PART 8
SUMMARY OF RECOMMENDATIONS
We make the following recommendations:
8.1 There should be a single piece of legislation covering the whole of the United Kingdom. (Paragraph 3.9)
CONSUMER CONTRACTS
8.2 There should be no significant reduction in consumer protection. (Paragraph 3.13)
8.3 The new legislation should incorporate the requirements of the SCGD but not other statutory or common law rules applying to unfair terms in consumer contracts. (Paragraph 3.18)
Definitions
8.4 The definition of a "consumer" should refer to a person acting for purposes unrelated to his or her business. (Paragraph 3.22)
8.5 Under the new scheme, only natural persons should constitute consumers. (Paragraph 3.24)
8.6 The existing rule in UCTA that persons do not "deal as a consumer" when they hold themselves out as acting in the course of their business should not be replicated. (Paragraph 3.26)
8.7 An individual buying second-hand goods at an auction which individuals may attend in person should not be treated as a consumer for the purposes of the parts of our scheme that replicate provisions found only in UCTA. (Paragraph 3.29)
8.8 The existing rule in UCTA that for a contract for the supply of goods to qualify as a "consumer contract" the goods must be of a type ordinarily supplied for private use or consumption should not be replicated. (Paragraph 3.31)
8.9 "Business" should include the activities of government departments or local or public authorities. (Paragraph 3.34)
8.10 In the case of an individual entering into a contract for "mixed purposes", it should be left to the court to determine the main, or predominant, purpose of the contract and hence whether it is a consumer contract. (Paragraph 3.38)
8.11 The controls in the Part of the new legislation dealing with consumer contracts should relate only to "contracts", but "contract" should be left undefined. (Paragraph 3.40)
Terms of no effect
8.12 Terms which are automatically of no effect [void] under UCTA should continue to be of no effect under the new legislation. (Paragraph 3.45)
8.13 Exclusions or restrictions of business liability for death or personal injury caused by negligence [breach of duty] should be automatically ineffective even if they are part of a contract for the acquisition, transfer and termination of an interest in land. (Paragraph 3.47)
8.14 UCTA section 5 [section 19] should not be replicated in the new legislation. (Paragraph 3.49)
Negotiated terms
8.15 Any term in a consumer contract, with the exception of a "core" term, should be subject to the "fair and reasonable" test, whether or not the term was individually negotiated. (Paragraph 3.55)
Terms not subject to control
8.16 The definition of the main subject matter of the contract should be immune from challenge as long as it is: (a) substantially the same as the consumer reasonably expected; and (b) transparent. (Paragraph 3.65)
8.17 The price payable under a consumer contract should be immune from challenge as long as it is: (a) payable in circumstances substantially the same as those the consumer reasonably expected; (b) calculated in substantially the same way as the consumer reasonably expected; (c) not payable under a default or subsidiary term of the contract; and (d) transparent. (Paragraph 3.66)
8.18 Terms that are
(a) required by an enactment or rule of law;
(b) required or authorised by an international convention; or
(c) required by a competent authority
should continue to be exempt under the new legislation. Terms that produce substantially the same result as would be produced as a matter of law if the term were not included should be exempt, but only if the term is also transparent. (Paragraph 3.72)
Questions over whether some types of contract should be excluded
8.19 The general control over unfair terms in consumer contracts should apply where a consumer is the seller or supplier. (Paragraph 3.76)
8.20 Consumer contracts of insurance and contracts for the transfer of an interest in land and for the creation or transfer of interests in securities should not be exempt from the new regime. (Paragraph 3.80)
The general test
8.21 The test to be applied to contract terms which are challengeable but which are not automatically of no effect should be a "fair and reasonable" test. (Paragraph 3.90)
8.22 The "fair and reasonable" test in the new legislation should not include any express reference to "good faith". (Paragraph 3.91)
8.23 Whether a term is fair and reasonable should be determined (a) by reference to the time when the contract was made, and (b) by taking into account the substance and effect of the term, and all the circumstances existing when the contract was made. (Paragraph 3.96)
