UCL FACULTY OF LAWS 2009-10
CONTENTS OF THE CONTRACT 1. Contract Terms A: WHAT IS A CONTRACTUAL TERM? 1. General Definition: Definition : a statement of fact which is intended to create a legal obligation under the contract i.e. "the price is £10,000” Terms can be express or implied. They can also be classified as conditions, warranties and innominate terms (see lectures on performance and breach)
2. Distinguishing terms from mere puffs and representations Mere puffs: Dimmock v Hallett (1866) Hallett (1866) 2 Ch App 21 Representations: a statement of fact which induces the other party into the contract i.e. “the car passed its MOT test first time.” •
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Why distinguish between puffs, representations & terms? How to distinguish? Generally looking for intention for intention of the parties, considering the “totality of the evidence as a whole” assessed using the intelligent bystander test: bystander test: Heilbut, Symons v Buckleton [1931] AC 30, 51 per Lord Moulton. Other helpful factors: (i) When was the t he statement made? (ii) Is the statement important? (iii) Did the maker of the statement have special knowledge or skill?
Oscar Chess v Williams [1957] 1 All ER 325: A person sold a car to a car dealer and said it was a 1948 model. They relied on the car's logbook for this information. Unfortunately the logbook was forged and the car was in fact a 1939 model. It was held that the statement was a representation and not a term. Denning reiterates the Heilbut, Symons v Buckleton test re the totality of the evidence and the use of the intelligent bystander. He stated the statement was an expression of belief and not a contractual promise. Dick Bentley Productions v Harold Smith (Motors) Ltd [1965] 2 All ER 65: Car dealers sold a car to a customer and said it had done 20,000 miles. In fact it had done 100,000 100,000 miles. It was held that the statement as to the mileage of the car was a term as the maker of the statement had special skill and knowledge compared to the recipient
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3. Oral Statements as Terms when the Contract is Written The Parole Evidence Rule •
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General rule: rule: If the terms of the contract have been reduced reduced to writing, oral terms cannot be used to vary that: Jacobs v Batavia & General Plantations Ltd. [1924] 1 Ch. 287 Exceptions: o
o
The rule does not apply where it was not the intention of the parties was that the written contract would contain the whole of the agreement: Alle Allen n v Pink Pink (1838) 150 E.R 1376. Collateral Collateral contract: City City and and Westmi Westminste nsterr Prope Properti rties es v Mudd [1959] Ch 129
Future of the Rule? See Law Commission’s Report: ‘The Parole Evidence Rule’ (1980) No. 15
B. INCORPORATION OF TERMS (i) Incorporation by Signature L’Estrange v Graucob Ltd [1934] Ltd [1934] 2 KB 394 Curtis v Chemical Cleaning and Dyeing Co Ltd [1951] 1 KB 805 Grogan v Robin Meredith Plant Hire [1996] CLC 127
(ii) Incorporation by notice Chapelton Chapelton v Barry UDC [1940] UDC [1940] 1 KB 532 P wished to sit on a deck chair while visiting a sea-side resort. There was a pile of deckchairs near a wall with a notice saying they were 2d per 3 hour session. The notice contained no terms, but said the hirer should obtain a ticket from the attendant. P took 2 chairs, gave the attendant attendant 4d and received 2 tickets. The ticket contained contained the following following statement: “The council will not be liable for any accident or damage arising out of the hire of the chair.’ P’s chair collapsed due to the negligence of D and P was injured. Is the statement a term of the contract? *Olley v Marlborough Court Ltd. [1949] 1 KB 532 P & her husband registered at D’s hotel and paid a week’s board and lodging in advance and then went up to their room. There was a notice in the room stating: “The proprietors will not hold themselves responsible for articles lost or stolen, unless given to the manageress for safe custody.” Owing to the negligence of the hotel staff a thief gained access to the room and stole several items of jewellery. jewellery. Is the notice a term of the contract? Interfoto Picture Library Ltd v Stiletto Visual Programmes [1989] QB 433 ‘onerous’ or ‘unusual’ terms. *Parker v South Eastern Railways (1877) 2 CPD 416 P deposited his bag in a cloakroom at D’s station. He paid and was given a ticket. On the face of the ticket, some terms were printed and it also said,
