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The Regulation of the terms of the contract- Introduction Exclusion and Limitation Clause Common law approach: incorporation,

construction and fundamental breach Incorporation Rule 1: ignature !ound b" the term e#en did not $now the term pro#ided no fraud or misrepLEstrange v Graucob Exceptions: other part" cannot reasonabl" ha#e belie#ed that the signer had agreed to the clauseTilden Rent-a-Car Co v Clendenning %isrep about the exclusion clause- Curtis v Chemical Cleaning and Dyeing Co clause would not be binding on the signer if it failed to meet the criteria for #alidit" laid down b" ss&' and 11 of the (nfair Contract Terms )ct 1*++ Rule ,: -otices .if no signature/ Reasonable notice is needed- Parker v South Eastern Rail ay Co! "#$$ Contrast: 0#er 1,222 words in ,+ paragraphs of exclusion clause not incorporated%cCutcheon v David %ac&rayne Ltd Contrast' (enderson v Steven) absence of notice at front which refer to the bac$ render the clause in#alid If satisfied reasonable but complex wa" to follow then still #alidThom*son v London) %idland and Scottish Rail ay Co 1lthough *arty is illiterate) but reasonable notice had been gi#en of the clause2it as sufficient that the compan" should do what was reasonable to communicate it to the ordinar" passenger) ho could be presumed, in a welleducated societ", to be literate&

bet een businesses) here it is not likely to *romote certainty! /cean Chemical Trans*ort 6nc v E:nor Craggs Ltd =>>> e:*ressed doubts as to hether the red hand rule had any a**lication in commercial contracts at all! The use o7 a rule o7 incor*oration to strike at unreasonable and un7air contractual terms does not sit easily ith the statutory regimes! The rule ought to be con7ined to those contracts not regulated by legislation

Contractual document is needed: Tic$et within people $nowledge contain clauseParker v South Eastern Contrast: Receipt is not within reasonable person3s $nowledge contained contractual terms- Cha*elton v &arry +rban District Councilalthough the fact show is tic$et but it loo$ li$e receipt after pa"ment ) sign is #alid-Thornton v Shoe Lane Parking Ltd ",$" - a sign displa"ed at the entr" to a car par$ gi#ing the par$ing charges and stating Time sheet is not within reasonable person3s $nowledge contained contractual terms -Grogan v Robin %eredith Plant (ire Ltd ",,4ront co#er of che5ue boo$ is in#alid' &urnett v .estminster

Red 6and Rule: ) greater degree of notice should be accorded to unusual or onerous terms! This is sometimes referred to as the 7red hand rule8& Court decide whether it is onerous, if not onerous then no need red hand rule S*urting v &radsha ",3-) Denning L!4! said' 5The more unreasonable a clause is, the greater degree of notice which must be gi#en of it& It applied to consumer contract as well as in business contract although where the business man presumed will ta$e care their own terms pro#ided the term is unusual-6nter7oto Picture Library Ltd v Stiletto 8isual Programmes Ltd ",##

Rule 9: Course of dealing Term will be incorporated e#en if on this occasion reasonable notice of it has not been gi#en pro#ided such ctt regular" done before- ?endall ;(enry< @ Sons v Lillico ;.illiam< @ Sons Ltd :1*'*;- regular contracts with each other on three or four occasions each month over a period of three years Exceptions: the course of dealing must be consistent- %cCutcheon v %ac&rayne ;",-0; -the document containing the exclusion clause was not alwa"s used: it was held that the clause had not been incorporated& Custom can be incorporated e#en though no pre#ious dealing pro#ided the" are e5ual in bargaining power&ritish Crane (ire Cor*oration Ltd v 6*s ich Plant (ire Ltd -ot e5ual bargaining power such as not in the same profession btw , parties .li$e customer with the business man/, then e#en custom cannot be incorporated- /7ir Sche*s v Aine 1rt Logistics Ltd

