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Role in Contract Law of Fairness

Info: 3510 words (14 pages) Law Essay
Published: 8th Aug 2019

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Jurisdiction(s): UK Law

The latest years fairness play a vital role in contract law and is a very controversial subject. . The English law concerned with procedural fairness as for examples there are fundamental rules which outlaw the use of misrepresentation, undue influence and duress. [1] The drawback from this approach is that the law ensures that the rules are fair but it does not concern about the outcome when the rules of fairness have been followed which this is, substantive fairness. [2] Substantive fairness was first introduced by the Unfair Contract Terms 1977 but was focused only for exclusion clauses and afterwards the Unfair Terms in Consumer Contract Regulations 1999 were introduced which brought many advantages and some disadvantages in the English contract law ,they help a lot the courts to ascertain the fairness part into contract cases but also it can be argued that the part of fairness is already established through the misrepresentation, duress and undue influence.

‘Although the Common Law has traditionally been used to control the operation of exclusion clauses, the most effective control is now found within legislation. ‘ [3] The UCTA 1977 was introduced and was the first statutory effort to deal with the problem of unfair contract terms and made major changes to the law relating to exclusion clauses and imposes a total ban on exemption clauses which concern negligence actions for personal injury or death. [4] ‘’The Act separate exclusion clauses into two categories: those which are void in all circumstances which are the black list and those which may be valid if found to be reasonable in the circumstances, the grey list’’. The problem with the Act is that it is only apply to exclusions of business liability ad this was defined in the section 1(3) of the Act. [5] But the Act does not include all the unfair terms and as a consequence many problems in this section were unresolved.

The step forward into contract law was done with the Unfair Terms in Consumer Contracts Regulation 1999 which implemented an EC Directive on Unfair Terms into English law. The Regulations 1999 are very important as they give the opportunity for the first European intervention in the domestic contract law. ‘Also they give for the first time broader power to the Director General of Fair Trading to regulate unfair terms in standard form of consumer contracts’. [6] The Regulations 1999 coexist with the UCTA 1977 and it takes the form of addition to the consumer’s rights under 1977 Act. The regulations 1999 are wider and include all the particular type of term in comparison with the Act 1977 so the judges would not have the same problems as under the Act 1977 but the coexistence of those two has given rise to some difficulties. [7] The Regulations 1999 have to be interpreted with a European perspective which is a much more a teleological approach than the English perspective. The case of London Borough of Newham v. Khatun [2004] showed to the English lawyers that they have to look and to other European countries text of the Directive to interpret each term of the Regulations 1999. [8] The Regulations 1999 aim, is in the Regulation 4(1) which applies that the unfair terms in contracts are between a seller or a supplier and a consumer and the Regulation 3(1) gave the definitions of a consumer and a seller or supplier. The heart of the Regulations are in the regulation 5(1) in which emphasizes that there are only apply to terms which are ‘not been individually negotiated’ and the absence of the ‘requirement of good faith causes a significant imbalance in the parties’.. [9] There are some problems with these Regulations as the doctrine of good faith is not been recognized by the English contract law. Also the new theory of significant imbalance is totally different in the way of how the English law is presented. As there are no doctrines existed of significant imbalance between the parties. In the other hand the test of reasonableness and the Schedule 2 under the 1977 Act has some similarities with the doctrine of good faith under the Directive. This could lead us to the point that the two pieces of legislation could come to the same result where they both apply. [10] In addition the Regulation 5(5) includes the Schedule 2 which contains an ‘indicative and exhaustive list of the terms which may be regarded as unfair’ but it should be noted that the terms on this list may be unfair and sometimes may be not and does not include all the possible unfair terms. [11] The Schedule 2 of the Regulations 1999 gives many examples of unfair terms which lead us to a conclusion that the Regulations are much more far-reaching that the UCTA 1977. [12] One important feature of the Regulations 1999 is the Regulation 6 (2) which exclude the fairness of a term which relates to ‘the adequacy of the price’ and ‘the main subject matter’ which are the ‘core’ terms of the contract . Also the term has to be in a plain language. This Regulation tried to protect the consumers from the ‘unfair surprise’ of the ‘small print’ terms. The leading case of this Regulation is the ‘Director General of Fair Trading v. First National Bank [2001] in which adopted a narrow construction of this provision and to whether or not a term defines the main subject matter’. In addition also the ‘core’ terms of a contract can been proved unfair if they did not come to ‘the consumer’s attention or there are not written in plain language’ which this is applied by the Regulation 7(1). [13] .

