[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	Scottish Law Commission (Reports)
You are here: BAILII >> Databases >> Scottish Law Commission >> Scottish Law Commission (Reports) >> Unfair Terms In Contracts [2005] SLC 199(6) (Report) (February 2005) URL: http://www.bailii.org/scot/other/SLC/Report/2005/199(6).html Cite as: [2005] SLC 199(6) (Report)

[New search] [Printable RTF version] [Help]

 


PART 6

PARTICULAR ISSUES

6.1      In this Part we deal with four particular issues. These are employment contracts; private contracts for the sale or supply of goods; non-contractual notices; and provisions in UCTA which are no longer required.

EMPLOYMENT CONTRACTS

6.2      The current law has two components: UCTA section 2 [section 16] and UCTA section 3 [section 17].^[1]

(1) In England and Wales, UCTA section 2 applies only in favour of the employee.^[2] In Scotland, it is not wholly clear whether section 16 applies similarly.^[3]

(2) UCTA section 3 [section 17] applies to consumer contracts and contracts concluded on one party's written standard terms of business. It has been held to apply to employment contracts on the basis either that the employee is a consumer or that the employment was on the employer's written standard terms of business.^[4]

Employees' liability for negligence

6.3      The effect of UCTA in England and Wales is that any attempt by an employer to exclude or restrict its liability to an employee for negligence is subject to section 2; but this section does not prevent an employee excluding or restricting liability for negligence to the employer. In the Consultation Paper we said that this should be retained.^[5]

6.4      The provision that achieves this result in UCTA for England and Wales^[6] has no equivalent in the Scottish part of UCTA and so, wishing to preserve what we thought was the status quo, the Consultation Draft provided that the exception should not extend to Scotland.^[7] As the project progressed, however, we discovered that the difference between the Scottish and English parts of UCTA on this point is probably one of form rather than substance. It seems that an employee's liability in negligence would not "arise in the course of a business" so as to fall within section 16.^[8] We therefore thought it best to extend the exception to Scotland to reflect our policy of allowing employees to exclude or restrict liability to their employers. Thus the Draft Bill attached to this Report no longer creates a special position for Scotland. Clause 2(1), which permits an employee to exclude or restrict his or her liability for negligence towards the employer, now extends to England and Wales, Scotland and Northern Ireland.

6.5      We recommend that the provisions of the new legislation that apply to business liability for negligence should not prevent an employee from restricting his or her liability to the employer.

The employer's terms of employment

6.6      In the Consultation Paper we did not make any firm proposals on how employment contracts should be treated under the new regime. We asked whether employment contracts should be included in our regime as business contracts, consumer contracts or in a category of their own. We expressed the provisional view that it might be best to subject employment contracts to much the same regime as consumer contracts.^[9]

6.7      After our general consultation we sought the views of a number of employment law specialists. Most favoured treating employment contracts as a separate category, but views were evenly divided on the level of control that should be implemented. Some consultees were in favour of extending to employees the protections currently afforded to consumers by the UTCCR. In one case this was because employers are now providing employees with additional services, such as health plans and holidays; in doing so the employer is a quasi-supplier and therefore should be regulated as such. On the other hand, an equal number of consultees thought there were already sufficient controls over employment contracts, so there was no need to extend the proposed consumer protections to employees. These consultees were divided on whether or not the existing UCTA controls should be abandoned.

6.8      In the light of the further consultation, we have concluded that it is not appropriate to treat employment contracts in the same way as consumer contracts or small business contracts. In other words, we do not wish to apply UTCCR-type protections to "non-core" terms. To do so might interfere with the existing legislation and common law rules affecting the obligations that are owed by each party under an employment contract. On the other hand, employers often provide employees with additional services, such as health plans and holidays. The additional benefits may be under separate contracts that amount to consumer contracts but sometimes the benefits will be provided under the contract of employment itself. For these cases it is desirable to maintain controls along the lines of UCTA section 3 [section 17]. By reference to its standard written terms, an employer should not be able to exclude or restrict its liability to provide the promised services (or render services which are substantially different from what the employee reasonably expected) unless it is fair and reasonable to do so. We see less objection if this is done by a one-off negotiated term.

