a contract term is fair and reasonable is slightly different from that applied to non-contractual notices. Under both UCTA section 11(1) [section 24(1)] and the Directive, Article 4(1), the fairness of a contract term is to be judged as at the time the contract was concluded. This rule cannot be applied to notices that are not incorporated into any contract but purport to exclude liability in tort [delict] for negligence. The fairness of these must be judged at the time the liability arises. The two tests are set out in subsections (1) and (2) of clause 14.
41. Paragraph (a) of clause 14(1) and (2) has the effect that the fact that a term or notice is not transparent may be the main, or sole, ground for determining that a term is not fair and reasonable. Subsection (3) defines "transparent". Paragraph (d) covers cases where the term is set out by the party who seeks to rely upon it in a document which is not physically available to the other party at the point of contracting. An example of a situation in which terms were held to be part of the contract but were not readily available to the consumer, and thus might fall within paragraph (d), would be Thompson v LM & S Railway [1930] 1 KB 41. In that case the ticket for travel referred the customer to the railway's standard terms and conditions in a separate document which the customer had to buy for 6d at another railway station.
42. Paragraph (b) of clause 14(1) and (2) requires that, 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") and procedural fairness ("the circumstances existing at that time") be taken into account. In deciding "the substance and effect of the term, and all the circumstances exisiting at the time it was agreed" a court should have regard to the factors listed in subsection (4) (overleaf). The effect of subsection (4) is explained more fully on page 161.
(4) Matters relating to the substance and effect of a contract term, and to all the circumstances existing at the time it was agreed, include the following—
(a) the other terms of the contract,
(b) the terms of any other contract on which the contract depends,
(c) the balance of the parties' interests,
(d) the risks to the party adversely affected by the term,
(e) the possibility and probability of insurance,
(f) other ways in which the interests of the party adversely affected by the term might have been protected,
(g) the extent to which the term (whether alone or with others) differs from what would have been the case in its absence,
(h) the knowledge and understanding of the party adversely affected by the term,
(i) the strength of the parties' bargaining positions,
(j) the nature of the goods or services to which the contract relates.
(5) Subsection (4) applies, with any necessary modifications, in relation to a notice as it applies in relation to a contract term.
(6) Schedule 2 contains an indicative and non-exhaustive list of consumer contract terms and small business contract terms which may be regarded as not being fair and reasonable.
(7) The Secretary of State may by order amend Schedule 2 so as to add, modify or omit an entry.
EXPLANATORY NOTES
43. Subsection (4) sets out a non-exhaustive list of factors to be taken into account in deciding whether a term is fair and reasonable. It replaces the guidelines in UCTA Schedule 2. The list sets out the principal factors to be taken into account more clearly and somewhat more fully than in UCTA. Some of the factors are themselves quite general and below we explain them further.
44. In considering a party's knowledge and understanding under clause 14(4)(h), any of the following might be relevant:
(a) any previous course of dealing between the parties,
(b) whether the party knew of a particular term,
(c) whether the party understood its meaning and implications,
(d) what a person other than the party, but in a similar position, would usually expect in the case of a similar transaction,
(e) the complexity of the transaction,
(f) the information given to the party about the transaction before or when the contract was made,
(g) whether the contract was transparent,
(h) how the contract was explained to the party,
(i) whether the party had a reasonable opportunity to absorb any information given,
(j) whether the party took professional advice or it was reasonable to expect the party to have done so, and
(k) whether the party had a realistic opportunity to cancel the contract without charge. Points (f) to (k) would be particularly relevant where the transaction is complex.
45. Similarly, "the strength of the parties' bargaining positions" (clause 14(4)(i)) may involve questions such as:
(a) whether the transaction was unusual for either or both of them,
(b) whether the complaining party was offered a choice over a particular term,
(c) whether that party had a reasonable opportunity to seek a more favourable term,
(d) whether that party had a realistic opportunity to enter into a similar contract with other persons, but without that term,
(e) whether that party's requirements could have been met in other ways,
(f) whether it was reasonable, given that party's abilities, for him or her to have taken advantage of any choice offered under (b) or available under (e).
46. We have not thought it appropriate to include such amplification of the factors in the legislation itself but we think that its inclusion in these Explanatory Notes (which we hope will be copied in collections of legislation) will prove useful to consumer advisers and also to businesses that wish to ensure that, in the words of Recital 16 to the Directive, they "deal fairly and equitably" with the other party. Subsection (5) provides that these factors apply in relation to notices as well as to contract terms.
47. Subsection (6) refers to Schedule 2 which contains an indicative and non-exhaustive list of terms that may be regarded as not being fair and reasonable. An indicative list appears in an Annex to the Directive and is required to be implemented by some method (although not necessarily by being enacted in primary legislation: see this Report, paragraph 3.108). This list may assist in determining whether a challenged term is fair and reasonable and act as a warning to businesses of terms that may be regarded with suspicion. Subsection (7) provides that the Secretary of State may amend Schedule 2 by order so as to add, modify or omit an entry.
15 Business liability for negligence
It is for a person wishing to rely on a contract term or a notice which purports to exclude or restrict liability of the kind mentioned in section 1(2) (business liability for negligence other than in case of death or personal injury) to prove that the term or notice is fair and reasonable.
16 Consumer contracts
(1) If an issue is raised as to whether a term in a consumer contract is fair and reasonable, it is for the business to prove that it is.
(2) But in proceedings under Schedule 1 (regulation and enforcement of consumer contracts) it is for a person claiming that a term in a consumer contract, or a notice, is not fair and reasonable to prove that it is not.
(3) It is for a person wishing to rely on a contract not being a consumer contract to prove that it is not.
17 Business contracts
(1) It is for a person wishing to rely on a term of a business contract to prove that the term is fair and reasonable.
(2) But in relation to a term to which section 11(2) (non-negotiated terms in small business contracts) applies, it is for a person claiming that the term is not fair and reasonable to prove that it is not.
EXPLANATORY NOTES
BURDEN OF PROOF
Clause 15 Business liability for negligence
48. Clause 15 replicates the effect of UCTA section 11(5) [section 24(4)] in so far as that section relates to contract terms or notices excluding or restricting business liability for negligence other than in the case of death or personal injury. Clause 16 Consumer contracts
49. Clause 16 governs the burden of showing that a clause is "fair and reasonable" in relation to consumer contracts. The approaches taken by UCTA and the UTCCR to the equivalent burden differ. The UTCCR follow the Directive and make no provision for the burden so that it seems to be for the consumer to make the case that a term is unfair. UCTA section 11(5) [section 24(4)] places the burden on the party seeking to rely on the term. Clause 16 largely follows the approach taken by UCTA. However, this applies only once the issue of fairness has been raised. In other words, only if it has been indicated which term is allegedly unfair and there are sufficient grounds for the court to infer that the fairness of the term is a real issue does the business have the burden of showing that the term is fair and reasonable. For the purposes of this section, the issue of whether a term is fair and reasonable may be raised, for example, by the consumer or by the court under clause 21.
50. Subsection (2) creates an exception from subsection (1) in the case of proceedings brought under enforcement powers conferred on the OFT or another regulator under Schedule 1. In such cases the burden is placed on the regulator.
51. Subsection (3) follows UCTA section 12(3) [section 25(1) "consumer contract"]. There is no provision on this issue in the UTCCR.
Clause 17 Business contracts
52. Clause 17(1) replicates for business contracts the effect of UCTA section 11(5) [section 24(4)].
53. Subsection (2) provides that, if a party wishes to challenge a term under the "small business contracts" provisions of the Bill (clause 11), the burden of showing that the term is not "fair and reasonable" rests on that party.
PART 5
CHOICE OF LAW
18 Consumer contracts
(1) Where a term of a consumer contract applies (or appears to apply) the law of somewhere outside the United Kingdom, this Act has effect in relation to the contract if—
(a) the consumer was living in the United Kingdom when the contract was made, and
(b) all the steps which the consumer had to take for the conclusion of the contract were taken there by him or on his behalf.
(2) Subsection (3) applies where—
(a) a consumer contract has a close connection with the territory of the member States, and
(b) subsection (1) does not apply.
(3) This Act has effect in relation to the contract unless, according to the law of the forum, the provisions of the law of a member State (other than the United Kingdom) which give effect to the Directive have effect in relation to the contract.
(4) A court is not, for the purposes of this section, to treat a consumer contract as having a close connection with the territory of the member States if—
(a) the contract provides for goods to be supplied, or services to be performed, outside the European Union, and
(b) all the steps which the consumer had to take for the conclusion of the contract were taken outside the European Union by him or on his behalf.
(5) Subsection (4) does not apply if it nevertheless appears to the court from all the circumstances of the case that the contract does have a close connection with the territory of the member States.
(6) "Territory of the member States" means the same as it does for the purposes of the Treaty establishing the European Community (and, for the avoidance of doubt, any reference in this section to the territory of the member States is to be read as including a part of that territory).
(7) "The Directive" means Council Directive 93/13/EEC on unfair terms in consumer contracts.
19 Business contracts
(1) Part 1 (business liability for negligence) does not apply to a business contract term, and sections 9 to 11 (business contracts) do not apply to a business contract, if—
(a) the law applicable to the term, or contract, is the law of a part of the United Kingdom,
(b) it is the applicable law only by the choice of the parties, and
(c) were it not for that choice, the applicable law would be the law of somewhere outside the United Kingdom.
