Unfair Contract Terms - NEW CASE LAW

February 14, 2024

Most businesses are not normally too concerned about UCTA as it’s rare for business to business contracts to not comply with this law. However, recent case law may change this position, and it is useful for businesses to be aware of this where it comes to their contract drafting and negotiation with customers.

What is UCTA?

Contractual liability and Unfair Contract Terms Act 1977 (UCTA) allows certain clauses limiting or excluding liability to be challenged on the basis that they do not meet the test of reasonableness. If it is found the Court agrees, the clause will be unenforceable. This can often lead to suppliers being on the hook for significantly higher claims for damages.  

More often than not, Courts will find that where there is equal bargaining power between the parties, they are reluctant to find that an exclusion clause does not meet the test of reasonableness.  It is this area where the Court of Appeal has ruled in a recent case which may indicate a shift in this view and is something that businesses need to be aware of.  

What has the recent case found in respect of UCTA?

In Last Bus v Dawson (2023), the Court of Appeal overturned a High Court ruling that a finance company’s standard terms for hire purchase were reasonable under UCTA in respect of an exclusion clause. The terms set out to exclude all liability for the quality, fitness for purpose, description or specifications of the vehicles which the buyer was using the finance to obtain. The buyer made a claim against the finance company because some of the vehicles caught on fire.  

The High Court initially decided that the liability exclusions were reasonable under UCTA because there was an equality of bargaining power between the parties.  The Court of Appeal later found that this was not the case.  The Court of Appeal also held that UCTA is not limited in application to consumer contracts, and applies with full force (subject to limited exceptions) to commercial contracts where one party is dealing on the other’s standard terms or where the contract is one of hire purchase.  

What implications could this case have for businesses, and suppliers in particular?

The main point to take away from this case is that businesses who have standard terms may find it difficult in practice to enforce wide-ranging liability exclusions.  The Court of Appeal acknowledged that equality of bargaining power is a key factor in cases of this nature and in the case of standard terms Courts should normally proceed on the basis that there is no equality of bargaining power unless there is evidence that the customer could realistically have obtained better terms.  

However, the main thing suppliers need to be aware of is to avoid exclusions which are so wide ranging that they remove any possibility of a meaningful remedy for serious breaches which a customer could incur as a result of entering into the contract. In addition, suppliers should look to include a general cap on liability which can be relied upon, if it is found that certain exclusions are found to be unenforceable under UCTA by a Court.

How can we help?

Our team of commercial lawyers can review your existing supplier standard terms of business to assess your liability position in respect of UCTA.  If you are a supplier of goods and/or services you will want to ensure that your standard terms of business afford you as much protection as possible from potential liabilities and, in doing so, seek to include appropriate exclusions.  

The case of Last Bus v Dawson is a reminder to ensure that the bargaining positions of the parties and availability of alternative options on the market are also considered when using and drafting exclusion clauses, to increase the likelihood of such clauses being considered reasonable and enforceable if necessary.  

It is sensible to review standard supplier terms of business regularly to ensure continuing relevance and protection and this is where we can help.  You can get in touch with the team here.

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