6.9      Thus, for employment contracts there should be a section replicating UCTA section 3 [section 17] that applies wherever the employment contract is on the employer's written standard terms of employment (as is usually the case).^[10] Employment contracts are not consumer contracts for the purposes of the Draft Bill and are excluded from the wider protections afforded to small business and consumer contracts. The practical effect of our recommendations is that the employer's standard terms will be subject to the "fair and reasonable" test in so far as they purport to exclude or restrict liability or allow the employer to render a performance substantially different from that reasonably expected by the employee. In addition the effect of UCTA section 2 [section 16] is preserved: it will apply only in favour of the employee.^[11] The employee will therefore retain nearly all of the protections which exist under the current law, but will not be given additional protection by our scheme.

6.10      We recommend preserving UCTA's controls over employment contracts when the employment is on the employer's standard terms of employment. We do not recommend extending consumer protections to employees.

SALE OR SUPPLY OF GOODS NOT RELATED TO BUSINESS

6.11      In the Consultation Paper we devoted a chapter to the problem of controls over contracts for the sale or supply of goods by an individual who does not act in the course of a business. This would include both a consumer supplying goods to a business and a person "privately" supplying goods to another individual.^[12] Typical examples would be where a private motorist sells a used car to a car dealer or where one private individual sells a car to another.

6.12      Private individuals who sell to a business would be classified as consumers and would therefore be entitled to the protections outlined in Part 3.^[13] These, however, only protect the consumer against the business. Here we are concerned with how far sellers may exclude their own obligations, whether they are dealing with a business or another private individual. At present, in both cases private sellers are under some, fairly limited, obligations to their buyers. The question is how far such sellers should be able to exclude their obligations through the use of contract terms.

6.13      In order to understand the existing law in this area, it is worth distinguishing between sale contracts, hire purchase contracts and other contracts for the supply of goods. Below we look at each in turn.

Sales by a consumer to a business and between private individuals

6.14      Under the Sale of Goods Act 1979, only some of the usual implied terms apply to private sellers. Private sales are subject to an implied term that the seller is entitled to sell.^[14] If the sale is by description, there is an implied term that the goods correspond to their description:^[15] if the sale is by sample, there is an implied term that the goods correspond to the sample.^[16] In contrast, the implied terms that goods are of satisfactory quality and fit for their purpose only apply where the seller sells "in the course of a business".^[17] There are no equivalent provisions where the seller acts in a private capacity.

6.15      How far private sellers can exclude these terms is governed by UCTA section 6 [section 20].^[18] Section 6(1) [section 20(1)] has the effect that, in contracts for the sale of goods, persons selling goods to a business or under a private contract cannot restrict or exclude liability for breach of the statutory implied undertaking that they are entitled to sell.

6.16      UCTA section 6(3) [section 20(2)] has the effect that liability for breach of the other implied terms can only be excluded in so far as it is reasonable to do so. Thus a consumer selling to a business or a seller under a private contract cannot use a contract term to restrict or exclude liability for breach of the implied undertakings as to correspondence with description or sample unless the term is reasonable.^[19]

6.17      In the Consultation Paper we provisionally proposed that these controls should be retained, both where a consumer sells to a business and where a private seller sells to another private individual. The vast majority of respondents agreed with our proposals on this point without further comment.^[20] Therefore, we now recommend preserving UCTA's controls over contracts for the sale of goods where the seller does not act in the course of business.

6.18      Following the scheme of the Draft Bill, contracts between a private individual and a business are classified as consumer contracts (under Part 2), and those between private individuals are classified as private contracts (under Part 3). Each Part contains identical clauses which replicate the current law.^[21] The effect is that private sellers cannot exclude the implied term of entitlement to sell in any circumstances; and they can exclude the implied terms of correspondence with description and sample only in so far as is reasonable.

6.19      We recommend that the UCTA controls relating to implied terms as to entitlement to sell and correspondence with description or sample should be retained for contracts for the sale of goods by a consumer to a business; and should also continue to apply when neither party is acting in the course of a business (a "private" sale).