In contrast, English law have incorporated a fairness part in their law to make contracts less unfair but we will see that sometimes this is not enough as it own. The first attempt is with misrepresentation. Although the law has a absence of a duty to disclose information ,there is a general rule that the one party has a duty not to make any false statement of fact or law which is material to the other contracting party in order to induce him to enter into a contract and this is the definition of an actionable misrepresentation. [14] But there are four categories statements which are not included in the statements of material fact. The first is the ‘false statement of opinion which proves to be unfounded’ [15] and is cited in Bissett v. Wilkinson [1927] in which the court concluded that with the absence of fraud ,the claimant cannot claim actionable misrepresentation but in Smith v. Land and House Property Corp (1884) the party making the statement proved that he has some knowledge to the opinion that was given, and in this case it can be a misrepresentation. Secondly is the ‘sales talk’ and and is shown in Dimmock v. Hallett(1866). Thirdly is the statement of future intention which is more like a speculation and it cited in Edgington v. Fitzmaurice (1885). But if the intention is proved present, it is a misrepresentation. The final one is the statement of law as the law cannot be ‘falsely stated’. [16]

In the other hand the duty of disclose information can be established in some exceptions and one of those is the contracts of utmost good faith. Although as I mentioned above the doctrine of good faith is not so well accepted by the English law, it is incorporated in some parts of law. Some examples of such contracts are for insurance and family arrangements. [17] ‘Failure to disclose make the contract voidable’ but not itself be a misrepresentation for the claimant to claim for damages and this is cited in Banque Financiere v. Skandia[1990]. [18] Another type of misrepresentation can be made by a change of circumstances in With v. O’Flanagan(1936) and conduct in Spice Girls v. Aprilia World Service BV (2000). [19] In English contract law there’s no remedy for misrepresentation unless it was proved that the one party induces the other and with this inducement the other party enters to the contract but he has to prove that this influence, was significant.

There are three types of misrepresentation. The first one is fraudulent misrepresentation which is defined in Derry v. Peek (1889) that ‘a fraud is proved when it is shown that a false representation has been made: knowingly or without belief in its truth or recklessly, careless whether it be true or false’. Also if the fraud is proved and the motive of the one party is immaterial, again he is liable in the tort of deceit and this is shown in Pollhill v. Walter (1832). [20] Damages in this type take action in the tort of deceit and are not limited as they indented to guarantee that the victim will be in the position that he was before the tort occur( reliance loss). [21] The second type is the negligent misrepresentation. In the beginning negligent misrepresentation was not actiobale in tort but the House of Lord rejected this in Nocton v.Ashburton [1914] in which it is said that’ it is actionable if there was a pre-existing contractual relationship between the parties’. However in Hedley Byrne & Co. Ltd v. Heller &Partners Ltd. [1963] the House of Lords extend the liability of the negligent misrepresentation. The courts and commentators have not be able to have the same opinion on the foundation of this case for the ‘special relationship’ part as it is a controversial subject. [22] ‘Shortly after the decision in the Hedley Byrne case , the Misrepresentation Act 1976 substantially modified the common law rules as to misrepresentation, so that it is now often possible to claim damages for negligent misrepresentation under the Act as well as damages to common law’. [23] The Misrepresentation Act 1976 has many differences with the common law as in the Act the defendant has to prove that he has ‘continues honest belief in his statement’ in comparison with the common law that the burden of proof is on the claimant.

In the one hand the Act has many advantages as it is preferred from the common law in the sense that it is not needed a ‘special relationship’ between the parties, also it is more difficult for the defendant to prove that is not liable for the misrepresentation and the ‘measure of damages recoverable under section 2(1) is the measure of damages of tort of deceit’. But in the other hand the Act does not include some certain situations such as when a third person made the misrepresentation to the contract, the Act cannot be applied and also when a contract between the parties is ‘void’. [24]

The third type of misrepresentation is the innocent one in which the statement is based on ‘good faith’ and ‘reasonable grounds for believing it is true’. Before the Act the innocent misrepresentation had not remedy at all, only the right to rescind. After the Act and ‘under the Section 2(2) the remedy for negligent or innocent misrepresentation is either an award of damages or an order for rescission and indemnity’ [25] . The remedies for the misrepresentation are two. The first one is the rescission in which is available in all the types of misrepresentation and setting aside the contract but has some limitations in certain circumstances such as in affirmation, the lapse of time,rights of thirds parties and when a restitution is impossible. The second remedy is the damages which are assessed in tort and as were discussed above. [26] The Misrepresentation Act 1967 and the common law for the misrepresentation brought some confusions in the courts and there cannot be characterized for their clarity in some of their parts.