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Thornton v Shoe Lane Parking [1971] 1 ALL ER 686 P parked his car in a multi-storey car park owned and operated by D. At the entry to the car park there was a sign stating the charges and saying that parking was ‘at the owner’s risk.’ The motorist took a ticket from the machine and then then drove into the car park. The ticket said: “This ticket is issued subject to the conditions of issue as displayed on the premises.” Inside were notices of conditions conditions which tried to exclude liability for damage to vehicles and personal injuries. P was later injured when he collected his car partly due to his own negligence and partly due to the D’s. Are the statements in the notices terms of the contract? (iii) By course of dealing McCutcheon v David MacBrayne Ltd. [1964] 1 WLR 125 Motours Ltd v Euroball (West Kent) Ltd [2003] Ltd [2003] EWHC 614 E supplied telephone services to M on terms which were replaced by an oral agreement. E’s directors signed 14 order forms containing M’s standard terms and conditions over the 18 month period, but E never read them, they were never discussed or negotiated between the parties and they were “very difficult to read” because they were in small light grey print on coloured paper and in complex language. Are the terms incorporated into the contract? C. TERMS IMPLIED INTO THE CONTRACT (i) Statute (ii) Custom (iii) Terms implied by the courts: courts: Liverpool City Council v Irwin [1976] 2 All ER 39: The court held that there shall be an implied term in leases that a landlord shall keep common parts of a building in reasonable care and in use. In this case tenants rented flats in a block of flats but the landlord retained control of the lifts and did not repair them. The court held that even though it was not stated expressly, there was an implied obligation on the landlord to keep the lifts working AG of Belize v Belize Telecom [2009[ 1 WLR 7988 (iv)Terms implied in fact Officious Bystander test: test: Shirlaw v Southern Foundries Ltd [1939] 2 KB 206: Something so obvious obvious that it goes without saying: "Oh, of course" Commercial Efficacy test: test: The Moorcock [1886-90] All ER 530 to make the contract meaningful commercially: commercially:
2. Unfair Contract Terms
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clause will be subject to the reasonableness reasonableness test. (Test is only used if the act tells us to do so). 1. Why do we need a specific area of law to deal wi th unfair terms? 2. Defining an unfair term a. Exem Exempt ptio ion n clau clause ses s b. Unfair Unfair terms terms in in cons consume umerr contr contract acts s
B. EXEMPTION/EXCLUSION CLAUSES 4 questions: 1. Is the clause incorporated into the contract? 2. Does it cover the particular breach of contract? 3. Does the Unfair Contract Terms Act 1977 apply? 4. Is it a consumer contract and how does that alter the analysis? 1. Is the clause incorporated into the contract? See material above on incorporation of terms and the parole the parole evidence rule. 2. Does the clause cover the breach? a. Cont Contra ra Prof Profer eren ente tem m Rule Rule Ambiguity in wording construed against person seeking to rely on the clause and in favour of the other party Wallis, Son & Wells v Pratt & Haynes [1911] AC 394 “No warranty express or implied” This is a rule of last resort and is only used in rare cases where there is true ambiguity: McGeown v Direct Travel Insurance [2003] EWCA Civ 1606 b. Negligence *Canada Steamship Lines Ltd v The King [1952] AC 292 Does the clause contains language which expressly a. exempts a party from liability for his own negligence? If NO then clause must satisfy BOTH b. Is the clause clause wide wide enou enough gh to to cover cover neglig negligence ence? ? c. Can the clause clause cover cover somethin something g else else as as well well as as negligence? HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] Bank [2003] UKHL 6
3. Does the UCTA 1977 apply? a. What does UCTA cover? (i) s. 26 (ii) Schedule 1 Mitsubishi Corporatio Corporation n v Eastwind Transport Ltd [2005] Ltd [2005] 1 Lloyds Rep 383
b. Attempted exclusion of liability for negligence (i) s. 2
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(iv) s. 2(2): “In the case of other loss or damage, a person cannot so exclude or restrict his liability for negligence except except in so far as t he term or notice satisfies t he requirement of reasonableness.” reasonableness.”
