CHAPTER 6

CONTENTS OF A CONTRACT

The previous chapter dealt with how a binding contractual agreement comes to be
formed; this chapter will consider what the parties have actually agreed to do. What
they have agreed to do are the terms of the contract.

6.1 CONTRACT TERMS AND MERE REPRESENTATIONS

As the parties will normally be bound to perform any promise that they have
contracted to undertake, it is important to decide precisely what promises are
included in the contract. Some statements do not form part of a contract, even
though they might have induced the other party to enter into the contract. These
pre-contractual statements are called representations. The consequences of such
representations being false will be considered below (see below, 7.3), but for the
moment, it is sufficient to distinguish them from contractual terms, which are
statements which do form part of the contract. There are four tests for
distinguishing a contractual term from a mere representation:

• Where the statement is of such major importance that the promisee would not
have entered into the agreement without it, then it will be construed as a term.
In Bannerman v White (1861), the defendant wanted to buy hops for brewing
purposes and he asked the plaintiff if they had been treated with sulphur. On
the basis of the plaintiff’s false statement that they had not been so treated, he
agreed to buy the hops. When he discovered later that they had been treated
with sulphur, he refused to accept them. It was held that the plaintiff’s
statement about the sulphur was a fundamental term (the contract would not
have been made but for the statement) of the contract and, since it was not true,
the defendant was entitled to repudiate the contract.
• Where there is a time gap between the statement and the making of the
contract, then the statement will most likely be treated as a representation.
In Routledge v McKay (1954), on 23 October, the defendant told the plaintiff that
a motorcycle was a 1942 model. On 30 October, a written contract for the sale of
the bike was made, without reference to its age. The bike was actually a 1930
model. It was held that the statement about the date was a pre-contractual
representation and the plaintiff could not sue for damages for breach of
contract. However, this rule is not a hard and fast one. In Schawell v Reade
(1913), the court held that a statement made three months before the final
agreement was part of the contract.

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• Where the statement is oral and the agreement is subsequently drawn up in

written form, then its exclusion from the written document will suggest that
the statement was not meant to be a contractual term. Routledge v McKay (1954)
may also be cited as authority for this proposition.
• Where one of the parties to an agreement has special knowledge or skill, then
statements made by them will be terms, but statements made to them will not.
In Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd (1965), the plaintiff
bought a Bentley car from the defendant after being assured that it had only
travelled 20,000 miles since its engine and gearbox were replaced. When this
statement turned out to be untrue, the plaintiff sued for breach of contract. It
was held that the statement was a term of the contract and the plaintiff was
entitled to damages.
In Oscar Chess Ltd v Williams (1957), Williams traded in one car when buying
another from the plaintiffs. He told them that his trade-in was a 1948 model,
whereas it was actually a 1939 model. The company unsuccessfully sued for breach
of contract. The statement as to the age of the car was merely a representation, and
the right to sue for misrepresentation had been lost, due to delay.

6.2 CONDITIONS, WARRANTIES AND INNOMINATE TERMS

Once it is decided that a statement is a term, rather than merely a pre-contractual

representation, it is necessary to determine which type of term it is, in order to
determine what remedies are available for its breach. Terms can be classified as one
of three types.

6.2.1 Conditions

A condition is a fundamental part of the agreement and is something which goes to

the root of the contract. Breach of a condition gives the innocent party the right
either to terminate the contract and refuse to perform their part of it or to go
through with the agreement and sue for damages.

6.2.2 Warranties

A warranty is a subsidiary obligation which is not vital to the overall agreement and
does not totally destroy its efficacy. Breach of a warranty does not give the right to
terminate the agreement. The innocent party has to complete their part of the
agreement and can only sue for damages.
The difference between the two types of term can be seen in the following
cases:

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• In Poussard v Spiers and Pond (1876), the plaintiff had contracted with the
defendants to sing in an opera that they were producing. Due to illness, she
was unable to appear on the first night and for some nights thereafter. When
Mme Poussard recovered, the defendants refused her services, as they had
hired a replacement for the whole run of the opera. It was held that her failure
to appear on the opening night had been a breach of a condition and the
defendants were at liberty to treat the contract as discharged.
• In Bettini v Gye (1876), the plaintiff had contracted with the defendants to
complete a number of engagements. He had also agreed to be in London for
rehearsals six days before his opening performance. Due to illness, he only
arrived three days before the opening night and the defendants refused his
services. On this occasion, it was held that there was only a breach of warranty.
The defendants were entitled to damages but could not treat the contract as
discharged.

