Chapter 6 – Exemption Clauses and Unfair Contract Terms

Essay question

Critically discuss the regulation of ‘unfair terms’ under the Consumer Rights Act 2015.

Essay question answer guidance

The Consumer Rights Act 2015, Part 2 replaced the Unfair Terms in Consumer Contracts Regulations 1999 although there is a degree of similarity between these two pieces of regulation.  You should consider the application of Part 2: essentially, for present purposes, to terms in contracts between traders and consumers.  Who is a consumer for these purposes? Can a small company be a consumer for these purposes? You should consider contracts and types of terms excluded (or partially excluded) from regulation under Part 2.  For example, the exclusion of the appropriateness of the price payable in comparison with the goods or services supplied (s.62 and the lasting impact of Office of Fair Trading v Abbey National plc (2009)).  You should also consider the nature of the regulation under Part 2 and the meaning of an ‘unfair term’ (see, for example, Director General of Fair Trading v First National Bank plc (2001)) and the ability of a court to raise unfairness independently (s.71).

Problem question

Leo is a builder. He often hires equipment and tools from Goff Ltd, a company specialising in construction equipment and tools. Last week Leo hired a portable cement mixer from Goff Ltd. After paying for the hire of the cement mixer, Leo was given a receipt which he put into his pocket without reading. On the back of the receipt were the words: ‘Hire subject to our standard terms and conditions, available on our website’. Clause 8 of these standard terms and conditions stated that ‘Goff Ltd limits all liability to £50’.

When Leo tried to use the cement mixer, it exploded. Thankfully, Leo was not hurt, but his van was badly damaged.

Advise Leo.

Problem question answer guidance

Leo will probably have a contract with Goff Ltd for the hire of the cement mixer, and that contract will contain implied terms that the cement mixer is of satisfactory quality (Supply of Goods and Services Act 1982, s.9(2)) and it is fit for purpose (Supply of Goods and Services Act 1982, s.9(5)). You should consider whether or not these terms have been breached and also whether Goff Ltd might also be prima facie liable in the tort of negligence.

Goff Ltd will no doubt wish to rely on the limitation clause on its website. Remember that to rely on this clause three requirements must be met: (i) this term must generally be part of the contract (incorporation); (ii) the term must apply to what has happened (construction); and (iii) the term must not be rendered ineffective by legislation (here, the Unfair Contract Terms Act 1977). In relation to incorporation, one possible difficulty relates to the handing of the receipt to Leo. Was this after the contract had been formed? If so, there will not be incorporation by notice (Olley v Marlborough Court Ltd (1949)). On the other hand, it is possible that there may have been incorporation by a consistent course of dealing. In relation to construction, care needs to be taken in relation to some of the older case law where the rules of construction were manipulated to regulate exemption clauses. Today clauses are arguably given a more natural construction; and in McGee Group Ltd v Galliford Try Building Ltd (2017) Coulson J stated: ‘a clause which seeks to limit the liability of one party to a commercial contract, for some or all of the claims which may be made by the other party, should generally be treated as an element of the parties’ wider allocation of benefit, risk and responsibility. No special rules apply to the construction or interpretation of such a clause although, in order to have the effect contended for by the party relying upon it, a clause limiting liability must be clear and unambiguous.’ In relation to statutory regulation, reference should be made to the Unfair Contract Terms Act 1977, s.2(2) (negligence liability causing damage to property) and the Unfair Contract Terms Act 1977, s.7 (exemption of breach of statutory implied terms).