Red hand Rule not so im*ortant a7ter Time of notice: 1ct' )fter ctt is formed, further incorporation is in#alid -/lley v 9o that e:clusion clauses and other un7air terms are controlled %arlborough Court (otel ",0, by statutory means ;under the +n7air Contract Terms 1ct and the +n7air Terms in Consumer Contracts Regulations< the use o7 the red hand rule to regulate such terms seems unnecessary) es*ecially in transactions

Construction The courts would interpret an" ambiguit" against the person tr"ing to rel" on the clause -contra proferentem rule +nclear meaning o7 7load8 under insurance polic" so if the part" want to claim, the clause will be interpreted against what the result he wanted- (oughton v Tra7algar 6nsurance B",30C <rinciples to be applied: This is based on seriousness of the liabilit" being excluded> !uc$le" L&?& said that it was 7inherentl" improbable that one part" to the contract should intend to exclude liabilit" caused from own negligence8&- Gilles*ie &rothers @ Co Ltd v Roy &o les Trans*ort Ltd ",$D) )pplication: "non"m of negligence is Aexpress3 enough .Smith v South .ales S itchgear Co LtdC neglect or default8 -%onarch 1irlines Ltd v London Luton 1ir*ort Ltd howsoe#er caused8 - 4ose*h Travers @ Sons Ltd v Coo*er 7arising from an" cause whatsoe#er8> at the customer3s 7sole ris$8> and 7shall incur no liabilit" whatsoe#er8& arising from 7an" act or omission8 was sufficientl" wide to embrace negligence& The Ra*hael If the clause onl" can interpreted to co#er negligent liabilit", then it will be interpreted so- 1lderslade v (endon Laundry The limitation clause on present case can be construed onl" as to limit laundr"3s onl" liabilit" in relation to the laundered items was in negligence Contrast: (oilier v Rambler %otors ;1%C< Ltd where exemption clause in garage caused b" fire can be construed as negligentl" .caused on the owner/ or nonnegligentl" .caused b" #andalism/-approached the clause from the #iewpoint of the ordinar" customer in the position of the claimant& almon L&?& felt that such a person would not thin$ the garage was excluding liabilit" for its own negligence, rather the" would assume the clause was referring to nonnegligentl" cause fire& uch fires could occur in man" wa"s, for example where #andals enter the premises unlawfull" and intentionall" create a conflagration&

)fter (CT), the courts no longer The rules applied in this area deri#e need to resort to artificial or 7strained8 construction to restrict the from the <ri#" Council@s opinion in Canada Steamshi* Lines Ltd v The operation of exclusion clauses& ?ing;",3=<! The rele#ant principles were -ow that consumers are generall" stated to be: protected b" legislati#e pro#isions Lord Di*lock in <hoto <roduction Ltd # ecuricor Transport Ltd here he said' 5BTChe re*orts are 7ull o7 cases in hich hat ould a**ear to be very strained constructions have been *laced on e:clusion clauses ! ! ! Bmainly as against the consumer and in standard 7orm contractsC ! ! ! an" need for this $ind of =udicial distortion of the English language has been banished b" <arliament ha#ing made these $ind of contracts sub=ect to the (nfair Contract Terms )ct, 1*++&8 1; If the clause contains an express reference to 7negligence8 it will be effecti#e&

If the word not expressl": ,; If the word is not wide Co#er also non-negligent liabilit" enough to co#er then it will be construed as onl" negligence, then there is an" doubt, the clause co#er the non-negligent is construed contra proferentem& nothing in this agreement shall render the owners liable 9; E#en if the words are for an" personal in=uries8& wide enough to co#er T o meanings' negligence, but if it can o :i; breach of the strict co#er non-negligent contractual liabilit" to liabilit" still, the clause suppl" a machine fit for cannot be relied purpose> and o :ii; negligence, owing to the failure to ta$e reasonable care to ensure the c"cle was in a safe condition& o cannot co#er negligence liabilit".hite v 4ohn .ar ick @ Co Ltd