8.24 Whether a term is "fair and reasonable" should be assessed according to (a) whether it is transparent; (b) its substance and effect and (c) the circumstances in existence at the time the contract was made. (Paragraph 3.101)
8.25 It should be possible for a contract term to be found to be unfair principally or solely because it is not transparent. (Paragraph 3.102)
8.26 The new legislation should contain substantive guidelines for the application of the "fair and reasonable" test. (Paragraph 3.105)
8.27 The new legislation should contain a rule of interpretation in favour of the consumer, providing that the consumer should have the benefit of any doubt about the meaning of a term. (Paragraph 3.107)
The Indicative List
8.28 The replacement for the Indicative List in the new legislation should not include the additional types of term against which the OFT has taken action; but the Secretary of State should have a statutory power to add appropriate terms to the list. (Paragraph 3.112)
8.29 The Indicative List should be reformulated using concepts and language more likely to be understood by readers in the UK. (Paragraph 3.116)
8.30 The Explanatory Notes to the Bill should contain examples of terms that would fall within the types of terms in the Indicative List. (Paragraph 3.119)
8.31 The list of exceptions to the Indicative List in the UTCCR should be retained but reformulated in the interests of clarity. (Paragraph 3.123)
The burden of proof
8.32 Where an issue has been raised as to whether a term in a consumer contract is fair and reasonable, the burden of proving that it is fair and reasonable should rest on the business. (Paragraph 3.130)
The effect of finding that a term is invalid
8.33 The provision in the Draft Bill that 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, should be applied so that when one of several terms in a clause is not fair and reasonable the remainder should be treated as effective. (Paragraph 3.138)
8.34 Where a term is shown to be unfair or partly unfair, the rest of the contract should continue in existence if possible. (Paragraph 3.140)
8.35 The new legislation should retain a provision, applicable to all types of contract governed by the new legislation, subjecting terms in secondary contracts to the same controls as if they appeared in the main contract; but genuine agreements to settle existing disputes should be exempted. (Paragraph 3.142)
Preventive powers
8.36 The new legislation should contain a regime of preventive powers, conferred on authorised bodies, to take steps to prevent a business using an unfair term. (Paragraph 3.149)
8.37 The powers should extend to preventing the use of any terms that under the Draft Bill would be automatically ineffective. (Paragraph 3.153)
8.38 The preventive powers should cover terms that the business has tried to incorporate into the contract but failed; and notices which may not even have been intended to form part of the contract. (Paragraph 3.155)
8.39 The OFT or other regulator should have power to seek an injunction [interdict] against the use of unfair terms of a kind which the business usually seeks to include in the type of consumer contract in question. (Paragraph 3.157)
8.40 The preventive powers should permit the OFT, or a regulator, to take action in respect of terms that are not fair or reasonable principally or solely because they are not transparent. (Paragraph 3.159)
8.41 The new scheme of preventive powers should not include a specific power to prevent the use of general terms just because they omit important information. (Paragraph 3.161)
8.42 The burden of showing that a term is unfair in proceedings brought by an authorised body under its preventive powers should be borne by the authorised body. (Paragraph 3.163)
BUSINESS CONTRACTS
8.43 The present position under UCTA should be preserved, so that:
(1) (1) clauses which purport to exclude business liability for death or personal injury caused by negligence should continue to be of no effect; and
(2) (2) in business contracts of sale and hire purchase, or in other business supply contracts that involve the transfer of property in goods, a seller or supplier should not be able to exclude or restrict the implied undertaking that it is entitled to sell or transfer the property in those goods. Any such attempt should continue to be of no effect, as provided in sections 6(1) and 7(3A) [sections 20(1)(a) and (b) and 21(3A)] of UCTA. (Paragraph 4.21)
8.44 UCTA sections 6(3) and 7(3) [sections 20(2)(ii) and 21(1)(a)(ii)] should not be replicated in the new legislation. (Paragraph 4.29)
8.45 UCTA section 7(4) [section 21(1)(b)] should not be replicated in the new legislation. (Paragraph 4.35)
8.46 UCTA section 2(2) [section 16(1)(b)] should be replicated in the new legislation. (Paragraph 4.40)
8.47 A person who makes a contract for purposes mainly related to his or her business should not be classified as a consumer. (Paragraph 4.44)
