Express and Implied Contract Terms (and UCTA)

 Objectives

• Explain the difference between representation and terms
• Explain the concept of express terms
• Understand implied terms, including those implied by fact and statute
• Explain the incorporation of exclusion clauses and the provisions of the Unfair Contract Terms Act 1977
• Explain other terms, including conditions, warranties and innominate terms

Terms

• The terms of a contract set out the obligations on the parties under the agreement
• Terms can be express, which are laid down by the parties themselves, or implied, which means that terms are assumed by the courts or by statute
• Terms can also be classified according to their importance: conditions, warranties and innominate terms
• Terms should be distinguished from mere representations, which have no liability attached to them because they have just induced a party to enter into the contract
• However, if a representation has been false and has wrongly induced the other party to enter the contract, then this is a misrepresentation and will attach liability
• Terms should also be distinguished from mere opinions, which have no liability attached to them either. The other party's opinion is no more valid than our own and we cannot rely on it
• However, if an opinion has come from an expert, we are entitled to rely on it and so the opinion of experts are said to attach liability

Importance of Terms

Conditions

• A condition is a term of a contract that is so important to the contract that a failure to perform the condition would render the contract meaningless
• If a condition has been breached, then the claimant is entitled to the fullest range of remedies - damages or repudiation (or both)
• Any term implied by statute is also regarded as a condition, in terms of the effect of its breach
• Cases:
• Poussard v Spiers and Pond (1876)
• The Mihalis Angelos (1970)
• Bunge Corp v Tradax Export SA (1981)

Warranties

• A warranty is a term of a contract that is minor
• If a warranty has been breached, the injured party can sue for damages, but not repudiation
• Warranties are regarded as obligations that are secondary to the major purpose of the contract
• Case
• Bettini v Gye

Innominate Terms

• An innominate term is a term of a contract, which cannot be identified as either warranties or conditions, and so are identified as innominate until the contract has been breached
• The idea is that a contract will only be repudiated in the event of a breach if it is fair to both sides
• It is uncertain what the remedy will be until the extent of the breach has been considered and the judge declares the appropriate remedy
• Cases
• Hong Kong Fir Shipping Co Ltd v Kawasaki Ltd (1962)
• Schuler AG v Wickman Machine Tool Sales Ltd (1973)
• Reardon Smith Line v Hansen Tangen (1976)

Express Terms

• In order to be a term of the contract, the statement must be incorportated. This is usually straightforward where a contract is in writing as the terms are the ones that are written in the document
• The importance attached to the representation - Bannerman v White (1861)
• Special knowledge or skill - Oscar Chess Ltd v Williams
• Timing of the statement - Routeledge v McKay (1954)
• Agreements in writing - Routeledge v McKay (1954)

Implied Terms

Terms Implied by Fact

• These are terms which are not laid down in the contract, but which it is assumed both parties would have intended to include if they had thought about it
• Equitable Life Assurance Society v Hyman (2000)
• The courts will consider whether the proposed term would be:
• Reasonable and equitable
• Capable of clear expression
• Compatible with any express terms of the contract
• So obvious that it "goes without saying" (officious bystander test)
• Necessary to give the contract business efficacy (the business efficacy test)
• Officious bystander test: Shirlaw v Southern Foundries (1926)
• Business efficacy test: The Moorcock (1889)
• There has also been further guidelines set out in BP Refinery Property Ltd v Shire of Hastings (1978)

Terms Implied in Law

• These are terms which the law says have to be included, irrespective of the wishes of the parties
• Liverpool City Council v Irwin (1977)
• A landlord who lets property containing several homes in one building is under an implied obligation to provide proper access to the individual homes
• There are also other terms implied in such contracts as employment contracts:
• Spring v Guardian Assurance PLC (1994)
• Malik v Bank of Credit and Commerce International (1997)

Consumer Rights Act 2015

SS9-11: Supply of Goods

• Replaced the Sale of Goods Act 1979, The Unfair Terms in Consumer Contract Regulations 1999 and the Supply of Goods and Services Act 1982
• All goods should be:
• s9 - of satisfactory quality - not faulty or damaged - this is judged by what a reasonable person would consider satisfactory
• s10 - Fit for purpose - should be fit for the purpose they are supplied for as well as any specific purpose made known to the retailer
• s11 - as described - must match any description, models or samples shown at the time of purchase
• Note: "goods" also includes digital content, such as downloads, software and pre installed content