The distinction between the effects of a breach of condition as against the effects of
a breach of warranty was enshrined in s 11 of the Sale of Goods Act (SoGA) 1893
(now the SoGA 1979). For some time, it was thought that these were the only two
types of term possible, the nature of the remedy available being prescribed by the
particular type of term concerned. This simple classification has subsequently been
rejected by the courts as being too restrictive, and a third type of term has emerged:
the innominate term.

6.2.3 Innominate terms

In this case, the remedy is not prescribed in advance simply by whether the term
breached is a condition or a warranty, but depends on the consequence of the
breach.
If the breach deprives the innocent party of substantially the whole benefit of the
contract, then the right to repudiate will be permitted, even if the term might
otherwise appear to be a mere warranty.
If, however, the innocent party does not lose the whole benefit of the contract,
then they will not be permitted to repudiate but must settle for damages, even if the
term might otherwise appear to be a condition.
In Cehave v Bremer (The Hansa Nord) (1976), a contract for the sale of a cargo of
citrus pulp pellets, to be used as animal feed, provided that they were to be
delivered in good condition. On delivery, the buyers rejected the cargo as not
complying with this provision and claimed back the price paid from the sellers. The
buyers eventually obtained the pellets when the cargo was sold off and used them
for their original purpose. It was held that, since the breach had not been serious,
the buyers had not been free to reject the cargo and the sellers had acted lawfully in
retaining the money paid.

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Not all judges are wholly in favour of this third category of term, feeling that, in
the world of commerce, certainty as to the outcome of breach is necessary at the
outset and should not be dependent on a court’s findings after breach has occurred
(see Bunge Corp v Tradax Export SA (1981)).

6.3 IMPLIED TERMS

So far, all of the cases considered have involved express terms: statements actually
made by one of the parties, either by word of mouth or in writing. Implied terms,
however, are not actually stated, but are introduced into the contract by implication.
Implied terms can be divided into three types.

6.3.1 Terms implied by statute

For example, under the SoGA 1979, terms relating to description, quality and fitness
for purpose are all implied into sale of goods contracts. (For consideration of these
implied terms, see below, 9.2.4.)

6.3.2 Terms implied by custom

An agreement may be subject to customary terms not actually specified by the

parties. For example, in Hutton v Warren (1836), it was held that customary usage
permitted a farm tenant to claim an allowance for seed and labour on quitting his
tenancy. It should be noted, however, that custom cannot override the express terms
of an agreement (Les Affréteurs Réunis v Walford (1919)).

6.3.3 Terms implied by the courts

Generally, it is a matter for the parties concerned to decide the terms of a contract,
but, on occasion, the court will presume that the parties intended to include a term
which is not expressly stated. They will do so where it is necessary to give business
efficacy to the contract.
Whether a term may be implied can be decided on the basis of the ‘officious
bystander’ test. Imagine two parties, A and B, negotiating a contract. A third party,
C, interrupts to suggest a particular provision. A and B reply that that particular
term is understood. In such a way, the court will decide that a term should be
implied into a contract.
In The Moorcock (1889), the appellants, the owners of a wharf, contracted with the
respondents to permit them to discharge their ship at the wharf. It was apparent to
both parties that, when the tide was out, the ship would rest on the river bed. When
the tide was out, the ship sustained damage by settling on a ridge. It was held that

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there was an implied warranty in the contract that the place of anchorage should be
safe for the ship. As a consequence, the shipowner was entitled to damages for
breach of that term.

