- •Commercial Law
- •Contents
- •Preface
- •Abbreviations
- •Table of Statutory Provisions
- •Table of Cases
- •1 Introduction
- •1 Introduction
- •2 What is agency?
- •3 Nature and characteristics of agency
- •4 The different types of agency
- •5 Conclusion
- •6 Recommended reading
- •1 Introduction
- •2 The authority of an agent
- •3 Agency by ratification
- •4 Agency of necessity
- •5 Conclusion
- •6 Recommended reading
- •1 Introduction
- •2 Duties of an agent
- •3 Rights of an agent
- •4 Commercial agents and principals
- •5 Disclosed agency
- •6 Undisclosed agency
- •7 Termination of agency
- •8 Recommended reading
- •Introduction
- •1 Introduction
- •2 Background
- •3 Development of the sale of goods
- •4 Equality of bargaining power: non-consumers and consumers
- •5 Impact of the European Union
- •6 Contract of sale
- •7 Contracts for non-monetary consideration
- •8 Contracts for the transfer of property or possession
- •9 Recommended reading
- •1 Introduction
- •2 Background
- •3 Sale of Goods Act 1979, section 12: the right to sell
- •4 Sale of Goods Act 1979, section 13: compliance with description
- •5 Sale of Goods Act 1979, section 14(2): satisfactory quality
- •6 Sale of Goods Act 1979, section 14(3): fitness for purpose
- •7 Sale of Goods Act 1979, section 15: sale by sample
- •8 Exclusion and limitation of liability
- •9 Acceptance
- •10 Remedies
- •11 Recommended reading
- •1 Introduction
- •2 Background to the passage of property and risk
- •3 Rules governing the passage of property
- •4 Passage of risk
- •5 The nemo dat exceptions
- •6 Delivery and payment
- •7 Remedies
- •8 Recommended reading
- •1 Introduction
- •2 Background
- •3 Provision of Services Regulations 2009
- •4 Supply of Goods and Services Act 1982
- •5 Recommended reading
- •1 Introduction
- •2 Background
- •3 Electronic Commerce (EC Directive) Regulations 2002
- •4 Distance selling
- •5 Recommended reading
- •Introduction
- •1 Introduction
- •2 CIF contracts
- •3 FOB contracts
- •4 Ex Works
- •5 FAS contracts
- •6 Conclusion
- •7 Recommended reading
- •1 Introduction and background
- •2 Structure and scope
- •3 UNIDROIT Principles of International Commercial Contracts
- •4 Conclusion
- •5 Recommended reading
- •1 Introduction and background
- •2 Open account
- •3 Bills of exchange
- •4 Documentary collections
- •5 Introduction to letters of credit
- •6 Factoring
- •7 Forfaiting
- •8 Conclusion
- •9 Recommended reading
- •1 Introduction
- •2 Hague and Hague-Visby Rules
- •3 Charterparties
- •4 Time charterparty
- •5 Common law obligations of the shipper
- •6 Common law obligations of the carrier
- •7 Bills of lading
- •8 Electronic bills of lading
- •9 Conclusion
- •10 Recommended reading
- •Introduction
- •1 Introduction
- •2 Background
- •3 Development of negligence
- •4 The move to strict liability
- •5 Types of defect
- •6 Developments in strict liability
- •7 Recommended reading
- •1 Introduction
- •2 Personnel
- •3 Meaning of ‘product’
- •4 Defectiveness
- •5 Defences
- •6 Contributory negligence
- •7 Recoverable damage
- •8 Limitations on liability
- •9 Recommended reading
- •Introduction
- •1 Introduction
- •2 Background
- •3 Enforcement strategy
- •4 Criminal law controls
- •5 Civil law enforcement
- •6 Recommended reading
- •1 Introduction
- •2 Scope of the 2008 Regulations
- •3 Prohibition against unfair commercial practices
- •4 Codes of practice
- •5 Misleading actions
- •6 Misleading omissions
- •7 Aggressive commercial practices
- •8 Commercial practices which are automatically unfair
- •9 Offences
- •10 Recommended reading
- •1 Introduction
- •2 Background
- •3 Controls over misleading advertising
- •4 Comparative advertising
- •5 Promotion of misleading or comparative advertising
- •6 Recommended reading
- •1 Introduction
- •1 Introduction
- •2 History of banking regulation: early policy initiatives
- •3 New Labour and a new policy
- •4 The Financial Services Authority
- •5 The Coalition government
- •6 Conclusion
- •7 Recommended reading
- •1 Introduction
- •2 What is a bank?