EXPLANATORY NOTES
PART 5 CHOICE OF LAW
54. This Part contains the Bill's provisions on the conflicts of laws.
Clause 18 Consumer contracts
55. Clause 18(1) replicates the effect of UCTA section 27(2)(b).
56. Subsections (2) and (3) supplement subsection (1) in order to implement fully Article 6(2) of the Directive. Article 6(2) requires that consumers should not lose the protection of the Directive by virtue of a choice of law of a non-Member State as the law applicable to the contract if the contract has a close connection with the territory of the Member States. There will be cases in which the contract has a close connection with the territory of the Member States but which do not fall within subsection (1), for example because the consumer took steps necessary to conclude the contract in another Member State. If according to the law of the forum the law of another Member State applies to the contract, and the consumer will be protected by the measures implementing the Directive in that law, there is no need for the United Kingdom legislation to apply. There may be cases in which neither subsection (1) nor the law of another Member State will protect the consumer but the contract nonetheless has a close connection with the territory of the Member States. Subsections (2) and (3) have the effect that the new legislation will apply in such cases.
57. Subsections (4) and (5) relate to the question whether a consumer contract is closely connected to the territory of the Member States. Subsection (4) prevents a consumer contract being treated as closely connected in this way if the only connection is that the supplier of goods or services is located in the UK and the contract is to be performed, and the necessary contractual steps are taken by the consumer, outside the European Union. Subsection (5) is a safeguard to eliminate any risk that adequate effect will not be given to Article 6(2) of the Directive: it provides that if it nevertheless appears to the court that the case does have a close connection with the territory of the Member States, the Act will apply. Clause 19 Business contracts
58. Subsection (1) replicates the effect of UCTA section 27(1).
59. Subsection (2) prevents avoidance of the Bill's provisions by means of a choice of foreign law where the contract is wholly connected with the UK. It replaces UCTA section 27(2)(a) but has a slightly different effect. This is explained in this Report, paragraphs 7.30 – 7.34.
(2) This Act has effect in relation to a business contract despite a term of the contract which applies (or appears to apply) the law of somewhere outside the United Kingdom if the contract is in every other respect wholly connected with the United Kingdom.
20 Small business contracts
(1) This Act has effect in relation to a small business contract despite a term of the contract which applies (or appears to apply) the law of somewhere outside the United Kingdom if—
(a) A had a place of business in the United Kingdom when the contract was made, and
(b) either of the following conditions applies in relation to the contract.
(2) The first condition is that—
(a) the making of the contract was preceded in the United Kingdom by an invitation addressed specifically to A, or by advertising, about the main subject-matter of the contract, and
(b) all the steps which A had to take for the making of the contract were taken in the United Kingdom by A through A's place of business there or on A's behalf.
(3) The second is that A's order was received by B in the United Kingdom.
(4) "A" and "B" mean, respectively, the persons referred to as A and B in section 11.
EXPLANATORY NOTES
Clause 20 Small business contracts
60. Clause 20 prevents avoidance of the Bill's provisions by means of a choice of foreign law where either (i) the contract was preceded by advertising addressed to the small business in the UK and it took all the necessary steps for the conclusion of the contract there; or (ii) the small business's order was received by the other party in the UK.
PART 6
MISCELLANEOUS AND SUPPLEMENTARY
Miscellaneous
21 Unfairness issue raised by court A court may, in proceedings before it, raise an issue about whether a contract term or a notice is fair and reasonable even if none of the parties to the proceedings has raised the issue or indicated that it intends to raise it.
22 Exceptions Schedule 3 sets out types of contract, and of contract term, to which this Act does not apply or to which specified provisions of this Act do not apply.
23 Secondary contracts
(1) A term of a contract ("the secondary contract") which reduces the rights or remedies, or increases the obligations, of a person under another contract ("the main contract") is subject to the provisions of this Act that would apply to the term if it were in the main contract.
(2) It does not matter for the purposes of this section whether the parties to the secondary contract are the same as the parties to the main contract.
(3) This section does not apply if the secondary contract is a settlement of a claim arising under the main contract.
24 Effect of unfair term on contract Where a contract term cannot be relied on by a person as a result of this Act, the contract continues, so far as practicable, to have effect in every other respect. Interpretation, etc.
25 Preliminary Sections 26 to 32 define or otherwise explain expressions for the purposes of this Act.
26 "Consumer contract" and "business contract"
(1) "Consumer contract" means a contract (other than one of employment) between—
(a) an individual ("the consumer") who enters into it wholly or mainly for purposes unrelated to a business of his, and
(b) a person ("the business") who enters into it wholly or mainly for purposes related to his business.
EXPLANATORY NOTES
PART 6
MISCELLANEOUS AND SUPPLEMENTARY
Clause 21 Unfairness issue raised by court
61. This clause reflects the decision of the European Court of Justice in Oceano Grupo Editorial SA v Quintero (C-240/98) [2000] ECR I-4941 that a national court can adjudicate of its own motion as to the compatibility of a contract term with the Directive. Clause 22 and Schedule 3 Exceptions
62. Clause 22 exempts from the Bill various categories of contract and contract term; these are set out in Schedule 3. Clause 23 Secondary contracts
63. This clause replaces UCTA section 10 [section 23]. It prevents evasion of the Bill's provisions by means of a secondary contract, a term of which reduces the rights or remedies or increases the obligations of one of the parties under the main contract, whether that secondary contract is between the same two parties or different parties. There was some doubt whether section 10 applied in both situations: Tudor Grange Holdings Ltd v Citibank NA [1992] Ch 53. Subsection (3) makes it clear that, as that case held to be the position under section 10 [section 23], a settlement of an existing claim does not fall within the provision. Clause 24 Effect of unfair term on contract
64. This clause reproduces the effect of UTCCR regulation 8. UCTA takes a similar approach. For example, sections 2 and 3 use the formula "cannot by reference to any contract term…exclude or restrict any liability", thus allowing the relevant term to operate for other purposes. Although the equivalent Scottish provisions [sections 16 and 17] describe terms as "void" or of "no effect", this is only to the extent that the clause purports to exclude or restrict liability. This means that the Scottish position is also that the clause continues for other purposes. (See this Report, paragraphs 3.131 to 3.140.) Interpretation etc Clause 25 Preliminary
65. Clause 25 introduces the Bill's interpretative provisions. Clause 26 "Consumer contract" and "business contract"
66. Clause 26(1) defines a consumer contract for the purposes of the Bill in line with the definition of "consumer" in Article 2(b) of the Directive. This is narrower than the definition under UCTA. Under UCTA section 12 [section 25(1)], (1) a consumer need not be an "individual", that is, a natural person; (2) a consumer may be someone who enters into the contract for purposes related to a business of his but not in the course of a business (see R & B Customs Brokers Co Ltd v United Dominions Trust Ltd [1988] 1 WLR 321). However, under UCTA a person who holds himself out as making the contract in the course of a business is not a consumer. The last restriction cannot survive the Directive on certain aspects of the sale of consumer goods and associated guarantees, 1999/44/EC of 25 May 1999, which permits no such exception to the definition of a consumer.
67. The effect of UCTA section 12(1)(c) [section 25(1)], whereby a contract for the sale or hire-purchase of goods is not a consumer contract unless the goods are of a type ordinarily supplied for private use or consumption, is not reproduced. This does not apply to individual consumers as the result of Sale and Supply of Goods to Consumers Regulations 2002 (SI 2002 No 3045), regulation 14.
(2) "Business contract" means a contract between two persons, each of whom enters into it wholly or mainly for purposes related to his business.
27 "Small business"
(1) "Small business" means a person in whose business the number of employees does not exceed—
(a) nine, or
(b) where the Secretary of State specifies by order another number for the purposes of this section, that number.
(2) But a person is not a small business if adding the number of employees in his business to the number of employees in any other business of his, or in any business of an associated person, gives a total exceeding the number which for the time being applies for the purposes of subsection (1).
(3) A reference to the number of employees in a business is to the number calculated according to Schedule 4.
28 "Associated person"
(1) For the purposes of this Act, two persons are associated if—
(a) one controls the other, or
(b) both are controlled by the same person.
(2) A person ("A") controls a body corporate ("B") if A can secure that B's affairs are conducted according to A's wishes, directions or instructions.
(3) The reference in subsection (2) to wishes, directions or instructions does not include advice given in a professional capacity.
(4) Subsection (2) applies, with any necessary modifications, in relation to an unincorporated association (other than a partnership) as it applies in relation to a body corporate.
(5) A person controls a partnership if he has the right to a share of more than half the assets or income of the partnership.
(6) For the purposes of this section, one person does not control another just because he grants that other person a right to supply goods or services.
EXPLANATORY NOTES
68. Subsection (2) defines a business contract for the purposes of the Bill. Neither UCTA nor the UTCCR employ an equivalent definition.
69. The words "or mainly" in subsections (1) and (2) invite the court to categorise transactions that are for a mixture of purposes (for example, the purchase of a car partly for business use and partly for pleasure) by identifying the predominant purpose for which each party entered into the contract. This is believed to replicate the present position under UCTA section 12 [section 25(1) "consumer contract"]. Clause 27 and Schedule 4 "Small business"
70. Clause 27 defines "small business" for the purpose of the Bill's provisions on small business contracts. A small business is one in which the number of employees is nine or fewer. This number is variable by an order of the Secretary of State under subsection (1)(b).
71. However, under subsection (2), a business is not a small business if it is associated with another business and the total number of employees in the two businesses is more than nine. The definition of an "associated person" is set out in clause 28 (below).
