TERMS OF NO EFFECT

7.2 Under the Unfair Contract Terms Act 1977 (UCTA) two types of term in consumer contracts are rendered of no effect at all. These are terms which exclude or restrict:

(1) the implied terms about the title, quality and fitness of goods;1 _or

(2) business liability for death or personal injury.2

7.3 We noted that the Department for Business, Innovation and Skills (BIS) have proposed that the implied terms of title, quality and fitness of goods should become non-excludable statutory guarantees.3 This means that it will no longer be necessary for provisions in unfair terms legislation to prevent their exclusion in consumer contracts. As BIS are already simplifying the law in this respect, we did not discuss the exclusion of the implied terms in the Issues Paper.

7.4 We focused on terms relating to death or personal injury. We noted that, under UCTA, terms are of no effect if they purport to exclude or restrict a business’s liability to a consumer for death or personal injury resulting from negligence or breach of duty. We asked consultees whether they agreed that these terms should continue to be ineffective.4

Consultees’ views

7.5 Consultees’ views have not changed since 2002, when we first posed this question – all respondents who answered the question agreed that these terms should continue to be ineffective. As Deborah Parry put it, removing this protection would be a “retrograde step”.

7.6 Under the Unfair Terms in Consumer Contracts Regulations 1999(UTCCR), such terms would almost certainly be unfair under the general fairness test. Which?, however, commented that “not all consumers will realise this and consumer detriment is likely to result” from the lack of a specific provision.

1 _{See s 6(1) and (2) in England and Wales and ss 20(1) and (2) in Scotland. These sections}

prevent the exclusion of the implied terms in s 12 to 15 of the Sale of Goods Act 1979, which relate to title, conformity with description or sample, and the quality and fitness of goods. The sections also prevent the exclusion of the corresponding terms in hire-

purchase contracts. Similarly s 7(2) in England and Wales and s 21(1) in Scotland prevent the exclusion of similar implied terms in other contracts under which title to goods passes.

2 _{See s 2(1) in England and Wales and s 16(1)(a) in Scotland.}

3 _{Department for Business, Innovation and Skills, Enhancing Consumer Confidence by} Clarifying Consumer Law (July 2012), available at:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/31350/12- 937-enhancing-consumer-consultation-supply-of-goods-services-digital.pdf at 2.4.

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7.7 We agree with Which? that it would be insufficient to rely on the fairness test alone. We think that terms which exclude or restrict liability for death or personal injury resulting from negligence or breach of duty should continue to be of no effect.

What would such a provision look like?

7.8 An aim of this project is to bring all unfair term provisions affecting business to consumer contracts into one place. We therefore think that this provision should be in the new legislation.

7.9 We note that the UTCCR already list one type of term of no effect. Regulation 5(6) states that terms requiring a consumer to bear the burden of proving that a financial supplier failed to comply with its distance marketing obligations shall

always be regarded as unfair.5 _{A provision relating to terms restricting or}

excluding liability for death or personal injury would be similar in nature.

7.10 At present, the terms in UCTA dealing with liability for personal injury or death are quite specific. They cover both contract terms and notices, but apply only to business liability resulting from negligence or breach of duty.

7.11 The provisions differ between England, Wales and Northern Ireland on the one hand and Scotland on the other. The English, Welsh and Northern Irish provision, section 2(1), refers to terms or notices which exclude or restrict liability for death or personal injury resulting from negligence. Under section 1, this is confined to liability arising from things done by a person in the course of business, or from the occupation of premises for business purposes. Negligence is specifically defined. In broad terms the definition covers liability as arising from:

(1) a contractual obligation to take reasonable care or exercise reasonable skill in the performance of a contract;

(2) the common law duty to take reasonable care or exercise reasonable

skill (but not any stricter duty); or (3) from occupier’s liability.

7.12 By contrast, the Scottish provision, section 16, refers to a term or notice which “purports to exclude or restrict liability for breach of duty arising in the course of any business or from the occupation of any premises used for business purposes”. Breach of duty is defined, in section 25(1), as breach of any obligation to take reasonable care or exercise reasonable skill arising from a contract, or from a common law duty, or from section 2(1) of the Occupiers’ Liability (Scotland) Act 1960.

7.13 In 2005 we rewrote these provisions, to cover the whole of the UK. The relevant clauses are in Part 1 of the draft Bill. Our aim was to bring the provisions together in a clearer way, while keeping the substance of the law.

5 _{This was added by the Financial Services (Distance Marketing) Regulations 2004 Reg}

24(3) (SI 2004 No 2095) to implement Directive 2002/65/EC of 23 September 2002 on distance marketing of consumer financial services (OJ 2002 L 271).

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7.14 We think that the new version of the UTCCR should include a provision based on Part 1 of the draft Bill, with appropriate adaptations.6 _{The effect would be that any}

term or notice which excludes or restricts a business’s liability for death or personal injury resulting from negligence or breach of duty would always be regarded as unfair. The definition of negligence should follow the draft Bill.

7.15 The grey list also covers terms which purport to limit liability for death or personal injury. Paragraph 1(a) of Schedule 2 lists terms which have the object or effect of:

excluding or limiting the legal liability of a seller or supplier in the event of the death of a consumer or personal injury to the latter resulting from an act or omission of that seller or supplier.

7.16 This is wider than the provisions in UCTA, as it covers liability resulting from any “act or omission”, not just negligence. This would include intentional torts or delicts. It will therefore be necessary to preserve this paragraph, though it will need to be read subject to the new provisions.

7.17 Recommendation 25: The new legislation should replicate the substance of

the provisions in the Unfair Contract Terms Act 1977 concerning terms and notices which purport to exclude or restrict a trader’s liability for causing death or personal injury resulting from negligence or breach of duty. Such terms should always be regarded as unfair.