Report No. 199

Bill of 2004 prepared by UK and Scottish Law Commissions: (substantive unfairness)

(a) Exclusion of liability for negligence: (a) exclusion in case of death or injury void;

(b) exclusion in other cases must be fair and reasonable:

On 'substantive' unfairness, the Bill attached to the UK and Scots Law Commission Report 2004, refers in Part 1 to 'Business liability for negligence'. It says:

"section1: Business liability for negligence 152(1) Business liability for death or personal injury resulting from negligence cannot be excluded or restricted by a contract term or a notice.

(2) Business liability for other liability for loss or damage resulting from negligence cannot be excluded or restricted by a contract term or a notice unless the term or notice is fair and reasonable.

(3) 'Business liability' means liability arising from -

(a) anything that was or should have been done for purposes related to a business, or

(b) the occupation of premises used for purposes related to the occupier's business.

(4) The reference in subsection (3)(a) to anything done for purposes related to a business includes anything done by an employee of that business within the scope of his employment.

(5) 'Negligence' means the breach of -

(a) an obligation to take reasonable care or exercise reasonable skill in the performance of a contract where the obligation arises from an express or implied term of the contract,

(b) a common law duty to take reasonable care or exercise reasonable skill,

(c) the common duty of care imposed by the Occupiers' Liability Act, 1957 or the Occupiers Liability Act (Northern Ireland), 1957, or

(d) the duty of reasonable care imposed by section 2(1) of the Occupiers' Liability (Scotland) Act, 1960.

(6) It does not matter -

(a) whether a breach of obligation or duty was, or was not, inadvertent, or

(b) whether liability for it arises directly or vicariously. Section 30 referred to herein below explains the meaning of 'excluding or restricting' liability.

(b) Section 2: Exceptions to section 1:-(1) Section 1 does not prevent an employee from excluding or restricting his liability for negligence to his employer.

(2) section 1 does not apply to the business liability of an occupier of premises to a person who obtains access to the premises for recreational or educational purposes if -

(a) that person suffers loss or damage because of the dangerous state of the premises, and

(b) allowing that person access to those premises for those purposes is not within the purposes of the occupiers liability.

(c) Section 3: Voluntary acceptance of risk:-The defence that a person voluntarily accepted a risk cannot be used against him just because he agreed to or knew about a contract term, or a notice, appearing to exclude or restrict business liability for negligence in the case in question.

(d) Terms of no effect unless fair and reasonable:-Section 4: section 4(1) declares terms to be of no effect unless fair and reasonable. section 4(2) states that subsection (1) does not apply to a term which defines the main subject matter of a consumer contract, if the definition is

(a) transparent, and

(b) substantially the same as the definition of the consumer reasonably expected.

Other subsections (3) to (6) refer to the same conditions in the matter of price or other clauses if they are as in (a), (b) above and we do not propose to detail them.

(e) Section 8: Interpretation:-As far as 'interpretation' is concerned, section 8 refers to 'Ambiguity' in consumer contracts and states as follows:

(1) If it is reasonable to read a written term of a consumer contract in two (or more) ways, the term is to be read in whichever of those ways it is reasonable to the the more (or the most) favourable to the consumer.

(2) ........

(f) Section 9: Written standard terms (consumer contracts):-Section 9(1) which applies to non-consumer business contracts refers to 'written standard terms' and says (subsection (2)) that 'unless the term is fair and reasonable, it cannot be relied upon to exclude or restrict liability for breach of contract. Subsection (3) states that unless the term is fair and reasonable, a party to it cannot rely on any of those terms to claim that it has the right -

(a) to carry out its obligations under the contract in a way substantially different from the way in which the other party reasonably expected them to be carried out or

(b) not to carry out all or part of those obligations.

(g) Section 10: Sale or supply of goods:-(1) In the case of a business contract for the sale of goods, the seller cannot rely on a term of the contract to exclude or restrict liability arising under section 12 of the 1979 Act (implied term that seller entitled to sell)

(2) In the case of a business contract for the hire-purchase of goods, the supplier cannot rely on a term of the contract to exclude or restrict liability arising under section 8 of the 1973 Act (implied term that supplier entitled to supply)

(3) In the case of any other business contract for the transfer of property in goods, the supplier cannot rely on a term of the contract to exclude liability arising under section 2 or 11B of the 1982 Act (implied term that supplier entitled to supply)"

(Note.- Act of 1979 is Sale of Goods Act, 1979; Act of 1973 is Supply of Goods (Implied Term) Act, 1973; Act of 1982 is Sale of Goods and Services Act, 1982. These provisions deal with seller title or right to sell goods to the purchaser. The purport of section 10 as proposed is that the seller cannot stipulate that he is not liable if it found that he has no right to sell).