- •3 What is a customer?
- •4 Bank accounts
- •5 Cheques
- •6 Payment cards
- •7 Banker’s duty of confidentiality
- •8 Banking Conduct Regime
- •9 Payment Services Regulations 2009
- •10 Conclusion
- •11 Recommended reading
- •1 Introduction
- •2 European banking regulation
- •3 The Financial Services Authority
- •4 Financial Services Compensation Scheme
- •5 Financial Ombudsman Scheme
- •6 Financial Services and Markets Tribunal
- •7 The Bank of England
- •8 Bank insolvency
- •9 Illicit finance
- •10 Conclusion
- •11 Recommended reading
- •1 Introduction
- •1 Introduction
- •2 Evolution of the consumer credit market
- •3 Consumer debt, financial exclusion and over-indebtedness
- •4 Irresponsible lending
- •5 Regulation of irresponsible lending
- •6 Irresponsible borrowing
- •7 Ineffective legislative protection for consumers
- •8 A change of policy
- •9 Lessons from the United States
- •10 Conclusion
- •11 Recommended reading
- •1 Introduction
- •2 Crowther Committee on Consumer Credit
- •3 Consumer Credit Act 1974
- •4 Formalities
- •5 Cancellation of agreements
- •7 Documentation of credit and hire agreements
- •8 Matters arising during the currency of credit or hire agreements
- •9 Credit advertising
- •10 Credit licensing
- •11 Unfairness test
- •12 Other powers of the court
- •13 Financial Ombudsman Service
- •14 Enforcement
- •15 Consumer Credit Directive
- •16 Conclusion
- •17 Recommended reading
- •Bibliography
- •Index
65 |
4â Equality of bargaining power: non-consumers and consumers |
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Sale of goods legislation must reflect both changes in the market and the |
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manner of contracting if it is to remain facilitative rather than obstructive. |
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Arguably, the most significant alteration to the market in the last twenty years |
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has been the development of the Internet, which revolutionised contracts of sale |
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by permitting sellers and buyers to contract both nationally and internation- |
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ally at the click of a button. This has necessarily brought about a new emphasis |
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on the regulation of distance contracts where the contracting parties will never |
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meet and raises issues such as protection of the parties and the choice of applic- |
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able law.12 |
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It is against this background of shifting markets, EU developments, differ- |
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ent legislative approaches and the rise of consumerism that sale of goods legis- |
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lation has developed over the last hundred years. Naturally, it will continue to |
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develop as appropriate both to address new situations and to remain relevant |
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to the myriad contracts, both national and international, business-to-business, |
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business-to-consumer and consumer-to-consumer that rely upon its provisions |
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for the successful pursuit and management of contracts of sale. |
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Q2 Consider how the development of the law governing the sale of goods has |
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reflected the rise of consumerism. |
4â Equality of bargaining power: non-consumers and consumers
Many factors influence the market within which the Sale of Goods Act 1979 is used and, naturally, have an impact on the way that both it and its predecessors have developed over the years. Thus, for example, English contract law is based on the notion of equality of bargaining power such that the seller and buyer are presumed to have an equal influence over the content of any contract to which they are a party. While this might have been the case in pre-industrial Britain when contracts were largely made between people in the immediate locality, it is naive in the extreme to imagine that this is true in the modern trading world. Nowadays, contracts may take place between businesses of significantly different sizes, such as a multinational company selling goods to a small retail outlet or, equally, in the consumer market, by a major chain store providing goods to the man on the street. In both of these examples, the seller is in a position largely to be able to dictate the terms of the contract with the buyer having very little power or influence.