Hire purchase contracts under which a private individual supplies goods

6.20      Under UCTA, hire purchase contracts are treated in exactly the same way as sales. They also fall within section 6 [section 20]. In the unlikely event that a private individual supplied goods under a hire purchase contract, the individual would not be able to exclude the implied term of entitlement to transfer property at all, and could restrict the implied terms of correspondence with description and sample only as far as was reasonable.^[22]

6.21      We believe that the obligations imposed on the supplier – particularly the obligation to transfer ownership at the relevant time – are of such importance that these controls should be maintained in their present form.

6.22      We recommend that in hire purchase contracts in which the supplier is a private individual the UCTA controls relating to implied terms as to title and sale by description or sample should be retained.

Other contracts under which a private individual supplies goods

6.23      As we have seen, there are many possible contracts which are not sales or hire purchase but which involve the supply of goods. These include barter, exchange, contracts for work and materials and hire. These contracts are also subject to implied statutory undertakings which are written in very similar terms to those found in the Sale of Goods Act 1979.^[23]

6.24      All other supply contracts (such as exchange, work and materials or hire) are subject to section 7 [section 21]. This is restricted to business liability, which means that it has no application to private individuals.^[24] The result is that if two private individuals were to exchange cars, either of them could exclude liability for breach of the implied term that they were entitled to transfer ownership. Similarly, one party could add in a clause to the effect that "no liability is accepted if the car does not match its description". Such terms would fall outside any current legislative controls.

6.25      During consultation, this issue generated almost no discussion. Although it is possible to find theoretical faults with the current position, we received no evidence that it causes problems in practice. Although it is relatively common for individuals to supply a business with old goods in part-exchange for new, these arrangements will almost always be on the business's terms. We are not aware of any instances in which the individual has imposed inappropriate terms on the business. When private individuals exchange or barter goods among themselves, these tend to be informal arrangements. It would be extremely unusual for one party to impose an exclusion clause on the other.

6.26      Although we considered extending UCTA controls to all private contracts for the supply of goods, we concluded that we should not extend statutory controls unless there was a clear demand for them. We did not wish to over-regulate private, informal arrangements. Given that the existing law seems to work in practice and that there are no calls for change, we have decided to preserve the existing position.

6.27      We recommend that the UCTA controls relating to implied terms as to title and correspondence with description or sample should not be extended to other contracts in which a private individual supplies goods.

NON-CONTRACTUAL NOTICES AFFECTING LIABILITY IN TORT [DELICT]

6.28      In the Consultation Paper we provisionally proposed that the existing controls over notices excluding business liability for negligence^[25] in tort [delict] should be retained.^[26] Almost all consultees who expressed a view on this proposal supported it.

6.29      We recommend that the effect of the UCTA controls relating to notices excluding business liability in tort [delict] for negligence should be reproduced in the new legislation.

6.30      We further recommended that, because UCTA's controls over business liability for negligence apply to both contract terms and notices and because we wished to retain controls over notices as well as contract terms, the new legislation should follow UCTA in having a separate part dealing with exclusions and restrictions of liability for negligence, whether they purport to exclude liability in contract or tort [delict] and whether they take the form of a notice or a contract term.^[27]

6.31      Thus the Consultation Draft contained a separate part making provision for such controls.^[28] An overwhelming majority of consultees supported our proposals for non-contractual notices. We recommend that the effect of these provisions be reproduced in the new legislation in a separate Part.

6.32      We recommend that controls of business liability for negligence should be treated in a separate Part of the new legislation.^[29]

6.33      We also proposed that the existing preventive powers conferred on the OFT and other regulators by the UTCCR should be extended to cover notices excluding or restricting liability for negligence in addition to contract terms.^[30] We said that although such notices may be of no effect we considered that they may deter claimants who have suffered injury or loss and do not know that the notice is invalid.^[31] For this reason there should be a power to act against the routine use of such notices.