8.48 For the replacement of section 3 [section 17] applying to exclusion clauses and clauses which purport to allow performance in a way substantially different to what was reasonably expected, the new legislation should use the current test of whether the party challenging the clause was "dealing on the other party's written standard terms of business". (Paragraph 4.57)
8.49 There should be no exemption for trade association, or industry standard, terms from the new legislation's provisions on business contracts. Questions of whether these terms are one party's "written standard terms of business" and whether they are fair and reasonable should be left to the court to decide on a case-by-case basis. (Paragraph 4.62)
8.50 To replace the current test of reasonableness
(1) the same "fair and reasonable" test, including whether the term is transparent, which we propose for consumer contracts should apply to business-to-business contracts;
(2) the same expanded set of guidelines for the application of the "fair and reasonable" test should apply to both consumer and business contracts; and
(3) in applying the test and the guidelines, the court should have regard to whether the contract is a consumer contract, a small business contract or a general business-to-business contract. (Paragraph 4.70)
8.51 The burden of proving that an exemption clause is fair and reasonable should continue to rest on the business seeking to rely upon that clause. (Paragraph 4.74)
8.52 The effect of a term which is to any extent unfair or unreasonable should be the same as it is under UCTA. (Paragraph 4.77)
8.53 A saving should be retained for contract terms in business contracts if the terms are required by law, or are required or authorised by an international convention to which the UK or the EC is a party, or are required by the decision of a competent authority. (Paragraph 4.79)
8.54 Those categories of contract currently excluded from the operation of UCTA should continue to be exempt from controls over unfair contract terms. (Paragraph 4.84)
SMALL BUSINESS CONTRACTS
8.55 Small businesses should be given powers to challenge any "non-core", standard term of a contract under a "fair and reasonable" test. (Paragraph 5.30)
8.56 Small businesses should be protected in their dealings with any other business, no matter what the size of the other business. (Paragraph 5.33)
8.57 Only businesses with nine or fewer employees should be included in the new regime. (Paragraph 5.40)
8.58 The size of a business should be calculated by averaging the number of persons employed by that business or by it and any associated business over the preceding year. (Paragraph 5.46)
8.59 Widely-defined group exemptions should be put in place so as to exempt from the small business regime those businesses that are associated with larger businesses. (Paragraph 5.54)
8.60 Contracts with a value of more than £500,000 should not be controlled under the small business regime. (Paragraph 5.59)
8.61 Where a contract is one of a series, the transactions should be aggregated so that if the aggregated value of the contracts is greater than £500,000 the whole series or arrangement should be exempt from the small business controls. (Paragraph 5.61)
8.62 There should be an exemption from the controls over small business contracts for contracts entered into in pursuance of regulated financial services business. (Paragraph 5.67)
8.63 Only certain terms in small business contracts should be open to challenge: those terms which have been put forward by the other party as one of its standard terms of business and which have not been subsequently changed in favour of the small business as a result of negotiation. (Paragraph 5.75)
8.64 The same categories of contract should be exempt from the small business controls as are expressly exempt from the business controls. (Paragraph 5.77)
8.65 The same "fair and reasonable" test should apply to the new general clause for small business contracts as to other contracts under the new legislation. (Paragraph 5.81)
8.66 The Indicative List of terms that may be regarded as unfair should apply to small business contracts as well as consumer contracts. (Paragraph 5.84)
8.67 In relation to small business contracts, the small business should bear the burden of showing unfairness. (Paragraph 5.86)
8.68 Where a term of a small business contract is found to be unfair, the contract should continue in existence in all other respects insofar as possible. (Paragraph 5.88)
8.69 Controls should be put in place to prevent businesses evading the small business controls by means of secondary contracts. (Paragraph 5.90)
EMPLOYMENT CONTRACTS
