The common law has long been familiar with the attempt of one party in a contract to insert terms excluding or limiting liability, which would otherwise be his.

A good example of this is Interfoto Picture Library v Stiletto Visual Programmes. In this case the defendants were an advertising agency who needed to obtain pictures of the 1950’s for presentation, which they were preparing. For this purpose they rang the claimants and asked if they had any suitable photographs for the period. The claimants sent a bag containing the transparencies with a delivery date clearly stating that the transparencies were to be returned by 19th of March (14 days after the enquiry) and setting a number of printed conditions. The Court of Appeal had no doubt that in principle the contract was on the terms and conditions provided in the delivery note. One of the conditions was that for every day after the 14 days that the transparencies were kept there would be a holding fee of transparency of £5 plus VAT per day. In fact, the defendants did not return the transparencies until 2nd of April and were faced with a bill of £3,783.50. The court of appeal held that the defendants were not obliged to pay this sum because the plaintiffs had failed to give adequate notice of such a surprising term. It was not sufficient to incorporate the term into the standard printed conditions.

Another approach the courts tried to use to limit the use of exemption clauses was through the use of contra proferentum rule. This rule states that if there is any doubt as to the meaning and scope of the excluding or limiting term, the ambiguity should be resoled against the party who inserted it and seeks to rely on it. Another operation of this rule is the policy to limit the scope of exclusion clauses by restricting application to exclude or limit contractual liability. The courts have shown themselves unwilling to extend the scope of an exclusion clause to other liabilities thereby ensuring that the claimant has an alternative remedy in tort, which the clause does not apply.

A case that illustrates the use of the contra proferentum rule is Hollier v Rambler Motors. Here the claimant agreed with the manager of the defendant’s garage that his car be towed to the garage for repair. While at the garage the car was substantially damaged by fire as a result of the defendant’s negligence. The defendants argued that the transaction was subject to their usual terms, which included that “the company is not responsible for damage caused by fire to customer’s cars on premises”. The Court of Appeal held that even if this provision were incorporated into the contract, it would not operate to provide a defence. The defendants argued that in the circumstances the only way in which they could be held liable for damage by fire was if they were negligent and that the words were therefore appropriate to exclude liability for negligence. The courts held that a reasonable customer could read the clause that the defendants would not be responsible for a fire caused without negligence. It was not therefore sufficiently unambiguous to exclude liability for negligence.

Over the years the Law commission has embarked on a wide-ranging review of the law on unfair terms. There are currently two relevant enactments concerning this; namely the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulation. The former was introduced to regulate the use of exemption clauses in contracts but the Act had some major setbacks. Firstly the Act did not apply insurance contracts; contracts relating to companies sale of shares; the carriage of goods by sea or to international supply contracts.

Also the Act only applies to what is termed “business liability”. This is defined as liability arising from things done by a person in the course of a business or from the occupation of business premises. The exceptions are sections 6 and 7 where the Act also applies to private contracts. The only major advantage of the Act is that it gives the greatest protection to consumers. According to the Act a person “deals as a consumer” if he does not contract in the course of a business while the other party does contract in the course of a business and if it is a contract for the supply of goods they are of a type ordinarily supplied for private use or consumption.

A case that illustrates the use of this act is R&B Customs Brokers Co Ltd v United Dominions Trust Ltd. Here the claimants acquired a second hand Colt Shogun from the defendants on conditional sale terms. The claimants were a company owned and controlled by Mr and Mrs Bell, which ran a business as shipping brokers and freight forwarding agents. The car was to be used by Mr and Mrs Bell partly for the business and partly for private use. At first sight it would seem clear that the transaction was a business sale since the company was the customer and the company only existed for the purpose of conducting the business. However the Court of Appeal were persuaded that the company was in fact a consumer and not in the business of buying cars. The decision of the Court of Appeal was greatly influenced on the meaning of  “course of business” in relation to the Trade Descriptions Act 1968. It was argued that it was wrong to have different meanings of this expression in different statutes. In other words, the court in this case decided the case with reference to the meaning of a phrase.

As for the Unfair Terms in Consumer Contracts Regulation 1999 this replaces the Unfair Terms in Consumer Contracts Regulations 1994 which implemented the Council Directive on Unfair Terms in consumer contracts. The regulations apply with exceptions to unfair terms in contracts concluded between a consumer and a seller and provide that an unfair term is shall not be binding on a consumer. Some of the advantages of the regulation is it deals flexibly with business contracts while giving special protection to consumers. And the major setbacks are that the regulation is complex and greatly dependent on judicial discretion to determine which clauses are reasonable. It further excludes some areas such as insurance contracts, which could be better regulated.

The law as governing the use of exemption clauses and unfair terms as you can see has many setbacks and is in dire need of reform and rationalisation. A possibility to resolve this problem is by considering the feasibility of a single and unified regime to replace the Act and Regulations. Also consideration should be given to the scope of legislation used to cover the kinds of unfair term in a business-to-business contract that is presently outside the scope of the Act but which had been in a consumer contract that would have been within the Regulation.

Furthermore, draft legislation could be produced. But, this one would have to be much clearer and more accessible to the reader than either the Act or Regulation. The Law Commission could make use of simpler language and clearer structures to make the new legislation easier to understand and much more easier for courts to implement. Also consumer rights should depend less on construction of the contract, terms implied by conduct and artificial devices. Also the effective consumer protection to be achieved the courts should be given the power to raise the unfairness of terms on its own initiative. Not only that but the courts should interpret its only national provisions so as to allow it to decline of its own motion any jurisdiction conferred upon it by an unfair term.

In conclusion, there should be a standard structure in dealing with exemption clauses in contracts attempting to exclude or limit a consumer’s liability. And the courts and the law commission at their own discretion should implement this so that there will a sense of certainty for the consumer and supplier. Because at the moment the law as it is leaves to much discretion to the judges and sometimes judgements concerning unfair terms and exemption clauses are not usually in the favour of the supplier or sometimes it might even be against the consumer. The major aim of laws governing these two terms is aimed at consumer protection because in majority of the cases the consumer has lower contractual power than the seller. And in most cases consumers are presumed to be in a class where they are less able to protect themselves.

Bibliography

Cases Citied

Hollier v Rambler Motors [1972] 1 All ER 399

Interfoto Picture Library v Stiletto Visual Programmes [1988] 1 All ER 348

R&B Customs Brokers Co Ltd v United Dominions Trust Ltd [1988] 1 WLR 321

Journals Used

Consumer Law Today, October 2002, CLT 25.10 (1), Consumer Protection:

Commission Consult on Unfair Terms Law

Consumer Law Today, August 2000, CLT 23.8 (1), Consumer Protection: Unfair Terms And The Role Of The Courts.

Law Society Gazette, 20th of February 2003, Volume 100, No 07, page 37, Benchmark – Caveat venedor? The Forth Coming Improvement To Consumer Rights by District judge Peter Polly

Legislation used

Unfair Contract Terms Act 1977

Textbooks used

M. P. Furmston, Law of Contract, 14th edition, Butterworths, Bristol, page 171,page 181

J.Poole, Textbook on Contract Law, 6th Edition, Blackstone Press, London, page 161