Aundamental &reach 6ssue' hen 7undamental breach) hether the e:clusion clause cease to a**ly = ty*es' The 7irst - *articular term hich is central to the contract! Damage to a car engine as breach o7 a 7undamental term) so the e:clusion clause had no a**lication! - ?arsales ;(arro < Ltd v .allis

Second category - conseEuences o7 the breach are e:ce*tionally serious The *i*e caused damage to hole 7actory ere so serious that it constituted a F7undamental breachF o7 the contract!- (arbutt Plasticine Ltd v .ayne Tank and Pum* Co Ltd

9e ado*t' the clause on its true construction to determine hether cover liability but not a R/L that 7undamental breach surely *revent the clause 7rom 7unctioning 67 it does cover) then e:em*tion clause still can be relied u*on -Photo Production Ltd v Securicor Trans*ort Ltd

)pplication Logically prior to the application of the )ct is the Euestion whether the rele#ant term has become a term of the contract If so) hether on its true construction and incorporation a**lies to the liability hich it is sought to e:clude or restrict! %eaning of 7exclude or restrict8 liabilit" (CT) s& 19:1;, extends the meaning of these words so as to include: Limitation of application:

Exclude -egligence liabilit"- s&1 and s&, ch&l *rovides that the )ct does not appl" to certain t"pes of contract If it is either not incorporated a< ma$ing the liabilit" or its 7negligence8 is widel" defined b" s& or does not co#er those enforcement sub=ect to restricti#e or including insurance contracts> 1:1; so as to include' e#ents, then, howe#er onerous conditions> reasonable the clause, it will contracts concerning the ;a< the contractual dut" to ta$e not appl"& creation or transfer of reasonable care or exercise 4or example, a tour operator interests in land, reasonable s$ill in the who inserts a term in the *er7ormance o7 a contractG intellectual propert" rights or The (nfair Contract Terms )ct 1*++ contract with the holida"ma$er securities> :(CT); that, should an" claim or and contracts relating to the complaint arise, 12 copies of ;b< the dut" of care arising in the claim or complaint must be formation or dissolution etc& of tortG and It operates alongside the common submitted to the tour companies law& compan"3s head office within international suppl" contract 1B hours of the claim arising ;c< the common dut" of care :b" reason of s&,' of the )ct; .claimant ha#e to did some under the 0ccupiers3 Liabilit" The basic purpose o7 the 1ct is to onerous things to claim their )ct 1*C+! restrict the extent to which liabilit" can right/ International suppl" contract: be excluded or restricted for breach of contract or negligence2this is s& ,:1;2it *rovides that liability 7or achieved largel" b" a re5uirement of e:cluding or restricting an" right or death or personal in=ur" cannot be Ctt formed in another countr" reasonableness and in some cases by b< remed" in respect of the liabilit") or excluded or restricted by any contract while the suppl" from (D was a specific prohibition! sub=ecting a person to an" pre=udice term or notice! not regarded as international in conse5uence of him pursuing an" suppl" ctt1miri Alight 1uthority right or remedyG Concerned mainl" with terms and v &1E Systems Plc ;=>>D< So 7ar as other loss or damage caused notices hich exclude or restrict b" negligence are concerned :i&e& liabilit" rather than with unfair terms damage to propert" or pure economic 6t should 7urther be noted that) Court decided that s!=-;0<;a< o7 generally loss;, s&,:,; *rovides that liability under s& 19:,; of (CT), a the +CT1 did not re5uire that cannot be excluded or restricted written agreement to submit the goods be deli#ered to the term and notice satisfies disputes to arbitration is not another state and was satisfied unless the test of reasonableness in s& 11 regarded for the purposes of if the goods would be carried +CT1 the )ct as excluding or from one state to anotherrestricting liabilit"& Trident Turbo*ro* ;Dublin< Ltd v Airst Alight Couriers Ltd ;=>>#< 6n s!=;D< it is *rovided that here a contract term or notice purports to c< excluding or restricting the rules of exclude or restrict liabilit" for e#idence or procedure 67 both ere considered together negligence, a person3s agreement to then if an" act was performed or awareness of it is not of itself to be in different territories 7or ta$en as indicating their #oluntar" and :in ss&, and C-+ (CT); excluding either contract) the rights and or restricting the rele#ant obligation acceptance of an" ris$& obligations of both would fall or dut"! outside the 1*++ act- 1ir Trans orld Ltd v &ombardier 6nc (o ever) ection ,:1; does not appl" where the effect of the clause is to =>"= transfer liabilit" between possible part") rather than *reventing a victim 7rom recovering- Thompson # Lohan :<lant 6ire; ;",#$<- as by clause) the parties merel" decided between themsel#es which of them was to bear that liabilit"