S20, S23: Bringing a Claim

• You must bring the claim against the retailer, not the manufacturer
• Date of purchase
• s20 gives the consumer a legal right to reject goods that are of unsatisfactory quality, unfit for purpose or not as described to get a full refund, but this is limited to within 30 days of purchase
• 30 days
• s23 provides that you have to give the retailer one opportunity to repair or replace any goods if you are outside the 30 days. If the attempt to repair is unsuccessful you can then claim a refund or a price reduction
• 6 months
• If a fault is discovered within six months of purchase it is presumed to have been there since the purchase, unless the retailer can prove otherwise
• If the fault is discovered after six months, the burden is on the consumer to prove that the product was faulty at the time of delivery. You hace six years to take a claim to the small claims court

S28: Delivery

• The retailer is responsible for the goods until they are in the possession of the consumer - this means they are liable for the service provided by the couriers they employ
• If a retailer fails to deliver within 30 days, you have the right to terminate the purchase and get a full refund, even if the timing of the delivery was not essential

SS49-52: Supply of Services

• This includes services for dry cleaning, entertainment, work done by professionals (solicitors, estate agents, accountants), building work, fitted kitchens, double glazing and home improvements
• All contracts for services must do the following
• s49 - the trader must perform the service with reasonable care and skill
• s50 - information that is said or written is binding where the consumer relies on it
• s51 - where the price is not agreed beforehand, the service must be provided for a reasonable price
• s52 - unless a time scale has been agreed, the service must be carried out within a reasonable time

S55, S56: Bringing a Claim

• You must bring the claim against the trader
• If the service does not satisfy the criteria:
• s55 - the trader should either redo the element which is inadequate or perform the whole service again at no extra cost
• s56 - where repeat performance is not possible, the consumer can claim a price reduction. This could be up to 100% of the cost and the trader should refund the consumer within 14 days of agreeing that a refund is due

S62: Unfair Contract Terms

• An unfair term under the Act is not binding on the consumer. If a consumer thinks a term is unfair, they should complain to the trader
• Key terms of a contract may be assessed for fairness, unless they are prominent and transparent
• Examples of unfair terms under the Act include:
• fees and charges hidden in the small print
• something that tries to limit the consumer's legal rights
• disproportionate defauly charges
• excessive early termination charges

Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013

• This Act covers shopping online and brings into force the Consumer Rights Directive from the EU. It also supersedes the Distance Selling Regulations
• It requires traders to give certain information before entering into a contract
• The Act covers all contracts entered into after 13 June 2014
• It covers the sale of goods online, over the phone, from a catalogue or face to face somewhere that is not the business premises of the trader (e.g your home)
• Key information which a trader must provide:
• A description of the goods, services or digital conent or the manner in which the price will be calculated
• How the consumer will pay for the goods or services and when they will be provided
• All additional delivery charges and other costs
• Details of who pays the cost of returning items if there is a right to cancel
• Details of any right to cancel - the trader also needs to provide, or make available a standard cancellation form to make cancelling easy
• Information about the seller, including their geographical address and contact details and the address and identity of any other trader for whom the trader is acting
• Information on the compatibility of digital content with hardware and other software that the trader is aware of
• Canceling goods or services
• Cancellation rights under the Act are more generous than if you bought goods or services from a shop
• Your right to cancel starts the moment the consumer places their order and ends 14 days from the day the goods are received
• There is then a further 14 days to actually send the goods back
• The trader then has another further 14 days to give a refund from the date they receive the goods or the consumer providing evidence of having returned to the goods
• The exceptions to the rules on cancellations are for:
• CDs, DVDs, or software if the seal has been broken on the wrapping
• Perishable items
• Tailor-made or personalised items
• Canceling services - the consumer has 14 days to cancel, though they may have to pay for any service they have used up to the point of cancellation
• Canceling digital content - the consumer must acknowledge that once a download has started, they will lose their right to cancel. Retailers must not supply digital content within the 14 day cancellation period unless the consumer has given their consent

Exclusion Clauses

• The courts have found two ways to regulate exclusion clauses:
• Has the clause been incorporated into the contract? This can be done in three ways:
• By signature
• Reasonable notice
• Previous course of dealing
• Does the clause cover the alleged breach?

