Keenan and Riches’BUSINESS LAW

Reform

In 2001 the DTI asked the Law Commission and the
Scottish Law Commission to review the statutory regu-
lation of unfair contract terms contained in the Unfair
Contract Terms Act 1977 and the Unfair Terms in
Consumer Contracts Regulations 1999 with a view to
creating a single piece of legislation which was clearer
and more accessible. In 2002 the Law Commission and
the Scottish Law Commission issued a joint consulta-
tion paper on Unfair Terms in Contracts and their Final
Report and Draft Bill was published in 2005. The main
proposals are as follows:

■There should be a single piece of legislation for the
whole UK that preserves the existing level of consumer
protection.

■Where there is currently a difference in the level of

protection afforded by the Act and the regulations, the

protection should be rounded up to the higher level.

■Terms which are automatically void under UCTA

should continue to be of no effect.

■The definition of a ‘consumer’ should refer to a person

acting for purposes unrelated to his or her business and

only natural persons should be considered consumers.

■In respect of consumer contracts:

• the legislation should extend to all terms covered
  by the regulations (not just exclusion clauses);


• terms which exclude liability for the quality and
  fitness of goods should continue to be ineffective;


• the legislation should cover negotiated clauses as
  well as standard contract terms;


• where claims are brought by consumers the burden
  of proof is placed on the business to show that the
  term is fair. (Where the OFT and other qualifying
  bodies are exercising preventive powers, they must
  show the term is unfair.)
  ■The OFT and other qualifying bodies will acquire
  additional powers, e.g. to require that ‘No liability’ or
  ‘No refund’ notices which are legally ineffective,
  should be taken down.
  ■Small ‘micro’ businesses, with nine or fewer staff,
  would acquire special protection. Small businesses will
  be able to challenge any standard term of a contract
  which has not been individually negotiated provided
  it does not concern the main subject matter of the
  contract or the price. However, there are exceptions
  to the small business protection, namely:


• contracts for financial services;


• contracts over £500,000;


• contracts for land, intellectual property, security
  interests;


• where the business is associated with other busi-
  nesses, so that overall there are more than nine
  employees.
  ■Businesses should be able to negotiate to exclude
  or limit liability for the implied terms relating to
  description, quality and fitness in the supply of goods
  legislation.

Meanwhile, the European Commission is undertak-

ing a review of eight key directives that comprise the

‘Consumer Acquis’. The Unfair Contract Terms Direct-

ive is included in the scope of the review. In February

2007 the Commission adopted a Green Paper setting out

options for reform of a number of consumer directives,

Part 3Business transactions

298

and that interest would be payable on unpaid sums at

8 per cent over the Bank of England base rate. There was

no provision for the architect to pay his client. The High

Court held that: (i) the rate of interest was a genuine pre-

estimate of the loss likely to be suffered by the claimant

and it did not amount to a penalty; (ii) the terms of the

standard form contract were unfair under reg 5 of the

1999 Regulations and consequently were unenforceable.

Even though the terms formed part of profession-wide

standard terms, they were, in the words of Havery J,

‘unusual and onerous’. They had not been drawn to the

defendant’s attention, and, although the defendant was

not without bargaining power (he had negotiated a

reduction in fees), there was an imbalance between the

parties to the detriment of the consumer.

Office of Fair Tradingv Abbey National

plc(2008)

In a test case brought by the Office of Fair Trading (OFT)

with the agreement of eight high street banks concern-

ing the application of the Unfair Terms in Consumer

Contracts Regulations to charges for unarranged over-

drafts, the High Court ruled that: (i) the terms used for

current accounts were in, or largely in, plain and intellig-

ible language; (ii) the terms were not exempt from an

assessment for fairness under the regulations.

The banks had argued that the relevant terms related

to the adequacy of the price, which is specifically ex-

cluded from an assessment for fairness if the terms were

in plain and intelligible language.