6.34      Again, almost all consultees who expressed a view supported this proposal. The Institute for Commercial Law Studies at the University of Sheffield said that notices purporting to exclude liability for personal injury or death have remained "in widespread use" and that preventive powers to control the continued use of such notices are very much needed. We agree.

6.35      We recommend that the preventive powers be extended to cover non-contractual notices which purport to exclude or restrict a business's liability in tort [delict].

GENERAL PROVISIONS NO LONGER REQUIRED

6.36      We have already recommended that UCTA section 5 [section 19] ("guarantee" of consumer goods) should not be replicated in the new legislation. This provision applies only to consumers.^[32] We now discuss two provisions of UCTA that are of more general application: section 9 (effect of breach) [section 22 (consequence of breach)] and section 28 (temporary provision for sea carriage of passengers).

Effect of breach

6.37      Section 9 [section 22] was originally inserted to ensure that the doctrine of fundamental breach, under which a party might escape the effect of an exemption clause by terminating the contract for so-called fundamental breach, would not prevent a valid clause applying. In the Consultation Paper^[33] we argued that this section is no longer necessary because the doctrine has been abolished by the House of Lords.^[34] Those who responded on our proposal not to replicate section 9 supported it unanimously.

6.38      We recommend that section 9 [section 22] of UCTA should not be replicated in the new legislation.

Sea passengers

6.39      Section 28 applies to contracts for the carriage by sea of a passenger (with or without luggage) made before the coming-into-force of the Athens Convention 1974.^[35] It provides that, in such cases, the carrier may exclude liability for loss or damage within the contemplation of the Convention.

6.40      In the Consultation Paper we argued that this section is no longer required.^[36] The Athens Convention was not in force when UCTA was passed in 1977 but it has been since 1987: contracts made after that date do not fall within section 28. Moreover, the section only applies to contracts for the carriage by sea of passengers and their luggage and such contracts will almost always be consumer contracts so that it would not be appropriate to allow any exclusion of liability on the part of the carrier.

6.41      The Carriage of Passengers and their Luggage by Sea (Interim Provisions) Order 1980, Article 2 stipulates that section 28 ceases to apply to any contract to which the order relates after it comes into force on 1 January 1981. That still leaves those contracts signed prior to 1 January 1981 as well as those contracts to which section 28 relates but the Order does not. However since we do not intend the new legislation to have retrospective effect, these early contracts will continue to be governed by UCTA section 28 without the need for that section to be replicated in the new legislation.

6.42      We recommend that section 28 of UCTA should not be replicated in the new legislation.

Note 1    For a more detailed discussion of the current law, see the Consultation Paper, para 3.45.     [Back]

Note 2    See UCTA, Sch 1, para 4.     [Back]

Note 3    The position in Scots law is discussed below, para 6.4.    [Back]

Note 4    More recent cases bring employment contracts within section 3 by treating the employee as a consumer. See Chapman v Aberdeen Construction Group Plc 1993 SLT 1205, Brigden v American Express [2000] IRLR 94 and Peninsula Business Services Ltd v Sweeney [2004] IRLR 49 (EAT). But an older Court of Appeal case included contracts of employment under the written standard terms of business limb. SeeLiberty Life Assurance Co Ltd v Sheik, The Times 25 June 1985 (CA).    [Back]

Note 5    Consultation Paper, para 4.80. We did not make an explicit proposal on the point and it was not challenged by consultees. In clause 2(1) of the Consultation Draft we created an exception from the controls in clause 1 for exclusion of liability clauses relied on by employees attempting to limit their liability for negligence towards their employers.     [Back]

Note 6    Schedule 1, para 4.    [Back]

Note 7    Consultation Draft, clause 2(3).    [Back]

Note 8    For Part II there is no equivalent to the provision of section 1(3) that “business liability’’ may arise “from things done … by a person in the course of a business (whether his own business or another’s)”. It is arguable that it is only the words in brackets that make the exception in Sch 1, para 4 necessary.     [Back]

Note 9    See Consultation Paper, paras 4.80 – 4.81.    [Back]

Note 10    See clause 12.    [Back]

Note 11    See Draft Bill, clauses 1 and 2(1).     [Back]

