ACCA F4 - Corp and Business Law (ENG)

Part B The law of obligations  5: Content of contracts 85

Goods Act 1979 and the Supply of Goods and Services Act 1982. For a non-consumer contract, such

exclusions are subject to a reasonableness test. The rules are set out in the following table.

Exemption clauses in contracts for the sale of goods or supply of work or materials

Consumer transaction Non-consumer transaction

Title Void Void

Description Void Subject to reasonableness test

Quality and suitability Void Subject to reasonableness test

Implied terms Sample Void Subject to reasonableness test

5.6 The statutory test of reasonableness

The term must be fair and reasonable having regard to all the circumstances which were, or which ought

to have been, known to the parties when the contract was made. The burden of proving reasonableness

lies on the person seeking to rely on the clause. Statutory guidelines have been included in the Act to

assist the determination of reasonableness. For instance, the court will consider the following.

 The relative strength of the parties' bargaining positions.

 Whether any inducement (for example, a reduced price) was offered to the customer to persuade

them to accept limitation of their rights.

 Whether the customer knew or ought to have known of the existence and extent of the clause.

 If failure to comply with a condition (for example, failure to give notice of a defect within a short

period) excludes or restricts the customer's rights, whether it was reasonable to expect when the

contract was made that compliance with the condition would be practicable.

 Whether the goods were made, processed or adapted to the special order of the customer.

St Albans City and District Council v International Computers Ltd 1994

The facts: The defendants had been hired to assess population figures on which to base community

charges (local government taxation). Their standard contract contained a clause restricting liability to

£100,000. The database which they supplied to the claimants was seriously inaccurate and the latter

sustained a loss of £1.3 million.

Decision: The clause was unreasonable. The defendants could not justify this limitation, which was very

low in relation to the potential loss. In addition, they had aggregate insurance of £50 million. The

defendants had to pay full damages.

6 The Unfair Terms in Consumer Contracts Regulations

1999

The Unfair Terms in Consumer Contracts Regulations 1999 defines what is meant by an unfair term. They

deal with consumer contracts and terms which have not been individually negotiated.

These regulations implemented an EU directive on unfair contract terms. UCTA 1977 continues to apply.

There are now three layers of relevant law.

 The common law, which applies to all contracts, whether or not one party is a consumer

 UCTA 1977, which applies to all contracts and has specific provisions for consumer contracts

 The Regulations (UTCCR 1999), which apply to all types of unfair contract terms but only in

relation to consumer contracts and to terms which have not been individually negotiated

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