Keenan and Riches’BUSINESS LAW

Chapter 9The terms of business contracts

(a) contracts of insurance;
(b) contracts in relation to land.

5 The Act affords the greatest protection to consumers:
under s 12(1) a person ‘deals as a consumer’ if:

(a) he neither makes the contract in the course of a
business nor holds himself out as doing so; and
(b) the other party does make the contract in the course
of a business; and
(c) where it involves a contract for the sale or supply
of goods, they are of a type ordinarily supplied for
private use or consumption. This requirement has
been amended by the Sale and Supply of Goods
to Consumers Regulations 2002, which came into
force on 31 March 2003. If the consumer is an indi-
vidual it is no longer necessary to show that the
goods are of type ordinarily supplied for private use
or consumption.

The possibilities are summarised in Fig 9.4.
The courts have interpreted s 12 so as to confine the
impact of the more limited protection afforded to non-
consumer transactions only to those business contracts
which form an integral part of the business.

6 Exemption clauses are regulated by the Act in two

ways. They are either rendered void and completely

ineffective or they are made subject to a test of reason-

ableness. Although the application of the ‘reasonable-

ness test’ is a matter for the court to decide in the light

of all the circumstances of a particular case, the Act lays

down some guiding principles for the judges.

(a)Reasonableness must be judged in the case of a con-

tractual term in the light of circumstances at the time

when the contract was made and, in the case of a non-

contractual notice or sign, when the liability arose.

(b)It is up to the person who claims that a term or

notice is reasonable to show that it is.

(c)Where the clause seeks to limit liability rather than

exclude it completely, the court must have regard to two

factors: the resources available to meet the liability and

the extent to which insurance cover was available.

(d)Where the exemption clause appears in any kind of

contract under which goods are supplied, its reasonable-

ness may be judged according to the criteria contained

in Sch 2, which are as follows:

■The bargaining strengths of the parties relative to each

other and the availability of alternative supplies. A

291

The parties Types of transaction

Business person/ Consumer transaction*

private person

Business person/ Non-consumer

business person transaction

Private person/ Non-consumer

private person transaction

Figure 9.4Consumer and non-consumer
transactions under the Unfair Contract Terms
Act 1977

• If goods are supplied, they must be of a type ordinarily supplied for private
  use or consumption for the contract to be classed as a consumer transaction,
  unless the consumer is an individual, in which case, it is not necessary to
  show that the goods are of a type ordinarily supplied for private use or
  consumption.

a conditional sale agreement which contained exclusion

clauses. The car was defective. The Court of Appeal held

that the car was not fit for the purpose as required by

s 14(3) of the Sale of Goods Act 1979 and that, as the

claimant company was dealing as a consumer, this

implied term could not be excluded by virtue of s 6 of the

Unfair Contract Terms Act 1977. The court decided that

there was not a sufficient degree of regularity to make

the transaction an integral part of the company’s busi-

ness and, therefore, a contract made in the course of

a business.

Comment. The Court of Appeal applied the same prin-

ciple in Feldaroll Foundry plcv Hermes Leasing (London)

Ltd(2004). Feldaroll entered into a hire-purchase agree-

ment with Hermes for a Lamborghini car to be used by

their managing director. The car was defective and

Feldaroll sought to rely on the statutory implied conditions

of satisfactory quality and fitness for purpose. Hermes

argued that these terms had been excluded by a clause

in the finance agreement. The Court of Appeal held that

Feldaroll were entitled to reject the car. The court was

bound by the decision in R & B Custom Brokers.

R & B Customs Brokers Co Ltdv United

Dominions Trust Ltd(1988)

The claimant company, which was in the business of

freight forwarding and shipping agency, bought a

second-hand car for the use of a director. The sale was

arranged through the defendant finance company under