6.4 THE PAROL EVIDENCE RULE

If all the terms of a contract are in writing, then there is a strong presumption that
no evidence supporting a different oral agreement will be permitted to vary those
terms.
In Hutton v Waiting (1948), on the sale of a business, together with its goodwill,
a written agreement was drawn up and signed by the vendor. In an action to
enforce one of the clauses in the agreement, the vendor claimed that it did not
represent the whole contract. It was held that the vendor was not entitled to
introduce evidence on this point, as the written document represented a true
record of the contract.
The presumption against introducing contrary oral evidence can be rebutted,
however, where it is shown that the document was not intended to set out all of the
terms agreed by the parties.
In Re SS Ardennes (1951), a ship’s bill of lading stated that it might proceed by
any route directly or indirectly. The defendants promised that the ship would
proceed directly to London from Spain with its cargo of tangerines. However, the
ship called at Antwerp before heading for London and, as a result, the tangerines
had to be sold at a reduced price. The shippers successfully sued for damages, as it
was held that the bill of lading did not constitute the contract between the parties
but merely evidenced their intentions. The verbal promise was part of the final
contract.
The effect of the parol evidence rule has also been avoided by the willingness
of the courts to find collateral contracts which import different, not to say
contradictory, terms into the written contract. An example of this may be seen in
City and Westminster Properties (1934) Ltd v Mudd (1959), where, although the
written contract expressly provided that the defendant had no right to live on
particular premises, the court recognised the contrary effect of a verbal collateral
contract to allow him to do so. In return for agreeing to sign the new lease, the
tenant (who had previously resided on the premises) was promised that he
could continue to do so, despite the term of the new lease. Thus both parties
provided consideration to support the collateral contract. (See, further, above,
5.6, for the use of collateral contracts to avoid the strict operation of the doctrine
of privity.)
City and Westminster v Mudd at least suggests that the courts will find justification
for avoiding the strict application of the parol evidence rule where they wish to do
so. On that basis, it has been suggested that it should be removed from contract law
entirely. Interestingly, however, a Law Commission Report (No 154) took the

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opposite view, stating that there was no need to provide legislation to remove the
rule, as it was already a dead letter in practice.

6.5 EXEMPTION OR EXCLUSION CLAUSES

In a sense, an exemption clause is no different from any other clause, in that it seeks
to define the rights and obligations of the parties to a contract. However, an
exemption clause is a term in a contract which tries to exempt, or limit, the liability
of a party in breach of the agreement. Exclusion clauses give rise to most concern
when they are included in standard form contracts, in which one party, who is in a
position of commercial dominance, imposes their terms on the other party, who has
no choice (other than to take it or leave it) as far as the terms of the contract go. Such
standard form contracts are contrary to the ideas of consensus and negotiation
underpinning contract law; for this reason, they have received particular attention
from both the judiciary and the legislature, in an endeavour to counteract their
perceived unfairness. A typical example of a standard form agreement would be a
holiday booking, made on the terms printed in a travel brochure.
The actual law relating to exclusion clauses is complicated by the interplay of the
common law, the Unfair Contract Terms Act (UCTA) 1977 and the various Acts
which imply certain terms into particular contracts. However, the following
questions should always be asked with regard to exclusion clauses:

• has the exclusion clause been incorporated into the contract?;

• does the exclusion clause effectively cover the breach?;
• what effect do UCTA 1977 and the Unfair Terms in Consumer Contracts
Regulations 1999 have on the exclusion clause?

6.5.1 Has the exclusion clause been incorporated into the contract?

An exclusion clause cannot be effective unless it is actually a term of a contract. There

are three ways in which such a term may be inserted into a contractual agreement.

By signature

If a person signs a contractual document, then they are bound by its terms, even if
they do not read it.
In L’Estrange v Graucob (1934), a café owner bought a vending machine, signing a
contract without reading it, which took away all her rights under the SoGA 1893.
When the machine proved faulty, she sought to take action against the vendors, but
it was held that she had no cause of action, as she had signified her consent to the
terms of the contract by signing it and the exclusion clause effectively exempted
liability for breach.

