Unfair Contract Terms

June 29th, 2017

The Unfair Contract Terms Act 1977 applies not only in favour of consumers but also “between contracting parties when one of them deals … on the other’s written standard terms of business”: Section 3. What is meant by “deals … on the other’s written standard terms of business”?  That was the main issue in African Export-Import Bank v Shebah Exploration & Production Company Limited (2017) EWCA Civ 845.  Longmore LJ gave guidance as to the correct approach.  He observed that before the Act can be held to apply and require an inquiry into the reasonableness of any particular term, the party relying on the Act must establish (the onus of proof being on that party) that:-

i) the term is written;

ii) the term is a term of business;

iii) the term is part of the other party’s standard terms of business; and

iv) that the other is dealing on those written standard terms of business.

Normally there will be little controversy about the first two requirements. The other two requirements require some elaboration.

The third requirement, that the term is part of the other party’s standard terms of business, means that it has to be shown that that other party habitually uses those terms of business. It is not enough that he sometimes does and sometimes does not. Nor is it enough to show that a model form has, on the particular occasion, been used. The party relying on the Act has to show that such model form is habitually used by the other party.

The fourth requirement is that the deal must be done on the written standard terms of business. That raises the question whether the Act applies in cases where there has been negotiation between the parties the result of which is that some but not all the standard terms are applicable to the deal.

It is relevant to inquire whether there have been more than insubstantial variations to the terms which may otherwise have been habitually used by the other party to the transaction. If there have been substantial variations, it is unlikely to be the case that the party relying on the Act will have discharged the burden on him to show that the contract has been made “on the other’s written standard terms of business”.

 

 

 

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