72. Subsection (3) provides that the method of calculating the number of employees in a business is to be that set out in Schedule 4 (below). Clause 28 "Associated person"
73. Clause 28 defines "associated person" for the purposes of clause 27(2). The definition is based on Article 6 of the Late Payment of Commercial Debts (Interest) Act 1998 (Commencement No 1) Order 1998 (SI 1998 No 2479).
74. Under subsection (1), two persons are associated if one controls the other or both are controlled by the same person.
75. The meaning of "controls" and "controlled" in subsection (1) is further developed in subsections (2) to (6) where it is made clear that the person being controlled may be a body corporate, an unincorporated association or a partnership. By extension it is clear that the person who controls another may also be a body corporate, an unincorporated association or a partnership. Thus "person" for the purposes of this clause includes not only the paradigmatic cases of a natural person and a body corporate but also a partnership or unincorporated association.
76. Subsections (3) to (5) apply definitions of "control" which are well-established in, for example, revenue law (for a recent example see section 574 of the Capital Allowances Act 2001). The definition includes, under subsection (3), cases where a company is run in accordance with the directions or instructions of another person. (This draws on the definition of "director" in section 417(1) of the Financial Services and Markets Act 2000 to cover the case of a shadow director). 77. Subsection (6) is to prevent the definition of control applying in relation to franchises.
29 "Small business contract"
(1) "Small business contract" means a business contract—
(a) to which at least one of the parties is, at the time the contract is made, a small business, and
(b) which does not come within any of four exceptions.
(2) The first exception is that the price payable under the contract exceeds £500,000.
(3) The second is that—
(a) the transaction provided for by the contract forms part of a larger transaction, or part of a scheme or arrangement, and
(b) the total price payable in respect of the larger transaction, or the scheme or arrangement, exceeds £500,000.
(4) The third is that—
(a) a person agrees to carry on a regulated activity under the contract, and
(b) he is an authorised person or, in relation to that activity, an exempt person.
(5) The fourth is that the contract is a series contract.
(6) A contract is a series contract if—
(a) the transaction provided for by the contract forms part of a series, and
(b) during the period of two years ending with the date of the contract, the total price payable under contracts providing for transactions in the series exceeds £500,000.
(7) A contract is also a series contract if, at the time the contract was made, both parties intended that—
(a) the transaction provided for by the contract would form part of a series, and
(b) the total price payable under contracts providing for transactions in the series and made during any period of two years, would exceed £500,000.
(8) Where a contract is a series contract, every subsequent contract providing for a transaction in the series is a series contract.
(9) The Secretary of State may by order vary the amount specified in subsections (2), (3), (6) and (7).
(10) "Authorised person", "exempt person" and "regulated activity" have the same meaning as in the Financial Services and Markets Act 2000 (c. 8).
EXPLANATORY NOTES
Clause 29 "Small business contract"
78. This clause defines a "small business contract" for the purposes of the Bill's provisions.
79. Subsection (1) defines a "small business contract" as a contract to which at least one of the original parties is a small business. Therefore a contract between a small business and a larger business may be a small business contract and so may a contract between two small businesses.
80. Subsections (2) to (5) set out exceptions to the definition of small business contract.
81. Subsection (2) creates an exemption for transactions with a value greater than £500,000.
82. Subsections (3) and (5) create an exemption for contracts forming part of a series, scheme or arrangement where the value of that series, scheme or arrangement exceeds £500,000. Subsections (6) and (7) make further provision about how a series of contracts qualifying for the exemption may be identified.
83. Subsection (4) creates an exemption for contracts for financial services where the provision of the services is a regulated activity performed by an authorised person or an exempt person. Subsection (10) defines "authorised person", "exempt person" and "regulated activity" by reference to the Financial Services and Markets Act 2000.
30 "Excluding or restricting liability"
(1) A reference to excluding or restricting a liability includes—
(a) making a right or remedy in respect of the liability subject to a restrictive or onerous condition;
(b) excluding or restricting a right or remedy in respect of the liability;
(c) putting a person at a disadvantage if he pursues a right or remedy in respect of the liability;
(d) excluding or restricting rules of evidence or procedure.
(2) A reference in Part 1 or section 5, 6, 10 or 13 to excluding or restricting a liability includes preventing an obligation or duty arising or limiting its extent.
(3) A written agreement to submit current or future differences to arbitration is not to be regarded as excluding or restricting the liability in question.
EXPLANATORY NOTES
Clause 30 "Excluding or restricting liability"
84. This clause explains the meaning of "excluding or restricting liability" where those terms appear in the Bill. It replicates the effect of UCTA section 13 [section 25(3) and (5)]. The following are examples of clauses excluding or restricting liability:
| TERMS REFERRED TO IN CLAUSE 30(1) TO (2) | EXAMPLES |
| A term making a right or remedy in respect of the liability subject to a restrictive or onerous condition | A term which requires claims to be made within a short period of time |
| A term which provides that defective goods will be replaced only if a person returns them to a particular place at his own expense | |
| A term excluding or restricting a right or remedy in respect of the liability | A term which restricts a person's right to terminate a contract |
| A term which limits the damages which may be claimed by a person | |
| A term which prevents a person from deducting compensation due to him from payments due from him | |
| A term putting a person at a disadvantage if he pursues a right or remedy in respect of the liability | A term which provides for a deposit paid by a person to be forfeited if he pursues any remedy |
| A term which provides that a purchaser who exercises a right to have defective goods repaired by a third party will invalidate any rights he has against the seller | |
| A term excluding or restricting rules of evidence or procedure | A term which provides that a decision of the seller, or a third party, that goods are or are not defective is to be conclusive |
| A term preventing an obligation or duty arising or limiting its extent | A term which excludes all conditions or warranties |
| A term or notice under which A states that A does not undertake responsibility for the economic interests of B, thereby stopping a duty of care to prevent B sustaining pure economic loss from arising |
31 "Hire-purchase" and "hire"
(1) A reference to a contract for the hire-purchase of goods is to a hire-purchase agreement within the meaning of the Consumer Credit Act 1974 (c. 39).
(2) A reference to a contract for the hire of goods is to be read with the 1982 Act.
32 General interpretation
(1) In this Act—
"the 1973 Act" means the Supply of Goods (Implied Terms) Act 1973 (c. 13),
"the 1979 Act" means the Sale of Goods Act 1979 (c. 54),
"the 1982 Act" means the Supply of Goods and Services Act 1982 (c. 29),
"associated person" has the meaning given in section 28,
"business contract" has the meaning given in section 26(2),
"business liability" has the meaning given in section 1(3) and (4),
"consumer", in relation to a party to a consumer contract, has the meaning given by section 26(1)(a),
"consumer contract" has the meaning given in section 26(1), "court" means—
(a) in England and Wales and Northern Ireland, the High Court or a county court, and
(b) in Scotland, the Court of Session or a sheriff,
and, except in Schedule 1, includes a tribunal, arbitrator or arbiter, "enactment" includes—
(a) a provision of, or of an instrument made under, an Act of the Scottish Parliament or Northern Ireland legislation, and
(b) a provision of subordinate legislation (within the meaning of the Interpretation Act 1978 (c. 30)),
"fair and reasonable", in relation to a contract term or a notice, has the meaning given in section 14,
"goods" has the same meaning as in the 1979 Act,
"injunction" includes interim injunction,
"interdict" includes interim interdict,
"negligence" has the meaning given in section 1(5),
"notice" includes an announcement, whether or not in writing, and any other communication,
"the OFT" means the Office of Fair Trading,
"personal injury" includes any disease and any impairment of physical or mental condition,
"public authority" has the same meaning as in section 6 of the Human Rights Act 1998 (c. 42),
"regulator" has the meaning given in paragraph 10 of Schedule 1,
"small business" has the meaning given in section 27,
"small business contract" has the meaning given in section 29,
"statutory" means conferred by an enactment,
EXPLANATORY NOTES
Clause 31 "Hire-purchase" and "hire"
85. This clause defines certain terms relating to the supply of goods for the purposes of the Bill's provisions. The Bill's provisions on contracts for the supply of goods are contained in clauses 5, 6, 10 and 13. Clause 32 General interpretation
86. This clause provides a list of general definitions. Where terms are defined elsewhere in the Bill the term is listed in this clause with a cross-reference to the primary definition.
87. Many of the definitions are derived from UCTA section 14 [section 25]. Of those which are different in substance or new, the majority are merely cross-references to other clauses and are considered in the appropriate Note. 178 "supplier", in relation to a contract for the hire-purchase of goods or a contract for the hire of goods, means the person by whom goods are bailed or (in Scotland) hired to another person under the contract, and "transparent" has the meaning given in section 14(3).
(2) A reference to a business includes a profession and the activities of a public authority.
(3) A reference to excluding or restricting liability is to be read with section 30.
(4) A reference to a contract for the hire-purchase or hire of goods is to be read with section 31. Final provisions
33 Orders
(1) Any power of the Secretary of State to make an order under this Act is exercisable by statutory instrument.
(2) A statutory instrument containing an order under this Act, other than one containing an order under section 35 (commencement), is subject to annulment in pursuance of a resolution of either House of Parliament.
34 Consequential amendments and repeals, etc.
(1) Schedule 5 contains minor and consequential amendments.
(2) Schedule 6 contains repeals and revocations.
35 Short title, commencement and extent
(1) This Act may be cited as the Unfair Contract Terms Act 2005.
(2) The preceding provisions come into force on such day as the Secretary of State may by order appoint.
(3) Different days may be appointed for different provisions.
