A contract can be formed in many ways, including, in most cases, verbally. More often than not, however, there are, for extremely good reason, written terms and conditions (T+Cs) so as to set out the exact extent of the parties' duties and obligations towards each other. These T+Cs must be brought to the other party’s attention on or before the contract is entered into in order to be legally binding (or what is known as “incorporate into the contract”).
When examining this area of the law more closely, it’s important to distinguish between contracts between two businesses (B2B) and those between a business and a consumer (B2C). There is more than one definition of a “consumer” but the most relevant one here is “an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession.”
In B2B contracts there is a much stronger presumption that the parties are free and able to agree to whatever they like, and that if they accept certain T+Cs, they are deemed to have accepted them. There is much less of a general concept of “fairness” and often what the contract says goes, with a few caveats. One of the main ones is under the Unfair Contract Terms Act 1977 (UCTA). Under UCTA a clause which limits liability for death or personal injury as a result of negligence is ineffective. In addition, limitation and exclusion clauses are capable of challenge and subject to a test of reasonableness. There are various factors which determine whether a clause is reasonable, and these include (amongst others):
- The size and bargaining position of the parties.
- The parties’ ability to insure against the limited/excluded liability.
- The breadth/scope of the limitation/exclusion.
- The amount involved/excluded.
- Are the T+Cs standard or non-negotiable terms?
- Has legal advice been obtained?
It is important to stress however that UCTA only deals with clauses which purport to limit or exclude one party’s liability to the other. When it comes to B2C contracts however, consumers must be treated fairly at all times, and any T+Cs must be transparent, fair and in plain English. There are various pieces of legislation which state this, including:
- Consumer Rights Act 2015
- Consumer Protection from Unfair Trading Regulations 2008
There can be criminal penalties if this legislation is not complied with, and contracts or clause within T+Cs can be held to be invalid and unenforceable.
A term in a Consumer contract or notice is unfair if it creates a significant imbalance in the rights of the parties, to the detriment of the Consumer, and is contrary to a requirement of good faith. This test applies to all terms except those setting the price or describing the main subject matter of the contract.
All written terms must also be transparent and in plain and intelligible language, to ensure that Consumers can make an informed choice about whether or not to enter the contract. Particularly onerous clauses should be prominent that is to say specifically flagged, as opposed to hidden away or buried deep within the small print.
These issues came up in a recent case in which a betting company tried to rely on its T+Cs which purported to protect it from liability under an online contract with a consumer, who believed that they had won a "Monster Jackpot" of over £1 million. The consumer's phone showed them as winning, but the betting company said this was a mistake and their internal records indicated otherwise. Furthermore, they argued that their T+Cs stated both that their records were definitive and excluded liability for "systems or communications errors relating to the generation of any result, bet settlement or any other element of a Game". They asserted that all consumers accepted their T+Cs whenever they downloaded the App and opened their account no matter how long ago that was.
The court decided in favour of the consumer and felt that “game-specific rules” took precedence over the generic T+Cs at the outset. The court also felt that the exclusion clause relating to errors did not cover human errors that were made in programming the screen display of the game.
The court also felt the T+Cs were unusual and onerous and effectively tried to put all the risk on the consumer for the company’s own “recklessness, negligence, errors, inadequate digital services and inadequate testing". In addition the clauses would only bind a consumer if adequately brought to their attention, but here they were not listed in the index, were not mentioned or referred to in the game-specific rules, were not in bold or capitals or highlighted, were in the middle of 45 pages of small print, and were not referred to on screen at the time of game play.
The case is an excellent demonstration that whilst there is, of course, a temptation not only to exclude or limit your liability as much as you possibly can, and also, to not make it obvious that this is what you ae are doing, this can be both counter-productive and ineffective, especially in B2C contracts.