While in both of the previous examples, the stronger party is the seller, this is not necessarily the case and circumstances can arise, particularly in business- to-business contracts, where the buyer is in the more dominant position. Thus, for example, large producers such as car manufacturers regularly buy component parts from small component manufacturers who are not in a position to have any real influence over the content of the relevant contract of sale. Equally,
12 Distance contracts, including e-contracts, are discussed in detail in Part 2 Chapter 5.
66 |
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Sale of goods policy |
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major high street retailers such as supermarkets source their supplies from a |
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large number of small producers who cannot influence the terms of the supply |
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contract. Such small producers may be driven to sell their produce at a low price |
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with a very small profit margin because of their inherent weakness when agree- |
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ing the terms of the contract. Indeed, in the not uncommon situation where a |
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small producer is selling all of his produce to one major retail company, he has |
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no control at all over the terms of the contract of sale as, without an alternative |
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buyer, he has no choice but to accept the terms upon which the retail company |
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chooses to buy from him. |
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This potential inequality of bargaining power between the parties has been |
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partially, though not necessarily successfully, addressed through three differ- |
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ent legislative routes, namely the use of the Unfair Contract Terms Act (UCTA) |
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1977, the passage of the Unfair Terms in Consumer Contracts Regulations |
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199913 and the provision of different remedies for consumer and non-consumer |
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buyers under the Sale of Goods Act 1979. All of these mechanisms impact upon |
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the bargaining power and rights of the respective parties. However, they also |
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reflect the rise of consumerism in the last fifty years as they provide a higher |
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level of protection for consumer buyers as opposed to non-consumer buyers, |
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the assumption being that consumers are more vulnerable and thus in need of |
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greater statutory protection. |
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(a)â Unfair Contract Terms Act 1977 |
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Section 3 of the UCTA 1977 introduced controls over standard form con- |
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tracts. These contracts, though eminently sensible from a business perspec- |
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tive as they negate the need to continually negotiate terms in each individual |
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contract, present the person imposing the terms with a potential opportunity |
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to impose unfair terms on the other, usually weaker, party. This is a particular |
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problem when the purchaser is a consumer who will not be contracting on |
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their own standard terms and will be powerless to affect those imposed upon |
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him by the business seller. A business-to-business sale raises a different issue |
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as, when each usually contracts on their own standard terms, there may be a |
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disagreement as to whose standard terms govern the contract. This has given |
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rise to the so-called ‘battle of the forms’14 when both seller and buyer seek to |
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use their respective standard form contracts, and it will ultimately be up to |
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the court to decide whose terms will prevail. In practice, it will depend on |
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the facts of the particular case15 and, if there is no clear evidence as to which |
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terms are paramount, those implied by the Sale of Goods Act 1979 will take |
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effect.16 |
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13 |
SI 1999/2083. |
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14 |
Butler Machine Tool Co. v. Ex-Cell-O Corp. [1979] 1 All ER 965. |
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15 |
Rimeco Riggelsen & Metal Co. v. Queenborough Rolling Mill Co. [1995] CL 110. |
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16 |
GHSP Inc. v. AB Electronic Ltd [2010] EWHC 1828 (Comm). |
67 |
4â Equality of bargaining power: non-consumers and consumers |
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However, section 3(2)(a) of the UCTA 1977 provides that, when contracting |
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on standard terms, the person whose terms they are cannot use them to exclude |
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or limit his contractual liability for breach unless the exclusion or limitation |
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satisfies the requirement of reasonableness.17 Further, section 3(2)(b) provides |
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that that person cannot use the contract terms to allow him either to render |
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contractual performance that differs substantially from that which was reason- |
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ably expected of him or, alternatively, to render no performance at all, unless in |
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either instance the contract term would satisfy the test of reasonableness. These |
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provisions clearly help the weaker contractual party by restricting the oppor- |
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tunity for the stronger party to abuse that position. |
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While section 3 applies to all standard term contracts, the cross-over |
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between contracts for the sale of goods, other related contracts for the acqui- |
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sition of goods and the control of unfair contract terms is explicit in sections 6 |