(4) No provision of this Act applies in relation to a contract term agreed before the commencement of the provision (except in so far as the term has been varied after that commencement).
(5) An amendment, repeal or revocation contained in Schedule 5 or 6 has the same extent as the enactment to which it relates.
(6) This Act extends to Northern Ireland.
EXPLANATORY NOTES
88. Subsection (2) provides that a reference to a business includes a profession and the activities of a public authority. The definition in UCTA section 14 [section 25] additionally includes the activities of any government department or local authority. These words have been omitted from the Bill because the clause adopts the definition of "public authority" given in section 6 of the Human Rights Act 1998. That section gives a broad definition of "public authority" by including "any person certain of whose functions are functions of a public nature" (other than the Houses of Parliament). This would include a government department or local authority.
Final provisions Clause 33 Orders
89. This clause contains provisions relating to the Secretary of State's powers to make orders under the Act. Under subsection (2) the powers conferred are subject to the negative Parliamentary procedure.
Clause 34, Schedule 5 and Schedule 6 Consequential amendments and repeals, etc
90. Clause 34 introduces the Schedules containing the Bill's consequential amendments and repeals.
Clause 35 Short title, commencement and extent
91. Subsection (2) provides for commencement on such date as the Secretary of State may appoint.
92. Subsection (4) provides that the Act shall apply only to new contracts or variations of contract terms agreed after the commencement date.
93. Subsection (6) provides that the Act shall extend to Northern Ireland. The Bill applies to the UK as a whole in default of any provision to the contrary but by convention an express provision is made in respect of Northern Ireland.
SCHEDULES
| SCHEDULE 1 | Section 7 |
CONSUMER CONTRACT TERMS, ETC.: REGULATION AND ENFORCEMENT
Cases where this Schedule applies
1 (1) This Schedule applies to a complaint about—
(a) a consumer contract term,
(b) a term drawn up or proposed for use as a consumer contract term, or
(c) a term which a trade association recommends for use as a consumer contract term.
(2) This Schedule also applies to a complaint about—
(a) a notice relating to the rights conferred or duties imposed by a consumer contract on the parties, or
(b) any other notice purporting to exclude or restrict liability for negligence. Consideration of complaints
2 (1) If the OFT receives a complaint to which this Schedule applies, it must consider the complaint unless—
(a) it thinks that the complaint is frivolous or vexatious,
(b) it is notified by a regulator that that regulator intends to consider the complaint, or
(c) in the case of a complaint under paragraph 1(2)(b), it thinks that subparagraph (2) applies in relation to the notice.
(2) This sub-paragraph applies in relation to a notice which—
(a) does not exclude or restrict business liability for negligence, or
(b) excludes or restricts such liability only in relation to a person who, at the time when the liability arises, is acting for purposes related to a business.
(3) If the regulator intends to consider a complaint to which this Schedule applies, it must—
(a) notify the OFT that it intends to consider the complaint, and
(b) consider the complaint. Application for injunction or interdict
3 (1) The OFT (or a regulator) may apply for an injunction or interdict against such persons as it considers appropriate if it thinks that the term or notice to which the complaint relates comes within this paragraph.
EXPLANATORY NOTES
SCHEDULE 1 CONSUMER CONTRACT TERMS, ETC; REGULATION AND ENFORCEMENT
94. The regime of enforcement powers provided for under Schedule 1 replaces that provided for by regulations 10 – 16 of the UTCCR. It does not replicate that regime exactly. In particular, Schedule 1 has been drafted to take account of the similar regime afforded by part 8 of the Enterprise Act 2002 and is in a form as consistent as possible with that Act. (The reasons for preserving preventive powers separate from those under the Enterprise Act are set out in full in this Report, paragraph 3.146 – 3.147.) Part 8 contains no provisions allowing the consumer to bring a complaint to the attention of the enforcer and no provisions requiring the enforcer to act on the complaint. These are essential aspects of the UTCCR's regime. Part 8 is clearly meant to work in conjunction with other parts of the Enterprise Act, for example section 11, which create mechanisms through which unfair practices can come to the attention of enforcing bodies, but these mechanisms are not wholly appropriate for the purposes of legislation implementing the Directive.
95. The enforcement powers are conferred and the concomitant duties (such as on the OFT to consider a complaint and on a regulator to notify the OFT if it is considering one) are imposed on the OFT and additional "regulators" (defined in paragraph 10, subparagraph (2) of which provides that the Secretary of State may by order amend the list so as to add, modify or omit an entry).
96. The most significant change from the regime set out in the UTCCR is the inclusion of powers in respect of unfair or unreasonable notices in addition to the powers in respect of unfair or unreasonable contract terms. These are set out in paragraph 1(2).
97. Under paragraphs 1 and 2 of the Schedule, the powers are conferred on the basis of complaints, made to the OFT or another regulator, about
(1) consumer contract terms (paragraph 1(1)(a));
(2) terms drawn up or proposed for use as consumer contract terms (paragraph 1(1)(b)). This category includes terms put forward for inclusion in a consumer contract but which do not form part of the contract because the consumer refused to agree to them. It also includes terms drawn up for inclusion in a consumer contract which are not incorporated under the common law relating to the incorporation of contract terms, for example, because the term is presented to the consumer after the contract is agreed. It is not clear that these terms are presently covered by the UTCCR;
(3) terms which a trade association recommends for use as consumer contract terms (paragraph 1(1)(c));
(4) notices relating to the rights conferred or duties imposed by a consumer contract (paragraph 1(2)(a)). This would permit a complaint to be made about a notice that purports to restrict contractual rights even if the restriction was not incorporated in the contract (for example, because the notice was displayed only after the contract was made). It would even apply if the notice was not intended to be incorporated, but was merely designed to deter consumers from exercising their rights. Such notices are not caught under paragraphs 1(1)(a) or (b) because they are not contractual terms and are not put forward for inclusion in the contract; and
(5) notices purporting to exclude or restrict liability for negligence (paragraph 1(2)(b)). This would allow action to be taken against notices that purport to exclude liability in tort [delict] which exists independently of a contractual relationship. Thus it would allow action to be taken against a notice in a free supermarket car park stating that no liability is accepted for negligence causing death or personal injury. It would not matter that there was no contractual relationship between the car park users and the store. Under paragraph 2(2), the
(2) A term or notice comes within this paragraph if it purports to exclude or restrict liability of the kind mentioned in—
(a) section 1(1) (business liability for death or personal injury resulting from negligence), or
(b) section 5 (implied terms in supply of goods to consumer).
(3) A term or notice also comes within this paragraph if it—
(a) is drawn up for general use, and
(b) is not fair and reasonable.
(4) A term also comes within this paragraph if—
(a) however it is expressed, it is in its effect a term of a kind which the business usually seeks to include in the kind of consumer contract in question, and
(b) it is not fair and reasonable.
(5) A term which comes within paragraph 1(b) or (c) (but not within paragraph 1(a)) is to be treated for the purposes of section 14 (the "fair and reasonable" test) as if it were a contract term.
Notification of application
4 (1) If a regulator intends to make an application under paragraph 3—
(a) it must notify the OFT of its intention, and
(b) it may make the application only if this paragraph applies.
(2) This paragraph applies if—
(a) the period of 14 days beginning with the date of the notification to the OFT has ended, or
(b) before the end of that period, the OFT allows the regulator to make the application.
(3) Where the OFT (or a regulator), having considered a complaint to which this Schedule applies, decides not to make an application under paragraph 3 in response to the complaint, it must give its reasons to the person who made the complaint.
Determination of application
5 (1) On an application under paragraph 3, the court may grant an injunction or interdict on such conditions, and against such of the respondents, as it thinks appropriate.
(2) The injunction or interdict may include provision about—
(a) a term or notice to which the application relates;
(b) any consumer contract term, or any notice, of a similar kind or like effect.
(3) It is not a defence to show that, because of a rule of law, a term to which the application relates is not, or could not be, an enforceable contract term.
(4) If a regulator makes the application, it must notify the OFT of—
(a) the outcome of the application, and
(b) if an injunction or interdict is granted, the conditions on which, and the identity of any person against whom, it is granted.
EXPLANATORY NOTES
notice must relate to business liability and must be owed to a person who was not acting for purposes related to a business. The supermarket's liability would arise out of their "occupation of premises used for purposes" related to their business, and would therefore meet the definition of business liability set out in clause 1(3)(b). Equally, most users affected by the notice would not be acting for business purposes. However, no complaint could be considered against a homeowner who put up such a notice in their driveway. [NB. In Scots law an occupier cannot exclude or restrict liability under the Occupiers' Liability (Scotland) Act 1960 except by contractual term.]
98. Further changes to the UTCCR are that:
(1) Under paragraph 3(2) the OFT or regulator may act against terms or notices appearing to exclude or restrict liability without having to show (under the general test in paragraph 3(3)) that the term is unfair where, under the Bill's provisions, the term is automatically of no effect.
(2) Paragraph 3(4) enables the OFT or regulator to act against practices of negotiating terms that are unfair. For example, sub-paragraph (4) would apply to clauses which require the consumer to pay a deposit, where the deposit is invariably – or commonly – unfair or unreasonable even if the amount of the deposit varies from contract to contract as the result of negotiation or otherwise.
99. The principal powers and duties conferred by the Schedule are:
(1) A duty to consider a complaint about a term or notice (paragraph 2);
(2) A power to apply to the court for an injunction [interdict] against the use of unfair terms or notices (paragraph 3);
(3) A power to accept from a business an undertaking that it will comply with certain conditions about the use of specified terms or notices (paragraph 6);
(4) A power to obtain information from a business to facilitate the exercise of the other enforcement powers (paragraph 7); and
(5) A power to apply to the court for a "compliance order" requiring a business to comply with a notice made under the paragraph 7 power to obtain information (paragraph 8).