8.70 The provisions of the new legislation that apply to business liability for negligence should not prevent an employee from restricting his or her liability to the employer. (Paragraph 6.5)
8.71 UCTA's controls over employment contracts should be preserved when the employment is on the employer's standard terms of employment. Consumer protections should not be extended to employees. (Paragraph 6.10)
PRIVATE SALES
8.72 UCTA controls relating to implied terms as to entitlement to sell and correspondence with description or sample should be retained for contracts for the sale of goods by a consumer to a business; and should also continue to apply when neither party is acting in the course of a business (a "private" sale). (Paragraph 6.19)
8.73 In hire purchase contracts in which the supplier is a private individual the UCTA controls relating to implied terms as to title and sale by description or sample should be retained. (Paragraph 6.22)
8.74 UCTA controls relating to implied terms as to title and correspondence with description or sample should not be extended to other contracts in which a private individual supplies goods. (Paragraph 6.27)
NON-CONTRACTUAL NOTICES
8.75 The effect of the UCTA controls relating to notices excluding business liability in tort [delict] for negligence should be reproduced in the new legislation. (Paragraph 6.29)
8.76 Controls of business liability for negligence should be treated in a separate Part of the new legislation. (Paragraph 6.32)
8.77 The preventive powers be extended to cover non-contractual notices which purport to exclude or restrict a business's liability in tort [delict]. (Paragraph 6.35)
GENERAL PROVISIONS THAT ARE NO LONGER REQUIRED
8.78 Section 9 [section 22] of UCTA should not be replicated in the new legislation. (Paragraph 6.38)
8.79 Section 28 of UCTA should not be replicated in the new legislation. (Paragraph 6.42)
INTERNATIONAL CONTRACTS AND CHOICE OF LAW
Consumer contracts
8.80 UCTA section 26 on international contracts for the sale or supply of goods should not be replicated for consumer contracts. (Paragraph 7.6)
8.81 UCTA section 27(1) should not be replicated for consumer contracts. (Paragraph 7.9)
8.82 The new legislation should be applied despite a choice of foreign law if:–
(a) (a) when the contract was made, the consumer was living in the United Kingdom and
(b) (b) all the steps necessary for the conclusion of the contract were taken there by the consumer or on his or her behalf. (Paragraph 7.19)
8.83 Where the contract is not closely connected to the UK but is nevertheless closely connected to the territory of the Member States, the consumer-protective laws of other Member States should be applied as they would normally be under the existing rules of private international law. (Paragraph 7.21)
8.84 The new legislation should contain a default provision to ensure that it applies to any contract which is closely connected to the territory of the Member States but which is not covered by the other recommended choice of law provisions. (Paragraph 7.24)
8.85 The new legislation should presumptively provide that contracts for the sale or supply of goods and services to be delivered or supplied outside the territory of the Member States are not to be regarded as closely connected to the territory of the Member States if the consumer took all steps necessary for the conclusion of the contract overseas. (Paragraph 7.26)
Business contracts
8.86 The new legislation should contain a provision replicating UCTA section 27(1) in relation to business contracts (Paragraph 7.29)
8.87 The business contracts part of the new legislation should apply notwithstanding a choice of foreign law where the contract is, in every other respect, wholly connected to the UK. (Paragraph 7.34)
8.88 UCTA section 26 should be replaced in the new legislation with a clause creating an exemption for business contracts under which goods are exported overseas. (Paragraph 7.58)
Small business contracts
8.89 The intended replacement for UCTA section 26 (exempting business contracts for the supply of goods abroad) should also operate to exempt relevant contracts from the small business controls. (Paragraph 7.61)
8.90 The intended provision replicating UCTA section 27(1) should also apply to small business contracts. (Paragraph 7.63)
8.91 Small businesses should have the benefit of UK protective legislation in cases where the contract is closely connected to the UK because the small business took the necessary steps to order the goods or services here. (Paragraph 7.66)
(Signed) ROGER TOULSON, Chairman, Law Commission
HUGH BEALE
STUART BRIDGE
MARTIN PARTINGTON
ALAN WILKIE
STEVE HUMPHREYS, Chief Executive
RONALD MACKAY, Chairman, Scottish Law Commission
GERARD MAHER
KENNETH REID
JOSEPH THOMSON
COLIN TYRE
JANE MCLEOD, Chief Executive
31 December 2004
