The Unfair Contract Terms Act 1977 (UCTA) governs how far a seller can go in eliminating liability to a business buyer if they breach their sales contract[27]. The Act covers limitation, exemption clauses and indirect clauses that try to cut down liability[28]. It also details that particular exclusion clauses are completely unenforceable and others are valid only if they are reasonable[29]. The Act is divided into three parts – Part 1 relates to England and Wales, Part 2 to Scotland and Part 3 to the UK as a whole[30]. Essentially, the UCTA sets out domestic UK approach, whilst the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR) implements the 1993 EU Directive[31]. MacDonald states that ‘together they (UCTA and UTCCR) provide a powerful weapon against unfair terms’[32].
The Act was introduced to protect the institution of contract[33]. Scholars saw it as a social institution with a primary purpose to expand and provide the necessary security for exchange agreements that further each party’s interests[34]. The Act also introduced more far-reaching provisions than its predecessors, specifically in relation to exemption clauses[35].
Sections 6 and 7 UCTA set out ways to eliminate implied terms set out in the Sales of Goods Act and Supply of Goods and Services Act against a buyer[36]. These sections highlight that you can only exclude this liability in a sale to another business provided it’s reasonable to do so[37].
A seller, when selling goods to another business using their own written standard terms and conditions can exclude other types of liability only if it’s reasonable to do so[38]. They cannot eliminate liability for negligence causing death or personal injury and can only exclude liability for other types of loss triggered by negligence where reasonable[39].
Consideration is given to the circumstances known to both parties at the time the contract was made in determining whether it’s fair and reasonable to put an exclusion clause into the contract[40]. The Act sets out various guidelines to regulate how reasonable an exclusion clause is. However, the list doesn’t cover every scenario[41]. If there is a disagreement, the court may take into account any factors it thinks are applicable[42].
The court will consider the parties’ relative bargaining strengths (taking into account other ways the buyer could get what they require), whether the buyer was given an inducement to agree to the term and whether they could have entered into the same contract with another seller in the absence of that term[43].
Other guidelines that are considered are:
- Whether the buyer knew or should have known that the term existed and what it protected[44]; and
- Whether it was reasonably expected that the buyer could comply if the term excluded/restricted liability unless a certain condition was satisfied[45].
The final guideline relates to goods manufactured, processed or adapted to the buyer’s special order. If a buyer asks for tailored goods, it’s generally reasonable for the seller to discount or limit their liability if the goods are faulty or unfit for purpose.
Contracts with consumers tend to be treated more stringently than contracts where the buyer is a business. The Consumer Rights Act 2015 (and the legislation it amalgamated) governs attempts to limit or exclude liability to consumers and makes specific exclusion clauses invalid.
The Consumer Rights Act 2015 in effect, consolidates the provisions that apply to consumers under the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations 1999. Any clauses in the contract that attempt to reduce or remove these duties in relation to a consumer will be invalid. Also any clause that dismisses or limits the liability of the seller for death of or personal injury to the consumer triggered by the seller’s negligence is invalid under section 65[46].
The Act also states that unfair terms in consumer contracts / notices aren’t binding on the consumer[47]. Consumer notices are notices not part of the contract and planned to be read by a consumer[48].
A term is considered unfair if it’s contrary to good faith and causes a substantial unevenness in the rights and duties of the parties to the disadvantage of the consumer[49].
A term is expected to meet this definition if it confines the consumer’s rights or unreasonably increases the responsibilities of the consumer as compared to those of the seller. The Act gives examples of factors that impact fairness, such as the nature of the goods and circumstances in which the contract was made[50].
Part 1 of Schedule 2 of the Act gives many examples of terms which might be seen as unfair[51]. These include terms that:
- Make the consumer accomplish all their commitments where the supplier doesn’t perform theirs[52].
- Make the consumer pay a excessively high sum if they don’t achieve a responsibility under the contract[53].
- Allow a seller to end an unfixed contract without reasonable notice and without a serious reason[54].
- Spontaneously lengthen a fixed-term contract if the consumer doesn’t object, when the time limit for the consumer to object is early[55].