Contractual liabilit" s&9 In s& 9 the )ct the other part" cannot exclude or restrict their liabilit" for breach of contract, except sub=ect to the re5uirement of reasonableness :s&9:,;:a;;& This applies in two situations: where one of the parties deals @as a consumer@ or where one of the parties deals on the other@s @written standard terms of business@& (nli$e s&,, s&9 is limited to such situation onl" Eritten standard terms of business -ote that in relation to the second of these categories, it can appl" as between two business contractors& )ll contracts on written standard terms are therefore potentiall" within the scope of s&9& If other terms are introduced b" one part" and are not sub=ected of negotiation, it is li$el" to be considered that the ctt has been made on the part"3s written standard terms- St 1lbans @ City DC v 6nternational Com*uters Ltd B",,-C< Courts are concerned it does not seem to be necessar" that the contract as a whole is in standard fromFif the clause .exemption for eg/ not negotiable then it is 7written standard terms of business8-Pegler Ltd v .ang ;+?< Ltd =>>>

Customer (CT) s& 1,:1; pro#ides that a part" 7deals as consumer8 if: 7:a; he neither ma$es the contract in the course of a business nor holds himself out as doing so> and> :b; the other part" does ma$e the contract in the course of a business> and :c; in the case of a contract go#erned b" the law of sales of goods or hire purchase, or b" s& + of this )ct, the goods passing under or in pursuance of the contract are of a t"pe ordinaril" supplied for pri#ate use and consumption& :1); !ut if the first part" mentioned in subsection :1; is an indi#idual, paragraph :c; of that section must be ignored& .The consumer can be a compan" but onl" for pri#ate use and consumption If the consumer is indi#idual, then ignore the :c;&/

AIn the course of a business3: it does not necessaril" appl" to all the acti#ities of a business but onl": integral to the business itself, or where there was a regularit" of such dealings& R @ & Customs &rokers v +DT 4oundr" compan" is a customer when bu" a car and stated: for our business use but it is not integral to the claimant3s business, it was merel" incidental- Aeldaroll Aoundry Plc v (ermes Leasing ;London< Ltd ;=>>0<! 6ere satisfied a business will onl" be dealing as consumer :under s&l,:l;:c; abo#e; where the goods are of a t"pe ordinaril" supplied for pri#ate use and consumption&

!reach of contract scope3s extension 6n s&9:,;:b; the reasonableness reEuirement is also extended to terms purporting to entitle the other part" to render' *er7ormance substantiall" different from that reasonabl" expectedG or no performance at all in respect of the whole or an" part of the contractual obligation ;in these situations) there is breach o7 contract) no e:clusion<

Eith regard to the burden of proof, it is for those claiming that a part" does not deal as consumer to show that the" do not :s&1,:9; (CT);