c. Attempted exclusion of liability for breach of contract (i)s.3(1): “This section applies between contracting parties where one of them deals as a consumer OR consumer OR on the other’s written standard terms of business.” business. ” British Fermentation Products v Compare Reavell Reavell Ltd [1999] Ltd [1999] BLR 352 (ii) s.12: Dealing as a Consumer *R & B Customs Brokers Ltd. v United Dominions Dominions Trust Ltd. [1988] 1 WLR 321 P bought a car from D, a finance company. P, a private company, bought the car for the director’s private and business use. The sale contract for the car included exclusion clauses attempting to exclude the implied terms from the Sale of Goods Act 1979. The car leaked and the D wanted to rely on the exclusion clause to exempt it from liability. It could do so as long as the term was not excluded by the operation of UCTA.
d. Specialist clauses: (i) s. 6(1) seller’s implied undertaking as to title cannot be excluded or restricted by a contract term: s.12 Sale of Goods Act 1979 only. (ii) s. 6(2)(a) seller’s obligation arising from s.13-15 Sale of Goods Act 197 only cannot be excluded or restricted by a contract term if buyer a consumer consumer (iii) s. 6(2)(b) similar obligations are imposed by the Supply of Goods (Implied Terms) Act 1973 (iv) s. 7(2) consumer contracts of supply other than hirepurchase. (v) s.6(3) those statutorily implied undertakings undertakings in s.6(2) can be excluded or restricted against a person NOT dealing as a consumer but consumer but must be reasonable. reasonable. (vi) s. 5 consumer guarantees: not for general application, but specific to written guarantees supplied with goods (e.g. warranties supplied with televisions etc) d.
Does the clause need to satisfy the reasonableness test?
Only relevant if the Act specifically states it applies (i) Definition s. 11 UCTA: “…that the term shall have been 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.”
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have a term that is unreasonable even if the breach is tiny, because we are interested in the term not the breach. The burden of proof of proving whether whether a term is fair or not falls on the party wishing to rely on it – generally speaking the person being sued. What does reasonableness actually mean? – Section 11: ‘fair and reasonable’ in relation to having regard to the circumstances which were/should have been known at time of contract formation. Schedule 2 (of section 11) of the Act can be relied upon if we are using section 6 and section 7 of the Act. Schedule 2 gives us a list of criteria to take into account when assessing reasonableness: Relative strength of the bargaining power of each of the (i) parties (see Watford Electronics v Sanderson [2001] 1 ALL ER 696) – the courts will take a much more robust approach when two business people are involved, i.e. when 2 business people are involved it is more likely that the clause will be reasonable. (ii) (ii) Did Did one one part party y rece receiv ive e an an ind induc ucem emen entt to ente enterr the the cont contra ract ct? ? i.e. did they receive a reduced price or the like. If they did get an inducement it’s more likely to be reasonable. (iii (iii)) Was Was the the cus custo tome merr awa aware re of the the ter terms ms beca becaus use e itit is is in in common usage in the industry? The more common the term, the more likely the customer is to be aware of it and the more likely it is to be reasonable. (iv) (iv) Have Have the the goo goods ds been been manu manufa fact ctur ured ed spec specia iall lly y for for the the customer? If so, it is likely that the clause will be reasonable. Schedule two is only an indicative list it is not all encompassing or prescriptive. Schedule 2 is limited in its use to section 6 and section 7 – whilst we will be mainly relying on section 2 and 3. So how can we assess reasonableness for these sections? Is there any way to incorporate incorporate schedule 2 into any other sections?