Undertakings
6 (1) The OFT (or a regulator) may accept from a relevant person an undertaking that he will comply with such conditions about the use of specified terms or notices, or of terms or notices of a specified kind, as he and the OFT (or the regulator) may agree.
(2) If a regulator accepts an undertaking under this paragraph, it must notify the OFT of—
(a) the conditions on which the undertaking is accepted, and
(b) the identity of the person who gave it.
(3) "Relevant person", in relation to the OFT or a regulator, means a person against whom it has applied, or thinks it is entitled to apply, for an injunction or interdict under paragraph 3.
(4) "Specified", in relation to an undertaking, means specified in the undertaking. Power to obtain information
7 (1) The OFT (or a regulator which is a public authority) may, for a purpose mentioned in sub-paragraph (2)(a) or (b), give notice to a person requiring him to provide it with specified information.
(2) The purposes are—
(a) to facilitate the exercise of the OFT's (or the regulator's) functions for the purposes of this Schedule,
(b) to find out whether a person has complied, or is complying, with—
(i) an injunction or interdict granted under paragraph 5 on an application by the OFT (or the regulator), or
(ii) an undertaking accepted by it under paragraph 6.
(3) The notice must—
(a) be in writing,
(b) specify the purpose for which the information is required, and
(c) specify how and when the notice is to be complied with.
(4) The notice may require the production of specified documents or documents of a specified description.
(5) The OFT (or the regulator) may take copies of any documents produced in compliance with the notice.
(6) The notice may be varied or revoked by a subsequent notice under this paragraph.
(7) The notice may not require a person to provide information or produce documents which he would be entitled to refuse to provide or produce—
(a) in proceedings in the High Court, on the grounds of legal professional privilege;
(b) in proceedings in the Court of Session, on the grounds of confidentiality of communication.
(8) "Specified", in relation to a notice under this paragraph, means specified in the notice.
Notices under paragraph 7: enforcement
8 (1) If the OFT (or the regulator) thinks that a person (a "defaulter") has failed, or is failing, to comply with a notice given under paragraph 7, it may apply to the court for an order under this paragraph (a "compliance order").
(2) If the court thinks that the defaulter has failed to comply with the notice, it may make a compliance order.
(3) A compliance order—
(a) must specify such things as the court thinks it reasonable for the defaulter to do to ensure compliance with the notice;
(b) must require the defaulter to do those things;
(c) may require the defaulter to pay some or all of the costs or expenses of the application for the order ("the application costs").
(4) If the defaulter is a company or association, the court may, when acting under sub-paragraph (3)(c), require payment of some or all of the application costs by an officer of the company or association whom the court thinks responsible for the failure.
(5) If a regulator applies for a compliance order, it must notify the OFT of—
(a) the outcome of the application, and
(b) if the order is made, the conditions on which, and the identity of any person against whom, it is made.
(6) "Officer"—
(a) in relation to a company, means a director, manager, secretary or other similar officer of the company,
(b) in relation to a partnership, means a partner,
(c) in relation to any other association, means an officer of the association or a member of its governing body.
Publication, information and advice
9 (1) The OFT must arrange to publish details of any—
(a) application it makes for an injunction or interdict under paragraph 3;
(b) injunction or interdict granted on an application by it under paragraph 3;
(c) injunction or interdict notified to it under paragraph 5(4)(b);
(d) undertaking it accepts under paragraph 6(1);
(e) undertaking notified to it under paragraph 6(2);
(f) application it makes for a compliance order under paragraph 8(1);
(g) compliance order made under paragraph 8(2);
(h) compliance order notified to it under paragraph 8(5)(b).
(2) Sub-paragraph (3) applies where a person tells the OFT about a term or notice and asks the OFT whether that term or notice, or one of a similar kind or like effect, is or has been the subject of an injunction, interdict or undertaking under this Schedule.
(3) The OFT must reply; and if it replies that the term or notice, or one of a similar kind or like effect, is or has been the subject of an injunction, interdict or undertaking under this Schedule, the OFT must give the person—
(a) a copy of the injunction or interdict or details of the undertaking, and
(b) if the person giving the undertaking has agreed to amend the term or notice concerned, a copy of the amendments.
(4) The OFT may arrange to publish advice and information about the provisions of this Act.
(5) A reference to an injunction or interdict under this Schedule is to an injunction or interdict—
(a) granted on an application by the OFT under paragraph 3, or
(b) notified to it under paragraph 5(4)(b).
(6) A reference to an undertaking under this Schedule is to an undertaking—
(a) accepted by the OFT under paragraph 6(1), or
(b) notified to it under paragraph 6(2). Meaning of "regulator"
10 (1) For the purposes of this Schedule, "regulator" means—
(a) the Financial Services Authority,
(b) the Office of Communications,
(c) the Information Commissioner,
(d) the Gas and Electricity Markets Authority,
(e) the Water Services Regulation Authority,
(f) the Office of Rail Regulation,
(g) the Northern Ireland Authority for Energy Regulation,
(h) the Department of Enterprise, Trade and Investment in Northern Ireland,
(i) a local weights and measures authority in Great Britain, or
(j) a body designated as a regulator under sub-paragraph (3).
(2) The Secretary of State may by order amend sub-paragraph (1) so as to add, modify or omit an entry.
(3) Where the Secretary of State thinks that a body which is not a public authority represents the interests of consumers (or consumers of a particular description), he may by order designate the body as a regulator.
(4) The Secretary of State may cancel the designation if he thinks that the body has failed, or is likely to fail, to comply with a duty imposed on it under this Act.
(5) The Secretary of State must publish (and may from time to time vary) other criteria to be applied by him in deciding whether to make or cancel a designation under this paragraph.
The Financial Services Authority
11 Any function that the Financial Services Authority has under this Act is to be regarded, for the purposes of the Financial Services and Markets Act 2000 (c. 8), as a function that it has under that Act.
| SCHEDULE 2 | Section 14(6) |
CONTRACT TERMS WHICH MAY BE REGARDED AS NOT FAIR AND REASONABLE
PART 1
INTRODUCTION
1 (1) A term of a consumer contract or small business contract may be regarded as not being fair and reasonable if it—
(a) has the object or effect of a term listed in Part 2, and
(b) does not come within an exception mentioned in Part 3.
(2) In this Schedule—
(a) in relation to a consumer contract, "A" means the consumer and "B" means the business, and
(b) in relation to a small business contract, "A" and "B" mean, respectively, the persons referred to as A and B in section 11.
PART 2
LIST OF TERMS
2 A term excluding or restricting liability to A for breach of contract.
3 A term imposing obligations on A in circumstances where B's obligation to perform depends on the satisfaction of a condition wholly within B's control.
4 A term entitling B, if A exercises a right to cancel the contract or if B terminates the contract as a result of A's breach, to keep sums that A has paid, the amount of which is unreasonable.
5 A term requiring A, when in breach of contract, to pay B a sum significantly above the likely loss to B.
6 A term entitling B to cancel the contract without incurring liability, unless there is also a term entitling A to cancel it without incurring liability.
7 A term entitling B, if A exercises a right to cancel the contract, to keep sums A has paid in respect of services which B has yet to supply.
8 A term in a fixed-term contract or a contract of indefinite duration entitling B to terminate the contract without giving A reasonable advance notice (except in an urgent case).
EXPLANATORY NOTES
SCHEDULE 2 CONTRACT TERMS WHICH MAY BE REGARDED AS NOT FAIR AND REASONABLE
100. Schedule 2 gives effect to the Annex to the Directive, which contains an indicative and non-exhaustive list of terms which may be regarded as unfair. The Schedule applies to consumer and small business contracts (see paragraph 1(1)). Paragraph 1(2) specifies that, for the purposes of the Schedule, "A" means the consumer or the small business seeking to challenge a contract term and "B" means the other party to the contract (that is, the party seeking to rely on the contract term).
101. The following are examples of terms that would fall within the general descriptions provided by the list:
| Para | EXAMPLES |
| 2 | |
| A term which requires claims to be made within a short period of time | |
| A term in a contract for the repair of goods which provides that an ineffective repair will be corrected only if a person returns the goods to a particular place at his own expense | |
| A term which restricts a person's right to terminate a contract | |
| A term which limits the damages which may be claimed by a person | |
| A term which prevents a person from deducting compensation due to him from payments due from him | |
| A term which provides for a deposit paid by a person to be forfeited if he pursues any remedy | |
| A term which provides that a decision of the supplier, or a third party, that services are or are not in accordance with the contract is to be conclusive | |
| A term which excludes all conditions or warranties | |
| 3 | |
| A term of a loan agreement which obliges the consumer to take the loan in circumstances where the other party is under an obligation to make the loan only with the approval of one of its managers | |
| 4 | |
| A term of a contract for the sale of a house by a developer to a consumer which requires the consumer to pay a 25 per cent deposit to the developer in circumstances where there is no reasonable justification for the deposit being larger than the customary 10 per cent deposit | |
| 5 | |
| A term of a contract (other than a loan agreement) which requires the consumer, when late in making any payment, to pay a default rate of interest which is substantially more than the business has to pay when borrowing money | |
| A term of a loan agreement which requires the consumer, when late in making a payment, to pay a default rate of interest which is substantially above the rate payable before default | |
| A term of a contract for the sale of goods which requires the consumer, if he wrongfully terminates the contract, to compensate the business for the full loss of profit it suffers, without making any allowance for the amount which the business should be able to recover by taking reasonable steps to resell the goods | |
| 6 | |
| A term that allows a holiday company, in the event of insufficient bookings being received, to cancel a booked package holiday without compensation to the consumer up to three weeks before departure without giving the consumer the right to withdraw from the contract without liability up to three weeks before departure | |
| 7 | |
| A term that allows a holiday company, if the consumer exercises a right to cancel a booked package holiday, to keep the whole price of the holiday paid by the consumer at the time of booking | |
| 8 | |
| A term of a contract under which a small partnership is to provide personal property management services, allowing the property managers to terminate the contract without notice, rather than providing that it may be terminated after a reasonably long set period of notice but with a shorter period in the event, for instance, of the death or serious illness of one of the partners |
9 A term—
(a) providing for a contract of fixed duration to be renewed unless A indicates otherwise, and
(b) requiring A to give that indication a disproportionately long time before the contract is due to expire.