&'- excluded implied term of 0G) This includes hire purchase, hire transactions and contracts for the suppl" of wor$ and materials& (CT) s& ' go#erns the exclusion or restriction of the implied terms in the ale of Goods )ct 1*+* : G); and the e5ui#alent implied terms in contracts of hire purchase b" the uppl" of Goods :Implied Terms; )ct 1*+9 : G:IT;);& The section ma" be summarised as follows: Liabilit" for breach of the implied terms relating to title ;in s& 1, G) and s! # SG;6T<1< cannot be excluded or restricted by re7erence to any contract term ;s&':1; (CT)<! )s against a person dealing as consumer liabilit" for breach of the implied terms relating to correspondence with description, 5ualit", fitness for purpose and sales b" sample :in ss&19, 11 and 1C G) and s& *, 12 and 11 G:IT;); cannot be excluded or restricted b" reference to an" contract term :s&':,; (CT);& o The test for whether this is consumer is the same as that discussed abo#e in relation to s&9 (CT) .s&1,/

(nder s&':1;, s&' extend to all liabilit" .not onl" limited to business t"pe li$e what the )ct confined/ 6t 7ollo s that s& ' applies to contracts of sale of goods and hire purchase between pri#ate indi#iduals) although the significance of this is reduced by the fact that the implied terms as to quality and fitness in SGA and SG(IT)A only arise in any event where the transaction is made in the course of a business! Test of reasonableness by s&11 ection 11&1- resources in Alimitation clause3 determine the reasonableness

s&11:1; of (CT) pro#ides that the test s&11:1;, referring to clauses limiting is: liabilit" to a particular sum& ! ! ! that the term shall have been a fair and reasonable one to be included having regard to the circumstances hich ere) or ought reasonably to have been) kno n to or in the contemplation of the parties when the contract was made&8 (ere the 1ct states that) in assessing the reasonableness of the clause) regard should be had to the resources a#ailable to the *erson *utting 7or ard the clause and the possibilit" of co#ering the liabilit" b" insurance& The more resources that are a#ailable) and the greater the opportunit" for insurance) the less likely the clause is to be reasonable! & 11&C- burden of proof .ith regard to the burden o7 *roo7) it is 7or those who claim that a contract term or notice satisfies the reasonableness test to show that it does ;s!"" ;3<<!

)t the time of ctt was made The test is whether the clause was a reasonable one when ctt was made rather than which ha#e actuall" occurred! This has to be determined as at the time when the contract is made and without regard to what particular use one part" ma" subse5uentl" wish to ma$e of it& - Ste art Gill Ltd v (oratio %yer @ Co Ltd ;",,=<! Pro7 Treitel' court will consider the a#ailabilit" of the insurance rather than the actual insurance position& 4or example, although what happen on the fact ma"be reasonable, but if the clause itself is unreasonable then the clause still will be unreasonable 4or example, if guarantee of paint is 1 wee$, but in the realit", the defect of paint onl" re#ealed after 1 month, e#en though the fact defect shown within few da"s, the clause still will be unreasonable

)s against a person dealing otherwise than as consumer, the liabilities specified in :ii; abo#e can be excluded or restricted b" reference to a contract term, but onl" in so far as the term satisfies the re5uirement of reasonableness&

chedule ,- factors ta$en into account in assessing reasonableness Schedule = to the 1ct contains a list o7 factors hich should be ta$en into account in assessing reasonableness& -ot an exhausti#e list ?udicial Iecisions Court decisions cannot be decisi#e as it depend on circumstances to decide the reasonableness- Philli*s Products Ltd v (yland <re-(CT) case: where a part" well able to loo$ after itself enters into a commercial contract and, with full $nowledge of all rele#ant circumstances, willingl" accepts the terms of the contract, it is #er" li$el" that those terms will be held to be fair and reasonable& .at7ord Electronics Ltd v Sanderson CEL Ltd =>>"

The schedule is stated to be applicable to the reasonableness test as it applies under ss&' and + ;that is) in relation to contracts 7or the su**ly o7 goods<) but the Court of )ppeal has made it clear that the factors listed ma" be rele#ant where#er the reasonableness of a clause is to be assessed under the )ct in other contract ;/verseas %edical Su**lies Ltd v /rient Trans*ort Services Ltd ;",,,<<!