(We have already referred to section 11 of the proposed UK Bill which refers to 'non-negotiated terms' while dealing with 'procedural' unfairness).

(h) Fair and Reasonable Test: Substantive:

We have referred to section 14 of the proposed Bill which refers to the 'Fair and Reasonable Test'. Subsections (1), (2), (3) and some clauses of subsection (4) deal with 'substantive' fairness. These are as follows:

"section 14 : The test: (1) Whether a contract term is fair and reasonable is to be determined taking into account -

(a) the extent to which the term is transparent, and

(b) the substance and effect of the term, and all the circumstances existing at the time it was agreed.

(2) Whether a notice is fair and reasonable is to be determined by taking into account -

(a) the extent to which the notice is transparent and

(b) the substance and effect of the notice, and all the circumstances existing at the time the liability arise (or, but for the notice, would have arisen)

(3) 'Transparent' means -

(a) expressed in reasonably plain language,

(b) legible,

(c) presented clearly, and

(d) readily available to any person likely to be affected by the contract term or notice in question.

(4) Matters relating to the substance and effect of a contract term, and to all the circumstances existing at the time it was agreed, including the following:

(a) the other terms of the contract,

(b) the terms of any other contract on which the contract depends,

(c) the balance of the parties' interests,

(d) the risks to the party adversely affected by the term,

(e) the possibility and probability of insurance,

(f) other ways in which the interests of the party adversely affected by the term might have been protected,

(g) the extent to which the term (whether alone or with others) differs from what would have been the case in its absence,

(h) ......................................

(i) ......................................

(j) the nature of the goods or services to which the contract relates

(Notice referred in subsection (2) refers to notices given after the contract, excluding liability for tort for negligence) (section 14(4)(h) & (i) deal with 'procedural' fairness and have already been referred to).

(i) Section 15: Burden of proof: business liability exclusion:

section 15 relates to burden of proof and states that in the matter of Business liability for negligence under section 1(2) ( i.e. . for negligence other than for death or personal injury), it is for the person wishing to rely on a contract term or a notice which purports to exclude or restrict liability of the kind mentioned in section 1(2) to prove that the term or notice is fair and reasonable.

(j) Sections 16. 17: burden of proof: consumer contracts and business contracts.

In section 16 and 17, respectively relate to consumer contracts and business contracts. While subsection (1) of each of them lays the burden of proof to prove fairness of any term is on the person relying thereon, and there is an exception in the case respectively of 'regulation and enforcement of consumer contracts' and 'non-negotiated terms in small business contracts' that it is for the person who is claiming that the term is not fair and reasonable to prove that it is not.

(k) Section 21: unfairness issues raised by Court:

Section 21 is important and refers to 'unfairness issue raised by Court' ( i.e. suo motu). It reads :

"A court may, in proceedings before it, raise an issue about whether a contract term or a notice is fair and reasonable even if none of the parties to the proceedings has raised the issue or indicated that it intends to said it."

(l) Section 24: effect of certain terms being declared unfair:

section 24 states the 'effect of unfair term on contract'. It says that 'where a contract term cannot be relied on by a person as a result of this Act, the contract continues, as far as practicable, to have effect in every other respect'.

(m) Section 30: excluding or restricting liability:

section 30 defines 'excluding or restricting liability' as follows:

"section 30: A reference to excluding or restricting a liability includes -

(a) making a right or remedy in respect of the liability subject to restrictive or onerous condition;

(b) excluding or restricting a right or remedy in respect of a liability;

(c) putting a person at a disadvantage if he pursues a right or remedy in respect of a liability;

(d) excluding or restricting rules of evidence or procedure.

(2) ..............................................

(3) A written agreement to submit current or future disputes to arbitration is not to be regarded as excluding or restricting the liability in question."

Schedule 2, Part 2 lists items 2 to 21, as example of unfair terms and Part 3 refers to exceptions etc. Schedule 3 also refers to exceptions. There are other schedules which go into various details.

There are the provisions of the UK Bill, 2004 dealing with 'substantive' unfairness.