Common Law Controls: Incorporation

• By signature - if a document is signed at the time of making the contract, its contents become terms of that contract, regardless of whether they have been read and understood:
• L'Estrange v Graucob (1934)
• By reasonable notice - if separate written terms are presented, those terms only become part of the contract if it can be said that the recipient had reasonable notice of them:
• Parker v South Eastern Railway (1877)
• Previous course of dealing - if two parties have previously made a series of contracts between them, and those contracts contained an exemption clause, that clause may also apply to a subsequent transaction, even if the usual steps to incorporate the clause had not been taken:
• Spurling v Bradshaw (1956)

The Unfair Contract Terms Act 1977

• This is an Act that imposes limitations on exemption clauses and controls the use of clauses excluding or limiting liability for breach of a contract where one of the parties is a consumer
• s12 - a party is "dealing as a consumer" when they are not making the contract in the course of a business. Thus, a contract between two consumers is not dealt with by the Act
• The Act does not apply to contracts concerning land, employment, intellectual property, or contracts concerning insurance

Provisions of the Act

• s2 - Liability for negligence - Liability for death or personal injury resulting from negligence cannot be excluded - any clause which attempts to do this will be rendered ineffective
• s3 - Liability for non-performance - applied where there exists a standard form contract. The provisions are subject to the reasonableness test in s11 and provide restrictions on the ability to:
• Exclude or restrict liability for breach of contract
• Provide substantially different performance to that reasonably expected
• Provide no performance at all
• This only applies to 'standard term contracts' - contracts with terms in them that are not negotiated, and which are in the contract because they have been taken from somewhere else and inserted into this one
• AND a standard term contract that tries to limit liability for non-partial completion of a contract must be 'reasonable'
• s6 - Exclusion if liability in contracts for the sale of goods - clauses that are implied by statute such as those in the Consumer Rights Act 2015 cannot be excluded
• s11 - Test of reasonableness:
• the court should ask itself whether the term in question is a "fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made"
• Schedule 2 provides the factors for the court to consider in applying the reasonableness test. The factors are:
• The strength of the bargaining positions of the parties taking into account alternative suppliers available to the purchaser
• Whether the customer received an inducement to accept the term - for example, whether they were given the opportunity to pay a higher price without the exclusion clause
• Whether the customer knew or ought to have known of the term and whether such terms are in general use in a particular trade
• Where exclusion relates to non-performance of a condition whether it was reasonably practicable to comply with the condition
• Whether the goods were made or adapted to the special order of the customer
• Key cases
• George Mitchell Ltd v Finney Lock Seeds Ltd (1983)
• Claimant had bought cabbage seeds with the intention of planting 63 acres worth. The seed turned out to be of poor quality and so the cabbages were unsellable
• The issue was a clause in the contract for sale that said that the sellers, Finney Lock seeds, were limited in terms of liability to the replacement of the seed itself and not for consequential loss
• HELD - it was entirely foreseeable that inferior seed would have a knock-on effect on the claimant, causing them to suffer economic loss in terms of the lost sale of the cabbages
• This is a consumer/business relationship. The 1977 UCTA applied, and the issue of reasonableness under section 11 is relevant
• HELD - the clause was therefore not reasonable. The concept of damages in contract law was such that the innocent party is meant to be placed in the position they would and should have been in had the contract been properly performed
• In cases like Hadley v Baxendale and Caparo v Dickman, losses, to be recoverable, must be foreseeable and flow directly from the breach in terms of causation
• In this case, the exclusion clause was unreasonable and therefore could not apply
• Granville Oil and Chemicals Ltd v Davies Turner and Co Ltd (2003)
• The claimants contracted to buy some paint from the defendants. The paint had to be shipped from Kuwait in the Middle East, and the contract contained a 'time clause', giving the claimant 9 months from the date of purchase to raise a complaint about the quality/suitability of the paint
• As a result of factors like shipping times and the length of time that faults in the paint might become apparent, the Court said that 9 months was too short and fell foul of the reasonableness requirement of s.11 UCTA
• HELD - 9 month limitation period too restrictive under s.11 UCTA and was therefore void
• Britvic Soft Drinks Ltd v Messer UK Ltd (2002)
• The defendants tried to say that an element of Benzine present in the carbon dioxide that they provided to the claimants was so small, that it did not infringe the claimant's rights to a product of satisfactory quality under the Sale of Goods Act 1979. (The SGA was the predecessor of the Consumer Rights Act 2015 that guaranteed certain consumer rights to people dealing as consumers in the course of a business)
• HELD - this was not the case. The contract could not exclude the claimant's right to a product of satisfactory quality given by law...and as re-stated under Section 6 of UCTA
• Photo Production v Securicor (1980)
• A clause in a contract denying responsibility for damage howsoever caused by their employees was deemed to be effective. It excluded liability for the defendants for the reckless act of their employee in building a fire and causing extensive damage to the claimant's factory. The issue was not that the employee's act amounted to a fundamental breach of contract, it was whether the exclusion clause was valid and covered the breach that occurred
• The HoL said that it did, and that since the claimants had signed the contract, they were bound by it