A doctrine which is a late developed in English contract law is duress and it is involved with procedural unfairness of contracts. A party who has entered into a contract by coercion, he can relied upon duress to come to the conclusion that the contract is voidable. There are three types of duress. The first one is duress to a person which consist of actual violence to the claimant of his family and it is cited in Barton v. Armstrong [1975] and this is the one that the courts can easier recognize. Secondly it is the duress to goods in which the threat involves the claimant’s goods cited in The Siboen and The Sibotre[1976]. Thirdly is the economic duress which is the more controversial one. [27] ‘Until recent times economic and commercial duress is ignored by the common law due to major conflicts of political power.’ [28] This is happened when the one contracting party uses his economic power with an ‘illegitimate’ way to coerce the other party to agree to the terms of the contract and its is cited in R v. Attorney-General for England and Wales[2003]. This type of duress focused on the amount of the pressure for the compulsion of the will of the party and the ‘illegitimacy’ of the pressure. But the courts criticizes a lot the ‘compulsion of the will’ theory and they have not incorporated in the court’s language yet. Also the courts have to determine what ‘constitutes an illegitimate’ pressure as it tends to generate uncertainty. This was proved in William v. Roffey Bros in which they had difficulties to apply duress as they found out that in the doctrine of duress there is an absence of some element such as the bad faith. The problem here is that the English law cannot incorporate the bad faith in duress If they do not recognize the good faith at all.

An equitable doctrine of the doctrine of duress is the undue influence in which involved in situations when the one contracting party uses improper pressure to gain an unfair advantage over the other party. The doctrine of undue influence has not be characterized for its clarity and the courts have some difficulties to provide a proper definition for it. In Bank of Credit and Commerce International v. Aboody(1990) the doctrine of undue influence divided into the ‘actual undue influence’ ant the ‘presumed undue influence’ . In addition the second one is divided in the cases when it is arisen from a ‘special relation between the parties’ and the other cases in which the only relationship that is needed is the one of trust and confidence. [29] In the actual undue influence the one contracting party uses his dominating influence to coerce the other party or put pressure to him to make a contract which he could not otherwise agreed to it without the pressure. This type sometimes overlap with the doctrine of duress and an example of this is Williams v. Bayley(1866). ‘It is clear that cases of actual undue influence extend beyond pressure cases’. [30] The presumed undue influence is a more controversial theory. The presumed undue influence which arisen from a special relationship is when the party who alleging undue influence has to prove the existence of this relationship. The ‘special relationship’ means for example parent to child.. The other type of presumed undue influence which is not require ‘special relationship’ includes for example the relationship between wife and husband which characterized by trust and confidence. If the undue influence is proved the contract will be voidable. [31]

The last doctrine that is going to be discussed is the Inequality of bargaining power. The problem here is that it can be argued that there is not exist in English contract law as its definition it is has not be accepted yet. Lord Denning tried to find a general principle of the inequality of bargaining power in Lloyds Bank v. Bundy[1975] but Lord Scarman disapproved this principle as he found it too general and uncertain. As a consequence Lord Denning principle has been rejected but the issues of the inequality of bargaining power remain as there are many problems with this part of English Contract law.

In conclusion, English contract law wants to be characterized for its certainty and stability, this is the reason that the Regulations 1999 are not very well welcomed in English law as it is a general principle which can cause an uncertainty. In addition English law needs fairness to be incorporated well in it but it cannot be possible that if it does not incorporate the substantive one with the Regulations 1999 as the evidence points out that all the doctrines which have been discussed above, were interested only for procedural fairness and set aside the substantive fairness which are equally important. As a consequence many unfair issues sustained in English contract law without the incorporation of the Regulations 1999. Also the UCTA Act 1977is too specific to cover all the unfair terms. Furthermore, consumers face unfairness informally as the costs of the courts is really high but with the Regulations 1999 the procedure to prove the term unfair is less costly as it is dealt by negotiation and also consumers can feel more protected in a way that the bodies of the Regulations 1999 are extended. Finally the Regulations 1999 are used more each year and the reason is that they are concerned for both procedural and substantive fairness and ‘strengthen the rights of consumers and bring a greater uniformity within Europe’ [32] .

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