Exclusion clauses and unfair contract terms (Part 2)

The British Parliament, following the Law Commission recommendations in 1977, enacted the Unfair Contract Terms Act, which came into force on the 1st day of February 1978. The Act is extraordinary in the sense that it marked a decade of efforts to fight the tendency of businesses to exclude liabilities in their contracts with consumers.

The Act begins with the subject matter it controls, that is business liability. Business liability is defined in section 1 of the Act as being liability that had arisen and caused by the business while acting in the course of a business (pardon the pun!). Section 2 goes on further to say that business liability for negligence which causes death or personal injury cannot be excluded with reference to a contract term or notice. Liability for negligence that causes other types of damage are subjected to a test for “reasonableness” which is discussed later below. The Act also attempts to regulate exclusion of liability for goods and services, particularly those implied by the Sale of Goods Act 1979 of the UK (our equivelent is the Sale of Goods Act 1957, which is similar to the earlier UK Sale of Goods Act 1893 more then anything). In the recent case of Langstane Housing Association Ltd. v Riverside Construction (Aberdeen) Ltd., Ramsay & Chalmers and others [2009] CSOH 52 the Scottish Court of Session had to decide whether a “net contribution clause” (ie a clause limiting liability to “such sum as the Consulting Engineer ought reasonably to pay having regard to his responsibility for the loss or damage suffered as a result of the occurrence or series of occurrences in question …” was held not to be a clause that limited liability? Why? Because it merely sought to make the said Consulting Engineer liable for his own breach only and not liable under the common law doctrine of joint and several liability. More on this here.

What of the so-called “reasonableness” test? Well, the test is set out in section 11 of the Act, and subsection (1) in particular requires regard to be had as to whether the term is a reasonable one in light of the circumstances it was negotiated. Avaliability of other means of claiming remedy, such as insurance, as was considered in the case of Smith v Eric S Bush [1990] 1 AC 831, would influence the courts in their assesment for reasonableness as well. Section 11(2) makes reference to Schedule 2 of the Act which provides an illustrative list of terms that might be regarded as unreasonableness. 

What the Act has done is to introduce a direct test of assessing the appropriateness of an exclusion clause in lieu of the indirect method of control imposed by the courts, mentioned in the ealier Par 1 post. What a pity such an Act does not exist in Malaysia. Another useful control on not just exclusion clauses, but unfair contract terms in general, that is not in Malaysia is the Unfair Terms in Consumer Contracts Regulations 1999 which implement European Union Directive 93/13/EC on unfair terms that exist in consumer contracts. The Regulations apply to any clause in a contract that would potentially be unfair, but unlike the Unfair Contract Terms Act 1977, apply only to consumer contracts, so is more limited in scope. Regulation 8 of the Regulations provided that an unfair term shall not be binding on the consumer and also empower the UK’s Office of Fair Trading to assess the fairness of consumer contract terms. A recent example of this could be seen in the case of Office of Fair Trading v Abbey National plc and Others [2009] EWCA 116 where bank charges for instructions by consumers for standing orders (such as making payments and the like) were held by the English High Court (and affirmed by the Court of Appeal) were subject to review for fairness, much to the chagrin of the banks involved.

Again, if only we had such legislation in Malaysia. Well, those of you done reading this, who are Malaysians and consumers, might now be inclined to push for such laws now that you are more informed of the situation? This article concludes the 2 part series on exclusion clauses and unfair contract terms.


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