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and 7 of the UCTA 1977. It is in these sections that we also see the second legis- |
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lative technique used to protect an overtly weaker contractual party, namely a |
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consumer. |
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Section 6 of the UCTA 1977 lays out controls over any attempt to exclude |
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or restrict liability for a breach of the implied conditions contained in sec- |
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tions 12–15 of the Sale of Goods Act 1979.18 Section 6(1)(a) of the UCTA |
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1977 prohibits absolutely any term that seeks to exclude or restrict the liability |
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of the seller for a breach of section 12 of the Sale of Goods Act 1979, namely |
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the implied condition that the seller will have the right to sell the goods at the |
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time that the property is due to pass. Section 6(1)(b) makes similar provision |
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in respect of any term that seeks to exclude liability for a breach of section 8 |
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of the Supply of Goods (Implied Terms) Act 1973 in respect of hire-purchase |
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contracts.19 This control exists irrespective of whether the buyer is a business or |
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a consumer. |
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The divergence between business buyers and consumer buyers becomes |
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apparent when looking at sections 6(2)and (3) of the UCTA 1977, which deal |
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with attempts to exclude or restrict liability for breaches of sections 13–15 of |
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the Sale of Goods Act 1979 or sections 9–11 of the Supply of Goods (Implied |
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Terms) Act 1973. Where the buyer deals as a consumer,20 a contract term |
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17 |
The ‘reasonableness’ test applicable here is set out in the UCTA 1977, s.11(1), which states that |
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the relevant term must ‘have been a fair and reasonable one to be included having regard to the |
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circumstances which were, or ought reasonably to have been, known to or in the contemplation |
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of the parties when the contract was made’. |
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18 |
The implied conditions in Sale of Goods Act 1979, ss.12–15 cover the right to sell, sale by |
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description, satisfactory quality, fitness for purpose and sale by sample. These implied conditions |
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are considered in detail in Part 2 Chapter 2. |
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19 |
The property in the goods in a hire-purchase contract does not pass until the hirer exercises the |
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option to purchase at the end of the agreement either when the agreement has run its full term or |
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at such earlier time as the hirer pays off the total amount owing and brings the agreement to an |
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early end. The title will not pass if the hirer terminates the agreement before the final payment is |
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due or goes into breach. |
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20 |
A person is ‘dealing as a consumer’ for these purposes when he does not make the contract in the |
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course of a business nor holds himself out as doing so, the other party does make the contract |
68 Sale of goods policy
cannot be used to exclude or restrict liability for a breach of those provisions, while it can be if the buyer is not dealing as a consumer on condition that the term satisfies the test of reasonableness.
Section 7 of the UCTA 1977 puts in place similar provisions regarding any attempt to exclude or restrict liability for a breach where the possession or ownership of goods passes under a contract other than those governed by contracts of sale or hire-purchase. This would include, for example, contracts of barter and contracts of hire. Again, there is a distinction drawn between consumer buyers and non-consumer buyers.
(b)â Unfair Terms in Consumer Contracts Regulations 1999
The Unfair Terms in Consumer Contracts Regulations 199921 reflect the assumption that consumers will be the weaker of the two contracting parties and thus are in need of a greater level of protection as regards the potential inequality of bargaining power. Regulation 5(1) provides that a contract term that has not been negotiated individually between the seller and buyer shall be regarded as unfair if it causes a significant imbalance between the rights of the contracting parties to the detriment of the consumer. For this purpose, a term will be regarded as not having been negotiated individually when it has been drafted in advance and the consumer has not had the opportunity to influence the terms of the contract.22 Indeed, even if an individual term has been negotiated individually, the 1999 Regulations will still apply to the rest of the contract if all the evidence suggests that it is a preformulated standard contract.23
Regulation 6 provides that, when assessing whether a term is unfair, regard must be had to the nature of the goods or services for which the contract was concluded, the circumstances surrounding the conclusion of the contract and all of the other terms of the contract or of any other contract upon which it is dependent. Further, Schedule 2 to the 1999 Regulations provides an indicative and non-exhaustive list of seventeen different contract terms which are automatically assumed to be unfair.
If a term is found to be unfair, it is not binding on the consumer24 but the rest of the contract subsists and will be binding on the consumer if it is capable of continuing without the unfair term.25 Further, any qualifying body within the meaning of the 1999 Regulations can apply for an injunction against any person who appears to be using or recommending the use of an unfair term for general use in consumer contracts.
in the course of a business and the goods are of a type ordinarily supplied for private use or consumption: see UCTA 1977, s.12(1). The buyer will not be classed as a consumer for these purposes if he is an individual buying second-hand goods at a public auction which individuals can attend in person: see UCTA 1977, s.12(2).
21SI 1999/2083. The Regulations were passed to give effect to the Unfair Terms in Consumer Contracts Directive 93/13/EC.
22 |
SI 1999/2083, reg. 5(2).â 23â Ibid. reg. 5(3). |
24 |
Ibid. reg. 8(1).â 25â Ibid., reg. 8(2). |