-ote: o it is limited role for findings of unreasonableness outside the area of consumer contracts (nreasonable because among other things, the seller could easil" ha#e Contrast' Court interfere the bargain insured against the liabilit"& .seller btw commercial contract due to should ta$e the liabilit" for the defect unreasonable .exclude liabilit" of seedC- George %itchell ;Chesterhall< Ltd carbonate drin$ contain benKene/v Ainney Lock Seeds Ltd &ritvic So7t Drinks Ltd v %esser Ltd =>>= <ost-(CT): Reasonable will not co#er deliberate damage and fraud- Regus ;+?< Ltd v Rule ;a<' trength of bargaining .ere the *arties o7 e5ual E*cot Solutions Ltd B=>>#C position is e5ual and customer bargaining powerH Bi7 eEual re5uirement is fulfilled-satisf" test then reasonable to e:cludeC would it ha#e been reasonabl" Rule ;b<' If customer induced to practical to obtain the ad#ice accept such term or can enter such from an alternati#e source ctt with other bu"er with such term ta$ing into account then satisf" the test considerations of cost and timeJ Bi7 *ractical then reasonable to e:cludeC Rule ;c<: depend on customer 6ow difficult is the tas$ being whether $now or ought to $now such underta$en for which liabilit" customs of trade or pre#ious is being excludedJ Bi7 it is dealings, if does so, then test di77icult task then reasonable to satisfied e:cludeC Ehat are the practical Rule ;d< ' depend on whether conse5uences of the decision practicable to excluded reasonabl" at on the 5uestion of the time of ctt reasonablenessJ Bsuch as sums o7 money involved or cost o7 insuranceC R. Green Ltd v Cade &ros - Smith v Eric S &ush Aarms H #irus present inside the potato cannot be disco#ered within 9 da"s times -o chance for the customer to so cannot be excluded choose the wor$er wor$s for the seller and therefore unreasonable for seller to Rule ;e<' If specific order in Agoods3, exclude liabilit" not reasonable to excluded such liabilit" tandard clause which not a product of negotiation - Philli*s Products Ltd v (yland <art of clause in#alid ma$e whole clause in#alid- Ste art Gill Ltd v (oratio %yer @ Co Ltd

(nfair Terms in Consumer Contracts Regulations 1*** There is considerable o#erlap between the effect of the (CT) and the (TCCR in relation to exclusion clauses Iifferences btw , )cts Consumer issue .difference 1/ The +TCCR a**ly only to consumer contracts! 1 @consumer@ is defined b" the Regulations as a @natural person@ acting for non-business *ur*oses! 1 consumer is 5any natural person ho ! ! ! is acting 7or purposes which are outside his trade, business or profession8 :reg&9; 1 consumer for the purposes of the regulations is therefore a human consumer& )s to the other part" to the contract, the 7seller or supplierI) this is de7ined as 5any natural or legal *erson ho !!! is acting 7or *ur*oses relating to his trade) business or *ro7ession) hether *ublicly o ned or *rivately o nedI ;reg!D<! )pplied to all clause other than onl" exemption clause .difference ,/ The regulations are concerned with unfair terms in standard form consumer contracts) that is) terms which ha#e not been indi#iduall" negotiated!

0nl" applied to contract term reg&1 :1; (nfair term 7shall not be binding on the consumerI (o ever the contract shall continue to bind the parties if capable of subsisting without the unfair term ;reg!#;l< and ;=<<!

chedule , to the Regulations contains an @illustrati#e and non-exhausti#e@ list of terms hich may be regarded as unfair! ;"< ;a< excluding or limiting o7 the death of a consumer or personal in=ur" to the latter resulting from an act or omission of that seller or supplier> ;b< excludeLlimit the legal right of consumer #is-M-#is the supplier in the e#ent of totalLpartial non-performance b" supplier ;c< ma$ing the agreement binding on the consumer whereas pro#ision of ser#ices b" the seller or su**lier is sub=ect to a condition hose realisation depends on his will aloneG ;e< re5uiring an" consumer who fails to fulfil his obligation to *ay a disproportionatel" high sum in compensation> ;i< irre#ocabl" binding the consumer to terms ith hich he had no real opportunit" of becoming ac5uainted before the conclusion of the contract :=; enable seller to alter unilaterall" without a #alid reason without a #alid reason specified in ctt ;k< enable seller to alter unilaterall" without a #alid reason an" characteristic of product and ser#ices pro#ided ;o< obliging the consumer to fulfil all his obligations here the seller or supplier does not perform his ;E< hindering consumer3s right to ta$e legal action