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The rule in L’Estrange v Graucob may be avoided where the party seeking to rely
on the exclusion clause misled the other party into signing the contract (Curtis v
Chemical Cleaning and Dyeing Co (1951)).

By notice

Apart from the above, an exclusion clause will not be incorporated into a contract
unless the party affected actually knew of it or was given sufficient notice of it. In
order for notice to be adequate, the document bearing the exclusion clause must
be an integral part of the contract and must be given at the time that the contract
is made.
In Chapelton v Barry UDC (1940), the plaintiff hired a deck chair and received a
ticket, which stated on its back that the council would not be responsible for any
injuries arising from the hire of the chairs. After he was injured when the chair
collapsed, Chapelton successfully sued the council. It was held that the ticket was
merely a receipt, the contract already having been made, and could not be used
effectively to communicate the exclusion clause.
In Olley v Marlborough Court Hotel Ltd (1949), a couple arrived at a hotel and
paid for a room in advance. On reaching their room, they found a notice
purporting to exclude the hotel’s liability in regard to thefts of goods not handed
in to the manager. A thief later stole the wife’s purse. It was held that the hotel
could not escape liability, since the disclaimer had only been made after the
contract had been formed.
The notice given must be sufficient for the average person to be aware of it; if it
is sufficient, it matters not that this contracting party was not aware of it. In
Thompson v LM & S Rly (1930), a woman who could not read was bound by a
printed clause referred to on a railway timetable and ticket because the average
person could have been aware of it.
Whether the degree of notice given has been sufficient is a matter of fact, but, in
Thornton v Shoe Lane Parking Ltd (1971), it was stated that the greater the exemption,
the greater the degree of notice required.
In Interfoto Picture Library Ltd v Stiletto Programmes Ltd (1988), the Court of
Appeal decided that a particular clause was not to be considered as imported
into a contract, even though it had been available for inspection before the
contract was entered into. The clause in question sought to impose almost £4,000
liability for any delay in returning the photographic negatives which were the
subject of the contract. It was held, following Thornton v Shoe Lane Parking Ltd,
that this penalty was so severe that it could not have been fairly brought to the
attention of the other party by indirect reference; it required notification in the
most explicit way. This is sometimes referred to as the red ink or red hand
principle and was recently re-examined in relation to scratch cards in O’Brien v
MGN Ltd (2001).

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By custom

Where the parties have had previous dealings on the basis of an exclusion clause,
that clause may be included in later contracts (Spurling v Bradshaw (1956)), but it
has to be shown that the party affected had actual knowledge of the exclusion
clause.
In Hollier v Rambler Motors (1972), on each of the previous occasions that the
plaintiff had had his car repaired at the defendants’ garage, he had signed a form
containing an exclusion clause. On the last occasion, he had not signed such a form.
When the car was damaged by fire through negligence, the defendants sought to
rely on the exclusion clause. It was held that there was no evidence that Hollier had
been aware of the clause to which he had been agreeing and, therefore, it could not
be considered to be a part of his last contract.

6.5.2 Does the exclusion clause effectively cover the breach?

As a consequence of the disfavour with which the judiciary have looked on

exclusion clauses, a number of rules of construction have been developed which
operate to restrict the effectiveness of exclusion clauses. These include the
following:

• The contra proferentem rule

This requires that any uncertainties or ambiguities in the exclusion clause be
interpreted against the meaning claimed by the person seeking to rely on it.
In Andrews v Singer (1934), the plaintiffs contracted to buy some new Singer
cars from the defendant. A clause excluded all conditions, warranties and
liabilities implied by statute, common law or otherwise. One car supplied was
not new. It was held that the requirement that the cars be new was an express
condition of the contract and, therefore, was not covered by the exclusion
clause, which only referred to implied clauses.
In Hollier v Rambler (1972), it was stated that, as the exclusion clause in
question could be interpreted as applying only to non-negligent accidental
damage or, alternatively, as including damage caused by negligence, it should
be restricted to the former, narrower interpretation. As a consequence, the
plaintiff could recover for damages caused to his car by the defendants’
negligence.
A more recent example of the operation of the contra proferentem rule may be
seen in Bovis Construction (Scotland) Ltd v Whatlings Construction Ltd (1995). The
details of the contract between the two parties were based on a standard form
and a number of letters. One of the letters introduced a term which limited the
defendants’ liability in respect of time related costs to £100,000. The plaintiffs
terminated the contract on the basis of the defendants’ lack of diligence in

