A Consumer is defined as “an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession”. Consumers must be treated fairly at all times, and when dealing with them your terms and conditions must be transparent, fair and in plain English. There are various pieces of legislation which state this including the Consumer Rights Act 2015 and the Consumer Protection from Unfair Trading Regulations 2008. 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. However, all written terms must 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. The Act makes certain terms automatically unfair (the "black list") and provides a number of examples of terms that might be unfair (the "grey list"). The Competition and Markets Authority has produced detailed guidance.
When it comes to business to business (B2B) contracts, there is much less emphasis on the general principle of fairness, and the starting point will always be the wording of the contract itself. However, there is a piece of legislation called the Unfair Contract Terms Act 1977 (UCTA) which does allow for certain clauses in B2B contracts to be challenged. Despite the name of the legislation in fact the only types of clauses which can be challenged under UCTA are those purporting to limit (limitation clauses) or exclude liability (exclusion clauses).
UCTA states that a clause that limits liability for death or personal injury as a result of negligence is ineffective. In addition, it makes limitation and exclusion clauses 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?
In a recent case, regarding a B2B contract, the High Court found in favour of the defendant (D), who had counterclaimed against the claimant (C). D’s argument was that an exclusion clause in the contract meant that C’s "loss of profit" could not be claimed.
There were in fact two contracts, both with an identical exclusion clause excluding D’s liability for breach of contract which fell into certain categories, one of which being "loss of profit". C argued, under UCTA, that the contracts formed part of D's written standard terms of business and the exclusion clause did not meet the requirement of "reasonableness". The judge felt the contract used was not the standard terms of business under UCTA, and for UCTA to apply the standard terms need to be "effectively untouched". Here extensive negotiations had taken place, involving email exchanges and calls, and both parties had access to legal advice. The court felt that material changes had been made to the standard terms, even though the exclusion clause itself was not altered.
The judge emphasised that in each and every case it is always a question of both the specific wording of the clause, and the factual background, as to whether the exclusion clause covers the breach or the loss in question. Here the judge felt the exclusion clause was both clear and unambiguous, and the words "loss of profit" meant just that.