10 A term binding A to terms with which A did not have an opportunity to become familiar before the contract was made.
11 A term entitling B, without a good reason which is specified in the contract, to vary the terms of the contract.
12 A term entitling B, without a good reason, to vary the characteristics of the goods or services concerned.
13 A term requiring A to pay whatever price is set for the goods at the time of delivery (including a case where the price is set by reference to a list price), unless there is also a term entitling A to cancel the contract if that price is higher than the price indicated to A when the contract was made.
14 A term entitling B to increase the price specified in the contract, unless there is also a term entitling A to cancel the contract if the business does increase the price.
15 A term giving B the exclusive right (and, accordingly, excluding any power of a court) to determine—
(a) whether the goods or services supplied match the definition of them given in the contract, or
(b) the meaning of any term in the contract.
16 A term excluding or restricting B's liability for statements or promises made by B's employees or agents, or making B's liability for statements or promises subject to formalities.
17 A term requiring A to carry out its obligations in full (in particular, to pay the whole of the price specified in the contract) in circumstances where B has failed to carry out its obligations in full.
18 A term entitling B to transfer its obligations without A's consent.
19 A term entitling B to transfer its rights in circumstances where A's position might be weakened as a result.
20 A term excluding or restricting A's right—
(a) to bring or defend any action or other legal proceedings, or
(b) to exercise other legal remedies.
21 A term restricting the evidence on which A may rely.
EXPLANATORY NOTES
| Para | EXAMPLES |
| 9 | |
| A term in a contract for an annual subscription to a magazine stating that the contract will be renewed for the following year, and the consumer will have to pay the subscription or a cancellation charge, unless the consumer sends a notice that he does not wish to renew by a date which is several months before the end of the current subscription period | |
| 10 | |
| A term in a document that was signed by the consumer stating that the consumer agrees to be bound by the business's general terms and conditions when the consumer had not seen the general terms and conditions and they were not available for him to look at | |
| 11 | |
| A term giving the business an unqualified right to alter the date by which it is to deliver goods rather than (a) limiting the right, for instance, to cases in which the delay is caused by reasons outside its control and (b) stating in the contract the circumstances in which it can defer delivery | |
| 12 | |
| A term that requires the consumer to accept a new car that is in a different colour to that specified, rather than (for instance) limiting the dealer's right to supply the car in a different colour to cases in which a new car in the specified colour is no longer obtainable and giving the consumer a right to cancel the contract without charge if he does not want the car in the colour offered | |
| 13 | |
| A term that permits the supplier of goods or services to charge a price that is to be determined at the date of delivery, unless the consumer is given the right to cancel the contract if the price is higher than that stated in the contract or quoted to the consumer | |
| 14 | |
| A term that permits the supplier of goods or services to increase the price charged, unless the consumer is given the right to cancel the contract in the event of a price increase | |
| 15 | |
| A term that states that the supplier's decision as to whether services were performed correctly shall be final | |
| A term stating that, in the event of goods being returned and a refund sought, the supplier may retain a reasonable sum for the value the consumer obtained from the goods, where the term also states that the seller's assessment of a reasonable sum or of the value obtained by the consumer is final | |
| 16 | |
| A term providing that an employee or agent who negotiated the contract has no authority to make any promise or statement on behalf of the business | |
| A term providing that no undertaking may be given by an employee or agent that the goods will meet the consumer's particular needs unless that is given in writing authorised by Head Office | |
| 17 | |
| A term requiring a consumer to pay a monthly rental sum for a phone even if there have been significant periods when the service was not available | |
| 18 | |
| A term in a contract for the carriage of the consumer's property that allows the business to employ other firms to carry out the contract and states that the business will not be responsible for damage caused by the other firms | |
| 19 | |
| A term that provides that the business may assign its rights to a debt-collection agency and that the consumer must pay the outstanding price to that agency in full, whatever the circumstances | |
| 20 | |
| A term that requires the consumer to submit any dispute to arbitration, mediation or any form of alternative dispute resolution before commencing legal action | |
| A term that, when a service has not been performed correctly, excludes the consumer's right to withhold payment | |
| 21 | |
| A term stating that defective repairs will not be corrected unless the consumer provides proof of the contract by producing the original invoice |
PART 3
EXCEPTIONS
Financial services contracts
22 (1) Sub-paragraph (2) applies where a term in a financial services contract of indefinite duration provides that B may terminate the contract—
(a) by giving A relatively short advance notice, or
(b) if B has a good reason for terminating the contract, without giving A any advance notice.
(2) Paragraph 8 (termination without reasonable notice) does not apply to the term if the contract also provides that B must immediately inform A of the termination.
(3) Sub-paragraph (4) applies where a term in a financial services contract of indefinite duration provides that B may vary the interest rate or other charges payable under it—
(a) by giving A relatively short advance notice, or
(b) if B has a good reason for making the variation, without giving A any advance notice.
(4) Paragraph 11 (variation without good reason) does not apply to a term if the contract also provides that—
(a) B must as soon as practicable inform A of the variation, and
(b) A may then cancel the contract, without incurring liability.
(5) "Financial services contract" means a contract for the supply by B of financial services to A.
Contracts of indefinite duration
23 Paragraph 11 (variation without good reason) does not apply to a term in a contract of indefinite duration if the contract also provides that—
(a) B must give reasonable notice of the variation, and
(b) A may then cancel the contract, without incurring liability. Contracts for sale of securities, foreign currency, etc.
24 (1) None of the following paragraphs applies to a contract term if subparagraph (2) or (3) applies—
(a) paragraph 8 (termination without reasonable notice),
(b) paragraph 11 (variation without good reason),
(c) paragraph 13 (determination of price at time of delivery),
(d) paragraph 14 (increase in price).
(2) This sub-paragraph applies if the contract is for the transfer of securities, financial instruments or anything else, the price of which is linked to—
(a) fluctuations in prices quoted on a stock exchange, or
(b) a financial index or market rate that B does not control.
(3) This sub-paragraph applies if the contract is for the sale of foreign currency (and, for this purpose, that includes foreign currency in the form of traveller's cheques or international money orders).
EXPLANATORY NOTES
102. Part 3 of Schedule 2 sets out a series of exceptions to paragraphs 8, 11, 13 and 14 of the Indicative List, which are in effect exceptions for certain terms in financial services contracts and contracts of indefinite duration. This part is similar to paragraph 2 of Schedule 2 to the UTCCR.
25 Neither paragraph 13 nor paragraph 14 (determination of price at time of delivery or increase in price) applies to a contract term if—
(a) the term provides for the price of the goods or services to be varied by reference to an index of prices, and
(b) the contract specifies how a change to the index is to affect the price.
| SCHEDULE 3 | Section 22 |
EXCEPTIONS
Legal requirements
1 (1) This Act does not apply to a contract term—
(a) required by an enactment or a rule of law,
(b) required or authorised by a provision in an international convention to which the United Kingdom or the European Community is a party, or
(c) required by, or incorporated as a result of a decision or ruling of, a competent authority acting in the exercise of its statutory jurisdiction or any of its functions.
(2) Sub-paragraph 1(c) does not apply if the competent authority is itself a party to the contract.
(3) "Competent authority" means a public authority other than a local authority. Settlements of claims
2 (1) This Act does not apply to a contract term in so far as it is, or forms part of—
(a) a settlement of a claim in tort;
(b) a discharge or indemnity given by a person in consideration of the receipt by him of compensation in settlement of any claim which he has.
(2) In sub-paragraph (1)—
(a) paragraph (a) does not extend to Scotland, and
(b) paragraph (b) extends only to Scotland. Insurance
3 The following sections do not apply to an insurance contract (including a contract to pay an annuity on human life)—
(a) section 1 (exclusion of business liability for negligence),
(b) section 9 (exclusion of liability for breach of business contract where one party deals on written standard terms of the other),
(c) section 11 (non-negotiated terms in small business contracts),
(d) section 12 (exclusion of employer's liability under employment contract).
EXPLANATORY NOTES
SCHEDULE 3 EXCEPTIONS
103. This Schedule largely replicates the effect of Schedule 1 to UCTA [in Scotland UCTA. sections 15 and 16 achieve a similar effect]. However, the exemptions relating to insurance, land, intellectual property, company formation, securities (such as stocks, shares, bonds and other financial instruments) and shipping do not apply to consumer contracts, as they would have done under UCTA. The Directive does not permit exemption of these types of consumer contract.
