Unfair Contract Terms – draft bill published

The current law on unfair contract terms is hard to understand because it is contained in two different but overlapping pieces of legislation: the Unfair Contract Terms Act 1977 and Unfair Terms in Consumer Contracts Regulations 1999. The report says that both of these are unnecessarily complicated, sometimes obscure and occasionally inconsistent.

The draft bill is intended to re-write the existing law into a single, clear and accessible statute, while plugging some gaps in consumer protection. In particular the draft bill:

• Will cover the whole range of terms currently covered by the Regulations. (The Act is limited to contractual terms such as exclusion clauses);
• Will continue to hold that terms limiting liability for death or personal injury, or excluding basic undertakings about quality or fitness of goods are ineffective;
• Will cover negotiated clauses as well as standard clauses; and
• Provides that in claims brought by consumers, the burden of proof lies on the business to show that the term is fair.

The draft bill also includes amendments that give more protection to vulnerable small businesses.

It focuses in particular on firms with nine or fewer staff, in transactions that are not so large that the small business would get legal advice, and which are not already regulated, for example, by the Financial Services Authority.

Professor Joseph Thomson, Commissioner at the Scottish Law Commission, said:

"Currently, small businesses are not protected against many types of unfair term – for instance, terms which require them to indemnify another business for losses which are not their fault or which allow the other business to terminate the contract for the slightest infringement."

"Our recommendations will give small businesses more power to challenge unfair standard terms and should encourage fairer contracts," he added.