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carrying out the contracted work. When they subsequently sued for £2,741,000,
the defendants relied on the limitation clause. The House of Lords decided that,
as the defendants had introduced the limitation clause, it had to be interpreted
strictly, although not as strictly as a full exclusion clause. It was held that the
term ‘time related costs’ applied to losses arising as a consequence of delay in
performance, and not non-performance. The defendants had been guilty of the
latter and were, therefore, fully liable for the consequences of their repudiatory
breach.
• The doctrine of fundamental breach
In a series of complicated and conflicting cases, ending with the House of
Lords’ decision in Photo Production v Securicor Transport (1980), some courts
attempted to develop a rule that it was impossible to exclude liability for
breach of contract if a fundamental breach of the contract had occurred,
that is, where the party in breach had failed altogether to perform the
contract.
In Photo Production v Securicor Transport, the defendants had entered into a
contract with the plaintiffs to guard their factory. An exclusion clause
exempted Securicor from liability, even if one of their employees caused
damage to the factory. Later, one of the guards deliberately set fire to the
factory. Securicor claimed the protection of the exclusion clause. It was
ultimately decided by the House of Lords that whether an exclusion clause
could operate after a fundamental breach was a matter of construction.
There was no absolute rule that total failure of performance rendered such
clauses inoperative. The exclusion clause in this particular case was wide
enough to cover the events that took place, and so Photo Production’s action
failed.

6.5.3 What effect does UCTA 1977 have on the exclusion clause?

This Act represents the statutory attempt to control exclusion clauses. In spite of its
title, it is really aimed at unfair exemption clauses, rather than contract terms
generally. It also covers non-contractual notices which purport to exclude liability
under the Occupiers’ Liability Act 1957. The controls under UCTA 1977 relate to two
areas:

• Negligence
There is an absolute prohibition on exemption clauses in relation to liability in
negligence resulting in death or injury (ss 2 and 5). Exemption clauses relating
to liability for other damage caused by negligence will only be enforced to the
extent that they satisfy the requirement of reasonableness (s 5).

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In Smith v Bush (1989), the plaintiff bought a house on the basis of a valuation
report carried out for her building society by the defendant. The surveyor had
included a disclaimer of liability for negligence in his report to the building
society and sought to rely on that fact when the plaintiff sued after the
chimneys of the property collapsed. The House of Lords held that the
disclaimer was an exemption clause and that it failed the requirement that such
terms should be reasonable.
• Contract
The general rule of the Act (s 3) is that an exclusion clause imposed on a
consumer (as defined in s 12(1)) or by standard terms of business is not
binding unless it satisfies the Act’s requirement of reasonableness. Effectively,
therefore, the Act is dealing with clauses imposed by a person acting in the
course of business. Section 12(1) states that a person deals as a consumer (so
that he does not act in the course of business) if he neither makes the contract in
the course of business nor holds himself out as so doing and the other party
does make the contract in the course of business. Additionally, where goods
are supplied under the contract, they must be of a type normally supplied for
private consumption and they must be so used. The precise meaning of
‘acting in the course of business’ for the purposes of UCTA 1977 was
considered in R & B Customs Brokers Co Ltd v UDT (1988). In deciding that the
sellers of a car to a company could not rely on an exclusion clause contained
in the contract, as the transaction had not been in the course of business, the
Court of Appeal stated that the purchase had been:

…at highest, only incidental to the carrying on of the relevant business

[and]…a degree of regularity is required before it can be said that they are an
integral part of the business carried on and so entered into in the course of
business.