(ii) Problems of Schedule 2 George Mitchell (Chesterhall) v Finney Lock Seeds [1983] 2 AC 803 D was a seed merchant who agreed to supply P (farmers) with 30lbs of Dutch Winter Cabbage for £192. An invoice that accompanied the seed when it was delivered contained a clause purporting to limit liability if the seed was defective to replacing the seed or refunding the price. It then went on to try and exclude liability liability “for any loss or damage arising from the use of any seeds or plants supplied by us and for consequential loss or damage arising out of such use…or of any other loss or damage whatsoever.” P bought 63 acres of seeds, but it was unmerchantable and the crop failed. P claimed compensation for loss of production. Granville Oil and Chemicals Chemicals Ltd v Davies Turner & Co Ltd [2003] 1 ALL ER 819 (CA) (above) Claimant Claimant is contracting with freight man to ship some paint to sea. Defendant arranged insurance for the voyage. Contracts were said to be subject to a standard term in the British International Freight Freight
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period expires. The claimant then sued for breach and the defendant seeks to rely on the limitation clause (9 month period, missed by one day). Although going one day over may seem unreasonable, we are not required to assess this – we are required to assess the reasonableness at the time the contract was made. The court held that the defendant could rely on the clause. They imported all of schedule 2 into the judgment. The court cannot say we are directly looking at schedule 2, because this is a section 3 claim (not 6 or 7), however, the court did incorporate schedule 2 as a set of ‘relevant criteria’. The court did not label this as schedule 2, but the factors were very similar. ‘Although schedule 2 only applies in section 6 and 7, the principles are much broader.’ The court mainly relied on the fact that this was a contract between to business parties in the same industry and they could have insured themselves separately separately if necessary – they were saving money by not doing so. The court also felt that 9 months was a reasonable reasonable period of time for this industry. “(A) Any claim by the Customer against the Company arising in respect of any service provided for t he Customer or which the Company has undertaken to provide shall be made in writing and notified to the Company within 14 days of the date upon which the Customer became or should have become aware of any event or occurrence alleged to give rise to such claim and any claim not made and notified as aforesaid shall be deemed to be waived and absolutely absolutely barred except where the Customer can show that it was impossible impossible for him to comply with this Time Limit and that he has made a claim as soon as reasonably possible for him to do so. (B) Notwithstanding the provisions of sub-paragraph sub-paragraph (A) above the Company shall in any event be discharged from all liability whatsoever howsoever howsoever arising in respect of any service provided for the Customer or which the Company has undertaken undertaken to provide unless suit be brought and written notice thereof given to the Company within nine months from the date of the event or occurrence alleged to give rise to a cause of action against the Company.” Company.” Clause 30 of the British International Freight Forwarders Association (BIFA) Standard Trading Terms 1989.
Per Tuckey LJ para 31: “The 1977 Act obviously plays a very important role in protecting vulnerable vulnerable consumers from the effects of draconian contract terms. But I am less enthusiastic about its intrusion into contracts between commercial parties of equal bargaining strength, who should generally be considered capable of being able to make contracts of their choosing and and expect to be bound by their terms.”
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the clause is drafted in separate paragraphs (called blue pencil test). If the clause is reasonable and good then you have no claim. However, if it is unreasonable unreasonable you rights are unaffected. When assessing this we have to look at possible outcomes outcomes if the t he clauses are reasonable/unreasonable.
