What effect does the Unfair Contract Terms Act 1977 have on the exclusion clause?

This Act represents the statutory attempt to control exclusion clauses. In spite of its title, it is really aimed at unfair exemption clauses, rather than contract terms generally. It also covers non-contractual notices which purport to exclude liability under the Occupiers’ Liability Act 1957. The controls under UCTA 1977 relate to two areas.

Negligence

There is an absolute prohibition on exemption clauses in relation to liability in negligence resulting in death or injury Exemption clauses relating to liability for other damage caused by negligence will only be enforced to the extent that they satisfy the requirement of reasonableness

In Smith v Bush the plaintiff bought a house on the basis of a valuation report carried out for her building society by the defendant. The surveyor had included a disclaimer of liability for negligence in his report to the building society and sought to rely on that fact when the plaintiff sued after the chimneys of the property collapsed. The House of Lords held that the disclaimer was an exemption clause and that it failed the requirement that such terms should be reasonable.

Contract

The general rule of the Act is that an exclusion clause imposed on a consumer  or by standard terms of business is not binding unless it satisfies the Act’s requirement of reasonableness. Effectively, therefore, the Act is dealing with clauses imposed by a person acting in the course of business. Section 12 states that a person deals as a consumer if he neither makes the contract in the course of business nor holds himself out as so doing and the other party does make the contract in the course of business. Additionally, where goods are supplied under the contract, they must be of a type normally supplied for private consumption and they must be so used.

The precise meaning of ‘acting in the course of business’ for the purposes of UCTA977 was considered in R & B Customs Brokers Co Ltd v UDT In deciding that the sellers of a car to a company could not rely on an exclusion clause contained in the contract, as the transaction had not been in the course of business, the Court of Appeal stated that the purchase had been: In reaching this decision, the Court of Appeal followed the House of Lords’ decision in Davies v Sumner which dealt with a similar provision in the Trade Descriptions Act 1968. This interpretation of s 12 was confirmed in Feldaroll Foundry plc v Hermes Leasing On facts similar to R & B Customs Brokers Co Ltd v UDT, a company was held not to act ‘in the course of business’, even though the contract stated the car was acquired for use in the business. It would seem, however, that the meaning of selling ‘in the course of business’ for the purposes of s 14 of the SoGA 1979 is different. Section 14, which implies conditions of satisfactory quality and fitness for purpose into contracts for the sale of goods applies where the seller ‘sells in the course of business’. The meaning of selling ‘in the course of business’ under s 14 of the SoGA 1979 is wide enough to cover incidental sales by, for example, the professions, local and central government departments and public authorities. The meaning of selling ‘in the course of business’ in the context of s 14 was examined in Stevenson v Rogers

            UCTA 1977 applies more specific rules to contracts for the sale of goods; which rules apply depends on whether the seller sells to a person ‘dealing as a consumer’ (as defined in s 12 of UCTA 1977; such sales are commonly referred to as ‘consumer sales’). Under s 6 of UCTA 1977, the implied term of s 12 of the SoGA 1979 cannot be excluded in consumer or non-consumer sales.