In reaching this decision, the Court of Appeal followed the House of Lords’
decision in Davies v Sumner (1984), which dealt with a similar provision in the
Trade Descriptions Act 1968. It would seem, however, that the meaning of
selling ‘in the course of business’ for the purposes of s 14 of the SoGA 1979 is
different. Section 14, which implies conditions of satisfactory quality and
fitness for purpose into contracts for the sale of goods (see Chapter 9), applies
where the seller ‘sells in the course of business’. The meaning of selling ‘in the
course of business‘ under s 14 of the SoGA 1979 is wide enough to cover
incidental sales by, for example, the professions, local and central government
departments and public authorities. The meaning of selling ‘in the course of
business’ in the context of s 14 was examined in Stevenson v Rogers (1999).
UCTA 1977 applies more specific rules to contracts for the sale of goods; which
rules apply depends on whether the seller sells to a person ‘dealing as a
consumer’ (as defined in s 12(1) of UCTA 1977; such sales are commonly

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referred to as ‘consumer sales’). Under s 6 (1) of UCTA 1977, the implied term
of s 12 (1) of the SoGA 1979 (transfer of title) cannot be excluded in consumer or
non-consumer sales.
The other implied terms, namely, those as to description, fitness, satisfactory
quality and sample, cannot be excluded in a consumer contract (s 6 (2)); and, in
a non-consumer transaction, any restriction is subject to the requirement of
reasonableness (s 6 (3)). Under s 7, similar rules apply to other contracts under
which goods are supplied (for example hire contracts) by virtue of the Supply
of Goods and Services Act 1982. Amendments to UCTA 1977, in so far as its
provisions apply to contracts for the sale and supply of goods, are proposed by
the Sale and Supply of Goods to Consumers Regulations 2002. These proposed
amendments are dealt with in Chapter 9.
Indemnity clauses are covered by s 4 of UCTA 1977. These are provisions in
contracts by means of which one party agrees to compensate the other for any
liability incurred by them in the course of carrying out the contract. Although
these may be legitimate ways of allocating risk and insurance responsibilities in
a commercial context, they are of more dubious effect in consumer transactions
and are, therefore, required to satisfy the requirement of reasonableness.
‘The requirement of reasonableness means fair and reasonable…having
regard to the circumstances…[s 11].’ Schedule 2 to UCTA 1977 provides
guidelines for the application of the reasonableness test in regard to non-
consumer transactions, but it is likely that similar considerations will be taken
into account by the courts in consumer transactions. Amongst these
considerations are:

¦ the relative strength of the parties’ bargaining power;

¦ whether any inducement was offered in return for the limitation on
liability;
¦ whether the customer knew, or ought to have known, about the existence
or extent of the exclusion;
¦ whether the goods were manufactured or adapted to the special order of
the customer.

In George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd (1983), the respondents
planted 63 acres with cabbage seed, which was supplied by the appellants. The
crop failed, due partly to the fact that the wrong type of seed had been supplied
and partly to the fact that the seed supplied was of inferior quality. When the
respondents claimed damages, the sellers relied on a clause in their standard
conditions of sale, which limited their liability to replacing the seeds supplied
or refunding payment. It was held, however, that the respondents were entitled
to compensation for the loss of the crop. The House of Lords decided that,

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although the exemption clause was sufficiently clear and unambiguous to be

effective at common law, it failed the test of reasonableness under UCTA 1977.
In Watford Electronics Ltd v Sanderson CFL Ltd (2001), a contract between two
businesses for the purchase of integrated software systems stated that:

¦ the parties agreed no pre-contractual representations had been made;

¦ liability for indirect/consequential loss was excluded;
¦ liability for breach of contract was limited to the contract price of £104,596.

