16 LEGISLATIVE REGULATION OF UNFAIR TERMS

In the last chapter, we looked at how terms are incorporated into contracts and the various devices employed by the judiciary to limit the scope of limitation and exclusion clauses. Apart from isolated statutory measures, the legal struggle against such unfair terms was carried on until the 1970s by the judges, who as we saw in the last chapter, devised a variety of weapons to render such clauses inoperative. This is especially the case where they operated against the interests of consumers in contracts for the sale of goods or supply of services. The problem was that judicial regulation merely drove the drafters of exclusion clauses to renewed efforts to produce ‘judge-proof’ forms of words to which the judiciary did not always feel equipped to respond. The main problem was that the judges felt that they had no general power to strike down unreasonable exclusion clauses as being, for example, against public policy and therefore void. They felt that the concept of freedom of contract overrode such an approach. It was left, instead for Parliament to take up the challenge.

There are now hundreds of statutory provisions dealing with such issues as tenancies, consumer credit, hire purchase and package holidays. Following the lead of the common law, each of these interferes with the freedom to contract by regulating the terms of certain contracts and determining what sorts of liability can be excluded from them. It is not the purpose of this chapter to examine the whole body of civil and criminal law, the regulatory mechanisms and voluntary codes of practice which now exist to protect the consumer from unsafe products, qualitatively deficient goods and services, fraudulent trading practices and the other matters. The main aim is to concentrate on the legal response to unfair and oppressive terms in contracts made between businesses and consumers and others, which has culminated in the passing of the Unfair Contract Terms Act 1977 and the coming into effect of the European Community Directive on Unfair Terms in Consumer Contracts 1994 and Unfair Terms in Consumer Contracts Regulations 1999. One of the reasons for this emphasis is that this was the first legislative attempt to introduce standards about exclusion clauses into the general law of contract.

The common law approach to exclusion clauses is reflected in many of the provisions of the legislation which has been used in recent decades to complement or reinforce judicial precedent. However, the Unfair Contract Terms Act (UCTA) 1977 and European codes also go beyond the common law and have introduced additional hurdles to jump for those attempting to rely on exclusion clauses. These two pieces of legislation overlap substantially, with the result that some types of term are regulated by both and others by just one. Consequently, it is now open to consumers to challenge certain contract terms on the basis that they are void or ‘unreasonable’ under the UCTA or ‘unfair’ under the regulations. In many cases the result will be the same, but the fact that the concepts of reasonableness and fairness are different means that there is considerable scope for confusion.

Owing to the confusion caused by the parallel provisions of domestic and European Law, the Law Commission was asked by the government to review the law in the field with the aim of replacing existing provisions with a single Act written in plain, accessible language. A final report and draft Bill was produced by the Commission in 2005. Whilst the government has accepted the report in principle, it has committed itself to evaluating the potential impact of the reforms before attempting to implement them. Moreover, at the time of going to press, the draft Bill appears to have been caught up in a backlog of unimplemented reports that would benefit the consumer. As a result, the approach taken in this chapter has been to describe the law at it currently stands and outline the proposals for change which have been put forward by the Law Commission.