104. Paragraph 8 of Schedule 3 creates an exemption for international supply contracts, which is similar but not identical to UCTA section 26. The principal changes are that (1) international consumer contracts of supply are not exempted from the controls over terms excluding or restricting liability as they would have been under UCTA section 26 (this is not permitted by the Directive on certain aspects of the sale of consumer goods and associated guarantees) and (2) business contracts for the supply of goods are exempted when they are export contracts but not when they are import contracts.
Land
4 The following sections do not apply to a contract term in so far as it relates to the creation, transfer, variation or termination of an interest or real right in land—
(a) section 1 (exclusion of business liability for negligence),
(b) section 9 (exclusion of liability for breach of business contract where one party deals on written standard terms of the other),
(c) section 11 (non-negotiated terms in small business contracts). Intellectual property
5 Nor do those sections apply to a contract term in so far as it relates to the creation, transfer, variation or termination of a right or interest in any patent, trade mark, copyright or design right,
registered design, technical or commercial information or other intellectual property. Company formation, etc.
6 Nor do those sections apply to a contract term in so far as it relates to—
(a) the formation or dissolution of a body corporate or unincorporated association (including a partnership),
(b) its constitution, or
(c) the rights and obligations of its members. Securities
7 Nor do those sections apply to a contract term in so far as it relates to the creation or transfer of securities or of a right or interest in securities. International supply contracts
8 The following provisions do not apply to a business contract for the supply of goods where the supply is to be made to a place outside the United Kingdom—
(a) section 1(2) (business liability for negligence other than in case of death or personal injury),
(b) sections 9 to 11 (unfair terms in business contracts),
(c) sections 19 and 20 (choice of law in business contracts). Shipping
9 (1) Section 1(2) does not apply to a shipping contract unless it is also a consumer contract.
(2) Sections 9 and 11 do not apply to a shipping contract.
(3) "Shipping contract" means—
(a) a contract of marine salvage or towage,
(b) a charterparty of a ship or hovercraft, or
(c) a contract for the carriage of goods by ship or hovercraft.
10 (1) This paragraph applies where goods are carried by ship or hovercraft under a contract which—
(a) specifies that as the means of transport for part of the journey, or
(b) does not specify a means of transport but does not exclude that one.
(2) Section 1(2) does not apply to the contract, unless it is also a consumer contract, in so far as it relates to the carriage of the goods by that means of transport.
(3) Sections 9 and 11 do not apply to the contract in so far as it relates to the carriage of the goods by that means of transport.
| SCHEDULE 4 | Section 27 |
CALCULATING THE NUMBER OF EMPLOYEES IN A BUSINESS
Introduction
1 (1) This Schedule sets out how to calculate the number of employees that a party to a business contract, or an associated person, has in its business.
(2) "The business period" means a continuous period for which—
(a) the party to the business contract has been carrying on the business to which the contract relates, or
(b) an associated person has been carrying on business. Calculation for established business
2 Where the business period is at least twelve months ending on the last day of the month immediately before the month including the contract date—
(a) work out how many full-time employees there are in the business on the last day of each of the twelve months ending with the last complete month before the contract date,
(b) add together the numbers for those twelve days, and
(c) divide the total by twelve.
Calculation for new business
3 Where the business period is at least one complete month ending on the last day of the month immediately before the month including the contract date (but paragraph 2 does not apply)—
(a) work out how many full-time employees there are in the business on the last day of each complete month,
(b) add together the numbers for those days, and
(c) divide the total by the number of complete months.
4 Where the business period is less than one complete month, but more than one day, before the contract date—
(a) work out how many full-time employees there are in the business on each day,
(b) add together the numbers for those days, and
(c) divide that total by the number of days.
5 Where the party to the contract enters into it on the first day on which it carries on the business to which the contract relates, or an associated person has been carrying on business for only one day, work out how many fulltime employees there are in the business on the day in question. The number of full-time employees in a business
6 (1) This paragraph sets out how to work out how many full-time employees there are in a business.
(2) An employee who works for at least 35 hours a week for a business counts as one full-time employee.
EXPLANATORY NOTES
SCHEDULE 4 CALCULATING THE NUMBER OF EMPLOYEES IN A BUSINESS
105. Schedule 4 sets out the manner in which the number of employees in a business is to be calculated. It draws on the approach taken to counting employees under the regime put in place by the Late Payment of Commercial Debts legislation (Late Payment of Commercial Debts (Interest) Act 1998 (Commencement No 1) Order (SI 1998 No 2479), Schedule 2).
106. The question for most cases – that is, cases involving established businesses – is the number of employees calculated by reference to the 12 complete months preceding the month in which the relevant contract was made; and the basic calculation is set out in paragraph 2. The calculation is different for newly established businesses and these are dealt with in paragraph 3.
107. In either case an averaging calculation is required: the number of employees in a business for the purposes of clause 27 is the average number of employees employed day-to-day or month-to-month over a statutory "business period" of a year or less.
108. The calculation is performed on a full-time equivalent basis: part-time employees are each treated as a fraction of a full-time employee. The calculation for converting part-time employees into full-time equivalents is set out in paragraph 6.
109. "Employee" is defined in paragraph 8 and includes any person working in the business under a contract of employment or a contract for services. This is a wide definition which corresponds to the definition of "worker" in the Employment Rights Act 1996 and the National Minimum Wage Act 1998 (where "employee" is given a narrower definition). "Contract of employment" includes contracts of service or apprenticeship. "Contract for services" includes all independent contractors not covered by "contract of employment", as well as agency workers, provided they work 'in the business'.
(3) An employee who works for under 35 hours a week for a business (a "parttime employee") counts as a fraction of one full-time employee, with the fraction being calculated as— where A and B are defined as follows.
(4) A is the number of hours a week which the part-time employee works for the business.
(5) B is—
(a) the number of hours a week which a full-time employee of the same description as the part-time employee works for the business, or
(b) if there are no full-time employees of that description, 35 hours a week.
(6) The number of hours a week which an employee works for a business is—
(a) the number of hours a week which he is contractually required to work for the business, or
(b) if he ordinarily works for a longer period than that, or his contract does not specify for how many hours a week he is to work, the number of hours a week he ordinarily works for the business, but does not include any meal break, or rest period, exceeding 15 minutes.
Interpretation
7 "Contract date", in relation to a business contract, means the date on which the contract is made.
8 "Employee"—
(a) in relation to any business, means an individual who works in the business under a contract of employment or a contract for services;
(b) in relation to a business carried on by a partnership (or other unincorporated association), includes a partner (or member);
(c) in relation to a business carried on by only one individual, includes that individual. AB ----
| SCHEDULE 5 | Section 34(1) |
MINOR AND CONSEQUENTIAL AMENDMENTS
Misrepresentation Act 1967 (c. 7)
1 In section 3 of the Misrepresentation Act 1967 (c. 7) (avoidance of provision excluding liability for misrepresentation), for the words from "that term" to the end, substitute "that term is of no effect unless it is fair and reasonable for the purposes of the Unfair Contract Terms Act 2005 (and, accordingly, part 4 of that Act applies in relation to the term)". Misrepresentation Act (Northern Ireland) 1967 (c. 14 (NI))
2 In section 3 of the Misrepresentation Act (Northern Ireland) 1967 (c. 14 (NI)) (avoidance of provision excluding liability for misrepresentation), make the same substitution. Supply of Goods (Implied Terms) Act 1973 (c. 13)
3 The Supply of Goods (Implied Terms) Act 1973 (c. 13) is amended as follows.
4 In section 10 (implied undertakings as to quality or fitness)—
(a) in subsections (2D) and (2F), for the words from "the person" to "consumer contract", substitute "the agreement is a consumer contract under which the goods are bailed or hired to the consumer", and
(b) omit subsection (8).
5 In section 11A (the title to which becomes "Modification of remedies for breach of statutory condition where bailee not consumer")—
(a) in subsection (1), for "the person to whom the goods are bailed does not deal as consumer" substitute "the agreement is not a consumer contract under which the goods are bailed to the consumer",
(b) for subsection (3)(b) substitute— "(b) that the agreement was not a consumer contract under which the goods were bailed to the consumer.", and
(c) omit subsection (4).
6 In section 12A (remedies for breach of hire-purchase agreements in Scotland)—
(a) in subsection (2), after "consumer contract" insert "under which the goods are hired to the consumer", and
(b) for subsection (3) substitute— "(3) For the purposes of subsection (2), if the creditor wishes to rely on a hire-purchase contract not being a consumer contract under which goods are hired to the consumer, it is for the creditor to prove that it is not.".
7 In section 14(1) (special provision about conditional sale agreements), for the words from "where" to the end substitute "which is a consumer contract under which the buyer is the consumer.".
8 In section 15(1) (interpretation)—
EXPLANATORY NOTES
SCHEDULES 5 AND 6
110. Schedule 5 makes provision for consequential amendments to existing statutes.
SCHEDULE 6 REPEALS AND REVOCATIONS
111. Schedule 6 makes provision for the consequential repeal and revocation of existing statutory provisions.
(a) for the definition of "business" substitute— " "business" includes a profession and the activities of a public authority (within the meaning of the Human Rights Act 1998 (c. 42))", and
(b) at the appropriate place insert— " "consumer contract", and "the consumer" in relation to a consumer contract, have the same meaning as in section 26 of the Unfair Contract Terms Act 2005;". Sale of Goods Act 1979 (c. 54)
9 The Sale of Goods Act 1979 (c. 54) is amended as follows.
10 In section 14 (implied terms about quality or fitness), in subsections (2D) and (2F), for the words from "the buyer" to "consumer contract" substitute "the contract is a consumer contract under which the buyer is the consumer".