However, since the Act and the Regulation’s enactment, the Law Commission has reviewed it and made recommendations which are now contained in the Consumer Rights Act 2015; ‘the two laws contain inconsistent and overlapping provisions, using different language and concepts to produce similar but not identical effects. A law that affects ordinary people in their everyday lives had been made unnecessarily complicated and difficult.[56]’
2026 update
The Unfair Contract Terms Act 1977 remains an important statute regulating the use of exclusion and limitation clauses in business-to-business contracts in the United Kingdom. However, the legal framework for consumer contracts has since been substantially reformed. The Consumer Rights Act 2015 replaced the Unfair Terms in Consumer Contracts Regulations 1999 and now provides the primary rules governing unfair terms in consumer agreements. As a result, the role of UCTA today is largely confined to business-to-business contracts, while consumer protection in relation to unfair contract terms is mainly governed by the Consumer Rights Act 2015.
Bibliography
Legislation
- Consumer Rights Act 2015
- Unfair Contract Terms Act 1997
Online Books/Articles/Websites
- Christian Law Firm Official Website, ‘Contract Law: Unfair Contract Terms Act 1977’ < http://christianlawfirm.co.uk/blog/?p=541> Last Accessed: 21/02/2016
- Elizabeth MacDonald, ‘Unifying Unfair Terms Legislation’, (2004), 67 MLR 69, Page 69
- Law Commission Official Website, ‘Unfair Terms in Contracts’, Law Com No.298 < http://www.lawcom.gov.uk/wp-content/uploads/2015/03/lc292_Unfair_Terms_In_Contracts_Summary.pdf> Last Accessed: 21/02/2016
- Law Teacher Official Website, ‘Will Unfair Contract Terms Bill improve Law’ < http://www.lawteacher.net/free-law-essays/contract-law/will-unfair-contract-terms-bill-improve-law-contract-law-essay.php> Last Accessed: 21/02/2016
- Mindy Chen-Wishart, ‘Regulating Unfair Terms’, (Hart Publishing, 2015)
- My Lawyer Official Website, ‘Unfair Contract Terms’ < http://www.mylawyer.co.uk/unfair-contract-terms-a-A76062D32725/> Last Accessed: 21/02/2016
- Pinsent Masons Official Website, ‘Advice Note: Limitation’ <http://www.pinsentmasons.com/PDF/Limitation.pdf> Last Accessed: 21/02/2016
- E-Law Resources Official Website, ‘Unfair Contract Terms Act 1977’ < http://www.e-lawresources.co.uk/Unfair-Terms—Regulation-by-statute.php> Last Accessed: 21/02/2016
Footnotes
[27] My Lawyer Official Website, ‘Unfair Contract Terms’ < http://www.mylawyer.co.uk/unfair-contract-terms-a-A76062D32725/> Last Accessed: 21/02/2016
[28] Christian Law Firm Official Website, ‘Contract Law: Unfair Contract Terms Act 1977’ < http://christianlawfirm.co.uk/blog/?p=541> Last Accessed: 21/02/2016
[29] Pinsent Masons Official Website, ‘Advice Note: Limitation’ <http://www.pinsentmasons.com/PDF/Limitation.pdf> Last Accessed: 21/02/2016
[30] Unfair Contract Terms Act 1977 Parts 1, 2 and 3
[31] Law Commission Official Website, ‘Unfair Terms in Contracts’, Law Com No.298 < http://www.lawcom.gov.uk/wp-content/uploads/2015/03/lc292_Unfair_Terms_In_Contracts_Summary.pdf> Last Accessed: 21/02/2016
[32] Elizabeth MacDonald, ‘Unifying Unfair Terms Legislation’, (2004), 67 MLR 69, Page 69
[33] Mindy Chen-Wishart, ‘Regulating Unfair Terms’, (Hart Publishing, 2015), Page 105
[34] Law Commission Official Website, ‘Unfair Terms in Contracts’, Law Com No.298 < http://www.lawcom.gov.uk/wp-content/uploads/2015/03/lc292_Unfair_Terms_In_Contracts_Summary.pdf> Last Accessed: 21/02/2016
[35] Law Teacher Official Website, ‘Will Unfair Contract Terms Bill improve Law’ < http://www.lawteacher.net/free-law-essays/contract-law/will-unfair-contract-terms-bill-improve-law-contract-law-essay.php> Last Accessed: 21/02/2016
[36] Unfair Contract Terms 1977 Sections 6 and 7
[37] Unfair Contract Terms 1977 Sections 6 and 7
[38] My Lawyer Official Website, ‘Unfair Contract Terms’ < http://www.mylawyer.co.uk/unfair-contract-terms-a-A76062D32725