Test of fairness is set out in reg&C :1;& +nder the regulations) a term 7shall alwa"s be regarded as not ha#ing 6t states that a term ill be un7air been indi#iduall" negotiated here it i7 Fcontrar" to the re5uirement has been drafted in ad#ance and the of good faithF it Fcauses a consumer has not therefore been significant imbalance in the able to influence the substance of the partiesF rights and obligations term8 ;reg!3;=<< under the contract to the detriment o7 the consumerF! The burden of pro#ing that a term has been indi#iduall" negotiated lies on Director General o7 Aair Trading v Airst the seller or supplier ;reg!3;0<<! 9ational &ank *lc ;=>>=<! 9evertheless) e#en where a term :or as*ects o7 it< has been indi#iduall" negotiated) this ill not pre#ent the regulations appl"ing to the rest of the contract i7) overall) it is a preformulated standard form contract ;reg!3;D<<! 4or example) a *erson entering a consumer credit agreement might ell negotiate such matters as the *eriod o7 re*ayment but this ill not pre#ent the regulations appl"ing to the other nonnegotiated terms& The regulations do not a**ly to terms hich are incor*orated to re7lect the statutory or regulatory reEuirements o7 +? or Community la ) or the *rovisions or *rinci*les o7 international conventions to hich the %ember States or the Community itsel7 are a *arty ;reg!0;=<;a< and Iiffer from (CT) is that (TCCR applies to all t"pes of contractual clauses, other than those that ha#e been @indi#iduall" negotiated@& It is not limited to dealing with clauses which ha#e the effect of excluding or limiting liabilit"& Iifferences 9: Customer bear the burden of proof while )ct, seller bear the burden of proof <ro#isions Fsigni7icant imbalanceF arises i7 Fa term is so eighted in 7avour o7 the su**lier as to tilt the *artiesF rights and obligations under the contract signi7icantly in his 7avourF! Fgood 7aithF on the other hand relates to the need 7or F7air and o*en dealingF! o reEuires that the consumer is given 7ull in7ormation and that there are no F*it7alls or tra*sF in the contract! o 9o advantage should be taken o7 the consumerFs necessity) lack o7 e:*erience) eak bargaining *osition) etc!

6n other ords) Fsigni7icant imbalanceF is concerned ith substantive 7airness) hereas Fgood 7aithF relates to *rocedural 7airness!

ubstanti#e unfair

Perenicova v S/S 7inance s*ol sro ;=>"=< Euro*ean Court o7 4ustice held that a practice which consisted in indicating a credit agreement had an )<R lower than the real rate had to be regarded as misleading as li$el" to cause the a#erage consumer to ma$e a contractual decision that he would not otherwise ha#e ta$en! <rocedural fairness 6a#e the effect of binding a consumer to terms he had no real opportunit" of becoming ac5uainted with before the contract as 7ormed! ;i< irrevocably binding the consumer to terms ith hich he had no real opportunit" of becoming ac5uainted before the conclusion of the contract