Note 12    Consultation Paper, Part VI.    [Back]

Note 13    Thus, under the Draft Bill, if the car dealer’s terms of purchase contained an unfair term which was detrimental to the consumer seller, the consumer would be entitled to challenge it under clause 4. (This would not apply to a core term, or one that was substantially the same as the law that would apply in the absence of the term, provided the term was transparent: see clause 4(2) – (4)).    [Back]

Note 14    Sale of Goods Act 1979, s 12.    [Back]

Note 15    Sale of Goods Act 1979, s 13.    [Back]

Note 16    Sale of Goods Act 1979, s 15.    [Back]

Note 17    Sale of Goods Act 1979, s 14(2).    [Back]

Note 18    Section 6 applies irrespective of whether the seller is acting in the course of a business. Part 1, relating to England and Wales, is structurally complex. First s 1(3) states that sections 2 – 7 only apply to business liability, but then s 6(4) creates an exception to s 1(3), and says that s 6 does not just apply to business liability. For Scotland, s 20 is drafted in a more straightforward manner but has the same effect.    [Back]

Note 19    Section 6(2) is expressed to apply “as against a person dealing as consumer” and does not apply to a contract between two persons neither of whom is acting in the course of a business. The definition of “deals as consumer” which is contained in s 12 [s 25 (1)] will not allow a buyer to be categorised as dealing as a consumer unless the seller sells “in the course of a business”. The Scottish provisions (s 20(2) and s 21(1)) are worded differently: the equivalent provisions refer to “a consumer contract” which cannot be a contract between two persons acting privately by virtue of s 25(1). The effect is the same.    [Back]

Note 20    Two respondents argued that the section 6(3) [section 20(2)] controls should be limited to clauses that were not individually negotiated.    [Back]

Note 21    Draft Bill, clause 6 (for consumer contracts); and clause 13 (for private contracts).     [Back]

Note 22    These implied terms are similar to those implied into sales and are set out in by the Supply of Goods (Implied Terms) Act 1973.    [Back]

Note 23    Supply of Goods and Services Act 1982.     [Back]

Note 24    See UCTA, s 1(3) and n 18, above.    [Back]

Note 25    In the Consultation Draft, we provided separate definitions for “negligence” and “breach of duty” the latter being the term more widely used in Scotland. In the Draft Bill, however, we have condensed these definitions into the definition of “negligence”, which now extends to breaches of the relevant duties in Scotland (Draft Bill, clause 1).    [Back]

Note 26    See para 7.3.    [Back]

Note 27    Consultation Paper, para 7.4. There is a difference between England and Scotland as to what counts as business liability. Business liability includes liability arising from the occupation of land for business purposes but in England there is an exception where the injured party was allowed access to the land for recreational or educational purposes not connected to the occupier's business. This exception does not apply under Scots law. Moreover, under the Occupiers' Liability (Scotland) Act 1960, s 2(1), the statutory obligation to take reasonable care can only be altered by a contractual term: a non-contractual notice is ineffective. Clause 2 of the Draft Bill reflects these differences between English and Scots law.    [Back]

Note 28    Clauses 1 to 3.    [Back]

Note 29    See Draft Bill, Part 1 (Business liability for negligence).    [Back]

Note 30    Para 7.7.    [Back]

Note 31    Para 7.6.    [Back]

Note 32    See above, paras 3.48 – 3.49.    [Back]

Note 33    Consultation Paper, para 4.209.    [Back]

Note 34    Photo Production Ltd v Securicor Transport Ltd [1980] AC 827.    [Back]

Note 35    The Athens Convention 1974 entered into force on 28 April 1987 when it became part of the Merchant Shipping Act 1979, Sch 3, Part I. Subsequent protocols amended the Convention and an updated version was implemented by the Merchant Shipping Act 1995, Sch 6, Part I, although a 1990 Protocol never came into force. A further protocol was agreed on 1 November 2002, although it has not yet been ratified by the number of states required to bring it into force.    [Back]

Note 36    Consultation Paper, para 4.211.    [Back]