4. Is the clause a consumer contract? How does this alter the analysis? UCTA or Unfair Terms in Consumer Contracts Regulations? Regulations? C. UNFAIR TERMS IN CONSUMER CONTRACTS This is a statutory instrument derived from EU directives. In 1993 the European Council of Ministers concluded negotiations on Council Directive 93/13/EEC on Unfair Terms in Consumer Contracts. (OJ(1993)L95/29). These were incorporated into UK law by the Unfair Terms in Consumer Contracts Regulations 1994 (S.I. 1994/3159) and were later replaced by Unfair Terms in Consumer Contracts Regulations Regulations 1999 (S.I. 1999/2083) 1999/2083) which came into force 1 st October 1999. Parliament literally lifted the text from the European directive and placed it into the UK statutory instrument. There was no attempt to tidy up the law on unfair terms. Therefore we have the act running alongside the consumer regulations. This has cause a lot of mess as the act operates on specific clauses. The regulations regulations however, are much broader and seek to give the consumer much wider rights than the act does. Drafting of the regulations: Tightly drafted with a literal approach. EU directive: product of negotiation negotiation of member states, therefore a compromise of different legislative forms and political ideals. Therefore we have to look at the purpose behind EU directives more than with UK legislation. So both scope and way of interpretation is different and both pieces of legislation run in parallel so it is a mess. There are no guidelines on which piece of legislation should be used. 1. Scope of the Regulations a. Scope of the 1999 Regulations When will the regulations not apply? (i) (i) The The reg regul ulat atio ions ns do not not app apply ly to the the cor core e ter terms ms of the the con contr trac actt (reg. 6, para 2) (ii) (i)Reg. 4: term not individually negotiated. Regulation 4 will
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(ii) Reg. 8(2) c. What is an ‘Unfair Term’? (i) Reg. 5(1): “A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement requirement of good faith, it causes significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.” consumer.” Elements that need to be shown to see if a term is unfair (under Reg 5(1): (i)
(ii) (ii) (iii (iii)) (iv) (iv)
Not been individually negotiated (definition in 5(ii) - Term is drafted in advance, consumer has no input in the drafting of the term – this is aimed at standard contracts The The ter term m mus mustt be be con contr trar ary y to to the the requ requir irem emen entt of of goo good d fai faith th The The term term mus mustt cause cause sig signi nifi fica cant nt imba imbala lanc nce e betw betwee een n the the part partie ies s The The ter term m ope opera rate tes s to to the the detr detrim imen entt of of the the cons consum umer er
(ii) When will Reg. 5 apply? *DG of Fair Trading v First National Bank Plc [2002] Plc [2002] 1 ALL ER 97 (House of Lords) First National Bank (FNB) is licensed to carry on consumer credit business in the UK. It is a major lender and has numerous credit agreements licensed under existing UK legislation. The Director General of Fair Trading exercising powers under the Unfair Terms in Consumer Contracts Regulations 1994 brought an action to declare one of the clauses of First National Bank’s Bank’s credit agreement under Regulation 4 (now Reg. 5) unfair. Condition 4 of FNB’s terms stated: “The rate of interest will be charged on a day to day basis on the outstanding balance and will be debited to the Customer’s account monthly in arrears… Time is of t he essence for making all repayments repayments to FNB as they fall due. If any repayment instalment is unpaid for more than 7 days after it became due, FNB may serve a notice on the Customer requiring payment before the specified date not less than 7 days later. I f the repayment repayment instalment is not paid in full by that date, FNB will be able to demand payment of the balance on the Customer’s account and interest outstanding together with all reasonable legal and other costs, charges and expenses claimed or incurred by FNB in trying to obtain the repayment of the unpaid instalment of such balance and interest. Interest on the amount which becomes payable shall be charged in accordance with Condition 4, at the