4airness of the term regarded to sub=ect-matter and ade5uac" that court would not interfere .under substanti#e/ The test of fairness does not appl" to clauses which define the main sub=ect matter of the contract, or the ade5uac" of the price ;reg!-;=<<! This pro#ision ;sub=ect to the plain intelligible language pro#iso< seeks to preser#e the underl"ing ca#eat emptor : ; position in not protecting a part" from the conse5uences of a bad bargain& Paragra*h ;b< above is relatively straight7or ard2the courts are not concerned with the fairness of the price that the consumer has to pa" for the goods or ser#ices& The courts are not #aluers&

in respect of unauthoriKed o#erdrafts within reg& ':,;- /77ice o7 Aair Trading v 1bbey 9ational Plc Commentar"- The two cases are difficult to reconcile on theoretical grounds but can be distinguished on the basis that Director General of 4air Trading # 4irst -ational !an$ concerned a default pro#ision hile later case in#ol#ed ban$ ser#ice issue The plain word .under procedural/ Clauses relating to these matters are sub=ect onl" to the re5uirement of @intelligibilit"@ in reg&+& Regulation + states that all the terms of the contract must be in @plain, intelligible language@& Complex sentence structures, unfamiliar words and legal =argon should all be a#oided& Reg& +:,; of this Regulation effecti#el" incorporates the common law contra proferentem rule) here there is a doubt about the meaning o7 a term it should be interpreted in fa#our of the consumer& -ot onl" that the actual wording of indi#idual clauses or conditions be com*rehensible to consumers) but that the t"pical consumer can understand how the term affects the rights and obligations that he and the seller and supplier ha#e under the contract/77ice o7 Aair Trading v 1bbey 9ational *lc Court also regards an illegible term or one hidden awa" in small print as potentiall" unfair other than onl" the #ocabular" alone- The /77ice o7 Aair Trading The terms were unfair :@onerous and unusual@; and not enforceable despite the fact that the" formed part of the profession-wide standard terms& .plain, therefore fair but become unfair due to significant imbalance/%unkenbeck @ %arshall v (arold

6n assessing un7airness) it a**ears that The (ouse o7 Lords took a restricti#e courts attach signi7icance to hich o7 the interpretation to reg&':,; in Director *arties *ut 7or ard the term! General o7 Aair Trading v Airst 9ational &ank ;=>>"<! Contrast: Consumer cannot complain the nature of the term that heLhis Court held that a pro#ision agent impose the terms- &ryen @ concerning the rate of interest Langley Ltd v &oston ;=>>3< to be paid on a breach of loan agreement neither defined the main sub=ect of the contract Iirecti#e *9L19LEEC, recital 1': Terms nor realisticall" concerned the imposed unilaterall" means that ade5uac" o7 the *rice! seller did not deal fairl" and e5uitabl" with consumer and has failed to consider consumer3s legitimate Similarly it has been held that an interest increase in an estate agent3s commission if the sum was not paid within ten da"s of completion o7 the sale as not a core term within regulation ':,; so that it could be struc$ down b" an application of the unfairness test-JRegulation ':,; must be gi#en a restricti#e interpretationG other ise a coach and horses could be driven through the Regulations ;&airsto Eves London Central Ltd v Smith B=>>0C<

Contrast' Generous interpretationle#"ing N O ban$ charges on personal current account customers

Com*osite test B1rgumentC Lord &inghams re7erence to a 5com*osite testI indicates that he considered that the test is concerned ith both *rocedural and substantive un7airness! Lord Steyn 7elt that the argument that good 7aith as largely concerned ith de7ects in negotiating *rocedures as not sustainable! (e said that any 5*urely *rocedural or even *redominantly *rocedural inter*retation o7 the reEuirement o7 good 7aith must be reKectedI! 1nson vie ' Presume it is not *ossible that core term become un7air term Kust because it is not *lain and intelligible! Contrast ith case above' %unkenbeck @ %arshall v (arold ;=>>3< terms ere un7air ;Fonerous and unusualF< and not en7orceable des*ite the 7act that they 7ormed *art o7 the *ro7ession- ide standard terms! B*lain there7ore 7air but become un7air due to signi7icant imbalanceC This case regarded as un7air due to signi7icant imbalance only! &right) in &urro s @ Peel ;eds<) Contract Terms' level o7 un7airness under one is su77icient to satis7y the other

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