11 In section 15A (the title to which becomes "Modifications of remedies for breach of condition where buyer not consumer"), for "the buyer does not deal as consumer" substitute "the contract is not a consumer contract under which the buyer is the consumer".
12 In section 15B (remedies for breach of contract in Scotland), in subsection (2), after "consumer contract" insert "under which the buyer is the consumer".
13 In section 20 (passing of risk), in subsection (4), for the words from "In a case" to "is a consumer" substitute "Where there is a consumer contract under which the buyer is the consumer".
14 In section 30 (delivery of wrong quantity), in subsection (2A), for "A buyer who does not deal as consumer" substitute "Where the contract is not a consumer contract under which the buyer is the consumer, the buyer".
15 In section 32 (delivery to carrier), in subsection (4), for the words from "In a case" to "is a consumer," substitute "Where there is a consumer contract under which the buyer is the consumer,".
16 In section 35 (acceptance), in subsection (3), for the words from "the buyer deals" to "consumer contract" substitute "there is a consumer contract under which the buyer is the consumer".
17 In section 48A (additional rights of buyer in consumer cases), for subsection (1)(a) substitute— "(a) there is a consumer contract under which the buyer is the consumer,".
18 In section 55(1) (exclusion by parties of implied contractual terms), for "the Unfair Contract Terms Act 1977" substitute "the Unfair Contract Terms Act 2005".
19 In section 61 (interpretation)—
(a) in subsection (1), for the definition of "consumer contract" substitute— " "consumer contract" and, in relation to a consumer contract, "the consumer" have the same meaning as in section 26 of the Unfair Contract Terms Act 2005", and
(b) for subsection (5A) substitute— "(5A) For the purposes of this Act, if the seller wishes to rely on a contract for the sale of goods not being a consumer contract under which the buyer is the consumer, it is for the seller to prove that it is not.".
Supply of Goods and Services Act 1982 (c. 29)
20 The Supply of Goods and Services Act 1982 (c. 29) is amended as follows.
21 In section 4 (implied terms about quality or fitness in contract for transfer of goods), in subsections (2B) and (2D), for "the transferee deals as consumer" substitute "the contract is a consumer contract under which the transferee is the consumer".
22 In section 5A (the title to which becomes "Modification of remedies for breach of statutory condition where transferee not consumer"), in subsection (1), for "the transferee does not deal as consumer" substitute "the contract is not a consumer contract under which the transferee is the consumer".
23 In section 9 (implied terms about quality or fitness), in subsections (2B) and (2D), for "the bailee deals as consumer" substitute "the contract is a consumer contract under which the bailee is the consumer".
24 In section 10A (the title to which becomes "Modification of remedies for breach of statutory condition where bailee not consumer"), in subsection (1), for "the bailee does not deal as consumer" substitute "the contract is not a consumer contract under which the bailee is the consumer".
25 In section 11(1) (exclusion of implied terms, etc.), for "the 1977 Act" substitute "the 2005 Act".
26 In section 11D (implied terms about quality or fitness in contract for transfer of goods in Scotland), in subsections (3A) and (3C), after "consumer contract" insert "and the transferee is the consumer".
27 In section 11F (remedies for breach of contract in Scotland), omit subsection (3).
28 In section 11J (implied terms about quality or fitness in contract for hire of goods in Scotland), in subsections (3A) and (3C), after "consumer contract" insert "and the person to whom the goods are hired is the consumer".
29 In section 11L(1) (exclusion of implied terms, etc. in Scotland), for "the 1977 Act" substitute "the 2005 Act".
30 In section 11M (additional rights of transferee in consumer cases), for subsection (1)(a) substitute— "
(a) there is a consumer contract under which the transferee is the consumer,".
31 In section 16(1) (exclusion of implied terms, etc.), for "the 1977 Act" substitute "the 2005 Act".
32 In section 18 (general interpretation)—
(a) in subsection (1), at the appropriate place insert— " "consumer contract" and, in relation to a consumer contract, "the consumer" have the same meaning as in section 26 of the 2005 Act;", and
(b) for subsection (4) substitute—
"(4) For those purposes, if the transferor wishes to rely on a contract for the transfer of goods not being a consumer contract under which the transferee is the consumer, it is for the transferor to prove that it is not.
(5) Subsection (4) also applies in relation to a contract for the hire of goods; and for that purpose—
(a) "transferor" includes the bailor or supplier, and
(b) "transferee" includes the bailee or person to whom the goods are hired.
33 In section 19 (interpretation: references to Acts)—
(a) omit the definition of "the 1977 Act" and the word "and" immediately following it, and
(b) at the end, insert "; and "the 2005 Act" means the Unfair Contract Terms Act 2005".
Merchant Shipping Act 1995 (c. 21)
34 In section 184 of the Merchant Shipping Act 1995 (c. 21) (Orders in Council relating to carriage within the British Islands), omit subsection (2). Arbitration Act 1996 (c. 23)
35 The Arbitration Act 1996 (c. 23) is amended as follows.
36 In section 89 (the cross-heading immediately above which becomes "Consumer and small business arbitration agreements" and the title to which becomes "Application of the Unfair Contract Terms Act 2005")—
(a) for subsections (1) and (2) substitute—
"(1) Sections 90 and 91 extend the application of sections 4 and 11 of the 2005 Act (detrimental terms in consumer and small business contracts) in relation to a term which constitutes an arbitration agreement.
(2) For that purpose—
"the 2005 Act" means the Unfair Contract Terms Act 2005, and
"arbitration agreement" means an agreement to submit to arbitration present or future disputes or differences (whether or not contractual).", and
(b) in subsection (3), for "Those sections" substitute "Sections 90 and 91".
37 For section 90 substitute—
"90 Application where consumer is a legal person
Section 4 of the 2005 Act applies where the consumer is a legal person as it applies where the consumer is a natural person
38 In section 91(1) (arbitration agreement unfair where modest amount sought) for "the Regulations" substitute "sections 4 and 11 of the 2005 Act".
Late Payment of Commercial Debts (Interest) Act 1998 (c. 20)
39 In section 14 of the Late Payment of Commercial Debts (Interest) Act 1998 (c. 20) (postponement of date for payment of contract price) in subsection (2), for "Sections 3(2)(b) and 17(1)(b) of the Unfair Contract Terms Act 1977" substitute "Section 9 of the Unfair Contract Terms Act 2005".
Contracts (Rights of Third Parties) Act 1999 (c. 31)
40 In section 7(2) of the Contracts (Rights of Third Parties) Act 1999 (c. 31)
(disapplication of restriction on exclusion of liability for negligence) for "Section 2(2) of the Unfair Contract Terms Act 1977" substitute "Section 1(2) of the Unfair Contract Terms Act 2005".
| SCHEDULE 6 | Section 34(2) |
Reference Extent of repeal
REPEALS AND REVOCATIONS
PART 1
REPEALS
| Reference | Extent of repeal |
| Supply of Goods (Implied Terms) Act 1973 | (c. 13) Section 10(8). |
| Section 11A(4). | |
| Unfair Contract Terms Act 1977 (c. 50) | The whole Act. |
| Sale of Goods Act 1979 (c. 54) | In Schedule 2, paragraphs 19 to 22. |
| Supply of Goods and Services Act 1982 (c. 29) | Section 11B(6). |
| Section 11D(10). | |
| Section 11F(3). | |
| Section 11J(10). Section 11M(5). | |
| Section 17(2) and (3). | |
| In section 19, the definition of "the 1977 Act" and the word "and" immediately following it. | |
| Occupiers' Liability Act 1984 (c. 3) | Section 2. |
| Copyright, Designs and Patents Act 1988 (c. 48) | In Schedule 7, paragraph 24. |
| Contracts (Applicable Law) Act 1990 (c. 36) | In Schedule 4, paragraph 4. |
| Law Reform (Miscellaneous Provisions) (Scotland) Act 1990 (c. 40) | Section 68. |
| Trade Marks Act 1994 (c. 26) | In Schedule 4, in paragraph 1(2), the reference to the Unfair Contract Terms Act 1977. |
| Sale and Supply of Goods Act 1994 (c. 35) | In Schedule 2, paragraph 5(9)(a)(i) and (c). |
| Merchant Shipping Act 1995 (c. 21) | Section 184(2). |
PART 2
REVOCATIONS
| Reference | Extent of revocation |
| Occupiers' Liability (Northern Ireland) Order 1987 (SI 1987/ 1280 (NI 15)) | Article 4. |
| Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083) | The whole Regulations. |
| Unfair Terms in Consumer Contracts (Amendment) Regulations 2001 (SI 2001/ 1186) | The whole Regulations. |
| Financial Services and Markets Act 2000 (Consequential Amendments and Repeals) Order 2001 (SI 2001/3649) | Article 583. |
| Sale and Supply of Goods to Consumers Regulations 2002 (SI 2002/3045) | Regulation 14. |
| Enterprise Act 2002 (Part 9 Restrictions on Disclosure of Information (Amendment and Specification) Order 2003 (SI 2003/1400) | In Schedule 4, the reference to the Unfair Terms in Consumer Contracts Regulations 1999. |
| Enterprise Act 2002 (Part 8 Domestic Infringements) Order 2003 (SI 2003/1593) | In the Schedule, the reference to the Unfair Contract Terms Act 1977. |
| Communications Act 2003 (Consequential Amendments No 2) Order 2003 (SI 2003/ 3182) | Article 2. |