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What is the difference between reasonableness and good faith? Reasonableness relates purely to the clause itself whereas good faith has an element of personal content in it. Good faith: ‘open and fair dealing’. Good faith requirements: (i) Clear and legible terms (ii) No pitfalls or traps (iii (i ii)) If the the te term rm is dis disad adva vant ntag ageo eous us to th the e con consu sume merr it sh shou ould ld be very prominent. (iv) (i v) It is is imp impor orta tant nt for for the the se sell ller er not not to to tak take e adv advan anta tage ge of the the consumer’s weak position – the courts refer schedule 2 (of the regulations not the Act) Good faith has a larger scope that reasonableness. Of course all assessed at the time the contract was made. *Bairstow Eves London Central Ltd v Smith [2004] EWHC 263 But note that it will be difficult for a consumer to show that the term was unfair if they have consulted a professional adviser from the following line of cases: *Murkenbeck *Murkenbeck & Marshall v Harold [2005] Harold [2005] All ER 227 * Allen Wilson Shopfitters v Buckingham [2005] EWHC 1165 DGFT v Foxtons [2008] EWHC 1662 & [2009] EWHC 1681 (iii) Schedule 2: indicative list of clauses which could be regarded as unfair (iii (iii)) Comp Compar aris ison on wit with h 1993 1993 Reg Regul ulat atio ions ns rega regard rdin ing g defi defini niti tion on of of ‘good faith.’ This case related to the interest charges that were imposed for late payment by an estate agent. Is the increased late payment fee a ‘core term’? of the contract. The judge held that this was not a core term and could therefore be subject subject to the regulations. It is not price directly, it is a price improvement clause. He said that it is incidental and not a core term. Morgan J: The test for fairness will be different for when the claim is brought by the OFT and when it is brought by the consumer. The court will be much more lenient and more likely to find the term unfair if the consumer brings the claim.
d. Rule of Construction Reg. 7:
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OFT v Abbey National [2009] National [2009] EWCA 116 (Court (Court of Appeal); Appeal); [2009] 3 WLR 1215 (Supreme Court) Court) – read this case on Lexis!!!!!!!! !! What is an excluded term? The court brought this case to decide if unplanned overdraft charges could stand. Are these bank charges core terms of the contract or not? This was the test case that was brought to decide the bank charges fiasco. The precedent in these decisions decisions only relates to whether or not these clauses are core terms and not to whether they are fair or not. The judgment says that he doesn’t believe that this is the end and that the fairness of the issue should be decided upon by parliament. The Supreme court found that the banking charges were in fact core terms of t he contract. When considering price we are not necessarily looking for one term, but can be a multiplicity. All the benefits and detriments that come with a bank account should be looked at as a single package. Part of the detriment was that the bank could charge for money that you don’t have. This is seen as a cross-subsidy: The majority of customers enjoy free withdrawls, DDs etc. However, the converse of this is that some people get charged charged for going over their overdraft limits. This is therefore a price of entering into a bank account contract. That was the Supreme court decision. However, CA said that they are not core terms. Emphasis on the purpose of the directive and regulations. regulations. Lots of references to achademic achademic writing. Should assess consumer’s thoughts and expectations expectations of the terms and consumers regard these terms as incidental. Both courts are looking at the essential bargain between the two parties, however the CA take a different approach. There is a difference between an unfair term and a consumer getting treated unfairly. As a result of the Supreme court judgment we will see more terms being considered as core terms and therefore falling outside the scope of the regulations. Therefore, we must use the Act more. Judgments on OFT Abbey tell us the schedule 2 is a grey list not a black list – i.e. not definitive. Regulation 8 – The term is not binding on the consumer if it is found to be unfair. The contract can carry on, but the term cannot. 1
2. Reform? ‘Modern Markets: Confident Consumers’ DTI White Paper (1999)
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Further Reading: Case C237/02 Freiburger Kommunalbauten GmbH Baugesellschaft & Co KG v Hofstetter [2004] ECR I 3403 (European Court of Justice) explores the scope of the “significant imbalance” part of the unfairness unfairness test from Regulation 5 of the Unfair Terms in Consumer Contracts Regulations 1999. The court concludes that because a national court in one member state finds that a term is unfair, does not necessarily mean that a court in another member state will come to the same conclusion.
Dr. Fiona Smith January 2010 Test for consumer – test for regulations regulations – test for fairness There is a reform proposal for this mixed system, however this has not moved anywhere to to governments preoccupation with other issues.