The system was unsatisfactory and the buyer claimed damages for breach of
contract, misrepresentation and negligence, totalling (including loss of
expected profits) £5.5 million. The seller sought to rely on the clauses to limit/
escape liability; the buyer alleged that they were unreasonable under UCTA
1977. The Court of Appeal held that the clauses were reasonable because the
contract was negotiated between two experienced businesses, both of which
(on the facts) were of equal bargaining strength.
It is likely that many of the situations in the cases considered under the
common law prior to UCTA 1977 would now be decided under that Act. It is
still important, however, to understand the common law principles, for the
very good reason that UCTA 1977 does not apply in many important situations.
Amongst these are transactions relating to insurance; interests in land; patents
and other intellectual property; the transfer of securities; and the formation of
companies or partnerships.

6.5.4 The Unfair Terms in Consumer Contracts Regulations

The first Unfair Terms in Consumer Contracts Regulations were enacted in

December 1994 (SI 1994/3159). They were introduced to implement the
European Unfair Contract Terms Directive (93/13/EEC). Those original
Regulations were repealed and replaced by the current Regulations (SI 1999/
2083), which came into effect on 1 October 1999. The new Regulations are
intended to reflect closely the wording of the original, but they also introduce
significant alterations.
It has to be stated that there was some criticism that the previous Regulations
merely introduced the Directive, without engaging in a comprehensive review of
this area. Concern was expressed as to the precise way in which UCTA 1977 and the
1994 Regulations impacted on one another and how their interaction would affect
consumer law generally. Unfortunately, the new Regulations have done nothing to
improve this general problem and, in this particular respect, the criticisms of the
1994 Regulations are still relevant.
The 1999 Regulations apply to any term in a contract concluded between a
seller or supplier and a consumer which has not been individually negotiated.

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The Regulations are, therefore, wider in scope than UCTA 1977, in that they cover
all terms, not just exclusion clauses. However, reg 6(2) states that, apart from the
requirement in respect of plain language, neither the core provisions of a
consumer contract, which set out its main subject matter, nor the adequacy of the
price paid are open to assessment in terms of fairness. The Regulations would,
therefore, still appear to focus on the formal procedure through which contracts
are made, rather than the substantive content of the contract in question.
By virtue of reg 5, a term is unfair if, contrary to the requirements of good faith,
it causes a significant imbalance in the parties’ rights and obligations arising under
the contract, to the detriment of the consumer. Schedule 2 sets out a long, indicative,
but non-exhaustive, list of terms which may be regarded as unfair. Examples of
terms included in this list are: a term which excludes or limits liability in the event
of the supplier or seller causing the death or injury of the consumer;
inappropriately excluding or limiting the legal rights of the consumer in the event
of total or partial non-performance or inadequate performance; a term requiring any
consumer who fails to fulfil his obligations to pay a disproportionately high sum in
compensation; and a term enabling the seller or supplier to alter the terms of the
contract unilaterally without a valid reason which is specified in the contract.
Any such term as outlined above will be assumed to be unfair and, under reg 8,
if a term is found to be unfair, it will not be binding on the consumer, although the
remainder of the contract will continue to operate if it can do so after the excision of
the unfair term.
Two further provisions of the Regulations which are worthy of mention have
been taken from the previous Regulations. First, there is the requirement that all
contractual terms be in plain, intelligible language and that, when there is any
doubt as to the meaning of any term, it will be construed in favour of the
consumer (reg 7). This is somewhat similar to the contra proferentem rule in English
common law.
Secondly, although the Regulations will be most used by consumers to defeat
particular unfair terms, regs 10–12 give the Director General of Fair Trading the
power to take action against the use of unfair terms by obtaining an injunction to
prohibit the use of such terms. However, the power of the Director General to seek
injunctions to control unfair contract terms has been extended to other qualifying
bodies. These qualifying bodies are listed in Sched 1 to the Regulations and include
the various regulatory bodies controlling the previous public utilities sector of the
economy, the Data Protection Registrar and every weights and measures authority
in Great Britain.
Various aspects of the original Regulations, which have implications for the
current Regulations, have been examined by the House of Lords in Director General
of Fair Trading v First National Bank (2001).

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