Injury claims and the Unfair Contract Terms Act 1977
The Unfair Contract Terms Act redresses the balance between companies and consumers by striking out unfair contract terms. The Act means companies manufacturing and selling defective products cannot restrict liability for personal injury.
The Unfair Contract Terms Act 1977 (UCTA) is a piece of legislation that prevents businesses from including unfair terms in their contracts. It is primarily concerned with disclaimers of liability and does not examine whether a contract is unfair generally. Thus, UCTA will apply if a business tries to exclude liability or cap the amount of injury compensation they will pay for negligence.
While UCTA is a reasonably complex piece of legislation, the essential provisions may be summarised as follows.
Disclaimer of liability for negligence
A seller cannot restrict, exclude or disclaim liability for death or personal injury resulting from negligence. This is an absolute requirement. A seller may restrict liability for other losses, for example, damage to personal property, but only where it is reasonable in all the circumstances.
Disclaimer of liability for breach of contract
Unless it is reasonable to do so, when entering into a contract with a consumer a business may not:
- Cap their liability for breach of contract
- Provide a substantially different product or service to that which the customer expects to receive
- Fail to perform their duties under the contract
- Restrict liability for misrepresentation (giving a false account of the nature of something, whether deliberately or accidentally).
Disclaimer regarding the quality of goods for sale
In consumer contracts, a business cannot exclude liability for losses relating to the description, quality or suitability of a product that it has offered for sale or hire purchase.
Applying the reasonableness test
The reasonableness test is applied by asking: "is the disclaimer of liability fair and reasonable in all the circumstances?" This is judged by the circumstances that were known by the parties at the time the contract was entered into, and not those that were learned through hindsight.
Factors that a Court may consider when applying the reasonableness test include:
- The bargaining position of the parties. For example, if a supplier has a monopoly on a particular good or service such that the customer cannot obtain the product elsewhere, then the Court will expect the contract to be rigorously fair.
- Whether the customer was incentivised to accept the exclusion clause. For example, could the customer have paid a higher price for a contract without the disclaimer of liability?
- Whether the exclusion clause is one that is commonly used in a particular industry.
- The resources of the party seeking to rely on a clause restricting their liability. For example, did the business restrict their liability to the maximum amount of their insurance cover?
Enforcement of UCTA
The Competition and Markets Authority (CMA) has the power to investigate unfair contract terms and prevent businesses from using certain terms in their conditions of service. Guidance can be found on their website. Alternatively, a ruling may be sought through the Courts.
If a term in a contract is deemed to be unfair, it is effectively struck out of the contract as if it never existed.